In an ideal world

In the draft Integrated Energy Policy, Planning Commission Member Kirit Parikh has put his finger on the crux of the country's energy problem, and his recommendations are therefore eminently sensible.

On the power sector, he has asked for separating carriage from content, or allowing more than one player to supply electricity (content) to consumers' homes on electric wires (carriage) owned by another company.

The world over, it has been seen that competition brings down prices as compared to regimes (such as prevalent in the country today) which guarantee firms a post-tax return of 16 per cent.

Similarly, Dr Parikh is correct in identifying the need for realistic pricing of coal, so that more investment can flow into the sector, which is clearly the country's most important energy source.

Dr Parikh, again correctly, identifies the relative pricing of different fuels as very important for the country's energy future, so that both users as well as producers can take correct actions when it comes to what fuels/technologies to use as well as what fuels to invest in.

To cite an example, Maruti's investment in the Versa as a fuel-efficient urban-suburban transport vehicle, to meet the growing demand to transport BPO workers from Delhi to Gurgaon, came a cropper once the government decided not to honour the Cabinet decision to maintain global parity in prices between diesel and petrol""indeed, it is because of the perception that the distortion will remain that Maruti is now setting up a diesel engine plant!

It is equally obvious that unless kerosene is priced appropriately, there will always be a huge incentive to adulterate it with diesel, and the extent to which this takes place can be seen from the exceptionally low growth in demand for diesel over the past few years.

It is equally true that despite the lip service being paid to developing bio-fuels, so long as the prices of diesel and kerosene continue to be so artificially low, there are few who will invest in the area""most in the oil industry still remember how large sums of money invested in setting up parallel LPG marketing networks went down the tube in the late '80s when the government was unable to live up to its commitment to phase out the hugely subsidised LPG supplied through state-owned oil firms.

The problem with the Parikh report, however, is none of these. Rather, it is completely out of tune with the prevailing climate that favours cross-subsidies, distrust of market signalling, and state intervention at every stage.

Increasing the price of coal, for instance, is simply not possible till there is serious reform of the power sector, and until all users begin to pay the correct price for what they use, since a hike in coal prices will immediately raise power prices.

Similarly, it is not possible to allow correct pricing for natural gas since this will dramatically hike the costs of both power and fertiliser production. It is of course true that large parts of the fertiliser subsidy are given to uncompetitive fertiliser plants and not to the farmer, and it is equally true that the major part of the subsidised kerosene is used to adulterate diesel instead of going to poor households through the network of ration shops. But these are inconvenient facts for politicians who find it convenient to persist with the distortions of today's energy scenario.