India's Superpower Euphoria CCLXXVIII

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India’s Superpower Euphoria CCLXXVIII
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India’s Energy Crunch
Author: Carin Zissis

Updated: October 23, 2007

Introduction

India’s gross domestic product (GDP) growth hit 9.2 percent for the period from July through September of this year—an increase over the already robust rate of 8.4 percent during the same period last year. But along with an ascendant economy comes a mounting hunger for energy, and New Delhi fears it cannot sustain growth in the long term without continually boosting the country’s energy supply. India’s per capita energy consumption rates remain low in comparison to those of countries like the United States and China. But India, the world’s fifth biggest energy consumer, is projected to surpass Japan and Russia to take third place by 2030. Doing so will test India’s ability to create a domestic policy for its semi-privatized energy sector, as well as its capacity to develop relationships with foreign energy exporters.
What are India’s projected energy needs?

The country faces “formidable challenges” (PDF) in meeting its energy needs, according to India’s Planning Commission. The government hopes to maintain an annual GDP growth rate of about 8 percent over the next quarter century to meet its goals for poverty eradication. That level of growth will require India to at least triple its primary energy supply and quintuple its electrical capacity. This will force India, which already imports a majority of its oil, to look beyond its borders for energy resources. “There’s a tremendous amount of concern” that the gap between the energy demand and supply will slow down the economy, says researcher Tanvi Madan, author of a recent Brookings Institution report on Indian energy issues.

Furthermore, India’s energy sector is plagued by sporadic nationalization efforts. During the 1990s, India began liberalizing its economy, allowing for privatization of some sectors historically under state control. But, of India’s various industries, the energy sector remains most firmly in the hands of the state, says Pramit Pal Chauduri, an Asia Society fellow and foreign editor of the Hindustan Times. Chauduri says the real need for reform “lies not within what we do overseas, but the need to liberalize our markets internally.”
Does India have a coherent energy policy?

Experts say lack of coordination among competing government ministries has slowed the effort to institute effective energy policies. “India has yet to develop a coherent policy,” says Ganguly, who adds that the four main energy ministries act like “different countries at work.” India did have a central energy ministry until 1992, which was then broken down into the ministries of Coal, Petroleum and Natural Gas, Nonconventional Energy Sources, and of Power. Several other government agencies, including the Planning Commission and Department of Atomic Energy, play a role in energy policy. Madan says there are common policy goals, but the lack of integration causes problems with implementation.
What is the role of the state in India’s energy sector?

India’s tradition of state-dominated, centralized planning slows progress in the energy sector. Privatization efforts have been “entirely piecemeal” and “investors are jittery,” says Sumit Ganguly, the India studies chair at Indiana University, Bloomington. Private firms waver over investments when they see preferential treatment for state-owned companies. For example, the production of coal, India’s most highly-consumed energy source, remains largely in state control, with 90 percent of production accounted for by the mines of state-run Coal India.

The national government also subsidizes energy prices, at times limiting profitability for both private and state investors. Experts say the government would probably prefer to set energy prices at market rates, but doing so results in risking a vote loss in elections. Chaudhuri says governments introduce the idea, “but then an election comes and they say ‘no, no, no, subsidize.’”
What are challenges facing India’s energy sectors?

The primary challenges facing India’s energy sectors are:

* Coal depletion and pollution. Coal accounts for more than half of the country’s energy consumption. The poor quality of Indian coal, coupled with a lack of infrastructure to clean it, poses a major environmental threat. Corruption and poor productivity dog the industry. Although it is the world’s third biggest coal producer after the United States and China, India’s coal reserves could run out in forty years, according to the Brookings report by Madan.
* Rising oil imports. Oil consumption, which accounts for roughly a third of India’s energy use, has increased sixfold (PDF) in the past twenty-five years. India now imports about 65 percent of its petroleum. With energy demands rising, the figure could be as high as 90 percent by 2025, according to a report by the Center for Strategic and International Studies. The oil demand has pushed India to make deals with countries—such as Sudan, Syria, and Iran—that raise supply concerns.
* Natural gas demands. Natural gas consumption has risen faster than any other type of energy source, but India’s limited domestic gas reserves spell a need for foreign dependency in this sector as well. The government has slowly been switching from highly polluting coal-fired power plants to plants using natural gas. India’s natural gas needs have resulted in negotiations with nations of concern in terms of reliability, including Iran, Bangladesh, and Burma.
* Inefficient electric systems. Although 80 percent of the country has access to electricity, unreliable power grids cause regular blackouts. Furthermore, inefficient electric systems result in at least a 30 percent loss of power along the delivery chain (Forbes.com). State electricity boards run the infrastructure behind the country’s power distribution and own a large portion of electrical output. The boards are in poor financial shape, largely because they provide power at highly subsidized rates, particularly to farmers. Although the government has loosened limitations on foreign investment in the power sector, the notion of working with the financially beleaguered electricity boards has scared off private investment.
* Energy-related water shortages. Indian farmers have access to heavily subsidized power to pump water for irrigation. The low costs lead them to wasteful water use, depleting the water tables. As water tables lower, larger pumps require more power to access deeper water supplies.
* Limited nuclear energy. With fourteen nuclear power plants run by state-owned companies, nuclear energy accounts for just 3 percent of India’s energy consumption. New Delhi hopes to boost this sector through a deal allowing U.S. companies to sell equipment, nuclear fuel, and reactors to India. However, even with a U.S.-India agreement, large scale expansion of the nuclear energy sector will likely take decades because of slow implementation and the relatively higher expense when compared to other forms of energy.

What is the U.S. role in Indian energy strategy?

In July 2005, President Bush and Indian Prime Minister Manmohan Singh reached an agreement to provide India with assistance for its civilian nuclear energy program. New Delhi has pledged to allow inspections and safeguards of its nuclear facilities. Proponents say the deal could help India meet its energy needs over the medium to long term by opening the door to investment in the country’s nuclear energy sector. Before taking effect, the agreement requires approval by U.S. and Indian legislative bodies as well as the international Nuclear Suppliers Group, which oversees guidelines for sale of the nuclear materials. Chaudhuri says an important element of the deal involves a “clean coal agreement” to help counteract the environmental hazards of burning India’s low-quality coal, as well as to improve the coal industry.

But critics of the deal say it will hurt international nonproliferation efforts because India, which has tested nuclear weapons, is not a member of the Nuclear Nonproliferation Treaty (NPT). The U.S.-India deal only safeguards civilian nuclear facilities made by India when the deal was reached and it does not limit the number of nuclear weapons India produces.

The nuclear deal has also faced opposition from the left-wing bloc in India’s parliament, comprised primarily of the Communist parties who form part of the ruling coalition. They contend that the deal compromises Indian sovereignty. The coalition government headed by Prime Minister Manmohan Singh depends on the support of the left parties to remain in power.

India’s decision to forge energy partnerships with countries such as Syria, Sudan, Myanmar, and, particularly, Iran has also raised concerns in the United States. India signed a $150 million gas exploration deal with Myanmar in September 2007 when Myanmar’s ruling junta was facing international sanctions for cracking down on pro-democracy activists. The United States and the United Nations have repeatedly urged India to use its influence with Myanmar’s government to usher in reform.
What is the role of Iran in Indian energy?

Despite U.S. concerns over India’s energy dealings with Iran, this year India supported the United States in an International Atomic Energy Agency vote that referred the matter of Iran’s nuclear program to the UN Security Council. At the same time, the presence of some 150 million Muslims in India raises concerns over stirring trouble in relations with Iran. Also, says Ganguly, India’s desperate need for energy means if Iranians will supply petroleum “we’re going to sup with them.” However, a 2005 deal between Iran and India proposing a natural gas pipeline has so far come to naught because of political difficulties with securing the project in Pakistan as well as the unreliability of agreements with the Iranian government, says Chaudhuri.
What is the role of China in Indian energy?

As one solution to the energy crunch it’s facing, India has sought to diversify the number of source countries for energy and sought deals in Central Asia, Africa, and Latin America. New Delhi finds itself competing with the other power-hungry Asian giant, China. Beijing frequently outbids New Delhi or “sweetens the deal” with other projects, explains Madan. She also says India is new to learning how to negotiate deals. “India came to this game later. It doesn’t have the kind of resources China does.”

Earlier this year, Shankar Aiyar, India’s former petroleum and natural gas minister, signed an agreement with China aimed at advancing energy cooperation (China Daily).The two countries have worked together in Sudan and Syria. But experts say the China-India pact has had little effect on the two countries’ competition for oil, particularly since pro-China Aiyar has since been replaced by a more market friendly minister.

Weigh in on this issue by emailing CFR.org.

Brookings Foreign Policy Studies Energy Security Series: India

India, South Asia, Asia, Energy, Environment

The Brookings Institution

November 2006 —

Growth demands energy. It is no wonder that India—with an economy expected to grow at over 5 percent a year for the next twenty-five years—has developed a ravenous appetite for energy. India is the world’s fifth largest consumer of energy, and by 2030 it is expected to become the third largest, overtaking Japan and Russia.
A driver stands beside the coal-fired boiler of a steam engine at a train station in New Delhi.

A driver stands beside the coal-fired boiler of a steam engine at a train station in New Delhi.

Reuters/Adnan Abidi
The country’s demand for oil alone is expected to increase at an average rate of 2.9 percent annually over the next quarter century. Yet India has only 0.4 percent of the world’s proven oil reserves, and domestic production is expected to remain constant, if not decline. Absent the discovery of major reserves—which most analysts view as unrealistic— it is clear that India will remain a net importer of oil. If consumption follows the current trajectory, India is also projected to run out of coal, its primary source of energy, in forty years. Its domestic natural gas reserves are limited as well.

India’s import dependence has intensified concerns that without reliable, affordable energy it will be unable to sustain high economic growth. India imports (to varying degrees) its three major sources of energy, and its dependence on imported oil is expected to increase even further. The situation is complicated by a number of factors: 1) major oil suppliers are in unstable regions in the Middle East and Africa; 2) oil prices are high, spurring higher gas prices; 3) geopolitical uncertainty stokes fears of a possible supply disruption and volatility in oil prices; 4) slow market reform has limited investment; and 5) few or no viable energy alternatives currently exist: India’s civilian nuclear program has regularly fallen behind schedule and large-scale development of hydroelectricity generation facilities has been stymied. Development of nonconventional energy sources has progressed, but their use is currently limited.

This report, a study of India’s energy demands and policymaking, was written by Tanvi Madan, formerly a senior research analyst at the Brookings Institution and currently a Harrington Doctoral Fellow at the University of Texas at Austin. Brookings Senior Fellow Stephen P. Cohen also contributed to this monograph, as did Sidney Kwiram, Johns Hopkins University School of Advanced International Studies, Washington, DC, and Arti Trehan of the University of Michigan, Ann Arbor.

The Brookings Foreign Policy Studies
Energy Security Series
India
EXECUTIVE SUMMARY
A Growing Appetite for Energy
Growth demands energy. It is no wonder that India—with an economy expected
to grow at over 5 percent a year for the next twenty-five years—has developed a
ravenous appetite for energy. India is the world’s fifth largest consumer of energy,
and by 2030 it is expected to become the third largest, overtaking Japan and Russia.
The country’s demand for oil alone is expected to increase at an average rate of 2.9 percent
annually over the next quarter century. Yet India has only 0.4 percent of the world’s
proven oil reserves, and domestic production is expected to remain constant, if not
decline. Absent the discovery of major reserves—which most analysts view as unrealistic—
it is clear that India will remain a net importer of oil. If consumption follows the
current trajectory, India is also projected to run out of coal, its primary source of energy,
in forty years. Its domestic natural gas reserves are limited as well.
India’s import dependence has intensified concerns that without reliable, affordable
energy it will be unable to sustain high economic growth. India imports (to varying
degrees) its three major sources of energy, and its dependence on imported oil is
expected to increase even further. The situation is complicated by a number of factors:
1) major oil suppliers are in unstable regions in the Middle East and Africa; 2) oil prices
are high, spurring higher gas prices; 3) geopolitical uncertainty stokes fears of a possible
supply disruption and volatility in oil prices; 4) slow market reform has limited
investment; and 5) few or no viable energy alternatives currently exist: India’s civilian
nuclear program has regularly fallen behind schedule and large-scale development of
hydroelectricity generation facilities has been stymied. Development of nonconventional
energy sources has progressed, but their use is currently limited.
The Search for an Energy Strategy
To date, India has developed a cluster of energy policies rather than an overarching
energy strategy. Ideology, politics, and processes have complicated the country’s
quest for energy. Attempts at integrating energy policies have been hindered by
separate entities overseeing each type of energy source, as well as by stove-piped policymaking
on related issues of foreign affairs, economics, and the environment. And the
realities of domestic politics and socioeconomic concerns have curbed policymakers’
willingness to make tough, yet necessary, choices.
The Brookings Institution November 2006
The Energy
Security Series
The rise of China and India as major
global economic powers, the continued
growth in U.S. energy demand, and
instability in key oil-exporting regions
are dramatically affecting international
energy markets. Prospects for stable
production are increasingly linked to
internal political issues and the regional
ambitions of major suppliers. These
dynamics will affect the global balance
of power, as energy security is becoming
a more important factor in countries’
national security and economic
development calculations.
The Brookings Foreign Policy Studies
Energy Security Series is examining four
key energy-consuming nations—China,
India, Japan, and the United States—
and several major producing countries—
Russia to start, and then the
Gulf States and others as resources
become available. The Series will analyze
the implications of these nations’
policies for the global energy security
environment. Initial funding under this
project has supported a set of baseline
papers focused on oil. Future analyses
on this topic will cover the full spectrum
of energy security issues.
This report, a study of India’s energy
demands and policymaking, was written
by Tanvi Madan, formerly a senior
research analyst at the Brookings Institution
and currently a Harrington Doctoral
Fellow at the University of Texas
at Austin. Brookings Senior Fellow
Stephen P. Cohen also contributed to
this monograph, as did Sidney Kwiram,
Johns Hopkins University School of
Advanced International Studies, Washington,
DC, and Arti Trehan of the University
of Michigan, Ann Arbor.
by Tanvi Madan
The Brookings Foreign Policy Studies Energy Security Series: India 2
Now at a critical juncture, India’s policymakers are increasingly aware of the need for an
effective and diversified energy strategy—or at least an integrated set of policies to balance
foreign policy, economic, environmental, and social issues with the rising demand
for energy. While there is little consensus over how best to proceed, there is no doubt
that India’s need for oil and other forms of energy will continue to grow. Meeting this
need will have a decisive impact on the country’s actions not just in the energy sector, but
in its efforts to achieve its broader strategic goals at home and abroad.
This monograph focuses on India’s need for oil and how this demand fits within its
broader set of energy policies. The paper is divided into three sections. Part 1 surveys the
country’s overall energy demand-supply situation, the “energy security” debate in the
country, and the issues, actors, processes, and politics involved in energy policy and decisionmaking.
Part 2 focuses on India’s search for oil, including its supply-side policies,
such as efforts toward domestic E&P, acquisition of upstream assets abroad, supply and
fuel diversification, and the development of strategic oil stocks. It also examines India’s
demand-side policies, including regulatory, price and tax reform, fuel conservation,
and efficiency measures. The concluding section offers observations about India’s likely
actions in the energy sector at home and abroad and suggests further areas for research.
A number of key findings result:
■ India is likely to continue to have a set of separate energy policies formulated by different
entities rather than an overarching energy strategy. Integration of these policies
will likely improve over time.
■ Reform of India’s energy sector will continue—but at a slow pace. Implementing
policies will be harder than formulating them.
■ Unless there is a non-BJP or non-Congress-led government at the center, India will
continue to encourage private participation in its energy sector, as much out of necessity
as out of choice.
■ India’s energy-related actions in the global arena will reflect its current foreign policy
path of “enlightened self-interest” and maintaining diverse options. It will be cooperative
or competitive, as suits its interests—in acquiring assets or pursuing partners—
when it thinks it needs to be. However, India would much rather cooperate than
compete.
■ India would be more inclined to cooperate with the international community (rather
than focusing on a particular country or region) in the energy sphere if it were given
a seat at the decisionmaking table. Global players should find a way to bring India into
the International Energy Agency (IEA) or at least find a place for it in an “energy
half-way house” en route to full membership.
■ For the foreseeable future, however, India will hesitate to rely completely on global
markets. As a consequence, its country-by-country energy diplomacy and purchase of
overseas assets will continue. However, its energy interests are not likely to trump the
country’s larger strategic goals.
■ India’s energy interests are also likely to factor into its military strategy and behavior
in the future. For example, India might be willing to take on a greater share of the
international security burden related to protecting oil and gas supply lines.
To date, India has
developed a cluster
of energy policies
rather than
an overarching
energy strategy.


