India Running Short of Power
There are signs that India’s extensive power sector plans could be derailed unless urgent action is taken to redress problems ranging from low tariffs, farmers’ opposition to land acquisition, stiff environment regulations, an insufficient supply of domestic coal and the rising price of imported coal.
In a clear warning that all is not right, private major Tata Group Chairman Ratan Tata recently said that Tata Power is looking for growth opportunities overseas due to the difficulties being faced in the domestic arena. “The government needs to look at the power sector with a tremendous sense of priority, more so if it wants to meet its plans and growth targets,” Tata said.
India is seeking to add 100,000MW of additional electricity capacity between 2012 and1017, nearly doubling its current capacity, and needs investment of over US$400 billion to do so. Present power capacity is 170,000MW.
Coal import dependence meanwhile is estimated to more than double in next five years from 125 million tons at present because of the inability of state monopoly Coal India Limited to plug the rising demand-supply gap. In a recent assessment the Anglo-Australian mining firm Rio Tinto said that India's coal imports could touch about 200 million tons over the next few years.
Ranan Tata’s concerns have been echoed by other power firms. The Anil Ambani Group firm Reliance Power has halted work on its 4,000 MW Krishnapatnam ultra-mega power project (UMPP) due to coal policy changes in Indonesia that will impact import price.
CEO J P Chalasani said: “the issue is that we don't have sufficient (domestic) coal today and we won't have it tomorrow. So we will have to supplement it with imported coal which is going to be more expensive.”
R-Power’s proposed 4,000 MW power project in Maharashtra is also stuck because of the inability of the state government to complete land acquisition within the agreed time frame.
Tata Power, meanwhile, has sought a review of electricity city tariff prices from the government.
Indications are that Indian power firms have already slowed implementation of new capacity. A recent survey by the Association of Power Producers and Mercados Energy Markets said thermal power capacity of 38,748 MW has been affected by the lack of coal.
The survey shows that about 21,300 MW including projects by major suppliers such as Lanco and Adani have cut capacity or are idle due to insufficient coal or lack of clearance to mine.
A further 14,200 MW that relies on imported coal has been impacted as supplier countries such as Indonesia have raised prices. Essar's Salaya project, Tata Power's Mundra and Reliance Power's Krishnapatnam have been negatively affected, with projected returns to investment dipping significantly.
All of this means that the risk of default on borrowed funds has also gone up affecting future disbursement of the massive Rs1350 billion that the banking sector has committed to India’s electricity generation.
Despite the challenges, power firms continue to hope that they will still make profits, given India’s acute power deficit in the face of an economy growing close to 8 percent.
For example, Jindal Power has announced that it wants to acquire thermal plants already under implementation to raise its capacity faster. Meanwhile, Reliance Power has sought shareholders approval for sale of up to 25 percent of the shares to institutional investors for funding projects.
Indeed, there is reason to believe that some of the issues that plague India’s power sector could sort themselves. Indian power firms continue to look for and purchase mining assets overseas in Indonesia, Australia, Africa, America, Russia and the Asia Pacific region, to build backward raw material linkages that will ensure stable prices and supplies.
There is generally a gestation period given ongoing contractual obligations, need to further develop the mines and set up adequate infrastructure before the coal arrives at Indian ports.
New Delhi is also working on enacting a new Land Acquisition Bill that makes the process friendly towards farmers and landowners. A period of flexibility in green laws could also ensue with the exit of environment minister Jairam Ramesh seen as “inflexible” by industry. All of these aspects, however, will need to fall in place for the Indian economy to sustain its growth.
(Siddharth Srivastava is a New Delhi-based journalist. He can be reached at firstname.lastname@example.org)