The elusive goal of energy security

The centrality of the pricing issue and balancing the need to let markets decide while protecting the consumers from excessive volatility remain a difficult challenge. The modalities of such protection through income transfers, or keeping prices low by calibrating subsidies, or merely doing so for a target group do not offer clearly an acceptable option. In the presentations made by Robert Mabro, President of Oxford Institute of Energy Studies, Paul Bradley, Paul Stevens and others certainly seemed to converge on two issues — a prognosis that oil prices in the medium term will remain high, i.e. above US $58; and the need to use energy more efficiently, diversify risks through better demand and supply management and look for alternative fuels.

It is believed that the current ‘supply constraints’ are the result of investment adequacies and given leads and lags, policy design must factor persistent price volatility. Interventions by Xia Yishan, Director of Energy Research Centre in China, confessed enhanced and growing competition to foreclose global energy supplies but did not per se perceive it to be unhealthy. George Andersen, former Canadian deputy minister of Natural Resources, suggested an international coalition of interests on energy and particularly for coal.

The OPEC must talks with major users, but putting aside differences among them may not be easy. Similarly, even though there are large coal resources, the contours of international cooperation and sharing of technologies need an energetic group to act as a trigger. The quality of interaction encouraged R K Mishra, Chairman, ORF, to announce an annual India Energy Conference as well as undertake the production of an India Energy Report; an improved database on energy will certainly make discussions more informed.

One of the immediate provocations for the ORF conference was the Kirit Parikh Report on Integrated Energy Policy. This report has touched on many complex issues but understandably does not have answers on many of them. A credible inter se fuel pricing policy, regulatory harmonisation, depoliticising tariff or reflecting likely outcomes of huge R&D investments elsewhere in multiple forms of non-conventional energy, by both public and private institutions, remain difficult. Besides, ownership for implementing its many daunting recommendations needs clearer delineation. Thus, in the foreseeable future, improving power availability will remain our principal challenge even while we improve energy efficiency, seek alternatives, diversify supply sources and intensify domestic exploration.

The Prime Minister has more than once recognised the importance of power reforms. The proposed meeting of chief ministers, postponed to a later date, would be more purposive after the elections in several states. Of course, this provides only a window of opportunity before multiple state elections next year.

Since 73 per cent of power generation comes from coal, reform of this sector is critical. The woes of coalition politics stymied the recent opportunity to induct a younger talented minister into this sector. Action must include amendment of the Coal Mines Nationalisation Act to facilitate private sector participation, its removal from the Essential Commodities list, inducing enhanced private participation, spinning off profitable coal companies as independent corporate entities and an independent regulatory authority for allocation, exploitation and price determination.

Pursuing the daunting agenda on power reforms needs both tact and patience. While the central power regulator has made a credible beginning, a faster adoption of open access, minimising the wide variations on cross-subsidy surcharge, rationalising trading margins, instituting multi-year tariffs are some areas where further action is necessary. Power reforms by way of operationalising the Electricity Act, 2003; the announcement of a tariff and electricity policy; renewed emphasis on privatisation of distribution; improved audit of T&D losses; and fostering large investment proposals do constitute worthwhile progress given federal complexities.

Nonetheless, the financial performance of the state power sector remains a major concern. Here rates of return at 28.1 per cent in 2005-06 are marginally lower than what they were five years ago — 32.8 per cent or losses of Rs 22,013 crore last year, somewhat higher than what it was in 2002-03! There is no alternative to pursuing distribution reforms with renewed vigour, aimed at faster deregulation even while protecting the genuine poor through a combination of measures.

We know this is a long haul and there are no magic answers. Power reforms clearly must proceed in tandem with reform of coal, oil and gas, both on pricing and regulatory issues. However, neither these nor perceived market imperfections can become a ruse for tardy power reforms. Tokenism is no substitute to a credible road map. In the end, energy security implies mitigation of risks. While this encompasses efficient demand management, diversifying both sources and forms of energy, it must be underpinned with credible sector reforms. For too long, these reforms have been caught in the quagmire of debilitating electoral politics. This more than anything else makes energy security an elusive goal.

write to nksingh@expressindia.com