TYRANNY OF DIESEL SUBSIDY: RS. 40,000 CRORES LOSS BY OMCs

TYRANNY OF DIESEL SUBSIDY: RS. 40,000 CRORES LOSS BY OMCs

Following is an article specially written for my list by Dr. Bhamy Shenoy, an IITM alumnus. After working for Conoco from 1966 to 1986, he returned to India to fight corruption. He has been fighting energy sector corruption for the last 22 years. Bhamy has been a consultant to the governments of Turkmenistan, Kazakhstan, Uzbekistan, Ghana and Georgia, and served as a board member of the Georgian National Oil Company where he was successful in exposing corruption.

In this article, he shows how consumers of diesel are little affected if diesel prices are liberalized and how the poor will not be losers.

If rational decisions are taken by the government then it has money to fund measures to improve education, health, water, transportation etc. all of help to the common man. But by continuing to subsidize diesel it is only enriching the rich at the cost of the poor.

You may also find interesting two recent research reports on this topic released by the International Institution for Sustainable Development at http://www.iisd.org/gsi/fuel-subsidies-india 

Ram Narayanan

From: DR Vidyardhi NANDURI  - nanduri_dr_vidyardhi@hotmail.com;

Subject:  TYRANNY OF DIESEL SUBSIDY: RS. 40,000 CRORES LOSS BY OMCs

India needs: Inventors- to create awareness [intellectuals Wanted]

Technogy management-Developing countries

Cosmology World peace

BOOKS BY VIDYARDHI NANDURI [1993-2011]

http://archive.org/details/CosmologyVedasInterlinks-booksInformationMay2011isbn978-1-257-96228-0

http://vidyardhicosmology.blogspot.in/2011/10/light-flow-interaction-plasma-vision.html

http://www.scribd.com/doc/24329245/TECHNOLOGY-MANAGEMENT-DEVELOPMENT-NETWORK

Tyranny of diesel subsidy:
Rs. 40,000 crores loss by OMCs

Dr. Bhamy V. Shenoy

If politicians are given the choice of improving education, health, and water facilities to the poor or subsidizing diesel, the choice should be obvious without any controversy. Still diesel subsidy is on its way to become a sacred cow for the political class. Why? How? What should be done to eliminate this subsidy which has been one of the reasons for the unanticipated decline in India's growth rate from above 9% to around 6%.?

Environmental harm caused by diesel subsidy in terms of contributing to global warming directly and indirectly is not even mentioned. The increasing share of diesel vehicle sales is often discussed. Since diesel is relatively cheap (about Rs 25 per liter) compared to gasoline, the share of diesel vehicle sales is increasing.

When three high level committees all headed by eminent economists (C. Rangarjan, B. K. Chaturvedi and Kirit Parikh) were asked to look at the problem of petroleum subsidies during 2006-2009, only residential LPG and PDS kerosene were subsidized in a formal way to help the poor. All these committees had recommended that not only the government should get out of the business of setting product prices, LPG and kerosene prices be also liberalized,. They recommended that the poor could be supplied with subsidized products through coupon or smart card system while allowing their prices to reflect international markets.

The UPA government did not show any interest in implementing these recommendations. There has never been a deliberate policy to subsidize diesel. But the paralysis on the part of UPA to take action in liberalizing diesel pricing has resulted in ever increasing losses to oil marketing companies (OMCs). I have been predicting for some time that these navaratna OMCs will face bankruptcy unless the pricing regime is liberalized.

Currently OMCs are incurring under recoveries from diesel alone of more than Rs. 1,30,000 crores per year. Such a mind boggling amount can easily pay for expanding Sarva Sikshana Abhiyan to improve education, Integrated Child Development Services to help poor families, National Rural Health Mission to improve the operations of rural clinics etc. 2012-13 budgets for these flagships welfare measures are Rs.25,555, 15,380 and 20,822 crores respectively.

The political class is reluctant to liberalize diesel pricing. This is driven by the mistaken notion that such a policy will affect the poor. Computation of under recoveries is faulty.

