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Acts as a Solution Provider...
Interview with Satnam Singh, Chairman & Managing Director, Power Finance Corporation

With what objective was PFC set up?
PFC was set-up in the year 1986 and it started its operations in 1988. The Corporation was primarily set up with objective of funding power sector particularly state power utilities.

What is the exact role of PFC in the Indian power sector?
PFC though was incorporated with objective of funding power sector, PFC over more than 2 decades of its presence has developed its skills & expertise in the power sector and has transformed itself into dominant player in the power sector and today it acts as a solution provider to the sector by providing financial assistance, consultancy services and participating in flagship programmes of Government of India aimed at overall power sector development.

PFC has shown consistent growth in business with cumulative loan sanctions of about Rs.2,22,370 crore, cumulative loan disbursements of about Rs.1,06,166 crore and a total asset base of Rs.64,618 crore as on 31st Dec, 2008. Today we are doing about 20 per cent of the total funding in the power sector – all central, state and private projects put together.

Additionally, PFC has played and is playing key role by participating in various Government of India flagship programmes for the development of power sector like APDRP, AG&SP, DRUM, UMPP, R-APDRP etc. 

PFC therefore plays a catalytic role in the development Indian power sector and it shall continue to play such a role as far as Indian power sector is concerned.

What are the major milestones of PFC since its year of operation?
PFC was incorporated in the year 1986 as a Financial Institution dedicated to the power Sector and declared as a Public Financial Institution in 1990. PFC signed its first MoU with the Govt. of India in relation to operational targets in the year 1993 and also rated ‘Excellent’ during the same year on the basis of all-round performance. The Corporation was registered as NBFC with RBI in 1997 and was subsequently declared as Mini Ratna Company in 1998. Project Appraisal system of PFC was certified as ISO 9001:2000 in the year 2004. PFC’s annual disbursements crossed Rs.10,000 crore, set up 7 subsidiaries for development of UMPPs and issued ‘Letter of Intent’ for Sasan and Mundra UMPPs in the year 2006. In the year 2007, PFC successfully completed its IPO of Rs.997 crore and successfully awarded Mundra UMPP to Tata Power, Sasan UMPP to Reliance Power Ltd. The coveted ‘Navratna’ status was also granted to the Corporation during the same year. In the year 2008, PFC successfully awarded Krishnapatnam UMPP to Reliance Power Ltd, launched a subsidiary to take care of its consulting business – PFC Consulting Ltd., and the Corporation was designated as the Nodal Agency for the prestigious ‘Restructured-APDRP Scheme’. In the year 2009, PFC has issued Letter of Intent to Reliance Power after completion of tariff based bidding for Tilaiya UMPP and PFC is the only non-bank which has joined the Top 500 global financial brands and is the only non-bank institution in the list and 19 banks are also figuring from India.

What role do you see in future for PFC in financing power sector & what are its other future plans?
In the years ahead, PFC’s efforts will be directed towards further consolidating its position as the premier Financial Institution for the power sector. PFC plans to fund Rs1.28 lakh crore during the XI Plan which is an increase of about 150 per cent over the level of its disbursement made in the X Plan. It is the endeavour of PFC to see that development of the power sector is not constrained for want of finance. PFC will also continue to play its catalytic role in power sector development by participating in various Government-sponsored programmes for the sector.

Additionally, PFC plans to focus & expand its operations in power and allied sector has restructured its organization to have strategic business groups having exclusive focus on the following business areas:-
  • Renewable Energy & Clean Development Mechanism (CDM)
  • Consortium Lending to power projects including UMPPs
  • Financing of Fuel Supply linkages like coal, gas, transportation etc.
  • Financing Equipment Manufacturing related to Power Sector
  • Financing equity capital for power projects
  • Restructured APDRP
PFC established a “Power Lenders’ Club” (PLC), to facilitate “one stop shopping” for clients in the power sector and to provide them access to capital from a consortium of financial institutions and banks to enable power projects to achieve faster financial closure. PLC has 21 members out of which apart from PFC there are 18 Indian banks, HUDCO & LIC. As on date, PFC with some of the other members of PLC has been associated with funding of three power projects (viz; 350 MW Domestic Coal based project of RKM power Gen in Chattisgarh, 20 MW Bagasse based project by Viswanath Sugar in Karnataka and 820 MW Konaseema Gas Based power project in AP). Further, M/s. IFFCO Chattisgarh Power Ltd have placed a Letter of Intent on PFC for providing project advisory, appraisal and loan syndication services for their 1000 MW power project to be set up in Chattisgarh (estimated cost Rs.5400 crore with debt component of Rs.3780 crore.) PFC plans to look at funding large power projects including UMPP projects under PLC.

In order to provide exclusive focus to Consultancy Services related to power sector, which was earlier handled by a business unit within PFC, we had formed a separate subsidiary company namely ‘PFC Consulting Ltd’ in March, 2008 which caters to the consultancy requirements of power sector including UMPP business & related advisory services.

