Power sector challenges in India - Interviewed for Powerline Magazine

What have been the key trends and developments in the sector in the past one year? How has its performance been as compared to the previous year?

One of the most conspicuous trends has been the capacity addition in power generation sector, in which for the first time the expected addition from private sector alone would cross 10,000 MW. This also when simultaneously the average plant load factor for coal based power plants has taken a dip to about 64% and is also expected to fall further. The major reason for lower than expected capacity utilization has been fuel issues. Coal production from domestic sources saw stagnation while generation saw capacity addition; imports grew but prices and foreign exchange dynamics kept affordability distant. Sector also saw little on reforms and distribution companies’ financial losses and apprehensions about their viability kept finances for them as well as for generation projects getting tough to secure.  


The sector has been facing a number of challenges and constraints. Which are the three biggestbottlenecks to growth?

The three biggest challenges are – fuel availability & pricing; cost of supply and tariff gap; and open access implementation. These put together have also led to issues in financial closure. Coal from domestic sources look getting scarce as CIL is unable to produce at the expected growth rate while the political controversies will cause few coal blocks to be invested in and developed. These notwithstanding, new coal mining projects have had severe challenges of land acquisition, rehabilitation & resettlement, environmental and forest clearances and such others. Imports have been rising and prices of coal although on a downslide for now do not make imports anaffordable option. The story on the fuel side looks gloomy. On the cost of supply and tariff gap, efforts need to be made in the right earnest to have cost reflective tariffs. Several aggressively bid case 1 bids have now been referred to courts on fuel cost issues. It is obvious that unsustainable tariffs would not see several projects take off. Interestingly, there are however pockets of demand that can afford to pay higher tariffs but are not connected with supply sources due to financially broke distribution companies and their claims to open access charges. These have muffled the growth opportunities for the power sector.  


What, according to you, is the single most important thing the government should do to revive the sector and build investor confidence?

The one most critical part of the value chain that determines affordability of power, which conforms to the adage that mitigation against default risks is low tariff, is availability of low cost domestic coal. The government can open up the coal mining sector for independent mining companies, including foreign majors, with expertize, experience and technology to help India exploit its large untapped resources. Greater the supplies from domestic sources and lower the dependence on one monopolistic producer, the prices of coal would be determined by economic equilibrium and can remain lower. However, till such time that market stabilizes, regulatory supervision of such mining ventures and price fixation of coal produced can be done. That can certainly be the biggest boost the power sector can get from thegovernment.