The Hindu Business Line : Ecotaxes can translate the ‘polluter pays’ principle into practice

A Re 1 ‘deposit refund scheme’, incentive for rag-pickers, and removal of CENVAT on biodegradable plastics are among the suggestions in Ecotaxes on Polluting Inputs and Outputs by Raja J. Chelliah, Paul P. Appasamy, U. Sankar and Rita Pandey ( www.academicfoundation.com).

“As per the Justice Ranganath Mishra Committee recommendations, a deposit of Re 1 per bottle should be levied on PET bottles at the time of sale,” explains the book. The deposit can be refunded when the bottle is returned, and manufacturers should ‘set up a network of collection centres to collect the bottles and send them for recycling.’

The authors would also like the plastic industry to bear the cost of providing an incentive to rag-pickers — say, Rs 10 per kg of plastic bags — as part of ‘the extended producer responsibility of the industry with regard to waste’. By assigning a price to the unpaid factor of production, to signal the cost of using environmental resources, ecotaxes can translate the ‘polluter pays’ principle into practice, the authors reason. Won’t ecotaxes increase the cost to manufacturers? Sure, they would. And the producer has two options, then: reduce the level of output, or substitute an eco-friendly input for the polluting input.

Double dividends would ensue, the authors urge, because on the one side ecotaxes can lead to lower pollution load and, on the other, the revenue generated by the government can be used for supporting activities related to environmental protection. “Human Development Report 1998 estimates the annual costs of environmental degradation in India at $10-13.8 billion or 4.5-6.0 per cent of GDP.”

The book has elaborate chapters on coal, automobiles, detergents, pesticides, paper, fertiliser, lead acid batteries and plastics.

For an urgent read.

* * *
A to Z on oil and gas

The Institute of Chartered Accountants of India ( www.icai.org ) has brought out Technical Guide on Internal Audit in Upstream Oil and Gas Companies. It begins with ‘important definitions and terminologies’ from A for ‘abandon’ to W for ‘wildcat’.

You’d learn, for instance, that ‘bottom-hole contract’ refers to ‘money or property paid to an operator for use in drilling a well on property in which the payer has no property interest’; the contributions are payable when the well reaches a pre-determined depth, regardless of whether the well is productive or not. ‘Christmas tree’ refers to ‘a series of pipes, valves and fittings assembled at the top of a well to control the flow of the oil’.

Though there can never be a dry moment in the energy field, it may help to know that ‘dry hole’ is a well that has proved to be non-productive. E for EOR (enhanced oil recovery), that is, ‘a range of techniques, such as water injection, gas injection, de-pressurisation, water flood designed to increase flow rates from a reservoir.’

In F, read about FCM (full cost accounting method), under which ‘all costs incurred in prospecting, acquiring mineral interests, exploration, and development are accumulated in large cost centres that may not be related to geological factors.’

A few other hardcore accounting phrases in this field are:

IDC (intangible drilling costs), which include costs of obtaining and negotiating a contract with a drilling contractor, survey and seismic work as to the location of the well, costs of road to location of well site, and so on.

Oil and gas reserves, which can be classified as proved and unproved.

SEM (successful efforts method), in which ‘only those costs that lead directly to the discovery, acquisition, or development of specific, discrete oil and gas reserves are capitalised and become part of the capitalised costs of the cost centre’.

UoP (unit of production method), for depreciation based on ‘the number of production or similar units’.

The curious may please note that ‘wildcat’ mentioned at the start of this write-up refers to ‘an exploration well drilled in an unproved territory, i.e., without complete knowledge of the geology of the locality’.

A book that should help you graduate from being a ‘wildcat’ when auditing oil and gas accounts.

Secrets of low-cost aviation
A Dublin-datelined posting, a few days ago on www.iht.com, was about Aer Lingus filing EU lawsuit seeking removal of Ryanair as its top shareholder. Ryanair, Europe’s no-frills leader, became the top shareholder in Aer Lingus after the Irish government privatised the previously state-owned airline in September 2006, the story informs.
Interestingly, Tony Ryan, the founder of Ryanair began his career as a clerk in Aer Lingus. His role “included working behind the counter dealing with customers — he described himself as a ‘counter jumper’,” writes Siobhán Creaton in Ryanair ( www.landmarkonthenet.com), a book that recounts ‘the full story of the controversial low-cost airline’.
Around 1972, Ryan became a leasing manager in Aer Lingus. “Airlines across the world had the problem that many of the aircraft they needed in the busy summer season were unused during the winter. Aer Lingus was among the first airlines to lease out its surplus aircraft during the quiet winter months,” explains Creaton.
A few years later was born GPA (Guinness Peat Aviation), a start-up aircraft leasing company, in which Ryan held 10 per cent, while Aer Lingus and Guinness Peat (a London-based bank) each had a 45 per cent stake.
“Commercial aircraft leasing was an innovative concept,” writes Creaton. “Traditionally airlines liked to own and design their own fleet, which meant there was no common aircraft specification, but rather a huge number of models with different engines and different take-off and landing weights.”
Year 1985, November 28. Much to the chagrin of Aer Lingus, Ryanair was born, registered ‘to carry on the business of general carriers and forwarding agents and use machines of all kinds capable of being flown in the air’. Tony Ryan had wanted to name it Trans Tipperary, but yielded to the advice that the new carrier needed the name of its key architect.
It was during a farm audit that Ryan would meet Michael O’Leary, from KPMG. “When Ryan was looking to hire a personal assistant some time later, he thought of the young accountant.” What did O’Leary say? “In a mark of his ambition and business acumen, he said he would take the position for a year and would forego a salary in return for five per cent of any profits he generated for his would-be mentor.” Thus, in 1988, O’Leary got into aviation, from accountancy.
The latest report about Ryanair, dated November 20, on http://investing.reuters.co.uk quotes the company’s chief executive Michael O’Leary saying that Ryanair has the biggest profit margins among airlines, of 20 per cent after tax. “So, we can absorb higher oil prices much more easily — most other airlines have margins of 4 or 5 per cent.”
O’Leary is one of Ireland’s biggest individual taxpayers, and has no qualms about revealing the size of his annual tax bill, writes Creaton. “In 2003, he held an oversized cheque for more than euro 14 million aloft outside Ireland’s Government Buildings to publicise his contribution to the state’s coffers.”
In 2007, O’Leary expects to carry 42 million people on more than 300 routes across 25 European countries, and by the end of the decade, to fly over 70 million passengers, with about half the seats free, but for local taxes. He saves money “by paring the comforts on board Ryanair planes to the bare minimum, dispensing with window blinds, reclining seats, velcro-anchored headrest covers and even seat pockets where customers normally find a safety notice and free magazines.”
Despite all this, Ryanair has certainly attracted passengers from all walks of life, says Creaton. In 2001, Tony Blair, then Britain’s Prime Minister, flew with his family on a Ryanair flight, for a holiday in France. “Downing Street’s press office explained it was ‘more convenient’ for the family to fly with Ryanair than to take an RAF aircraft. The seats were thought to have cost about 125 pounds each and Ryanair insisted they wouldn’t get any special treatment. ‘If they want a cup of tea or a sandwich they will have to pay for it; this is a very egalitarian airline,’ a spokesman said.” Wish we could say that of politicians, closer home.
The book informs that Ryanair has been responsible for fuelling a housing boom in regions of France, with its regular flights spurring thousands of Britons to buy second homes there. “In the most popular areas, such as the Dordogne, estate agents advertise properties for sale saying ‘Ryanair 40 minutes.’”
Great ideas for the Indian aviation industry!

D. MURALI
http://BookPeek.blogspot.com

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