Speech of Mr. Sushil Kumar Shinde, Hon'ble Minister of Power at the luncheon Meeting organised by US India Business Council (USIBC)
April 25, 2006
Indo-US relations are at its best at present. Both countries have moved far ahead under the leadership of President Bush and Prime Minister Manmohan Singh. Today, I would like to appraise you about the progress made by my country in the power sector and challenges and opportunities lies in the Indian Power Sector.
The Indian economy has remained at the take off stage for long. However, we have renewed faith on our economic strength now and all the growth parameters point out, conclusively that our economy has taken a giant leap forward towards ‘drive to maturity’. We are trying hard so that the economy’s march on an accelerated path is not hindered by infrastructural constraints, especially from the power sector. Keeping this in mind the Indian Government has accorded due priority to the development of infrastructure including power sector in the country.
Capacity addition in Generation, Distribution Reforms and Rural Electrification are topmost priorities of the Government of India. The Indian Government has planned for an addition of 1,00,000 MW generation capacity by 2012 with the objective of “Power for All by 2012”.
The challenge at hand requires creation of large generation capacities in the country. In short span of time, we have to move from current pace of capacity addition of about 6 to 7000 MW a year to over 12000 MW per annum to realise the targets being set for the 11th Plan starting nest year. This is no doubt a daunting task but we are committed to achieve it. Keeping this larger canvass in mind, recently Ministry of Power has launched a unique initiative to facilitate the development of very large sized Ultra Mega Power Projects at coal pitheads and coastal locations. This initiative aims at redefining the role of private sector participation in the generation segment. These projects are aimed at using economies of scale to deliver comparably cheaper power to the system. Efforts are being made to coordinate with various agencies at Government of India level, at the level of States, with financial institutions and industrial leaders to see that smooth development of these projects takes place in a stipulated time frame.
In order to enhance investors’ confidence and to reduce risk perception, it was deemed necessary to provide certainty on various inputs. Fuel, water availability environment and forest clearance need to be tied up. To address these concerns of developers effectively, five Shell Companies, one for each project have been formed.
Bringing the availability of energy up to the global average will require huge additions to the energy infrastructure in India. To attract foreign participation and investment in the energy sector, the Indian Government has taken various policy initiatives towards reforms, minimise the requirement of government sanctions in all the segments of power sector be it generation, transmission or distribution.
The new Electricity Act notified in the year 2003 provides that Regulatory Commissions shall adopt the tariff if it is determined through transparent process of bidding in accordance with the guidelines issued by the Central Government. This aims at moving away from cost and norm based approach for tariff determination to competitive guiding tariff fixation. We must recognize the fact that competition will bring significant benefits to consumers. National Electricity Policy, notified in the year 2005, stipulates that all efforts would need to be made to bring the power industry at a stage in which competition will determine the price rather than any cost plus exercise.
The Electricity Tariff Policy notified in January 2006, stipulates that future requirement of power needs to be procured competitively by distribution licensee except in cases of expansion of existing projects or where there is a State controlled/owned company identified as developer. Even Public Sector Undertakings will have to bid for projects for determination of tariff after this transition period of five years.
In a bid to make the power sector more convenient to the private investors, the Ministry has constituted an Inter Institutional Group to facilitate financial closure of private sector projects. This group has provided a forum for interaction amongst promoters of power projects, banks, financial institutions and the Ministry of Power. Financial closure of 13 power projects with an aggregate installed capacity of about 5000 MW has been facilitated by this group. In addition, the group is presently facilitating financial closure of another 10 projects with a total installed capacity of 11,432 MW.
The Ministry has also been successful in reviving the Dabhol Power Project, which was shut down from June 2001 following disputes between Dabhol Power Company and the state. A joint venture company by the name of Ratnagiri Gas and Power Private Ltd, with the shareholding of National Thermal Power Corporation, Gas Authority of India Ltd, Indian Financial Institutions and the state has been constituted to restart the power plant and complete the construction of phase-II and the associated LNG terminal. The project is expected to start the generation of power by middle of 2006.
Similar to the initiatives taken by the Government for developing countrywide network for vital infrastructure, like telecom and highways, Government is focusing on creation of a National Power Grid as well, in a phased manner towards fulfilment of its mission of providing “Power to All by 2012”. Such an integrated grid shall ultimately enhance inter-regional power transfer capacity to about 37,000 MW at an estimated investment of USD 16,000 million in the Central Sector. Inter-regional power capacity of 9500 MW has already been achieved.
