Extend The Tax-Cut Logic To Infrastructure

A judicious lowering of input costs can increase productivity.

Shyam Ponappa    |   October 3, 2019 

With the tax cuts, it is as though the government suddenly stumbled on the wisdom of deferred gratification. The government line is that tax cuts will give much more in the long run than revenue lost, and we heartily agree. Yet, this logic isn’t extended to personal and consumer taxes. Nor is it applied to essential inputs to infrastructure to reduce costs further, specifically for radio frequency spectrum for communications, and for coal for electricity.

The cut in corporate taxes is brilliant. A significant step in responsive governance, and so utterly overdue. No ifs and only a few buts, which one hopes influencers and decision makers will consider and act on in short order. The concerns are about interrelated processes (for completeness in end-to-end design and execution, upping the odds of delivery and achievement), and symmetry on the demand side, without which we cannot get optimal results.

Many have expressed reservations about the tax cuts instead of incentives to consumers to revive demand. Some experts have cited the failure of such reforms globally in reviving growth. While these concerns may have merit, the key criteria in such comparisons are whether the circumstances are comparable, or too different. For instance, are the markets large, with scope for expansion, or small, less diverse, or more saturated; what is the level of momentum or inertia? And so on.

While stock markets were euphoric, experts have been divided in their opinion, because demand has been subdued and these are supply-side incentives. Another reason is that companies paying high taxes gain the most, while the majority don’t gain directly in profits. Profits will rise for the highest taxpayers by 11 per cent, while large FMCG companies such as HUL, ITC, and Nestle will increase profits by 9 per cent (Moneycontrol). Profits for IT and pharmaceutical companies are estimated to increase by 5 to 6 per cent, and existing automobile manufacturers are unlikely to benefit directly during this slowdown, although new ones will pay 17 per cent tax, as in Singapore. However, a number of auto component manufacturers who paid taxes at 29-35 per cent will get increased profits of 4 to 10 per cent, and Icra expects localisation to increase. Crisil’s study of nearly 1,000 companies in 80 sectors estimated that profits would increase by nearly Rs 37,000 crore, while the State Bank of India, based on about 3,500 companies (and this newspaper based on 490 companies), estimated increased profits of about Rs 45,000 crore, and India Ratings of Rs 60,000 crore. These profits could result in price cuts, spurring demand.

However, India’s tax rates are still not especially competitive. A recent article in these pages showed that effective tax rates in India are still among the highest after including tax on dividends and share buyback, at 46.8 per cent for existing manufacturers, and 41.1 per cent for new manufacturers. By contrast, comparable rates in Vietnam and Thailand are 20 per cent, and in Indonesia and China, 25 per cent. For details, see chart below.

Source: Sachin P. Mampata & Krishna Kant

https://www.business-standard.com/article/economy-policy/effective-tax-on-firms-still-high-119092601548_1.html

Add costs for improving infrastructure (stable electricity supply; water, sewerage, and waste management; communications; transport and logistics), and law and or­der, and that’s how much must be done for our supply side to be really competitive. Then, there’s demand, which needs a stable, functioning GST system with lower rates, and income tax cuts to match.

If time, energy and money were channelled into these areas instead of events and jamborees, we could be further along in unleashing our potential. Thereafter, skilling and education applied to systematic development could take us even further.

Tax-cuts & infrastructure

It is this episodic intervention without logical consistency or integrated, step-by-step convergence focussed on delivery that results in our disjointed infrastructure, and this infrastructure is the very foundation for our productivity and wellbeing. Apart from apparent lack of systems thinking, detailed process flows,1 and project management, there is also confusion between free-market ideas and the application of any form of industrial policy, because of the backlash from past mistakes with dirigisme and socialist planning.

This is where we have to leap across the chasm, and either “get it” as with the corporate tax cuts, or fail.

Digitisation as development priority

Our broadband and digitisation efforts are disappointingly ineffective.

This is one instance where we should consider adopting China’s approach in developing broadband (except for state ownership) as a priority, driven by a strong industrial policy, “to play a leading strategic economic role and to deliver economic benefits to the Chinese people”.2 India professes similar objectives, but without the detailed planning to adopt broadband and to aid manufacturing. There are expectations about e-services without detailed, step-by-step proposals. In China the broadband network was formally recognised as public infrastructure and incorporated into government plans, and spectrum was not auctioned. The backbone is dominated by state ownership, and private investment in broadband for access in buildings and public facilities (airports, subways, highways) has to ensure fair access to all service providers as a matter of policy.

