POSITION PAPER ON

THE POWER SECTOR

IN INDIA

December 2009

Department of Economic Affairs

Ministry of Finance
Government of India
 POSITION PAPER – POWER

EXISTING SCENARIO
Generation
1. India is the fifth largest producer of electricity in the world and according to the
Planning Commission, while the State Governments account for 51.5% of the total
generation capacity, the central sector and the private sector account for 33.1% and
15.4% of the generation capacity respectively. In line with the respective power
generation share, while the government sector (both central and state) have contributed
85.5% of the total capacity addition of 45,295 MW during 1999-00 and 2008-09, the
private sector has contributed the balance 14.5%, almost at par with its share in the total
installed capacity in the country. Transmission of power is entirely looked after by
government utility companies and distribution too barring a few states are in the hands of
the government entities.
2. India’s current installed power generation capacity as on 30th June, 2009 is at 1,50,324
MW as against 89,103 MW during 1997-98 and 1,32,329 MW at the end of March,
2007. In addition to this, the captive power capacity has been pegged at over 24,000 MW
at present. The break up with respect to the fuel mix accounts for as per the following
(refer Table 1 and Graph 1 below)

Table 1
Current Installed Capacity in India: As on 30th June, 2009
Categories MW %
Coal 78,459 52.2

Gas 16,386 10.9

Diesel 1,200 0.8

Total Thermal 96,045 63.9
Hydro 36,917 24.6
Nuclear 4,120 2.7
RES (MNRE) 13,242 8.8
Total 1,50,324 100
Source: CEA

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 POSITION PAPER – POWER

Chart 1

Current Installed Capacity in India (MW)

share

2.7% 8.8%

Thermal
Hydro
24.6%
63.9% Nuclear
RES (MNRE)

Status as on 30th June, 2009

Source: CEA

3. The category wise share of the current installed capacity of 150,324 MW as depicted in
Table I and Chart 1 respectively translates to shares of Central Sector – 33.1%
33.1%, States –
51.5% and Private Sector – 15.4%

However, during the 11th Plan the structure is sought to be changed with respect to
capacity additions. The Central
entral sector is expected to lead the charge in capacity additions
with accounting for as much as 49% of the new capacity additions, while the private
sector is expected to
o add 22% to the overall kitty, leaving the balance 29% to the state
sector under the reduced target of 68,504
68 504 MW, down from the already revised 90,000
MW as against the original target of over 78,000 MW. However as per the actual
physical progress on the ground till the end of the financial 2008-09,
2008 09, while the private
and the state sectors have achieved its targeted capacity addition figures, there is
considerable slippage with respect to Central sector figures. In the first two years of the
current plan period,
riod, additional capacity of 13,017 MW has already been realised with an
additional 2,733 MW of captive capacity and another 44,670
44 670 MW is under construction.

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 POSITION PAPER – POWER

Chart 2

XI Plan Project Status and achievements

Centre State Pvt

30,092
25,962
24,554
21,222 21,355
19,797

8,737
4,740 4,757

Commissioned Under Construction (with high Total

degree of confidence)

Source: Power Ministry

4. As per the latest assessment,

assessment, total capacity of 62,374 MW is likely to be commissioned
with a high degree of confidence and additional 12,590 MW capacities is being targeted
on best efforts basis for commissioning during the XIth Plan. The private sector
participation has been more than the target for the XIth Plan both in absolute and
percentage terms. In addition, 12,000 MW Captive Power Plants are under execution
against which about 5,000 MW has been commissioned till August 31, 2009. Against the
target of 14,000 MW for renewals, 7154 MW has been commissioned as on July 31,
2009.

5. Detailed status for requirement of capacity addition for the XIIth Plan are under
finalisation in Central Electricity Authority (CEA) and as per the preliminary studies, the
requirement of capacity additi
addition works out to about 1,00,000 MW. There appears to
be a need to set higher target for private sector participation for the XIIth Plan in
view of its performance during the XIth Plan.
6. During the Xth Plan, total investment in the power sector was US$ 60 bbillion out of
which the private sector contribution was US$ 13 billion.. The projected investment
during the XIth Plan period is US$ 133 billionn out of which, the private sector
contribution is expected to be around US$ 37 billion or 21%.
%. In physical terms, a target

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 POSITION PAPER – POWER

of 78,700 MW has been fixed during this plan period, which has now been finally
revised to 68,504 MW.
Table 2
Capacity Addition Break Up: (XIth Plan)

Sector Hydro Thermal Nuclear Total

State Sector 3,957
957 15,538 19,495
Central Sector 11,080
080 19,880 3,160 34,120
Private Sector 3,744
744 11,145 14,889
Total 18,781
781 46,563 3,160 68,504
Source: M
Ministry of Power

Chart 3

XIth Plan capacity addition targets &

achievements
Target Achievement

68,504
57,687

34,120

21,447 20,013
19,495 16,227
14,889

Central State Private Total

Source: Planning Commission

The achievements in the above chart include projects that are under construction in addition
to the ones that have been already commissioned in the first two year of the current plan. In
the central sector a total of 3,990
990 MW have been commissioned and another 17
17,457 MW are
under construction.
on. Similarly, in the state sector 7,094
7 094 MW have been commissioned as

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 POSITION PAPER – POWER

against 12,919
919 MW being under implementation. Finally, in the private sector, a total of
1,933
933 MW have been commissioned and 14,294
14 294 MW are under implementation. In terms of
analysis, it is clear that the state sector is definitely on course with respect to its targeted
capacity addition and while the private sector does seem to be in sight of its target, it will
depend on its ability
ty to implement the under construction projects on time. In retrospect, it
appears that one could have kept a higher target for private sector for the XIth Five Year Plan.
In Generation, private sector certainly seems to be more promising than what has bee
been
anticipated. The cause for concern however, is the central sector in which as much as 37% of
the targeted projects are yet to reach the implementation phase thereby leading to the
conclusion that the central sector may not be able to meet the target.

Chart 4

Capacity Addition Growth in Plan Wise

Manner
GW

90

45
21 16 19 21

7th plan 8th plan 9th plan 10th plan 11th plan 12th plan

Source: CEA and CLSA Asia

Asia-Pacific Markets

7. While most of the growth in capacity addition during the 11th Plan will be fuelled by
Government utility companies, the growth in the 12th Plan is expected to be driven by the

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 POSITION PAPER – POWER

private sector players1. In fact, private companies have already announced capacity
addition of nearly 100 GW in the next 6 to 7 years compared to a total private
present. Even if a third of such projects see the light of
capacity of around 20 GW at present.
the day, private sector’s
or’s contribution to the national capacity addition in the power sector
shall be around 35% compared to 17 to 20% at present.
Since, 2003, 30 private power projects with a total capacity addition of 22,038 MW have
achieved financial closure. In 2008-09,
2008 thee private sector has contributed 883 MW of the
454 MW2. In terms of their efficiency improvements, private
total capacity addition of 3,454
thermal power plants have realised improvements in their Plant Load Factor (PLF) from
68.9% in 1999-00
00 to 95.1% in 2008-09,
2008 09, which compares favourably against the PLF of
71.2% and 84.3% achieved by the States’ and Central power plants respectively.