The Brookings Institution is a private
nonprofit organization devoted
to independent research and innovative
policy solutions. Celebrating its
90th anniversary in 2006, Brookings
analyzes current and emerging issues
and produces new ideas that matter—
for the nation and the world. For
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and analysis on the full range of
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The Brookings Foreign Policy Studies Energy Security Series: India 3
The Brookings Foreign Policy Studies
Energy Security Series
India
By Tanvi Madan
Contents
Executive Summary
A Growing Appetite for Energy…………………………………………………………………………………… 1
The Search for an Energy Strategy……………………………………………………………………………….. 1
Acronyms ……………………………………………………………………………………………………………………. 5
Introduction………………………………………………………………………………………………………………… 7
Part 1. Energy: A Snapshot …………………………………………………………………………………………… 9
Energy Consumption Patterns……………………………………………………………………………………… 9
The Energy Mix …………………………………………………………………………………………………………. 10
Energy Security………………………………………………………………………………………………………….. 13
Policymaking ……………………………………………………………………………………………………………… 24
A Strategy?………………………………………………………………………………………………………………… 33
Part 2. The Search for Oil ……………………………………………………………………………………………… 34
A Brief History of India and Oil…………………………………………………………………………………… 34
Supply-Side Policies ……………………………………………………………………………………………………. 36
Demand-Side Policies …………………………………………………………………………………………………. 54
Part 3. Observations ……………………………………………………………………………………………………… 60
The Home Front: Continuity or Change?……………………………………………………………………… 60
India Abroad: Cooperation or Competition?………………………………………………………………….. 61
Observations and Questions…………………………………………………………………………………………. 65
Appendices
A. Major State-Owned Oil and Gas Companies ……………………………………………………………. 67
B. Relations between the Government and State-owned Companies—Personnel ……………… 69
C. Private Energy Companies………………………………………………………………………………………. 72
D. Acquisitions—Activities of Indian Companies Abroad, by Region ……………………………… 74
E. Fuel Diversification…………………………………………………………………………………………………. 76
Notes ………………………………………………………………………………………………………………. 88
Figures
Figure 1. India’s Primary Energy Demand……………………………………………………………………… 9
Figure 2. India’s Energy Mix ………………………………………………………………………………………… 10
Figure 3 India’s Projected Oil Demand and Domestic Supply …………………………………………. 10
Figure 4. Oil Consumption in India by Sector, 2003–04………………………………………………….. 11
Figure 5. Dependence on Imported Oil …………………………………………………………………………. 15
Figure 6. Domestic Oil Production by Sector …………………………………………………………………. 28
Figure 7. Domestic Natural Gas Production by Sector …………………………………………………….. 28
Figure 8. Evolution of Oil Products Consumption in India from 1971 to 2003 ………………….. 35
Figure 9. Profile of NELP Bidders ……………………………………………………………………………….. 38
Figure 10. Blocks Allocated in NELP Rounds by Sector …………………………………………………… 39
Figure 11. Burden Sharing of Crude Oil Price Increase, September 2005 ……………………………. 54
Boxes
1. A Note on “Power” ……………………………………………………………………………………………………. 13
2. Sampling of Indian Newspaper Headlines from 2000 and 2006 ……………………………………… 21
3. Acquisitions—Selected Activities of Indian Companies Abroad …………………………………….. 42
4. Predictions for Nuclear Energy Development……………………………………………………………….. 84
The Brookings Foreign Policy Studies Energy Security Series: India 4
Acronyms
AOC Assam Oil Company
APM administered price mechanism
AR&T Assam Railways & Trading Company Limited
bcm billion cubic meters
BIMSTEC Bangladesh-India-Myanmar-Sri Lanka-Thailand Economic Cooperation Group
BJP Bharatiya Janata Party
BOC Burmah Oil Company
BPCL Bharat Petroleum Corporation Limited
bpd barrels per day
CIL Coal India Limited
CNG compressed national gas
CNOOC China National Offshore Oil Corporation
CNPC China National Petroleum Corporation
CPI (M) Communist Party of India (Marxist)
CPM coal-bed methane
DGH Directorate General of Hydrocarbons
DPE Department of Public Enterprises
E&P exploration and production
ECC Energy Coordination Committee
EOL Essar Oil Ltd.
FBR fast-breeder reactors
GAIL Gas Authority of India Ltd
GDP gross domestic product
GNOP Greater Nile Oil Project
HPCL Hindustan Petroleum Corporation Limited
IAS Indian Administrative Service
IEA International Energy Agency
IOC Indian Oil Company
IPR Industrial Policy Resolution
ISPR Indian Strategic Petroleum Reserves Ltd.
IT information technology
KG Krishna-Godavari
LNG liquefied natural gas
LOC line of credit
LPG liquid petroleum gas
LWR light water reactor
MBI Myanmar-Bangladesh-India
The Brookings Foreign Policy Studies Energy Security Series: India 5
mmbtu per million btu
mmtpa million metric tons p.a.
MNES Ministry of Non-Conventional Energy Sources
MoU memorandum of understanding
MPNG Ministry of Petroleum and Natural Gas
MRPL Mangalore Refinery & Petrochemicals Limited
mtoe million tons of oil equivalent
MW megawatts
NELP New Exploration Licensing Policy
NPCIL Nuclear Power Corporation of India Limited
NTPC National Thermal Power Corporation Limited
OIDB Oil Industry Development Board
OIL Oil India Limited
OMCs oil marketing companies
NDA National Democratic Alliance
NOCs national oil companies
OMEL ONGC-Mittal Energy Limited
ONGC Oil and Natural Gas Corporation
ORF Observer Research Foundation
OVL ONGC Videsh Ltd
p.a. per annum
P&NG petroleum and natural gas
PCRA Petroleum Conservation Research Association
PESB Public Enterprise Selection Board
PHWR pressurized heavy water reactor
PPAC Petroleum Planning and Analysis Cell
PSU public sector undertaking
R&D research and development
RBI Reserve Bank of India
RIL Reliance Industries Limited
Rs. rupees
SPR strategic petroleum reserve
TERI The Energy and Resources Institute (formerly Tata Energy and Research Institute
UAE United Arab Emirates
UPA United Progressive Alliance
WTO World Trade Organization
The Brookings Foreign Policy Studies Energy Security Series: India 6
Introduction
At the start of the current century, the author of a book on energy in Asia referred to
India as a “lumbering elephant.”1 Six years later, while it may not be galloping at
quite China’s pace, India definitely has moved on from its days of seemingly aimless
plodding. As a former senior Indian official noted, India is at a “new threshold of growth.”2
Energy is fueling the sped-up Indian economy, which in turn is fueling demand for even
more energy.
Rapid urbanization, industrialization, rising incomes, and the growing use of energyintensive
products are driving India’s demand for energy.3 A few sets of figures provide a
picture of how the landscape is changing.
■ In 2005, 27.2 percent of India’s population lived in urban areas. By 2030 this figure is
estimated to grow to 45.8 percent.4
■ The country’s per capita annual income is set to increase from $728 today to $5,930 by
2030.5
■ In 2003–04 India had 5.7 million cars; by 2030 there are expected to be 200 million cars
on the roads.6
■ India’s primary commercial energy consumption is also predicted to jump—from 375.8
million tons of oil equivalent (mtoe) in 2004 to 812 mtoe in 2030 (India’s own planners
estimate that this figure will be higher).7
Over the last several decades, India developed a cluster of energy policies rather than an overarching
energy strategy. In addition, it created distinct policies for national security, foreign
affairs, economic issues, and the environment. Although the issues overlap, policymaking
processes were largely “stove-piped” or segregated, especially at the lower levels. Today, there
is increasing recognition in India—as in other rapidly growing states with complex security
environments—that these issues are closely interlinked. This monograph is a preliminary
survey of India’s energy policies and policymaking processes—preliminary because it primarily
focuses on a single, albeit very problematic, source of energy for India: oil. Further analysis
of this issue should encompass an “all-sources” approach and take a deeper look at the
relationship between India’s energy policies and its overall strategic policymaking.
India finds itself at a critical juncture where its policymakers’ decisions on strategic, political,
economic, social, and environmental issues will have an impact on the country (and its
citizens), and on its role in the world for years to come. Each of these issues, in turn, could
be affected by policymakers’ decisions on how to meet India’s growing energy needs. Yet
when it comes to the subject of energy in general, and oil in particular, there is little consensus
in the country. The one point of agreement is that in the midst of high oil and rising gas
prices, India’s thirst for energy will continue to grow. How this thirst is quenched will have
a crucial impact not just on India’s economic growth, but also on its internal political and
social stability, as well as its relations with other states.
The Brookings Foreign Policy Studies Energy Security Series: India 7
Concern about India’s energy requirements is not new—at least in India. The degree of
concern, however, has increased recently, as has the fact that this sentiment is now echoed
abroad—albeit for different reasons. This concern has resulted in not so much a debate as
a cacophony over optimal Indian energy and oil policy. This monograph examines reasons
for the concern, as well as where the debate is likely to lead India—at home and abroad. It
is divided into three parts.
■ Part 1 first presents a snapshot of India’s overall energy demand-supply picture. Second,
it discusses what Indian analysts and decisionmakers mean when they talk of “energy
security;” why there is so much concern about the subject; the themes of the debate; and
the sets of other issues that the government has to consider before it can adopt any
major energy policy. Third, it offers an overview of the still-complicated process by
which India makes its energy policies—a process that is becoming even more complex
as more actors start to play a role in it. The monograph considers players and how they
interact. Finally, it examines the question of whether India has, indeed, developed an
energy strategy.
■ Part 2 focuses on India’s continuing search for oil, a source of energy that has been the
subject of great concern. First, it provides a brief history of this quest and the situation
as it stands today. Second, it considers India’s supply-side policies, including measures
related to domestic exploration and production, acquisition of upstream assets abroad,
supply and fuel diversification, and strategic oil stocks, as well as their limitations, and
regulatory reform. Third, it examines India’s policies on the demand side, including
price and tax reform, fuel substitution, and conservation and efficiency measures.
■ The final part of this monograph offers some preliminary observations about India’s
likely domestic and international behavior as its decisionmakers try to balance its strategic,
political, socioeconomic, environmental, and energy needs. While the chief focus of
this study is oil, our preliminary judgment is that further work on additional sources of
energy may not alter the broad conclusions that have been reached here.
The Brookings Foreign Policy Studies Energy Security Series: India 8
Part 1. Energy: A Snapshot
Energy Consumption Patterns
India today is the fifth largest consumer of energy in the world, accounting for 3.7 percent
of the world’s consumption. Its total primary energy demand is expected to almost double
by 2030 (fig. 1). Its primary commercial energy consumption in 2004 stood at 375.8 mtoe
and involved coal, oil, gas, and electricity generated from nuclear, hydroelectric, and renewable
sources.8 India’s commercial energy consumption is expected to more than double to
812 mtoe in 2030.9 These figures do not even include the energy that is consumed from traditional
sources by 66 percent of Indian households.10 Estimates of energy use from traditional
sources tend to be approximate, but figures indicate that in 2002, 184 mtoe of energy
came from such sources as fuel wood, dung, crop residue, biogas, and waste (while 354 mtoe
came from the sources mentioned above).11 This use is expected to grow to 215 mtoe by
2030, though as a percentage of the total primary energy consumption, its share will drop
from 34 percent to 21 percent.12
Per capita primary energy consumption is still fairly low in the country (520 kilograms of oil
equivalent—less than a third the world average),13 with large disparities in the energy consumption
pattern. India’s energy intensity, however, is still fairly high. This is particularly
true of its oil intensity, which in 2004 was double the world average—the country consumed
1.5 million barrels of oil for every $1 billion of gross domestic product (GDP).14 This is,
however, expected to change for the better. There already has been a declining trend with a
30 percent reduction in the country’s energy intensity from 1994 to 2003.15
The Brookings Foreign Policy Studies Energy Security Series: India 9
0
50
100
150
200
250
300
350
400
2002a 2010 2020 2030
Figure 1. India’s Primary Energy Demand
Source: World Energy Outlook 2004
Coal Oil Gas Nuclear Hydro Nonconventional Sources Biomass & Waste
Millions of tons of oil equivalent
a. In 2002 nonconventional sources equaled 0 percent of total production.
The Energy Mix
India’s energy mix is (and has long been) coal
dominant, with coal accounting for more than
half of primary commercial consumption and
oil accounting for almost a third (fig. 2). Below is
a brief look at each of these sources. Part 2 details
Indian government policies related to these energy
sources.
Oil
While India’s addiction to oil might not be as
strong as that of the United States (both in terms
of actual oil consumption and oil as a percentage
of total energy consumption), its consumption of
oil is growing. It will soon be the world’s fourth
largest consumer of oil, currently it is the sixth.
India has been guzzling increasing amounts of oil
fueling an economy that has been growing at over
7 percent a year since 2003 (fig. 3). While this
growth rate is expected to slow, the Indian economy
is still expected to grow at over 5 percent a
year over the next twenty-five years.16 Correspondingly,
while global oil demand is expected to increase at an annual average rate of 1.6
percent, India’s demand for oil is expected to increase at an average rate of 2.9 percent annually
from 2002 to 2030.17 However, at that point oil will constitute a smaller share of its overall
commercial energy consumption.
The Brookings Foreign Policy Studies Energy Security Series: India 10
0
1
2
3
4
5
6
2002 2010 2020 2030
Figure 3. India’s Projected Oil Demand and Domestic Supply
Source: World Energy Outlook 2004
Figure 2. India’s Energy Mix
Source: BP Statistical Review of World Energy, 2005
Coal 54%
Oil 32%
Natural
Gas 8%
Hydroelectricity
5%
Nuclear Energy 1%
Oil Demand Domestic Oil Supply
Millions of barrels per day
Oil and its products are consumed in the
transport, commercial, industrial, and domestic
sectors.18 As India’s power grids fail to provide
a reliable and consistent source of electricity,
oil is also being used in captive power
generation, as well as to power irrigation for
agriculture (fig. 4).
There is a widening gap between India’s consumption
and production of oil. With India’s
domestic production of crude oil standing at
just 819,000 bpd in 2004,19 contributing only
1 percent of the world’s total oil output, the
bulk of India’s supply comes from beyond its
borders.20 Domestic production is expected to
remain constant, if not decline, over time.
There have been a few new discoveries, but
production from these fields is merely replacing
that of older oilfields. Thus, while oil is
expected to account for a smaller portion of
India’s energy supply, India is likely to import
a greater portion of the oil it does use. In 2004
India imported 68 percent of its oil. With only 0.4 percent of the world’s proven reserves21
and production estimated by the International Energy Agency (IEA) to be less in 2030 than
it is currently, this dependence on foreign oil is projected to grow to 91 percent by then.22
One hears of hopes (and even resigned humor) about the possibility of the discovery of major
oil reserves in India;23 some analysts even contend that India sits on “a veritable hoard waiting
to be tapped.”24 Overall, however, there is acknowledgement that this is improbable—
that when it comes to oil, India will likely be “a net importer till global reserves run out.”25
India’s dependence on foreign oil is longer standing than that of China. India either buys its
oil through spot purchases (for example, from Nigeria), short-term contracts (generally of
three months) or longer-term contracts (of a year, for example, from Saudi Arabia). It imports
its oil mainly from the Middle East, which in 2004–05 was the source of 67 percent
of India’s foreign oil purchases. India’s largest oil suppliers are Saudi Arabia (providing 25
percent), Nigeria (15.7 percent), Kuwait (11.9 percent), Iran (10 percent) and Iraq (8.7 percent).
26
Natural Gas
India is a relative newcomer to the use of natural gas. In the 1970s and 1980s, it accounted
for a negligible part of Indian energy consumption; the use of natural gas picked up after
the 1987 Bombay High field went into production. More recently it accounts for about
29 mtoe, constituting just about 8 percent of India’s total commercial energy consumption.
Today, it is one of the fastest growing sources of energy in India. While the IEA estimates
that over the course of 2002–30 Indian oil consumption will grow at 2.9 percent a year, it
The Brookings Foreign Policy Studies Energy Security Series: India 11
Figure 4. Oil Consumption in India by Sector, 2003–04
Source: Expert Committee on Energy Policy, Draft Report of the Expert
Committee on Integrated Energy Policy, 2004, p. 54
Transport 29%
Agriculture 7%
Power Generation 6%
Loss/Self Consumption 7%
Industry
17%
Household 17%
Commercial 17%
expects the use of natural gas in the country to grow at a rate of 5 percent a year over the
same period.27 By 2030 natural gas is expected to account for more than 10 percent of
India’s energy consumption.
In India, natural gas is used mainly for power generation and in the manufacture of fertilizers.
Transportation and agricultural and domestic users account for the rest of consumption,
with these sectors’ consumption expected to increase as demand for vehicular compressed
natural gas (CNG) increases and more homes are supplied with piped gas.
As recently as 2004, 29.9 billion cubic meters (bcm) of the 32.1 bcm of gas consumed annually
in India were sourced domestically. Most of India’s domestic sources are offshore (off
the western coast), where a couple of major discoveries have been made recently. Most of
India’s onshore fields are located in the states of Assam, Gujarat, and Andhra Pradesh.
India imported gas for the first time in 2004, in the form of liquefied natural gas (LNG)
from Qatar.28 Currently the country has two LNG terminals at Hazira and Dahej. With only
0.5 percent of the world’s proven gas reserves, however,29 and consumption expected to
increase, the dominance of domestic gas is likely to change, with India becoming increasingly
dependent on imported gas.
Coal
India is the world’s third largest consumer of energy from coal, consuming 204.8 mtoe (in
2004), which accounts for more than half of the country’s total commercial energy consumption.
30 While coal is probably the most polluting source of energy, it is abundant (India
has the fourth largest reserves of coal in the world) and relatively cheap, and it is considered
easier and safer to transport than oil or gas.
In India, coal is used for power generation and in steel and cement mills. While coal’s dominance
as an energy source in India has slowly been decreasing, it is expected to continue,
still accounting for more than 40 percent of consumption in 2030.31 The IEA estimates that
362 mtoe of India’s commercial energy will come from coal by then.
The majority of India’s coal reserves are located away from the major energy consumption
areas in the north and west—in the country’s eastern and central states (Madhya Pradesh,
Bihar, Jharkhand, and West Bengal). Recently, India has had to start importing coal, as production
has struggled to keep up with consumption. The domestic coal shortage is expected
to persist for at least another four years,32 with India projected to spend $6 billion a year
importing coal until 2015.33
Hydroelectric
India is the eighth largest consumer of hydroelectricity in the world, and this power supply
accounts for 5 percent of the country’s total consumption of commercial energy. India is
estimated to have the potential to produce 150,000 megawatts (MW) of energy through
hydro sources. Currently, there is installed capacity to produce only about 31,000 MW of
energy.34 This hydroelectricity is produced using a number of rivers around the country as
well as in neighboring Bhutan.
The Brookings Foreign Policy Studies Energy Security Series: India 12
Nuclear Energy
Nuclear energy accounts for only 1 percent of India’s primary commercial energy consumption.
In 2002 it accounted for five mtoe of the commercial energy supply; by 2030 this is
expected to increase to at least 29 mtoe (though these projections could change depending
on the fortunes of the U.S.-India nuclear “deal”).35 There are currently fourteen nuclear
power plants run by the state-owned Nuclear Power Corporation of India Ltd. (NPCIL) in
the states of Karnataka, Gujarat, Tamil Nadu, Uttar Pradesh, Rajasthan, and Maharashtra.
Together they have a capacity of 3,310 MW.36
Energy Security
What Does it Mean?
“Energy security” is a phrase that is heard increasingly often in India. A former official noted
that discussions that in the 1990s would have been about “energy,” are now about “energy
security.”43 It was the theme of the Indian president Abdul Kalam’s 2005 Independence Day
speech44 and has been the subject of a number of Prime Minister Manmohan Singh’s
speeches. It has also been the concern of a number of related committees set up by the government,
including one of eminent persons to provide advice on energy issues, another on
reforming the coal sector, and another on the pricing of petroleum products. Energy security
has also been the focus of a number of reports, including one by the Planning
Commission of India on the need for an integrated energy policy. Politicians, current and
The Brookings Foreign Policy Studies Energy Security Series: India 13
A Note on “Power”
Indian discussions of energy are invariably dominated by its “power” usage and needs. Today, India’s installed power capacity
is 127,423 MW. By 2030 the government projects that the capacity needed will be 400,000 MW, especially if it meets its goal
of providing every citizen access to electricity. In the last quarter (April–September 2006), peak demand stood at 95,583 MW,
only 87.8 percent of which was met.37
Most of India’s electricity is produced from fossil fuels (56 percent from coal, 10 percent from gas, and 1 percent from oil). The
rest comes from hydroelectric plants (25 percent), nuclear power stations (3 percent), and the exploitation of renewable sources
such as biofuels, biomass, solar, tidal, and wind (5 percent).38 According to government calculations, even in a best-case scenario,
fossil fuels will continue to dominate, with 75 percent of power being generated from coal, oil, and gas by 2020.
India has been experiencing a shortfall of electricity (of 11 percent at peak supply). According to the governor of the Reserve
Bank of India (RBI), India’s central bank, this lack of power, along with poor infrastructure, is hobbling investment and growth.39
One of the major reasons for the shortfall has been a shortage of coal and gas. In July 2005 twenty-two of seventy-five coal
power stations (with a capacity of 61,000 MW) faced severe coal shortages even though all stations are required to maintain
fifteen to thirty days of coal stocks for emergencies.40 The National Thermal Power Corporation Ltd. (NTPC), India’s largest thermal
power generator, has reported shortages of gas for its power plants as well and has resorted to using the more expensive
fuel naphtha at some of them.41
The government has asked both NTPC and the Gas Authority of India Ltd. (GAIL) to develop options for power generation to
address shortages.42 It has also liberalized the sector somewhat, though generation is still dominated by the public sector, as
is transmission. Distribution in a few states has been privatized, and despite fears, this has not resulted in huge price increases.
Another option that analysts have discussed is power grids from Central Asia, though experts have not assessed the financial
and technological viability of these proposals in detail.
former officials, think-tank professionals, and the business community have all expressed
concern about the issue. Governmental and nongovernmental entities have convened a
number of conferences and workshops related to energy and energy security; these topics
have been the subject of reports from a number of consulting firms as well.45
But “energy security” means different things to different people. Indeed, the deputy chairman
of the planning commission has said that “it was never clear in anybody’s mind what
energy security (is).”46 While talk of “energy security” has increased, clarity about its meaning
has not necessarily improved and includes a wide range of interpretations:
■ Security of supply of oil and natural gas; secure lines of interdependence.
■ Oil security—some in this camp further believe energy security is more than merely
protecting against temporary disruptions; it should take into account price volatility,
which poses a risk to India’s economic security.47
■ Independence from imports, or “oil self-sufficiency,” though most experts dismiss this
idea as one promoted by people who either have not assessed India’s situation realistically
or have little grasp of technical facts.48
■ Going beyond the country’s overall requirements as a whole and looking at the requirements
of individuals.49
Though the phrase is used extensively without a definition, some in government do elaborate
on what energy security means to them. There have been references to the Wall Street
Journal piece in which Daniel Yergin defined energy security as “the security and integrity of
the whole supply chain and infrastructure, from production to the consumer.”50 The Indian
president defines it as “ensuring that our country can supply lifeline energy to all its citizens,
at affordable costs at all times.” He sees energy security as based on a few principles: conservation;
secure access to all sources of energy globally (even though he believes “the end of the
fossil fuel era is fast approaching”); and access to “reliable, affordable, and environmentally
sustainable energy.” But he views energy security as merely a transitory step toward what he
believes should really be India’s first and highest priority—energy independence—which he
thinks should be achievable by 2030.51 Others in government disagree, asserting that energy
independence is unattainable, at least in the short-to-medium term.
The Planning Commission of India has probably come closest to providing a comprehensive
and official Indian definition of energy security to date: “The country is energy secure
when we can supply lifeline energy to all our citizens as well as meet their effective demand
for safe and convenient energy to satisfy various needs at affordable costs at all times with a
prescribed confidence level considering shocks and disruptions that can be reasonably
expected.”52
Causes for Heightened Concern
By 2030 India is expected to overtake Japan and Russia to become the third largest global
consumer of energy. However, if consumption follows the current pattern and trajectory, the
country is projected to run out of coal, its primary source of energy, in forty years.53 Furthermore,
its domestic reserves of oil and gas are limited.
The Brookings Foreign Policy Studies Energy Security Series: India 14
Today, India is importing a portion of
three of its major sources of energy: oil,
gas, and coal. And its dependence on imported
oil (fig. 5), which is already greater
(as a percentage of oil consumed) than that
of the United States and China, is expected
to increase even further.
The situation is complicated by a number of
factors:
■ Though India imports oil from more
than two dozen countries, almost three
quarters of its oil is imported from five
countries, all located in regions that are
considered fairly unstable54 (this trend is
likely to continue).
■ High oil prices, which in turn seem to spur high gas prices.
■ Continuing geopolitical uncertainty stoking fears of a possible supply disruption or
volatility in oil prices.
■ Few or no obvious viable energy alternatives—progress in its nuclear program has regularly
fallen behind schedule; large-scale development of hydroelectricity generation
facilities has been stymied by financial, social, and environmental concerns; and nonconventional
sources are not yet considered affordable or reliable.
India’s appetite for energy is showing no signs of slowing down and its growth rate is
expected to continue to be fairly high. Concern about where the energy is going to come
from has been increasing as the realization grows that India is not alone in this high-speed
quest for energy—it is competing with China, Japan, Europe, and the United States.
Finally, in addition to concern that supply routes could be disrupted by instability in the
Middle East, Africa, or the Indian Ocean region, worries persist about the potential for
domestic disruption due to the vulnerability (by accident, attack, or natural disaster) of
onshore and offshore facilities, union strikes, and potentially vulnerable rail and pipeline
links.
While a few analysts dismiss energy security as an overhyped concern, overall there is alarm
that without “clean, convenient and reliable energy,” India will not be able to sustain a high
growth rate across all sectors of the economy.55 Vulnerability to volatile prices adds to the
problem, causing increases in India’s fiscal and trade deficits. There is also a certain amount
of discomfort that India’s economic growth “stands hostage” to imported energy.56
The reason for heightened concern goes beyond the need to satisfy India’s “growth compulsions.”
57 It involves political, social, and strategic dimensions as well. India’s leaders have
learned that “India Shining” for just the upper and middle classes is not good enough—that
The Brookings Foreign Policy Studies Energy Security Series: India 15
0%
20%
40%
60%
80%
100%
United States China India Japana
Figure 5. Dependence on Imported Oil
Source: BP Statistical Review of World Energy 2005
a. Percentage of total production equals zero.
Imports Production
Percentage of total
the benefits (and drivers) of growth, including access to energy, must be more widely distributed.
As the leadership seeks to “alleviate poverty”58 and involves more of India’s citizens
in the country’s emergence, it has to plan for an increasing number of energy
consumers. It also has to factor in a number of households that are likely to transition from
using traditional sources of energy to commercial ones, a change that will need to be managed
in an efficient manner. Finally, energy security has been a concern because a number
of people see an energy-insecure country as one that will be unable to take its “rightful
place” as a great power.
Issues in India’s Energy Policy Debate
It is almost de rigueur to blame earlier governments for shortages and inefficiencies, but
most of India’s energy-related problems are long-standing. For years, India’s concern was
tempered by the fact that it had abundant coal reserves and that its energy requirements were
not as substantial as they are today and are projected to be in the future. With its high economic
growth, supply can no longer keep up with demand. The country has run fiscal
deficits for a number of years, and increasingly, there are limitations on how much the public
sector can spend. A consulting firm has estimated that India will need an investment of
$225 billion across its energy sector until 2012 to meet demand.59 There is indeed a need for
massive private investment in the various energy sectors. But private investors have been
hesitant to enter the market because they consider it an unlevel playing field. They see preferential
treatment for state-owned companies that have dominated the sector, little clarity
in terms of market structure, and lack of reform on issues such as pricing, which has made
it unprofitable for them to invest.
A number of themes are evident when Indians discuss solutions to the present and predicted
energy predicament. Most policy prescriptions include the same elements, but to varying
measures and degrees of emphasis. What they stress often reflects organizational or sectoral
affiliation (in the same vein as “where they stand depends on where they sit”). Nine broad
themes can be identified.
1. AN OVERALL VISION AND INTEGRATED APPROACH
India has a long tradition of state-dominated planning, wherein the state assumed responsibility
for the livelihood of its citizens (during the British Raj, authorities similarly claimed
responsibility for the livelihood of the Crown’s subjects). Elements of the Indian nationalist
movement, notably the Indian National Congress, were strongly influenced by socialist
notions of centralized planning, often in five-year increments, and India continues to have
five-year plans.
When it comes to the subject of energy, however, there has been criticism that this mode of
planning, and especially its implementation, has not produced the best results. A number of
observers do not criticize the idea of planning per se, rather they object to its having been
“directionless,” “fractious,” and “ineffective” with implementation being “dismal.”60 Many
Indian analysts emphasize the need for a clear vision and an overall Indian energy strategy.
Yet while some of them call for increased strategic planning and prioritization, others think
that given the complexities of energy issues and decisionmaking in India, a single strategy
The Brookings Foreign Policy Studies Energy Security Series: India 16
Broad Themes of
India’s Possible
Energy Solutions
● An overall vision and
integrated approach
● Altering the
energy mix
● Self-sufficiency
● Diversifying sources
of supply
● Actions on the
international level
● Conservation and
efficiency
● Restructuring,
rationalization,
and reform
● Improved access
to technology
● Information and
analysis
may not be desirable, necessary, or for that matter likely.61 Instead some experts call for an
integrated set of energy policies that are efficient and cost-effective.62
2. ALTERING THE ENERGY MIX
Analysts put forth various recommendations with regard to India’s energy mix:
■ The solution lies in hydrocarbons. India should encourage private investment at home,
acquire overseas assets, conduct oil diplomacy, and participate in projects like transnational
pipelines to gain access.
■ Natural gas should be the preferred choice.
■ India should reduce its dependence on oil by turning to coal, since its coal reserves are
abundant.
■ There should be a differentiated sourcing plan. Such a plan would take into account geographical,
technical, economic, and ecological factors, and involve looking toward coal as
the dominant source in eastern India, where it is available, and gas in the western and
northwestern parts of the country.
■ India needs to decrease its dependence on fossil fuels in general and emphasize nuclear,
hydro, or solar energy over the longer term.
■ No solution can be comprehensive or effective if it does not factor in both traditional
and nonconventional sources.
3. SELF-SUFFICIENCY
Self-sufficiency is a key theme in Indian political discourse. It flows from the desire of
Indian nationalists to break away from the shackles of empire; the mind-set and the term
continue to have resonance even today. For a few observers and decisionmakers, the solution,
at least rhetorically, lies in developing “a strong, self-reliant hydrocarbon sector,”
which they aver “must be a national imperative.”63 The Indian president, for example,
believes that energy independence with “total freedom from oil, gas, or coal imports” is
possible, although he acknowledges that it will take a lot of hard work to achieve. There is
great confusion about self-sufficiency and what it would mean in practice in the energy sector.
The fact that some India policymakers still consider it an option affects and skews the
debate. Most experts and decisionmakers think energy self-sufficiency is impossible to
achieve barring a major breakthrough in exploiting solar or nuclear energy (and even this,
they argue, could require foreign participation for maximum effect).64 They assert that
imported energy is going to be a fact of life in India—a fact that should be factored into
its energy security plans.
4. DIVERSIFYING SOURCES OF SUPPLY
A number of decisionmakers continue to see solutions abroad. While some experts have
called for limiting dependence on oil imports,65 others recommend diversifying the sources
of India’s oil and gas. At the first meeting of the Energy Coordination Committee, the
Indian prime minister, for example, emphasized the need to diversify energy supplies in
order “to insulate the economy from any future shock.”66
The Brookings Foreign Policy Studies Energy Security Series: India 17
5. ACTIONS ON THE INTERNATIONAL LEVEL
A few experts have called for the government to take more initiative abroad by competing
and cooperating more intensely in the international arena, and through “enlightened diplomacy
and negotiations.”67 Other analysts call for more coordination, stating that in a globalized,
interdependent world, no country can form an energy policy independently without
considering the concerns and actions of others.
6. CONSERVATION AND EFFICIENCY
There have been a number of suggestions (but not much action) on conserving energy and
using it more efficiently. Among other things, this would include better technology,
improved equipment maintenance, and increased availability and use of mass transit. In
addition to recommending that the government provide better incentives and resources for
efficiency measures and related research and development, experts have also suggested that
India alter its economy to shift to low-energy intensity sectors. They point to France, which
they say successfully changed supply (to nuclear energy) and demand (through mass transit
like the TGVs). Others, however, feel that it is “unrealistic” to try to alter the energy intensity
of India’s growth.68
7. RESTRUCTURING, RATIONALIZATION, AND REFORM
There have been a number of related suggestions:
■ The energy sector should be restructured and liberalized. Experts, for example, have recommended
reforming the coal sector through deregulation, removing government control
over the allocation of blocks and the approval process for coal mining, improving
operational efficiency, strengthening coal distribution logistics, or focusing on future
technology.
■ The tax and pricing systems should be reformed, for example, by using relative rather
than independent pricing of different kinds of fuels. There have also been calls for an
end to government subsidies or at least a transition to targeted subsidies.
■ Greater investment—especially through increased private participation—is an oftproposed
solution. Suggestions have included providing incentives, the clarification of
policy frameworks (in terms of energy pricing, market structure, cross-border investments,
and import and exports of energy products) and the introduction of independent
regulatory mechanisms (to initially set prices and then ensure a level playing field).69
Experts emphasize that increased energy sector growth will require investment not only
in exploration and production facilities, but also in distribution infrastructure: ports,
railways, pipelines, and power transmission grids.
■ There have also been calls for privatization—of everything from public sector undertakings
to ports to pipelines—to bring in capital, technology, and skills.
8. IMPROVED ACCESS TO TECHNOLOGY
A few noted experts have focused on the need for increased technological research. There
have, in fact, been some improvements, for example, in clean-coal technology, better nuclear
power generation, enhanced oil recovery programs, conversion of natural gas into liquid,
coal-bed methane extraction, and heavy oil extraction. Analysts are adamant that there must
The Brookings Foreign Policy Studies Energy Security Series: India 18
be a technological vision to move the country toward renewable sources and to use fossil
fuels more cleanly and efficiently.70
9. INFORMATION AND ANALYSIS
There has been some talk of the need to collect and dispense information about energy
requirements, use, and projections, and to undertake scenario planning. The scenarios that
have indeed been developed, say critics, may take into account various growth rates, but they
do not factor in the effect that price changes for certain types of energy could have on consumer
behavior.71 For this and other reasons, many experts call for increased funding to support
additional independent analysis.
Clearly, India does not suffer from a shortage of proposed “solutions,” and there is rich
debate about the best course for energy strategy and policymaking. While this is not a new
discussion, there are now an increased number of (and more vociferous) participants, with
the popular press and strategic community joining what were once arcane dialogues among
a few experts.
Deciding on or implementing any of the proposed energy “solutions,” however, is complicated
by other policy considerations. While India’s decisionmakers agree that it is critical to
meet the country’s energy needs, they have to balance energy demands with other considerations—
strategic, political, economic, social, and environmental—that often trump the
quest for energy. Below is a brief look at some of these considerations.
The Government’s Other Considerations
STRATEGIC ISSUES
Today, India’s foreign policy is following what the current prime minister calls a path of
“enlightened self-interest.” India is forming partnerships—though not alliances—with
multiple countries. In a variation on the Palmerstonian axiom, India’s policy seems to be “no
permanent allies; lots of good friends.” The country is forming these relationships to serve a
number of different interests, including energy security. But each partnership is designed to
attain the goal of a strong, respected, independent India that can shape its environment
(globally as well as regionally) and protect its core interests.
However, India has conflicting interests that may indeed clash in the future. While it is
engaging in more aggressive oil diplomacy with a few countries, considering more acquisitions
of oil and gas assets abroad, and thinking about participating in the construction (and
use) of a number of pipelines, these attempts are not played out in a vacuum. They occur in
the context of India’s developing strategic relationships with a number of other countries,
including the United States, that might view some of these other “energy relationships” with
concern.
A good example of this clash is the proposed Iran-Pakistan-India gas pipeline, which has
been discussed for over a decade and a half. Over the last few years the proposal has taken
on new momentum, but the budding U.S.-India strategic partnership complicates any
Indian decision to participate. While the United States did not ask India to choose between
The Brookings Foreign Policy Studies Energy Security Series: India 19
the pipeline and their bilateral relationship, it has made its views on the former quite clear
(and offered to open wider the door to another option: nuclear energy). India is also likely
to run into conflicts of interest with the United States when considering potential energy
suppliers like Myanmar, Sudan, and Venezuela. While India is loath to act under pressure
(and often reacts badly if pressured—especially publicly—rather than persuaded), in each
of these cases, before acting on its energy security imperatives, the country will have to consider
its other strategic interests.
POLITICAL
India, as one often hears these days, is the largest democracy in the world. Over the last
decade, the country has held four national elections. Its last two governments have been
formed by coalitions—first the National Democratic Alliance (the NDA coalition), which
governed from 1999 until 2004 and was led by the Bharatiya Janata Party (BJP), and then
the United Progressive Alliance (the UPA coalition), which has ruled since 2004 and is led
by the Congress Party.
India’s politicians—no less than their American counterparts—are sensitive to the prospect
of being punished at the polls for high energy prices. Thus “affordability” is not simply an
altruistic goal. There is always a great deal of hand wringing before any energy price hike is
approved by a sitting government, even if it is clearly required. India is frequently in the
midst of an election or preparing for one. Elections for the central Lok Sabha (Lower House
of Parliament) are held every five years (and more often if a government falls prematurely)
and India’s twenty-nine states and six union territories have assembly elections every five
years in groups of four or five. More recently, because of the logistics involved (India has an
electorate of more than 650 million), these elections have been held over an extended period.
The 2004 national elections, for example, were held in four phases over three weeks; recent
state assembly elections were held in eight phases over a month.72 India’s national political
parties also operate at the state level. Conversely, its regional parties have increasingly been
playing a role (and indeed participating in the government) at the national level. All this
translates to elections frequently on the horizon, and consequently, a strong need to appeal
to the electorate.73
In addition, coalition governments, which have become the norm in India, compel the sitting
prime minister to contend with a number of views on energy policy. Electoral majorities
in India have become thinner over time and governments are afraid to act in any way that
might lead to a popular (or indeed party) backlash or the defection of a coalition partner.
Because of political calculations, Indian governments have tended not to pass on the rising
prices of energy (especially oil), to the consumer—particularly at election time. Price
increases, when implemented, are small and timed extremely carefully. The result is that
public sector energy firms (and eventually the government, which bails them out) absorb the
losses, adding to India’s persisting deficits. Thus there was no commensurate increase in the
price of petroleum products for Indian consumers from September 2005 to June 2006,
despite the increase in world crude oil prices during that period and a government-appointed
committee calling for price reform. While the government denied that elections were the
reason for the lack of a price increase, there were indeed state elections in April–May 2006.
The Brookings Foreign Policy Studies Energy Security Series: India 20
India’s politicians—
no less than
their American
counterparts—are
sensitive to the
prospect of being
punished at the
polls for high
energy prices.
A set of Indian newspaper headlines from earlier this year (above) offers a succinct look at
what tends to occur before and after an energy price increase in India.
As these two sets of headlines illustrate, the government’s behavior concerning price
increases tends to follow a pattern irrespective of which party or coalition is in power. First,
there is speculation about a price rise and subsequent warnings by the Left parties; decisions
are postponed. Next, the government tries to prepare the public by saying that a price rise is
inevitable, and prices are raised. The opposition protests, as do the government’s coalition
partners and even dissenting voices in its own party. Then the government denies there will
be a rollback. Finally, either the government or its allies back down, or the opposition gives
up and higher prices hold.
Political sensitivities are also evident in subsidization. When asked why the government subsidized
the price of liquid petroleum gas (LPG) used by the middle and upper classes (mostly
in urban areas), Mani Shankar Aiyar, the former Indian minister of petroleum and natural
gas (henceforth in this document referred to as “petroleum minister”) responded that while
it made “little economic sense, it does make abundant political sense.”75 This is true for power
as well, which parties—both at the central and state level—promise to their constituents at
subsidized rates (or even free), skewing prices and the demand picture.
Thus no matter how obvious or necessary some solutions seem—like price adjustments—
they often appear to be further from implementation than they should be. A former petroleum
minister’s sentiment that solutions must combine “sound economics and sensitive
politics” is a common one among his counterparts.76
SOCIOECONOMIC ISSUES
The government’s energy policies are also affected by powerful social considerations. With
28-35 percent of India’s population still living below the poverty line (as of 2000),77 most
policymakers in India—from across the political spectrum—make it a point to emphasize
that affordability must be part of any energy solution. A number of policymakers mention
that affordability is relative, and therefore the country’s conception of energy security cannot
be defined in anyone else’s terms. This view is prevalent outside government as well. A
The Brookings Foreign Policy Studies Energy Security Series: India 21
Sampling of Indian Newspaper Headlines from 2000 and 2006 (in chronological order)74
2000 (BJP-led NDA coalition in power)
Petrol hike not ruled out ● Delaying oil price hike may not be possible
● Left warns against petrol price hike ● Indian Govt Postpones
Decision on Domestic Oil Prices ● India prepares to hike fuel prices,
cut duties ● Steep fuel price increase inevitable: Indian PM ●
Decision on petrol price hike by month end—Naik ● India to consider
oil price hike after by-election ● India orders 18.6 percent hike
in fuel costs to offset global prices ● CPI(M) to launch campaign
against proposed hike in fuel prices
2006 (Congress party-led UPA coalition in power)
Fuel price hike likely ● Oil price hike cannot be deferred for long ●
Chidambaram; Left cautions against fuel price hike ● No immediate hike in
fuel prices; Indian Oil Min, Fin Min To Meet On Oil Prices; PM makes case for
fuel price hike; Petrol price hike next week ● Petro-goods prices may rise after
polls ● Indian cabinet approves fuel price hike; India fuel price rises lead to
nationwide protest threats ● Finally, fuel prices are up, Govt says no rolling
back ● BJP takes hike protest to the streets ● CPI-M firm on fuel price rollback,
says all options open
leading analyst has talked of the need not only to obtain enough energy and secure supply,
but to do so at a “steady and reasonable cost.”78
Both bureaucrats and politicians are conscious that they must work toward enhancing the
availability of energy for socioeconomic development. Especially important is the provision
of basic modern energy services to the poor in rural areas.79 Emphasizing this priority, an
official pointed out that wealthier citizens were likely to have access to energy services or at
least the means to gain that access.80
The government is sensitive to criticism that it is “wedded to the policy of market economy”
and accusations that it is focused on making energy available to the elite, especially in urban
areas.81 To dodge such accusations, some of the current government’s own ministers have
emphasized that they would not indulge in “mindless liberalization.”
Some analysts have argued that decisionmaking on energy should take into account “distributive
justice.”82 Thus when the government makes its choices, it has to consider the need to
get “reliable supply at reasonable prices.”83 There are also very real tradeoffs that the government
has to weigh (and make) in terms of balancing energy and food security, as the
exploitation of some energy sources reduces arable land.
FISCAL CONSIDERATIONS
Political, socioeconomic, and energy imperatives, in turn, have to be balanced with fiscal
requirements (though these often lose out). A case in point is the pricing of petroleum products
(like LPG, kerosene, diesel, and petrol).
Whether out of genuine concern for large sections of society or out of fear that voters will
make them feel their pain—or both—India’s decisionmakers have chosen to keep petroleum
product prices low, as mentioned above. An example:
■ Between September 7, 2002 and September 7, 2005, the price of Dubai crude rose
almost 111 percent.
■ The retail price of regular gasoline in the United States, during the same period,
increased 124 percent; in India, the retail price of petrol rose only 49 percent.84
In India, the true cost of international price increases is borne largely by the public sector
oil companies, which absorb the losses and by the government, which bails them out. With
private interests now permitted limited participation in the energy sector, they also assume
a share of the burden.
Recently, the Petroleum Secretary indicated that state-owned oil marketing companies
(OMCs) were losing $51 million a day.85 The state-owned Indian Oil Company (IOC)—
India’s largest downstream company—announced that it lost nearly $270 million in April
2006 alone because it could not pass on high prices.86 Subsidies also create a burden, though
the government has substantially reduced expenditures on them over the years. Central government
subsidies on petroleum products are still equivalent to 2.5 percent of the government’s
fiscal deficit. In the last fiscal year, the Ministry of Petroleum and Natural Gas
The Brookings Foreign Policy Studies Energy Security Series: India 22
Political, socioeconomic,
and
energy imperatives,
in turn, have to be
balanced with
fiscal requirements
(though these
often lose out).
estimates that the state-owned oil companies have subsidized $8.7 billion in petroleum
products.87 With cross-ownership, even the upstream companies absorb subsidy burdens.
The Oil and Natural Gas Corporation (ONGC) absorbed about $2.5 billion worth of them
in 2005–06.88
The government bails out state-owned OMCs when they suffer underrecoveries due to
retail price controls. It does so by issuing them oil bonds, which they can liquidate to ensure
that losses are limited (or absent) on the companies’ balance sheets. In 2005–06 these oil
bonds were equivalent to almost 4 percent of the fiscal deficit. So even if the effects of high
global oil prices do not show up at the gas pump, in inflation statistics, or on the companies’
balance sheets, they are contributing to the country’s fiscal deficit. This is true of its trade
deficit as well. In 2005–06 India spent $38.8 billion to import crude oil, up from $25.9 billion
the previous year. Its import bill for crude oil and petroleum products constituted almost
a third of India’s total import bill and contributes significantly to India’s persisting trade
deficit, which stood at $51.5 billion.89
The governor of the RBI expressed concern about keeping prices artificially low and the
impact this has on the Indian economy, stating that the “government has to take some decision
on oil price pass-through.”90 A senior IOC official, while loath to be openly critical of
the government, lamented that the company could not participate in the boom that the
Indian economy was experiencing because the government kept prices low. He said that
while the government periodically bailed out the firm, such measures might not be sustainable
over the long term.91 There is also a broader understanding that subsidization cannot
be continued indefinitely, especially in its current form.92 But there is widespread concern
about the political, economic, and social effects of removing subsidies completely. Some
decisionmakers point to the fact that when Thailand and Indonesia dismantled their subsidy
system, it led to high inflation and slower growth rates.
Observers have noted that if governments continue to resist price rationalization, “the price
of today’s procrastination will . . . be paid by future generations.”93 Therefore policymakers
also have to keep in mind fiscal worries when formulating and implementing energy policies.
ENVIRONMENTAL FACTORS
India’s powerful environmental groups are deeply rooted in its society and have strong ties
to various international environmental movements. Environmentalism has recently gone
mainstream amid visible signs of increasing pollution in many Indian cities, growing numbers
of cases of respiratory illnesses, shrinking forest cover, and reports that India’s carbon
dioxide emissions have been increasing “alarmingly.”94 India’s president has warned of
immense environmental problems if China and India maintain their dependence on fossil
fuels.95 The prime minister has quantified the losses that environmental problems would
entail.96 And the Planning Commission’s report on India’s energy policy has an entire chapter
on linkages between energy and the environment.
The Brookings Foreign Policy Studies Energy Security Series: India 23
Policymaking
There are well over a dozen organized agencies, institutions, and sectors that can affect
decisions related to energy policy in India. Some of these groups are within the government,
which is not monolithic and has many voices on energy policy; some are outside
it. The number is growing rapidly, as the private sector plays a larger role in energy
decisions and as environmental and political groups expand their influence. Below is an
overview of the actors involved.
The Government
FEDERAL LEVEL
First and foremost are the ministries and the independent departments directly associated
with energy at the federal (or in Indian parlance “central”) level.99 There is no longer a single
central ministry of energy in India (one did exist before 1992, and it had separate departments
for coal, power, and nonconventional energy sources). Instead there are a number of
ministries involved that are responsible for policymaking related to various energy sources
(described below). An assessment of the effectiveness of the policy process can be found in
the Coordination section (page 27).
Each of the ministries is headed by a union minister (who is a member of the cabinet) and
usually has a deputy, the minister of state. These ministers are almost always members of the
ruling coalition and have to be elected members of either the upper or lower houses of the
Indian Parliament. The leadership of the ministries also includes a secretary, the senior-most
bureaucrat in that ministry. The post is usually assigned to a career civil servant, who is technically
appointed by the cabinet; in reality his or her appointment can be fairly dependent on
the associated minister.
Department of Atomic Energy. This independent department has all matters related to
atomic energy under its purview, and is responsible for designing, commissioning, constructing,
and operating nuclear power plants.
Ministry of Coal. This ministry is “responsible for development and exploitation of coal
and lignite reserves in India.”100 It sets the “policies and strategies” for the sector and has
administrative control of Coal India Ltd., a state-owned corporation, and its eight subsidiaries,
which together control most coal mining in the country.
Ministry of Petroleum and Natural Gas (MPNG). The purview of this ministry
includes exploration and production of oil and natural gas; refining, distribution, and marketing
of petroleum products; and the conservation, import, and export of oil and natural
gas. It also has administrative control of the state-owned oil and gas companies including
ONGC, IOC, GAIL and Oil India Limited (OIL). The Directorate General of
Hydrocarbons (DGH), which could be described as the regulator of the upstream sector,
also falls under this ministry, as does the Oil Industry Development Board (OIDB), which
provides financial assistance (in the form of loans and grants) to the industry. The central
government provides the funds that OIDB distributes from the cess (a term for tax) that is
collected from firms producing oil domestically. The Petroleum Planning and Analysis Cell
(PPAC, formerly the Oil Coordination Committee) within the ministry administers subsi-
The Brookings Foreign Policy Studies Energy Security Series: India 24
dies, and is responsible for analysis and forecasting related to the oil sector. The MPNG
tends to be the most coveted of the energy-related ministries among potential ministerial
candidates (and coalition members). Some analysts say that this is because it is a high-profile
posting; others simply refer to it as a “party fundraising machine.”101
Ministry of Nonconventional Energy Sources (MNES). This ministry is responsible
for the policies for all nonconventional energy sources including wind, solar, small hydro,
biogas, and biomass. It is the first of its kind in the world, a fact many of its officials like to
highlight. However, it is probably also the most neglected of the energy ministries.
Ministry of Power. It has responsibility for policy and planning related to power projects
and for enacting laws related to thermal and hydroelectric power generation, transmission,
and distribution.
Other Ministries. A number of other related ministries have authority touches on energyrelated
decisions. The more directly related agencies are the Ministry of Heavy Industries
and Public Enterprises and the Ministry of Commerce and Industry. Also involved are the
Ministry of Finance, the Ministry of External Affairs (MEA), the Ministry of Environment
and Forests, the Ministry of Railways, the Ministry of Shipping, the Ministry of Road
Transport and Highways, the Ministry of Water Resources, and the Ministry of Science and
Technology.
The Planning Commission. One of Jawaharlal Nehru’s most important legacies was to
institute centralized planning through the Planning Commission of India. At one time the
Commission was centrally important in shaping Indian economic policy. Today, the prime
minister remains the chairperson of the Commission, which also has an appointed deputy
chair (currently Montek Singh Ahluwalia, a distinguished economist and close associate of
the prime minister), who for all intents and purposes runs the Planning Commission. The
Commission also operates as the government’s think tank, conducting research and analysis
and laying out plans, policies and targets. The Commission’s Power and Energy Division is
responsible for the energy sector. The Planning Commission also coordinates plans with the
chief ministers of India’s states (together they compose the National Development Council).
While the Commission has a coordinating (and limited monitoring) role, it does not implement
policies. Besides the chair and deputy chair, the Commission has seven other members—
currently three of them are economists, one is a women’s rights activist, one is a
biotechnologist, and two are former members of the Indian Administrative Service (IAS).
In addition, the Commission has a number of advisers and consultants.
The role and clout of these ministries and the Planning Commission vary over time, depending
on who leads them, how close that person is to the prime minister or the governing
party’s coalition’s leaders, and the personal interests of the prime minister. Decisions emanating
from these entities stem from a number of the imperatives mentioned above, but they
also depend on other factors like the political parties the minister belongs to (or owes his
position to) the personalities associated (and their proclivities and interactions), and the
processes involved.
The Brookings Foreign Policy Studies Energy Security Series: India 25
Political Parties. There is consensus among the Indian political parties that India has an
energy problem. An insightful observer pointed out that there is also, in effect. a political
consensus on energy policy because of the way politics plays out these days. When parties
are in the opposition, making noise about prices and geopolitics is painless. When they come
to power—as most do at some point or another—the realities of India’s energy and economic
needs hit them, and they realize that their options are limited.
This is especially true in the case of the two major national parties—the BJP and the
Congress party—that have led coalitions over the last few years. There might be different
emphasis on issues like privatization, for example, which the BJP tends to favor more than
Congress. But the general trend in terms of how they approach energy solutions tends to
remain the same. What the parties actually do depends on the kind of coalitions they have.
The parties that support but remain outside of a government—as the Left parties are currently
doing—tend to be more vocal and sometimes less realistic about potential solutions.
STATE LEVEL
India’s constitution divides responsibilities between the federal and state governments
according to three lists:
■ the Union List provides the issues the federal government takes care of;
■ the State List provides those for which the state governments is responsible; and
■ the Concurrent List provides those for which both have shared responsibility.
For example, the Union List includes “atomic energy and mineral resources necessary for
its production . . . regulation and development of oilfields and mineral oil resources; petroleum
and petroleum products; other liquids and substances declared by Parliament by law
to be dangerously inflammable” and “regulation of mines and mineral development to the
extent to which such regulation and development under the control of the Union is
declared by Parliament by law to be expedient in the public.” Power, however, falls under
the Concurrent List.
Beyond the responsibilities that the Constitution directly assigns them, there are other reasons
the states play a role in energy policy. While major energy resources are subjects of the
center, their development can have an impact on issues that fall under one of the other lists.
Forests, for example, come under the Concurrent List and agriculture falls under the State
List—both of which can be affected by policies made by the MNES.102
Additionally, some Indian states own energy firms, like the Gujarat State Petroleum
Corporation, which dominates exploration and production in the oil and gas sectors in the
state of Gujarat, and is also the parent company of gas transporter Gujarat State Petronet
Ltd., which has a network of pipelines across the state.103 State governments own stakes in
some refineries as well.104
Finally, with national parties sometimes governing at the state level and regional parties (who
are also present or potential coalition partners at the national level) competing at the state
level, the states have an indirect way of influencing policies and politics at the national level.
The Brookings Foreign Policy Studies Energy Security Series: India 26
COORDINATION
India’s diversified official decisionmaking does have some advantages—including more and
different inputs as well as cheerleaders for each energy source, ensuring that none are totally
neglected—but it comes at a cost. The cross-cutting nature of energy issues and the various
entities’ responsibilities mean that there is always a need for coordination—among the ministries
(and departments) responsible for energy-related issues, as well as between the center
and the states. This obligation even extends to ministries that normally would not be considered
energy related. For example, any large-scale biodiesel project would require coordination
with the Ministry of Rural Development and the Ministry of Panchayati Raj (which
deals with village-level governance), among others, to promote and implement the project.
The kind and scale of coordination that takes place among the various government entities
depends on the issue, as well as on the level of government and the people involved. At
higher levels of government there are processes and mechanisms in place. Issues of crosscutting
impact are brought up in Cabinet Committee discussions, where the concerned
ministries have representation.105 This setting is the venue for coordinating policies and
resolving conflicts. The government can also constitute Committees of Secretaries that
bring together the senior-most bureaucrats from ministries involved in certain issues. The
Planning Commission also offers a venue for coordination (or at least discussion). However,
one senior official, lamenting the lack of an integrated approach, indicated that he did not
think that the Commission was the ideal forum for coordination.106
At the middle and lower levels—where the details of the policies are often developed and
processed—coordination is often more ad hoc and personalized. Such a case might simply
involve a joint secretary in one ministry calling his or her counterpart in another and soliciting
their views on a particular policy. While this system manages to work, it can sometimes
mean that a policy that emanates from one ministry does not get feedback from the others
till it reaches a higher level. If others at that level disagree, it is back to the drawing board
for everyone.
The ministries can and do call together ad hoc meetings. Recently, for example, the MEA
brought together the energy-related ministries and departments to discuss energy initiatives
abroad.107 The joint MEA-MPNG task force offers another example of this type of cooperation.
It was created by the ministries in preparation for the petroleum minister’s January
2006 visit to China, during which the two countries signed a number of memorandums of
understanding (MoUs).108
However, these instances of cooperation are ad hoc and inconsistent. Lack of coordination
among and within the various ministries and departments causes delays in implementing
policies. In one instance, while the MPNG announced tax incentives to encourage investment
in exploration and production in India, the income tax department had not been
brought on board and turned down some of the exemptions the ministry had proposed,
causing delays. When the law ministry disagreed about the criteria for evaluating bids as part
of this initiative and about the bidding format, there were further delays.109
The Brookings Foreign Policy Studies Energy Security Series: India 27
The cross-cutting
nature of energy
issues and the
various entities’
responsibilities
mean that there is
always a need for
coordination—
among the ministries
(and departments)
responsible
for energy-related
issues, as well as
between the center
and the states.
A lack of coordination and cooperation can also be seen in the effort to encourage power
generation from nonconventional sources. The senior bureaucrat responsible for the ministry
has pointed out that while such sources have immense potential, implementation
proves to be an obstacle “due to [the] multiplicity of agencies” and the lack of a uniform policy
framework across the states.110
Economic and energy analysts say that the fallout goes beyond delays, that the structure of
the government makes it slower to adapt to situations and tends to engender a piecemeal
response.111 Furthermore, they have described the government’s structure and its way of
functioning as “disorganized.”112 Some critics have even called for a “super political entity”
to oversee the functioning of the various related ministries and departments.113
Responding to some of these criticisms, in July 2005, the prime minister set up the Energy
Coordination Committee (ECC), as recommended by the “Synergy in Energy” panel, to
coordinate the government’s policy response and address India’s energy security concerns.114
Its membership includes the ministers of finance, power, P&NG,
coal and nonconventional energy sources, the chairperson of the
prime minister’s Economic Advisory Council, the deputy chairperson
of the Planning Commission, the national security advisor, and
the cabinet secretary. The ECC has met a number of times already,
with the principal secretary acting as convener. The planning commission’s
Energy Division conducts the prep work and policy analyses
for the ECC.115
Just as the ECC represents an opportunity for coordination at a
higher level, some have also suggested the creation of an inter-ministerial
task force at the joint secretary level—possibly coordinated
by an additional secretary from the Power Ministry. But these suggestions
seem to have been shelved for now.116 Because implementation
has been a problem, the planning commission also suggested
that the prime minister create a body that would “operationalize”
the policies being developed.117
The Companies
Two decades ago, a list of the companies involved in the Indian
energy sphere (especially in oil) would have been quite short and
dominated by the public sector. Today, as a result of the reentry and
rise of the private sector, it is much larger and still growing (figs. 6
and 7).
STATE-OWNED COMPANIES
Estimates are that Indian state-owned companies own and operate
75 percent of India’s energy assets and infrastructure.118 The level of
government ownership varies across these companies, as does their
profitability, quality of leadership and management, and function.
The Brookings Foreign Policy Studies Energy Security Series: India 28
Figure 7. Domestic Natural Gas Production
by Sector
Source: Ministry of Petroleum and Natural Gas, India
(petroleum.nic.in/petstat.pdf)
Public Sector Private Sector/Joint Venture
1995–96 2004–05
Figure 6. Domestic Oil Production
by Sector
Source: Ministry of Petroleum and Natural Gas, India
(petroleum.nic.in/petstat.pdf)
Public Sector Private Sector/Joint Venture
1995–96 2004–05
2% 98% 13% 87%
1.5% 98.5% 21% 79%
The latter used to be much more clear-cut, particularly when it came to the national oil companies
(NOCs); it was easy to categorize them as upstream, midstream, and downstream.
Increasingly, a number of NOCs have been transitioning to become integrated companies.
The major state-owned oil and gas companies include the Oil and Natural Corporation
(ONGC), its subsidiary ONGC Videsh Ltd., Oil India Limited (OIL), Gas Authority of
India Limited (GAIL), Indian Oil Corporation Limited (IOC), Bharat Petroleum
Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL).
(A brief survey of some of the major state-owned oil and gas companies is included in Appendix A).
Major state-owned non-oil and gas companies include Coal India Limited (CIL) and its
subsidiaries operate almost all the mines in the country. The Nuclear Power Corporation of
India Limited (NPCIL) constructs and operates all of India’s civilian nuclear reactors. The
National Thermal Power Corporation Limited (NTPC) is the state-owned thermal powergenerating
company that operates coal and gas-based power plants. The National
Hydroelectric Power Corporation Limited develops hydroelectric power projects.
RELATIONS BETWEEN THE GOVERNMENT AND STATE-OWNED COMPANIES
A government official noted that the government “provides general direction” to the stateowned
companies. Though experts believe that there have been positive changes in government-
company relations, there is some concern (even among a group of experts appointed
by the government) that these changes have been too “incremental.”119 Government interference
has lessened and the companies have become more independent. But the government’s
influence is still unmistakable. It can be seen in personnel appointments and
extensions, as well as in price setting and production targets, among other things.
State-owned companies in India are under the administrative control of designated ministries.
The oil and gas companies, for example, come under the MPNG. All state-owned
companies are not created equal, nor are they treated equally. Of the many state-owned oil
and gas companies, four—BPCL, HPCL, IOC, ONGC—have been designated navratnas
(literally this term means nine precious stones).120 This gives these companies a little more
financial and operational autonomy than other PSUs enjoy in their ability to form joint ventures,
strategic alliances, and subsidiaries; in the amount of capital expenditure they can
incur; in ensuring that each has an audit committee; and in the composition of their board
of directors.121
Personnel. The boards of the companies have both independent and government directors.
Since the government is the main promoter, it typically can nominate two persons on
the board, although this can vary. The government also has a role in approving the other
directors of the board. These so-called independent directors are eminent persons or professionals
appointed by the cabinet from a list put forward by the Public Enterprise Selection
Board (PESB). Assessments indicate that this has made for “quicker decisionmaking,”
brought in a fresh outlook, motivated employees, and improved overall performance in a
number of these companies.122
But there is widespread criticism that the boards of these companies are not truly empowered
and that appointments are politically motivated.123 Critics contend that the government
The Brookings Foreign Policy Studies Energy Security Series: India 29
role in their appointment means that even the independent directors are independent in
name only. The government also has the dominant role in appointing the management of
state-owned companies. Those appointing personnel have to take into account not just the
recommendations of the PESB and the preferences of the minister concerned, but often also
politics, regional, and union sentiment.
(For further detail on personnel, see Appendix B.)
Processes. There has also been concern (including by a government-appointed committee)
that the government continues to interfere in the day-to-day affairs of companies, particularly
in purchasing decisions, and this gives rise to accusations of corruption and delays. The
government persists in controlling most management travel, and a number of proposals—
even from the navratnas—still require approval. It also conducts quarterly performance
reviews of the companies.124
Production Targets and Pricing. The government also plays a role in determining prices
and production targets. Production targets for all navratna NOCs, for example, are set
annually through MoUs between the MPNG and the companies.125
The government also affects the pricing of products produced by the PSUs. Some companies
are affected more adversely—for example, companies marketing petroleum products,
which sometimes lament that they get the short end of the stick (while the upstream companies
suffer less from the burden of subsidies and artificially low prices). These OMCs—
like IOC, HPCL, and BPCL—sometimes have to sell their products below cost. This year,
for the first time, these companies reported losses in the first quarter as a result of the government
holding retail prices artificially low despite increasing global crude oil prices. While
the government attempted to offer them some aid, differences between the Finance and
P&NG ministries over what was acceptable delayed the process.
Benefits. Companies also derive benefits from their association with the government, as
many private sector players will be quick to point out. Therefore they may not want to totally
disavow their association, even if it sometimes seems as if leadership is straining at the leash.
Robert Manning, in fact, has called the relationship between the energy bureaucracy and the
state-owned companies “mutually reinforcing.” The government exercises control. The
companies get preferential treatment and still operate in a closed market.126 Even when markets
are cracked open a bit, the state-owned companies find it easier to absorb losses because
of government support. For example, in the downstream oil sector, private companies like
Reliance Industries Limited (RIL) and Essar—which priced their products at the high end
of government limits to avoid losses—have seen their market share fall since the end of
December 2005.127 However, state-owned companies have been able to sustain lower prices
(even at a loss) and gain market share.128 As mentioned above, the government issues oil
bonds to the state-owned oil companies to rescue their balance sheets from these losses.
PRIVATE ENERGY COMPANIES
A number of private energy companies operate in India today. In the oil and gas sector, these
include the Indian companies Essar Oil Limited (EOL), Reliance Industries Limited (RIL)
The Brookings Foreign Policy Studies Energy Security Series: India 30
and Videocon Industries. Foreign companies operating in the oil and gas sector include the
BG Group, BP, Cairn Energy Limited, and Royal Dutch Shell.
(For a more detailed overview of the major private energy companies operating in India, see Appendix
C).
Private energy companies operating in India, especially in the mid- and downstream oil sector,
continue to face the challenge of certain unfavorable government policies. Nonetheless,
their role across the energy sector is increasing. While some companies have tried and given
up on the energy sector, others are rediscovering it. Recent figures indicate that private sector
or public-private joint ventures control about 13 percent of oil production and more than
one-fifth of natural gas production. In 2004-05, the private sector owned a quarter of the
installed refinery capacity. They also marketed 15.2 percent of petroleum products; in 1990-
91 their market share was nil.
In general, the government is giving private companies a warmer welcome, and they are
becoming savvier players. Recently private firms demanded financial support from the government.
Both RIL and Essar asked for oil bonds like the ones PSUs receive from the
MPNG to support the burden placed on their retailing operations.129 In the past, RIL has
also demanded a discount on the crude supplied to them by state-owned upstream companies,
similar to discounts benefiting the downstream PSUs.
But these companies continue to tread cautiously and are careful to maintain good relations
with both the central and state governments (wherever they are operating). They still require
licenses from the government or approval for their development plans in the E&P sector.
RELATIONSHIPS AMONG THE COMPANIES
Although competitors, the state-owned energy companies are interlinked. As mentioned
above, there has been cross-holding across the PSUs since 1999 (though the government
recently said that PSUs could sell these holdings).130 Leadership and personnel move across
PSUs as well. For example, the former ONGC and the current GAIL chairman and managing
director originally worked at IOC.131 This is not an isolated case—in 2004 all the top
candidates for the job of IOC chairman and managing director in 2004 were either from one
of the other oil and gas PSUs or from IOC itself.132
While the government has already restructured some of the state-owned companies (IOC,
for example, bought out retailer IBP and refiner BRPL), there have been other proposals to
merge the PSUs, but these have been dismissed. Instead the government seems more
inclined to suggest policy and management improvements to strengthen individual companies.
133 But it is not all smooth sailing—a former minister, for example, talked of “serious
personality clashes among the honchos” of the companies.134
State-owned companies are being encouraged to develop partnerships with other PSUs as
well as the private sector. They are already doing the latter—ONGC and Mittal Investment
SARL are working together, as are GAIL and RIL. Private and public sector companies are
submitting joint bids and working together in consortiums for E&P projects. In the pro-
The Brookings Foreign Policy Studies Energy Security Series: India 31
In general, the
government is
giving private
companies a
warmer welcome,
and they are
becoming savvier
players.
gram allotting blocks for E&P: GAIL and Gazprom; ENI, ONGC, and GAIL; and Cairn
Energy and ONGC took up stakes in the same exploration blocks. In the last round of the
program, seven of eighteen blocks were awarded to such consortia, with the private sector
partners acting as operators in five of the seven. They bring better technology and knowhow
to the table; the PSUs bring access and local knowledge. Personnel recruiting creates
another linkage. Private sector companies hire executives from firms like IOC (as RIL and
Essar have done).
Other Stakeholders
Other stakeholders can (and do in varying degrees) affect decisionmaking on energy issues
in India:
■ The judiciary in India can play a role. The Supreme Court, for example, affected the
demand side by specifying emission norms in Delhi and Mumbai. But its “activism”
tends to be limited and ad hoc—it is dependent on someone filing suit. The number of
petitioners, however, is increasing.
■ Unions and other political interest groups can also influence issues like privatization.
■ The environment lobby has the ability to derail projects.
■ Think tanks can affect the debate as well. The Energy and Resources Institute (TERI),
formerly the Tata Energy and Research Institute, is India’s most prominent and influential
energy-related think tank. Many consider TERI to be a world-class organization,
and it has offices across India as well as overseas. Central and state governments in India
have frequently consulted TERI, and it has played a major role in shaping Indian debate
over energy, environment, and sustainable growth. The Centre for Fuel Studies and
Research and the RIL-backed Observer Research Foundation (ORF) are also well
known in this field. ORF has conducted specialized research on energy modeling in
cooperation with the Brookings Institution. Some of the results were used by the
Planning Commission in its draft report on an integrated energy policy. The Indian
government consults with other think tanks on an as-needed basis. For example, it
included the Institute for Defense Studies and Analyses (which it funds) in discussions
about the need for a strategic petroleum reserve.135 Economics-focused think tanks like
the National Council of Applied Economic Research can also affect the debate.
■ Domestic and international financial institutions play a role through existing and potential
funding of projects.
■ The media is increasingly vocal about India’s energy scenario and is quick to criticize the
government and companies for what it sees as their shortcomings in this regard.
■ Indian consumers voice opinions through their vote, consumer groups, or litigation.
There is skepticism in some quarters—especially from stakeholders outside the government
and public sector—about the state’s ability to deal with the energy challenge. Some have
said that the legacy of state control and economic nationalism has biased policy and limited
its ability to deal with these challenges.136 Others criticize the “lack of technological dimension
in India’s energy decisionmaking.”137
The Brookings Foreign Policy Studies Energy Security Series: India 32
There is also a feeling that lack of interaction and coordination within the government is
rivaled only by the lack of interaction with stakeholders outside the government. And some
of these stakeholders have criticized the government for not reaching out to them.138 A leading
analyst has pointed out that that it will be harder to gain support for energy policies if
key stakeholders are not included in the decisionmaking process.139
The government does reach out at times—a case in point is the Planning Commission constituting
a committee to draft a report on integrated energy policy. The group consisted of
representation from some states, economic and energy research institutions, financial institutions,
and the business community.
A Strategy?
India does not have an overarching energy strategy—instead it has a number of disparate
policies. Because many politicians and analysts use the terms “strategy” and “policy” interchangeably,
it is not always an obvious distinction. Separate vision statements have
emerged from the different energy-related ministries and departments. The Hydrocarbon
Vision 2025 report, for example, focused exclusively on oil and gas. Even within ministries,
the emphasis tends to be on specific and limited polices rather than a long-term, integrated
strategy. A former minister remarked that his job was “to make policy for next year,”140
which begs the question: whose job is it to make strategy?
The current prime minister has said that India “must learn to think strategically,” however,
there is a good deal of debate about whether an energy strategy is essential.141 Having a number
of policies is not thought to be a bad thing in and of itself. Meeting the country’s energy
needs is considered a complex problem, requiring different solutions. “There is no silver bullet,”
is a common refrain—especially in a country with intricate internal politicking and an
energy sector that is neither purely market-driven nor entirely state-controlled.142
While there continues to be debate about whether an overarching strategy is necessary,
India’s decisionmakers recognize that—at the very least—the country’s disparate energy
policies need to be integrated. This notion has proved problematic so far.143 There has been
little indication of how policies should be prioritized, no plan for funding them, and often a
gap between policymaking and implementation.
Despite these incongruities, there does seem to be a dominant policy trend toward diversification
of sources, suppliers, pricing, and technologies. Diversification is also evident in the
number and variety of proposals to increase energy security for India. At its most basic level,
policy diversification offers India more options, not just in terms of energy security, but in
foreign policy as well. Pursuing multiple tracks also helps ensure that India is not affected
by area-specific shocks.144
Policy diversity is not just a question of choice, but of necessity. A number of decisionmakers
admit (though perhaps not publicly) that growing energy demands require India to
explore every option—because it must, not necessarily because it wants to. This trend is evident
in India’s oil-related policies, which this paper examines in Part 2.
The Brookings Foreign Policy Studies Energy Security Series: India 33
India does not
have an overarching
energy strategy—
instead it has
a number of
disparate policies.
Part 2. The Search for Oil
A Brief History of India and Oil
The quest for oil in India started in the 1860s with exploration in Assam, in the northeastern
part of what was then British India. The Assam Railways & Trading Company
Limited (AR&T) made the first commercial discovery in that region at Digboi
in 1889.145 In 1899 the Assam Oil Company (AOC) was formed to take over AR&T,
which in turn was taken over by the Burmah Oil Company (BOC) in 1921.
Before 1947 only two companies operated in British India—AOC-BOC in the Northeast
and the Attock Oil Company in the Northwest. Following independence, the Indian government
issued the Industrial Policy Resolution (IPR) of 1948, which laid out its approach
to industrial growth and development and highlighted the need to develop the country’s
petroleum industry. Seven years later the government set up the Oil & Natural Gas Directorate
under the Ministry of Natural Resources and Scientific Research to develop natural
resources within the country. In 1956 the government elevated the Directorate to a commission,
which gave it additional powers and made it independent of the ministry (toward the
end of the decade the government assigned it even greater powers).146 In the same year,
another IPR placed the mineral oils industries under Schedule-A, which meant that the state
would undertake all new development in this industry (with a few exceptions).147
The Government of India went into the oil business during the 1950s via a joint venture
with Standard Vacuum Oil Company in 1955 for exploration in West Bengal (which was
unsuccessful). Then in 1959 it formed OIL and held a one third ownership, with AOCBOC
owning the rest of the company. A couple of years later, the government increased its
ownership to 50 percent.
The importance of oil in Indian planning grew over time (fig.8). The initial two Five-Year
Plans (covering the 1950s), laid out development programs for various sectors—planning for
oil was subsumed under the larger section on “Development of Mineral Resources.” By the
third Five-Year Plan, this section evolved into “Minerals and Oil.” By the sixth Five-Year
Plan (starting at the end of the 1970s), “Energy” was finally entitled to its own section, which
now covers planning for India’s oil needs.
In the 1960s and early 1970s, the government tried to attract private investment in exploration
to India, welcoming in a few foreign companies (including Carlsberg, and Reading
and Bates), almost all of whom withdrew after being unsuccessful.148 In 1974, though, the
Oil and Natural Gas Commission made the first offshore discovery at Bombay High.
The 1970s was a busy decade in the region. It started with a war between India and
Pakistan, during which foreign oil companies suspended supply to the Indian military. The
first oil crisis followed in 1973–74, during which foreign producers maintained supplies to
“friendly states.” India found that it was not one of them. Its import bill rose, as did inflation,
which in 1974–75 reached 25 percent. At that time, however, India did not import sig-
The Brookings Foreign Policy Studies Energy Security Series: India 34
nificant amounts of oil, and analysts assert that its rising inflation was due more to drought
than the oil price spike.
In 1974 and 1976, Prime Minister Indira Gandhi nationalized Esso and Burma Shell (Caltex
and IBP were also nationalized). She formed the Oil Coordination Committee to ensure
a steady oil supply and keep prices stable, and introduced the Administered Pricing
Mechanism to set the price of petroleum products.
By the second oil shock in 1979, India was importing a greater quantity of oil and suffering
again from drought. As a result, India’s GDP shrank by 5.2 percent following the oil crisis.
More companies were nationalized following this shock, including OIL in 1981.149
During the years 1970–81, the country imported two thirds of its oil needs. By the mid-
1980s the balance had flipped, with two thirds of oil coming from indigenous sources.150 But
the domestic oil sector went through a period of stagnation with little competition, increasing
inefficiency, outdated technology, and less than adequate funding. By the beginning of
the 1990s, India was again more dependent on imported oil.
In 1990–91, India’s economy was already suffering. When the first Gulf War sent oil prices
above $40 a barrel, inflation in India topped 13 percent. Furthermore, with barely $1 billion
in foreign exchange reserves, India’s balance of payments went deep into deficit.151
Spurred by this shock, the government decided to open up the E&P sector to private investment.
As part of the restructuring, in 1993, the Oil and Natural Gas Commission was incor-
The Brookings Foreign Policy Studies Energy Security Series: India 35
1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
0
20,000
40,000
60,000
80,000
100,000
120,000
Thousands of Tons
Heavy Fuel Oil Middle Distillates Aviation Fuels Gasoline LPGa Other Products
a. Includes LPG, NGL, ethane, and naphtha.
Source: IEA Energy Statistics (www.iea.org/Textbase/stats/noncountryresults.asp?nonoecd=India)
Figure 8. Evolution of Oil Products Consumption in India from 1971 to 2003
porated. From 1993 to 1997, the government awarded twenty-eight blocks to private companies
or joint ventures for exploration; eighteen remain in operation today. While the government
invited private players into E&P during this period, there was little interest because
of what remained a poor investment climate. In 1997, as India’s dependence on imported
oil continued to grow, the government introduced the New Exploration Licensing Policy to
encourage greater private sector participation (discussed in detail below).
While nuclear energy is increasingly a topic of discussion in India, oil continues to dominate
the country’s dialogue about energy. There is special anxiety about oil prices, India’s dependence
on oil, and the country’s lack of domestic reserves. Although not unanimous, this concern
is widespread. Because oil is viewed as “a strategically indispensable mineral” for “any
economy,”152 there is fear that lack of affordable and reliable supplies of oil can put the brakes
