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BW Businessworld

The UMPP Stalemate

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Despite the impressive capacity addition over the past five years, the Indian power sector is still quite a mess. At the distribution level, there are problems galore. Many of the state electricity boards are neck deep in debt. They do not have the money to pay for the power they purchase. This puts pressure on power generators whose own payments to fuel suppliers and other vendors get affected due to the uncertainties in getting payments on time. Even in the few states where distribution has been privatised, things have hardly turned out as expected. Private monopolies have replaced the old state-owned ones. And while private monopolies are more efficient, and in some cases, offer better service, they lack any great motivation for improving to global standards because they are not facing any real competition.

The entire tariff policy, too, is horrendously skewed. Bulk buyers of power pay the highest per unit costs while rural area consumers pay little or nothing. In the truly rural areas, power supply is erratic and only available for a couple of hours a day. Theft of power is also rampant in urban areas.

However, the government seemed to have got its act relatively right in the area of power generation. It allowed private players to set up power plants. Every major group – the Tatas, the Ambanis, the Adanis, GMR, GVK and others – bid for and started setting up power projects. Most of these projects were based on coal though a few were based on gas as fuel.

The most ambitious part of the government's power generation strategy was the ultra mega power projects. These were monstrous 4,000 MW power plants which were offered to private bidders. The government went out of its way to make these projects attractive. It offered to take care of all the normal headaches – land acquisition, environmental clearances, allocation of coal blocks, water requirements and even power purchase agreements. All that the winning bidder needed to do was find the funds and execute the project. Seven years after the UMPPs started being awarded, the first four have run into all sorts of troubles and roadblocks. Senior assistant editor P.B. Jayakumar looks at what went wrong with the UMPP dream.

(This story was published in Businessworld Issue Dated 02-04-2012)

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