Update on dams, options & related issues sandrp issue four june 2002

Many questions as BSES chief becomes Union Power Secretary

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Many questions as BSES chief becomes Union Power Secretary “The issue is not one of bringing a public or private sector man at the helm. It is a question of having a power secretary coming from a group which has serious power ambitions and which could create conflict of interests. Everybody knows that BSES is part of Reliance Group”, says an economist. Today, BSES is a fully integrated power juggernaut involved in the generation, transmission and distribution of electricity. What’s more, it is at the forefront of any bid, which spells power. (BUSINESS STANDARD 130402)
Tenth Plan Targets According to a piece penned by Union Power Minister Suresh Prabhu, 46 939 MW capacity is to be added during the Tenth Five year plan (2002-07) and 61 000 MW in the eleventh plan. In the tenth plan, 28 000 MW would be in thermal sector (12 000 MW of this in central sector, out of which NTPC share to be 9 000 MW), 1330 MW from Nuclear plants and the rest from hydropower. In Prabhu’s scheme of things, unfortunately, energy conservation efforts, demand side management and setting up a National grid figure much lower than huge capacity addition programs. Contrary to Power Minister’s earlier statements that T&D sector should get at least same (it should be higher if we consider the backlog of investment requirement in T&D sector even for existing generation capacity) fund allocation as generation sector, the envisaged allocation for T&D is much lower. The tenth plan working group has estimated that the overall fund requirement for power sector would be Rs 5.66 T, out of which Rs 3.5 T would be for capacity addition, Rs 1.5 T for T&D, Rs 0.43 T for rural electrification and Rs 0.12 T for renovation and modernisation.

  • Power Secretary R V Shahi says, “In fact, in the last 3 years, the MoP has acknowledged that reforms on the distribution side would have been more fruitful than laying over emphasis on the generation side”. But where is the reflection of this admission in financial allocation?

  • Huge short falls in Ninth Plan targets While 16422.6 MW (53.77% of target of 30 538 MW) capacity addition was achieved in eighth plan, 20 525 MW (51% of target of 40 245.2 MW) was achieved in just concluded ninth plan. While state sector has achieved 84% of the target and added 9064 MW, central sector has achieved 40% of target and private sector 29%. MoP claims that the better performance in the state sector was largely on account of the accelerated generation and supply programme, under which 5144 MW (out of total of 5219 MW in all sectors, the remaining 75 MW being in the central sector) was added in the state sector during the ninth plan. (INDIAN EXPRESS 110402, THE ECONOMIC TIMES 230402, 280402, BUSINESS LINE 290402)

Draft Power Tariff policy The tariff policy drafted by the MoP and to be finalised in a month, says mobilisation of resources for fresh investments should be a factor guiding the tariff setting process. The draft policy has noted that regulators need to determine operational norms and permissible costs while setting tariffs and these should be uniform for the same category of projects. Central utilities like NTPC could derive mileage from the clause because the main argument against the CERC ABT tariff was that their capacity addition programme would be affected if the CERC order were implemented. NTPC has also been objecting to differential treatment to its plants under the ABT order. Other stipulations in the draft policy will help CERC in encouraging efficiency. The draft says the principles of the common minimum tariff to cover 50 % of the cost of supply in three years need to be implemented at the earliest. Tariff based bidding should be the route for the development of new power projects in the private sector. A higher rate of return in the initial transition period for private distribution companies to encourage tackling of distribution losses is justified. Where tariffs are not determined through a competitive process, these will have to be determined by regulatory commissions as provided for in the ERC act 1998. (BUSINESS STANDARD-D 160402)
Fixing power tariff is policy matter The Supreme Court has ruled, “Fixing electricity tariff (by the regulatory commission) and providing for cross subsidy is essentially a matter of policy and normally a court would refrain from interfering with a policy decision unless the power exercised is arbitrary or ex facie bad in law.” The Bench upheld the decision of the AP ERC in fixing electricity tariff for the year 2000-01. (THE HINDU 130302)
Captive Generation to be Taxed in AP Andhra Pradesh CM hinted at a move to levy duty and wheeling charges on captive generation plants in AP (1800 MW) as a move to lure them back to grid. As a direct result, five of the six ferro alloy units in the state are facing closure as they find the new duty unbearable. The policy goes against the MoP’s Captive Power Policy circulated in July 2001.