Two other developments have a bearing on this. One is the move to share spectrum and infrastructure. In July, the UK allowed public access to three bands assigned to businesses, organisations, and mobile companies for use by anyone at nominal cost.3 Another is the deteriorating state of BSNL and MTNL with their 185,000 employees, before they go entirely Air India’s way. As with tax cuts, the government can, after consultation and with participation from the private sector:

• Adopt a beneficial shared infrastructure policy with centralised/cloud Radio Access Networks (c-RANs: See https://www.researchandmarkets.com/research/w8ds5f/global_cran?w=12#summary)
• Give access to all available spectrum on payment based on usage,
• Retrain and use BSNL and MTNL as stakeholders for public security and public interest in consortiums with private operators.

Our interests would be well served at much lower cost by extending this approach to all resources for our collective benefit.

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Shyam(no space)Ponappa at gmail dot com

1: For a good example applied to Aadhaar/PDS, see: Subhashish Bhadra and Varad Pande

https://indianexpress.com/article/opinion/columns/public-distribution-system-one-nation-one-ration-card-scheme-modi-government-6029134/

2: Krishna Jayakar and Liu Chun, 2014

https://www.researchgate.net/publication/267726214_The_Race_between_the_Dragon_and_the_Elephant_Comparing_China_and_India's_National_Broadband_Plans

3. https://www.ofcom.org.uk/about-ofcom/latest/features-and-news/airwaves-opened-up-to-support-wireless-revolution

The Tragedy of The Unused Commons

Hope for the good sense and guts to grasp the nettle and take decisions that are bold as well as wise.

“The tragedy of the commons” as you may recall, refers in economics to the overexploitation of shared resources because of unregulated access. The tragedy results from shared resources being depleted or degraded because users pursue their own interests, contrary to the common good. This leads to unsustainable depletion or degradation. The atmosphere and oceans are examples of such shared resources.

There are also reverse situations, in which resources that are available for the benefit of society are unused, to the detriment of the common good. In such cases, there are opportunity costs from disuse that result in detriments, because the benefits of use are foregone. India’s abundant sunlight is a good example. Given its abundance, a reasonable expectation might be that extensive innovation and market organisation would be focused on harvesting this potential energy. Alas, India is a laggard in innovation relating to solar power.

Another resource that is neither depleted nor degraded by usage but underused is radio frequency spectrum. The opportunity cost for unused spectrum is therefore even greater than for a degradable mineral resource such as coal, resulting in an extreme tragedy of unused commons.

Some Issues Need Resolution

The situation today is that swathes of spectrum are unused because of our inability, perhaps unwillingness, to develop the appropriate regulations and organisation to benefit from them. This is true of all unused and underused radio frequency spectrum, although some of it is the most useful means for broadband connectivity for the majority of our rural and semi-urban population. It would also give more urban users less expensive access. For both sets, judicious use would enhance productivity and improve living conditions.

The entire thrust of the Digital India initiative requires these enabling policies and procedures, that is, the administrative rules and regulations that would enable the use of presently unused and therefore wasted spectrum. There are, of course, many other steps required than merely putting in place the regulations. The market structures and organisation have to be created under government leadership with other stakeholders in industry and civil society that would permit sustainable use of “the commons” — namely, the spectrum, if it were a shared resource instead of being apportioned in silos.

At present, private operators in this sector, except one, have too much debt, very low profitability, and insufficient network coverage. Services can be good in some locations, but countrywide, are spotty and not universally accessible. Yet, operators apparently want auctions, not now but at some time in the future (perhaps next year), for the essential resource that is the prerequisite for building the coverage that they don’t have although they are sorely needed, as they have been for years. While clearly impractical because of how auctions soak up capital, limiting subsequent investment in networks because of the deprivation of capital, operators reportedly want auctions in order to reduce competitive threats. 

Another baffling aspect of our reality is that the administration and regulator took no effective action to prevent the destruction of existing market structures in the telecom sector when there was a disruptive new entrant. Although, with overwhelming resources from unrelated activities, unsustainable strategies and tactics could be construed as jeopardising India’s current and future productivity. Meanwhile, the administration and the regulator dithered, debating theoretical concepts of what constitutes anticompetitive or predatory activity, and the judiciary remained on the sidelines.

