Mitras Analysis of News : 17-04-2017

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1. Merging the oil giants (Live Mint, Budget 2017-18)

2. Carpool for cleaner air (The Hindu)

3. A glacial fight(Siachen issue) (The Hindu)

4. Inhuman Shield (Indian Express, The Hindu)

 

1.Merging the oil giants (Live Mint, Budget 2017-18)

 Synoptic line: It throws light on the proposal to merge the oil giants to create a single monolith entity comparable to the size of world’s largest oil and gas companies. (GS paper III)

Overview

  • The government plans to merge some of the 13 state oil firms to create an energy giant that can rival global oil firms like BP and Chevron to help meet the energy needs of the world’s third largest oil consumer.
  • However, the proposal has garnered mixed reactions ranging from applause to cynicism.

Brief background

  • The oil and gas industry is usually divided into two major sectors: upstream and downstream.
  • The upstream sector includes searching for potential underground or underwater crude oil and natural gas fields, and subsequently drilling and operating the wells that recover and bring the crude oil and/or raw natural gas to the surface.
  • The downstream sector commonly refers to the refining of petroleum crude oil and the processing and purifying of raw natural gas, as well as the marketing and distribution of products derived from crude oil and natural gas.
  • There are 13 oil PSUs ranging from upstream oil producers like ONGC and Oil India to downstream oil refining and fuel marketing firms IOC, BPCL and HPCL to gas transporter GAIL India Ltd and engineering firm Engineers India Ltd.
  • Now the government plans to form a major oil company by merging some of the existing firms in the oil and gas sector to take on international and domestic players. It is being proposed to create an integrated public sector oil major that will be able to match the performance of international and domestic private sector oil and gas companies.
  • The country has explored such a possibility twice in the last two decades, when two previous governments explored similar options. The last attempt was about 12 years ago. The mandate was to look at the possibility of creating a larger entity with a very strong balance sheet to raise huge capital from international markets for acquiring energy reserves and assets abroad. A similar proposal was made in 1994-95. Consequently, expert committees were constituted to look into the matter.
  • However, both committees had similar views. They were critical about an overall merger and rejected the idea of forming an oil monolith, saying it will not only create market monopoly but also affect the efficiency created by individual companies. Instead the committees suggested strengthening the structure of the state-owned oil companies through policy measures and improvements in management to focus on their core competencies.

Probable advantages of the merger

  1. It will give them the) capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders.
  1. If these entities are merged, the total revenue of the unified giant will be about $140 billion. It would become the 11th largest oil and gas company in the world. Giant unified entity will have greater room to negotiate and manoeuvre and will reap benefits from economies of scale.
  1. This will set the stage for building a national petroleum resource entity, capable of leveraging some of the best deals and cost advantages given the negotiating power that it would have. In doing so, the country would have its own version of PETRONAS or Royal Dutch Shell or BP, which is capable of being competitive in the international space as well as meeting with the ever-growing demand of the domestic market in the next one year, with a totally integrated end-to-end portfolio of products.
  1. Analysts highlights that the merged entity would have opportunities to save on costs and improve operational efficiency. For example, there would be less need for multiple retail outlets in a single area. Transport costs could be reduced by retailers sourcing from the nearest refinery, rather than the ones they own, as is the common practice now.

