Interview

EVER since the second Gulf War, the prices of oil have skyrocketed placing increasing strain on India’s energy security in addition to worsening the fiscal deficit. Given the country’s high dependance on imported oil and gas, this has impelled the government to engage in a flurry of oil diplomacy in an effort to forge new arrangements with a range of oil/gas producing countries to ensure greater energy security.

In a frank interview, Petroleum Minister Mani Shankar Aiyar speaks to Seminar about some key concerns – from pricing and subsidy for petroleum products, acquiring stakes in oil fields abroad, increasing private sector investment in oil exploration and production and pushing for greater efficiency in oil use – as part of the effort towards promoting integrated energy planning.

 

How confident do you feel about the future of oil and energy security?

Confident, yes, but also cautious. We know the dimensions of the problem and have a fairly good idea about the parameters of a solution. But it is easier to prepare a plan and put in place a strategy than to actually attain the objective on the ground. The important thing, in my view, is persistence in the face of setbacks and consistency in strategy combined with flexibility in tactics.

 

How does India secure oil resources in an increasingly competitive international environment where oil resources are perceived to be scarce? What are the diplomatic initiatives that India is launching? What is your view on the NOC strategy of looking for oil abroad? In a bid to overcome its energy insecurity, is India getting slightly over-ambitious in terms of the oil acquisitions abroad? Do equity oil investments really contribute to India’s oil security? What are the current efforts on regional cooperation on the energy front?

We have little control over international markets, where we are relatively a small player, but, equally, we cannot let international markets control our destiny. Oil diplomacy is aimed at mitigating the risks of our inevitable and growing dependence on imported hydrocarbons. I have three main objectives in hand. First, since energy security, like charity, begins at home, the first objective of oil diplomacy must be to entice international companies to invest in India so as to more effectively exploit our massive domestic hydrocarbons potential, estimated by our geologists at about 30 billion tonnes of oil and oil equivalent. A key subset of this same first objective is to network India into the international knowledge base so that specific problems of Indian geology, such as the Deccan trap below which lies most of our yet-to-be discovered oil is located and recovered. I have facilitated Memoranda of Understanding in this direction in recent months with Canada, the UK, Norway and Romania. Similar memoranda are on the anvil with Russia, Japan, the Republic of Korea and Australia.

Second, to network into the global hydrocarbons community to ensure stability, security and sustainability in hydrocarbons supplies for India by reinforcing trade arrangements with mutual investment. In particular, the priority must be to network ourselves with Asian oil producers and consumers because OPEC and non-OPEC Asian oil producers are already emerging as overwhelmingly the global oil suppliers of the 21st century, and it is Asian countries like China and India, along with Japan and the Republic of Korea, who constitute the overwhelming proportion of emerging incremental global markets for hydrocarbons. Thus, two-thirds of West Asian oil production is already being bought by fellow-Asian countries. With a view to creating a sense of Asian identity in the global oil market, I convened the principal West and South-East Asian suppliers around a Round Table with the four principal Asian consumers in New Delhi in January 2005. In November 2005, we have arranged for the principal North and Central Asian suppliers to meet around a Round Table in New Delhi with the same group of principal Asian oil consumers. Of course, these multilateral or regional initiatives have to be backed by very strong bilateral relations.

The third, and least important, segment of oil diplomacy – but which, in my view, has been overemphasised in recent media discourse – is the quest for acquiring overseas assets to reinforce our energy security. We have already established our presence in nearly a score of countries stretching from Sakhalin off the Pacific Coast of the Russian Federation through Vietnam, Iran and North Africa to Venezuela. In the field of gas, which is increasingly displacing crude oil as the more important hydrocarbons resource, I have mooted an Asian gas grid and am taking practical steps towards securing gas by pipeline from Iran, Turkmenistan (and other Central Asian countries) and Myanmar, not to mention the somewhat more distant prospect of an underwater pipeline from Qatar. In an ideal world, north India should be supplied from Central Asia; west India from Iran and West Asia; east India from Myanmar; and peninsular India by LNG from wherever we can get it.

 

‘Join hands with your competitor if the competition is formidable!’ seems to make great sense in our oil game with the Chinese. How do we plan to approach this?

It not only makes great sense to us, it also makes great sense I think to the Chinese. I say this with some optimism and confidence on the basis of conversations I have had with high Chinese dignitaries earlier this year and the outcome of the Chinese prime minister’s visit to India in April. Building on these beginnings, I sent a technical and official delegation to China in August and they have come back with a remarkably encouraging report. I hope to visit China shortly to give a definitive answer to your question.

