India - Third five year plan (Vol. 5 of 9) : Fuel and Power

RESTRICTED Annex IV to Report No. AS 80a This report was prepared for use within the Bank. It may not be published nor may it be quoted as representing the Bank's views. The Bank accepts no responsibility for the accuracy or completeness of the contents of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INDIA'S THIRD FIVE-YEAR PLAN REPORT OF BANK MISSION TO INDIA Annex IV FUEL AND POWER August 10, 1960 Department of Operations South Asia and Middle East CURRENCY EQUIVALENTS 1 Indian Rupee = U. S. $0. 21 1 U.S. Dollar = Rs. 4. 762 Rs. 1 billion = $210 million 100 Naye Paise = One Rupee WEIGHTS AND MEASURES All tonnages in long tons unless otherwise stated. CONTENTS Page No. (A) COAL PRODUCTION Progress during Second Plan 1 Target for the Third Plan 2 Expansion in the Private Sector 3 The Public Sector 4 Policies and Problems Neyveli Lignite Project 6 Coal and the Balance of Payments 7 (B) OIL SUPPLIES Consumption and Imports 7 Exploration and Development 8 Refining and Distribution 10 Natural Gas 12 (C) ELECTRIC POrER Progress of Expansion 12 Future Programs 15 Alternative Sources of Power 20 Electricity Rates 21 Conclusions 23 LIST OF TABLES 1. Growth of Installed Capacity 13 2. Sales of Electricity by Public Utilities l 3. Electricity Generation by Public Utilities 14 4. Power Supplies of Public Utilities by States 16 5. Installed Generating Capacity by States and Third Plan Projections 17 6. Firm Capacity and Peak Demand by States, 1960-1966 19 7. Comparative Costs of Nuclear and Other Power 21 ANNEX IV. FUEL AND POIER (A) COAL PRODUCTION Progress during Second Plan 1. Starting with production of just over 38 million tons of coal in 1955, the Second Five-Year Plan set a target of 60 million tons for produc- tion in 1960/61. Of the increase of 22 million tons, 10 million tons were to come from the private collieries (raising their total output from just under 34 million tons in 1955 to 43. million tons in 1960/61) and 12 million tons from State-owned collieries, including the Singareni collieries in Andhra Pradesh (raising their total output from h4 million tons to 16) million tons). The investment required to raise the additional output in the public sector was estimated at Rs. 600 million, including Rs. 120 million for housing. Against this, the initial allocation in the Plan was only Rs. 400 million. 2. At the beginning of the Second Plan there were already eleven State-owned collieries with an annual production of just under 3 million tons, and these were expected to contribute half a million tons of the 12 million-ton increase in the public sector. Another 13 million tons was to be secured by doubling production at the Singareni collieries, which had previously been under private control, and the remaining 10 million tons by the opening up of new mines, mainly in Bihar and Madhya Pradesh (see map on next page). 3. The progress of coal production up to 1959 is shown by the following figures: (million tons) 1955 1959 1960/61 target Public Sector: Old State collieries 2.9 3.2 3 5 Singareni 1.5 2.2 3.0a/ New collieries - 1.3 10.0 Total public sector 16.5 Private Sector: Total 33.9 40.3 43.5 Total public and private 38.3 47.0 60.0 a/ The target for Singareni was for the year 1961/62. S l N K l A N G * Apomli, C-as Fi,e Un,. AFGHANISTAN C H I N A KASH IR . '.S TIBET p T l 8 E T .-"W.HIMACHAL PRADESH PAKISTAN PUNJAB p K ST N PUNJA DEL Sx ABHUTAN f' R A J A 5 T H A N B l H A R PAK STAN slNGRAUL/ 8BOKARO G U J R A T A YATTTAPN RANIGANJ NDLA PRADESH U B u R m A VALLEY 1ý 10RBA 8H/LA/ AMPURRIPRKEL * *R/URUE4 DAMAPar-dip cDD 80 MBAY«,** SING ARENI v I VSHAKAPATNAM A N D H R A 5ACLADLLA R ediMsupa m AUGUSA 9£D E S H (Por IND IA ...DEPOSITS OF COA L ,ANDAMAN •..•' MADRAS &1IRON ORE SAD EYVEL/ /GN/TEPR INCIPAL CO AL FIE LDS DEPOSlTs 6..Cuddolore IMPORTANT IRON ORE DEPOSITS LACCADVE* c STEEL PLANTS ISLANDS -7 ¯] PROPOSED SITE FOR NEW STEEL PLANT CO HNØ PORTS USED FOR SHIPMENT OF IRON OREc so 50 100 15s o0 2s 50 31 3 CEYLON MLES AU,GUST 196o' I5RD ý21R - 2 - These figures suggest that both public and private sectors will fall some way short of their Second Plan targets. Production in 1960/61 is now ex- pected to be only about 52-54 million tons, of which the private sector might contribute 42-43 million tons and the public sector 10-11 million tons. The main shortfall will be in production from the new public collieries. It is claimed, however, that the initial investment in opening up these collieries is now almost completed, and that open-cast production in the new areas will rise rapidly during the next eighteen months, achieving the target rate of output within a matter of months after the end of the Second Plan. Total public investment in the coal industry during the Plan is expected to reach about Rs. 530 million, most of it during the last two years. This figure apparently includes expenditure on housing. Target for the Third Plan 4. It was announced in May 1960 that a target of an additional 35 million tons of coal production had been provisionally fixed for the Third Plan, bringing total production in the final year of the Plan to 95 million tons.- A tentative breakdown of the additional production was given by coalfields and by grades, Of the total increase, 91 million tons were to consist of coking coals from the Bengal/Bihar fields (mainly Jharia and Bokaro) and 202 million tons of blendable and non-coking coals, of which just under half were to come from the Bengal/Bihar area (mainly Raniganj) and just over half from other areas (mainly Singareni and various fields in Madhya Pradesh). 5. The 95-million ton coal target was related to steel output of just under 9 million ingot tons. As the target for steel production has now been raised to 91 million tons, the coal target has been raised to 97 million tons, though it is stated in the Plan Outline that production is unlikely to reach this level in 1965/66. It certainly seems to us most improbable, for reasons given below, that actual output will be increased to 97 million tons a year in the Third Plan. Steel production of 91 million tons is equally unlikely to be achieved. The capacity might conceivably be there if high priority is given to construction of a fourth steel plant, but it is as nearly certain as anything can be that the four government plants will not be operated to full capacity in 1965/66. 6. The coal problem is nonetheless a very serious one - in the mission's view, one of the most serious that India faces in carrying out the Third Plan. In other countries the growth of demand for coal has been slowed down by a shift to oil and gas as a source of fuel and power, but so long as India remains a net importer of oil, the scope for such a shift will be very limited. Greater use of hydro and nuclear power will have some 1J The additional output of 35 miillion tons was related to a Second Plan target of 60 million tons, not to actual output in 1960/61 which is expected to be appreciably less. - 3 - effect in moderating the increase in demand for coal, but these are more capital-intensive forms of power development, and relatively greater reliance on conventional thermal power would be economically justifiable if coal supplies were more plentiful. Abundant deposits of coal are one of India's principle national assets, and the pithead cost of coal is still much lower than in most other countries. It would be a national calamity in these circumstances if a shortage of coal were allowed to hold up the expansion of the economy - or if foreign exchange had to be allocated for coal imports. Yet India is already suffering from a shortage of good quality coal, particu- larly metallurgical coal, and the steel plants are having serious difficulties in obtaining the supplies they need, even though steel production is still