Price of Power

Oil prices soared on September 11, fuelling fears of an adverse impact on the import-dependent Indian economy. But, oil prices in fact tumbled, despite predictions to the contrary. R K Pachauri, director of the TERI, however, feels that India cannot afford to be complacent. He tells Saira Kurup that it is high time the government planned for the country?s energy security: How do you think the US-led war on Afghanistan has affected international oil prices? In the immediate wake of the US-led strikes, there were serious concerns about a significant increase in international oil prices.After an initial hike ? arising out of nervousness in the oil market ? the prices have actually started coming down. Air traffic is down and travel is at a low, which means lower demand for oil. The Saudi oil minister has been talking about a cut of two million barrels a day. Given the extent of cheating that takes place against OPEC production quotas (currently estimated at 900,000 barrels a day), the actual cut may not be more than 500,000 barrels a day.With the current recessionary economic trends and sluggish demand, it is unlikely that oil prices will go up significantly. The other key factor determining the outlook for oil prices is the actions of the key non-OPEC members, particularly Norway, Mexico and Russia.OPEC requests for the support of this group for cuts in output of their own oil supply have so far fallen on deaf ears.In the immediate future, most analysts believe that oil prices will probably remain in the $15-$20 a barrel range. The current price fluctuation might last till the next summer. I have a feeling the US administration understands the situation and can ill-afford an oil price rise. Therefore, the US may not touch Iraq right now in its war against terrorism.If it does, there could be a sharp rise in oil prices as was the case during the Gulf war. What is happening in Central Asia is a replay of a game played earlier. Pakistan is the underbelly through which the US can get to Central Asia?s oil reserves. Russia and China are the other two players in the game. How can India safeguard itself against the effects of fluctuating oil prices? How can we have energy security? No big oil price rise is good news for India. The country is highly vulnerable considering its high dependence on oil imports. The IEA in its recent publication projects India?s oil import dependence rising to 91.6 per cent by 2020. We can ill-afford to be complacent.A good part of our dependence on oil imports arises from failures in other sectors of the economy. It is estimated that between 20-25,000 MW of captive power exists in the country. This is the direct result of inadequate and unreliable power supply. Similarly, the rapid increase in demand for transport fuels is the direct result of inadequate public transport. Even more serious is the slow movement to energy efficient technologies. Several actions are required to achieve energy independence, which president Carter described a quarter of a century ago as ??the moral equivalent of war??. The urgent initiatives required in India are for a lower energy intensity transport system, sorting out the problems of the power sector and accelerating the reforms process, pricing electricity rationally and creating opportunities for renewable energy initiatives, creating rural infrastructure for decentralised management of energy problems, promoting establishment of gas pipelines from Iran, Bangladesh, Myanmar and perhaps Central Asia, and promoting the expansion of a low energy industrial base. An energy-secure future lies in a far more efficient railway system. We have to reverse the current trend towards using more of road transport. We have to move towards using more gas.We haven?t been able to provide power to most parts of the country. We can?t expect state electricity boards to implement rural energy programmes. We need decentralised solutions. We need to move towards the administered price mechanism as planned, which means allowing prices to be rationalised and brought closer to international product prices and appointing a regulator for the downstream sector very early. We need political agreement to create an investor-friendly climate. If we want a closer relationship with the US, the corporate sector has to be on our side. But the Enron squabble has put us in negative light. An energy policy for India would include a mix of supply policies and mechanisms and financial instruments to achieve that mix. It should look at economic choices that suit our energy realities. It should extend to consumers and household sectors. For example, houses in India are not designed to be energy-efficient, and architects and engineers should be targeted. Even if such a policy is developed, it would be of no consequence unless it is constantly reviewed and its implementation monitored. TERI has been doing a feasibility study of the Iran gas pipeline project. What is the status of the project? There is a lack of dialogue between India and Pakistan on the issue. Pakistan can earn huge revenue by way of transit fees, if the project is cleared. And India would get gas at much cheaper rates. We?ve to consider the on-shore and off-shore options of the pipeline, but the off-shore one would be twice as expensive. But things are not looking too bright at present. There are possibilities of gas from Central Asia also through Tibet, China willing. Why have you criticised the move to introduce CNG buses in Delhi? The committee that decided to make Delhi?s buses run on CNG has made a mistake. It?s a very expensive solution, and cannot be replicated in other cities. We don?t have enough supplies for Delhi. We have shot in the dark. The air in Delhi is still filthy. Several other measures need to be taken, such as better buses, better traffic management. CNG is not the best option available owing to several reasons. In the first place, nobody is sure of its performance in prolonged driving hours and weather conditions in Delhi. Two, even in environmental terms, it is not the best of fuels as compared to ultra low sulphur diesel that promises to be much a cleaner fuel, barring the fact that it releases oxides of nitrogen. Moreover, it requires the creation of massive infrastructure. The conversion to CNG should have been carried out on a small scale first to observe its repercussions. The only solution now is to immediately start operating buses on ULSD. Delhi needs more buses and ULSD is the answer. All of Europe has switched over to ULSD. I am not saying that CNG is not a good fuel but we should have tested every other alternative.