India may be staring at an energy crisis

Jun 01, 2011 12:00 AM

India may be staring at an energy crisis. Shortages of coal and a sharp drop in natural gas output from Reliance Industries Ltd’s (RIL) Krishna-Godavari (KG) D6 block have come at a time of galloping demand for energy.
In the case of coal, lack of clarity on environmental issues ---which are important -- has led to a situation where coal imports are rising and domestic coal production is stagnant. Coal imports are expected to rise to 80 mm tons this year compared with the 70 mm tons last year. With few new coal mines being opened due to environmental and other issues, production of this important fuel is stagnant.

Natural gas, too, is in short supply. Output from RIL’s KG D6 block has fallen from 61.5 mm cmpd to less than 48 mm cmpd. This has led to a near-rationing situation with an empowered group of ministers expected to take a decision on allocation in the second week of June.
Power companies, fertilizer producers, city gas suppliers and others demanding more even as there is much less to spread around.

Both cases show a lack of imagination and forward planning. In the case of coal, much could have been done to balance environmental concerns with what is needed for industrial growth. The old policy of allocating coal blocks -- which is clearly inefficient -- should have been discarded in favour of auctions a long time ago.
Instead of levying an environmental premium -- which should have been done even in the case of bureaucratic allocations -- a part of the auction proceeds can be routed for afforestation and other sustainability projects. That will put an end to the “no-go” areas controversy. The government is doing nothing of this sort.

The KG D6 block issue shows myopia of a different sort: Was it proper to base large allocations and future consumption from one hydrocarbon find, however big it may be? Alternatives, in case things did not work, should have been thought of.
Finding long-term energy supplies -- in contrast to entering the natural gas spot market -- when the world knows about falling output does not help matters. When a consumer of India’s size enters the market, it is bound to harden prices.

If gross domestic product is to grow at 9 % per annum, then commercial energy growth of 7 % is required. In the 11th Plan, the latter figure barely touched the 5.5 % mark.
Unless energy availability is secured, 9 % growth may well remain a distant and unachievable dream.

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