CIRC RegTracker tracks the economic regulatory institutions, their capabilities, performance, and the way they interact with other institutions in shaping economic governance in India. It is being published regularly by the CUTS Institute for Regulation & Competition, a body involved in enhancing knowledge and strengthening capacity in the area of interplay between law and economics.
RegTracker is a quarterly publication which has been tracking the current policy changes/policy proposals on economic regulations in the country, based on news reports. It does not claim to provide an in-depth analysis of developments, but raises some points to ponder, as food for thought and deeper analysis by policymakers and researchers. We are pleased to share the latest issue of RegTracker (RT.026, Oct-Dec 2017). It covers information about sector wise developments on the regulatory and policy aspects. Keeping with our focus on regulatory governance in infrastructure sectors, In this issue we cover the following sectors: a) Coal; b) Telecom; c) electricity; d) Petroleum and Natural Gas; e) Water; f) Real Estate; and g) Transport.
1.1 Coal supply woes to be lessened through coal ministry’s SHAKTI scheme.
Coal India’s board had approved the winning bids under its SHAKTI Scheme to Harness and Allocate Koyla (Coal) Transparently in India) scheme to several power producers including Adani Power, GMR Energy and KSK Energy that quoted the highest discount in electricity tariffs to receive coal from CIL ( Coal India Limited). The power ministry has said the auctions (held on September 11, 2017) would revive seven of the 34 power projects identified in the stressed assets category by the government.
According to the rules of coal allotment, Coal India is to supply full coal requirement for running 61,500 mw of capacity at 85% capacity utilisation. These plants came up prior to 2009. Another set of plants that came up after 2009 are to receive 90% of their requirement for running the plant at 85% capacity utilisation. These plants together account for about 81,500 mw capacity. Plants aggregating 38,600 mw capacity do not have any allotment from the miner. It would come as a breather for such units having no allotment status from CIL.
Under the Shakti scheme, power plants will have to amend their power purchase agreements with distribution companies to factor in the discount in tariffs offered by them during the auction. As per the scheme, Coal India had to issue letters of intent to the power companies within 15 days of the conclusion of the auction and the power companies have 45 days to amend the PPAs and get approval of the Electricity Regulatory Commission. CIL will have 30 days to convert the letters of intent into fuel supply.
The Shakti Scheme was approved by Cabinet Committee on Economic Affairs (CCEA) on May 17, 2017, as an important initiative in alleviating one key challenge in power sector i.e. lack of coal linkage. [ET 26.12.2017]
Points to Ponder
The scheme came under the backdrop of serious allegations by the power producers that the supply is not enough to meet the daily needs of the requirement of power stations. This is mainly due to lesser supply under fuel supply agreement to the power stations or absence of long term FSA for many power stations. Many power plants are also waiting to convert their LOI (Letter of Intents) to FSA and in the absence of which, either running their power plants on imported coal on low PLF or having a complete shutdown.
The source wise auctions would help the power plants design their fuel sourcing strategies as they would be saving a considerable amount of cost due to logistical advantage. As more than 60% cost to the landed cost of fuel is attributed to transportation cost, it is bound to provide a huge relief to the power plants. The auction parameter on maximizing discounts in tariffs would be directly pass on to the consumer which would ultimately help them reducing power bills.
The scheme is definitely a win-win proposition for all stakeholders. While it would increase the plant load factor and plant availability to the power stations, it will also help CIL to reduce their coal stock position. Depending on its success, CIL should think of increasing coal stocks under the SHAKTI scheme and gradually move further for this type of arrangements to other sectors too. Eventually, this would lead to explore a more favorable market price of coal and eases the pain of coal supply situation in the country. It would also act as a driver to increase the target of coal production year on year and achieve production efficiency.
2.1 TRAI for 40% carbon emission cut in telecom networks by 2023
TRAI has recommended that the telecom operators should voluntarily adopt the renewable energy technology (RET) solutions, energy efficient equipments and high capacity fast charging storage solutions etc to meet the target for reduction of carbon footprint. It has also suggested that the electricity generated by the RET solutions funded or maintained by the telecom operators should be subtracted from overall carbon emission of the company, irrespective of its use.
“The target for reduction in carbon emission be set as 30 percent by year 2019-20 taking base year as 2011-12 and 40 percent by the year 2022-23. The targets should be reviewed in the year 2022-23,” TRAI said in its recommendation to the Department of Telecom on approach towards sustainable telecommunications.
An ‘Open House’ discussion was conducted by TRAI, and after considering the submissions of the stakeholders and examining the issues in depth, the TRAI finalised these recommendations. As per the recommendation, if implemented by the DoT, the report of the carbon footprint of telecom operators should be submitted annually within 45 days after March of every year. (BL 23.10.2017) (ET 24.10.2017).
