Energy Advisory Board June 8, 2011 - idfc. · PDF fileCompendium of Proceedings Volume I...

Energy Advisory Board June 8, 2011

Compendium of Proceedings Energy Advisory Board

Volume I

Infrastructure Development Finance Company Ltd.

Compendium of Proceedings Volume I

Table of Contents

Introduction ............................................................................................................................................. 4

Issues Discussed & Activities Undertaken by EAB ................................................................................ 5

Minutes of the Meetings from EAB Meetings ......................................................................................... 7

Presentations ........................................................................................................................................ 72

IDFC Energy Advisory Board of 72


Foreword

Energy, particularly Power Sector, is the key infrastructure sector, which would catalyze India’s high growth and sustainable and inclusive development. It entails major investment requirements, and is envisaged to account for the highest share in the total investment requirement for infrastructure development. The private sector has started playing a major role in this development. The sector has made notable progress in reforms and liberalized policies, post Electricity Act 2003, to attract private sector investment. Private sector participation in the sector has increased significantly, but not without challenges. IDFC set up the Energy Advisory Board (EAB), comprising eminent members and chaired by Shri R.V. Shahi, with the objective of conducting independent review of issues impeding development of the energy sector and providing pragmatic suggestions and recommendations. Over the past three and a half years, since its inception, the EAB has contributed significantly through policy advocacy in shaping the development of the sector. The EAB has engaged with the all stakeholders – Government, Regulators, Developers and Financial Institutions – on several issues, which benefited overcome the deficiencies in policy and regulatory regime and improve private sector interest in the sector. Private participation in the power sector has been spurred by steps taken facilitating merchant power, maturing of trading, including through Exchanges, and competitive bidding, regulatory issues in open access, and issuance of coal blocks for captive use. EAB has contributed in each of these areas to overcome the challenges. When India was faced the global economic crisis, EAB for the benefit of the lender community had looked into the impact of global financial crisis on power sector. Recognizing the importance of ensuring fuel security and the benefits of treading a low carbon path, the EAB has been looking into challenges of harnessing the renewable energy and working towards realizing its full potential. Reforms cannot bear fruits and private sector interest in the sector sustained, unless distribution reforms are taken forward. Concerned with the worsening financial situation of the State Distribution Companies, it is heartening to see that the EAB has taken up the issue, with authorities, with required seriousness. This Compendium of proceedings of the EAB contains a wealth of knowledge and information on a broad range of issues, which I am sure would immensely benefit all the stakeholders. I would like to thank the EAB for their invaluable contribution and hope they would engage more on emerging issues with all stakeholders and continue in their mission of development of the energy sector. Rajiv B. Lall



Compendium of Issues in Energy Sector Introduction The Energy Advisory Board, an Initiative of IDFC, launched three and half years back has been deliberating various issues concerning the Indian Power Sector. Since development and growth of power industry is closely linked to the associated development in the fuel segment viz. Coal, Gas, Nuclear, the EAB has deliberated on issues connected to these sectors as well. Issues covered include the challenges associated with development of Merchant Plants, Transmission constraints, Power Exchanges, Competitive Bidding Guidelines, Captive Coal Mines Development, Renewable Energy including Solar Power, Regulatory Policies, Hydro Power Project Development etc. Deteriorating financial health of the Power Sector, particularly in last few years, has been a matter of serious concern for Developers and Financiers. EAB deliberated this issue at length in three meetings and has submitted an Agenda of Action to the Ministry of Power. EAB also encouraged discussions with various stakeholders viz. Power project Developers, Captive Coal Mines Developers, Lenders, Distribution Utilities, Professionals and Experts in various fields, so as to get the benefit of wide ranging views. These obviously enriched not only the deliberations of the Energy Advisory Board but also the quality of conclusions. From time to time various issues were taken up with the concerned Government agencies and also the Regulatory Commissions, with reasonably good degree of success and outcome. The Members of the EAB, each one of them having wealth of knowledge and experience, made their invaluable contribution during these discussions leading to meaningful conclusions. The whole process has been a highly rewarding experience. This compilation, which consists of Minutes of the Meetings along with Presentations in the first Volume, and Agenda Notes in the second Volume, is being brought out on the occasion of the 25th Meeting of the Energy Advisory Board. I hope the document will be useful to all the stakeholders. R.V. Shahi Chairman Energy Advisory Board



Issues Discussed & Activities Undertaken by EAB Wide array of issues have been taken up for deliberation by the EAB so far and possible actions identified as well as initiated and proposed with the intent of contributing towards development of the Energy Sector. The issues discussed include: 1. Financial Health of the State Utilities 2. Evacuation of Power: Transmission & Distribution 3. Development of the Market for Power

a. Merchant Power b. Trader to Trader Transactions c. Generator to Trader Transactions d. Competitive Bidding e. Open Access f. Lender’s concerns while disbursing funds for power projects.

4. Captive Coal Mining by Private Power Developers 5. Regulatory Issues in Open Access & Competition 6. Impact of Global Economic Crisis on Power Sector Development 7. Challenges in Competitive Bidding 8. Standard Bidding Guidelines – Issues faced by developers 9. Development of Renewable Energy in India 10. Concerns with Gas Allocation Policy 11. Jawaharlal Nehru National Solar Mission 12. Hydro Power 13. IDFC Infrastructure Index 14. Power Distribution Reforms – Poor Financial Situation of the Discoms: Cause & Effect 15. Outstanding Issues in Open Access Regulation As part of the discourse, several documents were prepared and presentations made related to issues deliberated. Some of these were even taken up with the concerned persons in the Ministry of Power, Planning Commission, and Regulatory Commissions. The papers and presentations are: 1. Presentation to EAB on Distribution Franchisee: A Performance Enhancement Measure for

Distribution Business by IDFC 2. Note on Financial Health of State Utilities 3. Note on Evacuation of Power 4. Presentation to EAB on Kamalanga Thermal Power project by GMR Energy 5. Presentation on the status of implementation of the Electricity Act 2003 and various other

regulations 6. Presentation to EAB on Captive Mining Concerns by NTPC 7. Paper by EAB on Developing Power Markets, submitted to MoP, Ministry of Commerce, and

Planning Commission 8. Paper by EAB on Captive Coal Mining by Private Power Developers, submitted to MoP, Ministry

of Commerce, and Planning Commission 9. Paper by Mr Ailawadi on Open Access & Competition in Electricity Market: Roadblock &

Regulatory Issues 10. Presentation by Mr Baijal on Regulatory Consequences – Power vs Telecom 11. Note by Mr. Ailawadi on Issues to be taken up with CERC 12. Paper on Impact of Current Economic Crisis on Power Generation Projects Developed by the

Private Sector in India 13. Note on Issues in Power Market Development for consideration of CERC 14. EAB Petition to CERC for removal of barriers to Open Access in Inter – State Transmission

Network and promote competition in Power Market 15. Note on Challenges in Competitive Bidding 16. Draft Note on Lenders’ Forum



17. Note on Issues with Tariff based Competitive Bidding under Case I route, submitted by EAB to MoP and CERC

18. Paper on Barriers to development of renewable energy in India & proposed recommendations 19. Note on Comparison of Payment Security Mechanism between Case-I & UMPP 20. Presentation on CERC Power Market Regulation 21. Presentation by Mr. S P Gon Chaudhuri on Solar Power in India & Experiences from West

Bengal 22. Presentation on JNNSM 23. Comments to MNRE on Guidelines for Selection of New Grid Connected Solar Projects under

Phase 1 of JNNSM 24. Note on Natural Gas Policy by Mr Kapadia 25. Note on Observations on CERC regulations on Sharing of Inter State Transmission Charges and

Losses 26. Discussion Note on Small & Large Hydro Power 27. Challenges to Hydro Power Development in India 28. Roundtable on Hydro Power Development - Policy and Implementation Issues 29. Bhanu Bhushan, Former Member, Central Electricity Regulatory Commission and S K Sonee,

CEO, Power System Operation Corporation Ltd. were invited to give a talk on Unscheduled Interchange (UI) Mechanism

30. Alok Kumar, Former Secretary CERC, was invited to give a talk on Renewable Energy Certificates

31. Presentation to EAB on IDFC Infrastructure Index 32. Presentation by Pradeep Baijal & V S Ailawadi on Open Access 33. Presentation on Power Distribution – Where is it headed? 34. Policy Group Research Paper by Manisha Gulati on Power Distribution Being Driven to

Insolvency By A Governance Crisis 35. Note by V S Ailawadi on The Urgency of Power Utility Reforms



Minutes of the Meetings from EAB Meetings 2nd EAB Meeting on January 22, 2008 1. Mr. V S Ailawadi brought out the issues pertaining to harnessing the captive power in the

scenario of overall power shortage, open access in light of the huge investment requirements in evacuation capacities and regulatory approach in fixing surcharge.

2. Mr. T N Thakur brought out the following issues for detailed discussions before the forum:

a. Trader to Trader Transactions Pursuant to the Electricity Act 2003, the power sector has been unbundled and reorganized. The monolith State Electricity Boards (SEBs) have been split up into distinct generation, transmission and distribution companies. Independent State Electricity Regulatory Commissions (SERCs) have also been set up to regulate the functions of these companies. The Power Advisory Group (“the Group”) took note of the fact that pursuant to the trifurcation of the SEBs, the state owned transmission companies are also involved in bulk purchase of power. These transmission entities are procuring power in bulk for onward sale to the Distribution Companies (Discoms) in the states. The rationale for this is to facilitate power procurement at a nodal level from other inter-state traders and avoid duplication of expertise and efforts. The Central Electricity Regulatory Commission (CERC) has vide its order dated 7th August 2006, restricted trader to trader transactions. Subsequently the PTC India Limited (PTC) has filed a writ petition against the CERC order in the Supreme Court of India and the order of the CERC has been stayed by the Hon’ble Court. The members of the Advisory Group shared the view that further to the staying the injunction of the CERC, the Supreme Court would leave it to the Appellate Tribunal of Electricity (ATE) to examine the merits of the case and decide accordingly.

The Group was of the opinion that the presence of a state level aggregator (to purchase power) is required in many states for a transition period. This is required from the perspectives of ensuring that all Discoms are able to procure power at the same rate. This the Group considered necessary as in the same state certain Discoms are performing better than other Discoms. Further, the Group also opined that the Discoms /state level bulk purchasers should not be compelled to buy power from either generators or traders, rather their decision to purchase power should be driven by cost competitiveness of the procured power. The Group noted that if the Discoms are obligated to buy power from generators only it shall restrain the power market.

The Group debated the pros and cons of procurement of power by a Discom directly from a trader versus purchase of power from a state level aggregator who in turn is sourcing power from another trader. Mr. Thakur, gave reference of the many discussions he has at various forums on the issue, and of international experience particularly that of the United States of America. He also referred to the opinion PTC has taken from Mr. Ashley C. Brown of Harvard University on growth of the trading market. In Conclusion, the Group opined that in the interest of providing breadth and depth to the nascent power trading market, the regulator should leave it to the Discoms to decide independently whether it is beneficial for them to procure power from traders directly or go through a state level aggregating agency for the same. It was agreed that the opinion obtained from Mr. Ashley C. Brown would be circulated to the members to enable formulating a view on the aforesaid issue.



b. Generator to Trader Transactions

The Group discussed the judgment of the Appellate Tribunal for Electricity (ATE) dated December 22, 2006 wherein it was ruled that the price at which a generating company can sell power should not exceed the base price plus 4% thereof. This order was subsequently challenged and has been stayed by the Hon’ble Supreme Court of India, and this has allowed generating company to trade electricity at margins in excess of that stipulated by the ATE. Mr. Thakur pointed out, that this judgement encouraged restrictive trade practices. The Group agreed that the restriction on generators selling power to a trader at not more than 4% over the base price should be limited only to:

i. Power Purchase Agreement (PPA) based plants where the tariff has been determined

and approved by the appropriate Regulatory Commission whether it be the CERC in the case of central generating stations or the SERC in the case of state generating stations; and

ii. Power Plants set up through the negotiated route.

The Group was unanimous in its opinion that since cost of generation is not determined for competitively bid out projects and merchant power plants, this restriction may not be applied to such plants.

3. In continuation of the issues raised by Mr. Thakur, the following views were expressed by Mr.

Shahi

a. Competitive Bidding

The Tariff Policy clearly states that all power procurement by Discoms has to be on a competitive basis, except in the case of the Public Sector Units where a 5 year relaxation has been given. The Group discussed the experience of Ultra Mega Power Projects (UMPPs) and the tariff quotes obtained from successful bidders and remarked that this clearly / successfully demonstrated that when a project is bid out with all approvals in place, the tariffs quoted by bidders are very competitive. The Group recommended that all power projects should be developed on a competitive bidding basis and the relaxation given to PSUs should be done away with immediate effect. In the above context, the Group also recommended that good quality Detailed Project Reports (DPRs) need to be in place for thermal and hydro projects which are to be bid out, so as to facilitate adequate interest from developers during the bidding process.

b. Issues faced by Lenders in disbursing funds for power projects

The Group discussed the difficulties faced by the lending community in disbursing funds to power projects. In particular the availability of evacuation/ transmission infrastructure required for power projects, the process of getting land, environment and forest, mining plan approvals and signing of mining lease for coal blocks were discussed. It was pointed out that there is currently a chicken and egg situation with regards to transmission infrastructure provision by PGCIL viz. provision of transmission infrastructure by PGCIL commences only when the beneficiary state has awarded the bid and is ready to bear the operating (transmission charges), while the bidder has to bid prior to the finalization of the transmission arrangement. It was also pointed out the uncertainties regarding land acquisition and obtaining various approvals leading to signing of mining lease by the coal



block allottees, and that Lenders are at present issuing Letters of Intent without these approvals being in place. Mr. Shahi brought to the notice of the Group that presently a 30% redundancy in evacuation capacity is being planned. The Group recommended that a meeting of leading financial institutions/ banks with the Ministry of Power and PGCIL officials should be planned and they should have discussions to build a view point in the financial community on transmission infrastructure provision by PGCIL. In addition, the Group indicated that while sanctioning funds for projects, lenders should also consider the strength of the promoters, since the established players with experience in the power sector will be able to manage the project development activities and the interfaces with various organizations viz PGCIL, Ministry of Coal, Local administration based on their past experience.

3rd EAB Meeting on March 12, 2008 1. The recommendations made in the paper on Power Trading prepared by IDFC were discussed

and three recommendations were made by the Group:

a. It was pointed out that, given the issue of banning the trader to trader transactions being sub-judice, rationale for allowing trader to trader transaction should be presented provided these are uni-directional i.e. from one trader to another without resale to the trader from whom power was purchased.

b. There should be no restriction on transactions between one trading licensee to another

trading licensee or a series of licensees through which the distribution company or consumers could procure power. The principle should be competitive procurement.

c. The state level aggregator (Transmission Company, bulk procurer or any other agency created for this purpose) may be required to purchase power from either the generator or a trader and without limitation on the aggregator to procure power only from a generator thereby increasing the competitive procurement of power. A trader plays an important role in developing the power exchange market especially in countries like India. More players in the market would lead to better exchange of information and competitive prices in the long term.

It was suggested that a paper pertaining to issues on trading be prepared. This paper would cover the regulatory issues, trading margins and the above mentioned topics.

The Advisory Group also suggested that a paper on financing merchant power plants be prepared by IDFC and presented to the Group in the next meeting.

2. Cross subsidy and role of CERC: It was brought out that in line with the Tariff Policy, the State

Electricity Regulatory Commissions are to provide a roadmap to ensure that tariffs are in the range of +/- 20% of the average tariff by 2011. However till date, little has been done in this area. The role of CERC in enforcing the above was discussed. Various alternatives to ensure that the states adhere to the above parameter of +/- 20% were discussed. One of the ways could be that in the states where it is not done, there could be restriction on allocation of unallocated quota (which is 15% of the capacity) of the central generating stations.

It was agreed that a paper be prepared on the key issues impacting the growth of the power sector. The issues should also include the status of implementation of the recommendations



made by the National Tariff Policy and provisions as per the Electricity Act 2003 (e.g. allowing open access and reducing network subsidies to +/- 20%).

3. Captive Power Plants: It was brought out that as per the existing provisions of the Electricity Act

2003 (EA 2003), a subsidiary of a company cannot purchase power, under captive user norms, from the power plant owned and operated by another subsidiary of the same company. It was highlighted that the guidelines of EA 2003 be modified / amended, whereby subsidiary companies of the parent company can supply power to each other. This should be allowed subject to the parent company holding atleast 51% in the subsidiary companies. It was suggested that a recommendation be made to the Ministry of Power (MoP) to make suitable amendments in the EA 2003 to reflect the above.

4. Transmission Infrastructure: Mr. Vinayak Mavinkurve informed the Group that in addition to the

Ministry of Power (MoP) target of adding 78,000 MW generating capacities in the 11th Plan, about 50,000 MW is also being planned to be added by the private sector. About 30,000 MW of generating capacity out of the above mentioned 50,000 MW is being planned in the East and North East region, where coal blocks have been allotted / MoUs signed for hydel power.

A number of these projects are being planned on merchant basis wherein no end user is foreseen at the time of development / financial close. These projects will respond to bids called by various state utilities for their power requirements – Case I bidding procedures. The end user for the power generated from these proposed projects will be identified only in due course. Hence at the time of the projects approaching financial institutions for financing requirements, there is no visibility on the evacuation infrastructure. This acts as a major impediment in achieving financial closure. Transmission companies face problems in setting up excess transmission infrastructure as there could be delays in commissioning of projects and some projects may not come up at all. In this scenario, transmission companies face the risk of bearing cost of excess transmission infrastructure. In order to have a meeting ground of the developers, financiers and the transmission company, the following options were suggested: a. Transmission capacities should be built up in addition to the evacuation infrastructure

planned for the 78,000 MW.

b. It can be said with a very high degree of certainty that major deficit regions in the country will remain as West, North and South, whereas the major generating capacities are expected to come up in East and North East. The developers should make open access applications to PGCIL on the basis of the above to ensure that the evacuation infrastructure is in place by the time the projects achieve COD.

It was mentioned by the advisory group, that out of the 30,000 MW that is planned to be developed in the eastern /north eastern region, in addition to the 78,000 MW, only about 15,000 – 20,000 MW will finally be developed. In addition, PGCIL is planning for a 30% redundancy in its evacuation infrastructure that would be sufficient to take care of the evacuation requirements of the said capacities. It was also suggested that considering the fact PGCIL is aware of the central sector’s generation plans, state’s power requirements (identity of potentially deficit regions), and private developer’s generation plans, it should set up transmission infrastructure from potentially power generation regions of east/north east to deficit regions (west/north/south) without any specific open access applications. This will ensure that the specific evacuation infrastructure is in place at the time the



proposed private power generation plants, which are presently under financing without any visibility on the identity of the procurer, become operational and are able to evacuate power thereby providing comfort to the financial institutions at the time of financing. Over the construction period of such power plants, till such time the procurer is identified, which will provide a visibility to PGCIL over the identity of the procurer responsible for compensating for the capital expenditure incurred/to be incurred by it, support from the Government of India/Ministry of Power in the form of budgetary grants can ensure financing alternatives.

4th EAB Meeting on April 14, 2008 1. The matter regarding off take by subsidiaries of a parent company from another subsidiary

where a captive power plant is housed was discussed and it was decided that this be taken up when there is a particular case in this regard.

2. Presentation was made by IDFC team (Ms. Ritu Anand & Mr. Nirmal Mohanty) on the status of

implementation of the Electricity Act 2003 and various other regulations. Key points noted during the presentation were as follows:

a. Unbundling of State Electricity Utilities has been done by a number of states such Andhra

Pradesh, Kerala, Uttar Pradesh, Haryana etc. However, states like Kerala, Tamilnadu, Himachal Pradesh etc repeatedly ask for extension of time for the same. It was noted there was no penalty for not unbundling the State Utility.

b. Open access regulations yet to be issued in some states. Further, the study showed that the cross-subsidy charge was high in some states, therefore, the cost of open access power was higher than grid power. It was suggested that a penal provision be introduced for non-implementation of open access.

It was suggested that IDFC prepare a paper on Open Access in transmission & distribution, clearly highlighting issues that may hinder financing in these areas.

c. Regulators have approved Captive Power applications in most states. However, there have

been specific cases of disapproval in states like Haryana & Orissa. It was noted that Maharashtra and Gujarat have issued beneficial orders for accessing captive power.

3. It was suggested that IDFC review the paper pertaining to issues on trading prepared by PTC

Ltd and give its views on the same. . 4. Financing of Merchant Power plants: Mr. Vinayak Mavinkurve informed the Group that in

addition to the Ministry of Power (MoP) target of adding 78,000 MW generating capacities in the 11th Plan, about 50,000 MW is also being planned to be added by the private sector. About 30,000 MW of generating capacity out of the above mentioned 50,000 MW is being planned in the East and North East region, where coal blocks have been allotted / MoUs signed for hydro-electric power. The key issues in financing of these power plants are as follows:

a. There is a risk that the power plant would be commissioned prior to the commercial

operations date of the coal mine. It was suggested by Mr. Mavinkurve to the Group that to mitigate the risk of delay in the commerical operations date of the coal mine, a coal linkage on a tapering basis be provided to the power plant. The committee deliberated on the issue and noted that:



i. Tapering linkage may be difficult as Coal India Ltd would have to make significant investments for providing coal on a tapering basis for a limited time period and Coal India Ltd may not find it viable to do so.

ii. Committee recommended that the developer commission the power plant in line with the coal mine. Environment clearance is the key clearance delaying development of coal mines and the developer can schedule activities in line with the same.

iii. It was also recommended that a presentation by project developers be organized wherein they may apprise the Group of the key problems being faced by them with respect to mining.

b. Land acquisition: Developers were facing significant problems in land acquisition.

c. Cross-subsidy charge: In many of the PPAs, in case of a financial event of default by the

utility, the power from the project can be sold to a third party but incidence of cross subsidy surcharge is not exempted. The group debated and recommended that this is not appropriate and that in such a case payment of cross subsidy surcharge be exempted.

d. Transmission infrastructure: A number of these projects are being planned on merchant

basis wherein no end user is foreseen at the time of development / financial close. At the time of the projects approaching financial institutions for financing requirements, there is no visibility on the evacuation infrastructure. This acts as a major impediment in achieving financial closure.

The Group highlighted that about 30% excess capacity is being planned by PGCIL. Further, capacity addition from the Private sector could be much lower than announced or could spill over to the 12th plan. Therefore, transmission infrastructure is unlikely to be an impediment.

5. The Group opined that a paper be prepared with issues highlighted from a financing

perspective and recommend points which can be taken up with Regulators, State Government and Central Government.

5th EAB Meeting on May 13, 2008 1. The Group discussed the allocation process of coal blocks which were allocated for generation

of power. The Group considered the pros and cons of adopting a transparent auction process for allocation of coal blocks in the future. It was pointed out that though auction could introduce transparency and objectivity, it would result in a higher price of coal, leading to increased cost of power. This it was felt would be against the objective of making coal available at a low price to reduce cost of power. The Group also considered the impact trading of coal would have on the stability in prices of the commodity.

2. Mr. K.V.V. Rao from GMR Kamalanga Energy Limited who have been allotted a coal block for

development of a 1050 MW power plant made a presentation to the Group on their experience so far in development of the coal block. The key points made by Mr. Rao were the following:

a. A Joint Venture Agreement with the 6 partners to whom the coal block was jointly allotted (in

November 2007) was signed on February 19, 2008.

b. Of the 6 partners to whom the block has been allotted jointly, only 2 partners have their project / mining plans for the mine in advanced stage of development, 1 partner is in moderately advanced stage, while the other 3 are dormant.



c. No Geological Report was made available to the 6 allotees at the time of allotment of the coal block. There is thus uncertainty about quality and quantity of coal reserves in the allotted block.

d. The coal block remains largely unexplored and available information on the block has been based on sample studies which are inadequate. It is therefore difficult for the allottees to estimate the quantum of investment required for commercial production of coal from the block. Mr. KVV Rao suggested that it would greatly facilitate development activities if explored coal blocks were allotted to companies..

e. Timeframe for implementation: Mr. Rao pointed out that as per the timelines set by the Ministry of Coal, the coal block has to be made operational within 52 months of allotment. GMR is planning to shorten this time frame to 42 month and if facing a number of procedural problems as listed out below:

i. The Central Mine Planning & Design Institute Limited (CMPDIL), a subsidiary of Coal

India Limited is the designated entity for approving the mining plan. Though CMPDIL’s role is important to ensure that the coal reserves are being exploited optimally, the time taken by CMPDIL to provide its approval is unduly long. The Group pointed out that though this process is necessary, CMPDIL should provide its approval on the mining plan within a period of 2 months.

ii. It was noted by everyone that CMPDI is also facing capacity issues in terms of

unavailability of drilling machinery etc

iii. There is delay in obtaining prospecting approval and forest clearance both of which are estimated to take a year. Prospecting cannot commence unless forest clearance is in place. The Group opined that it to ensure that timelines are shortened and facilitate development of mine, the above clearances should be in place prior to allocation of the block. Further, demarcation of Forest land and mining area (go/no-go areas for mining) should be done upfront. Shorter timeframes should be taken for approving mining area.

f. The Power Advisory Group pointed out to the developers that the above delays should be

factored at the time of the bidding and the development work of the power project should also be scheduled accordingly. i. Resettlement & Rehabilitation policy (R&R policy): There are difficulties in implementing

the R&R package by standalone captive block operators with limited size. Complying with some of the conditions like a) locating alternate land for the displaced family, b) employment of large number of people when developer is contemplating contractual mining, is difficult.

ii. Lack of infrastructure facilities: Coal blocks are located at isolated regions with no access road and power supply. Mr. KVV Rao suggested that in areas where Coal India Ltd (CIL) has existing coal mines, it would greatly help allottees if CIL shares some of their infrastructure during the initial period of operation of the coal block.

iii. Duty concessions: Mr. KVV Rao highlighted the need for duty concessions for importing high cost equipment necessary for developing the coal block.. The Power Advisory Group pointed out that the duty concessions could be considered by the Government provided a comparative analysis of the old technology vs latest technology/ capital goods required to be imported is done and it can be demonstrated that adoption of latest technology/ capital goods result in a reduction in tariff to the consumer.



iv. Power purchase bids not finalized by State Utilities: Mr. KVV Rao highlighted the

difficulties being faced by power project developers in finalizing their off take through Case 1 bidding. He pointed out that a number of states have not finalized the power purchase bids even though tenders had been floated sometime back. The key reason for the same is that the State Utilities are facing a dilemma of higher priced power supply from the bids obtained as compared to the proposed tariffs of the power to be supplied by the Ultra Mega Power Projects.

3. A presentation was made by Mr. B.P. Singh – Executive Director (Mines) NTPC on their

experience in development of the coal mine allocated to them for development of power plant. Key points noted during the presentation were as follows:

a. Carving/ Sizing of coal block to facilitate optimal development of the mine is a problem as

there is inadequate data provided on the coal block by the Ministry of Coal. Mr. BP Singh pointed out that maps given for coal mining by Ministry of Coal are not the same as the boundaries on the ground.

b. Evacuation issues: Allotted coal blocks in some cases are locked from all sides by other

mines and therefore, there are problems with respect to evacuation of coal. Evacuation by railway is difficult if the railway line goes over coal bearing area. Permission for the same is not easily available.

c. Mr. BP Singh highlighted the need to inform railways in advance of the development of the

coal block at the initial stage itself as they may not be aware that coal blocks are being developed and investments would be required for evacuation of coal.

d. There is a lack of co-ordination between the State and Central Governments with respect to

allocation of coal blocks. Mr. BP Singh pointed out of instances where State Governments are planning hydro projects in the land allocated for coal mining.

e. NTPC recommended that before allocation of blocks the GR be prepared and proper

identification coal bearing and non-coal bearing areas be done. It was recommended that clearances for part-mining be considered by MoC.

f. R&R policy: There are differences between the State and Central policy resulting in

difficulties in implementation. In addition, problems are created by large business groups announcing R&R policy of Rs. 1200 crore, which actually may not be there on the ground, however setting the benchmarks for other R&R packages.

4. The Advisory Group highlighted the need for a tapering linkage to be given to companies

developing a power project by utilizing an associated captive mine. The Linkage would essentially be for the interim period till the coal block starts production. The government may consider providing a preference to companies requesting a shorter tenor linkage.

6th EAB Meeting on July 8, 2008

1. The agenda for the meeting before the group was to discuss Issues in Captive Coal Mining and

also finalize the Discussion Paper on Developing Power Markets. 2. Mr. Mavinkurve introduced the issues faced by developers in Captive Coal Mining and the

following key issues were deliberated by the Advisory Group.



Role of Coal Regulator 3. Mr. Shahi emphasized that the coal regulator is likely to be appointed in the near term. The coal

regulator would oversee pricing of coal which is important from the consumer’s point of view. Mr. Shahi mentioned that the Expert Committee Report on Coal Sector under the chairmanship of Mr. T.L.Sankar has looked into various aspects of the pricing of coal. The role of the Coal Regulator has been looked at in detail by the expert committee which had recommended comprehensive oversight of the coal sector by the coal regulator.

4. Mr. Ailawadi expressed that the most important role of regulator would be to facilitate the

development of the sector by laying down the various rules and procedures through a consultative process. Illustrating this point, it was mentioned that CMPDIL under CIL was playing a quasi-regulatory role, which could also be taken up by a regulator. It was also emphasized that the involvement of multiple ministries – MoC, DGMS, MoEF – was a bottleneck in the allocation, development and operations of the coal mining.

5. Mr. Shahi, supporting the need for a regulatory framework and regulator, however emphasized

that it would be preferable to recommend alternate options till a coal regulator is put in place.

Allocation & Development of Captive Coal Blocks 6. Mr. Bakthavatsalam expressed that the first step in this direction would be to identify and

prioritise major hindrances to captive coal block development and find ways to eliminate/ mitigate such hindrances to speed up the development of the captive blocks. It was discussed by the member that the multitude of clearances required from various authorities often delays the development of the captive blocks. In this regard, Mr. Ailawadi mentioned the need to look at the clearances required to be taken and also identify the authorities that would grant the same.

7. Mr.Shahi, referring to the chart in the discussion note depicting the timeline for coal mine

development, sought clarifications on the source of the same and enquired whether the timelines mentioned are indicative of the best practices in other major coal bearing countries. It was clarified that the chart was gathered from secondary sources and was to indicative of the timelines in India. It was mentioned that the chart was used to illustrate that forest clearance is the critical clearance in the entire process from the date of allotment of the letter to production of the coal mine. Mr. Bakthavatsalam expressed the need to look at the practices in other countries, like Australia and South Africa, to compare against the various clearances and timeline to ensure faster route of development.

8. Mr. Thakur mentioned that according to the new competitive bidding guidelines for power

projects, huge penalties are introduced for project over-runs and non-compliance of supply agreements. Therefore, a suggestion was made that power projects with captive coal blocks should build in sufficient cushion for clearances to mitigate risks of paying a heavy penalty for time over-runs.

9. Mr. Shahi expressed the need to have ‘go’ and ‘no-go’ areas defined clearly in context of

environmental and forest clearances. It was also mentioned the need to have less elaborate or no clearance process for prospecting purposes especially in ‘go’ areas. It was also mentioned that in-principle MoEF clearance for investigation purpose should be given in a shortest possible timeframe.

Mr. Bakhtavatsalam mentioned about an EIA notification, superseding the earlier notification, which requires projects to be undertaken only after the prior environmental clearance from the Central Government or as the case may be, by the State Level Environment Impact Assessment Authority. It was mentioned that depending on the size and environmental impact of the project, as notified in the schedule of the notification, it is determined whether the project would require



prior environmental clearance from the State Environment Impact Assessment Authority (which acts on the recommendations of the State Expert Appraisal Committee).

10. The members discussed the issues in auctioning approach to allocation of captive coal blocks

for generation of power. To the suggestion that coal blocks could be auctioned based on the lowest end-use price of power, it was mentioned by the Advisory Board that there would be too many unknown variables while allocation of the coal block and the Developer may not be able to come to a conclusive tariff for bidding purpose.

11. Mr. Thakur brought out the argument that price of power in turn would depend on the price of

coal. Thus, in the absence of sufficient data on depth and seam-thickness of the coal block and the quantity and quality of coal, it is not possible to ascertain the price of coal.

12. Mr. Thakur also mentioned that the process for allocation of block should also consider the

preparedness of the developer to develop a project. It was mentioned that since land is the one of the most contentious issue today, developers in an advanced stage of land acquisition should be given preference.

13. With reference to the auctioning of coal blocks, Mr. Thakur further mentioned that the general

thinking emerging in various fora is that the bidding process for power should be such that power producers having captive coal blocks should compete with other captive block owners, but not with power developers who get coal supply through the linkage route. The key issue would be pricing of coal developed as coal mined by captive block owners is likely to be cheaper than the coal available from coal linkage.

14. Mr. Shahi was of the view that once the GRs are available providing reliable data of coal in the

block, coal price based bidding may be considered. It was suggested that institutional arrangements with reference to coal block allotments need to be strengthened and public private partnership model may be introduced as was done in the power sector.

15. Thus, the members were of the view that in the present context the emphasis should be on

finding ways to expediting the captive coal block allocation process.

16. In the context of finalization of the Discussion Paper on Developing Power Markets, the members brought out the following issues for incorporation / correction: a. Conditions for granting of LoI by financing agencies b. Intended tie up of 60-70% of merchant power capacity with off-takers c. Size of large projects & mega projects should be kept the same definition as that of mega

projects d. Recommendation that MPPs of more than 1000MWs for coal thermal and 500MW for hydro

and tied up supply to power utilities in more than two states through long term PPA should be granted mega power status and should be eligible for benefits contained in the mega power policy.

7th EAB Meeting on August 20, 2008 1. The issues faced by private power developers in Captive Coal Mining were deliberated by EAB

and remedial measures suggested.

Guidelines followed for Identification of Coal Blocks for Captive Allocation 2. It was brought to the notice of the members that the guideline followed for identification of coal

blocks provides that captive coal blocks should be at ‘reasonable’ distance from existing mines and projects of CIL. Further, the guideline also mentions that blocks in greenfield areas having



less or no development of basic infrastructure like road, rail link, etc. may be allotted to the public/private sector for captive mining. It was discussed that blocks are being identified at a distance from existing infrastructure of CIL and located in remote areas, devoid of all basic infrastructure. This poses great difficulty for the coal block allottees to quickly bring the coal blocks to production stage.

3. The members recommended that guideline should bring more clarity to the term ‘reasonable’

distance and proposed that in identifying coal blocks it should be considered that the distance should not be at a disadvantage of the captive coal block developer in terms of available infrastructure and other facilities

4. Mr. Shahi also proposed that it should be recommended that coal blocks in the vicinity of

CIL/SCCL, which are not included in the expansion plan of CIL/SCCL, should also be included in the list of allocation and not excluded because of their proximity to CIL/SCCL blocks. This would facilitate development of more coal blocks in a situation where availability of coal at power stations has become a critical issue.

5. It was discussed that most of captive blocks being identified are either unexplored or regionally

explored with inadequate information. This adds to developer’s risk and causes delay in development of the blocks. Mr. Shahi was of the view that the present process of coal block allotment should not be disturbed, but it may be recommended that going forward in medium to long term the Ministry of Coal should mobilize CMPDIL and other exploration agencies to generate more information on the coal blocks being identified for allocation.

6. The members further mentioned that it may not be appropriate to ask for coal blocks to be

identified after developing the infrastructure and other facilities, since the private developers also have a role to play in this. However, it was felt by the members that the Central/State Government agencies should facilitate development and creation of infrastructure in the mining areas.

7. Mr. Ailawadi mentioned that developers should coordinate with other coal block developers in

proximity to jointly fund the development of Infrastructure based on a Master Plan prepared by an independent agency.

Allocation of Captive Coal Blocks

8. With reference to allocation of captive coal blocks three different routes were suggested, depending on the availability of information of the coal blocks and based on the suggestions of Mr. Thakur in the previous meeting that price of power would depend on the price of coal, which in the absence of sufficient data on the coal block is not possible to ascertain. Mr. Shahi also mentioned that the procedure adopted in the case of allotment of UMPPs is now an established successful model, and similar model could be seriously contemplated in captive coal block allotment.

Approvals & Clearances

9. Mr. Shahi indicated that although major changes in the approval process and legislative changes may be sought, the immediate steps would be to identify solutions within the existing framework that would facilitate the approval process. In this regard, Mr. Shahi expressed the need to have ‘go’ and ‘no-go’ areas defined clearly in context of environmental and forest clearances. It was also mentioned the need to have less elaborate or no clearance process for prospecting purposes especially in ‘go’ areas. It was also mentioned that in-principle MoEF clearance for investigation purpose should be given in a shortest possible timeframe.



10. Mr. Ailawadi suggested that besides the Forest Advisory Board, the empowered committee should also be delegated authority to accord approval in certain defined categories of forest areas.

Land Acquisition

11. With reference to land acquisition, Mr. Mavinkurve expressed and the members agreed that it would be unrealistic to expect that land acquisition would be completed before applications are invited for prospective developers. The members recommended that in such cases where the land belongs to the State Government, the Government should take steps to speed up the process of land allocation. Mr. Ailawadi suggested that where the land belongs to the State Government, it could be recommended that the deposit money could be relaxed.

Rehabilitation of Project Affected People

12. The issue was raised that the National R&R Policy provides for the State Governments to have their own policies, and many States have put in place their own R&R policies that are in some aspects more stringent on the developers, and sometimes poses difficulty for the developer to agree on a R&R package with the PAPs. It was suggested by the members that the Ministry of Coal could be recommended to coordinate with the State Governments to align the State R&R Policies with the National R&R Policy.

