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B K Chaturvedi, Member, Planning Commission

14 Jul 2011

In an interview with InfralineEnergy's Chhavi Tyagi, Chaturvedi discusses the reasons for the lack of enthusiasm of the state governments for RGGVY, the futility of Coal India's insistence for e-auction of coal in spite of the company's inability to meet the demand of the power sector and the need for the coal and environment ministry to arrive at a consensus to tide over the looming coal shortage.

Moreover, as the Eleventh five-year Plan draws to a close, the power sector is expected to achieve close to 55,000MW of capacity addition against a target of 78,700MW. The former Cabinet and Petroleum Secretary expresses satisfaction with the sector's performance in terms of capacity addition and shares his optimism regarding the corrective steps being taken to resolve the issues undermining the sector.

Edited excerpts

What are the primary reasons responsible for the constant revision of installed power generation capacity addition targets in the 11th Plan?

The targets are set by the National Development Council (NDC) when the Plan is finalised. For the 11th Plan, a capacity addition target of 78,700MW was decided. However, the assessment of how much will actually be realised varies, depending on the market conditions, the response of the private sector and other constraints which come up. Considering all the conditions and the constraints that the sector faced in the current plan, I think they have done well. We would have preferred them to achieve the targets, but considering that the total capacity added in the 10th Plan was only around 21,000 MW, an addition of 50,000-55,000 MW capacity addition does not look that unsatisfactory. The sector has achieved more than two and a half times of what it did in the previous Plan. This is a very creditable performance even though we would have preferred them to achieve the stated targets.

One of the major reasons for not meeting the targets is that the management of projects leave much to be desired. Today, there are a large number of issues with the state governments, such as land acquisitions and environmental clearances. There are issues with the contractors, which the developers are not able to resolve. Also, there is this new question on fuel availability which has come up. Besides, there was an inadequate manufacturing capacity in the country with only one public sector player operating in the field. Gradually, there have been new players entering this segment with private sector coming in a big way. All of this has contributed in a positive manner. However, due to the constraints mentioned, the sector may not be able to attain the decided targets.

Considering the unresolved issues like environmental clearances, coal shortage, don't you feel that the targets for the 12th Plan are on the ambitious side? Would the power industry be able to make it?

The targets for the 12th Plan have not yet been fixed, technically speaking. The approach paper is being prepared and we will indicate in it as to what the plan for the power sector should be. This approach paper will be then approved by the NDC. After that a working group will be constituted and based on that, the Plan would be finalised. Finally, in February- March next year, we will finalise the targets for the 12th Plan.

"The concerns shared by several states under RGGVY are that the cost of providing electricity is very high and they fear that providing electricity to these villages might result in losses for them and therefore, they don't have much enthusiasm for the scheme. All these issues are now being considered as a part of the exercise for the 12th Plan in our way towards a reformed RGGVY."

However, as a broad approach, the Planning Commission feels that there are good reasons to believe that the sector should be able to achieve 1,00,000 MW. The targets are decided based on the requirements of the economy. Since the economy is growing at the rate of about nine percent, the power generation has to rise proportionately. Second factor in deciding the targets, is the degree of preparation of the sector. At present, we are in a better pedestal with around 80,000MW of capacity, in some form or the other, already under construction. Besides, the orders for other capacities are around the corner as well. So we feel that it might be possible for the power sector to achieve 1,00,000 MW in the 11th or 12th Plan.

Some of the constraints which hindered the progress of the power sector have been removed. For example, the number of players in the equipment manufacturing business has increased. Apart from BHEL, a number of private players like L&T, Bharat Forge have entered the manufacturing segment. It is a very positive development for the power sector. The issue of open access, though still unresolved to some extent, is now gradually getting the due recognition. As a result, while the plants are coming up in one state because of conducive factors, the power produced will be used in other states. Another positive aspect is the introduction of the Case 1 bidding. Amongst the negatives is the problem of fuel and environmental clearances. However, efforts are being made to resolve these issues at the earliest. The government has set up committees under the Finance Minister to look at the issues of coal, land acquisitions, environmental and forest clearances. Gradually, there is a consensus emerging on the ways to acquire land for projects. The central as well as the state governments are coming out with land acquisition policies. While there is already a policy on Resettlement and Rehabilitation, efforts are being made to further improve it so that the issues get resolved and the sector is able to move forward. Furthermore, there is a large unmet demand from the rural areas and the RGGVY scheme is being expanded to take care of this demand. More states are coming forward to avail the scheme.
Do you see the country meeting the targets set under the RGGVY which promises electricity to all villages by 2020?

Since the definition of electrification has been modified, a village is not termed electrified just on the basis of an electric line passing through it. It now requires minimum 10 percent of village population to be electrified including electrification of some public buildings like school, etc. This would be achieved to a large extent by 2012 according to the figures available with us. However, each village has large habitations and all of these habitations may not get electrified. So there will be further intensification work required to be done.

