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Wait Until Dark

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due to frequent power cuts (CP Shanmugham)

It is likely to be a summer of discontent for industry in Tamil Nadu (TN). Ask Kumar, owner of a small mill in Sulur, near Coimbatore. In December 2007, when power shortage peaked in India’s southernmost state, Kumar would ask his workers to clean his machines more than once during the day. His newfound fetish was born of ambient frustration. Unexpected outages had made 8-hour shifts impossible. “We have fixed costs, mainly interest and wages. What else can we do?” he asks.

TN faced a shortage of 315 MU in November — 0.52 per cent of its annual power requirement of about 60,000 MU — which was brought down to about 100 MU by purchasing power from other states (see table ‘Powerful Sources’). But the approaching summer could well see sweltering shortfalls of up to 500-550 MU.

“While the current infrastructure has been able to sustain the growth thus far, there is an urgent need to scale up the infrastructure to support the increasing number of manufacturing units,” notes Sachin Saxena, director of operations and logistics at Nokia India, in Chennai.

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It is true that power crises are common in most Indian states but TN’s legendary power-surplus status was the reason why high profile companies such as Nokia, Dell and Samsung invested here. In fact, as massive investments poured into this resurgent state, demand for power surged. TN attracted $2.72 billion (Rs 10,880 crore) in FDI (foreign direct investment) between January 2000 and June 2007, the third largest for a region in the country. In the past 12 months alone, the state’s industries department signed MoUs for projects totalling Rs 6,985 crore, and most of that with large industrial houses and MNCs.

Indeed, the recent outages are viewed with more than a little perplexity, and even disbelief. Sources this reporter spoke to do not remember when the last power crisis occured. “We never had tripping in the 110 KV line. Now, it has become quite common,” rues an industry official from the Coimbature district.

Now, “We are not able to plan production properly. For every power cut, we spend close to two hours restarting the machines,” says S. Aravind, who runs a plastic unit in Madurai. A 30-min cut leads to a hour and a half long ‘stop-start’ process. Many units have taken to working on Sundays and all through the night.

Among the southern states, TN recorded the highest growth in power consumption in the last seven years. The state’s annual power requirement is now about 8,800 MW. The demand for electricity, which was growing at 400 MW, rose by 600-700 MW in the past two years. Parallely, the state’s power generation record in recent times has been less than admirable (see table ‘Power Supply Position’).

The North Chennai thermal power station, the last major public sector power project by the TN government, was commissioned in 1994. Conceived in the 1980s, it is being overhauled and expanded only now. “The demand for power has grown at 12 to 15 per cent. But there has been no matching capacity addition,” admits a senior Tamil Nadu Electricity Board (TNEB) official.


They’ve Got The Power
By sparing Chennai and its periphery, which attracted significant investments in manufacturing, electronics and automobiles in recent times, TN authorities have given investors the impression that the state is power sufficient. For instance, the Nokia facility in Sriperumbudur, outside Chennai, faces no power problems. Industry players in other parts of the state, however, have legitimate cause to fret.

“If power shortage is distributed evenly, it would help reduce power cuts by at least half,” says K. V. Srinivasan, chairman of the Southern India Mills’ Association (SIMA). When the power crisis peaked, SIMA wanted the government to announce outage timings.

“We are ready to give up 10 per cent of our maximum demand. But the government should make scheduled power cuts,” concurs Jayakumar Ramdass, managing director of Coimbatore-based Mahendra Pumps. Distribution of outages, however, continues to be uneven.

Sweating It Out
Power accounts for 15-20 per cent of costs, depending on the industry. Energy intensive sectors such as foundries, chemicals, polymer and processing units gobble up 30-40 per cent. A severe shortage coupled with escalating costs can easily wipe-out entire margins.

“Those who ran three shifts a day are still incurring losses. Others are just about managing to get work done,” says P. T. Krishnamoorthy, who runs a chemical unit near Madurai. With a utilisation loss of 10-15 per cent, a 25,000-spindle mill stands to lose Rs 1.5 crore annually. Spinning mills account for 47 per cent of the state’s high tension (HT) consumers and nearly a third of revenues. The textile industry in TN, the largest consumer of power in the state’s industrial sector, stands to lose close to Rs 1,000 crore a year as a fallout of the power crunch.

