AT THE one-room, one-machine, one-man enterprise in Coimbatore called Bala Engineering Services, Sasikumar steals a glance at the dark lightbulb. As soon as it lights up after a two-hour power cut, his sleep-deprived eyes don’t bat an eyelid as he switches on the surface-grinding machine. Its abrasive wheel spins into action finishing off small discs that would eventually be part of a wet grinder — a speciality appliance for which this industrial city in Tamil Nadu boasts of a Geographical Indication.
“I get up at 6 am and sleep at 2 am,” says Sasikumar, 32. “For every two hours of power, there is a power cut for four hours. The power can go off anytime. I have to make sure that when the power comes, I’m not sleeping.”
For Sasikumar and thousands of micro-entrepreneurs, buying and running a diesel generator is beyond their means. “I used to make Rs 15,000 as profit every month. Now it has come down to Rs 5,000,” he says. “The government says the situation will improve this year. I’m hopeful. Shutting down is not an option.”
Everyone living outside Chennai are bearing the brunt of power cuts ranging anywhere from six to 16 hours in a crisis that most believe is the worst the state has seen since 2011. For Chief Minister J Jayalalithaa, time is running out to assuage the people whose woes will multiply as the summer progresses.
“Right now, Tamil Nadu’s power requirements are met by burning diesel. How long can people survive like this in a country where diesel prices and demand are rising is anybody’s guess,” says former Union power secretary RV Shahi.
The state is currently experiencing a shortage of close to 3,500-4,000 MW — almost a third of its demand of 12,000 MW, which is estimated to grow at 10 percent annually. In a power hungry state whose per capita power consumption is almost double the national average, a promised 6,000 MW of projects are still in various stages of completion.
Although much has been written about the crisis, there is no clear consensus yet on how things came to such a mess.
“The Centre initiated the damage by introducing Section 43A in the Electricity Act, 1948, to encourage private players and then successive regimes bled the Tamil Nadu Electricity Board (TNEB),” says Chennai-based social activist Sarangabani Gandhi. “The last time the state built a power plant was in 1994 with a 210 MW thermal project in Chennai. The difference between the power cuts of 1980 and 2013 is that earlier there was a serious shortage. Now power has become so expensive that the government has no money to buy it. So they are forced to go for load-shedding.”
While Jayalalithaa has petitioned the Supreme Court claiming the Centre is not sharing surplus power with the state, the DMK has become increasingly vocal against the CM saying she has failed to act.
So what exactly brought the state on the edge of a precipice and what could potentially be done to overcome the crisis?
The Tamil Nadu Electricity Generation and Distribution Corporation (TANGEDCO) has accumulated a staggering loss of Rs 14,547 crore as of 2012-13, which is more than half the state’s entire fiscal deficit. So, neither does the state have the money to build new projects, nor does it have the resources to buy power from other sources.
Many blame the present crisis on DMK supremo M Karunanidhi’s fourth term (1996 to 2001) when the government went on a contract-awarding spree to private developers. The developers sold power at astronomical cost to the state with Power Purchase Agreements (PPAs) so skewed that it almost bled the TNEB to death.
Although many other states were doing the same, what set Tamil Nadu apart was the high economic growth and the resultant demand for power that came at a huge cost and created a situation where the state found itself bankrupt.
The DMK regime signed contracts with these companies after coming to power:
• GMR Power Corporation for a 196 MW plant running on Low Sulphur Heavy Stock (LSHS) diesel at Basin Bridge near Chennai in September 1996. Project commissioned in 1998
• ST-CMS Power Corporation for a 250 MW lignite-powered thermal plant at Uthangal in Cuddalore district in December 1996. Commissioned in 2002
• PPN Power Generating Company owned by Apollo Hospitals founder Dr Prathap Reddy for a 330.5 MW natural gas/naptha plant in Nagapattinam district in January 1997. Commissioned in 2001
• In 1998, two projects with US-based Covanta Energy Corporation were signed: Madurai Power Corporation Pvt Ltd (MCPCL) for a 106 MW plant in Madurai and Samalapatti Power Pvt Ltd (SPPL) for a 105.66 MW plant in Krishangiri district. Both used LSHS diesel and were commissioned in 2001
More than the fact that the DMK regime chose not to initiate any new state-backed projects during the period, it is the content of the PPAs and the high tariffs that were fixed for buying power that shocked many.
“The TNEB had a revenue surplus till 2003. Suddenly in 2004, it showed a loss of Rs 1,010 crore,” says Gandhi. “That is because by 2002 the private players completed their projects, connected to the grid and started selling electricity to the state. While the state was selling power to consumers for Rs 4/unit, they were buying power from some of these developers for as high as Rs 12/unit. The cost of buying power from entities like National Thermal Power Corporation and Neyveli Lignite Corporation and its own thermal units was less than Rs 2/unit. Till date, the TNEB has not been able to recover and has damaged its own investment prospects and finances.”
IN ITS tariff determination order dated 30 March 2012, the Tamil Nadu Electricity Regulatory Commission notes, “There has been heavy loss incurred in fixed and variable cost in respect of power purchased from the Independent Power Producers (IPPs). The tariff for the five private companies has not been regulated. The fixed cost should come down from 24 percent to 9 percent for these IPPs.”
A glaring example of the nature of the flawed PPAs can be found in the agreement inked with the US-based company that operates the MPCPL and SPPL. According to the PPA, the minimum guaranteed offtake was 68.49 percent, including deemed generation, and the TNEB was required to pay the full capacity charges. That meant the state was obliged to buy power that was not necessarily generated by the private company. Therefore, the state had to buy power even if the private firm was generating less than that by saying that although it had the capacity to produce more, the state did not have the transmission lines to carry that power to the consumer. In addition, the state also had to pay the developer a guaranteed post-tax return on equity at a rate of 16 percent every year.
