Energy Politics and Policy

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ENERGY POLITICS AND POLICY India is the world's sixth-largest energy consumer and the world's third-largest producer of coal. China is the second-largest energy consumer, after the United States. China's production and consumption of coal, its dominant fuel, is the highest in the world. Oil demand and imports have been rising rapidly, making China the world's second-largest petroleum consumer in 2003, surpassing Japan. The average projected economic growth rates of 7–8 percent in India and 9–10 percent in China will increase the demand for world energy enormously in the decades to come.

Two major events of 1974—oil pricing shocks and India's atomic test—highlighted some of the linkages of energy, security, and development policies in India. Heavy dependence on oil imports at the time from the Persian Gulf states, Libya, and the Soviet Union had implications for Indian diplomatic, economic, and military policies. Apart from the obvious need to maintain cordial relations with these states to keep oil flowing on affordable commercial terms, India had to step up exports to the oil-supplying countries to prevent a foreign exchange crisis that would have crippled the Indian development program. There was also a military dimension to the international oil crisis. The oil-exporting states of the Middle East were some of the largest buyers of technologically advanced weapons systems from the industrialized countries of the West, which were able to reverse the cost of their oil imports through arms sales. The proximity of these Organization of Petroleum Exporting Countries (OPEC) arms importers to the subcontinent, and the overt or latent military links of states such as Saudi Arabia, Libya, and the shah's Iran with Pakistan carried strategic implications for India. Special purchases of oil and military equipment from the Soviet Union at the time also accentuated India's economic and military dependence on Moscow.

The passing of the international energy crisis by the mid-1980s brought greater economic prosperity to India, both because of successful efforts to tap domestic oil resources, especially in the offshore Bombay High oil fields on the western coast, and because of the decline and stabilization of international oil prices. Since socialism ended and marketization began in 1991, the Indian economy has grown at a healthy average rate of almost 7 percent per annum. There was a short phase when Indian oil imports from commercial goods exports to Iraq were dislocated following the 1992 Gulf War and the imposition of economic sanctions on Baghdad. But even this problem was overcome through higher oil imports from Saudi Arabia and the Gulf sheikdoms to offset Iraqi oil imports. Memories of the energy crisis faded at the beginning of the twenty-first century.

India has three conventional sources of commercial and industrial energy: oil, coal, and hydroelectric power. Oil of various kinds and oil products are used primarily in the transportation, petrochemical, and household sectors of the economy. The other two energy sources—coal-fired thermal and hydroelectric power—provide some 70 and 25 percent, respectively, of electricity generation in India. India holds some 7 percent of the total estimated world coal reserves, and domestic coal production meets more than half of its total energy needs. Coal is still used marginally in locomotives in some sectors of the Indian railway network. In the rural economy, where about 70 percent of the Indian population lives, there is still considerable use of firewood and agricultural and animal waste. The extensive use of dried cow dung as fuel in the rural areas has led to the establishment of several biogas plants there. The government of India has also been exploring the potential use of geothermal, tidal, and solar power.

India has relatively low oil and gas resources, with oil reserves estimated at 5.9 billion barrels (0.5 percent of global reserves), with total proven, probable, and possible reserves of close to 11 billion barrels. The majority of India's oil reserves are located in Mumbai's offshore fields and onshore at Assam. Due to stagnating domestic crude production, India imported approximately 70 percent of its oil in 2001, much of it from the Middle East (65 percent). This dependence is growing rapidly. The World Energy Outlook, published by the International Energy Agency, projects that India's dependence on oil imports will grow to 90 percent by the year 2020.

India is seeking oil import diversification from outside the Gulf. India's investment in overseas oilfields is projected to reach $3 billion in a few years. Of particular interest is Africa, especially Sudan, where India has invested $750 million in oil, and Nigeria, with which India reached a deal in November 2004 enabling it to purchase about 44 million barrels of crude oil per year on a long-term basis. Russia, Vietnam, and Myanmar are also potential suppliers to the Indian oil market. India has entered the international competition in the Caspian Basin, seeking special rights and privileges with Tajikstan, Azerbaijan, Kazakhstan, and Iran.

In 2002 India's electric generation capacity was a total of 120 gigawatts (GW), which included 90 GW thermal, 26 GW hydro, and 3 GW nuclear. In the same year its power plants generated 547 billion kilowatt-hours of electricity, of which 84 percent was conventional thermal, 12 percent hydro, and 3 percent nuclear.

