The Green Drive

When US President Barack Obama visited India this January, the quality of air in New Delhi made more headlines in his country than the Republic Day celebrations at which he was the chief guest. The US media could not be faulted for highlighting the alarming levels of pollution in the Indian capital, which ranks among the most polluted cities of the world.The truth is that New Delhi and many other Indian cities are choking on polluted air. Even with measures like the introduction of CNG buses, expansion of the Metro rail network and phasing out of old vehicles, the quality of air in Delhi has tended to improve only for brief periods before getting worse again. The culprits: The ever increasing vehicular traffic and construction activity in and around the capital.  As authorities in New Delhi and the states have sought to grapple with rising pollution, the now-ubiquitous e-rickshaws have come to be touted as an answer to the problems facing the cities. There is now a thinking in states and at the Centre that electric and battery operated e-rickshaws can serve as an alternative, cleaner mode of transport in cities big and small without adding to the pollution. The upshot of all this has been that e-rickshaws, which were being assembled from kits imported from China, have caught the attention of organised players who earlier stayed away from them due to issues of legality.  This newfound interest of governments and industry in e-rickshaws has, however, come about more as a result of a series of developments going back a few years, than by any planned positioning of e-rickshaws by authorities as an alternative and cleaner mode of commuting in cities.In 2009, the Delhi government first introduced e-rickshaws ahead of the Commonwealth Games to showcase and facilitate clean commuting to and from the sporting venues. Soon, the electric tricycles caught on and became a convenient mode of transport over short distances in the capital.But as e-rickshaws grew in number, they caused chaos on the roads of Delhi and adjoining cities, drawing the ire of citizens and courts. In the absence of rules and regulations for e-rickshaws, the Delhi High Court in July 2014 slapped a ban on them. As a result, people who had invested in these vehicles lost money and the companies that assembled imported kits also suffered. The ruling impacted the livelihood of over a lakh in Delhi.After months of standoff with the Delhi HC, which refused to revoke the ban on e-rickshaws, the Centre brought the Motor Vehicles (Amendment) Bill, 2015 seeking to legalise e-rickshaws.The Bill’s passage in March opened the gates for organised players such as Hero Electric, Terra Motors and Lohia Auto Industries to enter a space that has the potential to grow to Rs 5,000 crore in a few years.The law lays down that e-rickshaws of specific designs only can ply on the roads, that all drivers must get themselves registered for a licence and that certain safety norms have to be followed.Besides Delhi, Allahabad, Lucknow, Mohali, Ballabhgarh, Raipur, Tripura and Kolkata are among other cities that have introduced e-rickshaws to provide last-mile connectivity to commuters. Mumbai, which faced strong protests from auto and rickshaw unions, is conducting a feasibility survey.With the new amendment making it easier for states to legalise electric three-wheelers in their cities and towns, organised players are ready to launch their own products. Take, for instance, Lohia Auto Industries, which launched its Humrahi electric tricycle at a price of Rs 1.10 lakh soon after the government regulated the sector and notified the safety norms for e-rickshaws. In fact, it had been ready with an indigenous design for over two years. To push sales, it is tying up with companies to make loans easily available.“We manufacture 99.9 per cent of the 512 parts of Humrahi in India. Our product meets all the safety standards and we are looking at a pan-India business,” says Ayush Lohia, CEO, Lohia Auto Industries, which also manufactures electric scooters and diesel three-wheelers in the ration of 10:90. Lohia is positive about the e-rickshaw business and expects the segment to be the highest contributor to the company’s topline in the coming years. Over the next five years, he expects e-rickshaws to contribute over 40 per cent of the company’s revenue. “We sold 200 e-rickshaws last month (in May), and expect to sell around 50,000 by 2017. This segment will contribute around Rs 300-400 crore to our topline,” he adds. Hero Electric, a big name in electric cycles and scooters, has also entered the fray with its Rahi this April. Other than Delhi, the company is targeting four states including West Bengal and Gujarat, according to Sohinder Gill, CEO of Hero Electric.Even foreign firms are now showing interest. Japanese startup Terra Motors, which sells e-scooters and e-rickshaws, has opened its office in India. The group, present in the Philippines and Bangladesh, sees India as its biggest market in the coming years. It has decided to import spare parts from China and Japan and assemble the vehicles here.“We believe India is going to be a big market in the coming years. There is a need for last mile connectivity in Indian states, and we want to exploit that,” says Teppei Seki, the founding member and director, Terra Motors.Risks GaloreThere are quite a few challenges for e-rickshaw players, though. For one, the laws around them need to change. Only then, as Hero Electric’s Gill says, unorganised players will not be able to sully the sector by making and selling sub-standard products. Also, urban planning experts do not think e-rickshaws are entirely clean. Shriya Gadepalli, regional director, Institute for Transportation and Development Policy, says, “E-rickshaws... mean pollution elsewhere as the electricity required to charge them is produced by burning coal.”Besides, the e-rickshaw business has to contend with the unions of auto and taxi drivers who feel threatened by the entry of this relatively cheap vehicle. In Mumbai, even as a feasibility study is on, the unions are putting up stiff resistance against e-rickshaws. In 2014, many companies that had tied up with dealers in Mumbai had to shelve their plans because of the opposition.One can’t tell whether these noise- and- smoke-free vehicles will turn into a big sector. But what one safely say is that while these vehicles may not rid cities of their pollution, they will certainly not be a party to it.(This story was published in BW | Businessworld Issue Dated 13-07-2015)

