Tamilnadu Electricity Board (TNEB) , from the days of independence has always been at the fore front of managing the state's Power requirements fairly well. Especially so, when compared with like enabled boards and organizations, who also operate in similar regulatory environment. There are interesting lessons available in the recent initiatives of the board for those who are propagating the PPP, Public Private Participatory model.
Till the late eighties, the entire investment plans for the Power network, be it Generation or Transmission & Distribution (T&D) was fully managed by the state entity. Given the socialistic approach then practiced that limited the return to just 6% on your investment, the planners, realised the need to bring in robust billing and collection systems. This ensured that billing is done for the services used and what is billed is collected. Default in payment resulted in punitive action of disconnection, which has been practiced over the years. This helped build a good culture, where the consumers built a healthy habit of paying electricity bills. This is similar to the situation where no one questions, why one should buy a ticket when you board a bus.
Having built a system for strong revenue collection, the board could go about the task of implementing capacity additions to the generation and distribution network. Here again the planners understanding of the requirements and deciding on technical merits is there for all to appreciate.
There are Hydel stations, Thermal (coal & lignite) based stations, Nuclear stations, eco friendly Wind mills and sugar mills based co generation plants. These are spread across the geography of the state to assist in overall development of the state. The selection of Mettur which is land locked thermal station based on Indian coal is a case in point. There are coastal plants as well, which are not hampered by the conditions of local availability of coal. In the early seventies, it would have been unthinkable for any one to plan for import of coal given the impression of abundant availability of local coal and the controlled Export - import regime then prevailing.
Similarly the T & D network is built to deliver the generated power across the state. There are no un electrified villages in the state and there are not many instances of power connection being denied for protracted periods of time in the state.
During the Enron era of the nineties, the state also jumped in to the band wagon of liquid fuel power stations. The move was mainly due to the collective hype around these stations and Tamilnadu was not wanting to be left behind. Like other boards, TNEB also suffered. But here again, the board has distinguished itself from others by at least partly putting to use the majority of these plants.
Around this time the concept of Private enterprise building Utility assets was gaining momentum and TNEB adopted it. The main reason being the perceived in capability of the state government to fund capital expenditure of the board. But the board realised that it was being asked to explain their business model to the investor who was looking to maximise the returns on their investment with minimum risk. But the entire exercise has left the board poorer, but richer by experience.
When the signs of economic growth was visible in the mid 2000 and the board started seeing significant demand growth (over 14% in some pockets), they decided to look at alternate models for finding the investment. They have gone about the task in a very commendable manner and have also prepared a scheme for other states to emulate. They have encouraged Wind Power, reactivated dormant schemes and have signed joint development scheme with central organizations. Given the experience of the nineties, the board has this time placed its bets on Public sector entities rather than private enterprises. Plans are in place to double the installed generation capacity through these efforts in the next 8 years.
One awaits a similar approach to increase investments in the T & D Segment. New models, be it the franchise model of PPP (Public Private Partnership) or transfer of assets to joint venture, have to be put in place quickly to fully deliver the large quantum of Power that will be generated in the state. Otherwise one runs the risk of exporting this power to neighbouring states to earn short term profits.
From a country where, food shortages was an accepted fact and we had to go through periods when we needed administration's permission to host a family marriage lunch and dinner, we have come far. But the sad fact remains that all are yet to travel this distance.
While the intelligentsia, discuss in forums issues that need to be done to rectify this anomaly, little gets done at ground level. From the mid seventies till now, the misuse of funds earmarked for irrigation projects is a classic case in point. Where, irrigation projects got done and rivers regulated, we see prosperity. But the millions which were wasted on the canals which never got made or got built as per intended specifications, have brought misery to many.
Today, India is at cross roads, as your editorial points out.
Given the communication access to many even in the hinterlands of the country, today the rural urban divide is visible to many and increasingly people are demanding answers. With the increased thrust being seen internationally for allocating the necessary importance to increased food production, it is time our ministries got their act together, to bring in the next major thrust..
