July/August 1996

INDEPENDENT

ENERGY
T H E P O W E R I N D U S T R Y ’S B U S IN E S S M A G A Z IN E

A PennWell Publication
1996-07 Power Shift by
Mr. Vishvjeet Kanwarpal CEO GIS-ACG Global InfraSys - Asia Consulting Group
Published: July/Autus 1996 by
Independent Energy A PennWell Publication

IPPs IN ASIA:
Success Stories & Lessons Learned
Plus: S pecial India S ection
INDEPENDENT
ENERGY
Power Markets
Solicitation
Strategies
Asian markets are moving into the next stage of
maturity: competitive procurement. Industry players are
teaming up to maximize their competitiveness.
By Michael T. Burr
10 Scaleup In
Shandong
To keep up with economic
growth, Shandong Electric Power
Corp. is pursuing an aggressive
plan for adding generating and
transmission network capacity in
the coming years.
By Mr. Zhou Yongxin
14 Promising
Prospects
Opportunities for privatization and
new projects make the Philippines
one of Asia’s most promising
markets.
By Michael T. Burr
24 Project Security
China’s Guarantee Law provides a
better environment for project
sponsors.
By Mark H.F. Kuo
27 Progressive Change
Australia continues to offer
investors many opportunities as
privatization continues.
By Kenneth L. Norton
and Noela Cain
Volume 26, No. 6 / July/August 1996
The 720 MW Kuala Langat power station entered service in
8
Malaysia in May. ABB Power Generation built the project in 24
months under turnkey contract with Genting Sanyen Power.
56 Cross-Border
Marketing
Despite challenges, Canada’s
competitive power market is
beginning to expand through
several cross-border transactions
with U.S. buyers.
34 Bigger Barges By David Bright
and Stephen Salaff
The 450 MW Port Qasim
combined-cycle project takes
barge-mounted power to a new Financial
level.
65 Sound Structures
By Michael T. Burr
Two successful international deals
continue to demonstrate financing
38 INDIA structures and partnerships that
work in today’s expanding market.
SPECIAL SECTION
By John Anderson
40 Power Shift
India’s vast power market
appears ready to continue as
economic growth and reform
Independent Energy
continue to move forward. Is Moving!
By Vishvjeet Kanwarpal Effective July 1, 1996, Independent
Energy’s editorial and advertising
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July/August 1996 / INDEPENDENT ENERGY 1
IN D EPEN D EN T
ENERGY
Regulatory
70 Competitive
Vision
FERC’s Order 888 lays the
cornerstone for competition and
for lower consumer power
rates. Three industry trade
groups offer their views on
FERC’s action.
Fuels
76 Asian Peat
Prospectus
Interest in peat as a fuel for
power production is growing in
various Asian markets, including
Indonesia.
By Tim Hennagir
Power Equipment
78 Captive
Applications
Recent power generation station
orders from countries such as
China and India continue to
document the popularity of the
dependable diesel.
By Tim Hennagir
Independent Energy magazine provides senior
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Pow er
Shift
Vishvjeet Kanwarpal, Asia Consulting Group
he Indian liberalization process
T initiated in the early 1990s has
awakened the sleeping giant.
Private sector participation, public sec­
tor disinvestment, deregulation, lower­
ing of trade barriers, and a radical over­
haul of industrial, financial, and tax
policies have unleashed Indian econom­
ic and market potential in an unprece­
dented manner.
Decades of central planning, govern­
ment controls, subsidies, and a public
sector notorious for its low productivi­
ty, all collectively served to exhaust the
government’s financial ability to meet
the needs of the nation. Left with little
choice, in 1991 India opened its doors,
invited foreign capital, and looked to
participate in the global market.
However, economic growth and mar­
ket demand are easier unleashed than
sustained in a country of 900 million
people with double digit growth in
many key sectors. There is an enormous
strain on the country’s infrastructure —
power, telecommunication, and trans­
portation, combined with power short­
age threaten to retard the economic
boom. Key factors such as political and
national consensus on the need for for­
eign investment in the infrastructure
sectors, streamlining of the investment
process, and overcoming bureaucratic
inertia have all taken their due time.
