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Brightening the prospects for power sector: States hold key

“Improving financial viability of power utilities is one of the key deliverables of power sector reforms. The total commercial losses, excluding subsidy of the State power sector, had been estimated at Rs. 28,824.90 crore in 2006-07,” says the Economic Survey for 2007-08, tabled in Parliament recently.

The rate of return of the State sector, which was (negative) - 24.01 per cent in 2006-07, improved marginally to - 18 per cent in the revised estimates for 2007-08. Equally worrisome was the substantially higher gross subsidy, which had climbed to Rs. 43,132.60 crore.

Concerned over the financial health of the State Electricity Boards (SEBs), the Centre introduced the Electricity Act, 2003, and offered substantial assistance through the Accelerated Power Development Programme (APDP) to encourage States to undertake reforms in the power sector. The focus was particularly on containing the transmission and distribution (T and D) losses, which resulted in substantial erosion of revenues for the SEBs.

In addition, assistance was provided for strengthening and upgrading sub-transmission and distribution systems of high-density centres such as urban nodes and industrial estates.

According to the Union Power Ministry, Rs. 7,124.63 crore has been released to the States so far under the APDP. The Centre has also decided to continue with this assistance in the XI Plan. But the focus will turn to “actual, demonstratable performance in terms of loss reduction.” Power generation by the utilities for the current year was targeted to increase by 7.2 per cent to 710 billion kWh. But going by the performance during the first nine months of the year, till December 2007, the actual generation was lower than the projected growth. The growth in all the three segments — thermal, hydro, and nuclear generation — slowed down this year. Consequently, the power deficit increased in terms of peak availability (14.8 per cent) and total availability (8.4 per cent). Power shortage, though widespread, was reported to be acute in the North East and in the western region.

Sources in the SEBs explain that the deficit widened more in the States that had built up gas or liquid fuel based power plants. Though they accounted for just over ten per cent of the total installed generation capacity in the country, they faced a major crisis because of the “highly inadequate” supply of gas, which was the primary fuel. Unless the Centre is able to plan and ensure the supply of gas or liquid fuel to these plants, there may be no case for going in for such power plants.

Thermal plants will remain the mainstay of the power generation sector, as the future of nuclear power has become a question mark, and hydro power has not been fully tapped.

During the current year, a target of 12,038 MW of capacity addition was planned. But till January 2008, only 7,263 MW was commissioned. Consequently, the capacity addition for the year is being scaled down to 10,821 MW, which is still considered a substantial increase when compared to the past. Of this, 8,015 MW came from thermal plants, 2,587 MW from hydroelectric and just 220 MW from nuclear power. Till now, private sector participation has been negligible. But Power Ministry sources and SEB authorities say that the interest from private sector participants “is picking up.” At the moment, ten projects with an installed capacity of 3,991 MW are under construction, and 67 other proposals to add 18,030 MW have been cleared by the State governments in the private sector.

In addition to the T and D losses, the Centre has taken up the major task of putting in place a national grid to facilitate the transfer of electricity from a power surplus to a power deficit region. When that project gets completed, it should be possible to prevent any major break down in a State, or plan for power sharing during the peak months. Transmission snags, such as those reported last week, should be a thing of the past.

A task force has been set up to focus on tapping hydro power. Headed by the Power Minister, the panel, which also comprises the Deputy Chairman of the Planning Commission and the Power Ministers of the States, will examine and resolve issues relating to hydro power project development — such as allocation of sites, clearances, environment and wildlife issues, compensation, land acquisition, rehabilitation and resettlement, and sharing of costs. Finance Minister P. Chidambaram said in his budget speech that an XI Plan target of 78,577 MW has been set, and going by the achievement in the first year — of over 10,000 MW — it should be possible to achieve the ambitious target.

One thing becomes clear, unless the infrastructure sector, especially power and water, meets the targets set, the country will find it difficult to sustain the high trajectory of growth that is envisaged.

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