There is no doubting India’s potential to emerge as an economic super power in the coming decades. Over the past ten years, the country’s economy has expanded at an annual average rate of close to eight per cent, and more of the same is expected in the years to come if the country’s political powers manage to push ahead with tough economic reforms and implement policies to accrue the full benefits from the country’s demographic dividend.
However, there is one major hurdle that could prevent India’s economy from surging forward; the woeful state of the country’s physical infrastructure, particularly the supply of power.
With energy consumption rising by around eight per cent a year, the country is struggling to produce a sufficient supply of energy in order to meet the growing demand. The latest data available from the Ministry of Power reveals the extent to which India’s power supply is in defi cit, with the energy requirement in the southern region being some 18 per cent above supply in October this year. In the northern region the shortfall was 9.8 per cent, while in the western, eastern and north-eastern regions it averaged 4.1 per cent.
Insufficient Power Supply
On the positive side, India’s power sector is one of the most diversified in the world, with sources of power ranging from coal, lignite, natural gas, oil, hydro and nuclear power to other viable non-conventional sources such as wind, solar and agriculture and domestic waste. However, the authorities have yet to succeed in addressing the supply and demand imbalance, with many parts of the rural India still having no access to electricity. The decrepit state of the country’s power supply was highlighted in July this year, when the collapse of three grids left around 600 million people without electricity for two days in northern and eastern parts of the country.
According to the ministry, the total Indian power generation capacity stands at 209.3GW, comprising 140.2GW from thermal sources, 39.3GW from hydropower, 4.8GW from nuclear power and 25GW from other sources.
Thermal power plants therefore account for around 67 per cent of total generating capacity, while hydropower plants generate nearly 19 per cent of the overall total. Although India is set to remain reliant on fossil fuels to generate power, the government is keen to promote cleaner supplies, and as such is investing in hydropower projects. There is huge potential to expand the hydropower segment. Most of the recent and ongoing projects are located in the northeastern states.
Major projects underway
The ministry’s latest status report on hydropower projects under execution includes details of some 50 major projects.
However, many of these projects have been marred by serious delays and cost overruns.
The 800MW Parbati II plant, for example, is some ten years behind schedule and the National Hydroelectric Power Corporation (NHPC) recently rescinded a tunneling construction contract owing to the contractor’s failure to complete the works.
Meanwhile, the future of the 330MW Kishanganga plant remains in doubt owing to a dispute with Pakistan that is being heard by the International Court of Arbitration.
Challenges and obstacles
The main problems facing developers in general operating in India is the country’s woefully inefficient bureaucracy.
The World Bank’s Doing Business survey for 2013 ranks India in 182nd place out of 185 countries in relation to dealing with construction permits, ahead of Ukraine, Albania and Eritrea (with the latter two being ‘no practice’ economies with barriers preventing private builders from legally obtaining a building permit).
On average it takes some 196 days to complete a required 34 procedures in India.
Shortages of skilled manpower and frequent labour strikes owing to wage issues have also seriously affected some of these projects, as well as stoppages of work by local people demanding proper compensation for resettlement or jobs. At the Uri II 240MW project in Jammu and Kashmir, for example, work was halted for three months between March and June this year owing to unrest by locals demanding jobs at the plant.
At the Tuirial 60MW project in Mizoram, work resumed in January 2011 after a seven-year halt caused by local unrest.
Poor geology, inadequate machinery, land acquisition issues, and lack of transparency are some other challenges affecting hydropower projects.
Nevertheless, huge opportunities remain, with the government having little choice but to invest heavily in expanding the country’s power supply. According to the Central Electrical Authority, hydropower potential is estimated at some 145GW, and with the country’s currently installed capacity at below 34GW, and with another 12GW of projects under construction, there is clearly still a long way to go
Bob Moncrieff, Rona Consulting
It’s fair to say that metro is the major driver of tunnelling work in the Indian cities, though there are huge irrigation projects. These very long water transfer tunnels are up to 10m diameter. There are also many hydropower projects in the north.
It’s hard to say how sustainable the work is – how long is a piece of string? But it should last a while with projects such as the Delhi Metro Phase IV and Bangalore Metro Phase II. This country has a real background in rail construction and knows how to finance it.
I’d say this is an optimistic market, but competitive to get into. We have lots of newcomers trying to rival the established names, but the success of these entrants has been limited. It’s a relatively saturated market. A track record is required to be submitted with a tender, but there is no prequalification procedure which leaves tendering a bit open.
The Delhi Metro, again, gives an idea of changes in the industry. The first phase relied heavily on Japanese and Western experience, but as the project has progressed, this has been evident less and less.
As for problems, in India it is usual for all financial and geotechnical risk to be placed on the contractor and away from the client. Very one-sided contracts. The industry is getting better at site investigation though, but with a short tender time, it is a brave contractor that undertakes extra investigation. I suspect if this does not change quickly, a contractor will eventually ‘catch a cold’ in unexpectedly bad conditions, and this will force prices up from then onwards. The current contract culture is short sighted.
Apart from this, a skilled labour shortage due to the rapid expansion of work is a worry. Project schedules are tight but manageable.
Mohan Gupta, Mott MacDonald
I agree with what Moncrieff says about the use of site investigation in tender documents. One thing that is definitely changing for the better is the progressively increasing GBR awareness. It’s opening up a platform for contractors and clients to get together on risk. It is a definite indication of change. Fortunately to my knowledge there have not been any major problems due to one-sided risk sharing yet.
In terms of reliance on international experience, I would say this is a mixed reaction. The client relies less these days on international help and advice, but there are a great many new entrants to the market from elsewhere in the world. It’s actually a worrying trend to see many new contractors entering the market with little relevant experience. These people try to be highly competitive, setting low prices and creating an unsustainable benchmark.
We are getting a lot of competitive bids from Korean and Chinese contractors especially.
Increasing experience, and track record requirements, makes it difficult to enter the market for new contractors. Previously, local contractors were subcontracting into bids to gain experience, and now they are more independent. Now we have a new breed of contractors as I say without experience, who have a few project contracts in hand. I am not a stakeholder and so cannot comment completely, but it creates difficult business conditions. Lower prices for suppliers; budget constraints making it a less free-flowing market.
My firm belief is that the metro work will go well. There is public confidence and a record of success.
