For India, a Power Failure Looms

Discussion in 'Economy & Infrastructure' started by mylegend, Jan 3, 2012.

  1. mylegend

    mylegend Regular Member

    Nov 30, 2011
    Likes Received:
    MUMBAI—Almost a decade ago, India's government, seeking to overcome one of the biggest challenges to the nation's development, set an ambitious goal: electric power for all by 2012.

    Instead, as the target date of March nears, the power sector is in shambles, and its dire state threatens India's economic prospects at a time when a high inflation rate, a burgeoning government budget deficit and ripples from the European financial crisis are already damping growth.

    India is the world's fifth-largest electricity producer after the U.S., China, Japan and Russia, but its per capita consumption is among the world's lowest, at 778.71 kilowatt hours a year. Almost 300 million people don't have access to electricity. The country needs a huge jump in supply to sustain its rapid economic growth, fight poverty and light the homes of those powerless millions.


    The depth of India's power problems became apparent in autumn 2010, when blackouts interrupted irrigation and manufacturing across the country, even hitting wealthy urban neighborhoods. The industry has plunged into crisis, driven by a mix of factors—some brewing for years, some recent.

    Government giveaways such as free electricity for farmers have drained cash reserves from the largely state-run electricity-distribution system, leaving it financially crippled and unable to purchase power despite existing demand. A giant new offshore gas field has delivered less fuel than promised. An ambitious nuclear-power program has been stymied by demonstrations at plant sites since the Fukushima disaster in Japan in March. And despite abundant reserves of coal, India can't produce enough to feed its power plants.

    Coal-fired plants, which account for roughly half of the country's total electricity-generating capacity, should maintain stocks to last 22 days on average, according to the guidelines of the Central Electricity Authority. But a Dec. 29 report from the regulator showed that of 89 such plants it monitors, 46 didn't have enough coal to last a week, with some holding less than a day's worth or no coal at all.

    As more power plants come online—the government and private industry are estimated to have spent as much as $100 billion since 2007 to add capacity—coal shortages are expected to worsen. At the current rate of growth in coal production, the requirements of existing power plants and those under construction won't be met until the year beginning April 2016, Credit Suisse analysts said in a November note.

    More than half of India's installed electricity-generating capacity of 182 gigawatts is coal-based, and a large chunk of future power projects also will run on coal. By comparison, China's installed capacity at the end of 2010 was 962 gigawatts, about 73% of it from coal.

    India's coal sector is hampered by primitive mining techniques and rife with theft and corruption; the monopoly coal producer, state-controlled Coal India, has consistently missed production targets. Shoddy transport infrastructure, inadequate for moving coal from far-flung mines to where it is needed, compounds the problems.

    To increase output, Coal India needs to mine new deposits—but most lie under protected forests or conflict-ridden tribal lands. Government efforts to create an effective land-acquisition program for such projects, including compensation for displaced people, haven't made much progress.

    "The federal government has neither set up any national fund for the rehabilitation of the displaced persons of various power projects in the country nor set up any committee to study the issue of setting up of such a fund, " K.C. Venugopal, junior power minister, told Parliament in September.

    "Domestic coal production cannot keep up with the rising demand, especially from power companies," said Coal Minister Sriprakash Jaiswal. "They have to import to feed their rising needs and bridge the gap." But international coal prices have surged.

    "The situation is extremely challenging considering the fact that billions of dollars have been invested in building power plants but they can't be used to produce power due to nonavailability of coal," said Ravi Sharma, chief executive of Adani Power. Adani Power's parent, Adani Group, has invested heavily in coal mines in Australia, but India lags behind other major nations in securing coal assets abroad. It accounted for 9% of overseas deals in the sector in the financial year ended March 31, trailing the U.S., Japan and China, according to data provider Dealogic.

    "Progressive governments elsewhere are not just aggressively scouting but are tangibly tying up resources known to be available globally. India needs to also get its act right," said Anil Sardana, managing director at Tata Power Ltd., one of India's largest private power producers.

    Efforts to develop other fuels have stumbled. India had hoped to set up gas-powered plants after Reliance Industries Ltd. made the country's biggest gas discoveries in the deep water off the eastern coast, but output has failed to meet company projections.

    Hydroelectric power projects in the mountainous north and northeast are caught in ecological, environmental and rehabilitation controversies. India imports power from Bhutan and expects to import from Nepal, too, but the geographical challenges in the region are immense.

    Once electricity is generated, it must be supplied where it is needed. A crucial link is the provincial distribution utilities that buy electricity and resell it to consumers. Operating at huge losses, they are fast running out of money to buy what electricity is available. Not only do they give away huge amounts of electricity to farmers, partly to curry political favor, but they also lose more to rampant electricity theft and to government departments that don't pay their bills. Inefficient collection is a problem across the country. The result: The amount of electricity categorized as lost in India's states reaches as high as 40%, and even in the best performers stands at 15%.

    With fuel costs high and utilities losing money, raising power prices might seem like a solution—but it is a politically charged and sensitive issue for a government facing high inflation and widespread corruption.

    The Finance Commission, which defines financial relations between the central government and the states, forecast that in the year ending March 31, state transmission and distribution utilities will lose 803 billion rupees ($15.2 billion), equal to about 0.8% of the nation's gross domestic product. It also forecast that such losses will rise.

    Blackouts are just one effect. By creating uncertainty about future electricity sales, the losses also lead power companies to shelve projects, and add to pressure on lenders that finance the sector. With its latest five-year plan ending in March, India's government is set to miss its own generation goal: It has met only 64% of the target so far.
    —Saurabh Chaturvedi in Delhi and Wayne Ma in Beijing contributed to this article.

    For India, a Power Failure Looms -
    Last edited: Jan 3, 2012

Share This Page