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Document o f The World Bank FOR OFFICIAL USE ONLY Report No: 3 1884-IN PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$400 MILLION TO THE POWERGlUD CORPORATION OF INDIA LIMITED (WITH THE GUARANTEE OF THE REPUBLIC OF INDIA) FOR A POWER SYSTEM DEVELOPMENT PROJECT - I11 December 15,2005 Energy and Infrastructure Sector Unit South Asia Region This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript of documents.worldbank.orgdocuments.worldbank.org/curated/en/488411468268833855/pdf/31884.pdf ·...
Document o f
The World Bank
FOR OFFICIAL USE ONLY
Report No: 3 1884-IN
PROJECT APPRAISAL D O C U M E N T
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$400 MILLION
TO THE
POWERGlUD CORPORATION OF INDIA LIMITED
(WITH THE GUARANTEE OF THE REPUBLIC OF INDIA)
FOR A
POWER S Y S T E M DEVELOPMENT PROJECT - I11
December 15,2005
Energy and Infrastructure Sector Unit South Asia Region
This document has a restricted distribution and may be used by recipients only in the performance o f their of f ic ia l duties. I ts contents m a y not otherwise be disclosed without Wor ld Bank authorization.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective April 1,2005)
ABT ADB APL ARCS BOOT CAG CAS CEA CERC CPM
CTU DFC DISCOMs DPR EA EAMP EAR ERR
EMP ESCOs ESMC ESMD ESPP FIRR F M FMR FMS GI S Go1 GP S GSS HVDC IAD ICB IEAR
Currency Unit = Indian Rupees Rs. 43.0 = US$1
FISCAL YEAR April 1 - March 31
ABBREVIATIONS AND ACRONYMS
Availability Based Tariff Asian Development Bank Adaptable Program Lending Audit Reports Compliance System Built - Own - Operate - Transfer Comptroller and Auditor General Country Assistance Strategy Central Electricity Authority Central Electricity Regulatory Commission Critical Mean Path
Central Transmission Utility Development Finance Institution Distribution Companies Detailed Project Report Electricity Act Environmental Assessment & Management Plan Environmental Assessment Report Economic Rate o f Return
Environment Management Plan Energy Service Companies Environmental and Social Management Cell Environment and Social Management Department Environment and Social Policy and Procedures Financial Internal Rate o f Return Financial Management Financial Management Report Financial Management System Geographical Information System Government of India Geographical Positioning System Grid Substations High Voltage Direct Current Internal Audit Department International Competitive Bidding Initial Environmental Assessment Report
IMS IPMCS IPPS LD&C M&E MIS MoF MOP MoU NACAS
NGO NHPC NTPC PAPS PCN PERT PFC PIP POWERGRID PPAs PPP PRM PSU PTC RAP RLDC ROE Ro W SBD SEB SEBI SIL SLDC TA UI WB
Integrated Management System Integrated Project Management and Control System Independent Power Producers Load Dispatch and Communication Monitoring and Evaluation Management Information System Ministry of Finance Ministry of Power Memorandum of Understanding National Advisory Committee on Accounting Standards Non-Governmental Organisation National Hydroelectric Power Corporation National Thermal Power Corporation Project Affected Persons Project Concept Note Performance Evaluation Review Technique Power Finance Corporation Project Implementation Plan Power Grid Corporation o f India Power Purchase Agreements Public Private Partnership Project Review Meeting Public Sector Undertaking PTC India Limited Resettlement Action Plan Regional Load Dispatch Center Return on Equity Right o f Way Standard Bidding Documents State Electricity Board Securities and Exchange Board o f India Specific Investment Loan State Loan Dispatch Center Technical Assistance Unscheduled Interchanges World Bank
Vice President: Praful Pate1 Country Managermirector: Michael F. Carter
Sector Manager: Penelope J. Brook Task Team Leader: Sunil K. Khosla
INDIA POWER SYSTEM DEVELOPMENT PROJECT . I11
CONTENTS
Page
STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 1 . Country and sector issues .................................................................................................... 1
2 . Rationale for Bank involvement 2
3 . Higher level objectives to which the project contributes .................................................... 3
A .
.........................................................................................
B . PROJECT DESCRIPTION ................................................................................................. 3
Lending instrument ............................................................................................................. 3
Project development objective and key indicators .............................................................. 3
1 . 2 . 3 . 4 . 5 .
Project components ............................................................................................................. 4
Lessons learned and reflected in the project design ............................................................ 5
Alternatives considered and reasons for rejection .............................................................. 5
Partnership arrangements .................................................................................................... 6
Institutional and implementation arrangements .................................................................. 6
Monitor ing and evaluation o f outcomes/results .................................................................. 7
Critical risks and possible controversial aspects ................................................................. 8
C . IMPLEMENTATION .......................................................................................................... 6 1 . 2 . 3 . 4 . 5 . Loadcredit conditions and covenants ................................................................................. 9
APPRAISAL SUMMARY ................................................................................................. 10 D . 1 . 2 . 3 . 4 . 5 . 6 . 7 .
Economic and financial analysis ....................................................................................... 10
Fiduciary ........................................................................................................................... 12
Social ................................................................................................................................. 13
Environment ...................................................................................................................... 14
Safeguard policies ........................................ .. .................................................................... 15
Technical ........................................................................................................................... 11
Policy Exceptions and Readiness ...................................................................................... 15
FOR OFFIcI[AE USE ONLY
This document has a rest r ic ted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.
L i s t o f Annexes
Annex 1: Country and Sector o r Program Background ......................................................... 16
Annex 2: M a j o r Related Projects Financed by the Bank and/or other Agencies ................. 21
Annex 3: Results Framework and Monitoring ........................................................................ 23
Annex 4: Detailed Project Description ...................................................................................... 25
Annex 5: Project Costs ............................................................................................................... 32
Annex 6: Implementation Arrangements ................................................................................. 33
Annex 7: Financial Management and Disbursement Arrangements ..................................... 35
Annex 8: Procurement Arrangements ...................................................................................... 41
Annex 9: Economic and Financial Analysis ............................................................................. 52
Annex 10: Safeguard Policy Issues ............................................................................................ 58
Annex 11 : Project Preparation and Supervision ..................................................................... 67
Annex 12: Documents in t h e Project F i l e ................................................................................. 68
Annex 13: Statement o f Loans and Credits .............................................................................. 69
Annex 14: Country at a Glance ................................................................................................. 73
Annex 15: Implementation o f Open Access Regime and Development o f Power Trading .. 75
INDIA
Source
POWER SYSTEM DEVELOPMENT PROJECT -111
Local Foreign Total
PROJECT APPRAISAL DOCUMENT
SOUTH A S I A
SASE1
BORROWER INTERNATIONAL BANK FOR
Date: December 15, 2005 Country Director: Michael F. Carter Sector ManagedDirector: Penelope J. Brook
Team Leader: Sunil Kumar Khosla Sectors: Power (100%) Themes: Infrastructure services for private sector development (P);Regulation and competition pol icy (S) Environmental screening category: Full Assessment Safeguard screening category: L imi ted impact
Project ID: PO86414
Lending Instrument: Specific Investment Loan
[XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:
223.00 420.00 643 .OO 0.00 400.00 400.00
For Loans/Credits/Others: Total Bank financing (US$m.): 400.00 Proposed terms: V S L
Borrower: Power Grid Corporation o f India Ltd. B-9, Qutab Institutional Area Katwaria Sarai N e w Delh i Delh i - 110016 India
-Fax: 91(11)26560054
Responsible Agency: Power Grid Corporation o f India, Ltd. India
Estimated disbursements (Bank FY/US$m) I FY Annual Cumulative
2006 2007 2008 2009 2010 2011 0 0 0 0.00 40.00 90.00 120.00 110.00 40.00 0.00 0.00 0.00 0.00 40.00 130.00 250.00 360.00 400.00 400.00 400.00 400.00
Does the project require any exceptions f rom Bank policies? Re$ PAD D. 7
I s approval for any pol icy exception sought f rom the Board? Does the project include any critical risks rated “substantial” or “high”? Re$ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 The objective o f the Project is to strengthen the transmission system in order to increase reliable power exchanges between the regions and states o f India.
[ ]Yes [XINO
[ ]Yes [XINO
[ ]Yes [XINO
[XIYes [ ] N o
Have these been approved by Bank management? [ ]Yes [ IN0
Project description [one-sentence summary of each component] Re$ PAD B.3.a, Technical Annex 4 The Project wou ld support POWERGRID’s investment program o f system strengthening in the various regions and developing inter-regional transmission l inks to enhance the power exchange capacities, eventually helping enhance the national power grid.
Component A: Transmission system strengthening schemes: This component will include strengthening o f the intra and inter-regional transmission systems
for greater energy security, system rel iabi l i ty and to enhance inter-regional power exchanges. Technical assistance will be considered for enhancing inter-regional power exchange capacities and building a data base o f the system.
Component B: Completion o f balance works o f the PSDP-I1 project: This component will finance the completion o f some o f the investment schemes financed under
Second Power System Development Project (loan 4603-IN) after i t s closing date.
Wh ich safeguard policies are triggered, if any? Re$ PAD 0.6, Technical Annex 10 Fol lowing safeguard policies are triggered
Environmental Assessment (OPBP 4.01) Natural Habitats(OPA3P 4.04) Involuntary Resettlement (OPBP 4.12) Indigenous Peoples (OD 4.20) Forests (OP/BP 4.36)
Significant, non-standard conditions, if any, for:
Re$ PAD C.7 Board presentation:
Loadcredi t effectiveness: Creation o f the necessary par i passu arrangements for the negative l ien requirement o f the Bank loan.
Covenants applicable to project implementation: 1. Except as the Bank shall otherwise agree, POWERGRID shall take a l l necessary steps to maintain i ts accounts receivable at a level not exceeding an amount equivalent to the proceeds o f i ts transmission and other services for the preceding three months. 2. Except as the Bank shall otherwise agree, POWERGRID shall not incur any debt, if after the
incurrence o f such debt, the ratio o f debt to equity shall be greater than 4 to 1. 3. Except as the Bank shall otherwise agree, POWERGRID shall take a l l necessary measures to
produce, each year, funds f rom internal cash generation equivalent to not less than 20 percent o f i ts capital expenditures (three-year moving average). 4. POWERGRID shall furnish to the Bank, not later than six months after the end o f each fiscal
year, certified copies o f i ts audited financial statements and Special Account Audit, and i t s auditors' reports o f such scope and in such detail as the Bank may reasonably request.
projections, including i ts investment program and financing plan, for Bank review and comments.
Environmental and Social Pol icy and Procedures, and unless the Bank otherwise agrees, shall not waive, amend, modify, abrogate or repeal these Procedures.
5. POWERGRID shall furnish, not later than December 3 1 o f each year, i ts ten-year financial
6. POWERGRID shall maintain an appropriate organizational structure for implementing i t s
A. STRATEGIC CONTEXT AND RATIONALE
1. Country and sector issues
The Government o f India (GoI) has identified the power sector as key to achieving i t s goals o f high and sustainable economic growth and accelerated poverty alleviation. However, the sector i s currently inadequately positioned to support these goals. One critical constraint for growth and poverty alleviation i s a deficit in power sector capacity. India continues to face severe power shortages: peak load shortages o f 12.1 percent and energy shortages o f 7.2 percent' that translate into substantial losses to the economy. In addition, given the current l o w leve l o f electricity access (According to 2001 census, 44.2 percent o f households lack access), the Go1 goal o f universal access by 2012 will require sizable additions to generation, transmission and distribution capacity. The capacity constraint i s compounded by high levels o f technical and commercial losses2. Whi le these losses are concentrated at the distribution level, their impact on the sector i s pervasive; poorly performing state-level utilities pose both a severe fiscal drain and a limit o n the financing and sustainability o f rapid system expansion.
In recent years, the Go1 has taken a number o f key steps to reform the power sector. These include the enactment in 2003 o f a comprehensive and reform-focused Electricity A c t (EA 2003), the institution o f commercial discipline o n payments by the states to the central power companies, and the implementation o f bulk power tar i f f reforms. These reforms, once fully implemented, would provide a sound basic framework for realizing the goals o f the Go1 for the sector.
The capacity and efficient operation o f the transmission sub-sector i s critical to the success o f broader sectoral reforms. The principal responsibility for grid strengthening and increases in inter-state power transmission capacity rests with POWERGRID, the government-owned central transmission utility. While there i s some private sector interest in generation and distribution, private sector finance i s taking time to enter the transmission sector in India. ~
The large distance between generating stations and load centers, and the seasonal and dai ly variation o f load demand across the regions, necessitate large power transfers across the country and a strong transmission network. The existing transmission network i s overloaded in many areas, leading to poor voltages and the potential for grid collapse. Although power trading i s increasing rapidly between the Indian state ut i l i t ies and the generators, i t i s currently s t i l l at a l o w 2.1 % o f the total energy generation.
Key actions at the transmission level towards improving overall system efficiency include the implementation o f bulk power tar i f f reforms, the enforcement o f grid discipline, the facilitation o f inter-state and inter-regional power transfers and trading, and the provision o f open access3 to
' Source: Ministry of Power Annual Report 2004-2005. Transmission and Distribution losses (T&D Losses) in 2002-03 stood at 32.54% (Source: Ministry of Power Annual Report 2004-2005) 'Open access' i s defined under the EA 2003 as non -discriminatory provision for the use o f transmission l ines or distribution system or
associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulations specified by appropriate commission.
1
generators and users spread beyond state boundaries. Important improvements in grid discipline and the enforcement o f merit order dispatch have already been achieved by the implementation o f the bulk power tar i f f reforms referred to as Avai labi l i ty Based Tar i f f (ABT). The ABT includes frequency-linked pricing for unscheduled interchanges (UI). This tar i f f system provides improved incentives for efficient generation, dispatch and off-take. The ABT, in combination with the provisions o f the EA 2003 mandating open access to transmission, provides a good basis for the development o f a power trading market in India, and thus more efficient and effective use of available power resources (See Annex 15).
A s noted above, the viabi l i ty o f system expansion and reinforcement depends critically o n performance at the state, and particularly the distribution, level. The EA 2003 provides a framework for reform at the state level, and a number o f the States are n o w implementing reforms including the unbundling o f their power sector utilities, the establishment o f state electricity regulators, and in i t ia l steps towards the implementation o f open access at the state level. Traditionally the state power ut i l i t ies have been seen as a high credit risk for central power sector entities based o n a history o f poor payment. However, the recent central government scheme to securitize past dues and incentivize current payments has significantly improved the payment position and the prospective financial viabi l i ty o f the central utilities.
2. Rationale for Bank involvement
The Bank has been actively involved in the reform o f the transmission sector in India, and specifically in the creation and development o f POWERGRID4. In the context o f i ts engagements with POWERGRID, the Bank has dialogued actively with Go1 on national-level sector reforms. Key activities supported by the Bank include the establishment and operation o f modem load dispatch centers, the establishment o f the Central Electricity Regulatory Commission (CERC) to regulate the interstate power sector, the implementation o f bulk power tar i f f reforms to improve grid discipline and encourage efficient use o f generating capacity, steps towards private participation in the transmission sector, and improvement in commercial discipline in the sector.
The passage o f the EA 2003 and the announcement by the Go1 o f ambitious goals for system expansion have created new and complex challenges for the transmission sector. These challenges provide both the context and the rationale for continued Bank involvement. In particular, Bank involvement can:
a) help reduce the r isk posed by delays in the improvement o f power infrastructure for India’s sustainable economic development, by financing specific transmission system expansion and strengthening investments, and helping POWERGRID to leverage funds for their broader system expansion plans;
b) assist POWERGRID and the Go1 in strengthening ongoing reforms to enforce commercial discipline in the sector, and in introducing the second-generation reforms enacted in the EA 2003, including the introduction o f open access, facilitating an increase
Total Bank support to date amounts to US$1.9 billion under Ln. 4603-IN, 3577-IN, and transmission components o f earlier loans and credits to India which were transferred to POWERGRID from original executing agencies.
2
in power trading, the development o f private sector participation in the sector, and the development o f transmission and bulk power pricing; and
c) mobil ize international experience to assist POWERGRID in achieving international good practice standards in the areas o f safeguards, financial management and procurement systems, in l ine with POWERGFUD’s objective o f maturing into an internationally competitive transmission company.
3. Higher level objectives to which the project contributes
The proposed support for transmission comprises investments aimed at improving the outcome- orientation and service delivery o f POWERGRID, by: (i) facilitating more economic use o f available generation resources; (ii) providing greater grid stability; (iii) establishing the open access regime for transmission mandated in the EA 2003; and (iv) facilitating development o f a power trading market within the country. This will help the power sector support growth in Indian economy rather than constraining as it i s a t the moment. This i s in l ine with the CAS [ 8/26/2004] for India.
B. PROJECT DESCRIPTION
1. Lending instrument
T h e project i s designed as a specific investment loan (SIL) using a time slice approach: the loan wil l have the f lexibi l i ty to finance POWERGRID’S investment priorities during the identified time period, based o n pre-defined criteria. The f i r s t year’s investments have been identified and are under preparation. After the f i rs t year, POWERGRID wi l l choose project investments according to i t s investment priorities and the pre-defined criteria. The borrower has chosen to denominate the loan in U S dollars, considering the longer tenure available for such loans and to meet the foreign exchange requirements o f international contracts. POWERGRID has decided to continue with the variable spread option for this loan also.
2. Project development objective and key indicators
The objective o f the project i s to strengthen the transmission system in order to increase reliable power exchanges between the regions and states o f India.
In order to achieve this objective, the project i s designed to focus o n (i) strengthening the transmission system in the power deficit regions and increasing inter-regional transmission capacity, and (ii) developing the institutional capacity o f POWERGRID to facilitate the implementation o f open access and inter-regional trading.
The ‘Growth in Power Exchanges between the Regions’ will be used as the key indicator to measure the performance in achieving the development objectives o f the project (see Annex 3).
3
3. Project components
Component Indicative cost (US$M)
1. Transmission system strengthening 968 schemes (Core Schemes)
2. Completion o f balance works o f the PSDP- 75 I1 project ( Ln. 4603-IN)
Total 1043
The table below shows the components o f the project and the estimated costs. Annex 4 provides further details on each major component.
Bank Financing (US$M)
325
75
400
A description o f the project by component i s provided below:
a) Transmission system strengthening schemes For more efficient operation o f the overall power system, inter-regional links need to be established and the transmission network within the regions needs to be strengthened. The proposed loan will finance a part o f the next five-year t ime slice o f POWERGRID investments to achieve this level o f grid integration. The el igibi l i ty criteria for identification and planning o f the least-cost technical and economic options for each o f the investments in this t ime slice have been agreed with POWERGRID. These criteria also includes steps that POWERGRID need to fo l low for adequate social and environmental safeguards. Using these criteria, POWERGRID has identified three investment schemes aimed at strengthening the Western and Northern region systems (estimated cost U S D 968 mil l ion). These have been termed as “Core Schemes” under this loan. Preparatory works have commenced, and the schemes would start implementation in the f i rs t year after loan effectiveness. In addition, a number o f “Candidate” Schemes have been tentatively identified (or may be identified in the future), and will be eligible for Bank financing provided the project implementation plans submitted by POWERGRID establish that ‘these schemes meet the eligibility criteria for financing under this project, as set out in Annex 4. I t i s envisioned that by the t ime this loan i s fully committed, a follow-up loan will be considered to continue funding the transmission development program, which could take over disbursements under contracts awarded under this loan fol lowing Bank’s procurement guidelines and procedures.
This component will also include the technical assistance necessary for the implementation o f these investments. Activities requiring expert advice, currently planned by POWERGRID, include support for enhancing inter-regional power exchange capacities, mechanization o f construction techniques to enhance efficiency and minimize environmental impacts and the establishment o f a database o f system components. The Bank will assist POWERGRID in identifying additional areas where assistance may be required to implement i ts responsibilities under the EA 2003. The detailed selection o f technical assistance to be financed under the present loan will depend o n the availability o f alternative grant finance for some activities, an option preferred by POWERGRID and the Government.
4
b) Completion of balance works of the PSDP-I1 Project (Ln. 4603-IN) This component would provide the balance o f funds necessary for the completion of: (a) National Load Dispatch and Control center; and (b) Transmission lines, Substations and other procurements, taken up under PSDP-I1 loan (4603-IN) after i t s closing date o f June 30,2006. This component would also fund balance payments, if any, from other schemes under PSDP-11, which may have completed before June 30,2006 but where these payments became due after the closing date (such as contract retentions).
4. Lessons learned and reflected in the project design
Over the last decade, the Bank has provided support in India to central government entities for generation, transmission and renewable investments, and to selected State Electricity Boards (SEBs) for investments associated with sectoral reform. The I F C has also been engaged in supporting private participation in generation and transmission.
The results o f this engagement have been mixed. While central generation and transmission engagements have generally yielded satisfactory results, the pace o f implementation has depended critically on the institutional and operational strength o f the partner entities. In these cases, the development o f close partnerships between the Bank and the entities has been critical in achieving timely results o n the ground.
State-level engagements have proved more challenging. Whi le some positive results have again been achieved, there i s n o w broad agreement that in i t ia l project development objectives were relatively ambitious given the pol i t ical economy o f the sub-sector, and that careful attention i s required to the dif f icult transitional issues involved in reform at the distribution level. A review o f the state-level reform experience conducted in 2002-03, and discussed extensively with both the Go1 and state-level partners, has resulted in a re-thinking both o f key reform steps and o f Bank rules for engagement in state-level reforms. These rules o f engagement are reflected in the 2004 CAS.
Key lessons for the present loan from these earlier engagements are that:
a) a focus on the institutional viabi l i ty and operational practices o f the implementing agency i s critical for solid and sustainable results o n the ground; and
b) State-level problems remain critically relevant to the financial health o f central entities l ike POWERGRID. Payments discipline by state utilities to POWERGRID needs to be closely monitored during implementation o f the project.