"It is important that while we retain the policy of e-auction, we fix up a limit taking into account the current requirement of the power sector. There is no use in saying that 10 percent of the coal output would be transacted via e-auction if they cannot meet the basic demand of the power sector."

Also, there are a large number of villagers in places like Bihar and Jharkhand, which lack adequate infrastructure to supply power to them. These would, thus, figure under backlogs. We need to work on and strengthen all these areas. Also, in these habitations, people often do not want electricity as they feel that it may increase their power bills. We also have to figure out as to how to reach those living below the poverty line in order to provide them electricity. Another challenge is to provide electricity to others on a reasonable cost and also, to recover that cost. These are the challenges we have to gradually address in the 12th Plan.

It is the state government's responsibility of arranging the electricity for the villages under RGGVY and also to recover the cost from these villages. Is there any provision to subsidise this cost and support the state governments?
These are some of the issues being raised by several states. The concerns shared are that the cost of providing electricity is very high and they fear that providing electricity to these villages might result in losses for them and therefore, they don't have much enthusiasm for the scheme. All these issues are now being considered as a part of the exercise for the 12th Plan in our way towards a reformed RGGVY.
R-APDRP was launched in the 11th Plan for reducing AT&C losses of the distribution sector. Considering that the losses are still as high as 25-30 percent in some states, is a similar scheme planned for the 12th Plan?
The losses are indeed a major concern for us and we have taken it up with the various states. Though R-APDRP was launched much earlier, it is still in the preliminary stages as in most of the states even Part A has not been completed. Part A has been sanctioned and in some cases Part B has also been sanctioned. So, for us, it would be premature to launch another scheme without reaching to a certain level in the previous one. But, we are working out other measures under administrative policy interventions on what needs to be done. A group has been set up under my chairmanship which is looking at measures to be taken. Another group has been set up under the chairmanship of Mr. Shunglu which is looking at exactly these things and their report is expected shortly. We hope that with the help of all these initiatives we would be able to move forward.
Do you think that privatisation or the electricity franchisee model would be a better option to reduce AT&C losses?
I do think that privatisation and the electricity franchisee model have given some very good results. For instance, in Delhi, the privatisation has delivered good results and in Bhiwandi, franchisee model has helped. In fact, the government of Maharashtra is expanding the model in other towns as well. There is now a movement to expand it. The whole movement is to bring in the private sector on a large scale and give them appropriate space to work. One of the specific steps that the Planning Commission is taking is to push this ahead. In each and every discussion with the Chief Ministers, we emphasise this point to sensitise them towards the need to take this up aggressively. As a result, almost all the Chief Ministers have come forward to work on it. Secondly, we are working on a study conducted by Mr. Shunglu and myself. These studies will point on what needs to be done as to whether a policy intervention is required or an amendment in the Act.
The coal ministry is blaming the environment ministry for coal shortage and the environment ministry accuses the coal ministry for degrading the Indian forests. Who has the right argument?

A group of ministers is looking at the issue and they have appointed a committee with me as the chairperson to evaluate the procedures and other issues. We will hold meetings and evaluate the concerns and come out with a report in the next five weeks. The fact is that the truth lies somewhere in between the inter-ministerial wrangles.

"I feel that instead of stressing on trying to earn through e-auctioning, Coal India should put in their maximum efforts in providing larger amount of volumes and improving their services."

The problem is that in the long-term basis unless the coal ministry has adequate blocks for mining, they would not be able to meet the targets. Though it is factually true that the pithead coal stock has accumulated to a large extent, yet that can only take care of a very short term. If some quick efforts are not made, this coal will disappear within less than a year. However, if we are talking of the next five years, we have to allot more blocks, provide them faster clearances and reduce the glitches.

On the other hand, the coal ministry also has to take steps to improve their methods and operate in an environmentally cleaner way.
Do you think that there is a need for Coal Regulator?
The Planning Commission was earlier in favour of setting up a Coal Regulator to monitor the coal sector but since not many private players have come forward, there is not much work for a Coal Regulator. As far as Fuel Supply Agreements (FSAs) are concerned, the Coal Ministry and Coal India are saying that they are incapable of making FSAs, since there is not enough coal available for them to enter into FSAs. The need, thus, is that instead of setting up a coal regulator we should look at tackling the basic question of availability of fuel and take steps to step up the production. Once this issue is resolved, all other problems will fall in line, even private sector participation would increase in the sector.
What is your take on e-auctioning by Coal India? Should it be stopped or is there any merit in Coal India's arguments of only supplying coal to regulated sectors like power and fertiliser while sectors like cement and steel should manage their requirements through e-auctioning or imports?

