The Hindu Business Line : Power ebbs as Govt looks away

Efforts to reform the country’s ailing power sector have been short-circuited by poor governance and lack of political will. In turn, both agriculture and industrial output have suffered, says S.D. NAIK.

Policymakers should establish new priorities, including trimming excessive reliance on coal-based thermal power and a greater accent on harnessing renewable sources.

Among all the infrastructure segments in India, power remains the most crisis-ridden , with no immediate solution in sight. Repeated attempts over the past decade to reform this ailing sector have been short-circuited by poor governance and a lack of political will. The worsening power situation threatens to derail the country’s economic growth.

Widespread power shortages are adversely affecting both agriculture and industrial production. The worst-affected State is Maharashtra with an average deficit of 20-22 per cent and a peak-load deficit of 30 per cent. In the north, Uttar Pradesh is the most power-starved, followed by Punjab and Haryana. Several other States such as Gujarat, Karnataka, Tamil Nadu, Andhra Pradesh, Kerala, and Bihar also face significant power shortages.

Elusive targets

There have been major slippages in power generation targets in successive Five Year Plans. During the Ninth and Tenth Plans, for instance, hardly 50 per cent of the target for capacity addition was achieved, leading to a sharply widening demand-supply gap over the last decade.

Recently, Union Power Minister Mr Sushilkumar Shinde announced an increased target for capacity addition during the 11th Plan period from 78,577 MW to 90,000 MW. However, going by the past record, the original target itself appears elusive, leave alone the enhanced one.

Sometime ago, the Government had announced a plan to set up nine ultra-mega power projects of 4,000 MW each to help reduce the power deficit. However, owing to several constraints not one of these projects appear likely to become operationalby the end of the current Plan.

Moreover, transmission and distribution (T&D) losses remain a whopping 35-40 per cent due to badly maintained transmission lines, poor maintenance of power plants under the State electricity boards, shortfalls in metering and outright theft of electricity. This is a criminal waste of national resources, with estimated losses of Rs 40,000 crore a year. The power sector faces formidable constraints financial and non-financial — in creating approved generation capacities. Cash-strapped States as well as private producers are struggling to achieve power generation targets.

The constraints

A large number of projects are held up because no private producer has adequate funds to achieve financial closure. With the collapse of the initial public offer (IPO) market, funds are scarcer.

The problems surrounding land acquisition is yet another bottleneck affecting projects such as Sasan in Madhya Pradesh (4,000 MW ). The process of getting environmental and forest clearances is also highly time-consuming.

A dire shortage of coal has now emerged as the biggest hurdle to power generation. Not only are coal blocks still being allocated on a subjective basis by a government committee, the number of such allocations is also far too inadequate, forcing existing plants to regulate generation.

Efforts to import coal have met with limited success. Around 67 per cent of the country’s existing power generation capacity is based on coal and a significant portion of this has been affected by non-delivery of the promised coal supplies.

Uncertain coal supply is affecting the work on coal-based thermal power stations.

Electricity projects executed by independent power producers, involving a total capacity of 68,000 MW, have been put at risk because of the Government’s failure to assure coal supplies. Bankers demand an assurance in this regard before releasing funds for equipment and project work.

Whither reforms?

More than a decade ago, the Government tried to attract private investment — both foreign and domestic — for the power sector’s so-called “fast track” projects. Again, during the Tenth Plan period, it launched the Accelerated Power Development and Reform Programme (APDRP) for the distribution sector. The programme, with a projected outlay of Rs 40,000 crore, aimed at cutting T&D losses drastically. Unfortunately, these reform programmes failed miserably largely due to poor follow-up and governance failure. After more than a decade, the contribution of private sector in power generation remains just around 13.5 per cent and T&D losses at 35-40 per cent.

Not surprisingly, the power deficit has soared to unacceptable levels and the State electricity boards (SEBs) continue to suffer heavy losses. In fact, the SEBs’ rate of return deteriorated to minus 27.4 per cent in 2006-07 from minus 24.8 per cent the preceding year.

The passing of the Electricity Act, 2003, and the securitisation of the over Rs 40,000-crore losses incurred by the SEBs five years ago had raised hopes for improved performance. Unfortunately, these hopes have been belied with the accumulated losses of the SEBs surging once again.

The reforms initiated for the distribution sector are in shambles with about 75 per cent of the technical losses occurring at the distribution stage. The experiment with privatised distribution in Orissa some years ago, and subsequently in Delhi, failed due to poor implementation and follow-up by the local governments.

Fresh action

Given the formidable constraints facing the power sector, policymakers should establish new priorities, including trimming excessive reliance on coal-based thermal power, laying greater accent on harnessing renewable sources of energy.

India has significant potential in tapping wind and solar energy, hydro energy including small hydro projects, and energy from biomass. The unutilised potential in these areas remains a high 80 per cent.

At the same time, it is extremely important to reduce T&D losses to around 15 per cent, as mandated under the APDRP.

This will effectively result in additional power generation of 25,000 MW immediately and over 40,000 MW by the end of the Eleventh Plan without any additional installed capacity.

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