Business Today

Lessons from the darkness

Anilesh S. Mahajan | Print Edition: Sep 2, 2012

Power Minister M. Veerappa Moily has his job cut out. If India is not to repeat the paralysing grid collapse that occurred on the last two days of July, every single link in the chain that is India's power system will need reform. And for that to happen, Moily will have to somehow persuade the finance, coal, petroleum, and environment ministries as well as the Planning Commission to work cohesively.

A tall task, even on a good day. Despite being in the position for six years, his predecessor Sushil Kumar Shinde could not manage it.

"I know there are challenges in this sector. We will have to take tough decisions to overcome them. We are on the job," says Moily. It will be quite a job, and he has not made a very good beginning.

Several chief ministers chose to ignore a meeting Moily convened on August 6 to discuss how to ensure grid discipline and avert more collapses.

  • State electricity reforms need to gather steam
  • The grid needs to be more disciplined. Penalties need to be stringent
  • More lines needed for grid connectivity
  • Fuel sector needs to be reformed
India's power grid runs through several states. Its smooth functioning depends on states and grid operator, Power Grid Corporation, adhering to a set of dos and don'ts. The grid's collapse on two consecutive days is an example of what happens when those rules are disregarded.

Shinde blamed the outages on states overdrawing power, but judging by information provided by officials from Power Grid Corporation and its subsidiary, Power System Corporation (POSOCO), there was more to it. And the states as well as the Power Grid Corporation could be at fault.

Though the causes are still under investigation, going by the information available, the outage on the morning of July 30 occurred because there was more power available than was being drawn by the states. In such a situation, POSOCO, which runs the power grid's electricity dispatch centres, either requests states that are underdrawing to take out more power, or directs generating plants to reduce supply.

POSOCO may not have done that. Or the states may have ignored its directives. Worse, repairs to fix the outages were not carried out effectively, leading to another collapse on the afternoon of the following day.

Delhi Metro came to a standstill when the Northern grid failed
Delhi Metro came to a standstill when the Northern grid failed
"We have one of the world's best grid codes (rules), but we need them to be enforced," says Harry Dhaul, director general of Independent Power Producers Association of India, a private sector industry lobby. He is hopeful the grid collapse will push the establishment into taking some bold steps.

In March this year, the Central Electricity Regulatory Commission had directed states not to overdraw power. Further, it ordered Power Grid Corporation not to allow any excess withdrawal. However, that directive is being observed in the breach.

"It is a politically sensitive issue. Imagine the repercussions if electricity supply to Uttar Pradesh is stopped for non-payment of dues," says Arbind Prasad, a former senior adviser on power in the Planning Commission.

Ensuring adherence to the grid's protocol is just one of the problems confronting Moily. His biggest challenge will be to fix things on the supply side.

India has not been able to generate sufficient power because of the shortage of fuel, particularly coal. Over 66 per cent of India's power capacity is fired by the commodity. But despite having one of largest global coal reserves, India's power plants are crippled by inadequate supply. Most operate at 70-80 per cent of their maximum capacity.

Coal production has been hampered by stringent environmental rules and the inefficiency of Coal India Ltd (CIL). The stateowned monopoly produces 81.1 per cent of India's coal, and supplies 82 of India's 86 thermal power plants.

If the sector is opened to the private sector, as recommended in the Coal Reforms Bill currently being considered by a cabinet committee, the quantity and quality of production is certain to improve.

On the demand side, state electricity boards (SEBS) need to become financially stable. SEBS in seven states, including Rajasthan, Uttar Pradesh and Tamil Nadu, are on the verge of bankruptcy. In all, these states have an outstanding debt of more than Rs 2 trillion (one trillion equals 100,000 crore).

In part this situation has arisen because of the unwillingness of state governments to allow SEBS to pass on power costs to consumers. For instance, according to Tamil Nadu Electricity Board estimates, 11 billion units, worth Rs 6,600 crore, are given as free/subsidised power annually. Until last year, all that the utility got from the government was Rs 250 crore towards the subsidy (see www. To finance the subsidy, SEBS are forced to borrow money and this has left many with a huge debt burden.

The Planning Commission has made some recommendations to the finance ministry to deal with the debt and revive the SEBS within five years. It wants 50 per cent of the debt converted into tradable bonds that will be taken over by the state. The Commission has suggested that the rest of the debt be restructured and held by banks with state government guarantees.

States also need to lower their transmission and distribution (T&D) losses. Currently, most face T&D losses of 20 to 30 per cent, and this needs to be lowered to a more manageable 10 to 15 per cent. "It is not difficult - one just needs political will," says Prasad.

The question is, does Moily have it?

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