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Factors Contributing to India's Energy Security: The Exceptions are Otherwise, Shri B S Negi, Former Member (Infrastructure), Petroleum and Natural Gas Regulatory Body

India needs to adopt a multi-pronged strategy for energy security. The country should focus on augmenting domestic energy resources' production, conservation, energy efficiency, acquiring hydrocarbon acreage overseas and exploiting unconventional energy resources. To achieve such an objective, an integrated approach would be essential. For example, to augment domestic energy resources, the government needs to focus on a policy that would encourage the exploration players to actively invest in the up-stream sector. A similar approach should be embraced for investment in the unconventional energy resources sector.

The recent issue of post facto auditing of up-stream investments and gas price control, including gas allocation policy has done more harm than good to the energy sector. The expenditure in up-stream is a function of time and related opportunities, both for explorer and the service providers. Without any expert back-up, blatant statement about high expenditure by the government's highest auditor has adversely impacted the progress of the exploration. The off shore rigs hiring in 2005-06 is such an example. The availability of rigs then was very acute. An experienced and expert explorer had an offer for hiring jack up rig at $34,000 per day. A week's delay in decision making increased the hiring rate to $74,000 per day. Even this higher rate justification took a long time as one of the partners happened to be a PSU. This delay further saw the rigs hiring rate going upward to $102000 per day, and the rig had to be hired at this rate.

The story does not end here, it further goes to the extent that the jack up rig hired got damaged soon after the commencement of erection and the teams started to fix up responsibility for this failure. In the mean time, a new rig had to be hired at a rate of US$225,000 per day. Better sense prevailed by then and a floating rig was hired, since the site experience indicated the revised configuration.

The key learning from the above example is that the expenditures in upstream are not like constructing roads, bridges or the housing colonies, where expenditure are well within the budget, except for abnormal market conditions. In upstream business, the exceptions are otherwise.

In the above example of hiring rig, the cost rise has been to $225,000 from $34,000, that is, 6.62 fold. If one revolves round this cost rise, it would further have only damaging effect on the exploration. The control on expenses should be beforehand rather than post facto. To achieve this objective, we need quick decision makers in the place. But the concept of post facto auditing has generated cascading effect on the whole process, be it a matter of decision making or executing the decision. The safest person is the one who does not do anything and it is this approach which is affecting the governance. The recent observation made by Azim Premji supports this. The KG D-6 row amongst CAG, DGH, MOPNG and the operators (Reliance) has been very unfortunate for the industry, which has only suffered as a consequence. Let the better sense prevail to quickly decide the appropriate expenditure in the management committee so that work programme does not suffer. I would further suggest that the DGH and the CAG have an expert team for necessary consultation.