When Tantra Narayan Thakur was appointed to head a government-initiated public-private partnership to develop India’s electricity market, critics told him he was wasting his time and that India was not ready for commercial power trading. “[People] at the highest level were telling me that it would not work,” he said. Ten years later, Power Trading Corporation (PTC) has done the seemingly impossible, purchasing unused power and selling it to locations in need of more, while helping to launch India’s first power exchange and financing numerous infrastructure projects. In an interview with India Knowledge at Wharton at the 2009 Wharton India Economic Forum, Thakur, who is chairman and managing director of PTC, discussed the state of India’s power sector, how PTC has evolved over time, and the satisfaction that comes with proving naysayers wrong.
An edited transcript of the conversation follows:
India Knowledge at Wharton: To start with, I wonder if you could tell us a little bit about the situation with the power sector in India today. One often hears a lot discussion about broad infrastructure in India. Could you tell us a little bit about how you see the state of the industry?
T.N. Thakur: The power sector has to grow. Beginning with the Prime Minister, everybody in India has been saying that if there is one sector which is really [essential] to economic development, it is power. And therefore, everybody is worried about it. Unfortunately, power-sector growth has not been as desired.
The problems are [related to the] structure of the government, because you have the state electricity boards owned by the state governments and then you have the Union government. Electricity is concurrently managed by the Union and the states. We have those issues, but nevertheless, there is almost a consensus that we cannot play politics with the power sector, and the power sector has to be left alone and commercially developed.
There is hardly a chief minister today who does not understand the gravity of this problem and, therefore, any intervention by the chief minister in terms of supplying free power or supplying power at a concessional rate to a set of consumers is backed by cash support from the state government, and that is the reason why lately there are no electricity boards, or their successor companies, in the country that are defaulting on payment to the power generators.
Ten years ago they were defaulting; five years ago they were defaulting, but today they are not. Therefore, every single supplier to the power sector is being paid by the utilities. I would not say that utilities are in very healthy financial condition, but they also know that if they do not pay, there is no power, and if there is no power, then they have problems on the ground.
India Knowledge at Wharton: How serious was the problem?
Thakur: Today, power is recognized as an essential commodity; it was not so five years ago. Five years ago, people were not so aware of their requirements, their needs in regard to infrastructure and energy….Almost 60% of India’s population has no access to electricity, even today. But [during the] last five, six, seven years, there has been a lot of emphasis on rural electrification. You are laying down lines, you are putting up substations and then you are arousing expectations of the people towards this, and if you do not supply power then obviously people will agitate.
And electricity has become an election issue today.In every state election, electricity is an issue. Therefore, the politicians are also very serious about improvement in the power sector, and the Union government is quite keen to add more and more capacity, both in the generation as well as in transmission, and also to reform the state electricity sector. For reforming the state electricity sector, the Indian government gives a lot of incentives and a lot of subsidized loans to the generators and to others. So, those things are now bearing fruit and you can see the results happening today.
India Knowledge at Wharton: As you know, the U.S. and India have signed the Nuclear Power Agreement. Do you expect that to change the dynamics of the power sector?
Thakur: It will change in the sense that you will have more nuclear power projects coming up in India with this signing of an agreement…. But I would say that even for the next 15 or 20 years, nuclear power will not be a substantial part of the total generation capacity. Today, we have a generation capacity of 150,000 megawatts, and what I am hearing is that by 2020 or 2025, you would not be able to add more than 20,000 or 25,000 megawatts of nuclear power.
By then, maybe other sources of power will be added. Percentage wise, [nuclear power] will not be substantial but certainly it is futuristic and we look at it with great interest because it will give us green, clean power. And the generation capacity can be added quickly, once you have the things in place.
India Knowledge at Wharton: Given the sort of industry trends that you have described, could you explain a little bit about the role that your company is playing in creating a market for power?
Thakur: [PTC] was created for dual purposes. One was that we did not have an electricity market in the country until about seven or eight years ago. Obviously, the private investors who came in would ask for government support in terms of being paid by the state electricity boards after the supply of power. As I said, there were some situations of default. So, a thought came to our mind that we should have electricity market and then investors can take a call based on the market and not on government support. That was one purpose.
Another idea was that this company [could] act as an intermediary between the power project developers and the offtakers of power, thereby isolating the offtakers and developers from market risk and from revenue collection.
So what [PTC] essentially did was start the power market by picking up power from wherever there was surplus, and then selling into the deficit locations on a commercial basis. It then also started the intermediary business, and initially there was a lot of skepticism. People did not believe that India was yet mature enough for an electricity market.
But when we started doing business, we found that there was a lot of enthusiasm among the states and other stakeholders, and as of today, this company has sold electricity in the last seven years of more than US$4.5 billion. We have collected every single paisa without any default, so at least this has been proved that if you do business in a commercial manner, in an effective manner, it is possible to do throughout the market.
