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Business News/ Companies / NTPC may drop private project buyout plans
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NTPC may drop private project buyout plans

Move comes in wake of power producer focusing on buying stressed generation assets from state sector units

A file photo of the NTPC plant in Dadri, Uttar Pradesh. Premium
A file photo of the NTPC plant in Dadri, Uttar Pradesh.

New Delhi: NTPC Ltd, India’s biggest power producer, may scrap its plan to buy stressed private sector power projects.

A committee under the company’s board has recommended the cancellation of the contract given to consulting firm KPMG to identify and help buy such assets.

This brings to rest an exercise that was started early last year.

The move comes in the wake of NTPC focusing on acquiring stressed power generation assets from state sector units.

It signed an agreement with the Jharkhand government in May to set up a 4,000 megawatts (MW) power project in a joint venture, wherein NTPC will have a 74% stake and the rest by Jharkhand Bidyut Vitaran Nigam Ltd.

“The committee has recommended foreclosing the entire process, wherein expression of interests (EoI) were called in tranches. While three projects were shortlisted from the first EoI, not a single project was considered from the second EoI due to issues such as non-availability of the power purchase agreement (PPA) and fuel," said a person aware of the development, requesting anonymity.

NTPC was earlier planning to buy 8,000-9,000MW of capacity and had earmarked 10,000 crore to fund the purchases. The utility received 34 proposals for a total of 55,000MW in response to the expression of interest (EoI) that it floated early last year to acquire generation capacity from other power producers. In addition, it has also received around 12 proposals in response to a second EoI floated in December.

“With NTPC focusing on state-owned projects, its appetite is full and there is no reason for acquiring private projects," said the person cited above.

Slowing growth, high borrowing costs and delays in securing regulatory approvals had hit many infrastructure projects in India, including power plants, hurting the ability of their promoters to repay creditors and vendors.

An NTPC executive, who declined to be identified, confirmed the development and said, “We have decided to scrap the process. We were not getting the assets which we wanted. Our appetite for inorganic growth is being fulfilled through government-owned assets. Along with a 25,000MW capacity under construction, there is no need for acquiring private projects."

This comes in the backdrop of NTPC undertaking an exercise to keep the tariff of power generated across its various projects to an average level of under 3 a unit.

NTPC had also been advised by its audit committee to scale back its planned capacity addition targets due to muted demand and to revisit its inorganic growth plans.

The utility’s plant load factor (PLF), a measure of average capacity utilization, was 81.5% in 2013-14 against 83.08% in 2012-13 for coal-fuelled projects.

Queries emailed to spokespersons of KPMG and NTPC remained unanswered.

Stalled power projects are a major area of concern for bankers. According to data collated by Centre for Monitoring Indian Economy Pvt. Ltd, as of 31 March, 607 projects with investments worth more than 4.85 trillion were classified as stalled. Of this, 33 projects, representing over 1 trillion in investment, belonged to the electricity segment. A large part of these investments are in the form of bank loans.

“46,000MW of power projects are facing viability issues due to lack of long-term buyers for electricity, inadequate fuel supply, and aggressive bidding to win projects and coal blocks. Of this, 36,000MW are coal-based projects within which tariff under-recovery has impacted 20,000MW of capacities, while the rest are reeling because of inadequate feedstock and poor electricity offtake by discoms," a Crisil report on 28 July, added.

Cash-strapped state electricity boards (SEBs) have been unwilling to procure electricity, given the low tariffs they earn for power supply, the slow progress in reducing losses and the higher power purchase costs. SEBs are laden with debt of 3.04 trillion and accumulated losses of 2.52 trillion.

The problem seems to be growing.

“Ind-Ra estimates the outstanding debt of the seven discoms (Rajasthan, Uttar Pradesh, Tamil Nadu, Haryana, Jharkhand, Bihar and Andhra Pradesh), which had their debt restructured, to have grown by 23.3% to around 2,754 bn in FYE15 over FY13," said India Ratings and Research, the domestic arm of Fitch Ratings, in a 29 July report.

With an installed capacity of 45,048MW, NTPC has around a 17% share of India’s power generation capacity of 272,593MW, and has set itself a target of becoming a 128,000MW power producer by 2032.

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ABOUT THE AUTHOR
Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Published: 03 Aug 2015, 01:15 AM IST
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