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Rediff.com  » Business » 'Let's not stall energy security'

'Let's not stall energy security'

July 10, 2009 11:02 IST
The Narmada dam assured us of power and water for irrigation of our parched lands. The Tehri project did the same, as did numerous other hydel projects. Indeed, in countries like Canada and the Scandinavian ones, around 90 per cent of the power comes from hydel projects.

Yet, a series of litigation as well as agitations, all in the name of protecting the environment, ensured we delayed these projects and, in turn, meant that we had to depend upon more expensive and, ironically, more environmentally-unfriendly thermal power projects.

These, and several other such projects, such as a big aluminium one, have been spearheaded by international green organisations. The cases have remained in the courts for years, till the Supreme Court set the controversy at rest.

Sadly, we are repeating this behaviour in the case of oil. Huge discoveries of oil and gas have been made in Myanmar and Bangladesh and, it was found, this extended all the way to the Andamans in Indian waters.

How important this is can be seen from the fact that, while our dependence on imported oil and gas was just 30 per cent at one time, it is around 75 per cent today. Which is why it is important that a lot more investment is made in exploration and production.

For years, this was the exclusive domain of government-owned companies, but once the sector was opened up, there have been many discoveries by private sector players the biggest, of course, has been Reliance Industries Limited's (RIL) 80 million metric standard cubic metres per day (mmscmd) of gas in a terrain that is a very tough one, in an area that was prospected and declared dry by a multinational oil giant.

We need to applaud the work done by Reliance Industries and its people, for the work they have done in extremely difficult conditions, in cyclonic seas to provide some relief to India's energy security.

Few other developers have achieved anywhere near the same kind of work, possibly due to the very high costs of drilling and exploration equipment nowadays, or due to the fact that more promising projects are available overseas.

And for this Krishna Godavari Basin gas, the market price could have been a lot higher than what it is at the moment. Instead, the developer and the government benchmarked the price against a lower price the government then decided that this gas was to be made available to a list of priority sectors first.

This would afford them the opportunity to produce power, steel and fertiliser at lower costs and would provide a lot of relief to the exchequer and the economy. The fertiliser and power plants were, till they got the Reliance gas at $4.2 per million metric British thermal units (mmBtu), buying naphtha at $14 for equivalent amounts of gas.

We have to keep in mind as we run to agitate on RILs price, that there have been several rounds of the government inviting bidders to participate in the New Exploration Licencing Policy (NELP), but the interest of participating in this highly unpredictable investment is abating in the last round, no bids were received. I understand there are 170 existing NELP agreements. Can we reopen them at the behest of shareholders and other interest groups as is being demanded in the case of RIL's KG Basin gas?

I hope that the conspiracy which did not allow hydel or other major projects in India to come up is not allowed to get in the way again. This time, it is not in the form of agitations by the greens, it is being done in a different form.

It is being done by raising doubts over what RIL's production sharing contract (PSC) with the government actually allows, by saying that a family agreement between the two Ambani brothers is more important than the PSC. The idea is to cast a doubt over all PSCs, a move that simply helps those exporting energy to India. How can NELP and the PSC be subservient to a family arrangement?

If it is family arrangements today, it will be some other arrangement the next time around. Environmental and human rights can always be brought in to sabotage other PSC agreements in the future.

One of the parties to the agreement has asked for all RIL's gas contracts to be cancelled, throwing thousands of megawatts of existing generation from existing plants, and also millions of tonnes of cheaper fertiliser production into limbo. All so that the company can be allocated gas at around half the price given to others.

Doesn't this throw all principles of competition to the winds? And since the price of power is determined through competitive bids (in earlier cases, the cost of fuel was always passed on to customers, never mind what the price of the fuel was), this means the person who gets cheap gas gets windfall profits.

And since the government gets a smaller share if the price of RIL gas is dropped by half, this windfall profit will be at the cost of government revenues, the government's contractual agreements as well as the principles of fair competition.  

Exploration and production is a very tricky business, involving huge investments and very high risks of failure, of around 90 per cent or so, I am told. The risk of failure in all such projects has to be borne by the developer.

Who will bid for such projects if the NELP and the PSC conditions can be tampered with? It is common knowledge that the fields which are now being offered to bidders are the ones where finding oil/gas is a lot more difficult, risky and expensive.

In view of the failure of the last round, we should be debating whether we need to offer improved conditions to attract more developers, not tampering with existing conditions in the name of family agreements that seek to sell gas at a lower price to one company and lower the profits of both the government and the developer.

We need to protect ourselves and realise that our first duty as a country is to secure our energy needs. To do this, we need to strengthen the institutional mechanisms for exploration and production, not mess up existing ones.

The author has been Special Secretary Power in the Government of India and the head of the Telecom Regulatory Authority of India.

Pradip Baijal