THE HINDU – CURRENT NOTE 05 March
GST Council clears draft laws
•In a significant step towards meeting the July 1 deadline for the roll out of the Goods and Services Tax (GST), the GST Council on Saturday gave its formal approval to the Central GST (CGST) and Inter-State GST (IGST) laws, with the Compensation Law already having been approved during the previous meeting on February 18.
•The Council will meet again on March 16 to deliberate on the final versions of the remaining two laws — the State GST law and the Union Territories GST Law.
•“The final drafts of the CGST and IGST laws were circulated to the GST Council and there was a long discussion on them,” Finance Minister Arun Jaitley said at a press conference after the 11th GST Council meeting.
Minor tweaks needed
•The CGST and IGST laws still required some minor tweaks in the language, but they will be ready and placed in the public domain within three to four days, Revenue Secretary Hasmukh Adhia said.
•The remaining laws to be approved, the SGST and UTGST laws, are replicas of the CGST law, with only minor differences, Mr. Jaitley added.
•“The SGST law will apply to all States and Union Territories with legislatures (Delhi and Puducherry), but will not apply to those Union Territories without a legislature,” the Union Finance Minister said. “Therefore, we will need to bring out a Union Territories GST law for those Union Territories.”
‘A welcome step’
•“While the passage of the CGST and IGST Bills by the GST Council is a welcome step, it would be have been wonderful if the SGST and UTGST Bills had also been approved,” M.S. Mani, Senior Director - Indirect Tax at Deloitte Haskins & Sells said.
Punjab, J&K to resume work on dam across Ravi
•Punjab and Jammu & Kashmir have agreed to resume work on the Shahpur Kandi Dam across the Ravi, which had been stalled by the latter since 2014.
•The proposed 55.5-metre-high dam in Gurdaspur district will potentially irrigate 5,000 hectares of land in Punjab and 32,173 hectares in J&K, besides generating 206 MW of power.
•The Irrigation Department of the Punjab government started building the dam in January 2013, but the Jammu and Kashmir government stopped the construction, saying there was no agreement for sharing of waters and power from the project.
Water, power sharing
•Jammu and Kashmir had asked Punjab to guarantee that a fresh agreement was signed in which the Centre would also be involved. Punjab had terminated water-sharing agreements with several States in 2004 and J&K said it was uncertain about Punjab’s commitment to share power, water and economic benefits that would flow from the project. There have been several meetings between both States and the Centre to chalk out a solution.
•In a press statement on Saturday, the Water Resources Ministry said it had “persuaded” both States “to reach an agreement to resume work on Shahpur Kandi Dam project” and that it was part of the Indian government’s stated mission to “utilise its full rights on Eastern rivers of Indus basin”.
Indus Water Treaty
•The Hindu had reported on Friday that India was likely to attend a meeting of the Permanent Indus Commission (PIC) to be held in Lahore later this month. The government was considering reviewing the Indus Water Treaty in the wake of the Uri attacks, with Prime Minister Narendra Modi stating that “blood and water couldn’t flow together”.
•However, Friday’s agreement is still to be ratified by the State governments for it to come into effect. The dam was to have been built by July, though officials said there was no timeline for completion agreed upon after the fresh agreement was signed.
•Another official told The Hindu that India and Pakistan’s dispute on the Indus Water Treaty did not have a “direct bearing” on the inter-State dispute. “We’ve been working on this for a while. We must utilise our rights on the eastern Indus fully, but there was no directive by the government to resolve this inter-State issue in light of the Indus Treaty issue.”
•Though there are still pending disputes between the States, the Ministry statement said these would be solved by arbitration and that the project would continue to be implemented by the Government of Punjab and jointly monitored by the Central Water Commission and the Chief Engineers of the two States.
Mumbai researchers identify a protein critical for sperm motility
•A Mumbai-based team of researchers has identified one more protein — heat shock protein 90 (HSP90) — found in human sperm that determines the ability of sperm to vigorously whip their tail and move or swim (motility) faster towards an egg to fertilise it.
