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Chapter 1
Introduction
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Introduction
Electricity is an essential requirement for all facets of our life. It has been recognized as a
basic human need. It is a critical infrastructure on which the socio-economic development
of the country depends. Supply of electricity at reasonable rate to rural India is essential for
its overall development. Equally important is availability of reliable and quality power at
competitive rates to Indian industry to make it globally competitive and to enable it to
exploit the tremendous potential of employment generation. Services sector has made
significant contribution to the growth of our economy. Availability of quality supply of
electricity is very crucial to sustained growth of this segment.
Electric power is something that any and every economy requires not just to grow, but also
to sustain. There is hence no rocket science to the fact that development in the electric
power industry of a country is a significant cause of overall economic development. When
we extent this logic to the Indian context, the argument is even more compelling. Given
that the Indian industry is growing at a rate of 6% per year in an era where double-digit
GDP growth targets are being set, the role of electric power assumes great importance. The
situation thus offers a huge potential for both domestic and overseas private players.
Electricity is one of the key inputs for the over all socio-economic development of the
country. The basic responsibility of the power supply industry is to provide adequate
electricity at economic cost, while ensuring reliability and quality of the supply. The power
industry in India has been characterized by energy shortages. In fiscal year 2004, demand
for electricity exceeded supply by an estimated 7.1% in terms of total requirement and
11.2% in terms of peak demand requirements. Although power generation capacity has
increased substantially in the recent years, it has not kept pace with the growth in demand
and growth of the economy in general.
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Table 1 Trends in growth of physical output in infrastructure sectors (in per cent)
* Provisional
Source-Economic survey 2005-07/chapter 93
Supply and Demand:
Although electricity generation capacity has increased substantially in recent years, the
demand for electricity in India is still substantially higher than the available supply. In the
fiscal year 2004, India faced an energy shortage of approximately 7.1% of total energy
requirements and 11.2% of peak demand requirements. He following table presents data
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showing the gap between the total requirement foe electricity versus the total amount of
electricity made available from 2000 to 2004.
Year Requirements Availability Surplus/Deficit (+/-)
(Million Units) (Million Units) (Million Units) (%)2001
2002
2003
2004
2005
480,430
507,216
522,537
545,983
559,264
450,494
467,400
483,350
497,890
519,398
-29,836
-29,816
-39,817
-48,093
-39,866
-6.2%3
-7.8%
-7.5%
-8.8%
-7.1%
Table 2: Actual Power Supply Position (2001 to 2005)
Source-PMI Research Bulletin-2005
Power Generation:
As of March 31, 2005, Indias power system had an installed generation capacity of
approximately 112,058 MW. Thermal Power Plants powered by coal, gas, naphtha or oil
accounted for approximately 69% of the total power capacity in India as of March 31,
2005, hydroelectric stations for approximately 26% and others (including nuclear stationsand wind power) accounted for approximately 5%. The CPSUs accounted for
approximately 31% of the total power generation capacity as of March 31, 2005, the
various SEBs accounted for 56% and private sector companies accounted for
approximately 13%.
Consumption:
The end users of power can be broadly classified into industrial (representing
approximately 34% of sales), agricultural (representing approximately 25% of sales),
domestic (representing approximately 25% of sales), and commercial consumers
(representing approximately 7% of sales). The balance of the sales goes to various other
consumers. The following table compares per capita electricity consumption in India, other
countries and the world average consumption as in 2000.
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Installed Capacities
The following table presents the installed generation capacity of Indias electricity
generators by type of generation in the year 2005:
Table 3: Trends in the power sector (utilities only)
*Provisional
@ April-December
Source-Economic survey 2006-07
Transmission and Distribution (T&D):
The transmission of electricity is defined as bulk power over along distance, generally
132KV and above. The entire country has been divided into four regions of transmission
system, namely northern region, eastern region, western region, southern region. Theinterconnected transmission system within each region is also called the regional grid.
The Government of India has an ambitious mission ofPOWER FOR ALL BY 2012.
This mission would require that our installed generation capacity should be at least 2,
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00,000 MW by 2012 from the present level of 1, 14,000 MW. To be able to reach this
power to the entire country an expansion of the regional transmission network and inter
regional capacity to transmit power would be essential. The latter is required because
resources are unevenly distributed in the country and power needs to be carried great
distances to areas where load centers exist.
In India, the T&D system is the three-tier structure comprising regional grids, state grids
and distribution networks. The distribution network and the state grids are owned and
operated by SEBs or state government through SEBs. Most of the inter-state transmission
links are owned and operated by POWERGRID. In order to facilitate the transfer of power
between neighboring states, states grids are interconnected to form regional grids. Because
peak demand does not occur simultaneously in all states, situations may arise in which
there is surplus power in one state while another state faces deficit.
Power Trading:
The Electricity Act recognized power trading as a distinct activity from generation,
transmission and distribution. Power trading involves the exchange of power from
suppliers with surpluses to suppliers with deficits. Seasonal diversity in generation and
demand, as well as the concentration of power generation facilitates in the fuel rich eastern
region of India, has created ample opportunities for trading of power. Recent regulatory
developments include the announcement of rules and provisions for the open
access and licensing related to interstate trading in electricity. Under the rules notified, the
regulatory intention is the promotion of competition. Several entities have started trading
operations or have applied for trading licenses. Current participants in the power trading
business include, among others, PTC, NTPSs subsidiary NTPC Vidyut Vyapar Nigam
Limited and Tata Power Trading Company Private Limited.
Rural Electrification
Rural Electricity involves supply of energy for two types of programmes:
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a. Production oriented activities like minor irrigation, rural industries etc.;s
b. Electrification of villages.
While the emphasis is laid on exploration of ground water potential and energisation of
pump sets/tube wells, which has a bearing on agricultural production, the accent in respect
of areas covered under the Revised Minimum Needs Programme (RMN P), is on village
electrification.
Rural Electricity Supply Technology (REST) Mission
The Rural Electrification Supply Technology (REST) Mission was set up in September
02. The base objective of formation of REST mission is to accelerate electrification of all
villages and households progressively by year 2012 through local renewable energysources and decentralized technologies including through the conventional grid connection.
The Mission is also to identify technologies that could be used in providing affordable and
reliable power supply to rural areas and effect implementation through distributed
generation schemes, wherever feasible.
Current Status of Rural Electrification
Out of estimated 586,000 villages about 140,000 - 150,000 remain to be electrified.
Eight States have achieved 100% village electrification Andhra Pradesh, Goa, Haryana,
Maharashtra, Kerala, Punjab, Tamil Nadu and Nagaland
These States constitute 18% of villages in the country.
States Villages to be
Electrified
Percentage
Uttar Pradesh 40,389 42%
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Bihar 20,449 53%
West Bengal 7,694 20%
Uttranchal 2,.785 18%
Jharkhand 22,920 78%
Orissa 9,682 21%
Assam 5,640 23%Meghalaya 2,754 50%
Table 4: Eight States with substantial number of villages to be electrified
Source;www.powermin.nic.in/Reporton rural electrification program
PROBLEMS BEING FACED BY INDIAN POWER SECTOR
The achievement of increasing installed power capacity from 1362 MW to over 100,000MW since independence and electrification of more than 500,000 villages is impressive.
However, it is a matter of concern that the annual per capita consumption, at about 350
kWh is among the lowest in the world. Still many households in a large number of villages
have no access to electricity. The end users of electricity like
Since independence, generating capacity has increased from 1362 to over 100,000
MW however there are widespread shortages of power in almost all parts of the
country.
Households, farmers, commercial establishments, industries etc. are confronted with
frequent power cuts both scheduled and unscheduled. Power cuts, erratic voltage levels and
wide fluctuations in the frequency of supply have added to the 'power woes' of the
consumer. The consumers are resorting to captive power supply arrangements of varioustypes ranging from 300 Mega Watts (industry) to 250 Watts (households).
