Open Letter to India’s petroleum minister

To Mr Mani Shankar Aiyar

Dear Mr Aiyar,

Your energetic quest for sources to power India’s growing economy is one bright spark of United Progressive Alliance government in New Delhi. Serious thought and urgent action in the area of energy security were long overdue. Your personal initiative has given a much needed shot in the arm for India’s hunt for petroleum.

However, your enthusiasm for pipeline projects that traverse Pakistan before reaching India is ill-advised both on economic and strategic grounds. While ushering in peace with Pakistan is a desirable goal, it is important not to allow the atmospherics of the current peace-process to become a crucial determinant of India’s long-term investments in energy. Let me outline an alternative approach that will achieve your energy security objectives, without necessarily having to put India’s hydrocarbon jugular in Pakistan’s unreliable hands.

Compared to other options, the capital cost of a pipeline running through Pakistan may be the lowest. Thanks to the representations made by the Pakistani government, the annual operating costs and transit fees may also seem competitive. But the biggest unknown is risk. Inability to calculate its risk premium makes the overland pipeline appear attractive, especially in these happy days of India-Pakistan detente. Thus from a purely commercial business case perspective, it is the quantum of risk premium added on to the known costs that will make all the difference to this project.

What is more, most of the collateral economic benefits will accrue to Pakistan and Iran. India’s investment will create jobs and infrastructure there. This is not a bad thing in itself — but why not use Indian investment to create jobs and infrastructure that are badly needed in India?

I invite you to consider building a state-of-the-art port with an integrated oil & gas processing terminal along India’s west coast, which is connected to major Indian cities with modern highways and/or domestic pipelines. Such a port will allow India to import oil & gas not only from Iran, but also from any other exporting country. The technology to carry oil & compressed gas on ships is mature, and if Indian ports are able to efficiently handle the seaborne traffic, such a project will provide all the capabilities of the overland pipeline, and more.

The Iran-Pakistan-India pipeline restricts India to a monopoly supplier and a monopoly transit provider. This is not a very good scenario for any purchaser. My proposal, on the other hand, takes a free market approach. India will be able to purchase oil & gas from competitive international markets, from multiple vendors and through multiple shipping lines. No single supplier or government will be able to squeeze India commercially. The Indian navy can be relied upon to take care of those who try rougher methods of persuasion.

Your cabinet colleagues and parliamentary supporters from the Left parties have unleashed strong rhetoric on employment generation. Let me assure you that by investing in a major infrastructure project in India you will be creating hundreds of thousands of jobs, and allow your government to redeem its pledge. India’s public investment in this port infrastructure will also attract private investment, both foreign and domestic. The best part is that the benefits of almost every single rupee your government spends will accrue to your own voters.

From a geopolitical point of view, I can understand why Pakistan is so excited about creating ‘mutual dependencies’. For the first time in its history, it will have good bargaining chips for its negotiations with India. While that is all very well as far as the Pakistanis go, I cannot understand why India has to pay for those chips. How about keeping India’s energy security independent of the whims, fancies, preoccupations and delusions of our neighbour to the west? China, a country you personally admire, is building road links across South East Asia, Myanmar and Pakistan, giving India a miss. It appears that there are few takers in Beijing for the ‘mutual dependency’ theory.

In conclusion, I wish you every success in your quest to find the oil to keep India’s lights on. But you must replace your faith in the Pakistani government’s promises with faith in the promise of free markets. You must replace the desire to create mutual economic dependencies with a desire to create substantial economic growth at home. If in doubt, please remember this word of advice from a person we both admire.

Sincerely

Nitin Pai

Related Link: Atanu Dey on the Iran-India pipe bomb

Update: The email I sent to Mr Aiyar’s email address just bounced back. Well, thanks anyway.

13 Responses to Open Letter to India’s petroleum minister

  1. Vijay Dandapani 4th June 2005 at 16:58 #

    Wonderful letter Nitin! Aiyar, however, is not given either to reflection or advice. His pursuit of energy independence using the assets of the state with little debate on the merits of it is typical of his – and indeed others in the Congress party – mindset. Unfortunatelym, an enduring belief in state sponsored nostrums with no accountability continues.

