Traditionally, the Indian energy sector has been regulated and owned by government agencies and organisations. The states / provinces in India have had limited role to play in the regulation, promotion, or conservation of atomic, petroleum or coal-based energy sources. Their involvement has been mainly in the electricity sector and more recently in the promotion of new and renewable sources of energy. There is no single central agency for the energy sector as a whole, except in the Planning Commission.

The basic institutional structure for each energy resource sector comprises a nodal ministry at the Centre which is the primary agency for policy formulation, support in decision making and implementation by state governments, state level nodal agencies, public sector undertakings, technical and research institutions. 

The organisational framework of the Union Government and related governmental agencies in the energy sector is depicted in Figure 1

Coal

Industry structure

The Indian coal industry is practically in the hands of the Government. Public sector undertakings - Coal India (CIL) along with its seven subsidiaries and Singareni Coal Company Ltd (SCCL) - account for almost 90% of the national production. Only about 10 million tonnes of capacity is in the private sector in comparison to over 300 million tonnes in the state sector. There are three companies in private sector in this sector that was opened up recently. CESC, a privately owned power utility, is planning to start its mine shortly. The coal sector has no independent regulatory authority. 

Pricing

On 1 April 2000, the pricing of coal became fully deregulated vide the Colliery Control Order, 2000. This order supersedes the Colliery Control Order, 1945, of the Essential Commodities Act, 1955, under which the central government was empowered to fix the prices of coal by grade and colliery. Currently, the coal prices are fixed by national coal companies and are said to be market-based. The market, however, is monopolistic in nature, dominated by CIL. 

The coal pricing is not based on any specific norm. It was initially based on normative costing by BICP but after decontrol, the prices have been increased more on the basis of regions and markets. The government no longer subsidizes coal prices. However, given that there is no distinction between coal produced from underground and open-pit mines, there exists a kind of cross subsidization within each coal company.

Imports

Import of coal is under the OGL (open general license) and consumers can import coal based on requirements and commercial judgements. Import against export of goods produced by using coal (such as cement) is permitted. There are no restrictions on export of coal and small quantities are exported. 

Non-conventional / renewable energy sources

Industry structure

This sector is dominated by private players accounting for almost 90% of capacity. A few public sector companies are also active in this sector - like BHEL, Central Electronics Ltd. (CEL), and Rajasthan Electronics & Instruments Ltd (REIL) . Some of the private players , especially in wind sector, have foreign collaboration. The table below lists the number of players in the key renewable energy sub-sectors. . In addition, there are manufacturers of biogas plants, wind pumps, wind battery charges, and improved cook stoves etc.

Though the industry does not, in general distinguish between grid-based and decentralised energy systems, in the field of wind there are two distinct streams - large wind turbines and small wind machines. There is no independent regulator for this sector. 

Pricing

Prices are set by the government, barring isolated cases like solar thermal water heating systems, for which prices are market-determined.

Incentives offered by the government

A host of fiscal incentives are extended to both manufacturers and users of renewable energy systems, which include 100% accelerated depreciation for tax purposes in the first year of the installation of projects/systems; excise duty exemption; lower import tariffs on capital equipment; tax holidays for power generation projects and soft loans. The government also offers remunerative price under alternate power purchase policy by State Government for the power generated through renewable energy systems, fed to the grid by private sector. 

For creation of attractive environment for evacuation and purchase, wheeling and banking of electrical energy generated from renewable energy sources, the Ministry has issued a set of guidelines to all the States. It has suggested that States should announce general policies for purchase, wheeling and banking of electrical energy generated from all renewable energy sources. Fourteen States have so far announced such policies in respect of various renewable energy sources.


Petroleum and natural gas

Industry structure 

Oil and gas exploration and production

Nearly 90% of the exploration and production of oil and gas has been primarily in the hands of two public sector oil companies: ONGC (Oil and Natural Gas Corporation) and OIL (Oil India Ltd), the remaining being through private companies and joint ventures. Over the years, domestic availability of crude oil has not kept pace with demand and self-reliance on crude oil has dropped dramatically to a mere 30%.

To boost domestic oil and gas production and to encourage private sector participation, the government also announced the NELP (New Exploration and Licensing Policy) in 1999. However, the responses to the first two rounds of NELP indicate that most of the foreign majors, including Exxon-Mobil, Total Fina and Shell, have stayed out of the bidding process under both rounds. The government is planning to invite bids under NELP III by the end of March 2002. 

Downstream sector : refining and marketing

The installed refining capacity of the country’s 17 refineries totals 112.04 million tonnes per annum. A third of the country’s refining capacity is in the private/JV sector. Following the recommendations of the Nitish Sengupta Committee on merger of stand-alone refining companies, these have now been merged with integrated refining-marketing companies. Following this restructuring, Indian Oil Corporation (IOC), a public undertaking, accounts for the lion’s share of the country’s refining capacity with a total capacity of 44.95 MMTPA. Reliance Petroleum (RPL), a private sector is the second largest with installed capacity of 27 million tonnes. Other players, both in the public sector, are Bharat Petroleum Corporation (BPC) and Hindustan Petroleum Corporation (HPC) with 16% and 20% of the refining capacity respectively. 

Marketing rights for transport fuels are given to only those private sector companies which own and operate refineries with an investment of at least Rs 2,000 crore or to oil exploration and production companies producing at least 3 million tonnes of crude annually. For the only private sector refiner RPL, marketing rights are restricted to decontrolled products.

