The Indian Railways is in talks with NTPC Ltd to jointly build power plants on 700 acres of surplus land it owns and use the electricity produced to run trains and for other operations. This could potentially reduce the dependence of the country’s largest passenger and goods mover on power supplied by state power utilities, which is costly and often erratic.

“The Indian Railways has approached us to set up these captive power projects on the surplus land it has,” said an NTPC executive who requested anonymity. “The arrangement is likely to be on the same lines as the Nabinagar project. Discussions are at a preliminary stage.” The state-owned power utility is in a 74:26 joint venture with the railways to build a 1,000MW project at Nabinagar in Bihar.

Railway officials involved in the discussions declined to comment, citing the ongoing budget preparation exercise. The railway budget is scheduled to be presented in Parliament on 3 July. Buying from state electricity boards is costlier as commercial subscribers such as the railways pay more to make up for power supplied at subsidized rates or for free such as for use at farms.

NTPC is already in a 74:26 joint venture with the railways to set up a 1,000MW project based in Nabinagar, Bihar. The railways pays an average of Rs4.29 a unit to run locomotives and Rs4.37 a unit for other purposes. The average cost of generation at NTPC was Rs2.11 per unit in the fiscal year ended on 31 March.

The proposed arrangement could provide the public sector enterprise with a large captive consumer. The railways currently uses some 12 billion units of electricity a year and its consumption is growing at an average 5% every year.

“The power ministry, along with the Central Electricity Authority, is examining the feasibility of supply of power to railways from a single source,” said a government official who declined to be named. The authority is India’s power sector planning body.

The Planning Commission, India’s apex planning body, has recommended that the railways buy power from independent producers or get the private sector to establish power plants rather than rely on state electricity boards.

However, a railway ministry official had earlier told Mint that the railways was concerned about the reliability of independent power producers.“It makes sense for NTPC to evaluate this opportunity as the Indian Railways is the largest commercial organization in the country,” said Gokul Chaudhri, partner at consultancy firm BMR Advisors. “If NTPC enters into this relationship, they will be building an asset base for supplies to a relatively secure customer.”

“However, what needs to be seen is what are the contractual arrangements such as the take or pay clause,” Chaudhri added. NTPC has a power generation capacity of 30,144MW, which it plans to ramp up to 50,000MW by 2012.

Source - Mint