The petroleum minister would do well to visit Mannar and explore the possibilities of obtaining gas from Sri Lanka in exchange of goods and services that India needs
A public interest litigation (PIL) filed by Gurudas Dasgupta (CPI) and EAS Sharma, former power secretary, has raised pertinent questions on the gas prices and ensures a lively debate on how such a nationally important matter can be settled.
Petroleum minister Veerappa Moily earlier had proposed a price of $6.77 per mmBtu (million metric British thermal unit) against the $8.40 mmBtu recommended by the Rangarajan Committee, but this is now set become effective from April next year, unless some changes are made as a sequel to the PIL.
Moily has reiterated his stand by the decision taken that such a revision would make it economically viable and commercial worthwhile for the investors, considering the fact that the cost of imported gas works out to $18 per mmBtu.
In simple terms, what would be the situation if there was no indigenous gas available? Import would be unavoidable for the industry to survive and nobody would have any qualms in paying this price. How much, after all, can we bargain on the international price of oil?
Besides, explored offshore areas now appear to hold as much as 3 billion cubic feet of gas reserves. By revising the gas price, the government expects further investments in this area and is confident that such a move will ensure tapping the known resources and making available the much needed gas to the country for its development and survival of the industry.
However, there are two issues that need to be settled firmly and the government cannot mull over these.
The first refers to the non-supply of the contracted quantities earlier at the old prices. The balance quantity of the committed gas need to be supplied concurrently with new orders, assuming larger quantity of production that can be pumped out either by adding balancing equipments or by drilling additional wells, or, perhaps, a judicious combination of both!
The second issue covers the unit of currency for payment. Since the US dollar is an internationally recognised unit of currency in the oil industry, this may be accepted, as fait acccompli.
So, for the unsupplied (or balance of the pending orders) quantity of gas, for the pending orders not only the rate applicable shall be $4.20 per mmBtu, it will also be charged in rupee terms at, say, Rs45 to a dollar.
This will then take us to the issue of additional supplies or new supplies (or orders) over the old contracts, at a new or revised price of $8.40 per mmBtu or could be even $6.77 per mmBtu, the rate of exchange may be a fixed parity at say Rs 60 per dollar. Every indication of present day market conditions, CAD, etc point out a further decline of the rupee, which may actually slide down from Rs63 to Rs65 per dollar. This is highly unpredictable at this time.
Right now, there are several explorers in this field, apart from Reliance Industries (RIL), which has struck oil or gas or a combination of both. Gujarat State Petroleum Corporation (GSPC), ONGC and Hardy Oil are likely to produce much needed gas in the near term. The government must ensure that immediate assurances are given to these corporate giants that they would be accorded identical revised benefits like RIL, but what is needed is for them to tap the resources and bring the gas on shore for urgent use.
The fly in the ointment that needs to be removed is the expeditious clearance of environmental issues, if any, just like the 11 km pipe line for the GSPC, which has been pending for five years.
Cairn Energy, which has been successful in producing 200,000 barrels of oil a day, has discovered gas in Mannar basin in Sri Lanka. Why not the government persuade Cairn Energy to propose to its Sri Lankan counterpart that it is willing to ‘accept’ gas in settlement in whatever ‘profit-sharing’ arrangements they may have made, which can be diverted to India? Gulf of Mannar is not far off from the Southern tip of India and laying a gas pipeline may not be a Herculean task. Taking this one step further, why not seek gas supplies from Sri Lanka when this find becomes commercially large and viable?
The petroleum minister would also do well to visit Mannar and explore the possibilities of obtaining gas from Sri Lanka in exchange of goods and services that country needs. Moily must remember that China is already laying a huge gas pipeline from Myanmar to China!
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
Indian politicians are unlikely to allow economic policies that come into conflict with their...
The NSEL fiasco is part of a wider problem: poor financial market regulations across capital market, insurance and banking. The government is apparently considering a new regulation for commodity markets. Why wasn’t this a given higher priority than arming a corrupt and inefficient SEBI bureaucracy with draconian powers?
A massive Silver Jubilee celebration has been followed by a quick ordinance, with minimal public discussion, to give the Securities and Exchange Board of India (SEBI) sweeping new powers. Of these, the only area where some action was urgently required is on the clarity to regulate collective investment schemes (CIS). The ordinance does that and much more. It allows SEBI to decide what is a CIS, especially if it is a money pool of Rs100 crore or more.
It is now empowered to call for information (retrospectively from March 1998) as well as search and seizure, criminal prosecution, attachment of assets and disgorgement of wrongful gains. The ordinance also validates SEBI’s ‘Consent Order’ regime, which is a matter of litigation.
Was the regulator really hobbled by an absence of these powers? Will its extensive new mandate benefit stakeholders or merely create a larger bureaucracy to harass legitimate businesses? Time will tell how SEBI wields its new powers, but a look at how it had acquitted itself so far, only causes concern and discomfort.
Stock market regulation, registration of intermediaries as well as the automation of trading with settlement guarantees was seen as such a big deal that every regulator after 1992, was modelled on SEBI. But wouldn’t you think that a government as beleaguered as the United Progressive Alliance (UPA-2) would call for clear, unambiguous assessment of SEBI’s achievements before rushing ahead with an ordinance that grants it sweeping powers?