5. Alternatives considered and reasons for rejection
The fol lowing alternatives options were considered for this operation:
a) Conventional large investment operation: The Go1 has requested the Bank to consider lending for the transmission sector in the order o f US$1 bi l l ion over the 2004 C A S period. Processing o f a single conventional investment operation in response to this request would
5
require detailed identification and appraisal o f investments prior to loan approval. This alternative i s seen as offering insufficient flexibility for aligning transmission schemes with progress in generation projects. Running one very large loan would also impose a greater burden o n India in terms o f commitment charges.
b) Adaptableprogram lending (APL): An APL could have been an attractive option were it possible to identi fy definitively in advance clear priorities and milestones for sector reform, and to assure that such milestones were both meaningful and reasonably within the control o f the implementing agency. These conditions do not ho ld in the case o f reforms affecting transmission under the EA 2003, which are s t i l l evolving. Accordingly, an APL i s seen as a relatively risky option.
c) Time-Slice Lending: Given the nature o f POWERGRID's operations as a transmission service company, part o f its investment program i s linked to evolving generation projects in the public sector as well as inter-state and/or inter-regional mega projects developed by Independent Power Producers (IPPs) and the growth in load demand. Accordingly, both the size and the composition o f the investment program will inevitably undergo changes, depending o n the speed at which generating stations come on l ine and the timings o f load growth. A time-slice lending approach wou ld provide the necessary funding flexibi l i ty to respond to changes in its investment program, more in l ine with commercial financing. On balance, the t ime slice approach was considered superior to the alternatives because o f the operational f lexibi l i ty i t provides for POWERGRID and the Bank.
I t i s envisaged that the Bank will consider further financial support to POWERGRID's investment program beyond this project, as needed, o n the same time-slice basis, in accordance with India's continued progress in sectoral reforms at the national level, and POWERGRID's institutional development and growth.
C. IMPLEMENTATION
1. Partnership arrangements
That part o f the investments not financed by the Bank will be funded f rom equity and local debt finance. As with previous loans, ADB is implementing a project with POWERGRID in parallel to the proposed Bank funded operation. There are n o overlaps between the two projects, and the investments under each project have been confirmed as being complementary. POWERGRID is comfortable with the financing and implementation arrangement for these parallel partnerships and i s endeavoring to harmonize the monitoring, reporting and evaluation requirements o f the distinct operations.
2. Institutional and implementation arrangements
POWERGRID has over the last decade acquired and developed the skills required to successfully plan and implement large transmission schemes (up to 765 kV AC and 500 kV HVDC systems). Most o f the schemes envisaged under this operation would be designed, engineered and implemented by POWERGRID. The assistance o f reputed international
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consultants i s likely to be required for more technically complex schemes, e.g. HVDC systems with voltage level higher than 500 kV. Local and foreign contractors engaged through international competitive bidding will carry out supply, installation and erection works.
Implementation arrangements will include the use o f the practices institutionalized under the previous loans including the institutional oversight by the Ministry o f Power (MOP) and the Ministry o f Finance (MoF). The Central Electricity Authority (CEA) i s responsible, inter alia, for sector planning and the Central Electricity Regulatory Commission (CERC) i s responsible for tar i f f formulation and notification as we l l as sectoral regulation. Both these agencies will fo l low their usual procedures with respect to the project investments.
3. Monitoring and evaluation o f outcomes/results
POWERGRID will provide to the Bank quarterly progress and financial management reports, quarterly information on progress o n k e y entity and sectoral performance indicators and o n billing and collection, audited financial statements (within six months o f the end o f each financial year), and such other information as the Bank may reasonably require. These arrangements are working in a satisfactory manner under the ongoing operations and will continue under the proposed project. POWERGRTD will carry out a mid-term review and report i t s findings and conclusions to the Bank two and a h a l f years after effectiveness, and will review these with the Bank. Annex 3 sets out the k e y performance indicators for the project, which are a subset o f a larger set o f indicators prepared by POWERGRID. The Bank will f ie ld implementation review missions two to three times per year, as with previous operations, and will continue observing POWERGRID’s institutional growth and development and the GoI’s policies for power sector development.
S u s t ainability The principal issue o f sustainability for this project i s the GoI’s and POWERGRID’s continued commitment to India’s ongoing program o f power sector restructuring, and particularly the implementation o f the mandate o f the EA 2003. The GoI, CERC and POWERGRID have reaffirmed their commitment to the implementation o f the Act, including fol lowing the change o f Government in 2004. POWERGRID’s commitment i s also evidenced in their performance in the implementation o f ongoing Bank-supported projects.
One o f the most significant threats to POWERGRID’S sustainability has been the historical failure o f i ts state utility customers to pay their bills in full and o n time. The securitization mechanism introduced by Go1 has done much to resolve this situation and payment discipline has substantially improved. When defaults have taken place, POWERGRID has enforced supply regulation as per the terms o f securitization mechanism. Continued adherence to these strict credit policies and enforcement o f collection mechanisms will require concerted efforts by POWERGRID and the GoI. To ensure the continuation o f these improvements, the covenant o n the level o f accounts receivable used in the PSDP I1 loan will be repeated under this loan, with further tightened norms, to reflect the progress made to date.
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4. Critical risks and possible controversial aspects
Risk
Risks for the achievement o f the project objectives are pr imari ly l inked to the continued commitment o f the Go1 to i t s power sector reform goals. The Government has publicly announced these goals and i s actively pursuing them. .
Risk Rating
Mitigation Risk Mitigation Measure after
T o development objective: Financial performance - POWERGRID’s financial performance deteriorates.
Tar$@ - Tariffs in the North-East Region are kept below cost recovery and as a result POWERGRID does not get adequate tariffs f rom the Nor th East to justify investments in system strengthening or interconnections.
Institutional development - Adequate attention i s not paid to continued institutional develoument. Commercial aspects - The commercial discipline in force as a result o f securitization deteriorates, and arrears begin building up again.
Open access - r POWERGRID i s
POWERGRID’s financial performance has improved consistently, and it meets a l l the financial covenants. Continued Bank involvement i s expected to assist POWERGRID in accessing commercial sources at better terms o f financing o n i ts o w n strength. Investment costs are high in the Nor th East as the investments are built allowing for expansion given the large future generation plans for that area and the restricted rights o f way. CERC and MOP are we l l aware o f this problem and are working on methods o f ensuring that POWERGRID i s provided adequate tariffs to recover the cost o f i t s investments. The Bank will assist with this process and wil l also work with POWERGRID in developing cost-effective ways o f building and pricing transmission capacity. The Bank i s helping POWERGRID strengthen i tself through a benchmarking exercise with international utilities in the areas o f financial management, procurement safeguards. POWERGRID has been implementing the provisions o f the Tripartite Agreement’, and as a result, i ts receivables are we l l within the covenant. The Bank will continue to support POWERGRID in i t s efforts to maintain the pressure o n t imely payments . A s open access leads to more large consumers directly contracting, additional emphasis will need to be placed o n contract provision and their enforcement since this wil l be outside the Tripartite Agreement. The Bank and POWERGRID have been discussing the uolicies o n oDen access with Go1 and CERC. in
L o w
L o w m e d i u m
L o w
L o w m e d i u m
Med ium
See details in the section D. 1 5
8
mandated to make investments for open access for which i t i s not adequately compensated or which prove to be technicallv inefficient. T o component results: Delays in implementation o f key investments.
Inadequate implementation o f social and environmental safeguards policies
Overall rating
Controversial aspects:-
order to ensure that open access does not lead to either losses for POWERGRID or redundant investments in the system. As noted above, tar i f f po l icy i s expected to be reviewed in light o f ensuring incentives and financial sustainabilitv o f investments.
Advance procurement action i s being taken for the investments in the f i rs t year o f the project. POWERGRID has demonstrated i ts ability to plan and implement even complex investments on t ime and to cost. POWERGRID has already institutionalized these policies in i t s environmental and social pol icy framework, and takes advance action on implementing these policies in al l i t s investments. The Bank will continue to monitor the implementation o f these policies in future investments.
L o w
L o w
Low/Medium
N o controversial aspects related to this operation have been identified. In particular, no major social or environmental issues are anticipated in POWERGRID's operations.
5. L o a d c r e d i t conditions and covenants
Standard Bank legal requirements (guarantee agreement between the Government and POWERGRID in effect, legal opinions o n the Government/ POWERGRID agreements with the Bank).
Security arrangements satisfactory to the Bank. Some o f POWERGRID's transmission assets are subject to l iens. The Bank therefore also requires liens, which will rankpar ipassu with other l ien holders, in such form as the Bank m a y reasonably require.
POWERGRID shall furnish to the Bank, not later than six months after the end o f each fiscal year, certified copies o f i ts audited financial statements and Special Account Audit, and i ts auditors' reports o f such scope and in such detail as the Bank may reasonably request.
Except as the Bank shall otherwise agree, POWERGRID shall take a l l necessary measures to produce, each year, funds from internal cash generation equivalent to not less than 20 percent o f its capital expenditures (three-year moving average).
Except as the Bank shall otherwise agree, POWERGRID shall not incur any debt, if after the incurrence o f such debt, the ratio o f debt to equity shall be greater than 4 to 1.
9
Except as the Bank shall otherwise agree, POWERGRID shall take al l necessary steps to maintain i ts accounts receivable at a level not exceeding an amount equivalent to i ts billing for transmission and other regulated services for the preceding three months.
The Go1 shall take al l necessary steps to al low POWERGRID to maintain its accounts receivable at a level not exceeding an amount equivalent to i t s billing for transmission and other regulated services for the preceding three months.
POWERGRID shall furnish, not later than December 3 1 o f each year, i t s ten-year financial projections, including i ts investment program and financing plan, for Bank review and comments.
POWERGRID shall prepare a detailed Project lmplementation Plan for each Investment Scheme presented to the Bank for approval.
POWERGRID shall carry out the project in accordance with satisfactory technical specifications and standards, and the Environmental and Social Policies and Procedures, including plans to mitigate adverse impacts prepared under such Procedures.
POWERGRID shall provide monthly reports o n collection and billing and quarterly reports o n the progress o f the project. The mid-term review o f the project shall be carried out by December 31, 2008.
D. APPRAISAL SUMMARY
1. Economic and financial analysis
POWERGRID's current financial performance i s satisfactory. The regulatory framework i s designed to provide tariffs to enable the company to obtain a return o n equity (ROE) o f 14%. Financial projections (summary table at Annex 9 ) demonstrate that, subject to tar i f f adjustments in l i n e with current regulatory framework, POWERGRID's financial performance will remain adequate to support i ts investments.
Reduction in technical losses has been used as one physical measure o f project benefits. POWERGRID has estimated this reduction in losses to be about 438 MW under peak load conditions, which represents an annual reduction o f 2033MU with implementation o f the core schemes.
In order to calculate the Economic Rate o f Return (ERR) o f the project, the losses have been valued using the generation cost o f recently commissioned thermal plants, wh ich was Rs 3.62 per kWh. This assumption i s a more conservative estimate compared with the avoided cost o f diesel generation (Rs 5.70 per kWh) used by CERC to value such reductions.
10
The ERRs for the core schemes are higher than the opportunity cost o f capital o f 12%. The ERRs are in the range o f 14.83% to 15.96% in the base case and 10.46% to1 1.06% in the most adverse case . 6
The financial appraisal o f the project has been carried out using the Return o f Equity as an index, since the cost o f debt i s a pass through in the tariff. The ROE for the core schemes are satisfactory and in the range o f the estimated cost o f equity for POWERGRID o f 12% to 14%. See Annex 9.
Government o f India i s planning to divest a small port ion o f i ts equity in we l l performing public sector entities through a public sale, to recover some o f i t s investments for other priority sectors and also al low wider public participation in the ownership o f such companies. This exercise would not significantly dilute the Go1 ownership structure as the proportion sold will be small. NTPC was the first central public sector to make a public offering in the power sector and there i s a possibility that POWERGRID could be one o f the entities considered in the future. We have assessed as part o f our review the impact o f any such sales and conclude that such move i s unlikely to have any negative impact o n the financial scenarios or POWERGRID’s ability to service the Bank loan.
POWERGRID’s ma in financial r isk i s the risk o f non-payment by off-taking state uti l i t ies, which was a significant problem for many years, but this r isk has been largely addressed through the securitization o f past debts established in the Tripartite Agreement o f 2003. Under this arrangement, satisfactory payment discipline has been maintained over the last year. Currently, POWERGRID’s accounts receivable stand at 2.02 months o f sales as on August 31, 2005, and collections are currently in the region o f 98% each month.
The proposed three financial covenants (accounts receivable, debt to equity and self financing ratios) are the same as POWERGRID’s existing covenants except that the accounts receivable covenant i s n o w set at three months o f sales rather than the four months used under PSDP 11, reflecting the improvements in collection efficiency noted above. Annex 9 presents the key financial statements, showing forecast compliance with proposed financial covenants for the next ten years, and the assumptions used in the projections.
2. Technical
The project does not pose any particular technical risks, given POWERGRID’s demonstrated capabilities in transmission system development and the use o f proven technologies and implementation practices. POWERGRID selects and designs schemes in i t s investment program based o n comprehensive planning and system studies, and after obtaining technical clearances from the Standing Committee constituted by the CEA. POWERGRID has demonstrated the capacity to implement Bank-financed schemes within agreed costs and t ime schedules.
As o f March 3 1,2005 POWERGRID operated about 5 1,000 circuit km o f transmission lines, comprising 765 kV A C lines and 500 kV H V D C back to back and long distance transmission
This case assumes a reduced ROE of13%0, an implementation delay o f 2 years, a cost escalation o f 10% and foreign 6
exchange rate reduction by 10%. However, this scenario i s very unlikely, g iven POWERGRID’s track record.
11
systems with a total installed transformation capacity o f about 50,000 MVA distributed over 85 substations. The schemes successfully completed by POWERGRID include a 1387-km H V D C bi-pole link f rom Talcher to Kolar interconnecting Eastern and Southern regions, a 937-km 765kV single circuit transmission l ines from Kishenpur to Moga and from Tehn to Meerut in Northern region, and three regional multi-hierarchical load dispatch centers.
3. Fiduciary
POWERGRID has an adequate financial management system and framework for carrying out the functions assigned to i t under the project, including accounting and reporting for project resources and expenditures. POWERGRID’s financial management performance under previous loans has been satisfactory.
Project funds will be disbursed init ial ly under traditional procedures, with an option o f converting to a reports-based disbursement. POWERGRID has been maintaining i ts equity contribution’ at 30 % o f the total cost in al l the schemes. As such, the overall Bank loan share in any scheme would be maximum 70% o f i t s total cost, whi le disbursement under the Bank loan would be made upto 100% for the contracts which have fol lowed the Wor ld Bank guidelines for procurement.
POWERGRID’s systems are well equipped to generate quarterly FMRs (which will report o n the full project costs) in the agreed formats detailed in the PIP. To meet the fiduciary requirements, the Bank wil l receive (i) a project audit report and (ii) the entity audit report o f POWERGRID within 6 months o f the end o f the fiscal year. The project (all components) will be audited by an independent firm o f chartered accountants, acceptable to the Bank, under agreed terms o f reference. The internal audit department o f POWERGRID wil l carry out an internal audit o f the concerned Region (including IBRD financed project) and wil l ensure that operational, accounting, payment and procurement procedures are fol lowed in implementation o f the project.
Procurement for the project will be carried out in accordance with the Wor ld Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated M a y 2004 and “Guidelines: Selection and Employment o f Consultants by Wor ld Bank Borrowers” dated M a y 2004.
Goods to be procured under “Supply Contracts” for the core schemes identified under this loan will include 765 kV and 400 kV Conductor and Insulators for transmission lines and 500 kV H V D C Conductor and Insulator packages. These will be procured in about 20 lots/packages. The value o f contract packages for goods to be procured o n “supply” contract basis will range from about USD 1 mi l l i on to USD 14 mi l l ion.
Further goods and equipment for transmission systems will be procured under “Supply and Install” contracts. Such goods and equipment will be procured in about15 lots / packages. The value o f contract packages for goods to be procured o n a “Supply and Install” contract basis wil l
~~
’ CERC allows POWERGRID a return o f 14% on equity up to a maximum o f 30% equity in any scheme, and POWERGRID has been maintaining its equity contribution in a l l the schemes at this level.
12
range f rom about U S D 2 to 383 million. The largest package i s for the procurement o f H V D C Terminal at Bal ia and Bhiwadi.
All procurement o f goods under "Supply" and "Supply and Install" contracts will fo l low the International competitive bidding procedures o f the Bank. The procurement o f goods will be carried out using the Bank's Standard Bidding Document (SBD) for the Goods and the Bank's S B D for "Supply and Installation o f Plant and Equipment" as a base and as agreed with the procurement unit in the Bank's New Delh i Office. Similarly, the Bank's Standard RFP wil l be used as a base for procurement o f a l l consultancies under the project.
4. Social
A s the project includes strengthening o f transmission lines and establishing grid substations (GSS), which could involve land acquisition, i t can be expected to have some social impacts. POWERGRID plans to reduce adverse social impacts through: (i) avoidance o f transmission routes involv ing human displacement; (ii) ensuring that routes do not threaten the survival o f any community (with particular reference to tribal groups); and (iii) ensuring that routes do not adversely affect public utility services. Although no physical displacement i s envisaged, constructing GSS may involve land acquisition affecting economic livelihoods. POWERGRID has made significant efforts to reduce i ts demand for land. As a result, GSS currently require 15- 40 hectares o f land as against earlier requirements in the order o f 20-60hectares, depending o n voltage level.
POWERGRID has been addressing social issues associated with transmission schemes through the application o f i t s Environmental and Social Pol icy and Procedures (ESPP), agreed with the Bank in 1998, which has been revised in March,2005 based o n the experience o f the past six years implementation (See Annex 10). The ESPP i s applicable to a l l schemes implemented by POWERGRID, irrespective o f sources o f funding. On social aspects, the revised ESPP specifically includes a resettlement/Rehabilitation entitlement framework and a strategy to address the issues and concerns o f vulnerable groups, including tribal groups, etc., associated with any investment program. POWERGRID has undertaken social impact assessments and has prepared Resettlement Act ion Plans (RAPs) for each o f the first-year investments (Wardha, Bal ia and Bhiwadi grid substations). These R A P s have been reviewed by the Bank.
At the corporate level, POWERGRID has established a strong Environment and Social Management Div is ion (ESMD) headed by a General Manager, and supported by seven environment and social specialists under the overall control o f an Executive Director (Corporate Planning). In each o f the seven regions o f POWERGRID, there i s one separate unit headed by a Deputy General Manager /Chief Manager responsible for managing social and environmental activities and ensuring coordination with ESMD in the corporate office.
POWERGRID will continue monitoring social and environmental issues through a monitoring mechanism established at the corporate, regional and f ield levels. Evaluation o f social action plans will be undertaken through external agencies. POWERGRID has constituted a committee of experts, with both national and international experience, to review the planning and
13
implementation o f social and environmental management plans. In addition, the Bank wil l supervise the social and environmental components o f the project jointly with POWERGRID.
5. Environment
Transmission schemes are generally environmentally clean and non-polluting in nature. Their impact o n the environment i s generally restricted to rights o f way (ROW). The schemes implemented by POWERGRID typically do not involve disposal o f any pollutant in land, air or water, nor any large-scale excavation that may result in soi l erosion. Given the large geographical spread o f the transmission system (voltages above 400 kV and relatively large substations), and given the assumption that some o f the project transmission l ines may pass through forested areas, the project has been assigned a safeguard category “A”. Accordingly, safeguard policies o n Environmental Assessment OP4.01 and Natural Habitats OP/BP 4.04 have been triggered.
The fol lowing are the key features o f the POWERGRID’S ESPP as regards environmental issues, which i s applicable for a l l projects, irrespective o f financing source:
a) Environmental Assessment process for schemes - The environmental clearance process for schemes will include environmental assessment in two stages. During the first stage POWERGRID will prepare an in i t ia l environment assessment report (IEAR) based o n the available GIS survey for fixing l ine routes and sensitive areas such as reserved forests, wild l i f e sanctuary, national park, protected areas supported by public consultation and ground survey, particularly with reference to sensitive areas and other important points, if any. The IEAR is expected to capture a l l significant environmental issues supported by an environmental management plan, including budget provisions. The second stage will produce a final environmental assessment report, to be submitted after completion o f a detailed survey o f the entire route and minor site specific changes. This will also include a socio-economic survey conducted by a third party in consultation with affected people, after the selected land i s noti f ied under the Land Acquisition Act. The Environmental Assessment reports for each scheme will include a set o f indicators and a mitigation plan to be supervised during the implementation stage. The details o f this process are outlined in Annex 10.
b) Route selection: POWERGRID wil l increase the use o f scientific tools such as GIS/GPS for route alignment and finalization o f locations o f substations, supported by ground truthing, fol lowing the principle o f avoiding human rehabilitation and impacts o n natural resources such as national parks and biosphere and eco-sensitive zones. POWERGRID will continue to use engineering design interventions to avoidminimize environment and social impacts, such as adopting innovative tower design (e.g. multi-circuit and very ta l l towers) to protect wildlife and trees in ecologically sensitive areas.
c) Management System: POWERGRID has adopted a certified comprehensive “Integrated Management System” (IMS) comprising International Management System viz. ISO: 14001 for Environment Management, OHSA: 18001 for Occupational Heal th & Safety and I S 0 9001 for Quality management. This wil l enhance the effectiveness o f ESPP implementation. As a
14
requirement o f retaining certification, POWERGRID has engaged a third party, internationally accredited organization to regularly audit the effectiveness o f i ts IMS.
d) Institutional arrangements: These are the same as those described for social matters, under the ESMD.
