The power sector was underdeveloped at the clip of India ‘s independency. The development policy station independency was based on Soviet theoretical account of planned development. The ownership was based on construction of authorities control for the power sector based on Soviet theoretical accounts. The Electricity Act ( 1948 ) was promulgated to direct the development of the electric power industry and provisioned the creative activity of the Central Electricity Authority ( CEA ) to supervise development. The province control over the industry continued view committedness to socialism and the consequence of politician-bureaucrat-industrialist-rich husbandman link.

The first marks of alteration in the policy government with respect to the power sector emerged in the early 1980s, under the Indira Gandhi. It was realized that the engagement of private sector was ineluctable to rid of a serious power crisis that will adversely impact the economic system. The procedure of liberalization gained farther impulse in the mid 1980s. The gap to foreign power manufacturers ( called Independent Power Producers -IPP- ) to put up power workss in the state was a major measure. The two companies who were the innovators are Cogentrix and Enron Corporation. Enron had to retreat due to unjust patterns to hale the so province authorities of Maharashtra. The contention that led to Enron ‘s issue from India did retard India ‘s advancement in pulling foreign investing to its power sector. The after consequence still exists despite the extended liberalization of the power sector the most recent Electricity Act.

India is billowing in front with a sustained economic growing rate of 6-7 % . The current power sector shortage of 11 % of extremum and 7 % of energy, will be one of the cardinal factor to prolong this growing rate in future. The Indian authorities has been cognizant of the demand to transform the power sector and many reform school stairss have been taken in the yesteryear. The attempts of the authorities in the 1890ss liberalise the sector and associated reforms have resulted in the Electricity Act 2003.

This impulse on power sector reforms has been the focal point country for the Governments of both left and right. India has set itself an ambitious mark of more than duplicating per-capita electricity ingestion by FY 2011 and the Ministry of Power undertakings an investing demand of 9,000 bn Indian Rupees ( INR ) , or US $ 200 billion to do it possible1. ( 1. Planing Commission ( Xth Plan ) and Ministry of Power. ) The investing program aims to spread out the power substructure base for economic growing while doing electricity accessible to all.

The alteration of the state-led bureaucratic Indian power sector into a competitory market attractive to private investors is an Herculean undertaking. However, with the economic liberalization of the 1890ss along with the force per unit areas from the state ‘s economic growing has aided in this transmutation. forced open the sector. The reforms have affected the industry ‘s regulative construction, ownership, investing, and direction patterns. The Electricity Act 2003 is maneuvering the alteration with the advancement on structural and regulative reforms. The sector will now depend critically on two things:

( 1 ) How India overcomes the staying elements of restructuring that seek to break up the last few traces of political influence.

( 2 ) How India trades with the emerging challenges of fuel deficits that threaten to derail power capacity enlargement programs. — — — — —

Power transmittal

Transmission is defined as the transportation of power 132kV and supra over long distances. The state has been divided into five parts:

Northern

North Eastern

Southern

Eastern

Western

The transmittal system within each part is called regional grid. The transmittal has increased from 3708 ckm to 265000 ckm

The Government of India is strictly prosecuting a program of A ‘POWER FOR ALL BY 2012 ‘ . The outstanding characteristic of this program is to increase installed coevals capacity from the present degree of 1, 14,000 MW to 2, 00,000 MW by 2012. To accomplish this program it is imperative that the sweetening of regional transmittal web and inter regional capacity to convey power to distant locations be undertaken.

Traditional planning for transmittal. The transmittal system planning in the state, in the yesteryear, has been linked to coevals undertakings as portion of the emptying system. The chief focal point was the capacity of the power system to safely undertake a eventuality without coevals rescheduling or load-shedding. However, due to assorted factors such as country development of burden in the web and short falls in coevals units originally, many sectors of the power system could non run even under normal conditions. This had led to a relook on the transmittal planning and the traditional coevals emptying system be aftering to incorporate system planning.

The prevalent engineering for electricity transmittal and distribution has been Alternating Current ( AC ) engineering, High Voltage Direct Current ( HVDC ) engineering has besides been used for interconnectedness of all regional grids across the state and for bulk transmittal of power over long distances.

Certain commissariats in the Electricity Act 2003 such as unfastened entree to the transmittal and distribution web, acknowledgment of power trading as a distinguishable activity, the broad definition of a confined generating works and proviso for supply in rural countries are expected to present and promote competition in the electricity sector. It is expected that all the above steps on the coevals, transmittal and distribution forepart would ensue in formation of a robust electricity grid in the state

Last mile connectivity. The following critcal factor after transmittal is the distribution from the grid bomber Stationss to the ultimate consumers. The deficiency of focal point on puting in T & A ; D and coupled with pilferage the T & A ; D losingss have reached a humongous feagure of 32.86 % in the twelvemonth 2000-01.These losingss were a premier factor in the losingss to province electricity boards.

