Procedural Delays Black Out Private Sector Interest In Power

India continues to suffer from a mismatch between target and achievement in the power sector in spite of priority in various plans.

This has prompted the World Bank to berate India's present strategy for power development as economically inefficient and probably not sustainable financially due to its focus on supply development.

The country faced a shortfall of 9.2 per cent in 1995-96 as against the requirement of 3,89,721 million units. The government proposes to add 2,868.5 MW capacity during 1996-97 to meet the power shortage. The 1991 power policy took into account the dire consequences of the power shortage on economic development and laid down a framework for attracting private investment in this sector. Apparently, the policy has not succeeded in attracting the desired investment.

 

However, private sector power majors need not be bothered by the World Bank's acerbic comments. The select five power majors managed to improve net return on net worth from 13 per cent in 1994-95 to 15.9 per cent in 1995-96.

Andhra Valley with 16.6 per cent (9.6 per cent ), Gujarat Industries with 22 per cent ( 25.8 per cent, Tata Hydro with 18.4 per cent ( 11 per cent) and Tata Power with 18.2 per cent (11.3 per cent ) have done well in 1995-96 in terms of net profit on net worth. The Tata Electric Cos (Tata Power, Andhra Valley and Tata Hydro) have improved their net profit on net worth to 17.7 per cent in 1995-96 from 10.7 per cent in the previous year.

In the year to March 1996, the eight select power companies registered a growth of 18.8 per cent in income from operations to Rs 5,936.8 crore (Rs 4,996.9 crore ). BSES and CESC exceeded the average growth rate, while Surat Electricity scraped through.

Operating profit of the companies rose to Rs 1,709.5 crore (Rs 1,105.4 crore) - up 54.7 per cent. BSES and Tata Electric Companies exceeded the average growth in operating profit. Gross profit increased by 68.4 per cent to Rs 1,300.6 crore (Rs 772.4 crore). All Tata Electric Companies exceeded the growth rate by a wide margin the case of gross profit. Net profit rose by 56.4 per cent to Rs 774.1 crore (Rs 495 crore).

BSES, CESC and Gujarat Industries Power could not manage to even notch up average growth in net profit, while Surat Electricity achieved a growth of 223.3 per cent.

In the year to March 1996, profit margins of the eight companies improved owing to efficiency of generating units, lower purchase of power, better fuel availability and reduction in cost.

Operating profit margin of the eight companies improved to 28.8 per cent (22.1 per cent), gross profit margin to 21.9 per cent (15.5 per cent ) and net profit margin to 13 per cent (9.9 per cent). In spite of a modest performance in growth of income from operations, operating profit , gross profit and net profit, Gujarat Industries Power showed commendable performance in profit margins.

The government has evolved a package of incentives to attract private sector participation in the power sector. A 16 per cent return on equity is assured for investment in the sector. The private sector can take up generation and also the distribution of the power generated.

Size is no bar and the maximum debt equity ratio of 4:1 is permitted. Foreign private investment, up to 100 per cent foreign equity, is also allowed. Even tax reliefs have been given to the private sector companies for both - generation and distribution. Further, the government has given fiscal sops in the 1996-97 Budget to promote the private sector's role.

Customs duty for project import benefit (basic 20% + additional 10%) to captive power plants of 5 MW or above, project import benefit (basic 20% + additional 10%) to power transmission projects of 66 KV and above, reduction in custom duty to 10 per cent on raw material/components for manufacture and supply of machinery and equipment to power generation plants other than captive power plants are some of the sops.

Extension of concessional rate of basic custom duty of 20% + additional duty to iron and steel products for modernisation and renovation of power generation plants, other than captive power plants is another sop given to the industry.

In a note on `Status and Future Strategies in Power Sector', the Ministry of Power observes that even though the country added about 14,137 MW of generating capacity in the sixth plan; 21,400 MW in the seventh plan; about 5,429 MW during the annual plans from 1990-92; and 18,108 MW in the eighth plan, the requirement in the ninth plan will still be very high.

It has been estimated that an investment of Rs 340,000 crore will be required in the power sector during the ninth five year plan (1997-2002) keeping the same ratio as that in the eighth plan which envisaged a capacity addition of 30,538 MW. According to projections made by the power ministry, there will be a peak demand of 104,641 MW and an energy requirement of 594,520 million units by the end of the ninth plan.

The private sector, including domestic and foreign, has taken keen interest in the power sector. According to the Ministry of Power (Annual Report 1995-96), 194 proposals for setting up power plants with total capacity of 75,296 MW have come from the private sector. An investment of approximately Rs 282,228 crore is under different stages of clearance. Out of 194 proposals, 52 proposals are from foreign private firms. Of these, 16 have been approved by the government. Construction work on the 1,000 MW Cogentrix Power project of Mangalore Power Company will begin by the year-end subject to the counter-guarantee from the Union finance ministry. Yet, the tempo of the private sector may not sustain if the procedural norms are not changed.

The Enron controversy is projected to be an example of the procedural delays. The project was started with an MoU signed by the then government and Enron in June 1992.

It was finally cleared in December 1993, environmental clearance given in February 1994 and counter-guarantee agreement in September 1994. The project is expected to be operational by May 1997.

The share of private sector in power generation was a measly 3.5 per cent in the 1990s as against 6 per cent in the 1980s.

Jiban K. Mukhopadhyay, an economist says: The national average cost of generating power is about Rs 1.61 per unit, but the average price charged is Rs 1.31. Thus, an average subsidy of 30 paise per unit is granted by the State Electricity Boards.

India's per capita consumption is around 299 kwh. The world average per capita consumption is around 1,000 kwh and that of the developed countries is 5,000 kwh.

The country may have to accelerate efforts in generating more power to meet the increasing need from industries and other sectors of the economy.

The power slippage's through transmission and distribution need to be curbed through constant monitoring.

There has been a geographical imbalance of power availability in India. The southern region had a shortfall of 23 per cent in April-May 1996, followed by the northern region with 14.1 per cent. The Centre has proposed to allocate Rs 7,107.79 crore for various projects and schemes in the central sector including external assistance.

The eastern region, for justifiable reasons, has come in for special consideration. No hydel power potential has so far been developed in Nagaland, which was assessed to have 1,040 MW of 60 per cent load factor. Arunachal Pradesh, which was assessed for 26,756 MW generation potential, the capacity developed was only 6.7 MW.

In Mizoram, only one MW has been developed so far. In Meghalaya, 121.67 MW was developed out of the assessed potential of 1,070 MW.

The World Bank has estimated losses of over $2 billion for India and indicated that unless strong measures are taken, the country would face a severe crisis and a drop in future investment.

The country may have to evolve and implement a realistic power policy to meet the growing needs for power if the target of seven per cent growth in GDP has to achieved in the near future.