Month: May 2012

Samir featured in the Financial Express: “Watch the Green Ticker”

New Delhi, 29th of May 2012
Please find here the link to the original article and the website of g-Trade.

When you are investing in a company next time, just do not go for cash-rich companies. Rather choose the corporates that are ‘green’ efficient. And there is help too, to guide you make this decision. Three months back, Bombay Stock Exchange(BSE) along with g-Trade, a privately held company in India, had come up with a Green Index called Greenex. This is India’s first carbon-efficient live index listing the top 20 companies which are carbon efficient. As of now, only the carbon emission of top 100 BSE companies is assessed by this partnership and the index is created. But the aspirations of Samir Saran, founder and CEO, g-Trade are high. “We are in the process of creating a similar index across BSE 500 companies in the next six months,” he says.

The idea of creating something like Greenex came to Saran while he was studying in Cambridge and working on a project on energy efficiency. “I knew that we needed to reduce carbon emission intensity in our country and corporates will have to do this first. Thus, this was the best way to measure how environmentally efficient companies are and how they can improve themselves,” he says.

Now, the fact sheet: India is fourth largest carbon emitter in the world, behind China, USA and Russia. The European Union put together would be above Russia. Japan is after India. And to add on, Indian corporates (business and industry as a whole) contribute almost two-thirds of carbon emissions, other major contributors are transport, agriculture and waste sectors.

Saran spent 16 years in the energy sector. For a long time, he was working with Reliance Industries in the policy space especially with oil and gas and petrochemical sector. He feels that the corporate behaviour towards climate and environment of top corporates needs to be checked. “The main issue is that we need to manage emissions. Emission efficient and carbon efficient companies will manage the growth of our economy. And investment towards these companies should be encouraged. They should be given priority over companies that are less efficient by investors.” Even the government has committed voluntarily to improve the emission intensity of the country’s economy (GHG emissions/GDP) by 20-25% during 2005-2020.

Usually large companies come out with reports of disclosure of their carbon emissions under Form A of The Companies Act. The Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 mandates a company to disclose, in its Director’s report, the energy conservation, technology absorption, foreign exchange earnings and outgo.

Form A does not include sectors like retail and supply chain. The government has identified the high energy industries and included it for disclosures by companies. It does not include new industries which have come up.

It also does not include all energy intensive sectors like electric utilities and oil and gas exploration and production firms. Saran says, “To derive a meaningful emission, we have derived our index by giving 50% weight-age to emission intensity and 50% to financial performance.”

Green effect on the balance sheet

Companies that are low on emission intensity (GHG/revenue) also generally perform well on financials—mainly due to their lower energy costs, better operational controls, better resource management, better general sensitivity, and better market image. This is a global trend. “Companies that have less carbon emissions are more efficient and are likely to succeed in the future,” says Saran.

Sample this: IDFC, a financial services company, being least efficient in the low emission intensity group, has underperformed the BSE Sensex by 31% between January 2010 and January 2012. The Green Index does not include big names like Reliance Industries, Oil and Natural Gas Corporation (ONGC), cigarette maker ITC and even IT companies like Wipro and Infosys. However, the names topped in the list are BHEL, GAIL, DLF and L&T.

Companies must realise that there are many benefits to be on the Green Index. Saran says that based on this index, banks would lend to green efficient companies on better interest rates. It would also help the insurance sector in giving pension funds. In the west, insurance funds and pension funds usually invest in green stocks only. This trend could also be followed in India. And in Europe, this kind of an index was developed 11 years ago called FTSE4good. This means that our country still has a lot to catch up!

But, what would make revenues for g-Trade? Saran is clear on this front too. “Some companies want us to create a customised index for them so that they know where can they invest. We also come out with exhaustive reports where we inform lenders and investors that where should they invest in India. This will help in foreign investment in India. We create structured products for big hedge funds etc who want to invest in different countries.”

Let us hope the Indian companies get green rich and realise that they will be incentivised on their efforts to reduce carbon emissions.

Article in “Russia & India Report”: Putin 3.0: Creating hedges for the next decade?

