BW|Businessworld’s Simar Singh caught up with Shell Lubricants India’s Managing Director Nitin Prasad, to talk about the challenges and future of the company and how Shell is investing a couple of millions in Bangalore R&D facility Excerpts from the interview What has been the focus of Shell Lubricants in India?In India, in terms of the domestic market, what we have been focusing on is how can we bring energy efficiency for our customers, how can we bring fuel efficiency solutions that are not available in India today and focusing on total costs of ownership so that we can help our customers in India become much more competitive. It's all about what value you bring to the country and how you orient yourself. In your experience, what are the challenges that you have faced at Shell Lubricants from the Indian policy environment?On the domestic side, when it comes to the movement of goods within the country the GST that has been drafted is a problem for us, it magnifies the costs by two to three times. In terms of having the right infrastructure to be able to service the entire company, the overheads are very high. That makes us less competitive. What it also does to the industry is that it breaks the benefits that come from consolidation and scale. Most industries like to have one big manufacturing facility and one big warehouse and be able to supply everywhere because thats how we get the maximum efficiency in our production levels. However, because of the way the economy works and not having a GST we actually have to break apart your business and operate in many small different locations as that works out to be more efficient. We ourselves have one manufacturing facility and 17 odd warehouses, and at different locations we import products all across the entire country. We have also had multiple manufacturing facilities, third-party facilities in Chennai and elsewhere. Another challenge is that the mindset so far has been to make the cheapest thing you can and everyone wants to try and save one rupee here and there. As a culture, we talk about value for money but I believe that we often mistake that for the cheapest possible thing. There are plenty of examples in the industry where people have made extremely cheap products, but consumers have come in and said that these don't meet their basic requirements or basic standards of quality. I see that, as a society, we are demanding more now in terms of quality and capability. Of course, we still want it to be competitive but we want quality now. On the export side, there are a lot of infrastructural challenges and we need a proper policy framework. On our side, we have invested quite heavily in both the labour and technology side. So we are exporting and we are comfortable exporting. But it doesn't take much for us to rank ourselves with other plants in countries across the world and I will say that we are not that competitive. Being a multinational, we at Shell have 35-40 odd plants across the world, so we really have the luxury of choosing where we want to manufacture our product. We have to compete with all those other 40 plants to get our business. Where would you rank your Indian operations amongst all the different plants that are there?The honest answer is that that we are better that more than half of them and we are worse than the other half. Somewhere in the middle, but getting better. We have been increasing our exports over the years and are drifting towards being the top 25 per cent. In a few years time we hope to be a top quartile manufacturing location and we feel like we can get there on our own steam. The real challenge is going from top quartile to top 10%, for that we would need a lot more support from the environment. Is Shell looking at expansion?We always have plans to expand capacity and have been expanding over the years. If you take a look at the Shell Group as a whole, we are by far, one of the most diversified oil and gas companies. We have been investing over a billion dollars in the marketplace and are continuing to invest. In India, we are expanding our R&D facility in Bangalore, we've put in a couple hundred million dollars to get the latest and greatest R&D technology. We already had about a 1,000 people there and are now growing that number to 1,500. We are expanding our finance outsourcing arms and are looking at expansion of our downstream businesses. We are looking at everything and are very bullish on India. We believe that it is economy that is coming into its own. We think its going to take time but it is a top priority market for us and we are going to continue investing in it.
