Monday, June 28, 2004

The policy-execution disconnect - N.Vittal

Opinion in The Hindu

There is an interesting article by N.Vittal, ex-bureaucrat, on where governments falter, despite coming up with - at least in their own minds - people-friendly policies.

N.Vittal concludes that the problem is in poor implementation, and talks about four specific points that policy makers should think about.
  1. Bureaucrats at the top have a fairly clear idea of what needs to be implemented. However down the line, those in the field have very poor idea and end up executing something by the letter rather than the spirit. If the 'letter' is messy, the implementation is messy as well. So problem number one is improper communication of the vision down the line.
  2. Problem number two is, as anyone would have guessed, corruption. This is something that we have to mostly put up with and hope to keep chipping it away and reduce the scale considerably.
  3. Top civil servants not going to the field to see for themselves where the problem is. This is closely related to problem one.
  4. Lack of accountability. Public servants are rarely prosecuted, and anti-corruption laws are poorly implemented. Hence there is no incentive for anyone to be honest and accountable at the implementation level.
Now what can be done?

Dealing with corruption is a major issue in itself. The Prime Minister can perhaps take up accountability and de-centralisation as priorities. Otherwise, whatever policies his government comes up with will always be poorly implemented. Key part of decentralisation is giving power to local bodies to implement certain important civic functions - such as primary and secondary education, quality primary healthcare and locality development. There should be strong laws to remove the control state governments have over the local bodies. Central government should ensure distribution of funds to local bodies directly. There will be corruption, as there has always been, but local bodies are likely to be more responsive to local needs than centralised corruption.

The next thing that can be done is to create an effective administrative model where the top civil servants meet staff at the implementation level on a regular basis. Now, this could be easier said than done. Some of the retired bureaucrats should come up with a paper on specific examples of where things are going wrong in the administration and how it can be improved.

Saturday, June 26, 2004

Telecom: Consolidation in the telecom market

News from The Hindu

The latest mega acquisition in the mobile telecom space is Hutch acquiring Aircel (Chennai and Tamil Nadu circles) for supposedly Rs. 1,600 crores.

Since the liberalisation of the mobile telecom space in terms of mergers and acquisitions, there have been a few smaller deals. Bharti acquired Hexacom in Rajasthan circle and Idea Cellular acquired Escotel in Uttar Pradesh West, Haryana and Kerala. Aircel itself acquired RPC in Chennai and thereby enhanced its value, when Bharti, Idea and Hutch aggressively tried to buy Aircel. In the end Hutch has won, but at a fairly high premium.

The telecom space is getting clearer now with these acquisitions. The dominant players in the GSM based mobile delivery are Bharti's AirTel, Hutch and Idea, with Govt. controlled BSNL/MTNL. In the CDMA space, Reliance and Tata Teleservices rule. These six together will be fighting a pitched battle for the supremacy of the mobile space.

They are only two other players outside the above six who still continue: BPL in Mumbai, Maharashtra, Tamil Nadu and Kerala circles; Spice Telecom in Karnataka and Punjab circles. BPL groups mobile operation has been loss making (despite their Mumbai circle operation), and Spice may also not be making any profits. They would do well to quit as soon as they can if they get a good price.

Even amongst the six dominant players, Idea will be hamstrung by Tata group's involvement who are aggressively pushing their CDMA based Tala Teleservices, while BSNL/MTNL will always struggle with Govt. decision making process and the inherent delays in that.

Hutch may struggle a bit from its pure play mobile operator model. Reliance seems to have clearly decided on an organic growth model.

Issues to look at in future:

- IPO of Hutch
- Idea's future plans and whether Birlas and Tatas will exit. Idea is also planning an IPO
- Reliance's growth plans. Reliance Infocomm may look at a listing as well in future
- Tata Teleservices - VSNL - Tata Teleservices Maharashtra merger?
- Bharti's acquisition plans

Wednesday, June 23, 2004

Opinion pieces in The Business Line and Business Standard

There are some thought provoking opinion pieces in The Business Line and Business Standard today. Worth reading.

Sharad Joshi's advice to Sharad Pawar, Union Minister for Food and Agriculture, asking Pawar to initiate reforms in the agricutural marketing system and restore property rights for the farmers.

KP Prabhakaran Nair on Exporting food, losing water, where he says with poor productivity in India, exporting of food out of India also implies considerable 'export' of water resources as well.

S Padmanabhan discusses the power crisis in India and suggests ways by which the power sector can be made investor friendly. Discusses in details steps to be taken by the state and central government in terms of guarantees they have given in the past, and asks the governments to stick to the guarantees.

A K Bhattacharya discusses what the Government should do with Public Sector companies. Given that privatising them is not going to happen, the least the Government should do is to get a strong management at the top.

