Public Utilities: Power & Railways

Transcription

1 MINISTRY OF FINANCE GOVERNMENT OF INDIA Public Utilities: Power & Railways Cutting the Gordian Knot Module 11 Contemporary Themes in India s Economic Development and the Economic Survey Arvind Subramanian Chief Economic Adviser

2 Overview Public Utilities Power Railways 2

3 Public Utilities- Natural Monopolies E.g. Electricity, Water, Railways, Roadways, Telecom, Internet, Data etc. Require Large Capital Investments High fixed costs, Economies of Scale & Long gestation period Network effects- Becomes more useful as more people use it (Facebook, Messaging Apps) Hence, tend to be natural monopolies Dilemma If Public Sector- Inefficiency If Private Sector- Monopoly Profits and High Prices 3

4 Public Utilities-From government ownership to Regulation Public ownership resulted in efficiency decline (Industrial Policy Resolution,1956) Thatcher, Pinochet, Reagan revolution - Public Sector inefficiency + technological development changed thinking Solution to Dilemma: Less Ownership with effective regulation Sectors unbundled and opened for private sector but under the aegis of a regulator Regulator has to balance the social welfare maximization vs. the profit maximization for the operator of the business Social Welfare involves fairness and equity as well Information Asymmetry Gold Plating & Moral Hazard- Too big to fail Standards of Performance 4

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6 Achievements MW (31%) -Generation Capacity Addition in last 3 years Transmission lines length increase from 2,91,336 circuit KM (ckm) 2014 to 3,66,634 ckm in 2017 Energy Shortage brought down to 0.7 % from 4.2 % in 2014 UDAY scheme launched for financial turnaround of Discoms 13,123 villages electrified out of 18,441 unelectrified ones 6

7 Section 1 Power 7

8 Overview Interesting facts Power Sector Structure Contracts Structure Challenges UDAY 8

9 Some Interesting Facts India is the world's third largest electricity producer (1368 BU * ) After China (5682 BU) and USA (4324 BU) India is also the fourth largest consumer of electricity 1135 BU Per capita electricity consumption is low despite cheap electricity tariffs kwh vs kwh for USA India accounts for over 300 million of the world s total 1.4 billion people with no access to electricity *BU = Billion Units 1 Unit = 1 kwh Sources: Central Electricity Authority (CEA), USA Energy Information Administration (EIA) 9

10 Per Capita Consumption (kwh) Installed Capacity ( 000 MW) Electricity Generation Capacity addition at a CAGR of 8.7% since Installed Capacity (MW) Per Capita Consumption (kwh) Source: CEA Website 10

11 TZA KEN MMR NGA BGD IND SAS NPL ZAF LKA IDN PAK MEX IRN BRA EGY BTN CHN RUS Percent of Population Electricity Access: India still far behind its BRICS peers Source: WDI database 11

12 DL GA CH PB AP TN KL WB HP GJ MZ UK KA MH CG HR JK RJ TR MP OD AS UP BR JH Percent Low Electricity Access levels in Poor States Households having electricity (%) 2017 India Average (2017) Source: Uday Website, Ministry of Power 12

13 Percent T&D * Losses-Far away from BRICS peers CHN ZAF IDN RUS EGY BGD LKA BRA NGA PAK KEN TZA IND MMR NPL * Transmission and Distribution Losses. They are a measure of the technical efficiency and losses due to electricity theft 13

14 Percent AT&C * losses for Still very high in poorer states AP DL TL HP GJ PB KL KA UK MH TN AS CG RJ MP HR UP WB OR BR JH JK Aggregate Technical and Commercial Losses. They include technical losses, theft and commercial losses due to non-payment of electricity bills by consumers Source: Ministry of Power 14

15 Power Sector Sources- Still dominated by Thermal But future in Renewables Fuel MW % of Total Total Thermal 220,570 67% Coal 194,403 59% Gas 25,329 8% Oil 838 0% Hydro (Renewable) 44,594 14% Nuclear 6,780 2% Renewable Energy Sources 57,260 17% Total 329,205 Sector MW % of Total State Sector 81, % Central Sector 1,04, % Private Sector 143, % Total 329,205 Source: CEA Website Total Installed Capacity as on 30 th Apr

16 Electricity Supply Segments: Generation, Transmission, Distribution Distribution lines Distribution subs kv lines r Transmission subs Transmission lines kv Generator 16

17 Evolving Industry Structure- Last Mile Still Left! Before Electricity Act 2003 After Electricity Act 2003 Future No Competition No Choice Government makes decisions Wholesale Competition Distribution/retail companies have choice Retail Competition Consumers have choice G G G G G EG G G G G EG T T/MO T/MO D/R D/R D/R Consumers Consumers Consumers Natural Monopolies D = Distribution Network Owner T = Transmission Network Owner R = Retailer G = Generator MO = Market Operator EG = Embedded Generator/Captive = Who has choice 17