Joint Allotment of Coal Blocks

13. It was discussed that in case of joint allotment of blocks if some partner companies of the proposed Joint Venture do not furnish the Bank Guarantee then the development of the mine and of the associated power plant with the mine is held up. The members suggested that companies in the consortium who furnish the Bank Guarantee should be allowed to proceed with development of the coal block, and the partners who fail to provide the bank guarantee should be replaced with other companies from among the applicants whose applications are pending with the Ministry. The members also expressed that the company allocated the coal block, having the requisite financial strength, could also be given the freedom to choose partners from among the applicants whose applications are pending with the Ministry.

14. It was suggested by the members that the paper on issues in Captive Coal Mining by Private

Power Developers should have an executive summary of recommendations segregated under actions to be taken by Central Government, State Government and Developers.

8th EAB Meeting on October 8, 2008 1. The financial crisis which started in the US has transmitted to rest of the world giving rise to a

global economic crisis. This global crisis is severely impacting the financing of power projects in India, thereby posing a threat to achieving the planned targets. In this context the members discussed the several issues in financing that the power projects are facing in this troubled time. The key issues discussed are as follows:

a. Global financial crisis has its impact on the financial system in India with reduced liquidity,

non-availability of foreign currency loans and increasing interest rates. b. Impact is felt across the financing system and the impact is likely to be higher on Institutions

such as Power Finance Corporation (PFC), IDFC which do not have their own deposits. PFC has committed to projects of capacity 60,000 MW. These projects would face delays if PFC faces liquidity issues.

c. The Indian financial system is faced with considerable liquidity constraints. As a result there is enhanced risk that some projects may not get disbursements at the right time, thereby resulting in delay and cost escalation.



d. It was, however, mentioned that projects which would have complied with all the pre-disbursement conditions are unlikely to face any short-fall in terms of availability of bank finance.

e. The weak sentiment in the financial markets would impact the equity raising plans of companies. This would impact projects which are under construction wherein the promoters would not be able to bring in their equity contribution.

f. Promoters would also delay new expansions in the current scenario. It was also mentioned that the equity markets were already facing problems because of high valuations done for the equity issue in the power sector in the recent past. The current financial crisis would further weaken sentiment regarding the power sector.

g. It was also mentioned that there could be bankable projects which are facing equity constraints and these could be of interest to entities interested in project equity. It was informed that PTC was able to make an investment which is close to commissioning under similar circumstances. In the current environment, as there are constraints on availability of capital, these projects could offer attractive returns.

9th EAB Meeting on December 10, 2008 1. In view of the ongoing global economic crisis and the issues in financing that the power projects

are facing in this milieu, Mr. Shahi proposed a brief discussion on the issue of how development of power sector in India is impacted by the ongoing global economic crisis.

Impact of Global Economic Crisis on Power Sector Development in India 2. The financial crisis which started in the US has transmitted to rest of the world giving rise to a

global economic crisis. This crisis has also affected India with the economy going into a slowdown, several projects in various infrastructure sectors are being affected by the slowdown. The economic crisis is impacting the financing of power projects in India, thereby posing a threat to achieving the planned targets. In this context, the members discussed that it is important to understand the extent of impact and the several issues involved, which include whether private sector companies would face bigger problem in accessing funds, delay in disbursements of projects achieved financial closure, difficulty in achieving financial closure. The members expressed concern that projects which are in advanced stages of development, or have a got all clearances and achieved financial closure, or those that can be quickly brought to this stage should not get delayed because of non-availability of finance.

3. It was agreed by the members that it would be useful to study the effects of the slowdown on the power sector in India to better understand the principal issues, and propose pragmatic actions to be taken by the various stakeholders to mitigate the sudden slowdown in power sector development. In particular, the members felt the urgency to prevent delays for want of funds in projects that are under construction, those that have achieved financial closure and those projects that could be quickly brought to that financial closure stage.

4. In this regard, it was agreed that a paper would be prepared focusing on the following types of power projects and issues thereof: a. Projects that are off the ground i.e. under construction – the key issues here would be as

follows i. Availability of debt financing ii. Equity not forthcoming resulting in constrained debt financing iii. Projects where all preparatory work has been done or is in advanced stages and

would come for financial closure in the near future



The policy group of IDFC will prepare this paper seeking inputs from the PAG members and other groups within IDFC. The paper will be circulated to the PAG members by December 24, 2008 and a discussion on the paper is proposed for January 7, 2009. Issues to be taken up with CERC

5. Mr. Ailawadi introduced his paper on ‘Open Access and Competition in Electricity Market – Roadblock & Regulatory Issues’. Summarizing his observations from the regulations and practices in the context of Open Access, Mr. Ailawadi expressing concern on present practices emphasized the need for greater role of CERC in ensuring competition in electricity sector. Thus drawing upon the lacunae in the existing regulations and practices, Mr. Ailawadi expressed the urgency on the part of CERC to adopt the following: a. CERC to ensure uniform approach, consistent with National Tariff Policy, in determination of

Cross Subsidy Surcharge and Additional Surcharge; b. CERC clearly lay down principles for conclusively determining stranded/sunk costs for

fixation of additional surcharge by SERCs; c. CERC to ensure that costs to Open Access users be reasonably determined, consistent

with the spirit of Electricity Act and National Policies; d. CERC to own up explicit responsibility of interstate transmission and jurisdiction on

intervening transmission facilities. CERC to determine charges for ‘intervening transmission facilities’;

e. CERC ensure ring fencing of SLDC and making SLDCs more accountable (mandating SLDC for giving permission to open access within specified time and reasons for rejecting permission, monitoring SLDC delays on grounds of congestion or technical nature);

f. CERC to ensure transparency in operation of SLDCs by mandating better reporting of transmission capacities (total, allocated and available) at regular interval.

6. Mr. Baijal complementing Mr. Ailawadi for clearly articulating the present impediments in

creating competition in Power Sector, presented a comparative assessment of targets and achievements in the Telecom and Power Sectors. Highlighting the achievements in the Telecom sector vis-à-vis Power Sector, Mr. Baijal expressed that while regulations have facilitated the development of the telecom sector by creating an enabling environment for investments and growth, similar successes are yet to be seen in the power sector. Summing up his views, he emphasized that legislations have given enormous powers to the Electricity Sector Regulators and the Regulators have to aggressively exercise their powers for ensuring growth and a fair deal to the consumers and investors.

7. Mr. Shahi and Mr. Thakur although expressed the inherent difficulties in comparing Telecom and Power Sectors, were in agreement with Mr. Baijal on the need for the Electricity Regulators to rise to the occasion and show greater commitment to give shape to the spirit of the Electricity Act. Mr. Thakur further expressed concern on the absence of level playing field for private and public sector players.

10th EAB Meeting on January 7, 2009 1. The agenda for the meeting was discussions on the petition drafted by Mr. Ailawadi titled ‘Draft

Petition to the CERC for removal of barriers to Competition & Open Access’ and discussion note on ‘Impact of Current Economic Crisis on Power Generation Projects Developed by the Private Sector in India’.

Draft Petition to the CERC for removal of barriers to Competition & Open Access

2. Mr. Ailawadi summarized the issues covered in the petition and the supplementary note, with specific reference to the provisions of the Electricity Act. The supplementary note addresses the issues raised by Mr. Baijal in response to an earlier draft of the Petition.



3. Mr. Shahi informed the group that he has spoken to Dr. Pramod Deo, Chairman, CERC and Mr. Alok Kumar, Secretary, CERC on the subject. Dr. Deo and Mr. Kumar have suggested that IDFC’s PAG submit a document to CERC on the subject as a discussion paper and not as a petition. CERC will take up the matter suo-motu under the provisions of the Electricity Act 2003, and would consider issuing the Discussion Paper as a Policy Paper.

4. Mr. Baijal suggested that the document could be submitted as a review petitions of the prevailing regulations by various entities so that there is increased pressure on CERC to urgently address the impediments to competition in power sector.

5. However, after detailed discussion on the manner of submission of the issues on Competition and Open Access to CERC, and in view of the legislative provision that CERC can suo moto review existing regulations, the members agreed that the issues shall be submitted to the CERC as discussion notes.

6. Mr. Shahi proposed that the issues in Open Access need to be segregated in the context of Transmission and Distribution respectively, since the Electricity Act provides for Open Access in transmission system separately from that in distribution system and the issues are indeed different on several aspects. The members supported the proposal and it was agreed that two separate discussion papers would be prepared on Transmission Open Access and Distribution Open Access respectively.

7. Taking note of the various issues highlighted in the draft paper prepared by Mr. Ailawadi, the members deliberated on pragmatic solutions and agreed on the following recommendations: a. Recommendations with reference to Transmission Open Access

i. Need to broaden the scope of open access period (para 6.9 of main paper) ii. More transparency in information of TTC and ATC (para 3.3 viii of main paper) iii. Fixing reasonable and fair intervening transmission charges (para 6.2 of main

paper) iv. Issues relating to short term open access such as fresh approvals required even

though a separate buyer and/or separate seller is available for an approved open access transaction for as a temporary arrangement

v. Issues relating to long term open access such as change of source of power (within a region) in case of an approved open access transaction in the event of delays in commissioning of such source of power (highlighting the flaws in prevailing policies and procedures for long term open access)

vi. Strengthening powers of the RLDC (point iii of supplementary note) vii. Additional powers of RLDC to act as nodal agency (point ix of supplementary note) viii. Three key Issues drawn from the recommendations of the expert committee set up

by the Ministry of Power strengthening the LDCs b. The main recommendations of the paper on distribution would be as follows:

i. Right of CPPs to evacuate power through dedicated lines (para 6.10 of main paper) ii. Determination of cross subsidy surcharge aligned with National Tariff Policy (para

6.7 of main paper) iii. Scope for open access need to broaden (defining and inclusion of intermediate

and medium term OA) iv. Allowing third party sale of power and waiver of cross subsidy surcharge in the

event of default by DISCOM v. Removal of cross subsidy surcharge in case of open access from a renewable

source of power It was agreed that the papers on Open Access would be finalized by Mr. Ailawadi and Mr. Baijal with inputs from Mr. Thakur.



8. The members further agreed that Mr. Thakur would lead the effort of preparing a third

discussion paper on issues to be taken up with CERC in the context of developing power markets, which would focus on issues other than open access. Impact of Current Economic Crisis on Power Generation Projects Developed by the Private Sector in India

9. IDFC presented a summary of the paper, highlighting the problems faced by the developers as well as financial institutions in the milieu of the ongoing financial crisis. The problems faced by specific developers, as gathered from the discussions with them, were also submitted to the members. It was mentioned that in the absence of project-wise detailed financial information, the impact on specific power projects could not be assessed.

10. Mr. Mavinkurve explained that the availability of private equity has seen a huge decline in wake of the crisis. He mentioned that in cases where private equity funds are willing to invest, the low valuations offered based on current market conditions are not acceptable to the developers.

11. Mr. Mavinkurve further pointed out that projects that have already achieved financial closure and complying with contract covenants (including availability of equity with developer) are not facing any financial problem. However, where developers are unable to bring in their share of the equity, financial institutions may not be willing to disburse subsequent tranches of fund.

12. To somewhat mitigate the fund availability problem faced by the developers, Mr Mavinkurve suggested that developers of large projects should consider downsizing the planned capacity of projects. However, it was pointed out that such downsizing would affect the tariff of the project and may make the project uncompetitive under the tariff based competitive bidding framework.

13. Mr. Shahi stressed that the financial difficulties faced by the projects may derail the development prospects unless immediate off-setting actions are taken. Thus the issues need serious introspection and pragmatic solutions identified to mitigate the present crisis. In this regard, the following suggestions were made: a. There is a need to press Ministry of Power for clarity on projects that are eligible for mega

power status. Since the award of mega power status affects the project cost by 12%-15%, such clarity would help in determining project cost and funding requirement adequately. In case projects do not receive mega power status, the increase in project cost presents difficulties before lenders as well as developers.

b. Unless there is clarity on mega power status, projects cannot enter into a PPA. Financial closure of a project is not possible unless a PPA has been signed for offtake of power from that project. Therefore, clarity on projects that would receive mega power status would enable faster financial closure of projects.

c. There is a need to review and reduce the cap for mega power status (in terms of installed capacity of project eligible for mega power status)

d. Options of mezzanine financing and sub-ordinated debt can be explored 14. Mr. Shahi suggested that there is a need for greater introspection and discussion on the likely

solutions/means to address the problems faced by projects. In this regard, he suggested that we may think of inviting a few developers to the PAG meeting and get their views on this matter.

11th EAB Meeting on February 11, 2009

Impact of Current Economic Crisis on Power Generation Projects Developed by the Private Sector in India



1. In continuation with the previous meeting, Mr. Shahi started with the discussion on the Impact of Current Economic Crisis on Power Generation Projects Developed by the Private Sector in India.

2. Mr. Thakur pointed out that the central issue in the present milieu is availability of equity. He informed that developers often make claim of equity available for their projects based on perception that they would be able to obtain the required equity by showing progress made by projects on the ground. Further, developers also expect a premium on the basis of such progress. He mentioned that this confused perception often finds its genesis in the signals received from private equity players or financial institutions. Mr. Thakur pointed out that prior to the slowdown, many developers had plans to raise primary issue. Similarly, many had planned to obtain private equity. However, these plans have not materialized because of the economic slowdown and the fall in the equity market. Mr. Karra added that developers with core business in sectors outside power are not willing to pump in fresh equity in power projects on account of the uncertainties in their core business. The members agreed that although power projects are faced with several issues, the first step is to identify those projects that are facing gaps in equity funding and pursue them

3. Mr. Thakur suggested that the PAG could take stock of all projects in the development stage and shortlist projects that are imminently doable, so as to suggest measures for facilitating financial closure of such projects.

4. Mr. Shahi agreeing with Mr. Thakur suggested that PAG could invite ICICI Bank, IDBI Bank, PTC, IIFCL, IL&FS, IDFC Ltd. and IDFC Projects Ltd. to come together to review and rank projects in advanced stage of development and imminently doable but are having difficulty in achieving financial closure. This would enable the group to help such projects to achieve financial closure. It was discussed that only those financial institutions that have an equity portfolio group should be involved in the discussion in the first stage.

5. Mr. Ailwadi mentioned that financial closure of projects may not happen unless the projects have entered into a power purchase agreement (PPA). However, Mr. Shahi pointed out that financial closure could happen even in the absence of a signed PPA. He pointed out that Financial institutions could agree to conditional financial closure and specify separate conditions for final disbursement. It was mentioned that PAG has already covered this issue and listed out the conditions in the discussion paper on developing power markets.

6. Mr. Baijal, however, questioned whether the PAG was moving into the wrong direction by proposing to talk to financial institutions first instead of talking to developers. He proposed that PAG could hold discussion with developers first and could also invite the Chairman of Central Electricity Authority (CEA), which reviews power projects status on a regular basis.

7. Mr. Pradeep Singh suggested that the PAG should identify causes for non-availability of equity with private developers and find solutions for these causes. He pointed out that in a business as usual scenario there is competition amongst equity investors. If these investors come together on the same platform, it may be interpreted as cartelization. Further, the financial institutions may not be able to arrive at a consensus on the status of projects and thus it may be better to identify general problems faced by developers in getting equity funding and find pragmatic solutions to the same. Mr. Singh also pointed out that though financial institutions may discuss the problems faced by developers in the current context, particularly in respect of equity funding, they may not be willing to share details of projects.

8. Mr. Baijal suggested that PAG must keep in mind the fact that many of these institutions may not share details since IDFC could be a competitor for them. Mr. Shahab seconded Mr. Baijal on this issue of conflict of business interests between institutions.



9. Mr. Shahi taking a considered view suggested the need to talk to the institutions identified above to understand whether they have any reservations to discuss project wise details given the limited objective of this discussion. He suggested that in the event of such reservations, a joint meeting of the institutions and developers could be organized wherein CEA could also be invited. He further suggested that a one day discussion forum could be organized wherein discussions with financial institutions and developers could be held in separate sessions. He further mentioned that he would discuss the subject with the concerned officials in IDBI and ICICI.

Issues in Case I & Case II Bidding Process

10. During course of discussion on impact of economic slowdown, Mr. Thakur pointed out that no

PPAs are being signed under Case I route over the last three years. In Gujarat, Adani Group after signing a PPA has now asked for a revision of tariff citing a change in the economic situation in the country. Therefore, the issue of signed PPA required for financial closure cannot completely be ignored and the financial institutions might bring up this point.

11. Mr. Thakur further mentioned that several States had formulated their own bidding documents before the Standard Bidding Documents were issued by MoP. Thus consequent to the release of the Standard Bidding Documents for Case I, several States want to insert clauses from their own bid documents. In view of the difficulties with the present bidding process, Mr. Thakur raised the issue of whether a process of reverse bid is possible in case of competitive procurement of power by distribution companies i.e. where sellers rather than buyers of power invite bids. This implies that the developer who is setting up a plant invites tariff based bids from distribution companies wishing to procure power.

12. Mr. Thakur, in this context, expressed that Electricity Act 2003 does not preclude Independent Power Producers (IPPs) from inviting bids for sale of power. While it is necessary that distribution companies procure power only through a competitive bidding process, there is nothing in the Electricity Act that restricts IPPs from inviting bids for sale of power. He mentioned that some SERCs are quite open to a discussion on this issue.

13. Mr. Ailawadi mentioned that such a reverse bid could be possible as long as SERCs examine PPAs and power purchase tariffs during the approval process of the Annual Revenue Requirement (ARRs) of Distribution Companies. Thus, as long as tariff for power procured through the process of a reverse bid is in the range of the average power purchase cost and price of traded power, SERCs may not disallow such power procurement costs.

14. Mr. Singh suggested a variation to the mechanism for reserve bid mentioned by Mr. Thakur wherein the developer could fix the price for power and invite bids from distribution companies on the quantum of power to be supplied. However, Mr. Thakur pointed out that quantity based bidding is not allowed under competitive bidding allowed by the Electricity Act 2003.

15. Mr. Shahi suggested that PAG could examine the present problems in Case I bidding, possible alternatives to overcome the challenges and issues in a reverse bid and the practicality of such reverse bids. Mr. Shahi expressed that if the private sector had a greater presence in the distribution business, such a reverse bid would work. However, in the current scenario where the distribution business is dominated by state owned companies, such a reverse bid may not work.

16. Mr. Shahi suggested that the agenda for the next meeting could be alternate strategies to

competitive bidding. He mentioned that the following issues would be addressed: a. Practical problems for Case I & Case II bidding mechanism b. Possible alternatives to overcome challenges



c. Is reverse bidding process a plausible alternative?

Draft Petition to the CERC for removal of barriers to Competition & Open Access 17. It was agreed that Mr. Ailawadi would prepare and circulate a draft paper / petition on open

access in distribution. 18. In response to Mr. Baijal’s comment that such a petition may not fall under the purview of

CERC, Mr. Shahi mentioned that CERC being the nodal office of Forum of Regulators (FOR) could take up the issues for discussions with FOR.

19. The draft petition on open access in transmission was discussed by the members, and the

following changes were suggested: a. Change in tone of issues in point 5.3.4 and 6.6 of the paper. b. Point 5.3.4 needs to be modified to include penal actions that can be taken by CERC under

relevant sections of the Electricity Act. The issue raised in this clause also needs to be included in the prayer to CERC as a separate point or in combination with an existing point.

c. More clarity to be provided in point 8.7 on the disputes being referred to.

20. The members authorized Mr. Shahi, Mr. Ailawadi and Mr. Baijal to sign the petition on behalf of the PAG. Mr. Thakur highlighted that the petition should explicitly specify that it is being submitted by the Power Advisory Group of IDFC and not IDFC Ltd

21. It was further agreed that Mr. Ailawadi and Mr. Baijal would revise and send the petition to Mr.

Shahi, and Mr. Shahi would write the application/letter to CERC for waiver of fee. It was further agreed that in the case of the petition come up for hearing before the Hon’ble CERC, Mr. Ailawadi, Mr. Baijal and Mr. Shahi would argue in favour of the petition. Discussion paper on issues to be taken up with CERC in the context of developing power markets

22. Mr. Basu pointed out that the paper has been culled out from an earlier discussion note prepared by PAG, which has already been sent to MoP and Planning Commission.

23. With reference to issue of including transmission pricing in this paper, Mr. Basu pointed out that

CERC has drafted a paper on transmission pricing and a consultation has been held on the same. Therefore, CERC may soon issue an order on transmission pricing framework. In view of this, Mr. Shahi mentioned that the issues on transmission pricing could then be taken up after the notification of the Commission’s Order.

24. Mr. Ailawadi, pointed out that two key issues in the note need further introspection. The first

being that CEA in its guidelines has mentioned that transmission lines cannot be laid down until there is clarity of the beneficiary. However, the matter requires critical review in the context of its practicability. The second issue is that of demand forecasting and its impact on power market development. The 17th Electric Power Survey (EPS) already provides demand projection for the medium to long term. There is a need to identify if there are any inadequacies in the manner in which demand projections are done in this EPS.

25. Ms Ritu Anand suggested that there may not be enough justification to file a separate petition

based on few general recommendations on market development as CERC is already pursuing many of these issues. Mr, Baijal agreeing with Ms. Anand suggested that there is a need to first finalize the recommendations on the issues before taking a decision on the same.

26. Mr. Shahi suggested that the next draft should provide summary recommendations / prayers as a separate section at the end of the note, which the members would review to decide whether



there are enough substantive recommendations to justify submission of a separate petition to the CERC.

12th EAB Meeting on April 8, 2009

Draft Petition to the CERC for removal of barriers to Competition & Open Access 1. Mr Shahi informed the group that the Petition for removal of barriers to Open Access in Inter –

State Transmission Network and promote competition in Power Market had been submitted to the CERC with a covering letter requesting waiver of application fee. The petition was signed by Mr. Shahi, Mr. Ailawadi and Mr. Baijal as authorized representatives of the PAG. However, the issue of petition fee waiver was pending with the CERC.

2. In this context, Mr. Shahi proposed that PAG should wait for another 15 days for CERC’s

decision. In this period if CERC declined to waive off the fee for the petition or the issue remained unresolved,, then PAG would request IDFC to pay this fee. He pointed out it would not be much of a financial burden on IDFC, as such occasions would not arise more than 2-3 times in a year. He further added that in the event that IDFC refused to extend support, the petitioners would together bear the expense.

3. Mr. Ailawadi mentioned that the CERC has issued the Central Electricity Regulatory Commission

(Grant of Connectivity, Long-term Access and Medium-term Access to the inter-State Transmission and related matters) Regulations, 2009. He mentioned that there are several gaps in the draft regulations which render them toothless. Mr. Shahi suggested that the PAG could consider submitting comments on these Regulations to CERC, but restrict the comments to issues that have not been already covered in the petition submitted to CERC.

4. Mr. Thakur informed the members that PTC has already submitted detailed comments on the

above mentioned regulations and also on the draft amendments to Open Access (OA) in Transmission regulations. He circulated the comments to the members for their perusal and brought to the notice of the members some of the outstanding issues.

5. Mr. Thakur illustrating the disconnect between present practice and lacunae in the regulations

mentioned that AP Transco presently mandates SLDC certification in case special meters are required to be installed for OA to a consumer and supply of electricity by CPPs to the grid, and OA is not granted till such certification is made available by the SLDC.

6. Mr. Thakur further pointed out that while the current regulations allow OA for up to three months

(short term OA) or for 25 years or more (long term OA), the above mentioned draft regulations allow OA for a period exceeding 3 months but not exceeding 3 years (medium term OA) or for a period exceeding 12 years but not exceeding 25 years (long term OA). He submitted that restriction of long term OA to 25 years is unfair for both thermal plants having a life of 30 years and hydro plants having a life of 35 years.

7. Mr. Shahi, explained that restriction of long term OA to 25 years is in view of the fact that coal

linkage is granted to a thermal plant for a period of 25 years and thus most PPAs are put in place for 25 years, with the provision that beyond 25 years the continuation of PPA is mutually decided.

8. Mr. Thakur further pointed out that a Bulk Power Transmission Agreement (BPTA) for 25 years is

a pre-requisite for financing transmission lines by lenders. Transmission companies are concerned that they may have to build a new line to provide OA for say 5000 MW for 3 or 12 or 15 years, but the BPTA is needed for the life of the generation plant to ensure financing of the transmission line. Mr. Thakur also mentioned that developers in public as well as private sectors



intending to set up merchant power capacities need OA and PPA for 12 years as they are required to repay the loan in the same timeframe. Thus, transmission companies are also required to collect all charges for the associated transmission line in the same time frame to ensure that the transmission lines are financeable.

9. Mr. Shahi expressed that such a concern is misplaced. He mentioned that after expiry of the OA

term, the consumer of the generating plant may change, but the power would continue to flow through the transmission line. Thus, the transmission line will continue to be commercially viable even after the expiry of the OA term. However, Mr. Shahi agreed that CERC OA regulations are unduly restrictive and limiting long term OA to 25 years only would prevent market development.

10. Mr. Thakur, reiterating Mr. Ailawadi’s earlier submission, mentioned that the real problem is the

fact that the Central Transmission Utility (CTU) and State Transmission Utilities (STU) do not disclose the transmission capacity available with them. The transmission capacity declared by them when compared with the quantum of power flow through the transmission lines would indicate whether refusal of OA by CTU or STU is justified.

11. Mr. Baijal expressed that the jurisdiction of CERC is restricted to intra-state transmission

incidental to inter-state transmission, and therefore the petition filed by the PAG before CERC on OA in intra-state transmission network would be restricted in scope. He further added that petitions on judgments of different State Electricity Regulatory Commissions (SERCs) could be filed before the Appellate Tribunal for Electricity (ATE), under Section 121 of the Electricity Act 2003. However, Mr. Shahi pointed out that the CERC can intervene in matters related to OA in intra-state transmission network, but so far has not been doing so. Impact of Current Economic Crisis on Power Generation Projects Developed by the Private Sector in India

12. Mr. Shahi proposed continuation of discussion on the Impact of Current Economic Crisis on Power Generation Projects Developed by the Private Sector in India.

13. Mr. Mavinkurve explained that IDFC has a relationship with about 35-40 private sector

developers in the Indian power sector, and IDFC’s experience is that the funding constraints faced by these developers go beyond the financing issues.

14. Mr. Mavinkurve pointed out that projects totaling capacity addition of about 25,000 MW have so

far attained financial closure, which include about 3200 MW by JSW Energy, 4000 MW by Adani, 6000 MW by Tata Power, 1200-1500 MW by Jindal Steel and Power Ltd. (JSPL), 4500 MW by Essar Power, 675 MW by KSK energy and 500-600 MW by Raghu. The Letters of Credit (LCs) for these projects have been opened and funding has commenced. He indicated he would provide a list of these projects.

15. Mr. Thakur mentioned that developers from the above mentioned list have also approached

PTC for equity funding, and was certain that the developers have approached other investors as well who can provide equity funding. Therefore, the question is whether the private sector developers have the required equity and the investor attractiveness of the valuation expected by the developers.

16. Mr. Shahi pointed out that there is a need to discuss with the developers seeking equity funding

and attempt to change their mindset with reference to the valuations expected by them. He added that in case developers are unreasonable, the issue should be escalated to the Ministry of Power (MoP) or the Ministry of Coal (MoC) and their intervention should be sought. It is not fair for the developers to hold on to coal linkages - in a scenario of coal shortage for power generation – when they are not developing the projects.



17. Mr. Mavinkurve, raising concerns on the sensitive nature of the issue of equity being available with developers, pointed out that developers may be reluctant to discuss such issues in public forum, including in a forum like the PAG meetings. He added that developers may have reservations about revealing their expectations on valuations. He suggested that instead of holding a discussion with the developers on exclusively financing issues, the PAG could consider holding a general discussion with private sector developers on the problems being faced by them in the present milieu. He pointed out that the imminent problems being faced by the developers are absence of PPAs, poor opportunities under Case I & II competitive bidding routes, lack of clarity on completion of bidding processes undertaken at State level, exchange rate movement, and mega power project status. Mr. Mavinkurve further added that mega power status is given only to projects that sell the entire quantity of power under a PPA, and this provision affects the plans for developing merchant power capacity.

18. Mr. Thakur mentioned that signing PPA is a pre-requisite for the grant of the mega power status

by MoP. For private sector developers, since PPAs can be signed only through tariff based competitive bidding route, the developer faces the dilemma – (i) whether benefits to be achieved through the mega power status should be considered in their bids and (ii) the quantity of power proposed to be sold under the bid. The risks are that the developer may not win the bid and for a winning bidder the contracted power may be lower than what the developer has offered to supply. Further, mega power status is given to projects that sell power to more than one state. Thus, even if the developer signs a PPA with a utility in one State to supply power from a project, mega power status cannot be granted to the project. Mr. Thakur pointed out that competitive bidding cannot take place for mega power projects because of the uncertainty surrounding the grant of such a status by MoP. He added that except for the Ultra Mega Power projects (UMPPs), the mega power status has been granted to only two projects, which includes the Sugen project of Torrent Power.

19. Discussing the key problems faced by developers, Mr. Thakur mentioned that although the new

coal distribution policy provides for conversion of a coal linkage into a Fuel Supply Agreement (FSA), if the project has entered into a PPA, it is lack of opportunities under Case-I & Case-II bidding routes and lack clarity on completion of bidding process that makes it difficult for the developers in obtaining a PPA.

20. Mr. Shahi agreed that addressing such issues is critical for development of the sector and

pointed out that it is wrong to demand a PPA at the outset for grant of the mega power status in view of the practical problems involved. However, he expressed that the benefits due to mega power policy would bring down the cost of generation by about 12-13 paise and these benefits should be passed on to consumers. It is in this context that the disclosure of signed PPA assumes importance.

21. Mr. Shahi also expressed that benefits relating to custom duties and waiver of other taxes should not be provided under the mega power policy. In this context, Mr. Thakur submitted that mega power policy is applicable to projects with large economies of scale, which makes smaller projects noncompetitive with such mega-projects in terms of tariff.

22. Mr. Pradeep Singh pointed out that as long as there is shortage of power, consumers might not

be able to fully avail of the benefits due to mega power projects since distribution utilities may be willing to procure power at high rates.

23. Mr. Mavinkurve further mentioned that power generation projects that sell power entirely to state

owned utilities find it difficult to raise funds due to the poor commercial viability of these utilities. He highlighted that the receivables of KPTCL are to the tune of Rs.4000 crores, and also well performing distribution utility like BESCOM has now recorded a deficit.



24. Taking note of the various issues discussed, Mr. Shahi ardently proposed the need to organize a Discussion Forum to understand from the developers more clearly the various issues faced by them. He mentioned that he would speak to Mr. Rajiv Lall (MD & CEO, IDFC) on the idea of organizing this Discussion Forum with the proposed agenda. He further suggested that Mr. Mavinkurve could also speak to Mr. Lall about this. He further added that he would make efforts to ensure participation of the Ministry of Power in the discussion forum. However, he appealed that the agenda for this discussion forum should be broad in scope but focused and should abstain from general discussion of problems.

Role of PAG in furthering IDFC’s business interests 25. Mr. Shahi brought up the need to take stock of the manner in which the PAG is assisting IDFC.

He pointed out that the mandate of PAG also includes advising the different Business Groups of IDFC on issues in the energy sector.

26. Mr. Mavinkurve pointed out that the the issues faced by IDFC in respect of funding projects are

similar to those faced by banks, the only difference being that IDFC is an NBFC. Ms. Anand added that IDFC being an NBFC faces difficulty in raising funds at competitive rates.

27. Mr. Mavinkurve further informed that power sector constitutes 40% of IDFC’s business and the

share of telecom sector is rapidly growing. He added that IDFC has intentionally aligned its interests towards specific segments. IDFC’s client profile in the power sector includes private sector power utilities, city gas distribution entities, captive power plants and power equipment suppliers. With reference to the status of sanctions and disbursements to the power sector in FY 2008 and FY 2009, Mr. Mavinkurve informed that about Rs. 4700 Crore was sanctioned during FY 2008 and about Rs. 3500 Crore was disbursed during that year. During the year FY 2009 about Rs. 4600 crore was sanctioned and about Rs. 2000 Crore disbursed.

28. Mr. Shahi enquired how NBFCs like Power Finance Corporation (PFC) and Rural Electrification

Corporation (REC) raise funds at competitive rates. He also expressed concern at the small magnitude of IDFC sanctions and disbursements compared to PFC and REC.

29. Ms. Anand responded by pointing out that PFC and REC enjoy a preferred status with insurance

companies in respect of borrowings from these insurance companies. The PAG was informed that IDFC has already taken up these issues with the GoI. Responding to Mr. Shahi’s inquiry on sanctions & disbursements, Mr. Mavinkurve explained that state utilities are captive consumers of PFC and REC and forms bulk of the PFC and REC’s customers.

30. Mr. Mavinkurve, explaining IDFC’s activities in the energy sector, mentioned that IDFC also

takes stake in projects, retains a minimum stake and syndicates the remaining amount of funds. This enables IDFC to earn higher Return on Equity.

31. Mr. Shahab informed the PAG that besides project finance, IDFC’s business includes project

and private equity, SSKI and IDFC Projects. He further added that IDFC Projects is developing a 1600 MW project in Gujarat, wherein it holds 48% of the equity. The management of this project vests with IDFC Projects but the tariff will be regulated.

32. Mr. Pradeep Singh suggested the need for a brain-storming session with the PAG on the role of

IDFC Projects in the energy sector. 33. Mr. Shahi proposed that the agenda for next PAG meeting could include discussion on IDFC’s

activities in the energy sector.

Issues in Case I & Case II Bidding Process



34. Dr. Basu pointed out that in the previous meeting the members proposed that it may be useful to initiate a discussion on the practical problems for Case I & Case II bidding mechanism and identify possible alternatives to overcome these problems.

35. Mr. Shahi suggested that this issue could be taken up in the proposed discussion forum with power project developers or the next PAG meeting.

Discussion paper on issues to be taken up with CERC in the context of developing power markets

36. On this agenda item, Mr. Shahi indicated that most issues addressed in the paper on developing power markets are not topical any more. He suggested that the PAG in the next meeting could decide on more topical issues to be taken up for deliberation.

13th EAB Meeting on June 10, 2009

1. Mr Shahi enquired about the status of the proposed discussion forum/workshop with the

developers of power projects and financial institutions to understand more clearly the various issues faced by developers and find solutions.

2. Mr. Mavinkurve informed the members that he had spoken to Dr. Rajiv Lall, requesting him to

provide a set of convenient dates when he could attend the proposed forum. Mr. Shahi added that the PAG members would offer the support possible in the organization of the forum. He proposed the following title for the workshop: Bringing together all relevant stakeholders to make power projects in pipeline happen.

3. Mr. Mavinkurve enquired if half a day of the Workshop could be devoted to the distribution

business, in particular to the financial health and payment ability of state owned distribution utilities. He pointed out that financing Independent Power Producers (IPPs) and Merchant Power Producers (MPPs) is difficult because of concerns relating to the financial health and payment ability of the entities offtaking power from them. Mr. Shahi said that this subject could be taken up for a separate workshop, wherein state owned Discoms could also be involved. This workshop could be titled: Distribution sector reforms and revenue sustainability and its outputs could be taken up with the Ministry of Power. However, Mr. Shahi informed that the Power Finance Corporation (PFC) has already done some work on this subject. Mr. Thakur pointed out that numerous conferences have been organized around this theme, and thus the value of the workshop on this theme would depend on the concreteness of the solutions to the problems.

4. Mr. Mavinkurve suggested that the workshop on the distribution business could be a closed

door one with participants only from IDFC. Mr. Shahi suggested that since other financial institutions might be also facing similar problems, it could be useful to involve them as well in this proposed closed door discussion.

5. Mr. Shahi however expressed that currently no IPPs are facing a problem of payment from

Discoms and that that there are only 4-5 states in the country wherein the financial health of Discoms is a cause of concern. He pointed out that Discoms are procuring power at Rs. 8-10 per unit, which was not be possible if they were short of money. He added that the problem of payment receipt from Discoms is more relevant for state owned generation companies (Gencos). Since the Gencos are also owned by the state government, Discoms choose to hold back payments to the Gencos while making regular payments to IPPs.

6. On the issue of power procurement by Discoms, Mr. Thakur and Mr. Gurdeep Singh informed

that the Delhi Electricity Regulatory Commission (DERC) has held that Discoms can procure



long term power through the MoU route. They need not necessarily pursue the competitive bidding route for power procurement. Mr. Thakur pointed out that the key issue here is whether Discoms can procure long term power without going through the competitive bidding route. He added that the National Tariff Policy (NTP) does not permit long term power procurement through a route other than competitive bidding. To this, Mr. Ailawadi expressed that though the NTP provides guidelines to be followed by all concerned in the power sector, regulators can deviate from the guidelines and propose alternatives, provided such alternatives can be adequately justified.

7. Mr. Shahi, bringing the focus of the discussion back to planning for the two workshops,

summarized that the first workshop would be a one-day roundtable titled how to make projects in the pipeline happen or removing roadblocks for development of power projects in the pipeline. The second workshop could be a closed door one and would involve participation from other select financial institutions like PFC, REC, IIFCL and PTC. The objective of this workshop would be to discuss the approach for funding power projects and address concerns regarding payment default by Discoms. He suggested that Dr. Lall be present for both the workshops.