Probable disadvantages of the merger

  1. Though international private sector oil firms may be vertically integrated—present both in upstream (exploration and production) and downstream (refining, marketing and distribution) but this cannot be directly transplanted to PSUs. This is because the latter’s performance in the upstream area is close to zero. The Oil and Natural Gas Corp. has not discovered any oil or gas after its accidental find in Bombay High.
  1. It has been explored that a giant monolith entity will be able to buy the strategic oil assets abroad and in return it will safeguard the energy security for the nation. However, buying oil assets abroad through national oil PSUs (Nopsus) would not serve energy security objectives due to inherent political risks that would prevent oil from being shipped to India in times of crisis. It may give some return on investment, but Nopsus are not required for that.
  1. The key rationale behind mergers and acquisitions in any sector is achieving operational synergies and optimising cost efficiency in a competitive industry environment. This would essentially mean resource optimisation, pruning extra capacities and overheads, including jobs, eliminating duplications and increasing efficiencies with the aim to boost profitability. But in a country like India, where jobs remain a sentimental issue both in the political and social perspective, public sector organisations can’t even imagine such a sudden move.
  1. Moreover, the merger cases in the Indian public sector undertakings have proved big failures as the concerned decisions were taken in haste and without much clarity on the integration processes.
  • For instance, the Air India-Indian Airlines merger has by now become a classic case of the worst merger decision. Air India’s performance has worsened, and losses have widened, compared to efficiency and growth of its private sector rivals over the period. Another example is Coal India, which was created as a single entity that virtually controlled all the coal reserves of India. Though the company performance has improved recently, it has consistently been a poor performer and responsible for recurring and crippling shortages of coal in the country.

Way ahead

  • The issue to merge would necessarily need to be debated and addressed in the context of India’s diverse energy needs and global energy outlook. Securing desired levels of energy security, integrated investment planning, cost efficiency, deeper integration with global energy markets and human capital are critical aspects that need to be addressed upfront.
  • In India, both upstream and downstream can do with more competition. In this context, the government has done well to give exploration licences to small firms, private and international, and not to oil PSUs. What matters is not size but nimbleness and the ability to acquire the right technology and right people.
  • In the downstream, they should do something similar—encourage small refiners who will break the existing margin benchmark. Here, private sector refiners who are efficient are making super-normal profits because the price is set by inefficient oil PSUs.

Question: What reforms can be initiated in the Oil and Gas sector to make them economically competitive as well as making them pivot to India’s energy security?

 

2.Carpool for cleaner air (The Hindu) 

Synoptic line: It throws light on the issue of using high-occupancy toll lanes for curbing the problem of air pollution. (GS paper III)

Overview

  • India’s air now rivals China’s as the world’s deadliest. Moreover, India’s notoriously poor air quality causes nearly 1.1 million premature deaths every year, almost on a par with China, concluded a joint report by two U.S.-based health research institutes.
  • Need of the hour is to find out certain innovative and out of the box steps to curb the nuisance of air pollution. HOT lanes can be a solution in this regard.

Extent of pollution in India 

  • According to 2015 Global Burden of Disease (GBD) data, PM2.5 (particulate matter with a diameter of 2.5 micron) contributed to 4.2 million deaths globally, 52% of which occurred in China and India. In 2015, ground-level ozone caused 254,000 deaths worldwide, with India accounting for 42% of these deaths.
  • The report, and media attention, has been focused on particulate matter pollution which has the most immediate harmful impact. However, other pollutants such as sulphur dioxide (SO2) and nitrogen dioxide (NO2) also pose significant health hazards. SO2 is emitted by the burning of fossil fuels.
  • whereas deaths linked to air pollution in China have steadied in recent years, the rate has soared in India where smog readings in major cities routinely eclipse safe exposure levels.
  • India has recorded a nearly 50% increase in premature deaths linked to fine airborne particles known as PM2.5 between 1990 and 2015.
  • Even a health emergency was declared in New Delhi in November as the concentration of PM2.5 went off the charts into hazardous territory.

Out of the box measures (HOT lanes)

  • Conventional methods have been nothing but a failed and unyielding methods to curb pollution levels in India.
  • One such solution is the creation of high-occupancy toll lanes, or HOT lanes. It is a type of traffic lane or roadway that is available to high-occupancy vehicles.
  • This refers to reserving one or more lanes on selected roads and highways for cars carrying more than a single occupant.
  • This ensures that single-occupancy vehicles are restricted to the remaining lanes, thereby making the HOT lanes relatively faster (also through relaxation of speed limits for these lanes).
  • The success of this idea is exemplified by a 2005 report in the U.S., which revealed that two lanes with the high-occupancy vehicles 3+ (HOV 3+) facility between 6.30 and 9.30 a.m. saw a total of 31,700 people in 8,600 vehicles (3.7 persons/vehicle), while the remaining four general purpose lanes carried 23,500 people in 21,300 vehicles (1.1 persons/vehicle).

