POWER

A PENNWELL PUBLICATION
JULY/AUGUST 1996

ENGINEERING
— INTERNATIONAL—
1996-07 It’s a Slow Process, but India is Opening up Its Electric
Power Industry to Foreign Investors and Developers by
Mr. Vishvjeet Kanwarpal CEO GIS-ACG
Global InfraSys - Asia Consulting Group
Asian nations
Published: July/August 1996 by Power Engineering International explore
construction
options

To keep pace
with economic
growth, China
must add another
90,000 MW

POWER-GEN
Asia brings
attention to
India’s desperate
power sector

Central and
Eastern Europe
must add
new capacity

I ndian
S u p p le m e n t
Begins page 58
 POWER V o lu m e
4

ENGINEERING Number

-INTERNATIONAL- July/August

1996

FEATURES

33 Asian nations explore construction options

to meet booming infrastructure needs
Asia is a sprawl o f continental and island nations o f cultural and climatic diversity,
requiring innovative generation, transmission and distribution systems

41 To keep pace with economic growth,

China must add another 90,000 MW by 2000
Chinese officials predict that 6 percent o f the equipment and 25 percent
o f the financing for the new capacity will be from sources outside o f China

On the Cover
Eraring Power Station, one of 48 POWER-GEN Asia brings attention to India’s desperate power sector
Electricity generation, transmission and distribution automation conferences
Australia’s leading coal-fired
and expositions team up to bring global focus on Asia
power plants.
Photo courtesy of Pacific Power.

54 Central and Eastern Europe must add new capacity to grow economically
Although there is a need for new capacity, som e power projects are not feasible
and financing will be difficult

5 8 A special India Supplement

Power Engineering International takes an indepth look at India’
s promising power market,
expected to exceed (US)$150 billion in the com ing decade

OPINION
3 Increasing demand for electric pow er in China, India, Japan and Southeast Asia makes Asia
the biggest market for the construction o f new power plant capacity. It is no coincidence that
this year’
s POWER-GEN Asia is being held for the first time in India and that each year we
sponsor a conference in China.

49 Reader Request Card

NEWS
78 Calendar o f Events
6 International Energy Outlook
•Latin American countries working to attract private firms, funding
79 Advertisers’ Index •Coal technology development in China
•Baltic states integrate in cooperative competition
•W orld electric consumption to top 19 trillion kWh by 2015
80 New P roducts

76 Global Roundup
•Samalayuca II project receives final clearance
•CEA enters B O O for Jingyuan II
•Bailey sending INFI to Korea
•Birecik hydro project passes financing phase
 A
India
S p e c ia l
Supplement
India came to the forefront o f the
international community as one o f
the most promising and most needy
markets in 1991 when the government
opened its doors to the global industry.
The Indian power market promises to
exceed (US)$150 billion in the coming
decade. Experts predict that this region
will need anywhere from 100,000 to
142,000 MW in the next 10 years. India
currently accounts fo r 2.7 percent o f the
total global installed capacity and has
increased its capacity 50-fold in the post-
independent era. In this special section,
Power Engineering International takes a
closer, more in-depth look at this
fascinating section o f the global market.

POWER ENGINEERING INTERNATIONAL—JULY/AUGUST%96

It ’
s a s l o w p r o c e s s , b u t I n d ia
IS OPENING UP ITS ELECTRIC POWER
INDUSTRY TO FOREIGN INVESTORS
AND DEVELOPERS
Foreign companies face many challenges in developing Indian power projects
By Vishvjeet Kanwarpal, Asia Consulting Group

