NTPC appoints KPMG to firm up strategy in uncertain times

New Delhi: State-owned NTPC Ltd, India’s largest power producer, has appointed consultancy firm KPMG to work out a new strategy to face the challenges of an evolving energy landscape marked by regulatory changes and an increasing government focus on renewable sources of power.

As part of the EXERCISE, KPMG will revise the NTPC Corporate Plan 2032, which lays down a roadmap for the state-owned power producer. This plan had been drawn up by Bain and Co. India Pvt. Ltd.

“The corporate plan is reviewed every five years. India’s energy landscape has changed. With no immediate positives on the nuclear power front, gas being a scarce fuel and a thrust on renewables, a new strategy has to be evolved. Also, we have been impacted on the regulatory front,” an NTPC executive said, requesting anonymity.

Consultants such as Bain and Co. India Pvt. Ltd, Deloitte Touche Tohmatsu India Pvt. Ltd and McKinsey and Co. were in the fray for the assignment, Mint reported on 4 March.

NTPC’s worries stem from concerns over revised electricity tariff norms. The apex power sector regulator Central Electricity Regulatory Commission (CERC) had rejected NTPC’s plea to revisit electricity tariff norms applicable between fiscal years 2014-15 and 2018-19.

An earlier CERC order had said incentives would be based on the plant load factor (PLF) metric and not plant availability factor (PAF), as before. PLF is based on the actual power that is generated by a plant, whereas PAF measures the generation capacity that is available.

Effectively, CERC linked future financial incentives with the purchase of power by distribution companies. Since these utilities are strapped for funds, they are buying less power from distribution companies and PLF is often lower than PAF, which means NTPC would be entitled to fewer financial incentives.

NTPC’s core business is generation and sale of power to state electricity boards (SEBs). Weak financials of the state government-owned distribution companies because of low tariff increases, slow progress in reducing losses, higher power purchase costs and crippling debt have assumed alarming proportions. SEBs with debt of Rs.3.04 trillion and losses of Rs.2.52 trillion are on the brink of financial collapse. Lower demand for power translates to a lower PLF.

NTPC’s PLF, which is a measure of average capacity utilization, was 81.5% in 2013-14 against 83.08% in 2012-13 for coal-fuelled projects. Also, there are no takers for around 5,000 megawatts (MW) of electricity offered by the utility.

While queries emailed to an NTPC spokesperson remained unanswered till press time, a KPMG spokesperson, in an emailed response, said, “As per our policy we do not comment on client engagements.”

NTPC has been trying to keep the tariff of power generated by its various projects to an average level of under Rs.3 a unit and to supply power at a uniform rate across the country. In the last fiscal year, the average rate of electricity sold by NTPC’s coal-fuelled projects was Rs.3.25 per unit, while the tariff of power from its other projects ranged between Rs.2 and Rs.4.50 a unit.

Experts believe these are challenging times for Indian utilities.

“NTPC needs to strategize and realign its focus over the next 5-10 years with the sector dynamics changing—environment and climate change commitments, energy mix and renewable getting played up, regulatory scrutiny and performance-linked regulations, customers demanding flexible tariff structures and retail competition in the offing. The landscape will surely change. Dependence on regulated returns and taking up non-economic activities which reduce managerial bandwidth may not be useful going forward,” said Sambitosh Mohapatra, who oversees the power and utilities practice at consulting firm PricewaterhouseCoopers.

This also comes at a time when NTPC has voiced its apprehensions about the lapsing of a tripartite agreement—between the Reserve Bank of India, the Union government and the state governments—which provided comfort to power producers against payment defaults by SEBs.

The agreement lapses in October 2016, with no certainty that a replacement will be ready in time. Under the existing agreement, any state defaulting on dues owed to power companies risks a deduction from its annual transfers. So far, this clause has not been invoked as the threat of a deduction has ensured timely payment by SEBs, who are weighed down by Rs.3 trillion in accumulated losses.

Also, as part of the National Democratic Alliance government’s green energy push, NTPC plans to supply electricity from 10,000MW of solar power capacity that it is setting up on its own at Rs.3.20 per unit by bundling it with unallocated power to bring tariffs down. In addition, it plans to sell electricity at around Rs.5 per unit for 15,000MW that it is buying on behalf of the ministry of new and renewable energy and earn 7 paise per unit in return.

NTPC has an installed capacity of 45,548MW and a 16.5% share in India’s power generation capacity of 275,912MW. It plans to set up 10,000MW of solar power projects on its own. It is also procuring 15,000MW on behalf of the government. The utility’s green power plans involve renewable energy contributing 28% of its planned capacity of 128,000MW by 2032.