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February 28, 2001                                       Feedback  

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Sector focus : Power

Power: State of the industry (2000-01)

  • Power capacity additions are expected at 4,200 MW as compared with 4,000 MW in 1999-2000. During the Ninth Plan period (1997-2002), the total capacity additions are estimated at 21,000 MW as against a target of 40,000 MW.
  • Demand for power increased by 6 per cent as compared with 7.6 per cent in 1999-2000, largely due to a slow-down in industrial production.
  • During the April-December 2000 period, power generation increased by 4.8 per cent as compared with 7.7 per cent in the same period of 1999-2000, due to a lower plant load factor and a significant decline in hydel generation. Power shortages in several states increased; the average energy shortage is expected to increase to 8 per cent, as compared with 6 per cent in 1999-2000.
  • Average power tariffs increased by 5-20 per cent in several states, such as Andhra Pradesh, Gujarat, Haryana, Karnataka, Maharashtra and Orissa, following the tariff orders passed by the State Electricity Regulatory Commissions (SERCs). The tariff orders, issued by the SERCs, have placed increased emphasis on the reduction of T&D losses by the SEBs and distribution companies.
  • Independent power projects with a total capacity of about 750 MW (GMDC's Akrimoto project, 250 MW; Tanir Bhavi project, 170 MW; Samayanallur project, 106 MW; Tata Power's Belgaum project, 80 MW; Gujarat State Energy's Hazira project, 160 MW) achieved financial closure in 2000-01.
  • The government of Rajasthan unbundled Rajasthan State Electricity Board (RSEB) into 5 corporations, one each for generation and transmission and three for distribution. The government of Delhi has also announced that the Delhi Vidyut Board will be unbundled and corporatised. Madhya Pradesh Electricity Reforms Act has been passed by the state legislative assembly.
  • Several states, such as Andhra Pradesh, Haryana, Karnataka, Orissa, and Uttar Pradesh have already unbundled their respective SEBs. However, no progress was made in the privatisation of distribution; only Orissa has completed the privatisation of the distribution companies in April 1999. Andhra Pradesh, Karnataka, Rajasthan and Delhi are expected to initiate the process of privatisation of distribution in 2001-02. Haryana is also likely to re-initiate the privatisation process in 2001-02.
  • State Electricity Regulatory Commissions have started functioning in 12 states. SERCs in 6 states (Andhra Pradesh, Maharashtra, Gujarat, Karnataka, Haryana and Orissa) passed tariff orders in 2000-01. However, in several instances (such as Andhra Pradesh and Karnataka), state governments have intervened to prevent the full implementation of the tariff orders passed by SERCs, by providing additional subsidies to the agricultural and domestic sectors.
  • The securitisation scheme for the liquidation of outstanding dues (approximately Rs 260 billion) of central sector utilities, such as NTPC, NHPC, PowerGrid, Coal India and Railways, was finalised. However, no significant progress has been made in implementing the scheme.
  • The Central Electricity Regulatory Commission had ordered the implementation of the availability based tariff from April 2000. Implementation of the order has been postponed to April 2001, due to opposition by NTPC on grounds of significant impact on its profitability.
  • The central government has signed Memoranda of Understanding (MoUs) with five state governments for accelerating power sector reforms. The MoUs incorporate specific time-bound milestones such as 100 per cent metering and energy audits at all levels. Several other states are also likely to sign the MoUs in 2001-02.
  • Given the limited impact of escrow-based payment security mechanism in accelerating private capacity additions due to the non-availability of escrowable capacity for most SEBs, alternate security mechanisms based on reform milestones are being developed.

Power: Budget impact

  • State Electricity Boards have been provided with incentives for restructuring, through an enhanced outlay (Rs 15 billion) under the Accelerated Power Development Programme and an enhanced allocation of power from central sector power companies.
  • Power sector outlay has been increased from Rs 100.65 billion in 2000-01 (revised estimate) to Rs 123.75 billion in 2001-02.
  • The reduction in the customs duty on project imports and inputs (such as steel, imported coal and liquid fuels), due to removal of surcharge and removal of the countervailing duty on LNG, is likely to result in a reduction in tariffs of independent power projects by Rs 0.05-0.08 per kwh.
  • Reduction in corporate tax surcharge from 13 per cent to 2 per cent, and reduction in tax on distribution of dividend, is likely to result in an increase in the returns of independent power producers.

Rediff-CRISIL Budget Impact Analysis
Budget 2001

Disclaimer: CRISIL has taken due care and caution in compiling this report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of its web site.

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