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1 Presentation on Indian Power Sector Government of India April, 2006.

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1 1 Presentation on Indian Power Sector Government of India April, 2006

2 2 Power Infrastructure in India (Mar., 2006) Generating Capacity Hydro 32,335 MW (26%) Thermal 82,507 MW (66%) Coal68,643 MW Gas12,663 MW Nuclear 3,310 MW (3%) Renewables 6,158 MW (5%) TOTAL 1,24,310 MW (70,982 MW) (39,908 MW)(13,420 MW) In addition captive generation capacity of appx. 41,000 MW.

3 3 Census Results1990-912000-012004-05 PLF (%) Energy Shortage (%) Peaking Shortage (%)16.712.311.7 Households Access to Electricity (%) 42.056.0- Rural Households Coverage (%) 31.043.8*- Growth of Power Sector To Electrify these Rural Households ( 7.8 crore) in next five years, Rajiv Gandhi Gramin Vidyutikaran yojana has been launched.

4 4 Growth of Installed Generating Capacity (MW) 1362 2695 4653 9027 16604 28448 42585 79470 104851 107973 124310 63290 118420

5 5 Per Capita Consumption of Electricity in India (kWh/year) In 1950 Electricity consumption per capita was 15 kwh In 2012 it is projected at 1000 kwh. 606 Brazil:2070 China:1200 Thailand:2000 Malaysia:3000

6 6  The Act creates a liberal and transparent framework for Power Development.  It facilitates investment by creating competitive environment and reforming distribution segment of power industry.  Entry Barriers removed/reduced Delicensed generation. freedom to captive generation including group captive. recognizing trading as an independent activity. open access in transmission already in place. Electricity Act 2003  Open access to consumers above 1 MW within five years commencing from 27th Jan 2004 (date of enforcement of amendment to Electricity Act).  Multiple licenses in distribution.  Regulatory Commissions- to develop market to fix tariff.

7 7 Implementation of the Electricity Act Most of the Rules (required to be framed by Central Govt.) notified. National Electricity Policy announced. Electricity Appellate Tribunal : Operational. Guidelines for determining tariff through competitive bidding notified. Regional Power Committees for all the 5 regions established. Tariff policy notified. CERC has notified open access in transmission. Several SERCs have initiated action on open access in Distribution.

8 8  Total Village Electrification by 2010. By year 2012 :  Per capita availability 1000 units.  Installed capacity over 200,000 MW.  Spinning reserves 5%.  Minimum lifeline consumption of one unit per household per day.  Inter-regional transmission capacity 37,000 MW.  Energy efficiency/ conservation savings about 15%.  Quality and reliable power supply. National Electricity Policy

9 9 Tariff Policy  Tariff of all Generation and Transmission Projects in Private Sector through Competitive route- Public sector to complete transition in five years.  Reduction of cross subsidy to (+)(-) 20% in next five years.  Emphasis on facilitating Open Access in Distribution; clear formulation on cross subsidy surcharge.  Transmission Tariff framework sensitive to distance and direction.  Strict Implementation of Performance Standards.  Agriculture Tariff to leverage sustainable use of Ground Water Resources.  Time bound introduction of MYT.

10 10  Peak demand by end of XI and XII plan is projected as 1,57,107 and 2,12,759 MW respectively.  Full Development of Hydro potential. All Hydro is Renewable irrespective of size. 50,000 MW Hydro Initiative launched. 73 projects with capacity of 33,000 MW taken up for DPR preparation. Meeting the Demand Contd..

11 11  Thermal power generation capacity is required to be enhanced to meet the growing demand. 100,000 MW Thermal Initiative launched. Under the Initiative, shelf of Feasibility Reports (FRs) for setting up thermal power projects is to be prepared at feasible sites with all clearances in place. Projects totaling 60,000 MW have been identified. Meeting the Demand

12 12  India emerging as one of the largest potential source of CRs.  Designated National Authority fully functional.  Focus areas in Energy sector : R&M of old plants. Conversion of LT to HT lines. Supercritical Thermal Power Projects. Hydro Projects. CDM Projects 12

