NHPC plans ten-fold capacity hike by 2012

A ten-fold increase in speed. That is what the National Hydro Power Corporation (NHPC) is aiming at, as it draws up plans to be a 10,000 mw company by 2012.

While it built less than 4,000 mw of capacity over its 30-year existence - averaging a paltry 130 mw a year - it wants to add over 6,000 mw over the next five years (averaging over 1,200 mw a year). And it is already talking of "over 20,000 mw" by 2017.

The new-found aggression can be traced to the recent re-discovery of the benefits of hydropower by the central and state governments, the obvious advantage being free fuel (water).

"Thermal was given much more attention than hydro, but that is changing," said S K Garg, chairman and managing director. So hydro, which accounted for over half of the country's energy basket in the 1960s, has declined to 26 per cent today. Experts feel that the ideal thermal-hydro mix is 40:60.

Hydro is a tougher nut to crack though - it is capital-intensive, requiring investment of about Rs 5 crore per mw compared with Rs 3-4 crore for a thermal plant and time-intensive, taking almost five years to be ready, while thermal plants can be put up in three-four years.

However, the upside is that hydro power is environment-friendly (unlike competing fields such as coal) and tariffs reduce as the plant grows older, touching almost zero after a few years.

A new hydro power policy is, therefore, on the cards to realise the 150,000 mw hydro potential that the country has (of which only about 20 per cent has been realised so far).

IPO BY JUNE 2007

The capacity expansion that NHPC is planning would require funds - the investment in the 2007-2012 periodis estimated at Rs 30,000 crore. Bulk of this requirement would be met through debt, while budgetary support (Rs 6,000 crore), internal accruals (Rs 5,000 crore) and its initial public offer (IPO) would make up the rest of the numbers.

The government-owned company has recently got the approval for an IPO of up to 24 per cent of share capital. Analysts expect this issue to raise about Rs 2,500 crore.

Whether it will be done at one go or in tranches is a decision which is yet to be taken by the six-member board.

"We are currently in the process of appointing merchant bankers and legal consultants," said Garg.

NHPC is one of the four government-owned companies which are seeking funds from the public. The parent ministry wanted these companies - NHPC, PFC, REC and PGCIL - to complete the issue by the close of the financial year in March.

"We are trying for March," said Garg, but admitted that it would be unlikely that the deadline would be met.

GROWING MARGINS

Investors would be impressed by the turnaround in numbers that the company has managed with margins as high as 40 per cent - last year, the company posted a net profit of Rs 743 crore on a turnover of Rs 1,834 crore.

"Financial re-engineering worked for the company," explained Garg. The company, with a head-count of 13,000, retired high cost loans and substituted them with more benign loans. It has also wiped out the working capital loan - for which no return is allowed by the electricity regulator.

The credit for this smart money management goes to a 3-year-old dedicated treasury cell. That, coupled with cost cutting, means that the current year will be better than last year.

"We should be crossing Rs 800 crore (in net profit) this year (2006-07)," says Garg, who prays for more snow in Himachal and Jammu & Kashmir every year, so that there is enough water. "It is my source of energy," he said.

The other upside for NHPC is that it has "100 per cent collection efficiency" for a business which tends to be seasonal, and for the first time, it is also planning to stake a claim to carbon credits.

BEYOND HYDRO

Meanwhile, the company is mulling an entry into other businesses like thermal power, power trading, power distribution and tidal power, "though the core competence will continue to be hydro."

"These new areas are thoughts with the management," says Garg, but it will be sometime before these translate into actual business plans.