All public-private partnership (PPP) projects in the power transmission sector, including intra-state transmission networks, will now qualify for government grants under the viability-gap funding (VGF) scheme, making them attractive to private sector investors.
The VGF scheme, finalised by the finance ministry few years back to promote investment in the infrastructure sector, involves central assistance in the form of grant for capital expenditure up to 20% of the project cost, while the state government ? being one of the owners ? could also provide a matching grant with a ceiling of another 20% of the project cost.
According to sources, the power ministry is set to notify a new model transmission agreement (MTA) finalised by the Planning Commission as an addition to the existing provision in the Electricity Act, 2003, for the purposes of competitive bidding. This would allow all states to use this MTA for PPP projects in both inter-state and intra-state transmission networks without further regulatory approval.
The task force on measures for attracting private investment in transmission headed by Planning Commission member BK Chaturvedi has approved the use of MTA with the VGF component for all transmission projects.
?The proposals have also been accepted by the finance ministry and it has now been decided that state governments would be given the option to chose between MTA (with VGF) or the standard biding document (SBD) finalised by the power ministry earlier (without VGF) for PPP in transmission,? said a Planning Commission official.
The MTA has so far been used only by Haryana for developing the Jhajjar power transmission line on PPP basis and the project has since been commissioned. With the model set to become part of the Act, its use could be expanded to attract private investments. The absence of VGF acted as disincentive for private investment as load carried by several transmission lines is low initially squeezing margins, especially if bids are based on transmission charges as per SBDs.
Under the MTA, it has been decided that the prospective bidders would be awarded projects on the basis of lowest quote for grant of VGF. In these projects, the state electricity regulators will fix base unitary charges that will determine the total transmission charges for the project. Then bids could be invited based on VGF. The guidelines for determining base unitary charge could be revised by the power ministry from time to time in consultation with the finance ministry and the Planning Commission to prevent misuse of the VGF provisions. The entire mechanism would be reviewed after a period of three years.
?This is an excellent move as now both inter and intra-state transmission projects would be given government grants to make them feasible and attractive. This will certainly spur interest from the private sector,? said an official of a private sector transmission company.
The MTA will also be available to central transmission utility Powergrid Corporation for participation in any future inter-state transmission projects.
Attracting investment in transmission holds the key to overall growth of the power sector in the country. With additional generation capacity of about 52,000 MW being added in 11th Plan and another 75,000 MW expected in 12th Plan, the network of transmission needs of expended fast to enable evacuation of power from new generating stations.
The transmission network currently stands at 245,401 ckm (circuit kms). The 12th five year plan envisages to add another 120,000 Ckm of transmission lines. The inter-regional transmission capacity also is expected to increase from present 23,800 MW to 32,650 MW by March 2012, and to 57,000 MW by 2015 and to 75,000 MW by 2017, providing enough opportunity for investments.