Dear Reader,

Despite surplus capacity and power availability, thousands of villages are not having power due to the lack of transmission lines and administrative indecision and delay. Prime Minister Narendra Modi has made a sincere effort to give power to over seven thousand villages. He has planned to give electricity to another 10000 to 15000 villages. The power sector has not been performing well for many years. The Reserve Bank of India (RBI) has referred twelve big power companies for insolvency action. According to the Parliamentary Standing Committee, the power sector is straddled with debt with 34 projects having stressed assets of over Rs.1.75 lakh crore. Promoters and entrepreneurs are being blamed for no faults of their own except having entrepreneurial appetite and hunger to grow and grow, expand and expand. They have mostly been victim of circumstances and policy loopholes. All the authorities and consultants also project high capacity requirements and demands irrespective of the reality of other factors such as transmission lines, different state government policies, raw material availability, etc.

When it comes to thermal power, coal mines were nationalised in 1973. The state-owned Coal India Limited and some other state-owned units had become the owner of coal mines. Later some public and private sector players had been allotted 218 coal blocks. But in 2014, the Apex Court cancelled 214 allotments. In 2015, the government paved the way for allowing commercial mining by the private sector. The state governments were allotted seven blocks. The plight of the power sector has resulted in coal being imported from Indonesia and other countries. Slowly, imported coal is becoming costly. Allotment of coal to power sectors has not been adequate and not on time. Quality of coal is also a major issue. Coal India has a huge stock-pile whereas many thermal power plants have either shut down or are not being able to utilise their full capacity.

The mega Power Policy of 2009, which was amended in March 2017 and extended up to 2020, has provided Power Purchase Agreements (PPAs) for purchase of power and other benefits. The policy has so many complications and complex provisions. State DISCOMs have been unwilling to sign long-term PPAs. They have cancelled many PPAs as short-term power tariffs have come down due to the capital cost of power projects of thermal, solar, hydro, and wind going down. How the power projects that were set up with high costs will serve the cost of capital? The expected practical amendment to the Mega Power Policy will yield significant benefits to the banking and power sectors. A Supreme Court judgement in 2017 brought clarity on the scope of the regulatory intervention pursuant to the bidding process. As per the ruling, such intervention is not available to the appropriate commission upon the execution of a PPA (including the adoption of tariffs). This is expected to make bidders exercise caution prior to submitting their bids. The judgment has also stated that a change in regulations under Indian law can be considered for compensation. Thus, a power project can now seek compensation on the grounds of change in domestic coal tariffs and the coal allocation policy in 2013 which reduced the share of fuel available for power generators. Also, industry analysts note that all cases pertaining to the shortage of domestic coal will now be eligible for compensation. The quantity and quality of coal and the efficiency in supply chain are expected to reduce the cost of power generation. Further, the capacity utilisation of thermal power plants is expected to fall to 48% by 2022 as non-thermal power generation increases. However, the demand for power is likely to increase in domestic, commercial, industrial and other sectors. Government needs to simplify the policy of bidding of coal mines.

Hydro projects, wind power, and solar power are also facing the brunt of uncertainties. In 2017, the country’s 25329 MW of installed gas-based power capacity was operating at load factor of 22%. About 4340 MW gas-based plants are unable to commence operations. What a colossal waste of national wealth?! Who all are responsible? Despite potential gas reserves, gas production is not being harnessed effectively. There is a glut in the international market. Long-term gas import needs to be considered. Government needs to work out solutions to bail out these power sector participants. 

The state undertakings don’t compensate while they charge for minimum off-take guarantee. Like West Bengal, there are other such states. The average industrial power tariff is much higher than that of the developed countries. In Norway , the tariff is Rs.2.46 per KWh whereas in West Bengal it is Rs.7.36 KWh. Power generation cost varies from Rs.2 to Rs.4 per unit. State governments have been charging consumers Rs.6 to Rs.12 per unit. State governments are also not allowing the supply of power to consumers, mainly industrial sectors, at much cheaper rates, say varying from Rs.3 to Rs.5 per unit. The tariff varies from state to state. It has an impact on the viability of an industrial unit. It affects the competitiveness of a unit and the minimum guaranteed power off-take charges are also very high. But there is no guarantee of supply of power. Voltage and load-shedding for many hours are frequent. Voltage also drops. Due to all these, product quality and production are hampered.

In order to ensure the survival of power sectors and the safety of bank loans given to power sector, the existing capacity without addition of new capacity must be utilised and the existing PPAs be honoured. Private power companies must be allowed to supply power to at least the industrial sector without the permission of state governments. Large capacity addition to PSUs should also be stopped. Why must one waste the national wealth? Even borrowed funds? Existing power sector companies can supply power at Rs. 3.50 per KWh. Coal and gas should constantly and regularly be made available. Ultimately, the consumers will be benefited. Coal India should simplify the process of sale/ bidding/ supply on a regular basis, without administrative delay and indecision.

Indian products would be globally and locally competitive if power supply can be reliable and at reasonable prices. Let market forces determine the distribution of power, which will be competitive and free of load-shedding and voltage fluctuations. This will make products competitive. Allow private sectors to put transmission lines for own use and others can use the same by paying a price. The supply, control and distribution of coal and other factors are breeding grounds of corruption. If these are made more transparent, accountable, and investor-friendly, the ‘Make in India ’ campaign of Prime Minister Modi will take off in a big way as power will be available properly for industrial and agricultural activities at reasonable tariffs.

In 2014, an Oxford University study, which used the Multi-Dimensional Poverty Index ((MDPI)), reported India to be the second poorest country in South Asia, just ahead Afghanistan . Despite India ’s faster economic growth vis-à-vis most countries, it was home to 340 million destitutes, mostly in rural areas. The MDPI used the National Family Health Survey data from 2005. The only positive fact adduced in the study was that India reduced multi-dimensional poverty faster than income poverty.

In the January-March quarter, India ’s economy grew at 7.7%, the fastest in last seven quarters. The full FY18 growth estimate was revised to 6.7%. The government has maintained its forecast for 2018-19 GDP growth at 7.5%. Moody has revised its GDP forecast for FY19 to 7.3% on account of rising oil prices and tighter financial condition. According to CRISIL, the private sector’s investment is still deleveraging. Investment is by the public sector. Fiscal Deficit for 2017-18 worked out to be 3.53% of GDP, broadly in line with the government's revised estimate of 3.5% of GDP for fiscal deficit. India ’s total foreign exchange reserves have declined by $2.64 billion to $415.05 billion on May 11, 2018.

The stock market will be less volatile as domestic investors’ ownership is increasing. Foreign investors have been selling due to geo-political tensions and resurgent concerns over a likely trade war between the US and China .

May God bless Bharatwasis to take the right and practical administrative decisions without delay for the welfare of humanity, decisions which are not based on populism.  May honest people work fearlessly, and with faith in oneself and in God.

 


 

Dr. H.P. Kanoria

Editor in chief     

 

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