The Indian Express- Ahmedabad, Chandigarh, Delhi, Lucknow,Mumbai, Nagpur, Pune, Vadodara

The Financial Express- Ahmedabad, Bangalore, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Lucknow, Mumbai, Delhi, PuneIn

side

Is the projected powerinfrastructure a dream? Weanalyse ground realities of thepolitical agenda ...Page 3

30 January 2009

THE GOVERNMENT OF INDIA RECENTLY ANNOUNCED THAT 53,000 VILLAGES IN THE

COUNTRY HAVE BEEN ELECTRIFIED AND PROMISED ‘ELECTRICITY FOR ALL’ BY THE YEAR

2012. THE MINISTRY OF POWER HAS SET A TARGET TO ELECTRIFY 1,20,000 VILLAGES

IN THE CURRENT FIVE YEAR PLAN (2007-12) UNDER THE RAJIV GANDHI GRAMEEN

VIDYUTIKARAN YOJANA (RGGVY). THE INDIAN GOVERNMENT, IN THE ELEVENTH FIVE-YEAR PLAN (2007-12), HAS INCREASED ITS TARGET OF CAPACITY ADDITION TO 90,000 MW FROM THE INITIAL 78,530-MW TO MEET THE COUNTRY’S RISING ENERGY

DEMANDS, TAKING THE TOTAL GENERATION INSTALLED CAPACITY FROM 1,46,902 MWAS ON NOVEMBER 2008 TO 2,38,902 MW BY 2012. IT IS A BIG TASK INDEED

AND EVEN IF INDIA DOES NOT TOUCH THE TARGET, IT WOULD HAVE STILL REACHED A FAIRLY

SUBSTANTIAL CAPACITY.

“So far, 53,000 villages have beenelectrified and by 2012 everyonewill get electricity,” said Power

Minister Sushilkumar Shinde. 1,20,000villages are being targeted. But havingpreviously been criticised for hyping upminiscule achievements, this ambitiousannouncement must have been made withcalculated refinement.

RGGVY was launched in 2005 with theobjective to electrify all villages in the coun-try where there is no power. Under thescheme, Government provides 90 per centsubsidy for electricity distribution infra-structure and 100 per cent subsidy forproviding power connections to the ruralhousehold. Government has already pro-vided electricity connections to 18-lakh

Below Poverty Line (BPL) households outof the targeted 50 lakh such families thisfiscal.

It has earmarked a total capital subsidyof Rs 33,000 crore for providing electric-ity connections and for the distributioninfrastructure to the rural household.

“A subsidy of Rs 28,000 crore has beenprovided for the XIth plan period forrural electrification. During the previousfive year plan period, we got a subsidy ofRs 5,000 crore,” said Chairman and Man-aging Director REC P Uma Shankar. “Wehave made arrangements for electrifying1,20,000 village during XIth plan period,”she added.

But to achieve the target Mission of‘Power for All by 2012’ would mean achiev-

ing the target of 1000 KwHr (Units) ofper capita consumption of electricity bythis period. Achieving this would meanthat there is an immediate need to attractUS $ 250 Billion Investment into the sec-tor (FDI & Domestic Investment Com-bined); adequate capacity growth to Sus-tain GDP Growth at 8% plus; reliable &quality power on 24 x 7 basis, at least inUrban & Industrialized areas; 100% Ru-ral Electrification with adequate & quali-tative power for irrigation purpose; in-creasing the role of Hydel & RenewableEnergy in the energy mix; urgent need todevelop the alternatives, both in the Fuel& Technology terms, and focus on imple-mentation.

MoP’s BlueprintThe Ministry of Power has prepared a

comprehensive Blueprint for Power Sec-tor development encompassing an inte-grated strategy for the sector develop-ment with following objectives:-� Sufficient power to achieve GDP

growth rate of 8%�Reliability of power�Quality power�Optimum power cost�Commercial viability of power industry�Power for all

Strategies to achieve the objectives:Power Generation Strategy with focus

on low cost generation, optimization ofcapacity utilization, controlling the inputcost, optimization of fuel mix, Technol-ogy upgradation and utilization of NonConventional energy sources

Transmission Strategy with focus ondevelopment of National Grid includingInterstate connections, technologyupgradation & optimization of transmis-sion cost.

Distribution strategy to achieve Distri-bution Reforms with focus on Systemupgradation, loss reduction, theft control,consumer service orientation, qualitypower supply commercialization, decen-tralized distributed generation and sup-ply for rural areas.

Regulation Strategy aimed at protect-ing Consumer interests and making thesector commercially viable.

Financing Strategy to generate re-sources for required growth of the powersector.

Conservation Strategy to optimise theutilization of electricity with focus on De-mand Side management, Load manage-ment and Technology upgradation to pro-vide energy efficient equipment / gadgets.

Communication Strategy for politicalconsensus with media support to enhancethe general public awareness.

APDRPThe government has proposed to in-

troduce a restructured AcceleratedPower Development and ReformsProgramme (APDRP) in the 11th FiveYear Plan to cut transmission and distri-bution losses, early 2008.

The APDRP was launched in 2002-03with the objective of encouraging reforms,reducing aggregate technical and com-mercial loss and improving quality of sup-ply of power.

The Distribution Reform was identi-fied as the key area to bring about theefficiency and improve financial health ofthe power sector.

Ministry of Power took various initia-tives in the recent past for bringing im-provement in the distribution sector.

29 states have signed the Memorandumof Understandings with the Ministry totake various steps to undertake distribu-tion reforms in a time bound manner.

Contd. on Page 2...

“Quote-Unquote” with the‘big guns’ in the powerindustry; their news and theirviews ...Page 4

The Darker Side of Brightness Power SpeaksPower Speaks

2 JANUARY 30 I 2009

India unveiled a new integratedpolicy that spells out a roadmapto ensure 5.8 percent annual

growth in primary energy supplies,seen as crucial to sustain a healthyexpansion of the country’s economy.

‘India needs to sustain an economicgrowth of at least 9 percent over thenext 25 years if it is to eradicate pov-erty and meet its larger human devel-opment goals,’ Home Minister P.Chidambaram said, explaining the fo-cus of the new policy.

‘Meeting energy requirements ofthis growth in a sustainable mannerpresents a difficult challenge and onethat has become more formidable fol-lowing the steep rise in internationalenergy prices since 2006,’ he said.

‘It is necessary to evolve an inte-grated policy that provides a coher-ent framework covering different en-ergy sources in a consistent manner,’Chidambaram said after a meeting ofthe cabinet, presided over by PrimeMinister Manmohan Singh, approvedthe policy.

Drafted by the Planning Commis-sion, the policy aims at optimal ex-ploitation of domestic energy re-sources, as also acquisition of energyassets abroad to attain energy secu-rity for the country, while advocatingappropriate pricing of fuels to pro-mote investment.

Chidambaram said the policy alsocalls for setting up a monitoring com-mittee chaired by the cabinet secre-tary to review the progress of imple-mentation of energy programmes.

‘The broad vision behind the inte-grated energy policy is to reliably meetthe demand for services of all sectors,including the lifeline energy needs ofvulnerable households in all parts ofthe country with safe, clean and con-venient energy at the least-cost.’

