Securing India’s

Energy Future
Colonel Devindar Kumar, Indian Army
October 2012

This paper was developed by the author while

attending the Defence and Strategic Studies Course
at the Centre for Defence and Strategic Studies at the
Australian Defence College in 2011.

V I C E C H I E F O F T H E D E F E N C E F O R C E
 CENTRE FOR DEFENCE AND STRATEGIC STUDIES

DEFENCE AND STRATEGIC STUDIES COURSE

COURSE MEMBER: Colonel Devindar Kumar

SUBJECT TOPIC: Securing India’s Energy Future

SYNDICATE: 1

DUE DATE: 18 November 2011

WORD COUNT: 10985

STATEMENT OF AUTHORSHIP:

I certify that this material is the result of my own research and writing, except where
otherwise acknowledged, and that this work in whole or in part has not been
submitted to the Centre for Defence and Strategic Studies as part of any other written
work, nor has it been submitted to any other university or institution as part of any
academic unit or program for any reward.

PUBLICATION

I am not interested in having this paper considered for publication by the CDSS.

Signature: …………………………………….

Date Submitted: 18 November 2011

 ii

Table of Contents

Introduction...............................................................................................1
Chapter I: India’s Energy Context .........................................................5
Current and Future Energy Context...........................................................................5
Strategic Direction ...................................................................................................11
Energy Security Challenges.....................................................................................13
Chapter 2: Policy Recommendations and Financial Implications.....16
Section I: Whole-of-government Approach.............................................................16
 Recommendation 1...................................................................................17
Section II- Reduce Energy Imports..........................................................................18
 Transition to Natural Gas.........................................................................18
 Pursue an Informed Nuclear Policy .........................................................21
 Implement an Integrated Renewable Energy Policy................................23
 Other Sources of Energy..........................................................................26
 Accelerate Domestic Exploration ............................................................27
 Recommendation 2...................................................................................28
Section III– Reduce Energy Dependence on West Asia..........................................29
 Recommendation 3...................................................................................33
Section IV– Ensure Security of Energy Critical-SLOCs .........................................34
 Capable Navy...........................................................................................35
 Strengthen Regional Cooperation ............................................................36
 Build Up Strategic Petroleum Reserves (SPR)........................................37
 Recommendation 4...................................................................................37
Section V - Improve Energy Efficiency and Energy Conservation.........................38
 Recommendation 5...................................................................................40
Section VI –Reform Government Policies and Increase Private Investment ..........41
 Government Control and Pricing Policy..................................................41
 Develop Infrastructure with Enhanced Private Sector Participation .......43
 Recommendation 6...................................................................................45
Section VII - Address Environment Challenges......................................................46
 Recommendation 7...................................................................................47
Section VIII: Financial Implications........................................................................48
Conclusion ...............................................................................................50
Abbreviations ..........................................................................................52
Bibliography ............................................................................................54
 Securing India’s Energy Future1

“Energy Security ....: an assured access to energy resources, at affordable prices, to

obtain sustainable economic growth rates and economic development”2

Introduction

India faces formidable challenges in meeting its energy needs. Prime Minister
Manmohan Singh identified energy security as one of the major challenges to the
national security of India.3 Although energy security forms only a part of the limiting
factors affecting the successful and bountiful future of India as it faces potential
‘superpower’ status, it is significant enough to restrict the nation’s growth, security
and overall development in a globalised world.

Energy security has been defined by numerous agencies, however for the purpose of
this Security Policy Paper (SPP), the definition as promulgated by the Indian Planning
Commission has been accepted. The Indian Planning Commission4 defines energy
security as: “We are energy secure when we can supply lifeline energy to all our
citizens irrespective of their ability to pay for it as well as meet their effective demand
for safe and convenient energy to satisfy their various needs at competitive prices, at
all times and with a prescribed confidence level considering shocks and disruptions
that can be reasonably expected”.5

1
This paper was finalised before the Australian Prime Minister’s announcement to review the issue
of uranium sale to India.
2
Talmiz Ahmad, ‘Geopolitics of West Asian and Central Asian oil and gas: Implications for India’s
energy security’, in Ligia Noronha & Anant Sudarshan (eds.), India’s Energy Security, Routledge,
Oxon, 2009, p. 64.
3
Manmohan Singh, ‘PM’s Valedictory Address at the Seminar on the Occasion of Golden Jubilee
of National Defence College’, Prime Minister’s Office, Press Information Bureau, Government of
India, 22 October 2010, retrieved 15 September 2011,
<http://www.pib.nic.in/newsite/erelease.aspx?relid=66514>.
4
The Planning Commission was set up 1950 and is responsible for assessing all the resources of the
country, augmenting deficient resources, formulating plans for the most effective and balanced
utilisation of resources and determining priorities, for more details see, Government of India,
Planning Commission, Planning Commission, retrieved 20 October 2011,
http://planningcommission.nic.in/index.php.
5
Government of India, Integrated Energy Policy: Report of the Expert Committee, Planning
Commission, New Delhi, 2006, p. 54, retrieved 27 September 2011,
<http://planningcommission.nic.in/reports/genrep/rep_intengy.pdf>.
 2

According to the Planning Commission, India has to grow at a rate of eight to ten
percent, over the next 20 years,6 ‘in order to eradicate poverty and meet its human
development goals’.7 India’s economic growth is directly linked to its capabilities to
ensure unrestricted energy supplies. Rapid economic growth has offered employment
opportunities to the growing population resulting in rapid urbanisation which puts
additional strain on energy resources;8 it is estimated that approximately 590 million
people will live in Indian cities by 2030.9 The total number of cars per 1000 people is
estimated to increase from 10 in 2009 to over 100 in 2035, which will lead to a
quadruple increase in oil demand in the transport sector.10 The electricity demand per
capita is also estimated to treble by 2035.11 India’s appetite for energy will
continuously increase (it is estimated to more than double by 2035 (Figure 1))12 for it
to sustain a high economic growth rate and cater for the energy demands of its rising
population.13 Infrastructure too will need to increase three to seven times, by 2031, to
facilitate this.14

In 2006, the Government of India enunciated its energy strategy in the ‘Integrated
Energy Policy’ (IEP) which was approved in 2009. The IEP identifies the energy
security challenges confronting India and suggests policies to be implemented to
overcome them. Although the Government clearly understands the challenges, it has
not been able to totally prevail over them.

India is currently facing a number of energy security challenges, the gravity of which
will increase in future as the demand for energy outstrips supply. As limited

6
Government of India, Integrated Energy Policy, p. xiii.
7
Government of India, Integrated Energy Policy, p. xiii.
8
Cities account for 75 percent of global energy consumption, see Charles K Ebinger, ‘Securing the
Future’, The Financial Express, 03 October 2011, retrieved 30 October 2011,
<http://www.financialexpress.com/news/securing-the-future/854712/0>.
9
Ebinger, ‘Securing the Future’.
10
International Energy Agency (IEA), World Energy Outlook 2011, International Energy Agency,
Paris, 2011, p. 82.
11
International Energy Agency, World Energy Outlook 2011, p. 82.
12
Tanvi Madan, Energy Security Series: India, The Brookings Foreign Policy Studies, November
2006, p. 9, retrieved 20 September 2011,
http://www.brookings.edu/~/media/Files/rc/reports/2006/11india_fixauthorname/2006india.pdf>.
13
Annual growth rate of Indian population is about 1.9 percent over the last two decades, see Anant
Sudarshan & Ligia Noronha, ‘Contextualizing India’s energy security’, in Ligia Noronha & Anant
Sudarshan (eds.), India’s Energy Security, Routledge, Oxon, 2009, p. 8.
14
Ahmad, ‘Geopolitics of West Asian and Central Asian oil and gas’, p. 68.
 3

indigenous resources will not be sufficient to meet India’s burgeoning energy

demands, its dependence on the importing of oil, gas and coal will continue into the
foreseeable future (currently 35 percent of India’s commercial energy needs are
imported).15 India will have to persist with energy imports from West Asia, given the
large reserves located in the region. However, the volatility of the area creates
uncertainty about energy supplies and also causes fluctuations in global prices, which
adversely affects the economy. The extensive use of fossil fuels creates an adverse
affect on the environment and India will come under severe pressure from the world
to reduce its carbon emissions. The numerous agencies and ministries involved in
India’s energy policy complicate and undermine the approach towards energy
security.16 Extensive subsidies and overregulation by the Government discourage
private investment in the energy sector.

The challenges associated with energy security thus require to be addressed by the
Government, by adopting a sustained and focused whole-of-government approach. An
overarching organisation would help meet the challenge of coordinating the activities
of all agencies engaged in the energy sector, backed by well-planned policies. Oil and
coal dependence must be reduced by increasing use of natural gas, nuclear energy,
hydro-energy and renewable energy sources. The dependence on West Asia can be
reduced by securing long-term energy contracts in Africa and the Central Asian
Republics (CAR). To reduce energy demand, energy efficiency and energy
conservation measure must be strictly enforced. The Government also needs to relax
its control over the energy sector and refine its investment policy to attract private
investment into the sector.

The aim of this SPP is to recommend policies that will help India mitigate some of the
challenges in order to secure its future energy needs. The paper will analyse the issue
of energy security by first examining the current energy position to identify the major
energy security related challenges confronting India. Thereafter, these will be

15
‘2011 India Energy Handbook’, PSI Media Inc, Las Vegas, 2011, p. 4, retrieved 20 October 2011,
http://www.psimedia.info/handbook/India_Energy_Handbook.pdf.
16
Joachim Betz and Melanie Hanif, ‘The Formation of Preferences in Two-level Games: An
Analysis of India’s Domestic and Foreign Energy Policy’, German Institute of Global and Area
Studies (GIGA), Working Paper no. 142, July 2010, p. 15, retrieved 20 October 2011, <
http://www.giga-hamburg.de/dl/download.php?d=/content/publikationen/pdf/wp142_betz-
hanif.pdf.
 4

analysed individually to determine specific policy recommendations. Despite the fact

that policy makers and politicians are aware of the energy security challenges and
numerous policies have been issued to address them, the recommendations made in
the paper are aimed at invigorating Government efforts in energy security
policymaking and, in a number of cases, build on the current commitment.
 5

Chapter I: India’s Energy Context

Current and Future Energy Context

India is the third largest energy consumer in the world. Although India constitutes 17
percent of the world population, it uses only 5 percent of global energy.17 According
to International Energy Agency (IEA), Indian total primary energy demand is
estimated to increase from 669 million tonnes of oil equivalent (mtoe) in 2009 to 1464
mtoe in 2035 (Figure 1).

