Dialogue January-March, 2013, Volume 14 No. 3
India’s Energy Security Challenges
Access to abundant, clean and affordable energy sources is a paramount concern for India’s billion plus population aspiring to better living standards. Balancing limited domestic energy resources with an energy-intensive growth paradigm poses enormous and unprecedented challenges for an economy racing to catch up with the developed world. This paper outlines India’s ineluctable energy security conundrum and critically evaluates the measures adopted by the Indian state to deal with its energy vulnerabilities. In the process, the paper highlights the fragmented perspectives that inform domestic public debate, which in turn, have resulted in half-hearted and piecemeal policy approaches in dealing with energy security. The lack of co-ordination owes not a little to the structural contradictions in the organization of India’s energy sector, exacerbated by the country’s coalition politics.
Energy security, like national security, is a diffuse term that defies precise definition and can mean different things to different people. Its definition and scope can also vary with the level and context in which it is addressed. At a national level, especially for policy makers, energy security would refer to the ability to access adequate and composite energy resources to sustain the growth momentum in the economy while improving equity in access to the energy poor, with its attendant emphasis on energy distribution infrastructure and the need for targeted energy subsidies. In this context, energy security would also include energy transit security and the physical security of energy infrastructure in the country. At industry level, it could mean continuous availability of the desired type of energy to keep the production processes and businesses going. At the household level, it could mean adequate energy supplies of the appropriate variety at affordable prices for lighting, cooking, heating, transportation and other needs. There would be enormous disparities in the level of demand across households based on the level of affluence.
Consequently, perspectives on what constitutes energy security and how to achieve it, span a wide spectrum. The term ‘energy’ is often used loosely to encompass all primary energy sources, whether commercial or non-commercial. Virtually in all contexts, the term energy would refer to and include all fuels, namely, coal, oil, gas and electricity from a multiplicity of sources as well as non-commercial and renewable energy such as sun, wind dung, crop residue, etc. However, in an economic context, the term energy security would speak exclusively of commercial energy.
The term ‘security’ could address a range of aspects from availability, accessibility, affordability to appropriateness to the designated purpose. Each of these parameters is critical while defining the term energy security. Yet, implicit in any definition of energy security is the assumption that energy is a commodity to be consumed by those who can pay for it. It is here that India makes a salutary departure from the commonly understood definition of energy security. The Integrated Energy Policy document IEP 2006), the first comprehensive policy document that sets out India’s energy paradigm, its challenges and options, goes beyond the commonly understood definition of energy security. In doing so, it acknowledges that lifeline energy, like water, is a basic human necessity which needs to be made available to every citizen regardless of his/her ability to pay for it:
“The country is energy secure when we can supply lifeline energy to all our citizens as well as meet their effective demand for safe and convenient energy to satisfy various needs at affordable costs at all times with a prescribed confidence level”.
The document then goes on to define lifeline energy thus:
It is necessary to provide lifeline energy to all our citizens irrespective of their paying capacity. Energy upto a certain level is a basic necessity…”
Even though the policy does not explicitly spell out what constitutes lifeline energy, it is reasonable to assume that basic lighting and cooking fuels would fall in this category. In order to maintain dignity of human life, both these will have to be provided to every citizen regardless of his/her ability to pay for it. Thus, lifeline energy is not treated as a commodity.
In any domestic discourse on energy security, the term energy security is often used in a very broad sense and may address any or all of the above definitions and contexts. At a geopolitical and foreign policy level, the term energy security is often used in the specific context of energy access. This stems from three factors: first, the universal aspect of energy as a necessary resource for civilized societies; second, the rather whimsical distribution of various energy sources on the planet. Thus, regardless of its resource endowments, every state has the responsibility to provide its citizens, access to adequate energy sources, not only to meet their ‘lifeline’ needs, but also to satisfy their wants. In fact, the legitimacy, strength and continuance of state power over its citizens would depend, inter alia, upon its ability to provide its citizens continued access to adequate energy. A third dimension would be the availability of technological knowhow (and the financial strength) to find and exploit the available energy sources. Thus, at a geopolitical level, the discourse on energy security has tended to focus on ways and means to access energy from wherever it is available. It could range from a desire to secure complete energy independence by tapping all domestic resources, and where independence is not possible, reduction in the dependence on imported foreign energy. Where both the options outlined above prove elusive, the question as to whether foreign policy can be used as an effective tool to foster energy security dominates the discourse.
