Mar 10 - 16, 2008

This winter the country has witness worst electricity load shedding and it is expected that the summer would be even harsher because of wide gap between demand and supply. Urban areas complain to face long hours of load shedding but in rural areas the outages are not for hours but for days. The worst affected are the areas where tube wells are operated for long hours either for the irrigation or for draining out sub-soil saline water from water-logged areas.

Though, experts have been talking about granting sugar mills the status of independent power producers (IPPs) not much success has been achieved. One of the impediments is that the government is not ready to offer sugar mills bulk power purchase tariff being paid to the IPPs. The argument is "since sugar mills use baggase as fuel the tariff has to be lower." The policy has failed in convincing sugar mills to exploit the opportunity of power generation by running the boilers on baggase.

To resolve the issue the government has to offer some incentive simply because baggase would not be available to run the boilers for longer period and mills will have to use either gas or furnace oil once they face "no baggase situation". Therefore, the bulk power purchase tariff has to be fixed keeping in view use of baggase for a brief period and use of gas/furnace oil for longer duration. As a rule of thumb the tariff being offered to IPPs should also be offered to the sugar mills. However, a clause may be added that after a predefined period the tariff could be reviewed and adjusted either ways.

According to the experts 77 sugar mills operating in the country have the potential to collectively supply more than 500 megawatts, based on their existing "power house" capacities during the off-season. At present the length of crushing season is about 150 days and during this period mills may not be able to supply any quantum of electricity during the crushing season. The existing capacity can be enhanced by adding dual-fuel fired boilers. To facilitate addition of new capacity, the government should allow duty free import of relevant plant and machinery. The income from power generation may also be exempted from income tax for two years, from the date of commence of power generation.

One of the arguments against offering tax exemptions is that the government faces huge budgetary deficit, which is also going up with the passage of time. Therefore, all the possible measures should be taken to enhance revenue collection, rather than extending any exemption. However, critics must keep in mind that the costs are of two types, actual cost and opportunity cost. At present the opportunity cost is much higher compared to the actual cost. Therefore, exemptions should be for a brief period with clear indication that these would expire on a fixed date and there will not be any extension in the deadline.

Some of the opponents of the policy of granting sugar mills the status of IPPs say that at an average a mill can produce up to 25MW therefore, why to waste time and energy. The counter argument is that since sugar mills are located in the rural areas they could prove better compared to the large size IPPs. The advantage engaging sugar mills in power is that all the mills are linked to the national grind and dispatching load from the mills would not require additional expenditure for creating the link. This would also help in containing transmission and distribution losses because mills are located closer to the point of electricity consumption.

Some of the sector experts believe that the baggase produced in the country is highly insufficient for running the boilers throughout the year. However, others believe that the issued can be overcome by following appropriate policies. At present mills are operating at less than 50% capacity utilization and going into electricity generation would help management of the mills to undertake crushing for the longer period, which will help in producing larger quantity of baggase.

At present baggase is considered a by-product of the lowest value and mostly used in brick kilns. In fact burning baggase in kilns is waste of a precious resource. After power generation the second best use of baggase is for the production of chip board. It is believed that if baggase is produced in larger quantity, its use in chip board manufacturing need not be curtailed.

It is encouraging that two of the sugar mills have started supplying electricity to the national grind. It is also believed that other mills are also interested in having similar arrangements but are a little shy because of the tariff. Therefore, the government must come up with a clear cut policy to help all the mills to enter into agreement with the utility companies at the earliest.

It is suggested that the relevant authorities must undertake comprehensive survey of the existing facilities, expansion plans and also the requirement of other fuels i.e. gas furnace oil etc. This will help the government in doing cost analysis, additional fuel import cost before finalizing the deal.

In order to attract sugar mills to venture into power generation business the government should also raise bulk power purchase rate up to the rate being offered to the IPPs.

There is also a word of caution that the experts determine should not take the installed capacity as benchmark. Only dependable capacity should be taken while determining the available capacity.

There is also a word of caution for the mills that they need a specific outage for the routine maintenance etc. The decision should not be based on "greed" but realistic approach.

Sugar industry has the potential to save the nation from prolonged outages and load shedding. By venturing into this business, they will find ways to improve income but more importantly help in achieving the GDP growth target.