Boostrapping : EAS.09 - EAS over Crude oil
Bootstrapping
Main Page     Feedback? MehtaRahulC@yahoo.com

Proposed administrative procedure - EAS.09
Equal   Allowance   System   over   Crude   Oil   and   Natural   Gas

Purpose : To reduce nexusproness in the administrative procedures dealing with crude oil mining, AND to ensure that citizens get equitable royalty over crude oil.

Pre-requiste readings :
  • EAS.01 -- Equal Allowance System over Underground Water
  • RLPP.
  • EAS.05 -- Equal Allowance System over Coal

      Contents

    1. Background
    2. Similarity with EAS.05
    3. Issues in oil mining
    4. Overview of EAS.09
    5. Managing citizen-owned mining company
    6. Advantages of EAS.09
    7. Should mines be private or citizen-owned?
    8. Draft of the act to create procedure EAS.09

    Background

    The purpose is to reduce poverty, without taxing the rich. How? By ensuring that every citizen gets equitable share in the "rent" or "deemed rent" of natural resource. How? I have proposed several laws to enable that. EAS.09 is one of these proposed laws.


    Similarity with EAS.05

    EAS.09 is very much similar to EAS.05. I strongly request the reader to read the web page related to EAS.05 before reading this web page.


    Issues in oil drilling

    Two of the most important aspect of oil mining are ---
    1. finding out how much oil and natural gas is present at which exact places on earth i.e. Exploration.
    2. how deep and marshy the oil well is.
    These factors determine the most important financial issue in oil mining. Exploration by itself is very technological intensive and expensive task. And if the oil well is deep and marshy, lot of investment and fixture is needed in the well before oil drilling can begin.

    Also, an oil mining company needs to fulfil several additional conditions. Some conditions are related to environment and some with local economy. Such as
    1. The drilling operation must take precautions so that enviornment is not damaged.
    2. The oil mining company may be required to hire only the locals for unskilled labor.
    Today, the IAS/Ministers take all these decisions. And in almost all such cases, the judges have final say. Needless to say, the judges in India takes years and decades to resolve cases. So needless to say, the existing system where Ministers/IAS/judges decide gives almost zero economic and social returns to the citizens.

    The EAS.09 provides much better option.


    Overview of EAS.09

    Following are the main points of these administrative procedures :

    1. Transfer of oil wells : The Center shall handover ownership of ALL oil and natural gas wells to the States.

    2. Appointing senior officers : The Chief Minister will appoint Petroleum Minister (as today). For each district, the Minister will appoint a Registrar, a Mine Guard and a Mine Plotting Officer. One person may manage more than one district. If that district has no oil wells, these positions may be left vacant for those districts.

    3. The Registrar will issue a serial number for any person or company who wishes to run a oil well in that district and/or buy crude oil from of that district.

    4. Making mine's boundaries : The Mine Plotting Officer will demark the various mining plots' boundaries in the district and will decide the lease (in number of years) for each mining plot, and amount of crude oil a mining company can extract every year.

    5. Bidding for mine plots : A company interested in leasing mining plots can file the bids PUBLICLY before Registrar by stating the fraction of crude oil (or natural gas) the company will keep for itself and fraction of crude oil it would hand over to citizenry.

    6. Allocating mine plots : The Mine Guard will give the mine plot to the company which bids the least fraction for itself.

    7. Allocation of oil :
      1. A citizen using RLPP can give his monthly Oil Allowance to any company which wants to buy oil from the mines in the State.

      2. At the mine's site, the Mine Guard will ensure that mining company is distributing crude oil amongst Allowane owning companies in the ratio of Allowances they have. How can this be ensured? As of today, I have not finished drafting a nexusless procedure to do so. So at this point, my proposal is to continue the status quo i.e. the officer will have discretionarty powers to ensure that oil mining company is distributing crude as per allowances. If citizens suspect him of nexuses, they can remove him using RLPP or Jury Trial.

