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Indicus Analytics, An Economics Research Firm
   http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Instituti...
Indicus Analytics, An Economics Research Firm
   http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Instituti...
Indicus Analytics, An Economics Research Firm
   http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Instituti...
Indicus Analytics, An Economics Research Firm
   http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Instituti...
Indicus Analytics, An Economics Research Firm
   http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Instituti...
Indicus Analytics, An Economics Research Firm
   http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Instituti...
Indicus Analytics, An Economics Research Firm
   http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Instituti...
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Economic Policy News And Views May 2009

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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.

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Transcript of "Economic Policy News And Views May 2009"

  1. 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. 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 http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  3. 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 http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  4. 4. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ 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. http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  5. 5. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ 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. http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  6. 6. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ 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. http://www.indicus.net/Newsletter/Policy_News_Views.aspx
  7. 7. Indicus Analytics, An Economics Research Firm http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/ 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. http://www.indicus.net/Newsletter/Policy_News_Views.aspx

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