Decision Support System for Design and Evaluation of Pipeline Projects

Petronet India Limited (PIL) was created to give impetus to investments in pipeline projects for transportation of petroleum products in the country. Since these projects have a long life and require large investments, correct assessment of location, capacity and financial viability are of critical importance. This paper is based on the study undertaken for PIL to evaluate a few of their pipeline projects. The study resulted in creation of a comprehensive software package that is capable of operational and financial evaluation of pipeline projects based on countrywide view on production and distribution of petroleum products. The core of the package is an LP based optimization model. The package is capable of performing sensitivity analysis to investigate the impact of uncertainty on the proposed project due to from changes in the values of key factors including distribution network and capacities, refining capacities and pattern of demand. •A model is developed for identification of viable pipeline projects, taking into account the demand and capacity additions to production and distribution network for petroleum products in the future. •The model can be used for financial evaluation of such projects based on appropriate assumptions to forecast the investments required as well as the net cash flows from the project. •The solution procedure is implemented for the models developed in the form of a software package that would allow the decision maker to experiment with assumption and generate solutions with ease and with little manual intervention. •The software package developed above is further embellished so that it also provides additional information to the decision maker in the form of reports that contain details of movement of products and the mode combinations used for the movements.

Securities Scam Genesis, Mechanics and Impact

The term "securities scam" refers to a diversion of funds to the tune of over Rs. 3500 crores from the banking system to various stockbrokers in a series of transactions (primarily in Government securities) during the period April 1991 to May 1992. The scam has for several months become a permanent feature of the front pages of the newspapers. Despite the massive media coverage of the scam, most readers found it hard to understand it particularly when they were confronted with arcane terms and acronyms like ready forward, double ready forward, SGL, PDO, BR, PMS etc. Nevertheless an understanding of the scam is a prerequisite for any meaningful analysis of policy alternatives to improve the functioning of the financial system. This paper presents a plausible reconstruction of how the scam originated, how it was perpetrated, and what would be its aftermath. The paper is expository in nature and the authors make no claims to omniscience. The paper goes on to discuss the response of the government to the scam in terms of 1) discovering and punishing the guilty, 2) recovering the money, and 3) reforming the system. While agreeing with the importance of discovering and punishing the guilty, the paper argues that the attempt of the government to recover the money by such measures as the tainted shares law which cause severe and unjustified hardship to genuine and innocent investors is misguided. Turning to the arena of reforms of the financial system, the paper argues that the origins of the scam lie in overregulation of our markets. It recommends that normal transactions must be allowed to be done openly and transparently, and the role of brokers as market makers must be recognized. The second lesson from the scam is that artificial insulation of closely related markets from each other is counterproductive in the long run. Artificial barriers between the money market and the capital market, between the market for corporate securities and the market for government securities and between the formal money market and the informal one must be eliminated.

Financial Sector Reform: Institutional and Technological Imperatives

This paper takes the view that financial sector reform is not only a matter of jettisoning old regulations nor even merely a matter of prudential regulation accompanying structural deregulation; it is intimately bound up with institutional and technological issues. On the basis of a detailed analysis of the stock market, debt market and the banking system the paper demonstrates the need for major institutional and technological changes in the Indian financial sector in order to face the challenges posed by liberalization and rapid growth. In our view, the government and regulatory authorities have an important role in facilitating this modernization. Not only should regulatory hindrances be removed, but there should be a positive bias in favour of change. We do believe that changes would take place even without regulatory support, but we also believe that regulatory intervention could hasten the process and make it less painful. This is because the technology is characterized by large externalities and often requires action at the industry level.

Estimation Errors and Time Varying Betas in Event Studies - A New Approach

The event study is one of the most powerful techniques for studying market efficiency. Over a period of time, researchers have made several modifications to the original methodology of Fama, Fisher, Jensen and Roll (1969). Nevertheless, the current methodology continues to suffer from several grave deficiencies. These deficiencies arise due to (a) a failure to take into account the variance covariance structure of the estimated abnormal returns (across time and across securities) and (b) fundamental shortcomings of the moving window technique used to deal with possible changes in the betas in the neighbourhood of the event. Our proposed methodology overcomes these deficiencies and provides statistically efficient estimates. We then extend the analysis to handle nonstationary parameters evolving according to a Kalman Filer model.

