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The shifting paradigm

EM News Bureau ,  Tuesday, March 17, 2015, 14:59 Hrs  [IST]

Para1.jpgThis special story by Venugopal Pillai takes a look at the changing face of India’s power transmission, especially with respect to high-capacity interregional lines. Central transmission utility Power Grid Corporation of India is no longer the defacto agency and has to “win” projects under the tariff-based bidding route from other private sector contenders. Even in this challenging environment, PGCIL appears to have done well. All the same, the government will have to rely on PGCIL when it comes to projects of technical complexity or burning urgency.

Part1.jpgCentral transmission utility Power Grid Corporation of India (PGCIL) is gearing up to meet competition from private sector developers, R.N. Nayak, CMD, PGCIL said at a recent press conference in Mumbai. “We are learning to compete with private players,” was how the top PGCIL official put it.

Competition from private sector players has become an important aspect in PGCIL’s business over the past four years. It may be recalled that effective January 5, 2011, the Union power ministry mandated that all power purchase should be done using the tariff-based competitive bidding (TBCB) route. This implies that PGCIL would no longer be the “default implementing agency” for interregional transmission lines. As part of the extant standard procedure, Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) have been appointed as nodal agencies for inpara2.jpgterregional lines. These nodal agencies form shell companies for each project. These companies are then transferred to developers that are selected using the tariff-based competitive mechanism (TBCB.)

For a better part of its existence, PGCIL was not only the default agency for interregional lines, it could also determine the capital investment using the “cost-plus” method, which was a markup over the actual expenditure incurred. This, more or less, assured PGCIL of healthy return on investment.

para3.jpgThe situation is very different today with PGCIL needing to compete with other aspiring private sector developers—both Indian and international. It is ironic that the Central transmission utility could even be competing with companies that have, in the past, executed EPC contracts for PGCIL. This irony, in fact, epitomizes the scope offered by infrastructure development in India where, across almost all sectors, contractors have an opportunity to be developers. It is an opportunity for contractors to groom into owners and managers of projects, duly partaking of the project risk.

Nayak explained that under the TBCB regime, the power ministry has so far awarded 14 projects out of which PGCIL has won six. This roughly translates to a market share of 43 per cent in volume terms. Nayak also expressed confidence that PGCIL would win more projects in the near future.

para4.jpgThe power ministry, it may be mentioned, cleared a clutch of nine interregional transmission lines in June 2014 with an aggregate investment of over Rs.12,500 crore (see table). Out of these nine, one project has been awarded to PGCIL, while the remaining eight are under various stages of bidding. The one project that has gone PGCIL’s way is the transmission system strengthening associated with NTPC’s Vindhyachal power station (Unit V) in Madhya Pradesh. (This project is amongst the six projects mentioned earlier.) The scheme involves setting up a 765kV double-circuit line spanning 350 km from Vindhyachal pooling station to Jabalpur pooling station, both in Madhya Pradesh. NTPC is augmenting capacity of its Vindhyachal power plant by adding a new 500-mw unit, which is scheduled to commission in July 2016.

According to information compiled by Electrical Monitor, the special purpose vehicles corresponding to transmission projects won by PGCIL under the TBCB route since January 2011, are: NRSS XXXI (A) Transmission Ltd, Unchahar Transmission Ltd, Vizag Transmission Ltd, Vemagiri Transmission System Ltd, Nagapattinam-Madhugiri Transmission Co Ltd and Vindhyachal-Jabalpur Transmission Ltd.

Nomination basis
Even as tariff-based competitive bidding is expected to be employed for all new power transmission lines, the government reserves the right to overrule the guideline and “nominate” agencies. The government makes this exception for projects that typically involve complex technology or need to be completed in a highly compressed schedule

Power Grid Corporation of India has benefited immensely from the nomination route in recent months. R.N. Nayak explained that during the October-December quarter of 2014, PGCIL was nominated to build a major transmission scheme to transport electricity from Raigarh in Chhattisgarh to Pugalur in Tamil Nadu. This 800kV HVDC bipolar line traversing 2,000 km will have a transmission capacity of 6,000 mw, and will be part of the West-South connectivity scheme of the National Grid. The plan envisages setting up of an inverter station of 4,000 mw at Pugalur in Tamil Nadu and another one of 2,000 mw at Madakathara in Kerala.

