One set of concerns in the gas and energy sector clearly relates to whether the development of the gas market should be based on some kind of price control mechanism or we are going to actually decontrol it and essentially let gas prices reflect market conditions.
I think the present policy is that there is the historic bits of gas that are linked to the Administered Price Mechanism APM, but for the rest all the new gas is essentially being priced at market prices. So I don’t see that there is a difference of view between present policy and what most people seem to think is necessary.
Public – private exploration:
Role of Regulator: There seem to be some lack of clarity on what the regulator will do. I think that the idea of the regulator is not that he is going to substitute competition in the market but just provide some underpinning or fairness mainly in connection with access to pipelines without which it is very difficult to have a gas market. The role of the Regulatory Board should be benchmarking against established international practice. We should not re-invent the wheel.
Free market dynamics: But other than that you have to leave it really to the system. If for example nobody finds it worthwhile to set up a pipeline I am not sure that we should be intervening in this area.
The only thing that will change that is if either you have a huge increase in the supply of gas or alternatively, if the premium on gas being a clean fuel relative to coal is somehow internalized in economics. That can only happen if we decide to impose a carbon tax or if there is some carbon trading and clean development mechanism, which enables us to internalize the benefit of cleanliness in project economics. In the absence of that I don’t think we should shed any tears that no coal plant will buy gas if they have got a cheaper fuel.
Global warming: One important issue in all this is the premium you place on clean fuel. That is very much connected with what is going on in the world about global warming. One stream of the global warming debate obviously is how the framework convention on climate change will unroll and what it would do in terms of incentivizing people to move away from coal. Another is simply that irrespective of what happens to national standards and guidelines and environmental norms all of which will certainly raise the cost of producing power from coal. So I think the premium that gas would enjoy as a cleaner fuel than coal is something, which over a 20 years horizon, is going to get factored into the price.
Petroleum industry: The key issue really is whether we should retain the present system where the price of gas is as much related to market conditions as possible. I think in the case of petroleum we have been moving in that direction although that movement has not really culminated in a petroleum prices being entirely linked to market prices. One issue, which sometimes comes up is that if you have price control of a kind in the petroleum sector should you do a parallel control in the gas sector or should you leave the gas sector unregulated and let the market determine price.
Gas-based thermal power: Looking at 800,000 MW by 2030 and with about hydro availability being around 70,000 MW, coal will continue to play a certain role. Even with imported coal we are still looking at 300,000 MW by 2012. We definitely need to think in this transition phase how the gas based thermal stations can survive. As an economist I need to think of some of the ideas thrown up today - maybe some carbon tax, may be some CDM, may be some other alternatives.