For boosting the reforms in the power sector, Ministry launched a national level programme called the Accelerated Power Development and Reform Programme (APDRP) in 2001. The programme, among a host of performance linked objectives, aims at reducing aggregate technical and commercial loss, improve quality & reliability of supply, improve commercial viability and consumer satisfaction. The Utilities including State Governments are incentivised to reduce their cash losses.
As a commitment to provide power to the villages for social and economic growth of the rural India, Government launched Rajiv Gandhi Grameen Vidyutikaran Yojana in April 2005 with the objective of completing household electrification in the next five years. Under the scheme Government of India will provide 90% of the capital cost as grant for creating Rural Electricity Distribution backbone, village electrification infrastructure with at least one distribution transformer in each village and decentralised distribution generation system where grid supply is not feasible or cost effective. A free of cost connection will be provided to all rural households living below poverty line.
It gives me great pleasure to inform you that the steps taken by the Ministry of Power and the States have started yielding results. The evidence of this can be seen by the fact that the revenue deficit has already started reducing in many states. Power utilities in almost all the major states have shown reduction in aggregate technical and commercial losses with varying degree of success.
We are not only focussed on need to improve in generation, transmission and distribution, we also are equally concerned that energy conservation and energy efficiency is as much part of our strategy to make Indian Power Sector vibrant. At the outset, buildings sector having high potential of energy savings up to forty six percent has been targeted.
There is a perception that investors - especially foreign investors are shy of Indian power sector post Enron. I am happy to inform that the response of private investors towards Ultra Mega Projects has been overwhelming. Expression of Interests (EOIs) from more than 30 national and international companies has been received for Sasan and Mundara Ultra Mega Power Projects. It includes EOIs from Korea Electric Corporation, Mitsui Corporation, Tronoh-Alco Combine, Duncan Macneil, Sumitomo Corporation, Khanjee Holding to name a few.
Indo-U.S. cooperation in the field of energy has been crystallizing over the years in government, academia and industry. Some collaboration in the coal, gas and electricity sectors now exist and a number of American enterprises are operating in India but the magnitude is small relative to the total potential that can be exploited.
Immense Indo-U.S. energy cooperation possibilities exist in the area of energy efficiency, nuclear energy, the application of biotechnology in biomass gasification, geophysical exploration, renewables, and other clean energy technologies. The United States can also play a role in regional energy cooperation and ensuring energy security by promoting greater cooperation and integration of regional energy markets in electricity and natural gas, as well as the unhindered cross-border trading of cleaner fuels and energy resources among South Asian countries.
An Indo-US Working Group on Power and Energy Efficiency has been formed with the goals to advance understanding of efficient and reliable generation, transmission and distribution of electricity and promote the exchange of information on regulatory policies. It will undertake programmes and technologies with special emphasis on the “last mile” distribution and clean coal preparation and modern coal conversion systems in the power generation. This group will promote the deployment of energy conservation practices that will improve the efficiency of energy use. It will also examine and implement steps to enhance trade and investment in the power sector and work with the private sector to identify areas of cooperation and collaborate with the business community on joint activities.
Presently, various programmes are running in Indian Power Sector with the cooperation of the United State agencies. Some of them are Distribution Reforms, Upgrades and Management (DRUM) project; Green Business Center (GBC) Programme; Greenhouse Gas Pollution Prevention (GEP); Energy Conservation and Commercialization (ECO) Project; Development Credit Authority (DCA) Programme etc.
I am happy to inform that we signed an MOU today with International Finance Corporation and NRECA International with the objective of devising and to implement sustainable & replicable business model for non-urban electrification through utilizing proven international experiences, incorporate local communities and to adopt technical approaches to render systems safer, durable and theft-resistant. This joint effort is expected to go a long way in establishing sustainable alternate solutions for power supply in rural India. The establishment of rural cooperatives and franchisees is being encouraged in India to take up utility services in rural areas.
With a view to create awareness at a global level about the immense opportunities for investment in the power sector and to show case our achievements and commitment of the Government towards reforms and a viable power sector, the Ministry of Power, in association with FICCI, is organizing “India Electricity-2006”from 11th May to 13th May 2006 at New Delhi. This exhibition cum conference would, not only, allow the stakeholders to evaluate the emerging investment areas and potential in the power sector, but also, facilitate their efforts in investment. Here our endeavour will be to bring Government, Central and State Utilities, private sector players, financial institutions, equipment manufacturers on a single platform for mutual understanding and benefits. New and emerging technological breakthroughs will also be showcased in the exhibition and a road-map for effective development will be prepared. I invite you all to participate in the event to have first hand information on the achievements of the country in the Indian power sector and opportunities that awaits you for your participation.