Michael Pinto on why the states should not be investing in sectors which are already well served by private capital. Shows the example of Shipping Corporation of India, where the decision to buy a ship takes more than 2 years, whereas in a private company all it takes is a single board meeting. Despite this, SCI is profitable, at least as of now. But Pinto asks whether it is worthwhile for the state to park its funds in SCI when it could be using this money elsewhere - in education and healthcare. [Couldn't find the URL for this article on the web.]

Power: Nuclear power sector may be opened up for private participation

News from The Business Line

Changes to Atomic Energy Act awaits Cabinet nod, which if accepted and passed in the Parliament would result in private participation - both Indian and Foreign - in nuclear power generation, according to Mr. SK Jain, Chairman and Managing Director, Nuclear Power Corporation of India Ltd (NPCIL).

Even a 100% private participation in building nuclear power plants could be a reality says Mr. Jain.

However, even if such amendments to Atomic Energy Act are made, private investment in nuclear power plants may not be easy. Invariably organizations and individuals have shown serious resistance to nuclear power plants coming up in their vicinity. Currently NPCIL operates the following power stations:
  • Tarapur Atomic Power Station
  • Rajasthan Atomic Power Station
  • Madras Atomic Power Station
  • Narora Atomic Power Station
  • Kakrapar Atomic Power Station
  • Kaiga Atomic Power Station
The project at Kudankulam is probably almost completed and ready.

To my knowledge, there were (and are) opposition to plants constructed at Kalpakkam, Chennai (Madras); Kaiga and Kudankulam. Private investors will be worried about the cost of delays, since their capital gets locked up.

Unless NPCIL comes up with a better model, they won;t attract private participation in nuclear power plants in India.

Previous item: Power: Tata Power gets trading license

Tuesday, June 15, 2004

Power: Tata Power gets trading license

News from The Hindu

Tata Power has set up a subsidiary called Tata Power Trading Company Ltd, which has obtained power trading license from Central Electricity Regulatory Commission (CERC), and will indulge in trading of surplus power of State electricity boards, captive power plants and generating companies as also the power output of merchant power plants.

Power Trading Corporation (PTC), a company promoted by NTPC and other state and central power utilities is already in the business of trading in power, has also applied to CERC for inter-state trading license. Reliance Energy is also expected to get into this area, as could be a few other private players.

Previous item: Power: No further review of Electricity Act 2003, says PM Sayeed

Power: No further review of Electricity Act 2003, says PM Sayeed

Interview from The Financial Express

PM Sayeed says the concerns expressed by UPA partners regarding the Electricity Act 2003 has been taken care of, by merely extending the unbundling deadline by an year. PM Sayeed says: "there is no other clause under the Act on which a review has been sought. At least, I have not been informed of any further change, either by my party or the allies." The implication is that there is nothing more in it which is of concern to the partners including the left parties. Let us see how the Left Parties react to this.

The minister also talks of setting up a nodal agency for rural electrification called Rural Electrification Corporation. Reiterating his earlier statement he said: "Subsidies have to be funded from by the states from their own funds."

Previous item: Power: Andhra Pradesh Govt. wants to review power purchase agreements

Power: Andhra Pradesh Govt. wants to review power purchase agreements

News from The Financial Express

First of, after winning the elections, Chief Minister YSR Reddy writes off electricity dues of the farmers, and announces free power. Even before his nomination as Prime Minister, Manmohan Singh says he doesn't like offering free power by any state. Power Minister PM Sayeed announces that free power is okay as long as the state government accounts for it in its budget and finds the necessary revenue to pay for the same from its pocket.

So now YSR Reddy has to find a way of covering this huge gap. So he goes after the private power companies that produce electricity in the state and wants to renegotiate the power purchase agreements. Under the existing arrangement, power companies are charging Aptransco, the state EB, Rs. 1.10 per unit of power sold to it. YSR Reddy says if the cost of this acquisition is brought to 73-78 paise, the money saved would be sufficient to cover up for the free power being offered to the farmers.

Naturally, the private power generators are annoyed, and the financial institutions that have lent money to these entities are also annoyed. Neyveli Lignite Corporation (NLC), a public sector company, which sells bulk of its power to Tamil Nadu and Andhra Pradesh state electricity distribution entities (the two most profligate states - that have announced free power to farmers) is worried that the free power move by these two states will affect its own profitability. NLC, a public sector company, gets around Rs. 1.70-1.80 per unit on an average! A full Rs. 1 over what YSR Reddy wants to pay the private companies. Talk of private sector capitalist pigs robbing the poor!

There should be a regulator for the whole of the country who regulates the cost of per unit. Leaving it to the state level regulatory commission and arming these SERCs with too much powers will result in chaos. In fact, in the aftermath of Electricty Act, 2003, if a particular state is unwilling to pay a decent price, the power generator could sell the entire power he generates to another state that has a more prudent administrative model and is willing to pay the right price.

