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Let there be more light

Business line, New Delhi,  24 November 2013

If the hurdles before it are removed, India’s power sector can become a game-changer for economic growth. It can drive up manufacturing, attract investments and, of course, create more jobs. Unfortunately, the reality is quite different, says Siddhartha P. Saikia

 

For 600 million people, July 31, 2012, was a day to remember. That was when almost three quarters of the country had no electricity. The Northern, Eastern and North-Eastern power grids collapsed as power-generating stations, hit by a sudden surge in demand, tripped one after another.

 

For consumers on the Northern grid, which had collapsed the previous day itself because of “overdrawing” by some states, it turned out to be a second consecutive day without power.

 

Catastrophic as that outage was — the blackout was the largest simultaneous outage recordedanywhere in the world — it is not as if millions of their fellow countrymen are unaware of how life is without power. It is, after all, the daily reality for almost 10 million households, which are yet to have any kind of access to electricity.

 

According to the Census data for 2011, almost one-third of India had no access to electricity and just over half of rural India used electricity as the main source of lighting. In urban India, with some exceptions in the major metros, controlled blackouts (euphemistically called ‘load shedding’) and unplanned ‘brownouts’, when voltage drops below usable levels, are a daily occurrence.

Huge deficit

 

India’s demand-supply gap in power has reached catastrophic proportions. And worryingly, little is being done about it. India added 58,000 MW of power generation capacity during the 11th Plan period against the original target of 78,000 MW. The 12th Plan has a more ambitious target — 100,000 MW in five years.

 

According to a Booz & Co report for FICCI, an additional 90,000 circuit kilometres (CKM) of 765-220 kV lines, 154,000 MVA of substation capacity and 27,350 MW of national grid capacity is required to meet the 12th Five Year Plan target.

 

But a combination of circumstances and the failure to resolve pressing policy issues has led to most new projects getting stalled. Almost 30,000 MW of projects, involving investments of over Rs 1.5 lakh crore, are held up because of environmental clearances. In gas-based power, over 9,000 MW of capacity is idling either for want of cheap, domestically produced gas, or want of buyers for expensive power using imported gas.

 

“The 30,000 MW represent Central-level clearance alone. The number could be somewhat more if we consider those that are at initial stages of clearance at the District or State level,” said Dipankar Ghosh, Partner (climate change and sustainability services) at EY.

 

India’s ambitious nuclear power generation plans, fired by the Indo-US nuclear deal, have run aground on fierce opposition from the ground, where new plants were proposed to be set up. And this year’s catastrophic floods in Uttarakhand have forced a rethink on the environmental impact of hydro power.

Achievable target

 

In a report on the energy sector, industry lobby FICCI said: “The XII plan target is definitely achievable; however, the sector needs to respond quickly and definitively to a number of new challenges that have emerged lately.

 

“These challenges continue to be both soft linked to policy as well as hard linked to project implementation. Some of the challenges can be resolved over time; however a few critical challenges like domestic fuel shortages, strengthening of the transmission system, financially precarious condition of distribution utilities and the issues around competitive power procurement process need to be immediately addressed.”

 

That, however, doesn’t look like it will happen anytime soon. And with scandals erupting over the issue of allocation of natural resources to private companies, even projects that have been allocated resources on paper are yet to actually get them.

 

Take, for instance, the Mahan captive coal block at Singrauli in Madhya Pradesh. It was awarded on April 12, 2006, to a joint venture between Essar Power and Hindalco Industries for captive use for their planned 1,200 MW and 900 MW projects. Seven years later, the mine is still not operational.

 

The reason: the mine was offered environmental clearance on December 23, 2008. But in January-February 2010, the Ministry of Environment and Forests found that the block lies in a ‘no-go area,’ which means mining cannot be allowed.

Long process

 

The primary reason for delays is the lengthy process. Clearances starts at the district level, go to the State and finally, the Centre. A power sector official told Business Line that when mandatory reports such as environment impact assessments are submitted at the district forest office level, the files pass through several layers before being sent to the State Secretariat.

 

In case there is a query from the Secretariat, the files come back through all the layers and the whole process has to be repeated.

 

There are no pre-screening criteria for proposals taken up by the Forest Appraisal Committee of the Ministry of Environment and Forests. If the Committee requires more information, the proposal needs to be put up again.

 

“In most developed countries, the requirements are, in fact, more stringent and take time (2-3 years). But the processes are clearer and the timelines are better maintained; and so investors have more comfort,” says Kameswara Rao, Leader (energy utilities and mining) at PricewaterhouseCoopers (PwC).

 

India’s environmental legislation is fairly mature. What is needed is the reform of the implementation process and bureaucracy, say several power project developers, who did not wish to be identified.

 

The solution, they agree, needs efforts from both sides. On the one hand, project developers must acknowledge their responsibility to produce credible environmental assessment documents, and on the other, the Government must ensure an objective and speedy decision process.

Some movement

 

The silver lining is that the Prime Minister’s Project Monitoring Group has given priority to troubled projects in the sector. Recently it resolved issues on 94 projects involving investments of over Rs 3.80 lakh crore.

 

The Power Ministry has taken several steps to make policies on green clearances transparent and fast. It is seeking Cabinet approval to treat Ultra Mega Power Projects as Government undertakings when it comes to land acquisition. This means it will not be mandatory for the project developer to provide non-forest land to compensate the loss of forest land acquired for a power station. The developer can deposit the cost of the land with the State. Currently, this benefit is open only for to the Central Government or PSUs.

 

“We want to make a policy change to prevent such problems, which delay the ultra mega projects,” says Pradeep Kumar Sinha, Secretary at the Ministry of Power.

 

Recently, Minister of State for Power Jyotiraditya Scindia said that he had held discussions with his MoEF counterpart Jayanthi Natarajan to clear roadblocks. According to Scindia, these talks have resulted in steps such as clear delineation of Environment Appraisal Committee and Forest Advisory Committee processes to avoid overlaps.

Weak Transmission

 

However, other challenges and issues remain. The critical area of power transmission, for instance, has been largely ignored by policy makers.

 

While power generation capacity increased by around 50 per cent in the 11th Plan, and is expected to clock a similar increase during the 12th Plan, transmission capacity is estimated to increase only by around 30 per cent, putting further pressure on already creaky infrastructure.

 

According to the Booz & Co report for FICCI, an investment of $35 billion has been planned in the power transmission sector, almost half of which is expected to be made by private players.

 

However, investors complain of the same problems that dog the generation sector. “As many as 120 transmission projects have faced delays because of the developer’s inability to acquire land and get timely clearances from all stakeholders. There have been instances of transmission lines being forced to take a different route than planned, resulting in the entire project budget going out of control,” the Booz report pointed out.

 

Unless these issues are sorted out, India could face more outages like the one last July.