Challenges in power sector development?

By Atul Saighal

India has come a long way since early nineties in power sector growth and development. The previous two decade period (1991 through 2011) has seen accretion to power generation capacity from 69,352 MW to excess of 185,000 MW – a more than 250 per cent increase.  On paper it looks like a handsome growth. But in practical terms, India has failed to bridge the demand-supply gap in these twenty years. 

Still, it would not be incorrect to label India as a power starved state. Power is the basic input of development. For realisation of its ambitious targets of economic development, India needs a modern and expansive infrastructure.  Electrical power availability being the prime requisite for industrial activity, need for building up the necessary infrastructure for generation, transmission and distribution of electricity cannot be overemphasised.

Today, the drum beaters of India’s economic growth and purveyors of India as an economic powerhouse of the early 21st century have suddenly become reticent and unsure of their own pronouncements. Against the targeted 78,000 MW of power generating capacity addition in the 11th Plan, the achievement has been only about 40,000 MW.  At the same time, the increase of demand caused by population increase and rise in industrial activity 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 5 to 7 per cent. Even today, huge DG sets as standby sources of power can be seen in factories and commercial complexes, not to speak of residential colonies all over the country.

Thermal power accounts for nearly 65 per cent of the installed capacity of power in the country. Things on the power generation capacity addition front had been going on with relative smoothness till about the middle of 2011 when suddenly the policymakers, planers, investors, developers and the bulk consumers of power industry woke up to the problems and issues thrown open by domestic coal mining and supply industry and the power distribution sector. In spite of creating a vast and multiple agency regulatory network, achieving good private sector investment in power generation area and structural reforms in power sector organisations by way of unbundling of erstwhile SEBs, serious new as well as old problems on the power development front are today giving us cold stares in the face.

The world has seen a major series of changes and unforeseen phenomena in the economic sphere during the last four years. Beginning with the sub-prime crisis of US, the economic downturn of Europe and the concomitant global stock market crash of 2008, things over the economic horizon have remained unsteady and uncertain over the four year period. What we witnessed on an unprecedented level was global investor’s loss of faith in ruling currencies and spurt of faith in hard commodities. The prices of all commodities including metals, coal and oil recorded a steep surge. With rise in prices of coal internationally, the commercial equations of new thermal power projects in India were disturbed.  To make matters worse, the central PSU, Coal India Limited, declared its inability to guarantee supply of more than 50 per cent of coal contracted in its Fuel Supply Agreements with project developers.

This anxiety has only grown deeper and more grave over the last few months during which the central government has been busy in its internal fire fighting and face saving exercise in the wake of a spate of corruption scandals and scams.  The deficit of governance in the area of power development which was probably covert earlier has become overt and stark now.  The Coal Ministry, Power Ministry and Environment Ministry do not seem to be working in close cooperation as is badly required at this stage. Urgently and expediently required reforms of the coal sector visibly monopolised by Coal India Limited and its regional subsidiary companies are yet to be done by the Government. In fact if these reforms had been initiated by the Government in 2009, which saw the UPA get the second five year term, problems would not have become so acute.

The Central Government should lose no time in launching the much needed reforms of the Coal Sector. It is most ironic and unfortunate that India has huge natural resources of coal and the country has been able to exploit only close to 25 per cent of these reserves. When could coal sector reforms be more expedient than at the time of power sector reforms? Distribution companies in the power sector need to be thoroughly overhauled and reformed to bring down the transmission and distribution losses from the upward of 20 per cent to less than 5 or 6 per cent.