KPMG pegs investment needs of energy sector at $150 billion

KPMG pegs investment needs of energy sector at $150 billion
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First Published: Wed, May 16 2007. 11 59 PM IST

Updated: Wed, May 16 2007. 11 59 PM IST
New Delhi: India’s energy sectors, including coal, oil and gas, will require an investment of $120-150 billion, or up to Rs615,000 crore, by 2012, according to a report by accounting and consulting firm KPMG.
The report, dubbed, “India Energy Outlook 2007” notes significant investments are required in energy transport infrastructure, such as ports, railways, pipelines and power transmission networks. The upstream sector, including gas pipelines, would attract around $20-50 billion, with nearly 2,500 km of gas pipelines in various stages of planning and execution.
India’s current level of energy consumption is very low and is estimated at 572 million tonnes oil equivalent (mtoe).
“However, with a targeted GDP growth rate of over 8% and an estimated energy elasticity of 0.80, the energy requirements of the country are expected to grow at over 6.4% per annum over the medium to long term,” the report states. This will require a fourfold increase in India’s energy requirement over the next25 years.
The report also comments on the need to diversify the energy basket by increasing the share of natural gas, hydroelectric power and nuclear energy. The other issues that the report flags include the potential exhaustion of extractable Indian coal reserves by 2052 and limited private sector participation in power generation.
Of the $150 billion expected to be invested in the Indian energy sector over the next five years, the power sector alone is expected to attract close to $100 billion, including generation, transmission and distribution, said Arvind Mahajan, who authored the report. Bulk of the investments will go into generation, followed by infrastructure upgrades in the local distribution networks,he said.
S.V. Narasimhan, director, finance, Indian Oil Corp., agreed with the needfor significant capital investment requirement in oil and gas. “We have a Rs44,000 crore capital expenditure plan during the next five years,” he said. “Of this, around Rs2,000 crore alone will be spent on the exploration and production work for the existing licences that we hold.”
Mahajan said estimates in the report did not include investments in transportation infrastructure. With the number of coal and LNG transportation terminals proposed over the next five years, the sector alone would see investments close to $30-40 billion, he said.
At least half a dozen LNG terminals are in planning stages by private and state-owned oil companies and at least one coal import terminal on each of the coasts is expected to come up by 2010-12.
The report also stresses the need for the government to form policies that facilitate investments and the need for tariff reform in the oil sector and recast of the existing policy governing distribution of electricity in the power sector. The majority of the report findings are in line with the government’s Integrated Energy Policy. However, phasing out subsidies will require strong political will, with the government, in the face of stiff political resistance, already rolling back some proposals to ensure better targeting.
Government-owned oil marketing companies, for instance, lose Rs5.24 on every litre of petrol sold; Rs4.40 per litre of diesel sold; Rs14.67 per litre of kerosene sold and Rs167 on every unit of domestic LPG cylinder. In fact, kerosene prices in India, at Rs9 per litre, are among the lowest in the world. Power distribution losses in the country are another cause for concern as losses due to theft are around 40%, resulting in a $6 billion hit per year that is absorbed by the government.
utpal.b@livemint.com
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First Published: Wed, May 16 2007. 11 59 PM IST