New Delhi: The government has proposed that the four state-owned power-sector companies target the debt market over the next five years to raise Rs1.70 lakh crore. This will go towards financing 42,000MW of additional power generation and transmission capacity—enough to light up 12 cities the size of New Delhi, India’s second-largest city after Mumbai.
“We are planning to lean on the borrowing capacity of four big public-sector power companies—NTPC Ltd, Nuclear Power Corp. of India Ltd (NPCIL), National Hydroelectric Power Corp. (NHPC) and Power Grid Corporation of India Ltd (PGCIL),” a senior power-ministry official told Mint.
Since these companies have very little debt on their balance sheets, the government wants them to get aggressive. It has taken this view because these giant state-owned companies can leverage them to raise a lot of debt, but do not do so on account of a cautious approach to business.
The 11th Plan (2007-12) has set a target of 68,869MW of power generation capacity addition, involving a funding requirement of Rs10.31 lakh crore. According to the power ministry, the government expects a shortfall of Rs4.51 lakh crore, which will be made up through recourse to the debt market.
NTPC, NPCIL, NHPC and PGCIL together have a net worth (equity plus accumulated profit) of Rs90,000 crore as per their 2005-06 financial performance. “PGCIL is the only exception. NPCIL and NHPC have very little debt on their balance sheets. NTPC is virtually a debt-free company,” the official added.
Even if they borrow Rs1.70 lakh crore on their current net worth, their debt will only be twice their own funds or net worth, which is in line with the vital statistics of power projects in the private sector.
The government has estimated that $320 billion will be needed over the next five years to fund the country’s infrastructure needs, the bulk of which is in the power sector. A large part of the money will come from long-term debt of more than 10 years’ duration.
The latest initiative comes at a time when the government has already started working on reforming its bond market to allow long-term debt to be raised for infrastructure projects.
It appointed a committee in December under the chairmanship of HDFC chairman Deepak Parekh to look at financing issues. The committee, which has just submitted its interim report, is expected to recommend deepening and widening of the debt market.
Simultaneously, the power ministry wants the creation of a market with 20-year debt duration to fund power projects. The Deepak Parekh committee is expected to tackle the same subject from the lenders’ side. The growing insurance industry and the nascent pensionfund industry are hamstrung by the shortage of long-term debt.
This target of Rs1,70,000 crore over a period of few years would be easily absorbed by the bond market once the government kicks off reforms in the bond market.