The slowdown is for real and will not go away quickly: JSW Energy

Prashant Jain, Joint managing director and chief executive officer, JSW Energy
After a 1.6 per cent decline in India's power demand in August, Prashant Jain, joint managing director and chief executive officer (CEO), JSW Energy, said demand in September so far has been weak. In an interview with Amritha Pillay, Jain said he was hopeful the annual power demand growth would be at 4 to 5 per cent fuelled by rural electrification, urbanisation and low-cost housing. Edited excerpts: 

What is your view on the slowdown seen in some industries?

The slowdown is for real and will not go away quickly. There are a number of issues. Lenders are averse to lending, auditors are averse to auditing, rating agencies are averse to rating and promoters are averse to taking credit. I don’t think this is a cyclical issue, it is more than that.

What has been the impact of this slowdown on power demand?

Power demand has been very good for the last two-three years and for this year as well; August was an aberration and the decline came after two years. The jury is still out on what is the reason, whether it is the slowdown, or the excessive rains.

How has the demand in September been so far?

There has been no improvement over August. According to my own indicators, there is no industry data, it is the same as in August. I am confident of a 4 to 5 per cent demand growth for this year and credit goes to the government for urbanisation, low-income housing and rural electrification, which has boosted power demand. However, in case there is an extended slowdown, there will be an impact. I believe there will be a power shortage in this country in the next two to three years.

Where is JSW Energy’s current focus in terms of business strategy?

On short-term contract basis, we will have 94-95% of our power capacity tied for next three to four years. We have also been reducing our operations and maintenance cost, improving our financial matrix, we are on the way to becoming the lowest O&M cost power producer in the country in all segments on a consolidated basis. We are looking at both, organic and inorganic growth and will be able secure some projects in the renewable space as we do not see any predatory pricing there anymore. We think it is a good time for a company like JSW to enter the renewable space, both wind and solar, and we will be looking at those kind of opportunities. We will also be looking at opportunities in the thermal power stressed assets segment. Organically, we are evaluating to start Kuther hydro project and we have good chances of a power purchase agreement there.

Are SEB’s willing to sign PPAs?

At the right price and with the right company, yes. Since power is a social sector and demand is growing, they will be entering into PPAs. Increased tied-up capacity is testimony to it. I am confident of securing a long-term PPA for the Kuther project. There is enough demand for low cost and reliable power.

How have receivables from discoms been? Have the new payment security mechanism reforms helped?

I am satisfied as far as receivables are concerned, but as an industry, it has been challenging. Receivables are increasing. We sell low cost power and fall in the lowest cost quartile of procurement for discoms and that is the reason our receivables are good. However, we are seeing a trend, where the receivables situation will deteriorate. Having a payment security mechanism is one part, exercising it, is another. What do I do after the encashment? Where do I sell my power? These mechanisms work in a seller’s market. It is a step in the right direction, but it does not solve the problem on receivables.

How much of a cascading effect does a decision, like that of Andhra Pradesh, to revisit PPAs have?

It is a disappointing decision. AP is not the only example, Rajasthan last week came out with a new draft notification which says they will be charging Rs 5 lakh per year per megawatt as cess on solar projects being set up in the state. It works out to 21 paise per unit. Who will bear that cost? Such notifications leave a chilling effect and leave the investor wondering whether to invest or not. It is challenging, but I am confident of the long-term prospect of the power sector in India.

Does that long-term prospect include thermal power?

As of now, we have no plans of getting into thermal power.

Is there a target for acquisitions in the current financial year?

There is no target, but we will look at each and every asset for value. We are looking at 10 gigawatt (Gw) capacity in the next 3-5 years from the current 4.5 Gw. It will be a mix of organic and inorganic, with hydro and renewable contributing more towards organic growth. We are looking to grow, but our problem is that we are not growing. We are generating free-cash and that is bein used for debt repayment, which is not good for my return on equity. We want to leverage our balance sheet optimally to improve our return on equity.

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