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[Music]
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uh Mr Kishore thank you so much for
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joining us today very kind of you I'm
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looking forward to this great uh to
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begin with I wonder if you could tell us
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a little bit about the growth and
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evolution of the independent power
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sector
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in India and some of the twists and
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turns through which it reached the
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position where it is today and what the
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status of the sector is today um the
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sector was opened to private sector in
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1991 uh at that time only private
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generation was
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permitted I would say India is among the
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few countries that has actually evolved
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very well on the legislation side 91
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opening up did not really
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great amount of get a great amount of
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response uh I remember our US ambassador
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mentioning yesterday that any company
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must have an India strategy and the
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legislation therefore was not considered
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very
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responsive then we had a reform uh
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change over in
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1998 and a very comprehensive
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legislation followed thereafter in 2003
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I must mention that it's possibly one of
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the most comprehensive legislations in
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the world
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in so far as the sector is concerned it
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has a very clear reform path set it's
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the right approach to
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deregulation and I must say that the
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response has been
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tremendous to just give you a
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perspective private sector was hardly
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responsive till say about
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2005 we have added post 1991
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approximately 110 gaw of capacity in the
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country mhm of that almost 30 7 Garts
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has been added by private sector in the
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plan of 20071 private sector is adding
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30% in the plan of 2011
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2016 private sector expected to add
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60% that speaks well of the legislation
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absolutely now in terms of international
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interest in investment in the power area
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uh there was a very high-profile
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experiment made by Enron which uh did
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not go very well
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uh did that uh you know offer any
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lessons to uh the the sector and how how
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things could be done differently yeah I
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think the very interesting movement
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forward uh I must be pardoned for saying
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this is that it has really brought out a
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need for local developers versus
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International developers so we have seen
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the first phase of all the international
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developers like andron coming in and the
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substantial part of the change over has
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happened so much so that what we looked
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at looked forward to the world for
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strategic investors today has been
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replaced by huge amount of financial
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investors occupying the space so there
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is that amount of Interest has continued
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money has come in in large quantities
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large numbers but essentially driven by
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local developers being in the lead which
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is what is shown in the results that
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that's very interesting and I'll come
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back a little later to the uh idea of
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International Investment but uh
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tell me a little bit about your own
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company you know K we were both shastri
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and myself we are the two founders of
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this
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company uh the ksk initial stands
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actually for our uh respective names or
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expanded names so to say and um we were
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advisers typically called investment
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bankers we used to do a lot of advis on
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the power sector at a time I think we
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realized that we need to prove or hold
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on to what we advise so we took up a 20
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megawatt plant uh in conjunction with
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few uh strategic investors but I think
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the real development we took up was in
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2004 so we did a 26 megawatt capacity in
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2004 costing us approximately 25 million
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today we are almost a gigawatt of
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capacity in
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operation and we have also financially
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closed one of the largest projects in
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the country for about 3.6 gaw so from
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2004 to say
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2011 uh we have have been interested is
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what I would say with almost a billion
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dollar of equity and about $3.5 billion
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of debt so the the the whole environment
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if you so say has been very responsive
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if you have the right business model
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that's bankable sustainable and
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competitive what would you consider the
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right economic model uh as I said the
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customer must necessarily get power at a
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competitive price this has been are
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thrust uh earlier on I mean you quoted
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an example I have many more to
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quote uh India was giving an impression
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or an impression was gained that India
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needs power at any
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cost we are a country that is very
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clearly voting for Darkness versus light
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so to say in a very cliched way if it's
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not
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competitive Enron as an example I keep
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quoting this uh gives about
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uh 14% of the electricity for the state
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of Maharashtra and was taking away 55%
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of the receivables of the
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state which means it was like eating
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into the it was like a marginal cost was
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so high I'm sure people on your sector
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will understand it is abnormal so there
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was tremendous amount of resistance even
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today we live with 40% people not having
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electricity MH so as a nation we very
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clearly communicating that we need power
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we need electricity but not at you know
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at any
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cost so what made it possible for say
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the local uh power
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generators to come up with a revenue
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model that is so remarkably different
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that they were able to provide Power at
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such a more competitive rates when you
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know enron's costs were so high or at
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least the the prices were so high yeah
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see basically uh
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I think um um again pardon me for saying
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this the Western world has really seemed
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to communicate see why on one hand we
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are saying there is
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demand at the same time we are saying
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the supply shall be supported by
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contracts okay if you believe demand you
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know there's demand for cars don't
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insist on someone giving you a contract
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for purchase of cars we are aware that
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electricity as a commodity is not
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bankable but we know there is huge
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amount of deficit okay now the moment
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you use a generator to be a financing
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intermediary he will ensure that all
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contracts are
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secure and the moment you make contracts
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very secure so to say in terms of uh
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International lender coming in an
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international investor wanting to
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endorse it which is what a strategic
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investor brings in you you can never
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have a backup or fall back on the
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developer and that reflects on the cost
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I see the Indian developers are all very
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conscious that these are realities just
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to give you an example you know annually
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if you see last 10
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years the Indian SE power sector gets
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about $15 billion of
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debt you'll be surprise not even 5%
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comes
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internationally 95% of the debt is
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supported by Indian lenders
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alone okay now if you look at it from
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that perspective the lenders there are
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very conscious that almost
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50% of the contracts are not fully tied
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up either there's no not fuel TI up not
