BackDiplomacy, not funds, is the limiting factor in securing energy
Mint’s debate on India’s energy security and whether the country is equipped to deal with the uncertain environment
Premium(Ramesh Pathania/Mint)
New Delhi: As unprecedented events threaten to destabilize an already precarious world energy supply, India is trying to get its act together. The carnage in India’s currency market and rising crude oil prices threaten to widen the nation’s current account deficit. Global uncertainties such as a possible strike on Syria have again raised the spectre of a supply shock in the crude oil market.
An expert panel comprising B.K. Chaturvedi, member, Planning Commission; Sudhir Vasudeva, chairman and managing director, Oil and Natural Gas Corp. Ltd (ONGC); Arup Roy Choudhury, chairman and managing director, NTPC Ltd; S. Narsing Rao, chairman, Coal India Ltd; Sashi Mukundan, BP’s regional president and country head, India; Sumant Sinha, chairman and CEO, ReNew Power; and Kaustav Mukherjee, partner and managing director at Boston Consulting Group debated on “India’s energy security: Are we equipped to deal with the uncertain environment?" at Mint’s clarity through debate conclave on energy in New Delhi last Friday.
The panel agreed that policy stability and coordination, import dependence, the use of diplomacy in acquiring international assets and exploitation of unconventional energy sources remain issues to look out for. In addition, there are limited options available for India if it has to rely on conventional sources of energy alone. The urgency of exploring alternative energy sources has grown. Utpal Bhaskar of Mint moderated the discussion. Edited excerpts:
Why is there a climate of gloom in the economy, particularly the energy sector?
Chaturvedi: The climate of gloom and doom is primarily driven by international factors. After the quantitative easing in the US, questions were raised whether it would taper off. That led to changes in the currency (value) and the currency markets all over the world. Also, we were doing around 20,000MW; we have moved onto 55,000MW but the fuel supplies didn’t grow correspondingly. This was partly because of concerns about the environment and partly other factors like gas supplies not going up on the east coast.
What lacunae in energy planning have led to the situation? Do you think a larger debate on environment versus growth has started and exacerbated the lacunae in energy planning?
Chaturvedi: First, I think we brought in the private sector rather late. Second, in the enthusiasm for sustainability, we have gone overboard. Development and environment both can go together and losing sight of that has led to problems.
Roy Choudhury: Let us understand that you can’t set up a power plant unless you have the land clearance, the environment clearance, water availability, fuel availability and a power-purchase agreement. Many of the private players did not tick all these five boxes, got into trouble and are now asking for policy changes. One of our coal mines was in a no-go zone, but we took it up with the environment ministry and got it cleared. So, I don’t think it has bothered us at any stage because we have never invested a single paisa without clearance.
Vasudeva: As far as ONGC is concerned, we have not faced any problems. There are issues of land acquisition which are sporadic and happen in one or two projects.
Narsing Rao: I would like to draw a distinction between environment and forest clearance. According to me, there is a misconception that delayed clearances are because of rigorous scrutiny, but that is not really the case. There have been delays but no outright rejections. It is more process-oriented delays rather than principle-oriented delays or rejections.
I can’t say the same thing about the forest clearance. There is a challenge before the nation about what you want—do you want to preserve nature or mine the coal below? Obviously, the principles and procedures followed for a forest and a totally degraded forest must be different.
How do you tackle land acquisition, which has been a problem for the sector? How do you see the new land Bill affecting you?
Roy Choudhury: Land acquisition will become a bigger problem with the new Bill. We have so much flexibility that it is not an issue. (But on the) Bill, I think we could have done slightly better.
Narsing Rao: I have serious reservations. I doubt very much that it (the Bill) will lead to expeditious acquisition. It will be subject to the same cross hairs and difficulties.
Sinha: My concern is that the government is now going to get more involved in the process. Our experience is wherever the government gets involved, it ends up slowing things down. We need to see how our interface with the administration needs to change.
Chaturvedi: States are free to make amendments specific to their requirements. To that extent, it will reduce the problems.
What do you think are the challenges India is facing compared to other markets where BP is operating?
Mukundan: I would put what is really wrong in three buckets.
