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Albright Stonebridge Group Newsletter Articles
Albright Stonebridge Group Newsletter Articles
March 1, 2012 While power generation capacity in India is currently about 185.55 Gigawatt (GW) the fifth largest in the world there are still nearly 300 million Indians who have no access to electricity. About 70 percent of Indias total power supply comes from coal, but in recent years, rampant mismanagement has put coal at the center of both high-profile corruption and political conflict in India. A widening gap Due to the growing level of mismanagement surrounding the coal industry, a growing gap in demand and domestic supply of coal increased from about 50 million tons in 2007-08 to 83 million tons in 201011 and is expected to reach 142 million tons by the end of this fiscal year. In addition, coal demand grew by 7.3 percent while coal production increased by just 5.4 percent in the first four years of the 11th Plan period (2007-12). In the future, demand for coal in India is expected to grow to 980 million tons by 2016-17, while domestic production is expected to reach 795 million tons, leaving a gap of 185 million tons. As a result of this gap in supply in demand, power capabilities have at times been restrained and cut throughout 2011. For example, the power generation capacity of Indias largest power producer, the National Thermal Power Corporation (NTPC), had to be cut down by up to 15 percent. Roadblocks and bottlenecks Coal supply and transport is considered one of the biggest roadblocks to power generation. Some of the common reasons to which the growing gap between the production and supply has been attributed include heavy rains in coal-producing areas in the eastern and central parts of the country and a massive disruption in coal supplies after an agitation in the southern state of Andhra Pradesh, for carving out a separate state of Telangana. Widespread theft and illegal mining activities have also increased the supply problem, especially in states such as Jharkhand, Orissa and West Bengal. Another major bottleneck, which has also caused serious inter-ministerial friction, is the time taken by the Ministry of Environment and Forests (MoEF) in giving clearances to mining in different parts of the country. An impediment that has been recently done away with is the go, no-go policy that had been adopted by the MoEF, which split coal-mining zones into mineable and non-mineable zones. Under this classification, around 203 coal blocks with reserves of over 600 million tons in nine major coalfields had been barred from any mining activity, and the policy had contributed largely to the stalling of various big-ticket coal mining projects. Government reaction In a move to restore industry confidence and address shortage issues, a high-level secretary panel has been constituted to look into the matter. This panel will be led by the Prime Minister`s Principal Secretary, Pulok Chatterji, and the Prime Ministers Office (PMO) is directly monitoring the situation. IN
addition, there is already a Group of Ministers (GoM) on coal headed by Finance Minister Pranab Mukherjee. This panel will also focus on environmental clearances to coal blocks allocated to ultra mega power projects of companies such as Reliance Power, Essar and Adani in a meeting on March 1.
To counter corruption, the government has long asked coal-rich states to take appropriate steps to curb the pilferage of dry fuel from mines. It has also sought their cooperation in organising public hearings for coal projects in a time-bound manner was critical to avoid delays in obtaining environmental clearance. The Ministry of Coal has also been trying to focus on development clean technologies to ensure consistency in the quality of coal supplies and areas like underground coal gasification and coal to liquid are also being promoted. Earlier this week, the Coal Ministry said that it may divert a portion of the fuel under e-auction quota to power producers, besides resorting to imports to meet the crisis. Under e-auction, coal is sold at spot market price. Around 10 percent of the total coal produced by state-owned Coal India is sold through eauction. Coal India Limited had offered four million tons of coal meant for e-auction in October to power companies. The government had then allocated additional quantity of coal to the power sector from the e-auction quota to ease coal shortage that caused frequent disruptions in electricity generation. It seems that little will change unless radical measures, such as ending the monopoly of Coal India and attracting private capital into the state-dominated sector, are taken. But a small start seems to have been made, and the PMOs direct involvement indicates that the Government of India realises the importance of this crucial resource in fueling Indias economic growth. Source: http://www.albrightstonebridge.com/coal_india/
The Ayes have it? While many Indians express concerns about foreign influence in the Indian market, Indias burgeoning middle-class appears very receptive, even eager, for big multi-chain companies to enter the market. The field is wide open and highly enticing for big retail chains with their low-cost offerings all under one roof. This is a trend reinforced by the poor showing of luxury single brand retailers in India, and the corresponding success of cheaper multi-brand options like the Easy Day stores in small cities, Reliance Retail, and Future Groups Big Bazaar. Both the central bank and a handful of economists are also in favor of opening up the sector as well, arguing that the entry of companies such as Wal-Mart could enhance competition, expand product offerings, and help push down inflation. Earlier this year, an Inter-Ministerial Group had suggested opening up the sector, stating that this would enhance efficiency of the supply chain and bring down trading margins. Last year in October, preceding U.S. President Barack Obamas visit to India, the Planning Commission had also given the green light to FDI in multi-brand retail trading. Most recently, the Committee of Secretaries (CoS), a group of government officials tasked with reviewing current FDI policy, has recommended permitting 51 % FDI in multi brand retail, albeit with stringent conditions for foreign retailers. These include a minimum investment of $100 million; mandatory investment of at least 50 % in back-end infrastructure; minimum sales of 30 % from small traders; and 30 % mandatory sourcing from small and medium enterprises. The government is talking about an early decision on the proposal, and is apparently working on a Cabinet note, being prepared by the Commerce and Industry Ministry. This effort is being led by the Department of Industrial Policy and Promotion (DIPP). What to expect ahead The government may find it difficult to push what is seen as controversial reform, especially in light of recent civil activism against corruption. Also, any debate in Parliament is bound to be a stormy one, with the BJP finally finding its voice in the wake of the Lok Pal Bill/ anti-corruption stand-off. We assess that the measure will most likely be put off till the next session, with the groundwork being laid in the interim, as state governments also have to be brought on board for granting the requisite clearances to retailers. Source: http://www.albrightstonebridge.com/fdi_in_retail/