chapter i introduction - shodhgangashodhganga.inflibnet.ac.in/bitstream/10603/29454/11/11_chapter...

Identifying the Role of Policies and Regulatory Framework for Private Investment in Thermal Power Sector 1

CHAPTER I

INTRODUCTION

1.1 INTRODUCTION:

The research on the topic “Identifying the Role of Policies and Regulatory Framework

for Private Investment in Indian Thermal Power Sector” has been under taken in view of

the criticality of policies and regulations in the growth of Indian Power Sector. As per

Central Electricity Authority (CEA), Generation from Thermal Power Stations constitute

nearly 66% of the total installed capacity and contribute nearly 81% of the total power

generation in the country (Fig.1.30). This is natural for India as it has the world‟s third

largest reserve of coal. The current installed capacity of electricity generation in the

country is 2,29,251.74 MW (CEA, 2013) as on 31st Oct.2013 against only 1362 MW in

1947. But inspite of this, 25% of Indian population lacks basic access to electricity as per

a 2012 report by the International Energy Agency (IEA, 2013). The per capita

consumption of electricity is 917.8 units in 2012-13 compared to global average of 3500

units. The average and peak deficit of electricity is 8.7% and 9.0% during the year 2012-

13 (GOI, 2014). This is due to inefficiencies in generation, transmission & distribution

besides disruptions in fuel supply to power plants. There is a need to overcome these

shortages by increasing the generating capacity as well as other measures.

1.2 INDIAN POWER SECTOR GLIMPSES:

Power Sector in India is dominated by the government. As on 31.03.2013 (CEA, 2013)

total installed capacity is 2,29,251.74 MW. Out of this 1,56,468.99 MW is the thermal

generation capacity. The State and Central Government sectors account for 39.2% and

28.90% of the thermal generation capacity respectively while the private sector accounts

for about 31.81%. The bulk of the transmission and distribution functions are with State

utilities. The private sector has a small but growing presence in distribution and is

making an entry into transmission. Power Sector which had been funded mainly through

budgetary support and external borrowings was opened to private sector in 1991.

Electricity is considered key driver for targeted 8 to 10% economic growth of India. The


vast Indian power market, today offers one of the highest growth opportunities for private

developers.

All India electricity generation in the country during 2012-13 has been 911.65 BU

representing a growth rate of 3.96 % as compared to the generation of 877 BU during

2011-12. Coal/ Lignite based plants continued to have major contribution towards

electricity generation with a major share of 86.4% of the total thermal generation. Plant

load factor (PLF) of thermal power stations at the national level, during 2011-12, reduced

to 73.32% from 75.08% achieved during previous year. The Lower PLF was due to

increased generation loss due to coal supply problem and transmission constraints and

Reserve Shut down/Low system demand.

Plan wise growth of the generation capacity is shown in the figure 1.1 (CEA, 2012).

Figure 1.1 Plan-Wise growth in generation capacity


A comparison with the plan targets (Table 1.2) from the first to eleventh plan shows

repeated failures of meeting the targets due to number of factors including shortage of

funds.

Another important point of the Indian Power generation capacity is type of fuel used.

During the year 2011-12 the main fuel used is coal having an overall

66.72% share. Figure 1.2 shows the fuel wise generation (CEA, 2012):

Figure 1.2 Fuel Wise Generation (BU) in Year 2011-12 and their % Share in Overall

Generation

1.3 INDIAN POWER SECTOR REFORM STAGES:

The first instance of commercial generation of electricity in India dates back to 1879 in

Kolkata. In 1897, the government of Bengal granted an exclusive 21-year license to the

Calcutta Electricity Supply Corporation to supply electricity to Calcutta. Mumbai (then

Bombay) was the second city to get electricity and as time progressed, private companies

set up power supply systems in major urban areas under franchisees which allowed them

a reasonable rate of return. The demand for electricity during this phase was driven by


demand from industries, commercial enterprises including tramways and also domestic

use. Most of the earlier private companies in the power sector cease to exist today as they

were amalgamated into state owned enterprises. However a few of them continue to exist

as private players.