One question that is always raised concerning diesel price increase is its impact on inflation. Consumers of diesel can be classified under seven categories to study this problem. These are: trucking, private cars, buses, railways, agriculture, power and industry with their respective shares being 37%, 15%, 12%, 6%, 12%, 8% and 10% respectively.

When diesel price is increased, the cost of transportation will certainly go up. This is because railways and bus companies will increase fares to recover their additional costs. So also there will be increase in the price of goods because of the cost of transporting them in trucks. Electricity cost will also go up for those who use diesel to generate power. Cost to the farmers will go up. However when we look at the total impact it is easily manageable as shown below. What is of great interest is that the poor are affected the least. This is because the poor are not part of the formal economy. They are affected more from general inflation caused by fiscal deficit than from diesel price increases.

Let us analyze how each sector is impacted by eliminating the current under recoveries of Rs. 13.89 per liter of diesel. Of course it is neither advisable nor politically feasible to eliminate the under recoveries in one go and should be done gradually. Trucking diesel accounts for 35 to 40% of their total cost and diesel increase will raise their cost by 12.8%. But its impact on final consumption is only about 0.64% since trucking cost accounts for only 5% of the total cost of the goods we consume. When we compute the increases in final consumption for other sectors, private cars, buses, railways, agriculture, power, and industry, the figures are 9.6%, 11.2%, 7.0%, 0.3%, 21%, 4%.

The impact on industry and agriculture is minimum since diesel cost accounts for just 1.1% and 0.8% only. Since it is mostly the rich farmers who use diesel pumps, they should be in a position to pay for the increased cost. In the case of trucking too the inflationary impact on goods carried will be only 0.64% since trucking cost accounts for only 5% of the final cost of the goods. Still it is the trucking sector which makes the loudest noise by threatening to strike when diesel price increases. But they not only pass the incremental cost of diesel price increase, they overcompensate because of their monopoly position.

Power sector will have the maximum impact. But it is mostly those who use diesel generator sets who will be affected by this increase. Industrial consumers have the option of running generator sets based on economics. For householders who use standby generators, the additional cost is not a big burden at all since it is only the rich who can afford diesel generator sets. The same is the case for owners of private cars who can easily absorb the increase of 9.6%.

Since total diesel cost accounts only for about 3.45% of GNP, increase of diesel price by Rs 1 per liter will have minimal impact on overall inflation of about 0.08%. This is only first order inflation impact. However as a result of passing this cost of incremental diesel prices through different stages of the value chain through the economy, it is bound to be higher but still manageable. Even if diesel price is increased by Rs 14 per liter to eliminate all under recoveries the total impact will be just 1.1%. This is just first order impact, without considering the cascading impact of diesel prices which will push the resultant inflation higher.

However as a result of diesel under recoveries (about Rs 2.4 lakhs during the last seven years) the impact on fiscal deficit is likely to be far more. The inflationary impact of such a massive deficit is likely to be more than the inflationary impact of diesel prices.

The Achilles heel of diesel liberalization is the credibility of under recoveries. With the declaration of an unprecedented loss of Rs. 40,000 crores by OMCs for the first quarter of 2012-13, critiques need to find some other explanation to support the diesel subsidy. It is true that when the government compensates OMCs for their under recoveries (government pays about 30%, upstream public sector companies pay 30 to 40% and the rest is absorbed by OMCs), these losses would come down.

Still there is a basic question. When the government pays for the losses incurred by the oil companies, who actually is the loser. All of us know that there is no such thing as a free lunch and the actual loser is the common man who has to bear the burden of higher inflation. When the government pays for under recoveries, the fiscal deficit increases resulting in higher inflation. On the other hand if OMCs are not reimbursed, they will go bankrupt and every one will suffer. Vote bank politics does not worry about such disasters as has been amply demonstrated by the recent grid failure. No one has attributed it to the power sector subsidy.

