Low renewable tariffs good but should be viable: PFC CMD Rajeev Sharma

Low renewable tariffs are good for the country provided the projects are financially viable at these levels, Power Finance Corp Chairman and Managing Director Rajeev Sharma said. The company has no exposure to aggressively bid projects given its strong appraisal mechanism takes care of such risks, he said in an interview to ET’s Sarita Singh. The power sector financier is looking at various ways to resolve NPAs including takeovers by PSUs, diversifying borrowing portfolio and tie-ups with discoms to explore opportunities in electricity distribution segment. Edited excerpts:

Please give us an update on the NPA position.
For the quarter ending Sep 30 2017, our gross NPAs stand at Rs 21,503 crore, 8.33% of our loan assets and our net NPAs stand at Rs 16,970 crore i.e. 6.69% of our loan assets. We have upgraded a government NPA of Rs 6,748 crore. We are also likely to get an upgrade of about Rs 5,221 crore during FY 2019-20. Going forward, to that extent, we see a significant fall in NPA level primarily on account of reversal of Government Sector NPAs.


PFC is also actively undertaking various measures available under RBI and legal frame work like 5/25 scheme, SDR scheme, S4A, IBC under NCLT to resolve stress in certain loan accounts. PFC has also been actively considering other stress resolution options like government takeover of certain strategic projects.

PFC has also signed an MoU with PTC for facilitating PPA signing. How will this benefit the company and the sector?
Over the past few years not many Case-I bidding for power procurement have been taken by state discoms. Thus, many of the commissioned projects have no PPAs and are forced to sell on exchanges. This has led to oversupply in the exchange markets and therefore the prices on the exchange have also come down significantly. The issue has been discussed at various fora like Parliamentary Standing Committee, NITI Aayog, PMO, Ministry of Power. PFC has been a stakeholder in these discussions. A scheme was conceptualised to revive the commissioned projects which can be revived by having a PPA and FSA quickly and making them operational to start servicing lenders’ dues. After extensive discussions at various levels, PFC Consulting Limited, a wholly owned subsidiary of PFC signed a MoU with PTC for the scheme. The successful projects in the bidding would also save on preservation costs which may be incurred otherwise. Further, the discoms would also get assured supply at cheaper rates. So it’s a win-win situation for all stakeholders. This would ultimately lead to improvement in the investor sentiment towards the power sector.

What are your borrowing costs and are you looking at newer ways for resource mobilisation?
During the first half of the current financial year, we have raised about Rs 28,000 crore at a borrowing rate of 7%. PFC launched its maiden 54EC bond issue in July 2017 at a coupon of 5.25%, which will help us in lowering overall borrowing cost going forward.

Our current focus is to diversify borrowing portfolio. We have already raised $400 million through first green bond issuance, which got listed at London and Singapore Stock Exchanges. The pricing of green bonds was the tightest ever spread for any Indian Issuer for its maiden 10-year paper. We have also raised $300 million through a syndicated loan at competitive rates. We are also in the process of raising funds through masala bonds. Further, we are also attempting to refinance our existing foreign currency borrowing to reduce the cost of borrowing.

PFC recently announced MoU with Tata Power Delhi Distribution Ltd. Please elaborate the plan and also if more such agreements are being considered.
Under the MoU, we will jointly explore opportunities in electricity distribution sector in the country which shall include various distribution projects, network strengthening, electrical mobility, smart grid, smart metering, energy storage, Trainings or any other distribution scheme of the power ministry. We are definitely open to signing similar agreements with other utilities for different segments, locations etc.

Are declining renewable tariffs a worry? How much has the company sanctioned to such projects in this FY vis-a- vis the target?
Declining renewable tariffs are good for the entire sector subject to the fact that the projects are financially viable at these tariffs. We have seen in the past that aggressive bids by the developers in the bidding stage has led to the loan accounts being either in stress or turn into NPAs. I would like to clarify here that we have no exposure to such aggressively bid projects and our robust appraisal mechanism takes care of such risks. PFC committed during RE-INVEST 2015 to provide a financial assistance of Rs 15,000 crore during 2015-19. Against this, PFC has already sanctioned Rs 9,954 crore and disbursed Rs 6,260 crore to various renewable energy projects with a total capacity of 2,880 mw. Our renewable sanctions have increased more than 10 times in the last 3 years. Similarly, our renewable disbursements have increased more than 5 times in last 3 years.

Is the company considering any diversification plans as there are not many generation projects in the pipeline?
Though the traditional business opportunity in thermal generation has dried up and is currently not available, we are looking at significant business opportunity in renewables, where our current share is 3% of our loan assets. There is still a huge fund requirement in the power sector especially in the transmission and distribution segment. Power Grid Corp has entered into joint ventures with utilities in Bihar and Uttar Pradesh for setting up intra-state networks. We have already sanctioned financial assistance for the Bihar JV at competitive rate and we are looking for similar opportunities. Additionally, we are focusing on debt-refinancing opportunities available in the market to accelerate business growth. We are also looking for funding sectors allied to power sector i.e. funding forward and backward linkages to power sector, such as development of coal mines, LNG, gas etc. We are also considering mining projects for power projects on a standalone basis. We are also in discussions with ministry of railways for funding their electrification projects.