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the power sector in andhra pradesh is learning to live in the reform era of open access where finally the consumer will be the ruler.
It was the poster boy of Indian power sector reform and it has become a sort of a super hit. Power reforms were first tried out in Orissa with mixed results and soon it was the turn of Andhra Pradesh to bite the bullet.

The imbalance of the revenues against the cost of production, no significant reduction in technical losses and energy thefts, high cost purchases from IPPs, other SEBs gradually worsened the financial position of APSEB. As a part of the power sector reforms, in February 1999, the erstwhile Andhra Pradesh State Electricity Board was unbundled into two entities, Andhra Pradesh Power Generation Corporation (APGENCO) and Transmission Corporation of Andhra Pradesh Limited (APTRANSCO).

AP Genco is the third largest power utility in the country today. It owns and operates 6580 MW of power from a mix of sources-Thermal, Hydel, Wind and Gas. The independent power projects in the state account for 1660 MW of power.

AP Transco was further unbundled in April-2000 into Transmission Corporation and four distribution companies (DISCOMS). The initial going was tough and the new entities took some time to understand their new role and create business models, which would sustain them. But they did an admirable job and the costs have been held, losses of discoms have been cut down and in some cases they have been making profits Reliable power has today become a reality in Andhra Pradesh.

If Enron knocked the living daylights out of MSEB, the first of the IPPs also gave jitters to the erstwhile APSEB and its latter day avatar AP Transco. Accusations of artificially high tariff raised the scepter of a power meltdown in Andhra Pradesh. Historically, the state was one of the first off the block in getting its act together on power sector reforms. Despite having the first mover advantage, the sector had to undergo numerous teething problems.

The first independent power projects in the state Lanco, GVK and Spectrum did not come through the competitive bidding route-and-APSEB /Transco was forced to buy power at high rates. No one could be blamed for the situation as the power sector hardly had any Independent private power projects from which benchmarks could be drawn on.

Having learnt its lessons, the state government went in for a bidding process with the next set of IPPs. The next four projects, GVK phase II, Gautami, Vernagiri, and Konaseema did bid and Gautami quoted the lowest. Others had to match the 94 paise figure and they did eventually.

Fuel is a variable cost, but if it goes up and tariff comes to Rs.5.56 per unit as in the case of Enron, which had used Naptha as its fuel then it becomes unviable. In the age of high fuel prices, the discovery of gas in the Krishna-Godavari basin has perked up the electricity scenario in Andhra Pradesh. In case of the four IPPs which came by way of the second round of bidding in Andhra Pradesh, the fixed cost of Rs.0.94 plus variable of Rs.O.8O brings the total cost to Rs, 1.80 one of the lowest in the country. Of course, one cannot compare this to the cost of power produced by a hydel project.

One such project, which will take off soon, is the Konaseema Gas power project, a 445 MW gas fired combined cycle plant, promoted by the VBC group, Elgi Tread, L&T, and Power machines ltd, Russia. The project, which was hanging in fire for a long time, achieved its financial closure in February 2004.The power purchase agreement (PPA) was signed with AP Transco and it subsequently ran into a hitch, as certain clauses were not adhered to. Subsequently, the Andhra Pradesh Electricity Regulatory Commission (APERC) directed that a revised PPA be signed and this was done in 21st November 2003.

The first phase of the natural gas based plant will be commissioned in December 2005. The average fixed cost of the project is 94 paise per unit, while the cost of fuel is a pass through based on station heat rate. "The project has one of the lowest cost for any similar project in the country, and we are proud of that." says MSP Rama Rao, Managing Director of Konaseema Power Limited. "We are confident that they can run the plant at 85 to 90% plant load factor." The second phase of the project will be of 820 MW with two gas turbines of 266 MW each and a steam turbine of 288 MW.

Industry watchers predict that the huge gas reserves in the Krishna-Godavari basin will offset the problem of short-age presently faced by gas based power plants. With the Govt of Andhra Pradesh seeking to promote a gas network across the state, plants can be located in far flung areas.

The power sector in the state has been among the first to be exposed to reforms. Now, the second generation of reforms envisages a promotion of competition through consumer choice. This means that the consumer should get a choice to select the entity from which he or she will buy the power. "This is easier said than done as the capital cost in this sector are quite high" says S Surya Prakasa Rao, Commission Secretary, Andhra Pradesh electricity Regulatory Commission. The APERC has also started the process of the open access regulation by which any consumer above 5 MW or any consumer seeking power from non-conventional energy can seek any distribution company. The consumer in this case, has to the power charges to the generating company and wheeling charges to the transmission and distribution company. By Sept 2006, those who are consume 2 MW and by March 2008 consume I MW can avail of this facility.

The problems are not just about huge investments, but also technical issues that needed to be sorted out. To make the sector more efficient, power generation costs needs to come down through competition, and operational efficiency has to be improved. This has been observed in the way the private sector power costs have come down over the years.

Development of hydro projects by private developers is not that attractive as per the new policy guidelines issue by the Union power ministry. While states can allocate projects less than 100 MW through the MoU route, projects over 100 MW will be allocated solely on the basis of competitive tariff based bidding process.

New laws in the making will force discoms to become more efficient and this should be good news for consumers. Which in simple English, means that the consumer in Andhra Pradesh will get better quality power of his choice at a competitive.
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Posted on : 8/11/2005
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