The Electricity Act 1910 was the first act in the power industry, which was introduced

before independence in 1910. The Act provided the basic framework for supply of

electricity in India. The sector was at a nascent stage during this time and there was a

huge investment requirement for laying down basic infrastructure. The Act encouraged

the growth of the industry by issuing licenses to private companies. During this phase,

electricity generation was mainly in the private sector and power generation was largely

based on coal and hydropower.

1.4 HIGHLIGHTS OF ELECTRICITY ACT 1910:

Electricity supply structure was set up.

Electricity industry growth through private licensees was permitted

Licenses were issued by state governments for supply of electricity in a specified

area.

Fair relationship between licensee and consumers was ensured.

1.5 POST-INDEPENDENCE ERA (1947-1990):

At the time of independence, electricity generation and supply was concentrated in the

hands of private electricity supplier and largely in urban areas. Electricity supply was a

must across the country to promote overall growth and development and therefore the

Electricity (Supply) Act 1948 which was based on the UK Electricity Supply Act 1926

was introduced. Under this Act, the Central Electricity Authority (CEA) was established

at the central level and the State Electricity Boards (SEBs) at the state level. The

objective of the CEA was to develop a sound adequate and uniform national power policy

to coordinate development of the power sector in India.


SEBs became integrated utilities with presence in generation, transmission, and

distribution in their respective states. During this period, the development and planning

was done by the SEBs at the state level while the CEA was responsible for planning at

the national level and it provided the SEBs with broad guidance, planning, and

development. The Act also elaborated the financing norms and institutional framework

for the electricity industry in India.

1.6 HIGHLIGHTS OF ELECTRICITY ACT 1948:

1. Creation of State Electricity Boards was made mandatory for arranging supply of

electricity supply in the states.

2. Electrification of cities was planned to be extended through SEBs.

The SEBs took over the private companies in their respective states and the newly created

State Electricity Boards were interconnected to enhance system reliability and to ensure

wider geographical coverage. The electricity sector moved into the public sector domain

from the private hands and over the years, the public sector gained prominence in the

power sector.

In the initial period, the SEBs‟ performance was satisfactory and they played a vital role

in the development of the sector. According to the Electricity (Supply) Act 1948, the

SEBs were required to generate a minimum return of 3% on their net fixed assets in

service after meeting the financial charges and depreciation. The SEBs were able to

generate the minimum returns for many years, but, later on their performance faltered and

they had to seek financial aid from the state in the form of grants, subsidies, soft loans,

etc. The early seventies were marked by incidents of power blackouts and grid collapses.

Hydropower generation suffered especially, as availability of water resources was heavily

dependent on the monsoon season. Moreover, there were delays in civil works, supply of

power plant equipment and the infrastructure additions in terms of transmission and

distribution were also not adequate. In its attempt to assist the states, the Central

Government established a few companies that could cater to more than one state.


The Central Government amended the Electricity (Supply) Act 1948 and established the

National Hydropower Corporation (NHPC) in 1975 to build hydropower plants and the

National Thermal Power Corporation (NTPC) to set up coal-based power plants to

supplement the generation capacities of the SEBs and private companies.

NTPC built its own transmission network to transmit electricity to different SEBs. In

1981, the government decided to integrate operations of the central and state transmission

systems to form a national power grid to facilitate transmission of power generated by

non-SEB generators; these efforts led to the incorporation of the National Power

Transmission Corporation in 1981. Initially the company was engaged in managing the

transmission assets of the central generating companies i.e. NTPC, NHPC and North-

Eastern Electric Power Corporation; but in 1992, this entity was renamed as

POWERGRID Corporation of India Ltd and all the transmission assets of the three above

mentioned generating companies were transferred to it under an ordinance. Furthermore

the government set up the Power Finance Corporation (PFC) in 1986 as a financial

institution dedicated to power sector financing to supplement planned expenditure on

power plants, specifically new power plants.

