1. Editorial: Meeting PM’s energy goals

Editorial: Meeting PM’s energy goals

Getting 3 lakh people to give up LPG sops not enough

By: | Published: March 30, 2015 12:16 AM

Prime minister Narendra Modi’s goal of reducing India’s import dependence on energy by 10 percentage points in another 8 years, from around 77% right now, and to 50% by 2030 is laudable, but it will take a lot more than what is being done right now. Exhorting people to give up their subsidies on LPG is a good thing and it is nice to know 2.8 lakh people have volunteered—but this adds up to a mere R100 crore while the LPG subsidy in the April-December period was a little under R35,000 crore. Getting the import intensity of energy down requires fixing the subsidy regime so that people consume less and the pricing regime so that firms produce more. While the government has taken credit for decontrolling diesel prices, the fact is the hard work on this was done by the UPA which increased prices of diesel by 40-50 paise per litre per month till the subsidy got removed—as a result of this, consumption of diesel got rationalised and, for instance, industry stopped burning it in their furnaces in place of furnace oil which was more expensive since it was not subsidised. A similar opportunity, however, was missed by the NDA and, while it is true LPG subsidies have been falling, this is only because global prices have been falling, not because the government has taken a conscious decision to cut subsidies.

Matters are not much better in the electricity sector. After a 14% tariff hike in FY13 when states were keen to sign on to the UPA government’s financial restructuring package, the hikes in FY14 came down to 7%, and to a mere 6% in FY15 in the 22 states that decided to increase electricity charges—all this when, right now, there is a loss of around R1 on each unit of power produced. Electricity pricing, it is true, is a state subject, but the Centre has not tried to incentivise states to raise tariffs—and certainly, an NDA government could have put pressure on NDA-ruled states to raise tariffs.

Things are worse when it comes to the supply-side. There is the obvious issue of natural gas pricing which has brought most exploration by both Reliance and ONGC to a halt since the current price offered by the government is not lucrative enough for the deep seas which is where most of India’s gas reserves are. But, as an FE analysis showed, under 15% of all oil and gas blocks awarded by the government are producing hydrocarbons today. While some firms found they could not explore due to their fields being in the path of navy firing ranges and ISRO rocket launches, others, including the public sector ONGC, have got into a spat with the DGH on what tests to carry out. Some others, like Cairn India, have not been able to get

extensions for their oilfields despite finding more oil/gas. In the case of coal, while captive mines have been auctioned to several players, till mines are allotted to commercial miners—that is at least a year away and could be more—there is little chance of a significant increase in supplies. On current form, achieving the prime minister’s ambitious goals seems tough.

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