Almost every shop in an urban market place has a generator set. Most establishments have
battery operated inverters and diesel generation sets. Most urban households have voltage
stabilisers for different appliances. In fact the money spent by the domestic consumer on
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these standby power supply (DG sets / Inverters) and power-conditioning (stabilisers)
arrangements could be among the highest in the world. The same money could be more
gainfully invested through corporate investments in power generation, transmission and
distribution with assured returns on investments
The major reasons for inadequate, erratic and unreliable power supply are:
Inadequate power generation capacity;
Lack of optimum utilisation of the existing generation capacity;
Inadequate inter-regional transmission links;
Inadequate and ageing sub-transmission & distribution network leading to power
cuts and local failures/faults;
Large scale theft and skewed tariff structure;
Slow pace of rural electrification;
Inefficient use of electricity by the end consumer.
Slow Capacity Addition
In 1947, India had installed capacity of 1362 MW. It reached a level of 20117 MW in
1976. And as on March 2000, we have and installed capacity of 96949 MW. The demand
has always outstripped the supply position during these years.
Poor Utilization of Existing Capacities
The All India average Plant Load Factor is 67%. This is mainly because of poor
performance in the State sector. Against this Central performance is much higher, the
CPSU-NTPC has recorded a PLF of more than 80% during the year. The All India PLF
was 45% in 1980-81.
High Transmission and Distribution Losses
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The present level of transmission and distribution loss is very high. The All India T&D loss
is around 23% and the losses in some state are much higher. Losses in Delhi are as high as
50%. Whereas in developed countries, T&D losses are in the range of 5% to 14%. While a
part of T&D losses are due to technical deficiencies in the system and the large spread of
low voltage distribution in rural area, a large portion of the line losses is due to theft &
pilferage compounded by connivance on the part of the line personnel.
Hydro Thermal Mix
In spite of governments intention of maximizing exploitation of the hydro potential of
over 84000 MW in India, the hydro thermal mix has changed adversely from around 44:54
in 1970-71 to around 25:72 in 1999-2000.
Unrealistic Tariff
There are too many subsidies and in many cases sales price of electricity is much lower
than the cost than its cost to the State Electricity Boards. In the agricultural sector, the
subsidies are the highest.
Renovation and Modernization (R & R)
Every plant after a certain life of operation requires renovation and modernization effort to
increase the utility life of the plant. Of late, there is lot of awareness on this account and
efforts are being put towards this area to get more from the existing capacities.
Poor Financial Health of State Electricity Boards
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The State Electricity Boards are facing severe financial crunch. Many of the SEBs are
running into losses. They are short of funds to add capacities and take up renovation and
modernization programs.
Resettlement & Rehabilitation (R & R)
The setting up of large hydro and thermal plants often necessitates clearing of large tracts
of land, affecting the lives of people, flora and fauna. Since the displacement of people
becomes unavoidable, the resettlement and rehabilitation of the displaced people becomes a
major issue. This is more important for hydro power projects, as land area is large. This has
resulted in delays of many projects.
Reliance Energy
Reliance Energy Ltd is India's leading integrated power utility company in the private
sector. It has a significant presence in generation, transmission and distribution of power in
Uttar Pradesh, Maharashtra, Goa and Andhra Pradesh.
With the ushering in of the power sector reforms and in the new environment of
opportunity for the power sector, REL is a key player in this transformation process.
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Reliance's gas finds in KG-D6 block in Krishna Godavari basin which constitutes 60% of
India's present total gas production, will provide an enormous opportunity to scale up
power generation capacities in India. With the new gas find, REL has the unique advantage
of integration from 'well head to wall socket'. This will help the company position itself as
a global integrated energy player under the Reliance banner.
REL and its affiliate power companies rank among the top 25 listed private sector
companies on major financial parameters. REL is part of the Reliance industries-India's
private sector company ranked among the world's 175 largest companies in terms of net
profit and the 500 largest companies in terms of sales.
Infrastructure and services
Generation-Creating the Power Capability
The Generation division has proven expertise in designing, engineering, erection,
installation, commissioning, operations and maintenance of power projects.
The division implements project plans for in house power projects and supports ventures
undertaken by other affiliate companies.
The division is fully integrated and has in house capabilities to address every aspect of
power projects including:
Mechanical
Civil
Electrical
Instrumentation &
Environmental
The division also provides engineering consultancy to external agencies and projects.
The 940.59 MW Generation capacity of the Division comes from five projects:
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Dahanu TPS the 2x250 MW multi fuel based thermal power station at Dahanu
near Mumbai.
7.59 MW Wind Farm Project at Jogimatti in the district of Chitradurga in
Karnataka.
BSES Kerala Limited: The 165 MW combined cycle power station at Kochi,
Kerala.
BSES Andhra Power Limited: The 220 MW combined cycle power plant at
Samalkot in Andhra Pradesh
Goa Power Station : The 48 MW naphtha based combined cycle power plant at
Goa.
Transmission
The Transmission department has successfully implemented and operated a 2 x 220 kV
transmission system. It has been responsible for the laying of the double circuit
transmission system from Dahanu to Mumbai. It has planned, constructed and
commissioned two modern 200 kV receiving stations having a capacity of 300 MVA each
at Ghodbunder, & Versova . It has also commissioned a 400 MVA station at Aarey for
receiving power from the Dahanu plant.
It is one of the select few electricity companies to commission a network of 4 circuit
transmission towers for economical and efficient power transmission. The Engineering cell
of the department co ordinates the engineering activities of the company's transmission
network.
The Transmission Division is an intermediary between Generation & Distribution Division
and is responsible for transmission of power at 220 kV from DTPS to the Company's areaof supply in Mumbai Suburbs.
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Distribution
Seven decades of experience and continuous investment in modernizing its distribution
infrastructure have helped the company achieve the enviable distinction of operating its
network with 99.99% reliability!
The efforts made towards achieving higher levels of efficiency have reduced distribution
losses to 13.4% - The lowest in the country! Today the company caters to 5 million
satisfied customers!
Reliance Energy Limiteds Mumbai operations cover a population of 9.0 million within an
area of about 384 sq. kilometers. The Distribution network handled and sold 5,879.66 MUs
in the year 2002-2003. Reliance Energy Limited continually upgrades its distribution
network. This is accomplished through a process of decentralized operation in supply
management to maintain very high on-line reliability.
Stock Price Movement of Reliance
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Daily Return of Reliance vis-a-vis
-0.08
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
0.08
0.1
0.12
1 11 21 31 41 51 61 71 81 91 101111121131141151161171181191201211221231241251
Days
Return
R etur n o f N S E R eturn o f R el ianc
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Reliance is the supplier of electricity to the metro resident people and major
revenues are generated from the retail consumer. Reliance has grown in the
subsequent years in residential but it has not shown a relevant increase in the
commercial and industrial supply of power, the company is planning to increase
the generation of power from different sources to meet the demand for its
different types of consumers.
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Company Overview-NTPC
National Thermal Power Corporation Limited (NTPC) is a premier thermal power
generating company of India. It was incorporated in the year 1975 with the
objective of planning, promoting and organizing an integrated development of
thermal power in the country. At present, Government of India holds 89.5% of the
total equity shares of the company and the balance 10.5% is held by FIIs,
Domestic Banks, public and others.
National Thermal Power Corporation. The Group's principal activities are
engineering, construction and operation of power generating plants and providing
consultancy to power utilities in India and abroad. The Group has installed
capacity of 21,749 MW through its 13 coal based (17,480 MW), 7 gas based
(3,955 MW) and 3 Joint Venture Projects (314 MW). The ash produced at its coal
stations are used in cement, concrete, cellular concrete and building material.
The Group has generated 149.2 billion units of electricity in 2004.
NTPC is also expected to form various new Joint Ventures with the following
companies:
Indian Oil Corporation Ltd (IOCL), with the objective of setting up a combinedpower stations based on refinery residue/ Naphtha and other petroleum
products.