Read More
Oil prices dropped on Monday despite a fall in US drilling activity for the fourth straight week, with analysts pointing to a poor economic growth outlook as the main reason for low crude prices.China's August industrial profits dropped 8.8 per cent from the same month last year, and January to August industry profits were down 1.9 per cent."The growth problem endures. Asia isn't about to bounce," said Frederic Neumann, co-head of Asia Economics Research at HSBC in Hong Kong on Monday in a note to clients.The International Monetary Fund (IMF) is likely to revise downwards its global economic growth outlook due to weakness in emerging markets.Brent crude futures were at $48.13 per barrel at 0633 GMT, down 47 cents. US crude was 44 cents lower at $45.26 a barrel. Crude futures are now down more than 10 percent since the end of August.Monday's price falls came despite an ongoing reduction in US drilling, which has been on the decline for four straight weeks, a sign continued weak prices were causing oil and gas producers to reduce drilling plans.Yet analysts said US oil output was holding up despite the lower drilling."A rapid draw-down of the observed backlog of uncompleted wells could lead to higher production later this year and in 2016," Goldman Sachs said.Analysts said US output data would likely be the main driver this week for oil prices, especially as Chinese trading slows ahead of its seven-day National Day holiday that starts on October 1.The US Energy Information Administration is due to release its monthly petroleum supply report on Wednesday. [EIA/S]"We expect there to be laser-focus on US production figures ... Signs that US production rolled (fell) could provide a boost to both WTI and Brent flat prices," Morgan Stanley said.Jefferies bank said that oversupply in oil markets had halved since the second quarter to around 1 million barrels per day, and that the falling prices since June 2014 were impacting production."The price signal is working. US production is past its inflection and declines are accelerating ... (and) non-OPEC supply outside the U.S. is also beginning to show the effects of lower investment that arises from lower oil prices," Jefferies said.On the demand side, Barclays said that India "remains one of the bright spots" with oil demand up 7 percent between January and August this year compared to the same period in 2014.(Reuters)
Read More
Shravan SampathOne of the key achievements of the Government of India over the past year and half is the auction of coal block. Minister Piyush Goyal demonstrated his Ministry’s ability to take the Supreme Court decision on cancellation of coal blocks allotted over the past two decades in their stride (with a bit of glee even) and auction most of the blocks to new allottees. The swiftness and success of the auction has been touted in many election speeches, with notional benefit to the state quoted in several lakhs of crores, numbers that would even make Vinod Rai cringe.However, two decisions mar the process – the first is the seemingly over-cautious decision to cancel the Gare Palma block to the Naveen Jindal led Jindal Steel and Power Ltd. It is a decision that will, in all likelihood, be set aside by the courts. The second is more intricate and complicated, and could mar the future of the captive coal based power sector as we know it.Shravan SampathFallacy in the Bidding MethodologyAt the time of the coal auctions, most of the experts (including yours truly most humbly) noted the fallacy in the methodology of bidding for power blocks. While the blocks for all other sectors were bid on the basis of a premium per tonne of coal, power sector blocks were bid on the basis of reverse auction – that is, the bid price was capped the price of Coal India Ltd.’s (CILs) Run of Mine price, and bidders were expected to bid a discount on this price. It was expected, that in an utopian world, power companies would bid lower than this price to reflect their efficiencies in coal extraction compared to CIL’s price. This discount on CIL price was intended to be passed onto power tariffs, which would then result in reduced power bills for the end consumer. Except, this logic ignored some basic understanding of a bidders mindset – for starters, a bidder always bids only in alignment with what he thinks the other bidders will bid. As the bidding goes lower, the bidder has no choice but to stay in the game. Second, the bidder always works on his BATNA (Best Alternative To a Negotiated Agreement). The bidders who had blocks for decades now and stable operating power plants linked into them, did not have an option but to go aggressive to retain them. Their entire power island would be stranded if they lost the bid. This resulted in a “winners curse”, whereby the bidders, the quintessential Indian promoters, moved their bids lower and lower until the bids became negative. In effect, the promoter was telling the Government – “Thank you very much for your coal block, we will not only extract the coal, but we will also pay you for extracting the coal, and we will also not charge for the coal thus extracted from power tariffs”. Thus, from a coal block auction perspective, these negative bids became the norm, and all power bids became negative and in the interest of politeness, are being called bids at an “additional premium”. The Bone of ContentionThis harakiri, once committed, put the government and the bidders in a tough spot. Experts were chuckling “I told you so”, but the Union Government swung into action. A notice was issued to the Central Electricity Regulatory Commission that such “premiums” should not be loaded in the fixed charge, and the fixed charge should be capped for bidding purposes. This left bidders with no option but to either let the coal go unmined, or to go to the courts and cry foul saying that this was not intimated to them at the time of bidding for the coal blocks. Anil Swarup, Secretary Coal in the Government of India of the Project-Management-Group fame, went to great lengths to clarify that all the bidders were fully aware that their premiums would not be passed through in tariffs. The matter now rests in court – pending this, future auctions to the coal blocks for power are now on hold. Of course, one can only hope that given the pace of the Indian