Private power

Private power players, though bound by red tape, are driving incremental capacity growth. With friendlier policies, they can do much more.

The power generation sector was one of the earliest to be opened up for private investment in the mid-1990s but, thanks to projects such as Enron, all that the industry attracted was controversy. Things began to change a few years back, when major groups such as GMR, GVK and Lanco tapped the equity market with credible investment plans for power generation. The last couple of years have seen others, such as the Adanis and the Jindals, chalking out major capacity addition plans. And the benefits are now beginning to show. Private players are now driving incremental capacity addition, leaving their more established public sector peers far behind. The private sector accounts for more than half of the 4,935 MW of capacity added in the first half of this fiscal, which is a continuation of the trend over the last three years that has seen private players gradually increasing their share in capacity addition from about 8 per cent in 2007-08 to 45 per cent in 2009-10.

The performance of private players is noteworthy because, despite all that has been done to ease investments, the power sector is still hamstrung by policy-related problems. Securing site clearances for a generating unit has always been a headache. The recent notification of the Environment Ministry of “no-go” zones for coal mining is only the latest problem for those planning to use coal as feedstock. Even a couple of ultra mega power plants planned in Chhattisgarh and Orissa are caught in this imbroglio. If investors get past this barrier, they are confronted with other problems, such as hurdles to open access placed by state utilities that control transmission and distribution lines. And if they brave it out to set up their own lines, that does not go down too well with the State utilities, who demand bank guarantees before they can allow them to build their own corridor. If despite such unhelpful policies the private sector has done so well, just imagine what it can do in a more enabling environment.

Meanwhile, the government needs to look into the causes for the glacial pace of capacity addition by national utilities such as NTPC and NHPC. The last few years have been none too good for them, with NHPC especially being a victim of pressures from the environmental lobby opposed to hydro-electric power projects. Equipment delays have been the bugbear of NTPC, relying as it does entirely on the state-owned BHEL for a bulk of its supply. The government needs to consider if it should allow its generating utilities to seek out suppliers with shorter lead times, even if it means a little extra investment. With multinational equipment manufacturers such as Alstom, Toshiba and Mitsubishi setting up plants in India, the options are certainly widening for power producers.