  2. Laks 4th June 2005 at 19:44 #

    Hi Nitin,

    From the website http://petroleum.nic.in/ I found some more addresses.
    General Contact: dspdi.png at sb.nic.in
    Citizen’s Charter: dirm at sb.nic.in

    Also try sending it to the Petroleum Ministry Babus. I’ve had some success before by addressing both to the babu’s and the minister.

    From Lok Sabha website the other address of Mr. Aiyar aiyar at satyam.net.in

    All the best.

  3. Nitin 4th June 2005 at 22:42 #

    Laks,

    Thanks. To prevent spambots from harvesting these email IDs, I’ve edited them out of the above post. Mr Aiyar’s other email address is bouncing too. I guess this is one reason why there is a usually a throng of people waiting outside the official residences of ministers in New Delhi.

    Yes, I had copied the email to the top 3 civil servants in the list.

  4. Laks 4th June 2005 at 23:41 #

    From this report http://internationalreporter.com/news/read.php?id=603 the Paki govt too are under immense pressure from US. Ideally, we should not need U.S. permission to lay an undersea pipeline, but what if there is an attack against Iran. According to former Atomic Energy Chairman, the U.S. has nothing to offer in civilian nuclear tech except the greenlight for natural uranium. France probably has a superior technology. We’ll have to see what comes during the Prime Minister’s visit.

  5. Nitin 4th June 2005 at 23:56 #

    Laks,

    Essentially, a pipeline (undersea or overland) is restrictive in the sense that it can only accomodate a small number of suppliers. While an undersea pipeline from Iran to India is arguably less risky than the overland route from Pakistan, it still restricts India to one supplier. Any number of things can happen to that supplier.

    Diversity is the best guarantee of uninterrupted supply. Only a tanker-based solution provides sufficient supplier diversity. Ships can bring oil & gas from places as far away as Venezuela, Nigeria, Sudan, Timor Leste. If India invests in the correct infrastructure and properly manages the supply contracts, uninterrupted supplies are quite possible.

  6. Prasanna 5th June 2005 at 00:10 #

    Nitin,

    You might want to reroute it to the PMO, maybe? Mail to that generally gets a response.
    suggestpmo JUNK at pmo.nic.in
    might get you a working email address.

  7. Laks 5th June 2005 at 01:52 #

    Nitin,

    I appreciate your idea. I’ve seen some ads from Exxon-Mobil about this tanker-based gas transport (basically by super-freezing!), but I am yet to see any cost-benefit analysis in this case.

    Initially they tried to market this to US it as a ‘peace pipeline’ which no one believed. Then Aiyar brought in China in this deal as if the Chicoms are willing to consider us in their strategic energy plans!

    I feel it is a pity if we cannot get gas from our immediate neighborhood (Iran, Burma) and need to go half-way around the globe.

    Good weekend.