Points to Ponder
Based on directions issued by DoT in January 2012, the TSPs have started submitting carbon footprint reports of their respective networks biannually to TRAI. The current recommendations by TRAI will help in developing comprehensive program for mobilising the renewable energy technology deployment in telecom sector.
It is commendable that the recommendations suggest voluntarily adoption of RET solutions and energy efficient equipment by TSPs and suggest an incentive framework for this. TSPs would adopt a Voluntary Code of Practice encompassing energy efficient Network Planning and infrastructure sharing. TSPs through their associations should consensually evolve the voluntary code of practice and submit the same to TRAI.
Immediate steps should be taken by the government to mandate deployment of energy efficient technologies by way of specifying standards and certifications. Recommendations rightly provide the target of carbon footprints and leave to the TSPs to implement RET solutions, which are feasible. Operationalisaiton of these mechanisms will raise the regulatory and implementation costs of the TSPs.
Keeping in view the recent disruption in the Indian telecom sector and the consequent financial burden, it is pertinent that the government acts as a facilitator to devise financial mechanisms that help in deployment of RETs. The regulator has also suggested that the government should pass all the benefits granted under various schemes for using renewable energy technologies to telecom operators. Incentive provisions like provision of rebates in license fees subsequent to installation of RET solutions to the TSPs need be there.
Modern telecommunication technologies are the backbone of the information economy and requires being inclined to sustainable development goals.
3.1 The role of regulator in creating EV eco system in India Government’s agenda “For an all-electric future by 2030” would see major disruptions happening in 2018. While ICE (Internal Combustion engine) would go down in years to come, E-vehicle would pick pace in coming days.
Rising vehicular pollution and growing value of USD outgo through huge oil import bill would drive the transformation. In 2017-18, India’s oil the import bill is likely to touch $85-90 billion. With battery cost falling from a high of around USD 1,000 per kWh in 2010 to around USD 227 in 2016 and is expected to drop below USD 200 per kWh by 2020, more and more manufacturers would shift their strategy towards producing more and more EV. It is expected that by 2030 or even before that, EVs may achieve cost parity with ICE. With technology changing at a faster pace, there might be innovative storage technology inventions in near future driving the EV space considerably.
The EV ecosystem would have a greater impact on the electricity sector, both in distribution as well as generation side. While it would spruce up the electricity demand, the corresponding power requirement needs to be sourced through renewables if it has to be sourced under green energy. Thus, giving solar and wind generation a much-needed fillip. Similarly, on the distribution side, it would give an additional source of revenue generation for the distribution utilities by providing charging infrastructure. In this scenario of a new and fast-growing sector,
the role of regulators in creating proper mechanism and interventions to find out tariff impact to existing consumers is important. [ET. 30.12.2017]
Points to Ponder
While the focus is to push for EV adoption in a big way to customers, the need for the parallel development of a charging infrastructure is paramount for early adoption of EVs in India, which, however, poses a huge challenge. The faster adoption will no doubt help in more renewable energy coming to stream with cheaper supply of clean power along with a rise in
coverage by the transmission and distribution sector. In order to encourage the use of renewable energy to meet the demand created by EVs, either directly or by way of substitution; appropriate incentive mechanism should be designed for renewable power consumption. Development of associated charging infrastructure will indirectly lead to an expansion of distribution and transmission infrastructure in the country, which would inadvertently lead to better revenue prospects for the ailing power sector in India.
There is a need for regulatory intervention to deal with the price-setting and to decide whether the tariff impact will be socialized to all the consumers of licensee or restricted only to a set of EV customers and if a separate category would be made accordingly. By promoting night time charging through aggressive Time of Day (TOD) tariff provisions, the grid stability can be achieved in a better way. This will help in balancing the load spark during peak day hours. The regulatory body will have to come up with a lucrative tariff plan for off time charging of the EV.
Also, regulatory interventions are required to allow pass through of investments made in EV charging infrastructure by the distribution licensees in tariffs and in creating simplified framework for franchise agreements between the distribution licensees and private sector/interested Public Sector Undertakings/associations towards setting up public charging infrastructure. A new tariff category would be needed for EVs by allowing recovery of incremental cost of infrastructure through wheeling charges over and above the average cost of services and allowing open access to EV charging infrastructure aggregators without cross subsidy surcharge.
4. Petroleum And Natural Gas
4.1 Government to allot 60 percent stake in ONGC fields to private firms
The oil ministry is set to privatise 11 oil & gas fields of the state run ONGC; 25 years post the privatisation of its prime discovered oilfields. The ministry has identified a total of 15 fields with a cumulative reserve capacity of 791.2 million tonnes of crude oil and 333.46 billion cubic metres of gas, including 4 fields of the Oil India ltd (OIL).