13 13  Intra – Regional expansion of transmission capacity is linked to generation projects.  Inter- Regional connectivity has been planned with hybrid systems, consisting of HVDC, Ultra- High Voltage AC (765 kV) & Extra High Voltage AC (400 kV) lines.  Present Inter- Regional transfer capacity is 9,500 MW, being enhanced to 17,000 MW by 2007.  37,000 MW by 2012. Augmentation of National Grid

14 14 Capacity Addition Programme During XI Plan (MW) Fuel- MixCentral Sector State Sector Private Sector Total Thermal21,00011,00012,00044,000 Hydro10,0005,000-15,000 Nuclear3,000-- Total34,00016,00012,00062,000  May be revised to 67,000 MW, depending on the availability of Gas/ LNG in required quantities and right prices.  In addition, 5000 MW through Non- Conventional Energy Sources.  Captive capacity not included.

15 15 Investment Requirements During XI Plan  USD 50 Billion for Generation.  Another USD 50 Billion for transmission, distribution and Rural Electrification.  Total USD 100 Billion.

16 16 Improving Investment Climate  At present 40,000 MW generation capacity is already under execution. Investment of USD 43 Billion committed.  Public sector investments have been stepped up ; will need to be supplemented through private investments.  100 % FDI in all segments of Power Sector has been allowed.  Recently Power trading also covered.  The law does not distinguish between domestic and International Investors.

17 17  Encouraging response of investors  Financial closure of 4400 MW projects– investment of about USD 3.6 Billion.  Financial closures for 2200 MW is at advanced stage of finalisation.  Additional about 10,000 MW appraised. Fuel supply availability critical for financial closure. Private Participation- Generation

18 18 Ultra Mega Power Projects – A Major Investment Initiative  Section 63 of the EA, 2003, envisages procurement of power by distribution licensees through competitive bidding.  Tariff so arrived is to be accepted by Regulatory Commission.  National Electricity Policy provides for “ Competition aimed at consumer benefits” – Competition to determine the price as apposed to cost plus exercise.  Electricity Tariff Policy stipulates competitive procurement of future power requirements by Distribution Licensees. Contd..

19 19 Ultra Mega Power Projects contd..  Will facilitate setting up of large sized projects of 4000 MW each reaping economies of scale and quick capacity addition leading to cheaper power.  Utilization of latest highly efficient super critical technology.  IPP experience highlights critical importance for Government intervention to secure reliable fuel supply, obtain environmental clearances co-ordination with states & bulk power purchasers, for achieving financial closure.

20 20 Criteria For Site Selection  Pit head location with domestic coal,  Coastal location with imported coal,  Coastal location with domestic/blended coal,  Through a preliminary scrutiny by CEA of a number of potential sites available in the country, - 5 suitable locations have been identified. Two pithead locations with indigenous coal. Three Coastal locations with imported coal.

21 21 The Shell Company Concept (SPV)  Shell company to work independently to reach a stage where major tie-ups, statutory clearances and linkages are in place.  PFC nominated as the nodal agency for setting up five shell companies.  Each company headed by a Chief Executive.  Selection of developer through a Tariff based ICB.  Shell companies will be then transferred to the successful bidders for execution.  With a number of concerns addressed by Shell company, risk factors minimised.

22 22 Formation of SPVs  Shell companies (SPVs) for each project have been registered.  A core group consisting of officials form PFC, CEA and NTPC is facilitating the operationalisation of the SPVs.  Chief Executives for these SPVs have been put in place.  SPVs have already commenced activities on a time bound action plan in consultation with the state Govts. and other agencies. Contd.

23 23 Formation Of SPVs. Contd…  Initial expenditure on establishment and operationalisation of SPVs being funded by PFC.  Initial expenditure for above activities reimbursable to PFC with interest at the stage of transfer of the ownership of the SPV to the successful bidder.

24 24 Role of Shell Company  SPVs to take actions for  Preparation of project report.  Land acquisition.  Allocation of fuel linkages/coal blocks.  Allocation of water by the state Govt.  Appointment of consultants for EIA & Project Report.  Appointment of consultants for International Competitive Bidding (ICB) document preparation & evaluation. Contd.

