How will 'PM Modi' solve India's energy woes?

As the election endgame draws closer, CNBC-TV18 focuses on the on sectors and reforms that may be on the top of the agenda of the next government.

More importantly, what are lessons from Gujarat that a possible Narendra Modi-led government may apply at the national level, should a National Democratic Alliance (NDA) government come to power post May 16.

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In an interview with Latha Venkatesh and Sonia Shenoy, Gujarat's energy and petroleum minister Saurabh Patel and former oil secretary SC Tripathi shared their insights into reforms in the crucial energy that a Modi government at the centre could drive.

Below is the transcript of the interview on CNBC-TV18.

Latha: Gujarat has got it right on several areas in industrialization and in economic growth. What do you think may be the first few lessons that may be transplanted to the central government from Gujarat?

Patel: What we did in last 10 years was cutting down the non-plan expenditure. We were spending more money on development and infrastructure, whose result we are seeing now.

So I feel the first thing a Modi-led government will have to do at the center is to pump money into infrastructure, bringing reforms in the energy sector and form policies by which investments would come in and growth would take place.

There are a lot of things to be done on all fronts and especially in last many years, there was a complete policy paralysis [at the centre]. This has to be removed immediately and decisions will start flowing in next six months.

Latha: I take your point that cutting non-plan expenses would be the most important way to go forward. After all, the fiscal deficit is the biggest scourge of this government and the one that will come but there are some sticky problems and I wanted to know your mind and your government's mind on that. For instance land acquisition, try as you may, that law is already in place -- can the approach be different? The DIPP and the other ministries tell us that it is almost impossible to get land even for infrastructure projects like roads?

Patel: What we did at Gujarat government was that since last two years, we have acquired land only through a process and the process is with consent and the price has been market prices. We appointed a third party to determine the market price and accordingly, land was acquired. We never had any disputes of acquiring land from farmers for industrial purpose.

Secondly, what we did is that instead of government having industrial estates, we promoted private people to form industrial estates and we made a policy by which we used to give the money for developing infrastructure in the district.

So in last one year, I have given not less than 50 projects a go-ahead and I am sure within the next span of one year, there will be hundreds of industrial estates built up by private people who would be acquiring them from the farmers at market prices and the government, depending upon the size of the estate, would be giving them money for building infrastructure.

Sonia: What kind of specific reforms can one expect from the new government in the energy sector?

Patel: In the last couple of years, many a times I contacted the union energy minister but unfortunately nothing was materialised. From 8,000 megawatts, Gujarat reached 22,000 MW in the last ten years and today we are surplus by around 6,000-7,000 MW but there are no buyers.

The capacity of the utility is very poor so, one, we will have to strengthen them; and two, the transmission network in spite of years of implementation has been delayed. So on one side, there is power and on the other side, the transmission network is not powerful.

So that's one thing that will have to strengthen and, third, around more than 22,000 MW of gas-based power projects have been lying idle, they are closed. Therefore, imagine the loss to the country in the form of non availability of power.

The bankers must have put in not less than Rs 80,000 crore in it, so they would be all dead assets if nothing is done immediately. The government will have to come out with a strong aggressive policy to see that these power units that are lying idle have to be restarted.

The state governments will have to tighten their belts to see that they also collect their revenues and start paying utilities.

Latha: The gas price has reached a sticky point. Do you see that getting resolved very quickly, even assuming a Modi government comes in with a reasonably stable majority. Isn't it a political hot potato to get back to USD 8 or the Rangarajan formula?

Patel: I think you will have to take all the political parties on board, all the stakeholders on board and the problem will have to be resolved because on one side, you find that the explosion cost day-by-day is increasing and on the other side the capacity to pay is not there.

So everyone has to take strong decisions to see that these assets where thousands of crores have been invested should not lie idle. If you have a very high gas price, power projects will not run.

If you price it low, the explosion won't be done. So something has to come out and I am sure the new government will be able to take a decision based on all these factors and also bring everyone on board.

Sonia: In terms of timeline, when do you think this decision could come through because the oil minister Veerappa Moily clearly has pushed it to July. When do you think the new gas pricing formula could be put on board?

Patel: It is not possible for me to tell you that. It will be cleared only after the new government forms in and after the new petroleum minister takes place.

Latha: How quickly do you think it can be resolved considering how politicized the issue has become?

Tripathi: Let me say a few things about Gujarat. In Gujarat, people understand oil and gas better than perhaps people in other states because oil and gas was struck in Gujarat many years ago and the farmer also understands oil and gas just as a farmer in Gangetic belt understands underground water.

Secondly, in Gujarat, the industry has been able to procure gas at a higher price and make a success of it.

Having said that, let me say that as far as the low-hanging fruits are concerned, it would be best for a new government to continue with the decisions taken by the earlier government with respect to diesel prices – a 50 paise per month increase in diesel prices until they come up to the market level. Continue with the policy regarding direct subsidy in case of liquefied petroleum gas (LPG) cylinder and making subsidized cylinders available to persons below poverty line.

These are questions of implementation to tweak the system such that this can be implemented in a seamless manner without causing too much of trouble and reaching the objective.

About the gas price, I personally feel that the balance of convenience lies in letting it as such. The decision was taken by the previous government, so they incur the odium of having taken the decision, you continue with that but I feel that so much has been said about it that maybe the new government would like to have a transition period from USD 4.2 per mmbtu to USD 8.4 per mmbtu. That transition period could maybe be for a year or little more than a year.

If it wants to make major changes, it will have to set up a committee because it cannot do it in ad-hoc manner.

Latha: So something other than the Rangarajan formula will be sought for?

Tripathi: Yes, that will be required, that will require a committee to go into depth. So therefore, I think the best would be to give a transition period of maybe this year and from next year or make it step-by-step: USD 6 this year, USD 7 next year and then come to USD 8.4 per mmbtu, something like that.

Latha: Is that your best guess as well?

Patel: I don't know. I cannot say much on that subject because I have not discussed this issue with any of the political leaders in Delhi but one thing that Tripathi said about LPG -- one decision would be taken at the Centre would be to implement the gas grid on a massive scale and that would only reduce subsidies.

Today, in Gujarat, only one company, GSPL has more than 10 lakh household connections. That means they are catering to 50 lakh people of the state. So if a gas grid is in formation, a huge subsidy bill of the center could be saved.

Annually in the state of Gujarat, we are saving Rs 700 crore per anum as on today. So I think that over a period of five years down the line, we will be seeing a lot of cities having a gas grid. That way we can reduce the burden of the country as far as the subsidy is concerned.