Private firms overtake government enterprises in power production, adds about 84% of the target

NEW DELHI: Skewed procurement policies and poor project management have forced thePlanning Commission to slash the capacity addition target of public sectorpower producers. The commission has instead raised the bar for private generation companies, an indication of its growing expectations from the sector in servicing India's future energy needs.

Power projects run by the Central government added only half of the targeted generation capacity in 2010-11, while state government-funded projects fared even worse, meeting only 42% of the target.

Projects funded by the private sector, however, added 5,122 MW of more capacity, about 84% of the target set by the commission.

"Many issues have plagued the public enterprises in the power sector while the private sector has picked up," a Planning Commission official said. "This is apparent from the trends we are seeing, and therefore, targets for the next year have been fixed accordingly."

The commission has cut the 2011-12 target of central projects by 25% and that of state projects by 36%. But it has raised the capacity addition target of the private sector by 25% to 7,610 MW.

The commission had initially fixed the capacity addition target for the 11th Plan (2007-11) at 78,700 MW. But it later year scaled down the figure to 62,374 MW. During its mid-term appraisal last year, the commission had reduced the target for the 11th Plan even further to 34,462 MW.

"The two key reasons why public sector has slipped in the planned capacity addition are issues with procurement of equipment and poor project management," said Debashish Mishra, senior director withDeloitte India. "Most of the projects are stuck due to problems of coordination within different government agencies."

Sambitosh Mohapatra, executive director with PricewaterhouseCoopers, said public sector companies were suffering because of capacity constraints of equipment manufacturers likeBharat Heavy Electricals Limited.

"New power capacities cannot be created if equipment manufacturers who supply to the pubic sector are facing capacity constraints. They are unable to meet the requirements of public sector power companies," Mohapatra said.

As public sector companies battle issues of procurement, private sector firms have successfully established strategic partnerships with Chinese companies.

"Most of the big private companies like Reliance,Adani and Lanco procure from Chinese companies who are very efficient and deliver on time, and that benefits projects. This is not the case with public projects," Mishra added.

At present, Chinese companies are sitting roughly in excess of 25,000 MW of orders from private power companies in India.

The private sector's contribution to the power sector in the 11th Plan has been much more than what the commission had originally anticipated. The commission had envisaged the private sector to contribute only 19% of new capacities at the beginning of the Plan. But in 2010, it revised the figure to 30%.

It now expects the private sector to contribute most of the 60% of new capacities in the 12th Plan (2012- 17).