Chronicle Order of the Project Report

1 2 3 4 5 6 7 7 8 9 10 11 12 13

Front Page Certificate Acknowledgement Index- Page Numbering is essential Objectives of the study Introduction to the company/ topic Hypothesis, if any Literature Review Research Methodology Data Analysis Findings & Conclusion Recommendations References/ Bibliography Annexure- to include questionnaire if any

Summer Training Project Report ON

NTPC LTD. 1

Title Of the Project

Submitted in Partial fulfillment of requirement of award of MBA degree of

GGSIPU, New Delhi

Submitted By Name Enrolment No Semester/Batch

Northern India Engineering College

(Affiliated to GGSIPU) FC-26, Shastri Park, Delhi-110053

NTPC LTD. 2

TABLE OF CONTENTS
1.1 EXECUTIVE SUMMARY 1.2 GENERAL INTRODUCTION 1.3 INDUSTRY PROFILE 1.4 GENESIS CHAPTER 2:RESEARCH METHODOLOGY 2.1 OBJECTIVES 2.2 RESEARCH DESIGN 2.3 SOURCES OF DATA COLLECTION 2.4 PRIMARY & SECONDARY SOURCE 2.5 LIMITATIONS CHAPTER 3: BUINESS PORTFOLIO CHAPTER 4:DATA ANALYSIS AND INTERPRETATION CHAPTER 5: FINDINGS & RECOMMENDATIONS 4.1MAJOR FINDINGS 4.2RECOMMENDATIONS 4.3CONCLUSION BIBLIOGRAPHY

NTPC LTD. 3

EXECUTIVE SUMMARY

Power is a concurrent subject under the Constitution. Due to paucity of resources with the Central/State PSUs and SEBs and in order to bridge the gap between demand and availability of power, a policy to encourage private sector participation was initiated in 1991. The study was to make for the trends in tariff structure in power sector and to have a detailed look on the reforms in and restructuring of the power sector in last decade. A special focus has been given to the Availability Based Tariff regime and its impact on NTPC. A comparative analysis between the previous tariff structure and the existing tariff structure is attempted in this study.

NTPC LTD. 4

INTRODUCTION
In this chapter the purpose of the study has been elaborated in the background demand factor of electricity with special focuses on recent power sector reforms. Need of Tariff policies initialed by the government and the impact on the development of power sector has been discussed.
Overview of Indian Power Sector

In general, the history of development Indian power sector has been discussed. This chapter has given focus on the structure, key players and growth of them in the vicinity of different policies adopted.
Tariff Structure Policy And Norms

Deals with the evolution of tariff policy and discusses the basic concepts of tariff. It also explains the need for establishing a comprehensive tariff policy in power sector. Various important provisions, which govern the tariff determination, are discussed under this part. Tariff structure is based on the cost plus method of pricing. The methodology of tariff structure is explained in detail. At the end of the chapter the features of a good tariff are explained. Trends In Tariff Structure Refers to the historical methods of tariff structure. This chapter explains that initially tariffs were structured on single part, and then a committee was constituted to make the tariff in Two-parts, which consists of fixed charges And Variable charges. K. P. Rao committee constituted the Two-part tariff. It was evolved to formulate principles for generation tariff. After going through the historical methods of tariff structure we discuss the current tariff structure.
Availability Based Tariff Structure

Deals with the current tariff structure, which is based on CERC notification. This is the electricity tariff based on the plant availability and frequency. Therefore it is called Availability Based Tariff. The components of Availability Based Tariff are explained in NTPC LTD. 5

detail; it is three-part tariffs, which consists of capacity charges, energy charges and unscheduled interchange charges. After discussing the current tariff structure comparative analysis of different methods of tariff structure has been attempted in the next chapter. Than this report covers definition of tariff.Tariff is the price charged for the sale of electricity from the state electricity boards by Central public centre units engaged in power generation.There are two types of tariffs cost plus and market determined. In India Electricity sector is operating in Cost Plus Regulated Tariff regime.Than three kinds of tariff structure are covered which are- Single-part-tariff,Two-part-tariff and Availability Based Tariff(ABT). ABT is currently used by NTPC for tariff Determination.In ABT system if the average availability actually achieved over the year is higher than the specified norm for plant availability, the generating company gets a higher payment. In case the average availability achieved is lower payment is also lower. Hence it is called availability-based tariff.Than its various components are discussed in detail. After that various reforms occurred in power sector are discussed and certain recommendations for improvement of Tariff structure are suggested.

NTPC LTD. 6

National Thermal Power Corporation

COMPANY PROFILE

Our Vision
"A world class integrated power major, powering Indias growth, with increasing global presence

Our Mission
"Develop and provide reliable power, related products and services at competitive prices, integrating multiple energy sources with innovative and eco friendly technologies and contribute to society"

Our Core Values (BCOMIT)

Business Ethics Customer Focus Organizational & professional Pride Mutual Respect and Trust Innovation and Speed Total Quality for Excellence

OBJECTIVE
NTPC LTD. 7

To realise the vision and mission, eight key corporate objectives have been identified. These objectives would provide the link between the defined mission and the functional strategies.

Business portfolio growth

o To further consolidate NTPCs position as the leading thermal power generation company in India and establish a presence in hydro power segment o To broad base the generation mix by evaluating conventional and nonconventional sources of energy to ensure long run competitiveness and mitigate fuel risks o To diversify across the power value chain in India by considering backward and forward integration into areas such as power trading, transmission, distribution, coal mining, coal beneficiation, etc o To develop a portfolio of generation assets in international markets o To establish a strong services brand in the domestic and international markets

Customer Focus
o To foster a collaborative style of working with customers, growing to be a preferred brand for supply of quality power o To expand the relationship with existing customers by offering a bouquet of services in addition to supply of power e.g. trading, energy consulting, distribution consulting, management practices NTPC LTD. 8

o To expand the future customer portfolio through profitable diversification into downstream businesses, inter alia retail distribution and direct supply o To ensure rapid commercial decision making, using customer specific information, with adequate concern for the interests of the customer

Agile corporation
o To ensure effectiveness in business decisions and responsiveness to changes in the business environment by Adopting a portfolio approach to new business development Continuous and co-coordinated assessment of the business environment to identify and respond to opportunities and threats o To develop a learning organization having knowledge-based competitive edge in current and future businesses o To effectively leverage Information Technology to ensure speedy decision making across the organization

Performance Leadership
o To continuously improve on project execution time and cost in order to sustain long run competitiveness in generation o To operate & maintain NTPC stations at par with the best-run utilities in the world with respect to availability, reliability, efficiency, productivity and costs o To effectively leverage Information Technology to drive process efficiencies o To aim for performance excellence in the diversification businesses o To embed quality in all systems and processes.

NTPC LTD. 9

Human Resource Development

o To enhance organizational performance by institutionalising an objective and open performance management system o To align individual and organizational needs and develop business leaders by implementing a career development system o To enhance commitment of employees by recognizing and rewarding high performance o To build and sustain a learning organization of competent world-class professionals o To institutionalize core values and create a culture of team-building, empowerment, equity, innovation and openness which would motivate employees and enable achievement of strategic objectives.

Financial Soundness
o To maintain and improve the financial soundness of NTPC by prudent management of the financial resources o To continuously strive to reduce the cost of capital through prudent management of deployed funds, leveraging opportunities in domestic and international financial markets o To develop appropriate commercial policies and processes which would ensure remunerative tariffs and minimize receivables o To continuously strive for reduction in cost of power generation by improving operating practices

NTPC LTD. 10

Sustainable Power Development

o To contribute to sustainable power development by discharging corporate social responsibilities o To lead the sector in the areas of resettlement and rehabilitation and environment protection including effective ash-utilization, peripheral development and energy conservation practices o To lead developmental efforts in the Indian power sector through efforts at policy advocacy, assisting customers in reform, disseminating best practices in the operations and management of power plants etc

Research and Development

o To pioneer the adoption of reliable, efficient and cost-effective technologies by carrying out fundamental and applied research in alternate fuels and technologies o To carry out research and development of breakthrough techniques in power plant construction and operation that can lead to more efficient, reliable and environment friendly operation of power plants in the country