The other salient points of the newpolicy include:● Appropriate fiscal measures to

tackle emerging issues● Independent regulation to counter

anti-competitive market behaviour● Tax structure for each energy sector

be made consistent with overall en-ergy policy

● Ensure level playing field to all play-ers whether public or private

● Uniform tax structure across thecountry and across products

● Subsidies be made transparent andtargeted

● Promote energy-efficiency and en-force energy standards effectively

● Autonomy for state-run units inenergy sector with full accountabil-ity

● Promote technologies that con-serve and maximise energy effi-ciency

● Ensure competitive energy marketpush efficiency and attract invest-ment

● A phased adjustment of domesticfuel prices to reflect market prices

● Coal pricing be left to the market,with free trading

● For natural gas, pricing be deter-mined through competitionamong producers

● Reduce technical and commerciallosses in transmission and distri-bution

● Promote fuel wood plantations, bio-gas plants, bio-diesel and ethanol

● Set-up a national energy fund tofinance research

● Maintain reserves equivalent to 90days of supplies

● Acquire energy assets abroad andset up fertiliser units in energy richcountries

● Provide electricity to all rural house-holds and clean cooking energy toall within 10 years.Source: http://www.indiaprwire.com

INTEGRATED ENERGY POLICY

A NEW ENERGY ERA

THE BROAD VISION BEHIND THE

INTEGRATED ENERGY POLICY IS TORELIABLY MEET THE DEMAND FOR

SERVICES OF ALL SECTORS, INCLUDING

THE LIFELINE ENERGY NEEDS OF

VULNERABLE HOUSEHOLDS IN ALL PARTS

OF THE COUNTRY WITH SAFE, CLEAN

AND CONVENIENT ENERGY AT THE LEAST-COST

BMI ReportAccording to India Power Report

from Business Monitor International(BMI), which publishes specialist busi-ness information on global emergingmarkets for senior executives in morethan 125 countries, the forecast is thatthe country will account for 12.12% ofAsia Pacific regional power generationby 2012, with a growing generationshortfall that requires rising imports.BMI’s Asia Pacific power generationassumption for 2007 is 6,865 terawatthours (TWh), representing an in-crease of 9.6% over the previous year.It is forecasting an increase in regionalgeneration to 9,435TWh by 2012, rep-resenting a rise of 37.4%.

The report further states that, “ForIndia, coal is the dominant fuel, ac-counting for 51.4% of 2007 primaryenergy demand (PED),followed by oilat 31.8%, gas at 8.9% and hydro-powerwith a 6.8% share of PED. Regionalenergy demand is forecast to reach4,915mn tonnes of oil equivalent (toe)by 2012, representing 32.9% growthover the period. India’s 2007 marketshare of 10.94% is set to rise to 11.49%by 2012. The country’s17.8TWh ofnuclear demand in 2007 is forecast toreach 30TWh by 2012, with its share ofthe Asia Pacific nuclear market risingfrom 3.27% to 4.65% over the period.”

India is still ranked second, behindChina in BMI’s updated Power Busi-ness Environment rating, thanks to itsvast market size and excellent growthprospects. Certain country risk factorsoffset some of the industry strengths,but the country seems destined to viewith China at the head of the table forthe foreseeable future.

Between 2007 and 2018, BMI fore-casts an increase in Indian electricitygeneration of 115.4%, which is amongthe highest for the Asia Pacific region.

The TargetThe Indian government, in the Elev-

enth Five-Year Plan (2007-12), had ini-tially recommended a capacity additionof 78,530-MW to meet the country’srising energy demands, which was laterrevised to 78,577-MW. The proposedcapacity addition has again been re-vised to 92,000-MW. The earlier esti-mate of 78,577-MW consisted of16,553-MW of hydropower, 58,644-MW of thermal power and 3,380-MWof nuclear power.

According to the Central ElectricityAuthority (New Delhi), the Indiangovernment’s statutory organizationfor regulating the power sector,projects with a total capacity of 11,404-MW have been commissioned throughAugust 2009 for the Eleventh Five-YearPlan. An estimated 7,530-MW of ad-ditional capacity was planned for thefiscal year 2008-09. Of this, 2,141-MWhas already been commissioned. Theremaining 5,389-MW is targeted to beoperational before March 2009.

Coal NeedsAccording to the working group of

the Planning Commission, India willhave to import 100 million tons of coalduring the Eleventh Five-Year Plan(2007-12) to fulfill increasing domes-tic demand, which is projected to 730million tons by 2012.

The group also indicated that thecountry’s production capacity by 2012will be around 680 million tons peryear, said the Industrial Info Re-sources, a marketing information ser-vice specializing in industrial process,energy and financial related markets.

India’s largest coal producer, CoalIndia Limited (Kolkata, West Bengal),has agreed to increase productionfrom 520 million tons per year to 600million tons per year by 2012.

In an effort to bridge the supply-demand gap, for the first time, CILwill import 4 million tons per year thisfiscal year.

CIL and public sector companies,such as the Steel Authority of India(New Delhi), NTPC and National Min-eral Development Corporation haveset up a special-purpose vehicle, In-ternational Coal Ventures, to exploremining opportunities overseas. Inter-

national Coal Ventures plans to raise$1 billion to develop coal mines withpotential of 10 million tons per year inMozambique.

There are also plans to acquire as-sets in Canada, Indonesia,Mozambique, South Africa and Aus-tralia. The current economic crisis inthe United States has gained India’sattention. CIL is in talks with U.S. min-ing companies to acquire assets. CILalso plans to revive 18 abandonedmines belonging to its subsidiariesEastern Coal Fields, Bharat CokingCoal and Central Coal Fields.

Recently, an agreement was reachedbetween officials of the ministries ofcoal and power, and representativesfrom CIL, NTPC and the Central Elec-tricity Authority that 10 to 15 percentof coal required for new power projectsin India will be imported.

It has also been indicated that thecost of power from imported coal willbe higher than power produced fromdomestic coal. But coal waste will below since the quality of imported coalis higher than domestic coal.

The Ministry of Power will facilitatethe fuel-supply agreement betweenpower utilities and CIL.

It was also announced that the im-ported coal may be used in existingpower plants. Coal India plans to in-crease its production target from 380million tons per year to 405 milliontons per year by 2009-10.

Experts indicate that at the rate atwhich India’s coal demand is rising,the country will lose 60 billion-70 bil-lion tons of its coal reserves by 2040-41.

It has become imperative for theMinistry of Coal and CIL to explorenew mining avenues both internation-

...Contd. from page 1

ally and in the domestic front to sus-tain demand.

Renewable EnergyThe Indian government has set a

target of generating 14,000 MW addi-tional power through renewable re-sources in the 11th Five-Year Plan(2007-2012), taking the total genera-tion to more than 26,000 MW, accord-ing to Minister for New and Renew-able Energy Vilas Muttemwar.

“We are doing remarkably well ingenerating power from renewable re-sources, as we are at the fourth spotafter Germany, Spain and the US inharnessing the wind energy. But stillthere is much more potential that goesunused,” Muttemwar said.

According to the Minister, India hasthe potential of generating 70,000 MWof power from wind.

“We are one of the luckiest coun-tries, where we have plenty of sunshinethroughout the year. With this solarenergy, we can fulfill the energy needsof the whole world if we harness it inproper channel,” Muttemwar said.

India is in a process to establish asolar thermal energy project at Nagpurin Maharashtra which will be Asia’s big-gest solar power generation project,according to Minister Muttemwar.

“We will also establish many specialeconomic zones (SEZs) exclusively forrenewable projects at various locationsof the country,” he said.

References:�Ministry of Power –

www.powermin.nic.in � http://en.sxcoal.com � Industrial Info Re-sources: A marketing information servicespecializing in industrial process, energyand financial related markets � IndiaPR Wire � PTI

3 JANUARY 30 I 2009

THE SLOGAN, “POWER FOR ALL”, ATTRACTS EVERYONE INCLUDING THE HAVE-NOTS. WITH THE MEAGRE 1713 MEGA WATT (MW) POWER IN DECEMBER 1950,TODAY THE COUNTRY REACHED 1,47,402.81 MW OF INSTALLED CAPACITY BUT STILL THERE IS A VISIBLE GAP BETWEEN DEMAND AND SUPPLY.

SAYS P R SUBAS CHANDRAN

The capacity addition of a totalof 90,000 MW of power in the

11th plan would probably electrify1,20,000 villages with an expectation ofilluminating India at least with a bulbthat lights every house in India .

