Health of power sector depends on how restructuring package is executed: NTPC chief

Arup Roy Choudhury says once a coal regulator is in place, things will become transparent

The chairman and managing director of India’s largest power generator, NTPC, can't fathom why his company’s stock trades so cheap. The company’s best placed in the entire sector as it is largely insulated from the issues faced by other power producers. Yet, the market is not impressed. The market is concerned about adverse regulations (tariffs), which are due to change from 2014. So to mitigate these fears, the company’s chairman and managing director Arun Roy Choudhury is busy reaching out to investors, giving them details on the  availability of coal, plant availability factor and spare cash available with the company. Just before an investor conference in Mumbai, Choudhury addressed most of the concerns that investors have raised over the last few quarters.

On availability of coal

We are going to import 60 million tonne of coal and we are not factoring in more than 145 million tonne from Coal India. We have tied up 178 mt more for next year also. For this year, we have already ordered 7.3 mt and another 5 mt will be ordered later this year. This should help us meet our coal needs this year. Imports accounted for 5.9% of coal received in FY13. Despite the imported coal, the company is not going to take a major hit due to falling rupee as imported coal forms a small component of the overall fuel requirement. Also, 10 out of 16 of plants (accounting for 76% of directly owned coal fired capacity) are within 80 km of coal mines with own “merry go round” rail system/conveyor belt system. Supplies for the other six plants are transported through national rail network.

We are also developing six coal blocks awarded to us with estimated coal reserves of 3 billion tonne in reserves. The first coal mine, Pakri-Barwadih is expected to be operational during 2013-14. The company plans to produce 100 mt of coal over the next six-seven years. By 2032, we intend to reduce our reliance on coal-based fuel from the current 89% to 56%.

Key things to watch out for

Whichever government comes to power, it will have to focus on the power sector as energy is the driver of any economy. We would like to see availability of power 24X7. However, the state electricity boards have to be compensated for free power that has been promised to people. The health of the state electricity boards is of importance and how their financial restructuring plan (FRP) is implemented is crucial. Most states have increased tariffs by 20% over the last few quarters, which suggests the tariffs were unrealistic and not sustainable.  Given that this is a pre-election year, states have their contingency plans on how to meet power needs. Plant availability will be better this year than last year.

Utilisation of cash pile

We are prepared with cash in case we feel the need to buy some assets in a sector that looks attractive or bid for coal mines in case the government looks at auctioning some of them. We believe that once a Coal Regulator is in place, things will become very transparent. We will aggressively bid for mines if government auctions mines. However, we will only look at power assets if land, fuel, water and environmental clearances are available.

On ultra mega power projects

We have been in this business for 40 years and we believe we had bid at realistic prices. However, we did not win any UMPPs then. Now we are in talks again for UMPPs again as we believe we have the experience and understanding of the sector. In the past, some players quoted unrealistic prices.

What happens to the 4000 MW gas-based plants once gas prices increase next year?

Gas capacity would be unviable even though our plant capacities are available to consumers who may want power from those plants at those rates. We believe that US shale gas will have an impact on gas prices over time. Gas prices may not remain where they are.