Figure 1: World Primary Energy Demand18

17
Rekha Krishnan, ‘India’s energy security: imperatives for change’, Energy Security Insights, The
Energy and Resources Institute (TERI), vol. 4, no. 4, October-December 2009, p. 2, retrieved 31
October 2011, <http://bookstore.teriin.org/docs/newsletters/ESI_Octoberl-December%202009.pdf.
18
International Energy Agency, World Energy Outlook 2011, p. 81.
 6

According to the IEA, coal, oil, gas and biomass will continue to be India’s major
energy source in future (Figure 2). Although, experts in India see gas as the
cornerstone of India’s future energy policy, oil will remain the primary means of fuel
for the rapid increase in cars19 on Indian roads and coal for electricity generation.20
2009 2020 2035

1600
1464

1400

1200

1000 945
in mtoe

800
669
618
600

434
400 356
280
202 220
200 159 154 165 184
82
49 48 36
5 17 9 18 30 2 9
0
Coal Oil Gas Nuclear Hydro Other Renewable Biomass and Total
Waste
Energy Sources

Figure 2: India’s Primary Energy Demand 2009-203521

Organic oil reserves, which account for only 0.4 percent of the world’s oil reserves,22
are likely to last for eight years at current consumption and 33 years at current
production levels.23 The demand for oil, which is likely to increase by 3.4 percent
annually (from 3.3 million barrels per day (mb/d) in 2010 to 7.4 mb/d in 2035)24 is
widening the gap between oil demand and domestic oil supply (Figure 3). India
produces 35.4 million tonnes (mt) or 0.9 percent of the world’s total oil production

19
According to The Energy Research Institute (TERI) approximately 200 million cars will be plying
on Indian roads by 2030, see Shebonti Ray Dadwal, ‘An Energy Crisis in the Making? : India’s
Policy Options’, in NS Sisodia & C Uday Bhaskar (eds.), Emerging India: Security and Foreign
Policy Perspectives, Institute for Defence Studies and Analyses, New Delhi, 2005, pp. 311-312.
20
Charles K. Ebinger, ‘A Faltering BRIC: The Energy Landscape in New Delhi and Mumbai’, The
Brookings Institution, Foreign Policy Trip Report no. 31, 14 September 2011, retrieved 20 October
2011, < http://www.brookings.edu/reports/2011/0914_india_energy_ebinger.aspx>.
21
International Energy Agency, World Energy Outlook 2011, p. 596.
22
Madan, Energy Security Series: India, p. 1.
23
Nitya Nanda, ‘Trading in the world energy market’, in Ligia Noronha & Anant Sudarshan (eds.),
India’s Energy Security, Routledge, Oxon, 2009, p. 51.
24
International Energy Agency, World Energy Outlook 2011, p. 107.
 7

while it consumes 3.8 percent or 148.5 mt of oil,25 which underscores the dependence
on oil imports. Oil imports are likely to rise from 76.4 percent (2010-11 figures) to
80.5 percent in 2016-17 and are estimated to reach 92 percent in 2035.26 India
currently imports 74 percent of its crude oil from countries in West Asia.27

Figure 3: Projected Oil Demand and Share of Imports: 2010-203528

India’s proven gas reserves are 1.12 trillion cubic metres which is 0.6 percent of the
world proven reserves,29 and these are likely to last 32 years at current production
levels.30 The demand for gas (Figure 4) is likely to increase by 4.5 percent annually,
from 59 billion cubic metres (bcm) in 2009 to 186 bcm in 2035.31 The gas imports are

25
Bhupendra Kumar Singh, ‘India’s Energy Security: Challenges and Opportunities’, Strategic
Analysis, vol. 34, no. 6, November 2010, p. 799, retrieved 20 October 2011
<http://www.tandfonline.com/doi/pdf/10.1080/09700161.2010.512473>.
26
Government of India, Faster, Sustainable and More Inclusive Growth: An Approach to the 12th
Five Year Plan, Planning Commission, New Delhi, August 2011, p. 40, retrieved 20 October 2011,
<http://planningcommission.nic.in/plans/planrel/12appdrft/appraoch_12plan.pdf>; International
Energy Agency, World Energy Outlook 2011, p. 92;
27
Krishnan, ‘India’s energy security: imperatives for change’, p. 2.
28
International Energy Agency, World Energy Outlook 2011, p. 92.
29
Singh, ‘India’s Energy Security: Challenges and Opportunities’, p. 799.
30
Madan, Energy Security Series: India, p. 12.
31
International Energy Agency, World Energy Outlook 2011, p. 159.
 8

estimated to increase from the current 19 percent to 28.4 percent by 2016-17.32 Gas is
primarily used for power generation and for manufacturing fertilizers.33

Figure 4: Projected Natural Gas Demand and Share of Imports: 2010-203534

Although India’s coal reserves are estimated to be around 58,600 mt (fourth largest in
the world),35 its low quality and poor infrastructure have led India to import coal.36
Indigenous coal reserves are likely to run out in 40 years, if production grows at five
percent per annum.37 The demand for coal is estimated to increase 3.1 percent
annually, from 399 million tonnes of coal equivalent (mtce) in 2009 to 883 mtce in
2035 (Figure 5). India’s coal imports are estimated to increase from the current 19.8

32
Government of India, Faster, Sustainable and More Inclusive Growth: An Approach to the 12th
Five Year Plan, p. 39.
33
Madan, Energy Security Series: India, p. 12.
34
International Energy Agency, World Energy Outlook 2011, p. 92.
35
Madan, Energy Security Series: India, p. 12.
36
Betz & Melanie Hanif, ‘The Formation of Preferences in Two-level Games’, p. 11.
37
Government of India, Integrated Energy Policy, p. xxii; Madan, Energy Security Series: India, p.
14; Nanda, ‘Trading in the world energy market’, p. 51.
 9

percent to 22.1 percent by 2016-17,38 and by 2020 India will become the world’s
largest coal importer.39

Figure 5: Projected Natural Gas Demand: 2010-203540

India is eight largest consumer of hydroelectricity in the world.41 It exploits only

31,000 megawatt (MW) of hydro-power out of its total potential of 150,000 MW.42
The hydro-energy share of power capacity is estimated to increase from the current
10.31 mtoe (imports constituting 4.6 percent) to 14.85 mtoe (imports constituting 3.5
percent) by 2016-17.43

India has 19 operational nuclear reactors, while six more are under construction.44 The
nuclear energy share is estimated to increase from the current 6.86 mtoe to 9.14 mtoe
in 2016-17; although India is poorly endowed with uranium.45 The renewable energy

38
Government of India, Faster, Sustainable and More Inclusive Growth: An Approach to the 12th
Five Year Plan, p. 40.
39
International Energy Agency, World Energy Outlook 2011, p. 69.
40
International Energy Agency, World Energy Outlook 2011, p. 92.
41
Madan, Energy Security Series: India, p. 12.
42
Madan, Energy Security Series: India, p. 12.
43
Government of India, Faster, Sustainable and More Inclusive Growth: An Approach to the 12th
Five Year Plan, p. 40.
44
International Energy Agency, World Energy Outlook 2011, p. 451.
45
Betz Joachim and Melanie Hanif, ‘The Formation of Preferences in Two-level Games’, July 2010,
p. 11.
 10

share is estimated to increase from the current 0.95 mtoe to 1.29 mtoe in 2016-17.46 It
is estimated that by 2035, India is likely to generate 20 percent of its power from
renewable energy sources.47

To view the data in its real-life context, 25 percent of India’s population48 or 57

percent of India’s rural households have no access to electricity.49 India’s current
power generation capacity is around 159.64 gigawatt (GW) and the power
requirement by 2031 is estimated to be 800 GW.50 Coal is used for generating 53.3
percent of power and is followed by hydroelectricity which constitutes 24.7 percent
(Figure 6). In addition there are also power cuts which are 13.3 percent at peak
requirement.51 100 million households (more than 75 percent of India’s rural and 22
percent of its urban households) have no access to modern forms of energy and are
dependent on biomass for household needs including cooking.52

Figure 6- India’s Installed Power Generation Capacity53

46
Government of India, Faster, Sustainable and More Inclusive Growth: An Approach to the 12th
Five Year Plan, p. 40.
47
International Energy Agency, World Energy Outlook 2011, p. 79.
48
International Energy Agency, World Energy Outlook 2011, p. 478.
49
Mitali Das Gupta, ‘Energy security and climate change: why we should be concerned with
converging lifestyles’, Energy Security Insights, The Energy and Resources Institute (TERI), vol.
2, issue 4, February 2008, p. 11, retrieved 20 October 2011,
http://bookstore.teriin.org/docs/newsletters/Engery%20Sec%20Insights%20March_08%20Final.pd
f>.
50
Singh, ‘India’s Energy Security: Challenges and Opportunities’, p. 800.
51
Singh, ‘India's Energy Security: Challenges and Opportunities’, p. 800.
52
Gupta, ‘Energy security and climate change: why we should be concerned with converging
lifestyles’, pp. 11-12; Krishnan, ‘India’s energy security: imperatives for change’, p. 3.
53
Singh, ‘India's Energy Security: Challenges and Opportunities’, p. 800.
 11

To summarise, India’s energy needs are estimated to rise at 3.1 percent annually for
the period 2009 to 2035, which is the fastest in the world.54 Fossil fuel will continue
to dominate the energy sector, although the share of renewable energy sources and
nuclear energy will increase in future (Figure 7). India does not possess sufficient
energy resources and this scarcity will result in increased import dependency,
primarily from West Asia. This also implies that India will have to ensure the security
of its Sea Lines of Communications (SLOCs) which facilitate its energy imports.
There is an extreme shortage of power and the country is predominantly dependent on
coal for power generation which is having adverse effects on the environment.

Hydro Renewable
Nuclear Renewable
1.8% 3%
1.0% 0.4%
Hydro
2%
Gas Nuclear
9.7% 4%

Gas
12%

Coal
50%
Coal
Oil 55.6%
31.5%

Oil
29%

2009 2035

Figure 7: India’s Energy Mix: 2009-203555

Strategic Direction
There are a number of ministries in the Government (for example, power, coal,
petroleum and natural gas, and renewable energy) and other government agencies
(like the Planning Commission and Department of Atomic Energy) which are looking
after different energy resources. A number of energy related policies have been issued
by these ministries/agencies. However, for the purpose of this paper, the strategic
direction has been derived from the IEP, the overarching energy policy, and the

54
International Energy Agency, World Energy Outlook 2011, p. 81.
55
International Energy Agency, World Energy Outlook 2011, p. 596.
 12

approach set out in the Twelfth Plan, effective from 2012 to 2017, which is the
Government’s latest policy document.

The IEP lays down the vision for securing India’s energy future in the short, medium
and long term. The policy recommends a number of changes relating to energy
pricing, production, regulatory structures and security.

For the energy sector the Government’s twin objectives set out in the Twelfth Plan are
the provision of adequate availability of energy for faster economic development; and
providing access to energy in rural areas and to the urban poor.56 As per the strategic
guidance on energy as highlighted in the Approach Paper, India’s energy supplies will
have to grow at a rate of 6.5 percent annually for India to grow at 9 percent GDP.57
The Government is sensitive to its import dependency on petroleum and coal and it
plans to continue developing new nuclear power plants. The efforts made to improve
the power situation in previous plans have been inadequate, hence the initiatives made
in the Eleventh Plan (2006-11) needs to be supported financially through the private
sector, in the Twelfth Plan. The transmission and distribution (T&D) losses in the
power sector have been attributed to poor governance and lack of implementation of a
proper regulatory structure. The Government proposes reforms on an extensive scale
to promote private investment in transmission and electricity generation. Although
steps have been taken to de-regulate oil price, the prices of other energy resources like
coal, power and gas are still controlled by the Government. In the long term, the
Government is proposing to align the domestic energy prices with the global price
trends.

The Government, over the years, has issued comprehensive guidance on energy
security, however it has not been able to achieve what it has set for itself due to lack
of coordination and consistent delays in implementing policies. The guidelines issued

56
Government of India, Faster, Sustainable and More Inclusive Growth, An Approach to the 12th
Five Year Plan, p. 39.
57
Government of India, Faster, Sustainable and More Inclusive Growth, An Approach to the 12th
Five Year Plan, p. 40.
 13

in the IEP and the Approach Paper is very similar, indicating the non-implementation
or delay in implementing the recommendations of the IEP be implemented.58 For
instance the power reforms have been delayed due to regulatory issues between the
central and state governments.59 Setting up of a National Energy Fund (NEF) to
finance research and development (R&D) in the energy sector has been approved;
however it is yet to be set up. The IEP in its recommendations does not cater for
sufficient safeguards against the threat to the environment. The IEP is also silent on
the issue of development of infrastructure to match the increased energy supplies. On
the positive side the Government has been able to achieve some progress on the IEP
goals, like substantial efforts are being made to promote renewable energy and new
nuclear power plants are being built (although the Government has not yet been able
to adopt a comprehensive nuclear energy policy).60

While the factual content of the previous two sections is important to any
understanding of Indian energy security situation, the next section will highlight the
challenges it has brought to the fore.

