K&M Engineering and Consulting Corporation 1

K&M Engineering andKorea Power EngineeringForm Strategic Alliance

K&M has formed a strategic alliance with Korea PowerEngineering Co., Inc. (KOPEC) to jointly pursue

power projects in the United States and selected international markets.The K&M/KOPEC strategic alliance will offer a full range of ex-

pertise in engineering, procurement and construction of power facili-ties and systems. The two companies have combined resources of2,100 personnel and experience totaling over 60,000 MW power plantcapacity in operation or under construction.

“Through this alliance our two companies offer a remarkable depthof expertise and resources in engineering, procurement and construc-tion of power projects that leverage our individual strengths and globalpresence,” remarked K&M Chairman/CEO Michael Kappaz. “At atime of surging energy demand this new alliance offers immediateresources and proven capabilities to power project sponsors and devel-opers as they seek to keep pace with the market.”

KOPEC President/CEO Yong-Taek Park applauded the allianceand observed, “I know that this alliance will benefit from KOPEC’sextensive experience in the design and construction of state-of-the-artpower plants in Korea and elsewhere. We hope to offer these skills inthe engineering and construction of US power plants and contribute tothe alleviation of the current electricity shortage.”

“The synergies realized by this strategic partnership will propel ourcompanies into aggressively seeking new opportunities and new mar-kets,” commented K&M Director of Engineering and ConstructionWilliam Gay.

ABOVE: Left to Right: Philip Agress, Deputy Assistant Secretary, U.S. Dept,of Commerce; Yong-Taek Park, President/CEO Korea Power Engineering;Michael Kappaz, Chairman/CEO, K&M Engineering; and Dr. Joon SukJung, Commercial Counselor, Embassy of Korea.

K & M G r o u p o f C o m p a n i e s

S E P T E M B E R 2 0 0 1

My dear friends and colleagues:

As all of you know, the United States was the victim of ahorrific and terrible tragedy on September 11. I want tothank all of you around the world who have sent notesof support, solidarity and sympathy to the K&M familyof employees. Sadly, some of our employees have beentouched directly by this tragedy. A longtime associate ofK&M lost a brother on one of the ill-fated flights.

Out of the rubble Americans have demonstrated theirremarkable compassion for their fellow man and theirsteely resolve to be undaunted by these events. I canassure you that we at K&M remain committed toworking alongside all of our international friends tomeet the world’s infrastructure needs. Our headquartersand field offices will continue to operate normally.

Our thoughts and prayers remain with thevictims and their families as well as all of theheroes who have worked tirelessly to save lives.God bless you and your families during thistrying time.

Michael H. Kappaz

Message from the Chairman

See STRATEGIC ALLIANCE page 2

K&M Engineering and Consulting Corporation2

K&M NEWSis published by theK&M Group of Companies

InternationalHeadquartersK&M Engineering andConsulting Corporation2001 L Street, NW, #500Washington, DC 20036Phone (202) 728-0390Fax (202) 872-9174

Chairman and CEOMichael H. Kappaz

Senior Vice PresidentWilliam Drotleff

Editor & Senior WriterLinda Ivanov

ContributorsPrem BabuKaren MitchellAugust PaganoPatrick Patil

Contact K&M Newseditor Linda Ivanov(livanov@ kmec.com)K&M-Washington for:• complimentary copies• change of address• submit articles/photos• addition to or removal from mailing list (hard copy or email versions available)

© Copyright 2001.All rights reserved. Thismaterial may be quotedor reproduced with acknowl-edgment of its source andcopyright. Printed on re-cycled paper.

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You may print aPDF version ofK&M Newsdirectly from

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K&M Hosts KOGAS Delegation

ABOVE: (front left to right): KOGAS Manager, Office ofEngineering and Project Planning, Mr. Oh, Hong-Yong;KOGAS Head, Managerial Research Team, Dr. Dongin Leeand KOGAS Director, Office of Technology and ProjectPlanning, Mr. Jung, Man-Jin. (Back left to right): K&MBusiness Development Director Frank Staszesky, Jr., K&MSenior Vice President William Drotleff, K&M CorporateCounsel Cindy Shepard, K&M Project Development ManagerPhilip Hetzner and K&M Chairman/CEO Michael Kappaz.