The Indian liberalization process
initiated in the early 1990s has
awakened the sleeping giant. Private-
sector participation; public-sector
disinvestment; deregulation; lowering of
trade barriers; and a radical overhaul of
industrial, financial and tax policies has
unleashed the Indian economic and
market potential in an unprecedented
manner. Decades of central planning,
government controls, subsidies and a
public sector notorious for its low
productivity all collectively served to
exhaust the government’ s financial ability
to meet the needs of the nation. Left with
little choice, in 1991 India opened its
doors, invited foreign capital and looked
to participate in the global market.
The Indian power market promises
to be more than (US)$150 billion in the
next 10 years. Success in the Indian
market is a function of long-term,
strategic commitments to develop the
market; a flexibility to adapt to
dynamically evolving market
conditions; and the will and resources
to sustain trials. These attributes are
best exhibited by veterans like Enron.
The Dabhol project was confronted by
a continuum of challenges and
disasters that could easily have sealed
the fate of the project.
P olitical risk
As no political party received a clear
mandate to form the government in
the recent national elections, there is
caution about the nature of the
coalition forming the new government
and its foreign investment policy.
Irrespective of the coalition that
comes to power, or its stability, it is
important to note that almost all party
manifestoes highlighted the need for
infrastructure development with the
assistance of foreign investment. Even
the Left Front has declared recently
that they will not reverse the
economic reforms initiated by the
Congress government.
The top business chambers have
reflected the irreversibility of economic
reforms in the country through their
national agendas for the new
government. Shekhar Dutta,
Confederation of Indian Industry (C1I)
president, feels that top priority should
go to infrastructure and Public Sector
Unit (PSU) reforms. The Federation of
Indian Chambers of Commerce and
Industry (FICCI) holds poor
infrastructure responsible for the high
costs faced by the industry. FICCI’ s view
on Foreign Direct Investment (FDI) is
that the consumer sector should be
opened up progressively by “retooling
the tariffs indexed against the
reduction of infrastructure costs and
the cost of borrowing.”On fiscal
reforms, both CII and FICCI have
reiterated demands to widen tax base,
reduce corporate tax and rationalize
indirect taxes.
CII'S NATIONAL AGENDA— 1996-1997:
• Give high priority to infrastructure
and PSU reforms.
• Reduce size of central cabinet.
• Set up anti-trust mechanism to
promote fair competition.
• Reduce government stake in PSUs
to below 50 percent.
• Reduce corporate tax rate to
35 percent.
• Introduce Freedom of
Information Act.
• Provide more transparency in polk
and procedures.
FICCI'S MINIMUM ECONOMIC PROGRAM:
• Reduce fiscal deficit to 3.5
percent of gross domestic product
in two years.
• Continue trade liberalization.
• Reduce government role
in infrastructure.
• Corporatize and privatize the
public sector.
• Wind up terminally ill PSUs.
• Free interest rates.
• Give a human face to
economic reforms.
Mr. R. H. Patil, India’
s National
Stock Exchange managing director,
feels that India should not be
protectionistic in regard to foreign
capital. He stated, “One of the most
important reasons why we need to
welcome foreign capital is that our