These are unavoidable processes in a
country accustomed to four decades of
central planning and control.
The Indian power market promises to
be more than $150 billion in the next
decade. Success is a function of long­
term strategic commitments to develop
the market, a flexibility to adapt to
dynamically evolving market condi­
tions, and the will and resources to sus­
40 INDEPENDENT ENERGY / July/August 1996
S P E C I A L S E C T I O N
India
investment in infrastructure and the
need to end India’s protectionist regime.
The Power Sector
The power industry, including gener­
ation and T&D, has been the domain of
the public sector since the Industrial
Policy of 1956 and private power
accounts for a meager 4 percent of gen­
eration today. The Indian Energy
Supply Act of 1948 established the
State E lectricity Boards (SEBs) to
develop the power sector at the state
level and the Central Electricity
tain trials. As an example, the Dabhol Authority (CEA) at the central govern­
project was confronted by challenges
and setbacks that could have sealed the
fate of the project. However, Enron has
overcome these with vision, insightful
ment level to develop and coordinate
national power policy.
Until the late 1970s India was a
power surplus country. Today, the
strategy, and firm resolve. While other country is experiencing acute shortage
developers are unlikely to face similar of electricity with average shortfall of
risks, they will still have to earn their 10 percent and peak shortfall of 20 per­
rewards in India. cent. Regional shortfall is estimated at
The Enron imbroglio demonstrated 27 percent in the eastern region, 22 per­
that political risk can be substantial in a cent in the northern region, 18 percent
country like India. However, the ensuing in the western region, 17 percent in the
national debate and wide publicity southern region, and 12 percent in the
brought home several facts .to the Indian northeastern region.
political ideologues and ordinary citizens. While government investment in the
First, there is serious infrastructure crisis sector has been inadequate, there also
in India. Second, the nation cannot meet has been a slowdown based on lack of
the requirement indigenously. And final­ funds and the expectation that IPPs will
ly, foreign investment is needed. add the required capacity. In the eighth,
As no political party received a clear 5-year plan (1992-1997) the govern­
mandate to form the government in the ment had planned to add 45 GW.
recent national
elections, there FIGURE1: F o r e c a s t in g E l e c t r ic it y D e m a n d — S u p p l y in I n d ia
is caution about
the nature of the
coalition form­
ing the new gov­
ernment and its
foreign invest­
ment policy.
N e v e rth e le ss,
almost all par­
ties highlighted
the need for
in fra stru c tu re
d e v e lo p m e n t
using foreign
investment.
Indian politi­
cal, industrial,
and financial
systems have
accepted the
Note: PLF average for new projects pegged at 75%, without fuel availability constraints.
essential realities
of foreign Source: Asia Consulting Group
 IPP Case History: Jegurupadu
GVK Industries’ combined-cycle
power plant at Jegurupadu will be one
of the first IPP projects to come on
line with its first unit of 53 MW sched­
uled to become operational in July.
The project consists of three gas tur­
bines and a steam turbine based on
waste heat from the gas turbines.
The first unit which was scheduled
to be commissioned in March was
delayed two months as the finance
ministry delayed the counter guaran­
tee clearance. This held up the
release of funds by the IFC. The SEB,
on behalf of whom the central govern­
ment grants the counter guarantee, is
expected to clear the operation
finance action plan (OFAP) and earn
a minimum 3 percent rate of return.
The SEB revenue earning is not up to
the mark and the state government
will have to pay up the subsidies to
Andhra Pradesh SEB for it to clear its
OFAP. In Andhra Pradesh 43 percent
of the power is consumed by the high­
ly subsidized agricultural sector (20
paise per unit or 0.0057 cents) which
is already affecting the financial posi­
tion of the SEB.
The restricted counter guarantee
which was subsequently cleared by
the m inistry covers only the debt
obligations and not the energy pay­
ment dues from the SEB.
Further, GVK’s request for allowing
it to sell power in excess of 68.5 per­
cent PLF has been turned down by
the Ministry of Power. The ministry
also has scaled down certain incen­
tives for power generation in excess
of 68.5 percent PLF.