There are comparisons being made with Dhabol Power Corporation in Maharashtra (that Enron company). There is simply no comparison. Maharashtra State Electricity Board (MSEB) had enetered into a poor contract whereby the cost per unit was upwards of Rs. 7! That is plain cheating on the part of DPC or poor thinking on the part of MSEB while entering into the contract. MSEB was incurring a cost of about Rs. 2.80 in purchasing power from other companies owned by State or Central Government.

Compared to that, the price at which the private companies offer power to the Aptransco is fantastic. In fact, Reliance Energy, another much maligned private player, has agreed to sell power to Aptransco at a mere Rs. 0.98 per unit. YSR Reddy wants to push the price even further down!

Previous item: Power: PM Sayeed's wish list

Monday, June 14, 2004

Commerce: WTO Panel report on Shrimp dumping allegation in US by India delayed

India exports about $1.5 billion worth of shrimp to the rest of the world. Of this, close to $425 million exports happen to USA. India's exports to USA has risen tremondously over the last four years. It was $255.93 million during 2000-01, $299.05 million during 2001-02 and $424.51 million during 2002-03 [Source: The Financial Express]. This has been the case despite a significant drop in price per kg after the 9/11 bombing.

The largest import to USA happened from Thailand at $1.1 billion in 2002. Some of the countries importing shrimp to USA are Thailand, China, Vietnam, India, Brazil and Ecuador. Meanwhile USA based shrimp farmers have formed an association called The Southern Shrimp Alliance and have moved the Department of Commerce in USA to initiate proceedings against the importing countries, on anti-dumping charges. The Southern Shrimp Alliance has claimed that their value of US-harvested shrimp was cut in half - from $1.25 billion in 2000 to $560 million in 2002 - with a 40% drop in employment at Southern shrimp plants. Meanwhile, it says imports from the six targeted countries increased from 466 million pounds in 2000 to 780 million pounds in 2003. [Source: The CalTrade Report]

US Dept. of Commerce initiated preliminary hearing starting January 2004, but its report is still not out. Indian exporters, in the meanwhile, have stopped exporting to USA as they claim they will be unable to pay the 80-110% duty that may be imposed on them. The Seafood Exporters Association of India (SEAI) has hired a US based law firm (Garvey Schubert Barer) to fight the case. The report from WTO on this case is delayed causing considerable damage to the shrimp farmers and exporters in India. See the detailed story on The Financial Express.

A detailed chronological presentation leading up to the anti-dumping proceedings is available at Shrimp News. However this stops at around January 2004.

Related link: Marine Products Export Development Authority, India

Previous item: Commerce: Exports rise, but imports rise even more

Power: PM Sayeed's wish list

From The Financial Express

Power Minister PM Sayeed has listed his wishes to the Finance Minister in a letter dated 7th June 2004, in the run up to the budget making process. They are
  1. Complete village electrification by the year 2007, and reaching electricity to all 7.8 crore rural households by 2009.
  2. Since rural electricity delivery would cost significant money, increase of subsidy from 40% to 90% to rural consumers
  3. To increase private investment in power generation, there is no sufficient risk capital available. To enable this setting up a India Power Fund, managed by Power Finance Corporation. The quantum of fund needed to kickstart this fund is Rs. 2,000 crores, and Sayeed would want the Finance Minister to offer Rs. 1,000 crores for this purpose. Sayeed expects this fund to be of the size Rs. 7,000 crores by 2010.
  4. Relaxing the exposure limit set by RBI and IRDA on Banks, insurance companies and financial institutions on investing in power sector. Sayeed feels the current norms constrain flow of funds from the above bodies into this sector.
Previous item: Power: Sucheta Dalal on problems with privatising power distribution

Power: Sucheta Dalal on problems with privatising power distribution

There is a very good article by Sucheta Dalal in The Financial Express.

Recounting the experience in USA where unscrupulous power distribution companies (starting with Enron, but not restricted to only them), she shows how these companies manipulated the power distribution and raken in excess cash from poor, unsuspecting people.

She also shows some problems in Mumbai where the power distribution is managed by Reliance Energy and Tata Power.

As of now, power distribution is in private hands only in Mumbai and has just recently been introduced in Delhi. Reports indicate that things have considerably improved in Delhi, though there have been several complaints as well in terms of billing discrepancies and collection methods as well as dealing with complaints.

A very strong regulator is required to manage the prices when private power distribution companies come into the picture. More competition would/should help in keeping off illegal operation by power distributors as in the case of USA.

Previous item: Power: Neyveli Lignite Corporation declares its annual result

Power: Neyveli Lignite Corporation declares its annual result

News from The Hindu: One | Two

NLC has shown increased turnover and marginal decrease in profits in 2003-04 over the previous year. turnover for the year 2003-04 was Rs 2,807.54 crores comapred to Rs. 2,681.48 crores in 2002-03. The profit for 2003-04 was Rs. 1,143.51 crores compared to Rs. 1,148.40 crore in 2002-03.

