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Gurdial Singh, Chairperson, Central Electricity Authority (CEA)

23 Mar 2011

The hydro generation sector has hit a historic low of 22 percent and a number of power plants are experiencing a low PLF. InfralineEnergy's Chhavi Tyagi spoke to Singh to find out the reasons behind these and sought his views regarding discoms signing a number of MOUs with CPSUs before the competitive bidding deadline kicked in, power plants running on low coal stock levels, impact of the international bidding process on the domestic equipment manufacturers, among other things.

What are the factors besieging the country's hydro power sector?

The primary reason for slipping on the generation targets is the unpredictable geology. The other issues, such as contractual problems, are linked to it. The geological behaviour of the Indian mountains is always subject to many uncertainties. The Himalayan mountain range is quite young and practically the formation of the rock is not that good. Also, the pattern of the geology also keeps on changing after every 100-200 metres, which makes it difficult to predict.

The second reason is the shifting of DPRs (Detailed Project Reports) from the public sector units to private units. The private sector made its entry into the hydro generation sector in a big way during the 11th Plan. They took away some of the projects for which the preliminary investigations were already done by the CPSUs and the states. This shifting of the DPRs from one hand to another further delays the project by around 2-3 years.

Though, the shift from the government to the private sector is a welcome step, but this transition period has also affected the development of the hydro sector. This may get reflected during the 12th Plan, where the hydro capacity addition may be comparatively low as the shifting has resulted in very few projects being ready for implementation in the 12th Plan. Initially the government tried to halt the handing over of the projects to the private developers, but the jurisdiction on this area is with the State governments. Other factors affecting the country's hydro sector are land acquisition problems, environmental and forest clearance issues, law and order problems, resettlement and rehabilitation issues.

What steps have been initiated to overcome them?

The geological reasons also cause contractual issues sometimes. To tackle such problems, a Standard Bidding Document has been framed, which factors in all such eventualities and uncertainties. It lists out whose responsibility it would be in case of slippages and who will find the solution and bear the cost. The document has been finalised and sent to the Ministry of Power for adoption.

"It is true that instead of 14 days, many plants have seven days of stock. But the coal ministry monitors the stock situation on a day-to-day basis. As a result, no power station has closed down so far because of the non-availability of coal."

There are various initiatives taken at the policy level to develop the country's hydro potential. Some of these are: Policy on Hydro Power Development, 1998; National Water Policy; The Electricity Act, 2003; National Rehabilitation (R&R) Policy; Hydro Power Policy, 2008; Creation of Power Corporations; Ranking study by CEA and 50,000 MW hydroelectric Initiative.

What are the reasons behind the low PLF of power plants?
Low PLF is forced by the circumstances. For the year 2010-11, against a requirement of 434 Million Tonnes (MT) of coal for the plants designed on indigenous coal, the availability is estimated at 388 MT, leaving a shortfall of 46 MT. Accordingly, the power utilities were advised to import 35 MT of coal to bridge the gap. The imported coal is being blended with indigenous coal at power plants, which are designed on indigenous coal. In view of blending limitations of imported coal due to boiler design, it is not technically feasible to blend more than 10-15 percent of imported coal. Therefore the coal shortage is one big reason for low PLFs.
What is your take on the acquisition of coal assets abroad?
The acquisition of overseas assets should not be taken as a negative development. Those companies, which have long term plans, are acquiring coal mines overseas, to fit in their fuel sourcing business strategy. They may use these assets for power generation or even otherwise. It will definitely help in the country's energy security in the long run.
Why do we have so many plants running on coal stocks of not more than a day when CEA mandates minimum 14 days of coal stocks for all power plants?

It is a serious issue, but it always keeps on fluctuating as there are many interdependent factors. For instance, the coal-based power plants have their own varying requirement. Indian railways have their own set capacity and are pre-occupied with other consignments in February and March months. The coal transportation, consequently, gets affected to some extent in these months. It is true that instead of 14 days, many plants have seven days of stock. But the coal ministry monitors the stock situation on a day-to-day basis. As a result, no power station has closed down so far because of the non-availability of coal.