Indian Railways, with the objective of setting up power stations to meet
traction and non-traction power requirements of Indian Railways.
Tamil Nadu Electricity Board, with the objective of setting up a1000 MW coal
based power station at Ennore in Tamil Nadu utilizing the existing infrastructure
facility at Ennore
NTPC has also been trying to diversify in the areas related to NTPCs core
business of power generation such as Hydro Power, Power Distribution, Power
Trading, Coal Mining, LNG, etc so as to broad base the business and to ensure
growth. The priority sectors identified by NTPC in the concern are:
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Horizontal Diversification-Hydro Power
Government is laying trust on adding hydro stations so as to meet the domestic
demand for power and to control pollution. This has provided NTPC with an
opportunity to horizontally diversify and set up hydro electric power stations
towards the due need of operating peak load demands and thermal for base
load.
In 1997 NTPC started the preliminary activities to tap a part of the abundant
hydroelectric potential of the country by identifying suitable projects for
development. Northern Region and more specifically Himachal Pradesh and
Uttar Pradesh were targeted for initial entry in hydro sector. NTPC's venture in
hydro sector became a reality when Koldam Project, a green field Hydro Electric
project of 800 MW capacities in the State of Himachal Pradesh, was formally
assigned to NTPC on 26th Feb. 2000.
An MOU has been signed with Govt. of Uttranchal on 31.12.02 for
implementation of Lohari-Nagpala(4x130MW) and Tapovan Vishnugad
(360MW)Hydro Electric power Project in the state of Uttaranchal on BOOMbasis, subject to techno-commercial viability of the project, and clearance of
MOEF.
In order to develop small and medium Hydro Electric Power Project up to 250
MW capacity a wholly owned subsidiary company named NTPC Hydro Ltd. has
been incorporated on 12th December 2002.
More hydro projects are being explored to find out the techno-economic viability
for development by NTPC. The company intends to add at least 3000 MW
capacities through hydro projects by the end of 10th Plan.
Vertical (Forward) Integration-Distribution and Power Trading
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In order to diversify along the power value chain, NTPC has gone in for
distribution and power trading to ensure forward linkages and also enhance
revenue channels. To acquire, establish and operate electrical systems etc. for
distribution and supply of electrical energy to consumers, a subsidiary company
named as NTPC Electric Supply Company Ltd. (NESCL) has been incorporated.
In order to undertake business of sale and purchase of electric power, a
subsidiary company known as NTPC Vidyut Vyapar Nigam Ltd. (NVVNL) has
also been incorporated.
Vertical (Backward) Integration-Coal Mining and LNG
Coal Mining:
The policy changes in coal sector provide an opportunity to NTPC to enter
captive coal mining business. NTPC is contemplating captive mines in North
Karanpura area of Central Coal-fields Ltd (CCL) and Talcher area of Mahandi
Coal-fields Ltd (MCL). Central Mine Planning & Design Institute Ltd (CMPDIL) (a
subsidiary of Coal India Ltd), Ranchi is being appointed as a consultant for
assisting and guiding NTPC in various activities of captive mining.
Coal Washeries:
NTPC is intending to set up coal washeries in the following three coal mine
areas:
Amlori area under Northern Coal-fields Ltd. (NCL)
Talcher area under Mahandi Coal-fields Ltd. (MCL)
North Karanpura under Central Coal-fields Ltd. (CCL)
Feasibility studies for Amlori area have already been completed in December
2002. NTPC has appointed Central Mine Planning & Design Institute Ltd.
(CMPDIL) (a subsidiary of Coal India Ltd), Ranchi, India as the consultant for the
feasibility studies.
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LNG:
NTPC is contemplating procurement of LNG fuel/Natural Gas for expanding its
gas based power projects at Anta, Auraiya, Kawas & Jhanor - Gandhar in North
India with cumulative capacity addition of 2600 MW and at Kayamkulam in South
India by 1950 MW. Fuel requirement for North India is approximately 3.0 MMTPA
and for South India is 2.0 MMTPA. Accordingly, LNG fuel/Natural Gas terminals
have been planned, one in North India and one in South India, to be
commissioned by prospective suppliers.
NTPC intends to keep options for 26% equity stake in regasification terminal and
may seek 10% equity in liquefaction terminal.
Step Towards Globalization
NTPC is exploring the possibility of setting up a Gas Based Combined Cycle
Power Plant in Bangladesh through Joint Venture with Bangladesh Power
Development Board (BPDB) and Petro Bangla.
NTPC has signed an MOU with Black and Veatch (USA) for rendering services in
the areas of Engineering, Project Management, Operation and Maintenance,
Quality Assurance etc.
NTPC and BHEL have joined hands to work as consortium partners to set up a
500MW integrated water and power project with 30MGD of desalination plant in
Oman on BOO basis.
NTPC is Indias largest power generation company of India. As on March 31,
2005 the total installed capacity of NTPC was 20.1% (including capacities of
Joint Venture companies) of Indias total installed capacity, and it contributed
27.1% of the total power generation of India during the last fiscal year.
NTPC generated a total of 159.11 billion units of electricity registering an
increase of 6.67% over previous years generation. 136.11 billion units or 85.54%
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of total generation was through coal-fired plants and 23 billion units or 14.46% of
total generation was through gas fired plants.
Power Trading Corporation of India Limited
Power Trading Corporation of India Limited was incorporated in 1999 to act as an
entity, which could undertake trading of power to achieve economic efficiency
and security of supply. PTC India Ltd has a two-fold mandate; to develop a full
fledged, efficient and competitive market mechanism for trading in power and to
facilitate the development of generation projects including through privateinvestment, both resulting in reliable, economic and quality power in the long
term. A vibrant power market, which is deep and liquid, needs to be developed in
the long term, and PTC India Ltd would continue to play a frontrunner's role
towards this objective and strive to add value to its customers' operations through
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providing services that serve their evolving needs. The main objective for
establishing PTC India Ltd was to develop power market for optimal utilization of
energy, to Promote power trading to optimally utilize the existing resources, to
Catalyze development of Power Projects particularly environment friendly hydro
projects and to Promote exchange of power with neighboring countries.
Various services provided by PTC India Ltd are:
Acting as an intermediary providing single window service after identifying the
Buyers and Sellers
Providing end to end marketing strategies for the power generated from
power projects
Studying the transmission feasibility for transfer of Power including transfer
through displacement
Facilitate sale of surplus power from Captive Power Plants
Finding alternative buyer(s) in the event of default
Acting as the nodal agency to facilitate Cross Border Trading
Coordination with agencies for open access, dispatch, metering, billing,
energy accounting & revenue realization
Facilitating the development of Power projects which can generate electricity
at competitive tariff
Providing advisory services
PTC India Ltd has been aggressively looking for CPPs across the country, which
has surplus power available with them for sale. PTC India Ltd has entered into
MoUs with such CPPs for purchase of surplus power available with them and is
providing full assistance to such CPPs in getting their petitions filed for openaccess in the State system before respective SERCs. PTC India Ltd is acting as
a single window service provider to such CPPs and is also making all out efforts
to get competitive tariff to such CPPs. PTC India Ltd derives its competencies
from the fact that it is the pioneer in starting power trading in India, is the leader
in the power trading market and has negotiated steep learning curves in its
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efforts to create a commercially vibrant power market in the country. PTC India
Ltd has also had a unique track record of bringing innovations in sync with the
needs of its clients, thereby providing a win-win situation for all. Moreover, PTC
India Ltd is able to provide the security of payments to its suppliers; this assumes
great importance in a sector, which has been marred by the high credit risk of
almost all the state utilities. PTC India Ltd has continually proven its expertise in
the field of power trading and this has translated into its client list covering all the
state utilities in all the five regions of the country. Due to its market acceptability,
PTC India Ltd is also in a position to sell surplus power from a CPP to its various
customers viz. SEBs/ Distribution Companies, High-Tension consumers etc. at a
market driven competitive rate ensuring good return to CPPs as compared to
sale of power to the respective SEBs/ State Utilities where they are located.
