Citizens' Issues
EAS Sarma takes on Abdul Kalam

While president APJ Abdul Kalam gave a clean chit to the nuclear project (some details), India's former revenue secretary EAS Sarma has taken on his claims and punched some holes in the popular former president's statement

Maintaining that he has not come as a mediator, former president APJ Abdul Kalam, on Sunday fully backed the operation of the Kudankulan Nuclear Power Plant, saying it was ‘safe’ and was needed for the development of Tamil Nadu’s economy.

However, EAS Sarma, former secretary (power), Government of India and former adviser (energy), Planning Commission has criticised the former president’s statement. Below is the transcript of the letter Mr Sarma has written to Mr Kalam.

I refer to your highly reassuring article in The Hindu today (6 November 2011) on the safety of nuclear power. I understand that you even went to the extent of assuring the people of Kudankulam that nuclear power is ‘100% safe’. Though my knowledge of statistics is rather rudimentary, I wonder how one can make such a resounding assertion, especially when anyone with some semblance of familiarity with the technology would hesitate to assert like that!

My native place is Srikakulam in Andhra Pradesh. Quite close to my place, at Kovvada, Nuclear Power Corporation of India (NPCIL) proposes to set up a fairly large nuclear power plant complex. I have many genuine apprehensions about the safety of nuclear power. Now that it is coming in my backyard, my apprehensions have multiplied considerably. Such apprehensions are natural for one who is at the receiving end of such a technology, though, for those who pen articles at a distance, those apprehensions may sound like ‘comic bookish imagination’.

I understand that NPCIL has adopted a zoning system around nuclear power plants to caution the people residing in the area surrounding the plant site. I understand that the ‘exclusion’, ‘sterilised’ and ‘emergency monitoring’ zones extend up to 16 kilometres from the rim of the site. My family at Srikakulam is yet to be told about this! Perhaps, NPCIL is waiting to complete the plant before announcing this to the people at the receiving end! Your article, of course, is diplomatically silent on this. NPCIL may not like to get such trivial facts highlighted!

Knowing your stature, I have gone through your article with a great deal of care to understand how safe I am in the immediate vicinity of Kovvada ‘nuclear park’, as it is how NPCIL calls it to make it look ‘clean’ and ‘green’. At one place, you were kind enough to have made the following assertion.

“Another argument which surrounds the nuclear debate is that nuclear accidents and the radiation fallout as the aftermath would not only harm the exposed generation but also continue to impact generations to come. If available facts and scientific inquiry was given more weightage than mere conjectures and comic-bookish imagination, this argument will in all probability be proved a myth”.

You must have scanned the whole gamut of scientific literature on this subject before making such a statement. I am sure you have done it. I agree with you that scientific enquiry should be given more weightage, than impressions and conjectures. On reading every sentence of the article, I could not but help zeroing in on the following concerns that still rankles my mind.

When you brushed aside the safety concerns about nuclear technology as mere conjectures, did you make an effort to ask the nuclear establishment whether NPCIL had ever carried out a reliability engineering study of each existing nuclear power plant to estimate the compound probability of an accident taking place as a result of a mechanical failure arising from the failure of individual components? If this has not done, can you jump to the conclusion that the probability of an accident is negligible, merely on the basis of your own appreciation of the number of accidents that have taken place during the last few decades? Is not such a conclusion statistically infirm, as it is based on a highly constrained sample that could lead to a misleading estimate?

You have thankfully admitted that there is some correlation between radiation exposure and cancer risk. However, you have underplayed the possible long-term adverse impact of radioactivity on human health, especially on the human cells. Did you, by any chance, make a comprehensive survey of the available scientific literature on this subject? Can you confidently deny the fact that there are wide gaps in scientific knowledge on the likely impact of both low-intensity and high-intensity radiation on the human health, including the genetic effects? By way of an example, I have enclosed an article on the possible effect on human cells, of even low-intensity radiation that appeared in The Hindu sometime ago, just as your own article has appeared in that esteemed newspaper. I hope you have gone through the scientific literature carefully before making assertions on the health impacts.

While going eloquent on the positive aspects about nuclear technology, you did not fully cover its negative aspects. I can appreciate the reasons for this. In the case of many technologies, the technology establishments, in their anxiety to push through their technologies, tend to underplay the costs but overplay the benefits. In public policy, one should necessarily remain wary of this.

Did you make an effort to find out the cost of decommissioning a nuclear power plant on the basis of the plants, if any, decommissioned so far? Since you have talked about the ‘opportunity costs’, did you also make an effort to estimate the cost of managing the accumulating radioactive waste in the long run? Are you aware that these costs are difficult to quantify? The cost of decommissioning Chernobyl will never be known, as it can never be decommissioned. With foreign financial help, Russians are building a sarcophagus around the contaminated Chernobyl reactors! Till date, the cost of Fukushima is not known.

You have talked about the links between energy and economy. I hesitate to question your wisdom on this. However, I am not sure whether you are aware of the impact of efficiency improvements, demand management and other measures on the link between energy and economic development. I wish you had the opportunity of interacting with Prof Amulya Reddy of IISc on this subject, when he was alive. I would strongly advise you to read ‘Soft Energy Paths: Toward a durable peace’ by Amory B Lovins Penguin Books (1977). I benefitted a great deal by reading that thought-provoking work.

Shri Kalam, I write this letter with the intention of placing my genuine human concerns, not to find fault with your article in any manner. You are a highly erudite writer. But, to a person placed in my position or to the people living in the vicinity of the existing nuclear power plants, what matters are not articles based on pre-conceived notions but scientifically substantiated logic. I am afraid that your article raises more questions than answers!