•The reduced ability of sperm to move towards the egg is one of the causes of infertility in men. The results were published recently in Journal of Assisted Reproduction and Genetics.
•Studying groups of infertile men to find the causes of male infertility, the researchers observed that men with poor sperm motility have very low amounts of HSP90 in the sperm. In men with a greater percentage of highly motile sperm, the amount of the protein in the sperm was higher.
Two forms
•The protein is present in two forms — HSP90 alpha and HSP90 beta. While the alpha form is present in the junction between the head and mid-piece of a sperm, the beta form is found in the tail. This is the first time the presence and abundance of the two forms of the protein in certain parts of the sperm has been reported.
•“HSP90 beta is dominant in the tail. So we thought the motility is regulated by HSP90 beta isoform,” says Dr. Deepak Modi at ICMR’s National Institute for Research in Reproductive Health (NIRRH), Mumbai and the corresponding author of the paper.
•At any time, sperm keep moving at a slow speed (basal motility) but in the presence of progesterone hormone, which is found in the female reproductive tract, the motility of sperm suddenly increases. It is this increased motility due to the hormone that helps sperm travel the long distance to reach the egg.
•To ascertain whether the protein is needed for motility, the researchers used two drugs to inhibit the protein in vitro. “The basal motility of sperm was unaffected. But when we added progesterone hormone to sperm (which had the functions of HSP90 already inhibited by the drugs) we did not see sperm move faster and forward,” Dr. Modi says.
Basal motility
•“HSP90 protein is not the only one that is responsible for motility. So inhibition of this protein alone may not affect basal motility. Thus we got interested in looking at the effect of progesterone-induced motility,” says Vrushali Sagare-Patil from NIRRH and the first author of the paper
•While the basal motility is not dependent on HSP90, the protein is required to increase the motility of sperm when exposed to progesterone hormone. “If a man has low amounts of HSP90 protein in his sperm, the sperm will be unable to swim upwards to the tubes and fertilize the egg because it cannot feel the effects of progesterone. This will be a cause of infertility,” Dr. Modi says.
•“So the progesterone-driven motility requires additional machinery. One of the components is the HSP90 protein,” he says.
Drug development
•The information about the crucial role of HSP90 protein can help scientists to develop drugs to make sperm move faster and forward in the female reproductive tract in people who low sperm motility.
•“At present there is no treatment for male infertility due to poor sperm motility caused by genetic causes,” says Dr Indira Hinduja an IVF expert at Mumbai’s Hinduja Hospital and a co-author of the paper. There is a possibility that this work might help the development of drugs that would help enhance sperm motility by restoring the functions of the protein.
•Conversely, contraceptives can be developed to inhibit the protein so that sperm do not move faster and reach the egg to fertilise it even in the presence of the hormone.
Why is TB bacterium not on deadly superbug list?
•Of the estimated 10.4 million new tuberculosis cases globally in 2015, nearly 0.5 million were multi-drug-resistant (MDR). Another one million were resistant to rifampicin drug alone. India accounted for 2.84 million new cases in 2015, of which 79,000 had MDR TB. There were 1.4 million TB deaths worldwide in 2015.
•For the first time in nearly 50 years, two new drugs, bedaquiline and delamanid, were approved by the U.S. Food and Drug Administration for MDR-TB cases. The accelerated approval of bedaquiline was based on interim Phase IIa data.
Lack of data
•The lack of large-scale safety data and the paucity of effective TB drugs, especially for MDR-TB, are the reasons for the World Health Organization (WHO) to insist that the drug be used only when all “options to treat TB using the existing drugs have been exhausted.”
•The WHO also makes it abundantly clear that all efforts should be made to avoid TB bacterium from developing resistance to bedaquiline as a result of misuse.
•Despite the gravity of the situation and a near-empty drug chest to fight TB in India, a WHO list, released on February 27, of drug-resistant bacteria that pose the “greatest threat to human health” and for which new drugs are desperately needed, has no mention of Mycobacterium tuberculosis, the bacterium that causes TB.
Not a priority pathogen?
