Vivek Kumar Dewangan, chairman and managing director, REC Limited, spoke to Power Line about the key achievements of the company in the past one year or so, its key priorities and future plans. He also shared his perspective on the current state of the power sector, the major issues and challenges, and the future outlook. Edited excerpts…
What are your views on the current state of the power sector?
As power comes under essential services, the impact of Covid-19 on the consumption of power was limited. Still, the sector faced issues like delayed project execution schedules, pressure on finances and liquidity crunch. The sector withstood these challenges with strong policy support and sectoral reforms from the government.
Over the past few years, the transmission sector has witnessed an unprecedented growth, with private players playing an important role in achieving the country’s grid expansion targets. Transmission utilities, at the central as well as the state level, are expected to invest significantly in new technologies to make the grid more reliable, resilient, secure and smart. The distribution sector has witnessed several reforms in the past few years, aimed at bringing competitiveness and efficiency in the sector. India has already kick-started the process of privatisation of its power distribution companies in union territories. This would usher in more competition, forcing discoms to improve their performance standards and adopt a more consumer-centric approach. In recent times, the generation sector has seen large investment and capacity creation in renewable energy generation projects. With the increase in such investment due to participation of private players and government PSUs, the capacity addition is expected to pick up pace in the coming few years. The shift from fossil fuel-based transportation towards non-fossil fuel driven transportation will create demand for infrastructure creation and EV charging. A huge investment is envisaged in storage solutions, green hydrogen/green ammonia and offshore wind energy projects. In the energy sector, we are witnessing a transition like never before. The demand for electricity is increasing, supported by the uptick in economic activity and enhanced electrification in rural areas. There is a clear movement towards green energy. The government is implementing various reforms to make the sector modern, efficient and sustainable. These initiatives in the power sector are likely to enhance the consumer experience and also the overall quality of life.
What are the biggest issues facing the distribution segment? How can these be resolved?
There is a need to strengthen the technically old and aging distribution infrastructure. The need of the hour is to install a state-of-the-art, smart, robust and reliable evacuation and distribution system, capable of handling higher loads. The sector has been reeling from losses, making it crucial for policymakers to devise various measures to make the state discoms and utilities viable. In order to reduce “non-technical losses”, which include electricity theft, meter tampering and non-payment by customers, the government has taken strong reform initiatives such as revision of tariff, creation of the National Electricity Fund, launch of UDAY and installation of smart meters, which have started to show positive results. Distribution is all the more a focus area, given the accomplishment of targeted household connections under the Government of India’s flagship programme Saubhagya. Therefore, the distribution segment will play a significant role in making the sector reliable, affordable and capable of absorbing the envisaged future growth.
What is the current status of the RDSS? What are the expected outcomes?
The Revamped Distribution Sector Scheme (RDSS) is a reforms-based and results-linked scheme, with an investment outlay of over Rs 3 trillion over a period of four years. The scheme aims to improve the quality and reliability of power supply to consumers as well as the financial and operational efficiency of discoms. To address these issues, measures such as smart prepaid metering of consumers, high voltage distribution system, re-conductoring, feeder segregation, implementation of IT-OT solutions and adoption of various policy and structural reforms are planned, with a major focus on loss reduction. Further, the solarisation of agriculture feeders, reduction in network energy losses and better demand forecasting with the use of advanced AI/ML will contribute towards the sector’s decarbonisation target. At present, proposals of 23 states/UTs for smart metering and implementation of loss reduction works have been approved under the scheme, while a few more are at various stages of approval. Approvals for the balance states/UTs are expected in the next six to eight weeks.
What have been REC’s key achievements over the past year?
