ANNEXURE

Homework Title / No: 1

Course Code: MGT 698

Course Instructor: Mr. K.P Gopalkrishnan Sir

Students Roll No: RQ28B2A05

Section No: _ _ _ _ _ Q28B2 _ _ _

Date of Submission: 29/08/2011

Reg. no.;-10803663

Declaration:I declare that this assignment is my individual work. I have not copied from any other students work or from any other source except where due acknowledgement is made explicitly in the text, nor has any part been written for me by another person.

Students Signature/Name: Praveen Kumar

Evaluators comments: ____________________________________________ ___________ Marks obtained: _ _ _ _ _ _ _ _ _Out of: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Case study of IPR on Power sector:-

UNSHACKLING THE MARKET POTENTIAL OF THE POWER SECTOR: INDIA A CASE STUDY Presentation of the case:This case is about the formulation (production), distribution and consumption of the electricity for the betterment and welfare of the society. The functions under it operates are generation, transmission, distribution, trading and supply. These sub-sectors are distinct in terms of the operational, commercial, investment and consumer-interface aspects. This case also talks about the single buyer model and multi buyer model, their use and applicability and the things they are required in a legal manner. Laws and institutions are constantly tending to gravity. Like clocks, they must be occasionally cleansed, wound up and set to the time.: Henry Ward Bucher In the above statement it is clearly seen and can be easily understood that laws and institutions changing from time to time with new amendments to make process liberal and easily to understand by the common man. Existing laws on the subject may be sub-optimal for the proposed market structure, having features like private ownership; levy of tariffs; ability to disconnect supply; recovery of dues; governance structures; appropriation of security deposits. Legislation allows for a clear allocation of roles, risks and responsibilities and is an expression of the highest level of commitment by a Government. In SAARC countries, Pakistan possibly was the first to provide legislative basis for open access and multi-year tariffs under the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (popularly known as the NEPRA Act). The Orissa Electricity Reform Act, 1995 presumably was the first power sector reform legislation in SAARC. Key issues in the cases:In this case it talks about the legal rules and procedure in order to make power beneficiary to the people. @The legal frame work: Electricity acts of 1887&1903: Private capital minimal regulation. Indian electricity act 1910: Private capital. E. supply act 1948, constitution 1950, IPR 1956 State ownership, regulation. Electricity acts, 1991&1998. ERC act1998 & State reform act. Electricity act, 2003 regulation, market, trading, private capital, open access, bilateral contracts.

@The Indian single buyer model is characterized by the following: Generating Companies (both SOEs and IPPs) did not have the freedom to sell power produced to any person other than the SEBs or Government Transmission Companies. The lack of credit-worthiness of these SOEs became a major constraint for private investments, and resulted in the bail-out package securitizing dues of over Rs. 43,000 cores . Power was then on - sold to largely state owned Distribution Companies (except in Orissa, and Delhi where distribution business was privatized; and in Kolkata, Ahmedabad and Mumbai where historically private licensees exist) who in turn supplied to consumers. The consumer does not have a choice of the source of supply and the benefits of competition. In case of SEBs, the power is sold by the SEB to the consumers. Again there is no choice with the consumers and no competitive pressures.

@Disadvantages of the single buyer model and constraints on the efficacy of regulating state owned utilities as seen in India were: Governance: investment decisions are made by government officials who do not bear the financial consequences of their actions. It responds poorly to signals when electricity demand falls short of projections. It hampers the development of cross-border electricity trade by leaving it to extraneous considerations of real-politics in SOEs ignoring the economic considerations. It weakens the ability and the incentives for distributors to collect payments from customers. When distributors see the paying and non-paying distributors are treated alike, their motivation for cutting off non-paying customers weaken.

@Electricity Act, 2003 it is necessary to note Sections 60 and 66 of the Electricity Act which provide that: Regulator shall endeavour to promote development of market in power (including trading) and be guided by National Electricity Policy in this respect.

@Entry Barrier: Electricity Act expressly defines and mentions trading as a regulated activity with clear licensing, setting of trading margins and related rules/regulatory oversight. Entry barriers are to be determined by the Regulator who may specify technical, capital adequacy and credit worthiness requirements for being an electricity trader. @Multi Buyer Model: The key players would be Governments; Regulators; Utilities and Consumers. @Role of the Government: Policy making, establishing authorities and appointments, issuing direction and notification, staffing and funding, miscellaneous. @Role of regulator: Tariff, Licensing, Appointment/ nomination, Regulation and directions,

Applicability of Indian IPR laws:@ Legislation allows for a clear allocation of roles, risks and responsibilities and is an expression of the highest level of commitment by a Government. In SAARC countries, Pakistan possibly was the first to provide legislative basis for open access and multi-year tariffs under the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (popularly known as the NEPRA Act). The Orissa Electricity Reform Act, 1995 presumably was the first power sector reform legislation in SAARC. @ 1956 saw two instruments - the Industrial Policy Resolution and the amendments to the Electricity (Supply) Act by virtue of which generation and distribution of electricity became the exclusive domain of the State and the 'public sector'. @ The Electricity Act, 2003 which has come into force on June 10, 2003. Amongst other things, the Electricity Act seeks to consolidate and rationalize existing laws; and identify certain imperatives of the emerging industry structure: competition, trading, segregation of wires and supply, nondiscriminatory open access to wires, promotion of renewable energy and rural electrification etc. All IPR laws focus and helps to improve the system and to run the government in a easy way in order to run the economy. Analysis of the case:California crisis. Starting in June 2000, Californias wholesale electricity prices increased to unprecedented levels. These high prices produced economic profits for generating companies & financial crisis for the regulated utilities that were required to buy power in wholesale markets and sell at much lower regulated markets in the retail markets. @ The factors that were primarily responsible for the California power crisis include erroneous restructuring rules; complex market rules which permitted abuse of market power; adverse market fundamentals; regulatory/political inaction and over reliance on sport market. @ The five lessons for a developing country to be learnt from the California power crisis would be :(a) Regulation must be open, independent and credible. (b) Vesting of existing contracts (PPAs) must be provided for. (c) Reforms should start with more limited forms of competition, to evolve over time. (d) Establish necessary conditions for a competitive power market. (e) Evaluate the level and form in which competition would be helpful under the prevailing circumstances. In this all case it is basically focus on the formulating the policies and to make them best use of that so that it could be fruit-full to the economy.

