Lack of clarity on fuel linkages deters private players in power sector

G. Srinivasan New Delhi | Updated on March 12, 2018 Published on January 06, 2011

The optimistic pronouncement by the Union Minister of Power, Mr Sushil Kumar Shinde, at the Electricity East Summit in Kolkata recently, that the Twelfth Five-Year Plan (2012-17) will have a 50 per cent share by private sector in the capacity addition to power generation in the country appears to be a wistful crystal-gazing.

Although the power sector reform for encouraging higher participation by the private industry began in the country coterminous with the economic liberalisation in the early 1990s when the Narashima Rao government offered counter-guarantee to power projects, much water has flowed down the two decades in terms of changing archaic laws and removing other constraints bedevilling this sector that was mostly in the hands of the States.

Reform measures

In the first decade of this century, the Government put in place a raft of reform measures including the National Electricity Policy, 2005, the Electricity (Amendment) Act 2007 amending certain provisions of the Electricity Act, 2003 which incorporated features such as no licence for sale of power from captive units and expanding the definition of theft to cover the use of tampered meters and use for unauthorised purpose and the notification of the Tariff Policy on January 6, 2006. In fact, the Tariff Policy has among its multiple remit to ensure financial viability of the sector to attract investment. The government also put in place the requisite guidelines for procurement of power by distribution licensees through competitive bidding.


In its bid to lure foreign investments in the power sector, foreign direct investment (FDI) upto 100 per cent was permitted under automatic route for generation and transmission of electric energy produced in hydro electric, coal/lignite based thermal, oil-based thermal and gas-based thermal power plants, power trading and in distribution of electric energy to households, industrial, commercial and other users.

Private distribution companies (Discoms) prior to privatisation/ liberalisation in the early 1990s and afterwards make an interesting contrast. Between 1897 (Calcutta Electricity Supply Co-CESC) and 1929 (BSES, Bombay) there were only seven Discoms across the country mostly in West Bengal, Gujarat, Maharashtra and Kerala. This number has gone up to another 10 in the subsequent period spanning 1993 to 2006, according to a response by the Minister of State for Power, Mr Bharatsinh Solanki, in the Lok Sabha on November 12, 2010.

After the transmission segment has been opened up in 1998 through the Electricity Laws (Amendment) Act, 1998, there are only 10 companies in the private sector. What agitates the private industry from involving itself in power generation and distribution has been quite known as its comfort level when competing with subsidised and ineptly-managed State power utilities.

Positive impact

In fact, a study commissioned by the Power Ministry to the Indian Institute of Public Administration (IIPA) on the impact of reorganisation of the State Electricity Boards (SEBs) pointed out that “despite some shortcomings, the overall impact of restructuring has been positive and in the right direction.” But, it is a fact that only four States — Andhra Pradesh, Haryana, Karnataka and Orissa — that have unbundled distribution as most of the SEBs are unwilling to cede this part of operation purely for political considerations to appease voters or specific constituencies such as farmers or industrial houses.

This had also become a milch-cow for clandestine operations by errant elements within the organisation.

A Delhi-based energy consultant Mr P. Balakrishna told Business Line, “when there is lack of clarity on fuel-linkage be it coal or gas with environmental factors swaying the former and the Government's not too transparent handling of the latter, the Minister's assertion that India will have a surplus power soon appears a mere wishful thinking”.

Policy analysts say that unless the government clears the cobwebs and vested interests or environmental overkill surrounding the availability of fuel such as coal for thermal power station or gas for gas-based power plants, the interest of the private sector to invest in this capital-intensive and long-gestation projects would not be sufficient to foresee a major chunk of its contribution to the capacity addition programme the Power Ministry is so over-ambitiously betting on.

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Published on January 06, 2011
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