21-06-2011, 04:41 PM
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Introduction
1.1Introductio of the power sector
While India has made impressive progress in the Power Sector since independence, it is still striving to meet the challenge of required demand. Post independence, where new capacity has been added, demand has far outstripped the supply leading to a widening gap. According to a report by 30.09.06(MOP website) , at present there is a deficit of 12.2% in the peak hours and 8% in the total energy requirement. Even the generated power could not be fully utilized due to the excessive energy losses in the transmission and distribution of electric supply. One of the primary reasons attributing to unacceptable loss level in the distribution segment of the value chain making the sector unavailable. Reports shows, that the losses in powers sector have reached an alarming figure of Rs. 26,000 Crore in the FY 05-06. Thus the biggest fundamental issue hampering the viability of the Indian Power Sector is the high level of composite Transmission and Distribution (T&D) losses to the tune of 31.25% as compared to 8-9% prevailing in western countries. To make the matter worse the LT level distribution losses are more than 60% in many states. In fact, the distribution system in India is plagued by inefficiency, low productivity, frequent interruption in supply associated with poor voltage. With the result, the generation companies not finding it easy to recover their dues from their biggest buyers, mainly the State Electricity Boards (SEBs). SEBs suffers huge financial losses every year due to power theft and ineffective practices of billing and collection. Therefore, some fundamental changes are imperative in the working of the
power sector entities to achieve the national vision of “reliable, affordable and quality power for all by 2012”. The reform process is already in progress in several states under the overall guidance of MoP. It is aimed at bringing about sustainable improvements in the operations of the utilities and making them commercially viable. The reforms have brought about various improvements in operational structure, commercial orientation and transparency in operation and overall customer orientation in several states .
INDEPENDENT POWER PRODUCERS (IPPs)
In 1991, in response to severe foreign exchange crisis and lack of capital for expanding power generation capacity the Central Government opened up power generation for foreign and Indian private investment. Government offered concessions such as 100% foreign ownership, long-term purchase agreement, and assured profits (as high as 32% post tax return on equity every year in the currency of investment). In the initial period state governments and SEBs were allowed to enter into negotiated contracts with IPPs without competitive bidding. Initial response to this was enormous. During the three year period when such noncompetitive contracts were allowed, SEBs signed 243 contracts (MoUs) for the capacity addition of over 90,000 MW (more than the national installed capacity at that time), amounting to contracts of nearly 90 MW per working day2. In their zeal to sign as many IPP contracts as possible states and SEBs virtually gave a go by to even elementary norms of power planning including proper demand forecasts and evolution of least cost plans based on comparative costing of different options for sites and fuels. Only a handful of these contracts are likely to result in actual capacity addition. After 1995 the Central Government enforced competitive bidding route for acquiring new
capacity (i.e. IPPs). Some projects have gone ahead through this route too. As per the IPP Report 2001, published by Power Line Research, since the opening up in 1991, till now only 3,200 MW of IPPs have come on line and another 2,700 MW have achieved financial closure. These figures include the projects bid competitively. Major reasons for this failure to add capacity was weak financial situation of SEBs and lack of demand.
IPPs found it difficult to achieve financial closure due to lack of creditworthiness of the sole buyer i.e. SEBs. SEBs was making huge financial losses mainly due to huge transmission and distribution losses (including theft) and highly subsidized tariff to agricultural and domestic consumers. Some IPPs could progress beyond the initial stage due to credit enhancement through guarantees from state and central governments as well as allocation of escrow facility.
UNBUNDLING, PRIVATISATION AND INDEPENDENT REGULATION
In mid 1990s, Orissa state on the eastern cost of India began a process of fundamental restructuring of the state power sector. Under the World Bank (WB) loan, the state decided to adopt - what is known as WBOrissa model of reform. This consisted of a three pronged strategy of:
(1)Un-bundling the integrated utility in three separate sectors of generation, transmission and distribution,
(2)Privatisation of generation and distribution companies and,
(3) Establishment of independent regulatory commissions to regulate these
utilities.
Soon afterwards several other states such as Andhra Pradesh, Haryana, Uttar Pradesh, and Rajasthan also embarked on similar reforms and also availed loans from multilateral development banks such as the WB and Asian Development Bank. Later states of Karnataka and Delhi also joined the bandwagon. The Electricity Regulatory Commissions Act, 1998 of the central government enabled states to establish
independent regulatory commissions obliviating the need for a state level legislation. Several states such as Maharashtra, Tamil Nadu and Punjab have established regulatory commissions under this central legislation4. These states have not adopted the WB model of unbundling and privatisation as yet. In August 2001, the central government has introduced a bill, 'The Electricity Bill 2001' . Once approved by the parliament it will be converted into an Act. The Electricity Bill 2001 would replace the above mentioned three existing electricity Acts. It provides for increased competition in the sector by facilitating
open access to transmission and distribution grid, power trading, and also allowing setting up of captive (only for self use) power plants without any restriction. The states have been given liberty to either adopt the provisions of this new Act or enact separate reforms Act of its own. The impact of this new Act will be far-reaching and more fundamental.
