Saturday, Dec 03, 2022

With Return Of Coal Shortage, What Happens To Modi’s 24x7 Power Promise?

With Return Of Coal Shortage, What Happens To Modi’s 24x7 Power Promise?

From restricted import, shift in climate narratives to failing DISCOMs, there are many a loophole in Modi’s power promise to India

Narendra Modi.
Narendra Modi.

In the run-up to the 2014 general elections, Prime Minister Narendra Modi’s grand promise was a 24x7 power supply for every Indian. He made this pitch in Uttar Pradesh, a state that was known for power cuts lasting five to 10 hours every summer day. Modi won the General Election—twice. He has also delivered on the dream of connecting every Indian village with electricity. Even the power cuts had become a thing of the past for a few years—until they made a comeback last year due to a severe shortage of coal.

The impact of the shortage has spilled over to this year with summers becoming synonymous with power cuts in India, much like the pre-2014 era, as some point out.

To avoid the political cost of the power cuts, the Centre and the states have begun the blame game. Placing the onus on the states, Union minister RK Singh last week said that the problems of power cuts were not due to a shortage of coal but because of non-payment of dues to Coal India Limited (CIL), delay in lifting coal, and “improper planning” by the states.

This did not go down well with the states. Responding to the Centre’s allegations, Trinamool Congress Rajya Sabha member and national spokesperson Sukhendu Sekhar Roy said, “The blind policy of the Modi government is responsible for the nationwide coal crisis today. During the erstwhile Congress era, private companies were allotted coal blocks indiscriminately and the policy continues. Some of these companies don’t even have their own power plants in all places, but they extract more coal than required, only to smuggle it out.”

Collapse Of Coal-based Power

India has historically been a power-deficit country. The biggest reason behind that was the absence of adequate power generation capacity. While the NTPC was the largest producer of coal-based power, it could not meet the demand of the entire population. It was only in the 11th five-year plan (2007-2012), that India targeted to install 72,000 MW additional capacity. 

While the country fell short of achieving the target, it still laid the foundation of PM Modi’s 24x7 power promise. However, following policy changes and the new climate narrative, India suddenly realized that its newly constructed power capacity was of no use. The dilemma worsened when India’s gas-based power plants ran out of fuel after the Reliance Industries-operated KG-D6 basin failed to produce the promised level of natural gas from its field. To add to that, in 2014, the Supreme Court canceled all the coal mines issued to private players between 1993 and 2010.

“It was a horrible time for coal-based power plants in the country. The entire capacity created in the 11th plan was of no use because there was no fuel to run those power plants,” says an official of one of the companies that lost its power plant following SC’s 2014 move.

The Import Impact

Indian power plants have always dealt with coal shortages by blending 10 per cent of imported coal with domestic coal. Even now, the Indian government has asked power plants to increase the import of coal from international markets and pass on the higher cost of fuel to the consumers—state DISCOMs. 

Then, why is India still staring at a shortage? One of the reasons is the exorbitant cost of coal in the international market. There, however, is a bigger reason. 

In 2017, the Centre had asked the public sector units to completely stop the use of imported coal in their power plants to bring down the import bill of the country. Today, more than anything else, what is hurting Indian power plants is the broken link with international coal suppliers. While the strategy did help India save foreign exchange, it broke the long-term contracts of Indian power players in the international market. Private sector players were discouraged from importing from other countries as well, even if it meant running the plants at a lower capacity.

“You do not go to the international market when the price of coal is skyrocketing. Indian power companies were discouraged from getting into long-term contracts for imported coal. Today, they will not find a suitable deal to import coal at a price that can be recovered by selling power in the domestic market,” says an executive of a power generation company, requesting anonymity.

Post-pandemic Rush

In 2015-16, the Centre committed to an ambitious target of installing 175 GW of renewable energy, excluding large hydro plants, by 2022. Out of this, the target for solar energy capacity was set at 100 GW by March 2023—40 GW rooftop solar and 60 GW ground-mounted solar panels. 

Despite its best efforts, the country managed to install around 53 GW by March 2022. The slow pace of solar capacity did not hurt India all these years because the Indian economy was growing at a slow pace itself. The peak power deficit that used to stay well above 9 per cent till 2012-13 came crashing down to just around 2.23 per cent in 2020-21.

But, the growth rate of the post-pandemic economy is different and it is not just the Indian industry that is consuming more electricity today. According to the Consumer Electronics and Appliances Manufacturers Association, April witnessed sales of 19.5 lakh units of air conditioners in India—a 100 per cent growth as compared to last year.  The household power consumption has grown on the back of the highest-ever sale of air conditioners. 

The association expects the figure to touch 90 lakh units in the full calendar year. Interestingly, this growth comes despite the fact that all the AC companies have increased their prices by 8 to 10 per cent since January this year due to higher taxes and input costs.

Of Freebies And Failing DISCOMs

When the Modi government came to power, it had promised power sector reforms that would improve the health of power DISCOMs. In 2015, the Union Cabinet approved a rescue package for state DISCOMs under the Ujwal DISCOM Assurance Yojana. The scheme allowed state governments to take over 75 per cent of the debt of state DISCOMs and issue bonds to repay the debt. The remaining 25 per cent debt remained on the books of the DISCOMs and was to be repaid through issuing of state-backed DISCOM bonds or repriced bank interest rates. In return, the state utilities had to increase the price of power to recover the actual cost of supply to the customer.

But the waivers offered by the state governments on unpaid electricity bills never allowed the DISCOMs to become profitable. A 2021 ICRA report pegged the losses of state DISCOMs at Rs 6 lakh crore. With more and more states promising free electricity to consumers without allocating funds to DISCOMs from the state exchequer, the situation is unlikely to improve in the coming years. This has made load-shedding a preferred way of keeping losses down for the DISCOMs.

India may be the fastest-growing economy in the world but its per capita consumption of power is one-third of the global average. The blame game that is currently playing out between the Centre and the states is as old as the country’s independence. Without fixing the power problem, any talk of becoming a superpower is a sweet dream on a sultry summer night.