Tata Power last week reported a 44 per cent slump in Q2 net profit, largely due to widening losses at its imported coal-based Mundra plant in Gujarat as well as other one-off impacts. Despite the company’s newly acquired renewable assets showing an almost 200 per cent growth, and its international projects doing well, the negative factors impacting the entire power sector do not allow Tata Power to get back on the profitability track, Anil Sardana, MD & CEO, told BusinessLine in an interview. Excerpts:

The lack of power demand growth is one of the industry’s major concerns. Why is energy consumption not going up in India?

On the one hand, the demand is growing at some rate, let’s say 3-4 per cent, but the advent of LED lights, better air conditioners and more efficient devices brings it down to some extent. If GDP growth is going to happen at 7 per cent, the power growth has to happen at 9 per cent. Unless you have power as the prime mover, economic growth doesn’t happen. And unless economic growth happens, power doesn’t become sustainable. We have not had a good economic growth in the sense that whatever is happening, is happening through services. There is hardly any manufacturing, hardly any work happening in pumps, agriculture... This is sad for a country which has a ‘Make in India’ programme.

A lot of value destruction has happened in the power sector. What are the main reasons — bad policies or bad decision-making by the investors themselves?

It’s a mix of all of that. Let’s not assume that one is wrong, another is not. We, as investors, do mistakes. Banks make mistakes, policymakers make mistakes. But who stops you from making two wrongs and then getting on to the table and correcting it? In the corporate world, don’t we do that?

Talking about corrections, do you see any progress on the Mundra project issues?

My sense is that this will go on...If you want to resolve (the issue), everything is resolvable, but if you don’t want to resolve, it is not resolvable. And that is the indication we are getting from the court proceedings. Talks will always go on because their biggest fear is that we should not stop the generation, because they will not get such cheap power anywhere else. If these two power stations stop the State will loose 500 MW on day one. The strategy of the other side has been that at least one of them should keep us “warm” — by keeping us engaged in talks.

What are the company’s main priorities today to bring in profitability?

Right now our focus is on debt resizing. We are close to about 2,9x debt/equity ratio while we were once the lowest in the industry. By mid-2018, I want to get to the 2,2x that we had before we had acquired Welspun. We will have some refinancing coming up, we will see some of the debt paid off and we may have some assets to build. Therefore, with all this put together, we would need ₹4,000-5,000 crore, which we are aiming to get from liquidation of our non-core assets.

At the same time, you are considering picking up some of the stressed assets currently on the block...

If there is value for money, and they come to you at so much below the book, you have to take a call on whether you can turn them around.

Given the company’s strategy to grow non-fossil capacity, from where will the growth come, considering the challenges India’s renewable sector is facing?

Tata Power will continue growing in renewables and India is not the only country to look at. We have four major geographies: Africa, Middle East, India and SAARC, and South-East Asia. We will continue to look for opportunities in all these countries.

As for the domestic market, how comfortable are you with falling renewable tariffs ?

Very uncomfortable. Too much capital chasing too few projects. But I don’t think this (the correction) is too far. The projects that bid those aggressive tariffs are nowhere today. I have been saying from the day one, there are two things that we have to be watchful about. First is the quality of assets that we are building — whenever we import we should have quality inspection, because who will guarantee you 25 years? Second, you bid for these projects and you might be able to maintain that tariff for the first five years, but after that you say 20 per cent of your modules are gone, so you will give only 80 per cent of output, but the guy needs that balance of 20 per cent too. So what measures do you have to catch this? So when it comes to renewables, I am really worried about how many of those projects will be there in 14-15 years.

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