Opinion
Accountability for regulators
01 Nov 2010 |
Dr Leena Srivastava
| The Financial Express
Investment is a key growth constraint of the Indian power sector. However,
going by the response to Coal India's IPO, the market seems to be flushed with
funds. It is not clear why financial closure of power projects remains such
a big challenge. The answer probably lies in the framework conditions that govern
the sector.
Despite nearly two decades of experimentation, we have not been able to decide
the shape and form of power distribution reforms and also whether these are
essential to ensuring the flow of revenues needed to make investments viable
in this sector. The few experiments that were undertaken to privatise distribution
remain inconclusive on performance, with the distribution utilities in Delhi
seemingly under tremendous financial stress.
Delivering the Khazanah Global Lecture in Malaysia on October 27, Prime Minister
Manmohan Singh identified rapid economic growth and equity-carrying the large
number of poor in the country on the path to prosperity-as the main pillars
of India's development . He also emphasised on balancing economic growth with
long-term environmental sustainability given the continuing dependence of a
large percentage of India's population on the agricultural sector and, therefore,
the need to preserve the ecosystem services that they are so dependent upon.
His elucidation of India's approach to development reinforced once again India's
commitment to equitable development and environmental sustainability.
The same clarity of vision needs to be carried forward in areas of concern that
the Prime Minister has highlighted, including the state of infrastructure. At
a very conservative level, India's infrastructure needs will double from current
levels in the next ten years and further double in less than a decade after
that. Looking at the power sector explicitly, both peak and energy shortages
are estimated to be above 10%--by comparison Malaysia has a reserve margin of
40%. And in the year 2009-10, India added a mere 9,585 MW of capacity against
a target of 14,507 MW.
A key initiative in addressing the framework conditions was the effort to distance
the electricity business from political interference by setting up independent
electricity regulatory commissions at the central and state levels. Unfortunately,
despite repeated appeals to the powers-that-be in the government, the desperate
need to enhance the credibility of these newly founded institutions has not
been taken care of. Many well-wishers have flagged the need for reviewing the
process of selection of regulators and strengthening the capacity of commissions.
How long will India
19 Oct 2010 |
Mr S K Chand
| The Financial Express
The ensuing IPO of Coal India Limited (CIL) is the best thing to happen to the Indian coal industry. CIL, a mammoth monopoly for several decades, will now be held accountable to scores of shareholders. After the nationalisation of the coal industry in the early 1970s, the coal sector has remained opaque under CIL, with minimal reforms compared to other energy sectors.
The CIL's advertising campaign for the IPO, which opiates us with a feeling of great coal-richness, is a powerful one. "We are the world's largest coal reserve holder" shouts the advertisement quoting from a Credit Rating and Information Services of India Ltd (Crisil) report. Crisil and some others including Credit Analysis and Research (CARE) have rated the IPO a Grade 5 on the basis of, inter alia, dominance of CIL in the Indian coal industry (read monopoly), high turnover, low cost of production and strong fundamentals.
The reports and advertisements convey that there are huge domestic coal reserves with CIL and the energy security of India is, and would remain, intact for decades to come. Though there are serious shortages of coal in India currently, this is a passing phase and, therefore, there is no cause for worry.
Are we really as coal-rich as made out by the advertisements? The facts seem to be at a variance with the claims made.
The fact is that instead of using an internationally acceptable procedure for reporting geological resources, the Geological Survey of India (GSI) continues to report the coal resource base annually on the basis of Indian Standard Procedure (ISP) code of 1956 vintage. ISP is a purely geological classification system, with total disregard to the economic or technical feasibility of extraction of the reported resources. Various categories of reserves (such as 'proved', 'indicated' and 'inferred') are based only on the density of exploratory boreholes drilled in the ground. The resources (and not reserves) as reported under ISP are cumulative and gross geological information, which includes even the coal that has been extracted and burned during the last couple of centuries of coal mining in India. Thus, this figure would continue to increase year after year and stands at 276.81 billion tonnes (BT) as on April 2010. However, being highly inflated, this figure cannot and should not form the basis for future energy planning for the country.
There is a range of numbers for coal reserves in India mentioned in the draft red herring prospectus (DRHP), filed by CIL, which is quite confusing. It quotes the Integrated Energy Policy Report of Planning Commission, (August 2006) wherein it is mentioned that "known coal reserves are projected to last for over 80 years at the 2006 levels of production", which again gives a picture of abundance of domestic coal resources.
Various sources in the recent past have estimated the country's total extractable reserves (including over 200-odd captive coal blocks allotted to private parties and others) to last for only 40-50 years. The Tenth Five-Year Plan estimated it at less than 18 BT in 2002. The Central Mine Planning and Design Institute estimated it to be less than 40 BT in 2001, later revised to 52 BT in 2005. Planning Commission estimated that at a 5% rate of growth of coal consumption, India's domestic coal reserves may last only for 45 years, which translates to about 50 BT. The Expert Committee on Road Map for coal sector reforms and the Integrated Energy Policy: report of the Expert Committee, indicate that India has an estimated 56-71 BT of extractable coal.
