At a time when land acquisition has become tough, move may help firm win over people living near its projects
State-run NTPC Ltd plans to distribute power within a 5km radius of its power plants at Kahalgaon in Bihar, Talcher in Orissa, Rihand in Uttar Pradesh and Vindhyachal in Madhya Pradesh, chairman and managing director Arup Roy Choudhury said.
Such an attempt will help India’s largest power producer to garner support among people who live close to its project sites at a time when land acquisition has become tough. The utility has had conflicts with state governments over land, water and environmental issues.
NTPC also plans to bid for state-owned power distribution companies as and when they get privatized as part of a downward integration exercise.
NTPC’s entry in the power distribution sector would also help the state electricity boards (SEBs) stem losses. Most SEBs make substantial losses and are unable to replace their ageing power distribution networks because of lack of funds.
Dependent on state subsidies, SEBs have seen their finances wrecked by decisions such as providing free power to farmers.
“Our aim is both for upward and downward integration. Our distribution plans are a move forward in that direction,” said Choudhury. “We plan to start with the areas near our sites.”
NTPC has a presence in the upstream sector, having secured five hydrocarbon blocks under the new exploration licensing policy (Nelp), and has been allocated eight captive coal blocks, its power distribution business is still a small one.
NTPC may leverage the merchant power capacity it is developing for the distribution business. Merchant power is electricity that can be sold by producers as a commodity at market price.
State-run power companies such as NTPC have to sell 85% of their output to state electricity boards under long-term agreements. The remaining 15% is given to power deficit states under the discretion of the power ministry.
Analysts say NTPC’s entry into the distribution business will be significant, given the fact that the utility plans to set up a merchant power capacity of around 6,000 megawatt (MW) by 2017. NTPC has a power generation capacity of 34,854MW and has projects totalling 14,088MW under construction. The firm is targeting an installed capacity of 75,000MW by 2017 and 128,000MW by 2032.
“NTPC’s foray into power distribution stream augurs well given its aggressive power generation capacity expansion plans,” said Amol Kotwal, deputy director of energy and power systems practice for South Asia and West Asia at Frost and Sullivan. “Power distribution not only offers revenue-generating opportunities, but also extends its control over additional element of power value chain—power distribution.”
NTPC has been exploring the idea of entering the power distribution business and even formed a distribution arm, NTPC Electric Supply Co. Ltd (NESCL). As part of its forward integration move, NTPC had earlier planned to set up distribution networks in Kanpur in Uttar Pradesh and Mangalore in Karnataka. Neither, however, have come about yet.
The utility also plans to manage power distribution for special economic zones and industrial parks, Mint reported on 20 January 2010. NESCL has already entered into an equal joint venture with Kerala Industrial Infrastructure Development Corporation, which will be managed by NESCL for power supply to various industrial parks developed by Kerala Industrial Infrastructure.
India faces these huge losses because of unmetered and unaccounted for sales, with the present net worth of the utilities being a negative Rs.37,107 crore. To make power distribution more efficient, the government has attempted privatization and the franchise model with mixed results.
Cumulative losses of the distribution utilities are about Rs.75,000 crore. If the present trend continues, projected losses in 2014-15 will be Rs.1.16 trillion, according to a study conducted by energy consulting firm Mercados EMI Asia for the 13th Finance Commission.