Challenges

  • Given India’s peculiar disregard for lane-driving, the implementation of HOT or HOV lanes seems to be a long shot.
  • There will be huge considerations to be taken care off such as, relating to whether it should be enforced during particular hours, or whether the minimum number of passengers required to avail of the benefit should be two or more, or whether HOT lane commuters will pay a lower road toll or will be completely exempt from it.
  • Nevertheless, if we impose significant fines on violators on HOT lanes and strictly monitor the policy by first applying it to limited areas, the results are bound to reduce air pollution by incentivising passengers to carpool.

Way ahead

  • The government should introduce a differential toll treatment for less polluting and higher occupancy vehicles. Toll differential system should be based on the number of car occupants and on the latest pollution check of the vehicle.
  • Moreover, electric cars or battery electric vehicles should be completely exempt from the toll.
  • In India, where most cars carry two-three people on average, it is perhaps preferred to dedicate such HOT or HOV lanes to cars carrying more than three occupants. Completely exempting these lanes from toll or, at the very least, substantially reducing the toll levied on them in relation to other lanes would provide significant incentive to the commuter.

Question: Carpooling is not only an ecological sound decision but also an economical way of travelling. How can offices and other institutions can participate to make carpool a success?

 

3.A glacial fight (Siachen issue) (The Hindu)

 Synoptic line: It throws light on the issue of Demilitarisation in Siachen glacier in wake of new enemy in global warming.(GS paper II)

Overview

  • Snow clad Siachen glacier has been subjected to permanent presence of humans, the process of settlement has change the ‘Land of roses’ into ‘World’s highest battlefield’.
  • There have been many issues such as demilitarization of glacier on the basis of mutual agreement. However, now a new dimension of global warming is also being erupted into Siachen crisis

A brief history

  • Siachen is a legacy of Partition. The LoC was delineated and accepted by India and Pakistan up to point NJ9842, the glacier was left unmarked. India claims the area based on the Jammu and Kashmir Instrument of Accession 1947 and the Karachi Agreement of 1949, which define the ceasefire line beyond NJ9842 as “running Northwards to the glaciers”.
  • The highest combat zone on planet earth, Siachen glacier is one place where fewer soldiers have died on the line duty due to enemy fire than because of the harsh weather conditions. Global warming has been new enemy to Siachen soldiers.

Siachen glacier

  • The Siachen Glacier forms part of the Leh district of the Ladakh division in the Indian state of Jammu and Kashmir. It is located in the eastern Karakoram range in the Himalaya Mountains just northeast of the point NJ9842 where the Line of Control between India and Pakistan ends.
  • Siachen glacier with all major passes is currently under the administration of India since 1984 after ‘Operation Meghdoot’. Pakistan controls the region west of Saltoro Ridge with Pakistani posts located 3000 ft. below Indian posts on Saltoro Ridge.

Demilitarisation efforts 

  • Soldier’s causalities, potential damage to environment, loss of capital, heavy expenditure remains main argument for both sides India and Pakistan, that they should come forward to demilitarize the zone.
  • Ever since the two militaries began a costly engagement on the glacier, there have been numerous efforts by both countries to find a way to demilitarise the glacier.
  • In June 1989, both countries were close to clinching a final deal. The two sides had agreed to “work towards a comprehensive settlement, based on redeployment of forces to reduce the chance of conflict, avoidance of the use of force and the determination of future positions on the ground so as to conform to the Shimla Agreement and to ensure durable peace in the Siachen area.
  • However, lack of political will on both sides has meant that the status quo holds and soldiers continue to pay a very high price in that remote snowy outpost.

However, demilitarisation has its own cons & challenges-

  1. India cannot completely trust Pakistan over its words, at a time when it has repeatedly shown dual behaviour.
  2. Non state actors like terrorists from Pakistan will get a safe route to enter India.
  3. Siachen is a strategic point for India, India currently has the advantage of height as it commands higher ground, and any demilitarisation without proper delineation and acceptance of the current positions would be disastrous. In July 1998, the then Defence Minister said, “India needs to hold on to Siachen both for strategic reasons and wider security in the region.”

