India will auction about 20 major iron ore mines this year in its first such sale ever, a top government official said, as it looks to revive its corruption-tainted mining industry. India's mining sector has been mired in controversy over illegal allocation of resources. Once the world's third-biggest iron ore exporter, the country now imports the steelmaking ingredient due to a court-led crackdown on illegal mining. The government hopes auctions will help curb wrongdoing. While it is unlikely to lead to an immediate boost in iron ore output at a time when there is a global glut, mine sales will bring India closer to its target of tripling its steel capacity to 300 million tonnes by 2025 and relying less on ore imports. "Most of the states are in the midst of carrying out their pre-auction activities and hopefully by the end of October and November onwards they will start (auctions)," Mines Secretary Balvinder Kumar told Reuters in an interview on Monday evening. He expects about 80 mines to be auctioned in the first phase, including limestone, gold and "about 20 iron ore mines". States are estimating reserves, Kumar added. India produced 136 million tonnes of iron ore last fiscal year ended March 31. About 1.5 million tonnes of ore are needed to make 1 tonne of steel, implying India's ore output will have to more than triple in 10 years if steel companies are to be self sufficient. Most of the iron ore mines being sold are in the southern state of Karnataka, known for its high-quality ore. This will greatly benefit local steelmakers like JSW Steel. Led by JSW's purchases, India's ore imports hit a record of over 15 million tonnes last fiscal year as global prices collapsed. Kumar expects prices to improve by the time the mines start. "The mining process takes two to three years because they will need all kinds of clearances: forest, environment, from pollution control board. (It) takes a lot of time to comply." POSCO STEELIndia's new law to auction mines instead of handing them over to private firms without competition could, however, prompt South Korea's POSCO to scrap plans for a $12 billion steel project it agreed to set up in India a decade ago. While a withdrawal by POSCO could dent Prime Minister Narendra Modi's "Make in India" manufacturing push, Kumar said the government cannot change its laws for individual companies. Kumar attended a meeting in Prime Minister Narendra Modi's office on Tuesday to consider options for POSCO's plans for the steel plant in Odisha state that was billed as India's biggest foreign direct investment. A source at the meeting said there was no concrete result from it and Odisha and POSCO have been asked to look at other options. Odisha's state mining company can be allotted a mine, iron ore from which can be sent to POSCO if they form a joint venture, Kumar said. Odisha has said that was a possibility but POSCO wants to see the details first.(Reuters)
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India is set to raise about Rs 9,379 crore ($1.4 billion) from a share sale in state-run Indian Oil Corp, the government said on Monday (24 August), but a slump in the stock market raised concerns about future stock offerings. The sale of 242.8 million shares came on a day when India's stock markets slipped nearly 6 per cent, their biggest daily falls since January 2009 as steep falls in Chinese equities sparked widespread unrest in global markets. Disinvestment Secretary Aradhana Johri said markets were getting difficult and the government would have to "look for opportunities" for further asset sales. New Delhi is seeking to raise as much as $11 billion by selling stakes in state-run companies this fiscal year, crucial to narrowing the fiscal deficit to a planned 3.9 per cent of gross domestic product in 2015/16.(Reuters)
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The power ministry’s proposed changes to the bidding guidelines could increase developer interest in ultra mega power plants (UMPPs) as they try to address the concerns of investors and lenders raised on the previous guidelines, says India Ratings and Research (Ind-Ra). The proposed guidelines cover key investor/developer risks including fuel price variation, fixed charge quote, ownership of asset, incentive/disincentive for performance, land acquisition and termination of contract. The key reason for the failure of the previous bidding guidelines was the unwillingness of lenders to fund a 4GW power project with an estimated investment outlay of Rs 20,000 crore on a design, build, finance, operate and transfer model where the asset ownership did not vest with the developer. The current guidelines propose a build, own and operate model which, Ind-Ra believes, will result in greater acceptance from lenders for financing. The guidelines provide for a better fuel cost pass-through as they envisage a full escalation on the base tariff based on the Central Electricity Regulatory Commission (CERC) norms. Earlier, a fuel cost bid was divided into two parts which required the developer to project the non-escalable part of the fuel cost over the life of the project, leading to viability issues. Escalations based on the CERC norms should provide sufficient cushion to developers to manage the inflation associated with mining costs. However, Ind-Ra believes developers will be cautious while quoting fuel costs as operational UMPPs have seen challenges on account of aggressive bidding. The fuel cost variation over the life of a power purchase agreement is unlikely to be high, given that the proposed guidelines speak about UMPPs based on captive domestic coal. Additionally, the current guidelines do not provide for any open capacity which could be sold as merchant power as against the earlier guidelines which had a 15% open capacity. Ind-Ra considers this to be more prudent as the 15% open capacity added an additional uncontrolled variable (per unit price of merchant tariffs) in the bidding, and developer’s assumption on merchant tariffs alone could have altered the project viability. The current guidelines propose the bidding of a separate fixed charge for each year over the life of a power purchase agreement which is favourable from a project risk perspective compared with the earlier guideline of a single fixed charge quote with annual escalation. The incentive structure has also been made more stringent with incentives proposed above the normative availability of 90% and has been aligned to the plant load factor instead of availability. However, in contrast with the CERC guidelines where the incentive rate was fixed at INR0.5/kwh, the draft UMPP guidelines propose linking the incentive rate to 0.5x of the fixed cost per unit of the respective year. The incentive payments could be higher than the current CERC norms as Ind-Ra estimates the fixed cost per kWh to be higher than INR1/kwh. The disincentives curve has been lowered by 75% compared with the CERC guidelines, which though favourable to developers does not provide sufficient disincentives to generators for reducing availability. The draft norms also propose a segregation of operating and infrastructure assets into two separate special purpose vehicles (SPVs). The land for coal block as well as power plant would be housed under an infra SPV while the plant would be developed under an operating SPV. The move will lead to the mortgage of land and power asset separately to raise finances, however, this could pose challenges in the sale of asset. Prior to the request for qualification, an infrastrucure SPV will have to acquire partial land and the remaining land will need to be acquired by developers with assistance from state power utilities. In the past, concerns were raised regarding land cost going up while their fixed cost quotes were provided pre acquisition of the land. Therefore, the proposal is to pass through changes in price greater than 10% of the declared price. Though on the face of it, the guideline is again favourable to developers and a risk mitigant, it may expose discoms to the risk of developers using land cost as a tool to increase tariffs. Therefore, a transparent method of evaluation of such costs will be necessary. The introduction of a termination clause also provides relief to developers. Under the current bidding model, there are few options for a developer to exit a project and this has restricted private power generation companies’ interest in UMPPs. The proposed guidelines also provide for a termination option to lenders/procurers who can look for a new developer to take over the asset. The government in the Union Budget 2015-2016 has proposed to set up five new UMPPs, each of 4,000 MW in the plug-and-play mode. The changes in bidding norms are in line with the government’s intentions to meet this objective. Ind-Ra expects higher interest from private developers in the next rounds of UMPP bidding, whereas private sector developers had withdrawn from the bidding process in the last auction which was finally cancelled due to lack of takers.
