Time for a power-ful reform

Jun 09 2014, 00:33 IST
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SummaryStop cross-subsidies of SEBs, adopt PPP for distribution & open coal mining

Appraising a government by its first day in office may be as hazardous a business as judging a book by its cover, regardless of who the author is.

Yet it has to be said that the Narendra Modi story has gotten off to a promising start, particularly in areas relevant to India’s comatosed infrastructure and manufacturing sectors.

With just a few decisive strides, Modi has shown that he means to walk his talk. First, his move to integrate the ministries of power, coal and renewables into a single entity is commendable. This step is in line with best M&A practices that target higher efficiencies and faster decisions by merging separate but mutually-reliant pieces into unified, synergised business units.

It is no secret that India’s growth story lost much of its steam largely owing to the chronic shortage of coal during UPA-2’s tenure. The hardest hit was the power industry, which consumes 85% of the country’s coal output. Until five years ago, gas (along with coal) was expected to lead India’s power charge and consequently its economic aspirations. The fuel is no longer even relevant owing to its non-availability and exorbitant cost.

Therefore, the future of India’s thermal power industry, which is 70% of its total generation capacity, is hitched to coal more than it ever was. Hopefully, now that the ministries have been merged with a clear agenda to aid growth, decision-making would not only be faster but also more cohesive.

The problems plaguing the power industry are well known but in the absence of clear, coherent policies, the sector has suffered to an extent that few financial institutions are willing to engage with it any more. Consequently, with the finances required to complete projects drying up, a number of investors find themselves on the brink of financial collapse. Even projects that have limped to completion face an uncertain future because of the fuel crunch.

Ironically, states like Gujarat and Chhattisgarh, which have built excess capacity, have no way of evacuating their surpluses to power hungry states like Tamil Nadu and Andhra Pradesh.

The power industry is in such a bind largely owing to lack of planning. A country sitting on 200 billion tonnes of coal reserves, shockingly enough, imports 140 million tonnes of coal annually—this is likely to grow to over 400 million tonnes by 2020.

Sure, Indian coal is of inferior quality. But it is our own. Since fuel accounts for 40-45% of power cost, it

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