India Insight

Counting the cost of India’s blackouts

May 16, 2013

(Any opinions expressed here are those of the author and not necessarily of Reuters)

Is it better to pay more money for more electricity, or keep prices low and look forward to blackouts that will conk out offices, factories and homes in India? That is the question that lies at the heart of an ongoing debate about whether authorities should allow utilities Adani Power Ltd and Tata Power Co Ltd to raise their tariffs on existing contracts to clients, to compensate the companies for the domestic coal supply shortages and the rising cost of buying coal from overseas.

Much of it a relic from before the 1991 economic reforms that kick-started the India growth story, the country’s infrastructure is screaming out for more investment to fix pot-holed roads, modernise the railway network and build more power plants. But unable to match the spending power that the likes of China have, the Indian government has turned to the private sector to fund much of the new infrastructure it needs. Indian politicians must therefore strike a balance between allowing the private sector to make money, while at the same time protecting the interests of customers (and voters) in a country where hundreds of millions live below the poverty line.

Is it better to have state-run, pot-holed roads, or have swish six-line highways that charge a toll that becomes unaffordable to some? What’s more, to what extent should the government go to protect infrastructure firms – vying with one another for project bids – when such projects run into trouble?

At the start of April, Adani was granted permission by the federal power regulator to allow it to charge “compensatory” tariffs to existing customers in Gujarat and Haryana, after a spike in the price of Indonesian coal caused it to incur heavy losses. Tata Power won a similar ruling two weeks later. Adani has already seen the ruling challenged by the Haryana state, which argues that Adani should stick to its original agreement. That has sparked fears that the ruling – a potential game-changer for the sector that has been battered by fuel shortages and distribution losses – could get bogged down in legal battles.

The lawyer who represented Adani in the case, Amit Kapur of J. Sagar Associates, said Adani’s original bid for the project was premised on the company using domestic coal. But the mine meant for Adani never got allocated, which forced the company to rely on imported coal. When Indonesia later jacked up its prices, the plant started to incur heavy losses. Adani said in its petition it could not continue to run the plant for more than two or two-and-a-half years if it continued to bleed cash, Kapur said.

“We don’t want to profiteer out of it, but we can’t possibly continue to incur this kind of loss because it will wipe out our whole equity, Kapur told Reuters.

Both Adani and Tata have made similar arguments to support their case.

Is it really in India’s long term interests, they argue, to let already-built power plants shut down because of unsustainable losses? Because that means, they say, that no one will get the electricity India needs and the country will have to spend even more money building new plants that may then also be forced to shell out cash for expensive imported coal?

“By any standards, a project which is ready, on the ground and running, is far better than a project which is not even started,” a source close to Tata Power said. “It’s a no-brainer that this increase is still justified.”

(Follow Matthias on Twitter @matthi_williams )

Comments
3 comments so far | RSS Comments RSS

it is easy to locate slums within the premises of Bandel Thermal Power Station, west bengal. when you go closer you can see DTH antennas and at-least one improvised copper wire antenna on the roof of each hut. when you go closer you can hear clearly latest bollywood song being played.

they have t.v., fans, light bulbs. but you won’t find any electrical wire hooking.

the live wire to connected to the improvised antenna and the second phase comes from the earthing wire.

these so called dwelling are illegal, but the power company can do nothing, because the politicians who claim to be for the poor, by the poor and of the poor, have disagreed upon the relocation or removal of these slums for decades, even though the area is highly hazardous to any living creature and hence strictly prohibited.
…………..

it is high time to deregulate power prices. ‘pay as you use’ is a well tested policy.

as far as i know most of the new high capacity plants in the pvt. sector are importing raw material.

and at the end of the day an org. goal is to generate profit. last option left to them is – hire cheap labor.

so technically low or BPL friendly prices are like snatching bread from one and feeding the other.

Posted by dipakkumardas | Report as abusive
 

Bad planning is the first lesson that one gets from this incident. Why did the govt allow such power plants to be build, if they couldn’t assure regular fuel? And India has fifth largest coal reserves in the world.We can use them. Though there is no need to depend on it entirely, but it could used it as a bargaining power with the other coal producing regions. Modi had referred to it. According to him after seeing that govt has not allowed coal to be mined, all these countries increased the prices of the coal further leading to shortages.
Regarding roads, not sure if the govt has no money to maintain them. You can see a good example in Luyten Delhi. How well the roads are maintained there. Even after monsoon, the roads are good. Have you travelled to Delhi recently? The roads are all good, not because govt has suddenly become benign and aware of it’s duties :(. It’s because it’s election time! As far as building of infrastructure is concerned, it could be private -public partnership.
But any building of infrastructure, planning requires time, wisdom and sincere effort. You cannot build it overnight. You will have to study the population of the city, the economic plans you have, the major residential and workplaces, the need for better public transport linking them etc. If the cities are overpopulated there is need for the jobs to shifted to newer areas, which again require more planning. All this requires effort which our politicos don’t want to put. In fact, some observers say that it is better for them to keep India poor so they get easy votes, and if they have a chance they will reverse all 1990 reforms. India’s foolish economic polices have already costed it much (think of it, 1947 total population 400 million, 2010 middle class 300 million). India I know has a potential only if she taps it. There is a need for capable people in politics. If India could produce such good leaders on eve of 1947, I don’t see a reason why it cannot in future.

Posted by Woman21 | Report as abusive
 

Before one accepts the argument for paying quality of power, we need to recall the age old maxim that quality, per say, does not cost more.
Power sector players and stakeholders need to seriously introspect to search out all possible inefficiencies, and then, only then, the option to increase the sale price may be looked at.

Posted by Ashok_Vaishnav | Report as abusive
 

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