‘Differential pricing of fuel not a good idea’

India’s energy consumption last year was 525 million tonne of oil equivalent (mtoe). It is expected to grow more than threefold in 20 years. Charles K Ebinger has seen the crests and troughs of India’s energy policy over the last two decades and has worked with the government on the same.

As a senior fellow and director, energy security initiative at Washington-based think tank Brookings Institution, Ebinger has authored Energy and Security in South Asia: Co-operation or Conflict?, which he launched recently in Mumbai at an event organised by the Confederation of Indian Industry.

He had a quick chat with DNA about energy issues including China’s shadow over India’s energy policy and the need for subsidy reforms. Excerpts:

What could India do if both Turkmenistan-Afghanistan-Pakistan(TAPI) and India-Pakistan-Iran pipeline do not go through?
Not to avoid your question, but the danger with India is if India doesn’t participate in these projects, China will, and have the gas coming to India, move north to China. That will certainly not be in India’s advantage. But if you’re saying that these projects don’t go through then I think India will have to rely more on LNG imports. And hopefully, if the shale gas reserves in India are as big as some people think they might be, then it could be a combination of LNG and shale gas.

Where do you think India could get LNG from?
I would worry about countries becoming more dependent on it because post-Fukushima Japan is going to become a much bigger importer of LNG. I think the market is going to tighten. If one looks around the world there are a lot of LNG projects under development but there are a lot of countries that want them - Korea, Japan, India and Pakistan. I don’t think there’ll be a shortage of LNG but the price might go up.

Do you think it’s essential for a country to deal with another country that’s resource-rich but not democratically-run?
I would look at alternatives. Let’s put it this way, I’d prefer to deal with countries that are at least nominally non-repressive of their populations. On the other hand, if the alternative is not to have energy and have your citizens heard then you have to deal with the idea of energy at a proper price that’s beneficial to your citizens.

What’s your observation on pricing fuel differently?
I think differential pricing is never a good idea. What you want to do is make sure that those that have the capacity to pay aren’t benefiting from subsidies. It’d be better than differential pricing to subsidise that portion of the population that’s poor and make it a direct expense by the finance ministry and not hide it under subsidies or cross-subsidies, which skew markets. If it’s a social priority, then it goes in the national budget as a line item for the poor.

You mean something like fuel coupons?
Yes, it could be fuel coupons but make it a direct line item in the budget. Don’t make industries pay higher to cross-subsidise the poor because then the export industries may have higher costs which distorts their ability to compete in the market.

How do you view India’s energy policy since its liberalisation reforms? Is there a lot to be happy about?
No, I don’t think so. I think what India embarked on in the early nineties, and I was involved in that, was a very bold, good policy. If you remember, there were originally five private power plants that were to be fast-tracked by the regulatory authorities. But they weren’t and they all ran into problems. In 2003, we had the Electricity Act, which opened up the transmission & distribution business. The Act is fine, it’s a fine piece of legislation.

We thought we’d get the private sector in distribution, but beyond the corporatisation in Delhi and Orissa, nothing else has been corporatised in 10 years. The government can take a 46% stake (in a distribution company) and allow the private sector to have majority interest. Let it run as a business and if it is run well the government gets a return on its investment. But don’t have the government own so much that it can interfere in day-to-day and tariff decisions. That’s a prescription for disaster.

Can India go ahead with its nuclear power plans in the midst of protests and anti-nuclear rhetoric?
I do not think India will meet its nuclear targets by 2020. It needs to be realistic with land disputes like in Jaitapur and the cost factor. If the choice is between nuclear and dirty coal, then India clearly needs to develop nuclear power. I certainly believe India can put up the safeguards.