K&M hosted a week-long briefing for Korea GasCorporation (KOGAS) representatives at its

Washington headquarters which covered a broad range of privatepower fundamentals. Specific topics included: Contract Funda-mentals, Determinants for Successful Financing of Private PowerProjects, Tariff Structuring and Technical Considerations.

K&M/KOGAS discussed the status of Korea’s power sectorrestructuring and deregulation efforts and utilized the opportunityto examine a specific project under consideration by KOGAS andhow private power principles can be applied to that project as itmoves forward toward implementation.

For further information contact K&M Project DevelopmentManager Philip Hetzner at K&M-Washington(phtezner@kmec.com).

ABOVE: Left to right: K&M Chairman/CEO Michael Kappaz, KOPEC President/CEO Yong-Taek Park and KOPEC Directorof Fossil & Hydropower Plant ProjectDevelopment Sung-Choon Kim.

BELOW: Michael Kappaz and Yong-TaekPark sign Memorandum of Understanding.

continued from cover

During a signing ceremony in Washington, D.C., the companiesindicated that the United States will be a major focus for this alli-ance. The signing ceremony was held at K&M’s Washington officesto formalize the Memorandum of Understanding between the twocompanies. In attendance were representatives of the U.S. and Ko-rean governments (Mr. Philip Agress, Deputy Assistant Secretary,U.S. Department of Commerce, and Dr. Joon Suk Jung, Commer-cial Counselor, Embassy of Korea).

Since its founding in 1987, K&M has forged an entrepreneurialrole in infrastructure project development and construction by com-bining the latest engineering technologies with innovative projectfinancing strategies. Unique among the industry, the firm housesboth technical and financial experts who offer a fully integratedapproach to projects. K&M’s expertise encompasses every phase ofan infrastructure project—from concepualization, structuring andfinancing—to engineering, construction, commissioning and opera-tion. K&M has been involved in the successful completion of $10billion of infrastructure projects in the United States and 40 coun-tries.

For over 25 years KOPEC has played a pivotal role in everyphase of Korean nuclear, fossil and hydroelectric power plant designencompassing engineering services with related technology develop-ment and technical support services for operating plants. Moreover,the company has diversified into the areas of power transmission anddistribution as well as project management services for other infra-structure facilities.

For further information contact Frank Staszesky, Jr., Director ofBusiness Development, Engineering and Construction Services, atK&M-Washington (fstaszesky@kmec.com).

K&M/KOPEC Form Strategic Alliance

K&M Engineering and Consulting Corporation 3

Alexandria Wastewater Treatment Project

K&M is assisting to expand treatment, pumping and supportfacility capacity at Alexandria’s (Egypt) two primary

wastewater treatment plants. As the largest single public works invest-ment (US$95 million) in Alexandria, improvements consist of expan-sion/modification of the two plants and 6 existing pump stationsoperated by the Alexandria Government Organization for SanitaryDrainage. During this Phase II expansion the current peak flow capacityof the East Treatment Plant of 525 million liters/day (ML/D)* will beincreased to handle 804 ML/D. The West Treatment Plant will be in-creased from 284 ML/D to 719 ML/D. Phase II completion is targetedfor late-2002. (* one gallon = 3.785 liters)

K&M serves as the independent Contractor Quality Control (CQC)subcontractor to ABB-SUSA on this USAID-funded project with 15mechanical, electrical and civil inspectors on-site. Metcalf & Eddy is theconstruction manager. K&M performs sampling, testing and inspectionactivities, and works closely with on-site personnel to establish and main-tain quality of workmanship and materials. K&M is also responsible foroffshore (USA) factory inspections monitoring compliance to equipmenttesting specifications.

For further information contact K&M Technical Director MartinTormey at K&M-Washington (mtormey@kmec.com).