Is Putin going to lessen the Russian dependence on stagnant European demand for oil and gas despite the favourable terms of trade and rely on the hard-bargaining China?

May 17th 2012, New Delhi
Please find here the link to the original publication

The Kremlin has recently announced that Vladimir Putin will be skipping the upcoming G8 meeting in the US sighting domestic concerns and will be visiting China on June 5-7 as his first foreign trip since being inaugurated as President. It is clear that Putin views Chinese demand for Russian oil and gas as a hedge against stagnant Western demand, particularly European demand for Russian exports which showed a huge 47% negative year on year variation in 2009 and is unlikely to grow at rates that will sustain the Russian economy for too long. However, China drives a hard bargain and its quest for energy security through import diversification and oil equity means that it will not accommodate for more than a minimum amount of dependence on Russian raw material linkages.

While his predecessor and protégé Dmitry Medvedev repeatedly emphasised the need for Russia to diversify away from its “primitive” focus on the oil and gas sector, Putin seems to be doggedly set on continuing his outlined profit maximisation doctrine by largely relying on the sector to fulfil social spending promises made during his election campaign. Russia recently surpassed Saudi Arabia as the largest producer of crude oil, and holds the world’s largest natural gas reserves.  Approximately 40 percent of the Russian Government’s tax comes from oil and gas related businesses. While Putin has been able to successfully leverage Russia’s natural resource endowments in the past, he is now faced with burgeoning structural problems including huge manufacturing sector inefficiencies, negative demographic trends, deepened socio-economic inequities and populist rebuttals to alleged systemic corruption under his oversight.

The European Union (EU) is Russia’s biggest market and the EU also accounts for around 75 percent of FDI into Russia. According to the European Commission, Russia accounted for 47 percent of overall trade turnover in 2010; a trend which has normalised after the brief disruptions caused by the global financial crisis. However Russia’s competitive advantage with the EU is largely restricted to the trade of fuels and minerals. Even with its massive oil reserves, Russia has lagged behind in the production of petrochemicals and refined oil. While the margins earned on refined oil based products in a globally integrated oil market may not justify expansion of production facilities and there is a distinct competitive advantage in favour of the “Global South” in terms of labour costs and environmental tariffs there are few explanations for the lack of emphasis on developing a profitable export oriented petrochemicals sector in the country. It doesn’t help that the recent socio-political turmoil adds to the disincentives created for any FDI investment flowing into the country.

Indeed Russia exhibits many of the symptoms of the “Dutch Disease”, a term that broadly refers to the deleterious effects of large asymmetric increases in a country’s income, most commonly associated with discovery of natural resources such as crude oil. While there is no consensus about whether the country suffers this affliction and indeed there have been significant per capita income gains as a result of exploitation of raw material wealth, there are real and palpable threats to sustained growth that need to be proactively mitigated by the establishment. A 2007 IMF Working Paper found that some of the exhibited symptoms included a slowdown in the manufacturing sector, an expansion of the services sector and high real wage growth in all sectors. Simultaneously, oil exports have increased by close to 70 percent over the last decade and the value of exports has gone up by around 620 percent during the same time span. Russian crude oil production recently hit an all time high, and Putin is determined to maintain production levels above 10 million barrels per day (about a third of OPEC’s total production) for a “fairly long time”.

In many ways, resource based linkages have guided and defined Russian foreign policy since the disintegration of the Soviet Union. Resources have also dictated Russia’s economic fortunes, which have traditionally fluctuated with the price of crude oil. Crude oil has quadrupled in value since the early 2000s, and at the same time, Russia has transitioned into becoming a Middle Income Economy with an incredible number of superrich. It is interesting to note however, that despite the asymmetric dependence on raw material exports, Russia’s currency has been depreciating. Due to the underinvestment in the manufacturing sector and the overall lack of competitiveness of the domestic goods, import growth has tended to outpace export growth. The current account balance as a percentage of GDP has declined substantially since the mid 2000s and with structural production ceilings being hit in the oil and gas industry, there is uncertainty about where the additional export growth is going to be generated. Putin seems certain that recently announced tax breaks for upstream oil and gas exploration projects and fiscal incentives for M&A activities will help fuel this production growth. Tax breaks have been provided for offshore energy projects with Western companies including Exxon Mobil Corp., Eni SpA and Statoil ASA.  Simultaneously he also plans to raise extra revenues from the resources sector to pacify some of the populist anger that is brewing through increased government spending, in particular by significantly increase extraction tax on gas suppliers.

