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Power: What India wants? - Views on News from Equitymaster
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  • Sep 25, 2006

    Power: What India wants?

    At a recent power summit in New Delhi, which saw a congregation of dignitaries from industry associations, power companies and consultancies, the broad theme was related to the future of the sector in the country, including discussions about what needs to be done on the regulations and financing fronts. While all members seemed worried on the current state of the sector, which is characterised by a negative demand supply balance and fuel constraints, among other concerns, a growth path was charted out as to make the reforms process work in the better interests of the sector, and resolve the country's burgeoning power crisis.

    The summit was divided into five different themes, as mentioned hereunder:

    1. Future of regulation - relating to regulatory scenario of the future and ways to reduce conflicts between the government and electricity bodies with respect to the reform process

    2. Transmission expressway - relating to discussions on current state of the transmission infrastructure and ways to improve the same to world-class levels

    3. Power of money - concerning the investment and financing requirements for the growth of the sector over the next few years

    4. Distribution efficiencies - relating to current status of the electricity distribution segment, which is still mired by deep government regulations

    5. Power play - discussions on the power subsidies, government involvement in electricity business and tariffs and cross subsidies

    We shall study each theme one by one, through a series of articles spread over the next few days.

    As indicated above, while the summit was successful in charting out a better roadmap for the growth and development of the power sector in the country, which shall act as a booster dose for the Indian economy, the question that again arises is that whether these 'talks' will be put to 'real action' as we move forward.

    India is already plagued by high levels of power deficits (demand being almost 13% higher than supply in FY06) and huge transmission and distribution losses (T&D losses at nearly 30% in FY06). Also, with the reforms process not pacing ahead as was originally planned through the Electricity Act of 2003, we are surely in for tough times in the future. The sector is already on the verge of missing its tenth five-year plan (2002-07) generation capacity addition target. Further, with investments in the T&D and distribution segments still not as aggressive as required, the government and private sector power agencies need to do a lot more than required over the next few years. In addition, the regulatory approach to growth of the sector needs to gel well with the entire process.

    In order to meet the overall objective of 'Power for all' by 2012, the total investment required during the tenth and eleventh plan periods has been estimated at Rs 9,000 bn (around US$ 200 bn). These requirements are huge by any standards and considering the past track record of the government, we are most probably in for a negative surprise as years roll on. Hope we are proven wrong this time on!



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