60 POWER ENGINEERING INTERNATIONAL— JULY/AUGUST 1996


FIGURE 1: Evolution of private power in I ndia—
Source: Asia Consulting Group
savings levels are too low to sustain
high levels of growth.”
Mr. Nimesh Kampani, Association of
Merchant Bankers of India chairman,
stated, “Any party that comes to power
will not be able to reverse the program
initiated by the previous government.
India needs foreign capital as well as
technology in the power, tele­
communications and transportation
sectors. The government must take
care to remove all hurdles between the
inflow of investment in this area.”
Indian political, industrial and
financial systems have accepted the
62
1990-1996
ground realities of foreign investment in
infrastructure and the need to end
India’s protectionistic regime.
T he electric power sector
The electric power sector, including
generation and transmission and
distribution (T&D), has been the
domain of the public sector since the
Industrial Policy of 1956. Currently
private power accounts for a meager 4
percent of generation. The Indian
Energy Supply Act of 1948 established
the state electricity boards (SEB) to
POWER ENGINEERING INTERNATIONAL— JULY/AUGUST 1996
develop the power sector at the state
level and the Central Electricity
Authority (CEA) at the center to develop
and coordinate national power policy.
Until the late-1970s, India was a
power-surplus country. Today, the
country is experiencing acute shortage of
electricity, with an average shortfall of 10
percent and peak shortfall of 20 percent.
Regional shortfall is estimated at 27
percent in the eastern region, 22 percent
in the northern region, 18 percent in the
western region, 17 percent in the
southern region and 12 percent in the
northeastern region. Commenting on the
shortages and the impact early this year,
Mr. P. Abraham, power secretary, admits
that “the outlook is very bleak.”
Government investment in the
electric power sector has been
inadequate. Additionally, there has
been a slowdown based on scarcity of
funds and the expectation that
independent power producers (IPP) will
add the required capacity. In the VIIIth
five-year plan (1992-1997), the
government had originally planned to
add 45 GW. However, successive
revisions reduced it to a target of 30
GW. Currently, government capacity
addition is expected to be 19 GW, or 42
percent, of the original target for the
W ith five-year plan. With IPPs—
including fast-track projects—facing
slow development, the crisis is
deepening further. Figure 1 shows the
evolution of private power in India from
1990-1996.
The VIIIth five-year plan of the
government (1992-1997) planned a total
allocation of (US)$23 billion for the five
years. An average annual amount of
(US)$4.6 billion. This amount is for the
entire power sector and not just for
capacity addition.
C onflicting forecasts
Asia Consulting Group’ s national power
model demand forecast suggests that
the oft-quoted 142,000-MW additional
capacity will be required (including
peak demand) in the next 10 years, but
only under certain conditions. One such
set of conditions are:
• New projects are operated at 75-
percent plant load factor (PLF).
• T&D losses continue at 22 percent.
• No further captive or cogeneration
capacity is added, and no installed FIGURE 2: F orecast electricity in I ndia— demand vs . supply
base plants are repowered.

However, all of these are untenable

as most power purchasing agreements
(PPA) are signed for 85 to 90 percent
off-take and T&D losses are likely to
decrease with privatization. Captive
and cogeneration capacity is also
expected to increase rapidly in the near
future. In addition, there are extensive
plans for repowering of base-loaded
power plants.
Under these conditions, the demand
for additional capacity in the next 10
years could fall well below 100,000 MW.
This figure may be further reduced with
wheeling of power from surplus areas
to deficit areas and in the long run Note: PLF average to r new projects pegged a t 75%, w ithout fuel availabillity constraints.

through demand-side management. Source: Asia Consulting Group

These aspects can have an enormous
impact on capacity planning and
particularly PPAs that will be signed in FIGURE 3: Forecast electricity supply in I ndia
the next five years. To date, Asia
Consulting Group has recorded
approximately 250,000 MW of new
capacity additions at all stages of
project development (Figures 2 and 3).

P rivate and public power

PROJECTS IN DEVELOPMENT
Since mid-1994, the call for private
participation in the power sector by the
government has been overwhelming. In
December 1995 the Ministry of Power
recorded more than 225 proposals for
100,000 MW of power generation
capacity by developers.
Although the crisis in the power
sector is getting worse, electric power
projects have been slow in developing.
However, the government has responded
by initiating several measures to
accelerate project development, weed
out less serious projects and streamline
the project-clearance process.
One of the most significant
initiatives has been to eliminate the
mandated clearance required from the
CEA for projects costing under Rs. 400
Crore [(US)$ 115 million], thus giving a
boost to medium and small power
project development.
The clearance issued by the CEA is
a “Techno-Economic”clearance that
examines key parameters of a project.
Source: Asia Consulting Group
However, many in the industry have felt
that the CEA clearance, which is
applied for after detailed feasibility
studies, and the securing of a PPA and
fuel supply agreement (FSA), is too
general in nature, adds little value and
unnecessarily delays projects.
According to some former senior
power-sector officials and industry
captains, CEA does not possess the
resources to assess the large number of
private power projects of increasing
structural, technical and financial
complexity. The CEA clearance was
initially not required for projects under
Rs. 25 Crore. This limit has been
progressively increased to Rs. 100
Crore, then Rs. 200 Crore and, finally,
Rs. 400 Crore.
State governments have taken
advantage of the above changes and
taken independent initiatives to woo
private power developers. Asia
Consulting Group’ s “National Project
Track”is currently tracking almost
1,300 projects under development in
the country. These projects include
IPPs, captive projects, new government
projects, as well as small projects.
Collectively these account for a
staggering 250,000 MW of capacity
under development, with IPPs

