New Delhi: The country’s largest power producer NTPC Ltd will pay Rs700 crore to Rajasthan government for its stake in the 1,000 mega watt (MW) Chhabra power plant and assume close to Rs3,200 crore of debt as part of a deal reached with the state last Wednesday that will also bring down cost of power for a state power distribution firm and for consumers.
NTPC, which has announced phasing out of 11,000 MW of old and polluting power units, will explore similar acquisitions of other states’ loss-making power generation businesses to turn around, a central government official and a company executive said, both on the condition of anonymity.
The deal will lower Rajasthan Rajya Vidyut Utpadan Nigam Ltd’s (RVUN) power generation cost through financial restructuring and improvements in plant operations, which in turn, will lower the power purchase cost of state distribution firm Rajasthan Urja Vikas Nigam Ltd (RUVNL) by 33 paise and power tariff to consumers by five paise, according to details of a presentation made by NTPC on the deal and reviewed by Mint. Power tariff to the consumer is expected to be cut from Rs3.89 a unit now to Rs3.84 after the transaction is completed. Union power minister Piyush Goyal had said earlier the deal will help improve efficiency in power generation from the Chhabra power plants and result in lower tariff for consumers.
NTPC too benefits from the deal as setting up a greenfield thermal power plant of similar capacity will cost more, while the Rajasthan government benefits from exiting a project that has been making recurrent losses partly because of the comparatively high amount of heat required to produce every unit of electricity.
NTPC will take over the first phase of the Chhabra project (1000 MW) by March 2017 and subsequently, the second stage of 1,320 MW capacity on its completion. For quick completion of the second stage, which has a revised project cost of Rs9,750 crore, NTPC will render project management services to RVUN, which is funding the project with an equity contribution of about Rs1100 crore and the remaining with debt. The power supply deals that RVUN has with state distribution firms will be transferred to NTPC.
“With this deal, the template for taking over unviable power generation assets and turning them around has been made. NTPC will explore similar acquisitions in other states,” said the government official cited above. The NTPC executive, who also spoke on condition of anonymity, confirmed the utility’s intention to explore similar deals. An email sent to NTPC remained unanswered at the time of publishing.
The government is encouraging such acquisitions to make power generation more viable and to lower distribution firms’ cost of procuring electricity, after taking many steps to improve efficiency in power and coal sectors. Those included boosting coal availability, auctioning of mines, rationalizing coal linkage to reduce fuel transportation costs and restructuring of loss making state distribution companies under the Ujjwal Discom Assurance Yojna (UDAY).
According to Sudip Sural, senior director, Crisil Ratings, one major milestone that will indicate the revival of the power sector is distribution firms eliminating the gap between their average revenue realized and the cost of power supply by the deadline set in UDAY of 2018-19. “States taking over three-fourth of the outstanding debt of utilities and reprising?? the remaining debt with state guarantee is a low-hanging fruit, which in one stroke seeks to lower this gap. The other target to watch out for is reduction in aggregate technical and commercial losses (transmission losses and losses due to power theft and billing inefficiency) on an all India basis to 15% from 25% as envisaged in UDAY,” said Sural.