We Won't Be Listing Our Power Business Anytime Soon: Anand Agarwal Of Sterlite Tech

Sterlite Technologies is looking to grow its business through smart cities and National Fiber Scheme. It has also de-merged its Power business from its Telecom vertical to provide more value to its retail investors as the company sees huge opportunity in the proposed Smart Cities in the country that would require technology at every door step. In an interview with BW|Businessworld, Anand Agarwal, CEO, Sterlite Technologies, discussed his company’s plants for the future and the way forward post de-merger. Excerpts from the interview. You are into the telecom fibre business. What opportunity does a mega project like National Fiber Scheme provide you?Currently, the scheme is becoming larger and larger. The government has set an aim of connecting 2.5 lakh gram panchayats with fast internet connection. Earlier, the national fiber scheme was to be implemented with the help of PSU companies. However, looking at the scale and the speed of the project, now the government has decided to involve the private sector as well. The scheme is a very big opportunity for us and we already have got the order for supplying products. However, the bids for laying down fiber will open in a couple of months and we will be participating in that. How does a private company like yours, with limited scale of operations in the power transmission sector, leverage against a behemoth like Power Grid Corporation to win projects?The power transmission sector has a huge opportunity in terms of growth. And PGCIL (Power Grid Corporation) itself has its hands full at the moment. Its order book would be around Rs one lakh crore. So a lot of projects in the country require to be done by the private sector. So we are looking for those projects in the sector. You have decided to de-merge your telecom and power business, with power sector being de-listed. Is there no growth in sight for the power sector that you have decided to quit the market?Well, power and telecom are two different types of businesses. While in telecom we provide products and solutions, the power business is more of an infrastructure development. Globally, we see that power transmission business is like an annuity business. It requires the company to take huge debt on its books and then execute the projects. The business has three cycles. So we have realized that this business is not good for general public because there are short term gains in the sector. So what we have done is that we have asked private equity   players to stay invested in our company because they can make long term gains in the sector. But recently, your parent company Vedanta Ltd merged Cairn India into it. The management gave an argument that it is good to have diversified portfolios in a company to ward off any cyclic pressures of a particular business on the stock price.See, for the last 7-8 years, we have been a diversified company. But then we realised that if we were addressing the same value chain, then it would have been justified. But in the power sector we have to invest a lot. So the business models become very different from each other. Whereas, the Vedanta and Cairn India are in the same business. Both the companies extract natural resources and sell. But in Sterlite Technologies’ case while we sell product in the telecom sector, we have to invest our own money to set up transmission lines in the power business. So the two businesses do not go together to reap any benefits of a diversified stock. So we have demerged two different business models because the investors for the two businesses are very different from each other in terms of expectations from the rate of return as well as gestation period. Moreover, we went for the demerger after getting feedback from our investors. When do you think you would list your power business?At the moment, we don’t think we would be listing our power business anytime soon. Because the investors who are interested in the power transmission business are not the general public. These are institutional investors like pension funds who come directly into the company. You recently announced your tie-up with Ericsson to provide solutions in the Smart cities. Could you please elaborate on the kind of opportunity you are looking at in the smart cities?Essentially, Ericsson and we are working on many projects. Ericsson has many great products to offer for a smart city whereas we have an expertise in system integration.So both the companies will complement each other in providing infrastructure in the upcoming smart cities in the country. 

