Meet the Chief. The power of transmission

Power Grid Corporation of India (Power Grid) has near monopoly on the country’s inter-state and inter-regional power transmission network. Tariffs set by the Central Electricity Regulatory Commission enable it to earn assured returns on its commissioned projects. We spoke with I.S. Jha, Chairman and Managing Director, Power Grid, on the state of India’s power transmission network and the company’s growth prospects.

What have been some noteworthy improvements in the country’s transmission infrastructure in recent years? What remains to be done?

The broad objective of the government is 24X7 power supply to people. This is possible only if power reaches everyone at the cheapest price. What is happening is that the power stations in the Southern region may price power at ₹3.50 a unit while those in Chhattisgarh can make power available at ₹2.30 a unit. If you have a good transmission network, then you won’t buy electricity from the local power station in the South and will instead take the ₹2.30 per unit power because the cost of transmission is very low (only a few paise). Earlier the role of transmission was to evacuate the power generated, today it is the enabler of the market.

Today, we have one National Grid and here Power Grid has played a major role. In the last four years, our transmission assets have doubled. They have grown at 10 per cent (CAGR). The transmission capacity (importing power from other regions) ofthe country’s two most deficient regions — the South and the North — has gone up by 71 per cent and 100 per cent in the last two years. All this has brought a lot of flexibility in the grid for transmitting power.

Since the grid is becoming more complex, the control systems also have to be good for smooth power transmission. Since the 2012 Delhi power outage, there have been no such incidents even though the quantum of power transmitted has gone up substantially. This is because we have automated many substation operations. Our control centre at Manesar in Gurgaon manages all our substations through remote control. We have also brought in very high technology such as +_800kV HVDC (high voltage direct current) line from the North-Eastern Region to Agra, the first in the world.

On the maintenance side, too, we have ensured better patrolling of the transmission network so that uninterrupted power supply is available to consumers. You need to patrol to keep a check on thefts and also because if there is even one breakage anywhere, power will not flow. Since the network has become very extensive, we have introduced helicopter patrolling. In the last six months, we gave also started using drones in the Northern and the Western regions.

Is the power transmission network in the North-Eastern Region still not at par with the other regions of the country?

In one way, you can say. What’s happening is that Power Grid’s transmission network (inter-State) is okay but the intra-State distribution network (which is under the States) is weak. This is why the Centre has formulated a ₹10,000 crore scheme for the seven North-Eastern States and Sikkim. The schemes for Arunachal Pradesh and Sikkim, the cost for which is about ₹5000 crore, are being funded by the Centre. The balance cost for the remaining States is being funded by the World Bank. Power Grid will be undertaking the construction work and then hand over the infrastructure to the state governments.

Is the intra-State transmission network weak in other States too?

The inter-State transmission network, which is set up by Power Grid, is the backbone of the system. It has to be very strong. But, the intra-State transmission is not up to the mark and that is being realised. The government is now focusing on strengthening this network. Rajasthan, Uttar Pradesh and Bihar have a lot of intra-State power transmission work going on. In Bihar, Power Grid and Bihar Power (Holding) Company have formed a joint venture. We are constructing the network here. This serves two purposes — since the intra-State gets strengthened, Power Grid’s inter-State system gets utilised more effectively and, second, our business also increases.

What is the current status of the National Smart Grid Mission? How will the project benefit the final consumers of electricity?

The grid can be made smart at every level. I will talk about the Smart Grid at the distribution (consumer) level. Smart Grid basically refers to two-way transmission. Today, information on what the consumer wants does not come to the operator. Under Smart Grid, we will have smart meters that will communicate data to the control centre. We have already installed smart meters in Puducherry on pilot basis. The government has decided on 14 pilot projects in different States and Power Grid is the consultant for seven of these. Smart cities are also coming up and a city cannot be smart without a smart grid. That’s why, the mission has to be implemented in all these cities.

At the transmission level, Power Grid is commissioning the Smart Grid. Here the Smart Grid has been introduced in a different way. It is basically for our operations. Under this, we are installing PMUs (Phasor Measurement Unit) which are like meters that collect data. Suppose we have a substation in Agra and the control centre is in Delhi, then tonnes of data is collected from Agra and sent to Delhi. Today, this is being done on a small scale. Now, all areas are being integrated and the meters are being synchronised through GPS.

Projects won under tariff-based competitive bidding (TBCB) account for what percentage of Power Grid’s total project portfolio? Are the returns on these projects significantly lower than those under the regulated return model?

Since 2011, only 23 projects worth ₹50,000 crore have been bid out. We have won 35-40 per cent of them, which is about ₹15,000-20,000 crore. This is a very small portion of our total portfolio. Currently, we have total work in hand worth ₹1 lakh crore.

When Power Grid bids for these projects, we use the cost plus regulated return (that we get based on the Central Electricity Regulatory Commission’s formula) as our benchmark. There is a little bit of plus or minus depending on the project location. See, we are a government company and anybody can question us on why we have quoted low or high. Actually, the cost of transmission is the same for everybody, whether it is a private or a government company, though the material cost does get affected depending on the quality also. Power Grid constructs the transmission systems considering that we have to run it for 45 years. The rest depends on how much one wants to keep — 10, 12, or 15 per cent. This is the differential in the price quoted by different bidders.

Power Grid makes operating profit margin of around 85 per cent and net profit margin of close to 30 per cent. Is this likely to continue in the coming years? What will drive this growth?

We are going to maintain these margins basically because we already have projects worth ₹1 lakh crore in hand. In addition, we are focusing on intra-State projects. For instance, we are strengthening the transmission system for the North-Eastern States.

Power Grid plans to expand globally by diversifying from its existing consultancy projects into EPC (engineering, procurement and construction) projects. Will this not expose the company to risks and dilute its regulated returns from the Indian business?

If we want to maintain our existing margins, we have to naturally increase our footprint, not only at the inter- and intra-State levels but also internationally. We have consultancy projects across 18 countries. With consultancy, you get enough idea about that country - what are the projects, what are the threats and how do the systems operate there. So, we thought, why not also set up projects? That’s why, to start with, we are going for EPC projects. Here, the contractor does not have to invest much from his pocket since the owner puts in the money. There is only marginal working capital to be employed for a few months. So, there is not so much risk. There is, though, the risk of under-quoting, so we have to be careful. For this, our experience with consultancy and tariff-based competitive bidding will be helpful.

Actually, the return in consultancy is much higher but the revenue is very less. You can have 5 per cent consultancy fee for a ₹100 crore project. Then, your top line will be ₹5 crore. Maybe this entire ₹5 crore will go to the bottom line since there is very little expenditure because we don’t purchase anything and there is only manpower cost. Now if you look at EPC projects, then even if the margin is 5 per cent, the project will add ₹100 crore to your revenue. So, profit margin will remain 5 per cent but the top line goes up by much more. Three years ago our turnover was ₹10,000 crore and we were growing by about 20 per cent. So, we had incremental revenue of ₹2000 crore only. Today, our revenue is more than ₹20,000 crore. To grow by 20 per cent, we need incremental revenue of ₹5000 crore. To maintain this we have to expand.

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