POWERGRID: India ring-fenced transmission into one company and built a world-scale grid

In the early 1990s India's state electricity boards were insolvent and underinvested, and the inter-state grid — the layer connecting every generating plant to every load center — belonged to no one. The government created Power Grid Corporation of India and, in 1993, made it a stand-alone transmission business backed by a World Bank project (Loan 3577-IN, US$350 million).

POWERGRID took over transmission assets from central and joint-sector power companies, built regional dispatch and control systems, and adopted operating practice through a twinning arrangement with Britain's National Grid. Expansion was paid for out of transmission tariffs rather than the state boards' deficits. Its first project came in 30.9 percent below appraisal cost thanks to competitive procurement, and the recalculated economic return of 21.3 percent landed almost exactly on the 22.1 percent appraisal estimate.

By the time the project closed in 2000, the World Bank's evaluators found a company that had grown from an incipient firm in 1993 into one of the largest transmission utilities in the world: about 40,000 km of lines carrying roughly 30,000 MW — a third of India's generating capacity — with institutional development rated High. The weak spot was commercial discipline: receivables stood at 6.5 months of billing against a two-month covenant, forcing a corrective plan in 2001.

Carve out the one layer that works; fund it like a business

Transmission was the sector's cleanest business: few customers, measurable service, and a regulated revenue stream that did not depend on fixing loss-making distribution.

Deputation let the new company start with experienced engineers seconded from the utilities and then convert them, solving the no-staff problem that kills new institutions.

A ring-fenced balance sheet kept grid investment insulated from the state boards' deficits, so the network was upgraded while the rest of the reform was still contested.

Twinning with National Grid in the UK imported dispatch and commercial discipline instead of reinventing it.

When a sector is stuck, don't start where politics are worst. Carve out the layer with the cleanest economics, give it its own company and revenue line, and let it set the standard others must meet.

The World Bank approved a follow-on POWERGRID II project in May 2001, and the tariffs charged by the company began to be enforced by India's new central regulator in 2001-02. The receivables problem — six and a half months of billing outstanding — became the next decade's discipline task, with an agreed glide path back to two months. The evaluators judged the project worth auditing as a cluster for best practice in transmission reform.