Yet another aspect of puzzling inactivity is that there have been no steps to test certain promising technologies for permitting their use through appropriate policies in India, such as TV White Space or the development of MIMO — Multiple-Input-Multiple-Output — using arrays of antennas, yielding (a) greater throughput (b) over longer distances (c) to more users, thereby improving spectrum capacity for broadband. While initial tests for TV White Space, conducted after a delay of several years, have been promising (disclosure: the author was associated with some), proposals for larger follow-up trials have stalled. Without these, policymakers can’t even consider policies that would enable the development and use of TV White Space devices for extending optical fibre from gram panchayats to hundreds of thousands of village users.

In the press, confusing articles short on facts make policy formulation even more difficult and risky in this already technically and financially complex space. One instance is an article about Maharashtra’s Village Social Transformation initiative avoiding TV White Space because this technology has problems with security clearance, in addition to Foreign Contribution Regulation Act clearance for Microsoft’s sponsorship of the pilot. There's no mention of the real problem in India: getting permission to use TV White Space for purposes other than for Doordarshan’s broadcasts. The security risk in these frequencies is the same as in other frequencies, and transmission in any band can be monitored.

Another article suggests the government is considering allocating a high-speed wireless frequency band of unused spectrum (V band or 60 GHz, which is like short-range wireless optic fibre) on a first come, first served basis “which is a gross violation of the Supreme Court order”. Somewhere down the page is a surmise that since the Broadband India Forum is advocating de-licencing of this band and foreign companies support it, this “means that it should be allocated without auction on first come, first served basis”. The Broadband India Forum in its white paper clearly recommends aligning with an international standard, the Harmonised European Standard.1

 According to this, low power equipment within specified emission limits in this band doesn’t need a licence, like Wi-Fi, which is de-licenced spectrum that is open access and not allocated for exclusive use. Other de-licenced spectrum would not need to be allocated either, although in India, bands such as 60 GHz could be restricted to authorised operators.

It needs government intervention to cut the Gordian knot and initiate discussions on pooling spectrum for networks and working out practicable, sustainable options. Here’s hoping good sense and guts will help to make a start.

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Shyam (no-space) Ponappa at gmail dot com

1: "V band - 60 GHz: The Key to Affordable Broadband in India"

White Paper by Broadband India Forum, November 9, 2016

http://www.broadbandindiaforum.com/img/White%20Paper%20on%20V-BAND%20Revised%20Final.pdf

The Epiphany In Power Reforms

If this is real, get Digital India moving by extending this epiphany.

Shyam Ponappa    |   June 2, 2016

My column last month faulted misrepresentation and hype about infrastructure.  There’s a positive side of the electricity supply story, however, apart from the valid criticism.  It is of a breakthrough in governance premised on a real epiphany, in the approach to reforms in electricity generation and distribution, an area plagued with seemingly insurmountable difficulties since economic reforms began 25 years ago.  If it’s true, a strategy based on abundance and organization instead of on scarcity, shortages and a ration mentality, is yielding net benefits. 

On a cautionary note, this article is based on anecdotal evidence from the public domain.  Therefore, the statements need independent validation to be accepted as facts.

                                        

What’s remarkable about the present initiatives is the enlightened approach to provide affordable electricity.  The emphasis is on systems and flows, and not just jiggering numbers on subsidies and rebates.  The focus is on increasing asset utilization in systems to get lower unit-costs from generation and distribution, and increasing volumes for gains from scale in manufactured products such as light bulbs, fans and water pumps.  There are additional benefits because these products are energy-efficient, leading to lower electricity demand for equivalent use, as well as lower emissions.  Using these gains to attract manufacturing investment by supplying inexpensive, assured electricity is likely to delight prospective investors, provided the other aspects of infrastructure and inputs are also available.

On the face of it, a number of factors are being improved in the electricity supply and demand ecosystem to make this possible.  This is one aspect of satisfaction: that a coordinated strategy was adopted to drive systemic changes across multiple domains and aspects, leading to these gains.  An approach desperately required in other sectors, but that hasn’t yet been attempted.