Although the SEBs aided the growth in Indian electricity sector yet by the end of the

phase under review, they themselves suffered huge financial and technical losses due to

poor revenue collection and billing, poor metering & energy accounting, electricity theft,

cross subsidies and staff‟s inefficiencies. As a result of these losses, they provided poor

electricity service to end consumers because the state-owned corporation power plants

were running at low Plant Load Factor (PLF) and the SEBs did not have enough funds for

renovation and modernisation of their plants (Table 1.3).The demand-supply gap was

increasing and many states were facing electricity crisis. These circumstances forced the

government to restructure the sector in a phased manner and this paved way for

electricity reforms in 1991.


1.7 POST–REFORM PHASE (AFTER 1991):

The deteriorating health of the SEBs made it impossible for them to infuse fresh

investments into the sector. Moreover, the country was facing a macroeconomic financial

crisis that made it difficult for the governments, both the Central and State, to fund power

projects through budgetary support. Due to these events, the government decided to

restructure the power sector in a phased manner in 1991. Consequently it opened up the

power sector and invited foreign private companies to provide fund and technology into

Indian power sector. The post-reform phase can be divided into following phases:

1991: Independent Power Plant Process wherein the Electricity Act 1948 was amended

and the power generation was opened for the private sector.

1995: Mega Power Policy was announced. Capacity addition in power generation through

setting up Mega Power Plants and Competitive Bidding was announced.

1998: Electricity Regulatory Commission Act was implemented. State Electricity

Regulatory Commissions and Central Electricity Commission were set up.

2003: Electricity Act 2003 was enacted by replacing existing Acts. This Act contained

law relating to generation, transmission, distribution, trading and use of electricity.

Liberal framework for development of power sector was created.

1.8 INDEPENDENT POWER PRODUCERS (IPP):

Investment was a must in the power sector to enable it to produce electricity in line with

the expected economic growth. The government liberalized the sector and opened it for

foreign and private investments to increase the availability of funds for the power sector.

For allowing independent power producers to operate in the sector, the government made

an amendment to the Electricity Act 1910 and the Electricity (Supply) Act 1948 through

the Electricity Laws (Amendment) Act of 1991. The amendment allowed private

participation in thermal, hydro, wind, solar power projects and also allowed them to

operate as IPPs. Foreign ownership up to 100% was allowed. IPPs were to operate on the


costs plus model wherein the tariff was determined by the Central Government and the

IPPs were guaranteed a 16% post-tax return on equity besides full repatriation of profits.

The operators and the SEBs entered into power purchase agreements (PPAs) as the SEBs

were responsible for transmission and distribution of power generated by private players.

Around 189 projects with an expected capacity of 75 GW were proposed. However only

a few of these projects cleared the approval process and had Memoranda of

Understanding (MoUs) and Letters of Intent. The rest were either stalled in the approval

process or did not reach financial closure. The Government also put on fast track 8

projects with offers of counter guarantees.

1.9 INTRODUCTION OF MEGA POWER POLICY 1995:

In 1995, the Government introduced the Mega Power Policy to increase private

investments in over 1,000 MW capacity generation projects that would supply electricity

to more than one state and hence the name Mega Power Projects. The projects were to be

awarded on the basis of competitive bidding and the CEA, POWERGRID and NTPC

were to provide support to these projects. The CEA was to provide assistance in

identifying potential sites for setting up the plants while POWERGRID and NTPC were

to provide assistance for transmission of power and preparation of feasibility report

respectively.