Energy Security Challenges

Although India’s future energy security challenges lie both on the demand and supply
side, a large part resides with the Government, which predominantly controls it. This
results in bureaucratic issues and skewed policies, thus discouraging whole-hearted
participation by the private sector. The number of ministries/agencies engaged in the
energy sector increases the complexity and the apprehensions held about energy
security.

58
Government of India, Mid Term Appraisal, Eleventh Five Year Plan, 2007-12, The Planning
Commission, 2011, p. 19, retrieved 20 October 2011,
<http://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/Comp_mta11th.pdf>; Deepa
Badrinarayana, ‘India’s Integrated Energy Policy: A Source of Economic Nirvana or
Environmental Disaster’, Environmental Law Reporter, vol. 40, no. 10708, July 2010, p. 10710,
retrieved 20 October 2011, < http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1636049##>.
59
Badrinarayana, ‘India’s Integrated Energy Policy: A Source of Economic Nirvana or
Environmental Disaster’, p. 10710.
60
Badrinarayana, ‘India’s Integrated Energy Policy: A Source of Economic Nirvana or
Environmental Disaster’, p. 10710.
 14

The Government has domestic and international compulsions which slow down the
reform process and prevent it from taking hard decisions. The Government cannot
totally do away with subsidies and is also required to exercise some control over the
price of energy commodities, as it directly affects the poor.61 However, this
discourages the private sector (whose predominant focus is economic and not social)
from entering the energy sector. The Government, without effective private
contribution, is incapable of securing India’s energy needs. International pressures too
create challenges for the Government, for instance the US pressure aimed at
discouraging India to deal with Iran and Myanmar for energy business.

The high imports and almost stagnant domestic crude oil production implies large
outflow of foreign exchange.62 India’s energy import bill, in terms of percent of GDP,
is the highest amongst the G20 nations.63 The Government is pursuing laying gas
pipelines from a number of Asian countries, however, due to political and other
reasons it has not been successful in implementing even one. Energy imports
highlight the need to create port and other infrastructure at both ends for the
movement of energy resources.64 The overdependence on West Asia increases India’s
vulnerability to disruptions and price fluctuations which have the potential to directly
affect the economy. Growing global energy demand has led to severe competition
amongst the major economies in securing their future energy needs from the finite
resources available.

India is moving towards using nuclear energy as a major source of energy; however
setting up nuclear plants and meeting its nuclear fuel requirements continue to remain
as major challenges. Although, India is blessed with a high potential for hydro-power
generation, the capabilities are not being optimally exploited. The increasing
awareness of environmental damage caused by extensive use of fossil fuels may
impact on their supplies, where source countries may decline to export their energy

61
Approximately 30-40 percent of the Indian population lives below the poverty line.
62
Krishnan, ‘India’s energy security: imperatives for change’, p. 3.
63
Ebinger, ‘A Faltering BRIC: The Energy Landscape in New Delhi and Mumbai’.
64
Ritu Mathur, ‘The role of energy efficiency and renewable energy in enhancing energy security:
challenges and opportunities’, The Energy and Resources Institute (TERI), vol. 3, issue 3, October-
December 2008, p. 3, retrieved 13 October 2011, <
http://bookstore.teriin.org/docs/newsletters/Energy%20Security_Oct_DEC08.pdf>.
 15

resources to preserve the global environment. Use of improper/unorthodox energy

resources,65 besides having adverse effects on the health of the people using the said
resource, also impacts on the environment.66 The Government has issued guidelines
on energy efficiency and conservation; however the implementation of these is not
forthcoming.

To summarise, the major energy security challenges confronting India are: lack of an
integrated approach towards energy security; excessive dependence on fossil fuels
leading to imports for which the country is over reliant on West Asia; large
dependence on energy imports makes the SLOCs vulnerable to interdiction; poor
implementation of energy efficiency and conservation measures leads to wastage;
increased use of fossil fuel is likely to increase the international pressure on climate
change issues; and limited participation of the private sector due to excessive
government control on the energy sector. The next chapter will analyse various
energy security related challenges and recommend policy initiatives which the
Government needs to include in its overall energy security strategy.

65
These include fire wood, cow dung cake and crop residue; 500,000 people, who use these sources
of energy, lose their life every year in India and a substantial amount is spent by the women to
collect biomass, see Neha Mishra, Ruchika Chawla & Leena Srivastava, ‘Towards effective
petroleum subsidies’, The Energy and Resources Institute (TERI), vol. 3, issue 1, April 2008, p. 5,
retrieved 13 October 2011, < http://bookstore.teriin.org/docs/newsletters/Energy-Security-
3(1).pdf>.
66
Krishnan, ‘India’s energy security: imperatives for change’, p. 2.
 16

Chapter 2: Policy Recommendations and Financial Implications

Considering the present and future energy context it is evident that India faces severe
energy security challenges which need to be addressed in a holistic manner. This
chapter will analyse these challenges in the context of the current government
initiatives to determine specific policy recommendations for the Government. To
address India’s energy security issues, the following seven recommendations, are
proposed:-

 Recommendation I –Apply Whole-of-Government Approach.

 Recommendation II- Reduce Energy Imports.
 Recommendation III – Reduce Energy Dependence on West Asia.
 Recommendation IV – Ensure Security of Energy-Critical SLOCs.
 Recommendation V – Improve Energy Efficiency and Energy Conservation.
 Recommendation VI – De-regulate Government Control and Relax Investment
Policy.
 Recommendation VII – Address Environmental Challenges.

Section I: Whole-of-government Approach

The Government’s strategic direction has been enunciated by numerous contrasting

policies; however there is no overarching energy strategy which coordinates the issue
of energy security holistically. All the ministries have their independent vision
statements, for instance ‘The Hydrocarbon 2025 Report’, issued by the Ministry of
Petroleum and Natural Gas, focused only on the oil and gas.67 Lack of a coherent
energy strategy can be attributed to the non-availability of an overarching energy
organisation.

India will only be able to secure its energy future if it can successfully implement the
laid down policies in a cohesive, coordinated and timely manner. The numerous
agencies/ministries dealing with different energy resources use different sets of

67
Madan, Energy Security Series: India, p. 33.
 17

energy data thus hampering the adoption of a cohesive and coordinated approach to
energy security.68 The policies on pricing, energy production and tax subsidies all
differ across different energy sources. In addition energy security challenges require a
coordinated and cohesive response from a number of non-energy related ministries
like the Ministry of External Affairs (MEA), Ministry of Science and Technology for
R&D, Ministry of Road Transport and Highways, Ministry of Railways and Ministry
of Environment.

The Government needs to elevate energy security to within the national security
architecture. Adopting a sustained and focused whole-of-government approach to
address future energy challenges is considered essential, given the complexity of the
issues and involvement of a number of ministries. As the first step to achieve the
integration, the Government needs to create an ‘Energy Ministry’ or ‘Energy Council’
to coordinate all matters pertaining to energy security.69 The new organisation would
help coordinate energy-related issues within ministries (energy-related ministries) and
between ministries (with other ministries which have energy-related issue overlaps).
However, until such time as an agency of this type is formed, the Indian Planning
Commission needs to take the overall lead.

Recommendation 1: Apply Whole-of- Government Approach

 elevate energy security to form part of national security architecture;

 apply a whole-of-government approach to address energy security challenges;
and
 create an ‘Energy Ministry’ or an ‘Energy Council’ having overarching
control over various energy related ministries/departments.

68
Government of India, Mid Term Appraisal, Eleventh Five Year Plan, 2007-12,
The Planning Commission, 2011, p. 18, retrieved 20 October 2011,
<http://planningcommission.nic.in/plans/mta/11th_mta/chapterwise/Comp_mta11th.pdf>;
Ganesh, ‘The Idea that People Can’t Afford to Pay for Energy is a Myth’.
69
In 1992, a central energy ministry did exist but it was later divided it into a number of different
ministries, see Bertz, Joachim & Melanie Hanif, ‘The Formation of Preferences in Two-level
Games’.
 18

Section II- Reduce Energy Imports

The shortage of indigenous energy resources and the rise of energy demand will drive
India to increase energy imports in the future. Environmental factors and import
dependency on coal may create uncertainty in its supplies from countries which may
restrict export of coal as part of their climate change policies. In order to minimise the
vagaries of over-dependence on oil and coal, India needs to diversify its energy-mix
and also explore own territory for new oil and gas finds.

Transition to Natural Gas

New discoveries of gas fields are rising while the discovery of new oil fields is
declining.70 In order to reduce consumption of oil and coal, India needs to gradually
transition to natural gas. However, there are a number of domestic and international
issues which need to be addressed for India to successfully increase the usage of gas.
On the domestic front, although gas has been discovered at a number of locations in
India, the government policies lack coherence in terms of its pricing and usage in
sectors other than power, for instance fertilizers.71

India has initiated a few international pipeline projects within Asia. In 2010, India
signed two agreements for the Turkmenistan-Afghanistan-Pakistan-India (TAPI)
pipeline. India, which has been discussing the Iran-Pakistan-India (IPI) pipeline since
the last decade and a half, has of late shown renewed interest in the project.72 India is
also engaging Myanmar for transhipping gas through a Myanmar–Bangladesh-India
pipeline, and engaging Oman for an Oman-India sub-sea pipeline (Figure 8).
However to date, not a single project has been successfully implemented. The main
reason for non-implementation of gas pipelines are political differences between
parties, although security and commercial issues and the additional regional factors
also contribute to the delay in the projects.

70
Michael T. Klare, ‘Navigating the Energy Transition’, Current History, January 2009, p. 28,
retrieved 20 October 2011, < http://relooney.fatcow.com/SI_Routledge-Oil/0-Important_19.pdf>.
71
Krishnan, ‘India’s energy security: imperatives for change’, p. 3.
72
Madan, Energy Security Series: India, p. 77.
 19

Proposed Oman-
India pipeline

Figure 8: Proposed Pipelines: Turkmenistan–Afghanistan–Pakistan–India; Iran–

Pakistan–India; and Oman-India73

The IPI pipeline was delayed due to a number of reasons: disagreements over the gas
price with Iran and the transit fee with Pakistan; and India’s indecision due to the
risks involved, given the security environment prevailing in Pakistan and
Afghanistan.74 The role of the US in discouraging India from entering into an energy
agreement with Iran is also instrumental in the delay.75 As a result of India’s
indecision, Iran and Pakistan have decided to move forward with the project without
India.76 The Myanmar-Bangladesh-India pipeline was held up due to Bangladesh’s
linking the project with its desire to obtain transit rights to Nepal and Bhutan through

73
Dadwal, ‘Can the South Asian Gas Pipeline Dilemma be Resolved through a Legal Regime?’, p.
760.
74
Madan, Energy Security Series: India, p. 80; Narayani Ganesh, ‘The Idea that People Can’t
Afford to Pay for Energy is a Myth’, The Times of India, 04 October 2011, retrieved 05 November
2011, <http://articles.timesofindia.indiatimes.com/2011-10-04/edit-page/30242008_1_energy-
pricing-hydropower-nepal>.
75
Charles K Ebinger, Energy & Security in South Asia: Cooperation or Conflict?, Brookings
Institution Press 2011, p. 12; Ganesh, ‘The Idea that People Can’t Afford to Pay for Energy is a
Myth’.
76
Madan, Energy Security Series:India, p. 80.
 20

India.77 In addition, the mechanisms for protecting the interests of all the parties do
not exist (for instance contracts, concessions and treaties). There is no agreed legal
framework to regulate activities and this can lead to delays and cost escalation.78

There are some major issues with regard to the gas pipelines, although they can all be
resolved. The Government has to pro-actively engage all concerned nations to resolve
all political and other issues and create formal treaties and legal frameworks in order
to move forward with the projects. The Indian energy relationship with Iran79 and
Myanmar needs to be protected while dealing with the US. The Indian government
must work out the security arrangements for these pipelines with the Governments of
Pakistan and Afghanistan. India also needs to consider buying gas from Bangladesh,
given the improvement of relations between the two neighbouring states.80 On the
domestic front, India needs to create a gas grid within the country and needs to reform
its gas policies and gradually reduce subsidised sale to the fertilizer and power sectors
and move towards market-driven prices.