NTPC LTD. 11

1. GENESIS
Till early Seventies, the power generation capacity addition, in India, was mainly done by State Electricity Boards. The gap between the demand and supply of power had been on increase and the same was affecting the economic growth of the country. With a view to supplement the efforts of SEBs in the matter of integrated development of power; it was decided to set-up generating companies in Central Sector also. To pursue this objective, After incorporation in November 1975, NTPC has grown to become not only the largest utility National Thermal Power Corporation Limited was formed in November 1975 as a generating company in the Central Sector. National Thermal Power Corporation is the largest power generation company in India. The Forbes Global 2000 ranking for 2005 ranks it as the 5th leading company in India and the 486th leading company in the world. It is a public listed (Bombay Stock Exchange) Indian public sector company, with majority shares owned by the Government of India. At present, Government of India holds 89.5% of the total equity shares of the company and the balance 10.5% is held by FIIs, Domestic Banks, Public and others. NTPC ranks amongst the top five companies, in terms of market capitalisation. NTPCs core business is engineering, construction and operation of power generating plants and also providing consultancy to power utilities in India and abroad. As on date the installed capacity of NTPC is 26, 404 MW through its 14 coal based (21,395 MW), 7 gas based (3,955 MW) and 4 Joint Venture Projects (1,054 MW). NTPCs share on 31 Mar 2006 in the total installed capacity of the country was 19.51% and it contributed 27.68% of the total power generation of the country during 2005-06. Thus, every fourth home in India is enlightened by NTPC. A total of 170.88 Bus of electricity was produced across all the stations of the company in the financial year 20052006. The Net Profit after Tax on March 31, 2006 was INR 58, 202 million. Net Profit

NTPC LTD. 12

after Tax for the quarter ended June 30, 2006 was INR 2004-2005) where the profit was INR 13087 million. Pursuant to special resolution passed by the Shareholders at the Companys Annual General Meeting held on September 23, 2005 and the approval of the Central Government under section 21 of the Companies Act, 1956, the name of the Company National Thermal Power Corporation Limited has been changed to NTPC Limited with effect from October 28, 2005. The company, which has completed its thirty years of existence on November 7, 2005, has made its foray into hydro-power and is planning to go into nuclear too).

2. GROWTH of the country but also a leading power utility of international acclaim.
The installed capacity of NTPC as on March 31, 2004 is 21749 MW through its 13 coal based (17480 MW), 7 gas/liquid fuel based (3955 MW) and 3 Joint Venture (coal based) Projects (314 MW). NTPC has generated 151357 million units (MUs) of electricity in 2003-04 including 2187 million units generated by JV Companies.

From the above graph its been clear that NTPC is creating that leading benchmark in all over the country, like above graph is dictating that the intensive and remarkable growth covered by NTPC was started in year 1986-87 from 3000MW with 20000BU and goes to NTPC LTD. 13

inconsistent growth in year 2006-07 by 30000MW with 200000BU. This shows the effective installed capacity is leading a terrific generation of power.NTPCs core business is engineering, construction and operation of power generating plants. It also provides consultancy in the area of power plant constructions and power generation to companies in India and abroad. As on date the installed capacity of NTPC is 27,904 MW through its 15 coal based (22,895 MW), 7 gas based (3,955 MW) and 4 Joint Venture Projects (1,054 MW). NTPC acquired 50% equity of the SAIL Power Supply Corporation Ltd. (SPSCL). This JV company operates the captive power plants of Durgapur (120 MW), Rourkela (120 MW) and Bhilai (74 MW). NTPC also has 28.33% stake in Ratnagiri Gas & Power Private Limited (RGPPL) a joint venture company between NTPC, GAIL, Indian Financial Institutions and Maharashtra SEB Holding Co. Ltd. The present capacity of RGPPL is 740 MW. NTPCs share on 31 Mar 2007 in the total installed capacity of the country was 20.18% and it contributed 28.50% of the total power generation of the country during 2006-07. NTPC has set new benchmarks for the power industry both in the area of power plant construction and operations. It is providing power at the cheapest average tariff in the country. With its experience and expertise in the power sector, NTPC is extending consultancy services to various organizations in the power business. NTPC is committed to the environment, generating power at minimal environmental cost and preserving the ecology in the vicinity of the plants. NTPC has undertaken massive a NTPC LTD. 14

forestation in the vicinity of its plants. Plantations have increased forest area and reduced barren land. The massive a forestation by NTPC in and around its Ramagundam Power station (2600 MW) have contributed reducing the temperature in the areas by about 3c. NTPC has also taken proactive steps for ash utilizations. In 1991, it set up Ash Utilisation Division to manage efficient use of the ash produced at its coal stations. This quality of ash produced is ideal for use in cement, concrete, cellular concrete, building material. A "Center for Power Efficiency and Environment Protection (CENPEEP)" has been established in NTPC with the assistance of United States Agency for International Development. (USAID). Cenpeep is efficiency oriented, eco-friendly and eco-nurturing initiative - a symbol of NTPC's concern towards environmental protection and continued commitment to sustainable power development in India. As a responsible corporate citizen, NTPC is making constant efforts to improve the socioeconomic status of the people affected by the projects. Through its Rehabilitation and Resettlement programmes, the company endeavors to improve the overall socioeconomic status of Project Affected Persons. NTPC was among the first Public Sector Enterprises to enter into a Memorandum of Understanding (MOU) with the Government in 1987-88. NTPC has been Placed under the 'Excellent category' (the best category) every year since the MOU system became operative. Recognising its excellent performance and vast potential, Government of the India has identified NTPC as one of the jewels of Public Sector Navratnas- a potential global giant. Inspired by its glorious past and vibrant present, NTPC is well on its way to realise its vision of being A world class integrated power major, powering Indias growth, with increasing global presence.

SPREAD ACROSS THE COUNTRY

NTPC LTD. 15

NTPC projects/power stations are spread all over the country. The location map of NTPC approved projects as shown below exhibits the wide presence of NTPC throughout the length and breadth of the country. The map below shows the locations of our existing power stations, as well as those currently under construction, together with their respective capacities.

KOLDAM (800 MW) LOHARINAG-PALA (600 MW)

DADRI (817 MW) NCPP (840 MW) FARIDABAD (430 MW)

TAPOVAN VISHNUGADH (520 MW) LATA-TAPOVAN (108 MW)

ANTA (413 MW) KAWAS (645 MW)

TANDA (440 MW) BADARPUR (705 MW) (705 MW) ** UNCHAHAR AURAIYA (840 MW + 210 MW) (652 MW) KAHALGAON (840 MW+ 1500 MW)) FARAKKA (1600 MW) VINDHYACHAL (2260 MW + 1000 MW)

RIHAND (1000 MW + 1000 MW) KORBA (2100 MW) TALCHER (2500 MW + 500MW) TALCHER TPS (460 MW)) SINGRAULI (2000 MW)

SIPAT (2980 MW)

JHANOR-GANDHAR (648 MW)

RAMAGUNDAM (2100 MW + 500 MW)

SIMHADRI (1000 MW)

COAL POWER STATION GAS POWER STATIONS HYDRO PROJECT

(in italics) : Projects in progress

KAYAMKULAM (350 MW)

** : Plants managed and operated by NTPC

NTPC has mostly built Regional power stations supplying power to the various states in the Region as per power allocation formula approved by Govt. of India. NTPC LTD. 16

The list of completed projects, projects under construction and projects managed by NTPC is given below:
S.No

COMPLETED PROJECTS Location Name of the Project Capacity

(MW) (State)

Primary Fuel

Cost (Rs. Million)

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.

Korba Ramagundam Singrauli Farakka Vindhyachal Rihand Talcher -I Kahalgaon NCTPP, Dadri Talcher (taken Over) UnchaharI (Taken Over Dadri Gas Auraiya Jhanor-Gandhar Kawas Anta Kayamkulam Tanda (taken over) Vindhyachal- II Unchahar II Faridabad TOTAL

2100 Chhattisgarh 2100 Andhra Pradesh 2000 Uttar Pradesh 1600 West Bengal 1260 M.P 1000 Uttar Pradesh 1000 Orissa 840 Bihar 840 Uttar Pradesh 460 Orissa 420 Uttar Pradesh 817 Uttar Pradesh 652 Uttar Pradesh 648 Gujarat 645 Gujarat 413 Rajasthan 350 Kerala 440 1000 420 430 19435 Uttar Pradesh
Madhya Pradesh

Coal Coal Coal Coal Coal Coal Coal Coal Coal Coal Coal Gas Gas Gas Gas Gas Naphth a Coal Coal Coal Gas

16252.50 20592.20 11906.90 31842.20 14603.70 23874.00 25921.80 17158.90 16692.10 3560.00 9250.00 9603.50 6787.70 25000.00 15995.70 4189.70 13105.80 10000.00 27533.80 14120.90 11636.00 329627.40

Uttar Pradesh Haryana

APPROVED / ON-GOING PROJECTS

S. No. Capacity (MW) Project Simhadri 1000 Talcher II 2000 Rihand-II 1000 Ramagundam-III 500 TOTAL 4500 Location (State) Primary Estimated Cost Fuel (Rs. Million) Completion Schedule

22. 23. 24. 25.

A.P. Orissa U.P. A.P.

