Regulatory issues in Indonesia - a reason or an excuse to reopen 48,000 MW electricity deals?

Pratim Ranjan Bose

This is unprecedented.

Imagine you bid for a contract. Considering the risks attached, you have quoted a price of say ` 100. But, someone else, with higher risk appetite, grabs the contract by quoting a price of say `80.

A few years down the line the winner party complaints that he has taken too much of risks leading to huge losses. And to ensure his viability, the project authorities now agree to offer him a higher price of `100. You end up making a fool of yourself, amid complete mockery of tendering norms.

Image courtesy: www.urbansamurai.com

Almost the same thing happened with the recent order of Central Electricity Regulatory Commission (CERC) that granted higher electricity tariff (referred as compensatory tariff) to mega-sized generation facilities Tata Power and Adani Power both located at Mundra in Gujarat.

Mockery of tendering norms

Both of them, won contracts to supply electricity to a number of State distribution utilities promising cheap levelised (flat) tariff on long term basis, ranging up to 25-years.

Both proposed to source part of the coal requirement from their mines in Indonesia, to justify such cost-economics. And, both are in a problem due to change in pricing methodology for Indonesian coal.

It did not impact their earnings from mining operations in Indonesia. The foreign government ensured that coal must not be exported out of the country below global market price, so that Indonesia gets its due share of taxes and duties. Naturally, coal imported to India became costlier.

The problem is genuine.

But, Tata Power and Adani were responsible for inviting it. They took every risk of sourcing coal – so much so that they did not opt for a cost-plus tariff model also on offer - and promised to supply electricity at the cheapest rates, outbidding many others who were more cautious in approach.

A post facto change in tendering norm therefore goes against the sanctity of contracts and natural justice.

Source: citizensforethics.com

But CERC did exactly the opposite citing “commercial impossibility” of fulfilling the supply contracts in view of change in regulations in Indonesia.

A private dispute between commercial organisations on fulfillment of contract obligation was converted into a debate on the notional ability of private capital to produce “cheap” electricity and the priority before the nation in rescuing such utilities from going bankrupt.

Private or national cause?

The moral high ground, as set by the CERC, is not new.

In fact, the very policy of levelised tariff-based bidding was mooted way back in 2005 by the UPA government in Delhi, as a recipe to generate adequate cheap “electricity for all”.

Private capital, the then Union power secretary was often found telling, had enormous risk appetite and ability to supply power at the same rate for as many as 25 years. The State sector units, including India’s largest power producer NTPC, which stuck to the cost-plus tariff model were dubbed as “inefficient”.

Source: http://jenn44.files.wordpress.com

Today, the policy proved to be a perfect recipe for disaster.

A total of 48,000 mw worth generation capacities, which promised to sell electricity to various State distribution utilities (Discoms) across the country, turned unviable.

A total of 19 such power producers have already approached India’s apex regulator with a plea to reopen the contracts, they once grabbed quoting rock bottom prices. With Tata and Adani are now allowed to walk free from the contractual obligations; it is time for others to expect bail out packages.

And, that would surely put a question mark on the moral and ethical ground of the regulator in revisiting the business agreements.

Because, majority of the Indian producers may be more affected by general uncertainties - like a slide in value of Indian rupee against dollar that made imports costlier, the overall inflationary trend or lower than anticipated availability of domestic coal – which were overlooked during bidding.

In fact it is debatable if majority of the affected producers, now looking forward to reopening of contracts, have any mining operation in the archipelago.

Indonesia may be another excuse to win over an argument that stands on very low moral ground.

An act of deliberate omission?

Going by the chronology of events in the Indian energy space since 2005, one may wonder how the best brains in business, politics and administration could overlook gaping the holes in the tariff based bidding policy.

Source: www.uow.edu.au

None questioned how electricity could be supplied at as low a price as `2.35 a unit for the entire lifespan of a generation capacity? No one pointed out even an increase in price of domestic fuel can upset the viability of such generation plans.

The silence was eerie and raises concerns of a deliberate omission. 

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What does rural India need first: Roads, schools or world class digital connectivity?

Pratim Ranjan Bose

Can digital connectivity bridge the gap of physical infrastructure of an underdeveloped region or does it throw open wider opportunities for regions that already has ample infrastructure in place?