For electricity, the first step was to sort out coal supply for generation, as India relies on coal for about 55 percent of its generation.  Fortuitously, a fall in global prices reinforced the steps taken by the Coal Ministry working in concert with Indian Railways.  Second, a combination of solutions were formulated and introduced in the Ujjwal Discom Assurance Yojna (UDAY) scheme in November last year.  These included improving the operating efficiency of distribution companies (the State Electricity Boards) through measures to increase utilization, reducing the cost of power by lowering the price of coal and the interest burden, and eliciting financial discipline.  On the demand/user side, an initiative to introduce efficient Light Emitting Diode (LED) bulbs in January 2015 by state-owned Energy Efficiency Services Limited (EESL) was apparently very effective, with more than 100 million LED bulbs distributed by April 2016, resulting in a considerable reduction in electricity demand.  The sheer scale of procurement and distribution have reportedly led to reductions of about 75 percent in LED bulb prices.  

The financial innovations have been equally impressive, with imaginative structuring resulting in states being persuaded to take over part of the liabilities of the SEBs over three years, thereby reducing the interest cost, while also agreeing to share future losses if any.  As a consequence, SEBs have lower debt obligations, and states have strong incentives to maintain financial discipline.  Details on the UDAY scheme are available at: http://pib.nic.in/newsite/PrintRelease.aspx?relid=130261.

EESL has reportedly begun a similar effort to introduce energy efficient fans.  These fans use 30 watt-hours less on average than the 75-80 watt-hour rating of older fans, of which there are estimated to be 350 million.  Another initiative is being planned to replace over 20 million agricultural pumps with more efficient models. 

The approach to orchestrating these changes has apparently been exactly as one might script a good government process: through coordinating and facilitating meetings and consultations over many months between state and central officials.  The result is convergence on initiatives to reduce transmission and distribution (T&D) losses through steps such as upgrading transformers and equipment, introducing smart metering, and financial discipline.  T&D losses are inevitable up to a point depending on network conditions; the rest is inefficiency and theft.  Countries such as the USA and China report as low as 6 percent, while Canada has 9 percent.¹  India’s losses, however, have been at well over 20 percent, and the effort is to reduce these to 15 percent or less. 

While the solutions are not perfect -- for instance, the Supreme Court order to auction coal mining rights may result in higher life-cycle costs -- these may be the most comprehensive, integrated and well-coordinated efforts at policy reforms.

Extension To Other Sectors

Could the approach and methods applied to address electricity supply and demand management be applied to other sectors of the economy?  Obviously not in a one-size-fits-all manner, because the solutions have to address the specific problems or needs of each sector.  A consideration of the elements suggests a potentially transferable process:

•      An approach based on abundance instead of scarcity.
•      Central leadership in goal-directed coordination and facilitation with expert inputs, to converge on planning and execution.
  
  
•     Problem definition and analysis from a holistic perspective, with expert inputs from relevant domains, and inter-sectoral integration in solutions.
•      Emphasis on high utilization of “plant and equipment”, i.e., capital equipment and networks.
•      Scale and efficiency to reduce costs, combined with sophisticated financial structuring of solutions.
•     Central and state areas of responsibility well covered.
•     Distribution through markets and retail platforms.

These elements should be applicable, changing as necessary for specific attributes, domains, and expertise, to other sectors such as communications and broadband, primary health/water and sanitation, education, and transport.  Each of these would require addressing a complex set of questions and definitions with as much rigour, energy, expertise and panache as has been brought to bear in the electricity supply solutions.

Much depends on the veracity of these claims about process and results. If they’re true, this experience can be applied immediately to get the beached Digital India initiative going. If it is hype, both Digital India and Electricity for All are beached whales.

_____________________________________________________________________

Shyam (no space) Ponappa at gmail dot com

1: http://data.worldbank.org/indicator/EG.ELC.LOSS.ZS

Unfettering Stranded Capacity

Government can't control market forces, but can and must fix regulatory issues.