a long way short of the Second Plan target. Export orders moreover have been lost as a result of restrictions imposed to deal with the domestic shortage. Unless urgent steps are taken to economize in inessential uses of coking coal, and unless total coal production can be raised in even stages to at least 90 million tons a year by the end of the Third Plan, the whole progran of industrial development is likely to be seriously impeded. Expansion in the Private Sector 7. Expansion of private coal production has been held back by the stipulation made in the 1956 Industrial Policy Resolution that all new units in the coal industry should be set up only by the State, save where their establishment in the private sector had already been approved. In accordance with this policy leases granted to private companies have been restricted to areas "contiguous" to their existing properties, and applications to develop non-contiguous areas have in a number of instances been turned down. For the Third Plan the private sector maintains that, so long as its operations are confined to existing collieries, it cannot raise its output by more than another 7 million tons a year (i.e. to a total of around 50 million tons a year), but that if restrictions on the opening up of new areas were lifted without further delay, production might be raised by 22 million tons a year (i.e. to about 65 million tons). In order to achieve an extra 15 million tons of output from new mines the industry reckons that it would need to invest about Rs. 600 million (i.e. Rs. 40 per ton), and that it could find about half this sum from its own resources, leaving the other half to be raised from new issues, bank borrowing and other sources. 8. The Government appears to be reluctant to give the private sector the green light to open up new areas until it is assured that all the coal covered by existing leases is fully exploited. There may be some truth in the Governmentts claim that the private companies could have considerably increased the rate of output from their present mines, that valuable deposits are being held back for future development, and that this is contrary to the public interest. On the other hand., it is natural that the companies should hesitate to step up output so long as they are restricted to present areas. The question of coal prices is also highly relevant. 9. Coal prices in India were controlled in British times, mainly in order to keep railway costs down, and price control has continued since independence. Present pithead prices in the Bengal/Bihar fields range from just under Rs. 23 per ton for Selected Grade A coking coal to a little over Rs. 17 per ton for the lowest qualities of non-coking coal. These prices are 40-50 per cent above those in force at the beginning of the Second Plan, having been raised recently to compensate the collieries for increases in wage costs, which account for well over half the cost of total production. At the beginning of the Second Plan average monthly earnings for time and piece-workers ranged from Rs. 47 to Rs. 66, and these earnings have now been increased by law to Rs. 79 to Rs. 151 per month. Workers have also been granted other benefits, including leave with pay, pay for festival holidays, better overtime allowances and sickness and maternity benefits. 10. The industry claims that the price increases granted have not been adequate to match the rise in labor costs. While the mission gained the impression that the more efficient collieries can operate fairly profitably at the present level of prices, it is doubtful whether the return to the industry as a whole is high enough to enable it to build up the financial resources needed for expansion - or indeed give it much incentive to do so. Nor does there appear to be a large enough differential between the prices fixed for coking coals and non-coking coals. We suggest therefore that the whole basis of the present price controls should be re-examined. 11. Average dividends paid on coal shares rose from 5.2 per cent free of tax in 1955/56 to 7.3 per cent in 1957/58, but they have since declined to 6.3 per cent in 1958/59 and little over 5 per cent in 1959/60. Prices of coal shares rose more or less in line with the general trend of equity prices in 1958/59, but during the past twelve months they have lagged well behind the general average. The Public Sector 12. It has not yet been decided how much the private sector should be asked to produce in the Third Plan. According to the Plan Outline, however, "it has been tentatively assumed that about 16 million tons (of the additional 37 million tons) could be raised by the private sector". This would mean increasing the production of the private collieries to just under 60 million tons by 1965/66. 13. Meanwhile, Rs. 1.38 billion has been provisionally allocated for investment in the public sector, and it has been estimated that this will be sufficient to secure additional production of 19 million tons a year (i.e. 35 million tons in all), besides providing for the necessary investment in ropeways and coal washeries. It will be no easy task to raise output in the public sector by this amount. So far, the National Coal Development Corporation, which is responsible for operating all the State collieries except Singareni, has been concentrating on the easier seams which can be developed by open-cast and incline mining, but asproduction in the new areas expands, mining will become progressively harder and more costly as greater depths are reached. It may take four or five years to put dowin the shafts required to exploit the deeper seams, and the work on this has hardly begun. The Corporation has not yet had time to acquire much experience of coal operations and the mission has considerable doubt about the ability of a comparatively new organization of this kind to develop operations so rapidly. 14. The main problem facing the National Coal Development Corporation is one of organization, management and technical skills. A considerable number of young graduate engineers are undergoing training in India and overseas, butthere is inevitably an acute dearth of senior technical and managerial personnel with actual experience of coal-mining operations. A few older men have been recruited from private collieries, but not enough to take charge of operations on the scale envisaged. The Corporation has hitherto been assisted by a mining advisor recruited under the Colombo Plan. He has now left, and arrangements are being made with various foreign countries to supply technical advisers during the Third Plan. While this will certainly help, the main responsibility for operations must continue to devolve on the Indian staff. However able they may be, their lack of practical experience in coal-mining must necessarily impose limits on the speed and efficiency with which the Corporation can develop its operations. Policies and Problems 15. Given the urgent need for more coal, particularly coking coal and the better grades of non-coking coal, there appears to be a strong case for reconsideration of the Industrial Policy Resolution, as applied to coal, with a view to allowing the private sector larger opportunities to share in the expansion of production. A speedy decision is required, since the opening up of new mining areas takes time, and every monthts delay adds to the difficulty of fulfilling the Third Plan target. 