Monday, January 27, 2014

Wednesday, January 15, 2014

Changing Face of Energy Investment in BRIC (Brazil, Russia, India, and China ) Countries

India and China have made significant improvements in energy intensity in recent years and are fast growing economies. They also have a very large population. India has established a national agency focused on energy efficiency and is relying on market-based mechanisms, whereas China has adopted a more command and control approach. While each of the BRIC (Brazil, Russia, India, and China ) countries face unique challenges, all have recognized the importance of improving energy efficiency and have taken concrete steps forward. Perhaps even more significantly, given similarities in the size of these economies to the US, energy efficiency innovations in these countries will begin to offer US policymakers new policy and program models to consider. Sharing these innovations across the US and BRIC countries will become increasingly critical.  By examining each country’s current national energy efficiency initiatives and unique challenge.

The bidder’s registration for the first oil rights auction in Brazil’s pre-salt on 8th January, 2014, was highly pessimistic. There was a lack of oil majors such as ExxonMobil and BP, and the small number of bidders; 11 as opposed to some 40 expected by the Brazilian government. This was dissimilar to Brazil’s inaugural pre-salt auction to the tectonic-shifting announcements of the pre-salt several years ago. Yet with a mix of emerging market and European players, the list of bidders is perhaps a reflection of the nature of exploration and production in the Americas today.

 BRIC countries are very significant to the world economy and to international efforts to regulate climate change effects. Each one of it faces different challenges and opportunities. Brazil has targeted energy efficiency programs and policies that curb its emissions and continue to support economic growth. Brazil ratified the UNFCCC (United Nations Framework Convention on Climate Change) in 1992 and the Kyoto Protocol in 2002, which allows Brazil to participate in the CDM (Clean Development Mechanism). The CDM allows certification of emission reduction projects in developing countries and the subsequent sale of the certified emission reductions to be used by developed countries to meet their targets. There are good opportunities for CDM project development in Brazil’s electricity sector, especially those related to power generation by using byproducts and residues from the industrial sector, such as sugar and ethanol, chemical, metallurgical, paper & pulp and steel industries. Currently, almost half of the registered CDM projects in Brazil belong to the renewable energies category.  

Currently, Brazil is the third most active country, with 438 projects (8%), while China ranks first, with 2136 projects (37%) and India second, with 1,524 projects (27%). Russia begins its quest toward greater energy efficiency at a comparative disadvantage. Under the Soviet Union, the country industrialized heavily and the legacy industrial base and building stock is for the most part aged and inefficient. Russia’s energy intensity is significantly higher than Western Europe and thus it has adopted a 40% energy intensity improvement goal by 2020 over 2007 and established a National Agency to address energy efficiency.  

Brazil has been very effective in promoting energy efficiency and has benefited from a largely hydro-based electric sector, indigenous production of oil and natural gas, and a strong agricultural program to address deforestation and promote ethanol feedstock from sugarcane. The February-2014’s auction of blocks in the Libra field will not be only the first pre-salt bid round but also will be the first auction under the revamped hydrocarbons law, which gives greater control over pre-salt development to state-owned Petrobras. The outcome could have far-reaching implications for the future of Brazil’s efforts to exploit the pre-salt reserves.

The registered bidders include three Chinese firms (CNOOC, CNPC and Sinopec in partnership with Repsol); India’s ONGC Videsh, Japan’s Mitsui & Co., Malaysia’s Petronas, and Colombia’s Ecopetrol, as well as familiar European outfits Shell, Petrogal, and Total. Nothing to sneeze at to be sure and certainly no reason to give up on pre-salt’s promise. The Libra prospect holds an estimated 8 – 12 billion barrels of oil, and Brazil’s hydrocarbons regulator, ANP, reckons the field could produce up to 1 million barrels per day at its peak. The country currently produces about 2 million barrels per day nationally, placing it just behind Venezuela as South America’s.

