Category: Fuel linkages

Power reforms – piecemeal measures won’t work

The union power minister, RK Singh has convened a meeting of state power ministers to discuss comprehensive reforms in the power sector to discuss among others measures (i) to uphold sanctity of power purchase agreements [PPAs] between generators and state electricity boards [SEBs]/power distribution companies [PDCs]; (ii) curbing wasteful electricity consumption; (iii) remove cross-subsidy surcharge and  (iv) direct benefit transfer [DBT] of power subsidy. Before discussing the reforms at the outset, it is important to take cognizance of the problems facing the sector and the source of their origination. First, SEBs/PDCs, the life-line of power sector are incurring huge losses – a phenomenon seen for over two decades. Unable to make timely payments to power generators – public sector undertakings...
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UMPPs – stop treating generators with kid gloves

When, subsidies and in turn, fiscal deficit gets out of control, the eyes of the whole nation are set on it and all institutions, experts and financial wizards frantically look for steps to set things right. But, when it comes to dealing with factors that cause hike in subsidies/deficit, everyone turns a nelson eye; instead of taking corrective measures, they abet actions to perpetuate the malady. The case of ultra mega power projects [UMPP] vividly illustrates this. Tata Power Ltd [TPL] and Adani Power Ltd [APL] had bagged such projects 4000 MW and 4620 MW respectively under tariff-based competitive bidding [TBCB] to supply power at fixed tariff all through project’s operational life. The tariff in case of Tata was Rs...
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Energy sector reforms – face political hurdle

The government’s premier think-tank Niti [National Institute for Transforming India] Aayog has firmed up the National Energy Policy [NEP] and the first draft will soon be made public. An overarching objective of NEP is to bring about comprehensive energy sector reforms that could free up sectors such as coal, electricity and fertilizers of subsidies and price controls and help produce more power and make generation projects commercially viable for private companies. It lays out a clear roadmap for lowering subsidies on fertilizers and power by aligning their prices to the market. The policy also seeks to improve the financial condition of power distribution companies [PDCs], which are presently bogged down by huge debt to make the sector profitable – in...
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Electricity tariff – robbing Peter to pay Paul

The central government has set up a committee consisting of the officials of states and power ministry to look into restructuring tariff to reduce burden on industrial units by making large domestic and commercial consumers of electricity pay more [most states categorize households consuming more than 800 units of power a month as large domestic consumers]. The committee will work on classifying consumers in two to three categories and sub-categories to bring transparency in power billing. It will also study the possibility of increasing fixed charges on connected load of domestic consumers to encourage them to surrender un-utilized load. What has triggered thinking along these lines? At the outset, it is important to know as to why industrial consumers are...
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UDAY – no panacea for SEBs woes

One of the major accomplishments of Modi – government during its two years stint has been in alleviating the constraints facing power generation companies/entities. It has done so by increasing production of coal by Coal India Limited [CIL] and filling all voids in the evacuation, transportation and distribution infrastructure to reach supplies to generating stations. It has also helped gas based power plants by arranging supplies of gas at lower rates enabled by pooling of imported LNG [liquefied natural gas] with cheaper domestic gas. The cost of LNG itself has been brought down drastically by re-working an existing long-term 25 year contract with RasGas [Qatar] to align the formula with its low current international price [courtesy, low crude price]. It...
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It’s all just power play

Electricity boards and consumers are being systematically short-circuited by the robbing-Peter-to-pay-Paul policy Tata Power Ltd bagged a 4000 MW ultra mega power project based on imported coal in Mundra, Gujarat, under tariff-based competitive bidding to supply power at fixed tariff of Rs. 2.26 per unit all through the project’s operational life. Likewise, Adani Power (APL) bagged a UMPP to supply to Gujarat and Haryana at Rs. 2.35/Rs. 2.94 a unit. In April 2013, the Central Electricity Regulatory Commission (CERC) allowed compensatory tariff(CT) of Rs. 0.524 per unit to TPL for all its buyers. APL was allowed CT at Rs. 0.851 per unit and Rs. 0.364 per unit for supplies to Gujarat and Haryana, respectively. The CT was meant to neutralise...
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Power conundrum – robbing Peter to pay Paul

In April, 2013, Central Electricity Regulatory Commission (CERC) in its interim order, allowed a ‘compensatory tariff’[CT] of Rs 0.524 per unit to Tata Power Ltd (TPL) 4000 MW ultra mega power project (UMPP) based on imported coal in Mundra, [Gujarat] for all its buyers. Likewise, for Adani Power, UMPP [4620 MW] it allowed CT of Rs 0.851 per unit and Rs 0.364 per unit for supplies to utilities in Gujarat and Haryana respectively. The CT was meant to neutralize increase in price of imported coal consequent to decision of Indonesian Government in September 2011, imposing a minimum ‘benchmark’ price below which coal cannot be exported. Not quite satisfied with the quantum of relief given by CERC, the Adani/Tata petitioned the...
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Power consumers – relief stalled by court

In the race to provide power at affordable rates, Modi – government has taken several initiatives. These include increase in supply of cheaper domestic coal, rationalization in coal linkages [giving more to energy efficient generation plants], strengthening of transmission and distribution [T&D] systems, financial restructuring to reduce interest burden, enabling gas based power plants to access gas at cheaper rates [via pooling of imported LNG with domestic gas], incentive to states for reducing theft etc. However, there is one area where there is unprecedented scope for reducing cost of power supply and yet, it has not got the desired attention and even where the ruling establishment takes considerable interest and wants to act with alacrity, the efforts are frustrated by...
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SOME CARROTS BUT NO STICK

Modi’s new bailout package for State Electricity Boards is fine. However, he will need to force compliance In 2012, the UPA Government had granted a financial restructuring package of Rs2,00,000 crore, to deal with the debt of ailing State Electricity Boards. As part of the package, 50 per cent of the SEBs outstanding liabilities were taken over by the respective State Governments and the balance was issued to public sector banks at nine per cent interest. In return, the States were to increase tariff and reduce transmission and distribution losses to ensure that the realisation from sale of electricity equals the cost of procurement in two to three years. The objective was to eliminate losses and make SEBs stand up...
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SEB reform – catch the bull by horn

In 2012, the erstwhile UPA – government had granted a financial restructuring package [FRP] to deal with a mammoth Rs 200,000 crores debt of ailing state electricity boards [SEBs]. Under it, 50% of the outstanding liabilities were taken over by respective state governments and for balance 50% bonds were issued to public sector banks [PSBs] carrying an interest as low as 9%. The FRP was conditional on states taking requisite steps to increase tariff in a calibrated manner and reduce transmission and distribution [T&D] losses in order to improve realization from sale of electricity so that it converges to its cost of procurement. The overarching objective was to eliminate losses in 2-3 years and thus ensure that they are no...
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