NLC produced 205.57 lakh tonnes of lignite from its opencast mines, up from 186.24 lakh tonnes in the previous year. It generated 16.39 billion units of gross power, compared to 14.97 billion units the previous year.

Some key points from the press conference by Chairman of NLC, S. Jayaraman:
  • The Rs. 2,161.28-crore 4.5-million tonne Mine II expansion linked to the Rs. 2,030.78 crore thermal station II expansion is awaiting Government nod.
  • The 2.1-million tonne Rajasthan mine-cum-power project (2X125MW) costing Rs. 1,347.76 crores is awaiting nod from the Public Investment Board.
  • Land had already been identified for the joint venture 1,000 MW coal-based power project in Tuticorin, with TNEB. Once TNEB gets TN Govt. approval, the project will start.
  • NLC is awaiting sanction for the 4x500 MW coal-based power project in Ib Valley in Orissa.
  • NLC is willing to take up the Jayamkondan lignite-based power project (1,000 MW) which is delayed because the private players are asking for payment security mechanism from TNEB.
Previous item: Power: Tamil Nadu gets extension for unbundling its SEB

Friday, June 11, 2004

Power: Tamil Nadu gets extension for unbundling its SEB

Today's The Hindu reports that Tamil Nadu sought, and received extension by an year to unbundle the generation, transmission and distribution functions performed by Tamil Nadu State Electricity Board. Quite a few states have already asked for and received this kind of extension.

Subsequent to the new government's stand on reviewing Electricity Act, 2003, extensions are being granted to all and sundry.

Electricity Act envisaged splitting transmission from generation and distribution. It allows anyone to generate power without having to obtain any license whatsoever - provided they conform to the local norms for running any industry, such as zonal norms, pollution control norms, labour rules and so on.

I went to a talk last week by AA Sadagopan, Member (Generation), Tamil Nadu Electricity Board on the changes expected at TNEB brought in by Electricity Act, 2003. This was a technical talk organized by IEEE. As such, there was not much of scope asking certain political questions.

I did ask him what the gap was between the current demand in power and the supply that TNEB is managing. To my surprise Mr. Sadagopan answered that TNEB is perfectly matching the demand and the supply and that in the last four years there has been no scheduled load shedding or power cut. He also answered that with the new projects coming up (Koodangulam in TN, and others in neighbouring state), we will be able to manage the future demand as well.

Can any of you living in Tamil Nadu accept this statement? I know for a fact that in Srirangam, where my parents live, there is a continuous 2 hour power cut happening every day. This is not something caused by a faulty line being repaired. Sadagopan pointed out that in Chennai the power availability is over 99.8%. Even this sounds unbelievable to me.

Sadagopan's talk however was useful in understanding several issues, such as the various forms and amount of power produced in the state, the central share we are getting to our grid etc. Someone in the audience (an ex-member of the TNEB) raised a point about Tamil Nadu generating about 1300 MW of Wind power whereas it should not be more than 900 MW or so (apparently a thumb rule of not more than 10% of the grid capacity should be in the form of wind power), and wanted to know if we are recklessly allowing wind power installations south of Tamil Nadu. This sounded strange to me... The whole idea, I thought, was that we are short of power and desperate for more power, and hence the Electricity Act 2003 envisages liberalising the sector, allowing more private investment and more efficiency to be brought in to the system.

I had also been to an interesting talk given by Mr. L.V.Krishnan, Retired Director of Safety at Kalpakkam Atomic Power Plant, about three weeks back. Some of the key indicators presented during that talk was:
  • In the year 2000, India's per capita energy consumption was 500 kgOE. The comparable figures for China was 900 kgOE while the world average was 1,600 kgOE. Thus India is way below in the energy average consumed. Energy consumed is a reasonable indicator for the quality of living and economic status. If India is expecting to grow, then our energy requirements will have to at least double over the next few years.
  • Of this 500 kgOE we consume per capita, 330 kgOE comes from commercial sources, while the remaining 170 kgOE comes from fuel wood, animal dung and crop residue. Of the comemrcial sources, 52% comes from Coal powered thermal plants, 34% from oil, 7.5% from Gas, 4.5% from hydro and 1.4% from nuclear power. Wind power constitutes 0.6% only.
  • At the current usage levels, our coal reserves will come for another 240 years. If the power production is increased three-fold, the reserves will last us only for another 80 years. Similarly the oil reserves we have access to will most likely come for only another 22 years. Natural gas reserves may come for only another 22 years as well.
  • World oil production is most likely to peak immediately after 2020. At that time, the cost of the oil will start shooting up rapidly, and only powerful countries in the world may have access to oil.
  • Hydro electric power - there is very little scope for massive projects in the thickly populated regions. IOf the new projects identified (of totoal capacity 150,000 MW), one third of this lies in the state of Arunachal Pradesh (that is how strategic this state is for us now!) and even to tap this and build the necessary structures, we need hydromet data from China. The mini/micro hydel projects have only a potential of about 7,000-10,000 MW.
  • The conclusion by LV Krishnan was that nuclear power is the only hope going forward for India. Despite the safety fears that people may have, Nuclear plants in India are more safe than any other industry. He said Nuclear industry is the only industry to have an International set of standards for safety.
Previous item: Power: Delay in reforms

