Policy News and Vie

Edited by: Payal Malik 29th January 2009

Indicus Analytics, An Economics Research Firm

Environment loses as dirty coal wins Global environment might emerge as the biggest looser in the ongoing financial crisis. The root lies in the worldwide falling prices of dirty coal (which accounts for 40% of the world’s CO2 emissions) in relation to cleaner fossil fuels like natural gas and oil. This coupled with the fact that world’s top emitters of greenhouse gases depend heavily on coal for electricity generation is a cause of concern for environment. This may induce greater use of dirty coal in electricity generation and other applications. In china alone, the biggest burner of coal the prices of dirty coal have reduced by more than half and are likely to come down even further. Our view is that coal will be the primary fuel for generation of electricity in India. This however, does not mean that in meeting India’s electricity needs we will have to neglect the impact on environment. A viable and sustainable solution lies in encouraging generation from “clean” coal. Whilst policies to promote electricity generation from nonconventional energy are being put in place a significant shift towards low-carbon energy sources, may not take place in the near future. Read More ...

Now a PSU for renewable energy Laying emphasis on tapping renewable energy sources to tackle climate change, the ministry of new and renewable energy (MNRE) is considering a proposal to set up a company for generating power from renewable sources. The government is likely to be a 100% owner of the proposed firm that will tap solar, geothermal, wind, biofuel and biomass sources for power generation. This will be the first PSU generating power from renewable sources. Presently private sector predominates in investments flowing into the renewable energy sector. However cost competitiveness of power from renewable sources still remains an issue. Our view is that the private sector has a comparative advantage in renewable electricity generation, it is best that the government encourages the private developers for some time to come. Given that the Government of India sees a huge potential for investments in renewables, the power sector reforms have created space for private entry in this mode as the public utilities are cash strapped and have traditionally no comparative advantage in this field, with only 0.85 percent of the public sector installed capacity is in renewables as compared to 40 percent in the case of private. So the idea of a PSU for renewable energy is misplaced. Read More ...

PSU oil companies may get a price band to fix auto fuel tari The Government is actively considering allowing public sector oil marketing companies a price band, linked to international crude prices, within which the latter will have the freedom to fix diesel and petrol prices. Our view is that this is an important step in the deregulation of the retail prices of petrol and diesel. However, the governments of today and tomorrow should not renege from their commitment when the crude oil prices start rising again. To put this in perspective, the Administered Pricing Mechanism (APM) for petroleum products has been dismantled from April 1, 2002. In theory, India’s public downstream oil companies even now are free to set retail prices of all petroleum products based on an international parity pricing formula under the supervision of a petroleum regulatorr. The practice of retail price setting has been, however, different from the theory. From April 2004 the intervals between price revisions grew larger and the Oil Marketing Companies, started to incur substantial underrecoveries in line with the drastic increase in international crude prices.

DoT, Trai disagree over auction of 3G blocksDoT and TRAI are in strong disagreement over the number of blocks of 3G spectrum to be auctioned. While TRAI wants auction of the entire available spectrum in the interest of fair competition and to avoid litigation, DoT wants reservation of some spectrum for future. DoT in a letter written to Cabinet committee on economic affairs stated that by giving its views on 3G spectrum to be auctioned, the Trai exceeded its brief. DoT also stated that it was not binding on the Government to accept the recommendations of Trai. Our view is that all the gains made in the sector due to the past liberal policies will be diluted if issues like spectrum allocation, infrastructure sharing, licensing and universal service policies are not resolved. It is no surprise that the conflict between the regulator and DoT grab headlines ever so often. The problem lies with the violation of separation of powers principle in the TRAI Act. In many matters there is an overlapping jurisdiction of TRAI and the policy maker. In certain matters, where the regulator should prevail, it only has recommendatory powers, and the DoT can reject the recommendations.

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