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Energy Issues Requiring Immediate Attention, Shri R V Shahi, Former Secretary, Ministry of Power

In spite of the fact that energy production and supply holds key to the economic growth, our response to important energy issues in last two to three years has been slow. When the new UPA Government came to power, in the middle of 2004, one of the first few actions initiated was to set up an Expert Committee to formulate an Integrated Energy Policy. This was to be done, on a priority, within a period of six months from August 2004, when it was set up. The Expert Committee could not complete the assignment within the stipulated time and therefore its term had to be extended. Finally in about two year's time the Committee submitted its Report in August 2006.

There were a number of issues on which, to start with, the Committee Members, representing different segments within the Energy Group, had somewhat differing views and perceptions. Finally, these all were harmonised and a unanimous Report was finalised. There are a large number of suggestions and recommendations which needed to be acted upon on a priority basis by different Administrative Ministries. Unfortunately, it has taken two years for the Government to even discuss this Report. It is only recently that in the meeting of the Planning Commission, presided over by the Hon'ble Prime Minister, the Integrated Energy Policy was taken up. Even there, it is understood that the full Report has not been discussed and cleared, in so far as the Planning Commission itself is concerned. It is also understood that for the Report to be approved by the Government, with or without modifications, it may have go to the Union Cabinet. According to the established procedure, interministerial consultations may also be necessary before the final draft Cabinet Note is placed on the Agenda of the Cabinet Meeting.

Now, let us analyse this issue as a case. Energy is the most crucial issue for the country, in fact for the whole world. Without this, every other economic activity will come to a halt. In many cases our dependence for energy supply on outside world is so intense that unless some of the important issues are dynamically addressed on a day-to-day basis, their implications can be huge and it may move to a point of no return. Climate change concerns, on account of global warming issues, have placed energy into further complexities. The new Government, therefore, rightly took up this item, as mentioned above, as one of the first few initiatives. But, what has been the outcome? Two years to prepare the Report, further two years of wait to even initiate a consideration in the Planning Commission, further action uncertain because the Union Cabinet consideration itself undergoes a gestation period. With all this, the tenure of the Government itself comes to an end early next year. And thus, the suggestions and recommendations remain unattended.

This type of a procrastination, on the part of the Government, more particularly the Planning Commission, is not unusual because most of the Expert Committee Reports normally meet similar fate. But, this is not an ordinary issue. To evolve an integrated approach on various energy issues is a challenge. Interdependence of one on the other is so close and so direct that any shortfall on the primary sources of energy can adversely affect many other developmental activities. For example, power sector has been opened up. A number of new Policy initiatives, apart from the main Electricity Act 2003, have been put in place. These have been positively responded by public sector as well as private sector companies. But, power sector alone by itself cannot move forward on a new profile of growth and expansion, with renewed vigour, unless the accompanying segments such as coal and gas also move forward in full synchronism. Similarly, to protect the interests of consumers and to balance the same with the concerns of investors - both are equally important - if power sector has put in place a strong regulatory mechanism, for similar reasons whether the accompanying energy sectors have also structured similar dispensation has emerged as important areas of concern. Another dimension of integrated approach is about the profile of energy sector. Right fuel mix, different technology options, environment friendly development of energy and its consumption, energy efficiency etc. are all important ingredients which constitute and support an integrated approach to energy policies and practices. A third dimension of energy is the extent of self reliance and impact of global developments both from the point of view of energy security as also from the point of view of price volatility. It is for these reasons that the Integrated Energy Policy needed to be attended to on an immediate basis. The start was, no doubt, good and commendable but subsequently it has not met with the required attention and, therefore, it is stagnating and many of the issues are more or less in a limbo.

With the above brief background, now let us take a few specific issues, in various sectors of energy, which have remained unattended and therefore have had adverse impact, and if they remain unattended any longer the impact could be even worse.

Firstly Coal Sector:

There are number of urgent pending issues:

  1. In the last few years, both in the public sector (Center as well as State) and in the private sector, considerable amount of interests have been created to develop new power generation capacities. Several State Governments have also started providing helping hand. Financial sector is also positive. But, there are a large number of projects which are awaiting coal linkages so that their investment proposals could be finalised and financial closure exercises could be seriously pursued. It is not enough for Coal India Companies expressing their inability. As a matter of fact, the Ministry of Environment has also adopted a somewhat difficult position that unless coal linkage is provided the exercise of environmental clearance cannot be entertained seriously. These interlocks, despite overwhelming enthusiasm, are rendering many projects as non starters. I recall, for making the initiative of Ultra Mega Project Scheme succeed, in the Ministry of Power, we initiated regular interactions both with Coal Ministry and Environment Ministry in the Government of India on one hand, and with Chief Secretaries of the State Government on the other. But, this cannot happen obviously for all projects. Each Ministry and Department has to set its own procedure aligned to an effective outcome. Any disconnect will obviously lead to the type of outcome that we are faced with. Coal Linkage System has to be made more objective and faster. Coal production programmes need to be aligned to the requirements of the consumer sectors.

