Speaking to CNBC-TV18 about its differences with Coal India, NTPC CMD Arup Roy Choudhury said the company is not sure if the coal giant has the ability to meet the power sector's growing demand.
The crucial Cabinet Committee on Economic Affairs (CCEA) meet held on Monday shelved the coal price pooling issue - pegged as the second biggest reform after the SEB restructuring - despite getting an in-principle nod in February 2013 for its clearance.
It is known that the power and coal ministries have been sparring over the pooled pricing proposal and analysts say NTPC has been opposed to participating in a pooling arrangement because it could place the power company's plants lower in the merit order of dispatch for SEBs.
Speaking to CNBC-TV18 about its differences with Coal India , NTPC CMD Arup Roy Choudhury said the company is not sure if the coal giant has the ability to meet the power sector's growing demand. He insisted that the real issue is not about the quality of coal being supplied; that can be sorted out mutually. "The question is if CIL can supply the amount of coal demanded by the sector."
Below is the verbatim transcript of his interview on CNBC-TV18
Q: Your observations on the key takeaways from yesterday in terms of shelving coal price pooling and putting out two other options?
A: Price pooling has become a necessity because we are not able to mine our own coal. It is very unfortunate that we have the fifth largest coal reserves in the world and we are not able to mine it. We have also not been able to put in place a regulator so that we get more private sector miners to come in transparently and do mining.
Since there is not enough coal and since the capacity is there, one of the mechanisms is price pooling. We have nothing to say in this because our business model is different. It is actually the Discoms and the beneficiaries who would have to comment on whether they will be able to absorb the extra cost.
Q: You have already had a fairly prickly relationship with Coal India with regards to pricing and quality of coal. Now if coal price pooling as well is out the window in terms of a concept, does it make negotiations or discussions all that more difficult?
A: I think price pooling was never on the table as far as NTPC was concerned. It was being talked about for other projects. We no issue with Coal India, I think all are getting it wrong; there is an issue of principles on quality of coal on which we have been discussing. Neither of us has said that the issue is closed and thrown out of the window, we are still discussing it.
It is important for me to inform the beneficiary, as to what is the quality of coal that is burned. So the moment that becomes important, it becomes important that Coal India also is able to declare what is the quality of coal they are giving us. We are working towards it; I don't think that is a problem, we can sort that out amongst ourselves. The problem is that they are not able to mire too much and not able to match the power sectors demands.
Q: Could you tell us how much exactly will the power cost go up now that the coal price pooling has been held in abeyance? Some analysts are talking about a 50 paise hike. What is your view on how much tariffs could go higher?
A: If pool pricing has been kept in abeyance it will remain the same. If pool pricing is introduced, it is a hypothetical number. Coming back to NTPC, if you look at our average pool price and if we are allowed to pool our prices of electricity across the country it is Rs 2.90. So it the most attractive power in the country.
Q: There is some talk that NTPC will look to import coal independently and move out of the coal price pooling mechanism. Do you have all the approvals in place and would you look to do that within this calendar year itself?
A: I don't know how that is linked to price pooling because we have been importing coal for the last three years. We import our own coal. We do not go through Coal India to import, we had tried with them four years back but they could not import coal for us. Thereafter we have been doing fairly well and we have been importing our own coal. So this has no link with the pool pricing.
Q: Would you have to relook at whether NTPC would have to raise its coal imports going into FY14 given the paucity in terms of availability domestically because the fear about imported coal is that it may not be the most efficient mechanism for NTPC?
A: We are worried about imported coal. Talking about NTPC’s performance, you would be glad to know that in the last 30 months we have added 9000 megawatts and we were asked a question on why we are not adding enough capacity. This time we will come out with the highest turnover, we will come out with the highest profitability and we have achieved the highest capex. So once we have done all that we need coal or fuel to run our stations. It is not only coal, our gas stations are running at only 50 percent, we have no gas available. Going forward we have to shelve our gas expansion schemes. So the sector is not doing so well in terms of fuel.
So, we are worried and we have been importing for the last three years almost 12-16 million tonnes of coal.
However one must understand one thing that there is the other end of the consumer who is not able to consume more than a certain price increase because a 10 percent imported coal, raises the tariff by about 30 paise. It becomes very difficult. On the technical part up to 30 percent we have no problem; our boilers can mix up to 30 percent. If any consumer is willing to take power from us with 30 percent imported coal, with re-gasified liquefied natural gas (RLNG), imported gas, we are willing to give them as much power as they want.
NTPC stock price
On June 30, 2015, at 15:43 hrs NTPC was quoting at Rs 137.90, down Rs 0.85, or 0.61 percent. The 52-week high of the share was Rs 164.70 and the 52-week low was Rs 126.80.
The company's trailing 12-month (TTM) EPS was at Rs 12.48 per share as per the quarter ended March 2015. The stock's price-to-earnings (P/E) ratio was 11.05. The latest book value of the company is Rs 116.56 per share. At current value, the price-to-book value of the company is 1.18.
READ MORE ON NTPC, Coal India, coal price pooling, Cabinet Committee on Economic Affairs (CCEA), Arup Roy Choudhury, re-gasified liquefied natural gas (RLNG), , imported gas, power purchase agreement (PPA), Central Electricity Regulation Commission (CERC) , gross calorific value (GCV), useful heat value (UHV) , Farakka, Ganges, Kahalgaon
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