South Asia is ideally located to act as a bridge between West Asia and East Asia.
Creation of an energy grid in South Asia, connecting the suppliers and the consumers
will have major economic benefits for the region and will also help meet the energy
demands of the South Asian economies. India through the South Asian Association
for Regional Cooperation (SAARC) needs to push for establishing a regional energy
grid in South Asia. The pipeline grid and other related infrastructure can be created
through loans from the Asian Development Bank (ADB). The pipelines would be laid
through various countries in the region, including Afghanistan, Pakistan and
Bangladesh, who would get a transit fee, thus making them stakeholders in the
security and functioning of the grid. The grid’s overall coordination could be

77
Mahendra K. Lama, ‘Cross-border power trading in South Asia: emerging new paradigms’, The
Energy and Resources Institute (TERI), vol. 3, issue 2, July 2008, p. 11, retrieved 13 October
2011, < http://bookstore.teriin.org/docs/newsletters/Engery%20Sec%20Insights%20july_08.pdf>;
Madan, Energy Security Series: India, p. 80.
78
Shebonti Ray Dadwal, ‘Can the South Asian Gas Pipeline Dilemma be Resolved through a Legal
Regime?’, Strategic Analysis, vol. 35, no. 5, September 2011, p. 760, retrieved 24 October 2011, <
http://www.tandfonline.com/doi/pdf/10.1080/09700161.2011.591251>.
79
Madan, Energy Security Series: India, p. 19.
80
Ganesh, ‘The Idea that People Can’t Afford to Pay for Energy is a Myth’.
 21

undertaken under the auspices of the SAARC, thus relieving the smaller nations of
any fears from India.

Pursue an Informed Nuclear Policy

India along with other major energy consumers like China, Japan and South Korea
are emphasising the use of nuclear energy to conserve fossil fuels, diversify
energy sources and improve energy process and ensure fuel supply stability. The
Indo-US civil nuclear deal and the Nuclear Suppliers Group’s waiver in 2008
helped India enter into civil nuclear deals with several countries. India has
announced its nuclear expansion program which highlights a 15-fold increase over
the next 20 years, from the current 4,500 MW (accounts for three percent of the
total energy consumed) to about 62,000 MW by 2032, estimated to account for 20
percent of the total energy output.81

Although, nuclear energy offers a number of benefits, currently it is not a cost-

effective option. Expenditure on safety, disposal of radio-active waste and
management of old plants are some of the additional costs associated with nuclear
energy. However, given the depleting fossil fuel reserves and with renewable energy
still in its infancy, nuclear energy remains a major source of energy for large energy
consumers like India and hence needs to form a significant part of India’s energy-
mix. India, therefore, needs to issue comprehensive nuclear policy in conjunction
with the country’s overall energy strategy.82

Over the years India has gained adequate technical capabilities in the field of nuclear
energy field and is also being supported by a number of countries in setting up nuclear
power plants. Although, India has limited uranium of its own, it has entered into
uranium supply arrangements with a few countries including Russia, Kazakhstan,

81
Arvind Gupta, ‘India’s Nuclear Energy Programme: Prospects and Challenges’, Strategic Analysis,
vol. 35, no. 3, May 2011, p. 373, retrieved 20 October 2011, <
http://www.tandfonline.com/doi/pdf/10.1080/09700161.2011.559963>.
82
Manmohan Singh, ‘Excerpts of Address by the Prime Minister at the Combined
Commanders’ Conference’, Prime Minister’s Office, Press Information Bureau, Government of
India, 03 September 2010, retrieved 15 February 2011,
<http://www.pib.nic.in/newsite/erelease.aspx?relid=65696>.
 22

Namibia and Mongolia.83 However, to meet its long term uranium requirements, India
needs to secure a steady supply of uranium from uranium-producing countries,
including Australia. Australia, which holds 38 percent of the known global uranium
reserves, has declined to sell uranium to India, since the latter is a non-signatory to the
Nuclear Non-Proliferation Treaty (NPT).84 India needs to engage Australia
proactively by explaining its position on the signing of the NPT and how the sale of
uranium hinders the goal of building a strategic partnership between the two nations.
The growing strategic relations with the US could be explored by India to push its
case for a uranium deal with Australia.

India, given its huge energy demands is an attractive market for setting up of nuclear
power plants and has entered into various cooperation agreements with several
countries including Russia and France.85 Considering Japan’s expertise in the field of
nuclear energy, India needs to engage its help on civil nuclear cooperation.86

India holds 31 percent of the world’s thorium reserves and aims to gradually shift
from fast breeder reactors to thorium-breeder reactors.87 Although a number of
countries have abandoned their efforts on thorium-breeder technology, India, which is
currently working on the technology, needs to continue doing so to achieve self-
reliance in the field of nuclear energy. The Government also needs to create a friendly
public opinion towards nuclear power, given the recent domestic resistance to the

83
GG Pamidi, ‘Energy Security – A Strategic Imperative for India’, Journal of the United Service
Institution of India, vol. CXLI, no. 583, January-March 2011, p. 91.
84
The Liberal government under Prime Minister John Howard agreed in principle to sell uranium to
India in 2007, however, the Labor government which came into power later, under Prime Minister
Kevin Rudd re-imposed the ban, see Dennis Rumley, ‘Australia and the New Geopolitics of
Energy’, Future Directions International, p. 9, 12 August 2010, retrieved 15 October 2011, <
http://www.futuredirections.org.au/files/1281593373-
FDI%20Strategic%20Analysis%20Paper%20-%2012%20August%202010.pdf>.
85
Russia is engaged in building a number of reactors and India has signed a framework agreement
with France in 2010 for sourcing two reactors with an assured uranium supply to fuel them, see
Gupta, ‘India’s Nuclear Energy Programme: Prospects and Challenges’, p. 377.
86
Rajiv Narayan, ‘The NSG exemption and possibilities for nuclear commerce with India’, The
Energy and Resources Institute (TERI), vol. 4, issue 1, January-March 2009, p. 18, retrieved 13
October 2011, < http://bookstore.teriin.org/docs/newsletters/ESI-Jan-March%202009%20.pdf>.
87
Brahma Chellaney, Asian Juggernaut: The rise of China, India and Japan, Harper Business, New
York, 2010, p. 133.
 23

construction of the Kudankulam Nuclear Power plant in the aftermath of the nuclear
accident at Fukushima in Japan.88

Implement an Integrated Renewable Energy Policy

The current shortfall in electricity supply is likely to continue in future, considering
the rapid growth of India’s population. Presently 65 percent of electricity, which is the
main consumer of energy resources, is being generated using coal, gas and oil (Figure
6)89 and in future too the fossil fuels would remain the main energy source until
renewable energy sources become viable. India has an extensive renewable energy
potential, however only a small fraction of this has been tapped,90 for instance, India
has exploited only 20 percent of its total hydro-energy potential.91

The Government has announced several policies to promote renewable energy. It has
set a target of using renewable energy sources to generate 20 percent of the generation
capacity by 2020.92 India plans to increase its solar energy production by 1000 MW
every year with a plan to generate 20 GW of solar power and set up 30 ‘solar cities’
by 2022.93 Wind energy is the fastest growing renewable source in India and a
cumulative capacity of 10,900 MW has already been set up so far with a total
potential for 65,000 MW. In 2009, India also became a member of the International
Renewable Energy Agency (IRENA), a German initiative, which will assist India in
gaining expertise and knowledge in the renewable energy field.

88
India is building a US$ 3.5 billion Kudankulam Nuclear Power Plant, in the Southern state of
Tamil Nadu, in conjunction with Russia’s Atomsexport. Out of the two 1GW reactors proposed to
be built, the first reactor is due to start commercial operations in December 2011. However, since
the last few weeks the locals of the area supported by a few state political parties have protested
against the construction of the plant in the aftermath of the Fukushima accident, see Amy Kazmin,
‘Nuclear protests put India on back foot’, Financial Times, London. 15 November 2011, retrieved
16 November 2011, http://www.ft.com/intl/cms/s/0/491c396a-062c-11e1-a079-
00144feabdc0.html.
89
Krishnan, ‘India’s energy security: imperatives for change’, p. 3.
90
Paul Curnow, Lachlan Tait and Ilona Millar, ‘Financing Renewable Energy Projects in Asia:
Barriers and Solutions’, RELP, vol. 1, 2010, p. 108.
91
RV Shahi, ‘India’s Strategy Toward Energy Development and Energy Security’, Ministry of
Power, Government of India, p. 7, retrieved 20 October 2011, <
http://www.powermin.nic.in/whats_new/pdf/INDIA'S%20STRATEGY%20TOWARD%20ENER
GY%20DEVELOPMENT.pdf>.
92
Ebinger, ‘A Faltering BRIC: The Energy Landscape in New Delhi and Mumbai’.
93
International Energy Agency, World Energy Outlook 2011, p. 388.
 24

Although the Government has set up an ambitious plan for tapping renewable source
of energy, there are a number of challenges which need to be addressed in order to
meet its renewable energy objectives. The long term efficacy of renewable sources
would depend upon the socio-economic development of the country and the
technological abilities to compete with other energy options. Renewable energy
projects are capital intensive and require an upfront capital expenditure, unlike
conventional energy projects. Approximately 75 percent of the cost of energy
generated from wind turbines arises from upfront capital cost, as compared to the gas
power plants where approximately 70 percent of the cost of energy generated arises
from ongoing costs like fuel.94 In addition the renewable energy projects are
susceptible to weather conditions thus increasing the risk. The lack of connecting
links between renewable projects and the state transmission grids also delays the
implementation of projects.95 The risks involved in the renewable energy sector
discourage private players from entering the field. In the wind energy sector, India fell
from being the world’s fourth largest producer of wind energy to fifth, thus showing
lack of urgency in achieving set targets.96

The lengthy procedures for licensing, the dependence on technology and insufficient
financial support act as obstacles to increasing the share of renewable energy in
India’s energy mix. There is also a clear lack of coordination between the various
government departments and different state governments on renewable energy. State
governments have different policies for renewable energy projects and most of them
are skewed in favour of public sector units which discourage the entry of private
players. The manufacturers of renewable energy technologies like solar photo-voltaic
cells and wind turbines have been facing problems with quality control and meeting
international standards.97

94
Curnow, Paul, Lachlan Tait and Ilona Millar, ‘Financing Renewable Energy Projects in Asia:
Barriers and Solutions’, p. 103.
95
Ebinger, ‘A Faltering BRIC: The Energy Landscape in New Delhi and Mumbai’.
96
Shebonti Ray Dadwal, ‘India’s Renewable Energy Challenge’, Strategic Analysis, vol. 34, no. 1,
January 2010, p. 3, retrieved 20 September 2011,
http://www.tandfonline.com/doi/pdf/10.1080/09700160903354948.
97
Dadwal, ‘India’s Renewable Energy Challenge’, p. 3.
 25

The Government needs to issue on priority a comprehensive ‘Renewable Energy

Policy’, which has been sitting on the drawing boards for quite some time.
Considering the fact that currently, renewable energy is not as cost effective as the
coal based power generation, the Government needs to devise and issue incentives to
boost the renewable energy sector and create an enabling environment to make the
sector attractive for the future. Incentives like tax relief; waiving of import duties on
renewable energy technology; fixing higher purchase price for electricity generated
from renewable energy sources;98 and simplification of the licensing policies will
attract private participation in the sector. Government needs to design and support
relaxed financial policies to meet the high initial cost of renewable energy technology
and the need for upgrading for production of cost-effective and efficient renewable
energy. The State Governments have to be mandated to follow national policies which
are fair to both public sector units and private players. The Government also needs to
reduce the dependency on imported technology, by coordinated R&D projects which
at present are fragmented amongst the numerous agencies. The Government needs to
increase awareness of renewable sources of energy and communicating the
advantages of using renewable sources of energy to its population.

