P Umashankar, Former Secretary, Ministry of Power, discusses with Rahul Kamat on how the new power minister can resolve some of the impediments in the sector, even within the current statutory framework, which can turn the sector into a better opportunity provider for private players.
On adequate fuel supply linkages Over the last decade, there has been an ever-increasing mismatch between coal demand and domestic coal supply, principally from CIL. During the 11th Plan (FY08 to FY12), coal based generation increased 9 per cent CAGR, while domestic coal production grew 5 per cent CAGR. In the 12th Plan (FY13 to FY17), the figures are expected to be 9 per cent and 6 per cent respectively. The result has been that coal imports in FY13 were 62 MT, six and half times the import in FY07.
Domestic coal production has to be ramped up rapidly. It has been estimated that production from CIL may have to grow at 10 per cent CAGR to account for the shortfall of the past and ensure no or minimum gap in the coming years. To achieve this kind of growth, efforts should be made to increase the productivity of CIL.
A number of large mines have already been identified by CIL which can yield higher levels of output, provided environment and forest clearances are expedited. Railway corridors have also been identified which need to be fast-tracked so that there are no evacuation constraints. Considering the number of agencies and states involved, single-window clearance should be seriously attempted by bringing these projects to CCI, for clearance and as importantly for review of progress. Concerned coal-bearing states should also be members of this CCI. The second important action could be to get CIL to contract out coal production through an MDO or PPP mode. This will bring in the private sector and also much desired modernisation in coal mining.
Captive coal blocks allotted have also not performed well. Of the 86 allotted, only 15 or so are producing (around 30 MTPA). Starting the rest at the earliest and increasing production to 100 MTPA by 2017 and 300 MTPA by FY22 should be targetted. In this, timely environment and forest clearances will play a crucial role. Simplifying procedure and setting time-lines should be done.
On enhancing downstream efficiencies The most serious challenge to the power sector comes from the disarray discom finances are in. This has been largely the result of infrequent and inadequate tariff revisions, non-payment of subsidies by state governments and high AT&C losses. Getting state discoms to file tariff petitions immediately and ensuring that these petitions are finalised by state regulatory commissions promptly should be a priority for the next central government. Same for payment of subsidies. AT&C loss reduction is more of a medium term effort. FRP has already detailed conditions to be met by participating states, which have to be strictly enforced by the Union Government with the assistance of nationalised banks. The improvement in the finances of the discoms will breathe new life into the power sector and recharge it. It will also provide them the financial capability to invest in revamping the distribution system. Transco finances will also be improved leading to more investment in intra-state systems.
GoI has already initiated steps for amending the Electricity Act 2003. The incoming Union Government will have a chance to look at it carefully and bring in changes, particularly with the objective of making discoms healthy. In this, serious thought should be given to separating carriage from content, which will provide the consumer real choice among electricity suppliers.
On ensuring growth for local power equipment players Local power equipment producers have two issues: some of the existing orders are not getting executed because of lack of clearances and lack of clarity on fuel supply; and no fresh orders. The first issue can be tackled by expediting clearances. As for the second, discoms are not calling for bids for supply of electricity, which is in turn a result of their poor financials. Improving health of discoms will thus impact positively the implementation orders already placed with domestic companies. There have been no new orders for equipment, because there have been no new coal linkages since 2010. Any boost to local equipment manufacturers will come only when fresh linkages are given and that will depend crucially on the ability of CIL to project higher rate of growth in coal production, thereby not only meeting the shortfall in case of existing LoA holders, but also have some left for new projects. The SBDs for UMPPs mention sourcing only domestic equipment for UMPPs. With two UMPPs reaching RFP stage, finalising the same will mean some boost for domestic equipment manufacturers.
On setting up of new UMPPs Two UMPPs, namely Bedabehal in Orissa and Cheyyur in Tamil Nadu, are reaching RFP stage. Once these bids are in, the new govt can finalise them early, so that two more UMPPs come under implementation.
The problem of fuel risk which may have plagued current UMPPs may not recur in future UMPPs, as the SBDs for the same have been modified to make fuel a pass-through, thereby mitigating the risk perception on this score. However, finding land for a 4,000 MW project may be an issue. Additionally, the carrying capacity of a coal-bearing state from the environmental angle, keeping in view the large number of projects already approved, may have to be reviewed if UMPP are to be based at the pithead. A third factor is that these projects do not attract exemption from customs duty any more. Given all this, the number 4,000 no longer remains sacrosanct. That is, why should a UMPP be 4,000 MW? A beginning has been made in this direction in the current UMPP structure by mandating 4,000 MW to be built in two stages. This should be further reviewed to see if it cannot be even smaller and if so what can be an optimum size for a domestic coal non-pithead project.
Thus apart from expediting finalisation of the Bedabehal and Cheyyur projects, the government may review the size of a UMPP and the optimum location from the pithead where it can be located.
On Coal India´s monopoly As of now, CIL is too large and unwieldy with many subsidiaries, which slows down decision making. There is no sense of competition and so CIL is not pushed to better efforts and move towards greater efficiencies. CIL may be restructured to create fewer, say four, indepen¡dent PSUs. This will make for quicker decision-making and engender competition which will be in the interest of the sector. If I recall correctly, the Ministry of Coal has commissioned a consultancy on how this can be done and the way forward. I expect that the consultant's report will be available with the MoC. I think this report should be acted upon at the earliest.
On a financial package to revive discoms There is already a financial package (FRP) available to the discoms of four states,viz.,U.P., Rajasthan, Tamil Nadu and Haryana. This is likely to be extended to AP, Bihar and Jharkhand. Therefor there is no need for one more package. What is needed is effective and strict adherence to the terms of the FRP. And getting other states and their discoms to follow similar terms in order that discoms as a whole in the country are in good shape financially. Nationalised banks, which lend discoms huge amounts, can play an important role in reigning in discoms and states in this regard.
On recent revision in norms There has been an order of CERC allowing compensatory tariff for power generation in the case of two projects. Once this matter is finalised, CERC will be expected to revise consumer tariffs after due process. It cannot be said that any other project will also get automatically get a revision in generation tariff.CERC will look at each case separately and decide as per merits of the case.
On the other hand, CERC's regulations 2014-19 for Central generating stations will be positive for discoms in the sense that it may result in lower generation tariffs.
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