REC has performed exceptionally well during 2021-22 on all key performance indicators. Despite Covid-19, we have not experienced any significant impact on our liquidity position owing to a strong credit profile and access to diversified sources of borrowings. The profit after tax and total income for financial year 2021-22 were Rs 100.46 billion and Rs 392.30 billion respectively. REC’s gross loan asset book climbed to Rs 3,853.71 billion on March 31, 2022. The net worth of the company also registered an increase of 17 per cent, reaching Rs 509.86 billion on March 31, 2022. The company continues to outshine its peers in the public sector as corroborated by the fact that REC was the only CPSE in the country to secure 100 marks with an “Excellent” rating on MoU parameters for 2020-21. We have been able to slash our lending rates thrice and we expect this to give a push to our business as well as to the Indian power sector as a whole. Further, REC has been successfully mobilising resources from foreign markets. In a landmark transaction, REC raised $1,175 million, which is the single largest syndicated loan raised in the International Bank Loan market by any Indian NBFC. We also entered into an agreement with KfW Development Bank for availing of an ODA term loan of $169.5 million under the Indo-German Bilateral Partnership. The proceeds will be deployed for part financing of innovative solar PV technology-based generation projects in India at competitive interest rates.
What will be REC’s future focus areas? What are the new opportunities REC is pursuing?
REC now being a Maharatna CPSE opens doors for new business avenues. It also entails a lot of responsibility as this status has been conferred on a select few CPSEs. In view of this and requirements of the sector, various new opportunities are lined up such as powering of upcoming renewable energy projects (solar, wind, small hydro, biomass), investment in large hydro projects, solar rooftop projects and solar parks. In addition to this, investment in KUSUM projects (grid-connected solar power plants), renovation and modernisation of existing thermal power plants, replacement of old power plants and installation of pollution control equipment such as FGD will be a part of the company’s diversified portfolio. REC is also looking to finance dedicated upstream infrastructure for the efficient supply of coal to thermal power stations. The company has already commenced financing operations for the development of coal mines.
The transmission and distribution systems in the country are also gearing up for more robustness to cater to the 24×7 power demand, thus requiring new investment in network addition and augmentation, underground cabling, smart meters/equipment, AMI/AMR infrastructure and smart grid. Investment will also be needed in the creation of dedicated green corridors and new network under the tariff based competitive bidding route. At the consumer end, more latent demand for power will be created, given the success of the government’s Saubhagya scheme for universal household electrification. In order to capture the upcoming business opportunities and maximise returns for its stakeholders, REC is building close professional partnerships with national and international financial institutions, multilateral development organisations, including KfW, JICA, World Bank, IFC, Asian Development Bank and SDF. This would enable the company to raise resources at competitive rates and also to align with international best practices. In the upcoming years, REC will remain at the forefront of power sector development in the country and beyond. As a part of its business strategy, REC has sanctioned loan towards the 600 MW hydroelectric project of Kholongchhu Hydro Energy Limited in Bhutan. We are also looking to diversify into newer emerging fields at an appropriate time, not just as a funding partner, but also through its subsidiaries and joint ventures. REC is closely following the market’s ongoing and upcoming changes and will take apt decisions, in due course, to maximise the value for its stakeholders.
What is your outlook for the power sector in the near to medium term?
While the Covid-19 pandemic has presented several challenges for the business and industry, it has also presented several opportunities for improvement in the power sector. The outcome and reform-linked financial package of more than Rs 3 trillion for discom infrastructure upgrade is a forward-looking plan, which would assist in the development of the distribution sector. The proposal to let consumers choose their electricity supplier would unleash competition and help improve efficiency, as will the government’s intent to increase private sector participation in the distribution sector. The monetisation of transmission assets through the InvIT model is a promising move, which will help in adding transmission capacity to match the rapid pace of electricity generation and increasing demand. Ambitious plans are lined up for transition towards renewable energy, hydrogen-based energy and smart metering. Expansion of domestic manufacturing is necessary to support the growth of renewables. The phased local manufacturing plan for solar cells and panels would help minimise the dependence on imports for solar cells and modules in the long run, contributing towards Aatmanirbhar Bharat. The production-linked incentive scheme for battery manufacturing will also enhance the ecosystem for storage manufacturing in the country, with positive implications for the renewable energy and e-mobility sectors. At the same time, the sector should work towards minimising stressed assets. While the private sector is expected to take the lead in renewable energy investments, the investments in conventional and atomic energy are expected to largely come from the public sector.
