The move is a double-edged sword as NTPC has hardly any cash balance on its books and will have to critically depend on market borrowings to finance the proposed buyout.
New Delhi: As fiscal pressures build up, the Narendra Modi government is looking to raise funds by selling its 73.67% stake in state-owned hydropower generator NHPC to state-owned electricity generator NTPC, according to media reports.
The sale should fetch the Centre nearly Rs 18,244 crore at current market prices and help in meeting the fiscal deficit target of 3.3% of GDP.
However, the move is a double-edged sword as NTPC has hardly any cash balance on its books and will have to critically depend on market borrowings to finance the proposed buyout.
Last fiscal, in a similar deal, the government had sold off its entire 51.11% stake in state owned-refiner HPCL to ONGC for Rs 36,915 crore. ONGC, which had been a largely debt-free company until then, had to borrow about Rs 25,000 crore to finance the transaction.
The proceeds realised from the stake sale in HPCL helped the government exceed its disinvestment target for the first time in many years and limit the potential slippage in fiscal deficit target.
The government had targeted to contain fiscal deficit to 3.2% in 2017-18, but it widened to 3.5%. The fiscal slippage could have been even bigger if the ONGC-HPCL had not materialised during the year.
The deal eroded 90% of ONGC’s cash balance. The state-owned oil producer’s cash reserves dropped to about Rs 1,000 crore as at the end of March this year, from Rs 13,000 crore a year ago.
The government has targeted to mop up Rs 80,000 crore through sale of its stakes in central public sector enterprises (CPSEs) this year. It has so far raised a little more than Rs 9,000 crore against the target. If it fails to push a big-ticket sell-off plan, the government could well miss the disinvestment target, which will make it difficult for the Centre to contain fiscal deficit to 3.3%, or Rs 6.24 lakh crore.
The Centre’s fiscal deficit for the first two months of fiscal year 2018-19 shot up to Rs 3.45 lakh crore, or 55% of the full year target, due to higher capital expenditure.
With the government gearing up for general elections next year, it would not be politically feasible to cut down on budgeted expenditure. So it is likely to pursue its sell-off plan to raise enough funds to meet the fiscal gap, experts said.
Significantly, the government is looking to sell its stakes in NHPC to NTPC after its plan to liquidate stakes in another state-owned hydro major, SJVNL, tripped over opposition from the Himachal Pradesh government, which holds 25.52% equity in the PSU.
The Centre was expecting to mop up over Rs 10,000 crore by selling its 64.46% equity in SJVNL, but the proposal had to be shelved.
NTPC is India’s largest thermal power generator, with installed capacity of nearly 51,000 MW, the bulk of which is coal-fired. It runs a sole hydel plant, 800 MW Koldam, constructed over the Satluj river. Another of its project, Loharinag Pala, in Uttarakhand had to be scrapped due to resistance from environmentalists.
Climate changing emissions
Company sources said NTPC wants to increase its clean energy hydel portfolio to balance its coal-fired generation capacity, which is frowned up by activists because of climate changing emissions generated in the burning of coal.
But even if NTPC takes over NHPC, Indian power sector’s emissions would not come down, pointed out environmental experts.
If NTPC really wants to contain its carbon footprint, it should invest in hydel and renewable power projects of its own instead of coal-fired capacity, sources added.
To diversify its generation portfolio, NTPC also plans to add 32,000 MW renewable capacity including 15,000 MW solar by 2032.
But the slow pace of its capacity addition in renewable power does inspire confidence that the PSU would be able to achieve its target, experts said.
Just after the Modi government came to power in 2014, it had toyed with the idea of merging all hydel PSUs to create a state-owned hydrogenating behemoth. But on examination, the plan was found impractical and consequently dropped.