Energy 'insecurity' is a big threat

Tue, 24 Jun Pre-Open

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Energy is the backbone of any economy. Any economy that is not secure in this aspect can not expect it to thrive for long. And India unfortunately cuts a sorry figure in this regard. Be it oil, gas or coal, the prospects of energy sector are clouded by huge structural and regulatory issues.

Let us take the case of oil. More than 75% of oil demand is met through imports. Ironically, the country has surplus refining capacity. On the top of it, issues like pricing distortions and subsidies have disincentivized further investment in the sector. No wonder, the domestic oil and gas fields remain under explored. Even in case of gas, valuable national reserves have been left to be explored by the private players. The latter seem to be driven more by personal interests than that of the nation.

As a result, the shortage in domestic gas supply is being met by costlier imported gas. The latter has made business unviable for a lot of other players that use gas as a raw material. Meanwhile, the huge capacities laid for gas distribution are lying idle.

India still has a long way to go when it comes to practical use of renewable sources of energy. As far as country's power capacity is concerned, most of it is fuelled by coal. And most of the burden to meet the need for raw material lies on just one company Coal India Ltd, which has consistently fallen short of production targets.

Unfortunately, the mess does not end here. The drag in these basic sectors has led to slowdown in other sectors as well. This has trapped the economy in a vicious cycle. For e.g. much of the crisis in banking sector is due to poor performance (resulting in bad loans) in the power sector. If gas supply issue is not sorted, it will impact priority sector like fertilizers impacting the farm sector.

Interestingly, a lot of the big players Oil and Natural Gas Corporation Ltd. (ONGC), Coal India etc happen to be PSUs. And their performance speaks volumes about the inefficiencies of the way Government has run these companies. Despite being cash rich, no significant investment seems to have been done to enhance their output using technology. On the contrary, in some cases, cash has been used for acquisitions that have destroyed shareholders' wealth.

Now with Modi led Government at the sector, hopes are high as far as structural and regulatory reforms in the energy sector are concerned. As an article in Livemint suggests, the new government considers the issue of power generation and distribution a national security issue. However, the rot has run too deep and for long and it is unlikely that the issues will be resolved soon. Especially when the demand for energy is likely to more than double. Nonetheless, that challenges needs to be taken. Else India will lag far behind in the race to become a global economic superpower.