    8. Citizens' control over senior officers : The citizens can change Mine Plotting Officer, oil Gaurd and Registrar using RLPP.

    9. Citizens' control over mining companies : The citizens can also change/expel Mining Companies using Approval/Disapproval filing using RLPP.


    Administering Exploration

    In case of many minerals and ores, exploration is less expensive and techonologically a simple task. But in case of crude oil (and natural gas) exploration is quite an expensive and technology intensive process. So the EAS for Crude Oil (and Natural Gas) has one extra sub-system to manage the exploration issue --- a citizen owned exploration company. It can be managed as follows
    1. The Oil Exploration Company will be owned by the Citizens if the State. It may hire private companies as contractors.

    2. The company will have a Chairman whom citizens may expel using RLPP or Jury Trial.

    3. The Chairman will hire the staff necessary for oil exploration by competitive exams OR after approval of Grand Jury. The citizens may expel a staff member by Jury Trial.

    4. Likewise, the Chairman may select private contractors. The citizens may expel them by Jury Trial. The Chairman will publish the contract before hiring the contractor.

    5. The Exploration Company can charge a fee on Crude Oil currently mined on a per ton basis to cover the cost of exploration.

    6. The Chairman will put all the data obtained by the exploration company in the public domain.

    This state-owned exploration company will be better manages than existing state-owned companies. Will it be better managed that private companies? Yes and no. If yes, fine. Otherwise, citizens can dissolve the company using LM.02.


    Managing Citizen-owned oil mining company

    In EAS.09, an oil mining company may be private or owned by Government. Even when an oil mining company is owned by the Government, the employees of EAS.09, such as Registrar, Mine Guard etc are to treat them as if it is a separate entity.

    In case an oil mining company is citizen owned, citizens can use the following administrative procedures to run the oil mining company :
    1. Say about citizens of 6-7 districts own an oil mining company.

    2. In such case, the Chaorman of the company may be initially appointed by Panchayat Members of the District Panchayats

    3. The citizens may relace him using RLPP

    4. The company should hire the junior staff members ONLY via open competitive exams. Any appointment without exam would need permission of the majority of the Grand Jurors.

    5. The citizens may expel any of the staff members using Jury Trials.

    6. After serving as Chairman for 4 years in continuous or broken intervals in one or another Citizen-owned company, the person cannot become Chairman in Citizen owned company for next 4 years.
    7. For investments, the company may obtain grants from the Districts which own the company. The grants will be funded strictly by district level property/sales or any other tax, as approved by Panchayat Members or approved by citizens (via LM.01)
    The company will be better run than existing PSUs. Will it outform private companies? Yes and No. If Yes, citizens should continue it or else they may dissolve it using LM.01 or LM.02.


    Advantages of EAS.09
    1. EAS.09 reduces poverty. How? The oil buyers can obtain oil from the oil-digging company using Allowance. Now today, the market value of oil is several times above the sum of the costs of mining and transportation. In EAS.09, much of the difference will go to the Allowance sellers i.e. citizens. Thus each citizen living in the States with the mines gets an income, without any increase in price level. Thus the poverty reduces. In states like Jharkhand, EAS.09 alone can remove poverty in less than 1 year.

    2. It reduces nexusproneness in oil mining industry and thsu improves its efficiency

    3. EAS.09 reduces oil theft. How? Suppose the citizens realize that about 20% - 40% of the oil is being stolen. This means that the oil-buyers get less oil and thus give lesser value for their Allowances. In other words, if the Allowances are fetching Rs. 100 per month, stopping the theft would increase the value to Rs. 120 - Rs. 140. Given the monetary benefit, most citizens will start investigating the issue. And if the rumor of theft is correct, most citizens would Approve someone else for the position of the Mine Guard using RLPP. In fact, the fear of prmot replacement alone would ensure Mine Guard’s integrity, and thus low theft.

