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Archive for June, 2010

Petroleum pricing reform

June 30th, 2010 2 comments

Petroleum Secretary S Sundareshan, while addressing a press Conference on Friday, announced the government’s decision to deregulate prices of petrol. Petrol prices shall now be subject to periodic revisions based on fluctuations in market prices. An immediate hike of Rs. 3.50 per litre has already been affected.

Prices of diesel shall be deregulated in stages while those of kerosene and LPG shall continue to be regulated by the government. For the moment, diesel has been hiked by Rs. 2 per litre, kerosene by Rs. 3 per litre and LPG by Rs. 35 per cylinder.

Crude to retail: Pricing and under-recoveries

India imports about 80% of its crude oil requirement.  Therefore, the cost of petroleum products in India is linked to international prices. The Indian barrel of crude cost $78 in March 2010.

Once crude is refined, it is ready for retail. This retail product, is then taxed by the government (both Centre and State) before it is sold to consumers. Taxes are levied primarily for two reasons: to discourage consumption and as a source of revenue. Taxes in India are in line with several developed nations, with the notable exception of the US (See Note 1)

Before the current hike, taxes and duties in Delhi accounted for around 48% of the retail price of petrol and 24% of the retail price of diesel. (Click Here for details)

Ideally, the retail prices of petroleum products should then be determined as:

Retail prices = Cost of production + taxes + profit margins

However, in practice, the government indicates the price at which PSU oil companies sell petroleum products. Since these oil companies cannot control the cost of crude (the primary driver of the cost of production) or the taxes, the net result is an effect on their profit margins.

In cases where the cost of production and taxes exceeds the prescribed retail price, the profit margins become negative. These negative profit margins are called ‘under-recoveries’.

When international crude prices rose above $130 in 2008, under-recoveries reached an all-time high of Rs. 103,292 crore. Even at much lower prices in 2009-10 (averaging at $70 per barrel), under-recoveries totalled Rs. 46,051 crore. (See Note 2)

The latest move is an effort to reduce these under-recoveries. The government cited the recommendations of the Kirit Parkih Committee while announcing its decision (Summary – Kirit Parikh Committee report).

Any alternatives to price hike?

As is evident from above, under-recoveries can also be reduced by decreasing taxes. In fact, one might argue that by both taxing the product and offering a subsidy, the government is complicating the situation. Usually whenever subsidization coexists with taxation, it serves the purpose of redistribution. For example, taxes might be collected universally but subsidy be granted to the weaker sections only. However, this is not the case in the current situation.

What needs to be noted here is that these taxes are a very significant source of revenue. In fact, the total taxes paid by the oil sector to the central and state governments were around 3% of GDP in 2008-09 (See Note 3). Reducing taxes now might make it difficult for successive governments to raise taxation rates on petroleum products again.

Moreover, though taxes are levied both by the Centre and the States, the subsidy is borne only by the Centre. Hence, the current arrangement is beneficial to the States.

Possible future scenarios

The opposition has voiced concerns that the hike in prices is likely to lead to even higher inflation and will further burden the consumer. The Chief Economic Advisor to the Finance Ministry, Dr. Kaushik Basu, however, told the media that these changes would have a beneficial effect on the economy. According to him,

“The (decontrol of petrol prices), coupled with price increase for LPG (cooking gas) and kerosene, will have an immediate positive impact on inflation. I expect an increase of 0.9 percentage points in the monthly Wholesale Price Index (WPI) inflation”.

However, he added, that since the hike in fuel prices would push down fiscal and revenue deficit,

“they will exert a downward pressure on prices… More importantly, from now on, if there is a global shortage and the international price of crude rises, this signal will be transmitted to the Indian consumer. It will rationalise the way we spend money, the kinds and amount of energy we use, and the cars we manufacture. It is an important step in making India a more efficient, global player”.

It remains to be seen how the actual situation pans out.

Notes

1) Share of tax in retail price (%)

Country Petrol Diesel
France 61% 46%
Germany 63% 47%
Italy 59% 43%
Spain 52% 38%
UK 64% 57%
Japan 48% 34%
Canada 32% 25%
USA 14% 16%
India (Del) 48% 24%

Source:  Petroleum Planning and Analysis Cell, PRS (Data as of Feb, 2010)

2) Under-recoveries by oil companies (Rs Crore)

Year Petrol Diesel PDS Kerosene Domestic LPG Total
2004-05 150 2,154 9,480 8,362 20,146
2005-06 2,723 12,647 14,384 10,246 40,000
2006-07 2,027 18,776 17,883 10,701 49,387
2007-08 7,332 35,166 19,102 15,523 77,123
2008-09 5,181 52,286 28,225 17,600 103,292
2008-09 5,151 9,279 17,364 14,257 46,051

Source:  Petroleum Planning and Analysis Cell, PRS

3) Contribution to Central and State taxes by Oil Sector (2008-09)

Category Rs (crore)
Sales tax 63,349
Excise duty 60,875
Corporate tax 12,031
Customs duty 6,299
Others (Centre) 5,093
Other (State) 4,937
Profit petroleum 4,710
Dividend 4,504
Total 1,61,798

Source:  Petroleum Planning and Analysis Cell

Are laws covered by copyright?

