Power to the people

The slow pace of distribution reforms and major shortfalls in generation capacity targets in the power sector are clear signals for further reforms to attract larger private sector investments

BK Chaturvedi Delhi

India's growth and arrival on the world stage has been substantial in the last 60 years. However, there is the 'other' India that has to be fully catered for if growth process is to have a meaning. The power strategy for the 11th Plan, whose approach paper highlights 'Towards Faster and more Inclusive Growth', has laid emphasis on the meaninglessness of India's economic growth, if a large section of its population cannot partake in it.

Power is today recognised as a 'merit' good. In the power policy announced by the government, the following issues have been specifically mentioned:

• Availability of electricity for all house-holds in next five years;
• Power demand to be fully met by 2012.
• Energy and peaking shortages to be overcome and adequate spinning reserve (at least five per cent) to be available;
• Per capita availability of electricity to be increased to over 1,000 units by 2012;
• Minimum consumption of one unit per household per day as a merit good by year 2012.

Availability of power is perceived as an important but basic requirement of citizens' life. There is a quick need for providing electricity for certain minimum hours for lighting in rural areas for all segments of population, particularly the poorest and those living below the poverty line. As part of this exercise, the Rajiv Gandhi Gramin Vidutikaran Yojana (RGGVY) was evolved. The scheme plans to provide electricity to all below poverty line (BPL) families who do not have it. It has also been proposed to connect around 1,50,000 hitherto unconnected villages. A more realistic definition of electrification of the villages has also been envisaged under the policy. This includes electrification of at least 10 per cent of the households along with the panchayat ghar, school, post office and other community buildings.

In urban areas, there are large losses due to theft, poor power infrastructure, lack of servicing of transformers and other electric equipments, and the lack of accountability. This can be rectified once the problems are identified in each segment and appropriate investment plans are chalked out. Setting up Franchise' that can exercise close supervision over the distribution network and collect dues, and fast-track courts that can punish the guilty immediately after they are brought to notice, can help control distribution losses. Distribution losses can go down, in addition, by other measures too, including High Voltage Distribution Supply (HUDS), replacing overhead wires with underground cables that give less scope for thefts, and appointment of franchise' for difficult selected pockets. Most important of all these, however, is the metering of the consumers and replacement of ordinary meters with electronic meters, so that a standard base line exists. Delhi has reportedly brought down losses by around 16-17 per cent.

Electricity consumption in India is one of the lowest among the developing countries. According to existing data, the per capita electricity consumption in 2003 was 553 KWH, only 40 per cent that of China (1379 KWH), and less than five per cent that of USA.

The growing Indian economy has offered major challenges for the infrastructure sector. Planning for a 9-10 per cent growth requires great investments in the power sector to meet existing shortages. It is estimated that $150 to $200 billion may be needed to be invested in the next five years to meet these growing requirements. Studies done recently for estimating requirements of power indicated an additional capacity requirement of between 70,800 MW to 1,07,500 MW in the next five years, depending on the assumptions made on GDP/electricity elasticity, and the growth rates projected. A working group had recommended a capacity addition of 82,200 MW, based on a scenario of nine per cent GDP growth and eight per cent elasticity. The Approach Paper to the 11th Five Year Plan indicates a 10 per cent growth rate by the end of the Plan, and an overall growth rate of nine per cent, including 10.5 per cent growth in industry, 9.9 per cent in services and 4.1 per cent in agriculture.

The slow pace of distribution reforms and major shortfalls in generation capacity targets in the power sector are clear signals for further reforms to attract larger private sector investments, a major step-up in public sector generation capacities and a strong monitoring system. Several of these changes will have to be made in a very short time of six to nine months so as to impact on the 11th Plan. Power projects have long gestation periods and a minimum of three-four years is required to complete construction work on thermal plants. Projects that are planned beyond this period will fructify only in the initial part of the 12th Five Year Plan. Of the projects in the pipeline, nearly 50,000 MW are under construction. The task, therefore, is to start working on the remaining 30,000 MW, place orders for its plant and machinery, tie-up fuel linkages and complete other requirements.

With the availability of transmission access to private players, the potential for private sector investment has already increased. State utilities are, however, still reluctant to permit this. There are some genuine problems of inadequate transmission capacities, too. The concept of merchant power plants, which is part of the new strategy, will also help additional capacities in the private sector. Unless private sector participation is further facilitated and encouraged, the investment targets proposed may not fructify.

There is a major challenge to Bharat Heavy Electricals Limited (BHEL) for the delivery of plants and machinery. In the past, it had capacity of delivering 5,000 MW per annum. It is already expanding its capacity to 10,000 MW shortly and then plans to increase it to 15,000 MW and go up to 20,000 MW in the coming years. This expansion must be done quickly irrespective of the orders it gets.

BHEL is the largest manufacturer of these plants in the country and almost a monopoly supplier to the public sector units. Requirements of the fast growing economy imply that in the 12th, 13th and 14th Five Year Plans there will be a substantial augmentation in capacities of power generation in the country at growing levels. With such large expansions, the business for the power plant manufacturing companies is going to be huge.

Fuel supplies are critical for this expansion. Coal linkages have to be tied-up for all thermal plants. In the gas sector, existing plants are running at 60 per cent capacity. However, the gas from Krishna Godavari Basins find of Reliance, which may be 40mmscmd or much more, would be available from 2008-09. This, along with the expansion in capacities of LNG plants, would increase the availability of gas.

A number of ultra-mega power plants have been planned recently. Of these, work on several may start in the next 12 to 24 months. Given that the commissioning period for these is 69 months, most of them will come up in the 12th Five Year Plan. The challenge in the coming months, therefore, would be to start work, place order for plant and machinery and tie up the fuel and other supporting structures in the next six-nine months.

The challenge of generation, quite often, reflects only a partial picture. This sector is igniting public debate and is extensively discussed. A major task, however, is to expand transmission and distribution capacities in the coming years. When the reforms started in the 1990s, generation had been taken up as an important starting point. Unbundling of state utilities was considered important and since then, a number of these utilities have been separated. Today, however, it is being realised that the key factor is the distribution network. Unless the network is strengthened, and money spent on generating electricity is not recovered, line losses cannot go down, and the utilities cannot run profitably. It has to be appreciated that no business can run where 40 per cent of its product goes waste. Unfortunately, in the power sector 35-40 per cent of the electricity generated is not utilised and is debited to AT&C losses.

The writer is former Union Cabinet Secretary, currently Member, Planning Commission. Views expressed belong to the author.