While some hope a new government could at last spark much-needed investment and reform in energy in India, analysts and industry veterans warn it will not be easy to change the outdated and very regulated sector.
In its manifesto this week, the Bharatiya Janata Party–which many expect to be running the government soon– said it will take steps to raise local energy production to cut billions of dollars off the country’s fuel import bill. It said it would seek to end monopolies in the sector, which could also mean splitting or privatizing state-run companies. Analysts say the party is also likely to try to clear bureaucratic bottlenecks and loosen control on the pricing of natural gas, diesel and electricity.
P S Bami, the president of the India Energy Forum, a lobby group, said allowing fuel prices to move in line with markets is essential, as quoted by Wall Street Journal. “There can be a delay in reforms but there is no escape from it,” said Bami, who is also the former chairman of state-run NTPC Ltd.
India has natural resources but still needs to import three-fourth of its energy needs as too much government control and a lack of investor-friendly policies discourage investment.
Indian state-run fuel retailers are losing billions of dollars each year because they have to sell diesel, cooking fuel and cooking gas at below market prices. While the government and upstream exploration companies compensate the retailers for the losses, the fact that they can only survive on handouts mean few want to expand. India’s coal production has stagnated in recent years due to the monopoly of state-run Coal India Ltd and slow pace of environment approvals.
While the problems of the sector are well known, the BJP will have a tough time fixing them even if it gets a strong mandate. Trying to raise electricity and fuel rates as well as trying to modify how state-run companies are managed would anger politically powerful groups.
“They can have the numbers but do they have the political will to take key decisions such as freeing up the heavily regulated energy sector?” said Sanjay Kaul, president of the University of Petroleum & Energy Studies. “Cosmetic measures and little bit of tinkering here and there may happen, but would you call that reform?”
If the BJP comes to power, the Congress party which has been in charge for the last ten years will want to block its programs as payback. “It’s not purely about the number game. It’s also about the mind game inside and outside the Parliament,” said Saurabh Vyas, co-founder of political consultancy PoliticalEDGE. “So let’s see how the promises shape up and how BJP plays its cards.”
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