June 29th, 2010 3 comments

The simple answer is yes.

Under the Copyright Act, 1957, the government, and the government alone, can print its laws and issue copies of them.  If, for instance, a person, takes a copy of an Act, and puts it up on their website for others to download, it’s technically a violation of copyright.

The only way any person can do so, without infringing copyright, is to ‘value-add’ to the text of the Act, by say, adding their own commentary or notes. But simply reproducing the entire text of the Act, without comment, is an infringement of the copyright.

Section 52 (1)(q) of the copyright Act, which covers ‘fair use’ of a copyrighted work says the following:

52 (1) The following acts shall not constitute an infringement of copyright, namely:

(q) the reproduction or publication of-

(i) any matter which has been published in any Official Gazette except an Act of a Legislature;

(ii) any Act of a Legislature subject to the condition that such Act is reproduced or published together with any commentary thereon or any other original matter;

(iii) the report of any committee, commission, council, board or other like body appointed by the Government if such report has been laid on the Table of the Legislature, unless the reproduction or publication of such report is prohibited by the Government;

(iv) any judgement or order of a court, tribunal or other judicial authority, unless the reproduction or publication of such judgment or order is prohibited by the court, the tribunal or other judicial authority, as the case may be;

So the text of an Act is copyrighted, but the rules produced under it, and published in the Gazette are not.

This is odd, to put it politely. Why should the text of a law, one of the basic building blocks of  a modern state, not be freely available to anyone, without cost?

(Even if you can make an argument that laws should be covered by copyright, shouldnt that copyright rest with Parliament, which ‘creates’ laws, rather than the government?)

The Parliament Standing Committee on Human Resource Development is currently studying the Copyright (Amendment) Bill, 2010, which has already achieved a certain amount of fame, for the changes it makes to the rights of lyricists and music composers.  But perhaps the Committee should also consider recommending an amendment to 52(1) of the Copyright Act, allowing not just laws, but all works funded by the government, and by extension the taxpayer, to be freely available to all.

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No Political parties in UP urban-local bodies

June 25th, 2010 No comments

Indian Express published an article by PRS on the proposed Rules to disallow participation by political parties in urban local bodies (such as municipalities).

Click here for the article

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Upcoming Committee Meetings in Parliament

June 23rd, 2010 No comments

Rajya Sabha

June 23 and 24, 2010: Committee on Science & Technology, Environment & Forests

Agenda – The Civil Liability for Nuclear Damage Bill, 2010

June 29, 2010: Committee on Transport, Tourism and Culture

Agenda – Duties, Responsibilities and Functions of Directorate General of Civil Aviation and Helicopter Operations in India

Lok Sabha

June 24: Committee on Subordinate Legislation (No agenda mentioned)

June 25: Committee on Welfare of Scheduled Castes and Scheduled Tribes

Agenda – Adoption of Report on the subject “Reservation for and Employment of Scheduled Castes and Scheduled Tribes in Punjab and Sind Bank and credit facilities provided by the Bank to them”

June 29: Public Accounts Committee

Agenda – Recent Developments in the Telecom Sector including allocation of 2G and 3G Spectrum

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Civil Nuclear Liability and International Principles

June 21st, 2010 1 comment

The Civil Damage for Nuclear Liability Bill, 2010 has been criticised on many grounds (Also click here), including (a) capping liability for the operator, (b) fixing a low cap on the amount of liability of the operator, and (c) making the operator solely liable.  We summarise the main principles of civil nuclear liability mentioned in IAEA’s Handbook on Nuclear Law:

Strict Liability of the Operator: The operator is held liable regardless of fault.  Those claiming compensation do not need to prove negligence or any other type of fault on the part of the operator.  The operator is liable merely by virtue of the fact that damage has been caused.

Legal channeling of liability on the operator: “The operator of a nuclear installation is exclusively liable for nuclear damage. No other person may be held liable, and the operator cannot be held liable under other legal provisions (e.g. tort law)…This concept is a feature of nuclear liability law unmatched in other fields of law.”  The reason for this has been quoted in the Handbook as:

“…Firstly, it is desirable to avoid difficult and lengthy questions of complicated legal cross-actions to establish in individual cases who is legally liable. Secondly, such channelling obviates the necessity for all those who might be associated with construction or operation of a nuclear installation other than the operator himself to take out insurance also, and thus allows a concentration of the insurance capacity available.”

Limiting the amount of liability: “Limitation of liability in amount is clearly an advantage for the operator.  Legislators feel that unlimited liability, or very high liability amounts, would discourage people from engaging in nuclear related activities. Operators should not be exposed to financial burdens that could entail immediate bankruptcy….Whatever figure is established by the legislator will seem to be arbitrary, but, in the event of a nuclear catastrophe, the State will inevitably step in and pay additional compensation. Civil law is not designed to cope with catastrophes; these require special measures.”

