Bigger war chest for NTPC’s global buys

Bigger war chest for NTPC’s global buys
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First Published: Wed, Jun 24 2009. 12 53 AM IST
Updated: Wed, Jun 24 2009. 12 53 AM IST
New Delhi: The power ministry wants the Centre to allow NTPC Ltd to make an acquisition for up to $1.7 billion (Rs8,100 crore) without prior clearance from the cabinet, a move that will help the state-owned power generator’s efforts to build a global presence.
Currently, such investments in a single project are capped at Rs1,000 crore.
According to analysts, the increase in the limit will help NTPC expedite decision making while pursuing inorganic growth opportunities through acquisitions, joint ventures and subsidiaries within the country and without.
The power ministry has proposed the change to the cabinet committee on economic affairs, or CCEA, the apex decision making body on economic issues. If approved, this will allow India’s largest power generation utility to take large investment decisions without waiting for the government’s approval.
The power ministry has suggested that NTPC be allowed to invest up to 15% of its net worth in a single such project, and up to 50% of its net worth in all such projects without government approval. A company’s net worth is the sum of its equity capital and free reserves.
“The proposal has been circulated for comments to the concerned ministries and departments,” said a senior government official who did not want to be identified.
Currently, NTPC is allowed to invest in a single project up to 15% of its net worth or Rs1,000 crore, whichever is lower, without government approval. The overall limit is 30% of its net worth.
NTPC’s net worth as on 31 March was around Rs54,000 crore. The proposed change will allow it to invest up to Rs8,100 crore in one project and up to Rs27,000 crore in all such projects without seeking government approval.
In the past, delayed approvals from the government have resulted in the company missing out on investment opportunities. In December 2007, NTPC was unable to bid for Singapore’s Tuas Power Ltd because the government approval did not come in time. The move will also boost the company’s chances of winning Indian projects through the competitive bidding route.
“We are aware about the proposal which will significantly help us in taking decisions with reference to making equity investments to set up financial joint ventures and wholly owned subsidiaries in India and overseas,” said a senior NTPC executive who did not want to be identified.
Mint had reported on 20 May NTPC’s plans to set up a subsidiary similar to ONGC Videsh Ltd, the overseas unit of Oil and Natural Gas Corp. Ltd (ONGC), to look for opportunities abroad.
The power utility wants to develop power projects in Kazakhstan, win operations and maintenance contracts in the US, Europe and Bangladesh, and acquire coal mines in Mozambique and Indonesia.
According to analysts, it could cost NTPC around Rs5,000 crore to acquire a coal block in Mozambique with an initial capacity of around 5 million tonnes per annum, or mtpa, that can be increased to 25mtpa. The change, if it goes through, will help NTPC react quickly to opportunities, said an expert.
“These are competitive tenders with limited window for response. Hence, the reaction time has to be quick. If the decision making is slow and outside NTPC’s control, then quick decision making will not happen, as has been the case in the past,” said Shubhranshu Patnaik, executive director at audit and consulting firm PricewaterhouseCoopers.
NTPC returned a net profit of Rs7,827.40 crore on revenue of Rs42,182.40 crore in 2008-09. It currently has a power generation capacity of 30,144MW, which it plans to increase to 50,000MW by 2012.
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First Published: Wed, Jun 24 2009. 12 53 AM IST