Pricing

Crude oil

The cost plus formula for crude oil produced by national oil companies was withdrawn in 1998. Crude oil producers are now being paid a pre-determined percetage of f.o.b. price of imported crude – this percentage was set at 75% in 1998/99 and increases to 82.5% in 2001/02. Following steep increases in international oil prices in Novemeber 1999, the Government decided to keep the compensation for indigenous crude at Rs 5570/MT inclusive of royalty / cess. 

Petroleum products

Effective 1998, the retention pricing concept for petroleum products was also abolished. Refinery gate prices for controlled products are being fixed on the basis of import parity. Prices of LPG, MS, HSD, SKO (for public distribution only) are controlled, prices of all other products are decontrolled and set by oil companies based on market considerations.

Natural Gas

In 1997, the government linked the landfall price of gas to a basket of fuel oils. The government also worked out a schedule for raising gas prices to FO import parity. While the prices in 1997/98 were fixed at 55% of the import parity price, in 1999/2000 these were increased to 75% of the import parity price. At the same time, a concessional price of 45% of the import parity price was charged in the north-eastern states. Currently, natural gas price is capped at Rs 2850/mcm. Though the Gas Pricing Committee had recommended that natural gas prices be increased gradually so that they are on a par with the import prices of LNG by 2002, the Ministry of Petroleum, however, has put off the decision on revision of natural gas prices. 

The Indian petroleum industry is expected to be completely deregulated from April 1, 2002 following which all crude and product prices may be expected to be market-determined. Currently subsidies on HSD, SKO (for public distribution) LPG, and freight for supplies to far-flung areas are routed through the oil pool account. 

Exports and imports

Since 1998 various initiatives towards opening up trade in the petroleum sector have been under way. Crude import; import and export of furnace oil; and export of naphtha, HSD, SKO and ATF have been decanalised. 

India is considering importing gas via pipelines on both the eastern and the western coasts. With slow progress on the pipelines front, primarily on account of international political considerations, LNG (liquified natural gas) has received substantial attention as the alternative to pipeline imports. A number of LNG projects have been proposed in the country, both along the eastern and the western coast. 

Regulatory framework

The legal framework for the regulation of exploration and production of oil and gas is provided by the Oilfields Development and Regulation Act, 1948, and the Petroleum and Natural Gas Rules, 1959. The downstream hydrocarbons sector is regulated by the Petroleum Act, 1934, and various control orders under the Essential Commodities Act, 1955.

The DGH (Directorate General of Hydrocarbons) acts as a regulator for reservoir management of oil and gas fields (albeit without independent statutory powers); monitors production sharing contracts on behalf of the Government of India; and acts as a project facilitator, assisting companies to get clearances/approvals from various ministries. 

On the downstream side, the OCC under the administrative control of the MoP&NG, currently performs the function of a planner, coordinator, advisor, and regulator in the downstream sector. 

Power Sector

Industry Structure

The structure of the country’s power supply industry has evolved considerably since Independence. Initially a vertically integrated structure prevailed in the form of the State Electricity Boards (SEB’s). In recent years some states have broken up the SEB’s into separate companies for generation, transmission and distribution. 

Currently the Ministry of Power under the Central Government is the nodal agency, with the CEA (Central Electricity Authority) constituted under the Electricity (Supply) Act, 1948 assisting it in all technical and economic matters. The other parallel organisation created under the Central Govt. in the post reform era is the CERC (Central Electricity Regulatory Commission) under the ERC Act, 1998, to regulate the operations/ businesses relating to inter state transactions and the central sector. 

Generation

The National Thermal Power Corporation (NTPC) is the largest thermal power company and is owned by the GOI., Tthe National Hhydroelectric Power Corporation (NHPC), the NorthEastern Electric Power Corporation (NEEPCO) are the other two major power generation companies in the central sector. Other power generation facilities are owned by the SEB’s or the successor companies, as well as the licensees.

Private stand alone power plants were permitted only in 1991. At present there are about 10,000 MW of private sector power plants under operation or construction. Major foreign investors are Powergen, Enron, CMS, and AES.


Transmission and Distribution

The industry is mostly dominated by Government owned entities with very few private players. The industry mostly consists of Government utilities like the State Electricity Boards (SEBs) or its successor bodies as well as the licensees.

There are in total five private companies that operate, these are in Ahmedabad (AEC); Surat (SEC); Calcutta (CESC) and Mumbai (TEC, BSES).

Overall

In most states an independent regulator for the electricity sector has been extablished in the form of the State Electricity Regulatory Commission and in the Centre there is the Central Electricity Regulatory Commission.

The power tariffs are fixed by the regulator wherever it exists and by the Government in case it does not. In the Centre the tariffs are fixed by the Central Electricity Regulatory Commission (CERC). In the states where the State Electricity Regulatory Commissions (SERC) have been established these are responsible for fixation of tariffs. CERC also has the responsibility to regulate the inter-State transmission of energy including tariff of the transmission utilities. The tariffs are, however, not market determined. 

The norm for pricing that is generally followed is the Cost plus approach, i.e., the Historic Cost Approach. Tariffs for different categories do not reflect the true cost of supply of electricity due to high levels of cross-subsidisation. The pricing is also different for different consumer sectors. Generally, the tariffs for the industrial and commercial consumers are higher than those of the domestic and agricultural consumers. 

The tariffs are in most states are subsidized. Sometimes this is in the form of cross subsidy and sometimes as direct subsidy to a particular class of consumers by the Government. 

At present there are no restrictions or incentives for the export or import of power. India presently is importing small amount of power from Bhutan and to a smaller degree from Nepal.