16. Particular attention needs to be given to the supply of metall- urgical coal and to the provision of more facilities for washing the coal supplied to the steel plants and the railways. Most of the coal produced in the public sector is of middling quality, which requires a lot of washing, and very little of it is metallurgical coal. There is consequently a ten- dency for the average quality of India's coal supply to deteriorate, with a growing shortage of the superior grades. The latter are subject to alloca- tion, and priority is given to the steel plants and the railways, while other users are frequently unable to obtain the qualities they require. Even the steel plants have the greatest difficulty in securing good quality coking coal. Much of the coal at present delivered to them is inadequately washed with the result that the ash content of the coke is frequently as high as 24-25 per cent, as against the 20 per cent which Tatas consider the maximum for efficient operation of their plant. As a result, the output of steel is being adversely affected. 17. The situation calls for stricter allocation of supplies of good metallurgical coal, as well as for better washing facilities. The railways, for example, are still using 2 million tons of coking coal a year (as against 6 million tons at the beginning of the Second Plan), and this could be replaced by higher grades of non-coking coale The mission was assured - 6 - by the Railway Board that this would be done. There have also been instances of good coking coal being exported when non-coking coal would have met the customers' requirements equally well. 18. Two coal washeries have been established in the public sector during the Second Plan to serve the new steel plantse There are also several private washeries. The combined capacity of the existing washeries is rather over 4 million tons of washed coal a year, and this will be approximately doubled on completion of another three washeries in the public sector, which are included in the Second Plan. At least two more washeries are to be added as part of the Third Plan, and total investment in coal washeries during the Third Plan, including the spill-over of Second Plan projects, is estimated at Rs. 230 million. 19. Better organization of transport is another essential for increas- ing coal production. Mining operations during the Second Plan have been periodically hampered by delays in building new sidings, lack of suitable wagons, irregular deliveries and slow turn-around of wagons at the collieriese The railways are taking steps to overcome these limitations, and a consider- able improvement in railway performance is to be looked for in the Third Plan. 20. Transport costs account for a large part of the final cost of coal in India, as it does in other countries, amounting to two or three times the pithead prices in areas remote from the coal fields. There is consequently a very wide spread in the cost of coal to the consumer. At one time the "postalization" of coal prices was considered by the Government, but it was rightly rejected in view of the serious impact it would have had on the costs of large coal-using industries located near to the coal- fields and the encouragement it would have given to the movement of coal over long distances, thereby imposing an additional strain on the rail system. neyveli Lignite Project 21. The south of India is one of the areas which has suffered most from the high cost of delivered coal, and the discovery and development of lignite deposits at Neyveli in Madras State is a welcome addition to the fuel resources of the region, The Neyveli lignite project, which is being accorded a high priority in the Second Plan, envisages the mining of 31 million tons of lignite a year, to be used for the generation of 250,000 kilowatts of electricity, the production of 152,000 tons of urea fertilizer and the manufacture of 380,000 tons of carbonized lignite briquettes for use as domestic and industrial fuel. The mining part of this project was originally expected to be in full production in 1960/61, but it has taken longer than anticipated to carry out the necessary surveys and remove the over-burden, and production is not now expected to begin until early in 1961. Flooding has been a serious problem and may impede mining operations in the future. The briquette project will be included in the Third Plan; the estimated capital cost is in the region of Rs. 100-120 million, of which rather over half will be in foreign exchange. The Third Plan also includes provision for raising the output of lignite to 4.8 million tons a year. Coal and the Balance of Payments 21, The foreign exchange requirements for coal development are sub- stantial. Approximately Rs. 355 million ($75 million) is expected to be released for expenditure on imports of equipment for Second Plan schemes, of which just under Rs. 250 million is for the public sector and slighly over Rs. 100 million for the private sector. Import requirements for Third Plai schemes are officially estimated at the high figure of Rs. 1,234 million ($259 million). M4any of the orders need to be placed before the end of the Second Plan if investment is not to be further dalayed. After 1965/66 the Government hopes that the program for the manufacture of mining machinery in India will make further imports unnecessary, but this may be rather optimistic. 23. During the three years 1956 to 1958 India's coal exports averaged just over 1.7 million tons a year valued at Rs. 67 million. Exports were reduced in 1959 to 1.4 million tons valued at Rs, 56 million. The three principal export markets are Pakistan, Burma and Ceylon, the first being much the most important of the three. The balance of payments projections for the Third Plan assume that coal exports will rise to an average of 2.2 million tons a year valued at Rs. 75 million. The chances of realizing this forecast will obviously depend on the progress made in expanding coal production. If coal were to become really scarce, exports might have to be curtailed. On the other hand, considerably larger exports might be possible to neighboring countries (e.g. Indonesia) if the present shortage could. be overcome. (B) OIL SUPPLIES Consumption and Imports 24. No other single commodity has such an important bearing on the future viability of the Indian economy as oil. In 1952 India consumed 6.3 million tons of petroleum products, including bunkers, and if consumption continues to rise at the same rate as over the past ten years (about 10 per cent a year), it will exceed 11 million tons in 1965. The latest forecasts made by the oil companies, if averaged out, suggest a slightly lower rate of growth - to just over 10 million tons in 1965 and just under 11 million tons in 1966. Consumption of petroleum in India is still extremely low, and these forecasts may be considered somewhat conservative. Appreciably higher figures were mentioned to the mission both by the Government and by the companies as lying within the range of possibilities. A consumption of - 8 - 101 million tons of products in 1965 may be as realistic an estimate as any. Allowing for refinery fuel and losses this would be equivalent to something over 11 million tons of crude oil. 25. India is at present producing rather over 400,000 tons of crude oil a year from fields in Assam. There are four private refineries in the country with a combined annual capacity of about 51 million tons of crude oil, and the actual throughput of crude in 1959 was 5.3 million tons, of which 4.9 million tons were imported. Demand for refined products in India is heavily concentrated on kerosene, diesel and furnace oil, and gasoline accounts for less than one sixth of domestic consumption. At present surplus gasoline is being exported to Australia, New Zealand, and Ceylon, but outlets in these markets are likely to be greatly reduced in two or three years' time when new refineries are brought into operation (e.g. in New Zealand and Thailand). India's total exports of refined products (gasoline, Paraffin wax and furnace oil) are currently in the region of 250,000 tons a year valued at about Rs. 50 million. Against this, product imports in 1959 amounted to 1.75 million tons, consisting predominantly of kerosene. 