Today, the cultivated land share is reducing by the year due to rapid industrialisation. We had still not perfected the model of transferring the correct costs for the agricultural produce, before which, this IT led industrialisation has landed on us. Our Economy managers, are now compelled to choose between segments, which they cannot. If one has to pay the correct price for the agricultural produce, we run the risk of increasing inflation and more by way of inflation expectations. But before long one has to do something about it.
We cannot subsidise imported food, but we can extend subsidy to our own agriculturists. While we are moving towards a full fledged market economy, where services are paid at cost, it is essential that the sector which gives the maximum employment opportunities in the country pay the labour minimum wages in relation to industry wages. This has to be achieved through direct subsidies.
Subsidies, however need to be made in transparent manner and cannot again be routed through free services like the Free electricity or through corporations such as subsidised prices for fertilizers. Pay a remunerative price for the farm produce, but demand remunerative price for the inputs used by the beneficiaries of the subsidy. This demands a significant change in the mind set and political will, and one only wishes that our politicians see the long term benefits in such an approach.
Development efforts, to introduce new grain strains, which reduce the water intake, cuts down sow to reap time, is resistant to known strains of diseases , has to be encouraged with state funded initiatives.
It is a mission to increase agricultural production and therefore it has to be taken up with the same zeal it demands; anything less can damage what we have gained since independence.
Any regulator would insist that the system where stake holders process their transactions capture trails which can be utilised to trace participants role leave alone their antecedents. He will be extra cautious about intermediaries, who transact on behalf of clients. The details of the clients though not available at the time of processing the transaction through the system, is an essential data which needs to be recorded. It shall be available to the regulator and the other participants of the transaction and cannot be the left indeterminate.
PN falls short of this and makes the transaction opaque. Especially, where the intermediaries are understood to have offered exotic products through their own financial engineering, the regulator needs to intervene to demand either transparency or prescribe different set of guidelines for such transactions to limit their scope.
Whether it is a cash market dealing or a derivative dealing the completed transaction over a period the owner parties (buyer or seller) to the deal are to be identified. It is therefore essential that funds behind PN needs to be identified and cannot forever hide from the purview of regulator.
While one may fault the manner in which the announcements have been made, the timing, the intent and the prescription are timely.
PGCIL share allotment
A preliminary study of the Demand & Basis of Allotment of PGCIL shares makes an interesting case study from the view of the Basis of allotment of employees quota.
Here is a case of over subscription of the employee quota by 3,18 times and some of the employees have been denied FIRM allotment even though they have subscribed to the reserved quota. The shares available for allotment under the employees quota totals up to Rs. 72. 68 crores which has been subscribed for Rs.231.78 Crores. Given the fact that the EMPLOYEE quota no longer has the restriction of Lock in period, the overwhelming response needs to be discounted for the possibility of proxy subscription.
Under such circumstances, is the basis of allotment justified, in as much as it has denied original allotment to some genuine employees, while making allotment on a proportionate basis to the level of interest shown. It is a different factor that such employees can now definitely buy these shares from the market at a premium(more than 75% as per Grey market indications).
In my opinion this basis of allotment is flawed as it ignores the fact that all employees are to be treated equal. We need to therefore ensure that
Here is a case of over subscription of the employee quota by 3,18 times and some of the employees have been denied FIRM allotment even though they have subscribed to the reserved quota. The shares available for allotment under the employees quota totals up to Rs. 72. 68 crores which has been subscribed for Rs.231.78 Crores. Given the fact that the EMPLOYEE quota no longer has the restriction of Lock in period, the overwhelming response needs to be discounted for the possibility of proxy subscription.
Under such circumstances, is the basis of allotment justified, in as much as it has denied original allotment to some genuine employees, while making allotment on a proportionate basis to the level of interest shown. It is a different factor that such employees can now definitely buy these shares from the market at a premium(more than 75% as per Grey market indications).
In my opinion this basis of allotment is flawed as it ignores the fact that all employees are to be treated equal. We need to therefore ensure that
- Minimum shares based on market lot considerations need to be allotted to all those who have applied for under the quota and
- Full allotment of the applied shares are alloted to the maximum number of persons with out denying anybody allotment.