64 POWER ENGINEERING INTERNATIONAL— JULY/AUGUST 1996

 FIGURE 4: IPP pr o jec ts
BY TECHNOLOGIES
Source: Asia Consulting Group
TABLE 1: F a c t o r s t h a t a r e e x p e c t e d t o d e t e r m in e
Project attrition factor
• P ro je ct d evelopm ent
p roce ss a ttritio n
• D eveloper
com petence-based
a ttritio n
• F u e l-a n d tra n s p o rt-
based a ttritio n
• D em and-based
a ttritio n
• SEB cash-flo w -b ase d
a ttritio n
• P ro je ct finance-based
a ttritio n
Source: Asia Consulting Group
accounting for almost 189,000 MW
[Figures 4 and 5).
Preliminary bottom-up analysis at
the project level suggests a maximum
addition of around 95 GW within the
next 10 years. IPPs are expected to
account for almost 60 percent of the
total addition. Analysis by the group
suggests that power projects currently
66
FIGURE 5: IPPs a n d I n d ia n g o v e r n m e n t p r o j e c t s
Source: Asia Consulting Group
IPP a t t r it io n o v e r t h e n e x t f iv e y e a r s
Description
• A large n u m b e r o f developers w ill n o t succeed in c o m p le tin g th e requisite clearances due to p ro je ct deficiencies
and delays w ith in th e clearance m echanism s.
• A d d itio n ally, e n viro n m en ta l and p olitica l fa cto rs have and m ay co n tin u e to h in d e r som e p roje cts fro m
successfu l co m ple tio n.
• The initial ease o f entry into the private pow er se cto r w itnessed an unprecedented random diversification into private
pow er by com panies, agencies and individuals w ith no core-com petence in th is sector. T his lack o f expertise and its
im pa ct is already being detected in projects w h ich are floun d e rin g .
• A sia C on su lting G roup's e stim ate s su g g e st sh orta ge s in th e coal and gas a vaila bility and severe c o n -s tra in ts in
tra n s p o rta tio n m ay jeopardize sig n in g o f acceptable fu e l su p p ly agreem ents o r render it a risky d ocum ent.
• A sia C on su lting G ro u p ’s fo re ca st fo r th e next 10-yea r dem and su gg e sts th a t an a dd itio na l 1 00,000 M W o f capacity
(in clu d in g peak dem and) w ill be required. Given th a t there is ro u g h ly 2 5 0 ,0 0 0 M W o f capa city u nder d evelopm ent
at va rio u s stages, there w ill be 6 0 -p e rce nt p ro je ct a ttritio n .
• C urrently, th e SEBs are th e p rim a ry purchasers o f pow er. The PPAs signed by the SEBs have to be su pp o rte d by
revenues. Given th e h ig h ly subsidized ta riff stru ctu re in India, T & D losses, th e ft and co lle ctio n irreg u la ritie s, the
dem and fo re ca sts w ill n ot be reflected in th e revenue stre a m s o f th e SEBs.
• Hence, th e SEBs’ a b ility to sign up and h o n o r PPAs is su b sta n tia lly lo w e r th a n w h a t the dem and fig u re s suggest.
Even in th e event o f ta riff rationalization and redu ctio n o f losses, the situ atio n is u nlike ly to im pro ve d ram atically.
• A sia C on su lting G ro u p ’s A sian P o w e r M odel fo re ca st su ggests th a t th e Asian p ow e r se cto r w ill require an
in ve stm e n t o f m ore than (U S ) $ 7 0 0 b illio n in the next 10 years.
• A sia C onsulting G roup's assessm ent o f the A sian infrastructu re investm ent need and sources o f possible fun d in g
suggests th a t there is n ot enough capital on the entire planet to accom m odate th is requirem ent.
• India’s need o f m ore than (U S) $100 billion in pow e r generation and (U S )$60 billion in T & D cannot be m et by the
collective resources o f the governm ent, m ultilateral lending agencies and d om estic capital m arkets. In effect, India is
in co m pe titio n fo r international fu n d s w ith all other Asian countries— a fa ct o f w hich Indian politicians in th e ir
bickering and bureaucrats in th e ir inertia appear to be b lissfu lly unaware.
under development will undergo an in the aftermath of the Enron
attrition of almost 60 percent in the experience, there has been a substantial
coming years based on demand-based increase in the risk premium for India.
analysis alone [Table 1). With higher project and country risks
Continuous revisions of PPAs have built into the lending rates and with
pushed project cost and tariff cost down higher risk insurance premiums, the
toward internationally acceptable PPAs may well return to haunt some
standards. However, project risks in developers. Securing financing itself is a
India continue to be high. Additionally, substantial challenge. This will apply
POWER ENGINEERING INTERNATIONAL— JULY/AUGUST 1996
more acutely to project developers who
have no prior or core competence in the
power sector.
G enesis of the power crisis
The genesis of the crisis in the Indian
power sector lies in India’ s policies and
objectives of rural electrification,
subsidized electricity to the agricultural
and domestic sectors, and utilization of
the power sector as an employment
scheme. These policies received their
most aggressive boost in the early
1980s. Almost 75 percent of India’ s Regulatory
population is still rural, and the
