Status and Issues in Indian Power Industry

Dr Anjula Gurtoo Indian Institute of Management Lucknow

Indian Power Sector

Scheme of presentation:
1.

2.
3. 4.

Overview of power reforms in various states 1. Focus Cases: Orissa, AP, Dabol, Tanir Bavi, New Delhi Electricity Act 2003 Reforms implementation: Some issues What now ?

Indian Power Sector: Past Problems

Financial Bankruptcy & Supply Shortage (accumulated losses, debt, inability to add capacity)

Agriculture subsidy

Overstaffing

T&D losses

Inefficient technologies & systems

Update

Dabhol update

Shut since May 2001. Stalemate continues. Cost of restarting $15 million. General electric and Bechtel, two shareholders of DPC, initiate move to take over Enron share. Withdraw. Tata and Reliance show interest to take over plant. Kurdkar Commission of Inquiry by State Govt. TOR challenged.

Gas finds in AP by Reliance Availability Based Tariff (ABT):

Bidding and Real time Energy management since end 2002.

Update

Power tariff update

Punjab: Agri tariff at 57 paise or Rs 60 per HP TN: proposal to charge .50/unit or Rs 600/per HP/yr Steep hike in MP - 30% for agri and 3% for HT consumers Kerela - 22-50%, Maharashtra - 14% industry and 190% agriculture Gujarat about 30% for agri

Case: Orissa
HISTORY: Power surplus state with low agriculture consumption (7%) Thermal 1700 MW, Hydel 500 MW 1996: Reforms Act, OERC, SEB into hydro and T&D 1999: Distcos privatized through competitive bidding FINANCE: WB loan on near market rates through GoI-GoO Total loan $ 2.6 billion dollars Estimated investment by IPPS: $ 1447 million GoO to be net generator of funds by 1997!

Case: Orissa
PRESENT STATUS:

GRIDCO has outstanding loans of Rs 2700 crores, dues of Rs 1200 crores Dist. losses: 40%, Metering: 50% of total cons., Rural Electrification: same Outstanding of DISTCOs to GRIDCO: Rs.200 crores. GRIDCO cant cut supplies despite default. World Bank reduces loan amount by $ 60 million. Restructuring package by GoI: Issue tax free bonds in lieu of payment Get reduction in obligation and concessions from stakeholders.

Case: Orissa
WHAT WENT WRONG:

Revaluation of assets: GRIDCO up-valued to match liabilities and assets bloated finance with no actual capital influx 16% return on this meant substantial tariff hike !..but was not allowed. Hydro power corporation: tariff increase from 10 to 46 paise increasing GRIDCO bill OERC fixed tariff taking 1. power procurement cost and 2. employee and maintenance cost, excluding interest and other liabilities.

Case: Orissa
WHAT WENT WRONG:

Budgetary support to GRIDCO cut off. Liabilities of DISTCOs loaded to GRIDCO @ Rs 1900 crores 1999: World Bank review asked GoI and GoO to help GRIDCO but did not itself give any funds or grants.

Case: Orissa
WHAT WENT WRONG Kanungo Committee report (Oct 2001):
No decrease in T&D losses still about 40% No capital investment by private parties despite 5 years into reforms Revenue collection efficiency decreased only 60% billing and 25% of it not collected. Increased cost of generation No improvement in management of DISTCOs

Andhra Pradesh

CRISIL rates AP at No 1 in reforms AP refuses further loan from World Bank (12%), saying cheaper from PFC or REC (8%) IPPs start generation: issue of efficiency vs. pricing. Govt cess of 25p/u on captive generation. Approves 5 gas based generation. Grid support and wheeling charges introduced in 2001. Task force to recommend best use of gas finds. Rural electricity supply cooperatives wound up. Assets sold to Discoms. Schemes and incentives for rural electrification..REC loan.

Case: New Delhi

Case: Tanir Bavi

Tanir Bavi Power Corp: 220 MW gas based JV b/w GMR (India) and PSEG(US) commissioned in 2001 Problems arose with the Karnataka Trans. Corp. in the interpretation of fixed charges (negotiated project vs. competitive bid)
Fixed charge as per Table A Fixed charge determined at the time of closing subject to ceiling of 4 cents

Case: Tanir Bavi

Fixed charge at 85% PLF = (Foreign debt + equity) * 16% ($ payment) + (Domestic debt+ equity) * 16% (Rs payment)
= 4 cents
16% ROE = 0.4 cents Rs 114 crores 2.054 cents 700% return on domestic equity ! 1.946 cents

4 CENTS: CEILING OR SET?

Case: Tanir Bavi

Fixed charge itself = Rs 2.00 approx. ERC directs Transco to go to court : licencee first and government company after that. Tribunal: asks Transco to pay as per Tanir Bavi @ 24% interest rate Implications

Read the fine print Future benchmark for fixing tariff by pvt companies With the changes in business environment utilities have to be careful about government role Possible steep tariff hike in the state

Electricity Act 2003

Generation de-licensed. Multiple dist. Licenses. Transmission utility at central level to continue with responsibility of coordinated planning of trans network. Private companies can take up transmission Open access: Any generation Co given access to transmission system without discrimination, subject to capacity availability. Pay tariff to Tans Co. (wheeling charge and surcharge) Open access to distribution in phases. Power trading recognized as activity.

