Seeking clarity on energy

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SummaryWe need a coherent political message on demand, cost and pricing reform: Varun Gandhi

banning Chinese power component imports will increase generation costs, exposing us to local bottlenecks. Value chain management must be improved — the PLFs must increase significantly and AT&C losses curbed through smart grids. The often quoted $1 trillion investment can only be attracted by removing regulatory and logistical obstacles. Adani Power found it cheaper to import Indonesian coal rather than transporting it across India. Flexible pricing will allow generation costs to be passed on to end users — a cost-plus principle will not do. We cannot give out free electricity any more.

Coal is our primary energy provider and our biggest growth bottleneck, with sectoral inefficiencies and inherent monopoly causing severe power shortages. Private participation in an open manner, with due concern to local and environmental rights, is urgently needed. The New Coal Distribution Policy (2007) put a legally binding Fuel Supply Agreement (FSA) mandated onus on Coal India (CIL) to fulfil the demand for power, fertiliser and large consumer sectors, with severe penalties for shortfalls. Domestic production has stagnated, with land acquisition issues, frequent strikes, strong unionisation, limited rail infrastructure and supply bottlenecks in mining equipment acting as significant constraints. While CIL has tried to import coal, price disparities ($38/ tonne vs $210/ tonne in Australia) lead to severe losses. Consequently, CIL has shirked from future FSAs and focused on less demanding MoUs. CIL’s production utilises inefficient open-cast mining, sparking protests and environmental devastation. Private investments, through the draft Coal Mines Bill (2000), have been stymied by the coal allocation scandal and incalcitrant unions. As is well known, of the 208 allocated captive blocks, only 28 actually started production by 2011. Prices of coal were deregulated in 2000, using a cost-plus approach; in practice, CIL’s monopoly leads to a limited flexibility. End CIL’s monopoly and embrace market-linked pricing and private sector participation, introducing new technology and bettering infrastructure. If Coal India cannot exploit its leased areas, auction them in an open manner.

India has just 0.3 per cent of the world’s oil reserves; mostly offshore. We import 75 per cent of crude demand, exposing us to geopolitical risks in Nigeria and Iran. Our production stagnates, with transmission infrastructure limited. Liberalisation was partial, with a regulatory straitjacket and populist subsidies determining prices. We force OMCs to sell crude products at a loss, while taxing the end-product heavily (37 per cent for petrol and 17 per cent for diesel). We ask upstream players

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