Obviously, this creates a pressure for private players to secure coal supplies for the long term. But the major caveat is still the coal policy, which has not kept pace with the demands of the power sector. Demand for coal has been increasing by 8-9% per annum, but Coal India’s production has only increased by 5-6% CAGR from 2004-09. The government’s plan to open captive mining to private players has not yielded the desired results as the blocks allotted have not proved economically viable for many reasons. The government has introduced a useful policy initiative for allotment of coal blocks on competitive bidding basis. But the framework for final allocation is still not finalized; and that’s impeding projects by a great deal. It is also being proposed by some sections that blocks be given to private players for commercial use too.Coal has limitations, thanks to green concerns, due to which there has been an imposition of a coal cess on thermal power generation and a growing commitment to reduce its use. Hydro is a very useful alternative, but the pace has been too slow. V. P. Bhargava, Director-Technical, NHPC, comments, “We need to have 10-year plans in the sector to fulfil current five year plan targets!” India’s hydro generation capacity is around 1,48,700 MW and we have exploited just about 47,000 MW. Out of total installed capacity, share of hydro is only 25% whereas for stability of the grid, it should be 40%. Policy clearances play the main villains here too, besides geographical issues. Post the announcement of the plant, actual clearances take 3-4 years. Most unexploited potential is in the north east (around 60000 MW); primarily in Arunachal Pradesh. Bringing this power to other parts of India through the chicken neck (the thin tract of land that connects North East to West Bengal) presents its own set of problems.
Out of the renewable energy set, Manish Aggarwal, ED, Infrastructure Advisory, KPMG India, comments, “There is significant interest in solar. However, any meaningful contribution from solar power will mean that it will also impact the average cost of power purchase. I don’t see clarity on how this cost impact will be managed going forward.” Actually, India does have massive potential due to one of the highest solar intensities in the world. K. Subramanya, CEO, Tata BP Solar, laments the lack of opportunities and infrastructure support, as he says, “We are exporting 80% to the western world. We want to sell in our country but there are not enough opportunities.” The government has allocated Rs.500 crore for setting up of solar and small hydro power units in this year’s budget. According to Deepak Puri, CMD, Moser Baer, (which is planning to become an end-end player in solar energy), this is too less. He says, “If you plan to set up 300 or 400MW plants, this will be wiped out in 2-3 months.”
Due to past inexperience, most private players rely on external contractors to execute projects, and risk facing delays as well as cost overruns. At the contractor end as well as at the company end, the problem of manpower is equally crippling, as not many engineers and technicians have been churned out for the power sector like they were for a sector like IT. The Planning Commission estimates that the augmentation required at all levels is 8424 personnel for the thermal power sector and 3420 people for the hydro power sector. Similarly, there is a huge equipment deficit.
In addition, mega power projects may end up getting severely constrained by finances. According to KPMG 2010 report on the power sector, each Ultra Mega Power Plant (UMPP for 4000 MW) costs over Rs.160 billion and it’s a high stakes game. Any delay in receiving the financial amount at the right time and/or at the desired terms could derail some of these projects midway. RBI’s stringent norms for exposure of banks to individual companies
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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