Putin has an uphill task, to reassure foreign institutional investors of the legitimacy and stability of his political apparatus. In order to achieve competitive advantage in the export of petroleum related products, the Russian Government has ambitious goals to create six regional clusters of world class ethylene (the world’s most widely produced organic compound) production facilities and expects production capacity to reach 11.5 million tonnes per annum by 2030. This projection assumes a fundamental amount of investments and supporting infrastructure capacity building in the form of product pipelines, road and rail links. Distribution and feedstock concerns already plague the industry.

The seemingly irreversible economic meltdown in Europe must act as a trigger to stimulate new ideas and a break out of the traditional resource centric growth mindset in the Kremlin. Developing and emerging countries account for around 50 percent of global GDP in purchasing power parity terms and Russia must look to deepen integration through trade with these markets. China is but one of these and its sino-centric economic startegy may soon be an albatross around its neck. Moreover trade must be on the basis of a diversified basket of products on offer with emphasis on value addition.

The East Siberia-Pacific Ocean (ESPO) oil pipeline which is now operational has enabled Russia to bring oil to its remote eastern coast, from where it supplies to China, Japan and South Korea. The Chinese have been actively lobbying to get all of the oil transported through the ESPO, but Russian oil companies are naturally hesitant as they are unwilling to forgo the higher margins they receive by selling to Western countries. The Russian experience with the hard bargaining Chinese must not colour their prospective engagements with other emerging and developing countries. In the next few decades, global growth will be a function of how such economies in Asia and Africa perform, and in turn, so will Russia’s economic fortunes. Putin would do well to hedge away from dependence on European demand even though terms of trade may be favourable and fall in the comforting squeeze of the Chinese option.

Samir Saran is Vice-President and Vivan Sharan an Associate Fellow at the Observer Research Foundation, New Delhi.

India Market and Environment Report (IMER)

Please find here the original link to the g-trade-website. 

Volume 1 of the IMER captures the financial performance and energy use efficiency of the top 100 Indian and Global companies for FY 2011. The report also details in brief, the market and environment performance metrics of 9 sectors of the Indian economy – Financial, Automotive, Machinery and Capital Goods, Pharmaceutical and Biotechnology, Textiles, Apparels and Accessories, Steel, Utilities, Cement and Oil and Gas. Volume 1 is the first in a series and a context setting precursor to sector specific corporate carbon performance reports by gTrade, which will aim to build greater ethical and sustainable investment sensibility in India, to steer businesses and investors towards an efficient market based framework which prices carbon risk appropriately.

gTrade is delighted to announce the launch of Volume 1 of the IMER. To purchase a hard copy now, click here

(Discounted rates are available for bulk orders/institutional buyers)

For the detailed Table of Contents, click here

For a snippet from Volume 1 of the IMER, click here

For institutional/bulk buying, email: reports@g-trade.in

Why you should purchase a copy:

  • Cutting edge business specific energy analytics developed at India’s premier research labs
  • Provides information on the carbon offset potential among the largest corporations in India for CDM and other substitution projects.
  • Provides data points and analyses outlining scope for renewable energy generation.
  • Ideal for businesses interested in profiting from increasing efficiency of operations, production or governance
  • A great tool for investors to immediately identify potentially undervalued stocks relative to sustainability performance
  • An instrument of verification of investment decisions for large institutional investors – both foreign and local,
  • A benchmarking and knowledge building tool – for entities involved in the business of carbon – through global carbon schemes such as CDM
  • An unparalleled learning tool for those looking to understand sectoral efficiency performance landscapes in India, for investment, research, capacity building, energy management and policymaking

Column in The Times of India: “Time to get over it”

New Delhi, 11th of May 2012
Please find here the link to the original article as well as the PDF-file: Article – Time To Get Over It.