Effects of taxes and climate policy instruments on harvesting of managed forests and on tropical deforestation

This dissertation examines the effects of taxes and policy instruments that aim to regulate climate services from forests. It consists of a summary section and four articles. Articles (I) and (II) examine the effects of taxes on management decisions in the context of managed boreal forests distinguished by forest-owners amenity preferences and also their age. Articles (III) and (IV) examine the role of carbon-based policy instruments in the presence of taxes on land incomes in curbing tropical deforestation. Article (I) reveals that the intensity of forest-owners preferences for forest amenities affects the non-neutrality of forest taxes pertaining to forest harvesting. Therefore, the effects of taxes depend on this intensity. This highlights the importance of developing methods to measure forest-owners amenity preferences quantitatively. Article (II) shows that the age of forest-owners governs their propensity to consume as opposed to leave bequests. Furthermore, it shown that the effects of capital income and inheritance taxes vary across different age-groups of forest-owners. Article (III) demonstrates that taxes on forestry and cash-crop incomes, per se, may be ineffective in curbing tropical forest loss. The carbon payments may complement these taxes, and an effective policy to combat tropical deforestation should jointly target forestry and cash-crop sectors. Article (IV) demonstrates the link between carbon compensation policies and land income taxation. An optimal carbon compensation scheme may require that national governments are allowed to use different compensation rates from that applied globally when passing national level compensations on to the local level. These results suggest that existing policies such as taxation should be accounted for in the analysis and design of international carbon policy instruments that aim at enhancing forests role in climate change mitigation.Tässä väitöskirjassa selvitetään verojen ja metsien ilmastopalveluita säätelevien politiikkavälineiden vaikutuksia. Väitöskirja koostuu yhteenveto-osasta ja neljästä artikkelista. Artikkelit (I) ja (II) tutkivat verojen vaikutusta boreaalisen metsän hoitopäätöksiin ottamalla huomioon metsänomistajien ympäristöarvot ja iän. Artikkelit (III) ja (IV) analysoivat hiilensidontaan liittyviä politiikkavälineitä trooppisten metsien vähenemisen estämiseksi. Artikkeli (I) osoittaa, että metsänomistajien ympäristöarvostusten voimakkuus vaikuttaa metsätulojen verotuksen neutraalisuuteen ja verotuksen vaikutukset puun myynteihin riippuvat ympäristöarvostusten voimakkuudesta. Tämän vuoksi on tärkeää kehittää menetelmiä, joilla voidaan mitata metsänomistajien ympäristöarvostuksia määrällisesti. Artikkeli (II) puolestaan osoittaa, että metsänomistajien ikä vaikuttaa kulutuksen ja perinnöksi suunnitellun varallisuuden suhteellisiin määriin. Lisäksi artikkeli osoittaa, että pääomatulojen verotuksen ja perintöveron vaikutukset muuttuvat metsänomistajan vanhetessa. Artikkelin (III) mukaan metsätulojen ja maanviljelystä saatavien tulojen verotus saattaa yksinään käytettynä olla tehoton ohjauskeino trooppisen metsäkadon hidastamisessa. Hiilimaksut voivat täydentää verotusta, ja tehokas politiikka metsäkadon torjumiseksi olisi suunnattava samanaikaisesti metsien käyttöön ja maanviljelyyn. Artikkeli (IV) tarkastelee hiilikompensaatiopolitiikan ja tuloverotuksen yhteyksiä. Optimaalinen hiilensidonnan korvausjärjestelmä voi vaatia, että kansallisten hallitusten sallitaan poiketa kansainvälisistä kompensaatiomakuista, kun kyseessä olevalle maalle asetettuja korvauksia ilmakehään vapautuvasta hiilestä siirretään paikallistasolle. Tulokset antavat tukea myös sille, että jo käytössä olevat ohjauskeinot, kuten verotus, tulee ottaa huomioon suunniteltaessa kansainvälisiä metsien hiilimensidontaan vaikuttavia politiikkavälineitä

Reform of the Fiscal and Subsidy Regime for the Petroleum Sector (Based on a Report Commissioned by the Petroleum Federation of India)

