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Risk premium was high before Modi arrived: Tulsi Tanti

According to reports, stating that the Narendra Modi government had done reasonably well in its bid to attract investments into the country, especially into the renewable-energy sector, Suzlon chief Tulsi Tanti said India was now attracting more foreign direct investments (FDI), as compared to largely portfolio investments that it was pulling in earlier. “Earlier [before the formation of the Modi government], risk premium used to be high. Investors would keep the bar of expected returns high due to anticipated risks while investing here. That has come down now,” Tanti told CNBC-TV18’s Sonia Shenoy and Reema Tendulkar in an interview.

He pointed out that investments into the renewables sector stood was seen doubling from Rs 3 billion in FY15 to Rs 6 billion in FY16 and may increase further to Rs 8-9 billion in the next fiscal.

Below is the transcript of Tulsi Tanti’s interview with Reema Tendulkar and Sonia Shenoy on CNBC-TV18.

Sonia: Last year the biggest complaint that most foreign investors and foreign companies had was that it was difficult to do business in India. In the last one year has the ease of doing business improved because of the various small steps that the Modi government has taken?

A: I appreciate the government’s initiatives of the last one year. Last one week I was in the US and Europe particularly the global wind energy conferences and I found huge excitement from the investors to invest not in just the equity but to invest in the renewable energy assets particularly wind and solar. It is a huge shift because otherwise earlier they are more interested to invest in some of the listed company’s stock only not directly on assets. That is the biggest change coming. That, their comfort and confidence level has improved a lot. Earlier their expectations of the returns were very high from India because of the India risk and some of the currency uncertainty risk and everything. Now they have lowered down their expectations of the return on investment, which is a good move and because of that we are able to give our consumer the low cost of energy on a larger scale. This scale is increasing. It will bring down our economy more and more sustainable direction, it is a very good confidence built by our prime minister and government across the world and that confidence has improved a lot and it will increase the trade between the country only also not just the investment flow in India but they are more interested to buy the technology and asset from us which is a good move. This one year is very sought for any government or any leader to change the needle but I think structurally whatever government is doing that is the great move I can say.

Reema: But anecdotal evidence suggests that there has been no material change in the ground. This is what a lot of companies that we have spoken to have indicated that as of now, there are no capex which has been put in by the private company so while investors maybe willing to commit money to India, we haven’t seen that money flowing on the ground as of now. So what would your assessment be on that and when can we see actual money coming in with respect to capex in the renewable sector?

A: Particular renewable sector is not on directions. If I do the assessment of the large financial year, the total renewable assets including wind and solar put together is USD 3 billion asset investment has happened. The current financial year, our prediction in USD is 6 billion. So it is almost 100 percent there in both the wind and solar put together and the infrastructure project and execution on project is not so easy to build within one year and to execute and deliver but lot of momentum is there. The next financial year after that, we are expecting somewhere USD 6 billion to USD 8 billion. Current year is 100 percent growth in the renewable energy and the next financial year, again 50 percent growth will come. Real action has started on ground. Most of the states are coming very positively to support the renewable energy on a ground level, earlier lot of constrain was there but no doubt we have to do lot more in this segment because the government has set the target of 175 gigawatt by 2022, that is seven years. Most important part required to achieve this target is across the country is to uniform state policy and it should be a policy for 2022 because every two-three years new policy comes in and it is disturbing the growth and momentum is reducing. So we need a seven year long-term policy and it is very crystal clear target for each state out of 175 gigawatt which state has to deliver and execute how much and for that support, for the infrastructure development on ground will happen, I am confident that we will able to deliver 175 gigawatt by 2022. Just to understand, China is doing twenty gigawatt every year so it is not too high ambitious target for us to achieve in seven years. It is achievable. USD 3 billion investment every year is happening but going forward, as per the target, it is USD 30 billion. So it is an ambitious target and I am confident because the support is coming, the investors are coming from across the world and they want to invest but at the same time it is a lot of challenge we have to address in our country to establish this development — it is extremely important.

Sonia: This 175 gigawatt does look like a very ambitious target laid out by the government. As you pointed out on one hand, the investments might flow through but on the infrastructure support, what would you want to hear from the government in order to make this target more achievable?

A: If you want to achieve 175 gigawatt, we have to understand how China is doing. Every year 20 gigawatt, in seven years they will deliver 150 gigawatt easily without any disturbance and already they are doing. Four things are very important — it is a state affair. Centre has done a lot of good move, now the state level, 7 years uniform policy for the Independent Power Producer (IPP) company and for the captive SME companies respective and uniform pricing policy and the long-term clarity about the availability of the integrated connections permission and project approvals everything in a longer period. So that is a part 1.

Part 2 is — we have very enormous resource in our country, almost 500 gigawatt potentiality of wind and solar is there. So we have to identify these resource — 175 gigawatt in a state level and resource based grid infrastructure we have to invest well in advance. If it happens then we will be able to accelerate the investment because industries and manufacturing capacity we have enormous in our country and we have our own technology so we are not worried about too much import on that segment we are able to establish it very clearly.

Third important area is that banks have to come forward but they have a major concern about the state utility’s health conditions. So if government should address each and every state, health condition should be in a priority. So that the financial investors and the equity investor both will feel comfortable because it is a nearly USD 200 billion investment we are talking in seven years. Now somebody has to finance and somebody has to put the equity. If the utility conditions remain like these, some development can be possible otherwise going forward, it may create a disturbance and investment flow will not come the way we are looking and the financial institute should come forward providing debt is a very safe and secured funding for this investment because it is backed by 25 years PPA and need of energy for the next 20 years will remain in our country, there is no concern.

Lot of the projects in last 20 years is built, every asset has paid. So it is very secured investment for the financial institute but they have to give a longer period finance, more than 20 years and they have to provide 80:20 debt equity ratio as the global investment is happening. So that we can attract more equity investment in our country and we can address those things very well.

The last point is important like Make in India –that is a very good move by our government but if you want to make success, the biggest concern for the manufacturing company when I compare with the China is two parts. Part I is that our energy cost is high for the manufacturing company and part II is our financial cost is higher because of that we are not globally competitive maybe we can doing the domestic consumption market only but not on export because USD 200 billion our export of the India it is very small compared to USD 2,000 billion of China.

We have to focus on SME strengthening and it is possible to strengthening and to providing the captive energy so they are now started investing in the renewable. The way rooftop solar for the residential is there but for industries — utility scale renewable energy projects — if that investment for the captive will come, it is a good move but their concern is there — the financial cost is higher in our country. So if government provides to make ‘Make in India’ successful and SME strengthening 5 percent interest rebate for some investment of the renewable if it is given to the manufacturing company, I am confident lots of manufacturing SME companies can grow and create enormous sustainable jobs in our country. Not only that, they will start lots of exporting to the other countries. This is the integrated or inclusive solution to bring the sustainable jobs and to bring the sustainable economy.

Reema: The government has given its roadmap till 2022 where it wants to have 175 gigawatt of energy. What is Suzlon’s roadmap till 2022, how much of this 175 gigawatts of renewable energy would you like to target and capture?

A: We have already committed during the renewable energy invest conference to our Prime Minister that 15 gigawatt is our plan which include 10 gigawatt in onshore, 1,000 megawatt in offshore and 4 gigawatt in solar. So total 15 gigawatt is our plan for the next five years, we have not given our commitment for 2022 but at least 5 years as per our strategic plan we are targeting India 15 gigawatt. Suzlon is extremely well positioned, we are working each and every state and we have a good infrastructure pipeline so we are quite comfortable to build more capacity and to build our country’s backbone very well.

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