NEWS
INTERVIEW
SPECIALS
CHAT
ARCHIVES

An area of creeping darkness

The hitherto despondent horizon of Indian industry and trade has brightened suddenly. Bank lending rates have been slashed, the business-literate Chidambaram has returned to the finance ministry to pilot his industry-acclaimed budget through Parliament, and a distinct prospect of the Gujral coalition government surviving for at least one year has emerged.

However there are also several dark and menacing clouds discernible in the distance.

And perhaps the most menacing of the clouds looming over Indian business and about to assume nimbus-like proportions is an imminent power famine. Against the Eighth Plan (1992-97) capacity augmentation target of 30,858 MW, actual capacity addition in the first four years of the plan period has been a mere 14,799 MW.

With peak load demand expected to reach 100,000 MW in the year 2002, installed power generation capacity will need to almost double from the current 87,000 MW to 160,000 MW within the next five years (because the international norm is 60 to 65 per cent capacity utilisation). This will require a capital investment of approximately Rs 2,400 billion -- an outlay which is wholly beyond the means of the Union and state governments.

Such, dear comrades and quasi-comrades, was the compelling arithmetic which prompted the economic liberalisation and deregulation policy initiative of July 1991 and the invitation to foreign direct investment in infrastructure industries and the power sector in particular. Not susceptibility to a World Bank-orchestrated international capitalist plot to neo-colonise India.

To their eternal credit then prime minister Narasimha Rao and finance minister Manmohan Singh finally accepted that the Union government's dog-in-the-manger economic policies of the past four decades had driven the nation to the edge of bankruptcy. That with the collapse and disintegration of the Soviet Union and the end of the ideological cold war, the hand-outs era of free lunches was over. It was a defining moment in Indian history.

But while at the apex level of government there is a belated realisation that meaningful capacity augmentation in the power sector is impossible without foreign direct investment, old habits die hard. This reality has not filtered down into the rank and file of the 20 million-strong monster-bureaucracy of the Union and state governments. Or into the addled heads of the comrades of the left and their chorusing fellow travellers. For them it's business as usual and the anticipated flood of foreign investment into the power sector is a mere trickle despite FDI proposals for augmenting capacity by an aggregate of 74,000 MW pending with the central government.

The primary cause of FDI not flowing into the investment-hungry power sector is the lack of a coherent policy to canalise potential investment. Decades of experience of case-by-case discretionary clearance of FDI projects after ostensibly detailed analysis of costs and benefits has proved difficult to shed. Particularly since the primary objective of detailed analysis has traditionally been to buy time for the negotiation of cuts and commissions for decision-makers from contending bidders.

Simply stated, politicians and bureaucrats stand to lose too much if the discretionary case-by-case system of project clearance is abandoned. Currently each greenfield power generation project requires clearance from over 60 government ministries and departments, onus on the promoter(s).

Yet quite clearly the graft-loss opportunities of politicians and bureaucrats should not determine the shape of public policy. In this respect we could follow the example of neighbouring Pakistan in which power shortages have been wiped out by the simple expedient of government fixing the price which electricity boards will pay per unit of power and inviting bids from foreign power generation companies. Everything else from land acquisition to choice of feedstock, technology, imports, environment clearance etc. is the headache of the foreign investor.

Then there is also the Philippines example of single-window clearance (onus on government) which have relegated the notorious blackouts of Manila and other cities to history. Clearing power projects is not as complicated a business as the bumbling negotiators who mishandled the Enron project in Maharashtra made out.

Clear project clearance policy and procedures apart, the other bugbear of the power sector is the state government-managed state electricity boards. All of them are the playthings of populist politicians who compel them to provide free or near-free power to farmers and urban households while simultaneously turning a blind eye to power theft euphemistically described as T&D (transmission and distribution) losses. Not surprisingly all of the nation's SEBs are bankrupt, unable to earn the mere three per cent return on capital prescribed by law.

Understandably foreign or indigenous private generation companies are reluctant to supply power to SEBs who are unlikely to pay for it. But their insistence on sovereign guarantees (underwriting by the central government) makes left and fellow travelling politicians see red. In their book that's an infringement of national sovereignty!

Every problem has a solution. And the solution is usually obvious. It is the national inability to find the obvious solution which has transformed India into an area of creeping darkness.