Power Industry: Priority agenda for immediate
[R V Shahi's Weekly Column for
Infraline, January 21, 2008]
manufacturing industry has done exceedingly well in so far as the top lines and
bottom lines of various companies under this industry are concerned. Indian
Electrical and Electronics Manufacturer's Association (IEEMA), which has a
membership of almost 600 companies, has organized at Mumbai "Elecrama - 2008" on
January 18 - 22, 2008. I recall, 10 year back IEEMA celebrated its Golden
Jubilee and had invited me to be the chief guest and to deliver the key note
address. I also recall that I used that opportunity to bring into focus a very
important need of Indian power sector, and particularly for the Electricity
Distribution Utilities, with regard to the quality of electrical meters. In
this event, during my address I was somewhat critical of the approach of the
electrical meters manufacturers in the country. This perception, and therefore
the criticism, was based on my experience and experience of a number of
Electricity Boards who were trying that the meter manufacturers should guarantee
the performance of meters for five years whereas the manufacturers were
agreeable to only one year guarantee. In the Golden Jubilee Celebration, I
raised the issue as to why the Distribution Companies and Electricity Boards
should not demand and should not get, from the manufacturers, 10 year guarantee
which should subsequently be raised to 15 years guarantee. This suggestion of
mine was based on the data I had collected from a number of countries where
electricity distribution is better organized. Those days, and very
unfortunately even now, my assessment is that 90% of power sector problems
revolve around the distribution segment, and within the distribution segment,
75% of the problems center around meters - non functioning meters, tampered
meters, by passing of meters etc. We all know that we lost more than 10 years
of our struggle on power sector reform because of Distribution not being
Therefore, on this
occasion when I was again invited to deliver the key note address (as a matter
of fact IEEMA has been nice in inviting me on several occasions during their
annual events and also in other programmes), I not only expressed deepest
appreciation for the invitation but more importantly for the fact that my
suggestion, made 10 year ago, on meters was seriously taken up - the guarantee
period was agreed to be extended to 10 years and subsequently to 15 years. The
Indian meters are today globally competitive both in terms of quality and
price. Having said this I must also add that part of the problem regarding such
a casual approach in the past on quality of meters could also be attributed to
the mindset and approach of the State Distribution Utilities, which mostly went
for lowest price meters. Such an approach for any measuring instrument cannot
be acceptable. In fact, question of comparison of price should arise only after
very clearly specifying the quality requirements. When the focus of reform has
been reoriented to distribution in last few years, there is a visible shift and
now almost all the Distribution Utilities are going in for good quality meters
and they don't mind paying higher prices.
In one of the
annual events of IEEMA in 2005, when I had the occasion to address them, I not
only recounted their positive response and actions which have led to remarkable
impact on reduction of aggregate technical and commercial losses in states,
where metering and quality of meters have been paid due attention, I also made a
suggestion that the next technological revolution that should take place in
metering should aim at meterless (not measurementless) electricity supply. If
it has been possible in case of telephones and mobile phones, where measurement
of calls made or received together with various applications including SMS,
E-mails etc. are all measured centrally in the control room, and there are
hardwares and softwares to adequately handle this, why should it not be possible
in case of electric meters? In case of telecommunication, in fact, the problem
is compounded on two counts - one that it is wireless and second that there are
numerous service and infrastructure providers particularly when calls are
effected from one country to another country. As against this, in case of
electric supply right from generator end to consumption point the entire flow is
wired. It should be taken as a challenge and IEEMA members could demonstrate
that the next generation metering of electricity is in effect meterless
measurement of electricity.
Due to the
accelerated growth in capacity addition in the recent years, post various
legislative and policy reforms in the sector, the electricity manufacturing
industry has been the biggest beneficiary. From a negative growth towards the
end of 9th Five Year Plan (2001-02), this industry has experienced a
growth of 7%, 12%, 16% and subsequently about 20% in last few years. The 570
IEEMA members, it is most gratifying, have registered an annual turnover of as
high as Rs. 1,00,000 crores (approximately US dollars 25 billion). Order books
of most of the manufacturers are more than full. In fact, with the capacities
that they have, it looks virtually impossible that the target of 78,000 MW for
the 11th Plan could be satisfactorily implemented and achieved in
time. From a stage of virtually order books dried up, no new orders in sight
and complete uncertainty about the future, a situation which characterized the
power sector, in so far as electrical manufacturers are concerned, around 2000 -
01, today the table is turned and it is the manufacturers who are proving to be
unable to fulfill these orders. Developers, lenders, equity investors are all
enthused. Manufacturers have tremendous opportunities. What is required is to
effectively and fruitfully avail of these opportunities.