The proficient grounds for the losingss in the system are: –

No focal point for old ages on system betterment plants

Adhoc extensions of the distribution lines

Overload on the system elements like transformers and music directors,

The commercial losingss are chiefly due to: –

Low metering efficiency

Larceny

Pilferages

To rid of the above drawback the construct of Aggregate Technical and Commercial ( AT & A ; C ) loss was introduced. AT & A ; C loss factors for both the proficient T & A ; D and pilferage losingss in the web and is a realistic index of entire losingss in the system.

The manner in front to cut down the AT & A ; C losingss following is proposed: –

Bettering metering efficiency

Adequate energy accounting & A ; scrutinizing

Polish of charge & A ; aggregation efficiency.

Instutionalising the answerability of the forces / feeder directors

The Government of India and of the States have implemented the Accelerated Power Development & A ; Reform Programme ( APDRP ) in 2001 with the purpose of cut downing AT & A ; C losingss. The chief aim of the programme is to convey Aggregate Technical & A ; Commercial ( AT & A ; C ) losingss below 15 % in five old ages in urban and in high-density countries. The programme, along with other enterprises of the Government of India and of the States, has led to decrease in the overall AT & A ; C loss from 38.86 % in 2001-02 to 34.54 % in 2005-06. The decrease achieved was far less than the planned 15 % .

The APDRP programme was farther restructured by the Government of India, in order achieve the marks utilizing APDRP Project countries over an IT plateform and that AT & A ; C loss decrease is achieved on a sustained footing. The Restructured APDRP ( R-APDRP ) was launched by MoP, Gol in July 2008 as a cardinal sector strategy for XI program. The strategy promises a bright hereafter for decrease of the AT & A ; C losingss.

Rural Electricity focuses on two types of programmes:

Power for minor irrigation and rural industries.

Electrification of small towns.

The earlier definition of A small town being classed as electrified if electricity is

being used within its gross country for any purpose what. so-ever has been alterations. The accent is on small town electrification is addresses through the Revised Minimum Needs

Programme ( RMN P ) . The new definition envisages

The basic substructure is made available in the inhabited vicinity within the gross boundary

Public topographic points like Schools, Panchayat Office, Health Centres, Dispensaries, Community centres

Should be able to avail power supply on demand

The evaluations of transformer and LT lines to be provided in the small town to be decided based on the awaited figure of connexions decided in audience with the

Panchayat/Zila Parishad/District Administration.

The figure of family electrified should be minimal 10 % for small towns which are unelectrified, before the small town is declared electrified.

Reform CHALLENGES

The Indian power sector has been adversely affected by bureaucratic inefficiency and political intervention for decennaries. Vertically incorporate province public-service corporations ( State Electricity Boards ( SEB ) ) are practically insolvent with commercial losingss estimated at INR 225 bn ( US $ 5 bn ) for FY 2004 alone2. Indian Budget 2005-06. The duty construction is pacifying to influential agricultural sector which in bend is a ballot bank. These benefits to agriculture sector have been effected by increased liabilities on commercial and industrial users. Transmission and distribution losingss are rather high at about 40 % and power larceny is rather rampant.

The Electricity Act 2003 has been an sincere attempt to turn to these issues. The act has introduced structural and regulative reforms. The following are the outstanding facets of Electricity Act 2003: –

( a ) It envisages alteration of function of the province from service supplier to regulator.

( B ) Creation of independent province electricity regulative committees. ( degree Celsius ) Electricity trading has been recognised as a separate line of concern.

( vitamin D ) Regulatory committees have been directed to develop regulations on unfastened entree, rationalise duties, cut down cross subsidies, institute strong anti-theft commissariats and protect consumer involvement.

As per the fundamental law, electricity is a shared duty between the Centre and provinces. While the centre-led Electricity Act laid out the vision for a deregulated power sector, provinces have the charge of implementing the restructuring procedure. The provinces have been given the liberty on the route map for the restructuring procedure. The three most of import government factors for

Planing the restructuring procedure are: –

1 ) Payment hazard from sale of electricity

2 ) Duty rationalization

3 ) Open entree

Present position. All the provinces have initiated some structural and regulative reforms. About 22 of the 29 provinces have established electricity regulative committees empowered to modulate duties and set up public presentation codifications. Delhi and Orissa, the provinces at the most advanced phases of restructuring, pursued two different theoretical accounts and supply the lone existent life experiences.