CIL in its DRHP has also posted a figure of 64.8 BT as the total coal resources available to it as on April 2010, as classified under ISP guidelines with geological reserves of proved, indicated and inferred categories being 52.55 BT, 10.3 BT and 1.94 BT, respectively. From the total coal resources of 64.8 BT, only 30.36 BT had been considered for mining studies (mine planning and feasibility studies) from which CIL finally estimates extractable reserves to be only 21.8 BT.
The meagre extractable reserves are the result of decades of cherry-picking by CIL. In its effort to maximise profits and cover up inefficiencies, CIL has been exploring and exploiting only shallow deposits, which is evident from the fact that almost 90% coal production comes from opencast mines from a depth of less than 200 metres. A GSI report shows that over 60% of gross geological resources lie within 300 metres. CIL has no plans for digging any deeper than 300 metres for more coal.
However, with burgeoning energy demand led by the power sector, CIL, in the near future, will be forced to explore and exploit deeper seams for maintaining its production levels. It will become essential for the 'world's largest coal producing company' to invest heavily in the very near future if it is to remain the numero uno. This would mean that future cost of coal production would be much higher compared to what CIL is currently incurring and with much reduced profits.
Under Asian skies
24 Aug 2010 |
Dr R K Pachauri
| The Hindustan Times
The 16th South Asian Association for Regional Cooperation (Saarc) summit held earlier this year in Bhutan focused on climate change. The subcontinent is facing unprecedented disasters with extreme precipitation events in many locations and public perception seems to link these with climate change.
Single events like those occurring in Pakistan, Ladakh and Uttarakhand can't, on a scientific basis, be ascribed to human-induced climate change. But on the basis of assessed observations the Fourth Assessment Report (AR4) of the Intergovernmental Panel on Climate Change (IPCC) has come up with clear findings.
It's been stated clearly that the frequency of heavy precipitation events has increased over most areas. There is also an increase in the frequency and intensity of floods and droughts apart from the incidence of extreme high sea level having increased worldwide (defined as the highest 1 per cent of hourly values of observed sea level at a station for a given reference period). The situation in a large area of Pakistan is tragic. At the same time, a cloudburst in Ladakh has led to intensive damage to property and many deaths. Children in Uttarakhand have lost their lives as a result of a massive downpour. Pakistan, in particular, needs global assistance on a gigantic scale because over 20 million people would need to be rehabilitated and fed.
The threat of large-scale outbreak of diseases, as a consequence of floods, would overwhelm the ability of existing services and infrastructure to deal with the problem. India's offer of $5 million for emergency relief is a welcome gesture, which, fortunately, the Government of Pakistan has accepted. However, given the scale of requirements of assistance that Pakistan now faces, it'd be appropriate for India to increase this assistance to a much higher level.
Nature sees no political boundaries, and in this respect it's heartening that the summit in Thimphu chose climate change as the central theme. In the final declaration from this summit, the leaders of Saarc nations emphasised the need to initiate a process to formulate a common Saarc position for the forthcoming Conference of the Parties (CoP) to the United Nations Framework Convention on Climate Change (UNFCCC) to be held in Cancún, Mexico.
On the eve of the Rio Summit in 1992, all the Saarc nations requested India to organise a briefing workshop in New Delhi, conducted by The Energy and Resources Institute (Teri). A similar request by Pakistan and Sri Lanka was also met through a similar workshop organised by Teri before the CoP in Kyoto in 1997.
The impacts of climate change, though diverse across the subcontinent, have several commonalities. The AR4 found that climate change is expected to exacerbate existing stresses on water resources stemming from population growth and economic and land use change, including urbanisation. While this is an observation applicable to most parts of the globe, it's particularly relevant to South Asia. Furthermore, on a regional scale, mountain snow pack, glaciers and small icecaps play a crucial role in fresh water availability. Widespread mass losses from glaciers and reductions in snow cover over recent decades are projected to accelerate throughout the 21st century, reducing water availability, hydropower potential, and changing seasonality of flows in regions supplied by meltwater from major mountain ranges (e.g. Hindu-Kush, Himalaya, Andes) where more than one sixth of the world population currently lives.
Unfortunately, the extent of research and monitoring of glacier activity related to the Himalayas is inadequate in South Asia. On the other hand, there is a considerably higher level of measurement, monitoring and research on glaciers in Tibet. In a well-researched paper, a group of Chinese scientists have concluded, "It's possible that the warm-dry trend in the Central Himalayas will continue under the projected future warming and that glacier retreat will accelerate".
South Asia is particularly vulnerable to the impacts of climate change and a coordinated and cooperative approach for meeting this challenge across the Saarc region would benefit every member-country, through pooling of expertise and consolidation of experience.
The Bangladesh Rural Advancement Committee - a well-known non-governmental organisation from Bangladesh - is active today in the flood-hit areas of Pakistan, using a wealth of expertise gained from tackling perennial floods in Bangladesh.
