New Delhi: Taking a stance that may affect NTPC Ltd’s chances of securing future power projects in the country, the Union power ministry is reluctant to grant the utility’s request to allocate as much as half the electricity generated by any project it builds to the state where the plant is located.
Such an allocation would help state-owned NTPC compete better with private sector rivals under the new regime of tariff-based competitive bidding. Starting in 2011, India’s largest power generation utility will have to compete to secure power projects; until now, it has been building plants on a cost-plus basis, which means it gets to charge a price that factors in the cost and a certain return.
“Such an approval is not likely. While the proposal is still under discussion, it strikes against the basic fundamental of promoting competition in the sector,” said a top power ministry official who did not want to be identified.
“All companies including NTPC will have to bid from 6 January next year. There is hardly any time left,” the official said. “Events have overtaken the intentions and CPSUs (central public sector units) will have to move to the competitive route.”
Any increase in power allocation by the government would have involved reworking the Gadgil formula for sharing of power, which is based on the investment made by the Centre and various states.
NTPC can offer up to 30% of power from a project to the home state, which is inclusive of power allocated through the Gadgil formula.
A senior NTPC executive, who requested anonymity, said: “States sometime even want allocation of up to 80% for themselves... We have moved the idea. We are a Central government entity, and if this is approved it will help us in getting new projects.”
NTPC chairman and managing director Arup Roy Choudhury did not respond to a phone call or to a message left with his assistant.
States have been demanding a larger share of power allocation, citing the resources such as land, water and fuel that they provide for setting up an electricity plant. They also play an active role in securing environmental clearances, and in resettling and rehabilitating people displaced by a project, and in maintenance of law and order.
Another NTPC executive who also requested anonymity said the “government should concede this demand”.
Mint had reported on 14 July that NTPC will have to startcompeting in 2011 with private sector rivals for government projects, with the power ministry opposed to any extension of the current system under which these are awarded to public sector companies without a bidding process.
NTPC had been lobbying the power ministry for an extension of the current regime. NTPC, which has a power generation capacity of 33,194MW, is targeting 75,000MW by 2017.
“The idea of introduction of allocations again brings in considerations that have limited logic and utility in a market and tariff-based environment,” said Gokul Chaudhri, a partner at audit and consulting firm BMR Advisors Pvt. Ltd.
The introduction of tariff-based bid pricing will bring about a “paradigm shift” from the prevailing practice of resource-rich state governments securing power on concessional terms, he said.
“Such practices risk creation of price distortions in a market-based environment. The shift, therefore, will enable a framework wherein the state governments will need to acquire power on transparent tariff-based bid basis,” Chaudhri added.
According to the power ministry’s tariff policy of 2006, competition is key to keeping prices in check through the reduction of capital costs and greater operational efficiency.