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India Power jinx - Views on News from Equitymaster
 
 
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  • Sep 4, 2000

    India Power jinx

    The roadblocks in the power sector reforms never seem to end. Initiated in 1991 by the then Narsimha Rao government with much hoopla and hopes, the reforms on many fronts have been, even slower than the ‘tortoise pace’.

    None of the planned deadlines for power generation have been achieved. Out of 7 Mega Power Projects (MPPs) of over 1,000 MW capacities, which received approval, only one has achieved financial closure. So much has been said about the financial health of the State Electricity Boards (SEBs). Everybody agrees that SEBs have always had to operate with the dice loaded against them. The government subsidised power tariffs for agriculture, which virtually meant that they were in loss from day one. No profits meant no development of infrastructure, no improvement in plant load factors (PLFs).

    But in the last year or so, as some sort of political stability was achieved in the country, the hopes were reborn, albeit on a reasonable level. The government showed proactive signs to put power projects on the fast track and corporatisation of SEBs was initiated (Orissa being the first state to do so). But all this was not without hiccups.

    The year 2000 began with the employees of the erstwhile Uttar Pradesh SEB revolting against the breaking of the board in three parts. Next it was Maharashtra’s turn. The SEB’s 90,000 employees went on strike on to protest against the restructuring of the board.

    Alstom and UK-based National Power pulled out of the 2,000 MW Pipavav project bidder’s list in Gujarat, apparently over the lack of adequate payment guarantees for tying up its revenue stream. Two other contenders-Siemens and PowerGen had recently backed out from the same project for similar reasons.

    The untimely demise of PR Kumaramangalam, India’s power minister is likely to bring the already slow power sector reforms to a standstill. In India, politics play a very important part in the power chessboard. Until a successor is installed quickly, the status quo is likely to continue.

    As per estimates, India’s has to generate an incremental 10,000 MW of electricity every year for the next 10 years to plug the demand-supply gap. More importantly it has to bring transmission and distribution (T&D) at par with power generation. India’s T&D to generation ratio stands at a dismal 0.3:1, as compared to an international benchmark of 1:1.

    Considering the roadblocks the sector faces, even die-hard optimists will say that India has a long, long way to go to achieve this. Meanwhile, the clock keeps ticking, project costs go up and India’s eternal wait for power continues.

     

     

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