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Kejriwal’s gas ‘ghamasan’ will compound UPA’s energy mess

By R Jagannathan

The more one sees of Arvind Kejriwal and his holier-than-thou politics, the less viable it looks.

One can root for him when he talks about fighting systemic corruption, when he rails against crony capitalism, and admire his gutsy targeting of the rich and powerful in the hope that it will make us conscious of how far we have compromised with wrongdoing.

But his politics of black-and-white is voodoo stuff. It can only take the nation back to the stone age.

Some time ago, he and his Socialist friend Prashant Bhushan wanted coal blocks to be sold by auction. I am all for it. But he doesn't want the downside of it. He also wants power tariffs lowered in Delhi - and presumably other states too. Can high-cost coal, which will be the result of selling coal blocks to the highest bidder, produce low-cost electricity?

Arvind Kejriwal. PTI

Today's Business Standard quotes Kejriwal as threatening mayhem if gas prices are raised for Reliance Industries. He said in a tweet: "We warn the government. Gas ke rate badhane ki himmat na karna. Warna desh mein ghamasan hoga. People will not tolerate it." He added: "Don't test the patience of the people. It is becoming increasingly difficult for people to survive. Don't push them to the wall."

It is fear of Kejriwal-style ghamasan that is ruining the country. If corruption is bad, mindless populism is worse. The UPA, scared of precisely such ghamasans, has already implemented in the oil sector what Kejriwal advocates in the gas sector by underpricing diesel, kerosene and LPG. The disastrous results are there for all to see.

Our refineries have become sick companies, depending on subsidies from the government for mere survival. In fact, even as Kejriwal rants against Reliance, fear of ghamasan has ensured that Reliance is the only viable petroleum company in India.

Indian Oil, Bharat Petroleum, Hindustan Petroleum are being taken to the cleaners, while Reliance sells two-thirds of its output outside India and stays alive. The Economic Times tells us this year's oil subsidies could be in the region of Rs 1,70,000-1,80,000 crore - which, Kejriwal should be happy to know, is equivalent to the 2G and Coalgate scam losses estimated by the Comptroller and Auditor General.

The chairman of ONGC, India's biggest oil producer, has warned that his company will be bled dry by subsidies in two years.

Fear of "ghamasan" has prevented the government from raising coal prices, making Coal India the next candidate for slow decline. Coal India and ONGC are still two of the public sector's most profitable companies, but their inability to raise prices is preventing them from exploring new fields and increasing production or buying new fields abroad.

The country, by crippling its most prolific energy producers, is thus 80 percent dependent on oil imports, and coal imports are likely to shoot up to around 30 percent of requirements as supply is short of demand by 192 million tonnes in the fiscal year to March 2013, says a Reuters report.

Resistance to raising prices in line with the market is pushing Indian industry into the arms of foreign oil and coal suppliers even as the likes of Kejriwal promise more ghamasan.

What has happened in coal and oil will happen in gas too.

Who is Kejriwal to tell the market what the rate of gas should be? The market makes up its own mind, and unlike the UPA, it is impervious to ghamasan. Does Kejriwal know anything about energy economics, or even plain and simple economics, to make these kinds of statements?

Let me be clear. I am not in favour of raising or lowering gas prices for Reliance. I am for opening up the market for gas and freeing all energy prices - and in this process, if gas prices have to go up, so be it (see disclosure below).

Mr Kejriwal, when the US opened up shale gas for exploitation, it made the country almost fully self-sufficient in energy. Today, shale gas prices are falling due to competition and high supplies. Prices are in the region of $2.5-3 per mmBtu (million metric British thermal units), even lower than the price Reliance currently get for its Krishna-Godavari gas ($4.2 per mmBtu).

With the right policies, and freer competition, Reliance is unlikely to get its demanded price of $14 per mmBtu in 2014, when the current pricing regime ends. What it gets should be determined by the market, not Veerappa Moily or Jaipal Reddy. Kejriwal should be demanding a rational energy policy, not hyper-ventilating against this company or that.

We can never have a rational energy policy without rational pricing and transparent regulation. It is when we don't have free pricing that crony capitalists do cosy deals with businessmen and make a killing.

In fact, the best policy insurance against profiteering in any natural resource will be the following:

• Free imports and market-based pricing in energy, whether coal, gas, oil or power
• Policies to allow more competition in the energy sector and free and fair prices
• Transparent subsidies to the poor paid for directly from the budget
• Clear and transparent regulation to prevent profiteering or monopoly
• Simple exploration and production contracts where government gets a share of production. The costs should be entirely borne by private parties, and they would have no need to clear their investments with the government first>
• Simple and transparent environmental laws that ensure quick clearance for mining and exploration projects
• No public sector monopoly in any energy sector.

If Kejriwal wants a ghamasan, it should be focused on creating a forward-looking energy policy like the one suggested above. Threatening mayhem over gas pricing is populism of the worst kind - and possibly against long-term national interests. Kejriwal has talked about changing the system which rewards corruption; the current system of arbitrary energy price controls, imposed in the name of protecting the aam aadmi, is tailor-made for corruption and crony capitalism.

(Note: The Reliance Group has an indirect stake in Network18, publisher of Firstpost. The author also holds some Reliance shares in his long-term portfolio.)

by R Jagannathan

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