Power: still an area of darkness

Written by Sanjay Jog | Updated: Feb 11 2009, 04:43am hrs
India is once again set to miss the capacity addition target of 78,700 mw in the 11th Plan period. Key reasons are the constraints in fund availability, problems in land acquisition, delays in the supply of plant equipment and fuel linkage, a temporary rise in input costs and the uncertainty over open access in transmission. During the 11th Plan, 59,693 mw would have to come from thermal projects, 15,267 mw from hydro and 3,380 mw from nuclear projects.

The countrys current installed capacity is 1,47,403 mw, including 93,392 mw from thermal, 36,648 mw from hydro, 4,120 mw from nuclear and 13,242 mw from the renewable energy sources.

Planning Commission advisor Surya P Sethis recent submission was quite self-explanatory. Sethi observed that the power generation target of 78,700 mw is not achievable by 2012. If everything goes well, then electricity generation capacity of around 40,000 mw can be set up. Though the annual investment requirement is $50-60 billion, just $25 billion is possible now.

Against the December 08 target of 1,116 mw, only 500 mw was achieved. For April-December 08, there is a slippage of 7,028 mw. During this period, against the target of 9,587 mw, the country could achieve a capacity addition of 2,558 mw. According to the Central Electricity Authority (CEA), which brings out a monthly review of the power sector, the country will have, by the end of current fiscal, a capacity addition of 7,103 mw.

According to CEA, thermal capacity addition would be predominantly coal-based, taking into account the uncertainty in the availability of gas and the high price of petroleum products. Similarly, capacity addition is also largely dependent on the supply of power plant and equipment from Bhel. CEA noted that Bhel, in a bid to avoid delaysa leading factor for slippages in the 10th Planhas enhanced its manufacturing capacity to 10,000 mw per annum, which is being further enhanced to 15,000 mw, by December 2009 and to 20,000 mw by December 2011.

However, experts feel the biggest task today is to reverse the trend of over-promising and under-delivery. It is shocking but the capacity addition during 8th Plan was 16,000 mw as against the target of 30,000 mw. In the 9th Plan, too, the country failed badly and delivered only 19,000 mw against the target of 40,000 mw. The 10th Plan was no exception and against the target of 41,000-plus mw, the delivery was around 21,000 mw.

An analyst with a Mumbai-based broking firm, who desired not to be quoted, said the power projects have been delayed also because of problems in land acquisition. Despite a national rehabilitation policy and separate polices by states, land acquisition remains a major problem resulting in the delays in financial closure by the project developers. The recent ag tations in West Bengal, Maharashtra, Orissa, Jharkhand by land owners and farmers have added fuel to the fire. Maharashtra, which is facing a daily power deficit of a record 4,500 mw, is a classic example. Even though Reliance Power and Tata Power had signed separate MoUs with the state government for capacity additions of 4,000 mw and 1,600 mw respectively in the coastal Raigad district way back on April 4, 2005, they are unable to acquire enough land mainly on strong opposition from locals. This is practically an issue everywhere, the analyst noted.

Ernst & Young, in its latest report titled Infra Insight, notes: Against all odds, the government is expected to curtail its investment for the power sector due to the global financial crisis. The investment during 11th Plan is now expected to be $100 billion as against the planned investment of $200 billion. Besides, power developers, especially private players, continue to face concerns related to the supply of coal and gas. Due to the shortage of coal in India, the ministries of coal and power recently agreed that 10% to 15% of the coal required for all new power projects would be met from imports. In addition, the state-run Coal India and power developers led by NTPC neg-otiated a coal supply pact. Further, Indian companies are exploring coal resources across the shores, especially in the coal-rich Indonesian mines. Moreover, the financing of projects by bankers to independent power producers is yet another critical concern.

Recently, power minister Sushilkumar Shinde sought to bring it to the notice of the Prime Minister the need to give a boost to capacity addition efforts. There are indications that the government may allow Life Insurance Corporation of India (LIC) to fund individual infrastructure projects beyond the existing 10% exposure norms. As per the current norms, LIC has to restrict its funding exposure to a maximum of 10% of the net worth (sum of share capital, free reserves and debentures/bonds) of the investee company or 10% of the fund size of the insurer, whichever is lower. Shinde has made a strong case for the removal of LICs exposure limit of 10% in a single company. The proposal, if accepted, will ease liquidity problem in the power sector that requires investments of over Rs 10 lakh crore in the 11th Plan ending March 2012.

Moreover, the power ministry has also called for enhancing banks exposure to the power sector from 15% of total advances to 25%. For ultra mega power projects (UMPPs), it has proposed to relax banks exposure from 20% to 50% (in the case of a single borrower) of a projects total capital requirement and from 50% to 85% (in the case of group borrower). The second stimulus package announced by the government on January 2 has allowed NBFCs to tap ECB from bilateral and multi-lateral institutions after getting RBI nod. The power ministry has proposed that changed exposure norms of banks and institutions for power sector funding should also be extended to power sector financing companies like Power Finance Corporation and Rural Electrification Corporation.

Interestingly, the transmission sector is the only silver lining, as despite all odds, the central transmission utility, Power Grid Corporation, has achieved an inter-regional transmission capacity of almost 19,000 mw against the proposed 37,000 mw by end of 11th Plan. Power Grid Corporations investment plan of Rs 55,000 crore for the entire period has not been affected. In fact, the World Bank and Asian Development Bank are eager to provide additional funding in addition to whatever has been released.

sanjay.jog@expressindia.com