Coal Coal Coal Coal

38834.50 66488.30 42162.40 22130.30 169615.50

Dec 2002 Feb.2006 May 2006 Aug.2005

4 NTPCS SHARE IN INDIAN POWER SECTOR

NTPC LTD. 17

As at the end of March 2006 NTPCs installed capacity is about 19.1% of the total installed capacity of the country and it has contributed about 26.7% of the total power generation of the country during 2003-07

NTPC IN INDIAN POWER SECTOR AS ON 31-03-2011

ALL INDIA: 112058 MW ALL INDIA: 558 BUs

NTPC 21438 MW 19.1%

NTPC 149.2 BUs 26.7%

5.FUNDING PATTERN OF NTPC:NTPC is a Government of India Company. 89.50% of its equity is held by the Government of India and the balance 10.5% is held by FIIs, Domestic Banks, Public and others. The company was formed with an authorized capital of Rs. 1250 million which as on 31st March, 2005 stands at Rs. 100000 million. The paid equity capital as on 31.03.2005 was Rs 82455 million which includes 73796.3 million contributed by Government of India and Rs 8658.4 million held by public, employees and Qualified Institutional Buyers (QIB). The growth of share capital, reserve and surplus is given below:

NTPC LTD. 18

Indias growth, with increasing global presence.

6.FINANCIALS:-

TURNOVER AND PROFIT NTPC recorded a turnover of Rs.255,460.00 million during 2004-05 as against Rs. 259,642.00 million during 2003-04. Net profit after tax is Rs.58,070.00 million as compared to Rs. 52,608.00 million during the previous year.

CAPITAL STRUCTURE As on 31st March, 05 the authorized share capital of NTPC is Rs.100,000 million and the paid up share capital Rs. 82,455 million.

SELECTED FINANCIAL INFORMATION(Rs. in Million)

NTPC LTD. 19

2005-06 A) Operating Income Earned from Sale of Energy Consultancy & Other Income Total Paid & Provided for Fuel Employees Remuneration & Benefits Generation, Administration & other expenses Provision (Net) Prior Period/Extra Ordinary Items Profit before depreciation, Interest & Finance Charges and Tax Depreciation Profit before Interest & Finance Charges and Tax Interest & Finance Co Profit before tax Tax (Net) Profit after tax Dividend Dividend tax Retained Profit B) What is Owned Gross Fixed Assets Less : Depreciation Net block Capital Work-in-progress, Construction Stores & Advances Investments Current Assets, Loans & Advances Total Net Assets C) What is Owed Long Term Loans Working Capital Loans Current Liabilities & Provisions Total Liabilities D) Others Deferred Revenue - Advance against deprectiaion Development surcharge fund Total E) Net Worth Share Capital Reserves & Surplus Miscellaneous Expenditure (To the extent not written off or adjusd) Net Worth F) Capital Employed 260701 26806 287507 163947 9684 12721 334 2488 98333 20477 77856 17632 60224 2022 58202 23087 3238 31877 460396 229501 230895 136340 192891 157245 717371 201195 778 61402 263375 4408 4408 82455 367132 449587 523572

2004-05 225069 24110 249179 137235 8823 12062 (6160) (102) 97321 19584 77737 16955 60782 2712 58070 19790 2680 35600 431062 207914 223148 99285 207977 129073 659483 166719 4159 67467 238345 3374 3374 82455 335308 417763 500540

2003-04 188178 61816 249994 122150 8835 9813 (3813) 183 112826 20232 92594 33697 58897 6289 52608 10823 1387 40398 400281 187736 212545 74953 173380 135468 596346 149415 5113 80941 235469 1591 3784 5375 78125 277376 355501 458267

2002-03 190019 4492 194511 110312 8268 10814 1567 803 62747 15291 47456 9916 37540 1465 36075 7080 395 28600 366106 167456 198650 63863 36674 194132 493319 127090 5067 45850 178007 271 271 78125 237002 (87) 315040 386343

2001-02 177697 7076 184773 103991 8036 11531 1730 (500) 59985 13784 46201 8680 37521 2125 35396 7079 28317 328912 152131 176781 65550 40281 167799 450411 113161 2651 48146 163958 78125 208400 (72) 286453 356526

NTPC LTD. 20

G) Value Added

97482

88415

66749

88084

80889

H) No. of Shares 8245464400 8245464400 7812549400 7812549400 78125494 I) No. of Employees* 21870 21420 20971 21408 21383 J) Ratios Return on Capital Employed (%) 12.46 12.77 12.93 10.88 11.93 Return on Net Worth (%) 14.16 14.33 14.94 12.13 12.98 Book Value per Share (Rs.) 54.53 50.67 45.50 40.32 3666.58 Current Ratio 2.56 1.91 1.67 4.23 3.49 Debt to Equity 0.45 0.41 0.43 0.42 0.40 Value Added/Employee (Rs. Million) 4.46 4.13 3.18 4.11 3.78 * Excluding JVs, Subsidiaries, BTPS (owned by NTPC w.e.f. 1st June, 2006) & BALCO

STATION-WISE GENERATION 2005-06

STATIONS Northern Region Singrauli Rihand Unchahar Tanda National Capital Region Dadri ( Coal ) Anta ( Gas ) Auraiya ( Gas ) Dadri ( Gas ) Faridabad ( Gas ) Western Region Korba Vindhyachal Kawas ( Gas ) Jhanor Gandhar ( Gas ) Eastern Region Farakka Kahalgaon Talcher - Kaniha Talcher -Thermal Southern Region Capacity(MW) 5280 2000 2000 840 440 3152 840 413 652 817 430 5653 2100 2260 645 648 5900 1600 840 3000 460 3950 Gen. (MU)Gross 36465 15503 10591 7041 3330 22206 6768 2809 4282 5394 2953 41668 16001 18305 2884 4478 42751 11464 6572 21185 3530 27791

NTPC LTD. 21

Ramagundam Simhadri Rajiv Gandhi CCP ( Liquid Fuel ) Total Badarpur

(Owned by NTPC w.e.f. 1st June, 2006)

2600 1000 350 23935 705

19691 7742 358 170880 5380

Performance highlights
2006 Commercial Generation Million Units Sale of Energy Rs Million Profit before tax Profit after tax Dividend Dividend tax Retained Earnings Net Fixed Assets Net Worth Loan Funds Capital Employed 500540 Net Cash From Operations Value Added No. of Employees # Value added per employee Rs Million Debt to Equity Ratio Return on Capital Employed % Face Value per share Rs. Dividend Per share Book Value per Share 169789 260701 60224 58202 23087* 3238 31877 230895 449587 201973 523572 62064 97482 21870 4.46 0.45 12.46 10.00 2.80* 54.53 2005 158271 225069 60782 58070 19790 2680 35600 223148 417763 170878 50998 88415 21420 4.13 0.41 12.77 10.00 2.40 50.67

# excluding JVs, Subsidiaries and BTPS (owned by NTPC w.e.f. 1st June, 2006) * including final dividend recommended by the Board

NTPC LTD. 22

7. TURNAROUND CAPABILITY

NTPC has also demonstrated its ability in turning around sub-optimally performing stations. The phenomenal improvement in the performance of Badarpur, Unchahar and Talcher by NTPC stand testimony to this.

Badarpur (705 MW)

The expertise in R&M and performance turnaround was developed and built up by NTPC with the operational turnaround of Badarpur TPS through scientifically engineered R&M initiatives. .

Unchahar (420 MW)

The Feroze Gandhi Unchahar Power Station was taken over by NTPC as part of a win-win deal with the Uttar Pradesh Government whereby the dues of UPSEB were adjusted was used to and expertise of NTPC turnaround the languishing station. The remarkable speed and the extent of the turnaround achieved can be seen in the Table. the

NTPC LTD. 23

Talcher (460 MW)

An even more challenging turnaround story was being scripted at the OSEB's old power plant at Talcher, taken over in June 1995. The table indicates the dramatic gains in the performance of the power plant after take over. While NTPC bettered the PPA commitments, from the viewpoint of capital requirements, turning around such old units is a low cost, high and quick return option. These successes helped NTPC, the concerned SEBs and the entire nation in terms of economy and power availability.

Tanda
Tanda Thermal Power station was taken over by NTPC on the 15 Jan 2000.The PLF of the power station improved from 14.9% at the time of the takeover to 91.14% for the year 2006-07 8. OPERATIONAL PERFORMANCE Since its inception NTPC has a record of sustained high level of performance of all its plants, which have facilitated All India PLF (Thermal) to rise from 55.3% in 1991-92 to 84.4% in 2003-04. NTPC plants achieved a PLF of 70.59% in 1991-92, which has increased to 84.4% in 2003-04.

NTPC LTD. 24

The following table presents the average PLF of our coal-fired plants compared to the average PLF for all coal-fired plants in India (including our plants) for the periods indicated:

The operating performance of NTPC has been considerably above the national average. The availability factor for coal stations has increased from 85.03 % in 1997-98 to 90.09 % in 2006-07, which compares favourably with international standards. The PLF has increased from 75.2% in 1997-98 to 89.4% during the year 2006-07 which is the highest since the inception of NTPC.