The main shareholders of PTC India Ltd are:
Power Grid Corporation of India Ltd.
Power Finance Corporation Ltd.
National Thermal Power Corporation Ltd.
National Hydro-Electric Power Corporation Ltd.
Damodar Valley Corporation
Financial Institutions: IDBI, IDFC, IFCI, GIC, LIC
Tata Power Company
Others/ Public at Large
The authorized capital of the company is Rs. 750 cr. and the present paid-up
equity capital base is Rs. 150 cr.
Equity Structure
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Source: www.ptcindia.com
Note- For shareholding Patten, balance sheet, p & l and cash flow statement,
please refer to Annexure 5, 6, 7 & 8 respectively.
Power Finance Corporation
Power Finance Corporation was established in 1986 as a Development Financial
Institution (DFI) for the development of power sector. Since then, PFC has been
playing an increasingly important role in mobilizing financial resources from
within and abroad at optimum cost and in providing various kinds of financial
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assistance to power projects. As a DFI, PFC also focuses on the institutional
development of its borrowers-State Power Utilities in particular. Reserve Bank of
India registered the corporation as a Non-Banking Financial Institution in
February 1997. PFCs funding criteria are based on borrowers credit worthiness
and project viability. A modest beginning saw the corporation makes a
disbursement of Rs. 1010 million in 1987. In the year gone by (2004-05), PFC
disbursed Rs. 94 billion.
Government has 100% ownership in PFI and no the government gives further
budgetary support to it. Later on in 1997-98 it was registered as a non banking
entity by RBI and in May 2002 Ministry of Power recommended the grant of
Navratna status to PFC. The role of PFC is:
Pivotal Development Financial Institution for the power sector excluding
rural electrification.
Catalyst to bring about institutional improvements and reforms in the
power sector.
Mobilization of resources, internal and external, at optimum cost.
Extend financial assistance and encourage flow of investment to the
power and associated sectors.
PFC disbursed around Rs. 16525 Crores during 9th plan and Rs.33000
Crores in the first three years of 10 th plan.
PFC endeavors to achieve 20% share of Indias power sector investment
for the 10th and 11th plan period.
PFCs borrowers profile is:
State Power Utilities State Power/ Electricity Departments
Central Power Utilities
Joint Sector Power Utilities
Private Sector Power Utilities
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Co-operative Societies
Municipal Bodies
Power Equipment Manufacturers
Independent Power Producers
PFCs priorities and extent of funding is:
Category of Schemes Extent of
Financing
for Reforming
Utilities (%)
Extent of
Financing
for Private Sector
Borrowers (%)
Studies, Consultancy & Training 100 50
R&D 90 50Meters, Computerization 80 50Transmission and Urban Distribution 80 50R&M, R&U of Generation &
Transmission
80 50
Small hydro, Captive & Co-generation 80 50Medium & Large Hydro Generation 80 25Thermal Generation 80 20
Performance Highlights (2005-06)
Cumulative Sanctions More than Rs. 743 billionCumulative Disbursements More than Rs. 500 billion
Net Profit Rs. 9.83 billion
Recovery Rate 99% (Nil NPAs)
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Growth in Operations
Financial results
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Capital structure
Source: www.pfcindia.com
Note for selected financial performance and statements of PFC please refer to
Annexure 9, 10, 11 & 12 respectively.
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Government has 100% ownership in PFI and no further budgetary support is
given to it by the government. Later on in 1997-98 it was registered as a non
banking entity by RBI and in May 2002 Ministry of Power recommended the grant
of Navratna status to PFC. The role of PFC is:
Pivotal Development Financial Institution for the power sector excluding
rural electrification.
Catalyst to bring about institutional improvements and reforms in the
power sector.
Mobilization of resources, internal and external, at optimum cost.
Extend financial assistance and encourage flow of investment to the
power and associated sectors.
PFC disbursed around Rs. 16525 Crores during 9 th plan and Rs.33000
Crores in the first three years of 10th plan.
PFC endeavors to achieve 20% share of Indias power sector investment
for the 10th and 11th plan period.
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Chapter 2
Objective
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Objective
Power sector is an important ingredient for the growth of any economy. Industrial
growth and economic growth cannot be thought of without sustainable power
supply. National Thermal Power Corporation (NTPC) in India is ensuring this
smooth flow of power supply since 1995 and has contributed effectively in the
growth of this nation.
During the last 30 years of its operation NTPC has been able to build up a
position of market leader in the Indian power sector but it wont be able to add a
global perspective to its business if it continues in the similar manner. NTPC
needs to grow; it needs to add more value to its product and needs to get closer
to its customers. That is why there is an urgent need to figure out those issues
which are acting as a barrier in the way of NTPC becoming a global leader in
power generation. Here in my project I have tried to figure out these issues and
tried to provide solution in the manner which might help NTPC in making its
presence felt globally.
My main objective of this project was to analyze performance of NTPC vis--vis
other PSU players like Power Finance Corporation, Power Trading Corporation
of India and National Hydro Power Corporation so that I can get an insight intothe actual condition of these organizations.
Further I have mentioned some global companies, which are also Public Sector
Undertakings, but still they have grown into global giants by applying modern
techniques and practices. The main rationale behind my mentioning these
companies was that that these companies have close resemblance with NTPC in
terms of origination and business operation but still they have become global
players despite of any hindrances they might have faced due to the government
policies in their countries. I have not only mentioned the performance of these
companies but have also tried to show through a model, how NTPC can be one
of them by maintaining its desired structure.
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Later with the objective of making NTPC a global player, I have suggested further
consolidation by means of mergers and acquisitions. Here I have shown forward
integration where I have tried to formulate a strategy of possible merger between
NTPC and PTC. Further I have supported my rationale with the help of a deal
structure and future shape of the acquiring company.
Thus, my overall objective is to evaluate the possibilities through which NTPC
can become a global player and make its presence felt globally.
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Chapter 4
Methodology
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Methodology
NTPC is the largest thermal power generating organization in India but it has
not been able to make its presence felt globally. There are various fronts where
it is lacking. This project is an effort to find out ways to consolidate the position
of NTPC and also to find out solutions to the problems faced by NTPC. Various
phases are involved in the completion of this project.
These are:
1. Data gathering phase: This phase involves finding the information about thevarious policies of the government regarding the power sector and finding out
the details of the functioning of NTPC, its relative position in India and in the
world. This phase also involves gathering information about various global
players in the field of power generation. Here I have also tried to figure out the
problems faced by NTPC and how they can tackled.
2. Structuring phase: This phase includes a deep insight into the requirements
of NTPC for becoming a global player and finding out the companies which can
be merged with NTPC so that its size is increased and also it gets access into
other related products which will add value to NTPC. This phase also includes
qualitative comparison of NTPC with other global players.
3. Method Used: In this project I have first tried to find out government policies
which have an impact on NTPC, then tried to find out the strategies
implemented by NTPC to tackle the problems and the growth plans of NTPC.Then I have tried to figure out the companies which could be merged into NTPC
so that NTPC can gain cost effectiveness and get access to the related
products to improve its product line and also to increase its market. I have also
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done ratio analysis of NTPC, PTC and PFC to find out the financial position of
these companies and to see the benefits derived by NTPC by merging these
companies with itself. Then I have tried to prepare a model which can be used
by NTPC to consolidate its position and become a global player. Later on I have
showed a merger deal between PTC and NTPC with appropriated rationale for
this merger.
4. Documentation phase: This phase involves clearly writing all the findings in
a structured manner. And showing the merger as a feasible option with NTPC
for growing at a rapid speed with the required rationale for the merger and also
the details for the merger deal with the appropriate rationale for the merger of
PTC with NTPC.
5. Feedback interaction phase: This phase involves discussions with the
project guide and going through the project again and again to make the project
more comprehensive and a more valuable study.
