Business
Recent development in power sector and India's competitiveness
By
By Amit KapoorRecent developments within the power sector merit attention.
The
first of these is to do with performance of the coal sector and
allocation of coal blocks. The second is about the focus on renewable
energy and the benefits that can accrue to India. A third and a related
point is about the structure of power institutions in the country and
reasons why distribution companies (discoms) in particular and the power
sector, in general, have under-performed. Also, what can be done to
enhance its performance? All the three points are crucial to being
understood if India is to enhance the competitiveness of its industry
and the well-being of its people.
It is interesting to look at
this juncture at the dynamics of the coal sector. At present, the annual
production of coal is close to 56 crore tonnes, according to the coal
ministry. At the global level, this is just behind China (356 crore
tonnes) and the US (90 crore tonnes) according to estimates for 2013 by
the World Coal Association. The government plans to increase the
production to 100 crore tonnes/year by 2020.
It is clearly an
uphill task from the historical point of view. At the time of
Independence, India had a production capacity of three crore tonnes/year
that increased to 21 crore tonnes/year in 1990-91 and doubled to 40
crore tonnes year in 2005-06. It has since increased to the present 56
crore tonnes. Doubling it to 100 crore tonnes will clearly be a
monumental achievement if the government, along with the industry, can
meet this target. If media reports are to believed, the coal ministry of
Coal is already on this, with detailed mine-wise plans being drawn up
for Coal India Limited, a near monopoly miner in India.
A
setback to the sector came in the form of cancellation of licenses to
204 coal blocks by the apex court last September. The ministry is
solving this by conducting e-auctioning of blocks. The first round had
18 mines with combined extractable reserves of nine crore tonnes going
on auction. Post that, a second round that started on March 4 was also
quite successful with some 15 mines going on auction. These together
have been able to rope in more than Rs.1.57 lakh crore of benefits over
the next 30 years for the various mineral-rich states where the mines
are located. The process seems fair and transparent and seems to bring
India closer the target set for coal production over the next five years
in addition to revenue benefits to states.
Another major
development recently was in the renewable energy space when the NITI
Aayog came up with its first report titled "India's Renewable
Electricity Roadmap 2030 - Toward Accelerated Renewable Electricity
Deploymentâ€. The report made some interesting points about the need to
realign the power policy with what the renewable energy sector is
witnessing at present and come up with a new renewable policy and law.
The
report and its findings find much more relevance in the present
ambitious scenario set by the new government. For both wind and solar
energy, targets have been increased from 20 GW of solar power (by 2022)
to 100 GW (by 2019) and from an additional 15 GW of wind power (during
2012-17) to an additional 40 GW (by 2019). Both these found mention in
Finance Minister Arun Jaitley's budget speech. Other recommendations
included: support mechanisms for compliance and timely implementation
of renewable energy; and RE grid integration and more efficient grid
operation.
These recommendations are apt considering that in
spite of various reforms, renewable energy in India's energy mix is
still lesser than 15 percent of the total production.
Another
issue in the power sector is the structure of power institutions and low
realizations, particularly by the discoms. The combined losses to the
sector, according to a recent World Bank report are close to Rs.350
billion ($5.5 billion). To put that number in perspective, it's five
percent of India's GDP!
The World Bank report also points out to
two bailouts one in 2001 of the order of Rs. 35,000 crore and another a
decade later of the order of Rs. 1,90,000 crore. The report also casts
doubts over electricity access and mentions that one out of four people
in India do not have access to electricity. These statistics show the
fragile nature of the sector.
Several possible reasons are given
for the underperformance of the sector prominent among which are:
political interference and structure of institutions particularly lack
of unbundling. Also, lack of corporate governance, power theft, and
inability of distribution companies to collect revenues are cited as the
reasons for losses.
Keeping in mind the above-mentioned
developments, we feel the sector, as a whole at present, needs reforms
in structure and accountability from state institutions, which the
central ministry seems keen on. These recent developments seem to be
beneficial to India's long-term growth and competitiveness especially
the good news on coal auctions. More such happenings in the economy will
help India revive growth and get back on track to fulfill the promise
that the present government had made to the people before assuming power
- 24X7 power for all.
(The article is co-authored with Sankalp
Sharma, Senior Researcher at the Institute for Competitiveness, India.
Amit Kapoor is Chair, Institute for Competitiveness & Editor of
Thinkers. The views expressed are personal. He can be reached at
[email protected] and tweets @kautiliya)