  8. K.Govindarajan 22nd August 2005 at 00:18 #

    sir,
    my comments are to strenghten your views of the proposed pipe line of natural gas passing through Pakistan.some mention that it is going to be LNG pipe line. It is required to be made clear whether the project is proposed after clearing all the technical requirements.
    In view of this I have to make the following suggestions for alternate energy sources:
    the first alternative could be GTL meaning gas to liquids and the role model could be South Africa,which could produce its energy requirements from coal by Fischer trophs synthesis and the second alternative could be production of Methanol and Dimethyl ether from coal/ Natural Gas. Dimethyl ehter ( DME ) is the direct alternate to LPG as household fuel and direct alternate to Diesel.
    There are 39 urea plants in the fertilizer sector for which the feedstock is Naphtha or Natural gas (NG ) or regasified LNG ( RLNG). Many fertilizer plants in the Western or Northern part of India has the benefit of being serviced by GAIL pipe line for NG or
    RLNG and the maximum price for fertilizer use is $5.5 / million BTU, which is a highly comfotable feedstock price and the performance of 2004 -05 shows that such fertilizer plants based on NG/ RLNG have shown fairly good profit compared to the period when they were depending on Naphtha as feedstock.
    Many fertilizer plants that have urea plants also p can roduce DME. Indian Petroleum refineries can produce approximately 6-7 million tons of LPG per annum ( with subsidy of Rs.92 per cylinder ) for domestic use. The capacity of Indian ammonia plants ( ammonia is the feedstock for urea ) is @ 27 million tons per annum. In the WTO scenario, when imported urea is cheaper than indigenous urea,( which also gets subsidy for the difference in cost of production and actual sale), all ammonia units can go for a small investment to produce the alternate fuel DME to the extent of 20 million tons per annum.crude producing or Natural gas producing countries are not interested in DME, as they could get better fuel without further processing. On the contrary, Asian countries such as China and India will have to depend either on coal based units or alternatively make use of the natural gas based fertiliser to produce Methanol / DME which atleast can take care of 20 million tons of alternate fuel out of the 70 million tons import of crude at $65+ per barrel.
    DME is a clean fuel end environmentally friendly, as it is free from sulfur etc. The biggest advantage will be to avail the carbon credit, as the fertiliser industry will not be letting out carbon dioxide to atmosphere; on the contrary this will be converted as a clean fuel.
    This proposal will find a solution for the heavy urea subsidy in the fertiliser sector, subsidy on LPG for oil companies and the Indian customer will have to pay less for atleast two equivalent fuels of petoleum origin.
    Thanks and regards.
    K.Govindarajan

Trackbacks/Pingbacks

  1. Winds of Change.NET - 10th June 2005

    with Pakistan on building a natural-gas pipeline that will deliver natural gas from Iran (and potentially Turkmenistan) to India. While the Indian government has taken the line that this is a pipeline of peace, this is not necessarily the best thing India could do to ensure its own security. Other topics include: India – at 60% governance; Pakistan – the more they stay the same; Bangladesh – hanging on; Sri Lanka & Nepal – life in the times of (civil) war.

  2. Seriously Sandeep - 8th February 2006

    of fund-raising party loyalist Murli Deora to this immensely sensitive post. Prem Shankar Jha mourns the exit of a person who deserved to go for several reasons. The fact that Jha riles against closer Indo-US ties betrays his lack of coherent argument(!) in favour of the ex-Petroleum

  3. The Acorn » We call him Nutwar - 19th September 2005

    […] We have energy requirements. Period. Iran is just one country that can supply fuel to India. That only Iran can satisfy India’s energy requirements is a fallacious argument that is nothing more than a dogmatic assertion. Securing gas from Iran, via a pipeline that runs through Pakistan is not at all an end-all for India’s energy security. […]

  4. http%3A%2F%2Facorn.nationalinterest.in%2F%3Fp%3D1466ªºÂ½Ä¶ª©¥» - 1st January 2006

    […] […]

  5. The Acorn » The Ukrainian lesson (according to The Economist) - 8th January 2006

    […] The Economist in its special report on energy security supports The Acorn’s case for India to invest in domestic LNG infrastructure and energy markets instead of risking taxpayers money on an adventurous pipeline project in Iran and Pakistan. If the Ukraine story has a moral, it is that energy security depends on the existence of a global market free from political interference, plus maximum diversity of supply. [The Economist] Gas is arguably most vulnerable to unforeseen interruptions of supply. Oil is reasonably easy to trade, but in most gas markets the pipeline between the gas field and the gas burner locks producers and consumers in an exclusive embrace. But a market in tradable liquefied natural gas (LNG) is rapidly emerging—flows to Europe have more than doubled over the past decade and represent about one-quarter of the world’s total cross-border gas trade. Some $100 billion could be invested in LNG over the next decade. This has big implications for the gas industry, because it is possible now to import gas from distant, underdeveloped producers at reasonable prices. Over the next decade, there might even be routine price arbitrage between markets. [The Economist] Related Post: An Ukrainian lesson (for India) Home | Permalink | Trackback |  […]

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