India Is Not Ready for Prime Time

The following article was previously published on Al Fin Energy blog

It is no mystery to most people who follow the news that India suffered two massive power outages last week. But what is less well understood, is that large parts of India's population suffers power outages on a regular basis.

India's power generation infrastructure is woefully undersized and inadequate for the growing customer base. Government regulation of the power industry makes it very difficult for producers to operate profitably. Electricity theft in India is common. And getting anything done in India -- in terms of new infrastructure or power generation -- involves navigating a treacherous obstacle course through the many inevitably corrupt levels of India's governments.

Here is more on the dark reality:

...power failures are a daily occurrence for [most] of the population—or at least the two-thirds of India's 1.2-billion inhabitants who actually have any electricity supply. But they are not for India's elite. For the latter, power guarantees power. The bureaucrats in charge of Delhi's grids switch off the supply to hospitals before they plunge the homes of top politicians into darkness. But this time the lights did go off. And so the residents of the most upmarket parts of the city—so confident of their power supplies that they do not have generators—had to sit in the fetid monsoon temperatures of 35 degrees like everyone else.

The north Indian power failure, possibly the biggest in the history of mankind, affected an estimated 700-million people. It was a global news story. It revealed the parlous state of Indian infrastructure and provided a dramatic example of how public institutions have failed to keep pace with economic growth. And it also revealed quite to what degree the conclusion, so deeply rooted in the West, that India is not only "shining" but will only get progressively shinier, is complacent in the extreme.

...it is increasingly difficult to reconcile the optimism surrounding India with the reality. In a recent book surveying the developing world, analyst and investment banker Ruchir Sharma says that India has, at best, only a 50% chance of becoming what he calls "a break-out nation". A reversal of recent fortunes is also a possibility, he argues. Other countries have suffered decline after a period of rapid growth. But this thought barely appears to have occurred to Western policymakers. Few stop to interrogate the narrative of inevitable, inexorable Indian success. Take, for example, the famous Indian "middle class". If defined in Western terms, as people with salaried jobs, a car, the odd overseas holiday and an apartment or even house, then Indians fitting this category cannot number more than a couple of percent of the population at best. A local definition, given to me by a young man in a cheap restaurant, are those who can afford a cup of coffee. The cappuccino-sippers are infinitesimally few, albeit more numerous every year.

...if other countries can live with a few slow periods, India cannot. Stasis is not an option. Hundreds of millions of young people will be pouring on to the labour market in coming years. They will need to find homes and healthcare as well as jobs. Most have been only partially educated in substandard establishments.

They suffer a grave lack of skills. More than a third will have been malnourished when infants. Horrific gender imbalances due to the pre-or post-natal killing of girls will mean a serious shortage of partners for young males.

Driving through the poor, if improving state of Bihar, on a late summer evening a year ago, the sight in every town I passed through, of large numbers of young men, some evidently drunk, out on the streets in the gathering dusk, brought home quite how easily India's "demographic dividend" could turn out to be the opposite. In worst-case scenarios, the consequence of a combination of tens of millions of people with unrealistically high aspirations, deteriorating prospects of improvement and a consistently mediocre standard of living will be high levels of social unrest. _Mail&Guardian (*irony alert!)

* The "irony alert" refers to the source for this story, South African newspaper Mail & Guardian. South Africa is certainly in no position to lecture India about corruption, a youth population with "a grave lack of skills," or power outages.

Of course the problem of a lack of skills is not unique to the third world or to emerging nations. The grand educational experiment in social justice and equality (government schools and the push for all school children to eventually go to university) for much of the developed world, has helped to eliminate most of the general competencies from the general population.

So even the developed world suffers a shortage of competent workers, while it hires PhDs to drive taxis and to mop floors.

And the power grid and infrastructure that modern green rulers of the developed world yearn for: smart grids powered by big wind and big solar? Such a system would be an eternal nightmare for grid managers and industrial customers -- to say nothing of the average power consumer.