25 25 Role of Shell Company contd..  Various approvals and statutory clearances.  Off-take/sale of power – section 63 of EA2003 provision.  Power Evacuation/ (Transmission) System.  Rating of Projects (suggested by FI’s in the meeting on 06.01.06)

26 26 Role of Ministry of Power  To be a facilitator.  Co-ordination with concerned Ministry/ Agencies for ensuring: Coal Block Allotment/ Coal Linkage Environment/ Forest clearances Required support from State Govt. Agencies Financial Institutions towards financial closure. To facilitate PPA and proper payment security mechanism - with State Govt./ State utilities Monitoring the progress of shell companies w.r.t. predetermined timelines.

27 27 Present Status  Proposed names for the SPVs are: 1. Sasan Power Limited (M.P.) 2. Akaltara Power Limited (C.G.) 3. Coastal Gujarat Power Limited (Mundra Port) 4. Coastal Karnataka Power Limited (Karvar) 5. Coastal Maharashtra Power Limited (Ratnagiri)  Additional pit head site in Orissa and costal site in A.P. are being explored. Contd.

28 28 Present Status contd..  Chief Executive of each Company has started functioning.  Inter action with State Govts. by MoP for necessary support.  Ministry of Coal has agreed In-Principle to allot coal Blocks.  EOI advertised for projects at Sasan and Mundra on 31st Jan/ 2nd Feb. 2006.  Pre- Bid Conference held on 21.02.2006.  Federation of Indian Chamber of Commerce and industry (FICCI) selected Industry Partner.

29 29 Payment Security Mechanism  As condition in PPA  Letter of credit (LC) by distribution licensee.  Escrow Account claims of receivables of distribution utility.  Finally in the unlikely event of default direct supply to HT consumers as per provision of the Electricity Act 2003.

30 30 Important Milestones For Selection Process 1EOI by SPV for enlisting qualified bidder Jan’06 (2 sites) / Feb’ 06(3 sites) 2Selection of Qualified bidderMar’06/ Apr’06 3Issue of bid documentApr’06/ May’06 4Closing date of receipt of bidsSept’06/ Oct’06 5Selection of Successful BidderDec’06/ Jan’07 6Transfer of projects of shell company to the successful bidder Dec’06/ Jan’07

31 31  The Act provides: Dedicated transmission line can be set up by generating company or captive plant owner without any license Transmission license for inter – State or intra- State lines for grant of which recommendation of CTU/STU is envisaged. It is not binding on the Regulatory Commission.  Policy frame work developed for facilitating Private Participation through Empowered Committee.  Advance Project formulation to speed up projects through this route.  Guidelines for competitive tariff determination being finalised. Private Participation in Transmission

32 32 Private Participation – Transmission contd..  Perspective Plan for three five year plan periods will be prepared by Central Electricity Authority(CEA).  Short Term Plan corresponding with one five year plan period will be prepared by CEA.  Both these plans form part of the National Electricity Plan.  Network Plan will be prepared by the Central Transmission Utility based upon the National Electricity Plan.  The Network Plan, Short Term Plan and the Perspective Plan will be hosted on the websites of the respective organizations

33 33 Empowered Committee  To be constituted by the Ministry of Power.  Chaired by a Member of the Central Electricity Regulatory Commission.  Two Members from the Central Electricity Authority.  Committee to have representatives from the Ministry of Power, the Planning Commission, the Central Transmission Utility and two experts. Contd.

34 34 Empowered Committee contd.. FUNCTIONS  To identify projects to be developed under this Scheme.  To facilitate preparation of bid documents and invitation of bid through a suitable agency.  To facilitate evaluation of bids.  To facilitate finalization and signing of Transmission Service Agreement (TSA) between the developer and the concerned utilities.

35 35 Identification of Projects and Selection  Identification of projects under this Scheme will be done in such a way that it results in a balanced mix of both difficult and less difficult projects.  The nature of the terrain and issues relating to right of way, land area to be acquired and issues involved in environment and forest clearances would be material factors in relation to difficult or less difficult projects.  The selection of developer for identified projects would be through tariff based bidding for transmission services. Contd.

