People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 31

July 05, 2012


Neo-Liberal Policies Land

Andhra Pradesh in Power Crisis


M Venugopala Rao


THE neo-liberal policy approaches of the central and state governments have landed Andhra Pradesh in a major crisis of the power sector. This crisis is three-fold in nature – shortage for power ranging from 40 to 50 million units per day, with resultant power cuts affecting all sectors; very exorbitant and unbearable burdens on the consumers of power in the form of hefty tariff hikes and fuel surcharge adjustments (FSA) of unprecedented magnitude; and lastly the dire financial situation of government’s power utilities. This is the kind of crisis that the implementation of the neo-liberal reform process for almost two decades has engulfed the state in, contrary to the claims of the protagonists of the reform process that it would ensure supply of adequate power at reasonable prices to the consumers. 


Power tariffs have been hiked by Rs 1400 crore in 2010-11 for a period of eight months from August to March, by Rs 641 crore for the year 2011-12 and by Rs 4442 crore (later reduced by about Rs173 crore) for 2012-13. The AP Electricity Regulatory Commission has given its orders permitting the claims of the four power distribution companies (Discoms) for collecting FSA from non-agricultural consumers to the tune of Rs 1649 crore for 2008-09 and Rs 1481 crore for 2009-10. Legal litigations are going on against these orders. The public hearing by the Commission is also going on regarding the FSA claims of the Discoms for the two financial years 2010-11 and 2011-12 to the tune of about Rs 7314 crore. The Discoms have already filed their FSA claims for the first quarter of the current financial year to the tune of about Rs1400 crore with the Commission. These hefty burdens are being imposed on the consumers of power, even after the government is providing subsidy to the tune of Rs 1182.14 crore for 2008-09, Rs 3486.15 crore for 2009-10, Rs 3652.83 crore for 2010-11, Rs 4145.75 crore for 2011-12 and Rs 5531.67 crore for 2012-13.




Despite having an installed capacity of about 16,400 MW, which the Discoms can get under power purchase agreements (PPAs), the state is facing severe shortage for power and imposing power cuts for longer durations.  Every day, power cuts are being imposed for three hours in Hyderabad, Tirupati, Visakhapatnam and Warangal, for five hours in district headquarters and municipal corporations, and for six hours in towns, municipalities and mandal headquarters, while rural areas are supposed, going by official declarations, to get power supply for lighting from 6 pm to 6 am and supply during day time is ensured along with supply to agriculture only. Power holidays are being imposed on all industries, except small scale industries, for three days in a week or 12 days in a month, while small scale industries are subjected to power holidays for two days in a week or 8 days per month, and poultry, rice mills and cold storages are subjected to 40 per cent power cut per day.  In addition, evening peak restrictions in power supply to all industries are being imposed from 6.30 pm to 10.30 pm daily.  According to an official declaration, Singareni Collieries Company Ltd., drinking water, government hospitals, railway traction and defense establishments are exempted from power cuts and supply to agriculture is being ensured for seven hours a day in two or three spells. The magnitude of these power cuts is unprecedented in the state. In practice, the duration of power cuts exceed the declared schedules due to various reasons like periodical forced outages of generating units, etc.


As per a presentation made by AP Transco and the Discoms to the chief minister on July 2, 2012, the Discoms have to receive a hefty sum of Rs 11,111 crore from the government for additional power purchases made by them at very high prices from alternate sources in the uncontrolled open market from 2008-09 to 2011-12 in the face of power shortages in the state.  These purchases were made at the behest of the government and under the condition that the loans taken by the Discoms for this purpose, along with interest thereon, would be redeemed by the government.  The Discoms have claimed that they have to collect a sum of Rs 9452 crore under FSA from consumers for 2009-10 to 2011-12.  In addition, they have to receive Rs 214 crore from the government towards supply of power generated using Regasified Liquefied Natural Gas (RLNG) and supplied to small scale industries during a part of the summer period as per the decision taken by the government. They have to receive dues to the tune of Rs 1216 crore from different departments of the government and local bodies. The Discoms have liabilities almost equal to their receivables   Rs 5700 crore to AP Genco, Rs 1810 crore to AP Transco, both state government’s utilities, Rs 13,084 crore to various banks and Rs 1113 crore to NTPC and NLC. Thus, all the power utilities of the government, especially its generating company, AP Genco, are literally on financial “ventilator”.




The reasons for the crisis in power sector are both short-term and long-term. Against an installed capacity of 2770 MW of nine gas-based projects with whom the Discoms had PPAs, only about 1170 MW of capacity is being generated due to failure of the government of India in ensuring supply of natural gas as per allocations made by it, especially from the KG D-6 fields, by Reliance Industries Limited. If adequate gas is supplied, with the idle capacity of 1600 MW, 38.4 million units of power can be generated daily. With supply of natural gas dwindling to these projects, their average plant load factor (PLF) has come down from 100 per cent during April-October 2010 to 47.11 per cent now. Instead of increasing production of natural gas from KG D-6 fields to 80 MMSCMD, RIL has gradually reduced it to less than 30 MMSCMD now and it would fall to 27.64 MMSCMD during 2012-13 and to 24.22 MMSCMD during 2013-14, according to a communication sent by the government of India to the state government. In such an eventuality, the projects may shut down, since they cannot be operated beyond technical limits, further precipitating the shortage situation. The neo-liberal policies of the government of India, whether headed by the NDA or the UPA, and its failures of action and inaction, of scandalous pampering of monopoly corporate houses like RIL with manipulative production sharing contract, inflated capital costs and fixation of exorbitant price for natural gas, on the one hand, and not facilitating, if not deliberately obstructing, public sector entities like ONGC from increasing production of natural gas either from the existing wells or from the new wells discovered by it almost a decade back in the KG basin, on the other, have led to shortage of power and increase in cost of power purchase.


