Wednesday, December 21, 2011

MFIs can tap ECB


The Reserve Bank of India (RBI) on Monday allowed micro finance institutions (MFIs) to raise funds via external commercial borrowings (ECBs) up to $10 million or equivalent during a financial year for permitted end-uses under the automatic route. The MFIs eligible for the same will be: those registered under the Societies Registration Act, 1860; those registered under Indian Trust Act, 1882; MFIs registered either under the conventional state-level cooperative acts, the national level multi-state cooperative legislation or under the new state-level mutually aided cooperative acts and not being a co-operative bank; non-banking finance companies (NBFCs) categorised as ‘non-banking finance company-micro finance institutions' (NBFC-MFIs) and companies registered under Sec. 25 of the Companies Act, 1956, and involved in micro finance activity. Further, the MFIs registered as societies, trusts and co-operatives and engaged in micro finance activities should have a satisfactory borrowing relationship for at least three years with a scheduled commercial bank authorised to deal in foreign exchange; and would require a certificate of due diligence on ‘fit and proper' status of the board/committee of management of the borrowing entity from the designated authorized dealer (AD) bank.

ECB funds should be routed through normal banking channels. NBFC-MFIs will be permitted to avail themselves of ECBs from multilateral institutions such as IFC and ADB/ regional financial institutions/international banks / foreign equity holders and overseas organisations.

Companies registered under Sec. 25 of the Companies Act and engaged in micro finance activities will be permitted to avail themselves of ECBs from international banks, multilateral financial institutions, export credit agencies, foreign equity holders, overseas organisations and individuals. Other MFIs will be permitted to raise funds via ECBs from international banks, multilateral financial institutions, export credit agencies, overseas organisations and individuals.

However, overseas organisations and individuals complying with specific safeguards may lend.The RBI has also stipulated that the designated AD must ensure that the ECB proceeds are utilised for lending to self-help groups or for micro-credit or for bona fide micro finance activity, including capacity building. It has also been decided that non-government organisations engaged in micro finance activities can avail themselves of ECB up to $10 million or equivalent under the automatic route as against the present limit of $5 million or equivalent per financial year. The RBI has also said that these amendments to ECB policy would come into force with immediate effect and the framework with respect to MFIs would be reviewed after one year.

Solar Industry of India


Today the solar industry is just how IT was in the early 1980s

It is peak hour traffic in Mumbai and your car stops at a signal. A bunch of kids run to your window. Guess what they are selling? Not selling newspapers or toys. They are selling solar panels.

This picture, envisioned by a solar company head, is a hyperbole, but it underlines the fact that today the solar industry is just how IT was in the early 1980s or telecom in the early 1990s.

In less than a decade, solar panels on your rooftop will be powering your television, refrigerator and lights in your house. Your rooftop will be producing more electricity than what you need, you will be putting in the surplus power into the grid and when you do that, your meters will be spinning backwards, reducing your current bill. Why, even the glass panes that make up the exterior of the upcoming office complex in the neighbourhood could be generating current.

It is elementary physics that when light falls on certain semiconducting materials like silicon, its energy knocks off electrons off the atoms, which can be made to flow and the flow is electricity. There is nothing new or cutting-edge here. After all, solar panels have been powering instruments on board satellites for 60 years. Why, several of us have had solar water heaters in our houses for years and solar cookers are not uncommon. So, what is happening now, that we believe that we are at the head of a megatrend?

The answer, in a word, is ‘cost'. Earlier, we did not use solar much because it was frightfully costly. However, in the last decade, as the fear of climate change began gripping the world, some of the developed countries in their enlightened self interest, began looking for alternatives. With incentives for generation and obligation for purchase, ‘solar' moved from labs into homes.

Prices of panels to fall

Sensing an explosion in demand, various countries began creating factories for producing solar panels and components. Alongside, research intensified to make panels that could convert more of sun's energy into electricity. A combination of large production capacities and improved efficiency caused the prices of solar panels to fall. About four years ago, to put up 1 MW of solar plant, it cost Rs.21 crore. Today it costs less than Rs.10 crore. Still, solar power remained significantly higher than conventional power. Fostering domestic solar industry, comprising both units that generated power and those that produce the equipment for doing so, still needed a policy push.

Although there were a few schemes that incentivised solar power plants here and there, the first major policy driver came in the form of the Jawaharlal Nehru National Solar Mission, which was one of the eight missions under the National Action Plan for Climate Change. The Mission envisions creation of a capacity of 20,000 MW from grid-connected solar plants and an additional 2,000 MW from plants not hooked up to the grid, such as small plants that supply only to the nearby villages, and the rooftop micro plants for powering homes. There are two ways of producing electricity from solar power — the panel way and the mirror way, where sun rays are reflected onto a trough of oil to gather heat, make steam which turns the turbines and generates electricity. The solar mission's idea is to engender creation of both — 10,000 MW each. The programme is being implemented in three phases. Under the first, the idea is to get entrepreneurs to set up plants with a total capacity of 1,000 MW. This again has been split into two batches and the process of award of projects under the second batch has just begun.

