India's changes

Energy policy is finally getting the attention it needs in India.

Apr 7th, 2000

Energy policy is finally getting the attention it needs in India.

The government has released a study, Hydrocarbon Vision 2025, most of which it is expected to eventually cast into official policy.

At a government-industry roundtable during US President Bill Clinton's recent visit to India, US firms complained that the lack of a comprehensive energy policy has deterred them from making investments in long-term projects. They also complained about the powers of state electricity boards, the politicized tariff structure, and the government's plans to double the dividend tax to 22%.

A Ministry of Petroleum and Natural Gas official said Hydrocarbon Vision 2025, released Mar. 23, would clarify national goals "in areas like exploration, tariff, refining, [and] marketing, apart from others."

And Indian energy officials said US firms should not focus just on exploration or products marketing opportunities but on other infrastructure investments such as storage, pipelines, and tankers, including those for LNG.

Refineries

Hydrocarbon Vision 2025 proposes that India drop its current 49% limit on foreign investment in refineries, allowing 100% ownership.

Finance Minister Yashwant Sinha, who headed the panel that drafted the study, explained that allowing overseas investors to invest in oil refining would "promote healthy competition among players and also ensure [the] oil security of the country."

The document envisions 90% self-sufficiency for India in gasoline and diesel production by 2025. The refining sector would be comprised of a mix of national oil companies, foreign firms, and individual Indian investors.

The report recommends that "stand-alone" plants (those not part of the national refining firms' networks), such as the Cochin and Madras refineries, should be merged with the bigger petroleum marketing companies to enable them to survive the competition that will arise when the oil sector is liberalized in 2002.

Subsidies

The Vision 2025 document also urges the government to phase out petroleum subsidies over the next 3-5 years to reduce the nation's fiscal deficit. And it said the government should link the domestic price of natural gas to international prices. Currently, 75% of natural gas is pegged to overseas prices.

In late March, the government raised prices of subsidized petroleum products such as kerosine by as much as 125% to check the rising fiscal deficit. But when prices dropped after the Organization of Petroleum Exporting Countries agreed to increase production (OGJ, Apr. 3, 2000, p. 26), India did not adjust its own prices. It explained that it wants to wait until world oil prices stabilize, but the delay also helped the government lower its potential petroleum subsidy obligations.

India's oil import bill has more than doubled to $13.54 billion in the last 12 months, and the government's debts to oil firms (which it requires to sell some products below cost) also has soared. Keeping products prices at reasonable levels will have a positive impact on India's rising budget deficit.

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