All gas,no action

Keeping Indias growth going needs energy sources to keep turning out fuel,quickly and efficiently. Natural gas,in particular,has massive scope for growth; it currently accounts for less than 8 per cent of Indias energy usage; but,if increased,it could help to reduce air pollution as well as assist in shouldering the peak power burden. In addition,India has substantial gas reserves of its own,which reduces its dependence on imports from dodgy countries subject to political risk factors. According to the Oil and Gas Journal,at the beginning of 2009,India had 38 trillion cubic feet Tcf of proven natural gas reserves; that number is being added to regularly by new discoveries,especially in the under-explored Bay of Bengal. Yet a labyrinth of agreements,regulations,notifications and rulings constrain growing Indias gas resources. Under the ministry of petroleum and natural gas is a nightmarish flowchart of overlapping responsibilities: the Directorate-general of Hydrocarbons,the upstream regulator,looks at exploration and production; the petroleum and natural gas Regulatory Board,the downstream regulator,keeps an eye on distribution; theres a Development Board,of course,which muddles along with sector development issues,something which really doesnt seem to be something the government need worry about; and then theres the Gas Linkage Committee,which oversees allocation and the administered prices. Not to mention all the PSUs involved in exploration,production,refining and marketing. Thus the ministry directs the regulators; through the GLC,it sets prices; and,through its agreements with the exploratory companies,it shares in profits a conflict of interest if ever there was one,and something which opens the way to serious rent-seeking from big,ambitious companies,as well as legal hassles and delays when things dont go the way that one of the stakeholders would prefer.

The time has come for rationalising this structure,which appears imported from the bad old days of Soviet central planning or even from the only marginally better crony-capitalistic-oligarchic mess that succeeded it. Consider the price system which the ministry administers. The price of gas is set at every point in the system,supposedly because some uses fertiliser are better than others. But fertilisers are subsidised anyway. As are the consumers of fertiliser who are the actual targets of all these subsidies. So,for those consumers,the government has to develop an impossible-to-manage network of prices,quotas and rules rather than by targeting them directly. And in order to keep this archaic system going,it stultifies the growth prospects of the sector,ruining chances for cleaner air,greater energy security,lower incentives to large-scale corruption or cronyism,and fewer power cuts. Cutting this Gordian knot requires no vast investment,merely a few signatures; and it would further buoy estimates of Indias growth potential.