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Power ministry warns against dependence on merchant sales

Power ministry warns against dependence on merchant sales
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First Published: Wed, Jan 27 2010. 10 28 PM IST
Updated: Wed, Jan 27 2010. 10 28 PM IST
Mumbai: Plans by India’s largest electricity generator, NTPC Ltd, to sell a part of its output at market rates may have to overcome the resistance of the power ministry, which does not appear to be in favour of the idea.
At a press conference on Wednesday to announce NTPC’s follow-on public offering, Union power secretary H.S. Brahma cautioned power companies against depending on merchant power sales, saying that it was not viable in the long run.
“There is no demand for power in the night after 10pm. The tariffs are as low as 10 paise after midnight and as private companies build capacities, merchant sales will not be as relevant like it is today or as it was yesterday,” he said. “Power companies should keep this in mind.”
Brahma said the ministry of power has 5,500MW of unallocated power which it gives to states facing emergencies such as natural calamities.
“The Planning Commission has advised that a certain percentage of this unallocated power has to be placed in the exchanges for trading. (The suggestion) is also that NTPC could sell power in the open market,” Brahma said. “That is being examined closely, but we have differences with the Planning Commission. The matter is currently pending with the cabinet.”
On 18 January, R.S. Sharma, chairman and managing director of NTPC, had told Mint that his firm plans to set up merchant power capacity of about 6,000MW by 2017. NTPC currently generates 30,644MW and plans to increase it to 75,000MW by March 2017.
Sharma did not answer queries on merchant power at the press conference.
State-run power companies such as NTPC have to sell 85% of their output to state electricity boards under long-term agreements. The remaining 15% is given to power-deficit states at the discretion of the power ministry. This will change if the government allows NTPC to sell its unallocated quota as merchant power.
NTPC, which gets an average of Rs2.20-2.30 per unit of power now, plans to earn at least Rs8,000-10,000 crore by selling power in the open market at Rs5 per unit, a company official had said on 18 January.
The government plans to dilute 5% of its share in NTPC through a follow-on public issue that will run 3-5 February, bringing down its stake to 84.5%. The company hopes to raise Rs12,000 crore from this.
Retail investors, high networth individuals and employees will invest at a floor price to be announced on 2 February. Institutional investors will bid above the floor price.
ICICI Securities Ltd, Citigroup Global Markets India Pvt. Ltd, JPMorgan India Pvt. Ltd and Kotak Mahindra Capital Co. Ltd are bankers to the issue.
joel.r@livemint.com
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First Published: Wed, Jan 27 2010. 10 28 PM IST