POWER SECTOR FAILED TO ATTRACT PRIVATE INVESTMENT
The reported move of the US-based Mirant Corporation, developing
the $5 billion Hirma power project, and that of the Belgium-based Tractable to
pull out in the coffin of the Indian Independent power producer (IPP) programme.
It definitely is not the last as there are many known to be sitting on the fence
while half a dozen high profile investors have already made known their decision
to pull out.
Liberalisation of the power sector was driven by the realization that the
government would not be able to finance the huge capacities required to keep up
with the demand for additional power. Where they failed, however, is to realize
that with competition from markets the world-over, a more conducive and stable
policy would be required to keep the investments in the IPP scheme flowing in.
Policies have largely been reactive in nature and it is quite clear that knee
jerk solutions have not been able either to add capacities or help achieve
financial closures.
The government machinery continues to hand out figures of capacity addition but
a large part of it is additions through the captive route. Despite generation
being in a mess, demand side management and distribution reforms are now the
flavor of the times under power minister Suresh Prabhu's leadership.
Under the United Front government, the focus was on setting up short gestation
power projects but the entire policy was reversed under the late Mr P R
Kumaramangalam, who was all in favor of mega power projects. The emphasis of the
current power minister, Mr Suresh Prabhu, is on transmission and distribution,
more specifically on distribution reforms.
While it is important for ministers to realize what the current needs of the
sector are and tinker with policies accordingly, it is unwise to take a 360
degree turn which leaves the developers holding the baby (read sunken money). In
a bid to develop short gestation power projects, smaller projects based on
naphtha were encouraged as part of the 1995 liquid fuel policy. Naphtha was the
cheapest fuel, now it is the most expensive one. About 165 projects with a
capacity addition of 36,000 MW were planned. But fuel was allocated to only a
third of this letting 100 off projects die a natural death or convert to gas
whenever available. As per latest indications, gas would not be available for
another three years.
Instead of helping these projects, the ministry under Kumaramangalam changed
tracks and announced its decision to go in for mega projects. With his demise,
the mega project dream also has fallen by the wayside with lenders not sure how
their revenues would be protected given the financial mess of SEBs.
It is another story that most power companies had started pulling out, in any
case, frustrated with delays in getting clearances. The first high profile pull
out was perhaps that of Mission Energy of the US, one of the largest US
utilities. Then there were others like Cogentrix, Electricity de France, the
UK-based Power Gen and more recently Enron. Several others like AES Corporation,
Daewoo of Korea and UK-based National Power are sitting on the fence.
All of them realized that Investments were not translating into bottom lines. In
fact, what aided that deluge of pullouts a little later was the realization that
a huge market for power production was getting created in their own back yard -
more specifically in the United States.
(Courtesy The Economic Times Dec. 19,2001)