government has electrified nearly 85
percent of India’ s 580,000 villages.
Today, agriculture consumes 30 percent
of power generated in the country,
while only paying (US)$0.6 cents per
kWh on average. In recent years, the
agricultural sector consumption has
been growing at more than 12 percent
annually. The Indian power sector
employs more than 1.7 million
personnel, which computes to
approximately 21 personnel per MW.
No surprise that the accumulated losses
of the public power sector stand at
(US)$6.4 billion.
The SEBs are probably the most
unfortunate scapegoats in the power
crisis in India. They have been forced
to serve as instruments of national and
state policy for decades and cannot be
held solely responsible for the current
state of affairs. The demands made on
the SEBs have been gigantic with
inadequate budgetary support from the
government. Today, they are effectively
being abandoned by the government
and expected to deliver performance
like private corporations. Central
agencies—such as National Thermal
Power Corp. (NTPC), which focus on
only power generation and its sale to
SEBs—have a clear advantage.
The power sector has posted some
impressive efficiency gains in the past
10 years. The national average PLF for
thermal plants has increased from 44.3
percent in 1979 to 61 percent in 1993,
with the central sector recording a PLF
of nearly 70 percent in 1993.
However, India’ s national public
power sector PLF (including all
technologies) is under 50 percent. The
eastern and northeastern regions
70
TABLE 2: Models for restructuring India’s SEBs
Sector Model 1 Model II
Generation Unbundle With SEBs
(with multiple
players)
Transmission Unbundle W ith SEBs
(monopoly)
Distribution Unbundle W ith SEBs
(with multiple
players)
License, Independent
Commission regulate and
arbitrate
record PLFs as low as 38 percent and
29 percent, respectively. The most
ailing units are those below 140 MW in
size, which have run for more than
100,000 hours. Around 250 such units
exist in India, and every 10-percent rise
in PLF of these units can roughly
increase the generation by 3 percent,
which is equivalent to adding 2.2 GW at
one-fourth the cost. Cost of life
extension by 15 years is 20 to 30
percent, of the cost of a greenfield
project and the implementation period
is half that of a greenfield project. This
has been an important area of focus for
the government, which has identified
more than 160 old plants for renovation
and modernization. To date, 22 stations
with 55 units have been renovated, and
an average of 18-percent PLF increase
per unit has been achieved.
SEB restructuring
Restructuring is most talked of in
electricity boards that are characterized
by T&D losses, highly subsidized
agricultural tariffs and excessive
number of employees. Table 2 indicates
five SEB restructuring scenarios. T&D
losses are more than 20 percent in most
states. A majority of the consumers are
from the privileged agricultural sector,
who are charged less than half the cost
of generation. Electricity theft is not
easy to stamp out. The perpetrators are
usually a “vote bank”and enjoy tacit
political protection.
According to N.K.P Salve, the
former union power minister,
Model III Model IV Model V
Unbundle With SEBs Breakup into
(with multiple regions
players)
W ith SEBs W ith SEBs Unbundle
Unbundle Unbundle Breakup into
(with multiple (with multiple regions
players)
players)
License, Independent Regulate
regulate, and fix tariffs transmission
transmission and arbitrate
and fix tariffs
“inefficiency of SEBs”is the biggest
problem, and he has urged the states to
change their attitudes toward entry of
private companies. The central
government has suggested five models
of restructuring programs to facilitate
reformation of SEBs into commercially
viable outfits, regularization and
rationalization of tariff, and improving
T&D network.
Orissa, the first state to opt for
restructuring, passed an electricity
reform bill in November 1995.
Subsequently, the SEB was broken up
into three separate entities: generation,
transmission and distribution. At the
same time, an independent regulatory
body was also set up with a mandate to
set operating norms and fix tariff
structures. This process was funded by
the World Bank. The World Bank has
also expressed interest in funding of
reform projects in many other states,
provided they set up independent
regulatory authorities similar to Orissa.
Key stages in the development of
India’ s T&D system is shown in Table 3.
Haryana, Bihar, Uttar Pradesh,
Rajasthan, Andhra Pradesh, Pubjab and
other states have all initiated
restructuring studies with substantial
external assistance or using internal
resources. However, the challenges that
all states will face involve hard
measures in tariff rationalization,
employee retrenchment and overall
efficiency improvement. Cosmetic
restructuring may do little to change the
systematic problems the SEBs face.
POWER ENGINEERING INTERNATIONAL—JULY/AUGUST 1996
 TABLE 3: D evelopment of I ndia ’ s T&D network