India needs to tap its own vast hydro-power potential as well as buy hydro-power
from its neighbours in South Asia. Given India’s vast potential for generating hydro-
power, India needs to set up new hydro-power projects in India’s North and North-
East. The community will have to be educated on the importance of these projects as
their construction would involve displacement of people who need to be adequately
compensated with the allotment of new land and employment in such projects.

Nepal has a 83,000 MW capacity for producing hydro-power, while it uses only about
600 MW.99 India needs to work out a power-buying arrangement with Nepal where
Indian state/private companies can build the hydro-power plants and buy 40-45000

98
Cost of one unit of electricity from coal based plant is Rs 1.70/unit, for wind energy it is Rs
3.50/unit and Rs 12/unit from solar, see Deepa Jainani, ‘Use energy efficiently to fight climate
change: BEE officials’, The Financial Express, 25 August 2011, retrieved 20 October 2011, <
http://www.financialexpress.com/news/use-energy-efficiently-to-fight-climate-change-bee-
official/836718/0>.
99
Ganesh, ‘The Idea that People Can’t Afford to Pay for Energy is a Myth’.
 26

MW of power from Nepal.100 Although this would involve displacement of

population, this can be worked out with an adequate compensation package built into
the deal itself. There has been a similar power buying arrangement with Bhutan which
has caused a major increase in Bhutan’s per capita GDP101 and the situation in Nepal
could be similar. There is further potential for setting up of hydro-power plants in
Bhutan, which India needs to pursue. India also needs to consider the hydro-power
generation capacities existing in Bangladesh to augment its power supplies. Such
regional cooperation, which boosts economic development will be enduring and help
build good relationships between the countries of South Asia.

India has set up a National Bio-fuel Coordination Committee, under the Prime
Minister to devise and implement its Bio-fuels policy. India plans to blend up to 20
percent of ethanol and bio-fuels, with petrol and diesel respectively, within a decade.
Incentives for tax relief and fixing of a minimum purchase price of the produce will
have to be done to encourage growth of bio-fuel crops. However, the reduction in land
area presently being used for growing food crops to cultivate bio-crops will impact on
national food security. The Government could consider offering Government and
forest waste land; it has 50 million hectares of wasteland and 34 million hectares of
forest land which can be used to cultivate bio-fuel crops and safeguard food
security.102 Comprehensive bio-fuels guidelines need to be incorporated in the
proposed renewable energy policy.

Other Sources of Energy

The Government also needs to consider unconventional fossil fuels including shale
gas and coal-bed methane, to supplement its energy needs. The potential reserves of
850 bcm of coal-bed methane, 600 million tonnes of shale oil and about 6000 trillion
cubic metres of gas hydrates103 are new possibilities being added to India’s resource
pool. The Government needs to adopt newer technologies like coal gasification and

100
Ganesh, ‘The Idea that People Can’t Afford to Pay for Energy is a Myth’.
101
Ganesh, ‘The Idea that People Can’t Afford to Pay for Energy is a Myth’.
102
Madan, Energy Security Series: India, p. 52.
103
Shebonti Roy Dadwal. `Energy Security: India’s Options’. Strategic Analysis. IDSA. Jul 1999. p.
669, retrieved 20 October 2011, < http://www.ciaonet.org/olj/sa/sa_99das02.html>.
 27

mining of coal-bed methane. India also needs to emulate China by developing its
own coal-to-liquid (CTL) process to convert coal to synthetic gas and diesel fuel.104

Accelerate Domestic Exploration

The Government has not been able to completely explore indigenous oil and gas
fields (only 22 percent of the sedimentary basins have been explored).105 Experts
believe that India’s potential reserves are located in deepwater and the public sector
companies lack the technology to explore the potential areas. Therefore attracting
investment from domestic and foreign oil companies become a key component to
domestic supply diversification.106 To encourage the private sector in exploring oil
and gas, the Government has initiated the ‘New Exploration and Licensing Policy’
(NELP), however, due to tax and policy issues private participation remains low.107
The Government’s decision to withdraw a seven-year tax holiday on natural gas
production has not gone down well with the private players.

The Government has to encourage large-scale public and private participation to

explore new sources of oil, gas and other energy sources. A large number of
incentives and tax benefits, and a level playing field for private players with no
preferential treatment to state owned companies, will attract major national and
international participation in the energy sector. In addition, timely investment and
application of requisite recovery techniques would assist in sustaining old and
depleted fields.

104
Chellaney, Asian Juggernaut: The rise of China, India and Japan, p.126.
105
Ebinger, ‘A Faltering BRIC: The Energy Landscape in New Delhi and Mumbai’.
106
G Parthasarathy & Nimmi Kurian, ‘Enhancing India’s energy security options’, Pacific and Asian
Journal of Energy, vol. 12, no. 1, 2002, p. 74.
107
Singh, ‘India’s Energy Security: Challenges and Opportunities’, p.802.
 28

Recommendation 2: Reduce Energy Imports

 The Planning Commission/Energy Ministry to determine a balanced energy-

mix to comprise oil, gas, coal, nuclear and renewable energy sources and
implement policies rigorously to prevent slippages.
 Ministry of Petroleum and Natural Gas to:
o gradually shift from oil to gas;
o in conjunction with MEA continue to work towards overland gas
pipelines from Iran, Turkmenistan, Myanmar and Bangladesh; pursue
establishment of a South Asia Energy Grid through the SAARC; and
o encourage domestic exploration for oil and gas.
 Department of Atomic Energy to issue a comprehensive nuclear energy
policy on priority.
 MEA to re-engage Australia to secure uranium supplies.
 Ministry of New and Renewable Energy to:
o issue an integrated renewable energy policy;
o develop additional hydro-power plants in India and work out hydro-
power buying arrangements from Nepal, Bhutan and Bangladesh; and
o exploit the potential of bio-fuel and other sources of energy like shale
gas and coal-bed methane.
 29

Section III– Reduce Energy Dependence on West Asia

Any instability in West Asia, which holds 65 percent of oil and 34.4 percent of gas
reserves,108 has consistently affected the international energy market. India imports
oil from more than 24 countries109 and almost two-thirds comes from five countries;
all located in unstable regions (Figure 9).110 The enduring problems including the
recent pro-democracy protests in Egypt, Yemen, Bahrain and Libya and the US-Iran
confrontation111 are all signs of instability in the region - potentially disrupting energy
supplies and causing major price rises of crude oil and gas. Price increases will have
a direct effect on India’s trade and fiscal deficit.112 India, therefore, needs greater
diversity of energy sources.

Figure 9: India's Crude Oil Import (2009)113

108
GS Khurana, ‘Indian Ocean in India’s Security Calculus’, in NS Sisodia & C Uday Bhaskar (eds.),
Emerging India: Security and Foreign Policy Perspectives, Institute for Defence Studies and
Analyses, New Delhi, 2005, p. 197; Ahmad, pp. 66-68.
109
Government of India, Integrated Energy Policy, p. 59; Madan, Energy Security Series: India, p.
15.
110
US Energy Information Administration (EIA), Country Analysis Brief: India, EIA, 2010, retrieved
18 September 2011, < http://www.eia.doe.gov/cabs/India/Oil.html >; Madan, Energy Security
Series: India, p. 15.
111
Dadwal, ‘An Energy Crisis in the Making? : India’s Policy Options’, p. 308; Ahmad, p. 81.
112
Madan, Energy Security Series: India, p. 15.
113
Singh, ‘India's Energy Security: Challenges and Opportunities’, p. 802.
 30

A pro-active approach to identify and secure exploration rights in other oil and gas
producing countries (in the CAR, Latin America and Africa),114 will help India reduce
its large dependency on West Asia and the conduct of ‘oil diplomacy’115 or ‘energy
diplomacy’116 is considered essential.

Africa accounts for 9.6 percent of the world’s proven oil reserves, 7.9 percent of the
world’s total natural gas and 3.9 percent of the world’s proven coal reserves.117 It is
estimated that Africa has 350.5 mt of surplus crude oil on offer annually. Currently
the Indian public sector and private sector companies are engaged in sourcing energy
resources from Sudan, Libya, Nigeria, Egypt and Madagascar. Although India has
embarked on the road to acquire oil resources in Africa (15.7 percent oil supplies are
sourced from African countries),118 its experience has been mixed due to the political
upheavals in various countries, rising insecurity in the region and growing
competition with other countries seeking a share of the surplus oil. CAR has an
estimated reserve of 2.7 percent of world’s oil reserves and 7 percent of gas reserves,
mainly in three countries, Kazakhstan, Turkmenistan and Uzbekistan. India has
entered into a gas supply arrangement with Turkmenistan and has signed a
Memorandum of Understanding for oil and gas exploration with Uzbekistan where an
Indian company is building facilities to produce liquefied petroleum gas (LPG).119

The growing demand for oil and gas resources by China and India has increased
competition between the two giants and this has driven global energy prices.120 India,
now imports 76 percent of its oil and China imports 40 percent and their needs for
imports will grow in coming years.121 Competition between China and India to secure

114
Jyotsna Bakshi, ‘India and Central Asia: Policy Review and Projecting into Future (2005-2025)’,
in NS Sisodia & C Uday Bhaskar (eds.), Emerging India: Security and Foreign Policy
Perspectives, Institute for Defence Studies and Analyses, New Delhi, 2005, p. 242.
115
Madan, Energy Security Series: India, p. 45.
116
‘This [energy diplomacy] consists of substantial, pro-active and multifaceted engagements across
the world to promote India’s energy security interests’, see Ahmad, p. 68.
117
Ruchita Beri, ‘Prospects of India’s Energy Quest in Africa: Insights from Sudan and Nigeria’,
Strategic Analysis, vol. 34, No. 6, November 2010, p. 897, retrieved 20 October 2011, <
http://www.tandfonline.com/doi/pdf/10.1080/09700161.2010.512486.
118
Singh, ‘India's Energy Security: Challenges and Opportunities’, p. 802.
119
Nivedita Das Kundu, ‘Geopolitical and Economic Significance of Central Eurasia: Indian
Perspective’, Indian Foreign Affairs Journal, vol. 5, no. 3, July-September 2010, p. 330.
120
Chellaney, Asian Juggernaut: The rise of China, India and Japan, p. 92.
121
Chellaney, Asian Juggernaut: The rise of China, India and Japan, p. 97.
 31

long term exploration/supply contracts with a number of African states has

demonstrated serious rivalries. India currently is losing out to China in the direct
bidding wars and hence needs to align its energy policy to its foreign policy.122 Lalit
Mansingh, former Foreign Secretary of India has said, ‘Energy Security has become a
national priority and must, therefore, feature at the top of the foreign policy
agenda’.123

Direct competition with China has not made much headway because of the large
amount of money which China uses to back its proposals in addition to large amount
of aid to these countries.124 It is no secret that China artificially increases its offer to
outbid its competitors, and thus winning most of the contracts.125 China has energy
interests in most of the energy-producing countries in Africa.126 China sources 16
percent of its total oil imports from Angola and not surprisingly is its largest aid
donor.127 In contrast India may not be able to adopt a similar mode of operation,
given its relatively smaller coffers. In addition, the Indian public-sector companies
have limited autonomy in decisions related to overseas investments as government
control on these companies at times results in delays due to slow clearances/approvals
for projects.128 Investment beyond US$ 75 million requires approval by the cabinet
committee on economic affairs. On the other hand, Chinese companies are fully
supported by the Chinese government and have a free flow of funds readily available
to take timely decisions.