Shyam Ponappa  | June 4, 2015

First, the good news: the government does appear to be making serious efforts to tackle stranded capacity and stalled projects, as in the instances below. Such issues need to be resolved because of their effect on future investment and employment. Now, the bad news: one part is that some problems need solutions which are fraught with political risk. We want reforms, but don't want to pay for them. For instance, coal-based power needs additional investment to lower emissions. While beneficial, it will not be popular. Worse, sometimes even the path to resolution may not be clear, yet new ways have to be found, because business-as-usual along the paths taken is unsustainable going forward. This becomes evident in considering issues such as electricity distribution, where states have key responsibility and authority for some of what needs to be done. Concerning spectrum and coal allocation, there's widespread mistrust about operators getting something for nothing, sort of an East-India-Company syndrome, despite user benefits from lower rates and better services if there is appropriate regulation. We'll have to get over this mindset to stop doing ourselves in. This holds regardless of which party rules and at what level - the Centre, state or local government - or what their philosophy might be: rightist, leftist, something in between, or simply pragmatist.

The most prominent category of stranded capacity is where capital has been invested, but the capacity is unusable for some reason. Examples abound in infrastructure, in manufacturing, and in residential and commercial development, as detailed in the Economic Survey. But there are other categories of stranded capacity which are more difficult to address, because they are in the nature of opportunity costs rather than invested capital. They deserve equal attention because an opportunity loss, or benefit foregone from paths not taken, can result in as much detriment as from a stalled investment. But before we get into examples of opportunity costs, consider the more straightforward case of investments in power generation that are infructuous.

Stranded Power Generation

An estimated Rs 60,000 crore is unproductive in stranded power generation projects which stopped operating because fuel was unavailable. About a quarter of this relates to 31 gas-based plants of over 14,300 MW, nearly 60 per cent of the total gas-based capacity of 24,150 MW. Another 23 per cent or 5,500 MW is operating at below the 30 per cent plant load factor required to just cover costs. The government has devised a scheme using the Power System Development Fund to import liquefied natural gas to run some of these projects at 30 per cent capacity. Operators must compete through reverse-bids with a fixed tariff of Rs 5.50 per unit. The lowest bidders win PSDF support, which will be paid to distributors. There is a ceiling of Rs 3,500 crore to gas-based projects, and plants aggregating 8,000 MW had submitted bids by early May.1

Regarding electricity distribution, press reports suggest that states buy only 20-30 per cent of their requirement at the prevailing low spot rates in the last three months,ranging from Rs 2.56 to Rs 2.82 per unit. This is because of the distributors' committed power purchase agreements as well as their weaker finances. In some cases as in Delhi, some old plants incur highoperating costs, and power from clean, gas-based plants costs more.²

Another serious problem is that of "regulatory assets" in Delhi. This euphemism covers under-recoveries because tariffs were set too low for years in response to popular demand. There was a crisis last year when NTPC refused to supply power until the distributors paid their dues, while the state owed the distributors Rs 20,000 crore. The problem is ongoing; meanwhile, the regulator has increased tariffs, but not enough to recover past losses. While a number of states have begun transmission and distribution reforms,3 it's already evident with rising generation that unless financial and distribution capacity are built on sound principles, electricity supply cannot stabilise for users. We must grasp the nettle of a disciplined, responsible approach.

On a broader front, the government has been coordinating meetings between government officials, banks, and the RBI, seeking to resolve problems affecting some Rs 3.51-lakh crore in stressed projects in steel, cement, power and transport.

Opportunity Losses (or The Road Not Taken)

The regulations on radio frequency spectrum show how administrative rules can deprive us of readily available benefits. The most glaring example is the prevention of roaming using 3G spectrum. The resource was available, and was allocated to operators for various locations, but their roaming agreements were disallowed. This doesn't help us, whether from the perspective of government's increased share of revenues from greater usage, or the denial of user benefits from a better service offering. Instead, this approach constrains capacity by an arbitrary rule. Such issues need to be reviewed and rationalised to unfetter latent capacity towards attaining Digital India.

Another instance is that of limitations imposed on spectrum sharing which have nothing to do with technology. The reason exclusive spectrum allocations were introduced years ago was to prevent radio frequency interference. Now, imposing arbitrary limitations on spectrum usage results in denying ourselves available capacity. More radical and complex alternatives like pooling spectrum and facilities, and common carrier access for certain services, deserve consideration for exactly the same reasons: increased productivity and benefits from investments already made. Otherwise, it is like stranded capacity in stalled projects.

The same issues apply to the auction of mineral rights for core industries in domestic manufacturing. Any ingenuous fascination with free-market principles in allocating resources that overlook the fundamental requirements of a strong manufacturing base in a large country, or that don't comprehend the realpolitik of how free-market dogma is selectively argued, will leave us farther behind on the road to prosperity.

