Laggard power sector could derail India's growth story

At a time when India has staked its claim to a seat at the high table alongside world powers, around 57% of rural households and 12% of urban households in the world’s second most populous country have no access to electricity, according to a report by PricewaterhouseCoopers and the Indian Electrical and Electronics Manufacturers Association.

That partly explains why India’s per capita power consumption of around 700 units a year is way below the world average of 2,600 units and developed countries’ average of 8,000 units.India’s power sector is also battling a chronic shortage of fuel such as coal and gas to fire power plants. Projects are faltering because of reasons as varied as a shortage of power generation equipment, delayed investment decisions, contractual problems, resistance to land acquisition, delays in environmental and forest clearances, and geological issues and natural calamities.

“This is a chicken-and-egg story. We have to address the entire supply chain issue in the power sector. Unfortunately, this straddles across ministries such as heavy industries, coal and petroleum,” says Shubhranshu Patnaik, an executive director at PricewaterhouseCoopers.

Unenviable record

The problem is so endemic that even the Commonwealth Games that New Delhi will host in October haven’t been spared. The government’s plan to create a sizeable cushion to tide over any power shortage during the Games has already been set back following delays in commissioning power generation units.

India’s track record in adding power generating capacity is unenviable. In the five years to 2007, the country added 20,950MW of capacity, against a target of 41,110MW.The country has an installed power generation capacity of 163,669MW; its power plants have an average efficiency rate of 76.52% of installed capacity.

An original target of adding 78,577MW by 2012 has been revised to 62,374MW. The government is trying to find solace in the fact that the 22,302MW of capacity added in three years of the 11th Plan (2007-12) exceeds the entire capacity addition in the 10th Plan.

Power secretary P. Umashankar says the revised target will be met. “It is a tough target, but tough doesn’t mean that it will not be done. We have to complete around 40,000MW in two years,” he says. “We are doing our very best to ensure that this is done. With all the projects already being awarded and the orders placed, and many of them being in the advanced stages of construction, we are hopeful that this will be done.”

Around 40% of the power generated in India is lost because of inefficient transmission and distribution. While consumer metering in eight states is below 80% of all households, metering of agricultural consumers in a majority of the states ranges between 5% and 50%.

Litany of woes

The state electricity boards of Andhra Pradesh, Gujarat, Karnataka, Rajasthan, Haryana, Punjab and Maharashtra are riddled by huge losses. They depend on subsidies which, in some instances, are as high as 25% of the annual power revenue accruing to the state.

The litany of woes doesn’t end there. Two of the government’s most ambitious energy schemes —the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) for rural electrification and Accelerated Power Development and Reforms Programme—are way behind schedule.While the government claims that 93.60% of the country’s villages have been electrified, there are many villages that, in a display of bureaucratic semantics, have been electrified or connected to the grid, yet not energized—a term that indicates that power has started flowing through the grid to the village.Union power minister Sushil Kumar Shinde had earlier conceded that RGGVY is facing problems. “Energization has become an issue and we are asking for the states to expedite the flow of electricity to the villages,” Shinde said.

The shortage of fuel such as coal and gas is a pressing issue. While power projects located near coal mines are supposed to have a reserve of two weeks, and those located far from the mines should have at least a month’s supply in reserve, projects across the country have less than a week’s reserves.

India has 75 thermal power projects that depend for supplies on state-owned Coal India Ltd, which in 2009-10 produced 431.27 million tonnes (mt) of coal, short of its target of 435 mt. India produces 142 million standard cu. m a day (mscmd) of gas; applications requesting 550 mscmd of gas have been received by the government, implying that 400 mscmd will have to be imported, at least until domestic production increases.For consumers, fuel imports mean more expensive power.

“Fuel shortage is a reality. While developers are planning to set up imported coal-based power projects, this will result in an increase of input costs, thereby resulting in a higher tariff,” Patnaik says.