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Chapter 5Analysis & Interpretation
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Growth of Power Sector
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Introduction
Industry Outlook
As per the estimates for Index of Industrial Production (IIP) released by Central
Statistical Organization, the electricity sector has grown at 5.2% during 2004-05
over the previous year 2003-04 as against the growth in General Index of 8.2%.
During the year, capacities amounting to 3,949 MW were added of which 2,934
MW came in Thermal Sector, 1,015 MW in Hydro. With this 10,773 MW of
capacity has been added in the first three years of the X Plan period (2002-2007)
out of the total target of 41,110 MW for the whole plan.
Generation of electricity during the year in the country was 587 BUs which as
compared to 558 BUs in the previous year registered an increase of 5%.
Capacity utilization as measured by Plant Load Factor (PLF) of generating
stations for coal-fired plants has increased to 74.8% in 2005 from 72.7% in 2004.
Per capita consumption of power in India is 592 Kwh per annum much lower than
the world average of over 2,000 kWh. Even at the current levels of consumption,
there is a wide gap between demand and supply of power and in fiscal 2005,there was a peak demand deficit of 11.7% and an energy deficit of 7.3%. The
following table presents data showing the gap between the total requirements of
electricity versus the total amount of electricity made available in the last five
years:
(In million units)
Fiscal Year Requirement Availability Surplus/Deficit (+/-)
Units %
2001 507216 467400 -29816 -7.8
2002 522537 483350 -39817 -7.5
2003 545983 497890 -48093 -8.8
2004 559264 519398 -39866 -7.1
2005 591373 548115 -43258 -7.3
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Opportunities
Considering the existing demand-supply gap and the expected increase in per
capita consumption in view of the overall growth targets for the economy, the
16th electric Power Survey has projected a peak load demand of 157,107 MW
and an energy demand of 975.2 billion units by the end of March, 2012. To meet
this projected growth in peak demand, India would require 212,000 MW of
generating capacity by 2012. Also, Electricity Act 2003 has opened up several
opportunities for existing power sector players like NTPC. These opportunities
are in the area of direct supply to large customers, retail supply, distribution,
trading, etc. The enabling framework put in place by the Act and the built in
reform thrust would lead to better cash flows for the States. This, in turn, would
result in better realisations and better paying capacity of NTPCs customers. All
these factors provide enough opportunities for NTPC to pursue aggressive plans
in its core area of generation.
Risks And Concerns
Fuel Supply constraint
Coal
Coal mines are not being developed or expanded at required pace in comparison
to the pace at which capacities are being added. This may lead to situations
where some of the power stations may have difficulty in operating at full capacity
due to scarcity of coal. However, the shortages in coal supplies are considered
temporary and are not expected to affect current levels of capacity utilisation.
Also, coal companies are expected to put up capacities as per requirement.
Further, developing coal mining blocks and import of coal to augment supplies
are options, which have been initiated by NTPC to mitigate the risk. An order has
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been placed with MMTC for importing 2.1 MT of coal, against which, coal
supplies have already commenced.
Gas
Availability of gas and its pricing is a key concern. However, the recent gas finds
in India and the prospective supplies of gas in liquefied form from off-shore fields
provide opportunities to tie-up gas for existing and upcoming gas power projects.
The company is adopting various strategies such as procuring gas through
international competitive bidding process, exploring the possibilities of
participating in the Gas / LNG value chain abroad. In this regard the company
has also submitted offer to the Government of India for allocation of blocks for
exploration of oil and natural gas under the New Exploration Licensing Policy
which may unfold an opportunity for securing gas at an affordable price. Besides
these efforts towards long term security in gas supplies , to augment the present
requirements , additional gas supplies have been tied up with GAIL from Panna
Muktha Tapthi gas fields and Gujarat State Petroleum Corporation and re-
gasified LNG from GAIL and BPCL.
Industry Scenario for all the power sector companies
The generating capacity in India at the end of FY05 stood at 1,22,275 MW
(excluding captive capacities of around 25,000 MW). Out of this, India utilises a
poor 66% due to inefficient transmission and distribution causing a lot of power
shortage. As a result, it has become necessary to resort to power cuts and other
regulatory measures to ration power supply. Currently central institutions like
National Thermal Power Corporation (NTPC) and the State Electricity Boards
(SEBs) dominate the power scene in India. India has adopted a blend of thermal,
hydel and nuclear sources with a view to increasing the availability of electricity.
Thermal plants at present account for 70% (85,590 MW) of the total power
generation, hydro-electricity plants contribute 26% and the rest come from
nuclear and wind.
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Average transmission and distribution losses (T&D) exceed 25% of total power
generation compared to less than 15% for developing economies. The T&D
losses are due to a variety of reasons, viz., substantial energy sold at low
voltage, sparsely distributed loads over large rural areas, inadequate investment
in distribution system, improper billing, and high pilferage.
Further, the government plans to add 150,000 MW of generation capacity over
the next decade (including 100,000 MW thermal capacity and 50,000 MW hydro
capacity) in order to bridge the current demand-supply gap. This is almost 1.2
times the current generation capacity in the country. Also, if India has to achieve
a consistent 7% GDP growth, then power generation has to grow by around 10%
per annum.
In FY05, the total power generation figures stood at 520 bn units as compared to
519 bn units in FY04. The overall PLF for the year ended March 2005 stood at a
lower 51.4% as compared to 52.9% during FY04. A capacity addition of 3,487
MW was witnessed during FY05, almost 15% lower than the addition of 4,085
MW in FY04.
The per capita consumption of electricity was 606 kWh in FY05. While energy
demand deficit was recorded at 7.4%, peak demand deficit soared to 12.2%
during the fiscal.
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Performance of Undertakings under Ministry of Power
2002-03 2003-04
(provisional)NTPC Generation (BU) 141 149 +5.1%
PLF (%) 83.6 84.41 +0.8%Fresh Capacity Starts (MW) 1000 2710 +171%
Ash Utilization (lakh MT(%)) 57 (20%) 75 (23.5%) +3.5%
PFC Sanctions (Rs. Cr.) 14001 16472 +17.6%Disbursals (Rs. Cr.) 7338 8973 +22%Net Profits (Rs. Cr.) 1172 1601 +37%
PTC Sales Revenue (Rs. Cr.) 927 2378 +156%Energy Traded (MU) 4178 110029 +164%
NHPC Generation (MU) 9863 11045 +12%Net Profits (Rs. Cr.) 510 581 +14%Fresh Capacity Added (MW) 0 800Fresh Starts (MW) 800 2772 +246%
Various Policies and its Impact on the Functioning of
Power Sector companies
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Electricity is an essential requirement for all facets of our life. It has been
recognized as a basic human need. It is a critical infrastructure on which the
socio-economic development of the country depends. Supply of electricity at
reasonable rate to rural India is essential for its overall development. Equally
important is availability of reliable and quality power at competitive rates to Indian
industry to make it globally competitive and to enable it to exploit the tremendous
potential of employment generation. Services sector has made significant
contribution to the growth of our economy. Availability of quality supply of
electricity is very crucial to sustained growth of this segment.
Recognizing that electricity is one of the key drivers for rapid economic growth
and poverty alleviation, the nation has set itself the target of providing access to
all households in next five years. As per Census 2001, about 44% of the
households do not have access to electricity. Hence meeting the target of
providing universal access is a daunting task requiring significant addition to
generation capacity and expansion of the transmission and distribution network.
Indian Power sector is witnessing major changes. Growth of Power Sector in
India since its Independence has been noteworthy. However, the demand for
power has been outstripping the growth of availability. Substantial peak and
energy shortages prevail in the country. This is due to inadequacies in
generation, transmission & distribution as well as inefficient use of electricity.
Very high level of technical and commercial losses and lack of commercial
approach in management of utilities has led to unsustainable financial
operations. Cross-subsidies have risen to unsustainable levels. Inadequacies in
distribution networks have been one of the major reasons for poor quality of
supply.