There was also a concern about the apparent straitjacket that has been placed on Petrobras by requiring the national oil company to be the sole operator and own a minimum 30% stake in all pre-salt projects. Despite this seemingly endless litany of concerns, the opportunity the pre-salt presents is not a trifling one. When the Tupi  (now Lula) field was discovered in 2007, it set off exuberance in the international oil and gas business. And with good reason: the discovery was easily the largest in the hemisphere in several decades. 

Today, oil majors and participants in the international E&P milieu are increasingly hard pressed to find opportunities of the magnitude of the pre-salt. Indeed, across Latin America there is no bidding underway that compares to the pre-salt. Not in much-heralded Colombia, nor in Ecuador, Venezuela, or Argentina, and not yet in Mexico. That said, this first step is still a promising one. 

Whether this new set of players can bring about a return to the pre-salt’s halcyon days, however, is far less clear.  


Monday, January 6, 2014

Challenges of Energy Sector in Pakistan

During the India and Pakistan division in 1947, Pakistan inherited a total of 60 MW of electricity generation capacity, in the form of a small hydroelectric facility and a thermal power plant. It now has about 20,000 MW of installed capacity. An estimated 60% of its population of over 160 million people has some access to electricity. Pakistan has a per capita GDP of about $2,400 (adjusted for purchasing power parity) but is now ranked at 136 in the United Nations Human Development Index, out of 177 states, below India, Bhutan, Burma, Laos, Myanmar, and Botswana and other countries with lower per capita GDP. Over its six decades, Pakistan has found that its energy policies, especially those associated with exploitation of its crucial gas and hydroelectric resources, are a source of profound political problems. The poor law and order situation in remotely situated gas fields of Balochistan, Khyber Pakhtunkhwa and Sindh is a major challenge for government to promote oil and gas exploration among investors, Bad law and order situation is the only problem faced by the local and foreign oil and gas exploring companies involved in Pakistan.

 The co-operation of local administrations in remote areas is very significant for oil and gas exploring companies but still the private sector has to deal with local tribesmen to continue with development work.  Interestingly, the security issues in remotely located gas fields are exclusive to Pakistan and nowhere in the world including Middle East, Europe and US the heavy construction industries face such a situation. The Pakistan’s economic cost each year is over $10 billion, shaving around a third off the growth rate. In the industrial town of Faisalabad, where the crisis has shut down several factories, a group of young boys was seen attacking the local electricity company’s offices with sticks and bricks Only the wealthiest are inured from the crisis. Generators are now a status symbol in Pakistan.

The energy crisis is a product of years of steady neglect in a country of scarce resources, a growing population, poor management decisions and a conveyor belt of corruption. For decades, Pakistan has relied on pricey oil imports. As the price of oil rose and the Pakistani rupee weakened against the dollar, the cost of keeping the lights on spiraled upward. The bad law and order in those parts of the country which are rich in energy resources is also a hurdle to economic growth. A strong writ of the state in remotely located gas fields can bring a big change to the economy of Pakistan, as a large number of foreign companies and investors are interested to invest here One of the biggest issues confronting the country right now is a so-called circular debt of $5 billion. The importers of oil are owed money by the companies that generate the electricity, which in turn are owed money by the distribution companies, which are then owed cash by consumers who don’t pay up, from the government and the private sector. In recent years, defaulters have included the presidential palace, the Supreme Court, the top intelligence agency and the Sharif family’s steel business. The government estimates that $2 billion is lost each year through graft in the energy sector.

 International Monetary Fund, which is currently in talks with Pakistan about issuing a fresh loan. As the  Sharif’s government is keen to normalize relations with neighboring India through stronger trade ties. The Indian government is offering us 500MW of electricity through a system that will be installed over the next two years. The Indian private sector is making a cheaper offer that could see fruition in six months’ time.

The Sharif government had hoped that its Saudi allies, sensing Pakistan’s desperate needs, would come through with an oil deferred-payments package. But when it comes to the supply of gas, Pakistan may end up following through with a pipeline with Iran that would not only offend Riyadh, but also trigger sanctions from USA.

