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Privatization of PowerSector

Concerns and Prospects By

R K Krishna Vazarpu- 0409005

Pankaj-0409008

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Introduction

India is the world's sixth largest consumer of energy andhas formulated plans and strategies for major energyinfrastructure developments in order to keep up with the

increasing energy demand as the country becomes moreindustrialized and the economy expands.

Privatization is the incidence or process of transferringownership of a business, enterprise, agency or publicservice from the public sector (government) to the

private sector (business).

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Scenario Of Power Sector Before Liberalization

After 1947, all new power generation, transmission anddistribution , came under State Electricity Boards(SEBs).

The Ministry of Power in the Central governmentformulates the policies for the power sector.

As per government guidelines, all power projects above acertain capacity have to obtain techno-economicclearance from CEA before they can be implemented.

National Thermal Power Corporation (NTPC), National

Hydro-electric Power Corporation (NHPC) and PowerGrid Corporation Limited (PGCL) were formed by thegovernment to assist in meeting the increasing demandfor electricity throughout the country.

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Scenario of power Sector After

Liberalization A new policy of opening electricity generation to private

participation was announced by the Central governmentin October 1991

Private party participation was invited.

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This act is likely to benefit theIndustrial Consumers ,IPP, private

utilities and power equipmentproviders.

The Act creates a liberal andtransparent framework for

power

Entry barriers removed / reduced

Generation de-licensed

Freedom to captive generation,including group generation

Recognizing Trading as anindependent activity

Electricity Act2003

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Open access in Transmission

Multiple licenses in Distribution

The act allows direct selling of power to industrialconsumers.

The power producers need not sell to the bankrupt (SEBs)rather than sell it to a worthy customer

100% FDI generation, transmission and distribution is

allowed

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Reasons for Disinvestment in Power Sector

To promote increasedefficiency

To raise revenues for thestate (and thereby to

bridge fiscal deficits).

To reduce governmentinterference in the

economy and promotegreater private intiative.

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Problems faced by private Sector

Problems mentioned by private producersLitigation/renegotiation leading to delays .

Financing problems

Risk sharing

Fuel-supply risk

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Benefits Of Privatization

Stops loss-making SEBs from adding to government debt. Depoliticizes SEB, remove governmental pressures for

over-manning and the sub-optimal use of resources.

Gives new owners a strong incentive to turn around failing

SEB into successful businesses. Gives new businesses access to investment capital that

government cannot provide.

Raises more money for government through taxing formerSEB.

Expands an enterprise and an industry, in the long runcreating more jobs and generating wealth for thecountry.

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Major power Company in India

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