The Prime Minister?s Economic Advisory Council (PMEAC) has urged the government to wake up and fix the ?single most important? infrastructure constraint impeding India?s economy?electricity. Work must start ?immediately? on creating 1,50,000 mw of nuclear power capacity in 15 years and increasing the use of ?domestic and imported? liquefied natural gas for power plants, it has stressed in its latest report.
The PMEAC may well have been alluding to the pathetic response received for the eighth round of bidding for gas blocks under the New Exploration Licensing Policy, when it specified ?both domestic and imported natural gas? could be used. NELP-VIII has only managed bids for 36 of the 70 exploration blocks on offer?almost half have gone abegging.
The Oil ministry has given the flop show a spin. ?We have got investment commitments of $1.346 billion. Compare this with $1.7 billion investment committed in the 44 blocks that went out in NELP-VII, I think we have done better,? Oil secretary RS Pandey said last Wednesday, the same day the PMEAC report came out.
If Pandey was hinting that the average investment commitment per block has improved, his arithmetic needs an upgrade. NELP-VII roped in $38.63 million per block, while the latest round has got $37.8 million!
The Integrated Energy Policy (IEP), cleared by the Cabinet last December, lays down a roadmap for adding 8,00,000 mw capacity of electricity and becoming energy-secure by 2031-32. The six concerned ministries?Coal, Power, New & Renewable Energy, Finance, Department of Atomic Energy and Petroleum & Natural Gas?have very clearly spelled out sequential reforms to implement. They must have a sense of urgency.
The most important aspect of the IEP is that energy prices in India must be eventually brought close to world prices ?at the consumer level?. While petroleum pricing is currently being examined by a panel led by Kirit Parikh, it remains to be seen if private investors who had shut their petrol pumps like Shell and Reliance will re-open them in response.
Before fully moving to free market energy prices, it is essential to ensure fuels?coal, gas, petroleum?are in abundant supply. ?As more and more gas finds come into production, once there?s adequate gas, prices could be set free,? says Planning Commission member BK Chaturvedi. But the tepid response to NELP-VIII is a sign that investors are wary of investing in an uncertain regime and buries the Centre?s hopes of quickly raising gas supply.
?There are certain areas that continue to lag. The biggest worries?oil companies are making losses because of the lack of pricing reforms and the regulatory regime in the sector is very weak,? Chaturvedi told FE. The IEP explicitly requires the Oil ministry to strengthen the upstream regulator, the Directorate General of Hydrocarbons (DGH), and the downstream regulator, Petroleum & Natural Gas Regulatory Board (PNGRB).
?The DGH needs to put in place a better audit regime to ensure that the large investments coming into the upstream business feel comfortable. The Oil ministry is yet to notify most of PNGRB?s powers. The ministry must have a larger faith in their regulators and end its reluctance to give up powers,? asserted Chaturvedi.
While Murli Deora?s ministry was involved in the framing of the IEP since 2006, it has changed track on setting its regulators free. Around three months ago, it told the Planning Commission that a ?regulator is required when a level playing field to all parties needs to be provided? and policies such as NELP and CBM already ensure that in the Indian upstream sector.
Whether the DGH has been fair to all industry players is currently under the scanner of the Central Vigilance Commission and the Central Bureau of Investigation. Among other things, the CVC found that the DGH awarded the right to conduct speculative surveys on new blocks in an ?arbitrary manner?. These surveys are the very basis on which prospective oil investors make up their minds about bidding for a block?maybe NELP-VIII suffered on this account.
The government wants to create 1 lakh mw of power in the XIIth Plan, bulk of which will still depend on coal-fired plants. Ninety coal mines have been allotted for captive power plants, but even if they come into production by 2012, they can only fuel 40,000 mw of power. More coal mines need to be awarded urgently and the IEP has mooted that private sector be allowed to explore coal blocks through an NELP-type system?not a great example to emulate on current evidence.
If oil & gas regulators were truly empowered, the government wouldn?t have needed to set up a group of ministers to take routine decisions like pricing and allocation of gas to different users. The Prime Minister?s Office could intervene; maybe ask the eGoM to review oil regulators? powers and duties. But it must also dispel the notion that ministries can set up half-baked regulators and control the show, at least for the new ones to be created in infrastructure sectors like coal.