Time fram e Key events in T&D

1989 • National Power Transmission Corporation Ltd., now renamed as Power Grid Corp. of India Ltd. (POWERGRID), was incorporated in
October 1989 with an initial authorized share capital of Rs. 5,000 Crores.
1 9 9 1 -1 99 2 • The management of transmission system was taken over from NTPC on Aug. 16,1991; NEEPC0 on Nov. 14,1991; NHPC on Nov. 19,
1991; NLC on Dec. 1,1992, along with associated manpower.
• In the case o f NJPC, no separate agreem ent w as required as th e ir tra n s m is s io n w o rk w as handled by NHPC. The
tra n s m is s io n business o f N uclear P ow er C orp., in clu d in g o ng o ing and new proje cts, has also been taken o ver by
POW ERGRID on A ug. 2 8 ,1 9 9 1 .
1995 • HVDC S ystem s fo r b u lk p o w e r tra n s fe r o ver long distances introduced.
• A d o ptio n o f 8 0 0 -kV class as the next h ig h e r voltage o f tra n s m is s io n decided by th e governm ent.
• 6 6 -kV tra n s m is s io n syste m and su bsyste m s belo w th a t are ow ned by state p ow e r u tilitie s except in case o f so m e already
existin g in central o r jo in t-s e c to r u tilitie s like D am odar Valley C orp. and Bhakra Beas M anagem ent Board.
• D is trib u tio n syste m s o f 33 kV, 11 kV and 4 0 0 /2 3 0 V are e xclu sive ly o w ned by state and private utilities.

