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Thursday, January 26, 2012

Sanjaya Baru: Energising growth

Electricity underpins modern civilisation, as Daniel Yergin points out in his impressive classic on the human quest for energy security. (The Quest: Energy Security and the Remaking of the Modern World, Penguin Press, New York, 2011.)
By this measure, not only do large parts of India reside outside the pale of modern civilisation, even the most upmarket neighbourhoods in urban India routinely slip into the dark ages!
The relationship between energy and development is obvious, direct and significant. Energy security is, therefore, fundamental to national development and national security. Every single aspect of national policy is shaped by the choices we make about energy — its sourcing, its pricing, its utilisation and so on.
Yet, in India, there is no national consensus on what constitute the key elements of energy security. Does subsidising power consumption contribute to national security? Is the policy on coal mining or on hydroelectricity or on nuclear energy, or on oil and gas pricing, defined by India’s national security and national interest?
Nowhere is the absence of political consensus on policy in India as damaging to the national interest as in the case of the power sector. What is even more disturbing is the fact that even within the government, there appears to be no consensus on energy policy and security. Different ministries pull in different directions.
Mindful of this problem, Prime Minister Manmohan Singh constituted an Energy Coordination Committee (ECC) in July 2005 to, among other things, “identify key areas requiring energy policy initiatives, so that the overall objectives of economic development, energy security and energy efficiency are met; monitor vulnerabilities that directly impinge on energy security aspects; outline the follow-up action needed for implementing identified policy initiatives; identify institutional mechanisms for implementing policies; periodically monitor key policy decisions”.
India has several ministries dealing with different aspects of energy, with different ministers pursuing different, even conflicting, agendas. There are different ministries for power, oil and gas, coal, water resources, renewable energy and so on. Then there is a minister for environment and forests with powers to block the functioning of all those charged with ensuring energy security.
It was to address this challenge that the press statement announcing the creation of the ECC said: “The ECC will formulate a coordinated policy response cutting across ministries so as to improve the overall energy scenario in the country while addressing energy security concerns. The ECC will enable the government to take a holistic view of India's energy needs and policy options.”
In the UPA government’s second term in office, the ECC has never met, or at least there is no public record of any meeting. So it was not surprising that when the entire power sector found itself pushed to the wall, and India began to stare an impending power crisis, it took the initiative of an industrialist, Anil Ambani, to mobilise not just power companies but the entire membership of the ECC.
A new committee, to be chaired by the principal secretary to the prime minister, will now bring different ministries into line to ensure that power sector concerns are addressed. This sounds like the old ECC at the level of secretaries rather than ministers.
Getting new power projects back on track is the first step towards addressing India’s energy security challenge. Getting existing ones to function at full capacity is a second challenge and that too is related to coal and other linkages. Equally, there is the challenge of tapping hydroelectricity and nuclear power. On both fronts, political constraints have emerged that need to be overcome.
The pricing of oil and gas is another policy challenge that the government has to grapple with sooner rather than later. Non-decision is holding up new investment. In the case of petroleum, diesel, kerosene and LPG, it is also contributing to the problem of fiscal management as well as that of energy efficiency.
While these are domestic energy security challenges, India has external energy security challenges as well. These relate to sourcing oil and gas as well as sourcing hydroelectricity. Addressing this challenge requires taking initiatives in foreign policy and regional security, with an eye on energy security.
To be sure, till last week’s meeting of the prime minister with investors in the power sector, the only evidence of policy activism was on the external front. The visits to West Asia from India’s national security advisor had an energy security dimension.
Mr Yergin’s thesis that the quest for energy security underlies much of what has been happening in the realm of international relations through most of the 20th century is underscored by this diplomatic activism of India and China, both rising economic powers, in the pursuit of their energy security.
These domestic and external policy initiatives are all aimed at addressing the problem of energy security from the supply side. The problem also requires addressing from the demand side. Here, getting prices right is the most important policy challenge for India.
The most important part of the prime minister’s New Year Message, issued on December 31, 2011, is his statement on energy security. He identifies both the domestic and external dimension to energy security. First came the message and then the meeting, suggesting that energy security has come to the fore in the prime minister’s policy agenda. It must remain there till the challenge has been overcome.

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