In a move that formally acknowledges the government?s desire to leverage India?s status as one of the world?s largest consumers of oil to its diplomatic advantage, the country?s energy purchases will now officially be guided by foreign policy objectives. The UPA government has set up an institutional mechanism in the form of a group of ministers (GoM) under the chairmanship of the external affairs minister which will be the final authority for conduct of structured energy dialogues with energy-rich countries.
The permanent GoM will also have the finance, petroleum & natural gas, coal and power ministers, the deputy chairperson of the Planning Commission and the minister of state for new and renewable energy as its members. The mechanism is part of the integrated energy policy (IEP) approved by the Union Cabinet last Friday, which recognises that India?s growth process could be hit due to its growing dependence on energy imports that exposes it to external price shocks.
India imports over 70% of its petroleum requirements. While the IEP envisages exploiting domestic resources to the maximum, it also emphasises the need to cut international supply risks with a slew of unprecedented strategic diplomatic initiatives. This includes building a strategic stockpile of nuclear fuel to counter the risk of disruption of international fuel supply.
?Since 80% of global hydrocarbon reserves are controlled by national oil companies, controlled by respective governments, oil diplomacy establishing bilateral economic, social and cultural ties could reduce supply risk,? the policy stresses.
To address global market risks, India would acquire energy assets of coal, oil, gas, uranium and biofuel farms abroad. Energy using industries such as fertiliser plants would also be acquired in energy-rich countries as per the policy, a move strongly endorsed by foreign minister Pranab Mukherjee. Building adequate import infrastructure and hard currency reserves to increase the ability to import energy are part of the strategy.
While India intends to build a strategic-cum-buffer stock reserve equivalent to 90 days of oil imports, it is also looking at buying options for emergency supplies from neighbouring countries with large storage capacities such as Singapore. These buffer stocks would be used to curb short-term price volatility in the international markets. Warmer diplomatic ties are imperative if such reserves are to be operated in co-operation with other countries to make them more effective.
As part of the energy policy framework, the government will now have to go through the permanent GoM while acquiring energy assets abroad, as planned under the policy. The GoM will also have the final word while setting up energy using industries such as fertiliser plants in energy-rich countries. While the GoM will take care of these issues, a monitoring committee has been set up under the Cabinet secretary to review the progress on implementing all the facets of the IEP.
This reshaped policy was in operation while reaching out to oil-rich states like Sudan and Venezuela, besides dealing with non-compatible countries like the US and Iran.