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NTPC appoints EY as advisor for buying BSES’ Delhi discom businesses

NTPC had evinced interest in acquiring a 51% stake each in BSES Rajdhani Power and BSES Yamuna Power . (Mint)Premium
NTPC had evinced interest in acquiring a 51% stake each in BSES Rajdhani Power and BSES Yamuna Power . (Mint)

  • While NTPC’s core business is generation and sale of power to state electricity boards, it has had its eyes set on distribution since 2008.
  • NTPC has been working on a strategy to face the challenges posed by an evolving energy landscape marked by regulatory changes and low green energy tariffs

NEW DELHI : State run NTPC Ltd has appointed consulting firm EY as an advisor for acquiring Reliance Infrastructure Ltd’s Delhi electricity distribution businesses, said two people aware of the development.

NTPC, which accounts for nearly a fifth of India’ installed power generation capacity of 370 gigawatt (GW), had in May evinced interest to buy Reliance Infrastructure Ltd’s 51% stake each in BSES Rajdhani Power Ltd (BRPL) and BSES Yamuna Power Ltd (BYPL), that supplies electricity to around 4.4 million customers in the national capital.

“EY and SBI Capital Markets had bid for the NTPC’ mandate which was later awarded to EY," said a first person cited above who did not want to be named.

This comes in the backdrop of Enel Group of Italy, Torrent Power Ltd and Greenko Group submitting non-binding offers to buy Reliance Infrastructure Ltd’s 51% stake each in BRPL and BYPL, Mint reported earlier.

Queries emailed to the spokespersons for NTPC, BSES and SBI Capital Markets Ltd on Thursday morning remained unanswered. An EY spokesperson declined to comment.

While NTPC’s core business is generation and sale of power to state electricity boards (SEBs), it has had its eyes set on distribution since 2008. India’ largest power generation utility has been working on a strategy to face the challenges posed by an evolving energy landscape marked by regulatory changes and record low green energy tariffs.

Last year, in an equal joint venture with state-run Power Grid Corp. of India Ltd (PGCIL), NTPC set up the National Electricity Distribution Company (NCDC)—-a pan-India power distribution firm.

“EY will help NTPC evaluate the two BSES utilities," said a second person aware of the development cited above requesting anonymity.

These Delhi power distribution utilities are some of the most stable and lucrative assets in India, with the national capital reporting the lowest aggregate technical and commercial loss of 9.7% in the country, where the average loss is 21.4%, among the highest in the world.

According to a communication dated 26 May to Delhi State Regulatory Commission (DERC) reviewed by Mint, state run NTPC said, “We have learnt from media reports that Reliance ADAG wants to divest its 51% stake in BSES Rajdhani Power Ltd (BRPL) and BSES Yamuna Power Ltd (BYPL)."

“We would like to inform you that NTPC has decided to foray into distribution sector and is keen on acquiring the distribution assets," the communication said.

While BSES Rajdhani Power has a per capita electricity consumption of 4,771 kilowatt-hour (kWh) and a peak demand of 3,211MW; BSES Yamuna Power has a per capita electricity consumption of 3,864 kWh per year and a peak demand of 1,561MW. In comparison, India’s per capita power consumption is around 1,149 kWh, among the lowest in the world.

Mint reported on 12 May about Anil Ambani putting BSES Rajdhani and Yamuna discoms on the block with KPMG managing the stake sale process. KPMG was later removed by Reliance Infrastructure Ltd from running the sale process.

A KPMG spokesperson in an emailed response said, “We would not like to comment on this beyond confirming that we are not associated with this sale process by ADAG (Anil Dhirubhai Ambani Group)."

Besides issues such as delays in issuing of tariff orders by the Delhi Electricity Regulatory Commission, which has led to increased working capital cost, and capital expenditure true-up pending since 2004-05, bidders will also have to take a call on regulatory assets.

A regulatory asset is created when the power regulator accepts certain expenditures but does not factor them in while setting tariff. These expenditure are to be adjusted in future tariff changes and, in the interim, are accounted for as regulatory assets. The total regulatory assets' claims of BRPL and BYPL are to the tune of around Rs40,000 crore.

BSES Rajdhani Power, BSES Yamuna Power and Tata Power Delhi Distribution Ltd. were privatised in July 2002. The distribution firms are joint ventures with Delhi Power Co. Ltd, which owns a 49% stake in each of them. The other discoms in Delhi are Military Engineering Services (for Delhi Cantonment) and the New Delhi Municipal Corporation.

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