Determination of Price for IPO by auction
Determination of IPO price by auction does increase the probability of pricing the issue much closer to the open market level as compared to any other form of discovery of price. By definition, the auction process is much closer to the open market but with out circuit breaker given the enabling controlled environment, effectively supervised by the Regulator for compliance.
Hence a solution could be, to put in place a system where IPO prices can be determined through auction, at the option of issuer, but with a lower limit on the price of the scrip, specified by the issuer, below which he may with draw the issue. With such an approach, the investor, especially the retail investor and HNI investors get a better role to play in the determination of price. This system will also usher in a mind set, where long term (read 2 to 3 years) outlook is essential to capture the value of the scrip.
In a developing economy like ours where the stock market is discovering new growth stories every month, we need to move to an auction platform quickly so that the issuer is provided an alternate option and is not necessarily compelled to accept the price suggested by the "Book Builder".
Determination of Price for IPO by auction
Determination of IPO price by auction does increase the probability of pricing the issue much closer to the open market level as compared to any other form of discovery of price. By definition, the auction process is much closer to the open market but with out circuit breaker given the enabling controlled environment, effectively supervised by the Regulator for compliance.
Hence a solution could be, to put in place a system where IPO prices can be determined through auction, at the option of issuer, but with a lower limit on the price of the scrip, specified by the issuer, below which he may with draw the issue. With such an approach, the investor, especially the retail investor and HNI investors get a better role to play in the determination of price. This system will also usher in a mind set, where long term (read 2 to 3 years) outlook is essential to capture the value of the scrip.
In a developing economy like ours where the stock market is discovering new growth stories every month, we need to move to an auction platform quickly so that the issuer is provided an alternate option and is not necessarily compelled to accept the price suggested by the "Book Builder".
Cheaper Credit? is it the cure for all?
But if the government and the industrialist do come together and initiate steps which can cut down costs then there may be not an immediate need to reduce this impost. As your leader correctly points out there are sections such as realty, which have absorbed this impost (through external flows), which is once again hurting the same industrialist. Any early redemption of this impost could hurt the sections it is wishing to protect by causing runaway inflation.
As a first step the government can authorise free movement of goods across states to recognized Logistics providers who will be responsible for the movement of goods and the sales tax compliance there off. Given the ground reality of the infrastructure bottle necks, the least government could do is to reduce the transit time of goods and thereby reduce inventory and costs there off. Cost of compliance will also be low as the logistics provider can be authorised to ensure compliance.
Grwoth Pangs - Engage
Engaging the key stake holders in dialogue to understand their views and share the promoters' and governments' view is the need of the hour. Corporates, starting from Reliance should heed to this intelligentsia's call and engage the masses in a continuous dialogue.
Corporate giants moving in to retail business is definitely encroaching in to another business persons territory and it reflects poorly off the corporates capabilities to move into new territories where entrenched players exist. The rush in to occupy window's space in markets across the country with out understanding the locale conditions, can be described as simple bad planning
To retain the first mover advantage if the corporates like Reliance move in at breakneck speed, they may definitely maximise the foot falls at their stores, but risk causing irreparable damage to the entire model. Better sense should prevail on these organizations, who should engage well intentioned local NGOs, to explain their plans and address issues which may be thrown up in such engagements. They should move in to occupy in steps and not rush in as they have done now.
With the larger than life size image which these corporates occupy in the minds of rural folk (read Rakshashas), it is easy for other vested interests to move in to exploit and create panic.
It is still not too late for the corporate to appreciate the errors they have committed and correct it by engaging with the stake holders.
Prescription for PN
Any regulator would insist that the system where stake holders process their transactions capture trails which can be utilised to trace participants role leave alone their antecedents. He will be extra cautious about intermediaries, who transact on behalf of clients. The details of the clients though not available at the time of processing the transaction through the system, is an essential data which needs to be recorded. It shall be available to the regulator and the other participants of the transaction and cannot be the left indeterminate.
