Privatisation has done wonders for sectors like pharma, telecom and auto. Can we expect the scenario of power to change as dramatically in the coming years with increasing privatisation? B&E elaborates on some of the most critical circuit breakers en route
In 2007, when Anil Ambani was announcing the Reliance Power IPO, one question emerged quite prominently in everyone’s minds. Would the company be able to indeed deliver on its power projects considering that it was a new and difficult terrain? At that time, Anil Ambani had enthusiastically pointed out how his father had started the petrochemical refinery of Reliance Industries without any past experience.
Leave alone IPOs, private players have been on a money raising spree for creation and expansion of power facilities over the past few years in general. 2009 saw $2.2 billion being raised by the power sector through IPOs, $412.85 million through private equity investments and $235.85 million through QIPs (Grant Thornton Advisory). The big names in 2009 were Indiabulls Power and Adani Power, besides the state owned NHPC. In 2010, the market is anticipating the IPOs of Jindal Power, Usher Eco Power Ltd., Tarapur Transformers, Everest Infra Energy and Sterlite Energy.
However, we seek to move beyond the debate on valuations and subscriptions to IPOs and FPOs and their ilk for the time being and focus on the larger issue that we talked about in the very beginning – inexperience. And this has little to do with the fact that Reliance Power is caught in a quagmire due to the legal battle on natural gas price with RIL and is facing enormous delays.
On a much more macro level, is the entry of private players going to indeed change the dynamics of a sector that has been known since ages for the power it did not provide? Are we going to see the vision for ‘Power for all’ in India (Ministry of Power laid down 2012 as their target year); which most experts believe in but refrain from giving a timeline to, get realized ultimately? In other words, will the growing private presence in power generation (21% by 2012) ‘light the bulb’?
On the question of whether we will indeed have ‘Power for All’, a study by consulting form McKinsey does light some bulbs. The consulting firm is pretty certain about where the demand is headed, as it projects the demand to be between 315-335 GW by 2017, as compared to 120 GW in 2007. This assumes several factors – a steady GDP growth rate of 8% per annum, growth in manufacturing and residential demand (the latter by 14%) and fulfilment of the government’s vision to provide connection to 1,25,000 villages. And the report estimates that the sector provides an investment opportunity of $600 billion from 2007-2017.
Indeed, privatisation has made great strides in sectors like telecom, pharma, auto and IT in India. But power is a unique ball game. R. V. Shahi, former Secretary, Power and currently Chairman, Energy Infratech said at the Powering India summit organized by Essar in New Delhi recently, “In the power sector, what you plan now takes a time cycle of 6-7 years for completion.” And they could turn out to be pretty tense years too for a variety of reasons, starting from the critical issues of land allocation and R&R that mar so many large projects in India today.
The most prominent that one would mention is the availability of raw material. India’s power story still relies quite heavily on coal. The update by the Ministry of Power for given on February 28, 2010 reveals that thermal power plants (coal, gas and oil) still fuel 64.6% of India’s power generation capacity, with coal alone accounting for 53.3%. Kameswara Rao, ED & Industry Leader, Energy, Utilities & Mining, PwC, cautions, “Thermal coal imports are likely to triple in near term.” Power Minister H. S. Brahma has stated on record that India’s extreme reliance on thermal power won’t change significantly over the next 20-30 years.
Obviously, this creates a pressure for private players to secure coal supplies for the long term. But the major caveat is still the coal policy, which has not kept pace with the demands of the power sector. Demand for coal has been increasing by 8-9% per annum, but Coal India’s production has only increased by 5-6% CAGR from 2004-09. The government’s plan to open captive mining to private players has not yielded the desired results as the blocks allotted have not proved economically viable for many reasons. The government has introduced a useful policy initiative for allotment of coal blocks on competitive bidding basis. But the framework for final allocation is still not finalized; and that’s impeding projects by a great deal. It is also being proposed by some sections that blocks be given to private players for commercial use too.
Coal has limitations, thanks to green concerns, due to which there has been an imposition of a coal cess on thermal power generation and a growing commitment to reduce its use. Hydro is a very useful alternative, but the pace has been too slow. V. P. Bhargava, Director-Technical, NHPC, comments, “We need to have 10-year plans in the sector to fulfil current five year plan targets!” India’s hydro generation capacity is around 1,48,700 MW and we have exploited just about 47,000 MW. Out of total installed capacity, share of hydro is only 25% whereas for stability of the grid, it should be 40%. Policy clearances play the main villains here too, besides geographical issues. Post the announcement of the plant, actual clearances take 3-4 years. Most unexploited potential is in the north east (around 60000 MW); primarily in Arunachal Pradesh. Bringing this power to other parts of India through the chicken neck (the thin tract of land that connects North East to West Bengal) presents its own set of problems.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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In 2007, when Anil Ambani was announcing the Reliance Power IPO, one question emerged quite prominently in everyone’s minds. Would the company be able to indeed deliver on its power projects considering that it was a new and difficult terrain? At that time, Anil Ambani had enthusiastically pointed out how his father had started the petrochemical refinery of Reliance Industries without any past experience.