Reform of the oil sector is long overdue. The problems in the sector emanate from the structure of central taxes and the system of subsidisation through prices. Solutions to the problems necessarily have to address both tax and subsidy simultaneously. The social losses include, misuse / wasteful use of scarce petroleum resources, diversion, adulteration, other avoidable negative externalities, improper substitution between products, tax arbitrage, distortion of consumer preferences and input choices of industries, and international cross hauling of petroleum. Nearly all these costs, and problems arise not because of subsidisation per se but due to the use of varying retail prices that are used to subsidise. Prices for the same product vary for different consumers besides. They also vary across products. These tax /subsidy variations are the root cause of nearly all problems in the sector. Autonomous price variations (i.e. those resulting from the actions of firms (under a regime of non-distortionary subsidies) would be small and not subject to ‘arbitrage’ i.e. to the realisation of rents through diversion and adulteration. Tax reform – viz casting all taxes in the form of value added taxes has not taken place in the sector despite the passage of nearly 15 years since such reform was put in place in nearly all other sectors of manufacturing. Complete deregulation of the sector allowing oil producers, oil refiners, marketing companies, and integrated operators to price their products as they deem fit. Recast central indirect taxes (excise whether specific or ad valorem) into a value added tax, as for any other product., i.e., allowing input credit for all registered intermediate users of petroleum products is overdue. Central government revenues can be protected by working out a revenue neutral value added tax rate. This we have estimated approximately to be 110-120% of value added uniformly to all segments in the industry. Such a tax regime would also be neutral to the degree of vertical integration and remove the biases in the use of products. The Public Distribution System (PDS) is not necessary and ought to be dismantled. Kerosene would then be sold in the open market for all consumers. Kerosene could also be sold by retail outlets, kirana shops, other retail outlets, and by current PDS retailers on par with kirana shops/ ROs. Ditto for LPG. Subsidies are administered through endowments defined upfront, which allows the subsidised consumer to access his/her endowments, trade the same, convert the same into cash all without the causing any distortion. Only pipelines are subject to regulation by the Petroleum and Natural Gas Regulator. The second best proposals involve the changes/recommendations as before but additionally creates a “Crude Price Stabilisation Fund” (CSF) that allows crude prices (both sharp rises and sudden falls) to be moderated, so that pass thru is influenced by the managers of the CSF. It is important that the CSF is set up as in independent body and insulated from the government and is governed by strict and automatic rules that make rapid price adjustment (to the market prices) necessary when the fund position is low, so that the probability of the fund going bankrupt is kept at nearly zero. A fund between $25 to 40 billion is envisaged. A fund of$40 billion (Rs. 200,000 crore) envisaged as a credit line would work in most situations. The fund would operate with strict limits on the quantum of the credit line used to pay out stabilization subsidies during the boom phase of the price cycle as also on the accumulated reserves built up from stabilization taxes during the bust phase of the price cycle. To ensure that such crude stabilisation measures do not affect the competitiveness of the industry exports of product (and crude) are taxed when crude is subsidised, and subsidised when crude is taxed. Appropriate conversion factors would apply. The conversion factor should be based on a refinery loss of between 10 and 7% say 8.5%.

Research on the Indian Capital Market: A Review

In this paper we present a review of research done in the field of Indian capital markets during the fifteen years from 1977 to 1992. The research works included in the survey were identified by two search procedures. Firstly, we wrote to 118 Indian university departments and research institutions requesting information on the works done in this field in their department/institution. After three reminders, we obtained responses from 53 institutions. Simultaneously, we searched through various Indian journals in our library, located books listed in the library catalogue and traced through the list of references provided in various research works. Considering the size, vintage and development of the Indian capital market, the total volume of research on it appears to be woefully modest - about 0.1 unit of work per institution per year! Moreover, a large number of works are merely descriptive or prescriptive without rigorous analysis. Certain areas such as arbitrage pricing theory, option pricing theory, agency theory, and signalling theory are virtually unresearched in the Indian context. Besides, very little theoretical work has been done by researchers in India. However, with improved availability of databases and computing resources, and with increasing global interest in Indian markets, we expect an explosion of work in the near future.