In recent months highly placed technocrats like the deputy chairman of the planning commission Montek Singh Ahluwalia, PM's economic advisor C Rangarajan, RBI's governor Subba Rao have been saying that India cannot afford the diesel subsidy. Many seminars have been held on oil sector subsidy to recommend their removal and to improve subsidy delivery system through Aadhaar, coupons, etc. But there has been no political will to liberalize petro product prices. We are always waiting for the next political events like elections to be over. It is high time that we have some out of the box type of action plans.

Despite the shocking levels of losses why have chairmen of the OMCs not threatened to resign rather than preside over a process which is sure to bankrupt their companies? Such a sacrifice can be considered as a modern corporate form of satyagraha to prick the conscience of our political system.

Along with them others in the government who deal with the petroleum sector like deputy chairman of the planning commission, petroleum minister, petroleum secretary, PM's economic advisor etc should also threaten to resign. That may create a political tsunami and help bring about the needed liberalization of diesel pricing. In the overall interest of India's development, this may be a small price to pay. It may finally start the process of eliminating the diesel subsidy.

 

 

From: S. Kalyanaraman

Subject:  'PM must look into illegal thorium mining' -- Sunday Guardian

http://bharatkalyan97.blogspot.in/2012/08/monday-august-13-2012-must-look-into.html

'PM must look into illegal thorium mining'

PM must look into illegal thorium mining

Nuclear fuel thorium is being illegally extracted from deposits along Tamil Nadu and Kerala coastlines.

ANURADHA MUKHERJEE & ABHINANDAN MISHRA NEW DELHI | 8th Jul

The illegal mining of nuclear fuel resource thorium on the Tamil Nadu and Kerala coast has raised doubts about the seriousness of the Department of Atomic Energy (DAE) to prevent illegal extraction of this rare resource. DAE is the nodal agency for the development of nuclear fuel in India.

According to a letter from ACACI (Action Committee against Corruption in India), which is chaired by Janata Party chief Subramanian Swamy and other experts to Prime Minister Manmohan Singh, the illegal mining of thorium is taking place from the beaches of Manavalakurichi in Tamil Nadu and Aluva and Chavara in Kerala.

The letter recommends that the coastline be handed over to the Army since it contains the world's largest reserve of thorium, easily extractable by bare hands from sea sand. The letter also recommends to the PM that a Mines Regulatory Authority like the Telecom Regulatory Authority be set up immediately and a policy be made to exclude strategic mineral resources from privatisation.

"All sorts of private companies are operating in these areas. They say they are extracting sand. After the Indo-US nuclear deal, the government seems to have forgotten about building our indigenous thorium technologies. The future of energy depends on the commercialisation of the hydrogen fuel cells and nuclear energy," Subramanian Swamy told this newspaper.

Kieran Ball, a UK-based journalist, who has written extensively on nuclear power in India, told this newspaper that the advantages of using thorium outweigh those of traditional nuclear fuels. "India isn't using more thorium because of the fact that international uptake has been low, most likely due to the costs involved of converting plants to thorium."

Ball stressed that given India's reserves of thorium and the fact that more countries are getting rid of their uranium power plants (Japan is soon to be nuclear-free in the wake of the nuclear accident in Fukushima), India should see this as a real opportunity to become a world leader in a "new and safer form of nuclear power".

"Thorium is indeed central to any of the Bhabha plans which the government may not be very serious about right now. (Former PM Jawaharlal) Nehru was very critical of thorium being shipped off to France, etc., from the Kerala coast. The French knew about the utility of thorium back then. Later, when Department of Atomic Energy was formed after Independence, one of the first decisions was to ban the export of thorium, but this is happening covertly in the name of exporting sand from these beaches or coir ropes dipped in it," said Dr A. Gopalakrishnan, former Atomic Energy Research Bureau (AERB) chief.

Already one reactor (Kakrapar-1), which uses thorium, is working in Surat, Gujarat. Kakrapar uses thorium rather than depleted uranium to achieve power flattening across the reactor core. Experts say that thorium is a strategic mineral for the operational Kamini reactor at Kalpakkam.