The main objective of reforms was to ensure reliable and quality power supply at an

economic cost. It was essential to ensure that the sector was financially viable and

attractive enough for private investors to put in their money. The SEBs were integrated

utilities with presence in generation, transmission and distribution in their respective

states. The SEBs were under huge losses and it was perceived that unbundling the SEBs

and segregating generation, transmission and distribution into different corporations

could make it possible to monitor efficiency levels in each of the areas. Many states

initiated the restructuring process. Orissa was the first state to undertake restructuring of

the power sector in 1996. The results were, however, not significant as the losses (theft,


technological and financial) did not come down. The SEB was unbundled and new

entities were privatized. Orissa State Regulatory Commission was set up and tariff got

rationalized to get benefit for suppliers.

The first phase of the reform failed as the objective of attracting private players did not

achieve the desired results. Private players did not enter the sector, as the SEBs, who

were to transmit and distribute the power generated by the private players, were still

running in losses. Private players were uncertain about their returns due to poor financial

health of the SEBs. The power plants continued to work at low PLF. The experiences of

the first phase were not great and the Enron debacle is an example of the same. The

earliest effort on PPP in the Power Sector can be traced down to Dabhol Power Project in

Maharashtra (GOI, 2009). The project did not succeed. The Dabhol Power Plant was

initiated in 1992 and took nine years to commence operation. The total project cost was

$2.9 billion for 2,184 MW of power. Enron along with other American corporations

owned 85% and the Maharashtra State Electricity Board (MSEB) owned remaining 15%.

The Plant closed in June 2001, due to payment and contract dispute between the

Maharashtra state government and the Plant owners. The reasons were:

Viability of the project - as per World Bank letter to Ministry of Finance (MoF), GoI

“proposed plant would produce too much power at too high a price for the State”.

Further, fuel supply was liquid natural gas which was much costlier than coal.

Fuel supply drain on exchequer - As per GoI, the plant‟s annual import of 3 million tons

of gas would drain at least US$ 250 million from India‟s foreign exchange reserves.

Currency risk on MSEB for fuel supply import.

Environmental concerns of the Dabhol project: The key overall issue was that PPP

project risks were not properly assessed, and equitably allocated between MSEB and

Dabhol. Further project feasibility was not done to verify whether the project would

independently run without the necessary Central and State guarantees.


1.10 SECOND PHASE (STARTED IN 1996):

The 1995 Mega Power Policy did not propose any fiscal concession and hence the

revised Mega Power Policy 1998 was announced. The Power Trading Corporation (PTC)

was also set up after this revision to purchase power from identified projects for selling to

SEBs. Establishing regulatory commissions and privatising electricity distribution in

cities (with population of more than 1 mn) were the pre-conditions included in the revised

policy.

In December 1996, the Common Minimum National Action Programme (CMNAP) was

structured in consultation with the state governments and guidelines were established to

hasten the sector‟s progress. In addition to envisaging setting up of regulatory

commissions, the CMNAP reiterated the need for rationalisation of tariff and that no

sector was to pay less than 50% of the average cost of supply. Tariff for agriculture sector

was to be not less than 50 paise per unit and the tariff was brought to 50% of the average

cost of supply within 3 years.100 % metering and energy auditing was planned.

During this phase the sector‟s performance improved as compared to the first phase as the

PLF reached around 70%. However commercial losses continued to pose a major hurdle

in the sector‟s development. During this period private sector investments were already

being made for capacity addition in generation but the need was felt for private

participation in transmission as well and consequently the Electricity Laws (Amendment)

Act was passed in 1998 to enable private participation in the power transmission sector.

The central transmission utility (CTU) and the state transmission utility (STU) were set

up under this Act. The maintenance and construction activity of transmission network

was supervised by CTU at the inter-state level and by the state transmission utility (STU)

at the intra-state level. These utilities also recommended regulatory commissions on

allotment of licenses to different players.

The CERC issued the first Indian Electricity Grid Code (IEGC) in January 2000 to ensure

grid discipline and to set operation and governance parameters for players in the

transmission and distribution (T&D) sectors.


