Friday, Dec 19, 2014

Why energy needs a big-picture view

Introduce a comprehensive bill in Parliament and create a  separate facilitating department under the PMO. Introduce a comprehensive bill in Parliament and create a separate facilitating department under the PMO.
Written by Vikram S Mehta | Posted: February 3, 2014 4:57 am

 

The word “energy” is missing from the executive and legislative vocabulary. It is, of course, liberally used, and issues like “energy independence” and “energy security” are part of any official statement on economic policy. But it has not been officially defined. There is no national policy on energy endorsed or supported by Parliament. Nor is there an official body authorised and accountable for overseeing the country’s energy policy. So here are two proposals that the various political parties should consider in the run up to the elections.

First, the introduction of a bill in Parliament on energy responsibility and security, a la the fiscal responsibility and food security acts. This bill should define the interlinkages between energy, food, water, environment, technology, infrastructure, conservation and efficiency, and lay out the roadmap to energy independence, energy security and energy sustainability. It should define measurable metrics for progress towards these objectives, and make explicit India’s global obligations and commitments.

Second, the creation of a department of energy resources and security in the prime minister’s office. This department should supplement and not replace the existing five core ministries engaged with energy (that is, petroleum, coal, power, non-conventional and atomic ). It would be too difficult and time-consuming to undertake a radical institutional overhaul. It should be headed by a person of cabinet rank and supported by a multidisciplinary cadre of specialists in finance, technology, energy and environment. Its mandate should be to deal with the issues that fall into the cracks between the five ministries. There are five such issues:

One, the formulation and implementation of an integrated energy policy and the development of clear, transparent and measurable monitoring and evaluation systems. No executive body currently has this mandate.

Two, the development of an international energy strategy. The department should be the focal point for ensuring that all initiatives by the companies involved with international matters — that is, OVL for upstream petroleum assets, IOC for downstream oil supply deals, GAIL for LNG contracts, ICV for coal supplies — operate within an agreed strategic framework, and that as and when required, the resources of “India Energy Inc” are leveraged to maximise international competitiveness.

Three, the creation and implementation of an integrated energy R&D strategy. Energy companies currently spend too little on R&D, and what is spent is often misdirected. This department should identify areas of research, develop relevant partnerships, incubate new ideas and ensure that resources are sensibly allocated. It should act as the fount of government support for universities, research labs and companies. It should become, in effect, the single-point driver for energy technology and innovation.

Four, the streamlining of energy regulation. There are currently a plethora of regulatory bodies. Some, like the CERC and the PNGRB, have been established by acts of Parliament and fall under the umbrella of the Central government; some like the state regulatory commissions report to the state governments, and others like the Indian Energy Exchange (IEX), the Power Exchange of India (PEI) and the National Power Exchange (NEP) fall between several stools and have an indirect dotted-line linkage with Central and state governments. There is overlap, and on occasion, contention over matters like the setting of prices and tariffs. This department should become the energy regulators ombudsman, with a mandate to surface the cross-cutting and common issues that underlie energy regulation, to streamline the existing processes, to create a database of energy regulations worldwide, to build a cadre of specialised energy regulators and, in essence, to strike the right balance between the Centrally appointed regulators and their state and local counterparts.

And five, the development of a communication strategy. At present there is little, if any, effort to “educate” the public about the energy market, its pricing dynamics, the industry structure, environmental issues and political, social and economic inter-relationships of energy policy. This department should correct this shortcoming and become the nodal agency for the dissemination of information on energy policy. Its objective should be to enhance public understanding and to make it easier for governments to take economically sensible decisions.

Queen Elizabeth asked an assemblage of economists at the official opening of an extension to the London School of Economics on November 5, 2008, just weeks after the US investment bank Lehman Brothers had collapsed, why none of them had anticipated the economic and financial crisis. The academics convened a conference, and in July 2009 they replied to the Queen. Their letter contained a catalogue of well-known reasons for the crisis — the macroeconomic imbalance, lack of regulatory rigour, excessive risk-taking, greed — but it also said that while “everyone seemed to be doing their own job properly” and “on its own merit”, there was “no one who understood the risks to the system as a whole”. There was no one who saw the whole picture and appreciated that “whilst individual risks may rightly have been small” the collective impact of these risks could well trigger a systemic collapse.

These comments (taken out of context) distil the essence of India’s energy challenge. Everyone knows what is wrong; they know what should be done; they are doing what they can and in the main, they are doing their job responsibly. But no one has the mandate and therefore, the time and possibly the inclination, to look at the whole picture. No one is asking the question: what are the small risks of looking at energy through a narrow prism? What might be the collective impact of these risks? The thrust of the above two suggestions is to get people to look at the whole picture and to ask precisely these sort of questions.

The writer is the chairman of Brookings India and senior fellow, Brookings Institution

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