Electricity industry is capital-intensive having long gestation period. Resources of
power generation are unevenly dispersed across the country. Electricity is a
commodity that can not be stored in the grid where demand and supply have to
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be continuously balanced. The widely distributed and rapidly increasing demand
requirements of the country need to be met in an optimum manner.
Electricity Act, 2003 provides an enabling framework for accelerated and more
efficient development of the power sector. The Act seeks to encouragecompetition with appropriate regulatory intervention. Competition is expected to
yield efficiency gains and in turn result in availability of quality supply of electricity
to consumers at competitive rates.
NTPC being a public sector unit and the largest electricity generator in the
country is subject to various policies formulated by the government. Be the policy
related to power supply or consumption of fuel or dividend policy or any thingelse it has its impact on the decisions and functioning of NTPC. Here in this
section I have considered few of the policies formulated by the Government of
India and tried to analyse their impact on NTPC and its growth pattern.
National Electricity Policy
National Electricity Policy (NEP) lays down creation of adequate generation
capacity with a spinning reserve of at least 5% by 2012. It also gives strong
thrust to hydro development. Main targets of National Electricity Policy (NEP)
are:
Availability of electricity to all households in five years
Demand to be fully met by 2012
Minimum lifeline consumption of 1 unit per household per day.
Along with all these issues NEP has also laid thrust on policy initiatives for saving
of the fuel. It clearly states that there should be policy initiatives like priority
allocation of captive coal mine blocks to power generation companies and
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allocation of profit gas share of the Government of India, under the Production
Sharing Contract, for the power sector to keep power tariffs at affordable levels.
Also, coal pricing mechanisms with greater transparency may be encouraged to
facilitate the process of making cost of power affordable. Even 100% FDI has
been allowed in all segments of power chain, including power trading.
NTPCs Strategies
NTPC has short and long-term strategies to not only deal with the issues and
challenges but to convert the challenges into opportunities of enhancing
corporate growth and strength and become a world-class integrated energy
utility.
Coal consumption by the power sector has gone up considerably driven
substantially by higher PLF of coal based thermal power stations. Massive
capacity expansion plans and increasing generation from existing plants indicate
substantial shortage of power grade coal in the future. Coal sector is taking steps
to speed up new coal mine developments in the 10th Plan. While, import of coal
for addressing the current shortfall may be a short-term measure, there is a need
to intensify mining activities with infusion of new participants, more capital and
new technologies. Therefore NTPC is importing coal for meeting the shortfall at
Talcher Stage-II, Farakka and Simhadri as a short-term measure.
The Company is also going for coal mining in order to enhance its fuel
security and mitigate fuel risk. It has been allotted one coal-mining block and
has applied for many more. NTPC has adopt modern mining practices and state-
of-the-art technologies. The Company has also identified coal pithead based
integrated power projects where the Company can draw coal from its own
mines for the power project. Applications for allocation of coal blocks for a few
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such projects have been recommended by Ministry of Power to Ministry of Coal.
Further these arrangements are supplemented with the reliable and cost
competitive gas/ LNG supply arrangements.
NTPC is also looking at forward integration as one of the viable options. It has
plans to acquire parallel distribution licenses in the related projects, like
distribution and trading. The target behind this is to increase the Power Trading
volume substantially. All the forward and backward integration initiatives are
primarily aimed at strengthening the core business of power generation. Assured
availability of coal and gas is the key to the Companys success and long-term
sustainability as well as competitiveness.
NTPC is also laying thrust on hydro power in order to achieve operational and
commercial synergy.
One Time Settlement Plan
Government had come out with a policy called One Time Settlement Plan,
where by all the receivables due to the power generating companies from the
SEBs would be converted into bonds backed by the government. This policy
helped all the power generating companies as they were able to recover their
dues and hence their sales figure improved. NTPC had also gained a lot from
this policy as it does not sell electricity directly to general public rather it sells
electricity to State Electricity Boards (SEBs). In the past, NTPC was perennially
exposed to the problem of large receivables from weak SEBs. NTPC has
benefited from the Settlement Scheme as per the Ahluwalia Committees
recommendations whereby the sundry debtor levels dropped from Rs. 12, 440
crores (237 days of sales) in FY2002-03 to Rs. 470 crores (9 days of sales) in
FY2003-04. The outstanding payments to Central Power Sector Utilities (CPSUs)
by the SEBs as on September 30, 2001 along with 40% of the surcharge (60%
waiver of surcharge) has been converted into State Govt. backed 8.5% tax Free
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Bonds. As per the scheme, the State Governments were asked to issue bonds
worth Rs. 16,410 crores to NTPC in lieu of past debts of the SEBs. NTPC has
entered into a bi-partite agreement with Delhi on similar lines for its dues to the
tune of Rs. 1,060 Crores. As a result, receivables from weak state electricity
boards have been converted into interest-bearing investments. These
investments are potentially liquid, subject to annual sell-off caps. Prospectively,
SEBs are required to open LCs with commercial banks in favour of NTPC,
covering 105% of the average monthly billing for the preceding 12 months of
sale. To that extent, the payment for power sold to the financially weak SEBs is
secured. In FY2003-04, NTPC realised 100% amounts for the power sold to
SEBs as a result of this arrangement.
Fuel / Energy mix for capacity addition
Currently, coal has a dominant share in the power generation capacities in India.
This is also reflected in the high share of coal-based capacities in NTPCs current
portfolio. With high uncertainties involved in Domestic gas/ LNG, both in terms of
availability and prices, NTPC is continuing to set up large pit-head coal based
projects, including few integrated coal cum power projects. To reduce the
dependence on fossil fuels, there is a need to push for renewable sources of
power in the sector. Therefore NTPC is trying to avail opportunities to add
hydropower to its portfolio subject to competitive tariffs. A first step in this
direction has already been taken with the investment in Koldam Hydro Power
Project. NTPC is also continuously closely monitoring developments on nuclear
front also and is open to setting up around 2000 MW of Nuclear power
generation capacity, possibly through a Joint Venture. As a leader in power
generation, NTPC is also considering other energy sources such as biomass,
cogeneration, fuel cells, etc for future development thereby reducing the
dependence on thermal fuels.
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While a decision on the fuel/energy mix for NTPC in the future would be largely
governed by their relative tariff-competitiveness, the fuel mix in 2017 may be
different from the existing portfolio, though not very significantly.
Diversification along the Value Chain
NTPC has achieved the distinction of being the largest thermal generating
company in India. In the past, this focus was adequate as the industry was highly
regulated with limited diversification opportunities. Over last few years, the
country has been facing acute shortages, both in coal and gas, severely affecting
optimum utilisation of its power stations and these shortages are likely to
continue in future as well. This is in spite of the fact that India is one of the largest
producers of coal in the World. To safeguard its competitive advantage in power
generation business, NTPC has moved ahead in diversifying its portfolio to
emerge as an integrated power major, with presence across entire energy value
chain. In fact, to symbolise this change, NTPC has taken on a new identity and a
new name NTPC Limited. NTPC has recently diversified into coal mining
business primarily to secure its fuel requirements and support its aggressive
capacity addition program. In addition, NTPC is also giving thrust on
diversification in the areas of power trading and distribution. Diversification would
also allow NTPC to offer new growth opportunities to its employees while
leveraging their skills to capitalise on new opportunities in the sector.
Establishing a Global Presence
To become a truly global company serving global markets, it is essential for
NTPC to establish its brand equity in overseas markets. NTPC is continuously
focusing on offering Engineering & Project Management Services, Operations &
Maintenance services, and Renovation & Modernization services in the
international market.
Establishing a successful services brand would be a precursor to taking higher
investment decisions in different markets. Going forward, NTPC will also
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continue to evaluate various options for strengthening its presence in global
markets including setting up power generation capacity, acquisition of gas blocks
etc.
