Blackouts cast shadow over PM Narendra Modi’s economic recovery

Narendra Modi is under attack for failing to avert a national power crisis.

By: Reuters | New Delhi | Published:September 5, 2014 1:29 pm
Financial metropolis Mumbai was plunged into darkness for most of Tuesday, amid a row between private generators and regional distributors. (Reuters) Financial metropolis Mumbai was plunged into darkness for most of Tuesday, amid a row between private generators and regional distributors. (Reuters)

Narendra Modi took decisive action as chief minister of Gujarat state to secure round-the-clock supplies of electricity. Now, as prime minister of India, he is under attack for failing to avert a national power crisis.

More than half of India’s thermal power stations have less than a week’s supply of fuel – the lowest levels since mid-2012 when hundreds of millions of people were cut off in one of the world’s worst blackouts.

Coal stocks at thermal stations have hit critical levels as payment disputes escalate, unleashing power cuts that could choke off an economic recovery before it takes hold and hurt Modi’s prospects at forthcoming state elections.

Financial metropolis Mumbai was plunged into darkness for most of Tuesday, amid a row between private generators and regional distributors that is symptomatic of an industry mired in debt and arrears of at least $100 billion.

It’s a headache for Modi that experts say will only get worse. His government is resisting political pressure for a bailout, just two years after a rescue by the last government that it denounces as a “farce”.

“The moment I start with financial assistance for one state, all the states will be asking me,” Power and Coal Minister Piyush Goyal told reporters on Wednesday as he marked a rocky first 100 days in the job.

“States have to improve their own systems. I can’t fund their coal purchases,” said Goyal, who is mediating in payment disputes in an attempt to mitigate the power crisis.

Prithviraj Chavan, chief minister of Maharashtra, has from state capital Mumbai pointed the finger of blame at Modi, who won election by a landslide in May with promises of economic reforms, new jobs and dynamic growth.

“The centre is responsible,” said Chavan, a leader of the opposition Congress party. He added that he urged Modi two weeks ago to call crisis talks on the power industry, but says New Delhi “has not taken serious note”.

Maharashtra is one of several states that are at odds with New Delhi on power and coal supplies, and will soon hold elections. Modi’s nationalist party hopes to boost its strength in the upper house of parliament, where it lacks a majority.

ACHILLES’ HEEL

Since Modi took power, coal stocks at thermal power stations that generate three-fifths of India’s power have nearly halved to just six days’ cover. Of 100 plants, 56 are now ‘critical’ with less than a week’s supply.

The shortages have arisen not because India lacks coal – it has reserves of 61 billion tonnes. Nor does India consume much power: per capita use is one-seventeenth of the U.S. level, and 400 million Indians have no electricity at all.

What India does have is a mismatch between the regulated price at which power is sold and the cost of producing it, which is typically 20-30 percent higher.

As a result, the power sector is caught in a debt trap, leaving generators unable to scrape together the cash to buy fuel from Coal India, a state behemoth that successive governments have shied away from restructuring.

“We have a bizarre situation where there is demand for power from distributors without the ability to purchase. Generating capacity is stuck without a contract or the fuel,” said Debasish Mishra, a senior director and energy expert at Deloitte.

The situation “might precipitate quite fast into a crisis,” said Mishra, urging the opening up of coal production to competition and amending power tariffs to properly take into account the cost of fuel.

MODI MODEL

Modi tackled a similar power crisis in 2005 as premier of Gujarat – a western state with a population the size of Britain – with measures that experts say would work in India today.

His state government assumed existing power company debts, freed the firms of populist pressures that kept power tariffs artificially low and clamped down on rampant electricity theft.

As a result, Gujarat is now a surplus power producer.

Doing the same at a national level would, however, be tough as responsibility for power is shared between the ‘centre’ and India’s 29 federal states. The problem is a lot bigger too.

The industry has racked up bank debts of 5 trillion rupees ($84 billion), according to central bank figures. Debts owed by distributors totalled $18 billion in 2012, the year of the last rescue. Coal India’s receivables are $1.4 billion.