Selling power to the third party
directly by the company would mean
substantial loss in revenues to the
SEB. The industrial consumers who
are charged the highest tariffs would
prefer this more reliable power supply.
The stand of both the finance ministry
and the ministry of power suggests
they do not want to abolish the
monopoly of the SEB in power distrib­
ution, instead of looking at the possi­
bility of improving the performance of
the SEB through competition. The cost
of power from a new IPP like this
would be more than that from the
depreciated SEB’s power plants.
GVK also faced problems with fuel
42 INDEPENDENT ENERGY / July/August 1996
supply. The bankers insisted on a fool­
proof contract from the Gas Authority
of India (GAI), with which the GAI did
not agree. GVK Industries has now
taken the fuel risk on its own. Due to
the shortage of gas, gas linkages are
available for only two units and at
least one unit of the project will be
forced to operate on naphtha. Since
naphtha is twice as costly as gas, the
finance ministry has objected to this.
After all these hurdles, the
Jegurupadu project is one of the first
IPPs nearing completion. Power will
be sold at a levelized tariff of Rs 2.06
per unit, based on the assumption
that the gas based power station will
run for 15 years before the first major
overhaul is due. As per the govern­
ment guidelines the insurance premi­
ums are kept at a cap of 1 percent of
the capital cost and O&M expenses to
2 percent of the capital cost.
The three gas turbines will be set
up in June, August and December of
1996 and the steam turbine in May
1997. The total project cost is Rs 827
crores (US$237.2 million) of which the
equity portion is Rs. 252 crores
(US$72.3 million) and the debt portion
is Rs 575 crores (US$165 million).
Break up of equity (percent)
GVK group (including an offshore
company in Mauritius) 26.5
Asian Infrastructure Fund 29.75
CMS Generation USA 18.75
IFC Washington 10
ABB 5 could fall below 100,000 MW. This fig­
APSEB 10
Indian financial institutions involved
include: Industrial Development Bank
of India; Industrial Credit Investment
Corp. of India; the Former Shipping
Credit and Investment Corp. of India;
and Industrial Reconstruction Bank of
India. Also, the Life Insurance Corp.
of India and the Unit Trust of India will
lend Rs 330 crores (US$94.7 million),
and the International Finance Corp.
and the Nordic Investment Bank will
fund Rs 245 crores (US$70.3 million).
Successive revisions reduced the target to
30 GW. The currently expected govern­
ment capacity addition is expected to be
19 GW or 42 percent of the original tar­
get for the eighth plan. With IPPs includ­
ing fast track projects facing slow devel­
opment, the crisis is deepening further.
The eighth plan of the government
(1992-1997) allocated $23 billion for
the five-year plan or an average annual
amount of $4.6 billion. This is planned
for the entire power industry, not just
for capacity additions. Private sector
investment is not a matter of choice, it is
a critical need.
The wide range of conflicting fore­
casts of India’s power requirement sug­
gests that the magnitude of the crisis is
yet to be accurately determined. And
without a reliable demand forecast,
planning for the power industry cannot
be conducted optimally.
One demand forecast suggests that
142,000 MW of additional capacity will
be required, including peak demand, in
the next 10 years only under certain
conditions. One such set of conditions is
that new projects are operated at 75 per­
cent PLF, T&D losses continue at 22
percent, no further captive or cogenera­
tion capacity is added, and no installed
base plants are repowered. However, all
of these are untenable as most PPAs are
signed for 85 percent to 90 percent off­
take, T&D losses are likely to decrease
with privatization in the medium future,
captive and cogeneration capacity will
increase rapidly in the near future, and
there are extensive plans for installed
base repowering.
Under these conditions the demand for
additional capacity in the next 10 years
ure may be further reduced with wheel­
ing of power from surplus areas to deficit
areas and in the long run through DSM.
These aspects can have an enormous
effect on capacity planning and particu­
larly PPAs that will be signed in the next
five years, especially since there has been
about 250,000 MW of new capacity
addition activity recorded to date (See
Figures 1 and 2).