Tuesday, June 08, 2004

Publishing: International Herald Tribune latest

News from The Hindu

I & B Ministry will be filing caveats in the high courts of Andhra Pradesh and Delhi to prevent the publishers of the Indian version of International Herald Tribune from getting any ex parte orders. I & B Ministry has also served a notice to IHT in Hong Kong and used Indian Consul-General in Hong Kong to serve the notice, asking IHT to stop the publication immediately.

Shouldn't the I & B Ministry be talking to Midram Publications in Hyderabad rather than talking to someone in Hong Kong?

Previous: Publishing: When the International Herald Tribune stumped India...

Policy: From CMP to President's address, what is in and what is out

Full text of the President's address to the Parliament is available here. All newspaper reports indicate that this is mostly based on the CMP - of course - that has been worked out by UPA. [The full text of President's address is also available The Hindu.]

I have not yet fully read through the address. I hope to read through the text carefully and compare where it differs from CMP if at all.

The next step is to carefully follow whether the issues talked about here are implemented properly. And even if implemented, will it help the nation achieve its goals of consistent 8% economic growth, poverty alleviation, and lifestyle improvement for majority of the people.

Saturday, June 05, 2004

Publishing: When the International Herald Tribune stumped India...

Read The Hindu: One | Two. For a slightly different version, read Business Standard.

Since May 31, 2004 a newspaper with the title International Herald Tribune started publishing out of India, from Hyderabad. It was printed from Deccan Chronicle's press on behalf of an Indian company Midram Publications Private Limited, owned by Deccan Chronicle's owner T. Venkattram Reddy. The paper carried the editor's name as MJ Akbar.

The Ministry of Information and Broadcasting was caught unawares. Only when newspapers started reporting this fact did they wake up to the issue.

The Hindu seems to indicate that this type of publication is a violation of the existing laws in the country. According to the 1955 Cabinet Resolution, says The Hindu, "foreign newspapers and periodicals which dealt mainly with news and current affairs should not be allowed to bring out editions in India." In 2002, NDA Government allowed 26% equity stake in news media and upto 100% in entertainment media.

The Hindu further states
As for syndication laws, the Government in 2002 revised the guidelines to mandate that the total material so procured and printed in an issue of an Indian publication should not exceed 7.5 per cent of the total printed area of that issue. Further, the masthead of the content provider could not be used.
However, the Business Standard report indicates that the whole operation has been planned very meticulously.
  1. The company that is publishing the Indian version is a company regsitered in India, and fully owned by Indians.
  2. The name of the paper has been registered with the Registrar of Newspapers of India.
  3. To avoid copyright and trademark violations, the publishing company in India has obtained no-objection certificate from The International Herald Tribune.
  4. Only 7.5% of the content is sourced from The International Herald Tribune. The rest from various news agencies.
It is unclear what the masthead looks like. Having taken so much care, they would have ensured that the masthead is not the same as the one used internationally.

It appears from The Hindu news item that the I & B ministry officials are asking the IHT to withdraw from this arrangement. However, I cannot see how this is enforceable. One can also see the shades of reporting standards not being up to the mark: The Hindu resists foreign investment in print media, Business Standard welcomes it, and has sold 26% equity in its company to the London based The Financial Times.

Previous item: Broadcasting: Interoperability of STBs not viable, say manufacturers

Parliament: Amendments to the Representation of the People Act, 1951 in bad faith

Ex-Rajya Sabha MP Kuldip Nayar has gone to the Supreme Court against the amendments made to the Representation of the People Act, 1951 earlier that did away with the domicile requirement for candidates contesting the Rajya Sabha elections, as well as the open ballot system introduced replacing the earlier secret ballot system.

It appears that except for the communists every one in the Lok Sabha voted for these amendments. This shows how honesty today remains only with the communists.

The Supreme Court has issued an interim order restraining the Election Commission from issuing the notification to fill 65 vacancies that have arisen in the Rajya Sabha.

Read The Hindu

Kuldip Nayar has very ably argued that rmeoval of the domicile status changes the federal structure of the constitution. We already know how the Prime Minister Manmohan Singh (despite all his credentials) has been brought in via Assam to the Rajya Sabha.