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                                                  shyam (no space) ponappa at gmail dot com


1. Details of all stalled generation projects are at: http://powermin.nic.in/upload/loksabhatable/pdf/LS23042015_Eng.pdf, Annex-I, Annex-I(a) and Annex-I(b).
2. http://tatapower-ddl.com/UploadedDocuments/Tariff%20and%20Financial%20issues%20impacting%20Delhi%20Discom%E2%80%99s%20and%20Delhi%20consumers.pdf
3. http://www.business-standard.com/article/economy-policy/power-reforms-gain-ground-in-states-115052701561_1.html

Path-Breaking Models for India?

                  
Examples of coordinated initiatives if they can be made to work.

Shyam Ponappa  |  April 1, 2015

Press reports suggest that there are some encouraging economic developments despite continuing uncertainties. The examples below relate to energy and an aspect of waste management. If they're for real and are successful, there may be hope yet for a transformation.

Energy: Coal-to-Electricity Supply

Some years ago, Coal India Ltd (CIL) began exploring a joint approach with other stakeholders in the process of delivering electricity to users. Prospective partners included the railways and state and local government agencies, such as ports (Chhattisgarh, Jharkhand and Odisha; Krishnapatnam Port). The intent of these ventures is to develop coherent solutions to customary problems, such as land acquisition, environmental clearances, logistics, distribution and collection. Participants in these ventures share the responsibility for the delivery of electricity for payment. These efforts to combine the disparate interests of the players, formerly operating in separate domains without acknowledging their interrelationships, could achieve much better outcomes than with each entity working solely in its own interests. The domain expertise can be focused as required, for example, in developing mines, producing coal, transporting coal (or more generally, fuel), generating electricity and distributing it, and collecting payments.

The participants with CIL, such as Indian Railway Construction Company Ltd (Ircon) - an engineering and construction company promoted by Indian Railways specialising in transportation - state governments, and local administrative institutions responsible for power generation and distribution, can harmonise their activities for convergent results. With appropriate skills where required in the value chain, and given CIL's strong cash position, a substantial increase is expected in the electricity generated from domestic coal.1

Waste Management in Trains: Self-Contained Bio-Toilets

Another equally momentous path-breaking effort has been under way in the railways to develop and replace the primitive, direct-discharge toilets in railway carriages with self-contained bio-toilets. A decade ago, Indian Railways and the Defence Research and Development Organisation (DRDO) began collaborating on a venture to apply biotechnology to toilets in passenger carriages. The product was developed and tested in 2011, and installation in new carriages was begun. Over 17,000 carriages now have these toilets. In the next five years, all passenger carriages are slated to have them.

Apart from being far more hygienic and functional, they are likely to contribute to substantial savings in replacing corroded tracks that are damaged by the direct discharge toilets (see "Railways aims to eliminate direct discharge toilets by 2020-21" for details).2 In addition, they may engender an entirely different mindset and approach to the Swachh Bharat (Clean India) campaign, taking us from the superficial to the sublime, even though that's a long way off.

Exemplars of New Paradigms

Both are examples of path-breaking solutions through innovation and coordination, instead of continuing with business as usual. They also exemplify templates for collaborative problem solving, which is sorely needed in so many areas. The coal-to-electricity example invites the question of why many more issues requiring coordinated solutions have not been pursued actively before and made to succeed. One set of reasons may be insular thinking or a silo mentality, and the related preoccupation with territorial concerns or turf wars that impede collaboration. This is aggravated when the leadership is unable or unwilling for whatever reason to control internecine squabbles among "feudal barons", or does not treat it as a sufficiently high priority. It could also be that our top political leadership, whichever the party, has different priorities, and concern for the public interest is largely for appearances.

If they are successful, the developments in coal-to-electricity will have a huge salutary impact on the availability of electricity, especially because of the coal mining lease cancellations. The shortfall from the cancellations is estimated at 18 gigawatts (Gw), whereas the coal auctions so far cover fuel for only an estimated 2.5 Gw. Yet the waste management initiative by the railways may be even more significant. This is because it is an aspect that has been so utterly ignored over many decades, if not centuries, and because it doesn't offer the allure of quick returns, or of a glamourous image. What it does offer is the greatest upliftment in conditions for civilised living. If the Swachh Bharat campaign adopts this philosophy and extends it, we can progress from merely shifting garbage from one place to another, to beginning to deal with it effectively.