At a national policy level, the term energy security could address a range of issues from the structure of its energy industries, the size, reach and physical security of its energy infrastructure and crucially, its energy pricing policies. The need for and the quantum of energy subsidies forms an integral part of the domestic energy security discourse in a developing country like India where large segments of the population are priced out of the market for energy access. Thus, energy security often becomes embroiled in political economy.
In India, the discourse on energy security seldom tends to be comprehensive and multi-sectoral, although the first solid attempt in this direction was initiated by the IEP. Even the policy approach to energy security continues to follow a silo approach wherein different aspects of energy security are addressed in distinct and often water-tight silos by different ministries and institutions. The geopolitical and foreign policy aspects of energy access are distinct from the domestic trade and investment policies that determine domestic resource extraction and market structure. Energy pricing policies are often hostage to political economy considerations. The public discourse on energy security is often based on fragmented perspectives that defy an informed and comprehensive approach.
The Indian energy architecture also follows a similar silo approach. The political organization of the sector under different ministries, each functioning independent of the other, has rendered elusive, any coherent and co-ordinated policy approach to energy security. The co-ordination, as it were, is left to the Planning Commission of India which is only advisory and has no implementation powers. In 2005, a half-hearted formal measure at co-ordination was attempted in the form of an Energy Co-ordination Committee under the stewardship of the Prime Minister, but its functioning has been sporadic and ad hoc. India’s federal polity with its tier-based governance has further exacerbated the problem of co-ordination. While coal, petroleum, natural gas and atomic energy are under the purview of the central government, electricity is listed in the concurrent list in the Indian Constitution, giving both the Centre and the States, the power to legislate on the subject. Yet implementation of even central policies and laws and the day-to-day governance of the electricity sector vests with the State governments. Access to land from which minerals like coal, uranium, oil and natural gas are extracted is the domain of the state governments as is water which has a direct linkage to energy extraction and conversion. Offshore minerals are in the domain of the centre.
In the event, energy security may not lend itself readily to the methodologies adopted generally for analyses, namely approaching the theme of energy security through the perspectives of nationalists, realists and globalists except at a disaggregated level. The polarization along the three divisions outlined above might apply to a single resource, say, nuclear energy, but may become diffuse when applied to other fuels like oil or gas. Besides, a nationalist on nuclear energy may well take the position of a globalist or realist when it comes to oil or gas. Or, a realist on nuclear energy may well adopt a nationalist position on coal or climate change. In fact, most of the public discourse on energy security in India tends to focus disproportionately on the role of nuclear energy although its share in the total energy basket is currently negligible and is likely to remain insignificant even if ramped up substantially to its estimated potential.
Part II - India’s Energy Security Conundrum
India’s impressive growth story of the past two decades was underwritten by an energy-intensive growth paradigm. The country’s energy consumption has been galloping although it trails GDP growth. Owing to the low base from which the Indian economy is growing and the egregious low average energy consumption compared to the rest of the world, the potential for India’s energy consumption to grow rapidly as the country develops, remains a factor to reckon with. India’s chosen growth paradigm led by service-sector, originally considered energy-neutral, is no longer so. The lifestyles spawned by the now prosperous service sector in the form of malls and urban sprawls that guzzle energy, the emphasis on growth led by engineering and construction industries, the latter comprising energy-intensive components such as steel, chrome, cement and glass, a rapidly expanding automobile industry focused on personalized transport and truck-borne freight, have ensured that the Indian economy remains energy-intensive. Aggregate primary energy consumption trails GDP growth, but consumption growth in sectors like oil and coal outpaces GDP growth. Demand for hydrocarbon fuels outpaces GDP growth and consumption is constrained only by availability. The following table, excerpted from the Integrated Energy Policy gives an overview of the likely supply scenario for various fuels upto 2032. The results, according to IEP has been arrived at by using the linear programming model on disaggregated data. The ‘forced’ scenarios mentioned therein represent a deliberate effort to move away from a coal-dominant economy to one where different fuels and options are compulsorily adopted.