While this is the political agenda,what will be the ground reality of Elev-enth Five year plan, when translatedinto a possible action i.e. 2012, is yet tobe seen. Probably the demand and sup-ply might have extended its arm creat-ing another vacuum in the ambitiousagenda called “Power for all by 2012”by the Government of India. This isnot said out of blind imagination .Thefollowing figures demonstrate howprojected power infrastructure in thepast remained a day dream than a re-ality.

The Eighth Plan (1992-97) targetwas 40,000 MW and 16,730 MW(41.8%) was achieved.

The target of Ninth Plan (1997-2002)40,245 MW ended up with 19,119 MW(47.5%). Again the Tenth Plan (2002-07) fixed a target of 41,110 MW butcould generate only 50% i.e. 20,500MW.

Unfortunately the failure to achievethe target is an inevitable corollary thatthe ambitious plan to add 90,000 MWof power in the eleventh plan possiblywould end up with 50,000 MW power.

Before going into the details of ill-management of power sector, let ussee what the Planning Commissionsays:

“The fast growth of the economy in re-cent years has placed increasing stress onphysical infrastructure such as electricity,railways, roads, ports, airports, irrigation,and urban and rural water supply andsanitation, all of which already suffer froma substantial deficit from the past in termsof capacities as well as efficiencies in thedelivery of critical infrastructure services.The pattern of inclusive growth of theeconomy projected for the Eleventh Plan,with GDP growth averaging 9% per yearcan be achieved only if this infrastructuredeficit can be overcome and adequateinvestment takes place to support highergrowth”.

“On the above basis, the aggregate capi-tal formation in infrastructure requiredto achieve India’s targeted annual aver-age growth in GDP of 9% over the Elev-enth Plan period, would have to rise fromRs. 2,59,839 crore in 2007–08 to Rs.5,74,096 crore in 2011–12 at constant2006–07 price. Over the Eleventh Planperiod, as a whole, this estimate aggregatesto Rs 20,11,521 crore”.

“The aggregate investment targetderived above is broadly consistentwith estimates of investment require-ments based on sector specific require-ments emerging from reports of theWorking Groups constituted by thePlanning Commission and by Inter-Ministerial Committees under the ae-gis of the Committee on Infrastruc-ture. Total anticipated investment inpower infrastructure in 10th plan in-cluding Non Conventional Electricityis Rs 2,91,850 crore, a share of 33.49%in the total budget allocation while 11th

plan is projected at Rs 6,66,525 crorewith a share of 32.42% in the total bud-get of Rs 20,11,521 crore. It meansthere is a reduction of 1.07% of in-vestment in the power sector amount-ing to Rs.21,523.27 crore in the 11th

plan. The projected investment inpower sector during Eleventh five yearplan with Central investment is Rs2,55,316 ( 38.31%) , states with an in-vestment of Rs. 2,25,697 crore (33.86%) while private sector shares27.83% with an investment of Rs.18,5512 crore . In a nutshell the over-all investment in power sector will beRs. 6,66,525 crore for the Eleventh fiveyear plan with a massive agenda ofpowering the nation and the readerswould be highly motivated with an ex-pectation of seeing India illuminatedanywhere and everywhere.Contrastingly and shockingly the out-come will remain a dream project ifyou come to know how the hidden orthe dark side of ill- managed powersector is going to present a gloomypicture in the days to come.

Planning commission documenta-tion has projected that there will bepower deficit of 13.8% (peaking) and9.6% of energy shortage that will loomlarge over the nation in spite of anambitious power projection. Holdyour breath to read the next shockingcontents. Planning commission pre-sents a dismal picture on power sce-nario saying that a whopping 40% ofgenerated power is lost due to Trans-mission and Distribution (T&D)/ Ag-gregate Technical & Commercial(AT&C) loss. In other words 58,761.12MW (40%)of total installed power

generation capacity of1,46,902.81 MW ofpower is lost on ac-count of T&Dloss. It means arecurring fi-nancial lossof Rs.2,9 3 , 8 0 5 . 6 0crore everyyear. This isnot the endof the story.The EleventhFive-Year Plan(2007-12) pro-poses a capacityaddition of 90,000-MW and 40% of(T&D)/ (AT&C) losswill be 36,000 MW ,costing Rs.1,80,000crore. In other words the colossal (T&D)/(AT&C) loss works outto be Rs.4,73,805crore.(cost per MW @Rs.5 crore) which is equal to the total annual bud-gets of Andhra Pradesh,Tamilnadu andKarnataka. Can a poorcountry like India affordsuch avoidable astronomicalloss? This loss ,in turn, will have acascading impact in achieving the pro-jected 9% GDP growth, which is cer-tainly going to be a forgotten story.

Power theft, a blow to nationWe have painted most of the men in

public life as corrupt leaving the restas angels. If one looks at the way con-sumers at every level contributed theirshare to the elephantine loss. Elec-tricity theft is at the centre of focus allover the world but electricity theft inIndia has a significant effect on theIndian economy, as this figure is con-siderably high.

Further we incorporate more ad-vanced technologies but crooks alwayshave the ability to keep one step aheadof the theft detection system. Nowpower theft using the remote sensing

devices, tampering of crystalfrequency of integrated

circuits; theft usingarmonics, high

power electromag-net with capabilityof effecting therecording ofmeter etc havebeen devel-oped. Meterswith shunt are ac o m m o n

method of slow-ing down the

meter.However the Elec-

tricity Act 2003 givesfull freedom to vigi-

lance engineers in de-tecting power theft,confiscating machines,papers, document re-lated to production etc.and permits utilities toframe their own rules.But a sincere effort is stillmissing; that is the rea-son that despite all thisthe power thieves are notbeing booked the way

they should havebeen.The staff of the lic-

ensee who helps in providingmeans for the theft should also be

booked under theft. While posting theengineers, their track record is not thekey factor, the key factors are the othermeans and resources..until and unlessthe whole system is not revamped thepower theft drives will go on papersand will yield a substantial result.

A WEB of wires illegallytapping power...

Flaws in Energy infrastructureIt has been observed that the over-

all power sector performance in Indiahas been compared to a “leakybucket”, where the more funds areinvested into the system, the morequickly they spill out without consid-erable benefits. Improving the effi-ciency of the country’s power distribu-

tion system could bring enormous ben-efits from the savings, which might bepumped to other sectors of the soci-ety.

Factors which contribute to such as-tronomical energy losses are a combi-nation of technical and non-technicalissues.

Poor metering, lack of investmentsin distribution networks resulting inoverloaded feeders, ill-maintainedsubstations with aging transformers,and other technical shortfalls are fur-ther amplified by inefficient billing andinadequate revenue collection as wellas simply un-metered supply and widespread electricity theft.

The lack of consumer education inthe rural sector, rampant political in-terference, and inefficient electricityuse, among other factors, only furtherdiminish the already weakened powersector.�The transformers and cables of sub-

standard quality are being used. Se-rious lapses in their procurementand maintenance are main reasonsof poor power scenario .

�The damage caused to transform-ers and transmission cables is a re-sult of ‘improper testing’ and ‘lackof protective equipment’.

�The equipment was ‘poorly cali-brated’ and used by ‘untrained staff’.

�Conditions of transformers in thestores were not up to the mark withevidences of oil leakages.

�Around 20% transformers do notcomplete their life-cycle which is ‘ab-normally high’ as compared to thenational average of 2%.It is not until power authorities stop

compromising with the quality ofequipment that the power situation inthe state will not improve. The distri-bution licensee will have to adoptstrong ‘equipment monitoring system’and ‘adherence to safety measures’ toensure uninterrupted power supply.

The basic idea of investigation ofState Electricity Regulatory Commis-sion (SERC) was testing the quality ofequipment for the requisite specifica-

tions; SERC strongly endorsed thepeople’s grievances on the power frontand came down heavily on lackadaisi-cal approach of authorities in prevent-ing breakdowns.

Positive stepsNational Electricity FundIt appears that the government of

India plans to set up a National Elec-tricity Fund (NEF) with an investmentof Rs 1,00,000 crore to effect powerreforms in energy sector to bring downthe T&D loss to 15% from 40%.