Top: bar screens installation (West)Center: pile load test (East)

Bottom: existing clarifiers (East)

SEPTEMBERWilliam Drotleff, speakerTopic: “Private SectorInvestment in the PowerSector of Southern Africa:Developer Needs andConditions”Conference: “SouthernAfrican Development:Energy Investment”Sponsor: USAIDVictoria Falls, Zimbabwe

AUGUSTPrem Babu, speakerTopic: “Private Transmis-sion: Recommendations forthe Role of Regulator in theSelection of an IndependentPrivate TransmissionCompany through theInternational CompetitiveBid Process”Conference: “GlobalParticipation in IndianNational Grid, EnergyManagement andConvergence”Sponsors: PowergridCorporation of Indiaand Federation of IndianChambers of Commerceand IndustryMumbai, India

JULYHenry Sandri, speakerTopic: “Clean EnergyTechnology ExportsInitiative (CETE)”Sponsor: U.S. Departmentof Energy and U.S. EnergyAssociationWashington, DC USA

Douglas Schultz, speakerTopic: “Power SectorProjects.” Advocacy forU.S. business. Roundtablefor newly appointedDCMs and CommercialAttaches. Foreign ServiceInstitute. Sponsor: Busi-ness Council for Interna-tional UnderstandingArlington, VA USA

William Kappaz, attendeeTopic: “Global PowerBusiness: Reconciliation of Politics and Profit”Sponsor: CambridgeEnergy Research AssociatesGleneagles, Scotland

SpeakersBureau

K&M Engineering and Consulting Corporation4

K&M Holds IGCC Technology Seminar

Cool Water, 96 MWusing Texaco Technol-ogy. Start-up 1984.(USA) $4890/kW

Plaquemine, 160 MWusing Destec Technol-ogy. Start-up 1987.(USA) $2140/kW

Buggenum, 253 MWusing Shell Technology.Start-up 1994. (Holland)$2100/kW

Wabash River, 262 MWusing Destec Technol-ogy. Start-up 1995.(USA) $1590/kW

Polk County, 250 MWusing Texaco Technol-ogy. Start-up 1996.(USA) $1940/kW

Pinon Pine, 100 MWusing KRW Technology.Start-up 1997+. (USA)$2125/kW

Puertollano, 300 MWusing Prenflo Technol-ogy. Start-up 1997.(Spain)

Litinov, 350 MW usingLurgi Technology. Start-up 1997. (Czech Rep-ublic)

Existing Gasifier Technologies

LURGI TEXACO SHELL KRWType Fixed bed Entrained Flow Entrained Flow Fluidized BedOxidant Steam, Oxygen Oxygen Oxygen AirOperating Pressure 2-3 MPa 2-3 Mpa 3 Mpa 2 MpaReaction Temp. 1,100º C 1,200-1,500º C 1,400-1,550º C 950-1,100º CAsh Handling Dry Slagging Slagging DryCoal Feed Granular Slurry Dry Pulverized CrushedInstallations Sasol 90,000t/d

Beulah 13,000t/dUbe 1,500t/dPolk 2,000t/d

Buggenum 2,000t/d Pinon Pine 800t/d

100 MW Pinon Pine IGCC, Nevada(Source: U.S. Department of Energy)

Gas cleanup system(Source: U.S.

Deptt. of Energy)

CommercialCoal-fired

IGCC Plants In July, K&M Chief Civil EngineerAugusto Pagano and Chief Mechanical

Engineer Lenny Golbin made a presenta-tion to K&M employees as part of thecompany’s ongoing in-house trainingseminar series. The two chief engineersgave an extensive overview of IntegratedGasification Combined Cycle (IGCC)technologies and reviewed the status oftheir commercial application.

Mr. Golbin addressed the numerousindependent technical assessments ofIGCC projects that K&M has peformedover the past decade on behalf of the U.S.Department of Energy’s Clean CoalTechnology program, which is managedby the National Energy TechnologyLaboratory. In addition, K&M has com-

pleted several assignments on behalf of commercial clientsseeking to utilize IGCC technologies in greenfield projects.Specifically, K&M completed an extensive technical assess-ment in connection with the equipment selection forKEPCO’s 1,200 MW Ilijan Power Plant in the Philippines.K&M recommended utilizing the MHI 501G combustionturbines, which recently achieved successful first fire ofUnit #1. Presently, K&M is performing an independentreview of the engineering rework for the Pinon Pine IGCCfacility in Nevada, one of USDOE’s major IGCC demon-stration projects. The start-up at Pinon Pine is still going onand Global Energy, a unit of Destec, is performing themodifications that, eventually, will make the system opera-tional.

Mr. Pagano explained that gasification is achieved byreacting the coal, at high temperature and pressure, with alimited amount of oxygen. This produces a fuel gas mostlyconsisting of carbon monoxide and hydrogen. The raw fuelgas passes to a clean-up stage where particulates, sulphur,and nitrogen compounds are removed. At least 99 percentof the coal’s sulfur is removed during this process.