From the Table it is evident that India’s growth will be led by hydrocarbons, primarily oil although coal will continue to play a very significant role till 2032. Considering burgeoning growth of transportation sector which guzzles half of all the liquid fuels, it is not surprising that oil leads energy consumption growth.
The second salient point to note is that India’s growth paradigm is inextricably linked to the global markets. India’s last major domestic oil find was fifty years ago, at Bombay High and domestic oil production has plateaued at around 33 million tonnes or about 670,000 barrels daily. The only exception has been the Cairn Energy operated new find in Rajasthan which could add sizably to domestic production in the next few years. Thus, India has to depend on external sources of supply to meet a substantial chunk of its hydrocarbon demand. It is ineluctable that India, which currently imports nearly three out of every four barrels
Table 3.7 : Scenario Summaries for 8% GDP Growth—2031-32
Million Tonnes of Oil Equivalent (MTOE)
Scenario No. 1 2 3 4 5 6 7 8 9 10 11
Forced Forced Forced Forced Forced Forced Forced Forced Forced Scenario
Scenario Coal Forced Forced Forced Nuc+Hyd+ Nuc+Hyd+ Nuc+Hyd+ Nuc+Hyd Nuc+Hyd Nuc+Hyd 10+
Description Dominant Nuclear Hydro Nuclear GAS GAS+ GAS+ +GAS+ +GAS+ +GAS+ Forced
Case +Hydro Coal off DSM DSM DSM+ DSM+ Renew-
Coal off Coal Coal ables
off+rail off+rail
share share up
up +transport
off
Oil 467 468 463 493 464 486 486 486 487 416 406
Natural Gas 114 114 116 121 224 181 164 164 164 163 168
Coal 1,082 995 1,031 940 807 778 708 658 658 659 573
Hydro 5 5 49 49 49 49 50 50 50 50 50
Nuclear 3 59 3 89 89 89 89 89 89 89 89
Solar 1 4
Wind 1 2 0 0 1 0 0 0 0 0 12
Fuelwood 69
Ethanol 4
Bio-diesel 6
Total 1,672 1,673 1,692 1,633 1,581 1,494 1,446 1,447 1,447 1,378 1,383
Oil 28% 28% 28% 29% 28% 31% 33% 34% 34% 30% 29%
Natural Gas 7% 7% 7% 7% 14% 11% 11% 11% 11% 12% 12%
Coal 65% 60% 62% 56% 49% 49% 47% 45% 45% 48% 42%
Hydro 0% 0% 3% 3% 3% 3% 3% 3% 3% 4% 4%
Nuclear 0% 5% 0% 5% 5% 6% 6% 6% 6% 6% 6%
Solar 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Wind 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 1%
Fuelwood 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 5%
Ethanol 0%
Bio-diesel 1%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
it consumes, will likely end up importing up to 90 per cent of its oil consumption by 2032. A third of the country’s current gas consumption comes in the form of imported LNG and India is likely to import even more gas in the future through pipelines as well as tankers. Thus, India’s energy security policies will have to reckon with the country’s acute import dependence for hydrocarbons, but not just limited to hydrocarbons since India has been importing coal as well in recent years.
A third and equally critical dimension of India’s energy security conundrum is its reliance on the Middle East Persian Gulf region for most of its oil and gas imports. Owing to reasons ranging from proximity to the region to its domestic refinery configuration that favours heavy sour middle eastern crudes, India will continue to rely on the region, particularly on the GCC, for its hydrocarbon supplies. Geography and geopolitics contrive to limit India’s scope for diversification of oil supplies. The overwhelming dependence on a single region, that too one that is politically unstable, is believed to exacerbate India’s energy vulnerability.