Be that as it may, the situation is notaltogether abject, as the Governmenthas taken a series of steps in the re-cent period. They include metering of11 kV feeders; energy accounting andauditing; strengthening the provisionspertaining to theft of power in the Elec-tricity Act, 2003; upgrading andstrengthening the sub-transmissionand distribution system under the Ac-celerated Power Development andReforms Programme (APDRP); andintroducing the High Voltage Distri-bution System (HVDS).

Privatisation of Distribution systemIt is also worth mentioning that dis-

tribution of electricity has beenprivatised only in the National CapitalTerritory (NCT) of Delhi, and inOrissa.

Elsewhere, the job is done by thestate-owned entities unbundled fromthe State Electricity Boards (SEBs) or,in some cases like Tamil Nadu andAndhra Pradesh, by the SEBs them-selves.

Energy auditing Free power is the mantra of politi-

cal bosses, but there must be somemechanism to account it. Shockingly,in the name of free power, virtually, inmany States, power supply to the agri-cultural sector and some categories ofdomestic consumers are not meteredand this poses problems in arriving atreasonably correct estimates of con-sumption in these categories. This canbe achieved by putting in place a sys-tem for accurate energy accounting.

(The author is Editorial Associate forThe Indian Express Limited.)

Acknowledgements to:

M S Bhalla’s Transmission and Distribution Losses(Power); Cogeneration technologies. Source: All CIA

World Factbooks 18 December 2003 to 18 December2008 via NationMaster; Coal Insights; Ministry ofPower, Capitaline; http://powermin.nic.in);

www.investmentcommission.in

The Darker Side of Brightness

4 JANUARY 30 I 2009

The Power Ministry's vision is absolutelyclear as spelt out by our leaders, Smt. SoniaGandhi and Prime Minister Dr. Manmohan

Singh. We will take electricity to every village by theyear 2009 and to every household by 2012.

The Power Ministry is committed to create an elec-tricity network all over the country. In order to meetthis objective, there needs to be a huge capacity addi-tion. During the 11th Five Year Plan, we will be addingmore capacity than what we have added in the lastthree Five Year Plans together. During this Plan , atotal of 90,000 MW will be added. As in no other Planbefore, up till now, 12,000 MW has already been com-missioned and 70,000 MW are actually being imple-mented on the ground. This is a phenomenal achieve-ment when compared to the fact that historically wehave barely added more than 20,000 MW in any FiveYear Plan.

This target at first sight seems to be over ambitiousbut when one considers the actual work being doneon the ground, it is very much achievable. The capac-ity addition programme in our country was hamstrungby the fact that there was only one Power GenerationMachinery Manufacturer in the country. Thanks toour Government's efforts, today there are at leastthree other big international manufacturers who aresetting up base in India.

Our country has the potential to achieve additional20% energy efficiency which will translate into almost25,000 MW of extra electricity. Hence, energy effi-ciency can contribute to 25,000 MW by avoiding ca-pacity addition which, in monetary terms, translatesto a saving of Rs. 1,00,000 crores.

During the last one year, XL Telecom & Energy Ltd has grownsignificantly in Solar Photovoltaic space and has become a leader in thesegment. XL in last financial year 2007-08 ending 30th June for the firsttime has earned more revenues from Energy Segment than TelecomSegment and going forward, the Company should predominantly be anon-conventional energy player with revenues contributing about 80 to90%.

Even in Non-Conventional Energy, it is largely Solar PV space only.XL has initiated the 120 MW Solar Cell Manufacturing plant along with40 MW Module Expansion Project during the last few months and thesame should be operational in Jan –March 2009 – the total capex beingabout Rs.360 crores. The Company has also become virtually the ‘Firstcompany’ in the world to have exposure to Solar Cell – Solar Module –System Integration .

Power Finance Corporation (PFC) was set up in July 1986 as a Financial Institution (FI) dedicated to PowerSector financing and committed to the integrated development of the power and associated sectors.

Today, the state owned power sector financing utility has posted a 6 per cent increase in net profit for the quarter endedDecember 2008, at the back of loan asset growth of 28 per cent.

The company has posted a net profit of Rs 339 crore for the quarter ended December 2008 as compared to Rs 320 croreposted in the corresponding quarter last year (2007-2008).

Major projects sanctioned by the financing utility include - Koradi extension power station of Maharashtra State PowerGeneration Corporation (6,512 crore), Bellary thermal power station of Karnataka Power Corporation (Rs 1,806 crore) andRKM Power Generation (Rs 1,250 crore). Power Grid achieved many milestones & established benchmarks in various areasof its business operations and is playing a strategic role in Indian Power Sector in establishing & maintaining transmissioninfrastructure. It’s mission remains as Establishment and operation of Regional and National Power Grids to facilitatetransfer of electric power within and across the regions with Reliability, Security and Economy, on sound commercialprinciples.

DINESH KUMAR, MANAGING DIRECTOR

XL TELECOM AND ENERGY LTD

Power SpeaksPower Speaks

SHRI SUSHILKUMAR SHINDE

UNION MINISTER OF POWERNTPC’s vision is crystal clear – ‘A world class integrated power major

powering India’s growth with increased global presence’. NTPC, a govern-ment of India organisation, remains a role model with globally comparableexcellence on the performance parameters, NTPC’s power generation capacityis 29,894 MW including 2044 MW in joint ventures. We are committed to addnew capacity of 22,000 MW and our target is to achieve 75,000 MW pIus capac-ity by 2017.

Corporate social responsibility is an article of faith for us. Lighting ruralIndia is among our cherished commitments. Contributing to high GDP growthIS our mission. And we are moving ahead according to our planned agenda forgrowth and development.

We are the leaders in the sector accounting for about 29% of the total powergenerated in the country with nearly 19% of the total installed capacity in India.With an all time high PLF of 92.24% in 2007-08, we have joined hands WithBHEL for manufacturing power plant equipment, which I am hopeful, will be abooster for the power sector.R.S.SHARMA, CMD, NTPC

S.K.CHATURVEDI, CMD, POWER GRID

CORPORATION OF INDIA LTD

Power Grid Corporation of India Ltdhas been carrying out its responsibilities

efficiently in the Construction,Operation & Main-tenance of inter-State transmission systems andoperation of Regional Power Grids. It has beennotified as the Central Transmission Utility (CTU)of the country. Ever since its inception in 1992,Power Grid has established a transmission net-work of about 69,480 circuit kms and 116 sub-stations having more than 77,217 MVA transfor-mation capacity. At the begenning of its commer-cial business, the initial network was only 22,220circuit kms and 42 substations. Power Grid hasachieved many milestones & established bench-marks in various areas of its business operationsand now plays a strategic role in the In-dian Power Sector in establishing & main-taining the transmission infrastructure.

SATNAM SINGH, CMD,POWER FINANCE CORPORATION LIMITED

The Indian Express- Ahmedabad, Chandigarh, Delhi, Jammu, Kolkata,Lucknow, Mumbai, Nagpur, Pune, Vadodara

The Financial Express- Ahmedabad, Bangalore, Chandigarh, Chennai,Hyderabad, Kochi, Kolkata, Lucknow, Mumbai, Delhi, Pune

25 February 2009

As per Central Electricity Authority’s monthly update, India’s installed power generation capacity reached 147402.81MW as of December 2008. This capacity growth was augmented by 500 MW against that of November 2008(146902.81 MW), mainly due to the contribution from NTPC. In comparison, the total installed power generationcapacity was 138251.63 MW in November 2007, which translates into an increase of 8651.18 MW in one year. Thedrivers of this growth are the State, Central & Private sectors and they together make the Generation Giants of theIndian power sector.