The call for private participation in the
power sector by the government has been
overwhelming since mid-1994. In
December 1995 the ministry of power
recorded more than 225 proposals by
developers totaling about 100,000 MW in
power generation capacity (See Figure 3).
 Since then the crisis in the power
sector has worsened and projects have
continued to be slow in developing.
The government has responded by ini­
tiating several measures to accelerate
project development, weed out less
serious projects, and streamline the
project clearance process.
One of the most significant initiatives
has been to eliminate the mandated
clearance required from Central
Electricity Authority (CEA) for projects
costing less than Rs. 400 crore ($115
million), thus giving a boost to medium
and small power project development.
IPP Case History: lb Valley
AES Corporation’s lb Valley power
project, one of the initial fast track pro­
jects, faced challenges as the
Congress government ordered a
review of the project as soon as it
came to power last year. The project
was initiated in the regime of the earlier
Janata Dal government. Review was
ordered on the basis of allegations of
lack of transparency, excessively high
project costs and high tariff rates.
The comptroller and auditor gener­
al also criticized the Orissa SEB for
not following the route of global ten­
dering and also signing a power pur­
chase agreem ent (PPA) which it
termed as financially disadvanta­
geous. A report by the comptroller
and auditor general highlighted the
following points.
□ There is no clause in the PPA to
protect the interest of the SEB in
case of late repayment of loans by
AES attracting penal interest.
□ The PPA did not have a provi­
sion through which the Orissa SEB
could verify the actual consumption of
fuel by AES even though the board
was to reimburse the heavy cost of
fuel on actual basis.
□ The SEB opened a letter of
credit amounting to Rs. 142.66 crores
(US$41 million) which is the power
supply bill for three months. This was
apart from the guarantee and counter
guarantee by the central and state
governments.
□ High capital cost of the project
will mean an additional payment of
Rs 9.95 crores (US$2.9 million) every
year as O&M expenses.
These charges led to renegotiation
46 INDEPENDENT ENERGY / July/August 1996
The clearance issued by the CEA is a
techno-economic clearance that exam­
ines all param eters of a project.
However, many say that the CEA clear­
ance —which is to be applied for after
the rigors of detailed feasibility studies,
securing a PPA, and FSA— is too gener­
al in nature, adds little value, and unnec­
essarily delays projects. According to
some former senior power sector offi­
cials and industry leaders, India’s CEA
does not possess the resources to assess
the large number of private power pro­
jects of increasing structural, technical,
and financial complexity. The CEA
of the PPA and other issues relating
to high capital costs. The SEB insist­
ed on a tariff of Rs. 1.55 to Rs. 1.60
per unit pointing out that the first two
units of lb Valley operated by the
Orissa Power Generation Co. were
already supplying power at a rate of
Rs 1.55 per unit to the SEB.
Subsequently AES reduced the tariff
rates in stages, from Rs. 2.39 per unit
to Rs. 2.04 and further down to Rs.
1.90 per unit. Project costs were
reduced from Rs. 4.76 crores
(US$1.4 million) per MW to Rs. 4.15
crores (US$1.2 million). The project
site was changed from lb Valley units
3 and 4 of 210 MW each to lb Valley
units 5 and 6 each of 250 MW.
Project for units 3 and 4 will be
undertaken by O rissa Power
Generation Corp.
lb Valley was the only fast track
project, apart from Dabhol, to have
received a counter guarantee from
the central and state governments.
But renegotiation and subsequent
changes will require AES to put in a
fresh proposal for the counter-guar­
antee and draft a new PPA.
Considering the present situation of
acute shortage of power the ministry
of power and the ministry of finance
are likely to give quick clearances to
the project.
Two units of 250 MW each is likely
to be commissioned in 1999. GE will
be supplying the steam turbines and
generators for both the units. The
company is seeking linkages of 2 mil­
lion tons of coal from the near lb
Valley coalfields of Mahanadi Coalfield
Ltd, a subsidiary of Coal India Ltd.
clearance was initially not required for
projects under Rs. 25 crore (US$7.2 mil­
lion). This limit has been progressively
been increased to Rs.100 crore (US$28.7
million), then Rs. 200 crore (US$57.4
m illion), and finally Rs. 400 crore
(US$114.7 million).
