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Can PGCIL prevent grid collapse?

India has spent little to improve its transmission infrastructure. PowerGrid’s massive, planned expenditure to do so is more than timely.

At about 2.30 am on July 30, northern India woke up to a power crisis that was to spread next day across to 20 states. Within minutes of the breakdown on the first day, senior executives from government-controlled PowerGrid Corporation of India Limited (PGCIL) were at the control centre trying to restore the collapsed grid but by the second day, the crisis had spread to the eastern and north-eastern grids as well.

During this fiasco, fingers were pointed at Sushilkumar Shinde, the then-power minister, but poignantly no one doubted PGCIL’s capability to run a national grid that enables transmission of power from one end of the country to another. It soon became apparent that the failures were due to a combination of a variety of shortcomings in the power sector — but mainly because of a lack of states enforcing grid discipline, or in short, sticking to the amount of power it needed, without overdrawing. The failure to prevent certain states, like Uttar Pradesh, from guzzling more power than it should have resulted in the collapse of the grid.

Yet, transmission monopoly PGCIL, which has been delivering 20-25 per cent profit growth every quarter, and making huge investments in strengthening the transmission network, will increasingly find itself under the scanner as the country sees an increase in the demand for electricity in the next few decades

The company’s wholly-owned subsidiary, Power System Operation Corporation (POSOCO), manages the Regional Load Dispatch Centres (RLDCs) and the national load dispatch centre. Having modernised all the RLDCs and instituting the Unified Load Dispatch & Communication (ULDC) schemes at a cost of about Rs 2,000 crore, the company was able to achieve an overall improvement and better grid management in the country. This ensured that no major grid disturbances took place for a long time until that ill-fated night on July 30th. The tripping of lines and minor grid disturbances in regional grids had come down significantly over the years. However, these were clearly on the rise in the past few months, making the grid collapse imminent.

Though the blame for the collapse is largely being put on the shoulders of states that have been overdrawing, thus defying grid discipline, the need to strengthen transmission lines cannot be understated. With a capital expenditure plan of Rs 1 lakh crore during the 12th Plan period starting this year, the company is aiming to further strengthen operations. “The investment will basically connect projects under construction and also strengthen the national grid from the existing capacity of 20 giga watt to 32 giga watt,” says Shankar K, associate director, Institutional Equities, Edelweiss Securities. With areas of operation broadly divided into transmission, grid management, telecom and consultancy, PGCIL’s major focus will be to provide transmission linkage to independent power producers with an investment of Rs 52,000-crore. Another Rs 22,500 crore will go into creating transmission links for central sector generation and Rs 14,000 crore for ultra mega power projects. Strengthening the grid, which is the backbone of the sector, would see Rs 11,500 crore investment by the transmission utility. Even before the grid failure, R N Nayak, chairman and managing director, PGCIL, had told Business Standard that the company has board approval for Rs 76,000-crore investment and about Rs 67,000 crore worth of contracts are already approved. Most of the investment is directed at increasing its transmission capacity. According to Shankar, PGCIL is amongst the few companies in the power sector to have met the XI plan target of Rs 55,000-crore capital expenditure. Of this, around 60 per cent has been for strengthening of the grid capacity 40 per cent for providing transmission links to generation projects.

A Standard & Poor`s report points out that the Indian government has not focused enough on improving the country`s inadequate transmission and distribution infrastructure, particularly at the state level, despite the large increase in installed power capacity. “While the recent outage was the only reported mass blackout in the past ten years, the stability of the transmission has been managed through rotating power cuts — a less than optimal solution,” says the report. Rajiv Vishwanathan, credit analyst, S&P, is of the view that the weak revenue potential and uncertainty in cash flows due to low tariffs have hindered private participation in state transmission and distribution projects. Compared to generation, transmission requires more approvals. “Getting right of way, forest/environment clearances is an issue. In terms of land acquisition (even though you require only a small portion to erect a tower), people are more willing to sell to PGCIL rather than a private sector player,” says Shankar. No wonder, with a dearth of transmission capacity, PGCIL’s capex is helping bridge the gap. “Also, its operational efficiency is very high with plant availability factor at 99 per cent plus for the past many years.” Though there is a view among a certain section that lack of private participation and near monopoly of PGCIL are among the inhibiting factors for the transmission sector, Shankar points out that in all the successful projects completed so far with private sector involvement, PGCIL has been a joint venture partner. “Hence, I would interpret the monopoly as more of a reputation that has been earned rather than through limiting competition.” Its monopoly situation is also a fall-out of its legacy. The company incorporated in 1989, owes its origin to consolidation of transmission assets of government-controlled electricity generators NTPC, NHPC, NEEPC, NPCIL, Tehri Development Corporation and Neyveli Lignite. In another two years, it was handed over the assets of regional load dispatch centres.

According to Nayak, the strategy now is to grow at a compounded average growth rate of 20-25 per cent. For this, it plans to take on both inter- and intra-state projects through joint ventures with state transmission utilities. It is in discussion with Bihar, Odisha. Jharkhand, Chhattisgarh, Manipur, Uttar Pradesh, Madhya Pradesh, Tamil Nadu and Karnataka. PGCIL’s focus on intra-grid projects through the joint venture routes will give it a first mover advantage before a tariff-based competitive bidding regime for the transmission sector starts from January 2013. Nayak says within the company they are changing focus from a cost-plus regime to competitive scenario, the objective being to have in place 1,45,000 circuit km of transmission lines and a transformation capacity of 225,000 MVA by the end of 2016-17. This could see its inter-regional transmission capacity rise to 66,000 Mw from the current 28,000 Mw. Though grid failures will always be a lurking menace, with the issues of generation shortfalls and lower tariffs at distribution-end not being addressed, PGCIL’s impressive capacity expansion should help mitigate that possibility to a large extent. But, with both the functions of a grid manager and a transmission provider vested in it, the company may not be creating enough space for other players who could help alleviate the burden on the grid.