Supply interruption

Power supply could worsen in the near term

The early onset of summer in several parts of the country and the ongoing economic recovery from the pandemic-induced disruption have again exposed the inadequacies of the Indian power sector. Several states are reporting power shortages. The Union government this week took steps to address the situation. It allowed “tolling” to optimally utilise coal linkages because it is easier to transmit electricity compared to transporting coal to far-off locations. The government has also urged power generators to import coal for blending up to 10 per cent in order to ensure adequate stock of coal and an uninterrupted supply of power. These are clearly steps to contain the damage and reflect poor planning, and the inability of the system to efficiently anticipate demand. The power situation is likely to worsen in the coming weeks and months as the pre-summer coal inventory with utilities is reported to be at a nine-year low.
 

The problem at the moment appears to be related to transportation. As this newspaper reported earlier this week, the availability of freight wagons is affecting the coal supply. According to Coal India, it offered an additional 11.16 million tonnes of coal, but only about 57 per cent of that has been lifted. If the supply constraint is not addressed quickly, the power situation could worsen during the monsoon when coal supply usually gets affected. Several states, including Andhra Pradesh, Tamil Nadu, Maharashtra, Madhya Pradesh, Punjab, and Haryana, are likely to get affected because of power outages. Power shortage is the last thing India needs at this stage, as it will weaken the economic recovery. It will affect output in almost all sectors of the economy. Power shortage would, however, affect small and medium businesses disproportionately. Higher cost of power because of lower supply or alternative sources of energy would squeeze margins further in the given inflationary backdrop. It is thus important for the power ministry to coordinate with concerned departments to ensure an adequate supply of coal.

Aside from the immediate demand-supply problem, other pending issues must also be addressed urgently to ensure the longer-term sustainability of the sector. According to the latest data, the dues of distribution companies to power generators have increased to Rs 1.25 trillion compared to Rs 1.05 trillion in April 2020. Some of the states have witnessed a significant increase. Madhya Pradesh, for instance, saw a 760 per cent increase, while the dues for states such as Gujarat and Bihar went up by over 200 per cent during this period. This is clearly not a sustainable position. A delay in payment affects the cash flow for power generators and creates inefficiencies in the system. Generators would want to pass on the additional cost of financing to power buyers, which will push up prices for the end-user.

Attempts to reform the distribution sector by the Union government have not progressed as desired despite various schemes over the years. The inability of the states and their distribution companies to properly price power is the root of the problem. The situation can actually worsen with some states offering free power to consumers. The issue of power pricing, therefore, needs to be addressed and states must be persuaded to extend subsidies in a transparent manner. Transparent pricing and timely payment will encourage generators to increase production and ensure an uninterrupted supply of power.