judiciary, by the time the high Court decides and the Supreme court then sits on appeal and further decides, this unmined coal under the earth doesn’t further get converted to crude, natural gas or some other carbonaceous substance. That Elusive Clarification No 13Where does the answer lie? Did the Union Government goof up by not pre-empting the Indian promoter mindset, or was the promoter indeed not informed that this change would not be passed through in the tariffs? This is a question that the High Court will take a call on. The promoters appear to be right in stating that it was not directly informed to them as part of the bid documents or the amendment to the Act and Rules. However, it is well known that all subsequent clarifications issued by the bidding authority, and documented by way of a minutes of meeting and circulated to all the bidders, are considered part of the bid documents. In this particular case, the issue of negative bidding remained a concern during the bid process. It was also discussed in a pre-bid conference, and was also included as Corrigendum No. 3 to the Standard Tender Document on January 31st 2015. This clarification is available freely online, and Clarification No 13 says – “It is clarified that in the event that an ascending forward auction is conducted in accordance with Clause 3.3.2 (c)(iv), only the aforementioned Fixed Rate of INR 100/Tonne, will be the input for computation of energy charge for the purposes of determination of tariff for electricity and the Additional Premium shall not be reckoned for the purposes of determination of tariff for electricity” Does this clause not indicate that the additional premium shall not be reckoned for the purposes of determination of tariff for electricity? If this clause is so clear, the bidders appear to be treading on thin ice by going to the High Court to fight for a right that does not exist. The Flip SideThe power producers claim that while the bid documents clearly specified that the additional premium (negative bids) would not be passed on in the tariff, it was specifically intimated to them that the fixed charges would be “capped”. If this was the proposed methodology of capping, the Government could have intimated at the bid stage itself that fixed charges would be capped. This argument does hold some water – while the bid documents do specify that the additional premium would not be allowed to be passed through in the tariff, it does not explicitly state that there would be a capping of fixed charges. The Road AheadThe fundamental challenge is this – there is no clear way that one can ensure that the additional premium is not loaded onto the tariff. The bidder can always claim (and rightfully so) that the additional fixed charges are due to other project related reasons (like transmission, coal transportation, rupee dollar variability, etc.). It is an important point to think about – not a lot of damage has been done. It is a matter pending in the courts and can be resolved quickly if the Government finds an intermediate ground. While the courts are likely to uphold the stand of the Government, that would mean that all the projects with negative bids (basically all the projects) would be stalled and the coal would remain in the ground. The only option appears to be for the Government to honorably admit that it has made a mistake by relying on the rational mind of the Indian promoter, and to cancel all power sector coal block auctions and re-do the methodology. The important question for the power sector appears to be – if millions of tonnes of coal allocated to the power sector now disappear off the radar because the additional premium bids are no longer viable, where does that leave the power sector, and our fledging coal sector? Shravan Sampath is CEO of Oakridge Energy, a niche project turnaround specialist firm in the power sector. Oakridge specialises on building business cases and managing implementation of distressed and stranded assets in the power sector. Shravan is a graduate of IIM Lucknow and has spent many years working on developing power plants in India.
Read More
By CH Unnikrishnan Bangalore-based technology solutions provider Axiscades Engineering Technologies Ltd said on Thursday (24 September) that it has signed a long term strategic contract with global wind turbines major Siemens Wind Power. Exiscades, which currently focuses on aerospace, heavy engineering, automotive and industrial domains, said that with this new contract it will set up a dedicated offshore development centre in order to provide design, design support and other associated engineering services to the Denmark-based equipment manufacturer (OEM). "Axiscades will provide Siemens with its learnings and established global project management and quality initiatives towards establishing a basic philosophy of error free Engineering drawings," the company said in a statement. The new offshore development centre will start with 50 engineers and will grow over time as both the companies explore new technical areas of providing offshore value addition. “It is an important step for Siemens Wind Power to team up with Axiscades well in line with the Siemens strategy to maintain a global footprint of partners in engineering and we are confident that Axiscades is a competent partner, with whom we can develop and grow with and also leverage from their vast experience from working with other global industrial players,” said Steen Kirkegaard Jensen, Head of Mechanical Design at Siemens Wind Power. “This relation is important to us and shows our commitment to Engineering expertise in core sectors in the world market like Renewable Energy, Aerospace & Heavy Industries," said Axiscades vice-chairman Sudhakar Gande. "With the wind turbine market eyeing rapid growth over the next few years on the back of policy-driven installations across Europe and North-America, it has become imperative for manufacturers to build a competitive advantage through optimised costs and better technical value proposition,’’ Gande added. With this 5 year long-term partnership, Axiscades aims to further solidify its position in the energy sector. This is in line with the company’s strategy to diversify into newer industry sectors leveraging the engineering excellence and by building global service offerings.