The first step is to ensure linkages among research institutions in the region because we need to assess projected future impacts of climate change using sophisticated modelling with downscaled global climate models. This is being carried out by Teri for many Indian states where the diversity of ecosystems and topography is such that the impacts of climate change are also diverse. Through the creation and dissemination of relevant knowledge related to climate change, the public and governments of this region can be sensitised to action that is needed for adaptation to the impacts of climate change and appropriate mitigation measures.
The Bhutan summit needs an urgent follow-up by bringing various institutions and organisations together to meet this common challenge, and as a unique confidence-building measure. Political barriers should not come in the way of ensuring the welfare and livelihoods of the current and future generations.
You and I can make Kyoto-2 work
03 Aug 2010 |
Dr R K Pachauri
| The Asian Age
The 16th Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC) is due to begin in less than four months from now, at Cancun, Mexico. As yet there are very few indications of significant milestones being achieved at that meeting. There are some who believe that the outcome of Cancun might turn out to be somewhat similar to the lack of strong steps forward witnessed last year at the 15th COP in Copenhagen.
For several months now there has been an expectation that the Senate of the United States would pass, in some form, a proposed bill that was introduced largely through the initiative of Senator John Kerry. However, this piece of legislation has not made any progress and for a variety of reasons most observers believe that perhaps legislation will not take place in the US till after the Congressional elections due to take place in November this year. After that what happens would depend largely on the political complexion of Congress as it emerges with a large number of new members.
Meanwhile, there are those officials in the administration who believe that much can be done through action by the executive branch of the government, particularly given the powers that the judiciary has provided to the United States Environment Protection Authority (USEPA). A very clear regulation to improve the energy efficiency of automobiles in the US is already in place. Another area where improvements in energy efficiency are economically viable is in the building sector. In fact, there are significant differences in energy efficiency of same-size buildings and for somewhat similar climates as between some countries of Europe and the US. A programme of incentives and disincentives could bring about an early and substantial improvement in energy efficiency in buildings in the US and, therefore, there could be a significant reduction in the emissions of greenhouse gases (GHGs). The Fourth Assessment Report (AR4) of the Intergovernmental Panel on Climate Change (IPCC) clearly specifies that the most effective instrument for bringing about mitigation of GHGs would be placing a price on carbon. A substitute for this would, of course, be a set of incentives, disincentives and regulatory requirements that could achieve similar results in the short term.
There is currently a growing concern on the possibility of a gap developing between the end of the first commitment period of the Kyoto Protocol and the beginning of the second. The first period would be terminated at the end of 2012. However, if there is no agreement on actions to be taken in the second commitment period then clearly there is a possibility of the second period coming into force after a gap of time. It is with this in view that a proposal has now been introduced for discussion and possible action, by which some of the rigid requirements of the original version of the Kyoto Protocol - which is currently in force - would be modified to allow flexibility in countries joining and exiting the Protocol as an agreement emerges for the second commitment period. All this is being proposed essentially to see that an agreement is in place well before the end of 2012 and with adequate provision of time for the second commitment period coming into force without a gap.
While a global agreement has enormous significance for protecting the global commons, such as the earth\'s atmosphere which today is characterised by a rapid increase in the concentration of GHGs, action at the local level across the globe is now becoming increasingly imperative. The likelihood is that through widespread awareness on the likely impacts of climate change in different parts of the globe and the means by which mitigation of GHGs can take place, substantial action can be triggered at the local level across the globe. These actions will also create adequate confidence and a substantive basis to facilitate an agreement being reached at the global level.
One reason for expecting initiatives by communities and societies irrespective of any global agreement lies in the enormous co-benefits that would accrue from reduced GHG emissions. This is likely to happen because those actions which reduce these emissions, such as higher levels of energy efficiency in various sectors of the economy and a major increase in exploitation of renewable resources of energy, would also carry several attendant benefits. These would be in the nature of lower levels of air pollution at the local level which would create a range of health benefits, higher levels of energy security globally, higher employment, such as through projects based on renewable sources of energy and higher agricultural productivity which would ensure higher food security.
There is now growing evidence based on long-term observations which indicates that there is an increase in the intensity and frequency of floods, droughts, heat waves and extreme precipitation events. Public concern on this is also growing. It is not merely based on dissemination of the results of the AR4 but also as a consequence of observations by communities themselves on trends in changes of the climate systems which they are witnessing. The media, of course, has an important responsibility in spreading the results of scientific assessments, both in respect of the impacts of climate change and related adaptation measures as well as on opportunities and benefits associated with mitigation. It would, therefore, be reasonable to assume that understanding the human and economic costs of inaction and the net benefits from action would certainly create responses at the grassroots level that in the aggregate would provide the basis for a global agreement.
Meanwhile, it is important that the negotiators who are engaged in coming up with a future agreement, particularly in respect of the second commitment period of the Kyoto Protocol, devise practical and flexible approaches by which the second period is not delayed and does actually come into force by January 1, 2013. The world now has adequate experience in devising appropriate agreements that ensure a fair and effective response to the challenge of climate change across the globe and across all societies - an agreement that would hold and can be brought into force by a sizeable majority of nations.