In fact, the current action seems just over a year old—starting from the time Pranab Mukherjee went over to the Rashtrapati Bhavan. Until then, the thinking was different. In March 2011, the Financial Sector Legislative Reforms Commission (FSLRC) was set up to review legal and institutional structures of the financial sector. According to Wikipedia, this was because “piecemeal amendments have generated unintended outcomes including regulatory gaps, overlaps, inconsistencies and regulatory arbitrage.”
FSLRC submitted its report in March 2013 and one of its key recommendations was the setting up of a Unified Financial Authority (UFA). However, it turns out that FSLRC itself may have been an exercise in futility and a waste of taxpayers’ money. Each of its key members—YH Malegam (well-known chartered accountant and director on the Reserve Bank of India board for over 19 years), Kishori J Udeshi (ex-RBI deputy governor), PJ Nayak (ex-bureaucrat and former chief of Axis Bank and JR Varma (academic)—voiced formal dissent against its core recommendations. FSLRC itself made no attempt to engage with core stakeholders—the consumers of financial services—who have been getting a raw deal under every financial regulator. Consider these issues.
• After 25 years of its existence, the number of retail investors has shrunk from 20 million to 8 million (D Swarup Committee report) and this includes mutual fund investors;
• RBI has not been able to make any headway in reaching over 300 million unbanked Indians. In fact, it has to share the responsibility for viewing the microfinance sector through rose-tinted glasses even as their aggressive sales and usurious interest rates pushed people to suicide and bankruptcy, nearly killing this business segment.
• The creation of an insurance regulator only encouraged rampant mis-selling of equity-linked mutual fund products; the regulator did nothing, until three years ago. RBI and the Insurance Regulation and Development Authority (IRDA) are yet to initiate action against misleading advertisements and rampant mis-selling of insurance by banks. Result: India remains one of the most under-insured countries in the world.
• The pension regulator has made no headway because of its foolish decision not to compensate distributors, because the pension Bill has yet to be passed and there is no clarity on its regulatory powers.
The FSLRC report didn’t even touch on these issues. Since the government chose the ordinance route to make SEBI more powerful, one assumes that the FSLRC report has been dumped. Otherwise, the ordinance should have been preceded by a transparent assessment of whether SEBI was even using its existing powers of regulation and supervision effectively. In our experience, SEBI’s performance is especially lacking in the area of grievance redress and is the single biggest reason for retail investors’ exit.
Let’s turn to regulatory and statutory changes that were probably more urgent than the ordinance to empower SEBI. The consequence of regulatory confusion was evident in the blind panic in connection with the National Spot Exchange Ltd (NSEL), which was asked to suspend all its contracts (except e-contracts). NSEL must be hauled up for wrongdoing, if any, but nobody seems to realise that the buck, in this case, should stop right at the top—with the ministry of consumer affairs (M-Con), which allowed a commodity spot exchange to be set up with just a government notification.
The M-Con, with no experience of regulating a market (or consumer issues for that matter), triggered chaos with an order that virtually shut down an exchange overnight. This, after it sat on concerns about NSEL’s ready-forward trades (conducted openly and transparently by the bourse), for more than a year. When NSEL suspended all contracts other than e-series, and decided to merge settlements, it triggered a panic. The shares of Financial Technologies, NSEL’s promoter, crashed over 60% and those of the Multi Commodity Exchange (MCX) dropped 20%.
Will someone tell us who at M-Con took the decision to permit and regulate a spot exchange in commodities? Was there any attempt to create a framework or infrastructure to regulate the bourse? Why weren’t spot exchanges started under the Forward Markets Commission, which regulates commodity trading? According to media reports, the government is now considering a new regulation for commodity markets—if this is true, why wasn’t this a given higher priority than the SEBI ordinance?
Then there is the Companies Bill 2012, which has been cleared by the Lok Sabha seven months ago, but remains in suspended animation because the Rajya Sabha has yet to clear it. Has the government forgotten the Bill? Or is the young minister of corporate affairs (M-Corp), Sachin Pilot, unable to make his voice heard? Sources say that it is deliberately, and repeatedly, sidelined, but it is not clear why.
Could it be that SEBI is considered a better regulator because M-Corp failed to check the rampant fund-raising by Sahara, Saradha and a host of other collective investment and chain-money schemes? If yes, then there is still no clarity about whether the new SEBI ordinance will also cover chain marketing or multi-level marketing (MLM) companies (MMM, floated by a Russian citizen, QNet by a Malaysian, Pearls or PACL and hundreds of others), which fall between the Prize, Chits & Money Circulation Act, 1978 and the Companies Act.
As we said before, the SEBI ordinance is extensive in its scope but there is little clarity about what this means for ordinary people who are victims of various scams and mis-selling. The effectiveness of a statute depends on how well it is implemented.
Unfortunately, neither SEBI nor any of the other independent regulators modelled on it have really delivered. SEBI is seen as a slothful, non-transparent, arrogant and corrupt bureaucracy, packed with officials on deputation, looking for their next sinecure. Now, it will only be bigger and more powerful. Its senior appointees are on a career extension and have little interest in making a mark or fulfilling their primary mandate of protecting investors and developing markets. They rarely interact with public stakeholders, probably afraid of exposing their sketchy knowledge about markets, financial products and investors’ issues. They get away because there is almost no accountability to the finance ministry, parliament or the people. Very few MPs have either the domain knowledge or an interest in the slowly diminishing tribe of investors; they are more interested in companies and powerful market intermediaries which hardly makes for a healthy capital market.
Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected]