NTPC is the country’s largest power generation company with installed capacity of 39,674MW. Among Indian power generation companies, it is the single largest coal importer, targeting about 21mt this fiscal year. '

NTPC is a publicly listed company, although the Government of India still owns about 85% of it, and it continues to operate very much like a state owned enterprise with a high degree of Government influence. It is also subject to the same set of vigilance, governance and procurement requirements as any other state owned enterprise.

Around April last year, information first became public that the Comptroller and Auditor General (CAG) was conducting a review of NTPC’s coal imports. CAG is the government’s statutory independent audit authority.

The initial leaks reported that CAG had found that NTPC was routing coal imports through ports that were not always thought to be the most economic way of transporting coal to particular power plants. Private ports were said to have been favoured.

However, over the course of the last year, many ports have been reeling from the sudden decline in iron ore exports and imports of other commodities. Many of them were aggressively pushing to tap into coal imports as a way to fill their empty berths and it is thought that NTPC could have been benefitting from this competitive push.

Earlier this month, though, several new reports suggested that CAG had now estimated that between 2008 and 2011, NTPC paid approximately US$130m more for its imports as a result of moving it through ports that were not the most economic way of getting coal to the plants. NTPC reportedly imported about 20mt over that duration, much of it routed through State Trading Corporation (STC) and Metals and Minerals Trading Corporation (MMTC).

The CAG report, which is likely to be tabled in Parliament in the current session, reportedly found that NTPC allowed STC and MMTC to use ports that were different from those detailed in the contracts without adequate oversight. This, the report argues, led to a higher import cost for NTPC.

So far, the public response to the CAG findings has been muted. But then the report hasn’t yet made it to Parliament, which is when the real political noise might begin.

Unlike the other coal scandals, however, this one may not be as polarizing. There is already a certain amount of ‘scam fatigue.’ The amount in question is paltry in relation to NTPC’s overall fuel expenditures. Most likely, the issue is simply rapidly going to degenerate into a technical discussion of the coal transportation contract. Perhaps that is where the issue correctly belongs.

But charges of impropriety, even a mildly implicit one, at a successful corporate giant like NTPC might accelerate changes already underway in how the company sources fuel.

Unlike other power generators in the country, NTPC doesn’t worry about small changes in fuel prices. All of its fuel cost is passed through. Even though current regulations require all power purchases to be conducted through tenders, NTPC’s contracted long-term capacity is under fuel cost pass through arrangements.

Unlike other power generator in the country, NTPC cares more about security of supply than fuel price variability.

In the last fiscal year ending March 2013, NTPC imported just over half of what it had planned. It projected imports of 16mt but closed the year at around 9mt. Several of its large volume tenders were cancelled after NTPC felt that it didn’t get sufficiently competitive price offers.

However, the firm’s procurement strategy has begun to change. Instead of large volume tenders, NTPC is opting for smaller bundles. Previously, only a few large traders, often with direct links to the international mines, could meet the requirements of large volume tenders. Smaller volume tranches open the playing field for a much larger pool of participants.

NTPC is also beginning to prepare smaller tenders targeted to specific plants and with delivery requirement to the plant gate. This has allowed NTPC to move away from having to manage logistics and inland transport. It has also meant that suppliers need to bring together sourcing and the ability to manage inland logistics. It is understood that international suppliers are actively engaging with Indian logistics companies and are expected to starting competing in NTPC tenders soon.

The drivers of change in NTPC are two-fold. First is the overhang of the national coal scandal, the company’s own brush with CAG that is unfolding. Civil servants, including employees of state owned enterprises such as NTPC, now operate in an environment of insecurity where every decision is being reviewed and evaluated. Decision making has slowed significantly.

The second driver of change is the nature of the international coal market. When supplies were tight, larger traders with ownership rights in international mines were important to secure suppliers. Now they are less important. NTPC may well be feeling that it needs to work with a larger network of traders that can help it better tap lower prices and secure supplies from international markets.

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