Problems facing power generation projects developed by the private sector in India

8. Mr. Thakur pointed out that power projects currently being developed are facing several problems. First and foremost, financial institutions insist on a power purchase agreement (PPA) before sanctioning loans for these projects. However, without knowing the financing and EPC costs associated with projects, developers find it difficult to bid and enter into PPAs. He opined that the financial closure of a project should be done on the basis of the ‘do-ability’ of the project. If lenders are convinced that power is saleable at the tariff indicated by the developer and the project will generate sufficient RoE, they should finance the project. He cited the case of Jindal Steel and Power Ltd.’s (JSPL) project in this regard.

9. He highlighted that the second problem facing developers is that of coal linkage. Projects are

given coal linkages that meet only 70% of the requirement of the plant. As a result, the quantum of generation is affected and developers are unable to recover costs. In case the remaining coal requirement is met through purchases from the market, finding a supplier and price of coal become impediments to such procurement. He suggested that some quantity of coal be reserved for MPPs to overcome these problems.

10. The third problem is that Return on Equity (RoE) for power projects has been restricted to 16%.

He opined that this is not reasonable considering that organizations like PTC, PFC and REC don’t invest in projects that offer them RoE less than 21-22%. He added that restricting the RoE for projects is unfair to the private sector.

11. Mr. Shahi stated that the issue of RoE falls under the jurisdiction of the regulator. He added that the issue was debated at length when the Central Electricity Regulatory Commission (CERC) was formulating the terms and conditions for determination of tariffs.

12. Mr. Thakur opined that regulations should not mandate or restrict RoE to a certain level. He

expressed that regulators should only specify the range for acceptable levels of generation tariffs. As long as the generation tariffs fall within this range, the developer should be allowed to earn any RoE. He suggested that instead of determining tariffs on a cost plus basis, the prices discovered in the market could be used to determine the tariff range. However, Mr. Basu and Mr. Ailawadi pointed out that currently there is no market for power in the country. In the absence of a market, the determination of the tariff range remains doubtful.

13. Mr. Thakur, suggesting an alternative to determining the tariff range, pointed out that the regulator approves the tariff for projects set up by the Central Public Sector Undertakings



(CPSUs). The fixed cost of tariff so determined for the last NTPC station could be adopted as the benchmark. He added that NTPC’s power plants are amongst the most efficient in the world, thereby eliminating concerns of efficiency.

14. Mr. Ailawadi, pointing out problems related to such an approach, highlighted that different

power plants for NTPC have different geographies. As a result, the generation tariffs for such plants differ and it would be unfair to IPPs to adopt the tariff of a particular NTPC plant as the benchmark.

15. Mr. Shahi, supporting Mr. Ailawadi’s views suggested that the group should prepare a

discussion paper on this issue and submit the same to CERC. Mr. Gurdeep Singh on behalf of IDFC Projects offered to draft the discussion paper on Tariffs.

16. Mr. Thakur pointed out that determination of tariffs for IPPs does not fall under CERC’s purview.

Further, CERC has no jurisdiction on tariffs in case power is sold through an intermediary on long term/short term basis to more than one state. He cited the order issued by the Appellate Tribunal of Electricity (APTEL) in a case filed by Lanco in this regard.

17. Mr. Shahi added that as per the Electricity Act 2003 (Act) and the NTP, the terms and conditions

for determination of tariffs formulated by CERC are binding on the state electricity regulatory commissions (SERCs). He clarified that CERC has the power to determine tariffs in case power is sold to more than one state. He expressed that in his view the judgment of APTEL is therefore illegal.

18. Mr. Mavinkurve informed the group that in case of Torrent Power Limited (TPL), CERC had

approved the capital cost of the Sugen project. CERC had stated that though such capital cost approval was not part of its mandate, it did so as a one-off case. However, the tariff for the power sold by the project was determined by the SERC in Gujarat.

19. Mr. Thakur pointed out that CERC itself held the view that it has no authority to determine tariffs

in the event power is sold to two states through an intermediary. He added that it is for the courts to debate on the legal framework and CERC’s jurisdiction in respect of such tariff determination. He further added that the PAG can suggest amendments to the law to bring about clarity. But such amendments are a time taking process.

20. Mr. Shahi reminded the members that in the PAG discussion paper titled Development of Power Markets, there was a table indicating the conditions for final loan agreements and conditions for loan disbursement. He raised three questions in this regard viz. (i) whether IDFC has been following these conditions, (ii) whether the PAG or IDFC has approached other financial institutions to follow these conditions, and (iii) is there a need for the PAG to revisit these conditions. He reiterated that a PPA should be a condition precedent for loan disbursement and not for loan approval. He further added that if the developer proposes to sell say 60% under a PPA, financial institutions should not require him to provide a PPA for the entire power generated by the project.

21. Mr. Mavinkurve, responding to Mr. Shahi’s first question, informed the group that IDFC follows

these conditions. He then suggested that all states should undertake competitive bidding on an annual basis in a pre-decided month, and CERC could decide and indicate the month. He added that the promoter’s ability and the lender’s comfort with the promoter is a major determinant of the decision to finance the project.

22. Mr. Shahi, summarizing the discussion, stated that if the lender is convinced about the saleability of the power produced, the tariff and the credentials of the promoter, it should finance the project. He added that the present power shortages are likely to continue for some time.



Given this shortage, sale of power would not be a problem. Though all power may not be sold in the range of Rs. 7-10 per unit, there is a safe zone for such tariffs.

23. Mr. Palchoudhary enquired whether the approach followed for renewable energy projects can be adopted for setting up conventional power plants. He highlighted that SERCs determine the tariff for reneable sources and developers set up projects that would supply power at this tariff. Mr. Shahi pointed out that the divergent views at the state level would create problems in adopting such an approach for conventional plants.

24. Mr. Shahi suggested that the PAG could revisit the paper on development of power market in light of the following: (i) funding projects if the tariff is in a comfortable range even though PPA may not be signed, (ii) disbursement of funds by lenders if PPA is likely in the near future, and (iii) order issued by DERC on discoms procuring power through the MoU route. He informed the group that several positive developments have been taking place in respect of open access. PGCIL has agreed to allow developers to indicate the region where they propose to supply power rather than the specific state. It has also lowered charges for processing and provision of open access applications.

25. Mr. Thakur however pointed out that till a PPA is signed, the destination for sale of power is not known. A developer may find that by the time the project gets commissioned, no competitive bidding is being undertaken in the zone initially indicated by it. Therefore, it may change the target zone for sale of power.

26. Mr. Shahi responded that the developer has been allowed to change the buyer region within a certain time frame before the commissioning of the project. This has been done in view of the fact that the transmission network is not built immediately. He added that no penalty will be levied on a developer changing its target buyer region if the transmission capacity being released is taken up by another developer. He highlighted that there is a limit to the comfort that can be provided to developers in respect of open access as the fundability of transmission projects needs to be given adequate consideration. He added that even if developers can indicate the buyer region for at least 60% of the capacity, it would be a win-win proposition for both the developer and the transmission utility.

Role of PAG in furthering IDFC’s business interests

27. Taking up the next agenda item, Mr. Shahi proposed the need to take stock of the manner in which the PAG is assisting IDFC.

28. Mr. Mavinkurve informed the group that IDFC plays a dual but distinguishable role in the energy

sector: (i) lender (financing projects or investing in them), and (ii) developer. He pointed out that the challenges faced in these roles are different. He added that in its role as a lender, IDFC is moving in line with its balance sheet requirement. However, in terms of a regular dialogue with policy makers and other stakeholders in the sector, IDFC’s role has taken a back seat. This contribution was stronger in the past.

29. Mr. Shahi suggested that PAG should take up for discussion IDFC’s contribution to or role in the energy sector. He suggested the following contours for the discussion: (i) lending in keeping with the balance sheet requirement, (ii) catalyst to the overall development of the sector, (iii) developing power projects, and (iv) energy efficiency. He pointed out that IDFC has not contributed much to energy efficiency. He added that IDFC could consider implementing or promoting distribution franchising and distributed generation in load centres. He suggested that the PAG brainstorm on such possibilities in the next meeting.

30. Responding to questions raised by the PAG on IDFC’s portfolio in the power sector, Mr.

Mavinkurve indicated the following:



a. The power sector accounts for 40% of the funding undertaken. The share of transport decreased in the last year while that of telecom increased. The share of road projects is expected to pick up this year as more projects are expected to be awarded by the GoI.

b. The share of renewable energy projects is approx 13%. The portfolio includes small hydro and wind power projects.

c. IDFC has funded many wind power based captive power plants (CPPs) d. IDFC has funded 25-30 CPPs of 50-100 MW capacity. e. Gujarat would possibly account for the largest share. This is because many promoter’s are

based in Gujarat. f. IDFC would take up projects in the areas of energy efficiency and distribution reforms if

these projects are profitable. 31. Moving to the discussion on IDFC’s role as a developer, Mr. Gurdeep Singh informed the group

that IDFC Projects was set up in December 2007. IDFC Projects is currently involved with the development of the transmission network in Chhattisgarh. But this project has not taken off as expected. Despite 16 MoUs being signed for setting up projects in the state, few projects have actually come forward. He added that the financial closure of the project being developed in Gujarat is due before the end of the calendar year. He would provide details of the project in the next meeting.

32. Mr. Shahi observed that IDFC Projects has been set up with certain objectives. There is a need

to take stock of the progress made so far to determine whether the company is on the right track and where the company is expected to reach next year.

Petition to the CERC for removal of barriers to Competition & Open Access

33. Moving on to the above subject and the filing of the petition before CERC on Petition to the CERC for removal of barriers to Competition & Open Access, Mr. Shahi and Mr. Ailawadi informed the group that CERC will not waive off the fee of Rs. One Lakh associated with the filing of the petition. They suggested that IDFC bear this expense.

34. Mr. Ailawadi informed the group that the petition prepared for submission to CERC on open

access in intra-state transmission needs to be finalized in discussion with Mr. Thakur following which the PAG needs to finalize the same. Mr. Thakur suggested that the petition be finalized upon Mr. Baijal’s return.

14th EAB Meeting on August 12, 2009 Discussion on Open Access

1. The meeting began with a brief discussion on issues related to open access in the inter-state transmission network and the associated regulatory provisions.

2. Mr. Thakur informed the group that as per CERC regulations issued on August 7, 2009, a

thermal generating station of 500 MW and above and a hydro generating station of 250 MW and above, other than a captive generating plant, are no longer required to construct a dedicated line to the point of connection with the central transmission grid. Transmission facilities for such plants would be addressed by the Central Transmission Utility (CTU) under the planning of the Central Electricity Authority (CEA).

3. Mr. Thakur further pointed out that many state governments are not allowing power to be sold outside their states by way of open access. Mr. Joshi and Mr. Mavinkurve added that some states are using their powers under section 11 of the Electricity Act 2003 (Act) to restrict such sale. Upon Dr. Lall’s enquiry on the legal tenability of such actions, Mr. Thakur responded in the negative.



4. Dr. Lall expressed that since regulations are in a state of flux, they are to be tested and

challenged. He implored the group to think whether the PAG can take one of the cases of restriction of open access to court. Mr. Baijal replied in the affirmative provided finances were available. To this Dr. Lall clarified that IDFC would provide the financial support provided the case does not turn counter productive.

5. Dr. Bakthavatsalam was of the view that such actions may prove counter-productive for organizations. Mr. Baijal, disagreeing, pointed out that IDFC is neither an IPP nor a utility and is therefore well-placed to take up the issue. Mr. Thakur supported Mr. Baijal.

6. Mr. Shahi apprised the group that the PAG has made representations before the CERC on

earlier occasions through the filing of petitions. It has now found other methods, such as representation on CERC’s Central Advisory Committee (CAC). Several issues have been brought before CERC from time to time, which CERC has been taking heed to while amending regulations. Mr. Shahi supporting Dr. Lall’s idea of challenging the restrictions to open access in court, expressed that PAG’s representation should focus on gaps in the legislative and regulatory framework rather than taking up specific cases. He added that in the opinion of the Ministry of Power, section 11 of the Act should be invoked under extreme circumstances and so only 4 states have restricted open access under this section.

Role of PAG in furthering IDFC’s business interests

7. Mr. Shahi brought the group’s focus to the key agenda proposed for discussion during the meeting viz. taking stock of the manner in which the PAG is assisting IDFC. He summarized the discussions of the past few meetings on this issue for the benefit of participants.

8. Mr. Mavinkurve stated that as a lender, the single most important concern for IDFC is the risk of payment default by Discoms to IPPs (financed by IDFC). In his opinion, poor financial health of the Discoms is likely to get magnified when 35000MW of capacity under construction gets commissioned. He added that the fiscal health of state governments also merit discussion to understand the extent to which states can support Discoms.

9. Mr. Shahi, expressed that these concerns are largely misplaced as no IPP or trader is facing

problem of payment from Discoms. There are only 4-5 states in the country wherein the financial health of Discoms is a cause of concern. Therefore, concerns relating to the financial health of utilities should not be over-projected. He cited the example of UMPPs where government guarantees are not provided for payment from Discoms. He suggested that the group analyze payment trends by Discoms to IPPs in the past 7-10 years to determine whether payments to IPPs are a matter of concern.

10. Mr. Thakur supported Mr. Mavinkurve’s concerns and considered it appropriate that concerns of

lending institutions such as IDFC and PTC in respect of financial health of Discoms are brought before to MoP. He highlighted two concerns in respect of the financial health of Discoms: (i) growing rural connectivity and therefore increased supply to rural areas may put pressure on the already poor financial health of Discoms and (ii) more and more industrial consumers are opting for CPPs, implying that cross-subsidization of tariffs by Discoms would be under pressure. As a result of these two factors, Discoms may continue to depend on state governments for subsidies. He pointed out that RBI has issued guidelines under which payments to public sector companies cannot be withheld. Therefore, Discoms cannot afford to hold back payments to the central public sector generating companies. However, similar treatment is not available to IPPs.

11. Mr. Limaye was of the view that if IPPs face difficulties in obtaining funds on account of the poor

financial health of Discoms, they will escalate the issue to GoI. Pending this, concerns surrounding the financial health of Discoms would remain an issue internal to IDFC.



12. Mr. Mandhana suggested the need to advocate greater improvement in collection efficiency

and loss reduction with the objective of improving the financial health of Discoms. Mr. Shahi pointed out that the GoI is already taking actions to this end and that the APDRP has been strengthened to this effect.

13. Dr. Lall remarked that it is difficult to undertake an analysis to establish that none of the Discoms

are capable of making payments to IPPs. Further, since the financial health of utilities is dependent to a large extent on the support provided by State Governments, it is important that the current and likely fiscal health of states be analyzed to determine whether they can continue to support the power sector. His view was that the financial health of Discoms is unlikely to deteriorate in future and that it is unlikely that State Governments would default on payment commitments to the sector. His supporting rationale was that incremental demand driving the shortage of power is coming from industries. Since consumers in this category have the ability to pay for the power being consumed by them, the financial health of Discoms may not be affected. Further, given the dynamics between the Centre and States on fiscal issues, State Governments would be careful against making defaults. He suggested that IDFC should seek advice of the PAG on the good and bad performing states. He added that some States are performing better than the others on twin accounts of financial viability of Discoms and fiscal health of State. It is therefore important to choose such States to lend to.

14. Mr. Shahi agreeing with Dr. Lall suggested that IDFC (i) be selective in choice of States to which

IPPs funded by it supply power and (ii) internalize strong payment security mechanisms in its lending to IPPs. He suggested that (i) stronger payment security mechanisms be built in if the IPP proposes to sell power to the ‘third rated’ States and (ii) IDFC consider introducing a clause in the loan covenant indicating the States to which the IPP can sell power. He stated that the lending community in general is not enforcing the implementation of Distribution reforms in States. He suggested exploring new payment security mechanisms, which if practical and sound, could be discussed with FIs such as PFC.

15. Mr. Thakur pointed out that IPPs do not have clarity on the offtakers at the time of seeking

financing. He added that at the state level, the bidding documents are adapted from the standard bid documents (SBD) issued by MoP. Lenders do not have a say in these documents. Representations may be made to Discoms/State Governments at the stage when Discoms are finalizing the bid documents. Mr. Shahi suggested that representations can be made to MoP to suitably amend the SBD.

16. Dr. Lall enquired why financial institutions are required to commit funds before knowing where

power would get sold. Mr. Thakur explained that without knowing the financing and EPC costs associated with projects, developers find it difficult to bid and enter into PPAs. This however is a catch-22 situation. As after the bid process, developers discover that the actual costs associated with the project are much higher if risks are factored in. Mr. Rao clarified that a PPA is a condition precedent for loan disbursement and not for loan approval.

17. Responding to Dr. Lall’s query on solutions to this problem faced by IPPs, Mr. Shahi informed

that the PAG discussion paper titled ‘Development of Power Markets’ has already addressed this issue.

18. Addressing Mr. Shahi’s query on IDFC’s portfolio in the power sector, Dr. Lall explained that the

energy sector accounts for about 40% of IDFC funding exposure, of which share of IPPs is 15% while that of group captives, private distribution entities and city gas distribution collectively is 25%. Mr. Rao explained that IDFC exposure to power sector is 33% and oil and gas accounts for 5.7%. Within the power sector, the exposure to SEB risk is only 12%.



19. Mr. Shahi suggested that IDFC should consider raising the exposure to power sector to 40% of its total funding in say 3 years. He also expressed that IPPs are grossly under-represented in the funding undertaken by IDFC, which can be raised to at least 25% of the total funding. He also expressed that 20% of the total funding should be to transmission and distribution (T&D) with equal share for both these segments.

20. Summarizing the discussion, Mr. Shahi expressed that he was not optimistic about the result of

taking this issue before GoI. He, however, suggested that there may be a need to check if the payment security mechanism in Case I bids is at par with that provided for UMPPs, and the case taken up with MoP if it is not so. He expressed that it may be useful to determine other innovative mechanisms for payment security. In this regards, he proposed that Mr. Rao and Mr. Mavinkurve could lead this exercise.

21. Mr. Thakur suggested that the PAG could also take up other issues in SBD for Case I. 22. Dr. Bakthavatsalam suggested the creation of a lenders’ forum with institutions like IFCI and

ICICI to take up policy issues common to lenders. The leadership role can be assumed by each member institution on a rotation basis. He pointed out that a bankers’ forum exists for a similar purpose. Mr. Shahi, lauding the suggestion, requested him to prepare a note on this for the benefit of the PAG.

Activities of other IDFC businesses in the power sector

23. Mr. Miranda, explaining the activities of IDFC Private Equity (PE) in the power sector, apprised the PAG that about 35% of IDFC PE’s 6,000 crore fund has been invested in power related sectors, with about 25% of the fund invested in companies manufacturing power equipment (viz. Moser Baer, Deepak Cables and EVI) and about 10% in utilities. The investment in utilities has been low because of the low valuations commanded by utilities. Mr. Mandhana added that IDFC PE has focused on investments in green energy rather than in conventional energy. Dr. Lall added that other parts of IDFC have also invested in IPPs. Mr. Joshi informed that IDFC Project Equity has invested in GMR Energy’s Kamalanga Thermal Power Plant.

24. Mr. Mandhana drew the attention of the PAG to some issues of concern for IDFC PE. First, the

gas allocation policy of GoI does not promote clean technology such as CHP solutions. Therefore, gas is not available to the more efficient users within the sector. Second, though the GoI has announced generation based incentives (GBI) for Renewable Energy (RE), the amount allocated so far is small. He added that there is lack of clarity on the recipients of such subsidy viz. should subsidy be provided to those who applied for setting up projects post notification of GBI or to those who applied prior to the notification. Dr. Lall pointed out that to scale up RE, the country needs more GBI. Mr. Mandhana added that besides more GBI, there is need for political certainty on the extent and continuity of GBI.

25. Dr. Bakthavatsalam stated the subsidy provided by GoI has been limited by budget and it is unlikely that the subsidy will increase. On the issue of clarity on the recipients of subsidy, he pointed out that a solar authority is proposed to be created under the national solar mission and this authority would address all issues related to implementation of the mission including provision of subsidy.

26. Dr. Lall stated that if the nation wants to promote green/clean energy, tax policies should be

suitably inclined towards such energy. He added that the GoI has not thought of the fiscal consequences of the capacity addition of 20,000 MW of solar power targeted under the national solar mission. He suggested that the group prepare a note on this issue for submission to the GoI.



27. Mr. Mandhana pointed out that there are several regulatory issues as far as sale of power from RE based plants is concerned. To this, Dr. Bakthavatsalam mentioned that the impending CERC regulations relating to RE would substantially address many concerns.

28. Mr. Shahi, addressing the first concern raised by Mr. Mandhana, suggested that the PAG could

take up concerns relating to the gas allocation policy with the MoPNG. He added that this policy is only addressing short term gas requirements. Even the city gas distribution segment cannot be expanded due to shortage of gas. Mr. Shahi also wished to know whether IDFC PE is committed to investing a pre-decided/pre-determined percentage portion of its funds in the next 3-5 years in green energy. To this, Mr. Miranda responded that IDFC PE’s incremental investments in green power could be limited.

29. Dr. Bakthavatsalam re-iterated that the proposed solar authority would address many issues of

implementation as far as solar power is concerned. He added that the model for promotion of solar power in India would be different from that in Germany or Spain. This is because the promotion of solar power in these countries is driven by the need to promote environmentally friendly technologies while the promotion of solar power in India is driven by the need to increase energy capacity. He also offered to advise IDFC PE on RE related issues.

30. Dr. Lall, thanking Dr. Bakthavatsalam, stated that IDFC should seek his guidance on two main

aspects relating to RE: a. Ways in which IDFC can be part of the policy making process on RE b. Type of investments to be undertaken in this sector

Work being done by IDFC Projects in the energy sector vis-à-vis its mandate

31. Dr. Lall pointed out that there are several issues for discussion as far as the activities of IDFC Projects are concerned, the key ones being its portfolio and bidding strategy.

32. Taking cue from the discussion on solar power, Mr. Singh informed the PAG that IDFC Projects has proposed to implement 10 MW solar project in Gujarat. He mentioned that IDFC Projects had applied for the development of a solar PV project. However, the letter of consent from the government indicates approval for a solar thermal project. IDFC Projects is trying to get this rectified. No subsidy is forthcoming from GoI for this project as two projects of 5 MW each in Gujarat have already been given subsidy. In line with GoI’s policy, subsidy is available only for 10 MW in each state.

33. Upon Dr. Bakthavatsalam’s enquiry on the RoI for the project, Mr. Singh informed that it is about

14% that could go up to 16-17% depending on the equipment price. He pointed out that the annual generation from the plant (in the range of 2.0 Million Units/MW) as cited in the discussion note circulated in the meeting was on the higher side.

34. Mr. Shahi commented on the status of project being set up in Chhattisgarh. He observed that

the plant does not have a coal linkage (the same has only been recommended), land has not been procured and environmental clearance has not been obtained. To this, Mr. Singh clarified that the status as mentioned in the discussion note circulated in the meeting was old. Coal linkage has been obtained for the entire capacity of the project and the public hearing for environmental clearance is scheduled for 19th September 2009. Mr. Shahab added that land acquisition is in progress.

35. Mr. Shahab sought the guidance of PAG on a few issues in the context of this project viz. type of

equipment to be contracted for the project, tariff assumptions and relevance of third party sale (TPS) as a security mechanism under the PPA. He pointed out that the state government has the first right of refusal for 30% of the power generated by the project. Besides the power to be sold to the state government, bulk of the capacity of the project is being contracted to two SEBs



through PTC. It is also proposed to sell 8% of the power generated by the plant on a merchant basis. Mr. Shahab further informed that the plant will be located close to the Sipat pooling station. He added that the CTU has granted long term open access to the plant. He further added that the original stakeholder holds 26% equity in the project and the remaining is held by IDFC Projects.

36. Mr. Shahi suggested that the plant should be developed entirely on merchant basis – along the

lines of JSPL’s 1000 MW plant. Mr. Baijal expressed doubt over the feasibility of the merchant route citing that JSPL has captive coal for its plant while IDFC Projects has coal linkage. Mr. Shahi however felt that there is considerable potential for increasing revenue by adopting the merchant route and therefore increasing the return from the project.

37. Mr. Singh sought the advice of the PAG on the expected scenario for sale of power on a

merchant basis in the next 5-15 years. Mr. Shahi opined that though the shortage of power will not be completely eliminated after 5 years, it will reduce. Power will therefore not be sold at the price of Rs. 7/unit, but the price will continue to be substantially high. Given that the cost of producing power will be Rs. 2/unit, costs will be adequately covered.

38. Mr. Thakur offered that IDFC Projects could hold discussions with PTC on the likely scenario for

merchant power in the medium to long term.

39. On the subject of equipment, Mr. Shahi pointed out that the price of Chinese equipment is almost 25% less than that of domestic equipment. He informed the group that the initial problems faced with Chinese equipment have been solved. There is no problem with the technology deployed by the Chinese. He added the price advantage between super-critical and sub-critical equipment is not much. He suggested that if Chinese equipment is procured for the main plant, the Balance of Plants should be procured domestically. He advised that a well-known Chinese contractor be engaged so that the contractor is able to procure visa/work permit for its employees.

40. With regard to third-party sale as a security mechanism under the PPA, Mr. Shahi reiterated the security mechanisms available under Case I PPAs. This mechanism involves a Letter of Credit, an Escrow and permission to sell to a third party if these two mechanisms fail. Mr. Singh pointed out that the utility may procure power from an IPP and sell under TPS. Mr. Shahi disagreed since the risks involved in such a transaction would be much higher for a utility.

Financial health of discoms

41. Mr. Shahi reiterated that there is no evidence to indicate that IPPs are facing problems in realizing payments from Discoms. Revisiting the foregoing discussions that IDFC be selective in choosing the States to which IPPs funded by it supply power, he suggested IDFC undertake an exercise for relative ranking of States. Such an exercise would help identify States that are poor performers and therefore pose greater risks from the lending perspective. He added that this exercise could be similar to the exercise of performance rating of the State power sectors conducted by MoP in the past. He suggested that IDFC could revive this exercise. Data would be available from entities such as CEA, PFC, REC and MoP.

42. Mr. Mavinkurve added that PFC issues data on several parameters on a quarterly basis. He added that data could be sought from Feedback Ventures, in which IDFC has a stake. Feedback Ventures is a consulting organization that is working extensively with utilities and regulatory commissions in the sector.

43. Mr. Chari suggested that the exercise cover state finances as well.




44. Dr. Bakthavatsalam suggested that IDFC start a cell within its policy group for this exercise. He further suggested that IDFC could employ management trainees for collecting requisite data and deploying one person to co-ordinate the data collection and undertake the analysis. Dr. Lall supported Dr. Bakthavatsalam’s views and observed that research assistants could be hired for data collection. He added that collaborations could be explored with the World Bank or the IFC for such an exercise. Mr. Shahi advised that the Policy Group of IDFC should deliberate and explore on starting this exercise.

45. Dr. Lall suggested that the group undertake a similar exercise on the private companies/groups

in the power sector. He added that several individuals within IDFC have the know-how of such companies. However, there is a need to transfer this knowledge and views from individuals to institutional memory. For this purpose, he suggested that a short note could be prepared on the top 15 private companies/groups in the power sector. The note should define 4-5 criteria along which these companies can be ranked. He desired that the criteria as well as the performance of these companies against them be deliberated upon in the next meeting.

46. Mr. Mavinkurve and Mr. Chari informed Dr. Lall that a similar exercise was undertaken a year ago on the top 10 groups in the sector.

15th EAB Meeting on October 14, 2009

Welcoming new members and rechristening the Power Advisory Board 1. Ms. Anand introduced Mr. Ajit Kapadia and Mr. Vatsal Thakor as the new members of the

Board.

2. Mr. Shahi proposed that given the expansion of the PAG to include experts on fuels, the PAG be rechristened to EAB to reflect the new status of the group. The suggestion was accepted.

Discussion on Open Access (OA)

3. Mr. Ailawadi mentioned that he had highlighted concerns related to OA to Mr. B K Chaturvedi, Member, Planning Commission during a meeting.

Review of actions points discussed in 14th PAG Meeting (held in Mumbai)

4. Mr. Shahi suggested that a review be undertaken of the progress made by the EAB against the action points decided in the 14th PAG1.

PAG/EAB to deliberate whether cases of restriction of open access can be challenged in court by the PAG/EAB or IDFC

5. Mr. Shahi reminded the group that Dr. Lall had conclusively mentioned during the 14th PAG that EAB should take up matters related to open access before concerned authorities and IDFC would bear the fee involved in making such representations. The members were further informed that EAB’s representation would focus on gaps in the legislative and regulatory framework rather than specific cases.

6. Responding to Mr. Thakur’s query on whether the representations/recommendations would be

made by the EAB or IDFC, it was agreed that the EAB as a distinguished group can make a more powerful impact on the policy and regulatory framework in the sector.

7. Mr. Ailawadi, referring to the recent orders of CERC on OA, pointed out that several gaps

continue to exist in these orders. As an example, he cited that permission from SLDC is

1 Action points discussed in 14th PAG meeting have reference of PAG


mandatory for the provision of OA. He added that even if SLDC gives permission, state governments put pressure on IPPs to stop sale of power outside the state. He opined that the SLDC’s role is relevant only if the state transmission network (STN) is used to a substantial extent. If an IPP is only seeking connectivity to the STN, SLDC’s role is minimal. He suggested that the regulations be modified to eliminate SLDC’s permission under certain pre-defined situations. He also added that the information disclosed by SLDCs on network availability and usage is not satisfactory.

8. Mr. Thakur, supporting Mr. Ailawadi, added that RLDCs give partial information on availability

and usage of the inter-state transmission network. They do no disclose the capacity reserved for grid security, and CEA is already disputing this. Mr. Shahi thus expressed that the issue of disclosure of information has to be settled between CEA and RLDCs. CERC has given appropriate orders in this regard.

9. Mr. Thakur however expressed that CERC should mandate RLDCs to disclose information on

capacity reserved for grid security. This would help challenge RLDCs in case OA is restricted on the pretext of unavailability of transmission capacity. Mr. Shahi agreed and suggested that he would take up this issue with the National Load Dispatch Committee.

10. Mr. Vatsal Thakor pointed out that determining transmission capacity is a difficult task and grid

security is necessary in the interest of proper grid planning and operation. Therefore, it may be difficult to challenge the extent of grid margin reserved by RLDCs. Mr. Baijal and Mr. Ailawadi agreeing with Mr. Vatsal Thakor argued that grid reliability margin should be determined transparently and RLDCs do not restrict OA on the pretext of grid security.

11. Mr. Shahi summarized the discussions on this point by highlighting that the EAB would take up

issues as and when necessary and make representations before concerned authorities.

PAG/EAB to examine whether the payment security mechanism in Case I bids is at par with that provided for UMPPs. In the event of any discrepancy, PAG/EAB may raise the issue with MoP

12. Mr. Shahi reminded the group that Vinayak Mavinkurve had pointed out that the payment security mechanism (PSM) in Case I bids is not adequate. He added that the comparison of the PSM in Case I bids and UMPPs should be made so that the EAB could take an informed decision for further action. Mr. Shahi suggested that Mr. Pal Choudhury in discussions with Vinayak Mavinkurve may examine the PSMs in Case I bids and UMPPs. In case of a difference in the two, he would raise the issue with Secretary, Power, GoI or Minister’s Committee on Power.

PAG/EAB to examine SBD for Case I and identify issues of concern to be raised with MoP

13. Mr. Ailawadi pointed out that distribution companies (DISCOMs) seek the approval of SERCs on bid documents for Case I power procurement even if there is no deviation from the SBD. He added that it has been seen that in cases where there are deviations from the SBD, DISCOMs float bids during the process of seeking approval from SERCs. The bid documents are later amended with the changes approved by SERCs. This delays the process of power procurement and creates uncertainty for bidders.

14. Mr. Thakur pointed out that the guarantees to be paid by bidders are very high, which no bidders are in a position to pay. He further informed that the escalation rates of inter-state transmission charges as notified by CERC for evaluation of bids viz. 5% are not consistent with the escalation rates in freight charges for coal viz. 2%. Thus, the advantage of locating projects in coal bearing areas is lost as it may be cheaper to carry coal to a power plant located at the load centre than transmit power from a project further away from the load centre. He pointed out that the actual increase in PGCIL’s transmission charges in the past few years has been about 10%.



15. Sambit informed the members that Mr. Pal Choudhury has prepared a draft discussion note on

issues in competitive bidding identifying some of the problems being faced with Case I bidding. However, Mr. Pal Choudhury pointed out that this note mainly discusses the practical problems in implementation of Case I bids.

16. Mr. Shahi suggested that the issues with Case I documents be categorized into policy and

regulatory, and discussions notes be prepared accordingly. He added that policy related issues could be taken up with the Ministry of Power and the regulatory issues/regulatory directives involved in Case I bids could be raised with CERC.

17. Mr. Shahi requested Mr. Thakur to prepare a discussion note on this subject.

Creation of a lender’s forum for the power sector 18. On the proposed concept note on creation of a lender’s forum for the power sector, Dr.

Bakthavatsalam informed that the paper was under preparation and would be circulated to the EAB by Oct 23, 2009. Concerns with gas allocation policy

19. Mr. Shahi pointed out that the issue of gas allocation is complex and is already extensively represented by others. Therefore, the EAB needs to take an informed decision on whether to make a representation before MoPNG on this issue.

20. Mr. Ailawadi, criticizing the manner of gas allocation specified in the policy, proposed that gas should be allocated to efficient plants. Mr. Gurdeep Singh added that there is a need to debate whether gas should be allocated to combined cycle power plants or peaking plants and CHP plants. Mr. Vatsal Thakor, supporting him, pointed out that the SBD in Case I provide for procurement of peaking power. Mr. Gurdeep Singh added that CHP plants are more efficient as they run at an efficiency level of 80% while combined cycle power plants run at an efficiency level of 60%. Mr. Baijal pointed out that the bigger question surrounding gas allocation is that of allocation to fertilizer sector vis-à-vis power sector.

21. Mr. Ajit Kapadia stated that even if all the gas in the country is allocated to the power sector,

only 20-25% of the sector’s gas demand would be met. He proposed to circulate a paper by Dr. Vijay Kelkar on the subject.

22. Mr. Shahi requested Mr. Kapadia to also prepare a note on this subject. He requested Mr.

Gurdeep Singh to give his views on the subject to Mr. Kapadia. IDFC’s funding to the power sector

23. Ms. Anand informed the group that the power sector already accounts for 40% of the total funding done by IDFC.

24. Mr. Shahi suggested that IDFC’s funding exposure to the sector be examined as follows: (i)

power sector (excluding equipment manufacturers), (ii) renewable energy sector and (iii) energy efficiency projects. He requested Ms. Anand to apprise the EAB in the next meeting of the same. He also requested her to inform the EAB on whether there is scope for IDFC to increase funding to energy efficiency projects (such as development of LEDs or CFCs), provided such projects are profitable. IDFC PE to seek guidance from Dr. Bakthavatsalam on the type of investments to be undertaken in RE and ways in which IDFC can be part of the policy making process on RE

25. Dr. Bakthavatsalam reiterated that he would be glad to help IDFC on issues related to RE. However, he mentioned that so far no one from IDFC had approached him for guidance.



Exploring alternative payment security mechanisms for IPPs

26. In the absence of any update on this issue, Mr. Shahi suggested that Mr. Vinayak Mavinkurve may be reminded to pursue this exercise. The EAB suggested that the discussion note on this issue may be submitted by Oct 30, 2009.

Relative ranking of the top 15 private companies/groups in the power sector

27. In the absence of any update on this issue, Mr. Shahi suggested that Mr. Vinayak Mavinkurve may be reminded to pursue this exercise for the next meeting.

Issues/concerns related to the development of Renewable Energy

28. Mr. Shahi proposed that a discussion paper be prepared on this subject. He suggested that Ms. Gulati prepare this paper under the guidance of Dr. Bakthavatsalam.

29. The EAB decided that the paper would focus on wind, solar, small hydro power, biomass and co-generation. Mr. Ailwadi further suggested that the paper could also examine the gaps in (i) CERC’s regulations on tariff determination for renewable energy (RE) based power and (ii) regulations issued by different SERCs. He however expressed that it may be preliminary to comment on issues related to solar power as the GoI is in the process of finalizing the National Solar Plan.

30. Mr. Kapadia added that there are several policy related issues that need to be addressed. He

suggested that IDFC could associate with Clinton Foundation which has interest interests in the solar power sector. Mr. Gurdeep Singh informed that IDFC is already in touch with them.

31. Mr. Thakur pointed out that though GoI has announced Generation Based Incentives (GBI), the

same is not being committed by MNRE to developers (eligible as per provisions of the policies) on account of shortage of funds. This in turn is preventing financial closure of several projects.

32. Dr. Bakthavatsalam suggested that as a first step, the EAB could examine the existing

renewable and non-conventional energy policy and regulatory provisions viz. issues such as accelerated depreciation for wind power projects, tariff order of CERC, etc. Subsequently, the National Solar Plan could be examined in detail.

33. To Mr. Shahi’s enquiry on how IDFC can contribute to the development of RE, Ms. Anand

informed that the IIR 2010 is dedicated to the theme of low carbon infrastructure development and the next Policy Group Quarterly would cover a solar power initiative.

34. Mr. Gurdeep Singh highlighted the activities of Green Infra to illustrate IDFC’s role in the

development of RE. Mr. Thakur however pointed out that IDFC only has an equity stake in this company and has no role in project development.