In the above
background, on the occasion of 60 years of IEEMA, I used the opportunity to
identify, out of many others, 25 Point Action Agenda and briefly explained what
needs to be done now at the Government level - State Government, Central
Government, and the Regulatory Commissions and by the members of IEEMA who
constitute almost the entire electrical manufacturing industry.
|[A] State Government
Adopt Ultra Mega Scheme at State level.
Reorganise Electricity Board if not done.
List generation company with 10% (IPO) and then
20% (cumulative) additional equity.
Use the fund to
expand generation capacity.
Invest liberally in Transmission/Sub
Franchise all District, Towns Distribution where
loss is more than 15%.
Sincere implementation of APDRP and RGGVY.
Reduce about 10%
[B] Central Government
Even more vigorous implementation of UMP, APDRP
Larger dilution of CPSU's through fresh equity
[upto 24%, later 49%].
Support Merchant Plant capacity about 30,000 -
35,000 MW by 2017 and allow market to develop Fuel,
Transmission, Financial tie-ups to be facilitated.
Coal auction on similar line as UMP for lowest
coal price, not for highest premium to Government (Power price
has to be minimised).
PFC and REC to
support through equity funding ( 15 to 30%).
Open Access in Distribution by January 2009.
Announce definite plan now. Scheme to promote Open Access not
to throttle it.
Definite encouragement for renewables (10 - 15%
Proactive measures to develop electricity market
(Merchant Plant, Short term Sale).
Multi Year Tariff - announce Scheme and Schedule.
Cross subsidy, ? 20% of average tariff as per
Tariff Policy - Announce Implementation schedule.
Stamp) Transmission tariff to be notified.
Manufacturing sector is letting down power sector
- urgent action to expand manufacturing capacity.
Encourage/facilitate new construction erection
agencies on emergency basis.
I.T. in metering technology should further
improve - aimed at theft
control, consumer services etc.
Meterless measurement of electricity.
Participate in a big way in distribution
franchising initiatives of Governments.
Upgrade technology (800/1000 MW is getting
- Focus on quality power (Filter Harmonics
The Ultra Mega Project Scheme, which was launched in early 2006, has
emerged as a highly successful initiative of the Ministry of Power. It has
demolished many of the myths and ill founded perceptions about sectoral reforms
and about the nature of viable and profitable opportunities. The initiative has
also yielded highly aggressive and incredibly competitive tariff. Two types of
actions are needed - (a) at the Government of India level this scheme should be
pursued even with greater vigour, after assimilating the lessons drawn during
the learning curve period, so that more and more of such projects are brought on
stream as fast as possible, and (b) right in 2006 the Energy Departments of
various State Governments were advised to adopt this scheme for 1,000 to 2,000
MW capacity projects at the state level. They needed to put in place a
mechanism of similar nature as we did at the level of Ministry of Power so as to
provide necessary assistance, facilitation and co-ordination. This has happened
in very few cases and what is required is that the State Governments should
facilitate development of similar competitively bid projects for supply of
electricity to their Distribution Utilities.
In whichever states Electricity Boards have been re-organised and
have been allowed to stabilize and function in the restructured setting with
appropriate placements of senior functionaries at the Board and the Senior
Management levels, experience shows that, results are satisfying. Generating
companies have started focusing at expanding their capacity and improving their
efficiency of operations. Distribution companies have started comparing their
performance with other distribution companies in the state and those outside.
Similarly transmission and sub transmission have started receiving better
attention by the State level Transmission Company. What is necessary is that
all such states as have not re-organised their Boards so far must do it
immediately. The provision of the Electricity Act which allows continuation
with the consent of the Government of India should not be allowed to be invoked
Until 2002 the Central Public Sector Undertakings under the
Ministry of Power had also not thought of coming to the equity capital market by
listing through IPO. Ministry of Power took up this initiative starting from
2003-04. Experience of Power Trading Corporation, NTPC, Power Finance
Corporation and Power Grid, has been not only highly satisfying but also these
initiatives have discovered the immense interests for power sector that have
remained hidden so far among the investors. The concern about the financing gap
in the sector must stop. State level generating companies, instead of
approaching their Governments for equity support, should prepare for listing and
raising financial resources from equity capital market. There is no reason why
a large number of these companies, especially those which are performing very
well, should not enhance their equity through IPO by 10% and subsequently by 20%
and so on.