Yours sincerely,
EAS Sarma

Former Secretary (Power), GOI
Former Adviser (Energy), planning Commission


MENA and economic growth

Will countries like Egypt, Tunisia and Libya be able to change decades of mismanagement? It is possible, but exceptionally difficult. The entrenched interests are not giving up without a fight

Most people have an opinion about their government. Whether they feel it is either good or bad is a matter of perception. From a perspective of sustainable economic growth and long-term investing, it is less important to judge a government by what it does and more important to know what it can’t do.  
The Middle East and North Africa (MENA) region have some governments that most people would judge to have real problems. Economic growth for all of these countries is generally lethargic. With the notable exception of Turkey, their stock markets never recovered from their pre-crash highs. The Saudi Tadawul index has not recovered from its crash in 2006.
The reason for the lacklustre growth is that all of these markets display the four elements or hallmarks of emerging markets. All of these markets are dominated by well connected family-run firms. The countries are very corrupt and crony capitalism is dominant. According to Transparency International’s Corruption Perception Index, over half rank well below the average. All of these countries have large segments of the economy in state hands. Finally, since many smaller companies have been excluded from the regular economy by either discriminatory regulations, lack of connections or inability to get capital, these countries all have large underground economies that may exceed 50% of the gross domestic product (GDP).
The four hallmarks of emerging markets slow economies for the simple reason that they distort information and choices. Efficient markets need both. Buyers, sellers, investors and lenders need to find the best deal, not the deal with the best connections. It is hardly surprising that most of these countries score well below the average in the World Bank’s Doing Business report for ease of doing business.
The governments of the MENA have created systems that perpetuated favouritism and inefficient markets. These systems were created because they helped powerful people in government and elites. They were able to create these systems, because there were no limits on the government’s power to discriminate, not independent courts, not elections, not autonomous regulators. Without legal limits to help free up these economies the problems simply became worse as the renters demanded an every larger piece of the pie, at least until this year.
The Arab Spring has brought some important changes. Regimes have fallen in Tunisia, Libya, and Egypt. There is ongoing civil strife in Syria and Yemen and protests in other countries. But will these new found freedoms result in renewed economic growth?
It is an arduous process. Some of the best examples come from Eastern Europe. For example compare Poland and the Ukraine. Both countries became democratic about twenty years ago. At that time, both countries were economic basket cases. Since then their economic growth could not be more different. Poland hardly noticed the recession. It was the only country in the EU (European Union) not to contract. Ukraine’s economy contracted by 15%. Poland ranks at 62 on the Doing Business list and 41 on the corruption index. Ukraine ranks 152 and 134 respectively.
Both countries had popular uprisings or demonstrations that attempted to put the government at the service of the majority and not for the benefit of the few. Poland succeeded and the Ukraine failed. Poland had the benefit of only a generation of state control, while in the Ukraine there were no institutional memories. There were other differences, but perhaps the largest was membership in the European Union. This forced Polish politicians to adhere to laws and regulations instead of using their offices as profit centres.
Will countries like Egypt, Tunisia and Libya be able to change decades of mismanagement? It is possible, but exceptionally difficult. The entrenched interests are not giving up without a fight. Specifically the military in Egypt is doing everything possible to protect its sweeping privileges. There are no limits on the hated emergency legislation and the government is free to crackdown on critics. The new government is supposed to protect the military by exempting it from civilian oversight and allowing it to interfere in politics.
The other problem with these new governments is not with the old haves, but with the have nots. Many of these groups, and certainly the groups who will gain power, will be eager to use the government to reward their followers. Since limiting government subsidies and reforming regulations takes time, it is often easier to keep bloated bureaucracies and unfair redistributions in place.
The good news is that unlike autocracies, democracies can change, change laws and change policies. The more citizens become empowered, the better off they will be. A freedom of information act has become a powerful tool to fight corruption in India and an anti-corruption commission in Indonesia is beginning to make difference.
But the work of the protestors in Tahrir Square and elsewhere will never be finished. Corruption and special interests are always waiting.


CME clarifies: lowers margin, ICE follows suit

On Friday, the CME which is the key market for commodities futures and options had announced initial and maintenance margin will not be different, leading the market observors to believe that maintenance margins are being raised.    

However, On Saturday, CME has issued a statement that this was not so. It apologised for the confusion its previous advisory caused. Here is CME's statement:


CME Group today is clarifying its notice to clearing firms regarding margins. In light of the issues customers transferring out of MF Global are facing, while still maintaining appropriate risk management protections for the market, CME Clearing is setting the "initial" margin upcharge at zero. This upcharge is normally applied to customer accounts when they are receiving a margin call.

The intent and effect of these changes is to decrease the size of any margin calls resulting from the bulk transfer of MF Global customers to new clearing members, not to increase them.

Yesterday, CME Group successfully transferred MF Global customer positions to a new clearing member with part, but not all, of their funds, as approved by the bankruptcy trustee and the court. By reducing the initial margin “ratio” to 1.00, we ensure that margin calls that are issued to these transferred MF Global customers will be limited to bringing their accounts into compliance with the lower, “maintenance” margin levels. Maintenance margins are set to provide appropriate risk management coverage. Initial margins are set to provide an additional buffer against future losses in the account.

This is a short term accommodation to maintain market integrity and provide temporary relief to customers whose accounts have been disrupted by this event. We apologize for any confusion our initial advisory may have caused.


Soon after another major exchange ICE, lowered inital margins, to facilitate the onboarding of MF Global clients.  



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