18 Institutional Structure- Both Centre and State involved in governance Generation Transmission Distribution Consumption State Gencos STUs State DISCOMS Agricultural CPSU (NTPC) IPPs(Tata) CTU (POWERGRID) Private Licensees (Delhi & Mumbai) Domestic Commercial Industrial Others Captive Plants (Essar) Open Access Captive Power Trading Companies and Power Exchanges 18

19 Contracts Structure- Dominated by long term Power Purchase Agreements (PPAs) Long Term years Short Term Up to 3 months Specific Seller and Buyer Pricing based on cost of asset and socialized over all beneficiaries Specific Seller and Buyer set Pricing arrived at as a percentage of long term transmission pricing Earnings used to reduce cost of asset for long term consumers Contract Type Share (in percent) Long Term Contracts 91 Short Term Contracts 5 Day Ahead Market 4 Source: CEA website Day Ahead Market For the next day only Access for trades through Power Exchanges - Collective transactions Charges regulated by the Commission 19

20 Challenges 20

21 1. Complex tariff schedules; One price for petroleum but 100 prices for power Consumer Category Source: Andhra Pradesh Tariff order Energy Charge (Rs /Unit) Consumer Category Energy Charge (Rs /Unit) Consumer Category LT-I:DOMESTIC (Telescopic) LT-V:AGRICULTURE ** SEASONAL INDUSTRIES (off season Tariff) LT I(A):Upto 50 Units/Month 1.45 LT-V(A):AGRICULTURE WITH DSM 11 kv 7.25 LT I(B):>50 and upto 100 Units/Month MEASURES Corporate Farmers & IT Assesses kv 6.59 First 50 Units 1.45 Wet Land Farmers (Holdings >2.5 acre) kv & Above Units 2.60 Dry Land Farmers (Connections > 3 nos.) 0.50 TIME OF DAY TARIFFS (6 PM to 10 PM) LT I(C):>100 and upto 200 Units/Month Wet Land Farmers (Holdings 2.5 acre) kv 7.07 First Dry Land Farmers (Connections 3 nos.) kv LT-V(B):AGRICULTURE WITHOUT DSM 132 kv & Above 6.20 MEASURES Corporate Farmers & IT Assesses 3.50 HT-I(B):FERRO ALLOY UNITS Wet Land Farmers (Holdings >2.5 acre) kv 5.68 LT I(D):Above 20 0 Units/Month Dry Land Farmers (Connections > 3 nos.) kv 5.23 First Wet Land Farmers (Holdings 2.5 acre) kv & Above Dry Land Farmers (Connections 3 nos.) 0.50 HT-II:OTHERS LT-V(C):OTHERS 11 kv Salt farming units upto 15HP kv Rural Horticulture Nurseries upto 15HP kv & Above LT-VI:STREET LIGHTING AND PWS TIME OF DAY TARIFFS (6 PM to 10 PM) LT-VI(A):STREET LIGHTING 11 kv Panchayats kv 7.64 Above Municipalities kv & Above 7.38 LT-II:NON DOMESTIC/COMMERCIAL Municipal Corporations 6.69 HT-III:AIRPORTS,BUS STATIONS AND RAILWAY STATIONS LT II(A):Upto 50 Units/Month 5.40 LT-VI(B):PWS SCHEMES 11 kv 6.91 LT II(B):Above 50 Units/Month Panchayats kv 6.31 First Municipalities kv & Above Municipal Corporations 6.16 TIME OF DAY TARIFFS (6 PM to 10 PM) LT-VI(C):NTR Sujala Padhakam kv LT-VII:GENERAL 33 kv 7.36 Above LT-VII(A):GENERAL PURPOSE kv & Above 7.06 LT II(C):ADVERTISEMENT HOARDINGS LT-VII(B):RELIGIOUS PLACES (CL 2 KW) 4.70 HT-IV: Govt., LIFT IRRIGATION, AGRICULTURE LT-III:INDUSTRY LT-VIII: TEMPORARY SUPPLY 9.90 AND Govt. CPWS Lift Irrigation & Agriculture 5.64 Industry (General) 6.38 HT-I:INDUSTRY Composite Water Supply Schemes 4.61 Seasonal Industries (off season) 7.09 HT-I(A): INDUSTRY GENERAL HT-V:RAILWAY TRACTION 6.68 Pisciculture/Prawn culture kv 6.02 HT-VI:TOWNSHIPS AND RESIDENTIAL COLONIES 5.96 Sugarcane crushing kv 5.57 HT-VII:GREEN POWER Poultry farms kv & Above 5.15 HT-VIII:TEMPORARY Mushroom & Rabbit Farms 5.63 INDUSTRIAL COLONIES RURAL ELECTRIC CO-OPERATIVES Floriculture in Green House kv 5.96 Kuppam 0.24 LT-IV:COTTAGE INDUSTRIES & OTHERS 33 kv 5.96 Anakapally 1.38 a) Cottage Industries upto 10 HP kv & Above 5.96 Chipurupally 0.22 b) Agro Based Activity upto 10 HP 3.75 Energy Charge (Rs /Unit) 21