35. Mr. Shahi suggested that the proposed discussion paper on RE should also highlight IDFC’s

role in RE – current and proposed. Mr. Pant supporting Mr. Shahi’s concerns on IDFC’s contribution to the development of RE expressed that IDFC’s contribution to climate change/environment has often come up during fund raising drives undertaken by some IDFC. Mr. Shahi, reiterating his point, stated that if on a fund raising road show potential investors ask about IDFC’s contribution to the RE development, then IDFC should have an affirmative answer. He suggested that IDFC should have a clear RE strategy and in 2-3 months declare its proposals for contribution to the RE sector.

Generation Tariff Mechanism Paper

36. Mr. Gurdeep Singh and Mr. Thakur explained the concept explored in the paper and clarified that the paper does not cover hydro power.



37. Mr. Thakur pointed out that the mechanism proposed in this paper is for power procurement

through Case I bids. He added that if alternative mechanisms are not explored, states would continue to purchase short term power at high prices and developers would face several problems in setting up projects under the Case I route. Mr. Vatsal Thakor supporting Mr. Thakur expressed that the government seems to lay more emphasis on rules than results.

38. Mr. Ailawadi suggested that the use of SPV mechanism be explored in Case I (along the lines of

Case II) to tie up the inputs required by developers for setting up a project. Mr. Gurdeep Singh and Mr. Thakur pointed out that the conclusion of the paper makes such a proposal.

39. On the enquiry of how the proposed concept addresses the difference between captive coal block and coal linkage, Mr. Thakur explained that Case I bidding does not distinguish between plants with coal linkage and plants with captive coal blocks. Therefore, there is no need to make such a distinction in the proposed mechanism. Mr. Gurdeep Singh further added that plants with coal linkage do not qualify for Case I bidding.

40. Mr. Thakur further pointed out that two SERCs have approved tariffs for projects awarded

through MoU route. He clarified that legal opinion on the Electricity Act 2003 suggests that both MoU and competitive bidding routes are valid for procurement of power by DISCOMs.

41. Following further discussions on the paper, the EAB agreed that the proposal has merit. But it

needs further strengthening with examples and cases of projects currently being developed. Mr. Shahi suggested that the paper be strengthened to this effect.

16th EAB Meeting on December 9, 2009 Payment Security Mechanism (PSM) in Case I bidding

1. Mr. Shahi observed that this action point was pending. He advised that the Secretariat to the EAB should refer to the standard bid documents (SBD) for Case I and the UMPP bid documents to understand whether PSM in Case I bids is at par with that provided for UMPPs. Mr. Baijal and he opined that resolution of this issue is in IDFC’s interest given its multiple roles of developer, financer and advisor to project developers.

Challenges in Standard Bidding Documents (SBD) for Case I

2. Mr. Thakur explained the issues covered in the paper on this subject prepared under his guidance. He added that the issues dicussed in the paper are restricting competition in power generation.

3. Mr. Shahi wished to know whether some of the problems identified in the paper could be illustrated with data from a few recent Case I bids. More specifically, he questioned whether the data from recent bids could be analyzed to conclusively indicate that worthy bidders had been disqualified because of the qualification norms laid down in the SBD. Mr. Thakur responded that data from bids where PTC has assisted the bidder or has been a bidder is available for such an analysis.

4. On the issue of escalation of transmission charges and escalation of railway coal freight

charges for bid evaluation purpose, Mr. Shahi suggested that the paper should include a table on escalation of coal freight charges along the lines of the table on page 4 of the paper for escalation of transmission charges. Mr. Baijal and Mr. Ailawadi suggested that the EAB could file a petition before CERC seeking a review of the regulation on the norms for evaluation of Case I bids.



5. Mr. Baijal opined that there are multiple reasons for actual escalation of different parameters involved in bid evaluation. Further, different parameters have different historical rates of escalation. However, the basic reason for escalation is inflation. Therefore, each parameter should be escalated by the same factor and that factor should be inflation. He added that since the actual escalation for each parameter is not known, using the rate of inflation for bid evaluation would ensure uniform escalation of all parameters. He further wished to know whether bids can be evaluated without escalating the different parameters involved. He also wished to know whether Case I bidding distinguishes between thermal and hydro power and between peak and non-peak power. Mr. Thakor supported the idea of evaluation of bids without escalating the different parameters involved.

6. Mr. Thakur and Mr. Shahi explained that a buyer of power needs to know the cost of power that

is delivered at its doorstep for the next 25 years. Therefore, escalation of bids is necessary to get a sense of the cost in future. Mr. Thakur added that bids don’t distinguish between the source of power or peak and non-peak power and consider only the landed cost of power. He further added that in case of hydel projects, if hydel power is separated into peak and non-peak power, the non-peak power will hardly fetch 60-70 paise as tariff. He opined that the current manner of escalation of transmission and coal freight charges for bid evaluation might make hydel power non-competitive compared to thermal power located within the State of the procurer, thereby impacting the development of hydro power.

7. Mr. Bhattacharyya opined that if the regulatory regime removes the pancaking of transmission

charges, the concern with the escalation of transmission charges could be addressed. He suggested that the issue of transmission pricing be taken up by the EAB. Mr. Ailawadi supported this suggestion. He added that the cost of power should be determined on principle of efficiency. The methodology for transmission pricing is as important as that of escalation of transmission charges for bid evaluation.

8. Mr. Thakur opined that the point of injection criteria irrespective of location of power plant, as is

being considered by CERC for transmission pricing, will encourage optimal utilization of generation capacity. Mr. Shahi suggested that this issue could be taken up separately, as it is outside the purview of the paper under discussion here.

9. Mr. Ailawadi suggested that indexation may be considered as an option for determining the

escalation rates for different parameters. To this, Mr. Thakur pointed out that while international indices are available on coal prices, no index is available for transmission charges of PGCIL.

10. Dr. Bakthavatsalam wished to know the procedure for escalation of charges for gas pipelines

and suggested that the same could provide lessons for escalation of transmission charges. Mr. Shahi remarked that the pricing of gas pipelines is a ‘black box’ and should not be looked upon for reference.

11. Mr. Shahi observed that there is consensus that the rate of escalation of transmission charges is

very high as compared to that of coal freight. However, there is a need to make strong and logical arguments backed by data to seek amendments in the prevailing guidelines.

12. In response to the query on the need to distinguish between serious and non-serious bidders,

Mr. Thakur mentioned that since the level of bid guarantees (BGs) is very high, only serious bidders will participate. Forfeiture of such BGs will be an expensive proposition for bidders.

13. Mr. Shahi wished to know which entity/authority is responsible for action on each of the points

raised in the paper. To this, Mr. Thakur opined that the EAB should not look at issues in isolation. When the EAB writes to the Ministry of Power (MoP) and the Planning Commission (PC) to bring forth these issues, it should provide a comprehensive picture of all issues that are



constraining power generation capacity from coming up in the country. These issues should not be restricted to the problems in SBD for Case I. The EAB should provide a wholistic view of issues constraining capacity addition. The MoP can advise the different entities responsible for action to make desired amends.

14. Dr. Lall, who joined the meeting mid-way, sought clarification on whether there is a fundamental

problem in inviting bids under Case I given the different sources of power or there is an issue with Case I itself. Mr. Shahi explained to him the objective and background behind the preparation of the discussion paper. Dr. Lall expressed that the bid process should ideally be fuel agnostic. Therefore, development of hydel power necessitates either changes in the existing bid documents or a new approach altogether. Mr Shahi supporting Dr. Lall expressed the need to deliberate on the requirement of a Case III approach for bidding, wherein the distribution companies are encouraged to procure peaking power. This is the only way hydel projects located in the north-east will become competitive.

15. Mr. Thakur expressed that a comprehensive picture of all issues that are constraining power

generation capacity addition could be presented to the MoP and PC. He added that the alternate Generation Tariff Mechanism proposed by him and IDFC Projects, where the regulator determines the tariff range or tariff benchmarks for projects being set up by IPPs, suggests a solution to the problem of capacity addition.

16. Mr. Shahi pointed out that a separate policy has been issued for hydro power development.

Therefore, the discussion on hydro power development should be taken up separately.

17. Mr. Ailawadi opined that state governments and state utilities took time to fully gauge the extent of power shortage to be faced by them. Therefore, they did not plan adequate capacity development. However, the states are now serious about mitigating the high levels of power shortage. Therefore, Case I bidding will gather momentum now.

18. Mr. Shahi summarized the discussions on this point by stating that the existing discussion note

on Issues in the SBD for Case I would be separated to highlight the policy related issues to be raised with the Ministry of Power and regulatory issues to be raised with the CERC. The issue of payment security mechanism (whether PSM in Case I is at par with that provided for UMPPs) and any other issue as considered important in this context may be added.

Creation of a lender’s forum for the power sector

19. Dr. Bakthavatsalam gave an overview of the concept note prepared by him on this subject. 20. Mr. Shahi observed that the EAB had played its role by suggesting the need for an energy

sector lender’s forum and the broad contours of its working. He advised IDFC to consider the suggestion and take appropriate action. He added that the EAB could occasionally interact with this forum.

21. Ms. Anand wished to know the motivation or purpose of such a forum. Dr. Bakthavatsalam and

Mr. Shahi explained that the forum would help resolve the concerns of lenders in the energy sector and enable the development of standardized lending practices for the sector.

22. It was concluded that IDFC will discuss the suggestion internally and take appropriate action.

Development of Renewable Energy in India 23. Dr. Bakthavatsalam referred to the draft paper on this subject that had been circulated and

informed the EAB that the completed paper would be circulated before the next meeting. Proposal on a Generation Tariff Mechanism



24. Mr. Shahi raised concerns that NTPC’s tariff could not be the benchmarked for new generation projects because in some states tariffs have been discovered through Case I bidding.

25. Mr. Gurdeep Singh and Mr. Thakur pointed out that while Case I bids have concluded in some states, few PPAs have been signed. Therefore, till power deficit persists, any developer willing to supply power at rates already determined and approved by regulatory commissions should be encouraged.

26. Mr. Shahi advised that the proposal needs further strengthening by considering 2-3 NTPC

projects as benchmarks for projects currently being developed.

17th EAB Meeting on February 10, 2010 Payment Security Mechanism (PSM) in Case I bidding

1. Mr. Basu informed the EAB that the Secretariat to the EAB had compared the PSM provided under the standard bid documents (SBD) for Case I and the UMPP bid documents to understand whether PSM in Case I bids is at par with that provided for UMPPs. It was observed that there is no difference in the PSM in the two cases. This issue therefore stands closed for any further discussion.

Representations on multiple issues before CERC

2. The EAB appreciated Mr. Ailawadi’s efforts towards examination of the changes made in the open access regulations by CERC and recommendations incorporated as per the petition submitted by the EAB to CERC on ‘Open Access in Inter – State Transmission Network and promote competition in Power Market’.

3. Ms Anand drew attention to the absence of level playing field in these regulations since the regulations give preference to long term agreements and not medium term agreements as far as connectivity to the grid is concerned.

4. Mr. Baijal suggested that the EAB should write to CERC and start a dialogue on various issues

being discussed by the EAB. To begin with, the note prepared by Mr. Ailawadi on the changes in open access regulations could be sent.

5. Mr. Shahi suggested that instead of going through the formal process wherein CERC

undertakes consultations and hearings with stakeholders as part of the regulatory process, the EAB should engage in informal interactions with CERC citing that the EAB has means to find problems from different stakeholders.

6. Mr. Baijal observed that the CERC can rely on the EAB even during formal consultations. To this

Mr. Shahi observed that the EAB, like other stakeholders, can present its views during any regulatory consultations.

7. Ms. Anand suggested that the EAB should seek a meeting with CERC and present the many

issues that have been discussed by the EAB. Mr. Thakur, supporting this idea, added that the various issues to be presented before CERC should be discussed in the next EAB meeting, following which a meeting can be sought with CERC

8. Mr. Shahi added that as part of such a presentation, the EAB should provide its views on all

draft regulations issued by CERC. He added that the Secretariat to the EAB should correspond with Mr. Thakur’s team to collate issues related to such regulations.



9. Mr. Ailawadi added that the power market regulations issued by CERC should also be covered. He added that there are several concerns with regard to this regulation, particularly because CERC is assuming SEBI’s role. To this, Mr. Shahi remarked that the EAB discusses regulations after they have been finalized and issued by CERC. Instead, the EAB should comment on these regulations at the draft stage. He suggested that the Secretariat to the EAB should track regulations that are at the draft stage and on which comments are being sought. Challenges in Standard Bidding Documents (SBD) for Case I

10. Mr. Basu informed the EAB that as per suggestions given in the last meeting, the Secretariat to the EAB had worked on the paper prepared by Mr. Thakur and separated the issues discussed in the paper into two sections viz. issues to be raised with the Ministry of Power (Policy related) and issues to be raised with CERC (related to Regulations & other regulatory directives).

11. Mr. Thakur explained the issues covered in the paper on this subject prepared under his guidance. He added that the issues discussed in the paper are restricting competition in power generation. Environmental clearance

12. Mr. Thakur pointed out that a developer needs to re-obtain environmental clearance in case of a change in the proposed capacity for the project even if the location does not change.

13. Dr. Bakthavatsalam and Mr. Shahi explained the process of awarding environmental clearance for power projects. They remarked that the process of public hearing is crucial as the fate of the projects depends on the outcome of this hearing. Mr. Mandhana added that legal issues may also crop up if the outcome of this process is not considered.

14. Mr. Thakur opined that since the process of obtaining this clearance is time taking, it should be

converted into a Condition Subsequent in the PPA.

15. Mr. Mandhana and Mr. Baijal disagreed with this on the ground that in case the bidder fails to obtain this clearance, it would have to be disqualified, implying that the utility would lose time in concluding the process of power procurement.

16. Mr. Thakur responded that in case a bidder is disqualified, it cannot bid again to another utility.

Therefore, no bidder would take a risk of defaulting on the environmental clearance. Many such bidders even order EPC, indicating their seriousness.

17. Dr. Bakthavatsalam opined that while there would be no problems from MoP or MoEF point of

view in adopting Mr. Thakur’s suggestion, there would be a high risk for the developer.

18. Mr. Shahi proposed that the condition for environmental clearance should be modified to state that the bidder should submit the requisite proposal for the final environmental clearance approval by the time of opening of the financial bid. If at the time of opening of the financial bid, the bidder is not able to meet this requirement, the bid should be returned as unresponsive or disqualified. The EAB agreed with this.

Land requirement 19. Mr. Thakur explained that many developers plan a phased development of the project.

However, they need to take environmental clearance for the entire planned capacity of the project. This implies that even if a bidder wishes to bid for the capacity being targeted in the first phase of the project or a part of the capacity being targeted in the first phase of the project, there may be a situation where he would need to show land acquisition for more than that



phase. Therefore, the procurer should insist on land acquisition to the extent of the capacity being bid or for the size of the unit from which capacity is being committed.

20. Mr. Ailawadi, supporting Mr. Thakur, added that the current bid condition of land requirement is conducive only for bidders with deep pockets.

21. Mr. Thakor opined that if a developer is committing on a phased development of a project, he

should also commit on the land requirement for these phases. Mr. Shahi and Mr. Ailawadi remarked that land acquisition should be correlated with the phased development of the project and not the capacity being bid. The EAB agreed with this.

Fuel linkage

22. Mr. Thakur explained that currently, coal linkage is being provided only for 70% of the capacity of the power project. Developers often procure coal in the market to compensate for supply not given by Coal India Limited (CIL). However, bid conditions require that the Bidder should have fuel tied up for the total installed capacity for the term of the PPA. He suggested that fuel requirement in case of domestic coal should be linked to the capacity being bid. In case he falls short of the coal, he would procure the same in the market and sell the capacity not committed at higher prices in the market.

23. Dr. Bakthavatsalam opined that in case of domestic coal, fuel tie-up should be correlated with the phased development of the project.

24. Mr. Shahi proposed the condition of fuel availability should be modified such that fuel availability or tie-up in case of coal based projects is correlated to 70% of the coal linkage according to the phased development of the project. The EAB agree with this.

25. Mr. Ailawadi suggested that the EAB examine the policy for coal linkage to power projects in the

12th Five Year Plan.

26. Mr. Thakur added that the issue of pass through of fuel prices is also a matter of concern. Under the price bid, the price of coal is indexed to the CIL price. In the event that CIL does not supply coal and the developer has to purchase imported coal, the price of imported coal (which turns out to be more expensive) is not passed on to the procurer of power. Bid bond & Bank guarantee

27. Mr. Thakur explained that the level of bid bond (from Rs. 3 lakh/MW to Rs. 30 lakhs/MW) and of bank guarantee (BG) (Rs. 30 lakh/MW) are very high. It is difficult for many bidders to provide the bond and the guarantee before the project achieves financial closure. He added that developers don’t get BG without collaterals.

28. Dr. Bakthavatsalam, agreeing with Mr. Thakur, opined that high bid bond and bank guarantees only add to the cost of development of the project and encourage only bid developers. He added that the BG should be lowered to Rs. 10 lakh/MW.

29. Mr. Shahi remarked that if the bid bond or BG is lowered, bid developers may allow them to be

forfeited and withdraw from bids. Eventually, MoP would be blamed for this.

30. Ms. Gulati referred to the SBD finalized by MoP and clarified that the level of bid bond is Rs. 3 lakh/MW and the BG is (Rs. 30 lakh/MW).

31. Mr. Thakur opined that the termination cost of the PPA may be increased and kept at a very high

level so that it prohibits non-serious bidders.



32. Mr. Mandhana pointed out that once the PPA becomes effective and supply of power commences, the BG is reduced to the extent of the amount outstanding from the offtaker to the developer.

33. The EAB agreed that the level of the Contract Performance Guarantee should be lowered. It may

be argued that lowering the level of this guarantee may encourage non-serious bidders. To take care of such concerns, the termination cost of the PPA may be increased and kept at a very high level so that it prohibits non-serious bidders.

34. Mr. Baijal suggested that the EAB adopt the paper prepared by Mr. Thakur and send the same

to MoP. He opined that since the final decision of each of the issues being discussed by the EAB rests with MoP, the EAB should not dwell so much on the issues.

35. Mr. Shahi, disagreeing with Mr. Baijal, pointed out that on most issues, the EAB has modified

the recommendations suggested by Mr. Thakur. It is necessary to debate on the issues in order to give credibility to the recommendations.

36. Mr. Baijal suggested that views on the paper and the recommendations therein may be sought

on email. The paper should then be finalized.

37. Mr. Shahi summed up the regulatory issues by highlighting that these issues were discussed in the last meeting.

38. It was decided that the Secretariat to the EAB would modify the paper in line with the

recommendations finalized in the meeting and send it to Mr. Shahi. It was agreed that the issues not discussed in the EAB would be treated as finalized in accordance with the recommendations given by Mr. Thakur.

Development of Renewable Energy in India

39. Dr. Bakthavatsalam informed the EAB of the new developments taking place under the solar mission and the guidelines being drafted by the GoI for its implementation. These guidelines need to be evaluated. Therefore, issues related to RE would be presented in the next meeting.

40. Mr. Bhattacharyya urged the EAB to accelerate the discussion on the solar mission so that IDFC can influence the manner in which the mission is being implemented. Mr. Mandhana added that the EAB should collate issues related to the implementation of the solar mission and make submissions to the GoI.

41. It was decided the Secretariat to the EAB, acting under Dr. Bakthavatsalam’s guidance, would

track the latest developments on the implementation of the solar mission and identify areas of concern therein.

Presentation by Mr. S P Gon Chaudhuri

42. Mr. Gon Chaudhuri, MD, West Bengal Green Energy Development Corporation Ltd. made a presentation on solar power. Besides answering queries raised on his presentation, he explained the solar mission in detail.

18th EAB Meeting on March 10, 2010 Case I bidding

1. Mr. Shahi apprised Dr. Lall on the background of discussions on Tariff based Competitive Bidding under Case I route. He informed the EAB that the note on ‘Issues with Tariff based Competitive Bidding under Case I route’ was finalized and sent to Secretary, Power, GoI. Some



members of the EAB and IDFC could meet with Secretary, Power and discuss the issues highlighted in the note. He added that at the last meeting of the CERC Advisory Committee, he had raised the issues related to the regulatory framework for Case I Bidding. He further informed Dr. Lall that the EAB had raised many related issues before the CERC over a period of time and that he was hopeful of positive changes in the regulatory framework on several aspects.

2. Ms. Gulati informed the EAB that the MoP and PFC were undertaking consultations to modify the Case II bidding documents. Members of the EAB and IDFC could consider providing views on the proposed modifications to these documents.

Transmission pricing regulations of CERC

3. Mr. Shahi informed the EAB that CERC had extended the date for submission of comments on these regulations and that the EAB must send comments. He added that he had discussed with Mercados, the consultant assisting CERC on these regulations, and learnt that there are several areas of concern.

4. Mr. Ailawadi informed that there are two main issues to be examined under these regulations

viz. (i) allocation of losses and (ii) hybrid method for pricing.

Issues related to natural gas 5. Mr. Shahi requested Mr. Kapadia to apprise the EAB of the issues covered in the two discussion

notes authored by him. He added that the first issue to be clarified in the context of the gas sector is to identify the key entity within GoI that could be approached with issues and concerns related to this sector. Several bodies have been seen to be driving the policy and its implementation in this sector.

6. Mr. Kapadia provided an overview of the issues covered in the two discussion notes.

7. Mr. Baijal opined that the country would not need to import coal if domestic coal is exploited scientifically. Mr. Kapadia agreed with him and stated that such improvements have not yet been made in coal mining. Continuing his discussion on the notes, he mentioned that the private sector needs to take approval from PNGRB for setting up LNG terminals. However, Mr. Shahi disagreed with him and pointed out that the private sector is only required to intimate PNGRB of the same. Mr. Kapadia said that he would revisit the concerned PNGRB regulations and get back with the clarification on this issue.

8. Mr. Baijal said that he agreed with all the issues raised by Mr. Kapadia and the

recommendations provided by him. But he expressed that these issues have been discussed extensively in different fora and have been endorsed by all. However, the EAB is not in control of these issues. Dr. Bakthavatsalam pointed out that issues such as availability and pricing of gas would interest IDFC from its financing perspective. Mr. Ailawadi added that regulatory issues in the gas sector impact the power sector, therefore the EAB should take note of policy and regulations in the gas sector. Mr. Kapadia informed the EAB that he is IDFC’s representative on the Central UP Gas Company. He added that the developments in this sector should be of interest to IDFC in view of the huge investment requirements over the next few years that would have to be met through PPP.

9. Mr. Kapadia expressing that the role of IDFC should not be restricted to advising on the power

sector, added that the EAB should work out an agenda for making recommendations to the GoI on the gas sector. Mr. Baijal suggested that the EAB should not spend much time deliberating issues already extensively discussed in various fora and instead should send the paper to the GoI.



10. To Mr. Thakur’s query on whether shale gas could be used for power generation, Mr. Kapadia responded in the affirmative but Mr. Baijal mentioned that there are serious issues in doing so.

11. Mr. Baijal opined that gas pipelines and distribution are the only areas of concern in the sector.

However, a master plan cannot be prepared for such pipelines because future gas production and imports is not known.

12. Dr. Lall clarified that the Terms of Reference for the EAB has two components viz. (i) deliberate

and advise on issues of immediate concern in financing private infrastructure and (ii) advocacy with the government on issues related to infrastructure sector. He highlighted that gas would become an issue of concern in the context of the carbon footprint of the country’s growth trajectory. However, the current focus in this context is on renewable energy sources. He submitted that the country presently lacks a coherent policy on development of the gas sector.

13. Mr. Shahi wished to know if the EAB could carve out few specific suggestions on issues that are

not being addressed, irrespective of their implications for the power sector. Mr. Baijal suggested that the final recommendations could be put together and each EAB member could give his view. The same could be finalized in the next meeting. Mr. Thakur pointed out that several gas based power plants were suffering from the gas availability shortage. Proposed gas based projects cannot compete on prices in the absence of supply and pricing certainty.

14. Mr. Shahi suggested that the paper to be prepared by the EAB should not cover the issue of

pricing. The EAB could consider preparing another paper on gas pricing.

15. Mr. Mandhana informed the EAB that instead of pricing, the focus should be on procurement of power by discoms from clean fuels including gas.

16. Dr. Lall enquired if gas needs to be subsidized in the same manner as renewable energy. Mr.

Thakur and Mr. Mavinkurve replied in the negative. Mr. Shahi added that though technology has been established in this sector and is cost effective, gas based capacity addition is not taking place because of uncertainty in supply of gas. He gave examples of the Dadri gas and Dadri coal plants to illustrate that gas based plants can compete effectively with coal based plants.

17. Mr. Mavinkurve pointed out that globally, gas is not utilized to meet base load requirement. It is

primarily used to cater to intermediate load block on the load duration curve, unlike the case in India. He added that compared to coal plants, gas plants can start and stop with much less startup time. Therefore, a different policy is required for pricing gas and coal based power. Mr. Mandhana added that in merchant power, preference is given to gas based power. He pointed out that gas could be used for large scale power generation or distributed power generation through Combined Heat and Power (CHP). Therefore, the policy for the gas sector should encourage distributed generation through CHP.

18. Mr. Ailawadi highlighted that the policies for the city gas distribution (CGD) segment and also

not coherent. Further, the bidding process and award of CGD contracts also need a relook.

19. Mr. Shahi requested all present in the meeting to send their suggestions on the gas sector to Mr. Kapadia by the end of March 2010. He requested Mr. Kapadia to finalize the paper and send it to the EAB before the next meeting. He added that once the paper is finalized by EAB, he would send it to MoPNG. Implementation aspects of National Solar Mission

20. Dr. Bakthavatsalam gave an overview of the solar mission. He pointed out that the EAB should provide inputs on four aspects related to the guidelines issued by MNRE for selection of new grid connected solar projects under Phase I viz. (i) policy framework for Phase I, (ii) institutional



framework for implementation, (iii) financing of solar projects and (iv) regulatory framework for solar power. He added that another important aspect to be addressed is how IDFC would participate as a lender under the mission.

21. Mr. Baijal opined that the basic problem under the mission is the absence of a subsidy by GoI

and the shifting of all burden on the NVVN. Further, there is no guarantee that utilities would off take this power. Dr. Bakthavatsalam responded that the overall mission cannot be changed. However, the issues and concerns related to its implementation can be ironed out.

22. Mr. Thakur pointed out that currently all unallocated power is being given to the state. States will

not forego it. Therefore, unallocated power can only be provided from new projects. However, NTPC is not planning any new projects at the moment. He added that in case of new projects, unallocated power would not be available at Rs. 2/unit as envisaged under the bundling scheme. He further added that the average cost of power procured on the exchange over the last three months has been less than Rs. 2/unit. Therefore, there is no incentive for Discoms to procure the bundled power proposed under the mission at Rs. 5-5.50/unit. Mr. Pradeep Singh responded that states have incentives to participate under the mission because they get confirmed share of coal based power by virtue of such participation.

23. Ms. Anand wished to know the reasons for capping capacity to 1000 MW in Phase I. Mr.

Ailawadi responded that the GoI cannot provide more unallocated power.

24. Mr. Shahi wished to know if IDFC was comfortable with the PPA to be signed by solar power developers with the Discoms through NVVN. To this, Mr. Mavinkurve pointed out that NVVN would not take the payment risk for power sold to Discoms. Upon collection of payment from the Discoms, NVVN would first pay NTPC and then the solar power developers. Given that the actual CUF of solar projects is about 16%, NTPC would need to generate at 90% PLF to keep the costs of solar power in the range of Rs. 5-5.50/unit. He added that few Discoms would honour their obligations under the PPA for 20 years if costs of solar power come down in the next 5 years. He added that the earlier proposal of providing generation based incentives (GBI) to solar projects through IREDA was better. In the draft form, the mission envisaged sharing of the GBI burden between the GoI and the states.

25. Mr. Mandhana supported Mr. Mavinkurve. He added that the GoI could also explore provision of

subsidies from the NCEF created in the budget. He further added that unless there are specific regulations for the utilities to off take solar power, Discoms would prefer to purchase hydro power or wind. Mr. Pradeep Singh pointed out that a lender’s interest/comfort would depend on the manner in which the guidelines/PPA are drafted and whether NTPC takes the risk of payment to solar power developers. He added that solar power developers have the option of not participating under the mission and supplying directly to Discoms in States that provide conducive tariff.

26. Dr. Bakthavatsalam and Mr. Mandhana pointed out that the nodal agency for implementing this

scheme is NVVN. Given the net worth and balance sheet size of NVVN, it is unlikely that NVVN would assume such a risk.

27. Dr. Bakthavatsalam informed the EAB that solar power developers had expressed their

discomfort in dealing directly with Discoms. It is for this reason that NVVN has been roped in as the nodal agency for the bundling scheme. The important question is whether lenders are comfortable with this scheme. He added that the EAB could convey its concerns on the mission to the GoI, but the current focus of the GoI is on the guidelines issued for implementation of the mission. Therefore, there is a need to comment on these guidelines. He added that when providing comments, the EAB could say that the primary responsibility of payment should rest with NVVN.



28. Mr. Bhattacharyya said that from a developer’s perspective, dealing with Discoms through

NVVN poses a better option. He added that while developers could transact with a few state where the financial health of utilities is good, NVVN could transact with all states.

29. Mr. Pradeep Singh suggested that the GoI could give unallocated power to PTC instead of

NVVN and the scheme could be routed through PTC. Mr. Baijal pointed out that since PTC is not a government owned company and has many competitors, the GoI would not do so.

30. Mr. Thakur suggested that the EAB comment on NVVN’s ability to pay solar power developers.

He added that the solar mission could deliver only if NVVN could pay. Dr. Bakthavatsalam agreed with him but reiterated that the EAB should focus on providing comments on the specific guidelines under the mission as the provisions of the mission cannot be altered.

31. Dr. Bakthavatsalam raised the issue of technology reservation for new solar projects and opined

that the mission should be technology neutral. He added that solar thermal is more expensive than PV and that the very developers who had submitted the details of capital cost to CERC for solar thermal (Rs. 13 cr/MW) have now made representations to CERC to revise the same to Rs. 30 cr/MW. He further opined that there should be no reservation for domestic content in modules and cells because of reasons such as absence of local manufacturing capacity, lack of incentives to future domestic manufacturers to reduce costs and possibilities of time overruns.

32. Mr. Mandhana and Mr. Bhattacharyya disagreeing with Dr. Bakthavatsalam submitted that solar

thermal was the right option if the cost of solar power needs to be reduced. They added that the data on capital cost and development of solar thermal available with them indicates that there are several mis-conceptions in the policy making community as well as in the industry related to solar thermal. They further added that it is easier to indigenize components of solar thermal. They commented that the time line proposed for commissioning of solar thermal plants in the guidelines was short and needed to be increased. Mr. Mandhana opined that each technology should be given equal opportunity to compete. If the share of any technology is not filled, the other technology can be allowed to fill the gap.

33. Dr. Bakthavatsalam counter argued that solar thermal would have had greater footprint globally

if costs were actually low and if implementation were easy. He added that this technology requires more land and water than PV. Mr. Mandhana and Mr. Bhattacharyya disagreed with this thesis.

34. Mr. Gurdeep Singh also questioned the competitiveness of solar thermal and asked about the

number of solar thermal plants operational worldwide vis-à-vis solar PV. He said that his interactions with leading technology providers indicate that solar thermal would catch up with solar PV after 4-5 years. He added that the operational complications of solar thermal plants exceed those involved with coal based plants. He further added that by the time solar thermal plants start during the winter months, the sun sets. He opined that solar thermal should be used for solar based applications such as cold storage or heating rather than power generation.

35. Mr. Shahi said that that it is unfair to assume that solar thermal would not be given a chance

even if developers come forward to set up solar thermal plants. Mr. Mandhana responded that most proposals for solar power projects involved PV technology. Therefore, in the absence of reservation for solar thermal, this technology would never develop in the country. Mr. Ailwadi supported this concern.



36. Mr. Pradeep Singh suggested that the first phase of the mission be treated as a pilot programme and the proposed technology reservation be allowed. Mr. Baijal supported this view.

37. Mr. Shahi and Ms. Anand suggested that the competitive bidding route without technology

reservation could be adopted for award of projects. They added that if solar thermal is competitive in cost terms, it does not need reservation. Mr. Mandhana agreed and opined that solar thermal would emerge as the winner in such case. Mr. Baijal pointed out that in such case; there could be no mandated indigenization of project components.

38. Dr. Bakthavatsalam drew the attention of the EAB to the qualification criteria for developers of

new projects. He opined that the bank guarantee was very high by standards established for the coal based power projects and the land requirement was stringent given the fact that the developer has no surety of the capacity selected/finally awarded to him. He said that utilities take time to conduct feasibility studies for grid connectivity of power projects. However, the time given for the same under the qualification criteria for new projects was very less. Further, no leeway has been given in the implementation schedule for such projects. He then informed the EAB that the scheme for selection of new projects provide that the Secretaries of the Ministry of Power (MoP) and the Ministry of New and Renewable Energy (MNRE) shall jointly decide on any difficulties that arise in giving effect to the provisions of these guidelines or for undertaking modification to the guidelines. He opined that it is not prudent for two government officers to determine the changes in the guidelines. The EAB agreed with Dr. Bakthavatsalam and decided the following recommendations: a. level of the Contract Performance Guarantee may be lowered b. time frame for submitting the letter from the State Transmission Utility (STU) confirming

technical feasibility of the connectivity of the plant to the grid substation may be extended. c. a committee may be created to resolve and remove all difficulties that arise under the

guidelines.

39. Ms. Gulati pointed out that the responsibility of the transmission arrangement from the plant to the substation has been vested with the developer. For smaller projects, the cost associated with such transmission arrangement may not be economically justified. Further, constructing a transmission line matching the voltage of 33 kV or above may imply that the entire capacity of the transmission line may not be completely utilized.

19th EAB Meeting on April 14, 2010 Hydro Power

1. Mr. Shahi informed the EAB that a meeting of the GoI Task Force on Hydro Power was held on April 13, 2010. He added that the three main issues being examined by this Task Force were as follows: a. While private HEP developers can pay a premium to the host states as part of the process

of the allocation of HEPs, PSUs are not allowed to do the same. Therefore, PSUs are losing out on the allocation of HEPs by the states.

b. Environmental clearances c. Sale of 40% of the HEP’s total saleable energy through the merchant power route

2. Mr. Gurdeep Singh pointed out despite provisions in the Hydro Power Policy and National Tariff

Policy, HEPs are not being allowed to sell power through the merchant route. Mr. Thakur opined that provisions to this effect need not be incorporated in policy as the extent of sale of power through the merchant route depends on the lenders to the HEP. Lenders can allow such projects to sell power through this route as per their comfort. He added that unless lenders and regulators develop comfort with the sale of hydro power through the merchant route, the



provisions of policy cannot be implemented. He further added that regulators should give preference to hydro power in the implementation of open access (OA). Mr. Baijal opined that HEPs should be treated at par with thermal projects and there should be no restriction on the quantum of power sold through the merchant route. He added that only hydro power should be sold on a merchant basis.

3. Mr. Thakur pointed out that in case of substantial congestion in the network, short term OA and

unscheduled power is given the last preference. No preferential treatment is available to the 40% hydro power to be sold through the merchant route. He added that PGCIL is not the right entity to deal with this issue as it follows the regulations issued by CERC. Mr. Shahi disagreed with this and pointed out low priority to hydro power under short term OA is a result of constraints in the transmission system and not regulatory provisions.

4. Ms. Anand suggested that regulations could include a preferential treatment for hydro power

under short term OA. Mr. Shahi pointed out that such provisions would imply that power procured under PPAs would have to be denied OA.

5. Mr. Ailawadi opined that the problem of availing short term OA for hydro power arises because

the dispatch of power is not done on the basis of economic costs. He added that dispatch of power should be governed by the principles of minimization of cost of generation and not fuel. He further opined that power should be dispatched on the basis of economic costs and not long term commitments.

6. Mr. Thakor added that there is no segregation between sunk cost and marginal cost in the

pricing and dispatch of power. The overall objective should be to minimize the marginal cost. Suitable compensatory mechanism should be put in place for long term contracts that may suffer a loss in the event of marginal cost based dispatch.

7. Mr. Bhattacharyya suggested that there should be differentiation of fuels – coal, gas and hydro -

under short term OA.

8. Dr. Lall wished to know whether the development of the transmission network by PGCIL is based only on the planned long term capacity addition. Mr. Shahi and Mr. Baijal explained that as per recommendations of the CEA and the Working Group for the 11th Plan, a 30% capacity margin is built in the transmission system.

9. Mr. Thakur, drawing the attention of the group to the core issue of implementation of policy to

allow HEPs to sell 40% power on merchant basis, opined that the issue needs greater discussions and needs to be supported by more background material. Mr. Shahi suggested that the EAB prepare a discussion note on hydro power and suggest changes in the related policy and regulatory framework. He requested Mr. Ailawadi to lead this exercise. Mr. Mandhana suggested that the paper include recommendations for the dispatch of power on the basis of the merit order. He added that the current policy framework does not cover the priority for dispatch of short term by the dispatch centre.

Risk Mitigation Mechanisms

10. Mr. Baijal, referring to his presentation that was made available with the meeting documentation, explained that the planned generation capacity addition planned is very huge as compared to the past capacity addition. There are several concerns amongst the investor community with respect to the offtake of this capacity. These include the implementation of open access at the distribution level, reduction of cross subsidies in tariff, creation of a competitive market, and fairness of the regulatory framework. He stressed that lenders would be wary of financing projects unless these issues were addressed. He added that the proposal of creating a Lender’s Forum for the power sector as put forward by Dr. Bakthavatsalam during earlier



meetings need to be implemented. The Forum could take money from lenders seeking resolution of the problems highlighted by him and make representations to policy makers on their behalf.