Coal-fired power plants account for two thirds of India’s installed power capacity, but nearly four fifths of actual generation of electricity is coal-based. While India has the fourth largest coal deposits in the world, its ability to access domestic coal to meet its burgeoning demand for electricity is compromised by several factors. Besides, climate change concerns in carbon-constrained world could also limit India’s coal usage, jeopardizing the country’s energy security. Prospects for generating electricity from natural gas, hydroelectric projects, nuclear and renewables have their own set of problems serious enough to put a question mark over India’s ability to manage its electricity needs from domestic resources.
All things considered, energy security will remain a daunting challenge for India which has finally broken free of decades of low growth rate to begin its race towards development, one that will necessarily be fuelled, above all, by copious quantities of energy.
Part III – Initiatives for securing energy supply
(a) OIL
Predictably, India with its acute energy vulnerability has launched multi-pronged initiatives to promote energy security, with varying degrees of success and effectiveness. The initiatives, launched at the turn of the century, heralded the entry of private sector in the hitherto state-controlled hydrocarbon industry.
Foremost among them is its effort to find and produce more oil and gas from its own land and its waters. Acknowledging the limited success of its National Oil Companies in successful exploration efforts, India decided to invite international investors with deep pockets and access to up-to-date exploration technology. Since 1999, 210 exploration acreages have been given away to upstream E&P investors under a scheme designated New Exploration and Licensing Policy (NELP) of which 9 rounds have been completed so far. Production Sharing Contracts are offered to investors. Upfront cost recovery and a biddable profit share post cost-recovery are salient features of NELP. It is worth noting that the first major gas offshore discovery off the eastern coastline of India in Krishna Godavari basin was made in one of the fields offered under the first NELP scheme in 1999 to Reliance Industries Limited.
Since then, a few foreign investors and many domestic investors have won exploration acreages and have reported 65 discoveries although none of them have actually been brought to production levels, probably for lack of economic viability. The absence of oil majors bidding for NELP rounds has been attributed to their favoured business strategy of acquiring discovered assets as opposed to exploration acreages. But yet, there are indications enough for India to introspect on the reasons for the absence of oil majors bidding in NELP rounds: first, the perceived instability of the policy environment in India in the wake of a prolonged dispute between the two Ambani brothers on claims over the gas discovery and the Indian government’s inability to intervene effectively to resolve the dispute in time, second, the Indian government’s inability to categorically decide whether it would treat gas purely as a commodity to be sold at market prices, as envisaged in the production sharing contracts or treat it as a strategic resource in nation-building which in turn would invest it with the power to fix the price of the domestically-produced fuel; third, the lack of reliable scientific data on prospectivity in the Indian basins that would attract investors with access to latest exploration technologies. Any or a combination of the factors outlined above have produced disappointing results from the NELP process putting paid to India’s hopes of achieving energy security through the indigenous resource route.
India’s upstream oil company ONGC has launched intensive efforts to improve oil recovery from its existing producing fields and has beenroping in advanced technologies as well as pumping in considerable investments to that end. However, in the last 13 years or so ever since NELP was launched, it has become clear that India’s hydrocarbons will have to be imported in ever-increasing quantities to quench the country’s apparently insatiable thirst for oil.
A parallel initiative launched during this period witnessed India foraying beyond the Middle East Persian Gulf region for its energy imports. Nigeria, Sudan and Angola and distant Venezuela now contribute almost 30 per cent of India’s crude imports. The versatility of the new refineries that could process other grades of crude made it possible for India to diversify to regions beyond GCC. Yet, it is inevitable that India would continue to rely on GCC for the bulk of its crude requirements. Instability in the Middle East North Africa region and its potential for disruption of crude supplies does spell concern for India.
