Need for positive, clear-headed reform measures

Andhra Pradesh, Kerala, Tamil Nadu, West Bengal, Delhi, Haryana, Uttar Pradesh, Madhya Pradesh, Maharashtra… no, this is not a listing of States with high growth. These are States that imposed rolling power cuts as late as in October, well after autumn had set in.

In fact, Tamil Nadu still has power cuts for periods ranging from 1-3 hours across the state. So, what's new, you might ask. Aren't power outages a fact of life in India?

Well, the difference this time is that it is happening not during the height of summer but during winter, a period of relatively low demand. Second, the duration of the power cuts is longer than what was faced during the summer.

The frightening fact though is that this could just be a taste of things to come unless the government takes corrective policy measures to clean up the mess in the power sector. What ails the industry?

There are two mainly. First, a conundrum over fuel, which, even a couple of years ago was non-existent. And second, a mess created by the inability of state electricity boards and distribution utilities to charge consumers the right price for the electricity they consume leading to losses.

Fuel trouble

As a country we may be tapping every available source of power generation but sadly all those sources are mired in problems either due to faulty policies or resource constraints or simply inept implementation. Thermal power is the most critical for India (see accompanying graphic), yet that is where we seem to have messed up the most.

Thanks to protective policies on coal mining in the country, coal output is unable to keep pace with the growth requirements in power. In the first four years of the current Plan period ending 2012, coal demand, mainly for power generation, grew by 7.3 per cent but coal output grew by just 5.4 per cent.

In the coming XII Plan period (2012-17), the projected coal deficit is 200 million tonnes and the sector to suffer the most will be power generation. Though 194 blocks have been allotted for coal production to public and private companies, only 28 have commenced production. This is mainly due to problems of environmental clearances and “no-go” policies for mining.

Imports were an option till recently, but not anymore. Countries such as Indonesia that have large coal reserves are clamping down on exports and making it more expensive and difficult for buyers. Indian companies such as Tata Power, Reliance Power, the Adanis and others who have a toehold there are now finding their toes crushed by the weight of the Indonesian government's policy to tax exports.

The options are just two: push domestic coal output in a big way through positive policies and second, brace ourselves for high cost coal imports, wherever they are available. With more than half of thegenerating capacity being coal-fired, the country just cannot afford to go wrong here.

Gassed out

The technical problems that Reliance Industries is reported to be facing in the KG Basin have affected gas-based generation. Gas output from the KG Basin now is less than half of what was projected as possible by Reliance and even this is being supplied to fertiliser companies on priority basis. Imported gas is an option but it is expensive.

The hope is that Reliance will be able to surmount the problems in the near term and gas output will rise again. But even if it does, the gas-based generation capacity available now may not be enough to substitute for the shortfall from coal-based generation.

Hydro dam(ned)

Hydel power, supposed to be environmentally-friendly, has ironically run into trouble with the green lobby. NTPC was forced to halt work on two of its projects in Uttarakhand after pressure from environmentalists. Even last week there were protests in Assam against a large hydro project, Subansiri, being executed by NHPC in Arunachal Pradesh. Hydel projects have always been sensitive anyway due to submergence of land.

If we thought that nuclear power will be our long-term saviour that hope is also now fading away. The imbroglio over supplier liability clauses means that American companies are unable to commence business for reactor supplies. With the performance of the French EPR reactor being questioned after the experience in Finland where it ran into time and cost overruns, it appears unlikely that the first of the planned ones at Jaitapur will ever take off.

The public protests against nuclear power at Jaitapur and lately, in Kudankulam, also mean that progress will be slow and painful in future. Public opinion is veering around against nuclear power post-Fukushima and the example of Germany, which will be totally off nuclear power by 2021, is being widely quoted as an example for us to move away too.

Financial mess

Part reason for the fuel trouble may lie outside our control but the same cannot be said for the financial mess that the sector is in today which is entirely due to our governments, Central and State. State electricity boards are estimated to have accumulated losses of a massive Rs.70,000 crore. Ratings agency Crisil estimates that distribution utilities alone had a cumulative loss of between Rs.35,000 crore and Rs.40,000 crore as of 2010-11.

Riding on government backing, the state electricity boards have been borrowing merrily from banks to sew up the gaping holes in their finances due to these massive losses. And the hole is only growing bigger. Banks, after initially accommodating the state electricity boards have now grown wiser and are refusing to lend.

According to a Crisil report, the total debt of state electricity boards and distribution utilities touched a huge Rs.3-lakh crore or Rs.3 trillion as of March 31, 2011. The same report estimates that as much as a third of the 56,000 MW of thermal generation capacity is in trouble due to the combined impact of fuel and financial problems.

So where does all this leave us? Hopefully not in darkness. We need positive, clear-headed reform measures to be undertaken, including passing on full prices to consumers who can bear them and subsidising the genuinely poor. Some States have reluctantly allowed their boards to revise power prices in the last few weeks.

We need to cut down on transmission and distribution losses and untangle the environmental problems that coal mining has run into. Policymakers have to balance the needs of development with environmental considerations. But for some urgent steps from the government the country may well return to the Dark Ages, literally.

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