First, the good news: the government does appear to be making serious efforts to tackle stranded capacity and stalled projects, as in the instances below. Such issues need to be resolved because of their effect on future investment and employment. Now, the bad news: one part is that some problems need solutions which are fraught with political risk. We want reforms, but don't want to pay for them. For instance, coal-based power needs additional investment to lower emissions. While beneficial, it will not be popular. Worse, sometimes even the path to resolution may not be clear, yet new ways have to be found, because business-as-usual along the paths taken is unsustainable going forward. This becomes evident in considering issues such as electricity distribution, where states have key responsibility and authority for some of what needs to be done. Concerning spectrum and coal allocation, there's widespread mistrust about operators getting something for nothing, sort of an East-India-Company syndrome, despite user benefits from lower rates and better services if there is appropriate regulation. We'll have to get over this mindset to stop doing ourselves in. This holds regardless of which party rules and at what level - the Centre, state or local government - or what their philosophy might be: rightist, leftist, something in between, or simply pragmatist.
The most prominent category of stranded capacity is where capital has been invested, but the capacity is unusable for some reason. Examples abound in infrastructure, in manufacturing, and in residential and commercial development, as detailed in the Economic Survey. But there are other categories of stranded capacity which are more difficult to address, because they are in the nature of opportunity costs rather than invested capital. They deserve equal attention because an opportunity loss, or benefit foregone from paths not taken, can result in as much detriment as from a stalled investment. But before we get into examples of opportunity costs, consider the more straightforward case of investments in power generation that are infructuous.
Stranded Power Generation
An estimated Rs 60,000 crore is unproductive in stranded power generation projects which stopped operating because fuel was unavailable. About a quarter of this relates to 31 gas-based plants of over 14,300 MW, nearly 60 per cent of the total gas-based capacity of 24,150 MW. Another 23 per cent or 5,500 MW is operating at below the 30 per cent plant load factor required to just cover costs. The government has devised a scheme using the Power System Development Fund to import liquefied natural gas to run some of these projects at 30 per cent capacity. Operators must compete through reverse-bids with a fixed tariff of Rs 5.50 per unit. The lowest bidders win PSDF support, which will be paid to distributors. There is a ceiling of Rs 3,500 crore to gas-based projects, and plants aggregating 8,000 MW had submitted bids by early May.1
shyam (no space) ponappa at gmail dot com
1. Details of all stalled generation projects are at: http://powermin.nic.in/upload/loksabhatable/pdf/LS23042015_Eng.pdf, Annex-I, Annex-I(a) and Annex-I(b).