A Loan That Sowed Seeds Of Vedanta-Cairn India Merger

The script of the merger between Vedanta Ltd and Cairn India Ltd was written in July 2014, when the latter extended a loan of $1.25 billion the former without taking prior approval from the shareholders.The stock of Cairn India had taken a beating after its largest minority stake holder Life Insurance Corporation criticized the company for the related party transaction between the two companies. The management of Cairn India escaped legal action as the company had extended the loan to Vedanta Ltd before the enactment of the new government guidelines of related party transactions, which forbid a company to extend a loan or any cash payment to a related party without seeking the approval of shareholders.However, at that time the management of Vedanta Ltd told investors and analysts that the money borrowed by Vedanta Ltd at a floating rate of 3 per cent plus Libor gave  significantly higher return to Cairn India compared to the fixed deposit of same tenor. Interestingly, the loan was extended at a time when Cairn India was itself sitting on an investment cycle of $3 billion dollar to improve its oil exploration capacity.Even if the company did not have any significant capital expenditure plans, it should have paid higher dividend to its stakeholders. Cairn India Ltd paid a dividend of 90 per cent in March 2015 on the face value of Rs 10 per share. The dividend could have been much higher if the company had decided to distribute the excess cash among its shareholders.However, Just eleven months later, when the borrowing company (Vedanta Ltd) was supposed to repay its debt to the lending company, the management announced the merger between the two companies, converting the debt of Vedanta resources liable to be paid with interest to Cairn India into cash for the merged entity.In lieu of the merger, the shareholders of Cairn India have received only one stock of Vedanta Ltd, which was trading at a bonus of Rs 184 at the time of merger. In addition, Cairn India shareholders will get a Rs 10 face value preferential share as a sweetener.If the merger between the two entities took place in June 2014 when the price of crude oil was above $100 per barrel, the value of Cairn India’s share was  Rs 366, whereas the share of Vedanta Ltd was selling for Rs 290 per unit.While the share price of Cairn India has come down due to cyclic slowdown in the price of crude oil, the fall in the price of Vedanta Ltd is because raw material crunch that is unlikely to be resolved anytime soon. Vedanta is operating its Jharsugda aluminum facility at a mere 25 per cent of installed capacity. The company had set up this facility with an investment of Rs 52,000 crore.Interestingly the London listed Vedanta Resource Plc that is the holding company of India listed Vedanta Ltd and Cairn India, saw a downgrade in April this year by Standards & Poor’s as the rating agency questioned the London listed miner’s ability to meet its financial obligations.For the year ended 31 March 2014, the Vedanta Group earned $12.9 billion and had an operating profit of $4.5 billion. Vedanta Resources Plc had gross debts of nearly $17 billion (Rs 1,08,905 crore) at the end of the last financial year. After the merger, the consolidated debt of Vedanta Resources Plc is likely to come down significantly.On the other hand the investors of Cairn India ltd will now be exposed to the environmental and legal risks associated with the mining sector. investors who bought Cairn India's shares just to be part of the crude oil play in the international market may have to exit the company as pure crude oil business is any day a safer and more profitable bet than mining anywhere in the world.The only good thing from a Cairn India shareholder’s perspective is that in case the company loses the tax liability case against the government which would make it liable to pay over Rs 20,000 crore, the company will benefit from the larger balance sheet of the merged entity.Following Cairn India, Vedanta will now look to merge with its other majority holding companies like Balco and Hindustan Zinc, making the parent company an even larger entity. One will have to keep a close watch to see who benefits in the future, the management or the shareholders.

