1. India

2. Agenda Introduction Industry Structure and Regulations In Power Other Initiatives in Power Industry Natural Gas Markets Privatization Initiatives and Results

3. Electricity Development of the electricity sector has mainly been the responsibility of the government Private enterprises make up a small portion of the electricity sector in the form of licensees  BSES - Bombay Suburban Electricity Supply Company  TEC – Tata Electricity Company  CESC – Calcutta Electricity Supply Company  AEC – Ahmedabad Electricity Company

4. Electricity State electricity boards run the power distribution infrastructure & own the majority of the generating capacity SEB’s are insolvent & are in poor financial shape SEB’s face subsidized rates that do not cover costs Other problems include high transmission & distribution losses & widespread power theft

5. Electricity Drive to increase India’s generating capacity & push towards economic liberalization Interest towards foreign investment in setting up Independent Power Producers (IPP’s) in India Large IPP projects stalled by delays in regulatory approvals & failure to secure adequate financing SEB’s would be the main purchasers of power from IPP projects Critical for SEB’s to resolve financial problems to attract capital to ensure adequate supply of electricity for India

6. Natural Gas Natural gas pricing set by the Indian government Attempts towards deregulation delayed several times Natural gas from private suppliers have higher prices than state suppliers Shortage of natural gas & consumer willingness to pay more will lead to higher prices if deregulated

7. Industry Structure Power Generation  Largely owned and operated by central and state governments  Captive private power plants allowed  Central Electricity Authority appraises new project proposals Transmission  Wholly owned and managed by govt. entities (REBs & SEBs)  Interconnection of regional grids by Power Grid Corporation  Limited trading between regional grids Distribution  Carried out by State Electricity Boards (SEBs)  Limited private participation in distribution (BSES, CESC, AEC)

8. Regulation Pre-reform period (before 1991)  State governments sole price regulators  Vertically integrated utilities: State Electricity Boards (SEBs)  Subsidized & free power, cross-subsidies Power sector reforms (1991-96)  Invite private participation in generation: Fast-track projects  Failure of fast-track projects: low participation from private investors Legislations in power sector (1998 onwards)  Electricity Regulatory Commissions Act, 1998  Electricity Act, 2003

9. Regulation… Power sector reforms (1991-1996)  Independent Power Producers (IPPs)  Build-operate-transfer contracts (BOT)  Fixed return on investment  Power Purchase Agreements with SEBs  Sovereign guarantees  Enron operated Dabhol Power Corporation failure Electricity Regulatory Commissions Act, 1998  Setup of Central Electricity Regulatory Commission (CERC)  Facilitate State Electricity Regulatory Commissions (SERCs)

10. Regulation… Electricity Act, 2003  De-licensing of power generation  Unbundling of SEBs: Separate generation, transmission and distribution  Facilitate privatization of unbundled SEBs  Open access for bulk consumers in specified timeframe  Gradual reduction of cross-subsidies  ERCs to regulate prices  Tariff revision requests to ERCs  Setup Apellate Tribunals for disputes with ERCs

11. Other Initiatives in Distribution Distribution Reforms, Upgrades, and Management (DRUM) Collaboration with The United States Agency for International Development (USAID) and the Ministry of Power (MoP) Focus area  Improve quality of electricity services  Focus on rural electrification

12. Other Initiatives… Improve Power Distribution Better Availability and Quality of Electricity Enhanced Commercial Orientation and Drive Improved Consensus on Distribution Reform Process Enhanced Viability of the Sector Strengthened Distribution Reform Initiatives of the Ministry of Power (MoP) Efficient Utilization of APDRP Funds Innovative Financing Mechanisms

13. Natural Gas Industry Production  90% production done by state-owned company, Oil & Natural Gas Commission (ONGC)  Entire production sold to state owned gas transmission company, Gas Authority of India Limited (GAIL)  Sale price to GAIL determined by Central Government  GAIL responsible for 90% of sales to end-users  End-user prices determined by Central Government Deregulation  Prices for private gas distributors deregulated  Major changes will take more time (5+ years)

14. Privatization 1991 - Independent Power Producer (IPP) projects  Set up to solve the generation capacity storage problem  1994-2000 In North America, IPP average cost was $573/kWh In India, IPP average cost was $875/kWh Global average was $450-600/kWh  2002 – IPPs make up only 3% of national generation Utility Worker http://news.bbc.co.uk

15. Privatization … 1996 – Orissa began privatizing State Electrical Boards (SEBs)  Orissa Reform Act regulatory committee to impose tariffs and regulate the electricity sector 1998 – Electricity Regulatory Commissions Act  Allowed other states to be able to establish similar regulatory committees without separate state act  Led to Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERCs) Currently – Many states have tried but have been unsuccessful  Orissa and Delhi are the only two states to have privatized their electrical distribution markets in 1999 and 2002, respectively

16. 2003- Electricity Act (E-Act)  called for competition in the sector by creating open access in transmission, distribution, and power trading  “unbundling” of all State Utility Boards (SEBs) into separate entities  overruled all other previous acts regarding the power sector and state reform acts http://www.tsptbdam.com/transmission_line.htm Andhra Pradesh SEB Sub-Station Privatization…

17. E-Act Protestors http://news.bbc.co.uk The Electricity Act of 2003 was drafted with the idea that separate utilities would operate more efficiently There have been several critics…

18. Critics of the E-Act Price-Waterhouse-Coopers  “Movers and Shapers 2003 Utilities - Europe and US” “the strength of global utilities in the future will be built upon vertically integrated strategies, rather than the pursuit of multi-utility and [specialized] portfolios.” More simply put, “vertical integration [is] the most sustainable business strategy” Another critic  stated that “vertically integrated utilities…remain better financial performers and are better able to meet customer needs”

19. Failure to Meet Deadlines December 2003 (6 month deadline) – seven states and four territories failed to submit a plan to CERC to reorganize their respective SEB into separate companies June 2004 – the deadline for open access to the SEB’s transmission lines was delayed

20. Need for Improvement In many parts of India, anyone not living in a major city is lucky if they have electricity  A conference in September 2004 stated that “56% of the rural households in [India] do not have an electrical connection” Five states (Orissa, Bihar, Jharkand, West Bengal, and Uttar Pradesh) account for 90% of India’s 72,000 un-electrified villages  An electrical village is one in which at least one household has electricity

21. Indian Electrical Shortages in 1999 http://www.power-technology.com

22. Government’s Role Over the past decade, the government was able to connect about one million households per year Central government has stated plans to provide “connections to all…[remaining unelectrified] households in the next five to eight years.” Funding for improvements is largely possible by the World Bank

23. Lending for India’s Energy and Mining amounted to almost $1.4 billion as of June 2003 http://lnweb18.worldbank.org/SAR/sa.nsf/Countries/India World Bank Lending

24. The Future In the future, electrical connections are expected to be paid for by tariffs collected by each state government Now, the entire market is heavily subsidized and will continue to be until the majority of the population is connected

25. Questions ?