Worse, the World Bank estimates that annual losses in the Indian power sector could rise to $27 billion by 2017 without action to tackle wasteful subsidies, power theft and political meddling.

 

For all the latest Business News, download Indian Express App

  1. K
    Kkulaputra
    Sep 6, 2014 at 1:57 am
    There is now a democratization of power problems. Earlier there was a hue and cry if there was a power outage in Delhi but not Jhoomri Talayya. Power distribution is a state subject, generation a combined responsibility. Responsive states will get more help from centre. Political game playing states will suffer.Thus, we need to stop this blame game and start working. For starters MH could appoint Suresh Prabhu as an advisor cutting across party lines, show some guts please and don't make us suffer
    Reply
  2. A
    Arun Kumar
    Sep 5, 2014 at 8:26 am
    People who were suffering all these years from power cut were not vocal during UPA, why they are expecting a miracle from Mr. Modi to change it overnight the problem which is there for last 10 years.
    Reply
  3. M
    Mani
    Sep 5, 2014 at 9:17 am
    what was prithviraj chavan doing all these years. If gujarat could improve its power position why not Maharashtra. But chavan was obviously busy scamming the state, You cant't fix your house & blame modi? Power situtation will improve once this joker is kicked out by public in the coming election
    Reply
  4. K
    Kuldeep Saxena
    Sep 5, 2014 at 8:55 pm
    Irrespective of Mumbai or Delhi or elsewhere in the country, there has been mive increase in the power rates under the regime of the Congress. Over the years there have been various company's those have come into existence and there were contracts entered by these power companies in Foreign Currency also in electricity as well gas companies. The existence of these companies have resulted in mive rise in the rates for power distribution as well the Gas companies entered in a contract with the Central as well the various state governments concerned and fixed the power rates as well the electricity rates.Need for review of these contracts needs to be analysed. It is proposed that there must be statutory audits to be done and reviewed carefully as overall with the arrival of these power companies there has been mive escalation in the power Sector. There is a impact of Coal mines issue is also related with the subject and the exploiters of the situation are taking advantage of this and the situation is portra from bad to worse. Need of the hour is that the Power Minister must go for Audit of these companies on priority basis to avoid the further complication. In addition to this all the contracts with the companies in the power segment as well the Gas companies needs to be reviewed on priority basis and if deemed fit may be renewed in the times to come. Another important factor is about the Gas company, how can an Indian company be allowed to provide gas from the Indian Ocean to the country in foreign currency as well another question is how there can be revision from appox.US$ 2/ (appox.) to US$ 8 Plus in such a small time. The main question need to be considered how can an Indian company be allowed to bill the end products in US$.
    Reply
  5. K
    Kuldeep Saxena
    Sep 5, 2014 at 6:30 pm
    Though it is a tough situation on power crises management but would appreciate if the minister also come up with harsh steps against the power companies and the distributors. $100 million instantly all contracts with power companies must be changed into Rs. terms in addition to the check on similar terms with Gas companies stern action needs to be taken taking care if the previous government had entered into an agreement it needs to be sped and fresh agreements to signed in addition to re-fix the Gas prices as well review the contracts how can there be a change of prices from US4 2.00 (2. something to more than eight dollars - a company operating in Indian sea exploring the Gas from Indian Sea, how can dis-appropriate rise be there)Coming back to the position of power supply in Delhi, Maharashtra the minister needs to take up the matter as it appears that there is a black mail on. Need of the hour is to go for audit of all the electricity generating companies/distribution companies and down sizing to be done on their operation and expenses. Please look into the matter as it is not necessary to follow the agreements done by Congress or else these problems will continue and end user will be the target.Kuldeep Saxena (NJ)
    Reply
  6. R
    RG
    Sep 5, 2014 at 11:25 am
    With Modi busy with drums and b buiding...it will be DARK ALL AROUND....Regret now for voting..
    Reply
  7. Load More Comments