An impasse is a situation without an escape or an outlet. The word most perfectly describes the contemporary state of India's energy infrastructure.
The telecom sector first, and various transport sectors thereafter, have been steered out of the Indian impasse (ex-railways, since they offer fabulous patronage).
In these progressive sectors, private investments have been facilitated by the creation of competition-enhancing regulatory regimes. However, the infrastructure sectors impervious to meaningful progress continue to be the energy sectors -- power, coal, and gas.
Ever since the economic reforms began in the early 1990s, successive governments have constituted infrastructure-related committees.
These committees have highlighted key reforms needed and provided roadmaps for future action in reports as diverse as The India Infrastructure Report, put out by the Expert Group on Commercialisation of Infrastructure Projects, the Gas Price Revision Committee (1997), Hydrocarbon Vision 2025, Vision Coal 2025, and the now-forgotten, meticulously detailed report of the 'R' Group.
In failing to implement the key energy reforms suggested in these reports, the governments of the day instead worked on over-wrought solutions such as counter-guarantees for power generation investments, securitisation of SEB receivables, and the current buzzword, an SPV, which will miraculously generate infrastructure in much the same way as the rubbing of Aladdin's lamp!
Legislation for the energy sector has fared little better than policy-making. The Coal Mines (Nationalisation) Amendment Bill has been in an impasse in Parliament since 2000.
The Petroleum Regulatory Board Bill has been in an impasse since 2002, pre-empting any downstream regulation for the oil and gas sectors.
The pipeline policy for the country is debated in partisan spurts and then neglected for long periods of time. The Electricity Act, 2003, promised to deceive; this pioneering legislation, passed with thorough review and multi-partisan support, is again under inchoate review.
The experience from across Asia (considered by Asians to be ex-India) is very different. The latest BusinessWeek carries a story on an infrastructure-led building boom in Indonesia, Malaysia, and Thailand.
The three countries are expected to spend $30 billion in new infrastructure this year alone.
With the experience borne of our committee-led wisdom, spread over many years, and diverse political regimes, and in the light of persistent regional success, it is time we squared up to the energy sector crisis.
Power in crisis: A recent news item mentions that four independent power projects in Andhra (Vemagiri, Gautami, GVK, EPS Oakwell) are in limbo after Gail refused to provide them natural gas.
This, after the projects have signed gas supply agreements with Gail, power purchase agreements with AP Transco, and loan agreements with various financial institutions (PFC, LIC, SBI, IDBI).
Without gas as fuel, the projects would not be dispatched. AP Transco would be liable to pay fixed charges to the IPPs, and the IPPs, in turn, liable to repay the banks--for power that is not even produced. A sure case for breach of all the contracts.
Gail lays the blame on the 5 per cent reduction in production from the Ravva field, operated by ONGC, and is insulated by the absence of supply-or-pay clauses in the GSAs.
A market-led capex of Rs 5,000 crore (Rs 50 billion) to establish 1,500 MW of power capacity is now stuck in the state with the best-rated power utility. Cascading liabilities among all parties, without even the political copout of corruption or MNC exploitation a la Dabhol! A classic impasse!
In a separate but unsurprising development, Maharashtra is resorting to load shedding for 4-5 hours a day.
The state has an energy deficit of 1,690 MW, and a peak deficit of 4,000 MW. There is rioting in the streets of Poona, Nasik, and Aurangabad, as the coddling of Shanghai, sorry, Mumbai, starves the rest of the state of power.
There is no respite in the future, as current shortages in the leading industrial state of India are expected to double by the end of the decade.
Maharashtra is ready to buy power from neighbouring states, but cannot afford the high naphtha-based spot tariffs. The free power to farmers charade has already cost the utility Rs 1,200 crore (Rs 12 billion).
Dabhol offers Maharashtra power capacity with a short gestation period. However, there is no LNG fuel available anywhere in the world which would allow Dabhol to deliver power at what Maharashtra is willing to buy it--Rs 2.2/kWh.
Nevertheless, missives have gone out to Australia, Malaysia, Indonesia, Oman, Qatar, and the UAE. Clearly, the other two LNG facilities in the country (Petronet at Dahej and Shell at Hazira) couldn't deliver fuel to achieve this tariff.
And even at this tariff, no private IPP could reasonably secure the payments from Maharashtra (as other states) on a timely basis, since the power sold would suffer massive T&D losses.
It is a moot point whether any of the private producers with whom MoUs have been signed for 12,500 MW of power in Maharashtra will actually build plants, since they will be at the end of the benighted payment queue.
Across India it's the same story. Power deficits range from 7 to 25 per cent of capacity, with an all-India average of 12 per cent (10,000 MW). Teri states the loss to the economy could be as much as Rs 30 per kWh not generated.
Iron and steel production in Chhattisgarh is down 25 per cent because of power shortages. Twenty thousand workers in Raipur are sitting idle. In spite of these shortages and growing power demand (7 per cent per annum), there are fewer fresh investments at the margin (capacity addition of only 50 per cent of target in the Ninth Plan), leading to power deficits countrywide.
What brought things to such a pass? Why does India suffer from power deficits? It bears repetition ad infinitum that power deficits are a direct result of the (mis)management of power distribution.
Transmission & distribution losses (more commonly known as theft and dacoity losses) vary from 24 to 75 per cent across the country. Official figures of national T&D losses of 28 per cent severely understate actual losses, which are closer to 50 per cent.
High T&D losses are caused by a secular failure to collect revenue, and subsidies to the agricultural and residential sectors. Power sales to the agricultural sector are not metered because of political considerations.
Naturally, a high proportion of losses from "sales" to the agriculture sector are a result of industrial theft! As against an average cost of generation at Rs 3.49/kWh (8.0 US cents), average tariff realisation is only Rs 2.39/kWh (5.4 US cents), and is declining.
To bridge this gap, we shift the burden to customers who pay. This cannot be done indefinitely. Already, industrial consumers pay 10 times the rates paid by agriculture users; the cost of power for manufacturing is 35 per cent higher than in China.
No wonder many of the best industrial customers have seceded from the system by developing higher-cost captive generation, which now amounts to 23 per cent of the country's power capacity.
The system of distortionary tariffs, power theft, customer flight, and poor collections leaves the SEBs with a collective loss of Rs 40,000 crore (Rs 400 billion) annually.
How can there be any incentive for new generation? New generation in fact worsens the existing situation, since power sales are (largely) losses. No enterprise can survive if it collects only half the revenue from its sales.The author is a naturalist, conservationist, and author of a recent book on the Sariska National Park.