The cleaned gas is burned in a conventional gas turbineto produce electrical power and the hot turbine exhaust isused to produce steam for a conventional steam turbine.The gas and steam turbines operate together as a combinedcycle. Typically, the gas turbine produces 65 percent of thepower, while the steam turbine produces about 35 percent.

The IGCC is suitable for a wide range of fuels. Otherthan coal, significant opportunities exist for low value, poorquality fuels such as oil residuals, orimulsion, biomass andwaste materials (such as municipal rubbish).

(Sou

rce:

U.S

. Dep

t. of

En

ergy

)

While the Lurgi fixed bed reactors are the dominantcoal-gasifier in commercial operation around the world,most of the newer plants are based on Shell or Texaco en-trained flow designs. The KRW air-blown fluidized-bedgasifier technology uses hot gas clean-up with an in-bedsulfur capture process, ceramic filters, and external desulfur-ization. The use of air as the catalyst, therefore, eliminatesthe need of a high cost oxygen plant. In addition, it is theonly technology capable of using any type of coal withoutelaborate preparation.

For further information contact K&M Chief Civil Engi-neer Augusto Pagano at K&M-Washington (apagano@kmec.com).

K&M Engineering and Consulting Corporation 5

Teco Power Services Breaks Groundon Dell and McAdams Power Plants

In June, TECO Power Services (TPS) held a groundbreakingceremony for its 599 MW independent power project in Dell,

Arkansas. Gov. Mike Huckabee was the keynote speaker. TPSPresident Richard Ludwig joined the governor in turning the firstspade. Earlier, in April, a similar ceremony took place for the 599MW McAdams power project in Kosciusko, Mississippi, attendedby Gov. Ronnie Musgrove.

The two projects are being constructed by NEPCO under aturnkey EPC contract, with K&M serving as on-site Owners Rep-resentative since mid-May. GE is responsible for installation of thetwo switchyards and associated transmission lines. Yates is respon-sible for the site work and water supply systems at the McAdamssite, and Lane is installing the wells at the Dell site.

Construction on the facilities began in March at both sites. Dellhas reach approximately 16% completion with major civil workscomponents well under way. GT #1 has been installed on its foun-dation (two months ahead of schedule). Engineering for McAdamsis nearly complete, with construction approximately 18% com-plete. Commercial operation at both plants is scheduled for late-2002.

Dell and McAdams are natural gas-fired, combined-cycle plantsutilizing highly efficient GE 7F technology. They have two heatrecovery steam generators with selective catalytic reduction forlowering NOx emissions and one reheat steam turbine. They aredesigned to interconnect with the Entergy transmission system andsell electricity to wholesale customers in the Southeast and Mid-west, including AK, LA, MS, AL, GA, TN and KY.

For further information contact K&M Project Manager RiadKhalil at K&M-Washington (rkhalil@kmec.com).

Hugo Coal Plant Due DiligenceHISPANICBUSINESS

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In May, K&M completed an independenttechnical assessment of the Hugo Plant, a 475

MW coal-fired electric generating facility locatednear Fort Towson in Southeastern Oklahoma.This technical assessment was used to evaluatethe financial security of the proposed sale andlease back transaction.

K&M was also retained to review certaincommercial documents related to the proposedtransaction and render an independent opinionrelative to the commercial aspects of the ServiceContract Term Sheet.

The technical report issued by K&M offers anassessment of the physical condition, expectedcontinued performance, and remaining useful lifeof the Facility. This assessment was developedbased upon an inspection of the facilities, inter-views with plant personnel and review of plantdocumentation.

For further information contact K&M ChiefCivil Engineer August Pagano at K&M-Washing-ton (apagano@ kmec.com).

Hugo Power Plant Components• The steam generator is a Babcock & Wilcox

pulverized-coal fired boiler with balanced draftfurnace. Fuel oil is used as a start-up fuel.

• Westinghouse manufactured the original 440MW turbine. The high-pressure, intermediate-pressure and low-pressure turbines were up-graded to the ABB design and it is now capableof producing 475 MW. Westinghouse manu-factured the generator and exciter.

• The Bailey Control System is used to monitorthe boiler operating parameters and functions.

