Home / Industry / Energy /  Tough choices ahead for India’s energy security

The future of India’s energy sector remains clouded by sputtering investments in power, hydrocarbons and coal mining at home and troubled forays abroad, even as the new government which rode to power on a promise of prosperity and economic revival settles down.

Maria van der Hoeven, executive director at the International Energy Agency (IEA), pricked the balloon of energy security floated by India’s policymakers. The target set by the previous central government to turn energy-independent by 2030 was “very ambitious" and an “idealistic challenge", she said in an interview.

The new government will have to rework strategies to achieve results. It won’t be an easy task.

Some attempts to achieve energy security through overseas investments have run into trouble. ONGC Videsh Ltd’s (OVL) $2.1 billion acquisition of Imperial Energy Corp. Plc’s Siberian deposits is an example. The Comptroller and Auditor General (CAG) had raised questions over the 2009 deal, which was one of the most expensive resource purchases by a state-owned firm. An audit committee later started examining the process behind the purchase.

India, the world’s fourth largest energy consumer, imports 80% of its crude oil and 25% of its natural gas requirements. Around 600 million Indians do not have access to electricity and about 700 million Indians use biomass as their primary energy resource for cooking, according to the Planning Commission.

OVL, which is tasked with securing energy resources overseas, has faced difficulties in Venezuela. In South Sudan and Syria, production has been hit due to civil strife. Till now, the company has invested 78,000 crore in overseas energy assets.

What’s worse, gas from Mozambique’s Rovuma deepwater basin, where OVL, Oil India Ltd and Bharat Petroleum Corp. Ltd together hold 30% stake, will first go to China, Japan and Thailand. Reserves at the largest gas find off Africa’s east coast are valued at $60 billion, with estimated recoverable reserves of 45-75 tcf.

“There is no output in the terms of energy security. It is more on the lines of financial security. We have faced similar problems in Myanmar as well, wherein Indian firms were involved in developing the block, (but) the gas finally went to China," a top Indian government official aware of the faux pas said, requesting anonymity.

Progress with fuel pipelines—once seen as the one-stop solution for energy woes—has been dismal. While India is no longer part of the proposed Iran-Pakistan-India pipeline, even the Turkmenistan-Afghanistan-Pakistan-India project has turned out to be non-starter in the absence of anchor investors to share risks.

The Bharatiya Janata Party (BJP), which came to power on a decisive mandate, is aware of the challenges. The party “realizes the need to focus on generation and distribution of power as a national security issue so that growth is not negatively impacted due to supply issues in the energy sector. The overarching goal of the energy security is to ensure affordable energy for various consumer segments", its election manifesto had said.

Things remain bleak on the domestic energy front as well. Interest in finding hydrocarbons has waned, with around 70% of Indian basins still largely under-explored.

India’s energy demand is expected to more than double from less than 700 million tonnes of oil equivalent (mtoe) today to around 1,500mtoe by 2035, according to estimates made by the oil ministry.

The government must decide on whether to stick to an existing production-sharing agreement with oil and gas explorers or move to a revenue-sharing one, with support emerging for both proposals. Explorers want the existing system to continue.

The new government will also have to bring investors back to the power sector. A slowing economy, costly loans, delayed land acquisition and environmental clearances and fuel shortages have plagued the sector. The slowing power sector has dragged down the capital goods sector with it as orders for power equipment dry up.

Power sector is critical to Asia’s third largest economy, where the investment cycle is linked to the power cycle. About 30% of the country’s capital expenditure is determined by the electricity sector.

In the year ended March, the Indian economy is estimated to have grown a mere 4.7%.

About 9% of India’s power capacity of 2,45,393.54 megawatts (MW) is fuelled by gas and 59% by coal. With state-run Coal India Ltd and Reliance Industries Ltd’s Krishna-Godavari D6 gas block unable to meet fuel demand fully, many power plants are operating below capacity.

The process of allotting coal mines has also been questioned after allegations of preferential treatment and corruption, including at a time when the coal ministry was handled by former Prime Minister Manmohan Singh.

The health of the power distribution sector holds key to the success of generation projects in a sector seen as a key bottleneck in efforts to sustain and boost economic growth.

Analysts, however, are hopeful.

“It seems the industry has big expectations from the new government (not a surprise really) and is hopeful of structural reforms in many areas, including domestic coal production and power distribution," UBS Global Equity Research wrote in a 19 May report. “However, the view of independent sector experts is a little more cautious."

“With decisive policymaking and higher bureaucratic efficiency, we think the new government can attack losses in power distribution sector (with the help of states) and sluggish growth in domestic coal production," the report added.

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