Mumbai / New Delhi: Even as the government prepares to dilute an additional 5% stake in NTPC Ltd, India’s largest power utility is gearing up to make itself more profitable for investors.
Power plans: NTPC chairman and managing director R.S. Sharma.
The firm plans to sell a portion of its electricity output at market rates to boost revenues in coming years, chairman and managing director R.S. Sharma said.
An analyst warned such a move would be unpopular among state governments, particularly among those which depend on unallocated supply to meet power needs. The Union government was also unlikely to allow it, the analyst said.
NTPC plans to set up a merchant power capacity of about 6,000MW by 2017, said Sharma, referring to electricity sold in the open market.
Currently, state-run power companies such as NTPC have to sell 85% of their output to state electricity boards under long-term agreements. The remaining 15% is given to power-deficit states under the discretion of the power ministry.
This will change if the government allows NTPC to sell this unallocated quota as merchant power.
“We plan to tap the merchant power market only through prospective capacity as the power purchase agreements for the existing capacity have already been signed,” said Sharma. “We plan to have 7-8% of our total capacity as merchant power by 2017. Gradually, we will ramp up our merchant capacity. We will devise a pricing policy for such sales and will go to the board for its approval.”
The utility has a power generation capacity of 30,644MW today, and plans to increase its installed capacity to 75,000MW by 2012.
Another official said the company was hoping to sell at least 4,000MW at market rates in the next five years.
“Right now, the average price we are getting is Rs2.20-2.30 per unit, and even if I assume that I will see the power in the open market for Rs5 per unit, I can earn Rs8,000-10,000 crore,” the official said, speaking on condition of anonymity because he is not authorized to speak to the media.
The government plans to dilute 5% of its share in NTPC through a follow-on public issue that will run from 3-5 February, bringing down its stake to 84.5%.
The company hopes to raise Rs12,000 crore through this divestment.
Half the shares to be offered will go to qualified institutional buyers through an auction, 15% to high networth individuals and 35% to retail investors.
Sharma said the company was already developing a merchant power capacity of 1,000MW, which will be operational in 2010-11.
“Capacities of 500MW each are being set up at our projects at Korba (Chhattisgarh) and Farakka (West Bengal),” Sharma said. “While some of this capacity will be given to the home state on long-term tariff, the remaining capacity in the range of around 70-80% will be sold as merchant power.”
But an analyst said state governments, who depend on the unallocated quota of power released by the Centre, would strongly oppose the move.
Kuljit Singh, head, transaction adviser at consultancy company Ernst and Young, said it will take a lot of “guts” for the Union government to pass legislation allowing NTPC to sell electricity in the open market.
“Opposition from the state governments will be the biggest roadblock because this legislation will either make power unavailable or, even if it is available, will make it costlier,” Singh said. “It won’t be easy to get it through.”
joel.r@livemint.com