on India’s growth. Recently, a financial daily starkly presented the question, “Will India skid
on oil prices?”153
Today, India is attempting to close the gap between the demand and supply of oil through
what one observer has called “a series of measures.”154 On the supply side, this includes
encouraging domestic exploration and production, acquiring upstream assets abroad, oil
diplomacy, fuel diversification, maintaining strategic oil stocks, and regulatory reform. On
the demand side, this comprises regulatory reform, rationalizing prices and taxes, fuel substitution,
and conservation and efficiency measures.
Supply-Side Policies
Ironically, India’s supply-side oil policies are decidedly Churchillian. Churchill’s thoughts
on oil—“on no one quality, on no one process, on no one country, on no one route and
on no one field must we be dependent. Safety and certainty in oil lie in variety and variety
alone”—are shared in India 155 The rider in India’s case is “on no one fuel must we be
dependent.” And Indian policymakers have taken a number of steps to try to ensure that
India achieves each of those goals.
Domestic Exploration and Production (E&P)
As noted above, India’s domestic oil production figures have been dismal and unable to keep
up with demand. ONGC, India’s largest producer, has decreased production over the last
few years. While its profits have grown, it failed to meet its production targets during
2005–06, falling short by 8 percent.156 There was a major disruption last year due to a fire at
the offshore Bombay High field, which accounts for a significant portion of ONGC’s production.
The shortfall had to be made up through increased imports.157 With ONGC
accounting for three-fourths of India’s domestic crude output, its poor domestic production
performance has had a significant impact.158
ONGC has also had a poor record of discoveries of late. The discoveries it has made do little
more than replace the existing fields that have been going offline.159 Former petroleum
minister Aiyar even mocked ONGC for being unable to find new fields while others, like
Cairn Energy, have made discoveries. He accused ONGC of focusing more on foreign
The Brookings Foreign Policy Studies Energy Security Series: India 36
. . . there is fear
that lack of
affordable and
reliable supplies
of oil can put
the brakes on
India’s growth.
activities than domestic ones (a criticism often leveled at him as well). Critics from other
quarters have stated that ONGC’s ventures into retail and other services have also taken
away from its core business of E&P, which is suffering from lack of attention and
resources.160 ONGC’s discovery-to-exploration record from 2000 to 2005 stood at 42 percent,
while others, like RIL and Cairn, had far better records of 71 percent and 80 percent,
respectively.161 But even their discoveries have been few and far between.
In addition, a number of areas that could hold potential reserves have not been explored. As
of 1999, only six of India’s twenty-six sedimentary basins had been explored in depth.162
The government has tried to increase domestic exploration and production through at least
three different policies designed to:
■ encourage investment,
■ strengthen the NOCs, and
■ improve recovery.
Encourage investment. In 1997–98, India’s NDA coalition government realized that the
state-owned companies did not have sufficient technological or financial resources, as banks
are often unwilling to finance exploration ventures in India. Private investors—both foreign
and domestic—were also put off by the operating restrictions in India’s oil and gas sector.
Accordingly, the government instituted the New Exploration Licensing Policy (NELP) to
encourage investment in the E&P sector. Since then five licensing rounds have been completed
and a sixth is underway. The Directorate General of Hydrocarbons—the de facto
upstream regulator—monitors implementation of the policy.
NELP aims to fast track the government’s system for awarding oil and gas exploration
licenses and to provide greater transparency. In theory, it provides equal treatment to public
and private sector companies, paying market-driven prices for the crude they produce. It
also provides tariff concessions for companies. NELP does not require that proposed energy
projects include state participation or a minimum investment commitment.
Once the government announces a licensing round, they accept bids for six months. To
attract foreign companies and funding, petroleum ministers routinely go on international
road shows. For the current round (February–September 2006), the minister or ministry
officials have visited Australia, Canada, Dubai, Malaysia, the United Kingdom, and the
United States. Their pitch can sometimes be exaggerated—a former minister admitted to
an audience of former diplomats that his referring to the Bay of Bengal as South Asia’s
North Sea in a briefing to foreign investors was “hype.”163
It takes two to four months to announce the winners after the bidding is closed. It then
takes about two months to negotiate and finalize production sharing contracts with the
winning companies or consortiums.164 A company is given a specific period of time to
explore a block. If a discovery is not made within the specified time frame, either the company
has to file for an extension or the block reverts back to the government, which can then
The Brookings Foreign Policy Studies Energy Security Series: India 37
put it up for sale again. If a company does not make promised investments, the Directorate
General of Hydrocarbons can also recommend to the Ministry of Petroleum and Natural
Gas that the company be asked to surrender its blocks, as happened recently with RIL and
ONGC.
NELP has been seen as a way of bringing in much-needed technology, skill, and capital to
the E&P sector. Initial interest was limited partly due to bad timing—oil prices were low
at the time and demand was slow. There were also delays due to the still complex bureaucratic
process and a lack of clarity on the tax structure. MPNG delayed announcing tax
incentives. When it did make an announcement, the Ministry could not get the Income Tax
Department to approve some of the tax features in time (including equalizing corporate tax
with the NOCs’ rate, which was 10 percent lower).
NELP has attracted greater attention recently. Three years ago under the offer of twentyfour
blocks for NELP-IV, the government received forty-six bids; last year, under NELPV
offering twenty blocks, there were sixty-nine bids; and in the round ending in September
2006 that offered fifty-five blocks, there were 165 bids. Cairn Energy’s 2005 discovery of oil
in the Mangala field in Rajasthan (which is expected to be producing by the end of 2007)
as well as the spike in oil prices has sparked somewhat more interest. The number of private
(particularly foreign) participants in bidding has especially increased in the recent rounds
(fig. 9).165 Of the sixty-six companies bidding in the sixth round, thirty-five are foreign.
While a greater number of companies want to participate, progress has been limited. In the
current round, despite government expectations, with a few exceptions, the oil majors stayed
away. Of the 165 bids in NELP-VI, 110 came from the public sector. Potential foreign
investors do not perceive India as having much oil; they have preferred to put their money
The Brookings Foreign Policy Studies Energy Security Series: India 38
0
5
10
15
20
25
30
NELP I NELP II NELP III NELP IV NELP V
Figure 9. Profile of NELP Bidders
Source: Data from Directorate General of Hydrocarbons and Press Information Bureau, India
Number of Bidders
PSUs Private (Indian) Private (Foreign)
NELP has been
seen as a way of
bringing in muchneeded
technology,
skill, and capital to
the E&P sector.
into safer bets. This appears to be true of Indian companies as well—in fact, the NOCs
seem to be increasingly focused abroad, where they consider returns to be better.
Furthermore, there have been delays in awarding contracts and little or poor seismic data
available. Delays in gaining required approvals from other departments like the Ministry of
Environment and Forests have also frustrated the participants. Regulatory procedures are
still unclear and concerns remain that despite its best intentions, the Indian government is
loath to give up total control. The majors thus have stayed away (except for BP), though
smaller independent companies have continued to take part in the bidding process.
Private players are concerned about political changes and how they might affect their interests.
There is also a perception that state-owned companies still get preferential treatment
and better acreages. This was the case initially, at least, when state-owned companies were
awarded what were considered the best blocks and the rights to more than 60 percent of all
the blocks offered in the second, third, and fourth rounds (fig. 10). On the other hand, they
were not offered some of the concessions and terms that private participants were given and
state-owned companies had to sell their oil at a much lower rate at home than on the global
market.166 Some analysts argue that state-owned companies’ success in bidding rounds
might owe in part to their knowledge of how the system works. This has, in fact, led to a
number of private companies submitting joint bids with the NOCs and in the fourth and
fifth rounds, 25 and 39 percent respectively of the blocks were awarded to such consortiums.
The government meanwhile is learning along the way—in the recent round, it obtained
environmental clearances in advance for the blocks being offered. It is also considering an
open acreage policy, which would make blocks available year-round outside the NELP
framework.
The Brookings Foreign Policy Studies Energy Security Series: India 39
0
10
20
30
40
50
60
70
80
NELP I NELP IIa NELP IIIa NELP IV NELP V
Figure 10. Blocks Allocated in NELP Rounds by Sector
a. Blocks allocated to Public-Private JVs in NELP rounds II and III equalled zero.
Source: Data from Directorate General of Hydrocarbons and Press Information Bureau, India
Blocks Allocated (percentage)
To PSUs To Private Companies To Public-Private JVs
Strengthen the National Oil Companies (NOCs). While the navratna NOCs have
tended to generate profits, some consider them inefficient and uncompetitive. There are
indications that these NOCs need improved exploration technology, better management,
and the ability to meet global benchmarks for efficiency. Some have suggested that if the
government reduced its role (by setting up a holding company to manage its interest), this
could strengthen the NOCs and allow them to attract better talent and make better
alliances.167
The companies have been losing talent to the private sector due to uncompetitive salaries
and benefits. The administrative ministries recognize this problem, though reform on this
front has been slow—to the extent that the 45,000 officers in the oil public sector undertakings
(PSUs) have threatened to go on strike because of their compensation.168 This state
of affairs is partly a result of the nature of the Indian system—even if one ministry (the
MPNG in this case) recognizes the problem, it is the Department of Public Enterprises (in
the Ministry of Heavy Industries) that has to agree to a hike in salaries.169
Although there tends to be political agreement on the need to reform the state-owned companies,
the main political parties disagree about how to achieve reform.170 While the previous
NDA coalition government had a Ministry of Disinvestment and privatized some
state-owned companies, the UPA coalition government has stated in its National Common
Minimum Programme (the coalition’s manifesto) that no profit-making PSUs would be
privatized. In other words, the government would not reduce its stake to below 51 percent.
Instead, it intends to reform PSUs. Following the UPA line, the new Petroleum Minister,
Murli Deora, has pledged to make the state-owned oil companies competitive with industry
leaders, listing this as one of his highest priorities.171
Improve recovery. There is also a push to get better recovery from existing fields. ONGC,
for example, is aiming to improve its recovery factor from 28 percent to 40 percent. There
are plans for greater investment, including $2 billion in fourteen oilfields as part of an
Enhanced Oil Recovery program.172 OIL plans both to develop discovered fields faster and
increase recovery from existing fields and has set higher targets for the future.173
Increased domestic exploration and production alone, however, are unlikely to quench
India’s thirst for oil. A former petroleum minister acknowledged that even if more oil is
found, India will likely find further use for it; therefore, the country would have to continue
to look abroad for additional sources.174
Acquisition of Upstream Assets Abroad
There is increasing concern about India’s susceptibility to volatile international oil prices
because of its dependence on foreign oil. But the solution proposed by a number of decisionmakers
and experts—and being implemented by Indian NOCs—also seems to lie
abroad in stakes in overseas E&P companies and equity in oil and gas blocks.
There is some debate about the wisdom of this policy. Some decisionmakers consider equity
oil cheaper and therefore “worthwhile” to acquire.175 They believe that equity oil abroad will
The Brookings Foreign Policy Studies Energy Security Series: India 40
Although there
tends to be political
agreement on
the need to reform
the state-owned
companies,
the main political
parties disagree
about how to
achieve reform.
“ensure cheap and reliable oil supply” and they point to OVL getting equity oil at $10 to $14
a barrel.176 The NOCs have ambitious plans—OVL has set a long-term target of producing
60 million tons of oil a year from overseas properties by 2025. ONGC aims to double
its reserves by 2020,177 with 20 million tons coming from OVL, which has spent about $4.5
billion abroad. These targets have already been pushed back from those set in 2004, when
the aim was to produce 20 million tons by 2010.178
Critics point out that currently only 3.23 million tons a year of equity oil from Sudan is coming
into the country. They assert that instead of spending money and other resources on
acquiring assets, one should invest in solutions like improved technology.179 Other critics
contend that India would be better served by concentrating on building foreign exchange
reserves to pay for imported oil.180
Estimates are that only 25 percent of India’s oil needs could be met even if all its companies’
overseas assets were producing oil.181 There are also occasional murmurs of concern that
acquisitions abroad cause companies like ONGC to divert their resources and attention
away from investing domestically. For example, ONGC had to provide an offshore rig to
OVL for drilling in the Farsi block of Iran.182 Detractors contend that the companies are
merely using the rubric of “energy security” to get government (and public) support for these
investments. Interestingly, when asked about how the companies fit into the quest for
Indian energy security, the chief of a major state-owned company replied that it would be a
question best answered by the petroleum minister.183
From the companies’ point of view, these efforts reflect a desire to both expand supply and
enhance revenue. Even detractors acknowledge that, at the very least, this policy provides
better returns for companies like ONGC than their investments at home.
There are officials who point out that while it is definitely not “the silver bullet,” acquiring
upstream assets abroad is a “necessary but not sufficient” element of India’s oil security strategy.
They explain that India must pursue every possible option to diversify sources of supply
(adding that even if these investments do not bring oil, they offer solid returns). But they
acknowledge that all this will be of little help in a real crisis.184
There has been criticism and concern from abroad about some of India’s international deals.
The oil majors see Indian companies (like Chinese ones) as making transactions on terms
that they would not find commercially viable or winning deals because of their government’s
support.185 The Indian government and companies argue that such arrangements provide
much needed investment in the oil sector. Critics counter, however, that while the Indian
NOCs bring funding, they do not have access to advanced technology that would ensure
that these overseas resources are exploited to their maximum potential.
With more than $160 billion in foreign exchange reserves in the bank, whatever the criticism,
the Indian government has given state-owned companies its blessing to go forth and
explore. And they have done so. Box 3 shows selected activities of various Indian companies
abroad, by region.
The Brookings Foreign Policy Studies Energy Security Series: India 41
THE PROCESS
Proposals for acquiring stakes or assets are usually generated by the interested companies,
though sometimes Indian embassy officials alert them about possible opportunities.
Overseas projects proposed by a state-owned company that are above a certain amount must
be approved by the government (the amount depends on what kind of company). This is
not simply a formality—in September 2004, OVL lost out to China in acquiring producing
assets in Ecuador (producing 75,000 bpd) when the government did not let it raise its bid
of $1.4 billion. In December 2005 the government also blocked OVL from acquiring a
The Brookings Foreign Policy Studies Energy Security Series: India 42
Acquisitions—Selected Activities of Indian Companies Abroad
(For a more comprehensive list, see Appendix D.)
Africa
Egypt. OVL has a 70 percent stake in the North Ramadan Block, as well as a 60 percent stake in Block 6.
Sudan. OVL made a one-time investment of $690 million186 for a 25 percent stake in the Greater Nile Oil Project (GNOP). ONGC
created a subsidiary in the Netherlands, ONGC Nile Ganga BV, to manage what is its first producing overseas oil property. It produces
300,000 bpd.187 India gets about 3 million tons of crude oil annually from this property.
The Americas
Brazil. (in the pipeline) Making an entry into South America, OVL will be acquiring a 15 percent stake of Block BC-10 in Brazil
from Royal Dutch Shell (which operates the project) for $170 million. The field is expected to begin production in 2009; OVL is
paying another $234 million in development costs. Shell blocked its attempt to purchase double the stake. The field has a production
potential of 100,000 bpd.188
Canada. (in the pipeline) Indian companies are looking to invest $1 billion over the next year in oil sands in Canada.189
United States. OIL acquired 100 percent equity shares of Sakhalin India Inc., which has a 10 percent participating interest in
the North Hellhole Bayou Prospect in Vermillon Parish, offshore Louisiana.190
Asia-Pacific
Australia. OVL has a 55 percent stake in Block WA 306P. Videocon and GSPC equally share a 40 percent in Block EPP 277.
Vietnam. OVL acquired 100 percent rights to offshore Blocks 127 and 128.
The Middle East
Iran. In 2002 Indian companies acquired the rights for the offshore Farsi block and signed an exploration service contract with
the National Iranian Oil Company. OVL is the operator and has a 40 percent stake in the block; OIL owns 20 percent and IOC
40 percent.191 Drilling began recently.192
Iraq. OVL has full exploration rights to Block 8.
Syria. OVL has a 60 percent stake in Block 24. OVL, jointly with CNPC, has acquired PetroCanada’s stake in thirty-six producing
fields in Syria (the OVL-CNPC joint venture is called Himalaya Energy Syria BV).
Russia and Eurasia
Russia. OVL has a 20 percent stake in the Sakhalin–1 Production Sharing Agreement and has invested $1.77 billion in the offshore
field—the single largest foreign investment by India in any overseas venture. ONGC has announced that the field will
begin producing in October 2006.
45 percent stake in Nigeria’s Akpo field—which is expected to begin production in 2008—
on security grounds. The China National Offshore Oil Corporation (CNOOC) picked up
the stake instead.
There is a good deal of unhappiness on the companies’ part when this occurs. According to
some observers, the government has a tendency to be more focused on security considerations,
while the companies are more focused on commercial considerations. However, security
presents real concerns—for example, there have been reports of work having been
delayed in one of OVL’s Sudanese blocks for security reasons.
SETBACKS
The companies have had a number of other setbacks as well. OVL has drilled dry wells in
Australia, Libya, and Cote d’Ivoire. They have also lost out to other companies (often
Chinese) on a number of bids. In 2004 an Indian company lost Block 18 in Angola to a
Chinese firm. In August 2005 OVL lost the opportunity to acquire majority stakes in two
blocks in Nigeria to the Korean National Oil Company, despite a higher bid.
In August 2005 ONGC-Mittal Energy Limited (OMEL) lost a bid to CNPC for
PetroKazakhstan despite making a higher bid ($3.6 billion vs. the $3.2 billion offered by
CNPC). There was much consternation in Delhi about the bidding process (especially when
OMEL was denied an opportunity to rebid) along with speculation about what China had
offered to sweeten the deal. There may have been legitimate reasons for OMEL having lost
the bid despite having made a higher offer—China and Kazakhstan share a border, so it
would be easier to export the oil; in India’s case, the oil would have to be exported through
Russia.193 Most recently, in June 2006, OVL lost out to Sinopec for the producing OAO
Udmurtneft fields in Russia.194
There is a feeling that such setbacks are due to India’s late start in the acquisitions game, as
well as its lack of ability and willingness to offer more direct and indirect incentives.
Something of a blame game is often played out in the media; the companies have learned
how to use the press to berate the government for every deal they lose. The race to acquire
assets has generally captured the imagination of the media, which follows the matter closely,
sometimes chiding the government and sometimes the companies for losing out on bids.
They often ask whether India is being aggressive enough.195
There is a widespread feeling that India lags behind China196 and a perception that Chinese
companies get the benefit of quicker decisionmaking. When OVL lost out to KNOC in
Nigeria, company officials blamed the government for not clearing its $1.4 billion bid in a
timely fashion.197 Other reports indicated that it was also because the KNOC offer came
with a South Korean pledge to invest more in infrastructure. Former ONGC chairman and
managing director Raha had publicly complained that India has lost out on deals because of
bureaucratic red tape—one of the reasons that apparently spurred the public-private partnership
between ONGC and Mittal that gained some exploration blocks in Nigeria.198
The Brookings Foreign Policy Studies Energy Security Series: India 43
There is a feeling
that setbacks are
due to India’s
late start in the
acquisitions game,
as well as its lack
of ability and
willingness to offer
more direct and
indirect incentives.
There are certainly problems on the government side with delays and a lack of coordination.
A minister once remarked that the biggest hurdle to overcome to win overseas deals is the
government of India: “dealing with foreigners is always a cakewalk compared to dealing with
our own ministries.”199
Others say that the spotlight should extend beyond government shortcomings to the companies
as well. Some quarters of the government have suggested that Indian companies are
not as competitive as their Chinese counterparts—in fact, the idea to merge the various
NOCs into a few major companies was suggested, in part, to close the gap between the competitiveness
of the two countries’ firms.
Critics compare Indian companies to their Chinese counterparts and find them lacking networks
and presence in producing countries. Indian firms do not yet have an extensive network
of permanent offices in countries of interest. An observer cites an official at the Indian
Embassy in Kazakhstan who pointed out that OVL did not have any offices there, while the
Chinese companies did.200 Companies are also criticized for not having developed local
knowledge in a number of regions.
Outside observers are even more forceful, stating that both the government and the companies
have “lousy game plans, obsolete strategies, and a parsimonious mindset.”201 Both lack
specialized teams of technical and business-savvy professionals to plan and undertake bids
on projects (though the Indian companies do not lack experienced and trained professionals
to embark on the projects). A number of Indian NOC bids have been submitted
without offers of aid or investment or with offers that pale in comparison to those from other
countries. In Angola, for example, China promised development assistance totaling $2 billion,
whereas India offered to undertake a $200 million rail project.
There has also been criticism about the lack of guidelines surrounding acquisitions as well
as suggestions for more rigorous and regular assessments to decide which projects to undertake
and which to offload. Parliamentary oversight has also been proposed, but companies
would be apt to argue that such an arrangement would slow the process even further.202
A STRATEGY?
Setbacks do not seem to have dissuaded Indian companies; they have changed and adapted.
The NOCs have taken a few steps to be more competitive. OVL was formed as an ONGC
subsidiary in 1996 to focus on acquiring and developing overseas assets. Late last year, the
government decided to form a comparable unit under OIL, with similar financial powers.203
The NOCs have also formed partnerships with other domestic and foreign companies, both
public and private. In December 2004 IOC-OIL formed a consortium, in which OIL acts
as operator. In July 2005 ONGC and Mittal decided to jointly pursue oil and gas projects
(exploration, development, and production-related activities) in Central Asia and Africa.
With Mittal having a presence in Malaysia, Indonesia, CIS, and Angola, this partnership
offered some advantages.204 In December 2005 RIL and CNOOC agreed to explore for oil
in Africa together. And in January 2006 Shell Exploration and ONGC signed an MoU.205
The Brookings Foreign Policy Studies Energy Security Series: India 44
In January 2006 Chinese and Indian NOCs also agreed to bid jointly for stakes in companies
and blocks as part of a larger set of cooperative energy agreements signed by India and
China. According to former petroleum minister Aiyar, the motivation for cooperation was
that the two countries had “realised that when we compete in an unhealthy manner to
acquire oil fields in third countries, we only end up driving costs for each other . . . . We
have ended up paying billions of dollars more by trying to outbid each other everywhere.”206
Neither country views the relationship as exclusive. They have more of an understanding
than an agreement, and it seems to operate on a case-by-case basis—even the former minister
said that in practice the countries would “in some case[s] bid against each other, in
some case[s] bid together.” There was talk about setting up “some form of a mechanism of
mutual consultation regarding third-country properties,” but this has not yet materialized.207
There also seems to be a clearer interest in cooperating on India’s part. And China might
eventually decide that it is better to partner with the oil majors. Even within India, many
considered the MoU merely a pet project of the petroleum minister at the time, and therefore
not apt to generate much activity.
The state-owned companies are learning to cope with the challenges of dealing with local
politics, leaders, and social groups who want to have a say in how they develop these ventures.
As part of this process, the NOCs are developing new projects in host countries—
OIL, for example, runs an E&P consultancy service in Nigeria, helping
companies—including local ones—evaluate and submit bids (though this service has
recently run into trouble).208 OVL is taking up refinery upgrades and pipeline contracts in
Sudan, and private company RIL has decided to take a 30 percent stake in a refinery construction
project in Yemen.209
Private Indian companies are getting into the act as well and are organizing themselves
accordingly. Reports indicate that RIL has created a twenty-person group that will search
for potential investment assets in Nigeria, Congo, Cameroon, Mauritania, Namibia, Ivory
Coast, Gabon, Sierra Leone, Guinea Bissau, and Angola.210 The company tends to create
local subsidiaries for its international operations to minimize friction and manage more efficiently.
RIL is also being careful not to compete directly with ONGC—part of the reason
might be that they do not want to run up against government interests, especially since most
of their refinery output still goes to the state-owned OMCs.
The government clearly sees the acquisition of upstream assets abroad as a priority and realizes
that better integration on its part is needed. The first meeting of the ECC focused primarily
on overseas activities and the need to acquire additional assets to meet shortages.211
Though much remains to be done, procedural progress has been made over the last few
years. And there is growing recognition that more active diplomacy and different kinds of
investment may be required to clinch deals. This may include offering more capital, skills,
and technology, for example, to improve roads or power infrastructure.212
Oil Diplomacy
“Oil diplomacy” has become a catchphrase in government circles in Delhi—not just in the
MPNG but also in both North Block and South Block, where the ministries of Finance and
The Brookings Foreign Policy Studies Energy Security Series: India 45
The government
clearly sees the
acquisition of
upstream assets
abroad as a priority
and realizes that
better integration on
its part is needed.
External Affairs are housed. The business sector is not far behind with the chairman of Shell
India calling for the creation of a cadre of “oil diplomats . . . people who can combine professional
understanding of the industry with the capability to work across different cultures
and a plurality of sovereignties.”213 Former petroleum minister Aiyar even formed a group to
advise the government on oil diplomacy.
India is out to woo oil producers and, more broadly, energy suppliers. Former minister Aiyar
has said that oil diplomacy is aimed at “mitigating the risks of our inevitable and growing
dependence on imported hydrocarbons.”214 His comments highlight India’s intention to use
oil diplomacy to achieve diversified sources of supply (as well as supplement its current
sources).215 The country’s dependence on Middle Eastern oil is considered a “critical bottleneck.”
216 Some policymakers think that this dependence has restricted India’s foreign policy
and created economic vulnerability. They point out that India’s support for Arab nations as
well as Iran over the last five decades (while keeping Israel at arm’s length, though this has
changed more recently217) has not just been a consequence of historical ties or the sensitivities
of its large Muslim population. It reflects the fact that India’s leaders realized long ago
that the country would need Middle Eastern oil.218
There is a sense that in an oil crisis, relationships will count for more than ownership of
assets. For the time being, oil diplomacy is intended to help on a number of fronts: aiding
Indian companies to win deals, ensuring secure supply, laying the groundwork for cooperation,
attracting investment and technology, and encouraging investment from producer
countries in India’s downstream sector to ensure that they have a vested interest.
Diplomats and petroleum ministry officials point to instances where diplomacy has borne
fruit. In early 2005 Saudi Arabia invited India to set up a refinery. It also prequalified
ONGC to bid for projects to develop oil fields. Oman offered to consider HPCL’s request
for 10,000 bpd of oil, to take another look at the LNG contract previously held by Enron,
and to consider continuing to provide LNG to those now running Dabhol.
Some officials also point to India’s relationship with Venezuela as a successful example of
diplomacy. The two countries signed an energy cooperation agreement in March 2005.
Hugo Chavez visited India the following month when he announced that Venezuela would
invest in ONGC’s Mangalore refinery. He also offered Indian companies a 49 percent
stake in the San Cristobal field in his country. Critics point out that Venezuelan oil will
probably not help India’s energy security because it would not be economical to ship. In any
case, they add that given regional instability, Venezuela might not merit a great deal of
investment.
Contrarians worry that the benefits of oil diplomacy are exaggerated. With the level of instability
in a number of countries where it is being exercised, it is unlikely to ensure stability,
security, and sustainability in hydrocarbon supplies. They also question India’s effectiveness
and wonder whether diplomats’ efforts are actually resulting in greater “oil security.” A number
of observers felt that, for example, during twin visits by the Saudi king to China and
India, China got a better deal from Saudi Arabia than India did.
The Brookings Foreign Policy Studies Energy Security Series: India 46
India is out to woo
oil producers and,
more broadly,
energy suppliers.
The government seems convinced for now, however, that the benefits of diplomacy outweigh
any risks. And in many regions it sees oil diplomacy serving a dual purpose of advancing
India’s influence more generally.
THE CONDUCT OF OIL DIPLOMACY
A former diplomat described successful oil diplomacy as “getting in first with exploration
contracts, negotiating bilateral, trilateral and multilateral agreements, and ensuring that our
future energy security is safeguarded through all this.”219 In pursuit of these aims, government
officials have conducted oil diplomacy through visits, conferences, cooperative agreements,
and offers of various kinds of aid.
Bilateral Visits
Whether from the Prime Minister’s Office, the MPNG, or the MEA, Indian officials have
increased their visits to oil-rich countries. Similarly, they have upped the number of invitations
issued to leaders and officials from these countries to visit New Delhi.
Just in the last two years, for example, the Indian minister of state for external affairs (June
2004), the Indian petroleum and natural gas minister (March 2005), and the Indian finance
minister (April 2005) have visited Saudi Arabia. In turn, India welcomed the Saudi minister
of petroleum and mineral resources in January 2005, and a year later, Saudi King
Abdullah. The king had been invited to be the guest of honor at India’s Republic Day celebrations
and arrived with a delegation that included the Saudi oil minister. It was the first
visit by a Saudi monarch to the country in fifty-one years. In what some considered a break
with protocol, the Indian prime minister even went to receive the king at the airport.
Although declarations stemming from bilateral visits now often include an energy component,
results have been mixed.
Conferences
Officials from the Indian MPNG and MEA participate in a number of energy-related conferences
around the world. Recently, India has also hosted a number of these conferences.
A brief list:
■ January 2005, Delhi: Roundtable of Asian consumers and producers from West and
Southeast Asia to talk about developing an Asian petroleum and petroleum products
market and to encourage importing countries to invest in the producing countries’
upstream sector and vice versa. The meeting was originally called to protest the Asian
oil premium, but by the time it took place the differential pricing system was working
in favor of the Asian countries. The participants agreed to meet annually.
■ February 2005, Delhi: Third Asia Gas Buyers Summit
■ October 2005, Delhi: Bangladesh-India-Myanmar-Sri Lanka-Thailand Economic
Cooperation Group (BIMSTEC) Ministers’ Conference on Energy Cooperation
■ November 2005, Delhi: Roundtable of Asian consumers and producers in North and
Central Asia
The Brookings Foreign Policy Studies Energy Security Series: India 47
■ April 2006, Delhi: EU-India Business Conference on Energy
■ May 2006, Delhi: Conference with oil executives from fifteen African nations
Cooperative Dialogues and Agreements
India has signed cooperative agreements or memorandums, or discussed energy partnerships
with a number of countries including Japan, South Korea,220 Romania,221 the Gulf
Cooperation Council, the Association for South-East Asian Nations,222 the South Asian
Association for Regional Cooperation, BIMSTEC, and Australia. The usefulness of some
of these discussions has been questioned. The Memorandum of Cooperation signed in
Romania, for example, agreed on the need to increase energy productivity and prevent pollution,
seemingly self-evident points.
India has also started broader energy dialogues with both the EU and the United States.
After the fifth Hague summit, India and the EU established a panel to discuss energy issues,
with working groups to discuss coal and conversion of coal-related technologies, energy efficiency
and renewables, and energy associations including India’s participation in ITER.223
India and the United States started an energy dialogue in May 2005; it has five working
groups including one that will focus on oil and gas.
In Central Asia, India is looking toward purchasing assets and participating in pipeline projects.
In the long term, it is also seeking to acquire oil from the BTC pipeline through the
Suez Canal or the Israeli Ashkelon-Eilat pipeline.224 Earlier this year, the Indian prime minister
visited Uzbekistan, following a trip to India last year by the Uzbek president. Two of
the seven memorandums they signed were energy related. The two countries agreed to form
a joint working group on hydrocarbons. GAIL will explore the possibility of constructing
LPG factories, gas pipelines, and gas processing facilities in Uzbekistan.225 Kazakhstan is
also a country of great interest to India.
While India wants to be part of the “new great game,” it is being careful not to step on any
toes—especially influential Russian ones—in the region. Central Asian countries might
view India’s entry as the addition of an alternate player. But India believes that it needs
Russia’s cooperation—or at least acquiescence—to be successful in the region. Indeed,
energy cooperation is an increasing piece of India’s long-standing relationship with Russia.
In January 2006 India also signed five memorandums of cooperation in the energy sector
with China. They involved upstream and downstream sectors, pipeline projects, R&D, nonconventional
sources of energy, and environmental concerns. There was also the muchtalked-
about agreement between CNPC and ONGC to jointly bid on projects in Central
Asia, South America, Africa, and the Caspian region.
Other Instruments
India is deploying military and economic tools to gain an advantage in oil diplomacy. When
acquiring assets, India is emulating China by putting resources beyond than the bidding
amount on the table. It is trying to be both reactive, by acting on requests (Kazakhstan, for
example, expressed interest in India helping develop the port of Aktau,226 and African coun-
The Brookings Foreign Policy Studies Energy Security Series: India 48
tries have asked for refineries and railway projects) as well as proactive—sweetening the
package when bids are made.
India has been making a variety of offers to complete deals and agreements, including
greater investment. For example, the Indian government promised to encourage its companies
to invest in Uzbekistan, including in the information technology sector. NTPC and
Reliance Energy (a different company from RIL) will develop joint power projects in Saudi
Arabia and the UAE.227 India’s Exim Bank is also extending lines of credit (LOCs). In
January 2006 the bank extended two LOCs to Sudan worth $391 million to set up power
plants. Compare this to the $50 million given to Sudan two years before as well, as to the
LOCs extended to other African countries (all under $100 million).228
In addition, India can offer the prospect of military cooperation, though agreements in that
arena tend to be more understated. Several examples illustrate such cooperation: in 2002
India signed a memorandum with Kazakhstan to help with military training and naval
development;229 the head of the Indian army visited Nigeria in November last year (the first
to do so in thirty years) and pledged to help train and modernize the Nigerian military;230
and in January 2006 Uzbek troops began training at India’s Counter Insurgency and Jungle
Warfare School.231
The “Oil Diplomats”
There is little consensus on what should constitute oil diplomacy and who should conduct
it. Grumbling broke out in South Block when former petroleum minister Aiyar (an ex-foreign
service officer) was racking up frequent flyer miles traveling around the globe, along
with jibes about how he was “playing foreign minister”—a post many feel he had wanted.
On a more substantive level, there were complaints that the “independent foreign policy”
conducted by Aiyar (and some of his ministry’s bureaucrats) was not always coordinated with
the MEA and created complications with some of its diplomatic efforts. The MEA contended
that it had to look out for all India’s global interests—not just energy—and balance
them. A case in point was the discussion (on gas, not oil) with Bangladesh about a potential
natural gas pipeline to India from Myanmar through Bangladesh. As Aiyar tells it, he had
explicit instructions from the MEA for initial negotiations with his Bangladeshi counterpart
specifying promises that could be made and language that could and could not be used in any
declaration that might emerge from the meetings. Aiyar changed the language somewhat,
and when the MEA expressed consternation, said that he could not understand what all the
fuss was about. He later admitted that the very issue that MEA had been concerned about—
that Bangladesh would block the trilateral negotiations about the pipeline over bilateral
issues that it wanted to discuss with India—subsequently came to pass.232
The MEA’s critics, in turn, have argued that the ministry treads too cautiously—so slowly
that it almost brings things to a grinding halt. They criticize the MEA for not understanding
the urgent need for oil diplomacy and therefore not giving it the priority it deserves. Like
foreign ministries in a number of countries, the MEA does tend to move warily. When the
MPNG bid to join the Energy Charter Treaty, for example, the MEA was the only ministry
urging further, careful consideration before a decision was made.
The Brookings Foreign Policy Studies Energy Security Series: India 49
There is little
consensus on
what should
constitute oil
diplomacy and
who should
conduct it.
The rifts between the two ministries can be exaggerated. A number of the MEA’s clashes
with the MPNG seem to have been personality-driven. More often than not, the two ministries
have a cordial working relationship and have been known to coordinate their operations.
For example, when MPNG officials visit a country to discuss a deal or a cooperative
agreement, an MEA official (from the relevant embassy or headquarters in Delhi) participates
in meetings as well. The degree of communication and interaction can be ad hoc and
tends to be dependent on personal relationships, especially at the middle level. At the senior
level, there are also formal venues for coordination, including the Committees of
Secretaries, Cabinet Committees, or the ECC.
Reports indicate that consideration was given to setting up an “overseas operations cell”
within the MPNG, staffed by MEA officials.233 Critics of that proposal say that just the
opposite would make sense—creating an energy cell in the MEA to handle oil diplomacy
since energy and oil issues have permeated India’s foreign policy. These priorities have led
to new relationships, as well as what one observer has called “fresh forms of association with
partners.”234 However, this reality does not sit well with all interested parties. There are those
who argue that India should separate its political relationships from its economic and energy
relationships—needless to say, a difficult feat.
Fuel Diversification
The government has been looking at fuel diversification as another way to meet India’s
energy needs—not just in terms of replacing oil, but also to satisfy additional demand.
Despite the possibilities for a fuel diversification “solution,” fossil fuels are projected to continue
to be dominant sources of energy. Even if nuclear and renewable sources meet optimistic
projections, they are not expected to contribute more than 15-17 percent of the
country’s energy supply by 2031–32.235 However, by 2050, technological advances are
expected to make nuclear and solar major contributors of energy.
(For further detail on fuel diversification, see Appendix E.)
NATURAL GAS
The MPNG’s Hydrocarbon Vision 2025 report indicated that natural gas should be India’s
preferred source of energy. To encourage investment in domestic exploration and production,
natural gas blocks are being offered as part of NELP. In total, 70 bcm of reserves are
said to have been discovered through NELP.236 However, despite development efforts,
domestic production alone is unlikely to meet demand in the country. So to increase and
improve imports, India intends to add LNG terminals, encourage pipelines, acquire assets
abroad, and conduct aggressive “gas diplomacy.”
There continue to be problems that could inhibit the greater availability and consequently
the use of natural gas. Existing producing fields in the country are expected to witness a
declining trend in production. In terms of India’s efforts to acquire natural gas from abroad,
questions of logistics, politics, cost-effectiveness, and security issues have continued to dog
proposed pipelines. India has experienced setbacks in its quest for LNG abroad as well.
While there have been efforts to increase the number of LNG terminals, there have also
The Brookings Foreign Policy Studies Energy Security Series: India 50
Despite the
possibilities for a
fuel diversification
“solution,” fossil
fuels are projected
to continue to be
dominant sources
of energy.
been delays and problems. India’s LNG search has disproved some observers’ contention
that one of LNG’s advantages is that it is “free of politics.”237
COAL
Given the country’s large coal reserves, the government has been trying to encourage more
efficient mining and greater coal production. However, estimates indicate that reserves will
be exhausted in forty years if there is a 5 percent growth rate in production. At the current
rate of consumption, proven reserves will be exhausted in eighty years.238 Importing coal is
more expensive than using domestic coal and requires additional investment in ports and
railroads, which would raise the cost of power generation.
Most officials recognize the biggest problem for the coal sector, though few will admit it
publicly: CIL’s monopoly. The company is considered inefficient (production costs are estimated
at 50 percent higher than in leading countries),239 with too many employees (it is the
second largest employer in the world), strong unionization, too few funds, and low productivity.
The company lacks the technical (and sometimes financial) capacity to mine efficiently
and access coal in deeper areas.
NUCLEAR ENERGY
The government is moving ahead with various plans to increase the country’s capacity to
produce nuclear energy. Currently, eight nuclear reactors are under construction, with a total
capacity of 3420 MW. Earlier this year, eight more reactors (which would have a total
capacity of 6800 MW) were cleared for construction.
The recent nuclear “deal” between President Bush and Prime Minister Manmohan Singh—
which would allow the sale or transfer of nuclear technology, equipment, and materials for
India’s civilian nuclear program—brought to the fore the potential for nuclear energy in
India. On the basis of this prospect and subsequent international cooperation, the prime
minister doubled the nuclear energy production target to 40,000 MW.
But nuclear energy may not prove to be the fix that some purport it to be. India has limited
quantities of uranium (only enough to produce 10,000 MW), and reactors using thorium—
of which India has large reserves—are probably still decades away. Officials acknowledge
that it is going to take a while for nuclear energy to make a significant impact in India.240
Nuclear energy also involves a number of waste disposal and safety issues that have not been
fully thought through. Finally, relative to other sources, nuclear energy remains an expensive
proposition.
HYDRO SOURCES
Because of high initial set-up costs and risks, the government is providing financial support
to some development projects in hydroelectricity generation. It is trying to attract private
sector investment (currently at just 3 percent), and is considering a proposal that would put
state-owned companies in charge of projects until they are approved. The projects would
then be transferred to private companies or operated in a joint venture with them. The government
is also trying to rationalize tariffs, accurately assess completion costs, and provide
investment incentives.
The Brookings Foreign Policy Studies Energy Security Series: India 51
Yet problems persist with this energy source as well. The World Bank and other funders
have become reluctant to fund hydroelectric projects. Project clearances take time and
involve land acquisition and dealings with state governments, which have their own agendas.
There has also been opposition on environmental and social grounds, as these projects
can displace large numbers of people.
NONCONVENTIONAL SOURCES
With limited proven oil and gas reserves, rising oil prices, depleting coal deposits, increasing
greenhouse gas emissions, an endangered ecosystem, and significant amounts of nuclear
energy still years away, the government has been encouraging the development of nonconventional
energy sources. In the long run, these sources are considered cleaner and more
viable than fossil fuels and their external costs are less extensive. Below is a brief look at some
of the options in this sector:
Biodiesel. The government has supported establishment of a $10 million biodiesel production
facility in Mysore that aims to produce 10 million liters a year (from jatropha and other
oil seeds). It is estimated that India has 50 million hectares of wasteland and 34 million
hectares of protected forest areas that could be used to cultivate such crops.241 There is talk
of producing about 100,000 MW of power from biodiesel.
Solar Energy. India is considered to have the largest decentralized solar energy program in
the world.242 With estimates of about 300 clear sunny days annually, this program is considered
to have vast potential.
Wind Energy. By 2004 India was the fifth largest producer of wind energy, with 95 percent
of the investment coming from the private sector.243 The total installed capacity was
3595 MW. By 2007 it is estimated that an additional 3,000 MW of additional capacity of
wind energy will be installed.244 The Planning Commission estimates that India has the
potential for grid-connected wind capacity of around 20,000 MW.245
Others Sources. The government is also looking to encourage energy development from
tides, biomass, and hydrogen.
As the Planning Commission has said, it would require a “more visionary plan” for India to
get more than a modest energy contribution from nonconventional sources.246 Data on these
sources and evaluation of their potential are not up to speed. But there are significant problems
to overcome. Biodiesel and biomass projects divert much-needed water (as well as fertilizer,
the production of which in turn requires natural gas). Solar energy remains expensive.
As for wind energy, there are limited regions in the country where wind speeds allow effective
harnessing of this resource. There are also logistical issues and trade-offs that will have
to be weighed by planners, producers, and users. The development of almost all nonconventional
energy sources requires land, which is limited in India. This gives rise to food security
concerns (which some have called the food vs. fuel dilemma247) in addition to potential
environmental problems.
The Brookings Foreign Policy Studies Energy Security Series: India 52
STRATEGIC OIL STOCKS
To hedge against short-term supply disruption, India is considering the establishment of a
strategic petroleum reserve (SPR). The country has stored oil for some time now. Reports
indicate that India’s current reserves offer a cushion of twelve to thirteen days.248 In addition,
India has access to thirty-five to forty days of refined products. Indian oil companies
are required to maintain these crude oil reserves and petroleum products. As a precautionary
measure, in anticipation of a crisis or a substantial price hike, they sometimes also buy
up additional oil supplies. For example, in June 2004, Indian downstream companies bought
25 million barrels reportedly for such purposes.249 The downstream companies were also formerly
required to maintain “military stock levels” to supply the military.
The original proposal for creating an SPR was put forward in 1998. But the government
took the next few years “studying the issue,”250 and only made an announcement about the
SPR in 2003, when the Iraq war had created a renewed sense of urgency. While the Indian
Planning Commission suggested a reserve that would store ninety days of the country’s oil
imports, the government decided that the reserve would hold 5 million metric tons p.a.
(mmtpa) or fifteen days of the country’s oil imports. India has been seeking advice on the
construction and operation of SPRs from countries like Japan and the United States.251
Indian officials also met with IEA officials to discuss IEA aid and ideas about coordinating
the use of such stocks.
In 2004 Indian Oil established the Indian Strategic Petroleum Reserves Ltd (ISPR) to take
the project forward (its equity has since been transferred to the OIDB) and build and operate
the reserve. However, there have been delays. When this project was initially announced,
the minister in charge said it would take two years (until 2006) to construct the
SPR.252 Now the plan is to begin constructing the reserve in July 2007 and have it operating
by 2011–12.253
REGULATORY REFORM
In 2002 the NDA government proposed a Petroleum Regulatory Board Bill that called for
the creation of an independent regulator for the downstream petroleum sector. There was
skepticism about how independent such a regulator would really be, not least because the
bill contained clauses indicating that the government could “give direction,” a rather allencompassing
term, if this were in the public interest. Concerns also surfaced about the government
influencing the appointment of members of this board, whose functions are outlined
very loosely. A Parliamentary Standing Committee suggested amendments, including
limiting the government’s ability to give direction only in cases of war and natural calamities
and extending the regulation to the gas sector as well. The bill, however, went nowhere.
Late last year, the UPA government reintroduced the bill as the expanded Petroleum and
Natural Gas Regulatory Board Bill to incorporate a number of changes.254
The bill was passed in March 2006, and contains provisions to regulate the refining, processing,
storage, transportation, distribution, marketing, and sale of petroleum and natural
gas products.255 The board was expected to be in place by September but has not yet been
constituted. However, it was not structured to have authority to regulate the upstream sec-
The Brookings Foreign Policy Studies Energy Security Series: India 53
tor, a fact that is highly criticized because a number of the companies involved are integrated
or on their way to becoming integrated.256 Taking it a step further, there have been recommendations
to establish one regulating agency for the entire energy sector. On the flip side
are those who call for separate regulation—even for the gas and oil sectors. There also continue
to be questions about the board’s independence (since every regulation it introduces
will have to be put forward in each House of Parliament), and whether it will have any teeth
when it comes to the issue of pricing.257
Demand-Side Policies
Demand-side management has taken a backseat to supply-side management in India—
in terms of official attention, resources, and even media coverage. Below is a look at a
few of the related areas in which the government has formulated policies. While this
paper does not take a more detailed look at the policy initiatives related to R&D and education,
it should be noted that the government has been trying to promote them to encourage
fuel substitution and efficiency measures.
Price Reform
In some ways price reform has been the toughest nut to crack because it runs up against a
number of other interests. Perhaps most important is the fact that in a democracy a politician’s
worst nightmare is to be blamed by the electorate for their
economic woes. As one analyst indicated, the government is in a nowin
situation. If it passes on the increasing price of oil to consumers,
inflation is likely to rise, making the situation difficult for the poorer
sections of society—a socioeconomically and politically unpalatable
situation. However, if the government does not pass rising oil costs
on to the consumer it ends up footing the bill.258
According to former petroleum minister Aiyar, the crude oil price
increase in September 2005 resulted in “equitable burden sharing
(fig. 11).”259 In fact, the state-owned OMCs tend to bear the brunt
—to the extent that some of them are seeking to expand operations
abroad, where they get better returns. However, as mentioned
above, the government issues oil bonds to bail them out.
Skewed pricing also discourages new private entrants to the downstream
sector. For example, despite the 2002 deregulation of oil
marketing and the issuing of 11,500 licenses for retail fuel outlets,
only 1,855 outlets have been established.260
There is a realization that price reform is necessary—both to lessen
the burden on state-owned oil companies and the central exchequer,
as well as to change consumer behavior. Time and again the prime
minister has talked of the need to pursue a “rational pricing policy.”261 It has been suggested
The Brookings Foreign Policy Studies Energy Security Series: India 54
Figure 11. Burden Sharing of Crude Oil
Price Increase, September 2005
Consumers OMCs 51%
13%
Finance
Ministry
36%
Source: Mani Shankar Aiyar, “Interview,” Seminar #555
(November 2005)
that subsidies be removed altogether, but many feel that a more realistic solution would be
to implement a targeted and transparent subsidy system.262
Analysts have indicated that what is required is a set of comprehensive, transparent steps to
price reform. While it has not undertaken a comprehensive approach, the government has
been taking small steps toward reform as suggested by various committees and reports. A
former MPNG official noted that over the last few years, governments have created an environment
in which tough price decisions can be taken.263
For years, there was an administered price mechanism (APM) in place that determined
prices for petroleum products. In 2002, to rationalize oil and gas prices, the NDA government
dismantled the APM (with the Congress party supporting the move). The government
also reduced—but did not eliminate—subsidies for LPG and kerosene. As a result,
even though crude oil prices increased by over 90 percent between April 2002 and April
2005, subsidies on petroleum products were reduced by 68 percent. However, there continued
to be a price ceiling and the retail price of petrol at the pump only increased 43 percent
during that period.264
The APM thus is yet to be fully been dismantled and the shift to a market-based pricing
system is incomplete. Prices are based on the principle of import parity (the government
announced recently that they would shift to the trade parity principle), but in reality the government
continues to set retail prices.
In October last year, the government set up the Rangarajan Committee, a panel of experts
that makes recommendations on fuel pricing and taxation policy. The head of the committee
called for the government to stay “at arm’s length from price determination.”265 Its report,
released in February, called for greater freedom for OMCs to set prices for their products and
subsidization of kerosene based on the economic situation of the consumer. The Committee
recommended substantially increasing the price of LPG, with complete removal of the subsidy
in the future. It added that the government should cease asking its upstream companies
to bear a direct portion of the subsidy burden. It recommended funding subsidies through
levies that the upstream companies are already required to pay to the Oil Industry
Development Board (and which the Committee suggested could be increased) and from the
government’s budget. It further suggested that a uniform freight charge be discontinued—
currently this charge on petroleum products is the same across India, regardless of the distance
transported. Very few of these recommendations have been implemented amidst
criticism that they would make for a more profitable industry, but would not address underlying
problems.
Recently, the petroleum minister announced that the government would allow the OMCs
to hike petroleum product prices if crude oil prices rose above $73 a barrel. The regulatory
board appointed under the Petroleum and Natural Gas Regulatory Board Act would—if
the Act were implemented—“formulate and regulate the pricing mechanism and ensure
competitive structure of this sector.”266 The OMCs are hoping that the board involves itself
The Brookings Foreign Policy Studies Energy Security Series: India 55
There is a realization
that price reform is
necessary—both to
lessen the burden
on state-owned oil
companies and
the central
exchequer, as
well as to change
consumer behavior.
in pricing issues. However, the Act gives the regulator monitoring authority, but not pricesetting
authority.
Fuel Taxation
One third of the Indian government’s tax income is estimated to come from petroleum
products. In addition, states also tax these products at differing rates. Estimates indicate that
levies and taxes on petroleum products—including state taxes, custom duties, and excise
levies—constitute more than half the price the Indian consumer pays for them.
The government benefits, at least financially, from increases in the price of petroleum products
since taxation is based on a percentage of the basic value. Critics argue that it is these
high taxes—more than price hikes reflecting the higher cost of crude oil—that cause inflation.
When the federal government is denounced for higher prices at the pump, it asks states
to cut their taxes to minimize the burden on the consumer. When the MPNG raises the
price of petroleum products, it also often negotiates with the Finance Ministry to reduce
central taxes to minimize the effect of the price hike. (Because it affects revenue in a less
direct way, there are those who contend that the government prefers issuing oil bonds to the
OMCs over reducing taxes.) Sometimes the Finance Ministry also decreases customs duty
when global crude oil prices increase.
Over the years, there have been cuts on taxes and duties on some petroleum products
(WTO commitments have required some of these). In the 2005–06 budget, the government
announced custom duty cuts for crude (from 10 to 5 percent) and petroleum products
(from 15 to 20 percent down to 10 percent).267 However, there were no further
reductions this year.
Fuel Substitution
Along with finding energy alternatives to oil for production, the government is looking
toward substitutions for oil as a fuel at the consumption end. The president has called for
replacing oil in transportation. He has touted the jatropha plant (which has a crop life of
fifty years) and said that half of India’s sixty million hectares of wasteland should be used to
cultivate it. According to his calculations, each acre could produce two tons of biodiesel,
which could be available at Rs. 20 a liter. He sees potential production of sixty million tons
annually, but acknowledges that unless there is money put aside for R&D (to make engines
and other equipment), it will remain only a potential benefit. Advocates for biofuels argue
that increased employment would be an added benefit of a well-planned effort. The president
also talks of electric vehicles, hydrogen vehicles, electrification of railways, and
increased urban mass transportation. But he realizes that all of these options will require
cooperation among laboratories, academic institutions, and the automobile industry.
There have been some attempts to encourage the availability and use of biofuels—especially
biodiesel and ethanol. States like Chhattisgarh have announced that they intend to become
biofuel self-reliant by 2015, and are encouraging the cultivation of jatropha in all districts.
The Brookings Foreign Policy Studies Energy Security Series: India 56
While India is the world’s fourth largest producer of ethanol and the largest user of imported
ethanol from Brazil, the ethanol is often used for purposes more profitable than fuel.
Inspired by Brazil’s success, however, the Indian government is looking anew at ethanol to
alleviate the demand pressure on oil. Among other things, it is encouraging investment in
ethanol production plants. ONGC, for example, is currently setting up an ethanol refinery,
in which it has offered equity to Petrobras.268 Furthermore, a five percent ethanol blend has
been used in about a third of Indian states since 2004, and the government recently
announced that starting in October 2006, all refiners will have to produce such a blend. If
the program is successful, it might increase this requirement to a ten percent blend (which
has been under testing) in 2007.269
Another proposal being considered is to blend diesel with 20 percent biodiesel. The Indian
Railways has already been using a 5 percent biodiesel blend.
The government has also been trying to encourage the use of LNG and has discussed customs
duty exemptions on LNG imports.
The judiciary has played a role in increasing fuel substitution, for example, by mandating the
use of CNG (initially by 2001—in the case of public transportation in Delhi—and later
applied to a larger set of cities). Egged on by the Supreme Court, which was acting on the
filing of public interest litigation, Delhi replaced its entire fleet of diesel buses with CNG
buses in 2002. Today, all public transportation in Delhi is required to run on CNG. The
Energy Information Administration estimates that this has replaced about a quarter of a
million gallons of diesel and gasoline.
Apart from substituting transportation fuels, the Electricity Act 2003 tried to accelerate the
development of power generation from nonconventional sources (and away from the
increased use of petroleum products to produce power). States are requiring power distributors
to purchase power generated from renewable sources.270 Karnataka requires 5–10 percent
generation from renewable sources; Maharashtra, Orissa, and Gujarat (which has
required 2 percent since 2004–05, increasing 0.5 percent a year) have also joined the bandwagon.
271
Conservation and Efficiency
The Planning Commission’s Vision 2020 on Energy and the Environment emphasized that
future growth should be as “resource-efficient and environmentally benign” as possible.272
Looking ahead, it said that more efficient use of energy is a major necessity. Some estimates
indicate that by 2031–32, efficiency measures by end users could reduce India’s overall
energy requirements by 5.3 percent. Increased efficiency in the transport sector—through
mass transport, better use of vehicles, and better fuel efficiency—could reduce needs by
another 4.2 percent.273 Official estimates indicate an even higher potential energy savings of
20 percent countrywide.274
The Indian president has listed conservation as one of the key foundations on which to base
India’s energy security, stating that security cannot be achieved unless the minimum possi-
The Brookings Foreign Policy Studies Energy Security Series: India 57
ble energy is used and India cuts down on energy losses. The head of one of India’s main
business confederations has estimated that India could shave more than $2 billion off its oil
import bill if it cut consumption by 7 percent.275
India’s tenth Five Year Plan set a target for 13 percent savings through efficiency, though it
did not lay out which sectors should achieve these savings. It also called for benchmarking
the Indian hydrocarbon sector’s efficiency against that of other countries.
A number of efficiency efforts and initiatives have been concentrated in the power sector.
Realizing that the transportation sector is going to continue to depend on petroleum products
for the near future, the Planning Commission has called for efficiency on the oil
demand side through use of more efficient automobiles, availability of increased public
transport, electrification of railways (to move away from diesel), and encouragement of the
use of biodiesel and coal-to-liquid efforts.276
In theory, the Petroleum Conservation Research Association (PCRA) under the Petroleum
Ministry is responsible for conservation issues related to petroleum products. The PCRA’s
role is supposed to include creating awareness, promoting the use of efficient equipment and
vehicles, and supporting R&D efforts. The Bureau of Energy Efficiency under the Ministry
of Power has been given the responsibility of coordinating overall efficiency efforts, but so
far it has been neglected.
While many policymakers recognize the importance of conservation and efficiency, these
seem to be orphan issues—there is something of a “pass the buck” attitude. When asked
about the lack of conservation (or a plan for it), former petroleum minister Aiyar agreed that
it was a problem but said, “unfortunately this is not really a matter for my ministry. It’s really
more for those involved in automobiles or manufacturing to find out about energy savers of
various kinds.”277 He listed what needed to be done, but said that it was beyond his scope.
He was not sure what the government could do beyond “setting a good example.”278
The Asian Development Bank has pointed out that there is indeed a great deal the government
can do, not least because the private sector in India is not apt to focus on conservation
or energy efficiency measures without legislation requiring standards in these areas. Also, to
spur additional conservation, the government must let consumer energy prices reflect their
true cost.279
There has been some movement on this front. Authorities are working toward phasing out
older vehicles in cities like Delhi and requiring Bharat-III emission standards (which are also
more fuel efficient) in at least eleven cities, which were to have upgraded to Bharat-III by
April 2005 and Bharat-IV five years after that. By 2005 Bharat-II standards were required
to have been adopted for cars, light commercial vehicles, and bus and trucks across the country.
There have been some delays. The government has announced that starting in 2010,
Euro-II equivalent norms (Bharat-II) would be implemented in the entire country and
Euro-III norms (or their equivalent) in select cities. The government has also announced
cuts in excise on small cars.
The Brookings Foreign Policy Studies Energy Security Series: India 58
While many policymakers
recognize
the importance of
conservation and
efficiency, these
seem to be orphan
issues—there is
something of a
“pass the buck”
attitude.
Public transport in Delhi, which has almost one-fifth of the cars in the country, received a
boost with a metro rail system (in operation since 2002) that continues to be expanded.
Kolkata (formerly Calcutta) has had a metro system in use since 1984. Mumbai and
Bangalore metro systems are expected to begin operation in 2010 and 2011, respectively.
The government has also directed its oil companies to produce and market higher grade
lubricants and encouraged state-owned refineries to upgrade facilities to make their use of
petroleum products more efficient and to minimize losses in the production of those products.
The PCRA, along with the NOCs, has also been conducting annual Oil Conservation
Weeks since 1991, which have now become Oil and Gas Conservation Fortnights. These
are used to acknowledge companies’ conservation and efficiency improvement efforts and to
create awareness about related issues.
Conservation and efficiency efforts have already paid some dividends. Petrol and diesel
consumption growth has slowed (Between 1980–81 and 2003–04, the petrol consumption
growth rate stood at 7.4 percent a year, while that of diesel was 5.7 percent a year. Between
2000–05, petrol consumption grew at the rate of 6.9 percent and diesel at 3.1 percent
annually). These improvements have been attributed to better roads and more efficient
vehicles.280
India is reaching outside its borders for help with improving energy efficiency. It has, for
example, joined the U.S.-led Clean Development Initiative with China, South Korea,
Japan, and Australia. One of the initiative’s major areas of emphasis is energy efficiency.281
The Brookings Foreign Policy Studies Energy Security Series: India 59
Part 3. Observations
This monograph provides only a snapshot of India’s energy policies, with a focus on
oil, but a number of points are evident. They can be grouped into two broad categories:
■ India’s domestic policies and behavior and
■ its interactions and policies abroad. These concluding observations are necessarily tentative
and include important areas for further research and analysis.
The Home Front: Continuity or Change?
“Official” and “unofficial” India are keenly aware of energy-related problems and
potential solutions. The stumbling block to effective change tends to be implementation,
which has often been slow (some prefer the term “measured”) and reactive.
Future changes in the energy sector are also not likely to be drastic. Reform will continue,
as much a result of necessity as of choice. It will be a slow process, primarily for political and
social reasons, but also because of the difficulty of developing an energy strategy as opposed
to a cluster of (sometimes contradictory) energy policies. Integrating these policies is apt to
be a difficult task.
Politics will continue to have an effect on Indian energy (and especially oil) policy for the
foreseeable future. For example, energy price increases will be incremental and will require
labored negotiations among the ministries and members of the coalition governments.
Disinvestment will be hotly debated (though not likely to be implemented, especially by a
coalition government). In an era of coalition politics, when the support of every member of
parliament counts, the prime minister needs to keep all the coalition partners happy; this
makes it tougher for him to instruct others to toe the line. This situation means that coalition
governments in India will be more apt to make changes that require cabinet approval
rather than legislative action, because it is harder to build legislative political consensus.282
The scenario will continue unless and until there is greater willingness by the two major
national parties, the BJP and the Congress Party, to work together to pass key legislation.
The current government, and any probable successor (unless it is formed by what in India is
called the “Third Front”—a non-BJP or non-Congress-led coalition of the Communist parties
and some of the regional or caste-based parties), will continue to encourage investment
in the domestic exploration and production of oil and gas. Without major finds and greater
incentives, however, the private sector is not apt to follow this encouragement. Even the government’s
own companies will continue to be focused abroad, rather than at home. They will
likely continue to show streaks of independence, only to be periodically reined back.
This government will also continue to encourage private participation in the energy sector in
general, mostly because the Indian exchequer cannot afford the kind of investment that is
essential. Privatization of the state-owned companies, however, is improbable, though the
government might divest some of its shares in these companies. Another Congress-led coali-
The Brookings Foreign Policy Studies Energy Security Series: India 60
The stumbling block
to effective change
tends to be
implementation,
which has often
been slow (some
prefer the term
“measured”) and
reactive.
tion with different partners or a strengthened Congress position within the coalition could
make this more probable. If there is another BJP-led government, the situation could change
and privatization could make a comeback as an option (depending on the BJP’s coalition
partners—if any—and how much clout they have). A majority Congress government
(which at this point seems a very remote possibility) could also be more inclined toward privatization.
Either way, private, and more specifically, foreign participation is in India to stay.
So too the fact that India will continue to import a significant portion of the energy needed
to meet its requirements. Even observers who hark back to the days when, they claim, India
was energy self-reliant acknowledge that those days are gone. India has a different economy
and tremendously greater energy requirements, which barring a sudden, massive discovery of
oil or large-scale fuel substitution, it is unlikely to meet from domestic sources.
On the demand side, the government will continue to pay lip service to fuel substitution,
especially in the transport sector. But until it allows the price of petroleum products to more
accurately reflect international crude oil prices, consumer behavior probably will not change.
As long as controlled pricing continues, renewable sources will also probably remain commercially
unviable. Fuel substitution might get a boost from the judicial action. Such action
would also have the effect of making tough decisions more politically palatable for the government.
But legal intervention is unlikely to be comprehensive and would be enacted on a
case-by-case basis. The country could also witness increasing use of cleaner fuels if the government
efficiently manages the ongoing transition from traditional to commercial sources
of energy by a large portion of its population.
On the institutional front, there will probably be no major restructuring to create a single
energy ministry—which, in any case, some think would not be helpful or necessary—without
major political initiative (or a crisis). Part of the reason consolidation is improbable is
simply political: With so many coalition members to please these days, reducing the number
of ministerial positions that could be handed out might not be seen as a smart tactic,
and there would be resistance from the bureaucracy as well. Finally, even if such a ministry
were created, it is likely that interministerial friction would simply be replaced by interdepartmental
friction.
Cooperation within the government will continue to be ad hoc, though it will probably
improve over time. The ECC, if used properly, could serve as a formal mechanism to
exchange information and coordinate plans. But India’s energy policies will remain rather
segregated—and accordingly less effective—without greater efforts toward integration.
India Abroad: Cooperation or Competition?
As India increasingly looks abroad to meet its energy requirements, a key question
arises: How, if at all, will India’s quest for energy resources change its international
behavior? Discussions in the United States have tended to focus on China as a new
energy player, because China has a higher demand for energy than India and its intentions
are not as transparent to other nations. However, India has only just entered the energy
game in a major way, and its role in the international arena could prove to be either constructive
or that of a spoiler.
The Brookings Foreign Policy Studies Energy Security Series: India 61
As India increasingly
looks abroad to
meet its energy
requirements, a key
question arises:
How, if at all, will
India’s quest for
energy resources
change its international
behavior?
Over the last decade and a half, more confident Indian leadership has pursued a progressively
pragmatic foreign policy. Whereas one still hears voices espousing nonalignment and
emphasizing moral strength and leadership among developing nations, India is now aiming
higher. The focus is on the country’s interests, with the goal a strong India with a seat at the
international table and an expanded idea about the kind of power it wants to achieve strategically,
militarily, economically, and culturally. And the country is more willing now to
explore options to achieve this position. While there is no single, overarching strategy, India’s
aspirations are widely shared at home, and governments led by different political parties over
the last fifteen years have not differed substantially on this goal.
Overall, India’s international policymaking (both active and reactive) has become more flexible
in pursuit of its aspirations. And its leadership has realized that they must be willing and
able to adapt to achieve their goals. This attitude is likely to be reflected in India’s global
behavior in the energy sphere as well. India’s energy policies abroad are apt to follow its general
foreign policy path of enlightened self-interest and diversified options. It will consider,
if not pursue, every option. This strategy will translate to India acting cooperatively when it
thinks it suits its interests, but also acting competitively—in acquiring assets or pursuing
partners—when it thinks it needs to be.
There are broadly four different schools of thought in India about how the country should
behave internationally in relation to energy issues:
■ The first asserts that self-sufficiency should remain the mantra and India should “go it
alone” (and preferably look inward) in its search for energy.
■ The second school believes that India should cooperate with Asia, but not with the
West, of whom they are suspicious.
■ The third emphasizes deeper integration into global energy markets and systems.
■ The fourth believes in pursuing any and all policies to achieve the country’s interests,
and in moving beyond a focus on energy issues to subsume energy policy within consideration
of India’s broader strategic interests.
At the moment, the latter focus on broad strategic interests holds sway, encouraging India
to pursue energy policies that include developing its own resources, as well as acting on its
interests in the “near abroad” in Asia and in the broader international community.
Despite an emphasis on weighing all options, there are many indications that India would
prefer cooperation to competition in its quest for energy. New Delhi would rather be—and
be perceived as—a responsible stakeholder; in addition, most Indian officials (and the private
sector) realize that India still lacks the resources to win in a competitive atmosphere. So
the question remains: With whom will India cooperate in the future?
Until recently, there was more talk of cooperation within Asia than about working with the
broader international community. This was due in part to decisionmakers dominating the
ministries (and the airwaves) who were more inclined to be suspicious of the West and a
West-dominated international system. (The term “West” is rarely defined and is often used
The Brookings Foreign Policy Studies Energy Security Series: India 62
as a euphemism for the United States.) A former minister epitomized this sentiment, saying
“We cannot let the international markets control our destiny.”283
The view that “the global energy regime remains to be emancipated from [America’s] hegemony”
is not restricted to certain sections of academia.284 It is still not uncommon to walk
into a mid-level bureaucrat’s office in New Delhi and hear him or her rant about “the West”
and its “conspiracy” to keep India down. There is resentment that the West treats the
Persian Gulf and Central Asia as its “fiefdom.”285 As a result, this set of people see cooperating
with other Asian countries outside the international energy system as a better option.
There are even calls for an Asian collective mechanism—“an Asian counterpart to the
International Energy Agency”—to acquire more bargaining power and coordinate import
policies.286 However, knowledge of other Asian countries’ policies and intentions is slim, and
proponents of these ideas are assuming a great deal about the willingness of other Asian
nations to join such a community.
Among those pushing for more Asian cooperation, there is also a much higher level of support
for Indian cooperation with China—both before and since the two countries signed
memorandums of cooperation. These agreements had raised hopes and fears (depending on
political outlook) about an “Asian axis of oil.”287
In many spheres, India’s relationship with China is infused with elements of both competition
and cooperation. This holds true in the oil and energy sector as well. Indian observers—
official and otherwise—have been keeping a keen eye on what China has been doing in its
search for energy. They are watching China’s policies and actions closely, and with a mixture
of admiration and wariness. India has made attempts to emulate China’s successes.
Other pundits call for India to “get its act together” and develop a comprehensive energy
strategy, fearing that otherwise it will lose in “direct competition” with China.288
While India will attempt to collaborate with China, any visions of “complementary strategies
executed by their state-owned energy enterprises, unique bilateral E&P programs, specialized
division of labor, [and] financial burden sharing” are probably premature.289 The
level of trust and institutional mechanisms required for that kind of cooperation do not exist
at this stage. There is a tendency in some quarters to blame “non-Asian interests” and private
actors for the lack of trust between the two countries. However, the distrust is rooted
in history and persists to this day, though to a lesser degree.290 Sino-Indian energy cooperation
will continue but on an ad hoc basis, as will concerns that this is a one-sided relationship,
which India is more interested in pursuing than China.
Indian policymakers’ positions on the issue of cooperation with the West tend to coincide
with their general strategic or political inclinations. Those who mistrust the United States
and are apt to push for a Russia-China-India axis, including many members and supporters
of the Left parties in India, are prone to be vociferous in their support for exclusive cooperation
with Asia, and especially China. However, politics and proclivities must take a back
seat to reality. India’s decisionmakers realize that the country cannot afford to be too picky—
it has needs that can only be met by the West or in collaboration with the broader international
community.
The Brookings Foreign Policy Studies Energy Security Series: India 63
To ensure that India’s participation in the global system is more consistent and constructive,
the international community needs to address another and more prevailing reason for India’s
hesitation to cooperate with the West—resentment that India has been left out of international
decisionmaking up to this point. The Indian elite does not feel threatened by the
international energy order, since they did not help create it. But there is a sense that India
is shortchanged by the current system. India would be more inclined to cooperate if it were
given a seat at the table and saw the benefits of cooperation firsthand. Without direct inclusion,
Indian policymakers will only view the international system’s institutions (especially if
created or dominated by the West) as a method for reducing its flexibility. Whether through
creation of an “energy halfway house” or some other solution, the international community
should find a way to bring India into the system as soon as possible. India’s energy decisionmakers
are going through a crucial learning phase and India’s becoming a spoiler or a supporter
will depend not just on how New Delhi decides to respond to the international energy
system, but on how the international energy system reacts to India.
The international community also needs to realize that India’s energy diplomacy and overseas
assets purchases are here to stay. India will continue to practice oil and gas diplomacy, though
the style, substance, and extent of its actions may depend on the personalities and organizations
involved. Under the current Indian petroleum and natural gas minister, for example, the
Petroleum Ministry’s efforts are liable be somewhat understated, involving networking more
than diplomacy. Efforts will be coordinated with the Ministry of External Affairs, which will
again dominate the conduct of diplomacy. Politics may affect diplomatic stance to a certain
degree as well. But as long as the Congress Party or BJP are the largest members of any coalition
government, energy diplomacy will continue to be diverse in nature—with the country
acquiring no permanent allies, but lots of good friends.
India may not go on a whirlwind buying spree for energy assets (and indeed it cannot afford
to). But the government will continue to support Indian companies in their efforts however
it can, particularly because there is a feeling that they need to play catch-up. When faced
with accusations that such support is unfair, the retort will always be that India is merely
doing what the West did in decades past. In response to criticism from the West that in its
quest for energy, India is dealing with regimes that have poor human rights records, India
will point to the American relationship with Saudi Arabia and suggest that Western states
have double standards.
Within India, few academic discussions of prospecting abroad seem to take into account the
consequences of involvement with unstable or politically charged regimes. However, the
Indian government is beginning to consider the indirect costs of such investments. It is
aware that diversification has associated costs as well advantages. On the one hand, it allows
India greater freedom in some cases (to renew its relationship with countries like Israel, for
example). On the other, its relationships with some of these regimes can also limit India’s
flexibility (since India cannot afford to upset and subsequently lose an energy supplier unless
it gains another). India is also aware that reaching out to these regimes to ensure a “secure”
supply has not proven so secure. Iran’s reliability as a supplier, for example, recently came
into question when it cancelled an LNG supply deal. Because of these inherent instabilities,
The Brookings Foreign Policy Studies Energy Security Series: India 64
if India can be persuaded (rather than pressured) that there are more secure means of attaining
its energy requirements, it might gravitate toward them.
Today, almost all India’s major geopolitical relationships involve an oil or energy dimension.
However, India’s energy interests are not expected to trump its larger goals. Its international
energy initiatives will have to fall in line with its efforts to become more influential globally.
India will not completely reorient its foreign policy to gain (or maintain) access to energy
sources. India’s voting against Iran’s disputed nuclear program (and then abstaining) at the
IAEA was a good example of the country exercising its priorities. If New Delhi can be convinced
that a certain path of action holds long-term strategic benefits—even if it hurts its
energy interests in the short term—it is likely to take that path.
Energy interests will also affect India’s military behavior in the future. They will be factored
into national military strategy, whether through the necessity to safeguard the country’s SPR
or in the undertaking of cooperative relationships (such as the training of Uzbek soldiers).
The Indian military has already decided that it will deploy a fleet of Mig-29s in Tajikistan
to establish a foothold in a region that it considers significant not only for strategic reasons,
but because it could be a door to additional energy sources (though Tajikistan itself is not
such a source). In the right political climate and with broad international consensus, India
might also be willing to send troops to deal with instability in the Middle East, which is
liable to continue to be the major source of Indian oil supply. If India’s energy engagement
with its neighbors grows, the likelihood for political or military intervention in the region
might also increase—for example, in the event that there is a disruption of the pipelines that
bring gas to India.
In the Indian Ocean region, India has been content (though not necessarily happy) to reap
the benefits from U.S. policing of the sea lines of communication. As its force projection
capabilities grow—especially if in the context of increased U.S.-India naval cooperation—
India might seek to take on a greater share of the security burden. India has already sought
an extended role in the area, picking up the slack when the United States had to divert some
of its ships to the Persian Gulf in 2001, and in the aftermath of the tsunami, when it joined
with Australia, Japan, and the United States for relief operations in the area.
Whereas increased regional collaboration by India with the United States might create some
concern in China, it would not mean that India was joining an anti-China front. In India’s
view, a potential U.S. confrontation with China would cause as much—if not more—disruption
in the region than would terrorist or pirate activities.
Observations and Questions
A number of key observations stem from the research for this monograph:
■ India is likely to continue to have a set of separate energy policies formulated by different
entities rather than an overarching energy strategy. Integration of these policies will
likely improve over time.
The Brookings Foreign Policy Studies Energy Security Series: India 65
■ Reform of India’s energy sector will continue—but at a slow pace. Implementing policies
will be harder than formulating them.
■ Unless there is a non-BJP or non-Congress-led government at the center, India will
continue to encourage private participation in its energy sector, as much out of necessity
as out of choice.
■ India’s energy-related actions in the global arena will reflect its current foreign policy
path of “enlightened self-interest” and maintaining diverse options. It will be cooperative
or competitive, as suits its interests—in acquiring assets or pursuing partners—
when it thinks it needs to be. However, India would much rather cooperate than
compete.
■ India would be more inclined to cooperate with the international community (rather
than focusing on a particular country or region) in the energy sphere if it were given a
seat at the decisionmaking table. Global players should find a way to bring India into the
International Energy Agency (IEA) or at least find a place for it in an “energy half-way
house” en route to full membership.
■ For the foreseeable future, however, India will hesitate to rely completely on global markets.
As a consequence, its country-by-country energy diplomacy and purchase of overseas
assets will continue. However, its energy interests are not likely to trump the
country’s larger strategic goals.
■ India’s energy interests are also likely to factor into its military strategy and behavior in
the future. For example, India might be willing to take on a greater share of the international
security burden related to protecting oil and gas supply lines.
Questions for Further Review
The world is only beginning to be aware of the impact of India’s energy needs, which will
increase over time. It is important to consider the issue further, and particularly the following
questions:
■ As Indian companies acquire more assets abroad and increase their resources accordingly,
will there be suspicion, accusation, finger pointing, and anger, similar to sentiments
that characterized the “worldwide acquisition hunts” after the 1979 oil crisis? Will