It may be seen from the table below that while the installed capacity has increased by 56.40% in the last nine years, the employee strength went up by only 3.34%
Description Unit 1997-98 2006-07 % of increase

NTPC LTD. 25

Installed Capacity Generation No. of employees Generation/employee

MW MUs No. MUs

16,847 97,609 23,585 4.14

26,350 1,88,674 24,375 7.74

The table below shows the detailed operational performance of coal based stations over the years.

OPERATIONAL PERFORMANCE OF COAL BASED NTPC STATIONS

Unit Generation PLF Availability Factor BU % % 97-98 106.2 75.20 85.03 98-99 109.5 76.60 89.36 99-00 118.7 80.39 90.06 00-01 130.1 81.8 88.54 01-02 133.2 81.1 81.8 02-03 140.86 83.6 88.7 03-04 149.16 84.4 88.8 04-05 159.11 87.51 91.20 05-06 170.88 87.54 89.91

The energy conservation parameters like specific oil consumption and auxiliary power consumption have also shown considerable improvement over the years.

NTPC LTD. 26

Regulatory and Policy Environment

One key element of the regulatory reforms in the power sector is the establishment of a transparent and fair pricing mechanism for power with a thrust on efficiency in operations. A central regulator has been constituted that governs the pricing of bulk power sold by central generators to state utilities. In addition, state regulatory agencies have also been formed/notified that are responsible for regulating operations of state utilities including rationalization in tariffs for different categories of consumers. Central power utilities need to adapt to the twin challenge of working with multiple regulatory agencies and a tariff regime with downward pressure on bulk supply tariffs. Further, regulatory reforms might pave the way for significant changes in the Indian Power sector, including trading of electricity, direct supply to HT customers, creation of power exchanges and open access to transmission infrastructure. As a leading player in the power sector, NTPC would need to track these changes and also proactively assist the regulators in framing policies that enable development of the sector
BUSINESS PORTFOLIO

Introduction
Over the last two decades, NTPC has spearheaded the development of thermal generation capacity in the Indian power sector. In this process, it has built a strong portfolio of coal and gas/liquid fuel based generation capacities. Recently, the company has also made initial forays in the area of hydropower. NTPC is also offering technical services through its Consultancy Wing and has entered into joint ventures for offering some of the services. However, till date thermal generation has been the single largest revenue generator for NTPC. The Indian power sector has witnessed and can anticipate several changes in the business and regulatory environment as outlined in the previous chapter of this plan. Players such as NTPC face significant uncertainties in the availability and economic viability of thermal fuels. The challenged health of state utilities presents a threat to the cash flow of NTPC LTD. 27

generators. However, ongoing changes in the customer environment also provide opportunities for improving the customer mix. The policy framework has changed substantially with the recent clearance of the Electricity Bill by both houses of parliament. The Indian power sector is on the road to becoming a viable investment destination with the recent thrust of the participants on speedy reform. This has also increased the threat of competition. Thus the power sector offers a mixed bag of opportunities and threats to players and NTPC needs to review its business strategy and portfolio in light of these changes. NTPC with its history of excellence in all aspects of its business is uniquely positioned for growth. Continued growth in generation is relatively easy on account of NTPCs significant learning curve benefits. However to capitalise on the changing face of the power sector NTPC needs to consider a bolder target of becoming Indias leading integrated power utility. In addition, NTPC needs to target being the brand ambassador for the Indian power sector in overseas markets. This would call for controlled, urgent and successful entry into other businesses in the power value chain and targeting markets outside India. Therefore, NTPCs business portfolio strategy would target three key dimensions: o Capacity addition program (including changes in fuel mix, technology, etc) o Diversification along the power value chain o Dominance in the services business in the domestic and international markets Growth of the Generation Business Developing and operating world-class power stations is NTPCs distinctive competence. Its scale, financial strength and significant learning curve benefits would also serve to provide an advantage over competitors. Hence sustaining leadership in generation is critical to the target of being the largest integrated power utility. Thus NTPC would continue to focus on making available reliable and quality power at competitive prices. To meet this objective, NTPC would continue to speedily implement projects and introduce state-of-art technologies.

NTPC LTD. 28

Projected portfolio in 2017 Total capacity portfolio

Indias generation capacity can be expected to grow from the current levels of about 104 GW to about 225-250 GW by 2017. NTPC currently accounts for about 19% of the current installed capacity. Going forward, in its target to remain the largest generating utility of India, NTPC would endeavour to maintain or improve its share of Indias generating capacity. Towards this end, NTPC would target to build an overall capacity portfolio of over 56,000 MW by the end of the 12th plan period. Of this, NTPC would target commissioning 9,370 MW in the 10th plan, 11,210 MW in the 11th plan period and 15,540 MW in the 12th plan period. While NTPC is fully equipped to provide the requisite managerial resources such as engineering capability, ability to manage multiple projects, etc the ability to arrange sufficient and timely funds would govern success in achieving the targets.

Energy mix for capacity addition

Currently, coal has a dominant share in the generation capacities in India and this is also reflected in the high share of coal-based capacities in NTPCs current portfolio. However, going forward, NTPC would have to review the share of coal-based projects on account of potential demand supply gap for domestic coal and the likely availability and competitiveness of alternate fuels such as gas. Efforts to reduce the variable cost of power would be critical to ensure dispatch of power plants under a merit order system. NTPC can also avail of opportunities to add hydropower to its portfolio subject to competitive tariffs and minimal R&R issues. A first step in this direction has already been taken with the investment in Koldam. As a leader in power generation, NTPC could also consider other energy sources such as biomass, cogeneration, nuclear power, fuel cells, etc for future development thereby reducing the dependence on thermal fuels.

NTPC LTD. 29

While a decision on the fuel/energy mix for NTPC in the future would be largely governed by their relative tariff-competitiveness, by 2017 the mix would be significantly different from the existing portfolio.

Thermal Power
To revise NTPCs thermal fuel strategy a study of the expected trends in availability and prices of domestic coal, imported coal and natural gas was carried out. The study also compared the long run competitiveness of landed power using these alternatives in each of the three plan periods. This has helped in developing the long-term strategy for thermal fuels as detailed in this section. Goal

To own/manage/control a portfolio of about 42,000 MW of thermal power by 2017, retaining its position as Indias largest thermal power utility To minimise the landed cost of power from new plants by selecting appropriate fuels to retain its long-run competitiveness in power generation, while keeping in mind technical constraints such as evacuation of power, load balancing and other system constraints

Strategies

Domestic coal based projects: NTPC would continue its strategy of major portion of capacity addition through pithead based coal plants during the 10th and 11th plan periods. However, going forward, NTPC would consider alternate fuel options to domestic coal (including regassified LNG and imported coal) with a view to broadbase its fuel portfolio and minimise its cost of power generation.

Gas based projects: NTPC would seek to develop gas-based combined cycle power
projects subject to the assured availability of gas at a competitive price. Analysis indicates that gas could potentially be competitive to domestic coal in some parts of the country especially in states near to the coast. NTPC is already exploring various sources NTPC LTD. 30

including regassified liquefied natural gas and is evaluating their competitiveness prior to making a decision in this regard.

Imported coal based projects: During the 10th plan period, most of NTPCs
proposed plants are expected to be more competitive than projects based on imported coal. However, going forward, imported coal based projects might be a more competitive option to domestic coal based projects at some coastal locations. In view of this, NTPC would evaluate imported coal based projects (at the port) in the Southern/Western Region for the 11th and 12th plan periods.

Other fuel options: The option of developing lignite-based capacities was also
evaluated and compared with domestic coal based plants. The analysis revealed that in the present scenario, domestic coal based capacities are more suitable for NTPC. Going forward, NTPC would continue to evaluate lignite as a fuel and would consider setting up lignite based capacities, if found competitive. In addition, NTPC would track developments in alternate fuel options such as Orimulsion, Di-Methyl Ether (DME), Coal Bed Methane (CBM) and heavy refinery residues. Capacities based on these fuels would be developed in the event they are competitive with other fuel options. In addition, considering the potential for development of cogeneration plants in India, NTPC would explore opportunities for the same.

Maintaining a comprehensive database for review of mix: The thermal fuel

options detailed above would need to be constantly evaluated and further fine-tuned in line with the emergent fuel prices and availabilities and other system constraints. In addition, decisions on plant and fuel selection would need to be considered on a case-tocase basis. To facilitate this, a comprehensive database of fuels, their availabilities, pricing trends and impacting forces would need to be maintained. The responsibility for designing and maintaining the database and deriving implications for NTPC, would reside with the Fuel Management Group.

NTPC LTD. 31

Co-ordination with NTPCs overall business plan: The information from the
database on fuel availability and price forecasts would also be a critical input in developing the overall business plans for NTPC. To facilitate review and fine-tuning of the capacity addition program based on fuel scenarios, the Fuel Management Group would work closely with the Corporate Planning group in the business plan revision exercise.