"The introduction of competitive system in a scenario of overall power shortages in the country has to be at a regulated pace. It should ensure reliability and affordability of power. Steps have to be taken to ensure a healthy competition and monopolistic practices have to be curbed with suitable interventions."

Indeed, many a times, the coal stock is as low as of 2-4 days, but the government has been able to supplement it and pull it off. The critical line is below seven days of stock and presently, 29 power plants are in that mode. However, the overall stock position is not so bad with the average being 11-12 days of stock.

What are the associated risks with the introduction of the competitive system in the Indian power sector and how do you think India can overcome them?
Everybody wants to have a safe sailing. However, the introduction of competitive system in a scenario of overall power shortages in the country has to be at a regulated pace. It should ensure reliability and affordability of power. Steps have to be taken to ensure a healthy competition and monopolistic practices have to be curbed with suitable interventions. With the CERCs and SERCs already in place for the required checks and balances, the evolution of competitive market is expected to be on the right track.
Do you think that NTPC's signing MOUs of more than 75,000 MW before the deadline of Jan 5, 2011 has marred the enthusiasm of private players for the new system? Will NTPC be able to face the competition?

This 75,000 MW is a much distorted picture. The distribution companies were supposed to procure power through competitive bidding after January 5, 2011. Now, NTPC has some old power stations, where investments have been quite low and all the investments have also been paid back already. This results in tariff being comparatively much cheaper and thus, on the lower side of the price graph.

The agreements signed is for two things - one, for already existing PPAs, which goes into the benefit of the State, as it is cheap and regulated power. The rest are those stations, which were under construction or given to NTPC for construction. However, the cost would be higher for any new project set up by the NTPC.

It is a two-part game. The CPSUs provide confidence to the State authorities in two ways. First, the tariff is regulated, reasonable and with no hidden costs - it is open and transparent. Second, once they sign an agreement with NTPC, the distribution companies are confident that the agreement would be honoured. Unfortunately, this confidence is lacking with the private developers. There have been two cases where the private developers have backed out. This uncertainty is never there with the CPSUs, which adds a lot of value while signing the agreement. So, it is in the distribution companies' interests in signing the agreement. It is not that NTPC is forcing them to sign it.

Why do you think that discoms are aggressive in signing MoUs with central generating utility (NTPC) when they can discover better price through competitive bidding?

All said and done, NTPC gives a quality product. Quality product means the specifications for the equipments are comparatively better. They are costlier equipment and other systems are also properly designed with enough contingencies or the redundancies, whereas the private players sometimes tend to cut the cost to bid the lowest. Thus, these two cannot be put on the same scale though we have brought out the regulations to ensure that the equipment constructed for a power plant in the country should have some minimal standards. That is applicable not only to the main equipment, but also to the auxiliaries.

"A committee, set up under Member (Industry) of Planning Commission, has submitted a report which includes recommendation for imposition of 14 percent custom duty on import of equipment for mega power projects. However, the duty exemptions granted earlier to mega projects were with a view to reduce the cost of power."

However, NTPC goes even a step further which results in high costs for it. It's the survival of the fittest out there. Whenever any sector is opened up for the private players, the government organisations also start performing better and it is not that they are not competitive. For instance, Steel Authority of India is doing a great job. Moreover, public companies have many advantages in terms of a good working culture, training and deployment of manpower and other practices are also well established. As for private players, except Tata, all of them will have to learn the tricks as they are all new to the field. Also, they are mostly dependent on the people drawn from NTPC or other public sector organisations.

What could be the possible impact on the domestic manufacturers of the international bidding process and how is the increasing presence of Chinese players affecting them?

