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Feature | May 2016

Land valuations hit green field power projects

MS Unnikrishnan | Managing Director and Chief Executive Officer, Thermax Ltd

What are the major challenges that are dampening the BTG sector?

The major blow to the sector was the government´s inability to pass the Land Acquisition Bill. In the current scenario, it is impractical to put up a power plant as the land value is at a much higher level. In the urban area, it costs four times more and in the rural it is higher by two times. It is not an attractive proposition to set up a green field power project. This had made the IPPs to resort to a cautious approach. I would like to talk about the electrical market/ power sector as a whole rather than singling out BTG segment. The above events have a spiralling effect. Because of this manufactures are also under stress. So land acquisition, funding issues, equipment supply deficit etc., continue to plague the sector.

Some of the major issues like fuel connectivity and distribution network have been addressed to a greater extent in the last one year. Elaborate on the effect of this?
Factors that affect the growth or the pace of the power sector are the following:
a) Decrease in interest rate between 1- 1.5%
b) Increase in fuel supply as mining by Coal India has gone up, and
c) At the same time cost of imported coal coming down because of the global factors
These are good signals, however, stringent pollution control norms brought in by the Ministry of Environment will easily increase the power plant cost by Rs.1-1.5 crore. India signing the agreement of the twenty-first session of the Conference of the Parties (COP or Paris Summit) is being watched. If 55 countries sign the pact, then it becomes mandatory for Indian companies to follow the norms. That means there is a scare in the global market about funding the coal-fired power plants. In addition, as discussed earlier, land acquisition problems put together, are causing major hurdles for the sector.

Your take on the way forward?
As the economy picks up, the utilities´ capacity will also revive. That may take 2-3 years time from now. So, I see the demand picking up say from 2019 onwards. I would call this as the ´Years of lost opportunity for India´. Capacity utilisation is at a low level, Wholesale Price Index (WPI) is in the negative, steel production is at the base level, consumer goods is stagnant, auto segment is also at a lower level. What I feel, with the implementation of the 7th Pay Commission recommendations, the purchasing power will go up and that will result in demand going up. For electricity, we are not in a recessionary mode. The demand-supply gap can widen as and when the economy picks up. So, for the electrical equipment segment, I see improvement from 2019.

What has changed for BTG market?
There is no perceptible change in the power equipment market. However, post the bulk tendering of NTPC in the recent past, BTG orders for those projects are happening. Barring that, there are no orders from any IPPs. There is a high level of uncertainty and that is reflected in the balance sheets of companies. The non-recovery of power sector funding added stress to the banking system and that still continues. The inability of the banking sector to fund power projects is a major concern. Delays in recovery, sectoral lending cap, clarity in policy etc., requires immediate attention. Once these are sorted out, the take-off will accelerate.

- Renjini Liza Varghese

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