Purchasing natural resources overseas is a challenge that is tougher than ever before, owing to rising political risk. Its most virulent form is witnessed in the oil markets, where, perversely enough, large tracts of hydrocarbon resources are located in countries such as Russia and Venezuela. Some of these countries have been renegotiating the share of resources that foreign contractors bring to the surface, emboldened by hardening global prices.
This has spread to the coal sector as well. Major producing countries such as Indonesia and Australia have now “revalued” their share of exports by imposing levies of one kind or another.
Caught up in this are a few Indian companies that bet on low coal prices and won orders to set up large power plants in India. The power ministry has thus far intervened to the extent that it has rightly referred them back to the purchasing utilities. They latter have, however, refused to budge.
Planning Commission deputy chairman Montek Singh Ahluwalia has suggested that the tariff “swell” be shared between the promoters and the utilities. His advice is not entirely out of place. The promoters have stopped work on construction sites as the projects are no longer viable, they say.
However, the question is this: Should the utilities negotiate and settle along the lines of Ahluwalia’s recommendation or refuse any concession? The latter no doubt entails the risk of the promoter abandoning the plant. But the trouble with utilities arriving at a solution is that their owner, the government, is a poor negotiator and can hardly pursue a hard bargain of the kind that open competitions bring about.
One way to deal the situation is to engage in diplomacy of the kind being witnessed in the oil and gas business where Russia is willing to allow public sector companies such as Oil and Natural Gas Corp. and Petronet LNG Ltd to access its resources.
This will help set a benchmark for a re-auction involving a further permutation of the public-private partnership. Such a process will also augment supplies of coal and, in turn, help improve capacity addition in the power sector.
Sometimes, a second marriage works better.
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