Q&A with Gerry F. Grove-White, Tata Power Co.'s Executive Director
Gerry F. Grove-White, executive director and chief operating officer of Tata Power Co., in Mumbai, discusses Mumbai’s power crisis with Senior Editor Harry Goldstein. The interview was conducted in January 2007, before the blackout of 25 February 2007 and subsequent electricity rate increases and conservation campaigns went into effect.
For an audio sample of this interview, please click here.
Grove-White: I guess you’ll get a sense that it’s slightly precarious now, that the past can’t necessarily predict the future.
Spectrum: I’ve had a little of that, but maybe you can explain more.
Grove-White: I think, my view is that the load is rising a lot faster and a lot quicker than anybody realizes. I look out my flat and every tower crane I see, I see increased load. And where you see an old building in south Bombay come down, and up goes a 20-story block of flats, that’s it. And the investment in generation has not kept pace. Whereas up until almost last year—last year we scraped by. This year the jury is out when summer comes. That puts a very, very high priority on getting more generation completed. And we actually have on our own count 250 megawatts of coal-fired plant; steel erection started on the first of January out at Trombay, which will go some way to filling that gap. And we are pushing as hard as we can to gain all the necessary consents and acquire the land to build what initially will be a 1600-MW plant on the other side of the harbor, with all probability a third unit going in to take it up to 2400 MW, but that is at least (I was plotting out the coal that we require yesterday), and it’s somewhere in the middle of 2010 if all goes well, in terms of consent and acquiring the land and everything else, and that will be the first unit commissioned in 2010. If that happens, then we’re okay. But between now and 2010 it looks fairly difficult. That’s all against a developing regulatory environment, trading environment, transmission infrastructure, improving in parts. So it’s not easy to be certain that we will get through that summer without a few days of load shedding. Which would be a great shame, but you know, this is the reality and you’ve got to take these decisions [to add more generation] five or 10 years earlier.
And I think what’s happened is that the economic acceleration has taken people by surprise. My return to Bombay up until last October was just once a year, and it was a snapshot. Now I’m firmly convinced that it took some by surprise that the Indian economy ramped itself up from 2 to 3 percent growth rates in the 1980s, to 5, 6, 7 percent in the ’90s, and then suddenly these last two years it’s up to 8, 9, 10 percent. And in certain states, a hell of a lot more than that; the western states in particular, in Gujarat and Maharashtra, their economic growth has been well in excess of 10 percent, I’m sure. And that’s put the stress on the system. If you look back, if you ask the question, how did Bombay cope? Why has it been successful in ways that other cities in India have not? Milton Friedman would clearly say that it was because it was a privatized license, and lo and behold, the lights stayed on in Bombay. That would be the defining feature that differentiates the license and the presence of private, profit-making entities.
Spectrum: So is there a lesson?
Grove-White: There certainly was. Whether private entities can solve India’s problems, I’m not so sure. Privatized companies are part of the solution, but we come from a very small base. Tata Power is the largest private power company, and it has 2300 MW—that’s a very low place. NTPC [National Thermal Power Corporation] is out there in the top four or five worldwide, and they’ve got 35 000 MW. That’s not to say that we don’t have aspirations. We just won a bid to build a 4000-MW station. We’re delighted with that, and if we can win another one, we’ll do that as well. And that will start to give us some critical mass.
Spectrum: Is there a move to take advantage of the new trading infrastructure?
Grove-White: We were one of the earliest participants in trading power in India. We have a wholly owned subsidiary called Tata Power Trading. And it’s an active trader, but it’s against a background that the amount of surplus power available to be traded is small in absolute terms. And if we look at, I mentioned earlier, the development of the station to the south on the other side of the harbor, it’s likely that a good portion of that will be traded. Probably half of it will come into the licensed area and therefore under MERC [Maharashtra Electricity Regulatory Commission]. And half will either be sold on contract, and we’ll keep some available to trade. And I think a lot of private investment in power stations will sell their output in that manner, some on contract, some to their own distribution businesses if they’ve got them, and the rest will be put in trading entities. I think the trading platform that is being discussed—I’m not against the establishment of a trading platform—but I think what they’re talking about at the moment is essentially a day ahead market. It’s just too short. Why would anyone trade a day ahead? It’s just not that sophisticated. What we want is to sell strips—six months, nine months.
