Power

There is a bizzarre situation in India’s power sector. Read up these two articles -

• Lowest Plant Load Factor in 15 years - EconomicTimes
• Indian Cabinet considering Rs. 4.3lac crore loan to DISCOMS - TOI

Some snippets -

“In 2014-15, 22,566 MW of capacity was commissioned. India now has an installed power capacity of 158,000 MW with 30,000 MW more in the pipeline”

“There are no takers for all the generation capacity that is in place. There is demand but they don’t have the money to pay for the power due to the health of the discoms (state distribution companies),” a senior government official told ET, adding that discoms across all states had incurred accumulated losses of Rs 2.51 lakh crore in 2012-13.

“Just six state discoms are not in the red - Karnataka, Gujarat, Punjab, West Bengal, Delhi and Sikkim and transmission and distribution sectors require an investment of Rs 3 lakh crore”

“…the state electricity discoms are facing cash crunch and are incurring annual losses of about Rs 60,000 crore.”

From above statements, DISCOMS are already around Rs. 3.7 Lac crores in debt, and increasing by Rs. 60,000 crores in losses per year.

The bigger question is why the states are bleeding money even when consumers and industry are ready to purchase the power produced. This year goal is to ship 1.1trillion units (KWh) of power, for 1.3bn population. That’s ~850 units per person, per year = ~2.32 units per person per day.

In 2013-14, industry sector accounted for the largest share (43.83%), followed by domestic (22.46%), agriculture (18.03%) and commercial sectors (8.72%), for the 0.88trillion units shipped (after deducting transmission losses).

Thus, domestic consumption roughly is 148 units per capita (2013-14). I can tell you my domestic consumption is ~1300 units for two persons, i.e. 650 units per person. That is 4.4x the national average.

Indian power sector is in perennial panic mode. There are many factors behind such a colossal mess

• Power sector is run by Bureaucrats (IAS) who have absolutely no idea about the sector

• DISCOMS answer to political establishments, and are not independent to operate, set tariffs etc.

• Over years, DISCOMS have suffered massive talent crunch, because of kinds of hiring and promotion policies implemented by bureaucrats and politicians.

• Unchecked malpractice by private corporations, likes of Reliance(Ambani’s), Torrent, NPCL (Goenka’s) etc. They buy energy from government at subsidized rates and sell it at huge margin. They still claim operational losses. Their financial results and terms of contracts are not audited by independent auditors. For example NPCL claimed a profit of Rs. 58 crores on a revenue of Rs. 2,000 crores (2.9%) for entire duration of 2001 to 2011 in Noida. This kind of financial engineering is too obvious. Torrent Power, a publicly listed company, published a grand total of Rs. 852 crore PAT on revenues of 27,000+ crores (3.1%) in last three years. They supposedly produce 3GW of power and distribute power to 3million+ people.

• Poor regulation, continuing to become worse.

• By some estimates, almost 36% of installed power generation capacity in India are private Diesel Generators, above 90,000MW. And it’s the fastest growing section, growing by 5000-8000MW per year. So much for Renewable power push. This is the result of poor planning, distribution and availability of power.

So what does it take to turn the situation around?

• All DISCOMS should be given complete autonomy, and not be run by bureaucrats or state governments.

• Regulations - Copy regulations being used by developed countries. Again politicians should not set these policies. They should be set by independent regulator which are not in control of political establishment in any way (in funding or hiring etc.)

• Find means to end cross-subsidy of domestic and agriculture by industrial users.

• Discourage private diesel-generator industry which increases burden on fuel imports.

There are just a few reforms, there are many more such changes required to turn around the sector. However political establishment and bureaucracy are not interested in reducing their control.

Ultimately, who is accountable for ~60 to 70,000 crores annual losses in the sector?

Best, Umang