 

You have done a lot to progress the Indo-Iran pipeline project. But why is it that the US is seen opposing only the pipeline and not LNG projects? Several MNCs have signed up for LNG stations in Iran, but there is no noise about them?

Why trouble trouble until trouble troubles you? The Americans have not officially raised the Iran-Pakistan-India pipeline with us (or, as far I know, with the Pakistanis) in any official manner. Of course, everyone knows that there is legislation on the US statute books and everyone also knows that it is legislation that has never been invoked. We are going full steam ahead with our Pakistani and Iranian partners. Should anyone have any comments to offer, they can, of course, do so. We will then cross that bridge when we come to it.

 

We have an upstream advantage over Pakistan in the Indus Waters Treaty. Don’t you think this will be neutralised by giving Pakistan the upstream advantage in the gas pipeline?

As set out in the joint press statement with my Pakistani counterpart in Islamabad last June, our aim is a ‘safe and secure world-class project.’ There are many international precedents, including the most recent Baku-Tbilisi-Ceyhan (BTC) pipeline, which set international standards and commitments for the mitigation of all kinds of risk associated with such international pipelines. While I refuse to be paralysed by paranoia, I would like to hold out the assurance that nothing will be concluded until we are absolutely confident that our security concerns have been addressed.

 

What price policy options are available to address the needs of various stakeholder groups in the current context? Is there a return to Administered Pricing Mechanism Regime? Isn’t this a relapse on the economic liberalisation front?

The Administered Pricing Mechanism (APM) was never dismantled; in keeping with the NDA mode of hypocrisy and humbug, dismantlement was merely announced. The minute crude prices started going through the roof, it was the NDA which froze all increases in petrol and diesel prices by government decree; in any case, kerosene for the public distribution system and LPG for domestic use had been exempted even from the announcement of the dismantling of APM. What I have done is to end the hypocrisy and introduce transparency on the basis of the principle of ‘equitable burden sharing’ among Oil Marketing Companies (OMCs), government and the consumer. Thus, through the most recent price revision announced on 6 September, 51% of the increased burden was absorbed by the OMCs; Finance Minister Chidambaram took a hit of 36%; and the consumer was spared all but 13% of the burden of the increase in international crude prices. The country does not need mindless liberalisation or ideologically-driven globalisation. We need an economic policy for a democratic polity, and, in the hydrocarbons sector, I believe our principle of ‘equitable burden sharing’ adequately addresses itself to the dilemmas created by the competing claims of sound economics and sensitive politics.

 

Is there any active coordination with the transport ministries to promote more efficient transport choices in favour of rail rather than road given the greater energy efficiency of the former?

We are, of course, in touch with the transport ministries but our own favoured transport solution is pipelines in preference to either road or rail. The recent decision of the Cabinet to approve our laying a pipeline from Numaligarh to Siliguri is one example of this. While rail and road do compete for non-pipeline supplies, our decisions usually go in favour of efficiency, both in terms of energy and costs.

 

At the macro level, the country still does not have an integrated energy policy. Our energy prices are quite high as is our energy intensity in the GDP. This will ultimately affect our competitiveness in the global economy. There is no concern in government regarding these basic and fundamental issues. Do these things worry you as an economist, if not as a minister?

I think you are quite wrong in suggesting that ‘there is no concern in government regarding these basic and fundamental issues.’ On the contrary, it is precisely because our government is alive to these issues that the prime minister has set up a Cabinet-level Energy Coordination Committee, of which I am a member and which meets virtually on a weekly basis. Moreover, the Planning Commission is continuing, with commendable dynamism, to fashion integrated energy policies. I do not think the only answer lies in a single Ministry of Energy, for that would only be to convert inter-ministerial issues into inter-departmental controversies. An integrated energy policy is fraught with genuine difficulties and I think the Energy Coordination Committee under the PM is, perhaps, the most optimal way of securing the much-required integration.

 

LPG subsidies are obviously benefiting the middle and higher income classes. Lower income classes, particularly in rural areas, consume almost no LPG. Why are we continuing to subsidise LPG?

Why, indeed? But although subsidising LPG makes little economic sense, it does make abundant political sense. If you don’t believe me, ask the comrades who are still to answer my question: are they a party of the proletariat and, if so, why do they have such petty-bourgeois concerns?

 

Why is the Ministry reluctant to introduce ultra low sulphur diesel (50 ppm)? Has any analysis of the trade-off between refinery upgradation cost and health costs been undertaken?

At enormous expense and with massive investments running to tens of thousands of crores, our refineries have moved towards much more environmental-friendly transport fuel standards than ever before. We will get to ultra low sulphur diesel in the fullness of time.