The U.S. has spent nearly $250 million on hiring expert consultants and enhancing infrastructure. The improvements, including new turbines for a major dam, are said to have added 900 MW. The prospect of striking energy deals with India and Iran. It makes good economic sense, and it makes for good regional diplomacy. As the Pakistan has rich natural resources which if planned well can help Pakistan resolve the financial as well as energy crisis. It is the need of the country to have public, private forums to develop a ten year plan to explore these resources as well as attract foreign investments, companies with better technologies to work in Pakistan.

 The Pakistan needs to bring better technologies from the west thereby increasing the productivities and reducing the cost of operations. Pakistan’s nuclear energy program has been a very small part of the energy mix so far. Despite this, the Pakistan Atomic Energy Commission has great political power and preferential access to scare resources of capital and technical skills Pakistan’s energy plans are ambitious and appear unrealistic.

It is hard to see how it can generate and sustain the vast capital investments it would need to meet its energy goals, given its political instability, poor governance, and myriad groups that are willing to use violence against the state because democratic processes have not been allowed to develop. Should funds become available, and current plans begin to be put into effect, conflicts will likely worsen. A necessary condition for a viable energy policy in Pakistan is that it be built on foundations of democracy and social justice and watched over by a vigilant and powerful civil society. These basic political foundations still need to be laid and the social movements insert text need to be built

Sunday, January 5, 2014

Changing Dimensions of India and Iran Bilateral Relations: An Energy Investment Perspective

Iran and India have had bilateral relations for centuries. However, their relations entered into a new era after the partition of the Indian subcontinent into India and Pakistan, the Iranian Islamic republic revolution and the Iranian nuclear issue. But India has reviewed relations over the last few years as Iran became the contentious issue for its ties with United States. India has also been under pressure from Israel - one of India's leading military equipment suppliers - and the Gulf states - where millions of Indian migrants live and work - to re-develop relations with Iran. Due to the partition of the Indian subcontinent, in 1947 India lost its closeness with Iran and the two countries followed different foreign policies due to post-partition political challenges. On the other hand, Iranian Islamic revolution modified Iran’s relation with the world including India. But in the recent years and after the international sanctions against Iran’s economy, India and Iran are facing a tough commercial and political relationship.

The economic relation between India and Iran are mostly related to Indian import of Iranian crude oil. At one level, India is the second largest buyer of Iranian crude oil. On the other, Iran is the sixth biggest supplier of crude oil to India. Iran is also a major source for India’s imports of petrochemical substances. When the sanctions imposed on Iranian crude exports, India and Iran decided a rupee payment system for continuing oil business, because foreign banks had refused to deal with Iran fearing penalties by the US. Therefore India continues to import Iranian crude oil using exemptions from the US sanctions, but it backed out of a multi-billion-dollar natural gas pipeline project with Iran due to the complications from US sanctions and the fact that the pipeline was going to traverse Pakistan. 

India has one of the world's five largest Muslim populations, but 90% are Sunni - while Iran is predominantly Shi'ite. So India-Iran relations - and contacts - center narrowly on three main issues: Oil and gas, with entrepreneurs in both state-owned and private firms pushing for more opportunities; Regional issues, notably Afghanistan and Pakistan, which are pursued mainly by Indian intelligence agencies; Defending Indian freedom of action in foreign policy, which has been a priority for politicians and thinkers who want to protect Indian national sovereignty. On energy, India and Iran are natural trade partners. India depends on imports for up to 80% of its crude oil needs and 25% of its natural gas needs while Iran has the world's fourth-largest proven oil reserves and second-largest natural gas reserves. India imported $11.6 billion of Iranian oil in fiscal year 2012-2013. New Delhi is Tehran's second-largest oil customer. Some of this trade was conducted in Indian rupees, which was beneficial to India.

