NTPC Plan restructuring to meet challenges

To be able to take on growing competition and new challenges, state-run power utility NTPC Ltd is planning a restructuring that involves setting up a domestic subsidiary for its coal mining operations and floating an overseas arm.The restructuring would be executed after one year.“It will be required to be done. We are scouting for coal acquisitions. This is in preparation to that,” said R.S. Sharma, NTPC’s chairman and managing director.

The country’s largest power utility is seeking coal concessions abroad as domestic sources are not able to meet its growing demand.Indian coal also has high ash content, which reduces the efficiency of power plants (restricting the power that can be generated from one tonne of coal). Domestic coal, however, is 30-40% cheaper than imports, depending on the quality.

Acquiring energy assets overseas is key to energy security for India, the world’s fifth largest oil importer. The country imports 75% of its fuel requirement and accounts for some 3.5% of global consumption. State-run Oil and Natural Gas Corp. Ltd (ONGC) already has ONGC Videsh Ltd to run its overseas operations and Coal India Ltd has Coal Videsh Ltd.

NTPC, to augment its international operations, plans to create a new post of director (business development)—a task presently overseen by its director (commercial).As part of its overseas plans, it is looking to acquire the assets of Australia’s beleaguered Griffin Coal Mining Co. Pty Ltd, which includes a power project and coal mines.In India, NTPC has been allocated eight captive coal blocks by the government—Pakhri Barwadih (1,350 million tonnes, or mt), Kerandari (228 mt), Chatti Bariatu (243 mt), Chattrasal (150 mt), Dulanga (260 mt), Talaipalli (965 mt), Brahmini (1,900 mt) and Chichro Patsimal (356 mt).But so far, it has not been able to begin production from its captive coal mine blocks in India or secure coal concessions overseas.

Coal is critical for NTPC as at least 80% of its installed capacity of 31,134MW is fired by the fuel. It has a requirement of around 160 million tonnes per annum (mtpa) and imports around 10%, or 16 mtpa, to meet the shortfall. The need is expected to grow further as a substantial portion of the capacity NTPC is adding will be based on coal.The firm plans to have an installed capacity of 75,000MW by 2017.

With around 67% of India’s total power generation based on coal, the power sector is the major consumer of the fossil fuel, absorbing nearly 78% of India’s total production.

NTPC faces other challenges as well. According to India’s apex power sector regulator, the Central Electricity Regulatory Commission, the utility will, from 2011, have to compete for projects through tariff-based competitive biddings, unlike in the present system in which it sets up regional power stations on a cost-plus basis.

“Mining is a separate business and there should be a separate business entity for it,” said a New Delhi-based power sector analyst who tracks NTPC, asking not to be identified. “One should also have an overseas investment subsidiary from (a) tax-saving perspective, arranging for forex and taking quick investment decisions. This is the correct way forward from the corporate strategy perspective.”