India has a very difficult road ahead. But even the developed world is digging a deep energy hole and competency hole for itself.

The best advice for western voters, come the next local and national elections, may be to pull out the long knives (metaphorically speaking). The privileged political, media, and academic classes may not understand the dire nature of modern decline until they are forced to see many heads roll (metaphorically speaking), over and over again.

More: Details behind India's dramatic grid collapse

All Power Grids are Vulnerable -- Not Just India's

Power has been restored to blacked-out portions of North and East India. But the danger is far from passed.

A series of failures and excessive demand on the national grid knocked out power for 640 million people in northern and central India on July 31, a day after a separate blackout left 360 million in seven states without lights. A three-member committee appointed by India’s government is investigating.

“Blackouts like that and cascading failures can occur and we have seen them occur in other countries,” Carl Hansen, chief executive of New Zealand’s Electricity Authority, said in an interview. “It is something that is constantly on the mind of grid planners.” _Business Week

When grid planners neglect basic issues of supply and demand, they leave the grid open to catastrophic cascading failures. This is what happened in India, where the vulnerability remains.

India can only meet its growing demand for power via coal or nuclear. All the happy talk about "green energy" is nothing but hot air -- dangerously irresponsible hot air.

Ominously, the same type of neglectful attitude toward growing reliable and affordable power supplies, can be seen in governments of Europe, Australia, and the US. When such governments turn away from reliable and affordable sources of power such as coal and nuclear, and gamble their economies on intermittent unreliables such as big wind and big solar, they are placing their people in the same vulnerable position as the people of India.

Half of India Goes Dark

The following article was first published on Al Fin Energy blog

"Even before we could figure out the reason for yesterday's failure, we had more grid failures today," said R. N. Nayak, chairman of the state-run Power Grid Corporation. _Reuters

Reuters_via_TheGWPF

India's energy crisis cascaded over half the country Tuesday when three of its regional grids collapsed, leaving 620 million people without government-supplied electricity for several hours in, by far, the world's biggest blackout. Hundreds of trains stalled across the country and traffic lights went out, causing widespread traffic jams in New Delhi. Electric crematoria stopped operating, some with bodies half burnt, power officials said. Emergency workers rushed generators to coal mines to rescue miners trapped underground. _AP

A modern power infrastructure requires constant upkeep, maintenance, and piece by piece replacement, as various parts inevitably break down and go bad. If a nation -- even a nation of over 1 billion persons -- is unable to support its massive critical infrastructure, the lights will tend to go out from time to time.

Stretching from Assam, near China, to the Himalayas and the northwestern deserts of Rajasthan, the outage covered states where half of India's 1.2 billion people live and embarrassed the government, which has failed to build up enough power capacity to meet soaring demand.

"Even before we could figure out the reason for yesterday's failure, we had more grid failures today," said R. N. Nayak, chairman of the state-run Power Grid Corporation. _Reuters

This is par for the course across most of sub Saharan Africa and much of third world Asia. And it is a preview of coming attractions for much of the developed world, which is being slowly transformed -- piece by piece -- into a reasonable facsimile of the third world, itself.

If people are attempting to maintain a high tech infrastructure which they do not understand, failure is guaranteed. Not merely intermittent failure, but ultimate failure.

The only alternative in such cases is to solicit outside help from those who do understand the technology.

Of course in India's case, there are large numbers of persons who could repair and upgrade the byzantine power grid. But the massive levels of corruption at every level of India's government essentially guarantees that the best persons for critical infrastructure jobs, will not be the ones who are paid to do those jobs.

In Africa, the permanent infrastructure problems are due to a lack of skilled and trainable manpower, and the general inability to pay outsiders to make up for the intrinsic lack of competence. In MENA, where average manpower competence is slightly better than in sub Saharan Africa, oil rich states can pay outside service companies to keep the power on for most of the 24 hour day, at least.