6. Safeguard policies
Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP/GP 4.0 1) [ X I [I Natural Habitats (OP/BP 4.04) [XI [I Pest Management (OP 4.09) [I [XI Cultural Property (OPN 1 1.03, being revised as OP 4.11) [X I
Involuntary Resettlement (OP/BP 4.12) [ X I [I Indigenous Peoples (OD 4.20, being revised as OP 4.10) [I Forests (OP/BP 4.36) [XI [I Safety o f Dams (OP/BP 4.37) [I [XI
Projects in Disputed Areas (OP/BP/GP 7.60)* [I [XI
Projects o n International Waterways (OP/BP/GP 7.50) [I [XI
[I
[ X I
7. Policy Exceptions and Readiness
N o pol icy exceptions have been sought.
POWERGRID has started preparing the investment schemes, and has developed a project implementation plan that indicates the status o f various actions for the core schemes. Environment and Social management plans have been prepared, and detailed plans for the implementation o f the f i rs t year activities have also been prepared. POWERGRID has already obtained investment approval for the three core schemes f rom GoI. In parallel, POWERGRID has started preparation o f technical specifications and bidding documents. POWERGRID has already issued “Invitation for Bids (IFB)” for major packages valued at about U S $ 4 4 0 mil l ion, following the M a y 2004 Bank procurement guidelines for supply and installation packages.
* By supporting the proposedproject, the Bank does not intend to prejudice the f inal determination of the parties‘ claims on the disputed areas
15
Annex 1: Country and Sector o r Program Background
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
Introduction
The goal o f universal access by 2012 being pursued by Go1 wil l require sizeable additions to generation, transmission and distribution capacity. The Central Electricity Authority (CEA) has projected a peak load o f 157 GW in 201 1-12 (end o f Eleventh Plan) for the country as a whole, compared to 75 GW o f peak demand met during 2003-04, requiring an increase o f 91GW in generation capacity.* During the Tenth plan period, capacity addition o f 41 GW is envisaged (of which, 56% would be developed by the central sector, 27% by states and 17% by private players). Augmentation o f transmission and distribution infrastructure will need to be commensurate with these expansions in generation.
Investment in India’s generation and transmission capacity have been slow to materialize, particularly with private finance, mainly because the off-taking utilities, the State Electricity Ut i l i t ies , are not creditworthy and the regulatory environment i s perceived as risky. T o a significant extent, this problem will persist into the near future. Domestic and agriculture tariffs are st i l l far below the cost o f supply and losses (incorporating technical losses and pilferage) continue to be high at the state transmission and distribution level.g Thus, in most States, the power utilities are a serious drain o n the state exchequer. In addition, recent actions after the general election in 2004, particularly the introduction o f “free power” for agriculture in some states, have pushed back the sustainability o f the sector s t i l l further.
These problems are clearly recognized by the GoI, which i s working towards solutions. In this respect, s igns o f progress include the enactment o f the new Electricity A c t o f 2003; the creation o f the state and central independent regulatory commissions; improved payment discipline by the states to central sector companies with agreements (“tripartite agreements” o n securitization o f past dues; introduction o f the bulk power tar i f f reforms and facilitation o f increased electricity trading. This improving sector environment provides an opportunity to the Government, the Bank and the other financers to ensure that future expansion o f investment i s based o n financial and economic sustainability, in tandem with the process o f institutional reform.
Government Legislation and Policies
As noted above, Go1 has produced new legislation to address some o f the sector issues. The Electricity Ac t (EA2003) was noti f ied in June 2003,” including notable reforms such as:
0
0 the de-licensing o f generation;
the introduction o f an open access system to facilitate a more competitive power sector for large consumers ;
Past record o f meeting projected growth in the power sector i s poor in India. During the Ninth Plan, a capacity addition o f 40 GW was
When l inked w i th uncollected bills the aggregate technical and commercial losses can be in excess o f 50%. envisaged, but only 19 GW (47% o f the target) was achieved.
lo The CAS also notes that the reforms envisaged in the Electricity A c t 2003 “provide the basis for a new partnership w i th the Center and the Bank Group to support transmission, distribution andgeneration in India”.
16
0
0
actions to simplify the provision o f rural access; and further unbundling o f the sector to facilitate greater competition, such as the separation o f trading f rom transmission.
Implementing the EA 2003 has involved the formulation and then publication by Go1 o f several key pol icy documents. O f these, the National Electricity Pol icy and Rural Electrification Pol icy have been finalized and drafts o f other policies are under discussion with various stakeholders. Work has also progressed at CERC, POWERGRID, the state regulators and other power sector entities in establishing the rules, regulations and procedures for applying open access. See Annex 15 for details.
Development o f POWERGRID
POWERGRID has been appointed by the Government o f India as the Central Transmission Utility for the country. I t operates and maintains one o f the largest extra high voltage (EHV) transmission networks in the world, with about 5 1,000 circuit k m s o f both AC and D C transmission network up to 765 kV voltage level and 85 sub-stations with transformation capacity o f about 50,000 MVA”. I t also owns and operates the five state o f the art multi- hierarchy regional load dispatch centers (RLDC) in the country. About 45% o f total power generated in the country, more than 200 b i l l ion kWh, worth U S $ 9 bi l l ion per year, i s transmitted across the country over POWERGRID’S transmission network. The system i s n o w routinely operated at 99% availability each year.
POWERGRID has developed into a well-respected public sector enterprise, which attracts highly qualified staff, who are employing international standards o f design, engineering, construction and finance. Contracts are let through a transparent Works and Procurement Pol icy and Procedure, which i s we l l advertised and disseminated. POWERGRID was the first public sector entity in India to adopt a corporate environment and social po l icy and procedure (ESPP). This ESPP outlines POWERGRID’S commitment to address environment and social issues and lays out management procedures and protocols to effectively manage and mitigate them.
POWERGRID has a continuing program o f development and had sought Wor ld Bank assistance in achieving an international benchmark standard o f performance. I t has in i t ia l ly identified fol lowing areas as the next focus o f i t s development, o n each o f which it had convened a committee o f independent experts as follows:
a) Technical Capabilities M o d e m survey techniques l ike Geographical Information System (GIS) surveys based o n satellite imageries superimposed o n Survey o f Ind ia topographical sheets are already being used for transmission l ine planning. The high resolution (5.8 meters) helps minimize the length o f the l ines by fixing the route o f the l ine as near as possible to the most direct route, reducing construction costs by avoiding di f f icul t areas l ike marshy land and to minimizing the impact o n environmentally sensitive areas. The digital tower spotting and digitizing o f the route and tower locations, would help in reducing the time to attend the operational emergencies as we l l operational costs. This system also helps in preparing accurate engineering details for preparing contract specifications for the transmission lines.
As o f March 31.2005
17
POWERGRID is establishing a Center for power transmission research and applications to further is research and development activities and ensure that i t keeps pace with emerging new technologies and procedures. I t has also constituted an Expert Committee o n Research and Development, wh ich will advise POWERGRID on new transmission technologies, equipment l i fe extension measures and guide research and development activities (especially in fields o f extra high voltage A C and D C transmission).
b) Environment and Social Safeguards. Transmission projects’ environmental and social impacts are restricted mainly to those associated with rights o f way and land for building substations. However, given the scale o f the national grid, i t i s inevitable that there i s some impact both o n natural environment and communities. POWERGRID has taken a pro-active approach towards avoidance, minimization and mitigation o f any impact o n environment and communities. The Environment and Social Management Department (ESMD) has been staffed to pursue this mandate and to mainstream social and environmental issues into the design, planning and implementation process (see Annex 10).
POWERGRID has formed a committee o f independent experts o f national and international repute, to help review i t s ESPP, to develop measures to be taken for more effective E S A outcomes and to advise o n organizational or other adjustments needed to implement corporate policies and adequately integrate good practice. In addition the processes adopted under the recent qualification o f POWERGRID for I S 0 14001, which will be integrated with the corporate ESPP in due course, and will help in third party checks and feedback.
c) Financial management. In order to improve i t s financial management policies, systems, procedures, and i ts treasuryhinancing, POWERGRID has constituted an expert committee o n Financial Management chaired by the ex-Comptroller and Auditor General o f India. In addition, POWERGRID has begun to update i t s accounting manuals and introduce revised procedures for such issues as budgeting, bond management, employee benefits, and internal audit. POWERGRID has an action plan in this regard which will be followed up during the course o f the loan. (See also Annex 7 )
d) Procurement as noted above, POWERGRID has adopted transparent works and procurement pol icy and procedures, which are publ icly available o n the website. A committee has also been constituted, with representatives f rom a range o f prominent Indian agencies, which wil l examine such issues as audit queries, complaints, issues pertaining to procurement, project execution and financial aspects raised by external agencies. This committee will also recommend improvements to the existing systems and procedures. (See also Annex 8)
Sector Reform and Private Participation in Transmission
POWERGRID i s a key participant in several sector reform initiatives such as the introduction o f open access and promotion o f private participation in transmission o f power. As the operator o f the Regional Load Dispatch Centers, POWERGRID has been instrumental in formulation o f guidelines and procedures for short-term open access. I t has also developed an online bidding system for open access to constrained transmission lines (see Annex 15).
POWERGRID was in i t ia l ly given the mandate to promote private participation in transmission and it successfully initiated the first jo int venture in power transmission in India. At the same t ime i t endeavored to secure the introduction o f India’s f i rs t Independent Power Transmission Company (ITPC), through promotion o f a BOOT project. However, this attracted only one bid,
18
which was not ultimately accepted by CERC, demonstrating that the private sector st i l l perceives there to be significant risk in the sector. However, since then, POWERGRID has floated three more jo int venture projects, in which there has been significant interest. There are plans, gradually, to shift the r isk involved in the jo int venture projects away f rom POWERGRID and towards the private partner - the latest solicitation takes some steps towards this.
POWERGRID had i ts experience in encouraging private participation in transmission reviewed by an international expert. Whi le POWERGRID no longer has the mandate to promote private sector participation in transmission in India, i t has, as the Central Transmission Utility, an important role in development o f policies and procedures in this area. The Bank will continue to work with POWERGRID and CERC o n these issues. Results from an in i t ia l review, undertaken by a consultant o n behalf o f the Bank, o f the private transmission projects in India and h o w they compare to similar projects in Lat in America are being disseminated.
Bank support to date
The Bank has, over the last decade, supported investments in the power sector to promote sectoral reforms at the state as we l l at national level. At the national level, the focus i s main ly o n generation (renewable and thermal) and inter-state transmission. With the Bank’s support, Go1 and some state governments have made significant progress in reforms in the power sector. Although the over a l l pace o f reform has been much slow, significant achievements have been made such as the establishment o f independent regulatory regimes at the state and national level and functional unbundling which has helped bring greater accountability and focus o n commercial operation, especially in the distribution business.
Bank support to this project
A strong transmission network i s essential in a country which has such long distances between generating stations and load centers and variation o f load demand across the states (both seasonal and daily), necessitating large power transfers across the country. The existing transmission system needs improvement as the network i s overloaded in many areas, leading to poor voltages and potential for grid collapse. Given this, Go1 has asked the Bank to assist in further strengthening the inter-linkages between the regions and establishing a national transmission network.
Support for this investment and the related technical assistance provided through this loan would:
0 provide improved service at the transmission level and help address the system bottlenecks that exist as we l l as supporting the general development o f a national transmission network, sometimes requiring new and innovative solutions; help create some surplus capacity to support short-term and long-term open access, thus helping create an environment in which large consumers have an effective choice o f power provider; further improve the environment for investment since issues relating to the solicitation o f investments as we l l as the way they are remunerated through the pr ic ing system will a l l
0
0
19
have to begin to be addressed. This includes consideration of the way that transmission tariffs are determined; and provide further opportunities for private sector participation in the transmission system (this should also help create a more positive environment in general for private sector participation in the power sector).
0
20
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
I Ratings: HS= Highly
WORLD BANK AIDED PROJECTS IN THE ENERGY SECTOR
I
satisfactory; S=Satisfactory; U=l
Development Project- I1
Status
Supervision
Closed 1 IN: Orissa Power Project
Approval Date 3 M a y 2001
14 M a y 1996
IN: Renewable Energy II/Energy Efficiency
IN: U P Power Sector Restructuring.
IN: Rajasthan Power Sector Restructuring Project IN: Nathpa Jhakri Hydro Power
Supervision
Closed
IN : Haryana Power Sector Restructuring Project
IN: Andhra Power Sector Restructuring Project
27 June 2000
25 April 2000
Supervision 18 January 2001
Closed
Closed
Closed
2 March 1989
15 January 1998
18 February 1999
PROJECT
U ttarancha 1 Power Sector Proi ect
Power Grid l'ransmnission (Sector) Proiect
Assani Power Sector Development Program (Proiect Loan')
IP ratings S
U
TYPE Approval Executing Objectives and Scope
Loan 2005 Uttaranc ha1 Expansion o f the northern gr id and increase the pace Date Agency
Energy and Irrigation Uttaranchal State Department
Loan 21December Power Grid Strengthen India's national transmission gr id to
India Ltd. and reduce losses. Loan 10 December Assam State Strengthening o f transmission and distribution
o f economic development in less-developed regions in
2004 Corporation o f improve system reliability, facilitate power transfers
2003 Electricity Board systems
U
S
isatisfaci
Assam Power Sector Loan Govt. o f Assam Development P rowam
DO ratings S
U
Improvement o f financial viabi l i ty o f sector, and assistance in development o f legal and regulatory framework for sector growth.
U
S
'y; HU=
Sector Issues
Improvement o f Grid and power system commercial operations. Independent Regulation Sector sustainability problems due to high losses. Independent regulation, sector reforms. Development o f small hydro resources through private sector investments. Promote Energy Efficiency investments. Sector sustainability problems due to high losses. Independent regulation, sector reforms. Sector sustainability problems due to high losses. Independent regulation, sector reforms. Power Shortages, strengthen HPSEB operations, strengthen institutional capacity development o f hydropower. Sector sustainability problems due to high losses. Independent regulation, sector reforms. Sector sustainability problems due to high losses. Independent regulation, sector reforms. High untargeted subsidy
ighly Unsatisfactory;
ASIAN DEVELOPMENT BANK AIDED PROJECTS IN THE ENERGY SECTOR
21
State Power Reform Project Loan
Madhva Pradesh Pov.er SDP Loan (Proi ect Loan)
12 December Power Finance 2002 Corporation Ltd. 6 December Madhya Pradesh 200 1 Electricity Board improve sector efficiencies.
Line o f credit for power sector financing.
Facilitate the restructuring o f the power sector to
Development Proarain
Madhva Pradesh Power Sector Development Program Hvdropower DeveloDment
23 August 2004
Loan 6 December Government o f Facilitate the restructuring o f the power sector to
PPTA 6 M a y 2004 National Strengthening the feasibility studies o f two 200 1 Madhya Pradesh improve sector efficiencies.
Uttaranc ha1 Assaxti Power Sector Development Project Enerav Efticiency Euhaticement Power Sector Development Program (Kerala)
PPTA 29 October Assam State Facilitate the restructunng o f the power sector to
PPTA 2 1 June 2002 Govt. o f India
PPTA 4 October Govt. o f Kerala Project preparation for improvement o f sector
2002 Electricity Board improve sector efficiencies. Study o f the feasibility o f developing an active market for energy efficiency.
performance, and pol icy and legislative reforms. 200 1
International Finance Corporation Aided Projects in the Energy Sector
Tala Transmission
Project I Type
Loan
AD Hydro power Limited
Lindblom Hvdropower Private Limited)
Proj. Board Date 24 Sept 2004
31 Jul2003
25 Jul2005
Company
Al lain Duhangan Power Company Ltd. (ADPCL) wil l be joint ly owned by Rajasthan Spinning & Weaving Mills Ltd., HEG Limited and Malana Power Company Ltd. A joint venture between Tata Power Company Ltd. and Power Grid Corporation o f India Ltd. to establish the Tala Transmission project.
Dodson-Lindblom Hydropower Private Limited (DLHPPL) and Ascent Hydro Projects Limited (Ascent) merged into one company, Indian Hydropower Development Corporation (IHDC).
Objective
To help meet peak and energy shortages through construction o f a 192MW run-of- the-river hydroelectric power plant in Himachal Pradesh
Promotion o f the f i r s t public private jo int transmission project in India; Expansion o f inter-regional transmission capacity and evacuation o f power f rom the 1,020 MW Tala Hydroelectric Project in Bhutan. To develop Mini Hydro Power Plants in India
22
Annex 3: Results Framework and Monitoring
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
Results Framework
PDO To strengthen the transmission system in order to increase reliable power exchanges between the regions and states.
Intermediate Results One per Component
Component One: Transmission System strengthening (investments and relevant technical support)
Component Two: Completion o f balance works o f the schemes financed by the B a n k under loan 4603-IN for POWERGRID System Development Project- I1 beyond the loan closing date o f June 30, 2006
Outcome Indicators o Growth in power exchange
between the regions
Results Indicators for Each Component
o Growth in transmission capacity - Circuit k m s
capacity - MVA o Growth in transformation
Component Two : o Completion o f national load
dispatch center;
Use of Outcome Information To determine if the PDO is being reached Measure increase in power exchange and locus o f supplyidemand, Ident i fy bottlenecks and revise future investment p lan accordingly.
Use of Results Monitoring
Component One: To determine if component implementation i s be ing reached
L o w levels m a y f lag either procurement problems, poo r project management, etc.
Component Two: To determine if the PDO i s be ing reached L o w levels m a y f lag either procurement problems, poo r project management, etc.
23
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Annex 4: Detailed Project Description
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
Background
1. resources are abundant in Eastern region, while hydro resources are mainly concentrated in Northern and North-Eastern regions. As a result, some regions do not have adequate natural resources for fueling power plants to meet their future requirements whereas others have abundant natural resources. The growing and geographically dispersed power demand calls for addition o f transmission capacity through creation o f a National Grid for optimal utilization o f generating resources across the country for sustainable development. The environmental considerations also call for judicious usage o f right o f ways for transmission corridors, necessitating development o f a transmission network with a focus o n long time planning consideration and creation o f ‘transmission super highways’. POWERGRID i s building a national power transmission grid to connect power pool ing points in each o f the five electrical regions in India to wheel power f rom surplus regions to deficit regions and realize the goal o f optimal ut i l izat ion o f electricity resources across the country. The national grid wi l l also help more effective implementation o f the planned open access regime in the transmission sector, improve grid security and rel iabi l i ty and stabilize frequency within the acceptable range o f grid operation.
The exploitable energy resources in India are unevenly distributed, l ike coal
2. grids, in i t ia l ly regional connections were asynchronous. POWERGRID has drawn up an ambitious plan to strengthen the inter-regional connectivity with high voltage A C (400 & 765 kV) and H V D C lines by 2012. I t i s envisaged that cumulative inter-regional capacity would be enhanced to about 30,000 MW in next about 10 years, depending upon the speed o f implementation o f power generation projects. Currently, the inter-regional transfer capacity has been reached 9,500 MW (partially supported by the ongoing PSDP- I1 project). PSDP-I11 project would support part o f the investments for the next phase o f enhancements to the national grid. Future loans f rom the Bank are planned to support further investments by POWERGRID.
Considering the wide variation o f electrical parameters in the various regional
Scope of the Project
3. implementation o f schemes to support the building o f 30,000 MW o f inter-regional power exchange capacity (in the next 10 years). Fo r dispersal o f power and absorption by the beneficiaries, inter-regional l i n k s need to be established as we l l as transmission network strengthening within the region need to be undertaken to preclude certain operational limitations. POWERGRID has selected the least cost technical and economic option among the various alternatives studied for each o f the investment scheme. POWERGRID has proposed investment schemes comprising o f “core” and “Candidate” schemes. “Core” investments schemes are advanced in the implementation cycle, and
The project includes the planning, design, engineering, procurement and
25
preparatory w o r k has begun on these schemes. These schemes would start implementation in the f i rs t year o f the project. “Candidate” schemes have been tentatively identi f ied currently or may be identified in the future and these would be eligible for Bank financing according to the eligibility criteria noted below. No new power generation plants would directly link with the proposed investments under this loan for evacuation o f power.
