Time is right for Modi to push through Indian energy reforms

When the last Indian prime minister to visit the UAE, Indira Gandhi, arrived in 1981, oil prices were high, war raged between Iran and Iraq, and the Indian economy was struggling under the burden of the energy crisis.

Now, with Narendra Modi’s current visit, parts of the Middle East are still in conflict, but the global energy outlook is far more promising for his country. India has emerged, not as the passive victim of oil crises, but an increasingly important consumer. Yet the country’s oil companies are punching below their weight internationally, and many Indians are still beset by energy shortages and pollution.

Indian writer Raju Thomas observed shortly after Mrs Gandhi’s trip that, “nor has the long-term energy question been resolved for India … Its known oil reserves are low … there are various limitations on the extensive use of coal … the promise of nuclear energy continues to draw the attention”. The same could be written today, with a passing mention of gas and renewable energy.

India consumes only a third as much oil and a quarter as much gas as China, but it is poised to become Asia’s second-largest user of oil. With China’s economy looking shaky, India could be one of the bright spots for global energy demand, helping crude prices to recover — if Mr Modi’s government can deliver on its ambitious reform plans.

India is unlucky with its energy geography, barred by Pakistan, Afghanistan and high mountains from access to the nearby hydrocarbon riches of the Middle East and Central Asia. Energy security is vital to New Delhi, but it has fewer options than Beijing. If the US diminishes its presence in the Arabian Gulf in the decades to come, India, as in the days of the British Raj, might again help fill the security vacuum.

The UAE fits into the Indian energy jigsaw as a close neighbour with deep historic and cultural ties. lthough an important oil supplier to India, the UAE ranks behind Saudi Arabia, Kuwait, Iraq and Iran. Meanwhile, the UAE is the single largest importer of Indian goods, mostly for re-export.

But although China, Japan and South Korea have taken direct stakes in Abu Dhabi’s oilfields, most recently Japan’s Inpex and South Korea’s GS Energy in the onshore Adco concession, Indian companies were not even on the shortlist.

UAE outward investments will have to be more selective now that oil prices have fallen and capital is less abundant. But the country’s state-owned energy companies could instigate a number of projects in India during Mr Modi’s visit, for instance offshore oil and gas production, where Mubadala has had success in south-east Asia.

Strategic oil storage is well short of requirements, while petrol retail might appeal to Dubai’s Enoc, newly profitable due to the ending of subsidies at home.

Although India’s ailing power sector is dominated by coal, not an area of much UAE expertise, Masdar — which Mr Modi is due to tour today — could contribute to his administration’s vision of “the renewable energy capital of the world”, with a target of 100 gigawatts of solar power by 2022. By comparison, Abu Dhabi’s renewable aim amounts to about 1.4 gigawatts by 2020.

However, to progress beyond paper aspirations, India needs to deal with a multiplicity of problems that have plagued investors. Acquiring land and dealing with community protests have obstructed coal mines, nuclear and solar power plants. Many of its regional electricity distribution companies are bankrupt. Oil producers have been hit with unexpected tax bills and 14 gigawatts of gas-fired power plants lie idle due to problems in devising a suitable pricing scheme.

Another oil crisis, in 1991, triggered the process of dismantling Mrs Gandhi’s stiflingly bureaucratic Licence Raj. There is much opportunity for the UAE to supply India’s fast-growing economy. But the current benign oil outlook should be no cause for complacency in Mr Modi’s energy sector reforms.

Robin M Mills is Head of Consulting at Manaar Energy, and author of The Myth of the Oil Crisis.

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