Economy

Budget 2018 Dangles Big Promises on Energy, but Without Any Real Means to Achieve Them

The finance minister has chalked out ambitious outlays in different spheres, especially in the farming sector. How will they be financed?

The BJP government has promised electricity for all by 2022 under the Saubhagya scheme. Credit: Reuters

The BJP government has promised electricity for all by 2022 under the Saubhagya scheme. Credit: Reuters

The hubris over India’s climb up World Bank’s ‘Ease of Doing Business’ ladder seems to have inspired yet another similar catchphrase  – “ease of living”. Finance minister Arun Jaitley referred to it in his Budget 2018 speech. In the energy sector, the budget proposals contain two schemes, ostensibly to ease the pains of the poor in India, namely Ujjwala and Saubhagya.

Pradhan Mantri Ujjwala Yojana, launched in May 2016, aims to provide free cooking gas connections to five crore rural households. The petroleum ministry website claims that it has already reached 3.35 crore BPL households. Now, the latest budget says that the government will take this number up to eight crore BPL households. The initial connection costs will be underwritten with a one-time subsidy of Rs 1,600 per household.

Giving gas connections is, of course, easier than providing the actual fuel – LPG bottles – to the intended beneficiaries. For years, oil marketing companies (OMC) have been cajoling LPG dealers in urban areas to move to the hinterland, especially after the advent of piped gas in cities, but have had little success.

The expanded Ujjwala scheme will depend on OMCs’ ability to drive LPG dealers into rural areas. After all, OMCs cannot deliver the LPG themselves but will have to depend on lakhs of rural dealerships. For the urban poor, of course, the scheme is bound to bring relief, provided their biometrics co-operate and they can pay for the refill. There are reports that many rural women with Ujjwala connections are not coming back for a refill simply because they cannot afford it even with the subsidy. Ultimately, energy poverty can be effectively dealt with only when the incomes of the poor – rural or urban – rise.


Also read: The Poor Got LPG Cylinders Under Modi’s Scheme But They Can’t Afford Gas Refills


Promise of electricity for all

The earlier UPA government had promised electricity for all by 2012. Six years later, we are nowhere near that goal. Now, in the last year of its current term, the BJP government has dangled the promise of electricity for all by 2022 under the Saubhagya scheme, hoping it will be voted back into power to deliver on the promise.

Budget 2018 promises last mile connectivity to the remaining unconnected rural and urban households at a cost of Rs 16,000 crores to be incurred in this and the next financial year. Four years seems too short a period to achieve this objective, but if it is implemented successfully, it might light up many lives. After all, many states are now reporting surplus power.

Yet another scheme announced in this Budget is the allocation of Rs 3,800 crores for the Deendayal Upadhyaya Gram Jyoti Yojana launched in July 2015. The major components of the scheme are feeder separation, strengthening of sub-transmission and distribution network, metering at all levels etc. Crucially, it promises 24X7 power supply to rural households. Considering how discoms have not been able to provide 24X7 power supply to even NCR towns like Noida or Gurugram, it remains to be seen how this will be implemented.

Push for solar

Now that solar costs have declined rapidly making them competitive with conventional energy, this year’s Budget offers reasonable feed-in tariffs to incentivise farmers to switch to solar pumpsets. Ask any urban homeowner who has applied for domestic roof-top solar under Jawaharlal Nehru National Solar Mission.

Discoms in most states are reluctant to install net-meters or offer feed-in tariffs to anyone except the large industrial and commercial users, that too after much chasing and haggling. How a small farmer with a tiny irrigation pumpset can persuade his local utility to agree to feed-in tariffs and install net meters is anyone’s guess.

This year’s Budget offers reasonable feed-in tariffs to incentivise farmers to switch to solar pumpsets. Credit: Reuters

This year’s Budget offers reasonable feed-in tariffs to incentivise farmers to switch to solar pumpsets. Credit: Reuters

Additional outlays for solar and wind are welcome, but the government needs to allay uncertainties over duties and anti-dumping provisions. Other provisions in the Budget such as allowing large corporates access to the bond market to meet a quarter of their debt needs is a welcome measure for large companies in the renewable energy business.

Questions on financing remain

Budget 2018 has chalked out ambitious outlays in different spheres, especially in the farming sector. How will they be financed? Apart from the long-due long-term capital gains tax announced in the Budget, much of the money has already come into the government’s kitty from the sale of its entire 51.1% stake in HPCL to another oil behemoth, ONGC for a whopping Rs 36,915 crores. In fact, with this sale, the government has exceeded its target for disinvestment proceeds by an incredible Rs 20,000 crores.


Also read: Post Budget, All Signs Point to an Impending Strategic Sale in National Petroleum Companies


Similar moves had been contemplated by earlier governments as well, but this opportunistic scheme was never implemented. Sale of one PSU to another is a clever way of sponging off a profitable PSU’s balance sheet without giving up government ownership. Except that, with the past three years of low oil prices, ONGC might have borrowed from the debt market to pay for the purchase.

In fact, ONGC chairman is on record saying he would need to use the company’s cash reserves, borrow from the debt market and sell ONGC’s existing stakes in IOCL and GAIL to fund this purchase. The last is self-defeating in as much as it dilutes government control (through ONGC) in IOCL and GAIL.

Integration of upstream ONGC with refiner and marketer HPCL is expected to create synergies which might be useful at a time when international oil prices are hardening. But these can be achieved only after the logistical nightmare of merging two behemoths is successfully tackled. If ONGC chooses to remain a holding company and allow BPCL to retain its distinct corporate identity, the promised synergies will require some innovative accounting.

Currently, India imports almost four out of five barrels of crude it consumes. Prime Minister Modi wants to bring down oil imports by 10% by 2022. With ONGC’s cash reserves deployed in the acquisition of HPCL, how is the integrated oil behemoth going to achieve this laudable but unrealistic objective?

Sudha Mahalingam is an independent energy consultant and former member, Petroleum and Natural Gas Regulatory Board.

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