A. Project Component 1 - Transmission Svstem Strengthening Schemes (Base cost- U S $ 797 mi l l ion)
4. Core Schemes
i) Seoni - Bina 765kV single circuit transmission link The objective of this scheme i s to connect a major load centre in Northern part o f the state o f Madhya Pradesh to power pooling point at Seoni as well as to complete the 765 kV ring interconnecting Eastern, Western and Northern Regions as part o f development of the National grid. This wil l help export o f surplus power from Eastern Region to Western and Northern Regions and strengthen the transmission system within Western Region for secure and reliable supply o f power. The scheme i s expected to be completed during the year 2010. The works included are:
Transmission Line Seoni-Bina 765 kV single circuit l ine ( ini t ial ly to be operated at 400kV) - 292
km Substations
Extension o f Seoni 400/220 kV Substation Extension o f B ina 400/220 kV Substation
ii) Seoni-Wardha-Akola-Aurangabad 400 kV transmission link The objective o f this scheme is to provide adequate transmission arrangements to enable Maharashtra to draw power reliably f rom a pooling point in the central part o f Western Region, where power imported f rom Eastern Region and other sources wi l l be pooled. Wardha (Nagpur area) i s one o f the major load centers in the eastern part o f Maharashtra. At present, power to Wardha i s being dispersed through 220 kV lines, which will not be adequate to meet the future demand. Therefore, to meet the present as well as long-term power requirements o f the area with rel iabi l i ty and security, establishment o f a new 400/220 kV substation at Wardha has become necessary. Further, this substation i s proposed to be upgraded to 765 kV level in the future when the inject ion o f power at Seoni f rom Eastern Region would increase and more power transfer capacity wou ld be required to Maharashtra. Accordingly, interconnection o f this substation with the power pool ing station at Seoni i s proposed through a 765kV single circuit Seoni - Wardha line, which wi l l be ini t ia l ly operated at 400 kV. For further dispersal o f power towards central part o f Maharashtra, establishment o f 400 kV D/C Wardha-Akola and Akola-Aurangabad lines are also needed. These lines wou ld enable development o f a paral lel transmission corridor for delivery o f power with reliability and security from pool ing station located in
26
Madhya Pradesh towards eastern/ central part o f Maharashtra. The scheme i s expected to be completed during the year 2009. The works included are:
Transmission Lines Seoni - Wardha 765 kV single circuit (initially to be operated at 400 kV) - 279
km Wardha - Akola 400 kV double circuit - 181 km Ako la - Aurangabad 400 kV double circuit - 265 km
Substations Extension o f 400 kV Seoni Substation N e w 400/220 kV Wardha Substation (2*3 15 MVA) Extensions o f 400/220kV Akola and Aurangabad Substations (owned by Maharashtra State Electricity Board)
iii) Balia - Bhiwadi 2500 M W HVDC Transmission System The objective of this scheme i s to transfer power to Northern and Western regions from Bal ia pooling point, which would in turn get power from surplus Eastern Region. 2500 M W HVDC bipole between Bal ia and Bhiwadi i s required to meet with the power demand for the States of Punjab, Haryana, Rajasthan and Delhi in the western part of the Northern gnd. This HVDC bipole would also be used to supply power to Western Region via Agra-Gwalior 765 kV (initially to be charged at 400 kV level) l i ne through 400 kV double circuit Bhiwadi-Agra line being established under the Northern Region System Strengthening scheme. The scheme i s expected to be completed during the year 2010. The works included are:
Transmission Lines Balia-Bhiwadi 500kV, 2500 MW H V D C Bipole l ine - 803 km
Substations H V D C Terminal for 2500 MW at Bal ia along with associated 400 kV works H V D C Terminal for 2500 MW at Bhiwadi along with associated 400 kV works
5. Candidate Schemes
Apart f rom the above “core schemes”, a number o f “candidate” schemes have been tentatively identified (or may be identified in the future), and wil l be eligible for Bank financing provided the project implementation plans submitted by POWERGRID establish that these schemes meet the el igibi l i ty criteria ( see para 6 below) for financing under this project. The Bank has reviewed the process fol lowed by POWERGRID in identification and planning o f the least-cost technical and economic options for each of the “core” schemes in this time slice and has evolved the above mentioned el igibi l i ty criteria for “Candidate” schemes in agreement with POWERGRID. These el igibi l i ty criteria also include steps that POWERGRID need to fo l low for adequate social and environmental safeguards, while planning and implementation o f these schemes. The following i s indicative l i s t o f candidate schemes.
27
i) Western Region System Strengthening Scheme-I1
Transmission Lines Seoni-Wardha, 765 kV 2nd single circuit (initially to be operated at 400 kV) - 279 km Wardha-Parli 400 kV double circuit (Quad) - 363 km Raipur - Wardha 400 kV double circuit l ine along with 25% fixed series compensation - 363 km Bhadravati - Parli 400 kV double circuit - 380 km Parli (MSEB) - Parli (POWERGRID) 400kV double circuit - 7 km Bina - Gwalior 765 kV 2"d single circuit l ine (initially to be operated at 400
Korba - Birsinghpur 400kV double circuit l ine - 227 km Birsinghpur - Damoh 400kV double circuit l i ne - 254km Damoh - Bhopal 400kV double circuit - 234km
kV) - 235 km
New Substations 0
0
Parli 400 kV Switching Substation Pune, Pandharpur and Damoh 400/220 kV Substation
Substation Extension Works 0 Extension o f Seoni, Bhadravati, Wardha, Raipur, Parli Rajgarh and Gwalior
400 kV Substation Extension o f Parli, Aurangabad, Kolhapur, Karamsad, Limbdi(Chorania), Ranchhodpura (Vadavi), Zerda(Kansari), Bhopal, Korba, Birsinghpur 400 kV Substation Extension o f Bina 400 kV Switching Station
0
0
ii) Transmission System associated with dispersal o f power from Panarasa Pooling Point
Transmission Lines 0
0 400 kV double circuit Panarasa pooling point -Amr i tsar l ine
Loop-in-Loop-out o f 400kVdouble circuit from Parbati-I1 to Koldam at Panarasa pooling point
Substations 0 New 400kV Parbati pooling point GIS substation 0 Extension o f Amritsar 400/220 kV substation
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iii) System Strengthening in South Western Part of Northern Grid
Transmission Lines 0
0
Kankrol i - Jodhpur 400 kV single circuit l ine Kota - Merta 400 kV double circuit l ine
Substations 0 Extensions o f 400/220 kV Kota, Kankroli, Merta and Jodhpur substations
iv) System Strengthening Schemes in Eastern Region
Transmission lines 0
0
0 Baripada-Mendhasal400kV Double circuit l ine 0
0
0
Durgapur-Jamshedpur 400kV Double circuit l ine Jamshedpur-Baripada 400kV Double circuit l i ne
Mendhasal-Berhampur 400kV Double circuit l i n e Berhampur-Gazuwaka 400kV Double circuit l i ne Reconductoring o f Siliguri-Purnea 400kV Double circuit l ine
Substations 0 N e w 400/220 kV, 2x3 15 MVA substation at Berhampur
v) Development of high capacity Transmission System associated with dispersal of power from NER pooling point
0 Pooling station in NER - Load point in NR/WR + 600kV, 4000MW H V D C bi pole.
vi) East-West Transmission corridor
Transmission lines Ranchi - Rourkela 400kV double circuit l ine. Rourkela - Raigarh- Raipur 400kV double circuit line.
0
0
Substations Extensions o f Ranchi, Rourkela, Raigarh and Raipur 400/220kV Substations. Fixed Series Compensator + Thyristor Controlled Series Compensator o n Raigarh-Raipur 400 kV double circuit line.
0
0
b) North- West Transmission corridor
Transmission lines Agra - Gwalior second circuit 765kV (to be ini t ia l ly operated at 400 kV) Kankrol i - Zerda 400kV double circuit
29
Substations Extensions o f Agra, Gwalior, Kankrol i and Zerda 400/220kV Substations
Eligibility criteria for financing the schemes.
6. Schemes from the above l i s t or others will be eligible for financing under the loan, based on Project Implementation Plans submitted by POWERGRID, which establish to the satisfaction o f the Bank that an Investment Scheme for wh ich the Bank approval i s sought meets the eligibility criteria set out below : -
General Criteria
1. The Investment scheme i s technically and operationally just i f ied and has been formulated after taking into account other alternative investments.
2. The Investment scheme i s based on the least cost options and i s included in the overall least cost Investment Program o f POWERGRID, and is economically and financially justified.
3. The appropriate authorities o f the Government o f India have provided required clearances/approvals for implementing the Investment scheme, including environment and forest clearances, as applicable, prior to init iat ion o f construction o f those relevant segments o f such Investment scheme for which environmental and forest clearances are required.
4. The Investment scheme has adequate financing, procurement and implementation plans.
5. The Investment scheme complies with POWERGRID’s Environmental and Social Pol icy and Procedures and towards that end, POWERGRID has carried out an environment impact assessment and prepared an environmental mit igat ion plan, and where applicable, a resettlement and rehabilitation plan or other development plan for adversely affected people, a l l in a manner satisfactory to the Bank.
6. TheInvestment scheme shall be for strengthening o f the transmission system and inter-regional power exchange for the National Grid.
7. Such additional criteria as may be specified by the Bank for each additional investment scheme, other than the Core schemes.
Technical Assistance
7. services for various institutional development and technical assistance activities. Technical assistance will be provided for enhancing inter-regional power exchange capacities, building a data base o f the system and also for conducting residual l i f e assessment studies o f the equipment which have already served their l i fe . The Bank will help POWERGRID in identi fying areas requiring strengthening to further define and
POWERGRID’s investment program includes a provision for consulting
30
implement i ts role in the new environment o f the Electricity Act, 2003. POWERGRID has a plan for various technical assistance activities, some o f which will be financed under this loan, but the exact selection o f activities will depend o n the availability o f alternative grant finance, and the finance source preferred by POWERGRID and Government o f India for any given activity
B. Project Component 2 -Completion of balance works of the PSDP-IIproject (Loan 4603-In) - (Estimated U S $ 75 mil l ion) 8. PSDP- I11 will also provide the balance o f funds necessary for the completion of: (a) national load dispatch and control center; and (b) transmission lines, substations and other procurements, taken up under PSDP-I1 loan (4603-IN) after i t s closing date o f June 30, 2006. This component would also fund balance payments, if any, f rom other schemes under PSDP-11, which may have completed before June 30,2006 and these payments became due after the closing date (such as contract retentions).
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Annex 5: Project Costs
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
Local Foreign Total Project Cost by Component us $ us$ US$
1 .Transmission system strengthening schemes’ 147 650 797 million million Mi 11 ion
(Core schemes) 2. Completion o f ongoing Bank financed schemes 75 75
Total Baseline Cost 147 725 872 Physical Contingencies 6 64 70 Price Contingencies 6 30 36
Total Project Costs 159 819 978 Interest during construction 64 _- 64
1 1 Front end fee --
Total Financing Required 223 820 1043
Including engineering and administration cost.
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Annex 6: Implementation Arrangements
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
POWERGRID has over the last decade acquired skills to successfully plan, design, engineer, procure and implement large transmission schemes ( up to 765 kV AC and 500 kV H V D C systems). The recently completed schemes show a better performance in terms o f completing the schemes within the budgeted cost and t ime schedules. The proposed schemes would be designed, engineered and implemented by POWERGRID. Assistance o f reputed consultants (selected through international competition), would be sought by POWERGRID for the schemes planned with larger technical complexities than completed till date, e.g. H V D C systems with voltage level higher than 500 kV. Local and foreign contractors engaged through international competitive bidding would carry out supply, installation and erection works.
POWERGRID takes advance preparatory actions to ensure t imely completion o f the schemes, e.g. using modem survey techniques l i k e Geographical Information System (GIS) surveys based o n satellite imageries superimposed o n Survey o f Ind ia topographical sheets to minimize the deviation o n actual routing verses planned length o f the lines. The route o f the transmission l ines i s selected such that the impact on forest and other environmentally sensitive sites i s restricted to a minimum. POWERGRID has also started employing techniques l ike digital tower spotting and digit izing the route and tower locations to minimize time in attending to operational emergencies, if any, when the l ine i s in commercial use. This system also helps to produce the detailed bill o f quantities for each transmission line, required for preparing the technical specifications.
During the project implementation, a Project Manager at a senior level i s deployed with complete responsibility for execution o f the scheme. In addition, Executive Director (ED) in charge o f the region has the overall responsibility for a l l the projects in his region. The ED i s assisted by other senior officers who co-ordinates the activities with the help o f Contracts, Engineering and Project Monitor ing Department at Corporate Centre. The tendering and awarding o f the ma in l i ne and substation packages, fo l lowing the international competitive bidding procedures, are dealt with f rom Corporate Centre and the ancillary infrastructural packages e.g. preliminary survey work, soil investigation, site leveling and other c i v i l packages are being tendered and awarded f rom respective site/field office. Contract packages are designed with due consideration for s impl i fy ing project management by optimizing the number o f packages involved.
Implementation arrangements proposed would use the practices institutionalized under the previous loans including the institutional oversight provided by Ministry o f Power (MOP) and Ministry o f Finance (MoF), which are the two k e y ministries for sectoral policies for power. The Central Electr ici ty Author i ty (CEA) i s responsible, inter alia, for sector planning and techno-economic project oversight and the Central Electr ici ty Regulatory Commission (CERC) i s responsible for tar i f f formulation and noti f icat ion as we l l as sectoral regulation. Bo th these agencies will fo l low their usual procedures with respect to the project investments.
33
The equipment will be procured in accordance with the Bank's procurement guidelines. POWERGRID has developed in-house, an advanced and cost effective Integrated Project Management and Control System (IPMCS), using PERT/ C P M technique, as the basic management tool for review o f the project implementation at different levels. The system calls for increasing details o f planning down the levels o f hierarchy o f functions o f engineering, contracts, site and corresponding levels o f monitoring and control, resulting in the management summary report to the top management. The management summary report highlights the project completion trends, actions being takedto be taken for the attention o f the top management o n exceptional basis o f critical areas. For effective project planning and review, three-tier leve l o f planning and review as explained below has been adopted in POWERGRID.
LEVEL-I: Planning i s done by the Corporate Monitor ing Group, a Central Planning cell, which i s in the form o f an overall project schedule (called Master network), for the project which forms the basis for al l subsequent planning and monitoring o f the activities. This covers broadly al l the packages o f project and indicates activities o f engineering, contracts, manufacturing, erection and commissioning.
LEVEL-11: respective contractor/vendor during the pre-award stage. Level-I1 networks are made within the milestones identified in the project Master network (L-I).
LEVEL-111: Deals with elaborate schedules and weekly/monthly rol l ing plans which are prepared for activities o f engineering, supply (as the case m a y be) and field activities. These form the basis o f implementation monitoring by the various functions.
The system envisages monthly review o f the Leve l I1 programs with contractors o n a regular basis. Similar to the site, monthly progress report to the head off ice i s having four sections i.e. i) Project completion trend ii) Salient achievements for the month iii) Program for next month iv) Areas needing attention o f top management
The P M C S envisages a total project review called Project Review Meet ing (PRM) generally held every month and even more frequently depending o n project requirement. This review meeting is headed by project manger with representatives o f a l l functions viz. Contracts, Engineering, Field, Personnel, Finance, Corporate Monitor ing Group, etc. The participants discuss progress, project interface problems and project completion trends, etc.
From the discussions held during the PRM, an exception report i s generated for perusal o f C M D and Directors, which highlights extremely critical areas requiring immediate attention and assistance. These discussions help in identi fying the critical areas and seeking decisions for speedy project implementation.
POWERGRID has also developed in-house and introduced Computerized Project Management System to help plan and monitor project implementation and facilitate comprehensive and t imely progress reporting.
Planning i s done package-wise and i s worked out and finalized with the
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Annex 7: Financial Management and Disbursement Arrangements
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
Summary o f Financial Management Assessment
POWERGRID has a financial management (FM) system which i s considered adequate to account and report for the project resources and expenditures accurately.
FM Strengths, Weaknesses and Mitigating Arrangements The project has the fol lowing strengths in the area o f financial management: (i) an effective budgeting, accounting and reporting system i s operational for the entity which will be used for accounting and generating the required financial reports under the project; (ii) POWERGRID i s a current borrower o f the Wor ld Bank and has been exposed to WB policies and procedures for almost a decade. I ts FM performance under previous loans has been satisfactory; and (iii) A recent high level review o f ‘corporate governance and financial accountability’ o f POWERGRID has indicated that i t s FM arrangements rank adequately amongst i t s peers (government-owned power sector utilities). This review has also identified some areas (internal audit framework, role o f the audit committee) where POWERGRID needs to take further action in order to reach the levels o f i ts international counterparts. An action plan for improvement has been prepared by POWERGRID to further develop the FM capabilities in these areas.
Arrangements for oversight and accountability POWERGRID will be the main implementing agency o f the project and will be responsible for handling the FM arrangements o f the project. The implementation arrangement for the project, which i s well institutionalized at different levels o f hierarchies o f the organization, i s discussed in detail at Annex 6. Besides these, POWERGRID shall provide the fiduciary assurance to IBRD over proper and efficient use o f Loan proceeds. The mainstream FM systems o f POWERGRID (housed as a part o f their general accounting and financial systems) will be used to generate the financial and other progress reports under the project.
Funds Flow and Budget The IBRD funds f rom this loan, l i ke the earlier loans, will be directly borrowed by POWERGRID, with a guarantee f rom GOI. Under the project, POWERGRID will open a new bank account (designated special account) in a commercial Bank to receive the in i t ia l advance under the loan, to the extent required. Funds wou ld be then transferred from the special account to POWERGRID’S ma in rupee bank account(s) in India on a reimbursement basis. Alternatively POWERGRID could also seek direct reimbursements f rom IBRD. The designated schemes being financed under the loan will be pre-funded by POWERGRID by transferring requisite funds to the designated accounting units (regions and site offices) responsible for making payments to the contractors and vendors. Annual budgets are prepared on the basis o f departmental/ regional work plans (operational and administrative) that are agreed with each o f the departmental head and the management. Funds, as per approved budgets, are made available to various regions
35
/departments/ divisions o n a periodical basis. Mid year budget reviews are conducted where in annual budgets and work plans are revised, if required.
Financial Reporting & Monitoring The reporting framework for the project wi l l include a quarterly Financial Management Report (FMR) prepared by POWERGRID, in an agreed format (detailed in the PIP) which would give details o n the project expenditure incurred t i l l date along with projections o f funds utilization in the next 2 quarters, distinguishing the requirement in respect o f the schemes, technical assistance and other project components. POWERGRTD has adequate FM systems and capacity to prepare these FMRs, which will be prepared for the project every quarter and forwarded to the Bank within 45 days o f the end o f the quarter. FMRs will be prepared f rom information generated f rom POWERGRTD’s FM and MIS systems. These then would be consolidated and a single report will be prepared for submission to the Project management and IBRD. The annual project financial statements, as described in the PIP, which would be similar to the format o f the quarterly FMRs, would also be submitted under the project.
Finance Manual: The operational framework o f POWERGRID has been writ ten up in the various guidelines and pol icy documents that govern the regular day to day operations o f the corporation. The company has recently undertaken a large task o f reviewing and organizing these various directives, guidelines and operational procedures into Finance manuals containing various different sections. They are currently in the process o f being revised to capture the evolving needs o f the business and also to meet the regulatory framework, including CERC directives as applicable to the corporation. These finance manuals include manuals o n bonds, budget, international finance, bills, cash and bank, gratuity fund, provident fund, pension fund, internal audit, commercial and establishment.
Accounting Policies and Procedures POWERGRID has been incorporated as a company under the Companies Act, 1956 and hence the financial reporting (Balance sheet and the profi t and loss account) i s governed by the provisions o f that Act. In accordance with the Companies Act, POWERGRID follows accrual/commercial system o f accounting and adheres to the national accounting standards, as issued by the Institute o f Chartered Accountants o f India and not i f ied by GoI. As POWERGRID bonds are also listed on the stock exchange, i t also has to fo l low the clause 49 o f the l ist ing agreement o f SEBI regarding corporate governance. POWERGRID i s pr imari ly involved in transmission o f bulk energy and construction o f large transmission and telecom projects. I t has we l l defined accounting policies in place for revenue recognition, construction accounting and treatment o f expenditure under construction, f ixed Assets, grants-in-aid, booking o f expenditures and valuation o f inventories and investments.
Depreciation: POWERGRID i s also required to fo l low the Electricity Act, 2003 which has an overriding effect in case o f any inconsistency with the Companies Act, 1956. Although Electricity Ac t (2003) has repealed the earlier Electricity (Supply) Act, 1948, no guidance has been issued for computation o f depreciation which was available under
36
the earlier Act’*. This has caused some confusion in the power sector with different central power sector companies engaged in same business and using similar type of assets, applying varied rates o f depreciation (in FY 2003-04). POWERGRID has applied the rates noti f ied by the Central Electricity Regulatory Commission (CERC) calculated o n the basis o f ‘estimated useful economic l i fe ’ o f the asset, wh ich i s apt under the matching principle as tariffs have been f ixed by CERC, using the same rates. This sectoral issue i s in the process o f being resolved and the off ice o f Comptroller and Auditor General o f India has written to the Ministry o f Power (MOP) to provide necessary clarification to the power sector companies to ensure consistency in approach.
Project costs: All project costs and expenditures, including those related to the TA component, will be paid for and recorded in the books o f POWERGRID in accordance with i ts accounting policies and procedures. A tr ial balance i s usually drawn up for each construction project o f POWERGRID, f i o m which the balance sheet o f the project is prepared. These are then consolidated with the corporate headquarters and other accounting units to produce POWERGRID’S annual accounts. The tr ial balance for the project i s operated only by the designated accounting units authorized to work o n the project. Each o f the projects proposed to be financed under WB loan wou ld have a separate balance sheet, which will help in distinguishing projects financed by the proposed Wor ld Bank loan..
Staffing - Finance function The project’s financial arrangements would be handled by the finance staff working at corporate headquarters, regional offices and the si te off ice along with regular finance work. The International finance division at the corporate headquarters wou ld coordinate between the Finance department and the external funding agencies. They would be responsible for meeting the information requirement o f the external agencies and providing the reports in the agreed formats to the Wor ld Bank.
Financial Management and other Information Systems The IT architecture o f POWERGRID i s evolving and is currently based o n an networked environment with databases mainly in Oracle. POWERGRID has been developing a modernized financial management and management information system to meet its accounting, financial and management needs which are being implemented in phases. Substantial progress has been made in providing a batch-mode linkage to the 86 offices across India dealing with 187 accounting units for ensuring timeliness in preparation o f accounts. A utility i s currently used for converting the data f rom o ld system (COBOL) at the f ield units to the new platform (Oracle based) o n a periodical basis (fortnightly) which i s then uploaded in the central server at the HQ through the regional l i nks . Requisite trainings have been provided to the accounting and IT officials at site offices. I t i s expected that full migration to the new system would take place by the year end. Linkages within POWERGRID are expected to be boosted by usage o f their o w n optical fibre network. In addition, the corporation i s also in the process o f readying i tself for implementing an ERP package across the organization, which would (i) integrate the various application packages into a consolidated single software platform, (ii) help in
Under section 43 A and 75 o f the Electricity Supply Act, 1948. 12
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removing any duplication o f work, data input and redundancies and (iii) augment an IT driven internal control atmosphere. As POWERGRID’s accounting system i s computerized, the quarterly accounts are finalized by the next fol lowing month. POWERGRID has also implemented Integrated Project Management and Control System (IPMCS) for review o f the schemes under progress to ensure development & implementation o f schemes in a t imely and effective manner. More details are provided in Annex 6. Existence o f strong M I S and budgetary control activities enhance the efficiency o f the internal financial reporting activities o f POWERGRID.
