The introduction of reforms process in the 1990s led to structural change in the economy. With larger participation of private players, the GDP growth rates gradually picked up. With energy–GDP elasticity being around one, the economy required higher energy inputs for the growth. The broad strategy in this direction has been to open up the energy sector to private investments and thereby step u growth.

In the petroleum sector, the New Exploration and Licensing Policy (NELP) was launched in 1999 to attract private investment in oil exploration, foreign technology and capital. More than 230 blocks have been awarded during eight rounds of NELP bids and it has started showing results, with major gas discoveries in the KG Basin in the east coast, and large heavy oil discovery in Rajasthan with likely peak production of 8 million tonnes per annum. Exploration in many of these blocks is continuing and more discoveries are possible. Policy changes have also led to the awarding of a large number of blocks to private players for coal exploration with 47 billion tonnes of coal reserves potential in captive mining.

A bill was also introduced to open up the coal sector further for private investment. The new Electricity Act, 2003, further strengthened the initiatives and developed the legal framework for investment by private players. Promoting open access and purchase of power from private power generating companies by state utilities, based on identified bidding criteria, has led to increased interest by private players in setting up new power plants. The last two decades have seen policies promoting private competition, liberalisation and development of a legal framework for promoting larger investments.

Similar policies have also been followed in the field of atomic power plants. After uranium has become available from international companies, based on agreement with countries of the nuclear suppliers group, rapid expansion of atomic energy has been planned. To develop clean energy, consistent with climate change issues, a new National Solar Mission has been launched to develop 20,000 mw power. An Integrated Energy Policy (IEP) which suggested a framework and made projections for the next two decades, has been approved by the government.

Petroleum oil refining capacity has grown by more than three times from 58 million tonnes (1990), to about 180 million tonnes at present through large scale private sector participation. The west coast of India is now becoming a major hub for export of petroleum products.

Reforms in petroleum and natural gas pricing are taking shape gradually. The import of LNG at Dahej and Hazira LNG terminals has facilitated gas availability to a large number of non-power and fertiliser consumers. Price reforms for petroleum products for industrial fuel and feedstocks were implemented during early 2000 when price of naphtha, furnace oil and ATF were made market-determined.

However, the government till May 2010 fixed the price of petrol, diesel, kerosene, LPG and natural gas produced by NOCs. The natural gas price for the gas produced by NOCs is now oil index-based with floor and cap and is close to the market price parity. Recently, in June, the government decided to keep petrol prices linked to market price parity, while diesel prices are yet to be linked to market price parity. High economic growth of six to nine per cent during the past two decades has been possible due to the reforms made by the government in the energy sector.

To achieve a high economic growth of 9 per cent and more during the next 10–20 years, it would be important to implement full-scale reforms in the energy sector, as large share of energy is likely to be met from imports in the future. However, it would also be important to implement highest level of efficiencies for energy use by various sectors to achieve a low carbon economic growth for the country during the next 10–20 years.

There are several challenges to the energy sector in the coming years. Poor financial health of power distribution utilities that are with the state governments is a serious gap. The lack of investments in transmission and distribution network, poor governance, non-revision of tariff and free power to farmers has led to poor health of these utilities. They are likely to incur more than Rs 40,000 crore of annual losses according to 2009-2010 estimates. The challenge in the sector will be to privatise the distribution network, step up investments, promote open access and improve governance. The growing need for power will require substantially higher domestic availability of coal. Issues of the environment will have to be resolved quickly. Work on new mines must start early, demand-side management of energy will require measures on energy efficient equipment, new strategies for setting up 660/800 mw power plants, additional capacities from gas and nonconventional sources and higher energy efficiency in industry and power appliances, like air conditioners, agriculture pumpsets will have to be worked out.

The author is member of Planning Commission and former cabinet secretary