Guiding Light
Prime Minister Narendra Modi has set an ambitious deadline - all Indian households should have electricity by May 2017. Though over 95 per cent of Indian villages already have some kind of power supply, it still means that the remaining 15,311 villages have to be electrified in the next two and a half years. It also means not merely getting power to a particular village, but also ensuring it reaches every home, and reducing power cuts. One of the key persons accountable for meeting this tall target is Rajeev Sharma, 55, Chairman and Managing Director, Rural Electrification Corporation Ltd (REC), which finances rural electrification projects. At the same time, he has to ensure healthy revenues and profits for his public sector unit, while dealing with power generation and distribution companies, many of which, both public and private, are mired in debt.
But Sharma, who took over in November 2011, and is Business Today's choice of Best CEO of a PSU this year, is on track. Under his watch, REC, a Navratna PSU since 2008, has doubled revenues and profits in the last five years. In 2014/15, it had a total operating income of Rs 20,229 crore, up 19 per cent from the previous year, while profit after tax stood at Rs 5,259 crore, higher than the previous year's by 12 per cent. Loan disbursements rose to Rs 46,446 crore in 2014/15 against Rs 37,969 crore the previous year, while the total loan asset book of the company increased by 21 per cent to Rs 1,79,647 crore. REC's recovery rate was 97.70 per cent, with non performing assets kept down to a manageable 0.74 per cent.
BEST CEO PSU: RURAL ELECTRIFICATION CORPORATION LTD
- INCOME/ 3-YR CAGR: Rs 20,388 crore/ 25 per cent
- OP. PROFIT/ 3-YR CAGR: Rs 18,865 crore/ 23 per cent
- PAT/ 3-YR CAGR: Rs 5,260 crore/ 23 per cent
- AVG MCAP/ 3-YR CAGR: Rs 30,364 crore/ 16 per cent
- AVG MCAP (APR-SEPT 2015)/YOY GROWTH: -4 per cent
- ROE/ ROCE: 23.1 per cent/ 11.8 per cent
- CASH/ DEBT: Rs 523 crore/ 1,51,024 crore
- NET PROFIT MARGIN: 26.00 per cent
REC has also been appointed the nodal agency for the implementation of the Deen Dayal Upadhyaya Gram Jyoti Yojna (DDUGJY), announced in July 2015, aimed at strengthening transmission and distribution networks in rural areas, with substantial Central assistance. Indeed, Sharma is one of the architects of the scheme, as he was of the earlier Rajiv Gandhi Gram Vidutikaran Yojna (RGGVY) and the Restructured Accelerated Power Development and Reform Programme, under the previous United Progressive Alliance (UPA) government. The RGGVY has been subsumed in the DDUGJY, but the new scheme has wider focus. "The earlier scheme concentrated solely of reaching electricity to households, while the new one also strengthens transmission and distribution infrastructure," says Sharma. "The learning's from the RGGVY helped us make the new one more comprehensive."
The learning's include tightening purse strings and increasing checks - Central contribution to projects has come down to 60-90 per cent, depending on location of the project and quality of performance, from the earlier blanket 90 per cent; agricultural and household supply lines are being separated, since the subsidies on the power supplied for these vary, and metering of all supply being introduced, even when it is free. "The Centre's contribution has indeed come down in the new scheme, but states are actively utilising their own funds," says Sharma. "Everyone wants more electricity now, thanks to the political discourse having changed. There is healthy competition among states to improve their numbers." Between April 1 and December 10, 2015, 3,141 villages have been electrified, while work is on in 1,691 others. "We are trying to make the entire process both transparent and dynamic," adds Sharma. "Our website, giving the number of villages electrified and other key details, is updated daily. We are hopeful of completing our task even before the deadline."
Sharma himself is far less gung ho, confessing his is a harrowing task. "My team and I don't get sound sleep," he says. "We are overstretched." While REC's record is impressive, its challenges are formidable too. For one, despite his optimism about competing states, extending the rural power supply network is not easy. "State utilities see rural supply as loss making and are reluctant to invest in it," says Kameswara Rao, Partner, PwC. For another, the fear of borrowers defaulting is ever present. These include not only discoms but also power producers - around 45 per cent of REC's loans have been extended to power generating companies. Many of them, including private players, are over-leveraged too - mainly because the discoms have been letting them down. "There are many who signed power purchase agreements with discoms, but the latter are not taking power from them because they can't pay for it," Sharma adds. "These players are unable to service their debts. Our money is stuck."
Sharma is hopeful the health of discoms will improve with initiatives such as the curiously named Ujjwal Discom Assurance Yojna (UDAY), announced by Power Minister Piyush Goyal in early November. UDAY envisages a four pronged strategy to set discoms right - improving operational efficiencies, enforcing fiscal discipline, reducing the cost of power and reducing interest costs. Rating agency ICRA has been optimistic in its analysis of the scheme, predicting it will reduce the portfolio vulnerability of both REC and PFC. Andhra Pradesh, Jharkhand and Rajasthan have agreed to join the scheme, and more are expected to follow. "The good thing is that the minister is taking ownership," says Sharma. "The UDAY scheme to bail out discoms is just one example."
"REC is not just a financing agency any more, but has the responsibility to make sure electricity is available in rural areas and more and more villages are electrified," says Gireesh B. Pradhan, Chairman, Central Electricity Regulatory Commission (CERC). "The added push the political leadership is now giving the power sector will help its efforts." Rao of PwC agrees. "REC has a premier role in supporting the final push to rural electrification, both in providing last-mile access and improving continuity of supply," he says. "Reliable energy that can spur rural development is central to sustained economic growth."