  2. Captive Coal Block Allotment Policy in pursuance of the decision taken, in the year 2005, by the Energy Coordination Committee, presided over by the Prime Minister, was a step in the right direction. But, the follow up during implementation has been somewhat tardy. Actions relating to land acquisition, which is governed by a separate Act and administered by the Ministry of Coal, making available Geological Reports which are expected to be given to the captive coal developers by the CMPDI (a Coal India subsidiary) have proved to be very difficult hurdles and therefore the expectation for a smooth captive mine development process, if not belied totally, has not come anywhere near the schedule that was targeted. Initial take off itself gets stalled on account of the above. Other linked issues concern local transportation including assistance from Railways for transportation of coal to power plants in these cases. Individual captive mine developers obviously may not be able to handle this. If we wish the Captive Coal Mine Policy to succeed, Coal Ministry needs to put in place an institutionalised mechanism which should support, facilitate, guide and monitor development of these projects.

  3. Integrated Energy Policy has emphasised - and there has been a general consensus - on the need for putting a Coal Regulators institution in place. Power sector consumes more than 80% of coal produced. Time and again several issues are brought out by power generating companies, both in the public and private sectors. They could be best resolved by an independent Coal Regulator. Its absence is causing problems for existing power sector players. But, more importantly uncertainties on these issues are causing loss of confidence among the new power project developers, financiers and lenders. As per Integrated Energy Policy (page no. xviii)

"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."

  1. The most important issue in the coal sector which has remained unattended is the Coal Act. The Bill on coal sector was placed in the Parliament earlier than the Electricity Bill, in 2000-01. Now, we have Electricity Act 2003. The Bill on coal has remained pending for more than seven years. This should have been one of the first priorities of the UPA Government. But, it was decided, presumably under pressure from the Left, not to pursue this. Now that the Left is not a part of UPA, can we not expect this to be quickly brought for consideration of the Parliament and have this legislation? It needs to be recognised that full benefit of Electricity Act 2003 cannot be realised unless we also have a new and comprehensive Coal Act, aligned to an approach of integrated energy development. The disconnect is causing adverse impact on power sector.

  2. In the year 2005, Energy Coordination Committee decided that Coal India, in association with others, should acquire coal mines abroad. This would provide a great deal of comfort on our energy security concerns. However, in more than three years not very much seems to have been achieved. A few private companies, no doubt, have been able to make some modest success. A more pro-active approach by Government and Government Companies could have achieved better results and with larger volumes of reserves.

  3. While the present process of coal block allotment, with modifications needed on the basis of feedback received may continue, a few large coal blocks, could be identified, with initial preparatory exercise, to allot on the basis of competitive bids for price of coal. The initiative of Ministry of Power on Ultra Mega Project could be adapted for Ultra Coal Project for selection of developers. These mines could supply to specified groups of power and other projects. This initiative would not even require any amendment to the present Act, and would be fully compatible with captive mining policy.

Secondly, Issues Concerning Water Resources:

Water is an important energy resource besides its vital position for irrigation and drinking purposes. Water is a State subject. This does pose a challenge for a balanced and optimal energy development. However, a few issues which needed to be attended to, on a priority basis, are as follows:

  1. The country needs to have a Water Act. It has been overdue. It will require, no doubt, extensive consultations with State Governments and other stakeholders. But, this should not be the reason not to do it. Formulation and passage Electricity Bill also needed wide consultations with Governments and also a large number of other stakeholders.

  2. Reliability of hydrology data and information needs improvement. Ministry of Power had taken up with Ministry of Water Resources, in the year 2005, that the field offices for investigation and data collection need to be operationalised (a large number of them are non-existent or dormant) and others need to be strengthened. Unless this process is appropriately strengthened, all concerned will have the problem of dealing with inadequate data with lack of reliability.

  3. A large number of hydroelectric projects are being planned and many of them would have issues with the approach and policy of neighbouring countries like Nepal and China. Particularly with China, we need to have an appropriate Agreement so that areas of uncertainties in the minds of developers and financiers are minimised. Absence of concrete arrangements with these countries, may inevitably enhance the risks of large investments in hydro projects.

  4. Medium and Long Term Programmes with Nepal, Bhutan and Myanmar for developing hydroelectric projects in these countries to meet their power needs and to get electricity to India, have been under discussion for a long time. No doubt, this issue is complex, yet Water Resources Ministry in association with Ministry of External Affairs and Ministry of Power may need to pursue this more seriously than has been done in the past. Ministry of Power and MEA have been able to make remarkable progress vis-?-vis Bhutan and there is good future plan as well. But in case of Nepal no visible headway has been made.

