The global market situations are still challenging. Everyone in the market is rather cautious about making fresh investments as order inflows across the sector have shrunk. In a chat with Pradeep Pandey, A K Dixit,CEO Energy Sector, Siemens Ltd. elucidates upon the energy market scenario and Indian policy reforms.
What are your observations on the Union Budget proposal for 2013-2014, especially for the energy sector?
Considering the energy sector and the elbow room available, some signals have been given in the budget. These are mostly in form of few short-term remedies. We also need to consider that the problems in the power sector were not really in the realm of the budget. Energy sector, especially the power sector which is a capital intensive industry, is going through a transitionary phase where it is on the lookout for stable solutions. You can see that developers across the sector and investors are not very upbeat about making additional investments since they are worried about returns. The tax holiday extension for the power generation project developers, introduction of generation based incentives for another year and calling states discoms for a short-term loan restructuring need to be supplemented through other measures to have a long term solution. The need of the hour is a viable business environment' that can provide stability to the sector.
The government has shown an interest towards the implementation of required reforms to expedite infrastructure growth within the nation. According to you what are the elements still missing in the government action?
There have been efforts by the government; however, in order to bring in a complete solution many of the basic policy issues, hitting the sector hard, need to be resolved. Besides implementation, there are basic policy matters with regard to land acquisitions or necessary clearances or adequate fuel supply that need to be adequately addressed. In addition to this, high interest rates have also pushed back fresh investments in the sector. My personal opinion is that there should be an 'inclusive power policy with broad prospects' that can foster a viable environment for investment.
Siemens has a global presence. How do you perceive the overall global scenario and policy environment when compared to India? For example if we compare China, our strongest competitor, where do we stand?
The overall global market sentiments are still subdued owing to financial uncertainties in western countries, especially in Europe. The market has become quite difficult in the last 12-15 months. If we talk about India, the demand from Independent Power Companies (IPCs) has shrunk by around 60 per cent as compared to what was in 2009-10. You can see that manufacturers across the sector have reported a substantial fall in orders during the year as many IPCs have deferred their orders due to delay in project execution on account of various issues. However, the energy sector in India has not been hit much by the global economic downturn as much as its own domestic market. For example, look at China or Korea, geographically much smaller than India. The difference is in the basic concept. They (China or Korea) target markets for supply across the world not just one country, and accordingly, the government policies are formed to support the ambitions.
What kind of policy reforms should be implemented to boost growth in the energy sector?
There is a need for initiatives that could create a commercially viable business environment. There should be a transparent policy frame for the sector starting from the bidding process. For example, take the tariffs for a proposed power plant; one can set a lower as well as upper limit of the bid under which standard operation can be carried out with quality. If the pre-calculations are done keeping in mind the cost of operation and fuel prices, there is no need for central or state regulatory bodies to bother with the tariff revision after the project is about to start. It is well understood that no project will be viable at low rates like Rs 1.95 or Rs 2.35 per unit in long term even if it is fueled by domestic coal. So, bidding process should be based on sustainability of the project and bidding qualifications should be rejected if the bid falls outside the set limits.
Coming to your company, how would you assess the performance this year and also the potential that lies ahead? What kind of strategy has the company has formulated to overcome global challenges?
The global market situation is still challenging. Everyone in the market is now apprehensive about making fresh investments as order inflows across the sector have shrunk. In the previous year 2011-12 (financial year ends in Sept) financials new order booking fell by 17 per cent form Rs 12,300 crore to Rs 10,200 crore by Sept 2012. On the future, we cannot make any forward looking statements. Going ahead, we expect the economy to open up and offer opportunities for growth once the government speeds up decisions and interest rates come down. The Company will focus on a globally announced five point program: reduce costs, strengthen core activities, strengthen go-to-market approach across all Sectors, optimize infrastructure and reduce complexity.
Siemens Ltd., in which Siemens AG holds 75% of the capital, is the flagship listed company of Siemens AG in India. Siemens in India including Siemens Ltd. comprises 12 legal entities, is a leading powerhouse in electronics and electrical engineering with a business volume aggregating about Rs. 12,000 crore. It operates in the core business areas of industry, infrastructure & cities, energy and healthcare. Siemens has a nation-wide sales and service network, 23 manufacturing plants and employs about 19,000 people in India.
For the first quarter of financial Year 2013 ended December 31, 2012, Siemens has registered profit after tax of Rs 73 crore, up by 21 per cent over Rs 60 crore a year before. However, sales for Q1 2013 was flat at Rs 2,451 crore against Rs 2,471 crore last year. New orders for the quarter were Rs 1,993.5 crores, down by 31 per cent over the same period last year.
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