22 UP RJ TN MP JK TL AP HR KL CG PB BR OD AS UK HP JH KA WB GJ DL MH Rs. Crore 2. Distribution Companies Losses- Rs crore in

23 Agriculture Domestic Industrial Railways Commercial Rs (thousands of crores) Rupees 3. Cross-Subsidies hurting Make in India Subsidies Tariffs per unit: Sources: PFC Status of Power Utilities Report & Planning Commission State Discoms Report 23

24 Per Capita GDP 3. Expensive and Low quality electricity supply to Industry Market Exchange Rates Switzerland Luxembourg USA Switzerland USA Luxembourg PPP Exchange Rates Italy Austria Belgium Japan Denmark Australia France Australia Denmark Belgium France Japan Italy Austria Portugal More Expensive Slovenia Czech Republic Hungary Chile Turkey Mexico South Africa Indonesia India Bangladesh Portugal Slovenia Czech Republic Hungary Chile Turkey Mexico South Africa Indonesia More Expensive India Bangladesh (300) (200) (100) (score >6) (4< score <6) (score <4) Colours represent the quality of electricity supply (on a scale of 1 to 7) Source: World Economic Forum-Global Competitiveness Report

25 Industrial Tariff (USD/MWh) 3. Cross-Subsidies and Poor quality of electricity supply affect Make in India WB MH BR UP RJ JH MP AP IND KA KL GJ PB TN HR DL CH OR JK HP UT Per Capita GSDP (response <10%) (10%< response <20%) (response >20%) Colours highlight the share of firms (in %) identifying electricity as a major constraint in their state Source: World Bank s Enterprise Survey of Industries ( ). Industrial tariffs are from the Planning Commission/Niti Aayog 25

26 Rs/kWh 4. India still not one market for power: States impose exorbitant taxes on purchase from other states Cross Subsidy Surcharge imposed by states for purchasing electricity from power exchange, TN AP WB HR MP DL GJ TL MH OR KA PB CH BR UT JH UP HP RJ KL JK 26

27 Rs/kWh 5. New Challenge: Declining Renewable Energy Prices But threat to Thermal Power Sources: MNRE SOLAR State Andhra Pradesh Rate (Rs /kwh) 4.84 Gujarat 4.19 Karnataka 4.5 Madhya Pradesh WIND 4.78 Maharashtra Rajasthan Tamil Nadu 4.16 Feb 2017 Bid

28 Perils of Long Term PPAs-Problem of Incomplete Contracts, Federalism, Power, Banking, Coal, Railways and Institutional Capacity combine: Tata Power Mundra UMPP case study Procurer and Generator sign a 25 year long term PPA after competitive bidding Generator builds the plant and starts supplying electricity Generator approaches Regulator & Appellate Tribunal(APTEL) for relief Regulator & APTEL provide relief to the generator and allow for compensatory tariff for coal price increase. Procurer appeals against the relief in Supreme Court Hit by external shock: Increase in coal prices Supreme Court overturns Regulator & APTEL compensatory tariff relief stating that there is no such provision 28

29 GVK - Alaknanda Unlisted Comp GMR - Raikheda GVK - Goindwal Sahib Jaypee - Nigrie Lanco - Amarkantak Lanco - Babandh Lanco - Vidarbha Jaypee - Bara I Unlisted Comp Reliance - Sasan Reliance - Butibori JSW - Raj West GMR - Kamalanga - I 5. New challenge: Power Generators Viability Threatened Given large cost over-runs, break even tariff is well above current merchant rates* Original Cost per MW (Rs mn) Cost overrun per MW (Rs mn) Required Tariff (Rs/KwH) (RHS) Current Merchant tariff (Rs/KwH) (RHS) *: Tariffs are in Rs./kWh and on shown in RHS. Costs are in Rs. Million. Sources: Credit Suisse Report 29