11. Dr. Lall enquired the reason for creating such a Forum. Mr. Baijal responded that the power sector has not received adequate funding. Despite the power sector being more capital intenstive than the telecom sector, both sectors received the same levels of investments during the last Plan.

12. Dr. Lall then pointed out that the implementation of open access is also a concern for industrial

consumers of power. Therefore, the Forum could seek involvement of such consumers as well. He proposed that Forum be chaired by Mr. Shahi and added that IDFC would be the first institution to join the Forum.

13. Mr. Baijal cautioned against the participation of industries in the Forum because their

involvement would imply that the Forum is supporting private interests. Since lenders have no vested self interests in the sector, the Forum should only comprise of Lenders. He added that the participation of PFC and REC in such a Forum should be carefully thought over as these are government owned financial institutions.

14. Dr. Lall wondered whether SBI would participate in the Forum. Mr. Baijal responded that the

decision can be left to SBI. Mr. Ailawadi opined that a beginning could be made with foreign investors/institutions and private financial institutions (FIs) participating in the Forum and public sector FIs could join later. Mr. Shahi questioned whether foreign investors were lending to the power sector. Mr. Baijal responded in the affirmative and stated these investors are concerned about the issues highlighted earlier. Mr. Mandhana suggested that the chairman to the Forum be appointed on a rotational basis.

15. Dr. Lall suggested that Mr. Shahi speak to the Chairman, SBI on participation in such a Forum.

Mr. Baijal agreed with him and suggested that the other EAB members could start drafting bye-laws of the Forum. Dr. Lall cautioned that in case proceeds collected by the Forum are to be used for filing petitions before the courts, SBI may not agree to be part of the Forum. Mr. Shahi and Mr. Ailawadi agreed with Dr. Lall and said that discussions with proposed participants should not commence by citing court cases as an objective of the Forum.

16. Mr. Shahi added that approaching courts is not a solution as they are not a part of the regular

decision making process. He also suggested the inclusion of PFC and REC in the Forum as these institutions account for 60% of the funds disbursed to the power sector. Dr. Lall added that participation in such a Forum would also be in the interest of these institutions. Mr. Baijal pointed out that PFC and REC do not fund private sector projects. He added that since the objective is to mitigate risks for generators, the Forum should seek participation of FIs funding private developers. Mr. Shahi pointed out that PFC and REC have been funding the private sector since 2002. Mr. Thakur added that IIFCL has also been lending to private sector power projects and should therefore be invited to the Forum.

17. Mr. Ailawadi suggested a three pronged strategy for tackling the concerns related to the sector -

(i) interactions with regulators, (ii) creation of a lender’s forum, and (iii) approaching the Supreme Court (SC). He added that the intervention of the SC would result in quicker decisions in some cases.

18. Mr. Shahi enquired whether the Forum would target lenders or equity providers. Mr. Baijal

suggested that both types of financiers should be included. Mr. Shahi then suggested that a beginning be made with lenders.



19. Mr. Shahi opined that another growing area of concern in the content of the planned capacity addition is the distribution segment. He pointed out that distribution reforms have gone on the back burner. He added that franchising is not been taken up by distribution utilities despite the success in Bhiwandi and the rating exercise conducted by MoP has stopped. He suggested that reform conditions should be imposed on states by lenders in a common manner. Dr. Lall and Mr. Baijal agreed with Mr. Shahi. Dr. Lall added that the economics of power generation would improve only if distribution reforms are undertaken.

20. Mr. Thakor questioned the necessity of involving lenders if distribution reforms were the main

concern for planned capacity addition. Dr. Lall responded that the financial viability of the distribution segment is a concern for lenders as it ultimately determines the asset quality for them. He added that if state governments are unable to fund the losses of the distribution segment, it would pose a huge problem for lenders. Mr. Mandhana supported Dr. Lall and added that the cost of power was increasing. This would increase the losses of distribution utilities.

21. Dr. Lall suggested that the EAB prepare a note to examine the impact of AT&C loss reduction

on the improvement in financial health of distribution utilities. He added that if AT&C loss reduction can maintain the ratio of financial losses (or subsidies provided to distribution utilities) to GDP, the burden on the economy would remain constant. Mr. Ailawadi opined that R-APDRP would help achieve AT&C loss reduction. Mr. Baijal suggested that the EAB examine the outcome of privatization of the distribution business in Delhi. Dr. Lall informed the EAB that the Policy Group of IDFC has conducted such a study. Ms. Gulati informed the EAB that the study was being finalized and that AT&C losses had reduced drastically post privatization. She added that analysis of the cost structure of the distribution utilities indicated that power purchase costs had been rising. Mr. Ailawadi and Mr. Baijal added that there have been no tariff hikes in recent years.

Issues related to Natural Gas

22. Mr. Kapadia mentioned that he did not receive any comments on the discussion paper covering issues related to natural gas. Mr. Thakur commended Mr. Kapadia for a well-drafted note on the issue.

23. Mr. Shahi wished to know about the prevailing gas pricing policy in the gas sector. Mr. Kapadia informed the EAB that there is no uniform pricing on the supply side. He added that the pricing of the end product cannot be controlled. Mr. Ailawadi pointed out that the end use of gas comes from city gas distribution (CGD) which covers domestic, commercial, transportation and industrial uses/activities. He added that there is a need to examine whether local bodies or regulatory issues from the electricity bodies come in the way of the CGD network.

24. Mr. Shahi enquired the reason behind not empowering the gas regulator, PNGRB, for

determination/fixation of prices. He also wished to know whether a power project developer should be allowed the same tariff in case of replacement of naphtha by natural gas.

25. Mr. Kapadia opined that the reason behind the low price of gas is fungibility. He explained that

the extension of CGD networks requires the construction of a gas grid. He added that CGD can fulfill three important needs – it can be used for district power, it can replace fuel oil for commercial power and it can replace the existing fuel for cooking. He further added that the heating value of crude oil is twice that of gas.

26. Mr. Kapadia said that there is need to create an environment to import gas. Mr. Shahi disagreed

and pointed out that import of gas has been expensive, with gas prices being as high as USD 7-9 per mmbtu. Mr. Kapadia mentioned that this price range was prevalent in the spot market. Mr. Shahi pointed out that the gas price under long term contracts also ranged around USD 6-7 per



mmbtu. Mr. Kapadia said that in the CHP mode, gas based power generation would be competitive with coal based generation.

27. Dr. Basu pointed out that the price of natural gas was fluctuating. Mr. Shahi added that besides

price, there is a high level of uncertainty in the availability of gas. Mr. Kapadia informed the EAB that the quantum of gas traded at the global level was sowing a constant increase and that spot market accounted for less than 5% of this trade. He added that gas could also be made available from other sources such as conversion of coal to gas.

28. Dr. Basu questioned the manner of gas allocation to different sectors. He opined that till the

market matures, the pricing of gas should be entrusted to a regulator. He added that geo-political issues would pose a barrier to the import of gas.

29. Mr. Kapadia summarized the discussion by stating that the discussion on gas need to focus on three key issues viz. gas utilization policy, gas grid and pricing of gas. He doubted the capability of the Empowered Group of Ministers (EGoM) to allocate gas. It was decided that Mr. Kapadia would meet Mr. Shahi before the next EAB meeting to discuss these issues.

Others

30. Mr. Baijal suggested that the EAB discuss the issue of nuclear power. Mr. Shahi agreed with his suggestion and informed the EAB that the government is close to opening up the nuclear power sector for private sector participation.

20th EAB Meeting on July 14, 2010 IDFC’s role in energy sector

1. Mr. Shahi opined that the EAB has done reasonably well in its policy advocacy role in the sector. He gave examples of EAB’s contribution to this end. He said that the EAB should discuss IDFC’s contribution to the energy sector in FY 2009-10 by way of lending and equity provision. He suggested that the EAB devote significant time to discuss this aspect and requested that Mr. Mavinkurve and Mr. Mandhana be present for such a discussion.

Lenders’ Forum

2. Mr. Shahi informed the EAB that he spoke to Mr. Bhatt, Chairman, SBI on the idea of creating a lender’s forum for the power sector and subsequently wrote to him. However, he is yet to get a response from Mr. Bhatt. During their telephonic conversations, Mr. Bhatt was non-committal on the issue. However, he indicated that SBI is not part of such a forum and there may be issues in getting involved with such a forum for the power sector – implying that SBI may be asked to participate in or start similar forums for other sectors.

3. Mr. Baijal wished to know how the EAB could proceed on this issue. Mr. Shahi, citing that PFC and REC are currently the largest lenders to the power sector, suggested that the EAB approach PFC.

4. Mr. Baijal and Mr. Ailawadi opined that private sector financial institutions should be part of this

Forum. Mr. Baijal added that the purpose of the Forum is to bring together the professional financing group that advises the government and regulators to bring about changes for the better. Inclusion of the government on the Forum may distort the purpose. Therefore, the government and government enterprises such as PFC and REC should not be included on the Forum. He opined that in the event that SBI does not agree to be part of the proposed Forum, Secretary (Power), GoI or a professional banker could chair the Forum. Mr. Ailawadi agreed with Mr. Baijal’s suggestion of non-inclusion of PFC and REC in the Forum.



5. Mr. Shahi, Mr. Baijal and Mr. Ailawadi suggested that ICICI, IDBI, PNB and HDFC be approached to be part of the Forum. Mr. Baijal and Mr. Ailawadi also suggested the inclusion of IIFCL. Mr. Shahi opined against this as IIFCL has a lot of government funding support.

6. Mr. Shahi suggested that he could speak to Secretary (Power), GoI to request him to start such

a forum. He mentioned that he had created an informal forum such as the one proposed when he was Secretary. He pointed out that if the Forum was convened by Secretary (Power), GoI, IDFC would not be the secretariat for the Forum but would have representation on it.

7. Ms Anand opined that as long as the objective of the Forum is served, IDFC need not be the

secretariat for the Forum. Mr. Ailawadi, supporting Ms Anand, opined that the EAB’s inputs on different matters could be provided to the Forum through IDFC. He added that even if IDFC takes the lead in creating the Forum, IDFC will only provide support for organizing the meetings. It would not act as a full-time secretariat to the Forum.

8. The members agreed to the following ‘way ahead’:

a. Mr. Shahi would pursue the SBI chairman again on this matter. b. Mr. Shahi would speak to Secretary Power, GoI to request him to start such a forum. c. Mr. Shahi would speak to Dr. Lall on IDFC taking lead in creating the forum and Dr. Lall

chairing it.

CERC’s Central Advisory Committee meeting 9. Mr. Shahi informed the group that he attended the 13th meeting of CERC’s Central Advisory

Committee (CAC) on June 16, 2010 which focused on short-term electricity markets and levying of price caps in this market. His views on the subject were that the price of electricity in the short term market would come down with increased capacity addition. Imposition of price caps might affect the investment climate. The feasibility of regulatory interventions, if required, in the nature of circuit breakers on stock exchanges may be explored. He added that it is unlikely that CERC would impose price caps in the short term market.

10. Mr. Ailawadi pointed out that short term power procurement by states depend on various factors such as harvest seasons and elections. He added that utilities overdraw power from the grid because the state governments demand them to do so and pay the price determined under the UI mechanism. He added that the UI mechanism has a dual objective viz. a commercial objective (to charge utilities overdrawing from the grid) and a prohibitive objective (to maintain grid discipline).

11. Mr. Baijal opined that UI is not a buying arrangement. It involves illegal overdrawal. Mr. Shahi

agreed with him and pointed out that the punitive rate or high rate paid under the UI mechanism has not provided a solution to overdrawal by utilities. He opined that states that are habitually overdrawing should be disentitled from unallocated central sector power.

12. Mr. Ailawadi suggested that the EAB and IDFC team should speak with experts in the area and

then brainstorm for a solution to curb UI overdrawal by utilities. Mr. Shahi supported the idea of the EAB exploring solutions to curb such indiscipline. He added that ideally utilities should cut out load i.e. resort to load shedding to balance the load. Mr. Thakor added that overdrawal by one utility should not land another utility in trouble.

13. Mr. Baijal opined that the alternative solutions to curb UI are worse than the current mechanism.

14. Mr. Shahi summarized the discussions by suggesting that the UI mechanism be taken up as a

discussion item in the next meeting. He also suggested inviting Mr. Bhanu Bhushan, Former Member, Central Electricity Regulatory Commission and Mr. S K Sonee, CEO, National Load Dispatch Centre for this discussion.



Issues related to Natural Gas

15. Mr. Shahi apprised the EAB that he met Mr. Kapadia the previous day to continue the discussion on natural gas issues from the last EAB meeting. He commended the presentation made by Mr. Kapadia on these issues. He informed the EAB that one of the conclusions of the discussion was the absence of an established institution in the country undertaking research on aspects such as energy needs, forecasting fuel mix, usage of different fuels by different sectors, etc.

16. Mr. Baijal referred to the Centre for Fuel Research in this context. Mr. Shahi pointed out that this institute focuses only on coal and is fund starved. He added that the presentation by Mr. Kapadia covered interesting points on the availability of fuels and their pricing. He referred to the Integrated Energy Policy which projects the energy supply scenario for the future and pointed out that the International Energy Agency (IEA) also does similar projections. He opined that the projections and conclusions of different agencies need to be tested with more studies. However, there is no institution in the country which can be relied upon for such studies. He added that neither TERI nor specialized universities such as the University of Petroleum & Energy Studies are engaged on these matters.

17. Ms Anand wished to know if IRADE engages in such studies. Mr. Kapadia and Mr. Ailawadi

replied that in the negative and added that IRADE engages in project based activities and not coordinated research. Mr. Kapadia added that energy research, as was being discussed, is an activity that is heavily dependent on international events. Further, technology developments demand that it be done on an ongoing basis.

18. Mr. Thakor opined that industry should be supporting such research. Mr. Kapadia agreed but

pointed out the need for an institute to conduct such research.

19. Mr. Shahi suggested that he would speak to Dr. Lall to understand the extent to which IDFC is concerned about this issue and is interested in such research.

Hydro Power

20. Referring to the discussions in the last EAB meeting on HEPs not being allowed to sell power through the merchant route despite provisions in the Hydro Power Policy and National Tariff Policy, Mr. Baijal pointed out that this issue was not covered in the discussion note prepared for this meeting. He wished to know if the EAB would pursue this issue for discussion.

21. Mr. Ailawadi replied in the affirmative and explained that the note that had been prepared for discussion. He suggested that the EAB bring these issues to the notice of MoP and CEA. He suggested that the EAB identify the HEPs that are delayed and the reasons for delay.

22. Mr. Shahi suggested that the problems could be categorized into two viz. problems from lack of

policy or poor/unclear policy and implementation issues.

23. Mr. Baijal suggested talking to developers that are IDFC’s clients to identify the problems.

24. Mr. Shahi wished to know if HEPs face problems at the pre-construction stage. Ms Gulati referred to the status report brought out by CEA from time to time on the status of HEPs and said that the report provides information only on those projects that have finished award stage.

25. Mr. Baijal opined that information on other projects may be available with CEA. However, CEA

may not share this information. Mr. Shahi suggested that Ms Gulati speak to Mr. Mavinkurve on this aspect.



26. Mr. Ailawadi and Mr. Baijal drew attention to the policy provision that provides for reduction in power sold through the merchant route in the event of delay in project commissioning. They opined that an HEP developer would aim for timely commissioning to avail full benefits of the merchant power sale provision. Mr. Shahi opined that there should be a mechanism under CEA to distinguish genuine delays in project commissioning.

27. Mr. Shahi emphasized the need to capture the problems faced by developers either through

direct interaction with them or through information available from government agencies. He recalled the discussions organized with few developers on issues related to captive coal mining and the expert talk organized for solar power, and opined that these discussions enriched the outputs of the EAB.

28. Ms Anand suggested that a discussion with hydro power developers could be organized during

the next EAB meeting. The EAB agreed.

29. Mr. Ailawadi drew the attention of the EAB to the problems faced by small HEPs and said that states fail to keep their commitments of timely clearances.

30. Mr. Thakor suggested that small hydro power development could be stimulated by the provision

of generation based incentives along the lines of wind and solar. He added that the tariff for SHPs could be determined in advance and the states could guarantee offtake of their power. Mr. Ailawadi pointed out that MNRE provides a capital subsidy to small HEPs. He added that most SERCs have determined the tariffs for small HEPs. However, SEBs/Discoms don’t want to buy power from them. Other problems faced by small HEPs include non-availability of evacuation infrastructure despite provisions in state policies/commitments by states, provision of free power to states which affects project viability, and non-availability of open access for third party sale. He further added that SEBs/Discoms do not wish to offtake hydro power beyond their Renewable Purchase Obligations (RPO).

31. Mr. Shahi wished to know if small hydro is covered under the RPO. Mr. Ailawadi and Ms Gulati

replied in the affirmative. He opined that this problem would be taken care of in future with the implementation of the Renewable Energy Certificates (RECs).

32. Mr. Shahi pointed out that large and small HEPs fall under the jurisdiction of different ministries.

Further, states also have a role in hydro power development. Therefore, the problems related to hydro power development would have to be categorized under the different heads of policy, regulation and implementation and then sorted further on the basis of the agency that could take corrective measures. Mr. Baijal opined that provisions facilitating hydro power already exist in the policy and there is a need to focus on areas where these provisions have been breached. He reiterated the importance of talking to developers in this regards.

33. It was concluded that a roundtable on hydro power be organized during the next meeting and

developers be invited to participate in it.

Distribution reforms 34. Ms Gulati gave an overview of the presentation prepared on distribution reforms.

35. Mr. Shahi opined that the pace of AT&C loss reduction is slow and inadequate to make up for

the increase in cost of power. Mr. Baijal added that tariffs are inadequate to cover the cost of power. Mr. Shahi described the fuel cost adjustment mechanism determined by SERCs to allow utilities to adjust and recover the increasing fuel expenses. He suggested that the Forum of Regulators could be approached on issues related to inadequacy of tariffs.



36. Mr. Ailawadi supported Mr. Baijal and highlighted the case of Delhi where AT&C losses have shown a huge decline but the SERC is not allowing utilities to recover the cost of power. The SERC has not allowed utilities to increase tariffs to compensate for the increased cost of power in the past 2-3 years.

37. Mr. Shahi suggested that the presentation be completed by recommending measures that

should be taken to improve the health of the distribution business.

21st EAB Meeting on September 8, 2010

IDFC’s role in energy sector 1. Mr. Miranda, explaining the activities of IDFC Private Equity (PE) in the energy sector, apprised

the

2. EAB that IDFC PE has invested about Rs. 1,200 crore in this sector. The investments span segments such as conventional and renewable power generation; gas transportation networks; city gas distribution; manufacturing of solar PV cells and modules, wind turbine components and T&D equipment; and CDM advisory services.

3. Mr. Miranda along with Mr. Johri gave an overview of IDFC Project Equity’s investments in the sector. They informed the EAB that Project Equity has invested Rs. 800 crore in the sector and the portfolio covers companies in thermal power generation and city gas distribution.

4. Mr. Mavinkurve informed the EAB that IDFC has funded close to 27,000 MW of non-captive

power generation capacity as of August 2010. This includes conventional as well as non-conventional power.

5. Mr. Shahi, referring to the meeting of the EAB held in IDFC’s Mumbai office in August 2009,

recalled the discussion on IDFC targeting to increase its equity exposure to the power sector to 25% of the total funding. Mr. Thakur pointed out that IDFC now has an Infrastructure Finance Company (IFC) status. The RBI is concerned about equity funding by IFCs and is discouraging them from undertaking equity funding. He added that the discussion in the said meeting in Mumbai focused on increasing IDFC’s total exposure to the power sector to 25%.

6. Mr. Mavinkurve pointed out that the energy sector already accounts for about 40% of IDFC

funding exposure. He added the PE and Project Equity arms do equity investments. He explained that IDFC is the only company in the infrastructure space that can arrange debt, provide debt, give equity and issue infrastructure bonds. Therefore, IDFC caters to the needs of the energy sector through many different channels.

7. Mr. Shahi questioned if IDFC has a conservative outlook towards equity funding in the power

sector. Mr. Mavinkurve responded in the negative. Stressing the fact that IDFC funds only the private sector, he drew comparison with PFC and REC’s funding exposure to the private sector. He pointed out that the disbursements by these two institutions to the private sector is rather low at around Rs. 5000 crore. Mr. Shahi stated that IDFC was formed much earlier. Mr. Thakur pointed out that PFC was allowed to invest in the private sector in 1997. However, it did not do so.

8. Mr. Thakor, supporting Mr. Mavinkurve, opined that it would be difficult to specify and meet a

target for equity funding to a particular sector. He explained that the primary objective of a PE fund is to make money. If worthy projects are not available in a sector, then the fund should not invest even though the sector may have large investment requirements.



9. Mr. Shahi enquired on the extent of IDFC’s investment in the funds of IDFC PE and IDFC project Equity. Mr. Mavinkurve responded that IDFC’s investment in these funds stands at 10% of the fund amount.

10. Mr. Shahi also enquired about IDFC’s future plans and targets for the energy sector. Mr.

Mavinkurve apprised the EAB that a three year business plan has been drawn up and a significant amount of investment is envisaged in renewable energy (RE). The focus on coal based projects would continue. But there are several issues with such projects such as land acquisition, environment, coal blocks. Further, the coal rich areas are problem areas. Mr. Jain added that these areas are also the main tribal areas. He informed the EAB that the focus in the power sector is shifting from coal based to renewable energy projects for the reasons cited by him and Mr. Mavinkurve. He 2000 acres of land have been acquired in Rajasthan in the last two years for the setting up of solar power projects. The situation is similar in Gujarat. Mr. Ailawadi suggested that the EAB look into the developments on the go/no-go areas for coal.

11. Mr. Shahi enquired on the sanctions made during 2009-10. Mr. Mavinkurve responded that

approvals of Rs. 10,000 crore have been made in 37 transactions.

12. Mr. Ailawadi wished to know IDFC’s funding of renewable energy projects. Mr. Bhattacharyya drew the attention of the EAB to IDFC PE’s investment in Green Infra and informed the EAB that besides developing renewable energy projects, Green Infra also takes equity stake in RE projects.

13. Mr. Thakur clarified that Green Infra does not take minority stake in projects. Mr. Bansal

mentioned that in such cases, IDFC Project Equity could take equity stake.

14. Mr. Shahi opined that there are several issues with RE and the over-enthusiasm with regard to RE in the country can be a problem. He pointed out that scale up of RE continues to be an issue. Mr. Baijal added that high tariffs and subsidy requirements are the prime issues of concern.

15. Mr. Ailawadi wished to know if IDFC is funding projects within the National Solar Mission (NSM).

Mr. Mavinkurve responded that IDFC has not funded solar projects till date. However, the solar power segment is being carefully evaluated.

16. Mr. Jain disagreed with Mr. Baijal and pointed out that wind power does not need subsidy. He

added that Green Infra does not avail the depreciation benefit for wind power. Mr. Shahi opined that wind power is not sustainable without depreciation benefit and Generation Based Incentives (GBI). Mr. Jain and Mr. Mavinkurve disagreed.

UI Mechanism

17. Mr. Bhanu Bhushan, Former Member, Central Electricity Regulatory Commission and Mr. S K Sonee, CEO, Power System Operation Corporation Ltd. were invited to give a talk on Unscheduled Interchange (UI) Mechanism. They made presentations on the subject. Besides answering queries raised on their presentations, they answered other queries related to UI.

18. The presentations made by them were circulated after the meeting.

Roundtable on Hydro Power Development - Policy and Implementation Issues 19. The participants at the Roundtable were as follows:

Mr. D P Bhargava, NHPC Mr. Rakesh Kumar, PTC India Limited Mr. Harvinder Manocha, GMR Mr. S.K. Mittal, Lanco



Mr. K Seethayya, Athena Energy Mr. Himanshu Vishnoi, Athena Energy

20. The participants made presentations covering key issues and challenges to hydro power development. They cited examples of projects which are delayed or where problems have arisen and the reasons for such delays.

21. Mr. Shahi suggested that the participants prepare a brief note covering these issues and recommendations to overcome them. He further suggested that the issues be categorized under the different heads of policy, regulation and implementation and then sorted further on the basis of the agency that could take corrective measures.

22. The presentations made by the participants were circulated after the meeting.

Renewable Energy Certificates 23. Ms. Gulati requested the EAB for a discussion on Renewable Energy Certificates (RECs)

mechanism, citing that some business groups within IDFC have expressed an interest in the subject.

24. The EAB suggested that RECs be taken up as a discussion item in the next meeting. Mr. Shahi suggested inviting Mr. Alok Kumar, Secretary, CERC for this discussion.

22nd EAB Meeting on November 10, 2010 IDFC’s Infrastructure Index

1. Ms Anand gave a brief overview of the Infrastructure Index developed by IDFC to the EAB. She mentioned that she would send a note on the Index to the EAB so it could be taken up for discussion in the next meeting. She suggested that the EAB could discuss the architecture of the Index.

Hydro Power Development - Policy and Implementation Issues

2. Most of the hydro potential is located in hilly region, particularly North-East. The capital cost of hydro projects in the NE, particularly in Arunachal Pradesh, is higher. Evacuation of power is very expensive in this region, which makes the cost of power more very high. Thus, the fundamental issue is that extension of mega power policy to hydro projects may not be enough to mitigate costs. Mr. Thakur in this context raised the question, whether the projects approved so far would have competitive tariffs.

3. Mr. Singh emphasized the importance of overcoming infrastructure bottlenecks in the north east

as these bottlenecks make hydro power more expensive in this region. He added that construction of roads and transmission network in the North-Eastern states does not necessarily follow the desired development pattern of the States. He also pointed out that the VGF model would get into several problems and that accessing VGF is extremely difficult.

4. Mr. Shahi suggested that the allocation of projects should be based on bidding for minimum

gap funding viz the viability gap funding (VGF) model.

5. Mr. Ailawadi opined that there are several inefficiencies in the system that adds to the project cost, which include delays due to lengthy bidding process and grant of clearances, absence of physical infrastructure associated with the project, complexities in land acquisition and R&R. Such inefficiencies need correction to make hydro power competitive. Mr. Baijal agreed with Mr. Ailawadi and suggested that the EAB go through each issue covered in the discussion note on the subject as prepared for the meeting.



6. Mr. Thakur pointed out that future hydro projects will be located mostly in the north-eastern

states. If buyer utilities find these projects expensive, they would not purchase power from these projects.

7. Mr. Alok Kumar, Former Secretary, CERC who was a special invitee at the meeting suggested

that hydro power projects should be allocated using the competitive bidding route. He mentioned that case I bidding would not be relevant for hydro and only case II route would be appropriate. However, he added that hydro power could be used for peaking power through Case I bidding but should primarily take the case II route. Mr. Thakur in the context of case I bidding approach pointed out that most hydro projects are run-of the river and will not have peaking power. Mr. Shahi pointed out that case II bidding would necessitate credible DPRs. Mr. Shahi further suggested that the case II approach for development of hydro projects should be incorporated in the recommendations being prepared by the EAB.

8. Mr. Baijal suggested that the EAB should look at the models adopted in other countries that are

availing power only through hydro. Mr. Kumar offered to send some documents containing the experience of Brazil. He added that the Ministry of Power should adopt a few representative projects with viable business models go give impetus to investments in hydro projects.

9. Mr. Shahi suggested that the recommendations for development of hydro power be written in a

more concise manner by focusing on one agency at a time. He suggested starting with issues to be taken up with the Ministry of Power and the CERC. He added that after sending the recommendations, the EAB could seek a presentation or workshop with them.

Open Access

10. Mr. Baijal pointed out that in accordance with the Electricity Act 2003 (Act) the regulator is required to enforce Section 43, however OA so far has not been successful. He opined that the CERC could pick up large consumers in few states and demonstrate how open access (OA) can be done.

11. Mr. Shahi pointed out that OA to consumers of 1 MW and above has been mandated by law. He

requested Mr. Kumar to give his views on the reasons why this OA has not materialized.

12. Mr. Kumar pointed out that the charges to be paid by OA consumers are very high in some states thereby increasing the cost of power availed through OA. He added that very few eligible consumers are connected to the state grid and consumers need to go to the SLDC for availing clearances for OA. The SLDC is under the control of the state and imposes constraints to OA. He further added that few states like Tamil Nadu and Punjab have introduced OA effectively. But OA is allowed only during load shedding. He pointed out that CERC has allowed consumers of 100 MW to connect directly to the central transmission line so that these consumers can come directly under the fold of the RLDC.

13. Mr. Ailawadi emphasized the need to rationalize tariffs and related charges for OA.

14. Mr. Kumar questioned the willingness of consumers to move away from power supply from

utilities. He suggested speaking to large consumers and finding out the reasons for them not opting for OA. He added that the cost of power is also a problem. He suggested that the Sections 11 and 37 of the Act should be amended to introduce statutory roles of SLDCs by defining the SLDC governance structure.

Renewable Energy Certificates

15. Mr. Kumar gave an overview of the REC mechanism and it’s working.



16. Ms. Gulati pointed out that some people opine that creation of solar and non-solar RECs would reduce liquidity. She added that there have been proposals for an alternative scheme that allows participation of all RE sources in a common REC market by using a multiplier factor for different sources. Mr. Kumar responded that liquidity is not a concern as solar generation accounts for only 1% of the total generation. He added that there are legal barriers for the working of the aforementioned alternative proposal. He mentioned that the CERC has taken a legal opinion for this proposal and the proposal won’t work within the current legislative framework. He further added that firm RE power sources like biomass would be more successful under the REC mechanism.

17. Ms. Gulati requested Mr. Kumar’s views on the non-inclusion of DDGs within the REC

framework. Mr. Kumar pointed out that the huge administrative framework for verification of DDGs (their existence and operations) for inclusion within the REC framework and the cost associated with the same would be very large and would not justify inclusion within the REC mechanism. He added that the REC mechanism would be reset after specific periods as provided for in the relevant regulations. Therefore, some issues would be addressed in the future.

18. Mr. Kumar also highlighted that the regulations provided for a penalty in the event of a shortfall

in meeting RPO. The penalty is called a regulatory charge and has been set equivalent to the floor price.

23rd EAB Meeting on February 9, 2011 Recent developments in Open Access

1. The EAB did not wish to discuss this subject in Mr. Baijal’s absence. It was decided that the issue be taken up in the next meeting since Mr. Baijal’s presence is necessary for discussions on this subject.

Hydro Power Development - Policy and Implementation Issues

2. Mr. Ailawadi pointed out that the final note on hydro power has not been circulated for the meeting. Ms. Gulati responded that as decided in the last meeting, the note on hydro power was to be revised to focus on issues to be taken up with the Ministry of Power and the CERC. The note was ready. But given that the discussions on the note were not completed in the last meeting, the note had not been circulated. If no further discussions are to be held on the note, it could be circulated after the meeting.

3. Mr. Shahi suggested that the EAB should focus on the financial viability of the distribution business. He added that the deteriorating financial health of the distribution business is negatively affecting the investor outlook for the power sector. The general belief amongst the investor community is that the Government of India (GoI) and state governments have stopped focusing on distribution reforms. These reforms, though crucial, have taken a back seat and the focus once again is on addition of generation capacity.

Financial Health of the Power Distribution Segment

4. Ms. Anand introduced the issue by stating that Ms. Gulati has prepared a note on this subject and the note is proposed to be published under IDFC Policy Group’s Sector Update Series. The note would benefit from the EAB’s guidance.

5. Ms. Gulati made a presentation on the subject. The EAB had the following specific observations: a. The base year for analysis should be changed to 2002-03 instead of 2005-06. b. The note should aim to identify the problematic states



c. Include state wise position of cash losses d. Include state wise position of revenue gap, and tariff increase vs average cost of supply e. The note should refer to the poor Quality of Supply and Service (QoSS) provided by the

distribution utilities. Rural consumers do not pay because QoSS is poor. Therefore, utilities should improve QoSS. SERCs could drive utilities towards this by determining tariffs that are linked to QoSS.

f. Tamil Nadu has exhibited huge increases in short term borrowings. g. Include state wise status of subsidy booked by utilities and subsidy released by state

governments h. The quality of domestic coal quality will deteriorate in future. Cost of mining will go up.

Consequently, generation cost will increase further. The shortage of domestic coal would imply increased dependence on imported coal which would be expensive. At the same time, shortage of power is expected to continue. Hydro projects are particularly delayed. These factors indicate that the cost of power would only increase in future. If tariffs are not revised, financial health of the distribution utilities will be further affected.

i. The availability of gas is another issue. If Gencos buy gas and generate power today, they will exhaust gas. When gas based power is needed most (during harvest seasons/extreme weather/hydro shortage), gas will not be available for generation.

j. The development of renewable energy (RE) will be affected adversely. Utilities have to meet Renewable Purchase Obligations (RPOs). In the event that they cannot procure RE, they would need to purchase Renewable Energy Certificates (RECs). This would imply additional expenditure on utilities. Given their financial health, they would not be able to bear such expenses. Consequently, consumers will be burdened.

6. Mr. Pant wished to know if the note could include information on the debtors for sale of power for private Gencos. Ms. Gulati responded that the absence of information in the public domain has been a drawback in conducting such analysis.

7. Ms. Anand mentioned that discussions in several forums indicate that DISCOMs have stopped purchasing power on the exchanges. The main reason behind this is that they cannot afford to pay for such power and incur increased losses. However, analysis of short term power trends on a monthly basis for 2009-10 and 2010-11 indicates that short term power purchase has not reduced at the All-India level. Mr. Jain pointed out that states have indeed reduced their short term power procurement. Maharashtra (MSEDCL) is one such example. He added that DISCOMs do not want consumers to get used to better supply conditions even if power is available. Given their financial health, DISCOMs do not believe they can sustain additional power supply for long.

8. Mr. Thakur added that the quantum of short term power does not exhibit a downward trend

because utilities are off-taking contracted power at the exchanges. It is only the additional merchant power that is typically traded in the day ahead market that is not being offtaken.

9. Mr. Shahi opined that the interesting findings emerging from the note need to be pursued

further. He suggested that the note also include recommendations/actions that could be taken for restoring the financial health of the distribution business. He added that these recommendations/actions should be listed as per the agency best equipped to pursue them viz. Ministry of Power (MoP), Planning Commission, State Governments, CERC and SERCs.

10. Mr. Ailawadi suggested publishing the findings of the note in EPW. Dr. Bakthavatsalam

suggested that the note be sent to the Parliamentary Standing Committee on energy, Public Accounts Committee, the Planning Commission and the MoP. In addition, it should be circulated widely to the media. He further suggested identifying a nodal person at IDFC to deal with any queries from these agencies or the media.



11. It was suggested that the note include the suggestions made by the EAB. In the next meeting, the EAB could discuss the recommendations/actions that could be taken for restoring the financial health of the distribution business. Following this, the note could be finalized and sent to the various concerned agencies.

Infrastructure Index

12. Mr. Tiwari made a presentation on the Infrastructure Index developed by IDFC. The Index tracks physical infrastructure development over time across states and at the national level. It was launched on January 26 and covered by Mint.

13. The EAB had the following specific observations: a. Consider creating a separate category for the small states b. Consider changing the base year of the Index to early 2000s c. The weightage given to the Telecom Index in the Overall Index needs to be reviewed d. Consider including household electrification as a parameter in the Index subject to

availability of data

24th EAB Meeting on March 9, 2011 Recent developments in the Power Sector

1. Mr Shahi apprised the EAB members of the recent rise in concern about the poor financial situation of distribution companies. In practically every forum on Power Sector this particular aspect is being discussed as a key impediment in the path of India’s achieving targets set for the power sector and sustainability of the sector. He informed that in a recently held conference on Financial Issues in Distribution Sector, organized by Mercados, he was invited to speak on the subject. He further mentioned that during the CERC CAC meeting Mr. Shahi informed the CERC members about the IDFC paper on Issues in Power Distribution, which deals with the poor financial situation of the distribution utilities and its implications for investments in power sector. Mr. Shahi mentioned that he has sought time from the CERC Chairman to present the paper to CERC as well as FOR. He also apprised that during the meeting of Advisory Committee of MoP, Mr Shahi had informed about this paper and has sought time from the Minister of Power to make a presentation.

2. Mr. Shahi informed that during the discussion in the Advisory Committee of MoP it was mentioned that the financial condition of the Distribution Utilities is far worse than what is reported so far, and is likely to be Rs.78000 cr and even exceed Rs 1 lakh crores by 2013 if the present trend continued. He then mentioned that in the present scheme of things, the IDFC paper is extremely relevant and timely.

IDFC paper on Financial Health of the Power Distribution Segment

3. Ms. Gulati apprised the EAB members that all the suggestions made by the members have been incorporated, She however informed that in the paper the base year has been kept at 2005-06 as the worsening of the financial situation had set in post 2005-06, after a brief improvement noted prior to 2005-06.

4. Responding to this, Mr. Shahi suggested that it may be worth looking at the data from 2002-03 to identify those activities which influenced the positive performance of the Discoms, which have been stopped from 2005-06. As an illustration he mentioned that the rating of utilities that were done before definitely had a influencing factor.

5. Ms. Gulati agreeing to look into the past data went on explain the key findings noted in the

paper. She explained that a few poorly performing states have been identified, which account



for 95% of the financial losses, and the Discoms in these states analyzed to understand the underlying rationale for their rapid deterioration.

