The Prime Minister’s Office has made it clear that BPCL, Concor, Shipping Corp, Air India and others will be sold to private players. NEEPCO and THDC, however, were earmarked for consolidation within the public sector space from the start.
The Department of Investment and Public Asset Management is still to hire transaction and legal valuers for the deal, but internal estimates suggest that NTPC’s acquisition of the Centre’s stake in two companies
could be worth around Rs 8,000 crore. This is a fraction of what the exchequer needs to garner this year, but the acquisitions mean a lot more for the power sector in India, and for NTPC.
The public sector unit (PSU) is India’s largest thermal power-generating company, so why it acquiring two hydro-electric power companies? This is principally to fuel its renewable energy targets and blend clean energy sources. NTPC’s current capacity stands at 57,106 Mw of which coal-based power accounts for the lion’s share of 42,900 Mw.
By 2022, the company plans to add 20,000 Mw of thermal and renewable capacity. For this, it is planning mega solar power projects in arid areas of Gujarat and Rajasthan and constructing solar plants near its existing thermal units. Renewable energy now comprises about 3 per cent of its power generation mix, including hydro (see chart: Generation Shift), but NTPC
needs a balancing energy source against solar and wind energy — solar runs for 8-10 hours a day and wind power is seasonal. NEEPCO and THDC are expected to provide this balance (since hydro-power can, unlike coal or gas plants, be switched on and off rapidly).
At present, NTPC has only one hydro-power project — the 800 Mw Koldam plant in Himachal Pradesh. It had earlier held talks to acquire the Centre's stake in SJVN Limited, a joint venture with the Himachal state government. But that fell through because the state government did not agree to a stake sale to another power generator. With THDCIL and NEEPCO, NTPC will not only expand its hydro portfolio but also a footprint in the north-east.
In fact, as part of the broader plan, NTPC is backing down thermal power in places where it is easier to make room for renewable power. To this end, it has tendered for 2Gw of solar and wind power. Also, as Business Standard had reported, NTPC’s larger plan is for its pithead plants (that is, those near coal sources) to run at over 90 per cent plant load factor (PLF or operating ratio) and non-pithead ones will act as peaking plants — which means they will be scaled up when demand peaks over average consumption.
Executives said the rate at which power is sold to power distribution companies (discoms) would remain unchanged. The tariff would be same as the generating unit is currently selling power to a particular state/discom. The schedule and amount of power supply would also remain unchanged. However, given that both solar and wind tariffs have fallen below Rs 2.5 per unit in the past year from Rs 3 per unit a year before, NTPC is hopeful of supplying cheaper power.
Logically, the state-owned hydro-electric power company, NHPC Ltd should be buying these hydro assets. However, at a market cap of Rs 23,957 crore as on last Thursday, the company is dwarfed by NTPC’s financial muscle with a valuation is Rs 1.14 trillion.
This isn’t the first time that the Centre has turned to the power sector for a PSU-to-PSU stake sale. Last year, the state-owned financial institution Power Finance Corporation Ltd acquired the Centre’s 52.63 per cent stake in the rural electrification company REC Ltd for Rs 14,500 crore, which was 17 per cent of the year’s divestment proceeds of Rs 84,972 crore.
Unlike the somewhat weak logic for that transaction, NTPC’s buyout of NEEPCO and THDC has some strategic rationale.