State governments have taken advan­
tage of these changes and taken inde­
pendent initiatives to woo private power
developers. Asia Consulting Group’s
National Project Track is currently
tracking almost 1,300 projects under
development in the country. These pro­
jects include IPPs, captive projects, new
government projects, as well as small
projects. Collectively these account for
250.000 MW of capacity under devel­
opment with IPPs accounting for almost
189.000 MW.
Cumulatively the installed base and
projects under development present a
dreamy picture of Indian power with a
power project sited for every 50 kms of
habitable land in India, sometime in the
future. However, preliminary analysis
at the project level suggests a maximum
addition of about 95 GW within the
next 10 years. IPPs are expected to
account for almost 60 percent of the
total addition.
Analysis further suggests that power
projects currently under development
will undergo an attrition of almost 60
percent in the coming years based on
demand based analysis alone.
Private Power A ttrition
Some estimates are that project activ­
ity in the country will pass through sev­
eral stages of attrition in the next five to
seven years. Several factors will deter­
mine this attrition.
One is that a large number of devel­
opers will not succeed in completing
the requisite clearances due to project
deficiencies and delays within the clear­
ance mechanisms. Additionally, envi­
ronmental and political factors have and
may continue to hinder some projects
from successful completion.
Next, there seems to be as much diver­
sity among developers as there is in pro­
jects. The initial ease of entry into the pri­
vate power industry witnessed an
unprecedented random diversification
into private power by companies, agen­
cies, and individuals with no core-compe­
tence in this sector. This lack of expertise
and its effects are already being detected
in projects which are floundering.
Third, there may be shortages in coal
and gas availability, and transportation
constraints may jeopardize signing of
 FIGURE 2: I ndia Electricity S upply Forecast
Source: Asia Consulting Group
acceptable fuel supply agreements
(FSAs) or render them risky documents.
Also, Asia Consulting Group’s forecast
for the next 10-years of demand sug­
gests an additional 100,000 MW of
capacity —including peak demand—
will be required. Given that there is
roughly 250,000 MW under various
stages of development, there will be 60
percent project attrition.
Currently the SEBs are the primary
purchasers of power. PPAs signed by
the SEBs have to be supported by rev­
enues. Given the highly subsidized tariff
structure in India, T&D losses, theft,
and collection irregularities, the demand
forecasts will not be reflected in the rev­
enue streams of the SEBs. Hence the
SEB ability to sign up and honor PPAs
is substantially lower than what the
demand figures suggest. Even in the
event of tariff rationalization and reduc­
tion of losses, the situation is unlikely to
improve dramatically.
Another forecast suggests that the
Asian power industry will require an
investment of more than $700 billion in
the next 10 years. This assessment of
the Asian infrastructure investment
need and sources of possible funding
suggests there is not enough capital
worldwide to accom modate this
requirement. India’s need for $100 bil­
lion in power generation and $60 billion
in T&D cannot be met by the collective
resources of the government, multi-lat­
eral lending agencies and domestic cap­
ital markets. In effect, India is in com­
petition for international funds with all
other Asian countries (See Table 2).
The project finance hurdle in com­
missioning capacity also will be a criti­
cal one with two primary areas of con­
tention. First is that securing financing
itself is a substantial challenge. This
48 INDEPENDENT ENERGY / July/August 1996
will apply more
acutely to project
developers who
have no prior or
core competence
in the power
industry.
A second area
is financing costs
and project feas­
ibility. Contin­
uous revisions
of PPAs have
pushed project
and tariff costs
down toward
internationally
acceptable stan­
dards. However, project risks in India
continue to be high. With higher project
and country risks built into the lending
rates and with higher risk insurance pre­
miums, the PPAs may well return to
haunt some developers.