6. Mr. Shahi suggested that it would be useful to look at these states in the light of a set of key

questions such as (i) whether AT&C losses have reduced, (ii) whether agriculture consumption has increased, (iii) whether tariff revision & rationalization has happened. It would be extremely useful to look into greater detail the performance of the poorly performing states against this set of questions.

7. Further, Mr.Shahi suggested that once having identified the key causes for deterioration, it

would be useful to propose an action matrix providing the measures to be taken by MoP, CERC and SERCs in the short, medium and long-term to rectify the maladies prevalent in the system and facilitate development of the power sector.

8. Ms. Gulati confirmed that the paper would try to identify the key reasons influencing the poor

performance of the states, while also trying to note the actions of the better performing states. Ms Gulati explained that the interesting aspect is that despite improvement in AT&C losses, cash losses have increased significantly for several states,

9. Mr. Baijal wanted to understand the difference between losses and cash losses. Ms. Gulati

noted the comment and agreed to explain the same in the revised draft.

10. The members of the EAB agreed that it would be interesting to identify the key issues that need remedial measures and put them in a action matrix as explained by Mr. Shahi.

11. Ms. Anand however explained that it would be useful for the EAB members to propose the

action matrix. Mr. Shahi agreed and proposed that the members should provide their inputs.

12. Mr. Ailawadi mentioned that some improvement in AT&C losses are observed, but the level of losses is still a far cry from the target desired. Mounting financial losses and perennial inefficiencies pose serious threat to private investment in generation and consumers see no improvement in supply quality. Mr. Ailawadi expressed the key reasons are well known and are – (i) no tariff revisions for many states and where revisions are happening, it is often not adequate to recover the increase in costs (more specifically, power purchase costs), (ii) revenue gap widening with or without subsidy (and subsidy often not coming through), (iii) lack of willingness on the part of discoms to ask for tariff revision, (iv) tariff rationalization and cross subsidy reduction not keeping with the provisions of the tariff policy, and (v) regulators not setting realistic efficiency targets and weakly enforcing directives.

13. Mr. Shahi reiterated that it would be important to review the performance of the states against

these issues, (like whether the states have been able to down cross subsidy within ± 20% of the average cost of supply by end of FY 2010 – 11 keeping with the provisions of the National Tariff Policy. Mr. Shahi in this regard suggested that members to identify action points which could be deliberated and finalized. He mentioned that if the suggestions required amending the Act, then even that could be taken up with the Ministry.

Outstanding Issues in Open Access

14. Mr. Ailawadi was invited to propose the outstanding issues in Open Access (OA). Mr. Ailawadi mentioned that CERC has come out with a very positive order, which addresses many of the concerns which existed with reference to OA. Issues already addressed by CERC include (a) non discriminatory interconnection / connectivity to generators and traders and IPPs for Inter-State movement of power, (b) power of SLDC for refusal for concurrence for Open Access applicants / users effectively curbed, (c) facilities for advance scheduling for bilateral transactions made easier, (d) exit options for parties are made reasonable and transparent, (e)



new UI Regulation April, 2010 to promote transactions for sale at power exchange. & curbs gaming. These provisions in the new OA Order have enabled generators / traders / utilities to take advantage of transactions, both long term bilateral and trading, power exchanges. However, the provisions in the new order have not provided level playing field for short term and medium term OA consumers as against the long term OA consumers. MTOA customers creating dedicated transmission line at own cost is not given the benefit of augmentation of the transmission system. Other concerns include, bulk consumers (with load level of 100MW) is not defined to include group of individual industrial or commercial consumers, treatment of STOA and MTOA as residual capacity for provision of OA and not explicitly planning for their capacities, uncertainty faced by MTOA consumers for renewal of OA, SLDC providing concurrence for bilateral and collective transactions by MTOA weakens control of vested with CERC and instead RLDC should be the nodal agency for all MTOA cases of inter-state transmission, and issues related to intervening transmission charges.

15. Mr. Shahi suggested that Mr. Ailawadi could draft a letter flagging off all the outstanding issues, which should be revisited by CERC to ensure level playing field for all OA consumers, and send the same to EAB Chairman for further action.




Presentations

1. Distribution Franchisee 2. Kamalanga Thermal Power Project 3. Captive Mining – Concerning Issues 4. Regulatory Consequences – Power vs Telecom Sector 5. CERC Power Market Regulations 6. Jawaharlal Nehru National Solar Mission 7. IDFC Infrastructure Index 8. Interstate Open Access Implementation 9. Power Distribution – Where is it headed?

1

Distribution Franchise

A performance enhancement measure for distribution business

Presentation by

Vinayak Mavinkurve

12th March 2008

A Quick Recap

Acute shortage of Power at

present.

Energy Shortage was 9.6%(2006-07)

Peak Shortage was 13.8%(2006-07)

8.8%7.5%

7.3%8.4%

9.6%

0

200

400

600

800

2002-03 2003-04 2004-05 2005-06 2006-07

Ener

gy D

eman

d (B

illio

n U

nits

)

Shortages

Availability

Energy Shortage

Power Generation Capacityaddition is far below the

expected (only 27,285 MW

added against expected 41,110

MW during 2002 – 2007)

2002 03 2003 04 2004 05 2005 06 2006 07

-12.20% -11.20% -11.70%-12.30%

-13.80%

0

20000

40000

60000

80000

100000

120000

2002-03 2003-04 2004-05 2005-06 2006-07

Dem

and

(MW

)

Shortage

Demand MetPower Shortage

Need to urgently ensure power availability to sustain our GDP growth.

A Quick Recap

Acute shortage of Power can be rectified by augmenting capacity or

reducing T&D losses

For a coal fire power plant (significant generation capacity is coal

based), assuming auxiliary consumption of about 10%, only about

60% of capacity is available for supply, even assuming high PLFs.

Due to T&D losses of over 30%, amongst the highest in the world

Commercial losses, over and above, the T&D losses accentuate the

financial stress on the utilities

Reduction in AT&C losses would enhance capacity available for power

supply and improve financial health of the sector

Sector viability would improve

Focus on efficiency improvements in the T&D sector as important as capacity addition in Generation.

Requirement of the day

To improve the performance of the

Distribution utility

Financial Performance

System Performance

Customer Services

To bring in the investments required and management expertise by private participation in distribution sector

2

Models for Distribution ReformsAllocation of responsibilities

Management Contract Franchisee Licensee

Asset ownership Public Public Private

Operation & Maintenance Private Private Private

Capital investment Public Private Private

Commercial risk Public Private Private

Duration 3-5 years 10-20 Years Long term

Trade off between financial performance & socio-political compulsions

Reform process

Acce

ptan

ceH

igh

DistFranchise

SEB DrivenReforms

ContractManagement

Franchisee model moderates both political acceptance

6

Reform ProcessSlow Fast

Polit

ical

ALo

w

Privatization

risk as well as pace of reforms

Revenue based Franchisee : Activity Structure

ConstructionCapex

O&M

Planning

Customer Care

MeterReading

Management contract to reduce commercial losses and to improve collection efficiencySuitable for small villagesMinimum Risk and RewardsDriven by small local players

Energy InputMetering

Fault Restoration

Revenue Collection

players

Limited scope of improvement, due to lack of ownership and funding

Feeder based Franchisee : Activity Structure

ConstructionCapex

O&M

Planning

Customer Care

MeterReading

Franchising of HT Feeders on input energy basis Includes upkeepment of distribution assets and customer servicesSmall & Medium local playersSystem improvements subject to funds being


Fault Restoration

Revenue Collection

subject to funds being provided for distribution network

Again, limited scope for improvements due to no obligations on system improvements.

3

Distribution Franchisee : Activity Structure

All obligations of DISCOMsTotal O & M of the networkCapital expenditureRevenue assurance and vigilanceDay to Day business operationsMedium to long term contract with performance benchmarking

ConstructionCapex

O&M

Planning

Customer Care

MeterReading

Generation Transmission


Distribution Franchisee

Fault Restoration

Revenue Collection

An interim solution on the way to privatisation

Bhiwandi :The first distribution franchisee

Bhiwandi : IntroductionThe Government of Maharastra (GoM) took the lead in distribution reforms

and has introduced a franchisee model for public-private partnership

Maharashtra State Electricity Distribution Company Limited (MSEDCL) , the

state utility invited bids for selection and appointment of a distribution

franchisee for the Bhiwandi Circle of its license area of the Maharashtra

State .

Torrent Power was selected as the Distribution Franchisee through an

open competitive bidding process

Distribution Franchise Agreement was signed with MSEDCL on 20th

December, 2006

Operations taken over from 26th January, 07.

The initial physical T&D losses in Bhiwandi were 45.2% and collection

efficiency was at 68.2% (2005-06).

Area 721 sq kms

Population 10 lacs

No of Customers 160,000 Nos

Demand 800 MVA

Annual Energy Input 2500 MUs

Bhiwandi

4

Commercial Terms

Payment by DFCharges for input energy

Arrears collectedSecurity Deposit for new connections

Electricity duty

Torrent Power (Di t ib ti

MSEDCL(State

(Distribution Franchise)

Payment by DISCOMIncentive on recovery of arrears

SubsidySpecified payments upon termination / expiry

(Distribution

Utility)

The Franchise AgreementTorrent Power Ltd. (TPL) bid for the franchise agreement with the bid

parameter being the price at which TPL will buy power from MSEDCL. The

Company won the bid by bidding at specific tariff trajectory for 10 year

franchisee period (Input Rate)

The Input Rate to be escalated based on MERC approved tariffs

MSEDCL has also committed to make available annually a minimum

number of units to Bhiwandi at 2426 Million units.

The term of the agreement is for 10 years

MSEDCL has step-in rights if franchisee abandons the duties for 48 hours

The agreement contains clause relating to events of default, termination,

force majeure, governing law as well as operational procedures

The Franchise AgreementObligations of the franchisee

Franchisee has been granted exclusivity by MSEDCL to undertake distribution of power, metering , billing, collection and all duties as a distribution licensee but ownership of distribution assets will lie with MSEDCL

Franchisee to undertake O&M of the network, comply with standards, provide consumer service and undertake obligation to connect within franchisee area

Franchisee to comply with directives, orders of MERC and applicable laws

Franchisee to submit bank guarantee for 2 months billingg g

Rights of franchiseeExclusivity

Right to use MSEDCL’s distribution assets

To incur new capex, deemed required, to improve efficiencies, to upgrade system, etc and MSEDCL shall reimburse such capex at the end of the term at depreciated value

To procure additional power for supply in franchisee area with concurrence from MSEDCL & regulators

Franchisee to bear extant wheeling/ open access charges

The Franchise AgreementObligations of MSEDCL

To incur the stipulated capex in the franchisee area for the first 5 years of the franchisee agreement

To supply 2426 MUs pa at Input Points on non-discriminatory basis subject to regulations

To assist franchisee to procure additional power from third parties if required by franchisee

To grant credit in payments to be received from franchisee for subsidy amountsg p y y

EmployeesEmployees of MSDECL given option to join franchisee on deputation on no less favourable employment terms

Employees to return to MSEDCL post franchisee term with no loss of seniority

Franchisee has the right to send back the deputationist to MSEDCL with one month notice without assigning any reason

BillingWeekly billing by MSEDCL with franchisee allowed to pay within a week of the billing date

5

System upgradation measures

600

100

200

900

0100200300400500600700800900

1000 Power Transformer Capacity

Augmentation of EHVinfrastructure to eliminatedistress load shedding dueto overloading of EHVnetwork

0Jan-07 Added after

takeoverYet to be

addedby Mar-08

46

26

9

81

0

10

20

30

40

50

60

70

80

90

Jan-07 Added aftertakeover

Yet to beadded

by Mar-08

22 KV Feeders

To relieve existing overloaded22KV feeders and to reducetechnical losses

System upgradation measuresDT Revamping/Replacement Meter Replacement

Old Meters

44000New Meters

116000

DT Replaced

977

DT Revamped

2131

To reduce the failure rate andimprove the reliability of supply

To measure the consumption of energy accurately at consumers end and to reduce the commercial loss

0 500 1000 1500 2000 2500

Total DT in System

2240

Major Accomplishment : T&D Loss Reduction

30%45%

At the time of takeover

Reduction of 15%

45%

Benefits of franchisee arrangementReduction in technical T&D losses and theft

Improvement in Metering, Billing and Revenue

Collection

Capital investments in upgradation of the

network

Enhancement in customer service quality

A win-win scenario for all:Consumers, DISCOM and Franchisee

6

Critical Success Factors of Franchisee Business

Critical Success FactorsAdequate supply of power to the franchise without any load shedding

Sufficient Transmission Capacity to supply power to the customers of the franchise

Term of the Agreement should be atleast 10 years.

The area of the franchise should be large enough to make it a financially viable proposal for the franchisee. Bhiwandi franchisee input energy is 2426 Million units per year.

The Franchisee should have the right to carry out the capital expenditure to improve the system at its own discretion.

Adequate support from Government, State utilities and public in general

Thank you

1

Humility Entrepreneurship Teamwork

1050 MW KAMALANGA THERMAL POWER PROJECT

Kamalanga Village, Dhenkanal DistrictOrissa

Learning Social Responsibility Respect for IndividualDeliver The Promise13th May 2008 New Delhi Slide No. 1

GMR KAMALANGA ENERGY LIMITED, Bangalore


Presentation to Honorable

Power Advisory Committee&

IDFC Mumbai


IDFC, Mumbai

GMR KAMALANGA ENERGY LTD, Bangalore


GMR Energy Sector - GlanceGMR group owns and operate 830MWDeveloping 2100 MW coal based thermal power in the

states of Orissa and ChhattisgarhDeveloping about 1200 MW of Hydro power in India

and NepalGMR d dd 1050 MW f i h


GMR expected to add 1050 MWof power in the currentfive year plan

GMR Kamalanga Thermal Power project in Orissa is inadvanced stage of development


GMR Kamalanga Thermal Power Project6(i) process of land acquisition completed – First IPP in OrissaReceived MOEF Environmental Clearance and Consent to

Establish – First IPP in OrissaEPC contract awarded before 31st March as per Ministry of Power,

GOI.Dry Financial closure with the support of IDFC achieved in

February 2008Joint Venture company for Rampia Coal mine development


J p y p pincorporated in February 2008

Prospecting license for coal mining has already been submitted.JVC has submitted BG to Ministry of Coal to a tune of Rs. 127

Crores .GMR received firm coal allocation for 500 MW and BG is expected

to be submitted shortly.CEA has recommended for allocation of coal linkage for balance

capacityConstruction works to commence in July 2008

2


Overview of Coal Reserves in IndiaTotal Reserve 253301MT

Proved 95866 MTIndicated 119769MTInferred 37666 MT


India has approx. about 10% of global coal reservesIndian coal is predominantly of inferior quality.


Captive Coal Blocks for Power GenerationGovernment of India through its liberalized policy

allows allocation of coal blocks to power sector

It is believed that moderate or low yielding coal blocksare generally allotted to private parties.


Reasonable quality and quantity of coal isquestionable in captive coal blocks.

Typical coal linkage ensures continuous supply of coalat fixed prices and at reasonable quality.


Pit head Power stations - AdvantagesGood logistical support

Lesser storage at site

Scope for re‐filling of ash into spent mine is high


Environmental Friendly


INDIAN PERSPECTIVE OF CAPTIVE BLOCKSVery remotely located and isolated

Coal reserves are generally deep seated

Inadequate Geological information


Inferior coal quality

Most of the coal blocks are in forest areas.

3


EXPLORATIONUnexplored or Regionally Explored status of themines

Unexplored coal mines delay development of mine

Forest clearance for Drilling is a long process ‐ Deterrent

Drilling agencies lag in terms of manpower andequipments and are fully occupied


Overseas drilling agencies do not take up small jobs

CMPDI, although has competency and resources is verybusywith mines of Coal India Limited

Exploration of coal is challenging in view of constraintsfrom the government and external agencies.


FOREST CLEARANCEForest land clearance is a lengthy and cumbersome

process

Unexplored status of mines combined with forest landis likely to delay commencement of geological

l i i i


exploration activity.

If reserved forest, forest growth and habitation areextensive, then compensation work out to be too costly.

Identification of diversion land for afforestation is adaunting task.


LOGISTICS & INFRASTRUCTURELocation of the Blocks are remote and isolated

Lack of infrastructure like road, railhead, power, wateretc in the vicinity

D l f h i f i i i l d


Development of such infrastructure is critical andlarge task for the allottee(s)

Unless Cost/Infrastructure sharing route is finalizedand implemented, adverse effect on ultimatemining costas well as schedule of mine development.


TECHNOLOGYTechnology depends on thickness and depth of seams

Totally open castable mines are few

Partly Underground mining is expected for optimumstripping ratio and maximum utilization


stripping ratio and maximum utilization.

Combination of Open and U/G mining technologymay have to be adopted.

Deployment of Diverse range and variety of miningequipments would be required to implement both O/Cand U/G

4


TECHNOLOGYOpen cast mining employs following mining methods

Dragline side casting with orwithout sidecastingShovel dumper combinationCombination of BothSurface miner in coal


Surface miner in coal

U/G Mining employs following methods

Bord & Pillar is common in IndiaMechanized Bord and Pillar with Continuous Miner

Project ‐ Gestation period is too long


Open Cast Vs Under Ground MiningAdvantages of Open cast mining

Flexible and safeProduction rate and recovery are highLow gestation periodHigher profitability


g p yBetter Process control

Advantages of Under Ground mining

Accessibility to Deep seated reserveEnvironmentally Friendly


MOBILIZATIONConstraints in Initial mobilization of equipments.

Lack of Infrastructure facilities – connectivity.

Long lead time for delivery of mining equipment.

Private Captive developers cannot adopt temporarydi i f i f h i lik CIL


diversion of equipments from other mines like CIL.Non‐supportive import policy for mining

equipmentsLimited indigenous mining equipment

ManufacturingNegligible service and spare parts support


DEVELOPMENT CONSTRAINTSDisadvantage by Location

Nature of Deposit

Quality of Deposit

Development of single mine by several Joint Allottees


may have additional constraints

Funding at high interest rates

Lack of qualified engineers

R&D in coal mining is minimal

5


FEATURES OF RAMPIAStatus of Exploration Regionally explored Indicated Reserves 285 MT (Regional Exploration )Mineable Reserve To know after full exploration

Depth of Seams Up to 250 MetersGrade of seams F-G mostly, could be D-E in

lowermost Rampur & IB seam


Total area 7.5 Sq.kmForest land About 75 %

Nearest Rail Head 36 KM (Himgir station)Nearest Highway 50 KM

Type of Mining Opencast

Note : In case underground mining is necessary, it would limit the achievable production significantly


FEATURES OF DIP SIDE OF RAMPIAStatus of Exploration Regionally explored Indicated Reserves 360 MTR(RE Data)Mineable Reserve To know after full exploration

Depth of Seams Borehole Data not availableLikely to go beyond 300msince located on dip side ofRampia

Grade of seams F-G (RE data of Rampia basis)


( p )

Total area 4.5 Sq.kmForest land Survey needed

Nearest Rail Head 36 KM (Himgir on SE Rly)Nearest Highway 50 KM

Type of Mining Combination of O/C and U/G(being located dip side expecteddepth is more)

Note : In case underground mining is necessary, it would limit the achievableproduction significantly


CONSTRAINTS - GMR Rampia coal mineMining of Rampia Dip side is feasible only after

mining of Rampia is complete.

Terrain and Contour & deep forest may pose relatedproblems during development.


Availability of Skilled manpower

Availability of equipment in India for moderntechnology particularly for u/g mines


Rehabilitation and ResettlementImplementation difficulties for stand alone captive

Block operator with limited size

Employment to larger number of PAP’s if the projectaffected area is significantly populated


Employment of large number of PAP’s becomesdifficult when the developer contemplates contractualoption of operation

6


Major issues for Reddressal1. Infrastructure development

2. Connectivity and Communication

3. Special benefits and tax holidays for captive coalmining


mining

4. Waiver of import duty for capital equipment/spares

5. No service tax or withholding tax when employingforeign consultants and experts

6. Support for coal washeries – National policy to evolve


Major issues for Reddressal _ Contd7. Hassle free import of state of art mining technology

8. Special cell creation for speedy forest clearance

9. Mega power status for all those captive coal blockdevelopers


developers

10. Support for indigenous manufacturing of coal miningequipments

11. Low interest loans for captive coal developmentalprojects


Major issues for Reddressal _ Contd12. Liberalized R&R policy for captive coal blocks

13. Land acquisition by special ordinance

14. Respective state governments to waive royalties andCess when part of the power is committed to the state

15. State government support in allocation of water and


15. State government support in allocation of water andpower

16. State government to support through single windowclearance for all permits and licenses applicable tostate.

17. Unless Cost/Infrastructure sharing route is finalizedand implemented, adverse effect on ultimate miningcost as well as schedule of mine development.



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1

Captive Mining Captive Mining C i IC i I

11

-- Concerning IssuesConcerning Issues

Presentation OutlinePresentation Outline

Legal FrameworkLegal Framework

Impediments of Captive Block Impediments of Captive Block

DevelopmentDevelopment

22

Initiatives taken by Govt.Initiatives taken by Govt.

Concerning Issues & SuggestionsConcerning Issues & Suggestions

Captive Mining Captive Mining –– Legal FrameworkLegal Framework

UnderUnder CoalCoal MinesMines (Nationalization)(Nationalization) Act,Act, 19731973,, CoalCoalMiningMining waswas exclusivelyexclusively reservedreserved forfor thethe publicpublic sectorsector..

ByBy anan amendmentamendment toto thethe ActAct inin 19761976,, twotwo exceptionsexceptionstoto thisthis policypolicy werewere introducedintroduced::

CaptiveCaptive MiningMining byby privateprivate companiescompanies engagedengaged inin

33

•• CaptiveCaptive MiningMining byby privateprivate companiescompanies engagedengaged ininproductionproduction ofof IronIron && SteelSteel

•• SubSub leaselease ofof coalcoal miningmining toto privateprivate partiesparties ininisolatedisolated smallsmall pocketspockets notnot amenableamenable toto economiceconomicdevelopmentdevelopment andand notnot requiringrequiring railrail transporttransport

Captive Mining Captive Mining –– Legal Framework Legal Framework (contd)(contd)

CoalCoal MinesMines (Nationalization)(Nationalization) Act,Act, 19731973 waswas amendedamendedwefwef 99thth June’June’19931993 toto allowallow coalcoal miningmining forfor captivecaptiveconsumptionconsumption forfor generationgeneration ofof power,power, washingwashing ofofcoalcoal obtainedobtained fromfrom aa minemine oror otherother endend usesuses notifiednotifiedbyby GovtGovt fromfrom timetime toto timetime..GOIGOI videvide notificationnotification dtddtd 1515//33//9696,, allowedallowed productionproductionofof cementcement asas anan endend useuse forfor captivecaptive miningmining..

44

pp ggRecentlyRecently CoalCoal GasificationGasification && LiquefactionLiquefaction hashas alsoalsobeenbeen identifiedidentified asas endend useuse forfor CaptiveCaptive MiningMining

Legal framework provides wide opening and ample scope for participation of private players in the development of

coal mines through captive mining route.

5/27/2011

2

Impediments for captive block developmentImpediments for captive block development

BlocksBlocks areare inin greengreen field,field, devoiddevoid ofof basicbasicinfrastructureinfrastructure likelike road,road, railrail linkslinks etcetc.. DevelopmentDevelopmentofof infrastructureinfrastructure onon singlesingle blockblock basisbasis doesdoes notnotwarrantwarrant economyeconomy ofof scalescale..MismatchMismatch inin initialinitial developmentdevelopment ofof coalcoal blockblock // endenduseuse projectproject –– CoalCoal availabilityavailability // disposaldisposal relatedrelatedissuesissues..

55

MismatchMismatch duringduring operationoperation phasephase ::•• GettingGetting coalcoal forfor endend useuse project,project, inin casecase ofof anyany

problemproblem (technical(technical oror otherwise)otherwise) inin producingproducingcoalcoal fromfrom thethe allottedallotted minemine..

•• DisposalDisposal ofof coal,coal, ifif renderedrendered surplussurplus duedue totoproblemproblem atat endend useuse projectproject..

Encouraging Captive mining Encouraging Captive mining ––Initiatives taken so far by GOIInitiatives taken so far by GOI

ReleasingReleasing aa fewfew blocksblocks whichwhich werewere initiallyinitiallyearmarkedearmarked forfor developmentdevelopment byby CILCILSystemSystem ofof seekingseeking bankbank guaranteeguarantee andand commitmentcommitmenttowardstowards timelytimely implementationimplementation ofof thethe coalcoal miningminingprojectproject hashas beenbeen introduced,introduced, failingfailing whichwhich thetheallocationallocation ofof blockblock isis liableliable toto cancellationcancellation..

66

allocationallocation ofof blockblock isis liableliable toto cancellationcancellation..IntroductionIntroduction ofof conceptconcept ofof providingproviding taperingtaperinglinkageslinkages andand linkageslinkages duringduring thethe interiminterim periodperiod forforthethe endend useuse ofof thethe blockblock allotteeallotteeAllowingAllowing marketingmarketing ofof coal,coal, ifif renderedrendered surplus,surplus,throughthrough CoalCoal IndiaIndia..

Issues Concerning Mine Planning AspectsIssues Concerning Mine Planning Aspects

AdequacyAdequacy // ReliabilityReliability ofof GeoGeo.. DataData –– adoptionadoption ofof UNFCUNFCclassificationclassification –– ToTo facilitatefacilitate betterbetter minemine planningplanning..CarvingCarving // sizingsizing ofof CoalCoal BlocksBlocks :: ToTo facilitatefacilitate optimaloptimaldevelopmentdevelopment coalcoal minemineCoordinatedCoordinated BlockBlock BoundaryBoundary andand DemarcationDemarcation thereofthereof–– ShallShall avoidavoid duplicityduplicity ofof workwork..

77

p yp y

To address the Issues GOI may issue explicit guidelines:To address the Issues GOI may issue explicit guidelines:1.1. Exploration and preparation of GR shall be based on Exploration and preparation of GR shall be based on

UNFC classificationUNFC classification2.2. Block boundary in the GR shall be duly coBlock boundary in the GR shall be duly co--related to related to

the National Gridthe National Grid3.3. A Scientific approach be adopted for carving out the A Scientific approach be adopted for carving out the

coal blockscoal blocks

Issues Concerning Infrastructural AspectsIssues Concerning Infrastructural AspectsIdentificationIdentification ofof Rail/RoadRail/Road CorridorsCorridors –– ToTo facilitatefacilitate developmentdevelopment ofofinfrastructuralinfrastructural facilitiesfacilities..IdentificationIdentification ofof NonNon CoalCoal BearingBearing corridorscorridors forfor creationcreation ofofinfrastructuralinfrastructural facilitiesfacilities likelike township,township, rehabilitationrehabilitation colonycolony etcetc.. ––ToTo addressaddress CoalCoal conservationconservation relatedrelated aspectsaspects..

To address the Issues GOI may issue guidelines that :To address the Issues GOI may issue guidelines that :

88

To address the Issues GOI may issue guidelines that :To address the Issues GOI may issue guidelines that :1.1. GR shall have a key plan for the coalfield indicating nonGR shall have a key plan for the coalfield indicating non--coal coal

bearing areas and possible corridors for creation of Rail/Road bearing areas and possible corridors for creation of Rail/Road Connections etc.Connections etc.

2.2. There is an urgent need for development of a master plan in There is an urgent need for development of a master plan in close coordination with the state/central agencies.close coordination with the state/central agencies.

3.3. Obtaining clearance from an identified nodal agency say Obtaining clearance from an identified nodal agency say CMPDIL a must for citing/creation of any infrastructure that it is CMPDIL a must for citing/creation of any infrastructure that it is on non coal bearing zone.on non coal bearing zone.

5/27/2011

3

Issues Concerning Land Acquisition and Issues Concerning Land Acquisition and Rehabilitation & Resettlement of PAP’sRehabilitation & Resettlement of PAP’s

PeculiarityPeculiarity ::

UnlikeUnlike otherother industries,industries, citingciting ofof aa coalcoal minemine doesdoes notnot leaveleavescopescope forfor choicechoice..LandLand hashas toto bebe acquired,acquired, wherewhere coalcoal exists,exists, irrespectiveirrespective ofofpopulationpopulation basebase oror existenceexistence // densitydensity ofof forestforest landland etcetc..

OO Mi iMi i

99

OpenOpen castcast MiningMining::

ComparedCompared toto UnderUnder GroundGround Mine,Mine, itit requiresrequires moremore landland totoaccommodateaccommodate infrastructureinfrastructure andand OBOB DumpsDumpsPeoplePeople havehave toto bebe physicallyphysically displaceddisplaced..MajorMajor changechange inin landland profileprofile –– suitabilitysuitability afterafter coalcoal extraction?extraction?WithWith adventadvent ofof technologytechnology trendtrend isis towardstowards useuse ofof largerlarger sizesizeequipmentsequipments -- ReducedReduced employmentemployment opportunitiesopportunities

R&R R&R –– Prevailing policy frame workPrevailing policy frame workThereThere areare manymany prevalentprevalent R&RR&R policiespolicies.. ForFor instanceinstance

•• ThereThere isis aa NationalNational R&RR&R policy,policy,•• ThereThere isis aa R&RR&R policypolicy ofof GovtGovt.. ofof OrissaOrissa•• ThereThere isis aa DraftDraft R&RR&R policypolicy forfor JharkhandJharkhand andand soso onon

TheseThese policiespolicies differdiffer fromfrom StateState toto statestate..

1010

•• PAP’sPAP’s attemptattempt toto seekseek bestbest onon eacheach aspectaspect amongstamongstthethe variousvarious availableavailable policiespolicies

•• TheThe utilityutility sectorsector isis atat aa lossloss toto convinceconvince PAP’sPAP’s thatthatanyany givengiven PolicyPolicy isis aa PackagePackage inin itselfitself andand eacheachelementelement cancan notnot bebe seenseen inin isolationisolation..

Unified R&R Policy Unified R&R Policy ThereThere isis needneed toto bringbring inin aa unifiedunified policypolicy

GOIGOI couldcould formulateformulate aa unifiedunified NationalNational R&RR&R policypolicy..ThisThis policypolicy shallshall bebe applicableapplicable toto allall thethe StatesStates..TheThe PolicyPolicy frameworkframework couldcould includeinclude optionsoptions likelike

PhasedPhased MineMine ClosureClosure :: AA regulatoryregulatory frameframe workwork seekingseeking phasedphased minemineclosureclosure withwith provisionprovision toto restorerestore land,land, toto thethe extentextent possible,possible, toto itsitsoriginaloriginal landland useuse patternpattern maymay needneed duedue considerationconsideration..

OwnerOwner maymay bebe obligatedobligated toto reclaimreclaim thethe landland andand bringbring itsits usageusage profile,profile, ififnotnot betterbetter toto atat--leastleast prepre--miningmining conditioncondition

1111

notnot better,better, toto atat leastleast prepre miningmining conditioncondition..AsAs thethe PostPost miningmining landland maymay bebe atat higherhigher elevation,elevation, thethe ownerowner maymay needneed totocreatecreate irrigationirrigation facilitiesfacilities forfor suchsuch reclaimedreclaimed landland..

HiringHiring ofof landland forfor miningmining purposepurpose andand offeringoffering postpost miningmining accessaccess totothethe PAPsPAPs onon thethe reclaimedreclaimed land,land,

StakeStake holders,holders, inin associationassociation withwith StateState authoritiesauthorities couldcould negotiatenegotiatethethe compensationcompensation packagepackage withwith thethe PAP’s,PAP’s, usingusing thethe unifiedunifiedNationalNational R&RR&R policypolicy asas thethe basebase..TheThe paymentpayment ofof compensationcompensation amountamount couldcould bebe bifurcatedbifurcated inin aamannermanner which,which, ifif soso desireddesired byby thethe PAPsPAPs couldcould generategenerate somesomemonthlymonthly incomeincome..

Need for simplification of proceduresAdoption of a single-window approach for granting clearances andpermissions - will hasten execution of coal mining projects

Creation of advance forests and Agricultural landState Govt. could identify idle/waste lands, which could be used fordevelopment of forests and/or making it good for Agricultural use

Procedure/Clearance related issues …..Procedure/Clearance related issues …..

1212

development of forests and/or making it good for Agricultural use.There could be a trust which manages development of suchIdle//Waste Land.Business houses could be encouraged to participate in suchschemes and seek credits for the industrial development - Anarrangement similar to seeking carbon credits - May facilitate speedyforestry and environmental clearance

5/27/2011

4

Some Additional SuggestionsCreation of Local Area Development FundCreation of Local Area Development Fund

ForFor generalgeneral developmentdevelopment andand improvementimprovement inin thethe coalfieldcoalfield areas,areas, itit maymay bebeadvisableadvisable toto createcreate anan “Area“Area DevelopmentDevelopment Fund”Fund” byby applyingapplying aa levylevy onon eacheachtonnetonne ofof coalcoal producedproduced..ThisThis fundfund maymay bebe utilizedutilized forfor socialsocial welfarewelfare ofof landland ousteesoustees includingincluding theirtheirhealthhealth && education,education, improvementimprovement ofof infrastructure,infrastructure, roads,roads, waterwater supplysupply etcetc..

Infrastructure Status to the Coal Industry.ToTo reducereduce thethe inputinput costcost ofof coalcoal itit maymay bebe desirabledesirable toto extendextend infrastructureinfrastructurestatusstatus toto thethe coalcoal IndustryIndustry soso asas toto grantgrant thethe TaxTax exemptionexemption underunder SectionSection 8080--IAIA ofof thethe IncomeIncome TaxTax ActAct 19611961

1313

IAIA ofof thethe IncomeIncome TaxTax Act,Act,19611961..ThereThere isis alsoalso aa needneed forfor loweringlowering ofof dutiesduties onon capitalcapital goodsgoods importedimported forforcoalminescoalmines toto makemake themthem uniformuniform withwith dutiesduties onon importsimports forfor otherother subsub--sectorssectors..\\

Waiver of Service Tax on Coal MiningItIt hashas toto bebe recognizedrecognized thatthat thethe CaptiveCaptive BlockBlock AllocateeAllocatee willwill generallygenerallyundertakeundertake minemine developmentdevelopment throughthrough contractcontract miningmining.. UnderUnder thethe prevailingprevailing taxtaxlaws,laws, thethe paymentspayments toto thethe contractorcontractor fallfall underunder thethe ambitambit ofof ServiceService taxtax.. ToTomakemake thethe CaptiveCaptive MiningMining Competitive,Competitive, therethere isis aa needneed toto waivewaive offoff thethe serviceservicetaxtax onon thethe coalcoal miningmining activitiesactivities..

1414

DisclaimerThe information contained in this presentation and views expressed are purely personal & are not necessarily those of management of

NTPC Ltd., to which the author belongs.

6/1/2011

1

REGULATORY CONSEQUENCES :

POWER VS. TELECOM SECTOR

WHY LIBERALISE NETWORK INDUSTRIES

1. INCREASING EVIDENCE THAT LIBERLISED NETWORKS GROW AND INNOVATE FASTER – BUT WITH LEVEL PLAYING FIELD COMPETITION.

2. THE NEED OF PRIVATE CAPITAL AND MANAGEMENT – TO MEET INCREASING CONSUMER DEMAND.MEET INCREASING CONSUMER DEMAND.

3. TO INTRODUCE BETTER AND MORE INNOVATIVE TECHNOLOGIES – HENCE THE NEED FOR TECHNOLOGY AGNOSTIC REGULATION.

4. TO INCREASE LEVEL PLAYING FIELD COMPETITION –WHICH SERVES CONSUMERS BETTER.

ISSUES

1. HAVE THE TWO SECTORS BROKEN THE NETWORKS INTO NETWORK ELEMENTS AND INTRODUCED COMPETITION IN ALL ELEMENTS.

2. HAVE THE TWO SECTORS INTRODUCED LEVEL PLAYING COMPETITION BETWEEN INCUMBENTS AND NEWCOMPETITION BETWEEN INCUMBENTS AND NEW ENTRANTS.

3. IS THERE LEVEL PLAYING FIELD COMPETITION.

4. HAVE THE KNOWN INSTRUMENTS OF REFORM BEEN USED IN THE NETWORKS.

TARGET / ACHIEVEMENTS IN POWER / TELECOM SECTOR

POWERTARGETS (MW) ACHIEVEMENTS (MW)

8th Plan (1992-97) 30,536 16,4239th Plan (1997-2002) 40,245 19,015

10th Plan (2002-2007) 41,110 26,997

11th Plan (2007 -12) 75,197 46,896 (Under Construction)

TELECOMYEAR TARGET TELEDENSITY ACHIEVEMENT2005 7% IN 20042010 15% IN 2006

EXPECTED IN 2010 50% TODAY 30%

6/1/2011

2

GROWTH OF PRIVATE SECTOR POWER

FAR LESS THEN 10% IN THE DIFFERENT NETWORK

ELEMENTS – GENERATION, DISTRIBUTION,

TRANSMISSION

LET US COMPARE RESULTS OF REFORMS

TELECOM SECTOR :

• PRIVATE SECTOR WAS 10% OF NETWORK IN 2003.

• IT IS 70-80% NOW – INCLUDING FIXED LINES. YET PUBLICIT IS 70 80% NOW INCLUDING FIXED LINES. YET PUBLIC

SECTOR HAS GROWN – MORE THAN IN MONOPOLY DAYS.

SINCE MARKET HAS GROWN EXPONENTIALLY.

