ENERGY Government allocates 40% of initial output of KG-D6 to power sector The government has confirmed allocation of 40 percent of initial gas output from Reliance Industries' eastern offshore KG-D6 fields to the power sector. The EGoM had previously decided that the gas from KG-D6 will have to first meet the fuel demand of urea making fertiliser plants. Our view is that this quota based allocation of gas by the government has killed the market for gas even before it could develop. This mechanism will also have repercussions on the downstream industries like power with consequent climate change implications. India is launching its eighth round of bidding for exploration blocks under the New Exploration Licensing Policy (NELP) but uncertainty regarding the pricing and marketing of gas still remains. With the setting up of the Natural Gas regulator one would expect that the pricing and marketing will be regulatory decisions but as with other regulatory mandates in other sectors these too are compromised by government interventions. In our view the government should do away with national allocation priorities and quotas (as was indeed the original reforms mandate under NELP). IOC may get red mark in annual report card Indian Oil Corporation (IOC) is on the verge of reporting its first-ever annual loss next month. It is a result of selling fuels below cost at a time when global oil prices hit a record high. IOC and other state-owned oil refiners, which are forced to sell fuel at government-determined rates, were hit hard last year, as their prices could not keep pace with the steep rise in international crude oil prices. Our view is that the government may regulate markets and intervene in determining prices but that intervention has to be done with long-term policy objectives in mind that seek to sufficiently incentivise producers rather than be tuned to narrow objectives of keeping subsidy bills as low as possible and hurt the refinery companies which have not control over their retail prices Subsidy to fertilizer industry is given as the difference between the prices and the costs. However, when input cost rose last year the government hesitated to raise fertilizer prices. As a result government is paying huge subsidies to fertilizer industries. The government in its efforts to keep fertilizer subsidies down, tried to keep input prices as low as possible. Thus, petroleum industry suffered as their input prices were also increasing, but they failed to see proportional increase in their selling prices.

1. Indicus Analytics, An Economics Research Firm
http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/
Policy News
&
Views
Volume 1, Issue 6, May 2009
ENERGY
Government allocates 40% of initial output of KG-D6 to
power sector The government has confirmed
allocation of 40 percent of initial gas output from Reliance
Industries' eastern offshore KG-D6 fields to the power
sector. The EGoM had previously decided that the gas
from KG-D6 will have to first meet the fuel demand of
urea making fertiliser plants.
Our view is that this quota based allocation of gas by the
government has killed the market for gas even before it
could develop. This mechanism will also have
repercussions on the downstream industries like power
with consequent climate change implications. India is
launching its eighth round of bidding for exploration
blocks under the New Exploration Licensing Policy (NELP)
but uncertainty regarding the pricing and marketing of gas
still remains. With the setting up of the Natural Gas
regulator one would expect that the pricing and marketing
http://www.indicus.net/Newsletter/Policy_News_Views.aspx

2. Indicus Analytics, An Economics Research Firm
http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/
will be regulatory decisions but as with other regulatory
mandates in other sectors these too are compromised by
government interventions. In our view the government
should do away with national allocation priorities and
quotas (as was indeed the original reforms mandate under
NELP).
IOC may get red mark in annual report card
Indian Oil Corporation (IOC) is on the verge of reporting
its first-ever annual loss next month. It is a result of
selling fuels below cost at a time when global oil prices hit
a record high. IOC and other state-owned oil refiners,
which are forced to sell fuel at government-determined
rates, were hit hard last year, as their prices could not
keep pace with the steep rise in international crude oil
prices.
Our view is that the government may regulate
markets and intervene in determining prices but
that intervention has to be done with long-term
policy objectives in mind that seek to sufficiently
incentivise producers rather than be tuned to
narrow objectives of keeping subsidy bills as low as
possible and hurt the refinery companies which
have not control over their retail prices Subsidy to
fertilizer industry is given as the difference between
the prices and the costs. However, when input cost
rose last year the government hesitated to raise
fertilizer prices. As a result government is paying
huge subsidies to fertilizer industries. The
government in its efforts to keep fertilizer subsidies
down, tried to keep input prices as low as possible.
Thus, petroleum industry suffered as their input
prices were also increasing, but they failed to see
proportional increase in their selling prices.
TELECOM
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3. Indicus Analytics, An Economics Research Firm
http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/
Trai panel shortlists 3 for chairman post
The screening committee set up to select the next
chairman of Trai has shortlisted 3 candidates—finance
secretary Arun Ramanathan, consumer affairs secretary
Yashwant Bhave and former BSNL director S D Saxena. All
of the applicants in the fray were former government
employees except one from private sector.
