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Business News/ Industry / Energy/  Hydropower PSU merger proposed in phases
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Hydropower PSU merger proposed in phases

Power ministry calls meeting of all state-owned hydroelectric firms on Monday to discuss possibility of their merger

A file photo of a hydropower plant. Photo: MintPremium
A file photo of a hydropower plant. Photo: Mint

New Delhi: A concept paper on the possibility of a merger of all state-owned hydroelectric companies has recommended a phased approach, starting with North Eastern Electric Power Corp. Ltd (Neepco) to be combined with NHPC Ltd, followed by THDC India Ltd and SJVN Ltd.

In a related development, the power ministry has called a meeting of all state-owned hydroelectric companies on Monday to discuss the possibility of their merger. The meeting is to be attended by the chairman and managing directors of the above public sector undertakings (PSUs) and their directors in charge of human resources.

“The consolidation of central PSUs may take place in a phased manner," said the concept paper prepared by state-owned NHPC, and reviewed by Mint.

It suggested that Neepco, a small unit that’s financially dependent on government support, be merged with NHPC in the first phase. In the second phase, the Union government would transfer its equity in TDHC to NHPC, making it a subsidiary of the latter.

The Union government has an 85.96% stake in NHPC, with the balance held by the public; the Union government is the sole owner of Neepco. In THDC, the Union government holds 73.08%, with the balance held by the state government of Uttar Pradesh.

“However, the moment it is agreed by Government of UP (Uttar Pradesh) to sell its shares to the Government of India/NHPC, it may be considered for merger at latter stage. At third stage M/s SJVNL may be considered to merge with NHPC," the concept paper went on to add.

The proposal has already met with resistance by Neepco, THDC and SJVN, in which the Union government has a 64.47% stake, with the state government of Himachal Pradesh and the public holding 25.5% and 10.03%, respectively.

“A meeting has been called on 1 September. A decision is expected shortly," said a government official aware of the development, requesting anonymity.

According to SBI Capital Markets Ltd, appointed to help develop the concept paper, the merged entity will have a project portfolio of 62,674 megawatts (MW), a net worth of 47,000 crore and a net profit of 2,900 crore. Also, the Union government will have an 81% stake in the firm that will have a market capitalization of 51,000 crore.

Mint reported on 28 July about the National Democratic Alliance (NDA) government exploring the possibility of a merger that may lead to a major overhaul of India’s hydropower sector.

NHPC has been asked to examine the possible merger of all the four hydropower central PSUs into one in an exercise aimed at stemming the decreasing share of hydropower in the country’s energy mix.

In an effort to drive synergies, the government is also exploring the possibility of state-owned NTPC Ltd transferring its hydro projects to central hydroelectric PSUs, and the latter transferring their proposed coal-fuelled projects to NTPC.

“There is logic in some of these arguments for these PSUs to pursue their core strength," said Anil Razdan, a former power secretary, adding that he’s not sure “whether the firms will be positive to the idea of losing their identity".

In addition, since the companies have nurtured and developed ongoing projects for so long, it is their duty to complete it rather than look for a “surrogate mother at the time of delivery", said Razdan.

These issues were first raised at a presentation made to Piyush Goyal, minister in charge of power, coal, and new and renewable energy, on 2 July.

Queries sent to a power ministry spokesperson on Sunday remained unanswered.

The concept paper detailed the advantages of such a merger, including improvement in balance sheet strength, reduction in capital costs, better negotiating power, adequate succession and workforce planning, and economies of scale.

Goyal told reporters on 22 August that the merger was at a discussion stage.

The concept paper also spelt out the concerns such as conflict of interest among entities, diverse organizational cultures, impact on credit ratings, legal constraints in power purchase agreements and government clearances.

Faltering hydropower generation in the country and delays in project execution have led to concerns among policymakers. India has a power generation capacity of 250,257MW, of which 16.3%, or 40,799MW, is hydropower.

A majority of India’s hydropower projects under construction have been delayed, hampering the government’s bid to increase power generation to meet demand and boost economic growth.

“Consolidation/merger in some form or other in a given timeline is the necessity of the hour and is in the national interest," said the concept paper.

The concept paper said a merged entity could execute large hydropower projects of up to 5,000MW capacity, and become the vehicle for India’s entry into the hydropowr sector in emerging economies such as Myanmar, and Africa and Latin America.

The merged entity would help evolve uniform practices for land acquisition, relocation and resettlement, laying optic-fibre networks and be entrusted with responsibility for inter-linking of rivers.

Executing a hydropower project is a time-consuming and tedious process. It includes a thorough survey and investigation, detailed project report preparation, infrastructure development and relocation and resettlement of populations displaced by projects.

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ABOUT THE AUTHOR
Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Published: 01 Sep 2014, 12:25 AM IST
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