The issue of e-auction of coal first came up when I was Cabinet Secretary and back then I had strongly supported it. I still feel that e-auction has been a very good method of ascertaining the market price of coal. Earlier, the market price was determined either through administrative measures in the domestic market, which was a very difficult method and the other way was to take a look at the international market to arrive at the price of coal. However, Coal India was losing a lot in the domestic market. So it was decided to have a certain percentage of coal transacted through e-auction. The percentage was limited at 10 percent and it was decided that it would be increased to 20 percent in future. However, this was decided in an environment in which coal production was expected to go up in a certain manner and Coal ministry and Coal India, including other undertakings of Ministry of Coal, were expected to meet the demand. The current scenario is a lot different than what was perceived then. Today, they are unable to meet the demand of coal even for key sectors like power and to some extent, steel.

It is, therefore, important that while we retain this policy, we fix up a limit taking into account the current requirement of the power sector. There is no use in saying that 10 percent of the coal output would be transacted via e-auction when CIL cannot meet the basic demand of the power sector, which is regulated. The other sectors which are not regulated can easily fix up their prices but the regulator fixes up the price for the power sector and the cost of power is very high. It affects a large body of people. Thus, the basic question should be: Are we meeting the demand for power? The coal ministry, instead of saying that they will do 10-12 percent of e-auctioning should make marginal adjustments to first meet the demand of the power sector.

How badly will the finances of Coal India be hit in case the e-auctioning is stopped? Is increasing the price of coal the answer to help the company when the prices were increased by 15 percent early this year?

First of all, I don't think that it should be stopped. As I said earlier, e-auction has been a very good method. However, there is a need of adjustment and the question is should they keep continuing with 10 percent or bring the percentage down. The percentage should be brought down. However, it should not be entirely stopped as it has been an excellent method.

"The need of the hour is to further strengthen our safeguards and go ahead with the plans because if we are going to deny every known source of energy generation, then I am afraid that we should get ready for a dark era."

As far as its impact on Coal India is concerned, the Planning Commission has always favoured that the prices of coal should gradually move upwards to be at par with the international market. Keeping with the thought, the prices have already moved up to the international market prices in the A and B category, but there has not been much improvement in the F and G category, the category to which the power sector belongs.

However, it does not mean that Coal India is losing because of that as the prices are revised gradually. I feel that instead of stressing on trying to earn in this manner, they should put in their maximum efforts in providing larger amount of volumes and improving their services, instead of focussing on these issues.
Power ministry has approached the Planning Commission for withdrawing the recent directive requiring forest clearances to be secured before initiating other work. What is your take on this?
This is one of the issues which we are going to deliberate on in the Committee. I will have to take a look into the arguments of all the parties involved before I can comment on this. Prima facie, it looks like it might result in further delays, but it will be premature to comment or discuss the issues without understanding the view of the environment ministry.
There is an amendment in the coal linkage policy stating that those plants which have 85 percent PPAs with the state utilities will be given preference. Don't you think that in Case 1 and Case 2 bidding where we have around 40,000 MW already installed, like in the case of Bhaiyathan Power Project in Chhattisgarh where they have 65 percent under PPA and the rest for merchant power sale, the amendment will lead to a slippage?

The linkages have been offered for utilities. Merchant power plants are already selling power at a profit and they are expected to source coal from the open market, through imports. If they have a tie-up with state governments they can buy part of their coal requirement from there and the rest from e-auction.

"India has neither back tracked nor slowed down on its plan for nuclear power. We are very much ahead with it."

If you start giving linkages to these plants, it should be under second preference and those for utilities which are regulated under power should be given first preference. The unregulated power should always be given second preference over supplying to ordinary consumers.

What has been the progress on the nuclear power? How has the Fukushima disaster affected the Indian plan?

India has neither back tracked nor slowed down on its plan for nuclear power. We are very much ahead with it. However, what Fukushima did was to tell us that we must strengthen our safeguards. Fukushima plant was a very old plant and it did not belong to a modern variety of plants. In spite of that, it withstood the massive earthquake but what it could not withstand was the Tsunami water which seeped into it. In fact, it was not the plant which failed but it were the diesel generating sets which could not withstand the water as they were not located properly.

Unfortunately though, many of these debates get mired in misinformation and hard stance taken by the people. Quite often, many of these negative views are motivated with certain vested interests. However, in a democracy you have to challenge and address all these issues. The need of the hour is to further strengthen our safeguards and go ahead with the plans because if we are going to deny every known source of energy generation, then I am afraid that we should get ready for a dark era.

(InfralineEnergy thanks Shri B K Chaturvedi, Member, Planning Commission for sharing his valuable insights with our readers. The column 'In Conversation', is a platform to engage experts from various sectors to share their views on the different transformations happening in the Indian energy sector.)