• Three 116-car unit trains deliver the fuel coalto the plant. Each unit train carries approxi-mately 11,000 tons of sub-bituminous coalfrom the Powder River Basin in Wyoming.

• The Plant make-up water is extracted from theKiamichi River and stored on site in an 80-acrestorage pond.

• The power output from the plant is evacuatedthrough four 138 kV transmission lines anddistributed to off-takers through several switch-ing stations and substations. The 138 kV sub-station has nine high-voltage circuit breakersand associated disconnecting switches arrangedin three breaker-and-a-half bays.

• The Air Quality Control System consists ofLow NOx burners and overfired air for NOxcontrol and electrostatic precipitators to limitparticulate emission. GE 7F gas turbines arrive on site (Left: Dell—Right: McAdams)

Dell McAdamsTPS President Richard Ludwigand Gov. Mike Huckabee

K&M Engineering and Consulting Corporation6

Private Transmission: Role of Regulator

K&M Chief ElectricalEngineer Prem P.C. Babuaddresses the internationalconference in Mumbai onthe role of the regulator inthe private transmission ofelectricity.

(EXCERPTS). It is my pleasure and privilege to share withyou my findings on the role of the Regulator in the selec-tion and operation of an Independent Private Transmis-sion Company (IPTC) in other countries and myrecommendations for the Regulator’s role in the selectionof the IPTC in India.

Let me also share with you the priviledge my company,K&M Engineering and Consulting, and I, as Project Man-ager, are currently enjoying in providing consulting ser-vices to Powergrid Corporation of India (Powergrid) intheir effort to conduct an International Solicitation andSelection of an IPTC through competitive bidding.

Private sector participation in the transmission of elec-tricity is relatively new and in the early stages worldwide.There are not many private transmission line companiescompared to private generating companies. Additionally,there have not been many transmission projects done onan International Competitive Bid basis.

First I will explain the background and how the solici-tation of the IPTC is structured. As you know, followingthe Central Government’s decision to encourage privateinvestment in the transmission sector, the Electricity Actof 1998 was enacted and further revisions of it are cur-rently underway in the form of the Electricity Act of 2001.Powergrid was appointed as the Central TransmissionUtility (CTU) and entrusted with the responsibility torecommend qualified IPTCs for licenses to develop, fi-nance, construct, own, maintain and transfer transmissionlines. The Central Regulatory Commission, commonlyknown as CERC, was given the authority to issue licensesto the IPTCs. CERC is currently reviewing its role in theselection and operation of the IPTC.

In the capacity of the CTU, Powergrid is currently inthe process of soliciting IPTCs for the construction of two400 kV transmission lines between Bina, Nagda andDegham substations in the States of Gujarat and MadhyaPradesh. The IPTC is proposed to build and terminatethese lines on the gantries built by Powergrid in thePowergrid’s and State Electricity Board’s (SEBs) substa-tions. The extension of the substation bay to receive theselines, installation of circuit breakers and protective relays,

and metering will be the responsibility of Powergrid. Forconstructing and maintaining these lines between the gan-tries, the IPTC will be paid a competitively bid and availabil-ity based Transmission Service Charge over the term of thelicense. At the end of the license period these lines will betransferred back to Powergrid.

In the United States, a Canadian-based company (one ofthe few companies formed to be an IPTC), is presently in theprocess of developing a DC transmission line under LongIsland Sound that will connect to the grids of New Englandand Long Island (NY). This interconnection will provideadditional power transfer capacity in either direction betweenNew Haven (CT) and Shoreham, Long Island (NY).

The licensing and citing of transmission lines in theUnited States is the responsibility of the specific states in-volved. The transmission rates and tariffs are, however, theresponsibility of the U.S. Federal Energy Regulatory Com-mission (FERC). It is interesting that for regulatory purposes,FERC ruled that the DC line looks more like an IndependentPower Producer than it does as a Transmission Provider onthe interconnected grid. FERC determined that the IPTC inthis case does not possess an “inordinate” market power andcould, therefore, charge market-based rates for it’s servicesrather than a cost-based regulated tariff. FERC’s view wasinfluenced by the fact that the DC line did have competitionin the form of accessing the market through interconnectedgeneration and transmission. Simply stated, FERC’s policywith regard to the IPTC appears to be that if the facility isnot an “essential bottleneck” and if it does not possess mo-nopoly power, then it will be allowed to charge market rates.