Till December 2008, the installedpower generation capacity by modewas: Coal (77458.88 MW), Gas(14734.01 MW), Diesel (1199.75 MW),Nuclear (4120 MW), Hydro (36647.76MW) and other renewable energysources (13242.41 MW).The total has been

calculated after segregation into threesectors, viz., State/UT Sector, CentralSector and the Private sector.

As of December 2008, the State sec-tor, which involves all 28 states and 7union territories contributed a totalof 76185.57 MW while the Central Sec-

tor which includes centre governedcorporations like the National

Thermal Power Corporation(NTPC), Nuclear Power Cor-poration of India (NPCI), Na-tional Hydroelectric PowerCorporation (NHPC) andsuch like contributed 48,970.99 MW. The private sectorinvolves varied companies in

each state and UT and it con-

tributed 22,246.25 MW all put to-gether.

From the statistics provided by CEA,it is clearly indicated that the maximumgrowth potential seen in the last fewmonths has been in Hydro which hasshown immense potential in terms ofinstalled capacity, while data for Re-newable energy is available only tillMarch 2008. Nuclear is nil from allquarters except from the Central Sec-tor (Nuclear Power Corporation of In-dia).

We have identified the top stateswhich have contributed towards thisinstalled capacity of the country, whichin the future (read 2012) has to touch238902.81 MW. The Indian govern-

ment, in the Eleventh Five-Year Plan(2007-12), has proposed a capacity ad-dition to 92,000-MW after revising thefigure twice!

The Indian government, in the Elev-enth Five-Year Plan (2007-12), had ini-tially recommended a capacity additionof 78,530-MW to meet the country’srising energy demands, which was laterrevised to 78,577-MW. The proposedcapacity addition has again been re-vised to 92,000-MW. The earlier esti-mate of 78,577-MW consisted of16,553-MW of hydropower, 58,644-MW of thermal power and 3,380-MWof nuclear power.

GENERATION XOUT OF THE 35 STATES AND UNION

TERRITORIES, CENTRAL ELECTRICITY

AUTHORITY HAS CREATED A MODE-WISE

BREAKUP AS OF DECEMBER 2008DEPICTING THE INSTALLED POWER

GENERATION CAPACITY OF EACH STATE

AND UT.WHILE MAHARSHTRA HAS BEEN THE

LEADER FOR QUITE SOMETIME, THERE ISA THIN LINE OF DIFFERENCE BETWEEN

KARNATAKA AND WEST BENGAL.GUJARAT, TAMIL NADU AND PUNJAB

WILL SOON BE LOOKING FOR A HIGHER

SLOT DURING THIS YEAR.OTHER STATES WHICH DO NOT FIGURE

IN THE LIST BUT ARE IN THE RACE TO BE

IN TOP 10 INCLUDE HARYANA

(3153.36 MW), ORISSA

(2520.23 MW), KERALA

(2122.72 MW) AND CHHATISGARH

(2058.05). AMONG THE UTS,ONLY NCR STANDS OUT WITH

920.40 MW.THE FOLLOWING STATES FIGURE IN THE

TOP TEN IN TERMS OF TOTAL INSTALLED

POWER GENERATION CAPACITY IN MWAS ON DECEMBER 2008 ACCORDING

TO THE CENTRAL ELECTRICITY AUTHOR-ITY MONTHLY REPORT.

Maharashtra 10563.54

Andhra Pradesh 7370.16

Karnataka 5838.52

West Bengal 5808.56

Gujarat 5701.30

Tamil Nadu 5665.30

Punjab 5073.72

Uttar Pradesh 4672.50

Madhya Pradesh 4582.93

Rajasthan 4006.89

GENERATION VFROM THE CENTRAL SECTOR, CEA HAS

IDENTIFIED 11 CORPORATIONS. THESE

INCLUDE BELLARY THERMAL POWER

STATION DAMODAR VALLEY CORPORA-TION, HP/NJPC JV, NEEPCO,NEYVELI LIGNITE CORPORATION,NHDC, NHPC, NTPC, NUCLEAR

POWER CORPORATION, RATNAGIRI

GAS & PPL AND TEHRI HYDRO

ELECTRIC CORPORATION. THE FOL-LOWING ARE THE TOP 5 AS OF

DECEMBER 2008. FIGURES IN MW.

NTPC: 28333.99

(Coal- 23310 & Gas – 5523.99)

NPCI: 4120.00

(Nuclear)

NHPC: 3673.00

(Hydro)

DVC: 3244.00

(Coal- 3100.00 & Hydro – 144.00)

NLCL: 2490.00

(Coal)

NTPC: Nuclear Power Corporation of India

NPCI: Nuclear Power Corp of India

NHPC: National Hydroelectric Power Corporation

DVC: Damodar Valley Corporation

NLCL: Neyveli Lignite Corporation Limited

FOLLOWING ARE THE TOP FIVE STATES

CONTRIBUTING TOWARDS INSTALLED

POWER GENERATION CAPACITY THROUGH

ITS PRIVATE SECTOR. FIGURES ARE INMW AS OF DECEMBER 2008.

Tamil Nadu: 5433.85

Maharashtra: 4216.50

Gujarat: 3443.40

Andhra Pradesh: 2126.43

Karnataka: 2014.64

A Space Marketing Feature

Inside

KPMG report examinesimportant developmentstowards ‘CompetitivePower Markets’ ...Page 2

Energy sector highlights fromthe Planning Commission’s11th Five year plan2007-2012 ...Page 3

Enabling Competitive Power Markets Towards Energy Sufficiency

2 FEBRUARY 25 I 2009

The Electricity Act, 2003 was a watershed regulation in the Government’s attempts towards creating a conduciveenvironment for development of the Indian Power sector. This was further supported by a number of policies andregulations; however, almost five years down the line the sector is yet to achieve the desired progress. The inflectionpoint is still awaited by many; the point where a consumer can freely choose his electricity provider and generatorshave multiple choices for the sale of the power they generate and can manage risks through evolved contractinginstruments. Recently, Confederation of Indian Industries (CII) had organised a conclave - India Energy Conclave2008 wherein KPMG prepared a report which examines some of the recent developments that are important in themove towards ’Competitive Power Markets’. It has also presented its view on the expected developments andidentified potential roadblocks.

The Demand-SupplyEquation

The big question on every projectdeveloper’s mind today is likely to be‘When will the demand and supplycurves for power cross each other?’.

While the country is facing a verysignificant power deficit today to thetune of 20,000 MW (18 percent peakdeficit), there are plans for very largesupply additions going forward. Untilthe Xth Plan (FY 2007), the 5 yearplans were dominated by Governmentcapacity additions and constraints tocapacity additions were mainly due toGovernment procurement proce-dures, equipment sector constraintsand project implementation delays.

Going forward, the constraintswould largely occur on account of fuelsector issues including allotment and

development of coal mines. While over81 coal mines have been allotted, de-lays are being seen in mine develop-ment on account of reasons rangingfrom land acquisition, delays in obtain-ing Government clearances, multiplemine allottees for a given mine withdiffering viewpoints on mine develop-ment plans, and even lack of mine de-velopment capabilities.

As market forces play out in cre-ation of new capacities, some of theconstraints, particularly relating toproject management capabilities,equipment procurement and eventechnical capabilities related to min-ing are expected to ease out.

We, therefore, expect supply sideresponse to the current deficit tospeed up and catch up with the de-mand curve during the XIIth Plan.

The Government would still have avery important role to play if this hasto be achieved sooner than later. One,it should evolve a more efficient andtransparent solution to coal mine al-location and two, the procedures re-lated to Government clearancesshould be further streamlined.

The recent turmoil in the financialand commodity markets has been acause for concern and there are ap-prehensions about the extent to whichthis would delay the ‘cross-over’ pointof demand and supply. Financing fornew projects is a challenge in the cur-rent environment.

However, assuming that the effectsof the current turmoil will last for 12-18 months, we expect that the overallimpact on the ‘cross-over’ point wouldbe to a lesser extent, as supply will even-tually catch up and the demand sideimpact would also be present duringthe current slowdown.

