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BW Businessworld

India Inc Meets PM On Power Crisis

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Some of India's biggest tycoons pushed the government to resolve the country's worsening electricity crunch by freeing access to fuel for power plants, adding pressure on Prime Minister Manmohan Singh, blamed for failing to push bold reforms.

Tata group Chairman Ratan Tata, Reliance Power Chairman Anil Ambani, and Adani Power Chairman Gautam Adani met with Singh on a long day of meetings in the capital between top power industry executives and senior government officials.

"We pushed for all issues, mainly augmenting domestic coal production," Ashok Khurana, director general of the Association of Power Producers said after the group met B.K. Chaturvedi, the member of India's Planning Commission responsible for energy.

India does not produce enough power to meet the demands of a fast-growing economy and increasingly affluent population of 1.2 billion people. Outages in big cities, including the capital, are commonplace, and industrial users and office buildings must frequently rely on self-generated power.

Coal and natural gas shortages and delays in acquiring land, have crimped the rollout of new plants by big producers such as Adani and left many existing units running below capacity.

"The government needs to coordinate all its arms if it aims to improve the situation in the power sector," said V. Srinivasan, an analyst with Angel Broking.

India has installed capacity of 187,000 megawatts (MW), about a fifth of what China has, and has a peak-hour deficit of about 12 percent. India's power output rose 8 percent to 72.7 billion kilowatt-hours in December from a year earlier.

But halfway through a second five-year term, Singh's government has made little headway in pushing reforms in power and other areas, crimping investment and contributing to slowing growth.

Coal And Funding
Stagnant domestic output by state-run Coal India, the world's largest coal miner, and lower-than-expected gas production coupled with the high cost of imports has thrown the business plans of generators into disarray.

In addition, the inability to pass along the full cost of fuel price increases makes many units unprofitable.

But as pressure builds on the government, India has raised its coal import target by over a third to about 114 million tonnes in the fiscal year ending in March, though further increases are unlikely because of a lack of rail capacity from key ports to end-users.

Coal accounts for more than half of India's power generation and will be required for about 85 percent of the target of adding 75,000 MW of capacity by 2017, a government draft report said in late 2011.

India has about 10 percent of the world's coal reserves but struggles to provide private players more access to coal blocks and swifter environmental clearances and land acquisition.

Coal Minister Sriprakash Jaiswal said on Wednesday that private sector power companies should do their part to address the shortage by lifting production at their own mines.

"We can't increase coal production quickly," he said after meeting the delegation, which was ferried between meetings in luxury cars and trailed by a about two-dozen journalists.

"We have asked them to resolve issues and increase output at captive mines."

Not Enough Gas
Gas does not provide an easy answer. India is the world's eighth-largest importer of LNG and the gap between demand and supply is growing as domestic output slows, though India has allowed active drilling in coal-methane blocks and is building more capacity to receive imports.

Gas demand is likely to rise to around 410 million standard cubic metres per day (MMSCMD) by 2019-20 from consumption of around 177 MMSCMD in 2010-11, according to ratings agency ICRA.

Much of the new gas demand is expected to be met by imports that are more expensive than domestic supplies.

Power companies have been lobbying the federal government in vain to free them from power sales contracts to pass on rising fuel costs to consumers. But power tariff agreements are set by state governments reluctant to raise prices.

Losses for distribution firms were estimated at 400 billion rupees ($8 billion) in the year that ended in March 2011.

Lower than expected gas output from Reliance Industries-operated D6 block in the Krishna-Godavari (KG) basin, off India's east coast, has also dashed hopes for a quick spike in domestic supplies.

Banks, already burdened with loans to loss-making state-run electricity distribution firms, are reluctant to lend to proposed power projects that do not have assured fuel supplies, especially gas eyed for new combined-cycle units.