The Sticking Points

In contrast to these positive examples, however, there are very serious deficiencies in our current trajectory. Consider the recently concluded coal and spectrum auctions. While auctions have popular appeal because of transparency and market pricing considerations, they have inevitable consequences when there are "winner's curse" outcomes, or where there is already inadequate availability that results in continued service deprivation, as in the limited broadband reach in India.

Both auctions have concluded "successfully", with success defined as high government collection prospects (~2 lakh crore for coal, and ~1.1 lakh crore for spectrum), but they will have two major detrimental effects. The first is price escalation, because of the added auction costs that must be recovered over the life cycle of the leases for the companies to stay profitable.3 The prospect of increasing costs makes little sense in a developing economy striving to build capacity and momentum, although there is a treasury argument for balancing future potential revenues with current cash collections. The question is to what extent this tradeoff, of taking cash from prospective capital investments to plug expenditure gaps, undercuts essential infrastructure, and for how long. This applies equally to broadband for communications as well as electricity for the grid. As it happens, the inadequacy of electricity from the grid significantly increases the costs and difficulty of deploying and operating the broadband infrastructure as well. The flip side of government collections is the opportunity cost of benefits from investment in networks and services. This investment would enhance employment and productivity, and thereby sustainable government levies, as well as prosperity and living conditions.

This is where the leadership can contribute. If the pathbreakers in electricity supply and waste management succeed, these could serve as models for breaking the mould in our approach to coal and spectrum allocation and management.

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1.mybs.in/2Rtqkqx
2.mybs.in/2RtxhLJ
3.mybs.in/2RtrgPV

shyamponappa@gmail.com

Learning from Fukushima

Take remedial steps and demystify the unreasoning dread of nuclear power

Shyam Ponappa / April 7, 2011

Official statistics report over 22,000 deaths related to fires, 27,000 by drowning and 144,000 in traffic accidents annually in India.¹ By contrast, the number of deaths resulting from the Chernobyl nuclear accident is about 10,000 in total, estimates Frank von Hippel, a nuclear physicist at Princeton, who is co-chairman of the International Panel on Fissile Materials (other estimates: World Health Organisation 4,000; International Agency for Research on Cancer 16,000; Belarus 93,000 plus 270,000 cancer patients; and Ukraine 500,000). Against this, he estimates the number of deaths owing to pollution from coal plants in the US alone at 10,000 each year.²

In this context, what are we to make of a top Indian scientist’s demand for stopping nuclear power production in India pending a transparent safety audit of all nuclear plants? Why not stop all traffic because of traffic accidents, to paraphrase another leading scientist? Should we shut down all our cities and towns until the sewerage systems work? A conscious effort should be made to demystify nuclear power.

To consider this rationally, let’s begin with some reported facts. The Fukushima accident happened after the earthquake, after the plant shut down. The plant was designed to withstand waves of six metres, but was struck by an eight-metre high tsunami, according to the US’ National Oceanographic and Atmospheric Administration (other estimates range between 6.71 and 14 metres).

A subsequent statement from the operator, Tokyo Electric Power Company (TEPCO) puts the waves that hit Fukushima Dai Ichi at 15 metres:

15-meter waves hit Fukushima

The operator of the troubled Fukushima Daiichi nuclear power plant says the facility was hit by a tsunami as high as 15 meters on March 11th.

Tokyo Electric Power Company was reporting on Saturday on its survey of high-water marks left on the plant's buildings.

It says it found that the tsunami reached up to 15 meters on the ocean side of the reactor and turbine buildings. The figure is far beyond the company's originally estimated height of 5.7 meters.

TEPCO confirmed that the 6 reactors at Fukushima Daiichi power plant had been under as much as 5 meters of water.

Source: http://www3.nhk.or.jp/daily/english/09_30.html

The reactor core takes several days to cool after being shut down and requires external cooling. The cooling system lost power from the grid because of the earthquake. The backup diesel generators worked for an hour, then stopped (there are conflicting reports on the reasons). The backup batteries then powered the pumps until they ran out. There are also conflicting reports of alternate diesel generators that were either of insufficient capacity or could not be connected for reasons that are unclear (flooded connectors, incompatible plugs and so on). The tsunami devastated the surroundings even as it hampered assistance from elsewhere. The failure appears to have been in the supply of power and water, ie, ancillary services.