There was an unwritten rule that the Prime Minister was always an an elected representative from the Lok Sabha. This has changed for the first time with Manmohan Singh. It is still possible that Manmohan Singh may resign from the Lok Sabha to contest elections from a friendly constituency. But worse is the way Rajya Sabha being abused to bring in powerful leaders who cannot however get people's mandate, and have only recently lost in elections. The current Home Minister Shivraj Patil (lost in Latur), Power Minister PM Sayeed (lost in Lakshadweep) and Health Minister Anbumani (who didn't stand in the Lok Sabha elections at all) have to now get through via Rajya Sabha. As it is, starting from the Prime Minister Manmohan Singh, there are several Rajya Sabha MPs in the coucil of ministers: Arjun Singh, Ghulam Nabi Azad, Natwar Singh, HR Bhardwaj, Prem Chand Gupta, Suresh Pachouri, Dasari Narayana Rao, Rahman Khan, MV Rajasekharan and Prithviraj Chavan. The Minister for Civil Aviation Praful Patel lost in Bhandara constituency, but is a Rajya Sabha member as well currently. Laloo Prasad Yadav, on the other hand, is at present a Rajya Sabha member, and has also won in two Lok Sabha constituencies! A few other Rajya Sabha members have stood in Lok Sabha constituencies and won and will be vacating their Rajya Sabha seats. Mulayam Singh Yadav who wants to continue as Chief Minister of Uttar Pradesh is resigning his Lok Sabha seat as well.

While it is perfectly acceptable to have Rajya Sabha members in the coucil of ministers - in fact desirable too - all attempts should be made to ensure that they truly represent their constituents. Manmohan Singh cannot be truly said to represent Assam. Before the amendment to the Representation of the People Act, quite a bit of spade work had to be done to get un-winnable leaders to register a home address in states where their parties have significant MLAs. Manmohan Singh apparently has a home address in Assam!

Now, with the amendment, this sham is done away with. You can live wherever you want and can get elected to the Rajya Sabha representing a specific state. Perhaps this is why the UPA has happily inducted Shivraj Patil, PM Sayeed and Anbumani into the coucil of ministers. Anbumani at least will be coming via Tamil Nadu Assembly. PM Sayeed will have to be accomodated from some other state.

BJP is just as much a culprit. Its top leaders Venkaiah Naidu, Jaswant Singh and Arun Shourie will be seeking Rajya Sabha seats from some safe states, about which they may know very little. So are several other aspirants to MP posts. This kind of abuse of course happens only with the two major National Parties. We hope the Supreme Court comes down heavily on this amendment and restores the original character.

The open ballot system was something I welcomed when it was announced. I can now see the problems in this system. However, I am not overly worried if this aspect of the amendment is either retained or struck away.

Newspapers report that this stay order will result in constitutional crisis. I do not think so. The non-members of the Parliament have six months to elect themselves in. If they are seen as that important, their respective parties can find some safe Lok Sabha seats and have them vacated for these leaders stand in the elections. If not, six months down the line, these folks can resign, and find a proper way of entering either the Lok Sabha or Rajya Sabha and then resume their ministership. Surely this is not a constitutional crisis? It would have been the case had it been the Prime Minister who was caught in such a scenario.

Power: Delay in reforms

Editorial in The Hindu, Article from Financial Express

As per the Electricity Act 2003, the state electricity boards (SEBs) were to be unbundled by 10th June 2004. Now an extension of one year has been granted to Himachal Pradesh, Meghalaya and West Bengal, while an extension of six months have been granted to Maharashtra, Punjab and Chhattisgarh. Two months of extension has been granted to Assam. Kerala and Tamil Nadu have requested for a one-year extension while Bihar and Jharkhand are expected to ask for the extension as well, and in all likelihood these extensions will be granted.

Besides these extensions, the CMP even talks about reviewing the Electricity Act 2003 itself.

What was the idea behind unbundling of the state electricity boards into power generation entities and power distribution entities? Poor administration of state electricity boards and massive subsidies resulted in a loss of over Rs. 26,000 crores across all SEBs. Private power generation companies refused to set up shop in several states fearing that the state electricity boards will not have sufficient monies to pay them. The state governments by themselves didn't have sufficient money to invest further in generating more power. The demand for power has however been on the rise - both the domestic demand and the industrial demand, resulting in a massive gap between demand and supply.

This resulted in the previous NDA Government to bring in the Electricity Act, 2003. The salient features of this act are:
  • Each state will set up a State Electricity Regulatory Commission for determining the tariff structure for that state
  • Unbundle the Electricity Board to delink transmission and distribution from power generation
  • Meter power consumption by all users - including the farmers
  • Reimburse all subsidies incurred by the Board so that its finances are strengthened
This would have resulted in private power players showing enough confidence in entering the state for increased production of electricity in those respective states. However, the current extensions as well as the fear of 'reviewing' the act is making the private investments in power sector jittery.