Genesis Of The Power Crisis
The genesis of the crisis in the Indian
power sector lies in India’s policies and
objectives of rural electrification, subsi­
dized electricity to the agricultural and
domestic sectors, and use of the power
industry as an employment scheme.
These policies received their most
aggressive boost in the early 1980s.
Almost 75 percent of the population is
rural, and the government has electri­
fied nearly 85 percent of In d ia’s
580,000 villages. Today agriculture
consumes 30 percent of power generat­
ed in the country and pays an average
of 0.6 cents per KWh. The agricultural
sector consumption has been growing at
more than 12 percent in recent years.
The Indian power industry employs
about 1.7 million people for a 21 per­
sonnel per MW ratio. Subsequently, the
accumulated losses of the public power
sector stand at US$6.4 billion.
The SEBs seem to bear the brunt of
criticism in the power crisis. They have
been forced to serve as instruments of
national and state policy for decades
and cannot be held solely responsible
for the current state of affairs. The
demands on the SEBs have been
tremendous, with inadequate budgetary
support from the government. Today,
SEBs are being expected to deliver per­
formance like private corporations.
Central agencies such as National
Thermal Power Corp. that focus only on
power generation and its sale to SEBs
are in a clear advantage.
Restructuring is most talked of in elec­
tricity boards that are characterized by
high T&D losses, highly subsidized agri­
cultural tariffs and excessive numbers of
employees. T&D losses are more than
20 percent in most states. A majority of
the consumers are from the privileged
agricultural sector who are charged less
than half the cost of generation.
Electricity theft is not easy to stamp out.
According to N.K.P. Salve the former
union power minister, inefficiency of
state electricity boards is a significant
problem, and he urged the states to
change their attitude toward entry of
private companies. Meanwhile, the cen­
tral government has suggested several
models of restructuring programs to
facilitate reformation of SEBs to make
them commercially viable, to regulate
and rationalize the tariffs and improve
the T&D network.
The power sector has posted some
impressive efficiency gains in the past
10 years. The national average plant
load factor (PLF) for thermal plants has
increased from 44.3 percent in 1979 to
61 percent in 1993, with the central
sector recording a PLF of nearly 70
percent in 1993.
However, India’s national public
power sector PLF, including all tech­
nologies, is under 50 percent. The east­
ern and northeastern regions record
PLFs as low as 38 percent and 29 per­
cent respectively. The most ailing units
are below 140 MW and have run for
more than 100,000 hours. About 250
such units exist in India and every 10
percent rise in PLF can increase the
generation by 3 percent — equivalent to
adding 2.2 GW at one fourth the cost.
The cost of life extension by 15 years
is 20 percent to 30 percent the cost of a
greenfield project, and the implementa­
tion period is half that of a greenfield
project. This has been an important area
of focus for the government which has
identified about 160 old plants for reno­
vation and modernization. To date 22
stations with 55 units have been reno­
vated and an average of 18 percent PLF
increase per unit has been achieved.
State Restructuring
Orissa was the first state to opt for
restructuring. Orissa’s electricity reform
bill was passed in November last year,

subsequently the SEB was broken into
three separate entities in charge of gen­
eration, T&D, and an independent regu­
latory body which will set the operating
norms and fix tariff structures. This
process was funded by the World Bank
which has expressed an interest in fund­
ing reform projects in many other states
provided they set up independent regu­
latory authorities.
Haryana is also undergoing a similar
process by forming three separately
managed entities and a regulatory com­
mission which will safeguard the inter­
est of consumers. The World Bank will
provide US$350 million to Orissa and
$500 million to Haryana to undertake
their restructuring plans. Both Orissa
and Haryana have ignored the problem
of over staffing in their respective
boards. However waning for a natural
attrition of staff, may affect the intend­
ed benefits of restructuring. Labor
unions in Orissa have approached the
High Court requesting a stay on the
restructuring process.
Bihar, too, has made a policy deci­
sion on restructuring its board. Bihar
has outstanding dues of more than 100
percent of its annual turnover from its
various consumers and owes about Rs
1,000 crores (US$286.9 million) to
central undertakings like NTPC.