Introduction
1.1Introductio of the power sector
While India has made impressive progress in the Power Sector since independence, it is still striving to meet the challenge of required demand. Post independence, where new capacity has been added, demand has far outstripped the supply leading to a widening gap. According to a report by 30.09.06(MOP website) , at present there is a deficit of 12.2% in the peak hours and 8% in the total energy requirement. Even the generated power could not be fully utilized due to the excessive energy losses in the transmission and distribution of electric supply. One of the primary reasons attributing to unacceptable loss level in the distribution segment of the value chain making the sector unavailable. Reports shows, that the losses in powers sector have reached an alarming figure of Rs. 26,000 Crore in the FY 05-06. Thus the biggest fundamental issue hampering the viability of the Indian Power Sector is the high level of composite Transmission and Distribution (T&D) losses to the tune of 31.25% as compared to 8-9% prevailing in western countries. To make the matter worse the LT level distribution losses are more than 60% in many states. In fact, the distribution system in India is plagued by inefficiency, low productivity, frequent interruption in supply associated with poor voltage. With the result, the generation companies not finding it easy to recover their dues from their biggest buyers, mainly the State Electricity Boards (SEBs). SEBs suffers huge financial losses every year due to power theft and ineffective practices of billing and collection. Therefore, some fundamental changes are imperative in the working of the
power sector entities to achieve the national vision of “reliable, affordable and quality power for all by 2012”. The reform process is already in progress in several states under the overall guidance of MoP. It is aimed at bringing about sustainable improvements in the operations of the utilities and making them commercially viable. The reforms have brought about various improvements in operational structure, commercial orientation and transparency in operation and overall customer orientation in several states .
INDEPENDENT POWER PRODUCERS (IPPs)
In 1991, in response to severe foreign exchange crisis and lack of capital for expanding power generation capacity the Central Government opened up power generation for foreign and Indian private investment. Government offered concessions such as 100% foreign ownership, long-term purchase agreement, and assured profits (as high as 32% post tax return on equity every year in the currency of investment). In the initial period state governments and SEBs were allowed to enter into negotiated contracts with IPPs without competitive bidding. Initial response to this was enormous. During the three year period when such noncompetitive contracts were allowed, SEBs signed 243 contracts (MoUs) for the capacity addition of over 90,000 MW (more than the national installed capacity at that time), amounting to contracts of nearly 90 MW per working day2. In their zeal to sign as many IPP contracts as possible states and SEBs virtually gave a go by to even elementary norms of power planning including proper demand forecasts and evolution of least cost plans based on comparative costing of different options for sites and fuels. Only a handful of these contracts are likely to result in actual capacity addition. After 1995 the Central Government enforced competitive bidding route for acquiring new
capacity (i.e. IPPs). Some projects have gone ahead through this route too. As per the IPP Report 2001, published by Power Line Research, since the opening up in 1991, till now only 3,200 MW of IPPs have come on line and another 2,700 MW have achieved financial closure. These figures include the projects bid competitively. Major reasons for this failure to add capacity was weak financial situation of SEBs and lack of demand.
IPPs found it difficult to achieve financial closure due to lack of creditworthiness of the sole buyer i.e. SEBs. SEBs was making huge financial losses mainly due to huge transmission and distribution losses (including theft) and highly subsidized tariff to agricultural and domestic consumers. Some IPPs could progress beyond the initial stage due to credit enhancement through guarantees from state and central governments as well as allocation of escrow facility.
UNBUNDLING, PRIVATISATION AND INDEPENDENT REGULATION
In mid 1990s, Orissa state on the eastern cost of India began a process of fundamental restructuring of the state power sector. Under the World Bank (WB) loan, the state decided to adopt - what is known as WBOrissa model of reform. This consisted of a three pronged strategy of:
(1)Un-bundling the integrated utility in three separate sectors of generation, transmission and distribution,
(2)Privatisation of generation and distribution companies and,
(3) Establishment of independent regulatory commissions to regulate these
utilities.
Soon afterwards several other states such as Andhra Pradesh, Haryana, Uttar Pradesh, and Rajasthan also embarked on similar reforms and also availed loans from multilateral development banks such as the WB and Asian Development Bank. Later states of Karnataka and Delhi also joined the bandwagon. The Electricity Regulatory Commissions Act, 1998 of the central government enabled states to establish
independent regulatory commissions obliviating the need for a state level legislation. Several states such as Maharashtra, Tamil Nadu and Punjab have established regulatory commissions under this central legislation4. These states have not adopted the WB model of unbundling and privatisation as yet. In August 2001, the central government has introduced a bill, 'The Electricity Bill 2001' . Once approved by the parliament it will be converted into an Act. The Electricity Bill 2001 would replace the above mentioned three existing electricity Acts. It provides for increased competition in the sector by facilitating
open access to transmission and distribution grid, power trading, and also allowing setting up of captive (only for self use) power plants without any restriction. The states have been given liberty to either adopt the provisions of this new Act or enact separate reforms Act of its own. The impact of this new Act will be far-reaching and more fundamental.