30 DL GA CH PB AP TN KL WB HP GJ MZ UK KA MH CG HR JK RJ TR MP OD AS UP BR JH Percent Percent 6. Excess Demand and Excess Supply at the same time 80 Plant Load Factors Households having electricity (%) 2017 India Average (2017)

31 UDAY-Government Response Financial Assistance to States States will take over 75% of the DISCOM debt as on Sept 30, % in FY and 25% in FY But conditional on Reforms by Discoms Reduce AT&C losses to 15 % by 2019 Eliminate financial losses by 2019 Feeder and Distribution Transformer metering by 2017 Smart metering for Consumers 31

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33 Overview History Interesting facts Jaitley-Prabhu Dilemma Subsidies Costs Way Forward 33

34 Indian Railways network to 1930 to Present Source: Dave Donaldson, 2010, Railroads of the Raj: Estimating the Impact of Transportation Infrastructure 34

35 Social Engineering by Railways: The Freight Equalization Scheme Subsidized long-distance transport of key inputs (iron, steel, fertilizers, cement, and petroleum) to achieve geographical spread of industrialization States closer to natural resources (Eastern states) experienced slower growth of manufacturing than distant states (Punjab-- distant from markets and inputs--even had a steel plant!) (Firth and Liu (2017), forthcoming) 35

36 Indian Railways Today: Facts More than passenger trains and 9000 goods trains run daily Employee count- 14 lakh. 8 th biggest employer in the world and largest in India. 4 th largest rail network in the world (after US, China and Russia). 3 rd largest under single management. Carried 8.1 billion passengers and 11.1 billion tones of freight in

37 The Jaitley-Prabhu Dilemma: Public Sector behemoth squeezed on both its core business by private sector competition India* US Russia China Canada Australia Modal share of railways in domestic freight (%) Competition from Air-Travel: New Delhi Kolkata AC2tier Fare in Rajdhani: ~Rs per person. New Delhi Kolkata Economy Class Air-Fare : Rs per person. 37

38 Complex Bureaucratic Structure Total 10 Grade A Services 38

39 Percent of Total Plan Chronic Under investment in Railways Share of IR in overall development expenditure low, at below 2 percent over the past decade Resource Allocation in Transport Sector and Railways Share of IR in total plan outlay only 5.5 per cent vis-à-vis about 11 per cent for the other transport sectors Up to 5th 6th Plan 7th Plan 8th Plan 9th Plan 10th Plan11th Plan12th Plan Plan Transport sector as percentage of total plan Railways as percentage of total plan 39

40 Low Investment leading to lack of Capacity Addition roadindex railindex China India Railindex is an index of running track kilometers over the period 1991 to 2012 with base Roadindex is an index of length of roads in kilometers inclusive of national & state highways, urban & rural roads. Addition to capacity measured by addition of RKM in 000 s. 40

41 Consequence: High Congestion On HDN routes over 65% of sections operating at > 100% capacity 41

42 Index Index Shouldering the Social Responsibility: Cross subsidy from freight to passengers Consumer Prices and Passenger Rates Passenger Rate Index CPI(IW) Wholesale Prices and Freight Rates Freight Rate Index WPI The price indices and those of passenger and freight rates are constructed with as base. 42

43 Subsidies ( ) Category Subsidies (in crore) All AC Categories 1,115 Sleeper Class Category (mail and executive class) 9,002 43

44 Costs of Under-Provided Railways Services Large opportunity cost as railways has strong linkages. The railways multiplier effect is around 5 or more: a Re. 1 increase in railways investment would increase economy-wide output by about 5 rupees. Environmental Damage : Rail transport emits 17 gram CO2 equivalent per PKM as compared to 84 gram per PKM in case of road transport. Rail transport emits 28 gram CO2 equivalent per NTKM as compared to 64 gram per NTKM in case of road transport. (Source: NTDPC Report 2013). 44

45 Way Forward Dedicated Freight Corridors to ease congestion Independent Rail regulator to facilitate private investment, corporatization & reforms viz. tariff revisions Debroy Committee recommendations: Accounting reforms HR reforms- Rationalisation of the large number of Railway services to one or two services Current Government undertaking many efficiency-enhancing reforms: Merging of Rail Budget to Union Budget will facilitate multi-modal transport planning Steps to ensure passenger safety and capital investments 45

46 Recommended Material Economic Survey , Chapter 11, Powering One India Katiyabaaz/Powerless (2013) Movie on Electricity Supply Situation in Kanpur City of Uttar Pradesh Economic survey , Chapter 6, Putting Public Investment on Track: The Rail Route to Higher Growth Bibek Debroy Committee Report on Mobilization of Resources for Major Railway Projects and Restructuring of Railway Ministry and Railway Board National Transport Development Policy Committee (NTDPC) Report 46