Recently India and Iran in the Joint commission meeting have discussed on various projects, including the IPI gas pipeline project, A long term annual supply of 5 million tons of LNG, development of the Farsi oil and gas blocks, South Pars gas field and LNG project, Chahbahar port project (Chabahar port is often referred to as the ‘Golden Gate’ to the landlocked Commonwealth of Independent States (CIS) countries and Afghanistan). But broader political coordination on Afghanistan is now minimal compared to the 1990s. They have not as yet joined forces, for example, to influence the succession to President Hamid Karzai or to counter Pakistani influence in Afghanistan. India and Iran have also signed a Bilateral Investment Promotion & Protection Agreement (BIPPA) and are in the process of finalizing a Double Taxation Avoidance Agreement (DTAA). Indian companies which had or have a presence in Iran include ESSAR, ONGC Videsh Ltd. (OVL) and TATA. Joint ventures between India and Iran include the Irano-Hind Shipping Company, the Madras Fertilizer Company and the Chennai Refinery.

As in the today’s world, the high ratio of the energy consumption reflects the development of countries and those without enough energy resources face many economic and political difficulties and have to prepare their required energy at any costs. India’s share in world energy demand is projected to increase from 5.5% in 2009 to 8.6% in 2035 . India hopes to maintain an annual gross domestic product (GDP) growth rate of about 8–10 per cent over the next quarter century to meet its goals for poverty eradication. This level of growth will require India to at least triple its primary energy supply.

As India already imports more than 2/3rd of its hydrocarbon requirements and any further escalation would adversely affect its energy security. Therefore India has to diversify its manner of energy supply. It seems that investing in other countries to explore and exploit their oil fields is the best way to supply more petroleum to India. Iran is close to India geographically and has good political ties with it. Iran also shares several joint oil fields with its neighbors like Iraq, Qatar, United Arab Emirates and Iran’s other neighbors by entering in to contracts with powerful oil companies have increased their production in their joint oil fields with Iran. But due to the international sanctions, Iran is not able to cooperate with those companies to develop its joint fields. As New Delhi welcomed the nuclear deal struck by Iran and the world's six major powers in November 2013, which it hopes will eventually lead to the lifting of sanctions. India's one concern, however, is that Iran's return to the global oil market will cut its interest in trading oil with New Delhi in Indian rupees - on terms favorable to India. Therefore and since Indian companies have the technology and funds, Iran badly needs Indian investment in its hydrocarbon sector.

As Over the last decade, the Indian government had made some efforts to promote a natural gas pipeline from Iran to India through Pakistan. Pakistan had signed on to the project and even executed a gas purchase agreement with Iran. But US sanctions on Iran and Indian apprehension about Pakistan derailed the project. Even if US Govt. lifted its sanctions, India's interest in the pipeline project would be unlikely to revive without significant improvement in India-Pakistan ties. But Coordination between India and Iran on Afghan development is likely to remain limited.

As India's overall development assistance to Afghanistan outweighs what India does there in association with Tehran. Surprisingly, India and Iran do not appear to be coordinating their public positions on future political developments in Afghanistan, even with the prospect of the imminent US withdrawal. Therefore the problem in India's position has been that it has not been willing to accept the connection between the nuclear issue and its oil and gas trade with Iran. The United States and Israel view Iran's oil wealth as a key resource for Iran's nuclear program - and sanctioning its trade as a way to pressure Iran into dismantling the program. But India has wanted to treat the issues separately out of self-interest. But due to the new development like Geneva agreement between Iran and P5+1 (UN Security Council permanent members Britain, France, Russia, USA and China as well as Germany), experts are so optimistic about the lifting of sanctions against Iranian oil and gas industry. Now many companies are waiting for the green light from the sanction-imposers to invest in Iran’s vast oil and gas fields.
  