GROWTH OF PUBLIC SECTOR (1998-2007) - TELECOM GROWTH OF PRIVATE SECTOR (1998-2007) - TELECOM

6/1/2011

3

INVESTMENT – TELECOM VS. POWER

POWER INVESTMENT IN 10POWER INVESTMENT IN 10THTH PLANPLAN:

PUBLIC SECTOR : RS. 87135 CRORES (91%).

PRIVATE SECTOR : RS. 8423 CRORES (9%).

TELECOM INVESTMENT IN 10TELECOM INVESTMENT IN 10THTH PLANPLAN:

INVESTMENT IN MOBILE NETWORK STOOD AT RS. 1.15

CRORES AS ON 31.03.08.

PRIVATE SECTOR RS. 95,000 CRORES, A WHOPPING 82%.

RURAL POWER VS. TELECOMPOWER

VILLAGES ELECTRIFIEDTARGET 2005-09 1,25,000 VILLAGESACHIEVEMENT 2005-08 47,837TARGET 2008-09 18,000

BELOW POVERTY LINE HOUSEHOLDSTARGET 2005-09 23,000,000 HOUSEHOLDACHIEVEMENT 2005-08 2,418,137TARGET 2008-09 4,800,000

TELECOMTARGET RURAL TELEDENSITY 2010 - 4%RURAL TELEDENSITY TODAY - 10%LIKELY 2010 - 25%

IMPLEMENTING INSTRUMENTS OF REFORM

POWER TELECOM1. BREAK UP INTO

NETWORK ELEMENTS

2. INTRODUCING COMPETITION / PRIVATE SECTOR IN NETWORK

PARTIAL

SMALL % IN GENERATIONSMALLER % IN DISTRIBUTIONEVEN SMALLER IN TRANSMISSION

100%

100%

NETWORK ELEMENTS

3. REDUCING CROSS SUBSIDIESOPEN ACCESS

• NATIONAL TARIFF POLICY PRESCRIBED CROSS-SUBSIDY SURCHARGE FOR OPEN-ACCESS.

• ISSUE OF ROAD-MAP WITHIN SIX MONTHS OF NATIONAL TARIFF

POLICY ISSUANCE.• CROSS-SUBSIDY SURCHARGE TO BE REDUCED TO 20% BY 2010-2011 WITH ROAD MAP TO BE ISSUED-PROGRESS?

NIL ON 31.03.08AFTER ISSUING PHASED REDUCTION PROGRAM IN 2003

IMPLEMENTING INSTRUMENTS OF REFORMCONTD…

POWER TELECOM

4.OPEN ACCESS GIVEN TO FEW CAPTIVE POWER PLANTS – SECTION 9.NIL-REPEAT NIL TO CONSUMERS > 1 MW

ENSURED 100% BY CLEAR INTERCONNECTION / MINIMUM CHARGES / PUBLISHING OFCONSUMERS > 1 MW.

SECTION 42.

PUBLISHING OF REFERENCE INTER CONNECTION OFFERS

6/1/2011

4

TARIFFS – REFORMED NETWORKS - TELECOM

• Local mobile tariff in 1993–Rs. 32/minute.• Today – Less than Rs. 1/minute.• Long distance tariff in 1993 – up to Rs. 50• Today Rs 2/minute• Today – Rs. 2/minute• International- up to Rs. 80/minute.• Today – as low as Rs. 2/minute.• Lease line tariffs – national and

international – 10% of 1993 tariffs.

TARIFFS–NON REFORMED NETWORK-?(IN PAISE /UNIT)

EFFICIENTREGULATION

INEFFICIENT REGULATION

REMARKS

1. COST OF DISTRIBUTIONS

65 130 COST GO DOWN WITH MOREGENERATION, CONUSMERS, BENCHMARKING COSTS, A PRODUCT OF DISTRIBUTIONREFORMS AND OPEN ACCESS

2. COST OF TRANSMISSION

LOCAL 5 8

BY INVITING COMPETITION AND MORE GENERATION.

INTERSTATE 13 15

INTER-REGION 15 35

TARIFFS–NON REFORMED NETWORK-?CONTD…

(IN PAISE /UNIT)EFFICIENTREGULATION

INEFFICIENT REGULATION REMARKS

3. COST OF GENERTAION AT BAR / PITHEAD

120 250 COMPETITIVELY BID SASAN PROJECT AND OTHER COST PLUS TARIFFS

4. COST OF DISTRIBUTION LOSS

35 75 12% LOSS IN EFFICIENT AND 25% LOSS IN INEFFICIENT SYSTEM. LOSS IS 1% IN PRIVATE DISTRIBUTION IN G. NOIDA

TOTAL 253 513

SUMMARY

• Regulators have been created in all countries because the

Parliaments realized that executive ministry structure could not

enforce a transparent, consultative and competitive regulatory

regime. Absence of such regime would not have led to investments.

• Parliaments gave enormous powers and security of tenures to

Regulators expecting them to act independently.

• Regulators have to aggressively exercise their powers for ensuring

growth and a fair deal to the consumers and investors and also for

passing the benefits of technological developments to the

consumers.

6/1/2011

5

Thank youy

1

Central Electricity Regulatory Commission (Power Market) Regulations, 2010

11

February 2010

Overview of regulations

Types of Markets

Types of contracts

Approval of the Contracts by the Commission

Proposed Capital Structure for PX

Ownership and Governance structure of PX

Prudential Norms for establishment of PX

2

Registration Charges

Management of PX

Membership in PX

Ceiling on Member Service Charge

Default remedy mechanism on PX or Clearing Corporation

Clearing Corporation

Market Oversight Regulations

Other Regulations

Types of markets, contracts & participants

Markets Contracts

Over The Counter

Delivery based

Derivative

Between buyers & sellers

Through traders

Back to back

Open position

Aggregation of buyers & sellers

Intraday/

Capacity Contracts

Grid connected entities

Traders

Power Exchange

Participants

3

Power Markets

Power Exchange

Other Exchange

Delivery based

Contingency

Day ahead

Term aheadDerivative

REC

Ancillary Service


Other exchange

Any other transacting

party

Types of markets

Over the Counter Market– Inter-State market where buyers & sellers directly transact or transact through an Electricity Trader, – Price and terms of contract determined through negotiations as agreed between the parties or

through competitive bidding process or through a trader– Risk in contracts executed in such markets is managed between the parties themselves or by the

Electricity Trader

PX Market

4

– Buyers, sellers, Traders, Members of PX transact on standardised contracts – PX or Clearing Corporation is counterparty to such contracts – Scheduling done by RLDC or NLDC unless actual delivery is dispensed with.

Other PX Market– Derivative contracts, contracts for electricity or its related products are transacted on standardised

contract specifications – PX or Clearing Corporation is counterparty to such contracts

2

Types of markets

Over the Counter Market– Inter-State market where buyers & sellers directly transact or transact through an Electricity Trader, – Price and terms of contract determined through negotiations as agreed between the parties or

through competitive bidding process or through a trader– Risk in contracts executed in such markets is managed between the parties themselves or by the

Electricity Trader

PX Market

5

– Buyers, sellers, Traders, Members of PX transact on standardised contracts – PX or Clearing Corporation is counterparty to such contracts – Scheduling done by RLDC or NLDC unless actual delivery is dispensed with.

Other PX Market– Derivative contracts, contracts for electricity or its related products are transacted on standardised

contract specifications – PX or Clearing Corporation is counterparty to such contracts

Types of contracts…1/2

Delivery based Short Term contracts in OTC market– OTC Contracts directly between buyers and sellers

• Interstate transactions in which buyers & sellers enter into a contract & decide price & other terms of contract through negotiation or based on competitive bidding processes.

– OTC Contracts through Electricity Traders• Back to back deals - Interstate transaction in which a Trader buys a specific quantity of power for

a particular duration from one party & simultaneously sells it to another party on same terms and conditions. Trader not exposed to any price risk but may be exposed to credit & operational risk

• Deals with Open position - Interstate transaction in which Trader takes a position in a power purchase or sale contract based on price and other factors in view and adopts a strategy which he

6

purchase or sale contract based on price and other factors in view and adopts a strategy which he deems fit

• Contract to aggregate suppliers / buyers and sell / buy to a one or more buyers / sellers

Financially settled electricity derivatives contracts transacted in OTC market– Contract which derives its value from an underlying asset (e.g. day ahead electricity contract or other

spot market contract or other reference index)– Contract price is fixed at the time of transaction– Final financial settlement price based on spot price of underlying asset or any other predefined

reference index as agreed between the parties at the expiry of contract– Contracts can be Derivative Contracts, swap and other structured contracts etc.

Types of contracts…2/2

Delivery based contracts transacted on PX– Intraday contract /Contingency contract, Day Ahead contract, Term Ahead contract

Financially settled electricity derivative contracts transacted on PX– Contract which derives its value from an underlying asset (e.g. day ahead electricity contract or other

spot market contract or other reference index)– Contract price is fixed at the time of transaction– Final financial settlement price is based on the spot price of the underlying asset at the expiry of

contract– Can be futures contract and other standardised contracts etc

7

Contracts linked with electricity generated from renewable sources, e.g. RECs transacted on PX

Any new contract in areas related to capacity , power price indices, and other areas related to electricity

Capacity Contracts– Where capacity of a generating station is booked in advance & consideration is paid by buyer with

the right to require the generator to despatch electricity as & when required by such buyer at any time during the tenure of the contract.

– Can be transacted both on OTC markets &/or on PXs

Ancillary Services Contracts– Ancillary Services in power system (or grid) operation are support services necessary to support the

power system (or grid) operation for maintaining power quality, reliability a security of the grid, e.g. active power support for load following, reactive power support, black start, etc.

Approval of Contracts by CERC

No person can enter into or transact in any of the following types of contracts unless the same has been permitted to be so launched or introduced by the CERC– Derivatives Contracts;– Ancillary Services Contracts– Capacity ContractsProvided that CERC shall, permit such contracts in the market from a date to be notified in this behalf, for ensuring reasonable prices of electricity & having regard to liquidity & volatility in the market, demand supply situation & other relevant factors

8

3

Capital structure for PX

Any shareholder other than a Member of the PX can have a maximum (whether directly or indirectly) of 2 5 % shareholding in the PX– Earlier it was 51 % of the equity share capital of the PX should be held by the public other than the

shareholder having trading rights in the PX

A Member of the PXcan have a maximum (whether directly or indirectly) of 5 % shareholding in PX– Earlier there was no limit on individual member’s shareholding in the PX– This has been done in line with Kanya Committee recommendations for demutualistion of stock PX

in 2002

9

In total, a PX can have a maximum of 49 % of its total shareholding owned by entities (whether directly or indirectly) which are Members of the PX

PX granted approval or in principle approval prior to the date of notification of regulations to ensure the shareholding structure/pattern within a period of three years from notification of regulations

Regulations mandate clear demarcation between ownership, management/operations & participation in trading.

Independent Directors – At least one third of the members of the Board or a minimum of two directors, whichever is higher, shall be

independent directors selected from a panel constituted by the PX and approved by CERC out of which one person will have professional qualification & experience in finance.

– Panel to consist of persons of repute & integrity from academics, professionals, industry representatives, public figures none of whom should have any interest in any Member of PX & any fiduciary relationship with any shareholder of PX

Ownership & governance of PX

10

Not more than one fourth of the Board of Directors shall represent Members of PX

Board to appoint a CEO cum Managing Director – Solely responsible for running the day to day operations of the PX– Professional with adequate qualification & at least 10 years of experience in the relevant field.

MD, Chief Executive or Director in charge of day-today operations or any employee, of PX cannot be directly or indirectly associated with any Member of the PX or client or participant of the PX or with a holding or subsidiary company thereof

Alignment of governance structure to be complied within one year time period

PX to always have minimum networth of Rs. 2 5 crore– In case networth depletes due to payment made

by PX to sellers/buyers in default including by usage of the SGF impacting its networth, PX shall increase networth to 2 5 crore within 3 months from date of depletion

– Minimum networth of Rs. 5 Crore once a PX separates its clearing function to a Clearing

Norms for establishment of P X & management of P X

Senior management of PX to comprise of at least two full-time proficient professionals having, qualifications, experience & expertise in:– Power system operations: Degree in Engineering

with at least 10 years experience in the field– Finance, commerce and accounts: CA/ICWA/MBA

(in Finance) with at least 10 years experience in the field

Establishment of PX Management of PX

11

separates its clearing function to a Clearing Corporation

– CERC may review networth criteria from time to time

Networth to be considered shall be minimum in three years immediately preceding the year in which the application is made or such lesser period during which the applicant may have been incorporated, registered or formed and on the date of special balance sheet accompanying the application for grant of registration

Networth of a PX in operation shall be as per last audited balance sheet

PX to constitute a Risk Management Committee headed by an independent director of the board to stipulate risk containment measures & monitor adherence

PX to constitute a Market Surveillance committee headed by an independent director of the board & having members from the executive team of the PX -no member of this committee can be a Member of PX

PX to constitute a Settlement Guarantee Fund (SGF) management committee with adequate representation from the Members of PX – Committee to overseeing management of SGF

Annual registration charge for PX

PX d l i i h i i b i

Registration charges

Annual Turnover in P X ( in MUs) Annual Registration Charge (Rs Lac)

Above 10,000 3 0

U p t o10,000 1 5

U p t o 5 ,000 5

12

PX to declare apriori the category it envisages to be in.

In case of difference between declarations & actual at the end of financial year, annual registration charge shall be accordingly adjusted

4

Three categories for membership– Trader

• Trade & clear on its own account or trade & clear on behalf of clients• May provide any credit or financing or working capital facility to clients

– Distribution licensee including deemed distribution licensee or a grid connected entity• Transact & clear their own account only

– Neither an trader nor distribution licensee including deemed distribution licensee nor a grid connected entity• IT infrastructure for bidding on electronic PX platform or skilled Personnel• Advisory services related to power prices & follow on bidding strategy (e g weather related information

Membership in PX & services that can be provided by members

13

Advisory services related to power prices & follow on bidding strategy (e.g. weather related information, demand supply position etc)

• Facilitation of procedures on behalf of his client for delivery of power (e.g. State Load Despatch Centre standing clearances, coordination with National Load Despatch Centre etc)

• In no case, such a member shall provide any credit or financing or working capital facility to clients

Member Service Charge for providing services to clients in day ahead & term ahead markets in PX ceiling of 0.7 5 % of transaction value (incl. service charges of any subordinate service providers)

Member Service charge to clients in day ahead & term ahead market in PX for Electricity Traders who are members of PX shall be the trading margin fixed by CERC

Member service charge not to include any charges levied by PX, transmission (open access) charges, other charges payable to NLDC/ RLDC/ SLDC, statutory taxes etc.

CERC may review the members service charge criteria from time to time.

Ceiling on member service charges

14

CERC may notify member service charges separately for derivative contracts.

A member may be declared a defaulter by PX or CC if:– he is unable to fulfill his clearing or settlement obligations– he admits or discloses his inability to fulfill or discharge his duties, obligations and liabilities– he fails or is unable to pay within the specified time the damages and the money difference due on a

closing-out effected against him under the Rules, Bye Laws of PX or CC– he fails to pay any sum due to the PX or CC which may be prescribe by them from time to time– he fails to pay or deliver all moneys, electricity or other related assets due to a member who has been

declared a defaulter within such time of declaration of default of such member in such manner and to such person as the PX or CC may directh f il bid b h bi i d l id d d h R l B L & R l i f PX CC

Default remedy mechanism on PX / Clearing Corporation…1/2

15

– he fails to abide by the arbitration award as laid down under the Rules Bye Laws & Regulations of PX or CC– under any other circumstances as may be decided by the PX or CC from time to time

PX or Clearing Corporation may stipulate any additional criteria to declare defaulter in the PX or CC

If a member is declared a defaulter & fails to meet clearing & settlement obligations, PX shall give precedence to the payment of transmission charges, scheduling & system operation charges from the deposits of the member or client as the case may be

Then PX may utilize the Settlement Fund & other money to the extent necessary to eliminate the obligation of the defaulting member in the following order– Liquidation of collaterals: Contributions or deposits, including margins in any form, by the defaulting

member or client.– Liquidation of security deposit: Membership deposit given by the defaulting member to the PX.– Insurance money: Insurance taken by PX of an amount as considered appropriate by the PX for protection

i d f l

Default remedy mechanism on PX / Clearing Corporation…2/2

16

against defaults.– It’s Initial contribution as considered appropriate by the PX towards Settlement Guarantee Fund.– Current year’s Profits of the PX including Fines, penalty collected from members.– Reserves of the PX.– Contribution towards settlement guarantee fund by all members or clients:– All non-defaulting members or client’s contribution in proportion of deposits towards Settlement Guarantee

Fund.– Equity Capital of the PX.– Balance obligations remaining outstanding after above funds will be met by contribution from members or

clients in proportion to their contribution to the SGF

Once the Clearing Corporation is hived off, it can handle the default remedy mechanism

5

Eligibility Criteria– CC to be a separate independent corporate entity– Can be formed by a PX or by any other company incorporated as a company limited by shares within the

meaning of the Companies Act or by a consortium of companies having a formal agreement for this purpose.

– Registration to be given to the incorporated company limited by shares finally formed by the consortium.– CC to have minimum net worth of Rs 2 5 Crore ( CERC may review the criteria from time to time)

CC to perform full novation i.e. CC to interpose itself between both legs of every transaction, becoming the counterparty to both or alternatively should provide an unconditional guarantee for settlement of all


17

p y y p gtransactions

Default remedy mechanism to be same as for PX

SGF of PX concerned to be transferred to CC & maintained by CC once PX hives off this activity to CC

CC to get itself credit rated by a credit rating agency accredited by SEBI within six months of its incorporation & inform CERC, also display rating on its website.

CERC may on being satisfied that any of the below mentioned circumstances exist or is likely to occur in the market, give directions to whom as may be necessary:– Abnormal increase or decrease in prices of electricity– Sudden or unreasonable fluctuations or unwarranted changes in the prices of electricity & high volatility– Sudden high transaction volumes on an PX

CERC may– Impose floor & cap on prices of electricity in the market– Suspend transaction activities for a cooling off period (in case of increased volatility);

Suspend transaction of any specific contract on PX;

Market oversight

18

– Suspend transaction of any specific contract on PX;– Increase the margin for contracts transacted on PX (in a case of high speculation);– Allow only trade for trade settlements;– Limit Open position of one participant on PX;– Limit market wide position on PX.

PX having less than 20% market share for continuously two financial years falling after a period of two years of commencement of its operations shall close operations or merge with an existing PX with in a period of next six months. (market size is defined as total Annual Turnover in M U of all contracts transacted in all PX in each financial year)– Provision applicable only applicable if there are two PX in operation.

Whistle Blowing Policy– Market participants entitled to report to CERC, of any unscrupulous activity, wrongdoing or violation of law,

as may come to their knowledge– The provider of the above information entitled to request that its identity be kept confidential and be not

di l d

Other features

19

disclosed– CERC to take strict action in case of any kind of retaliation to such an informant by any affected party.

Insider Trading Policy– A person having non-public price sensitive information relating to generator outage, plant maintenance shall

not transact on PX and Other Exchanges unless such information has been submitted to LDC

Requirements for establishment of PX

Shareholding pattern

Market share of PX and related requirement of closure/merger

Level of annual registration charge & member service charge

Default remedy mechanism - adequacy & implications

Settlement Guarantee Fund – norms for investment

Some key issues to be debated

20

1

The Jawaharlal Nehru N ti l S l Mi i

1Think Infrastructure.

Think IDFC.

National Solar Mission

Status of implementation as of Feb 2010

Towards a solar future…Towards a solar future…

What is the Solar Mission?

How is it being implemented?

Key issues


Think IDFC.

Key issues

From 6 MW of solar power in Oct 2009 …From 6 MW of solar power in Oct 2009 …

Solar power accounts for less than 0.1% of grid interactive renewable power

But solar power has been deployed for off-grid electrification

Programme/Systems Achievement*

Off-Grid/Distributed Power

Solar PV Power Plants & Street Lights

2.39 MWp

Decentralized systemsSmall Hydro Power 16.2%

Biomass 5.3%

Waste to Energy 0.4%

Solar power 0.04%


Think IDFC.

Home Lighting Systems 5,10,877 nos

Solar Lanterns 7,67,350 nos

Street Lighting System 82,384 nos

PV Pumps 7,247 nos

Solar Water Heating Systems 3.12 million sq.m. of collector area

Solar Cookers 6.57 lakh

Source : MNRE

Cogeneration‐bagasse 8.0%

Wind Power 70.1%

…to 20,000 MW of solar power by 2022…to 20,000 MW of solar power by 2022

Land based utility scale solar power projects thru a bundling scheme

Grid connected Roof top PV systems thru Generation Based Incentives (GBI)

20 million solar lighting systems and other off-grid systems to cover about 10,000 villages through capital subsidies

3 key focus areas


Think IDFC.

Phases Grid solar power including roof top Off grid solar applications

Phase I (2010-13) 1000 – 2000 MW 200 MW

Phase II (2013-17) 4000 MW (10,000 MW based on enhanced international finance & technology transfer)

1000 MW

Phase III (2017-22) 20,000 MW 2000 MW

… and Grid Parity by 2022 & Coal Parity by 2030

2

To make targets a reality, the Mission aims to provide an enabling environment for developers & manufacturersTo make targets a reality, the Mission aims to provide an enabling environment for developers & manufacturers

20000 MW

Regulation

Fiscal incentivesHRD


Think IDFC.

20000 MW

R&D

Indigenous manufactu

ring

Demo Projects

… & envisages gradual deployment to attain critical mass till costs come down & rapid scale up thereafter

Salient features of the Mission…(1/2)Salient features of the Mission…(1/2)

Renewable Purchase Obligations of utilities to be split into solar and non-solar

RPO may start with 0.25% in Phase I and increase to 3% by 2022

RPO to be fixed after modification of the National Tariff Policy 2006

RE Certificates to meet RPO

NVVN appointed as Nodal Agency for purchase & sale of grid connected solar power at 33 kV & above under Phase –I

For each MW of solar power, MOP to allocate equivalent MW capacity from unallocated quota of NTPC stations

NVVN to bundle solar & thermal power & sell it at l d ff l f l h

Solar RPOBundling scheme


Think IDFC.

RE Certificates to meet RPOregulated tariff plus facilitation charges

Provision of GBI to100 MW capacity solar projects connected to LT/11 KV grid

Eligibility: own consumption as well as power fed into the grid

GBI rate: tariff fixed by CERC minus notional tariff of Rs. 5.5 per unit, with 3% annual escalation

Technology configurations not covered under 1,000 MW capacity

Projects to be set up following competitive bidding to enable price discovery

Maximize indigenous content

Technology transfer

Demonstration ProjectsGeneration Based Incentive

Salient features of the Mission…(2/2)Salient features of the Mission…(2/2)

Promote solar home lights & other power applications to cover 10,000 MW villages & hamlets

Re-finance facility/Soft loans up to 5% annual interest rate by IREDA

30% subsidy for select applications

90% subsidy for niche applications to special category areas

Off - grid opportunity

Increase competitiveness of solar projects & provide enabling environment for solar manufacturers

Recommendation to MoF for custom and excise duty concessions/exemptions on specific capital equipment, critical materials, components & project imports

SEZ like incentives to manufacturing parks

Fiscal/Financial incentives


Think IDFC.

Improve efficiency of existing/new materials & applications & develop cost effective storage technologies

Development of National Centre of Excellence & Centres of Excellence to undertake & fund R&D

High level Research Council to guide overall strategy

Support Incubation & Innovation through a Venture Fund

a eas

R&D

Build technically qualified manpower of international standard

Develop specialized courses at engineering colleges

Ministry of Labour to introduce training modules/ course materials for technicians

100 fellowships a year to support students/ groups

National Centre for PV Research & Education at IIT, Mumbai

HRD




Key issues


Think IDFC.

Key issues

3

Implementation of JNNSMImplementation of JNNSM

Bundling scheme

Promotion of roof top PV

Demonstrations projects


Think IDFC.


Bundling scheme proposes to make solar power cheaper by bundling it with coal based powerBundling scheme proposes to make solar power cheaper by bundling it with coal based power

Solar Power Developer NTPC Unallocated Power

PV: Rs. 18.44/unitCSP: Rs. 13.45/unit

NVVN

Rs. 2/unit

X kwh3X kWh*


Think IDFC.

NVVNPrice of bundled power or weighted price

PV: (18.44X + 6X)/5X = Rs. 6.1/unitCSP: (13.45X + 6X)/5X = Rs. 4.9/unit

Sale price of power If ratio of PV to CSP is 40:60 = Rs. 5.36/unitIf ratio of PV to CSP is 50:50 = Rs. 5.49/unit

Utility

… to approx. Rs. 5-5.50/unit & make it more attractive than power purchased in the marketAlso addresses concern of payment security for SPDs

Figure for illustrative purposes only

There are separate schemes for projects under development & new projectsThere are separate schemes for projects under development & new projects

SPDs who have signed a PPA with a discomon or before November 19, 2009 but project CoD not achieved

SPDs who have filed a Petition and PPA for determination of tariff with the concerned SERC but project CoD not achieved

SPDs approaching with new proposals

− Confirmation for plant CoD to be on or before March 31, 2013

New Projects SchemeMigration Scheme


Think IDFC.

p j

Two pronged approach here: state provides land, water, sanctions & grid connectivity and GoI takes care of PPAs and sale of power

Migration Scheme


Think IDFC.

4

Criteria for participation as per guidelines issuedCriteria for participation as per guidelines issued

Concurrence of discom/State Government for migration to JNNSM

Confirmation from Discom for power purchase from plant through NVVN

Possession of 100% of land (defined at 2 hectares/MW)

Approval from STU for evacuating power to the grid at 33 kV & above

Necessary water linkage (for CSP plants)

Letters of comfort for funding the project

BG @ Rs. 50 Lac per MW to NVVN, half on signing of MoU & half on signing of PPA


Think IDFC.

BG valid for 15 months for PV & 31 months for thermal projects

No change in equity holding from signing of MOU till PPA execution; but listed companies exempt

After PPA, controlling shareholding in SPD to be maintained for 3 years after commencement of power supply

Financial closure within 3 months of signing PPA; no extension allowed

− Project to be removed from list of projects eligible for migration & BG will be forfeited

CoD for PV within 12 months of PPA & of Solar Thermal within 28 months of PPA

PPAs to be the same as that signed with discoms & power to be sold to the same discoms

Time frame for implementationTime frame for implementation

AnnounceSPD t


Think IDFC.

ment of list of

eligible projects

Mar 18, 2010

Signing of MoU

Apr 17, 2010

Signing of PPA

July 17, 2010

SPD to give

details to NVVN

Feb 26, 2010

New Projects Scheme


Think IDFC.

Salient featuresSalient features

Ratio of PV and thermal at 50: 50

Technology agnostic within PV & thermal

Encourage deployment of latest technologies through projects wherein SPDs could tie up with proven technology providers/module manufacturers offering better efficiency/technology (with successful operation for at least 2 years) than what is available & being deployed in India, after an evaluation of the proposed technology

Demonstration projects excluded

Technology portfolio


Think IDFC.

Review status after one year to make any modifications

PV: min of 5 MW & max of 25 MW

Thermal: min of MW & max of 100 MW

Min & Max capacity of projects

PV: projects to use indigenous modules; proposal to mandate use of indigenous cells

Thermal: 30% of total project cost to be utilized for domestic equipment

Domestic content

5


Financial Criteria

Technical Criteria

− SPD to propose deployment of commercially established technology - at least 1 project operational of the proposed technology for last 2 years anywhere in the world

− Detailed technical parameters specified

Land arrangement

Land requirement specified at 2 Hectares/MW

Qualification criteria


Think IDFC.

− Land requirement specified at 2 Hectares/MW

− SPD to have at least 50% of land when submitting EoI & entire land before signing PPA

− Allotment letter of state in case of government land, ‘Agreement for Sale of land’ with land owner in case of Private Land, long term lease arrangement (for at least 30 years) in case of land being taken on lease

Grid connectivity

− At 33kv/132kv or higher voltage levels with grid sub-station & not distribution sub-station

− SPD to give letter from STU confirming technical feasibility of connectivity

− SPD responsible for transmission arrangement from plant to sub-station

Water arrangement

− SPD to submit documentary approval from state/local authority for quantity of water required for thermal plants


Net worth

− Definition = Paid up share capital + Reserves - Revaluation Reserves - Intangible Assets -Miscellaneous Expenditures to the extent not written off & carry forward losses

− At least Rs 2 Crore/MW (equivalent US$ per MW)

− Best year out of 2007-08, 2008-09 and 2009-10 to be considered for computation

− For newly incorporated companies, criteria to be met seven days prior to the date of submission f E I tifi d b CA

Financial criteria


Think IDFC.

of EoI; certified by CA

− Audited consolidated annual accounts of SPD may be used provided (i) SPD has at least 26% equity in each company whose accounts are merged in the audited consolidated account & (ii) the financial capability of such companies shall not be considered again for bid evaluation

− Financial capability of Parent Company/Affiliates can be considered

− In case of a Consortium, requirement to be met collectively by all - to be computed in proportion to the equity commitment made by each

− Consortium to incorporate a Project Company before signing PPA with NVVN


PV Modules

− Qualify to any of foll. IEC PV module qualification test or equivalent BIS standards:

o Crystalline Silicon Solar Cell Modules IEC 61215

o Thin Film Modules IEC 61646

o Concentrator PV modules IEC 62104

− Qualify to IEC 61730 for safety qualification testing

Detailed Technical Parameters


Think IDFC.

− Qualify to IEC 61701 if modules to be used in a highly corrosive atmosphere throughout lifetime

− Modules must be tested &d approved by an IEC authorized test centers

− PV module qualification test certificate as per IEC standard, issued by ETDC Bangalore or Solar Energy Centre valid

− Warranty of min 5 years for mechanical structures, electrical works & overall workmanship

− Warranty for Output wattage: should not be less than 90% at end of 10 years & 80% at end of 25 years

− RF identification tag mandatory: Name of module manufacturer & cell manufacturer; Month & year of cell & module manufacture; country of origin for cell & module; I-V curve for module; Unique Serial No & Model No of module; Wattage, Im, Vm and FF for module; Date & year of obtaining IEC PV module qualification certificate; Name of the test lab issuing IEC certificate, Other relevant information on traceability of solar cells & module as per ISO 9000


Thermal

− Only new plant & machinery to be used.

− Any of technology or combination could be used

− Requirements to be fulfilled:

Option 1

− SPD is manufacturer of technology to be used in project & has facilities, capacity & procedures including quality control; Must have designed, manufactured & type tested & supplied requisite

Detailed Technical Parameters


Think IDFC.

g q y ; g , yp pp qmodules of at least 1 MW capacity which must be in satisfactory operation for at least 1 year as on the specified cutoff date

− SPD should have tie up with System Integrator cum EPC contractor who have designed, engineered, installed, tested & commissioned at least 1 plant using the proposed technology of MW capacity range in last 5 years at a single location complete in all respect to generate & export power to the grid; plant should be in successful operation for minimum period of 1 year as on the specified cut of date

Option 2

− SPD must be System Integrator cum EPC contractor as above and have tie-up with manufacturer of offered technology as above

Option 3

− Tie-up with manufacturer of offered technology as per above and tie-up with System Integrator cum EPC as per above

6


All projects meeting qualification criteria irrespective of share of technologies

Short-listing of projects

For PV projects, phased selection by allocating overall capacities over FY 2010-11 & FY 2011-12

If total aggregate capacity short listed under any technology is higher than the capacity to be selected

− Option 1 : Reverse bidding where SPDs indicate percentage of tariff to be shared with NVVN for administrative costs & risk sharing. SPD offering max share to be selected first & so on

Selection of projects


Think IDFC.

− Option 2: All projects up to a capacity of 5 MW for PV & 20 MW for thermal selected. Remaining projects to be allotted remaining capacity equally

To buffer for implementation failures, total capacity can be 105% of capacity to be selected for that technology

− Provision to be used only if last project selected is proposed for a capacity, which requires total capacity for the technology to be increased beyond what was originally decided


BG @ Rs. 50 Lac per MW to NVVN, half on signing of MoU & half on signing of PPA

BG valid for 15 months for PV & 31 months for thermal projects

No change in equity holding from signing of MOU till PPA execution; but listed companies exempt


Financial closure within 3 months of signing PPA; no extension allowed


Others


Think IDFC.


Features of PPA to be signed with SPDsFeatures of PPA to be signed with SPDs

PPA for 25 years as per CERC regulations

Tariff to be determined by CERC

SPD to deliver power at 33 KV or above

Discoms to bear transmission charges, losses, RLDC/SLDC charges, scheduling charges or any other charges for supply of power beyond delivery point

Billing & Payment cycle as per Energy Accounts issued by RPC/SLDC

Scheduling of power as per IEGC

NVVN t t bli h i bl l i L tt f C dit (LC) i f f SPD i t


Think IDFC.

NVVN to establish irrevocable revolving Letter of Credit (LC) in favour of SPD prior to commencement of supply from plant

Payment Security Mechanism as per Escrow/Tri Partite Agreement & open irrevocable revolving LC


PPA currently being developed by NVVN

Time frame for implementationTime frame for implementation

Invitation of EOI

Selection of projects by

Central Empowered Committee

Signing of PPAs & PSAs


Think IDFC.

Mar 31, 2010

Jun 30, 2010

Sep 15, 2010

Last date for applications

Sep 30, 2010

Signing of MoUswith SPDs

Oct 31, 2010

Company to provide Board Resolution on intention to develop

project

7


Solar Power Purchase Policy




Think IDFC.


GBI to encourage replacement of conventional power & DG sets with rooftop PVGBI to encourage replacement of conventional power & DG sets with rooftop PV

Eligibility: Residential rooftops; Commercial, institutional, industrial & other rooftops; tail-end grid connected projects

Residential rooftops; Commercial, institutional, industrial & other rooftops; tail-end grid connected projects

Payment of GBI by utilities on net metering basis in case power fed into the grid

Payment of GBI to utilities routed through IREDA

CEA has issued technical guidelines

Broad criteria for selection of projects :


Think IDFC.

Broad criteria for selection of projects :

− Availability of land/roof top; and permissions

− Technical tie up/DPR

− Financial capabilities

− Recommendation of State and willingness to sign PPA

− Connectivity by utility

Tariff to be fixed by SERCs

Duration of PPA as determined by SERC

Forum of Regulators to prepare Model PPA by March, 2010

Forum of Regulators to bring out billing & payment guidelines


Solar Power Purchase Policy




Think IDFC.


Demonstration projectsDemonstration projects

PFC is preparing bid documents for award of demo projects

Committee under a former Secretary to suggest measures to establish solar thermal power industry


Think IDFC.

8




Key issues


Think IDFC.

Key issues

General concernsGeneral concernsLack of long term strategy

How will 4000 MW be scaled to 10,000 MW at the end of 12th plan?

Is technology the Achilles Heel?

− Risks not clearly known: Expected performance of different technologies under Indian conditions unknown

− Technology yet to achieve scale

No solar supply chain in India

− No manufacturers for silicon, crystals and wafers in India

− Limited no. of equipment suppliers for cells globally


Think IDFC.

− Inconsistent quality in the absence of industry standards

− Expensive spares

Land acquisition issues will affect solar plants

No time frame defined for finalization of R&D strategy

− Setting up of a high level Research Council, the development of the technology roadmap by them, & establishment of the National Centre of Excellence (NCE) to implement the technology roadmap

Overall issues on bundling schemeOverall issues on bundling scheme

Can discoms pay the price of bundled power given their financial viability & increasing difficulty to hike tariffs?

Cheap coal based power has been made more expensive

Should GoI have provided GBI to make available affordable solar power?

GoI was contemplating using unallocated power to incentivize open access in states. What happens to that?

Bankability of agreements given that SPDs will not sign PPAs directly with offtaker

Adequacy of time frame for commissioning of solar thermal projects (42-48 months vis-à-vis 28 months of PPA under migration scheme)


Think IDFC.

PPA under migration scheme)

Is the condition on possession of land too stringent?

Is level of BG very high?

Is the condition on controlling shareholding too stringent?

Specific Issues on New Projects SchemeSpecific Issues on New Projects SchemeTechnology related

− Is the focus on solar thermal misplaced?− Impact on solar thermal projects from preference for tie ups with proven technology providers/module

manufacturers offering better efficiency/technology with successful operation for 2 years

Capacity specification

− Pros & cons of specifying min & max project capacity

Stress on indigenous content− Restriction on imports may mean no incentives for local manufacturers to bring down capital costs

Transmission arrangements


Think IDFC.

g

− SPD to arrange transmission from plant to substation

− Will cost justify small sized projects?

− Transmission line to be compatible with high voltage levels; capacity of line may remain unutilized

Options for selection of projects− Adequacy; pros & cons

Adequacy of time frame for financial closure

How will bundled power be allocated to states?

− Extent of RPOs or to states where plants are being set up

Will 250 MW be contributed by NTPC from its proposed solar thermal plants at Anta and Suratgarh?

Need to submit comments to MNRE by March 26, 2010

9

Is the focus on solar thermal misplaced?Is the focus on solar thermal misplaced?Issues against solar thermal

− Are global trends being ignored when focusing on solar thermal?

− Long time frame for commissioning of solar thermal projects

Support for solar thermal

− Solar thermal is neither new nor risky

− Globally, PV lobby has been stronger

− Can be more easily indigenized


Think IDFC.

Other issuesOther issues

Will there be GBI for projects not selected by NVVN?

− Projects not selected by NVVN or connecting below 33 kW will have to supply directly to state utilities under state’s

− No clarity on payment of GBI

How will solar RPOs be fixed?

Impact of RPOs on consumer tariffs


Think IDFC.