There would be no issue because the technical standards have been brought in, which ensure quality products. So, those specifications are there and those are in line with the international standards. Our intention is to see that the country gets a quality product, which should optimise the coal consumption and emits lesser pollution. Anybody who is setting up an equipment manufacturing unit in the country has got so many advantages. Any company which is supplying the equipment through ICB, including foreign suppliers, have to ultimately mix it up with the Indian domestic suppliers. Nobody is supplying 100 percent imported equipment. Some part is imported while some is picked from the Indian market to become competitive.

While the equipment for some projects of state generating companies have been supplied by the Chinese suppliers through International competitive bidding, most of the orders for main plant equipment on Chinese manufacturers have been from the private sector. The procurement methodology adopted by the private sector utilities is, however, not fully known.

A report by FICCI says that there is a 13-15 percent disadvantage to domestic manufacturers but levying import duty on the imports might increase the cost of the power produced. What is the way out of the stalemate?

The domestic manufacturers have brought out the disadvantages being faced by them due to the additional tax liability, higher cost of capital and support provided by some host countries to their manufacturers. A committee was set up under Member (Industry), Planning Commission to look into the grievances. The committee has submitted its report, which includes recommendation for imposition of 14 percent custom duty on import of equipment for mega power projects. However, the duty exemptions granted earlier to mega projects were with a view to reduce the cost of power. The imposition of import duty from the earlier state of zero duty may lead to raising the cost of power due to higher cost of equipment.

"CEA has prepared a National Enhanced Efficiency Renovation and Modernisation Programme for implementation during the 11th and 12th Plans. This covers R&M of 18,965 MW capacity Life Extension (LE) of 7,318 MW during 11th Plan and R & M of 4,971 MW and LE of 16,532 MW during 12th Plan."

It is expected that with more number of international power manufacturers setting up manufacturing facilities in the country more competition would be inducted. This coupled with other advantages of domestic suppliers like life time service and support, customisation and problem solving is likely to induce the Indian utilities to procure generating equipment from domestic suppliers.

How does CEA plan to tackle operational inefficiencies of the already existing thermal plants as they are mostly based on Russian and Czech technologies? What are the latest R&M initiatives introduced so far in the present context?

In order to improve the efficiencies of the existing power plants, 85 thermal units have been mapped under Indo-German Energy programme (IGEN) using sophisticated software to identify problem areas. The studies have recommended measures to improve energy efficiency of the power plant. The guidelines to carry out energy audit studies of coal based thermal power stations have also been published.

The second plan is to retire old and small size generating units. About 4,750 MW capacity of small size units of 100 MW or less capacity are in operation in the country. The average Plant Load Factor of most of these units is very low, even less than 50 percent. These units are of non-reheat type having very low design efficiencies. Such units are planned to be retired in a phased manner over a period of next ten years. During the 11th Plan (up to Jan, 2011), 47 units amounting to 2,098 MW have already been retired.

The third plan is to renovate and modernise (R&M) old thermal power stations. CEA has prepared a National Enhanced Efficiency Renovation and Modernisation Programme for implementation during the 11th and 12th Plans. This covers R&M of 18,965 MW capacity Life Extension (LE) of 7,318 MW during 11th Plan and R & M of 4,971 MW and LE of 16,532 MW during 12th Plan. Renovation and Modernisation (R&M) and Life Extension (LE) of existing old power stations provide an opportunity to get additional generation at low cost in short gestation period. Besides generation improvement, it results in improvement of efficiency, environmental emissions and improvement in availability, safety and reliability.

Under National Mission for Enhanced Energy Efficiency, Perform, Achieve and Trade (PAT) scheme has been envisaged, which would promote improvement in the energy efficiency of thermal power plants. The modalities of the PAT scheme are being worked out by the Bureau of Energy Efficiency.

(InfralineEnergy thanks Gurdial Singh, Chairperson, Central Electricity Authority (CEA) for sharing his valuable insights with our readers. The column 'In Conversation', is a platform to engage experts from various sectors to share their views on the different transformations in the Indian energy sector)