122
Chellaney, Asian Juggernaut: The rise of China, India and Japan, p. 97.
123
Lalit Mansingh, ‘Foreign Policy Imperatives for a Post-Nuclear India’, in NS Sisodia & C Uday
Bhaskar (eds.), Emerging India: Security and Foreign Policy Perspectives, Institute for Defence
Studies and Analyses, New Delhi, 2005, p. 50.
124
Madan, Energy Security Series: India, p. 44.
125
Chellaney, Asian Juggernaut: The rise of China, India and Japan, p. 108.
126
For instance, Angola, Nigeria, Chad, Gabon, Congo, Ethiopia, Zimbabwe and Equatorial Guinea,
see Chellaney, Asian Juggernaut: The rise of China, India and Japan, p. 107.
127
Chellaney, Asian Juggernaut: The rise of China, India and Japan, p. 107.
128
For instance, in 2004 Oil and Natural Gas Corporation Videsh Limited (OVL) lost out to China in
acquiring energy assets in Equador when the Indian Government did not allow it to raise its bid of
US $ 1.4 billion; in December 2005 the Government blocked OVL from acquiring a 45 percent
stake in a Nigerian company on security grounds the a Chinese company picked up the stake, see
Madan, Energy Security Series: India, pp. 42-43; OVL also lost to Chinese companies for energy
deals in Sudan and Angola, see Singh, ‘India's Energy Security: Challenges and Opportunities’, p.
803.
 32

India needs to develop a long-term strategy for securing its energy needs from
Africa/CAR. Rather than selectively engaging resource rich countries to secure its
needs, India, like China, needs to engage all resource rich countries, thus widening
choices. India needs to broaden its criteria from identifying only those nations which
have an exportable surplus and relatively close proximity to India to considering other
geo-political, historical or socio-economic factors.129 The current tempo achieved
with select countries in the energy sector needs to be strengthened by timely and
satisfactory execution of present commitments. India also needs to use its diplomatic
arm to exploit fleeting opportunities that are offered due to a sudden change in the
geo-political situation like Sudan after the referendum and Libya after the fall of
Gaddafi.

India needs to support its government-owned companies and make them

internationally competitive to compete with other international companies. India also
needs to expand its relations beyond its energy needs. India should attach attractive
inclusive growth proposals, as part of its energy bids in order to secure contracts in
the competitive environment. Diplomatic, informational, military and economic
(DIME) initiatives like investment to develop infrastructure; employment generation;
development in the fields of information technology and education; and military
cooperation,130 will strengthen Indian bids. Simultaneously, India needs to engage
China and other economies to joint bids for energy contracts, rather than competing
against each other.

129
Krishnan, ‘India’s energy security: imperatives for change’, p. 4.
130
Military training assistance to Kazakhstan in 2002, Nigeria in 2005 and Uzbekistan in 2006 are a
few examples where India has employed its military in countries where it had energy interests, see
Madan, Energy Security Series: India, p. 49.
 33

Recommendation 3: Reduce Energy Dependence on West Asia

Planning Commission/Energy Ministry in conjunction with MEA to:

 develop a long-term strategy for acquiring equity oil and gas assets overseas;
 conduct ‘Oil Diplomacy’ to engage all major energy source countries to
secure long-term energy contracts;
 engage China and other major economies to work out a mechanism for
joint bidding and development of energy resources in Africa/CAR; and
 support both financially and diplomatically, the private and state run
companies to make them internationally competitive.
 34

Section IV– Ensure Security of Energy Critical-SLOCs

“Till such time as we are dependent on fossil fuels we must have the capability of
safeguarding the security of the sea lines of communication”131

India is ideally located, geographically, to meet its energy needs. However, limited
SLOCs in the Indian Ocean Region (IOR) (Figure 10), and the necessity for
‘uninterrupted navigation through the Straits of Hormuz’,132 continue to remain
critical for India’s energy needs.133 Any future conflict with its adversaries will have
adverse affects on India’s imports, which are facilitated by the SLOCs in the IOR.134

Trade Routes

Chinese Developed Ports

Figure 10: Energy Supply Routes135

India’s dependence on energy imports by sea through the various choke points in the
Indian Ocean has increased over the last few decades. 74 percent of India’s oil

131
Manmohan Singh, ‘PM’s Valedictory Address at the Seminar on the Occasion of Golden Jubilee
of National Defence College’.
132
M Hamid Ansari, ‘Imperatives of Indian Policy in West Asia’, in NS Sisodia & C Uday Bhaskar
(eds.), Emerging India: Security and Foreign Policy Perspectives, Institute for Defence Studies
and Analyses, New Delhi, 2005, p. 251.
133
Ansari, p. 251; Khurana, ‘Indian Ocean in India’s Security Calculus’, p. 199; Ahmad, p. 71.
134
GS Khurana, ‘Security of maritime energy lifelines: Policy imperatives for India’, in Ligia
Noronha & Anant Sudarshan (eds.), India’s Energy Security, Routledge, Oxon, 2009, p. 117;
Monika Chansoria, The Tale of the Asian Twin Tigers: China’s Quest for Regional Dominance in
the India-China Context, Centre for Land Warfare Studies, New Delhi, Article No. 1466, 07
January 2010, retrieved 27 September 2011,
<http://www.claws.in/index.php?action=details&m_id=467&u_id=28>.
135
Curzon, String of Pearls, retrieved 10 September 2011,
<http://cominganarchy.com/2010/10/22/string-of-pearls/comment-page-1/#comment-395207>.
 35

imports are sourced from the Persian Gulf region which is far greater than that for
China or the US, which source 58 percent and 20 percent respectively. India gets its
liquefied natural gas (LNG) mainly from the gulf countries, including Qatar, while
China buys from Australia, Malaysia and Indonesia. This heavy reliance on one
particular geographical area has made India vulnerable to disruptions in its energy
supplies.

China’s forays into the Indian Ocean, besides being aimed at checking India’s rising
influence in the area136 also make Indian ships, transiting the SLOCs, vulnerable to
interdiction.137 The potential exploitation of land routes for energy supply through
unstable Afghanistan and Pakistan is fraught with serious risks. Threats from pirates
and armed robbers also exist in the region, in particular, off the Somali coast and the
Gulf of Aden.138

Therefore, energy security needs to be part of India’s strategic thinking and military
planning.139 India needs to ensure that its energy-critical SLOCs are secure and free
from intervention, from both state and non-state actors. A capable Navy,140 good
relations and regional arrangements (for patrolling and joint exercises)141 with all
nations having a stake in the IOR,142 would help India in keeping its SLOCs secure. In
addition India also needs to consider enhancing its Strategic Petroleum Reserves
(SPR) capacities.

Capable Navy
To meet the conventional and non-conventional threats, the Indian Armed Forces, in
particular the Indian Navy has to guard not only the SLOCs, but also the energy
infrastructure both onshore and offshore. The development plans of the People’s

136
Khurana, ‘Indian Ocean in India’s Security Calculus’, p. 202.
137
Khurana, ‘Security of maritime energy lifelines: Policy imperatives for India’, p. 115.
138
Khurana, ‘Security of maritime energy lifelines: Policy imperatives for India’, p. 112.
139
Chellaney, Asian Juggernaut: The rise of China, India and Japan, p. 136.
140
Khurana, ‘Security of maritime energy lifelines: Policy imperatives for India’, p. 119.
141
Khurana, ‘Indian Ocean in India’s Security Calculus’, pp. 204-206.
142
C Raja Mohan, ‘Energy security and Indian foreign policy’, in Ligia Noronha & Anant Sudarshan
(eds.), India’s Energy Security, Routledge, Oxon, 2009, p. 134; Khurana, ‘Indian Ocean in India’s
Security Calculus’, p. 207. Khurana, ‘Security of maritime energy lifelines: Policy imperatives for
India’, p. 119.
 36

Liberation Army Navy (PLAN), besides military reasons are also aimed at securing
China’s energy supplies in the IOR. In addition Chinese development of a series of
ports in the Indian neighbourhood (also referred to as China’s String of Pearls policy)
has military implications for India. The historical animosity between the two
countries; the growing Chinese interest in the IOR; and Indian energy vulnerability,
have all driven the rapid modernisation plans of the Indian Navy. Over the years, the
Indian Navy has demonstrated its capabilities to patrol and protect the sea trade in the
IOR.143 India, therefore, needs to continue developing its naval capabilities to secure
its national interests including energy security.

Strengthen Regional Cooperation

In addition to the development of its Navy, India is also working with key littoral
states in the IOR as well as players from outside the region like the US and Japan, to
help monitor activities at the vulnerable choke points in the IOR. However, India
needs to specifically develop and build long-term relations/tie-ups with countries
which are better located geographically to influence these choke points; Iran on the
Strait of Hormuz; Singapore, Indonesia and Malaysia on the Strait of Malacca;
Djibouti and Eritrea on the Bab el-Mandab; South Africa and Mozambique near the
Cape of Good Hope. A cooperative arrangement between China and India will
safeguard their energy interests and will also be a step in the direction of improving
relations between the two Asian giants. Japan, like India has a high stake in the region
to meet its energy needs. Japan is Iran’s largest trading partner and consumes 22
percent of Iran’s oil exports.144 India must endeavour to improve its ties with Japan;
strong ties with India also enhance the security of Japan’s energy supplies through the
Indian Ocean.

143
In 2003 as part of Operation Sagittarius, the Indian Navy provided escorts to high value US cargo
from Japan to Afghanistan passing through the Straits of Malacca; Chellaney, Asian Juggernaut:
The rise of China, India and Japan, p. 139.
144
Chellaney, Asian Juggernaut: The rise of China, India and Japan, p. 141.
 37

Build Up Strategic Petroleum Reserves (SPR)

To prepare for short-term disruption to oil supplies, caused by crises or sudden price
increases, the Planning Commission suggested creating a 90 day reserve by 2013,145
however the Government has agreed to create a 15 day reserve only,146 which it is
building and is likely to be completed by December 2012.147 In addition India also
has access to 35-40 days of refined products.148 Considering the security environment
in the Indian sub-continent and the security situation in West Asia, the requirement of
creating a 90 day reserve (same as the US reserves) is considered essential and is
recommended to be created within a decade.149 Although the creation of the SPR
would entail large expenditure on infrastructure and would have to be afforded
suitable protection, the reserves will provide India with the safeguards against any
disruption or sudden spurt in energy prices.