1.11 THIRD PHASE (2003 ONWARDS):

The Electricity Act 2003 sought to create a liberal framework which came into effect

from June 10, 2003. This Act replaced the earlier laws and acts governing Indian power

sector, namely, Indian Electricity Act 1910, the Electricity (Supply) Act 1948 and the

Electricity Regulatory Commissions Act 1998. The bill sought to provide a legal

framework enabling reforms and restructuring the power sector.

1.12 ELECTRICITY ACT 2003:

Electricity Act 2003 was enacted for development of the power industry, promoting

competition, protecting interests of consumers and supply of electricity to all areas,

rationalisation of electricity tariff and ensuring transparent policies and promotion of

efficiency, among others. The Act came out with the National Electricity Policy,

mandatory creation of SERCs, emphasis on rural electrification, open access in

transmission and distribution and some other provisions. It mandated the regulatory

commissions to regulate the tariff and issues of license. This Act focused on laws relating

to generation, transmission, distribution, trading, and uses of electricity. The Act was

amended on May 28, 2007 and the Electricity Act 2003 was enacted with greater

emphasis on assessment, fines and legal framework to check the commercial losses due

to theft and unauthorized use of electricity.

The Electricity Act, 2003 also provides for mechanisms like “Coordination forum” and

“Advisory Committees” to facilitate consultative process. The Act also requires the

Regulatory Commissions to ensure transparency in exercise of their powers and in

discharge of their functions. This in no way means that the Regulatory Commissions

should follow formal judicial approach. In fact, quick disposal of matters would require

an approach involving consultations with stakeholders.

Under the Act, the Regulatory Commissions are required to perform wide-ranging

responsibilities. The appropriate Governments need to take steps to attract regulatory

personnel with required background. The appropriate Governments should provide

financial autonomy to the Regulatory Commissions. The Act provides that the

appropriate Government shall constitute a Fund under section 99 or section 103 of the


Act, as the case may be, to be called Regulatory Commission Fund. The State

Governments were advised to establish this Fund expeditiously.

1.13 Generation:

The generation segment was opened for private players in 1991. However, even over the

years, the generation capacity from private players did not reach the desired level. In

2002 only 11% of generation capacity was from private players and the public sector

generator‟s capacity was not enough to meet the growing demand of electricity. The

government introduced certain policy measures in generation in the Electricity Act 2003

to ensure more private participation and to reduce the demand-supply gap. Generation of

power was de-licensed and the requirement of techno-economic clearance for thermal

power generating plants by CEA was dispensed with, which paved the way for entry of

more players in thermal generation. By these interventions the private sector in thermal

power generation had increased to 26.51% as on Jan. 2013.State power sector plants were

having the lowest Plant Load Factor (Table 1.3) compare to Central and private sector.

Growth rate of electricity sector has been better than mining and manufacturing sector.

(Table 1.5)

The Act also removed restrictions on captive power generation and simplified the

procedures. Open access was allowed immediately in transmission, which gave right to

private power producers or any other generating utility to sell its power to any entity

using transmission network (without any discrimination). Due to these changes,

industries could set up captive power generation units and the right to open access

allowed them to sell electricity to any consumer using the transmission network. Captive

units could thus sell their surplus power to the customers of their choice.

1.14 Transmission:

The Electricity Act 2003 introduced a non-discriminatory open access in the transmission

segment, which enabled the generators to sell power to any customer and gave the buyer

the option to choose the generator using the transmission network. The transmission

utility was not allowed to refuse use of its transmission network except in instances of

capacity limitation. At the national level, Power Grid could provide open access and at


the state level, the state transmission utilities could provide open access. The open access

customers are categorized as short-term customers (up to one year) and long-term

customers (for 5 years). The opening up of the transmission network is likely to induce

competition among generators as well as buyers.

1.15 Distribution:

The distribution segment was not given more consideration in the earlier regulations,

which lay more emphasis on the power generation segment instead. It was considered

that by increasing power generation, the demand for power could be met to some extent,

but the industry suffered huge losses (T&D and financial) on the distribution side. SEBs

involved in power distribution segment were in bad financial shape which made it

difficult for them to pay the generator for the electricity supply. As per report of Power

Finance Corporation on performance of Power Utilities (GOI, 2013), India is having

Transmission & Distribution losses (T & D) of three times than the world average. Figure

1.3 shows the T & D losses of India vs other countries (CEA, 2012).