PFC has been designated as the Nodal Agency by the Govt. of India in the recently-launched ‘Restructured Accelerated Power Development Programme’ (R-APDRP) for the development of IT capabilities and bringing down of AT&C losses in the distribution sector. An ambitious programme of Rs.50,000 Cr has been envisaged which will enhance the business prospects of PFC, especially in the distribution sector. 

PFC as a nodal agency for the R-APDRP programme has already initiated action and taken several steps, which includes appointment of process consultant for assistance in implementation of the scheme and has also empanelled IT consultants, who will assist States in preparing DPRs and in implementation of the projects under the R-APDRP programme.

Already 256 projects of the programme having a total project cost of Rs. 894 Crores have been approved for funding under the scheme and additionally projects having a total project cost of about Rs. 800 Crores are under consideration and likely to be approved in the current financial year.

PFC in order to facilitate efficient market mechanism for power trading has floated Power Exchange India Limited jointly with NSE & NCDEX, which has already started its operations and PFC is also a Professional Clearing Member of the Exchange. In addition to this, PFC has promoted another power exchange in association with NTPC, NHPC and TCS namely National Exchange Limited. PFC also proposes to offer credit facility to purchasers of power in the power exchange, which is likely to be a new income stream for PFC.

What are the key issues that the Indian Power sector is facing today?
According to me some of the few challenges that faces power sector today are:-
  • Firstly the challenge is to meet the capacity addition target that we have set our selves for XI plan, which is about 78,000MW. If we go by the past, the current target is almost doubled and if we look at the achievement of the target in the last plan it was only about 52%.
  • Funding the power sector for XI plan is challenge, the fund requirement estimated by the working group on power for XI Plan is about Rs.10.60 lakh crores and the available sources of funds are about Rs.6.40 lakh crores leaving gap of about Rs.4.20 lakh crores.
  • The RBI as well as IRDA guidelines for Banks and Insurance companies regarding the exposure limits are constraining flow of funds to power sector.
  • Under the current ECB norms, the financial intermediaries who are dealing exclusively with financing infrastructure like PFC, IL&FS, IDFC etc can access ECB borrowings only under approval route, whereby specific approval of RBI is required. However, the corporates registered under Companies Act, except financial intermediaries, can raise upto USD 500 million with out prior approval of RBI under automatic route.
  • Lack of depth in the long tenure market for borrowing also constrains the lending to power sector which requires long tenure loans ranging upto 25 years. The debt markets during extreme volatility and liquidity crunch severely constrain the funds flow and increases the cost of power affecting the viability and implementation of power projects.
The commercial viability of power sector is also affected due to structural issues primarily the high AT&C losses and therefore attracting fewer investments into the sector.

Another challenge is lack of trained personnel for power sector. Considering the huge targeted capacity additions and the power projects to be implemented it would require a tremendous increase in trained manpower in technical and financial areas.

The supply of power equipment also needs to gear up for the requirements of power sector, which has been a bottleneck and this is likely to be one of the constraints in the future as well unless the domestic capacities are expanded and international players allowed shoring up equipment manufacturing facilities.

What is the overall scenario of power sector in India?
As per estimates of CEA & Planning Commission, the anticipated capacity addition is about 81,500 MW for XI plan, out of which 14% has already been commissioned and 86% is under construction. I am therefore optimistic when it comes to achievement of the targeted capacity addition for this XI plan.

I also believe power sector has seen a paradigm shift with the UMPP initiative, which has created benchmarks in the power sector in terms of cost of power and possibility of large capacity creations. This fact is getting reasserted with award of every UMPP and more so with the award of Tilaiya UMPP, which has allayed the apprehensions about whether such huge investment decisions will be taken amidst the economic slowdown. I feel the participation in the bidding process of Tilaiya UMPP and the levellised tariff of Rs.1.77 in the current market conditions is reflection of the level of confidence that investors have in the power sector.

Some of the reform related positives in the sector are that 28 States have SERCs, 23 states have issued tariffs and 16 states have unbundled. On distribution reform front, 23 states have achieved 100% Feeder metering and 9 States have achieved 100% consumer metering. However, there is a lot of scope for improvement in area of reforms and particularly in distribution sector, which is having AT&C losses in the range of 30-35%. To specifically address this issue, Govt. of India has launched ‘Restructured Accelerated Power Development and Reform Programme’, aimed at reducing aggregate technical & commercial losses with a total outlay of Rs.51,577 crores.

The new tariff regulations announced recently are likely to have an overall positive impact on the profitability of the power sector. The measures like increased RoE from 14 per cent to 15.5 and additional 0.5% for timely commissioning will attract investments and tightened norms for operation under the new regulations will increase efficiency in the system.

Availability of trained manpower for power sector is also being addressed through the capacity building programme at a national level, which envisages up gradation of skills of the personnel operating in power sector to bring in higher efficiency. A stimulus package for enabling investments into power sector, which include measures like reviewing the RBI exposure norms, ECB norms other fiscal concessions, will see a definite boost in investment environment of power sector.

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   RNI No. WBENG/2008/27737
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