26. Total expenditure of foreign exchange on imports of crude oil and products caie to Rs. 0.71 billion in 1958/59 and Rs. 0.83 billion in 1959/60. If the cost of imports were to rise in line with the assumed rise in consump- tion, foreign exchange expenditure on oil would exceed Rs. 1.30 billion a year by the end of the Third Plan. The import bill is in fact officially forecast to rise to Rs. 1.05 billion in 1961/62 and Rs. 1.10 billion in 1962/63, but no further increase has been allowed for during the remaining three years of the Plan because the development of indigenous supplies of crude oil and the expansion of refinery capacity in India are relied upon to eliminate the need for additional imports. The forecasts were made before the substantial reductions recently made in the prices of oil supplied to India from the Persian Gulf. The mission does not have sufficient information to evaluate what effect these reductions might have on the import bill for the Third Plan. Exploration and Development 27. The only certain domestic source of additional crude oil for the Plan period is the field at Nahorkatiya in Assam, which was discovered by the Assam Oil company (a subsidiary of Burmah Shell) in 1952. Proven and indicated reserves in the concession area are assessed at about 45 million tons, and so far as is known at present, the maximum annual production that can be economically derived from this field is 2.75 million tons. This production could probably have been achieved several years ago if the Burmah Oil Company had been allowed to make its own arrangements for development. But the exploitation of the oil has been delayed by the prolonged negotia- tions between the company and the Government, and by the Government's insistence tnat refining and distribution of the oil should be reserved to the public sector. - 9 - 28. Two government-owned refineries ;re now being built to handle the crude oil. The first of these, near Gauhat.i in Assam, will have a through- put of 750,000 tons of crude oil and will probably be completed in the spring or early summer of 1962. WVork on the seccntl, at Barauni in Bihar, has not yet started, but a project report is due by the end of 1960, and the refinery may come on stream some time during 1963. laitially the Barauni refinery will process only 1 million tons of crude a-Tear, but its capacity should be raised to 2 million tons by 1964 or 1965. A pipeline is being built in two stages to move the crude oil to the reflreries. Tne first stage of 250 miles of 16" pipe connecting Nahorkatiy:. with Gauhati is due to be completed by December 1961; the second staE, from Gauhati to Barauni will consist of 470 miles of 14" pipe and is due c be completed by July 1962 (see map on next page). 29. The development of the Nahoratiya oi_field and the operation of the pipeline to Gauhati and Barauni are the re.ponsibility of Oil India Private Ltd., a company formed in 1958 with twu thirds of the equity held by the Assam Oil Company and one third by the Covernment. The pipeline itself is being built by a construction company especially created for this purpose; the construction company will be responsible for maintaining and operating the pipeline for the first year after it is completed. Responsi- bility for the construction and operation of the two refineries rests solely with the Government. The plants are being supplied and erected by Rumania (Gauhati) and the Soviet Union (Barauni). 30. The total cost of the pipeline from Nahorkatiya to Barauni may be approximately estimated at Rs. 450 million, of which between one third and one half might be in foreign exchange (depending on the extent to which the pipeline can be manufactured in India). The foreign exchange costs will be wholly covered by a ;3 million loan from the U.K. Government and a line of credit uf up to 620 million extended by the Burmah Oil Company. The rupee costs (possibly around Rs. 250 million) are to be met by Oil India, so that about one third of this amount (say about Rs. 80 million) will have to be found directly or indirectly by the Government of India. Of the 84,000 tons of pipe required a British firm has contracted to supply 33,000 tons and Hindustan Steel 51,000 tons (from Rourkela). It is understood, however, that only 27,000 tons will be wholly manufactured at Rourkela, the remain- ing 24,000 tons being fabricated in the United Kingdom and Germany from billets supplied from Rourkela. 31. The mission was informed by the Government that the cost of the Gauhati refinery, including a new township, might work out at around Rs. 140 million; this includes foreign exchange costs of Rs. 52 million equi- valent, which are covered by a credit from Rumania. No reliable estimate is yet available for the Barauni refinery. A possible figure mentioned to the mission was in the region of Rs. 350-400 million, of which roughly one third might be in foreign exchange. A Soviet credit of Rs. 119 million has been extended for this purpose. Practically the whole of the expenditure on the Barauni refinery, together with the greater part of the expenditure on the pipeline and a fraction of the expenditure on Gauhati, will fall within the period of the Third Plan. It is not clear, however, whether this has all S l N K l A N G AFGHANISTAN C H l N A JAMMU ,8a K l . . .HIMACHAL AALAMUH ~ PRADESH PAK ISTAN PUNJAB SIKKIM -PAK STAN MANIPUR G U J R AT \.RAT AN LE A .. '' ....,..N'. .. .. EU~ EUM PHAKAATAS LMYSREAD.IPTROETUMGOt REVELOPM NT 4. ANAMAN -.SL SLAND REFINERIES UNDER CONSTRUCTHON -PIPEtNE ANDER CONSTRUCTION NI CO BAR 0ISL ANDS Å-LES I PMUILEA CEYLON AUGUST 960 B 7 - 10 - been included in the allocation made in the Plan outline for mineral develop- ment. 32. Exploration for oil has been carried on in a number of other parts of India during the Second Plan. The Standard-Vacuum Oil Company, under a concession granted in 1952, has been exploring for some years in the Gangetic Basin in West Bengal, and since 1954 the Government of India has held a 25 per cent interest in the project. In all, about Rs. d0 million has been invested, but no oil has been discovered, and the project may shortly be abandoned. All other oil exploration during the past five years has been reserved to the government-owned Oil and Natural Gas Commission, which has received technical assistance from the Soviet Union and Rumania. Total expenditure on oil exploration by the Commission during the Second Plan may amount to around Rs. 200 million. The Cormission has made a dis- covery of natural gas at Jawalamukhi in the Punjab and two discoveries of oil in Gujerat State, one near Cambay and the other some way further south along the coast at Ankleswar. The mission was informed that both the last two fields contain sufficient oil of good quality to justify commercial exploitation, but no detailed information has yet been published either about the quantities of the oil that might be produced or of the time that might be required to develop them. The Commission is also carrying on ex- ploration in Assam and various other parts of India, but no positive results have been reported. 