Tuesday, July 31, 2012

India’s power cuts

BLANK traffic lights, mayhem on the roads, trains at a standstill, water-treatment plants lying inert, coal miners trapped underground. India has felt like the giant set of a disaster movie since Sunday night, when a series of power cuts began to strike the north of the country, including the capital, Delhi. Territory inhabited by at least 600m people has been hit. Back-up generators have kept airports and many offices open, but power supply from the grid is still sporadic, despite the efforts of the authorities.

Although the south of the country, including Mumbai, the commercial hub, is so far unaffected, the power cuts couldn’t have come at a worse time. India faces a slowing economy, a lame-duck government and a drought in parts of the country. The blackout seems to have been selected by a malign God to exhibit yet another glaring vulnerability: rotten infrastructure. The technical fault appears to lie in the national transmission grid that links together the local electricity networks. Officials have suggested it may have been “tripped” by a surge in demand for power. But in truth India’s power sector has been a disaster waiting to happen after years of neglect.

As our briefing earlier this year shows, the entire supply chain is troubled. Not enough coal is being dug up by the state monopolist, Coal India. As a result, generating companies, which own power stations, face the prospect of buying expensive imported coal, with ruinous consequences for their finances. Many are in danger of going bust. As this week’s cuts have shown, the national transmission system that shifts power around the country needs modernisation and investment—some $110 billion according to a McKinsey study. And finally the “last mile” local distribution companies, usually state-owned and which deliver power to homes and businesses, are all but bankrupt. Their tariffs are held artificially low by politicians more keen to win votes than balance the books. They have also chronically underinvested.

Reform would probably entail breaking up Coal India, inviting in private-sector mining companies, privatising the local distribution firms and giving regulators more teeth. But since the early 1990s India’s politicians have ducked the challenge, and been unwilling to tackle vested interests or make difficult decisions. It would be nice to think that when the lights come back on this time they might act with more urgency. But unlike in the movies, disasters in India don’t necessarily have happy endings. By Banyan for The Economist

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