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Ourview | Two power sector stories

Ourview | Two power sector stories
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First Published: Sun, Sep 18 2011. 11 34 PM IST

Updated: Sun, Sep 18 2011. 11 34 PM IST
Tales from the Indian power sector are, for most part, grim, often pointing to an impending doom unless there is serious course correction. Weak regulators nudged by politically motivated distribution utilities have failed to align electricity tariffs with rising power procurement costs over the last few years. This situation has not entirely put off investors in the generation business since beyond the mismanaged utilities lie consumers whose thirst for electricity is growing by leaps and bounds. And that perhaps explains the private sector’s satisfactory response when the government tenders out large capacity projects under the ultra mega policy. However, there is one company that has failed to bag any of the four 4,000 megawatts (MW) projects—NTPC Ltd. Yet, its flourish is best noticed by its procurement appetite. Early this year, NTPC came back to the market for a second bulk tender for more efficient higher capacity 800MW machines grossing 7,200MW.
Why is this not adversely affecting the company? Among other reasons, NTPC is largely insulated from the perils of dealing with financially fragile utilities since it has access to government funds in the event utilities default on bills. This was part of a deal struck at the turn of the century. In return, NTPC waived a part of accumulated dues owed at that point of time.
The complexion of state support changes when it comes to a key government-owned equipment supplier, Bharat Heavy Electricals Ltd (Bhel), which has anchored the domestic power sector with its well-priced, reliable equipment supply. Even if it does not emerge as the lowest bidder, the leading power company is assured by the government of a significant pie of this business so long as it matches the lowest bidder. This allowance is aimed at providing volumes to enable indigenization of new technology—essential for Bhel to remain relevant in the marketplace. Yet, this concession does not bump up consumer tariff.
Last week, when NTPC opened bids for the 800MW bulk turbine tender, the merits of this arrangement played out. Bhel won no honours. As a result, only if Bhel matches BGR Energy-Hitachi’s price, can it get the deal to supply two machines to NTPC. Curiously, around the same time in another theatre, the essence of this approach has been completely lost. The Indian Railways is planning to award a coach factory to Bhel on a nomination basis despite shortlisting eight private firms.
Should there be limits to government support for power firms? Tell us at views@livemint.com
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First Published: Sun, Sep 18 2011. 11 34 PM IST
More Topics: Ourviews | Power Sector | NTPC Ltd | Bhel | Views |