Sunday, January 1, 2012

Discom crisis and Indian power sector

Power, in both of its meanings, is one of the most sought after thing in the history of humanity. The important thing associated with power is, it's always short in supply. India too is not an exception, however in this article we are considering the meaning - energy.

Current Production

According to the information from the Ministry of Power (GoI - Nov 2011) we are producing 1, 85,496.62MW of power. Thermal power dominates with 65.66% (Coal - 55.45%, Gas - 9.56%, Oil - .64%), Hydro power contributes 20.88%, and rest is contributed by Nuclear and Renewable Energy Resources. In terms if installed capacity, state sector contributes 45.07% (83,605.65MW), centre contributes 30.76% (57,072.63MW) and the private sector's share is 24.16% (44,818.34).[1] The irony is, we are losing a good percentage of this rare entity through Transmission and Distribution (T&D) loses. Even though the government is proposing schemes like Restructured Accelerated Power Development & Reform Programme (R-APDRP with an outlay of 51,577 crores INR) it is yet to see how far we will be able to reduce the T&D loses including thefts.

We never produced enough power - If I can borrow a line from KPMG report on 'Power Sector in India - Jan 2010'

'A short peek at our past performances indicate that during the last three five year plans (8th, 9th and 10th), we have barely managed to achieve half of the capacity addition that was planned. As we enter the third year of the 11th five year plan, we have already seen slippages on the planned approx. 79 GW capacity addition.'

This clearly indicates that, in many cases we restricted our needs according to the availability of power instead of doing it in the other way - increasing the availability according to our needs. I still remember the days when there was an official load shedding in Kerala - a sweetened English word for power cut - of 30 minutes in between 6.30 to 9.30 (a cyclic) in the night (unofficial power cuts are extra); people used to finish everything before the stipulated slot or postpone. This slot will advance by 30 minutes after each week.

How much improvement we made in this area? Are we able to supply electricity 24*7 to industry and households? Still we need to shut down the supply to villages to maintain the supply to the cities? According to the reports,

"The average per capita consumption of electricity in India is estimated to be 704 kWh during 2008-09. However, this is fairly low when compared to that of some of the developed and emerging nations such US (~15,000 kWh) and China (~1,800 kWh). The world average stands at 2,300 kWh...[2]"

Electricity Act - 2003 and Reforms

Electricity Act - 2003 tried to reform the sector. This provided non-discriminatory open access over intra-state transmission and distribution networks along with re-organization of Electricity Boards, splitting the boards to three separate - Generation, Transmission and Distribution - units and privatization of power distribution sector. Many states are yet to swallow the reforms.

Problems in privatizing power distribution sector are multiple. Even if government wanted to bring in efficiency and competition by privatization it may not be as easy as in the case of other sectors, say telecoms. In the case of Electricity, bringing down the price using increased competition form (and in between) private sector is more of a dream than a practical reality even though it can increase the efficiency. After all electricity is not a commodity like Santhoor, Lux or like mobile connections which can be produced and distributed easily - here the scale and complexity are totally different.

Moreover this capital intensive sector required long term investments. Increasing the price of electricity is another tedious task, governments will think thousand times before increasing the rates as it will affect their chances in election. When the companies are working as departments, governments could have gave crores of rupees as budgetary support - just like the amount flowing from Union Budget to Railways, but it’s not a easily workable solution in the case of companies.

Disom Crisis:

So we have a problem - in fact we have multiple problems, we are not producing enough electricity (including the contribution from Private sector), we are not able to transmit this electricity efficiently and we are not able to distribute it properly to the end users 24*7.

Now let us come to the case of two privatized discoms, BSES (Reliance Infra and Delhi Government) and TDP (TATA Delhi Power - Tata Power and Delhi Government) - companies currently distributing power to Delhi. The recent twist in the story is something like this - Power generation companies including NTPC, which supplies a considerable portion of power to BSES - give deadline to the company for clearing the dues after it reached close to 3000Cr. Regulator DERC gave notices to BSES on November 25 asking why its licenses should not be suspended for failing to clear huge dues to the generation companies. According to BS report "The BSES, responding to a notice of DERC last week, presented its financial position to the regulator and said it could raise a loan of Rs 5,000 crores from IDBI bank provided Delhi government gives an assistance of Rs 500 crore."[3]

Well in short words - bail out. If the dues are not paid it may lead to a blackout of 70% of Delhi - a possibility which Delhi government don’t want to see. So government finally agreed for an equity infusion of 500Cr, R-Infra will infuse another 520Cr - which will enable BSES to get a loan of 5000Cr from IDBI. Good solution, problem solved? Of course not. This 5000Cr is not free amount; it’s a loan which needs to be repaid with interest. Assume that 3000Cr will go to the generation companies, then only 2000Cr left which may go for operation expenses. Now if they are continuing with the same policies, there is no doubt that there will be a reply of the same with in some years if not in some months. Now, Delhi government is infusing money to BSES will other discoms sat ideally? After all they may also face pressure on their balance sheets. Well Tata Delhi Power (TDP) also asked for an equity infusion!!!

This may not be an isolated scenario - What is the case in state run discoms? Whether these companies are actually covering their expenses or filling the gap using the money coming from state exchequer?

Some suggestions to solve the problem

The core of power sector is power. First of all, we need to have a comprehensive solution for creating enough power a core high capacity generation centres supplemented with small and medium size centres. Core ring capacity should be more than that of Ultra Mega Power Plants (UMPP). Nuclear or Thermal power could be the ideal choices. In case of Nuclear power, not the 200-300MW reactors, but something in the range of 4-8GW complexes where each unit can produce close to 1000MWe. This capacity should be supplemented by Hydro, Gas fired, Renewable energy plants.

Hope that government's 51557 crores R-APDRP will find a solution for Transmission and Distribution sector. But still we need to find a solution for the management and profitability of discoms - they should be able to sustain themselves. For this to happen government need to come up with some innovative plans - copy pasting the so called PPP, BOT, BOET from NHAI etc may not be applicable to Private companies in this sector as it is.


[1]. Ministry of Power, Government of India
[2]. KPMG Report - 'Power Sector in India - Jan 2010' 
[3]. Reported By Business Standard

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