Chart 5

Capacity Addition - Pvt Sector

Plans Progress
GW

101.2

35.45
28.2 26.8
11.3 7.4 15
10 9.6 9.9 7.5
2.05 4.6 4.3

Sterlite Tata Reliance Adani Lanco Others Total

Source: Coal Ministry, CEA and CLSA Asia

Asia-Pacific Markets

8. With respect to nuclear power, the installed capacity at present is 4,120

120 MW or 2.9% of
the total installed capacity in the country. The option of PPPs in nuclear power generation
is being explored to support the target of generating 20,000
20 000 MW of nuclear power by
Year 2020.

1
Indicative list of big size private power projects expected in Eleventh and Twelfth Plan is provided in Annexure A
2
Expected capacity addition in 2009-10 10 is 7,208 MW and is reflected in Annexure B

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 POSITION PAPER – POWER

9. The financial closure scenario for private capacity additions for Eleventh Plan as per
government estimates is given below in Table 3
Financial Closure Scenario for private capacity as per 11th Plan
Table 3

Fuel Wise Thermal Hydel Nuclear Total

Capacity (MW) 11,552 3,491 15,043

Total Capex (Rs billion) 480-490 270-280 750-770

Total debt funding needed (Rs billion) 335-345 185-195 520-540

FC achieved (Rs billion) 220-230 125-135 345-365

FC yet to be achieved (Rs billion) 110-115 60-65 170-180

Source: Crisil Research

10. Despite the expected strong growth in capacity addition, India’s power shortage is likely
to remain very high and may in fact draw to a reasonable level during the 12th Plan. On
the T&D side, government has come out with a revised APDRP (Accelerated Power
Development and Reform Program) which will provide support and financial incentives
for reduction in T&D losses3. This is crucial for a sustainable development of power
sector, as India has amongst the highest T&D losses in the world. 11th Plan investments
under this scheme are targeted to US$10 billion. Another US$10 billion is likely to be
spent on rural electrification to achieve the government’s target of “Power for All” by
2012. Private investment in transmission sector is also set to pick up.
Chart 6

3
Refer Annexure D for Revised APDRP features

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 POSITION PAPER – POWER

T&D Losses (%)

T&D Losses (%)

Japan 4

US 6

China 7

Brazil 17

Pakistan 26

India 31

Source: CLSA Asia Pacific Markets

11. India ranks fifth in the world in terms of total installed power generation capacity but it
ranks as one of the lowest in terms of per capita consumption of power. At the end of
December, 2008, the base load deficit stood at 11.7% while the peak load deficit stood at
13.9%. More than 18% of villages and 45% of total households in India still do not have
access to power. The peak power shortage, which was around 11 – 12% levels during
du the
9th Plan period and the first few years of the 10th Plan, is on an increasing trend and has
already crossed 14% in the current year.

Chart 7

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 POSITION PAPER – POWER

Electricity Consumption/Capita
Electricity Consumption/Capita

Canada 18,359

US 14,057

World 2,490 kWh

China 2,560

Brazil 2,346

India 631

Source: CLSA Asia

Asia-Pacific Markets

12. During 2007-08,

08, energy demand reached 737 billion
b kWh (increasing at CAGR of 5.5%
from 507 billion kWh in 2000-01.
2000 The supply during 2007-08
08 however reached 664.6
billion kWh (increasing at a CAGR of 5.1% from 467.4 billion
b n kWh in 2000
2000-01), which
only reinforces the glaring demand supply gap.

Chart 8

Peak Power Shortage

GW
GW

14
12 11 11.5
9.5 9.5

Fy97 Fy99 Fy01 Fy03 Fy05 Fy07

Source: Ministry of Power

Top states base load and peak load deficit

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 POSITION PAPER – POWER

Table 4

State Base load deficit Peak load deficit

April-December April-December April-December April-December
2008 (per cent) 2007 (per cent) 2008 (per cent) 2007 (per cent)

Maharashtra 21 16.4 25.9 26.4

Gujarat 11.9 14.3 25.5 26.2

Tamil Nadu 7.8 2.5 5.5 15.9

Andhra Pradesh 6.8 3.7 9.8 10.9

Uttar Pradesh 20.5 16.1 22.3 22.8

Source: CEA

13. The 17th Electric Power Survey (EPS) which is conducted by Central Electricity
Authority (CEA) has forecasted that the peak demand will be growing at a CAGR of
7.8% in the 11th Plan and the supply is expected to notch up around 6.8 to 7% during
this period thereby continuing with the upward trend of power deficit.
14. With respect to Transmission and Distribution, which are equally critically for the
overall success of the Power story in India, huge investments are required in these two
segments. Globally every dollar invested in generation has an equal amount invested in
T&D. However, in India, traditionally every dollar invested in generation has a
corresponding half a dollar invested in T&D. Importantly, as compared to the global
average of 50 to 60%, transmission lines in India are loaded to 90% capacity.
15. The planned implementation of Hydro Projects in the 11th Plan and their current status
is provided in the Table below:
Table 5
Sl# Type of CCEA Approved Hydro
Projects (11th Plan) Present Status
A NHPC Projects Out of 12 projects for 11th Five Year Plan
- Two projects (Omkareshwar &
13 NHPC projects approved by
Teesta V) with capacity of 1,030
CCEA out of which 12 projects
MW already commissioned in
with an aggregate capacity of 5,322
2007-08
MW are targeted for completion
- Sewa II for 120 MW likely to be
during 11th Five Year Plan
commissioned by December 2009.
- Six projects are likely to be