Leave alone IPOs, private players have been on a money raising spree for creation and expansion of power facilities over the past few years in general. 2009 saw $2.2 billion being raised by the power sector through IPOs, $412.85 million through private equity investments and $235.85 million through QIPs (Grant Thornton Advisory). The big names in 2009 were Indiabulls Power and Adani Power, besides the state owned NHPC. In 2010, the market is anticipating the IPOs of Jindal Power, Usher Eco Power Ltd., Tarapur Transformers, Everest Infra Energy and Sterlite Energy.
However, we seek to move beyond the debate on valuations and subscriptions to IPOs and FPOs and their ilk for the time being and focus on the larger issue that we talked about in the very beginning – inexperience. And this has little to do with the fact that Reliance Power is caught in a quagmire due to the legal battle on natural gas price with RIL and is facing enormous delays.
On a much more macro level, is the entry of private players going to indeed change the dynamics of a sector that has been known since ages for the power it did not provide? Are we going to see the vision for ‘Power for all’ in India (Ministry of Power laid down 2012 as their target year); which most experts believe in but refrain from giving a timeline to, get realized ultimately? In other words, will the growing private presence in power generation (21% by 2012) ‘light the bulb’?
On the question of whether we will indeed have ‘Power for All’, a study by consulting form McKinsey does light some bulbs. The consulting firm is pretty certain about where the demand is headed, as it projects the demand to be between 315-335 GW by 2017, as compared to 120 GW in 2007. This assumes several factors – a steady GDP growth rate of 8% per annum, growth in manufacturing and residential demand (the latter by 14%) and fulfilment of the government’s vision to provide connection to 1,25,000 villages. And the report estimates that the sector provides an investment opportunity of $600 billion from 2007-2017.
Indeed, privatisation has made great strides in sectors like telecom, pharma, auto and IT in India. But power is a unique ball game. R. V. Shahi, former Secretary, Power and currently Chairman, Energy Infratech said at the Powering India summit organized by Essar in New Delhi recently, “In the power sector, what you plan now takes a time cycle of 6-7 years for completion.” And they could turn out to be pretty tense years too for a variety of reasons, starting from the critical issues of land allocation and R&R that mar so many large projects in India today.
The most prominent that one would mention is the availability of raw material. India’s power story still relies quite heavily on coal. The update by the Ministry of Power for given on February 28, 2010 reveals that thermal power plants (coal, gas and oil) still fuel 64.6% of India’s power generation capacity, with coal alone accounting for 53.3%. Kameswara Rao, ED & Industry Leader, Energy, Utilities & Mining, PwC, cautions, “Thermal coal imports are likely to triple in near term.” Power Minister H. S. Brahma has stated on record that India’s extreme reliance on thermal power won’t change significantly over the next 20-30 years.
Obviously, this creates a pressure for private players to secure coal supplies for the long term. But the major caveat is still the coal policy, which has not kept pace with the demands of the power sector. Demand for coal has been increasing by 8-9% per annum, but Coal India’s production has only increased by 5-6% CAGR from 2004-09. The government’s plan to open captive mining to private players has not yielded the desired results as the blocks allotted have not proved economically viable for many reasons. The government has introduced a useful policy initiative for allotment of coal blocks on competitive bidding basis. But the framework for final allocation is still not finalized; and that’s impeding projects by a great deal. It is also being proposed by some sections that blocks be given to private players for commercial use too.
Coal has limitations, thanks to green concerns, due to which there has been an imposition of a coal cess on thermal power generation and a growing commitment to reduce its use. Hydro is a very useful alternative, but the pace has been too slow. V. P. Bhargava, Director-Technical, NHPC, comments, “We need to have 10-year plans in the sector to fulfil current five year plan targets!” India’s hydro generation capacity is around 1,48,700 MW and we have exploited just about 47,000 MW. Out of total installed capacity, share of hydro is only 25% whereas for stability of the grid, it should be 40%. Policy clearances play the main villains here too, besides geographical issues. Post the announcement of the plant, actual clearances take 3-4 years. Most unexploited potential is in the north east (around 60000 MW); primarily in Arunachal Pradesh. Bringing this power to other parts of India through the chicken neck (the thin tract of land that connects North East to West Bengal) presents its own set of problems.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
“We will change your outlook” - The Sunday Indian on B-SCHOOL RANKING SCAMSTERS EXPOSED! A must read...
The Sunday Indian:-
B-SCHOOL RANKING SCAMSTERS EXPOSED!
For Exclusive Footage by Sunday Indian Click Here
Outlook Magazine's B School Ranking Scam Exposed
Business Standard Exposes the Outlook Magazine Money Editor
Don't trust the Indian Media!
IIPM enters into media education
IIPM makes record 10,000 placements in five years
TSI exposes b school ranking scamsters Mahesh Peri of Career 360 and Premchand Palety of C fore. - For Complete Sting Operation Video Click Here
Pioneer Exposes the fraud called Mahesh Sharma and Mahesh Peri of Career 360 and Barbel Schwertfeger of mba-channel.com
IIPM: An intriguing story of growth and envy
Prof Arindam Chaudhuri of IIPM on MF HUSAIN
