slippery oil

Recently we have heard the government give us this wonderful view of an India where over USD 1 trillion, or Rs 50,00,000 crore will be spent on infrastructure projects. At a conference I attended in New Delhi in March, 2010, I heard every Union Minister who mattered speak about what his department and secretariat plan to do on the infrastructure side. The program was inaugurated by Prime Minister Manmohan Singh, overseen by Deputy Planning Commissioner Montek Singh Ahluwalia, with a glimpse from the Finance Minister on how it all was to be funded. Indian was open for business and meant business. The USD 1 trillion spend was our answer to the China infrastructure miracle. Jai Ho! Slippery oil The infrastructure plan itself is, as such, not a plan in the grand sense of the word. Every department had its plans to spend - that was true. But was anyone thinking about which department really needed more money? Or which department deserved more money in the overall "where is India heading" sense? For example, there was no discussion on whether all the road building of 20 km / day being adopted with great gusto would ever be matched with the mundane - but eventually critical - need for more petrol to fuel the cars that will be driven on the roads. I have not heard the Ministry of Petroleum raise any objections or concerns on this ambitious road-building plan. But here are some numbers with some quick assumptions. I am sure the members of the Planning Commission - accused of sitting on armchairs by the road builders - have more hard data than my 5-minute check list, but here goes: Table 1: Following the US model of building roadways kms driven on average each year by an Indian car 10,000 Fuel efficiency of a typical city-driven car (km/litre) 10 litres needed every year for each car 1,000 number of new cars every year (millions) 1 litres required for the new cars (millions) 1,000 litres in 1 barrel of oil 159 barrels of oil required (millions) 6.3 price per barrel, refined and landed in India, USD 85 new money spent every year on oil for cars (USD mn) 535 A car in India on average is probably used for about 10,000 kms of driving every year. Assuming that a typical car delivers 10 kms for 1 litre of petrol, this suggests the car needs 1,000 litres every year. And assume that, because the roads are being built and car ownership is being encouraged, Indians buy 1 million additional cars every year, that means we need 1 billion litres of extra petrol every year to fuel those extra 1 million new cars. Since there are about 159 litres in a barrel of oil, this works out to about 50 million barrels of refined and finished petrol - new demand created every year. A barrel of crude oil sells for USD 75, add transportation and refining costs and we get to maybe USD 85 per barrel. So we need to buy USD 535 million worth of crude oil for the extra 1 million cars. But what if the price of crude oil increases? Not so long ago, we saw crude oil prices at USD 150 per barrel. Maybe those high oil prices will come back to haunt us in the next few years. Building a USA, or a Europe Should the road minister be working with the railway minister on a plan to build railway tracks in between the roads that can allow trains to ferry passengers and cars? Should there be a system that allows a person going from Bombay to Pune to reach a parking lot at a train station at the start of the Bombay expressway, park his car, alight a express train to Pune, get off at the other end, rent a car or taxi, finish his work and - on the reverse commute - pick up his car and head home? Is a plan to link the two growing metropolitan regions like Bombay and Pune feasible? I don't know but maybe the Ministers with all their information gathering powers could figure that out. The point is, when a build-out for infrastructure is being built out, shouldn't this be the main area of discussion? Are we building a country like USA where the automobile is the centre of all activity or are we building a Europe where public transportation is encouraged? People do own cars in Europe, but they use them a lot less than in the US. Given the fact that we are already importing over 70% of our energy needs, which model should we be working towards? China has, in some sense, made a mistake. They have gone the US route of building roads to encourage the production and sale of cars. China has now surpassed the US as the largest consumer of energy in the world due to its car policy and also due to its reliance on manufacturing. Don't get me wrong - our roads are abysmal and we definitely need roads. But, don't we also need a viable public transportation system? Building roads and bridges in every city for cars will only lead to the purchase of more cars - adding to traffic, pollution, and to our vulnerability to swings in oil prices. No, this is not an argument to head back to the bullock cart age. It is a doubt about the true future costs of what we are doing today. Neither the armchair economists in the Planning Commission nor the Ministers running the various sectors may be really planning for the future. They seem to be more focused on how to get a quick solution for the pathetic state of India's infrastructure. To show that India can spend. To show that India can "catch up" with China and USA. Ten years from now, those highways they are building and financing with our savings will be crowded and they will again dig up those roads to build a high-speed railway line. Just as they are busy digging up roads in New Delhi, Bombay, and Bangalore to build rail links to decongest the roads. There is no 20 year vision. There is no real planning. Each ministry has got their mantra: build and improve infrastructure. So, each ministry is doing it. After all, which Minister in his right mind would say "I suggest we build less roads or airports, and wish to allocate my money to the railways ministry"?

slippery oil

Thursday, September 27, 2012

Cerita Merapik Aku: The baya weaver at my patch

Tuesday, July 3, 2012

slippery oil: Recently we have heard the government give us this...