Energy sector needs a GST Council-like model

Richa Mishra | Updated on January 15, 2020

With energy demand to double by 2040, India will have to promote an efficient market through better Centre-State synergies

It is time India adopted an energy policy which protects the country from uncertainties arising from geopolitics. Whenever there is turmoil in West Asia or other large oil-producing nations, an immediate impact is felt on oil guzzlers such as India, sparking debate on how to cope with the situation.

Some of the standard responses from policymakers in India are: “we are closely watching the situation”; “we are expanding our energy portfolio”; and “we are not dependent on one region for our crude oil purchase”.

But the fact is that India’s crude oil demand is largely met by imports — over 80 per cent. And, maximum supply comes from the Gulf region, particularly Iraq and Saudi Arabia. There was a time when Iran was also a key player till American sanctions hit the Islamic nation.

The International Energy Agency’s ‘India 2020: Energy policy review’ — brought out in partnership with NITI Aayog — points out that India’s demand for energy is set to double by 2040, and its electricity demand may treble. India’s oil consumption is expected to grow faster than that of any of the other major economies. And this, the report says, makes improving the energy security further a key priority for India.

According to the IEA, the rate of growth of India’s oil consumption is expected to surpass China’s in the mid-2020s, making India an attractive market for refinery investment. “As proven oil reserves are limited compared with domestic needs, India’s import dependency (above 80 per cent in 2018) is going to increase significantly in the coming decades,” it adds.

Push for alternative sources

So, what India needs is to not only expand its oil sourcing portfolio and tap other oil-producing countries, which the domestic refiners are doing now, but also aggressively push for alternative sources of energy to bring down dependence on fossil fuels.

Today, Indian refiners are also buying crude from the US. But, American crude is not cheap, though both the buyer and the seller claim that it is competitive. How they define competitiveness is anybody’s guess. While India’s energy push should not be dominated by one country or one player, but based on its own bilateral ties, it also needs to get its domestic policies in shape.

The IEA report also states that to improve oil security, the government has prioritised reducing oil imports, increasing domestic upstream activities, diversifying its sources of supply and increasing Indian investments in overseas oilfields. India’s strategic petroleum reserve supplements the commercial storage available at refineries. However, India’s current strategic reserve capacity of 40 million barrels can cover just over 10 days of current net imports.

“Given the expected growth in oil consumption, the same volume may cover only four days of net imports in 2040. Therefore, it is important that the government pursues the second phase of its strategic stock-holding policy, which would add an additional 50 million barrels, and also prepares subsequent phases,” the report states.

For the domestic policies to work well not only should there be synergies between various ministries — such as Coal, New & Renewable Energy, Power, and Petroleum & Natural Gas — but also State governments must be got on board.

Former Finance Minister Arun Jaitley in one of his blogs had said that the experience of the GST Council can be replicated in sectors such as agriculture, rural development and healthcare. These sectors need major support from both the Centre and the States, Jaitley had said.

“Should the Centre and the States be only competing and not supplementing the efforts of each other?” he asked. Also, he wondered if they (Centre and States) should not be pooling their resources and ensuring that there is no overlap or duplication taking place, so that the interests of the largest number are protected and enhanced.

Those tracking the energy sector feel a similar mechanism can be adopted for mineral resources also. Anobvious example would be the power sector, where States play a key role in making the schemes a success or failure as the entire distribution set-up is under them.

The IEA report, while making recommendations for reforms to support India’s goal of promoting open and well-functioning energy markets in sectors such as coal, gas and electricity, has called for building strong regulators to ensure non-discriminatory access — moving from State allocation to market pricing — and further rationalisation of energy subsidies.

It also strongly encourages India to institutionalise energy policy coordination through a national energy policy framework. When everyone can come on board for a critical tax reforms, the same could be done for energy, provided someone takes the initiative.

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Published on January 15, 2020
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