Our estimate is that the cross-overis likely to happen in the timeframeFY 2015 to FY 2017.

This is based on an assumption ofGDP growth rate of 8 percent till 2017.

The Role of Power MarketsPower markets have an important

role to play in making the countryachieve this capacity requirement.

The phenomenon of aggressivemerchant plant build-up can alreadybe attributed to short-term price sig-nals in the power market today. Shortterm power prices are at times as high

as INR 8.0/kwh with the average pricefor FY 2007-08 being INR 4.50/kwh.

The existence of a power market hasmeant that merchant plants have beenable to find a ’market’ for sale of theirproduce and thereby it has becomeeasier to justify viability and achieve fi-nancial closure.

In the short run, it has also in-creased efficiency of utilization of gen-eration assets by trying to match sur-pluses with deficits.

The trading market got a furtherboost in February 2007, when CERCissued its’ Guidelines for grant of per-mission for setting up and operationof a Power Exchange’. Till date, thecentral regulator has granted permis-sion to two applicants; the Multi Com-modity Exchange led India EnergyExchange (IEX) and the NationalCommodity & Derivatives Exchangeled Power Exchange of India (PXI).

The IEX started operations in June2008. According to the CERC’s Mar-ket Monitoring Report for the monthof August 2008, ~5 percent of short-term trading transactions were donethrough the IEX, ~57 percent wastraded through bilateral contracts and~38 percent through the UI route.

Though this represents a small per-centage of the total transactions, thedemand for such a platform can bejudged from the quick ramp-up of vol-umes traded on these power ex-changes; while the IEX has receivedtotal purchase bids for more than2,000 Million Units (MUs) since itsinception on June 27, 2008 the PXIreceived purchase bids to the tune of63 MUs on its first day of operation(October 23, 2008).

The availability of such a platform islikely to provide a boost for sector de-velopment since it acts as an open andtransparent platform for buyers andsellers and simultaneously provides aprice signal for upcoming generationplants.

The other benefit of a vibrant trad-ing market is that this could lead tothe evolution of contracting strategiesof utilities. Currently, the contractingbehavior of utilities in India involveslong-term base load contracting.

As power market liquidity im-proves, contracting behaviors are likelyto change to reflect different types ofcontracts for base load and peak loadrequirements as well as for long term,medium term and short term require-ments.

Key Enablers for Deepening the

Power Market

In order for the power markets todeepen, the country needs rapid ad-dition of new capacity so that therecan be adequate trade-able stock ofpower.

Merchant plant developers face cer-tain difficulties in achieving financialclosure. These include assurance offuel supply, comfort of a certain mini-mum level of power off-take and com-fort that transmission bottlenecks willnot be constraints. The Governmenthas to facilitate fuel access and mar-ket opening through distribution openaccess. Market forces are then likelyto play out to build capacity.

Some of the key enablers to overcomethese are as follows:

Transparent and speedy process forcoal allocation

The Ministry of Power (MoP) in or-der to facilitate capacity additionthrough MPPs, has been coordinatingwith the Ministry of Coal to identifycoal linkages (for 1000 MW plant) andcoal blocks (for 500 - 1000 MW plant)for allotment to such plants.

However, the framework for suchfuel allocation is yet to be notified andthis uncertainty is causing delays inplans for new capacities.

Strengthening of the national trans-mission grid and efficient transmissionaccess and pricing Uncertainties inavailability of transmission system ca-pacities had been a concern for someof the MPPs who are not sure of theirpower off takers.

A large portion of new capacity (ap-proximately 30 percent) is coming in

the coal belt states while the demandcenters are in the North and West ofthe country.

According to the CEA Plan, the in-cremental inter-regional power trans-fer capacity will be 21,000 MW by 2012.Building this out in a timely manner iscritical for the power market to func-tion effectively.

To augment transmission networks,significant investments are required.Unlike power generation, capacity ad-

dition in power transmission throughthe competitive bidding route hasbeen slower and till date only twoprojects6 have been awarded to pri-vate developers.

Considering the urgent need to aug-ment the transmission network in In-dia, the MoP has taken steps to speedup the bidding process.

The ministry has now issued draftStandard Bid Documents for selectionof Transmission Service Provider. TheMoP has also notified PFC and RECto act as the Bid Process Coordina-tors to undertake the bidding for a fewidentified projects.

Enabling CompetitiveEnabling CompetitiveEnabling CompetitiveEnabling CompetitiveEnabling Competitive

Power MarketsPower MarketsPower MarketsPower MarketsPower Markets

Retail market opening through dis-

tribution open access

Freedom and ease of getting openaccess down to the retail consumerlevel is the last leg in the developmentof a fully competitive power market andwill likely ultimately lead to depth inthe power market.

Today, merchant power developershave to depend largely on tenders is-sued by state utilities through the Case1 route to tie up capacities throughlong-term contracts.

This is essential for them to get thecomfort of minimum off-take andachieve financial closure. However, ifthe retail segment were to open up,then access to large customers wouldhave provided an alternate option fortie-up on medium to long-term basis.

Merchant developers could then beproactive in identifying buyers to maketheir projects viable rather than wait

for tenders to be floated and procure-ment processes to be completed forsetting up power projects.

This could speed up capacity addi-tion. Most of the SERCs had fixed atimeline of end 2008 for opening upthe distribution open access for con-sumers with connected load of lessthan 1 MW.

Further, taking cues from the Na-tional Tariff Policy, few state regula-

tors have passed orders for reductionof cross-subsidy surcharge in the re-cent past.

This will likely promote open accessas reduction in cross-subsidies willlikely help maintain the attractivenessof a cheaper power source.

Few regulators like the MaharashtraState Electricity Regulatory Commis-sion have kept a zero level of cross-subsidy surcharge so as to promotecompetition.

While the retail market representsa miniscule proportion of the powermarket currently, this will likely in-crease going forward.

As the demand-supply gap beginsto narrow down, competitive advan-tage will likely begin to shift towardsaccess to customers. In some states,this is likely to happen sooner.

Generators and power playerswould do well to start planning to de-velop their capabilities and strength-ening their presence in this area as theretail supply segment begins to openup.

Once we overcome the supply defi-cit and retail competition establishesfreedom of choice in its true sense andavailability of products and informa-tion symmetry among consumers; webelieve the inflection point can bereached.

A well functioning power market canalso go a long way in helping ensurethat the prolonged history of powerdeficit in the country does not repeatitself in future.

Demand

Supply

Supply (Impact of

Financial Market crisis)

3 FEBRUARY 25 I 2009

The 11th Plan provides an opportunity to restructure policies to achieve a new vision

based on faster, more broad-basedand inclusive growth. It is designed toreduce poverty and focus on bridgingthe various divides that continue tofragment our society. The energy sec-tor prominently features in the Plan-ning commission’s 11th plan and of-fers certain strategic solace to the sec-tor, both in terms of the plan periodas well as long term sustainability.

EnergyGDP growth of 9% is not possible

without a commensurate increase insupply of energy, electricity, coal, oiland gas and other fuels. Further, withnearly half the country’s populationwithout electricity and without a con-sistent supply of any other form ofcommercial energy either, distributionof energy is as crucial to bridging thedivide between the haves and the have-nots. Ensuring lifeline supply of com-mercial energy to all is essential forempowering individuals, especiallywomen and girls, who have the back-breaking, time consuming and un-healthy task of collecting and using

non-commercial fuels that remain theprimary energy source for cooking inover two thirds of the households.Provision of clean fuels or at leastwood plantation within one kilometerof habitation and dissemination oftechnology for use of clean fuels is vi-tal for good health.