The fund generated through IPO by the state generating companies
should be utilized for expansion of existing power plants and for setting up of
new projects. We must recognize that almost 1,00,000 MW of capacity is owned by
the state generating utilities. Their valuation would be more than Rs. 5 lakh
crores ( US dollars 125 billions). A 20% dilution through IPO could mean
almost Rs. 1 lakh crores ( US dollar 25 billions) of additional fund.
Transmission and sub-transmission will need major augmentation to
cope with the additionality of supply of power in next 5 to 10 years. The
states need to liberally invest in providing additional transmission lines and
sub stations, inter connecting these with State grid, Regional and National
Experience of privatising distribution has been rather limited.
Except for Orissa and Delhi this initiative has not gone beyond. In a number of
states there are various issues and concerns which have been raised.
Politically also this issue has become sensitive. About 2 years back we had
suggested that if there were problems on privatising distribution, franchising
the distribution system could be one of the methods through which the pace of
distribution reform could be accelerated. Maharashtra has provided the examples
of an initiative on this line. First, Bhivandi and now Nagpur. It is reported
that Bhivandi, which was the most difficult having a loss level of more than
60%, is already coming under the grip. In the country we have more than 600
district headquarters. In more than 80% of these district towns the
distribution loss is more than 15%. We have waited enough. The present
organizational framework has failed to bring down these losses. A determined
and urgent action is needed to put all these district towns, where the
distribution loss is more than 15%, on long term franchisee arrangement on the
pattern of Bhivandi and Nagpur model.
Both APDRP and RGGVY - the two schemes which were started in the 10th
Plan - the first to improve distribution in urban area and the second to create
and improve distribution systems in rural areas - have been extended to remain
in operation during the 11th Plan also. A number of Central
Government agencies were brought in to introduce right momentum and speed of
action for implementing these schemes. State Governments must ensure that in
the 11th Plan the remaining work of entire distribution both in
towns/cities and in rural India are completed.
Last but not the least, in so far as the role of the State Government is
concerned, the energy conservation must be taken as a national necessity. We
are wasting more than 20% of electricity. Some actions have happened. A lot
more is required. Definite actions to save at least 10% could be a modest
expectation from the earnest efforts that the State Governments could mobilize.
Power Ministry has put in place a large number of policy
instruments. What is needed is continued implementation of all these schemes.
Implementation in last few years has thrown up a number of valuable experiences
and lessons which could obviously be appropriately incorporated in the new
projects and schemes. The objective should be to expedite the process.
The Central Public Sector Undertakings under the Ministry of Power
could consider to dilute Government holding up to 24% through fresh infusion of
equity. This may be relevant for companies which have already been listed
(NTPC, PFC, Power Grid), but the companies which are yet to be listed namely
Rural Electrification Corporation and National Hydro Electric Power Corporation
decision for whom was taken in 2006 itself, could dilute Government holding by
10% at the first tranche and subsequently up to 24%. Other companies of the
Ministry of Power namely North Eastern Electric Power Company, Satluj Jal Vidyut
Nigam, Teri Hydro Electric Development Corporation and DVC should also access
the equity capital market. In the 11th Five Year Plan, perhaps each
of these companies could generate adequate fund through this mechanism even if
they diluted to the extent of 24%. In the subsequent plan, linked to their
expansion programmes, further addition of equity and therefore dilution of
Government holding could also be considered.
cannot develop unless in the next five years, to the extent of about 15,000
MW and in the subsequent five years an additional 20,000 MW of capacity
comes up which is delinked from long term Power Purchase Agreements. These
merchant plant capacities would help in creating market and responding to
the short and medium term needs. This process alone, when a reasonable
amount of such power, say about 15%, of total, is available in the market,
will lead to price discovery through such competitive arrangement. As a
concept this has the right strength of argument, but in implementation a lot
of coordinating inputs are essential such as fuel tie-up, transmission arrangement
and financing by organizations like PFC, REC, IDFC and other institutions. The
Government could provide the required assistance in an institutionalized fashion
so that merchant plant capacities are created in a smooth manner.
It is reported that in the future coal block would be allotted through
the process of auction. What is, however, somewhat disturbing to note is that
this process is likely to be based on the premium that coal mines developers
would be prepared to pay to the Government for allotment of coal blocks. This
approach is antithesis of the objective with which Ultra Mega Power Project was
conceived, structured and implemented. The sole objective was to minimize the
price of power in larger interest of consumers. Coal auction goes totally
counter to this objective. It would lead to increasing the cost of power. Coal
block allotment therefore needs to be done in a manner that the price of coal
produced is competitively established and the bidding criterion, therefore,
should be the price of coal and not the premium to the Government. In any case,
there is a provision of paying royalty on production and sale of coal.
