NEW DELHI: In a surprising turn of events, state run NTPC Ltd, India’s largest power generation utility, has conveyed its intention to acquire Reliance Infrastructure Ltd’s Delhi electricity distribution businesses.
Its interest in buying 51% stake each in the lucrative BSES Rajdhani Power Ltd (BRPL) and BSES Yamuna Power Ltd (BYPL) discoms, that supplies electricity to around 4.4 million customers in the national capital is understandable given its ambitions for the power distribution space.
Enel Group of Italy, Torrent Power Ltd and Greenko Group have submitted non-binding offers to buy Reliance Infrastructure Ltd’s Delhi electricity distribution businesses.
NTPC, which accounts for nearly a fifth of India’ installed power generation capacity of 370 gigawatt (GW), has been looking at electricity distribution business for some time now. 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.
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. It has an installed capacity of 62,110 MW through 70 power projects and recently acquired hydropower firms THDC India Ltd and North Eastern Electric Power Corporation Ltd. (Neepco), as part of one of the government’s largest asset-sale exercises.
The timing of the move is also crucial.
NTPC's play for Delhi discoms comes at a time of India ushering in the next generation power sector reforms, which involves privatising discoms in the Union territories of Dadar and Nagar Haveli, Daman and Diu, Puducherry, Chandigarh, Andaman and Nicobar Islands, Lakshadweep Islands, Ladakh and Jammu and Kashmir discoms.
NTPC 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. It is likely to compete in the privatisation exercise of power distribution utilities in the Union territories, Mint reported.
It was in 2002 last that three of Delhi's discoms were privatised - a feat made possible due to the restructuring of Delhi Vidyut Board with separate entities housing generation, transmission, and discoms, along with a holding company. The clean opening balance-sheets of the restructured utilities, a guaranteed return on equity (ROE) of 16% to discoms for five years till 2007 and the transition support helped the process.
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.
But the electricity distribution business in India is no child's play.
It has significant political ramifications, a fact established by the Aam Aadmi Party (AAP) recent moves. Providing free power up to 200 units every month for households, a 50% subsidy on monthly power consumption of up to 400 units announced in 2015, and capping electricity tariff paid handsome dividends for AAP in the Delhi elections.
And 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.
This will be an interesting summer, with one of the most eagerly watched discom stake sale unfolding amid a heatwave that has seen May temporartures in the national capital touch the highest since 2002.