Gopinath's blog: Ills of Indian Energy Sector and Strategies to Overcome

Ills of Indian Energy Sector and Strategies to Overcome

11.18.09

Bharathi Seeni, Senior Associate Consultant, Infosys Technologies


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Introduction:

Asian development bank report projected India's total energy consumption at 1279 MTOE by 2030. Per capita electricity consumption for India stood at 631 Kwh as compared to US per capita of more than 13338 by 2007. With targeting an ambitious 8 to 10% GDP growth in the coming years its per capita consumption also should increase accordingly. During my research on this paper, interestingly I found that it is not the lack of resources in our hands hampering our growth, but it is the lack of initiatives, improper proceedings and poor implementations done at the central and state levels that led to our downfall (For example The Electricity Act 2003 bill was passed way back some concepts like "open access" is yet to be practiced in some of the states like Bihar).

This paper presents the strategies to be adopted with the implication of an Integrated and co-coordinated framework, which would definitely take to the Path of Energy Security.

The Ills:

Coal: Coal as a fuel accounts for nearly 55% of the total energy need of India. The principal carbon asset is been relegated to political inattention and a rock solid monopolistic ideologies. Private investment is moving at a very slow pace even after the enactment of Coal Mines Amendment Bill, 2000. Coal India Limited with 95% of mines under its belt hardly gives any room for others private players to get in. Without an independent regulator, the entire sector is plagued with low productivity, Investment shortages, shoddy management and poor labor relations.

Oil and Natural Gas sector: India's foreign import dependency on oil is to grow to 85% by 2012. Government again failed to pilot the Petroleum Bill, 2002. The New Exploration and Licensing Policy, which came in 1999 with lucrative incentives, is of moderate success. Dismantling of Administrative Pricing Mechanism was done in 2002 but still, government is reluctant to cede control over pricing. The demand for natural gas could go up to 160-170 MMSCMD over the next five years. Open access could be introduced in phase after framing appropriate regulation, which could stimulate a competitive environment. Both these sectors are in need of an empowering and independent regulator.

Power sector: The aspects given in the Electricity Act 2003 like open access (section 42), competitive market (section 66), etc doesn't seems to happen in actual practice, which resulted in financial closure for about 15000 MW for IPP's and in turn resulted in slow progress of reforms. By 2008 alone the total power subsidy to the states stands at 13876 crores which nearly cover a whopping 1% of our GDP. With an energy shortage of 7.7% and peak shortage of 12.3%, the ambition of electrifying India by 2012 with more than Rs. 9 trillion as emphasized in National Electricity Policy (section 3) remains as a question mark.

What is an Integrated Energy Strategy?

The concept of Integrated Energy Strategy is not the one that requires a centralized action, but certainly involves a system of coordinated decision-making and actions that bring various energy activities into a common framework, which is represented, in the table below.

Why an Urgent Need for India?

Only at the time of formulation of five-year plan, the sector looks as a whole, rest of the times it acts as an individual sector even if one's strategy hampers other. For example, the power sector reforms are not only hampered because of its modernized technologies like FBT, but also because of lack of coal and gas supplies. Recently a 500MW power project jointly owned by NTPC and Sail power co. limited came to closure because of lack of coal supply. The coal sector also suffers by not getting the return from the power sector, because of lack of revenue collection in the power sector. Hence it is high time for India to adopt an "Integrated Energy Strategy", which is been already employed successfully in countries like USA, Australia, U.K. etc.

Formation of National Energy Companies Association (NECA):

There is a need for direct involvement of the players with the government in framing the strategies. So far it has been very less. The earlier discussions clearly underline the need for an apex body that can coordinate and promote the energy sector. In the Indian context, his has been successfully demonstrated in the software industry by NASSCOM. So, all the players in the energy sector should join hands and form an association called "National Energy Companies Association" or NECA. It could also have its members for advising from leading consultancies, research firms, and also some senior government experts. NECA's vision should be to make the sector globally competitive and make India to achieve its vision 2020 in energy.

Some important functions of NECA include:

Assisting the ministries in framing the strategies, major policies, decision making and to provide super fast solutions.
Promoting the energy sector as a lucrative and challenging business among the ignited minds of the youth. This could propel young people to get in to the business.
Facilitating the inter sector coordination among the fragmented ministries and there by Assisting them in framing the strategies and also avoiding the inter sector harming.
Promoting the Indian brand abroad and positioning it's over whelming energy resources, quality services, huge business opportunities and the endless consumers. This could be done through advertisements, road shows etc, which could encourage some foreign investments which is been dried up after the Dhabol Imbroglio.
Integrating dissemination-using technology, so as to form as a portal on the energy sector targeted at sharing the information for example familiarizing importance of GIS, Smart grid, etc.

Recommendations for Government Roles:

The fragmented ministries of Coal, Oil, Gas, Power, Non-conventional, atomic energy, forest and almost all the energy-oriented sectors always should act together as an integrated force with a Common Independent Regulator. This seems to be impossible at present with no regulators for these sectors (excluding power) but it could be implemented in a long-term view for the betterment of the entire sector.
The unbundled SEB's should be corporatized. This would make way for reducing the Rs.28000 crore burdens on them. SERC's should be totally free from the political clout while setting the tariff. And also, the innovative ideas for new public investment by utilizing out large FDI's should come out.
Restructuring state owned oil, gas and power companies to make them participate in an Internationally Competitive Environment and diversifying their assets across the globe where ever possible just like China which has its assets in Africa, Latin America and Central Asia. In this issue, India too has knocked the door with New Exploration and Licensing Policy (NELP), Creation of data center for oil in South East Asia and Australia. ONGC investing 3.5 Billion dollars overseas since 2005, NTPC planning to set up a power plant in SriLanka, etc. But still the progress has to be rapid in order to compete with China.
More privatization and private-public partnership should be encouraged at all levels. Joint ventures like Singareni Collieries Companies Limited (Andhra Pradesh government having a stake of 51% and rest to the Central), Northern Delhi Power Limited (Tata power having 51%, rest to state government) should come out.
Modernization of technology like clean coal technology, strategic petroleum reserves, fluidized bed technology, coal liquefaction etc, which could save millions of dollars. More than spending billions on the foreign crude oil India could spend on exploiting the oil reserves found in Deccan and also the 83% unexploited hydro potential.
In subsidy issues, the government more than adopting the Public Distribution System, it could adopt a more transparent System by which the poor should be able to choose from a specially designed set of services tailored to meet their end user requirements.
More emphasis has to be given to exploit renewable. Till now hardly 3% of the total 130000 MW of renewable potential has been exploited and also the Nuclear power constitutes only 3% with the overall energy mix which should be increased to at least 5 to 6% to improve our Energy Security in the future.

Mass Energy Awareness Mission Program:

The concept of energy and its conservation has to be taken out of the ivory tower where it is ensconced and popularized at the street level. The government is already promoting it through Bureau of Energy Efficiency, which initiated the Renewable Energy Development Agencies, operating in 3 states but it has to be formed in all the states. Massive advertisement campaigns should be held through all media's, so that a layman would come to know about Energy conservation benefits. To inculcate it among the children, the government should make a compulsory subject of "Energy and its Importance in schools". On over all, a mass awareness energy program should be formed and promoted from city to village levels.

Conclusion:

References