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 POSITION PAPER – POWER

completed in 2010-11
- One project to be completed by
2011-12
- Two projects with a capacity of
2,800 MW are likely to slip to 12th
Five Year Plan
th
The 13 project ie Kishanganga project of
capacity of 330 MW likely to be
completed by January 2016.
B Tehri Hydro Development The status is as follows
Corporation Project - Koteshwar 400 MW is likely to be
Three ongoing projects of the completed in March 2011
THDC - Tehri PSP project (1000 MW)
originally scheduled for 11th Plan
will slip to 12th Plan
- Pipalkoti HEP (444 MW)
originally scheduled in June 2013
will likely commence in July 2014
C NEEPCO projects Status
4 projects - Kameng (600MW) – slip to 12th
Plan
- Pare (110MW) – slip to 12th Plan
- Turial (60 MW) – slip to 12th Plan
- Monarchak Gas (100 MW) – to be
completed in Jan 2012
D NTPC on-going projects Achieved
Target of 17,760 MW in 11th Plan - 5 projects of 3,240 MW
involving 20 projects - 2007/08 & 2008/09 – 2740 MW
from five projects
- 2009/10 – 500 MW capacity
added
Slippages (11th Plan)
- Two projects aggregating to 2,580
MW
To make up this slippage additional
capacity of 2,790 MW have been added
in 11th Plan. Therefore, 11th Plan
capacity is 17,970 MW against 17,760
MW
E Satluj Jal Vidyut Nigam Completion Status
One project Rampur Hydro Electric The project is scheduled to be
Project for 412 MW is under commissioned by January 2012.
construction
(Source: Ministry of Power)

16. With a surge in generation capacity addition, India needs big growth in expenditure on
T&D networks to evacuate, transmit and distribute the power produced. Most of India’s
coal resources are concentrated in Eastern and Central India, while most hydro

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 POSITION PAPER – POWER

resources are in North East. Demand shortages are highest in Northern and Western
India. Huge investments are required to expand inter-regional grid capacity. Significant
investments are also required to upgrade the distribution infrastructure (to reduce T&D
losses) and for rural electrification. Government expects US$68bn investments in T&D
in the 11th plan. Actual investment is however expected to be around US$43bn, which
is around 135% growth over the 10th plan.
Transmission:

17. The XIth plan envisages an addition of over 60,000 MW of transmission network by
2012, designed to carry 60% of the power generated. The existing inter-regional power
transfer capacity is 17,000 MW which is to be further enhanced to 37,000 MW by 2012
through the creation of “Transmission Super Highways”. The guidelines for private
sector participation in transmission sector issued in January 2000 envisage two routes
for private sector participation:
• Through the Joint Venture route wherein the CTU/STU shall own at least 26%
equity and the balance to be contributed by the JV partner and
• Independent Private Transmission Company (IPTC) route wherein 100%
equity shall be owned by the private entity

INVESTMENTS

18. With the objective of meeting the rising demand of our growing economy and to
provide electricity to all by 2012, an ambitious target of 78,700 MW has been set for
the 11th Five Year Plan. Its sector-wise and source-wise break up in MW is as follows:

Table 6

(in MW)
Source / Hydro Thermal Nuclear Total % age
Sector

Central 8,654 24,840 3,380 36,874 47%

State 3,482 23,301 26,783 34%

Private 3,491 11,552 15,043 19%

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 POSITION PAPER – POWER

Total 15,627 56,693 3,380 78,700 100%

% age 20% 76% 4% 100%

(Source: Ministry of Power)

The investments in the Power Sector over the 10 Plan (actual), 11 Plan (proposed and 12th
th th

Plan (projected) is depicted in Chart 9 below:

Chart 9

Investments in Power Sector

Govt Pvt Total
US$ billion 171

133
111
96

60 60
47
37

13

Xth Plan XIth Plan (proposed) XIIth Plan (projected)

Source: Planning Commission

19. In INR total investment in power sector in Xth plan was Rs 291,850
291 850 Cr or US$60
billion.. For the XIth plan, the INR figure is Rs 666,525
525 Cr out of which Rs 185
185,512 Cr
is private sector share.

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 POSITION PAPER – POWER

Chart 10

Investment Targets by Govt

Xth Plan XIth Plan Projection XIth Plan Expected
US $ billion
133

86
68

48
43
32

Generation T&D

Source: Planning Commission

20. Though the investment targets by the Government has been kept at around US$ 133
billion,
n, the actual investment is however, expected to be around US$ 86 billion
primarily on account of slippage in the target achievement by the central sector. A
power project implementation period is around 36 to 48 months from the date of
award of the mandate and hence only those projects which have been cleared up to
March 2008 would be in a position to meet the target date. One can keep the un
un-
awarded central projects out of the purview of the target achievement figures and on
that account alone, a total of over US$ 15 billionn will remain unrealised. Similarly
there could be slippages
ppages in the already awarded projects and therefore a shortage of
around US$ 20 to 25 billio
illion is expected during the XIth plan period.

POLICY AND REGULATORY FRAMEWORKS:

FRAMEWORKS

21. Given the state of power infrastructure in the country and the overall requirement in
the next five year plans, the Government has taken some key initiatives. These are:

100% FDI permitted in generation, transmission and distribution

APDRP (Accelerated Power Development and Reform Programme) –
Investment of US$ 12 billion
b to reduce AT&C losses
sses to 15% from the existing
level of around 31%
%

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 POSITION PAPER – POWER

Rajiv Gandhi Grameen Vidyutikaran Yojana – Investment of about US$ 6.5

billion for rural electrification

New Electricity Act, 2003

Securitisation of State Electricity Board dues

Setting up of State Regulatory Commissions

Distribution reforms – breaking SEBs into Generation, Transmission and
Distribution units

Policy Initiatives to encourage private participation:

22. To attract large scale private investment, the Central Government has taken a number
of steps including the private sector to set up coal, gas or liquid based thermal, hydel,
wind or solar projects with foreign equity participation up to 100% under the
automatic route. The bulwarks of the new policy framework are the Electricity Act,
2003, National Electricity Policy 2006, Tariff Policy 2006, Rural Electrification
Policy 2006, New Hydro policy 2008 and Mega Power Projects 2008. In addition, the
Central Government has notified the National Load Dispatch Centre Rules, 2004.
Further, the Central Electricity Regulatory Commission (CERC) has notified several
important regulations including the regulations on tariff, open access in transmission
and licensing of transmission service providers and traders and the Indian Electricity
Grid Code, 2006. The Appellate Tribunal for Electricity was set up in 2004 to hear
appeals from Central and State Electricity Regulatory Commissions.