Calculated risk
20 Jul 2010 |
Dr R K Pachauri
| The Asian Age
I wrote about the BP oil spill in the Gulf of Mexico in these columns on May 11, 2010. As it happens, the leak has now been plugged and while there is assurance about success being achieved to clean the spill, as of now a huge volume of oil is polluting the surface of the ocean and large quantities are being washed ashore. It is sad to see pictures of birds and other creatures suffering and dying and the continued threat not only to these living beings but also to those who are either living on the beaches of the affected areas or would like to enjoy recreation in these seaside locations.
The cost of environmental degradation worldwide is hardly ever estimated in precise terms. Of course, the cost to human society and human beings cannot be measured in dollar terms, such as in the case of air pollution that leads to high morbidity and mortality. There are varying estimates of how many people actually die as a result of air pollution, and in 1997, when The Energy and Resources Institute (TERI) released its \'Green India 2047\' report, documenting this country\'s record of environmental protection in the first 50 years of Independence, the figure we came up with of air pollution-induced mortality was staggering. A large part of the deaths that take place as a result of air pollution occur on account of indoor air pollution.
Sadly, even today over two billion people in the world carry out cooking indoors using poor quality biomass whose large quantities of emissions often remain trapped indoors because of poor ventilation in dwellings. TERI\'s estimate was that in India a total of 2.5 million lives are lost annually as a result of air pollution, including both rural as well as urban areas. The worst affected live in urban locations, particularly slum dwellers who are normally huddled in shanty towns by the roadside. They are, therefore, not only victims of indoor air pollution arising out of the burning of inferior quality cooking fuels but also outdoor air pollution which is created by dense automobile traffic and growing road congestion.
The lack of proper information and evaluation of the cost of environmental damage is one reason why the normal approach of various societies to risk management remains flawed and inadequate. The case of the Gulf of Mexico oil spill is a typical example of how expected benefits, say from deep sea drilling as in the case of the Deep Water Horizon well, are never measured against expected damage, which would be a function of estimated probabilities and the extent of damage associated with mishaps. In the case of low-probability but high-impact events or outcomes, the cost of timely prevention may appear high but is often fully justified because even with low probability if the impacts from a mishap turn out to be very high, the damage caused is incalculable and totally unacceptable in today\'s world. The need for risk management is best illustrated by the Bhopal gas tragedy: With the knowledge that the damage caused by the possible release of lethal gas would be staggering, even if the probability of such an occurrence was seen to be low, the owners and managers of that facility should rightly have invested adequately in safety prevention right at the beginning. But the world has apparently ignored the lessons it should have learnt from Bhopal.
One major problem which leads to the neglect of risks to society or negative impacts on the environment is the divergence between private costs and benefits versus social costs and benefits. In India, soon after Independence, we cut forests on a large scale because there were huge private benefits associated with exploitation of forest resources, but there was no consideration of the social costs that were incurred as a result. Much of the threat to wildlife today is a result of lack of attention and importance we attached to maximising net social benefits by conserving the forestry wealth of the country. The benefits from conserving forests and biodiversity often translate into private benefits as well, particularly for tribal societies who depend for their livelihood on ecosystem services provided by nature around them. Destruction and damage imposed on these ecosystem services has a direct adverse effect on the livelihoods of such communities which undoubtedly leads to social alienation as well. Clearly, the economic implications arising out of such alienation are seldom taken into account on an explicit basis. Each project at the micro level must necessarily look at the entire range of implications that it could have on society at large, even if its \'private benefits\' are attractive.
What is an area of continuing neglect at the micro level and can so easily be resolved is compounded several times over when it comes to global action. If we take the case of climate change, even though some may believe that the science of climate change does not tell us about likely negative impacts with precise, quantified probabilities, the sheer scale of the damage that could take place should compel decision-makers and society at large to adopt a sound risk-management approach. This is all the more justified because the actions required to mitigate the emissions of greenhouse gases and thereby help stabilise the earth\'s climate are really attractive for a variety of reasons, particularly in view of the co-benefits that arise as a result. Could it be that our myopia and consumerist desire to produce and consume more and more goods and services blinds us to the assessment and prevention of risks from the actions that we are taking today?
There is, of course, no need for alarm in any of these areas of human endeavours but perhaps we should at least consider Mahatma Gandhi\'s advice that clearly highlighted the choices before us: \'A technological society has two choices. First it can wait until catastrophic failures expose systemic deficiencies, distortion and self-deceptions\' Secondly, a culture can provide social checks and balances to correct for systemic distortion prior to catastrophic failures\'. At a minimum we should move away from self-deception in these matters.
Ideas for a better mineral policy
19 Jul 2010 |
Dr Maria Ligia Noronha
| The Economic Times
Many years of regulatory neglect have resulted in a growing disquiet towards mining in India. Distributive and environmental conflicts are evident in many mineral states. State collusion with the mining industry supports the view that the government does not always reflect the interest of the people. National and local regulatory frames are often in conflict. Land is a key contested site, given many unfair appropriations and inadequately-compensated damages to arable land.
