An outsider in the bureaucratic circle, when he took over the reins of India´s largest and highest power generation company in 2010, little did anyone think that NTPC would turnaround its fortunes. Importantly, he was never bogged down by government rules and regulations - which has upset them at times. Meet Arup Roy Chaudhary, Chairman and Managing Director of NTPC, the man who has always believed in performance over preaching.
While NTPC took 10 years to build its first 10,000 MW capacity, 11 years to build the next 10,000 MW, and 7 years to build the third block of 10,000 MW capacity; the last 10,000 MW has been added in a short span of four years. NTPC´s foray into the hydro sector yielded results with the commissioning of two units at Koldam (two units of 200 MW each in March and another two of 200 MW in April and May 2015). Lastly, the company garnered over Rs 11,469.39 crore during ´Offer for Sale´ for disinvestment of further 9.5 per cent of GoI´s stakes which was oversubscribed by 1.7 times with 45 per cent coming from foreign investors. In his interview with POWER TODAY, he admitted that the ongoing e-auction is useless and that appetite for inorganic growth still prevails for NTPC. Edited excerpts:
The government has not pointed out that India recorded the lowest ever PLF. Who is responsible?
For me, there are larger issues than just plant load factor (PLF). The reason behind lower PLF is an increase in capacity addition. But does that mean the government should stop adding power generation capacities? Now, if we look at China, their PLF is only 50 per cent. So, instead of focusing on the PLF issue, we should concentrate on increasing power consumption, as it is an economic driver-for states in particular and to the nation, in general. Hence, state governments should ensure maximum energy take-off to be utilised for consumers through higher capacity and generation, and adequate coal supply.
At present, the state electricity boards (SEBs) remain the pain point for any state, due to their financial losses. However, some states are in the process of complete revival with NTPC´s help. However, those who criticise the entire system must understand that revival may not happen overnight.
Another issue that has gone against SEBs was financial restructuring. The so called, ´bail out package´ was half baked, and instead of strengthening them has put them in a similar situation. After the´bail-out´ fiasco, states were supposed to share the financial burdens, but were unable to support SEBs due to lack of financial muscle. However, since the Centre has allocated more financial support to states in the last budget, things are likely to take shape up positively.
The power ministry wants NTPC to be the largest power company in the world. How are we chasing this target?
Being the ´largest power producer´ is a subjective term. Despite of all the issues around us, NTPC has always stood on the island of success. We have tweaked our capacity addition to make it more environmentally friendly, by committing to install 10,000 MW of renewable energy. So rather than putting up more coal-based thermal projects, we will be installing more RE projects. In addition, we have plans to double our current installed capacity to 90,000 MW in the next 10 years, from the present 45,048 MW. In fact, we have lined up 10,360 MW of tenders and are currently working on a basket of new projects of more than 32,000 MW.
The overall performance must have reflected on your financial performance too...
Absolutely! NTPC achieved record capex of Rs 23,239.25 crore (standalone) during FY2014-15, against Rs 21,797.24 crore during FY2013-14ûan increase of 6.62 per cent. We achieved group capex of Rs 28,289.56 crore during FY2014-15, as against Rs 25,769.73 crore during FY2013-14ûan increase of 9.78 per cent. Planned capex for FY2015-16 was Rs 23,000 crore while incurred capex in Q1FY2015-16 was Rs 5,849.71 crore. The capex of Q1FY2015-16 has exceeded the phased capex for the Q1 by Rs 1,857.70 crore. The group companies (including NTPC) incurred a capex of Rs 7,877.55 crore in Q1FY2015-16.
Ergo, government wants NTPC to have its own coal reserves, generation and distribution. Is this even possible?
As far as coal mining and generation is concerned, we are already in this space as a leading player. However, we may require some detailing before being able to jump into the distribution segment. After all, power is a concurrent subject, and we are delighted that generation has finally picked up.
Hence, the next step is to accelerate SEBs towards financial independence and release the burden from nationalised banks, which have higher exposure to the sector. This is where NTPC comes in, and can do value addition by way of buying out stressed assets.
I feel it is just a matter of time before states realises the importance of NTPC, its muscle and financial power to change their distribution pattern.
Is this why Rajasthan and Maharashtra have approached NTPC for equity partnership?
It makes sense! And, the respective state governments have not approached us for equity partnership, but rather to strengthen their position with the help of our expert know-how. For e.g., if an SEB has generating capacities with a negative balance sheet, it can leverage it´s generation capacity to generate more funds by forming a joint venture, and in turn use the fund for distribution reforms. Going forward, the JV between NTPC and Rajasthan government can increase their distribution channel too. We are also already in talks with Madhya Pradesh and Rajasthan, while Maharashtra´s Mahagenco´s proposal is still at a nascent stage.
NTPC earmarked Rs.10,000 crore to buyout around 8,000-9,000 MW of stress assets. Why was this exercise abruptly stopped?
