State-run Majors, PFC, NHPC, NTPC Set Ambitious Performance Fiscal Year Targets

Leading state-run utilities Power Finance Corporation (PFC), NTPC and the NHPC signed agreements with the power ministry on Wednesday to set up ambitious performance targets for the current financial year, despite flagging demand in wake of the pandemic. The exercise is an annual process, wherein the firms under the ministry set targets for the next year.

The Indian government set a revenue target of Rs. 36,000 crores along with various performance-related parameters for Power Finance Corporation.

NHPC also signed an agreement with the Ministry of Power for raising the generation to 27,500 millions of units from 26,000 millions of last year.

It also agreed to a revenue target of Rs. 8900 crore, while operating profit as a percentage of the revenue has been kept as 38.00%. The target for Profit after tax is 10.50 %.

In addition, NHPC also agreed to milestones in respect of restoration of Unit  No. 1 and 2 of Chamera-II Power Station together with Assets Monetization parameters.

NTPC, the nation’s largest power generator, has a  generation target under Excellent rating of 340 BU (Billion Units).

A capex target of Rs. 21,000 Crores and revenue target of Rs.98,000 Crores are also part of MoU.

These targets have been set at a time when India’s power demand is expected to decline by 4.5%-5.5% during the financial year, though a recovery is expected in the second half of the year, according to India Ratings.

A slump in demand post covid in the first quarter is expected to continue in the second quarter as well due to the pandemic, though a nationwide lockdown has eased since July.

However, plant load factors for thermal power generation are expected to drop to half during the financial year on average. With plants near pit heads an exception.

Most thermal generation is also facing stress due to sliding costs of renewable power generation. Though PFC and NHPC did not specify their goals for renewable generation, it is likely that they will make a greater push in this direction. NTPC of course has started a strong push in the space, and has a target of  10 GW by 2022.

Distribution companies’ cash collections are hit due to a reduction in demand from the industrial and commercial sectors as well as a  further increase in aggregate technical and commercial loss.

A relief package of Rs. 900 billion for the sector would provide a temporary breather, but the liquidity stress is more prominent now in the entire value chain. The outstanding dues to generating companies have increased 37% year on year to INR 1.3 trillion.

The actual reduction of receivables and thereby improvement in liquidity is likely to remain challenging as a significant chunk of disbursement Rs. 700 billion is tied to certain conditions.