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MAR 12 2013

Blackouts dim prospects for next Bangalore

  • Economic Times, ET Bureau / Hyderabad
  • Created: Tue 12th MAR 2013

Crippling power cuts in Tamil Nadu are shutting factories and threatening an industrial debt crisis that is wrecking its second-largest citys plan to become Indias next business Mecca. Electricity shortages are emerging as one of the biggest brakes on Indias ambitions to rise up the ranks of the worlds major economies, and match regional rival China as a manufacturing powerhouse.

Nowhere is this clearer than in Coimbatore, a city of 3.5 million people which once seemed to offer investors looking for the new Bangalore everything they wanted: A long history of manufacturing, an educated workforce and the vision to attract global firms. But bad policymaking has allowed one of the countrys most promising regions to run into a brick wall, and now Coimbatore businesses selling everything from car parts to IT services are struggling with blackouts that last up to 14 hours every day.

Failure to invest in generation and distribution meant that when growth hit double digits and drove up demand during the booming Noughties, the grid was pushed beyond its limit. On average India suffers a 9% peak-time power deficit, but in Tamil Nadu the average is twice as bad, at 18%.

The grids inadequacy is forcing firms to rely on expensive back-up power that drives up export costs at a time they should be reaping the benefits of a weaker rupee currency. Many business owners say they are thinking of moving to one of the handful of Indian states that has reliable electricity.

K Ramasamy owns a company that sells car horns to Mercedes-Benz. Coimbatore is his hometown and, with its agreeable climate and cheap land, was a natural location for his first factory 43 years ago. For years Ramasamy flourished as Coimbatore grew, opening eight subsidiaries. In keeping with the hill towns casual character, he founded a yoga centre. Now he is thinking of leaving for distant western states like Gujarat and Maharashtra.

Every day for 15 months, electricity cuts lasting many hours have hit Ramasamys Roots Group, so to keep working he must power his horn factories using on-site diesel generators that cost him nearly three times the price of grid energy. "I dont think this is going to be solved in a year or two, Ramasamy said, noting he was "seriously considering offers from officials in Gujarat who guarantee 24/7 electricity. "We cant be waiting all the time, we need to make a move.

Last year, though the number of new investment projects begun in Coimbatore and nearby district Dharmapuri increased marginally, the figure for abandoned projects rose five-fold, according to data provided by the Centre for Monitoring the Indian Economy (CMIE), an independent research group. Fabric manufacturer VTX Textiles, whose international clients include Macys, fears it may soon join the ranks of failed projects after half a century in Coimbatore.

The lights flickered off as VTX chairman and managing director AL Ramachandra sat in his plush office explaining how his energy costs have doubled.

Downstairs, in one of his four factories, the power stayed on because VTX has spent close to $90,000 on battery systems to ensure a seamless transition to generators at his plants when the grid gives out.

Even with this makeshift solution, blackouts have cost the company a tenth of its customers and pushed it to restructure its debt. In 2012, according to Ramachandra, VTX lost over $2 million in revenues as a result of air freight delays as energy shortages stopped factory lines running on schedule.

Ramachandra said the power crisis as well as a rise in capital costs are hampering Coimbatores chances of becoming the next Bangalore.

Some still believe in the long-term promise of Coimbatore, particularly IT companies that require much less energy than manufacturing industries.

Cognizant Technology Solutions, a growing US-based outsourcing firm, opened a site there in 2005, and Microsoft India has launched a research centre.

But for now, what began as a power crisis is also becoming a banking one, as small companies searching frantically for loans to cover their energy needs teeter on the brink of bankruptcy.

Tags

Gujarat Maharashtra Tamil Nadu Micro Ink China United States Bangalore Electricity India

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