Top export sector for Indian market

Did you know?

One good thing  emerged from the US-based Enron's dispute with a state government in India: it proved that India has an international class judiciary which allows anyone to challenge the government.

Did you know?

Power shortage is one of the biggest problems confronting India's economy. This spells opportunities for foreign power companies.

Electricity generation

Points to be noted:

• India is perennially short of electric power. The generating capacity in 1997 was 76,700 MW which, it was estimated, would have to be doubled in the next 10-15 years, requiring an addition of some 7,000 MW of new capacity per annum. This calls for an investment of some US$30 billion over the next 10 years. There is no way the Indian government can carry out this enormous job on its own, which is why foreign and domestic players are now allowed into the power industry. The most famous foreign company involved in India's power sector is the US-based Enron Corporation.

• Given the gaping disparity between demand and supply, the Indian power sector is being chased by the world's most prominent independent power project developers, generation equipment suppliers and project financiers from all over the world. The largest participation has come from the United States.

• Coal is the most important fuel for India 's power sector. It is the source of more than 70 per cent of generating capacity. But, coal shortages, delays in coal transportation and the low thermal quality of coal supplies cause disruptions in power generation and result in lower plant load factors. The all-India average plant load factor in 1995 was less than 60 percent. Transmission and distribution losses in India are high, in the range of 20-23 percent. State Electricity Boards (SEBs) generate and distribute power, set tariffs and collect revenues. However, they suffer from chronic financial problems because of rising generating costs accompanied by eroding revenues due to pilferage, bad debts and supply of power at subsidised rates for the agricultural sector. They continue to operate without a clear guideline on how to price power. Every year the government loses US$ 2.9 billion on power subsidies to agriculture.

• Private investment required in new power projects is estimated at approximately US$ 3 billion per year. Assuming that 50 percent of these funds will be expended on creating power generation capacity, and 50 percent on related transmission capacity.

• Enron Corporation was recently locked in a bitter dispute with the government of Maharashtra state in western India. The situation had deteriorated to a level that Enron was reportedly already talking to lawyers about suing the state government for breach of contract. The matter was however settled out of court and Enron emerged with an even bigger contract from the same government. This goes to show the extent to which both India needs foreign investment in the power sector and multinational giants such as Enron need the Indian market.

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