    4. EAS.09 will reduce the need and burden of subsidies for kerosene, disel and cooking gas. How? In essence, EAS.09 will give equitable amount of crude oil and natural gas to every citizen of India. Say the Allowance is equivalent to 20 liters of crude oil per month. Then in general, a poor person can sell his Allowance of crude oil and natural gas to a refining company with following deal : the citizen gets certain liters of kerosene or cooking gas per month (to be obtained at a dealer assigned by the refining company) and cash from the rest of his Allowance. With this, the need to provide subsidy over kerosene and cooking gas will be over.


    Should mines be private or citizen-owned?

    A 200-year old question has been ----- are private oligopolies/monopolies more efficient or Government-owned oligopolies/monopolies? The question is very much misleading itself.

    First, efficiency for whom? A perticular person can be extremely efficient in serving X, but extremely inefficient when it comes to serving Y. For example, most lawyers are extremely polite to judges but extremely impolite to rest of the mankind. Likewise a private electricity company, like Enron, is very efficient to its owners, but what about rest of the India?

    So please allow me to rephrase the 200-year old question --- are citizens better off with private oligopolies/monopolies or Government-owned oligopolies/monopolies? Whose efficiency is higher with respect to citizens - private or Government owned oligopolies?

    The private monopolies (or oligopolies) are ALWAYS worse than Government owned monopolies or oligopolies. Besides, many "successful" private companies obtain capital from Government owned banks or Government owned trust funds (like UTI, LIC, GIDC etc.), thereby throwing much of the failure risk on the Governments. In addition, private monopolies also ask for counter guarantees of various types, thereby throwing marketing burden on Governments as well.

    Why not have private monopolies/oligopolies with regulators? Once upon a time, private monopolies regulated by Government used to run with some reasonable efficiency. But soon the companies’ owners established nexuses with regulators and the Ministers/officers who appoint these regulators. Using these nexuses, the mine owners ensure that that ONLY the individuals with whom these mine owners have nexuses get appointed as regulators. So lately, regulators have stopped making attempts to control the monopolies.

    Now there are two ways to run a Government owned monopoly : one is by using Ministers/officers/judges and other is by using recallable officers and Juries. A Government owned monopoly run by Ministers/officers/judges is extremely corrupt, wasteful and inefficient. But a Government owned monopoly run by recallable officers/Juries will always be efficient, and it will be much more efficient than private monopolies under regulators. Lately, a large number of Government owned companies are running in a wasteful way, but that is because of lack of Jury System. It is the failure of judges, not the owners (i.e. Governments or citizens).

    Now lets come back to oil mining question. As per today’s technology, the oil mining happens to be oligopolistic as more oil wells cannot be created from thin air. So the Citizen owned oil mining companies with RLPP will be more efficient for citizens than private oligopolies.

    But please note that EAS.09 DOES NOT have any pre-condition that the oil mining companies must be Citizen owned and cannot be private. The EAS.09 ONLY insists that the mine, which is given by God, be citizen owned. And EAS.09 ONLY insists that citizens have fast/cheap RLPP-type procedures to expel an unworthy officer or a mining company. It is NOT a binding that a citizen must give his Approvals and Allowances to a citizen-owned oil mining company. If the a private oil mining company is indeed more efficient, the citizens can/will give its Approvals to that private company


    Draft of the act to create procedure EAS.09

    Two laws needed to be passed for to enact EAS.09, one in Parliament and another at State level. I have drafted the texts for both. To see the drafts, please click here.

         Now citizens can ask MPs/MLAs to pass these Acts. But IMO, it will be wiser for citizens to first enact procedure LM.02 and LM.03, and then use LM.02-03 to pass this EAS.09 draftd WITHOUT any help from MPs and MLAs. To know about procedure LM.02, please click here and to know about procedure LM.03, please click here.


    If you have any other question, please mail it to MehtaRahulC@yahoo.com. Thousand thanks in advance.



    Next - EAS.10 : Equal Allowance System over Clay, Marble etc.