In the last section, we had an overview of the entire north-east region and its states. We also had a glimpse of the effects of the large numbers of servicemen/ex-servicemen residing in the region and the profound impact our foreign policy has had in contributing to the present situation in the north-east. We would now look at possible options for problem resolution, starting with our foreign policy.

Duties of the State – National Security

Whether in ancient treatises on statecraft, such as the Arthashatra, or the modern concept of ‘nation state’, or our Constitution, everywhere it is stated that it is the bounden duty of the nation to ensure freedom and independence to its citizens and protect their core values and interests – this is what is implied by ‘national security’. An important ingredient of national security is the adoption of suitable policies and relations with other nations, which will contribute to security. It is however clear that we have not succeeded in this objective and are instead fighting a proxy war sponsored by the powers and hence the need to review our policy.

We need to face the fact that we currently have to survive in a unipolar world, with one superpower and a number of regional big powers, whose values and national interests may not coincide with ours. Whenever our policy has been on a collision course with them, we have reaped the consequences.

The title of this remarkable book says it all. Lt General J R Mukherjee, PVSM, AVSM, VSM (Retd) is an ‘insider’ with over twenty four years of service in our north-eastern region in various capacities ranging from a company commander to Chief of Staff, Eastern Command. In addition, he has an insider's Regimental and familial ties with the north-east. Added to this is his considerable experience in tackling insurgencies not only in our north-eastern states but also as a Corps Commander in J…K during the Kargil War. His views and recommendations, many of which are radical and thought provoking will, I am sure, bring in a freshness to what has unfortunately become a stale and repetitive discourse on the insurgencies in our north eastern states.

This book, notable for its brevity and focus on essentials, can be read at various levels. It could be a reading as an introductory book for those interested in or posted to the north-east; an aide in understanding the complex problems of each of the eight north eastern states and North Bengal; a catalyst for new initiatives and for prompting re-examination and debate on north eastern policies; and finally as a case study of how well intentioned but flawed policies generate violence.

Location, Demography and History

Nagaland astrides the Patkai and Naga hill ranges of the eastern hills. It has Arunachal and Assam to its north, Myanmar to its east, Manipur to its south and Assam to its west. It has about 20 resident tribes (14 major), conjointly called Nagas.

As per the 2001 census, the population is 1,988,636.

The approximate but pertinent tribal break-up is:

• Angami 9%,

• Ao 15%,

• Chakesang 8%,

• Chang 2%,

• Khiamniungan 2%,

• Konyak 15%,

• Lotha 7%,

• Phom 3%,

• Rengma 1.5%,

• Makware 0.5%,

• Sangtam 4%,

• Sema 13%,

• Tikhir 0.5%,

• Yimchunger 2%,

• Zeliang 2%,

• Garos 1%,

• Chir/BodoKachari/Kuki/Mikir/others 16%.

The origin of the term ‘Naga’ is obscure – it is used to identify tribes living in the Naga Hills. Nagaland has no recorded history other than some folklore documented by the British and Indian authorities who served or travelled in Nagaland such as Verrier Elwin, Lt Gen S K Pillai, PVSM (Retired), Bob Kathing, N F Suntook, a few references to them in the Ahom Chronicles, passing references in Hindu epics, and aspects of folklore related by people in Nagaland. Folklore and anthropological studies indicate the tribes migrated from the general area of Yunnan, before the birth of Christ. Each of these tribes settled into separate areas in the Naga Hills and has throughout been antagonistic to each other.

15 years after developing countries embarked on energy sector reform and liberalization, the promise of quick energy market transformation to attract private sector has proven illusory even in countries such as Argentina, Brazil and East Asian miracle countries. Since the late 1980s, developing countries ranging from Argentina in Latin America and China and India in Asia, to countries in Sub-Saharan Africa (SSA), launched energy sector reform as part of their economic liberalization program to attract private investment in their energy sectors. Attempted reform measures in the energy sector include liberalizing energy prices, establishing independent and transparent regulatory institutions, restructuring/ commercialization/ privatization and creating an environment to attract private investment in energy.