this antagonism occur not only between Indian NOCs and other international companies,
but also among the Indian NOCs themselves as more of them venture abroad?291
■ Where are India’s energy and larger strategic goals likely to clash?
■ How does India’s military view its future role, if any, in the country’s quest for energy
abroad?
■ What terms and conditions would be acceptable—both to current members of the IEA
and to India—for bringing India into the international energy decisionmaking community?
What is the probability that this will occur?
The Brookings Foreign Policy Studies Energy Security Series: India 66
Appendix A.
Major State-Owned Oil
and Gas Companies
The Oil and Natural Gas Corporation (ONGC)
India’s largest oil and gas company is the state-owned ONGC. While mostly involved in
upstream activity, more recently it has tried to become an integrated company, dabbling
in refining and retailing as well. It has the highest market capitalization of all corporations
in India and ranks 95th on the list of Fortune Global 500 companies.292 As India’s
largest exploration and production (E&P) company, it accounts for more than three quarters
of Indian production and holds more than half of the hydrocarbon blocks in the country.
Having purchased a majority share of Mangalore Refinery & Petrochemicals Limited
(MRPL), now considered a subsidiary, it today also controls 10 percent of the country’s
refining capacity. In addition, it owns and operates pipelines across the country and offshore
as well.293
As of 2005 the Indian government owned about 74 percent of the company with foreign
institutional investors holding another 8.3 percent. In addition, in a pattern of cross-holding
that is mirrored across the state-owned or “public sector undertaking” (PSU) spectrum,
the Indian Oil Corporation Ltd. (IOC) and the Gas Authority of India Ltd. (GAIL) own
9.61 percent and 2.4 percent of ONGC, respectively.294
ONGC Videsh Ltd. (OVL) is an ONGC subsidiary that operates exclusively overseas. In
terms of reserves, it claims to be India’s second largest E&P firm. It has invested more than
$4 billion abroad (which it claims is the largest amount by a corporate Indian firm abroad)
and has assets in a number of countries including Australia, Vietnam, Russia, Iran, Iraq,
Sudan, Myanmar, Syria, Libya, and Angola.295 It is looking to Algeria, Indonesia, Venezuela,
and the United Arab Emirates (UAE) as additional countries of interest.296
OIL INDIA LIMITED (OIL) OIL is one of India’s largest upstream companies, with a dominant presence in the oil
sector in the Northeast of the country. It is seeking to move beyond domestic exploration
and its overseas forays have included stakes in Iran and Russia. OIL is now
interested in establishing what it calls a “selective presence” across the oil and gas value
chain, increasingly engaging in the production and transportation of petroleum products
like LPG.297 It already markets all the gas it produces in Assam.
Other Oil “Navratnas”
(state-owned star performers)
The Indian Oil Corporation Limited (IOC) is India’s largest downstream company.
It is involved in refining, marketing, and pipelines. It has a number of subsidiaries including
Lanka IOC, which operates (and will refurbish) 100 retail outlets in Sri Lanka. IOC
is now also involved in E&P activities and has been assigned domestic blocks. It is collab-
The Brookings Foreign Policy Studies Energy Security Series: India 67
orating with OIL for assets abroad and together the firms have acquired a stake in two
blocks in Libya.
Bharat Petroleum Corporation Limited (BPCL) is India’s second largest downstream
company. Hindustan Petroleum Corporation Limited (HPCL) is also a mid- and
downstream company involved in retailing overseas. Both companies are (separately) getting
into E&P in collaboration with ONGC.
Gas Authority of India Limited (GAIL)
The Indian government set up GAIL in 1984 and gave it responsibility for transporting,
distributing, and marketing gas produced by ONGC as well as some of the gas
produced by other consortiums. It operates a number of pipelines including the country’s
two main interstate pipelines—HVJ and DVPL—which take natural gas to Delhi
from western India. GAIL (along with ONGC, IOC, and BPCL) also owns part of the
joint venture company Petronet LNG Limited, which constructed and operates the
LNG terminal at Dahej in Gujarat.
The Brookings Foreign Policy Studies Energy Security Series: India 68
Appendix B.
Relations between Government and
State-owned Companies—Personnel
Boards of India’s state-owned companies have both independent and government directors.
The government can nominate two people to the board (this can vary). It also has
a role in approving the other directors. These independent directors are eminent persons
or professionals appointed by the cabinet from a list put forward by the Public
Enterprise Selection Board (PESB). Assessments indicate that their presence has made for
“quicker decisionmaking,” brought in a fresh outlook, motivated employees, and improved
overall performance in a number of these companies.298
However, there is widespread criticism that the boards are not empowered and that appointments
are politically motivated.299 Critics contend that the government role in their appointment
means that even the independent directors are so in name only. Governments have
often politicized these decisions. The current UPA coalition government had said that it
would devolve complete managerial and commercial powers to the navratnas. However, last
year reports indicated, for example, that they were planning to replace independent directors
on the navratna boards who had been appointed by the previous government.300 The
petroleum minister had reportedly asked the secretary to consult the law ministry about how
almost all the independent directors—who still had time left in their assigned terms—could
be replaced.301
The government also has the dominant role in appointing the management of state-owned
companies. Senior appointments in all such companies are handled by the PESB. It
receives proposals from the administrative ministry for vacant posts, invites applications for
these positions, and then generates a short list for senior positions in the PSUs. This list is
then forwarded to the administrative ministry. In the case of ONGC, for example, this list
would go to the MPNG. The PESB cannot enforce its own suggestions, and a minister
can derail them, often through delaying tactics. The PESB often also has to tangle with
ministries on other issues, like the need to send reminders to the ministries to submit proposals
for vacant posts.302 The PESB itself has not been without controversy—there have
been accusations that the body has lowered criteria for certain positions to allow a preferred
candidate to be appointed.303
Once the administrative ministry decides on a candidate, it makes a recommendation.
Following clearances that recommendation is sent to the Appointments Committee of the
Cabinet for final approval. This process has brought out differences between the committee
and the administrative ministry, including conflicts over preferred candidates.
Personnel appointments must to take into account not only the recommendations of the
PESB and the preferences of the minister concerned, but often also political, regional, and
union sentiment. The case of OIL’s chairperson and managing director illustrates this
dance. Earlier this year a number of union leaders and local groups—everyone from the
The Brookings Foreign Policy Studies Energy Security Series: India 69
Guwahati Senior Citizens’ Association to the All Assam Students’ Union—made it quite
clear that they were displeased with the government’s choice for the post and launched an
unsuccessful protest against it. Unsuccessful candidates can take their case to the courts,
which have been known to direct the government to conduct a new hiring process if they
determine that there were irregularities in the process.304
A performance review by the leadership of the appropriate ministry provides the basis for
government appointments and grants extensions (management positions are generally filled
for a period of five years). This is not a mere formality, as was made evident by the case of
Subir Raha, chairman and managing director of ONGC. Reportedly, Raha lost out on a full
extension (to 2008) because of not-so-flattering reviews from the former petroleum minister
Aiyar and Petroleum Secretary S.C. Tripathi (with whom he frequently clashed), as well
as objections to his handling of the fire at the Bombay High field.305 Though Raha more
than doubled ONGC’s profits during his tenure, Tripathi contended that he had done
nothing to increase the country’s energy security.306 Aiyar castigated Raha for “insubordination
and indiscipline” and for not being a team player.307 Despite Raha’s objections that
Tripathi was prejudiced against him, and his contention that he had been exonerated in an
investigation into the Bombay High fire, he was denied an extension.308
Raha’s tenure has been an interesting case study of government-PSU relations. While running
one of the country’s largest companies, Raha had resisted government control stating
that “no company can function with multiple bosses.”309 He clashed with former petroleum
minister Aiyar over spinning off OVL into an independent company, and even managed to
resist the appointment of two directors to the ONGC board. In the latter case, Raha unusually
took his differences with Aiyar public, placing full-page advertisements in Englishlanguage
newspapers.
Typically, heads of PSUs whose tenure ends before they turn sixty (retirement age) are given
an extension till they reach that age, and it is unusual for the government to formally consult
former ministers about these extensions. While there was questioning of Raha’s effectiveness,
other former secretaries gave him good reviews, including the current cabinet
secretary, who stated that the accusations against Raha were unverified.310 The current
petroleum secretary recommended that Raha be given at least a three-month extension
(which he was subsequently given). Some analysts believe that the unusual step of soliciting
the views of an ex-minister was taken not only because the current minister had not had
much experience with Raha. They posit that the current minister and the secretary (who
interestingly was one of the two people that Raha had resisted being put on ONGC’s board,
even threatening to resign if this was done) might have wanted to replace Raha. But they
did not want to bear the brunt of criticism for discontinuing the service of a successful chairman
and managing director.
Denying Raha an extension was an atypical step, and probably the ministry’s way of asserting
itself as the boss. In fact, the interim chief of ONGC quickly went out of his way to state
that his priority would be to “resolve all conflict issues” and work for better relations with
the MPNG. Raha, meanwhile, is unlikely to be deeply concerned. He will most likely be
The Brookings Foreign Policy Studies Energy Security Series: India 70
hired by either a private Indian or multinational company. Coupled with ONGC’s bottom
line, this option no doubt encouraged his independent streak. But the government can present
obstacles even in private companies’ personnel arrangements. In a number of cases—like
joining a competitor within a certain period after retirement, for example—appointments
require government permission, which can be delayed.
Apart from appointments and extensions, the government can also start investigations of
company officials, which can be (and some experts indicate has been) used to apply pressure.
The Brookings Foreign Policy Studies Energy Security Series: India 71
Appendix C.
Private Energy Companies
Domestic
Essar Oil Limited (EOL). This firm is an integrated company and part of the Essar
Group controlled by the Ruia family (steel, shipping, and power are the group’s other interests).
It has three divisions: E&P, refining, and marketing. The company has considered
spinning off the E&P wing as a subsidiary. EOL has E&P contracts for oil and coal-bed
methane in India and has signed oil and gas exploration contracts in Myanmar (Blocks A2
and L for gas). EOL has a total of six blocks, one of which is expected to begin production
by the end of this year.
EOL’s 210,000 bpd refinery at Vadinar in Gujarat is expected to begin operations in
October. It has bids on overseas assets, including, most recently, a refinery in Nigeria. More
recently, it has entered the retail sector, selling gas and diesel. It also intends to set up a trading
division to negotiate long-term contracts and exports of refined products.
RELIANCE INDUSTRIES LIMITED (RIL). RIL produces petrochemicals and petroleum
products. It is the largest private sector company in India. With production accounting for
3 percent of India’s GDP and indirect tax revenues from the group constituting almost 8 percent
of the total the Indian exchequer receives, RIL typically has more clout than other private
sector players in the country.311 According to some analysts (and competitors), this
translates to speedier clearances and tax breaks that others cannot command. Even some
state-owned companies are envious of the access that RIL has to the Indian leadership.
RIL operates a major refinery at Jamnagar (660,000 bpd), which has the ability to process
low-quality crude, bringing in much higher margins than its domestic and even some foreign
competitors. It also promotes Gas Transportation and Infrastructure Co. Ltd., which
intends to lay a product pipeline (of almost 6,000 km) around India. RIL has recently ventured
into E&P in both the oil and gas sectors.312 It has the greatest number of domestic
exploration blocks of any private sector company (over thirty) as well as two oil and gas producing
blocks—Panna-Mukta and Tapti. It has also gotten into overseas investments with
stakes in blocks in East Timor, Oman, and Yemen.
The company has a reputation of “building ambitious projects and creating shareholder
value.”313 Analysts expect them to live up to it with the construction of an export refinery at
Jamnagar at a cost of $6 billion. Slated to be completed in 2008, it is expected to make
Jamnagar the largest petroleum refinery complex in the world.314 Reliance’s petroleum division
recently went public, making the company’s head, Mukesh Ambani, the richest person
in India. Chevron took a 5 percent stake in the company at a cost of $300 million (and may
buy an additional 24 percent in the future), which analysts expect could help RIL market
and sell their products.
The Brookings Foreign Policy Studies Energy Security Series: India 72
VIDEOCON INDUSTRIES. As part of the RAVVA consortium, Videocon has a 25 percent
interest in the producing RAVVA oil and gas field (of which ONGC owns 40 percent).
This field accounts for some 7 to 8 percent of the country’s total. Videocon has exploration
rights to five other blocks within India. It is also considering venturing into gas distribution
and overseas E&P (it already has interests in blocks in Australia and Oman, and has applied
for a block in Yemen).315
Foreign
THE BG GROUP. BG’s involvement in India started in 1995, when British Gas and GAIL
together formed Mahanagar Gas Limited, which set up and runs a piped gas distribution
system in Mumbai. Since 2000 BG has owned a 30 percent stake in India’s Tapti and
Panna-Mukta gas fields, which together account for 10 percent of the country’s domestic oil
and gas production. While BG continues to sell the oil produced to IOC, since April 2005
it has been allowed to sell the gas directly to the market instead of through GAIL. BG owns
the largest private-sector gas distribution and transmission company in India—Gujarat Gas
Company Limited—and is now thinking of venturing into power generation.316
CAIRN ENERGY. A Scotland-based independent E&P company focusing on South Asia,
Cairn made one of the biggest recent discoveries in India when it found fields in Rajasthan
with a total potential of 1 billion barrels of oil. The Mangala field is estimated to have the
potential to produce 100,000-110,000 bpd and the Aishwarya field, 5,000-15,000 bpd.317
One of the first foreign companies to take advantage of the Indian government’s program
to attract private sector investment, Cairn has interests in eight oil blocks in the country,
including two that have reached the production stage. It has used the revenue from these
latter blocks to fund its exploration in other parts of the country. Cairn also has producing
gas fields, and is allowed to sell this gas at market-determined prices.318
ROYAL DUTCH SHELL. Shell has eight companies in India. These companies produce
lubricants, market LPG, operate one of India’s two LNG terminals (at Hazira), develop
solar energy technology, and retail automobile fuels (as the only international company to
be given a license to do so).
BP. The company has a stake in one of the largest lubricant manufacturers in India and has
invested in solar energy and biofuels projects in the country. It is also looking to get into the
E&P sector, and was the only oil major to bid for a block as part of the government’s program
to encourage private sector participation in the Indian E&P sector.
Other companies operating in the energy sector in the country include ExxonMobil
(through its part ownership of RasGas, which supplies LNG to India), Total (lubricants and
joint ventures with HPCL) and Gaz de France (it has a stake in Petronet). In addition, Niko
Resources, Gazprom, Premier Oil, Hardy Exploration and Production, and Canoro
Resources have stakes in oil and gas blocks in India. Finally, there are a number of other foreign
companies that have joint ventures with federal- and state-owned companies in the various
energy sectors.
The Brookings Foreign Policy Studies Energy Security Series: India 73
Appendix D.
Acquisitions—Activities of Indian
Companies Abroad, by Region
Africa
Egypt. OVL has a 70 percent stake in the North Ramadan Block, as well as a 60 percent
stake in Block 6.
Gabon. In March 2006 the IOC-OIL consortium acquired a 90 percent participating stake
in an oil and gas block for $12.5 million (they share ownership evenly). They plan to spend
$50 million to develop it, with OIL to act as operator.319
Libya. In January 2005, while OVL lost in the first round of bidding, IOC-OIL won Block
086, which OIL operates.320 In another round of bidding in October 2005, IOC-OIL won
Block 102-4 in the Sirte Basin, for which they paid a $3 million signature bonus. They have
promised to give 10.5 percent of future production to the Libyan National Oil Company.
This time around, OVL won Block 81-1 in the Ghadames Basin, for which it paid a $6 million
bonus, and it has promised to give 11.8 percent of its future production to the Libyan
NOC. It also won 49 percent of Blocks NC 188 and 189.321
Nigeria. OVL has a 15 percent stake in Block 2, currently under exploration. It also has 25
percent equity in Blocks OPL 321 and OPL 323. ONGC-Mittal Energy Limited (OMEL)
has a stake in Blocks OPL 209 and OPL 212.
Sudan. OVL made a one-time investment of $690 million322 for a 25 percent stake in the
Greater Nile Oil Project (GNOP). China’s CNPC—which has a 40 percent stake—originally
resisted OVL’s inclusion in the project. ONGC created a subsidiary, ONGC Nile
Ganga BV, in the Netherlands to manage what is its first producing overseas oil property.
It produces 300,000 bpd.323 India gets about 3 million tons of crude oil annually from this
property.
OVL also has interests in Block 5a (24.125 percent) and 5b (23.5 percent) in Sudan.
The Americas
United States. OIL acquired 100 percent equity shares of Sakhalin India Inc., which has a
10 percent participating interest in the North Hellhole Bayou Prospect in Vermillon Parish,
offshore Louisiana.324
Asia-Pacific
Australia. OVL has a 55 percent stake in Block WA 306P. Videocon and GSPC equally
share a 40 percent in Block EPP 277.
East Timor. RIL was one of only two companies to recently be awarded an exploration block
in East Timor, offshore Area K.325 It had bid for two blocks but lost the bid for the other
block to Eni because the work program it had laid out was not considered as extensive.
Vietnam. OVL acquired 100 percent rights to offshore Blocks 127 and 128.
The Brookings Foreign Policy Studies Energy Security Series: India 74
The Middle East
IRAN. In 2002 Indian companies acquired the rights for the offshore Farsi block and signed
an exploration service contract with the National Iranian Oil Company. OVL is the operator
and has a 40 percent stake in the block; OIL owns 20 percent and IOC 40 percent.326
Drilling began recently.327
Iraq. OVL has full exploration rights to Block 8.
Oman. RIL has rights to a deepwater block, Block 18, off the Batinah coast in Gulf of
Oman. A consortium led by Videocon has rights to Block 56. The other members of the
consortium are Oilex (25 percent), GAIL (25 percent), HPCL’s subsidiary Prize Petroleum
(12.5 percent), and BPCL (12.5 percent).
Qatar. OVL has a 100 percent stake in the Najwet Najim block.
Syria. OVL has a 60 percent stake in Block 24. OVL, jointly with CNPC, has acquired
PetroCanada’s stake in thirty-six producing fields in Syria (the OVL-CNPC joint venture
is called Himalaya Energy Syria BV).
Yemen. RIL has a 25 percent stake in the Calvalley Petroleum-operated Block 9, which in
December 2005 started producing 2,000 bpd.
Russia and Eurasia
RUSSIA. OVL has a 20 percent stake in the Sakhalin–1 Production Sharing Agreement
and has invested $1.77 billion in the offshore field—the single largest foreign investment by
India in any overseas venture. Production began in mid-November, with 673,000 barrels
subsequently on its way to India.
Purchases in the Pipeline
Making an entry into South America, OVL will be acquiring a 15 percent stake of Block
BC-10 in Brazil from Royal Dutch Shell (which operates the project) for $170 million. The
field is expected to begin production in 2009; OVL is paying another $234 million in development
costs. Shell blocked its attempt to purchase double the stake. The field has a production
potential of 100,000 bpd.328
Also in the region, RIL has been offered a 26-30 percent stake of Ecopetrol’s San Gabriel
block in Colombia.329 OVL and Petroleos de Venezuela have agreed to develop the San
Cristobal field in Venezuela. OVL has also agreed to purchase a 30 percent share in seven
blocks in Cuba.
HPCL has shown interest in acquiring a 20 percent stake in a couple of blocks in Guinea
Bissau.
Indian companies are also looking to invest $1 billion over the next year in oil sands in
Canada.330
The Brookings Foreign Policy Studies Energy Security Series: India 75
Appendix E.
Fuel Diversification
Natural Gas
The MPNG’s Hydrocarbon Vision 2025 report indicated that natural gas should be the
preferred source of energy; a former Indian official has called gas the “energy of the
future.”331 Gas is considered preferable to oil for a number of reasons: oil prices are
unpredictable and India has low reserves of oil; gas is seen as having more development
potential, while oil production is expected to peak; although gas still has to be imported, it
is closer in terms of sources of supply; and gas is cleaner than coal.
INCREASE DOMESTIC EXPLORATION AND PRODUCTION. To encourage investment in
domestic exploration and production, natural gas blocks are also being offered as part of
NELP. Recent discoveries have buoyed hopes, including finds by RIL in the Sohagpur
West and East blocks of Madhya Pradesh and in the Krishna-Godavari (KG) basin.332 In
total, 70 bcm of reserves are said to have been discovered through NELP.333
These domestic discoveries are also seen to help in price negotiations. For example, an LNG
deal with Qatar was renegotiated after RIL discovered gas in the KG basin in 2002.334
It was difficult to encourage investment in the domestic sector when market prices for natural
gas were capped (especially to supply the power sector), and there was little incentive to
produce for the domestic market. However, increasing demand and power sector reform
could well change this scenario.
The recent Petroleum and Natural Gas Regulatory Board Act, which lays out the creation
of an independent regulator, is also expected to encourage investment by creating a more
level playing field. In addition, there is a pending gas pipeline policy that would create a
national gas grid.
The government is particularly encouraging deepwater exploration, following RIL’s discovery
in the KG basin. Reports estimate that there are 1 billion tons of oil equivalent of hydrocarbon
reserves in India’s deep waters.335 Of the fifty-five blocks on offer in NELP-VI,
twenty-four are deepwater blocks. ONGC’s deepwater program involves an investment of
$750,000 a day and one of its priority projects is the development of the Sagar Samriddhi
field.
INCREASED IMPORTS. Despite development efforts, domestic production alone is
unlikely to meet the country’s demand. To increase and improve imports, India intends to
add LNG terminals, encourage pipelines, acquire assets abroad, and conduct aggressive “gas
diplomacy.”
Exploration & production abroad: OVL has a 45 percent stake in a production sharing
contract in Vietnam for a gas field (Block 6.1), which began production in January 2003.
Gas has also been discovered in Block A1 in Myanmar, where OVL has a 20 percent stake.
The Brookings Foreign Policy Studies Energy Security Series: India 76
In addition, it has a 20 percent stake in Block A-3. Essar Oil has an exploration contract for
two blocks in Myanmar as well.
Importing LNG. Indian companies currently purchase LNG on the spot market. Qatar’s
RasGas also has a twenty-five year contract (starting in 2004) to supply Petronet, which
operates the terminal at Dahej.
In January 2005 India signed a deal with Iran, which would have supplied 7.5 million tons
of LNG by 2015. According to the deal, the price was linked for two years to Brent crude
“on a sliding scale,” and then fixed at $3.21 per million btu (mmbtu).336 Forty percent of the
natural gas would have gone to GAIL and the rest would have been shared by IOC,
ONGC, and OIL. The deal recently fell through.
The government is trying to build additional receiving capacity and has discussed locations
for more LNG terminals at Kochi, Ennore, and Mangalore. It is also looking into getting
the Dabhol plant restarted—Enron had been importing LNG from Oman, Abu Dhabi,
and Malaysia to supply the power plant. Currently, GAIL is close to reaching an agreement
with an Algerian company, Sonartach, for a long-term supply contract to Dabhol. Finally,
OVL is looking into the possibility of liquefying gas from Sakhalin-1 for shipment to India.
Pipelines. The government has considered three major natural gas pipelines, each coming
from a different direction:
■ Iran-Pakistan-India. This pipeline has been discussed over the last decade and a half.
Arguably first suggested in 1989, various routes have been suggested to transport gas
from Iran to India (through pipelines): deep-sea via the Persian Gulf and the Gulf of
Oman, skipping Pakistan; onshore and then offshore along the coast of Pakistan; and
onshore through Pakistan. The first option was considered to have too many technical
obstacles (though with the construction of the Bluestream pipeline from Russia to
Turkey, some say another feasibility study should be conducted); experts considered the
second likely to meet with technical obstacles and the cost of transmission was calculated
to be $4 billion more than if it was taken over land.337 While considered the most
economically viable, the third option through Pakistan was thought to have “serious
security” obstacles. Many in the Indian strategic community thought that Pakistan
could potentially disrupt (or at least threaten) India’s natural gas supply. With a somewhat
changed political climate (due to the India-Pakistan Composite Dialogue) and
willing leadership on both sides—including a gung-ho minister who said he refused to
be “paralysed by paranoia,”338—the third option came back into play.
The pipeline would certainly have benefits for each country. Iran would find markets for
its gas; India would receive much-needed gas; and Pakistan would get natural gas for
itself, as well as transit fees ($8 billion), taxes ($1 billion); and savings in energy costs
($5 billion). The proposed pipeline was also seen by its proponents as having the potential
to contribute to peace in the region,339 but so far it seems to have brought only chagrin.
The Brookings Foreign Policy Studies Energy Security Series: India 77
Proponents of the pipeline have suggested ways of mitigating security risks: building gas
power plants near the India-Pakistan border that would supply both countries; establishing
provisions whereby Pakistan would pay (65 percent of total) if it were responsible
for disrupting gas supply to India; creating a consortium of the countries, companies,
and financial institutions involved that would have the power to terminate supply to
Pakistan if it cut off supply to India; and even having India supply diesel to Pakistan
through a pipeline that could act as a counter-guarantee.340
Others have suggested extensions to the proposed pipeline. Former petroleum minister
Aiyar, for example, put forth his “private dream” of an Iran-Pakistan-India-Myanmar-
China pipeline. Aiyar saw tacking China on as an insurance policy, so that “if Pakistan
gets funny with us, the Chinese and we could get together and clobber them.”341 Of
course, as the negotiations for an Iran-Pakistan-India pipeline have shown, this is easier
said than done. It is also not clear what India would do if Iran acted “funny” as it did
in the case of the aborted LNG deal mentioned above.
■ Turkmenistan-Afghanistan-Pakistan-India. Initial feasibility studies on such a
pipeline were done by ADB and Unocal. For the longest time, the MEA had objections
to India’s participation (it has recently withdrawn these objections). The proposed
pipeline would bring gas from Daulatabad in Turkmenistan through Herat, Kandahar,
Quetta, and Multan to India where it would link up with India’s HVJ pipeline. It is estimated
that this would bring 1.6 bcf of gas to the country at $2.4 to $3 per mmbtu. India
would offer a large market for gas from Daulatabad (and the pipeline would allow
Turkmenistan to diversify its options). Some have proposed adding Russia and
Kazakhstan to the beginning of the pipeline.342
■ Myanmar-Bangladesh-India. The three countries reached an agreement in January
2005 to discuss the proposed pipeline. It would take gas from Myanmar (including
fields in which ONGC and GAIL have a stake) through the Indian states of Tripura
and Mizoram through Bangladesh to the Indian state of West Bengal. The pipelines as
initially proposed had benefits for all three parties: Myanmar would find a market for
its gas and thus a source of revenue; India would get natural gas from Myanmar and a
way to transport gas from its own Tripura state; and Bangladesh could transport natural
gas from its own fields in the East to its western half (but not to India because of
domestic opposition) and collect transit fees from India.
There is a debate about whether LNG imports or pipelines should be the preferred method
of importing natural gas. Importing LNG is considered to be more cost-effective and less
apt to be affected by geopolitical problems and supply disruptions.343 An observer has noted
that “pipelines do not buy diversity” meaning that because of the enormous investment
required in pipelines, a country is then locked into that option.344 Aiyar, who is a strong proponent
of pipelines, admitted that conventionally shipped LNG could be a better option in
the case of Bangladesh and Myanmar, especially if they became “impossibly difficult.”345
LNG advocates have also argued that it provides more secure supply than pipelines, which
can be disrupted along the way.
The Brookings Foreign Policy Studies Energy Security Series: India 78
Proponents assert that pipelines offer greater supply security than either equity oil or LNG
because the supplying country makes infrastructure investments and would find it difficult
to divert the gas elsewhere. But there is debate about whether there is enough political cooperation
to make pipelines projects feasible. It is something of a chicken-and-egg scenario.
Which comes first? Is it an environment of political cooperation or the pipeline itself, which
in turn, can create cooperation and codependency?
These issues were highlighted by the Russia-Uzbekistan situation, which sparked questions,
especially about the IPI pipeline. One observer stated that “the Russians demonstrated—
through their stand off with Ukraine in early January—the vulnerability of energy dependent
countries like India.”346 Pipeline supporters dismissed such parallels, saying that
international guarantees could provide a remedy. They point to the Indus Water Treaty,
which has been in place between India and Pakistan for years, as proof that a dispute resolution
mechanism can be worked out. Naysayers pointed out that such guarantees could
reduce, but not eliminate the chances of a supply cutoff.347
Pipeline supporters further argue that economic interests can outweigh security concerns
and that pipelines are more economical over short distances. LNG involves additional transport
and storage costs as well as losses in the liquefaction process. They point out that the
price of LNG is linked to oil pricing in some long-term contracts (India’s deal with Qatar,
for example, links the cost of LNG to a predetermined basket of crude). This arrangement
means that LNG’s price tends to be volatile, while the price of pipeline gas is fixed for a
longer term and determined by negotiations.348
A third option has been suggested. Rather than importing gas, this alternative would involve
constructing gas-fired power plants in the exporting countries, with power being transmitted
over high-voltage direct current lines. Advocates have suggested that a comparative
analysis be conducted to determine the most economical option.349
COAL-BED METHANE GAS (CBM). This energy source is being considered as an alternate
to natural gas. (India’s CBM potential is estimated to be between 1260-2540 mtoe).350 The
government has offered CBM blocks in a process similar to that of NELP. Two rounds of
bidding have been completed and a third is underway; thirteen blocks have been awarded
for exploration and production. Indian corporations such as GAIL are forming joint ventures
to develop CBM projects encouraged by the government.351 GAIL has signed a MoU
with Australian company Arrow Energy (a coal seam gas producer), which is also thinking
of bidding for a CBM block.352
Private companies like RIL have announced that they will be investing funds to start production
by 2008 from the CBM blocks they have been assigned. GAIL, OIL, and ONGC
are expected to begin production from their blocks in 2010.353
STRATEGIC GAS RESERVES. The government has also considered proposals by GAIL to
build a fifteen-day strategic gas reserve to hedge against supply disruptions.354
The Brookings Foreign Policy Studies Energy Security Series: India 79
LIMITATIONS
There continue to be problems that could inhibit greater availability (and therefore use) of
natural gas. Existing fields in India are expected to experience declining production. And
obtaining natural gas from abroad is not a sure option. Questions of logistics, politics, costeffectiveness,
and security issues have continued to dog proposed pipeline efforts.
Negotiations have proven tricky in every case—what a former minister called “needless argument”
has seemed to others to be quite necessary.355 Apart from these problems, the more
general criticism arises that if India is searching for supply security and reliability, pipelines
through Afghanistan, Pakistan, and Myanmar might not prove an effective solution.
The proposed Myanmar-Bangladesh-India (MBI) pipeline has met with resistance from
Bangladesh, which wants to link its participation to Indian concessions on other commercial
fronts. Bangladesh has been reluctant to participate due to domestic opposition, which
has developed despite the fact that the proposed pipeline would help transport the country’s
own gas from its eastern to its western side and would bring in hefty transit fees. The alternate
option is a route that would circumvent Bangladesh, which would mean a longer distance
(five times greater than in the original proposal) and higher costs.356 In Myanmar there
has also been opposition to the pipeline from some local communities, environmental
groups, and civil society organizations.357 At the end of the day, the proposal may break
down over costs. The current price being discussed is $4-5 per mmbtu plus transit fees,
which might be more than India is willing to pay. Delays have already caused Myanmar to
look to China, which will receive gas from the Block (A1) originally slated for the pipeline.
Myanmar has offered to supply the MBI pipeline from another block, but that would also
add to the length of the pipeline.358
Difficulties dog the other proposed pipelines as well. The Iran-Pakistan-India pipeline may
now be curtailed to the Iran-Pakistan pipeline. Prime Minister Singh had always acknowledged
that there would be difficulties in implementing this project. Differences on project
structure (India wanted a sales purchase agreement at the India-Pakistan border), price, fees,
route, and management structure have caused India to suspend its involvement in the discussions.
Earlier there were concerns that Pakistan was overcharging transit fees. Since
Pakistan would also be a recipient of natural gas from the pipeline, it was argued that India
would be subsidizing Pakistan’s gas use. In addition, supply security questions continued to
trouble the project. India-Pakistan relations tend to wax and wane; when they are in a
slump, as is currently the case, pipeline naysayers protest even louder.
Iran’s involvement added its own complications to the project. With the Iran-Libya
Sanctions Act (or potentially its replacement—the Iran Sanctions Extension Act) in effect,
a number of multinational companies were hesitant to participate in the pipeline project. For
India, there were also political complications with pipeline negotiations occurring in the context
of discussions about a potential U.S.-India nuclear “deal” and the international community’s
bid (which India supported) to limit Iran’s ability to develop a nuclear weapons
program.359
While India has instead decided to join the Turkmenistan-Afghanistan-Pakistan pipeline
talks, questions of security and lack of an up-to-date feasibility study360 have troubled those
The Brookings Foreign Policy Studies Energy Security Series: India 80
discussions as well. In addition, with Russia and China co-opting most of the natural gas
from Turkmenistan, there are worries that there would not be much left for export to India,
especially with Russia scheduled to take over the Daulatabad field. To the argument that
Turkmenistan would want to diversify its markets, the retort has been that this could take a
while. There are also some doubts about how much gas is actually available from the field
(in the past, doubts about reserves as well as technical feasibility shelved an Oman-India
pipeline)361 and how much of the natural gas flowing through the pipeline would go to
Pakistan.
India has experienced setbacks in its quest for LNG abroad as well. While there have been
efforts to increase the number of LNG terminals, there have also been delays and problems.
India’s LNG search has disproved some observers’ contention that one of LNG’s advantages
is that it is “free of politics.”362 Despite India’s diplomatic efforts to balance its relationships
with the United States and Iran, the latter showed that LNG imports could be “impossibly
difficult,” recently cancelling a $22 billion deal to supply India with LNG. Many think this
was Iran’s way both of making clear its displeasure with India’s growing relationship with
the United States and pressuring India to agree to its terms on the pipeline. Instead, India
has had to resort to buying LNG on the spot market at a much higher rate.
Coal
INCREASED DOMESTIC PRODUCTION. Given the country’s large reserves of coal, the
government has been trying to encourage more efficient mining and greater coal production.
It attempted to take itself out of decisions on pricing; broadened the definition of captive
coal mining, allowing it in major sectors that use coal (like steel and power generation); and
permitted state government companies to mine coal.
OTHER USES OF COAL. There has also been some interest in coal gasification that could
exploit coal at greater depths. ONGC and CIL have joined forces for efforts in this arena,
and GAIL is also working in this sector. At the moment, however, this option is of limited
value because available technology applies largely to high-grade coal, which India does not
have. Companies are also considering pursuing coal liquefaction.
INCREASED IMPORTS. To facilitate imports, the government has reduced customs duty
on imported coal to 5 percent. The Planning Commission has also suggested looking at
acquiring equity coal.
LIMITATIONS
Importing coal is not an easy option. It is more expensive than using domestic coal and
requires additional investment in ports and railroads, which would raise the cost of power
generation. Estimates indicate that imported coal is $5-$7 per million kilocalories more
expensive. There are also concerns that importing coal in large quantities will expose it to
the same supply disruption risks as oil. These limitations could make coal a less competitive
energy source.
On the domestic side, shortages persist. By 2012 the coal shortfall is expected to be 100 million
tons (currently, it is about 30 million to 40 million tons).363 A consulting company esti-
The Brookings Foreign Policy Studies Energy Security Series: India 81
mates that this shortfall could cut India’s growth rate by 1 percent.364 Coal shortages have
meant higher prices. And if oil prices continue to rise, officials expect coal prices to rise further
as well—one official observed that while coal might be cheaper than oil, it is not cheap
per se.
Most officials recognize CIL’s monopoly as the biggest problem for the coal sector, though
few will admit it publicly. The combination of CIL’s monopoly and the coal shortage translates
to profits for the company. But CIL is considered inefficient (production costs are estimated
at 50 percent higher than in leading countries),365 with too many employees (as the
second largest employer in the world), strong unionization, too few funds, and low productivity.
It is estimated that CIL delivers on only 89 percent of its commitments.366
Apparently, even prospective job applicants do not have a high opinion of the company—
half of the six candidates short-listed for its top job by the Public Enterprise Selection Board
did not show up, and those who did, did not have appropriate technical qualifications.367
CIL’s solution to “[bring] online new mines and [make] existing ones more efficient” seems
more readily said than done, and many observers think it is unlikely to be achieved if left to
CIL.368 The company lacks the technical (and sometimes financial) capacity to mine efficiently
and access coal in deeper areas. In addition to CIL’s self-generated troubles, the market
itself is skewed. There continues to be little transparency in price determination and a
lack of independent regulation. It has been suggested that the government take a page from
the oil and gas sector and deregulate the coal mining industry.369
Reform has been painfully slow. The earlier NDA government attempted to open the sector
to private participation—in 2000 it introduced the Coal Mines (Nationalization)
Amendment Act in Parliament, but it has been stuck there since. Instead, the government
opened the sector to captive mining, which allowed coal mining for a corporation’s own consumption.
While the Act remains logjammed in the legislature due to lack of political consensus,
the government has also tried to crack the market open a bit recently by allowing
companies owned by some states to mine coal in nineteen blocks and to sell the coal to other
consumers.
In lieu of more “radical” reform—which seems improbable at present—it has been suggested
that the government consider breaking up CIL into smaller, independent PSUs that
at the least would have to compete with each other. An expert committee, constituted by the
government in 2004, has suggested additional reforms including some amount of deregulation
and more autonomy for CIL’s subsidiaries. Considering the record of reform to date,
even small steps would be a positive sign. But the only real solution, many say, is to establish
a truly open coal market.
Problems are not restricted to lack of market reform and efficient production. While India
might have large coal reserves (though there are analysts who consider it a “myth of abundance”),
370 these reserves are concentrated in a few geographic areas. Some reserves cannot
be extracted with the technology currently being used by CIL. Other reserves are inaccessible
or in areas where coal mining comes up against concerns about environmental security
(because of the potential for forest depletion) or food security (if the coal is under agricul-
The Brookings Foreign Policy Studies Energy Security Series: India 82
tural land). The reserves contain high-ash content coal, which is more polluting and has
lower thermal efficiency. In addition, estimates indicate that these reserves will be exhausted
in forty years if there is a 5 percent growth rate in production. At the current rate of consumption,
proven reserves will be exhausted in eighty years.371
Adding to the mix is the problem of inadequate transport infrastructure—both to support
increased imports and to transport domestic coal. Most of India’s coal is located in the eastern
part of the country, so it has been suggested that it makes more sense to transport power
than coal.372 The scenario is exacerbated by inadequate coordination among the coal ministry,
the railways, and shipping ministries.
Nuclear Energy
INCREASING CURRENT POTENTIAL. The government is moving ahead with various
plans to increase the country’s capacity to produce nuclear energy. Currently, eight nuclear
reactors are under construction—six pressurized heavy water reactors or PHWRs and two
light water reactors or LWRs, with a total capacity of 3420 MW—with Russian assistance
for the construction of the LWRs. Earlier this year, eight more reactors, which would have
a total capacity of 6800 MW, were cleared for construction.
Advocates are pushing for the development of fast-breeder reactors (FBRs).373 The
Department of Atomic Energy has set up a company, Bhavini, to construct its prototype 500
MW fast-breeder reactor, which will use plutonium (produced from uranium). This is stage
two of India’s nuclear program. The third involves development of FBRs that would use
thorium. Unlike uranium, India has large reserves of thorium. The country is also looking
at developing Advanced Heavy Water Reactors as an alternate third stage (India’s Bhabha
Atomic Research Center has been assigned responsibility for the R&D efforts).
SIGNING AGREEMENTS. The recent nuclear “deal” between President Bush and Prime
Minister Manmohan Singh, which would allow sale or transfer of nuclear technology,
equipment, and materials for India’s civilian nuclear program, has brought to the fore discussion
about the potential of nuclear energy in India. Both countries have made the case
that the deal will “enhance energy security,” with President Bush even arguing that it will
result in lower gas prices for American consumers (a subject of much debate).374
The deal could also also open the door for greater cooperation in this field with countries
other than the United States375—India has been aggressively courting members of the
Nuclear Suppliers’ Group, who could potentially supply it with much-needed uranium as
well as technology.
There are a number of companies—U.S. and others—waiting to participate in the nuclear
energy sector in India.376 With the country aiming for twenty-five to twenty-eight more
reactors, official estimates over the next decade and a half indicate that the nuclear reactor
business in India could be worth up to $40 billion.377 The government anticipates interest
from companies like General Electric, Westinghouse, Atomstroy Export, and Areva (the
latter has said it would offer a third generation 1600 MW evolutionary power reactor).378
Indian companies like Reliance Energy, Tata Power, and the National Thermal Power
The Brookings Foreign Policy Studies Energy Security Series: India 83
Corporation (NTPC) have also shown interest in participating in the sector, although the
government has yet to decide whether they would be allowed to invest in it (recent reports
indicate that the government has agreed to allow NTPC to participate). At the moment, the
Nuclear Power Corporation of India Limited has a monopoly on producing nuclear energy
in the country, and it is likely to stay involved through joint ventures, among other vehicles.
India also recently joined a consortium that includes the EU, China, Japan, South Korea,
Russia, and the United States as a partner in the ITER (originally International
Thermonuclear Experimental Reactor) project. Based in France, the project will conduct
R&D “to demonstrate the scientific and technical feasibility of fusion power.”379 India’s 10
percent contribution is expected to be in the form of manufacturing equipment.
LIMITATIONS
There are many proponents of nuclear energy in India, including the country’s president.
But nuclear energy may not prove to be the fix that some believe it to be. India has fallen
short of its own, mostly rhetorical, targets (see box below). And there has been ensuing criticism
that “nuclear energy advocates have long promised much and in exchange for huge
budgets and unstinted government support, delivered little.”380
The latest aim is to produce 20,000 MW of nuclear energy by 2020.381 However, under the
current circumstances, India has limited quantities of uranium (only enough to produce
10,000 MW), and thorium reactors are still some years away. Lack of access to advanced
technology, skilled professionals, and funding further hinders the process of achieving these
ambitious targets.
Some of India’s existing reactors already need external uranium supply. A number of experts
realize that without outside assistance—financial, technological, and material—visions of
bountiful nuclear energy are unlikely to materialize. It is one of the reasons the current
Indian government is interested in a nuclear agreement with the United States. On the basis
of the potential of such of an agreement and the prospect of subsequent international cooperation,
the prime minister doubled the nuclear energy production target to 40,000 MW.
The Brookings Foreign Policy Studies Energy Security Series: India 84
Predictions for Nuclear Energy Development
Person or
Organization
Atomic Energy Commission in 1954
Dept. of Atomic Energy chief in 1962
Dept. of Atomic Energy chief (1960s)
Raja Ramanna (Dept. of Atomic
Energy) in 1984 (post-sanctions)
Target
Year
1980
1987
2000
2000
Targeted Electricity
Generation from Nuclear
(in MW)
8,000
20,000–25,000
43,500
10,000
Actual Electricity
Generation from Nuclear
600
950
2,720
2,720
Source: MV Ramana (http://www.npec-web.org/Presentations/Ramana-IndiaNuclear%20Energy.pdf).
While nuclear power proponents are looking to the U.S. agreement to open the door to
technology, high-tech skills, and uranium supplies, it is not a done deal. Resistance persists
in the U.S. Senate amid concerns about the agreement’s effect on the nonproliferation
regime and its potential to spark an arms race in the region. In India there is opposition from
some of the political parties, as well as the nuclear bureaucracy. Finally, Indian legislators
(like their U.S. counterparts) will have to make changes in the Atomic Energy Act to allow
private investment.
Officials acknowledge that it is going to take a while for nuclear energy to make a significant
impact in India.382 It is viewed as a medium-term if not a long-term source. Thorium
exploitation technology is not yet available for commercial use, and its use is likely decades
away. Even commercial viability for the ITER project is not expected to be realized until
2040.383 Nuclear energy also involves a number of waste disposal and safety issues that have
not been fully thought through. Finally, relative to other sources, nuclear energy remains an
expensive proposition.
Hydro Sources
Because of high initial set-up costs and risks, the government is providing financial support
to some development projects in hydroelectricity generation. It is trying to attract
private sector investment (currently at just 3 percent), and is considering a proposal that
would put state-owned companies in charge of projects until they are approved. The projects
would then be transferred to private companies or operated in a joint venture with them. The
government is also trying to rationalize tariffs, accurately assess completion costs, and provide
investment incentives. A number of people have also suggested that India look to countries
like Nepal (where India has helped build generation capacity) as sources of hydroelectricity.384
Energy export to India has already powered Bhutan’s economic development.
LIMITATIONS
Problems persist in this sector as well. India’s water resources are not evenly distributed or
developed. The rivers used for hydroelectric projects have different characteristics—in North
India, the rivers are snow-fed; in South and Central India, they are rain-dependent and
therefore more prone to disruption. (One official commented that if India does not want to
be dependent on oil, it should hardly want to depend on nature.) A number of the projects
are in areas with rough terrain, and a lack of surveys for some of the sites adds to this problem.
Project developers have had to search harder for funding because sources like the World
Bank (which has become reluctant to fund hydroelectric projects) have dried up though others
funders, like the European Union, have expressed an interest. Project clearances take
time, and involve land acquisition and dealing with state governments, which have their own
agendas. Some of these problems could be sorted out through the government’s proposal to
have two phases of development—pre-clearance, with the PSUs heading the efforts, and
post-clearance—however, this option leaves open the possibility that the state-owned companies
will control the sector and be unwilling to give up control. There has also been opposition
on environmental as well as humanitarian grounds because large numbers of people
The Brookings Foreign Policy Studies Energy Security Series: India 85
are displaced by these projects. Differences among two or more states as to which controls
river resources have also proved a major stumbling block for such projects. Finally, when
looking abroad, countries like Nepal, which has a vast untapped energy potential in its
Himalayan river system, have been reluctant to export hydroelectricity to India.
Nonconventional Sources
India has limited proven oil and gas reserves and is facing rising oil prices, depleting coal
deposits, increasing greenhouse gas emissions, and an endangered ecosystem. With significant
amounts of nuclear energy still years away, the government has been encouraging
the development of nonconventional energy sources. These sources are considered
cleaner and more viable in the long run (because India is considered to have great potential
for their development and most of them are renewable). And they do not have the kind
and extent of external costs that fossil fuels do.385 Below is a brief look at some of the
options in this sector:
BIODIESEL. References to jatropha are bandied about a good deal these days in Indian
energy circles. Jatropha is a plant used in the production of biodiesel. The government has
supported the establishment of a jatropha technology center, as well as a $10 million biodiesel
production facility in Mysore, which is aiming to produce 10 million liters a year
(from jatropha and other oil seeds). It has made land available for the project.386
There is also a government proposal to cultivate 11 million hectares to aid the production
of biodiesel.387 It is estimated that India has 50 million hectares of wasteland and 34 million
hectares of protected forest areas that could be used to cultivate such crops.388 Talk is of producing
about 100,000 MW of power from the cultivation of 40 million hectares.
SOLAR ENERGY. India is considered to have the largest decentralized solar energy program
in the world.389 With estimates of about 300 clear sunny days, this program is considered to
have a vast potential.
WIND ENERGY. By 2004 India was the fifth largest producer of wind energy with 95 percent
of investment coming from the private sector.390 The total installed capacity is 3595
MW in the states of Andhra Pradesh (120.6 MW),Gujarat (253.53 MW), Karnataka
(410.75 MW), Rajasthan (284.76 MW), and Tamil Nadu (2036.92 MW). From 2005–07
it is estimated that an additional 3,000 MW of additional wind energy capacity will be installed.
391 While the initial investment is high, it takes only ten years to recover costs and
wind generating machines last twenty years. Estimates of India’s potential for wind energy
vary, but the Planning Commission projects that India has the potential for grid-connected
wind capacity of around 20,000 MW.392 Companies like Bajaj Auto (also Tata, Birla, RPG,
and Godrej) are setting up wind energy farms—these investments give them official license
to write off their entire energy bill.
OTHERS. Tides, biomass, and hydrogen are other nonconventional sources that the government
is looking to encourage.
The Brookings Foreign Policy Studies Energy Security Series: India 86
LIMITATIONS
As the Planning Commission has said, it would require a “more visionary plan” to make the
contribution of nonconventional sources more than modest.393 It would also require massive
public and private sector commitment to biomass power, biogas, and biofuels. Data on these
energy sources and evaluations of their potential are not up to speed. With so many options
in this sector, it is also difficult to figure out how to divvy up the resources that are available
and to decide which sources will be most likely to succeed commercially. Advocates continue
to maintain that the economics of nonconventional energy can work, adding that these
sources are viable alternatives, if adequately subsidized. Their counterparts have also argued
that the government would be better off subsidizing the development of nonconventional
energy sources than petroleum products.
Overall, the nonconventional energy sector is still largely undeveloped. It suffers from lack
of attention and resources. Government officials often promote the fact that MNES is the
first dedicated ministry of its kind, but at the moment it has little clout. This could
change—with oil prices touching unexpected highs, a number of nonconventional sources
that were once considered too expensive to bring into play are being looked at anew.
In addition to financial and technological issues, there are logistical problems and tradeoffs
that must be considered. The development of almost all nonconventional energy
sources requires land, which is limited in India. This gives rise to food security concerns
(which some have called the food vs. fuel dilemma394), in addition to potential environmental
problems.
Biodiesel and biomass projects also divert much-needed water (as well as fertilizer, the production
of which, in turn, requires natural gas). Solar energy remains expensive. And there
are a limited number of regions in the country where wind can be exploited effectively
because energy production requires specific wind speeds. However, the potential for wind
power has yet to be explored in many parts of India.
Additional limitations include technological constraints. Scientists admit that the “bioenergy
fantasy” is still dependent on external technology—a situation that is unlikely to
change.395 India’s planners have therefore suggested that the country direct its research to
areas where it can piggyback on technology developed by others.
The Brookings Foreign Policy Studies Energy Security Series: India 87
Notes
1. The title of his chapter on India. See Robert A. Manning, The Asian Energy Factor (New York: Palgrave, 2000),
p.119.
2. N. K. Singh, “Introduction to Conclave,” presentation for conference on “India’s Energy Security: Major
Challenges,” National Conclave, Observer Research Foundation, New Delhi, February 14, 2006. (N. K. Singh
was a senior official in the Indian bureaucracy.)
3. Ligia Noronha, “The Problem,” Seminar #555 (November 2005): 12.
4. United Nations ESCAP, Urban Environmental Governance: For Sustainable Development in Asia and the Pacific
(New York: United Nations, 2005), p. 65.
5. From data derived by analyst Gerald Walsh using data from the Central Statistical Organization. EIU Data
Services, EIU Country Data, (eiu.bvdecom/cgi/template.dll?product=101 [May 23, 2006]).
6. Expert Committee on Energy Policy, Draft Report of the Expert Committee on Integrated Energy Policy (New
Delhi: Planning Commission, 2005), p. 11. Also Debnath Shaw, Securing India’s Energy’s Needs: The Regional
Dimension (Washington, DC: Center for Strategic and International Studies, 2004), p. 5.
7. International Energy Agency, World Energy Outlook 2004 (Paris: OECD, 2004), pp. 498–99.
8. BP, BP Statistical Review of World Energy (June 2005), p. 37.
9. International Energy Agency, World Energy Outlook 2004, pp. 498–99.
10. I. P. Khosla, “Introduction,” in Energy and Diplomacy, edited by I. P. Khosla (New Delhi: Konark Publishers,
2005), p. 8.
11. International Energy Agency, World Energy Outlook 2004, p. 498.
12. Expert Committee on Energy Policy, Draft Report of the Expert Committee on Integrated Energy Policy, p. 73.
13. Ibid., p.1.
14. “Pursuit of Power,” Economist Intelligence Unit—Business Asia, June 26, 2006: 1.
15. Goldman Sachs, “Improving Energy Intensity Across the BRICs,” BRIC Layers, Issue no. 06/02, February 14,
2006.
16. EIU Data Services, EIU Country Data.
17. International Energy Agency, World Energy, p. 82.
18. Expert Committee on Energy Policy, Draft Report, p. 54.
19. BP, BP Statistical Review, p. 9.
20. Ibid., p. 6.
21. Ibid., p. 4.
22. International Energy Agency, World Energy, p. 106.
23. At a conclave held in New Delhi in February 2006, Kirit Parikh, chair of the Planning Commission of India’s
Expert Committee, which was charged with drafting a report on an integrated energy policy, joked that Allah
had blessed most of his followers with large reserves of oil; with the second largest Muslim population in the
world, he might have blessed India with bountiful reserves as well. Kirit S. Parikh, “Valedictory Address,” to conference
on “India’s Energy Security: Major Challenges National,” Observer Research Foundation, New Delhi,
February 14, 2006.
24. TERI, New Exploration Licensing Policy: Will It Strike Oil? (static.teriin.org/energy/nelp.htm [May 23, 2006]).
25. Subir Raha, “Energy Tomorrow,” Seminar #555 (November 2005): 18.
26. Expert Committee on Energy Policy, Draft Report, p. 63.
27. International Energy Agency, World Energy, p. 498.
28. BP, BP Statistical Review, p. 28.
29. Ibid., p. 20.
30. Ibid., p. 33.
31. International Energy Agency, World Energy, p. 498.
32. Indrani Dutta, “Capacity build-up in coal essential,” The Hindu, May 22, 2006, p. 16.
The Brookings Foreign Policy Studies Energy Security Series: India 88
33. John Larkin, “India’s energy woes go deep,” The Wall Street Journal, July 11, 2005, p. A11.
34. Expert Committee on Energy Policy, Draft Report, p. 39.
35. International Energy Agency, World Energy, p. 498.
36. Nuclear Power Corporation of India Limited, Nuclear Power Plants in Operation (www.npcil.nic.in/
PlantsInOperation.asp [May 23, 2006]).
37. Ministry of Power, Power Sector at a Glance, October 15, 2006 (powermin.nic.in/JSP_SERVLETS/
internal.jsp).
38. A.J. Abdul Kalam, “Address to the Nation on the Eve of the 59th Independence Day–2005,” Rashtrapati
Bhawan, New Delhi, August 14, 2005. (Kalam is India’s president.)
39. Larkin, “India’s energy woes.”
40. “India to target Gulf for energy partnerships, says Power Minister,” Hindustan Times, July 3, 2005.
41. “NTPC in search for gas for low-cost powergen,” International Gas Report, no. 550 (June 2, 2006): 27.
42. “India to target Gulf for energy partnerships, says Power Minister.”
43. N. K. Singh, “Introduction to Conclave.”
44. Kalam, “Address to the Nation.”
45. There have been reports about the Indian energy sector from KPMG, PriceWaterhouseCoopers, McKinsey, and
Ernst and Young.
46. Montek Singh Ahluwalia, “Inaugural Address,” to conference on “India’s Energy Security: Major Challenges,”
National Conclave, Observer Research Foundation, New Dehli, February 14, 2006.
47. R. K. Pachauri, “Oil in India’s Energy Future,” Seminar #555 (November 2005): 54.
48. Pachauri, “Oil in India’s Energy Future.”
49. Parikh, “Valedictory Address.”
50. See Daniel Yergin, “The Katrina Crisis,” The Wall Street Journal, September 2, 2005, p. A14. Also, Talmiz
Ahmad, “Geopolitics of Oil,” Seminar #555 (November 2005): 25.
51. Kalam, “Address to the Nation.”
52. Expert Committee on Energy Policy, “Draft Report,” p. 56.
53. KPMG, India Energy Outlook (2006), p. 6.
54. Expert Committee on Energy Policy, Draft Report, p. 63.
55. Expert Committee on Energy Policy, Draft Report, p. 1.
56. Rajiv Kumar, “Energy Pipelines,” in Khosla, Energy and Diplomacy, p. 69.
57. “India as an energy hot spot,” Indian Express, July 13, 2005.
58. T. N. R. Rao, “Involve Private Players,” Seminar #555 (November 2005): 44.
59. Rajat Gupta et al., “Securing India’s Energy Needs,” The McKinsey Quarterly (2005): 92.
60. Bani P. Banerjee, Handbook of Energy and the Environment in India (New Delhi: Oxford University Press, 2005),
p. 175.
61. Interviews with a government official and an economic analyst, February 2006.
62. Pachauri, “Oil in India’s Energy Future,” p. 56.
63. TERI, “New Exploration.”
64. Former petroleum and natural gas secretary S.C.Tripathi, remarks at conference on “India’s Energy Security:
Major Challenges,” National Conclave, Observer Research Foundation, New Delhi, February 14, 2006.
65. Pachauri, “Oil in India’s Energy Future,” p. 54.
66. “PM Stresses Need for India to Diversify Energy Supplies,” BBC Monitoring South Asia, August 6, 2005.
67. Pachauri, “Oil in India’s Energy Future,” p. 55.
68. Khosla, Energy and Diplomacy, p. 8.
69. KPMG, India Energy, p. 8.
70. Pachauri, “Oil in India’s Energy Future,” p. 54.
The Brookings Foreign Policy Studies Energy Security Series: India 89
71. Interview with analyst, February 2006; also Pachauri, “Oil in India’s Energy Future,” p. 53.
72. This lengthy period is necessary so that the electoral officials and accompanying security forces can move from
district to district in turbulent areas; this process extends the polling period, but it also ensures a free and peaceful
election.
73. Strictly speaking India’s electoral system should prevent this scenario. But due to the fragmentation of political
parties at the center and in a number of states, many governments are made up of coalitions (like Israel), which
are beholden to small, even miniscule political parties to stay in power.
74. The headlines appeared in Indian newspapers such as The Times of India, The Indian Express, The Hindustan
Times, The Hindu, The Financial Express and The Economic Times from August 18, 2000 to November 19, 2000
and from March 4, 2006 to June 19, 2006.
75. Mani Shankar Aiyar, “Interview,” Seminar #555 (November 2005): 59.
76. Aiyar, “Interview,” p. 59.
77. The World Bank, World Development Indicators, 2005 (devdata.worldbank.org/wdi2005/Table2_5.htm).
78. R. K. Pachauri, “Securing India’s Energy Future,” Indian Express, August 4, 2005.
79. Anil Agarwal, “Introductory Remarks,” conference on “India’s Energy Security: Major Challenges,” National
Conclave, Observer Research Foundation, New Delhi, February 14, 2006. (Agarwal is president of
ASSOCHAM, a business association.)
80. Parikh, “Valedictory Address.”
81. Banerjee, Handbook of Energy, p. 273.
82. Ibid., p. 272.
83. Annath Chikkatur, “Comments on the Draft Report of the Expert Committee on Integrated Energy Policy,” presentation
at conference on “India’s Energy Security: Major Challenges,” National Conclave, Observer Research
Foundation, New Delhi, India, February 15, 2006.
84. Crude oil and Indian retail price data from Indian Petroleum Planning and Analysis Cell (pac.org.in/OPM/
Price_revision_other_cities_MS.htm and http://ppac.org.in/ppac_0506/international_price_0506.htm); US
retail price data from EIA, “Retail Gasoline Historical Prices” (http://www.eia.doe.gov/oil_gas/petroleum/data_
publications/wrgp/mogas_history.html).
85. “Burnout: Oilcos lose $51m/day,” The Economic Times, May 18, 2006.
86. “The Perils of Populism, DNA India, May 7, 2006. (www.dnaindia.com/report.asp?NewsID=1028247&
CatID=19).
87. “High oil prices to cut Asian economic growth: ADB,” Agence France Presse, May 4, 2006.
88. “ONGC at Rs. 154.85 Bn net profit is India’s most valuable corp,” The Press Trust of India, April 16, 2006.
89. “Crude jolt: Oil import bill bloats 52% in ‘05-06,” The Economic Times, May 11, 2006. Figures for India’s total
import bill are from Reserve Bank of India, “Balance of Payments (BoP) Developments in 2005–06,” June 30,
2006 (www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=15001).
90. “India central bank urges Govt to take oil price decision,” Reuters News, May 3, 2006.
91. S.V. Narasimhan, “Removing Price & Market Distortions to Enhance Fuel Choices,” presentation at conference
on “India’s Energy Security: Major Challenges,” National Conclave, Observer Research Foundation, New Delhi,
February 14, 2006.
92. “India Hints at Removing Energy Subsidy,” UPI, May 22, 2006.
93. Prem Shankar Jha, “The Perils of Populism,” The Deccan Herald, May 3, 2006.
94. India’s CO2 emissions grew 57 percent from 1992 to 2002. See World Bank’s “Little Green Data Book 2006”
(www.noticias.info/asp/aspComunicados.asp?nid=176104&src=0).
95. “Concern over environment degradation,” The Hindu, January 2006: 3.
96. Manmohan Singh, prime minister of India, “Inaugural Address,” at conference “Petrotech 2005” (New Delhi,
India, January 16, 2005).
97. Shaw, India’s Energy’s Needs: Regional, p. 9.
The Brookings Foreign Policy Studies Energy Security Series: India 90
98. From OIL corporate objectives: “Sustain & promote environmental protection” (oilindia.nic.in/ourcomp_
vision.htm). From ONGC: “Abiding commitment to safety, health and environment” (www.ongcindia.
com/vision.asp); one of five main objectives: “Ensuring best feasible HSE practices” (www.ongcindia.com/corpgov.
asp). ONGC’s environmental policy can be found on its website (www.ongcindia.com/hse.asp#c).
99. The Indian government has forty-seven ministries with departments, as well as two separate independent departments,
which have more powers than the ministerial departments but less than the ministries. The heads of the
ministries and the independent departments are members of the Union Cabinet. An independent department can
be upgraded to a ministry.
100. Coal India Limited, “Functions & Responsibilities,” May 23, 2006 (coal.nic.in/file1.html).
101. Interviews with an economic analyst and a strategic analyst, February 2006.
102. See the Seventh Schedule (Article 246) of The Constitution of India (indiacode.nic.in/coiweb/fullact1.asp?tfnm=
00%20511).
103. Milind Raginwar, “Step on the gas,” Business Standard, January 23, 2006.
104. For example, the Assam government owns a part of the Numaligarh Refinery. See “Oil India, IOC to buy 90 pc
stake in African block,” Business Line, March 10, 2006.
105. The Department of Atomic Energy does not have separate representation in the Cabinet.
106. Ahluwalia, “Inaugural Address.”
107. Soumya Kanti Mitra, “Energy Synergy,” The Economic Times, April 9, 2006.
108. Mani Shankar Aiyar, “Energy Cooperation: India and Its Neighbours,” in Khosla, Energy and Diplomacy, p. 37.
109. TERI, “New Exploration.”
110. Zee News, Nonconventional sources can help generate 15,000 mw power, June 1, 2006 (www.zeenews.com/znnew/
articles.asp?rep=2&aid=297398&ssid=50&sid=BUS).
111. Gupta et al., “India’s Energy Needs,” p. 101.
112. N. K. Singh, “Introduction to Conclave.”
113. Shaw, India’s Energy’s Needs: Regional, p. 8.
114. “Energy Committee set up,” EIU Viewswire no. 301, July 21, 2005, p. 19.
115. “Panel to guide India’s energy policy,” Hindustan Times, July 13, 2005.
116. Interview with a government official, February 2006.
117. Expert Committee on Energy Policy, Draft Report, p. 76.
118. Ibid.
119. See Article 1.4 of Ad Hoc Grouof Experts, Report of Ad Hoc Grouof Experts on Empowerment of Central Public
Sector Enterprises (New Delhi: Department of Public Enterprises, 2005).
120. In Mughal ruler Akbar’s court, nine of his most eminent and talented courtiers were given this designation (also
the case for some other Indian rulers).
121. See Article 1.3 of Ad Hoc Grouof Experts.
122. Ibid.
123. “Get professional,” Hindustan Times, May 29, 2006.
124. The Ad Hoc Committee recommended that this be reduced to twice a year.
125. “ONGC, Petroleum Ministry sign MoU,” Hindustan Times, April 10, 2006.
126. Manning, Asian Energy, p. 127.
127. “India private oil majors gain retail fuel oil market share,” Platt’s Commodity News, December 22, 2005.
128. Amit Bhandari and Cuckoo Paul, “PSU oilcos give Reliance a tough fight,” The Economic Times, June 21, 2006.
129. “RIL, Essar Too Seek Oil Bonds,” The Economic Times, June 19, 2006, p. 7.
130. ONGC, Distribution of Shareholding.
131. “An Old School Oilman,” Business Today, October 21, 2005.
132. “Hunt for new IOC chief takes off,” Indian Express, November 22, 2004.
133. “India Energy Panel Advises against State Oil Companies Merger,” Dow Jones International News, July 11, 2005.
The Brookings Foreign Policy Studies Energy Security Series: India 91
134. “Aiyar laments India’s lack of synergy in energy,” Platts Commodity News, December 2, 2005, 04: 25.
135. “Plan for Strategic Oil Reserves Revived,” Business Standard, May 22, 2002, p. 1.
136. Manning, Asian Energy, p. 119.
137. Pachauri, “Securing India’s Energy Future.”
138. Pachauri, “Oil in India’s Energy Future,” p, 53.
139. Banerjee, Handbook of Energy, p. 292.
140. Aiyar, “Energy Cooperation: India and Its Neighbours,” p. 35.
141. Manmohan Singh, Petrotech 2005.
142. George Anderson, “Managing Energy Policy in Federations: Reflections on Canadian & other experiences,”
presentation at conference on “India’s Energy Security: Major Challenges,” National Conclave, Observer
Research Foundation, New Delhi, India, February 15, 2006.
143. Shaw, India’s Energy’s Needs: Regional, p. 6.
144. Ahluwalia, “Inaugural Address.”
145. Anecdotal evidence indicates the name comes from the phrase “dig boy, dig!” shouted at workers.
146. ONGC, Our Company: History (www.ongcindia.com/history.as[May 23, 2006]).
147. Ministry of Commerce and Industry, Industrial Policy Highlights (eaindustry.nic.in/handbk/chap001.pdf [May
23, 2006]).
148. TERI, New Exploration.
149. OIL, Our Company: Backdro(oilindia.nic.in/ourcomp_backdrop.htm [May 23, 2006]).
150. Planning Commission of India, 8th Five Year Plan. (planningcommission.nic.in/plans/planrel/fiveyr/8th/vol2/
8v2ch8.htm [July 1, 2006]).
151. Sajal Ghosh, et al., Energy Security Issues–India (New Delhi: Confederation of Indian Industry: 2003), p. 3.
152. TERI, New Exploration.
153. “Will India Skid on Oil Prices?” Business Line, May 3, 2006, p.10.
154. Sudha Mahalingam, “In pursuit of energy security,” The Hindu, February 1, 2005, p. 10.
155. Quoted in Yergin, “Katrina Crisis,” p. 160.
156. This was partly a result of the fire at Bombay High in July 2005. See “ONGC at Rs. 154.85 bn net profit is India’s
most valuable corp.”
157. “ONGC Fire won’t cripple India’s energy sector: Minister,” Asia Pulse, July 29, 2005.
158. “Indian ONGC gets acting chairman following Subir Raha’s exit,” Platts Commodity News, May 29, 2006, 01:21.
159. “India’s State Energy Co. Announces New Oil, Gas Finds,” BBC Monitoring South Asia, August 14, 2005.
160. “An Old School Oilman.”
161. Sunil Jain, “Performing-well capped,” Business Standard, May 29, 2006, p. 6.
162. TERI, “New Exploration.”
163. Aiyar, “Energy Cooperation: India and Its Neighbours,” p. 24.
164.“Cairn Energy gets new exploration blocks in India,” Dow Jones International News, July 26, 2005.
165. “Home and away,” Petroleum Economist, July 1, 2005.
166. TERI, “New Exploration.”
167. Gupta et al., “India’s Energy Needs,” p. 98.
168. “Oil sector strike may hit fuel supply,” The Hindu, May 30, 2006, p. 5.
169. “Oil sector officers to go on strike from May 31,” Business Line, May 28, 2006, p. 1.
170. G. Ganesh, “The politics of disinvestment,” Business Line, June 6, 2005, p. 8.
171. “Creating energy security priority area: Murli Deora,” Business Line, January 30, 2006.
172. PriceWaterhouseCoopers, Oil and Gas (Gurgaon, India: India Brand Equity Foundation, 2006), p. 2.
173. “Oil India, IOC to buy 90 pc stake in African block.”
The Brookings Foreign Policy Studies Energy Security Series: India 92
174. Aiyar, “Energy Cooperation: India and Its Neighbours,” p. 23.
175. Khosla, “Energy and Diplomacy,” p.11.
176. Srinivasan, “Energy Cooperation,” p. 60.
177. “OVL Begins Iran Drilling,” Emerging Markets Daily News, May 16, 2006.
178. “India’s ONGC aims for 417% rise in foreign oil, gas output,” Platts Commodity News, June 4, 2004.
179. Shaw, India’s Energy’s Needs: Regional, p. 11
180. Interview with economic analyst. April 2006.
181. Gupta et al., “India’s Energy Needs,” p. 95.
182. “India’s OVL Begins Drilling in Iranian Block,” Asia Pulse, May 15, 2006.
183. Conversation with the chair and managing director of a state-owned energy company, January 27, 2006.
184. Interview with Planning Commission official, February 2006.
185. “India, China Energy Deals with Iran ‘raise concerns’: US,” Asia Pulse, July 28, 2005. Indeed, in Libya, when
forty-four blocks were for sale, signature bonuses ranged from $1 million to $8 million; OVL paid $6 million.
See “IOC-OIL, OVL bag onshore block apiece in Libya’s second licensing round,” Indianpetro.com, October 4,
2005 (oilindia.nic.in/libya_oil.htm [May 23, 2006]).
186. OVL, Corporate: Profile (www.ongcvidesh.com/corp_profile.as[May 23, 2006]).
187. OVL, OVL Assets (www.ongcvidesh.com/ovl_assets.as[May 23, 2006]).
188. “OVL to buy 15% stake in Brazilian oil field for $170 mln,” The Press Trust of India, April 27, 2006.
189. Jeffrey Jones, “India to invest $1-billion in oil sands,” Reuters News Agency, February 1, 2006, p. B5.
190. OIL, Strategic Alliance: Overseas Operations (oilindia.nic.in/alliance_overseas.htm [May 23, 2006]).
191. OIL, Strategic Alliance: Overseas Operations.
192. “OVL Begins Iran Drilling.”
193. “China and India bid for PetroKazakhstan,” Greenwire, August 16, 2005.
194. “ONGC loses one more Russian oil asset to China,” The Economic Times, June 21, 2006.
195. Siddharth Varadarajan, “India and China: Rivals or Partners?” in Khosla, Energy and Diplomacy, p. 152.
196. Srinivasan, “Energy Cooperation,” p. 60.
197. “Govt loses by refusing to let ONGC acquire Nigeria oilfield,” The Press Trust of India, April 28, 2006.
198. “Indian ONGC gets acting chairman following Subir Raha’s exit.”
199. Aiyar, “Energy Cooperation: India and Its Neighbours,” p. 36.
200. Varadarajan, “India and China,” p. 152.
201. Ajish Joy in ORF Strategic Trends (April 2006).
202. Shaw, India’s Energy’s Needs: Regional, p. 14.
203. “Centre decides to form new entity for OIL,” The Press Trust of India, November 27, 2005.
204. “India’s ONGC, Mittal team ufor energy projects,” AK&M Russia, July 25, 2005.
205. ONGCNews, “Shell and ONGC Join Hands,” January 19, 2006 (www.ongcindia.com/ongcnews1.asp?fold=
ongcnews&file=ongcnews283.txt [May 23, 2006]).
206. M. K. Venu, “India, China pumuthe energy levels,” The Economic Times, January 13, 2006.
207. Himangshu Watts, “India aims to team uwith China in oil asset race,” Reuters News, February 1, 2005.
208. OIL, Strategic Alliance: Overseas Operations.
209. “Reliance cements Ras Issa refinery stake,” Middle East Economic Digest, May 19, 2006.
210. “Mukesh team scouting for oil,” Hindustan Times, October 30, 2005.
211. “India eyes energy resources abroad and cooperation with China,” Gas Matters Today Asia, August 8, 2005, p. 8.
212. Ahmad, “Geopolitics of Oil,” p. 25.
213. “India needs better relations with National Oil Companies,” Indian Express, April 30, 2006.
214. Aiyar, “Interview,” p. 58.
The Brookings Foreign Policy Studies Energy Security Series: India 93
215. The point in parentheses was made by SD Muni at a meeting at the Brookings Institution, March 2006.
216. Kumar, “Energy Pipelines,” p. 67.
217. The American Jewish Committee, in fact, supports the India-U.S. nuclear deal on the grounds that it will
helIndia wean itself off its dependence on Middle Eastern oil. See “American Jewish panel supports India nuclear
deal,” IANS, May 17, 2006. (www.newkerala.com/news2.php?action=fullnews&id=60489 [May 23, 2006]).
218. Interview with senior government official, September 2005.
219. Khosla, Energy and Diplomacy, p. 4.
220. “Govt. in India Encourages Investment, Floats Notion of Strategic Partnershiwith South Korea,” Global Insight
Daily Analysis, August 8, 2005.
221. “Romania, India seek cooperation in energy, IT sector,” BBC Monitoring Europe, July 5, 2005.
222. Srinivasan, “Energy Cooperation,” p. 48.
223. “Negotiations on EU/India action plan continue while both partners steudialogue on energy,” Agence Europe, July
5, 2005.
224. R. Abdullayev, “India Takes Interest in Purchase of Azeri Oil,” Trend News Agency, August 16, 2005.
225. “India, Uzbekistan sign protocol for cooperation,” Business Line, March 8, 2006.
226. Aiyar, “Energy Cooperation: India and Its Neighbours,” pp. 31–32.
227. “NTPC, Reliance Energy in Deal to Bid Abroad,” Dow Jones International News, August 15, 2005.
228. Export-Import Bank of India, Performance Highlights 2005-06 (www.eximbankindia.com/ph.pdf [May 23,
2006]).
229. Marat Yermukanov, “Kazakhstan-India Relations: Partners or Distant Friends,” Eurasia Daily Monitor,
November 16, 2004 (www.jamestown.org/edm/article.php?article_id=2368860 [May 23, 2006]).
230. “India Pledges to HelModernize Nigerian Army” People’s Daily, November 29, 2005.
231. Ministry of Defence, Uzbekistan Special Forces Training: 2006, January 2, 2006 (pib.nic.in/release/release.asp?relid
=14709 [May 23, 2006]).
232. Aiyar, “Energy Cooperation: India and Its Neighbours,” p. 35.
233. Shaw, India’s Energy’s Needs: Regional, p. 8.
234. Salman Haidar, “Energy Security,” The Statesman, August 2, 2005.
235. Expert Committee on Energy Policy, Draft Report, p. 73.
236. KPMG, India Energy, p. 17.
237. Khosla, Energy and Diplomacy, p. 13.
238. Expert Committee on Energy Policy, Draft Report, p. 35.
239. Ibid., p. 97.
240. Ahluwalia, “Inaugural Address.”
241. The Committee on Vision 2020, Report of the Committee on India Vision 2020 (New Delhi: Planning Commission,
December 2002), p. 73.
242. Yadav, “Future Fuels” (www.financialexpress.com/fe_full_story.php?content_id=127037).
243. The Committee on Vision 2020, Report of the Committee, p. 73.
244. “3000 MW additional capacity energy to be installed in next two years,” Indian Business Insight, July 27, 2005.
245. Expert Committee on Energy Policy, Draft Report, p. 40.
246. The Committee on Vision 2020, Report of the Committee, p. 73.
247. Banerjee, Handbook of Energy, p. 209.
248. “India’s SPR To Offer 12–13 Days Of Cover—Oil Min,” Oster Dow Jones Commodity Wire, September 15, 2004.
249. Emad Mekay, “Oil Hoarding Helps PumUPrices, say Analysts,” Inter Press Service, September 3, 2004.
250. Sri Jegarajah, “Indian Oil Min Says Reserves Brimming, Facilities Secure,” Dow Jones Energy Service, May 28,
2002.
The Brookings Foreign Policy Studies Energy Security Series: India 94
251. “Japan, India agree to cooperate in energy,” Energy Compass, October 7, 2005; GurdiSingh, “Thailand, India
looking to establish extra petroleum reserves,” OPEC News Agency, September 22, 2003; “New plan on strategic
oil reserves,” Indian Express, June 17, 2003.
252. “India Min Sees Strategic Oil Reserves In Place By 2006,” Dow Jones International News, January 21, 2004.
253. Siddharth Zarabi, “Work on Oil Reserve to Start Next Year,” Business Standard, June 22, 2006.
254. “Bill to set uregulator for downstream petroleum gets RS nod,” The Press Trust of India, March 2, 2006.
255. “Parliament okays bill to set uPetroleum Regulatory Board,” The Press Trust of India, March 21, 2006.
256. “Regulator in the Pipeline,” Business Line, March 27, 2006, p. 8.
257. “Hardly a regulator,” The Economic Times, May 16, 2006.
258. Pachauri, “Oil in India’s Energy Future,” p. 54.
259. Aiyar, “Interview,” p. 59.
260. “Oil Majors Go Slow on Retail Outlet Expansion,” Financial Express, June 16, 2006, p. 11
261. “PM Stresses Need for India to Diversify Energy Supplies,” BBC Monitoring South Asia, August 6, 2005.
262. Srinivasan, “Energy Cooperation,” p. 52.
263. Tripathi, India’s Energy Security.
264. Crude oil and Indian retail price data from Indian Petroleum Planning and Analysis Cell (ppac.org.in/OPM/
Price_revision_other_cities_MS.htm and http://ppac.org.in/ppac_0506/international_price_0506.htm)
265. “Rangarajan panel for reduction in Customs duties on petrol, diesel—Report submitted to Petroleum Minister,”
Business Line, February 17, 2006. Also, former chairman and managing director, National Thermal Power
Corporation, D.V. Kapur, presentation to conference at “India’s Energy Security: Major Challenges,” National
Conclave, Observer Research Foundation, New Delhi, February 14, 2006.
266. “Petroleum, gas regulator to boost competition,” Financial Express, February 27, 2006.
267. “New price policy for oil & gas to be declared,” Financial Express, February 10, 2006.
268. OVL, “Shell, Petrobras and ONGC announce changes in BC-10 holdings and the entry of OVL,” April 28, 2006
(www.ongcvidesh.com/display1.asp?fol_name=News&file_name=news114&get_pic=ovl_news&p_title=News%
20::%20OVL%20News&curr_f=114&tot_file=123 [May 23. 2006]).
269. Sanjay Jog, “Mandatory Ethanol Blending from Oct Likely,” Financial Express, May 9, 2006.
270. “India Opens Green Energy Markets,” Energy Economist, August 1, 2005, p. 29.
271. “In national trend, state agency in India opens doors to green energy markets,” Renewable Energy Report no. 85,
July 25, 2005, p. 4.
272. Committee on Vision 2020, Report of the Committee, p. 69.
273. KPMG, India Energy, p. 7.
274. Power Secretary RV Shahi quoted in Yadav, “Future Fuels.”
275. Yadav, “Future Fuels.”
276. Expert Committee on Energy Policy, Draft Report, p. 60.
277. Aiyar, “Energy Cooperation: India and Its Neighbours,” p. 43.
278. Ibid.
279. Asian Development Bank, The Bank’s Policy Initiatives for the Energy Sector—Energy Policy Issues (www.adb.org/
Documents/Policies/Energy_Initiatives/energy_ini322.as[July 1, 2006).
280. Expert Committee on Energy Policy, Draft Report, p. 11.
281. “US Joins India, Australia, China, Japan, S Korea in Energy Pact,” The Press Trust of India, July 28, 2005.
282. Interview with economic analyst.
283. Aiyar, “Interview,” p. 58.
284. Girijesh Pant, “India and the Asian Energy Initiatives: Partnershiin Development,” in Khosla, Energy and
Diplomacy, p. 91.
285. Khosla, Energy and Diplomacy, p.12.
286. M. K. Dhar, “Iran and India’s Energy Security,” Central Chronicle, May 25, 2006.
The Brookings Foreign Policy Studies Energy Security Series: India 95
287. Siddharth Varadarajan, “India, China and the Asian axis of oil,” The Hindu, January 24, 2006.
288. Kumar, “India Plans,” p. 68.
289. Steven Knell, “India Views Partnerships Abroad to Service Soaring Energy Needs,” Global Insight Daily Analysis,
August 8, 2005.
290. Pant, “India and the Asian Energy Initiatives,” p. 106.
291. Yergin, “Katrina Crisis,” p. 691.
292. ONGC, “ONGC first Indian company with 2-digit rank in Fortune global companies by profit,” August 2, 2005
(www.ongcindia.com/featart1.asp?fold=feature_article&file=feature_article168.txt [May 23, 2006]).
293. ONGC, Our Company: Profile (www.ongcindia.com/profile.as[May 26, 2006]).
294. ONGC, Distribution of Shareholding (www.ongcindia.com/download/jan18_06_company.htm [May 26, 2006]).
295. “Curtains for Raha; Sharma acting CMD of ONGC,” The Press Trust of India, May 25, 2006.
296. ONGC, Our Company: Profile.
297. OIL, Our Company: Vision and Objectives (oilindia.nic.in/ourcomp_vision.htm [May 26, 2006]).
298. Ibid.
299. “Get professional,” Hindustan Times, May 29, 2006.
300. “Govt now plans to sack independent directors of all oil navratna PSUs,” Indian Express, September 6, 2005.
301. Ibid.
302. “Despite 20 reminders, Ministries make PSUs wait for tojobs,” Indian Express, May 28, 2006.
303. Sunil Jain, “Mr Ramalingam’s five fingers,” Business Standard, June 20, 2005, p. 11.
304. “HC quashes appointment of Goa Shipyard director,” Financial Express, January 25, 2005.
305. “Uncertainty prevails over ONGC chief’s tenure,” Business Line, May 25, 2006, p. 8.
306. “PMO says no to ONGC head’s extension,” The Press Trust of India, May 25, 2006.
307. “Raha’s term comes to an end; Govt says no to extension,” The Press Trust of India, May 24, 2006.
308. “Raha writes to Murli Deora,” The Statesman, May 30, 2006.
309. “An Old School Oilman,” Business Today, October 21, 2005.
310. “PMO says no to ONGC head’s extension,” The Press Trust of India, May 25, 2006.
311. Himangshu Watts, “Reliance Petroleum jumps 70 pct on debut,” Reuters India, May 11, 2006.
312. “No Future Shocks,” The Economic Times, January 23, 2006.
313. Watts. “Reliance Petroleum jumps 70 pct on debut.”
314. “Stage Set for Reliance Petroleum’s Return to Bourse with Mega Issue,” Financial Express, January 23, 2006.
315. Videocon Industries, Videocon: Oil & Gas (www.videoconworld.com/oil-gas/index.ph[July 1, 2006]).
316. The BG Group, BG Country Operations: India (www.bg-groucom/international/int-india.htm [July 1, 2006]).
317. “Cairn Energy plans early oil production from North Indian fields,” BBC Monitoring South Asia, July 8, 2005.
318. Cairn Energy, Cairn Energy PLC: Operations (www.cairn-energy.plc.uk/operations/index.htm [July 1, 2006]).
319. “Oil India, IOC to buy 90 pc stake in African block,” Business Line, March 10, 2006.
320. “IOC-OIL, OVL bag onshore block apiece in Libya’s second licensing round.”
321. Ibid.
322. OVL, Corporate: Profile (www.ongcvidesh.com/corp_profile.as[May 23, 2006]).
323. OVL, OVL Assets (www.ongcvidesh.com/ovl_assets.as[May 23, 2006]).
324. OIL, Strategic Alliance: Overseas Operations (oilindia.nic.in/alliance_overseas.htm [May 23, 2006]).
325. “Reliance bags oil block in East Timor,” The Times of India, June 1, 2006.
326. OIL, Strategic Alliance: Overseas Operations.
327. “OVL Begins Iran Drilling.”
328. “OVL to buy 15% stake in Brazilian oil field for $170 mln,” The Press Trust of India, April 27, 2006.
The Brookings Foreign Policy Studies Energy Security Series: India 96
329. “Reliance to acquire stake in Colombian oil block,” The Press Trust of India, February 5, 2006.
330. Jeffrey Jones, “India to invest $1-billion in oil sands,” Reuters News Agency, February 1, 2006, p. B5.
331. Khosla, Energy and Diplomacy, p. 3.
332. Nevin John, “RIL to Invest Rs. 5000 cr in Methane Production,” Business Standard, January 23, 2006, p. 14.
333. KPMG, India Energy, p. 17.
334. Laxmi Devi, “Will Alternative Energy HelIndia?” The Economic Times, June 30, 2005.
335. PriceWaterhouseCoopers, Oil and Gas, p. 2.
336. Sudha Mahalingam, “Accessing Neighbourhood Energy: Thinking out of the Box,” in Khosla, Energy and
Diplomacy, p. 120.
337. Srinivasan, “Energy Cooperation,” p. 56.
338. Aiyar, “Interview,” p. 58.
339. Aiyar, “Energy Cooperation: India and Its Neighbours,” p. 30.
340. Srinivasan, “Energy Cooperation,” p. 62.
341. Aiyar, “Energy Cooperation: India and Its Neighbours,” p. 26.
342. Ibid.
343. KPMG, India Energy, p. 17.
344. Khosla, Energy and Diplomacy, p. 13.
345. Aiyar, “Energy Cooperation: India and Its Neighbours,” p. 27.
346. Ajish Joy, “India’s Energy Security: The Central Asian Odyssey” (www.observerindia.com/strategic/
st060403.htm).
347. Dietl, “Gas Pipelines: Politics and Possibilities,” in Khosla, “Energy Cooperation,” p. 84.
348. Argument laid out in Khosla, “Energy Cooperation,” p. 13.
349. Mahajan, “Accessing Neighbourhood Energy” in Khosla, Energy and Diplomacy, p. 122.
350. Expert Committee on Energy Policy, Draft Report, p. 37.
351. Rick Wilkinson, “GAIL, Arrow Plan Joint Coalbed Methane Work,” Oil & Gas Journal, April 17, 2006.
352. Liliana Molina, “Spicing uInvestment,” The Courier-Mail, May 31, 2006.
353. John, “RIL to Invest Rs.”
354. “India May Build Gas Storage Facilities for Emergencies,” Dow Jones International News, March 15, 2004.
355. Aiyar, “Energy Cooperation: India and Its Neighbours,” p. 36.
356. “Myanmar to Support India’s Energy Need,” The Press Trust of India (www.ibnlive.com/news/myanmar-to-support-
indias-energy-need/10336-7.html# [May 23, 2006]).
357. Mahajan, “Accessing Neighbourhood Energy” in Khosla, Energy and Diplomacy, p. 125.
358. “Myanmar may allocate different gas field for gas line to India,” Gas Matters Today Asia, 16 (January 2006): 5.
359. “India to continue Iran pipeline talks despite US nuclear energy deal,” AFX Asia, July 24, 2005.
360. Aiyar, “Energy Cooperation: India and Its Neighbours,” p. 31.
361. Shebonti Ray Dadwal, “Politics of the Iran-Pakistan-India Gas Pipeline Project,” in Khosla, Energy and Diplomacy,
p.133.
362. Khosla, Energy and Diplomacy, p. 13.
363. Gupta et al., “India’s Energy Needs,” p. 92.
364. Ibid., p. 93.
365. Ibid., p. 97.
366. Ibid., p. 93.
367. “Few takers for Coal India toslot,” Financial Express, March 29, 2006.
368. Larkin, “India’s energy woes,” p. A11.
369. Gupta et al., “India’s Energy Needs,” p. 96.
The Brookings Foreign Policy Studies Energy Security Series: India 97
370. ASSOCHAM and IPCS, Study on India’s Energy Security (New Delhi: IPCS and Assocham, 2004), p. 47.
371. Expert Committee on Energy Policy, Draft Report, p. 35.
372. Kumar, “Energy Pipelines,” p. 66.
373. “India as an energy hot spot,” Indian Express, July 13, 2005.
374. The United States has made the argument that this deal will decrease India’s dependence on Iran, as well as provide
cleaner energy and thus helthe environment. See Secretary of State Condoleezza Rice, “The U.S.-India
Civilian Nuclear Cooperation Agreement: Opening Remarks Before the Senate Foreign Relations Committee,”
Senate Foreign Relations Committee, April 5, 2006.
375. “U.S.–India Deal May Spur Australian Uranium Sales, Howard Says,” Bloomberg, May 22, 2006
(www.bloomberg. com/apps/news?pid=10000081&sid=aRAjcC4EvT9Y&refer=australia [May 23, 2006]).
376. Eric Anderson, “GE Sees Potential in India’s Energy Plans,” Times Union 27, July 2005, p. E1.
377. “India is Planning to Invest $40bn in Nuclear Reactors,” Bloomberg, May 20, 2006 (www.gulf-times.com/site/
topics/article.asp?cu_no=2&item_no=87386&version=1&template_id=48&parent_id=28 [May 23, 2006]).
378. Indrani Bagchi, “French N-tech Firms Eyeing India,” The Times of India, May 18, 2006.
379. See ITER, “The ITER Project” (www.iter.org/ [July 1, 2006]).
380. M.V. Ramana, “Nuclear Power: Expensive and Unsafe,” Electrical India 2005, Annual Issue.
381. “India to Double Power Production,” The Press Trust of India, May 21, 2006.
382. Ahluwalia, “Inaugural Address.”
383. “India in global deal to emulate power of sun,” The Telegraph, May 24, 2006.
384. Among others, former foreign secretary Salman Haidar.
385. Ahluwalia, “Inaugural Address.”
386. “Mysore firm to produce biodiesel,” Business Standard, January 23, 2006, p. 5.
387. Aiyar, “Energy Cooperation: India and Its Neighbours,” p. 42.
388. The Committee on Vision 2020, Report of the Committee on India Vision 2020 (New Delhi: Planning Commission,
December 2002), p. 73.
389. Yadav, “Future Fuels” (www.financialexpress.com/fe_full_story.php?content_id=127037).
390. The Committee on Vision 2020, Report of the Committee, p. 73.
391. “3000 MW additional capacity energy to be installed in next two years,” Indian Business Insight, July 27, 2005.
392. Expert Committee on Energy Policy, Draft Report, p. 40.
393. The Committee on Vision 2020, Report of the Committee, p. 73.
394. Banerjee, Handbook of Energy, p. 209.
395. H.N. Chanakya, “Bioenergy: From the margins to the mainstream,” India’s Energy Security: Major Challenges,
National Conclave, Observer Research Foundation, New Delhi, India, February 15, 2006.
The Brookings Foreign Policy Studies Energy Security Series: India 98