  • At least six states (Delhi, Karnataka, Punjab, Tamil Nadu, Kerala and Bihar) have responded favorably to centre’s proposal to liberalise captive power capacities. Captive power installed capacity has been rising at 8% per annum over the last two years. MP and Maharashtra are most reluctant to liberalise captive power plants. (BUSINESS LINE 260302, THE HINDU 020402, INDIAN EXPRESS & BUSINESS STANDARD 110402)

BOT projects in power generation in Kerala The KSEB has approved in principle BOT policy mainly for small hydel projects and captive power plants under power purchase agreement. (PTI 300302)
CCEA clears one time settlement of power dues The Cabinet Committee on Economic Affairs has cleared the MoP’s proposal on one time settlement scheme of the Rs 435 B outstanding of SEBs to Central PSUs as per the recommendations of the Ahluwalia committee. It also agreed to extend the cut-off date for tabulation of dues to Sept 30, 2001 and waive 60% of interest amount of Rs 157.46 B. The scheme, which envisages the issue of tax-free bonds through RBI at an interest rate of 8.5 %, will mean that SEBs will have to function on commercial lines. So far ten states have come forward for implementing the scheme. Where fresh defaults in payment exceed 90 days from the date of billing, the Centre would recover those dues by adjusting them against transfers due to the states from the Centre. (BUSINESS STANDARD-D 250302, 220402 THE HINDUSTAN TIMES-D & ECONOMIC TIMES 250302)
Inadequate grid causes power crisis in Delhi The Power Grid Corporation in its recent report has said that the city was having more than 1 000 MW of additional power available, but the DVB’s existing capacity was unable to take it. At times the DVB resorts to power cuts even when it has enough power, because of the poor infrastructure. On April 25, on the one hand, DVB had to ask its Badarpur TPS to reduce production from 650 MW to 507 MW (and similarly for other power plants) as Board was unable to distribute the available power and frequency had shot upto 51.07. (THE HINDU-D 01/04/02, RASHTRIYA SAHARA 260402)
DVC dues The DVC’s dues amounted to Rs 38.36 B, with the Jharkhand SEB being the biggest defaulter with unpaid bills of Rs 12.54 B. The total amount receivable from the PSUs was Rs 1.75 B. CESC with an outstanding of Rs 790 M was the largest defaulter in the private sector. Now the DVC is hopeful of getting Rs 30.83 B of its dues recovered through the securitisation scheme of the SEBs.

  • DVC plans Damodar Valley Corporation is planning to convert its power stations in to separate profit centres and bring power generation and distribution under two strategic business units. It has undertaken an ambitious plan to add 6210 MW thermal capacity at an investment of Rs 260 B during the 10th plan. The ten outdated generating units out of a total of 17 will be renovated and mordenised at an estimated cost of Rs 13.64 B adding 1092 MW to the DVC’s present generation of 1100-1200 MW. (THE HINDU-D 190402 BUSINESS LINE-D 110402)

Delhi Cabinet rejects bids for DVB discoms The Delhi Cabinet rejected the bids submitted for the DVB’s distribution companies by Tata Power and BSES. The govt. has said that the bids cannot be accepted in its present form as the targets for T&D loss reduction are too low and bids have riders and conditionalities, which should not have been there. The govt. has authorised the core committee of officers to “explore all other options”. The Chief Minister accused the companies of forming a cartel in the bidding process. Delhi Power Minister slammed the “black mailing tactics” of the two bidding companies. One of the conditions imposed by the bidders was they should get guaranteed 16 % return for the next 30 years. Delhiites are likely to pay 8-10% higher power tariffs once DVB is privatised.

  • A petition has been filed by an IAS officer in Delhi High Court challenging the DVB privatisation move.

  • At a latter date, the privatisation move was through after some fresh negotiations. How this could be possible after the serious charges leveled as mentioned above is a mystery. (THE TIMES OF INDIA 110302 INDIAN EXPRESS 060402 THE HINDU & THE ECONOMIC TIMES 120402)

No tax on inter-state sale of power The Supreme Court has held that power produced in one state and distributed to other states could not be taxed by the state where it was generated. (BUSINESS STANDARD-D 240402)
MoP sets up IT thrust group The MoP has created an IT technology group to look at the possibilities of using IT in boosting efficiency in the power sector. The potential of IT in the power sector is estimated at $ 40 B over the next ten years. (BUSINESS STANDARD 220402)
Loss due to low quality of coal According to a report by CAG, due to supply of poor quality of coal, Orissa Power Generation Corp has suffered loss of Rs 478.2 M. The quality test has not been done by the OPGC before using of coal. (RASHTRIYA SAHARA 210402)
Court orders CAG investigation in equipment purchase The Delhi High Court has ordered CAG to investigate the purchase of equipment for the controversial Timarpur Power Plant, which was to produce electricity from the municipal waste. The equipment has been purchased from Denmark based company at the cost of Rs 200 M in 1987. Till date the electricity generation could not been started, while Rs 20 M has been spent in the name of maintenance. India lost a case against the Danish company in the World Court. (RASHTRIYA SAHARA 260402)
Exporters to get Power Subsidy The new Exim policy allows exporters to set up captive power plants and in the process claim rebate on fuel costs so that energy input cost of exported items is comparable to international levels. (BUSINESS STANDARD 010402)
N Power too expensive Electricity Boards are finding the power from the nuclear power stations too expensive and are not keen on purchasing power from NPC. CMD of NPC agreed there was a problem. (THE HINDU 040402)
UP Power Crisis The power blackout faced by UP in the first week of April is not due to non-availability of power, but due to financial sickness of SEB. (THE HINDU 040402)
Orissa to supply 250 MW to Karnataka Gridco is to enter into agreement with KPTCL for supply of 250 MW of power at the rate of Rs. 2.35 at Jaipur (Orissa) busbar. The existing power transmission facility has capacity to wheel only about 150 MW from eastern grid to southern grid. (BUSINESS LINE 160402)

