July 6, 2001


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G Parthasarathy

The quest for energy security

As India prepares to embark on a path of accelerated economic growth of 8 per cent, reforms in two crucial areas need to be undertaken. We have to recognise that a higher growth path will not be achievable unless hard decisions are taken in reforming the power sector and amending our labour laws.

While we strive to achieve a domestic consensus on these issues, our foreign policy and security establishments need to focus increasing attention on issues of energy security in the Indian Ocean region, from where we source our energy supplies.

While the United States and the European Union have progressively been reducing their energy dependence on this region, the requirements of regional countries and major consumers like China, Japan and South Korea are rapidly increasing. China was a net exporter of energy during past world oil crises in 1973, 1979 and 1990-91. It has, however, emerged as a major importer of petroleum products since 1993.

Given the extensive development of our indigenous coal resources, our overall import dependence for energy is currently about 14 per cent. This dependence is likely to increase to around 40 per cent by the end of this decade.

While our import dependence on oil is around 40 per cent at present, this is likely to rise to 70 per cent by the end of this decade. The demand for natural gas is also likely to fast outstrip supplies, resulting in dependence on imports rising to around 43 per cent in the same period.

Given the competitiveness of the coal resources of countries like South Africa, Australia and Indonesia, these are likely to emerge as growing suppliers of coal, particularly to our coastal states in coming years. In these circumstances, clear strategies need to be devised for diversifying our sources of energy supplies and working bilaterally, regionally and in co-operation with other major importers to ensure that our energy needs are met.

It also becomes imperative for us to ensure the security of the maritime routes between the Straits of Malacca and the Strait of Hormuz.

We are still to devise comprehensive strategies to develop hydroelectric projects with neighbours like Nepal, Bhutan and Myanmar. While the Mahakali Treaty of 1996 will result in an additional power supply of around 6800 MW, it is imperative that we work co-operatively with Nepal to develop other projects like the Karnali hydel project of 10,800 MW.

While the 336 MW Chukha project with Bhutan has been successfully implemented, there are still several projects like the 1020 MW Tula project and the 4060 MW Sankosh project that need to be expedited.

The development of the proposed Chindwin river hydroelectric project with Myanmar will likewise be of immense importance for the development of our northeastern states. Sub-regional organizations like the growth quadrangle comprising India, Bhutan, Bangladesh and Nepal and the BIMSTEC grouping comprising Bangladesh, India, Myanmar, Sri Lanka and Thailand need to be activated and made project-oriented as part of this effort.

While we have traditionally obtained the bulk of our oil supplies from Iran, Iraq and the Arab states that are members of the Gulf Co-operation Council, there are economic and geopolitical imperatives to diversify the sources of both oil and gas imports.

A number of power projects based on liquefied natural gas have been approved in our coastal states. One hopes that any comprehensive policy that is approved for such projects would seek to diversify sources of supply and make use of the vast resources of natural gas available in the Asia-Pacific region in countries like Australia, Malaysia and Indonesia.

In the meantime, every effort should be discreetly made to assist Bangladesh finalise viable policies to use and export its considerable gas reserves. Projects for energy co-operation with Myanmar are now being realistically considered. We should also develop co-operative arrangements with Iran and the Gulf Co-operation Council on energy-related issues.

Given the instability in Afghanistan and the threats posed by the ISI-Taleban nexus, it will take a number of years before major oil companies venture to build gas pipelines from Central Asia through Afghanistan to Pakistan's Makran coast. We will therefore have to co-operate with Iran to strengthen its role as the most viable transit route for supplies of Central Asian gas and oil.

A few years ago, a senior officer of China's navy remarked: "The Indian Ocean is not India's Ocean." The Persian Gulf region contains 65 per cent of the world's proven oil reserves and one-third of its gas reserves. China will increasingly depend on this region for its energy requirements.

While the comments of the Chinese naval official were construed earlier as seeking to justify a quest for naval facilities in Myanmar, it is now becoming clear that what the Chinese are seeking is naval facilities in Pakistan, at the very entry to the Persian Gulf. China is now finalising plans to develop the deep-sea Gwadar port on the Makran coast of Baluchistan.

This project, which could involve an investment of up to $1.5 billion and includes the building of a coastal highway in the sparsely-populated region, makes little economic sense, given that cash-strapped Pakistan already has enough port capacity to meet its own needs.

General Pervez Musharraf proclaimed on May 15 that the main objective of letting the Chinese develop Gwadar port was that "when needed the Chinese navy will be in Gwadar to give a befitting reply to anyone". Ships operating from Gwadar could pose a serious threat to our energy supplies from the Persian Gulf, especially in crises. The proposed Iran-India gas pipeline has to be viewed in the context of the overall strategic scenario in our neighbourhood.

It was estimated some months ago that a 2700km overland gas pipeline through Pakistan with a capacity of 30 billion cubic metres per annum would cost around $3.1 billion. India would have to bear around $1 billion for pipeline costs with the remainder being borne by Iran and Pakistan. And it is estimated that Pakistan will have to be paid about $200 million as transit charges every year when gas is transmitted through that country.

An alternative 2900km offshore pipeline would cost around $4.4 billion, with India having to bear around $2.2 billion.

As transit charges to Pakistan would not have to be paid for gas supplies through an offshore pipeline, the overall cost difference between the two options for supplies from Iran to India would be marginal over the long term.

New Delhi should therefore make it clear to Iran that it would entirely be Tehran's responsibility to deliver the natural gas on Indian soil. It would therefore be for Iran to seek and obtain guarantees from Pakistan on the security of supplies and settle issues such as transit charges with its eastern neighbour. India should not get involved in this process.

Those who seek instantaneous decisions on such projects just to please the visiting president of Pakistan would do well to remember the Central Intelligence Agency's assessment of our neighbour. The CIA's 'Global Trends 2015' report states:

  • "Pakistan will not easily recover from decades of political mismanagement, divisive politics, lawlessness, corruption and ethnic friction. Nascent democratic reforms will produce little change in the face of opposition from Islamic political activists, who may significantly increase their role in national politics and alter the makeup and cohesion of the military -- once Pakistan's most capable institution. In a climate of continuing domestic turmoil, the Central Government's control will probably be reduced to the Punjab heartland and the economic hub of Karachi."
One can only hope that those in our western neighbour who proclaim that India has yielded to American pressure and the military onslaught of the jihadis in Jammu & Kashmir, by inviting their president to New Delhi, Agra and Ajmer, will develop a sense of proportion, realism and sobriety by reading and digesting the contents of this report.

G Parthasarathy

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