"Reforms are needed in the upstream sector"

18 Jan 2000

The energy sector in India has been witnessing significant shifts in the past few years. Both the industry and policy-makers are gradually beginning to realise the fall-outs of the new policies, which are based on market principles rather than administrative prices. While, in the power sector, the government started off with a liberalised policy allowing private investors in generation, distribution and transmission, in the oil and gas sector, the government is now moving towards market prices for petroleum products instead of administered prices.

Dr R K Pachauri, Director-General of TERI, one of the premier research organisations in the field of energy, spoke to Soma Banerjee and M K Venu of The Economic Times on the new trends in this sector.

What, in your view, should be the immediate reforms in the oil and gas sector? The actual reforms that need to be done are in the upstream sector. Oil exploration and production require heavy investments and the government has to make the policy investor-friendly. The state-run Oil and Natural Gas Corporation, which has enormous technical capability and an impressive track record, needs upgradation in some of the areas. While, on the one hand, it should divest some of its responsibilities to other organisations or contractors, on the other it should trim down its huge staff strength. ONGC could take up some of the recommendations of the P K Kaul committee. For one, ONGC could be divided into three different companies, geographically, and the services could be spun off into a separate company. What about the downstream sector? Don?t you think we need investments there as well, particularly in downstream infrastructure? The downstream reforms are more or less in place. The time-table for moving towards a market economy is in place and investors are willing to put in their investments in this sector. It is the upstream sector that poses a big challenge. The deals have to be sweetened to make them attractive. Unlike the exploration investments, marketing is always an attractive proposition given the returns in this area. However, infrastructure has to pick up and we need significant growth in pipelines, etc., to take care of the additional capacities being created. What about regulatory mechanisms? That is one thing that has not taken off at all. By now, the regulatory mechanism should have been up and running. For one, I am of the view that there should be one regulator for the entire industry, unlike the proposal for separate regulators for every sector. This regulatory body could have a repository of specialists and experts. This body should be set up within the next two or three months or it will delay the entire reforms. Also, once the sector is deregulated, the role of the regulator is even more important. What about the power sector? There is now this debate as to whether it was wrong to stress on generation in the early years. What are your views on the issue? This needs to be sorted out. Reforms have to come in from the distribution side. Tariffs have to be increased and macro level decisions have to be taken. No private or public sector project can be sustained if the consumer is not in a position to pay. What are your views on the emission norms? Most of the newer refineries are well tuned to reducing the emissions levels. For instance, the Reliance refinery or Indian Oil Corporation?s Panipat refinery are well equipped to handle the environment requirements. For the older ones too, this does not require large investments. However, the government should take an immediate view on the outdated refineries, whose technologies stand scrapped. It has been estimated by some experts that the oil industry would require about Rs 16,000 crore to bring the sulphur content down below the recommended 0.05 per cent.