Thirdly, the Petroleum Sector:

Speaking in the context of management of energy, this sector has given, and continue to give us, uneasy moments. Our dependence on import has gone on increasing with consequential unbearable burden on our finance because of global price volatility. There are a number of issues, but a few, which have considerable bearing on power sector, are as follows:

  1. In early 2006, it was decided by the Prime Minister, in the Energy Coordination Committee, that attempts should be made to sort out the issue of gas supply for NTPC power projects on an out-of-court-settlement basis. Some attempts were made, but no further follow up was done. As a result, prospects and potentials of gas based power plants have remained totally blocked. Perhaps the potentials and possibilities of gas based power generation capacity has not been fully realised and recognised. If we take only KG Basin potential, and even if we allow for reasonable allocation to fertiliser sector, in next five years we could have got about 20,000 MW commissioned additional capacity, about 10,000 MW in next two to three years. Gas based power plants take two to two and half years to commission. No doubt, nuclear is a long term good option. But, look at our pre-occupation and priority of attention. Whatever we do, we cannot get 20,000 MW additional nuclear capacity in less than next 15 years. Gestation is long, there are many connected issues, cost of power etc. A top level Government involvement would have resolved the gas controversy. But it could not be done.

  2. Indifference and indecision on the part of the Government has now led to a situation that gas production will start, thanks to the efforts of RIL, from KG Basin but there is complete lack of clarity on allocation and pricing. These should have been decided two years back so that investment decisions for new projects could have been taken and new capacities would have come in next six months.

  3. Let us agree that there is hardly any competition in Petroleum sector. It is, in fact, suppliers market. The Government took a lot of time in deciding about the Petroleum Regulatory Act. The Bill was placed in the Parliament by the previous Government. But finally when it has been done, it is a half hearted action. Even recommendations of Standing Committee of Parliament have not been given due consideration. Upstream regulation has been totally left uncovered. The contention of the Petroleum Ministry that Director General of Hydro carbon would handle upstream regulation, is untenable. It requires an independent regulatory framework. Truncated jurisdiction of the Petroleum and Natural Gas Regulatory Board is not serving the desired purpose. We need to enlarge the jurisdiction of the Board to cover upstream segment, and if necessary the Act may be amended. The Integrated Energy Policy has recommended (refer page VIII of the Report) that "There is an urgent need to have an independent regulator for both upstream and downstream sectors."

  4. Several rounds of NELP have been done. We have accumulated useful experiences and feedbacks. The Ministry of Power had also suggested, in the year 2006, a number of changes in the NELP Scheme. Not much has been done. This is over due. The exercise must deliver cost effective outcomes, balance interests of investors and consumers and above all expedite development and production.

Fourthly, the Nuclear Group:

The recent developments, including waiver, for India, by 45 countries in the Nuclear Supplier Group, are, no double, good. But, an euphoric atmosphere that is being created does not seem well placed. We will definitely expect a significant contribution from nuclear sector but we need not be too optimistic and bullish about it. Definitely what is being projected is disproportionate. In any case, following areas will need to be attended to on a priority basis:

  1. Nuclear Power Corporation alone cannot be able to deliver. Other public sector companies may be brought in to supplement the efforts of NPC.

  2. Atomic Energy Act should be amended to allow for private sector participation. This exercise has also remained pending for last three years.

  3. Nuclear power generation also needs to be brought under regulatory system for tariff etc.

Finally, the Power Sector:

While the functioning of the power sector, and the required outcomes, have been severely constrained on account of a number of issues falling under the jurisdiction of coal, water, petroleum and nuclear groups, which have been highlighted in previous paragraphs, there are a number of issues, within the jurisdiction of power sector, which have emerged as areas of concern. A few important of them are briefly highlighted below:

  1. Electricity supply in rural India has been perhaps the most disappointing aspect of Indian power sector. As per Census 2001, 56% of rural households did not have any access to electricity connectivity. In the NDA Government, in the year 2003-04, an ambitious Scheme to electrify 1 Lakh villages and 1 Crore households, was approved and put into implementation. This Scheme was further strengthened and modified and finally Rajiv Gandhi Grameen Vidyutikaran Yojna (RGGVY) was approved by the new Government and implementation commenced in April 2005. Almost during two years of the Eleventh Plan, there has been uncertainty about this Scheme, mainly on account of, it is understood, unhelpful attitude of the Planning Commission. It may be relevant to mention that the Planning Commission was never for this important Scheme, it had opposed the Scheme even when it had been formulated and was under consideration of the Cabinet. The delays in this Plan are going to obviously shift the goal post and the objective of power connectivity for all by the year 2012 is not going to be met.

