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Private participation in power transmission
November, 30th 2007
Private participation in power transmission has been minimal. The size of investment required, the monopolistic nature of the business and the need for regulation prevent the sector from being like any other.



Mr Tanmoy Mondal is with the Business Advisory Services of Ernst & Young.

Power generation and distribution have always garnered a greater share of news, compared to transmission, says Mr Tanmoy Mondal of Ernst & Young. If the electricity sector has to grow with anefficient pricing mechanism, as conceived in the Electricity Act, 2003, power transmission needs investment to match that for generation and distribution, he adds, during the course of a recent e-mail interaction with Business Line.

A PGDM (IIM-Calcutta) and B.Tech (IIT-Kharagpur), Mr Mondal works with the Business Advisory Services of Ernst & Young. He has advised several clients in the energy sectors in India and abroad on matters related to process reengineering, reform and restructuring, financial modelling, policy and regulations, and private participation.

Excerpts from the interview:

Isnt transmission an area that has predominantly remained with the government?

True, globally, transmission has been the domain of public sector, government companies or boards. Private participation in power transmission has been minimal. The size of investment required, the monopolistic nature of the business and the need for regulation prevent the sector from being like any other. Given the growth targets, however, the private sector needs to participate in transmission projects as well.

Why?

Private participation will not only facilitate funding this unglamorous but critical infrastructure, but also bring in efficiency to project planning and execution of large projects. Recent examples of the ultra mega power projects (UMPPs) and the Western Region Transmission Strengthening Scheme (Packages B and C) indicate that the inefficiencies are huge and significant gains can be made by encouraging private participation.

Do we have the laws in place to facilitate such participation?

Enabling provisions for private participation in transmission were made in 1998 through the Electricity Laws (Amendment) Act, 1998. The concept of Central Transmission Utility (CTU) was put in place to undertake energy transmission through Inter-State Transmission System (ISTS), take up planning and coordination as well as supervision and control of the ISTS.

Power Grid Corporation of India Ltd (PGCIL) was designated as the CTU. The amended Acts also allowed a licensee to construct, maintain and operate any ISTS under the CTUs direction, control and supervision. The Central Electricity Regulatory Commission (CERC) issues the licence, in discussion with the CTU.

To ensure uniformity in the selection of private investors in transmission sector, the Government issued guidelines in January 2000.

What are the routes through which private sector participation can take place?

There are two routes for private sector participation in transmission ventures. One, the independent private transmission company (IPTC) route, with full fund mobilisation by the private entrepreneur; and the other, the joint venture company (JVC) route, with equity participation by CTU or STU (State Transmission Utility) with a private agency.

In both the routes, the selection of private party has to be done by the CTU or STU or both through competitive bidding.

We have seen a few initiatives happening in transmission, havent we?

Yes. Following the issue of guidelines, one pilot project for each of the two routes was identified for implementation. The project selected for the JVC route was the Tala-Delhi transmission link. These lines are associated with the Tala hydel power plant in Bhutan, East-North inter-connector and the northern region transmission system, to add to the existing 400 kV Bongaigaon-Siliguri D/C (direct current) transmission line, and the 200 kV Salakati-Birpara D/C link to transfer electricity from the eastern and north-eastern regions to electricity-deficit northern belt.

The project taken up through the IPTC route, for implementation on build, own, operate and transfer (BOOT) basis, was the 400 kV D/C line from Bina to Dehgam via Nagda for moving power from Sipat power station of NTPC in Madhya Pradesh, Rajasthan and Gujarat.

The former project was successfully implemented through the first transmission joint venture with Tata Power (Powerlinks Transmission Ltd). But the Bina-Nagda-Dehgam transmission line faced problems.

Problems?

Power Grid initiated the bidding process as the CTU for the IPTC project. A consortium of Tenaga Nasional Berhad (TNB) and Kalpataru Power Transmission (KPTL) emerged as the only applicant with the techno-commercial and tariff proposal in the final stage of bidding. Being the sole bidder for the project, the competitive element was missing.

Perhaps, the uncertainties and clumsiness of the IPTC process led to few participants in the race.

Then?

The only way to adjudge the financial bid was to have a benchmark estimate from PGCIL (in terms of sub-section (4) of Section 15 of the Electricity Act, 2003). The bids were inconsistent in project cost estimate and the tariff bids. The entire process fell apart on account of significant differences in the estimates of the consortium and that recommended by PGCIL. So, the CERC rejected the application of the consortium and asked PGCIL to do the project, which it refused and instead asked for revised estimates that were higher.

The CERC, in its order dated July 26, 2005, rejected PGCILs petition for raising the project cost, and noted: it is in the interest of justice and fair play that the petitioner (PGCIL in this case) who is now constructing the transmission lines, is not permitted to back out from the submissions made.

So, have we learnt our lessons?

While the Tala-Delhi transmission line, using the JVC route, was by and large successful, the Bina-Nagda-Dehgam transmission line, using the IPTC route, failed.

Recent attempts to attract private participation through tariff-based competitive bidding for around 14 large transmission projects worth Rs 20,000 crore appear to have addressed the concerns.

The projects, awarded on a build-own-operate (BOO) basis, were managed through special purpose vehicles (SPVs) set by two State-owned finance firms, viz. the Power Finance Corporation Ltd (PFC) and the Rural Electrification Corporation (REC), as the nodal agencies.

The SPVs looked into the contentious issues such as initial and detailed surveys and feasibility reports, obtaining transmission licence, obtaining right of way, site identification and land compensation before giving these projects to the developers.

With the need for approvals obviated, successful bidders could focus on planning and executing the projects efficiently.

The road, or rather the line, ahead, that you see in private participation?

With most of the worries addressed, we finally seem to have achieved the correct formula. If the first two UMPPs were successful experiments, the bidding process in the recent transmission projects was a proof of the concept. It could be a tested approach for the rest of the world for allowing private participation in transmission.

A quick review, however, of the CERC orders on the IPTC project highlights several issues that need to be resolved before such a move works.

Such as?

The dual functions of PGCIL as CTU and as a transmission licensee need to be reviewed, to avoid conflict.

Perhaps, over time, the CTU should be carved out of PGCIL as a separate entity. CTU can continue to be a government-owned company (as provided by the Act), while PGCIL, as a transmission licensee, must be free to reach out to the domestic or international capital markets for cheaper funds and focus on operational efficiency.

D. MURALI

GOUTAM GHOSH

 
 
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