Key CERC norms on tariff regulations (2009-2014)

• Return on equity to be higher
The return on equity for existing plants would increase from 14.0 per cent to 15.5 per cent from 2009-
10. In case of projects commissioned on or after April 1, 2009, an additional return of 0.5 per cent
will be allowed, provided the projects are completed within the specified period. This is a positive for
players in the central sector as from 2009-10 the players would start earning a higher return on equity
at 15.5 per cent post tax (from the previous 14.0 per cent) on existing capacities.
• Depreciation rate increased to 5.28 per cent; AAD removed
The Central Electricity Regulatory Commission (CERC) has done away with the advance against
depreciation (AAD) norm stated in the CERC Regulation Policy 2004-09, and in order to compensate
for the same, has increased the depreciation rate to 5.28 per cent for a period of 12 years from the
earlier 3.6 per cent. The balance depreciation will be spread equally over the life of the asset.
• One-third benefit on refinancing of long term loans to be kept by companies

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 POSITION PAPER – POWER

The generation company or the transmission licensee, upon refinancing, would be allowed to retain
one-third of the net savings. In the past, net savings from any restructuring activity had to be entirely
passed on to the beneficiaries.
Source: Crisil Research

CERC notifies new inter-state trading regulation 2009

The important features of Trading Regulations 2009 are:
• Definition of inter-state trading has been revised to include electricity imported for resale. As per the
previous trading regulation, the definition of inter-state trading pertained to the transfer of electricity
from the territory of one state to the territory of another state by an electricity trader. This has now
been expanded to include the transfer of electricity from the territory of one state for resale to the
territory of another state, and includes electricity imported from any other country for resale to any
state in India.
• The categories of licensees has been reduced from six to three and the net worth requirement has
been increased to Rs 50-500 million, keeping the prevailing prices of traded power in view.
Source: Crisil Research
19 Government has taken a number of steps, beginning with the Electricity Act (2003)
and Securitisation of SEB dues to reform the power sector and to attract private
investments. In addition, distribution reforms were brought under focus besides
making theft of power a punishable offence. Further APDRP was launched to
improve the T&D infrastructure in the country and electricity regulatory commissions
have been set up at the state level to delineate tariff setting from extraneous
influences. State utilities in most states have already been unbundled into generation,
transmission and distribution entities to bring in accountability in the sector.
In addition, Government has taken a number of measures to encourage new capacity
addition by the private sector. Some of the changes initiated by the government to
make power sector investment attractive to private players are:

Introduction of Open Access: Non-discriminatory access to transmission lines and
distribution systems by the licensees or consumers or generators

Introduction of Competition / UMPPs: According to new guidelines private players
have to set up new capacities on the basis of competitive bidding. For the recently
awarded UMPP projects, the government took the responsibility of getting all the
necessary clearances (environment, land acquisition, water supply etc) making the
environment more conducive for private sector participation in the power sector.

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 POSITION PAPER – POWER

Merchant Power Plants: Electricity Act 2003 allows developers to set up merchant
power plants which have no power purchase agreements. The tariff of these plants
will be market driven and not determined by the regulator but the entire risk will be
borne by the developer.

Allocation of captive coal blocks to public sector and private players

Super Critical Technology in Power Generation

The Ministry of Power has launched supercritical power programme on the lines of
the US, Japan, Germany, Korea and Russia. Currently in India 69% of the gross
generation of electricity is coal based and only 1.2% is based on renewable energy
sources. The Central Electricity Authority (CEA) has estimated that meeting
electricity demand over the next ten years will require more than doubling the existing
capacity, from about 132 GW in 2007 to about 280 GW by 2017, of which at least 80
GW of new capacity is expected to be based on coal. Moreover, the maximum
contribution of renewable energy would be around 5.6% of India’s total energy by
2031-32.

Even though a large part of the power generation will be coal dependent, it is
important that India moves away from sub-critical pulverised coal or ‘dirty’ coal.
There are no clear technology choices but their analysis suggests that commercial
supercritical combustion technology is the best option for India in the short-to-
medium term.

The supercritical coal based units have faster starting time and load changes and are
more suitable for daily start up/shut down operation and have better efficiency at part
load operation.

The task of induction of supercritical technology through bulk ordering of generating

units for PSUs is under active consideration of the Government.

Discussions are on for the procurement of 7 units of 600 MW and 6 units of 800 MW
through bulk tendering, through International Competitive Bidding (ICB). The
selected bidders will have to set up manufacturing facilities in India with a Phased
Manufacturing Program.
Source: Ministry of Power

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 POSITION PAPER – POWER

Mega Power Policy

The Mega Power Policy was announced with the intention of developing large size
power projects in the country in November 1995 and revised in years 1998 and 2006.
There has been a need to review the policy in view of the relevant energy shortages in
the country and requirement of increasing the per capita availability of electricity to
over 1,000 units by 2012; need for installation of fresh capacity of 78,577 MW in XI
Plan; and the requirement of encouraging brown-field expansion projects. This is
under consideration of the Government.
Salient Features of existing Mega Power Policy
i. Conditions to be satisfied for grant of Mega Project status: Inter-State
Thermal/Hydel capacity of 1,000 MW /500 MW respectively, with relaxations
for States of North East Region (NER) and J&K.
ii. Pre-conditions for availing benefits include constitution of Regulatory
Commissions and undertaking to privatize the distribution in all large cities,
by the Power purchasing states. In order to ensure that domestic bidders are
not adversely affected, price preference of 15% to be given to projects under
public sector.
iii. Fiscal conditions / benefits available in the policy are: Zero Customs Duty on
import of capital equipment, deemed export benefits to domestic bidders under
Foreign Trade Policy (FTP), and income tax regime as per Section 80-IA, of
the Indian Income Tax Act, 1961.
Source: Ministry of Power

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 POSITION PAPER – POWER

PPP FRAMEWORKS AND INITIATIVES

20 The earliest effort on PPP in the Power Sector can be traced down to Dabhol Power
Project in Maharashtra. The project did not succeed. The Dabhol power plant was
initiated in 1992 and took nine years to commence operation. The total project cost is
$2.9 billion for 2,184 MW of power. Enron owned along with other American
corporations owned 85% and the Maharashtra State Electricity Board (MSEB) owned
remaining 15%. The plant closed in June 2001, due to a payment and contract dispute
between the Maharashtra state government and the plant owners. The reasons were
• Viability of the project – as per World Bank letter to MoF, GoI “proposed
plant would produce too much power at too high a price for the State”4.
Further, fuel supply was liquid natural gas which was much costlier than coal.
• Fuel supply drain on exchequer – As per GoI, the plant’s annual import of 3
million tons of gas would drain the at least US$ 250 million from India’s
foreign exchange reserves.
• Currency risk on MSEB for fuel supply import
• Environmental concerns of the Dabhol project
The key overall issue was that PPP project risks were not properly assessed, and
equitably allocated between MSEB and Dabhol. Further project feasibility was not
done to verify whether the project would independently run without the necessary
Central and State guarantees.
20 Also to encourage power projects through the PPP mode, standardised bidding
processes and model documents which include the Request For Qualification (RFQ),
Request For Proposal (RFP) and RFP for technical consultants in Transmission
Systems have been developed. The Model Transmission Agreement is expected to be
finalised soon by the Ministry of Power.

