State-owned NTPC’s proposed acquisition of power plants owned by loss-making state electricity boards would come with a cost to consumers: Power tariffs could increase significantly as the PSU would eye remunerative returns on equity (ROE), unlike the politically arm-twisted state electricity boards (SEBs) whose ROEs remained below par.
NTPC is looking at acquiring power plants with a combined capacity of about 5,000 MW with an equity investment of Rs 5,000 crore from SEBs in Rajasthan and Madhya Pradesh and from Damodar Valley Corporation, another central PSU. NTPC recently entered into a joint venture with Jharkhand’s SEB for acquiring a 76% stake in the 840 MW Patratu plant.
Although the exact quantum of tariff increase resulting from NTPC’s acquisitions would vary with each unit’s cost dynamics, analysts said these would be significant in most cases, as currently some of these units are running at abysmally low ROEs.
“Since these plants are currently operated under cost-plus contracts, if NTPC wants to keep tariffs low, it would need to improve efficiency of operations and tie up low-cost debt,” Debasish Mishra, senior director, Deloitte Touche Tohmatsu, told FE.
However, NTPC officials said the company would approach the state electricity regulatory commissions to fix tariffs based on a standard ROE of 15-16%. “We will ensure that these plants run at 90% PLF (plant load factor) so as to spread the capital cost over more units of electricity produced. This would help us keep the tariffs even lower than those exist currently,” a senior official from the PSU said.
In the case of NTPC’s coal-based power plants, the average PLF during FY15 was just over 80%, which was more than 15 percentage points higher than the all-India average PLF during the same period. In June this year, the PLF for power plants in the central sector, which is dominated by NTPC, came in at 70.4% while that of the state sector was far lower at 53.6%.
Mishra added that if NTPC could manage to produce at a higher PLF and distribute the resultant higher fixed costs evenly across its plants, it would be a win-win situation for all stakeholders, the PSU, SEBs and consumers. The funds generated from the sale of the plants would stand the SEBs in good stead in reducing their debt.
NTPC has a capex target Rs 23,000 crore for the current fiscal. With a standard mix of 30% equity and the rest as debt in power generation business, the company will eventually invest close to Rs 16,000 crore for this purpose.
Government sources that FE spoke to said NTPC’s earlier stance of buying stressed assets from the private sector changed due to power ministry’s suggestion that nudged the company to buy from state governments, especially from those that are heavily indebted.
NTPC officials said that the company decided against acquiring private sector plants as it had become difficult to ascertain the valuation of such plants. Acquiring state-owned power plants, they said, could save the firm from auditor’s gaze as the transactions are with state governments.
While NTPC is still scouting for such plants in different states, it has identified the Chhabra thermal plant, owned by the Rajasthan government, as one of the plants the company wants to buy soon. The 1,000 MW Chhabra station is relatively new with its fourth unit having been commissioned last year. The tariff for this plant, as per the Central Electricity Authority, is Rs 2.89 per unit.