If the country is to develop its mineral wealth, it needs to do things differently, not only because mining creates negative impacts, but also because mineral-rich states, such as Jharkhand, Orissa and Chhattisgarh - home to 65% of India\'s bauxite, 71% of coal and 46% of iron ore - are amongst those with the highest incidence of poverty. We need a more just mineral policy that focuses not just on rules and regulations that are indeed key, but also on more holistic outcomes from such development. To paraphrase from Amartya Sen\'s The Idea of Justice, what is required is \'the realisation of justice in the sense of nyaya, which is not just a matter of judging institutions and rules (niti) but judging societies themselves\'.
A mineral policy from a people\'s outcomes perspective will require, on the process side, not only improved coordination across and between government levels, but also operationalisation of popular sovereignty. This should involve a consultative process to establish \'no-go\' areas for mining; strict adherence to free prior, informed consent (FPIC) regarding project proposals; institutionalised, regular consultations with local bodies and gram sabhas, and an ombudsman for appropriate oversight of minerals development practice. Apart from environmentally- and socially-responsible practices from operators, appropriation, management and an equitable distribution of resource rents are key to support and ensure comprehensive outcomes.
The Teri study in 2007 on compensation issues argued that while compensation systems exist, these are unsatisfactory in scope and execution. Some recommendations of the study are found in the draft minerals policy, as well as in the XIII Finance Commission Report. But more is needed, including more coordination, given that mineral development involves different ministries. Policy also needs to create more permanent income streams to ensure intergenerational equity as these are exhaustible resources.
Australia\'s resource super profits tax (RSPT) has some lessons for India. It seeks to mop up 40% of the supernormal profit of the mining companies, replaces royalty and is supported by a lower rate of company income tax. The proceeds are to be used for wider budgetary support, but also in a pension fund. It is triggered at a threshold rate of 6% (long-term government bond rate) and has a 40% safety net for project losses. The tax triggered protests across Australia, and was a reason for Kevin Rudd\'s fall. While the tax may admit some reform in design and insufficient prior consultation, it is, in principle, required, given the rising prices of minerals.
India too needs such a tax. Economic rent from a natural resource is a surplus that arises from the intrinsic qualities of the resource, which may also be linked to its scarcity, and is not a product of the sweat and capital of the operator. High mineral prices over the last decade have significantly increased rents, but failed to benefit the public at large. The company\'s share of resource revenues should be based on the expected return from the capital invested which, in any case, already allows for interest plus the risk premium needed in the sector, and includes market-determined cost of all other factors of production. The surplus over this should belong to the owner.
In the Indian case, the owners are the federating states for onshore and the Centre for offshore minerals. Or the surplus could be treated as a fiscal commons and be collected by the Centre and shared with the states through fiscal transfers, but with a clear weight in favour of the mineral-rich but poor states. Whether and what share of the economic rent is captured by the owner depends on the kind of contractual relationship between the government and the company. India could, for example, examine the benefits of rate of returnbased profit-sharing contracts. This would involve an additional profits tax with negotiated rates. The threshold is fixed so that the investor gets an agreed rate of return, and when this is achieved, additional taxes are levied. For mineral riches to help the poor, clear guidelines for investment and use of funds collected through these taxes, and accountability and transparency are key.
Such funds can be used for conditional cash transfers to improve nutrition, education and health; to build physical and social infrastructure; and to invest in financial instruments that give safe and secure returns to fund current and inter-generational state outlays.
Such policy innovations will not only improve outcomes, but also reduce the \'above ground\' risks for companies.
Art of constructive destruction
29 Jun 2010 |
Dr Leena Srivastava
| Financial Chronicle
The vulnerability of ecosystems, and, therefore, human beings, has resulted in this enormous global effort being made towards tackling the problem of climate change. By themselves, temperature variations and climatic changes that are off the mean by a few degrees would not have meant very much if millions of livelihoods, and indeed lives, were not adversely affected. As such, it would be safe to say that this unprecedented global effort to fight climate change is about nurturing and protecting the vulnerable populations in the world. Why then did we choose to ignore the vulnerability of those businesses today that are contributing significantly to the emissions of greenhouse gases? If, indeed, the developed world has to bring down its emissions by at least 80 per cent of 2005 levels by 2050 - and the developing countries by a lesser amount - it does not require a genius to deduce that a number of businesses and activities would need to be closed or transformed radically.
The magnitude of the task ahead of the world - in particular, for the developed countries - is so huge that we tend to hide behind the comfort of statistics. Mitigation action, we assert, will not negatively impact GDP growth in OECD countries by more than 1 or 1.5 per cent. Undoubtedly, this is a lower cost than the cost of global adaptation that the developed countries should bear, but this is of little solace to the coal or oil industries, or the industries involved in the meat supply chains as so many others. The jobs lost in the affected industries would be more than made up by \'green\' jobs. Try telling that to the petroleum engineer who can engage in little else, but has a family to support and a personal pride to protect.