Payment hazard

One of the biggest concerns for private generators is that they may ne’er acquire paid for the electricity they produce. While investors may be lured into power undertakings with promises of long-run understandings, the ability of SEBs to pay for the purchase of electricity still remains questionable. Most distribution companies are still under province control, either straight through the SEB or their unbundled replacements, and are financially hard-pressed. The reconstituting procedure must find who absorbs the bing liabilities and re-establish the fiscal credibleness of electricity buying entities. Simple unbundling followed by denationalization or corporatisation may non be sufficient.. Commercial losingss at SEB in 2004-05 alone are estimated to be INR 225 bn ( US $ 5 bn ) 5. . ( Indian Budget 2005-06. )

Duty rationalization

The subsidies to agricultural and household consumers along with really high degrees of transmittal and distribution losingss have resulted in the disparity in duties and costs. In order to turn to this issue Electricity Act have envisioned independent regulative committees to apologize duties. Most provinces have followed the guideline and have instituted steps to apportion gross demand in an economically efficient mode by cut downing the extent of cross subsidies. However, this will take to increase in duties for bulk of consumers, peculiarly in the agricultural sector, that have been used to decennaries of subsidized power. The be aftering committee estimated that for SEBs to post a rate of return of 3 % in FY 2001, mean duties would hold to be increased by about 50 % ( or INR 1.17 /kWh ) 6 that twelvemonth. Such additions challenge the cardinal link between politicians and consumers.

The Electricity Act recognised unfastened entree as one of the most of import instruments for transforming the power sector. The Act afforded consumers the ability to straight beginning their electricity from providers utilizing bing webs and recognized trading as a separate line of concern. A figure of cardinal and province degree regulative enterprises have sought to develop and beef up unfastened entree rules7. These regulations could good be the Panacea for much of India ‘s electricity sufferings.

The envisaged benefits of Electricity Act 2003: –

( a ) Generators have an chance to cut down the payment hazard.

( B ) Avoid the jeopardies of commercial losingss from larceny.

( degree Celsius ) Provide industrial users the inducement to seek out more cost-effective supply beginnings.

Despite the obvious advancement on unfastened entree regulations, the benefits of it are yet to be realised. The effectivity of unfastened entree has been stymied by proviso of a ‘surcharge ‘ that is presently levied on open-access clients belonging to any class contributing towards the cross subsidy. Though the Electricity Act may hold given SERCs the authorization to impose a surcharge to back up subsidy funding, its execution has simply helped protect tenure rights and cut down the gait of restructuring. Though India ‘s power sector reforms are non yet free of trouble, the on-going restructuring attempts illustrates that a critical mass of reforms have been achieved. The procedure now appears irreversible. he gait and eventual result of reforms, nevertheless, will be dictated by the willingness of politicians and policymakers to break up the staying political ties with the sector.

The race for fuels

The reforms are turn toing the chief country of concern. However, another country of concern is the fuel shortages. This is another major hindrance to the short-run growing chances in the power sector. The deficit of fuel supply is endangering the operation of some workss and postponement of edifice of several others. In January, NTPC had to get down seeking alternate fuel supply options because the mines back uping its new pit caput workss ( Talcher -II and Rihand-II, entire 2,000 MW ) had yet to have clearance9.

9. “ NTPC coal imports may give consumers a power daze, ” The Economic Times, 27 January 2005.

Of the 4,300 MW planned capacity add-ons off-track in the Xth Plan, about 65 % had slipped for fuel supply reasons1010. National Electricity Plan, 2005. Central Electricity Authority

. The 100,000 MW of capacity add-ons needed through FY 2011 is improbable to happen unless India can happen the fuel supply beginnings and distribution webs to back up the jutting growing.

Coal markets

India ‘s coal demand is expected to turn 7 % yearly over the following decade11.

11. Planing Commission Xth Plan.

Out of the entire coal ingestion 80 % goes for power coevals. The prevailing trust on autochthonal coal supply increases the significance of this growing in coal demand. This has resulted in a growing of coal imports at a one-year rate of 12 % 12.

12. International Energy Association, 2002.

The current coal militias in India are estimated to be 94 billion metric tons and at current production degrees, plenty for the following 230 old ages. ( Reference ) . The current production degrees are merely non plenty to run into the turning demand. The cost benefit analysis of the Imported coal is non every bit good as domestic coal.