But back to [what makes Bombay different from the rest of India]. The licensed plants have served the city of Bombay well. And it’s not just the generation side. It’s the transmission and the distribution. And people can apply for connections and get them pretty damn quick. That’s the other side of the coin that doesn’t always get recognized is that the whole infrastructure is present in the city, not just the generation side.
Spectrum: And you have paying customers.
Grove-White: And in general, yes, we have paying customers. It’s not bad. It’s not perfect anywhere in the world. You go to Sydney, the great power thefts all have to do with the hydroponic cultivation of cannabis! That’s a technical loss in Sydney [laughter]. I take a much more balanced view of it. It’s not just a uniquely Indian issue.
Spectrum: So there’s a crunch coming?
Grove-White: I think so. It’s going to be difficult.
Spectrum: So how’s that going to impact India’s economic growth?
Grove-White: If you look at the whole of India, that situation prevails today. And industry has installed very expensive backup generation to maintain its operations. Now that’s not an economically rational deployment of resources, but in the absence of a secure centralized utility, that’s what happens. As far as Bombay is concerned, I think we’ll get pretty sophisticated at load shedding. It will be done mainly with the general public rather than industry; commercial properties and things like that will be protected. But it’s going to be uncomfortable when the air-conditioning goes off in the middle of summer.
Spectrum: And it will become increasingly a political issue.
Grove-White: It will definitely become a political issue. And it’s going to test the regulatory framework to a considerable extent. Don’t ask me to predict how, but if you take our situation, we have 1700 MW of generation, we have signed a purchase agreement with one party, BEST [Brihanmumbai Electric Supply and Transport Undertaking], but we do not have a signed purchase agreement with the other party, REL [Reliance Energy Limited], despite our best efforts. I don’t want to bore you with the commercial to-and-fro, but we’ve offered them the same deal, but they’re playing a different commercial game for their own reasons. So hypothetically—and I emphasize hypothetically—come May this year, when the temperature soars up, we may honor one agreement, and we may choose not to honor the other because we haven’t actually got an agreement, which means that in particular areas the lights may go out, whereas in this area the lights will stay on. The regulator is going to say, oh God, that’s not what I intended to happen. And that’s what I mean, the reality of it may well test the institutional arrangements. In most parts of the world, politicians are blamed when the lights go out. Now it doesn’t seem to be a critical success factor to be in politics in India, but it may well be here in Bombay, because Bombay has had the tradition of continuous power supply.
Spectrum: Do you foresee any relief coming from outside Bombay to prevent massive outages this summer?
Grove-White: I’m sure there will be some interventions. That’s why I say I can’t necessarily predict what’s going to happen to the institutional arrangements. They’re going to come under stress. And let’s be clear. India Limited takes a very rational position when it comes to the economy. It might not appear so. But in the ultimate they do. And India Limited can take quick decisions and put them into effect.
There is a collective belief that the economic surge that we’re seeing this time is here to stay. Whereas what happened in the ’90s, everybody believed, well it’s happening, but we’ll just wait for the dip to occur. And so people have been conditioned to false storms and therefore did not plan long, because why would you plan long if there’s a false storm? This time it’s different. It isn’t a false storm, and the long-term planning hasn’t been done.
Spectrum: So whose responsibility is it?
Grove-White: We’ve got to get a lot smarter and better at load prediction. And then we have to take the difficult decisions of saying we’re going to invest. We know what we need to do, and we will sell this output ultimately.
Spectrum: In the short term, how’s this all going to affect pricing? Can you control demand through pricing mechanisms?
