Stringent rules only for NTPC would be sacrilege: Arup Roy Choudhury

Interview with Chairman & Managing Director, NTPC

Power sector stocks are being battered down by the markets, thanks to the uncertainties surrounding fuel, impact of Rupee and slow policy action. The company’s country's single largest power producer, NTPC, chairman and managing director Arup Roy Choudhury is busy reaching out to his investors as the company believes it is insulated from most of these issues.

He assures that the state-owned power generator's business model is different, to Katya B Naidu and Malini Bhupta.

Lack of fuel availability is affecting many coal-based power plants. What is NTPC doing to ensure fuel is available to its plants?

We are going to import 60 million tonne of coal. We are not factoring in more than 145 million tonnes from Coal India. We have tied-up for more than 178 mt for next year as well. For this year, we have already ordered 7.3 mt and another five mt will be ordered later this year. This should help us meet our coal needs this year.

We are also developing six coal blocks awarded to us with estimated coal reserves of three billion tones in reserves. The first coal mine, Pakri-Barwadih 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%.

Will increased imports impact the company's earnings due to Rupee depreciation?

Imports accounted for 5.9% of coal received in 2012-13. 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 withing 80 km of coal mines with own 'merry go round' rail system/conveyor belt system. Supplies for the other six plants transported through national rail network.

How will change in Central Electricity Regulatory Commission's (CERC) tariff regulation affect the company?

Revision of tariff regulations is a routine matter for the CERC and it is reviewed every five years. Existing tariff tegulations (2009-14 period) will expire on 31.3.2014 and revision of regulations for the 2014-19 are now under consideration.

In the last five years, there have been many instances when we had petitioned CERC. For example, abnormal increase in water charges by state governments, which was not envisaged earlier, higher operation and maintenance charges considering the abnormal increase in inflation which has happened during this period, need for lower target availability due to poor availability of domestic coal.

These are now going to be considered in Tariff Regulation 2014-19. These are, however, some of the things which we expect to get compensated in this new 2014-19 Tariff Regulation.

If the regulator tries to make any of the parameters more stringent keeping only NTPC in mind, it will be a total sacrilege for the country’s power generation because NTPC has only 18% of the installed capacity in the country against 38-40% of the state sector.

The regulator, which is actually a body created to encourage development of the power sector in the country cannot do anything to dis-incentivise and de-motivate the single largest power generating entity in the country.

Power off-taker has been seeing a downward spiral in the last few months. When do you see it picking up?

The off-take of power has reduced because of the financial health of the state distribution companies. But, I feel that it is only a temporary phase. It is a temporary lull because states are working on this prior to the general elections.

I see that the demand will increase tremendously as all states would like to provide as much power to their consumers as possible. This low demand by SEBs however does not affect the business model of NTPC since our regulated return on our investment is based on the availability of our machines which are at very high levels. I have a high-return business model.
 
NTPC had bid for and lost out on ultra mega power projects (UMPPs). More are projects are expected to call for bids. Would you be interested?

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.

How does NTPC plan to utilise its cash pile?

We are prepared with cash in case we feel the need to buy some assets in the sector that look attractive. However, we will only look at power assets if land, fuel, water and environmental clearances are available.

Some power producers have gone in for power assets without ticking off these boxes and we will not do that. We will also 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.

What happens to the 4,000 megawatts of gas-based plansts as gas prices increase next year? Most of your capacity is running at low capacity, currently.

Gas based power generation would become unviable if prices go up. Even though our plant capacities are available, consumers who may want power, may not buy it at high rates from those plants. However, we believe that US shale gas will have an impact on gas prices over time. Gas prices may not remain where they are.

NTPC has been meeting investors regularly. Are they worried about investing in the power sector?

Investors and analysts are largely confused about the Indian power sector. Added to that the vulnerability of the Rupee has also totally confused the market.

The vulnerability of the Rupee does not have much impact on NTPC operations since most of the orders for the machines have been given to companies who are manufacturing in India and the imported components of these machines are reasonably marginal.

The impact of devaluation of Rupee on the imported coal is also not very significant because the imported coal used by NTPC is less than 10% of the total requirement. NTPC's payment model is based on the availability of the plants which are consistently delivering at high levels, and other costs are passed through.