Even as the Indian government draws up ambitious plans envisaging 100
GW capacity addition in the 12th Five-Year Plan period (2012-2017), the
country's power sector is facing multidimensional challenges. These
issues are constraining growth in the sector and may adversely impact economic
growth in the long term. The Confederation of Indian Industry says that unless
the issues plaguing the power sector are urgently addressed, the aspiration for
9 per cent growth in the 12th Plan may not be met.
Fuel availability has emerged as the biggest risk faced by thermal power
projects in India. Coal production has not kept pace with power capacity
addition in the current plan and developers
have been forced to import coal
at a time when international coal
prices have shot up. Lack of clarity on
financing this extra cost as well as
added transport costs for plants in the
interior have led to uncertainty and
reduced investments in Power.
"With coal-based capacity addition
expected to account for over 50 per
cent of total capacity additions in the
upcoming 12th Plan, the issue of
acute shortage of domestic coal in the
country and its impact on project economics
due to higher prices of imported
coal needs to be urgently
addressed. In addition, there would
also be financial stress on assets
already built or committed by many private sector players," says Anil Sardana,
Chairman, CII National Committee on Power, and Managing Director,
Tata Power Company Ltd. For instance, for the Mundra and Sasan ultra
mega power projects awarded by the government to Tata Power and
Reliance Power Ltd, the tariffs proposed by the firms while bidding for these
projects are no longer viable considering the higher cost of fuel.
There is an urgent need for comprehensive coal sector reforms, including
opening it up to competition, to increase investment in the power sector. More
coal bearing areas need to be opened up by stepping up exploration activity, the
CII said in a press release ahead of a key meeting between Prime Minister Dr.
Manmohan Singh and private players in the power sector. This would boost productivity,
increase scale and introduce competition, it said.
The other key issue confronting the power sector is the dismal financial
health of distribution utilities. These have accumulated financial losses
estimated at over
70,000 crore in 2010-11 which is projected to grow to
around
100,000 crore by 2014. The practice of cross-subsidising domestic
and agricultural consumers by higher tariffs for commercial and industrial
customers and railways has distorted balance sheets. In addition, lack
of tariff hikes and mounting aggregate technical and commercial losses too
have led to underutilisation of generation capacity.