Time to convert concepts to reality

The draft report of the expert committee on integrated energy policy has been put out by the Planning Commission for comments. The committee, headed by Planning Commi-ssion member Kirit Parikh, has deliberated for over a year?over a period of time that has seen great volatility in oil, gas and coal prices. The committee has attempted to address the challenges of a sustained 8% GDP growth that would require primary energy supply to grow three-to-four times by 2031-32 and power generation capacity to increase five-to-seven times.

The committee has recommended that coal should remain the primary fuel for power generation and has recommended some privatisation of coal mines for development, improvements in infrastructure to facilitate imports, and acceleration of production from public sector projects. For the power sector, the recommendations envisage lower costs of power through tariff-based bidding, encouragement of private, captive generation, trade parity prices for all fuels including gas and coal, and a sharper focusing of subsidies of free power.

Refreshingly, there is focus on hydro and nuclear, realising the full potential of hydro-based power generation by 2031-32, and a substantial increase in nuclear- based generation. The report recognises the importance of rational pricing, of market-based incentives, fair and transparent regulation and social needs of subsidy. At an 8% GDP growth rate, the demand estimates of 562 mmt of coal, 4,188 mmt of oil, 100 mmt of gas and 3,880 GWh of electricity by 2031 are likely to place a considerable strain on resources as well as infrastructure.

An important consequence is that for fuel imports. Given estimations of production of around 35 mt of oil and 100 to 200 mt of natural gas, there has to be significant reliance on imported oil and gas. Coal and lignite production, if pushed hard enough, could reach around 1,400 mmt by 2025 (though this could be sustained only for a decade and a half, given our limited reserves). Given these kinds of numbers, the report turns fairly helpless, clutching at straws like renewables, ethanol, energy efficiency and other hoary chestnuts. Energy security is sought to be addressed by improving efficiency of energy use and diversifying sources of imported energy. Other, futuristic scenarios, like hydrogen as a fuel, coal bed methane are advocated enthusiastically. There is also emphasis on the need to create strategic reserves of oil.

Though the report announces that it is an integrated energy policy document, the individual chapters on coal, oil and gas and power, clearly show that these sector ministries are thinking within their own silos. Most importantly, there appears to be no fresh thinking, perhaps because a number of experts associated with the preparation of this report have, in the past, contributed to similar reports over the decades. The report, in fact, raises several concerns.

The primary concern is the availability of fuels. The world pumps around 83 million barrels of oil per day, and there is little likelihood in the next decade of this increasing by even 50%, even if Iraq, Russia and Africa increase production substantially, and if Alaska proves to be of considerably greater potential than envisaged. There are concerns that existing production fields have matured, and threat to Saudi Arabia?s reserves may be somewhat overstated. The incremental production would be competitively bid to several growing economies, China being the most aggressive. The price, as well as the politics of gas, are both making its availability for India at reasonable prices, increasingly difficult. The report offers no solutions to how to ensure availability.

Coal production of over a 1,000 mmt per year would drastically reduce mineable reserves, though the report urges greater exploration and identification of reserves. Expansion of coal mining is beset with issues of environment and rehabilitation, and a tripling of production in 25 years appears to be well-nigh impossible. It is also not clear that world trade in coal will be of a volume that will be able to accommodate the needs projected in the report. In short, the report skirts round the issue of availability of imported fuels?oil, gas, as well as coal.

On power, the report fails to address the important issue of fuel mix. Are pit head stations preferred to imported coal based, coastal locations? Is the regional gas grid, that is a driver for industrial development, likely to cover only the north and west of the country? Are the east and south to depend on hydro power and nuclear options, respectively? Or is the plan to move along somehow, ad hoc, putting up power stations based on whatever fuel available, wherever? If so, this is hardly an integrated energy scenario. If this is coupled with the recommendation of market-based fuel pricing, then coal versus gas, LNG versus natural gas, will throw up very different alternatives that the report does not attempt to resolve.

Finally, there is very little on investment in the sector. Are the investments to come from the private sector? Would there be encouragement for FDI? If so, how should regulatory and contract enforcement issues be tackled? The report is not clear. Given the political constraints, the report pussyfoots around the issues of privatisation of the coal, oil and power sectors, nor is it able to come out boldly against free power to farmers. In short, there are a lot of good concepts, but not enough to act upon, in this report.

The writer is a former finance secretary and economic advisor to the PM