Stimulating Public-Private-Partnerships in Power

21 The recent surge in adding new capacity in the power sector has been primarily driven
by rising power shortages (demand), electricity reforms initiated in 2003, de-
regulation of the electricity sector and potential for higher returns, gradual
improvement in financial situation of some state utilities, allocation of captive coal

4
Fact Sheet: Background on Enron’s Dabhol Power Project

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 POSITION PAPER – POWER

blocks to private and government companies and initiatives like UMPP (Ultra Mega
Power Project) at central and state levels.
Launched in 2005, nine Ultra Mega Power Projects (UMPPs) each with an initial
capacity of 4,000 MW are expected to result in around US$ 35 to US$ 40 billion of
private investment. Four UMPPs have already been awarded. The current status of the
UMPPs is given below in Table 4

Table 4
SL UMPP Company Bid tariff Expected
No (Rs/kwh) commissioning year
01 Mundra, Gujarat Tata Power 2.26 2012
02 Sasan, Madhya Reliance 1.20 First two units in April,
Pradesh Power 2012
03 Krishnapatnam, Reliance 2.33 September, 2013 to
AP Power October, 2015
04 Tilaiya, Jharkhand Reliance 1.77 2015
Power
05 Sundargarh, Orissa Bidding yet to commence
06 Cheyyur, Bidding yet to commence
TamilNadu
07 Girye, Under Bidding
Maharashtra
08 Tadri, Karnataka Under Bidding
09 Akaltara, Bidding yet to commence
Chattisgarh
Source: Planning Commission

22 There has also been a sharp increase in the number of captive plants with installed
capacity of 1 MW or more. It is estimated that 45,000 MW or 25% of the total
installed capacity is generated by this sector. Captive generators are also being
encouraged to supply their surplus power to the grid and by March, 2008, 14,900 MW
of captive generating capacity was connected to the grid. The Central govt has
earmarked coal blocks with reserves of 3.2 billion tonnes of coal for allotment to

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merchant and captive plants. About 10,000 MW is expected to be developed

through merchant power plants in the XIth Plan period.

Chart 10

Captive Power Capacity (>1 MW)

Installed capacity as on 31/3/08 Capacity connected to grid
Capacity not connected to grid

19,485

14,866

9,081 7,270
7,148
2,928 5,524 4,619
1,933 2,059 1,746
869 59 36 23 147 99 48

Steam Gas Diesel Hydro Wind Total

Source: CEA and CLSA Asia--Pacific Markets

Financial Incentives for Power PPPs by GoI

23 NBFCs such as Power Finance Corporation (PFC) and Rural Electrification

Corporation (REC) were set up to provide finance mainly to provide finance mainly
to central and state power projects. To aid private project financing via the PPP route
the government set up IIFCL as a dedicated institution for financing and development
of infrastructure projects in the country. Currently, IIFCL renders financial assistance
through
• Direct lending to eligible projects
• Refinance to banks and financial institutions for loans with tenor of 5 years or
more
• Any other method approved by Government of India (GoI)

IIFC Plc, the UK subsidiary of IIFCL, has already lent to several projects, including
two ultra
ra mega power projects (UMPPs) – Tata Power’s Mundra and Relaince

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Power’s Sasan. Further, IIFCL has also received permission from government to raise
Rs 400 billion through tax-free bonds.

Utilization of foreign exchange reserves

The Committee on Infrastructure Financing (‘Committee’) has recommended the use of
foreign exchange reserves via an externally focused investment arm i.e. a company set up in a
foreign country by the Government of India. This company could borrow a small fraction of
India’s reserves at the benchmark lending rate and invest it into infrastructure development
that would be beneficial for the country.
The government has already implemented this recommendation and set up a company, IIFC
Plc, the UK subsidiary of IIFCL. The RBI has released the first tranche of $250 million to this
company out of the total of $5 billion of foreign exchange reserves planned to be used.
Source: Crisil Research

CONSTRAINTS

24 Stimulation of PPP in the power sector will require a pro-active approach from the
project sponsors, particularly the State and the central Government. Some of the key
constraints from the recent attempts in developing power projects on PPP mode
include:

Lack of understanding on PPP structure

Land acquisition issues

Lack of standardized documents leading to diverse interpretation of issues at
the states (lack of knowledge of available standardized documents)

Tighter access to liquidity

Arbitrary norms of pre-qualification primarily adopted by state entities

Inability to stick to set deadlines by the state entities conducting project
development activities

Faster pace of development on evacuation of power to attract private
investment in generation

Lack of trained manpower – Human Resources issues

Others

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 POSITION PAPER – POWER

25 Constraints to Private Financing / PPP Initiative:5

o Land acquisition for new project is more contentious and poses a big threat to
private sector participation in PPP initiatives in the power sector. Issues like
resettlement and rehabilitation (R&R) have resulted in several projects being
stalled (like UMPPs in Maharashtra and Karnataka)
o Lack of political will on going for big ticket land acquisition for larger power
projects in the backdrop of Nandigram in west Bengal and ongoing Posco
agitation in Orissa
o Lack of proper dispute resolution mechanism. Dispute resolution
mechanism in most cases are not at international level thereby leading to
lengthy litigation and substantial project delays
o Fuel Supply - The fuel supply scenario though looks promising with regards
to Coal India Ltd’s achievement rates. However, the growing demand, slow
rate of captive coal production and transportation remain key issues affecting
fuel availability for the power sector.

o Lack of skilled manpower – The Working Group on Power has estimated the
need for 0.34 million additional manpower (0.26 million technical and 0.08
million non-technical) during the XIIth plan.
o Liquidity problem in the market owing to global meltdown makes it difficult
for developers to raise equity. Crisil Research states”Our interactions with
various lenders led us to conclude that in the current scenario equity has
become a key issue as private projects are held up at the financial closure stage
for the requirement of equity. Lenders find reassurance in the promoter’s
equity being brought in through cash flows or owners funds compared to the
equity brought in through the foreign direct investment (FDI) route.”
o Unavailability of long tenure debt to private sector – High cost of
guarantees
o Equipment Supply - On the whole, boiler turbine generator (BTG) orders of
around 70.0 GW have been placed for the Eleventh Plan period. Out of this,
around 60 per cent has been placed with BHEL (42.5 GW). Despite BHEL

5
Refer “Recommendations of the Committee on Infrastructure Financing / Power Ministry on financing power projects that require
consideration” – Annexure C

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 POSITION PAPER – POWER

best intentions of increasing capacity the completion of orders (42.5 GW) in

Eleventh Plan will be stretched. The balance orders have been placed with
Chinese and other international players. Chinese players have received orders
close to 15.0 GW for the Eleventh Plan period whereas international players
have received orders of around 15.5 GW.
o Environment, water and forest clearances - The clearances on this front are
typically time-consuming as it involves approvals from state governments as
well as the central government. On an average it takes 18-24 months to
receive all the clearances.