In Australia, this same IPTC has also constructed andoperates a transmission line interconnecting the grids ofQueensland and New South Wales. These lines were notbuilt in response to a solicitation, but a business opportunitythat the IPTC saw and seized among the efforts going onthere to disaggregate and privatize its electric power industry.The IPTC proposed to build a transmission line connectingthe Queensland and New South Wales grids and derive itsrevenues through Buy-Sell arrangements it enters into withgenerators and offtakers, and by providing wheeling serviceswhere the IPTC does not take any proprietary interest in thepower flow through their lines. In Australia, licensing andciting responsibilities lie with the individual municipalitiesthrough which the line passes. The rates for the transmissionservices, however, do require regulatory review from the Na-tional Electricity Code Administrator (NECA). In the case ofthe IPTC, NECA created a safe harbor that allowed a greatdeal of freedom for the IPTC in pricing its services. It al-lowed the IPTC to perform Buy-Sell transactions and toprovide the wheeling services. This is unique because in mostcases the regulators consider transmission lines as bottleneckfacilities and do not allow such operators to have any interestin the outcome of competitive energy transactions. Generally,most regulators would implement mechanisms, either struc-tural or behavioral, that would restrain the ability of theTransmission Service Provider to “play” in the energy market.In the IPTC’s case, perhaps NECA saw that there were alter-natives that precluded the IPTC from exercising inordinatemarket power or simply overlooked the issue to encourageprivate sector participation.

In Brazil, the government is required to publish an annual“Determinative Transmission Plan” outlining new transmis-sion lines required for the upcoming three years. This planidentifies and defines specific projects, which are then offeredfor competitive bid to private investors. The actual solicita-tion and bidding process itself is conducted entirely by thegovernment. Neither the national regulator, ANEEL, nor any

Excerpts of

technical paper by

Prem P.C. Babu,

K&M Chief

Electrical Engineer,

presented at “Global

Participation in

Indian National

Grid, Energy

Management and

Convergence”

international

conference in

Mumbai, India

in August.

Full text available

by contacting

K&M News Editor

Linda Ivanov

(livanov@kmec.com)

“Recommendations for the Role of Regulatorin the Selection of an Independent Private

Transmission Company through theInternational Competitive Bid Process”

K&M Engineering and Consulting Corporation 7

Private Transmission: Role of Regulator

In May, K&M was a corpo-rate sponsor for the LatinoStudent Fund’s (LSF) ben-efit gala held at the Colom-bian ambassador’s residencein Washington, D.C. Amb.and Mrs. Moreno hosted areception and silent auctionthat raised over $30,000 forstudent programs andscholarships. K&M donatesoffice space to the LSF andis a regular sponsor of theorganization’s activities.LSF strives to expand andimprove educational oppor-tunities for Hispanic stu-dents in the Washingtonarea through tutoring,financial aid, internships,workshops and summercamp. Most scholarshipstudents are second-genera-tion Americans, whoseaverage family incomeranges from $20-30,000/year. LSF helps these fami-lies obtain scholarships toprivate and magnet schools.

CommunityRelations

of the state regulatory agencies are formally involved in thebidding process, although it is likely that they are consultedand afforded the opportunity for informal participation inthe planning process and in the drawing up of the terms ofthe bidding. Depending upon the nature of the project, theregulatory agency issuing the license may be either national,state or local. While ANEEL does not conduct bids norissue licenses, all the pricing aspects of the license are spe-cifically subject to the rates and tariffs set by ANEEL. Theoperation of the grid is entrusted to the national systemoperator, ONS, which is subject to ANEEL’s jurisdiction.

In Peru, the Ministry of Energy and Mines set up anindependent body called COPRI (privatization committee)to conduct the solicitation for privatization of state-ownedenterprises or assets and for private sector participation inconcessions on a Build-Own-Operate-Transfer (BOOT)basis for new infrastructure facilities, including transmissionline projects. The selection of the transmission lines fordevelopment by private investors is carried out by the Min-istry and is published in an annual report called “IndicativeTransmission Expansion Plan.” This selection is approvedby the regulator, Commission de Tarifas de Energie (CTE).The tariff ceiling is also set by CTE. The actual bidding andselection process is conducted by COPRI with no furtherreview by CTE.

