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NTPC Ltd, India's state-owned and largest power generator, takes pride in the rapid pace at which it has added generation capacity, largely thermal, over the past five years. The power producer's capacity has jumped over 50 per cent from 27,800 Mw in 2009 to 41,400 Mw now. This, according to many, is performance par excellence in a perennially power-deficit country known for bureaucratic hurdles to developmental projects. However, its performance in non-core areas has fallen short of expectations. An analysis of its business over the years exposes a trajectory fraught with project delays and ventures which have remained non-starters. What could explain this disparity?
The power generator, which accounts for 30 per cent of the country's thermal capacity (80 per cent in the central sector), announced its foray into hydro and nuclear power generation, apart from backward integration into coal mining, in early 2000s. Multiple projects were planned in the three areas and a roadmap for their execution chalked out. In order to reflect this switch to areas outside its core business of thermal power production, the company even changed its name from National Thermal Power Corporation (NTPC) to NTPC in October 2005. More than seven years since then, the company has no hydro power capacity, not a single nuclear power plant and none of the five coal blocks allocated to it has come into operation. In fact, miffed at the snail's pace at which NTPC proceeded to kick-start captive coal mining, the coal ministry cancelled the allocation for the acreages last year. The allocation of the acreages were restored later after the power ministry's intervention.
Even the efforts to enter two additional and relatively new areas -partnership in International Coal Ventures Ltd (ICVL) and National Power Exchange (NPXIL)-have failed. The company announced its exitsfrom the ventures last year.
Making a retreat
There could be more exits. A media report last week said NTPC is looking at timed exits from its joint ventures with equipment manufacturer Alstom (NTPC Alstom Power Services), Transformers and Electricals Kerala (NTPC-TELK) and Bharat Forge (BF-NTPC Energy Systems) as part of a restructuring exercise. This, the report said, would be in addition to merging the hydro subsidiary, NTPC Hydro (NHL), with itself.
When contacted, NTPC denied any plans to exit from the ventures. It also denied that a "restructuring exercise" was on, saying the performance of joint ventures and subsidiaries is reviewed from time to time to assess whether it is in line with the objectives. The company, however, accepted that a plan to merge NHL is under way to achieve what it calls synergy of operations.
The company informed its board had approved the "amalgamation" plan in May 2012 after which it had sought the approval of the ministry of corporate affairs in August. The ministry asked for convening a meeting of the shareholders of NTPC and NHL which will be held on Friday.
In an e-mailed response to queries by Business Standard, NTPC attributed the delays in its three hydro projects-800-Mw Koldam in Himachal Pradesh, and 520-Mw Tapovan Vishnugad and 171-Mw Lata Tapovan in Uttarakhand-to geological surprises and environmental issues. Also, its showcase hydro project, 600-Mw Loharinag Pala in Uttarakhand, was stalled and later scrapped at an advanced stage of completion in 2010 owing to local protests. The company said it plans to commission the first unit of the Koldam plant next year followed by the other two projects. Business Standard cross-checked the ambitious claim with the status of projects on ground. In Koldam, the company achieved spillway concreting and dam filling in March. Also, in Tapovan Vishnugad, surge shaft lining was completed the same month, indicating progress. However, at Lata Tapovan, villagers have not allowed work on the barrage site for several months now and the capex for the project fell short by Rs 49 crore last financial year.
On the coal-mining front, the company's performance has been stifled by sustained bureaucratic hurdles which have refused to subside with time. NTPC has been allotted six captive mines-including Pakri-Barwadih, Chatti-Bariatu, Kerandari, Dulanga, Talaipalli and Chatti-Bariatu (South)-with a combined capacity of 53 MT per annum which can fire over 10,840 Mw of generation capacity annually. The company says all the mines would be fully operational by 2017 and Pakri Barwadih would be the first to be commissioned by the end of this year. The progress of the mine is a telling tale of how administrative hurdles kill development projects in the country.
The coal ministry delayed the approval of mining plan by over five months; the processing of environment clearance took more than three years due to delay in public hearing; grant of forest clearance took four years as land records were not available and issuance of a no-objection certificate by district administration took more than two years. Also, the forest proposal of the mine had to be revised owing to a last minute provision for elevated coal evacuation corridor made on the suggestion of the environment ministry. The approval of resettlement and rehabilitation plan by Jharkhand government took two years and land acquisition was hampered because villagers refused to accept payments even after enhancing the compensation. Despite the hurdles, NTPC appointed the mine developer-cum-operator recently, but the work at the site has been stalled by locals since February last year.
Unlike hydro and coal mining, the exit from ICVL-the government's special purpose vehicle headed by steel producer SAIL- has been dictated by a conflict of interest with other members of the Rs 10,000-crore venture. NTPC was mandated to be one of the co-promoters in ICVL with the hope that it would use the thermal coal which would be available through the assets to be acquired. "The mines considered by ICVL in Australia and America did not have any thermal coal and had only metallurgical coal. ICVL was looking for low-grade thermal coal in Indonesia. But, the policy changes in Indonesia envisage banning of export of low-grade coal with gross calorific value below 5200 Kcal. Thus, NTPC was not going to get any thermal coal, its main reason for joining the venture," the company says. So, did the interest of ICVL head SAIL (coking coal) overpower that of NTPC, forcing the power generator to exit? Senior government officials are often seen dodging this question.
Failed dreams
The plan to acquire equity participation in NPXIL, the third power exchange being planned in the country, and become its member became a casualty of a change in regulation and NTPC's own misreading of the business prospects in trading. The company says it had initially expected that with the development of the electricity market, a "sizeable" chunk of the power generated would be transacted through exchanges. That, however, did not happen. The quantum of electricity transacted at the exchanges has remained constant at 2 per cent of overall generation for years now. "Due to fuel shortage in the country, not much growth is expected in the near future," it says. Also, almost the entire generation by the company is tied-up in long-term power purchase agreements, leaving no room for merchant sales. In addition, NTPC does not derive any strategic advantage in participating in a power exchange with only 5 per cent holding, as permitted by the power regulator. Unfortunatel, for NTPC, the matter does not end here. Its decision to pull out from NPXIL has not gone down well with the other three partners. A senior official from Power Finance Corporation, another member, told Business Standard the company has already written two letters to NTPC saying the agreement between the four partners does not provide for any single member to pull out of the venture in isolation. The issue is unlikely to settle down soon.
However, there is one success story for NTPC amid all this: its entry into renewable energy. NTPC has managed to set up two solar power plants of 5 Mw each in Maharashtra and Andaman & Nicobar Islands in March, and it sees the renewable capacity growing by additional 20 Mw this year. That's one bright spot.
REPORT CARD
HYDEL PROJECTS
- Loharinag Pala is engulfed in local protests
- Lata Tapovan is struggling with capex shortfall
COAL MINING
- None of its six blocks has started production
- Delays are causing cost overruns
ICVL
- Pulled out of the venture last year, alleging ICVL was only looking for coking coal blocks
- Low-grade thermal coal can no longer be exported from Indonesia
NATIONAL POWER EXCHANGE
- Pulled out of it as CERC regulations cap shareholding of trading members at 5%
- No merchant capacity available with NTPC to sell power at the exchanges