FIGURE 6: I nstalledcapacity in I ndia—
TECHNOLOGY VS. TYPE OF UTILITY
Installed capacity
India currently accounts for 2.7 percent
of the total global installed capacity and
has increased its capacity 50-fold in the
post-independence era. This growth is
heavily front-loaded, largely owing to
the multipurpose, mega hydro projects.
Although the demand for electricity has
grown steadily since the late-1980s,
capacity additions have failed to keep
pace. Public utilities own 96 percent of
the installed base-load capacity (central
sector—27 percent and state sector-
69 percent) [Figure 6).
In 1970, thermal capacity accounted
for 54 percent and hydro for 43
percent. Today, 66.5 percent of India’ s have been worked out, and formal work
installed capacity is coal-fired, and 27
percent is hydro. This reflects India’ s
increasing dependence on coal-based
power plants in spite of a hydro
potential of approximately 130 GW.
Hydro project Energy Corp.’ s (GTEC) 655-MW dual-
development challenges fuel, combined-cycle (natural gas-based)
include: funding shortfalls, power project near Baruch in Gujarat
environmental and land- can be portrayed as a show case of
acquisition problems, sensible business development.
water-sharing disputes While all the other fast-track
among states, issues of projects signed their memorandums of
population relocation, and understanding (MoU) before July 1993,
rising maintenance and GTEC began its act as late as May 12,
management costs. 1994; but within two years had
However, assuming a 60- overtaken most of the other projects.
percent PLF, there is a 11- Unfortunately, by the end of 1994
percent demand shortfall the Enron debacle had started affecting
in coal supplies for the all foreign investors and their efforts in
country’ s existing coal- India in varying proportions. After
fired power plants. Dabhol Power Co.’ s PPA with
Currently, 10 to 20 million Maharashtra SEB was put to review by
tons of coal is imported. the new state government in May of
The major natural gas-producing 1995, that culminated with the project
states of Maharashtra, Gujarat and being scrapped on 3 Aug. 3,1995.
Assam account for 68 percent of the GTEC came through unscathed even
total gas-based power. The availability of after review of its PPA and allegation of
natural gas in domestic and kickbacks in a writ petition. However,
international markets and the relative as a precautionary measure GTEC
costs will determine whether the sought legal counsel from Mr. Nani
optimistic addition of gas-based power Palkhiwala, a leading constitutional
(6.8 GW in VIIIth five-year plan) is expert, in August 1995.
achievable. India has 1.8 GW of installed By November, when Enron seemed to
diesel and wind-based plants and 2 GW come back on track, GTEC has already
of nuclear-based plants. However, issues received the state’s guarantee. Over the
of nuclear-waste disposal, funding next months, the fuel supply and
constraints and political sensitivity' have transport agreement, the PPA and most
been a deterrent to further nuclear of the other agreements were finalized.
power development. Foreign and domestic debt components
IPP PROJECT DEVELOPMENT IN INDIA— should start soon. The schedule calls for
Gujarat Torrent; Paguthan the project to be completed in 22 months
from financial closure.
After accounting for the Dabhol factor, There are important reasons for this
and the confusion among IPP developers success. In June 1995, Siemens agreed
and their partners, Gujarat Torrent

