Management Interview : REC Ltd
We are looking at very robust growth in power sector demand
Mr. PV Ramesh - Chairman

Firstly, just a general outlook on what you are expecting from the power sector demand per se for the year ahead?
PV Ramesh: We are looking at a very robust growth in the power sector demand across the value chain. We have today per capita consumption of about 1000KW we expect this to double in the next five years. The Government of India’s objective is to provide 24x7 quality power at a competitive price to every citizen of this country and in this direction major efforts are being made in both generation, transmission and especially the distribution network. The new UDAY scheme has a far reaching influence on restructuring and rejuvenating the discoms. There are further efforts that are being made in extending electricity to every single village in the country by end of this year and to provide power to every household and there are nearly 5 crore households without power. So we foresee a very robust growth across the value chain of the power sector and especially with the goal of adding another 261GW generation capacity of which 175GW is to come from green energy investments. These are especially interesting times for all players in the power sector and the Rural Electrification Corporation, has been a major player for nearly 50 years in this sector, with investments across the country, across the value chain, and has been the coordinator for implementing UDAY and also the Deen Dayal Upadhyaya Gram Jyoti Yojana and range of other programmes of Government of India. We have offices across the country working with all the state electricity boards, the power utilities and we have strategic position in terms of working with both the public sector, private sector and from the generation II village level. We see the very robust growth in the coming years.

So I am guessing you are banking on market share gains in the SEB financing segment as well sir?
PV Ramesh: Yes, absolutely because with the state we have been working with the state electricity boards for the last 48 years and we have a major share and the number of interventions that are being taking place as you are well aware in terms of the generation there is a rationalisation in terms of coal supply, the quality of coal, the goal of the Coal India to double its production as well as productivity. Now all this would contribute to further modernisation of generation but major investments are taking place in transmission, network and especially at the distribution network. The goal is to reduce the technical and commercial losses of the distribution companies from 22% at present to 15% by 2019 so that is a major effort that is being made. The first step in that is the UDAY where the debt of the discoms across the country has been substantially redeemed and now the major efforts are being made in terms of reforming governance and also investing in technological upgradation. So our close proximity to the state electricity boards in this regard really helps us both in terms of modernising and in terms of achieving 24x7 power for all by turn of this decade.

So which is good to know, now the other aspect is and I think you made a brief reference or somebody else was making a reference this morning about how impactful the UDAY scheme seems to be. What is your thought of the UDAY bonds on the loan book for a company like yours. Anything that you would want to share here?
PV Ramesh: Let me clearly explain this. Actually, there is no UDAY bond as such. It is actually 75% of the UDAY debt is now transferred to the government books of accounts. I mean there was an outstanding debt of about Rs 4.3 lakh crores of which Rs 3 lakh crores is what was meant to be redeemed but some of the states like Karnataka and Gujarat they said they are financially well so they would not be opted for the operational efficiency part of the UDAY and not for the financial restructuring. But overall we received a pre-payment from Discoms to the tune of about Rs 30,500 crores and we are expecting another Rs 12,000 crores from the last from Tamil Nadu and Telangana which have come on board very recently. This has not affected our books of accounts. Actually our loan book was showing Rs 2.01 lakh crores on March 31. At the end of September, it is Rs 1,96,000 crores. What we have done basically is the pre-payment we have received, we have stepped up sanctions in disbursements so we have had an additional disbursement of about Rs 28,000 crores additionally compared to the first half year of 2016 and compared to 2015 first half year. So what it meant is an accelerated disbursement because the demand for investment is growing and so overall our books are very healthy and then we further planned to step up in the coming year, coming second half of this year and the 2017-2018 you would see that the major investments would flow into two sectors. One, of course, is the renewables and creating the green energy corridor and on the other side is the modernisation of the distribution network, I mean whether it is feeder separation, whether it is smart metering and smart grid management and the transmission network modernisation so there is a substantial addressing of the value chain of the power sector. So we are quite robust in our operations.

Would you say then that this will translate on higher margins as well from you guys for the entire year. I know you would be in a silent period so do not give me exact numbers but would it be safe to assume that it would be a higher trajectory?
PV Ramesh: Yes. I mean higher trajectory from two things. One of course is the volume of business. I mean the level of investments we are making and the second one of course is the quality of investments that we are making in the assets and also third is the quicker project execution and management. Actually REC has two subsidiaries which are involved in providing services across the power sector value chain. So we are working with the state utilities especially the Discoms and of course is the transmission, the generation companies to really address the quality of investments and timely completion of the projects. So this should translate into much higher margins in terms of the returns notwithstanding the fact that there is a trend towards lowering of the interest rates which we as public financial company have been very responsive to.