Sources:
Sunil Dasgupta http://www.atimes.com/atimes/South_Asia/SOU-01-121213.html
Iran-India Economic Ties”, at http://www.iran-embassy.org.in/page.php?m1id=38&clid=38.
Joint Press Statement on 17th India-Iran Joint Commission Meeting, May 4, 2013, at http://www.mea.gov.in/press-releases.htm
OPEC Annual Statistical Bulletin, 2013, at http://www.opec.org/opec_web/static_files_project/media/downloads/publications/ASB2013.pdf.
Iran Implementing South Pars Projects at http://www.presstv.com/detail/156997.html,
Sun-Joo Ahn and Dagmar Graczyk, “Understanding Energy Challenges in India” , at https://www.iea.org/publications/freepublications/publication/India_study_FINAL_WEB.pdf.
Sujata Ashwarya Cheema, “India-Iran Relations: Progress, Challenges and Prospects”, India Quarterly: A Journal of International Affairs 2010 66: 383, at http://iqq.sagepub.com/content/66/4/383.full.pdf.
India Snubs US Sanctions on Iran”, The Times of India, June 1, 2012, at http://articles.timesofindia.indiatimes.com

Saturday, January 4, 2014

Prospects and Challenges of International Energy Investment Law

International energy investment law is not a distinct and coherent body of international law. It consists of a variety of different legal sources which contain some core principles despite their heterogeneity. The most important sources of contemporary international energy investment law are bilateral investment treaties (BITs). BITs are international agreements in which each state party guarantees certain rights and remedies to investors of the other party. The relative importance of these agreements increased remarkably during the two last decades. While the total number of BITs amounted to about 400 in the 1980s, there are currently (as of 2010) 2750 BITs in force. Most BITs have a comparable content which includes international protection standards for foreign investors against expropriation and other negative interferences of the host state government. Many of these agreements provide for clauses on investor-state dispute settlement which usually gives the investor the right to claim an alleged violation of a BIT before an international arbitration tribunal which will then render a binding award. The increased incorporation of such a dispute settlement tool in BITs has been viewed as the major improvement from the perspective of foreign investors. The practical importance of this instrument is illustrated by the growing number of cases adjudicated by the International Centre for Settlement of Disputes (ICSID) By May 2011, the ICSID secretariat registered 126 pending cases and recorded 221 settled cases since 1972.

As countries increasingly seek to promote clean-energy investment to meet carbon-emissions goals, foreign investors are attracted to economic-incentive programs that subsidize or otherwise support high
upfront investments in clean-energy infrastructure. Once the initial investment has been made, what protections does the investor have against the revocation of such support systems that remove the economic benefits expected from the investment?

In the PV Investors v. Spain, case which is subject to the Energy Charter Treaty legal framework. The case is based on claims of foreign investor damages caused by Spain’s revocation of several feed-in tariff benefits the country implemented to attract foreign investment in solar photovoltaic energy. Although Nykomb v. Latvia appears instructive on the issue, this Note argues that PV Investors should be treated with a different legal analysis. This Note uses legal principles derived from the Energy Charter Treaty, customary international law, the North American Free Trade Agreement, and the United States Model Bilateral Investment Treaty to determine that the revocation of clean-energy investment economic support
systems can constitute indirect expropriation requiring compensation. PV Investors may be the first of many clean-energy cases involving the revocation of promised economic benefits for foreign investors, and the decision in this case will provide guidance for future cases dealing with similar cuts in benefits.

Next to bilateral investment treaties are regional integration agreements or free trade agreements with an investment chapter. One example is NAFTA Chapter Eleven which contains a full set of investment protection rules similar to many BITs. The most important regional agreement relating directly to energy investment is the Energy Charter Treaty, a multilateral agreement concluded by  European and Central Asian states as well as the European Union.

The Energy Charter Treaty aims at promoting and securing energy-related investment in the territories of the member states. It contains similar protection standards as the bilateral investment agreements. In addition, the Energy Charter Treaty addresses trade liberalisation and rules on energy transit. Other regional trade agreements also contain investment provisions though some of them are less ambitious than NAFTA or the Energy Charter Treaty.