•This is the first time that the WHO has released such a list and the prime objective of listing the “priority pathogens,” in its own words, is to “guide and promote research and development of new antibiotics… and to address the growing global resistance to antimicrobial medicines.”
•The list is divided into three categories — critical, high and medium — based on the urgency of need for new drugs. While the WHO reasons that malaria and HIV have not been included in the list as they are not bacterial infections, it cites a different reason for not including TB bacteria. According to the WHO, TB bacterium was not included in the list as it is already targeted by other “dedicated programmes.”
Open letter
•In a strongly worded open letter to WHO director-general Margaret Chan, The Union Against Tuberculosis and Lung Diseases, or simply The Union, says it is “outrageous” that Mycobacterium tuberculosis was not considered for inclusion as it is “already a globally established priority for which innovative new treatments are urgently needed.” “This explanation defies reason [and] contradicts the stated intent of the global priority pathogens list’s methodology to define the list,” the letter reads. “TB’s exclusion sends the false and counterproductive message that drug-resistant TB is not an urgent public health threat,” the letter says. It also sends a strong message to policy-makers to “de-prioritise TB research,” it adds.
Meets criteria for inclusion
•The reason why The Union has reacted so strongly is that the TB bacterium meets each of the 10 criteria used for inclusion in the list — how deadly the infections are, the number of infected people in a community, prevalence of resistance, how easily the bacterium spreads from one person to another, options to prevent the infection in hospital and community, treatment options and whether new drugs are already in the R&D pipeline.
•The WHO states that new antibiotics most urgently needed will never be developed in time if it is left to market forces alone. This is best demonstrated in the case of TB. It took nearly 50 years for new TB drugs to be approved for MDR-TB and not a single antibiotic has been developed for drug-sensitive TB in half-a-century.
•Since the WHO has stated that the list has been developed to allow periodic revisions and inclusions of other pathogens, including viruses and parasites, The Union wants the TB bacterium to be included in the list before the WHO publishes the full protocol and results by the end of May 2017.
Battling Leptospira at the genome level
•In the summer and rainy seasons of 2015, leptospirosis, a dangerous, neglected tropical disease, struck in multiple cities of India. In Mumbai, the toll was high — at least 18 people reportedly succumbed to the zoonotic disease, also known colloquially as “rat fever” for its association with the urine of rodents among several host species.
•Given its position as one of the most congested hubs of urban activity along India’s 8,129-km-long coastline, Mumbai was always particularly vulnerable to the outbreaks of such a disease. Typically, Leptospira interrogans spreads under conditions of stagnant water, flood water, humidity, and proximity between man and beast.
•The outbreak that year escalated to the point where the Brihanmumbai Municipal Corporation had to lodge 171 FIRs against owners of goshalas, or cattle shelters, who had until then not complied with the health department’s guidelines to avoid discharging cow dung or cattle urine into a common drainage outlet, and to give the cattle two oxytetracycline injections in a span of 10 days to protect against four Leptospira strains.
•In 2016 leptospirosis cases were reported even before the onset of the monsoon. In the Udipi area of Karnataka four people died and even more were infected. With 2017 facing the prospect of erratic monsoons and no major improvements nationwide in waste-water and flood-water management, what will the leptospirosis toll be?
Understanding genomes
•It is precisely to improve the odds of controlling this disease by understanding the genetic determinants of Leptospira pathogenesis that researchers at the Yale School of Public Health (YSPH) and the J. Craig Venter Institute have collaborated in a major genome-sequencing effort for 20 Leptospira species.
•One accomplishment of the effort is the development of a pangenomic signalling (Two Component System) database by Haritha Adhikarla, associate research scientist in epidemiology at YSPH. This has enabled researchers to explore the molecular mechanisms and regulatory pathways underlying Leptospira virulence, she explains, adding that the results, which were published in the journal PLOS Neglected Tropical Diseases (2016), revealed novel adaptations and traits in infectious species of Leptospira and opened new avenues for preventive and treatment approaches.
