Bureaucratic hurdles impede sustainable growth of India's energy sector
Oil demand in India is set to grow in the next five years and beyond, driven by demand for its exports and a fast growing domestic market. India's significant indigenous oil supplies have been declining for the last 15 years.
The country's incremental oil demand in the coming years is expected to outpace domestic production which will result in the share of indigenous sources dropping to 22% by 2016.
Government inefficiency, onerous bureaucratic procedures, and regulatory uncertainty are slowing India's energy sector and curtailing the investments that the economy needs for sustainable growth. Experts from the sector attending a recent debate highlighted how slow; bureaucratic clearances are hampering domestic oil and gas extraction and exploration in the country.
According to a recent report by HSBC global, this pegs the Q1FY2012 growth rate at mere 5.3% on a YoY basis - the lowest since 2004. Among the key reasons attributed to the low growth rate is the policy paralysis. Oil and Gas sector in India has also been struggling to cope up with the policy stagnation which is hurting the investor sentiment.
Arguing that a sustainable economy requires long-term investments, R. S. Sharma, former CMD, ONGC pointed out that lack of a central authority necessitates an efficient coordination between the various ministries involved, which might be difficult. Multiple clearances also adds to the costs incurred and results in long delays. Therefore, the ministries involved in Energy project clearances need to coordinate better thus reducing the number of hurdles.
If number of clearances required is reduced, say, from 60 to only 10, it would be a major reform, says Dr. Kirit Parikh, former member, Planning Commission. Removing administrative hurdles would also encourage investments which could propel India's GDP into the double digit growth rate.
As a measure to counter the pessimism and boost investor confidence, PMO is exploring the possibility of Special Purpose Vehicle (SPV). This would accord the authority of granting clearances and licenses to SPV, which would be working under the Ministry of Petroleum and Natural Gas. While some experts believe that this approach might be helpful, to put it into practice remains a question.
Additionally, lead time to the setup of the SPVs and status of licenses acquired under the current mechanism remains unclear, which has raised doubts over the successful implementation of the proposed idea. The immediate concerns with the sector have pushed the demand for short-term solutions which would ensure better coordination under the current mechanism.
The comatose state of the sector is not only due to inefficiencies in granting of licenses. According to JK Dadoo, Joint Secretary, Ministry of Commerce and Industry, 60 discoveries were made after New Exploration Licensing Policy (NELP) was introduced, out of which 51 were for gas discoveries. Only two of the 51 are in the production stage even after awarding the clearances. This could point to a possible constriction in the downstream segment too.
However, there seems to be a unanimous consensus among the experts as far as streamlining the process is concerned. The current process is marked by involvement of multiple regulatory bodies which is contributing to existing problems. Ensuring a seamless process in granting of approvals would allow the sector to tap the rich resource-base for Oil and Gas, which could get the faltering economic growth back on track.
Tag Words: None