Economic
Highlights
New Delhi, 31 May 2007
Power Sector Woes
FOCUS ON ELECTRICITY THEFT
By Dr. Vinod Mehta
The deteriorating power situation
compelled the Prime Minister to convene the meeting of National Development
Council (NDC) last week to discuss
the issue. With the onset of summer the situation could
worsen in some States. There was a time
when power cuts were unheard of in Maharashtra,
but today it has become routine and that too at a time when development of
Mumbai is being thought of as an international financial hub.
During the meeting the Prime
Minister stressed that unless something is done to check theft of power and
increase the capacity of electricity generation the economic growth could be
seriously affected. “Time is running
out…unless we arrest the growing
shortages, the effect on our economy may well prove disastrous,” he observed.
If we take the sectorwise
consumption of electricity, both industry and agriculture together consume
around 64% of the electricity produced in the country while the domestic sector
consumes less than 20%, commercial
sector consumes around 5%, railways around 2% while all others consume the rest
of the electricity.
It is common knowledge that
electricity is one of the most important inputs for economic development of a
country. The regular supply of electricity to agriculture and to industry
including transport like railways is very important for realizing a higher
growth rate of around 8 to 9% which our planners have been envisaging.
Unfortunately, nothing much has
been done to develop the power sector and it has been allowed to fall pray to
populist approaches like free electricity to farmers. Shortages of electricity
have become very common. The available figures show that the power generation
capacity has increased from 1300 MW in 1947 to 128000 MW by 2006. But this is
not enough to cater to the needs of the country. There is big shortage of power
of around 13%. We are mainly dependent on thermal power. As per the available
figure, 80% of India’s electricity is produced in thermal facilities using coal
or petroleum products, about 17.7% is generated by the hydro-electric
facilities and 2.3% in nuclear power plants.
According to the Capsule Report
on Infrastructure Sector Performance for the period April 2004 to February 2005,
released by the Ministry of Statistics and Programme Implementation, the power
shortage during April 2003 to February 2004 was 7%. The peak hour shortage
during April 2004 and February 2005 was 12.1%. The overall power shortage in
the northern, western, southern, eastern and north-eastern region was 9.4%,
11%, 1.6%m 2,2% and 6.1% respectively.
During this period generation
capacity of 3643.92 MW was added against the target of 4990.72 MW which lagged
behind the target by 27%. If we continue like this we will never be able to
solve the problem of power shortage in the coming years. As a consequence apart
from the domestic sector the industrial and agricultural sector will continue
to suffer as before.
Though the Government has been
making considerable investments in the power sector, yet the investments are
not sufficient. Moreover, the equipments have become old and have not been
replaced for reason best known to the Government. When electricity is
transmitted over long distances some amount of electricity is lost. Though the
transmission and distribution losses have come down from 22% in 1995-96 to 20.8% in
1998-99 yet it is a significant percentage. Besides losses
through transmission and distribution,
significant losses also arise due to
theft and pilferages.
Due to historical reasons various
equipments and systems used in generation, transmission
and distribution networks are not of very high efficiency, resulting in huge losses and wastage of large quantities of power. Due
to the low efficiency system, the losses
run to several thousands of MW of power generated ultimately reducing the total
power available to the users. It is estimated that over 25% distribution
transformers fail every year in State Electricity Boards (SEBs) compared to less than 1% abroad.
The
other major problem is theft and pilferage; about 40 per cent of the electricity is
lost in transmission i.e., out of
100 units of power generated 40 units are lost due to theft and pilferage. It is reported that Delhi alone loses Rs. 3000 crore every year
because of theft.
Apart from facing shortages of
electricity the cost of power as paid by the industrial and residential
consumers is among the highest in the world. The electricity supplied to
agricultural sector is either highly subsidized or made available free to them.
The tariff rates for commercial, industrial and rail are more than the average
per unit cost and less for
agricultural consumers. The industrial consumers have to pay as much as Rs.4.2
to Rs.4.80 per unit in some States which is higher than the captive power
generation cost of Rs.3.30 per unit. The average tariff is Rs.4.00 per unit in India compared to Rs.2.2 in Malaysia, Rs.2.00 in the Philippines, Rs. 1.00 in Indonesia and eighty paise in Thailand.
The Government has planned additional capacity of 100,000 MW by 2012 to
solve the problem of shortages. This plan will require huge investments close
to over Rs.800,000 crore for generation and associated
transmission and distribution
networks. How are we going to achieve this? If we go by the past performance it
is a Herculean task. The achievement of additional generating capacity was only
around 50% of the target in the Ninth Plan (1997-2002). During the Tenth Plan
also only 50% of the target for electricity generation was achieved.
Moreover, power projects approved by the State Governments are not
seriously implemented. The case of
Dabhol power project is well known. Due
to the financial problems of the SEBs, a large number of foreign firms
cancelled or delayed power generation projects in India between 1999 and 2001. For
instance, the largest of the power projects which had obtained Government
approval, the $5 billion, 3,960-MW coal-fired Hirma Power Plant, was cancelled
by Mirant Corporation in December 2001.
On top of it, a significant part of the scarce funds is used to pay
subsidies to the power sector. As per the Planning Commission
the total subsidies in the power sector amounts to about Rs.22 billion which
includes commercial losses of SEBs
often shown as subsidies.
All this brings us to the point of reforms in the power sector. It is
clear that the government will not be able to find the necessary resources for investment. Therefore, as a
first step we need to allow private sector and joint sector or even allow FDI
on a large scale in the power sector. It would be impossible
for the country to garner Rs.800,000 crores for the power sector during the
next seven years. This investment is for the new generating capacity but we
also need funds to replace the old generators, transformers and distribution
equipment so as to cut down the losses
in distribution of power as well as bring down the unit cost of production in
the coming years.
There is also an urgent need to
review the pricing policy. Cross
subsidization must come to an end in the next two to three years. Instead of
sticking to cross subsidization of
power to agriculture and the domestic sector the efforts should be to bring
down the unit cost of production to the ones available in the countries like Philippines, Indonesia
and Thailand.
When the unit cost of production
goes down the tariff charged from actual users will also go down. This in turn
will make the industry and agriculture competitive in the world. There will
also be no need to provide free electricity to the agricultural sector as is
being done in certain states at the moment. If the unit cost of production is
very low there will be no need to give any subsidies to any sector as the actual
consumer will be able to afford electricity at low tariffs.
The Electricity Supply Act of
1948 enjoins SEBs to ensure a minimum return of 3% of the available fixed assets in use but hardly any SEB is in a position to
do so as almost all of them running into losses.
It is high time that all the political parties come together to support the
reforms in the power sector to enable the country to realize its economic
potential.
In short, both the Centre and
State Governments will have to focus on checking theft and pilferage of
electricity, replace the ole equipment and allow major investments both by the
public and the private sectors as well as allow and facilitate FDI in this
sector.---INFA
(Copyright,
India News and Feature Alliance)
|