Margaret Thatcher - the Iron Lady of the UK - shut down the coal industry in that country. India, on the other hand, is seeking backdoor entry points to loosen the grip of the public sector on this industry and sneak in the private sector and market forces so as to bring some semblance of viability into its operations. The political challenges of changing a way of life are so daunting that even the governments with the strongest mandates would hesitate to venture in that direction. What the world urgently needs is models of constructive destruction - destruction that would give rise to other opportunities with little or no lags in skill re-setting, but on accelerated time scales. Sunset and sunrise industries have been part of the evolution of humankind over the last century-and-a-half, but it is the time pressure of change and its consequences, as well as the spread of industries that need to be transformed.
The most obvious example of constructive destruction that we can easily recall in recent times is that of the telecom sector. In a short period of 10 years, India has virtually thrown out the fixed line phone industry. The mobile phone industry that has taken its place has itself transformed 2-3 times with replacement of technologies and expansion of access taking place at lightning speeds, but at which no one bats an eyelid. Someone may have calculated the net greenhouse gas emissions of this transformation, but the example here is to draw attention to the confluence of technology developments, policy support, entrepreneurship, consumer demand, easy skill migration and effective regulation that provided an enabling environment for this to happen.
How can we ensure such constructive destruction takes place in other relevant sectors? One critical sector from the point of view of climate change is the power sector. In India, we are mostly dependent on coal - one of the most polluting greenhouse gas sources - for power generation. Some tentative first steps have been taken in exploring alternative renewable energy options for electricity generation with the announcement of the National Solar Mission, which targets a new capacity of 20,000 mw by 2020.
While targets signal some long-term directions, we need to identify the weak links in the creation of an environment that would facilitate a capacity expansion beyond targets. Is the technology in place? Early versions of mobile phones were elite products - not mass consumption products. Telecom regulatory systems underwent turmoil with the first chairman being summarily removed. The auctioning process of spectrum has been under intense scrutiny for some time now. But we have learnt and moved forward. Solar power is considered to be expensive today. The policy establishment and regulators seem to be willing to experiment. Industry is engaged. The unmet demand in this sector is so huge that the immediate need for skill migration is mitigated. Maybe India has already embarked on a second process of constructive destruction.
Seen to be poised as an emerging economy, placed between the developed and the developing world, India is watched as a living laboratory of experiments for social transformation. Our responsibilities today extend well beyond the boundaries of this country.
What lies beneath
25 Jun 2010 |
Dr R K Pachauri
| The Hindustan Times
It was in 1989 that Ali Shams Ardekani, former deputy foreign minister of Iran, and I came up with the concept of the Iran-Pakistan-India (IPI) pipeline. In 1990, I invited Ardekani to present this project at an international conference organised by us at New Delhi, and it received considerable interest, resulting in the Government of India pursuing it seriously in the ensuing period. There were obvious concerns from the Indian side, on the risk of a critical part of the pipeline that will pass through Pakistan, particularly the Balochistan region.
To create some level of assurance, we managed to get the United Nations Development Programme (UNDP) to support a project involving energy cooperation between India, Pakistan and Nepal. The focus of this project was to develop an ironclad agreement for the IPI pipeline. We were able to get the involvement of two politicians from each country to ensure that the exercise was not merely a pipedream put forward by academics and researchers but something that politicians, in at least India and Pakistan, found acceptable. The two Indian politicians who participated in the exercise were Jaswant Singh of the BJP and Mani Shankar Aiyar of the Congress. Of the two Pakistani politicians who took part in the project, one was Shah Mehmood Qureshi, the current foreign minister of Pakistan.
Back then, Iran was eager and almost desperate to sell gas to India and Pakistan at very low and stable prices, a situation which has drastically changed today. Today, the IPI pipeline, as far as India is concerned, won\'t only be a difficult political proposition. With the pricing arrangements being offered by Iran, its economic viability has become questionable. Meanwhile, Pakistan reportedly signed an agreement recently for a pipeline to get gas from Iran with a total investment reported to be in the range of $7 billion. India is not part of this project, even though it was originally conceptualised and developed by an Iranian and an Indian.
Today, Iran is being subjected to escalating UN sanctions to which even China is a party, much to the disappointment of Iran. Fifteen years ago, however, the situation was different because Iran was not known to have started work on nuclear technology, and the rest of the world, except the US, did not have serious political or diplomatic problems with it. At that stage, I recall a conversation I had with the then Under Secretary of State to whom I pleaded that the US should initiate a dialogue with Iran, which will strengthen the moderates\' position in that country. Perhaps India could have played the role of an honest broker in bringing about a thaw in US-Iran relations.
Whether India will ever be able to take advantage of Iran\'s abundant reserves of natural gas is questionable. But it should focus on the bigger issue of its relations with fractured societies. Clearly, the lesson from Iran will have important implications on our dealings with Pakistan. Pakistan is not a monolithic society. A growing number of Pakistani moderates want both peace with India and an elimination of terrorism - which was earlier aimed largely at India but now poses a threat to peace and stability in Pakistan itself. The prime minister\'s efforts in this regard show his wisdom, sagacity and vision, the exercise of which will benefit both nations.