Figure 1.3 T & D loss – world scenario

25.39%

16.44%

13.47%

7.65%

7.37%

6.68%

5.58%

9.17%

0% 5% 10% 15% 20% 25% 30%

India

Brazil

Russia

UK

Australia

USA

China

World Avg

*Source: CEA Report - Growth of Electricity sector in India from 1947-

2012

The risk of defaults from the SEBs worried generators and hindered new players from

entering the industry. The Electricity Act 2003 came up with measures that could

improve the performance of the distribution sector on almost all fronts.

The concept of distribution franchisees was introduced under the Electricity Act 2003,

under which a distribution licensee could distribute electricity through another player

within the distribution area. The Bhiwandi circle (near Mumbai) reported the first

instance of distribution franchise that was granted to Torrent Power by Mahavitaran

(distribution license in Maharashtra).

The anti-theft provisions under the Act lowered the commercial losses of some utilities as

electricity losses arising from theft were decreased. But average losses were still higher


than the world average (Fig. 1.4). As per Power Finance Corporation report, the losses of

different states for the year 2010-11 is given below showing thereby the range of losses

from 15.725 to 72.86 % (CEA, 2012).

Figure 1.4 AT & C loss % - indian states

72.86%

61.45%

47.44%

40.29%

37.28%

28.48%

28.02%

27.40%

23.30%

19.90%

17.50%

17.47%

16.89%

15.76%

15.72%

26.15%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Jammu & Kashmir

Arunachal Pradesh

Bihar

Uttar Pradesh

Madhya Pradesh

Uttarakhand

Haryana

West Bengal

Maharashtra

Tamilnadu

Andhra Pradesh

Punjab

Gujarat

Delhi

Himachal Pradesh

All India

Sta

te

*Source: PFC Report - Performance of State Power Utilities for

FY2008-09 to FY2010-11


There is a loss of Rs 0.77 per KWH due to difference between average cost of supply

and revenue realised as shown in figure 1.5 (CEA, 2012). Against the cost of supply of

Rs 3.54, the revenue realised is Rs 2.68.

Figure 1.5 Cost of supply vs revenue realised

2.542.60

2.76

2.93

3.41

3.54

2.09 2.212.27

2.39

2.622.68

2.00

2.20

2.40

2.60

2.80

3.00

3.20

3.40

3.60

3.80

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Rs/k

Wh

Year

Average Cost of Supply(Rs/kWh)

Average Revenue Realised(Rs/kWh)

*Source: CEA


In the distribution segment, open access was introduced, which opened up a new era of

choice for consumers to choose their supplier. Many SERCs like Jharkhand, Madhya

Pradesh, and Punjab have issued guidelines for open access and allowed it up to 1 MW

capacity and above.

In order to overcome the problem of the very low level of investment in distribution

sector resulting into ageing assets, National Electricity Fund (Interest Subsidy Scheme)

was set up on 5th

July 2012 to provide interest subsidy aggregating to Rs 8,466 Crores for

a period of 14 years on loans disbursed to the Distribution Companies (DISCOMS) –

both in public and private sector for improving the distribution network. Rural

Electrification Corporation (REC), is the Nodal Agency for implementing the same with

following features:

The amount of interest subsidy is linked to the progress achieved in reforms linked

parameters which are operationalisation of State Electricity Regulatory Commission

(SERC), formulation of business plan for turnaround of utilities in a time bound manner,

reorganization of State Electricity Boards (SEB), release of subsidy, submission of

audited annual accounts and timely filing of tariff petition.

Each power utility eligible for subsidy on interest would be assigned marks based on

reforms measures i.e. reduction in AT&C losses; reduction in gap (Average Cost of

Supply (ACS) - Average revenue on subsidy received basis); return on equity and

multiyear tariff (MYT).

