Power gains

Recent improvements can be sustained through more reforms

India’s power sector, which was in all kinds of trouble until a few years ago, is showing signs of revival. After setting up 20,500 megawatts of new generating capacity in 2011-12, the power sector is set to add 17,500 MW this financial year. To understand its significance, it is important to note that the country added only 20,000 MW of new capacity in the whole of the Ninth Plan and repeated this dismal performance in the Tenth Plan, which ended in March 2007. In the Eleventh Plan, which ended last year, the new power capacity added was 55,000 MW, a record — but that was largely because of the spillover of projects with a total capacity of 21,000 MW that were started in the previous Plan. In other words, the real recovery in the pace of power capacity creation happened in the last couple of years of the Eleventh Plan.

The good news is that that pace has been maintained and is likely to even quicken, going by the 71 per cent increase in the capital expenditure of top power sector companies in the first three quarters of the current financial year. Coal supplies, uncertainty around which had posed a threat to power generation, have also improved by 11 per cent so far this year, compared to near-stagnant growth in the same period last year. This was possible because the movement of coal rakes by the Indian Railways went up by 10 per cent, bringing down the number of power stations running with a critical level of coal stocks (enough to sustain operation for less than a week) to 35, from 44 a year ago. The proof of the pudding is in the eating. Power generation, too, went up by nine per cent in the April-December 2012 period, compared to an average annual increase of six per cent in the Eleventh Plan period, largely because of the increased capacity addition and improved coal availability in the last one year.

However, the power sector’s woes may not be entirely over. Coal production in the first three quarters of this financial year has gone up by only six per cent, but supplies to power utilities could go up by 11 per cent mainly because of Coal India’s ability to liquidate its pithead stocks with better co-ordination with the Indian Railways. How long Coal India, the country’s monopoly coal producer, can sustain the growth in supplies to the power utilities is anybody’s guess. Only about 85 per cent of the coal requirement for 60,000 MW of new capacity to be commissioned by 2017 can be met by Coal India’s supplies. The rest of the requirements have to be met through imports. The government’s policy on pooling the prices of imported and domestic coal is fraught with many problems, penalising those projects that had tied up their coal linkages with domestic suppliers and bailing out those who took the risk of tying their power projects to imported coal. The gains from the recent surge in investments in the power sector – largely fuelled by private sector initiatives – can be sustained, at least in the short term, if the government can persuade Coal India to produce more to meet the rapidly rising demand for coal and the power plants are encouraged to raise their capacity utilisation from the current level of around 74 per cent. The long-term solution, of course, would be to end Coal India’s monopoly in the coal sector and expedite reforms at the power distribution end.