I had an opportunity to revisit the question recently while checking out the social benefits of National Optic Fibre Network (NOFN) pilot project at Panisagar in North Tripura.

The ` 20,000 crore project, which is on course to be rolled out across the country, aims to connect Gram Panchayats (village level local bodies) with 100 mbps broadband connectivity.

The idea is to create an world class information backbone (which is not even available in cities) that would find usage in either ensuring faster delivery of government services; creating an opportunity for rural population to consult of doctors living in cities; access quality learning material that was hitherto the eminent domain of students in top schools or colleges in urban India; secure tips from the choicest football coach; dial-in an agriculture expert for support on pest attack and so on.

The possibilities are endless, as with physical infrastructure - say creating good roads that immediately slashes the travel time, brings villages closer to the towns, encourages new business activities and so on.

Sam Pitroda. Pix. Economic Times

I am all for infrastructure. Having witnessed and enjoyed the fruits of the telecom revolution, once initiated by Sam Pitroda (now the cheif architect of NOFN) way back in the mid 1980’s, when telephone was a rarity, I have no lack of faith on telecom infrastructure.

But, the question bothers. Considering paucity of resources, as we are often reminded by the government(s), should we give priority in building capacities of our roads, railways, power, schools, universities, teachers, paramedics and others?

Take the case of Panisagar. While mobile telephony made it possible to connect people living here round the clock, it still takes the same five hours to cross 180 kms from Agartala, it was in mid 1980’s.

 Because, India forgot to rebuild and widen its only National Highway in the State, ever since the country won the 1971 war with Pakistan. Sixty years since annexation of the State to India, the state capital Agartala was recently connected by a metre gauge rail!

The damaged NH-44 connecting Tripura. Pix: Ashoke Chakrabarty

Telecom revolution may have helped Animesh Biswas of Panisagar to get a airline ticket at the click of a mouse but, he has to start a day in advance to catch the 50 minute flight from Agartala to Kolkata! The remoteness is more physical here and can no way be bridged by virtual media.

I am not here to ask more strategic questions on Defence needs - which are pertinent though, considering the unique location of Tripura. I am more concerned about Unu Miyan, who grows potatoes at 5 acres of land at Ramnagar merely for local consumption.

The transportation barrier ensures he has to live in a near-peasant economy without any access of wider markets. His fate is sealed. He has no choice but going with it.

E-learning can definitely enhance the scope of education. But, can it be any replacement for the ‘teacher’ and his occasional slap the face or a pat on the back?

In this multi-racial multi-cultural nation, where the linguistic map changes in every 100 kilometre, who will create content for students from Reang or Halam tribes who has problems in following the instructions even in the regional languages. If we cannot prevent dropout of students - especially girl students - from schools, what is the use of throwing open the world’s best library before a bunch of half literates or illiterates?

Digital connectivity can help a village doctor in consulting specialists in cities to help diagnose the disease better. But can quality healthcare be at all delivered if there are not enough doctors, nurses and paramedics available in the villages?  

Digital connectivity for few? Pix: Ashoke Chakrabarty

Are we trying to believe that a person can happily live in Siberia with superfine digital connectivity but, without the heating system at work? 

I might be extending the logic a bit too far than proposed by the architects of digital connectivity.

But travel across the length and breadth of the country and you will see people are forced to live in isolation, despite the advent and availability of best in class information technology. The advantage goes to a few.

Digital connectivity is welcome. But first pay attention to build enough roads, airports, railway network, schools, colleges and so on so as to remove the sense of isolation as is evident in India’s North Eastern region.

India: A banana republic in the making?

Pratim Ranjan Bose

The question intrigues me. What is the fate of Indian democracy?

No doubt, India followed a road less travelled in world history. No country of significance gave universal franchise a chance till they were rich.

But, India followed a completely different growth paradigm. In 1947, it adopted democracy in its full vigour, with a per capita of less than $ 100!

Sixty-Six years down the line, India has many reasons to feel proud of its decision.

Come what the detractors say, the common Indians are far richer than they were even three decades ago.

A quick scan of consumption pattern in remote villages and the agricultural wages will tell you that the proverbial “poor” Indians are no more as poor.

It doesn’t mean they are rich. It only means, their capacity to spend has increased, substantially, especially in the last 20 years.

