PSU power producers cut back capex due to lack of demand

Power remains every Indian government’s Achilles heel, arguably of a different kind this time. While lack of power generation was a big issue earlier, lack of demand – arguably different from excess supply -- is now a serious problem. And that could be the real reason behind public sector power producers scaling back their expansion plans in 2017-18. An evaluation of the capital expenditure plans of six government-owned power generators indicates a 2.4 percent average cut back from their 2016-17 revised estimate to Rs 36,880.92 crore. These companies are NTPC , NHPC , SJVN , Tehri Hydro Development Corp, Damodar Valley Corp and North Eastern Electric Power Corp though not all are cutting back on their expenditure. This is the first time in several years that the combined capital expenditure of these six public sector power producers will see a downward revision from their previous year’s spend. Comparing from the original targeted figure for 2016-17, this is a 7.7 percent fall. The companies had planned to spend Rs 40,756.70 crore in 2016-17 but will now spend Rs. 38,532.04 crore. 

A large part of the cutback could be attributed to NTPC, the country’s largest power producer, deciding to go slow. As against its Rs 30,000-crore spend in 2016-17, it now plans to spend Rs 28,000 crore in the next financial year. A Rs 28,0000-crore in itself is an ambitious and aggressive spend but any scaling back by a public sector company – that too in a critical infrastructure sector like power generation -- indicates a caution in the minds of the management. NHPC, NEEPCO and Tehri Hydro too will cut back their spends. NHPC, the only listed company of the three, will incur a capital expenditure of Rs 3,089.36 crore. Going against the trend of power producers is Power Grid Corp of India . 

The central transmission utility will spend Rs. 25,000 crore on expanding its lines in 2017-18, Rs 1000 crore more than the ongoing year. While expansion of lines and strengthening of transmission network is now a priority, the go-slow by power generators is an indicator of the problems plaguing the sector. Owing to weak balance sheets and low industrial demand, state power distributors are refraining from buying power, choosing to pay only the fixed component of the power cost that law requires them to absorb – not an encouraging sign for any power producer. The government’s focus on solar power -- companies now willing to supply that at less than Rs 5 per unit -- has also dampened producers of power based on conventional sources. 

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