Transmission needs a level playing field

Issues with Power Grid need to be sorted out to ensure fairness for the private sector

India’s power sector can be seen as a chain with four links: Fuels, generation, transmission and distribution. While much of the discussion focuses on fuels, generation and distribution, the transmission lines, which carry electricity across the length and breadth of the nation, and even across borders, are generally assumed to be quietly doing their job.

And indeed, India’s power transmission grid is now reckoned to be one of the best globally. It has become the largest synchronous interconnected electricity grid in the world with 4,71,341 circuit km of transmission lines as of January 2023. The significant accomplishment of this vast network has been the progressive integration of regional grids, leading to the realisation of “One Nation, One Grid, One Frequency” by December 31, 2013. This happened in tandem with a major policy initiative taken by the Ministry of Power to throw open the transmission sector to the private sector. Thus, as of March 2023, of the total circuit km of transmission lines, 38 per cent was with the Centre, 54 per cent with states, and 8 per cent with the private sector.

Historically, Power Grid Corporation of India Ltd (PGCIL) was the sole developer of interregional and interstate transmission lines. It operated under the “cost-plus” method where PGCIL was assured of a mark-up over the project cost incurred. PGCIL was kept sufficiently insulated from penalties for time overruns, and the project cost as estimated by PGCIL was taken on board without any “second opinion”.

One of the key objectives of the Electricity Act, 2003, was to promote competition in the industry.

Accordingly, under Section 63 of the Electricity Act, 2003, and the Tariff Policy dated January 6, 2006, the Ministry of Power issued guidelines to encourage competition in the development of transmission projects and tariff-based competitive bidding (TBCB). The benefits that were expected to accrue related to significantly lowering project costs compared to the cost-plus method, reducing the burden of public financing, and bringing in innovative technologies. By January 2011, the format of TBCB was implemented.

PGCIL now had to compete with other private developers to win projects, departing from the previous system where it would be nominated by the government. However, there are projects deemed to be technically complex or “strategic”, which are still entrusted to PGCIL. Such projects are undertaken by PGCIL under what is called the Regulated Tariff Mechanism (RTM), or simply the earlier method of doing things.

The “privatisation” initiative did succeed in its objective of bringing private players into the sector, as can be seen in the chart. It shows that private bidders won 61 per cent of the TBCB bids until March 31, 2023.

Nevertheless, the situation is somewhat more complicated.

PGCIL, the dominant player in the sector, continues to double up as a significant competitor to the private sector rather than gradually receding to a patron-overseer role as would have been expected. In the chart, it is seen that PGCIL won 39 per cent of all the TBCB bids since inception. Surprisingly, PGCIL increased its share of winning bids to 57 per cent of all TBCB bids between FY21 and FY23. (TBCB in states has been quite insignificant and mainly concentrated in Rajasthan, Uttar Pradesh and Maharashtra.) This could be because of an uneven playing field that is tilted in favour of PGCIL. Consider the following:

l PGCIL had a core team responsible for fresh planning of transmission lines. This team historically constituted the Central Transmission Utility (CTU). Once the TBCB came into force, a piquant situation arose. PGCIL was privy to sensitive and critical information about upcoming power transmission projects leading to the view that PGCIL had an unfair advantage over other private players. It was only in June 2020 that the power ministry took a decision to decouple CTU activities from PGCIL. Accordingly, the Central Transmission Utility of India Ltd (CTUIL) was incorporated as a wholly owned subsidiary of PGCIL. However, as CTUIL is also a 100 per cent subsidiary of PGCIL, it still has access to sensitive information.

l According to representations from industry associations, one way PGCIL beats competition is by quoting low prices because of its access to cheaper capital. This is possible as multilateral agencies lend to PGCIL under the sovereign guarantee of the Government of India.

l  PGCIL also exploits its dual-identity to cross-subsidise its returns from TBCB bids with the reportedly healthier margins of its RTM contracts. A recent case is that of the ₹27,000 crore transmission system from Ladakh to Kaithal (Haryana) to evacuate renewable energy. In January 2022, this project was handed over to PGCIL on nomination basis under RTM. The jury is out on the margin PGCIL is making on the project as it is without any comparative competitive benchmarks. The margins embedded are estimated to be significantly higher than what PGCIL would quote for a TBCB project. Such anomalies between incumbent public sector units (PSUs) and private sector have not been uncommon. However, the government has to ensure a level playing field, once it decides that private investment and participation are welcome in a sector as a stated policy goal.

On June 15, 2023, the Supreme Court firmly opined that Coal India Limited, a public sector undertaking, does come within the ambit of the Competition Act. This landmark judgment thus throws open a similar predicament for other PSUs, including PGCIL, that could now be open to charges of “abuse of dominance” under the Act.

The writer is an infrastructure sector expert. He is also the founder and managing trustee of The Infravision Foundation