MULTI-PRONGED GROWTH APPROACH:

Over the last three decades, NTPC has spearheaded development of thermal power generation in the Indian power sector. In this process, it has built a strong portfolio of coal and gas/liquid fuel based generation capacities. The company has made initial forays in the area of hydropower development and plans to have a significant share of hydropower in its future generation portfolio. Although NTPC is also offering technical services, both in domestic and international markets, through its Consultancy Wing, the generation business would continue to be the single largest revenue generator for NTPC. The Indian power sector is witnessing several changes in the business and regulatory environment. The legal and policy framework has changed substantially with the enactment of the Electricity Act 2003. In the foreseeable future, India faces formidable challenges in meeting its energy needs. Recently, a draft integrated energy policy has been issued, which addresses all aspects including energy security, access, availability, affordability, pricing, efficiency and environment. To meet the twin objectives of ensuring availability of electricity to consumers at competitive rates, as well as attract large private investments in the sector, a new Tariff policy has also been issued. The power sector thus offers a mixed bag of challenges and opportunities to players and NTPC would continue to review its business strategy and portfolio in light of these changes. NTPC LTD. 32

NTPC is adopting a Multi-pronged growth strategy for capacity addition through Greenfield Projects, Expansion of existing stations, Acquisitio ns and takeovers and joint ventures / subsidiaries, to accomplish its growth plans.

JOINT VENTURE PARTNERS The following joint venture companies have been formed so far: NTPC -ALSTOM POWER SERVICES PVT. LTD. (NASL) (Incorporated in 1999 and formerly known as NTPC-ABB ALSTOM POWER SERVICES PVT. LTD) NTPC LTD. 33

OBJECTIVE:

Undrtake Renovation & Modernisation of power stations in India and other SAARC countries

PROMOTERS' NTPC: 50% EQUITY: ALSTOM Power Generation AG : 50% UTILITY POWER TECH LTD (Incorporated in 1996) This JV has been promoted with Reliance Energy Limited (formerly BSES Limited) a private sector Indian power company. OBJECTIVE: To undertake project construction, erection and supervision in power sector and other sectors in India and abroad 50%

PROMOTERS' NTPC: EQUITY: REL: 50%

PTC(India) Ltd (Incorporated in 1998) This JV has been promoted with Power Grid Corporation of India Ltd (PGCIL), a Government owned transmission major in India. Power Finance Corporation (PFC), a power sector finance company owned by the Government of India and National Hydro Electric Power Corporation Ltd. (NHPC), a Government owned hydro power utility. OBJECTIVE: To trade, import, export and purchase power from identified power projects and sell it to identified SEBs/others 8% 8% 8% Tata Power: DV: FII: 10% 10% 18.5%

PROMOTERS' NTPC: EQUITY: PGCIL: PFC: NHPC: 8% NTPC-SAIL POWER

COMPANY

(PVT)

LTD

(NSPCL)

NSPCL, the Joint Venture Company of NTPC and SAILwith 50:50 equity participation,stood merged with BESCL(Bhilai Electric Supply Co. Pvt Ltd, another JV Co. of NTPC and SAIL with 50:50 equity participation.) w.e.f 2nd August 2006,as per the scheme of Amalgamation approved by High Court of Delhi. As a result of aforesaid merger of BESCL in NSPCL, all properties, licenses, permissions, debt, liabilities etc. with respect to BESCL now stand vested in NSPCL. OBJECTIVE: To supply power to the Bhilai, Durgapur and Rourkela Steel Plant of Steel Authority of India Limited (SAIL) from its Coal based power stations at Bhilai (Chhattisgarh), 2x30MW+1X14MW, Durgapur (West Bengal) 2x60MW and Rourkela (Orissa) 2x60 NTPC LTD. 34

MW. For the purpose of its business development, NSPCL is carrying out the expansion of its installed capacity at Bhilai, by implementation of 500MW (2x250MW) power plant. PROMOTERS' NTPC: EQUITY: SAIL : 50% 50%

NTPC TAMIL NADU ENERGY COMPANY LIMITED This JV was incorporated on 23rd May, 2003 with Tamil Nadu Electricity Board, a State run Electricity Board in the State of Tamil Nadu engaged in generation, transmission and distribution of electricity. OBJECTIVE: To set up a 1000 MW coal based power station at Ennore in Tamil Nadu utilising the existing infrastructure facility at Ennore and supply power mainly to Tamil Nadu and the states of Kerala, Karnataka and Pondicherry. 50%

PROMOTERS' NTPC: EQUITY: TNEB : 50%

Vaishali Power Generating Company Limited This JV was incorporated on with Bihar State Electricity Board, a State run Electricity Board in the State of Bihar, engaged in generation, transmission and distribution of electricity. OBJECTIVE: To take over Muzaffarpur Thermal Power Station (2x110MW), a coal based power station at Kanti, for carrying out restoration, R&M and supplying power mainly to the state of Bihar. 51-74%

PROMOTERS' NTPC: EQUITY: BSEB : 26-49%

ARAVALI POWER COMPANY PRIVATE LTD (Joint Venture Agreement was signed on 14.12.2006 among NTPC Ltd,Indrapastha Power Generatuion Company Ltd.(IPGCL) and Haryana Power Generation Company Ltd.(HPGCL).The Company was Incorporated on 21.12.2006. OBJECTIVE: To set up a coal-based power station of 1500MW capacity in Distt. Jhajjar, Haryana, in joint venture with IPGCL and HPGCL.

PROMOTERS' NTPC-50%, IPGCL-25%, HPGCL-25% EQUITY:

PROPOSED JOINT VENTURES NTPC LTD. 35

1.0 INDIAN RAILWAYS MOU signed on 18th February 2002. Indian Railways are the largest rail network in Asia and the world's second largest under one management. OBJECTIVE: To set up power stations to meet traction and non-traction power requirement of Indian Railways.

LIKELY EQUITY Yet to be finalised CONTRIBUTION FROM PROMOTERS 2.0 SINGARENI COLLIERIES COMPANY MOU was signed between NTPC and SCCL on 23.08.2006 OBJECTIVE: LTD(SCCL)

To promote one or more Joint Venture Companies for undertaking acquisition of coal/lignite mine blocks including exploration, development, mining, beneficiation, processing, operation & maintenance, development, operation & maintenance and selling electricity generation thereof, besides providing consultancy services.

LIKELY EQUITY 50% by each Company in the individual Joint Venture CONTRIBUTION Company FROM PROMOTERS

NTPC LTD. 36

RESEARCH METHODOLOGY
RESEARCH OBJECTIVE To study the reforms that are brought in by CERC with special reference to the comparison of traditional and modern tariff policies.. RESEACH DESIGN The study undertaken is exploratory, descriptive and analytical. The report also includes numerical, statiscal data and it is qualitative and quantitative in nature. RESEARCH METHODOLOGY To meet the above-mentioned objective, personal interviews were held with the Senior Executives & an extensive research study was carried out in NCR (HQ), Noida. Information has been collected from various sources that have been detailed in the bibliography. DATA COLLECTION TECHNIQUES Information for the study has been collected from different Primary & Secondary sources.

PRIMARY DATA
Primary Data is collected from the survey & for this survey Direct Personal Interviews were organized with the Senior Executives of NTPC. While interacting the following questions were posed to the interviewees either implicitly or explicitely. What is the significance of Power sector in any Economy? How is the Power Sector been evolving for the last few years? What has been the role of NTPC in Power Sector? What have been the most important changes in the Power Sector in recent years? What are the features of new Tariff Structure & how are these different from the existing Tariff Structure? What are its advantages NTPC LTD. 37

What are the most significant impacts of the power sector reforms on the industry as a whole Are reforms giving the right impact as they are indented to give?

Which level of the power industry do you think needs more reform initiative? How the New Tariff Structure would affect the Power Sector of your company? Have any action plans been made to recover the old dues from SEBs? Any comments & suggestions?

SECONDARY DATA
Secondary Data has been collected from the following sources: CERC Notifications Experts Reports Report of M.S.Ahluwalia Committee Annual Accounts NTPC magazines like Damini & Horizons Misc. Journals, newspaper, leaflets Sources of data are given in the bibliography and the end of the project report

LIMITATIONS NTPC LTD. 38

No study is free from limitations, which are caused by constraints of time, money, knowledge base and similar factors. An attempt was made to broad base the study as far as possible, however it is but naturals that this study also suffers from some limitations which are broadly mentioned below: The regions are far away, thus the study has been confined to National Capital Region. Due to cost constraint visiting other regions, projects, SEBs etc. was not possible as it would involve huge expenditure. It was practically impossible to cover all the regions, projects, SEBs in a short span of two months. Hence time constraint was one of the limitations. Knowledge gained pertains to NTPC. Non availability of knowledge of working of SEBs, other regions also acted as a constraint. The availability of data was limited to National Capital Region. Moreover we had no access to confidential files etc. The conservative attitude of some of the employees was a limiting factor in gaining information.

