NTPC Ltd, India’s largest power generation company, is set to take another step in its foray into the gas exploration business—a strategic attempt to discover enough natural gas to feed its gas-based power plants. All of these currently operate at lower levels of utilization and efficiency because of unavailability of the fuel.
The state-owned power utility made the first move in 2005 when it acquired rights to explore a block in Arunachal Pradesh under the New Exploration Licensing Policy-V (Nelp-V).
The government allocates the rights to explore blocks through a bidding process. It has done this in six phases until now (Nelp-I to Nelp-VI), and will soon offer 70-80 blocks for exploration in Nelp-VII.
“We are looking for partners for participating in the next round (Nelp-VII) as we do not have the expertise in oil and gas exploration work,” said a senior executive at NTPC who did not wish to be identified.
NTPC had partnered with Geopetrol International Inc. of France and Canoro Resources Ltd of Canada and bid and won the exploratory rights to the Arunachal Pradesh block in Nelp-V.
“We had tested the waters in Nelp-V. The drilling on the block has already begun and we are optimistic about our chances,” said the executive.
NTPC’s intent to enter the exploration business was articulated last year, during its annual general meeting, by T. Sankaralingam, chairman and managing director. “Acquisition of oil and gas exploration blocks will further strengthen the fuel security and economics of the operations,” he had said then.
In the light of its plans to bid for blocks in Nelp-VII—exploration rights involve a huge amount of capital—the company has budgeted a 45% increase in its capital expenditure to Rs11,325 crore this year (2007-08). It is in the process of raising $1.5 billion (Rs6,300 crore) from foreign banks and institutions to fund this and other capital expenditure requirements between 2007 and 2012.
NTPC has seven power plants fuelled by gas or liquid fuel with a total capacity of 3,955MW; it also runs a 740MW gas-based plant under a joint venture.
The company currently buys gas at a spot price of $8-10 per million metric British thermal unit in the international market.
Kuljit Singh, a partner at audit firm Ernst & Young, said the backward-integration plan was logical. “With gas prices going up, it makes sense for a company such as NTPC to get into the oil and gas exploration business,” he added.