The fortunes of key public sector units in the power sector seem to be heading in opposite directions. On the one hand, the funds-flush BHEL is sharply boosting capacity, getting ready to add 20,000 mw by 2012 to meet growing competition from Chinese power equipment and recapture a dwindling market share. It is also foraying into the non-banking financial sector to provide total solutions to power generators. On the other hand, NTPC, the other large PSE operating in the power segment, seems to be caught in a downward spiral. The company that was identified as a prize jewel and conferred the Maharatna status only recently has seen its fortunes dip sharply, mainly on account of growing competition from private sector units. Although NTPC was to commission an additional capacity of 9,220 mw by the middle of the Eleventh Plan, it was able to set up only 3,730 mw during the period. And the additional capacity commissioned steadily fell from a high of 2,415 mw in 2006-07 to just 990 mw in 2009-10. Plus, NTPC could only contribute about 14% of the additional capacities set up in the power sector over the last five years. Over this period, the share of the company has steadily declined from a peak level of 19.9% to 18.1% of Indias total power generation capacity. Its prospects are not too rosy either, given that the company has not been able to successfully bid for the first four of the UMPPs as the private sector quoted lower tariffs. The prospects of bidding successfully for any of the remaining four UMPPs are also not very encouraging, given the rigid procedural formalities the PSEs have for purchasing power equipment and negotiating prices.
The situation will only deteriorate further once the government decides to go ahead with its decision to make tariff-based bidding mandatory for all power projects from the next year, as was reported in FE last week. Although tariff-based bidding would be beneficial for all consumers and especially industry, which bears the brunt of inefficiencies in the power sector, such a move will restrict the growth of all major power PSEs. Stock markets seem to have factored in the impact of the changing policy regime on NTPC, with its share prices stagnating/declining over the last year despite an IPO. Only greater autonomy to PSEs will enable them to stand up to private competition and avert a repetition of the BSNL story in the power sector.