Circa 2017: NTPCs corporate profile
NTPC aims to successfully diversify its generation mix, diversified across the
power value chain and entered overseas markets by the year 2017. As a result
NTPC would have altered its profile significantly. Elements of the revised profile
that NTPC would seek to achieve are:
Amongst top five market capitalisation in the Indian market
An Indian MNC with presence in many countries
Diversified utility with multiple businesses
Setting benchmarks in project construction and plant availability &
efficiency
Preferred employer
Have a strong research and technology base
Loyal customer base in both bulk and retail supply
A leading corporate citizen with a keen focus on executing its social
responsibility
Policy hindrances in the way of NTPC
THE NTPC, India's biggest power utility, was established in 1975 to strengthen
regional grids. It utilises coal near the pitheads for power generation, the
reasoning being that generation at such locations is a cheaper alternative to
transporting coal or transmitting power across the country. Most of the funding for
its projects have come from the multilateral agencies, primarily the World Bank.
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However, immediately after the new power policy was announced in 1991, The
NTPC was not allowed to bid for Independent Power Projects (IPPs). Some of
the projects allotted to it earlier were handed over to private developers. During
the same year, the World Bank, the primary agency in respect of the funding of
NTPC power projects, refused funding, alleging that the company was in poor
financial health.
The NTPC now has 12 coal-based and seven gas-based power projects. The
use of coal, the cheapest and most abundant resource for power generation, has
enabled it to sell power at the cheapest rate in the country. The average cost of
power generated by it is a rupee a unit; at Korba in Madhya Pradesh it is only 64
paise. The Plant Load Factor (PLF), indicating the extent of capacity utilisation ofa power plant, is far higher than the national average. Last year, the average PLF
of its power plants was 77 per cent, despite the poor performance of plants in the
eastern region where the PLF was 43 per cent. To improve the situation, there
are plans to evacuate surplus power from the eastern region to the northern and
western regions.
The NTPC's first 200 MW unit for the 2000 MW Singrauli power project in Uttar
Pradesh was commissioned in 1982. By 1983-84 it had a capacity of 1000 MW,
but the real spurt in growth came between 1987-88 and 1989-90, when 6713 MW
of capacity was added. By this time the mega projects at Singrauli (2000 MW),
Korba (2100 MW), Ramagundam (2100 MW), and Rihand (1000 MW) were fully
completed. Since then, however, capacity has not expanded at the same pace
(see chart). It now has an installed generating capacity of 16795 MW - about 19
per cent of the entire power generating capacity in India. However, it produces
about 25 per cent of the electricity generated in the country.
The restructuring of the power sector and the 'rationalisation' of tariffs that
accompanies it, is now being implemented at the level of SEBs. The NTPC is
also likely to follow such a course. This will provide the Corporation avenues for
rapid growth in revenue.
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SEBs' arrears to the NTPC have mounted. The arrears now stand at Rs. 3,800
crores, and, inclusive of surcharge, the amount is Rs. 6,200 crores. The NTPC,
the largest corporate recipient of World Bank funding, has been told by the Bank
that fresh assistance will become available only if the dues from the SEBs are
cleared.
Some of the SEBs, such as those in Andhra Pradesh and Orissa, are being
restructured through the creation of separate companies for generation,
transmission and distribution. A more moderate option advocated by critics of
such a course is a modest increase in tariffs, which, they argue, will bring down
the losses of SEBs. The NTPC recently indicated that it would prefer to be freed
from the administered price mechanism (APM) that governs its sale price to
SEBs. Its demand is similar to that planned for the oil companies after price
deregulation. The NTPC has been allowed to set tariffs at levels that guarantee it
a 16 per cent rate of return on new power plants. The Navaratna status is likely
to help the company proceed with plans to break up the company into separate
subsidiaries, each operating as a profit centre. The reasoning is that the loss-
making units will be separated from the profit-generating units.
The company's projects in Kayamkulam in Kerala, in Yamunanagar in Haryana,
in Mangalore (where the controversial Cogentrix project is now located) and
another controversial project, the Ib Valley project in Orissa, were all handed
over to private developers after the Government announced its new power policy.
The projects in Kerala and Haryana are now back with the NTPC because no
private promoter wanted to undertake them.
Despite its aborted partnership with Spectrum Technology for the Kakinada
project, the NTPC is now keen on forming a joint venture with a company
specialising in the lucrative renovation and modernisation (R&M) business in the
power sector. Asked whether an alliance with BHEL may have been preferable,
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The NTPC plans to add 6270 MW of generating capacity during the Ninth Plan
period and a further 8000 MW during the Tenth Plan, aiming for a total capacity
of over 30000 MW by the end of the Tenth Plan period. The outlay for projects in
the Ninth Plan is estimated to be Rs. 19,000 crores. Of the additional capacity in
the Ninth Plan, 3920 MW of capacity are in coal-based projects and the
remaining for projects utilising gas and other fuels. About 40 per cent of the funds
for the projects are expected to be raised in foreign currency from multilateral
agencies and a further 10 per cent in the form of suppliers' credit if equipment is
sourced from the multinational power equipment companies.
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Financial Analysis
National Thermal Power Corporation
Strategic Analysis of the Company
Company and its Mission
NTPC was set up by Ministry of Power in 1975 by observing the countries huge
demand for electricity. Till today NTPC is contributing about 27% of the total
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Future Outlook
Power sector has not been given its required due in the past years. Today when
India has to compete with other developed nations it is planning to boost the
growth of this sector as much as possible.
Market leaders like NTPC have enough potential to gain momentum in such a
supportive environment. Company is planning to develop ultra mega power
projects of 4000 MW capacity and company is also looking to venture into other
renewable sources of energy like nuclear power. To avoid the shortage of raw
material company is initiating its projects near the pit heads and also acquiring
lots of captive coal mines.
Company is planning to have joint ventures with private players for supply of fuel
especially gas (recently it has made an agreement with Reliance for the supply of
gas) Company is also planning to go for a joint venture with private players for
exploration of gas and coal under the National Exploration Licensing Policy-VI
(NELP-VI).
Thus company is all set to take advantage of supportive government policies and
industry growth in order to become a global player in power sector.
S.W.O.T Analysis of NTPC
Strength Weight age Weakness Weight age
Largest power utility 75 Long gestation period 70
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Trained Manpower 70 PSU work culture 50Diversification 50 Social responsibility 40Better capacity utilization 80 Compulsory obligations 60Government Support 70 Absence in distribution 80Market Leader 75 High Adm. Cost 70
Total 340 310
Change = +30
Opportunity Weightage Threat Weightage
Supportive power policy 60 Entry of private player 90Huge Demand 90 Low cost supply to SEBs 40Restriction on FDI 60 Availability of raw material 70
Access to global debt market 70 Privatization 40
Total 280 240
Change = +40Total Change = +70
So the SWOT analysis of NTPC is giving positive results with very high margin
i.e. 70% which shows firms competence and efficiency.
Note- the weights are assigned out of 100.
Analysis
Strengths
NTPC is the largest thermal power generating company in India with total
installed capacity 20.1% of Indias total installed capacity and contributed to
about 27.1% of the total power generation in India during the year 2004-05.
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NTPC has a highly trained manpower. The total strength of employees of the
corporation stood at 23385 as on March,2005 and the overall Man-MW ratio for
the year was 0.91.NTPC continuously trains its employees through various
training programmes for their continuous growth.
NTPC has diversified into coal mining, coal washeries and has also started a
company by the name of NEECO. Hence it can be said that NTPC is trying to
diversify its business.
The plant load factor for thermal plants of NTPC during the year 2004-05 was
87.5% as compared to 84.4% last year and for gas plants the plant load factor
was 65.3%.
NTPC, being a public sector unit, has a very strong government support and this
gives NTPC an upper hand as compared to other players in this area. And NTPC
is also a market leader as far as the power generation is concerned specifically
thermal power generation.
Weaknesses
Establishments of power projects take a long time and same is the case with
NTPC. NTPC has started with the establishment of hydro plants but still they arenot complete and would take another two to three years to start functioning.