Agency
POWERGRID
POWERGRID
Audit Arrangements POWERGRID’s statutory auditor i s appointed by the Comptroller & Auditor General o f India (CAG) under Section 619 o f the Companies Act, 1956. Currently three f i r m s have been appointed as jo in t statutory auditors o f POWERGRID for 2004/5 that have also been allocated specific responsibilities for various regions (total 7 in all) o f the company. The auditor i s selected by C A G out o f a data base o f pre-qualified audit f i rms, which i s maintained by the Off ice o f C A G for auditing the corporatized Public sector undertakings (PSU). An auditor i s usually appointed for a period o f three to five years and i s rotated thereafter as per the directives o f CAG. In addition, the C A G also conducts a supplementary/test audit.
Audit Report Audited by Due Date
Annual Entity audit report as Statutory Auditors 30th required under the Companies Act appointed by CAG September
Project audit including audit o f An independent firm o f 30th special Account Chartered Accountants September
POWERGRID has preferred13 to submit project audit report along with financial statements, which i s based o n existing systems that operate within the entity. I t i s proposed that the project (including all components) will be audited, under agreed terms o f reference, by an independent firm o f chartered accountants acceptable to the Bank (which may include the statutory auditors) selected f rom C A G pre-qualified list. The annual audit report would be accompanied by a project financial statement which would separately identi fy each component under the project, i ts progress and the funding sources for each o f the components. Thus the fol lowing audit reports will be monitored in Audit Reports Compliance System (ARCS):
~
l3 The World Bank presented the options available to POWERGRID to submit entity audit with adequate disclosures in l ieu o f the project audit. However, POWERGRID has expressed its preference in choosing the audit o f the project financial statements, as i t has several financiers, both domestic and external and such disclosures in respect o f al l fundings will make the entity audit report unwieldy.
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Internal control & Corporate Governance POWERGRID’S internal control framework has improved considerably over the previous years and i s in the process o f being upgraded through several measures l i k e IT consolidation and integration, finalization o f finance manuals, strengthening o f internal audit and enlarging the scope o f the audit committee. Although, good corporate governance codes in India emphasize the role o f independent directors, POWERGRID, being a PSU, i s st i l l awaiting GoI’s actions in this regard since 2002. T o overcome this problem and to introduce an element o f non-executive oversight in the governance arrangement, POWERGRID has evolved a structure o f Committees o f Independent Eminent persons relating to the fol lowing matters (i) Financial Management (see Annex lS), (ii) External Agencies - Review o f observations, (iii) Environment & Social Safeguards and (iv) Research & development. These committees report directly t o the Chairman and Managing Director o f the Corporation. The Financial Management committee has met thrice since i t s constitution in October, 2003 and it has considered matters involv ing fund raising, investment priorities and other financial management matters. Audit Committee: The internal control framework o f POWERGRID also includes an audit committee, as required for every company incorporated under the Companies Act, 1956. The scope o f the audit committee, per the requirement o f the Companies Act includes discussing and making recommendations o n any matter relating to financial management, including the audit report. A s a part o f recommendation through a high leve l review conducted recently, POWERGRID i s currently in the process o f evaluating and improving the functionalities o f the audit committee to further improve the corporate governance in the corporation.
Internal audit department: POWERGRID has a full fledged Internal Audit Department (IAD) at the Head Off ice directly reporting to Director (Finance). IAD takes up operational/ financial audit o f head office departments and Branch offices and contracts several private f i r m s o f private chartered accountants to fulfill i t s mandate. The mandate o f the IAD includes ensuring that operations are carried out in accordance with the policies and procedures laid down and also making suggestions for streamlining the operations and making suitable modifications in the procedures. POWERGRID is currently in the process o f further strengthening the department by adopting a r i s k based approach, realigning the structure and revising the scope o f the private firms. Under the corporate governance framework, the audit sub-committee o f the board oversees the functionalities of the IAD. The internal audit department would audit work ing o f a l l the Regions (including IBRD financed project) and i t s report would be available to the IBRD, o n request.
Disbursement Arrangements Disbursements would be in i t ia l ly made in the traditional system (replenishment and reimbursement with full documentation and against statement o f expenditure) with an option o f converting to report based disbursement. Disbursement will be made f rom the loadcredit o n the basis o f documentation for a l l the contracts that are agreed to be prior reviewed by IBRD (see Annex 7 o n procurement arrangements). Supporting documentation, including completion reports, certificates and other documentation, will
39
be retained by POWERGRID and made available to the Bank during project supervision. IBRD project funds will f low to POWERGRID, with a guarantee from GOI. Retroactive Financing: Retroactive financing up to an amount o f USD 40 mi l l i on will be available under the project, for financing eligible activities procured under agreed guidelines, for the project, in respect o f expenditures incurred after December 1, 2005 and before the loan signing. Special Account: A special account advance facility up to a maximum amount o f USD 20 mi l l i on wi l l be available to POWERGRID under the proposed loan.
Impact o f Procurement arrangements The procurement under the project would largely be centralized at corporate headquarters and would require the finance department to closely liaise with them.
Implementation Review Plan POWERGRID has been exposed to WB projects for almost a decade and its FM performance has been satisfactory. Hence, i t i s expected that the project would not require a high degree o f supervision. The focus during the review missions will be o n implementation o f the action plan for improving F M .
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Annex 8: Procurement Arrangements
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
A. General
Procurement for the proposed project would be carried out in accordance with the Wor ld Bank's Guidelines: Procurement under IBRD Loans and IDA Credits" dated M a y 2004; and "Guidelines: Selection and Employment o f Consultants by Wor ld Bank Borrowers" dated M a y 2004, and the provisions stipulated in the Legal Agreement. The general description o f various items under different expenditure category i s described below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, pr ior review requirements, and t ime frame are agreed between the Borrower and the Bank project team and indicated in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
Procurement of Works: There are no works to be procured under the project
Procurement of Goods: This will be a t ime slice loan and the projects which meet the el igibi l i ty criteria o f the Bank will be proposed by POWERGRID under the loan .The transmission system projects presently being considered by POWERGRID are, Seoni- Wardha- Akola- Aurangabad Transmission system, "Ballia- Bhiwadi 2500 MW H V D C Bipole along with Bipole Stations at Bal ia and Bhiwadi", and "Seoni- B ina 765 kV Transmission Lines". Goods to be procured under "Supply Contracts" for this project would include Conductor and Insulators for transmission l ines o f the Projects agreed to be funded under the Loan. These would be procured in 20 packages. The value o f contract packages for Goods to be procured o n "Supply" contract basis will range f rom U S D 1 m i l l i on to USD 14 mi l l ion.
Further Goods and equipment wi l l also be procured under "Supply and Install" contracts for Transmission systems to be constructed under the projects. Such Goods and Equipment will be procured in 15 packages. The value o f contract packages for Goods to be procured on "Supply and Install" contract basis will range f rom U S D 2 m i l l i o n to U S D 383 mil l ion.
Procurement o f Goods under "Supply" contracts and "Supply and Install" contracts fol lowing I C B procedures o f the Bank will be done by using the Bank's Standard Bidding Documents (SBD) as a base and as agreed with the Bank. The Bank's S B D {Goods} will be used as a base for al l procurement o f Goods fol lowing ICB procedures and the Bidding documents agreed with the Bank's New Delhi Off ice will be used . Similarly, the Bank's S B D for "Supply and Installation o f Plant and Equipment" will be used as a base for al l procurement under "Supply and Install" contracts and will be as agreed with the Bank's N e w Delh i Office.
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Other Procurement Procedures:
1. National Competitive Bidding: Goods estimated to cost less than $300,000 equivalent per contract maybe procured under contracts awarded o n the basis o f National Competitive Bidding procedures as per paragraph 3.3 and 3.4 o f the Procurement Guidelines and the additional provisions agreed between the Borrower and the Bank in writing from time to time.
2. o f the Procurement Guidelines may be procured o n the basis o f Direct Contracting in accordance with provisions o f paragraph 3.6 and 3.7 o f the Procurement Guidelines.
Direct Contracting: Goods which meet the requirements set forth in paragraph 3.6
In addition, spi l l over expenditure f rom the existing loan [PSDP 11, Loan No . 4603-IN1, against contracts already awarded under that Loan, for an amount o f about USD 75 m i l l i on will be made under the project.
Selection o f Consultants: The general content o f the consultant services to be retained under the project has been identified, but specific consultancy assignment wi l l be developed during implementation. Short lists o f consultants for services estimated to cost less than $500,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. The Bank’s Standard Request for Proposal Document wi l l be used as a base for al l procurement o f Consultancy services to be procured under the Project.
Particular Methods of Procurement of Consultant Services
Quality- and Cost-based Selection: Consultant Services may be procured under contracts awarded on the basis o f Quality- and Cost-based Selection in accordance with the provisions o f Section I1 o f the Consultant Guidelines
Other Procedures
1, Quality-based Selection: Services under Part A.3 o f the Project which meet the requirements set forth in paragraph 3.2 o f the Consultant Guidelines shall be procured under contracts awarded o n the basis o f Quality-based Selection in accordance with the provisions o f paragraphs 3.1 through 3.4 o f the Consultant Guidelines.
2. Project estimated to cost less than $100,000 equivalent per contract m a y be procured under contracts awarded in accordance with the provisions o f paragraphs 3.1, 3.7 and 3.8 o f the Consultant Guidelines.
Selection Based o n Consultants’ Qualifications: Services under Part A.3 o f the
3. Single Source Selection: Services for tasks in circumstances which meet the requirements o f paragraph 3.9 and 3.10 o f the Consultant Guidelines for Single Source Selection, may, with the Bank’s pr ior agreement, be procured in accordance with the provisions o f paragraphs 3.9 through 3.13 o f the Consultant Guidelines.
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4. forth in paragraph 5.1 o f the Consultant Guidelines may be procured under contracts awarded to individual consultants in accordance with the provisions o f paragraphs 5.2 and 5.3 o f the Consultant Guidelines. Under the circumstances described in paragraph 5.4 of the Consultant Guidelines, such contracts may be awarded to individual consultants o n a sole source basis.
Indiv idual Consultants: Services for assignments that meet the requirements set
B. Assessment of the agency’s capacity to implement procurement
Procurement activities wi l l be carried out by POWERGRID. POWERGRID has earlier implemented many projects with the Wor ld Bank funds, and Second Powergrid System Development project (Loan No. 4306-IN) i s s t i l l under implementation. POWERGRID have enough expertise and staff to handle procurement fol lowing the W o r l d Bank Guidelines.
An assessment o f the capacity o f the Implementing Agency to implement procurement actions for the project has been carried out by the procurement specialist o f the Bank during preparation o f the project. The assessment revealed that the procurement activities are carried out by the fol lowing departments o f POWERGRID:
(i) General Manager & Additional General Managers has about 35 Executives. Further divided into different groups l ike Planning & Systems Group (which looks after the core function) and separate groups for each region, L D & C [ Load Dispatch and Communication], Telecom, H V D C [High Voltage Direct Current] & D M S [ Distr ibution Management System] each group having three to four Executives depending upon the workload o f each group. Overall coordination and responsibility l i e with Contracts Dept.
Contract Services - Headed by Executive Director who i s directly assisted by
(ii) Indenting Departments - Engineering, Telecom, L D & C and D M S are the indenting depts. which are headed by the respective Executive Directors and directly assisted by General Managers & Addit ional General Managers. Engineering Department i s further divided into various groups l ike Transmission L i n e Group, Sub-station Group, H V D C Group, System Engineering and Feasibility Group, Civil Engineering Group & Cost Engineering Group. There are about 170 Executives in these groups. The technical specification i s prepared by the respective indenting department.
(iii) Finance Department - The concurrence group o f Finance Dept. helps Contracts Dept. during opening o f bids, evaluation o f bids and award o f contract. The evaluation report and award letter are scrutinized and vetted by the concurrence group. There are 56 Executives in Finance, out o f which, six Executives including General Manager look after the function o f Finance Concurrence.
(iv) Quality Assurance & Inspection Dept. - [QA&I ] Dept. headed by General Manager who i s reporting to ED (Engg.) i s responsible for tying up al l qual i ty and inspection aspects that would have to be adhered to during the execution o f the contract. 12 Executives look after the function o f QA & I Dept.
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(v) Corporate Monitor ing Group- [CMGI- headed by Executive Director i s responsible for tying up the work completion schedule with the successful bidder as per the requirement o f the project. There are about 10 Executives in C M G including Executive Director.
The process generally fol lowed by POWERGRID from the period between release o f IFB up to the award o f contracts i s as under:
Sale of bid documents i s done by Contract Services. The period o f sale i s generally 45 days for domestic bidding and varies f rom 60 to 90 days depending on the source o f funding, namely, Wor ld Bank, ADB, JBIC etc. Bid Opening Committee (at the level o f Manager) for opening o f bids and Tender Committee for evaluation o f bids and recommendation for award are nominated by the respective heads o f Contract Services, Engineering and Finance Dept. The level of Tender Committee depends o n the level o f the competent authority entitled for approval o f award for a particular package as per the Delegation o f Powers o f POWERGRID.
The Bid Evaluation schedule i s prepared by Contract Services based o n the val idity o f bids and requirement o f the project. The bid val idity i s generally 150 days for supply-cum-installation packages and 120 days for supply packages under single stage single envelope bidding procedure. In case o f two stage bidding procedure o f the Wor ld Bank, the bid val idity for 1st stage and 2"d stage i s 180 days and 90 days respectively.
In case Pre-bid Conference i s necessary, Contract Services convene the same in association with Engineering and Finance Departments. Pre-bid Conference i s generally resorted to in case o f complicated packages or packages for which procurement is being done for the f i rs t time.
Necessary amendments to bidding documents based o n Pre-bid Conference or any modifications are issued by Contract Services in consultation with Engineering & Finance Departments.
Bids are opened by the Bid Opening Committee comprising representatives o f Contract Services, Finance & Engineering departments in the presence o f representatives o f the bidders who choose to attend the same.
The activities after opening o f bids commence with verification o f bid security and decision regarding cases o f late bid receipts etc. which i s done by Contract Services in association with Engineering and Finance departments. The prel iminary examination o f bids i s carried out with respect to the provisions in the bidding documents which include arithmetical correction, scope verification o f J V agreement (if applicable), short l ist ing o f bidders etc. Generally, three or four bidders are short listed based o n the quoted prices. Thereafter, detailed evaluation i s carried out by the Tender Committee where the member from Contract Services acts as the Convener o f the meeting. The detailed evaluation in case o f domestic/ADB funded packages comprises o f (i) verification o f Qualification
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Requirements, (ii) commercial evaluation, (iii) Technical Evaluation, (iv) verification o f capability and capacity and (v) award recommendation. In case o f World Bank funded packages, detailed evaluation comprises o f (i) Commercial Evaluation, (ii) Technical Evaluation, (iii) verification o f Qualifying Requirement o f technically and commercially responsive lowest evaluated bidder, (iv) verification o f capability and capacity and (v) Award Recommendation.
In case the procurement o f same equipment/material i s divided into more than one package, the evaluation i s carried out package wise. However, multi-package rebates offered by the bidder, if any, are considered for evaluation. POWERGRID evaluates and compares bids on the basis o f a bid package or combination o f bid packages or as a total o f a l l bid packages, in a manner most advantageous to POWERGRID and awards a contract(s) to one or more bidders on the basis o f least evaluated price.
After finalization o f the Evaluation Report by Tender Committee, the evaluation report i s put up for approval o f competent authority. A s per the existing Delegation o f Powers, following i s the authority competent to approve award recommendations, depending upon the recommended award price (under open tendering):
Deputy Manager Manager Chief Manager Deputy General Manager General Manager Executive Director C M D Sub-committee o f Board Board o f Directors
: up to Rs. 500,000 : up to Rs. 1.0 m i l l i on : up to Rs. 2.5 m i l l i on : up to Rs. 7.5 m i l l i on : up to Rs. 15 m i l l i on : up to Rs. 50 m i l l i on : up to Rs. 1OOmillion : Rs. 100 million to 200 mi l l i on : Rs. 200 m i l l i on and above
Once the award recommendations are approved by competent authority, the evaluation report i s forwarded to the funding agency (ifrequired as per the guidelines/loan agreement of funding agency) for their concurrence by Contract Services through Corporate Planning Dept.
Af ter approval o f the evaluation report by competent authorityheceipt o f concurrence from the funding agency as the case may be the recommended bidder i s called for post- bid discussion to successfully resolve the technical and commercial issues in his bid vis- &vis the bid documents. This meeting i s convened by Contract Services in association with the Tender Committee.
The work schedule for completion of the Contract Package/Project i s tied-up with the bidder by Contract Services in association with Corporate Monitor ing Group in l ine with the Master Network for the project.
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After successful resolution o f al l technical and commercial issues and finalization o f work schedule, the Tender Committee obtains necessary approval o f competent authority for placement o f award o n the recommended bidder.
Contract Services prepares the draft Letter o f Awardcontract Agreement and forwards the same to Engineering, Finance and QA&I for their vetting.
After vetting o f the draft LOA by Engineering, Finance & QA&I, the f inal Letter o f Awardcontract Agreement i s issued to the bidder.
The overall project risk for procurement i s Moderate.
C. Procurement Plan
The Borrower, at appraisal, developed a detailed Procurement Plan for procurement to be carried out under the Project for f i r s t 18 months and also the consolidated procurement plan for the complete project giving estimated value, method o f procurement and the year o f procurement, which provides the basis for the procurement methods. This p lan has been agreed between the Borrower and the Project Team o n and i s available at New Delh i office o f the Bank I t wil l also be available in the Project’s database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
D. Advance Prcourement
Retroactive financing up to an amount o f US$ 40 mi l l i on will be available under the project, for financing expenditures incurred after December 1, 2005 and before the Loan signing to procure eligible activities procured under agreed guidelines.
E. Frequency of Procurement Review Missions
In addition to the prior review to be carried out f rom Bank offices, the capacity assessment o f the Implementing Agency indicates the requirement o f two review missions annually, including visits to the f ield to carry out post review o f procurement actions.
46
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2. Consulting Services.
(a) The l ist o f consultancy services to be procured wil l be finalized during implementation o f the project. (b) Consultancy services estimated to cost U S D 200,000 and above per contract and Single Source selection o f consultants ( f i rms) for assignments estimated to cost U S D 100,000 and above will be subject to prior review by the Bank. . In addition, the record o f justification referred to in paragraph 5 o f Appendix 1 to the Consultant Guidelines for each contract for the employment o f individual consultants estimated to cost the equivalent o f U S D 50,000 or more shall be subject to Prior Review by the Bank. All other consultancy contracts shall be subject to the post review
51
Annex 9: Economic and Financial Analysis
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
The Project i s being processed as a time-slice operation with flexibility to finance POWERGRID’S investment priorities during the identified t ime period. Proposed schemes have been classified as ‘Core’ schemes and ‘Candidate’ schemes, based o n their degree o f advancement in the implementation cycle. Since each scheme i s a stand-alone project with its own technical parameters, financing, implementation arrangements etc, i t i s considered appropriate to conduct financial and economic analysis on a scheme-wise basis. Analysis for the Core schemes has already been conducted, whereas for the Candidate schemes it wou ld be done using the same methodology, as they advance in the implementation cycle and are reclassified as Core schemes. A financial analysis o f the entire investment program for POWERGRID fol lows at the end o f the annex.
1. Economic and Financial Appraisal of Core Schemes
a. Economic Appraisal The economic appraisal o f core schemes has been done by calculating the Economic Rate o f Return (ERR) for each o f them and comparing with the opportunity cost o f capital. The opportunity cost o f capital i s taken as 12%, as specified in the of f ic ia l memorandum o f the India Country Director on the Exchange Rates and Price Contingencies for Project Analysis, dated February 01, 2005.
Since a l l schemes under the PSDP-I11 loan are system strengthening schemes, benefits f rom them have been calculated as the value o f the reduction in system losses. Based o n load f l ow studies, POWERGRID has estimated the total reduction in transmission losses that w o u l d accrue f rom al l the three core schemes to be about 438 M W under peak load conditions. T o obtain the average loss reduction, a loss load factor14 o f 0.53 i s applied to the loss reduction under peak load conditions. Thus the physical benefit f rom the schemes i s an energy saving o f 2033 m i l l i o n kWhs per year.
For valuing these (physical) benefits, an economic pricelvalue o f electricity has been derived based on the opportunity cost o f energy saved. T w o different estimates o f the value o f electricity for the economy are available - the f i rs t i s the cost o f unscheduled power interchanges under the Availabi l i ty Based Tariff (ABT) regime, and the second i s the average cost o f alternate supply from recent medium sized thermal generation plants. Cost o f unscheduled power interchanges under the ABT regime has been calculated by Central Electricity Regulatory Commission (CERC) as Rs.5.70 I kWh based o n cost o f supply f rom local diesel generation. On the other hand, the average cost o f alternate supply f rom recent thermal generation plants15 was found to be Rs. 3.62 I kWh. The base case i s defined as the scenario wherein the scheme proceeds as per schedule, i t i s completed within the cost estimates and foreign exchange rate varies in accordance with the
l4 Loss L o a d Factor i s defined as the rat io o f actual losses over a per iod t o the losses obtained under peak loading conditions for the entire period. I t i s used t o convert peak energy losses in to average energy losses. I t i s calculated using the fol lowing empir ical formula : Loss L o a d Factor = 0.2 x L o a d Factor + 0.8 x (Load Factor)2.
considered here. These are - Kawas- I (Rs.3.4036 / unit) and Gandhar-I (Rs.3.8484 / unit). Average Cost o f power generation for t w o recently commissioned gas based thermal power plants has been I 5
52
Bank projection for currency exchange rate. By valuing the energy saved in each scheme at the cost o f thermal generation (the lower o f the two valuations), the ERR in the base case i s found to vary between 14.83% and 15.96% for the Core Schemes, higher than the opportunity cost o f capital o f 12%.
