ALSO READ | Gautam Adani says debt level not a concern, eyes new sectors
The Gujarat-based businessman also discusses his plans for solar, the next sunrise sectors for the group, the changing Indian economic scenario, compensatory tariff issues for its thermal power plants and the Adani Sagar Mala, a string of ports across the country. Edited excerpts:
After much delay, your plans to build one of the world’s largest coal mines in Australia seems back on track with the recent court rulings being in your favour and the Australian government extending full support to the project. How do you see your Australian dreams unfolding? Also, you have faced similar resistance from environmental groups in India too in the past. What do you find in common in the two?
After four long years of approval processes and unnecessary struggles in courts, we have finally overcome the hurdles and we hope to take it to our board (Adani Enterprises) for final investment decisions by March. The Carmichael mine, rail and port project includes the development of a world-class mine with phase one production of 25 million tonnes per annum (mtpa) in FY21. This includes 388-km standard gauge multi-user railway line of 60 mtpa capacity and related port expansions. The coal from this mine would be used to fire our power projects in Mundra and Udupi.
The recent successful meeting with Australian federal, state and regional leaders not only enhanced our confidence but also has paved the way for enhancing trade multi-fold between the two nations.
The much-needed infrastructure for the project will open up the Galilee Basin and put Australia in a competitive position in a global sea-borne market. The total life of mine capex is about $16 billion and we would have invested about $4.5 billion in the first phase.
Now, coming to the other part, I will tell you that we remain fully committed and very confident of the environmental impact studies we commission and all this information is public. Be it India or Australia or any other country, the impact studies we do are world-class and we use consultants of global repute to augment our very strong internal team.
There have been several positive recent court outcomes in Australia that rejected the claims of what are largely activist-inspired appeals and uphold the strong approvals process by the governments in Australia that we have complied with. These activist-motivated appeals are at odds with the strong local community support in the regions the projects are based. So, the court wins provide more confidence around the project time-frames for Adani and meeting demand in India as well as for the supporting communities in Australia.
Just like any other company in our sector, there will always be some resistance for different reasons and it’s a part of our business to be able to address these in a transparent and scientific manner.
There are both differences and similarities between activist activities in the two nations. Increasingly these are “political" campaigns with wider objectives and often with funding and support by global NGOs. Regrettably, these campaigns often don’t recognize that in many respects, India and Adani are at the forefront of finding the right balance between our leadership on renewable energy and the fact that our developing economy also needs the affordable thermal energy that many other nations still rely on for their base load.
We continue to look for opportunities in mining sector across the globe as we aspire to be world leaders in the integrated ‘pit-to-plug’ strategy in our energy vertical. It includes mines, rail and port developments.
You seem to have got a clear ambition to be a dominant player in the sectors that you venture into, be it ports, power, mining or the more recently forayed renewable energy business. What is the next sunrise sector for you?
It is important to understand that for a growth economy like India, even our core sectors of ports, power (including solar) and mining remain sunrise sectors, given the sheer potential ahead. All you need to do is to look at China and see what they have done over the past 25 years to be able to realize that the real period of growth for India within our core sectors is still ahead of us. A 7+% GDP (gross domestic product) growth rate and the strong policy advocacy that we are seeing from the government will provide the additional tail wind for companies like us to keep growing our business at healthy double-digit rates.
That being said, we are certainly evaluating other sectors that include coal conversions, defence and water. However, it’s too early to say which of these would be the next sunrise sector for us.
Solar seems to have taken a top priority for the group in recent times. You have also set up the world’s largest solar plant in Tamil Nadu.
Solar indeed has taken a significant priority and is a great example of how rapidly we capitalize on opportunities. Over the past 18 months, we have built a confirmed pipeline of 2,000MW of solar power, commissioned the world’s largest solar plant in Tamil Nadu in a record period of nine months.
We have a target of contributing 10% of capacity in the national target under Jawaharlal Nehru National Solar Mission (JNNSM) of 100,000MW of grid-connected solar power by 2022. Accordingly, we aim to set up 10,000MW of solar power plants and at least 10,000MW of solar parks during this period. One has to remember that ultimately, the speed of learning cycles and the execution experience makes all the difference and at this time, we are doing this perhaps faster than any other player in the world. In Australia too, we have focused plans to enter the renewable energy sector.
