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Fundamental Analysis Of Power Sector

6757 words - 28 pages

Analysis of Power Sector in India: A Structural Perspective
Niranjan Swain*, J P Singh** and Deepak Kumar***

The inhibitors to growth in power sector were many—small and big but the main roadblock in the growth path was Government Policy, which made it difficult or rather impossible for a private player to enter. This further aggravated the problem that Indian entrepreneurs didn’t have enough knowledge and experience in developing power projects. To worsen the scenario, the SEBs and other Government Agencies became financially weak to propel any future expansion or growth in the sector. Electricity Act, 2003 was a major step in solving the above underlying problems of the power sector. A ...view middle of the document...

State treasuries were empty and debt was already killing loss making state run power units. The lack of internally generated funds and the inability of treasuries to provide funds have resulted in severe shortages of capital for expanding generating capacity1. Governments (central and state) and utilities hoped to solve these capital scarcity problems with an influx of private capital. It was also believed that the indigenous private sector might not have the necessary capital, as the foreign exchange component of funds required by the power sector could be large.
* Professor of Finance, The ICFAI Business School, Hyderabad. E-mail: ** Reader, Department of Commerce, BHU, Varanasi, India. *** Associate Consultant, The ICFAI University Press.

© 2004 The ICFAI University Press. All Rights Reserved.

Analysis of Power Sector in India: A Structural Perspective


The target of keeping the power sector under tight government regime was to have proper access, equity and distribution of power to various sections of society. The socialist dream didn’t materialize, the benefits of electricity have not reached the whole population—a significant fraction of the population (particularly the rural poor) does not have access to electricity. At the same time, some consumer categories, not necessarily the poorest, are given subsidized electricity. Benefits are skewed in favor of certain categories of consumers (e.g., irrigation pump set owners). Agriculture consumes almost one third of the power in India, yet provides less than 5% of the revenues. NIMBY (Not in My Backyard) Syndrome is a major concern in India, which is unique as far as developing nations are concerned. These concerns are focused on pollution from coal-based thermal plants, on the various problems of nuclear plants such as reactor safety, the NIMBY (Not in my backyard!) syndrome, low-level radiation and disposal of high-level wastes, and on the negative impacts of hydroelectric plants including the displacement of people, the submergence of forests and situation. There are also concerns about global warming impacts of energy production and use. The hardship of the state controlled power units, due to lack of fresh capital, environmental concerns and inability of these units to meet the socialist agenda, forced government to open the floodgates and allow private participation. A number of policy initiatives have been taken since 1991 for encouraging private investment in power sector with a view to streamline the procedure and delegation of power for early implementation of projects. Mega Power Plants’ high investment requirements is the first major inhibitor. Non-availability of reliable customer, NIMBY syndrome, political pressure, technological risk and long development and set-up time are the other causes that deter entrepreneurs from this option. To add to the fear are the burning examples of...

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