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Sovereign mistake? PDF Print E-mail
Saturday, 27 August 2011 00:00
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While the government remains stubbornly committed to not privatise PSUs, it now proposes to increase the PSUs remit by way of a sovereign energy fund. On the face of it, the idea is a good one. India’s rising energy needs, especially with rising incomes and increasing urbanisation/industrialisation, are far above what domestic sources can supply. While importing is the obvious option, having your own oil/gas fields lowers uncertainty and, in some situations, even keeps a check on costs. That’s what has been proposed in the past and is, once again, doing the rounds—a $10bn sovereign wealth fund, made available to PSUs, to be able to buy energy assets overseas.

 

The fund has been opposed in the past on the grounds that, unlike China, India doesn’t own its forex reserves. But once you classify them, the ‘hot’ reserves which can flow out quickly are relatively small, so a $10bn fund isn’t much of a risk. What needs a bit more thought, though, is why the fund should extend support to only PSUs. ONGC and other PSUs have already spent more than R60,000 crore to buy overseas assets, so the plan is to give them some more money to do this.

At the outset, it has to be pointed out that the government is not really giving these PSUs anything—even if this is an outright grant, keep in mind that oil PSUs spent R78,000 crore in just 2010-11 to subsidise the sale of petroleum products on government instructions. But that aside, the real issue is whether the money is spent best by PSUs and whether the PSUs are dynamic enough to make good purchases. One issue in the past has been that, given the need for the government’s consent for big purchases, bid details have sometimes leaked out; the necessarily bureaucratic structure of PSUs also slows decision-making. In the past year, the private sector has also made big purchases of energy assets—Adani Mining, for instance, bought an Australian mine for $2.7bn. It may be a good idea for some part of the sovereign fund to be channelised to the private sector, either by way of an equity share or by way of soft loans. On a separate note, just like opening up the oil sector to private firms raised the level of discoveries quite dramatically, the government should consider doing this for the coal sector.

 

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