Privatisation blues affect power scenario - Views on News from Equitymaster

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Privatisation blues affect power scenario

Sep 30, 1999

News reports reveal that failure to privatise the power sector has put a question mark over country's Ninth five-year power development plan. Power shortages are likely to exceed the estimates made earlier. For the Ninth five-year plan ending March 2002, it has become clear that the capacity addition to the installed generation capacity in the country will fall short by about one-third of the planned 40,250 MW. Capacity addition is expected to be in the region of only 70% of the target (28,175 MW). And, to analysts, even that seems very optimistic, as they expect the demand and supply gap to widen even further in remaining half of the Ninth five-year plan.

Only about 7,500 MW capacity could be added in the first two years (FY98-FY99) of the Ninth five-year plan. In FY99, while the projected capacity was 3,299 MW, actual additions were only 1,556 MW - a shortfall of 53%. The shortfall is attributed to the slow pace of the private power development process.

Several independent power projects (IPPs) in the private sector have failed to take off due to financial closure problems and legal obstacles. Several projects have got the requisite clearances from the Central Electricity Authority (CEA) but haven't got the necessary backing from financial institutions (FIs). FIs have been reluctant to lend funds to the power projects largely due to the poor financial health of the State Electricity Boards (SEBs).

SEBs have to buy power from private power companies, while they don't have the money to pay for it. So the IPPS blame the FIs and the FIs blame the SEBs, and this has affected the power situation in the country adversely.

India's ambitions of clocking 6% Gross Domestic Output (GDP) growth, could be upset by the gloomy power scenario in the country. Given the upturn in industrial production, private sector power generation has to pick up significantly. If the demand-supply gap widens further, investors will be reluctant to invest in new plants in the country and India may find herself losing out to China, Malaysia and Korea in the race for foreign investment.

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