33. The sum of Rs. 1.15 billion, including a foreign exchange component of Rs. 0.60 billion, has provisionally been allocated to the public sector in the Third Plan "for further exploration with a view to establishing additional production." It is further stated that "in the case of areas in which reserves of oil are proved and have been brought to the stage where production can start, the additional funds required for developing pro- duction and for refining capacity and pipelines will be provided in accordance with the requirements as assessed from time to time". I-leanwhile the Government has invited foreign oil companies "to join the quest for oil in India subject to mutually acceptable terms". A number of offers have been received in response to this invitation and are now being considered. Refining and Distribution 34. The readiness of foreign oil companies to invest money in explora- tion in India will inevitably depend to an important extent on the arrangements made for the refining and distribution of any oil that is found. All the existing refineries are in the private sector, two at Bombay, one at Vishakhapatnam and one at Digboi in Assam. The Industrial Policy Resolution of 1956 left the way open for the expansion of these refineries, but laid down the principle that all new refineries should be in the public sector - and it is in accordance with this policy that the two refineries to handle Assam oil are being built by the Government. W4hen these two refineries are completed, total refinery capacity will be about 8.25 million tons in terms of crude (5.5 million private, 2.75 million public). The Minister of Fuel has announced that a government-owned refinery is to be established near Cambay and he has mentioned the possiblity of having another government refinery - 11 - in the south of India; the annual capacity suggested for each of these refineries is about 1 million tons. No specific provision has been made in the Third Plan for these projects. If they both go forward, capacity will be increased to over 10 million tons, and this will leave very little room for the expansion of the existing private refineries during the next five years. 35. Hitherto oil distribution in India has been entirely handled by private companies, though product prices have been subject to government control. In response to government pressure the companies reduced their prices substantially in 1959, but excise duties were correspondingly increased, and there was no reduction in prices charged to the public. Further price reductions were announced by the companies in July and August 1960 against the background of a suggestion by the Government that they should refine Russian oil, which they have apparently refused to do. 36. The Government has recently decided to enter the distribution field itself, and a new government-cwned distribution company was established in 1959 with an authorized capital of Rs. 120 million. The sum of Rs. 50 million is mentioned in the Third Plan Outline as having been allocated for invest- ment in distribution facilities. 37. The oil trade in India is in any case faced with difficult problems in adjusting itself to the new pattern of supply that will result from the development of oil production in Assam and the establishment of refineries at Gauhati and Barauni. The location of the Gauhati refinery, which was determined primarily by political considerations, is particularly unfortunate from this point of view, since it is close neither to the oilfield nor to any major center of consumption, and its products will have to be transported by land over long distances to markets in north and east India. (The small market for oil products in Assam can be adequately served by the existing refinery at Digboi.) Although there has been talk of constructihg a product pipeline from Gauhati to Barauni, the railways are proceeding on the assump- tion that they will have to carry the bulk of the oil refined at Gauhati. This will require substantial investment. It has been estimated, for example, that an additional 540 meter-gauge tank wagons will be required to move Gauhati products to Barauni, which is the nearest point on the broad-gauge railway system; in addition, the meter-gauge rail link to Assam will have to be doubled, and 20 extra diesel locomotives and other equipment will have to be allocated to this section. 38. At the request of the oil companies a new goverment-industry committee was set up early in 1960 to examine the various problems involved in the distribution of oil products, and the movement question has been put first on the agenda. It will also be necessary to demarcate zones of consumption to be served by the various refineries and to make suitable arrangements for product exchanges between the distributing companies in order to economize in transport. - 12 - 39. As already mentioned, the demand for refined products in India is mainly concentrated on the heavier ends, leaving the lighter ends in surplus. Efforts are being made by the oil companies to adjust their refinery processes so as to produce a larger proportion of diesel at the expense of gasoline, and attention is also being given to other methods of correcting the balance such as the production of naphta (in place of gasoline) as a feedstock for fertilizer plants and the admixture of a proportion of gasoline with high speed diesel oil. The increase in the duty on diesel oil in the 1960 Budget was also designed to discourage a further switch from gasoline to diesel fuel in motor transport. Natural Gas LO. The only substantial source of natural gas so far proved is in Assam, where it is expected that initially 37 million cubic feet of gas a day will be available as soon as oil production starts at Nahorkatiya. Plans are being made to use 25 million cubic feet a day for the operation of a cement plant, a power station and a fertilizer plant in the vicinity of the oilfield. (C) ELECTRIC POWER Progress of Expansion 4l. Investment in the electric supply industry has been consistently given high priority in the various industrialization plans. Large sums of money have been allocated to the expansion of generating facilities. However, despite the rapid expansion of electric generating capacity which took place in India during the First and Second Five-Year Plans, there continues to be a chronic shortage of electric power in the country. The mission recognizes that this is probably a normal condition for a country whose industry is growing as rapidly as India's. We do not wish to imply that it would neces- sarily be right to devote enough investment to power to remove this condition in the near future. In all probability, it would not. We do, however, feel that there are serious weaknesses in the planning of power expansion at the State level and substantial obstacles to be overcome if the shortage of power is not to hamper industrial growth very shortly and very seriously indeed. It is important to bear in mind that, unlike many other critical components of economic growth such as fertilizers and steel, power cannot be imported to meet domestic shortage, while the means to produce it, even if readily obtain- able so far as finance is concerned, take many years to construct and put to work. 42. At the beginning of the First Plan, in March 1951, the total instal- led generating capacity in the country amounted to 2.3 million kw (see Table 1). This was increased to 3.4 million kw by March 1956 through an expenditure of Rs. 2.60 billion in the public sector and Rs. 0.32 billion in the private sector. Industrial establishments providing their own electric facilities spent an additional Rs. 0.10 billion. In other words, Rs. 3.02 billion were spent in India on power during the First Plan, and generating facilities were expanded by 1.1 million kw. - 13 - Table 1. Growth of Installed Capacity (million kilowatts) Estimated self- Estimated Installed capa- generating capa- total city of public city of industrial installed Year electric utilities establishments capacity a 1950/51 1.7 0.6 2.3 1954/55 2.5 0.6 3.1 1955/56 2.7 0.7 3.4 1956/57 2.9 0.8 3.7 1957/58 3.2 0.8 4.0 1958/59 3.5 0.9 4.4 1959/60 3.8 0.9 4.7 1960/61 anticipated 4.8 1.0 5.8 1961/62 " 5.6 1.0 6.6 1962/63 i 6.6 1.1 7.6 1963/64 targets 7.6 1.1 8.7 1964/65 " 9.0 1.2 10.2 1965/66 it 10.6 1.2 11.8 a/ Actual annual growth rate 1950/51 - 1959/60 = 8.3 per cent. Projected annual growth rate 1959/60 - 1965/66 - 17.0 per cent. 43. The Second Plan contemplated an even more considerable expansion of generating facilities, with a target set at 6.9 million kw of installed capacity by the end of the Plan period. The estimated investment required to achieve this result was Rs. 4.82 billion in public plants, Rs. 0.37 billion in private plants and Rs. 0.28 billion for industrial establishments, or a total of Rs. 5.47 billion. However, the program has lagged badly, and the present situation is most unsatisfactory. Poor timing and inadequate expan- sion seem to be the most pressing problems. As a result, the firm generating capacity available to public utilities as of March 1960, for the country as a whole, was below the actual peak demand. 