A second major domestic initiative towards achieving energy security has been the transition of the energy industry from a state-controlled one to a market economy. It began with the liberalization of the entire petroleum value chain. While exploration was thrown open to private investment in 1999 with the launch of NELP 1, refining, marketing and retailing of petroleum products was also opened up to private investments soon after. Two major private refineries – Reliance and Essar – came up on India’s west coast with impressive capacities enabling India to become a net exporter of petroleum products. In fact, these two refineries are in the process of expanding their capacity to 240 million tonnes per year which will make India, a major refining hub in the region. Thus, to the extent that India has eliminated its dependence on refining, it has enhanced its own energy security. That the additional refining capacity acquired since liberalization is versatile, being able to handle a range of crudes from heavy sour to sweet light has endowed India with the flexibility to diversify its sources of crude supplies.
In 2002, the Government of India made a momentous decision to throw open petroleum product retailing to private sector, subject to certain threshold investments. Pari passu, the government also announced dismantling of Administered Pricing Mechanism (APM) wherein the pricing of petrol, diesel, etc were controlled by a government committee. Henceforth, petroleum product prices would be benchmarked to global prices on import-parity basis except for two petroleum products which the government considered welfare goods – kerosene and cooking gas – both of which were to be subsidized by the exchequer. The dismantling of APM was premised on the belief that where dependence on imported fuels was inevitable, economic rationale dictated that consumers must pay global prices. Consumption would then respond to price signals. At the same time, being a democratic welfare state, a concession was made to what the state considered ‘lifeline’ needs of the population, namely cooking fuels. For the rest, global prices would prevail. Impact of recent efforts to rationalise cooking gas subsidies is yet to be evaluated.
However, this measure failed to bolster the country’s energy security primarily because of lackadaisical implementation. Political economy considerations restrained the state from enforcing its own policy. The fact that retail petroleum markets were still dominated by NOCs (National Oil Corporations) enabled the invisible hand of the State to continue to control petroleum prices. In a federal polity ruled by coalition governments, frequent elections at the provincial or federal level restrained populist governments from enforcing their own policies which might vote them out of power. Consequently, the price signal never materialized; worse, demand for fuels whose prices were explicitly or implicitly controlled burgeons unabated.
But the failure to free up prices have had unintended perverse consequences as well. The accelerated growth of diesel-fuelled private cars whose annual output has now overtaken gasoline-fuelled vehicles, with attendant deleterious consequences for the environment is a direct fallout of the government’s misguided pricing policies. Relatively cheap-to-run diesel car demand has been galloping, locking India into an upward spiral of increasing crude imports to process and supply the diesel guzzled by these cars. It has also led to a proliferation of truck-bound freight traffic which is far less efficient per unit of diesel than its railway counterpart. Subsidized LPG cylinders in large numbers find themselves diverted to commercial eateries and restaurants capable of paying market prices. An official study found that 40 per cent of subsidized kerosene meant for the really poor is being used for adulterating diesel. In the event, price signals which could have tempered galloping consumption, have failed to work, aggravating energy insecurity. Belatedly though, the deregulation of the diesel prices have started and hopefully in due course the impact will buck the prevalent distortions.
Another major domestic initiative in pursuit of energy security was the move to set up a Strategic Petroleum Reserve (SPR) to take care of any supply disruptions in oil. Currently only the armed forces and refineries have modest reserves, but a major supply disruption could bring the Indian economy to a grinding halt. Indian Strategic Petroleum Reserves Limited (ISPRL), a government-controlled company was incorporated in 2004 with a view to establishing an SPR of 5.33 million tonnes of crude oil (10 days’ consumption in 2012) in three locations on the coast. But apart from identifying the locations it has not made much headway in terms of construction of storage facilities. Considering that oil prices have been on an upward spiral since 2004, filling up the storage is going to be an expensive endeavor. The Indian government is still mulling over ways and means to raise resources required to finance oil purchases for storage. With taxation on petroleum products already at high rates, no democratic government, much less a coalition government dependent on the support of recalcitrant allies to survive, can risk levying a fresh cess to fund SPRs. India continues to remain the only major oil-importing country without a SPR and is thus vulnerable to supply disruptions.