1@ Reform of the Electric Power Sector In Developing Countries: Case Study of Argentina Presentation of the case:This case study basicly focuses on the Argentinas electric power sector during the 1990s. It refers to the social and environmental concern that has important implication for social welfare with increasing to rural access to electricity. In the case of Argentina, the transformation of the power system was conditioned by larger macroeconomic reforms intended to correct serious current account deficits, fiscal imbalances, and chronic hyperinflation plaguing the country at the end of the 1980s and beginning of the 1990s. Most provinces operated their own electric companies, and together with local cooperatives, were largely responsible for distribution within their jurisdictions. The new scheme, implemented initially at the federal level, was inspired by the reform of the British electricity sector. The main objective was to achieve greater efficiencies in the supply of electric power by promoting as much competition as possible. Competition was to be introduced by segmenting different parts of the productive chain.The state electricity companies were highly indebted and in some cases insolvent. Argentinas negative macro-economic conditions also represented risks. Thus, efforts were made to make these assets more attractive, to increase certainty with regard to the evolution of the system, and to reduce investment risks. At last nuclear plants and hydroelectric power stations that remained in federal hands. National Electricity Regulator is an independent agency under the Secretary of Energy. The following are its principal responsibilities: Enforcement of concession contracts. Prevention of anti-competitive behaviour. Public hearings to clarify conflicts between the parties. Oversight of compliance with environment and public safety regulations within the electricity sector.

Before privatization and even post-privatization pensioners and retirees received subsidies for a number of basic services including price discounts, exemptions from municipal taxes or charges, free access to public transportation in urban areas; lower ticket prices in inter-city railways and mass transit systems, etc. These subsidies included goods and services supplied by public companies, private companies or directly by government. In the electric power sector, the public system before privatization included social tariffs for low income groups identified as pensioners and retirees, especially those receiving minimum benefits. After the restructuring and privatization, these social tariffs were phased out over a two-year period. Governments have also tried to use the electric power sector and other infrastructure services supplied by the public sector to solve problems of social equality. Experience has shown that these policies are a costly and inefficient way of handling these problems. Subsidized electricity had undermined even further the budgetary discipline of power companies and the resulting large

deficits that normally result has been financed by the use of generally regressive taxes... It is evident that there are much more efficacious ways of resolving problems of social equality than the use of electricity subsidies. Key issue in the article:1. A significant problem in the operation of Argentinas electricity markets is the fact that certain consumers are captive within distribution concessions (small consumers) while others (large consumers) are not. 2. Distribution companies have faced growing competition from power generators within their respective concession areas. 3. One of the issues that have gotten significant attention is the reduction of transmission and distribution losses. 4. Another measure of service quality is the level of customer complaints. Consumer complaints increased in volume in response to poor commercial operations as well as lack of supply. 5. Another problem with the power market has manifested itself in the current network of high-tension transmission lines. Not only has service quality declined, but also a number of transmission corridors find themselves on the brink of supply cuts. 6. Another problem created by the new electric power markets was ensuring service to lowincome and rural populations traditionally unserved by the power sector.

Things to be taken in consideration:The country has about 3 million inhabitants living in rural areas without access to electric power. To expand access to these populations in 1995 the Ministry of Economys Secretary of Energy initiated the Power Supply Program for Dispersed Rural Populations. The goal of this program was to supply 314,000 rural households (1.4 million people) and 6,000 public service providers. Another of the mechanisms used to reduce costs was to sever direct employees and subsequently hire contractors to perform their functions. This mechanism allowed companies to reduce employment benefits, thus decreasing real incomes because for the most part benefits provided by contractors were not as generous. Legal frame work:Formulating the Regulatory Framework for Electric Power. Law 24.065 focus on the physical infrastructure, installation and the operation of equipment to generate, transmit and distribute electric power keeping in mind to the future prospects. Environmental management manuals that lay out the requirements for environmental impact statements for conventional thermal stations, hydroelectric projects and power transmission systems.

The European Union (EU) supported five cooperative programs in Argentina: ALURE, SYNERGY, THERMIE, URE and ARCO. The total value of EU contributions for energy cooperation programs has been about 7 million Euros. Social Impacts:The social impacts of the reform can be subdivided to include trends in residential electricity prices, quality of service, and employment effects. Analysis of the case:After going through all the aspects with in the case I realised that government is with the countrymen to help them but due to less capital and poverty the government is unable to full fill their needs and demands and to generate capital private firms came in this sector. Also in this case the people were complaining over the services these were providing. Also the other countries were participating in economic growth of country like Argentina. Also the government should took the opportunity to involve the people of the country in order to raise capital and took the power sector in its own hands and government should promote the scientist and people that they should come-up with new ideas in designs and process in order to make effective for the country. This gives revolutionary effect in the youth which gives them a new way to survive in this world with their innovation. IPR play the crucial role in the development of power sector in any country as if IPR protection related law are not there in the country, the trading company feels insecure in operating their business in that country. With the formulation and working on the IPR the government feels ease to work and operate inside the country.