India needs coordinated, integrated approach3 min read . Updated: 04 Jul 2014, 06:44 PM IST
The new government must restore confidence by clearly spelling out the rules of the game in NELP X
Narendra Modi-led Gujarat has been power surplus, with citizens enjoying 24x7 electricity and the power utilities are not incurring financial loss.
Gujarat is India’s leading contributor to renewable energy—both solar and wind. It is probably the only state government that owns a successful oil and gas company. Gujarat, incidentally, is the only state that has a department of climate change.
An integrated approach to provide energy access to citizens has been at the core of the development agenda in Gujarat in the last one decade.
Modi now takes over as the Prime Minister of the country, where the level of access to energy is still very poor. Although per capita energy consumption is low, India is the fourth largest primary energy consumer in the world, accounting for more than 4.6% of the total global annual energy consumption, and this is growing rapidly.
India imports 79% of its oil, 25% of its thermal coal and 27% of its gas. The country is vulnerable to international energy prices, which are volatile. There is a need for revisiting the Integrated Energy Policy (IEP).
India’s sedimentary basin is poorly explored for oil and gas, and there is diminishing interest from investors in the exploration and production sector.
The investment environment got affected due to uncertainties in the government’s action in contract administration, monitoring, review of investments and pricing decisions.
The new government must restore the confidence by clearly spelling out the rules of the game in NELP X (10th round of New Exploration Licensing Policy). A stable policy and regulatory regime would help investors plan their investment.
Investors are also keenly waiting for the Modi government’s action on the implementation of the Rangarajan Committee recommendation on gas pricing. Domestic production will get a boost if the recommendation of the committee is implemented.
Tariff reforms remain the biggest challenge for the electricity sector. Pushed to a corner by years of accumulated losses due to postponed tariff hikes and unpaid subsidies by state governments, many distribution companies had to be bailed out by the central government through a debt restructuring scheme last year. The basic scheme provides breathing space for the utility from debt servicing and targets a turnaround in a time-bound manner through efficiency improvements and regular tariff revisions. The Modi government must ensure proper implementation of this. The government should also re-open this scheme to financially distressed distribution utilities that have not availed this yet.
In the last five years, the private sector has contributed 60 gigawatts (GW) of the 95GW of power generation capacity added in the country. Issues such as lack of long-term power procurement by state utilities, shortage in fuel supply and disputed long-term contracts are plaguing the generation sector. Financially distressed discoms are not inviting bids for long-term power procurement. It is believed that almost 25GW of power generation capacity is, though completed, waiting for power-purchase agreements. Needless to say, having a long-term power purchase agreement is a prerequisite for securing a long-term fuel supply contract (FSA) from Coal India Ltd. Generators who have FSAs are not getting supply more than 65% of the contracted capacity as Coal India’s production and dispatch have not been able to match demand.
Projects that could have contributed 58% of the incremental capacity of Coal India are stuck due to environment and forest clearance and rehabilitation and resettlement issues. Additionally, approximately 290 million tonnes (mt) of coal capacity is constrained due to rail bottlenecks. The Prime Minister’s Office can coordinate to get these resolved to improve Coal India’s production.
India is also committed to addressing climate change issues in a comprehensive fashion. There is a need to strengthen the implementation aspects of the National Action Plan on Climate Change. India currently has about 30GW of renewable energy generation capacity. It has the potential to add 6-8GW of capacity annually.
Overall, it is expected that the Modi government will have a more co-ordinated and integrated approach in meeting India’s large energy demand to sustain a faster rate of economic growth and meeting energy needs of all citizens.
Debasish Mishra is a senior director at Deloitte Touche Tohmatsu. Views expressed are personal.