Walk the talk

The government has to be more active when it comes to power generation projects

Rajesh Kalra Delhi

2006: Anil Ambani's Reliance Energy Ltd's (REL) attempt to set up a 12,000 MW power plant, the world's largest pithead coal-based power plant at a single location, in Orissa has run into unnecessary but expected problems. The eastern state realises that being power surplus, REL would have no option but to export all the power it generates. So, while REL makes profits, all that the state gets is pollution caused by the plant. Not surprisingly, the state is asking, what's in it for us?

For REL, the situation is tricky. It needs to be located in Orissa for that is where the plant's coal needs can be fed easily. In return, it is investing close to Rs 60,000 crore, which would offer direct benefits like employment for the state's locals, as also a host of other ancillary opportunities. The state government is however, reluctant to bend.
2001: Realising that River Yamuna, which provides water to the ever-thirsty Delhi, is reduced to less than a trickle during the lean months, the Delhi and the Himachal State governments decided that they should work on damming the river near lake Renuka. The idea being that this water could be released during the lean period. Once the idea gelled, it was mooted that since a dam would come up in any case, why not also have a hydel power project there, which too could be used to provide power to the national capital's never ending thirst for electricity.

But it is one thing to have grandiose plans, quite another getting down to brass tacks. The brinkmanship between the two state governments rapidly got out of hand and turned complicated. Who will invest in the power station? If both Delhi and Himachal were to invest, how much should their contribution be? What share of power should Himachal get? And so on. The discussion went on for a while, with Delhi demanding a sum from Himachal that the latter thought was way above what it should pay.

 Himachal's argument was that the lion's share of the benefit would accrue to Delhi, and since the state would take the burden of submergence too, it was impossible to accede to what Delhi wanted. Neither side budged. And finally the Himachal chief minister took a call: Who will use this water? Delhi! Who will use most of the power? Delhi! Whose area will get submerged? Himachal! Then why are we wasting our time? The result: Delhi frets and sweats and shamelessly draws the exhaustible ground water for its parched throats.

The two little snippets above are not to point fingers at the four protagonists — the three state governments and the corporate — but merely to give an idea of the ills plaguing an extremely critical infrastructure sector for the economy. At a time when the economy is galloping ahead at around eight per cent and the world is excited about India's potential and so on, the reluctance to see the writing on the wall when it comes to power is baffling.

It is common wisdom that for every single per cent growth in GDP, there should be a 0.6 per cent growth in power generation. But where do we stand? Since we cannot stop comparing ourselves with China for everything under the sun, it may not be a bad idea to see how we compare with the Dragon.

In 2004, China had installed capacity of 440,000 MW, almost four times that of India's 120,000 MW. And by 2005, our northern neighbour had added another 70,000 MW to reach 510,000 MW. Even if one looked at the annual capacity increase over the past 10 years, while China added on an average 22,000 MW per year, India was a laggard with a mere 3,650 MW added per year.

And one doesn't need to compare the sector's performance with China to deflate the feelgood balloon of the economy. Other figures are as telling. A look at the target versus achievement in the sector tells its own story. In the Seventh Plan (1980-85), while the target was just under 24,000 MW, the sector added an acceptable over 21,000 MW. In the Eighth Plan (1985-90), the target was raised to 30,000 MW while in reality we managed just about 17,000 MW. The trend of missing targets not only continued but worsened in the Ninth Plan (1997-2002). While the target was fixed at 40,000 MW, what was achieved was an abysmal 19,000 MW only, i.e. under 50 per cent of the target. The trend is even worse in the Tenth Plan (2002-07) with the target at over 40,000 MW and new power generation capacity estimated at a piffling under 15,000 MW.

If these figures don't dampen spirits, then there's more. India's per capita electricity consumption is among the lowest in the world at around 600 MW. The world average is almost 2,400 MW. Also, the cost of generating electricity in India is among the highest in the world (electricity price as a percentage of per capita GDP).

Is there a way out of this morass? There sure is. There is no dearth of people wanting to invest in the sector. But for that to happen, some of the cussed attitudes and bureaucratese afflicting us need to be shown the door. In fact, in more ways than one, the central government's attitude towards the states needs to change too.

In the REL—Orissa Government battle, for example, the latter wants that even though it's a coal-based project, the centre should build in some sort of incentive, as provided in hydel projects. In the incentive scheme for hydel projects, prospectively, the host state has access to 12.5 per cent of the power generated, free of cost. The state is free to do anything it wants to do with this power and generate revenues. Of course, it is not as simple as that either. There are issues of coal royalties involved. Would the Orissa government be willing to give it up? After all, the host state gets no water royalty if it's a hydel project. But it is not an issue that cannot be resolved with the
right resolve.

Eventually, it's the nation that benefits from power generation and hence the buck must stop with the central government and it needs to be more reasonable in its approach. If there is some incentive to be provided to the states, why should it be loath to do the needful? At the end of the day, in this tussle, if power generation is the casualty, it's the nation that loses.

It is time the central government adopts a pro-active approach. There are a host of projects that have remained on shelf far too long and need to be activated. The 14,000 MW hydel project on Siang in Arunachal Pradesh, for example, has been hanging fire far too long. The National Hydroelectric Power Corporation mandated project is supposed to come up in three phases of 11,000 MW, 1,000 MW and 2,000 MW. The detailed project report (DPR) of the 1000 MW project was ready two years ago; the one for the 2,000 MW is expected to be ready by May this year. As for the 11,000 MW project, preliminary studies have already established the hydrology and it is possible for the DPR to happen along with the preliminary infrastructure work. However, there are major issues with the state government and considerable mentoring is required to move ahead.

It is felt that once the state-centre bottlenecks are resolved, it is possible to have the 11,000 MW component commissioned fully by 2016. The benefits of commissioning it in time, avoiding huge time and cost overruns, are huge. At current prices, it is estimated that the opportunity cost of gross revenues from this project is Rs 14,000 crore/year, or Rs 40 crore per day. Certainly no amount of cussedness can justify sitting over a project with such clear benefits. In addition, the project is also expected to cut down the Brahamaputra annual floods by almost 30 per cent.

In any case, it makes sense to encourage hydel projects, once environmental issues have been accounted for. In terms of costs, there can be nothing better. The generating cost of Bhakra, for example, is just about six paise per unit, whereas, Dabhol costs almost rupees seven. And it is in hydel projects alone that the cost goes down progressively over a period, unlike coal and gas-based power, where fluctuation in input costs determine the cost.

The government has set a goal of Power for All by 2012. The first objective of this Mission 2012 is: "Sufficient Power to achieve GDP growth rate of eight per cent". It is a laudable aim, no doubt. But for it to translate into reality, some action is required, some mindsets need to be changed, and some attitudes need retuning. The policymakers have talked enough. The time has now come to Walk the Talk.