Now we have not only the electricity market, we also have, as a logical extension, two power exchanges operating in the country. So, you can do day-ahead trading on the power exchange and we are one of the promoters of the first power exchange in the country. We have also signed more than 10,000 megawatts of Power Purchase Agreements (PPAs) with project developers, where we have brought in this 10,000 megawatt capacity and we are selling that into the market. For another 33,000 megawatts of capacity, we have signed MOUs — Memorandums of Understanding — and the PPAs are under discussion.
To help developers and give more comfort to the lenders and the investors, what we have done is formed a finance company as well. And in that finance company we are the 60% partner and 20% is with Goldman Sachs and [another 20% is with] Macquarie. This finance company has been operational for the last year and we have already sanctioned quite a lot of equity and loans from that company.
We have also formed joint ventures with power project developers to give comfort. And all our joint ventures are received very favorably by the financial market. Now we have formed another vertical, called PTC Energy Ltd., which will basically be doing asset-based business — that is, joint ventures with the power project developers and then taking [them] forward.
We are quite active in green energy. For example, we own a wind farm ourselves, and then we have taken 37% equity in a 100-megawatt wind farm. We have taken 48% equity in a wind tower manufacturing unit and we generally obtain minority equity because we leave the management with the private sector people, and we assist them only at the board level, at the strategy level. We do not want to get into the day-to-day management.
We are also now helping to set up some solar units in India. Some people from Germany, Spain and the U.S. have met with us, and they are trying to take our help with that. We [also] have a venture company for developing biomass-based projects, and that is basically for the rural areas. In India a lot of the agricultural by-products — like your straw or husks and all this — are wasted and generally used as fuel in the household cooking, and we thought that if we can collect them and have biomass-based projects, then not only the long distance transmission is avoided to the rural areas, but locally you can involve the people.
We have already selected 30 locations in the country, and we are selecting more, where we will have biomass projects of 12 megawatts each. And there, we are trying to make the farmers who are going to give us the biomass the partners in the process. Some people asked: [What would happen if the farmers] stopped giving? We said, let us make them partners. They will be the equity holders in that company, and that equity will be given free to them, and they also get the price paid for the biomass that they supply. So, they will have an interest generated. And now there are some biotechnology people who have come out with very good varieties of bamboo, which can be grown very fast, and if you have some land then you can also supplement with bamboo for the biomass projects.
A lot is in process, and we are planning a lot of things. Fortunately — and with my due thanks to the investors and to the financial market — we enjoy a great deal of credibility, and what we have been doing has been yielding results, giving benefits to people. We were started by the government of India with this purpose, as I said. But we got listed very soon: Within two and a half years of our [initial] operation, we got listed on the stock exchange. Today, government-owned companies have only 21% of shares [owned by the government] and 79% of shares are in the market. So, therefore, we are no longer a government company. We have our obligation to the shareholders, and at the same time we also want to have some developmental role in this sector.
India Knowledge at Wharton: You are obviously doing a lot of very interesting things. In doing all of this, what is the biggest leadership challenge you have faced? How did you overcome it? And what did you learn from it?
Thakur: I was a civil servant, and I worked in government for almost 20 years before I moved to the power sector. In fact, I was persuaded to go into the power sector because some of our power companies were not doing well, and I was a joint secretary-level officer in the ministry when the secretary called me and said, why not do something about it?
Now, as luck would have it, things worked out very well. But in the case of power trading and the power market, I must say that when we started this, many people in the government and outside the government — including [those] at the highest level — were telling me that it would not work. They said: “You will be wasting your time…. You could get better assignments in the government. Why are you doing it?”
But there were a few of us who were quite convinced that we would be able to do it, that it was the need of the hour. We went ahead, and once we proved one or two transactions, there was overwhelming support from everybody. All those who believed it was not doable, once they saw things were happening, came forward and supported us. So, we owe a great deal to all of those people for…
India Knowledge at Wharton: Success has many fathers, as people say, right?
Thakur: No, actually I would not say that. I must pay my compliments to them because even though they said that they did not believe in this, once it started happening, they came forward and supported it. They said: “You have proved something which was not possible according to us, but now let us do it together.”
India Knowledge at Wharton: One last question. How do you define success?
Thakur: I define success when you have the satisfaction of what you have been doing. I do not measure success by the monetary gains that one makes. Actually, at one stage when we had started this company and we were not getting results, I was questioned even by the ministry. I said, “Look, you should not measure success only in terms of the results, but also [in terms of] the obstacles overcome.”
Now, [because of] what we have done, the way we have [moved] forward, we have the satisfaction — and we know that people are valuing this, and that gives a greater satisfaction, and that is what I call success.