36 36 Identification of Projects and Selection contd..  Under section 63 of the Electricity Act, 2003 this tariff will be adopted by the Regulatory Commission.  CTU/STUs and Joint Venture Companies will also be eligible to bid, so that there is sufficient competition among the bidders.

37 37 Payment Process  The Transmission Service Provider( TSP ) will enter into a Transmission Service Agreement (TSA) with the concerned utilities.  TSA will address: Risk allocation between parties; Inter - utility allocation of transmission charges; Force majure clauses as per industry standards; Default conditions and cure thereof, and penalties;  Adequate payment security shall be made available to the TSP by the user of transmission services through: Letter of Credit (LC) LC backed by credible escrow mechanism.

38 38  Old licensees working satisfactorily in Kolkata, Mumbai, Ahmedabad and Surat.  Orissa privatised in 1999. Turn around after initial difficulties. AT&C loss reduction of over 4% in 2004-05. 11 to 14% loss reduction in 3 years. AT&C losses still high. Estimated financial gain to Orissa USD 330 million between 1996-2003. No tariff increase since Feb. 2001. Slight reduction in higher slab for domestic consumers in 2005-06.  Delhi privatised in 2002. AT&C loss reduction as per target by all companies. Private Participation- Distribution Contd..

39 39  AT&C loss reduction: 48.1% to 40.6% (Zone-1) 57.2% to 50.7% (Zone-2) 48.1% to 33.8% (Zone-3)  Financial gain to Delhi : Annual cash outgo of USD 260 million down to USD 35 million during 2005-06.  Quality of supply better. Transformer failure rate reduced to 1% from 15%.  Load shedding has gone down from 2.32% of input to 0.85% of input MUs. Private Participation- Distribution

40 40 Payment of Dues by State Utilities to CPSUs  Since 2003-04, the realisation of dues by CPSUs improved to about 100% of current billing. 2001-0276% 2002-0395% 2003-04Almost 100% 2004-05 Almost 100%  Agreement on Securitisation of dues of CPSUs were finalised in 2002-03. States have issued bonds.  No NPA to PFC.

41 41 Commercial Losses of State Utilities as % of Turnover (Without Subsidy) Years

42 42 Years Revenue Gap (Cents/ kWh) Difference between Average Cost of Supply (ACS) and Average Revenue Realised (ARR)

43 43 Years Tariff Rationalisation and Improved Collection Efficiency Average Revenue Realised (ARR) (Cents/ kWh)

44 44  Rural electricity infrastructure to cater to the requirements of : Household needs Agriculture and irrigation pump sets Cold Chain Small and medium industries Social Services – Health, Education  Targeted to electrify - Access to all households in 5 years. Rural Electrification  Decentralized distributed generation for such villages where grid connectivity is either not feasible or not cost effective.  Decentralised management by Franchises, Co-operatives, Panchayats etc.

45 45  Electrify all villages and habitations.  Provide access to electricity to all households.  Give Electricity Connection to Below Poverty Line (BPL) families free of charge. Rajiv Gandhi Gramin Vidyutikaran Yojana (RGGVY) In five years … Contd…

46 46  The scheme covers the entire country.  Provides 90% capital subsidy and 10% loan.  Funds would be released on the basis of sanction of the projects.  USD 3.6 Billion would be required for the entire scheme.  During the 10 th Five Year Plan, USD 1.1 Billion has been provided as Capital Subsidy. RGGVY contd…

47 47 Distributed Generation – Investment Opportunities  Electricity Act 2003 provisions: No requirement of license for generation and even for distribution in notified rural areas. Very large private investment opportunity in unserved and poorly served rural areas.

48 48  Energy Conservation – one of the central issues in the National Agenda to mitigate the problem of shortage.  Potential of reduction of about 23,000 MW of electricity consumption.  Bureau of Energy Efficiency (BEE) has formulated detailed action plans covering Industry, Buildings, Agriculture.  Work started on Standards and Labeling of appliances, developing Building Codes etc. a National awareness Campaign Launched. Energy Conservation

49 49 Captive Coal Mining – Investment Opportunities  27 coal mines allotted for captive development.  Estimated coal reserves for captive coal mining- 3 billion tonnes.  Strategic Joint Venture partnership opportunities for foreign developers.


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