India has come a long way since the early-90s in power sector growth and development. The last two decades have seen an accretion of power generation capacity from 69,352 MW to more than 185,000 MW — more than 150%. On paper, this looks impressive. But in practical terms, India has failed to bridge the demand-supply gap in these 20 years. Even now, it won’t be incorrect to label India as a power-starved State.
To realise ambitious targets of economic development, India needs a modern and expansive infrastructure. Electrical power availability being the prime requisite for industrial activity, the need for building up the necessary infrastructure for generation, transmission and distribution of electricity can’t be over-emphasised. Against the target of an additional 78,000 MW power-generating capacity in the 11th Five Year Plan, India has achieved only about 50,000 MW till now. At the same time, an increase in demand during this period has neutralised the positive effect on the per capita availability of power. The demand-supply gap of electricity remains in the range of 6-7%.
Thermal power accounts for nearly 65% of India’s installed capacity of power. Things on the power generation capacity addition front had been going on relatively smoothly till mid-2011 when policymakers, planners, investors, developers and bulk consumers suddenly woke up to the problems thrown open by the domestic coal mining and supply industry and the power distribution sector. In spite of creating a vast, multiple agency regulatory network and achieving good private sector investment in power generation and structural reforms in the power sector by way of unbundling the erstwhile state electricity boards (SEBs), India now faces serious problems.
The prices of all commodities have reco-rded a steep surge in recent times. With the rise in prices of coal internationally, the commercial equations of new thermal power projects in India were disturbed. To make matters worse, the central public sector unit Coal India Limited (CIL) declared its inability to guarantee the supply of more than 50% of the coal contracted in its fuel supply agreements with project developers. With the rise in coal prices globally, governments and regulators in coal-mining and exporting countries such as Indonesia, Australia and Mozambique also put quantity caps and price adjustment regulations for their coal exports. All these developments have put huge question marks on the timely commissioning of new thermal power projects across India. It’s made lending banks and financial institutions nervous. In the wake of all this, concerns about the viability of power purchase agreements because of the bad financial health of State-owned power transmission companies have created a situation of deep anxiety.
This anxiety has only grown deeper over the last few months during which the central government has been busy fire-fighting and saving face. The covert deficit of governance in the area of power development till now has become overt now. The coal ministry, the power ministry and the environment ministry don’t seem to be working in tandem as is badly required at this stage. The environment ministry needs to make its clearance mechanism for hydro-projects speedier, smoother and more transparent. This will help bolster private sector investment in hydropower generation. Urgently required reforms in the coal sector, a sector monopolised by CIL and its regional subsidiary companies, are yet to be undertaken by the government.
Pumping money in power generation without reforming the grossly inefficient distribution sector is like putting the cart before the horse. It is with great dismay that one observes the baggage of inefficient distribution companies — with the staggering transmission and distribution (T&D) losses of 20% and above — being carried forward. The Centre should lose no time in launching reforms in the coal sector.
Distribution companies in the power sector need to be thoroughly overhauled to reduce T&D losses to less than 5-6%. It is an open secret that almost 80% of T&D losses are due to power pilferage. This problem has to be tackled on a war footing. Across-the-board privatisation should be carried out in distribution agencies since the public-private partnership model has failed to deliver. This is borne out by the scenario in Delhi where all that Reliance and Tata joint ventures have achieved in over 10 years is a reduction in power losses from 37% to 27%.
Finally, the government must set up a smooth working machinery comprising officials of the ministry of environment and forests, the ministry of coal and the ministry of power to speedily address and effectively monitor power sector issues.
Atul Sehgal is a senior power sector professional based in Delhi
The views expressed by the author are personal