4-Jan-2012 - For India, a Power Failure Looms

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By ERIC YEP MUMBAI—Almost a decade ago, seeking to overcome one of the biggest challenges facing India's development, the government set an ambitious goal: electric power for all by 2012. Instead, NBA jerseys as the target date of March nears, the power sector is in a shambles, and its dire state threatens India's economic prospects at a time when growth is already being slowed by high inflation, a burgeoning government budget deficit and ripples from the European financial crisis. India is the world's fifth-largest electricity producer after the U.S., China, Japan and Russia, but its per capita consumption is among the world's lowest, at 778.71 kilowatt hours a year. Almost 300 million people don't have access to electricity. The country needs a huge jump in supply to sustain its rapid economic growth, fight poverty and light the homes of those powerless millions. The depth of India's power problems became apparent in the autumn of 2010, when blackouts interrupted irrigation and manufacturing across the country—and even hit wealthy, urban neighborhoods. What once was an industry full of investment and optimism has plunged into a crisis, driven by a mix of factors—some brewing for years, some recent. Government giveaways such as free electricity for farmers have drained cash reserves from the largely state-run electricity-distribution system, leaving it financially crippled and unable to purchase power despite existing demand. A giant new offshore gas field has delivered less fuel than promised. An ambitious nuclear-power program has been stymied by demonstrations at plant sites since the Fukushima disaster in Japan last March. And, worst of all, despite abundant reserves of coal, India can't produce enough to feed its power plants. On average, coal-fired plants should maintain stocks to last 22 days, according to the guidelines of the Central Electricity Authority—but a Dec. 29th report from the regulator showed that of 89 such plants it monitors, 46 didn't have enough coal to last a week, with some holding less than a day's worth or even no coal at all. The plants account for roughly half of total electricity-generating capacity. As more power plants come online—the government and private industry are estimated to have spent as much as 100 billion since 2007 to add capacity—the coal shortages are expected to worsen. At the current rate of growth in coal production, the requirements of existing power plants and those under construction will not be met until the year beginning April 2016, Credit Suisse analysts said in a November note. More than half of India's installed electricity generating capacity of 182 gigawatts is coal-based, and a large chunk of future power projects will also run on coal. By comparison, China's installed capacity at the end of 2010 was 962 gigawatts, about 73% of it from coal. India's coal sector is hampered by primitive mining techniques and rife with theft and corruption; the monopoly coal producer, state-controlled Coal India, has consistently missed production targets. Shoddy transport infrastructure, inadequate for moving coal from far-flung mines to where it's needed, compounds these problems. To increase output, Coal India needs to mine new deposits—but most lie under protected forests or conflict-ridden tribal lands. Government efforts to create an effective land-acquisition program for such projects, including compensation for displaced people, have been underwhelming. "The federal government has neither set up any national fund for the rehabilitation of the displaced persons of various power NFL jersey supply projects in the country nor set up any committee to study the issue of setting up of such a fund, " K.C. Venugopal, junior power minister, told Parliament in September. Coal Minister Sriprakash Jaiswal told Dow Jones Newswires, "Domestic coal production cannot keep up with the rising demand, especially from power companies. They have to import to feed their rising needs and bridge the gap." But international coal prices have surged. "The situation is extremely challenging considering the fact that billions of dollars have been invested in building power plants but they can't be used to produce power due to nonavailability of coal," said Ravi Sharma, CEO of Adani Power. Adani Power's parent, Adani Group, has invested heavily in coal mines in Australia, but India lags behind other major nations in securing coal assets abroad. It accounted for just 9% of overseas deals in the sector in the financial year ended March 31, trailing the U.S., Japan and China, according to data provider Dealogic. "Progressive governments elsewhere are not just aggressively scouting but are tangibly tying up resources known to be available globally. India needs to also get its act right," said Anil Sardana, managing director at Tata Power Ltd., one of India's largest private power producers. India's efforts to develop other fuels have stumbled. It had hoped to set up gas-powered plants after Reliance Industries Ltd. made the country's biggest gas discoveries in the deep water off the eastern coast, but output has failed to meet the company's projections. Hydroelectric power projects in the mountainous north and northeast are caught in ecological, environmental and rehabilitation controversies. India imports power from Bhutan and expects to import from Nepal, too, but the geographical challenges in the region are immense. Once electricity is generated, it must be supplied where it's needed, football jerseys with a crucial link being the provincial distribution utilities that buy electricity and resells it to consumers. Operating at huge losses, they're fast running out of money to buy what electricity is available. Not only do they give away huge amounts of electricity to farmers, partly to curry political favor, they lose more to rampant electricity theft and to government departments that don't pay their bills. Inefficient collection is a problem across the country. The result: The amount of electricity categorized as lost in India's states reaches as high as 40%, and even in the best stands at 15%. With fuel costs high and utilities losing money, raising power prices would seem like a solution—but it's a politically charged and sensitive issue for a government that's being blamed for high inflation levels and widespread corruption. The Finance Commission, an expert body that defines financial relations between the center and the states—appointed every five years, this latest commission was the 13th—forecast that in the year ending March 31, state transmission and distribution utilities will lose 803 billion rupees (15.2 billion), equal to about 0.8% of the country's gross domestic product. It further forecast that the losses will rise. Blackouts are just one effect. By creating uncertainty about future electricity sales, the losses also lead power companies to shelve projects, and add to pressure on lenders that finance the sector. With its latest five-year plan ending in March, India's government is set to miss the electricity generation target it set out. It has met only 64% of the target so far. —Saurabh Chaturvedi in Delhi and Wayne Ma in Beijing contributed to this article. Write to Eric Yep at eric.yep@dowjones.com

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