Read More
India will provide 24x7 power across the country by 2019 by creating cost effective infrastructure which is sustainable and inclusive of clean energy solutions, Power Minister Piyush Goyal has said. Goyal was speaking at the India-US Ministerial Energy Dialogue held at the US Department of Energy in Washington on September 21. The Indian delegation was led by Goyal while the US side was led by Dr Ernest Moniz, the US Secretary of Energy. "Government of India to provide 24x7 power across the country by 2019 by creating cost effective infrastructure which was sustainable and inclusive of clean energy solutions," the Minister said. Goyal emphasised that India is committed to pursue a green path to growth. He also elaborated on India's ambitious plans for deployment of 175 GW Renewable Power capacities by 2022, including 100 GW of Solar and 60 GW of Wind, which may require investment of around $150 billion in the next seven years. He also stressed on government's objective of construction of 100 smart cities which would include in its blueprint adequate provisions for power generation, usage of renewables and energy efficiency technologies, comprehensive waste management programme, usage of waste to energy technologies, etc. Goyal pointed out that India-US collaboration in the energy sector offer great potential, in view of India's enormous energy needs and the US' resources, capabilities and technology. He also welcomed US-based companies to invest in the Indian energy sector and invited them to also participate in India's unconventional hydrocarbons sector, especially in the field of exploration and exploitation of alternate energy sources such as shale oil, shale gas and gas hydrates. During the Dialogue, presentations were made on progress made under various joint research programme like Partnership to Advance Clean Energy - Research (PACE - R), including in the field of solar energy, energy efficient buildings and biofuels. Substantial headway has been made for the development of new technologies for distributed power generation through solar thermal route and development of new tools for improved building energy efficiency codes. It was also agreed to explore addition of smart grids and energy storage for grid application as the fourth stream under PACE - R. Clean EnergyPresentations were also made on various aspects of integration of clean energy sources into existing energy infrastructure in India, as well as mechanisms for promoting financing for clean energy and cleaner fossil energy sources. Avenues for advancing off-grid clean energy access was also discussed in depth during the Dialogue. According to the statement, bearing in mind the commitment of both countries to climate change, the focus of the meeting revolved on various dimensions of clean energy in order to ensure that people have access to adequate and affordable energy for better quality of life and sustainable livelihood. While capturing the activities of the Energy Dialogue in the last 10 years, the two Ministers recognised that this was an appropriate forum for India and the US to identify various aspects of technical assistance in energy sector as well as launch of pilot projects which can be scaled up at a later stage. The Indian delegation appreciated the activities of DOE, USAID and USTDA in various aspects of the energy sector in India, especially for technical assistance in research, data collection, development of various regulations as well as for improving energy efficient appliances. The need to develop a robust energy data management system to develop better simulation of the energy scenario in India in the future was also recognised. Prior to the Ministerial Dialogue, all the six Working Groups under the Energy Dialogue held extensive deliberations on September 16-18, 2015. It included Working Groups on a) Coal, b) New Technology and Renewable Energy, c) Petroleum and Natural Gas, d) Power and Energy Efficiency, e) Sustainable Development and f) Partnership to Advance Clean Energy - Research (PACE -R). The Working Group on Coal identified some areas of coal mining where both countries could collaborate including on Dry Coal Beneficiation; Planning of Large capacity opencast mines; Rehabilitation and reclamation of mined out areas; Pre combustion moisture removal of raw lignite and Mining of deep seated lignite deposits. It was recognised that India had proven reserves of shale gas and US had well developed expertize for Shale gas extraction. Collaboration in the area of fracking of shale gas, especially water less fracking in India were identified as areas of future cooperation under the Energy Dialogue. Discussions were also held in the working groups on financing of clean energy technology as well as on innovative financing for renewable energy microfinance and micro enterprises. Discussions were held on various aspects, including advantages and challenges of greening the grid, i.e., to integrate large scale renewable energy sources into the electricity grid. (PTI)
Read More
Coal India Ltd, which had estimated a capital expenditure of Rs 60,000 crore to ramp up production to 908 million tonnes, may have to revise it in view of the proposed Land Acquisition Bill. "The current estimate of total capex is Rs 60,000 crore over the next five years. But it may get revised due to Land Acquisition Bill," Coal India chairman Sutirtha Bhattacharya said at the CIL AGM in Kolkata on Wednesday. "There are some issues with regard to land acquisition. The final capex amount will eventually depend on the amount of land acquired," he said. A large portion of the money would go towards acquisition of land required for mining of coal and the rest for buying machinery and equipment for the same, he said. CIL requires 20,000 acres in next five years to acheive its target of 908 million tonnes. The cost of land acquisition would depend on the proposed Land Bill which seeks higher compensation. Meanwhile, the miner is in talks for acquiring mining assets overseas. "We are pursuing diplomatic channels while pursuing these assets. We are in talks with various countries for buying mining assets," Bhattacharya said. Coal India is planning to raise coal production from underground mining to 100 million tonnes in the next 10 years, CIL Director (Technical) N. Kumar said. "We are looking at ways to increase underground mining production. Currently, nearly 93 per cent of Coal India's total production comes from open cast mines," Kumar said. "The plan is to raise it to 100 million tonnes in the next 10 years. Central Mine Planning and Design Institute Ltd has been asked to prepare a roadmap for the same," he said. The miner had been able to sell 24.8 million tonnes through e-auction route during the April-August period as against 18.2 million tonnes in the same period a year ago, CIL Director (Marketing) B.K. Saxena said. The company said dues from NTPC had come down from Rs 900 crore as on March 31, 2015 to Rs 600 crore in August.
