India's Power Grid Corporation Spins Off Power Management Subsidiary

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Researched by Industrial Info Resources (Sugar Land, Texas)--In March 2009, India's largest electricity transmission company, Power Grid Corporation of India (BSE:532898) (PGCIL) (New Delhi), formed a wholly owned subsidiary called Power System Operation Corporation (POSOCO) (New Delhi) for the purpose of handling the power management functions of PGCIL. POSOCO began operations earlier this month after obtaining approval from shareholders for the demerger. POSOCO was formed with the approval of the government of India, which aims to make load dispatch centers autonomous and financially self-reliant by developing independent and sustainable revenue streams.

According to PGCIL Chairman and Managing Director S.K. Chaturvedi, "While the load dispatch functions were taken care of by PGCIL, they have now been taken over by this independent subsidiary. The subsidiary is operational. We got an approval in the board meeting held on 2 July."

In July 2008, on the advice of the Indian government, PGCIL's board had granted in-principle approval for setting up POSOCO for operating the regional and national load dispatch centers. A senior PGCIL official had said at the time, "The new company will take care of all the grid management functions of Power Grid, for example, those at the rural load dispatch centers."

There is a possibility that POSOCO will become a completely separate company. In such a situation, PGCIL's scope of operations will extend to the setting up of transmission lines only. An unnamed PGCIL executive said, "We have already received the legal opinion for transfers of assets and liabilities to the new company. We expect the subsidiary to run independently. Later on, it may be hived off as a separate PSU (public sector unit)."

The decision to split the two functions between the two companies is in line with India's Electricity Act of 2003, which proposes to keep commercial interests and load management functions separate.

The government's Pradhan Committee, which had recommended the formulation of POSOCO, also recommended that a separate representative board structure be set up to oversee the operations of PGCIL's five rural load dispatch centers (RLDCs): eastern, western, northern, southern and northeastern. Other than the five RLDCs, the nation operates 33 state load dispatch centers and the single National Load Despatch Centre. The committee also suggested the setting up of a central institute that would train system operators, and a system of awarding operator certification along the lines of the system practiced by air traffic control.

PGCIL's 2010-11 plan is to float tenders worth about $13.69 billion for nine high-capacity transmission corridors that will transmit power from upcoming projects in the states of Andhra Pradesh, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Sikkim and Tamil Nadu. Chaturvedi said that the necessary approvals from India's power-regulating body, the Central Electricity Regulatory Commission (New Delhi), have already been obtained. The five-year plan is reflective of the company's plans to set up a network that would effectively evacuate power from states with a surplus of power and supply it to power-deficient states. The project will be funded by loans from the Asian Development Bank ( (Manila, Philippines), the World Bank (Washington, D.C.) and internal accruals.

PGCIL plans to invest almost $12 billion during the ongoing 11th Five-Year Plan (2007-12). About 35% of this amount will be utilized to strengthen the transmission system while the remaining 65% will be utilized to connect power-generation projects to the grid.

India has an installed power generation capacity of 157,000 MW and plans to add another 62,000 MW during the 11th Five-Year Plan. The country's capacity-addition plans for the 12th Five-Year Plan (2012-17) will significantly increase the demand for a larger transmission network.

PGCIL currently operates 124 substations and about 74,000 circuit kilometers of power transmission lines. The company plans to increase the nation's inter-regional power transmission capacity from the current 20,800 MW to 37,000 MW by 2012. To achieve this target, the nation's regional grids will have to be strengthened and the inter-regional links will have to be increased. The company's target for the 2010-11 fiscal year is to increase the transmission capacity to 23,400 MW.

On June 5, 2010, India's first power exchange, the Indian Energy Exchange (IEX) (New Delhi), recorded the highest volume of daily trade, at 38.7 million units, or 38,700 megawatt-hours. The IEX platform is being used by more than 100 industrial consumers to manage energy portfolios. Other users include the 25 states and 4 union territories of India, and 150 private power generators. In the past 19 months of operation, IEX has secured 88% of the market share and grossed a turnover of more than $1.2 billion. IEX is jointly promoted by Financial Technologies (India) Limited (BSE:526881) (Mumbai) and PTC India Limited (BSE:532524) (New Delhi).

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