•Similarly, a YSPH study using high-density proteome arrays in the characterisation of antibody signatures against several infectious agents of human and veterinary importance identified the first comprehensive profile of the human antibody response against L. interrogans serovar Copenhageni proteins, the serovar associated with more than 90% of the urban leptospirosis cases in Salvador, Brazil. In turn, this translational study has led to the identification of promising candidates for the development of therapeutic diagnostic tests and sub-unit vaccines.
The ‘One Health’ approach
•At the heart of these efforts is the focus on a “One Health” approach, which integrates efforts to predict and control a disease at the human-animal-ecosystem interface, and this collaborative approach appears to be the key to defeating re-emerging zoonotic diseases such as leptospirosis.
•Dr. Adhikarla notes that there is enough scientific evidence internationally to state that the infection of humans and animals and environmental pathogen loads were lower in villages that used environmental interventions based on the One Health approach than in villages that used the usual disease control measures.
•In terms of approach specifics, there is a recognition that leptospirosis is a complex disease with multifactorial transmission, and so efforts should focus on identifying transmission sources, stratify disease risk and prioritise prevention in the resource-poor settings of Indian slums, Dr. Adhikarla says, pointing out that changes in climatic conditions and population drift from rural to semi-urban and urban areas of India are also contributing to the increase in the magnitude and severity of leptospirosis outbreaks.
PHC conundrum
•Research at Yale also highlights the fact that across Primary Health Centres in India, rapid diagnostic tests often replace serological tests due to lack of adequate trained personnel. These rapid tests may not reach the optimal sensitivity until at least a week after onset of fever, and as the sensitivity of the tests is low during the acute visit, these rapid diagnostic tests should be used with caution to rule out leptospirosis.
•Otherwise, the frequently observed underreporting and the misdiagnosis of leptospirosis may lead to an inaccurate determination of the real impact of the disease in the Indian subcontinent.
1 April 2017
•The government has set the date for the record merger of the State Bank of India with its five associate banks on April 1, 2017. The five associate banks are the State Bank of Bikaner and Jaipur (SBBJ), the State Bank of Mysore (SBM), the State Bank of Travancore (SBT), the State Bank of Hyderabad (SBH) and the State Bank of Patiala (SBP).
•Initially, SBI had seven associate banks — two of them, the State Bank of Indore and the State Bank of Saurashtra, were merged earlier.
What’s the big deal?
•No Indian bank features among the top 50 banks globally. With the huge financing needs that the country faces, infrastructure in particular, size is important. With the merger, the SBI could break into the list of top 50 banks of the world, in terms of asset size.
•The merged entity will have one-fourth of the deposit and loan market, as the SBI’s market share will increase from 17% to 22.5-23%. SBI chairperson Arundhati Bhattacharya recently said the consolidated balance sheet of the merged entity would be Rs. 32 lakh crore from Rs. 23 lakh crore now. The merged entity would have deposits worth Rs. 26 lakh crore and nearly Rs. 18.76 lakh crore worth advances on its books.
•The business mix of the five associate banks is around Rs. 10 lakh crore, which is almost equal to the size of the second largest bank of the country, Punjab National Bank. So, the distance between the SBI and the second largest bank, PNB, will increase further and the latter will be one-fourth of the SBI. The merged entity would have close to 24,000 branches and an employee strength of 2,71,765.
What will happen to shares?
•From April 1, all shares of these associate banks will cease to exist as individual entities and will be transferred to the SBI.
•The SBBJ, the SBM and the SBT are listed entities, while the SBH and the SBP are unlisted. According to the share-swap ratios announced last August, SBBJ shareholders will get 28 shares of SBI for every 10 shares. Investors in the SBM and the SBT holding 10 shares will get 22 SBI shares each.
•The merger will also mean that all SBI associate bank customers will become SBI customers and all associate bank employees will become SBI employees. So, all associate bank employees will be eligible for the same retirement benefits as SBI employees. SBI employees get three retirement benefits (provident fund, gratuity and pension), while associate bank staff members get two retirement benefits.
What does it mean for banking?
