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Hydro Sector Development in India

Growth & Investment Opportunities

R.V. SHAHISECRETARY

MINISTRY OF POWERGOVERNMENT OF INDIA

Montreal (Canada) June 19, 2003

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Indian Power Sector

Power in Concurrent List :

• Both Central & State Governments have

jurisdiction

Power Sector in States

• Vertically integrated State Electricity Boards

(being restructured)

Central Public Sector Undertakings

• Own 30% of the capacity

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Power Infrastructure in India (May ‘03) Generating Capacity Hydro 27,010 MW

Thermal 76,607 MWNuclear 2,720 MWWind 1,870 MW

108,207 MW *

Hydro 25.0%

Thermal70.8%

Nuclear 2.5%

Wind 1.7%

* In addition Captive capacity of about 25,000 MW

Contd...

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Sectorwise Installed Capacity Central 32,816 MWState 63,291 MWPrivate 12,100 MW

108,207 MW

Central Sector 30%

State Sector 59%

Private Sector 11%

Cont...Power Infrastructure in India (May ‘03)

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7.3

11.5

7.8 8.8

12.213.0

18.020.5

1992-93 1996-97 2000-01 2002-03

Power Shortages (%) Peak Shortages (%)

Power Supply position in the country

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The target ahead

545719

975

Mar.'03 Mar.'07 Mar.'12

157107115705

81492

Peak requirement in

(MW)

Energy requirement in

(BUs)

Power development - projections for next ten years : Target to add more than 100,000 MW by year 2012

• 41,000 MW planned by 2007

(act.)

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Hydro development : Rationale

25%29%40%46%41%33%

75%71%60%54%59%67%

'50 '60 '70 '80 '90 2003

Hydro Thermal + Others

Fuel Mix

Years

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Hydro - A good power source

Clean power

Cost effective option in the long term

Meets peaking requirements

Development of underdeveloped areas

Optimum use - Drinking water, Power and Irrigation

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10573812 2873 3828

24274538

14393

20000 +

IV V VI VII VIII IX X XI

(actuals in MW)

Contd...

Hydro development in the country

VI to IX Five Year Plans - 13,666 MW (20 years)

X Five Year Plan - 14,393 MW

Act Tar.

• Plans based on five year period block

• At present 10th five year Plan : 2002-07

(end Mar’.)Plans

(‘74) (‘79) (‘85) (‘90) (‘97) (‘02) (‘07) (‘12)

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10th Plan target - 14,393 MW

• Capacity under execution 12,000 MW

Central 7,800 MW State 3,500 MWPrivate 700 MW

Another 12,000 MW in Central Sector under Stage I & II development

• Stage I covers Survey & Investigations / F.R. preparation

• Stage II covers Detailed investigations / DPR preparation and Infrastructure development

Hydro development …….. Cont...

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Thrust on hydro development

Ranking Study

Potential assessed

(845 Schemes)

Ranking Study of unharnessed

399 schemes

Hydro Initiative(162 schemes) 50,000 MW

107,000 MW

150,000 MW

The Selection Process

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50,000 MW Hydroelectric Initiative50,000 MW Hydroelectric Initiative Initiative launched in May 2003

• Preparation of Preliminary

Feasibility Reports - Dec.’03 - Sep.’04

Detailed Project Reports - Jan.’04 - Jan.’06

For promising projects, depending on PFRs results

• DPR preparation also through reputed International Consultants

• Process of selection of Consultants for DPR of large projects through ICB

Contd...

Consultants identified to undertake Feasibility Studies

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Implementation - 2007 - 2017

Clearances / sanctions - Sep.’04 - Jul. ‘06

• An enormous task requiring huge investments

- to be undertaken through Central / State undertakings and Private Investments

50,000 MW Hydroelectric ……..50,000 MW Hydroelectric …….. Contd…...Contd…...

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The Opportunities

Consultancy firms having expertise in planning and

design of hydro projects : Preparation of DPRs

• Selection through a transparent process of

International Competitive Bidding.

EPC/ Construction companies

• Implementation of the projects through Central and

State PSUs and Private promotors.

- Contracts to be finalised through ICB.

Contd...

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The Opportunities …….. Contd. ….

