 "Power lines struggle to draw private firms")
The transmission sector, which was languishing for a while, emerged from the shadows last year when Minister of State for Coal, Power and Renewable Energy Piyush Goyal announced investments of Rs 100,000 crore to achieve the government's new goal of power for all by 2019.
In addition, Goyal said the government was considering taking into account the country's transmission requirement over a 20-year horizon, instead of just two or three years, when planning for new projects. This plan, the details of which are still being decided in consultation with the states and other stakeholders in the sector, when implemented would create a host of new opportunities for private players in the sector.
The issue, however, is not about lack of opportunities for private companies. In the projects that were bid out this financial year, private participation was lukewarm. Most private players stayed out of the bidding process, and even those who did pulled out before the final bidding.
One factor for the unenthusiastic response, say experts, is the dominant role enjoyed by state-owned Power Grid Corporation of India. Thus, of the ten projects worth Rs 53,000 crore that have been awarded this financial year, the largest project valued at Rs 26,000 crore went to Power Grid on a nomination basis. In addition, the ambitious Green Corridor project, estimated at over Rs 30,000 crore, has also been awarded to Power Grid.
The government's keenness to nominate projects to Power Grid on cost-plus mode and then allow it to bid for other projects as well, private players say, gives the state-owned company an advantage over others. It is reflected in its market share: Power Grid has a near monopoly with 95 per cent of the projects.
However, senior power ministry officials say Power Grid was nominated for the Green Corridor project because of the urgency to match the transmission with the ambitious targets set for renewable energy projects by the new government.
"For projects that are of strategic importance and need to be hurried up, the tariff-based competitive bidding route is too time-taking. At the same time, the commissioning of solar projects is under a cloud, a risk hardly any private company would take," says a senior Power Grid official requesting anonymity.
Some experts believe that in spite of Power Grid's domineering presence, there is ample scope for private players to invest. Globally, the transmission business is dominated by only a few large players, but since India is a growing market, there is enough room for private players to participate meaningfully, they say.
"Most countries don't have more than five to six companies in power transmission. I believe that as long as the government can send the right signals about a level playing field, it will attract global transmission developers to bid for projects in the country," says Pratik Agarwal, vice-chairman, Sterlite Grid.
Tariff trouble
Tariff-based competitive bidding, which was introduced in 2010 to help private players play a more active role in the sector, has had limited success. With the basket of projects skewed in favour of Power Grid, such projects witnessed aggressive bidding as major players scrambled to win the limited number of projects on offer.
"The bids have been very aggressive and if one compares cost-plus projects to such projects, you will find that tariffs are almost a quarter lower," says Agarwal. Lower tariffs increase the risk for developers, leading many to stay away from the sector. Agarwal says in the tariff-based competitive bidding regime, developers have to offer a fixed tariff for 35 years, and bear any risk arising from increase in commodity prices or currency volatility.
"We believe that the right rate of return for transmission project development should be at least 20 per cent," he says.
Power Grid's performance falls way short of this benchmark. "We don't get any return on equity during the construction period. Generally, our IRR (internal rate of return) is 12-13 per cent. Power Grid prices can't be sustained by private companies; we can because we are in the public sector," says Power Grid Chairman & Managing Director Indu Shekhar Jha.
However, with Power Grid bursting at the seams to meet the demand of the transmission sector, the government is looking to tweak the allotment process for new projects so as to create a better environment for private participation. The details are still being worked out.
During the 13th Five-Year Plan (2017 to 2022), the government has budgeted for an investment of Rs 260,000 crore on transmission. According to the current draft, Rs 160,000 crore will come from the states and the balance Rs 100,000 crore from Power Grid. This means there is business worth at least Rs 160,000 crore for the private sector to be had.
In addition, the government is also planning to increase the size of projects and scope of work in transmission to prevent congestion in the network. Inter-state lines with capacity of around 56,000 Mw are being planned for the 13th Plan. A common mesh of transmission network or, general network access, is also being planned for hassle-free transmission of power.
Kamal Maheshwari, president (strategy and business development), Essel Infra, says positive signals from the government in the current environment of low commodity prices will go a long way to boost private sector participation. "Around 25 per cent reduction in cost is due to the crash in commodity prices, especially steel. I think this is the right time to open the power transmission sector for bidding," he says.
Many have also made a case for an annuity model for transmission. "This will give the players stronger feet to survive. Currently, the problem is that the state utilities are not doing well, so the market is yet to open up. Once the demand from states starts flowing in, it will be a big opportunity," says Maheshwari.
Experts are hopeful the government's revival package for the distribution sector, Ujwal Discom Assurance Yojana, will bring about new business opportunities in transmission.
