Vulnerability of Power Sector from Financial Globalisation

1. Vulnerability of Power Sector from Financial Globalisation Girish Sant Prayas – Energy Group, Pune IDEAs workshop Delhi

2. 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 IDEAs workshop Delhi

3. NTPC,Agri 1975-90 Increased Access & Federal intervention E Act 2003 Competition Growth 1950–75Major Growth, Public Ownership IPP Era 1991-98 Private Power Projects WB Model 1996-2002 Orissa & others Major Stages in Electricity Sector IDEAs workshop Delhi

4. 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+) IDEAs workshop Delhi

5. 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, & Governments International arbitration The IPP Era IDEAs workshop Delhi

6. Comparison of CCGT Plants Around the World 1400 DPC 1200 1000 800 Cost per kW ($/kW) 600 400 600-800 3 $/kW Plants 200 ~400-600 18 0 800-1000 4 > 1000 3 - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Capacity MW LNG NG 1 NG 2 High Cost of IPP Projects IDEAs workshop Delhi

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

8. 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… IDEAs workshop Delhi

9. 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) IDEAs workshop Delhi

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

11. 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 IDEAs workshop Delhi

12. Impacts and continued problems IDEAs workshop Delhi

13. Hidden T&D losses Maharashtra Utility: Estimated Theft of Euro 500 Mn p.a. IDEAs workshop Delhi

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

15. Competition in Power (Bulk / Retail) California adopted market solution even for Transmission pricing IDEAs workshop Delhi

16. 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.) IDEAs workshop Delhi

17. 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 IDEAs workshop Delhi

18. 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 Problems with power markets IDEAs workshop Delhi

19. 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 IDEAs workshop Delhi

20. Girish Sant Prayas, Energy Group (Pune) www.prayaspune.org IDEAs workshop Delhi