NTPC faces the same problem as most of the PSUs, that is, it takes lots of time
to finish some work, file keeps on moving from one table to another and toll the
time the project is finalized lots of time is wasted.
And being a government entity it has to fulfill certain social responsibilities like
taking care that the environment does not get polluted and to develop the area
around the NTPC plant premises, etc. And it even has certain compulsory
obligations like for example it had to overtake Dhabol Power Plant (which is loss
making) as government had asked it to do so.
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Absence of a strong place in the distribution sector is also harming the business
of NTPC as it cannot get in direct touch with its customers. Though it has started
a distribution company in 2001 but still it does not have that much of presence in
the Indian market.
NTPC has a very large number of employees and it remunerations are among
the highest in the PSU sector and it also provides almost all the possible facilities
to its employees, which makes the administrative cost for NTPC very high.
Opportunities
Government is giving a lot of thrust on the development of the power sector and
this is very helpful for NTPC as it can find more avenues to grow. And secondly
there is a very large demand for electricity and shortage of electricity supply. So
this also provides NTPC with an opportunity to grow further. Apart from this
though 100% FDI is allowed in the power sector by automatic route but still there
are certain government regulations which are a hindrance in this process. And
since NTPC is a public sector unit and even cash rich this situation will help
NTPC a lot. And NTPC being a large company has an access to global debt
market for funds from where it can get funds at low interest rates hence helpingNTPC to maintain low cost of capital.
Threats
The major threat for NTPC is the entrance of private players like TATA Power,Reliance Energy, etc. in the Indian power sector. And for this NTPC has to grow
at a very fast pace if it wants to retain its market leader position for long.
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Another problem for NTPC is that it has to supply power to SEBs at a low cost
even when the cost of generation is high and this at times leads to losses and
this is because of the government policies.
Another major problem with NTPC is the acute shortage of raw material, that is,
coal. And because of this NTPC is trying to venture into other power generation
methods like hydro power generation, gas projects and even into nuclear plants.
But this will take a long time as the gestation period for establishing a plant and
making it operational is long. So till the shortage of fuel will be NTPCs major
concern.
Analysis of the return of the NTPC stock
NTPCs had come out with its Initial Public Offering in October 2004 and since
then its stock had been performing very well.
I have considered the stock price of NTPC from October 1, 2005 to March 31,
2006 and have taken out its return and beta. For comparison I have taken the
returns of NSE of the same period.
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During this period the average return of NTPC stock was 0.21% and its beta was
0.60. For stock price of last 6 months see Annexure 12
The same is depicted in the graph given below.
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
1 10 19 28 37 46 55 64 73 82 91 100 109 118
Return NSE
Return
NTPC Return NTPC
Return of NSE
Linear (Return of NSE)
Analysis
NTPCs stock is one the most stable stock in the stock market and its clearly
shown by its beta which is 0.60. It clearly suggests that NTPCs stock risk is
almost half the risk of the market, or we can say slightly more as it is more that
0.50. This stock can also act as a portfolio stabilizer due to its low volatility. The
trading volume in the stock has been significant.
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Common Size Balance Sheet
2005-06 2004-05 2003-04 2002-03 2001-02
SOURCES OF FUNDS
Shareholder's Funds
Capital 13.93% 15.16% 17.56% 19.42% 21.22%
Reserves and Surplus 56.64% 53.82% 52.95% 51.80% 52.15%
70.57% 68.98% 70.41% 71.22% 73.37%Deferred Revenue-onaccountof advance againstdepreciation 0.57% 0.31% 0.06%Development Surcharge
Fund 0.73%Loan Funds
Secured Loans 7.50% 8.89% 9.21% 4.09% 5.34%
Unsecured Loans 21.36% 21.09% 20.32% 24.69% 21.29%
28.86% 29.98% 29.53% 28.78%Deferred Tax Liability(Net) 8.54% 10.14% 9.92%
Less: Recoverable 8.54% 10.14% 9.92%
0.00% 0.00% 0.00% 0.00% 0.00%
TOTAL 100% 100% 100% 100% 100%
APPLICATION OF FUNDS
Fixed Assets
Gross Block 72.81% 77.67% 81.80% 81.75% 86.69%
Less: Depreciation 35.12% 36.42% 37.42% 37.81% 37.66%
Net Block 37.69% 41.24% 44.39% 43.94% 49.03%
Capital Work in Progress 11.33% 10.89% 11.52% 12.93% 7.58%Construction Stores &
Advances 5.44% 3.60% 2.75% 3.36% 2.79%
54.46% 55.78% 58.65% 60.23% 59.39%
Investments 35.13% 33.64% 8.19% 10.01% 9.14%Current Assets, Loans &Advances
Inventories 3% 3.37% 3.96% 5.01% 4.99%
Sundry Debtors 2.32% 0.91% 27.78% 28.66% 25.61%
Cash & Bank Balance 10.27% 1.18% 1.22% 2.99% 1.04%
Other Current Assets 1.64% 15.53% 5.62% 1.37% 7.32%
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Loans & Advances 4.57% 5.29% 4.80% 3.66% 10.04%
21.80% 26.28% 43.38% 41.71% 48.99%Less: Current Liabilities&
Provisions
Liabilities 8.84% 12.66% 7.64% 7.92% 44.18%Provisions 2.56% 3.05% 2.60% 4.04%
11.40% 15.70% 10.24% 11.97% 17.55%
Net Current Assets 10.41% 10.58% 33.13% 29.74% 31.44%
Miscellaneous Expenditure(to the extent not written offor adjusted) 0.02% 0.02% 0.02%
TOTAL 100% 100% 100% 100% 100%
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Common Size Income Statement
2005-06 2004-05 2003-04 2002-03 2001-02
INCOME
Sales 100% 100% 100% 100% 100%
Energy Internally Consumed 0.11% 0.10% 0.10% 0.10% 0.13%
Provisions Written Back 2.76% 5.12% 2.09% 0.06% 1.91%
Other Income 10.46% 32.53% 2.12% 3.77% 4.83%
Total 113.30% 137.75% 104.31% 103.93% 106.87%
EXPENDITURE
Fuel 60.88% 64.80% 57.91% 58.37% 52.38%
Employee's remuneration &Benefits 3.92% 4.69% 4.31% 4.51% 4.03%
Generation, administration &other expenses 5.37% 5.21% 5.71% 6.53% 5.31%
Depreciation 8.69% 10.73% 8.03% 7.34% 12.25%
Provisions 0.03% 3.10% 2.92% 1.03% 5.25%
Interest & Finance Charges 7.52% 17.88% 5.21% 4.87% 5.76%
Total 86.41% 106.40% 84.08% 83.05% 84.97%
Profit before Tax & Prior
Period Adjustments 26.92% 31.34% 20.13% 20.78% 21.90%Prior Period Income/ Exp.(net) -0.04 0.01% 0.42% 0.00% 0.42%Extraordinary item-CapitalReciepts 0.28%
Profit Before Tax 26.97% 31.25% 19.71% 21.06% 21.48%
Provision for Current Tax 4.46% 4.61% 5.91% 5.78% 7.09%
Less: Income tax recoverable 3.26% 1.27% 5.14% 4.59% 5.29%
1.20% 3.34% 0.77% 1.19% 1.79%
Profit after Current Tax 25.76% 27.91% 18.94% 19.87% 19.68%
Provision for deferred tax -0.76% 4.19% 1.86%
Less: Deferred TaxRecoverable -0.76% 4.19% 1.86%
Profit after Tax 25.76% 27.91% 18.94% 19.87% 19.68%
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Chart No. 1
Chart No. 2
Recievables Turnover Ratio
0
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Indian Institute of Finance 2005-07
Quick Ratio
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Chart No. 3
Chart No. 4
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Average Recievables Collection Period
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Net Profit Margin
0
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Chart No. 5
Cash Flow Coverage Ratio
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Chart No. 6
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Growth Rate
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14
2