Read More
Hindustan Power today said it will issue bonds worth Rs 380 crore on private placement basis to Yes Bank for three of its projects in Gujarat."The clean energy arm of Hindustan Power achieved the distinction of entering into the credit enhanced bond market with the issue fully underwritten by YES Bank Ltd," the company said.Under the partial credit guarantee scheme of IIFCL, the infrastructure financing institution will provide a 'first loss' partial credit guarantee to the bondholders and has received an irrevocable back-stop guarantee with the Asian Development Bank (ADB).Placement of these bonds besides opening a new market for financing infrastructure projects, would also significantly bring down the cost of capital for the projects."With the announcement of this transaction we will be refinancing the existing debt in 3 solar SPV's of ours through the placement of Rs 380 crore worth of bonds with Yes Bank at an attractive coupon of 10.05 per cent for a tenure of 10 years," Hindustan Power Chairman Ratul Puri told reporters.This, he added, is a significant milestone for the country in its push towards achieving 100 GW of solar by 2022 and inching closer to the government's agenda of 24X7 power to all.The power company will issue secured, rated, listed, partially guaranteed, debentures worth Rs 380 crore on a private placement basis to YES Bank LtdBSE -0.16 % for three of its "AA+ SO rated" projects in Gujarat.Most of the infra projects are rated BBB or A while investors seek higher ratings.The bonds will be listed on NSE.Currently, banks provide most of the funding for infrastructure projects in India, whereas worldwide Debt Capital Markets are the major source of such financing.(PTI)
Read More
Oil prices pared losses on bargain hunting on Thursday after sharp falls overnight on an unexpectedly large buildup in US gasoline stocks and seasonally tepid demand.The global benchmark November Brent contract climbed 22 cents to $47.97 a barrel by 0517 GMT, after ending the previous session down $1.33 at $47.75 a barrel.US crude rose 31 cents to $44.79 a barrel, having slumped $1.88 on Wednesday to settle at $44.48."A combination of a slightly better supply-side scenario in terms of prices and a bit of an improvement in industrial sentiment globally has brought in some support," said Michael McCarthy, chief market strategist at CMC Markets in Australia.Data from the Energy Information Administration on Wednesday also showed that U.S. crude oil stocks fell 1.9 million barrels in the week to Sept. 18, the second straight weekly drawdown. Analysts had expected a draw of 533,000 barrels.Still, gasoline stocks rose 1.4 million barrels, compared with analyst expectations in a Reuters poll for an 819,000-barrel gain.The build in motor fuel in the world's largest oil consumer after the end of its summer driving season raised new concerns about high product stocks during autumn months.And longer-term, many analysts still see a continuing supply surplus weighing on the market."Despite early signs of a cutback in US shale production, the underlying supply and demand fundamentals remain weak for both Brent and WTI. This, alongside uncertainties surrounding China and the broader health of the global economy, is capping any recovery in prices," said BMI Research, part of the Fitch ratings agency.BMI added that it was holding to below-consensus forecasts for both key crude benchmarks for the next two years."Major supply additions in West Africa, North America, the North Sea and the Middle East will continue to outpace the growth in demand, contributing to a rising overhang of crude in the market," BMI said.A planned shutdown of Britain's North Sea Buzzard oilfield, has been reset to November from October, its operator Nexen said, contributing to a more immediate outlook for ample supplies. The field is the biggest contributor to the Forties oil stream, which has the largest volume of the four North Sea crudes used in the Brent benchmark.Asian shares were subdued on Thursday after more dour economic news in China and the United States prompted a bruising selloff the previous day. In the currency market, the euro was helped by comments from European Central Bank President Mario Draghi that the bank needed more time to decide on whether further stimulus is required.(Reuters)
Read More