Coal reserves in India are substantial, projected to last another eighty to one hundred years at compound rates of consumption. Despite such large proven reserves, the productivity of operations under the government-owned corporation Coal India Limited and its subdivisions is low when compared with Western standards. The average output per man-shift (each day or night shift that miners work) for Coal India is 0.8 metric ton in underground mines, considerably lower than the range of about 2.5 to 4 metric tons in western Europe, and 8 to 12 in the United States, Australia, and South Africa. Indian productivity, however, compares favorably with China, where it is 0.5 metric ton.

The problem with coal utilization is the location of coal reserves: West Bengal, Bihar, Orissa, and Madhya Pradesh. Political conditions in the first two states have been particularly volatile over the decades, and labor strikes and general political unrest have been extensive. The location of coal resources in the northeastern sector of India requires that it be transported and distributed throughout the country by railway. This makes it vulnerable to disruption or interruption if the powerful labor union, the All-India Railwaymen's Federation, with a membership of between 2 million and 3 million employees, were to go on a nationwide strike. This would not only bring all railway passenger and goods traffic to a halt, it would also paralyze coal-fired thermal plants and thereby industrial activity throughout India. The seriousness of this internal security threat was probably best exemplified by the crisis of 1974, when the All-India Railwaymen's Federation successfully launched a nationwide strike of its over 2 million members. With most power plants carrying less than two weeks of coal supplies, power had to be severely rationed in major industrial cities that were dependent on electricity from coal-fired thermal plants. Apart from this potential problem, there is the additional criticism that coal mining is hazardous to the health of the miners, and that its utilization causes considerable pollution of the atmosphere.

Assessing the total potential of hydroelectric power resources in India is difficult because the flows of Indian rivers vary widely, ranging from thousands of cusecs (cubic feet per second) in the monsoon season to a few cusecs in the dry season. Consequently, estimates of hydroelectric potential in India usually amount to identifying specific targets in each river basin where the potential for hydroelectric power generation is both technically feasible and economically viable. In 1978 the Indian government estimated the potential annual energy generation from hydroelectric plants to be about 400 tetrawatt-hours (tWh). However, the installed hydroelectric generating capacity at that time was only 40 tWh, or just 10 percent of estimated potential, a share that changed little during the next two decades. This meant that a 90 percent potential for clean and renewable hydroelectric power was being wasted annually because of the failure to harness India's rivers. Part of the problem has been the social opposition to large dam building for irrigation and hydroelectric power, as the construction of large dams is perceived to cause environmental damage and would also uproot several hundred thousand villagers from their traditional homes. This opposition eventually killed the huge Narmada Dam project in the mid-1990s, despite World Bank approval and offer of a loan. The Narmada project involved the building of thirty major dams and several hundred smaller dams. On the other hand, China has decided to go through with its highly controversial massive Three Gorges Dam project on the Chang (Yangtze) River. Critics have alleged that the Three Gorges Dam project could lead to another major Chinese disaster like the "Great Leap Forward" of the 1950s, but on a much larger scale.

Although there are limitations and liabilities in developing coal-fired thermal and hydroelectric power and oil as sources of energy in India, these will continue to generate the bulk of electricity in India for several decades to come. But the growth in thermal and hydroelectric generating capacity is not expected to keep pace with industrial and urban demand. Projected energy needs beyond the year 2000 suggest serious shortfalls of up to 20 percent. The crucial gap cannot be filled by increasing oil production, since domestic oil reserves are too limited to meet industrial demand and, in any case, are being depleted rapidly. Almost all of the future oil imports are expected to be absorbed by the petrochemical, household, and transportation sectors of the economy. The concentrated geographic location of coal in the northeastern India and the vulnerability of transporting coal throughout India suggest that coal cannot be guaranteed for the generation of electricity in the major industrial cities. Indian planners and politicians perceive nuclear power as crucial to India's energy needs.

