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Policy News

and Views

Edited by: Payal Malik


29th January 2009

Indicus Analytics,
An Economics Research Firm
http://indicus.net/Research/Home/Research%20Area/Policy%20and%20Institutional%20Analysis/
CLIMATE CHANGE

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 non-
conventional energy are being put in place a
significant shift towards low-carbon energy sources,
may not take place in the near future.
Read More ...
ENERGY

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 under-
recoveries in line with the drastic increase in
international crude prices.
TELECOM

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.