First, the original intent when the NELP (New Exploration Licensing Policy) rounds were announced was to find as much oil and gas as possible, as fast as possible. That has transformed into the government trying to protect the notional share of profit and development revenue. The second bucket is sanctity of contract. Changes in (policy on) tax holidays, freedom of pricing gas and challenges in cost recovery make it difficult for a company trying to invest in India. The third and very important issue is stability and clarity in pricing so that people can invest for the next 20 to 30 years. But I think there is light at the end of the tunnel. There has been unprecedented speed in clearances and projects getting approved. The field development plans we submitted in January got the approvals within six months. We have turned a corner in the last eight months, but we have lost three to four years in the bargain.
Does the government’s ambition of energy independence by 2030 seem realistic given how import dependent we are today?
Mukherjee: The way to look at this is that it is aspirational, because realistically it looks extremely difficult. Energy consumption is going to double by 2030.
Between 2013 and 2030, India will import about $3.6 trillion. If we stimulate exploration and production, take a stamp at speculative survey and expedite approval processes, we can shave down the $3.6 trillion to about $2.4 trillion. The challenge is execution and administration—policy intent has to be articulated through guidelines, action and authorities.
What kind of a balance between Indian blocks and overseas assets are the energy companies aiming at?
Vasudeva: We are importing about 75% of our crude oil consumption and 25% of our gas consumption and this will increase at a much faster rate. If the world consumption increases at 1.5% CAGR (compound annual growth rate), India’s will be around 3-6%. The kind of resources we have and the kind of prospecting we have in the basins, it is just not possible to meet the consumption demand in 2030. We have to get energy resources from outside even if our first efforts are to increase production in the country. Of our plan of 130 million tonnes, 60 million tonnes come from within the country.
Where did we lag in our quest for Kashagan? In the race for resources, how equipped are we to compete with the Chinese?
Vasudeva: Fortunately, people are wary of Chinese dominance and we are getting opportunities in those countries. We have to get energy resources from outside, and for this we need diplomatic support and all other kinds of support from the government. The subsidy burden is causing a lot of concern. Without tax and other incentives, oil companies would not increase production.
Mukherjee: Having a sovereign fund will help, though energy diplomacy, and not funds, is the limiting factor.
Are subsidies the only way forward for renewables in the country?
Sinha: I find it an odd statement. The government controls production of fuel, the generation, transmission and distribution of conventional energy. In such a context, to expect a new form of energy to compete as if it were a free market when it is not becomes a little difficult. In this context, the government has to decide what it wants to do with renewables and incentivize it accordingly.
Roy Choudhury: We have 115 million tonnes of coal, the largest coal reserves in the world. Once we do more mining and once we have a coal regulator that encourages private sector to mine, I think most of our energy shortages would be met. I think then a substantial portion of the economy can afford green power.
What ails nuclear power today?
Roy Choudhury: We have to get into nuclear and have to look at this source. We haven’t been able to explore into our sources. Hydro and nuclear are extremely important and the activism (against these) would need to be handled at an administrative level.
Vasudeva: Even considering Chernobyl and Fukushima, the number of accidents are lower than at conventional energy plants. Modern nuclear plants are not as hazardous as people think.
Do you think gas price increase as proposed would encourage production?
Chaturvedi: Gas markets are fragmented. There are umpteen views. With such divergence, the best view is to see that the government stands committed to its production-sharing contracts. I think this will encourage more finds and then unlock the potential.
Roy Choudhury: Even at $4.2 (per mmBtu), there are no takers for gas-based power. So, I don’t know what we are thinking when we double the gas price and how we will balance it. We have to see how gas is priced internationally. At international prices, I don’t think we can ever use gas for power or fertilizer. We need to think of what to do with existing gas-based generation capacity.
How is shale gas going to affect India’s energy plans?
Roy Choudhury: We have 10 basins which have reserves but the potential is still being assessed. More work and the policy need to be there. The infrastructure will also need to be created to connect the gas to the last mile. Do we have rigs, water? These need to be addressed. We have to be cautious.
Mukherjee: There are five choke points of hydrocarbon supplies and the US underwrites security for all of them. If West Asia and these routes become less important for the US (with its shale gas), who will bear that cost? What will be the security of supplies to India?
Monalisa, Prashant K. Nanda and Aman Malik contributed to this story.
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