Though Chidambaram has talked about financial closure of close to 3,700 MW capacity, and another 6,867 MW in the pipeline, unless the Central Government takes a strong stance on Power reforms, none of the new power projects will fructify.

While it is understandable that Farmers need to be given subsidy, it is difficult to justify providing subsidies to regular domestic users, as has been done by Tamil Nadu Government recently. The people in the state as well as the opposition parties hail this decision. However they do not realise how damaging the consequences will be. There will be continuing power cuts, making the life of common man miserable. Several villages will never ever be electrified. Industrial production will take a serious hit, resulting in less creation of jobs. The so called IT revolution will simply not happen as fast as it could, as electricity is the most basic requirement for the computer to function!

I live in a comfortable locality in Chennai (Gopalapuram). There is hardly any power cut and with the help of inverters and batteries, we handle any power cut quite comfortably. However the situation across the state is pitiable. There are parts of the state where there is a daily power cut of more about 3-4 hours. Some more places only get electricity for about 4-6 hours. And as I remarked earlier, there are several villages with no power supply whatsoever.

All because the people seemingly want cheap and unsustainable electricity and the irresponsible government is willing to mollycoddle its people.

Previous item: Power: Construction of Prototype Fast Breeder Reactor begins in Kalpakkam

Friday, June 04, 2004

Oil & Gas: Who should bear the cost of oil price increase?

The petroleum minister Mani Shankar Aiyar has said the Government will not be revising the price of petrol and diesel during the current fortnight. OPEC had yesterday agreed to increase the quota of production by another 2 million barrels per day. But that did not allay the fears in the International oil markets. The price of the crude shot up to $42, because of terror premium.

There was a discussion in NDTV, involving Nilotpal Basu of CPI (M) and RK Pachauri, Director General of TERI. Pachauri was of the opinion that the oil companies in India are already too late and should be revising the rates upward. The estimated "loss" to the oil distribution companies is about 2000 crores per fortnight, it seems.

However Nilotpal Basu had an extremely valid point. He said the cost of crude and processing came together to only 20% of the sale price, and the remaining 80% was on Government taxes, an argument not challenged by Pachauri, so I am assuming must be correct. Basu's argument was why any increase in crude cost be borne by public, when in the administered pricing mechanism, the oil companies have made profits at various other points. Also he was for rationalising the tax structure.

When the subsidy given to LPG also came up for discussion, Basu was again forceful in explainaing that the Government charges an atrocious 80% tax and then offers a bit of that back as subsidy and claims there is this huge subsidy. Basu's argument is that the price of petrol, diesel and gas shouldn't be this high. Pachauri weakly talked about how the subsidy or non-increase of oil price does not help the rural folks since oil and gas is used only by those in the cities and towns.

Pachauri did talk about energy security - the need to look for sustainable energy resources and not be held ransom by International oil prices.

I entirely agree with Basu's argument. The main beneficiary of random taxation on oil is the Government. Not the oil companies or people. If you look the world over, Indian oil prices (end user) are way over that found in other established western countries. While the taxes may have been levied to discourage wasteful use, I do not think it has helped the economy. [For comparison, a gallon of gasoline in USA costs around $2.1 - or 3.78 litres of petrol = Rs. 90, cost per litre = Rs. 23. In India, cost per litre of petrol is about Rs. 36]

What is the way forward?

To start with the Government should rationalise the taxes. The Oil Companies should then be allowed to set their own prices but governed by a regulator. This way, politicians will not be allowed to decide whether the price should be kept depressed during elections etc. The government should also not decide on who should carry how much burden. ONGC and GAIL have been asked to carry some of the costs, while HPCL, BPCL and IOC are carrying the rest. If private compnies enter the purchase, refining and distribution business, this will have to go.

Finance: Chidambaram goes to Mumbai

Read the reports in Financial Express, Business Standard.

Finance Minister Chidambaram has met people from the industry in Mumbai and promised that reforms will continue. He has also said that there will be stress on fiscal prudence and discipline, with a view to rein in fiscal deficit. There are plans for bringing in investments in the infrastructure sector.

The budget will be presented in the first week of July.

Some of the other observations by the FM were:
  • Interest rates will not go up, unless the same happens internationally
  • Government would be willing to consider a review of capital gains tax paid by FIIs
  • Pension funds may be allowed to invest in open-ended equity funds
  • Banks have completed financial closure of six power projects with a combined capacity of 3,700 MW in the last 10 weeks. Ten more with a capacity of 6,867 MW in the pipeline.
  • RBI has been asked to look at simplifying procedures for rural lending