That is absolutely wrong!
The exercise is still on as far as inorganic growth is concerned. We are already in talks with states like Rajasthan, Madhya Pradesh, and Damodar Valley Corporation for acquisition of their generation assets. However, we are giving more preference to state-based generating assets, than private ones. In the entire exercise, our prime agenda is to bail out SEBs from financial burden and help them achieve their reforms.
Does that mean your appetite for inorganic growth is full and private assets have no chance?
Not at all! We are already looking at mentioned assets of the respective state governments, which are likely to ease them off from financial burden. But, if we find these assets are not suited to acquire as per our assessment, we will refer to the study prepared by KPMG and reassess. Maybe then private players stand a chance.
In terms of financing solar projects, we are looking at raising funds through green bonds.
So with our fund raising plans ranging from $500 million to $1 billion, it will not impact our finances. Meanwhile, we are waiting for clarifications from the Ministry of Finance.
I assume you have decided against coal imports, how are we placed on domestic sources?
I agree that coal production has moderately improved in the last quarter. But, we don´t want to import coal for plants which have enough supply from CIL and its subsidiaries. However, that does not mean, we will stop import. This is because, we have to rely on import wherever CIL is unable to supply. We have to run power plants, otherwise how will I recover my cost. If my fixed cost is not recovered, my investors suffer.
Why have you stayed away from e-auction?
E-auction is a useless mechanical device by coal companies to overcharge you. So, as a power generation player, why should we pay more compared to the imported cost for substance with quality issues. Ministry of Power has given us the authority to measure the quality of the coal and whatever quality issues are there we will deduct the money.
You have decided to sign fresh PPAs with existing customers and bundle thermal power with solar power in 85:15 ratio. Kindly explain this?
According to a directive issued by the Power Ministry, utilities will have to compulsorily abide by the arrangement and the ones that decline to take solar power will not be allocated any thermal power. In such cases, we will allocate that power to other utilities. At least 9,200 MW of our installed thermal capacities is over 25-years-old and another 3,000-4,000 MW of installed capacities will turn 25 in the next three-four years. Power from these plants will be bundled with solar power produced from existing installed capacity of 110 MW to begin with.
Under the new PPAs, the average price of thermal and solar power, will depend on the condition of coal-based power stations used for bundling.
Meanwhile, capital expenditure incurred for modernising and renovating these old power plants during the extended period of the PPAs will continue to be considered as additional expenditure for the determination of tariff.
Despite having installed capacity, why has transmission not received due attention?
Aggregate Technical and Commercial (AT&C) losses consists of two components as the name indicates. Technical loss is an actual energy loss in the T&D elements and wires; commercial loss is energy used, but not paid for by the user. There is no energy loss in the latter, but it includes un-metered/un-billed supply, theft/pilferage and error, if any, in metering.
Do you agree that successive governments failed to implement crucial pricing reforms?
The financial health of SEBs is important for both the sector and NTPC. There have been issues related to off-take of power. We have felt that on many occasions NTPC was asked to back down despite actual requirement on the ground, due to inability of discounts to pay. The mounting losses of SEBs are the result of the gap between the average cost of power and average revenue realisation by state utilities.
Dr. Arup Roy Choudhury studied at the prestigious St. Xavier´s and St. Michael´s School at Patna, from where he then went to the then best engineering college in Bihar - Birla Institute of Technology, Mesra (now in Jharkhand).
He completed his post graduation and doctorate from IIT-Delhi.
After working with DLF, Dr. Choudhury was selected by the Government to head National Building Constructions Co. Ltd. (NBCC), a Government of India enterprise. Becoming the youngest CEO of a CPSE (NBCC) at 44, he worked towards what turned out to be a stunning turnaround story. He transformed NBCC, which was a sick company with negative net-worth and salary backlog in 2001, into a blue-chip enterprise having ´Schedule A´ and ´Navratna´ status bestowed upon it by the GoI.
The transformational turnaround enabled NBCC´s turnover to grow about 10 times and net-worth over 500 times during his tenure of nine-and-a-half years at the helm.
Later, Dr. Choudhury joined NTPC as CMD in September, 2010 and the company has since then achieved several commendable milestones, which include:
Capacity addition of 12,500 MW, which is 27.6% of the total capacity added in the last 39 years i.e. 45,048 MW.
Achieved the highest every capex of Rs 22,883 crore (102%) for 2014-15.
Net worth of the company increased by over 30% to Rs 81,657 crore since his joining.
Paradigm-shift in the power plant´s layout, designing and operations, resulting in radical reduction of land requirement for power plants by nearly half.
Astute financial management, enhanced investors´ confidence.
Investors rewarded handsomely in the form of dividend and Issuance of Bonus Debentures, etc.
Put back on track NTPC´s international ventures in Sri Lanka and Bangladesh.