Coal reforms

Some reforms have been initiated in the coal industry. The of import stairss in this way are: –

( a ) Between 1996 and 2000, after several decennaries of control, coal monetary values were deregulated.

( B ) Captive excavation by private sector engaged in steel production and power coevals has been allowed.

( degree Celsius ) FDI bounds for confined excavation for power workss have been removed 14. Coal India Limited and its subordinates efficaciously control about 90 % of domestic coal production and distribution.

Without some major reforms or reconstituting that unlocks the restraints in coal supply, India ‘s huge potency for growing in coal capacity add-ons may stay merely that – a great potency.

Gas markets

This has emerged as a cleansing agent and greener fuel for energy supply in India. This being a new field is comparatively free of bureaucratic ruddy tape and the ordinances are being formulated in line with the latest policies. , The Gas demand in India is expected to increase at an one-year mean growing rate of about 8.5 % through FY 2011. The power sector is a major consumer with a portion of about 40 % .

The current state of affairs on supply of gas is tight and the projections, including LNG imports and Reliance Gas from the KG basin, indicate a supply deficit of about 15-20 billion three-dimensional meters ( bcm ) yearly by FY 2011. The important stairss to cut down the short autumn in gas supply are as follows: –

( a ) The New Exploration and Licensing Policy ( NELP ) was launched to pull private capital in geographic expedition activity.

( B ) Downstream gas selling has been liberalized.

( degree Celsius ) Online topographic point trading installation for gas contracts is jointly being developed by Gail Ltd and the National Commodity and Derivatives Exchange Limited.

( vitamin D ) A crude oil and natural gas regulative board has been proposed.

( vitamin E ) A grapevine policy to turn to gas transit and set up ‘contract bearer ‘ norms for entree.

The hereafter challenges in gas supply: –

( a ) Expanding gas supply beginnings and distribution substructure. A national gas grapevine grid is being explored spanning over a 8,000 kilometer web with a entire capcity of about 100 MMSCMD.

( B ) Advancement in taking constrictions in the substructure.

( degree Celsius ) Imports of natural gas commenced in 2004 with commissioning of Petronet ‘s Dahej LNG terminus. The programs for LNG terminuss in grapevine could add over 80 million standard three-dimensional meters per twenty-four hours ( MMSCMD ) of gas capacity.

( vitamin D ) The proposed Gas grapevines from Iran and Myanmar are under consideration.

( vitamin E ) The domestic gas geographic expedition is spread outing at good gait. Of the 164 which have been awarded, 20 have announced some discoveries.

While gas may keep the promise of unlocking growing in the power sector, the result will depend on the willingness of private investors and Government to do the initial investing in supply substructure

me Minister ‘s Office ( Hydrocarbon Vision, 2025 ) and Planing Commission ( Xth

.

Decision

Inspite of the possible offered by the India ‘s power sector, investors have been disbelieving about the regulative model and bureaucratic fusss. With the liberalization and deregulating private investors and FDI have started showing involvement to pick on the chances. The present twenty-four hours challenges to growing are the emerging staying issues of regulative reform and fuel supplies. The fuel deficit and transit substructure are likely to adversely impact the power capacity enlargement programs. These issues will go on to guarantee that the power sector is Achilles ‘ heel for Indian economic system. The attack India takes to manage these issues will regulate our hereafter growing in this sector and in bend the dining economic system of the Country.

5 _ Reprinted from WorldPower 2005

Sandeep Kumar, Anurag Khetan and Bishal Thapa

are with the New Delhi office of ICF Consulting. The

writers wish to admit support of Shanthi

Muthiah ( ICF Washington DC office ) and Harriet

Hoexter ( ICF London office ) .

www.icfconsulting.com

Footnotes

1. Planing Commission ( Xth Plan ) and Ministry of Power.

2. Indian Budget 2005-06.

3. “ Orissa Power Sector Reform: A Brief Overview of the Procedure, ”

Infrastructure Development Finance Company Ltd. ( IDFC Ltd. ) ,

February 2000.

4. Ibid, IDFC Ltd.

5. Indian Budget 2005-06.

6. “ Annual Report on the Workss of State Electricity Boards and

Electricity Departments, ” Planing Commission, May 2002.

7. Open entree ordinances regulations associating to transmission client

category definition and pricing, were approved by CERC in January

2004 and amended in September 2004 and January 2005. CERC

besides approved trading related ordinances in January 2004.

