Oil & Petroleum Products

    Globally oil price shocks have, since 1971, been a factor in the growth slowdown in many oil importing countries.  Oil and energy import dependency in India is high and increasing.  This results in implicit taxation-rent transfer to foreigners, which makes the people of country as a whole worse off, the more the usage/import; Long term price trends are adverse (terms of trade effects) and the problem likely to get worse unless policy reforms are instituted. The solution is to separate and disconnect subsidy from pricing. Replace kerosene subsidy with subsidized solar lanterns and cookers.  Provide free training to village youth to service these items in rural areas. Replace LPG subsidy by subsidy for design and propagation of more fuel efficient cookers and use of solar cookers.  Replace diesel subsidy with subsidy for fuel efficient engines of all kinds (pump sets, generator sets, tractors, trucks, scooters/ motor cycles).  Give subsidy for adoption and development of new technology, including solar, but allow prices to reflect the global price of all energy items. Prices of all Petroleum products should be de-controlled with some some limit on the amount or percentage by which they can be raised in any given month.

Because of high transport and storage costs, natural gas markets are fragmented into regional/national markets. Most of the global gas trade is therefore based on long term contracts with or without escalation clauses based on oil prices (calorific equivalents). There is only a small spot market based on temporary demand-supply imbalances.  This price to is bounded by the calorific-value equivalent price of oil on the spot market.  The global markets


   The Coal Nationalization act should be changed to allow full private entry (into exploration, production and investment), through competitive auctions and a strong capable regulatory system set up (it can be part of the mining regulator as most issues are similar). Coal India should be broken up into the four companies from which it was constituted and listed on the stock exchange. Government should sell shares in these companies to the public with the objective of bringing it below 50% in the five years and below 25% in the ten years. Fields should be parceled into economic and viable mines and auctioned to a dozen producers (PSUs should also be permitted to bid in auctions).

Green Cities

            A medium term objective must be to promote Green cities: We must get the world’s best designers and architects to come and design green buildings etc. suited to Indian climatic conditions (water, heat etc.), construction materials and construction methods. Publish and propagate these designs.  Train urban planning and regulatory officials in every State in planning work-residence zoning rules, public transport and public parking to minimize energy use. The concept of Natural Cities, based on monsoon water stored in the flood plains of rivers like the Jamuna and Ganga, must also be explored seriously. Such flood plains can supply water to a city of up to 2 million population, with such cities spread at 2 km intervals along the river bank (flood plain).


    We first laid out a reform agenda for the Power sector in 2000 (A partial up date is at EpElect)  A modern Electricity Act incorporating many of the proposed features was passed in 2003. Though considerable progress has been made with respect to the objective of introducing competition in electricity production this has been stymied by the lack of competition on the input side (e.g. coal) as well as on the distribution side. The introduction of "Open Access" to distribution network has been stymied by the refusal of State electricity boards, to compensate them through a simple cross tax-subsidy mechanism that allows private companies to use the network and compete to supply electricity to users. Firm action by the Central government on this front is necessary to break the log jam. This should be complemented by mandatory access for competing distribution companies to existing distribution pylons & poles for stringing their own wires.

  On the input supply side, De-nationalization of coal and introduction of open , transparent competition in coal production & exploration is imperative.

     The professionalism and independence of the Electricity/power regulators urgently requires strengthening.  In many instances, the credibility of the electricity regulatory institutions has been undermined by treatment of the post of Chairman of regulatory commission as a sinecure for loyal bureaucrats. This is highly inimical to public interest. A competent regulator can and must use all means such as independent audit to ensure fair pricing and quality of delivery (e.g. voltage within prescribed limits)! Any hint of partiality or incompetence can lead to politicization of these issues!

   Electricity subsidy should be replaced by subsidies for solar rechargeable batteries/inverters for fans and lights.

Chintan Society,
Jan 7, 2014, 10:43 PM