Nuclear energy constitutes less than 3 percent of its total electricity generation. However, the dual-use nature of the peaceful technology also provides India with nuclear weapons capabilities. Unlike Israel and Pakistan, and earlier South Africa under its apartheid regime—all three of which sought a dedicated path toward a nuclear weapons capability—India's nuclear weapons program is mainly an offshoot of its nuclear energy program and

1995 comparative per capita consumption of electricity (in kilowatt-hours, kWh)
SOURCE: Compiled from India Means Business: Investment
Opportunities in Infrastructure, Ministry of External Affairs, Investment Promotion and Publicity Division, Government of India, 1997.
Bangladesh84United Kingdom5,843
China719United States12,308

uses the plutonium extracted from the waste fuel. From an economic development standpoint, India has rationalized the necessity of a nuclear energy program to fill shortfalls in its overall electricity needs. Especially given the costs of mining and transporting coal throughout India from its location in the northeast-central regions, and considering that the great rivers of India cannot all be harnessed appropriately for hydroelectric power to service the major cities of India, a case is made for nuclear energy. Elsewhere in the world, especially in France, Japan, South Korea, Taiwan, and many of the European Union countries, nuclear energy is viewed as essential for meeting increasing energy demands and for reducing reliance on the oil of the Middle East. Oil supply and prices are subject to manipulation by OPEC, and coal mining and coal-fired power plants are considered health hazards. However, the pursuit of a nuclear weapons program subjected India to international economic sanctions that not only affected the general economy, but also hindered technological advances in its nuclear energy program. Many of the sanctions have now been lifted, but technical sanctions remain for India's nuclear energy and space programs. Both India's energy potential and its economy have been affected.

Indian nuclear scientists and economic planners are convinced that nuclear power is the only long-term solution to India's energy needs. The following statement in 1980 by Raja Ramana, director of the Indian Atomic Energy Commission, is reflective of the views of many members of the nuclear scientific community in India: "Looking at it [the future of nuclear energy] with the experience of the past and the terrifying energy problems of the future, I can think of no other source of energy that has been discovered to date except nuclear energy, which can solve the energy problems of this country during the next twenty-five years and beyond. If I do not make the case now and point out . . . the urgency of accepting its inevitability, I will have done a great disservice" (Pachauri).

There remains the question, however, whether nuclear-generated electricity is commercially viable and affordable compared to the conventional sources of energy. The pro-nuclear power lobby in India suggests that this source of energy may have a cost advantage over coal-fired thermal plants. This has been disputed in Germany and Britain, countries that are now cutting back on their nuclear power programs. However, France, Japan, and South Korea are convinced that nuclear power is a critical source of electricity. As noted earlier, France obtains 78 percent of its electricity from nuclear power. Japan has embarked on a major program of establishing nuclear power plants.

Power remains in the public sector and was not privatized following the marketization and privatization measures of the 1991 economic reforms. Government-run energy corporations include: Oil and Natural Gas Corporation, Oil India Limited, and Indian Oil Corporation in the petroleum sector; Gas Authority of India Limited in the natural gas sector; and Coal India Limited in the coal sector. Government electric power corporations include National Thermal Power Corporation, National Hydroelectric Power Corporation, and various state electricity boards. Major oil terminals are located at the ports of Mumbai, Cochin, Haldia, Kandla, Chennai, and Vizagapatnam.

In 2004 the capacity of the major oil refineries in India were as follows: Reliance-Jamnagar, 540,000 bbl/d (barrels per day); Koyali-Gujarat, 185,100 bbl/d; Mangalore, 180,000 bbl/d; Mathura-Uttar Pradesh, 156,000 bbl/d; Mahul-Bombay (Bharat Petroleum), 120,000 bbl/d; Madras, 130,660 bbl/d; and Mahul-Bombay (Hindustan Petroleum), 111,700 bbl/d.

Since independence in 1947, India's electricity generation capacity has grown by more than sixty times. In 1947 India generated 1,362 milliwatts (mW) of electricity. In 1997 this capacity reached 83,288 mW. Energy projections in India beyond the year 2000 suggest serious shortfalls of about 11 percent, rising to a high of 19 percent during peak periods. Demand for electricity is expected to rise at a rate of 8 percent per annum over the next decade, this despite the fact that overall generating capacity increased from 287 billion units (BU) in 1991–1992 to 420 BU in 1997–1998, and to 502 BU in 1999–2000. With the economic reforms since 1991 generating a growth rate of about 7 percent, the main obstacle to more rapid growth in India is its poor infrastructure of roads, water supply, telecommunications, and especially power.

Raju G. C. Thomas

See alsoEconomic Reforms of 1991 ; Infrastructure Development and Government Policy since 1950 ; Nuclear Programs and Policies


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Thomas, Raju G. C., and Bennett Ramberg, eds. Energy and Security in the Industrializing World. Lexington: University Press of Kentucky, 1990.

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