The Rajasthan government has offered to sell its power projects to state-owned NTPC Ltd in an attempt to reduce debt.

The offer by the Rajasthan government assumes significance as NTPC plans to acquire stranded assets in India.

Rajasthan has a power generation capacity of 16,235.50 megawatts (MW), with 3,539.65MW capacity under construction and an additional 34,243MW sanctioned for the 13th Plan (2017-22).

Of these, the Rajasthan Rajya Vidyut Utpadan Nigam Ltd, the state government-owned generation arm, has an installed capacity of 5357.35MW.

State electricity boards (SEBs) are laden with a debt of 3.04 trillion, of which Rajasthan SEB accounts for 81,000 crore.

“The Rajasthan government has offered us their generation assets. It’s now for us to do the due diligence and choose the ones we want to acquire," said a senior NTPC executive, requesting anonymity.

Another NTPC executive who also didn’t want to be identified confirmed the development.

Queries emailed to Sanjay Malhotra, principal secretary, energy, Rajasthan government, and an NTPC spokesperson remained unanswered till press time.

Cash-strapped SEBs have been unwilling to procure electricity, given the low tariffs they earn for power supply, the slow progress in reducing losses and high purchase costs.

The exposure of the banking sector alone—excluding non-banking financial companies—may be around 2 trillion today, according to analyst estimates.

“The utilities sector is witnessing heat on profitability mainly on account of muted growth in power demand (a decline of 0.5% year-on-year in Apr-May 2015). With the robust generation capacity in place and a healthy pipeline of projects in the construction phase, SEBs’ weak financial health remains the main concern at this stage," ICICI Securities wrote in a 16 April report.

Rajasthan SEB registered a loss of 16,500 crore and 13,000 crore in 2013-14 and 2014-15, respectively.

“The proposition of the sale of Rajasthan state-owned generating units to NTPC can be viewed in two perspectives: one of Rajasthan state enterprises, which may be needing cash to ward off their large outstanding in the distribution sector," said Anil Razdan, a former power secretary.

“The other perspective is of NTPC, which is looking at distressed generating stations which may be on offer for sale to add to the portfolio of generation. NTPC will have to ensure that the generating cost from any such station is not higher than their own stations, which are also running at a lower plant load factor than in the past," Razdan said.

“NTPC will also have to examine whether there are valid and standing power purchase agreements between the Rajasthan government-owned stations and the stressed distribution entities of Rajasthan, as well as the ability of the discoms to make timely payment for power purchase," Razdan added.

Mint reported on 20 July about Rajasthan betting on more private-sector participation in power projects, cutting the cost of power purchase and finance and providing 3 million new connections to ensure electricity distribution reforms in the state.

NTPC had earlier been planning to acquire 8,000-9,000MW of capacity and had created a committee under the board’s supervision to evaluate the opportunities.

It later scaled down its targets. The utility received 34 proposals for a total of 55,000MW in response to the expression of interest (EoI) that it floated early last year for acquiring generation capacity from other power producers.

In addition, it has also received around 12 proposals in response to a second EoI floated in December.

NTPC has earmarked 10,000 crore for funding the inorganic growth.

With an installed capacity of 45,048MW, NTPC has around 17% share of India’s power generation capacity of 272,593MW, and has set itself a target of becoming a 128,000MW power producer by 2032.

NTPC has been acquiring state government-owned power projects. It signed an agreement with the Jharkhand government in May for setting up a 4,000MW power project in a joint venture, wherein NTPC will have a 74% stake with the balance owned by Jharkhand Bidyut Vitaran Nigam Ltd.

This comes at a time when there is a growing appetite for electricity in India.

The country’s per capita electricity consumption has reached 1,010 kilowatt-hour (kWh) in 2014-15, compared with 957 kWh in 2013-14 and 914.41 kWh in 2012-13, according to the Central Electricity Authority, India’s apex power sector planning body.

This is expected to grow with India’s per capita power consumption being among the lowest in the world.

Close