ON the face of it, state-run power major NTPC continues to outperform most of its private peers which have entered the fray in less than a decade, by raking in higher profits in relation to revenue. However, this has mostly to do with relative regulatory flexibility and policy support enjoyed by the PSU’s plants, with little contribution from the company’s operational efficiency.
During the July-September quarter, NTPC posted a net profit of R2,490 crore on a revenue of R16,415 crore, a margin of 15%. In comparison, private players Adani Power and Lanco Power posted heavy losses during the quarter while Tata Power and JSW Energy made modest profits. Only Reliance Power has posted margins slightly higher than NTPC during Q2 at 19%, thanks to efficient capacity utilisation at its Rosa and Sasan plants.
All NTPC thermal power stations operate under the protective cost-plus regime, while private firms which have bagged projects through tariff-based competitive bidding face commercial risks at every stage. Power projects are financed in a 7:3 debt-equity ratio. While NTPC is entitled to 15.5-16% return on equity (minimum 15.5% RoE and additional 0.5% as incentive when projects are completed on time) from its cost-plus projects, there is no assured return on projects awarded through the bidding route. Non-automatic pass-through of fuel costs (which have risen in the case of most plants) and a weak payment security mechanism are other irritants faced by the private players.
Pertinently, NTPC had lined up massive capacities of over 40,000 MW for implementation under the now-discontinued cost-plus (MoU) regime before the tariff-based bidding regime was made mandatory in January 2011.This means the PSU would continue to be insulated from the risks posed by the tariff-based bidding regime for some more years. Including its existing capacity of 42,500 MW, 20,000 MW under construction and another 40,000 MW for which the company has entered into MoUs with distribution companies, a massive 1 lakh MW capacity of the PSU would be out of the tariff-based bidding mechanism.
A recent study by the Central Electricity Regulatory Commission (CERC) has found that in 12 out of 14 cases, levelised cost-plus tariffs were higher than those discovered through bidding within a range of 4-20%. This, despite the report excluding subsequent capital expenditure allowed under the cost-plus dispensation for the purpose of comparison.
While Adani Power is losing Rs 1,400 crore a year or thereabouts on account of additional fuel costs on power