CONCLUSION AND WAY FORWARD:

26 The gap between demand and supply in the Power Sector is still huge. Many of the
“B” and “C” category towns have daily power cuts of 5-6 hours even in the non-peak
months. The small and medium industries have to rely on their own generators to
continue production but that comes at higher recurring costs and more capital
investments. Thus, products of many of these industries become uncompetitive as
compared to cheaper imports from other countries. There is a need to involve private
sector more intensively in Power Sector to bridge the gap between demand and
supply.

27 Most large manufacturing companies in India have set up their captive power plants
(implying higher project investments) to ensure regular and economic power supply.
All major non-ferrous industries have setup their captive power plants and their
reliance on grid power is limited to less than 10% only.
Power intensive industries set up their own captive units because:
• Grid power is usually unreliable and the production losses are huge due to
frequent power cuts and repeated starting and shutting down of machinery. The
fluctuation in voltage in grid power also damages the critical electronic
components for which the owners won’t like to take a risk.
• Due to the cross subsidy of power in India the tariff for industrial consumers is
very high and the cost arbitrage of setting up of a captive power unit is huge
Captive power seems the way ahead for power intensive / power dependant
mission critical industries.

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 POSITION PAPER – POWER

28 Study of 2001 Census data shows that there is a high correlation between the GDP per
capita of the states and the status of rural electrification. Bihar, Jharkhand, Orissa,
Assam and Uttar Pradesh (these 5 states constitute 35% of the total population) which
have the lowest levels of GDP per capita also have a poor record in rural
electrification. Similarly states like Himachal Pradesh, Punjab, Haryana and Tamil
Nadu which have higher rates of rural electrification also have higher per capita GDP.

Five states of Bihar, Assam, Uttar Pradesh, Kerala and West Bengal, which together
constitute 38% of India’s population, have an average per capita consumption of
272kWh/annum (57% lower than the national average). The high variation in per
capita consumption of power within India is also an indicator of existing gap in power
generation in the lower consuming states. The addition in generation capacities in
these states should have a significant impact on overall per- capita consumption figure
for India.

29 As per the 2001 Census, only 44% of the total rural households in India are
electrified, as compared to the 88% of the urban households. With 72% of India’s
population living in villages this means that almost 40% of country’s population does
not have access to electricity. According to Central Electricity Authority (CEA), even
today more than 100,000 villages (18% of total number villages in India) have no
access to power at all. National Council of Applied Economic Research (NCAER) did
a study to find out the factors that contribute to the big difference in the penetration of
consumer durable goods in the rural and urban areas. The interesting take away from
this study was that while factors like income and lifestyle differences do contribute to
the penetration of consumer durables, the most dominant factor was lack of regular
electricity supply in the rural areas6. This supports the view that there is a lot of latent
demand for power in the country which is not captured in the official figures.

6
Government has been pushing for electrification of villages. Refer “Rajiv Gandhi Grameen Vidyuthikaran Yojana
(RGGVY)” scheme in Annexure D

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 POSITION PAPER – POWER

30 However, an interesting aspect of more supply of electricity resulting in higher

demand elasticity will prompt the need for greater generation of power. In this aspect,
the example of China is an interesting case. China’s elasticity of power demand with
GDP was 1.1 in 2001. With increase in power generation the elasticity also went up
from 1.1 to 1.6 - as the power was made available people consumed it. With 45% of
the Indian household still un-electrified there is a huge amount of latent demand for
power. India’s average GDP growth rate in last five years has been 7.6% while the
growth in power demand over the same period is only 5.8%. Lower elasticity of
power demand with the GDP growth in India has been due to higher contribution of
services to the GDP, several manufacturing units setting up their captive units and
limited growth in generation itself. However, with the capacity additions currently
going on and those planned for the 12th plan, the elasticity of power demand should
go up as is evident from the Chinese experience.

There is a strong link between poverty alleviation with power availability.

31 On the issue of losses, despite several measures the pace of reduction in losses of state
utilities is low. Overall losses of power sector at the country level have come down
only marginally. However, some states have seen significant improvements. Andhra
Pradesh, West Bengal, Gujarat, Kerala, Goa, Himachal Pradesh turned cash positive
in FY06. Even if financials of some of the larger states improve, it offers a big
opportunity for private players to supply power to those states. Power Trading
Corporation is also playing an important role in developing a power market in the
country by bringing buyers and sellers together.
The effort therefore will have to be multi-pronged to ensure electricity for all and
thereby boosting the overall GDP growth of the country so that the economic targets
set across sectors are met7. Some of these efforts need to be pointed towards:

• Encourage Private sector investment

• Address the contentious issues like land acquisition, litigation, multiple
clearances adequately
• Greater joint sector investment
• Easier access to finances

7
One clear initiative is the enactment of The Electricity Act, 2003. Refer Annexure D on salient features of the same.

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 POSITION PAPER – POWER

• Smooth bid process management

• Tapping of alternate sources of energy
• Development capacity with respect to human resources
• Others

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Annexure A
INDICATIVE LIST OF BIG SIZE PRIVATE POWER PROJECTS EXPECTED IN ELEVENTH AND TWELFTH PLAN

Project Company MW Fuel Commissioning Equipment Fuel Supply Clearances Financial

Supply Closure

Sugen Plant U1 Torrent Power 376 Thermal 2008-09    

Jharsuguda U1 Sterlite Energy Ltd 600 Thermal 2009-10    

Sugen Plant U2 Torrent Power 376 Thermal 2009-10    

Sugen Plant U3 Torrent Power 376 Thermal 2010-11    

Anpara – C U1 Lanco 600 Thermal 2011-12    

Jharsuguda U1 Sterlite Energy Ltd 600 Thermal 2010-11    

Jharsuguda U1 Sterlite Energy Ltd 600 Thermal 2010-11    

Jharsuguda U1 Sterlite Energy Ltd 600 Thermal 2011-12    

Angul Jindal Power 1,200 Thermal 12th Plan    

Anpara – C U1 Lanco 600 Thermal 12th Plan    

Mundra UMPP Tata Power 4,000 Thermal 12th Plan    

Raigad Power Athena Power 600 Thermal 12th Plan    

Project U1 Projects Pvt Ltd

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 POSITION PAPER – POWER

Project Company MW Fuel Commissioning Equipment Fuel Supply Clearances Financial

Supply Closure

Sasan UMPP Reliance Power Ltd 3,960 Thermal 12th Plan    

Bhavanabadu TPP East Coast Company 660 Thermal 12th Plan    

Stage 1 U1 / NCC

Dabandh, Lanco 660 Thermal 12th Plan    

Dhenkanal, Phase 1

Gondia Phase I U1 Sterlite Energy Ltd 660 Thermal 12th Plan    

Source: Crisil Research

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Annexure B
EXPECTED CAPACITY ADDITIONS IN 2009-10

