Not merely an oil shock

It shows gross neglect of energy security

The Tribune | Jun 15, 2004

The World Bank has estimated that the energy demand in India will grow at 5.3 per cent up to 2010 and at 10 per cent after that. More than 70 per cent of India's oil, that has a share of about 36 per cent in India's energy pie, is now imported.

The new-government must initiate proactive measures lo come to grips with the increasing demand-supply gap in the energy field

Perhaps the least written about and certainly the least analysed portion of the new UPA Government’s common minimum programme (CMP) is the short paragraph on energy security. Since it is crucial to India’s future economic development, it bears repeating: “The UPA Government will immediately put in place policies to enhance the country’s energy security, particularly in the area of oil. Overseas investment in the hydrocarbon industry will be actively encouraged. An integrated energy policy linked with sustainable development will be put in place.”

The present energy scenario in the country is abysmal. The average power shortage is 10 per cent and the peak power shortage is 15 per cent of the requirement. A high growth rate is accompanied by growth in the primary energy requirement of industry as well as in the consumption of electricity by increasingly affluent consumers. India’s growing population, still rising at about 1.5 per cent per annum, will also add to the energy requirement. It can be easily deduced that India cannot grow at the projected rate of 8 per cent of the GDP per annum on a sustained basis unless its energy output rises exponentially. The World Bank has estimated that the energy demand in India will grow at 5.3 per cent up to 2010 and at 10 per cent after that.

Against this backdrop, both the present and the future energy supply scenarios raise doubts about the success of India’s energy security policies. India’s energy generation is heavily dependent on the import of oil and coal. Fossil fuels, that are limited in supply and hazardous to the environment, provide over 90 per cent of India’s present energy output. Indigenous coal, which is mostly inferior grade, accounts for 55 per cent of present energy generation. At over 20 MT, coal imports have are growing at almost 16 per cent every year. More than 70 per cent of India’s oil, that has a share of about 36 per cent in India’s energy pie, is now imported. As the requirement grows, import dependence is expected to grow to almost 90 per cent over the next few decades.

Natural gas will soon emerge as an alternative fuel but here too over 70 per cent of the requirements will have to be met through imports. Alarmingly, most of these imports are on “foreign bottoms” or non Indian owned ships. This should not matter in a rapidly globalising world but during conflict situations dependence of this nature can be a major liability, particularly so when strategic oil reserves are virtually non-existent.

Given the challenges of the finite reserves of fossil fuels, heavy import-dependence for procuring them and their environmental hazards, the advantages of placing increasing reliance on nuclear energy are obvious. However, India’s experience with nuclear energy has not been a very happy one. Against the Department of Atomic Energy’s (DAE) projected target of 10,000 MW of nuclear power by the end of the year 2000, the actual installed capacity was limited to only 2,000 MW. It has not yet become possible for India to exploit its vast thorium reserves because the research and development (R&D) efforts put in towards nuclear power generation through fast breeder reactors and thorium-fuelled reactors have not yet borne fruit. The target of 20,000 MW now being projected to be achieved by the year 2020 shall also remain a pipe dream unless the ongoing R&D on Accelerator Driven Systems scores early gains.

For enhancing the generation of nuclear energy too India will have to bank heavily on imports. India needs secure supplies of uranium raw material and state-of-the-art nuclear reactor technologies and many countries, more notably France and Russia, are willing to supply these to India. However, since it has not signed the NPT, India is subject to denial regimes and does not qualify to receive either of these under the Nuclear Suppliers Group (NSG) guidelines. This is a diplomatic battle the new government must fight. India’s clean non-proliferation record should come in handy as a good bargaining counter at the forthcoming NSG meeting.

Finally, the new government must initiate proactive measures to come to grips with the increasing demand-supply gap in the energy field if a high rate of growth is to be sustained over a secular period. It must secure future oil sources though contracts and investments, encourage Indian shipping companies to invest in oil tankers by giving them tax breaks and other financial incentives, negotiate hard with the NSG for new nuclear reactors, exploit the country’s hydel power resources to the optimal limit, move aggressively to enhance installed capacity in alternative energy sources like wind and solar power and purchase excess power from neighbouring countries like Pakistan to the extent possible.

Above all else, the government must take urgent steps to create a viable strategic oil reserve to cater for unforeseen eventualities. Failing these measures, modern India may actually become an area of darkness.