Government of India Planning Commission New Delhi India August 2006 Expert Committee on Integrated Energy Policy”
MONTEK SINGH AHLUWALIA

DEPUTY CHAIRMAN
PLANNING COMMISSION
INDIA

Yojana Bhawan, Parliament Street, New Delhi-110001 Phones : 23096677, 23096688 Fax : 23096699
E-MAIL : dch@yojana.nic.in

Foreword

Energy is a vital input into production and this means that if India is to
move to the higher growth rate that is now feasible, we must ensure reliable
availability of energy, particularly electric power and petroleum products, at
internationally competitive prices. We cannot hope to compete effectively in
world markets unless these critical energy inputs are available in adequate quantities
and at appropriate prices.
The present energy scenario is not satisfactory. The power supply position
prevailing in the country is characterised by persistent shortages and unreliability
and also high prices for industrial consumer. There is also concern about the
position regarding petroleum products. We depend to the extent of 70 percent on
imported oil, and this naturally raises issues about energy security. These concerns
have been exacerbated by recent movements in international oil prices. Electricity
is domestically produced but its supply depends upon availability of coal,
exploitation of hydro power sources and the scope for expanding nuclear power,
and there are constraints affecting each source.
Achieving an efficient configuration of the various forms of energy
requires consistency in the policies governing each sector and consistency in the
pricing of different types of energy. There is also a need for clarity in the direction
in which we wish to move in aspects like energy security, research and development,
addressing environmental concerns, energy conservation, etc. To address these
issues in an integrated manner, the Prime Minister had directed that the Planning
Commission should constitute an Expert Committee to undertake a comprehensive
review and to make recommendation for policy on this basis. The Expert
Committee was constituted under the chairmanship of Dr. Kirit S. Parikh,
Member, Planning Commission and has finalised its report after an extensive
process of deliberation and consultation with various stakeholders. The draft
report was also placed on the web site of the Planning Commission and comments
were invited which have been taken into consideration in preparing the final
report.
vi
Integrated Energy Policy
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MONTEK SINGH AHLUWALIA
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DEPUTY CHAIRMAN
PLANNING COMMISSION
INDIA
;kstuk Hkou] laln ekxZ] ubZ fnYyh&110001 nwjHkk”k % 23096677] 23096688 QSDl % 23096699
Yojana Bhawan, Parliament Street, New Delhi-110001 Phones : 23096677, 23096688 Fax : 23096699
E-MAIL : dch@yojana.nic.in
The report of the Expert Committee provides a broad overarching
framework for guiding the policies governing the production and use of different
forms of energy from various sources. It makes specific recommendations on a
very large range of issues. The report is a valuable input into policy making and
will help shape our energy policy in the 11th Plan. Early implementation of the
recommendations in the report would contribute substantially to putting the
economy on a sustainable higher growth path.
(Montek S. Ahluwalia)
vii
Preface
The energy policies that we have adopted since independence to serve the socio-economic
priority of development have encouraged and sustained many inefficiencies in the use and
production of energy. We pay one of the highest prices for energy in purchasing power parity
terms. This has eroded the competitiveness of many sectors of the economy. The challenge is to
ensure adequate supply of energy at the least possible cost. Another important challenge is to
provide clean and convenient “lifeline” energy to the poor even when they cannot fully pay for
it, as it is critical to their well-being. Therein lies the importance of an effective and comprehensive
energy policy.
In this context, the Prime Minister had directed the Planning Commission, to setup an
Expert Committee to prepare an integrated energy policy linked with sustainable development
that covers all sources of energy and addresses all aspects of energy use and supply including
energy security, access and availability, affordability and pricing, as well as efficiency and
environmental concerns. The committee was constituted on August 12, 2004 and was to submit
its report within six months i.e., by February 11, 2005. Given the complexity involved and wider
consultation needed, the term of the committee was extended upto 11th October 2005. The draft
report of the Committee was put on the website of Planning Commission inviting comments. We
received a large number of them from individuals, groups and institutions some of whom had
organised special discussion meetings on the draft report. I thank them all. We have finalised the
report after taking these comments into account. While the finalisation of the report has taken
some time, it is worth noting that some of the policy suggestions made in the draft report have
been in the meanwhile taken up by the Government for implementation.
It is my pleasure and also my privilege to thank all the Members of the Committee for
their many important suggestions and for sparing their valuable time towards the finalisation of
this report.
I am also thankful to the officers and staff of the Power & Energy Division of the
Planning Commission for their contributions in the preparation of this report, particularly Shri
Surya Sethi, Convenor of the Committee, for his many ideas, contributions, help in drafting the
report and for ensuring consistency and clarity. S/Shri R.C. Mahajan, M. Satyamurty, R.K. Kaul,
I.A. Khan, B. Srinivasan, Dr. A. Mohan, D.N. Prasad, Rajnath Ram and Dr. M. Govinda Raj
provided many inputs and support.
I also thank Dr. Vivek Karandikar and Dr. Prasanna Dani of the Observer Research
Foundation for their help in developing energy supply scenarios.
Finally, I want to thank Shri Sanjay Vasnik for diligently, carefully and cheerfully typing
many drafts of the report.
(Dr. Kirit S. Parikh)
Member (Energy),
Planning Commission &
Chairman, Expert Committee on Integrated Energy Policy
Dated: 09.08.2006
viii
Integrated Energy Policy
ix
Contents
Contents
Page No.
Members of the Committee iii
Foreword v
Preface vii
Overview xiii
Abbreviations Used xxxi
Chapter I. The Challenges 1
1.1 The Energy Scene 1
1.2 The Issues 13
1.3 The Vision 14
1.4 Need for an Integrated Energy Policy 15
1.5 Approach 16
Chapter II. Energy Requirements 18
2.1 Commercial Energy Needs 18
2.2 Required Electricity Generation 19
2.3 India’s Oil Demand 22
2.4 India’s Coal Demand for Non-Power Use 23
2.5 India’s Non-Power Natural Gas Demand 23
2.6 Total Primary Commercial Energy Requirement 26
2.7 Non-Commercial Energy Requirement 28
2.8 Total Primary Energy Requirement 31
2.9 Summing Up 31
Chapter III. Supply Options 33
3.1 India’s Energy Reserves 33
3.2 Supply Scenarios 40
3.3 Implications of the Results of the Scenarios 41
3.3.1 Aggregate Energy Needs and Imports Dependence 45
3.3.2 Energy Supply Options 45
3.3.3 Energy Efficiency and Demand Side Management 48
3.3.4 Carbon Emissions 50
3.3.5 Implications for Investment Needs 50
3.3.6 The Main Actions Recommended 51
3.4 Energy Independence in an Energy Scarce World 51
Chapter IV. Energy Security 54
4.1 What is Energy Security? 54
4.2 The Nature of the Problem 55
x
Integrated Energy Policy
4.3 Policy Options for Energy Security 57
4.3.1 Reduce Energy Requirements 57
4.3.2 Substitute Imported Energy by Domestic Alternatives 58
4.3.3 Diversify Supply Sources 60
4.3.4 Expand Resource Base and Develop Alternative Energy Sources 61
4.3.5 Increase Ability to Withstand Supply Shocks 64
4.3.6 Increase Ability to Import Energy and Face Market Risks 65
4.3.7 Increase Redundancy to Deal with Technical Risk 65
4.4 Energy Security for the Poor 66
4.5 Policies and Initiatives for Energy Security 66
Chapter V. Energy Policy Options/Initiatives 68
5.1 The Emerging Backdrop 68
5.2 Policies Covering Energy Markets, Pricing, Regulation, Taxation, Subsidies, 71
Externalities and Institutions
Chapter VI. Policy for Energy Efficiency and Demand Side Management 81
6.1 Large Potential for Saving Energy 81
Chapter VII. Policy for Renewable and Non-Conventional Energy Sources 89
Chapter VIII. Household Energy Security: Electricity and Clean Fuels for All 99
8.1 Electricity 100
8.2 Cooking Energy 101
8.3 Subsidy through Debit Cards/Smart Cards 102
Chapter IX. Energy R&D 103
Chapter X. Power Sector Policy 109
Chapter XI. Coal Sector Policy 115
Chapter XII. Oil and Gas Sector Policy 123
Chapter XIII. Energy-Environment Linkages 129
13.1 Energy Supply Side: Environment Concerns 129
13.1.1 Exploration, Production and Transformation of Fossil Fuels 129
13.1.2 Environmental Impacts of Nuclear Power 130
13.1.3 Environmental Impacts of Large-Scale Hydropower 130
13.1.4 Environmental Impacts of Renewable Energy 131
13.2 Environmental Dimensions of Demand Side Impacts 131
13.3 Understanding the Determinants of Air Quality 131
13.3.1 Levels and Trend Analysis of Urban air quality in five major Indian cities 132
13.4 Long-term Sustainability of India’s Energy Use 132
13.4.1 Local and Regional Impacts 132
13.4.2 India’s Approach to Climate Change 135
xi
Contents
Concluding Comment 137
Annexures 138
Annexure-I Order Constituting the Committee 138
Annexure-II Gist of Earlier Energy Policy Committees/Groups 141
Annexure-III Calorific Values, Units and Conversion Factors 147
List of Tables
Table 1.1 Selected Energy Indicators for 2003 1
Table 1.2 Household Energy Consumption in India (July 1999 – June 2000) 8
Table 1.3 Growth of Motorised Transport Vehicles 10
Table 2.1 Energy Use Elasticity w.r.t. GDP 18
Table 2.2 Elasticities Used for Projections 19
Table 2.3 Energy Use Elasticity w.r.t. GDP from Cross-Country Data of 2003 19
Table 2.4 Projections for Total Primary Commercial Energy Requirements 20
Table 2.5 Projections for Electricity Requirement 20
Table 2.6 Projections for Electricity Requirement by MOP 21
Table 2.7 Sources of Electricity Generation – One Possible Scenario 22
Table 2.8 Demand Scenario for Petroleum Products – India 24
Table 2.9 Demand Projection of Coal by Various Agencies in Mt 25
Table 2.10 Demand Scenario for Natural Gas – India 27
Table 2.11 Commercial Fuel Requirements for Non-Power Use in Physical Units 28
Table 2.12 Projected Primary Commercial Energy Requirements (One Possible Scenario) 28
Table 2.13 The Demand Scenario of Various Energy Items for Household 29
Consumption in India
Table 2.14 The Impact of Electrification on the Demand Scenario of Various Energy 30
Items for Household Consumption
Table 2.15 Total Primary Energy Requirement (Mtoe) 31
Table 2.16 Per Capita Energy Requirements in Selected Countries (2003) 32
Table 3.1 India’s Hydrocarbon Reserves 33
Table 3.2 Reserves/Production of Crude Oil & Natural Gas 35
Table 3.3 The Approximate Potential Available From Nuclear Energy 36
Table 3.4 Possible Development of Nuclear Power Installed Capacity in MW 37
Table 3.5 Renewable Energy Resources 37
Table 3.6 Some Energy Supply Scenarios for 8% GDP Growth 41
Table 3.7 Scenario Summaries for 8% GDP Growth — Fuel Mix in Year 2031-32 44
Table 3.8 Ranges of Commercial Energy Requirement, Domestic Production and 45
Imports for 8 percent Growth for year 2031-32
Table 3.9 Generation Capacities and Load Factors in Scenario 11 46
Table 3.10 Primary Energy Supply Sources (2003-04) 52
Table 4.1 Sources of India’s Oil Imports – 2004-05 59
Table 7.1 Capital Costs and the Typical Cost of Generated Electricity from 90
the Renewable Options
Table 7.2 International Feed-in Tariffs 91
xii
Integrated Energy Policy
Table 13.1 Environmental Impacts Associated with Energy Transformation 129
Based on Fossil Fuels
Table 13.2 Supply Side, Local and Regional Environmental Impacts 130
Table 13.3 India Approved CDM Projects 135
List of Figures
Figure 1.1 Total Primary Energy Supply (TOE) Per Capita (2003) vs. GDP Per Capita 2
(PPP US$2000)
Figure 1.2 Kilo Watt hours of Electricity Consumption Per Capita (2003) vs. 3
GDP Per Capita (PPP US$2000)
Figure 1.3 Human Development Index (HDI) vs. Electricity Consumption 3
Per Capita in 2002
Figure 1.4 Peak Power and Energy Shortages in States/UTs. 2004-05 4
Figure 1.5 Distribution of Households by Primary Source of Energy Used 6
for Cooking- India
Figure 1.6 Pattern of Household Energy Consumption
Figure 1.6(a) Monthly Per Capita Household Consumption 8
Pattern Urban India, 2000
Figure 1.6(b) Monthly Per Capita Household Consumption 8
Pattern Rural India, 2000
Figure 1.7 Domestic Consumption and Production of Crude Oil 9
Figure 1.8 Growth of Transport Vehicles and Two Wheelers 10
Figure 2.1 Projected Electricity Generation Growth (BkWh) 21
Figure 2.2 Plan-wise Projected Installed Capacity Addition (MW) 21
Figure 2.3 Percentage Share of Commercial Primary Energy Resources—2003-04 29
and 2031-32
Figure 2.4 Percentage of Households Using LPG 30
Figure 3.1 Fuel Mix Comparison in Year 2031-32 42
Figure 3.2 Coal Dominant Scenario 1 – Fuel Mix Year-Wise 42
Figure 3.3 Forced Hydro, Nuclear and Gas Scenario 5 – Fuel Mix Year-Wise 43
Figure 3.4 Forced Renewables Scenario 11 – Fuel Mix Year Wise 43
Figure 3.5 CO2 From Energy Use in Alternative Scenarios in Year 2031-32 50
Figure 4.1 India’s Growing Share in Global Energy Consumption (Higher Projections) 56
Figure 4.2 World Oil Prices 56
Figure 6.1 Reduction in the Energy Consumption of Refrigerators Sold in the 87
United States of America
Figure 7.1 Renewable Energy Options 89
Figure 13.1 Air Pollution in Residential Areas 133
Figure 13.2 Air Pollution in Industrial Areas 134
List of Boxes
Box 1.1 The Burden of Traditional Fuels in Rural India 7
Box 6.1 Bureau of Energy Efficiency (BEE) 82
Box 6.2 Initial Cost and Life Cycle Cost 86
Box 11.1 Delivered Cost of Domestic and Imported Thermal Coal 119
xiii
Overview
India faces formidable challenges in
meeting its energy needs and in providing
adequate energy of desired quality in various
forms in a sustainable manner and at
competitive prices. India needs to sustain an
8% to 10% economic growth rate, over the
next 25 years, if it is to eradicate poverty and
meet its human development goals. To deliver
a sustained growth rate of 8% through 2031-32
and to meet the lifeline energy needs of all
citizens, India needs, at the very least, to increase
its primary energy supply by 3 to 4 times and,
its electricity generation capacity/supply by 5
to 6 times of their 2003-04 levels. With 2003-
04 as the base, India’s commercial energy supply
would need to grow from 5.2% to 6.1% per
annum while its total primary energy supply
would need to grow at 4.3% to 5.1% annually.
By 2031-32 power generation capacity must
increase to nearly 8,00,000 MW from the
current capacity of around 1,60,000 MW
inclusive of all captive plants. Similarly
requirement of coal, the dominant fuel in
India’s energy mix will need to expand to over
2 billion tonnes/annum based on domestic
quality of coal. Meeting the energy challenge is
of fundamental importance to India’s economic
growth imperatives and its efforts to raise its
level of human development.
The broad vision behind the energy
policy is to reliably meet the demand for
energy services of all sectors at competitive
prices. Further, lifeline energy needs of all
households must be met even if that entails
directed subsidies to vulnerable households.
The demand must be met through safe, clean
and convenient forms of energy at the leastcost
in a technically efficient, economically
viable and environmentally sustainable manner.
Overview
Considering the shocks and disruptions that
can be reasonably expected, assured supply of
such energy and technologies at all times is
essential to providing energy security for all.
Meeting this vision requires that India pursues
all available fuel options and forms of energy,
both conventional and non-conventional.
Further, India must seek to expand its energy
resource base and seek new and emerging
energy sources. Finally, and most importantly,
India must pursue technologies that maximise
energy efficiency, demand side management
and conservation. Coal shall remain India’s
most important energy source till 2031-32 and
possibly beyond. Thus, India must seek clean
coal combustion technologies and, given the
growing demand for coal, also pursue new coal
extraction technologies such as in-situ
gasification to tap its vast coal reserves that are
difficult to extract economically using
conventional technologies.
The approach of the Committee is
directed to realising a cost-effective energy
system. For this the following are needed:
(i) Wherever possible, energy markets
should be competitive. However,
competition alone has been shown to
have its limitations in a number of
areas of the energy sector and
independent regulation becomes even
more critical in such instances.
(ii) Pricing and resource allocations that
are determined by market forces under
an effective and credible regulatory
oversight.
(iii) Transparent and targeted subsidies.
(iv) Improved efficiencies across the energy
chain.
xiv
Integrated Energy Policy
(v) Policies that reflect externalities of
energy consumption.
(vi) Policies that rely on incentives/
disincentives to regulate market and
consumer behaviour.
(vii) Policies that are implementable.
(viii) Management reforms that create
accountability and incentives for
efficiency.
A competitive market without any
entry barriers is theoretically the most efficient
way to realise optimal fuel and technology
choices for extraction, conversion,
transportation, distribution and end use of
energy. The tax structure and regulation across
energy sub-sectors should be consistent and
institutional arrangements should provide a
level playing field to all players. Social objectives
should ideally be met through direct transfers.
Environmental externalities should be treated
uniformly and internalised. A consistent
application of “polluter pays” principle may be
made to attain environmental objectives at
least-cost where prescribed environmental
norms are either not applied consistently or
not being adhered to. An energy market with
the above features would minimise market
distortions and maximise efficiency gains. An
integrated energy policy is needed to ensure
that energy costs and availability do not
constrain India’s economic growth and
competitiveness.
While the medium to long-term
challenges of ensuring competitive energy
markets are formidable, the immediate
problems of acute power shortages, adequate
supply of good coal, gas shortages, and concerns
of States rich in coal and hydro resources
require immediate policy action. Our
recommendations address immediate as well as
the medium to long-term issues.
Key, high priority recommendations
are summarised below:
(i) Ensuring Adequate Supply of Coal
with Consistent Quality: Coal
accounts for over 50% of India’s
commercial energy consumption and
about 78% of domestic coal production
is dedicated to power generation. This
dominance of coal in India’s energy
mix is not likely to change till 2031-32.
Since prices were de-controlled, the
sector has become profitable primarily
as a result of price increases and the
rising share of open cast production.
India would need to augment domestic
production and encourage thermal coal
imports to meet its energy needs. The
Committee has concluded that along
the western and southern coasts of
India imported coal is more cost
competitive compared to domestic coal
and further, imported coal is far more
cost competitive compared to imported
gas at these coastal locations. Such a
cost advantage of imported coal over
imported gas is likely to continue for
some time in the future. Thus:
Domestic coal production should
be stepped up by allotting coal
blocks to central and state public
sector units and captive mines of
notified end users. Coal blocks held
by Coal India Limited (CIL) that
cannot be brought into production
by 2016-17, either directly or
through joint ventures, should be
made available to other eligible
candidates for development and for
bringing into production by 2011-
12.
At the same time the needed
infrastructure must be created to
facilitate thermal coal imports. This
will facilitate coastal power
generation capacity based on
imported thermal coal. Imports of
thermal coal will also put
competitive pressure on the
domestic coal industry to be more
efficient.
A system of pricing coal on its
gross calorific value must replace
the current system of pricing coal
on the basis of broad bands of its
useful heat value.
xv
Overview
Coal companies must be asked to
conform to international practice
of preparing coal prior to its sale.
Washed coal must become the
norm and use of unwashed coal
should become the exception.
The current system of coal linkages
should be replaced by long-term
coal supply agreements with strict
penalties for not meeting contracted
supplies, quality and offtake
commitments.
Coal must be brought under
independent regulation to improve
exploitation and allocation of
available resources, and to regulate
e-auctions and coal prices and to
enable a competitive coal market
to take shape.
By the end of 2007-08 the quantity
of coal sold through e-auction must
reach 20% of domestic production.
Ideally, the Coal Mines
(Nationalisation) Act, 1973, should
be amended to facilitate: (a) private
participation in coal mining for
purposes other than those specified
in the Act and (b) offering of future
coal blocks to potential
entrepreneurs. A consensus should
be built on the need to reform this
Act.
(ii) Addressing Concern of Resource Rich
States: Both coal and hydro resources
are concentrated in a few states.
Increasingly states are becoming more
assertive in demanding higher share of
benefits that their local energy resources
provide to the country as a whole.
Even though these are national
resources and should not be rendered
uncompetitive because of such
demands, it is conceivable that
mechanisms can be put in place that
result in resource rich states reaping
more equitable benefits. Allowing
resource rich States a share in the profits
of the enterprise tapping such local
resources through what is called a
“carried equity interest” and further
allowing the state or its residents an
opportunity to invest in such projects
on equal terms and appropriately
revising the royalty rate etc. are possible
solutions to removing hurdles in
exploiting these domestic sources of
primary energy. The NDC must take
up this issue immediately in respect of
coal and hydro resources. Over the
longer term, a National Policy on
Domestic Natural Resources should be
formulated and enacted through the
Parliament.
(iii) Ensuring Availability of Gas for
Power Generation: There is a total
generation capacity of 12,604 MW based
on gas and liquid fuels. Bulk of it is
base loaded under combined cycle
operation. However, gas supplies have
been restricted and the overall
utilisation remains at only 54.5%. A
significant part of this capacity was
realised under the earlier liquid fuel
policy while the rest has been built
based on unenforceable fuel supply
agreements that would have been
unbankable in any other environment.
While requiring that no new gas
capacity be built without firm and
bankable gas supply agreements, effort
should be made to allocate available
domestic gas supplies to the fertiliser,
petrochemicals, transport and power
sectors at prices that are regulated to
yield a fair return to domestic gas
producers. Such a practice should be
enforced till a better demand-supply
balance emerges and domestic gas
production achieves some of the
potential that is often cited. A more
competitive market can then function.
(iv) Power Sector Reforms: These must
focus on controlling the aggregate
technical and commercial losses of the
state transmission and distribution
utilities. This is essential to creating a
financially robust power sector in each
state. Only financially healthy state
power distribution utilities can sustain
the growing generation and
transmission of Central Power Sector
xvi
Integrated Energy Policy
PSUs and State Power Sector Utilities
(SPSUs) and provide the needed
comfort on payment security to attract
private investment in the power sector
at internationally competitive tariffs.
Our recommendations:
To control AT&C losses, the
Committee recommends that the
existing Accelerated Power
Development and Reform
Programme (APDRP) be
restructured to ensure energy flow
auditing at the distribution
transformer level through
automated meter reading, a
Geographical Information System
(GIS) mapping of the network and
consumers and the separation of
feeders for agricultural pumps.
Investment in developing a
Management Information System
(MIS) that can support a full energy
audit for each distribution
transformer is essential for
reduction in AT&C losses. This
will also fix accountability and
provide a baseline which is an
essential prerequisite to
management reform and/or
privatisation. The revised APDRP
will provide incentives to State
Electricity Boards (SEBs) that are
linked to performance outcomes
and will also include incentives to
staff for reduction in AT&C losses.
The Committee also recommends
that the liberal captive and group
captive regime foreseen under the
Electricity Act 2003 be realised on
the ground. India’s liberal captive
regime will not only derive
economic benefits from the
availability of distributed generation
but will also set competitive
wheeling charges to supply power
to group captive consumers. This
will pave the way for open access
to distribution networks. It will
also facilitate private generation that
limits its interface with the host
utility to the use of the distribution
network for a fee and thus can be
realised even before AT&C losses
are reduced.
To achieve these objectives, the
Committee feels that it is essential
to separate the cost of the pure
wires business (carriage) from the
energy business (content) in both
transmission and distribution at
different voltages. The Electricity
Act 2003 recognises such separation
for the transmission sub-segment.
Separation of content from carriage
in the distribution sub-segment,
however, is considered only as a
means to the provision of open
access. The wires business within
the distribution sub-segment is also
a natural monopoly and must be
regulated. Further, introduction of
Availability Based Tariffs (ABT) for
the intra-state sales and the
upgrading of State Load Despatch
Centres to the technological level
of Regional Load Despatch Centres
should be realised.
Open access is resisted by
incumbents as they fear that all the
high value paying customers would
go away and they would be left
with small and subsidised
agricultural and domestic
customers. Since these customers
have strong political constituencies,
it may be difficult to raise their
tariffs when needed and the
incumbent utilities would not
remain viable for long. These
concerns can be taken care of if the
cross-subsidy surcharge, wheeling
charge and back-up charge are set
properly. However, if these are set
too high, open access could be
effectively thwarted. These charges
need to be periodically revised and
independently regulated.
A robust and efficient inter-state
and intra-state transmission system
with adequate surplus capacity that
is capable of transferring power
from surplus regions to deficit
xvii
Overview
regions is a must for ensuring
optimal operation of the system.
Rehabilitation of existing thermal
stations could raise capacity at leastcost
in the short-run. Similarly
rehabilitation of hydro stations
could yield much needed peak
capacity at negligible cost. Both
these steps must be taken up
urgently.
(v) Reduction in Cost of Power: In terms
of purchasing power parity, power
tariffs in India for industry, commerce
and large households are among the
highest in the world. It is important to
reduce the cost of power to increase
both the competitiveness of the Indian
economy and also to increase consumer
welfare. A number of measures are
suggested for this.
The Government Policy should
ensure that all generation and
transmission projects should be
competitively built on the basis of
tariff-based bidding. Public Sector
Undertakings shall also be
encouraged to participate in such
bids even though the tariff policy
allows them a 5 year window
wherein projects undertaken by the
public sector need not be bid
competitively.
In cases where tariff continues to
be determined on the basis of costs
and norms, regulators may either
adopt a return on equity approach
or return on capital approach,
whichever is considered better in
the interest of consumers. In
deciding the level of return
provided, the regulator should interalia
take into account the return
available on long-term government
bonds and reasonable risk
premiums associated with equity
investments.
The current practice of state
regulators not allowing state public
sector power utilities the same
returns as the central public sector
utilities should be strongly opposed
in the interest of strengthening fair
competition which alone will bring
down prices in the long-run.
Similarly differential payment
security structures for Central
Power Sector PSUs and the private
sector should be abolished.
Consumer prices for electricity are
currently set by State Electricity
Regulatory Commissions on cost
plus basis. Regulators should set
multi-year tariffs and differentiate
them by time of day.
Government should seed the capital
markets to develop market-based
instruments that effectively extend
the tenure of debt available to
power projects to, perhaps, 20
years. This will reduce the capacity
charge in the earlier years and
spread it more evenly over the life
of the project.
Unit sizes should be standardised
and global tenders invited for a
number of units to get substantial
bulk discount.
Distribution should be bid out on
the basis of a distribution margin
or paid for by a regulated
distribution charge determined on
a cost plus basis including a profit
mark up similar to that paid for
generation as suggested above.
(vi) Rationalisation of Fuel Prices:
Relative prices play the most important
role in choice of technology, fuel and
energy form. They are thus the most
vital aspect of an Integrated Energy
Policy that promotes efficient fuel
choices and facilitates appropriate
substitution. In a competitive set up,
the marginal use value of different fuels,
which are substitutes, should be equal
at a given place and time so that the
prices of different fuels at different
places do not differ by more than the
cost of transporting the fuels. The
resulting inter-fuel choices will then be
economically efficient. Further:
xviii
Integrated Energy Policy
Prices of different fuels should not
be set independently of each other.
As a general rule, all commercial
primary energy sources must be
priced at trade parity prices at the
point of sale, namely the Free-on-
Board (FOB) price for products for
which the country is a net exporter
and Cost, Insurance and Freight
(CIF) price for which it is a net
importer. The price of a product
for which the country is selfsufficient
in a competitive market
with many suppliers and buyers
would fluctuate between the two
depending upon the ease of import/
export and reliability of supplies.
In a situation with a monopoly
supplier with exportable surplus at
import parity price, the price would
be in between the two depending
on the price elasticity of domestic
demand. This principle is extremely
relevant for the petroleum sector
wherein bulk of the crude oil is
imported and India has become a
net exporter of petroleum products.
To cushion domestic prices against
short-term volatility of prices on
the international market (FOB or
CIF) domestic prices can be set on
the basis of median prices over the
previous month or a three month
period.
The petroleum and natural gas
sector is, once again, devoid of any
competition and independent
oversight of either upstream or
downstream activities. On the
upstream side, Directorate General
Hydrocarbons (DGH), an arm of
the Ministry, oversees allocation
and exploitation of oil & gas
reserves and enforces profit sharing
with exploration & production
companies. The current
arrangement needs to be
strengthened and made
independent. On the downstream
side, despite the dismantling of the
Administered Price Mechanism, the
GOI continues to control the
pricing of automotive fuels, LPG,
large part of domestic natural gas
and PDS kerosene. There is no real
competition in the sector other
than in some peripheral products
such as lubricants, despite the
presence of a large domestic private
player in refining and the likely
emergence of other private players
in this field. In fact, the prevailing
pricing and taxation policies and
the market structure provide
significant protection to the private
refineries. The result is that India’s
refining capacity exceeds the
demand by 18% already. There is
an urgent need to have an
independent regulator for both
upstream and downstream sectors.
The notification of the Petroleum
& Natural Gas Regulatory Board
Act, 2006, is thus welcome.
In the petroleum sector, full price
competition at the refinery gate
and the retail level would lead to
trade parity prices as described
above. Thus instead of
administering prices, full price
competition should be introduced.
Coal prices should ideally be left
to the market and trading of coal,
nationally and internationally,
should be free. Only a competitive
free market can do an efficient job
of price determination. A
competitive market requires that
there are multiple producers and
that there are no entry barriers to
new producers or to importers.
Pending the creation of such a
competitive market, independent
regulation of coal prices becomes
essential.
Apart from CIL’s virtual monopoly
in coal supply, coal prices cannot
be determined in a competitive
market open to all users as long as
the largest coal consuming sector,
i.e. power, has coal cost as a pass
through. However, since other
xix
Overview
users of coal are numerous and
consume substantial quantities of
coal, a strategy for competitive price
discovery is possible. We
recommend as follows:
• High quality coking and noncoking
coal which are
exportable may be sold at
export parity prices as
determined by import price
at the nearest port minus
15%. This practise is
currently being adopted for
supply of good quality coking
coal to the steel industry.
• 20% of the production may
be sold through e-auction.
Quantities to be sold through
e-auction from different
mines must be determined
annually with a monthly
mine-wise schedule to be
independently monitored and
enforced by a coal regulator.
• Remaining coal should be
sold under long-term Fuel
Supply and Transport
Agreements (FSTAs).
Regulated utilities should be
allowed upto 100% of their
certified requirements
through FSTAs. Other bulk
consumers could be allowed
partial FSTAs based on coal
availability. Any shortfalls
should be met through eauction
supplies or imports.
• Pithead price of coal under
FSTAs should be revised
annually by a coal regulator
on a basis that inter-alia takes
into account prices obtained
through e-auction, FOB price
of imported coal (both
adjusted for quality) and
production cost, inclusive of
return based on efficiency
standards.
• Coal prices may be made
fully variable based on Gross
Calorific Value (GCV) and
other quality parameters.
Natural Gas is not an easily tradable
commodity. Making gas tradable
requires significant investments in
pipelines or, alternatively, in
liquefaction, cryogenic shipping &
regasification. Comparing local gas
prices to spot LNG prices in the
international market is grossly
misleading. Again, linking gas prices
to crude price movements is also
misleading. Long-term supply
contracts such as those in Europe
are more representative of natural
gas prices. Natural gas price can be
determined through competition
among different producers where
multiple sources and a competitive
supply-demand balance exist. As
long as there is shortage of gas in
the country and the two major
users of gas, namely fertiliser and
power, work in a regulated cost
plus environment, a competitive
market determined price would be
highly distorted. Such distortions
would get further amplified by the
prevailing regime of fertiliser
subsidies & power sector subsidies
and cross subsidies. In such a
situation price of domestic gas and
its allocation should be
independently regulated on a cost
plus basis including reasonable
returns.
Another option could be to price
gas on a net-back basis. If gas
becomes a key component in
India’s energy mix, it is pointed
out that beyond the level of gas
consumption in the fertiliser,
petrochemical, automotive and
domestic sectors, gas must compete
with coal as the key alternative for
power generation. This implies that
the cost of generating peak or base
electricity using gas cannot exceed
the cost of peak or base electricity
from coal, the cheapest alternative.
A competitive coal market is thus
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Integrated Energy Policy
important for setting a proper price
of natural gas on a net-back basis.
An alternative for a gas producers
is to export gas, in which case the
domestic gas price could be the net
realisation of the domestic natural
gas producer after investing and
getting a return on the investment
needed to make the natural gas
tradable across borders in either a
trans-border pipeline or through
liquefaction and shipping facilities.
For the foreseeable future, domestic
gas supplies to both the fertiliser
and the power sector, that together
account for about 80% of the
current gas usage, would need to
be allocated based on availability
and charged at regulated price that
reflects cost of production and a
reasonable profit.
Central and State taxes on
commercial energy supplies need
to be rationalised to yield optimal
fuel choices and investment
decisions. Relative prices of fuels
can be distorted if taxes and
subsidies are not equivalent across
fuels. This equivalence should be
in effective calorie terms. In other
words they should be such that
producer and consumer choices as
to which fuel and which technology
to use are not affected by the taxes
and subsidies. Socio-economic
benefits such as employment
generation and positive impact on
energy security may support
differential taxes on alternate fuels.
Environmental taxes and subsidies,
however, are levied precisely to
affect choices. Differential taxes can
be justified here if they
appropriately reflect environmental
externalities. A consistent
application of the “polluter pays”
principle or “consumer-pays”
principle should be made to attain
environmental objectives at leastcost
where prescribed
environmental norms are either not
applied consistently or not being
adhered to.
(vii) Energy Efficiency and Demand Side
Management: Lowering the energy
intensity of GDP growth through
higher energy efficiency is important
for meeting India’s energy challenge
and ensuring its energy security. The
energy intensity of India’s growth has
been falling and is about half of what
it used to be in the early seventies.
Currently, we consume 0.16 kg of oil
equivalent (kgoe) per dollar of GDP
expressed in purchasing power parity
terms. India’s energy intensity is lower
than the 0.23 kgoe of China, 0.22 kgoe
of the US and a World average of 0.21
kgoe. India’s energy intensity is even
marginally lower than that of Germany
& OECD at 0.17 kgoe. However,
Denmark at 0.13 kgoe, UK at 0.14
kgoe and Brazil & Japan at 0.15 kgoe
are ahead of India. These figures and
many sectoral studies confirm that there
is room to improve and energy
intensity can be brought down
significantly in India with current
commercially available technologies.
Lowering energy intensity through
higher efficiency is equivalent to
creating a virtual source of untapped
domestic energy. It may be noted that
a unit of energy saved by a user is
greater than a unit produced, as it saves
on production losses as well as
transport, transmission and distribution
losses. Thus a “Negawatt”, produced
by a reduction of energy need has
more value than a Megawatt generated.
The Committee feels that with an
aggressive pursuit of energy efficiency
and conservation, it is possible to reduce
India’s energy intensity by up to 25%
from current levels.
Efficiency can be increased in energy
extraction, conversion, transportation,
as well as in consumption. Further, the
same level of output or service can be
obtained by alternate means requiring
less energy. The major areas where
xxi
Overview
efficiency in energy use can make a
substantial impact are mining,
electricity generation, electricity
transmission, electricity distribution,
water pumping, industrial production
processes, haulage, mass transport,
building design, construction, heating,
ventilation, air conditioning, lighting
and household appliances. As the Indian
economy opens up to international
competition, it will have to become
more energy efficient. This is well
demonstrated by India’s steel and
cement industry. However, the
Committee recommends the following
policies for raising energy efficiency.
Some of these policies can be
implemented through voluntary targets
undertaken by industry associations as
opposed to external dictates and
enforcement.
Merge Petroleum Conservation
Research Association (PCRA) with
Bureau of Energy Efficiency (BEE).
The merged entity should be an
autonomous statutory body under
the Energy Conservation Act, be
independent of all the energy
ministries and be funded by the
Central Government. It must:
• Force the pace of
improvement in energy
efficiency of energy using
appliances, equipment and
vehicles, and create “golden
carrot” incentives in the form
of substantial rewards to the
firm which first
commercialises equipment
that exceeds a prescribed
energy efficiency target.
• Enforce truthful labelling on
equipment, and impose major
financial penalties if the
equipment fails to deliver
stated efficiencies. In extreme
cases, resort to black listing
of errant suppliers on
consumer information web
sites and in government
procurement.
• Establish benchmarks of
energy consumption for all
energy intensive sectors.
• Disseminate information,
support training and reward
best practices with national
level honours in energy
efficiency and energy
conservation.
Increase the gross efficiency in
power generation from the current
average of 30.5% to 34%. All new
plants should adopt technologies
that improve their gross efficiency
from the prevailing 36% to at least
38-40%.
Require a least-cost planning
approach to provide a level playing
field, to Negawatts and Megawatts
so that regulators permit the same
return on the investment needed
to save a watt as to supply an
additional watt.
Promote minimum life cycle cost
purchase instead of minimum initial
cost procurement by the
government and the public sector.
Promote urban mass transport,
energy efficient vehicles and freight
movement by railways through
scheduled freight trains with
guaranteed, safe and timely
deliveries. Enforce minimum fuel
efficiency standards for all vehicles.
Institute specialisations in energy
efficiency/conservation in technical
colleges and commence certification
of such experts.
(viii) Augmenting of Resources for
Increased Energy Security: India’s
energy resources can be augmented by
exploration to find more coal, oil and
gas, or by recovering a higher
percentage of the in-place reserves.
Developing the thorium cycle for
nuclear power and exploiting nonconventional
energy, especially solar
power, offer possibilities for India’s
energy independence beyond 2050.
xxii
Integrated Energy Policy
At a growth rate of 5% in domestic
production, currently extractable coal
resources will be exhausted in about 45
years. However, only about 45% of
the potential coal bearing area has
currently been covered by regional
surveys. It is also felt that both regional
as well as detailed drilling can be made
more comprehensive. Several possible
options are recommended:
Covering all coal bearing areas with
comprehensive regional and detailed
drilling could make a significant
difference to the estimated life of
India’s coal reserves.
India’s extractable coal resources
could be augmented through insitu
coal gasification which makes
use of those coal deposits which
are at greater depth and cannot be
extracted economically by
conventional methods.
Extracting coal bed methane before
and during mining could augment
the country’s energy resources.
Enhanced oil recovery and
incremental oil recovery
technologies could improve the
proportion of in-place reserves that
could be economically recovered
from abandoned/depleted fields.
Isolated deposits of all hydro
carbons including coal may be
tapped economically through sub
leases to the private sector.
(ix) Using Energy Abroad: In case India
can access cheap natural gas overseas
under long-term (25-30 years)
arrangements, it should consider setting
up captive fertiliser and/or gas
liquefaction facilities in such countries.
This would essentially augment energy
availability for India.
(x) Role of Nuclear and Hydro Power:
Even if India succeeds in exploiting its
full hydro potential of 1,50,000 MW,
the contribution of hydro energy to
the energy mix will only be around
1.9-2.2%. It is clarified that hydro share
in the primary energy mix comes out
lower because of the way oil
equivalence of hydro electricity is
calculated. A hydroelectric plant
converts a unit of primary energy in
the form of potential energy to almost
one unit of electricity. The fossil fuel
route or the nuclear route needs almost
3 units of a primary energy source to
produce the same unit of electricity.
Thus while hydro’s share in primary
energy mix is lower than that of
nuclear, the kWh produced from hydro
is higher. Similarly, even if a 20-fold
increase takes place in India’s nuclear
power capacity by 2031-32, the
contribution of nuclear energy to
India’s energy mix is also, at best,
expected to be 4.0-6.4%. If the recent
agreement with the US translates into
a removal of sanctions by the nuclear
suppliers’ group, possibilities of imports
of nuclear fuels as well as power plants
should be actively considered so that
nuclear development takes place at a
faster pace.
Nuclear energy theoretically offers
India the most potent means to longterm
energy security. India has to
succeed in realising the three-stage
development process described in the
main report and thereby tap its vast
thorium resource to become truly
energy independent beyond 2050.
Continuing support to the three-stage
development of India’s nuclear potential
is essential.
Though its contribution to energy
requirement is limited, hydro
electricity’s flexibility and suitability
to meet peak demand makes it valuable.
Moreover, the development of
hydropower, especially storage schemes,
are critical for India as our per capita
water storage is the lowest among other
comparable countries. Creating such
storages is critical to India’s water
security, flood control and drought
control. The environmental concerns
and the problem of resettlement and
rehabilitation of project affected people
xxiii
Overview
(PAPs) can and must be satisfactorily
handled. The PAPs should benefit from
the project as much as other
beneficiaries. This can be accomplished,
for example, as follows:
Require compulsory land
consolidation and impose a
betterment levy in kind of (say) 5
percent of land on the command
area farmers. Use this land to
resettle and compensate all PAPs.
(xi) Role of Renewables: From a longerterm
perspective and keeping in mind
the need to maximally develop domestic
supply options as well as the need to
diversify energy sources, renewables
remain important to India’s energy
sector. It would not be out of place to
mention that solar power could be an
important player in India attaining
energy independence in the long run.
With a concerted push and a 40-fold
increase in their contribution to
primary energy, renewables may
account for only 5 to 6% of India’s
energy mix by 2031-32. While this
figure appears small, the distributed
nature of renewables can provide many
socio-economic benefits.
Subsidies for renewables may be
justified on several grounds. A
renewable energy source may be
environmentally friendly. It may be
locally available thereby making it
possible to supply energy earlier than
in a centralised system. Grid connected
renewables could improve the quality
of supply and provide system benefits
by generating energy at the ends of the
grid where otherwise supply would
have been lax. Further, renewables may
provide employment and livelihood to
the poor. However, the subsidies should
be given for a well-defined period or
upto a well-defined limit.
The Committee recommends that
for promoting renewables,
incentives should be linked to
outcomes (energy generated) and
not just outlays (capacity installed).
Even when a capital subsidy is
needed, it should be linked to
outcomes. For example, capital
subsidy could also be given in the
form of a Tradable Tax Rebate
Certificate (TTRC) that could be
based on actual energy generated.
The rebate claim would become
payable depending upon the
amount of electricity/energy
certified as having been actually
supplied.
Power Regulators must create
alternative incentive structures such
as mandated feed-in-laws or
differential tariffs to encourage
utilities to integrate wind, small
hydro, cogeneration etc. into their
systems.
An annual renewable energy report
should be published providing
details of actual performance of
different renewable technologies at
the state and national levels. This
should include actual energy
supplied from different renewable
options, availability, actual costs,
operating and maintenance
problems etc. It should also report
on social benefits, employment
created, and women’s participation
and empowerment.
Policies for promoting specific
alternatives are suggested in the
main text. These include fuel wood
plantations, bio-gas plants, wood
gasifier based power plants, solar
thermal, solar water heaters, solar
photovoltaics, bio-diesel and
ethanol.
It is also recommended that the
Indian Renewable Energy
Development Agency Ltd (IREDA)
be converted into a national
refinancing institution on the lines
of NABARD/National Housing
Bank (NHB) for the renewable
energy sector. IREDA’s own equity
base can be expanded by the
financial institutions of the country
xxiv
Integrated Energy Policy
instead of continuing the current
system of GOI support.
(xii) Ensuring Energy Security: India’s
energy security, at its broadest level, is
primarily about ensuring the
continuous availability of commercial
energy at competitive prices to support
its economic growth and meet the
lifeline energy needs of its households
with safe, clean and convenient forms
of energy even if that entails directed
subsidies. Reducing energy
requirements and increasing efficiency
are two very important measures to
increase energy security. However, it
is also necessary to recognise that India’s
growing dependence on energy imports
exposes its energy needs to external
price shocks. Hence, domestic energy
resources must be expanded. For India
it is not a question of choosing among
alternate domestic energy resources but
exploiting all available domestic energy
resources to the maximum as long as
they are competitive.
The Committee, however, felt that
obtaining equity oil, coal and gas abroad
do not represent adequate strategies for
enhancing energy security beyond
diversifying supply sources. In contrast,
pipelines for importing gas do enhance
security of supply if the supplying
country makes a major investment in
the pipeline. The most critical elements
of our energy security, however, remain
the measures suggested herein to
increase efficiency, reduce requirements
and augment the domestic energy
resource base.
Ensuring energy security requires
dealing with various risks. The threat
to energy security arises not just from
supply risks and the uncertainty of
availability of imported energy, but
also from possible disruptions or
shortfalls in domestic production.
Supply risks from domestic sources,
such as from a strike in CIL or the
Railways, also need to be addressed.
Even if there is no disruption of supply,
there can be the market risk of a sudden
increase in energy price. Even when
the country has adequate energy
resources, technical failures may disrupt
the supply of energy to some people.
Generators could fail, transmission lines
may trip or oil pipelines may spring a
leak. One needs to provide security
against such technical risks. Risks can
be reduced by lowering the requirement
of energy by increasing efficiency in
production and use; by substituting
imported fuels with domestic fuels; by
diversifying fuel choices (gas, ethanol,
orimulsion tar sands etc.) and supply
sources; and by expanding the domestic
energy resource base. Risks can also be
dealt with by increasing the ability to
withstand supply shocks through
creation of strategic reserves, the ability
to import energy and face market risk
by building hard currency reserves and
by providing redundancy to address
technical risks. We recommend as
follows:
Maintain a reserve, equivalent to
90 days of oil imports for strategiccum-
buffer stock purposes and/or
buy options for emergency supplies
from neighbouring large storages
such as those available in Singapore.
The buffer stocks could be used to
address short-term price volatility.
Operating the strategic/buffer
reserves in cooperation with other
countries who maintain such
reserves could also increase their
effectiveness.
Since 80 percent of global
hydrocarbon reserves are controlled
by national oil companies
controlled by respective
governments, oil diplomacy
establishing bilateral economic,
social and cultural ties can reduce
supply risk.
(xiii) Boosting Energy Related R&D: India
will find it increasingly harder to
import its required quantities of
commercial energy as her share of the
incremental world supply of fossil fuels
could rise from a low of 13% in the
xxv
Overview
most energy efficient scenario to a high
of 21% in the coal dominant scenario
by 2031-32. This assumes that the
world’s supply of fossil fuels grows by
only 2% per annum till 2031-32.
Research and Development (R&D) in
the energy sector is critical to augment
our energy resources, to meet our longterm
energy needs and to promote
energy efficiency. Such R&D would
go a long way in raising our energy
security and delivering energy
independence over the long-term. R&D
requires sustained and continued
support over a long period of time.
Energy related R&D has not been
allotted the resources that it needs.
India needs to substantially augment
the resources made available for energy
related R&D and to allocate these
strategically. To take an innovative idea
to its commercial application involves
many steps. Basic research leading to a
fundamental breakthrough may open
up possibilities of applications. R&D is
needed to develop conceptual
breakthroughs and prove their
feasibility. This needs to be followed
up by a working, laboratory scale
model. Projects that shows economic
potential could then be scaled up as
pilot projects, while keeping in mind
cost reductions that could be achieved
through better engineering and mass
production. Demonstrations of such
projects, economic assessments and
further R&D to make the new
technology acceptable and attractive to
customers could follow, before finally
leading to commercialisation and
diffusion. Some key policy initiatives
relevant to energy related R&D are
detailed below:
A National Energy Fund (NEF)
should be set-up to finance energy
R&D. Our expenditure on R&D
excepting for atomic energy, which
as of today provides less than 3
percent of our total electrical energy
supply, is miniscule compared to
what industry and governments
spend in developed countries. In
the latter, firms generally spend
more than 2 percent of their
turnover for R&D. The total
expenditure on R&D in 2004-05
was Rs.610 crores* for Atomic
Energy and Rs.70 crores for
Ministry of Power, Coal and Non-
Conventional Energy Sources. Even
at one-tenth of the rate at which
firms in developed countries spend
on R&D, i.e. 0.2% of the turnover
of all energy firms whose turnover
exceeds Rs.100 crores a year, we
end up with Rs.1000 to Rs.1200
crores per year which will increase
overtime. We should be spending
much more than this on R&D.
Much of R&D can be considered a
public good. It is thus better
financed by the Government.
Initially an allocation of Rs.1000
crores should be made for energy
R&D excluding atomic energy. To
begin with, individuals, academic
research institutions, consulting
firms, private and public sector
enterprise, should all compete for
this fund. Firms may also be
encouraged to enhance their
expenditure on R&D through tax
incentives.
• The resources devoted to
research in different areas
depend on the economic
importance of that particular
area, the availability of
technology and the likelihood
of success. The latter changes
with time as new
developments in science and
technology take place and
uncertainties reduce. R&D
* Only about 15% of this amount or about Rs.90 crores, was for R&D on nuclear power. The rest of the
expenditure is for R&D on non-electricity applications of Radiation Technology and Fundamental
Research.
xxvi
Integrated Energy Policy
priorities have to be based
on a dynamic strategic vision
which is frequently updated.
Of critical importance is
research and analysis for the
energy policy to outline
technology road maps. The
NEF should encourage and
fund such studies on a regular
basis in a number of
institutions and should also
commission them from
experienced and qualified
individuals.
• The NEF should support
energy policy modelling
activities in a number of
institutions on a long-term
basis. The different modellers
should be brought together
periodically in a forum to
address specific policy issues.
• A number of technology
missions should be mounted
for developing nearcommercial
technologies and
rolling out new technologies
in a time bound manner.
These include coal
technologies (where India
should focus) for efficiency
improvement; in-situ
gasification; IGCC and
carbon sequestration; solar
technologies covering solarthermal
and photovoltaics;
bio-fuels such as bio-diesel
and ethanol; bio-mass
plantation and wood
gasification, and community
based bio-gas plants.
• Coordinated research and
development in all stages of
the innovation chain to reach
a targeted goal (such as that
in place in the departments
of atomic energy and space
research) should be used to
develop more efficient
industrial plant, machinery &
processes, efficient appliances,
hybrid cars, super batteries,
nuclear technologies related
to thorium and fusion, gas
hydrates, and hydrogen
production, storage, transport
and distribution.
• The NEF could provide
R&D funding in support of
applications, innovative new
ideas, fundamental research
etc. to researchers in different
institutions, universities,
organisations and even
individuals working
independently.
• A number of academic
institutions should be
developed as centres of
excellence in energy research.
(xiv) Household Energy Security -
Electricity and Clean Fuels for All:
One of the toughest challenges is to
provide electricity and clean fuels to
all, particularly rural populations given
their poor paying capacity, the limited
availability of local resources for clean
cooking energy, and the size of the
country and its population. The
considerable effort spent on gathering
biomass and cow-dung and then
preparing them for use is not priced
into the cost of such energy. These
fuels create smoke and indoor air
pollution, are inconvenient to use, and
adversely affect the health of people,
particularly women and children. Yet,
given the fact that women and girls
carry most of the burden of the
drudgery and also bear the brunt of
indoor air pollution, the urgency to
meet the challenge should be high.
Such steps are needed for our broader
need to achieve universal primary
education for girls, promote gender
equality and empower women. Easy
availability of a certain amount of clean
energy that is required to maintain life
should be considered as a basic
necessity. Energy security at the
individual level implies ensuring supply
of such a lifeline energy need. India
xxvii
Overview
cannot be energy secure if her people
remain without secure supply of energy
for lifeline needs. Ensuring this would
require targeted subsidies as many
households would be unable to pay for
safe, clean and convenient commercial
energy to meet lifeline needs. This
requires:
Electrification of All Households: The
government has announced its
commitment to ensure this by 2009-
10.
Provision of Cooking Energy: We
may set a goal to provide clean
cooking energy such as LPG, NG,
biogas or kerosene to all within 10
years. It may be noted that the
requirement of cooking energy does
not increase indefinitely with
income. Thus the total amount of
LPG required to provide cooking
energy to 1.5 billion persons is
around 55 Mtoe.
Other Sources: We may provide fuel
wood plantations within one
kilometre of all habitations. Those
who do not have access or cannot
afford even subsidised clean fuels,
rely on gathering wood.
Neighbourhood plantations can
ease their burden and the time
taken to gather and transport wood.
The Rajiv Gandhi Grameen
Vidyutikaran Yojana (RGGVY) was
launched to achieve electrification of
all households. By 2009-2010 the
RGGVY aims to electrify the 1,25,000
villages, still without electricity; to
connect all the estimated 2.34 crore unelectrified
households below the
poverty line with a 90% subsidy on
connecting costs; and finally, to
augment the backbone network in all
the electrified 4.62 lakh villages. The
5.46 crore households above the
poverty line which are currently
unelectrified, are expected to get
electricity connection on their own
without any subsidy. Going by current
experience, all these households above
the poverty line may not seek such
connectivity on their own.
To make RGGVY sustainable, a
business plan with a viable revenue
model needs to be elaborated. A clear
pricing and subsidy policy and the
means of targeting the subsidy need to
be announced soon. Local bodies,
panchayati raj institutions, NGOs or
even local entrepreneurs can take the
franchise to run the local network.
Women’s self-help groups can also be
empowered to do so.
The consumer pays about 40% of the
import parity price for kerosene sold
through the Public Distribution System
(PDS). The balance 60% of the price is
being funded largely by oil sector PSUs
and to a small extent by the
Government through the budget.
However, subsidies do not reach the
intended beneficiaries due to poor
targeting. The real issue is to improve
targeting within the subsidy programme
well and ensure that those falling
outside the subsidy net pay the full
cost of supply. Additionally, a welltargeted
subsidy regime may only
marginally raise the current subsidy
burden.
The best way for providing subsidy
for electricity and cleaner fuels,
kerosene or LPG, is to entitle
targeted households to 30 units of
electricity per month and LPG,
kerosene or bio-gas purchased from
a local community size plant
equivalent to 6 kg of LPG per
month. A system of debit cards
may be introduced to deliver such
a subsidy. The entitlements can
only be used for purchase of these
products. With modern ICT, debit
card readers operated on battery
and feeding data using mobile
technology, can work in rural areas
of the country as well.
In addition to the above subsidy, other
actions are also needed that create
energy secure villages. We suggest:
xxviii
Integrated Energy Policy
Finance a large scale socio-economic
experiment to operate community
sized bio-gas plants as a commercial
enterprise either by a community
cooperative or by a commercial
entrepreneur. Bio-gas plants on this
scale could meet the need for clean
cooking energy of a sizable segment
of the rural population.
Even with subsidies for clean fuel,
it may not be easy to reach clean
fuels to the poor and they may
continue to use fuelwood. As part
of the above programme, improve
the efficiency of domestic chullahs
and lanterns from the prevailing
10-12% to 20-25%, which is easily
attainable and couple this to
improving ventilation in the
cooking area of the dwellings. The
surplus biomass released as a result
of better efficiency could be used
in gasifiers for generating electricity.
Generate electricity through wood
gasifiers or by burning surplus biogas
from the community bio-gas
plants. Such distributed generators
may be able to take electricity to
villages sooner than the grid. This
will encourage local generation and
could conceivably feed the grid
with surplus power at an agreed
feed in tariff at a future date.
Formulate a tariff policy for such
distributed generation for both
household and productive use
including agriculture.
To reduce drudgery of those who
still need to gather fuel, develop
woodlots within one kilometre of
the village. Provide finance through
self-help groups to transform
women, who, today are only
energy gatherers, into microentrepreneurs
engaged in rural
energy markets and energy
management. Women’s groups can
form co-operatives for developing
and managing fuel wood or oil
seed plantations with the same
effort that they put towards
searching and gathering fuel wood
today.
For setting up of off-grid generation
facilities in rural areas, encourage
the organised sector to adopt rural
community/communities in their
areas of operation.
(xv) An Enabling Environment for
Competitive Efficiency: Apart from
pricing policies, an environment that
allows multiple players in each element
of the energy value chain to compete
on transparent and equal terms is
essential to realising efficiency gains
within the energy sector. Currently
the sector is dominated by large Public
Sector Companies and some sub-sectors
have natural monopoly characteristics
potentially offering economies of scale.
Given this ground reality, independent
& informed regulation becomes
essential to realising competitive
efficiency. Such regulation can play an
important role to see that competitive
markets develop and mature. Such
regulation must in the very least ensure
that:
The regulatory responsibility/
functions of the State are separated
from the Ministries that control
the Public Sector Units dominating
the energy sector; and
Till effective competitive markets
emerge, independent regulators
should fix prices or price caps to
mimic competitive markets based
on principles summarised in para
(v) above. Even when competitive
markets emerge, the regulators’ role
will continue to remain important.
(xvi) Climate Change Concerns: Concern
vis-a-vis the threat of climate change
has been an important issue in
formulating the energy policy. Even
though India is not required to contain
its GHG emissions, as a signatory to
the UN Framework Convention on
Climate Change and a country which
has acceded to the Kyoto Protocol,
India has been very active in proposing
xxix
Overview
Clean Development Mechanism (CDM)
projects. By May 2006, a total of 297
projects had been approved by India
with approximately 240 million tonnes
of CO2 reduction. Also, since the
impact on the country’s poor, due to
climate change, could be serious, this
report has suggested a number of
initiatives that will reduce the green
house gas intensity of the economy by
as much as one third. These are:
- Energy efficiency in all sectors
- Emphasis on mass transport
- Active policy on renewable energy
including bio-fuels and fuel
plantations
- Accelerated development of nuclear
and hydro-electricity
- Technology Missions for clean coal
technologies
- Focussed R&D on many climate
friendly technologies
The broad policy framework and the
thrust of development suggested here need to
be made more specific. To this end once the
policy framework is accepted, detailed roadmaps
of development should be chalked out and
specific policy measures for implementation
drafted.
With the recommendations of the
Committee, India can meet her energy
requirements in an efficient, cost effective way
and be on a path of sustainable energy security.
xxx
Integrated Energy Policy
xxxi
Abbreviations Used
A ABT-Availability Based Tariff
APDRP-Accelerated Power
Development and Reform Programme
AT&C-Aggregate Technical and
Commercial
APM-Administered Price Mechanism
ADB-Asian Development Bank
ATF-Aviation Turbine Fuel
APEC-Asia Pacific Economic
Cooperation
ALCC-Annualised Life Cycle Cost
AMR-Automatic Meter Reading
B BEE-Bureau of Energy Efficiency
BPL-Below Poverty Line
BCS-Best Case Scenario
BAU-Business as Usual
BCM-Billion Cubic Meters
BARC-Bhaba Atomic Research Centre
BESCOM-Bangalore Electricity Supply
Company Ltd.
BP-British petroleum
BCCL-Bharat Cocking Coal Limited
C CAGR-Compounded Annual Growth
Rate
CASE-Commission for Additional
Sources of Energy
CIL-Coal India Limited
CIF-Cost Insurance and Freight
CDM-Clean Development Mechanism
CO2-Carbon dioxide
CEA-Central Electricity Authority
CMIE-Centre for Monitoring Indian
Economy
Abbreviations Used
CNG-Compressed Natural Gas
CBM-Coal Bed Methane
CONCOR-Container Corporation of
India Ltd.
CHP-Combined Heat & Power
CIS-Common wealth of Independent
States
CMPDIL-Central Mine Planning &
Design Institute Ltd.
CLASP-Collaborative Labelling and
Appliance Standards Programme
CSIR-Council for Scientific and
Industrial Research
CERC-Central Electricity Regulatory
Commission
CEA-Central Electricity Authority
CO-Carbon Monoxide
CH4-Methane Gas
CER-Certified Emission Reduction
D DAE-Department of Atomic Energy
DGH-Directorate General of
Hydrocarbons
DSM-Demand Side Management
DSCL-DCM Sriram Consolidated Ltd
DTI-Department of Trade & Industry,
U.K.
DG-Distributed Generation
DST-Department of Science &
Technology
DME-Dimethyl Ether
DBT-Department of Bio Technology
E EMPs-Environment Management Plans
ECL-Eastern Coal Fields Limited
EIA-Energy Information
xxxii
Overview Integrated Energy Policy
Administration
EOR-Enhanced Oil Recovery
EIL-Engineers India Limited
EE-Energy Efficiency
EC Act-Energy Conservation Act.
ESCOs-Energy Service Companies
F FFA- Free Fatty Acids
FSA-Fuel Supply Agreements
FOB-Free on Board
FSTA-Fuel Supply and Transport
Agreement
FDI-Foreign Direct Investment
FBRs-Fast Breeder Reactors
FBTR-Fast Breeder Test Reactor
FO-Fuel Oil
FSI-Floor Space Index
G GAIL-GAIL (India) Limited
GIS-Geographical Information System
GOI-Government of India
GCV-Gross Calorific Value
GDP-Gross Domestic Product
GHG-Green House Gases
GSPC-Gujarat State Petroleum
Corporation
GEF-Global Environment Facility
GTL-Gas to Liquids
GSI-Geological Survey of India
H HDI-Human Development Index
HHs-Households
HOG-High Output Growth
HSDO-High Speed Diesel Oil
HVDC-High Voltage Direct Current
I ICRISAT-International Crops Research
Institute for the Semi-Arid Tropics
IREDA-Indian Renewable Energy
Development Agency Ltd.
IGCC-Integrated Gasification
Combined Cycle.
ICT-Information and Communication
Technologies
IEA-International Energy Agency
IRADe-Integrated Research and Action
for Development.
IHV-India Hydrocarbon Vision 2025
IOC-Indian Oil Corporation
IC-Internal Combustion
IOR-Improved Oil Recovery
IPP-Independent Power Producers
ICCEPT-Imperial College Centre for
Energy Policy and Technology
K KG-Krishna Godavari
L LPG-Liquefied Petroleum Gas
LNG-Liquefied Natural Gas
LWRs-Light Water Reactors
LDO-Light Diesel Oil
LSHS-Low Sulphur Heavy Stock
M MSW-Municipal Solid Waste
MECL-Mineral Exploration
Corporation Limited
MIS-Management Information System
MS-Motor Spirit
MOPNG-Ministry of Petroleum and
Natural Gas
MOP-Ministry of Power
MNES-Ministry of Non-Conventional
Energy Sources
MSP-Minimum Support Price
N NHB-National Housing Bank
NABARD-National Bank for
Agriculture and Rural Development
NDC-National Development Council
NEF-National Energy Fund
NG-Natural Gas
NGOs-Non-Governmental
Organisations
NSS-National Sample Survey
xxxiii
Abbreviations Used
NSSO-National Sample Survey
Organisation
NCDMA-National Clean Development
Mechanism Authority
NLC-Neyveli Lignite Corporation
NCDC-National Coal Development
Corporation
NEEPCO-North Eastern Electric
Power Corporation Limited
NHPC-National Hydro Electric Power
Corporation
NSG-Nuclear Suppliers Group
NELP-New Exploration Licensing
Policy
O OECD-Organisation for Economic Cooperation
and Development
ONGC-Oil and Natural Gas
Corporation
ORF-Observer Research Foundation
OIL-Oil India Limited
OMCs-Oil Marketing Companies
P PSUs-Public Sector Undertakings
PDS-Public Distribution System
PCRA-Petroleum Conservation
Research Association
PAP-Project Affected People.
PPP-Purchasing Power Parity
PLF-Plant Load Factor
PWC-Price Waterhouse Coopers
POWERGRID-Power Grid
Corporation of India Limited
PHWRs-Pressurised Heavy Water
Reactors
PFBR-Prototype Fast Breeder Reactor
R RSPM-Respiratory Suspended
Particulate Matter
R & D-Research and Development
RGGVY-Rajiv Gandhi Grameen
Vidyutikaran Yojana
ROR-Run of the River
RCs-Regulatory Commissions
REGA-Rural Employment Guarantee
Act.
S SEBs-State Electricity Boards
SPM-Suspended Particulate Matter
S & T-Science and Technology
SPR-Strategic Petroleum Reserve
SPSUs-State Power Sector Utilities
Sox-Sulphur Oxides
SHGs-Self-Help Groups
SWH-Solar Water Heater
SERC-State Electricity Regulatory
Commission
SO2 – Sulphur Oxide
T TIFAC-Technology Information,
Forecasting & Assessment Council
TTRC-Tradable Tax Rebate Certificates
TPES-Total Primary Energy Supply
TPCES-Total Primary Commercial
Energy Supply
TERI-The Energy and Resources
Institute
TPNCES-Total Primary Non-
Commercial Energy Supply.
T & D-Transmission and Distribution
TOD-Time of Day
TPA-Tripartite Agreement
U UNFCC-United Nations Framework
Convention on Climate Change
UK-United Kingdom
UNDP-United Nations Development
Programme
UAE-United Arab Emirates
UP-Uttar Pradesh
USA-United States of America
UHV-Useful Heat Value
V VOCs-Volatile Organic Compounds
1
The Challenges
India faces formidable challenges in
meeting its energy needs and providing adequate
and varied energy of desired quality to users in
a sustainable manner and at reasonable costs.
India needs economic growth for human
development, which in turn requires access to
clean, convenient and reliable energy for all.
As we near the 8-10% growth rate that we
aspire for, the quantity & quality of energy we
need, will increase substantially. Thus the
energy challenge is of fundamental importance.
The nature and dimension of this challenge
becomes clear when we look at the energy
scene in the country today. This chapter lays
out the contemporary energy scene,
highlighting issues of concern, and then makes
the case for an Integrated Energy Policies to
address these.
1.1 THE ENERGY SCENE
2. Per capita consumption of energy in
India is one of the lowest in the world. India
consumed 439 kg of oil equivalent (kgoe) per
Chapter I
Table 1.1
Selected Energy Indicators for 2003
Region/Country GDP Per TPES TPES/GDP Electricity kWh/
Capita-PPP Per Capita (kgoe/ Consumption $-2000 PPP
(US $ 2000) (kgoe) $-2000 PPP) Per Capita
(kWh)
China 4838 1090 0.23 1379 0.29
Australia 28295 5630 0.20 10640 0.38
Brazil 7359 1094 0.15 1934 0.26
Denmark 29082 3852 0.13 6599 0.23
Germany 25271 4210 0.17 6898 0.27
India* 2732 439 0.16 553 0.20
Indonesia 3175 753 0.24 440 0.14
Netherlands 27124 4983 0.18 6748 0.25
Saudi Arabia 12494 5805 0.46 6481 0.52
Sweden 27869 5751 0.21 15397 0.55
United Kingdom 26944 3906 0.14 6231 0.23
United States 35487 7835 0.22 13066 0.37
Japan 26636 4052 0.15 7816 0.29
World 7868 1688 0.21 2429 0.31
TPES: Total Primary Energy Supply
*Data for India are corrected for actual consumption and the difference in actual and IEA
assumed calorie content of Indian coal
Source: IEA (2005), Key World Energy Statistics 2005, International Energy Agency, Paris,

http://www.iea.org

The Challenges
2
Integrated Energy Policy
person of primary energy in 2003 compared to
1090 in China, 7835 in the U.S. and the world
average of 1688. India’s energy use efficiency
for generating Gross Domestic Product (GDP)
in Purchasing Power Parity (PPP) terms is
better than the world average, China, US and
Germany (see Table 1.1). However, it is 7% to
23% higher than Denmark, UK, Japan and
Brazil. Clearly, significant reduction in the
energy intensity of growth can be achieved
based on existing technologies.
3. The level of per capita energy supply is
a good indicator of the level of economic
development as seen in Figure 1.1 where per
capita energy supply is plotted against per
capita GDP. Figure 1.2 shows the relationship
of per capita electricity supply with the level
of economic development. Figures 1.1 and 1.2
are plotted on logarithmic scale and thus their
slopes indicate elasticity of per capita energy
supply w.r.t. per capita GDP i.e. percent change
in per capita energy supply for every percent
change in per capita GDP.
4. If we look at the consumption of
electricity – one of the most convenient forms
of energy – we see that per capita consumption
in India is far below that in other countries.
Moreover, access to electricity is very uneven.
Even though 85 percent of villages are
considered electrified, around 57 percent of the
rural households and 12 percent of the urban
households i.e. 84 million households (over
44.2% of total) in the country did not have
electricity in 2000. Improvement in human
development is also strongly associated with
access to electricity. In Figure 1.3, the Human
Development Index (HDI), which is calculated
from literacy rate, infant mortality rate and
per capita GDP (UNDP, 2004) is plotted against
per capita electricity consumption.
5. Even those who have access to
electricity suffer from shortages and poor
quality of supply. Unscheduled outages, load
shedding, fluctuating voltage and erratic
frequency are common. Consumers and the
economy bear a large burden of the
consequences of this poor quality of supply.
This is evident through many examples. Motors
are over designed and consume more electricity
than required for the task. Voltage stabilisers
are needed for expensive equipment. Diesel
generators provide backup power to industrial
and commercial consumers, while inverters1 to
Figure 1.1
Total Primary Energy Supply (TOE) Per Capita (2003) vs. GDP Per Capita (PPP US$2000)
Source: IEA (2005)
1 Inverters charge batteries when power is available and when power go out convert the DC power of
batteries to supply AC power.
3
The Challenges
Figure 1.2
Kilo Watt hours of Electricity Consumption Per Capita (2003) vs. GDP Per Capita (PPP US$2000)
Source: IEA (2005)
Figure 1.3
Human Development Index (HDI) vs. Electricity Consumption Per Capita in 2002
Note: HDI for India 0.595 and Electricity consumption per capita 553 kWh.
Source: United Nations Development Programme (UNDP-2004) and IEA (2004)
tide over power outages are ubiquitous in city
homes. Equipment often gets damaged. Motors,
compressors and pumps get burnt out often.
Added to these is the cost of idle manpower
and loss in production when power supply is
interrupted. The extent of power shortage varies
from state to state. In 2004-05, the peak shortage
varied from 0 to 25.4% with an all-India average
of 11.7%. Similarly, energy shortage also varied
from 0 to 20.1% with an all-India average of
Human Development Indicator (HDI)
Electricity consumption per capita (kWh)
4
Integrated Energy Policy
Figure 1.4
Peak Power and Energy Shortages in States/UTs. 2004-05
Source: Central Electricity Authority (CEA), 2005
7.3% (Figure 1.4). These shortages include
scheduled cuts, reported load shedding and
frequency corrections. However, unscheduled
outages are not included.
6. Availability based tariffs (ABT) and
unscheduled interchange charges for power
introduced in 2003 for inter-state sale of power
have reduced voltage and frequency
fluctuations. The latter are still, however, not
as stable as one would like. In all regions,
except the Northern one, frequency was within
the normal band (49.0-50.50 Hz) for more
than 98% of the time in 2004-05, up from 55%
in 2000. Frequency falls when demand exceeds
available supply on the grid.
7. Power capacity has risen at the rate of
5.87% per annum over the last 25 years. The
total supply of electrical energy has risen at the
rate of 7.2% per annum over the same period.
This reflects a gradual improvement in the
average Plant Load Factor (PLF) of thermal
plants (which stood at 74.8% in 2004-05) as
well as a decline in the share of hydro in the
power generation mix. However, consumption
is still constrained as supply and power
shortages continue to plague the country.
Shortages and the poor quality of power are
the outcome of inadequate investments in
distribution and transmission. Increasing
generation capacity has attracted the bulk of
investment both at the centre and the state
levels. Aggregate Technical and Commercial
(AT&C) losses which include theft, non-billing,
incorrect billing, inefficiency in collection, and
transmission and distribution losses, exceed
40% for the country as a whole. Consequently
the State Electricity Boards (SEBs), remain
financially sick and hence unable either to
adequately meet their investment needs on
their own or attract private capital to do so.
8. The Ministry of Power has set a target
of adding 1,00,000 MW of generation capacity
between 2002-2012. This programme includes
the 41,110 MW capacity additions proposed in
the 10th Plan to ensure the availability of
reliable and quality power as well as the creation
of an adequate reserve margin. Historically,
plan targets have never been met, and even in
the 10th Plan, the likely capacity addition will
actually be under 28,000 MW. Further, the
generation capacity created does not have the
desired mix of peaking, intermediate and base
load stations. Finally, the history of emphasis
5
The Challenges
on investment in power generation results in
loading more and more power on an inadequate
transmission and distribution (T&D) network.
Since T&D investments have not kept pace
with investments in generation, power cannot
be easily moved from surplus to deficit areas.
Industrial and commercial establishments have
been forced to seek captive and standby
generation to meet demand or provide quality
supply on a 24X7 basis to support critical
processes and provide peaking support. There
is good reason to believe that some 50,000
MW of such captive and standby capacity is in
place. Those in the household sector who can
afford it manage with the help of inverters.
9. The sector is dominated by large state
monopolies at both central and state levels.
Over 88% of utility-based generation is in the
public sector, which also, almost entirely,
controls transmission. Private distribution is
limited to Orissa, Delhi and some parts of
West Bengal, Maharashtra, Gujarat and U.P.
An uneven playing field permeates the market
place wherein the Central Power Sector PSUs
get guaranteed post-tax returns of 14-16% with
full payment backed by the GOI. State Power
Sector Utilities (SPSUs) are given zero or low
returns by Regulators who are under constant
pressure not to raise tariffs, which are already
among the highest in the world in PPP terms
for industrial, commercial and household
consumers. For example, in 2002, industries in
India paid 47 US cents per unit as opposed to
20 cents in China, 17 cents in Brazil, 12 cents
in Japan, 5.5 cents in US and 5 cents in
Germany in terms of PPP. Financially sick
state sector utilities are unable to invest on
their own and remain a poor credit risk for
private suppliers of energy. This reality has led
to a growth driven by Central Power Sector
PSUs, which is clearly unsustainable in the
long run since their only customer is bankrupt.
Even the massive investments required in
distribution are unlikely to yield adequate
returns in the current set-up. Nevertheless,
such investments to strengthen distribution
system, irrespective of public or private
ownership must be made. The GOI and the
Regulators have to struggle to put an enabling
environment and a regulatory framework in
place that will nurture competition in each
element of the electricity value chain, bring in
the needed investments and yield the necessary
efficiency gains through such competition.
10. The Accelerated Power Development
and Reforms Programme (APDRP) is aimed at
supporting distribution reforms through
investments and incentives by strengthening
sub-transmission and distribution networks in
the states so as to reduce the aggregate AT&C
loss levels and encourage efficiency
improvements in metering, billing and
collection. The performance of the APDRP,
thus far, has fallen short of the promise with
an investment of only Rs.9,200 crore realised
in the first three years against a target of
Rs.20,000 crores for the 5 years of the 10th
Plan. The programme has to be restructured to
an outcome-driven programme based on
monitorable targets against established baselines.
Privatisation of distribution has also been tried
in Orissa and Delhi as an alternative but the
results are, at best, mixed.
11. Power tariffs are structured on the basis
of industrial and commercial users crosssubsidising
agricultural and domestic power
consumption. The agricultural sector is supplied
un-metered power in almost all states and the
farmers pay a highly subsidised lump sum
based on the declared horse power of their
pumps. This leads to a zero marginal cost of
power which promotes, inefficient use and
over exploitation of ground water. The
domestic sector also has a range of subsidies
based on the level of consumption including
heavily subsidised power for the poorest
segment wherein households pay a low lump
sum monthly charge. With the rising cost of
supply, the burden of these cross-subsidies has
increased and is disproportionately loaded on
the paying industrial, commercial and large
household consumers. Additionally, the tariff
structure has created incentives for high paying
consumers to pilfer power under the cover
provided by unmetered power. The habit of
stealing power is now widespread. A vested
interest lobby has been created and what are
euphemistically called AT&C losses remain
stubbornly high. While some state governments
partially compensate the SEBs for subsidies
given to farmers and other specified consumers,
6
Integrated Energy Policy
Figure 1.5
Distribution of Households by Primary Source of EnergyUsed for Cooking- India
Source: NSSO (2001): Energy used by Indian Households 1999-2000. NSS 55th Round, Report No. 464
(55/1.0/6), National Sample Survey Organisation (NSSO), Govt. of India, August, 2001.
AT&C losses have to be borne by SEBs. Even
if such practices could have been justified in
the formative years of these companies,
necessary corrective measures should have been
taken on the basis of the experience gathered
over subsequent years of operation. The
development of an effective way to subsidise
farmers and certain other consumption
categories that gives them incentives to both
use power efficiently and arrest pilferage, is
very critical for a healthy power sector. The
process of power sector reforms was started in
1992 and continues to date. Despite some
progress, the sector has a long way to go
before becoming competitive and efficient at
meeting demand with quality power and being
able to attract the needed investment to keep
up with growing demand on commercially
viable terms.
12. A majority of India’s people use
traditional fuels such as dung, agricultural
wastes and firewood for cooking food. These
fuels cause indoor pollution. The 1999-2000
55th round of the National Sample Survey
(NSS) revealed that for 86% of rural households
the primary source of cooking energy was
firewood and woodchips or dung cakes. In
urban areas as well, more than 20% of all
households relied mainly on firewood and
chips. Only 5% of the households in rural
areas and 44% in urban areas used LPG.
Kerosene was used by 22% of urban households
and only 2.7% of rural households. Other
primary sources of cooking energy used by
urban and rural households include coke,
charcoal, gobar gas (cow dung gas), electricity
and other fuels.
13. Figure 1.5 shows that not much change
has taken place in rural areas since the 50th
round of NSS (1994-95) though in urban
households use of LPG has nearly doubled.
14. The use of traditional fuels for cooking
with the attendant pollution and the cost of
gathering them imposes a heavy burden on
people, particularly women and girls. The need
to gather fuels may deprive a young girl of her
schooling. Over time, the use of such fuels
increases the risks of eye infections and
respiratory diseases. Lack of access to clean and
convenient sources of energy impact the health
of women and girls disproportionately as they
spend more time indoors and are primarily
responsible for cooking. Women’s microenterprises
(an important factor in household
income, as well as in women’s welfare and
empowerment), are heat-intensive (food
processing), labour-intensive, and/or lightintensive
(home industries with work in
evenings). The lack of adequate energy supply—
and other coordinated support—affects women’s
abilities to use these micro-enterprises profitably
and safely. Furthermore, women often face
additional barriers in making the best use of
7
The Challenges
available opportunities and obtaining improved
energy services. There are social and practical
constraints related to ownership and control
over productive resources, and women are
typically excluded/marginalised from decisionmaking
vis-à-vis the use of these resources.
This is worsened by barriers related to illiteracy,
lack of exposure to information and training.
Thus, the economic burden of traditional fuels
is around Rs.300 billion (see BOX 1.1). An
energy policy that seeks to be responsive to
social welfare must address this fact. It is
estimated that in rural North India, 30 billion
hours are spent in gathering fuel wood and
other traditional fuels annually.
15. The total quantities of traditional fuels
used are substantial. Table 1.2 presents the data
on household energy use. Biomass based fuels
dominate particularly in rural areas, where
they are used by households in all consumer
expenditure categories (see Figure 1.6). This
implies that their use would not reduce even
with economic growth and rising incomes in
rural areas.
BOX 1.1
The Burden of Traditional Fuels in Rural India
A study based on an integrated survey covering 15,293 rural households from 148 villages in
three states of rural North India and one state in South India shows the importance of clean
fuels. Symptoms of diseases related to air and water pollution, expenditure on health and
person days lost, demographic and socio-economic information, measurements of air quality
in the kitchen, outside the kitchen and the home were collected. Indicators for respiratory
functions (Peak Expiratory Flow) were measured for most of the adults present at the time of
the survey. The doctors examined a sub-sample of individuals for confirmation of diseases.
The study estimated that
• 96% of households use biomass energy, 11% use kerosene and 5% use LPG for cooking.
Most of them use multiple fuels.
• Forests contribute 39% of the fuel wood need.
• 314 Mt of bio-fuels are gathered annually.
• 85 million households spend 30 billion hours annually in fuel wood gathering.
• Respiratory symptoms are prevalent among 24 million adults of which 17 million have
serious symptoms.
• 5% of adults suffer from Bronchial asthma, 16% from Bronchitis, 8.2% from Pulmonary
TB and 7% from Chest infection.
• Risk of contracting respiratory diseases and eye diseases increases with longer duration of
use of bio-fuels.
Total economic burden of dirty biomass fuel was estimated to be Rs.299 billion using a wage
rate of Rs.60 per day, comprising of opportunity cost of gathering fuel, working days lost due
to eye infections and respiratory diseases, and the cost of medicine.
As women are the primary sufferers of the adverse impact of use of biomass fuels, there is a
close linkage between gender and energy. Gender and energy issues have remained on the
periphery of energy policy, and require greater attention and backing.
Source: Parikh Jyoti et al (2005)2
2 Parikh Jyoti K. et al “Lack of Energy, Water and Sanitation and its Impact on Rural India” in Parikh Kirit
S. and R. Radhakrishna (eds.), India Development Report 2004-2005, Oxford University Press, New Delhi.
8
Integrated Energy Policy
Figure 1.6
Pattern of Household Energy Consumption
Figure 1.6(a): Monthly Per Capita Household Consumption Pattern Urban India, 2000
Figure 1.6(b): Monthly Per Cpita Household Consumption Pattern Rural India, 2000
Source: NSS 55th Round, (July 1999-June 2000), National Sample Survey Organisation, Ministry of
Statistics and Programme Implementation, Government of India
Table 1.2
Household Energy Consumption in India (July 1999 – June 2000)
Fuel Type Physical Units Mtoe
Rural Urban Total Rural Urban Total
Fire Wood & Chips (Mt) 158.87 18.08 176.95 71.49 8.13 79.62
Electricity (BkWh) 40.76 57.26 98.02 3.51 4.92 8.43
Dung Cake (Mt) 132.95 8.03 140.98 27.92 1.69 29.61
Kerosene (ML) 7.38 4.51 11.89 6.25 3.82 10.07
Coal (Mt) 1.20 1.54 2.74 0.49 0.63 1.12
L.P.G. (Mt) 1.25 4.43 5.68 1.41 5.00 6.41
Source: Derived from NSS 55th Round, (July 1999-June 2000) data, National Sample Survey
Organisation, Ministry of Statistics and Programme Implementation, Government of India
9
The Challenges
Figure 1.7
Domestic Consumption and Production of Crude Oil
Source: Ministry of Petroleum & Natural Gas
16. In 2004-05, net of exports, India
consumed 120.17 Mt of crude oil products
including refinery fuel. Domestic production
of crude oil has been between 30.3 Mt to 33.98
Mt during 1990-2005 (see Figure 1.7). Not only
has domestic production stagnated, oil reserves
hovered between 700 Mt and 750 Mt during
this period. The total oil reserves were 739 Mt
in 1990-91 and were estimated to be 786 Mt in
2004-05. The proved reserves to production
(R/P) ratio was 23 in 2004-05. We now import
72% of our consumption and our import
dependence is growing rapidly. This raises
serious concerns about India’s energy security,
our ability to obtain the oil we need and the
impact of constrained supply and the
consequent increase in oil prices on our
economy.
17. Till 1997, oil and gas exploration was
mainly done by public sector firms. Progressive
liberalisation of exploration and the licensing
policy has attracted some private and foreign
firms. The success of these explorations has
been marginal in enhancing oil reserves.
However, some sizeable gas reserves amounting
to 680 Mtoe [320 Mtoe claimed by Reliance
and 360 Mtoe claimed by Gujarat State
Petroleum Corporation (GSPC)] have been
reported recently which is yet to be confirmed
by DGH. More work is needed to estimate the
total extractable potential. Despite one of the
most liberal exploration licensing regimes, India
has failed to attract any oil majors to explore
in India. This might be an indication of the oil
major’s assessment of the exploration potential
in the Indian Sedimentary basins since typically
such firms prefer to work in large fields. In the
latest round of bidding for exploration under
the new exploration licensing policy (NELP),
oil majors have shown interest. Given the
rising preference for gas as a fuel and feedstock,
India is also seeking to significantly raise gas
imports through LNG and Trans-National gas
pipelines. Oil diplomacy is currently seen as a
major tool for ensuring India’s energy security
along with the acquisition of equity oil and gas
from overseas.
10
Integrated Energy Policy
Figure 1.8
Growth of Transport Vehicles and Two Wheelers
Source: Centre for Monitoring Indian Economy Pvt. Ltd. (CMIE)
18. The total consumption of petroleum
products grew at the rate of 5.7% per annum
between 1980-81 and 2003-04. However, growth
in consumption has moderated to 2.95% per
annum over the last four years (2000-01 to
2004-05). Consumption for petrol and diesel
grew at 7.3% and 5.8% per annum respectively
between 1980-81 and 2004-05. This was the
outcome of the growth of personal motorised
transport and the rise in share of road haulage.
The numbers of two-wheelers rose from
5,75,893 to 4,14,78,136, three-wheelers from
36,765 to 18,81,085, cars from 5,39,475 to
57,17,456, buses from 93,907 to 5,52,899 and
trucks from 3,43,000 to 20,88,918 between
1970-71 and 2001-02 (Figure 1.8). The vehicle
population continues to grow at higher than
historical rates. However, in the last 5 years
growth in consumption of petrol and diesel
has been far more moderate at 6.9% and less
than 1% respectively. This reflects the improved
efficiency of vehicles and better road conditions.
Table 1.3 gives the decadal growth rates of
motor vehicles from 1970-71 to 2001-02. In
2004-05, liquid fuel consumption in the
transport sector accounted for 28% of our
total petroleum products consumption.
19. Currently, the refining capacity of the
country is greater than the domestic
requirements, making India a net exporter of
petroleum products. The projected addition to
Table 1.3
Growth of Motorised Transport Vehicles
1970-71 1980-81 1990-91 2001-2002 Growth Rate
Two-wheelers 575893 2530441 14199858 41478136 15.3%
Three-wheelers 36765 142073 617365 1881085 14.0%
Cars 539475 900221 2266506 5717456 8.2%
Taxis 60446 100845 243748 684490 8.4%
Jeeps 82584 120475 443734 1168868 9.2%
Buses 93907 153909 331096 552899 6.1%
Trucks 343000 554000 1355953 2088918 6.2%
Source: Center for Monitoring Indian Economy Pvt. Ltd. (CMIE)
11
The Challenges
refining capacity in both the public and private
sectors will far exceed addition in demand and
petroleum products could, therefore, become
India’s largest export. India’s marginal advantage
in becoming a refining hub for exporting
products is not immediately clear.
20. The oil sector remains largely in the
hands of the central Public Sector Undertakings
(PSUs). The exception is refining wherein some
26% of capacity is now in private hands. Before
2002, oil product prices were set by the
government under an Administered Price
Mechanism (APM), which is no longer in use.
The prices of inputs and the products are now
determined on the basis of the import parity
principle even for products wherein India is a
net exporter. However, since prices are fixed
collectively by the public sector oil companies,
there is no price competition at the refinery
gate or retail outlets. The Government of India,
through the Ministry of Petroleum and Natural
Gas, has frequently deviated from the import
parity principle in fixing the effective price of
domestic crude as well as the price of petroleum
products at the retail level. Currently, there is
no independent regulation of the upstream or
downstream petroleum sector.
21. The above pricing methodology leads
to multiple distortions when coupled with the
fact that there are differential custom duties on
crude oil and petroleum products, differential
excise duties and central levies on products, as
well as differential state taxes and a normative
pooling of the transport costs. These distortions
and their impact on the profitability of central
PSUs and private refiners are further
compounded by subsidies on LPG and
kerosene, which are exclusively marketed by
central PSUs that share part of the subsidy
burden. Efficient cost based private refiners
with no marketing obligations have thus had
extraordinary advantages in this distorted
market. Even public sector refineries or
upstream operations such as Oil & Natural
Gas Corporation (ONGC) make large profits
while oil marketing companies lose money.
This has restrained the growth of private sector
retailers who find it simpler to sell to the
public sector marketing companies at import
parity prices. Other barriers to private sector’s
entry into retailing include a minimum
investment hurdle of Rs.2000 crore and the
absence of a common carrier principle in the
distribution and marketing sectors. Another
feature of the distorted market is the largescale
adulteration of petrol and diesel with
subsidised kerosene.
22. The challenges facing the petroleum
and natural gas sectors include: (a) ensuring
crude oil and gas supplies in a constrained
world market amidst rising prices; (b) demand
management of petroleum products; (c) rational
pricing of petroleum products and natural gas;
(d) removal of entry barriers for private players
in distribution and retail business in order to
create real market competition; (e) regulation
of upstream and downstream sectors; (f)
improving the administration of LPG and
kerosene subsidies and, finally (g) environmental
management through product upgradation.
23. Coal has been the mainstay of India’s
energy supply for many years. Coal
consumption increased from 140 Mt in 1984 to
over 400 Mt in 2004 with a growth rate of
5.4%. Thermal power plants using coal today
account for 57% of our total generation
capacity. Indian coal has a high ash content
and low calorific value – an average of 4000
kcal/kg compared to 6000 kcal/kg in imported
coal. The average calorific value of coal burnt
in India’s power plants is only about 3500
kcal/kg. The high ash content also results in
higher emission of suspended particulate matter
(SPM). However, the sulphur content of Indian
coal is very low, and emission of SO2 during
combustion is also low. Since SPM is
comparatively easy to trap, Indian coal is
relatively clean. Despite large reserves of coal
domestic supply is tailored to barely meet
domestic demand for thermal coal with small
quantities being imported. India is not selfsufficient
in metallurgical coal and over 65% of
the demand is met through imports.
24. The coal sector is dominated by Public
Sector Undertakings (PSUs) under the central
and state governments. PSUs engaged in the
production of coal and lignite contribute nearly
12
Integrated Energy Policy
90% and 73% of the total production of coal
and lignite respectively. The Coal sector was
progressively nationalised between 1971 and
1973 after recognising the need for scientific
and planned development of resources and
improving the working conditions in existing
mines. The objectives of ‘nationalisation’ have
not been realised completely. The country is
facing an acute shortage of coking coal supplies,
the demand and supply balance of non-coking
(thermal) coal is extremely tight with marginal
quantities of imports required to fill the gap.
More importantly, the quality of thermal coal
has been deteriorating over the years. The
increasing share of opencast mines is one of
the contributing factors for the deterioration
in quality. There has been only a marginal
improvement in productivity. The level of
mechanisation of underground workings and
the success thereof has also not met
expectations.
25. A lack of competition, the absence of
suitable benchmarks for different operational
parameters and the absence of an independent
Regulator for the sector have constrained the
growth of coal industry. Problems of land
acquisition and rehabilitation, stiff legislation
covering forest conservation and environment
management have also, to some extent, affected
the pace of development of the coal sector.
Indian Coal is internationally competitive at
the pithead. However, its pricing has remained
non-transparent and its distribution is restricted
through a complex regime of linkages based on
a constrained rail infrastructure that offers little
flexibility. Moreover, freight rates are exorbitant
and cross subsidise passenger traffic. This makes
Indian coal progressively uncompetitive as it
moves away from the pitheads. In spite of low
(5%) import duty on thermal coal, imports
have been sluggish. This is primarily due to
constraints of port capacity and the cost
associated with multiple handling and inland
transportation of imported coal. Unfortunately
coal consumption at coastal sites is currently
minimal.
26. The entry of the private sector in coal
production is essential for realising efficiency
gains and augmenting the domestic coal supply.
Consequently, the Coal Mines Nationalisation
(Amendment) Bill, 2000, was introduced in
Parliament to bring about suitable legislative
amendments to permit private sector entry
into the coal sector. However, its passage is
still awaited. Pending such amendment, the
captive mining policy was formulated within
the bounds of existing legislation and several
coal blocks have been offered to potential
entrepreneurs to exploit coal for their own
consumption. Foreign Direct Investment (FDI)
in coal mining has been allowed and mining
by joint venture companies is permitted albeit
for captive mines. Coal blocks have also been
allocated to other PSUs under Central and
State Governments for coal mining.
27. Large estimates of total coal resources
give a false sense of security because current
and foreseeable technologies convert only a
small fraction of the total resource into the
mineable category. The capacity of PSUs
engaged in exploration has restricted the pace
of proving indicated and inferred resources.
This limited capacity, coupled with the
economics of opencast mines versus
underground mines, gives only limited incentive
to explore for coal beyond 300m depth.
28. Clean coal technologies for improving
the efficiency of energy conversion and limiting
emissions; research and development initiatives
for establishing additional sources of energy
such as coal bed methane; in-situ gasification of
un-mineable and deep seated coal reserves; and
the liquefaction of coal are promising areas for
action but are still in their infancy.
29. While we have developed indigenous
technological capability in all aspects of nuclear
power, our ability to develop nuclear power is
restricted by the very limited availability of
Uranium. In fact, the present Uranium shortage
has forced us to operate even the small nuclear
generation capacity that we have at a load
factor below what is technically possible. The
pace at which we can expand nuclear power
generation using indigenous fuel sources is
thus severely limited even though the eventual
potential for nuclear power generation is vast.
30. There is large unexploited hydel
potential in the country. Development of this
13
The Challenges
involves relatively long gestation lags.
Moreover, storage schemes often involve
displacement of people and submergence of
land. Project affected people need to be resettled
and rehabilitated. Also, storage schemes may
have other environmental consequences such
as adverse impact on aquatic life and
downstream ecosystems. While these problems
are not unsurmountable they have not been
adequately attended to in the past. There is,
therefore, some opposition to the development
of large storage schemes. However, storage
schemes help utilise water that would have
otherwise gone to the seas. Run of the river
schemes avoid these problems though at the
cost of a much lower utilisation of the available
hydro resource both in terms of water usage
and its energy potential. Most importantly,
run of the river schemes, typically, have much
lower capacity for delivering peak power
compared to storage schemes. Thus, if a river
basin can support storage projects, a careful
economic analysis must be done before allowing
that potential to be converted to the easy-to-do
run of the river schemes.
31. Given the shortage of conventional
fuels, non-conventional energy sources hold a
special attraction for the country. Despite many
years of efforts and despite the significant
growth of small-hydro and wind power, the
contribution of non-conventional energy
sources such as wind, solar, biogas, etc., to our
total energy use has remained below 1%.
32. Environmental problems associated
with energy use have become severe in many
urban areas. Most of our cities have a high
concentration of one or more pollutants above
the safe limit. In fact, many Indian cities are
among the most polluted cities in the world.
The Supreme Court mandated the use of
Compressed Natural Gas (CNG) for buses,
taxis and three-wheelers in Delhi beginning
September 2001. Other cities are following
this lead. In our energy strategy environmental
concerns have to be factored in to reduce
emission of local pollutants as well as global
pollutants to ensure that the energy strategy is
ecologically sustainable.
33. The continued dependence on biomassbased
fuels, which are mostly obtained from
forests, raises the threat of deforestation,
thinning of forests and a loss of habitat and
bio-diversity.
34. Thus in summarising the energy scene
we note that the immediate problems are
shortages of fuels, a growing dependence on
imported oil that is becoming dearer by the
day, and a power sector with ill financial
health that discourages growth in a country
that needs energy for growth and for
improving human welfare. These problems
should be addressed in the context of our
long-term energy requirements and the
available strategic options to fulfil them so
that we may not get locked into paths that
we may regret later.
1.2 THE ISSUES
35. The energy scene described above raises
a number of issues. We divide these into two
categories: those that need to be addressed
from a long-term perspective and those that
are pressing problems in the short-term.
36. From a long-term perspective a number
of issues need to be addressed:
(a) How much energy do we need over
the long run? Given our resources,
what should be our strategy to meet
the growing demand?
(b) How do we promote the efficient
allocation of various fuels and energy
forms to different uses? What should
be their relative prices?
(c) How do we address the legitimate
concerns of States rich in energy
resources such as coal and hydro?
(d) What institutional reforms are needed
to generate competitive efficiency? How
do we leverage the strength of public
sector units that dominate energy
sectors? How do we obtain credible,
independent, transparent and consistent
regulatory oversight in the energy
sector?
(e) What is the role of renewables in our
14
Integrated Energy Policy
energy supply? How do we promote
their development?
(f) How should we increase India’s known
energy resources? What new
technologies are relevant for India’s
future? How do we promote their
development? What should be our
R&D strategy?
(g) What is the scope for increasing the
energy efficiency of the system? What
policies can lead to higher efficiency?
How do we encourage energy
conservation and energy efficiency? In
particular, how do we reduce the use
of petroleum fuels for transport? What
policies are needed to promote fuel
efficiency and alternatives in transport?
(h) How do we ensure energy security?
What is the role of obtaining equity
energy abroad? How do we reduce
dependence on imported energy?
(i) How do we encourage an energy
system that keeps air pollution within
acceptable limits? The growing global
concern over the threat of climate
change requires that India continues to
increase its energy supply in a
responsible manner without
compromising its economic growth
imperative. India’s long-term energy
strategy must take this into account.
37. In the short-term, our pressing
problems are:
(a) How do we deal with persistent power
shortages? How do we expand
capacities for generation, transmission
and distribution? How to generate
investible surpluses with SEBs? How
do we improve the financial health of
SEBs? How do we reduce AT&C
losses?
(b) How do we reduce the cost of power
and improve its quality? How should
we do away with cost plus regime?
How do we introduce competition?
How can we encourage private sector
participation in the power sector? How
can we provide open access in a level
playing field?
(c) How do we ensure fuel supply for
power generation? How should we
expand coal supply in a cost effective
way? How can we promote investment
in coal production? How do we
expand production by captive mines?
How do we facilitate import of coal
to meet shortfalls in domestic supply
and wherever imports are cost
effective?
(d) How should we allocate and price
domestic gas?
(e) How do we deal with the rising cost of
oil in the world market? How to
minimise its adverse impact on the
economy?
(f) How do we provide clean cooking
energy to all? How can we develop an
energy system that is poverty and
gender sensitive?
(g) How do we provide access to electricity
for all households? Considering some
consumption of electricity as a merit
good that we want all to consume,
how should it be financed?
(h) How do we provide subsidy for
electricity and clean cooking fuels to
certain consumers e.g. poor households
or agricultural pumps, in ways that do
not encourage wasteful use of
electricity?
1.3 THE VISION
38. The broad vision behind the energy
policy is to reliably meet the demand for
energy services of all sectors including the
lifeline energy needs of vulnerable households
in all parts of the country with safe, clean and
convenient energy at the least-cost. This must
be done in a technically efficient, economically
viable and environmentally sustainable manner
using different fuels and forms of energy, both
conventional and non-conventional, as well as
new and emerging energy sources to ensure
supply at all times with a prescribed confidence
level considering that shocks and disruption
can be reasonably expected. In other words,
the goal of the energy policy is to provide
energy security to all.