44. A major part of the delay has been attributed by the Indian Govern- ment to the shortage of foreign exchange. While this has undoubtedly been an important factor, the mission notes that there are some cases when foreign loans have been available for power development and have not been used expe- ditiously. 45. Electricity sales have grown over two and a half times since 1950, while generating capacity has been only doubled. The growth in industrial sales has been especially impressive (Table 2). Electricity generation by States is shown in Table 3. - 11 - Table 2. Sales of Electricity by Public Utilities (million kilowatt-hours) Percent of total utility 1950 1955 1956 1957/58 1958/59 sales Domestic light and power 524.6 850.1 934.1 1,094.6 1,231.0 11.5 Commercial light and power 308.7 511. 545.9 611.5 678.8 6.2 Industrial power 2,603.8 1,697.8 5.323.4 6,229.3 7,176.0 67.0 Public lighting 60.3 105.6 117.8 1h1.1 155.1 1.5 Traction 308.) 103.3 101.9 121.9 111.6 4.1 Irrigation 161.7 251.8 316.2 565.8 613.5 6.1 Water works 189.1 28L.7 317.1 365.6 389.6 3.6 Total 4,156.6 7,111.0 7,959.1 9,130.1 10,718.6 100.0 Table 3. Electricity Generation by Public Utilities (million kilowatt-hours) 1950 1955 1956 1957/58 1958/59 Andhra Pradesh 84.6 188.8 239.2 345.3 571.1 Assam 5.8 9.8 11.3 18.0 21.8 Bihar 125.7 139.8 603.2 1,050.9 1,262.0 Bombay 1,666.8 2,770.8 3,039.7 3,386.1 3,630.5 Janu and Kashmir 21.1 26.2 23.9 36.3 39.3 Kerala 117.1 313.0 319.7 411.1 501.6 Madhya Pradesh 77.1 130.3 169.3 187.5 271.4 Madras 599.6 1,011.6 1,081.3 1,312.0 1,510.0 Mysore 454.3 736.6 826.2 931.0 917.7 Orissa 5.7 16.5 21.1 93.2 288.7 Punjab 183.8 326.9 11o.8 657.2 697.4 Rajasthan 50.9 81.2 90.3 96.1 99.8 Uttar Pradesh 510.7 651.7 713.5 872.0 965.3 West Bengal 1,016.8 1,639.1 1,778.6 1,696.7 1,917.9 Union Territories: a) New Delhi 122.3 211.7 232.2 203.8 251.9 b) Others 1.1 3.3 8.6 8.2 8.1 All-India total 5,106.7 8,592.5 9,661.9 11,369.0 12,993.8 - 15 - 46. It is expected that there will be a total of 5.8 million kw installed in India by March 31, 1961. This total, according to the Planning Commission, is to be achieved by the installation of 1.2 million kw during the last year of the Second Plan, that is 1960/61. Even if this very substantial increase is achieved, it will still mean that during the Second Plan period only 2.4 million kw of additional capacity was actually installed, instead of the target of 3.4 million kw - that is, a shortfall of 30 per cent. Future Programs 47. Current plans call for a continued drastic speed-up in the instal- lation of generating capacity after 1960/61. As indicated in Table 1, the actual annual growth rate in installed generating capacity during 1950/51 through 1959/60 was 8 per cent, whereas the projected annual growth rate for the period 1959/60 through 1965/66 is expected to be 17 per cent. The mission feels that,unless this rapid installation of capacity is achieved, there will be no hope of meeting the power needs of the industrialization program now being carried out. This bottleneck cannot be eliminated quickly since it takes some years before power projects can be completed; at best it will be after 1963 before substantial relief from power shortages is felt. 48. The situation in the most important industrial areas of the country is particularly serious. Public utilities in the Bihar/West Bengal/DVC area, with a firm capacity of 545,300 kw on March 31, 1959, were confronted with a peak demand of 661,144 kw. Only 40,000 kw have been added during 1959/60. Public utilities in the Madras area with a firm capacity of 197,300 kw on March 31, 1959, had a peak demand of 253,786 kw, About 55,000 kw of new facilities were added in 1959/60, which brought the firm capacity almost up to 1959 demands, but demand, of course, had grown during the year. A similar shortage of capacity exists in Mysore, Orissa, Kerala, Uttar Pradesh and Delhi (Table 4). 49. The Central Water and Power Commission has been planning a large expansion to meet this problem during the Third Plan. They have proposed a program which would require an expenditure of Rs. 12 billion in the public sector during the five years to finance an expansion of 7 million kw. The Planning Commission, in the course of its discussions with the CWPC, has obtained their agreement to cut this program to Rs. 9 billion to finance an expansion of 6 million kw. Table 5 on page 17 indicates where and when expansion is expected to take place on the basis of this reduced program. The CWPC anticipates that 1,245,000 kw will have been installed during the year 1960/61 bringing the total installed capacity in the country as of March 31, 1961, including captive plants of industry, to 5,839,000 kw. Thus it is proposed that during the Third Plan a target of 11.8 million kw should be reached, involving a 6 million kw expansion. However, this depends in the first instance on adding during this one year of 1960/61 as much capacity as during the entire first four years of the Second Plan. - 16 - Table 4. Power Supplies of Public Utilities by States (kilowatts) Installed Firm Capacity Firm Capacity Capacity, Demand Additions Capacity, States and March 31, March 31, March 31, during March 31, Territories 1959 1959 1959 1959/60 1960 Andhra Pradesh 206,332 143,300 117,729 78,000 221,300 Assam 18,077 8,700 7,346 - 8,700 Bihar, West Bengal and DVC 829,989 545,300 661,144 40,000 585,300 Bombay 870,125 682,500 678,122 36,000 718,500 Jammu and Kashmir 12,981 8,100 8,000 - 8,100 Kerala 113,777 94,300 100,628 - 94,300 Madya Pradesh 135,831 88,200 58,730 60,000 18,200 Madras 349,666 197,300 253,786 55,000 252,300 Mysore 191,3344 h5,100 162,807 - 145,100 Orissa 134,226 88,700 56,272 - 88,700 Punjab 174,521 124.,000 141,552 - 1214,000 Rajasthan 46,361 22,900 21,065 2,000 24,900 Uttar Pradesh 359,224 236,000 222,834 5,000 241,000 Union Territories a) Delhi 60,802 46,300 50,360 4,000 50,300 b) Others 8,330 2,200 2,580 - 2,200 3,511,586 2,433,900 2,542,955 280,000 2,712,900 50. The CWPC, taking into account projects already under construc- tion, expects that an additional 771,700 kw will be installed in 1961/62 and 1,052,800 kw in 1962/63. All this expansion can probably be com- pleted as scheduled. However, because of the length of time involved in preparing and executing power projects, the chances of exceeding the schedule appear very slim. It is probably not possible to expect total installed capacity in the country to exceed 7,664,200 kw by March 31, 1963. Furthermore, this would mean that, if installed capacity is to reach 11.8 million kw, which is the Third Plan target, then some 4.2 million kw will have to be added during the last three years of the period to March 31,,1966. To achieve this goal, the execution of the new Third Plan projects would have to begin at once. Many of them are in the most preliminary stage of development. Table 5. Installed Generating Capacity by States and Third Plan Projectionsa/ (thousand kilowatts) Installed Installed Anticipated Anticipated Projected Projected Target Target Target Capacity, Capacity, Additions Installed Additions Additions Additions Total End-3rd March 31, March 31, to Capacity Capacity for for for Additions Plan 1956 1960 during March 31, 1961/62 1962/63 1963/64 3rd