For the pumpset industry, sales peak in summer. But, “We will not be in a position to supply enough pumpsets this season,” says V. Krishnakumar, general manager, marketing, Aquapump Industries, part of Coimbatore-based Texmo, one of the largest pumpset manufacturers in the country.

In The Dark
The TNEB chairman, S. Machendranathan, did not respond to BW’s queries on the state’s power logjam. But, at a function organised by the board in Chennai recently, he reportedly admitted that poor addition to power generation facilities in the past few years was the reason for the state’s failure to meet surging requirements.

Two major JVs with the National Thermal Power Corporation (NTPC) will contribute 1,000 MW each, but only at the turn of the decade. Help will come from ongoing expansions at the Kudankulam nuclear power project and the Neyveli thermal station, but they are central schemes that require TN to share output with its power-starved neighbours. Only five out of the 20-odd private sector projects, commissioned by the government in the early 1990s, have been completed.

Alternative Thinking
The cost of alternative sources of power make them unviable for most manufacturing units. Per unit cost for power produced from diesel-run generators works out to Rs 12, almost thrice that of grid power. Furnace oil costs Rs 8.20 per unit. Wind power, though feasible, has run into rough weather due to infrastructure bottlenecks (see ‘Gone With The Wind’ on page 54).

The steady, if slow, deterioration in TN’s power situation should have prompted industries with heavy power needs to go in for captive generation, say observers. But a proposal from textile mills to set up a 500 MW coal-based plant for their exclusive use is only gathering dust. Large textile and auto ancillary units have opted for a high capacity direct line, which ensures hassle-free supply. But this costs Rs. 2.5-3 crore and not many units can afford it.

Elsewhere, “We are going in for alternative methods to tackle the power problem,” says S. Rathinasamy, vice president of Sakthi Auto, an Erode-based auto component maker. At Sakthi Auto, power consumption will be considerably reduced by moving from furnace melting to cupola melting (where coke and limestone are used to melt raw material).

Some continuous process industries, such as sanitaryware, are coming up with indigenous solutions to reduce power intake. Besides a fuel-efficient kiln, Parryware Roca, part of the Murugappa Group, uses natural light for its Perundurai (about 380 km from Chennai) factory.

“Our power consumption is very low. But with demand for power going up, we have to explore all possible options,” says K. E. Ranganathan, chief executive officer of Parryware Roca, in Chennai. {mospagebreak}

Though the Electricity Act, 2003, does not allow state electricity boards to simultaneously engage in generation, transmission and distribution of power, two successive TN governments have been extending the deadline to restructure TNEB, which wears all these hats.

Despite an imminent crisis that shows no signs of blowing over, TN is yet to initiate any serious power sector reforms. Meanwhile, neighbours such as Andhra Pradesh (AP) have made remarkable strides in distribution. In fact, AP has been ranked the top power utility by major rating agencies for the past three years, which was achieved by drastically reducing its aggregate technical and commercial losses from 37 per cent in 1999-2000 to 15.8 per cent in 2005-06, and by achieving 100 per cent revenue collection, a rare feat.

Presently, TN has 23 projects with a total capacity of 7808 MW in the pipeline, which is almost equal to the state’s annual power demand. For the interim, “We have floated tenders for buying power,” says a government official. “There are a few pockets with surplus power and we plan to tap them fully.”

TN’s Minister for Electricity, Arcot N. Veerasamy, has stated that he expects no power cut in the state this summer. While the government can purchase power from the North-East, Punjab and Haryana, buying power from private plants through open bidding can jack up costs to Rs 5 per unit. Besides, ad hoc measures can hardly meet a growing demand.

“Yes, we are concerned. In the manufacturing business, uninterrupted power and water supplies play a critical role and any such shortages can definitely adversely impact business operations and have effect on future planning and investments,” says Vice President of manufacturing at Ford India, Tom Chackalackal. After 10 years of plentiful power, Ford recently announced a $ 500 million (Rs 2,000 crore) investment in Chennai, the largest by the company in India so far. But if TN wants to remain a favoured investment destination, it must first make sure the lights don’t go out.

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(Businessworld Issue 05 - 11 February 2007

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