Apart from public international law agreements, international energy investment law in a broader sense also includes the body of investor-state contracts, in particular concession agreements, which are concluded between a foreign investor and the government of the host state. These contacts are governed by the domestic legal order of the host state or by a legal order the parties agreed upon. Consequently, they are national law instruments and are not considered part of public international law. There are, however, attempts to “internationalise” these contracts. While it is difficult to achieve this through a choice of law clause in the contract, international investment agreements can incorporate investor-state contracts: Some investment tribunals and academic commentators held that rights arising from investor-state contracts can be protected through bilateral investment agreements, in particular through so-called umbrella clauses. Consequently, the violation of a concession agreement would be covered by bilateral or regional investment agreements. Importantly, this would allow investors to challenge the violation of those contracts through investor-state arbitration on the basis of the investment agreement whereas breaches of contracts between the investor and the state would normally be dealt with through commercial arbitration. Investor-state contracts in the field of energy investment often also contain so-called stabilization clauses which oblige the host government not to change its domestic law to the detriment of the investor. These obligations tend to “freeze” regulatory options of the government and are therefore problematic from the perspective of preserving regulatory autonomy.

 In particular, the energy policy challenges of the 21st century (security, access, climate change etc.) can only be met adequately if governments maintain sufficient space to adopt those regulations which are necessary to achieve their respective goals.

Sources:
1. UNCTAD, World Investment Report 2010 - Investing in a low-carbon economy, 2010, p. 81.
2, Information taken from ICSID, List of cases, available at http://icsid.worldbank.org/ICSID/FrontServlet (accessed on 19 May 2011).
3. Cameron, International Energy Investment Law – The Pursuit of Stability, 2010, p. 164 et seq


Friday, January 3, 2014

Lokpal and Lokayukta Bill 2011 Has Got President of India's Assent

On, 1st January, 2014 India received its big New Year gift as President Pranab Mukherjee signed the long awaited Lokpal and Lokayuktas Bill, 2011 which has now become a law. The Bill was passed by the Rajya Sabha on 17th December, 2013 and by the Lok Sabha on 18th December, 2013. The Lok Sabha secretariat on 31st December, 2013 sent to the Law Ministry a copy of the Bill which has been signed by Speaker Meira Kumar. The Bill was then forwarded to the Rashtrapati Bhavan for the Presiden.
The much-awaited law is providing for creation of an anti-graft watchdog which will bring under its purview even the Prime Minister with certain safeguards. Now the Secretary Legislative Department in the Law Ministry will sign it and send it for publication in the official gazette. Once the bill is notified in the official gazette it will become a force of law.
The Bill aims to set up institution of Lokpal at the Centre and Lokayuktas in states by law enacted by respective legislatures within one year of coming into force of the Act. The Bill was first passed by the Lok Sabha at the end of the winter session of 2011.  But it was challenged and highly debated in Rajya Sabha. Later, a select committee of the Rajya Sabha had suggested changes in the Bill, most of which which were incorporated and approved by the Union Cabinet. Following the amendments, the Rajya Sabha had passed the bill.
The Lokpal had become a bone of contention among ruling Congress, opposition BJP and civil societies with each one of them wanting to make changes in it to make it more effective. But only future will tell us the effectiveness of the new law. As we know from our past experience in India that every organisation which is created to regulate the corruption becomes corrupt itself in due course of time. This is due to the mindset of the people and the lengthy procedures existing in the country and lack of clarity in accountability of the people who run these systems. Though people complain about rampant corruption at every location in the system but the same people don't hesitate to bribe to get their things done as they desire. Unless we the people who shout a lot about corruption get united themselves and stop resorting to do wrong practices, there can't be reduction of corruption in the country. Any number of anti-corruption laws cannot stop it.  Unless there is serious focus on streamlining the systems to make it people friendly and defined accountability, corruption can't get curtailed down. There are also other factors responsible for rampant corruption. The unreasonable delay in resolving the legal disputes where it takes 10 to 20 years to complete the judicial proceedings.

 Let us see upto what extent the Lokpal will be able to check the corruption in the prevailing circumstances. But only time will tell us its litmus test.