Uttar Pradesh has also initiated
restructuring studies with external assis­
tance. However, the government is
delaying the process of reforms keeping
in view the discontent among the
employees and its likely effect on elec­
tions. The World Bank has expressed an
interest in funding restructured plans. At
the same time, the SEBs of other states
like Rajasthan, Andhra Pradesh, and
Punjab are also heading for a change.
Installed
Capacity
India currently
accounts for 2.7
percent of the
total global
installed capaci­
ty. It has in­
creased its capa­
city fifty-fold in
the post inde­
pendence era.
This growth is
heavily front-
loaded, largely
owing to the m ulti-purpose, mega
hydropower projects. Though the
demand since the late 1980s has grown
steadily, capacity additions have failed to
keep pace. Of the installed base, 96 per­
cent is under public utilities — the cen­
tral sector is 27 percent and state sector
is 69 percent.
In 1970, thermal capacity accounted
for 54 percent and hydropower for 43
percent. Today 70 percent of the capaci­
ty is thermal and 27 percent hydropow­
er. This reflects India’s increasing
dependence on coal-based power
despite a hydropower potential of about
130 GW. Hydropower project develop­
ment challenges include funding short­
falls, environmental and land acquisi­
tion problems, water-sharing disputes
among states, population relocation,
and rising maintenance and manage­
ment costs. Of today’s installed capaci­
ty, 66.5 percent is coal-fired. But an 11
percent demand shortfall in coal
requirement by existing capacity of
power generation (at 60 percent PLF)
including current import of 10 million
to 20 million tons and an increasing
forecasted coal-dependence poses mul­
tiple challenges.
India began its power generation pro­
gram by stressing multi-purpose mega
hydropower projects to support the agri­
culture-based policies of the first two
five-year plans. Regional load dispatch
centers (RLDCs) were formed near
these projects, and to avoid high trans­
mission losses, coal projects of 90 MW
to 100 MW were erected close to these
dispatch centers. In the 1960s, endeav­
ors toward erecting larger units were
driven by the requirement of decreasing
costs and increasing operating efficien­
cies. Thus began the gradual develop-
ment of coal projects at mine pit-heads.
Major coal producing states have
added a number of coal based projects
between 1965 and 1975. These include:
Bihar, six; West Bengal, 11; Orissa,
four; Madhya Pradesh, 10; and Andhra
Pradesh, five. Only eight coal projects
—West Bengal with five and Bihar
with three— existed before 1965 in
these states. With expanding transporta­
tion networks, coal-based projects
began growing rapidly in regions of
power demand, which explains why
non-coal producing states of
Maharashtra and Gujarat have maxi­
mum, coal-based generating capacity.
Hydropower projects are uniformly
distributed by river states with the top 10
hydropower states comprising only 44
percent of installed hydropower.
Maharashtra, Gujarat, Uttar Pradesh,
West Bengal and Madhya Pradesh
account for 50 percent of coal-based
power. The major gas producing states of
M aharashtra, Gujarat, and Assam
account for 68 percent of the total gas-
based power. The availability of gas in
domestic and international markets and
the relative costs shall determine whether
the optimistic addition of gas-based
power — 6.8 GW in eighth, 5-year
plan— is achievable. India has 1.8 GW
of installed diesel and windpower plants
and 2 GW of nuclear based plants. Issues
of nuclear waste disposal, funding con­
straints and political sensitivity have been
a deterrent to nuclear energy addition.
Even amidst the current uncertainty
associated with a newly formed govern­
ment, India appears ready to continue
its economic reform and rapid growth.
Developers and financiers willing to
face the risks will continue to find
ample opportunities for investment in
what is one of the world’s significant
power markets. ■
Vishvjeet Kanwarpal is a consultant with Asia
Consulting Group in Delhi.. Asia
Consulting Group is a strategy consulting firm
focused primarily in the power and energy sectors
which provides strategy, intelligence, and imple­
mentation services to companies seeking the com­
petitive advantage in Asian markets.
Contact Details Updated
Email: ceo.gis.acg@gmail.com
Website: www.gis-acg.com