The key assumptions underlying the economic analysis, pertaining to Cost Escalation, Implementation Delay and Changes in Foreign Exchange rate have been varied in the sensitivity analysis. Separate scenarios involving implementation delay o f 2 years, cost escalation o f 10% and change in foreign exchange rate o f 10% yielded ERRs higher than the benchmark opportunity cost o f capital o f 12%. In the extreme scenario where al l these adversities are coincident, the ERR was a lower 10.46% to 11.06%. However, in view o f POWERGRTD’s track record in project implementation and the fact that procurement processes for the schemes have already commenced, such an extreme scenario i s highly improbable. A summary o f the results o f the scenario analysis i s given below. 16
Scenario A
C D
B
Economic Rate of Return Scenario Description Balia Bhiwadi Seoni Bina Seoni Wardha
BaseCase 14.83% 15.02% 15.96%
Delay of 2 Years 12.35% 12.49% 13.11% Cost Escalation by 20%, Delay of 2 years 10.46% 10.59% 11.06%
Cost Escalation by 10% 13.55% 13.73% 14.53%
The above analysis i s based on the prevailing condition in India that o f “excess demand”, where energy saved would be consumed and should therefore be valued at the marginal cost o f generation. In an alternate scenario, where there i s no excess demand for electricity, the energy savings should be valued at the cost o f fuel saved by being able to back-down generation. The base case ERRs o f the schemes for such a scenario are between 8.43% and 8.69%, lower than the opportunity cost o f capital o f 12%. However, this scenario i s conservative since it:
0 considers coal based rather than diesel based generation as the marginal plant that wou ld be backed-down;
ignores the prevailing situation o f excess demand that i s l ikely to continue for the foreseeable future; and
ignores any “carbon benefit” accruing f rom the reduction in generation.
Consequently, while this scenario does need to be considered, the l ikel ihood i s low.l7
b. Financial Appraisal The two alternatives indices o f Internal Rate o f Return o n Equity (ROE) and Financial Internal Rate o f Return (FIRR) were considered for financial appraisal o f the core schemes. The FIRR is the internal rate of return for the scheme, benchmarked against a Weighted Average Cost o f Capital (WACC), an average o f the cost o f debt and cost o f equity. On the other hand, ROE o f the
0
0
l6 Refer Fi le Note on “PO WERGRID ’s Investment Hurdle Rate and Scenario Information” for further details on the scenarios. l7 Further discussion of the impact o f the alternative scenario i s provided in the File Note referred above.
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scheme i s benchmarked against the cost o f equity for POWERGRID. In the prevalent regulatory regime, an annual return o n equity o f 14% i s provided by the regulator during the years when the scheme i s operational. However, the cost o f debt i s a pass through in tariff. As a result, the financial performance o f the scheme, or that o f POWERGRID, remains unaffected by the cost o f debt. Therefore, i t was decided to use ROE as the index for financial appraisal o f schemes.
The cost o f equity for POWERGRID has been estimated, based on the Capital Asset Pricing Mode l (CAPM), to l ie between 12% and 14%.’* Based o n the cash flows for investors, the return on equity for the core schemes in the base case scenario lies between 12.37% and 13.36%, which i s within the estimated range. An internal rate o f return on equity slightly lower than the regulated return o n equity o f 14% i s expected since the regulated ROE i s not provided for the construction period.
Table-2 Summary o f Scenario Analysis for ROE
A scenario analysis was carried out to understand the impact o f cost escalations, implementation delays, foreign exchange rate fluctuations and changes in regulated rate o f RoE.19 A summary o f the scenario analysis i s given in Table-2. As expected in a regulated environment, where Cost Escalations and Foreign Exchange Rate Variations are passed through in the tariffs, no impact on the ROE is experienced. The schemes are, unsurprisingly, affected adversely in the case o f a reduction in regulated rate o f return on equity and implementation delays. In the worst case scenario, wherein an implementation delay o f 2 years and cost escalation by 10% are coincident, the ROE i s found to be between 10.19% and 10.65%. As mentioned earlier, this i s a highly unlikely scenario, in view o f POWERGRID’s good record in project implementation.
One positive scenario that i s not modeled above i s the provision o f the additional 1% ROE incentive payment for availability. POWERGRID has been receiving this payment o n previous schemes and would clearly benefit if the proposed schemes meet their availability targets.
2. Entity Level Financial Analysis
POWERGRID operates in a regulated sector with a ROE provided by CERC. A s a result they have consistently been a profit-making entity. Even though the regulated return o n equity o n schemes allowed to POWERGRID has been reduced f rom 16% to 14% (since 2003), their financial condition has steadily improved over the last few years, and the current financial
~
’’ Refer F i l e No te o n “PO WERGRID ’s Investment Hurdle Rate and Scenario Information” f o r details on h o w this estimate was derived. l 9 Refer F i l e No te on “POWERGRIDS Investment Hurdle Rate and Scenario Information” for a description o f the detailed scenarios.
54
perfonnance is generally satisfactory. Profitability during 2004-05 measured by ROE (after Tax) stood at 8.7%. This i s lower than the regulated return owing to the massive expansion program being undertaken by POWERGRID and the fact that a ROE i s only earned once the investments become operational. The ROE i s l ikely to remain at these levels for the next t w o years, after which i t would gradually increase to between 14%-16% per annum. The increase in ROE beyond the regulated return o f 14% i s mainly o n account o f availability incentives and returns f rom unregulated businesses such as telecom. Financial projections (summary tables at the end o f the Annex) demonstrate that, subject to tar i f f adjustments in l ine with CERC’s current regulatory framework, POWERGRID’s financial performance would continue to remain satisfactory.
POWERGRID’s main financial risk i s the risk o f non-payment by off-taking state utilities. T o mitigate the risk and securitize past debts, Government o f India has signed tripartite agreements (TPAs) with State Governments and Reserve Bank o f India Under the TPAs, tax free bonds carrying interest o f 8.5% were issued by RBI for al l outstanding dues f rom the state ut i l i t ies as o f September 30,2001. The bonds have a moratorium o f five years, and a ten year repayment thereafter in twenty installments. Interest on bonds i s to be paid by RBI directly. The bonds are tradable in the secondary market subject to a maximum o f 10% o f the bonds every year and pr ior permission o f RBI o n each occasion. With regard to ensuring the payment o f current monthly bi l ls by states, the agreement provides incentives for prompt payment. If such payment i s not forthcoming, the power sector entities are expected to reduce the power supplied to the defaulter and o n continued non-payment, they can approach Ministry o f Finance for direct payment by RBI from central appropriation o f the concerned state. The provisions o f TPA regarding recovery o f post-securitization dues have so far been invoked in the case o f f ive states, and in three cases GoUMoF has made the payment, albeit by installments.
As a result o f this securitization scheme, payment discipline has substantially improved and has been maintained over the last 2 years. POWERGRID’s accounts receivable stand at 2.02 months o f sales as o f August, 2005, and collections are close to 98%. As explained above, in the event o f default POWERGRID now has the comfort that, after a l l other avenues o f collection enforcement have been exhausted, i t can apply to the Government o f India for release o f due amounts directly by GoUMoF.
The three proposed financial covenants (accounts receivable o f less than three months, debt to equity ratio o f 20:80 and s e l f financing ratio o f at least 20%) are the same as covenants for POWERGRID’s existing loan except that, fo l lowing improvements in collections, noted above, the accounts receivable covenant i s n o w three months o f sales rather than the four months used under PSDP 11. Meeting a s e l f financing ratio o f 20% will be more o f a challenge to POWERGRID in the current situation o f huge growth in investments, than i t was in PSDP-11, particularly during the first three years of the project, but s t i l l appears achievable.
Key Assumptions for Financial Projections The k e y assumptions o n which the financial projections are based are given below. Further details are available in the Project Implementation Plan.
*’ Bipartite Agreements (BPAs) have been signed between the Government o f India and POWERGRID for the Union Territories. The term TPAs i s used here to refer to both TPAs and BPAs collectively.
55
0
0
e
e
e
e
0
0
0
e
0
e
Operating Revenues taken from audited accounts t i l l 2004-05, and for subsequent years calculated based on commissioning schedule o f schemes. System availability o f 98.5% i s assumed for calculating Incentive. Return o n Equity taken as 14%, in accordance with the prevailing Tar i f f Regulations. (Note that ROE Exceeds regulated return in later years as income f rom unregulated business increases.) Other Income includes Consultancy Income, Reimbursement o f R L D C expenditure, Lease Income f rom state sector U L D C assets and Interest Income f rom State Electricity Board Bonds. Income f rom Transmission Joint Venture i s calculated based o n a 10% dividend o n equity investment, with 49% POWERGRID equity in Tala Joint Venture, and 26% in al l subsequent Joint Ventures. An increase o f 20% in Employees remuneration during the year 2007-08 i s considered on account o f the usual five-yearly Wage Revision. Transmission and Administrative Expenses are projected to escalate at the same rate as the Transmission Charges (excluding advance against depreciation). A dividend o f 30 % o f PAT i s considered from 2005-06 onwards. Income Tax i s considered at 7.5%, with a surcharge o f 2.5% and Cess o f 2%. For future schemes, where loans are not contracted, the financing n o m s adopted are - Debt-Equity o f 70:30, with Loans f rom different sources in the ratio o f Mult i lateral - 20%, E C B - 10% and Domestic Loans - 70%. Redemption o f Bonds under the Securitization Scheme i s considered at 10% per year f rom 2006-07 onwards. Revenue realization is considered at 95% o f billing, with the balance assumed to be realized after two years.
56
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i
Annex 10: Safeguard Policy Issues
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
Strategic Context
1. POWERGRID’s scope o f activities have already been described at Annexure-I. In order to achieve i t s goal for sustainable development in i t s business, POWERGRID had developed, and agreed with the Bank, a corporate Environmental and Social Poiicy and Procedures (ESPP) in 1998. The ESPP outlines POWERGRID’s approach and commitment to deal with the environmental and social issues relating to i t s transmission schemes and lays out management procedures to address them. The ESPP provides POWERGRID with a framework for identification, assessment and management o f environmental and social concerns at both organizational as we l l as field levels. T h e ESPP i s implemented in a l l POWERGRID implemented schemes, regardless o f funding source, a step beyond the ‘compliance with the minimum regulatory requirement’. POWERGRID wil l mainstream i t s ESPP requirements into the integrated management system, the effectiveness o f which will be audited regularly by an independent and internationally accredited third party.
2. As part o f PSDP I11 preparation, the modificatiodupdation o f ESPP (98) was undertaken taking into account the experience gained and lessons learnt by POWERGRID during the last six years o f i t s implementation, including the experience o f building seventy f ive grid substations. The updated ESPP 2005 has taken into account the results o f the desk research on legal and institutional fiamework, analysis o f priori ty issues (gap analysis) in the power transmission sector and wide ranging discussions including national and regional consultations. Further, in order to achieve international benchmarking and best practices in managing environmental and social issues, POWERGRID constituted an expert committee comprising o f eminent persons in the field o f environmental and social issues including Bank’s nominated specialist. The committee also reviewed the updated ESPP 05 and wil l continue to provide strategic guidance and oversee effectiveness o f implementation o f environment and social mitigation measures. POWERGRID will ensure implementation o f ESPP 2005 in i t s entirety, through i t s project offices, contractors and others associated with i t s operations and activities for a l l the schemes implemented by the Corporation..
3. Key features o f ESPP
a. Environment and Social Policy Statement - “commitment to the goal of sustainable development through conservation o f natural resources and involvement o f stakeholders, continually improving i t s management system, accessing specialist knowledge for management o f significant environmental and social issues and introducing new state o f the art and internationally proven technologies while strictly fol lowing the basic principles o f Avoidance, Minimization and Mitigation”.
b. Route selection: When identifying the transmission system, a preliminary route selection i s done using tools such as the Forest Atlas and Survey o f India maps, which wil l be n o w supplemented using modem techniques l i ke aerial photographs, GIS/GPS for finalization o f route. The environment and social criteria used for route selection would include - avoiding human rehabilitation; avoiding monument o f cultural o r historical importance; avoiding threat to any community with special reference to tribal; avoiding affect o n any public ut i l i ty services l i ke playgrounds, schools, other establishments etc.; and avoiding any sanctuaries, national park, biosphere, eco-sensitive zones etc. Also, POWERGRID will continue to adopt innovative tower designs l ike multi-circuit and very tal l towers to protect
58
wildlife, trees in ecologically sensitive areas, reduce the number o f trees cut down for stringing and impact on flora and fauna and allow cultivation under the towers.
c. Stringing: POWERGRID will continue to use manual stringing in thick forests and on slopes, where ever possible, to minimize damage to the environment. However, some lopping of canopy and clearing o f ground vegetation i s inevitable while stinging, which wil l b e mitigated either by allowing regeneration or by planting dwar f trees along the ROW, except in one strip o f 3to7 meters width (as the case may be depending upon the design o f the lines), which i s kept clear for maintenance
d. Use of technology to minimize environmental impacts: POWERGRID has committed to use best technology practices to deal with environmental issues, such as use o f tower bases and revetments that prevent soil erosion near the tower, in landslide prone areas; use o f special towers for wetlands, coasts and riverbeds etc.
e. Integrated Management System: POWERGRID has been certified with Integrated Management System comprising o f ISO: 9001 for Quality Management, ISO: 14001 for Environment Management and OHSAS: 18001 for Occupational Health & Safety. POWERGRID wil l continue to rely o n a third party independent certification o f i t s management system to continually improve i t s environmental performance.
f. Resettlement: POWERGRID will strictly adhere to the basic principles o f avoiding involuntary resettlement in a l l i t s schemes by locating substations on government land as far as possible. In case resettlement i s inevitable, POWERGRID wil l mitigate the adverse impacts arising due to land acquisition through i t s Social Entitlement Framework and ensure complete rehabilitation o f al l affected families. This framework also takes into account the provisions o f the National Pol icy on Resettlement and Rehabilitation (February 2004)
g. Entitlement framework: I t categorizes type and extent o f socioeconomic impacts o n the people as a result o f project interventions, provides replacement value for assets lost and establishes eligibilities for support in their resettlement and economic rehabilitation.
h. Land Management: POWERGRID will continue to fo l low the practice o f min imiz ing the land requirement to the barest minimum and to ensure that, particularly, vulnerable groups, including tribal groups, do not suffer adversely. No land i s acquired for footing towers and, to the extent possible, undertakes site construction activity after the harvest to avoid damage to crops. However, there are no restrictions to cultivation under the towers and compensation at market rate i s provided for any loss o f or damage to crops during construction and maintenance. POWERGRID ensures that hazards due to fires are non- existent by adopting high standards o f safety.
i. Development of vulnerable groups: POWERGRID wil l ensure that the transmission route does not threat the survival o f any community with particular reference to vulnerable groups, including tribal groups. If init ial preliminary assessment concludes that tribal groups will be affected by the proposed interventions at the scheme level and if there are n o alternative routes, a detailed social assessment wi l l be undertaken to identify issues and concerns and prepare a Tribal Development Plan (TDP) using the tribal development strategy included in ESPP.
59
j. Environmental protection measures at Sub Stations: POWERGRID wil l implement Rain Water Harvesting and collection system for i t s conservation and recharging o f ground water in al l upcoming buildings and substations; greening o f available land at sub stations; and work towards making a l l i t s offices and other installation CFC free.
k. Institutional arrangements: For environment and social matters, at the Corporate level, POWERGRID has put in place and environment and social management department (ESMD) under the direct control o f Executive Director (Corporate Planning), while at regional level i t i s supported by an Environmental and Social Management Cel l (ESMC) to manage Environmental and Social issues and to coordinate between E S M D at the Corporate level and the Site office. Key responsibilities for E S M D include environmental and social screening and scoping for transmission lines and sub stations; obtaining regulatory approvals; EA and SA; monitoring implementation o f Environmental and Social management plans; monitoringheporting; and annual review o f the EMP and SMP/RAP. In order to improve planning and implementing environmental and social management plans and to meet the international requirementroenchmark the, ESPP wil l be reviewed regularly by an independent committee o f experts comprising eminent personshenowned environmentalist' experts o f international repute, including representatives o f funding agencies
60
4. Environment and Social Management Procedures in transmission lines and sub station projects Environmental And Social Management Procedure
CONCEPTUALIS ATION
PROJECT PLANNING
I
Detailed Survey for Baseline Info Finalize optimal route Select Optional Sub Station Site Consultation with Stake Holders
. - - - - - - - - - - - - - - . Env. & Social Screening Report as part o f Feasibility Report . - - - - - - - - - - - - - -.
.- I I I I I I I I I I _ -
E~VIRONMENTAL & SOCIAL SCREENING AND
SCOPING FOR - I ENVIRONMENT ASSESSMENT
AND MANAGEMENT PLAN 1 . m .
MOEF FOR FOREST CLEARANCE
ANNUAL EAMP REVIEW
Mainstreaming environmental and social concerns at various stages o f project
5. (ESMD) wil l undertake Environmental and Social Screening and Scoping for transmission lines and sub stations in order to identify environmentally and socially sensitive areas, issues, and possible management measures; suggest alternative transmission l ine routes, if necessary; and outline scope o f environmental and social assessment and management planning. The init ial maps /GIs survey will be verified in the f ield to check possibilities o f circumventing environmentally and socially sensitive areas and collect information o n issues identified, where state forest departments and revenue authorities will be consulted for their views on land records. The scope o f an Environmental and Social Assessment and Management Plan (EAMP and RAP/TDP) i s finalized after screening and scoping. ESMD will obtain an approval subject to environmental and social clearance, wherever applicable, f rom its internal management based o n the resul ts o f environmental screening and scoping.
Project Conceptualization : Environment and Social Management Department
6. detailed environmental and social assessment and management planning and the process o f obtaining forest clearance. Regional and site offices, in consultation with ESMD, will prepare a proposal to Forest department for transmission l ine going through the forest areas. In the case o f substations, an environmental review will be undertaken and appropriate management measures will be formulated. ESMD will undertake an environmental and social review based on the social and environmental screening and scoping and formulate appropriate management plans (EAMP, RAP and TDP) for transmission lines and substations. Where project interventions involve land acquisition, a detailed social impact assessment will be carried out along with census o f affected population and an RAP i s prepared. If in i t ia l preliminary assessment concludes that tribal groups will be affected by the proposed interventions at the scheme level, a detailed social assessment will be undertaken to identi fy issues and concerns o f tr ibal groups and prepare a TDP using the tribal development strategy included in ESPP. RAP/TDP will include community development activities to be implemented for the benefit o f local people at each o f the scheme areas.
Project Planning: E S M D o f POWERGRID corporate off ice wi l l p lan for a
7. Project Implementation: During this phase, execution o f the Environmental Assessment and Management Plan (EAMP) and RAP/TDP will be integrated with project implementation taking into account appropriate ground clearance for transmission line, Right o f W a y (ROW), etc. by the contractor. Wherever l ine passes through forested area, Forest authorities will carry out compensatory afforestation including other mit igation measures as per agreed plan. No construction activities are initiated unless affected people are fully compensated for their losses. All entitlements for rehabilitation o f the affected people are provided during this phase. Also, E S M D will plan for regular supervision o f EMP, SMAP/RAP implementation including compensatory afforestation through Regional off icedDHQs responsible for particular site area worldoffice, whi le at the scheme leve l patrolling o f R o w , and implementation o f other activities will be monitored o n a dai ly basis. The implementation will be monitored & reviewed by In-
62
charge o f the regions while the exception report wi l l be reviewed by CEO o f POWERGRID every month. External agencies will be involved to evaluate RAP implementation at its completion.
8. a consultant (if necessary) review social and environmental performance o f the project during construction, operation and maintenance. 9. has completed init ial environmental assessment o f the activities proposed to be implemented during the first year o f the project period. Similarly, social impact assessment o f activities (three grid substations) proposed to be implemented during the f i rs t year o f the project period has also been completed. Based o n the social assessment, POWERGRID has prepared RAP for each o f the three grid substations included for implementation in the first year o f the project. The details o f processing various activities/ preparations o f core schemes are described below:
Annual Environmental and Social Review: POWERGRID will internally or with
First Year Management Plans: As part o f the project preparation, POWERGRID
10. b) 765 kV Seoni - Bina l ine & c) Seoni - Wardha - k o l a - Aurangabad transmission system have been completed in-house by POWERGRID with the help o f GIS/GPS based survey and ground survey verifications in sensitive areas & important points. Updated IEAR also submitted after incorporating Bank’s comments and accordingly in-principle acceptance was conveyed to POWERGRID. However, Final Environment assessment reports (FEAR) shall include updated information such as approval o f forested area by MOEF/GOI & improved mit igation measures as indicated in IEAR. This FEAR is expected to be finalized by POWERGRID in N o v . ’ ~ ~ when the detailed survey for entire l ine i s scheduled to be complete.
Initial environment assessments (IEAR) for a) 2500 MW Balia-Bhiwadi Bipole
Rehabilitation Act ion Plan (RAP): For three grid stations namely Bal ia HVDC/HVAC, Bhiwadi H V D C & Wardha, POWERGRID carried out Socio-economic survey (SES) and based o n SES findings draft R A P s were prepared and these were examined by the Bank. Updated RAPS (after the third party social assessment) are expected to be submitted by POWERGRID in Jan. ’06 incorporating Bank’s comments-public consultation in matrix form, translation o f government order in English and other details o f LA completion etc. Public consultations i s a continuous process and i s in progress and will f o rm an integral part o f finalizing R A P s which i s presently under progress with the help o f the Consultants (including re-doing some o f the socio-economic survey/assessment issues) to make these report available in Jan.’O6.
These reports are f inal ly to be submitted to the Bank for further review and acceptance.