Environment issues

  • The glacier was uninhabited before 1984, presence of thousands of troops since then has introduced pollution and melting on the glacier. To support the troops, glacial ice has been cut and melted with chemicals.
  • Dumping of non-biodegradable waste in large quantities and the use of arms and ammunition has considerably affected the ecosystem of the region.
  • The Siachen glacier has been retreating for the past 30 years and is melting at an alarming rate.

“However the Indian army is said to have planned a “Green Siachen, Clean Siachen” campaign to airlift the garbage from the glacier, and to use bio-digestors for biodegradable waste in the absence of oxygen and freezing temperatures.”

New enemy- “Global warming”

  • The biggest enemy on the glacier has always been the weather. But with rising global warming, condition of glacier has been worsened. Untimely weather conditions have claimed so many soldiers’ life.
  • The Indian Army holds the highest posts at heights of 21000 ft, has learnt to adapt, however the series of recent untimely avalanches on the glacier and the resultant spikes in casualties show that the challenge of changing weather patterns is new.

Way ahead 

  • There is need of technology like drones, helicopters, satellites to monitor instead of personals. In the meantime, soldiers need to be provided with better communication technologies, protection gears and avalanche related training. Better option would be to use early warning systems and better training for dealing with climate adversaries, this should be concluded with mutual agreements with future prospects.

Question: The valley of roses has been turned as a world’s highest battlefield. Does it point towards a larger crisis which is unfolding?

 

4.Inhuman Shield (Indian Express, The Hindu)

Synoptic line: It throws light on the recent incident of Army personnel using a person as human shield to deter the conflict in the Kashmir valley. (GS IV)

Introduction

  • A video showing an alleged stone-thrower tied to the front of an Army Jeep, that went viral, sparked outrage in the Kashmir Valley.
  • Such a conduct on part of Army, as an institution is disturbing as it may erode its reputation as a moral institution.

The issue

  • A short video clip that went viral showed a man tied to the bonnet of an Army jeep being driven through the streets, as it escorted election officials. Heard in the clip, on what appears to be the public address system of the vehicle, are the threatening words, that “this shall be the fate of stone-pelters”.
  • The incident has got huge-furore from various quarters such as administration and the human rights activists.

Human shield

  • Human shield means to use a person as a shield is and to abduct him or to hold him hostage, and to potentially put him in harm’s way.
  • Human shields have often been used cynically by terrorist organisations — the Islamic State uses civilians as shields in its battles, and the LTTE used them in the closing stages of the civil war in Sri Lanka.
  • However, the difficulties in fighting a hybrid war do not constitute a justification for the use of human shields, which is categorised as a war crime by the Geneva Conventions.

Ethics of using human shield

  • A territory is nothing without its people. Keeping Kashmir engaged with the idea of India means building bridges with its people, and giving them stakes in it.
  • Army sources have been quoted as saying it was for just about 100 metres. But such questions relating to distance are hardly the issue. The larger point here is that, it amounts to an instance of gross human rights violation, and must officially be called out in clear terms.
  • Even the instances like this and other scenes of alleged excesses by soldiers are washing away all the progress achieved in the Valley.
  • At last, the arguments that this was the “best way” to teach the Valley’s stone pelters a lesson, or that this method “saved lives” as the soldiers did not have to shoot anyone, or that soldiers have a right to protect themselves even if it means tying a man to their jeep, do not hold.
  • Quite simply, the state cannot equate itself with those challenging its writ. If it does so, it runs the risk of losing its moral legitimacy over them.

Way ahead

  • Government and particularly the Army must send out a message to every soldier in the Valley, and elsewhere in the country too, that such aberrations will not be tolerated. Because they tarnish the image of the army as an institution.
  • Moreover, Army’s response must also publicly affirm its Code of Conduct vis-à-vis civilians, which includes the clause, “Violation of human rights must be avoided under all circumstances, even at the cost of operational success.”

Question: Though Indian armed forces have been far disciplined and efficient but what possible reforms should be initiated in the army to sensitize the personnel so that anytime in future it is not even accused of any sort of alleged war crimes? 

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