Grove-White: There must be some demand elasticity in relation to price, but I don’t think it’s ever been tested. The regulator only has one objective, and that is to get prices down. Again, I think the development required within the regulatory mind-set [is] saying, yes, I’m there to regulate prices, but I’m also there to help facilitate new investment. Now, that dialogue hasn’t really started. It’s interesting the disconnects we get. We agree with the government that we will put some peak-loading diesel generators in, 100 MW of second-hand diesels out of China. China needed them 10 years ago for the same reasons we need them now. So we bought them. We agreed with the chief minister that we’d do this. We did it quickly; it at least gives us 100 MW. And the regulator won’t let that be included in our regulatory base, so to that extent there is a disconnect between the regulator and the political will. He just said, No, they’re too expensive, which of course they are. They are extremely expensive units to run. But for the period of summer peak load, what is the price of that last megawatt that people are prepared to pay? He took the view that these were too expensive. Now you can’t have them in the base. I will not allow your tariff. So we now have to come up with whizzo ideas of how do we sell that output to our generating business to then sell it to our customers.
Spectrum: Are wind and solar just way too far out to be of use?
Grove-White: Wind is a significant component now, 4000 MW across the country. And it makes [India] about the third or fourth largest wind generator in the world. But with pretty low load factors compared to other parts of the world. What compensates for that is the fiscal treatment of these wind farms. Wind farms everywhere require an economic fix to help them along.
The nuclear component: we have a very active interest in the recent agreements between the States and India. Once those agreements are nailed down and we understand what they mean, the government itself then has to take a view on whether it is going to change the Atomic Energy Act to facilitate private participation in the sector. The limit has always been uranium, which couldn’t support a program of much more than 10 000 MW. And the whole Indian program has been configured at the initial stage around 10 000 MW of heavy water plants. That may change now. That technology is there to build nuclear plants quickly and cheaply, and they are pretty damn commercial. So it’s far from clear to me which technology is going to prevail. I don’t think there’s much doubt that India must follow the thorium route in the long term.
Spectrum: Speaking of the long term, I’ve heard a lot about the difficulty of getting Indian engineering students to go into the power sector. Do you foresee future circumstances that will lead you to start importing power engineers?
Grove-White: There’s no question that the HR challenges are significant. However, it’s very interesting, the number of unsolicited expressions of interest that cross my desk, literally daily, from people in the States and Europe, who want to come back to India. I think this trend to return is not to be underestimated. But it’s very much middle management and senior management. So where do you get the young engineers? It’s a challenge.
Spectrum: So what brought you back here?
Grove-White: I was here for six years during the ’90s, and the company I was with was very successful. I thoroughly enjoyed it. And then when that business was sold, I went to Australia to do a turnaround. Five years later that company was starting to win awards and was looking pretty good, and I was pacing around wondering what to do next when a headhunter tapped me on the shoulder and said, ”Do you fancy going back to Bombay?” So I thought, I’m 56, 57, I’ve got one more good run left in me, and I said, ”Yeah, let’s give it a go.”
Spectrum: Were you aware of what the issues were here?
Grove-White: I’m married to a Bombay girl. We come back every year, and I have a whole network of friends across the industry here, so yeah, I’ve been watching this with interest. And I think the institutional arrangements that are developing that were catalyzed by the 2003 Electricity Act, which itself was catalyzed by the failures of the ’90s, three years on, they are starting to create an environment that’s improving. It still has its aberrations and pitfalls and complexities, but it’s definitely a much better institutional framework now than it was in the mid-’90s.
Spectrum: So what can other developing megacities like Lagos or Johannesburg learn from the experience of Mumbai?
Grove-White: I think Johannesburg is interesting, because there you have this dominant player, Eskom [Electricity Supply Commission], which is an instrument of the government. Eskom was tasked from day one when the ANC [African National Congress] came into power with the social task of getting the townships connected. So again a different solution, but using a dominant player to address those issues. I guess, if you say history teaches lessons for the future, then you’d say that some framework of private enterprise has served Bombay well. That might be a lesson. And in the absence of a strong Eskom-type entity, it’s a model that’s worthy of consideration. I favor competition anytime rather than a monopoly. Properly instituted private sector involvement is a solution that certain megacities might consider.
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