India ’s rating continues to take a beating as most of the core sector issues remain unresolved. The domestic power sector needs a special mention as availability of coal and natural gas along with the poor financial health of distribution companies remain a major concern. Despite huge coal reserves, the domestic power sector is facing coal shortages. In the last two years the coal imports have almost doubled adding the burden to import bill.
Experts say that apart from the inadequate fuel supply, the delay in land acquisition and environmental clearances are other issues that have hit power production. Even the state-owned coal supplier Coal India limited (CIl) blames environmental clearance norms for the lower than expected output, saying many of its mines have reached their environmental clearance limits.
While data shows that national coal production has improved from a decline of 0.2 per cent in 2010-11 to a growth of 1.3 per cent in 2011-12, followed by a rise of 3.3 per cent last financial year, the 100 million tonnes (mt) gap in demand and supply, along with lack of gas for firing power plants, has become a concern.
Power generation in India has grown by a mere four per cent in 2012-13, as compared to 8.1 per cent in 2011-12. Issues of fuel supply are bogging down generation as over 68 per cent of India’s 223,000 megawatt (Mw) power generation is coal and gas-based. Analysts say that what adds to the problem is the idle power capacity of roughly 25,000 Mw, which was commissioned without an assured fuel tie-up. This idle capacity is the result of the gap between generation and capacity addition.
If we consider the fact that in March this year, power generation grew three per cent in contrast to the 28 per cent jump in capacity addition, then the futility of adding capacity becomes quite obvious, experts point out. According to the Central Electricity Authority, the power ministry’s technical and planning unit added an unprecedented 7,028 Mw capacity in March alone as compared to the 5,482 Mw in March 2012.
The policymakers have, at last, realised the problem posed by this overcapacity and the lack of fuel for plants. Therefore, the power capacity addition target for the current plan period was cut down from 100,000 Mw planned initially to 88,000 Mw in the Twelfth Plan document. This along with a poor performance in other infrastructure sectors led to a paring of GDP growth target for the five-year period ending March 2017.
Even as the fuel supply agreement between CIl and power companies is being resolved, experts are of the opinion that it may still take a long time to cover the gap between demand and supply of power. These agreements are mere binding documents but the crux of the problem is coal supply. All aspirations for a high growth rate may be dashed if this problem is not solved.