•The merger of associate banks with the SBI kicks-starts the long pending consolidation exercise among public sector banks, but the bigger question is whether a similar move will be successful between other state-run banks.
•The merger of weaker banks with stronger banks was mooted by the BJP government at the Centre during the first edition of bankers’ retreat — Gyan Sangam — in 2015, but the plan faced opposition from bankers, who claimed the time was not ripe since the balance sheets of all public sector banks had weakened by a sharp rise in non-performing assets. At the next bankers’ retreat, the government was keen on pushing through consolidation as it planned to identify six to eight anchor banks which would lead the exercise. Recently, the newly appointed Deputy Governor of the Reserve Bank of India, Viral Acharya, revived consolidation talks and said the banking system would be better off if there were fewer, but healthier, public sector banks.
•“As many have pointed out, it is not clear why we need so many public sector banks,” he said in his maiden address to bankers.
•Mr. Acharya suggested that voluntary retirement schemes be offered to manage the headcount and usher a younger, digitally savvy talent pool into these banks.
•Amid consolidation talks, preparations are on for the third edition of Gyan Sangam. While further consolidation among public sector banks is on the agenda, it is not clear whether it will remain at the discussion stage or the government will be able to move forward with some concrete action.
High on energy?
•The oil and gas sector in India has undergone transformative changes over the past few years. The bourses attest to this. The S&P BSE Oil & Gas Index, after deep hibernation, has surged more than 50 per cent since early 2014. Several of the sector’s stocks have done spectacularly well in this period.
•The PSU oil marketers Indian Oil, HPCL and BPCL have tripled or more. So have city gas distributor Indraprastha Gas and gas importer Petronet LNG. PSU gas transmitter GAIL (India) and integrated behemoth Reliance Industries too are up a neat 40-45 per cent. Only public sector hydrocarbon explorers ONGC and Oil India have slipped — between 2 and 7 per cent. But this too is not bad, considering that crude oil prices have halved since 2014.
•Several factors have contributed to the good show — the crash of crude oil, fuel pricing reforms, healthy refining margins, high priority to city gas distributors and favourable re-negotiation of terms with foreign gas suppliers.
•The key structural change, though, has been pricing reforms. This has largely resolved a fundamental problem that afflicted the sector for long — fuel price control — and benefited public sector oil companies by slashing their subsidy burden. The government too has gained by the cut in subsidy outgo and a sharp increase in its revenue from excise duty hikes.
Pricing reforms bonanza
•Soon after the Modi government took charge in mid-2014, the rout of crude oil began. This godsend enabled the Centre to build on the moves towards market pricing initiated by the UPA regime and bring about the most significant reform in the sector in decades — in October 2014, diesel pricing was freed. This turned around the fortunes of the PSU oil marketing companies as diesel accounted for more than 60 per cent of their under-recoveries from selling fuels below cost.
•Besides, the cap on subsidised LPG cylinders to 12 a year for a household, direct benefit transfer of LPG subsidy and gradual price hikes in kerosene and LPG have reduced under-recoveries further. Petrol pricing was decontrolled way back in 2010. Now, only a small portion of fuels is under price control.
•With their under-recoveries slashed thanks to the oil crash and pricing reforms, Indian Oil, HPCL and BPCL, which, earlier, had to wait long for government compensation ,saw a dramatic revival. Their borrowings and interest costs fell sharply, and marketing margins improved. This, along with good refining margins — the difference in the price of their fuel basket and crude oil — translated into huge profit growth for these companies. This has enabled them to undertake big expansion plans that should aid profit growth in the coming years.
•Paradoxically, even the PSU hydrocarbon exploration companies ONGC and Oil India have benefited from the crude oil crash. That’s because these companies also bear a portion of the under-recoveries through product discounts to the oil marketers. With this burden sharply reduced, the net realisations of these companies improved despite a fall in their gross realisations.