63
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Annex 11 : Project Preparation and Supervision
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
Name Sunil Kumar Khosla Judith Plummer Pedro Sanchez Rashid Aziz Mikul Bhatia
Planned Actual PCN review 04/16/2004 06/07/2004 Initial PID to PIC 06/2 3/2004 Initial ISDS to PIC 05/14/2004 0 612 3 /2 004 Appraisal 0 1 / 1 9/2005 01/19/2005 Negotiations 04/18/2005 11/18/2005 B oard/RVP approval 0 1 / 1 9/2006 Planned date o f effectiveness 05/3 1/2006 Planned date o f mid-tern review 12/3 1/2008 Planned closing date 07/3 1/2011
0 51 1 4/2 004
Title Unit Team Leader / Sr. Energy Specialist SASEI Sr. Financial Analyst SASEI Sr. Energy Specialist SASEI Sr. Energy Specialist SASEI Research Analvst SASEI
Key institutions responsible for preparation o f the project: Power Grid Corporation o f India Ltd. Responsible Agency: Ministry o f Power, Government o f India
Priya Chopra Minerva S. Espinosa-Apurada
Bank staff and consultants who worked on the project included:
Pro gram Assistant SASEI Program Assistant SASEI
Mohammad Hasan Sanjay Srivastava Manoj Jain Sushi1 Kumar Bahl Ian Alexander
Sr. Social Development Specialist SASES Sr. Environmental Specialist SASES Sr. Financial Management Specialist SARFM
Consultant Economist SASEI Sr. Procurement Specialist S A R P S
Bank funds expended to date on project preparation: 1. Bank resources: $312,500 2. Trust funds: $5,900 3. Total: $3 18,400
Estimated Approval and Supervision costs: 1. Remaining costs to approval: $40,000 2. Estimated annual supervision cost: $100,000
67
Annex 12: Documents in the Project File
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
1.
2.
3.
4.
5.
e
e
e
6.
e
e
e
7.
8.
9.
10.
11.
12.
13.
14.
Project Information Document (Jan 18,2005)
Integrated Safeguard Data Sheet (Jan 18,2005)
POWERGRID’s Project Implementation Plan (March 2005)
Environment and Social Policy and Procedures (ESPP) - (December 28,2004)
Rehabilitation Action Plan - Jan. 6, 2005
Social Assessment & Rehabilitation Action Plan (RAP) o f Balia in Uttar Pradesh
Social Assessment & Rehabilitation Action Plan for 765/400/220 kV substation at Wardha
Social Assessment & Rehabilitation Action Plan (RAP) o f 500kV HVDC terminal at Bhiwadi (Rajasthan)
Initial Environmental Assessment Reports - Jan. 6,2005
Initial Environmental Assessment (IEAR) o f 500kV HVDC Bi-pole l ine Balia (UP) to Bhiwadi (Rajasthan)
Initial Environmental Assessment (IEAR) for Seoni-Bina 765 kV Transmission system
Initial Environmental Assessment (IEAR) for Seoni-Wardha-Akola-Aurangabad Transmission System
Summary sent to SECBO
General Procurement Notice for publication in dg market
Rehabilitation Action Plan (Revised) for 500 kV HVDC terminal at Bhiwadi - May 2005 Action Plan on Financial Management issues - Nov 9,2005
Electricity Act 2003
Project Appraisal Document
Economic Benefits, Financial IRR and Financial Projections Calculations
GO1 Request (January 9,2004) received from DEA for World Bank Assistance for Transmission Projects o f POWERGRID
Note: In addition there i s further documentation available in the f i les for the ongoing PSDP I1
project.
68
Annex 13: Statement of Loans and Credits
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
Difference between expected and actual
disbursements Onginal Amount in US$ Millions
Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Ong. Frm. Rev’d
PO79708
PO83780
PO77856
PO77977
PO75058
PO73370
PO73651
PO84632
PO84790
PO84792
PO865 18
PO945 13
PO73776
PO55459
PO73369
PO50655
PO78550
PO79865
PO825 10
PO73094
PO72123
PO7 1272
PO67606
PO50649
PO76467
P 0 7 5 0 5 6
PO50653
PO72539
PO50668
PO40610
PO50647
PO7401 8
PO69889
PO71033
PO71244
PO50658
PO55454
PO55455
PO35173
2006
2006
2005
2005
2005
2005
2005
2005
2005
2005
2005
2005
2004
2004
2004
2004
2004
2004
2004
2003
2003
2003
2003
2003
2003
2003
2002
2002
2002
2002
2002
2002
2002
2002
200 1
200 1
2001
2001
2001
TN Empwr & Pov Reduction
T N Urban I11
Lucknow-Muzaffarpur National Highway
Rural Roads Project
TN HEALTH SYSTEMS
Madhya Pradesh Water Sector Restructunn
DISEASE SURVEILLANCE
Hydrology I1
MAHAR WSIP
Assam Agnc Competitiveness
IN SME Financing & Development
India Tsunami ERC
ALLAHABAD BYPASS
ELEMENTARY EDUCATION PROJECT (SSA)
MAHAR RWSS
RAJASTHAN HEALTH SYSTEMS DEVELOPMENT
Uttar Wtrshed
GEF Biosafety Project
Kamataka UWS Improvement Project
AP Comm Forest Mgmt
TechiEngg Quality Improvement Project
AP RURAL POV REDUCTION
UP ROADS
TN ROADS
Chatt DRPP
Food & Drugs Capacity Building Project
KARNATAKA RWSS I1
KERALA STATE TRANSPORT
MUMBAI URBAN TRANSPORT PROJECT
RAJ WSRP
UP WSRP
Gujarat Emergency Earthquake Reconstruct
MIZORAM ROADS
KARN Tank Mgmt
Grand Trunk Road Improvement Project
TECHN EDUC I11
JSERALA RWSS
RAJ DPEP I1
POWERGRID I1
0.00 300.00
620.00
99.50
0.00 394.02
0.00 104.98
325.00
0.00
120.00
0.00
240.00
0.00
0.00 0.00
0.00
0.00
39.50
0.00
0.00
0.00
488.00
348.00
0.00 0.00
0.00
255.00
463.00
0.00 0.00
0.00
0.00 0.00
589.00
0.00 0.00 0.00
450.00
120.00
0.00 0.00
300.00
110.83
0.00
68.00
0.00 0.00
154.00
0.00
465.00
0.00
500.00
181.00 89.00
69.62
0.00 0.00
108.00
250.00
150.03
0.00
0.00 112.56
54.03
151.60
0.00 79.00
140.00
149.20
442.80
60.00
98.90
0.00
64.90
65.50
74.40
0.00
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00
0.00
0.00
0.00
0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00
0.00
0.00
0.00
0.00
0.00 0.00
0.00
0.00
0.00 0.00
0.00 0.00
0.00
0.00 0.00
0.00
0.00 0.00 0.00
0.00
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00
0.00
0.00
0.00
0.00
0.00
0.00 0.00
0.00
1 .oo 0.00
0.00
0.00
0.00
0.00
0.00 0.00 0.00
0.00
0.00 0.00
0.00
0.00
0.00
0.00 0.00
0.00
0.00 0.00 0.00
0.00
0.00 0.00
0.00 0.00
20.06
0.00
0.00 0.00
0.00
0.00 0.00
0.00
0.00 0.00
0.00
0.00
0.00
0.00
0.00
0.00
40.1 1
0.00
0.00
0.00
20.06
0.00
15.04
0.00 0.00
15.04
40.11
80.23
0.00 25.07
0.00
0.00 10.00
0.00
0.00
114.92
299.25
620.00
358.82
81.38
371.82
62.41
104.98
293.38
141.50
79.40
394.37
193.58
353.65
175.14
84.89
66.07
0.87
37.02
78.44
206.83
79.60
398.72
300.74
93.75
52.99
107.63
165.52
444.51
105.75
108.52
178.00
40.03
72.27
290.30
22.06
31.93
38.23
95.72
-0.14
-0.75
0.00 14.12
-2.60
1.87
3.56
12.34
-30.63
-2.47
34.40
38.00
61.58
141.41
21.60
26.30
-2.11
0.40
16.92
3.49
64.26
12.40
139.27
51.78
18.19
22.35
53.24
15.19
156.18
53.00
93.87
, 187.80
5.98
42.30
247.97
10.91
21.37
18.21
76.65
0.00
0.00
0.00
0.00
0.92
0.00
0.00
0.00
0.00
0.00 0.00 0.00 0.00 0.00
0.00 0.00
0.00 0.00
0.00
0.00
-5.97
0.00
0.00
0.00 0.00 0.00 0.00
0.00 0.00
0.00
0.00 5.92
0.00
0.00 0.00
-0.51
4.65
0.00 3 1.74
69
PO59242 2001
PO10566 2001
PO38334 2001
PO67216 2001
PO70421 2001
PO10505 2000
PO45049 2000
PO09972 2000
PO49770 2000
PO50657 2000
PO67330 2000
PO59501 2000
PO55456 2000
PO50667 2000
PO45051 1999
PO45050 1999
PO50646 1999
PO50651 1999
PO49385 1998
PO35827 1998
PO38021 1998
PO10496 1998
PO10473 1997
M P DPIP
GUJARAT H W Y S
R A J POWER I KAR W S H D DEVELOPMENT
KARN H W Y S
RAJASTHAN DPIP
AP DPIP
N A T I O N A L H IGHWAYS 111 PROJECT
REN E G Y I1
UP Health Systems Development Project
I M M U N I Z A T I O N STRENGTHENING PROJECT
M - T A for Econ Reform Project
IN-Telecommunications Sector Reform TA
UP DPEP I11
2 N D N A T L H IV IA IDS C O
RAJASTHAN DPEP
U P Sodic Lands I1
M A H A R A S H H E A L T H SYS
AP ECON RESTRUCTURIN
W O M E N &. C H I L D D E V L P M
DPEP 111 (BIHAR and Jharkhand)
ORISSA H E A L T H SYS
TUBERCULOSIS CONTROL
0.00
381.00
180.00
0.00 360.00
0.00 0.00
516.00
80.00
0.00
0.00
0.00 62.00
0.00 0.00
0.00
0.00 0.00
301.30
0.00 0.00 0.00 0.00
110.10
0.00 0.00
100.40
0.00 100.48
111.00
0.00
50.00
110.00
142.60
45.00
0.00
182.40
191.00
85.70
194.10
134.00
241.90
300.00
152.00
76.40
142.40
0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00
0.00
0.00
0.00
0.00 0.00
0.00 0.00
0.00
0.00
0.00
0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00
0.00
0.00
0.00
0.00 0.00
0.00 0.00
0.00
0.00 0.00
0.00 0.00
0.00
0.00
0.00
0.00 0.00 0.00 0.00
0.00
20.06
61.00
2.02
20.06
0.00 0.00 0.00 0.00
18.00 30.09
0.00
12.03
20.00
0.00 0.00
0.00
0.00
35.01
0.00 25.07
30.09
0.00 13.04
40.00
123.10
56.24
69.67
158.79
48.84
30.69
187.07
49.62
43.49
0.23
21.58
11.47
30.87
15.11
18.89
28.08
6.3 1
60.55
50.71
21.76
15.64
14.16
36.56
164.43
58.26
73.72
87.46
40.30
13.90
187.07
60.20
60.56
-88.27
26.64
3 1.47
31.82
12.21
15.94
22.92
36.12
58.61
64.51
42.62
9.90
18.09
129.31
2.24
0.00
0.00
26.83
0.00
-22.93
52.86
-3.25
0.00
17.28
8.36
31.82
-1.93
15.94
-6.70
12.66
41.24
0.58
12.16
-3.71
32.02 2.08
Total: 6,716.30 6,527.85 0.00 1.00 552.19 7,847.86 2,707.18 369.68
INDIA STATEMENT OF IFC’s H e l d and Disbursed Portfolio
In Mi l l ions o f U S Dollars
Committed Disbursed
FY Approval Company
IFC IFC Loan Equity Quasi Partic. Loan Equity Quasi Partic.
2005
2006
2005
2005
2002
2003
2005
2003
2004
2001
2003
2001
2005
1984
2001
2003
1990
ADPCL
AHEL AP Paper Mills
APIDC Biotech
A T L
A T L
A T L
BHF
BILT
BTVL
Balrampur
Basix Ltd.
Bharat Biotech
Bihar Sponge
CCIL
CCIL
CESC
41.90
0.00 35.00
0.00 17.65
1.46
9.96
10.93
0.00 18.10
14.34
0.00 0.00 6.63
6.75
1.51
8.1 1
7.00 0.00 5.08 0.00 5.00 0.00
4.00 0.00
0.00 0.00
0.00 0.00 0.00 0.00 0.00 10.93
0.00 15.00
5.00 0.00
0.00 0.00 0.98 0.00 0.00 4.50
0.00 0.00
0.00 0.00
0.00 0.00
0.00 0.00
70
0.00 0.00 0.00
0.00
12.18
0.00 0.00 0.00
0.00
0.00 0.00 0.00 0.00 0.00
6.71
0.00
0.00
0.00 0.00
0.00 5.08
0.00 5.00
0.00 0.00 17.65 0.00
1.14 0.00
0.00 0.00
10.93 0.00
0.00 0.00
18.10 5.00 14.34 0.00 0.00 0.98
0.00 0.00
6.63 0.00
6.75 0.00 0.59 0.00 8.1 1 0.00
0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 12.18
0.00 0.00
0.00 0.00
10.93 0.00 15.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00
0.00 0.00
0.00 6.71
0.00 0.00 0.00 0.00
1992
2004
2004
2002
2005
2004
1995
2005
2005
2003
2005
2003
2001
1994
1998
2003
1998
1995
2000
1998
2005
2001
1990
1993
1998
1992
1995
1996
2001
1996
1992
1992
2005
2005 2003
1990
1993
2002
2003
2001
1996
1999
2000
1997
2001
2003
2004
2003
2001
CESC
CGL
CMScomputers
COSMO
COSMO
Caim Energy
Centurion Bank
Centurion Bank
DCM Shriram
DQEL
Dabur
Dewan
EXB-STG
GTF Fact
GVK
Global Trust
HDFC
IAAF
ICICI-SPIC Fine
ICICI-SPIC Fine
ICICI-SPIC Fine
IDFC
IDFC
I IEL
IL & FS
IL & FS
IL & FS
IL&FS VC
IL&FS VC
India Direct Fnd
Indian Seamless
Indus I1
Indus VC Mgt Co
Info Tech Fund
K Mahindra INDIA
W I T
L&T
M&M
M&M
MMFSL
MSSL MahInfra
Moser Baer
Moser Baer
Moser Baer
NICCO-UCO
NIIT-SLP
NewPath
NewPath
Niko Resources
Orchid
11.45
15.00
10.00
5.00
0.00
40.00
0.00
0.00
30.00
0.00 0.00
1 1.05
0.31
0.00
0.00
0.00
100.00
0.00 0.00
0.00
0.00
0.00
50.00
0.00
0.00
0.00
0.00
0.00 0.00
0.00 6.00
0.00 0.00 0.00
22.00
11.00
50.00 0.00
0.00
9.48
0.00
0.00
0.00
2.06
18.45
1.88
8.60
0.00
0.00
37.78
0.00
0.00 0.00 25.53 11.45 0.00 0.00 25.53
0.00 0.00 0.00 8.00 0.00 0.00 0.00 10.00 2.50 0.00 10.00 0.00 0.00 0.00
0.00 0.00 0.00 5.00 0.00 0.00 0.00
4.20 0.00 0.00 0.00 4.20 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.69 0.00 0.00 0.00 0.69 0.00 0.00
0.07 0.00 0.00 0.00 0.07 0.00 0.00
0.00 0.00 0.00 15.00 0.00 0.00 0.00 1 S O 1 S O 0.00 0.00 1.50 1.50 0.00
15.10 0.00 0.00 0.00 15.10 0.00 0.00 0.00 0.00 0.00 11.05 0.00 0.00 0.00 0.00 0.00 0.00 0.31 0.00 0.00 0.00 1.20 0.00 0.00 0.00 1.20 0.00 0.00 5.24 0.00 0.00 0.00 5.24 0.00 0.00
0.00 2.00 0.00 0.00 0.00 2.00 0.00
0.00 0.00 100.00 100.00 0.00 0.00 100.00
0.47 0.00 0.00 0.00 0.30 0.00 0.00 0.33 0.00 0.00 0.00 0.33 0.00 0.00 0.28 0.00 0.00 0.00 0.28 0.00 0.00 0.91 0.00 0.00 0.00 0.91 0.00 0.00
10.82 0.00 0.00 0.00 10.82 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.19 0.00 0.00 0.00 2.06 0.00 0.00 0.49 0.00 0.00 0.00 0.49 0.00 0.00 0.84 0.00 0.00 0.00 0.84 0.00 0.00 0.84 0.00 0.00 0.00 0.84 0.00 0.00 0.14 0.00 0.00 0.00 0.14 0.00 0.00
0.18 0.00 0.00 0.00 0.18 0.00 0.00 1.10 0.00 0.00 0.00 0.64 0.00 0.00
0.00 0.00 0.00 6.00 0.00 0.00 0.00
0.42 0.00 0.00 0.00 0.42 0.00 0.00
0.01 0.00 0.00 0.00 0.01 0.00 0.00
0.39 0.00 0.00 0.00 0.39 0.00 0.00
0.00 0.00 0.00 22.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 50.00 0.00 0.00 0.00
0.07 0.00 0.00 0.00 0.07 0.00 0.00
0.01 0.00 0.00 0.00 0.01 0.00 0.00 0.00 7.97 0.00 9.48 0.00 7.97 0.00 2.29 0.00 0.00 0.00 2.20 0.00 0.00
10.00 0.00 0.00 0.00 0.79 0.00 0.00 0.39 0.00 0.00 0.00 0.39 0.00 0.00 6.24 0.00 0.00 2.06 6.24 0.00 0.00 9.68 0.00 0.00 18.45 9.68 0.00 0.00
0.00 0.00 0.00 1.88 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
9.31 0.00 0.00 0.00 7.06 0.00 0.00 2.79 0.00 0.00 0.00 2.12 0.00 0.00 0.00 0.00 0.00 37.78 0.00 0.00 0.00
3.03 0.00 0.00 0.00 3.03 0.00 0.00
1997
2004
1995
2004
1995
2004
2005
2001
1997
2000
2005
1995
2004
2001
2003
2004
2000
2002
1998
2005
2002
2004
1996
2005
2002
2001
2005
1997
1997
Owens Coming
Powerlinks
Prism Cement
RAK India
Rain Calcining
Rain Calcining
Ramky
SBI
S E I
SREI
SRF Ltd.
Sara Fund
SeaLion
Spryance
Spryance
Sundaram Finance
Sundaram Home
Sundaram Home
TC WiICICI
TISCO
TML
UPL
United Riceland
United Riceland
Usha Martin
Vysya Bank
Vysya Bank
WIV
Walden-Mgt India
7.71
77.42
9.97
20.00
0.00 10.00
3.96
50.00 4.29
7.50
20.00
0.00
5.12
0.00 0.00 45.54
0.00
9.01
0.00
100.00
50.00 17.50
6.88
8.50
19.43
0.00
0.00
0.00 0.00
0.00 0.00
0.00 0.00 2.73
0.00 10.90
0.00 0.00 0.00
0.00 3.71
0.00 1.90
0.95
0.00 2.18
0.00
0.80
0.00 0.00 0.00 0.00 0.00 1.44
3.66
3.51
0.57
0.01
0.00
0.00
0.00 0.00
0.00
0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00
0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00
0.00
0.00 3.95
0.00
0.00
0.00
0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00
0.00 0.00
200.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00
7.71
46.16
9.97
20.00
0.00 10.00
0.00
0.00
4.29
7.50
0.00
0.00 5.12
0.00
0.00
45.54
0.00 9.01
0.00 0.00
50.00
17.50
6.88
0.00
19.43
0.00 0.00 0.00 0.00
0.00 0.00 0.00
0.00 2.73
0.00 0.00 0.00 0.00
0.00
0.00
3.71
0.00
1.90
0.95
0.00 2.18
0.00 0.80
0.00
0.00
0.00
0.00
0.00
1.44
3.66
3.51
0.57
0.01
0.00
0.00
0.00
0.00 0.00
0.00
0.00 0.00 0.00 0.00
0.00
0.00
0.00
0.00 0.00 0.00 0.00
0.00
0.00
0.00
0.00 0.00 0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00 3.95
0.00
0.00
0.00 0.00
0.00
0.00 0.00
0.00
0.00 0.00
0.00
0.00
0.00
0.00 0.00 0.00 0.00 0.00
0.00
0.00 0.00
0.00 0.00 0.00 0.00 0.00
Total portfolio: 1,085.23 161.64 44.40 348.37 651.81 115.76 37.40 148.37
Approvals Pending Commitment
FY Approval Company Loan Equity Quasi Partic.
2000 APCL 0.01 0.00 0.00 0.00
2005 Allain Duhangan 0.00 0.00 0.00 0.00
2004 CGL 0.01 0.00 0.00 0.00 2004 CIFCO 0.00 0.00 0.02 0.00
2001 GI Wind Farms 0.01 0.00 0.00 0.00
2005 KPIT 0.00 0.00 0.00 0.00
2004 Ocean Sparkle 0.00 0.00 0.00 0.00
2006 Tata Steel Bloan 0.00 0.00 0.00 0.10
2001 Vysya Bank 0.00 0.00 0.00 0.00
Total pending commitment: 0.03 0.00 0.02 0.10
72
Annex 14: Country at a Glance
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11
POVERTY and SOCIAL
2004 Population, mid-year (millions) GNI per capita (Atlas method, US$) GNi (Atlas method, US$ billions)
Average annual growth, 199844
Population (%) Labor force (%J
Most recent estimate (latest year available, 199844)
Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live bilthsj Child malnutrition (% of children under 5) Access to an improved water source (% of population) Illiteracy (% ofpopulation age 75+J Gross primary enrollment (% of school-age populationi
Male Female
KEY ECONOMIC RATIOS and LONG-TERM TRENDS
GDP (US$ billions) Gross domestic investmenVGDP Exports of goods and servicedGDP Gross domestic savings/GDP Gross national savings/GDP
Current account balance/GDP Interest payments/GDP Total debffGDP Total debt servicdexports Present value of debffGDP Present value of debtiexports
1984
206.5 21.6 6.5
18.8 19.4
-1.4 0.5
16.5 18.3
1984-94 199444 (average annual growthJ GDP 5.4 5.8 GDP per capita 3.3 4.1 Exports of goods and services 9.0 12.8
India
1,079.7 620
672.8
1.6 2.1
29 29 63 65 47 84 39 99
107 90
1994
322.6 23.4 10.0 24.8 26.0
-1.2 1.3
31.8 26.6
2003
8.6 7.0 4.9
South Asia
1,448 590 860
1.7 2.1
28 63 66 48 84 41 97
105 92
2003
600.7 23.0 15.1 28.1 30.8
1.4 18.4 19.2 12.9 16.7 89.3
2004
6.9 5.4 8.0
Low- income
2,338 51 0
1,184
1.8 2.1
30 58 79 44 75 39 94
101 88
2004
688.7 24.6 16.2 22.8 24.9
0.3 16.9 17.6 8.7
200448
6.1 4.8
15.8
3evelopment diamond'
Life expectancy -
GNI Gross per i- prima> capita enroilmen!