The Congress party and its state government,  despite sending the largest contingent of its MPs to the Parliament from the state, have failed miserably to bring necessary pressure on the government of India to ensure adequate supply of natural gas to the power plants in the state. Their failure to get allocation of natural gas to AP Genco’s proposed gas-based project with an installed capacity of 2100 MW at Karimnagar for the last four years, thereby stalling its construction, despite achieving financial closure long time back, is glaring and intriguing, especially when gas is allocated by the government of India to merchant power plants like Lanco’s extension project and GMR’s barge-mounted project. Though the Ramagundam thermal power plant of 600 MW of BPL continues to fail to take off even after an abnormal gestation period of more than one and a half decades, the government of India has not only continued but also enhanced allocation of coal to it. At the same time, the state government has failed to get allocation of coal to the proposed pit-head thermal project of AP Genco with an installed capacity of 600 MW.  The state government, whether headed by the TDP or the Congress, has not been making any budgetary allocation to AP Genco to meet requirement of equity for its proposed projects since its bifurcation from the erstwhile APSEB under the World Bank-inspired reform process. It is to be pointed out here that AP Genco’s PLF at 84 per cent is next only to NTPC in the country. At the same time, the successive Congress governments in the state have been encouraging private developers to set up merchant power plants, with over concentration in some of the districts like Nellore and Srikakulam, endangering environment and livelihood of the local people and letting loose a reign of brutal repression by the police on the people agitating against setting up of such plants. These are only a few examples of how the governments, both at the centre and in the state, are ruthlessly pushing through their neo-liberal policies.


Another reason for shortage of power and increase in cost of generation of thermal power in the state is the deliberate failure of the government of India in ensuring supply of domestic coal and forced dependence on imported coal and domestic coal purchased through e-auction at higher cost for generation of power.  At the meeting of the power ministers of states held on July 17 in New Delhi, the minister from AP, Ponnala Lakshmaiah, has pointed out that “the cost of service (CoS) in AP has increased by about 34 per cent in the last three years mainly due to the shortage of domestic fuels, increased dependence on imported coal and high power prices in power exchanges.” 


Added to these problems are scanty rains and meager inflows into reservoirs in the state, resulting in minimal generation of hydel power. For example, generation of hydel power was 175 MW against an installed capacity of 3935 MW as on July 30. Serious blunders committed in the past in entering into PPAs with manipulative terms and conditions with private power plants continue without rational correction,  imposing avoidable burdens running into hundreds of crores of rupees every year, with legal litigations unresolved in courts of law and the regulatory commission.




Apart from the existing installed capacity of 16,400 MW, the Discoms have already entered into PPAs with proposed and upcoming power projects of AP Genco, NTPC, Singareni Collieries and others with an estimated installed capacity of about 25,000 MW.  If necessary steps are taken to see that these projects are implemented in a phased manner, adding an installed capacity of about 1500-2000 MW per annum, ensuring allocation and timely supply of adequate quantum of required fuels at reasonable prices, the state would overcome power shortages within a few years. 


Instead, the central and state governments, have created shortages for power with their neo-liberal policy approaches of neglecting and hindering the progress of the projects of public sector utilities and pampering private sector. At the same time they are forcing the Discoms to purchase power on short-term basis from alternate sources in the open market at very high prices in the name of overcoming such shortages on the other hand! For the financial year 2012-13, the regulatory commission, in its tariff order,  has permitted the Discoms to purchase about 13,281 mu with a ceiling price of Rs 4.17  per unit on short-term basis and later revised the ceiling price to Rs 5.50 per unit on an application made by the Discoms, without examining alternatives and without holding any public hearing.  This would impose an additional burden of Rs 1.33 per unit or Rs 1766.37 crore on the consumers of power and prepare ground for FSA claims by the Discoms during the current financial year.


During the earlier public hearings of the commission, we have repeatedly pointed out that annual revenue requirements and revenue gaps of the Discoms are being deflated artificially with a view to reducing the need for subsidy to be borne by the government and showing that there were no tariff hikes or that the hikes were not high to hoodwink the people, especially during pre-election periods and that would lead to imposition of heavy FSA burdens on the consumers later. Experience has confirmed the validity of our contention. In the light of successive annual tariff hikes and abnormal FSA burdens, those who participated in the public hearing in public interest, including B V Raghavulu, secretary of the state committee of the CPI(M) and member of its Polit Bureau, and K Narayana, secretary of the state council of the CPI, have demanded the government to provide subsidy to avoid imposition of FSA burdens on consumers.


However, chief minister N Kiran Kumar Reddy has stated that out of Rs 11,000 crores spent for purchasing additional power during the last four financial years, the government would bear Rs 6000 crore and that the consumers have to pay Rs 5000 crore.  He also has said that there would not be FSA for the current financial year, ignoring the fact that FSA claims for the first quarter were already filed by the Discoms and that the arrangement of FSA is continuing to be in force. The CM’s contention that the consumers have to pay Rs 5000 crore is also untenable, because those additional purchases exceeding the limits, both in terms of quantum and price, determined by the commission in its annual tariff orders were made at the behest of the government and under the condition that it would bear the entire amount, including interest on loans, spent for such purchases.  As such, that amount cannot be included in FSA claims and cannot be collected from the consumers.  It is in this background that the ten Left parties, including the CPI(M) and the CPI, and mass organisations, and even associations of small and medium industries, are agitating against these abnormal burdens and heavy power cuts.


(The author participated in the public hearings

conducted by APERC as a power sector expert)