The Deal, Delivery & Analysis
By: Amit Bhushan Date:27th Jan 2014
The mess in our energy policy also seems to be revving up a lot of interest, this season. We seem to have investors willing to have a piece in this cake for reasons not disclosed by commercial news media. The way things seem to be moving as showcased by the government seems like we are likely to have some projects on ground for Nuclear and Renewable energy on the back of solar cell technology. What we are made to believe is that on the back of Investment protection & avoidance of Taxation surprises, as well as some cheap US finance and prodding from their government; projects (in good numbers) are likely to rise up the ground. The policy mess in other areas such as distribution or sourcing of fuel or substitute sources like coal, hydro etc. have 'no role' or bearing on investor's decisions.
The small businesses must now become happy as improved availability of power means they are 'very likely' to become more productive or are able to control cost of using expensive diesel generators. That the new projects will take 4-10 years to start generating power seems to be a small concern as path breaking agreements do not have to care for such sundry things. Also, that such projects will be initially generating business for global banks for financing and subsequently for global vendors for supply of reactors & gen-sets etc. and actual production and support to domestic businesses happens much later (if it happens at all) is a lower concern. What we gain for the exchange of business opportunities in these energy markets, besides financing as well as more electricity is yet to be dwelled over by media for more details. This is especially so since we are forcing our insurance companies to absorb significant operating risks of these projects at very low costs as per information being shared by the government.
The analysts seem to be looking at the strategic aspect of the deal i.e. strategic posturing et al. Not going into the strategic dimensions, I would like to understand just the economic dimensions. That is, if such deal helps India go renewable or nuclear in some major way so that we are able to bargain for fossils like coal and oil in much better way to push down those costs on the back of lower price expectations of suppliers. Or will our overall power mix be changed in such a way that overall cost to customer will come down. It will also help if Indian companies gain expertise and capabilities to execute/operate such projects in third countries or supply power to third countries in our neighborhood on the back of such projects. The government also seems to be hard-pressed to point that this will spur huge private investments including on power conservation equipments as well as generation equipment and other manufactures and if these will involve additional sops, since such projects get negotiated separately or are part of the same deal.
The overall focus of government seem to be on the trickle down theory where by it intends to work with government units or large cronies (foreign as well as domestic) to raise projects on the back of cheap financing by domestic and foreign banks who seem pretty enthused by government assurances for smooth clearances. The related aspects for smooth market making seems to have been given a miss for now since push for reforms is lacking e.g. there doesn't seem any competition amongst energy suppliers to reach out to Gujarat customers and make electricity available at competitive rates with option for selection of utility company, as is proposed by the ruling dispensation in some other regions. The liberalization of insurance sector seems have resulted in very little inflows 'so far' (though overall portfolio inflows seem to be swelling) while our private insurance companies do not seem very keen on having any participation in covering the liabilities of the nuclear business despite their strong 'technical and domain knowledge' on the back of global experience.
Not too sure that why despite the long gestation of such new initiatives, the political class still seems comfortable chasing such projects rather than focus on strong market regulators with rule based governance and liberalizing overall investments in the sector. Take for example the 'food business'. Simpler rules are letting various players to evaluate need to register and organize so that they can 'expand' on the back of bank finance and this also improves revenues for the government. In fact if credit supply to the sector becomes more organized (basis some parameterized products for financers) then we may witness spurt in such businesses, increase in employment, tax etc.etc. The long gestation projects may yield a temporary respite from business supporters who would rally to secure projects/contracts putting aside views and differences for a while. Subsequently this will then result in demands for further 'fixing' of project issues for those who manage to secure projects while those who are not able to secure any lucrative deals may start indicating displeasure or even to look out for greener pastures. Those who manage to secure projects/orders also keep looking for winnability since the overall project finances are affected by the policies and procedures applied by 'winner' for such projects. While such opportunities may bring temporary respite for political leadership from business supporters however its impact on vote share remains a question. This is especially true for a government high on promises with supporters looking out to run for almost 'all' states as well as 'all' government and quasi-government institutions even before they are unable to explain with standard metrics their specific contribution to improvement in governance of the country/state or institutions.
