Your editorial (Power price v/s availability, September 5) arguing against the CERC paper on capping power tariffs makes several incorrect arguments. You argue, in line with free-market principles, that prices rise when there are shortages and these price movements signal to producers who then respond by hiking production and then prices stabilise. This is absolutely right but works only when there is a market. And we know that in the power sector, as in most other natural and other monopolies, there is no market.
It is because of this that regulators all over the globe, not just in India, regulate prices based on economic principles like RPI minus X or variants of this. If free pricing has to be the rule as you argue, then why do this only for merchant power plants or for traders, why not allow electric utilities like those in Delhi to simply charge consumers what they want instead of going by what the electricity regulator determines. If BYPL/BRPL/NDPL are allowed to do this, they will charge up to Rs 8 per unit or whatever it costs to run a generating set to power air conditioners in the capital’s affluent areas. Allow the airports to charge different prices for landing from different airlines, based on their capacity to pay, instead of letting the airport regulator fix the tariff. Such examples can be multiplied manifold.
The market distortion is created by the fact that there is just one supplier and that open access has not happened so far. The other reason for market failure is lack of supply — when there is a shortage of supply as there is in India, markets don’t work and there is a tendency for suppliers to restrict supplies further to maximise revenues if they are free to manipulate prices. This is why the Electricity Act does not allow traders a completely free hand and puts some restrictions on their operations. In the US, where such restrictions are frowned upon, Enron’s traders used to make bogus trades to one another in order to ratchet up prices and would restrict supplies to hike prices as well. It is a pity you have not recognised this reality.
Sanjay Seth, New Delhi
Art of investing
This is in reference to “Five places to look to find the next investment bubble” by Matthew Lynn, September 5. The concepts covered were exceptionally brilliant. Those who made the best of the recent bubbles will rule the investment community in future.
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Let me add Art, Old Wine and Goodwill as the next three alternatives where shrewd investors will put their money. Firstly, art will be no exception — no one can understand it except the creator. Secondly, many people, like a friend of mine, are collecting wine from the duty free shops at Indian airports on their return from foreign countries. Thirdly, a famous investment guru has said that goodwill, shown as an asset in balance sheet of companies, if allowed for trade as securities, would be easier to make than money.
Rajveer Panesar, on e-mail