Girish Sant

Vulnerability of Power Sector from Financial Globalisation: 

Vulnerability of Power Sector from Financial Globalisation Girish Sant Prayas – Energy Group, Pune

Power Sector in India: 

Power Sector in India Installed capacity ~ 110,000 MW (4 to 6% growth) Power sector turnover ~ $35 Billion p.a. ~ 50% houses without electricity (need very small quantity of power) Generation ownership ~ 20% private, 25% Central and by rest state government Distribution largely controlled by States

Major Stages in Electricity Sector: 

Major Stages in Electricity Sector

International influences: 

International influences Early period – import of equipment and finance (WB, Bilateral funding) IPPs (1992–2002) Un-bundling, Regulatory Commissions, Privatisation (1996+) Competition /market model (2003+)

The IPP Era: 

The IPP Era Major fall in US capacity addition IPP concept emerged in most developing countries State / utility finances under stress  bypassed by financing project on future cash flows + govt guarantees Preferential treatment to MNCs Demand over projection No competitive bidding One sided, high-cost contracts Allegations of huge pay-offs Influence of Export Credit Agencies (G8), MDBs, andamp; Governments International arbitration

Slide6: 

High Cost of IPP Projects

Slide7: 

Contribution of IPPs in India (1991-2001) v/s Efficiency Improvement of Existing Plants Contribution to Incremental Generation in FY 02 0 10000 20000 30000 40000 50000 60000 State /Central - Incremental Generation- better performance Licensees andamp; IPPs (Total Generation) Only IPPs (Total) MU Time wasted, basic issues ignored (worsening finances of sector), large compensation paid by many countries, Several Scams!

Examples of IPPs: 

Examples of IPPs Dabhol (Enron) Maharashtra 2200 MW Maheshwar (MP) 400 MW Spectrum (Rolls-Royce), GVK, Lanco, + several others (AP)  improved distribution recoveries to pay IPPs Bujagali (AES) 200 MW Uganda (role of IFC, WB Inspection Panel, corruption  project cost now reduced by 30%) Pakistan, Indonesia, Thailand … Large share of projects have continued…

Un-bundling, privatisation, independent regulation (WB model): 

Un-bundling, privatisation, independent regulation (WB model) IPP process was unsustainable without improved recoveries from distribution. Section in WB was opposed to IPPs – promoted sector restructuring Orissa model – attempted in some countries In 1998, India adopted Regulatory commissions at the national level (in an attempt to reduce interference of minister in tariff setting and investments)

Rapid Replication of WB model - Un-bundling, Privatisation, and Independent Regulation: 

Rapid Replication of WB model - Un-bundling, Privatisation, and Independent Regulation WB states Uttar Pradesh (UP) Haryana Andhra Pradesh (AP) Rajasthan Karnataka ADB states Gujarat Madhya Pradesh (MP) Kerala Major Features: Govt Ownership  Private Ownership Budgetary Support  Private Capital Self-reliance  Globalization Cross-subsidy  Cost-based Pricing

Experience of distribution privatization: 

Experience of distribution privatization No clear verdict that it is superior, difficult to implement in India Major changes – e.g. Capital investments proposed by a Mumbai utility, tariff increase for poor

Impacts and continued problems: 

Impacts and continued problems

Hidden T&D losses: 

Maharashtra Utility: Estimated Theft of Euro 500 Mn p.a. Hidden Tandamp;D losses

Large Increase in Government Subsidy: 

Large Increase in Government Subsidy Grown to a quarter of expenses on All social services (that includes Revenue andamp; Capital expenses on Education, Medical, Water-supply / sanitation, Housing, Urban development, Labor welfare, Social security, etc.)

Slide15: 

Competition in Power (Bulk / Retail) California adopted market solution even for Transmission pricing

California story of manipulation: 

California story of manipulation Industry unwilling to share high cost Nuke (stranded costs) in face of low cost gas Competition based on power-pool was setup Consultant called 'Perot Systems' implemented power Pool. 'Perot Systems' also gave blue-print to rig the system through back-door consultancy to Reliant and others! These generation companies rigged the pool using 'Perot Systems consultants' (Death Star, Get Shorty, Fat Boy, etc.)

Slide17: 

California – Gas, electricity prices were rigged generating large rents. Public money was extensively used for bail over and above corporate bankruptcies Power revenues went from $ 2 to 9 Billion - 62% of the increase was due to monopoly power [Severin Borenstein 2000] Government closed down pool, entered in high cost long-term PPAs. Moving back to regulated model

Problems with power markets: 

Problems with power markets Scales of manipulation go up dramatically, Needs larger regulatory capacity, Difficult to implement in several countries Continuous intervention required Indian Situation Partial competition aimed at forcing tariff rationalisation, lowering cost of generation, and capacity addition Several problems in implementation, opposition by state

Desired Direction in India: 

Desired Direction in India Need for experiments of restructuring public sector – in collaboration with unions and other actors Hold back fundamental changes in the sector Increase democratic control on policy, operation of utility  accountability at different levels Increase regulatory capacity Franchisee model needs to be moderated

Slide20: 

Girish Sant Prayas, Energy Group (Pune) www.prayaspune.org