KSEBOA - KSEB Officers' Association

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NTPC, India's largest power utility, plans to sell at least 15% of its additional capacity through power exchanges to third party buyers, which would be outside the purview of a power purchase contract. The state-owned company expects to earn Rs 500 crore of additional revenue through such a sale. Such contracts are typically called merchant power contracts and are priced at a premium over the long-term tariffs. NTPC, which has announced its intention to offer 5% of government equity through a follow-on public issue, will build up merchant power capacity of 500 mw by May 2010, chairman RS Sharma told reporters after announcing the follow-on issue, which is estimated to raise Rs 11,000 crore.

Currently NTPC's capacity totals 30,000 mw, which will be ramped up to 75,000 mw by 2017. “Of the 18,000 mw under construction, we will have merchant capacity of 2000 mw by 2012, and it could be further increased depending on market conditions,” said Mr Sharma.

The government has proposed to earmark 10% of the NTPC's total capacity for merchant sale. Under this process, power companies sell power at market driven rates in the open market. Typically, merchant sales don't have long-term purchase agreements with the buyers and are transacted on a spot trade basis. Although lucrative, these sales carry high risk as buyers of electricity can withdraw from the contract without facing any penalty.

Of the NTPC's public offer of 412 million equity shares, 205 million shares are reserved for institutions, 4.3 million shares for NTPC's staff and the rest for local investors, according to the share sale document.

The government plans to sell 5,500 mw unallocated power with the Centre, to be sold though exchanges. Currently, only 200 mw is being sold through the country's three power exchanges — Indian Energy Exchange, Power Exchange of India and the National Power Exchange. According to the Central Electricity Regulatory Commission, a nodal body that prepares norms for the sector, as of September 2009, 0.09 % of the total power generation was traded through exchanges.

NTPC's offer is scheduled to open on February 3 and will close on February 5. The issue, being managed by ICICI Securities, JP Morgan, Citigroup and Kotak Mahindra, is expected to be priced between Rs 245-250 a share, according to NTPC officials.

An empowered group of ministers (EGoM), headed by finance minister Pranab Mukherjee will meet on February 1, to approve the price of NTPC's offer. However, senior NTPC executives and power ministry officials are concerned that weak market sentiments could impact the issue price. On Wednesday, BSE's broader Sensex fell about 3%.
Market observes say the government may have to consider a lower band or postpone the issue till the sentiment recovers. “Investors such as HNIs and retail investors would seek a price difference of at least Rs 10-15 from the closing price,” said Deepak Jasani of HDFC Securities.

Under its privatisation plan, the government has proposed to sell part of its shareholding in public sector companies such as REC, GAIL, CIL, Power Grid among others, to fund social development projects.

Source- Economic Times