NTPC and Power Grid to form pan-India power distribution firm in an equal JV

New Delhi: State run NTPC Ltd and Power Grid Corp. of India Ltd (PGCIL) may shortly set up the National Electricity Distribution Company (NCDC)—a pan-India power distribution firm in an equal joint venture, said government officials aware of the development.

The new public sector unit will focus on aggregating electricity demand in the country and cater to it and may also take over weak electricity distribution utilities. It will comprise of cadre on deputation from other public sector units and is being set up at a time when the state owned distribution companies (discoms) are struggling with their finances on account of losses and borrowings. In such a situation, a national electricity distribution company can procure electricity at competitive rates and help address the issue of stressed assets in power generation.

“The contours of NCDC have been discussed upon and it will be set up by NTPC and PGCIL as a 50:50 JV,” said a government official cited above requesting anonymity.

The distribution utilities have been beleaguered by issues such as low collection, increase in power purchase cost, inadequate electricity tariff hike, inadequate subsidy disbursement, and increasing government department dues. In turn, the poor payment records of discoms have not only adversely affected power generation companies, but has contributed in causing stress in the banking sector as well.

“Setting up the NCDC doesn’t require a cabinet approval,” said the first government official cited above.

The plan is to set NCDC up along the lines of Energy Efficiency Services Ltd (EESL), which is under the administrative control of the power ministry. EESL is an energy services company, jointly operated by four state run firms—NTPC Ltd, Power Finance Corporation, Rural Electrification Corporation and Power Grid Corp. of India Ltd.

Bloomberg news wire agency on 26 February reported about NTPC and PGCIL being roped in for setting up the National Electricity Distribution Company (NCDC).

The government has also been working on a radical plan to separate the so-called carriage and content operations of existing power distribution companies, which was earlier proposed by the United Progressive Alliance (UPA) government. Carriage refers to the distribution aspect and content to electricity. In industry parlance, these are known as “wire" and “supply". The separation will allow people and companies in India buy electricity from a power company of their choice, and have it supplied to them by the distribution network that services the neighbourhood in which they live.

The distribution sector holds the key to the long-term fortunes of the power sector. However, distribution companies have so far been the weakest link in the electricity value chain. Government data showed in the first half of FY19, losses rose to Rs15,080 crore from Rs11,071 crore a year earlier. This despite the discoms’ financial losses narrowing from Rs51,480 crore in FY16 to Rs15,049 crore in FY18. Consequentially discoms have not been making timely payments to generation firms and owe Rs36,134 crore to generation companies as of 31 January.

“The distribution sector is in a mess and hence the need for a National Electricity Distribution Company,” said a second government official aware of the development cited above who also didn’t want to be named.

Also, rising non-performing assets (NPAs) in the power sector has been a major concern. The NPAs account for around 5.9% of the banking sector’s total outstanding advances of ₹4.73 trillion, according to the Economic Survey 2016-17 released in August. However, there has been a recent upturn in power demand due to the spread of household electrification, increased supply to agricultural consumers, low hydropower generation and extended summers. Requisitioning of additional power by discoms has also led to a short-term hike in electricity prices.

Queries emailed to spokespersons of NTPC, PGCIL and power ministry on Friday evening remained unanswered.

As on September 2015, the total debt of all state owned discoms was estimated to be around Rs2.45 trillion, with Rs0.8 lakh crore serviced by the states. Also, the annual discom losses in FY16, FY17 and FY18 were funded through borrowings.