As of 2005, developing countries continue to face energy shortages and power black-outs persist. As the demand for energy increased, non-OPEC net oil exporters such as China turned to become net oil importer. There is little reduction in the number of over 2 billion people, accounting for over 40 per cent of the population in the developing world, who lack access to commercial energy. Even with slower rates of growth, the world's population will increase from 6 billion to 8 billion in 2050. The share of population in developing regions will increase from 77 per cent today to 85 per cent in 2030 and to over 90 per cent by 2050.

Taking into consideration the lessons of energy sector reform experience since the 1990s and the challenges of energy for development faced by developing countries at the global and national level discussed in earlier chapters, what is the way forward? Three factors influence the way forward for energy future. First, a new era of global energy is emerging in the initial years of the twenty-first century heralded by profound changes in the economic and political systems and policies of a significant part of the world. Second, energy security concerns linked with geopolitics are shaping energy strategies of oil importing countries. Finally, the development paradigm shift envisaged in the energy sector in the 1990s to privatization and free market in energy for development is now being replaced by the shift toward public- private partnership (PPP). It is now clear to all energy stakeholders, governments of developing and developed countries, multilateral development and financial institutions and energy industry that there cannot be strong private sector involvement in energy in developing countries without an effective and strong government.

Given the disconnect between expectations and realities of energy sector reform from the perspective of various energy stakeholders discussed in earlier chapters, key questions about progress could be raised from the perspective of these stakeholders. For developing countries the way forward raises the issue of how policy principles can be translated into effective implementation by improving economic governance and building the required institutions to modernize the state.

The global energy industry entered the year 2005 with rising oil prices, uncertainty about future trends in oil prices, rising shares of developing countries in the world energy consumption contributing to continued domination of use of fossil fuels in the energy mix and serious concerns about energy security.

Globalization and continued liberalization of international trade and investment since the 1990s, the political and economic transformation of Eastern Europe and the Former Soviet Union (FSU) and the events since 2001 are changing the global energy industry in the new millennium. The fall of the Berlin Wall in 1989 signalled the failure of the command and control economy. Most of the world recognized the need for the changing role of the state from being the owner to the facilitator of business. For the first time many world economies embarked on the path of liberalization by moving toward the market by opening up trade, by deregulating their economies and by privatizing public enterprises.

The waves of economic globalization and continued liberalization of international trade and investment are most evident in the global energy industry. All segments of the global energy industry from exploration and production (E&P), transportation, refining and marketing to the power utility sector, are being shaped since the 1990s by the emerging trends and influences of the new market dynamics. Given that developing countries started to reform their energy sectors modelled on developed countries since the 1990s, the changing international energy industry, (including the ongoing energy market reforms in OECD countries) has implications for developing countries.

Introduction

After 15 years of energy sector reform in OIDC it is now time to assess developing countries' record based on the established guiding principles of energy pricing, regulation, commercialization/corporatization and privatization and private investment1 and address the question: whither energy market transition in developing countries?

This chapter first presents the overall status of energy sector reform in developing countries. This is followed by discussions on the progress to date of four specific reform elements of pricing, regulation, commercialization/privatization and financial reform and private investment in energy. Detailed discussions of selected case studies from East Asia, South Asia, Africa, the Middle East and Latin America to identify issues and lessons to be learned will be undertaken in Chapter 5.

Overall status of energy sector reform in developing countries

As of 2005, over 85 developing countries made energy policy announcements that they have launched energy sector reforms. However, at the global level it is not clear what elements of the four reform components are addressed, what steps have been taken to liberalize energy prices, to regulate energy monopoly segments, to commercialize energy operations and finally to attract private investment to increase access to energy supplies for development.

15 years after the beginning of energy sector reform in more than 85 developing countries, the picture is mixed. In the 1990s, at the top of the reform ladder were a few countries like Argentina, Jordan, China, Malaysia, Philippines and Thailand seriously committed to the reform process.

