Sushil Maroo joined Ruias-led Essar Power as CEO after a stint with Jindal Steel and Power (JSPL), and is currently the executive vice-chairman. When he joined in 2013 the power sector was going through a bad phase. Essar Power, with 6,100 MW of planned power projects, had seen cancellation of its coal mines leading to project delays, cost overruns and mounting debts. Within 32 months, Mr. Maroo turned around the company through debt restructuring and acquiring access to new coal mines. Mr. Maroo spoke to Piyush Pandey during a visit to Essar Power plant in Salaya, Gujarat.Excerpts:
Many power assets are on the block to pare debts. Will that help?
It is a very complicated game. See, in India Inc. debt will remain under stress. So the banks will remain under stress till the economic situation improves and we all understand why the stress has come and we try and provide a helping hand. If we don’t do it, the pain will only increase. There is no solution by selling off the assets because the buyers will not be there. There is no solution in writing off the bad debts because bankers are just not willing to do that. If you want to sell it off, bankers are not willing to give a discount on their debts. So, everybody will have to take a haircut. The bankers will have to take a haircut on their debts and the promoters on their equity contribution.
Why should banks take a haircut for no fault of theirs?
The mess which the companies are in is not because of their doing. In a large number of cases, companies are in a mess because of the policy-related issues.
In the power sector alone, 90 per cent of the mess is because of environmental issues, non-availability of gas, cancellation of coal blocks and other reasons.
So, how do you handle the stress? You can’t handle the stress by drastic action. The government is trying to take policy decisions to bring them back to the right direction. We have to provide the right environment. If a project needs some money to complete or working capital you need to provide that to keep the company going. Give them some time and the company may turn around. We just can’t lose those kinds of assets. In bad times, family silver has to be sold. What can be sold in the market is the best of your assets.
Bankers don’t want to take haircut, and at the same time you want to keep it stranded. It’s very difficult to sell assets as the new promoter wants to cut debt which is not acceptable to banks. Then where do we go?
India has 20,000 MW of idle gas-based power plants, including yours?
Gas prices are going to fall further and in the next one year, all gas-based plants will start. LNG supply is rising but we don’t have much of re-gasification facilities and that needs to be created. Cheaper LNG will make life easier for many of the 20,000 MW of idle power plants. We are talking to LNG buyers all over world. Our 1,000 MW of plant will need about 1.5 mtpa of gas.
The LNG market is changing and we are moving from long-term, 10 -15 year contracts to the spot market. Gas prices are now below $6 per mmBtu and they are likely to fall further because there is more supply than demand.
We have seen some players moving gas plants out of India. Is that viable and are you looking at it?
We also thought on the same lines. With a fall in gas prices we have kept it on hold. We have looked at Iran, Nigeria and some other countries in Africa. At least, the idle asset will start producing and become productive.You have to look for countries that have gas and need power. Many players are exploring such options. However, with falling gas prices, and if we have the price of gas at $5 per mmbtu, and the government allows custom duty waiver, reduces marketing margins and gas transportation charges by half and reduces interstate transmission charges to zero, the industry will be able to absorb the price.
What are your plans to reduce debt?
At the holding company level, we have reduced debt from Rs.3,500 crore to Rs.2,000 crore and plan to close it in the next two years. For the operating company, we have restructured Rs.10,000 crore worth of debt under RBI’s 5/25 scheme and are in talks with banks to restructure another Rs.5,000 crore of loans under the scheme.
We have not gone to the extent of talking to buyers as we are in process of turning around companies to be profitable. The valuation is to be done and we need to talk to investment bankers and buyers.
(This journalist’s visit to the Essar Salaya power plant was sponsored by Essar.)