1.
Access to improved water source
India Low-income group -
Economic ratios'
Trade
T
-
Indebtedness
India Low-income group **--*
STRUCTURE of the ECONOMY
(% of GDPJ Agriculture Industry
Services Manufacturing
1984 Igg4 1 Growth of investment and GDP (Oh) I 352 304 228 212 '1 262 271 264 270 164 169 15 6 16 1 387 425 507 518 , I
Private consumption 690 662 667 645 ' 0 6 2 C; C; $ 2 0 General government consumption 108 107 11 3 127 1 Imports of goods and services 7 9 103 16 1 18 0
~ " " " " G D I -GDP
(average annual growth) Agriculture lndustly
Services
Private consumption General government consumption Gross domestic investment Imports of goods and services
Manufacturing
I 1984-94 1994-04 1 Growth of exports and imports (%)
3 4 2 0 9 6 I 6 3 5 6 7 0 6 2 5 6 6 9 6 7 8 2 8 9
5.7 4.7 11.3 4.8 5.9 3.7 3.9 5.0 6.9 9.0 7.3 Exports *Imports 8.4 9.6 11.2 11.0
Note: 2004 represents 200405 and data are preliminary estimates and staff projections.
*The diamonds show four key indicators in the country (in bold) compared with its incomegoup average. if data are missing, the diamond will be incomplete.
73
PRICES and GOVERNMENT FINANCE
Domestic prices (% change) Consumer prices Implicit GDP deflator
Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall surplusideficit
TRADE
(US$ millions) Total exports (fob)
Tea Iron Manufactures
Total imports (ciD Food Fuel and energy Capital goods
Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=100)
BALANCE of PAYMENTS
(US$ millions) Exports of goods and services Imports of goods and services Resource balance
Net income Net current transfers
Current account balance
Financing items (net) Changes in net reserves
Memo: Reserves including gold (US$ millions) Conversion rate (DEC, local/US$j
EXTERNAL DEBT and RESOURCE FLOWS
(US$ millions) Total debt outstanding and disbursed
IBRD IDA
Total debt service IBRD IDA
Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity
World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers
1984
4.3 7.4
1984
10,061 321 453
5,614 15,715 1,384 4,596 2,546
99 119 83
1984
13,508 18,065 4,557
-838 2,496
-2,899
2,516 383
5,952 11.9
1984
34,036 1,688 8,545
2,973 257 109
483 1,363 1,895
0 0
2,651 1,114
129 985 237 748
1994
7.6 9.7
18.0 -3.7 -7 5
1994
26,855 1,126
988 20,404 35,904
1,144 5,928 7,638
109 104 105
1994
32,990 41,437 -8,447
-3,431 8,093
-3,785
9,526 -5,741
25,186 31.4
1994
102,483 11,244 17,758
10,951 1,641
325
416 970
1,438 983
3,824
2,064 1,783 1,062
721 904
-1 83
2003
3.7 3.2
18.7 4 . 9 -9.3
2003
62,952 1,321 2,341
47,616 79,658
3,059 20,570 17,132
93 100 94
2003
90,568 96,590 -6,022
-4,703 18,885
8,160
8,820 -16,980
11 1,648 46.0
2003
115,277 4,126
22,351
14,469 2,079
77 1
559 2,231 8,565 3,137
11,355
1,600 1,717 2,468
381 -1,133
-751
2004
6.6 4.9
19.9 -5.8
-10.6
2004
76,345
57,898 99,836
20,915
104 113 92
2004
108,948 121,250 -12,302
-4,800 19,243
2,141
19,655 -21,795
133,441 44.9
2004
121,456 4,865
23,662
11,337 288 755
646
4,020 8,996
2,705 1,835
784 1,051
259 792
Inflation (%) 15
10
5
0 99 00 01 02 03 0
-GDP deflator *CPI
ixport and import levels (US$ mill.)
25,w0 T 00 000
75 000
50 000
25 000
0
O4 I 98 99 00 01 02 03
Exports W Imports
I Current account balance to GDP (%)
~ Composition of 2004 debt (US$ mill.)
A - IBRD B - IDA D - Other multilateral F - Private C - I M F G -Short-term
E - Bilateral
DeveloDment Economics
74
8/1/05
Annex 15: Implementation of Open Access Regime and Development o f Power Trading
INDIA: POWER SYSTEM DEVELOPMENT PROJECT - I11 .
1. The Indian power sector primari ly comprises o f generating companies either owned by the centre and states jo in t ly or solely by the centre, central transmission utility (CTU), regional load dispatch centers (RLDCs), state electricity boards (SEBs)/state power utilities21 and independent power producers (IPPs). Apart f rom generating their own power, the S E B S ~ ~ also purchase power f rom central sector generating stations under long te rm (20 to 25 years duration) Power Purchase Agreements (PPAs), which are based o n the state’s allocation o f central sector capacity as defined by the GoI. The PPAs specify the volume o f transaction, though not the price, which i s set periodically by the central regulator. Power trading between states i s carried out under bilateral agreements, which are usually o f a much shorter duration than PPAs. In the states where the sector has been unbundled, the PPAs with central sector power suppliers have been allocated (provisionally) to the state transmission company, who sell the power purchased from the state generation company and central generating stations to the state distribution companies. This i s referred to as a single buyer
2. Despite a huge increase in installed generation capacity, 1,362 MW in 1947 to about 120,000 MW in 2005, the power sector in India i s s t i l l characterized by severe shortages. There are huge variations in demand and supply across the country since:
0
0
0
0
3.
demand for electricity i s spread across the vast country, whereas most o f the generation capacity i s concentrated in specific pockets, with coal reserves located in the eastern part o f the country and hydro generation capacity located largely in north and north-east (in the Himalayas); there i s an inherent diversity in the demand o f the various states which also results in periods o f seasonal surplus in one area coinciding with periods o f defici t in another; there are pockets o f surplus power due to projected load growth not taking place in l i ne with actual addition in generation capacity; and demand for electricity varies across the hours o f the day, with peaks occurring in different parts o f the country at different times. The power situation in India has been a major constraint o n the growth o f industry, with
frequent outages, load-shedding and voltage fluctuations compelling industry to establish back up generation systems or compromise production. Also, with heavy transmission and distribution (T&D) losses (mainly o n account o f theft) and tariffs for certain categories (such as agriculture and rural domestic consumers) lower than the cost o f supply, tariffs levied o n the industrial consumers have been higher than the cost o f service. Consequently industrial consumers have been a cross-subsidizing category, but receiving a poor quality o f power.
4. M a n y large industries have set up captive power plants located close to, or within, their manufacturing unit premises, as the state transmission and distribution utilities were not obligated by law (until June 2003, when the EA 2003 was introduced) to transmit captive
In some states (ten so far), the vert ical ly integrated SEBs have been unbundled in to separate (one o r more) generation, transmission and several distribution uti l i t ies. SEBs refer to both SEBs or state Util i t ies, as the case m a y be. However, Rajasthan and Andhra Pradesh have adopted the mult i-buyer model, where each distr ibution company purchases power direct ly from generators and existing contracts have been ‘vested’ t o the distr ibution companies.
21
22
23
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power.24 Plant size was restricted to the industry’s o w n requirement and economies o f scale from a large power plant could not be achieved, as surplus power could not be on-sold. Further, small and medium industries could only set up diesel based generation systems, power from which was much costlier than that f rom an efficiently run utility. Although there has been a huge demand f rom industry for better quality and reliable power, the financial condition o f the state electricity utilities has been abysmally poor and so failed to attract the investments in generation to fulfill this demand.
Bulk-Power Tari f f Regime.
5. One o f the key facilitating factors in the development o f power trading and Open Access in India has been the introduction o f a two-part bulk power tariff regime, referred to as ABT25. The earlier system o f a single part bulk tar i f f regime for the sale o f electricity f rom central sector generating stations to the state utilities was not conducive for promotion o f power trading because:
o f ixed costs were allocated to buyers in proportion to their actual off-take. As a result, even i f utilities did not trade the surplus power f rom their share, they did not have to bear the associated fixed costs, which were allocated among a l l buyers; and
o valuation of power was independent o f the demand and supply conditions. As a result demand-supply based price signals necessary to stimulate trading were absent.
6. The anomalies o f single part tar i f f structure were corrected with the introduction o f ABT, which provides for separate availability based fixed charges and variable charges to cover fuel and other operating costs. Having paid the f ixed charges to generators for making plants available, state utilities find commercial logic in selling any surplus power to other states.
7. ABT also provides a frequency based mechanism for the pr ic ing o f Unscheduled Interchange (UI), thus linking the valuation o f power to the prevailing demand and supply conditions, although the valuation i s administrative and not market based. Ut i l i t i es can trade power with the pool o n a real-time basis at the prevailing poo l price, by selling surplus power, or buying power in case o f a deficit. Thus by judiciously managing their demand and generation, state utilities are able to optimize their operational performance. However, frequency linked valuation o f UI in ABT i s essentially a balancing mechanism, required to settle deviations from the schedule, and not real ly a trading mechanism. Whi le UI interchanges have been successfully settled at the central (inter-state) leve l using the ABT, balancing mechanisms at the state level have not yet been developed. Accurate boundary metering i s a pre-requisite for implementing ABT at the state level.
8. The key challenge faced by the power sector i s to meet the growing demand for electricity. Provision o f Open Access and Power Trading would essentially facilitate narrowing o f this demand-supply gap. I t would enable addition o f generation capacity by:
o allowing generators to sell directly to customers;
o assuring industry o f quality power at competitive rates;
o promoting efficiency through allocation o f additional capacity to paying customers; and
24 Whi le the l a w did n o t obligate transmission companies t o provide power transmission services to independent customers, there are examples o f B P T A s - Bulk Power Transmission Agreements be ing entered in to by transmission companies and some industries, in Andhra Pradesh, Karnataka, Rajasthan and Orissa. A paper o n the W o r l d B a n k South As ia website provides more in format ion o n ABT and evidence t o date. 25
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o improving the utilization o f excess capacity available with captives and generation utilities by facilitating trading.
Since transmission and distribution wiring businesses are natural monopolies, Open Access to these i s a necessary precondition for competitive power trading in the country.
Electr ic i ty A c t 2003 9. The EA 2003 was introduced to provide an enabling framework for accelerated and more efficient development o f the sector, by encouraging competition with regulatory oversight. I t replaced or amended three existing laws, namely, Indian Electricity Act, 191 0, the Electr ici ty (Supply) Act, 1948 and the Electricity Regulatory Commissions Act, 1998. The A c t delicenses generation26, freely permits captive generation, provides Open Access in transmission f rom the outset, requires Open Access in distribution to be introduced in phases and recognizes power trading for the f i rs t t ime in India as a separate activity. The Ac t requires separation o f transmission and trading businesses by al l states within one year.27 Under the new Act, a cross- subsidy surcharge has to be paid by Open Access customers in order to offset the loss o f cross- subsidizing customers f rom the utility’s fold. While the act specifies that the surcharge has to be phased out gradually, i t does not provide the principles for the calculation o f the surcharge in the first place and the period over which the phasing out occurs.
10. The new A c t freely permits captive generation and consumers who draw their supplies f rom remote captives have been granted Open Access to transmission and distribution networks with n o cross-subsidy surcharge. Further, the A c t uses a highly inclusive definit ion o f the term “captive generating plant”, which incentivizes producers and buyers to form associations, cooperative societies and companies for coming under the umbrella o f such captive stations. Evidently, these provisions could exert a strong pull in favor o f capacity creation in the captive segment, thus causing a migration o f bulk consumers from the distribution companies/ SEBs to the captive fold.
11. This i s the f i rs t power sector legislation in India to recognize trading as a separate activity, thus providing impetus to the development o f trading. T o ensure objectivity o n the part o f the transmission companies, the new act requires separation o f trading and transmission (“wires business”) functions. Wh i le POWERGRID, the CTU, i s only a wires company not engaging in trading, most vertically integrated state utilities and unbundled state transmission companies are engaged in trading (albeit on a long term contractual basis). States wh ich have not unbundled the vertically integrated utilities also have to separate out their transmission function to comply with the EA 2003 by either creating a separate trading company o r delegate the trading function to the newly created generation or distribution companies.
12. Recognizing the commercial opportunity, many o f the private sector players have applied for trading licenses.28 CERC has issued the Procedure, Terms & Conditions for grant o f Trading License Regulations, 2004, building upon the provisions o f EA 2003.
13. The Ac t also requires various agencies in the power sector such as Min is t ry o f Power, C E A and CERC (and their counterparts at the state level) to develop various policies, guidelines and regulations pertaining to Open Access. These are as follows:
26
2’
28
However, Hyd ro projects continue to require clearance f r o m Central Electr ici ty Authority. The deadline for separation o f transmission and trading businesses has been extended o n a selective basis by the n e w national government and i t n o w stands at December 2005 for most states. Documentation o n the CERC website in November 2004 l isted 12 companies as hav ing been granted inter-state trading licences.
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14. National Electricity Policy and Tariff Policy. The Central Government i s mandated to prepare f rom t ime to time, the National Electricity Pol icy and the Tar i f f Policy. The National Electricity Pol icy was published early in 2005. I t brings out the need to develop adequate surplus capacity in the transmission system to cater for the requirements o f Open Access customers. The pol icy stresses the need to implement a national transmission tar i f f framework, consistent across inter-state and intra-state systems. The draft National Tar i f f Pol icy has been issued by the central government to seek feedback from various stakeholders. The A c t also requires the Central Electricity Authority (CEA) to prepare a National Electricity Plan every f ive years.
15. Policy on Private Participation in Transmission and Policy on Tariff based Competitive Bidding of Transmission Services. The central government has also brought out the draft policies o n private participation in transmission services and tar i f f based competitive biding o f transmission services, for feedback from various stakeholders. These policies a im to facilitate the investment o f private capital to the fast growing transmission sector. The policies include inter- alia, a framework for selection o f projects for private participation, the process for bidding based selection o f private players and the role o f various stakeholders in this.
16. CERC Regulations. The CERC has introduced the Open Access in Inter-State Transmission Regulations 2004 as required by the EA 2003. The regulations categorize Open Access customers into long term and short term customers - more than 25 years duration being classified as long term, and a l l others as short term. Short t e r m Open Access cannot be for more than one year at a time. Whi le long term Open Access i s allowed in accordance with the long te rm transmission planning, short t e r m Open Access is available only if marginal capacity i s available owing to inherent design margins or variations in power flows. Therefore, for short t e r m access, availability o f excess capacity in the system i s a critical requirement. The regulations specify al l the modalities for long term as we l l as short term Open Access such as application procedure, calculation o f transmission charges, settlement mechanism (UI charges), System Operation charges, Reactive Energy charges etc.
17. POWERGRID’S Role. As the CTU, and the operator o f the RLDCs (which are designated as the nodal authority for short term Open Access), POWERGRID has undertaken the responsibility o f actually providing Open Access. T o resolve capacity congestion arising f rom demand from multiple short term customers an e-bidding system has been implemented.
18. SERC Regulations. The EA 2003 requires state regulatory commissions to introduce Open Access in distribution in a phased manner, such that a l l consumers who require maximum supply o f at least 1 MW are provided with the option o f Open Access within f ive years. Whi le most state commissions are yet to develop these regulations, the states o f Rajasthan, Andhra Pradesh (A.P.) and Karnataka have taken a lead in preparation o f these regulations. T o exempli fy the nature o f proposed state level regulations, the A.P. draft regulations propose phasing o f Open Access starting with contracted demand greater than 5 MW from September 2005 then progressively expanding access until contracted demand greater than 1MW will be subject to Open Access from April 2008.
Experience to D a t e
19. Since the formal introduction o f Open Access at the national transmission level there has been significant activity - although the level i s s t i l l only about 2-3% o f the total power transmitted through the system. Figure 1 shows the monthly number o f transactions and the total kWh covered by the transaction.
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Figure 1: Open Access data - M a y 2004 to M a r c h 2005
100 1 T 2500
May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05
' CZJ MUS of Enerav -No. of Transactions 1
20. Emergence of Power Trading Companies in India Recognizing the potential gains f rom trading in power, Go1 established Power Trading Corporation o f India Limited (PTC)29, with the promoter share holdings by four key public sector power companies, public financial institutions and other private/public sector players in the power sector.30 As the first player in the power trading business, PTC made a modest beginning with l imi ted transactions amounting to 28.35 MUS during 1999-2000, but expanded rapidly to reach 8,887 MUS during 2004-05. After the notification o f Electricity Ac t 2003, which recognized power trading as a separate activity, several other companies have strengthened their presence in this arena. CERC has granted trading licenses to 17 companies so far, o f which the prominent ones are Adani Exports Limited, NTPC Vidyut Vyapar N igam Limited, PTC India Limited, Reliance Energy Trading Limited and Tata Power Trading Company Limited. Whi le the sector i s st i l l dominated by PTC, the other players have achieved about 27% market share over the last couple o f years. PTC also plays a key role for power exchange with the neighboring countries, and i s currently engaged in trade o f power with projects in Nepal and Bhutan.
With effect from 21 July, 2004, Power Trading Corporation o f India Limited became PTC India Limited. PTC was established in 1999 and brought its initial public offering for its stock in early 2004, which was heavily oversubscribed. The shareholding of the company at present i s widely distributed, with five key public sector companies holding 39% (POWERGRID - 8%0, NTPC - 8%, PFC - 8%, NHPC - 8%, and Damodar Valley Corporation - 7%), Financial Institutions and Banks holding 14%, Mutual Funds - 5.6%, Private Sector Corporate Bodies - 14.6%, Foreign Investors - 10.8% and General Public holding 16% equity in PTC.
29
30
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Figure 2: Growth of Power Trading
Power Traded during the year (MUS)
14000
12000
10000
8000
6000
4000
2000
0 99-00 00-01 01-02 02-03 03-04 04-05
Key Issues in Implementation of Open Access and Development of Power Trading in India
21. Transmission pricing. The prevailing postage stamp methodologies for transmission pricing do not appear to be adequate for provision o f Open Access. In addition, point-to-point contract path Open Access may not be sustainable in the long-term as greater requests for Open Access are made. Consequently, consideration needs to be given to whether modifications are needed in the medium-term - or whether a complete change in system should be envisaged. With the help o f competent advisors, over the next one to two years, a new transmission pr ic ing regime needs to be developed that i s able to support Open Access.
22. Development of Spare Transmission Capacity. T o facilitate the introduction o f Open Access and the development o f a power market and also for secure reliable operation o f the grid, adequate margins in transmission system capacity need to be created and how the cost o f this spare capacity would be recovered by the investing transmission company.
23. Strengthening of State Transmission Systems. For successful implementation o f Open Access at the state as well as national leve l i t will be necessary to strengthen the institutional and physical capacities at the state level.
24. Cross Subsidy Surcharge A key pol icy issue in design o f transmission pricing methodology would be the quantum o f cross-subsidy surcharge to be levied o n Open Access customers, as provided by the EA 2003. If the cross-subsidy surcharge fully offsets the gains f rom direct purchase of power f rom a generator, or f rom operating a remote captive, there will be no interest f rom the industry in Open Access facility. 25. Balancing mechanism for intra state application. I t appears that UI provides the necessary energy balancing mechanism for regional interstate Open Access transfers - at least in the short- to medium-term. Since the valuation o f energy i s based o n the prevailing frequency, i t takes into account the demand and supply conditions as well. However, at the state level, there i s
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no such mechanism available, and an open issue exists as to how the states will provide a similar function for transactions.
26. Institutional capabilities. The design and administration o f Open Access regimes wil l impose substantial challenges for the institutions which are required to develop detailed rules, and administer those rules. This includes the regulatory commissions, the RLDCs and the SLDCs.
27. Design of Power Trading Markets. Appropriate market design need to be developed for power trading catering to varying requirements for different time durations, different transaction volumes and different locations, etc.
28. Early implementation of Open Access at distribution level. Traders have to depend o n Open Access for transfer o f power f rom supply node to the demand center. While Open Access has already been granted for inter-state transmission o f power, the last mile(s) linkage through the distribution network wil l be introduced in a phased manner.
29. Pricing of Surplus Generation. Surplus generation (beyond the long term PPAs) i s most easily amenable to trading. Pricing o f this generation should be determined by the markets, rather than being fixed by regulations - as was recently proposed. Appropriate pr ic ing o f spare power i s the key to increasing efficient utilization o f capacity in the system and providing the right incentives for increased generation.
These issues wi l l be considered during the l i f e o f the proposed project and the Bank will provide advice and assistance to GoI’s various power sector agencies in reaching conclusions o n the outstanding questions and embarking on implementation.
wb80592 M:\INDIA\Power Sys Dev III-P086414\PowerGrid I11 - PAD Decl5 .doc 12/2012005 10:50:00 AM
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