Thermal power generation: Key issues in India

Electric power is the key to the economic development of the country. India currently has a peak demand shortage of around 14% and an energy deficit of 8.4%. Keeping this in view and to maintain a GDP (gross domestic product) growth of 8% to 10%, the Government of India has very prudently set a target of 215 804 MW power generation capacity by March 2012 from the present level of 100 010 MW as on March 2001, that is a capacity addition of 115 794 MW in the next 11 years (Table 1). Table 1 India?s perspective plan for electric power for zero deficit power by 2011/12 (power on demand) Thermal (Coal) (MW) Gas/LNG/Diesel (MW) Nuclear (MW) Hydro(MW) Total Installed capacity as on March 2001 61157 Gas : 10153 Diesel: 864 2720 25116 100010 Additional capacity (2001-2012) 53333 20408 9380 32673 115794 Total capacity as on March 2012 114 490 (53.0%) 31425 (14.6%) 12100 (5.6%) 57 789 (26.8%) 215804 Source: Tenth and Eleventh Five-Year Plan projections This will definitely bring in zero deficit in power by 2011/12, and the country will be able to provide power on demand. The thermal power generation addition in the above plan is 53333 MW. Considering an investment need of Rs 45 million/MW for generation and about 1.3 times this cost for T&D (transmission and distribution), the total funds required for generation and distribution of thermal power alone will be Rs 5520000 million. The additional coal requirement for this capacity requirement by 2012 will be 263 million tonnes (considering 2500 kCal/kWh, 90% PLF (plant load factor) and 4000 kCal/kg coal). The capital cost required for mining this much coal is Rs 263000 million (considering Rs 1000/tonne). Even if we exclude the funds requirement of Railways for upgrading their tracks and facilities to cater to the needs of additional coal movement, the total funds requirement in the next 10 years will be approximately Rs 5783000 million. The main issue is?where are the plans for setting up these 53000 MW in the next ten years? The only plan we see is the expansion programme of the NTPC (National Thermal Power Corporation) for about 21000 MW in the next ten years. They have also stated that if the CERC (Central Electricity Regulatory Commission) formula is adopted for calculating the tariff, their internal funds generation will come down and they will have to prune down their plan to 12 000 MW. Even if we presume that the NTPC?s original plan of 21 000 MW will become true, where is the plan for the balance 32 000 MW? Among the electricity boards? initiatives, we hear of only a 660 MW unit at Vijayawada by APGENCO (Andhra Pradesh Power Generation Corporation). Apparently, the country is to depend upon the IPPs (independent power producers) for this thermal power generation capacity of 32 000 MW. Whether it can happen is the question in everybody?s mind, especially in view of the ongoing dispute between the Enron Corporation and the MSEB (Maharashtra State Electricity Board) on supplies from Phase I of the Dabhol power project. Enron is threatening to walk out of the Indian power sector using the political force majeure clause. It has already given a pre-termination notice. The work on Phase II of the project has come to a standstill. The financial institutions have stopped releasing funds; so Bechtel Corporation ? the EPC contractor ? has stopped further construction work. The power investors have become even more skittish than they already were. Even the domestic corporate sector is becoming sceptical about future investments in the power sector. Mr Anil Ambani, Managing Director of Reliance, has said, ?After what is happening to Enron, I don?t believe a single power project will get financed in the international market.? (Financial Express, 19 March 2001). The political heat is also rising. In a speech in January 2001 in Mumbai, US Ambassador, Richard Celeste said that the Enron project was ?tottering on the edge of disappointment? and the political accusations against Enron, and the efforts to renegotiate the contract ?add fuel to those who argue that their dollars are safer in China or Malaysia than they are in India?. The progress of the private power sector projects is also dismally slow. Table 2 gives an overview of major projects being planned; some of these were sanctioned in 1992. Table 2: Overview of major projects Project State Main investors Status Visakhapatnam (Thermal) Andhra Pradesh Hinduja Group (India), National Power (UK) Counter guarantee issued, financial closure not yet achieved Neyveli (Thermal) Tamil Nadu CMS Energy (US) Construction started Mangalore (Thermal) Karnataka China Light andPower (Hong Kong) Counter guarantee not issued; financial closure not yet achieved Bhadrawati (Thermal) Maharashtra Ispat Group (UK/India) Counter guarantee not issued; financial closure not yet achieved Ib valley (Thermal) Orissa AES (US) Counter guarantee not issued; financial closure not yet achieved Jegurupadu (Combined cycle) Andhra Pradesh GVK Industries (US) Fully commisioned Godavari (Combined cycle) Andhra Pradesh Spectrum (US) Fully commisioned Dabhol (Combined cycle) Maharashtra Enron (US) First phase, commissioned; second under construction Patalganga Maharashtra Reliance (India) MERC scraped PPA between MSEB and BRPL Source Financial Express, 19 March 2001 Similarly, the future of other projects like Ispat?s 1082 MW at Bhadrawati, Videocon?s 1050 MW at Chennai, SAIL-NTPC?s 524 MW at Bhilai, and Daewoo?s 1070 MW at Chhattisgarh, is still undecided. A recent survey conducted by the CMIE (Centre for Monitoring the Indian Economy) has concluded that the energy sector in India is in for rough times as investments in the area are declining rapidly, and there are no fresh investment proposals at all (Economic Times, 16 May 2001). In view of these circumstances, the issue is how the country is going to achieve its set targets. The only solution to this problem lies in reforming the SEBs (state electricity boards). The Finance Minister in his budget speech of 28 February 2001 has pointed out, ?Actual commercial losses of all SEBs combined are estimated to be about Rs 240 000 million. Hidden in these loss figures are extremely high T&D losses. The total dues owed to central government utilities by SEBs and others amount to Rs 250 000 million?. He further said that if these resources were made available, the country would have no difficulty in investing adequately in power sector expansion to the benefit of all. The theft of electricity must be stopped and economic tariffs levied. The most vital element of the reform process is thus the restoration of the financial viability of the SEBs. The only silver lining we all see in the plethora of issues of power sector is the sincere effort being made by the Government of India at solving various issues. The following give some indication of the nature of this effort. MoUs (Memorandum of Understandings) with state governments for restructuring the SEBs and a time-bound programme for 100% metering, energy audit, reduction/elimination of power thefts, tariff determination by SERCs (state electricity regulatory commissions) and compliance thereof, commercialization of distribution, etc. Some states have responded. The Expert Group of the Government of India has already given its recommendation on modalities for reimbursement of the SEBs dues. The Electricity Bill is being put up for the monsoon session of the Parliament. The spending plan for 8000 MW over the next two years announced by the Finance Minister. De-licensing of power generation for all ratings of the plant with the Central Electricity Authority giving only technical clearance, and the SERCs and the State Government taking the remaining decisions. Over and above these initiatives, the IBRD (International Bank for Reconstruction and Development) and the ADB (Asian Development Bank) have shown their keenness for funding power sector reform schemes. The Power Finance Corporation has taken a decision to fund the Patalganga project of the Reliance. The prospects for the financial closure of the Mangalore Power project have recently brightened. Everybody?s intentions are noble and look to the welfare of the power sector. Let us keep our fingers crossed and hope that the country will be able to resolve all issues, as we go along, to achieve our target of power on demand by 2012.