Developments in transmission and long-term implications by AM Devendranath AVP & BU Head, Energy Vertical, Feedback Business Consulting Services Pvt Ltd.
The inter-state transmission space in the country had been holding a monopoly for a very long time under the wing of Power Grid Corporation of India Ltd. (PGCIL), which fully exercised its powers as the Central Transmission Utility (CTU) of the country. Till date, PGCIL has achieved remarkable feats in the transmission sector of the country. The biggest of them – the organisation was able to inter-connect the regional grids to bring it under synchronised operation as a single grid. In recent years, it has been able to bring in HVDC technology in a big way into the country. Meanwhile, the company is testing the highest voltage levels in power transmission by testing and building 1200 kV AC transmission links to transmit mammoth amounts of power across the country. It has also been responsible for carrying thee grid over difficult terrain to remote areas under the Indian geography.
But there were some problems also with this association. Let us examine these in detail:
The Problem of PGCIL being a CTU
PGCIL being the CTU and therefore involved in planning, execution of projects, owning assets and managing the transmission network was always seen as a monolith blocking the way for private sector investment in the transmission sector – some of the key issues were:
By virtue of being a planner, all commercial and technical information about the project’s cost sensitivity, pricing information, availability of corridors for construction etc is available to PGCIL far ahead of time, providing them with an additional advantage in making a considered bid vis-a-vis the other players. In addition to enjoying the benefit of more economic cost of capital by getting sovereign backing of the government, PGCIL avails certain custom duty benefits and project import duty benefits that are not available to private players.
Further, the clearance processes are different for private players. For instance, in the case of forest clearances, while private players are re- quired to acquire the compensatory afforestation land and hand over to forest authorities, PGCIL is required to just pay double the forest compensation without acquiring land, making the process shorter and easier for PGCIL.
PGCIL, by being in the planning role could effectively move many projects from Open bidding to “Exemptions” and thereby give it out as a cost-plus model putting the private players on a disadvantage. This is explained below: > Amendment in National tariff policy issued on 8th July 2011, introduced competitive bidding in all Central Sector transmission projects with certain exemptions. Large number of projects were moved to cost plus route under these exemptions.
First two experimental works for 1200 kV HVDC
Works required to be done cater to an urgent situation required under a compressed time schedule
Intrastate transmission projects up to 6th Jan 2013
Recently, the Ministry of Power has proposed further amendment to the tariff policy, widening the scope of exemptions, some of which are listed below.
First two 1200 kV AC substation Up-gradations of existing lines of CTU/STU/ PGCIL
Augmentation of existing/under construction substations of CTU/STU/PGCIL Evacuation from nuclear power plants Projects under compressed time schedule. Projects where no bidders come forward.
> The above exemptions leave practically nothing outside the scope of exemptions which means that it shall be discretion with empowered committee in all cases to recommend or not recommend the competitive routing of projects. This is certainly against the true spirit of competitive bidding and leaves lots of uncertainty on the policy of competitive bidding. Therefore, the private sector industry always
wanted PGCIL to be curtailed of its multiple roles. The solution to the problem to remove the conflict of interest of PGCIL being a planner, recommendatory authority and a competitor, is to separate CTU from PGCIL and also take PGCIL out of the empowered committee to make empowered committee an independent, unbiased and uninfluenced decision making body.
Now it seems that these frequent appeals from industry have hit the right note in the Ministry and efforts are seriously on to curb its role as given in recent media statements.
Now, let us examine the impact of this cub on PGCIL’s business.
> With PGCIL’s role of a CTU being curtailed with a new entity – POSOCO (earlier a subsidiary of PGCIL). Effectively PGCIL will lose the following advantages and will be seen more as another player in transmission projects:
It is not supposed to be part of planning and the empowered committees which overlooks the various projects to be awarded and therefore will lose the advantage of prior hand information for them to bid (at least on paper)
The other advantages of being a PSU such as better access to funds and clearances etc is likely to continue
PGCIL will continue to be favoured for exempted projects and projects of national significance – but players expect this list to be curtailed and not a laundry list like it is currently.
> Overall this move, signifies to private players (both national and international) that the government is very serious to invite private sector participation in transmission and therefore a significant part (as compared to previous years) of Rs 1 lakh crore investment in this year should attract private players.
> PGCIL will face private players’ stiff competition now and will depend on their financial and project management skills to be more competitive in project bidding.
> There are significant transmission projects at the state level, which have not yet gone to private players and this portion is also likely to opened up and private players would be looking at this portion as well.
> We have heard about some international (European utilities) who are very actively planning for a role in India’s transmission business. They will now see this as a posi-
tive signal and will invest in Indian projects. > PGCIL, will now see a lot of bandwidth and the need to look at delivering on others areas in the power value chain – there are obviously some related expansions which they will be actively considering – such as power trading but also they could be looking at discom business in some states as well. PGCIL will now be also looking at taking over many other international projects with border nations and could also look at international markets for EPC business. The other expansions and diversification in areas such as solar etc is not known to us. Recently, PGCIL has been looking at providing consultancy services to states and partnering in joint ventures with states to take up intra-state transmission projects. These developments are completely changing the transmission landscape as we know it.
But, of late, the private sector has been gaining a presence in this segment through the tariff –based competitive bidding mechanism. After 2011, procurement of transmission has been made mandatory on competitive bidding, except for projects of ‘strategic importance/time bound delivery’, which are given to PGCIL on a nomination basis. This has laid inroads into the sector for major private sector players such as L&T, Reliance Power, Sterlite, Essel Infra etc.
These recent changes can have far-reaching circumstances for the industry:
> More number of transmission system developers would allow more projects to be executed in parallel, with independent accountability assigned for each project
> Increased competition would ensure that the cost of such projects are kept reasonably low, while maintaining the quality of infrastructure > Meanwhile, PGCIL could focus on strategically important projects, including international grid ties and continental grid development, and projects sporting compressed timelines > State transcos would gain expertise in planning, executing and maintaining extra and ultra-high voltage transmission corridors from PGCIL’s experience
> PGCIL, on the other hand, could assist the state discoms with the separation of supply and wire business, in effect bringing in competition in the power distribution segment
> The independent existence of POSOCO would allow it to maintain a firm presence as the power system operator in the country and provide better network management services > PGCIL would find more bandwidth to delve into strategic transmission system planning and evaluating futuristic technologies like General Network Access (GNA)
This will also bring along challenges like:
> The Right-of-Way privileges and ease of getting environmental clearances as enjoyed by a PSU like PGCIL might not be available to private sector counterparts
> The removal of the CTU tag would allow it to diversify into power generation and distribution business. If PGCIL exercises this option, in a way, it would take the sector back to the era of vertically integrated utilities
As of now, we can only speculate on the future of the sector under the changing regime. The real consequences of this move will only unfold with the passage of time. While some organisations would take this as an opportunity to dive into the sector, the risk-averse ones are expected to wait and watch.
The author is AVP & BU Head, Energy Vertical, Feedback Business Consulting Services Pvt Ltd.