According to the New Exploration Licensing Policy (NELP), the private players are forbidden from holding equity stake in a nomination block, the rights of which are allotted exclusively to national oil companies on nomination basis and are allowed to have a participating interest only if blocks are allotted in open auctions.
The fields chosen hold oil reserves of more than 20 million tonnes but indicate poor field performance. [ET. 05.11.2017]
Points to Ponder
Given that these fields produce a fourth of ONGC’s total output, privatising them would mean assurance from the government to the board of directors opposing the move, in terms of increased oil/gas supply.
Bringing in private players may ensure a boost to a near-stagnant oil and gas production by bringing inefficiencies due to enhanced technology and capital as the bid shall be allotted to the private player that shall invest the highest capital within 10 years and assign the maximum share of the net revenue to the government.
The move to incorporate private players to boost production seems well aligned with the Indian prime minister’s agenda of cutting down on imported oil dependence by 10% by 2022 and increase the dependency on renewable sources.
According to the current policy, the private players are forbidden from having an equity stake in a nomination block. A change in policy in this regard is also awaited.
With the controversial privatisation round of 1992- 93 of the same kind, it will be interesting to see whether this round of privatisation will yield the desired results.
5.1 6-month extension for the Cauvery water dispute tribunal
Apropos to the SC decision [RT.025, Sec. 04] of reserving order of the Cauvery water dispute tribunal on the river water sharing dispute, the tribunal suggested the formation of the Cauvery Management board (CMB) to access the ground realities. But the decision had been opposed by both the centre as well as the Karnataka government citing that the board formation is the sole prerogative of the parliament.
With neither the Cauvery management board nor the Cauvery water regulation committee in place leading to unresolved disputes, the water dispute tribunal is to submit the report that considers the objections raised by the Cauvery River riparian states, seeking clarification to its previous report.
The tribunal was granted an extension of six months by the Union Ministry of Water Resources. The report by the tribunal is now expected to be submitted by 2nd May 2018. [ET 03.11.2017]
Points to Ponder
With the water dispute disturbing the current needs of the people, a decision of the tribunal, acceptable to both the participating states is eagerly awaited.
The dispute has also led to distress among the farmers of Karnataka following the withering of the crops due to the non-availability of water.
Looking at the past decision-making trends of the Cauvery water dispute tribunal with a deadline extension since August 5, 2005, it will be interesting to see whether the tribunal will stick to the new extended deadline.
5.2 Mahadayi River water dispute
The Mahadayi Water dispute is between Goa, Karnataka and Maharashtra over the sharing of the Mahadayi (Mandovi) river. 115 thousand million cubic feet (tmcft) water is available in the Mahadayi river basin, while the requirement for all three States (combined) is 145 tmcft.
Karnataka seeks to divert water from tributaries of the river through the Kalasa-Bhandari Nala project towards the parched Malaprabha river basin, which is strongly opposed by Goa. It is said that any attempt to divert water from one river basin to the other will cause irreparable environmental damage. This has led to a farmers’ agitation in Karnataka.
The dispute has been going on for the past 30 years. The Mahadayi Water Disputes Tribunal, which was set up in 2013, has set a February date for the final hearing of this dispute. [ET 28.12.17]
Points to Ponder
Goa government has agreed to settle the matter amicably and release water only in drought-prone areas for drinking purpose. However, the Tribunal should look into the matter more closely to find out a middle path. The two factors that should be considered by the Mahadayi Water Dispute Tribunal is:
The humanitarian factor: farmers in Karnataka have been experiencing a dearth of water due to mismanagement of the available water resources; this is despite the fact the 22 rivers flow through the Belgravia district of Karnataka. This affects the crop cycles and eventually leads to losses leading to further hardships for the farmers.
The environmental factor: The water currently in Mahadayi river basin is 115 tmcft, which is not enough to fulfil the needs of the four states. Diverting the water to Malaprabha river basin would strain the already stressed resource. That will adversely affect other riparian states.
A similar dilemma arose with Krishna River water. The second Krishna Water Dispute Tribunal (KWDT –II) constituted in 2004, allocated the river water to the riparian states based on the 65% total Krishna River water dependability of each state and on past 47-year records of the water flow in the river.
Past decisions by various Inter-State Water Dispute Tribunal, which have been able to bring the riparian states on board and reach an amicable conclusion should be visited while arriving at a decision at the same time balancing the humanitarian and environmental factors prevalent in the present case.