Based on the consolidated score achieved on these parameters, the utilities would be

categorized and eligible for interest subsidy ranging from 3% to 5% in states other than

special category and focused states and 5% to 7% in special category and focused states.

1.16 ENERGY CONSERVATION ACT 2001:

The Act was formed by Indian government to facilitate stringent steps to ensure the

efficient use of energy and its conservation. Even the Bureau of Energy Efficiency has

been set up to monitor and regulate the Power Industry according to the provisions of the

act.


1.17 FDI POLICY AND PROMOTION:

Foreign Direct Investment (FDI) up to 100% is permitted under the automatic route for

Generation and Transmission of electric energy produced in hydro electric, coal/lignite-

based thermal, oil & gas based thermal power plants, non-conventional energy generation

and distribution. The power sector received FDI worth USD 6,545 million between April

2000 and July 2011, which was 5% of the total FDI inflows achieved, according to the

Department of Industrial Policy and Promotion, which formulates the country‟s FDI

policy and is part of the Ministry of Commerce and Industry. An income tax holiday for

10 years in the first 15 years of operation and waiver of capital goods‟ import duties on

mega power projects above 1,000 MW generation capacity, is provided as incentive for

investing in the sector.

Power procurement is permitted through a transparent bidding process. There is no

customs duty on the import of capital goods for mega power projects. The state electricity

boards (SEBs) generate, transmit and distribute electricity in coordination with

private/Centrally-owned generating companies or other relevant agencies.

Under the Power Sector‟s investment policy, 49 % FDI & FII is permissible for Power

Exchanges (GOI, 2013). FDI investment will be subject to the government approval.

Other conditions:

(i) Such foreign investment would be subject to an FDI limit of 26% and an FII limit of 23%

of the paid-up capital.

(ii) FII investments would be permitted under the automatic route and FDI would be

permitted under the government approval route.

(iii) FII purchases shall be restricted to secondary market only.

(iv) Non-resident investor/entity, including persons acting in concert, will not bold more than

5% of the equity in these companies.


(v) The foreign investment would be in compliance with SEBI Regulations, other applicable

laws/regulations; security and other conditions.

As per World Bank report the financing requirement for the power sector globally for the

period 1990-2020 is of US $ 2300 in case of high investment demand scenario and US $

1900 in case of low investment demand scenario (figure 1.6) (IEA, 2004).

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

$2,300 Bn

$1,900 Bn

High Investment Demand

Scenario (3%)

Low Investment

Demand Scenario (2%)

Historic Future

Private Capital Mobilized in Power Sector

Gap covered by public financing,

self -financing, donor funding,

and rationing.

Tota

l P

ow

er I

nvestm

en

t ($

Bil

lion

)

Cumulative

Sum ($Bn)

Source: : World Bank, IEA, Deloitte Touche

Tohmatsu Emerging Markets Group

Financing required for the Power Sector in Emerging Markets 1990 - 2020

Figure 1.6 Global investment requirements - a large Growing Gap between demand and supply


1.18 STRUCTURE OF INDIAN POWER SECTOR:

The institutional structure of the Indian Power Sector Figure 1.7 (iea, 2012) shows the

various institutions for policy formulation, regulatory affairs, generation, transmission and

distribution of electricity.

Figure 1.7 Structural framework of Indian Power Sector


Electricity is a concurrent subject at Entry 38 in List III of the seventh Schedule of the

Constitution of India. The Ministry of Power is primarily responsible for the development of

electrical energy in the country. The Ministry is concerned with perspective planning, policy

formulation, processing of projects for investment decision, monitoring of the

implementation of power projects, training and manpower development (GOI, 2002). It is

also responsible for administration and enactment of legislation in regard to thermal, hydro

power generation, transmission and distribution. The Ministry of Power is responsible for

the Administration of the Electricity Act 2003 and to undertake such amendments to Acts as

may be necessary from time to time, in conformity with the Government's policy objectives.

