Government Panel to Study Stressed Power Sector
26, Jul 2018
Prelims level : Mains level : Paper - III Resource Mobilisation
The government has setup a high level empowered committee under the cabinet secretary to resolve the stress in the thermal power sector.
Committee on Power Sector:
- A high level empowered committee headed by Cabinet Secretary.
- It also contains representatives from
1. Ministry of Railways
2. Ministry of Finance
3. Ministry of Coal
4. Lenders having major exposure to power sector.
- The committee will look into the Stressed thermal power assets which is the major cause of concern for the country.
- It takes steps to maximize the investment, including changes in the fuel allocation policy.
- It also looks into issues relating to the regulatory framework of the sector.
- It examines the mechanism to facilitate sale of power, payment security mechanism.
- It provides measures for maximizing the efficiency of Insolvency and Bankruptcy code and Asset Reconstruction companies in power sector.
- Stressed assets remain a key concern for power sector in India. Non availability of long term purchasing power agreements, non-availability of domestic gas and un viable tariffs have led to stressed thermal power assets in the country.
- India’s energy sector is increasingly unable to deliver a secure supply of energy amid growing demand and fuel imports.
- The coal sector remains the most inefficient and least open to private investment, despite coal being the country’s primary source of fuel.
- The direct outcome of sluggish domestic coal production is the reason for considerable increase of imported coal.
- Stagnating domestic production and inadequate infrastructure for coal have caused serious bottlenecks in India’s energy supply;
- Years of populist tariff schemes, mounting AT&C losses and operational inefficiencies have adversely affected the financial health of State Discoms which are currently plagued with enormous out-standing debts.
- The major issue on pricing is its inability to send a proper signal to suppliers and consumers to effect intended behavioural changes.
- Increasing power generation costs due to limited fuel availability, poor financial health of State Discoms, high AT&C losses have contributed in suppressed demand projections by State Discoms.
- Over the last 4-5 years, the leading rates have increased significantly from the time of project appraisal resulting in project cost overrun and hence higher end tariffs.
- The micro level policies governing the fuel cost pass-through, mega power policy, competitive bidding guidelines are not in consonance with the macro framework like The Electricity Act 2003 and the National Electricity Policy.
- India’s power sector had been a monolithic system that was tightly regulated and dominated by vertically-integrated state utilities until economic reforms began in 1991. (SEBs) controlled the entire electricity supply chain from generation, transmission to distribution within a given state.
- Land Acquisition poses an increasingly significant challenge in the Indian electricity sector.
- Delayed construction of railways by Indian railways to connect mines, dispatch centres and end-use destinations, has already created a considerable bottleneck in coal supply in recent years.
- As PSUs are owned and supervised by the government, they have rather limited autonomy over management and investment decisions. The split goal between political priority and commercial interest often creates confusion in the roles.
- India requires a well-integrated infrastructure for its coal supply chain, which includes railroads, importing ports and washeries.
- private companies that are currently allowed only in captive production should be able to engage in commercial mining, and bring technical improvements and more efficient management to the coal sector. Private investment in the power sector remains below expectation and should be increased.
- Various aspects like ramping up coal production by both public and private sector in a time-bound manner, increased participation of private sector in coal production and easing of regulatory framework, clearances and approvals for allocation and development of coal blocks & gas infrastructure need to be addressed.
- Regulators need to be sensitized to the challenges faced by the sector and policy framework needs to be crafted and enforced to ensure a win-win situation for all the stakeholders. They must pro-actively intervene to resolve the immediate issues ailing the power sector.
- A robust and sustainable credit enhancement mechanism for funding in Energy Sector needs to be put in place through increased participation by global funding agencies like The World Bank, ADB etc. in the entire value chain.
- There is a strong need to push for wider-scale implementation of public private partnership models. The private sector has been playing a key role in generating power, a more supportive environment will help in bridging the energy deficit of the country.
- In addition to capacity expansion, India needs to improve the management of each segment throughout the entire sector, starting with low operational efficiency in generation and high financial losses in distribution.
- Technical and managerial expertise of Indian energy companies needs to improve. Obtaining the latest technology for upstream investments in coal, oil and gas to boost domestic production should be the top priority.
- For effective implementation, horizontal coordination among different ministries needs to be improved. Thus Inter-governmental coordination(vertical coordination) is important to alleviate the growing imbalance among states in terms of energy infrastructure and investment.
- A reliable and adequate supply of energy is the prerequisite for India’s continued economic development.
- India is now standing at the crossroads with a need for the next phase of energy sector reform. Increasing import dependency exposes India to greater geopolitical risks, fluctuating world market prices and intensifying international competition.
- In conjunction with a rising subsidy level and systemic failure to ensure proper revenue collection along the value chain, the financial capacity of energy sector players is significantly undermined.
- In order to overcome this strong political leadership is vital to address energy challenges.
- India’s policy objective of inclusive development and affordable energy should be maintained, but business viability cannot be sacrificed in the process.
- Therefore India should overhaul its current patchwork of energy policies in favour of a comprehensive and clear-cut policy that encourages economic and social development through reliable energy supplies.