6.1 RERA, GST pull-down home loan growth
Low buyer’s sentiments in the real estate sector despite a dip in the home loan interest rates have led to a sharp decline in home loan growth. According to the Centre for Monitoring Indian Economy (CMIE), home loan growth in April-October fell down by 32.7 percent from a year ago, one of the biggest declines in the last five years. In 2016, home loan growth was down 4.27 percent, while in 2015, it was up 26.89 percent. Over the past two years, the interest rate on home loans has come down by 150-200 basis points, said the report. Major financial institutions have lowered their interest rates. In early November, the State Bank of India announced its plans to offer the cheapest home loans by implementing a five-basis point reduction in margin cost based lending rate (MCLR rates). The country’s largest lender bought down the rate to 8.30 percent. [Mint 19.12.2017]
Points to Ponder
Three events have slowed down the real estate market in the last one year. First, it was demonetization, then because of RERA, new launches came down dramatically. Third, GST has increased the cost. All these have brought down the sentiment and as a result, sales have been slow.
A slow implementation of the new Real Estate (Regulation and Development) Act 2016, which came into effect from May 1 this year, compiled with uncertainty over the impact of Goods and Services Tax (GST) on home prices have pulled down consumer sentiment in the last one year.
Under the GST regime, the tax levied on the buying of under-construction properties increased to 12 percent as against the earlier rate of around 5.5 percent (including value-added tax and service tax).
But now, since the confusion over RERA has settled down in many states, this will help improve consumer sentiment by 2018.
7.1 Draft Regulation of CAR on Civil Use of Drones Announced
The Directorate General of Civil Aviation announced draft regulations on civil use of Remotely Piloted Aircraft Systems, commonly known as Drones in November 2017. As per the draft Civil Aviation requirements for Unmanned Aircraft System (UAS), the drones have been classified into 5 categories on the basis of their maximum take-off weight. It has been proposed that all drones are to be operated in visual line of sight, during day time only and below 200 feet. Dropping of any substance, carriage of hazardous material or animal or human payload has not been permitted.
All commercial categories of drones except those in the Nano category and those operated by government security agencies will have to be registered by DGCA as per ICAO proposed policy, in the form of Unique Identification Number (UIN). As per the draft regulation, the Micro and above category drones will have to be equipped with RFID/SIM, return to home option and anticollision lights. The draft regulation also specifies certain restricted areas for operations of drones. The draft regulation is available on MoCA’s website. [PIB. 02.11.2017]
Points to Ponder
Drones, also known as unmanned aerial vehicles (UAVs) or remotely piloted aircraft system (RPAS), are used in several parts of the world for social welfare and commercial purposes. So, as the Union Civil Aviation Minister Mr. Raju had said, not having any rules and regulations for the UAVs was as good as banning them, the proposed draft is a welcome step towards a new ‘drone era’. Since these things cannot operate without defined regulations and specified paths for them, it has so far been illegal to fly drones without approvals due to safety concerns of both aerial as well as ground-based life and infrastructure.
The new draft regulation aims to tap the innumerable opportunities in the commercial and recreational space, while ensuring that safety concerns are taken care of. This draft is a reiteration of the draft released in April 2016, with some changes making the rules more practical and less complicated. While many countries have already allowed the use of drones for commercial purposes by non-government entities (even in some African countries drones have been in use for ferrying HIV tests, delivering blood, and even to combat poaching), the Indian government has been pursued by many commercial entities (Flipkart and Amazon are two big examples) to allow the use of this technology. Most cheerful are the e-commerce and logistics companies since they look forward to a platform for faster deliveries, and other industries like healthcare, agriculture, disaster management, infrastructure etc. also seem keen to put drones to use.
The proposed regulatory framework covers the use, operations and maintenance of drones. There are, however, strict norms by DIPP on who can manufacture drones. If drone manufacturing and maintenance services take off in India, it will come out as the new big market. It will be a new platform for many startups to innovate and improve. There are plans to deploy an Air Traffic Control (ATC) for drones only to clear out congestion once the market takes off. Apart from these, the Government will further need to focus on few things like designated routes and cross air traffic management (i.e. between drones and other air-borne vehicles). There are safety issues as well, as drones can also be used for terror attacks. So it would need continuous and rigorous tracking all permitted as well as unknown drones. Satellite-based technologies to control and neutralizing rogue drones is one thing to look forward to. Also, the requirement for drones to carry RFID and GSM Sim card slots for App based tracking needs an authority to administer and keep track of the same. However, the draft does not signal to any authority for that function. On the enforcement front, the draft only points out to the powers of DGCA to cancel or suspend UAOPs (Unmanned Aircraft Permits) and that breach of compliance with any of the requirements shall attract penal action including imposition of penalties as per applicable Indian Penal Codes. How these two provisions shall take effect and a vague reference to the power of ‘any government authority to report matters of breach’ makes the punitive section of this draft a little unfulfilled and many loose ends that need to be tied before implementation.