NTPC LTD. 39

BUSINESS PORTFOLIO
Introduction
Over the last two decades, NTPC has spearheaded the development of thermal generation capacity in the Indian power sector. In this process, it has built a strong portfolio of coal and gas/liquid fuel based generation capacities. Recently, the company has also made initial forays in the area of hydropower. NTPC is also offering technical services through its Consultancy Wing and has entered into joint ventures for offering some of the services. However, till date thermal generation has been thesingle largest revenue generator for NTPC. The Indian power sector has witnessed and can anticipate several changes in the business and regulatory environment as outlined in the previous chapter of this plan. Players such as NTPC face significant uncertainties in the availability and economic viability of thermal fuels. The challenged health of state utilities presents a threat to the cash flow of generators. However, ongoing changes in the customer environment also provide opportunities for improving the customer mix. The policy framework has changed substantially with the recent clearance of the Electricity Bill by both houses of parliament. The Indian power sector is on the road to becoming a viable investment destination with the recent thrust of the participants on speedy reform. This has also increased the threat of competition. Thus the power sector offers a mixed bag of opportunities and threats to players and NTPC needs to review its business strategy and portfolio in light of these changes. NTPC with its history of excellence in all aspects of its business is uniquely positioned for growth. Continued growth in generation is relatively easy on account of NTPCs significant learning curve benefits. However to capitalise on the changing face of the power sector NTPC needs to consider a bolder target of becoming Indias leading integrated power utility. In addition, NTPC needs to target being the brand ambassador for the Indian power sector in overseas markets. This would call for controlled, urgent and successful entry into other businesses in the power value chain and targeting markets NTPC LTD. 40

outside India. Therefore, NTPCs business portfolio strategy would target three key dimensions: o Capacity addition program (including changes in fuel mix, technology, etc) o Diversification along the power value chain o Dominance in the services business in the domestic and international markets Growth of the Generation Business Developing and operating world-class power stations is NTPCs distinctive competence. Its scale, financial strength and significant learning curve benefits would also serve to provide an advantage over competitors. Hence sustaining leadership in generation is critical to the target of being the largest integrated power utility. Thus NTPC would continue to focus on making available reliable and quality power at competitive prices. To meet this objective, NTPC would continue to speedily implement projects and introduce state-of-art technologies.

Projected portfolio in 2017 Total capacity portfolio

Indias generation capacity can be expected to grow from the current levels of about 104 GW to about 225-250 GW by 2017. NTPC currently accounts for about 19% of the current installed capacity. Going forward, in its target to remain the largest generating utility of India, NTPC would endeavour to maintain or improve its share of Indias generating capacity. Towards this end, NTPC would target to build an overall capacity portfolio of over 56,000 MW by the end of the 12th plan period. Of this, NTPC would target commissioning 9,370 MW in the 10th plan, 11,210 MW in the 11th plan period and 15,540 MW in the 12th plan period. While NTPC is fully equipped to provide the requisite managerial resources such as engineering capability, ability to manage multiple projects, etc the ability to arrange sufficient and timely funds would govern success in achieving the targets. NTPC LTD. 41

Energy mix for capacity addition

Currently, coal has a dominant share in the generation capacities in India and this is also reflected in the high share of coal-based capacities in NTPCs current portfolio. However, going forward, NTPC would have to review the share of coal-based projects on account of potential demand supply gap for domestic coal and the likely availability and competitiveness of alternate fuels such as gas. Efforts to reduce the variable cost of power would be critical to ensure dispatch of power plants under a merit order system. NTPC can also avail of opportunities to add hydropower to its portfolio subject to competitive tariffs and minimal R&R issues. A first step in this direction has already been taken with the investment in Koldam. As a leader in power generation, NTPC could also consider other energy sources such as biomass, cogeneration, nuclear power, fuel cells, etc for future development thereby reducing the dependence on thermal fuels. While a decision on the fuel/energy mix for NTPC in the future would be largely governed by their relative tariff-competitiveness, by 2017 the mix would be significantly different from the existing portfolio.

Thermal Power
To revise NTPCs thermal fuel strategy a study of the expected trends in availability and prices of domestic coal, imported coal and natural gas was carried out. The study also compared the long run competitiveness of landed power using these alternatives in each of the three plan periods. This has helped in developing the long-term strategy for thermal fuels as detailed in this section. Goal

To own/manage/control a portfolio of about 42,000 MW of thermal power by 2017, retaining its position as Indias largest thermal power utility

To minimise the landed cost of power from new plants by selecting appropriate fuels to retain its long-run competitiveness in power generation, while keeping in mind technical constraints such as evacuation of power, load balancing and other system constraints

NTPC LTD. 42

Strategies
Domestic coal based projects: NTPC would continue its strategy of major portion of capacity addition through pithead based coal plants during the 10th and 11th plan periods. However, going forward, NTPC would consider alternate fuel options to domestic coal (including regassified LNG and imported coal) with a view to broadbase its fuel portfolio and minimise its cost of power generation.

Gas based projects: NTPC would seek to develop gas-based combined cycle power
projects subject to the assured availability of gas at a competitive price. Analysis indicates that gas could potentially be competitive to domestic coal in some parts of the country especially in states near to the coast. NTPC is already exploring various sources including regassified liquefied natural gas and is evaluating their competitiveness prior to making a decision in this regard.

Imported coal based projects: During the 10th plan period, most of NTPCs
proposed plants are expected to be more competitive than projects based on imported coal. However, going forward, imported coal based projects might be a more competitive option to domestic coal based projects at some coastal locations. In view of this, NTPC would evaluate imported coal based projects (at the port) in the Southern/Western Region for the 11th and 12th plan periods.

Other fuel options: The option of developing lignite-based capacities was also
evaluated and compared with domestic coal based plants. The analysis revealed that in the present scenario, domestic coal based capacities are more suitable for NTPC. Going forward, NTPC would continue to evaluate lignite as a fuel and would consider setting up lignite based capacities, if found competitive. In addition, NTPC would track developments in alternate fuel options such as Orimulsion, Di-Methyl Ether (DME), Coal Bed Methane (CBM) and heavy refinery residues. Capacities based on these fuels would be developed in the event they are competitive with other fuel options. In addition, NTPC LTD. 43

considering the potential for development of cogeneration plants in India, NTPC would explore opportunities for the same.

Maintaining a comprehensive database for review of mix: The thermal fuel

options detailed above would need to be constantly evaluated and further fine-tuned in line with the emergent fuel prices and availabilities and other system constraints. In addition, decisions on plant and fuel selection would need to be considered on a case-tocase basis. To facilitate this, a comprehensive database of fuels, their availabilities, pricing trends and impacting forces would need to be maintained. The responsibility for designing and maintaining the database and deriving implications for NTPC, would reside with the Fuel Management Group.

Co-ordination with NTPCs overall business plan: The information from the
database on fuel availability and price forecasts would also be a critical input in developing the overall business plans for NTPC. To facilitate review and fine-tuning of the capacity addition program based on fuel scenarios, the Fuel Management Group would work closely with the Corporate Planning group in the business plan revision exercise.

Hydel Power
India has a vast, untapped potential for hydropower development. Apart from being an environmentally clean source of power, hydropower would also provide a peaking power option for the country. While in the current scenario NTPC has plant specific pricing and power purchase agreements, in the future, portfolio presence of hydropower could help NTPC in bundled pricing and peak demand management. Executing hydro projects would have the added benefit of price stability in the long term on account of the low share of variable costs in the tariff. Global utilities have recognised the advantages of hydropower in the generating portfolio and many of the top utilities own and operate significant hydropower capacities. Amongst the top ten global thermal generating NTPC LTD. 44

companies, NTPC is the only one without any hydro capacities in its portfolio. However, NTPC has already initiated action and is already building capabilities in hydropower by executing an 800 MW hydroelectric station at Koldam. Going forward, NTPC would seek to expand the share of hydropower in its generating portfolio. Towards this end NTPC may also consider replacing any proposed coal based capacity addition with hydropower capacity subject to tariff-competitiveness and minimal Resettlement and Rehabilitation issues.

