Until recently, officials in the power ministry would have had us believe that after missing targets for capacity addition as laid out in the 8th, 9th and 10th Plans, the 11th Plan would prove different. This delusion was officially put to rest last week when both Union power minister Sushil Kumar Shinde and deputy chairman of the Planning Commission Montek Singh Ahluwalia admitted that India could not generate the 78,700MW it had planned to by 2012.
Illustration: Jayachandran / Mint
We’ll never understand why the government makes promises when it knows they won’t be kept. Given that India’s current installed capacity is around 140,000MW, adding half of that by 2012 always stretched the imagination. For the 10th Plan, government targets were off by around 50%. But what is it about India’s power sector that makes it so unpredictable?
First, power generation targets are announced and then deferred. The power sector involves some of the thorniest issues facing India’s corporations, most particularly land acquisition and debt financing; it’s not hard to see why projects are not completed on time.
Second, fuel security presents a big problem. Most power generation still relies on coal. The new promising supply of fuel, natural gas, is now embroiled in the Ambani dispute. The government can do much to ease matters here.
India could use more public investment in this area, but with record fiscal deficits that may prove a scarce resource. That’s where the private sector comes in. The 2003 Electricity Act appeared to recognize that the public sector could not handle the burden of capacity generation on its own.
But private companies still contribute less than 15% of the current installed generation capacity. On the distribution front, the private sector is present mainly in cities. Some of the problems state companies face—financing and land acquisition—are exacerbated in the private sector’s case. The government here can help private firms in tiding over these issues.
But the private sector is often better at implementing and managing projects. A recent World Bank study in 71 developing economies noted the gains in efficiency and performance once distribution of electricity and water was privatized. For instance, electricity distribution losses go down by 11%; today, government distribution loses 30% electricity. That’s a strength worth capitalizing on.
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