Lead 03.jpgIt is reliably learnt that private transmission players had expressed their dissatisfaction over this nomination as they potentially lost out on a major project—the project is expected to cost well over Rs.15,000 crore. Nayak maintained that if the government had employed the TBCB route, it would have taken at least 3-4 years to complete the project as the bidding process itself would consume over a year. The PGCIL CMD elaborated that even if the project was awarded on nomination basis, the company will use domestic and international competitive bidding to execute the project.

PGCIL has also been nominated for setting up transmission schemes involving evacuating 900 mw of power from upcoming solar power parks, Nayak added.

Lead 04.jpgIt has been around nine years since India saw its first instance of private sector participation in interregional transmission lines. In these nine years, around 20 projects have been awarded, including 16-odd since the tariff-based competitive bidding (TBCB) mechanism was formally introduced in January 2011.

It would only be fair to state that India’s overall progress in sustaining and furthering private sector participation has been rather incommensurate with the time elapsed. As yet, there are only a handful of private sector players winning interregional lines. The list includes Reliance Power Transmission (part of Anil Ambani Group); Sterlite Grid; Essel Infraprojects, a consortium of Kalpataru Power Transmission and Techno Electric Engineering; a consortium of BS Ltd, Simplex Infrastructures and Patel Engineering; and L&T Infrastructure Development Projects Ltd. Central transmission utility Power Grid Corporation of India has won six projects making it the most successful player.

The tariff-based bidding mechanism has of course made the power transmission industry more competitive. Even if PGCIL has won maximum projects so far (since the formal launch of the TBCB guidelines in January 2011), it has done so after submitting financial quotes that have got the better of other contenders. This is a clear regime shift from the pre-2011 period where PGCIL was the de facto agency that could structure the project financials using the “cost-plus” method.

Private sector participation in interregional power transmission must improve because India’s mission of bolstering its national grid cannot rest on PGCIL’s shoulders alone. Besides, the private sector will bring with it modern technology, project management skills, swifter project execution abilities and better financial management. Widespread private sector involvement will definitely have a favourable overall impact on India’s power transmission grid, just as it will have on any other aspect of infrastructure development.

Lead 05.jpgThe government, on its part, must ensure that the bidding process is expedited. Power transmission is a land-centric activity; there are bound to be challenges whilst acquiring right-of-way. The government could do well to accelerate the process of securing clearances and obtaining right-of-way. Since January 2011, only 16-odd interregional transmission lines have been awarded—a pace that does not inspire confidence. India’s ambitions on interregional transmission capacity are very significant. As of December 31, 2014, the interregional transfer capacity of the national grid was 46,450 mw as against 27,750 mw as of March 2012. By the end of the XII Plan period, which is March 31, 2017, this capacity is envisaged to rise to over 76,000 mw. During the XIII Plan period (FY18 to FY22), another 52,800 mw of interregional capacity is expected to be added, taking the total interregional grid capacity to well over 125 GW.

The present NDA-led government has shown some signs of promise with respect to bolstering the pace of approving and awarding interregional transmission lines. In June last year, the power ministry cleared 11 projects with an aggregate investment of Rs.12,500 crore. Out of these, one project was already awarded recently. This pace has to be sustained and even improved.

para5.jpgEven though Power Grid Corporation of India is today the key driver of India’s national grid, Indian and foreign players are poised to play a complementary role in the years ahead. It must also appreciated that transmission technology will progressively get complex. The future grid will have 765kV lines as the norm, supported by other futuristic technologies like HVDC bipoles, VSR-based power transmission, etc. In the XIII Plan period, one can also expect India to have 1,200kV lines in commercial operation. The government might therefore be inclined to “nominate” PGCIL to execute some projects perhaps for their technical complexity or need for speedy completion. However, such nominations should be made after due diligence and should be thoroughly justified as they threaten to militate against the culture of transparent competitive bidding and the public-private partnership philosophy.

The progress of India’s national grid rests on three pillars – enabling policy framework, Power Grid Corporation of India and the private sector. Each of these elements should work harmoniously and uncompromisingly, in national interest.
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