You have announced $1 billion for a solar panels and solar cells production facility. What kind of opportunity do you see in solar manufacturing for an Indian company?
We are in the process of commissioning a 1.2GW, India’s largest integrated solar manufacturing facility, to produce polysilicon, ingots, wafers, cells and modules and ancillary products under Make in India initiative at Mundra (Gujarat) in multiple phases.
One has to understand that under the JNNSM programme, we are talking about establishing a 100GW solar generation capacity by 2022. No country in the world has ever accelerated their solar programmes at the pace this government has set out to do. India is set to become one of the leaders in the world in renewable energy generation in the days to come. Indian solar power market is expected to grow at CAGR of more than 60% for next five to 10 years. With solar tariffs coming in grid parity with that of thermal power and going forward is expected to come down further, future energy demand will be met from the solar projects.
Currently, Indian solar manufacturing is inefficient compared to some international markets due to many reasons like obsolete and inflexible units of existing manufacturers, lack of economy of scale, dependence on imported raw material, etc. Large scale, end to end, vertically integrated solar manufacturing facility like that at Mundra will have a significant edge over currently established cell and module manufacturing units in India and can easily compete with world’s leading producers. Yes, there will be competition, but one has to recognize that we must have the confidence that the only way we can be a major player in the solar area is to be able to compete across the solar value chain using global benchmarks and therefore we need to use our integrated strategy as a differentiator.
There were reports about your talks to take over some assets of Sun Edison in India. What is the current status?
We evaluate various business opportunities continuously. Lot of projects in India, which were aggressively bid out, are in market looking for buyers/investors. Some of these were just taken to be later sold to potential buyers before or soon after the development. We looked at some of the assets but then decided that it made more sense to organically develop the business—at least as of now. As regards Sun Edison, we heard from media reports that Greenko is in advanced stage of discussions.
Moving from solar, tell us what is happening in thermal power projects. The fluctuating coal prices and compensation tariff have been a concern for the company for quite some time now.
From the very beginning, our goal has been to generate 20,000MW by 2020. Indian power sector has witnessed rapid advancement over the past few years with installed capacity surpassing 300GW and electricity demand reaching 1,100 billion units. India’s current per capita power consumption is over 1,000kWh (kilowatt hour) per capita per annum and aspires to reach 2,000kWh per capita per annum by 2024. With current power-generation capacity of around 11,000MW, Adani Power is already the largest private power producer in India. We have always ensured fast-paced execution of projects and implemented the best available technologies and practices that can serve as benchmarks for the power industry.
The company has already got relief from Appellate Tribunal for Electricity, which held in its judgment that changes in Indonesian regulations affecting discounted coal prices under contract is a force majeure event under the PPAs (power-purchase agreements) and asked the central regulator to grant appropriate relief. The matter has been sub judice from last four years and therefore, though coal price is falling, the company has been under severe financial stress due to delay in grant of appropriate relief. Despite a long legal battle, we are honouring our commitments to supply power. Similarly, grant of relief is also pending for the tariff of power supply from Kawai (Rajasthan) and Tiroda (Maharashtra) power plants.
Are you looking for further expansions or acquisitions in the power sector?
Yes, we are looking to continue our expansion and I expect some of it will be inorganic. The Indian power sector is witnessing consolidation among the private sector developers. We are looking at all opportunities, brownfield and greenfield projects. A lot of the power projects up for acquisition come with multiple challenges such as transmission evacuation, rail connectivity, no PPA, no domestic coal supply and many more.
How have things changed in the power sector under the new leadership at the centre?
The proof of success lies in metrics and I think the numbers speak for themselves. I have already spoken about how solar power has been catalysed by the policy initiatives taken by the government. Average solar tariffs are now at Rs4 per unit and this is a tremendous achievement by any yardstick or measure and the long-term cascading benefits of this in helping industries, getting power to rural areas as well as galvanizing the solar value chain in India will be significant.
