Double-digit demand growth very feasible in power sector: Subhash Chandra Garg
August data maybe a temporary blip on account of the enforcement of the payment mechanism.
Just analysing the August data indicates quite a significant slowdown as far as the power sector supply growth is concerned. What according to you has caused this slowdown in August because trends were pretty encouraging till July?
The power sector demand has been growing reasonably well. If you look at the last two, three years’ data, even for the first four months until July, the power supply which matches the demand was up 5-6%. What might be visible in August data maybe a temporary blip on account of the enforcement of the payment mechanism. It lead to every buyer, that is the state electricity utilities, providing us or the suppliers with the letter of credit. That might have subdued demand a little bit but that has brought discipline into the system and this would give rise to a standing demand increase in times to come.
As you would appreciate, unless the power is paid for, the suppliers would not be in a position to supply in times to come and this temporary adjustment in way of discipline augurs well for a much more stable rise in power demand.
What do you make of this drop in electricity demand and this is the Government of India data for August. Is it something structural? Is it largely because of rains or is that pure demand?
That is what I was explaining. So this is one reason, secondly the rains also cooled demand including agriculture demand. There was a temporary sort of disruption in a couple of plants here and there on account of coal and all these would have brought down demand very marginally in August.
I am sure from the next month onward, we will have reasonably good demand. In fact, the power sector is set to have a much higher rise in demand if we can get the payment system problem sorted out in the power sector. If there is an assurance of payment being made and there is also an assurance of coal being available as much as needed, the power sector will be set for a much higher growth in demand.
We have not seen any kind of relief with regards to the entire situation with discoms. Losses are mounting significantly. While they have been stringent against discoms in terms of various measures that have been undertaken, how can we see losses reverse?
There are a couple of major initiatives; one is the enforcement of the payment security mechanism. Every utility has been mandated and practically all the utilities have provided the letters of credit which assures that the payment would be made.
What we are looking forward to as the spin-off or the positive impact to this enforcement is that this would force all the state utilities to look at finding permanent means of making payment. The emergence of arrears in the system of non-payment of power bills was the cause for a lot of anxiety to the suppliers and they were apprehending that if this situation continues, they would not get paid and they will not be able to pay to their suppliers. Also, they will not be able to produce power. I am waiting for the state utilities now to get their act together and bring down or eliminate deficit which exists in the power sector balance sheets, so to say. They take measures to collect full power payments, they also take measures that whatever is to be subsidised by the governments is subsidised and paid for and therefore they have payments to make to the suppliers. If that assurance comes, there would be a very good response from the suppliers.
The second thing which is being contemplated what sometimes people refer as UDAY-2 is a package which is being drafted where reforms in the power sector would mean more and more privatisation franchisee arrangements where distribution and supply have separated into the wires and the supply business and more and more private sector entities are being brought in. This would ensure not only the efficiency loss reduction but also the collection of payment.
In parallel sectors let like mobile and elsewhere, one does not see this problem at all of non-collection of bills. It is a very cash rich business. The reform package which is coming in will be very helpful in addressing the situation in this sector. Lastly, a lot of measures are being taken to improve coal supply.
Coal is the mainstay of our power generation, yet we do not have sufficient coal to produce as much energy as we can. Our private sector entities are importing coal and that problem needs to be resolved. We should create a situation where there is surplus situation in coal supply rather than the deficit which requires a lot of other arrangements to be done and adjustments to be made. Lots of measures have been taken. 100% FDI has been allowed. Very soon, the coal ministry is expected to bring bids for not only 25% sale but also 100% commercial mining business. If all these things are done, I see a very steady growth. As I said earlier, a double digit demand growth is is very feasible in power sector.
The power and finance ministries are in advance talks for the merger of smaller power companies with NTPC and NHPC. Names being considered are THDC, SJVN as well as NEEPCO?
The finance minister has announced that in the CPSUs, the government holding can be brought down to less than 51%, provided management control is retained. So that is one thing.
Second is the merger of similar entities or smaller entities into the larger entities. Last year, in the power sector you witnessed acquisition of REC by PFC. The next logical step in that direction is to consider the merger and so all these three things -- bringing down equity without losing management control below 51%, mergers of like-minded and like business entities and smaller entities, all have been discussed debated and examined. Appropriate decisions would be taken in due course.
What is your assessment of the demand-supply situation currently?
One way to describe these phenomena of surplus and deficit, is to talk in terms of peak demand. Is the system able to meet the peak demand everywhere and is there any load shedding? Our peak demand was about 1,86,000 megawatt a couple of weeks back. The system demand during the last two months is somewhat less than that, in the range of about 1,75,000 megawatt to about 1,80,000 megawatt. This is being fully met.
The incidences of load shedding are very small. They are also localised at best. In 27 or 28 states out of 29, there is no load shedding. The entire peak demand in those states are being met and in one or two states, there has been some small deficit, half a per cent of the total demand. That also is due to more local reasons.
The power sector at this moment can be said to be meeting the demand fully. However, I must say that to some extent there is some suppression of demand in the power sector. Electricity use is very much liked by the consumers. They would like to consume the energy in the form of electricity in whichever way -- lighting, cooling or otherwise and there is so much of demand which is still unmet for cooling segments.
Much more demand going to come in the EV vehicle segment, air conditioning and cooling. Even for cooking and other things, there is much more unsatisfied demand. That would be possible to be met with fresh investments and our system will require much more investment in all kinds of activities -- generation, transmission and distribution.
There is no shortage but in terms of what can be the potential demand and real demand in the segment, if we remove the constraints in the system, probably there is much more scope for meeting that.