The Hindu Business Line : PTC unfazed by competition

POWER Trading Corporation is in the business of trading power across States, in the process reducing the imbalances in the power situation across surplus and deficit regions. Last year, the company went public with an initial public offering for 39 per cent of its equity.

Despite the vagaries of the power sector, which is plagued with theft, losses and supply of below-cost power, PTC has performed commendably. Its IPO, priced at a premium of Rs 6 per share (face value of Rs 10), is currently traded in the Rs 50-60 per share band on a sustained basis. The PTC Chairman and Managing Director, Mr T.N. Thakur, is a career civil servant, having served in assignments as disparate as secretary to Bihar Chief Minister, Assistant Comptroller and Auditor General.

In an interview to Business Line, Mr Thakur discusses the short-to-medium term issues and the market conditions that will determine the growth of PTC. Excerpts:

Ever since the power regulator passed the Open Access transmission order in May this year, market observers note that the `day-ahead' trades of PTC have been wiped out. (PTC's business involves transactions having time epochs varying from one day to more than one year. The day - ahead transaction refers to the short-term deal scheduled for the next day). What portion of your total transactions do day-ahead deals constitute? What is the reason for this wipe out and how will it affect the profitability of the company?

Day-ahead transactions have become nearly non-existent since the Open Access order was passed. I am not in a position to tell you what proportion day-ahead trades constitute although they do have a sizeable share. However, I don't think it will affect our results significantly.

The problem with the Open Access order is that it demands PTC to book corridors from point to point and no diversion is allowed either at the supply end or at the demand side without cancelling the existing booking of corridor resulting in forfeiture of the transmission charges already paid.

For example, let's say we have a three-month deal for supply of power from Orissa to Gujarat in the rainy season when the dams are full. To implement this, we book the Orissa-Gujarat corridor. However, during this period, Madhya Pradesh has a requirement of power coinciding with Gujarat's demand falling for a few days. We are not in a position to service this deal since we have to cancel the Orissa-Gujarat corridor and book the Orissa-Madhya Pradesh corridor although both use the same transmission link. The problem is when we cancel the first corridor we may lose it to another trader and, hence, lose a three-month deal.

We have informed the regulator about this anomaly where no one gains, neither is the overflowing water used nor does the supply-imbalance resolved. The regulator is looking into the matter and reviewing the order.

There are around five bids in the market for privatisation of distribution of power in different States. If past experience is anything to go by there are hardly any new players except Reliance Energy and Tata Power, who are getting into the trading business. Further, these companies are setting up large green-field generation capacities. One might see a situation a few years from now where they enjoy competitive advantage in the trading business due to their investments in the generation as well as distribution business. How do you compete in such situations?

First, I would not like to comment on the strategies adopted by specific companies. In generic terms, trader-owners, if one might call corporates owning generation, distribution as well as trading outfits, have multiple interests. Our pedigree as a trading company enhances our credentials in maximising service to both buyers and sellers. Further, we are looking at accessing high tension consumers (industry) besides captive power plants, thus ensuring sizeable trade volumes. We welcome competition. Although our market share will come down, the growing market will ensure that we are on a growth path.

Are you planning to offer any other service besides power trade?

We are looking at the possibility of offering services to power generation project sponsors that go beyond purchase of power from the project. We are looking at entering into agreements with the fuel suppliers, gas or imported coal-based, in a manner that we directly pay the fuel supplier than routing the payments through the project sponsor. Given our expertise in the power sector, we hope this will reduce the project risk and, hence, result in a lower tariff.

PTC has seen steep growth over the last few years? Is this sustainable? What is the future outlook?

The growth over the last three years (sales turnover rose to around Rs 2,400 crore and profit after tax (PAT) rose to over Rs 32 crore in 2003-04, the third year of sustained operation) is due to the fact that we had not optimised on the power trade potential in the country. Now, the limitations are on account of inadequate generation capacity as well as transmission networks. This situation is not likely to improve significantly in the next two years.

What is your cash flow position, especially since you plan to acquire equity in power generation projects?

As of now, we do not require any additional funds. However, for equity acquisitions in projects from which PTC would offtake power, we will require additional funds. We may consider taking equity stakes up to 26 per cent in small projects and around 11-15 per cent in medium to large projects.

How does PTC plan to deal with the issue of retaining talent? Recently, two senior officials have left the company to join competitors. While one has joined BG, which plans to open a trading outfit, another has joined Reliance Energy.

This is a concern for us, and we are mindful about addressing it. We believe that the retention of talent is directly related to the issue of `Composite Rewards', central to which is an organisation's culture. At PTC, we have fostered a culture of leadership, based on transparency and respect for the individual.

Although technically, we are not a Government company as per the definition of the Companies Act, a significant portion of shareholders are Government companies. Drifting away from the public sector salary structure immediately may not be very easy but surely there is a need to address this issue effectively.

It will not be entirely correct to compare public sector companies such as NTPC and PTC in regard to personnel issues. We have an employee strength of 60 and, hence, even if a handful of staff leave the company for greener pastures, the loss will be felt. This is not quite the case in other PSUs who have fall-back options. We will have to devise means to ensure that flight of talent is contained.