But India is a special case, with almost 1.4 billion people, and perhaps the widest population variance in basic competencies of any large modern or emerging nation -- from very high to very low.

Which makes India something of a preview of coming attractions for much of Europe. Europe's demographic picture is changing very rapidly, to resemble that of emerging nations such as India, or perhaps Brazil.

Perhaps it is time to stock up on long-burning candles?

More:

....any connection to the grid remains a luxury for many. One-third of India's households do not even have electricity to power a light bulb, according to last year's census. _AP

Power shortages and a creaky road and rail network have weighed heavily on India's efforts to industrialize. Grappling with the slowest economic growth in nine years, the government recently scaled back a target to pump $1 trillion into infrastructure over the next five years.

Major industries have their own power plants or diesel generators and are shielded from outages. But the inconsistent supply hits investment and disrupts small businesses.

High consumption of heavily subsidized diesel by farmers and businesses has fuelled a gaping fiscal deficit that the government has vowed to tackle to restore confidence in the economy. _Reuters

Of the BRICs, not a single one is up to the task of leading the global economy out of the doldrums. The opposite is more likely to be the case.

So, think! What will faltering economies in the BRIC nations do to global commodities pricing, and the global economic picture as a whole?

BRICs: Can the Tail Wag the Dog?

Ever since the 2008 collapse of the great global economic bubble, the hopes of the chattering economic classes have ridden on the BRICs -- the emerging economies of Brazil, Russia, India, and China. Aside from Russia, the BRICs have population heft and momentum, something most of the more advanced nations cannot claim. There is also a sense in those countries that it is somehow "their turn" to excel.

But what if the BRICs are only the tail to the global dog? If the dog is sick, can we really expect the tail to do everything the dog would normally be able to do?

The BRICs have been exporters to the more developed economies. But the more developed economies are sinking under dysfunctional policies and leaders. Can the BRICs succeed and prosper without developed markets to buy their resources and products?

Champions of the Submerging World
China is economically dependent upon exports to Europe and North America -- markets that have not been doing well over the past few years. Brazil is economically dependent upon not only Europe and North America, but is very much dependent upon Chinese demand as well.

As goes China, so goes Brazil. China's insatiable appetite for oil has benefited Brazil over the past few years. If China's economy continues to lose momentum because of the European crisis, that will impact Brazil ... even if Brazil doesn't have as many direct ties to Europe's consumers and banking system.

"Brazil is a play on China. There are concerns that Brazil is overexposed to China," said Carlos Constantini, head of research at Itaú BBA, an investment bank in São Paulo. That's a big reason why Brazil's benchmark Bovespa stock market index is down more than 6% year-to-date.

India's sharp decline is perhaps the most surprising since that economy was thought to be the least exposed to Europe. Russia, however, could really suffer if the global economy doesn't show some signs of life soon. Crude oil prices have plunged below $100 a barrel to the mid-$80s. Crude prices are now down more than 20% from their highs of the year. And oil could dip further if the Euro-wreck leads to significantly lower demand for crude worldwide.

"Russia was a darling for awhile and there was all this talk about how oil would never fall below $100 a barrel. Their economy is so levered to oil and commodities and they haven't been able to diversify." Mata said. _Thick as a BRIC

Cracking BRICs
It is true that India's economy -- despite minimal exposure to the European crisis -- is starting to slump. India is still desperately poor, after all, and its government is abysmally corrupt. Nothing kills a nascent economic boom so quickly as greedy governments.

One interesting development out of all this economic turmoil, is that Russia's Putin is turning to the Russian far East and to Russia's relationship with China, in an attempt to hedge his global bets.

Much of Putin's far East and China strategy should be seen as wishful thinking: China's population is still on the ascendancy, looking for lebensraum, while the ethnic Russian population is steadily shrinking away and leaving a huge void.