Why US Becoming Top Oil Producer May Help India

The International Energy Agency had predicted that the US would be toppling Saudi Arabia as the number one crude oil producer in the world as early as 2012. And by 2014, it was true. The US achieved this on the back of the shale oil revolution which is a result of enhanced technology. The US produced 15.9 per cent more oil in 2014 at 11.6 million barrels of oil per day to topple Saudi Arabia's 11.5 million bpd production, according to BP Plc's Statistical Review of World Energy. At present, this looks like good news only for the US economy as they are likely to become self sufficient in energy needs. The world has no reason to cheer as US crude oil exports were effectively banned under laws that were enacted in the 1970s in response to the OPEC oil embargo. However, there is a hue and cry from social groups and intellectuals urging US to start exports of crude oil to the developing countries as production of crude oil in the US has increased close to 100 per cent since 2008. Moreover, there is a huge mismatch between the types of oil that US fields produce and the types that US refiners need, the products that US consumers want, and the infrastructure in place to transport the oil. Due to less demand by the domestic refiners, the oil producing companies are  forced to either leave the oil in the field or pumping it at depressed prices. There for, the lobby of the oil producers has also been demanding the lifting on ban on exports of crude oil from the US. The lobby’s voice will get louder now. Impact on India and the world…In case the US decides to bring its crude oil in international market for exports, it can further create a glut in the oil market leading to fall in the crude oil prices. The crude price has recovered  by over 30%  Since January 2015 when the price in the international market went below $50 per barell. At Present, the price of WTI crude and Brent Crude is $61.43 per barel and $65.70 respectively. India that as been pressurizing US to sell its crude oil to it in lieu of its decision to reduce oil imports from Iran after the US put embargo on the country in 2012. India’s oil minister, Dhramendra Pradhan has announced in the past that his department was in talks with the US government to get crude oil at cheaper price in from the country. In case Asia’s second largest energy guzzler starts importing oil from the US, in all likelihood the OPEC countries will be hard-pressed to give higher discounts to India for long term contracts. Already India has reduced its imports from Saudi Arabia and its crude oil imports during January 2015,dropped 8.85 per cent to 3.19 million metric tonnes from 3.5 million mt imported during the same period last year.India spends above around $145 billion on purchasing crude from the international market. The Indian refiners are asking for a better price from the oil producing nations. US becoming the largest oil producer may just prove to be a shot in the arm. 

Getting The World To Make In India

 In 2014, just after the NDA government launched the ‘Make in India’ campaign, I asked the India head of Mercedez Benz, Eberhard Kern, what he thought about the campaign. He said the world did not want to manufacture in India, because the challenges an organisation faced to set up business in India, were just too many. If the problems had lasted only till the first products came out of the plants, companies could still have born the pain to reap the benefits of India’s cheap labour. However, the asymmetric taxation between states, unavailability of power and the high cost of resolving disputes are all so tedious and cumbersome, that most of the high end companies refused to take the plunge in the Indian economy.  Another discussion with the chairman of a sports bike manufacturing company revealed the harassment that his company officials faced at regional transport departments for registration of vehicles. He also rued that the  amount of bribe required to keep the customs officials happy was something that added to the company’s operating costs. While the NDA government has announced various measures to improve India’s ranking for the year 2016, there are many areas where the government may find itself helpless. In the ‘ease of doing business’ category, there are 10 parameters that are judged while ranking a country. On these parameters, India has a pitiable position in dealing with construction permits and enforcing contracts, touching a low of 184th and 186th position, respectively. Both of these issues are out of the hands of the central government. The construction permits are given by the state governments where babus or IAS officers trouble the company on various accounts to extract money. As per the World Bank’s estimates, to set up a warehouse in Mumbai, a company needs to shell out Rs 20,70,725 to get all the permits. The amount of bribe required to be eligible to get these permits may be more than this official amount. The issue of enforcing contract lies in the domain of Indian judiciary, which takes years to deliver justice for the smallest of disputes. As per the World Bank, a business dispute between two parties takes 1,420 days (4 years) to get resolved in India as against the South Asia Average of 1076 days (3 years). The gap of one year is huge for any business to  pack its bags and shift its business to a land with faster resolution of disputes. According to official figures, there are 3.2 crore cases pending in the Indian courts. When and how the Indian government is able to bring in judiciary reforms will decide India’s improvement in this category of Ease of doing business rankings. However, all is not gloomy in India’s attempt to improve its ease of doing business ranking. The government has played it smart by deciding to rank states on ease of doing business index. This is a kind of domestic league to prepare the states before they are tested in the international markets. The chief ministers of Indian states will be hard pressed to check their inspectors from harassing the companies. A failure to get good ranking will result in reduced investments from the domestic companies. State chief ministers like Mamta Banerjee, Nitish Kumar and Akhilesh Yadav have been trying to attract foreign as well as domestic companies to invest in their states. A clearly defined parameter will help states to figure out the loopholes  in their systems. However, the rankings should not result in vindication of the states being governed by the ruling party at the centre. There is a reason why India is a laggard in most of the world rankings. We need a credible rating system to promote accountability among policymakers.  

