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India needs a comprehensive energy policy

According to reports, with an ugly power crisis rearing its head, most citizens have braced themselves for a Diwali of blackouts. What threatens the country’s energy security today emanates not from volatile markets, or from an inimical state across the Himalayan border, it arises purely from regulatory and policy uncertainty. It arises of an organic incapacity to keep and to clear longterm policy goals.

When the crash of 2008 came, it saw some of the most aggressive and coordinated interventions across the developed world. In spite of these interventions, the year 2009 saw the first real decline in global GDP since 1946. The decline, more significantly, was uneven. Economic powerhouses like India and China continued to see substantial growth in their national GDP.

The story of that growth, at least for India today, seems about to be interrupted. Traditionally, both China and India have been dependent on coal to fuel their energy needs. However, in spite of large domestic reserves, both countries are today faced with a shortage of supplies because of constraints in production as well as bottlenecks in transporting it to distant centres of consumption.

Both are forced to import increasing quantities. China already produces almost half of all the world’s coal and annually increases production by close to 9% each year. India, on the other hand, has been more erratic. From growing steadily at 6-8% in the past, growth sharply decelerated to just 2.1% last year. Indications are that in the first five months of the current fiscal year, domestic production declined by 2.5%.

The emphasis on imported coal is, therefore, inevitable even for India’s existing and planned capacities. China and India together account for 25% of the global coal trade pegged at about 800 MMT per annum. It’s little wonder that movements in global coal prices are determined by what happens to demand for the commodity in these two countries. This causal relationship is likely to be exaggerated as India strives to quadruple its present power generation to an annual 3,200 TWH as it seeks to provide a modest 250 watts of usable capacity per person.

The big question is what fuels are going to be used to fire this huge capacity addition. Nuclear as well as renewable energy are not seen to be making a very significant dent in the net share of fuels over the next two decades. Within this period, we have to either rely on coal or turn to gas, which is today recognised as the most important bridge fuel.

Attempts to get private sector involved in coal mining have not been too successful. So far, of the 215 coal blocks allocated under the captive mining policy, only 26 are reported to have begun production by end of 2010. Even for these few, the time taken to reach production has varied from two to 12 years due to delays in statutory approvals; land acquisition and multiparty approvals.

But more importantly, the questionable rationale of a captive coal policy that treats coal mining as an add-on secondary activity rather than a commercial activity may in itself be responsible for the current stalemate.

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