Slow Capacity Addition – Challenges and Way Forward

1. Slow Capacity Addition – Challenges and Way Forward Anil Rawal, Reliance Infrastructure Ltd

2. Contents • Capacity Addition – Generation • Capacity Addition – Transmission • Capacity Additoin - Distribution • Power Dream gone wrong ?? • Way Forward

3. Capacity Addition • Generation • Capacity addition of 54,962 MW in XI Plan, Jump of 51% in one plan Period, Private sector with a share of 42% • Currently at 232 GW • 12th plan targets more than 88000 MW, more than 50% to be contributed by private sector. • Low interest level of investor, lenders and other stakeholders • Issues • Performance of Current Investments • Power shortages coexisting with stranded power assets • Coal based generation capacities rising, PLFs are falling • Growth in peak demand is 27% in last 4 years compared to growth in gen by 55% • Fuel Shortage, domestic coal can not support the targets, import- uncertainties • Inadequate transmission capacity, not matching the generation capacities and load requirements. • long term PPA is a precondition for signing FSA • Regulatory risk of cancellations/de-allocations of the some of the blocks allocated to private sector looming large • Approvals, clearances and Licenses • 44ooo MWs of power plants stuck due to fuel or financial problems (BL 17th Dec ‘12). • More than 15000 MW of plants stuck due to insufficient gas supply • Financial health of Discoms, lenders not enthused Is 88000 MW addition target rightly placed sustainable?

4. Capacity Addition • Transmission • Capacity addition of 53000 CktKms in XI Plan, Jump of 27% in last plan Period, • Currently at 243,000 CktKms • 12th plan targets more than 109000 CktKms line length and 2,70,000 MVA transformation capacity • Layout of about $ 35 Billion, about 45% from private sector • Issues • Private interest dying down, bidders fallen from 20s to 3 or 4. • SBDs not reflecting the changed realities after PoC mechanism - uncertainities • Assets not coming up with desired speed • Despite more than 230 GW installed power, peak demand of 141 Gw, peak deficit exists of about 9%, impacting 0.4% of GDP • In 2012-13, domestic power exchanges failed to execute deals of about worth Rs.1,350 Crores, amounting to 15% of total traded volume of power, due to transmission constraints. (Financial Express) • Under long term PPAs, lost 1.93 billion units of generation due to transmission capacity bottlenecks (Financial Express) • In resource rich states like Chattisgarh, Jindal and Sterlite plants could not despatch about 3000 MW (ET) • Transmission Constraint because of a Pocket of High Demand – SR, N2, N3 • Transmission Constraint because of a Pocket of High Generation – W3, NER Transmission is the real bottleneck?

5. Capacity Addition • Distribution • Per Capita consumption has risen steadly over last many years. • Despite problem in sector, rise in per capita is sustained in recent past due to subsidies • An addition of 1.73 million circuit km of new lines at 33 kV, 11 kV and low voltage levels targeted in 12th plan. • Issues • Inner ring is not sustainable, ISTS capacities unutilized due to lack of downstream evacuation • Thumb rule - for every rupee invested in power generation, a rupee should be invested in the Transmission and Distribution (T&D) sector. • Paying capacities and financial health vulnerable – politics vs economics • Funding by lenders not forthcoming • 4 states have responded well to FRP, but many not coming forth due to terms of conditions which enforce discipline • AT & C losses still in range of 26% • More than 20% payments delayed more than 90 days • Power cuts and backup gensets galore, 40,000 MW of such backup sets exist across India, eating into diesel subsidy of more than 5000 Crs - Ethiopia Devil is in Distribution?

6. Power Dream Gone Wrong!! Lack of Holistic Thinking Trust Deficit and Scepticism • Different cylinders firing non-synchronous • Reforms in Generation , Transmission and Distribution • Approach of Center and State • Different segments of government not working coherently • Clearances and approvals by ministries • Slow Decision making process No level playing field Private versus Public sector Approach and Attitude Skewed Risk Sharing and Flawed Documents Over-enthusiasm by players and turn of events Operational, technological and Construction risk to borne by Private party Legal, regulatory and demand risk to be borne by government Documents being corrected

7. Way Forward • Address the complete power supply chain, Competition and opening up left to generation only leaving out the other parts of supply chain. • Regulatory and Statutory framework • Bring in the Coal Regulator to reign in the monopoly and introduce reforms • Effective implementation of open access in transmission • multiple charges • non-transparency regarding Available Transmission Capacity (ATC) • Mis- use of Sec 11 orders by States • Procedural complications • State level operations regulator to be made independent in line with POSOCO to make open access meaningful • State Utilities in problem due to poor managerial and operational practices compounded by irrational tariffs fixed by regulators, regulator to be independent. • Amendments in Electricity Act – address the changing needs • Clearances & redressal mechanism • Delay in approvals / clearances as a ground for force majeure & relief • Grant of an authorization under section 164 • Central Projects Status to all ISTS and ISGS for Forest Clearance • Redressal mechanism for unforeseen events • Key clearances & authorizations to be in place before financial bid • Level Playing Field between private developers and state owned entities • Award of clearances like forest and environmental clearances • Preferential Access to Confidential Information and ability to influence bidding decisions • Unfair Commercial Advantages for PSUs • All projects through competitive bidding

8. Way Forward • Competitive bidding framework • Amend SBDs to reflect the leanings – Transmission an example • Benchmarking costs and tariffs while accepting bids • Distribution Franchise model is emerging as a preferred model for PPP • Generation - Manage Current Capacities- • Thousands of MWs of generation, More than 100 transmission projects stuck -- Restore confidence • Work on congestion management and implementation of OA in letter and spirit • Manage the counter-party credit risks pertaining to state-owned distribution utilities continue to remain significantly high • Need restructuring of loans for power sector projects • Simplified exit norms to allow for asset churning • Transmission • National Power beltway for transmission to enable nation wide plug and play of evacuation system • Integrating the states with the National Transmission System • Distribution • Bring maximum states to financial discipline • Build regulatory capacity • Open Access in Distribution for 1 MW and above to be implemented • Separate Carriage and Content • Regulator be guided by Cost and less by political considerations on tariff increase and loss reduction targets. • Monitoring of FRP conditions to be tightened

9. Every body has to see the problem to resolve it

10. References and Acknowledgements • Subgroup on Power Transmission - APP • India Infrastructure Outlook 2011 by Fitch Ratings • Power T&D Sector–The catch up game begins… CARE Ratings • Power Transmission – the real bottleneck – FICCI • The future of power analytics – presentation by IEE • Executive Summary for the Month of November 2013 by CEA • ICRA report on Power Sector – Sep 2012 • Ensuring electricity to All - Report by MS. BHAWNA GULATI, RESEARCH ASSOCIATE, JINDAL GLOBAL LAW SCHOOL Certainly ! Thanks a lot anil.rawal@relianceada.com