72 POWER ENGINEERING INTERNATIONAL—JULY/AUGUST 1996

to absorb Rs. 500 Crores of cost hike
owing to appreciation of deutsche mark
against the rupee. This was a
preventive action taken when the
Dabhol case was being reviewed.
Neither did they venture into a 2,000-
MW project, nor did they try complex
fuel arrangements. The partner mix in
equity and debt reflects sound
strategy. In April 1996, BHEL became
part of the group and will supply some
of the equipment. The state
government-owned Gujarat Power
Corporation Ltd. (GPCL) has a 10-
percent stake, which enforces the
agreements between the developers
and the state-owned organizations.
GTEC did have its share of luck in
clearing the political hurdle, as the final
nod had been given by the new BJP
government, even though the previous
Congress government had done most of
the review.
T he Jegurupada combined-cycle
POWER PROJECT
GVK Industries’combined-cycle
power plant at Jegurupadu will be
one of the first IPP projects to come
on line when the first 53-MW unit
becomes operational in July 1996.
The project consists of three gas
turbines and a steam turbine. The
first unit, which was scheduled to be
commissioned in March, was delayed
by two months as the Ministry of
Finance delayed the clearance of the
counter guarantee. As a result, funds
from International Finance Corp. (IFC)
were delayed. The respective SEB, on
behalf of the central government
grants’“counter guarantee,”is
expected to clear the Operation
Finance Action Plan (OFAP) and earn
a minimum 3-percent rate of return.
The SEB revenue earning is not up to
the mark, and the state government
will have to pay subsidies to Andhra
Pradesh SEB for it to clear its OFAP.
In Andhra Pradesh, 43 percent of
the power is consumed by the highly
subsidized agricultural sector, which is
already affecting the financial position
of the SEB. The restricted counter
guarantee which was subsequently
cleared by the ministry, covers only the
debt obligations and not the energy
payment dues from the Andhra
Pradesh SEB.
GVK Industries also faced problems
with fuel supply. The bankers insisted
on a fool-proof contract from the Gas
Authority of India, which the authority
did not agree. Because of this, GVK
Industries has taken the fuel risk on its
own. Owing to the shortage in gas, gas
linkages are available for only two
units, and at least one unit of the
project will be forced to operate on
naphtha. Considering the fact that
naphtha is twice as costly as gas, the
Ministry of Finance has objected to
deemed generation benefits to the
naphtha-based unit.
Even with some setbacks, the
Jegurupadu project is one of the first
IPPs nearing completion. Power will be
sold at a levelized tariff of Rs 2.06 per
unit, based on the assumption that the
gas-based power station will run for 15
years before the first major overhaul
becomes due. As per the government
guidelines, the insurance premiums
are kept at a cap of 1 percent of the
capital cost and operations and
maintenance (O&M) expenses to 2
percent of the capital cost.
The three gas turbines will be installed
in June, August and December 1996; and
the steam turbine will be installed in May
1997. The total project cost is Rs. 827
Crores—of which the equity portion is Rs.
252 Crores, and the debt portion is Rs.
575 Crores. The project has several debt
and equity participants, both foreign and
Indian. This complex structure of
ownership may well become typical for
future power projects.
AES C orp/s Ib Valley project
AES Corp.’ s Ib Valley power project,
one of the initial fast-track projects,
faced rough weather as the Congress
government ordered a review of the
project as soon as it came on line last
year. The project was initiated in the
regime of the earlier Janata Dal
government. Review was ordered on
the basis of allegations of lack of
transparency, excessively high project
costs and high tariff rates.
The comptroller and auditor general
also criticized the Orissa SEB for not
following the route of global tendering
and also signing a PPA, which it termed
as financially disadvantageous.
Orissa SEB insisted on a tariff of Rs.
1.55 to Rs. 1.60 per unit, pointing out
that the first-two units of Ib Valley
operated by the Orissa Power
Generation Co. were already supplying
power at a rate of Rs. 1.55 per unit to
Orissa SEB. Subsequently, AES reduced
tariff rates, in stages, from Rs. 2.39 per
unit to Rs. 2.04 and then down to Rs.
1.90 per unit. Project costs were
reduced from Rs. 4.76 Crores per MW
to Rs. 4.15 Crores. Site of the project
was changed from lb Valley units 3 and
4 of 210 MW each, to Ib Valley units 5
and 6 each of 250 MW. Project for units
3 and 4 will be undertaken by Orissa
Power Generation Corp.
Ib Valley was the only fast-track
project, apart from Dabhol, to have
received a counter guarantee from the
central and state governments. But
renegotiation and subsequent changes
will require AES to put in fresh
proposal for a counter guarantee and
draft a new PPA. Considering the
present situation of acute shortage of
power prevailing in the country, the
Ministry of Power and the Ministry of
Finance is likely to give quick
clearances to the project.
Two units of 250 MW each are likely
to be commissioned in 1999. General
Electric will be supplying the steam
turbines and generators for both of the
units. The company is seeking linkages
of 2 million tons of coal from the near Ib
Valley coalfields of Mahanadi Coalfield
Ltd., a subsidiary of Coal India Ltd.
EDITOR'S NOTE:
Asia Consulting Group is an
infrastructure strategy consulting firm
with a focus in the power sector. Asia
Consulting Group develops client
strategy by leveraging its advanced
project modeling capability in
conjuction with its proprietary power
market models and industry tracking
databases.
Contact Details Updated
Email: ceo.gis.acg@gmail.com
Website: www.gis-acg.com