A victim of poor governance: Energy security

The crisis in coal supply has created a scare with several power plants running extremely low on coal stocks and new projects at the risk of being stranded. The oil sector has been run down on account of abysmally poor pricing decisions that could not be addressed, despite the obviously declining health of the oil companies. Reforms in the electricity sector came to a stand-still after a mis-handled distribution privatisation exercise and the consistent and seemingly conscious erosion of the institution of independent regulators. The promise of the natural gas sector, which led us to believe that India was floating on gas, is disappearing. And yet we continue to believe that India is an emerging power that is going to witness close to 10% annual rates of economic growth over the next several years!

The increase in prices of LPG, kerosene and diesel witnessed in the last few days will have its political fall-out. Teri and similar organisations have, for at least two decades, been suggesting ways for more effectively targetting and delivering subsidies-while highlighting the nearly 40% leakage of subsidies and the fact that nearly two-thirds of the remaining subsidy reaches undeserving sections. If 80% of the subsidy burden annually could have been avoided, we wouldn't have been in this situation.

The current price increase along with the fall in international oil prices due to the release of stockpiles by the International Energy Agency will ease the financial pressure on oil companies and the subsidy pressure on the government. But the reduction in various taxes announced by the state governments to mitigate the adverse impact of this price increase would only mean a transfer of finances from some pockets of the government into others. Also, the long-term issues would still need to be addressed when oil prices go up again. Apart from looking at the UID scheme for changing the subsidy delivery system, the government urgently needs to see how it can encourage energy savings that would reduce the ever-growing demand for oil and its products.

The problem with regulatory commissions is they think their only objective is to keep electricity tariffs down. Sustainable development is widely understood to have three pillars - economic, environmental and social. Long-term sustainability considerations in the power sector are no different. The regulatory commissions can still pull back the power sector from a disastrous future by (i) communicating openly their long term vision for sustainable development of the sector, with clear performance benchmarks specified, (ii) recognising the separation of responsibilities they have of tariff setting vis-a-vis the government's responsibility of covering any subsidies (iii) designing and implementing incentive schemes to promote energy efficiency, and (iv) building credibility and confidence in their capabilities. Realising the 25-30% efficiency improvement potential in consuming sectors would reduce the shortages in the system and go a long way in easing the pressure on coal.

The grim coal shortage situation highlights the complete inefficacy of planning in the industry and government. Trying to address this by placing pressure on the ministry of environment and forests to allow coal mining in eco-fragile areas will only ensure that the mis-governance extends from the energy sector into the environment and forestry sector.

A common refrain today is that governments have to be more responsible. They also need to be more accountable to the public. In the context of the energy sector, a large part of this accountability would come from making available reliable data on the performance of each sector which could be subjected to a social audit.

Tags: power plants, Governance-India, energy security, energy, coal supply, coal stocks