Why is Moily misleading India’s energy policy?

Why is Moily misleading India’s energy policy?

Mangalore Today News Network

Bhamy V Shenoy
Mangalore, Aug 1, 2013: First, in Mangalore on November 11, 2012, Moily announced that his ministry is planning to reduce oil imports from the current level of 80 per cent by 30 to 40 per cent within the next five years in a phased manner. Having made an astonishing prediction in Mangalore on India’s future oil production, he went one step ahead and announced on November 25, 2012 in Mysore that India will achieve oil sufficiency by 2020. Now he is even more outlandish by predicting on July 13, 2013 in Tumkur, that India will achieve energy independence by 2030. Energy security should be his goal and not going after the mirage of oil sufficiency by 2020 or energy independence by 2030. Are his advisors misleading him?

India is currently importing 130 million tons of oil, 12.9 million tons of oil equivalent gas, and 69.4 million tons of oil equivalent coal based on the latest BP annual energy review for 2013. What magical wand Moily has to reduce energy demand of India while increasing its energy production? According to a Planning commission study, Integrated Energy Policy of India, India will be needing 486 MTOE of oil, 197 MTOE of gas and 835 MTOE of coal by 2013-32 (versus current consumption of 171, 49.1 and 298.2 MTOE of oil, gas and coal). What strategy Moily has to increase the current oil production of just 42 MTOE or gas production of 36.2 MTOE to reduce import dependence for these two products which are under control?

Let us look at the demand side. Though umpteen studies conducted by personal friends of Economist PM has strongly recommended to reduce subsidy and liberalize energy prices, both the central and state governments are adapting populist policies of ever increasing subsidy. This is all done in the name of helping the poor while the real unannounced goal is to divert subsidized products to generate black money to win elections and get rich.

For example when PDS kerosene, LPG and diesel are sold below market prices, how will petroleum demand decrease or domestic based renewable energy sources get developed? When natural gas is subsidized, what incentive there is to use it in the most optimum way.

On the supply side, when investors are not given the market prices for what they produce (for example natural gas), what incentives they have to produce more energy sources. For example shale gas revolution has been a game changer in the USA. As a result the US has a good chance of energy independence soon. However in India, gas sector pricing has become a huge political hot potato because of competitive politics. It is true that Moily has announced that he would not  change his policy of implementing Rangarajan Committee formula which allows higher gas price from 2014-2019 and to liberalize the gas market after five years. However investors will not have much confidence in such assurances since the government has never hesitated to change it in the last minute because of political compulsion. Already the government is under attack for higher gas prices by the opposition who argue that it was to help Reliance.

Moily’s regular announcement of oil and energy independence is sending wrong signals to energy sector. Opposition will argue that if we are going to achieve energy independence, what is the need to increase energy prices. There will also be less incentive to develop renewables. Why invest in capital intensive LNG import terminals if India will achieve gas sufficiency as predicted by Moily? Efforts to invest in energy efficiency will slow.  When India and most of the world is facing a huge energy crisis, some one like Moily, who is the minister of petroleum for a major energy importer making such a statement is the height of  irresponsibility. In a war, when we are losing it, we can make optimistic prediction to cheer the soldiers. But we cannot solve energy crisis through rosy prophesies.

How realistic is it to claim that gas will start flowing from Turkmenistan- Afghanistan-Pakistan-India pipeline by 2017 , when negotiations with the countries are still not in the final stages. From all our several attempts to build gas pipelines from Iran, Bangladesh, Myanmar, Qatar, during the last 30 years, we should have learnt that implementing gas pipelines cannot be done by waving  a magic wand as Moily seems to be thinking.

Moily should set a realistic goal for reducing oil imports and not announce unachievable predictions. Such predictions will have unintended consequences of sending wrong signals to energy sector. He should set a road map for liberalizing petroleum product markets as well as gas market. He need not wait for any more studies to take decisions. Umpteen government studies have recommended liberalization of oil and gas markets. He should form an advisory committee of petroleum experts to design and implement this road map on a war footing. He needs to clarify his prophesy of oil sufficiency so that those who oppose subsidy elimination may not use that argument to question the need to eliminate subsidy for diesel and residential LPG. Will Moily rise to the occasion?