Japan has 55 nuclear power reactors and it experiences frequent earthquakes. Though there have been instances of plants being shut down after earthquakes (2007: electrical transformer fire at Kashiwazaki-Kariwa, and some leaks of slightly radioactive water reported; 2004: one unit at the same plant was shut down), there has been no failure of nuclear plants because of earthquakes. So, no new facts relating to earthquakes or tsunamis seem to have surfaced to cause India to shut down its nuclear plants arbitrarily.

An increase in energy use in India is inescapable, given the correlation between growth and energy consumption. On balance, we need all the energy we can get staying within reasonable risks and costs. Objectively, what can we expect from our government and related agencies such as the Department of Atomic Energy and the Atomic Energy Agency?

Remedial Action

One could be to expect action to reduce risks based on experience.

• After the Indian Ocean tsunami of 2004, a 3.2-km wall was constructed at Kalpakkam, which was in the path of the tsunami, fortified with sandbags, rocks and embankments. (The plant is situated at over 9 metres above the sea, with the reactor floors at a height of nearly 10.7 metres.)
  
  
• The backup generators are located some distance away from the plant, out of the reach of tsunamis.
  
  
• Mangroves and casuarinas along the coast helped diffuse the impact of the waves in 2004. News reports indicate the Department of Atomic Energy plans to augment these after its recent review of coastal nuclear plants.
  
  
• News reports also mention that portable generators will be acquired for backup and tsunami alarms will be installed at coastal sites.

Other remedial measures based on experience may have been incorporated at Indian plants, or if not, could be incorporated now. For instance, referring to Fukushima, Dr von Hippel describes a filtered vent system designed to reduce radioactivity before releasing pressure from the containment building in the event of a meltdown (see diagram below).

Source: http://books.google.com/books?id=KAsAAAAAMBAJ&pg=PA1&source=gbs_toc&cad=2#v=onepage&q&f=false

Though it was ignored in the US, Sweden adopted it and so did France and Germany. Presumably, a benefit of Areva’s partnership with the Nuclear Power Corporation of India for constructing India’s new reactors will be the inclusion of filtered vents, if appropriate and not already in our design.

Costs, Benefits & Risks

Another issue is educating people on the risks, costs and benefits of different fuels. Life-cycle emissions capture one aspect of these costs (see diagram below for Europe).

A similar study is available for the US: “Life-Cycle Assessment of Electricity Generation Systems and Applications for Climate Change Policy Analysis” by Paul J Meier, University of Wisconsin-Madison, August 2002 (see diagram below).

Source: http://fti.neep.wisc.edu/pdf/fdm1181.pdf

Besides, there are other costs such as population displacement and environmental effects associated with hydroelectric plants, land requirements and the environmental impact of manufacturing for solar generation, noise levels for wind farms, or pollution and the higher risk of accidents associated with coal.³

Open Information & Communication

A third issue is easy access to accurate and relevant information. After the tsunami in 2004, the information sharing with the public was exemplary, with open and transparent briefings at Kalpakkam. This approach needs to be instituted as a standard operating procedure for governance by all departments and agencies, displaying integrity in systems, thereby instilling confidence in the public.

Prompt and accurate information about safety features including design and remedial measures could be compiled for ready access on websites, with pointers during press briefings. Regular and effective communication of systems and procedures, and measures to mitigate risks, could reduce our unreasoning dread of nuclear energy. Such steps would help assess risks reasonably and provide a good framework for governance and crisis management.

shyamponappa@gmail.com

1 “Table 38.1 Incidence of Accidental Deaths”, http://mospi.nic.in/...38%20ACCIDENT%20STATISTICS/Table-38.1.xls

[2008: latest available data]

2 “It Could Happen Here”, Frank N von Hippel, New York Times, March 23, 2011:http://www.nytimes.com/2011/03/24/opinion/24Von-Hippel.html

3 “Nuclear power is safest way to make electricity, according to study”, David Brown, Washington Post, April 2, 2011:http://www.washingtonpost.com/national/nuclear-power-is-safest-way-to-make-electricity-according-to-2007-tudy/2011/03/22/AFQUbyQC_story.html