- Despite the best efforts of the government, there is virtually no competition in power sector- Uncertainties of fuel linkages and transmission make it an impossible proposition in India
Competition in the power sector in India was talked about first at a seminar held by the Administrative Staff College of India (ASCI) in 1996. The full day exercise was very illustrative because all it explained was that competition had to be brought in to give comfort to the policy makers/ decision makers and save them from any criticism of playing favorites. The issue was not how to get the cheapest power or even how to get power for a customer at a favorable price or to conduct a study as to its affordability. The issue was to protect the decision maker at any cost! This was done in an era where competition, as a concept in the power sector, did not exist because everything was in state hands. So the Electricity Regulatory Commissions Act 1998 and the Electricity Act2003 were passed, and steps were undertaken to give comfort and attract private investors into the power sector, promising competition and market development .Till date, competition has not happened and the reason is not far to see: the majority of players, like NTPC and NHPC are monopolistic and enjoy that status because of the ease with which they are able to signup contracts; brandish their legacy powers with the states and distribution companies, receive special treatment which insulates them from payment defaults through the tripartite payment formula between them, the state, and the Reserve Bank of India whereby they have access to state subventions in case of defaults .Further, if efforts made to bring in competition in the Electricity sector were examined one would find a half-baked approach where, in the absence of separation of wires from supply, it has given birth to a still-born child – it does not have any owner or pedigree; and the only justification for its existence is its stone-age policy maker unencumbered by any semblance of accountability. These are symptoms of the malaise that exists in the power sector. The effort to bring in competition was stymied from the start. Starry eyed Ultra Mega Power Projects (UMPPs) made their foray into competitive bidding on a single tariff basis. The effort never bore fruit. Why? Because it was a waste of time to try and do competitive bidding by predicting long term fuel prices.
The first effort to bring in competition was stymied from the start. Starry eyed UMPPs made their foray into competitive bidding on a single tariff basis. The effort never bore fruit. Why? Because it was a waste of time to try and do competitive bidding on such projects from the very beginning.
Even the US had failed in trying to get competitively bid projects in the power sector. In the Indian context, competitive bidding becomes more difficult due to the uncertainties of fuel linkages, of transmission, of consumers payment defaults, of the difference between the levelised tariff and the first year tariff that actually has to be paid, etc. The fact that some of the UMPP projects have actually come back to the Central Electricity Regulatory Commission(CERC) with a very clear issue of not being able to comply with the conditions in their competitively bid project, it clearly shows that we are back to Section 62 (cost plus) of the Electricity Act 2003 from section 63(competitive bidding).Whichever way we try to defend it, competitive bidding under Section 63,which had become mandatory from January 2011, has failed to deliver the goods. It is time that the policy makers woke up to this reality at least now.
The story of coal, power, and the bauble
- Those agitating against “free” allocation of coal blocks do not know of the hidden costs involved
- For power firms to sign long-term PPAs through competitive bidding is well neigh impossible
Examining a recent proposal of the Government of India, one would find that between the Ministry of Power and the Ministry of Coal, there appears to be a brilliant concept brought in which looks at making it mandatory for companies, which have got coal blocks, are mining them and sell or how efficiently they use the coal blocks. But the power producers are being told that those who produce power must subject themselves to public scrutiny because of some politically motivated allegations of unfair allocation of coal blocks which, the government in its stated policy to encourage those who are on the fast track to making the country power independent, has allocated to them for free. These “free” coal blocks come with hidden costs that nobody is interested in. Those agitating about the unfair allocations are not interested in what it costs to develop a coal mine situated on barren land, nor the infrastructure and finance that is required to extract, refine, and transport the coal. The power companies are not exactly overjoyed with this situation but they realize they have no choice but to hunker down and make the most of this so called “free” allocation. In other be arrived at through the competitive bidding process.
These power companies are now being fed to the wolves and, after all the blood, sweat and toil, they are being accused of profiteering by misusing the national mineral resource and of covertly conniving with unknown parties to sell power at exorbitant prices. In other words, merchant power plants and, by extension, merchant power generation and purchase, is no longer a good idea, even though the Electricity Act 2003 manifestly encourages competitive development of the power market. The bad news for those pushing this line of allocation of coal only against long term PPAs is that there is hardly any interest from anyone on calling for long term power purchase contracts for various reasons, the main one being that the market trend is moving from long term to short term purchase of power. So we may end up in another long and litigious imbroglio which will add to the uncertainty amongst the power sector developers. So we are now going to be left with the daunting prospect of private sector power purchasers not having any coal unless they have signed long term PPAs. What will the policy makers come up with next? The idea of the Electricity Act 2003 was to allow competition and market forces to bring in efficiency and to allow the markets to give power and good service to the consumer. However, this particular initiative goes beyond comprehension. The knee-jerk reaction and advice of unaccounted people in the power sector leaves a bad taste and we are still far from getting a fair deal for private sector investors and consumers in this sector. As for the consumer, the wait for 24x7 power only gets longer!
Sourced by IPPAI