By: Amit Bhushan Date:27th Jan 2014
The mess in our energy policy also seems to be revving up a lot of interest, this season. We seem to have investors willing to have a piece in this cake for reasons not disclosed by commercial news media. The way things seem to be moving as showcased by the government seems like we are likely to have some projects on ground for Nuclear and Renewable energy on the back of solar cell technology. What we are made to believe is that on the back of Investment protection & avoidance of Taxation surprises, as well as some cheap US finance and prodding from their government; projects (in good numbers) are likely to rise up the ground. The policy mess in other areas such as distribution or sourcing of fuel or substitute sources like coal, hydro etc. have 'no role' or bearing on investor's decisions.
The small businesses must now become happy as improved availability of power means they are 'very likely' to become more productive or are able to control cost of using expensive diesel generators. That the new projects will take 4-10 years to start generating power seems to be a small concern as path breaking agreements do not have to care for such sundry things. Also, that such projects will be initially generating business for global banks for financing and subsequently for global vendors for supply of reactors & gen-sets etc. and actual production and support to domestic businesses happens much later (if it happens at all) is a lower concern. What we gain for the exchange of business opportunities in these energy markets, besides financing as well as more electricity is yet to be dwelled over by media for more details. This is especially so since we are forcing our insurance companies to absorb significant operating risks of these projects at very low costs as per information being shared by the government.
The analysts seem to be looking at the strategic aspect of the deal i.e. strategic posturing et al. Not going into the strategic dimensions, I would like to understand just the economic dimensions. That is, if such deal helps India go renewable or nuclear in some major way so that we are able to bargain for fossils like coal and oil in much better way to push down those costs on the back of lower price expectations of suppliers. Or will our overall power mix be changed in such a way that overall cost to customer will come down. It will also help if Indian companies gain expertise and capabilities to execute/operate such projects in third countries or supply power to third countries in our neighborhood on the back of such projects. The government also seems to be hard-pressed to point that this will spur huge private investments including on power conservation equipments as well as generation equipment and other manufactures and if these will involve additional sops, since such projects get negotiated separately or are part of the same deal.
The overall focus of government seem to be on the trickle down theory where by it intends to work with government units or large cronies (foreign as well as domestic) to raise projects on the back of cheap financing by domestic and foreign banks who seem pretty enthused by government assurances for smooth clearances. The related aspects for smooth market making seems to have been given a miss for now since push for reforms is lacking e.g. there doesn't seem any competition amongst energy suppliers to reach out to Gujarat customers and make electricity available at competitive rates with option for selection of utility company, as is proposed by the ruling dispensation in some other regions. The liberalization of insurance sector seems have resulted in very little inflows 'so far' (though overall portfolio inflows seem to be swelling) while our private insurance companies do not seem very keen on having any participation in covering the liabilities of the nuclear business despite their strong 'technical and domain knowledge' on the back of global experience.
Not too sure that why despite the long gestation of such new initiatives, the political class still seems comfortable chasing such projects rather than focus on strong market regulators with rule based governance and liberalizing overall investments in the sector. Take for example the 'food business'. Simpler rules are letting various players to evaluate need to register and organize so that they can 'expand' on the back of bank finance and this also improves revenues for the government. In fact if credit supply to the sector becomes more organized (basis some parameterized products for financers) then we may witness spurt in such businesses, increase in employment, tax etc.etc. The long gestation projects may yield a temporary respite from business supporters who would rally to secure projects/contracts putting aside views and differences for a while. Subsequently this will then result in demands for further 'fixing' of project issues for those who manage to secure projects while those who are not able to secure any lucrative deals may start indicating displeasure or even to look out for greener pastures. Those who manage to secure projects/orders also keep looking for winnability since the overall project finances are affected by the policies and procedures applied by 'winner' for such projects. While such opportunities may bring temporary respite for political leadership from business supporters however its impact on vote share remains a question. This is especially true for a government high on promises with supporters looking out to run for almost 'all' states as well as 'all' government and quasi-government institutions even before they are unable to explain with standard metrics their specific contribution to improvement in governance of the country/state or institutions.