Reforms to power the future

A recent newspaper article on big projects makes the interesting point that the Central Electricity Authority (CEA) had cut down the approve...

A recent newspaper article on big projects makes the interesting point that the Central Electricity Authority (CEA) had cut down the approved capital expenditure of the Cogentrix project last year. The counter-guarantee on Cogentrix got delayed on account of public interest litigation but the issues seem to have been sorted out by the Supreme Court recently. Mukherjee makes a number of interesting points. We should however not fall into the misconception that the fate of the Indian power sector is coterminus with the issuance of counter-guarantees on a few so-called “fast track” projects.

The finance ministry is naturally slow in accepting “conditions” on projects, where it may ultimately be placed in a position of shelling out cash. It is of course true that, as the approach paper on the Ninth Plan pointed out, as of April last year only around 1600 MW of private sector investment was on the way and this had led to the largest slippage in power capacity expansion in recent plans. The situation as ofnow is, however, quite different. A number of projects have broken ground and there is a functioning capital market in the power sector.

While legislative reform is yet to be enacted, through administrative action, the power ministry has during the last year cleared from the Government of India 21 projects with a capacity of 8900 MW which have also been approved by Indian financial institutions and in most of which fuel supply agreements have also been signed.

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Again in recent months the country has been getting much better terms for investment in the power sector. This is a global trend because initial investors try to recoup uncertainty costs but as the public hearings of CEA show, in recent thermal projects levellised tariff rates are between Rs 2.20 and Rs 2.40 per unit, while in many earlier projects, they were as high as Rs 2.80 to Rs 3.00 per unit. Some of the promoters of the “fast track” projects, perhaps reacting to these trends, are also agreeing to give better terms to the country asMukherjee notes.

Interestingly, with a major emphasis on public investment, the Faridabad project which I had approved a few weeks after taking over as Power Minister in June last year, is perhaps the only case where the actual cost of the project after tendering was Rs 20 crore less than the budgeted amount and since the approved project was larger than the tendered one, this meant saving of Rs 40 crore for a 400 MW project which implies substantial savings on tariff rates.

Another factor of strength is the much better power supply situation today. When I took over as power minister in June last year, the energy deficit was 12 percent and the peak deficit was 16 per cent. In April last year the rate of growth of electricity generation was (-) 8.6 percent and in the whole year before it, it was only 3.6 percent. All that has been changed by the vastly improved performance of the public sector in electricity generation. From June to March this year, the rate of growth of electricity generation has been 7.6percent, the energy deficit has gone down to 6 percent and the peaking deficit to 9 percent.

The real issues, in the short run, are to keep up the fast growth of electricity generation, keep on making efforts to transmit more power from surplus to deficit regions and to push through administratively an appropriate balance of projects and to get the best possible terms for such projects. The electricity sector must, as in the last year, be the fastest growing sector of the Indian economy, because there is nothing like blackouts to dampen the morale of the sector.

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Simultaneously, the reform process has to be pushed as fast as possible. All efforts have to be made to get through the important Bills the power ministry is pushing. The Transmission Bill has fortunately been sent back to Parliament by the standing committee. But the Regulatory Authority Bill which I had introduced in the last Parliament will now have to be reintroduced again. The Energy Efficiency Bill which was approved by the Cabinet will alsohave to go through the same process.

The writer is a member of the Rajya Sabha