Goals

To build a hydropower portfolio comprising 20% of the overall generation portfolio by 2017, adding about 11,000 MW during the 10th, 11th and 12th plan periods. Out of this, NTPC would target adding about 4,500 MW by the end of the 11th plan period

To reduce the dependence on thermal fuels, and build peaking power capacities, thereby generating competitive advantage for the future To develop and leverage organizational capabilities in the area of erecting, commissioning and operating hydropower plants

Strategies
Gradual build-up of a large hydro portfolio: NTPC would seek to gradually increase its hydro capacity portfolio. It has already commenced work on the Koldam project. In the immediate term, projects would be added gradually in order to leverage experience gained and to mitigate risks in hydropower development. After developing required skills in the initial years, the pace of hydropower addition would be ramped up, if necessary replacing proposed thermal capacity additions (subject to being competitive). In all, NTPC would target building a portfolio of 4,500 MW of hydropower by the end of the 11th plan. During the 12th plan period, hydropower additions would comprise close to

NTPC LTD. 45

40% of the planned capacity addition. Thus by 2017 NTPC would target about 11,000 MW of hydropower, comprising close to 20% of the projected generation portfolio.

Type of plants: To begin with, NTPC would focus on run of the river hydel projects.
Pumped storage plants have been evaluated and have not been found to be commercially viable in the current scenario. Policy measures such as differential pricing for peaking power would be critical pre-requisites for NTPC to undertake PSPs. Thus, NTPC would consider pumped storage plants during the 11th and 12th plan periods and pursue them only subject to commercial and technical viability. Small hydropower plants would also be considered and a wholly owned subsidiary named NTPC Hydro Limited has already been formed to facilitate focus. As part of the 11,000 MW goal for hydropower development, NTPC would target adding about 1,000 MW through the small hydro subsidiary by the end of the 12th plan period. Large reservoir-type hydropower plants typically face issues related to impact on irrigation, environmental damage and resettlement and rehabilitation. As such, the initial focus would exclude reservoir projects till such time NTPC has sufficient experience in hydropower development and operation.

Organisational preparedness: NTPC would take various initiatives to prepare

itself for the increased thrust on hydropower. NTPC would work closely with the regulator(s)/Ministry of Power to ensure an appropriate and remunerative tariff regime for hydropower, encompassing issues such as differential tariff for peaking power. In order to provide internal focus on hydro capacity development a separate hydropower group headed by an Executive Director has already been formed. This group would function similar to the regional set-up and would have the responsibility for development, execution and operation of hydropower projects. A separate group in the Engineering Division has been formed that would concentrate on developing skills in engineering of hydropower plants. NTPC LTD. 46

Nuclear Power
Nuclear power is expected to enjoy a growing share of the developing worlds electricity generation during the next two decades. The overall cost of nuclear power is seen to be favourable as compared to thermal fuels in countries that do not have access to cheap sources of coal or gas. However, nuclear power offers other advantages including higher environmental cleanliness, lower exposure to fuel price risk and longer plant life. In India, as on March 31, 2002, Nuclear Power Corporation of India (NPCIL) had fourteen reactors in operation with a combined capacity of 2,720 MW. Developmental efforts of NPCIL have led to substantial indigenisation and presence of competent domestic vendors of nuclear plant equipment. India is also endowed with sufficient reserves of thorium. On account of these advantages, nuclear power has the potential to contribute meaningfully to the future base load capacity in India. However, the development of nuclear projects in India has been constrained by several factors. These include high gestation periods for project execution and difficulty in obtaining adequate funds. NTPCs strong project management skills and balance sheet strength could help in offsetting these roadblocks and thereby prove to be a source of competitive advantage in establishing nuclear power generation capacities. During the 12th plan period, NTPC would consider the option of adding about 2,000 MW of nuclear capacities in joint venture with Nuclear Power Corporation of India. Towards this end, NTPC would also continuously evaluate the policy environment covering the nuclear capacity addition programme and the relative competitiveness of nuclear power.

Future Generating Options

Apart from thermal, hydro and nuclear power, NTPC would also keep track of developments in alternate energy sources such as Wind, Fuel Cells, cogeneration, etc. Especially with the advent of distributed generation, these technologies that offer smaller capacity installations could become lucrative. Towards this end NTPC would target NTPC LTD. 47

adding about 1000 MW by 2017 through a mix of these energy sources based on their commercial viability, competitiveness, technology availability. The NTPC R&D division would also be responsible for both fundamental and applied research in these areas.

Wind Energy: India is the fifth largest wind power-producing nation in the world
(after Germany, USA, Spain and Denmark) with an aggregate commercial capacity of 1444 MW. The presence of significant incentives for setting up wind power projects like the central incentives of tax holiday, 100% accelerated depreciation, concessional custom duty, etc. make it an attractive proposition for consideration by NTPC. However, the entry into wind power would be contingent on addressing some critical issues such as the need for significant investments and the need for cost effective ways to tackle variable and unpredictable nature of wind power in order to make the venture commercially viable

Fuel Cells: Fuel cells could provide an attractive option for NTPC to consider in the
future, especially if the business environment renders distributed generation as a viable business model. There are several types of fuel cells under development currently, in different stages of commercial availability for e.g. Phosphoric Acid Fuel Cells (PAFC) that are commercially available and can be used to power small buildings such as office buildings, hospitals etc and Direct Methanol Fuel Cells (DMCF) that are still in the preprototype stage. NTPC would continuously track developments in distributed generation and fuel cell technology for adoption at a later date, when viable. NTPCs R&D division would track technological developments, conduct fundamental and applied research and evaluate viability of fuel cells and distributed generation for the future.

CERC ORDER (CENTRAL ELECTRICITY REGULATORY COUNCIL)

OPEN ACCESS REGULATIONS REVISED

NTPC LTD. 48

In February, the Central Electricity Regulatory Commission (CERC) has announced streamlining of the norms for seeking open access in inter-State transmission. This is based on the operational feedback received from stakeholders. The existing regulations were introduced in February 1, 2004, in pursuance of the Electricity Act, 2003. CERC has introduced a monthly timetable for advance reservation of transmission capacity. In its amendments to the open access regime, which is applicable from April 1 2005, the regulator has also proposed part-day transmission charges to reduce the cost of wheeling peaking power. Under the part-day charges introduced by CERC, the transmission cost for short-terms customers is only a fourth of the daily charges, if they use the transmission lines for six hours or less in a day. Similarly, for usage of up to 12 hours a day, only half of the per-day charges shall be applied. Under the monthly timetable that has been introduced for the grant of transmission access to short-term customers, there will be a provision for advance reservation of lines for three months. Applications must be submitted by the 19th day of the month. They will be processed together and access shall be granted by the 26th. For advance reservations for short-term customers, congestion management will be done through electronic bidding. The CERC has also announced an exit option to short-term customers, whereby a customer can surrender the reserved transmission capacity by paying a minimum of seven-day charge or the charge for the balance period of reservation, whichever is shorter. CERC has not changed the pricing scheme for intra-regional transmission access. In line with the original open access norms applicable from February 2004, transmission customers have been divided into two categories long-term and short-term. A longterm customer will be allowed access based on the transmission planning criteria stipulated in the Indian Electricity Grid Code. Allotment priority of long-term customers will be higher than that of short-term customers. Short-term customers will be the first ones to be curtailed in the event of transmission constraint, according to the norms. To avoid pan caking, the Commission has decided that for short-term intra-regional transactions, the short-term customer shall be charged at the rate of 25 per cent of the last

NTPC LTD. 49

year's effective rate for long-term customers, and average transmission losses shall be applied. COMPETITIVE BIDDING FOR POWER PURCHASE BY DISCOMS

In January, the government notified guidelines for tariff determination via competitive bidding, for procurement of power by distribution licensees. As per the guidelines, a distribution company can call for bids for supply of power through a competitive process and identify a supplier. The regulator will not scrutinize tariff determined via this process. The tariff structure in the notification mentions a formula for energy charges, which will depend on the price of fuel and scheduled generation, among other things as well as capacity charges. APPLICATIONS FOR TRANSMISSION LICENSE In December, Reliance Energy Ltd (REL) has applied to the CERC seeking license for transmission of power in western India for 20 lines and 13 sub-stations in western India. It is also reported that a Malaysian company in joint venture with an Ahmedabad-based company has also approached the CERC seeking a similar license in Bina-Nagda sector. CERC has said that it would consult all the parties, including Power Grid Corporation Ltd and consumers (in this case State Governments) and after that an advertisement would be made in newspapers. It has been reported earlier that POWERGRID, the state owned transmission utility has approached the MoP seeking authority to decide entry of private players into transmission. FIXING OF TRADING MARGINS The CERC has taken steps to regulate trading margins The trading margins has been fixed at Re 0.04 per unit for electricity traders exclusive of transmission charges, unscheduled charges, application fees and transmission losses.