Recommendation 4: Ensure Security of Energy Critical-SLOCs

 Ministry of Defence in conjunction with MEA and Energy Ministry to:

o continue working towards developing Indian naval capabilities to
safeguard both defence and energy security interests; and
o enhance regional cooperation by working out a mechanism, for joint
patrolling and safety of energy supplies in the SLOCs, with other nations
including Japan and ASEAN nations.
 Planning Commission/Energy Ministry to work towards building up a 90
days SPR over the next 10 years.

145
C Uday Bhaskar, ‘Developments in North Africa and West Asia: strategic implications’, The
Energy and Resources Institute (TERI), vol. 6, issue 2, April-June 2011, p. 5, retrieved 13 October
2011, < http://bookstore.teriin.org/docs/newsletters/ESI%20Volume%206%20Issue%202.pdf>.
146
Madan, Energy Security Series: India, p. 53.
147
Press Trust of India (PTI), ‘India to have strategic oil reserves by Oct 2011’, The Times of India,
15 April 2010, retrieved 20 September 2011,< http://timesofindia.indiatimes.com/business/india-
business/india-to-have-strategic-oil-reserve-by-October-2011-/articleshow/5811837.cms>; India
also maintains 45 days of petroleum products reserves, see Parthasarathy & Nimmi Kurian,
‘Enhancing India’s energy security options’, p. 75.
148
Madan, Energy Security Series: India, p. 53.
149
Madan, Energy Security Series: India, p. 53.
 38

Section V - Improve Energy Efficiency and Energy Conservation

The Government has issued numerous policies and conducted public awareness
campaigns to conserve energy and improve energy efficiency in all sectors. However,
the results achieved are far from satisfactory. The main reasons for unsatisfactory
results in the power sector emanate from subsidisation of power which does not
discourage energy wastage. In addition there are losses in T&D of electricity due to
old and poorly-maintained grids. According to the Planning Commission, India
suffers a loss of Rupees (Rs) 70,000 crores ($AUS 14 billion) annually on electricity
distribution inefficiencies and wastage. The State Governments are managing these
losses through bank loans. The electricity tariffs have not been raised in the last ten
years in some states. Poor regulatory methods have not been able to check and reduce
power theft.

In the transport sector, the non-availability of efficient public transport system leads
to increased use of private vehicles. Although the 12th Plan aims to develop an
efficient public and freight transport system, it will take time to develop and cover the
entire country. In the building sector too the Government has not been able to enforce
the laid down energy conservation initiatives. Although the Energy Conservation
Building Code (ECBC),150 for construction of new buildings, has been notified, only
two states have made them mandatory.151 India also lacks the access to good
technology for the various energy resources and this hampers achievement of energy
efficiency.

Energy conservation measures, big or small, involving all sections of the society, need
to be strictly enforced. Experts estimate that India can save up to 20 percent of energy

150
The objective of ECBC is to reduce the baseline energy consumption by implementing efficiency
measures in buildings, see Mili Mazumdar & Priyanka Kochar, ‘Energy efficient building design:
contribution to energy security’, The Energy and Resources Institute (TERI), vol. 4, issue 4,
October-December 2009, p. 16, retrieved 13 October 2011,
<http://bookstore.teriin.org/docs/newsletters/ESI_Octoberl-December%202009.pdf>.
151
Montek Singh Ahluwalia, ‘Deputy Chairman’s Remarks at 56th Meeting of the National
Development Council (NDC)’, at Vigyan Bhavan, New Delhi on 22nd October, 2011, retrieved 01
November 2011,
http://planningcommission.nic.in/plans/planrel/56NDC/DCH_speech_56NDC.pdf.; Gupta,
‘Energy security and climate change: why we should be concerned with converging lifestyles’, p.
13.
 39

if it manages wastage.152 Energy conservation has to be inculcated into the national

psyche. This can be done by creating awareness in the society and by providing
access to suitable options that allow energy conservation. Power thefts need to be
checked by enforcing strict legal and regulatory actions like streamlining of billing
and collection procedures. The losses in T&D of energy need to be reduced by
improving the energy grids and transmission system. Applying different rates of
power during various times of the day, as implemented by a few countries, could be
considered. Energy conservation initiatives undertaken by the Government have to be
strictly enforced in the residential and construction sectors. As per estimates, 90
percent of India’s commercial buildings of 2030 do not exist today,153 hence the
importance of embracing bold and enforceable energy efficiency standards.

Similarly stringent fuel efficiency standards need to be applied to new vehicles

coming onto the roads. In addition the Government needs to explore the viability of
using hybrid and electronic vehicle technology in the private vehicle category. Oil
dependency in the public transport sector can be reduced by switching over to
Compressed Natural Gas (CNG), as has been done in Delhi. The improvement in
mass transit systems in all cities will reduce the use of private vehicles. Railways will
need to be increasingly electrified and the roads improved. Initiatives such as
changing the 400 million incandescent bulbs all over the country with compact
fluorescent lamps (CFLs) will save 6,000 to 10,000 MW of power.154 The
Government also needs to increase its focus on technological research to innovate and
develop better technologies, like the clean coal technology, better technologies in
nuclear power generation, in oil recovery programs and conversion of natural gas into
liquid,155 for which NEF needs to be set up on priority.

152
Ganesh, ‘The Idea that People Can’t Afford to Pay for Energy is a Myth’.
153
Ebinger, ‘Securing the Future’.
154
Gupta, ‘Energy security and climate change: why we should be concerned with converging
lifestyles’, p. 13.
155
Madan, Energy Security Series: India, p. 18.
 40

Recommendation 5: Improve Energy Efficiency

Planning Commission/Energy Ministry to:

 launch public awareness initiatives to inculcate energy conservation
amongst the masses;
 in the power sector: reduce the power losses; adopt innovative power pricing
to reduce consumption;
 create a legal and regulatory framework to mandate energy conservation
initiatives;
 increase focus on R&D; set up the NEF on priority; and
 in conjunction with Ministry of Road Transport and Highway to:
o accelerate its efforts to develop public transportation system in all
cities; and
o enforce vehicle fuel efficiency safeguard guidelines; adopt new
vehicle technology like hybrid technology and electric vehicle.
 41

Section VI –Reform Government Policies and Increase Private Investment

Government Control and Pricing Policy

To provide cheap and affordable services, India has been following a policy on
subsidising the costs of electricity, diesel, gas and kerosene oil.156 In the current year’s
budget, the Government has proposed a subsidy of Rs 23,640 crores (AUS$ 4.7
billion) which is 16.47 percent of the total subsidy bill (Figure 11).157

Figure 11: Details of Subsidies158 (Rs 1 Crore = AUS$ 200,000)

156
Ebinger, ‘Securing the Future’.
157
Government of India economic policies update - Details of Subsidies,
158
Government of India, Data for use of Deputy Chairman, Planning Commission, Planning
Commission, Government of India, 01 November 2011, p. 16, retrieved 03 November 2011,
www.planningcommission.gov.in.
 42

The subsidies cause a large amount of wastage and thus cause a major hindrance to
efforts to improve energy efficiency and conservation.159 In addition the government
is losing billions of dollars while providing these subsidies.160 Industry has to pay
higher tariffs to offset the subsidies which make India increasingly expensive to
operate in.161 The benefit of electricity subsidies is being exploited by rich farmers
and landowners due to the flawed current policies.162

The price control on petroleum products reduces profitability and thus discourages
private players from entering the energy sector.163 In 2010, the government did carry
out modest pricing reforms, including de-regulation of petrol prices and increasing the
prices of gas for industrial use.164 However diesel, kerosene oil and gas, which have a
direct impact on the living standards of the poor, still attract large subsidies.

The government needs to review its policies on subsidies and also needs to reform its
policy on pricing of energy. Since most of the subsidies are directed at the
weaker/poorer level of society, a gradual deregulation policy needs to be pursued.
Alternatively, innovative ideas to reduce subsidies need to be adopted, as well as
ways to ensure that the subsidy benefits go to the right people. For instance, provision
of cash allowance or issue of a smart card to households who are authorised these
subsidies in lieu of gas or kerosene oil; and providing subsidy on diesel to the freight
and passenger carriers only, could be considered. The Government also needs to move
towards linking the prices of all energy commodities to the global market prices to
make the sector attractive for private investment.

As per estimates 75 percent of India’s energy assets and infrastructure is operated by

state-owned companies.165 The coal industry is dominated by the Coal India Limited
(CIL), a state owned monopoly and world’s biggest coal company, which produces

159
Betz Joachim & Melanie Hanif, ‘The Formation of Preferences in Two-level Games’, p. 21.
160
Ebinger, ‘A Faltering BRIC: The Energy Landscape in New Delhi and Mumbai’.
161
Ebinger, ‘A Faltering BRIC: The Energy Landscape in New Delhi and Mumbai’.
162
Ganesh, ‘The Idea that People Can’t Afford to Pay for Energy is a Myth’.
163
Ebinger, ‘A Faltering BRIC: The Energy Landscape in New Delhi and Mumbai’.
164
Ebinger, ‘A Faltering BRIC: The Energy Landscape in New Delhi and Mumbai’.
165
Madan, Energy Security Series: India, p. 28.
 43

more than 80 percent of India’s coal.166 Government control of the coal sector and
failure to improve infrastructure limits the domestic coal production and leads to
increased reliance on expensive imported coal.167 In the oil and gas sector there are a
few significant private players like Reliance Industries (private companies control
about 13 percent of India’s oil production and one-fifth of its gas production),168
however the state-owned companies, like the Oil and Natural Gas Corporation, Oil
India Limited and the Indian Oil Corporation, play the most important role. The
power generation sector too is in the hands of state-companies like the National
Thermal Power Corporation, National Power Corporation and the National Hydro-
electric Power Corporation.169 Due to limited competition from private players, the
state-owned companies are not pushed towards improving their efficiency and are still
not competitive internationally. They are also hampered by the subsidies and price
control by the Government.

Lack of a proper government policy mechanism, like auctions, for allotment of coal
mining licenses to private players is a major barrier in the deregulation of coal sector.
Privatisation will lead to improved efficiencies and reduction in costs. The
government therefore needs to de-regulate the coal sector and further reform the other
sectors to encourage entry of new players into the sector and increased participation
from the existing players.

Develop Infrastructure with Enhanced Private Sector Participation

Unless the Government’s energy policies are supported financially, they will either
fail or be overly delayed. There is a massive requirement for funds to: sustain the
existing policies; implement new policies, for R&D and for improving the energy
related infrastructure. The electricity grids and the transmission lines are old and
inefficient; resulting in average transmission losses of 34 percent (a good electricity

166
Aditya Birla Money, ‘Coal India Ltd. (CIL)- A play on de-regulation’, 24 June 2011, p. 1,
retrieved 20 September 2011,
<http://www.adityabirlamoney.com/Uploads/ResearchRpts/Coal%20India%20-
%20Initiating%20Coverage%20240611_11_2806110911.pdf>; Betz, Joachim & Melanie Hanif,
‘The Formation of Preferences in Two-level Games’, p. 10.
167
Ebinger, ‘A Faltering BRIC: The Energy Landscape in New Delhi and Mumbai’.
168
Madan, Energy Security Series: India, p. 31.
169
Betz, Joachim & Melanie Hanif, ‘The Formation of Preferences in Two-level Games’, p. 10.
 44

grid loses about 6 percent).170 The gas infrastructure pipelines are also poorly
distributed throughout the country. The road and rail infrastructure is also under
heavy strain and besides causing delays in carriage of energy resources from
ports/mines to their load centres, it is also high on costs.171

The Government has to afford a high priority to develop the energy-related

infrastructure to support the energy reforms, for which private investment is essential.
Private participation in the energy sector is not forthcoming due to the government
control over prices of energy commodities and subsidies. Currently very few Indian
private companies are involved in construction of refineries and transport
infrastructure; however, more companies, both Indian and foreign, need to be
attracted to participate in the energy sector. The Government has to create a
supportive investment climate (such as delivering good governance and regulatory
reforms) for the private sector investment to increase.172 The current investment
policy needs to be relaxed to facilitate cross investments between the energy
exporting and importing companies.173 Additional incentives, in terms of tax relief
and cheaper loans for participation in the energy sector also need to be considered.

