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Sunday, Aug 15, 2004

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`Power transmission business is a natural monopoly'

Raghuvir Srinivasan

Mr R.P. Singh, CMD, Power Grid Corporation of India.

Transmission systems are a vital link in power infrastructure; more so in India where generation capacities are distributed far away from consumption centres. Power Grid Corporation is the utility vested with the responsibility of building transmission networks in the country. It has built a national grid with a capacity of 8,500 MW and has set a target of raising that to 30,000 MW by 2012. Piloting the company is Mr R. P. Singh, who argues that transmission is a natural monopoly business where too many players cannot exist.

Excerpts from a recent interview:

How well are you placed to handle the demands on your system from open access customers?

Transmission plan in this country has always been generation-based. Power Grid has been pleading that it is not going to help if we just have a generation-based transmission system because there are bound to be imbalances. System improvement is a must and interconnection essential, basically the concept of a national grid. You can have open access provided you have the way to carry power. It is just like our road system — if you have better roads, more cars can ply.

If you don't have the road, what is the point in saying that more cars can be produced? Planning is the major criterion. Even today, people are very conservative in agreeing to create more than the desired transmission capacity and freely allowing interconnectivity. Everybody raises the logical question of who's the beneficiary in a transmission project? In open access, anybody can be the beneficiary and, therefore, it is not possible to quantify the benefit. We are in a dilemma. One side you are talking of open access and, on the other, , the company responsible for creating capacity for open access is asked who the beneficiary is.

You are the prime mover of inter-regional power under the Electricity Act. You need to invest in capacity ahead of demand in order to handle demands on your system under open access...

It is a logical and pertinent question for someone seeing it from the other side. But look at it from Power Grid's side. Our projects are approved by the Cabinet, for which I have to go through the entire process of approval.The normal questions asked are: Where is the demand? Who's going to be the buyer? Have you signed an agreement? The moment such questions are raised, open access has no meaning. On the one side, your hands and legs are fully tied and you are asked to go for a high or long-jump! It is a difficult situation.

How do you handle short-term open access when sudden demands on your system arises?

You have to use your incremental capacity for short-term access. Short-term capacity is increasing every day as we keep improving the system and adding newer lines.

A plant for which we have created a dedicated line may not be generating the stated capacity continuously. In such cases, we can use the spare capacity for short-term open access. We also normally create some redundant capacity that can be used for short-term access. It should be said here that open access does not mean free for all. That situation cannot be permitted. Ideally, open access should be on long-term contracts where you can draw upon extra capacity with the addition of incremental lines.

Has there been any occasion when you have turned down request from Power Trading Corporation for short-term capacity?

Yes, many times, many days.

So, does this mean that there should be more than one player in transmission so that enough capacity is created and made available?

Transmission business is a natural monopoly where you cannot have many players. Look at the UK whose model we are more conversant. They have privatised, but transmission, including load despatch centres (LDCs), is with one company.

France, in spite of all the pressure, has created a division for transmission and it has not been privatised. Norway, Sweden, they all have single transmission companies. Look at the US, which has many companies.

Expansion of transmission network is not happening because no single entity is responsible for setting up the transmission system.

All the examples you gave, except the US, are small countries where a single player can take on the responsibility...

Okay, then take China. They have also restructured and created two transmission companies. One for entire China and another for the south-eastern region where the growth rate is very high and the bigger company cannot meet the demand.

But the smaller company is also under the umbrella of the larger one for planning and so on, only the execution is separated. South Africa also has only one company for transmission, which includes LDCs. If you separate the LDCs, it will be like a toothless tiger. Too many transmission companies will also be like traffic lights... they will slow down traffic. They will set up parallel lines.

Can these issues not be left to the market? If it is not efficient, the market will reject the experiment.

Go ahead. We have no objection and the Act provides for it. Private investors can come. The truth is that the experiment has failed. It was tried in Australia for much the same arguments. They set up two merchant transmission lines and both failed. One has been merged with the generating utility and is controlled by the regulatory body and the other has approached the Government to regulate it. The truth is that it cannot function. Transmission is a business where many players cannot perform.

Power will find its path and its not as if the line owner is going to direct its movement.

Another good example is Canada. It had a number of transmission companies which proved problematic in planning and operations.

All these companies were placed with a transmission entity with the assets leased to it. This transmission entity is responsible for expansion and operations. Similarly, our Act also envisages private investment but they will be under the supervision of the central transmission utility. So, if somebody wants to invest, who are we to say don't invest.

What is the solution then to overcome capacity bottlenecks?

When there is a surplus capacity in transmission or generation, the market mechanism will come into play. What is important is that we must come to a situation where supply is more than demand.

As long as you are in deficit, open access or any such thing is not going to help. If supply is less than demand, it means you have not established enough generation capacity, which in turn means that you don't have enough transmission capacity. In such a scenario, where is the question of open access?

So you feel open access is not such a hot idea when there is a basic demand-supply gap?

I would not like to conclude that way. I have the apprehension that unless demand-supply is matched, open access has limited utility value.

You have formed a joint venture (JV) with the Tatas for the Tala transmission line and are also considering a couple of other such proposals. Are JVs the way to go now?

We had taken a decision that private investment has to come into transmission if we are to establish a national grid of 30,000 MW capacity by 2012. We need about Rs 70,000 crore for this, of which, we can invest about Rs 50,000 crore.

The balance Rs 20,000 crore has to come from the private sector. We decided that we will follow two routes — one, the JV route, and the other, fully private.

The latter has somehow not worked out. So we are experimenting with JVs.

How good is the grid connectivity in India today?

All grids are connected but the capacity is limited- only 8,500 MW.

The north-eastern, eastern and western grids are synchronised while the southern region will remain, for quite some time, on DC mode because of distance. The northern region will be connected by end-2005 or early 2006.

Do you have any plans of raising equity from the public?

We may, but we have not yet decided. It will take time. We can go... we have taken opinion from the previous Attorney-General who has said that because of our specific position in power sector, we can divest to the extent of 15 per cent.

We will watch for a year or two and when the situation arises, we will decide.

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