You cannot miss the same person from Kanchanpur in Bankura (We

st Bengal) who had a loincloth as the only earthly possession, some 30 years ago, is today clad in cheap trouser and shirt often with a mobile phone in his pocket.

Getting a cycle and a Santosh radio in dowry is passé. Today television sets and motorcycles are common in every village. The landscape that was once dominated by thatched mud huts were now dotted with aesthetically less sober concrete houses.

No doubt that the country did grow through democracy.

I am consciously keeping away from statistics. Because, I have great doubt if they portray the correct picture.

Statistics not the only barometer 

And, the high ratio of open defecation and India’s informal economy are two examples of such inaccurate information about the populace.

Ask those who are associated with various campaigns to promote personal hygiene among rural Indians, and you will know its not money but culture that primarily comes in the way of ensuring sanitation.

Too many of us, perhaps most us even the large metros, are yet to be convinced that they should not pee in public.

I see it more as a problem that persists due to lack of political will and intervention.

The political nature of the problem is more evident in the status of informal economy, often described as the biggest growth churner for the country. (Economist did a cover story on India’s informal economy a couple of weeks ago).

The contention is not new. Many economists insist that India’s key economic measures are more a figment of imagination than reality as is evident in low and stagnant income tax base (only 2 per cent of population file IT returns) vis-à-vis the ballooning GDP numbers.

Clearly, large proportion of the population, earning in higher numbers than ever, are keeping out of the tax net. And, I am not merely referring to “kulaks’, as communists often point out. Right from your fish seller to the auto-rickshaw driver, too many potential tax-payers are suspected to have kept out of the net.

Run a check at the local vegetable market and you will find those vendors are huge investors in dubious financial schemes, more out of greed to keep the money growing illegally than lack of awareness. The environment is created and protected by politics. 

The other India

Clearly there is another India, within India. And, chances are high that the other India is getting stronger and, dictating public policies like never before.

 It is this India that is playing a crucial role in bringing corrupt and more corrupt governments in power at the Centre or in the States for last so many years.

A corrupt BJP- government was replaced by more corrupt Congress government in the Centre in 2004 and given a second term in 2009. In West Bengal, a less democratic government was replaced by more intolerant one that is riding high on popularity.

I have given only two examples. But scratch a little and you will find the picture is more or less same everywhere.  

It is this India where identity politics is getting more predominant and dictating terms on every thing that comes in the way, be it selection of judges or appointment of school teachers. The future generation is to be moulded as Muslims or Dalits not as Indians.

Merit is the last priority in this paradigm and, violations is measured in the light of his or her identity. Legal-justice system is put on the back foot in the face of public trials.

It is not merely the so called super-rich who are taking advantage of corruption. But, you me and our neighbours, every aspiring Indian is perhaps caught by this web. ‘Public’, as our politicians often refer the electorate, decide what is wrong or right.

True, people should have larger say in deciding policies that should govern their lives. But, does it mean people should have power to legitimise the illegalities.

The result is evident in daily life. It is now accepted, across the country, that auto-rickshaw drivers will break traffic rules; admission in schools to take place against payment of huge donations; doctors should earn their fees in cash to keep out of tax net; property developers fund elections; judgments are compromised; media is carrying news for money; elected governments are intolerant to criticism and; politicians are corrupt.  

Contradictions within?

Can India survive such gross compromise of democratic values that, we were told, thrives on free speech, justice for all, strengthening of institutions acting without fear and so on?

The issue may not be of concern to India alone. Corruption is rampant in Europe (A European Commission study determined that corruption costs the EU's collective economy $162 billion a year, an amount comparable to the bloc's budget, says Bloomberg). The US is after the life of Edward “WikiLeaks” Snowden, for letting the world know the viciousness of American planning.

Yet, there is something distinct about India. You have a country here that is equivalent to the US and Europe put together in terms of population. It is the flag bearer of democracy in the entire emerging world, which is now dominated by a totalitarian China. The success of Indian democracy will determine the future of democracy in tomorrow’s world.

The big question is will it be able to survive the test? Or should it end up creating a ‘Banana Republic’ in the garb of electoral democracy? If it fails the test; rest assured, the world will be headed for more troubled times.

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Picture courtesy: myexposition.files.wordpress.com; socialism.in; cyberastro.com; http://4.bp.blogspot.com