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Business News/ Companies / NHPC cautions government on disinvestment

New Delhi: State-owned NHPC Ltd has told the Union power ministry that it may report a loss in the current fiscal year, dealing a potential blow to the National Democratic Alliance (NDA) government’s plan to sell a stake in the company.

The failure to start the construction of the Lower Subansiri project in Arunachal Pradesh, delay in payments by the Jammu and Kashmir government, and low tariff that does not cover high construction costs will have a 988 crore impact on NHPC, it said in a 20 August communication to the power ministry. The letter was reviewed by Mint.

These issues were raised by NHPC’s board and its audit committee on 5 August. The government plans to sell a 11.36% stake in NHPC, which is likely to fetch over 2,600 crore.

“All these issues will have an impact on the share valuation of the company also and may adversely affect the disinvestment proposal in a significant way. The board of directors has desired that these issues may be brought to the kind notice of the ministry of power at the highest level for early resolution," the NHPC communication said.

Finance minister Arun Jaitley has estimated that the government will raise 43,425 crore in the year ending 31 March by selling stakes in state-run companies, compared with 16,027 crore a year ago. Though market conditions have improved significantly, the government’s past track record of failing to meet its disinvestment target casts doubts on the prudence of relying on such one-time revenue streams for fiscal consolidation.

Queries emailed to the spokespersons of NHPC and the power ministry remained unanswered at the time of going to press.

NHPC’s profit has declined over the past two years. It posted a profit of 2,771.77 crore in 2011-12. In the following year, profit fell to 2,348.22 crore and further to 978.79 crore in 2013-14.

In its communication, NHPC raised the issue of its failure to start the construction of the Lower Subansiri project in Arunachal Pradesh, “and the consequential charging off the borrowing cost and other expenses to the statement of profit and loss, which would otherwise have been capitalized".

The 2,000 megawatts (MW) Lower Subansiri project is India’s largest hydroelectric project and has become a test case for how efficiently India can implement its strategy to harness the hydropower resources of Arunachal Pradesh with opposition from the Assam state government and civil society groups. The project’s progress has been hampered by blockades in Assam that have affected the movement of building material to the site.

In addition, India’s largest hydropower utility with a generation capacity of 5,702MW has also raised the issue of mounting dues from the Jammu and Kashmir government for electricity supply, and non-approval of revised cost estimates of commissioned projects of Chamera-II, Chamera-III, Sewa-II, Chutak, Nimoo Bazgo, TLDP-II and Uri-II.

“A delay in the construction of these projects increased their costs. However, in the absence of the approval, such costs can’t be reflected in the electricity tariff for the power generated from these projects. This would result in a 353 crore impact on sales," said a senior NHPC executive, requesting anonymity.

A majority of NHPC’s hydropower projects have been inordinately delayed because of disputes between states, geological surprises and resistance from the local population.

“Non-recovery of dues from J&K 1,575 crore as on 19 August 2014 out of which 825 crore is outstanding for more than six months. Auditors may insist on creating a provision towards such outstanding dues. Further, non-realization of dues from J&K shall have an impact on the interest income of the company," NHPC said in the communication.

Mint reported on 15 August about NHPC deferring its plan to suspend electricity supply to Jammu and Kashmir for a second time, even as the state’s dues to the hydropower utility have been mounting. NHPC’s June decision to withdraw its notice to suspend supply comes in the backdrop of forthcoming elections to the 87-seat state assembly. The Bharatiya Janata Party (BJP), which leads the NDA government at the centre, has been trying to make electoral inroads into the terrorism-hit state.

“In this meeting, it was noted that the failure to resolve the above issues, to the satisfaction of the auditors and CAG (Comptroller and Auditor General of India) shortly, say within the next three months, may result in wiping out of the entire profit of the company during FY2014-15. It may even result in disclosing a loss for the year ended 31 March 2015," NHPC said.

Interestingly, the department of disinvestment had earlier deferred NHPC’s offer for sale in 2013 as the stock had slumped and the company seemed unable to find a permanent chief executive. Nothing much has changed. The post of chairman and managing director has been vacant since January 2011, with additional charge being handled by several incumbents over a period of time.

Shares of NHPC gained 0.71% to close at 21.35 on BSE on Friday, on a day the benchmark Sensex index fell 0.22% to 27,026.70 points.

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Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Updated: 08 Sep 2014, 12:35 AM IST
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