Sector Project Company Energy Type State Capacity (MW)

Central Barsingsar U1 NLC Thermal Rajasthan 125

Bhilai TPP – Extn (JV) U2 NTPC Thermal Chhattisgarh 250

Chandrapura TPS Extn DVC Thermal West Bengal 250

Neyveli TPS II Expansion U1 NLC Thermal Tamil Nadu 250

Teesta Low Dam Stae III U1 NHPC Hydel West Bengal 33

Teesta Low Dam Stae III U2 NHPC Hydel West Bengal 33

Uri –II U 1 NHPC Hydel J&K 60

Kaiga Stage II U-4 NPCIL Nuclear Karnataka 220

RAPP U5 NPCIL Nuclear Rajasthan 220

RAPP U5 NPCIL Nuclear Rajasthan 220

State Bakreshwar US WBPDCL Thermal West Bengal 210

Bhopalapally APGENCO Thermal Andhra Pradesh 250

Chabra (Baran Dist) U1 RRVUNL Thermal Rajasthan 250

LAKWA WH ASGENCO Thermal Assam 37

New Parli U2 MAHAGENCO Thermal Maharashtra 250

Paras TPS U2 MAHAGENCO Thermal Maharashtra 250

Paricchha TPS Extn – Stg2 U5 UPRUVNL Thermal Uttar Pradesh 250

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 POSITION PAPER – POWER

EXPECTED CAPACITY ADDITIONS IN 2009-10

Sector Project Company Energy Type State Capacity (MW)

State Santhaldih TPP Unit -6 WBPDCL Thermal West Bengal 250

Surat Lignite GIPCL Thermal Gujarat 125

Surat Lignite GIPCL Thermal Gujarat 125

Suratgarh Ext U6 RRVUNL Thermal Rajasthan 250

Utran GSECL Thermal Gujarat 374

Vijaywada TPP Stage IV APGENCO Thermal Andhra Pradesh 500

Kutyadi Extn U1 KSEB Hydel Kerala 50

Kutyadi Extn U2 KSEB Hydel Kerala 50

Priyadarshini Jurata U3 39
APGENCO Hydel Andhra Pradesh
Priyadarshini Jurata U4 39
APGENCO Hydel Andhra Pradesh
Priyadarshini Jurata U5 39
APGENCO Hydel Andhra Pradesh
Priyadarshini Jurata U6 39
APGENCO Hydel Andhra Pradesh

Varahi Ext Stage II U2 KPCL Hydel Karnataka 115

Private Gautami CCPP U3 Gautami Power Ltd Thermal Andhra Pradesh 174

Jharsuguda U1 Sterlite Energy Ltd Thermal Orissa 600

Konseema CCPP U2 Konseema EPS/Oakwell Thermal Andhra Pradesh 140

Power

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 POSITION PAPER – POWER

EXPECTED CAPACITY ADDITIONS IN 2009-10

Sector Project Company Energy Type State Capacity (MW)

Konseema CCPP U3 Konseema EPS/Oakwell Thermal Andhra Pradesh 165

Power

Pathadi TPP (Lanco Amarkantak) U1 Lanco Thermal Chattisgarh 300

Sugen Plant U2 Torrent Power Thermal Gujarat 376

Torangallu Extn U1 JSW Energy Thermal Karnataka 300

TOTAL (MW) 7,208

Source: Crisil Research

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Annexure C – Recommendations of the Committee on Infrastructure Financing / Power

Ministry on financing power projects that require consideration
1. The Committee recommended that the funds raised by banks for a long tenor (at
least 10 years) through bonds or term deposits for investment in infrastructure
assets should have no statutory liquidity ratio (SLR) requirements. Current
Status – no change on long term funds for infrastructure although overall SLR
requirement has come down to 24 percent from 25 percent.
2. Currently, take out financing is subject to 100 per cent risk weight for
provisioning of capital with the take out financier using a credit conversion factor
of 50 per cent till the take out takes effect. This result in the maintenance of
excess capital, thereby restricting the take out financier’s lending ability and
increases lending costs. Hence, the Committee recommended that the credit
conversion factor be reduced to 0 per cent till the take out is accessed. Current
Status – credit conversion factor for take-out financing stands at 50%
3. The banking sector regularly faces issues related to ALM when it comes to
infrastructure financing as their deposits are not long term in nature whereas the
investment period for infrastructure projects is typically more than 10-15 years.
Due to the long tenure of investments, insurance companies are ideally suited to
finance infrastructure projects. Hence, the committee recommended tapping the
insurance sector for financing infrastructure projects such as power, roads and
airports. For this purpose, the committee recommended a change in the definition
of infrastructure to widen its scope, liberalizing minimum credit rating and
investment guidelines for debt and equity instruments, respectively.
4. For power sector NBFCs, the capital-to-risk weighted asset ratio (CRAR) of 12
percent might be reduced to 9 percent by the RBI. The power ministry has also
suggested increasing the exposure limits of banks for lending to single borrowers
and group borrowers to 30 percent and 70 percent respectively, from the current
20 percent and 50 percent.
5. Currently, the NBFC exposure norms stand at 20 per cent for a single borrower
and 35 per cent for group borrower of only Tier I capital. The Committee on
Infrastructure Financing (‘Committee’) recommendation was to increase the
single borrower limit to 25 per cent and raise the group’s borrower limit from 35
per cent for both Tier I and Tier II capital.
These recommendations require quick implementation.
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Annexure D

Rajiv Gandhi Grameen Vidyuthikaran Yojana (RGGVY)

Government of India launched Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) in

March 2005 with the objective to electrify over one lakh un-electrified villages and to provide
free electricity connections to 2.34 Crore rural BPL households. This scheme has been
continued in the 11th Plan. The scheme provides 90% capital subsidy for the projects.
Habitations above 100 populations are eligible to be covered under the scheme. States have
to ensure minimum 6-8 hours power supply to the villages electrified and to establish
franchisee for distribution management.