From providing a lifeline to the ailing state-owned power distribution utilities (discoms) in the form of UDAY (Ujwal Discom Assurance Yojana) scheme, introducing amendments in the National Tariff Policy, ramping up the country’s traditionally neglected transmission network and boosting domestic coal supply, many initiatives have been introduced by the centre to facilitate sustainable growth in the power sector.
In our view, the centre has set the reform process in motion, which has already made a difference, but the full impact will be felt only in the long run.
For the group’s most successful business, ports, has there been any change in strategy for attaining your previously articulated goal of reaching 200 mtpa by 2020? Also, you have built a huge network of ports across the country, making acquisitions in the east and south. What is the overall strategy?
With a strategy to serve large Indian hinterland, APSEZ (Adani Ports and SEZ Ltd) has developed and operates 10 ports/terminals across the coastline of India. All our ports and terminals are strategically located, making a string of ports or the Adani Sagar Mala. This network of multi-cargo ports enables us to cater to major consumption and resource-rich regions of India. The addition of the Kattupalli port (in Tamil Nadu) earlier this year to augment our flanking strategy along with its sister Ennore port in Chennai has been yet another success with volumes at the Kattupalli port already doubling since we have taken over operations. Kattupalli has a tremendous location and we plan to convert it to a multi-cargo port to further capitalize on this advantage. In Kerala, our plan to build out the Vizhinjam transhipment port at the southern-most tip of India is on track and this will be yet another strategic port that will draw traffic from the world’s busiest shipping routes as well as allow our own country’s traffic to be transhipped within our country.
In FY16, we handled a cargo volume of 151 MMT and we are expecting 10-15% cargo growth in FY17. While we are seeing growth in cargo handling at our existing ports, we are also expanding our presence across the Indian coastline. Given the growth rates, we have seen in the ports sector and the progress made over the last few years we will reach our target of 200 mtpa well before 2020, most likely well before the end of 2018.
We are also targeting to provide value-added services to our customers in form of integrated logistics solutions, which is going to enhance growth prospects of our ports. Having presence across the coastline of India is going to be a key factor in this initiative. Our logistics business has seen record growth over the past three years and is well set to capitalize on the logistics boom as we expand our network of warehouses, ICDs and transportation capabilities. Ultimately, as part of our strategy, we want to be a one-stop shop for many of our major customers.
Currently, we are focusing on timely completion of our LNG and LPG terminals at Mundra and Dhamra, coastal shipping, container trans-shipment and improvement in operational efficiency by leveraging technology. We are confident that all these initiatives together will help us in reaching our goal.
Mundra is today the largest commercial port of the country, handling over 110 mtpa. How do you continue to keep this momentum going given some stiff competition given by government-controlled major ports especially Kandla Port, your closest competitor in terms of traffic and commercial cargo volumes handled?
Mundra is our flagship port and a true success story, which has given new goals to the port sector in India. We are expanding capacity at Mundra port and container terminal 4 would be operational soon.
Mundra enjoys superior operational efficiencies owing to its investment in evolving commodity-specific infrastructure such as fully mechanized coal import terminal, fertilizer cargo complex and mechanized steel yard, among others. These facilities ensure best service levels at Mundra port. These coupled with our long-term relationships with stakeholders such as shipping lines and key customers are key factors in maintaining long-term competitiveness in the region and the country. More than 65% of our cargo being handled under long-term service contracts with various customers across various cargo types. These advantages continue to help Mundra port grow, which registered a 12% y-o-y growth in 2016-17.
In fact, spurt in cargo handling at Tuna Tekra is one of the significant reasons behind the recent cargo growth visible at Kandla port. (Tuna Tekra is a terminal operated by APSEZ and falls under the purview of Kandla Port Trust.)
The upcoming LNG and LPG terminals at Mundra port are going to further strengthen the niche position of the port in the market. Having SEZ, DTA and FTWZ create right ecosystem for the port to offer a long-term advantage to our customers. Furthermore, we continue to focus on efficiency improvement through several operational and technological initiatives to increase value-edge. As highlighted, our integrated logistics service offering is going to add further value to our customers, enhancing their convenience and ease of handling logistics through Mundra port and our other ports in India.
