Power shortages, no coal, no bid documents ...
India’s power sector has just managed the impossible. It has huge shortages of power with power plants not producing thanks to all manner of coal/gas shortages; but, at the same time, it has cash-strapped state electricity boards or distribution companies too bankrupt to buy power from even the producers who have coal/gas. If that isn’t bad enough, it has been over a year and the bidding documents that allow power producers to bid for new plants still haven’t been cleared. And though there have been two inter-ministerial groups (IMG) set up to bring in PPPs to augment coal supplies—critical if power plants are to be able to produce power—there has been absolutely no progress on this so far. The last IMG was set up under the previous finance minister, the latest one which has held just one meeting so far—the second meeting to be held yesterday was cancelled—was set up by the present finance minister.
Take the new bid documents first. In the past, India had what were called two-part tariffs where producers bid for their capital costs while fuel costs were passed on to buyers—if the price of coal/gas rose, electricity tariffs rose; if they fell, so did electricity tariffs. For some reason, the government then moved to a single-part tariff where just one price was quoted—so power producers tended to quote low prices to win bids and this is where most projects, such as the ultra-mega power projects, got into trouble as fuel costs sharply escalated. The Central Electricity Regulatory Commission has tried to find a solution for some of them but, so far, this has not yielded much. Under the new bid documents, the idea was to broadly get back to having fuel costs as a pass-through. A relatively simple issue, you’d think. Yet it’s been almost a year since the previous power minister cleared the bid documents; these have, however, been opened up all over again—while there may have been valid reasons for this, the fact of the matter is that the Empowered Group of Ministers that has to clear these documents is yet to do so—it is anyone’s guess as to when this will happen.
The coal story is even more horrifying. With Coal India not able to supply coal—imports of coal have risen from 0.5% of GDP in FY07 to 0.9% in FY13—an IMG was formed over a year ago but little was heard of this after a couple of meetings. After the Deepak Parekh committee recommended bringing in PPP players to augment coal supplies—they would supply to Coal India since the Coal Nationalisation Act prevents open-market sales—over a year ago, the finance minister announced this in his budget speech. After this, another IMG was set up and it met in April—the progress so far, however, has been precisely zero and Coal India is once again back to offering its own diluted version of PPP, a discredited model which, were it working, should have brought in a lot more private producers. In any case, as the experience in the gas sector has shown, nothing short of allowing free-market pricing is really going to do the trick—in the case of the gas sector, even the state-owned ONGC and GAIL have made it clear, they cannot produce unless prices are raised significantly. Given how the government has put even the sale of 10% of Coal India’s shares on hold after the union threatened a strike, that’s asking for the moon—even getting the PPP model through looks like a long haul.