Even as private power majors like Tata Power, Adani Power and Lanco Power have become cautious about investing further in the sector, state-owned NTPC is looking to acquire stranded power plants to expedite its capacity addition plans.
Sitting on a cash reserve of R17,000 crore, the Maharatna PSU is keen to buy out a mega-sized super-critical power plant. It has set up a committee to identify and evaluate acquisition targets.
NTPC chairman Arup Roy Choudhury told FE: ?We want to acquire one super-critical power plant with a capacity in the range of 1,300 mw. Three-four such projects have already been identified and the proposals are being evaluated.? NTPC may have to spend more than R7,000 crore for such a buy-out, an industry expert said.
?It makes sense for NTPC to acquire distressed power projects where it can add value to project economics. NTPC definitely has better capability to manage fuel risks than smaller players?, said Salil Garg, an analyst with India Ratings, a credit rating agency.
However, Kameswara Rao, leader, energy utilities and mining, PWC, feels that identifying the right asset may not be easy among the pile of stranded projects. ?Acquisition would make sense if the project has strong fundamentals in terms of fuel supply and sale strategy. However, a large number of projects have delivery (execution) risks, and so the challenge is in identifying the few good among the many doubtful ones,? Rao added.
Private players had stepped up their capacity addition pace in recent years to cash in on the country?s fast-growing demand for electricity. But Rao said, ?The recent trend of strong growth in private sector capacity addition has now come to a halt and most developers are reassessing their future plans, pending policy and regulatory clarity.?
For acquisition, NTPC is keen on projects which have got equipment from Bhel and European vendors.
It has issues with those projects where Chinese companies are equipment suppliers.
Significantly, there are not many private power projects based on Bhel equipment. If NTPC sticks to its ?no Chinese equipment? principle, its options would be limited to power projects of state electricity boards which have equipment from Bhel. Even if it finds a private project based on Bhel equipment, it could still face difficulties in acquiring the asset if the target company is not listed on the exchanges, according to industry experts.
Significantly, NTPC is under pressure from the finance ministry to step up investment. If it fails to do that, NTPC faces the risk of its profits being pocketed by the ministry as special dividend.
NTPC has decided to consider for acquisition only projects in which all physical inputs and clearances are in place and power purchase agreement has been signed.
As a Maharatna PSU, NTPC can take its own investment decision. However, the PSU may take the committee of secretaries (CoS) route to avoid any possible controversy. ?If our board decides we can go to the CoS for investment clearance for the proposed acquisition?, the NTPC chairman said.
With a 20% (42,000 MW) share in the country?s generating capacity, NTPC remains the power sector leader. Explaining the rationale for taking the acquisition route, Choudhury said, ?We have to remain the market leader. By following the inorganic growth path, we can avoid the hassles of land acquisition and environmental clearances. Profit will increase with capacity.?
To manage fuel risks for its new power plants, NTPC has adopted the twin strategy of captive coal mining and imports. The company has been allocated about half a dozen captive blocks with estimated reserves of 5.7 billion tonnes of coal. The PSU is also importing 16-17 million tonnes of coal a year and the quantity could go up in the coming years. In a first, the company is now using the Haldia-Allahabad waterways to move imported coal from the Sandheads port in West Bengal to its Farakka power plant in the state?a move that should help reduce its coal transportation costs and time.