The Other Side Of Online Retail

French luxury brand Gucci’s decision to sue Alibaba, the world’s largest online retailer, for allegedly selling counterfeit products on its website is a pointer to the real story behind the online retail boom, which sometimes seems unrealistic.

How Fake Products Can Kill The E-commerce Boom

There are no free lunches. This logic works in the online marketplaces as well. French luxury brand Gucci’s decision to sue world’s largest online retailer Alibaba for selling counterfeit products on its website, is a pointer to the real story behind the online retail boom, which sometimes is unreal. The fact is people buy online to get super discounts and it is here that they get duped. There are hundreds of complaints registered with online retailers all over the world for selling counterfeit products to customers. While the Alibaba case is making headlines in the international market, the Indian market itself is full of such cases. Take for example the case of Gizmobaba, an online retailer of electronic gadgets. In 2014, the company found that at Snapdeal.com some seller were selling inferior quality goods, under the Gizmobaba brand. The company’s founder and chief executive officer Alok Chawla kept on raising the issue with Snapdeal’s seller’s support desk for three to four months but nobody  listened. It was only when Chawla reached out to the top management with the help of his contacts that the problem was resolved. Chawla feels that only people with contacts are able to get their problems addressed. Small dealers have no platform to be heard. Companies like Chumbak and Sahil International have also spoken in the past about the issue of counterfeit products being sold by Indian online retailers. Be it Flipkart, Ebay or Amazon, almost all of them have been accused of allowing counterfeit products to be traded on their market platform. Online retailers get away because of the loopholes in the laws that deal with online retailing. Online retailers like Alibaba, Flipkart and Snapdeal are recognised as the marketplaces for selling stuff online by manufacturers. This definition gives them immunity from facing criminal charges most of the times. However, cases like Alibaba bring out the fact that  products sold online at dirt cheap prices have the risk of being counterfeit. It is impossible to sell the original product at 20-30 per cent discount throughout the year. While it is understandable that the e-tailers save the operational cost of running brick and mortar stores, but those savings are not enough to allow a company to have sale season throughout the year. There is hardly a week when you would not find a sale on products at an online platform. Compare this with the offline retailers who just have end of season sales. While the party for the e-tailers will last for some more time, but as the customers become more aware about the counterfeit products, they will start preferring the brick and mortar stores over the virtual market places. And this is where the brick and mortar retailers will have a chance to make a comeback. My personal experience with online apparel retailers has not been very good, as every time I have ordered a product, on delivery the quality and colour of the product has been inferior to the one displayed online.  This is why I have stopped shopping apparels online and am rather happy visiting the high streets or the malls of Delhi to touch and feel the texture of the cloth that I want to wear. My experience of buying mobile phones has also taught me that in an apple to apple comparison,  offline gadget retailers like HOT or Croma manage to give competitive prices for all the products. While it will take some time before other customers realize this, but in the age of information e-tailers do not seem to have much time if they want to survive in the business. In 2005, nobody thought that brick and mortar retailers will enter a dark tunnel within three years of glory. The e-tailers should make no mistake and focus on cleaning their system before losing the customers that they earned by burning the cash of investors in monthly flash sales. 

R. S. Butola Former CMD, Indian Oil Defines The Pricing Mechanism Of Oil Marketing In India.

We Are Considering Acquiring Stressed Assets, Says Arup Roy Choudhury

Power Play

On 25 September 2013, as many as nine companies bought the request for qualification (RFQ) document for the Bhedabahal ultra mega power project (UMPP) in Orissa. Apart from government-owned NHPC and NTPC, the other interested parties were Tata Power, Adani Power, JSW Energy, Jindal Power, Sterlite Infraventures, CLP and L&T.