NEW DELHI, Oct. 4 (UPI) -- An Indian expert group on energy has recommended the federal government work out a policy framework that realizes efficiency in production, transmission, distribution and consumption of all available sources of energy.
"To meet the growing energy needs in an efficient, cost-effective way requires a policy framework that realizes efficiency in distribution, production, transmission and consumption of all available types of energy in the country," the committee recommended in its report, which said the policy framework should provide incentives to supply the required energy.
"Promoting transparent and competitive markets for all forms of energy supplies and services is the first policy initiative that the government must take as part of its integrated energy policy. Such competitive markets provide the best means to extract efficiency gains from the sector," said Kirit S. Parikh, committee head and energy analyst.
At the behest of Indian Prime Minister Manmohan Singh, the Planning Commission set up an expert committee to study various aspects of the Indian energy sector and recommend measures to improve marketing, distribution, pricing and efficiency.
Notwithstanding the difficult task India has in improving its energy sector to meet its needs, the country has yet to form a well-planned policy framework, setting out a road map to achieve energy security. Energy experts, government and industry are engaged in a debate about a comprehensive energy policy.
It will be difficult and costly to realize competitive markets in some spheres within the energy sector, especially power. In the absence of independent, efficient and strong regulation, the government has faced difficulties in addressing the concerns of the energy sector effectively. The planning panel-backed expert group on energy strongly recommended that the government establish such regulation as early as possible.
"Transparent and competitive markets that offer a level playing field to all participants, and are independently regulated, are essential to the creation of an enabling environment for domestic and foreign investment flows from the public and private sources to the energy sector. Energy efficiency in extraction, conversion, transmission, distribution and consumption requires that all players and all energy projects domestic or foreign be treated equally under a consistent policy framework," said Parikh.
What Indian policymakers need to recognize is the dominance of large government-controlled oil and gas companies in most energy sub-sectors. Many of these state-owned firms are financially strong, but their strength has been acquired in a protected public-sector environment. The presence and strength of these companies could be an asset in the transition to a competitive set-up as they -- through their participation -- could provide a starting benchmark that the markets must better.
Advocating the urgent need of independent regulation for the energy sector, the expert group in its report said independent regulation is critical to attaining competitive efficiency in the energy sector, since the sector is characterized by large economies of scale and has natural monopoly characteristics in sub-sectors such as transportation and distribution networks.
"It is important that all sub-sectors of the energy sector are regulated and one so in a consistent manner," the report said.
In India, only the power sector has a regulatory framework. The government is contemplating setting up a similar framework for the oil sector, but it has not come out with a clear policy statement regarding whether it intends to establish an integrated regulatory framework for the energy sector as a whole. So far, the federal government has reiterated its commitment to establish a similar regulatory body for the coal sector.
Even as energy experts, analysts, think tanks and bodies representing Indian industry discuss the draft of the integrated energy policy, the government has refrained from clarifying its position on issues like integrated regulation and the pricing of energy. This apathy has drawn criticism from experts and industry alike.
With continuing distortions in energy pricing, the Indian consumer pays some of the highest tariffs in the world. In most energy sub-sectors there is virtually no competition, as the government still controls hydrocarbon pricing despite dismantling the administrative price mechanism. The present policy is to fix the price of petroleum products at international parity without any competition among incumbents. Prices are loaded with taxes and levies that are not uniform and lack consistent policy drivers.
"Access to petroleum -- including subsidized kerosene meant for the public distribution system -- is limited. There is a need to examine as to why the so-called import parity price is used for oil products wherein India is a net exporter, why trade parity prices are not used and what is the basis on which import parity is calculated," said D.S. Rawat, general secretary of Associated Chambers of Commerce and Industries, a trade group.
Taxes and levies are another major stumbling block. Federal and provincial taxes on various forms of energy are a significant part of the final price. These taxes are not applied consistently, thereby resulting in significant price distortions.
"Taxes are essential to raising revenues, but they need to be rationalized so as to become neutral to fuel choices and investment decisions," the plan panel said in its recently released annual report.
Examining the tax structure in the energy sector, the panel said taxes and subsidies should be based on producer and consumer choices so as to enable them to decide which fuel and which technology to use. It said the equivalence of taxes across competing fuels should be uniform with respect to the energy service delivered, and duly adjusted for prevailing overall energy efficiency levels and any other specific externality relevant to specific fuels. This would result in the least distortion, as it would take into account effective calories and conversion efficiencies of alternate fuels.
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