The Hindu : Business : Energy sector needs $150 b over five years

Online edition of India's National Newspaper
Thursday, Dec 27, 2007
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Business

Energy sector needs $150 b over five years

Special Correspondent

Long-term vision, adequate policy and regulatory support imperative

KPMG-CII release report
Reforms in tariff, distribution needed

NEW DELHI: The Indian energy sector is exhibiting a rich potential for investment in diverse streams, driven by the surging economy and the resultant demand-supply gap in the short-run; and by the need to achieve sustainability and self-sufficiency in the long-run.

A long term vision, and adequate policy and regulatory support are necessary to realise this potential, according to a report jointly released by the Confederation of Indian Industry (CII) and KPMG.

The report titled ‘India Energy Inc. — Emerging Opportunities and Challenges’, released recently at the CII-India Energy Conclave 2007, said India’s power and upstream energy sectors need investments to the tune of $120-150 billion over the next five years.

It emphasises the need for strong private sector participation to complement public sector and to bring in the required capabilities and technologies. Policies have increasingly recognised the need to promote private investment.

Private interest in captive coal mining, oil and gas exploration and in the power sector has shown significant progress and is also envisaged in the nuclear sector, the report notes.

By world standards, India’s current level of energy consumption is very low. For the year 2004-05, the total annual energy consumption is estimated at 572 mtoe (million tonnes oil equivalent) and the per capita consumption at 531 kgoe (kg oil equivalent).

With a targeted gross domestic product (GDP) growth rate of 8-10 per cent and an estimated energy elasticity of 0.80, energy requirement is expected to grow at 6.4-8 per cent. This would mean a five-fold increase in energy requirement over the next 25 years.

Energy transport infrastructure such as ports, railways, pipelines and power transmission networks need significant investment.

The policy now allows private participation in all these areas and some private sector activity is already under way.

Tariff reform in the energy sector and distribution reform in the power sector are two important steps that need to be successfully carried out. Tariff reform to phase out subsidies or to target them effectively and distribution reforms to bring efficiency in the power sector are vital.

Along with private participation, there is a move to bring in market mechanisms in the energy sector under an independent regulatory oversight.

A gradual approach is important till the supply side position improves and more players enter the sector so that markets can work effectively.

Dealing with the key opportunities in the sectors, the report says India has one of the largest reserves of the nuclear fuel, thorium. However, the nuclear energy programme will continue to be uranium-based until commercial production based on thorium becomes feasible. If the Indo-U.S. nuclear deal goes through, there will be a boost to nuclear energy and private participation in this sector would be expected.

The report approvingly refers to the investments by the private sector in coal, oil, gas and hydro and renewable energy sectors and tapping of the vast opportunities available in these areas.

However, it called for certain key imperatives like need to ensure that private sector investment complements public sector investment, encourage private investment, encourage market mechanisms with a credible and independent regulatory oversight, reduce vulnerability to price and supply shocks, bring in efficiency and enhance capacity in energy transport infrastructure besides tariff reform and power sector reform and Government support for energy efficiency.

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