IPPs — Victims of ill-conceived planning

In earlier Plans, India had recognised the need for abalanced programme within the maximum available resources, instead of focusing alone on generation at the cost of T&D, as is being done at present. It is thus obvious that power from new generation projects cannot be utilised efficiently due to inadequate T&D system and losses will mount at the cost of quality of power.

The real ailment of the power sector is serious shortage of peak power in the evening time, particularly during the summer months. During the low demand period, the country is very much surplus in energy to an extent of about 30 per cent.

The average technical loss exceeds 30 per cent and peak time loss 50 per cent corrected to voltage and frequency due to poor T&D system. No proper diagnosis has, however, been undertaken and the entire planning is based on adhocism. Apart from this inefficiency, the theft of electricity is increasing, resulting in heavy loss of revenues to the SEBs.

There is a faster deterioration in the quality of power supply as the frequency even exceeds 52 Hz andthe voltage profile throughout is extremely poor resulting in enormous damage to the consumer equipment.

The public is not aware of the magnitude of this menace in the absence of awareness. The central planners are also unable to specify the objectives of power reforms and hesitate to quantify the same in terms of improved availability and financial gains and the likely hike in the power tariff, as they are apprehensive of public backlash.

The moot question whether the power sector will ever come forward on planned growth based on system studies and cut down the cost of power as is the objective elsewhere in the world, avoid load shedding and maintain quality power supply to consumers remains unanswered.

The planners have achieved little by the reforms in power sector and are in fact responsible for worsening the situation. They are swayed by reform bills to mislead the public.

The readers may be surprised to know that the so called load projection based on surveys are highly unrealistic as againstthe net projection of peak demand of 84000 MW in the current year (15 EPS) the actual demand being met is only 56000 MW.

The annual peak demand is rising only at the rate of 2000 MW for the last four years and based on this trend this projected demand of 84000 MW may not even be achieved by the end of Eleventh Five year Plan. However, CEA has proposed to raise the installed capacity to 240000 MW by the end of Eleventh Five Year Plan and generation projects are being cleared by them to achieve these inflated targets.

The planners are thus wrapped in dreams and are totally unaware of the risks which the country may have to face in the years to come due to unutilised power which may spell disaster and economic ruin.

IPPs have been a victim of adhocism and ill-conceived planning. There is no smooth ride for them ahead in the Indian context of the high cost of power and the inability of the states to manage for “escrow” cover. Cogentrix Mangalore power project of 1000 MW capacity which is funded by foreigncapital to an extent of 100 per cent for equity and 80 per cent for debt component, has been analysed in detail.

This project was cleared by CEA in 1997 for Rs 3,948 crore out of which the foreign exchange component comprised of $ 751 million at an exchange rate of Rs 31.50 to a dollar. There has been about 60 per cent depreciation in the Rupee from Rs 17.94 in 1990-91 to Rs 43.50 at present to a dollar. Converted to the present exchange rate, the cost of the project has already risen to Rs 4,900 crore and may further go up to about Rs 5,200 crore after taking into account impact of other variables.

This project will take a minimum of four years time to be commissioned and based at an annual rate of depreciation of the Rupee at 6 per cent the cost of the project may rise to Rs 6,000 crore or Rs 6 crore per MW. It will generate 6000 million units of energy annually at 68.5 per cent PLF and the exportable energy to Karnataka may be more than 5500 million units.

The cost of energy without any furtherdepreciation of the Rupee works out to Rs 4 per unit in the initial years of operation which implies that annual pay out by KEB may even exceed Rs 2,200 crore, equivalent to 75 per cent of their present revenue. The state government and the loss-laden Board may not therefore be in a position to provide `escrow cover’ and as such the project may not take off despite counter guarantee given by the Centre.

The cost of generation may swell up, as the power station will operate at a much lower PLF due to sharp decline in the industrial consumption which yields maximum revenue to the Board. At present the average sale rate is only Rs 2 per unit and there may not be any significant increase in the energy sales and revenues as the industrial tariff is already very high which has forced consumers to adopt cheaper options for captive power stations.

The domestic consumers are already spending 6 to 8 per cent of their income on energy against only 3 to 4 per cent elsewhere in the world. It is thus obvious that therevenues of the Board will reach a plateau whereas the expenditure may go on mounting due to unmanageable hike in salary and pension of employees.

The cost of energy to consumers will exceed Rs 10 per unit leading to heavy commercial losses to the Board which cannot be subsidised by the state.In light of the above, big sized IPP projects do not have any future in this country and all such projects which are under consideration for the last several years may roll back.

The SEBs are choking to economic misery as bureaucrats lack wherewithal to effectively bargain with IPPs. We have not learned by Enron’s Dabhol project, which has hijacked MSEB and let not this mistake be repeated in other Boards.

The solution to the power problem lies in the optimisation of existing resources, cutting down losses and energy conservation so as to keep the cost of power within affordable limits to rescue the power sector. The country is fortunately very rich in talent and skilled manpower and certainly knowledge andexpertise can substitute capital and reduce the dependency on foreign investment.

The author is former chairman of CEA