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Advertorial | August 2014

Amend Act, break CIL monopoly

An empowered regulatory mechanism can ensure that producers do not exploit consumers and competition is enhanced, says Anil Razdan, Former Secretary, Ministry of Power, Government of India.

What steps can be taken to ensure adequate fuel supply linkages with reduced dependence on imports?
We have a predominantly heavy dependence on coal and also a large stranded capacity of gas based power supply units. In the first instance, coal supply from Coal India has to be ramped up substantially. The Power Minister may have to convince the new Coal Minister to carry out an independent assessment of all subsidiary coal companies of Coal India to assess their genuine constraints and segregate them from the oft stated constraints trotted out by the monopoly coal suppliers. The most likely constraints of environment and forest clearance will have to be sorted out with that ministry after complying with whatever is technically possible through the best possible mining practices. Mechanisation of coal mining will have to be enhanced substantially, so that productivity can be optimised. Law and order, which relates to governance issues, will have to be handled in close coordination with the concerned States. An aggressive and meaningful CSR initiative from the coal companies in the mining areas can also help smoothen irritants among the population surrounding the mining areas. At least three critical rail links in Central and Eastern India will need to be expedited for evacuation of coal from those mines which are capable of enhanced production right away. Coal India has already deposited the cost of these links with the Railways for some time now. The quality of coal supply will also need credible joint or independent third party sampling, at the dispatch and receipt ends, through the same party which is jointly appointed, to ensure minimising disputes relating to quality of coal.

Gas supply contracts will have to be legally enforceable take or pay contracts, binding on suppliers as well as purchasers. We need a strong credible regulator in the upstream and midstream oil sector. If the MoPNG wishes to perform this function itself, it has to ensure a technically competent and transparent mechanism. Gas pricing has to be affordable for end users, even if gas based power has to be used for peaking purpose. Domestic prices of fuel cannot be based entirely on parameters of parity with costs of imports. The prices have to ensure fair profits to producers. The pooling of domestic and imported gas is a possible price and supply solution. The exploration and harnessing of shale gas and other non-conventional gases needs to be expedited.

In short, affordable and reliable fuel availability will have to be a multi-ministry coordination exercise. It will not be an enviable task.

What are the main issues to be tackled for enhancing downstream efficiencies (in transmission & distribution)?
By and large there are few constraints in EHV transmission, other than establishing a few more evacuation corridors, which have to be committed by the users, be they the user states or IPPs. The facilitation of right of way will have to be ensured so that project costs do not escalate on account of delays, or missing connectivity at a few locations. The Central Transmission Utility (Power Grid) and the State Transmission Utilities (STUs) will have to earmark funds urgently for these lines. This will also apply to the Green Energy Corridors to evacuate renewable power generation.

The main attention will have to be paid to the distribution sector. Besides revamping and modernising the wire business to ensure rationalisation of feeders, building adequate transformation capacities, and establishing command and central capabilities, the entire distribution sector has to ensure 100 per cent metering of all supplies to consumers. Unmetered supply of electricity to consumers has to be made a punishable offence. Unofficial estimates indicate that supplies to nearly 30 per cent consumers are unmetered.

The distribution sector has to be depoliticised. Regulated tariffs cannot be tampered with. AT&C losses above 15 per cent in rural areas and 10 per cent in urban areas cannot be tolerated. This end of the sector cannot be allowed to kill the entire sector. It has to be acknowledged that the economically weaker consumers have to be subsidised, say up to 200 or 300 units of power per month depending on the finances of the host State and the limits of reasonable cross subsidy. No power should be free. It is the enemy of efficiency, economy or accountability. We have to build a national consensus on this issue. Any resistance to compulsory metering and making payments for electricity consumed has to be tackled as a governance issue. Public opinion has to be mobilised as was done at the time of the enactment of the Electricity Act 2003.

What steps can be taken to ensure local power equipment players get a boost?
We have now set up an impressive and comprehensive indigenous power equipment manufacturing capability through the Eleventh Plan. This has to be nurtured and enhanced. We have to assist the establishment of ultra super critical capability, as well as super critical facility in the range of 200-300 MW, through assistance from the large collections already made into the Clean Energy Development Fund. This fund is financed from a levy on every tonne of coal that is mined. It has to be used to finance cleaner and more efficient use or combustion of coal, which will continue to be our dominant fuel for quite some time. No further concessions should be given for import of power generation equipment. We are self-sufficient for the same. Duties have to be imposed and retained on the import of such equipment. In fact we should attempt at developing India as an export hub for such equipment. It would generate more skilled jobs and foreign exchange in the country.

