Power: Groping in the dark

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The power sector has been the bane of India’s industrial growth story. Successive dispensations at the Centre, over the last couple of decades, have either not bothered trying to tackle the fundamental problems afflicting the sector or have undertaken half-hearted attempts accompanied by some lip-service. The UPA Government, in its five years at the helm, has failed to buck the trend.

Power-hungry

A widening demand-supply gap, a flagging reforms agenda, generation capacity addition targets going completely awry, and an all-pervasive fuel shortage are what the outgoing administration has bequeathed the ailing sector with. Several superficial quick-fix measures have been tried out over the last five years, but to little avail.

The only saving grace was the clinching of the Indo-US nuclear deal, the benefits of which are still to pan out for the sector. Other than that, there is virtually nothing original that the Government has to show for all the time it has been in the saddle.

Rs 200 crore for high-power equipment testing facility

Supply situation

Let’s take a look at the power supply situation. Notwithstanding the pronounced initiatives of the Government of providing reliable and cost-effective power, the all-India energy shortage in March 2008 was way over 11 per cent and the peak shortage was around 16 per cent.

To bridge this gap in energy demand, the Eleventh Plan charted out a stupendously ambitious capacity addition target of over 78,000, which is clearly floundering even as we are into the second year of the Plan period. To put the new target in context, only 51 per cent of the planned capacity of 41,000 MW got added till the end of the Tenth plan, three years of which were under the UPA regime.

'Power situation remained grim in Dec last year'

The Eleventh Plan target is three times what was achieved in the Tenth. So much for credible targets! A study prepared by the Planning Commission itself has forecast that with the way the cookie is crumbling, the gap between demand and supply of power will be larger at the end of the Eleventh plan than it was at its commencement.

One of the tragedies is that a chunk of the country’s installed capacity of 1,47,000 MW is lying idle with fuel shortages hurting the sector like never before. Scarcity of fuels, including coal, gas and uranium, are denting power generation in existing capacities, causing grievous outages and load-shedding schedules across practically all states.

Aimed at transparency, speed

Coal-based power generation accounts for 76,000MW, much of which is under duress on account of a massive coal shortage. Most utilities are currently forced to import coal to meet the shortfall, even as flagship utilities such as state-owned NTPC Ltd have reported fuel shortage-related outages at some of its key stations.

Despite this, coal sector reforms still remains a pipe-dream. Unfortunately, even with the Prime Minister handling the coal portfolio for the latter half of the UPA regime, the Coal Ministry failed to get its act together. The fate of the country’s gas-based power projects is no different. With a capacity of 14,600 MW, gas-based projects have been operating at around 52 per cent efficiency due to feedstock shortage.

Nuclear capacity of 4,120 MW too is operating at under 50 per cent load factor, even as uranium mining has been held up with no major attempts by the Government to push through with mining projects in places such as Meghalaya. Amid existing capacities lying idle, the Government announced its ambitious Ultra Mega Power Projects (UMPPs). Each was to have a capacity of 4,000MW or more to be handed out to private players through a tariff-based bidding process.

While the bidding processes were ostensibly aimed at bringing about unprecedented levels of speed and transparency in the sector, the very first project of the block got embroiled in a controversy involving the awarding process. This delayed the momentum.

Besides, three of the four UMPPs awarded so far have been bagged by the same player. This has raised a renewed debate on the need to cap the number of projects going to a single player as execution capabilities could come under strain. The ongoing global financial crisis has further put paid to the chances of such mega-sized projects, each of which would entail funding of Rs 16,000-Rs 20,000 crore, attaining financial closure in time. Though the UPA government planned these fancy mega ventures, it did not make the basic attempt to rectify what was wrong at the core of the sector – that of a liberalised upstream supply side having to coexist with a tightly regulated downstream distribution side. While the generation side got all the attention, power transmission and distribution reforms pretty much made no progress.

Carrot-and-stick policy

The Accelerated Power Development and Reforms Programme initiatives, the key reform programme aimed at plugging the leak in the distribution side through a carrot-and-stick policy, has completely lost direction. Financial losses of the power sector are in the vicinity of Rs 30,000 crore per year and subsidy bills have been on the rise. The distribution sectors in most States have poor billing (55 per cent) and collection efficiency (40 per cent).

The Central Government, on its part, could have used the carrot-and-stick policy through the APDRP scheme and made disbursements contingent upon loss reduction targets rather than handing out untied funds to the various States. But little was done to stem the rot. Commercial and financial losses of State electricity boards have been mounting, affecting, in turn, the bankability of the sector at large. With the downstream sector leaking like a sieve, investments in generation projects come with a big question mark.

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Despite the UPA Government’s aam aadmi agenda, social sector targets have left a lot to be desired. Against the revised targets of providing electricity to 1,25,000 unelectrified and de-electrified villages and 2.43 crore BPL households, the Implementation of Budget Announcements 2008-2009 document indicates that only 54,000 of those villages and only 43 lakh BPL households have been provided electricity connections.

An exception to this otherwise pedestrian performance of the UPA was clearly the Indo-US civil nuclear deal. This one achievement does augur promise, but clearly a lot needs to be done in the days to come to cash in on the initiative. As has been the hallmark of successive Governments, the UPA regime also leaves the task of setting right the sector to posterity.

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