NTPC’S new power play
Why the country’s largest thermal power generator is buying two state-owned hydro-power units
On November 20, the Cabinet Committee on Economic Affairs approved a number of key decisions on divestment. Among them was the strategic disinvestment of the Centre’s entire stake in Bharat Petroleum, Shipping Corp, THDC India Ltd and NEEPCO Ltd, and most of its stake in Container Corp, relinquishing management control in these companies at the same time. It also gave inprinciple approval for the government to reduce its stake in certain stateowned companies to below 51 per cent but retain majority stake and thus management control.
These major divestment decisions were taken as the government races against time to meet its highest-ever divestment target of Rs 1.05 trillion for 2019-20. Although the focus has mostly been on the privatisation of marquee names such as BPCL and Air India, what has gone unnoticed is the sale of the Centre’s stake in TDHC and NEEPCO to power major NTPC Ltd.
THDC — formerly Tehri Hydro Development Corporation Limited — operates 2,400 Mw of hydro power projects including the Tehri Dam. The centre owns a 74.23 per cent stake in the company, the government of Uttar Pradesh owning the rest. NEEPCO, or North Eastern Electric Power Corporation Limited, operates power stations in the north-east, totalling around 1,457 Mw 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 ~2.5 per unit in the past year from ~3 per unit a year before, NTPC is hopeful of supplying cheaper power.
Logically, the state-owned hydroelectric power company, NHPC Ltd should be buying these hydro assets. However, at a market cap of ~23,957 crore as on last Thursday, the company is dwarfed by NTPC’S financial muscle with a valuation is ~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 ~14,500 crore, which was 17 per cent of the year ’s divestment proceeds of ~84,972 crore. Unlike the somewhat weak logic for that transaction, NTP C’s buyout of NEEPCO and THDC has some strategic rationale.