Will oil & gas sector see policy reforms in 2014?

The rising demand for energy has landed the economy and oil and gas sector particularly in crisis as the country depends on imports of crude oil to meet more than 77 percent of its petroleum products requirement.

In the fiscal year ending March 2013, India's net oil import was 2.6 million barrels per day at Brent crude prices averaging USD 110 per barrel. Over the past decade the modern five fold rise in India's net oil import bill to USD 109 billion last year enlarged its trade deficit to USD 196 billion causing a current account deficit of USD 88 billion or 4.8 percent of its USD 1.8 trillion of gross domestic product (GDP). During the year 2012 to 2013 the total under-recovery on petroleum products reached a level of Rs 161000 crore.

The increase in population, economic activity and rise in income levels will further push the demand for energy in India.

The integrated energy policy has estimated that India's primary energy supply will need to increase by four to five times and its electricity generation capacity by six to seven times over its 2003-2004 levels to deliver a sustained growth rate of 9 percent through 2031 to 2032 with primary energy supply growth of around 5.8 percent per year.

To throw more light on the challenges faced by the oil and gas sector and what needs to be done to overcome them and also what we can do to narrow the demand- supply gap, CNBC-TV18 hosted a panel discussion with Banmali Agrawala President and CEO of South Asia GE, Vipul Tuli Director McKinsey & Company, RS Sharma Former Chairman and Managing Director of ONGC and Kirit Parekh Chairman of the Integrated Research and Action for Development.

Excerpts of the panel discussion on CNBC-TV18

Q: That is the current state of affairs and it doesn’t look very good. Kirit Parikh you are the veteran of many reports that have actually tried to identify the solutions to address the challenges that the oil and gas sector and the energy sector at large faces in this country. Do you feel confident that we are ever going to really move away from this subsidy sharing formula, tweaking the subsidy sharing formula to complete deregulation given the political prerogatives of the government?

Parikh: I am a congenital optimist. As Prime Minister Nehru said many years ago that in India if you loose hope nothing is left. So, I am hopeful. Some recent moves by the government like say gradual increase in diesel prices etc does indicate that there is some hope that we might get and recognise the seriousness of the problem that we are facing.

We need to set prices which are competitive, we need to set prices which also encourage people to explore and produce more oil and gas in the country. We need to liberalise coal so that more coal is produced domestically because coal imports have also become 100 million tonne these days.

Unless we really liberalize the whole energy sector, the hydrocarbon sector in particular – I would say even the power sector also needs lots of reforms but lets us say on the hydrocarbons we are much more pressing problems are there and we must charge opportunity cost pricing to all consumers.

Q: How do you explain the contradictions because on one hand the Prime Minister on several forums talks about aligning gas prices for instance to the market, talks about aligning diesel prices to the market and we have made some improvement as far as diesel deregulation is concerned. On the other hand the finance ministry then supports a cap as far as gas prices are concerned for user industries. So, this inherent contradiction shows up time and time again?

Parikh: The trouble is that different ministers in this government certainly seem to be really looking after their own turf and own responsibilities.

Q: Is it really a problem of this government?

Parikh: In the past and one hopes atleast in theory this should be joint combined cabinet decision. So, that different minister's do not speak in different voices.

Q: Political parties change their view as per interest. Now that we have deregulated petrol, we have partially deregulated diesel do you worry that we could perhaps go back again if there is a change in government?

Parikh: I hope not. However it certainly is a possibility and that would give the worst possible signal to the world because this would just show that the Indian policies continue to remain fickle and continue to remain uncertain.