What further hurt the state was the ‘cost plus’ based tariff principle under which not just was the private player paid variable expenses but also a fixed cost, which in effect meant that the state was paying the developer not just to run a power plant but also reimbursing the company’s fixed capital expenses from taxpayers’ money.
Moreover, the PPA also mentioned that the power utility’s payments to the developer were backed by a government guarantee. In effect, this insulated the private players from any defaults for the term of the contract. As the Indian Credit Rating Agency notes in its ratings report on MPCPL, “The cost plus tariff principle with deemed generation clause protects the profitability of the company. There is also little risk from a fall in demand for their power because Tamil Nadu continues to be a power deficit zone and is expected to remain so in the near and medium term.”
The result was that while the power utility continued to be bogged down by heavy losses and accumulated a revenue deficit of close to Rs 15,000 crore by the end of 2012, MPCPL and other private players continued enjoying profits by selling power to the state at high tariffs.
“The Centre has asked states to tap the private sector for power generation, but the problem lies with the tariff structures negotiated in PPAs,” says Mahesh Ranganathan, a Chennai-based power consultant. “Most state utilities are inefficient and bogged down by heavy transmission losses and power thefts. So when private power players do not use cheap fuels like lignite and LNG, they will pass on the fluctuations in crude oil prices to the buyer.”
This realisation dawned upon the state government much later. While the DMK regime had given dominance to expensive power projects, the AIADMK, which returned to power in 2001, sought to set things somewhat straight. Only two power projects were given to the private sector (one to Lanco for a 113.2 MW plant in Thanjavur district and the other to Pioneer Power Corporation Pvt Ltd for a 52.8 MW plant in Ramanathapuram district) in 2003 and 2004 respectively. Both plants would run on a much cheaper natural gas platform. However, cheaper fuel did not translate into cheaper power. The state power utility itself admitted before the TNERC that it was forced to buy more expensive power from producers such as GMR because the cheaper gas-fired plants of Lanco and Pioneer failed to produce energy due to plant shutdowns and non-availability of natural gas.
“The DMK was guilty of not expediting any of the state power projects. The DMK was in power at the Centre for seven years and added only 206 MW to the state’s supply. Despite PPAs with other states for 1,100 MW, only 85 MW was bought. The DMK is responsible for this mess. I assure that things will improve by the end of 2013,” said Jayalalithaa after receiving flak.
Analysts point out that Tamil Nadu’s reliance on the seasonal wind generation schemes and free power to farmers are also to blame for the present crisis. But even farmers across the state are bearing the brunt. Tamil Nadu is not just power deficient but is also staring at a major water crisis. It is the only state apart from Punjab that gives free electricity to its farmers.
PK Selavaraj, a farmer in Suriyampalayam village of Erode district, grows turmeric on his four acres. “I can use only two acres because there is no power to run borewells for irrigation. Earlier, I used to feed my family with the rice grown on our fields. Now we have to buy it. We even have to buy cattle feed at high rates.”
Similarly, powerloom owners are being squeezed beyond their means to keep business running. Says J Ramaswami, a powerloom owner at Pallipalayam in Namakkal district, “Earlier I employed 20 workers. I had to lay off half of them. One man used to run 12 powerlooms. Now he can run only eight. I spend Rs 3,000 every day on diesel to keep the generators running. I have been making a loss for a year now. How can the government give cities like Chennai 22 hours of power and assure big factories like Hyundai and Ford 24 hours electricity when we are not being able to even make our ends meet?”
So what is the solution? According to the state government, at least three projects totalling 3,700 MW are likely to go on stream later this year. These projects would use cheap coal for generation. The utility’s shady finances has constrained its capability to fund expansion of existing projects and the construction of new ones.
Once the first 1,000 MW unit of the Koodankulam Nuclear Power Plant goes critical soon, Tamil Nadu hopes to get 462.5 MW. A similar share would accrue to the state when the next 1,000 MW unit starts generating power later this year. What would further give some hope to the people is that the Centre has cleared the decks for two more 1,000 MW units at Koodankulam with a Russian investment of Rs 40,000 crore after last-minute parleys between PM Manmohan Singh and his Russian counterpart Vladimir Putin at the sidelines of the BRICS summit in Durban.
Despite stiff opposition from various quarters, Koodankulam is one of the few viable options. With no money and staggering debts, the state utility cannot even consider borrowing money for any future investments. Most of its requirements will have to be met cheaply through nuclear or thermal power with transnational investments and Centrally-assisted projects.
THE COMING months will be crucial not just to power-starved people but also to the prospects of the DMK and the AIADMK at the hustings in 2014. “People have been pushed back to the stone age by Jayalalithaa. Sitting in Chennai and her hill station in Kodanadu has made her completely lose touch with reality,” says DMK MP Vasanthi Stanley. “People are suffering and no one has a clue what to do about it. During the DMK tenure, nowhere in the state did power cuts exceed two hours. Now, they go up to 14 hours in the southern districts.”
There have been instances where the anger due to the frustrating power crisis has spilled on the streets. However, people believe that they have been through hell and the worst might be over. The key to power or to be powerful in 2014 rests on how Jayalalithaa can make the coming months count in pumping more electricity into the homes of people from the already delayed thermal projects. Only that can resurrect faith in her abilities as a leader with solutions to pressing problems. The DMK will be hoping that Jayalalithaa trips like the rest of the state in the dark.