Investment firms/ Project Developers

- In consultation with the State Govts., projects to be

implemented through the IPP/ Joint Venture route

- Projects upto 100 MW can be awarded by State Govts.

through the MOU route (being reviewed)

- Larger projects to be awarded through a transparent

process of ICB

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Areas of Concern & Focus Areas of Concern & Focus in hydro development in hydro development

Quality & Reliability of Investigations

Optimizing inputs for reducing cost

Compressing Construction cycle time

Setting bench marks in Project Management

State of Art Technology during construction

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100% foreign equity participation

Investment policy made attractive

Debt : Equity ratio up to 4 : 1

Liberalized rates of depreciation in respect of assets

Customs Duty & Excise exemption for Mega projects (500 MW &

above)

16% Rate of Return on equity

Two part tariff

Facilitating measures for investment in hydro sector

Contd...

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Facilitating measures …… Contd. …...

Softer norms for incentive for hydro stations

• Availability factor threshold reduced from 90% to 85%

Ceiling limits for TEC for hydro projects revised :

• 53 million US$ for projects awarded through MOU route

• 213 million US$ for projects awarded through competitive bidding

• 532 million US$ for projects where tariff is determined by CERC/ SERC.

Contd...

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Facilitating measures …… Contd. …...

Electricity Act 2003 notified 10th June ‘03

# Objectives

• Accelerate reform process

• Harmonize the provisions in existing law

• Obviates need for individual States to enact their own reforms laws

• Introduce competition

• Power for all areas

• Consumer interests : the focal point

Contd...

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Main features of the Electricity Act 2003 :

• Creates liberal framework for power development

• Facilitates private investment

• Delicenses generation : Captive further liberalised

• Multiple licencess in Distribution

• Creates competitive environment

• Stringent provisions for controlling theft of electricity

• Empowers States to restructure Electricity Boards

• Mandates creation of Regulatory Commissions

• Open access on Transmission & Distribution

• Power marketing / trading

Facilitating measures …… Contd. …...

Contd...

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Distribution Reforms – Three Dimensional Challenge

• Governance

• Technology Upgradation

• Tariff Rationalisation

Distribution Reforms

Commercially viable Distribution Business alone can lead to sustainable investment in Generation, Transmission & Distribution

Facilitating measures …… Contd. …...

Contd...

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Distribution Reforms to focus on : System upgradation Loss reduction Theft control Consumer orientation. Commercialization Decentralized distributed generation and supply for

rural areas. Introducing competition. I.T. to replace human interfaces

Facilitating measures …… Contd. …...

Contd...

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Distribution Reforms through

Accelerated Power Development & Reform Programme

(APDRP) :

A strong instrument for effecting improvement &

reforms in sub-transmission & distribution

# APDRP has two components

i. Improve Distribution Network / system

ii. Incentivise Loss Reduction

Facilitating measures …… Contd. …...

Contd...

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Turnaround plan for State Utilities : APDRP funding :

• During five years period, plan to invest more than 8500 million US$ :

50% for upgradation of system and 50% to be given as incentives for loss reduction

# Aggregate Technical & Commercial (AT&C) losses in majority of identified circles have started showing reduction

# Stringent provisions in Electricity Act 2003 for controlling theft of electricity

Facilitating measures …… Contd. …...

Contd...

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Payment Security / Assurance

Power Purchase Agreement

Letter of credit

Escrow cover

State Government guarantee

Open access :

• Third party sale to consumers allowed

• Direct sale to Distribution utilities

Facilitating measures …… Contd. …...

Commercially viable Distribution is the best payment security

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WITH SUCCESSFUL REFORMS UNDERWAY, THE REQUIRED WITH SUCCESSFUL REFORMS UNDERWAY, THE REQUIRED

TURNAROUND IN INDIAN POWER SECTOR HAS BEGUNTURNAROUND IN INDIAN POWER SECTOR HAS BEGUN

THE OPPORTUNITIES OFFER GROWTH AND PROSPERITY FOR ALL THE OPPORTUNITIES OFFER GROWTH AND PROSPERITY FOR ALL

STAKEHOLDERSSTAKEHOLDERS

•• CONSULTANTSCONSULTANTS

•• EPC AGENCIES EPC AGENCIES

•• CONTRACTORSCONTRACTORS

•• INVESTORS INVESTORS

•• LENDERS LENDERS

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Thank youMinistry of Power

Website

http://powermin.nic.in