PN falls short of this and makes the transaction opaque. Especially, where the intermediaries are understood to have offered exotic products through their own financial engineering, the regulator needs to intervene to demand either transparency or prescribe different set of guidelines for such transactions to limit their scope.
Whether it is a cash market dealing or a derivative dealing the completed transaction over a period the owner parties (buyer or seller) to the deal are to be identified. It is therefore essential that funds behind PN needs to be identified and cannot forever hide from the purview of regulator.
While one may fault the manner in which the announcements have been made, the timing, the intent and the prescription are timely.
Power to Unlock
There are significant pointers available to the policy makers in the phenomenal success of the PGCIL IPO, both at the state and central levels.
First and foremost, it is important to establish through policies, regulations and the administrative machinery, a viable business model. When established systems are unbundled or restructured, it is necessary to keep in mind the possible future options and decide on the policy frame work.
The second important pointer is that of the organisational culture and capabilities of the public sector entity, to benefit from the enabling environment. PGCIL through its employees, have established a bench mark in performance, which is comparable to its peers abroad.
Market is also rating the NTPC Scrip (another major player in the Power sector) with lots of expectations. NTPC has also benefited from similar policy initiatives and is a well manged and run organisation with committed employees. All these augurs well for the sector as a whole. The prevailing sentiment should be capitalised to bring in part of the enormous funds required to make power for all by 2012.
Forward looking state governments should be encouraged to corporatise packets of distribution network, along with or as a separate entity the transmission systems and approach the market for equity. Every state through the Electricity act have put in place a regulator who is guiding the policy issues. In the case of Tamilnadu for instance, aggregate commercial losses on a grossed basis may look marginally higher compared to what the market would like to see. But one can look at significant pockets(geographical areas) which can be spun off into separate companies and corporatised.
Tamilnadu should take the lead to bring in the much needed funds to improve the balance network with out loosing government's control.
Indian Governments need to be more proactive
Choke Eases Even More
RBI has done its bit to unshackle the Indian Entrepreneur and industrialists from the chains of bondage to the Indian currency. The Investors are, by the day being encouraged to, explore new markets, compete globally to maximise returns on their capital.
It is now the turn of the Government to step in an unobtrusive way to support the initiative. In this era of globalisation, we need to ensure energy security, and committed linkages to commodities that help us meet our growing needs. This is best done through selective investments, which also translate to export of our capital globally. All these can be front ended by the nibble footed Indian investor, but he surely needs the unfailing commitment of the government.
We need politicians who will understand the dynamics of the Indian multinationals' support requirements and guide the policies. They should intervene to nudge friendly governments to grant a license or exclusivity. They should also provide the bureaucratic support to secure favourable terms for our capital such as Sovereign government guarantees, negotiate hard during bilateral exchanges with the Indian investors capital in mind.
Bulk of our increasing foreign exchange reserves are due to the earnings of Indian diaspora who are toiling away to bring in the riches to the country. It would befit all their efforts if the governments and Indian Entrepreneurs use this capital to further enhance the Indian growth story.
RBI has done its bit to unshackle the Indian Entrepreneur and industrialists from the chains of bondage to the Indian currency. The Investors are, by the day being encouraged to, explore new markets, compete globally to maximise returns on their capital.
It is now the turn of the Government to step in an unobtrusive way to support the initiative. In this era of globalisation, we need to ensure energy security, and committed linkages to commodities that help us meet our growing needs. This is best done through selective investments, which also translate to export of our capital globally. All these can be front ended by the nibble footed Indian investor, but he surely needs the unfailing commitment of the government.
We need politicians who will understand the dynamics of the Indian multinationals' support requirements and guide the policies. They should intervene to nudge friendly governments to grant a license or exclusivity. They should also provide the bureaucratic support to secure favourable terms for our capital such as Sovereign government guarantees, negotiate hard during bilateral exchanges with the Indian investors capital in mind.
Bulk of our increasing foreign exchange reserves are due to the earnings of Indian diaspora who are toiling away to bring in the riches to the country. It would befit all their efforts if the governments and Indian Entrepreneurs use this capital to further enhance the Indian growth story.
Subscribe to:
Posts (Atom)