'We have a fragmented energy system'

Q&A: KIRIT S PARIKH

Much before oil galloped towards the $100-a-barrel mark, and Al Gore decided to unveil the inconvenient truth about global warming, India had woken up to the need for an "integrated energy policy". A full-fledged committee, headed by Kirit S Parikh, a member of the Planning Commission, began working on this policy, which would extend from coal-to-oil-to-wind energy, way back in 2004.

It has been over a year since the contours of this policy were finalised, but it is yet to be implemented, thanks to systemic delays in the country's fragmented energy system and various "vested interests" who benefit from the status quo, Parikh tells Vandana Gombar and Sapna Dogra Singh in an interview. Excerpts:

It has been over a year and a half since the Integrated Energy Policy (IEP) was finalised, and it is not a part of policy-making as yet. It has not even been taken up by the Cabinet. Why?

First, it was presented to the Energy Coordination Committee chaired by the prime minister. The committee directed the cabinet secretary to discuss it with each of the secretaries concerned, since the recommendations cut across 10-12 ministries.

So we had a series of meetings and now we have arrived at a list of items on which everyone agrees, and some on which they have reservations. Those on which there is no consensus, we will have to take back to the PM's Energy Coordination Committee and seek its guidance.

There is a process that is required because we have such a fragmented energy system. To get everyone on board requires consensus building and time and effort.

This whole exercise started in 2004, when the prime minister said there was a need for an integrated energy policy. From 2004 to 2008, it has been four years. Don't you think things should have moved faster?

It is 2007 still (laughs). Obviously, one is disappointed that action takes so much time. We would have loved to see a faster pace, much faster than what it has been. Some of the recommendations are being implemented though, for example in the coal sector.

We wanted to move towards trade parity prices in petroleum products, so there was a step towards it. Now we want coal prices to switch from useful heat value to gross calorific value, which is the international practice.

We are being told that this will be done in the next few months. But there are vested interest groups in everything which are opposing this. Every distortion creates an opportunity for someone and those who have an opportunity don't want to let it go. It requires pushing and pushing...

I was hoping you would have used sterner words. These are very exhaustive recommendations. Of course, some of them have been superseded by events, for instance, gas pricing

...Many of these recommendations are based on fundamental principles and thinking, though they will need to be modified when circumstances changes dramatically, for example, in gas pricing.

Internationally, what has changed is that oil prices have gone up so much, way beyond anybody's expectations, and that has certainly queered the pitch. To say that you really can make petroleum products competitive at refinery gate, or retail at this stage, is still the most important and sensible thing to do, but it may not be politically very easy to do it.

Pricing is so distorted and skewed. Your report talks about the importance of relative pricing and price signals. Look at the number of diesel vehicles on the road, and the smog. So at the end of the day, policies and recommendation are just on paper, with very little action.

Only a little bit has been turned into action. And a lot more needs to be done. For example, in renewable energy, we are making some progress in promoting it in so that incentives are geared to outcomes, rather than to outlays. That is in the works.

The ministry of finance did not agree to our suggestion, so we had to work out alternative ways of doing the same thing. We are almost there. We had recommended "" tradeable tax rebate certificates (TTRCs). Now we want to do it in a way that the environment ministry can issue certificates which can be traded, so that it doesn't really require finance ministry to worry about its tax policies.

Weren't you supposed to supersede all these ministries?

In a sense, yes. But, of course, there are practical issues.

Do you think all these ministries that deal with energy should be merged into one?

Yes and no. I think there will be some usefulness if there is some more uniform command in some sense. On the other hand, each ministry is doing what requires so much of domain knowledge of a particular kind, for example.

Isn't unified command fulfilled by the Prime Minister's Energy Coordination Committee (ECC)?

That is what the idea is. The Energy Coordination Committee should be fulfilling it.

Is the ECC working?

It is too early to say it is not working. Let us put it this way "" think it has made some progress.

At one level, all the work done comes to naught because it is a political question? One can see that reflected in petroleum pricing, for example?

You have got to recognise the reality. You can pass on the burden to consumers of diesel, petrol and LPG but this would surely lead to a cost-push inflation. So you have to ask yourself the question "" do I risk a cost-push inflation? What I am doing is currently letting the oil companies bear the loss and compensate them with long-term bonds, which make their current financial position precarious.

The third alternative is "" I don't pass on the burden but I bear it by reducing and adjusting my excise and other taxes on petro products. The government would have to find the money. This will affect fiscal deficit, revenue deficit, FRBM targets. That would have its own inflation impact. So it is a very difficult situation and you have to recognise that the options available are not clear cut.

We have all heard of the drag effect of infrastructure, especially power, on growth "" about 1.5-2 per cent of GDP. Is the positive effect also of the same magnitude?

What is the impact of reducing energy prices by x% on GDP?....I have no way of saying that. I can estimate how much output goes down if there is no power, but you cannot estimate what new industries are not coming up because you don't have reliable power.

Did you have some issues with the petroleum regulator too?

We wanted the petroleum regulator which has more power than it has currently. It should have the price setting power until the market develops, and we want a regulator which is able to do upstream and downstream regulation.

So what is on the agenda for 2008?

We are pushing for this to be done in the next few weeks. Consultations with all ministries have been completed. Consensus on over 50 per cent of the recommendations has been reached, but there are some critical recommendation on which the finance ministry does not agree, so we have to work around some of these things as well.