Power supply to industries, businesses, agriculture, households etc is akin to blood circulation in the body. Just as stoppage of blood supply to any body-part renders it dysfunctional, disruption in power supply has same effect on economic activity.
Minister for power and non-conventional energy, Piyush Goyal had precisely this at the back of his mind when he promised that Modi government will ensure un-interrupted power supply 24 hrs a day through out the year to every household and industry.
To achieve this goal in an environment friendly manner, government has declared its intent to set up in next 5 years 100,000 mw each of power generation capacity based on ‘solar’ and ‘wind’. This coincides with Modi’s visit to USA where he proposes to seek technology and investment support from US companies.
@ Rs 6 crores per mw, investment required for setting up 200,000 mw of capacity will be an astronomical Rs 1200,000 crores. One cannot quibble with pursuing this ambitious goal. However, there is an urgent need for fixing endemic problems facing power sector which is almost on the brink.
At present, India has a total power generation capacity of 250,000 mw. Against this, actual availability of power is only 140,000 mw. For a country which is deficit in power – and widening with increasing demand – if 44% of installed capacity remains un-utilized, there is something fundamentally wrong with the way this sector has been managed. We need to look at the root causes.
Of total capacity, nearly 60% is thermal-based (rest is on hydro, nuclear, wind and solar). In this segment, supply of coal is biggest bottleneck. Coal India Limited (CIL) – monopoly suppler of domestic coal – is unable to provide fuel linkages to power plants for optimum use of capacity. Whereas for existing plants, it meets 80% of fuel needs, for new projects this is even lower at 65%. Some newly commissioned projects are stranded having no linkage.
India is sitting on mammoth coal reserves of 300 billion tons. Yet, domestic production is only 575 million tons (80% of this or 460 million tons from CIL). This results in heavy import of around 170 million tons (during 2013-14) – at more than double price of coal from CIL – resulting in foreign exchange outgo of close to Rs 100,000 crores.
To ensure uninterrupted supply of fuel to key infrastructure industries like power, sponge iron/steel etc, in 1993 government had amended the Coal Mining (Nationalization) Act to allow captive mining in private sector for end use projects.
During 1993-2010, a record 218 coal blocs with in place reserves of 45 billion tons were allocated. Unfortunately, majority of allot tees merely sat on the blocs and currently a mere 40 mines are operational producing 53 million tons annually. On investigation, it was found that the entire process of allocation was conducted in an ‘arbitrary’ and ‘opaque’ manner.
Supreme Court (SC) has declared all 218 blocs illegal and followed this up by de-allocation of all except 4. Of the 4 spared, 2 are with PSUs viz., NTPC and SAIL and other 2 are for ultra mega power projects (UMPP) given under competitive bidding. While, former are owned by central government, latter are allowed to retain strictly on the condition that no coal will be diverted to any other project/use.
SC has given 6 months time for auction of de-allocated blocs. Government will need to act with alacrity to ensure that there is no disruption in supplies from producing blocs (it may be good idea to give first right of refusal to existing allot tees) and timely steps are taken by new allot tees to operationalize mines at the earliest. Or else, already precarious situation could get aggravated!
Simultaneously, government should intensify its efforts to maximize production by CIL. Apart from increasing investment and adoption of latest technology, it should grant more autonomy and professionalize management to improve operational efficiency. In the medium term, it should gear up for allowing private sector in commercial mining. This is already permitted in oil & gas sector and there is no reason why this cannot be extended to coal.
Modi is a decisive prime minister known for good governance and his ability to deliver results on time. This is a crucial test for him to boost domestic coal supply to a level consistent with full utilization of installed power generation capacity.
About 25,000 mw of power capacity is based on gas. A huge portion of this also remains un-utilized primarily due to shortfall in availability of domestic gas. While, production from ONGC fields has been stagnating (in fact during 2013-14, it declined), supplies from prolific KG-D6 operated by RIL too have virtually dried up. Production from new fields – onshore and offshore – currently under exploration is unlikely in the near term.
While, E&P companies have been harping on ‘alleged’ low price of gas as the sole reason hampering investment, real bottleneck is a cumbersome and opaque regulatory environment. One sided enforcement of production sharing contracts (PSC) thus far has also led to a situation whereby gas production is held hostage to manoeuvre by operators leveraging a pliable erstwhile political dispensation under UPA.
As in coal sector, here also Comptroller and Auditor General (CAG) has un-ravelled irregularities and instances of gold plating in operation KG-D6 bloc. A number of petitions challenging doubling of gas price approved by UPA government in January, 2014 and seeking cancellation of blocs are pending in SC.
Government needs to handle things deftly. It should come out with a conducive pricing and regulatory environment to enable optimum production from existing fields besides attracting investment in exploration of new fields. It should be fully prepared to quickly re-auction in case court orders de-allocation.
Generators are also hamstrung by inability of power distribution companies (PDC)/state electricity boards (SEBs) to make timely payments. PDCs/SEBs in turn, are constrained by their lacking freedom to adjust tariff to reflect increases in fuel cost and bring down T&D losses, a lot of it due to theft abetted by political patronage.
Government has taken steps to improve financial position of PDCs/SEBs by strengthening T&D infrastructure and launching a nation-wide project to install separate feeder lines for agriculture (on lines of Gujarat model). Goyal has also stressed the need to revamp and modernize old plants of SEBs to ensure their continued operation at optimum capacity.
Far more important than plans to add to capacity, at this juncture Modi-government should pay greater attention to removing all bottlenecks in the way of optimally utilizing existing capacity to avert a looming power crisis.
Un-interrupted supply 24×7 – promised by Goyal – should follow next.