Electric Power

Rapid growth of the economy willplace a heavy demand on electricpower and this is an area of weaknessat present. Reforms in this sector havebeen under way for several years andthey have brought about several im-portant institutional changes whichwere needed to make the power sec-tor efficient and more competitive: TheElectricity Act 2003 is in place; TheNational Electricity and Tariff policiesenvisaged in the Act have been noti-fied; Regulators are in place in thestates and have issued a series of regu-latory orders which are beginning toreduce the wide dispersion in electric-ity tariffs that have existed tradition-ally and to contain tariffs charged forindustries; Many states have un-bundled their SEBs into generation,transmission, and distribution compa-

nies for better transparency and ac-countability.

The greatest weakness in the powersector is on the distribution side whichis entirely the domain of the states.Aggregate Technical and Commercial(AT&C) losses of most State PowerUtilities (SPUs) remain high and havemade SPUs financially sick and unableto invest adequately in generating ca-pacity. For the same reason they havealso had only limited success in attract-ing private investors to set up powerplants.

The Accelerated Power Develop-ment and Reform Programme(APDRP) initiated in 2001 was ex-pected to bring down AT&C losses to15% by the end of the 10th Plan. Infact, the average for all states is closerto 40% (including uncollected bills).However, there are encouraging suc-cess stories in loss reduction in a num-ber of cities and small areas as a resultof intensified management efforts.Some states, for example, Tamil Naduand more recently Andhra Pradesh,have shown a much better performancethan the national average. This giveshope and provides guidance on howto restructure APDRP, using techno-

logical tools such as smart meteringand GIS mapping for real time, moni-toring and accountability at each dis-tribution transformer.

The Rajiv Gandhi GrameenVidyutikaran Yojana (RGGVY) is akey initiative providing electricity ac-cess to all households and actually con-necting all BPL households. However,the success of this commendable ef-fort depends critically upon adequateavailability of electricity and actual elec-trification of all households. Mere ac-cess without supply of power will onlyadd to frustration.

Utility-based generation capacity isexpected to rise by less than 30,000MW in the 10th Plan but we shouldplan for an increase by 60,000 MW inthe 11th Plan to move to a comfort-able situation consistent with a growthrate between 8 - 9% per annum.

Coal

Coal production is nationalized atpresent and private investment in coalmining is only allowed for captivemines supplying coal to designatedsectors power, steel, and cement. Tak-ing a longer term view of energy pro-duction there is a strong case for de-nationalizing coal so that private sec-tor investment can come into this cru-cial area.If petroleum, which is muchscarcer than coal, is open to the pri-vate sector there is no reason why coalshould not also be opened up, espe-cially if we take a longer term view ofenergy constraints and also the needto absorb new clean coal technologies.

Pending a consensus on this issue,every effort should be made to expandcoal production through the route ofcaptive mines. Large coal users, espe-cially in the power sector, can be givenavailable proven coal blocks for devel-oping captive mines.

Preliminary estimates suggest thatin addition to coking coal we may alsoneed to import 40-50 million tons ofsuperior grade thermal coal by the endof the 11th Plan. Thermal power sta-tions on the southern and westerncoasts can be competitive using im-ported coal and the country’s electric-ity requirement does justify such im-port. This would require necessaryport handling capacity and coast basedpower generation capacity of around12000 to 15000 MW to absorb the im-ports. Coal pricing and marketing alsoneeds to be modernized. The e-auc-tion route, opened recently hasworked well, and has helped to nudge

consumers towards more rational coalpricing. This window can be expandedover the 11th Plan.

Oil and Gas

India will remain dependent oncrude oil imports. The scope fortransnational gas pipelines needs tobe explored from a longer term per-spective, but no pipelines are likely tobecome available for this level of gasimport during the 11th Plan. ThusLNG imports would need to rise tofour times from the current level of 5million tons.

The most important policy issue inthis sector relates to pricing petroleumproducts. The recent increase in oilprices is now expected to persist forsome years and although prices ofsome petroleum products have beenraised the increase still leaves a largeuncovered gap. This gap is being bornepartly by the oil companies and partlyby the issue of bonds by the govern-ment to the companies, which is equiva-lent to a government subsidy. Othercritical issues facing the oil and gassector relate to:� pricing of domestically produced

natural gas and its allocation to thepower and fertilizer industry;

� strengthening upstream regulationin the oil and gas sector; and

� ensuring competition and open ac-cess in the proposed pipeline trans-portation and distribution grid.

In the longer run, the only viablepolicy to deal with high internationaloil prices is to rationalise the tax bur-den on oil products over time,rationalise existing pricing mechanismswhich give the oil companies an exces-sive margin, realize efficiency gainsthrough competition at the refinery

gate and retail prices of petroleumproducts, and pass on the rest of theinternational oil price increase to con-sumers, while compensating targetedgroups below the poverty line as muchas possible.

The current method of determin-ing prices for petroleum productsneeds reconsideration. Full price com-petition at the refinery gate and theretail level needs to be adopted. Indiais deficient in crude oil but has devel-oped surplus capacity in products.

Product price entitlement shouldtherefore be based on trade parity pric-ing, which would be much lower thanimport parity. The 10% duty on prod-ucts has been reduced to 7.5% whichis a step in the right direction. There isa strong case for further reducing theduty on products to 5% to equate itwith the duty on crude.

Other Energy Initiatives

More broadly, as we move into the11th Plan, we need to take an inte-grated view of energy policy towardsdifferent energy sub-sectors. Whilethe Central and state sectors will con-tinue to dominate the energy sector inthe 11th Plan, energy policy should notbe determined sector by sector wherethe dominant public sector players of-ten have significant vested interests.We need to move towards a moretransparent policy framework thattreats different sources of energy in asimilar fashion.

The 11th Plan will restructure incen-tives and support from supply drivenprogrammes to demand drivenprogrammes and technologies. It willalso link subsidies and support to out-comes in terms of renewable energygenerated, rather than to capital in-vestments. Available fossil energy re-sources must be optimally exploited.

Coal bed methane must be fully ex-ploited and fossil fuel reserves en-hanced through more intensive explo-ration. Renewable energy sourcessuch as wind energy, bio-mass and bio-fuels account for a very small percent-age of total energy but they could in-crease to 2 - 3 percent in the course ofthe 11th Plan period. The 11th Planmust also set up a robust energy R&Dsystem to develop relevant technologyand energy sources to enhance energysecurity and lead to energy indepen-dence in a cost effective way in the longrun.

Source:www.planningcommission.nic.in

Towards

Energy SufficiencyThe XIth Five year plan 2007-12

APDRP, INITIATED IN 2001WAS EXPECTED TO BRING DOWN

AT&C LOSSES TO 15% BY THE

END OF THE 10TH PLAN. INFACT, THE AVERAGE FOR ALL

STATES IS CLOSER TO 40%(INCLUDING UNCOLLECTED

BILLS). HOWEVER, THERE ARE

ENCOURAGING SUCCESS STORIES

IN LOSS REDUCTION IN ANUMBER OF CITIES AND SMALL

AREAS AS A RESULT OF INTENSI-FIED MANAGEMENT EFFORTS.

4 FEBRUARY 25 I 2009

Installed Capacity as on 31-12-2008 (Figures in MW)Sector Hydro Thermal Nuclear R.E.S. Total

(MNRE)Coal Gas Diesel Total

State 2067.9 420.0 0.0 0.0 420.0 0.0 32.3 2520.2Private 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Central 116.9 913.4 0.0 0.0 913.4 0.0 0.0 1030.3Total 2184.8 1333.4 0.0 0.0 1333.4 0.0 32.3 3550.5

Recently, the Orissa government chalked out plans tosource 380 Mw additional

power to meet the peak summer de-mand starting from March. It also an-nounced that there will not be anypower cut during the coming summerseason. Energy minister SuryaNarayana Patro had said that thepresent demand of the state is about2060Mw and the state is able to meetthe demand fully.

“Orissa is the first state to under-take power sector reforms in the coun-try in the year 1996. Utilities in thepower sector are not dependant onbudgetary support from the govern-ment and there has been no hike inretail supply tariff since 2000-01. Theelectricity tariff in Orissa is one of thelowest in the country. While 500 Mw issourced through hydro power genera-tion, 800 Mw is obtained from thermalpower,” said Power Minister SuryaNarayan Patro.

