Power sector needs attention for recovery

Sushma Ramachandran

Senior Financial Journalist

EXTREME heat may well make this the summer of our discontent. And it will get worse if power cuts continue to plague large swathes of the country. Many states are already reeling under many hours of outages. The energy crisis has occurred at a time when numerous regions are facing temperatures last recorded a century ago. In fact, the sudden shortfall in power availability is being attributed largely to the extreme weather conditions of recent times. But this is not the only reason. There are multiple underlying causes and unless these are dealt with, power emergencies could become a recurring feature over the medium and long term.

The immediate situation has arisen reportedly due to low stocks of coal at thermal power plants across the country. A blame game is currently under way between the power plants, the railways and coal producers over this issue. Incidentally, this lack of coordination between the three agencies is not a new issue. It has occurred repeatedly over the past few decades. Power plants which are not located at pit heads, face considerable delay in getting coal supplies, especially in times of peak demand like the summer. The railways, on its part, complains that coal producers are not providing stocks at the right time while the latter insist that enough rakes are not available.

The problem of low coal inventories with thermal plants had also cropped up in October last year. It was then rated the worst power crisis in the past five years. Coal inventories had dipped to a low of four days’ requirements as against the normative level of 21 days in thermal plants. At the time, coal industry veterans had warned that the public sector Coal India Limited (CIL) had not raised output sufficiently over the past few years to meet the growing demand. The immediate shortfall, however, was linked to heavy rains in coal-mining areas which constrained production.

The crisis has recurred after only six months. The immediate response from the Railways has been to divert rakes meant for wheat supply and even cancel passenger trains to rush stocks to coal-starved power plants. Thermal plants based on imported coal which had either shut down or were only partially operational owing to a spurt in global prices, are being reopened. Though this step has been taken to meet the gap in domestic coal availability, the fact is that using imported stocks will raise costs considerably. Imported coal prices have shot up owing to disruption in supplies from Russia. Global rates have risen from $60 to over $200 per tonne. But as domestic output is not adequate to meet the higher power needs, there is no option but to blend the imported with indigenous coal stocks.

Apart from coal supply, the main issue preventing the power sector from becoming viable and profitable is the fact that power distribution companies (discoms) are not making payments to the power-generating companies. The discoms owe as much as

Rs 1.1 lakh crore to the generating companies, which in turn are not able to make payments to the CIL. Arrears of the generating companies to CIL are pegged at about Rs 12,300 crore. The undeniable fact is that state governments are not prepared to levy viable user charges on power from most of their constituents, especially farmers. Every election brings more promises of free power which in turn make the discoms less and less viable. Reform programmes have been tried over the years, but they have failed till now to resolve the problem.

Unless these basic issues are resolved, the power sector is going to sink into a morass of sickness. In the absence of speedy reforms, power shortages will end up becoming endemic. Some measures need to be taken speedily. The first step must be to shift the burden of power subsidy from the discoms to the state government budgets. Let payments be made directly through direct benefit transfer to those who are being given free or subsidised power. This is a decision that can only be taken at the political level in states. But it is for the ruling party to show the way by enforcing the rule in states governed by it.

The second move must be to privatise the power generation sector. As the government has already committed itself to privatisation and has outlined a pipeline of companies to be sold, it should include power sector in this process. The several large power companies held in government hands need to be handed over to the private sector for more efficient management and operations.

The discoms must not be left out of this process. Some suggestions have been made by experts that these should be divided into smaller entities and privatised to make them viable. Such ideas can be explored but careful study needs to be made of this segment since past reform measures have not yielded the right outcomes.

And finally, the entire energy mix of this country needs to be reviewed and suitably altered to reduce the share of coal-based thermal plants. Currently, as much as 75 per cent of total power generation comes from such plants. This at a time when the need is to move towards cleaner energy sources. Hydel power, for instance, has huge potential here but for some reason has lagged far behind in the overall energy scenario. Nuclear power also needs to be given a larger share.

Ultimately, this is an infrastructure sector that is absolutely vital to overall development of the economy. Without assured power supply, it will not be possible for the existing industries to operate to full capacity. Already there are reports of units shutting down temporarily leading to job losses. These are disturbing warning signs that enough attention is not being paid to the health of this sector. It needs to be recognised that adequate power availability is absolutely essential to ensure higher growth at all levels of the economy. Steps need to be taken now rather than later to put this sector on the path to revival and recovery.

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