Besides, the storage capacity envisaged in SPRs is rather modest to make a serious dent on the country’s energy vulnerability. It is noteworthy that the OECD countries maintain a stockpile of upto 90 days under the aegis of the IEA, the US has a strategic stockpile of 700 million barrels of crude, China is believed to have already filled up a 90 day reserve which is slated to go up to six months and beyond. It was reported that the International Energy Agency had extended an invitation to both India and China to become members, but India is yet to take a decision in this regard. Collective and coordinated action on management of SPRs is an essential requirement and both countries may have to take a decision either to join IEA or set up an Asian institution on similar lines to co-ordinate stockpile management.
But by far, the most visible of all energy security measures undertaken by the Indian state in its pursuit of energy security is the green signal given to its NOCs to go forth and acquire oil and gas assets abroad. ONGC Videsh Limited (OVL) was set up in 1999 as a fully-owned subsidiary of the flagship upstream company ONGC with an express mandate to scout for and acquire oil and gas assets abroad. In the initial years, OVL acquired assets in Vietnam (1986) and Sakhalin (2001). In 2002, ONGC, the parent company was awarded import parity price for the crude produced and sold in the domestic market from its onshore and offshore fields and the acquisitions began to gather momentum. Under the stewardship of a dynamic CEO, ONGC set about expanding OVL’s asset portfolio to Sudan, Myanmar, Brazil, Columbia, Venezuela, Syria, Iran etc. By end 2012, OVL had participating interests in 29 projects in 15 countries. Apart from OVL, other NOCs like Indian Oil Corporation, BPCL, HPCL as well as private sector companies like Reliance Industries Limited, Essar, Videocon etc also started snapping up oil assets overseas.
However, there is little domestic debate and no clarity on how exactly overseas oil assets constitute energy security. A number of conditions need to be satisfied for overseas oil assets to actually translate to energy security. Being an operator of the field would give some flexibility to decide where the production would be channeled. OVL or for that matter even the other companies that have purchased assets abroad, are not operators in any field. Absent operatorship, the terms of contract of OVL with the operator should explicitly provide for returns to be accessed in kind as a share of production, or the flexibility to divert supplies to its own domestic markets in times of disruption, but from publicly available material, there is no evidence of such clauses in the agreements entered into by OVL. Diverting oil to home country markets is a difficult proposition since it would almost invariably contravene supply contracts, but even where it does not, it is unlikely that countries would allow oil to be shipped out in times of disruption. The host country is more likely to retain it for own consumption or supply to the highest bidder to garner the rents thereof. The contract must also be flexible enough to allow swap deals. And finally, the refining capacity in the home countries should be able to handle the type and quantities of crude that would be shipped from overseas assets. A prima facie examination of publicly available material on OVL’s overseas assets does not inspire confidence that these conditions have been satisfied. Therefore, it is not clear how overseas assets would constitute energy security. Besides, the assets have been acquired in countries that have been suffering internal political instability – such as Sudan - and as such, there could be question marks over the integrity and safety of the investments. And finally, in an environment of resource nationalism, the threat of creeping expropriation or outright nationalization of the asset is an ever-present factor that does not augur well for energy security, especially because many of the countries in which these assets are located are not ruled by democratic regimes subject to the rule of law.
(b) Gas
Natural gas, widely acknowledged as the fuel of the 21st century is an abundant and relatively cleaner fuel. Gas constitutes approximately 10 per cent of India’s commercial energy basket as against global average of around 25 per cent. Gas production from India’s offshore fields on the western coast have been firing mainly fertilizer and power industries, but also glass, ceramics and sponge iron plants since the 1980s. In 2001, the discovery of offshore gas by domestic private oil major Reliance Industries in the Krishna Godavari basin raised hopes that abundant gas would soon become available. On the back of this anticipation, numerous gas based industries came up as did a few gas pipelines to transport the new-found gas to markets within the country. But within a couple of years of commencing production, Reliance Industries found its gas output dwindling, admittedly, also due to geological factors. The anticipated peak production of about 80 mmscmd was never reached. Long before that, output declined to less than 30 mmscmd, leaving the evacuation infrastructure underutilized and gas-based industries, stranded for want of fuel. India’s brief dalliance with hopes of achieving energy security with new-found domestic gas was rudely interrupted; India had little alternative but to look beyond its borders to bail it out of this messy situation.
