NELLORE, India — India has long struggled to provide enough electricity to light its homes and power its industry around the clock. In recent years, the government and private sector sought to change that by building scores of new power plants.
But that campaign is now running into difficulties because the country cannot get enough fuel — principally coal — to run the plants. Clumsy policies, poor management and environmental concerns have hampered the country’s efforts to dig up fuel fast enough to keep up with its growing need for power.
A complex system of subsidies and price controls has limited investment, particularly in resources like coal and natural gas. It has also created anomalies, like retail electricity prices that are lower than the cost of producing power, which lead to big losses at state-owned utilities. An unsettled debate about how much of its forests India should turn over to mining has also limited coal production.
The power sector’s problems have substantially contributed to a second year of slowing economic growth in India, to an estimated 7 percent this year, from nearly 10 percent in 2010. Businesses report that more frequent blackouts have forced them to lower production and spend significantly more on diesel fuel to run backup generators.
The slowdown is palpable at Sowmya Industries, a small company that makes metal shutters that hold wet concrete in place while it solidifies into columns and beams, a crucial tool for the construction industry.
The company, located outside this city on the southeast coast of India, is struggling with several issues, including a 20 percent increase in the price of raw materials and falling orders.
But Sowmya’s manager, R. Narasimha Murthy, said the lack of reliable power was an even bigger problem. His company loses three hours of power every evening. And all day on Wednesdays and Saturdays — euphemistically called “power holidays” — it receives only enough electricity to turn on the lights but not enough to use its large metal-cutting machines.
“It’s very frustrating,” said Mr. Murthy. “Power is a basic need. Everything is dependent on power.”
It was not supposed to be this way. Two years ago, more than two dozen large power projects were planned near the company’s workshop, but most of them have been scrapped or put off because India cannot dig up enough coal to fuel them.
Mr. Murthy’s frustrations reflect a broader national malaise. Analysts say India’s economic woes could have been easily avoided if policy makers had better addressed problems like its electricity shortage, weak infrastructure and restrictive regulations. Instead, policy makers have been distracted by corruption scandals and turf battles.
“There is virtually no new investment by both the government and private sector,” said Ashok M. Advani, executive chairman of Blue Star, the biggest maker of commercial air-conditioners in India. “We have such an uncertain environment.”
In the last year, the nation’s power problem has grown acute, with the gap between demand and supply jumping to 10.2 percent last month, from 7.7 percent a year earlier. In some states like Andhra Pradesh, where Nellore is, and in neighboring Tamil Nadu, blackouts have become so common that many factories report getting more electricity from diesel generators than they do from the power grid, at a cost that is roughly three times higher.
A major problem is the anemic production of coal, which provides 55 percent of India’s electricity. Coal production increased just 1 percent last year while power plant capacity jumped 11 percent. Some electricity producers have been importing coal, but that option has become more untenable recently because India’s biggest supplier, Indonesia, has doubled coal prices.
India has one of the world’s largest reserves of coal but it has not been able to exploit it effectively, largely because a state-owned company, Coal India, controls 80 percent of production. The company has been hamstrung by political decisions like a policy that requires it to sell coal at a 70 percent discount to market prices. Critics also say it has not invested aggressively enough in new mines and technologies.
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