The ACACI letter also highlights a criminal case for illegal mining against VV Minerals owner Vaikuntarajan in the Madurai High Court. It alleges that mining licences have been granted by government agencies for exorbitant quantities of sand complex minerals which are inconceivable within the area claimed to be under the ownership of VV Minerals. India is currently expecting to meet up to 30% of its electricity demand through thorium-based reactors by 2050.

http://www.sunday-guardian.com/news/pm-must-look-into-illegal-thorium-mining.

 

 

http://bharatkalyan97.blogspot.in/2012/08/depletion-of-thorium-reserves-from.html

28.8.12

Depletion of thorium reserves from South Indian beaches, impacting India's nuclear doctrine and energy security: 13 blogposts

Executive Summary: The National Strategic Imperative

Sand containing Monazite in Kerala Sea Beach, India. Thorium found abundantly in beach sands of Kerala and Orissa Deposits of 225,000 tonne of thorium approx. BARC website http://www.barc.ernet.in/reactor/tfc_thri.html

The following blogposts are a clarion call to the nation

-- to immediately arrange to protect the thorium reserves of India

-- to stop privatised mining of nuclear fuel complexes

-- to nationalise all mined nuclear fuel containing mineral complexes (such as Rutile, Zircon, Ilmenite, Monazite, Garnet, Sillimanite and other sand forms) with immediate effect by an Ordinance

-- to bring to book the parties involved in illegal mining of the sands/mineral complexes containing nuclear fuel

Conserving and protecting thorium reserves has the potential to catapult India as the world's pre-eminent Nuclear Power. The posts include documentary evidences including full texts of International Atomic Energy Agency and other Agencies' Reports re-affirming the pre-eminent position of India with one complex alone (Manavalakurichi) accounting for 30% of the world's reserves of thorium. India's proven scientific talent in Fast Breeder Reactors using thorium as breeding fuel (to breed Plutonium with dual uses) should be an integral part of India's Nuclear Doctrine and Plans for indigenous development of India's Energy Future based on the nuclear fuel.

The response of GOI has to be two-fold: 1. Strategic declaration of thorium as national asset and consequent decisions to nationalise thorium-containing reserves and stockpiles; 2. Tighterning bureaucratic procedures to safeguard the reserves of thorium-containing mineral complexes by instituting a Joint Armed Forces Nuclear Fuel Defence Command and a Minerals Regulatory Authority on the lines of Telecom Regulatory Authority and Insurance Regulatory Authority.

Kalyanaraman

http://bharatkalyan97.blogspot.in/2012/08/black-monazite-sand-deposits-found-on.html

http://bharatkalyan97.blogspot.in/2012/08/thorium-alleged-export-of-sands-august.html

http://bharatkalyan97.blogspot.in/2012/08/key-reserve-profiles-of-placer-deposits.html

http://bharatkalyan97.blogspot.in/2012/08/valmikis-knowledge-of-oceanography-and.html

http://bharatkalyan97.blogspot.in/2012/08/mining-of-monazite-goi-response-in-lok.html

http://bharatkalyan97.blogspot.in/2012/08/indian-rare-earths-limited.html

http://bharatkalyan97.blogspot.com/2012/08/vv-mineral-achievements.html

http://bharatkalyan97.blogspot.in/2012/08/theres-nuclear-gold-in-this-sand-and.html

http://bharatkalyan97.blogspot.in/2012/08/manavalakurichi.html

http://bharatkalyan97.blogspot.in/2012/08/irregularities-in-bureaucratic.html

http://bharatkalyan97.blogspot.in/2012/08/10-point-plan-nationalise-thorium.html

http://bharatkalyan97.blogspot.in/2012/08/illegal-thorium-mining-in-india-value.html

http://bharatkalyan97.blogspot.in/2012/08/monday-august-13-2012-must-look-into.html

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