NTPC fails to light up street, more challenges ahead
Rajanya Bose Aug 4, 2011

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No assured guarantee of coal and poor financial health of state electricity boards are the biggest challenges that NTPC faces as a company and the power sector faces at large. That was what Arup Roy Chowdhury, chairman and managing director, NTPC, told reporters after an investors’ meet in Mumbai.

NTPC received around 137 mmt of coal in 2010-11 as against around 136 mmt last year. It has a 20 year long contract for supply of coal from Coal India but there are question marks over Coal India’s performance itself in recent times. It also received less gas than what it had received last year which means its ambitious target of producing 128 GW by 2032 (present capacity of 34,854 mega watt) might not be on track. It wants to achieve a target of being able to produce 66000-67000 MW by end of 12th five year plan for which availability of fuel is crucial. NTPC has underperformed the benchmark Sensex by 8 percent last year and given its rich valuations till now, it is likely to underperform in near term.

NTPC has underperformed the benchmark Sensex by 8 percent last year. PTI
The stock is down 3.3 percent since results were announced, though the Sensex is down even further over the same period of time. However, here are the challenges that lay ahead for the company.

Key take aways from the meet:

•State Electricity Boards (SEBs) are asking NTPC (avg. tariff Rs2.77/kWh) to cut down production in gas-based stations which are more expensive. Here generation was down 22 percent this quarter. It is asking for the same for coal based stations use imported coal and charge 15 percent higher prices. In fact, a Bank of America Merrill Lynch report points out that first quarter coal based generation grew by 1 per cent despite capacity rising by 8 percent.

•NTPC claimed that the government had promised NTPC would retain the mines after they were de-allocated for insufficient progress. He said that the ministry was now including clauses that were not mentioned when they were first rewarded with the mines. But apparently matters were sorted, and government officials have promised that NTPC would retain its mines. The mines that had been taken away were Chhati Bariatu (South), Chatti Bariatu and Kerandari, all situated in Jharkhand.

•NTPC has formed its joint venture with Coal india to acquire coal mines domestically and abroad as well as develop coal mines in India. It has a target of 47 million tonne per year of coal by 2017 from the 5 blocks allotted to it. It is also bidding for 4000 MW ultra mega power project (UMPP) among 20 other players like Adani, Tata Power and the Essar Group.

•It decided not to bid for Bandanna Energy, an Australian coal miner because the price of the imported coal would be unviable. But it has to look for assets abroad and needs to import around 16 million tonnes of coal this year against a requirement of 164 million tonnes. Commodity prices are high at present and NTPC might ideally be waiting for coal prices to cool down a bit before making any deals. The chairman said that right now there is a perception that any high price will sell. “But once they find out there are no takers, prices will be revised or regulated.” He believes prices for coal internationally will also moderate as India and China being the largest buyers of coal, will not be able to afford to buy at such high prices consistently.

•The company does not need extra capital infusion right now as they have also tied up with the State Bank of India for a loan of Rs 10000 crore. This is the single largest amount of loan from SBI to any corporate entity. The rupee term loan has a maturity of 12 years with a drawdown period of 4 years.

•Roy Chowdhury and the board of directors of NTPC agreed that the only way to give the right impetus to the power sector was to rightly price it. People could no more afford to take commodities like power and water for free if they wanted quality and quantity. But the chairman said, only right policies and overall economic development could make it happen.

•The chairman said, “people must change their perception that NTPC is not delivering. He said in first five years of this month, NTPC has not missed a single deadline for any MoU for the government. NTPC has added 2500 MW of power this year, the highest in its history and has a target of 4500 MW for this year. Plant load factor which indicates the capacity utilized by a coal station has been high at 86.85 percent for the first quarter as against an all India average of 76.67 percent. Chowdhury said, people must not look at NTPC as some off-take for state electricity boards and was as efficient as any other independent power producer. “It’s difficult to say power sector will stay regulated or not. But in either scenario, NTPC can be the best,” the chairman signed off.