Grid failures a 'wake up call' for aspiring India

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The worst power outage in country's history represents a 'wake up call' over the failure of the creaking electricity system to keep pace with the growth of Asia's third-largest economy, analysts said.

The government traced the immediate cause of Tuesday's outage -- which came just a day after a massive power failure Monday -- to energy-hungry states guzzling more than their allotted power for a second straight day.

But India's energy problems are more than simply indisciplined state electricity boards tapping an overburdened grid -- they go to the heart of the nation's aspirations to be a rising economic power, experts said.

"This was one of the biggest power outages in the world," said Chandrajit Banerjee, director general of the Confederation of Indian Industry, referring to the collapse of the grids that knocked out power in 20 of 29 states and caused havoc at train stations, airports, hospitals and on roads.

"It is imperative our basic infrastructure requirements are in keeping with India's aspirations," Banerjee said, as the failure presented a dismaying picture of a country striving for a bigger role on the global stage.

Power cuts are a daily occurrence for those lucky enough to have a permanent connection in India. The country runs a peak-hour electricity shortfall of around 12 per cent.

At the other end of the spectrum, hundreds of millions of Indians in rural areas have no power at all.

"We're facing power problems of Himalayan proportions," said Ajay Bodke, strategist at leading Indian investment house Prabhudas Lilladher.

"Reforms can't wait any longer -- this is a wake-up call for immediate measures."

Analysts said among its first actions, the government needed to get state electricity boards to abide by their power quotas and manage distribution efficiently to avoid demand crunches.

Although there are financial penalties for overdrawing, it's still cheaper for states to buy electricity from the centre at set rates than from open-market national energy exchanges.

The next priority, they said, is to get the finances of the distribution utilities in order by curbing widespread theft, updating obsolete transmission networks and allowing them to increase prices.

However, tying tariffs to output costs could prove politically unpopular for the avowedly pro-people government.

"The mindset must change," said Vivek Pandit, energy director at the Federation of Indian Chambers of Commerce and Industry. "The state boards are losing out on every minute that they sell."

Tariffs in some states must rise by 40 per cent just for state electricity boards to break even, according to London-based Eurasia Group analyst Seema Desai.

And to address the root of the problem, India needs to boost supplies of coal to thermal power plants and invest in new sources of electricity to provide for its young, growing population of 1.2 billion.

On the coal front, the main supplier, state-run Coal India Ltd (CIL), has consistently failed to meet its output targets because of obsolete technology and delays in obtaining hard-to-get environmental clearances, analysts say.

CIL's production grew by just 4.5 million tonnes year-on-year in 2011-12 and it calculates that meeting its new fuel supply obligations will require an extra 64 million tonnes in fiscal year 2012-13.

That's "a target that will be impossible to achieve" under current circumstances, said Desai from the Eurasia Group.

Analysts say India has been adding power station capacity to meet its needs, but some plants are idle because of fuel shortages.

India added 20,000 megawatts of power capacity in the past year -- enough to supply today's requirements, noted Alok Brara, publisher of the industry magazine Powerline.

"But because of fuel issues they haven't been able to use the extra capacity."

India wants 25 percent of its power to be nuclear generated by 2050 in the wake of a 2008 landmark Indo-US agreement allowing New Delhi to import civilian atomic technology.

But progress toward that goal is in doubt in the face of local opposition to nuclear power, which has held up projects.

"The entire power situation at present is headed for disaster," said D.S. Rawat, secretary general of Indian business lobby Assocham.

And as India reeled under the outage, Prime Minister Manmohan Singh's government fanned public anger and questions about its commitment to power reform.

It promoted Power Minister Sushilkumar Shinde to home minister and gave the energy portfolio to a part-time minister -- "a move that hardly indicated seriousness on the government's part in dealing with the crisis," commented a major Indian daily.