Where are India's energy sector strategic planners?


Indian government gave such imposing titles like Maharatna to ONGC and Indian Oil and Navaratna to Bharat Petroleum, Hindustan Petroleum, Oil India and Gail to enable them to compete in the global market.

However, in recent years , the same government clipped their financial wings by draining their assets through inordinate amount of oil sector subsidy. Did anyone look at the strategic impact of such a policy on their future well-being? How can a welfare oriented government afford to spend more than 80 per cent of income tax by forcing these Maharatnas and Navaratnas to give subsidy which will help mostly the rich and the middle class?

India’s leading management institutions have been teaching strategic planning since a long time. Our IAS officers who are presiding over our energy sector also have been trained on the fine art of strategic planning (SP). Even energy professionals who are not many for a country of our size and complexity are also familiar with the concept of SP. Still, when we study our energy sector it becomes obvious that it is not affected by SP concepts from the district to state to national level. 

When will all households have access to LPG for cooking to avoid the health hazard of using firewood?  How will we be able to meet the increasing demand for coal, gas and oil? Merely by extrapolating with a simple number crunching exercise, our energy planners seem to be producing always optimistic energy scenarios. None of the planned targets for adding power generating capacity has met more than 75 per cent of goals. In the case of nuclear energy, our performance has been even more dismal. Still we have not attempted to think strategically and we continue to blame the absence of political will to take tough decisions.

Petroleum minister Veerappa Moily has been making shocking predictions about India achieving oil and energy independence in less than 20 years. However, he fails to elaborate the strategy the government will adopt. Even some of the foreign oil companies who have won exploration blocks have decided to leave India while mega oil companies with the exception of BP have not shown any interest to explore in India. This is one obvious result of lack of SP.

Instead of trying to simplify the production sharing agreement (PSA), the latest committee headed by C Rangarajan has made it even more cumbersome. Because of the inherent problems involved in implementing the PSAs based on “profit sharing,” Rangarjan committee has suggested “revenue sharing”. This is nothing but another form of royalty, a concept which has often come under attack especially when economics of the projects are marginal. But to be on the safer side and to ensure profitable operations, oil companies are likely to bid very conservatively. As a result the government may end up with less profit though the real purpose of the new PSA format was to enhance the government’s stake.

Additional problem

In the case of gas exploration, besides the above mentioned cumbersome PSA, there is also an additional problem of gas pricing. According to PSA, oil companies are allowed to sell gas at arms length price to any consumer. However in reality, it has not happened that way. Under such circumstances which company will be interested in exploration in India? A policy based on sound SP would have avoided such a scenario.

As a result of failed gas pricing policy which has resulted in dwindling gas production, gas-based power plants are stranded. According to Association of power producers, more than 8,000 mw of new gas power plants are remaining idle while more than 15000 MW of gas power plants are operating below capacity. India’s coal sector is another perfect example of lack of sound strategic thinking. India has the fifth largest coal reserves in the world. Based on the current production rate they can last for about 100 years. Still our coal imports are increasing and currently our coal import dependency is about 17 per cent.
Renewable energy sources like ethanol, bio diesel, solar energy, and wind energy are high on India’s energy agenda. However because of poor economics all these sectors need subsidy.  By selling competing fossil fuel sources at subsidised prices, the problem becomes even worse.  
In 2009, bio fuel policy encouraged a target of 20 per cent blending of ethanol and bio diesel by 2017. Bio diesel mission had a target of 11.2 to 13.4 million hectares of Jatropha cultivation to produce bio diesel. So far only 0.5 million hectares have been planted. In comparison, wind energy had some modest success. However, the National Solar Mission of generating 20,000 mw by 2022 seems to be promising. Even these two may become victims because of poor financial conditions of electric supply companies.
After the recent electoral defeat in four states, the UPA government has decided to ignore the recommendations of Parikh committee report to reduce subsidies on diesel, domestic LPG and PDS kerosene. On the other hand there was a great rejoicing after the stunning victory of Aam Aadmi Party in the recent Delhi election. However, when one learns about AAP’s economic policy of providing electricity at subsidised prices, it is indeed disheartening.
This is not to argue that the society has no responsibility to help the poor. But there are far more effective ways of doing that than selling energy products at subsidised prices. If only energy planners had done some serious strategic thinking,  we could have made a beginning to solve India’s energy crisis a long time back. What India needs is world class energy planners who are able to think in strategic terms and who are also able to convince the political leaders and top civil servants.  This is where our top educational institutions like IITs and IIMs should step in to fill this gap.

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