Plan Installed 1960/61 1961 through Period Capacity State or Area 1965/66 Andhra Pradesh 163.4 324.1 - 323.4 - 186.0 84.8 2708 6o.2 Aseam 9.1 22.5 3.2 25.7 - - 91.5 91.5 117.2 Bombay 743.7 949.5 220.6 1,170.1 154.o 130.0 751.0 1,035.0 2,205.1 Jammu and Kashmir 11.8 13.0 10.0 22.9 4.5 - 48.6 53.1 76.0 Kerala 90.4 114.8 53.6 168.4 - 30.0 199.0 229.0 397.4 Madhya Pradesh 128.8 252.5 159.4 335.3 23.0 70.0 302.4 395.5 730.8 Madras 282.0 591.4 - 591.4 - - 395.0 395.o 986.4 W%sore 223.6 208.4 17.2 225.6 33.2 187.2 277.5 497.9 723.5 Orissa 27.2 220.4 89.8 310.2 24.0 37.5 201.0 262.5 572.7 Punjab 143.8 179.5 284.1 463.6 238.0 - 432.0 670.0 1,133.6 Rajasthan 56.0 60.7 40.0 100.6 - 3.0 214.5 217.5 318.1 Uttar Pradesh 325.3 374.2 42.5 416.7 265.0 106.0 310.0 681.0 1,097.7 3ihar ) West Bengal) 1,156.0 1,277.1 318.2 1,595.3 30.0 268.0 734.7 1,032.7 2,628.0 DVC ) Union Territories a) Delhi 69.8 76.1 5.5 81.6 - 30.0 100.0 130.0 211.6 b) Others 8.1 8.9 - 8.9 - 5.1 15.1 20.2 29.1 All-India total 3,438.9 4,673.2 1,244.1 5,839.7 771.7 1,052.8 4,167.1 5,991.6 11,831.3 Includes captive plants of industry. - 18 - 51. The urgency of avoiding the kind of delays which took place during the Second Plan period is illustrated by relating anticipated firm capacity year by year to demand. Demand presents a rather formidable problem because no up-to-date estimates are available. All of the analysis included in Table 6 on page39is based on work by the CWPC completed before 1958. New load surveys are under way, but will not be completed for about a year. In any case, the presumption seems reasonable on the basis of expected industrial growth that, if anything, the demandestimates included here are probably overly conserva- tive. Nonetheless, they show the extent to which shortages will continue. By March 31, 1962, firm capacity will barely be in balance with peak demand in the country as a whole. Shortages will continue to exist in Madras, Mysore, Kerala, Orissa, the Bihar-West Bengal area and Delhi. For these areas, the situation probably will not change by March 31, 1963, although the firm capacity in the country as a whole will slightly exceed peak demand. 52. The situation in the individual areas may well be even more serious than the figures in Table 6 indicate. For example, in the DVC-West Bengal area estimates given to the mission by the DVC suggested that the gap between anticipated demand and firm capacity might be as high as 250,000 kw in 1961/62 and 300,000 kw in 1962/63. The mission is not in a position to evaluate these figures properly. We feel, however, that the risk of continued short- ages is real enough to warrant further study. In general, we are not confident that Third Plan allocation for power is based on a program which would really meet the needs. The figure of Rs. 9 billion was the result of a cut made by the Planning Commission. Considering the power situation in India, the mission feels the figure must be carefully related to the needs of individual areas. These are only now being given detailed study. There is little reason to believe, however, that the CWPC estimate of Rs. 12 billion is a more accurate indication of what is really required, since it was based more on broad projections than on a region-by-region analysis of future load re- quirements. 53. The planning of future projects is apparently made difficult by the division of responsibilities between the Central and State Governments. In the first instance, power in India is controlled by Electricity Boards set up by the various State Governments. The Boards are usually corporate bodies created under the Electricity Supply Act of 1948, as amended in 1959, and it is their job to promote and coordinate the development of the generation, supply and distribution of electricity in the various States. These Boards are autonomous bodies which have the right to regulate power rates and to approve all generating stations before they can be established or additions or replacements made to existing generating stations. 5h. Expansion programs under the Third Plan, usually only after being approved by the State Boards, are presented for approval to the Central Water and Power Commission, which is responsible to the Minister of Irrigation and Power. The CWPC has far more experience of planning power expansion than most of the State Boards. The mission discussed the programs for the Third Plan with some of the State Boards and also with the CWFC. We felt that in many instances the CWPC had not as yet been sufficiently consulted on the Table 6. Firm Capacity and Peak Demand by States2< 1960 - 1966 (thousand kilowatts) Actual Firm Anticipated Forecast Anticipated Forecast Anticipated Forecast Third Forecast Capacity Firm Peak Demand Firm Peak Demand Firm Peak Demand Plan Peak De- as of Capacity on on Capacity as on Capacity as on Target mand on March 31, March 31, March 31, of March 31, March 31, of March 31, March 31, Firm March 31, State or Area 1960 1961 1961 1962 1962 1963 1963 Capacity 1966 Andhra 249 249 199 249 235 435 276 520 446 Assam 12 15 26 15 30 15 34 107 52 Bombay 739 960 998 1,114 1,120 1,244 1,250 1,995 1,725 Jammu and Kashmir 8 18 24 23 27 23 30 72 42 Kerala 94 148 163 148 170 178 198 377 266 Madhya Pradesh 176 335 234 358 299 428 331 731 565 Madras 332 332 399 332 435 332 375 727 616 - Mysore 148 165 297 198 340 386 389 664 562 Orissa 145 235 231 259 268 297 313 498 482 Punjab 128 412 219 650 248 650 279 1,082 405 Rajasthan 31 71 77 71 94 74 110 289 186 Uttar Pradesh 247 289 308 554 355 660 407 970 610 Bihar, West Bengal, DVC 785 1,104 1,271 1,134 1,399 1,402 1,515 2,137 1,961 Delhi 57 63 154 63 166 93 178 193 220 Other territoried 3 3 24 3 26 8 28 23 35 All-India total 3,155 4,399 4,623 5,171 5,172 6,255 5,713 10,385 8,191 a/ The capacity figure for March 31, 1960, is "firm" according to the CWPC. Firm capacities for the years thereafter have been calculated by adding the expected installations of generating capacity. No allowance has been made for possible retirement of obsolete equipment, - 20 - problems facing the State Boards, and this appeared to be hindering the formulation of an adequate program. Furthermore, some of the Boards, for example in West Bengal, have embarked on the construction of their own generating equipment without personnel experienced in the operation of such facilities. The mission did not feel that those in charge were adequately aware of the difficulties that might develop. There is also the further problem that both the DVC and the West Bengal Board are planning facilities intended to serve the same areas. The mission fears that the CWPC will not be in a position to exert its authority in such a way that facilities will be developed by those competent to operate them. These problems must be considered fairly quickly if an even more serious power shortage than now exists in this area is to be avoided. Alternative Sources of Power 55. There is a serious discussion going on in India today concerning the least costly method of satisfying India's power needs. The existing electric generating capacity in India includes 53.5 per cent steam plants, 38.8 per cent hydro and 7.7 per cent diesel units. It is expected that hydro projects will become increasingly costly as some of the more difficult sites have to be exploited;for exaMle, one new project costs about Rs. 2,000 per kw installed. Others may cost substantially more. Steam thermal plants are expected to cost up to Rs. 1,000 per kw, and may possibly cost less in the future if the trend to larger units in India continues. The total hydro-electric potential in India is quite large, estimated at 35-40 million kw. The major issues to be decided for the long term are, first, the choice between developing conven- tional thermal and hydro and, second, whether to make a substantial move towards nuclear energy. The