Fuel shortage renders Rs 1 lakh cr useless in Power sector

Over Rs 1 lakh crore of investment in the power sector is stuck, as 25,000 MW of thermal power capacity is stranded due to non-availability of coal and gas linkages, which may hamper energy generation capacity addition in the country, says a report.

"The issue of adequate coal linkage to power projects has assumed critical importance as nearly 25,000 MW of thermal power capacity is presently stranded. This implies a locking up of Rs 100,000 crore in stalled power projects," a report by industry body Ficci said.

Most critical challenges being faced by the power sector today are domestic fuel shortages and financially precarious condition of distribution utilities.

The Ministry of Power had set a target of adding 78,000 MW of power during the current Plan period (2007-12) but was curtailed to 62,000 MW by the Planning Commission due to various factors like fuel shortage, environment clearances and land acquisition problems.

The report observed that the capacity addition in the 12th Plan (2012-17) also runs the risk of getting derailed because of unctain fuel availability and volatile international process of coal, unless immediate reforms are undertaken to augment domestic coal supply.

To tide over the problem, the report suggested a few remedies, which includes allowing captive mines to sell surplus coal at market prices which will incentives additional production and full-scale commercial mining at market prices through amendment in the MMDR Act Mines and Minerals (Development and Regulation) Act.

The government has set a target of adding 1,00,00 MW capacity in the 12th Plan period, however, the sector needs to respond quickly and definitively to the challenges, the report said.

Private power utilities are expected to an important role in the capacity addition plan for the 12th plan period.

"It is heartening to note that the 12th Plan envisions about 50 per cent share from private sector in capacity addition," Rajiv Kumar, Secretary General, Ficci, said.

However, unless fuel sector reforms keep pace with power sector reforms, India�s growth story could be jeopardised, the report added.

The coal sector needs to provide an environment conducive to private sector participation which can possibly bring new technology and increase process efficiency.

The coal sector is facing issues like land acquisition and environmental clearances. There are transportation bottlenecks in evacuation of coal from key mining areas to demand centers, it said.

Coal India and its subsidiaries will not be able to meet the increasing coal requirement of power sector during the 12th plan. The shortage in domestic coal production has led to a sharp increase in the imported coal, the report added.

The financial health of distribution sector is the key area of concern in the electricity delivery chain. The aggregate financial losses of distribution utilities have increased rapidly with reported cumulative losses of Rs 70,000 crore in FY11.

Immediate steps need to be taken to move towards commercially operating utilities and a competitive domestic fuel market, the report said.