In the face of energy 'insecurity'

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Scarcity of critical natural resources can be a huge setback. Especially, at a time when two of the most promising economies globally are competing for a head start in growth.

India currently imports 80% of its annual crude oil consumption. This is expected to go up to 90% by the year 2030. When most economies were going through economic downturn, India's oil import bill went up 26% YoY in FY09. As per the Ministry, India's consumption of petroleum products has grown at a average annual rate of around 4% in the last seven years. The country has therefore tried to acquire energy assets globally. And its competition with China has made the acquisitions more expensive.

On the domestic front, efforts to push hydrocarbon production have hardly yielded anything to write home about. A case in point being ONGC. The exploration company's production from domestic fields has been very subpar. The company's crude reserves have increased from 65.6 mt of oil and gas in FY07 to 82.9 mt in FY10. However, production has dipped from 48.49 mt to 47.78 mt during the same period.

Nevertheless, you cannot just blame the oil companies for this inefficiency. The state-run oil marketing companies are too cash strapped to make acquisitions or develop new assets. Compelled to sell fuels (except petrol now) at subsidised rates they have accumulated huge losses. The Oil Ministry expects them to end the current fiscal with losses of Rs 530 bn! The combined borrowings of the oil marketing companies has grown 4 fold in the past 4 years to around Rs 880 bn in FY10. That barely left them with any resources to strengthen their asset base.

On the electricity front, India's achievements have been equally abysmal. So much so that this could lead to power shortages during the Commonwealth Games. Only adding to the government's embarrassment. India's track record in adding power generating capacity is unenviable. During the 10th 5 year plan (2002-07), the country added 20,950MW of capacity, against a target of 41,110MW. An original target of adding 78,577MW by in the 11th plan has been revised to 62,374MW. The government is trying to find solace in the fact that the capacity added in three years of the 11th Plan exceeds the entire capacity addition in the 10th Plan! Shortage of coal has been a major cause of such delays besides the poor execution.

The shortage of fuel such as coal and gas is a pressing issue. For consumers and manufacturers, fuel imports mean more expensive resources. This is an insecurity that India needs to address at the earliest.