Several provinces, including Rajasthan, Maharastra, Tamil Nadu, Andra

Pradesh, Gujrat, Karnataka, Madhya Pradesh, Orissa and

Uttrananchal have approved or developed bill of exchange unfastened entree regulations

with time-bound execution guidelines.

8. Central Electricity Authority, MoP, GoI.

hypertext transfer protocol: //www.cea.nic.in/data/opt2_daily_coal.htm.

9. “ NTPC coal imports may give consumers a power daze, ” The

Economic Times, 27 January 2005.

10. National Electricity Plan, 2005. Central Electricity Authority.

11. Planing Commission Xth Plan.

12. International Energy Association, 2002.

13. “ Tata Steel lookouts for coal mines in Australia, NZ, ” Business

Standard, 26 January 2005. “ Jindals eyeing coal mine in

Dutch east indies, ” The Economic Times, 28 January 2005.

14. Coal India Limited and its subordinates efficaciously control about

90 % of domestic coal production and distribution.

The Orissa Model

Orissa was the first province to ship on the reform programme after the province Electricity Reform Act became effectual in April 1996. Almost instantly, the Orissa State Electricity Board is partly unbundled into three separate entities: Orissa Hydro Power Corporation ( OHPC – for hydro coevals ) , Orissa Power Generation Corporation OPGC – for thermic coevals ) and Grid Corporation of Orissa ( GRIDCO – for

transmittal and distibution ) . Generation is foremost privatised. In June 1998, AES purchases

49 % interest in OPGC. In the 2nd stage, the distribution assets, belongingss and forces of GRIDCO is broken into four distribution companies. BSES purchases three of them

( NESCO, WESCO and SOUTHCO ) in April 1999 and one ( CESCO ) is transferred to AES Transpower ( joint venture of AES and Jyothi Structures Ltd ) in September 1999.

GRIDCO retains most of the past liabilities of distribution companies in order to reason sale. Its hard currency shortage soars about 40 % between 1998-1999 and 1999-20003, and the company has trouble covering operating disbursals. Private investors bid for distribution companies based on premises contained in the information memoranda.

Assetss of distribution companies may hold been over-valued because of underestimated losingss ( estimated at 35 % , really more than 50 % ; the 100 % aggregation efficiency stimated is really 83 % ) 4. Bidders assumed that future duty accommodations would equilibrate any initial over-valuation. No transitional support to private distribution companies

planned and turn-around expected in 2/3 old ages.

The Delhi Model

The Delhi Electricity Reform Act comes into force in March 2001. Two months subsequently, Delhi Vidyut Board ( DVB, the province ‘s

electricity board ) establishes six shell companies ( keeping company, bring forthing company, transmittal company,

three distribution companies ) to be operationalised on transportation. Distribution is foremost privatised. 51 % of the equity in three

distribution companies are sold to two in private owned Indian power companies, BSES and Tata Power. DVB ceases

to be and is replaced by the keeping company, the coevals company and transmittal company. Delhi authorities retains ownership of the retention, coevals and transmittal company. Keeping company retains all unserviceable liabilities. Asset values of replacement companies are pegged to serviceable liabilities. Existing serviceable DVB liabilities will be paid by replacement bureau after a four twelvemonth grace period. Introduced con cept of aggregative proficient and commercial ( AT & A ; C ) losingss, instead than transmittal and distribution ( T & A ; D ) losingss. Private investors bid for distribution

companies on the footing of a five twelvemonth AT & A ; C marks, declarative multi-year duty profile and jutting Government aid. A five twelvemonth transitional period with some Government support over the period.

Primary fuel resources of the state are Hydro Power, Fossil Fuels-Coal, Lignite, Natural gas and Nuclear Power as per inside informations shown below:

Fuel resource

Capacity/Reserves

Hydro

84044 MW @ 60 % L.F 148700 MW of economically exploitable

Pumped Storage Hydro

94000 MW from 56 Nos. of identified undertakings.

Coal Militias

204.7 Billion Metric tons

Lignite Militias

27.5 Billion Metric tons

Crude Oil

732 Million Metric tons

Natural Gas

660 Billion Cubic Meter

Uranium

6700 Metric tons

Thorium

363000 Metric tons

Installed Generating Capacity ( MW )

Generating

Capacity

( MW )

2002-03

2003-04

2004-05

2005-06

2006-07

Future capacity add-on –

11th 5 twelvemonth program

( 2007-2012 )

Hydro

26767

28925

30818

32326

34654

16553

Thermal

75114

76670

80626

82411

86015

58668

Nuclear

2720

2720

2720

3360

3900

3380

All Classs

104601

108315

114164

118097

124569

78601