How do you see your acquisitions in ports? How do you see them fit in your overall growth plans?
Our strategy remains on track as we have built out a network of 10 ports all the way from Mundra (in Gujarat) in the west to Dhamra (in Odisha) in the east. The acquisition of the Dhamra port in 2013 has been a huge success from the operational and strategic perspective and we turned around the performance in the very first year. Given the focus on coastal shipping, we should see a further step change in the performance of Dhamra. The port has increased significantly from handling around 10 mtpa cargo to a port targeting to handle around 21 mtpa cargo in 2016-17. It is being envisioned to replicate success of Mundra port for the east coast. We plan to undertake major capacity enhancements at Dhamra port, taking its current capacity from 20 mtpa to 100 mtpa in future.
You have also ventured into defence, where you have floated a separate entity. What is happening there?
We are in various discussions to enable the Make in India programme, but it’s too early for me to make any comment.
Some time ago, Adani Group got the environmental nod for setting up a shipbuilding yard in Kutch. Can you elaborate on your plans and also if you plan to build ships for the defence sector.
It’s too early to elaborate on any of these plans. However, there is no plan for us to build ships for the defence sector.
What about your plans to enter the financial services sector? There were reports of Adani planning to acquire Macquarie NBFC.
This has been done in a private domain by the promoters.
There has been quite a buzz about Adani being a debt-heavy company. What is your take on this?
As you are aware, infra is a capital-intensive business. At group level, our long-term debt: Ebitda is at a comfortable level of 3.25:1. The corresponding value of net fixed asset is Rs125,000 crore. Overall, for infra business, we are robustly placed.
The social sector is being given more focus in the past couple of years with new CSR guidelines in place. What areas is Adani focusing on?
The areas that the Adani Foundation focuses on are education, community health, sustainable livelihood and rural infrastructure. Adani Foundation’s education programmes have already touched the lives of over 150,000 young students, the healthcare programmes touches the lives of over 200,000 people every year, the sustainable livelihood programs have made over 35,000 people and their entire families self-reliant and the rural infrastructure programmes have improved the lives of over 500,000 people across 177 villages by helping provide better roads, drinking water and other basic facilities.
What about ventures like real estate, promoted by the family?
Adani Realty, our youngest venture, is vigorously expanding its offering of high-quality residential, commercial, affordable and township projects in Mumbai, Gurgaon and Ahmedabad. Our execution is always on track with improving focus on satisfying customer needs and trust. Shantigram is probably one of India’s finest mixed-use townships already. Despite the temporary downturn in the realty sector, you will hear more about Adani Realty and its ambitious growth plans ahead.
How do you see the overall Indian economy for industries today under the government at the centre? A lot has been written about your proximity to Prime Minister Narendra Modi. How do you view this?
Ultimately, we should let the metrics speak for themselves. India continues to remain the bright spot in the otherwise slowing global economy. It has been and will also be in 2016-17 the fastest-growing major economy, growing at 7.5% as against a global economy that is projected to grow at 3.5%. Today, there is increasing recognition that a large part of the growth is a result of the policies that the government has moved to quickly introduce reforms after coming to power. FDI (foreign direct investment) is a sign of global confidence and FDI over the past 24 months in India has grown 46% and stands at $62 billion, which is an all-time record. In my opinion, we are just getting started and the actual benefits will be realized by the industries over the next decade.
The next generation of Adani Group seems to be gearing up for the future. Your elder son Karan Adani was earlier this year appointed as new CEO of APSEZ. How do you see him taking bigger responsibilities?
Karan has now been involved in the ports business for over seven years now and I am proud of the way he has developed himself with the strategic and operational role he has played over the years. He has built a well-rounded leadership team who can capitalize on the opportunities in the sector. I am confident that the next phase of expansion that we will see under his leadership will help APSEZ further strengthen its position as a port and port-led development company.