Here is where it gets interesting. When the first batch was opened last year, bidders offered to sell power at shockingly low tariffs, some as low as Rs.11.50. Early this month, under Batch-II, tariffs fell even lower. A French company, called Solairedirect, has offered to put up a 5 MW plant and sell power at Rs.7.49, setting a new benchmark. The average tariff moved from Rs.12 in the first batch to Rs.8.80 in the second. Solar power is getting within the reach of the common man. This was possible because due to slack demand from the economically-troubled Europe, prices of solar modules have been dropping exponentially. Module prices have fallen to less than a dollar a watt — a fifth of what they were in 2006. It is expected that prices will further fall, and solar power will sell for Rs.5 a unit in just a few years.

With projects coming up both under the National Solar Mission as well as under the schemes offered by various States, India's solar capacity will grow to at least 1,300 MW in 2013, from 186 MW now.

But the real story of solar is not in grid-connected plants — after all, what is a few thousand megawatts in the country's total installed capacity of 200,000 MW? The real story is in the mini grids in villages and rooftops in cities. The former will have tremendous social impact, as has been seen in the few hundred villages that have been provided lighting with solar power — something a savvy politician will not fail to take note of.

The flipside

While ‘solar power' has taken off smoothly, there are some concerns too. The global fall in module prices that helped bring down tariffs in India is also crippling the domestic manufacturing industry, thereby, defeating one of the key objectives of the solar mission. Companies such as Tata BP Solar, unable to compete against what appears to be distress sales by overseas manufacturers, particularly the Chinese, have had to shut down operations.

Thus, the solar industry is also delicately poised. Will the government impose a customs duty to protect and develop the local solar equipment industry? Or will it allow cheap imports in order to bring down costs and therefore tariffs? The coming budget will have an answer.

In addition, there is the issue of perfecting the grid so as to handle solar power. The problem with solar power is, if a cloud passes over, the generation will drop and when the sun shines again, it will pick up.

The grid will need to be smart enough to handle these vagaries, so that the entire solar programme does not trip over it.

Thursday, December 8, 2011

COP 17


The United Nations Climate Change Conference, Durban 2011, brings together representatives of the world's governments, international organizations and civil society. The discussions will seek to advance, in a balanced fashion, the implementation of the Convention and the Kyoto Protocol, as well as the Bali Action Plan, agreed at COP 13 in 2007, and the Cancun Agreements, reached at COP 16 last December.
  • What is COP?
Since the UNFCCC entered into force in 1995, the Conference of the Parties (COP) to the UNFCCC have been meeting annually to assess progress in dealing with climate change.

The COP adopts decisions and resolutions, published in reports of the COP.  Successive decisions taken by the COP make up a detailed set of rules for practical and effective implementation of the Convention.
  • What is CMP?
The COP serves as the meeting of the Parties to the Kyoto Protocol, which also adopts decisions and resolutions on the implementation of its provisions.  

This annual meeting is referred to as the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol (CMP).

However, Parties to the Convention that are not Parties to the Protocol are able to participate in the CMP as observers, but without the right to take decisions.
  • COP /CMP Presidency
The office of the Conference President rotates annually between the five United Nations (UN) regional groups.  Mexico held the COP 16 / CMP 6 in 2010 and is currently the COP/CMP President.

The African Group will be the next proud host of the Conference with COP 17 / CMP 7 taking place from 28 November to 9 December 2011 in Durban, South Africa.  Kenya held the Presidency of the Conference in 2006 with the COP 12 / CMP 12 in Nairobi.

Following the procedural rules of the Conference, it is customary for the COP and CMP to elect as President a minister from the host country.  The President of COP 17/CMP 7 is Ms Maite Nkoana-Mashabane, the South African Minister of International Relations and Cooperation.
  • Who can participate in COP17/CMP7?
As with previous United Nations (UN) Climate Change conferences, participation at COP 17 and CMP 7 will be restricted to appropriately nominated representatives of Parties, observer States, accredited observer organizations and the accredited media.

Those Parties to the Convention that are not Parties to the Protocol may participate as observers in the meeting of the Parties.