  2. One of the most important requirements of the rural electrification programme (RGGVY) is the institution of FRANCHISEES. Without this, commercially viable and sustainable electricity supply in rural areas, in most part of the country is not possible. While it is important to provide power for all - and that is the objective of this Scheme - it is equally important that our Electricity Distribution utilities remain financially alive. Franchisee Scheme is meant to ensure this. This has not been pursued seriously. We did have initial efforts and also examples of success on this during 2005-06 and 2006-07, particularly in States like Uttrakhand, West Bengal etc., but a lot serious and sincere follow up is necessary to inspire, motivate and, in case required, pressurise States where it is most needed.

  3. Similar has been the fate of Power Ministry's another flagship Scheme, the Accelerated Power Development and Reform Programme (APDRP) aimed at setting right the electricity distribution systems in towns/cities, once again due to the usual approach of the Planning Commission. The required modifications in the Scheme, based on the Abraham Committee Report, had already been agreed and suggested by the Power Ministry as early as December 2006 so that continuity and momentum could be maintained in the Eleventh Plan commencing April 2007. Yet, Planning Commission, on one pretext or the other, it is understood, kept delaying the move forward. The sector has lost two years, because to bring back the momentum, a lot of preparatory exercises are required at project execution level.

It is known that power sector reform of early nineties did not take off because it began and ended with thrust only on power generation. Distribution, the cutting edge of the industry, was not brought into the agenda of reform. During the Tenth Plan, priorities were rearranged. Distribution was brought to centre-stage. Apart from other initiatives, the two major Schemes RGGVY and APDRP were put in place to address the Distribution reform issues. It is rather sad that the sector lost almost two years in view of such intransigent approach.

  1. Ultra Mega Project (capacity of 4,000 MW for each project) emerged, during 2006, as the most powerful Scheme of the Power Ministry to produce and provide power at competitive rates. Two projects were finalised - Sasan and Mundra - by December 2006. Even for the third project, viz. Krishnapatnam the parties, after initial preparations, had been identified as qualified bidders by end of 2006. Beyond these three projects, the progress has slowed down considerably. It is indeed very difficult to get all issues properly coordinated and orchestrated with involvement and assistance of a number of State and Central agencies. But, the outcome of this one Scheme is so remarkable and attractive that any effort is worth taking. We need to bring back the speed and momentum.

  2. Power sector reform agenda has slowed down. A few large States have yet to reorganise their Electricity Boards. Stringent actions for control of electricity theft, as stipulated in the Electricity Act 2003 are lacking in most of the States. Rating of States on Sector Reform, which was initiated in 2004 and which led to considerable amount of seriousness to improve, has more or less been discontinued. We must remember that the sector, which had the history of only ever increasing losses (from Rs. 3000 Crores in 1991 to Rs. 30,000 Crores in 2001, annually), could see a reversal in 2004-05 and 2005-06, due to series of reform initiatives, can get back on similar path if reform policies, programmes and actions are not pursued with commitment and seriousness.

  3. In last few months, highly confusing signals have emanated, from Ministry of Power, in respect of power equipment manufacturing sector. In 2005-06, when it was found that most of the power projects would get delayed in completion mainly on account of failure of indigenous manufacturing sector (main plant as well as balance of plants), Power Ministry, including at the highest level of Minister, raised the alarm. A lot of follow up actions also followed. But, the preparations of manufacturing sector were so inadequate that some effect could be felt only in 2007-08/2008-09. Even now it continues to be highly inadequate. We must encourage domestic manufacturing. In fact, in the year 2003-04/2004-05, the public sector organisations in power - both Centre and State - went out of way in placing large number of orders on negotiation basis on BHEL. But we cannot be insensitive to the need of power sector to produce power at competitive rates. As it is, it is often criticised that power tariff for Indian manufacturing sector is very high. To produce low cost power will require procurement of power plant equipment on globally competitive basis. Any other signal, and that too from Power Ministry, will only be counter productive. In fact, this was the thrust of the arguments on the basis of which the Union Cabinet made an exception for power sector to give any purchase preference in procurement of equipment, a practice which existed for many years.

  4. On the regulatory side, substantial empowerment has been provided to both the Central and State Electricity Regulatory Commissions. One of the most important responsibilities that has been entrusted to the Regulatory Commissions is development of electricity market. There are a number of issues which individual Regulatory Commissions, Forum of Regulators and Central Commission have to put in place so that they add up to developing a sound electricity market in a period of next three to five years. This in itself is a subject matter of a separate paper. Briefly stated, the objectives of setting of the Commissions, empowering them with substantial jurisdiction authorities, have by and large not been met except for their preoccupation and contribution in the area of tariff determination.

The various issues brought out under the important energy sectors are by no means an exhaustive list of items pending with different authorities. An attempt has been made to pick up only important issues which have remained pending for long and their impact on overall energy management has been substantial. These issues need resolution without further delay and also appropriate efforts to introduce right momentum for achieving required reasonable success.