RIPET, Marcus Hook LPG origins proposed for Ginga terms

India's Modi exploits energy to boost poll support

India's Modi exploits energy to boost poll support

Short-term support for key election constituencies could weigh on longer-term energy policy priorities, writes Rituparna Ghosh Mumbai, 12 April (Argus) — Energy issues are taking a starring role in India's forthcoming election, less because of what is at stake in terms of long-term policy and more because of how the government of prime minister Narendra Modi is using voter-friendly initiatives to try and secure the support of key parts of the electorate. India's federal elections are set to take place over the next two months, and Modi's BJP party holds a comfortable poll lead over a largely disorganised opposition — a lead they hope will translate into an absolute majority for a third consecutive term. But Modi's government is looking to consolidate that support through a number of measures that embrace both traditional and cleaner energy sources. The government has cut retail gasoline and diesel prices after a two-year freeze, and expanded subsidies for LPG — a key cooking fuel for many Indian households. At the same time, it has subsidised ethanol production, providing a boost to Indian farmers, and launched a $9bn programme to promote rooftop solar power. The 2 rupees/litre ($3.80/bl) cut in fuel pump prices is the most eye-catching move so far, and the most blatant pre-election bribe — it was unveiled just two days before India's election rules prevented the government from making any further new policy announcements. These measures may help Modi secure a third term, but they could also create problems for his next administration in areas of energy security, foreign investment and energy transition. Freezing over The two-year fuel price freeze that preceded the recent cut was the longest in India's history, suspending previous reforms that allowed prices to fluctuate in line with movements in global oil markets. Price controls on diesel and gasoline had been lifted in October 2014, but the government has frequently interfered with pump prices — especially prior to state and federal polls — through the country's state-controlled oil marketing companies — state-run firms, led by Indian Oil, control 90pc of India's fuel market. The two-year freeze began in May 2022, when international crude prices reached $120/bl following Russia's invasion of Ukraine three months earlier, sending Indian pump prices to record highs. Modi's government has also played some other familiar vote-winning cards. LPG subsidies have long been exploited by Indian politicians to win favour with voters, and the BJP increased these subsidies by more than fivefold in its 2023-24 budget — to $1.5bn from $273mn — to boost access to LPG and reduce cooking gas prices for poorer households. Around 322mn Indian households use LPG, but domestic consumption has plateaued at around 28mn t/yr in recent years. LPG subsidies have been maintained at $1.5bn in the 2024-25 budget. The extra funds announced last month enabled the government to extend by one year, to April 2025, a Rs300 ($3.60) LPG cylinder subsidy for poor households, in addition to implementing a general Rs100 price cut for a 14.2kg LPG cylinder to Rs503. Access to LPG has already been vastly expanded by Modi's Pradhan Mantri Ujjwala Yojana programme for women in poorer households, launched during his first term in 2015. The scheme has enabled 100mn poor, rural households to secure access to LPG, helping them switch away from harmful biomass such as wood and reducing the incidence of respiratory disease among rural women. The LPG subsidies are aimed at the rural poor, but Modi's government is framing its enthusiastic support for ethanol and biofuels to woo a different constituency — farmers in the politically powerful states of Uttar Pradesh, Maharashtra and Karnataka. New Delhi is promoting ethanol for blending with gasoline and has set a 20pc blending target by 2025. This move could improve India's energy security and trade balance by reducing its dependence on imported crude, which meets around 88pc of its crude needs. The government estimates it saved $2.7bn by blending ethanol into gasoline in 2021-22, and blending in the three months to January 2024 reached 11pc. But more importantly, particularly with an election looming, biofuels are additional sources of revenue for both farmers and distillers. Ethanol in India is derived primarily from sugar cane, which makes it politically sensitive. India's sugar cane industry is the second-largest in the world after Brazil, and sugar cane farmers are an important voting block — Uttar Pradesh and Maharashtra are the biggest producing states and played a major role in Modi's re-election in 2019. Farmers in these states previously faced regular late payments from sugar distillers, to the tune of hundreds of millions of dollars outstanding. But the additional income that sugar mills now generate from ethanol has allowed them to catch up on these arrears, oil minister Hardeep Puri says. The government has also promoted solar power to households, under a $9bn rooftop solar plan that aims to install solar panels in 10mn households. New Delhi is offering a 60pc subsidy on the entire system cost, with loans available to cover the balance. The proposed scheme may add 30GW of solar power capacity through residential rooftop solar panels, an area where India has lagged behind. Longer-term costs The current focus on voter-friendly energy policies comes at a cost. Longer-term objectives relating to energy security — specifically strategic petroleum storage — energy transition and foreign investment have received less attention. Budget allocations to state-run oil companies for energy transition investments have been halved in the current fiscal year, to $1.8bn, and actual disbursement of these funds has been postponed until the 2024-25 fiscal year. The government in November scrapped its plans to buy $603mn of crude to fill its strategic underground storage, after providing for such outlays in the 2023-24 budget, and it has not made any allocation for refilling strategic stocks in its 2024-25 budget. New Delhi is also facing delays in building the 6.5mn t second phase of its strategic petroleum reserve, owing to challenges with funding and the potential role of foreign partners. It initially wanted to build the reserve on its own but subsequently sought third parties to help with funding. It has now invited bids to build India's first commercial strategic storage, comprising 2.5mn t of underground storage at Padur in Karnataka at a cost of $700mn, with state-controlled Saudi Aramco and the UAE's state-owned Adnoc. Discussions begin this week. India will need to resolve and make progress on these issues, given its aspiration to join Paris-based energy watchdog the IEA, whose rules stipulate that members must hold strategic oil stocks equivalent to 90 days of net imports. The Indian reserve's first phase offers 5.33mn t of storage capacity across three sites, equivalent to only seven days of crude demand, government documents indicate. On foreign investment, India's demand potential is helping attract investors to green energy, to the tune of $6bn over April 2020-September 2023, power minister RK Singh told the Indian parliament in December. But the country's chronic inability to lure investors into oil and gas remains a problem, particularly in light of Modi's ambitions of making India an economic superpower to rival China. Foreign investment in India's oil and gas sector reached a record $806mn in 2019-20, before the Covid-19 pandemic, oil ministry data show. But it plunged to just $56mn in 2021-22 and to $108mn in 2022-23, representing a nugatory 0.2pc of total foreign direct investment flows into the country. Foreign investment in exploration totalled just $16mn in 2022-23, while investment in refining was nil. Indian ethanol blending FDI in Indian oil and gas Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.