Challenges for roof top PVChallenges for roof top PV

No regulatory framework at state level

What if tariff determined by SERCs differs from that determined by CERC? – Implications of GBI

Criteria for selection of projects should not be stringent

Large lead time for some BOS materials such as inverters

Willingness of utilities to procure such power


Think IDFC.

Where will funds come from? Where will funds come from?

How will international funds be tapped?

Willingness of financial institutions to fund new technologies?

Role of National Clean Energy Fund announced in budget FY 2010-11?


Think IDFC.

10

Thank YouThank You


Think IDFC.

Thank YouThank You

5/30/2011

1

11

Townhall Presentation IDFC Infrastructure IndexIDFC Infrastructure Index

2

Indices

• National infrastructure index which includes power, telecom, roads, ports and airport

• State infrastructure index which includes power, telecom and roads

• Sectoral indices (power, telecom, roads, ports and airports)

Time period: 2006-10

Methodology

• A. Normalize variables

Step 1: Obtain the maximum value (across states) for each of the variables in the base year

Max (Cs,t=2006)

Step 2: Normalize the value of each of the variables (across Step 2: Normalize the value of each of the variables (across states and years) by dividing the actual values by the corresponding maximum value from step 1

Vs,t = Cs,t/Max(Cs,t=2006)

• B. Combine variables and normalize

Step 3: Combine the normalized value of all the variables through appropriate weights to get the sub-index or overall index

Is,t = ∑wiVi,s,t

5/30/2011

2

Sectoral Representation in National Index

• State sectors

Power Telecom Roads Roads

• National

Ports Airports

National Index

400

500

600

Power

6

100

200

300

2006 2007 2008 2009 2010

Telecom

Road

Port

Airport

Combined

State-wise Combined Index

Variables

7

• Power Index (1/3rd weight)

• Telecom Index (1/3rd weight)

• Road Index (1/3rd weight)

State-wise Combined Index Values

100 10096 95

9185

77

70 69 68 67 66 66 66 64 63 62 62 62 61 60 59 59 57 56

2006

8

57 56 55 55

43

5/30/2011

3

State-wise Combined Index Values

190

165 163 162157 157

134129 128 128 124

116 114 114 111 109 109 108 107 107 106 102 101 101 98 97 97 93

2010

9

Combined infrastructure index for states has grown between 57% (Goa) to 126% (Arunachal Pradesh). Average for country is 78% growth between 2006-10

Regional trends

100 9177 70

165 162

128 124

South2006 2010

63 62 64 59 60 57 6243

111 109 109 108 107 101 101 98

North East – Closing the Gap within the region

2006 2010

10

Kerala Tamil Nadu Karnataka Andhra Pradesh

61 66 6255

128116

10293

Rajasthan Uttar Pradesh Bihar Madhya Pradesh

BIMARU ‐ Galloping Rajasthan2006 2010

6655 59

10697 97

Uttarakhand Chattisgarh Jharkhand

New states have lagged their parents except Chattisgarh

2006 2010

Key insights – Combined Index

• Dispersion among states has increased

• Himachal has moved from 3rd place to 1st (largely due to telecom)

• Among the “developed” states, during 2006-10,

Karnataka & Andhra Pradesh have moved three places down (due to T l )Telecom)

Maharashtra & Gujarat have moved two places up (largely driven by Power & Telecom)

• Among “less developed” states, during 2006-10

Rajasthan has moved from 20th to 9th placeBihar has moved down (Largely due to Telecom)All North Eastern states have moved up on the Combined Index with the

exception of Assam. They have been propelled by the Telecom Index.

Top Movers on Combined Index

State Rank Change State Rank Change

Rajasthan 11 Uttarakhand ‐8

Jammu & Kashmir 5 Assam ‐6

Meghalaya 5 Goa ‐5

Nagaland 3 Jharkhand ‐5

12

These states have move >1 place up or down

Arunachal Pradesh 3 Bihar ‐5

Himachal Pradesh 2 Karnataka ‐3

Gujarat 2 Andhra Pradesh ‐3

Maharashtra 2 West Bengal ‐2

Manipur 2 Sikkim ‐2

5/30/2011

4

Fastest & Slowest Growers -Combined Index

Fastest Growers Slowest Growers

State CAGR State CAGR

Arunachal Pradesh 23% Goa 12%

13

Rajasthan 20% Assam 13%

Himachal Pradesh 19% Uttarakhand 13%

Gujarat 18% Bihar 13%

Maharashtra 17% Jharkhand 13%

Top 10 & Bottom 10 - Combined Index

Top 10 States

Rank Base Year ‐ 2006 Last Year ‐ 2010

1 Goa Himachal Pradesh

2 Kerala Kerala

3 Himachal Pradesh Punjab

4 Punjab Tamil Nadu

Bottom 10 States


28 Arunachal Pradesh Madhya Pradesh

27 Madhya Pradesh Jharkhand

26 Chattisgarh Chattisgarh

25 Jammu & Kashmir Arunachal Pradesh

14

4 Punjab Tamil Nadu

5 Tamil Nadu Haryana

6 Haryana Goa

7 Karnataka Gujarat

8 Andhra Pradesh Maharashtra

9 Gujarat Rajasthan

10 Maharashtra Karnataka


24 Mizoram Assam

23 Meghalaya Mizoram

22 Jharkhand Bihar

21 Manipur Uttarakhand

20 Rajasthan Jammu & Kashmir

19 Nagaland Manipur

Power Index

Variables

• Per Capita Input Energy Index (1/3rd weight)

15

p p gy ( g )

• Villages Electrified % (1/6th weight)

• BPL Households Electrified % (1/6th weight)

• Peak Deficit (1/6th weight)

• Energy Deficit (1/6th weight)

State-wise Power Index Values

100

8478 77 75

72 71 70 6965 63 63 62 62 60 59 59 58 58 57 57 56 55 55 54

2006

16

56 55 55 5451 49 47

5/30/2011

5

State-wise Power Index Values

100

87 85 84 81 80 78 76 74 73 73 72 72 72 71 68 66 65 62 61 61 58 58 57 56 54 53 52

2010

17

Regional Trends – Power

5660

49 51

6662 61

57

BIMARU ‐ lighting up2006 2010

40

‐20

0

20

40

60

80

100

120

140

Rajasthan Madhya Pradesh Uttar Pradesh Bihar

Rural is driving the growth for BIMARU except in M.P.

18

Rajasthan Madhya Pradesh Uttar Pradesh Bihar

‐40Deficits Input energy per capita

% villages electrified % rural BPL households electrified

Top Movers on Power Index

Improvement Decline


Andhra Pradesh 8 Mizoram ‐11

Chattisgarh 7 Sikkim ‐7

Uttar Pradesh 7 Jammu & Kashmir ‐5

Gujarat 5 Kerala ‐5

19


Rajasthan 5 Nagaland ‐4

Arunachal Pradesh 4 Madhya Pradesh ‐4

Haryana 2 Tripura ‐3

West Bengal 2 Uttarakhand ‐3

Bihar 2 Manipur ‐2

Jharkhand 2

Fastest & Slowest Growers - PowerIndex



Andhra Pradesh 6.6% Mizoram ‐2.9%

20

Uttar Pradesh 5.9% Manipur ‐0.5%

Chattisgarh 5.8% Nagaland ‐0.5%

Gujarat 5.5% Tripura 0.0%

Arunachal Pradesh 4.7% Goa 0.1%

5/30/2011

6

Contributors to growth of Power Index

StatesInput Energy Per

Capita Index% Villages

Electrified Index

% Rural BPL Households Electrified % Peak Deficit % Energy Deficit

Andhra Pradesh 29% 0% 77% ‐1% ‐5%Arunachal Pradesh 93% 8% 2% 0% ‐3%Assam ( R ) 31% 33% 85% ‐24% ‐25%Bihar 6% 42% 67% ‐1% ‐15%Chattisgarh 27% 14% 42% 12% 5%Goa 282% 0% 0% ‐91% ‐91%Gujarat 49% 1% 26% 20% 5%Haryana 64% 0% 19% 8% 9%Himachal Pradesh 87% 30% 3% 28% ‐48%J & K h i 216% 5% 50% 104% 68%

21

Jammu & Kashmir 216% 5% 50% ‐104% ‐68%Jharkhand 15% 54% 41% ‐2% ‐8%Karnataka 31% 3% 84% ‐2% ‐15%Kerala 115% 0% 17% ‐9% ‐23%Madhya Pradesh 70% 0% 28% 21% ‐19%Maharashtra 69% 3% 15% 7% 6%Manipur ‐6% ‐58% ‐225% 194% 194%Meghalaya 14% 2% 36% 31% 16%Mizoram ( R ) 41% 0% ‐2% 32% 29%Nagaland ‐60% ‐18% ‐63% 132% 108%Orissa 33% 32% 34% 1% 1%Punjab 61% 0% 32% 23% ‐15%Rajasthan 25% 10% 46% 17% 2%Sikkim 461% 0% 4% ‐161% ‐205%Tamil Nadu 73% 0% 28% 14% ‐15%Tripura ( R ) ‐2086% 244% 1649% ‐55% 348%Uttar Pradesh 11% 27% 59% ‐3% 6%Uttarakhand 64% 8% 20% 16% ‐8%West Bengal 42% 33% 28% 1% ‐3%

Top 10 & Bottom 10 - Power Index

Top 10 States


1 Goa Goa

2 Himachal Pradesh Haryana

3 Tamil Nadu Himachal Pradesh

4 Haryana Tamil Nadu

Bottom 10 States


28 Jharkhand Mizoram

27 Uttar Pradesh Manipur

26 Bihar Jharkhand

25 Manipur Nagaland

22

4 Haryana Tamil Nadu

5 Punjab Andhra Pradesh

6 Kerala Punjab

7 Jammu & Kashmir Gujarat

8 Sikkim Karnataka

9 Karnataka Chattisgarh

10 Uttarakhand Maharashtra

25 Manipur Nagaland

24 Assam Bihar

23 West Bengal Assam

22 Rajasthan Tripura

21 Nagaland West Bengal

20 Arunachal Pradesh Uttar Pradesh

19 Tripura Madhya Pradesh

Key Observations – Power Index

• Goa ranks first in the base as well as last year though the index value hasremained unchanged

• 6 of the top ten states still remain in the top ten (J&K, Kerala, Sikkim andUttarakhand being replaced by Andhra, Gujarat, Maharashtra and Chattisgarh)

• Performance of BIMARU States has improved. Except Madhya Pradesh, allhave gained ranks.

23

•In terms of CAGR ranks, BIMARU states figure in the top half of the table withUttar Pradesh being the best performer and Madhya Pradesh being the only stateto figure in the bottom half of this table

• Performance of North-Eastern states has been disappointing. Exceptions areArunachal Pradesh and Meghalaya (to some extent). All figure in the bottom halfof the rank table in 2010

• Performance of Southern States has been mixed. Andhra Pradesh gained 8ranks, Kerala lost 5 ranks. Karnataka and Tamil Nadu have gained and dropped 1rank respectively. Andhra Pradesh tops the CAGR rank table in the Power Indexwhereas the other three figure in the middle

Telecom Index

Variables

• Urban Teledensity (1/3rd weight)

24

y ( g )

• Rural Teledensity (1/3rd weight)

• VPTs/No. of Villages (1/3rd weight)

5/30/2011

7

Telecom index - 2006

100 100

77

61 60 58 56 5653

2006

25

5349 48 47 47 46 46 45

39

32

Telecom Index - 2010

331

262

236216 214

199 196 192172 169 168

155 151 148136

2010

26

136 133 130 122

Index has grown between 4.7 times (North East) and 2.63 times (Kerala). Average for India is 3.33 times.

Contribution to growth in telecom index

60%

80%

100%

120%

Telecom growth is now rural driven

27

‐20%

0%

20%

40%

% of villages with VPTs Urban Teledensity Rural Teledensity

Rural teledensity in India is 24 (ranges from while the urban teledensity is 120. Urban teledensity ranges from 91 in M.P. to 298 in H.P. The rural teledensityrange is between 15 (Bihar) to 52 in H.P.

Top Movers on Telecom Index

Improvement Decline


Rajasthan 6 Assam ‐4

J & K 5 Karnataka ‐3

28


North East 4 Andhra Pradesh ‐3

Bihar ‐3

West Bengal ‐2

Orissa ‐2

5/30/2011

8

Fastest Growers - Telecom Index

35%

40%

45%

50%

The Fast Five

29

0%

5%

10%

15%

20%

25%

30%

North East Rajasthan J & K Maharashtra Haryana

Key insights – Telecom Index

• The North Eastern group of states has been an outperformer on this index recording thehighest CAGR of 47% and improving by 4 positions from 18 to 14

• The growth in the BIMARU States has been largely driven by the Rural Teledensity Sub-index which has contributed anywhere between 62% (in case of Bihar) to 74% (in case ofRajasthan)

Rajasthan has gained 6 places, the most among all circles and is 7th in 2010. It wasalso the second fastest CAGR grower among all circles at 43%

Uttar Pradesh has gained 1 place whereas Madhya Pradesh and Bihar have bothdropped by 1 and 3 places respectively and are at the 18th and 17th position respectivelyin 2010 All of these states grew between 30 33% CAGRin 2010. All of these states grew between 30-33% CAGR

Dispersion from Himachal Pradesh (top state in the base year) has widened in case ofall states

• Southern states have given mixed performanceKerala and Tamil Nadu have maintained their places at 2 and 4 respectively whereas,

Andhra Pradesh and Karnataka have lost 3 places each and appear at place 11 and 9respectively

The Index is driven by the Rural Teledensity which has contributed anywhere between70% (for Karnataka) to 85% (for Tamil Nadu)

Dispersion from Himachal Pradesh (top state in the base year) has widened in case ofall states. Kerala in the base year had an index value equivalent to Himachal Pradesh buthas it lower by one-fifth that of Himachal Pradesh in the last year

•With the exception of Tamil Nadu (which occupies the 6th position in CAGR ranks growing at37%), all Southern States figure in the bottom half of the CAGR rank table

Road Index

Variables

• Lane Length of National Highways per unit of Geographical

31

g g y p g pArea (1/3rd weight)

• Length of Rural Roads per unit of Geographical Area (1/3rd weight)

• Habitations Coverage in % (1/3rd weight)

Road Index Values

100

9087

81 7873

69 68 67 66 6561 59 8

2006

32

61 59 58 58 56 56 56 55 55 55 54 52

4340 39

2521

5/30/2011

9

108103

96 95 95

83

75 74 72 71 71 7065 65 64 64 62 60 60 60 60 59

2010

Road Index Values

33

60 5956

49 49 48

3128

Contribution to Growth of Road Index

60%

80%

100%

120%

Rural roads are driving the growth in rural states

34

‐20%

0%

20%

40%

% of habitations connected Rural roads by population NH‐LaneKm by population

Note: In above figure, rural states refer to those with 75% or more rural population

Top Movers on Road Index

Improvement Decline


Rajasthan 5 Meghalaya ‐7

Gujarat 4 Jharkhand 5

35


Gujarat 4 Jharkhand ‐5

Assam 3 Kerala ‐2

Uttar Pradesh 2 Nagaland ‐2

West Bengal 2 Manipur ‐2

Himachal Pradesh 2

Fastest & Slowest Growers - RoadIndex



Arunachal Pradesh 10% Kerala 1%

36

Uttar Pradesh 7% Meghalaya 1%

Madhya Pradesh 6% Goa 1%

Haryana 5% Mizoram 1%

Chattisgarh 5% Nagaland 1%

5/30/2011

10

Top 10 & Bottom 10 - Road Index

Top 10 States


1 Goa Tamil Nadu

2 Tamil Nadu Goa

3 Punjab Punjab

4 K l U P d h

Bottom 10 States


28 Arunachal Pradesh Jammu & Kashmir


26 Madhya Pradesh Chattisgarh

25 Ch i h Sikki

37

4 Kerala Uttar Pradesh

5 Haryana Haryana

6 Uttar Pradesh Kerala

7 Tripura Tripura

8 Nagaland Karnataka

9 Karnataka West Bengal

10 Manipur Nagaland

25 Chattisgarh Sikkim

24 Sikkim Madhya Pradesh

23 Rajasthan Mizoram

22 Mizoram Jharkhand

21 Gujarat Meghalaya

20 Maharashtra Maharashtra

19 Assam Uttarakhand

Key insights – Road Index

• Barring Arunachal Pradesh and Assam, the North Eastern States have not done so well.Both Arunachal Pradesh and Assam have gained in ranks and are the 1st and 9th

fastest growers in CAGR. All other states in this basket appear in the last 8 in terms ofCAGR ranks

Arunachal Pradesh and Meghalaya’s growth has been driven by the NationalHighways sub-index whereas, in all the other states, the rural sub-indices have drivengrowth

Dispersion from Goa (top state in the base year) has widened in the case ofMeghalaya and Mizoram, remained constant in the case of Nagaland and narrowed in allother cases

• The performance of BIMARU States has been good with each of the states having moved up

38

The performance of BIMARU States has been good with each of the states having moved upin ranks. Rajasthan moved up the most i.e. 5 places and Bihar the least by 1 place

All four states figure in the top eight states in ranking the CAGR growth, with UttarPradesh being the best performer within the pack

The contribution to growth in Uttar Pradesh and Bihar has come equally from theNational Highways Index as well as the Rural Indices, whereas in the case of MadhyaPradesh and Rajasthan, the rural indices have been the bigger contributors (60% forRajasthan and 70% for Madhya Pradesh)

• The performance of Southern States has been mixed with Tamil Nadu topping the road indexin 2010 gaining 1 rank over the period. Karnataka too gained 1 rank but on the other hand,Andhra Pradesh has dropped 1 rank and Kerala has dropped 2

Kerala is at the bottom in CAGR rank and Tamil Nadu (the best performer in this packis at 6th position)

With the exception of Kerala, all other states derive majority (close to 70%) of theirgrowth from the contribution of National Highways

Dispersion from Goa (top state in the base year) has narrowed in all states exceptKerala where it has increased by 1 point. Tamil Nadu has been an exception.

Port Index

160

180

Major Ports

39

100

120

140

2006 2007 2008 2009 2010

Non‐Major Ports

Total Ports

Non-Major Ports have clearly dominated the growth of the sector

Airport Index

140

150

Airport Index

40

100

110

120

130

2006 2007 2008 2009 2010

5/30/2011

1

By Shri Pradip Baijal & Shri V.S. Ailawadi – IAS (Retd.)

Open Access Framework

Role of CERC

Some Key issues – CERC Regulations and Role of CERC

Contents

Inter State Open Access Implementation [ 2 ]

Rates & Charges for use of Intervening Transmission Facilities, 2010

STU/Wheeling Charges and Losses of States (as on July, 2010)

Intra State Open Access – Key Issues in Operationalisation

Way Ahead

Introduction of competition in the Electricity sector is one of the salient objectives of the EA’ 03– Providing a “choice”

To achieve this objective, the EA’ 03 has opened Generation, Transmission and Distribution tocompetition and investments from private players in the sector. (Section 7, 9, &14,42 of EA, 03)

The EA’03 and National Electricity Policy clearly envisage development of competitive market in electricity by putting specific responsibilities on the Central and the State Regulatory Commissions.

Open Access Framework


electricity by putting specific responsibilities on the Central and the State Regulatory Commissions.

Non ‐discriminatory Open Access to Customers/consumers;

A. In transmission system for use by:

Any licensee or generating company & Bulk Consumer on payment of the transmissioncharges, or

B. In Distribution utility System.

Any consumer as and when such Open Access is provided under sub section (2) of section 42,on payment of the transmission charges and surcharge thereon, as may be specified by theState Commission.

EA’ 03 puts the main responsibility on the Central Electricity Regulatory Commission to create a robust Open Access regime in a meaningful manner. This is clear from the scheme of the EA, 03 and overarching following provisions;

(a) Section 2(36) : Control over all intervening systems.

(b) Section 36 requires CERC to determine charges for the use of intervening facilities.(c) Mandate given under EA’ 03 Act ; i.e., sections 28,29 ,38 ,79 178 to the CERC and RLDC / NLDC to ensureflow of electricity, through integrated network of transmission / carriage across inter‐States for OA usagethrough effective mechanisms.

In pursuance of these powers, the CERC framed (Open Access in Inter‐State Transmission)

Role of CERC


p p ( p )Regulations, 2008& Connectivity ( Long Term & Medium Term Inter State Transmission )Regulations, 2009.

Positive aspects of regulations issued by CERC includeAllow interconnection / connectivity to generators and traders and bulk consumers for MTOP & inter‐statemovement of power.

Powers of SLDC /RLDC for refusal for concurrence for OA applicants/users effectively curbed.Facilities for advance scheduling for bilateral transactions made easier.Exit options for parties made reasonable and transparent.

New UI Regulations April ,2010 to promote transactions for sale at Power Ex. & curbs gaming.

5/30/2011

2

Connectivity & Interstate Open Access regulations provide Generator /IIPs/ Traders/ BulkConsumers (with specified load)/ CPPs enabling regime for IST systems for seeking /supply ofelectricity.

Developments in the Inter state OA for above categories into the IST for OA are positivelyimpacting on the Power market as seen from approximately 450 participants using powerexchanges

But this represents only a partial picture as many CPPs and industrial customers are at disadvantageto avail of OA in the Interstate as well as in the intrastate level.

Even STOA and MTOA CPPs & Industrial customers embedded in the distribution network & using

Some key Issues – CERC Regulations and Role of CERC


gInterstate OA for supply for own use have issues that are not addressed by the CERC ‘s currentregulatory regime.

CERC has not provided MTOA customers fair and equitable treatment. Bias for LTOA continues asbarrier. MTOA customer creating dedication transmission line at own cost it not given to benefit ofargumentation of the transmission system (Reg. 9 (2)).

Bulk consumer of 100 MW alone can seek connectivity to inter state transmission. This rules outseveral industrial and bulk consumers as the term” Bulk consumer” is not defined to include groupof customers.

Limit of 100 MW for bulk consumers needs to be reviewed and also to include aggregatedtransactions of specified quantity through traders / suppliers.

Requirement for agreement with the state network utility for “charges “for intervening transmissionfacilities is unnecessary requirement (Reg. 26). CERC has full authority under section 36 of the Actfor fixing charges for intervening transmission facilities.

SLDC concurrence for bilateral and collective Transactions by MTOA to inter state Transmissionnetwork goes against the ultimate control of the CERC (Reg8 of 2008 Interstate Regulations).

As nodal agency for bilateral transaction is RDLC, Similarly the NLDC should act as NA for all casesof MTOA to inter state transmission for end to end dispatch (Reg. 5).

MTOA customer faces uncertainty for renewal of the facility of OA from interstate transmissionnetwork. MTOA customer does not have any preference on the expiry unlike LTOA customer. ( Reg.



y p p y ( g24).

By leaving it open to different Open Access customers to different rates being charged by utilities,the objective of sub clause 2 of 36 and section 35 of EA, 03 have been defeated. The interpretationof such incidental transmission clearly defined in sub‐section 36 of Section 2 has also beendefeated

Dedicated feeder / transmission / lines by STOA / MTOA have stranded cost in uncertain conditionsdiscourage use of OA by these customers.

Only residual capacity of STOA or MTOA and not identifying ante such capacities to meetrequirements of these categories defeat the objectives of NEP.

Objectives of the NEP (5.3.2) for argumentation and expansions without prior agreement with usersas a pre conditions not logically applied for translated by CERC by inviting investments forargumentation / expansions other than LTOA customers.

Enforcing NTP directions on Cross subsidy surcharge @ 20 % plus /minus principles would createconditions along with enabling regulations by CERC will encourage CPPs & Industrial consumers forinterstate OA. This will force state government rethink on current unsustainable level of subsidy. (add slide )

For Intervening facilities CERC issued in Sept, 2010 regulations , asking for consent from the licenseefor intervening facilities is uncalled for (regulation 6). ATC data online showing surplus capacity in



the STU should be basis for approval from RLDC.

“Intervening facilities charges” as shown in the following slide are in addition to transmissioncharges, transmission losses, operating charges for IST and Intra state level have the effect ofpushing up costs to OA customer.

STU & Discoms have all the leeway to deny or discourage OA to even CPPs & Industrial customerwith present set of levies that have no rational., besides misuse of section 37 & 11 EA, 03 for bystate utility to discourage or denied OA to STOA / MTOA.

STU / Discoms Charges needs review in the light of the principles of line length & voltage as basisfor OA as upheld by ATE in Hindalco case in Nov 2010.

Key Issues

Cross‐subsidy surcharge needs to be calculated in accordance with the formula in the NTP &reduced 20% at linear rate. This provision is single most important deterrent to OA.

i. There is no rationale for imposition of any surcharge as the licensee is unable to serve the entireneeds of the consumer,

ii. Surcharge should be zero if formula gives negative value.

iii. OA consumer should pay only reasonable carrier charge based on transparent principles of linelength & voltage involved.

Apprehension of customers to get a continued supply over the network of incumbent licensee

Intra State Open Access – Key Issues in Operationalisation


Apprehension of customers to get a continued supply over the network of incumbent licensee ‐This can be addressed through well defined SLAs mechanism or through the model of assigningcontracts with Discom as suggested by NDPL (Section 49 of EA,2003 enable such mechanisms)

Apprehension on standby arrangements for power supply

i. Standby arrangements for OA consumers will be provided by the incumbent licensee to theextent of OA load sanctioned at day ahead notice.

ii. Retail tariff as applicable to respective consumer categories only for the period during whichsuch standby support is requested.

IT Applications with 11 KV automation to improve distribution management system for OAtransactions to ensure uninterrupted supply to OA customers.

5/30/2011

3

CERC must revisit its regulations for connectivity to facilitate certainty & comfort level for inter‐stateMTOA & STOA & Bulk consumers.

CERC must mandate & ensure end to end connectivity in non discriminatory manner to all interveningtransmission facilities through RLDC/NLDC by effective enforcement.

CERC needs to work through FOR to rationalise various charges on transparent pricing methodology.

At state level the attitude of the state govts must shift from short term interest to long term benefitsfor consumers in the state.

SERCs regulations in the present form can not bring competition or open access for the benefit ofconsumer. Minimal but Enabling Rules are required.

Way Ahead


SERCs regulations have to be aligned with the CREC approach for providing fair and robust open accessregime.

It is time to consider separation of wire services and content services of the distributor licensee.Section 61 sub clause 2 & 5 give power to the SERCs for determining separate charges for respectivebusinesses.

Perhaps changes in the sections 11 and 31 of EA.3 and NTP may be necessary to promote open accessand competition.

CERC needs to play a larger role in enabling end to end connectivity with Intervening transmission facilities for BulkConsumer/trader/generator to deliver power to end user.

--- similar role as played by TRAI in enforcing competition in Telecom sector to provide the “choice” to end consumers

Thank You


1Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited.

Power Distribution – Where is it Headed?

June 2010

Draft for Internal Circulation only

0

10000

20000

30000

40000

50000

60000

70000

2001-0

2

2002-0

3

2003-0

4

2004-0

5

2005-0

6

2006-0

7

2007-0

8

2008-0

9

*2009-1

0

**2010-1

1

29331

21192

19249

24045

20790

28356

33772

40910

38420 68000

2

Commercial losses without subsidies are much higher

than in 2002-03

Source: PFC & Planning Commission

*For 20 major states excl. Delhi & Orissa, estimated

** Figures have been taken from press reports quoting Montek Singh Ahluwalia

Projected

increase of 70%

over 2009-10

Estimated at

about Rs.

40,000 crore

for all states**

Losses have almost

doubled in 4 years

2

21 out of 48 Discoms had AT&C losses over 30% in 2008-09

Loss levels No. of Discoms Discoms

< 20% 16

CESC, NDPL, Punjab, Noida Power, Andhra Discoms, Bangalore Discom,

Tamil Nadu, Dakshin Madhya & Uttar Gujarat Discoms, Torrent

Ahmedabad & Surat, BEST Mumbai, Reliance Mumbai

20-25% 5 BSES Rajdhani & Yamuna (Delhi), HP, Kerala*, Maharashtra

25-30% 6WBSEDCL, Dakshin Haryana, Rajasthan Discoms, Chamundeshwari

(Karnataka)

30-40% 12

Northern & Western Orissa Discoms, Uttar Haryana*, 2 UP Discoms,

Uttaranchal, Hubli (Karnataka), Chhattisgarh, Paschim Gujarat Discom,

Madhya & Paschim MP Discoms

> 40% 9Bihar*, Jharkhand, Central & Southern Orissa Discoms, KESCO, Gulbarga

(Karnataka), MP Poorv Discom, Manipur, Nagaland

Source of AT&C loss data for analysis: Forum of Regulators

* For 2007-08

36.9%

42.8% 43.7%47.3%

37.9%

52.8%

41.8%

26.7%

33.7%29.6% 29.5%

27.6%

34.9%31.6%

0%

10%

20%

30%

40%

50%

60%

Haryana (Dakshin)

Haryana (Uttar)*

Raj (Ajmer)

Raj (Jodhpur)

Raj (Jaipur)

UP (Dakshin)

UP (Madhya)

2004-05 2008-09

But most Discoms have reduced AT&C losses – pace of

reduction may be questionable…1

54.3%

19.3%

24.7%

37.4%

26.2%

35.9%

24.1%

19.0%

19.9%

26.4%

21.6%23.1%

0%

10%

20%

30%

40%

50%

60%

Mah (MSEDCL)

TN Punjab WB (WBSEDCL)

Kerala* HP

2004-05 2008-09

22.4%

17.2%

41.3%

23.9%

34.3%

42.9%

53.3%

39.7%

20.9%11.8%

30.1%

11.5%

18.2%

26.1%

42.0%

33.3%

0%

10%

20%

30%

40%

50%

60%

Guj (Dakshin)

Guj (Madhya)

Guj (Paschim)

Guj (Uttar)

Kar (B'lore)

Kar (Cha) Kar (Gul) Kar (Hub)

2004-05 2008-09

Source: FOR

* 2007-08

Mah: 2004-05 data is for MSEB

Kar: Mangalore discom data NA

MP, Guj & Kar data for 2005-06

Most Discoms have reduced AT&C losses – pace of

reduction may be questionable…2

Source: FOR

* 2007-08

Mah: 2004-05 data is for MSEB

Kar: Mangalore discom data NA

MP, Guj & Kar data for 2005-06

37.2%

64.8%

51.1%

42.1% 40.2% 41.7%37.8%

53.2%

45.2%

38.6%

51.0%

36.5%

0%

10%

20%

30%

40%

50%

60%

70%

Chg Jhar Ori (Central)

Ori (Northern)

Ori (Southern)

Ori (Western)

2004-05 2008-09

33.8%

40.6%

50.1%

24%

13.6%

22.7%20.4%

18.9%21%

24.4%

17.4%

9.2%

15.5% 14.4%

0%

10%

20%

30%

40%

50%

60%

Del (NDPL)

Del (BRPL)

Del (BYPL)

AP (Central)

AP (Eastern)

AP (Northern)

AP (Southern)

2004-05 2008-09

48.1%

37.1%41.3%

37.3%39.7%35.3%

40.9%

33.3%

0%

10%

20%

30%

40%

50%

60%

MP (Madhya) MP (Paschim) MP (Poorv) Utt'khnd

2004-05 2008-09

Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited. 6

3.683.92 4.05

4.33 4.29

2.89 3.01 3.073.29 3.38

0

1

2

3

4

5

2005-06 2006-07 2007-08 2008-09 2009-10*

Average Cost of Supply Average Revenue Realized

So why are Discoms incurring losses?

Source: Planning Commission

*Estimated

*All data for 20 major states excl. Delhi & Orissa

Average Revenue Realized has shown the same

increase as Average Cost of Supply - 17%

Is power purchase cost responsible ?

Rs./unit

• Short term power purchase by Discoms is increasing

8.6% of the power purchased by discoms in 2008-

09 came from traders/exchanges

Prices touched Rs.17/kwh & Rs.15/kwh

respectively in IEX & PXIL in August 2009

CERC stepped in & imposed a ceiling of Rs.

8/unit on tariff for sale & purchase of electricity

through bi-lateral agreements & through power

exchanges for a period of 45 days from

September 2009

• Coal imports for power plants have more than

doubled since 2004-05

Price difference between domestic & imported

coal after adjusting for calorific value in 2009-10

was about 26%

CAGR of ACoS & ARR – 4%

(YoY% 3MMA)

(YoY% 3MMA)

11.8

5

14.1

9

15.0

2

20.9

6

24.6

9

59.8

4

2.16 2.45 2.413.15 3.57

8.62

0

2

4

6

8

10

0

10

20

30

40

50

60

70

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 (till feb)

%

Billion U

nit

s

Volume traded as % of electricity generated

Trends in power purchase costs

2.32

3.23

4.51 4.52

7.31

5.33

0

1

2

3

4

5

6

7

8

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10For Nov 2009

4.5

10.4 9.7 10.2

16.1

24.6

0

5

10

15

20

25

30

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Mil

lion T

onnes

Volume of short term power purchase

Price of short term power

Rs.

/unit

Coal imports for power plants

Source: CERC

Source: MoP

Source: CERC

Price of imported coal

48 47 50 5368

116

163

72 71

95 100

0

30

60

90

120

150

180

Jul -Sep

Jan -Mar

Jul -Sep

Jan -Mar

Jul -Sep

Jan -Mar

Jul -Sep

Jan -Mar

Jul -Sep

Jan -Mar

Apr

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Coal, AustraliaSource: MoF

2

Cost of power for consumers: Open access vsDiscoms’ Tariffs

0 1 2 3 4 5 6 7 8

Assam

Chhatisgarh

Haryana

HP

Karnataka (Bescom)

Maharashtra (MSEDCL)

Orissa

Punjab

Rajasthan

UP

MP

Uttarakhand

Gujarat

WB

TN

Net cost of power from OA** Discom Tariff*

Assumptions: Source: Forum of Regulators

• Consumer of 5MW at 11 KV (33 KV in some cases)

• Power purchase cost of 4 Rs./unit

• Base Energy Consumption = 3600000 units• Status as of June 2009

Rs.

20% of sanctioned funds have been

disbursed in 2 years

5 states account for 45% of funds sanctioned

under Part A

Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited. 9

Only 6 states have started project implementation under R-APDRP

5 states, 45%

Others, 55%

Source: PFC/MoP

Uttar Pradesh

Tamil Nadu

Karnataka

Andhra

Rajasthan

As of Dec 2009Source: MoP

Only 6 states awarded the work for implementation of projects through IT Implementing Agencies under Part A

(establishment of baseline data & IT applications) till Dec 09

13 out of 52 utilities yet to appoint IT consultants as of Feb 10

12 out of 52 utilities yet to sign Quadripartite Agreement (Utility-PFC-GoI-State Govt.) as of Feb 10; pre-requisite for

release of funds

AT&C losses in top 5 states as per sanctions

Any unauthorized disclosure, copying or distribution of the contents of this information is prohibited.10

Where are R-APDRP funds going?

Source: PFC, MoP

Loss level for Discom with highest losses taken

AT&C losses in bottom 5 states as per sanctions

0%

10%

20%

30%

40%

50%

60%

0

20

40

60

80

100

120

140

Sikkim Tripura HP Chg Utt'Khd

Funds Sanctioned AT&C losses in 2008-09

Source: PFC, MoP, PwC

Goa is amongst the bottom 5 states, AT&C losses NA

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

100

200

300

400

500

600

700

UP TN Kar AP Raj

Funds Sanctioned AT&C losses in 2008-09

11

Current Capacity Additions (MW)

Source: Planning Commission

Can Discoms absorb the planned capacity addition?...1

* Planned ** Expected

Future expectations (MW)

Underconstruction

Funding completed Total

32,561 20,640 53,201

12

Can Discoms absorb the planned capacity addition?...2

2010 2013

Case 1 Case 2 Case 3

AT&C loss %29% 17% 23% 23%

Avg tariff (Rs./unit)*4.76 4.76 4.76 5.35

Avg Cost of Supply

(Rs./unit)* 4.29 4.83 4.83 4.83

Avg Revenue Realized

(Rs./unit)* 3.38 3.95 3.67 4.12

Gap(Rs./unit)0.91 0.87 1.16 0.70

Units sold (Mn)* 525140 796045 796045 796045

Commercial losses

(Rs. Cr)47788 69606 92344 55908

• Case 1

AT&C losses reduce to 17%, no

increase in tariff, costs increase by

4% p.a.

• Case 2

AT&C losses reduce by 2% p.a., no

increase in tariff, costs increase by

4% p.a.

• Case 3

AT&C losses reduce by 2% p.a., tariff

and costs increase by 4% p.a.

* Planning Commission data

** GDP growth rate 7% p.a.

1% of GDP

0.7% of GDP**

13

Recommendations

• R-APDRP

Speed-up implementation

Penalties on states that are slow at implementation

o Reduce share in unallocated central sector power

o Deny benefits under other schemes

• Reduce AT&C losses

Stringent implementation of theft control measures

Franchising of operations in areas with high loss levels

• Tariff determination

Cross-subsidy must be brought within +/- 20% of average tariff by Jan 2011 as per National Tariff Policy

• Open access

States that do not facilitate Open Access on distribution may be denied benefits under various

Schemes of the Ministry of Power/GoI

• Long Term Capacity addition

Proper demand-supply studies followed by capacity addition under case 1 or case 2 mechanism

States delaying the completion of the case 1 or case 2 process or opting for re-bidding may be denied

benefits under various Schemes of the Ministry of Power/GoI

• Role of SERCs

Role of SERCs in reforms/tariff determination process to be evaluated and monitored

Thank you

14

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