170
Ebinger, ‘A Faltering BRIC: The Energy Landscape in New Delhi and Mumbai’.
171
Ganesh, ‘The Idea that People Can’t Afford to Pay for Energy is a Myth’.
172
International Energy Agency, World Energy Outlook 2011, p. 101.
173
Singh, ‘India’s Energy Security: Challenges and Opportunities’, p. 803.
 45

Recommendation 6: De-regulate Government Control and Relax Investment Policy

Planning Commission/Energy Ministry in conjunction with relevant energy

ministries/agencies to:
 de-regulate coal sector and initiate additional reforms in oil and gas sectors
to encourage private participation;
 gradually de-control all energy commodity prices and link them to the
market driven prices;
 review the current subsidies on energy and devise an innovative subsidy
policy; and
 in conjunction with the Ministry of Finance review the Investment Policy so
as to encourage large-scale private investment in the energy sector.
 46

Section VII - Address Environment Challenges

The increased pressure on India, from the global community, to cap emissions of
greenhouse gases (GHG) and to reduce the carbon footprint poses a major challenge
to India’s energy security.174 India currently has one of the lowest emissions per
capita largely due to low total primary energy supply (TPES) per capita (Figure
12);175 however as the energy consumption increases the emissions will also increase
commensurately. The carbon dioxide emission is estimated to increase from 0.9
billion tonnes to 5.8 billion tonnes in 2031.

Figure 12: Global CO2 Emissions Per Capita (source World Energy Outlook: 2011)

174
Ravi Kumar Batra, ‘Natural gas pipelines: Geopolitics, affordability, security dimensions’, in Ligia
Noronha & Anant Sudarshan (eds.), India’s Energy Security, Routledge, Oxon, 2009, p. 87.
175
International Energy Agency (IEA), IEA Scoreborad 2011- Implementing energy efficiency policy:
Progress and challenges in IEA member countries, International Energy Agency, Paris, 2011, p.
26.
 47

In view of the increasing pressure from the developed nations to cut down on carbon
emissions,176 India has set a target of achieving 20 percent reductions in CO2 intensity
by 2020 (as compared to 2005 levels).177 The major environment challenges can be
addressed by reducing use of fossil fuels and transition to alternate fuels. However,
renewable energy development is still in its infancy and its development will take
time and a large amount of investment.178 In the Indian context the easy availability of
coal makes it the most used energy source and it will remain so till 2031-32.179 Use
of coal with old technologies and the lack of Carbon Capture and Storage (CCS)
capable power plants have direct environmental implications.180

India will have to transition to renewable sources of energy and promote cleaner use
of coal to be able to achieve the 20 percent CO2 emission reduction target. The
Government has to incorporate clean coal technology and CCS-capable power plants
in its energy policy. India while making efforts to procure cleaner technology from
other countries also needs to increase its investment in R&D in order to develop
indigenous innovative and clean technologies. Provision of affordable and good
technology in rural areas, where almost 100 million households still use biomass as
energy for day to day chores, will address indoor pollution and health issues.

Recommendation 7: Address Environmental Challenges

Planning Commission/Energy Ministry in conjunction with all the energy

related ministries/agencies to:
 import clean technologies to reduce GHG emissions;
 facilitate R&D to innovate/invent new technologies to obtain clean energy;
and
 spread environmental awareness amongst the masses.

176
Dadwal, ‘India’s Renewable Energy Challenge’, p. 1.
177
International Energy Agency, World Energy Outlook 2011, p. 53.
178
Michael T. Klare, ‘Navigating the Energy Transition’, Current History, January 2009, p. 26,
retrieved 20 October 2011, < http://relooney.fatcow.com/SI_Routledge-Oil/0-Important_19.pdf>.
179
Government of India, Integrated Energy Policy, p. xiii.
180
Ebinger, ‘A Faltering BRIC: The Energy Landscape in New Delhi and Mumbai’.
 48

Section VIII: Financial Implications

The policy initiatives recommended in this SPP will have a significant financial
implication. Although the regular budgetary allocations cater for the planned
expenditure on the energy sector, a detailed analysis by various agencies is
recommended to be done to assess the future financial requirements for
implementation of the policies.

India requires a total of AUS$ 2.2 trillion (at 2010 rates) to build the energy related
infrastructure over the period from 2011-2035 (Figure 13)181 The power sector
expenditure includes: an amount of AUS$ 999 billion for construction of new power
plants (coal, gas, oil, nuclear, hydro, biomass, wind, geothermal and solar); and AUS$
632 billion for T&D infrastructure (AUS$ 111 billion for transmission and AUS$ 521
for distribution).182 In addition the Government will have to cater for unrestricted flow
of funds for the R&D in the energy sector. The Government roughly requires an
amount of about AUS$ 100 billion a year, from 2011 to 2035, to secure its future
energy needs.

Biofuels Coal
16 87 Oil
(1%) (4%) 203
(9%)

Gas
266
(12%)

Power
1631
(74%) (Billion US$ in year-2010)

Figure 13: Cumulative Investment in Energy-supply Infrastructure, 2011-2035

181
International Energy Agency, World Energy Outlook 2011, pp. 98-99.
182
International Energy Agency, World Energy Outlook 2011, pp. 98-199.
 49

To meet the financial requirements, the Government will have to tap all government
and private sources, both domestic and international. The Government will have to
resort to obtaining loans from various international agencies, like the World Bank, the
International Monetary Fund and the ADB for the construction of the trans-national
gas pipelines and other infrastructural development projects. On the domestic front,
the Government will have to prevail over the domestic financial institutions to provide
loans to private companies, engaged in energy projects, at attractive rates of interests.
The Government should endeavour to save a minimum of 50 percent (approximately
AUS$ 2.4 billion annually) from the existing subsidies bill and this money is
recommended to be diverted for R&D in the energy sector. The Government also
needs to reduce the large losses (AUS$ 14 billion a year) in the T&D of power and
aim to cut them to the minimum and the savings are recommended to be re-invested
in the power sector.

In addition, the Government needs to consider levying a nominal energy tax, on the
rich society, on various luxury/expensive goods and cars; and on petrol (from private
car owners). Government should also bring out innovative schemes to collect money
for the energy sector. For instance sale of power bonds (with a healthy rate of interest
and income tax rebate) is likely to generate large amount of funds. In the overall
analysis, the Government’s objective of providing affordable lifeline energy to all its
citizens is contingent on its ability to raise the funds required to implement the
recommendations.
 50

Conclusion

India has been successful in achieving high economic growth in the first decade of the
current century. However, its capacity to sustain a similar rate of economic growth
will be contingent upon the ability to secure its energy needs. While analysing energy
security concerns, this SPP contends that India faces formidable challenges given the
magnitude of its future energy requirements and would require a sustained and
focused whole-of-government approach to mitigate them. The paper has analysed
these challenges and has proposed specific policy recommendations that need to be
addressed with perseverance and vitality.

Growing energy requirements and limited domestic energy resources will drive India
to increasing energy imports. The nation cannot depend on a sustained supply of oil
from West Asia, given the instability in the region which leads to frequent price
fluctuations. India and China are dependent on the SLOCs in the IOR and as the
PLAN forays into the Indian Ocean for energy security or otherwise, it will encounter
a better placed and strong Indian Navy and this is likely to drive both countries into a
rivalry and competition for control/domination of the SLOCs. Dependence on fossil
fuel has placed India under extreme pressure to reduce its GHG. The Government is
aware of the energy security challenges and has put into practice a number of
initiatives to secure its future energy needs. The IEP lays down the plan to be
followed to ensure India meets its future energy needs; however, it is the
implementation of the policies, which have often been slow and unnecessarily
influenced by political and social factors.

India needs to elevate energy security to form an integral part of the national security
architecture and adopt a whole-of-government approach to address the energy security
challenges. The first step in a direction towards securing India’s energy future is to
create an overarching organisation, ‘Energy Ministry’ or ‘Energy Council’, designed
to help integrate and coordinate the efforts of various Ministries working towards
energy security. The next step is to reduce India’s over-dependence on imports by
moving towards a balanced energy-mix comprising all energy resources. The use of
gas, nuclear and renewable sources of energy, as an alternative to oil/coal, and cleaner
 51

coal technology, will also help India address its environmental concerns. The gas
pipelines from Iran, Turkmenistan, Bangladesh and Myanmar need to be
operationalised at the earliest opportunity. A nuclear energy policy needs to be
initiated and India will have to engage Australia to secure uranium. The high potential
of hydro-power within India and in Nepal, Bhutan and Bangladesh will have to be
realised. Initiatives should be taken to increase domestic energy extractions; efforts
need to be made to make the energy sector an attractive investment area to encourage
private participation. The upward pressure on energy demand needs to be checked by
enforcing energy efficiency and energy conservation initiatives, backed up by an
effective legal framework and a sustained public awareness campaign.

To reduce India’s dependence on West Asia, long-term energy contracts need to be

secured in Africa/CAR using ‘Oil Diplomacy’ and by coordinating with other
countries which are seeking energy in these areas. Developing a capable navy and
enhancing regional cooperation will also help India secure the energy-critical SLOCs
from conventional and non-conventional threats.

Although energy security poses significant challenges, the Indian Government, in

concert with the private sector, is capable of addressing the situation. A whole-of-
government approach, incorporating the recommendations made in this paper will
assist the Government in providing all its citizens an assured access to energy, both
for personal and commercial use, at an affordable price. The energy security
challenges will continue to increase in future too. The Indian policy makers will be
required to periodically re-assess their energy policies and plans to ensure unhindered
supply of energy resources.
 52

Abbreviations
ADB Asian Development Bank
bcm billion cubic meters
bpd barrels per day
BTL biomass-to-liquids
CAR Central Asian Republics
CBM coal-bed methane
CCS carbon capture and storage
CFL compact fluorescent lamp
CIL Coal India Limited
CNG compressed natural gas
CO carbon monoxide
CO2 carbon dioxide
CTL coal-to-liquids
ECBC Energy Conservation Building Code
FBR fast-breeder reactors
GDP gross domestic product
GHG greenhouse gases
GTL gas-to- liquids
GW Giga watt
IEA International Energy Agency
IEP Integrated Energy Policy
IOR Indian Ocean Region
IPI Iran-Pakistan-India
IRENA International Renewable Energy Agency
LNG liquefied natural gas
LPG liquefied petroleum gas
mb/d million barrels per day
MEA Ministry of External Affairs
mt million tonnes
mtce million tonnes of coal equivalent
mtoe million tons of oil equivalent
MW megawatts
 53

NEF National Energy Fund

NELP New Exploration Licensing Policy
NPT Nuclear Non-Proliferation Treaty
PLAN People’s Liberation Army Navy
R&D research and development
Rs rupees
SAARC South Asian Association for Regional Cooperation
SLOCs Sea Lines of Communications
SPP Security Policy Paper
SPR strategic petroleum reserve
TAPI Turkmenistan-Afghanistan-Pakistan-India
TERI The Energy and Resources Institute (formerly Tata Energy and
Research Institute)
T&D transmission and distribution
TPED total primary energy demand
TPES total primary energy supply
US United States
WEO World Energy Outlook
 54

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