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Power Sector in India

By Kumar Amitav Chaliha

For a time, it looked as if India’s new Congress party-led government might bring the recent resurgence of investment in the country’s power sector to an abrupt halt. When it was reviewing the Electricity Act 2003 — legislation passed by the previous government that laid out a framework for restructuring and privatizing the debt-laden state electricity boards that long dominated transmission and supply — share prices in India’s increasingly active private power developers collapsed. This now looks to have been an over-reaction.

Programs to reduce heavy transmission and distribution losses, and the theft of as much as 35% of all generated power, are expected to continue even if the state governments retain ownership of the network. Investors’ concerns were further assuaged when the new government announced plans to offer fiscal incentives, including lifting of all import taxes for new power plants smaller than 1,000 MW, and approved ten power projects. So, it now appears that some 10,000 MW in planned new generation capacity will go forward after all.

Firdose Vandrevala, managing director of Tata Power, summarized the view of many power project developers in a recent interview: "By itself, the Electricity Act was not going to achieve much," he explained, as action to improve the distribution system was also needed at the state-level. He said that Tata Power would go ahead with investing in generation facilities even if the distribution network remained in state hands, so long as the state electricity boards "become productive and their payment capacity improves."  He added, "we are not worried whether [the distribution network] is in private or public hands, so long as it is efficient and has the ability to pay."

Foreign power developers, which all pulled out of India in the wake of the collapse of the Enron-led Dabhol project due in part to non-payment by the Maharashtra State Electricity Board, are still absent. But domestic Indian conglomerates and trading houses are piling into the sector, along with upstream major Oil and Natural Gas Corporation (ONGC) and gas operator GAIL.