1.4 NEED FOR AN INTEGRATED
POLICY
39. The need to have an integrated policy
arises because different fuels can substitute for
each other in both production and
consumption. Alternative technologies are
available and there is substantial scope for
exploiting possible synergies to increase energy
system efficiency and to meet requirement for
energy services. If the energy system is to be
efficient, our policies must be integrated.
Currently with five separate ministries (Coal,
Petroleum & Natural Gas, Atomic Energy,
Power and Non-Conventional Energy sources),
each concerned with its own turf, policies are
not always consistent, opportunities for interlinkages
and synergy are missing and suboptimal
solutions are the result. We briefly
look at issues that call for an integrated policy
and describe some of the attributes of such a
policy.
(a) Relative Prices
Different fuels have different calorific
values. Their efficiency in use and
convenience also differ. Moreover, they
generate different kinds and amounts
of pollution. And yet often they are
substitutes for each other in specific
uses. Their relative prices, therefore,
have to be set in a way that the resulting
inter-fuel choices are socially and
economically desirable. For this, their
marginal use values per rupee of fuel
need to be equivalent. Thus prices of
different fuels should not be set
independently of each other.
(b) Consistent Tax Structure
Relative prices can be affected by taxes
and subsidies. Excise and import duties
have to be consistent across different
fuels. For an optimal allocation of
resources, taxes on capital goods that
use different fuels to produce the same
output should be consistent. The tax
structure on alternate fuels may be
used to promote desired policy
objectives relating to environment,
utilising domestic energy resources,
generating employment etc.
(c) Level Playing Field
All players and energy projects, public
or private, large or small, domestic or
foreign should be treated equally if the
sector is to be efficient.
(d) Uniform Treatment of Externalities
Different fuels may have different
externalities in their production and
for use. Thus for example, coal involves
mining with potential to damage land
while nuclear power involves a much
smaller amount of mining but poses
problems of hazardous waste disposal.
Biomass based fuels are renewables and
may not result in carbon emissions,
but the air pollution caused by their
use may have a severe and adverse
impact on health. Our policies need to
take an integrated view so that
environmental objectives are attained
at least-cost.
(e) Public Infrastructure
Many elements of the energy system
constitute public infrastructure with
many positive externalities and
economies of scale. Some of them are
natural monopolies. Ports, roads, rail
roads, urban mass transport, etc., play
an important role in the energy system.
Transmission networks or gas pipeline
networks have large economies of scale.
These are often developed through
public efforts or through public-private
partnerships. Their development needs
to be coordinated and their functioning
regulated.
(f) Long Gestation Lags, R&D and
Transition Strategy
Many energy projects involve large
investments and have long gestation
lags. An integrated policy needs to
provide a framework of development,
and a strategy of transition to the
desired energy future. In particular,
R&D for new technologies and new
sources may be most successful with
long-term commitment and support.
Setting priorities among alternative
R&D missions and defining an optimal
16
Integrated Energy Policy
R&D strategy require an integrated
perspective on the future of the energy
system.
(g) Consistent Regulation
The energy sector requires regulatory
oversight to balance consumer and
producer interests, to ensure efficiency
and to create a level playing field.
Natural monopolies need regulation to
ensure open access to all so that
competitive efficiency is realised.
However, regulation should be
consistent across different energy
sources and across regions, which
requires an integrated policy.
(h) National Priorities
While competitive efficiency is a
desirable goal, policies have to factor
in national priorities. Thus if the
country decides that food security is
paramount and that a certain level of
fertiliser self-sufficiency is required, then
the energy policy needs to provide for
it. If this calls for a certain quantitative
allocation of natural gas, one must
consider such an allocation, though
one should ideally find an
implementation solution that is at the
least-cost.
(i) Regionally Balanced Development
Energy infrastructure is critical for
development. For regionally balanced
development, energy should be
available in all regions. Freight and
transmission equalisation, as practised
in the past, has often caused regionally
distorted development. Thus Bihar, in
spite of its natural resources, has
remained industrially underdeveloped.
One needs to use more direct
instruments where incentives are linked
to outcomes. Distortion of energy
prices do not often serve this purpose.
As different fuels and resources are
differentially distributed geographically,
an integrated approach can help
minimise the cost of distortions and
incentives.
(j) Energy for the Poor
Some amount of clean cooking fuels
(LPG and Kerosene) and electricity are
merit goods, which justifies subsidies
for these goods for the poor. These
subsidies have to be consistent,
progressive and implementable. Ideally,
they should also be self-targeting and
self-limiting. Implemented properly,
they could, especially for women,
relieve drudgery, reduce health impact,
increase productivity and enhance
livelihood options.
1.5 APPROACH
40. Traditional approach to the energy
policy – of determining optimal supply strategy
with quantitative targets – is no longer
appropriate. We must provide policies that
create an enabling environment and provide
incentives to decision makers, consumers,
private firms, autonomous public corporations,
and government departments, to behave in
ways that result in socially and economically
desirable outcomes. The Committee’s approach
has been to identify such policies.
41. It is not necessary to compare precisely
the economics of alternatives as the policy
does not mandate which alternative should be
used and when. Relative economics of
alternatives depend on particular circumstances,
relative prices of different fuels as well as
technological developments. These comparisons
and the resulting choices among them are best
left to economic decision takers. Thus, policy
recommendations have been presented as broad
principles, leaving the details to be evolved, if
necessary, by implementing agencies in the
framework of plans and programmes at any
point of time.
42. The institutional structure in the public
sector that we have so assiduously built up
during the last 55 years or so to promote selfsufficiency
and self-reliance in energy, has led
to a monopolistic market structure and led to
the systemic infirmities that are inherent in
cases of majority public ownership of an
enterprise. However, the Committee recognises
17
The Challenges
that in a liberalised economy, the private sector
is expected to play an important role in the
energy sector.
43. Keeping this in mind our approach to
designing an integrated energy policy is based
on the following premises:
(a) Effective implementability of policies
is important. Any policy that depends
on the good behaviour of many people
is unlikely to be effectively
implementable.
(b) Informed debate based on widely
disseminated and reliable data is critical
for effective policy formulation.
(c) Incentive compatible policies that factor
in stakeholder concerns are more likely
to be acceptable and implementable.
(d) Competitive set-ups that give
appropriate signals to various economic
agents, such as prices, are to be
preferred.
(e) Independent Regulators have critical
roles to play. However, regulation is
not always a substitute for competition
and by itself cannot give efficient
outcomes. Regulation should be
complemented by an appropriate
industry structure. For example,
experience in electricity sector has
shown that good regulation under a
proper industry structure can mimic
competition. It must also be noted that
the mere presence of competition does
not negate the need for independent
regulation – it only changes the scope
of regulation.
(f) Social objectives should not be sacrificed
to the objective of competition but
should be made consistent with it
through the use of direct transfers
where possible.
(g) Policy has to recognise the existing
institutional structure of the energy
sector and define a transition strategy
of reforms.
(h) Policies should reflect externalities of
energy consumption.
(i) Efficiencies across the energy chain
should be improved.
44. With these principles in mind, we will
now look at energy by each fuel source as well
as at the power sector to address issues identified
earlier. Keeping in mind the need for
integration, we will underline aspects of policies
that need to be integrated with other policies.
18
Integrated Energy Policy Chapter II
Long-term projections for energy
requirements are based on assumptions vis-àvis
the growth of the economy, population
growth, the pace at which “non-commercial
energy” is replaced by “commercial energy”,
the progress of energy conservation, increase
in energy efficiency as well as societal and
lifestyle changes. It is not surprising, therefore,
that available projections differ widely. Yet it
is useful to have a set of consistent projections
with clearly stated assumptions to outline the
broad discussion of the challenges facing us in
meeting energy needs as well as to provide a
framework for policy formulation. Having said
this, it is emphasised that a rigorous demand
analysis has not been conducted by the
Committee and the numbers here and in
Chapter III merely establish an indicative range
of likely energy demand, supply and mix.
However, the policy recommendations that
emerge are not affected by the lack of precision
in the demand projections.
2.1 COMMERCIAL ENERGY NEEDS
2. We projected total primary commercial
energy requirement on the basis of elasticity
w.r.t. GDP, which gives a percentage change
in commercial energy requirement for one
percent change in GDP. The elasticities are
obtained from time series data of India’s
commercial energy use. These elasticities are
summarised below:
3. The elasticity for per capita primary
commercial energy supply with respect to per
capita GDP estimated from the time series data
of India comes to 0.82 since 1990-91 which is
significantly lower than 1.08 estimated for the
period since 1980-81. Similarly the elasticity
for per capita electricity generation is only
1.06 since 1990-91 compared to 1.30 for the
period since 1980-81. We have used electricity
generation rather than consumption because
while losses have been rising over time, precise
data is not available on technical losses and
commercial losses (which includes pilferage,
non-billing, and non-collection). Except for
technical losses all electricity made available
contributes to GDP. However, since even
technical losses have been rising (current
estimates are upwards of 15%) using electricity
generation instead of actual consumption gives
higher elasticities. Importantly though, the
elasticities in India are falling over time (or
with increasing GDP).
4. The energy elasticities of GDP can be
reshaped by policy interventions, the relative
prices of fuels, changes in technology, changes
Energy Requirements
Table 2.1
Energy Use Elasticity w.r.t. GDP
(Percent change in Commercial energy use for one percent change in GDP)
Regression Using India’s Time Series
Per Capita
1. TPCES w.r.t. GDP (Rs. Crores 1993-94) 1980-81—2003-04 1.08
1990-91—2003-04 0.82
2. Electricity Generated w.r.t. GDP (Utilities + Captive) 1980-81—2003-04 1.30
1990-91—2003-04 1.06
TPCES = Total Primary Commercial Energy Supply
19
Energy Requirements
in end-use efficiency of equipment, the level of
the energy infrastructure and development
priorities that affect the structure of the
economy. Normally, overall elasticity falls over
time as is corroborated by the time series data
for India’s commercial energy consumption.
However, there is also a feeling that, for India,
the energy elasticity of GDP growth will not
fall any further as rising income levels will
foster life style changes that are more energy
intense. Based on these alternative views two
sets of elasticities were used for projecting
India’s commercial energy demand. The two
sets of elasticities used are shown in Table 2.2.
5. To get a feel for how India’s energy
elasticities compare with other countries, we
have estimated these elasticities using crosscountry
regression based on data of 2003. These
are shown in Table 2.3. The elasticity for total
primary energy supply, TPES, comes to 0.83
for all countries and to 0.79 for countries with
a PPP GDP between $2000 and $8000 (India’s
GDP in PPP terms based on 2000 dollars was
$2732 in 2003 and by 2031-32 might reach the
upper end of the range). India’s energy elasticity
for commercial energy is comparable to the
elasticity estimates for TPES using cross country
data. The elasticity for electricity consumption
comes to 1.24 for all countries and to 1.25 for
PPP GDP range of $2000 to $8000. India’s
elasticity for electricity generation is comparable
to that of countries with per capita GDP
exceeding $8000 in PPP terms. Importantly,
the trend of falling elasticities with rising
income levels is demonstrated even by cross
country data.
6. Using the above estimates, commercial
energy needs have been projected for different
growth scenarios using falling and constant
elasticities from Table 2.2. These projections
are given in Table 2.4, which also shows
population projections by the Registrar of
Census. It is noted, though, that the number
based on constant elasticities is not used in this
report for any comparison.
2.2 REQUIRED ELECTRICITY
GENERATION
7. Requirement for electricity generation,
(projected using the elasticities of Table 2.2) are
shown in Table 2.5. Plan-wise projected
electricity generation and capacity additions
are shown in Figures 2.1 and 2.2 respectively.
Table 2.2
Elasticities Used for Projections
(TPCES w.r.t. total GDP)
TPCES 1 TPCES 2 Electricity Electricity
(Falling (Constant (Falling (Constant
elasticities) elasticities) elasticities) elasticities)
2004-05 to 2011-12 0.75 0.8 0.95 0.95
2011-12 to 2021-22 0.70 0.8 0.85 0.95
2021-22 to 2031-32 0.67 0.8 0.78 0.95
Table 2.3
Energy Use Elasticity w.r.t. GDP from Cross-Country Data of 2003
1. TPES (kgoe/capita) w.r.t. per capita GDP ($ PPP 2000) All Countries 0.83
2000 <GDP 8000 0.76
2. Electricity Consumption (kWh/capita) w.r.t. per capita All Countries 1.24
GDP ($ PPP 2000) 2000< GDP 8000 1.09
20
Integrated Energy Policy
Table 2.5
Projections for Electricity Requirement
(Based on Falling Elasticities of Table 2.2)
Year Billion kWh Projected Peak Installed Capacity
Demand (GW) Required (GW)
Total Energy Energy Required @ GDP Growth @ GDP Growth
Requirement at Bus Bar Rate Rate
@ GDP Growth @ GDP Growth
Rate Rate
8% 9% 8% 9% 8% 9% 8% 9%
2003-04 633 633 592 592 89 89 131 131
2006-07 761 774 712 724 107 109 153 155
2011-12 1097 1167 1026 1091 158 168 220 233
2016-17 1524 1687 1425 1577 226 250 306 337
2021-22 2118 2438 1980 2280 323 372 425 488
2026-27 2866 3423 2680 3201 437 522 575 685
2031-32 3880 4806 3628 4493 592 733 778 960
Note: Electricity generation and peak demand in 2003-04 is the total of utilities and non-utilities above 1
MW size. Energy demand at bus bar is estimated assuming 6.5% auxiliary consumption. Peak
demand is estimated assuming system load factor of 76% up to 2010, 74% for 2011-12 to 2015-16,
72% for 2016-17 to 2020-21 and 70% for 2021-22 and beyond. The installed capacity has been
estimated keeping the ratio between total installed capacity and total energy required constant at the
2003-04 level. This assumes optimal utilisation of resources bringing down the ratio between installed
capacity required to peak demand from 1.47 in 2003-04 to 1.31 in 2031-32.
Table 2.4
Projections for Total Primary Commercial Energy Requirements
(Mt of Oil Equivalent)
Year Population GDP TPCES TPCES
in millions (Rs. in Billion (Mtoe) 1 (Mtoe) 2
@1993-94 prices) GDP Growth Rate GDP Growth Rate
8% 9% 8% 9% 8% 9%
2006-07 1114 17839 18171 389 397 394 403
2011-12 1197 26211 27958 521 551 537 570
2016-17 1275 38513 43017 684 748 732 807
2021-22 1347 56588 66187 898 1015 998 1142
2026-27 1411 83145 101837 1166 1360 1361 1617
2031-32 1468 122170 156689 1514 1823 1856 2289
Note: 1. Projections based on falling elasticities with respect to GDP
2. Projections assuming no change in elasticities with respect to GDP
3. It is pointed out that the level of commercial energy consumption shown for 2006-07 is not
expected to be achieved as the growth in demand for petroleum products in the first 4 years of
the 10th Plan has only been 2.8% per annum. However, over the long-term, the projections may
still be valid as incomes and access improves.
21
Energy Requirements
Figure 2.1
Projected Electricity Generation Growth (BkWh)
Figure 2.2
Plan-wise Projected Installed Capacity Addition (MW)
8. For comparison purposes, Table 2.6
provides projections of electricity demand made
by the Ministry of Power. For the purposes of
this report, however, the projections of Table
2.5 have been used.
Table 2.6
Projections for Electricity Requirement by MOP
Year Billion kWh Installed Capacity (GW)
8% 9% 8% 9%
2006-07 700 700 140 140
2011-12 1029 1077 206 215
2016-17 1511 1657 303 331
2021-22 2221 2550 445 510
2026-27 3263 3923 655 785
2031-32 4793 6036 962 1207
22
Integrated Energy Policy
Table 2.7
Sources of Electricity Generation – One Possible Scenario
Year Electricity Hydro Nuclear Rene- Thermal
Generation (BkWh) (BkWh) wables Energy Fuel Needs
at Bus Bar (BkWh) (BkWh)
(BkWh) Coal (Mt) NG (BCM) Oil* (Mt)
8% 9% 8% 9% 8% 9% 8% 9% 8% 9%
2003-04 592 592 74 17 3 498 498 318 318 11 11 6 6
2006-07 711 724 87 39 8 577 590 337 379 12 14 6 6
2011-12 1026 1091 139 64 11 812 877 463 521 19 21 8 8
2016-17 1425 1577 204 118 14 1089 1241 603 678 33 37 9 10
2021-22 1981 2280 270 172 18 1521 1820 832 936 52 59 12 12
2026-27 2680 3201 335 274 21 2050 2571 1109 1248 77 87 14 15
2031-32 3628 4493 401 375 24 2828 3693 1475 1659 119 134 17 20
*includes secondary oil consumption for coal-based generation
9. Electricity requirements can be met by
various alternative fuels. These include coal,
nuclear power, hydropower, gas, oil and
renewables such as biomass, wind energy, solar
energy, etc. In order to understand the broad
dimensions of the fuel requirements for power
generation, a possible fuel mix scenario has
been developed. The projections of this
scenario are summarised in Table 2.7. It is
important to note that Table 2.7 represents
one possible scenario and it should not, in
any way, be considered as the preferred
scenario. Also to the extent that gas, hydro
or nuclear capacity cannot be realised as
projected in the scenario, coal-based
generation will need to fill the gap. In
reality, the choice between coal and gas will
be guided by economic and commercial
considerations including any policy
prescriptions for pricing-in certain
environmental externalities. The level of gas
use projected in the scenario under Table
2.7 is based on somewhat optimistic
assumptions of gas availability and of its
ability to compete with coal on price. Should
these assumptions not hold true, coal
dependence will increase.
10. The projections in Table 2.7 assume
exploitation of full hydro potential of 1,50,000
MW in the country, a capacity addition of
63,000 MW from nuclear power sources and a
14,000 MW capacity from wind farms by 2031-
32. These scenario assumptions in respect of
hydro and nuclear may not be fully realised
and are made here in order to characterise the
boundaries of alternative choices. Generation
from coal-based stations also includes electricity
generation from lignite. The scenario also forces
gas usage for power generation with gas-based
electricity share rising from about 10% to 16%
between 2003-04 and 2031-32. As a result of
these assumptions, the share of coal-based
electricity drops from 72% to 61%. The demand
for oil in power sector covers consumption of
petroleum products in diesel based plants as
well as secondary oil consumption in coalbased
plants.
2.3 INDIA’S OIL DEMAND
11. Long-term growth in demand of
petroleum products depends upon a number of
factors such as economic growth (GDP),
elasticity of demand for petroleum products
with respect to GDP growth, relative price
levels of substitute products particularly LNG/
CNG, saturation of LPG demand, and the
impact of energy conservation measures. The
demand for petrol and diesel is dependent on
the growth of road infrastructure, the price of
oil, the future efficiency of vehicles, the growth
23
Energy Requirements
of alternate modes of transport and the
emergence of substitutes like bio-fuels and/or
technologies such as hybrids. Naphtha demand
is dependent on the growth plans for fertiliser
and petro-chemicals and its price relative to the
price and availability of natural gas. Different
agencies have made various projections
estimating changes in demand of petroleum
products. The committee has reviewed the
demand projections made by Energy
Information Administration(EIA), USA,
International Energy Agency(IEA), India
Hydrocarbon Vision 2025, India Vision 2020,
Working Group Report for the 10th Plan,
Power & Energy Division and Integrated
Research and Action for Development – Price
Waterhouse Coopers (IRADe-PWC).
12. A summary of the projections by
various agencies is given in Table 2.8. As the
available projections by these agencies are for
different years, the same have been interpolated
or extrapolated to bring them to a common
year to ease comparison. The projections by
IEA and EIA are based on unrealistically low
growth rates of GDP for India. It may be seen
that the demand for the year 2025 varies from
235 Mt for the Best Case Scenario (BCS) of
India Vision 2020 to 368 Mt of India
Hydrocarbon Vision (IHV) 2025. The IRADe-
PWC projections exclude Naphtha and their
projection of 347 Mt under high growth case
(HOG) is comparable to 368 Mt of India
Hydrocarbon Vision.
13. It should be emphasised that most of
these projections do not factor in the impact of
change in prices. The world market in
petroleum products has seen large swings in
prices and future prices are difficult to predict.
Since these projections vary a lot, we have
projected oil demand by detailed sectoral enduse
analysis.
2.4 INDIA’S COAL DEMAND FOR
NON-POWER USE
14. Long-term projections of the demand
for coal are quite complex owing to rapid
changes in the relative availability and prices
of different fuels as well as the technological
advancements and new policies in the end-use
sectors. Total demand, defined as the aggregate
demand across various non-power coal
consuming sectors such as steel, cement etc., is
assessed by determining the outputs of each
sector, which in turn are functions of GDP
growth. In the last decade or so, a gradual
decline in the elasticity of demand of coal
against GDP has been observed. Possible
reasons for this decline can be: (a) rising share
of the non-energy consuming sector in the
aggregate GDP; (b) substitution of coal by
alternative fuels; and (c) technological
innovations in coal consuming sectors leading
to energy efficiency and a reduction in specific
consumption.
15. The committee has reviewed the
demand projections made by Energy
Information Administration (EIA),
International Energy Agency (IEA), India vision
2020, India Hydrocarbon Vision 2025, Coal
Vision 2025, Working Group Report for the
10th Plan and the Power & Energy Division
of Planning Commission. A summary of
projections by various agencies is given in
Table 2.9. Projections have been brought to a
common year by interpolation/extrapolation
for ease of comparison. The projections by
IEA and EIA are based on low growth of GDP
for India. It may be seen that the projected
demand for coal in the year 2024-25 varies
from 971 Mt for the “Business as Usual”
scenario of India Vision 2020 to 1402 Mt in the
India Hydrocarbon Vision 2025 report. The
Committee decided to use the projections
carried out for Coal Vision 2025 by TERI for
non-power coal requirements and extrapolated
them for estimating the coal requirement for
non-power use in 2031-32.
2.5 INDIA’S NON-POWER
NATURAL GAS DEMAND
16. Currently, the Indian gas market is
supply constrained, especially since the future
demand for gas appears to be strong. Table 2.10
summarises the various long-term projections
available for gas in India. As the available
projections by these agencies are for different
years, the same have been interpolated or
extrapolated to bring them to common years
and have been converted into MMscmd for the
24
Integrated Energy Policy
Table 2.8
Demand Scenario for Petroleum Products – India
(By Various Agencies/Organisations)
(Mt)
Projections by the Various Agencies
EIA (2004) IEA IHV–2025 India Vision–2020 Working Power &
(2004) (2000) (2002) Group Energy IRADe & PWC*
Report of Division’s (2005)
Year Reference High Low 10th Plan (Planning
Case Case Case (2001-02) Commission)
BAU BCS Projections BAU HOG
(2003-04)
Base Year 2001 2001 2001 2000 1998-99 1997 2001-02 2001-02 2003-04
(105 Mt) (105 Mt) (105 Mt) (102 Mt) (91 Mt) (83 Mt) (108 Mt) (108 Mt) (109.7 Mt)
2004-05 119 122 115 122 132 121 112 119 124 125 127
2009-10 139 149 129 145 175 153 135 139 147 162 176
2014-15 157 194 154 171 226 193 162 164 174 191 212
2019-20 219 254 189 201 288 245 195 195 207 212 259
2024-25 264 324 204 230 368 309 235 232 240 260 347
2029-30 271 276 281 320 465
EIA – Energy Information Administration, USA IRADe – Integrated Research and Action for Development
IEA – International Energy Agency BAU – Business as Usual PWC – Price Waterhouse Coopers
IHV – India Hydrocarbon Vision 2025 BCS – Best Case Scenario HOG – High Output Growth
Note: As the available projections by the various agencies are for different years, the same have been interpolated or extrapolated to bring them to
common years for comparison purposes.
25
Energy Requirements
Table 2.9
Demand Projection of Coal by Various Agencies in Mt
Source Sectors/Period Base year 06-07 2010 2011-12 2015 2016-17 2020-21 2021-22 2024-25 2025 2030
Power 322 469 617
Captive Power 28 32 37
X Plan working Steel 43 40 40
group Cement 25 24 25
Fertiliser 4 5 5
Others 51 50 56
Total 2001-02 473 620 780 981 1126
Power 322 413 517 635 719
Captive Power 28 43 60 84 102
Coal Vision Fertiliser 4
2025* 7% GDP Steel 43 53 67 84 97
Cement 25 38 58 88 113
Others 51 64 80 101 117
Total 2006-07 473 611 782 992 1147
Power 322 427 553 699 804
Captive Power 28 44 63 90 112
Coal Vision Fertiliser 4
2025* 8% GDP Steel 43 54 69 90 105
Cement 25 39 61 95 123
Others 51 65 82 106 123
Total 2006-07 473 630 828 1079 1267
Hydrocarbon 1998-99 1118 1402 1483
Vision 2025
Best Case 1997-98 538 659
India Vision Scenario
2020 Business As (311) 688 971
Usual
High 2001 408 473 548 611 629
EIA Low 374 411 447 481 490
Reference 390 439 493
IEA 2000 484 623 713 817
P&E Division, 2001 481 612 764 920 957 1417
Planning Comm. (2031-32)
* Projections made by TERI for Coal Vision 2025
26
Integrated Energy Policy
purpose of comparison. It may be seen that the
demand for gas varies from 155 MMscmd in
low case of EIA to 738 MMscmd in HOG case
of IRADe-PWC for the year 2024-25. Most of
these projections have not taken into account
the price sensitivity of gas. The IHV 2025
states that the share of oil and gas in India’s
energy mix would be 25% and 20% respectively.
Based on the numbers given in IHV 2025 for
projected oil demand (364 Mtoe) the gas demand
works out to be 291 Mtoe if the respective
shares are as stated. However, IHV 2025 also
states that the projected demand for gas in
2025 will be 391 Million Standard Cubic Metre
Per Day (MMscmd) which translates into only
128 Mtoe. This error makes the estimates in
IHV 2025 inconclusive. India Vision 2020 has
estimated the demand for gas to be between 65
and 71 Billion Cubic Metres (BCM) for the
year 2020. IRADe-PWC has projected demand
of natural gas and natural gas equivalent of
Naphtha at 243 BCM under the business-asusual
(BAU) scenario and 405.7 BCM under
High Output Growth (HOG) scenario for the
year 2030.
17. Natural gas can replace existing fuels
in various sectors both for feedstock as well as
for energy purposes. However, this substitution
will depend upon the relative price of gas with
respect to other fuels. Therefore, it may be
stated that the demand for gas will depend
upon the price of natural gas relative to that of
alternatives, mainly Naphtha for fertiliser and
petrochemicals and coal for power.
18. The above wide range of estimates for
gas demand was considered by the Committee.
It was agreed to base the demand estimate for
non-power gas on the assumption that the
projected fertiliser (urea) capacity by 2031-32
would be all gas-based; and non-power enduses
of gas will continue to grow at 8% or 9%
per annum depending upon GDP growth. The
committee considered this to be a realistic
basis for estimating the use of gas for nonpower
use. The use of gas for power generation
will depend on the availability of gas and the
price relative to coal. As detailed in Paragraph
10, the forced gas scenario results in a 16%
share for gas-based electricity generation by
2031-32. Table 2.7 gives the gas demand for
power based on this share of gas in electricity
production.
2.6 TOTAL PRIMARY
COMMERCIAL ENERGY
REQUIREMENT
19. Putting together the various projections
discussed above for coal, oil and natural gas for
non-power use, the commercial fuel
requirement for non-power use are summarised
below in Table 2.11.
20. Total commercial primary energy
requirements based on the scenario drawn for
power in Table 2.7 and the projections made
for non-power oil, coal and gas are
summarised in Table 2.12 using the common
unit of million tonnes of oil equivalent
(Mtoe). It is emphasised that Table 2.12 is
merely one scenario that forces Hydro
(1,50,000 MW), forces Nuclear (63,000 MW)
and forces share of gas-based power generation
(16%). Other scenarios based on DSM,
efficiency improvements, renewables etc. will
bring down the commercial energy
requirements further and change the fuel mix
shown in Table 2.12. In Chapter III
commercial energy supply and the commercial
energy mix is projected under a number of
scenarios reflecting specific policy initiatives.
The commercial energy supply under these
scenarios varies from a low of 1351 Mtoe to
a high of 1702 Mtoe. It is noted that the
commercial energy requirement of 1514 Mtoe
estimated on the basis of falling elasticities
(Table 2.4) is not significantly different from
the mid-point of this range (1526 Mtoe).
Again, the requirement assessed in Table 2.12
is based on assumptions that correspond to
scenario 5 under Chapter III. The commercial
energy requirement estimated in Table 2.12 is
above the mid-point of the range of
commercial energy supply established by the
various scenarios under Chapter III.
21. Figure 2.3 shows the actual percentage
shares of various commercial energy sources in
2003-04 and as projected for 2031-32 in the
scenario under Table 2.12.
27
Energy Requirements
Table 2.10
Demand Scenario for Natural Gas – India
(By Various Agencies/Organisations)
(MMscmd)
Projections by the Various Agencies
EIA (2004) Power &
Year IEA IHV-2025 India Vision-2020 Energy IRADe & PWC*
Reference High Low (2004) (2000) (2002) Division’s
Projections
Case Case Case BAU BCS (2003-04) BAU HOG
Base Year 2001 2001 2001 2000 1999 – 2000 1997 2001-02 2003-04
(62 MMscmd) (62 MMscmd) (62 MMscmd) (67 MMscmd) (110 MMscmd) (59 MMscmd) (81 MMscmd) (85 MMscmd)
2004-05 74 77 74 91 195 89 87 98 93 95
2009-10 93 101 93 140 277 115 111 134 145 164
2014-15 124 132 109 189 329 149 142 183 226 285
2019-20 155 171 132 228 358 194 177 249 356 493
2024-25 195 225 155 259 391 258 226 326 488 738
2029-30 295 430 667 1111
EIA – Energy Information Administration, USA IRADe – Integrated Research and Action for Development
IEA – International Energy Agency BAU – Business as Usual
IHV – India Hydrocarbon Vision 2025 BCS – Best Case Scenario
PWC – Price Waterhouse Coopers
HOG – High Output Growth
* includes Natural Gas & N G equivalent of Naphtha
Note: As the available projections by the various agencies are for different years, the same have been interpolated or extrapolated to bring them to common
years and have been converted into MMscmd for the purpose of comparison.
28
Integrated Energy Policy
Table 2.11
Commercial Fuel Requirements for Non-Power Use in Physical Units
Non-Power- Coal
1
Non-Power – Oil
2
Non-Power- Natural Gas
3
Mt Mt B.Cu.M
8% 9% 8% 9% 8% 9%
2003-04 91 91 113 113 20 20
2006-07 123 123 126 142 20 22
2011-12 164 170 158 178 30 32
2016-17 221 237 205 231 38 45
2021-22 299 334 266 299 56 65
2026-27 408 475 351 395 73 93
2031-32 562 684 469 528 100 133
Note: Estimated fuel requirements of coal, oil and natural gas are for non-power purposes.
1
As explained in Para 15
2
As explained in Para 13
3
As explained in Para 18
Table 2.12
Projected Primary Commercial Energy Requirements (One Possible Scenario)
(Mtoe)
Year Hydro Nuclear Coal Oil Natural Gas TPCES
8% 9% 8% 9% 8% 9% 8% 9%
2011-12 12 17 257 283 166 186 44 48 496 546
2016-17 18 31 338 375 214 241 64 74 665 739
2021-22 23 45 464 521 278 311 97 111 907 1011
2026-27 29 71 622 706 365 410 135 162 1222 1378
2031-32 35 98 835 937 486 548 197 240 1651 1858
CAGR -% 5.9 11.2 5.9 6.3 5.1 5.6 7.2 8 6 6.4
(Compounded
Annual Growth
Rates)
Per capita 24 67 569 638 331 373 134 163 1124 1266
consumption
In 2032 (Kgoe)
In 2004 (Kgoe) 6.5 4.6 157 157 111 111 27 27 306 306
Ratio 2032/2004 3.7 14.6 3.6 4.1 2.9 3.4 5.2 6.3 3.7 4.1
2.7 NON-COMMERCIAL ENERGY
REQUIREMENT
22. The so-called “Non-commercial”
sources of energy, including fuel wood,
agricultural waste and dung, are primarily used
by households for cooking energy. These are
called non-commercial because a major
proportion of these are simply gathered by
actual users directly as opposed to being traded
commercially.
29
Energy Requirements
23. Based on the latest data available on
household energy consumption from the NSS
55th round covering the year 1999-2000,
household demands are projected assuming that
income distribution in rural and urban areas
remain log-normal with consumption. With
economic growth, the mean per capita
consumption in different expenditure classes
change. It is also assumed that the pattern of
fuel use for a particular monthly per capita
consumption expenditure class remains the
same as observed in the 55th round. The
projections are summarised in Table 2.13.
24. It should be noted that the requirement
of electricity, kerosene and gas for household
consumption are included in the projection
given in Table 2.12. The impact of the Rajiv
Gandhi Grameen Vidyutikaran Yojana
(RGGVY), which targets provision of electricity
to all by the year 2009-10, will alter the demand
for electricity. To account for this impact,
household demands are projected from 2009-10
onwards using the energy use pattern of only
those households in the NSS 55th round sample,
which had electricity. These are given in Table
2.14.
25. The differences are substantial only in
2011 and 2016, as even without the acceleration
in rural electrification planned under RGGVY,
most of the households will have been
Figure 2.3
Table 2.13
The Demand Scenario of Various Energy Items for Household Consumption in India
(Mtoe)
Year Fire Wood Electricity Dung Cake Kerosene L.P.G.
& Chips
8% 9% 8% 9% 8% 9% 8% 9% 8% 9%
2000 79.62 79.62 8.43 8.43 29.61 29.61 10.07 10.07 6.42 6.42
2006 88.64 88.78 18.17 19.26 36.97 37.33 12.68 12.77 15.85 16.87
2011 94.11 94.05 27.17 29.68 40.42 40.48 14.01 14.02 23.94 26.07
2016 98.44 98.50 38.38 42.28 41.93 41.35 14.84 14.70 33.11 35.93
2021 102.06 102.46 50.39 54.78 41.79 40.87 15.16 14.93 41.63 44.16
2026 104.64 105.07 61.37 64.95 40.95 40.28 15.17 14.93 48.11 49.63
2031 106.39 106.59 69.72 71.80 40.47 40.21 15.12 14.96 52.27 52.89
30
Integrated Energy Policy
Table 2.14
The Impact of Electrification on the Demand Scenario of
Various Energy Items for Household Consumption
(Mtoe)
Fire Wood Electricity Dung Cake Kerosene L.P.G.
Year & Chips
8% 9% 8% 9% 8% 9% 8% 9% 8% 9%
2011 87.90 88.00 31.13 33.63 31.03 31.16 13.18 13.16 25.27 27.36
2016 92.59 93.02 42.58 46.51 32.21 31.53 13.82 13.64 34.30 36.95
2021 96.85 97.67 54.89 59.35 31.45 30.28 13.98 13.71 42.45 44.72
2026 100.01 100.72 66.19 69.86 30.00 29.12 13.88 13.61 48.55 49.88
2031 102.08 102.41 74.82 76.95 29.14 28.78 13.76 13.59 52.49 53.05
electrified by 2019-20. It is worth noting from
a comparison of Tables 2.13 and 2.14 that for
the year 2011 electrification does not reduce
kerosene consumption significantly. This is
rational. As long as kerosene is available,
especially subsidised kerosene, what is saved
from lighting is used as fuel and the
consumption of dung goes down. This
substitution is more convenient and the dung
saved has greater value as fertiliser. The use of
LPG for cooking will increase over time. Figure
2.4 shows this.
26. The impact of other components of
Bharat Nirman is difficult to assess. If we
assume that the programme will increase rural
incomes by 1% every year, then the differences
for the 8% and 9% growth rate column in
Table 2.14 give some idea of resulting changes
in demand. In 2031, the total household
requirement changes by some 3 percent (5
Mtoe) with a 1% higher growth rate.
27. It may be noted that the household
demand for non-commercial energy (firewood,
Figure 2.4
Percentage of Households Using LPG
31
Energy Requirements
chips and dung cake) increases from around
109 Mtoe in 2000 to around 131 Mtoe in 2031.
The additional requirement is expected to be
met from agricultural residue and increased
livestock activity that can be expected with 8-
9% growth rates. In any case our goal should
be to progressively substitute these traditional
fuels with cleaner and more convenient fuels.
28. It is pointed out that apart from being
used as household fuel, non-commercial energy
is also used in the unorganised small and cottage
sector for end-uses such as brick kilns, pottery,
jaggery, etc. It is estimated that such
consumption of non-commercial fuels was
around 23.5 Mtoe in 2003-04. With easier
availability of coal, gas and fuel oil growth in
this segment is projected to be a sluggish 3.0%
per annum. Use of non-commercial energy by
the unorganised sector is thus expected to
reach 54 Mtoe by 2031-32.
2.8 TOTAL PRIMARY ENERGY
REQUIREMENT
29. Based on the commercial energy
requirement projected in Table 2.12 and the
non-commercial energy requirement projected
in Table 2.14 together with the non-commercial
energy use by small industries as detailed in
Paragraph 28, the total primary energy is shown
in Table 2.15. Once again, it is emphasised that
this is one scenario that is above the mid-point
of the range of total primary energy supply
estimated in Chapter III. It is further noted that
the 2006-07 requirement in Table 2.15 is taken
from Table 2.4 with falling elasticities. As stated
under Table 2.4 we may not achieve this level
of total primary energy consumption in 2006-
07 as petroleum demand has been sluggish in
the first 4 years of the 10th Plan.
2.9 SUMMING UP
30. The challenge facing the country is to
ensure that the energy needed to sustain an 8
to 9% growth rate becomes available. To put
the requirement in perspective, per capita
energy use in other countries in 2003 is
compared with India’s projected needs for 2032
in Table 2.16. It is pointed out again that the
scenario considered here is based on Table 2.12
and 2.15 and is hence above the mid-point of
the range of energy supply scenarios established
in Chapter III.
31. India’s per capita consumption of
energy in its various forms in 2003-04 is well
below that of developed countries and the
world average in 2003. Even in 2032, the per
capita consumption in India from various
sources of energy will be well below the 2003
level of per capita consumption in respect of
developed countries. In fact, as seen from Table
2.16 India’s projected level of per capita energy
consumption in 2032, will be less than 74% of
the world average in 2003.
32. One should note that these projected
needs are based on past trends from the demand
side based largely on the projection of income.
They assume that energy prices will remain on
Table 2.15
Total Primary Energy Requirement (Mtoe)
Year TPCES TPNCES* TPES
8% 9% 8% 9% 8% 9%
2006-07 389 397 153 153 542 550
2011-12 496 546 169 169 665 715
2016-17 665 739 177 177 842 916
2021-22 907 1011 182 181 1089 1192
2026-27 1222 1378 184 183 1406 1561
2031-32 1651 1858 185 185 1836 2043
*This includes household requirement as per Table 2.14 and consumption by small industries as per Para 28.
32
Integrated Energy Policy
Table 2.16
Per Capita Energy Requirements in Selected Countries (2003)
TPES Electricity Oil Gas Coal Nuclear Hydro
(kgoe) Consumption (kgoe) (Cu.m.) (Kg) (kWh) (kWh)
(kWh)
India 2003-04 439 553 111 30 257* (375) 16 69
India 2031-32 (projected 1250 2471 331 149 925* (1388) 256 273
@ 8% GDP growth)**
World Average (2003) 1688 2429 635 538 740 403 423
OECD (2003) 4668 8044 2099 1144 1651 1924 1076
U.S.A. (2003) 7840 13066 3426 2176 3410 2624 948
China (2003) 1090 1379 213 32 1073 32 215
South Korea (2003) 4272 7007 2264 627 1541 2570 101
Japan (2003) 4056 7816 2146 845 1247 1859 816
*Per capita coal consumption of India has been estimated based on the calorific value of hard coal used
internationally (6000 kcal/kg) to maintain uniformity. The figures in brackets are the actual per capita
consumption based on Indian coal with a calorific value of 4000 kcal/kg.
** Based on numbers estimated in Tables 2.7, 2.12 and 2.15.
Source: IEA (2005), Key World Energy Statistics 2005
the trend lines. They also assume that progress
in energy efficiency and energy conservation,
replacement of non-commercial energy and
societal and lifestyle changes will continue as
per historical trends. There are, of course,
opportunities to accelerate or alter the pace of
the trends. The projected energy requirements
can be reduced substantially with accelerated
improvement in energy efficiency and
conservation, which should be considered as
the most important supply options since they
have the potential to reduce consumption by
20-25%. This is considered when the supply
options are explored later in the report.
33. These projections and the scenarios in
the next chapter provide broad guidelines to
potential investors, and may supplement their
own assessments of the demand levels in various
energy sub-sectors.
34. What are the alternative supply
options? To what extent can demand be met
based on domestic resources? To what extent
imports would be needed? These questions are
addressed in the next chapter.
33
Supply Options
Strategies to meet our energy
requirement are constrained by country’s
energy resources and import possibilities.
Unfortunately, India is not well endowed with
natural energy resources. Reserves of oil, gas
and Uranium are meagre though we have large
reserves of thorium. While coal is abundant, it
is regionally concentrated and is of low calorie
and high ash content, though it has the
advantage of a low sulphur content. The
extractable reserves, based on current extraction
technology, remain limited. Hydro potential is
significant, but small compared to our needs
and its contribution in terms of energy is
likely to remain small. Further, the need to
mitigate environmental and social impact of
storage schemes often delays hydro
development thereby causing huge cost
overruns.
3.1 INDIA’S ENERGY RESERVES
2. India’s Hydro-Carbon Energy Reserves
are summarised in Table 3.1.
Supply Options
Chapter III
Table 3.1
India’s Hydrocarbon Reserves
Production Net Reserve/
Proved Inferred Indicated in Imports in Production Ratio
Resources Unit 2004-05 2004-05 P/Q (P+I)/Q
(P) (I) (Q) (M)
Coal (as on 1.1.2005) Mtoe 38114 48007 15497
Extractable Coal** Mtoe 13489 9600-15650 157 16 86 147-186
Lignite (as on 1.1.2005) Mtoe 1220 3652 5772
Extractable Lignite Mtoe 1220 9 – 136 136
Oil (2005) Mt 786* – - 34 87 23 23
Gas (2005) Mtoe 1101* – - 29 3 (LNG) 38 38
Coal Bed Methane Mtoe 765 – 1260-2340
In-situ Coal Gasification*** ? ?
* Balance Recoverable Reserves
** Extractable coal from proved reserves has been calculated by considering 90% of geological reserve as mineable
and dividing mineable reserve by Reserve to Production ratio (2.543 has been used in ‘Coal Vision 2025’ for
CIL blocks); and range for extractable coal from prognosticated reserves has been arrived at by taking 70% of
indicated and 40% of Inferred reserve as mineable and dividing mineable reserve by R:P ratios (2.543 for CIL
blocks and 4.7 for non-CIL blocks as per ‘Coal Vision 2025’).
*** From deep seated coal (not included in extractable coal reserves)
Note: Indicated Gas resource includes 320 Mtoe claimed by Reliance Energy but excludes the 360 Mtoe of
reserves indicated by GSPCL as the same have not yet been certified by DGH.
Source: Respective Line Ministries
34
Integrated Energy Policy
COAL SUPPLY SCENARIO
3. Proved reserves of coal, the most
abundant energy resource, at the current level
of consumption can last for about 80 years. If
all the inferred reserves also materialise then
coal and lignite can last for over 140 years at
the current rate of extraction. Of course, coal
and lignite consumption will increase in the
future and the reserves would last for far fewer
years. If domestic coal production continues to
grow at 5% per year, the total (including
proven, indicated and inferred) extractable coal
reserves will run out in around 45 years.
However, only about 45% of the potential
coal bearing area has currently been covered
by regional surveys. Further, it is felt that
both regional as well as detailed drilling can be
made more comprehensive. Covering all coal
bearing areas with comprehensive regional and
detailed drilling could make a significant
difference to the estimated life of India’s coal
reserves. The problem with coal remains finding
a way to raise the proportion of extractable
reserves, ensure adequate production and take
care of the environmental impact of production
and use.
4. In-situ coal gasification can significantly
increase the extractable energy from India’s
vast in-place coal reserves. This is so because
in-situ coal gasification can tap energy from
coal reserves that cannot be extracted
economically based on available open cast/
underground extraction technologies. However,
in-situ gasification has not yet been deployed
commercially anywhere in the world. ONGC
is engaged in trials to establish the feasibility
and economics of this technology for Indian
coal and lignite in collaboration with Russia.
Neyveli Lignite Corporation has tied up with
an Australian group to pursue in-situ
gasification of lignite. In-situ gasification has
many environmental advantages. The problems
of overburden removal and ash disposal faced
by conventional coal mining and use are
eliminated. Gasification is the first step towards
a clean coal technology since carbon can be
captured from the syn-gas produced and
sequestered in the mine or pumped back in oil
or gas fields to enhance oil or gas recovery. Insitu
coal gasification, with or without carbon
sequestration could be eligible for carbon
credits. Finally, using this process at abandoned
coalmines might provide an economically
attractive option for full extraction of energy
from in-place reserves. Clearly, the potential
for domestic energy supply based on in-situ
coal gasification can be large but it has not yet
been assessed.
OIL AND GAS SUPPLY SCENARIO
5. The reserves of crude oil are merely
786Mt. These can sustain the current level of
production for 23 years and are less than only
7 years worth of our level of consumption in
2004-05. There has been no significant step up
in crude oil reserves during the last decade in
spite of large investments in exploration
activities (see Table 3.2). The country has not
had any significant oil find since the Bombay
High fields, more than 28 years ago. As a
result, crude oil production has stagnated and
the gap between the demand and domestic
availability of crude oil is widening. Import
dependence will keep rising, unless dramatic
new discoveries are made. Only one third of
the potential oil bearing area has been explored
so far. The reluctance of international majors
to explore in India seen in the past, seems to
have changed following the high success rate in
gas discovery achieved by relatively small
international players. They have shown much
greater interest in the latest round of bidding
for exploration blocks under the new
exploration licensing policy (NELP). Also,
some geologists predict vast amount of
undiscovered oil in India. What it may require
is development of technology to overcome
geological barriers for deep drilling both above
ground and under sea. In any case India’s
supply strategy while stepping up exploration
should not rely on the possibility of finding oil
domestically.
6. The situation was similar in the case of
natural gas reserves till 2001-02 before the
discovery of gas in Krishna-Godavari basin by
Reliance. Coupled with the recent large
discovery of natural gas claimed by Gujarat
State Petroleum Corporation (GSPC), these
finds have added to the gas reserves
substantially. However, the size of the reserve
35
Supply Options
of the GSPC find is yet to be certified by the
Directorate General of Hydrocarbons (DGH).
7. The Directorate General of
Hydrocarbons has estimated the country’s
resource base for Coal Bed Methane (CBM) to
be between 1400 BCM (1260 Mtoe) and 2600
BCM (2340 Mtoe). To give impetus to
exploration and production, the government
has formulated the CBM policy. Based on two
rounds of bidding under this policy, contracts
have been signed with PSUs/private companies
for the exploration and production of CBM in
13 blocks. An additional three blocks have
been taken up for development on the basis of
nomination. The estimated investment in these
blocks is about Rs.560 crore and the likely
CBM resources generated is estimated as 850
BCM (765 Mtoe). ONGC maintains that
commercial production of CBM from some of
these blocks will start in 2007. Thus, at the
very low current rate of production, the proven
gas and CBM reserves, together, can last for
some 50 years.
NUCLEAR
8. India is poorly endowed with Uranium.
Available Uranium supply can fuel only 10,000
MW of the Pressurised Heavy Water Reactors
(PHWR). Further, India is extracting Uranium
from extremely low grade ores (as low as 0.1%
Uranium) compared to ores with up to 12-14%
Uranium in certain resources abroad. This
makes Indian nuclear fuel 2-3 times costlier
than international supplies. The substantial
Thorium reserves can be used but that requires
that the fertile Thorium be converted to fissile
material. In this context, a three-stage nuclear
power programme is envisaged. This
programme consists of setting up of Pressurised
Heavy Water Reactors (PHWRs) in the first
stage, Fast Breeder Reactors (FBRs) in the
second stage and reactors based on the Uranium
233-Thorium 232 cycle in the third stage. It is
also envisaged that in the first stage of the
programme, capacity addition will be
supplemented by electricity generation through
Light Water Reactors (LWRs), initially through
imports of technology but with the long-term
objective of indigenisation. PHWR technology
was selected for the first stage as these reactors
are efficient users of natural Uranium for
yielding the plutonium fuel required for the
second stage FBR programme. The FBRs will
be fuelled by plutonium and will also recycle
spent Uranium from the PHWR to breed
more plutonium fuel for electricity generation.
Table 3.2
Reserves/Production of Crude Oil & Natural Gas
Year Crude Oil (Mt) Natural Gas (BCM)
Reserves* Production Reserves* Production
1970-71 128 6.9 62 1.4
1980-81 366 10.5 351 2.4
1990-91 739 32.2 686 18.0
2000-01 703 32.4 760 29.5
2001-02 732 32.0 763 29.7
2002-03 741 33.0 751 31.4
2003-04 761 33.4 853 32.0
2004-05 739 33.9 923 31.8
2005-06(p) 786 33.2 1101 32.2
(p) Provisional
* Reserves position as on 1st April of commencing year
Source: Ministry of Petroleum & Natural Gas
36
Integrated Energy Policy
Thorium as blanket material in FBRs will
produce Uranium 233 to fire the third stage.
9. The first stage programme of PHWR
technology has reached maturity, though much
later than was initially expected. A beginning
has been made in the introduction of LWRs
with the inter-governmental agreement between
India and the Russian Federation for
cooperation in setting up of 2×1,000 Megawatt
Electrical (MWe) LWRs at Kudankulam, Tamil
Nadu. A 40 MWt Fast Breeder Test Reactor
(FBTR) was set-up in 1985 at Kalpakkam to
gain experience in the technology under the
second phase. This has been followed by
progress in the development of technology for
the first Prototype Fast Breeder Reactor (PFBR)
of 500 MWe capacity. Such a plant is currently
under construction. Research and development
on the utilisation of Thorium is also in progress.
10. FBR technology is critical to developing
stage two of India’s nuclear power programme.
Without developing the wide-scale use of FBR
technology, India will find it difficult to go
beyond 10,000 MWe nuclear capacity based on
known indigenous Uranium resources. Use of
FBR technology would enable indigenous
Uranium resources to support a 20,000 MWe
nuclear power programme by the year 2020.
Such a FBR programme is critical to developing
the Thorium-based third stage of India’s nuclear
power programme. The Bhabha Atomic
Research Centre (BARC) is also engaged in
R&D activities to develop an Advanced Heavy
Water Reactor of 300 MWe capacity that would
provide industrial scale experience necessary
for the Thorium-based Stage Three of India’s
nuclear power programme. Table 3.3 shows
the potential of nuclear energy with domestic
resources in the country.
11. The pace of development of nuclear
power is constrained by the rate at which
plutonium can be bred and Thorium converted
to fissile material. If India is able to import
nuclear fuel, the process can be accelerated.
Two possible growth paths of nuclear power
are summarised in Table 3.4.
RENEWABLE ENERGY RESOURCES
12. Given the limited amount of domestic
conventional energy sources, renewable energy
resources gain significance in the Indian context.
India’s renewable energy resources are
summarised in Table 3.5. It may be noted that
many renewables require land. The potential
energy generated is assessed independently for
each option. If all such options are developed
together the combined potential may be less
than the sum due to a paucity of available land
for energy generation as other competing land
uses may dominate.
HYDROELECTRICITY
13. India’s hydel resources are estimated to
be 84,000 MW at 60% load factor. The current
utility based installed capacity is 32,326 MW
and the average annual generation over the last
three years (2002-05) was 74 Billion Kilowatt
hours (BkWh) giving a load factor of 29%. At
such a load factor an installed capacity of
1,50,000 MW including some 15,000 MW of
Table 3.3
The Approximate Potential Available From Nuclear Energy
Particulars Amount Thermal Energy Electricity
TWh GW-yr. GWe-Yr. MWe
Uranium-Metal 61,000-t
In PHWR 7,992 913 330 10,000
In FBR 1,027,616 117,308 42,200 5,00,000
Thorium-Metal 2,25,000-t
In Breeders 3,783,886 431,950 1,50,000 Very large
Source: Department of Atomic Energy
37
Supply Options
Table 3.4
Possible Development of Nuclear Power Installed Capacity in MW
Year Unit Scenario Remarks
Optimistic* Pessimistic
2010 GWe 11 9
2020 GWe 29 21
2030 GWe 63 48
2040 GWe 131 104
2050 GWe 275 208
* It is assumed that India will be able to import 8,000 MW of Light Water Reactors with fuel over
the next ten years.
Source: Department of Atomic Energy
These estimates assume that the FBR technology is
successfully demonstrated by the 500 MW PFBR
currently under construction, new Uranium mines are
opened for providing fuel for setting up additional
PHWRs, India succeeds in assimilating the LWR
technology through import and develops the Advanced
Heavy Water Reactor for utilising Thorium by 2020.
Table 3.5
Renewable Energy Resources
Resources Unit Present Potential Basis of Accessing Potential
Hydro-power MW 32,326 1,50,000 Total potential assessed is 84,000 MW** at
60% load factor or 1,50,000 MW at lower
load factors
Biomass
Wood Mtoe/year 140 620* Using 60 million Ha wasteland yielding (20)
MT/Ha/year
0.6** 4 In 12 million family sized plants
Biogas Mtoe/year 0.1 15 In community based plants if most of the
dung is put through them.
Bio-Fuels
Bio-diesel Mtoe/year – 20* Through plantation of 20* million hectares of
wasteland or 7* million hectares of intensive
cultivation
Ethanol Mtoe/year <1 10 From 1.2 million hectares of intensive
cultivation with required inputs.
Solar
Photovoltaic Mtoe/year – 1,200 Expected by utilising 5 million hectares
wasteland at an efficiency level of 15 percent
for Solar Photovoltaic Cells
Thermal Mtoe/year 1,200 MWe scale power plants using 5 million
hectares
Wind Energy Mtoe/year <1 10 Onshore potential of 65,000 MWe at 20
percent load factor
Small Hydro-power Mtoe/year <1 5
* The availability of land and inputs for getting projected yields is a critical constraint
** based on 50 percent plants under use
Source: Respective Line Ministries
38
Integrated Energy Policy
3 Parikh Jyoti K. and Parikh K.S. (1977) “Mobilisation and Impacts of Biogas Technologies“, Energy, Vol.
2 pp. 441-445, 1977
small hydel plants (size 1 MW or equivalent
energy use >1MVA) and energy
intensive industries.
Reaping Daylight Savings: Saving
daylight by introducing two time zones
in the country can save a lot of energy.
11. Medium to long-term initiatives could
include —
Adoption of a least-cost planning and
policy approach that ensures that
energy efficiency and DSM have a level
playing field with supply options. The
regulatory commissions should invite
bids for DSM while approving new
capacity additions. Thus, if a state
requires an additional peak demand of
1,000 MW over the next five years, the
utility can ask for bids from
Independent Power Producers (IPPs)
as well as Energy Service Companies
(ESCOs). For example, an efficient
lighting programme may offer to save
150 MW at a cost of Rs.5,000/peak
kW saved. This would then become
part of the least-cost plan before putting
in new power plants that may cost
Rs.40,000-50,000/peak kW generated.
Similar exercises should be adopted for
the oil sector.
Initiate benchmarking exercises for
different industrial sectors, hotels,
hospitals, buildings, etc. In each
segment, the benchmark would provide
the theoretical minimum energy
consumption, the best practice and
specific steps required to reduce energy
consumption. A road map (5-10 years)
should be created for energy efficiency
improvements in each industry
segment. The BEE can catalyse the
benchmarking process by bringing
together energy auditors, researchers,
end-users and providing the required
funding.
The Government (Central/State),
Railways, Defence and public sector
units constitute a large market segment
for energy intensive products. The basis
for selecting a vendor is usually only
the lowest initial cost. It is
recommended that the procurement
process be modified based on the
minimum annualised life cycle cost (see
BOX 6.2). A manual should be prepared
establishing the methodology for
annualised life cycle costing with a
86
Integrated Energy Policy
simple spreadsheet package to enable
easy implementation.
Though life cycle costing seems
particularly relevant for appliance
purchase since appliances are often
bought without consideration of
operating costs, it should be used for
all decision-making and alternatives
should be compared in terms of
expected present discounted values of
life cycle cost.
Increasing Efficiency of Coal-Based
Power Plants: Require NTPC and
SEBs to acquire technology to enhance
the fuel conversion efficiency of the
existing population of thermal power
stations from an average of 30% to
35%. No new thermal power plant
should be allowed without a certified
fuel conversion efficiency of at least
38-40%. While competitive tariff based
bidding can balance fuel efficiency
against capital cost and provide
incentives for efficiency improvement;
in the absence of such competition the
pace of efficiency improvement needs
to be forced.
Shifting Freight Traffic to Railways:
Improve railway service to win back
the long-distance freight traffic carried
by trucks today that consume five times
as much diesel per net tonne kilometer
of freight carried. Construction of
dedicated freight corridors and
dismantling of the Container
Corporation (CONCOR) monopoly
are critical measures for this. Already,
the railways have permitted private
operators. Carrying 3000 billion tonne
kilometres (Bt-km) of freight (half of
projected freight traffic in 2031) by rail
instead of trucks can save approximately
50 Mt of diesel per year. To attract
freight traffic, railways must ensure
timely and secure delivery. This can be
accomplished by operating scheduled
container trains and by charging freight
on the container, rather than the
content, so that the customers can lock
and seal it.
Promote Waterways: Water transport
is energy efficient. Make investment to
provide the needed infrastructure to
facilitate water transport.
BOX 6.2
Initial Cost and Life Cycle Cost
In many cases of energy equipment the annual costs of operation predominate as compared
to the capital cost. However the operating costs are often not considered at the time of the
purchase, as they are part of the total electricity bill and recurring maintenance costs. The
purchase decision is based on the initial cost. Table shows the initial cost and the annualised
life cycle cost (ALCC) for some typical energy appliances based only on the annual electricity
cost since it is the main cost component for these products.
Table: Comparison of Initial Cost and Life Cycle Cost
Sl. Equipment Rating Initial cost Annual ALCC Cost of
No. (Rs) Electricity (Rs) electricity as
Cost (Rs) %of ALCC
1. Motor 20 hp 45,000 600,000 605,720 99.0
2. EE Motor 20 hp 60,000 502,600 512,700 98.0
3. Incandescent Lamp 100 W 10 1168 1198 97.5
4. CFL 11 W 350 128 240 53.6
87
Policy for Energy Efficiency and Demand Side Management
Figure 6.1
Reduction in the Energy Consumption of Refrigerators Sold in the United States of America
Source: Wiel, S. (2001)
9
Promote Urban Mass Transport:
Promote urban mass transport by
providing quality services which may
be partially financed by imposing
congestion, pollution and parking
charges on those who use personalised
motor transport. Plan for future mass
transport corridors in smaller cities and
acquire the right-of-way. As the city
grows, the permissible built up area
may be gradually increased. However
the additional right to build should
remain with the local government,
which it can auction to finance mass
transport and other urban
infrastructure.
Fuel Efficient Vehicles: Promote
hybrid vehicles in India, which are
internationally already available
commercially. Also promote the
already commercial flexi fuel vehicles
that can burn varying proportions of
ethanol-blended fuels.
12. At an 8 percent growth rate, we will
nearly double our capital stock in nine years.
Energy using equipment and appliances will
also spread rapidly. Thus, the manufacturers of
equipment and appliances should be targeted
to force the pace of improvement in energy
efficiency. The following steps may be taken
to improve efficiency of energy consuming
equipment:
Mandate time bound targets of energy
efficiency for industrial equipment,
boilers, and appliances such as motor
vehicles, pump sets, refrigerators, water
heaters, boilers, etc.
Create competition among
manufacturers to be the first to achieve
the target through a “golden carrot”
which is a large monetary reward to
9 Wiel, S. (2001): Introduction, Energy Efficiency Labels and Standards: A Guidebook for Appliances,
Equipment, and Lighting, S. Wiel and J.E. McMahon, eds. (Washington, D.C., Collaborative Labelling and
Appliance Standards Programme (CLASP).
88
Integrated Energy Policy
the first one to commercialise products
which provide, say a minimum saving
of 20% over the best existing design
within a given time frame. The Super
Energy Efficient Refrigerator Project
in the US is a successful example of
such a policy initiative(see Figure 6.1).
Mandate clear and informative labelling
in well-designed standardised forms for
equipments and appliances. Combine
this with consumer awareness
programmes that illustrate the savings
and possible associated gains.
Strengthen appropriate labelling by
creating regional facilities for testing
and certification. Such a labelling/
standards initiative should be supported
by analytical studies to establish
equipment consumption benchmarks
(minimum achievable energy
consumption targets).
13. Industries may need technical support
to identify and execute energy saving options.
Energy service companies (ESCOs) can provide
such support. We need to promote and facilitate
ESCOs. Some possibilities include—
Financing Support – The support for
ESCOs could be in the form of
payment security mechanisms (this may
be required for projects in
municipalities, government buildings),
partial credit guarantees, or venture
capital. Financial institutions may be
encouraged to provide these.
Encouraging different business models
– For ESCOs to be successful in India
a variety of alternative business models
need to be attempted to determine the
appropriate ones in the Indian context.
The BEE could facilitate 15-20
demonstration ESCO projects in
different sectors. These should be welldocumented,
independently monitored
and made available to the public. This
will encourage more entrepreneurs to
invest in ESCOs.
ESCOs as producers of “Negawatts”
may be given the same tax breaks that
are available for renewable energy
programmes or other energy
investments.
Providing an institutional framework
for independent monitoring &
evaluation of projects delivered by
ESCOs. This would involve
independent testing laboratories and
setting benchmark standards.
89
Policy for Renewable and Non-Conventional Energy Sources
An examination of India’s primary
energy balance shows that renewables account
for about 32% of primary energy consumption
in 2003-04. Of this, the major contributor is
traditional biomass mainly used in cooking
followed by electricity generation from large
hydro plants. The actual share of modern
renewables (see Figure 7.1) in India’s energy
mix is significantly lower (about 2% of the
total).
2. Adverse local environmental impacts
(SOx, NOx, SPM) and global environmental
impacts (green house gas emissions mainly due
to carbon dioxide) associated with fossil fuel
use have resulted in an increased emphasis on
renewables. Figure 7.1 shows a listing of some
of the commonly used renewable options.
Renewables can be used for space heating,
cooling, water pumping, cooking and for almost
any end-use that is presently met by fossil
fuels.
3. As the country is short of energy
resources the need to develop all energy sources
including renewable options is paramount. Our
Policy for Renewable and Non-
Conventional Energy Sources
Chapter VII
Figure 7.1
Renewable Energy Options
90
Integrated Energy Policy
efforts in the past have not been as successful
as we would have liked. Many renewables have
high initial costs (see Table 7.1). Often
development efforts have been sub-critical and
subsidy driven growth has not provided
incentives for technical improvements or cost
reduction. There are also externalities of the
use of renewables, the benefits of which do not
accrue to the user.
mandated in many countries (see Table
7.2). The regulated feed-in tariffs should
have time-of-day features that improve
economics of renewable power.
With the capital subsidy available for
improving rural access having become
uniform for both remote and gridconnected
villages/habitations, Ministry
Table 7.1
Capital Costs and the Typical Cost of Generated Electricity from the Renewable Options
Sl. Source Capital Cost Estimated Cost of Total Installed
No. (Crores of Generation Capacity
Rs/MW) Per Unit (MW)
(Rs./kWh) (upto 31.12.2005)
1. Small* Hydro-Power 5.00-6.00 2.50-3.50 1748
2. Wind Power 4.00-5.00 3.00-4.00 4434
3. Biomass Power 4.00 3.00-4.00 377
4. Bagasse Cogeneration 3.00-3.50 2.00-3.00 491
5. Biomass Gasifier 2.50-3.00 3.00-4.00 71
6. Solar Photovoltaic 25-30 15.00-20.00 3
7. Energy from Waste 5.00-10.00 4.00-7.50 46
*<25 MW
4. Renewable energy may need special
policies to encourage them. This should be
done for a well-defined period or up to a welldefined
limit, and be done in a way that
encourages outcomes and not just outlays.
Suggestions include:
Capital subsidies which only encourage
investment without ensuing outcome
should be phased out by the end of the
10th Plan.
Power Regulators must seek alternative
incentive structures that encourage
utilities to integrate wind, small hydro,
cogeneration etc., into their systems.
All incentives must be linked to energy
generated as opposed to capacity
created.
Respective power Regulators should
mandate feed-in laws for renewable
energy where appropriate as provided
under the Electricity Act and as
of Power (MOP) and Ministry of Non
Conventional Energy Sources (MNES)
need to better coordinate the outcomes
of RGGVY, MNES’s rural
electrification programme, and the
newly developed pilot projects under
Village Energy Security Programme.
Similar coordination is also called for
between the rural electrification
programs, telecom and road
connectivity initiatives and certain
social sector programs. Bundling of
services is likely to achieve greater
success and is more likely to yield
sustainable structures that are replicable
through separate franchises.
5. Price subsidy for renewables may be
justified on several grounds. A renewable energy
source may be environmentally friendly. It
may be locally available making it possible to
supply energy earlier than possible through a
91
Policy for Renewable and Non-Conventional Energy Sources
Table 7.2
International Feed-in Tariffs
Tariff in Rs./kWh**
Conventional Wind Photovoltaics Biomass
Domestic Commercial (Windy sites)b (Non windy) (Cap.<5 MW) 0-0.5 MW 0.5-5 MW 5-20 MW
Germany* 6.0 2.3 1st 5 yearsa 5.2 5.2 27.6 5.85 5.27 4.99
(2001) (2002) Next 15 years 3.4 4.6 Guaranteed for 20 years c
(Cap. (Windy (Non (Inter-
<12 MW) sites) windy) mediate)
France 5.21 1.83 1st 5 years 4.6 4.6 4.6 8.6 17.2
(2002) (2002) Next 15 years 1.7 4.6 3.4 (Mainland) (Overseas)
(Cap.<50MW)d (Cap.5kW)
Spain+ 5.29 2.00 Fixed 3.6 22.7 12.4 3.5
(2001) (2001) OR OR
Premium of 1.5 20.63 10.32 1.4
Austriae 6.48 2.54 4.5 26.9 to 4.4 to
(2002) (1995) 34.4 9.2
* 2002 data a Since 2002 tariff reduced by 1.5% per year
+ 2003 data b Sites that achieve more than 150% of reference output
c For new installation price reduced by 5%. The obligation to pay ends when total installed capacity reaches 1000 MW
d Premiums and tariff set by Government
e Uniform fixed price for 13 years (2003)
** Based on exchange rate of Rs.57.31 Per Euro (December-2003)
Source: T. Stenzel, T. Foxon, R. Gross (2003): Review of renewable energy development in Europe and the US, Report for the DTI Renewables Innovation
Review, ICCEPT, Imperial College, London, October 2003.
92
Integrated Energy Policy
centralised system. It may also provide
employment and livelihood to the poor.
6. The environmental subsidy for
renewables could be financed by a cess on nonrenewables
and fuels causing environmental
damage.
7. All price subsidies should be linked to
outcomes. Thus, for example, giving a capital
subsidy on a wind power plant provides
encouragement to set-up a power plant but
does not provide any additional incentive to
generate power. Instead a price premium on
feed-in tariff for wind power into an existing
power grid ensures outcome for the outlay.
For grid connected renewables, Regulatory
Commissions (RC’s) should provide feed-in
laws to permit renewables to supply electricity
to the grid. RC’s should ensure that the
renewables are given a tariff at least equal to
the avoided cost of generation.
8. A premium on feed-in tariff may not
benefit a stand alone plant in a remote area.
For such a plant, a capital subsidy may be
required. Such a capital subsidy, however, can
be linked to the amount of power actually
generated if it is given in the form of Tradable
Tax Rebate Certificates (TTRCs). The rebate
claim would then become payable when
electricity is generated and would be linked to
the amount of electricity generated. This will
also encourage earlier exploitation of better
wind sites. The need to keep the TTRCs
tradable arises from the possibility that small
generators may not have adequate taxable
income to benefit fully from tax rebates.
9. In areas where there is no electricity
grid, there should be minimum clearances/
permissions required for setting up a
Distributed Generation (DG) system. Supply
companies/entrepreneurs should be free to setup
micro-grids and recover revenues from
customers. This is already provided for in the
Electricity Act. Each state should clearly define
guidelines to facilitate this process.
10. A critical issue in distributed generation
for rural electrification is the cost recovery and
the implementation mechanism. Different
policy experiments for implementation of DG
in different regions should be attempted. The
village panchayat aided by the state energy
agency and technical experts should decide the
appropriate technology option (biogas, biomass
gasification, wind-diesel, micro-hydel, bio-oilengine)
for their village. For isolated systems it
is beneficial to link the DG system to an
industrial load (cold storage, oil mill etc.) to
improve its load factor and hence its economic
viability. The capital subsidy should be based
on the annual generation, and should preferably
be in the form of an annualised subsidy to be
provided based on actual generation. These
projects can be set-up by panchayats,
independent power producers or renewable
energy service companies. A mechanism of
bidding can be used to obtain the annualised
subsidy level sought for sustainability. For
example, if it is decided to electrify a village
using a dedicated producer gas engine and
biomass gasifier, bids may be obtained for the
support required annually for the concession
period per kWh of actual generation. The
project would then be given to the lowest
bidder. Such a programme would require actual
tracking of annual generation. This is feasible
using existing technologies of remote
monitoring and would add only incrementally
to the system cost.
11. An annual renewable energy report
should be published providing details of actual
performance of different renewable technologies
at the state and national levels. This would
include actual energy supplied from different
renewable options, availability, actual costs,
operating and maintenance problems etc. The
monitoring should also encompass other
parameters like user profiles (in order to ensure
that government support is indeed going to
poor households), as well as livelihood
outcomes such as increased income, improved
food security and gender impacts. In fact, this
also applies to rural electrification, where the
monitoring parameter should not just be the
villages and/or hamlets electrified. Monitoring
must be based on actual households electrified,
hours of electricity received by these households
and the various impacts described above. In
93
Policy for Renewable and Non-Conventional Energy Sources
addition to monitoring the performance of
devices, the assessment should critically review
the programme objectives and the strategy
adopted in order to suggest course corrections
as required. Information on any system that is
receiving government support should be made
publicly available. It is essential to ensure that
independent assessment of performance is done
for all renewable projects receiving government
funding. This will help in tracking programmes,
avoiding repeating mistakes and providing midcourse
corrections.
12. The Department of Science and
Technology (DST) has set up Technology
Business Incubators for entrepreneurs for
renewable energy, energy efficiency and rural
energy. However, entrepreneurs also need
finance. Financial institutions should be
encouraged to set-up Venture Capital Funds
for energy entrepreneurs. DST should monitor
actual success on the ground and reshape its
programme based on actual results/feedback.
13. The following specific policies to
promote various renewables are recommended:
Mini Hydro: A detailed survey should
be carried out to identify potential
sites. Identified sites should then be
auctioned. For plants which are not
connected to an existing grid, bids for
the lowest tariff with a pre-specified
premium in the form of TTRCs should
be invited. For village level plants, the
entrepreneurs should be encouraged to
supply power to meet other
requirements such as agro processing
and milling and if such productive loads
are not available, the entrepreneurs
should develop sustainable integrated
schemes that aim at developing the
community as a whole. If the plant can
feed into a grid, the grid should be
required to accept power at the
regulated feed-in tariff with time-ofday
features, and the plant site should
be auctioned off for minimum premium
in the form of TTRCs linked to
electricity generation. The
responsibility for investments needed
to connect to the grid should be fixed
in advance before the bidding.
Wind Power: For wind power, site
selection is freer than hydro-power and
wind plants can be set-up on private
land. Thus there may be a need to
auction only sites on public property.
The same two types of auctions may
be followed as described above for
hydro-power plants. Where cultivation
is not affected, a wind turbine
installation should be permitted on
agricultural land without requiring its
conversion to non-agricultural land.
Bio-Diesel: The production of biodiesel
needs to be encouraged in a way
that primarily involves outcome related
fiscal incentives for its economic
production. Certain vegetables oils can
be directly mixed with diesel, especially
for stationary applications, in certain
proportions without any significant
processing. Transesterification of
industrial oils (with high levels of free
fatty acids (FFA) or vegetable oils can
yield bio-diesel which can substitute
fossil fuel-based diesel in both stationary
and motive applications. Non-edible oils
such as those obtained from Jatropha
and Karanj are gaining attention for
production of bio-diesel in India.
Currently, significant uncertainty
prevails over the exact yields from
Jatropha or Karanj cultivation with
estimates ranging from a low of 0.4
tonne of diesel per hectare to 1.0 tonne
of diesel per hectare.
Bio-diesel can be encouraged in
alternative ways. One way is to
encourage oil companies to take the
lead in developing large-scale plantations
directly through contract farming by
individual farmers, self-help groups
(SHGs), rural cooperatives, panchayats
etc. In this case the problem of pricing
of seed and bio-diesel are internalised.
Another way is to let organised
industries, self-help groups or
cooperatives on the line of Amul,
pursue Jatropha, Karanj and other
94
Integrated Energy Policy
suitable plantations. They may sell the
oil extracted or set up transesterification
units individually or collectively to sell
bio-diesel either to oil companies for
blending or directly to consumers in
jerry cans.
Up to 100% tax rebate can be provided
for investments made in plantations
and bio-diesel processing through
TTRCs linked to actual bio-diesel/seed
production. In addition, TTRCs could
include a premium for use of
renewables, employment generation
and an environmentally preferable fuel.
In cases where the TTRCs are acquired
by the oil companies, organised
industry and/or large cooperatives, a
competitive environment with multiple
players would ensure that the benefits
are shared with the ultimate grower.
Further, this green fuel can be made
free of taxes and levies currently
imposed on diesel based on fossil fuels
with the bulk of the benefit being
passed on to the end-consumer as is
done in countries such as Germany,
Spain, Italy and USA. A part of the
benefit could also be used to build a
fund that would provide price support
to the Jatropha/Karanj farmer in the
event that world price of fossil fuelbased
diesel goes below a certain preset
price. The investment incentive can
be adjusted as economic viability is
established and the country achieves a
level of output that meets the targeted
replacement in both stationary and
motive applications. Employment
generated in cultivating bio-plantations
may be made eligible for coverage under
the National Rural Employment
Guarantee Scheme.
A parallel initiative based on bio-diesel