During the 10th Plan, 235 projects were sanctioned for implementation. Additional 327
projects have been sanctioned under Phase I of the scheme during 11th Plan. The details of
sanctions and achievements so far are given below:

Proposals Projects Project Un-electrified Electrified BPL

Outlay Villages Villages Households
(Rs Cr) (lakhs)

Sanctions in 235 9,732.9 68,763 111,936 83.1

10th Plan

Sanctions in 332 16,506.04 49,736 241,492 162.96

11th Plan

Total 567 26,238.94 118,499 353,428 246.06

Sanctions

Total 16,030.55 65,797 85,934 78.41

Achievements (55.5%) (23.4%) (31.9%)
(as on
15/7/2009)

Targets and achievements during 2007-08 and quarterly targets during 2009-10 are as
follows:

Year Un-electrified Villages (No) BPL Households (lakh)

Target Achievement % Target Achievement %

2007-08 10,500 9,301 88.6% 40 16.21 40.5%

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2008-09 19,000 12,056 63.5% 50 30.85 61.7%

Cumulative (so 79,500 59,832 75.3% 133 53.79 40.4%

far)
2009-10 17,500 3,158 18% 47 9.8 20.8%
(as on 15.7.09)
Qtr. I 3,000 2,638 88% 11 8.74 79.5%

Qtr. II 3,000 520 17.3% 8 1.06 13.2%

(15.7.09)

Qtr. III 5,000

Qtr. IV 6,500

Restructured Accelerated Power Development and Reform Program (R-APDRP)

CCEA approved the “Restructured APDRP” for the 11th Plan on July 31, 2008. The objective
of the programme is reduction of AT&C loss to 15% in project areas through adoption of
information technology for energy accounting/ auditing and strengthening / upgradation of
distribution network. Projects under the schemes are to be taken up in urban areas – towns
and cities with population of more than 30,000 (10,000 in case of special category States)

Projects under the scheme are to be taken up in two parts

Part A – is the projects for establishment of baseline data and IT applications for energy
accounting / auditing & IT based consumer service centres and

Part B – is towards regular distribution strengthening projects.

The R-APDRP program size is Rs 51,577 crores. The expected investment in Part–A
(Baseline System) would be Rs 10,000 crore and that in Part-B would be Rs 40,000 crore.
PFC is the nodal agency for operational zing the programme. Part ‘A’ & Part ‘B’ projects
can be implemented simultaneously with a gap of 3-6 months which is needed to establish the
baseline figure of AT&C loss of the project area through ring fencing by installation of
boundary (import/ export energy meters). Seventeen States have so far obtained the approval
for entire eligible towns under Part ‘A’. Under Part ‘A’ of R-APDRP, 1,130 projects with a
total cost of 4,183.93 crore has been sanctioned so far. Base line AT&C loss (figure) of the
project area is yet to be established.

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Financial Year 2008-09

(in Rs crores)
4th Quarter Total
Sanctioned Project Target 1,100.00 1,100.00
Cost
Achievement 1,947.70 1,947.70

Disbursement of Target 350.00 350.00

Funds
Achievement 350.00 350.00

Financial Year 2008-09

(in Rs crores)
1st & 2nd 3rd quarter 4th quarter Total
quarter
Sanctioned Target 925.00 1,750.00 2,325.00 5,000.00
Project Cost
Achievement 1,614.23

Disbursement Target 600.00 600.00 530.00 1,730.00

of Funds
Achievement 259.31 259.31

In the current year 2009-10, the balance projects of Part-A and some limited projects of Part-
B are targeted to be sanctioned and amount disbursed for implementation of projects

The Electricity Act 2003

Salient Features

• Based on the recommendations of the Standing Committee on Energy, the Government

of India moved certain amendments. The Electricity Bill, 2001 along with these
amendments, was passed by Lok Sabha on 9th April, 2003.

• The provisions of the Electricity Act except section 121 were brought into force with
effect from to 10th June 2003.

What the Electricity Act 2003 intends to achieve

• The 'Central Government to prepare a National Electricity Policy in consultation with
State Governments. (Section 3)
• Thrust to complete the rural electrification and provide for management of rural

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distribution by Panchayats, Cooperative Societies, non-Government organizations,

franchisees etc. (Sections 4, 5 & 6)
• Provision for license free generation and distribution in the rural areas. (Section 14)
• Generation being de-licensed and captive generation being freely permitted. Hydro
projects would, however, need clearance from the Central Electricity Authority.
(Sections 7, 8 & 9)
• Transmission Utility at the Central as well as State level, to be a Government company
- with responsibility for planned and coordinated development of transmission network.
(Sections 38 & 39)
• Provision for private licensees in transmission and entry in distribution through an
independent network, (Section 14)
• Open access in transmission from the outset. (Sections 38-40)
• Open access in distribution to be introduced in phases with surcharge for current level
of cross subsidy to be gradually phased out along with cross subsidies and obligation
to supply. SERCs to frame regulations within one year regarding phasing of open
access. (Section 42)
• Distribution licensees would be free to undertake generation and generating
companies would be free to take up distribution businesses. (Sections 7, 12)
• The State Electricity Regulatory Commission is a mandatory requirement. (Section
82)
• Provision for payment of subsidy through budget. (Section 65)
• Trading, a distinct activity is being recognized with the safeguard of the Regulatory
Commissions being authorized to fix ceilings on trading margins, if necessary.
(Sections 12, 79 & 86)
• Provision for reorganization or continuance of SEBs. (Sections 131 & 172)
• Metering of all electricity supplied made mandatory. (Section 55)

Open Access

The Electricity Act mandates that non-discriminatory open access for inter-state as well as
intra-state transmission is to be provided by the Central Transmission Utility, State
Transmission Utilities as well as all transmission licensees. Open access on distribution was
to be introduced through regulation by SERCs such that by January, 2009 open access would
be available to all consumers who require a supply of electricity where peak power at any

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time exceeds 1 MW. Open access is expected to enable consumers to get power from any
source of their choice and induce improved service from existing utilities.

Open access in inter-state transmission has been effective but open access in intra-state
transmission and distribution has been largely restricted to captive consumers.

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References:

1. Private Participation in Infrastructure published by The Secretariat for the Committee

on Infrastructure, Planning Commission, Government of India – June, 2009
2. Report by CLSA Asia-Pacific Markets on the Indian Power Sector published in April,
2008
3. Report of Cygnus Business Consulting & Research Pvt Ltd – May 2009
4. Best Practices Guide, Implementing Power Sector Reform – USAID
5. Power – Crisil Research, March 2009
6. Fact Sheet: Background on Enron’s Dabhol Power Project – Committee on
Government Reform US House of Representatives – February 2002
7. Note for Cabinet Committee on Infrastructure – August 20, 2009

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