BackNTPC advised to revisit capacity expansion, acquisition plan
Panel says NTPC's profit has not risen in proportion to its capacity addition due to low demand from states
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New Delhi: State-owned NTPC Ltd has been advised by its audit committee to scale back its planned capacity addition targets due to muted demand, even as per capita electricity consumption in India remains low. In addition, the committee has asked India’s largest power generation utility to “revisit" its inorganic growth plans.
The audit committee has said NTPC’s profit has not increased in proportion to its capacity addition due to low demand from states, according to documents reviewed by Mint. NTPC’s plant load factor (PLF), a measure of average capacity utilization, was 81.50% in 2013-14 compared with 83.08% in 2012-13 for coal-fuelled projects.
Of India’s current capacity, NTPC has a 17.28% share, with an installed power generation capacity of 43,128 megawatts (MW). The utility plans to add 14,038MW during the 12th Plan period (2012-17) and has budgeted an ambitious capital expenditure target of ₹ 1.5 trillion. It has set itself the target of becoming a 128,000MW power producer by 2032.
NTPC had also earmarked ₹ 10,000 crore for inorganic growth and is evaluating 34 acquisition opportunities totalling 55,000MW. But its audit committee said “the company might seriously revisit its capacity addition plans including those through inorganic growth".
“On the one hand, the company was under constant pressure to incur capital expenditure to meet its capacity addition targets, on the other hand, despite lower cost, it was being considered as a generator of last resort," the committee said, adding that states were preferring to procure electricity from private power producers.
While India has an installed power generation capacity of 249,488.31MW, it faced a peak deficit of 3.7% in June. Analysts say the data doesn’t capture the real demand, ascribing the lower deficit to the unwillingness of state electricity boards to buy enough power because they cannot afford to do so.
NTPC’s audit committee added: “Government policy should provide clear direction regarding future course of action including capacity addition."
The issue assumes significance because of India’s low per capita electricity consumption. According to the World Bank, India’s per capita power sector consumption, around 800 kilowatt-hour, is among the lowest in the world. Around 600 million Indians do not have access to electricity and about 700 million Indians use biomass as their primary energy source for cooking, according to the Planning Commission.
“This is a reality and has to be faced. The government is seized of the issue," said a senior government official requesting anonymity.
This also comes in the backdrop of India’s apex power sector regulator Central Electricity Regulatory Commission (CERC) rejecting NTPC’s representation to revisit electricity tariff norms applicable during financial years 2015-19. CERC’s February order said incentives would be based on the PLF metric and not plant availability factor (PAF), as before.
PAF measures the generation capacity that is available, whereas PLF is based on the actual power that is generated by a plant. Effectively, CERC has linked future financial incentives with the purchase of power by distribution companies. Since these utilities are strapped for funds, PLF is often lower than PAF—implying that NTPC would be entitled to fewer financial incentives.
Power distribution companies owned by state governments owe a staggering ₹ 2 trillion to lenders. This has reduced their ability to buy power. Lower demand for power translates to a lower PLF. NTPC’s core business is generation and sale of electricity to state electricity boards.
An NTPC executive, who also did not want to be identified, said, “There will be difficulty in meeting the capital expenditure targets."
Of NTPC’s capital expenditure plan of ₹ 152,341 crore spread over 2012-17, the utility has achieved ₹ 41,631 crore (till 2013-14) with the balance ₹ 110,710 crore left to be achieved which has been termed as “challenging".
While queries emailed to an NTPC spokesperson on Sunday evening remained unanswered, a power ministry spokesperson in a text message said, “No communication has been received by ministry on such matter."
While NTPC registered an 8.50% growth in its turnover to ₹ 74,707.82 crore last fiscal, its net profit dipped to ₹ 10,974.74 crore compared with ₹ 12,619.39 crore in 2012-13.
“Unless the revenue generation of the company based on its existing capacity improves, further capacity addition would not be rational," the audit committee said.
NTPC added 1,835MW to its portfolio last fiscal and plans to add 2,023MW in 2014-15. The company had cash reserves of ₹ 16,867.7 crore as on 31 March.
“The high capex has led to an increase in NTPC’s financial leverage (net debt/Ebitda, or earnings before interest, taxes depreciation and amortization) to 2.97x at FYE14, from 2.54x at FYE13. Fitch expects the leverage to increase to 3.5x over the next three years due to the high capex and resultant negative free cash generation; and also the lower profitability due to the tariff mechanism changes," international rating agency Fitch said in an 18 June statement.
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