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Need for a new integrated energy plan

There is a significant energy transition taking place in the world and India needs a new integrated energy plan. The NDA gets a pass grade while the UPA fails.

As we move towards the next general election, let’s compare NDA’s performance in the petroleum sector with that of the UPA.
Lower international crude oil price helped NDA. It averaged $ 61 per barrel during the NDA years while UPA had to face a mammoth $ 105/b. UPA could have handled the situation better by allowing oil companies to pass on the cost of higher prices to the customers. Instead, it forced PSU oil companies to sell below cost. This resulted in huge losses and lower tax revenues.

SANE POLICY OVER SUBSIDIES

On the other hand, NDA implemented a responsible strategy of increasing taxes as oil prices were falling. UPA-II collected Rs. 4.73 trillion while NDA garnered Rs. 11.64 trillion. NDA used the additional revenues on various welfare schemes and on infrastructure. LPG coverage reached 90 per cent from 45 per cent five years ago, thanks to the brilliant initiative of giving free LPG connections. Kerosene consumption decreased by more than 50 per cent between 2011 and 2019, resulting in a significant reduction in the PDS subsidy. Earlier such diversion generated an estimated Rs 25,000 crore per year of black money.
NDA did not attempt to increase competition in oil marketing. At least it could have prevented the PSU companies from following the uniform pricing formula for petrol, diesel, kerosene and LPG. Instead, NDA implemented several Tuglakian types of initiatives: it tried to introduce home delivery of petrol and diesel by blindly following the US model. Without giving much thought, it adopted a policy of changing petrol and diesel prices every day. Such a policy did not make for commercial sense.

IMPORT DEPENDENCY STILL HIGH

Neither UPA nor NDA was able to make any progress in reducing oil and gas import dependency. Both oil and gas import dependency has been increasing every year and is currently at 83 per cent and 43 per cent, respectively. Neither had any political will to liberalise the gas sector. UPA experts had developed a better pricing formula to replace the old one, but delayed its implementation. NDA instead of accepting the recommendation came up with a different formula, which was even more irrational.
From 2011 to 2014, UPA forced ONGC to pay Rs 1.8 lakh crore to support its policy of forcing public sector oil marketing companies to sell diesel below cost. NDA forced ONGC to buy a loss-making gas field apparently to prevent the bankruptcy of Gujarat State Petroleum Corporation (GSFC) by spending about Rs.7700 crore which was worth much less.
On the other hand, NDA’s policy of developing small discovered fields was praiseworthy. It signed revenue-sharing contracts with more than 15 new oil companies in a transparent bidding process to develop marginal fields. NDA’s new exploration policy called Hydrocarbon Exploration Licensing Policy (HELP) was a spectacular failure. It did not attract even a single foreign oil company while only very few private oil companies participated in the first licensing round.

MEGA MERGER HALTED

The petroleum ministry wanted to merge all the public sector oil companies to compete with global major oil companies. It would have been a disaster as has happened in Mexico. However, the idea was dropped. NDA also contemplated imposing windfall profit tax on oil producing company as oil prices were increasing. But better sense prevailed.
There is a significant energy transition taking place in the world. This can be the most significant shift in energy consumption since the Industrial Revolution when coal started to replace wood. Solar and wind energy sources are competitive with fossil fuels. Electric vehicles are likely to replace internal combustion engines. India needs a new integrated energy plan.

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