Previous item: Finance: World Bank defers $150 million loan to Tamil Nadu

Tuesday, June 01, 2004

IT: Maran's Hotmail

News from The Hindu

Maran says his job is to
  1. bridge the digital divide between urban and rural areas
  2. encouraging usage of computers amongst villagers
  3. launching a free email service based out of India
While the first two ideas are laudable (though very blue sky), I think the third one is entirely misplaced (despite being very specific). The minister's main thrust with respect to the third issue seems to be
  1. encourage the use of *.in domain names
  2. keep India originating email traffic within India, thereby saving money for the country
He says:
The reason I am very keen on this is that we want to promote Indian domains. Every time you want to go to Windows Update or Hotmail dot com, we are going out of the country. That means the traffic is leaving the country. This means we are wasting time, bandwidth and money. We are going to ask all major website holders to have mirror-sites in India, so that you can download India-centric information much faster. This would mean we would use inland traffic and save a lot of money.
It is a good thing to ask major websites to set up mirror sites in India. Maran will have to offer some sops for such mirror hosting, at least in the beginning. However, things like Hotmail, and now Gmail are services where bandwidth is only a minor issue. The email management software and backend systems are more involved and I can't see how someone in BSNL/MTNL (the only entities owned by the Government who will respond to a Government order) will be in a position to match up to the quality delivered by Gmail or Hotmail. Further, the minister seems to think he will recover the costs through advertisements. Indian Internet advertising market is no way large enough to cover these costs. I know.

There are two main reasons why Indian and International companies do not look at India as a natural hosting location, even if Indian users are likely to predominant visitors to such web sites.
  1. The cost of bandwidth in India is huge today.
  2. The cost of acquiring high-end server quality hardware is also high in India.
So it doesn't make any sense for anybody - even an Indian company whose only target audience is Indians in India - to host their site in India. Maran cannot enforce that the cost of bandwidth be brought down. It will happen when Reliance, Bharti, VSNL, Sify and other smaller players start fighting with each other. That is how ISD call rates have come down on par with that in USA. Maran can do a lot however in bringing the cost of high-end server quality computers by talking to the Commerce Ministry and reducing (or eliminating) the excise duty on import of dual/multi-processor pentium motherboards (and similar), RAM, SCSI hard drives, RAID arrays and the like.

Further to this, Indian ISPs will have to implement a properly working Internet Exchange to avoid circuitous network traffic. NIXI - National Internet Exchange of India has been set up for this purpose. Though NIXI has been in existence for quite a while, there has been fair amount of bickering between various organizations involved. As of now, there is peering happening in one location - Noida. The second centre in Mumbai does not yet seem to be operational. Maran can look at speeding this and help set up more NIXI centres across the country so that there is efficient internal traffic.

The minister has to do a lot better by presenting us with plans on how rural digital divide can be bridged and why villagers should even use the computers. Local language computing is so far behind in India. The villager - assuming he is literate enough - needs Tamil, Telugu and Hindi computing. While Unicode is fast becoming a standard worldwide for local language encoding, Tamil Nadu Government is still far behind with its own encoding standard called TAB/TAM. Local language initiatives in Linux have at least started but they are way behind satisfactory levels. In case of Microsoft, Project Basha is at its beginning. In the absence of key infrastructure like quality power supply and quality and affordable telecom/internet connection, no one can make use of a computer in a village. While it may be easier to take internet to villages (through wifi, wifi-max and WiLL), how are we going to get sufficient power to most of our villages? Maran needs to have a long chat with PM Sayeed.

Previous item: IT: Dayanidhi Maran's 10 point agenda

Finance: World Bank defers $150 million loan to Tamil Nadu

News from The Hindu on Tamil Nadu's electricity charge rollback, World Bank loan deferred

As Tamil Nadu Chief Minister Jayalalitha went on a roll-back mode, World Bank has decided to have a relook at the $150 million loan awarded to Tamil Nadu state government for softening the impact of the reforms process kickstarted by the government.

Since AIADMK's rout in the parliamentary elections, Jayalaitha has revoked most of her earlier decisions. Some of them have no relevance financially - such as repeal of anti-conversion ordinance. Removal of H mark on ration cards for families earning more than Rs. 5,000 per month would also have not made much of a dent in the finances and perhaps is a welcome move. However she has also rolled back the electricity reforms she has introduced in the farming sector. Now, extending the same, she is cutting down the electricity charges for homes. The new charges, effective from June 16th are:
in units per month
Present rate
(Rs. per unit)
Revised rate
(Rs. per unit)
301 and above4.753.05

This is expected to amount to an annual subsidy of Rs. 910 crores, reaching out to 1.17 crore families. Predictably the people are happy. The opposition politicians are saying this is to capture votes in the upcoming 2006 assembly elections. Now Tamil Nadu Chamber of Commerce and Industry wants the same to be extended to commercial operations as well.

However no one seems to bother where the money is going to come from. The state's revenue deficit is expected to now shoot to Rs. 4,500 crores. (Read V. Jayant's comment.)

To add to these woes, World Bank reconsidering its loan of $150 million, at close to 6% interest, that it had sanctioned for Tamil Nadu.

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