Third Plan target includes not only about 3 million kw of conventional thermal power and 2.65 million kw of hydro power, but also a start in nuclear energy with a 300,000 kw plant in the Bombay area. 56. The Government of India has mixed views on the various alternatives. There is a certain bias in favor of hydro, which is perfectly understandable considering the extremely low rate of interest assumed in calculating the cost of capital (see Table 7). Hydro has the further advantage that Indian engineers have had considerably more experience in designing and constructing hydro projects than they have had with thermal projects. Meanwhile, the Indian Atomic Energy Commission contends that electricity generated from nuclear energy would be economical in India in the course of the next decade. The Commission has estimated that the cost of energy from the first nuclear energy plant would be 3.3 Naye Paise per kwh compared to 3.45 Naye Paise per kwh for power generated in a thermal plant based on coal at Bombay where coal now costs about Rs. 42.5 per ton and might cost rather more in future. The cost calculations used in this comparison are subject to question on a number of points. They assume interest at 42 per cent, which the mission feels does not adequately represent the cost of capital in India today; a load factor of 80 per cent has been assumed, which is more than can be reasonably expected under Indian conditions; and in the-calculations of the coal-burning plant, a thermal efficiency of only 29 per cent has been assumed, which is lower than what could be achieved with large modern high-pressure plants. - 21 - Table 7. Comparative Costs of Nuclear and Other Power (Rs. million except where otherwise stated) Conven- Hydro at Hydro at Hydro at tional 4% Caoital 6j% Caital Capital Cost Nuclear a/? Thermal / Cost c/ Cost o and 50%_oad Factor &J Fuel 13.43 20.20 - - - Operation, mainten- ance and insurance 7.45 4.00 2.00 2.00 2.00 Depreciation-Sinking Fund 5.13 1.10 1.80 0.98 1.46 Return on investment 18.30 8.12 12.00 19.80 28.10 Total cost 4h.31 33.42 15.80 22.48 31.56 Net generation (million kwh) 985.5 985.5 985.5 985.5 985.5 Cost per kwh in NP 4.5 3.4 1.6 2.5 3.2 a/ Cost estimates taken from report on IBRD-financed 150,000 kw Senn Project of September 5, 1959, with 75 per cent plant factors and excluding taxes. b/ Cost estimates based on a plant of Rs. 830 per kw, 10,000 BTU-per kwh or 34.7 per cent efficiency, and coal at Rs. 45 per ton and averaging 10,000 BTU per lb. of coal - 75 per cent plant factor. c/ Hydro assumed to cost Rs. 2,000 per kw - 150,000 kw of firm capacity at 75 per cent plant factor. d/ Hydro assumed to cost Rs. 2,000 per kw - 225,000 kw of capacity needed at 50 per cent plant factor to enable the same net generation.of energy. 57. A comparison of conventional thermal and hydro power costs with nuclear energy costs, as the latter were calculated in the IBRD Senn Project of September 1, 1959, is presented in Table 7. Nuclear energy is consider- ably more costly than energy generated from a conventional plant on the assumptions used in the Bank's analysis, and on the basis of coal costing around Rs. 45 per ton, which seems to be a reasonable assumption for the long term in the Bombay area where the proposed nuclear plant would be built. The use in this comparison of a reasonable assured price for oil would hardly change the picture in favor of a nuclear plant. Nor would expensive hydro projects (i.e. those costing more than the Rs. 2,000 per kw that is now fairly representative) produce cheaper energy than conventional thermal. The appearance of low cost energy is due to the use of an artificially low interest rate in the calculations. The mission is not impressed with arguments for the production of power from nuclear energy based on saving foreign exchange or conserving natural resources like coal. The short-term coal problem in India - 22 - should not be allowed to confuse the issue. There are substantial coal reserves in India and they are not inaccessible. The mission feels that the problem of increasing production quickly is a short-term problem. For the long term the crucial question is how costly coal will be, and whether reasonably priced oil will continue to be available as an alternative. 58. The present average price of coal at the pithead is about Rs. 21 per ton. The cost of transporting this coal over 500 miles is Rs. 14 per ton, over 700 miles Rs. 16 and over 1,500 miles Rs. 25. The real costto the economy of delivering coal for power use an average distance of, say, 700 miles is perhaps a little higher than the current rates charged, but even then coal should be available at around Rs. 45 per ton in the Bombay area. A 150,000 kw station requires approximately 450,000 tons of coal a year. It is estimated that power generation accounted for the consumption of 3.6 million tons of coal in 1957 and it is expected to account for 6 million tons in 1960/61, when half of all electricity generated in India will still be on the basis of coal-burning. 59. The cost of coal for power production in India is relatively low compared to the cost of fuel for such purposes in most countries. The mission feels that forthe long term this is an economic means of producing electric energy and one in which the foreign exchange component will become increasingly low in future years. Electricity Rates 60. A problem which the mission feels is especially troublesome for the future development ofthe industry is the low rates charged for electricity. The financial result is that a relatively small share of the cost of the expansion of electric facilities in India is financed out of funds generated from the sale of electricity. The general view of State Governments, as opposed to those held at the Center, seems to be that the Electricity Boards should work on a "no loss, no profit" basis. There is recognition that some profit is necessary to generate capital for expansion, but only a little. Unless a new approach is adopted, the industry can never expect to finance any substantial part of its future expansions from reserves built out of revenue. The mission feels that the level of power rates throughout the country will have to be raised if an adequate expansion program is to be maintained over the next decade without seriously overburdening the Govern- mentfs other sources of finance. Although the validity of this proposition is more or less fully recognized at the Center, there is some doubt as to how quickly it will be generally recognized at the State level. Some progress has already been made in certain cases such as Koyna, the DVC and the Tata power system. - 23 - Conclusions 61. Industrialization in India has been the real victim of power shortage. A growing number of industries have had to incur the additional capital cost of having a captive power plant. Several factories visited by the mission were in the process of obtaining diesel generators. Industrial consumers, who accounted for nearly 70 per cent of all electricity consumed in 1958/59, are clearly the hardest hit by interruptions in power supply. Production is being lost in a number of industries because of lack of power. For example, the Planning Commission noted the loss in newsprint production. Even coal production is being lost because of power shortages. The prospects are that there will be continued interruptions in power supply. It is possible that such interruptions may increase ard become even more costly as a large number of industries adopt multiple shift operations. Most systems are operating with no reserve capacity. Shut-downs for preventive maintenance have been impossible because of the shortage of capacity. The mission therefore recommends that high priority be given to the immediate planning and execution of the expansion of power facilities.