•Clarity in the subsidy sharing mechanism also helped. The government agreed to bear the subsidy up to Rs. 18 a kg on LPG cylinders and Rs. 12 a litre of kerosene. The rest was to be borne by ONGC and Oil India; GAIL was exempted. Of course, when crude oil went under $45 a barrel and further to under $30 a barrel in early 2016, the oil producers got squeezed. Even without the subsidy burden, their net realisations dipped lower than in previous years. But the subsequent price recovery to about $55 a barrel currently has eased the situation somewhat.
•A good portion of the price recovery has happened after the late 2016 deals among OPEC and major non-OPEC nations to cut oil output. A further sharp rally could queer the pitch for the PSU oil companies and the government. But a rise above $60 a barrel seems unlikely. US shale oil could make a strong comeback around these levels, with support from the Trump administration, which is expected to follow a pro-US energy agenda and provide sops to the shale industry in the country.
•Oil at $55-$60 a barrel seems to be a goldilocks range for India — the government is unlikely to backtrack on pricing reforms at these levels, and both downstream and upstream companies should make profits. The government, having earned a bonanza from raising excise duties regularly with falling crude oil prices, has refrained from cutting taxes when oil reversed course. This has enriched the exchequer. Consumers, of course, are not happy; the price they now pay for petrol and diesel is almost the same as in mid-2014.
High import dependency
•While fuel pricing concerns have now been addressed to a large extent, the other big problem dogging the sector — stagnating domestic output and high import dependency — still poses a huge challenge. India now imports more than 80 per cent of its crude oil and 40 per cent of its natural gas requirement. Demand is rising with economic growth but domestic production has been falling. Old fields in decline, limited success on new discoveries, unfriendly exploration regime, and lack of pricing and marketing freedom are among the factors to blame.
•The government, to boost domestic production, recently reallocated 31 discovered but not-yet developed small fields of ONGC and Oil India to bidders on favourable terms. It has also revamped the hydrocarbon exploration regime. But whether this will help remains to be seen. Among the several challenges are protests by farmers and the long-elusive pricing freedom for gas.
Gas utilities on a roll
•Artificially low domestic gas prices have benefited city gas distributors (CGD) such as Indraprastha Gas and Mahanagar Gas. These companies have been given top priority in the allocation of domestic gas for compressed natural gas (CNG) supply to vehicles and piped natural gas (PNG) supply to households. These segments account for a chunk of these entities’ business.
•While their costs have dipped, volumes have soared due to price advantages vis-à-vis other fuels such as petrol, diesel and LPG. The regulatory push in favour of the environmentally cleaner natural gas has also helped. Good growth momentum is likely to sustain for these entities.
•Gas importer and regasifier Petronet LNG has gained from the high demand and limited supply of gas in the country. It has also benefited from renegotiation of long-term contracts with major suppliers such as Qatar’s RasGas. So, the earlier high contract price has been reduced sharply in tune with prevalent lower international gas prices. Petronet has committed to buy more gas from RasGas. The under-utilisation of the company’s Kochi terminal due to lack of pipeline connectivity remains a concern, though.
•Also, the core operations of gas transmission major GAIL have been impacted due to low gas supplies. The company had ramped up its pipeline capacity in earlier years in anticipation of a healthy increase in domestic supplies. But the declining gas output in the country, primarily from the KG-D6 fields of Reliance Industries, has left GAIL’s pipelines under-utilised. But the company’s petrochemicals business has gained from low gas prices. Exemption from fuel subsidy sharing has also helped.
•The exploration business of Reliance Industries has been facing setbacks, both domestically and internationally, with low output and weak prices. But the company’s key refining and petrochemicals businesses have been doing quite well and have expanded capacities significantly. Also, with the recent announcement of tariff plans in its big-ticket telecom business from April, there is now the much-awaited revenue visibility. The stock has pepped up to the news, after a long somnolence.
Strategic reserves
•Meanwhile, to improve the energy security of the country, the government has proposed two more strategic crude oil reserves in Odisha and Rajasthan in addition to the three reserves set up now at Visakhapatnam, Mangalore and Padur. This will take the country’s strategic reserve capacity to 15.33 million tonnes from 5.33 mt currently. But quick execution of the proposed projects, unlike in the past, is imperative if the country has to make the most of rapidly changing global crude oil price dynamics.