Electricity Act 2003 has brought sweeping changes in terms of governance of the power

sector in India. Electricity Act 2003 provides an enabling framework for accelerated and

more efficient development of the power sector but the same needs to be implemented in

letter and spirit. (GOI, 2004). CEA is responsible for National Electricity plan, monitoring

of projects, maintaining data and statistics, demand forecast, advising MoP on various issues

of Power Sector, etc.

Northern regional Load Despatch Centre (NRLDC), Regional Load Despatch Center

(RLDC) and State Load Despatch Centers (SLDC) are responsible for operation of power

system, monitoring of system parameters and system security. Central Electricity Regulatory

Commission (CERC) and State Regulatory Commissions (SERCs) have been set up to

implement the various regulations and fixing of tariff on annual basis. Central Transmission

Utility (CTU) i.e. Power Grid Corporation of India and State Transmission Utilities function

is to facilitate transfer of Power intra state and within the state respectively. Power

Exchanges have been set up to facilitate trading in electricity. Appellate tribunals have also

been set up to resolve the disputes among generators, discoms, regulatory authorities and

consumers CEA is responsible for National Electricity plan, monitoring of projects,

maintaining data and statistics, demand forecast, advising MoP on various issues of Power

Sector, etc.

1.19 PER CAPITA CONSUMPTION OF ELECTRICITY

Per Capita consumption of electricity indicates the prosperity of the people. In this

regard figure 1.8 shows the state wise per capita consumption of electricity (GOI, 2014).This


figure shows the least per capita consumption for the state of Bihar followed by Manipur,

Assam, Tripura and Uttar Pardesh.

Figure 1.8 Per Capita Consumption (kWh) across states / U.T. for 2011-12


Figure 1.9 shows that the highest per capita consumption is in Western Region. It is 36 % higher

that the All India average. (GOI, 2014)

Figure 1.9 Per Capita Consumption of Electricity (kWh) across Regions for 2011-12

1.20 OVERVIEW OF THE THESIS:

The thesis titled “Identifying the Role of Policies and Regulatory Framework for Private

Investment in Indian Thermal Power Sector” concerns with the identification of the enabling

factors for attracting private investment in the development of the thermal power generation

capacity so as to mitigate the shortage of electricity in the country. As per 12th Five Year

Plan documents prepared by the Planning Commission, an amount of Rs.

15,01,666 crore (at current price level) has been projected for Electricity Generation from

conventional sources. In view of this, there is a need to attract private investors by

implementing the spirit of the Electricity Act 2003. There are provisions in the Act for open

access, power trading, multiyear tariff, stringent anti theft measures, etc. but the same could

not be implemented effectively. All this is adversely affecting the investor confidence. This


requires plugging of the policy and regulatory gaps.

As per National Electricity Plan, role of private participation in generation, transmission

and distribution would become increasingly critical in view of the rapidly growing

investment needs of the sector. The Central Government and the State Governments need

to develop workable and successful models for public private partnership. This would also

enable leveraging private investment with the public sector finances. Mechanisms for

continuous dialogue with industry for streamlining procedures for encouraging private

participation in power sector need to be put in place. A study of the five years plans (Table

1.2) starting from the first to eleven shows that there has been repeated failures of the

targets achieved due to various factors including non availability of funds. The existing

regulations are derivative of what is being practiced in the developed countries whereas

our challenges are different due to socio economic factors. Therefore, there is a need to

fine tune these regulations from time to time based upon experiences and learning. The

changing aspirations of public as well as industry needs to be taken into consideration

while designing policies and regulations with focus on results achieved in a time bound

manner.

In view of above, this research is need of the hour so as to remove policy and regulatory

bottlenecks for the accelerated growth of thermal power generating capacity.

chapter i introduction - shodhgangashodhganga.inflibnet.ac.in/bitstream/10603/29454/11/11_chapter...

Documents