Introduction

In the 1990s many developing countries faced with the inefficiencies of public sector energy enterprises and the adverse impact of increasing energy subsidies on their budget, embarked upon an extensive program of energy sector reform within the framework of macroeconomic reform and liberalization. Developing countries expected that the reforming of the energy sector by reversing the pre-1990s command and control strategy of monopoly of public energy enterprises would promote competition, improve energy enterprise efficiency and attract private investment to increase energy supplies for development. While the number of countries on the reform path increased in the 1990s, not all of them were equally successful. At one end of the reform spectrum, countries such as China and Argentina were considered to be successful reformers. Democratic Argentina, embracing a US style free market was considered (until the economic crisis that started in 2001) to have successfully completed its energy sector reform and was put forward as a model and the best practice to other developing countries embarking on a similar reform process in the 1990s. Other countries in East Asia seemed to be succeeding until before the 1998 crisis and are now trying to get back into the reform process. Many other countries at the other end of the spectrum in SSA burdened by economic and political difficulties continue to struggle along with little success.

As discussed in Chapter 4, the review of energy sector reform and liberalization in developing countries shows mixed performances with interregional and inter-energy sub-sector variations.

This chapter synthesizes the lessons from the review of experience with energy sector reform in developing countries. The lessons discussed below enable greater understanding of challenges of energy for development at the global and national levels in the twenty-first century. They are examined later in this chapter.

Energy sector reform: 1990–2005: Lessons

Chapters 4–6 and the country studies from Asia, Latin America, the Middle East and SSA show that each area of energy policy reform—pricing, regulation, commercialization and privatization/private investment is complex as they are interlinked within energy sector and between energy and other sectors and macroeconomic fundamentals. Nonetheless, three cross-cutting lessons emerge.

First, energy sector reforms produced mixed and modest gains. Second. experience from case study situations shows the importance of effective institutions as the key to reform implementation.

And third, the expectations of various energy stakeholders in the energy market about risk-reward trade-off play a crucial role in the success or failure of reforms and the future course of the reform path.

LESSON 1: Energy sector reforms produced mixed and modest gains

Energy sector reform and liberalization was launched in the 1990s to improve sector performance and to attract investment to increase efficient energy for development in developing countries. The conventional wisdom was that moving to market pricing of energy, setting up regulatory institutions to create an environment for competition and private investment and restructuring of energy enterprises by privatization/private investment would improve efficiency and increase access to energy supply in developing countries.

Oil price increases of the 1970s, the debt problems of the 1980s, the globalization wave of the 1990s and the associated changing global energy industry have had profound effects on reforming and financing investment in the energy sector in developing countries.

This chapter examines the changing patterns of financing energy in developing countries in the pre and post 1990s. The chapter discusses the steps developing countries were required to take to reform and liberalize their energy sectors to integrate with 1990s globalization and attract finance for energy for development.

Energy financing in the pre-1990s period

In the pre-1990s period governments traditionally intervened heavily in the energy sector often through ownership of energy companies. During the 1960s and the early 1970s, external capital financed only a small share of total energy investment in developing oil importing countries. As a result the government budget and government sponsored borrowing were often the main sources of financing for energy investment, especially for coal, natural gas and electricity projects. With rising oil prices in the 1970s, two major shifts in international capital impacting financing energy have occurred. First is the shift from equity to debt and the second is from official to private finance.

Rising debt burden

The growth of borrowing since 1973 produced a corresponding rise in external debt. Between 1970 and 1984 the outstanding medium and long-term debt of developing countries as recorded in the WB Debtor Reporting System (DRS) increased from US $68 billion to US $686 billion, an average increase of 16.7 per cent a year.

This book studies the increase of access to affordable, efficient and reliable energy for development in the twenty-first century with special reference to non-OPEC developing countries. In doing so the book evaluates energy sector reform and liberalization experience since the 1990s in non-OPEC developing countries and the impact of events since 2001 (including the spiking of crude oil prices to US $60 barrel in June 2005).

Over 85 net Oil Importing Developing Countries (OIDC) began to reform their economies in some form or other in the 1990s. The guiding principles of energy sector reform in developing countries were part of the overall 1990s globalization framework of market transition for developing countries widely known as the ‘Washington Consensus’. It called for trade and financial liberalization, privatization, deregulation, openness to Foreign Direct Investment (FDI), a competitive exchange rate, fiscal discipline, lower taxes and smaller government.

In spite of the 1990s wave of globalization that prompted developing countries to liberalize and privatize their energy industry to finance the required investment for generating energy supplies for development, it is now clear that only a handful of developing countries were able to attract capital and grow rapidly. Also, in the initial years of the twenty-first century energy black-outs due to shortages of energy supplies for fuel development persist.