•Also, PSU oil companies, egged on by the government, have been acquiring international energy assets that are available relatively cheap after the oil price rout. The recent acquisition of stakes in Russian assets by a consortium of Indian energy companies is a case in point.
•Also, in the recent Budget, the government has proposed to create an integrated public sector ‘oil major’. Such an energy behemoth with enhanced financial muscle might be better placed in bidding for big-ticket foreign assets that see intense competition from major international players. Recent reports talk about the government selling its stake in refiner HPCL to explorer ONGC. There are mixed views, though ,on the desirability of such consolidation moves.
Hurdles to domestic production
•Prime Minister Modi wants India to reduce its oil and gas imports by 10 per cent by 2022. This seems a tough ask given the many challenges in increasing domestic production — from getting local consent to government interference in PSU companies.
•The ongoing protest in Neduvasal village in Tamil Nadu’s Pudukottai district is symptomatic of a key risk — that of getting local consent for hydrocarbon and pipeline projects in onshore areas. Worried that drilling for oil would pollute their water sources and lands, farmers in Neduvasal have been protesting against work in a block allotted under the Discovered Small Fields bidding.
•For years now, protests by farmers in Tamil Nadu and Kerala have held up the Kochi- Bengaluru-Mangalore gas pipelines being laid by GAIL. With land becoming a premium resource across the country, such protests can increase in the future.
•The HELP (Hydrocarbon Exploration Licensing Policy) regime brought in last year seeks to address pain points in the older NELP (New Exploration Licensing Policy) that inhibited domestic hydrocarbon growth. It is an extension of the liberal rules for the auction of the discovered blocks surrendered by ONGC and Oil India.
•The HELP has progressive provisions — easy-to-implement revenue-sharing contracts, unified licensing policy that lets exploration of all hydrocarbons in a block, open acreage licensing that allows on-tap bidding, and pricing and marketing freedom for new gas production from difficult terrains. But the fly in the ointment could be the revenue sharing mechanism replacing the erstwhile production sharing contracts (PSC).
•In PSCs, contractors could recover costs from successful finds before sharing profits with the government. This reduced their risk significantly. But in the revenue sharing mechanism under HELP, contractors have to share revenue with the government from the start of production; costs cannot be recovered first. Whether industry players will be game for this in high-risk exploration ventures needs to be seen.
Market-linked pricing
•Then, there is the problem of formulae-based gas pricing. Unlike crude oil, domestic gas price in India is not market-linked. From November 2014, it is being determined every six months as a weighted average of four international benchmarks — US-based Henry Hub, Canada-based Alberta gas, UK-based NBP and Russian gas. Given the prolonged weakness in international gas markets, domestic gas price has gone downhill.
•From $5.05 per mmbtu during November 2014 to March 2015, the price has crashed to $2.5 a unit during October 2016 to March 2017. Gas imported into India costs $6-$7 a unit currently. There is no incentive for contractors to scout for domestic gas .
•Market-linked pricing is imperative to encourage gas production in the country. The will primarily benefit ONGC and Oil India that produce most of the gas in the country. Under the HELP, the pricing and marketing freedom for domestic gas is restricted to new gas production from deepwater, ultra deepwater, and high-pressure, high-temperature areas. Here too, the price is subject to a ceiling, based on a formula, involving the import price of alternative fuels. The current gas price notified for such blocks is $5.3 a unit, not exactly commensurate with the risks involved.
•There is also the danger of the government nudging PSU companies to make sub-optimal investments. In December, ONGC acquired the Gujarat-government controlled GSPC’s 80 per cent stake in the not-so-successful Deen Dayal asset in the Krishna-Godavari basin for $1.2 billion.
•There are apprehensions in many quarters that this is a bailout deal for GSPC that is straining under high debt, though ONGC denies this. Sub-optimal capital allocation, if any, will impede the ability of the PSU companies to invest in the future.