A new complication, which makes the need for peace with Pakistan more urgent, is the discovery of precious minerals in Afghanistan by the US Geological Survey. Of critical importance are the reserves of lithium, a metal that\'s essential for the production of efficient batteries. If India were to move towards electric vehicles - which it cannot avoid for long - easy access to large reserves of lithium, like the ones discovered in Afghanistan, will be hugely beneficial.
But, clearly, access to Afghanistan\'s mineral resources will be out of question if our relations with Pakistan remain strained. In fact, it is not inconceivable that, like with an oil-rich Iraq, the presence of foreign troops in Afghanistan, and their dominance in the area, could become a permanent feature. An understanding with Pakistan could perhaps ensure earlier withdrawal of foreign troops from Afghanistan and its peaceful development.
The central theme of the last South Asian Association for Regional Cooperation (Saarc) meeting, held in Bhutan in April this year, was climate change. It is a challenge that afflicts all countries in South Asia. To overcome water scarcity through cooperation and collaboration or use solar energy on a large scale in the Thar Desert and other regions, peace between India and Pakistan is a prerequisite.
Now that serious attempts are being made to resume the composite dialogue between the two countries, people in India must support the effort. The strategic implications of Afghanistan\'s newfound mineral wealth need to be viewed in a strategic context. We cannot change our neighbours and, today, we cannot ignore the fact that our neighbour\'s neighbour has become mineral-rich overnight.
When you spill, don't lose the lesson
24 Jun 2010 |
Dr R K Pachauri
| The Indian Express
The oil spill in the Gulf of Mexico has not only attracted widespread attention and created a major political fallout in the US, but has posed some major issues that impact the future of global energy policy and the international response to the growing challenge of climate change. Some general inferences can be drawn from this tragic occurrence, which has not only led to the loss of human life, but is continuing to threaten marine life and coastal areas in the Gulf.
The first major inference relates to the manner in which decisions are taken for deep sea exploration that were infeasible in the past. Today, deep sea drilling technology has been perfected to a level where going as deep as several kilometres has become routine. However, before a project is implemented for drilling at such depths, seldom is a proper analysis of possible scenarios carried for assessment of consequential risks.
It is obvious that there is a lag between the use of deep sea drilling technology and the development of solutions which could be implemented promptly and
effectively in the event of a major disaster taking place. Unfortunately, regulations that might ensure appropriate safety measures in the event of disasters (which may be low in probability but high in impact), have lagged behind. The US in particular is likely to put in place effective regulatory measures by which this gap hopefully will be filled with safeguards preceding offshore drilling in these high risk areas.
The second major inference from this disaster is the fact that there would be a timely reappraisal of how far our thirst for oil should take us to different regions of the globe. A recent article in Newsweek mentions that if the oil industry has its way, we may have more such unplanned experiments as we have seen with the Deepwater Horizon disaster in the Gulf. It is estimated that there are 30 billion barrels of crude oil equivalent beneath the Gulf of Mexico\'s ultra-deep waters, that is depths below 6000 feet. It is reported that in 2008, Shell finished drilling an oil well 9000 feet under the gulf and BP has another well 7000 feet below.
All of this raises a very fundamental question about energy policy. Former US president George W. Bush deprecated the fact that Americans are addicted to oil. Unfortunately, the rest of the world, and certainly countries like China and India, are blindly following the US example. The question is whether we can rely on the growing demand for oil being met at reasonable prices. This seems very unlikely given the fact that even the International Energy Agency (IEA) has revised its estimates of oil production downwards in recent years. One statement that has been made by the IEA is very pertinent in defining future global energy policy - \"sustained investment is needed mainly to combat the decline in output at existing fields, which will drop by almost two-thirds by 2030\". If the oil spill in the Gulf leads to stringent regulation and restriction on drilling in offshore and other difficult areas, clearly the decline in existing reserves is unlikely to be made good through new discoveries. At the same time, demand for oil is continuing to grow notwithstanding the slight pause due to the recent economic recession. However, even in North America, demand for automobiles has picked up again, assisted by government support for the automobile industry and programmes like \"Cash for Clunkers\". According to the IEA\'s reference scenario, non-OECD countries will account for 93 per cent of the increase in world primary energy demand and all the growth in oil demand, which will rise from 85 million barrels per day in 2008 to 105 million barrels per day in 2030.