From these examples of IPTCs in other countries, it canbeen seen that the industry is still in its infancy. In somecountries, the IPTC was unsolicited and market driven. InBrazil and Peru, the IPTC responded to a well-definedsolicitation.

In India, the IPTC is intended to bring private invest-ment into the transmission sector. To facilitate this thegovernment has prepared guidelines for the InternationalCompetitive Bid process after consultations with variousstakeholders and reviewing recommendations made in thereport “The Framework to Facilitate Private Investment inTransmission Projects,” prepared by an expert committee setup by the government. India already has a well-establishedplanning process in which the Central Electricity Authority(CEA), a government agency, prepares advanced planningstudies for the construction of transmission lines based onload and generation forecasts. These plans are finalized afterconsultations with Powergrid, the various concerned SEBsand the Ministry of Power for implementation by Powergridor the SEBs. Based on the consultations, the Ministry ofPower issues an order under Section 18A of the ElectricitySupply Act of 1948 for Powergrid or the SEBs to constructthese transmission lines. From among these planned trans-mission lines, Powergrid has identified specific transmissionlines for development, construction, ownership, mainte-nance and transfer by an IPTC.

As the IPTC merely provides the transmission line forPowergrid’s use, it is not permitted to trade in the electricitythat goes through these lines, nor control the flow of power,the IPTC is no position to influence the price of electricityother than passing on its competitively bid, availability-based Transmission Service Charge to the SEBs through thePowergrid tariff for the length of the license period. Onesure way to attract a greater number of bidders and makethe privatization process more competitive is to makeprojects attractive by not overburdening them with excessiveregulations. As soon as a few projects are completed and aresuccessfully operated by an IPTC, there will be greater con-fidence among the investors to participate in future solicita-tions. Their Return on Equity expectations will be loweredand be comparable to the expectations in other countrieswhere privatization has been successful. The banks would

also perceive the projects as lower risk and offer more favor-able interest rates and loan terms.

The following regulatory process is, in my opinion, anefficient and workable approach that may be adopted in theselection and operation by the IPTC in India. I believethese recommendations meet the objectives of the regulatorand the concerns of the investors.

1. Powergrid to consult with CERC and arrive at aconsensus on the Terms of Reference for the solicitation toassure transparency and competition. The actual solicitationmay be carried out by Powergrid.

2. CERC to set a ceiling for the Transmission ServiceCharge that may be charged by the IPTC on a case-by-casebasis. The ceiling should be arrived at based on the capitalcosts for constructing the specific transmission lines, theprevailing interest rates for the debt available to the IPTCand the market expectations of the Return on Equity forprivate investors. It is unlikely that the ceiling set by CERCwill unduly influence the Transmission Service Charge setby the IPTC. The Transmission Service Charge is morelikely to be determined by competitive forces. The reasonfor setting the ceiling is to protect the public from very highcharges should the investment climate be unfavorable andto give confidence to the IPTC that once its proposal hasbeen evaluated by Powergrid as the lowest responsive bid,and its proposed transmission service charge is below theceiling, its proposal will not be open to renegotiation. Itshould be noted that if the ceiling to the TransmissionService Charge is set too low there will be no bidders.

3. Once the successful IPTC is selected and licenseissued, no further review of the Transmission ServiceCharge will be made by CERC.

As private investment in the transmission sector is verynew and is yet to take hold, it is recommended that incen-tives in the form of minimum regulation and a realisticceiling price for the Transmission Service Charge beadopted to encourage greater participation by the privatesector. A direct and tangible benefit of such greater partici-pation by the private sector will be greater competitionamong participants and, therefore, result in lower charges tothe public. The government will be free to use its resourcesfor other essential public projects. (END EXCERPTS)

For further information contact K&M Chief ElectricalEngineer Prem P.C. Babu at K&M-Washington (pbabu@kmec.com).

Prem Babu receives commemoration from conference sponsors

LSF Board of TrusteesPresident Kathe Williamson

with K&M ChairmanMichael Kappaz

K&M Chairman MichaelKappaz, Mrs. Virginia

Williams, Mrs. Morenoand Leonardo Cruces

(LSF Scholar)

LSF Scholars

K&M Engineering and Consulting Corporation8

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