Power Finance Corporation and Rural Electrification Corporation, the two
excellently performing finance companies under the Ministry of Power have
rendered valuable service by way of providing loan funds to various companies
including those in the private sector. Their portfolio for equity funding
should expand. If last mile equity requirement by providing 15 to 30% of equity
could be facilitated by these companies and similar other companies, it would go
a long way in developing a number of projects where the promoters need such
According to the Electricity Act 2003 Open Access in distribution has
become an obligatory provision. Some of the state regulators have prepared
definite plans and schedules of action. Most others have not done so. It is
important for the regulatory institutions to recognize that this is one of the
most powerful provisions of the Act to introduce competition in power industry.
It is urgently necessary that each regulator announces the scheme of
implementation. But, the caution is that the scheme should promote Open Access
and not throttle it. So far, no where this has picked up well.
Climate change issues have become global concerns. India's energy
programmes centers around coal. We will continue to be under tremendous global
pressure, even though we may succeed in not taking any obligations for targeted
CO2 reductions. However, it is important that we must encourage non
fossil fuel based power generation. Electricity Policy and Tariff Policy have
provided definite directions. Regulatory Commissions need to formulate targets,
bring out schemes which encourage generation from such renewable sources. In
the next five years we should aim at least 15% of power generation through such
Regulatory Commissions at the Center and the State level have, by and
large concentrated their efforts in the area of tariff determination. Proactive
measures for development of electricity market are very few, seen in exceptional
cases. This is neither the letter nor the spirit of Electricity Act. Definite
actions from their side on facilitating development of capacities which get
aligned to short term and medium term purchase and sale such as merchant plants,
captive plants, will go a long way.
Formulation and notification of Multi Year Tariff (MYT) is a legal
requirement. This is aimed at providing predictability of the regulatory
decisions. In some states it has been done; in most others it has not been
done. Distribution reform will remain handicapped in absence of MYT.
Tariff Policy has a very important provision on rationalizing and
managing cross subsidy. It has to be brought within ? 20% of the average
tariff. This again has not been planned by most of the Regulatory Commissions.
This provision holds tremendous potential for a significant impact on
National Transmission Tariff is another important provision of the Tariff
Policy. Its absence has been affecting power trading arrangement and therefore
to some extent constraining the process of market development. Some attempt is
made in this regard but the finality has to be given. Here again the objective
should be to promote and facilitate inter-state and inter-regional sale of power
through short and medium term arrangement - an essential prerequisite for
development of a true market.
60,000 MW capacity is under construction. Almost in all cases timely
supply of plant and machinery is an issue. Inspite of the intervention
of Ministry of Power way back in early 2005 with definite suggestion that
manufacturing sector should take immediate steps to augment their capacities
because preparation for 11th & for 12th Plan would be so
advanced that these agencies would have enormous amount of orders compared to
their existing capacities, the response of manufacturing sector, particularly of
major plant and equipment manufactures, has been slow. Even now they should take
urgent actions to augment their capacities.
When the plant
and machinery reach the project site, in most cases, we are experiencing the
situation of their inadequate preparation and lack of manpower for
construction and erection. There has been a slip on their part not
to have encouraged creation of new agencies and expansion of existing
construction and erection companies. This again calls for immediate action.
Interface of IT in metering technology has considerably increased. But,
there is further scope to improve. These technologies should aim at complete
control of theft and improved consumer services.
The IEEMA members should participate in a big way when States offer
franchisee arrangement of the distribution of various towns and cities. It is
gratifying that Crompton Greaves is taking a lead in this direction. This is a
challenge to improve distribution, and a great opportunity for growth of IEEMA
Introduction of 800/1000 MW technology into Indian manufacturing is
getting considerably delayed. Similar in the case in extra and ultra high
voltage transmission systems particularly HVDC technology. This again calls for
prompt response by Indian manufacturing sector.
Quality power for certain select consumers like software technology park
is essential. Manufacturers need to focus on quality of power and on issues such
as filter harmonics etc.
In conclusion, I
said in the conference "Many of the IEEMA members have asked me now and in
recent past whether 78,000 MW during the XI Plan will be realised. My answer is
- it will be possible because of you the manufacturers, and if it does not
happen it will be primarily because of you". A lot is at stake. Sincere efforts
of IEEMA members will make a significant difference.
Copy right : Shri R.V. SHAHI