India's Power Grid Corporation Seeks $2 Billion from Asian Development and World Banks

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Power Grid Corporation of India Limited (BSE:532898) (PGCIL) (Gurgaon, Haryana), India's state-owned central transmission utility, is likely to seek a loan of about $2 billion to finance future projects. The grid operator is likely to sign agreements for loans of $1 billion each with the Asian Development Bank (ADB) (Manila, Philippines) and World Bank (Washington, D.C.).

PGCIL's expenditure outlay for network expansions during the Eleventh Five-Year Plan period, 2007-12, is about $11 billion. The company plans to raise the remaining funding through the domestic financial market. The World Bank is expected by sanction the loan by June, while ADB is likely to lend $1 billion in the next fiscal year.

The loan from the World Bank will be utilized for projects conceived for the current five-year period and the beginning of the Twelfth Five-Year Plan period, 2012-17. The funding from ADB will be used to build the transmission link for the 4,000-megawatt (MW) ultra-mega-power project in Tilaiya, Jharkhand. The project, to be developed by Reliance Power Limited (BSE:532939) (Mumbai), is estimated to cost about $3.2 billion-$3.62 billion and will be commissioned in 2015.

According to a research report published by Centrum Broking Private Limited (Mumbai) in March, PGCIL is expected to meet only 86% of its investment target during the Eleventh Five-Year Plan. The company is expected to invest $8.22 billion by 2012, taking the total investment during the current five-year period to $9.55 billion. About 42% of the proposed projects are for system and network strengthening. According to the report, these projects are expected to be completed and commissioned as scheduled.

By 2012, India plans to add 60,000 kilometers of transmission network that will carry 37,000 MW of power. In March, PGCIL signed a memorandum of understanding with the Ministry of Power, which defined the transmission and network expansion targets for 2009-10. According to the agreement, PGCIL will achieve a turnover of $1.4 billion. About 10,000 megavolt-amperes of transformation capacity and 7,500 kilometers of transmission network will be added this fiscal year.

PGCIL is India's primary grid and power transmission network operator, presently carrying 45% of the country's generated power. This fiscal year, the transmission network is expected to reach 23,400 kilometers. By 2012, PGCIL aims to carry 60% of the power produced in the country.

India is divided into five power transmission regions -- southern, western, northern, eastern and northeastern regions. All regions except the southern region have been synchronized to form the "NEW" grid. The southern region works on a different frequency and is connected to the NEW grid through high-voltage direct current links. Each region has a regional load dispatch center, which monitors the grid and power transmission.

Last year, the Ministry of Power decided to restructure the functions of PGCIL, which was then managing both the transmission and power management functions in the country. The need to restructure was felt, with many private-sector companies showing interest in participating in the government-dominated power sector. In February 2008, the ministry set up a panel that recommended a bifurcation of power transmission operations. The panel suggested that the ownership of transmission lines must be separated from operations of the grid. PGCIL was responsible for setting up the network and also taking care of load management. To avoid a conflict of interest, it was felt that the two functions must exist independently, with the transmission network operator being a neutral player. The Electricity Act of 2003 also recommended that the load management and commercial functions work separately. The government then decided to create a new entity as a subsidiary of PGCIL to take care of power management functions. The subsidiary will have the status of an independent entity at the end of three years.

In February, the National Load Dispatch Centre was inaugurated and the company Power System Operations Corporation was formed. The company is a 100% subsidiary of PGCIL and will take care of the entire grid management function. The company, in association with the dispatch center, will ensure the integration of grid operations, power scheduling, dispatch and exchange of power to balance the demand-supply deficit across the country.

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