The state is drawing 630Mw fromCentral pool and 130 Mw from captivepower plants (CPPs). Since the aver-age demand in summer is likely to in-crease to 2250 Mw, this will requiresourcing about 200 Mw to 250 Mw ad-ditional power. Demand for electric-ity is increasing rapidly in the state asstated below in view of massive indus-trialization and rural electrification.

OPGCOrissa Power Generation Corpora-

tion (OPGC) also recorded good gen-eration of 3047 MU during 2007-08 andachieved Plant Factor of 82.6% fromits 1st and 2nd units of capacity 210 MWeach. It also has moved ahead for its

expansion project by way of construc-tion of 3rd and 4th units of capacity 600MW each.

OHPC

Orissa Hydro Power Corporation(OHPC) achieved a record generationof 8060 MU during 2007-08.

During the year 2008, OHPC com-missioned the 7th and 8th units ofBalimela Power house of capacity 75MW each. OHPC has identified to setup 3 nos. of potential hydro projectsnamely Sindol-I, II & III with totalCapacity 300 MW.

GRIDCOGRIDCO, the bulk

powder supplier, hasbeen able to earn Rs1124 croreby sale ofs u r p l u sp o w e rand earned aprofit of Rs 566 crorein 2007-08 and nar-rowed down its ac-cumulated previouslosses.

OPTCLOPTCL, the State Transmis-

sion Utility, has taken up thecommissioning work of 18 nos.Grid Sub-stations and Trans-

mission line during 2008-09 forquantitative and reliable powersupply in the state.

The main thrust is to eradicatethe low voltage problem in someremote and non-remunerativepockets of the state.

Other Initiatives�Orissa Thermal Power Corporation

Ltd (OTPCL) a joint venture com-pany floated by state-owned Orissa

Hydro Power Corp (OHPC) andOrissa Mining Corp (OMC), is set-ting up a 2,000 Mw plant nearKaniha with an investment of Rs8,000 crore.

� An Ultra Mega Power Plant(UMPP) of 4000 MW capacity withstate share of 1300 MW is pro-posed to be set up by PFC atBedhabahal in Sundergarh

district.�NTPC has moved to setup 4 Nos. power projects

in the state namely;3200MWNTPCDarlipali at

Sundergarhdistrict, 3200 MWNTPC Gajamaraat Denkanal

district,2400 MWNTPC,

Derangaat Angul district and 1320 MWNTPC, TTPS Expansion projects

at Angul district.�27 MoUs have been signedwith private developers forsetting up small hydroprojects in the state.�OERC has released a policyguideline on pricing of sur-plus power from CGPs to op-timize of generations fromCGPs and encourage CGPs tosupply of surplus power to thestate.

2005 2006 2007 2008-09

to 06 to 07 to 08 (upto

Nov-08)

Demand 1558 1726 1975 2142

(in MW)

Availability 1862 2149 2358 2060-2360*

(in MW) (*with

CGPs

support)

ORISSA: THE POWER SURPLUS STATEORISSA STUNNED MANY WHEN IT PRIVATISED THE DISTRIBUTION WORK. IT DID STUN MANY MORE WHEN IT

REDUCED T&D LOSSES FROM 62% TO 32% UNDER THE LEADERSHIP OF SURYA NARAYANA PATRO, MINISTER

FOR ENERGY, GOVERNMENT OF ORISSA. EVEN THEN THERE ARE HICCUPS. STILL, THE STATE SURELY IS SURPLUS INPOWER AND IT IS RIDING IT ON WITH VENTURES ABUNDANT AND A FOCUSED VISION. As leader in the energy

sector, Coal India Limited (CIL) en-visioned its role to meet multi-dimen-sional challenges in the years to come. With the annualized growth ratepegged at 7.6% during the XI FiveYear Plan, ending in 2011-12, CIL iscommitted to produce 520.5 MTs in2011-12. Looking further into thefuture perspective, CIL envisagesreaching a production level of 664MTs in 2016-17.

CIL is gearing up to meet thesechallenges. For this purpose, 125 coalprojects for a capacity of about 298Mty. have been identified to be takenup during XI Plan period; whereas31 are underground (UG) projects& 94 are opencast (OC). While thecapacity of UG projects is about 21MTs the same in case of OC projectsis about 277 MTs. About 98 projects(of the 125) are likely to contributeto the tune of 132 MTs during theterminal year of XI Plan. UG projects

Power Speaks

Partha S Bhattacharyya, Chairman,Coal India Limited

are expected to chip in about 6 MTs.with OC projects shouldering 126 MTs. Technology drive in CIL is a constantendeavour. CIL also provides a lot ofimportance to Man-Machine interface.Adopting multi-pronged thrust areas,CIL is developing itself as a globallycompetitive industry through intro-duction of state-of-the-art high pro-ductive mining & beneficiation tech-nologies and capacity building in allfacets of the industry covering equip-ment utilisation, manpower deploy-ment, introduction of modern man-agement tools in marketing and HRpractices.

Some of the thrust areas that CILhas identified to consolidate its role insecuritizing the energy needs of thecountry are necessity of increasingunderground production by openinghigh capacity mechanized under-ground mines through state-of the-arttechnology such as continuous miner,Powered Support Long Wall (PSLW)

and High wall Mining. About 20 HighWall Mining Machines are expectedto be introduced in next 4 to 5 years.

Setting up of washeries underBuild-Own-Maintain (BOM) schemefor creating new capacities is anotherthrust area in CIL. New strategies forincreasing coal production fromopencast mines include introductionof higher size equipment to work at alarger stripping ratio with higheravailability and utilization securedthrough long term Maintenance andRepair Contract (MARC), introduc-tion of in-pit crushing and conveyingtechnology for large volume handlingetc.

At a time when the petro-leum industry is moving to-

wards new horizons, exploring newtechnologies, collaborating and devel-oping symbiotic relationships to en-sure secure, environment-friendly andaffordable energy supplies, IndianOiltoo is seeking quantum leaps in its corebusiness, adding on new and emerg-ing segments on the way.

The corporation plans to take thegroup refining capacity to 80 milliontonnes per annum by the year 2011-12.

Similarly, IndianOil will add about4,000 km of new pipelines by the year2012. In this, we see gas pipelines as ahigh-growth area.

IndianOil’s new businesses assumegreat significance for its growth plansfor the future with its current market-ing margins taking a hit on account ofsoaring prices of crude oil in the in-ternational market and incompletepass-through of product prices to thecustomers.

IndianOil is building its petrochemi-cals business as a major driver ofgrowth. It is also pursuing opportuni-ties in all facets of the gas value chain,that is, sourcing, setting up of LNGterminals, city gas distribution, andcross-country pipelines. IndianOil’sbusiness plan for entry into the bio-diesel value chain was finalised duringthe year. Unlike diversion of foodcrops into bio-fuel production, whichhas come under criticism across theglobe, IndianOil’s business model forbio-diesel is based on cultivation ofnon-edible plants such as Jatropha andPongamia on arid/wastelands.

IndianOil is exploring the possibil-ity of including alternative energysources like wind and solar in its busi-ness model. IndianOil’s R&D effortsin the coming years shall focus on fu-turistic technology in petrochemicals,polymers, bio-fuels and nano-technol-ogy; additives for enhanced fuel andengine efficiency; eco-friendly long-drain lubricants; etc.

In the third quarter of the currentfinancial year ended December 2008IndianOil registered a Profit of Rs.2,959 crore as compared to a Profit ofRs. 2,091 crore for the same quarterof the previous year. The Corporationsold 48.91 million tonnes of products,including exports, during the periodApr-Dec. 08. The throughput of its re-fineries and pipelines network was36.60 million tonnes and 43.86 milliontonnes respectively for the same pe-riod.

Sarthak Behuria, Chairman,IndianOil Corporation Limited