The Hindu : Public sector, main hope

Online edition of India's National Newspaper
Monday, Dec 23, 2002

Business

Business

Public sector, main hope

THE PLANNING Commission has, in preparing the Tenth Plan, stated that the objective is to provide `Power for All' by 2012, the last year of the Eleventh Plan. According to figures included in the Plan document, during the Seventh Plan, that is, from 1985-90, the country added about 21,000 MW of generating capacity. India had only annual plans during 1990-91 and 1991-92.

During the Eighth Plan (1992-97), the capacity addition was a mere 16,000 MW as against a target of 30,000 MW. During the Ninth Plan (1997-2002), the capacity addition was only 19,000 MW against a target of 40,000 MW!

During the period under review, the physical ability in the country to add generating capacity in fact went up and there was no dearth of project execution expertise. For instance, in addition to Bharat Heavy Electricals Ltd. (BHEL), Asea-Brown Boveri (ABB) set up a facility to produce large turbine-generators though the new shop hardly got any worthwhile orders.

The unimpressive capacity addition during the last ten years is the direct result of confusion in policy as to how much is to be put up by the private sector and how much by the public sector, Central and State. The enabling conditions that could propel the private and public sectors to achieve their respective targets were not created. The Central Electricity Authority has assessed that the need based capacity addition during the Tenth Plan is about 55,000 MW. The Planning Commission has pared this down to 41,000 MW that has been described as `feasible'.

Considering the earlier best performance is only 21,000 MW, the sceptics may be proved right that the actual capacity expansion will fall far short of the projected 41,000 MW. The capacity projected breaks up into 23,000 MW in the Central sector, 11,000 MW in the State sector and 7,000 MW in the private sector.

When we look at the performance of the three sectors during the Ninth Plan, the State sector achieved 87 per cent of the target, the Central sector 38 per cent and the private sector only 30 per cent. Many of us have come to believe that the States are poor performers.

The achievement in the case of hydro and thermal is about 46 per cent while that of nuclear is 100 per cent! It is rather surprising that the thermal sector has done only as well as the hydro sector, which often faces many special problems in implementation.

The per capita consumption of electricity in India is a mere 360 kWh, one of the lowest in the world. The average figure hides an ugly truth, namely most of India's population probably account only for a tenth, that is some 30 to 40 kWh per person per year!

Though the capacity addition during 1997-2002 was only 47.5 per cent of the target, the plant load factor (sometimes called the capacity factor) of the thermal and nuclear units registered a big increase. This higher utilisation of capacity made available a large quantity of electricity.

The average PLF of thermal plants increased from about 54 per cent in 1990-91 to about 70 per cent in 2001-02. Similarly during the past five years, the PLF of nuclear units went up from 80 per cent to 86 per cent and continues to rise.

Whatever may be the other problems afflicting the power sector many of the plants are indeed being operated at high efficiency. he generating capacity addition proposed for the Tenth Plan will call for an investment of about Rs. 240,000 crores at Rs. 6 crores per MW. The outlays on transmission, distribution and rural electrification are expected to be about Rs.160,000 crores.

The big question is how to raise this large requirement of funds. The annual losses of SEBs at the end of the Ninth Plan were about Rs. 24,000 crores and are rising by the year. So there is hardly any internal resource generated for capacity addition.

Certain sections of the industry are accumulating internal surpluses. The National Thermal Power Corporation and the Nuclear Power Corporation of India are earning handsome profits as their plants are operating consistently at PLFs much higher than the normative level for breakeven tariff. But their plans to expand capacity may go awry if the Central Electricity Regulatory Commission has its way.

Failure of IPPs

The CERC is asking that the breakeven PLF be raised substantially, which will reduce the surpluses of NTPC and NPCIL. The CERC may be well motivated to propose a reduction in tariff to the consumer but this step will nullify the plans of these two national generating companies to augment generating capacity.

The hope that private investments would flow into power generation, popular during the past decade, was a result of a simplistic understanding of the problems of the power sector. Some of the American power companies looked at India because the monopoly electric utilities of the U.S. were forced out of their traditional business due to deregulation of the industry in the U.S. Conditions in India were not exactly welcoming to these investors.

While there was a clear need for new power plants, the economic health of SEBs, the sole buyers, was most worrisome. Wrong choice of fuel and one sided power purchase agreements spelt the demise of the independent power producers.

We must therefore create conditions for the public sector, Central and State, to consolidate their presence in power generation. The fundamental condition is the rationalisation of tariffs and fixation of tariffs on the basis of commercial and technical considerations. Power tariffs should cover the cost of production at a reasonable level of efficiency and there must be scope for earning surpluses through improved performance, for investment in expansion.

There must be a paring down of subsidies in a short time and cross subsidisation done away. The view that some subsidies may be inevitable because of socio-economic equity and should be a charge on the state budget is appealing but few of the States may have the financial resources to bear the burden.

Reforming the SEBs into bankable, commercially and professionally run corporate enterprises, free from political and bureaucratic interference is a far simpler proposition than to create conditions conducive for the private sector to take on the task of further expansion of capacity. These entities can then access funds both from India and outside, in the form of equity and debt. This transformation is essential to add 40,000 MW in the Tenth Plan and the more challenging 60,000 MW in the Eleventh Plan. Only then is there a hope of our progressing towards the objective of `Power for All'!

(The author is former Chairman, Atomic Energy Commission)

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