Power shortage hits SMEs in Andhra

Fall in output, large-scale loss of employment feared

Acute power shortage in Andhra Pradesh is expected to severely impact the small and medium enterprises (SME) sector. The state government had recently issued orders for a two-days-a-week power cut, along with power cuts during peak hours, effective March 12.

Until a fortnight ago, the state was implementing a-day-a-week power cut.

“The manufacturing sector is in a turmoil due to an estimated shortage of 25 million units of power,” said Babu Rao, managing director of GSB Forge, which supplies auto components to original equipment manufacturers (OEMs) in Hyderabad. The current demand of the state is 240-250 million units.

 

With two-days-a-week power cut and a four-hour power cut every day, industries do not have ample supply for 68 hours of the 168 hours in a week. The weekend holiday means the industries remain idle for 92 hours a week.

Power shortage is the latest problem the industry is facing, after recession, drought, floods and Telangana agitations plagued it last year.

“The power crisis will be a disaster for SME sector. The manufacturing sector is the largest provider of blue collar jobs,” Rao said, adding that about four million people are employed in about 350,000 SMEs in the state. Massive loss of employment is feared, with the companies unable to put their machinery to optimum use.

The state has allowed the industries open access — companies can buy power from external sources. But, this will benefit only a fraction of companies, which can afford to spend more on power during summer, said Rao. Also, lack of dedicated feeders will be a barrier to some SMEs, which are willing to purchase power at a high price.

“The losses cannot be quantified,” Rao added, saying it will be unviable for companies to use generators, where the average cost would be about Rs 15 a unit.

On the other hand, OEMs will not be in a position to compensate for high costs incurred by suppliers.

Federation of Andhra Pradesh Chamber of Commerce and Industry Secretary-General, M V Rajeshwara Rao, said production in SME sector would decline 50 per cent. “The state has been caught unawares. It did not anticipate this increase in demand,” he said, adding the state had been purchasing power for 12 years now to meet summer demand.

The contribution of the manufacturing sector to gross domestic product, which is already low, will fall further, he pointed out.

Officials at state-owned power transmission company APTransco said it was in talks with small and big producers in the state in a bid to meet demand. The government, meanwhile, has prioritised on supplying power: To meet drinking water needs first, followed by agriculture and domestic customers and then to industrial customers.

Power generation companies like Navabharat reportedly agreed to supply 98 mega watt (Mw) to narrow the demand-supply gap, at Rs 4.5-4.8 a unit. However, the state government will have to compensate it for cancellation of agreements it made with other states. As a result, the unit cost could go up to Rs 5-6 a unit. Though Lanco produces 233 Mw, it is inclined to sell it to Tamil Nadu and Rajasthan, having already signed agreements with them.

Under the provisions of Electricity Act 2003 (Sec 11), the state government can issue guidelines to companies asking them to supply the entire power produced, to the state. However, the recent communication from the Centre, asking states to refrain from using the provisions of the Act, has limited the government's options.

The new load-shedding orders specify the cement and steel industries will face a seven-day power cut in a month, in one or two spells. The ferro alloys and chemical industries will get 70 per cent of their daily power requirement, while biotech, pharma and seed companies will get 50 per cent. Power supply to spinning mills and textile units will also be controlled.

“With demand peeking and shortage in cement production, there will be a hike in cement prices in the days to come,” said a representative of a cement company.

When contacted, industries principal secretary B Sam Bob said the state government was trying to minimise the damage due to power shortage. It was also studying the Tamil Nadu model — where the state government supplies power at a higher cost to those willing to pay — to overcome the crisis this summer.