High oil prices may lay slippery track for economy

Updated: Feb 29 2008, 05:56am hrs
The brewing energy crisis, following a phenomenal increase in the international crude oil prices, may soon grip Indias economy. The country imports nearly 78% of its total crude oil requirement and with global oil prices touching unprecedented levels of $102 a barrel, its time that appropriate strategies be put in place to deal with any unforseen situation.

The impact of high oil prices on the countrys economy is evident. India, which spent $48.389 billion to import its crude oil needs in 2006-07, has already spent $48.02 billion on imports in the first nine months of 2007-08.

Voicing concerns over the high crude oil prices, the Economic Survey 2007-08 has also warned on the constant slippages in Indias power capacity addition programme.

As against the government claims of making concerted efforts to improve power situation, generation in the first nine months of 2007-08 (the first fiscal of 11th Plan period) decelerated from the previous years level. Growth in power generation slowed down to 6.6 % in April-December of fiscal 2007-08 compared with 7.5 % in the corresponding period of 2006-07.

Domestic crude oil production needs to be improved. While efforts are on to discover new oil and gas, such as the discovery of oil by Cairn Energy in Rajasthan and Reliance Industries/ONGC in the east coat, the Survey has made another innovative suggestion for reducing Indias dependence on imported crude oil by privatising the old oilfields.

State-run firms Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) have seen output fall from old fields like those in Gujarat and Assam. As per the Survey, old oilfields should be sold to the private sector for application of improved/enhanced oil recovery techniques.

Besides stepping up domestic production, the deficit would have to be bridged by entering into strategic geo-political alliances to access energy assets in the region, the Survey said, pointing to the need to make investments in the energy chain of West Asia and Africa.

The financial health of state power utilities continues to be an area of concern. The Survey warned that gross subsidies for the sector might grow to Rs 43,132.6 crore for 2007-08 as against the provisional figures of Rs 40,054 crore for 2006-07. The amount could even rise to Rs 46,087 crore in 2008-09, it said.

Despite environmental concerns, shortage of gas for fuelling power capacities continues. Gas-based power plants are getting inadequate supply and that commitments of gas allocations made to power stations in the past are not being fulfilled, thereby leading to loss in power generation. This is despite the fact that the power sector is expected to grow at 9.5% per annum.

Therefore, coal may continue to be the mainstay for power production, the Survey says. Coal-fired thermal units account for around 62.2 % of total power generation in the country.

Given the fuel shortages, Indias strategy for meeting its energy requirement should include ways to fully exploit the nuclear and hydro potential for power generation.

Accordingly, the Survey has made a strong case for permitting private sector investment in nuclear power generation.