1. Overview of Indian power sector Prayas - EGI Skill-share workshop for Tajikistan and Kyrgyzstan Delegates November 16-18, 2010, Pune, India Prayas Energy Group www.prayaspune.org/peg, energy@prayaspune.org www.prayaspune.org/pegenergy@prayaspune.org

2. Prayas - EGI Workshop, Nov. 2010, Pune 2 Overview Current Indian structure Generation 120 GW 120 million Consumers >35% Transit loss Financial loss 1 % GDP Consumption Industry - 35% Houses - 26% Farms - 25%

3. Prayas - EGI Workshop, Nov. 2010, Pune 3 Distribution of Household by use (kWh/month) 25–30% of 200 million houses in India pay electricity bill > US$ 3- 4 / month! Numbers are indicative Overview

4. Prayas - EGI Workshop, Nov. 2010, Pune 4 Stage 1 & 2: Initial Growth & Federal Action 1975-90 Increased rural access (green revolution) & Federal intervention in generation  Skewed tariff 1950–75 Major growth, State govt lead and ownership Key points: (1) Govt ownership gave great boost initially – large social benefits & mixed experience of efficiency, (2) Federal government intervention in generation – taking part in state mandate – but ignored the key ground realities

5. Prayas - EGI Workshop, Nov. 2010, Pune 5 Initial Growth & Federal Action Fast growth of grid and farm connections (un- metered, subsidized) – lack of accountability Sales not able to pay for increased generation – skewed tariff Federal generation – attempted solution Agricultural (IPS) tariff and consumption in Maharashtra

6. Prayas - EGI Workshop, Nov. 2010, Pune 6 Neglect of negative impact of subsidy Non-irrigated farmers (80%) did not get subsidy, and top 2% captured 20% power subsidy (fig shows subsidy distribution among the land-owners in Maharashtra)

7. Prayas - EGI Workshop, Nov. 2010, Pune 7 Focus on Centralized generation – resulting in vicious cycle

8. Prayas - EGI Workshop, Nov. 2010, Pune 8 Stage 3: Solution to capital crisis - IPP & Regulation 1975-90 Increased rural access (green revolution) & Federal intervention in generation Skewed tariff 1950–75 Major growth, State govt lead and ownership 1991-98 IPP Era Financial crisis  controversi al IPPs High cost gen, high T&D losses Foreign capital (IPP) invited at extremely attractive returns (Enron, GE etc.) – simultaneous process in all over Asia and parts of Africa, Latin America Neglect of core inefficiencies continued (skewed tariffs, distribution losses, bad contracting etc.) Top management time lost in IPP negotiations

9. Prayas - EGI Workshop, Nov. 2010, Pune 9 IPP push – A Massive Policy Failure IPPs – MoU for 90 GW  ~7 GW realized (in a decade) Close door contracts, high ForEx dependence (fuel, debt and equity) Power planning norms totally ignored Improvement in performance of existing power plants added three times more generation than IPPs – while top management remained locked with IPP issues

10. Prayas - EGI Workshop, Nov. 2010, Pune 10 High Cost IPP Projects – e.g. Enron Comparison of CCGT Plants Around the World 0 200 400 600 800 1000 1200 1400 -5001,0001,5002,0002,5003,0003,5004,000 Capacity MW Cost per kW ($/kW) LNGNG 1NG 2 Enron Dabhol 600-800 3 $/kW Plants 370-600 18 800-1000 4 > 1000 3

11. Prayas - EGI Workshop, Nov. 2010, Pune 11 Problems of the Electricity Sector Social: About half of the houses are yet to be electrified, cost of power increasing rapidly, large problem of rehabilitation of displaced people Environmental: Problems associated with mining, ash disposal, dams, air pollution, and CO 2 emissions Technical & Managerial Performance: Power shortages, bad service quality, etc. Financial Crisis: 35-50% of electricity lost in transit (~half is estimated to be theft), high cost - long term contracts with IPPs, inability to recover costs Planners remained focused on Financial crisis

12. Prayas - EGI Workshop, Nov. 2010, Pune 12 Stage 4: WB Reform Model & Regulation 1975-90 Increased rural access (green revolution) & Federal intervention in generation Skewed tariff 1950–75 Major growth, State govt lead and ownership 1991-98 IPP Era Financial crisis  controversi al IPPs High cost gen, high T&D losses 1996-2002 WB Model Attempt of un-bundling & pvt. in some states Regulatory commission

13. Prayas - EGI Workshop, Nov. 2010, Pune 13 Diagnosis by World Bank Diagnosis Financial crisis rooted in “ political ” interference due to public ownership & monopoly Prescription: ‘ Reforms and Privatization ’ Unbundling, Privatization & Competition, Independent Regulation, Policy Changes

14. Prayas - EGI Workshop, Nov. 2010, Pune 14 Real dynamics Reforms: Directed Towards Privatisation and Competition Subversion of TAP Process (Transparency Accountability Participation) Control by Vested Interests and Undermining of Public Control Irrational Decisions and Operational In- efficiency Financial Crisis

15. Prayas - EGI Workshop, Nov. 2010, Pune 15 Earlier model with direct Government Control Govt. Tariff Investment Management

16. Prayas - EGI Workshop, Nov. 2010, Pune 16 Un-bundling and Corporatization … continuing experiment Public

17. Prayas - EGI Workshop, Nov. 2010, Pune 17 Rapid Replication of WB Orissa Model

18. Prayas - EGI Workshop, Nov. 2010, Pune 18 Partial implementation of WB model Unbundling and corporatisation – but not privatisation Independent Regulation Applied through a National Act Established in most states (with reluctance) Exposed inefficiency of the sector (T&D loss, power purchase etc.) Enforced energy audits, rationalization of tariffs & power purchase

19. Prayas - EGI Workshop, Nov. 2010, Pune 19 Regulatory Commission ’ s Effectiveness Un-metered electricity = T&D losses + Agri sales Difference = $300 Mn

20. Prayas - EGI Workshop, Nov. 2010, Pune 20 Movement of tariff over years: Maharashtra Case

21. Prayas - EGI Workshop, Nov. 2010, Pune 21 Reform: The Paradigm Shift Policy Self Reliance  Globalisation (Technology, Fuel) Electricity, a Development input  a Marketable Commodity, with Cost based/Market based Tariff Utility Structure Integrated  Unbundled, Corporatised, ‘ Independent ’ Regulation Ownership State  Private

22. Prayas - EGI Workshop, Nov. 2010, Pune 22 Stage 5: Mixed model 1975-90 Increased rural access (green revolution) & Federal intervention in generation Skewed tariff 1950–75 Major growth, State govt lead and ownership 1991-98 IPP Era Financial crisis  controversi al IPPs High cost gen, high T&D losses Electricity Act 2003 Bulk competition, Captive gen, subsidy for increased access 1996-2002 WB Model Attempt of un-bundling & pvt. in some states Regulatory commission

23. Prayas - EGI Workshop, Nov. 2010, Pune 23 Electricity Act 2003 Emphasis on competition Generation as well as distribution Allows power exchanges and traders Facilitates privatisation Multiple licenses Franchisee Strengthens regulation