Addressing India’s energy woes

In view of the Government’s thrust on renewable energy, PV Ramesh, CMD, Rural Electrification Corporation Limited, speaks to The Pioneer about how this sector is set to reach new heights

How is the demand in the power sector panning out? Is there a vertical upsurge in the demand on ground?

The Indian economy has emerged as an engine for global growth, with key focus of the Government on structural reforms and fiscal consolidation. The path ahead for India’s power sector holds great promise. As per estimates by the Central Electricity Authority, electrical energy requirement is expected to grow by 37 per cent in a span of five years to 1,566 billion units by the financial year 2021-22. The Union Government and the State Governments are committed to securing universal, affordable, accessible, 24x7 quality power for all. Further, the Government’s flagship programmes like, the Deen Dayal Upadhyaya Gram Jyoti Yojana, Integrated Power Development Scheme and Ujwal DISCOM Assurance Yojana have catalysed the process for unprecedented investment in the distribution infrastructure, that is likely to result in improved distribution efficiency, reduce supply-demand dissonance, decrease technical and commercial losses, improve revenue realisation and establish technologically sophisticated smart distribution network.

The Union Government’s thrust on renewable energy is likely to increase the penetration of electricity in the country, thereby driving the demand upwards. Above all, emerging technologies like power storage devices, electric vehicles, energy saving devices, smart transmission and distribution systems, etc, are opening new vistas for business expansion. As such, we believe that there will be robust growth in the demand for power in the years to come.

Net Interest Margin and Profit After Tax have declined over eight  per cent. What led to the decline in your net interest income?

Our net interest margins and profit after tax for the Quarter 1 Financial Year 2018 was 4.39 per cent and Rs 1,301 crore respectively. Our current yield on loan assets has moderated by 83 bps to 11.08 per cent in line with the prevailing market scenario, as we price our loan competitively, especially in the renewable energy segment. This is partially compensated by decrease in our cost of borrowings which has come down by 46 bps to 7.98 per cent. This has mainly resulted in decline in our Net Interest Income. However, going forward, with the lending rates firming up and the cost of borrowing coming down, we do not anticipate any significant impact on our financial position.

What is the gamut of financial services that Rural Electrification Corporation offers? And how  will it help the entities across the power sector value chain?

We offer a wide range of products to finance the needs of the power sector throughout the country by providing funding assistance for power generation, transmission and distribution projects. Under the transmission and distribution network of the country, we play an active role in creation  of new infrastructure and improving the existing ones to reduce the Aggregate Technical & Commercial losses, modernise the distribution system and achieve the Union Government’s objective to provide power for all. Our technical specifications and construction standards are used extensively by State power utilities and we are looking for innovations using research and development in the field of power distribution to promote new technologies. 

What are your future plans?

Rural Electrification Corporation has a strong foothold in its existing area of operations of financing the entire power sector value chain. We are also exploring avenues for diversification, such as financing power equipment manufacturing, debt syndication, fee-based project appraisal for other financial institutions, line of credit for large renewable energy projects and manufacturers of electric vehicles, storage and charging infrastructure, and so on.

A holistic strategic planning activity is currently underway in the organisation to chalk out the strategy and action plan for the future. It covers assessment of business environment and emerging trends, risks and opportunities across the power sector value chain and allied sectors, key policy developments and their implications for the sector’s dynamics etc. The activity also covers business process re-engineering and operational improvements in various functional areas. The aim of this exercise is to maximise the returns to the stakeholders of the company on a sustainable basis.

You have ambitious plans for the future. How do you plan to mobilise the funds to achieve the plans?

Rural Electrification Corporation enjoys the domestic credit rating of ‘AAA’, the highest rating assigned by  Credit Rating Information Services of India Limited, CARE, India Ratings  and Research and ICRA-Credit Rating Agencies. It also enjoys international credit rating equivalent to sovereign rating of India from Moody’s and FITCH which is ‘Baa3’ and ‘BBB’ respectively. Accordingly, we are able to borrow funds from the market at the most competitive rates. We plan to mobilise the funds to meet our growth plans in future through a mix of domestic and foreign currency instruments.

Are you looking at financing alternative, renewable sources to generate power?

The Union Government has launched an ambitious capacity addition target of 175 GW of renewables by 2022 and Rural Electrification Corporation is looking to expand and contribute towards this objective, by lending at affordable rates to the developers to establish their plants.

How fast is the sector expanding?

The capacity addition target is very huge and ambitious, but attainable with best efforts of all the stake holders concerned. It is growing at a rapid pace and Rural Electrification Corporation is poised to grow along with the sector in rural electrification financing.

Do you plan to reduce the dependence on conventional sources of energy? Is it possible to switch over completely to renewables? And how soon?

Complete switching to any one particular source of energy is not always practical and both conventional and non-conventional sources shall be complementing rather than competing against each other. Each has their own advantages and disadvantages and the right balance of both in the portfolio is very important.

Comptroller and Auditor General (CAG) report says that REC miscalculated tariff. What are you doing to tackle this issue for the future?

The CAG in their report on ‘Loans to Independent Power Producers by REC and Power Finance Corporation’ highlighted certain issues, including tariff projections. It may be mentioned that observations of the CAG in the report was not only pertaining to REC but common for both PFC and REC. CAG, in many places of the report appreciated REC. Further, the report is of recommendatory in nature and REC has already taken various measures to address the issues. Moreover, the REC has appointed a consultant from big 4 to review the existing financing guidelines in line with the issues raised by CAG so as to improve the guidelines which includes revised methodology for the calculation of tariff.

Even as REC has reached out to most of the villages, almost 4,000 are left. How will you provide electricity to all the unelectrified villages in the country? And are you sure you will complete your target by early 2018 as you had said?

Since the Prime Minister’s 69th Independence Day address, where he pledged that all the un-electrified villages in the country would be electrified within 1,000 days, the Ministry of Power along with REC has taken up the task on mission mode. On April 1, 2015, there were 18,452 un-electrified villages in the country. Since then, various measures have been taken for expediting the electrification of these villages which include development of a dedicated web portal (www.garv.gov.in), deployment of engineers at field level to monitor, upload/update field conditions in the web portal, monthly intensive review by the Ministry of Power with states/DISCOMs, and nomination of nodal officers at state level by the Ministry of Power and REC. Moreover, wherever conventional grid connectivity is not feasible, villages are being electrified through off-grid solutions.

Till September 2017, 14,416 villages have been electrified and 987 villages are found to be uninhabited, leaving 3,049 villages left to be electrified. It should be noted that electrification of the remaining villages is fraught with challenges as they are located in far flung areas with hilly terrain, LWE affected areas and forest area. These villages are in pipeline for electrification through off- grid solutions. States/DISCOMs are making sincere efforts to electrify all of the un-electrified villages by May 2018.

Source- The Pioneer