All these facts also have to be seen in the context of the need to mitigate emissions of greenhouse gases. One of the major findings of the Fourth Assessment Report (AR4) of the Intergovernmental Panel of Climate Change (IPCC) is the fact that mitigation of emissions is accompanied by large scale co-benefits such as reduced air pollution, higher energy security and greater employment (such as with a shift to renewable sources of energy). The Gulf oil spill also reminds us that another major co-benefit could be avoidance of marine pollution and damage to vulnerable coastal areas. In the case of India, a lack of coordinated attention to energy security issues is propelling the country towards crisis. TERI has carried out detailed analysis of future prospects using an extensive energy economy model, which reveals that on a business-as-usual basis, at the end of two decades from now India may be importing 750 million tonnes of oil and 1300 million tonnes of coal. Now that coal prices exhibit similar increases as the price of oil, it is obvious that with this level of import dependence on fossil fuels, India is certainly not moving towards an energy secure future. The answer lies in substantial improvements in energy efficiency and a shift to renewable sources of energy, all of which would require a major restructuring of the economy and changes in lifestyles. For instance, our growing dependence on private vehicular transport would only increase our vulnerability to substantially higher oil imports. Price increases in the global market could hit India\'s economy to a disastrous extent. It was only three years ago that global oil prices reached a level of $147 per barrel, and given current trends in the global market a similar level of global prices cannot be ruled out in the not too distant future.
The Gulf oil spill certainly has major lessons for the global community, but it is in India\'s interest to learn from it before developments force us into taking action that over time would become much more expensive. For instance, it is cheaper for us to improve the efficiency of our buildings, factories and commercial complexes right now than to have to retrofit them with efficiency enhancing measures in the future. Likewise, for us to enhance our public transport infrastructure and modernise the Indian Railways today is preferable to being forced into doing so in the wake of unacceptably high oil prices in the future. If we learn these lessons today, then perhaps the Gulf oil spill would leave us wiser.
Delivery key for energy sector
15 Jun 2010 |
Dr Leena Srivastava
| Financial Chronicle
The energy sector is a high priority area for the government. Many measures have been tried to accelerate reforms in the sector - intense discussions took place for years on vertical unbundling of functions with limited success and new regulatory institutions have mushroomed all over the country providing a great extended employment opportunity to various public servants. But a decade and a half have gone and progress has not matched the rhetoric.
The scale of investments required in the energy sector necessitates the aggressive participation of the private sector. Wisdom led to the identification of distribution reforms in the electricity sector as the key to bringing about improvements in the financial performance and operations of utilities. However, the vexed issue of pricing of electricity brought this promising and much-needed area of reform to a standstill after the Delhi distribution privatisation experience. The case with the pricing of petroleum products was just the same. The independent electricity regulatory commissions were brought in to provide an arms-length distance between politics and the economic functioning of the energy sectors - constant interference in the electricity pricing decisions and a diluted petroleum regulatory board ensured that the government defeated itself in its purpose.
Apart from direct interference with energy pricing decisions, governments - both central and state - stymied themselves by the poor accountability of the regulatory commissions and the inadequate support to the infrastructure needed for fast-paced, innovative reforms to be implemented - the classic case in point being the electricity metering systems that would allow the measurement and monitoring of the impacts of reform measures.
The government is today deliberating on a new version of regulatory reforms bill that aims to provide uniform treatment for all public utilities in the country. This bill does take cognisance of the weaknesses of earlier systems, but stops short of proposing the truly hard measures that are needed to put the energy sector on track. First and foremost is the issue of competition. If, as is the case in the electricity sector, there is no competition in the market then the regulatory function becomes a mere accounting exercise for tariff determination purposes. The only competition being seen is in the bidding processes for setting up new infrastructure projects - which is laudable - but has little or no impact on the downstream performance of the sector.
If, on the other hand, pricing regulation is not divested to the regulatory commissions, as in the case of the petroleum sector, then too the uncertainties of politically driven pricing would greatly deter newer competition entering the market.
Then comes the issue of the regulatory commissions themselves. The new bill once again lays out the constitution of the selection committee, the minimum disciplinary qualifications needed in commissions and the protected terms of the members. But, as has been noted from past experience, following due pro-cess in a technically right sense does not necessarily lead to the desired outcomes. The need of the hour is to be able to identify members who have a vision for the development of the sector and a proven track record of performance delivery in an open, transparent and consultative manner. The draft bill has taken a big step in requiring regulatory commissions to prepare annual plans, but they should also be required to prepare rolling five-year plans into which the annual plans would dovetail.
The key issue is one of protected tenures. Theoretically, the advantages of doing so from the point of view of independence of decision-making are obvious. Past experiences, unfortunately, belie these advantages and careful thought needs to be given to these provisions. The disadvantages of a protected tenure lie in the weak pressure to perform. If a member of a commission is loathe to making decisions needed to push reforms forward, then the sector would be stuck with the situation. Of course, the question would arise as to who is evaluating the performance of the commission and its members? How can appropriate benchmarks be set? Accountability of commissions has to go beyond mere reporting of (non) performance at the end of a year.
Finally, the challenges of having multiple regulatory authorities in a sector were revealed in recent weeks in the context of the financial sector. Discussions are now on about a super-regulator for the sector. If a new draft regulatory bill is being discussed for public utilities, it is an opportune time to revisit the issue of a single energy regulator and to strengthen mechanisms for coordination across other related sectors as well.
Electricity related legislations were implemented in 1998 and revised in 2003. If new legislation is being discussed today, let there be as comprehensive and unabashed an overhaul of this new legislation as possible, drawing on experiences from across all other sectors.