production from the residual industrial
oil produced as a by-product while
refining edible oils may also be
encouraged. Significant quantities of
such residual oils are available in world
markets but current imports into India
attract different levels of custom duty
based on end-use. A duty of 65% is
imposed on use of such residual
industrial oils for conversion to biodiesel.
If this duty is reduced to 5% as
in the case of crude oil, it would be
possible to produce diesel based on
such imports of industrial oil at about
Rs.25/litre. This may be sold directly
to consumers by producers or to oil
firms without levying any of the
current taxes and levies imposed on
fossil based diesel. Again, the oil
companies may be required to pass on
bulk of the benefit to the consumers.
Thus the following policies are
recommended for bio-diesel:
• Support Jatropha, Karanj and other
similar species, with incentives as
suggested above.
• Since the end objective is to
promote bio-diesel and significant
research is still needed to establish
viable germ plasms and genotypes
for bio-fuel plantations, it is
recommended that the parallel
route based on industrial oils be
pursued immediately through a
reduction in import duty to 5%
for high FFA vegetable oils for
conversion to bio-diesel.
• Transesterification facilities set up
by importers of industrial oils may
also be given TTRCs.
• Encourage direct and local sale of
bio-diesel where feasible. This can
begin with the metro towns.
• As a green fuel make bio-diesel free
of excise and levies charged on fossil
fuel-based diesel.
• Bio-diesel and/or blends of biodiesel
should be sold with full
disclosure and priced differently
from pure fossil fuel based diesel.
Ethanol: Ethanol is a more complex
issue. At the outset it is stated that any
investment in R&D and
commercialisation of cellulosic ethanol
may be given a full tax credit for an
initial period of 5 years based on
delivery of defined outcomes. Ethanol
95
Policy for Renewable and Non-Conventional Energy Sources
blending helps diversify energy mix
and so improves energy security. If the
ethanol is produced domestically the
impact on energy security is even better.
There is no surplus ethanol available
in the country for blending in petrol
for motive energy. India has been
importing ethanol since 2002 and
became the largest importer from Brazil
in 2005 with imports of 411 million
litres. This was over 9% of the world
ethanol trade in 2005. The imported
alcohol was primarily used by the
chemical industry as it could not access
domestic alcohol.
As a comparison, a 5% blend of ethanol
in petrol in India would require 610
million litres of ethanol – some 14-15%
of world trade in ethanol. Clearly, the
foregoing numbers show that domestic
availability of ethanol in India (which
depends on cane production & yields)
and India’s policy on blending alcohol
with petrol can significantly affect
domestic and world prices of ethanol.
Needless to add that the fate of the
chemical industry in India hangs
critically in balance between policies
that decide end-use of domestically
produced ethanol on one hand and the
lowering of barriers to international
competition in chemicals on the other
hand.
An ethanol blending programme was
announced in 2003. The programme
could not succeed because of nonavailability
of ethanol. However,
domestic prices of ethanol have doubled
since 2003 to reach import parity prices.
Ethanol in India is produced as a byproduct
of the sugar industry from
molasses. About half the domestic
production is used for potable purposes
while the balance is used by industry
which supplements shortfalls through
imports. The value addition in industry
is on average 2-3 times higher than the
value addition as an additive to petrol.
India is the only large country where
potable liquor is produced from
molasses – most other countries
produce potable liquor from grain. For
the Indian liquor industry domestic
molasses remains the cheapest option
since ethanol import for potable
purposes attracts a custom duty of
150%. Since the liquor industry
provides huge tax revenues to both
central and state governments, they
have traditionally managed to maintain
their hold on domestic molasses based
ethanol to meet their need. The
remaining domestically available
ethanol is simply inadequate to meet
the needs of both the domestic chemical
industry and blending with petrol. Thus
one or both, the chemical and the
petroleum industry have to import
ethanol, on which custom duty of only
10% is levied, to meet their needs.
Sugarcane yields in Brazil are some
23% higher on average and sugar yields
from sugarcane is about 34% higher.
The cost of producing sugarcane based
ethanol in Brazil is 40-50% that of
India. Brazil produces 42% of world’s
ethanol. USA, the second largest
producer of ethanol, with 37% share of
world production, produces ethanol
from corn which is heavily subsidised.
The per capita land availability in Brazil
is more than 15 times and in USA
more than 10 times that in India. Only
1% of the cultivable land in Brazil is
currently under sugarcane production
and water availability is not a problem.
Thus Brazil’s ethanol industry has
significant growth potential. In India
water is a big constraint and sugarcane
plantations have remained at 3.8 to 4.2
million hectares over the last 15 years.
Given persistent shortages in grain, lack
of water and pace of urbanisation,
India’s acreage under sugarcane is not
likely to increase.
It is pointed out that the calorific value
of ethanol is only 56% of petrol.
However, blending improves burning
efficiency and thus ethanol is priced
some 30-35% below gasoline prices in
96
Integrated Energy Policy
Brazil which is the biggest user of
ethanol for motive purposes.
Given the above facts, availability of
molasses based alcohol from the sugar
industry is unlikely to grow
significantly. Even if new sugarcane
acreage comes up in water rich areas of
Bihar and U.P., it should ideally replace
current acreage in water scarce areas
such as Maharashtra. Productivity gains
are potentially possible and the same,
if achieved, would by themselves not
even be able to keep up with the likely
growth in demand if the blending
programme takes off in earnest. Even
grain based alcohol would become
viable only if we first address our food
security concerns and agricultural
growth rises to at least 4% level. Thus
the options available to India to increase
availability of ethanol in the short to
medium term are:
(a) aggressively support alternate routes
to ethanol such as cellulosic ethanol
and low water intensity crops such
as sweet sorghum;
(b) raise sugarcane yields and divert
increased cane output for ethanol
production;
(c) promote grain-based alcohol to the
extent possible especially from
spoilt grains;
(d) remove barriers to import of
ethanol for all end-uses; and
(e) like equity oil seek ethanol acreage
in Brazil – the world’s cheapest
producer of ethanol.
Thus the following policies are
recommended:
• Set import tariff on alcohol
independent of use and at a level
no greater than that for petroleum
products.
• Require that oil companies may
blend upto 5% of ethanol with
petrol but do not mandate oil
companies to do so.
• Price ethanol at its economic value
vis-à-vis petrol but not, in any
event, above its import parity price.
• Companies in India such as Praj
Industries and International Crops
Research Institute for the Semi-
Arid Tropics (ICRISAT) have
developed commercial varieties of
sweet sorghum. To encourage
alternate routes to ethanol, such
production may be procured at the
full trade parity price of petrol for
5-7 years instead of being purchased
at its true economic value based on
calorific content duly adjusted for
improved efficiency.
• As a green fuel, however,
government may wish to waive all
or part of the excise and levies
charged on petrol to the extent
that it contains ethanol. However,
bulk of the benefit must be passed
on to the consumer.
• Petrol pumps must declare if they
are selling blended petrol and price
it differently.
• Incentivise cellulosic ethanol with
investment credits as detailed above.
Fuelwood Plantation: Cooperatives
should be encouraged and facilitated to
grow tree plantations in villages.
Cooperatives which are open to all
members of the community should be
given government land on a long-term
lease. Women should be encouraged to
set-up and manage such plantations so
that the time they now spend in
gathering fuel can be spent productively
in a way that empowers them. They
should also be provided finance. If
organised and managed properly, such
plantations are economically viable and
successful as shown by the experience
of National Tree Growers Cooperatives
Foundation [Parikh et al (1997)10]. Field
based NGOs could also be involved in
this activity. To encourage large-scale
plantations, based on contract farming,
10 Parikh Jyoti K. and Reddy B. Sudhakara, Editors (1997): Sustainable Regeneration of Degraded Lands
through people’s participation”, Tata McGraw Hill Publishing Co. Ltd., New Delhi.
97
Policy for Renewable and Non-Conventional Energy Sources
the corporate sector could be
incentivised to build wood based power
plants with assured access to benefits
announced under the liberal captive
policy enunciated in the Electricity Act,
2003.
Electricity from Wood Gasification:
This process can provide electricity
based on gasification of wood and can
be very useful especially in remote
villages. The same set of policies
indicated for micro hydel and wind
power plants should be followed here.
Community Biogas Plants: Biogas
plants have been promoted for families
with 5 or more cattle head to obtain 2
to 3 cubic metre of gas per day. The
estimated potential is 14 million plants.
This leaves out the dung of all those
who have fewer animals and also wastes
the surplus gas that may be produced
in warmer months. The real potential
of biogas is thus in community level
plants. To encourage private or
community entrepreneurs to set these
up, they need to be provided land and
finance. Also to have the willing
participation of all the cattle owners in
the community requires an appropriate
operating strategy. Parikh and Parikh
(1977)11 have shown the possibility of
such a strategy. The essential policy
required is the provision of land and
finance.
Family Size Biogas Plants: If fuel
efficient cooking utensils and methods,
with which 60% to 70% energy can be
saved, are used than even a biogas plant
with one or two cattle heads can
provide the bulk of required energy
for a family’s cooking. This would
avoid the institutional complexity of
operating community level biogas
plants. Compact and monolithic biogas
plants suitable for one, two or three
animals are now available. Trials with
small biogas plants and energy efficient
cooking should be carried out to
examine their acceptability.
Solar Thermal Water Heaters (SWH):
These are economical. The main barrier
to their adoption is the expense of
retrofitting plumbing in households and
industries. Building laws should be
amended to ensure that all new
buildings and factories have solar water
heaters. Existing households,
commercial establishments and factories
should be encouraged to install solar
water heaters through a DSM
programme run by electricity utilities.
Alternatively incentives may be given
in the form of income tax rebates,
property tax rebates, rebates in transfer
fees and rebates in electricity charges.
The government, including the defence
and public sector, account for a
significant amount of new construction
and installation. They can set the
example by conforming to revised
building laws.
Solar Thermal Power Plants: The
economic viability of solar thermal
plants has not yet been fully established.
To encourage entrepreneurs to invest
in such plants, a higher premium of
feed-in tariff may be given. The higher
premium can be justified given the
higher risk and may be available to
only the first 5000 MW of solar thermal
plants.
Solar Photovoltaics: Even though
present costs of photovoltaics are very
high, since the ultimate potential is
very large, incentive to commercialise
and lower the cost may be provided
through a higher feed-in tariff, again
for the first 5000 MW of installed
capacity.
14. We do not recommend any particular
set of renewables as the preferred mix. The
attractiveness of a particular option depends
on local circumstances and each option has its
11 Parikh J.K. and Parikh K.S. (1977): Mobilisation and Impacts of Biogas Technologies, Energy, Vol. 2, pp. 441-
445.
98
Integrated Energy Policy
own niche and unique advantage. The policy
instruments we have recommended permit all
options to compete on a level playing field.
15. Some institutional arrangements to
promote renewable energy are needed. These
are:
Restructure existing Commission for
Additional Sources of Energy (CASE)
providing it independent status and
authority de-linking it from the
Ministry of Non-Conventional Energy
Sources and making it responsible for
overall development of Renewable
Energy Programmes in the country.
Convert existing Indian Renewable
Energy Development Agency Ltd
(IREDA) into a national apex
refinancing institution on the lines of
NABARD/National Housing Bank
(NHB) for the Renewable Energy
Sector by bringing equity from banks,
insurance companies and financial
institutions in the country.
99
Household Energy Security
One of toughest challenges before us is
the provision of electricity and clean fuels to
all; and in particular to rural populations
considering their poor paying capacity, the
limited availability of local resources for clean
cooking energy, and the size of the country
and its population. Yet considering that women
and the girl child carry most of the burden of
the drudgery of gathering fuel wood,
agricultural wastes and animal dung and also
bear the brunt of indoor air pollution, the
urgency to meet the challenge should be high
if we are to achieve universal primary education
for girls, promote gender equality and empower
women. The considerable effort spent on
gathering biomass and the cow-dung and then
preparing them for use is not priced into the
cost of such energy. Additionally, these fuels
create smoke and indoor air pollution, are
inconvenient to use and have an adverse impact
on the health of people, particularly women
and children. Easy availability of certain amount
of clean energy required to maintain life should
be considered a basic necessity. Energy security
at the individual level implies ensuring the
availability of such energy. This requires the
following:
Electricity in all households – While
under its National Common Minimum
Programme the Government of India
is committed to electrification of all
households in 5 years, its flagship
programme, Rajiv Gandhi Grameen
Vidyutikaran Yojana (RGGVY),
launched to achieve this is designed to
provide access to all households and
actually electrify only BPL households
by 2009-10. A programme that ensures
that all households have electricity
needs to be developed.
We must also set a goal to provide
clean cooking energy such as LPG,
NG, biogas or kerosene to all within
10 years. It may be noted that the
requirement of cooking energy does
not increase indefinitely with income.
Thus the total amount of LPG required
to provide cooking energy to 1.5 billion
persons is about 55 Mtoe.
Meanwhile we could provide fuel wood
plantations within one kilometre of all
habitations. Those who do not have
access or cannot afford even subsidised
clean fuels will need to gather wood.
Neighbourhood plantations within one
kilometre of each habitation can ease
this burden and reduce time taken to
gather and transport wood.
To develop sustainable energy supply,
women’s groups can form oil seed
plantations or tree-growing cooperatives
to manage and produce biofuel
& fuel wood with the same effort
that they put into searching and
gathering fuel wood today. Finance
through self-help groups should be
provided to transform women, who
are today’s energy gatherers into
tomorrow’s micro-entrepreneurs for
energy management.
2. Energy security for the poor should go
beyond providing energy for subsistence. One
must recognise the need to provide energy to
the poor to increase their livelihood
opportunities, production capacities and
incomes so that eventually they can afford
clean and convenient energy sources. For the
poor in rural areas we need an integrated rural
Household Energy Security:
Electricity and Clean Fuels for All
Chapter VIII
100
Integrated Energy Policy
energy programme to ensure energy security.
What needs to be done is discussed below.
8.1 ELECTRICITY
3. The Rajiv Gandhi Grameen
Vidyutikaran Yojana (RGGVY) aims to
electrify the 1,25,000 unelectrified villages,
connect all the estimated 2.34 crore unelectrified
households below the poverty line (BPL) and
augment the backbone network in all the
currently electrified 4.62 lakh villages by 2010.
While the BPL households are connected free
of cost, the rest of the programme receives a
90% capital subsidy. The 5.46 crore unelectrified
households above the poverty line are expected
to get an electricity connection on their own
without any subsidy. However, going by
current experience the hope that the above
poverty line households will seek connections
on their own may not be realised. The fact is
that up to 40% of the households remain
without electricity even in States that have
been fully electrified.
4. Expansion of connectivity under
RGGVY will require a corresponding
expansion of supply capability. Given the
present widespread and endemic shortage of
power in many states, special action is needed
to facilitate and encourage decentralised
distributed generation (DG) systems so that
communities can take their destiny in their
own hands instead of waiting for utility
companies to supply electricity reliably. The
DG plants in villages where grid extension is
not proposed are covered under RGGVY’s
subsidy programme. In grid connected areas
also DG plants can benefit from the incentives
provided by MNES.
5. For RGGVY to deliver electrification
of all households, the following needs to be
addressed:
Scope of RGGVY must be redefined
to include electrification of all
households.
Power plants based on wood
gasification have been shown to be
feasible as well as economical. Enough
woody biomass is available in many
parts of the country for a village to
generate adequate electricity to meet
its needs. It is possible that a village
goes in for the DG option feeding a
local grid in the first instance.
Subsequently, the village could get
connected to the grid in the normal
course of grid expansion. At that stage,
the DG facility can possibly provide
grid support by feeding-in power at
the lagging end of the grid. A case can
be made for subsidising DG even in
villages proposed to be electrified
through grid extension.
To make RGGVY sustainable, a
business plan that makes it financially
viable needs to be elaborated. A clear
pricing and subsidy policy and the
means of targeting the subsidy need to
be announced soon. Local bodies,
panchayati raj institutions, NGOs or
even local entrepreneurs can take the
franchise to run the local network.
Women’s self-help groups can be
empowered to do so as well. An
essential requirement for sustainability
is the need to promote paying
productive loads in each village.
6. A policy that gives 30 units of
electricity per month to each household as a
matter of entitlement is recommended. As
already pointed out, such lifeline consumption
is not likely to require more than 75-80 billion
units in absolute terms. As already stated, not
more than 60 billion kWh of this lifeline
consumption needs to be subsidised to varying
degrees even in 2031-32. Any consumption
beyond the lifeline consumption should be at
full rates. Putting such a lifeline energy support
regime in place would require metering and
targeting the subsidies to the needy. The
decentralisation of the billing and collection
foreseen under RGGVY and the distribution
transformer based accountability foreseen under
the revised APDRP are likely to prove helpful
in targeting such lifeline support. However,
the most desirable solution remains the
provision of direct cash subsidies to the needy
through smart cards. In deciding the level of
subsidy, it must be recognised that even the
101
Household Energy Security
poorest household does spend something on
energy for lighting and hence must pay a
minimum amount for obtaining the lifeline
electricity support. As per the NSS 55th Round
Survey in 1999-2000, among the households in
rural areas that had electricity, those that
belonged to the poorest 5% of all rural
households spent more than Rs.300 per year
for electricity. Thus a charge of Rs.1.0 per
kWh for the first 30 units per month should
be within the capacity and willingness of even
the poorest 5% of households.
8.2 COOKING ENERGY
7. Providing clean cooking energy to all
is also a big challenge. The 2001 census found
that 625 million do not have any access to
modern (cooking) fuels. It is also true that
about 70% of the energy used for cooking in
Indian households comes from non-commercial
fuels. This may be a result of underlying gender
bias wherein the bulk of the cooking energy is
‘managed’ using non-commercial fuels collected
mostly by women and the girl child, with little
investment, management or technology inputs
and little political or administrative backing.
They need attention and help.
8. The available clean cooking fuels are
LPG, biogas, kerosene and electricity.
Electricity is, in our context, a relatively
expensive form of cooking energy and should
be provided only in very specific circumstances
where other options do not work or are more
expensive due to remoteness and or agroclimatic
conditions. While these fuels cause
less pollution in the kitchen, only biogas is
carbon neutral. Other clean fuels are producer
gas and coal based Dimethyl Ether (DME)
which may be cheaper than LPG. These,
however, require extensive development in
production and marketing.
9. If most of the animal dung available in
rural India is fed into biogas plants (either
community size with each producing >20 m3
of gas per day or family plants suitable for one,
two, three or more cattle heads), supplemented
with suitable other biomass and with improved
micro-organisms, some 30 to 40 percent of
rural cooking energy need can be met by
biogas. With energy efficient cooking systems,
energy need can be substantially reduced and
biogas can meet much of cooking energy needs.
Community biogas plants managed as
commercial enterprises need to be encouraged
with finance and provision of land.
10. LPG is the most convenient cooking
fuel. If we desire that all households use it,
then, besides setting up a distribution network,
the poor will have to be provided financial
assistance. However, as indicated earlier, lifeline
level of LPG consumption that needs to be
subsidised is estimated as only about 13 Mtoe
even in 2031-32. Again, the most effective way
of targeting differing levels of subsidy to support
lifeline consumption of cooking energy is by
providing it directly to the end-consumer in
cash through smart cards.
11. At present kerosene is subsidised.
Distribution of subsidised kerosene has not
been without problems. The current delivery
system of kerosene subsidy by keeping the
price of kerosene to the consumer low and
compensating the oil companies for the
difference in the consumer price and the import
parity price has led to shockingly high rate of
corruption in the petroleum distribution
agencies. A lot of kerosene to be distributed
under PDS system is diverted for the
adulteration of high priced diesel even at the
depot level. Based on NSS data we estimate
that only 56 percent of kerosene released by
States reaches people as PDS kerosene. Since
the different between price of diesel and PDS
kerosene was Rs.21 per litre in 2005-06, a
leakage of 44 percent implies that Rs.10,400
crore were made by unscrupulous distributors.
Removing the subsidy may improve the
availability of kerosene in rural areas for at
least those who can afford it. They will use
more of kerosene freeing biomass based fuels
for the poor. Once houses are electrified under
RGGVY, or by providing them with solar
lighting systems, the need to subsidise kerosene
for lighting will also no longer be there. If
kerosene is to be subsidised as a cleaner fuel,
the only way of preventing this pernicious
adulteration and the widely prevalent
corruption is to make the price of kerosene
102
Integrated Energy Policy
and diesel very close and give the subsidy to
the consumer directly by way of coupons or
smart cards.
8.3 SUBSIDY THROUGH DEBIT
CARDS/SMART CARDS
12. The best way for providing subsidy for
electricity and cleaner fuels, kerosene or LPG,
is to give an entitlement to the targeted
households equivalent to 30 units of power
and 6 kg. of cooking gas or equivalent amount
of kerosene to cover one or both needs. A
system of debit cards or smart cards may be
introduced whereby the targeted households
get a credit of different amounts of cash for the
purchase of these entitlements. The available
credit on the debit/smart card can only be
used for purchase of these entitlements. With
modern ICT, card readers operated on battery
and feeding data using mobile technology can
work in rural areas of the country too.
13. The problem of bogus cards has plagued
our public distribution system. How do we
ensure that bogus debit cards would not be
issued? One way to do this is to put the names
of all cardholders on the village board and
internet. Another option would be to provide
cards with physiological identification.
14. Even if a household decides to sell the
entitlement and not use power, LPG and
kerosene, it would still be welfare improving.
The poor who prefer to sell their entitlement
and still gather biomass based fuels would be
better off as there would be much less
competition for it. The effort and time involved
mainly of women and girls in gathering fuel
would go down. To reduce the adverse impact
of indoor air pollution on their health, women
should be informed about possible defensive
measures, such as ventilating the kitchen by
removing a brick or two under the roof, using
improved smokeless chulahs, keeping the
children away from the stove and minimising
the exposure to smoke, etc.
15. Within this broad strategy the suggested
policy actions to provide electricity and cleaner
fuels to all are summarised below:
Provide a monthly entitlement of 30
units of electricity and 6 kg. of LPG or
equivalent amount of kerosene for one
or both lifeline energy needs through a
system of Smart/Debit Cards with
varying levels of direct cash support to
targeted households as detailed above.
To facilitate distributed generation
under RGGVY to enhance the speed
by which we can electrify all
households. Revise the scope of
RGGVY to cover actual electrification
of all households. Most importantly
develop a viable revenue model for
RGGVY.
Eventually when the grid supply
reaches the villages electrified using DG,
the local generation could feed power
price into the grid, at regulated feed-in
tariffs, to support the lagging ends of
the grid.
For setting up of off-grid generation
facilities in rural areas, encourage the
organised sector to adopt rural
community/communities in their areas
of operation. Even tax rebates may be
considered linked to actual outcomes.
A large-scale socio-economic
experiment should be financed to
operate community sized biogas plants
either by a community cooperative or
by a commercial entrepreneur. This
should assess various management
models in a scientific manner and
examine whether the inclusion of the
poor and disadvantaged can be
guaranteed. Successful management
models should be replicated on a largescale.
Community land should be allocated
to women’s self-help groups and they
should be provided with finance and
technical help to develop fuel wood
plantations in convenient locations.
103
Energy R&D
Research and Development (R&D) in
the energy sector is critical to augment our
resources, to meet our long-term needs, to
promote efficiency, to attain energy
independence and to enhance our energy
security.
2. A look at the projections of
International Energy Agency (IEA), the Energy
Information Administration (EIA), British
Petroleum (BP) and Shell reveals the continuing
growth in global fossil fuel consumption till
2030. India may find it harder and harder to
import required energy as our requirements
are growing faster than the growth in the
world’s total fossil fuel supplies. The solution
for India lies in: (a) reducing requirements by
using fuel/energy more efficiently; (b) seeking
substitutes to fossil fuels; (c) shifting to fuel
efficient modes of transport; (d) augmenting its
domestic energy resources; and (e) adopting
leading commercial or near commercial low
carbon and high-energy-efficiency technologies
that extract and use coal, our most abundant
primary energy resource, in a more sustainable
manner. Energy R&D has a critical role to
play in all these areas. The policy initiatives
that stand out for India are detailed in this
chapter.
3. Energy R&D has not got the resources
that it needs. We need to substantially augment
the resources for energy R&D and to allocate
these strategically. To take an innovative idea
to a commercial application involves many
steps. Basic research leading to a fundamental
breakthrough may open up possibilities of
applications. R&D is needed to develop any
new concept and to prove its feasibility. This
needs to be followed up by a working model
at laboratory scale. Scaling up to a pilot project
follows if the economic potential is attractive
keeping in mind cost reductions that could be
achieved through better engineering and mass
production. Demonstration projects, further
economic assessment and more R&D then go
into making the project acceptable and
attractive to customers before
commercialisation and diffusion can take place.
4. At each stage appropriate support needs
to be provided for R&D. The nature of the
support and the attendant institutional
arrangements will differ. India has used three
approaches; technology development missions
that require coordinated research and
development of all stages of the innovation
chain to reach a targeted goal such as in the
departments of atomic energy and space
research; technology roll out missions to
develop and roll out commercial or near
commercial technology such as the missions to
provide rural telephony; and broad based R&D
support to research institutions, universities
and others through project funding.
Technology Missions are the most appropriate
mechanism, particularly when it requires
coordinated action in a number of different
areas, which may involve different government
ministries, departments or levels and the private
sector. A technology mission whether for
development or roll out not only brings a
single point focus to dispersed initiatives in the
relevant field but also provides support to
research projects in universities and research
institutions with the aim of delivering the
mission objectives. Technology missions must
cover areas that are of critical importance to
India’s long-term energy needs. While
coordinated effort is desirable for all R&D in
all links of the innovation chain, it becomes
critical to place such a coordinating role under
a commercially oriented entity, with wellidentified
targets, when one needs to roll out
already commercial or near commercial
technologies in a time-bound manner. Funding
for specific projects to be taken up in
universities and R&D institutions as a part of
Energy R&D
Chapter IX
104
Integrated Energy Policy
such programme should be routed through the
coordinating agency for time-bound outcomes.
In either approach, it is emphasised that R&D
requires sustained support over long periods of
time.
5. Based on these considerations, we
recommend the following:
A National Energy Fund (NEF) should
be set-up to finance energy R&D. Our
expenditure on R&D excepting for
atomic energy, which as of today
provides less than 3 percent of our
total electrical energy supply, is
miniscule compared to what industry
and governments spend in developed
countries. In the developed world,
industry generally spends more than 2
percent of its turnover on R&D. In
India, the total expenditure on R&D
in 2004-05 was Rs.610 crores12 for
Atomic Energy and Rs.70 crores for
Ministry of Power, Coal and Non-
Conventional Energy Sources. Even at
one-tenth of the rate at which industry
in developed countries spends on R&D,
i.e. 0.2% of the turnover of all energy
firms whose turnover exceeds Rs.100
crores a year, we end up with Rs.1000
to Rs.1200 crores per year which will
increase over time. We should be
spending much more than this on
R&D. Much of R&D can be considered
a public good. There is, thus, a strong
case for funding by the government
either directly or through fiscal
incentives. The latter accounts for the
bulk of government support in the
developed countries. Fiscal incentives,
however, have not resulted in
significant expenditure on R&D by
Indian industry. An annual allocation
should be made by the government for
energy R&D. To begin with, for the
first year Rs.1,000 crores, excluding
atomic energy, may be provided to
this fund. Individuals, academic research
institutions, consulting firms, private
and public sector enterprise, could all
compete for grants from this fund for
identified and directed research.
The fund should be governed by an
Independent Board with representation
of Department of Science &
Technology (DST), Planning
Commission and Energy Ministries.
However, a majority should be outside
experts. It would support all stages of
R&D from basic research to diffusion
with appropriate policies, resources and
institutions.
Each identified technology goal should
be broken down into its constituent
basic research and applied research.
Both types of research should be
allowed to access funding from the
NEF but all activities must be
coordinated to deliver defined goals/
targets/milestones in a time-bound
manner.
The fund should promote the
formation of consortia between
industry, research institutions, and
academia in each of the identified
energy technology areas. A virtual
network of energy research institutions,
like laboratories of Council of Scientific
& Industrial Research (CSIR),
Department of Science & Technology
(DST), Department of Biotechnology
(DBT) etc. and private sector, should
be created to assist in pooling resources
and exploiting synergies through
dispersed but well coordinated and
directed research for identified
technologies.
Each company in the field of energy
should be mandated to spend at least
0.4% of its turnover on R&D. Any
contribution made by the company to
NEF could qualify for full deduction
from the income taxes due from the
company.
12 Only about 15% of this amount viz., Rs.610 crores, was for R&D on nuclear power. The rest of the
expenditure is for R&D on non-electricity applications of Radiation Technology and Fundamental
Research.
105
Energy R&D
The NEF should aim at making India
a global leader in energy technologies
most relevant to India’s energy security
for sustained growth.
6. We have already identified some
projects for R&D earlier. However, we
recognise that the world of technology is
dynamic and one should be flexible in one’s
strategy.
Resources devoted to research in
different areas depend on the economic
importance of that particular area, the
scope of technology and the likelihood
of success of R&D in developing these.
The latter changes with time as new
developments in science & technology
take place and uncertainty reduces.
R&D priorities have to be based on a
strategic vision which is frequently
updated. Of critical importance is
research and analysis to outline
technology road maps. The NEF
should commission, encourage and fund
such studies on a regular basis in a
number of institutions and through
individuals.
The NEF should support energy policy
modelling activities in a selected
institution on a long-term basis.
Different modellers should be
periodically brought together in an
energy modelling forum to address
specific policy issues.
7. In view of the discussion above the
Committee felt the need for several National
Technology Development Missions crucial to
India’s long-term energy security. These
technology missions must pull together all
current efforts and resources being devoted to
the technologies relevant to the mission and
place their responsibility as separate but linked
parts of a single chain of command working
towards specific and time-bound deliverables.
The missions must engage industry, academia
and India’s R&D infrastructure of laboratories
and research institutions. The missions
identified below exclude nuclear energy as
research in that field is progressing well under
the various institutions controlled by the
Department of Atomic Energy and covers
fission, fusion, breeding of fissile material, use
of Thorium as also a number of non-energy
related fields. The following National
Technology Missions are recommended:
In-situ coal gasification: Given its vast
reserves of relatively poor quality coal
which might prove uneconomical for
extraction beyond 300 meter depth
using convention technologies, India
needs to take the lead in developing
this technology in order to enhance
the life of its most important and
dominant energy resource. This
technology would extract energy from
deep seated coal without the high ash
that accompanies Indian coal.
Integrated Gasification Combined
Cycle (IGCC) is a clean coal
technology that India has been pursuing
for some 3 decades. These efforts should
be brought under a mission to establish
efficacy with Indian coal and likely
commercial viability.
Coal to liquids and/or gasified coal
to liquids: If crude settles at above
$45/barrel on a long-term basis,
adapting this technology to Indian coal
could increase India’s energy security.
This technology was successfully
deployed in South Africa using South
African coal. They have tested Indian
coal and confirm that the technology
works.
Carbon capture and sequestrations:
India’s energy mix will remain
dominated by coal at least to 2031-32
and possibly beyond. In order to grow
in a sustainable manner capturing
carbon and sequestering it would
become critical for India in the years
to come. Such technology has already
been deployed commercially in
conjunction with enhanced oil recovery
from adjacent oil fields in three
locations worldwide.
Bio-energy mission: This mission
could cover three distinct areas related
to bio-energy. These include: (i) Biodiesel
from non-edible oils such as
Jatropha and Karanj; (ii) Cellulosic
ethanol; and (iii) energy plantations. A
bio-fuel mission to plant Jatropha or
other appropriate oil plants on 4,00,000
hectares of wasteland within three years
has been undertaken to assess yields
under alternative agro-climatic and soil
conditions, diverse cultivation practices
and different levels of inputs such as
water and nutrients. The mission will
identify germ plasm of promise and
develop high yielding varieties. Even if
the experiment shows little scope for
economic exploitation of bio-diesel, the
expenditure could be justified just as a
failed oil exploration effort, by the
large local employment generated. A
similar mission needs to be mounted
for energy plantations wherein the
biomass generated could be gasified or
combusted directly in wood fired
boilers for power generation. Funds
available under NREGA (National
Rural Employment Guarantee Act)
could be used for meeting the cost of
planting under both these schemes.
Production of cellulosic ethanol is
getting considerable attention and India
should also mount a separate mission
for R&D in this emerging energy
source.
Storage technologies: Storage
technologies are important for using
intermittent sources of power and for
the automotive sector. Super
conducting storage devices and super
battery technology should be focused
on, given that cost and higher capacity
to weight ratios are still big challenges.
Solar: Solar technology is often seen as
relevant for niche applications. Given
that solar energy is one of our major
energy sources and the only renewable
energy source with sufficient potential
to meet almost all our energy needs,
we should give a high priority to
development of solar technology for
large-scale deployment. A technology
mission should be mounted to break
barriers to wider use of solar thermal
and for bringing down the cost of solar
photovoltaic by a factor of five as soon
as possible.
Advanced materials: Several
technologies depend on developing
advanced materials. A mission to
support this could actually cut across
several technologies and could also draw
from current work done in a variety of
fields such as nuclear, space, transport,
etc. for applications in the field of
energy.
Hydrogen: Development of Hydrogen
as an energy carrier is being pursued in
many countries. Hydrogen can be used
to generate electricity in a fuel cell or
it can be burnt directly in internal
combustion engines. Hydrogen,
however, has to be produced by
expanding another primary or
secondary form of energy. This can be
gas, coal, oil, solar energy, biomass,
hydro or nuclear energy. It is also
possible to produce it through
microbial action. A mission covering
all aspects of hydrogen production,
storage, transport, deployment and use,
can be justified on three considerations:
(i) Since many countries are working
on hydrogen, the R&D on
applications will find international
market.
(ii) Some of the R&D for fuel cell
based vehicles is common for
electric vehicles which may become
attractive with advancement of
battery technology; and
(iii) If economic production of
hydrogen through electrolysis of
water using solar energy, and/or
nuclear energy or from microbial
action materialises, and storage,
transportation and distribution of
hydrogen becomes economically
viable, hydrogen could become a
clean and endless energy option.
Gas hydrates: A technology mission
for assessment and exploitation of gashydrates
is justified given India’s
abundant gas hydrate reserves in deep
waters.
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Energy R&D
8. The Committee has identified the
following areas wherein technologies are either
fully commercialised elsewhere or are near
commercialisation. Even technologies that have
been commercialised elsewhere a certain
amount of adaptation may be called for. In all
these areas, technology roll out missions are
proposed. An industry, or a group of industries
or a commercially oriented agency should be
asked to take the role of lead coordinator and
seek early acquisition, adaptation and
commercialisation. R&D funding for in-house
research and directed outsourced research
should be provided based on competing offers.
A number of energy efficiency
technologies including DSM
technologies. Technology Information,
Forecasting & Assessment Council
(TIFAC) can be asked to identify
specific technologies ready for
adaptation and/or commercialisation in
India.
Recovery of coal bed methane and mine
mouth methane. Blocks have been
allocated already. ONGC and others
holding blocks should be asked to
indicate firm dates for tapping this
energy and identifying any specific
hurdles or technology needs.
Fluidised bed boilers and advanced
circulating bed fluidised boilers should
be promoted for use with low quality
Indian coals and/or washery rejects.
BHEL, L&T and others should be
asked to take the lead in developing
this application and its wider use.
Washing of Indian coal, requires that a
well-established technology be adapted
for Indian coals of different quality so
that yields and viability can be
improved. BHEL and NTPC should
lead this effort with the support of the
research institutions of the coal
industry.
Reduction of SOx/NOx and particulate
emissions to match global standards.
NTPC, private sector and SEBs could
compete for taking the lead on this.
Current practices/technologies for
exploration and extraction of coal for
adaptation in Indian conditions. Coal
India and Neyveli Lignite to be given
the lead in this area.
Increased/enhanced oil and gas recovery
and recovery of hydrocarbons from
abandoned and isolated fields. ONGC
should be given a time-bound
programme to acquire and deploy such
technologies.
Fuel-efficient vehicles. The automotive
industry should be asked to achieve
higher fuel efficiency standards in steps
so as to reach efficiencies that are at
least twice current levels. Companies
reaching defined milestones first to be
given large cash awards along with
fiscal incentives based on outcomes.
Hybrid vehicles and battery operated
vehicles. Automotive industry to lead
the efforts in commercialising these
technologies. Large cash awards and
fiscal incentives given based on
outcomes.
Off-shore wind potential to be tapped.
Wind mill manufacturers to take lead
in delivering a time-bound programme.
GOI to provide fiscal incentives.
Alternate routes to alcohol such as
sweet sorghum should be promoted.
Industries such as Praj and industrial
alcohol users to compete for R&D
funding and fiscal/cash rewards against
defined outcomes.
Promoting community bio-gas plants.
The real potential of biogas is in
community level plants. To have the
willing participation of all the cattle
owners in the community requires an
appropriate operating strategy.
Individual and community
entrepreneurs should be encouraged to
experiment with alternate strategies by
providing land and finance. Industries
should also be roped in to execute the
programme through adoption of
villages. Tax rebates to be provided on
a graduated scale based on actual
outcomes in the field.
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Integrated Energy Policy
9. The above list is neither a
comprehensive list nor a mandatory one. It is
an indicative list of technology areas relevant
to India’s needs. The primary idea is to conduct
and fund research that is directed and outcome
oriented. All funding made available and fiscal
incentives provided should be linked to
achievement of defined outcomes. Finally, a
variety of institutions and individuals can be
tapped but in a coordinated fashion to deliver
defined outcomes.
10. In addition to the two types of
technology missions, the NEF should also
provide R&D support for application,
innovation of new ideas, fundamental research
etc., to researchers from different institution,
universities, organisations and even individuals.
11. Such a R&D programme will require
large number of trained researchers. However,
a vigorous programme of research and teaching
in academic institutions will itself attract
students and, over time, relevant expertise will
develop. A number of academic institutions
should be developed as centres of excellence in
energy research. Generous funding for
fellowships for energy R&D may be provided
to students pursuing post-graduate degrees.
12. Energy R&D, particularly that devoted
to reduce green house gas emissions, has
characteristics of global public good. India
should link up with other countries and
cooperate with international R&D initiatives.
India’s manpower strength in R&D can then
be leveraged to get better results sooner and at
lower cost. Joint research with shared IPRs
could boost India’s R&D efforts significantly.
Also, with our growing and diversified energy
market, R&D efforts can find quicker returns
on successful commercialisation in India. Such
a strategy would give India its appropriate
place in global energy R&D.
109
Power Sector Policy
When India became independent in
1947, the country had a power generating
capacity of 1362 MW. Generation and
distribution of electricity was carried out
primarily by private utility companies. A few
of these are still in existence. Power was
available only in a few urban centers; rural
areas and villages did not have electricity
supply.
2. The Electricity (Supply) Act, 1948, was
enacted to facilitate faster power sector
development and State Electricity Boards (SEBs)
were set up in all the states to achieve the
desired objective. All new generation,
transmission and distribution came under the
purview of SEBs. The creation of SEBs led to
faster development of power sector in the
country. However, financial constraints of the
State Governments precluded the SEBs from
adding the desired capacity to meet the growing
demand. During the Fifth Plan period (1974-
79) it was felt that Central Government should
supplement state governments’ efforts to expand
the power system in order to ensure that the
country achieves the desired economic growth.
The National Thermal Power Corporation
(NTPC) and National Hydroelectric Power
Corporation Ltd. (NHPC) were set up in 1975
and North Eastern Electric Power Corporation
Ltd. (NEEPCO) in 1976 to achieve this
objective. Under the Department of Atomic
Energy (DAE) the country’s first Nuclear
Power Plant was set up in 1969. Later in 1987
Nuclear Power Corporation of India Ltd
(NPCIL) was set up by the DAE to develop
nuclear power plants in the country. These
Central Power Sector PSUs were responsible
for their own transmission schemes till the
National Power Transmission Corporation
(POWERGRID) was created in 1989 with the
responsibility of constructing, operating and
maintaining the inter-state and inter-regional
transmission system of the country.
3. Although the Central Public Sector
units delivered their objectives to a satisfactory
level, it soon became evident that the public
sector dominance of this crucial sector was
increasingly being seen as a weakness. Power
sector reforms were initiated in 1991 to
encourage competition and seek private
participation in each sub element of the sector,
namely generation, transmission and
distribution. Fast Track private sector projects
with Government guarantees followed by the
Mega Power Policy were announced to attract
large-scale private investment into the sector.
These efforts did not bear fruit but the
Government persisted and proceeded to usher
in an independent and transparent regulatory
regime. After the enactment of Regulatory
Commissions Act, 1998, Central Electricity
Regulatory Commission (CERC) was set up at
the central level and twenty four states have
either constituted or notified the constitution
of State Electricity Regulatory Commissions
(SERCs) since then. The SEBs of A.P., Orissa,
Haryana, Karnataka, U.P., M.P., Uttaranchal,
Delhi, Gujarat, Maharashtra, Rajasthan and
Assam have been unbundled and corporatised.
4. Despite these reform initiatives, most
of the SEBs continued to make financial losses
because of an unsustainable level of aggregate
technical and commercial losses. Unpaid dues
of the Central Public Sector Units mounted
and, by 2001, had crossed the Rs. 40,000 crore
mark. These dues were seen as a major
impediments to the reform process and were
securitised under a tripartite agreement covering
Central Sector Power Utilities, Coal India and
Railways. The tripartite agreement guaranteed
payments to these Central PSUs and used
incentives to encourage commercial discipline
and initiation of reform process in the States.
5. It has become increasingly evident that
distribution reform holds the key to long-term
Power Sector Policy
Chapter X
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Integrated Energy Policy
sustainability of the sector. Distribution has
been privatised in Orissa and Delhi but results
have been mixed, at best. The presence of the
private sector, even today, remains limited to
about 12% of generation and covers distribution
in only a few cities. To encourage distribution
reforms, the Accelerated Power Development
and Reforms Programme (APDRP) was
launched. APDRP supports distribution
reforms in the states through investment
support and incentives for lowering AT&C
losses. APDRP set out to bring down AT&C
losses to 15% by 2007 from an estimated level
of 45% in 2002 and restore the financial health
of SEBs. However, the performance of APDRP
has fallen well short of the promise. Investment
in the distribution sector remains low and the
overall AT&C loss level continues to remain
high.
6. As a result, power shortages remain a
persistent problem. The inability to expand
generating capacity, strengthen transmission
networks and improve distribution systems
reflect the financial sickness of SEBs. They do
not have the resources to invest themselves
nor have the credibility to attract private
investors. The large AT&C losses are partly an
outcome of neglect of investment in
transmission & distribution (T&D) over the
years. Substantial investments are needed in
T&D. Simultaneously, changes have to be made
to better manage the distribution of electricity.
The problems of pilferage, misclassification of
consumers, under/over billing and noncollection
of bills would also need to be
addressed. At the national level AT&C losses
still exceeded 40 percent in the year 2004-05
(CEA 2005). The ratio of energy billed to
energy available was a low 68 percent in 2004-
05.
7. Among those that are billed for
electricity are large number of farmers and
domestic consumers who are subsidised. Cross
subsidies from industrial and commercial
consumers that were meant to fund the
subsidies given to farmers and domestic
consumers are, today, also funding the losses
and the inefficiencies of the distribution
companies. Less than 48 percent of the billed
energy is sold to industrial and commercial
consumers (including sales to public water
works and railway traction). However, this 48
percent of billed energy yields over 70 percent
of the actual revenue collected by the state
utilities. The cross subsidies cannot be raised
any further as they have reached a level where
industries find it cheaper to set-up their own
generating plants.
RESTRUCTURING OF APDRP
8. The problems with APDRP are: lack
of baseline data to assign accountability and
assess outcomes, poor preparation of projects
as revealed by some independent assessment
and a lack of incentives for the staff to reduce
AT&C losses. APDRP needs to be restructured
as follows:
Introduce automatic meter reading
(AMR) of all distribution transformers
to track how much loss occurred in
each area served by a transformer and
establish accountability. Back this with
a Geographical Information System
(GIS) that maps the distribution system
to facilitate power audits, pinpoint the
offenders and improve customer service.
Introduce an incentive scheme for staff
whereby they share the additional
revenue collected in their distribution
circle.
Data generated with AMR and GIS
mapping can help split up AT&C losses
into technical, billing, collection & theft
and help in designing specific corrective
actions and assigning responsibility and
accountability. This data should be
disseminated to the public to create
support for corrective action.
Bifurcate agricultural pumping load
from the non-pumping load in all rural
feeders. Use available technological
options to limit and measure the
amount of agricultural pumping energy
provided
For all loads above say 50 kWh,
introduce intelligent meters that permit
real time and remote recording of data
and allow remote control over the
power supplied by each meter. This
would help effective management of
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Power Sector Policy
connected load and the reported
pilferage by large consumers.
Introduce time-of-day pricing with shift
to electronic meters.
All central assistance to state
governments for the power sector must
be linked exclusively to loss reduction
and improved viability.
The improvements listed above and
the base line data generated as a result
would bring greater transparency in
the process of privatisation (if pursued)
and provide a better estimate of the
transition funding needs under
outcome driven privatisation models
that seek to restore the viability of
distribution.
POWER SECTOR REFORM
9. Ideally, agricultural consumers should
be metered and the subsidy should be given
to the distribution utility by the State
Government based on actual energy delivered.
However, given the political reality where
many Chief Minister’s promise free power to
farmers, separation of feeders is suggested as a
second best solution. It will enable the
distribution utility to ration agricultural
consumers and to meet their requirement at
off peak hours thus lowering the economic
burden of free power to farmers and providing
more accurate estimates of real agricultural
consumption.
10. Privatising distribution is seen by some
as an alternative solution to reducing AT&C
losses. Based on experience worldwide,
privatising utilities is definitely part of the
solution. India’s experience with privatising
the Delhi and Orissa distribution has, however,
raised as many questions as it has answered.
Where privatisation is politically feasible, it
should be done in a transparent manner based
on authentic base-line data and through a
genuine round of competitive bidding. There
should be no shifting of the publicly announced
terms of privatisation post bidding. The
restructured APDRP can, in the very least,
help create an authentic base line.
11. As the provisions of the Electricity
Act, 2003 take root, the pace of reforms is
likely to accelerate and private sector
participation should become easier. The Act
provides the basic framework for encouraging
competition in the sector and creates open
access to encourage private sector investments
in each element of the electricity value chain.
Moreover, it permits setting up of captive and
group captive power plants without the
clearance of the distribution utility and provides
for wheeling power from the captive plants to
captive consumers without any cross-subsidy
surcharge. However, significant private sector
participation and competition still elude the
sector. While movement of the reform process
is in the right direction, actual achievements
have been minimal.
12. Worldwide, the efforts in introducing
competition and in deregulating the power
sector have yielded mixed signals. Emphasis
on competition has, in several countries,
highlighted the limitations of open market
orientation, unbundling and open access. The
resulting stress on capacity creation especially
in transmission, loss of price stability, uneven
sharing of benefits between large and small
consumers, high institutional and transaction
costs etc. have together created support for
integrated utilities with monopolies in licensed
geographical areas. The question being asked
today by some is if well-functioning regulation
that creates capacity through competition is
not a better answer than totally free
competition that permits full access to
consumers. It has been seen worldwide that
spot markets, power pools, retail choices, etc.
require an elaborate and often expensive
institutional and regulatory framework without
which the benefits are difficult to achieve.
Similarly worldwide experience shows that
privatisation in the electricity sector can
certainly help but may not be necessary or
sufficient to effect transformation.
13. It might be argued that in the electricity
sector competition should be encouraged, where
appropriate, rather than taking it as a default
principle. The lumpy investments needed to
create capacity, the relatively large incremental
step when new capacity is added, the gestation
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Integrated Energy Policy
lag in creating additional capacity and
environmental and logistical issues create
hurdles to perfect competition in the power
sector with available technology choices. This
could change in the future. Specifically with
respect to India, management reforms
(particularly in the distribution sub-sector) are
as important as a liberal captive and open
access regime driven by a desire to create
competition in the power sector. While it
might be utopian to assume that perfect
regulation could substitute competition, it is
unambiguously clear that regulation will indeed
expand once competition sets in. It is equally
unrealistic to assume that perfect competition
can be introduced in the power sector in a
short time. The key for India might be effective
stakeholder involvement for successful
regulation. This may go as far as appointing an
office of “Consumer Advocate” at the state
level. Again, while privatisation is one possible
option for distribution, it cannot be a prerequisite
or a necessary consequence of APDRP
restructuring. The door for reform under public
ownership must be left open.
14. The above should not be read as a vote
against entry of private sector into the power
sector or negating the benefits of competition.
As stated above, competition is very much
possible in each element of the electricity value
chain under a well-functioning regulatory
regime. In the context of India, the strength of
the dominant public sector can be effectively
leveraged to introduce competition that extracts
efficiency gains in generation, transmission and
distribution.
15. Capacity expansion is currently done
mainly by the Central PSUs who have been
insulated from payment problems by the
Tripartite Agreement (TPA) involving SEBs,
State Government and Reserve Bank of India.
The TPA protects payments to Central Power
Sector PSUs, Railways and Coal India through
recourse to the account of the state governments
with the Reserve Bank of India. Although the
TPA came into existence in 2001 in the context
of past dues of state governments to Central
Power Sector PSUs, Railway and Coal India; it
has been applied also to all new capacity created
by Central Power Sector PSUs, Railway and
Coal India since then. The states have been
maintaining payment discipline vis-à-vis Central
Power Sector PSUs, but the long-term viability
of the arrangement is questionable, particularly
as the share of Central Power Sector PSUs in
power generation keeps on increasing. There
is, thus, an inescapable need to reform the
power sector.
REDUCTION IN COST OF POWER
16. There is at present no level playing
field between Central Power Sector PSUs and
others. The tariff of the Central Power Sector
PSUs is determined on the basis of costs and
norms with a guaranteed 14/16% post tax
return on equity. This tariff determination
regime gives little incentive to be efficient. The
private sector generators do not get the comfort
of the payment security mechanism available
to Central Power Sector PSUs under the TPA
and the State power utilities do not get the
assured post tax returns.
In cases where tariff continues to be
determined on the basis of costs and
norms, regulators may either adopt a
return on equity approach or return
on capital approach, whichever is
considered better in the interest of
consumers. In deciding the level of
return provided, the regulator should
inter-alia take into account the return
available on long-term government
bonds and reasonable risk premiums
associated with equity investments.
Distribution should be bid out on the
basis of a distribution margin or paid
for by a regulated distribution charge
determined on a cost plus basis
including a profit mark up similar to
that described above.
All generation and transmission projects
(with the exception of one time capacity
expansion of up to 50% of installed
capacity of a generating plant) should
be competitively built on the basis of
tariff-based bidding. Public Sector
Undertakings shall also be encouraged
to participate in such bids even though
the tariff policy allows them a 5 year
window wherein projects undertaken
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Power Sector Policy
by the public sector need not be bid
competitively.
The liberal captive and group captive
regime foreseen under Electricity Act,
2003, should be realised on the ground.
India’s liberal captive regime will not
only derive economic benefits from
availability of distributed generation
but set competitive wheeling charges
to supply power to group captive
consumers. This will pave the way for
open access to distribution networks.
The Ministry of Power (MOP) should
facilitate large-scale capacity addition
(20,000 MW or more) to meet identified
demands of beneficiary states through
international competitive bidding. Bulk
orders of this size, to be delivered over
a given time frame, can, if executed
properly, be used to: (a) lower capital
costs; (b) introduce plants that deliver
internationally comparable conversion
efficiencies; (c) promote coastal
locations with dedicated facilities for
handling domestic coal transported by
sea or imported coal; (d) realise
internationally comparable emission
standards; and (e) under certain
circumstances, create new domestic
manufacturing and engineering capacity
to build power plants. Since the
projected capacity additions over the
next 25 years are more than 6,00,000
MW, there is no danger of pre-empting
future competition or limiting
technology options by such bulk
purchases.
Any subsidy given to poor households
or farmers should be funded by the
State Government through its budget.
REGULATOR
Existing projects and future investments
that are not competitively bid must
comply with CERC’s tariff guidelines.
States that do not comply should be
made ineligible for Central Sector
support for their power sector.
Operationalise the flexible and enabling
captive regime foreseen under the
Electricity Act and provide consumer
choice through open access. This
requires the development of normative
wheeling and distribution costs at
different voltages by respective
Regulators, the introduction of timeof-
day pricing at the bulk and retail
levels, and the identification of cross
subsidies embedded in the cost of
supply in each distribution circle. Timeof-
day tariff may make gas-fired peaking
stations economical.
Electricity prices are currently set by
State Electricity Regulatory
Commissions on cost plus basis.
Regulators should set tariffs for a
number of years and differentiate them
by time of day.
Respective Regulators should adapt best
international practices that reward
utilities for seeking: (i) distributed
generation with waste heat recovery
where feasible; (ii) demand side
management; and (iii) energy
conservation and energy efficiency
technology adoption through Negawatt
incentives.
Regulators must establish feed-in-tariffs
for power from renewable energy
sources. The feed-in-tariffs should also
provide time-of-day benefits to
renewable energy supplies.
17. Other policy initiatives needed are:
Transmission and Distribution
Separate content from carriage in both
transmission and distribution.
Regulated caps for: (i) wheeling charges
at different transmission voltages; and
(ii) distribution margins for consumers
at different voltage levels must be
introduced. Competition should be
introduced in building transmission
capacity on the basis of wheeling tariffs
and in distribution on the basis of
distribution margins.
Inter-state transmission networks
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Integrated Energy Policy
should be managed by a regulated
monopoly. Transmission lines critical
for inter-state flows of power and for
system stability should also be managed
by the central body, even if it is entirely
within one state.
Independent and/or fully transparent
load dispatch is required at regional
and state levels to ensure a level playing
field among competing common
carriers. An independent planning body
for transmission networks is necessary
to ensure proper development of such
networks.
Rural Electrification and Distributed
Generation
Require the State Governments to
notify rural areas as required by the
Electricity Act, 2003. Such notification
could assist the emergence of
independent rural suppliers of
electricity thereby enhancing access for
both household and productive uses.
Many remote villages may be provided
electricity and energy security through
locally available renewable resources.
To facilitate distributed generation and
encourage generation by renewables,
make grid connections for feeding in
surplus power to the grid, at the grid’s
avoided cost, mandatory. In order that
this does not jeopardise grid stability,
variable frequency transformers for
asynchronous network connections
may be used along with appropriate
grid management.
To set up off-grid or distributed
generation facilities in rural areas,
encourage the organised sector to adopt
rural communities in their areas of
operation. They can build local
capacities to operate such plants and
eventually transfer the plants to local
groups.
Ensure sustainable revenue models for
rural electrification programmes.
Without such revenue models
programmes such as RGGVY are
unlikely to be sustainable.
Adding Domestic Manufacturing and
Engineering Capacity
The available manufacturing and
engineering capacity in the country is
grossly inadequate to support the
ambitious capacity addition programme
in thermal, hydro, nuclear, renewable
and T&D sectors. There is an urgent
need to create these capacities,
preferably in the private sector.
18. In order to avoid power shortages and
take timely action annual electricity
requirements should be projected and yearwise
targets for generation capacity be set for
seven years. Each project, public or private,
should be monitored along with a number of
milestones. This will help entrepreneurs to
take timely decisions to invest.
115
Coal Sector Policy
The origin of coal mining in India
dates back to 1774. Demand for coal started
rising mainly for use by the railways after 1885
and coal production reached a level of over six
million tonne per annum by the beginning of
twentieth century. Coal mining was
predominantly done by the private sector and
pricing was market driven. A surge in demand
was witnessed during the First World War,
which multiplied many-fold during the Second
World War. Government control over prices,
production and distribution was imposed upon
the coal industry during this period by the
Colliery Control Order, 1944 modified under
the Essential Commodities Act, 1946 and it
remained in force even after independence. By
1950, coal output had risen to about 32 Mt and
Railways continued to be the single largest
consumer (31%) followed by Iron & Steel and
brass foundries (14%), brick kilns (9%), power
utilities (7%), cotton mills (7%), others (32%)
including colliery consumption (11%).
2. The Coal Board was set up in 1951 for
the conservation of coal resources and safety of
mines under Coal Mines (Conservation &
Safety) Act, 1952. The Mines & Minerals
(Regulation & Development) Act, 1948, was
consolidated in 1957 to deal with procedures
for granting and operating mineral concessions
and prescribing royalties to State Governments.
Also, the Mines Act, 1923, enforcing safety in
mines and welfare of miners was replaced by a
more comprehensive act in 1952.
3. After independence, the Government
passed an Industrial Policy Resolution in April,
1956 thereby including coal in the list of
industries earmarked for development in the
public sector and the National Coal
Development Corporation (NCDC) was
created in 1956 to carry on coal mining in the
public sector. The Coal Bearing Areas
(Acquisition & Development) Act was enacted
in 1957 to help NCDC acquire coal bearing
land in various states.
4. Coal mining by the private sector led
to a situation wherein there were a number of
small pits, which functioned with little regard
to conservation, safety of workers and use of
scientific methods of development. This led to
hazardous working conditions and loss of coal.
Recognising these, the coal industry was
nationalised in two phases – coking coal in
May 1972, and non-coking coal in May 1973.
A holding company, Coal India Limited (CIL),
was formed in November 1975, with several
coal producing subsidiary companies based on
geographical location of coalfields and one
company dedicated to mine planning and
design. Mines belonging to NCDC were merged
with different subsidiary companies. Tata Iron
& Steel Company in private sector and Indian
Iron & Steel Company and the Damodar Valley
Corporation under the public sector continued
to operate their captive mines. Singareni
Collieries Company Ltd. is the oldest public
sector coal company under the administrative
control of Government of Andhra Pradesh
with an equity share of 51%. The balance 49%
belongs to the Government of India.
5. Lignite development was pursued
through a public sector enterprise, the Neyveli
Lignite Corporation Ltd. (NLC) established in
1956. Besides NLC, lignite is also being mined
by the State PSUs of Gujarat and Rajasthan.
6. Geological Survey of India (GSI) is
vested with the responsibility of regional
exploration for coal. Mineral Exploration
Corporation Ltd. (MECL), Central Mine
Planning & Design Institution Ltd. (CMPDIL)
& Geological Survey of India (GSI) have been
identified for undertaking promotional
explorations to supplement regional
explorations with a view to expedite
Coal Sector Policy
Chapter XI
116
Integrated Energy Policy
exploratory efforts for coal and lignite. Detailed
exploration is being carried out primarily by
MECL & CMPDIL on behalf of the coal
companies. Some of the mining and geological
corporations of the State Governments are
also taking up coal exploration on their own.
7. Coal consumption in the country has
been rising steadily and in 2005-06 India
consumed some 432 Mt of coal. This included
import of 17 Mt of metallurgical coal and 20
Mt of thermal coal. Given limited reserves of
high grade metallurgical coal and the high
cost of underground mining, India currently
imports about 66% of its requirement of
metallurgical coal. Thermal coal imports are
not significant. However, the quality of
domestic thermal coal has deteriorated over
the years due to the increased reliance on the
more cost-effective opencast mining. The
improvement in overall labour productivity
has been marginal primarily because the
mechanisation of underground mines has not
been successful to a large extent. The Industry
also continues to face problems in regard to
land acquisition and rehabilitation.
8. Following the economic reforms
instituted in 1991, the private sector has been
allowed to mine coal for captive consumption
under the Captive Mining Policy of 1993. The
captive mining policy allowed allocation of
blocks to designated end-users for mining coal
for their own use. The current list of authorised
end-uses includes power, steel and cement
producers. FDI was permitted in coal mining,
and joint ventures were also permitted. A large
number of coal blocks stand allocated to private
entrepreneurs for developing captive mines but
only few of these mines have started
production. The captive mining policy has
significant hurdles and has not been a success,
so far, either in raising domestic production or
in increasing the number of domestic producers.
State Government Corporations and CPSUs
are permitted under the Coal Mines
(Nationalisation) Act to take up coal mining at
par with CIL. Some state governments like
Jharkhand and J&K operate small mines.
9. In line with the economic reforms
aimed at raising the level of competition in
various core sectors, the government proposed
to allow private participation in commercial
coal mining. A Bill was introduced in the
Parliament in April, 2000, to amend the
provisions of Coal Mines (Nationalisation) Act,
1973, for facilitating private participation in
commercial coal mining. The Bill proposes to
open up the coal sector to private investment,
but it does not have the requisite political
support for passage. While waiting for the
April 2000 Bill to be enacted by the Parliament,
the Government is trying to remove the barriers
to captive mining under the current law.
10. Keeping in view the railway
infrastructure, distribution of coal among
various user industries and movement plans
are controlled through a mechanism of
linkages. A long-term and short-term linkage
committee allocates coal to various core
industries such as power, steel, cement etc.
The linkage committee, an inter-ministerial
group, evaluates the requirement of coal by
consumers at the planning stage and links it
to what seems like a rational source from a
long-term perspective after examining factors
like quantity and quality required, time frame,
location of the consuming plants, transport
logistics and the development plan for the
coal mine. Unfortunately, the linkages remain
frozen, and as mines and users develop, they
no longer remain rational.
11. Coal prices were decontrolled totally
from the 1st of January, 2000 after scrapping
Colliery Control Order 1946; and coal
producing companies (CIL and SCCL) fixed
prices on their own and revised the same
periodically based on an escalation formula
under a cost plus approach. As a result, coal
prices have been revised several times in the
recent past. Decontrolling price in a
monopolistic situation is adversely affecting
the interest of consumers. In the absence of a
coal market with competing suppliers, there is
a need to develop a transparent mechanism for
pricing domestic coal.
12. Currently there is no competition in
the coal sector and the public sector monopoly
continues. No regulatory framework is available
and in such a situation grievance redressal for
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Coal Sector Policy
consumers, particularly in regard to price/
quality disputes, is difficult. To raise the
commercial performance of the industry to
meet international standards and to sustain the
projected growth of energy sector, it is
important to address these issues.
13. Coal accounts for over 50% of India’s
commercial energy consumption and some 78%
of domestic coal production is dedicated to
power generation. Since prices were decontrolled,
the sector has become profitable
primarily as a result of price increases and the
rising share of the more remunerative open
cast production. The sector has also recorded
improvements in productivity but despite these
improvements, the coal sector scores poorly
against international comparators because of
excessive manpower, poor project formulation,
inefficient procurement, poor accounting and
financial management systems, low productivity
etc. Despite these inefficiencies domestic coal
is internationally competitive at mine-mouth.
In fact, coal at the mine-mouth is the only
primary or secondary form of energy in which
India is internationally competitive. Another
positive for the coal sector is its good safety
record when compared with international
experience.
14. A concern often voiced for India’s coal
sector is the inefficient exploitation of the inplace
coal reserves and the lack of control on
mining practices that could potentially be
sterilising significant parts of existing reserves.
Driven by short-run maximisation of economic
benefits if coal is mined in an open cast mine
only to the depth of 150 metres, and the
overburden is used to fill up the void, coal
lying in the lower horizon and reserves below
150 metres depth in the same horizon, then get
practically sterilised as it would be even more
uneconomic for subsequent exploitation using
conventional mining technologies. At current
levels of production growth, the known
extractable reserves will be exhausted in less
than 45 years. A large part of India’s coal
reserves may not be extractable with current
mining technologies. India must, thus, lead the
way for extracting this energy through in-situ
coal gasification in the interest of her energy
security.
15. Primary energy from the coal resources
can be augmented if mining plans exploit coal
efficiently and if coal bed methane as well as
mine-mouth methane is captured and used.
The needed technology is globally available
but has to be adapted to Indian conditions.
Similarly in-situ coal gasification can use coal
that is difficult to recover with conventional
mining. Technology for in-situ gasification
needs to be developed.
16. Most of India’s coal resources – proved,
indicated and inferred – are said to be within
300 meter depth. There is a concern that this
is an outcome of insufficient exploration of
deposits below 300 meters and a sense that
exploiting coal below that depth with
conventional mining is, in any event,
uneconomical for low quality coal. Detailed
coal exploration is almost exclusively done by
CMPDIL, which is a subsidiary of CIL.
Concern has been raised about CMPDIL’s
independence under this structure. Moreover,
CMPDIL’s drilling capacity is limited and this
has resulted in a limited detailed exploration
programme for proving reserves. CMPDIL
should be made an autonomous institute. Its
capacity should be strengthened and
exploration for coal should be opened up to
others just as exploration for petroleum has
been opened up.
17. Enlarging the coal resource base is
important to meet coal requirements. Under
the various scenarios coal requirement is
projected from a low of 1580 Mt to high of
2555 Mt for 2031-32 and about 1128 to 1870
Mt for 2026-27. Coal India Ltd. has targeted a
maximum production of 839 Mt by 2025 in its
‘Vision 2025’ document. Clearly, if India is to
avoid large-scale imports of coal, not only does