NTPC LTD. 50

The commission had, for the past few months, been keeping close tabs on the trading business. The high amount of trading margins that some companies had been making necessitated greater scrutiny. The CERC noted that nearly 90% of trading during 2004-05 was done at a margin of Re 0.05 per unit or less, but in the first half of 2005-06,it increased to a weighted average of Re. 0.10 per unit. About 68 per cent of the volume traded during the period carried a margin of Re 0.06 per unit. Significantly, the highest trading margin in a single transaction in 2004-05 was Re 0.04 per unit, he earns revenue of Rs. 12 million. The regulator feels that traders have taken advantage of deficit situation prevailing in most parts of country. Therefore fixing the trading margin is necessary to avoid arbitrary fixing of profit margins and thus leaving consumers to their whims and vagaries. The commission states that the trading margin should not be fixed keeping in mind the requirement of traders alone. It has to be fair to consumers as well, particularly when a trader buys power for resale, without making any value addition. As expected, electricity traders are not pleased with the regulation. Their view was that fixing margins would stifle trading activity and push them out of the business. It would also prove detrimental to the electricity sector as a whole. It is ironical at a time when the power ministry has strongly recommended 100 percent FDI in trading of electricity through the automatic approval rate, trading margins have been capped. This will hinder investments as well as stifle competition in the sector. Power trading is still at a nascent stage and there is a long way to go. As of now power trading amounts to just 2.5% of countrys existing power consumption.

NTPC LTD. 51

Average Frequency of time block 50. 5 Hz and above Below 50.5 Hz and up to 50.48 Hz Below 49.04 Hz and up to 49.02 Hz Below 49.02 Hz Between 50.5 Hz and 49.02 Hz

UI Rate (Paise per kWh)

0. 0 8.0 592.0 600.0 linear in 0.02 Hz step

(Each 0. 02 Hz step is equivalent to 8. 0 paise /kWh within the above range)

The following rates shall apply with effect from 1.10.2004 : Average frequency of the time block(Hz) Below -----50.50 50.48 ----------49.84 49.82 49.80 49.78 ----------49.04 49.02 Not Below 50.50 50.48 50.46 ----------49.82 49.80 49.78 49.76 ----------49.02 -----(Paise per kWh) 0.0 6.0 12.0 --------204.0 210.0 219.0 228.0 --------561.0 570.0 NTPC LTD. 52 UI Rate

(Each 0. 02 Hz step is equivalent to 6.0 paise /kWh in the 50.5-49.8 Hz frequency range,and to 9.0paise/kwh in the 49.8-49.0 Hz frequency range.) Note :The above average frequency range and UI rates are subject to change through a separate notification by the Commission.

(i) Any generation up to 105% of the declared capacity in any time block of 15 minutes and averaging up to 101% of the average declared capacity over a day shall not be construed as gaming, and the generator shall be entitled to UI charges for such excess generation above the scheduled generation (SG). (ii) For any generation beyond the prescribed limits, the Regional Load Despatch Centre shall investigate so as to ensure that there is no gaming, and if gaming is found by the Regional

NTPC LTD. 53

U.I.RATES (OLD Vs. NEW)

U.I.RATE U.I.RATE(N)
600

500

400

Load Despatch Centre, the corresponding UI charges due to the generating station on
300

account of such extra generation shall be reduced to zero and the amount shall be adjusted in UI account of beneficiaries in the ratio of their capacity share in the generating station.
50.5 50.3 49.9 49.8 49.5 49.4 50.6 50.6 50.4 50.2 50.2 50.1 50.0 49.8 49.7 49.6 49.4 49.3 49.2 49.1 49 49 48.9

200

100

NTPC LTD. 54

DATA ANALYSIS AND INTERPRETRATION

COMPARATIVE ANALYSIS OF TARIFF
A comparative chart of availability based tariff used in NCR since 1-12-2002 and twopart tariff has been presented as below: Description 1.Components tariff 2.Components fixed charges of Two-part tariff (GOI notified tariff) AvailabilityBased Tariff (CERC orders of Dec, 2000)

Two parts namely Fixed Three parts namely Fixed Charges and Variable charges, variable charges and UI charges. charges.

of ROE, Depreciation, Interest Same as in the case of two-part on loans, O&M exp, Interest tariff. on working capital. In proportion to the capacity allocations.

3.Fixed charges In proportion to the drawls. allocation to SEBS

4.Recovery of Fixed 62. 78 % PLF (including 80 % Availability. charges deemed generation). 5.Buffer (dead 62. 78 % to 68. 49 % PLF. band) zone between incentive and disincentive 6.Disincentives No buffer.

For PLF below 62. 78 % in a For availability below 80%, prograded manner. At 0 % PLF, rata reduction in fixed charges. 50 % of charges are payable. 1ps for every 1 % increase in PLF and applied on incremental units over 68. 49 % PLF. For PLF above 77 % (calculated from schedule) incentive @ 50 % fixed charges / kwh (subject to maximum of 21. 5 Ps. kwh) is applied to incremental units generated over 77 % PLF. For PLF beyond 90 %, incentive is reduced by 50 % of above.

7.Incentives

8.Variable recovery

charges Based on normative operation Based on same normative norms and applicable to operation norms and applicable NTPC LTD. 55

Description

Two-part tariff (GOI notified tariff) Energy Sent Out. Not provided

AvailabilityBased Tariff (CERC orders of Dec, 2000) to Scheduled Energy only. Variations in actual ESO and scheduled ESO are to be accounted at Frequency linked UI rates. UI charges are inversely related to frequency. Provided as in two part tariff

9.UI charges

10.FPA formula to Provided neutralize fuel price fluctuations 11. escalation O&M 10 % per annum 7. 84 % for thermal 8. 24 % for Gas. Depreciation was not linked to useful life of the assets

6 % per annum 3. 60 % for thermal 6. 00 % for Gas Depreciation is linked to useful life of the assets Provided to bridge the gap between depreciation and loan repayments in a year. Amount of depreciation plus advance against depreciation shall not exceed 1/12 of the loan amount. Once loans are repaid, balance depreciation is to be spread on the balance life of the assets Pass through at actual

12.Depreciation

13. Advance Not provided Against Depreciation

14. Income Tax

Pass through at actual

15. Income tax Based on operating capacity Based on the estimated pre-tax allocation to the at the beginning of the year profit of the stations stations 16. Development Not provided surcharge 5 % of fixed charges for NTPC. Not applicable for single-state stations and shall be used to the extent of 1/3 rd of equity requirement of new stations. To be utilized on regional basis only and no ROE on surcharge NTPC LTD. 56

Description

Two-part tariff (GOI notified tariff)

AvailabilityBased Tariff (CERC orders of Dec, 2000) funds utilized additions for capacity

17. Rs 35170 Cr Internal resource generation from 2001 2012

Rs 12507 Cr.

NTPC LTD. 57

FINDINGS
Indian power sector reforms have reached a stage from where further progress appears bleak due to the following major problems: 1. The slow rate of addition to power generating capacity; 2. The inability to find a solution to the problem of subsidized supply of power to agriculturists; 3. The large size of DISCOMS. 4. The chaotic condition of governance of LT distribution with, inter alia, the level of T&D losses remaining undetermined and the annual loss reduction in the system being very slow; 5. The rationalization or rebalancing of tariffs becoming a losing game because the average cost of supply increases faster than the possible rates of increase of tariffs; 6. The deficits accumulated over the years imposing an unbearable interest burden limiting the capacity to raise funds in the commercial market. 7. The failure of efforts to induct the private sector into distribution;

NTPC LTD. 58

RECOMMENDATIONS
1. The low rate of power generation should be checked to meet the ever rising demands. 2. The inability to find the solution to the problem of subsidized supply of power to agriculturists should be checked. 3. Transparencies reduced at many level so this again needs to be checked.

NTPC LTD. 59

CONCLUSION
1. The previous comparison between the two tariff structure shows that ABT is much advanced and efficient approach towards collection of revenue. 2. In ABT approach, wastage of power is reduced at the same time, the return on per unit power sold is increased. 3. Although there remain some drawbacks in the modern approach too.

BIBLIOGRAPHY
Tariff Notifications issued by government of India Orders issued by Central Electricity Regulatory Commission (CERC) ABT Invoice Annual Reports of NTPC http://191.254.191.171/intranet/hr/policy_manual/Corporate-statement/pdf/OUR %20MISSION.pdf NTPC LTD. 60

 In house Magazines of NTPC

WEBSITE: 1. www. ntpc.co.in

2. www.powermin.nic.in 3. www.google.co.in 4. www.indiainfo.com

APPENDIX

ABBREVATIONS USED IN THE REPORT CAGR CEA CERC ED Genco GOI IPPs JV MOU NTPC O&M PLF SEBs SERC LC FDI Compound Annual Growth Rate Central Electricity Authority Central Electricity Regulatory Commission Executive Director Generating Company Government of India Independent Power Producers (In Power Sector) Joint Venture Memorandum of Understanding National Thermal Power Station Operation and Maintenance Plant Load Factor State Electricity Boards State Electricity Regulatory Commission Letter Of Credit Foreign Direct Investment NTPC LTD. 61

MW MVA: MU:

Mega Watt Mega Volt Ampere Million Unit

NTPC LTD. 62