Editorial: Transmitting growth

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April 25, 2015 12:22 AM

More private participation in transmission is good

The government’s plans to bid out Rs 26,000 crore worth of transmission projects, which the private sector can bid for, is good news. Though the sector has been thrown open for nearly a decade now, not too many projects have come up in the PPP mode or via the Independent Private Transmission Company (IPTC) model. The main reason why private players stay away—they have roughly invested $5-6 billion so far—is because the state-owned Power Grid Corporation is able to win most projects by bidding aggressively; its ability to borrow at much lower interest rates is cited as one reason why it has an edge. Also, since Power Grid operates on a cost-plus basis, it can acquire the necessary clearances even after awarding an EPC contract to a developer. However, the tariff-based competitive bidding model is designed such that private developers would need to have a bank-backed detailed project report (DPR) before they can bid, a process that is tedious and time-consuming. The pre-award preparation could take up to a year and that puts them at a disadvantage vis-a-vis Power Grid.

The government has also been lethargic in bidding out projects—in 2011, a dozen or so transmission projects were identified for implementation by the private sector, but due to delays in the bidding process, some of the projects were handed over to Power Grid. The CERC has, on occasion, pulled up government agencies for their tardiness in bidding out projects, but that doesn’t seem to have helped. While adequate supplies of coal are critical for the power sector to function efficiently, so is adequate transmission capacity; as experts point out, the southern states would not have been so badly impacted by the shortage of power, resulting from the drop in the production of gas at the KGD6 basin, had they been able to access power from other states. Private sector players can be encouraged by giving them speedier clearances and helping them acquire the land needed for sub-stations; since the transmission business isn’t exposed to commodity prices and payments are reasonably secured, developers are satisfied with returns even though they are lower than those from generation. Indeed, should the government help with speedier clearances, the time needed for construction can be shortened, and even foreign players might be interested in participating. Industry watchers estimate that around R40,000-50,000 crore of investments will be needed annually to grow the transmission capacity—close to 13,000km of lines are slated for completion during the 12th Plan period—so there is plenty of business for the private sector should the process be speeded up.

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