The UPA government today decided in principle to end a plethora of administrative controls on energy pricing with a direction to the four energy ministries to prepare for a shift to free market system where primary energy would be priced on their trade volumes.“All energy prices should be based on trade parity prices. Tax and fiscal regimes, both at Centre and state level, on different forms of energies, should be uniform so that they lead to optimal choice of fuels and technology,” says the Integrated Energy Policy (IEP) which was approved by the Cabinet.The IEP also aims at subsidies designed to ‘actually’ reach the targeted people and avoid leakages. A model, as suggested by the Planning Commission, that would be subsequently firmed up, entails Rs 30 per month as electricity subsidy and Rs 100 per month as fuel subsidy to BPL households paid through smart debit cards.Though difficult to implement as general election is around the bend, the nod to a policy framework is significant as it has the push of Prime Minister Manmohan Singh. Moreover, Singh had insisted at a full meeting of the Planning Commission in September that the draft IEP be “revised” to incorporate trade parity pricing.Additionally, the ministries of power, petroleum & natural gas, and coal and new & renewable Energy were instructed to take “necessary action” on these recommendations and submit an “action taken report” to the commission. A monitoring committee headed by the cabinet secretary would be set up to review the progress in IEP implementation.The trade parity pricing proposal was floated by the commission a couple of years ago but there was no official word on it. Recently, a panel headed by its member (energy) BK Chaturvedi suggested that petro-products be priced at export parity.Trade parity would be a weighted average of export price and import price with weights assigned in the ratio of their trade volume.Currently, policies relating to individual energy sources are inconsistent as they are set by different ministries to reflect the historical evolution. While coal is priced on cost-plus-return basis, kerosene and LPG are on import parity as India is a net importer. For petrol and diesel, the prices are fixed through an 80:20 import-export mix. Natural gas is a mix of administered prices and actual landed cost.The Planning Commission on September 20 also decided to replace kerosene used for lighting in rural areas by solar lanterns on a large scale, develop strong mass rapid transport system for urban areas and create a National Energy Fund to finance R&D in energy.It aims at optimal exploitation of domestic energy resources and exploring and acquiring energy assets abroad to attain energy security for the country. It also advocates appropriate energy pricing to promote investment in exploration and production and to control demand.