Should the Government look at setting up of more UMPPs? What can be done to remove the existing problems that plague UMPPs?
We should certainly look at setting up more UMPPs at coal pitheads within the country. They will help generate cheaper power and obviate the necessity of transporting large quantities of coal and ash across the country, which in turn also consume more energy, besides congesting the rail tracks and blocking rail wagons. I am not sure that we should encourage more UMPPs based on imported coal, other than one or two in southern India, where coal transportation costs are high and a large power deficit exists. The possibility of price volatility in prices of imported coal or gas cannot be ruled out. Bidders have to be more realistic and conservative in assessing their risks in respect of imported fuels. In respect of tariff accounting, the first year of generators should start from the date of actual commissioning of the unit in future projects. The year should not be calculated on the basis of calendar year or financial year for future projects. The problems of existing UMPPs could be resolved equitably with the burden to be shared by generation and consumers in a fair manner.

What can be done to break up Coal India´s monopoly?
Coal India´s monopoly can only be broken by amending the present Coal Nationalisation Act. The time has come to rationalise the issue, create adequate safeguards for the workforce, enhance safety and environment compliance. This can be done by statute. A credible and empowered regulatory mechanism can ensure that the producers do not exploit the consumers and competition is enhanced as we have done in the power sector, so that the benefits of productivity and efficiency are captured. We have to introduce modern systems based on IT, satellite and digital technologies to check illegal mining and diversion of coal which may be a major worry. In any case, private participation is also possible presently, and is taking place through outsourcing operations of mining of Coal India, MDO, captive mining, and JVs with the State public sector where operational control is with the private sector. Why not end this hypocrisy through legislation and reap the benefits of competition and efficiency in a transparent manner? We could attract the best talents globally to help us organise the vital coal business competently.

I do not visualise that we can allow exports of coal in the foreseeable future. By enhancing our domestic production we could save valuable foreign exchange and reduce volatility in international coal markets. Once domestic production of coal goes up significantly, the international prices of coal (imported) could also come down. I do not see this only as an issue of breaking Coal India´s monopoly. It is an issue of rationalising and revitalising the coal industry in India.

Does the National Solar Mission have to be re-visited?
The National Solar Mission needs to be revisited for reorienting implementation strategies. It has to incorporate concepts like Solar Parks, Mega Solar Projects or even Ultra Mega Solar Projects in due course.

The evacuation of solar and wind power is another critical issue. There is a dire necessity of implementing the concept of Green Energy Corridors for evacuating renewable power and integrating it into the regional or national grid to optimise its potential. Similarly storage schemes and weather forecasting for day ahead power scheduling have to be an integral part of a Solar Mission. Mandatory Renewal purchase Obligation (RPO) for discoms and building versatility into the Renewable Energy Certificates to enhance their value, will require a comprehensive revamp of the National Solar Mission. This is necessary keeping in view past experience and for ensuring commercial viability of the sector in the foreseeable future.

What should be the main constituents of a financial package to revive discoms?
Any future financial package for discoms should ensure that the beneficiary discoms have a mandatory 100 per cent metering of consumer regime. The burden of regulatory asset overhang on any discom should be cleaned up by the State Government or any other owner, or by tariff revision in equal proportion, before any new package is offered. Every electricity sub-division should be assessed and evaluated as a profit centre to pin point accountability.

The board of management of a discom should compulsorily have a representative of the lending institutions and of the Central Government if it seeks to avail of any new financial package for revival.

Tariff revision: What can be done to contain fallout of recent revisions in norms?
I presume that the reference is to the recent norms prescribed by CERC. Obviously, the regulator has tried to reduce the burden on discoms and consumer tariffs. The signal is clear to the generation and transmission entities. They have to improve efficiency, check any wasteful practice and optimise power production.

I feel the time has come for putting an end to cost plus generation tariffs for public sector generating companies. They must bid for the tariff and ruthlessly cut down time and cost overrun, and focus on timely project implementation. Complacency should end. There is a limit to which consumer tariff can be raised. AT&C losses should be capped at 15 per cent in rural areas and 10 per cent in urban areas. Generators and transmitters must also tighten their belts and display efficiency and accountability.

What can be done to enhance the share of hydropower in the energy mix?
Hydropower is clean power and is inflation-free. It is the ideal power for grid management and for meeting peaking power requirements. We need to put in place a frequency related tariff regime to control the grid and also to enhance demand side management. The share of hydropower is falling drastically. This has to be arrested. We need to expedite construction of new projects in friendly Bhutan. This can be done by encouraging our public sector undertakings to take up projects on their own in Bhutan. The Ministry of External Affairs must give up its obsession with intergovernmental projects in Bhutan. We have already wasted nearly five years owing to this obsession. We have to take up road connectivity to new project sites in Arunachal Pradesh and other hill States. The hydro-prospects in Nepal also need pursuit by public and private entities.

What are the prospects for nuclear power?
We have to pursue adding nuclear capability through our own nuclear technology like the Advanced Heavy Water Reactor. Four additional reactors at Kudankulam should be expedited. It will be good if the French and US reactors also come up. I am looking forward to the successful commissioning of the path-breaking Fast Breeder Reactor at Kalpakkam. We should also encourage the Uranium Corporation of India or other Indian entities to acquire uranium assets abroad.

-RAHUL KAMAT

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