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A sound energy strategy...
India’s top B-Schools have been teaching strategic planning for long. Our IAS officers, who preside over our energy sector, as also our energy professionals, are also trained in strategic planning. But one finds no credible strategy for energy!

Still it appears that our energy sector is unaffected by strategic planning concepts.  That’s sad.  The Table  gives the likely Indian primary energy demand for three different scenarios.

Under the new Policy CO2 intensity will be reduced by 20 per cent compared to 2005. Under current policy it is assumed that the National Solar Mission, trading of Renewable Energy Certificates... will be implemented. Under the 450 Scenario, 25 per cent reduction in CO2 intensity, deployment of CCS from around 2020 etc will be carried out.

The Planning Commission’s Integrated Energy Policy report prepared in 2005, had predicted India’s energy demand to vary between 1333 and 1633 MTOE in 2031. We need to apply a correction factor of about 250 MTOE since the actual demand has turned out to be 750 MTOE  in 2011 as per WEO 2013 versus about 500 MTOE in the Planning Commission report. If we apply that correction then India’s demand in 2031 as per the Planning Commission’s will be between 1583 and 1883 MTOE - considerably higher than WEO 2013.

Irrespective of which report to be believed or is more credible, India’s energy demand will increase more than 100 per cent from the current level by 2030 to put us on an economic growth target of 7 to 8 per cent. Even with such a massive energy growth, will we be able to avoid blackouts and brownouts? Today, more than 300 million Indians have no access to electricity. Will every Indian get access to electricity by 2031?


Will all households have access to LPG for cooking to avoid the health hazard of using firewood? How will we be able to meet the increasing demand for coal, gas and oil despite all the energy efficiency projects we want to implement? Just extrapolating with a simple number crunching exercise by our energy planners seems to be producing always an optimistic energy scenario. None of the planned targets for adding power generating capacity has met more than 50 per cent of targets. Still we have not attempted to think strategically except to blame the absence of political will to take tough decisions.


The Moily magic

Petroleum Minister Moily has been making rash predictions about India achieving oil and energy independence in less than 20 years. However, he fails to elaborate the strategy the government will adopt. Even some of the foreign oil companies who have won exploration blocks have decided to leave India while mega oil companies except BP are uninterested in India. This is one obvious result of lack of strategic planning.

Production sharing made more complex…

Instead of trying to simplify the production sharing contract terms, the Rangarajan committee has made it even more cumbersome. Because of the inherent problems involved in implementing PSAs based on profit sharing, Rangarajan committee has suggested ‘Revenue Sharing.’ This is nothing another form of royalty,  a concept, which has often come under attack when economics of the projects are marginal. True, under this contract can be implemented easily with greater transparency and minimum conflict. However, to ensure profitable operations, oil companies are likely to bid conservatively. As a result the government may end up with less profit.

Then there is the problem of gas pricing. According to PSA, oil companies are allowed to sell gas at arms length price to any consumer. However, in reality, it has not happened that way. Under such circumstances which company will be interested in exploration in India? A policy based on sound strategic planning would have avoided such a scenario.


Dabhol becoming terminally sick…

All this has made gas-based power plants stranded. More than 8000 MW of new gas power plants are remaining idle while another 15,00 0 MW of gas power plants are operating below capacity. In a capital starved country with frequent blackouts how can such a massive capacity be idle or under utilised? Do we need a proof to show we have failed to undertake proper strategic planning?.

Any government serious in achieving energy independence would have developed a long term shale gas policy. But petroleum ministry is not in a hurry to unveil the shale policy despite making regular announcements that a policy will be announced soon.

In order to assess what factors will have impact on international oil and Indian oil industry, I came up with a set of 15 factors. I polled 25 managers from energy companies studying for their MBA in energy management to prioritise the factors. Results were interesting in that while most of them have given the highest importance to oil sector subsidy, Indian government seems to be giving the lowest importance to it. To be expected the group ranked oil sector subsidy low for International oil industry (ranked 13th).


Low priority for shale gas…

The group has given the highest rank to shale revolution in the case of International oil Industry and also pretty high rank for India. Again Indian go vernment seems to be giving low priority to shale revolution. Do energy planners consulting the government of India go through this kind of rigorous strategic planning exercise to explore critical

success factors affecting India’s energy sector? India’s coal sector is  perfect example of lack of strategic planning. India has the fifth largest coal reserves in the world. Based on todays production rate, they can last for about 100 years. Still our coal imports are increasing and currently our coal import dependency is about 17 per cent. Why have we not brought about needed coal industry reform to decrease imports? Again this is another example of lack of sound strategic thinking.

After the recent electoral defeat in four states, the UPA government has decided to ignore the recommendation of Parikh committee report to reduce subsidies on diesel, domestic LPG and PDS kerosene. On the other hand there was a great rejoicing after the stunning victory of Aam Admi Party in the recent Delhi election. However, when one learns about their economic policy of promising to supply electricity at subsidised prices, it is indeed disheartening. This is again because of lack of knowledge or proper understanding of energy economics that there simply is no ‘free lunch’ in this world. If only energy planners had done some serious strategic thinking we could have made a beginning to solve India’s energy crisis a long time back.

What India needs is world class energy planners who are able to think in strategic terms and who are also able to convince the political leaders and top civil servants to adapt their strategic plans. This is where our top educational institutions like IITs and IIMs should step in to fill this gap.

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