Putin's attempts to engage China in joint industrial and technological enterprise are likewise built on shifting sands. China has always appropriated the intellectual property of its "partners," and proceeded to to make pirated and counterfeited products. Russia is feeling the sting from multiple thefts of designs of planes, ships, submarines . . . If Putin proceeds with his farcical plans (see above article link), Russia will feel that sting yet again . . . and again . . . and again . . .

When Putin attempts to lock China into a long-term gas contract at today's inflated prices, he will be bucking the tide of China's development of its own vast shale gas resources. Somehow, it is unlikely that China's leaders will be amused at Putin's condemnation of the "fracking" process, which China is using to develop its tight gas deposits. Particularly when Russia is using the exact same fracking process to develop its own shale resources in Siberia.

An attempt by BRIC nations to circle the wagons and to feed each others' prosperity -- without outside input from the more developed economic world -- is not likely to succeed at this early stage. But it is possible that the US will eject the anti-free market and anti-energy policies of the Obama administration, in November's election. And it is possible that at least some countries of Europe will turn away from demographic decline and the green dieoff agenda.

If those things should happen, the health of the dog may be restored, and the tail may be set to wagging once again.

When BRICs Crumble, Will Commodity Prices Collapse?

Common wisdom assumes that commodity prices, including oil prices, will continue to rise on exponential demand from emerging nations, such as China, India, Brazil, Turkey, Russia, etc. But under the sheen of those rosy projections, exists a growing excremental stench of corruption and decay. If the magical trajectory of the BRICs should falter, how far would commodities prices fall? And what would be the repercussions for already stressed world financial markets, desperate for safe havens and hedged to the hilt?

China's property bubble is set to implode, and when it does, the Chinese economy will cool far more than anyone thinks, taking commodities along for the ride. Commodity producers like Australia and Canada are at extreme risk as well. _Mish

Not just Australia and Canada are at extreme risk. Two BRICs -- notably Russia and Brasil -- are gambling on continued high commodity prices into the indefinite future. Corruption in all of the BRICs is hampering genuine market-based growth, but economic dependence on raw commodities prices is particularly bad in Russia.

When commodity prices dive, Russia may well grow desperate.

Prime Minister Vladimir Putin, the country's uncrowned czar, has linked his legitimacy to the economy's performance by offering the Russian people a grand bargain: submit to his increasingly autocratic rule and the state will compensate with economic goodies like higher incomes and hefty social-welfare spending. Now that the economy is faltering, Putin is under intensifying pressure from a discontented public to restore Russian democracy, potentially destabilizing Russian politics. He has already faced protests in Moscow against his rule amid the economic downturn. There's also a risk that leaders in Moscow will resort to nationalistic appeals to distract the public from problems at home, escalating tension with Russia's neighbors, the rest of Europe and the U.S. _Time

Russia's ongoing demographic collapse, and the threat of losing much of Eastern Siberia to Chinese influence, is not helping the mood in Moscow. But without the clout that comes from high energy prices, Russia becomes an angry dancing toy bear with nuclear weapons.

Venezuela, Iran, the Arab states of MENA, Mexico, and many countries in tribal Africa and Asia, are also pathologically dependent on high commodity prices, due to internal corruption having squeezed natural markets to death. How will their people deal with the many difficulties and hardships they will face when their governments cannot feed, clothe, house, or water them?

Even the US is vulnerable to a fall in commodities prices. The US is the world's third largest oil producer. The recent boom in US shale oil & gas production is one of the few bright lights in an otherwise dim Obama economy. And although the jobs, housing, manufacturing, and other sectors in the US economy continue to sag, Obama has not had enough time to entirely destroy the US private sector.

Few readers of this blog understand the precarious state of China's economic house of cards. That is because almost all of the economic information coming out of China is closely controlled, and coated with a shiny facade. But it is time for readers to begin asking themselves about the global repercussions of a more sustained commodities price slump than they have seen.