Electricity Act 2003

Transco cant do trading. Captive generation encouraged. No regulated charge except wheeling and surcharge. Multi year tariff formulation suggested 100% metering in 2 years time. IMPLICATIONS

More players Increase in captive generation More contracts between bulk consumers and gen

Electricity Act 2003

IMPLICATIONS

More players Increase in captive generation More contracts between bulk consumers and generation co. (Railway and NTPC) End of SEBs Elimination of cross subsidy Increased complexity in power sector need for strict laws and its enforcement and vigilance

Electricity Act 2003 - Grant of Licence

1. Commission may..licence to any person (a) to transmit (b) to distribute (c) to undertake trading in any area which may be specified 2. Provisions of the repealed laws .. shall apply for a period of one year 3. The State Transmission Utility shall be deemed to be a transmission licensee for one year (extendable) 4. Commission may grant a licence to two or more persons for distribution of electricity.

Electricity Act 2003 - Distribution licensees and open access

1. The State Commission shall introduce open access in such phases and subject to such conditions, (including the cross subsidies, and other operational constraints) as may be specified within one year. (no time frame) 2. Surcharge in addition to the charges for wheeling (amount not specified)... such surcharge and cross subsidies shall be progressively reduced and eliminated. 3. Surcharge shall not be leviable in case open access is provided to a person who has established a captive generating plant for carrying the electricity to the destination of his own use.

Electricity Act 2003 - Distribution licensees and open access

4. If a person requires electricity from generation co. or licensee other than distribution licensee..dist. licensee will have to provide non-discriminatory open access to its wire network..

5. Additional surcharge, specified by the State Commission, to meet the fixed cost of such distribution licensee arising out of his obligation to supply.
6. Duty to supply on request: within one month after receipt of the application penalty of Rs 1000 for each day of default

Electricity Act 2003 Trading

The State Commission shall (a) determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail (b) fix the trading margin in the intra-State trading of electricity, if considered, necessary;

Electricity Act 2003 Transmission

1. Within the state, State Commission shall facilitate and promote transmission, wheeling and inter-connection arrangements. 2. State Transmission Utility: 1. shall not engage in the business of trading 2. provide non-discriminatory open access to its transmission system 3. Surcharge and cross subsidies be progressively eliminated 4. Surcharge not be leviable for captive generating plant for carrying the electricity to the destination of own use.

Electricity Act 2003 Load Dispatch Centers

Operated by a Government company State Transmission Utility shall operate the Centre for time being. The Apex body to ensure integrated operation of the power system in a State Responsible for optimum scheduling and despatch monitor grid operations keep account of quantity of electricity transmitted through the State grid exercise supervision and control over the intrastate transmission system be responsible for carrying out real time operations for grid control and despatch

Update

Udesh Kohli Committee:

Rs 8,000 million needed to increase capacity by 100,000 MW by 2012 Suggests that public utilities start raising their own funds from banks (vs. institutions) Tax benefit schemes for power projects Cess on power generated

Update

Mega power policy

New scheme: Thermal over 1000 MW and hydel over 500 MW to get Mega status. Include Trans. projects too.
No custom & excise duty on project imports. Relaxed sales tax. High Court order : tariff hike of 17.5% allowed versus 2.5% agreed by ERC Overruled by Supreme Court . WBERC: order for single tariff of Rs 3.9 per unit for domestic and commercial consumers.

West Bengal

Emerging Rules of Business

Improvement

Efficiency financial and operational Reliability consistent, service quality

Building networks of mutual competitive advantages stakeholder relationships

Negotiate with ERC Managing relationship with Generation and Distribution Customer oriented Negotiate with Financial Lenders

Emerging Rules of Business

Multiple Core Competencies Multiple Competitive Arenas Examples: Get into distribution Tie up with a comp/industrial belt/township Strategy of low price to build above mentioned cons. Lend consultancy and operating service to new entrants

Emerging Rules of Business

Knowledge management collect and use internal knowledge for faster response time and innovation Multiple focus : Strategic thinking: simultaneous movement in efficiency in current and development of new business Entry barriers an advantage for state owned utilities

The Reforms Implementation Process: Some Issues

Efficiency vs. private participation Competing interests in the process Agriculture subsidy Little organizational preparation before implementation of radical cultural change

The Reforms Implementation Process: Some Issues

Reach to rural & small town consumers Participation of civil society institutions legal route

THANK YOU

ENRON

Salient features of PPA between DPC and MSEB

Signed on Feb 2005. MSEB will buy power for 20 years and make payment at the negotiated tariff. Cost of fuel to be passed on to MSEB. Fuel manager firm appointedEnron Fuels.to be payed by MSEB. Changes in cost due to change in custom duty an other taxes to be borne by MSEB. PPA does not specify capital cost of project.

ENRON

Main plank of PPA: host of guarantees and counter guarantees.

DPC pays MSEB Contractors pay DPC

PARAMETERS 1. Delay in constructn

1. Upto 6 months
2. After 6 months 2. Shortfall in capacity

$14,000/day
$110,000/day

$250,000/day
$340,000/day

$100/kW

$1,892/kW

Stated cap of 695 MW vs. actual of 725 !!

ENRON

Tariff Structure
Capacity charge related to plant availability of 90% Energy payments indexed to US and Indian inflations