Time to get over it
by Samir Saran and John C. Hulsman

One tired conversation that dominates most European institutions and forums threatens to become a fatal liability – distancing the EU from its partners across the Atlantic and among the new capitals that influence global decision-making in Asia, Africa and Latin America. It is Europe`s Don Quixote-like quest for `common global values.`The search for this faux Holy Grail is preventing the global community from discovering vital common ground on the key issues that the emerging multipolar world is confronted with. Whatever be the issue, spending time trying to find the fool`s gold of universal values gets in the way of cutting the interest-based deals that will actually make this new world work.This wrong-headedness also leads to analytical failure, explaining the West’s self-comforting dismissal that much has changed, due to the view that the Brics ( Brazil, Russia, India, China and South Africa) themselves seemingly share little in terms of `common values’.

But the Brics do share common interests. First, all Brics countries stress there must be a stable external environment that must not be jeopardised by partisan interventions in Iran or other parts of the Middle East and Africa. Second, an accountable and stable global financial regime must evolve – with a far greater say for the rising economic powers – the promises for which remain unfulfilled since 2008-09.

Third, there must be a far greater global emphasis on development and poverty reduction efforts in Asia, Africa and Latin America – linked to the new hurdles of `green protectionism’ that Brics must stand up against. No developing power is likely to commit economic suicide to make over-privileged western `greens’ happy. As a global agenda (and despite not possessing common values), that is a lot to agree upon.

It is time to wake up to the world we actually live in and move towards the more workable paradigm of `shared interests and shared prosperity`. These are terms that flow from the vocabulary of the realist camp, acknowledging that beneath every facade, nations and societies share at least the one common value of self-preservation based on self-interest. A man in the gutter and a man in a mansion will share this, even if nothing else.

This approach offers a far greater global potential for powers, old and new, to collaborate and cooperate than the parochial values-based approach that is viewed by most outside of the EU as a not so subtle attempt to propagate wes-tern interests in an ethical cloak.

But this fetish with values is not the only intellectual challenge that efficient global governance is confronted with today. The concept of sovereignty – and the very different individual experiences of nation-states that compel them to define this critical notion differently – is another potential stumbling block.

The Brics and other emerging power centres view this transition period of their relative rise as the time to consolidate their sense of nationhood and reclaim sovereignty from a western-dominated world. Again Europe is the outlier, as sovereignty actually matters. If the Brics are to be made stakeholders in the new global governance architecture, this conceptual difference must be recognised.

The third reality of our times is that large economies in the Indo-Pacific (India, China and some others) with low-income populations and prevalent poverty will now be the fulcrum for governing the most important regions of the world. Their success is essential for global growth to be safeguarded, else, we will live in a far more hostile world. The West will need to carve out partnerships within the region to secure sea-lanes, trade, property rights and ensure stability. This dependence on these large emerging economies will change the ethos of governance.

Growth and not human rights will dictate the agenda. Industrialisation will trump environmentalism and poverty alleviation will define sustain-able development. Only when western efforts are truly made to accommodate the views, interests and needs of the rest on these issues will we see a more efficient multipolar framework emerge.

So how to make sense of this new world? The primary rule of the road must be the unbreakable link between burden-sharing and power-sharing. This basic principle must become nothing less than the new mantra of the multipolar age.

Of course, this fundamental global change takes place on a continuum; it will take years for the transition from a western-dominated world to a world with many powers (with the Brics leading the economic way) tobe completed. But as the global financial crisis made clear, change is already occurring more rapidly than anyone imagined. Along the way, a fading West and a `not-yet-up-to-it’rest could well drop the ball over vital global governance issues, resulting in what American political scientist Ian Bremmer (somewhat apocalyptically) has referred to as a G-0 world, where nothing much gets done.

It is time for Europe to get over it. Nations will not have common values, because nations themselves are a collection of diverse experiences. However, there is no need to throw in the towel, for nations can have a vision for shared prosperity with different approaches to get there. To make all this work, there must be some common macro rules and these must be negotiated on the realist terms of common interests and not through the fruitless semantics of ethics and morality.

Saran is vice-president, Observer Research Foundation, and Hulsman is president of a strategic consultancy firm.