Limitation of liability in time: “In all legal systems there is a time limit for the submission of claims. In many States the normal time limit in general tort law is 30 years. Claims for compensation for nuclear damage must be submitted within 30 years in the event of personal injury and within 10 years in the event of other damage. The 30 year period in the event of personal injury is due to the fact that radiation damage may be latent for a long time; other damage should be evident within the 10 year period.”

Insurance coverage: “The nuclear liability conventions require that the operator maintain insurance or provide other financial security covering its liability for nuclear damage in such amount, of such type and in such terms as the Installation State specifies….This ensures that the liability amount of the operator is always covered by an equal amount of money. The congruence principle is to the advantage both of the victims of a nuclear incident and of the operator. The victims have the assurance that their claims are financially covered, and the operator has funds available for compensation and does not need to convert assets into cash.

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Legislative vacuum and the Bhopal Gas tragedy

June 10th, 2010 3 comments

Our Constitution provides protection against laws imposing criminal liability for actions committed prior to the enactment of the law. Article 20 (1) under the Part III (Fundamental Rights), reads:

20. (1) No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence.

Thus, the maximum penalty that can be imposed on an offender cannot exceed those specified by the laws at the time. In the context of the Bhopal Gas tragedy in 1984, the Indian Penal Code (IPC) was the only relevant law specifying criminal liability for such incidents. The CBI, acting on behalf of the victims, filed charges against the accused under section 304 of the IPC (See Note 1). Section 304 deals with punishment for culpable homicide and requires intention of causing death.

By a judgment dated September 13, 1996, the Supreme Court held that there was no material to show that “any of the accused had a knowledge that by operating the plant on that fateful night whereat such dangerous and highly volatile substance like MIC was stored they had the knowledge that by this very act itself they were likely to cause death of any human being.” The Supreme Court thus directed that the charges be re-framed under section 304A of the IPC (See Note 2). Section 304A deals with causing death by negligence and prescribes a maximum punishment of two years along with a fine.

Consequently, the criminal liability of the accused lay outlined by section 304A of the IPC and they were tried accordingly. Civil liability, on the other hand, was adjudged by the Courts and allocated to the victims by way of monetary compensation.

Soon after the Bhopal Gas tragedy, the Government proposed and passed a series of laws regulating the environment, prescribing safeguards and specifying penalties. These laws, among other things, filled the legislative lacunae that existed at the time of the incident.

Given the current provisions (See Note 3), a Bhopal like incident will be tried in the National Green Tribunal (once operationalized) and most likely, under the provisions of the the Environment (Protection) Act, 1986. The criminal liability provisions of the Act (See Note 4) prescribe a maximum penalty of five years along with a fine of one lakh rupees. Further, if an offence is committed by a company, every person directly in charge and responsible will be deemed guilty, unless he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such an offence.

The civil liability will continue to be adjudged by the Courts and in proportion to the extent of damage unless specified separately by an Act of Parliament.

Notes

1) IPC, Section 304. Punishment for culpable homicide not amounting to murder

Whoever commits culpable homicide not amounting to murder shall be punished with imprisonment for life, or imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine, if the act by which the death is caused is done with the intention of causing death, or of causing such bodily injury as is likely to cause death,

Or with imprisonment of either description for a term which may extend to ten years, or with fine, or with both, if the act is done with the knowledge that it is likely to cause death, but without any intention to cause death, or to cause such bodily injury as is likely to cause death.

2) IPC, Section 304A. Causing death by negligence

Whoever causes the death of any person by doing any rash or negligent act not amounting to culpable homicide, shall be punished with imprisonment of either description for a term which may extend to two years, or with fine, or with both.

3) Major laws passed since 1984:

1986 – The Environment (Protection) Act authorized the central government to take measures to protect and improve environmental quality, set standards and inspect industrial units. It also laid down penalties for contravention of its provisions.

1991 – The Public Liability Insurance Act provided for public liability – insurance for the purpose of providing immediate relief to the persons affected by an accident while handling hazardous substances.

1997 – The National Environment Appellate Authority Act established to an appellate authority to hear appeals with respect to restriction of areas in which any industries, operations or processes are disallowed, subject to safeguards under the Environment (Protection) Act, 1986.

2009 – The National Green Tribunal Act, yet to be notified, provides for the establishment of a tribunal for expeditious disposal of cases relating to environmental protection and for giving relief and compensation for damages to persons and property. This Act also repeals the National Environment Appellate Authority Act, 1997.

4) Criminal liability provisions of the Environment Protection Act, 1986

Section 15. Penalty for contravention of the provisions of the Act

(1) Whoever fails to comply with or contravenes any of the provisions of this Act, or the rules made or orders or directions issued thereunder, shall, in respect of each such failure or contravention, be punishable with imprisonment for a term which may extend to five years with fine which may extend to one lakh rupees, or with both, and in case the failure or contravention continues, with additional fine which may extend to five thousand rupees for every day during which such failure or contravention continues after the conviction for the first such failure or contravention.

(2) If the failure or contravention referred to in sub-section (1) continues beyond a period of one year after the date of conviction, the offender shall be punishable with imprisonment for a term which may extend to seven years.

Section 16. Offences by Companies

(1) Where any offence under this Act has been committed by a company, every person who, at the time the offence was committed, was directly in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.