Many a times it has been pointed out that the
Independent Regulator’s office should not become a
sinecure for retired bureaucrats and the job should
be equally attractive for experts in the field. But,
this development shows that these institutions, still
only attract bureaucrats. Why does the regulator’s
office not attract non-bureaucrats? Our view is that
in case of a highly liberalized sector at least such as
the telecom this will change with attractive salaries
now being offered after the Sixth Pay Commission.
It is still early days after new packages introduced.
An important factor driving this change will be
eligible candidates from the private sector not
seeking private sector compensations and rising
above these narrow considerations given the public
service nature of such positions.
Read More ...
POWER
Montek favours efficiency-based ranking for ERCs
In a bid to improve the functioning of electricity regulatory
commissions (ERC), the Planning Commission has mooted
an exclusive first-of-its-kind state-wise ranking system of
these regulatory bodies based on their efficiency.
Our view is that the ranking of regulators will have no
impact on the outcomes of the power sector. These
announcements and initiatives miss the point. Most of the
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4. Indicus Analytics, An Economics Research Firm
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problems lie in the domain of policy. The regulators are
just an extended arm of the ministry and their incentives
are aligned with the ministry. The problem lies not so
much with the regulators but with the market structure
which these regulators work with. They are slow and
reluctant to introduce open access and break the state
monopsony in the market for electricity. Competition is
being delayed by the executors of policy i.e. the
regulators who do not want to hurt the interests of their
parent ministry whom they represent.
Read More ...
Edited by: Payal Malik
30th April 2009
MORE NEWS
Changes in PPP norms behind tardy progress of
road projects
Changes in regulations governing public-private-
partnership (PPP) contracts have been one of the key
reasons for the tardy progress in the award and
construction of road projects under the UPA regime.
Morgan Stanley Research has said that the NHAI has
made several changes to the old model concession
agreement (MCA), creating uncertainty among investors
and developers, thus making the contracting process
tardy.
Transmission of monetary policy is weak: RBI
The Reserve Bank of India governor D Suubarao has
acknowledged that the transmission of monetary policy is
weak on account of which policy rates signals do not get
effectively communicated to the market participants.
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5. Indicus Analytics, An Economics Research Firm
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Government to set up committee to regulate
investment advice
Considering the importance of investor awareness and
protection, more so after the global crisis, the government
has decided to set up a committee to examine the issue of
regulating investment advice.
CERC to ensure deficit states too get feel of green
power
Moving in to make states comply with an existing rule to
have a certain portion of their power grid reserved for
green energy, the government is planning to set up a
renewable power exchange that would issue certificates to
surplus states which can be sold to deficit states looking
to fill their mandatory quota.
Infrastructure NBFCs' ECB window may widen
Finance companies that lend to firms building
infrastructure projects may be permitted to raise funds
from overseas banks and markets under a planned review
of policy governing such foreign loans, one government
official said.
NELP-VIII launched, 70 areas offered for bidding
India launched its biggest ever auction of oil and gas
exploration blocks, offering 70 areas for bidding. quot;We are
offering 24 deep-sea blocks, 28 shallow water blocks and
18 on-land blocks for bidding in the eighth edition of New
Exploration Licensing Policy (NELP),quot; Petroleum Secretary
R S Pandey said.
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6. Indicus Analytics, An Economics Research Firm
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Government-private firms tussle over petroleum
prices intensifies
The battle between private oil companies and government
oil marketing companies (OMCs) over petroleum product
pricing is set to intensify. The Appellate Tribunal for
Electricity (APTEL) has admitted the OMCs’ plea
challenging the Petroleum and Natural Gas Regulatory
Board’s power to adjudicate on the matter.
HC dismisses Tata Power petition on Sasan coal
The Delhi High Court has dismissed a petition by Tata
Power Company challenging the use of surplus coal from
the captive coal mines of Sasan ultra mega power project
(UMPP) for other projects of Anil Ambani-controlled
Reliance Power. Tata Power said the company would
appeal the decision in the Supreme Court.
No M&As on competition panel's plate
The Competition Commission of India (CCI) will not take
up local as well as foreign mergers and acquisitions
(M&As) immediately, as it looks to fine-tune its merger
regulations before assuming the role of a full-fledged
regulator.
Regulator, monitoring units to oversee projects
under PPP
Projects being executed under the public-private
partnership (PPP) model will soon be put under an
independent regulator who will take away the burden from
government agencies that are often found wanting in
cutting delays and ensuring project quality.
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Government sets June 30 deadline for unbundling of
SEBs
The government could complete its six-year-old initiative
to unbundle state electricity boards (SEBs) into separate
entities for power generation, transmission, distribution
and trading business by June 30 this year. Seven states
yet to unbundle their state electricity boards.
RBI to upgrade regulations to deal with tax havens
The Reserve Bank of India (RBI) has said it would
deal with the problem of black money being hidden
in tax havens by continuously updating its
regulations in line with the G-20 guidelines on
strengthening transparency in cross-border
movement of capital.
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