The government is toying with an idea of a ´carrot and stick´ with the energy companies to de-bottleneck energy growth. This is largely in the hopes of achieving a makeover of their global image that has taken a beating in recent months, as rating firms have painted the government as investor-unfriendly so much so that a couple of them have declared their affinity to Narendra Modi as the next leader of the nation, much to the displeasure of the Finance Minister and those who believe the government has quietly achieved much reforms. The operative word may be ´quietly´.
It is time, therefore, the government must quickly implement and communicate its reforms agenda. While the second round of UMPP bidding has had satisfactory interest, the government must also quickly go ahead with its disinvestment plans for public enterprises, and ensure a successful execution the NELP Round X auctions beginning mid-January.
The coal ministry has finally initiated action against about 60 companies for moving slow in mining coal blocks, allotted to them for captive use. Sitting on allotted coal blocks has in the past resulted in a slowdown of power production, and neither the regulator nor the ministry had adequately cracked the whip. Reportedly, the government has now decided to cancel allocation of 11 captive coal blocks to 18 companies, while financial penalties have been levied on another 12 firms in the form of forfeiture or deduction in their bank guarantees. These firms include major players such as JSPL, SAIL, Rungta Mines, Birla Corporation, and Monnet Ispat and Energy.
On the other hand, the petroleum ministry seems to be making a u-turn on its stand against the largest private oil and gas player, Reliance Industries (RIL). Earlier, the ministry had asked RIL to provide a bank guarantee of $135 million every quarter to get a higher price for natural gas. Clearly, the ministry now wants to resolve the issue of securing $135 million in bank guarantees from RIL soon. The guarantee was to be cashed if it was proved that the company has hoarded gas or deliberately suppressed production at KG basin fields.
While the oil ministry seemed to have gone soft on a company that failed to deliver on production, and even while it has hinted at allowing a price rise, it has now issued a notice disallowing recovery of $1.79 billion in costs. The new developments are eyebrow-raising for independent observers and for the industry. Against this anxiety to get a move on, it seems almost unfair on the part of the coal ministry that as the mine-squatters are crying foul, claiming they have invested about Rs 24,000 crore into developing those mines. Monnet Ispat has accused the government of playing foul, claiming that the delay in execution of mining activities was because the coal ministry itself. This may not be a unique case, and the government needs to clean up its act before it proceeds with punitive action.
Nevertheless, these actions are a necessary evil in light of the larger economic picture and in view of the reforms to which the Prime Minister and the finance ministry seem to have returned with a vengeance including the highly appreciated initiatives to put the project clearances on fast track.
It is that spirit that our Cover Story addresses and argues that the new UMPP bids are the latest litmus test of the reforms story. In addition to this, the renewable ministry has announced some plans for the development of solar UMPPs in five states.
It is a case of the carrot and the stick, and it may be a fair enough balance to strike if the larger picture must be painted.
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