Unlike Europe which gets nearly a third of its gas supplies through pipelines mostly from Russia, but also north Africa. Asia’s geography as well as geopolitics conspire to frustrate pipeline access. Like the rest of Asia, India is grossly underserved by transnational gas pipelines. Nevertheless, India is surrounded by gas-rich neighbours. Iran, Turkmenistan, Pakistan, Bangladesh and Myanmar have substantial gas deposits. Although. For many years now, India has been negotiating with its neighbours to access gas reserves in Iran and Turkmenistan. Two potential gas pipelines, from Myanmar and Bangladesh have receded into the background owing to political and other reasons. Of the other two, namely, the Iran-Pakistan-India gas pipeline (IPI) and the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, each projected to transport 90 mmscmd, US pressure on India has virtually led to the latter’s abandonment of the IPI proposal. This, however, is not to say that the pipeline would have materialized absent US pressure since there were also other contentious and thorny issues like pricing, project structure and above all, the challenge of building (and operating) the pipeline through Balochistan, a territory hostage to terror threats and insurgency.
The 1680 kilometer Turkmenistan-Afghanistan-Pakistan-India pipeline which could bring 90 mmscmd of natural gas from Yoloten fields to India is currently at an advanced stage of negotiation. In May 2012, India, Pakistan, Afghanistan and Turkmenistan signed a historic gas sale purchase agreement (GSPA) for the $7.6-billion Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline is often touted as the peace pipeline.. Beset with the formidable challenge of bringing it through either Taliban-infested southern Afghanistan or the difficult mountainous terrain of northern territories, the pipeline has many hurdles to cross before it becomes a reality, Yet, negotiators are striving to iron out sticky issues such as project structuring, price and custody transfer points. Besides, despite the backing by ADB, the success of the TAPI venture depends crucially upon its ability to attract international investors to put up the massive investments required to build the pipeline.
In the circumstances, India’s only hope of increasing the share of natural gas in its energy basket rests on its ability to access Liquified Natural Gas (LNG) in tankers from global markets. Presently, India has two operating LNG terminals, both on the country’s west coast, with a combined capacity of 13.6 mtpy. Two more terminals with a combined capacity of 10 mmtpy are expected to be fully operational by FY 2013 and further expansion of capacity in existing terminals is also on the anvil. Yet, compared to Japan, South Korea and Taiwan, India’s LNG capacity is far below its potential. The rapid expansion of LNG infrastructure in the country is crucially dependent upon the ability of downstream gas consuming sectors to absorb the price. With LNG prices linked to crude prices globally, LNG is indeed an expensive option for power generation. India’s tentative reforms in the electricity sector have not been successful in stemming theft of electricity; even technical losses continue to remain far higher than global average. Raising electricity tariffs further, without stemming technical losses and thefts has met with popular resistance. Electric utilities in India are struggling to remain viable. This, in turn, has impacted the ability of the sector to absorb imported LNG linked to spiraling crude prices. Energy security through the LNG route remains an elusive dream.
(C) Coal
India has the fourth highest coal reserves in the world, after US, Russia and China. With extractable domestic reserves that can last up to 80 years at current levels of production, it is ineluctable that India should turn to this fuel to meet its electricity needs. Even if coal production grows at the rate of 5 per cent annually, coal reserves in the country will last for 45 years. The Integrated Energy Policy envisages that India will continue to follow a coal-intensive growth model. This, despite the fact that coal-fired power generation is the highest emitter of carbon in India. In-situ coal gasification can vastly enhance India’s energy potential and is less environmentally damaging than coal mining, but India is yet to acquire the necessary technology.