  • Orissa stops power supply to AP Orissa had been supplying 150 MW of power to AP since seven years. It has now been stopped as the agreement has been terminated. NTPC has reduced power supply to Orissa due to mounting dues. (RASHTRIYA SAHARA 170402)

Orissa Reforms fails? Power sector reform that began under the World Bank loan six years ago with much publicity has not helped greater recovery of bills. Billing remains at 54% and collection 77% of the amount billed.

  • BSES units in mess The financial institutes including UTI, GIC, LIC and IDBI, which together hold 36% equity in BSES, are worried that the three BSES distribution units in Orissa are in mess and are not preparing balance sheets. An IDFC study in Dec. 2001 says that the blame squarely lies with BSES as due diligence was not done. (THE ECONOMIC TIMES 200402, THE HINDUSTAN TIMES 290402)

No reduction in losses in Rajasthan Since the RSEB was unbundled in July 2000, the companies have not been able to reduce their losses significantly, despite the steep hike in power tariff in April 2001. (THE ECONOMIC TIMES 190402)


Stalled IPPs Of the 40 IPPs that were expected to come up, 31 projects with a cumulative capacity of 18 715 MW are stuck with no likelihood of achieving financial closure according to Crisis Management Group of MoP. The rest of 9 projects (6 of them from AP) with capacity of 4 287 MW have reasonable chance of achieving financial closure over the next year. (BUSINESS STANDARD 150302)
Union Budget impacts The allocation under APDP in the Union budget proposed for 2002-03 has been increased from Rs 15 B in 2001-02 to Rs 35 B and the scheme has been renamed as Accelerated Power Development and Reform Programme. The following day, the shares of electrical equipment manufacturing companies like Crompton Greaves, Siemens, BHEL and ABB surged ahead in Mumbai Stock Exchange. Two Mumbai based power utilities BSES and Tata Power are expected to gain significantly from the Budget 2002. “We will definitely benefit from this,” said R V Shahi, CMD of BSES. (Shahi, incidentally, became Union Power Secretary a few days later. Reliance Industries hold 37% (reached that level just a week before Shahi took over as Power Secretary) stake in BSES and maintains that BSES spearheads all its interest in power sector.)

  • APDP disbursement only 28% Disbursement under APDP, touted as major reform initiated under power ministry, for 2001-02 has been just Rs 4.25 B from the provision of Rs 15 B in the budget estimates. (THE ECONOMIC TIMES 020302, BUSINESS STANDARD 020302, 060302, 180402)

FIs target Spectrum IPP Financial Institutions led by IDBI are moving in to change the management of Spectrum Power Generation in AP, India’s first fast track IPP to go on stream, as empowered by a Supreme Court judgement. (THE ECONOMIC TIMES 220302)
ADB loans for Gujarat The MoP said that the govt. has received two loans from the ADB for its power sector reforms programme in Gujarat. The policy programme loan for reforms and restructuring in the power sector totalling $ 150 M will be released by this year-end, while the project loan totalling $ 200 M will be come by mid-2005. (DAILY EXCELSIOR 250402)
ADB loan for Kerala The ADB is to provide a loan of $ 500 M in two installments. The first installment of the 300 M for fiscal reforms would be disbursed this year. The disbursement of $ 200 M for power sector reforms was slated for the next year. (THE HINDU 300402)
Power projects in MP The MPSEB will spend about Rs 31 B on strengthening the T&D system during the 10th five-year plan. The board will get financial assistance from ADB and the NABARD. The PFC has sanctioned Rs 14 B loan for the 500 MW 5th unit of the proposed Sanjay Gandhi Thermal Power House in Sahdol district. The total cost of the unit has been estimated at Rs 20 B. The ADB is likely to provide Rs 920 M aid to the MPSEB during 2002-05. (BUSINESS LINE 060302 BUSINESS STANDARD 220302)
Projects in North East Union Power Minister has launched APDP in Mizoram and Nagaland. He said that three circles viz., Guwahati, Jorhat and Dibrugarh have been brought under the APDP. He laid the foundation stone of the Rs 17.9 B gas-based power project at Monarchak in West Tripura District. (ASSAM TRIBUNE 030302, 040302 & SENTINEL 030302)

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