Problems of Power Industry in India

The problems faced by the electricity companies in India are quite well known and those who did not, the biggest power blackout in human history would have brought it home (quite literally). The root cause of the problem is the Indian Government which has been stuck in paralysis for the last 2-3 years. The only time it shows some life is to defent itself from attacks by the opposition or to play political games to break an opposition group during some event like the Presidential elections. Rest of the time it is happy to let the country go under. India’s economic growth has been going downhill quite fast and the power industry has been one of the worst hit. The main problems are:

a) Lack of fuel as Coal India the monopoly producer is a den of waste and corruption. There is no coal to feed the new thermal power plants despite India sitting on hundreds and billions of coal reserves

b) The distribution and transmission sector owned by the government is a total mess

c) The coal industry has come under fire from the Auditor General for indulging in widespread corruption

d) Foreign governments have imposed duties and taxes on coal exports to India making the big power plants unviable. The Reliance power plant being built in AP is now stuck as it is no longer feasible to supply power at the contracted prices at the current fuel cost

e) Gas power plants are stranded as well as domestic gas production has dived (as usual due to government incompetence and corruption).

I had referred to the Indian Power Industry being a Bubble a year ago itself flagging the problems.

India’s Power Sector is seeing massive investments with innumerable business groups setting up thermal power plants in the country spurred by the electricity deficit of more than  15% and the GDP growth of more than 8% expected in the next decade. India’s private power companies are competing with each other in setting up massive ultra mega thermal power plants of 4 GW capacity. However India’s pathetic state of electricity distribution may lead to huge losses for the investors in the power sector. The reason is that the electricity distribution is controlled by the state utilities which have cumulative losses of  $13 billion which is expected to double to $26 billion in another 5 years. These “discoms” don’t have money  to pay the private producers of power even with an electricity deficit. With India’s electricity market a tangle of red tape, losses and government control the situation looks bleak for all the business groups deciding to enter the power sector.

Already private utilities like Adani Power and Monnet Ispat are having trouble in selling the power to discoms as these utilities don’t have cash. Monnet Ispat has been forced to sell power for as low as 1c/KwH as demand has plummeted. This has happened despite Indian customers facing power blackouts even after paying more than 10c/KwH for power. The distorted nature of  the electricity market with government entities in the middle is responsible for this situation. Even India’s largest utility NTPC has seen its profit growth dip as state discom  are not buying power despite electricity shortage. These discoms buy power at inflated rate during elections and once they are over stop buying power. India’s pathetic transmission and distribution infrastructure is a major hurdle in installing more renewable energy in India as was seen in the case where solar power plants are not being debt financed by banks due to bankrupt discoms. India’s Solar Program JNNSM launched with much fanfare is already facing problems on multiple fronts, this will only add to them.

The Minister of Power instead of solving the critical problems is considering to change the accounting treatments so as not to make these non-running electricity generators as Non Performing Assets. Note the Indian banks have made massive amounts of loans and they would show huge losses if they were to follow prudential accounting norms. The government wants to take a shortcut as usual and not do anything substantial.

Hindu

Nearly 8,770 MW of power projects ready for commissioning but stranded due to lack of fuel supplies may get some relief.

The Government is looking to bring in changes in accounting standards that would prevent these units from being categorised as non-performing assets.

“It is on serious consideration of both the Ministries (Power and Corporate Affairs). The Power Ministry is reviewing the issue and would soon send the recommendations to the Corporate Affairs Ministry. No sooner this exercise is done, we will take the decision. It will not take more than 10-15 days,” said Veerappa Moily, who holds charge of both the ministries – Power and Corporate Affairs.

To prevent the projects from turning into NPAs, private power producers have approached the Corporate Affairs Ministry for change in Accounting Standards 10 and 16, to allow provisioning of capitalisation of borrowing cost for the stranded gas-fired power units.

Moily on Friday met private power producers to discuss issues related fuel linkage, finalisation of standard bidding documents, commissioning of hydro power projects and distribution sector reforms, among others.