Why TN power sector is in the dark

Chennai is the envy of the rest of Tamil Nadu. Not because the State’s capital is a sparklingly clean city with the best of amenities. Far from it. The feeling of envy is because residents of Chennai suffer only two hours of announced power cut a day when those in other places have to put up with as much as eight to ten hours without electricity every day.

So much so, electricity consumers associations have even questioned why Chennai should be accorded preferential treatment when it comes to power cuts and why the shortage should not be equitably shared by all. The power utility’s argument is that it has adopted the model followed in Bangalore — being the State capital it cannot be without power for long periods as it affects the image of the State. But then, Andhra Pradesh’s capital Hyderabad suffers long hours of power cut every day.

Political power at play

The problem in Tamil Nadu is not something that has cropped up all of a sudden and is also not one that can be and will be solved overnight. It is a story that began in the early 1990s and one that continues to this day. Consecutive governments — headed by the AIADMK, the present ruling party, and the DMK — are responsible for this mess, as much as the bureaucracy is to blame.

The political leadership is at fault for pushing the electricity board into the financial morass it now is in, by not permitting the utility to raise tariffs even to meet costs, at regular intervals, and by asking it to supply electricity free to a large number of consumers. First agricultural connections, then those living in huts are supplied with free electricity. That is fine, but the electricity board must have been compensated in full for supplying power free and at subsidised rates to other consumers.

After a gap of nearly nine years, electricity tariffs were raised last year, only when things became unmanageable.

The bigger problem with the political parties is that projects conceived by one party will either be dropped or hurdles placed in their way whenever there is a change in government.

Several power projects have faced this problem in Tamil Nadu. Projects have also suffered for want of political consensus and bureaucratic turf wars.

The bureaucracy is to blame for the poor planning and managing the capacity addition programme. The Tamil Nadu Electricity Board’s — as the utility was known before it was broken up into three entities — defence was that when it was not being given a free hand to raise tariffs, how could it increase generating capacity.

Most of the projects were in the private sector and they were costlier than those put up by the board itself. And, the board would have become bankrupt in no time if it were to buy power from the private producers, ran the argument.

On a couple of occasions, when there was a slowdown in the manufacturing sector, the board felt that fresh capacity addition was not required. Little did it take into account the fact that thermal power projects need at least five years, if not more, to take off from the time they are conceived.

Even though there was a dip in manufacturing activity, there was no let-up in construction of multi-storeyed buildings, especially for the information technology sector. These buildings are power intensive as they are fully air-conditioned and the offices in these buildings worked round the clock. Computer servers too are power guzzlers.

No light of day for projects

In the late 1990s and towards the turn of the century, a couple of projects that would have added significant capacity were stymied. All of them have been abandoned, including a liquefied natural gas terminal-cum-power plant at Ennore, north of Chennai. There is now talk of resurrecting this project, though in a different format than originally envisaged.

During 1991-96, the Jayalalithaa Government signed agreements, or MoUs with a number of private power producers. A few of them took off. One of the projects that didn’t was an integrated mining-cum-power project fired by lignite at Jayamkondam.

This was given to a consortium led by the Williamson Magor & Co of the B.M. Khaitan group, which did significant amount of work on the project. The successor DMK Government cancelled the agreement and went in for a competitive bidding process. Reliance Industries bagged the contract, but nothing came of the project.

The DMK, which came to power in 1996, invited bids for 20 short-gestation multi-fuel power projects after the Centre came out with a policy on using liquid fuel for power plants. These were meant to provide immediate relief to the power shortage situation.

Just a handful got commissioned and the TNEB cancelled 11 projects totalling 1,850 MW of capacity. The DMK Government also, after a rigorous international competitive bidding process, awarded the contract for a 2.5 million tonnes a year LNG terminal and 1,850 MW power project north of Chennai.

The Dakshin Bharat Energy Consortium headed by the Aditya Birla group and which included big names such as CMS Energy, Woodside Petroleum, Unocal and Siemens bagged the contract, but the project did not take off because the TNEB was not able to come up with a suitable escrow mechanism that would have satisfied the project’s lenders.

The cancelled projects or the ones that did not take off for various reasons alone totalled 6,285 MW. Even according to official estimates, the State is short of 4,000 MW of power. The State’s installed generating capacity, including its share from Central projects and from private power producers, is about 10,200 MW. Besides, it has about 7,300 MW of renewable energy capacity, a bulk of which comes from wind energy.

Load up, losses too

The loss of Tamil Nadu Generation and Distribution Co Ltd, one of the unbundled entities, is put at Rs 40,000 crore, a loss that has been accumulated over the last 10 years mainly because tariffs have not been increased.

The load has been increasing continuously, but generating capacity has not been increased to keep pace with the demand growth. Due to the shortage, the board resorted to buying power from outside the State, at a high price.

The gap up to the unbundling of TNEB in November 2010 was Rs 17,200 crore. Thereafter, the revenue gap up to the end of this financial year is estimated at Rs 34,500 crore.

Tamil Nadu is among the States that are part of a bailout package announced by the Centre for the power sector. Under this, the State Government will have to take over half the outstanding loans and convert it into bonds that will be issued to lenders and which will be backed by a government guarantee.

The lenders will restructure the balance amount and offer a three-year moratorium on repaying the principal.

With the kind of mess it finds itself in, the Tamil Nadu Government can no longer afford to meddle with the power sector. Attracting fresh investments is going to be difficult if the power sector is not set right in all sincerity.

Keeping the existing consumers happy is also not going to be easy if shortages continue. The way out for the party in power is to let the electricity board be run as an independent commercial entity, with targets set for capacity addition, service levels and, most importantly, viability.

Till this is done, there is very little chance of things improving. Finally, it will have an impact on the electoral prospects of the party in power.

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