India need to increase the pace of growth in
coal production but also raise coal production
targets significantly. What this requires is to:
(a) increase the number of players in coal
mining; (b) since Coal India currently has
blocks with 70% of the proven reserves, deblock
those blocks that Coal India does not
propose to bring into production by 2016-17
and assign them to captive users with a
condition that these blocks be brought into
production by 2011-12; and (c) raise the
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Integrated Energy Policy
exploration effort significantly to prove
additional reserves.
18. Building domestic capacity for mining
equipment and significantly raising domestic
engineering capacity is necessary to achieve the
projected level of production.
19. India is the third largest coal producer
in the world but remains a marginal player in
international coal markets. Even domestically,
there is an absence of a coal market with bulk
of the sale taking place under a system of coal
linkages based on available rail capacity. Pithead
prices of coal are set by Coal India, the
monopoly producer. Railways, another
Government monopoly, cross subsidises
passenger traffic with coal freight thereby
making delivered price of coal 2-4 times the
pit-head price of coal in states such as Punjab,
Haryana, Rajasthan, Gujarat, Maharashtra, Goa,
Karnataka, Kerala, Tamil Nadu, Western U.P.
& Delhi.
20. The constrained supply of thermal coal
and the projected requirement of thermal coal
suggest the need to import coal. By the end of
the 11th Plan India’s import needs could rise
to 50-60 million tonnes of high quality thermal
coal. Import of coal will also put a competitive
pressure on the domestic coal industry to be
efficient. No significant import of thermal coal
is evident in the near future despite the fact
that long-term import contracts would make
imported coal competitive against domestic
coal at coastal locations in the above states.
The reason for this is the absence of coastal
power plants, inadequate port capacity and the
need to trans-ship imported coal on domestic
rail/road linkages to consumption points. While
power generated at pithead and delivered
through HVDC transmission lines can be
cheaper than power generated from imported
coal at coastal location, there is a limit to the
amount of generation that can be done at
pithead due to environmental considerations.
Coastal power plants based on imported coal
thus have an economic space (see BOX 11.1).
Thus India must:
Encourage coastal power plants based
on imported coal.
Develop the needed infrastructure for
coal imports.
21. Unlike in the rest of the world, coal in
India is sold without any “preparation” or
“dressing”. Simple deshaling, improved mining
procedures and sizing of coal could bring down
the average ash content of Indian coal to around
35% from the current level of over 40%. Full
washing could reduce the ash content further,
thereby saving transport costs and resulting in
more efficient power plant design and
operation. Only a small fraction of thermal
coal is actually “washed” in India. One of the
hurdles to washing is the prevailing unique
practice of pricing coal on grades based on
wide bands of Useful Heat Value (UHV) instead
of the fully variable system based on the more
precise Gross Calorific Value (GCV) as done
in the rest of the world.
22. In the light of the foregoing, the sector
is in serious need for market based reforms.
The following policy initiatives are suggested:
Policies not requiring legislative amendments:
Increasing Number of Coal Producers
Pending the passage of the Coal Mines
(Nationalisation) Amendment Bill,
2000, the number of players in coal
mining should be increased through
avenues available under the existing
legislation that permits mining by state
governments, public sector companies
and for captive use by recognised endusers
(power, steel and cement).
Captive block holders must be
permitted to sell incidental coal
surpluses during the development and
operation of a block to CIL. Groupcaptive
mines should be allowed for
small end-users, and a target must be
set for the Ministry of Coal to achieve
at least 100 Mt of captive production
by 2012.
Coal blocks held by Coal India Limited
(CIL) that cannot be brought into
production by 2016-17, either directly
or through joint ventures, should be
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Coal Sector Policy
BOX 11.1
Delivered Cost of Domestic and Imported Thermal Coal
Most of the domestic coal supplies to power sector fall under Grade E and F having average
delivered calorific value of 3500 kcal/kg against at least 6000 kcal/kg of imported coal.
Domestic and imported coal in terms of cost per million kilo calories of delivered heat value
at the consumer end were compared. It may be seen that the delivered cost of the power grade
Indian coal exceeds the cost of imported coal at port when transported to consumers beyond
1000 km. Further, imported coal is the cheaper option even with inland transportation of
some 500 km if domestic coal has to travel beyond 1400 km to reach the consumer.
Assumptions:
Domestic coal from mine to consumer and imported coal from port to consumer are being
transported by rail. Landed CIF price of imported coal having GCV of 6000 kcal/kg is taken
as US$60. Exchange rate assumed is Rs 44.50 per US$. Domestic coal price includes weighted
average notified price of coal for the respective grades, royalty, stowing excise duty,
transportation charges from mine to railway siding, central sales tax and rail freight. Landed
price of imported coal at port includes all applicable taxes and duties. However cost of
handling imported coal at the Indian port and transporting it to the railway siding for inland
transportation is not included. If this is done, the economical distance to which imported coal
can be transported inland will reduce further.
made available to other eligible
candidates for development with the
condition that they be brought into
production by 2011-12. Allottees of
captive blocks in general should be
required to work the block within a
specified time limit failing which
allotment should be cancelled and/or a
pre-agreed penalty imposed.
The gestation periods for the end-use
project may be different than that of
the coal mine. To ensure that both the
mine and the end-use project are
developed in a cost-effective manner
the innovative use of short-term
linkages can be made. This must be
linked with strictly enforced guarantees
that back performance related to both
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Integrated Energy Policy
the end-use project and the captive
mine.
Transfer pricing of coal from captive
mines needs to be established both for
the sake of assessing coal royalties as
well as tariffs in a regulated sector such
as power wherein coal cost is a pass
through. Even if power tariff is
determined on the basis of competitive
bidding, transfer price would be needed
to assess state levies/royalties.
Pricing of Coal
Ideally coal price should be determined
in a competitive market. This, however,
is not possible as long as the number
of suppliers are limited and as long as
for the largest coal consuming sector,
i.e. power, coal cost is passed through
and fully compensated in determining
electricity tariff. However, since other
users of coal are numerous and consume
substantial quantities of coal, a strategy
for competitive price discovery is
possible. We recommend as follows:
• High quality coking and noncoking
coals which are exportable
may be sold at export parity prices
as determined by import price at
the nearest port minus 15%. This
practise is currently being adopted
satisfactorily for supply of good
quality coking coal to the steel
industry.
• 20% of the total coal produced
should be sold through e-auctions.
For e-auctions to be successful, CIL
should, directly or otherwise,
ensure availability of coal and offer
it for sale to meet the total demand.
Quantities to be sold through
e-auction from different mines must
be determined annually with a
monthly mine-wise schedule to be
independently monitored and
enforced by a coal regulator.
• Remaining coal should be sold
under long-term Fuel Supply and
Transport Agreements (FSTAs).
Regulated utilities should be
allowed upto 100% of their certified
requirements through FSTAs.
Other bulk consumers may be
allowed partial FSTAs based on
coal availability. Any shortfalls in
requirement not covered by FSTAs
should be met through e-auction
supplies or imports.
• Pithead price of coal under FSTAs
should be revised annually by a
coal regulator on a basis that interalia
take into account prices
obtained through e-auction, FOB
price of imported coal (both
adjusted for quality) and domestic
production cost, inclusive of return
based on efficiency standards.
Replace the practice of grading coal
under wide bands of the empirically
determined UHV by the international
practice of grading coal based on GCV.
This is expected to encourage efficient
use of coal and promote use of washed
coal.
Coal prices should be made fully
variable based on Gross Calorific Value
(GCV) and other quality parameters.
Reducing Coal Cost
Rail freight rates for coal transport
should be rationalised. Cross subsidy
surcharges imposed on freight traffic
to benefit passenger fares must be
reduced. Alternate means for moving
coal through coastal shipping, river/
canal movement and coal slurry
through pipeline must be promoted
where feasible.
Infrastructure status should be extended
to the coal industry. Duties on capital
goods imported for coalmines must be
lowered to put them at par with duties
on imports for other energy sub-sectors.
There is a need to improve governance
for dealing with malpractices and
corruption in the coal industry. It is
common knowledge that there is a
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Coal Sector Policy
significant black market for coal
obtained through pilferage and illegal
mining of abandoned mines worked
by local inhabitants. Apart from the
loss of royalty to the state there is,
more importantly, loss of precious lives
resulting from unsafe mining practices.
Coal companies should be required as
per international practice to “prepare”
and “dress” coal prior to sale.
Facilitating production
Strategies for matching the growth of
infrastructure needed for movement of
coal to load centres should be aligned
with the growth of coal industry.
Wherever the techno-economic
parameters of the geological resource
demands development of underground
mine, related technology must be
encouraged by giving incentives to
operators because underground mining
helps preserve the land form and extract
deep seated resource.
National Rehabilitation and
Resettlement Policy for people affected
by coal/lignite mining projects should
be mooted. Such policy should be
acceptable to all state governments.
Grounding coal projects is often delayed
due to environmental regulations and
delays in getting approval for the
project’s Environmental Management
Plan (EMP). Simplification of
procedures, preparation of
comprehensive EMPs and
demonstration of environmental
responsibility on the ground can help
reduce such delays. A reserve of
compensatory afforestation built in
advance should be accepted against
specific project-wise commitments to
reduce such delays.
Notify in-situ coal gasification and coal
liquefaction as end-uses under the
current captive consumption policy.
This will encourage private enterprise
to invest in development of these new
technologies.
Regulation
Institute an independent regulatory
body to regulate upstream allotment
and exploitation of available coal blocks
to yield coal, coal bed methane, mine
mouth methane, coal to liquid and for
in-situ coal gasification. The proposed
Regulatory Body would, as an interim
measure, approve coal price revisions,
ensure supply of coal to the power
sector under commercially driven longterm
FSTAs, facilitate the development
of formulae/indices for resetting coal
prices under long-term fuel supply
agreements, monitor the functioning
of the proposed e-auctions, ensure that
the price discovery through e-auctions
is free of distortions, regulate trading
margins, develop a mechanism for
adequate quantities of coal imports
under long-term contracts to bridge
the gap between supply and demand
thereby assuring that the e-auctions and
consequent price discovery does not
take place in a supply constrained
market and, finally, create the
environment for a competitive coal
market to operate. Once the market
matures, all large consumers (including
power) will become part of a
competitive coal market with purchases
through both long-term FSTAs and eauctions.
It is stressed that once a
competitive market develops the role
of Regulator in determining the prices
would become one of merely ensuring
a free and transparent market for coal.
A key responsibility of the Regulator
would be to make India, with the third
largest reserves of coal in the world, a
long-term player in the highly liquid
international market for coal that
realises long-term trades under welltested
indices such as the Japan coal
import index.
The proposed Regulator must facilitate
replacement of current coal linkages
for power plants with FSTAs. As a
step towards abolishing coal linkages
completely, these linkages could be
made tradable in the first instance. This
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Integrated Energy Policy
is expected to make coal movements
more optimal and responsive to market
forces.
The Regulator must ensure that mines
are planned, designed and developed in
a scientific manner giving due
importance to coal conservation
thereby maximising percentage of coal
recovery from geological blocks.
The Regulator must standardise norms
of operation, establish benchmarks and
ensure that coal companies raise their
level of competence to be at par with
international standards.
Policies requiring legislative amendments:
Amend Section 3 of the Coal Mines
(Nationalisation) Act, 1973 to facilitate
(a) private participation in coal mining
for purposes other than those specified
and (b) offering of future coal blocks
to potential entrepreneurs through
competitive bidding.
Raise the domestic level of trading and
marketing of coal by removing it from
the list of essential commodities.
Amend the provisions of Contract
Labour (Regulation & Abolition) Act,
1970 to facilitate offloading of certain
activities in coal mining for improved
economics of operations.
123
Oil and Gas Sector Policy
The Indian Petroleum industry is one
of the oldest in the world. Oil was struck at
Makum near Margherita in Assam in 1867.
The industry has come a long way since then.
At the time of independence in 1947, the
country produced about 0.25 Mt of crude oil
in Assam and refined 0.23 Mt of crude oil.
Digboi was the only refinery and the market
infrastructure was confined to urban and well
populated areas.
2. The Indian petroleum industry in the
post independence period (1947-2005) has passed
through three distinct phases
Early phase (1947 to 1969)
Development phase (1970 to 1990)
The economic liberalisation phase
(1991-2005)
3. Historically, the Indian petroleum
industry was controlled by few Anglo-
American companies. They maintained their
dominance till the end of 1950s. After
independence, the newly independent state
wanted to play a significant role in this vital
industry. The industry policy resolutions of
1948 and 1956 had clearly stated the
government’s aspiration and future plans for
core industries like petroleum. All future
development of the petroleum industry was
reserved for public sector undertakings. But
foreign assistance was a necessity at least in the
early stages. It was recognised that majority
ownership and effective control of critical
industries like petroleum should always rest in
Indian hands and the need for developing an
independent and self-reliant petroleum industry
was felt. The industrial Policy Resolution of
1956 specifically increased the role of public
enterprises, and led to the creation of Oil &
Natural Gas Commission (ONGC), for
exploration and production, and Indian Oil
Corporation (IOC) for refining and marketing.
The Government took over the multinational
controlled petroleum companies like Burmah
Shell, Esso and Caltex between 1974-79. Oil
India limited (OIL) which was a Joint Venture
Company with equal share of Burmah Oil
Company and Government of India became a
wholly owned PSU in 1981.
4. The steep increase in oil prices during
1973-74 and hardly any increase in indigenous
production of crude oil put a heavy burden on
the economy due to an escalating import bill.
To meet this challenge, augmentation of
indigenous production of hydrocarbons and
their accelerated exploitation became the key
element of planning and development strategies.
Both ONGC and OIL took up the challenge
and formulated ambitious exploration
programmes. The exploration efforts yielded
results in the form of discoveries of oil and gas
in a number of fields in the Bombay Off-shore
area. Oil was struck in Bombay High in 1974.
This led to substantial increase in the
production of crude oil thereby reducing the
oil import bill considerably. Another
prominent discovery was the South Bassein gas
field. Exploration was extended to other
offshore areas like the Eastern coast and off the
Andaman Islands, with varying degrees of
success.
5. The liberalisation and globalisation
processes started in 1991 have thrown up many
opportunities and challenges for the Petroleum
& Natural Gas Sector in India. To increase
domestic production of crude oil and natural
gas, the New Exploration Licensing Policy
(NELP) was launched in 1997-98. 110 blocks
have been awarded under the five bidding
rounds under this policy. The sixth round of
bidding (NELP-VI) for 55 blocks has recently
been announced. The acquisition of equity oil
& gas abroad in a number of countries is also
Oil and Gas Sector Policy
Chapter XII
124
Integrated Energy Policy
being pursued by both PSUs and Private Sector
companies. In order to meet the shortfall in
the demand of natural gas, imports from Iran,
Myanmar and Central Asian Countries through
transnational pipelines are being pursued. The
import of gas in the form of liquefied natural
gas (LNG) has already started at the Dahej
LNG terminal in 2005. Other avenues for
import of LNG are also being explored.
6. The consumption for petroleum
products including refinery fuels grew from
2.72 Mt in 1947 to 120.17 Mt in 2004-05.
Excluding refinery fuels, the consumption of
petroleum products in 2004-05 was 111.59 Mt.
India exported 18.21 Mt of products in 2004-05
and product exports have risen to 21.5 Mt in
2005-06. However, domestic consumption in
2005-06 rose only marginally to reach 111.92
Mt. India is now a net exporter of petroleum
products. The crude oil production, which had
increased from merely 0.25 Mt in 1947-48 to
33.02 Mt by 1990-91, has stagnated since then.
The balance requirement has been met through
imports. With the setting up of a number of
refineries over the years, the country is selfsufficient
in its refining capacity which
currently stands at 132.47 Mt. A number of
refineries are either expanding their capacity
or planning new investments with a view to
export products. Net of export, domestic
production of crude met about 28% of the
country’s requirement and the balance 72%
was imported in 2004-05. With the increasing
prices of crude oil in the international market,
the oil import bill and oil security are causes of
concern. To reduce the gap between demand
and supply, in addition to enhanced production
of crude oil & natural gas, the oil companies
are seeking opportunities to tap coal bed
methane, blend motor spirit with ethanol and
promote bio-diesel as a diesel substitute and/or
for blending with diesel. However, these efforts
have yet to make any impact.
7. With a view to create competition,
new entrants are being allowed to market
transportation fuels namely, motor spirit, high
speed diesel and aviation turbine fuel since
March, 2002. The Government has issued retail
licenses to Reliance Industries, Essar Oil, Shell,
ONGC, Mangalore Refineries &
Petrochemicals Limited and the Numaligarh
Refinery.
8. With the recent discoveries in the
Krishna-Godavari basin, domestic natural gas
is expected to become the second most
dominant commercial energy source in India.
Efforts are being made to raise import of
natural gas in the form of LNG and through
transnational gas pipelines. The rising price of
natural gas, though, would make it
uncompetitive for use in the power sector.
9. Till 1975, the prices of petroleum
products were based on import parity prices.
Based on the recommendation of the Oil Price
Committee of 1976, the Administered Price
Mechanism (based on a retention pricing
concept) was introduced. This mechanism was
dismantled in a phased manner starting
October, 1998 to 31st March, 2002. From 1st
April, 2002, the prices of petroleum products
except domestic LPG and Kerosene for Public
Distribution System (PDS) are again being
fixed on an import parity basis. However,
with the recent steep increase in the prices of
crude, the government has put on hold the
increase in prices by the oil companies. The
issue of pricing of petroleum products is under
review.
10. With a view to protect the poorer
section of the society; subsidies on kerosene
and Liquefied Petroleum Gas (LPG) had been
introduced. These subsidies were to be phased
out by 31st March 2002, but this was not
done. A flat subsidy rate under “PDS Kerosene
and Domestic LPG Subsidy Scheme, 2002”
was approved. The subsidy was equal to the
difference between the cost price and issue
price as on March 31st, 2002 and was to be
phased out in 3 to 5 years. The oil marketing
companies (OMCs) were to adjust the retail
selling prices of these products in line with
international prices during this period. Again,
this has not been done and with the
unprecedented sharp increase in the
international prices, the under recoveries of
OMCs on these accounts have been rising and
seriously affecting their profitability. The
Government has been making good these losses,
in part, by asking upstream companies to offer
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Oil and Gas Sector Policy
discounts on the price of domestic crude and
by issuing GOI bonds to the oil marketing
companies.
11. The petroleum and gas sector is also
devoid of any competition or independent
oversight of either its upstream or the
downstream activities. Despite the dismantling
of the Administered Price Mechanism, the GOI
continues to control the pricing of automotive
fuels, LPG, a large part of domestic natural
gas, and PDS kerosene. Again despite the
presence of several domestic, public and private
players as also some foreign groups, there is no
real competition in the sector except in
peripheral products such as lubricants. In fact,
the prevailing pricing & taxation policies and
the market structure provide significant
protection to refineries. The result is that India’s
refining capacity exceeds the demand by 18%
already.
12. Competition is limited in the
downstream sector to cornering retail outlets
and is often wasteful. Efficiencies in retailing
can only be realised if companies are allowed
to set their own prices and entry barriers for
new entrants are dismantled. These barriers
currently include minimum investment
requirements and lack of open access to certain
marketing infrastructure. The Petroleum &
Natural Gas Regulatory Board Act, 2006 has
already been notified and should, hopefully,
raise the level of competition in the sector on
level terms.
13. On the upstream side, the dominance
of the public sector continues although in
recent rounds of bidding under New
Exploration Licensing Policy (NELP) domestic
private sector and state sector participation
and, to a more limited extent, foreign
participation has emerged. India’s currently
known oil and gas reserves will be exhausted
in 23 years and 38 years respectively at current
production levels. While exploration has not
resulted in any significant new oil find, large
gas finds have been reported though uncertainty
still prevails with respect to precise gas
availability. The current upstream regulation
provided by DGH is neither independent nor
comprehensive in a technical sense with respect
to optimal development of the hydrocarbon
resources.
14. Given its lack of success in finding oil
and gas in the Indian sedimentary basin, ONGC
has been successfully acquiring equity oil and
gas overseas. While these are largely commercial
opportunities, they do help energy security
concerns to the extent that they increase access
to a more diversified supply base under certain
eventualities. Indian Oil Corporation has also
successfully tapped retailing and refining
opportunities overseas. Other players have also
looked at various opportunities overseas but
with little success. The risks of the overseas
operations are largely being carried on the
balance sheets of the parent Indian companies.
15. The following policy initiatives are
suggested for the oil and gas sector:
Pricing of Petroleum Products
Full price competition at the refinery
gate and at the retail level for all
petroleum products should be pursued.
Differential pricing in different markets
may be permitted to reflect the cost of
supply. State governments may choose
to subsidise prices in remote areas in a
transparent manner through their
budgets. Similarly, the Central
Government could subsidise certain
strategic consumption or lifeline energy
consumption transparently through its
budget.
In case of products wherein demand
far exceeds available supply, exceptions
may be made to the above policy of
full competition. Such products may
need to be allocated for specific enduses
and priced differently based on
economically valid arguments. As an
example, the case of pricing and
allocating gas has been detailed under
Chapter V.
Till such competition is introduced we
may use a pricing mechanism that
mimics it. The pricing mechanism of
petroleum products on import parity
basis needs to be replaced by a trade
parity basis i.e. products for which the
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Integrated Energy Policy
country is a net exporter/importer over
a specified time period should have
export/import parity prices. A product
for which the country is self-sufficient
should have a price in between the two
depending on the price elasticity of
demand for the product in the domestic
market. Trade parity pricing should
ideally be a short-term measure; the
most preferred option being price
competition at the refinery gate and at
the retail level.
The domestic economy may have to
be protected against short-term
volatility in the International market
caused by speculators and manipulators.
An option to achieve this could be to
allow price adjustments based on
lagging 1-3 month average prices,
thereby forcing oil companies to use
short-term hedging. Another alternative
would be to use long-term supply
contracts linked to a variety of more
stable energy price indices. In a period
of continuously rising prices the
government can adjust the ad-valorem
taxes and levies in a revenue neutral
manner to cushion the price rise for
the consumer. Of course any persistent
price change that cannot be absorbed
by change in taxes and duties, should
be passed on to the consumers.
Petroleum & Natural Gas Regulation
There is a need to have an independent
regulatory body to regulate upstream
allotment and exploitation of available
oil and gas reserves and provide
downstream regulation that primarily
ensures competition on level terms in
refining, transportation, distribution
and retailing of oil and gas. The
Regulator must review the current
regime that limits competition from
both foreign and domestic private
players in the downstream sectors. A
key responsibility of the Regulator
would be to enforce universal service
obligations by marketing companies
active in a region as well as universal
and subsidised access to PDS kerosene
and LPG by the intended beneficiaries.
The notification of the Petroleum &
Natural Gas Regulatory Board Act,
2006, is thus welcome.
On the upstream side, Directorate
General Hydrocarbons (DGH), an arm
of the Ministry, oversees allocation and
exploitation of oil & gas reserves and
enforces profit sharing with exploration
& production companies. The current
arrangement needs to be strengthened
and made independent.
Subsidy
The high price difference between
kerosene and diesel (Rs.21 per litre in
2005-06) leads to large-scale diversion
of kerosene from the public distribution
system to adulteration of diesel.
Similarly, differential pricing of LPG
for domestic and commercial use leads
to leakages increasing the burden of
subsidies. The mechanism for subsidised
supply of kerosene and LPG needs to
be revised so as to make it transparent
and directed only to the targeted
beneficiaries. For this purpose, the
possibility of introducing a coupons
and/or smart/debit cards directly to
the intended beneficiaries should be
explored. This would eliminate dual
prices for kerosene and LPG in the
market. Further, the subsidies on these
products should be charged directly to
the budget and not loaded on to the oil
companies.
Ministry of Petroleum & Natural Gas
(MOP&NG) could bid out available
subsidies for LPG and kerosene to
obtain the lowest price at which a
given amount of these products could
be supplied to a defined number of
targeted beneficiaries or on the basis of
the minimum subsidy at which these
could be supplied in specified quantities
and at specified price to the targeted
number of beneficiaries.
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Oil and Gas Sector Policy
Reserve Enhancement and Competition
The assessment of the sedimentary
basins and development of
unconventional hydrocarbons such as
shale gas, biogenic gas and tight gas
reservoir/basins needs to be accelerated,
and outsourcing of the evaluation of
potential should be undertaken
wherever needed.
Provide level terms for foreign
operators willing to bring technology
and investment to recover oil/gas from
currently abandoned and/or marginal
fields with the right of first refusal to
acquire any/all of the production on
competitive terms.
All non-dedicated transportation and
distribution assets in the oil and gas
sector including facilities at ports and
airports should provide services and/
or access to competing suppliers under
common carrier principles.
Follow international best practices
governing the declaration of
hydrocarbon finds and claims relating
to in-place reserves discovered,
acquisition of required technologies and
pooling of development risks so as to
maximally exploit a reserve in a timely
fashion. This is critical to India’s energy
security concerns.
The Mumbai High Crude is lighter
and sweeter than general crude average
and can fetch a higher price. Its price
may be discovered through an open
auction wherein Government can mop
up incremental revenue.
In line with crude oil and coal, Natural
Gas and LNG may also be included in
the category of declared goods so that
a central sales tax of 4% is levied on
them and exemption from any state
sales tax is extended.
Instead of a piecemeal approach to
reform in the petroleum and natural
gas sector, there is a need to implement
a comprehensive reform package
including pricing, regulation, industry
structure, subsidies, etc.
Raise the level of diplomacy to access
hydrocarbon reserves overseas and
realise gas pipelines to India.
Importing LNG through long-term
contracts provides a flexible alternative
to pipelines. Since the global gas market
has developed and LNG trade has
increased, the price of natural gas is
likely to match the opportunity cost
of selling it as LNG.
Strategic Reserves
Maintain a reserve of strategic-cumbuffer
stock equivalent to 90 days of
oil imports and/or buy options for
emergency supplies from neighbouring
large storages such as those available in
Singapore. Operating the strategic
reserves in cooperation with other
countries who maintain such reserves
could also increase their effectiveness.
Natural Gas Allocation and Pricing
Natural gas price can be determined
through competition among different
producers where multiple sources and
a competitive supply-demand balance
exist. As long as there is shortage of
natural gas in the country and the two
major users of gas, namely fertiliser
and power, work in a regulated cost
plus environment, a competitive market
determined price would be highly
distorted. Such distortions would get
further amplified by the prevailing
regime of fertiliser subsidies & power
sector subsidies and cross subsides. In
such a situation price of domestic
natural gas and its allocation should be
independently regulated on a cost plus
basis including reasonable returns.
Another option could be to price gas
on a net-back basis. Should a scenario
wherein gas becomes 10-12% of India’s
energy mix materialise by 2031-32,
some 60% of the gas supply will be
used for power generation. This would
mean that beyond the level of gas
consumption in the fertiliser,
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Integrated Energy Policy
petrochemical, automotive and
domestic sectors, gas must compete
with coal as the key alternative for
power generation. This implies that
the cost of generating peak or base
electricity using gas cannot exceed the
cost of peak or base electricity from
coal, the cheapest alternative. A
competitive coal market is thus
important for setting a proper price of
natural gas on a net-back basis. An
alternative for a gas producer is to
export gas, in which case the domestic
gas price could be the net realisation of
the domestic natural gas producer after
investing and getting a return on the
investment needed to make the natural
gas tradable across borders through
either a trans-border pipeline or
through liquefaction and shipping
facilities. This suggests that in the shortterm,
natural gas prices should be
determined on a cost plus basis by an
independent regulator.
Gas Pipeline Network
The Petroleum and Natural Gas
Regulatory Board Act, 2006, provides
that the Regulator shall moderate access
to gas pipelines as common or contract
carriers. The Regulator shall also ensure
fair trade and competition amongst
entities, specify the pipeline access code,
ascertain transportation rates for
common or contract carriers and
determine access to city or local natural
gas distribution networks so as to
ensure competition amongst entities as
per the pipeline access code. These
provisions would pave the way for
accelerated development of the gas
pipeline network in the country.
Using Gas Abroad
In case India can use diplomacy to
access cheap natural gas under longterm
(25-30 years) arrangements, it
should consider setting up captive
fertiliser and/or gas liquefaction
facilities in such countries. This would
essentially augment energy availability
for India.
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Energy-Environment Linkages
In order to achieve sustainability in the
energy chain, it is important to identify,
measure, value, and integrate the environmental
impacts of activities in the energy sector.
Environmental concerns are associated with all
forms of energy including fossil fuels, nuclear
energy, and renewables, throughout the energy
chain from exploration/mining, transportation,
and generation to end-use. However, the precise
nature, intensity, and spatial extent of
environmental impacts varies across different
energy forms. These effects can occur at the
household, local, regional, national or global
levels. India, with its size, diversity and current
pace of growth, needs to use and to develop all
forms of energy sources optimally, in particular
to be able to meet its poverty alleviation goals.
13.1 ENERGY SUPPLY SIDE:
ENVIRONMENT CONCERNS
2. Energy production and use often
involves environmental externalities. These
externalities, as well as any social externalities
such as for example, the social value of
employment created in a bio-diesel programme,
need to be economically valued and
appropriately reflected in the prices of various
fuels and energy sources.
Studies should be carried out to
determine the economic value of
externalities in the production and use
of different sources of energy.
13.1.1 EXPLORATION, PRODUCTION AND
TRANSFORMATION OF FOSSIL FUELS
3. The environmental impacts of various
energy options are of growing concern owing
to increasing and widespread use of energy.
Coal mining, exploration and production of
oil and gas (both on and off shore) have a wide
range of adverse environmental impacts. Some
of these impacts may be reversible, but many
are irreversible. Some of the adverse
environmental impacts of open cast mining
may be contained, but on the other hand, the
loss of biodiversity due to loss of, or severe
disturbance to, habitats may be irreversible.
Advanced technologies and better management
practices may, however, reduce environmental
impacts. For example, by using the latest
exploration and drilling technologies, the
Energy-Environment Linkages
Chapter XIII
Table 13.1
Environmental Impacts Associated with Energy Transformation Based on Fossil Fuels
Stage of fuel cycle Natural gas Oil Coal
All stages/all fuels CO2, CH4, N2O, NOx, CO, Reactive organic gases, Hydrocarbons, partial
trace metals, and thermal pollution
Exploration/Mining Drilling accidents, sludge Drilling accidents, Mining injuries, land
sludge, SO2 degradation, SO2, NOx
Processing/Refining Refinery accidents, Refinery accidents, SO2, SPM
waste disposal waste disposal SO2
Transport/distribution Pipeline accidents, Pipeline accidents, SPM, SO2, NOx,
Liquefied natural oil spills, SO2 CO, CO2
gas explosion
Conversion/electricity Ash disposal, SO2 Fly ash SO2, CO2,
generation NOx, Sludge
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Integrated Energy Policy
adverse impact of petroleum exploration on
natural ecosystems can be minimised.
Transportation of coal and petroleum products
by rail, road and sea also causes considerable
environmental damage. Pollutants associated
with the combustion of fossil fuels SPM, SOx,
NOx, and CO2 either in transformation
activities (to petroleum products or power and
heat combustion) or in end-uses pose a major
threat to both ecological and manmade
resources, and to human health. Additionally
the poor calorific content of Indian coal implies
that the disposal of fly ash generated in thermal
power plants is a major concern. Some of the
environmental impacts associated with energy
based on fossil fuels are summarised in the
Table 13.1.
13.1.2 ENVIRONMENTAL IMPACTS OF
NUCLEAR POWER
4. While SPM, CO2, SOx, and NOx,
emissions and waste disposal are dominant in
the context of generating energy from fossil
fuels, nuclear power is associated primarily
with risks of radioactive release. Environmental
impacts identifiable at various stages of the
nuclear fuel cycle are: mining (accidents, release
of radon gas and radioactive dust from Uranium
mines and mills), radioactive seepage from waste
and land degradation, processing (accidents),
transport (accidents, risk of proliferation), and
electricity generation (risk of catastrophic
accidents, low and high level radioactive wastes).
Additionally, decommissioning of nuclear
plants entails the disposal of radioactive wastes.
While significant technological development
has been made in the area of radioactive waste
disposal and decommissioning, they are yet to
be proven at large enough scale to satisfactorily
resolve economic issues. However, despite these
risks, global data suggests that of all the
conventional energy options, nuclear energy
has posed the least risks in terms of mortality
per billion megawatt hours of generation.
13.1.3 ENVIRONMENTAL IMPACTS OF LARGESCALE
HYDROPOWER
5. The major impacts of large hydro
projects are rather site specific, and in particular,
centre around submergence of land and
displacement of traditional communities from
their ancestral domains. Such displacement
inflicts a high social cost including change in
the resource base of traditional culture and a
loss of livelihood. In such cases, rehabilitation
efforts can address only a part of the social
costs experienced. In addition, loss of pristine
natural forests and its associated unique
biodiversity may occur due to submergence.
Methane emissions, a major greenhouse gas,
may also be emitted in large quantities if
insufficient care is taken to remove vegetative
matter susceptible to anaerobic microbial
processes from the submerged area.
Submergence of large areas may also increase
the risk of seismic events, for which dams need
Table 13.2
Supply Side, Local and Regional Environmental Impacts
Impact/Option SO2, Solid Liquid Thermal impact Flora, Forest Involuntary
NOxTSPs Waste effluent on receiving Fauna loss resettlement
waters impacts
Thermal power Y Y Y Y Y Y Y
(inc. Mining)
Hydro-power N N N N Y Y Y
Nuclear Power N Y Y Y Y Y Y
(inc. Mining)
Petroleum Y N Y Y Y Y Y
(inc. Mining)
Transmission N N N N Y Y Y
& pipelines
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Energy-Environment Linkages
to be designed, for if they lead to failure of the
dam structure, it may be catastrophic for
downstream populations. Other adverse impacts
include the spread of water-borne disease, such
as schistosomiasis.
6. Table 13.2 summarises the supply side
environmental impacts of the major forms of
conventional energy options:
13.1.4 ENVIRONMENTAL IMPACTS OF
RENEWABLE ENERGY
7. Energy from renewable sources is
generally viewed as involving lower
environmental impacts than that based on fossil
fuels, nuclear and large hydropower. The main
environmental benefits of renewable energy
sources is that they avoid the air pollution
emissions from fossil fuels and the catastrophic
risks associated with nuclear plants. Small hydro
projects may also help conserve water supply.
Biomass based systems promote the cultivation
of energy crops in wastelands and help arrest
land degradation. Nevertheless, renewable
energy sources may also cause environmental
degradation of a different kind. Unsustainable
use of biomass leads to depletion of forests,
wind energy may cause noise, result in bird
mortalities, and despoil the aesthetics of
landscapes. Large arrays of solar photovoltaic
panels put considerable demand on land and
impair aesthetics. Use of chemicals in the
manufacture of solar panels and use of lead
acid batteries cause several adverse
environmental impacts. While bio-energy is
generally considered carbon neutral over the
vegetation life cycle, the potential
environmental impacts of such projects can
include impacts on soil and water resources in
addition to an increased competition for landuse.
Since net carbon emissions correspond
only to net deforestation, sustainable harvested
biomass fuels do not add to green house gases.
13.2 ENVIRONMENTAL DIMENSIONS
OF DEMAND SIDE IMPACTS
8. The end-use of energy may also impose
severe environmental costs. Industrial and
vehicular emissions have assumed serious
proportions in urban areas. Petrol-driven
vehicles are the major source of CO emissions,
contributing over 85% of total emissions, while
diesel-driven vehicles are the major source of
NOx, contributing over 90% of total emissions.
Improper use of energy in the agricultural
sector has resulted in the depletion of
groundwater in several parts of the country.
Indoor air pollution due to the domestic
consumption of both traditional and
commercial fuels is most likely the second
largest source of disease, particularly among
women and children, in the country.
9. To understand the demand side of
energy-environment interactions, one can begin
with an impact matrix that classifies each fuel
by key end-use, environmental effects,
indicators, and level of impact. For example,
diesel fuel is (a) commonly consumed in trucks
and buses; (b) has negative impacts on
respiratory health, acid deposition, lead
contamination and related health ailments, (c)
has effluents of CO and particulates that can
be measured; and (d) generates environmental
impacts at the community, local and regional
levels. To go beyond this simple level of matrix
analysis requires an assessment of the causes of
energy related environmental concerns,
information on the physical amounts of
pollution from each source that users are
exposed to, and a quantification of impacts
according to indicators for human health, the
economy, and/or ecosystems.
13.3 UNDERSTANDING THE
DETERMINANTS OF AIR
QUALITY
10. Typically, the exhaust gases from
burning coal and oil contain particulates (SPM),
sulphur oxides (SOx), nitrogen oxides (NOx),
and volatile organic compounds (VOCs). The
concentrations of these pollutants in exhaust
gases is a function of the firing configuration,
operating practices, and fuel composition. Gas
fired plants produce negligible quantities of
total particulates and the level of nitrogen
oxides are about 60 percent compared to plants
using coal. A number of factors during energy
transformation (power generation and use of
petroleum products in transportation) affect
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Integrated Energy Policy
air quality. The knowledge of the direction
and size of all these factors and their interaction
is important for developing an effective
mitigation strategy. These factors include:
(1) Composition and characteristics of
emission sources including:
• Absolute emission levels
• Height of emissions
• Location of emissions
(2) Meteorological parameters such as
rainfall, wind velocity, thermal
inversion etc.
13.3.1 LEVELS AND TREND ANALYSIS OF
URBAN AIR QUALITY IN FIVE MAJOR
INDIAN CITIES
11. Historically, the national ambient air
quality standards have differed by land-use,
with the most stringent standards set for
“sensitive” areas, followed by “residential, rural,
and other areas”; and the most lenient standards
set for “industrial” areas. Figures 13.1 and 13.2
provide SPM, RSPM, SO2 and NO2
concentrations for Delhi, Kolkata, Mumbai,
Hyderabad and Chennai from 1993 to 2005.13
12. For the most part, in all five cities
except Chennai, were not in compliance with
the national annual average air quality standards
for residential area for particulate matter during
the period from 1993–2005, and particulate
pollution remains a cause of concern today.
The air quality data takes into consideration
various energy transformation activities in these
cities. However, figures for SPM and RSPM
levels also include other activities such as
construction, etc. In addition, in several cities,
high levels of natural air-borne dust may have
contributed to the SPM/RSPM levels exceeding
the standards.
13. In contrast to particulate matter, annual
average SO2 concentrations were low during
the same period and in compliance with the
national annual average standards of 60
microgram per meter cube for residential areas.
NO2 concentrations were also low, except in
Delhi and Kolkata. Overall, by comparison
with SPM, these two gas pollutants do not
seem to be a major problem. However, with
our growing energy requirements and
consumption levels of fossil fuels, the problem
of local and regional air pollution should be an
important concern of energy policy.
13.4 LONG-TERM SUSTAINABILITY
OF INDIA’S ENERGY USE
13.4.1 LOCAL AND REGIONAL IMPACTS
14. The question of long-term sustainability
of India’s energy sector in relation to
environmental impacts at local, regional, and
national level is important. In order that future
growth is sustainable, it needs to be resourceefficient
and environmentally accountable. The
challenge is to thus use conventional energy
resources in a manner, which cost-effectively
maintains environmental quality.
Environmental taxes and subsidies based
on a consistent application of the
“polluter pays” principle or “user pays”
principle can go a long way in
preserving environmental quality. This
would be relatively easily
implementable for organised
establishments.
In cases where such taxes and subsidies
are not easy to administer and
transaction costs are high, alternative
policies such as setting emission and
energy consumption standards on
equipments may be followed. Some
specific policies are discussed in the
chapter on Energy Efficiency.
Environmental impact assessment of
power plants, dams, mines,
infrastructure, construction etc., are
already required. Environmental
conditionalities and ameliorative actions
should be specified to maintain the
desired level of environmental quality.
13 Source: For a Breath of Fresh Air, The World Bank, June 2005, updated with recent data
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Energy-Environment Linkages
Figure 13.1
Air Pollution in Residential AreasAnnual Average SPM Concentrations
Annual Average RSPM Concentration
Annual Average SO2 Concentration
Annual Average NO2 Concentration
134
Integrated Energy Policy
Figure 13.2
Air Pollution in Industrial AreasAnnual Average SPM Concentrations
Annual Average RSPM Concentration
Annual Average SO2 Concentration
Annual Average NO2 Concentration
135
Energy-Environment Linkages
13.4.2 INDIA’S APPROACH TO CLIMATE
CHANGE
15. Climate change, resulting from
anthropogenic emissions and increasing
concentrations of a suite of gases (called
“greenhouse gases” or GHGs) mainly due to
fossil fuel use, certain agricultural and industrial
activities, and deforestation, has the potential,
over the next few generations, to significantly
alter global climatic conditions. This would
result in large changes in ecosystems, leading
to possibly catastrophic disruptions of
livelihoods, economic activity, living
conditions, and human health. On the other
hand, the abatement of GHGs involves
significant economic costs.
16. While climate change is a global
environmental issue, different countries bear
different levels of responsibility for increases
in atmospheric GHG concentrations. Further,
the adverse impacts of climate change will fall
disproportionately on those who have the least
responsibility for causing the problem, in
particular, developing countries including India.
17. Though India is a signatory to the
United Nations Framework Convention on
Climate Change (UNFCC), she is not required
to contain her GHG emissions. India’s policies
for sustainable development, by way of
promoting energy efficiency and the use of
renewable energy, changing the fuel mix to
cleaner sources, energy pricing, pollution
abatement, afforestation, mass transport in and
of themselves result in a relatively GHG benign
growth path.
18. India’s GHG emissions in 1994 were
1228 million tonne (Mt) CO2 equivalent, which
is below 3% of global GHG emissions.14 In
per-capita terms, it is 23 percent of the global
average, and 4 percent of USA, 8 percent of
Germany, 9 percent of UK and 10 percent of
Japan’s per-capita emissions in the same year.
In terms of the GHG intensity of the economy
in Purchasing Power Parity terms, India emitted
a little above 0.4 tonne CO2 equivalent per
1000 US dollars in 2002, which is significantly
lower than those of the USA and the global
average. In terms of primary energy use, India’s
share of renewable energy (with zero net GHG
emission) at 36 percent is far higher than
industrialised countries can hope to reach in
many decades. Since GHG emissions are
directly linked to economic activity, India’s
economic growth will necessarily involve
increase in GHG emissions from the current
extremely low levels. Any constraints on the
emissions of GHG by India, whether direct,
by way of emissions targets, or indirect, will
reduce growth rates, and impair pollution
abatement efforts.
19. Anthropogenic climate change,
significant responsibility for which clearly does
not lie with India, may, on the other hand,
Table 13.3
India Approved CDM Projects
No. of Projects CERs till 2012* Investment (Rs Cr)
Energy Efficiency 98 70,834,710 2973
Fuel Switching 15 28,307,202 4894
Industrial Process 19 71,665,674 558
MSW 7 3,871,096 256
Renewable 72 32,391,075 6934
Renewable (Biomass) 86 29,641,607 3477
Total 297 236,711,364 19092
*CER (Certified Emission Reduction) = One Tonne of CO2 eq abatement
14 Source: India’s Initial National Communication to the UN Framework Convention on Climate Change
(UNFCCC), 2004.
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Integrated Energy Policy
have severe adverse impacts on India’s
precipitation patterns, ecosystems, agricultural
potential, forests, water resources, coastal and
marine resources, besides the increase in range
of several disease vectors. Large-scale resources
would clearly be required for adaptation
measures for climate change impacts, if
catastrophic human misery is to be avoided.
20. As the global concern vis-a-vis climate
change grows and as the threat of climate
change is perceived to be real, pressures on
India to contain GHG emissions will rise.
India should be willing to contain her GHG
emissions as long as she is compensated for the
additional cost involved. India acceded to the
Kyoto Protocol on 26 August 2002. The
Government of India established National
CDM Authority (NCDMA) in December 2003,
with its office in Ministry of Environment and
Forests. As of 8th May 2006, a total of 297
projects have been approved by the NCDMA.
These projects expect emissions reduction of
236 Million CERs till 2012 at a potential total
investment of more than Rs.190 Billion. Table
13.3 below gives the sector-wise break up of
approved projects and the expected total
emission reductions.
21. India recognises the possibilities of
selling GHG emission reductions. We should
choose options that permit doing so at a later
date when it is found to be attractive. In any
case, for us the imperative is to push energy
efficiency, promote modern renewables,
develop new technologies that augment our
energy supply such as in-situ coal gasification
that also provides scope for carbon capture,
and emphasise nuclear power. All of these will
automatically help reduce the GHG emissions.
137
Concluding Comment
India faces an enormous challenge if it is to meet her energy requirement over the coming
25 years and support a growth rate of 8 percent. This challenge can be met with a coherent
approach, which develops all available energy resources. The main areas of action, for which
detailed policy recommendations have been made, are as follows:
Reducing energy requirements through energy efficiency and conservation.
Augmenting energy resources and supply.
Rationalisation of fuel prices to mimic free market prices that promote efficient fuel choice
and substitution.
Promoting coal imports.
Accelerating power sector reforms.
Cutting cost of power.
Encouraging renewables and local solutions.
Enhancing energy security.
Promoting and focusing energy R&D.
Promoting household energy security, gender equity and empowerment through targeted
entitlements for the poor.
Creating an enabling environment and regulatory oversight for competitive efficiency.
The broad policy framework and the development thrusts suggested here need to be made
more specific in certain areas. Once the policy framework is accepted, it will be necessary to chalk
out roadmaps of development and draft specific policy measures for implementation.
With implementation of the recommendations of the Committee, India can meet her
energy requirements in an efficient, cost effective way and be on a path of sustainable energy
security.
Concluding Comment
138
Integrated Energy Policy Annexure-I
No.M-11011/1/2004-EPU (P&E)
Government of India
Planning Commission
Yojana Bhavan, Sansad Marg,
New Delhi, 12th August 2004
ORDER
SUBJECT: SETTING UP OF AN EXPERT COMMITTEE TO FORMULATE ENERGY
POLICY
In pursuance of the decision taken by Prime Minister and Deputy Chairman, Planning
Commission to set up an Expert Committee to prepare an integrated energy policy linked with
sustainable development that covers all sources of energy and addresses all aspects including energy
security, access and availability, affordability and pricing, efficiency and environment, it has been
decided to set up an Expert Committee to formulate Energy Policy.
2. The composition of the Expert Committee is as under:
1. Dr. Kirit S. Parikh, Member, Planning Commission-Chairman
2. Shri Jagmohan Bajaj, ex-Chairman, SERC, UP
3. Prof. Rangan Banerjee, IIT, Bombay
4. Shri Pradeep Chaturvedi, Representative of the Institution of Engineers (India)
5. Sh. Gajendra Haldia, NCAER
6. Mr. Ajit Kapadia, Vice Chairman, Centre for Fuel Studies & Research, Vadodara
7. Dr. Urjit R. Patel, Chief Policy Officer, IDFC
8. Sh. Subimal Sen, Member, West Bengal Planning Board
9. Shri T.L. Shankar, Administrative Staff College, Hyderabad
10 Dr. Leena Srivastava, Executive Director, TERI
11. Secretary, Ministry of Power
12. Secretary, Ministry of Petroleum and Natural Gas
13. Secretary, Ministry of Coal
14. Secretary, Ministry of Non-Conventional Energy Sources
15. Secretary, Department of Atomic Energy
16. Secretary, Ministry of Environment & Forests
139
Annexure-I
17. Secretary, Planning Commission
18. Secretary General, FICCI
19. Secretary General, ASSOCHAM
20. Director General, CII
21. Shri Surya P. Sethi, Adviser (Power & Energy): Convenor
3. The Terms of Reference of the Expert Committee would be to address the following:
i) How to meet demand for energy of all sectors and energy needs of vulnerable sections in
all parts of the country at the least-cost considering different fuels and forms of energy
such as coal, oil, hydro electricity, nuclear power, electricity and various non-conventional
energy sources?
ii) How to ensure that energy input costs in India are internationally competitive?
iii) What policy including pricing policy would lead to efficient use of energy, promote
conservation and at the same time provide incentives to producers to produce adequate
energy to meet the demand without imposing an unsustainable subsidy burden on the
system?
iv) How to ensure energy security against physical as well as financial risks (shocks) with
the desired degree of confidence level at minimum cost using alternatives such as physical
and financial stocks, options contract, acquisition of equity hydrocarbons abroad, in
providing energy security?
v) What is the role and importance of regional and international cooperation in promoting
energy security?
vi) What is the relative role of public and private investments in the development of each
energy source or what is the scope for public-private partnerships to ensure adequate
supply?
vii) What are the institutional, legal and regulatory policies required to ensure competitive
energy markets and effective implementation of suggested policies especially in an
environment where public-private partnership is being encouraged?
viii) How to ensure that exploration for oil, gas, coal and hydrocarbons takes place at the
required level?
ix) What policies are needed to promote development and use of energy technologies?
x) How to accelerate the development of new and renewable sources of energy?
xi) How to ensure environmental sustainability of the energy sector through emission and
effluent control, appropriate choice of fuel, promotion of clean coal technology, energy
conservation, restoration of mine sites, use of renewable resources, etc.?
xii) How to ensure uninterrupted supply of quality power to both urban and rural consumers
on demand?
xiii) How to ensure supply of clean household energy in rural areas to improve the quality of
life of women and reduce the burden of indoor air pollution on them?
xiv) How to provide needed subsidies in non-distorting ways?
140
Integrated Energy Policy
4. The Expert Group will have the powers to co-opt/associate professionals/domain experts
into the Group. The Expert Group will also have the powers to set up Sub Groups/Steering
Committees of officials/non officials to finalise its views on specific issues. The Expert Group
should, however, encourage active participation of the State Governments in the areas of
concern of the Group.
5. The expenditure of the members on TA/DA in connection with the meetings of the
Expert Group will be borne by the Ministry/Department/State Government to which the
members belong. In case of private members TA/DA will be borne by the Planning Commission
as admissible to the Class I officers of the Government of India.
6. The Expert Group will submit its report to the Planning Commission within six months
from the date of its constitution.
7. The Expert Group will be serviced by the Planning Commission.
Sd/-
(T.R.Meena)
Director(Admn.)
To
All Members of the Expert Group
Copy to:
1. Deputy Chairman, Planning Commission
2. Minister of State (Planning)
3. Members, Planning Commission
4. Cabinet Secretary
5. Secretary to the President of India
6. Pr. Secretary to Prime Minister
7. Joint Secretary to Prime Minister Sh. Jarnail Singh with reference to his
U.O. No.210/31/C/25/04-ES.I dated 15.07.2004
8. Pr. Advisers/Advisers, Planning Commission
141
AAnnnnexexuurere-I-II
Gist of Earlier Energy Policy Committees/Groups
The two main committees set-up on energy
policy were the Fuel Policy Committee in
1974 and Working Group on Energy Policy in
1979. A brief on the constitutions, terms of
reference and the gist of their recommendations
is given below:
(I) THE FUEL POLICY
COMMITTEE (1974)
The Fuel Policy Committee was
appointed by the Ministry of Petroleum and
Chemicals, Government of India on 12th
October, 1970. The terms of reference of
committee were as follows:
(a) Undertake a survey of fuel resources
and the regional pattern of their
distribution;
(b) Study the present trends in exploitation
and use of fuels;
(c) Estimate perspective of demand by
sectors (in particular the transport,
industry, power generation industry
and domestic fuel) and by regions;
(d) Study the efficiency in the use of fuel
and recommend:
(i) the outline of a national fuel policy
for the next fifteen years;
(ii) a pattern of consumption and
measures, fiscal and otherwise,
which would help the best use of
available resources; and
(iii) the measures and agencies, to
promote the optimum efficiency
in use of fuel.
RECOMMENDATIONS
(i) General
1. If the energy plans and policies are to
be operationally meaningful, there is a
need for periodic review of the energy
policy. The review may be taken at
least once in three years and the
planning horizon extended at each time
to 15 years.
2. To set-up an Energy Board consisting
of the ministers of concerned energy
related ministries supported by a
suitably structured Secretariat to assist
this board. The board may initiate or
undertake any analysis relevant for the
review or revision of the fuel policy.
(ii) Coal Sector
1. Coal should be considered as the
primary source of energy in the country
for the next few decades and the energy
policy of the country should be
designed on this basic premise.
2. The need for developing an efficient
and adequate transport system, which
would ensure the flow of coal from the
points of availability to the demand
centers should be noted.
3. The coal industry should accept the
responsibility to supply the required
grade of coal on a long-term basis, if
necessary, by changing the source of
coal supply from time to time or by
blending different grades of coal to
make up the required grades.
4. To increase the productivity of
coalmines, studies should be initiated
immediately to determine the optimal
use and maintenance of machines, and
for training coal mines workers in the
use and maintenance of the same.
5. R&D work should be continued on
techno economic aspects of coal
gasification and specific possibilities
should be investigated for using poor
quality coal for gasification.
6. Railways constitute the most economic
way of moving coal for most of the
142
Integrated Energy Policy
consuming classes and consumer
locations in India. Adequate attention
should be paid to rail transport
planning in regard to development of
additional line capacity, yard capacity
and signalling and communication
which would facilitate a speedier turnaround
time for wagons. The
augmentation of the wagons fleet
should also be considered.
7. The selection of optimal technology
for coal mining should be made on
economic grounds using appropriate
weightages for machine utilisation
under Indian conditions and keeping
in mind the availability of an abundant
labour force.
(iii) Oil Sector
1. India’s oil policy should be based on
an understanding of the international
oil situation. It should be designed with
the specific objectives of
(a) Reducing the quantity of oil
products to be imported;
(b) Reducing the total foreign exchange
expenditure; and
(c) Improving the security of supplies
in crude and oil products required
from sources outside the country.
2. Oil exploration in India should be given
priority attention. The exploration
activities particularly in the offshore
areas and selected onshore areas should
be speed-up. There is an urgent need to
augment the capabilities of ONGC by
providing them with more modern
equipment.
3. All attempts should be made to take
advantage of the complementarities of
the resource endowments of India.
Meaningful bilateral agreements may
be entered into with oil exporting
countries including participation in
crude production.
4. To provide insurance against short-run
breakdowns in the supply of crude to
the country, there is a need to build up
stock of crude within the country.
5. While planning refining capacity, there
should be a careful examination of
refinery locations, the product mix
required in each refinery, the extent of
secondary process to be established and
a feedstock choice in the fertiliser
industry.
6. Road and rail transport must be
coordinated in an optimal manner in
order to manage the HSDO demand.
Long distance movement of
commodities by road should be
discouraged while simultaneously
increasing the capabilities of rail
transport.
7. Fuel oil being a valuable raw material
for the production of high cost
petroleum products which have good
export potential or can serve as import
substitute, large quantities of it should
be earmarked for the high value
products like lubes, bitumen, petroleum
coke and wax.
8. The price of HSDO and kerosene
should continue to be kept at par with
each other to avoid diversion of
kerosene for use in transport sector.
9. The production of fertilisers, methanol
and other chemicals based on natural
gas will have to be given preference
over the use of natural gas solely as a
fuel.
(iv) Power Sector
1. Efforts should be made to develop a
more optimal load structure:
(a) By setting up of more pumped
storage schemes.
(b) By shifting production of electricity
intensive industries from peak to
off peak periods.
(c) By general pricing of the industrial
tariff and agricultural tariff to
provide incentive for use of more
electricity during off peak hours.
2. In the overall interest of the economy
and keeping in mind environmental
considerations, more power stations
should be located at pitheads.
143
Annexure-II
Depending on the local conditions,
however, construction of power
stations at load centres can be
considered on merits as a special case.
3. The schemes for setting up of regional
grids and regional load dispatch centres
should be vigorously pursued.
4. A proper pricing policy for the power
supplies to the agricultural loads so as
to encourage the consumers to use the
optimal size of pump sets, and to draw
supplies during off peak hours.
5. In the overall national interest and
given the limited available resources,
the setting up of captive power stations
should not be encouraged.
(v) Domestic sector
1. To take up programmes of afforestation
with quick growing wood species to
increase the availability of firewood.
2. To intensify the popularisation of
‘gobar gas plants’ in view of the social
benefits of the nutrient production,
pollution abatement etc.
3. The problem of substitution of noncommercial
fuels with the commercial
fuels in the domestic sector has to be
considered with due regard to the
overall economic implications of the
use of different fuels in this sector.
Pricing and distribution policies should
be based on a full understanding of the
social costs of the use of different fuels.
(vi) Costs and prices
1. The price fixed for any fuel-coal, oil or
electricity should be such that the
particular fuel industry, as a whole, is
enabled to earn a return of al least 10%
on the investment made in the industry.
2. There should be a serious examination
of the need to continue the import
parity formula for pricing of petroleum
products and to evaluate other possible
methods of fixing prices, which will
best serve the national interest.
3. The electricity tariff should be designed
so as to discriminate between the use
of power during the peak periods and
during the off peak periods.
(vii) Technology
1. A National Fuel Efficiency service may
be instituted to ensure improvement in
energy efficiency in the industries.
2. Research and development in areas
relating to combined gas turbine –
steam turbine plants should be
intensified for increasing the overall
efficiency of coal utilisation in thermal
power plants.
3. A long-term programme for
development of coal to oil should be
drawn up.
4. R&D work on coal gasification and
pipeline transport of coal gas should be
undertaken.
5. R&D on solar energy in India may be
concentrated on the development of
thin-film technology, developing low
cost solar water heaters etc.
6. Development of battery powered
vehicles, fuel cell technology, Fast
Breeder Reactors etc. should be
emphasised.
(II) THE WORKING GROUP ON ENERGY
POLICY (1979)
The Working Group on Energy Policy
(1979) was constituted by an order of the
Planning Commission on 6th December, 1977,
with a view to “carry out a comprehensive
review of the present situation in the light of
recent developments both within the country
and outside, to develop a perspective for the
next five to fifteen years and to recommend
appropriate policy measures for optimal
utilisation of available energy resources
including non-conventional sources of energy”.
The terms of reference of the Working Group
were set out as follows:
(a) To estimate the perspective energy
demand in the different sectors of the
economy and regions of the country
by 1982-83 and a decade thereafter;
144
Integrated Energy Policy
(b) To survey the present and perspective
supplies of energy;
(c) To recommend measures for optimum
use of available energy resources; and
(d) To outline the national energy policy
for the next five years, fifteen years
and the longer term conservation
policy.
RECOMMENDATIONS
General
1. A reappraisal of our economic
development strategies, especially those
elements of the strategy which have a direct
link to energy consumption like technology
choice, location policies, urban growth, and
mechanisation in agriculture etc., with reference
to the new awareness of the energy supply and
demand in future needs to be addressed.
2. Examination of the technological
processes and the achievable levels of efficiency
for each industry or equipment, and to prescribe
the standards of efficiency to be achieved by
energy users or equipment manufacturers.
Oil Sector Policies
1. All efforts should be made to reduce
the demand of oil to levels even below
what is forecast in the Optimum Level
Forecast (OLF). It would be prudent
to plan a pattern of growth of the
economy, which is less dependent on
oil. Demand Management should form
the most important element of oil
policy in the future.
2. The techno-economics of converting
gas into liquid fuels for use in the
transport sector should be examined.
3. Larger investment should be made in
secondary processing like Hydrocrackers,
catalytic crackers or delayed
coking equipment, which would
convert the heavy end products to
middle distillates.
Coal Policy
1. Planning and construction of coalmines
should proceed on a steady basis
without linking specific mines to
specific consumers.
2. There is a need to develop a welldefined
policy towards mechanisation
of coal mines taking into account the
need to increase production very
quickly and with due consideration for
employment and training implications.
In doing so the changes in the share of
open cast and underground mines and
the optimal technology that could be
used in such mines would also deserve
careful consideration.
3. There is a need to synchronise
investment in coal production and coal
transportation by railways with due
flexibility so that transport would not
be a constraint to the use of coal.
4. The idea of washing non-coking coal
should be pursued cautiously and
resorted to only where its technoeconomic
benefits are clearly
established. The planning of thermal
power stations based on middlings
should proceed in step with planning
of coal washeries. There are also
possibilities of using the rejects and
middling as raw material for
manufacturing domestic fuels similar
to soft coke.
Power Sector Policies
1. Power planning in the future should
be based on the concept of an optimal
mix of thermal/nuclear and hydro
stations in which the hydro stations
should take the Peak and the thermal
stations provide the base load.
2. With the steeply increasing costs of
power generation, it might become
more remunerative to invest in System
improvements that might reduce losses
in T& D, than investing in additional
capacity and if this is done, it may be
possible to reduce losses still further.
3. Detailed State-wise and region-wise
power planning studies should be
undertaken.
145
Annexure-II
4. It is essential that a long-term
transmission plan be prepared for each
region, which could be executed in a
phased and systematic manner.
Rural Energy Policy
1. A comprehensive survey of all the
energy needs in a village community
should be carried out.
2. Pilot installations should be set-up as
early as possible for Micro-hydel
stations to be constructed in rural areas
on irrigation canals.
3. A study should be made to install
community type biogas plants and the
utilisation of gas from such plants for
households, pumping and industrial
applications should be explored.
Cost and Prices in the Energy Sector
1. The energy prices must at least reflect
long-run marginal costs and allow for a
reasonable return. A suitable
institutional framework for regulating,
monitoring and adjusting energy prices
in a mutually comparable manner
should be set-up.
2. A tariff schedule for electricity that
distinguishes between peak and off-peak
consumption on a diurnal and seasonal
basis may be put in place. The relative
prices of different fuels should
encourage the required inter-fuel
substitutions.
Research and Development in the Energy
Sector:
(a) Oil Sector
1. R & D efforts aimed at enhancing our
exploration capability, maximisation of
yield from oil reservoirs and efficient
utilisation in all the consuming sectors
need to be encouraged. In this context,
Secondary and Tertiary recovery
technologies should be developed to
maximise yield from oil reservoirs.
2. The potential of Hydrogen as a
substitute for liquid fuel for the
transport sector should be examined.
(b) Coal sector
1. R&D activities in the areas of
gasification and liquefaction of coal and
their economics under Indian
conditions must be pursued.
2. R & D efforts in the field of coal
combustion (e.g. fluidised bed
combustion) & other technologies
should be reviewed and intensified so
that these technologies are adequately
developed for use in both industrial
and power sector.
3. Research on coal beneficiation for
achieving better coal recovery from
washeries, utilisation of rejects, etc.,
may be intensified.
(c) Nuclear Energy
1. R&D work for development of Fast
Breeder Test Reactor (FBTR) being
constructed at Kalpakkam should be
expedited.
2. Development work for fabrication of
reactors based U233 with Thorium needs
to be carried out.
(d) Power Sector
R&D efforts are recommended in the
following areas:
1. Improvement in the methodology
of load estimating and forecasting,
power system planning etc.
2. Reliability of Power Systems
3. Optimisation of System Economics
4. Software development for problems
in power system operation, load
flow, short circuits etc.
5. Research in the problems of
Integrated operation of Power
Systems
6. Improvement in Power System
protection techniques.
146
Integrated Energy Policy
(e) Other Energy Technology Areas
1. R&D effort should be intensified
for development of alternative
technologies (Solar energy, Wind
energy & biomass) that
appropriately harness these sources
of energy.
2. Research on biomass should be
directed towards identification of
fast growing species, methods of
increasing the photosynthetic
efficiency and development of costeffective
processes utilising biodegradable
materials for producing
fuels-gaseous as well as liquids with
high priority.
3. R&D to establish the feasibility of
integrated systems based on solar,
wind, biogas, and mini hydro
wherever available, will have to be
expeditiously undertaken.
(f) Sectoral Policies/Prescriptions
(a) Transport
1. The coordination of rail and road
traffic and the extent to which
other less intensive modes like
inland waterways, coastal shipping
etc., can be used should be
understood and encouraged.
2. Accelerated pace of electrification
of the high-density traffic trunk
routes, especially those connecting
Bombay, Delhi, Calcutta and
Madras deserves serious
consideration.
(b) Agriculture
1. Standards of fuel efficiency have to
be prescribed for electrical and
diesel pumps and the manufacturers
persuaded to adopt a time bound
approach of increasing the
efficiency of pumps to the level
suggested in the report. Similarly
in the case of diesel tractors also
there is a need to prescribe fuelefficiency
standards.
2. Improve the design of the animal
drawn water lift and agricultural
implements, which would increase
the useful energy delivered by
animal driven appliances/
implements.
(c) Household sector
1. Setting up of standards of fuel
efficiency for manufacture of
lighting and cooking appliances and
introduction of more efficient
chulhas at subsidised rates on a
large-scale.
2. Efforts must be made to maximise
the use of agricultural waste as fuel
directly by burning or by
conversion into liquid/gas fuels by
microbial conversion. Biogas plants
capable of using more of
agricultural waste are to be
developed.
(d) Industry sector
1. In many of the industries the
specific energy consumption is
inversely proportional to the level
of capacity utilisation. Therefore,
the utilisation factor should be
improved with special reference to
conservation of energy.
2. Co-generation holds prospects of
large energy savings in the industrial
sector, as it improves the overall
thermal efficiency. Such possibilities
in existing industries should be
identified and pursued. Further, for
new industries the energy
implications of the technology
chosen need to be studied to select
the least energy intensive option,
particularly with respect to the use
of depleteable sources of energy
and electricity.
147
Annexure-I
Calorific Values, Units and Conversion Factors
Calorific Value of Various Fuels
Sl. Name of Fuel Unit Calorific Value
No. (kilo-calories)
1. Biogas M
3
4713
2. Kerosene kg 10638
3. Firewood kg 4500
4. Cow-dung Cakes kg 2100
5. Coal kg 4000
6. Lignite kg 2865
7. Charcoal kg 6930
8. Soft coke kg 6292
9. Oil kg 10000
10. LPG kg 11300
11. Furnace Oil kg 9041
12. Coal gas m
3
4004
13. Natural gas m
3
9000
14. Electricity kWh 860
Conversion Factors
Kilo Calorie 3.96832 BTU, 4186.8 Joules
Kilowatt Hour 3412.14 BTU, 3.6×10
6
Joules
Btu 0.252 Kilo Cal, 1.055 Kilo Joules
US Gallon 0.833 Imperial Gallon, 0.134 Cu. Feet 0.00378 Cu.M
Imperial Gallon 1.2009 US Gallon, 0.1605 Cu. Feet 0.0045 Cu.M
Cubic Metres 264.172 US Gallons, 219.969 Imperial Gallons, 35.3147 Cu. Feet
Cubic Feet 7.4805 US Gallons, 6.2288 Imperial Gallons, 0.0283 Cu. M
1 BkWh Hydro or Wind Electricity 0.086 Mtoe
*
1 BkWh Nuclear Electricity 0.261 Mtoe
1 Mt of Coal 0.41 Mtoe
1 Mt of Lignite 0.2865 Mtoe
1 Billion Cubic Meter of Gas 0.9 Mtoe
1 Mt of LNG 1.23 Mtoe
1 Mt of Fuel wood 0.45 Mtoe
1 Mt of Dung Cake 0.21 Mtoe
*Mtoe conversion factors are taken as per International Energy Agency (IEA) Practice
Annexure-III
148
Integrated Energy Policy
Units Name Remarks
BCM Billion Cubic Meter = 10
9
m
3
BkWh Billion Kilowatt Hours
Bt Billion Tonne = 10
9
Tonne
GWe Giga Watt Electrical
GW-Yr Giga Watt Year = 8.76 x 10
9
kWh
kcal Kilo Calorie = 4186.8 J or 396832 Btu
kg Kilogram -
kgoe Kilogram of Oil Equivalent -
kW Kilo Watt = 10
3
Watt
kWh Kilo Watt Hour = 3.6×10
3
J, also expressed as Unit
M. ha Million hectares
M. ltrs Million litres
MMBtu Million British Thermal Unit Traditional British unit
MMscmd Million Standard Cubic Meters per Day Traditional unit used in gas industry
Mt Million Tonnes = 10
6
Tonne
Mtoe Million Tonnes of Oil Equivalent -
MVA Million Volt Amperes
MW Mega Watt = 10
6
Watt or 10
3
kW
MWe Mega Watt Electrical
MWt Mega Watt Thermal
T Tonne Same as Metric Ton = 1000 kg
tkm Tonne Kilometer tonne of material moved by km
TWH Terawatt Hour

…and I am Sid Harth 

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