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Indian FDI in African oil is at a dead end

Unbeknownst to many Indians, the relationship between India and Africa is becoming increasingly intertwined in important ways, not the least of which is through the use of energy imports from Africa. Few Indians are aware that one in five Indian homes are lit and cars are powered by oil and coal imports from Africa, yet this is the reality of India’s plan for diversification of sources for its petroleum imports. While it’s true that the Middle East still accounts for around 70 per cent of India’s oil and gas imports, with Saudi Arabia being the largest supplier of crude oil to India, followed by Iran, Africa today accounts for over 20 per cent of India's crude oil imports, with Nigeria being the country’s 2nd largest source after Saudi Arabia. Other major African suppliers include Angola, Algeria, Egypt, Cameroon, Equatorial Guinea and Sudan. Indian imports of crude oil from Africa have increased from about 22-M tonnes per annum during F-Y 2004-2005 to more than 35-M tonnes in F-Y 2010-2011.

India is increasingly reliant on imports of coal from Africa as well. India’s coal imports have trebled over the past 7-8 years, mostly from countries such as Indonesia, Australia and South Africa.

This trend was highlighted by the then  Indian Finance Minister Pranab Mukherjee, who explained at the 3rd India-Africa Hydrocarbons Conference in New Delhi in December 2011 that the Indian government has been trying to diversify its sources of petroleum imports so as to reduce dependence on any particular region of the world. The conferences, sponsored by the Ministry of Petroleum and Natural Gas, in association with FICCI, are intended to foster bilateral trade relations in the hydrocarbon sector, to better understand policy and regulatory frameworks and offer opportunities for increased investment in upstream and downstream activities in the sector in both regions. The goal is to expand the capabilities of India and Africa to develop strategies for mutually
beneficial trade and investment and identify the opportunities and challenges being faced by the two regions in exploration and utilisation of hydrocarbon resources.

Unfortunately, there is nothing beneficial about the trend for either India or Africa. The growth in increased oil trade comes at a time when the rest of the world is increasingly becoming aware that petroleum resources must not continue to be used because of mounting threats of catastrophic global climate change. For example, the latest World Energy Outlook, 2012 report from the International Energy Agency (IEA) concluded, ‘the world is still failing to put the global energy system onto a more sustainable path’ and a startling report by the World Bank released at the recent UN Framework Convention on Climate Change global climate negotiations held a few weeks ago in Doha, Qatar, projected the destruction soon to be wrought by climate change.

The World Bank report, Turn Down the Heat, painted a picture of a world scalded by a 4°C temperature rise and warns the world is on track to a ‘4°C world’ marked by extreme heat-waves and life-threatening sea level rise. Adverse effects of global warming, such as increased agricultural disruptions and mass human migrations due to more severe and frequent droughts and floods, are ‘tilted against many of the world's poorest regions’ and likely to undermine development efforts and goals. Yes, more than a billion people still lack electricity, but building thousands of additional coal plants and oil platforms is not going to help those people in the long-run, or even in the relatively short run. So if India thinks it is ‘helping’ Africa with FDI in oil production, it should think again. Much more helpful would be increased Indian support for adaptation, mitigation, inclusive green growth and climate-smart development in Africa.

So while Indian oil companies are thrilled about recent discoveries of oil in places like Uganda and Kenya, at the same time the IEA is warning that, ‘No more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2°C goal, unless carbon capture and storage technology is widely deployed.’

Like other countries, India’s leadership has a responsibility to its own people and the world to look at the science and the data and begin taking more meaningful steps to get its own energy production in line with global ecological realities. According to a study by World Resources Institute, there are currently 1,199 coal-fired power plants under proposal around the world, according to the group. The bulk of them (76 per cent, to be exact) are in China and India. According to current projections, 50 per cent of India’s energy will still be based on coal by 2032, but this must change. Coal provides India with electricity but also contributes to more than 60 per cent of its carbon emissions, and makes India the 3rd largest contributor to greenhouse gas emissions in the world. So while India may be planning increased expansion in African oil investments, top climate scientists at NASA have meanwhile stated that the world’s dependence on coal has to stop completely by 2030 if the ecology is to be stabilised.

Starkly absent from the finance minister’s comments at the hydrocarbons conference was any serious discussion of efforts to wind down future investments in petroleum products and dramatically scale up investments in renewable energies. Prices of solar energy have fallen and are now almost on par with coal prices across the world.

Greater investment in decentralised solar and wind energy and adoption of new technology is paving the way for a global energy revolution that both India and Africa desperately need. Not only are there fast-growing new industries with potentially lucrative future markets, but the need for renewable energies in both regions provides a great opportunity for India to truly help Africa in making a transition towards a low-carbon development pathway. Petroleum companies are only capable of responding to short-term demands to increase returns on investment for their shareholders. The real responsibility lies with governments to dramatically shift their tax, regulatory and subsidies systems to disincentivise future petroleum production while incentivising investments in renewables.

Governments must also shift the levels of their public investment in R&D and technology in renewables. In 2012, Germany crossed over to using renewables for 51 per cent of its total energy use, but only achieved this remarkable goal when its leadership began scaling up these public investments 20 years earlier. Today it is imperative that India must do no less.

Internationally, India should work with Africans and other developing countries in the context of the UNFCC negotiations to demand that intellectual property rights do not block the absolutely essential transfer of technology for renewable energies to developing countries. It will not help the rest of the world if such technologies are only used in rich countries while India, China and others continue to bring down the whole planet with coal and oil consumption. As the emerging Indian social movement, India Beyond Coal, is demanding loudly, such steps as technology transfer, realigning tax, regulations and subsidies to incentivise renewables, disincentives for further petroleum production, and scaled up public investment in R&D in renewables are the only responsible courses of action for India’s leadership to take now. Anything less than this is a dead end, literally and figuratively, for India and Africa alike.

Rick Rowden is a doctoral candidate in economic studies and planning at JNU, Delhi

Research by Aman Ramrakha
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