Thousands of participants from government representatives to observer organizations take part in sessions.  The COP 15 in Copenhagen in 2009 attracted over 24,000 delegates, including some 10,590 government officials, over 13,000 representatives of UN bodies and agencies, intergovernmental and non-governmental organizations, and 3,221 accredited media members. COP 16 / CMP 6 in Cancun last year had over 11,800 participants
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India dampens Europe's hopes of a new climate change agreement

India last night rejected a European roadmap to a new single, legally-binding agreement to revive the stuttering UN climate talks.

Using robust diplomatic language, environment minister Jayanthi Natarajan challenged rich countries to ratify a second commitment period of the Kyoto protocol (KP), and pay what they had promised to developing countries before trying to negotiate a new deal.

The comments came ahead of a meeting between Europe, the Basic countries - India, China, Brazil and South Africa - and the US to try to win support for the EU's proposal to try to negotiate a new legally binding treaty by 2015 that would take effect in 2020.

China has been ambiguous on whether it will support the EU, while Brazil said it was still in discussions. South Africa's president referred to the roadmap in his speech but did not commit to it.

The group of four powerful "Basic" countries put pressure on Europe by claiming that developing countries had pledged to cut more emissions than the rich and the onus should now be on them to make deeper cuts.

"It is time that the developed countries stepped up to fulfil their part of the [legal] commitment under Kyoto. There is an ambition gap because Kyoto partners have not fulfilled their political obligations," said Natarajan.

In a clear reference to Canada, Russia and Japan, she said: "There are more countries in the wings preparing to announce their intention to forsake their international obligation."

Natarajan's defence of Kyoto was backed by China. "A second commitment period is a must. Kyoto should be continued. Developed countries should honour their commitments," said Xie Zhenhua, head of Chinese delegation at Durban.

India's continued hostility to the EU proposal was underlined when Natarajan suggested the EU's proposal was unclear. "I have come to Durban with an open mind. But I would like to know whether [the proposal] would be binding only for mitigation and whether it will be same for Annex-1 [industrialised] and non-Annex1 [developing] countries. Commitment for finance and technology, whether it will be present or not, how will equity figure in such an agreement, how will [intellectual property rights] be handled."

But the EU challenged India to outline an alternative that would harness the emissions of leading economies. Isaac Valero Ladron, spokesman for the EU environment commissioner Connie Hedegaard, said: "Will India take on the responsibility of being a major economy, to give a clear political signal that it will commit in the future? This is the question that should be answered in Durban. If they say no to the roadmap, what are they going to do? What is the alternative they are positing? Major emitters, developed and developing, should say here in Durban when they will be ready for a legally binding agreement."

To bolster its argument that rich countries must do more, India referred to a recent study by the Stockholm Environment Institute of the pledges made last year in CancĂșn by all countries. It shows that developing countries are pledging 30%-50% more cuts than the rich, and that the rich may be able to avoid taking any action whatever to meet their pledges by taking advantage of accounting loopholes.

Sivan Kartha and Peter Erikson of the Stockholm Environment Institute (SEI) said: "Developing countries pledges amount to more absolute mitigation than all developed countries. Unless accounting rules for Annex 1 countries are made more stringent, then Annex 1 countries will be able to formally comply with their pledges with very little actual mitigation and possibly none at all."

Kartha and Erikson reviewed four recent detailed studies of countries' mitigation pledges under the CancĂșn agreements and concluded that these would lead to a 3-5C rise. They conclude that under both high and low growth conditions, and with both lax and lenient rules, developing countries had so far pledged to cut much more than rich countries.

The figures are significant because they undermine the EU's insistence that a new legally binding agreement is needed to get developing countries to cut emissions further.

But Hedegaard suggested that China was still not pledging enough to meet the conditions under which the EU would agree to sign up to a second commitment period of the Kyoto protocol.

"I still believe that China holds one of the central keys to unlock the situation. The EU is willing to take a second Kyoto period, but the central issue remain how China will follow us and when. Here more clarifications and further dialogue are needed."

Major developed countries also suggested reports that the Chinese had swung in favour of a new legally binding deal were wrong.

"China has always said it is in favour of a legally binding deal – that binds developed countries to make emissions cuts. It is certainly not clear that they are now saying they will take on international legally binding targets on the same basis [as developed countries], which is what we're talking about here," said one participant who could not be named.

Todd Stern, the US special envoy for climate change, cast doubt on whether China was showing greater flexibility in its position, as the UK had suggested. Fresh from a meeting with the Chinese minister Xie Zhenhua, he told a press conference: "It's not my impression that there has been a change at all in respect to a legally binding agreement. I did not understand [from] Mr Xie that there was any change."

The Greenpeace UK chief policy adviser, Ruth Davis, said: "The EU needs to stand firm and refuse to back down on its demand that we get a legal deal in 2015, but it will need the help of the hosts South Africa. That's what the vast majority of countries here want to see happen."