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Power Pricing

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The oil producing nations used to exploit the market to keep prices of the commodity high, but market forces caught up with them. First, fuel efficient vehicles and, then, the viability of fracking put them under pressure to reduce prices. The reduced earnings forced them to produce more, leading to collapse of unity within OPEC, and increased competition to capture the declining market. The enhanced use of gas and the rising popularity of electric powered vehicles have led to a further decline in demand, signaling the end of ‘big oil’ in the foreseeable future.

The global movement against fossil fuels has also impacted the production of coal. India had huge reserves but of not so good quality coal. It missed the industrial revolution that built its foundation on coal. Thermal power plants, everywhere, are being phased out. Nobody is willing anywhere in the world to invest in new coalmines or improved and efficient mining technology. The traditional exporters of quality coal such as China, Australia, Indonesia, etc., have recently placed curbs on exports for domestic reasons, creating a crisis in countries such as India. Fortunately, India and much of the world has been diversifying the sources of power for some time now and should be able to overcome the present difficulties that threaten large scale power cuts.

There have been demands by the populist and socialist minded politicians that curbs be put on power producers and discoms regarding price fixation. Remember, the AAP government provides 300 units of free electricity in Delhi and any rise in prices would really hurt at a politically crucial time. It was inevitable that, at some time, the effort would be made to shift the burden on power producers. (Uttarakhandis must be chary of such quick fixes promised to them for this reason.)

As socialist governments have discovered over the decades, while it may be possible to ‘fix’ prices within the country, they have no control over the international market. Eventually, the system ends up paying much more in terms of drop in value of currency, inflation and hollowed out power companies. It is important, instead, to understand the market forces, anticipate the emerging situation and, rather than apply palliatives, undertake the strategic shifts required. If this is done in time, one comes out riding the emerging wave to prosperity. India’s present government has followed this line determinedly regarding oil pricing – it should do the same in the current coal crisis.