In 2012, India produced 432 million tonnes of which 85 per cent went into power generation. Coal production is set to grow by 6.2 per cent per annum whereas demand is expected to go up by 8 per cent per annum. Accelerating coal mining is fraught with serious problems on multiple fronts. Foremost among them is the stringent environment clearance requirements. Considering most of India’s extractable coal reserves are located in reserve forest areas or in densely populated regions, environment clearances can be a challenge and even when procured, can take upto three years to process. Besides, India’s coal belt and indeed, the main mineral belt is located in central India, where the stranglehold of the Naxal movement has been obstructing normal business activity in the region for nearly a decade now. A disenfranchised tribal population, uprooted from its land and deprived of its sole source of livelihood so as to fuel an energy-hungry and growing urban population has naturally risen in revolt against large-scale mining. Corruption scams in the allotment of mining leases, exposed by none other than a constitutional authority like the CAG and played up by the media has made coal mining a risky and difficult proposition.
Besides, coal mining is dominated by public sector Coal India Limited with a few captive mines offered to private power producers and other industries. Coal mining operations are controlled by powerful labour unions with whom Coal India will have to negotiate the quantum of output. Even when mined, Indian coal, high in ash content going upto 45 per cent, requires enormous quantities of water to separate the ash from the combustible portion. Thus, the heat content of Indian coal is poor requiring higher usage per unit of power generation.
If coal mining is problematic, coal transportation is equally so. The Indian Railways which are the primary carriers of coal from pithead to power stations, is unable to expand its carrying capacity, creating serious bottlenecks in reaching coal to consuming destinations. While new power plants are being set up at pitheads, the old ones away from the mines will still have to be serviced. Very often, power plants run on very slender inventories. In order to alleviate the problem, India has now begun to import coal from Indonesia, Australia and South Africa. Imported coal fired power stations are located on the coast while domestic coal services the hinterland. In 2012, India imported around 100 million tonnes of coal and this is set to go up steeply as new power plants are designed to use imported coal.
In an effort to enhance coal security, Indian companies are now acquiring coal acreages abroad. Tata Power, Adani, GVK and the Essar group have been acquiring coal acreages in Indonesia and Australia, primarily to fuel their power plants in India. However, changes in the tax policies of host countries post acquisition are threatening to render this model unviable. Besides, environmental lobbies are turning their attention to fossil fuel exporters who, according to them, must share the blame and the burden for emissions from exported fuel. As of now though, Indian companies are going ahead and securing fuel supplies for their power plants through acquisition of overseas coal acreages.
India’s energy security conundrum is characterized by complexities that defy a coordinated approach. Foremost among them is the fragmentation of energy industry administration. Not only are various energy sources under the administrative control of multiple ministries, they are also divided between jurisdictions. For instance, oil, natural gas and coal are administered by the Centre while electricity is in the Concurrent List of the Indian Constitution giving State governments an equal, if not greater responsibility over the industry. Land and water, integral to virtually every energy industry be it coal, oil or renewables, are the domain of the State governments and yet, the Centre has the responsibility to deliver. Thus, tiers and layers of jurisdiction and responsibility, not just overlap, but even work at cross purposes at times, making it a challenge to formulate a co-ordinated energy policy that is implementable. Suggestions to set up a super energy ministry that would assume the coordinating role have met with lukewarm response suggesting the political difficulty of implementing this measure. In the circumstances, it is inevitable that India would hobble along in a business-as-usual mode.
That India has been ruled by coalition governments for the past few decades has exacerbated the situation, rendering it impossible to take decisive action to enhance energy security. Even aligning domestic fuel prices with import parity becomes contentious in a coalition democracy. That successive governments, unable to improve direct tax collection, have relied upon levies on the petroleum sector to balance their budgets has resulted in pump price of petroleum fuels carrying a disproportionate rate of taxes. Unable to fix the pricing conundrum, policy makers have turned their focus outward, acquiring energy assets abroad rather than focus on streamlining and strengthening its internal energy administration.
India’s energy security challenges are formidable and complex, but can be resolved with political combined with clarity of purpose and long-term vision.