India Power says power sector reform needed for overall growth

“Power sector reforms are expected to figure prominently in the Union Budget. Because the shortcomings of the power sector can hold to ransom not only growth of the manufacturing sector but also the overall economy,” said Hemant Kanoria, Chairman, India Power Corporation, on Monday as the Budget Session of Parliament began in New Delhi.

“A recent World Bank report cites distribution as the ‘weakest link’ in India’s power sector. It is the distribution-end reforms that determine the viability of the entire power sector in our country. It is worthwhile to adopt a ‘carrot-and-stick’ policy so that discoms which are able to reduce their ATC losses are rewarded by the government in terms of support to tide over their losses,” he said.

“On the generation front, the shortage of coal is essentially is artificially created.  Mechanisation and productivity of  Coal India, a monopoly, is abysmally low,” Kanoria said.

“Without stepping up coal production domestically, providing incentives for increasing generation capacity will be futile as that would have a chain impact of running power plants at sub-optimal load factors, power-supply being erratic, cost of power remaining high, high input cost for power fuelling overall inflation,” he added.

   The new government has accorded high priority to the need for reviving India’s manufacturing sector and to this end some policy pronouncements are expected in the forthcoming Union Budget.

According to industry, power is a critical input for the manufacturing sector. Therefore, reforms in the power sector are also expected to feature prominently in the Budget.

As evident from various recent statements to the media, the focus of the government will be on the distribution-end. Considering that discoms are under the purview of state governments, the Central government would also need to put in place a mechanism to monitor the outcome of the incentives provided.

On the generation front, rapid expansion of thermal generating capacity has been hamstrung by shortage of coal. Coal accounts for 60% of India's total power generation. India has more than 280 billion tonne of coal reserves of which 110 billion tonne are ‘proven’ reserves.

"But even then, we are unable to produce enough coal and every year we end up importing almost 150 million tonne of coal to meet the shortfall in domestic supply. So, essentially this coal shortage is absolutely an artificial scarcity In addition, power projects can turn unviable resulting in higher NPAs for commercial banks. Thus, until and unless this coal conundrum is solved, perhaps it is worth encouraging power projects that need less coal for their operations. But the solution in power generation starts from the coal sector," said Kanoria.