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State-owned NTPC Ltd's concerns over the revised electricity tariff norms came home to roost with India's largest power generation utility posting a 17% decline in its second quarter profit. NTPC posted a net profit of Rs.2,071.63 crore for the quarter ended 30 September, compared with Rs.2,492.90 crore a year earlier. Also, revenue increased by only 1% to Rs.17,267.32 crore compared with a year ago. "The decline in Profit After Tax is mainly on account of changes in Tariff Regulations, 2014," the utility said in a statement on Friday.
The apex power sector regulator Central Electricity Regulatory Commission (CERC) had rejected NTPC's representation to revisit electricity tariff norms applicable during fiscal years 2014-15 and 2018-19. CERC's earlier order 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 (discoms). Since these utilities are strapped for funds, PLF is often lower than PAF-implying that NTPC would be entitled to fewer financial incentives.
NTPC's core business is generation and sale of electricity to state electricity boards (SEBs). Weak financials of the state government-owned discoms because of low tariff increases, slow progress in reducing losses, higher electricity 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, a measure of average capacity utilization, was 81.5% in 2013-14 compared with 83.08% in 2012-13 for coal-fuelled projects. The issue assumes significance because of the country's low per capita electricity consumption.
India's per capita power consumption, at around 940 kilowatt-hour (kWh), is among the lowest in the world. In comparison, China has a per capita consumption of 4,000 kWh, with the developed countries averaging around 15,000 kWh of per capita consumption.
Also, India faces distribution losses and previous governments have been unable to bring this down to desire levels. "Icra estimates average all India AT&C (aggregate transmission and commercial) loss levels in the range of 27% for FY 2013. This is significantly higher than what is targeted and points to a considerable scope for reduction in loss levels," said a 29 October Icra report. NTPC's performance comes at a time when the ruling Bharatiya Janata Party-led National Democratic Alliance government has made energy security one of its top priorities.
The government has launched a scheme aimed at ensuring around eight hours of quality power supply to agricultural consumers and 24-hour electricity to households. Of India's current capacity of 254,049.49 megawatts (MW), NTPC has a 17.28% share, with an installed generation capacity of 43,128MW.
The utility plans to add 14,038MW during the 12th Plan (2012-17) and has budgeted an ambitious capital expenditure target of Rs.1.5 trillion. It has set itself the target of becoming a 128,000MW power producer by 2032. NTPC had also earmarked Rs.10,000 crore for inorganic growth. Mint reported on 29 July that the utility had been advised by its audit committee to scale back its planned capacity addition targets due to muted demand, even as per capita electricity consumption in India remains low.
In addition, the committee asked NTPC to "revisit" its inorganic growth plans. The audit committee said the utility's profit has not increased in proportion to its capacity addition due to low demand from states. Of NTPC's capex plan of Rs.1,52,341 crore spread over 2012-17, the utility has achieved Rs.41,631 crore (till 2013-14) with the balance Rs.1,10,710 crore left to be achieved, which has been termed as "challenging". On Friday, the NTPC stock rose 1.9% to Rs.149.95 on BSE. The benchmark Sensex gained 1.9% to close at a record 27,865.83 points.
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