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converted into an agreement land
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acquisition exists Poss not
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given ex evacuation agreement signed
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substation not ready water allocation
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done you were able to see political guys
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opposing it every day just imagine an
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international lender who sits outside
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the country wanting to take a view that
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all these will get sorted out in my view
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it won't be possibly I I will not kind
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of you know appreciate this point so
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this is exactly where the whole
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opportunity is right how are you going
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to be responsive to the situation
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because the stakeholders even at the
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ground level are aware of this right the
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guy who sells land knows that there is
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no competitive guy to come and buy his
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land but he still will protest to the
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extent that you know where the breaking
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point is so this is where the whole you
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know system has encouraged entrepreneurs
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like us to find mind that International
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entrepreneurs are not coming
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in now what kind of regulatory
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challenges did you face as you were
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going about building your company I
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think there was huge amount of adhocism
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um honestly today if you see even today
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the you know complaint so to say will be
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that power sector is
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deregulated every sector that needs to
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support the power sector continues to be
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government owned okay so you have
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uh you know the power sector generation
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delicensed evacuation still is Monopoly
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government control fuel supply
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government
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controled water government controled
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Railways government controlled
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allocation of wagons government control
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equipment supply we have only one
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government
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company people to be brought in
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government control so what are you doing
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you are now enabling the sector opening
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up saying you do anything but you have a
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set of contradictions
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and the reactions are completely a do
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Hawk all of you must be reading about
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how the environment Ministry is reacting
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today so I keep saying this there is no
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problem of lack of policy there is lack
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of
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coordination so how how how does an
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entrepreneur resolve these
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contradictions this is the only
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contribution we are happy there is no
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gation there's we are happy there is no
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integration got it if you actually go to
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two departments they're two talking two
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different languages yeah you have an
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environment Minister who tells us about
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whether the Country Must compromise
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between growth and environment it must
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be the the prime minister of the country
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with due respects he's a great
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extraordinary personality a political
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leader but this is the problem but I
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think that's where our opportunity
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is uh coming back to the financing
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situation could you tell me a little bit
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about the capital markets and the way in
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which you were able to um raise the
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financing you needed for your Venture
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when we actually started off I think we
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done a very interesting deal at stage
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one uh we are the first company to look
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at this entire need for
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disintermediation we are the first
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company to look at sale of power
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directly to the
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consumers and we actually got into a
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relationship with the
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consumers where the consumers invested
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in the equity of our company they
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invested equity and they got no return
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on their Equity so it's a very
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interesting position for us
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partly bridgest but we never compromise
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in returns that was an Outsourcing model
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additionally we also got a very
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interesting a very unique deal with
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Leman
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Brothers where Leman Brothers invested
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$9 for every dollar we
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invested so if you look at the extent of
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our leveraging I think we are the
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company that leverage almost 99 is to
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one where partly Equity came from lemman
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partly Equity came from our customers we
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have now built almost a gwatt of
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capacity based on this model and we
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continue to hold 65% of the equity I
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would certainly urge all your people to
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look at our model it's very interesting
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I'm not taking Pride for that but that's
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how it enabled us to uh you know take us
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to a different level but as promoters we
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had no money so ours is the first
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company that went directly to get listed
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on the London Market where instead of
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listing the holding company that held
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the underlying assets we listed the
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promoter holding company on the London
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Market we are the company that was
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listed first on the a market now we are
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on the main board our shares were resed
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about 107 p in November 2006 the share
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is now trading at about 560 P so it's a
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very heartening thing to look at that so
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we raised money there then we raised
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money on the Indian stock market we got
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the Indian listed entity also done that
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was a now I mean June 2008 so between
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these two companies and Leman and
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customers as as I said in the last seven
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years we raised almost a billion dollar
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of equity one last question through
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through this entire Journey what would
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you regard as the toughest leadership
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challenge you have faced and how did you
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overcome it and what did you learn from
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it I think the U most important thing is
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uh you cannot be very structural you
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cannot be very
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hierarchal and you have to be extremely
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foot loose in your response you cannot
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be very uh strong or NE
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go at least in our sector we have seen
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that while at the the federal level the
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government of India is saying we
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desperately need power and we'll give
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you all support then we have the local
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government that say they'll give you all
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support there's a huge amount
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of expectation
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completely uh contradictory and on a
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different plane at the local level J is
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the ground level I think all that we did
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was no jackets no ties can work we need
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to just roll up our sleeves go and talk
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to the local people with the feeling
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that we belong to them and I'm very
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happy to say that possibly ksk is the
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only company in the country that has
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done possibly the maximum number of
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plants in number of maximum number of
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locations there's no equivalent of our
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company we did a 20 megawatt 25 megawatt
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58 megawatt graduated to 135 made it 540
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then now 3,600 we have done about 11
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plants in eight states so this entire
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learning has been to be completely micro
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on almost 50% of the issues and insist
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that all your people are motivated in
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that direction uh the company today has
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grown from almost about 40 people in say
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2005 2006 to more than 1,500 direct
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employment so these set of people have
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actually been motivated to understand in
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this process that you have to be
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extremely
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responsive I think that's the biggest
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takeaway I keep telling people in in
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management schools that if you look at
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supplies in India don't go by contracts
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take the view on demand I think it's a
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great opportunity to look
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at thank you so much for joining us
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today my pleasure thank you great