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Allcargo is exploring ideal acquisitions in the existing lines of business as part of growth, CH Unnnikrishnan reportsAllcargo Logistics Ltd, India's largest private sector logistics company, is planning to enter port management business, one of the fast growing businesses and an integrated line extension of shipping and logistics industry. The company, which is currently focusing on multi-model transport business, container and coastal shipping, project logistics among others, is evaluating options to become a serious player in this new area of business both in the country and abroad.Being a fully integrated logistics and shipping company, it can leverage lot of synergies from its existing business verticals including people, equipment project logistics, shipping and its expertise in the entire supply channel management and transportation for the new business, said Allcargo founder and chairman Sashikiran Shetty, in an exclusive interview with BW.The company, which has a comfortable cash flow and healthy balance sheet, is also exploring ideal acquisitions in the existing lines of business as part of growth.“But nothing to share at the moment,” Shetty said. Port management is actually a combination of transportation, goods handling and storage, ship operations and safety management. Ports usually deal with a number of disparate activities like the movement, loading and unloading of ships, containers, and other cargo; customs activities as well as human resources. Port management is a necessary position required to keep ports organized, supervised, and functioning.“It’s a complex mixture of all our existing expertise and assets, thereby an advanced extension of the existing business, ” says Shetty. Targeting to be a billion dollar company by 2020, the 32 year-old Allcargo currently operates in several countries including Belgium, where its parent organisation is based, and employs some 8000 people. . Allcargo, as part of expansion in its coastal shipping business, had last week expanded its fleet by acquiring two new vessels aggregating 24000 deadweight tonnage (DWT). Post this acquisition Allcargo now owns a total of five cargo vessels making it one of the largest players in the logistics industry. The additional vessels will help Allcargo to cater to the growing requirements not only of coastal shipping but regional trade and commerce as well, the company said.Expansion of coastal shipping services is a strategic move by Allcargo as the country has over 7,000 km of coastline. Considering India's demography and strategic location as a global trade hub, the coastline will play a major role in coastal shipping services which lead to efficient, cost effective and time saving mode of cargo transport. With the government increasing its focus on decongesting the exiting road and rail network, coastal shipping will play a pivotal role in India’s growing economy.“As an organisation, we believe that India’s economy will need a more efficient and time saving mode of transportation, to keep pace with its growth," Shetty had said earlier."Coastal shipping is the solution for this opportunity. We are helping our customers to create logistics solutions through coastal shipping, making their cargo movement more seamless and cost effective,” he added.Allcargo currently specializes in moving bulk, break bulk, containerized and project cargo under its coastal shipping business. With many companies realizing the benefits of cargo movement through coastal route, Allcargo is well placed to lead the space and provide best in class services. Allcargo is also a leader in CFS and ICD operations pan India with six facilities as well as a leader in the project logistics and equipment hiring space.
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Indian Oil Corp said all units at its 274,000 barrels per day (bpd) Koyali refinery in western Gujarat are running normally except the 44,000 bpd crude distillation unit (CDU), where a minor fire occurred during a planned maintenance shutdown."There has been no fatality; however there are five cases of injuries to employees of Gujarat Refinery," the company said in a statement issued on Sunday.IOC, the country's biggest refiner, had shut the 44,000 bpd crude unit 2-3 days ago for routine maintenance, a company source said, adding the shutdown will last for about 25 days.Koyali refinery has five CDUs.(Reuters)
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The government has set a floor price for the sale of shares in top state-run refiner Indian Oil Corp Ltd at Rs 387 each, the company said, a two per cent discount from Friday's close. At the floor price, the 10 per cent stake sale in the company will bring in Rs 9,396 crore ($1.4 billion) for the government. New Delhi is seeking to raise as much as $11 billion by selling stakes in state-run companies this fiscal year, crucial to narrowing the fiscal deficit to a planned 3.9 per cent of gross domestic product in 2015/16. The government owns 68.6 per cent of IOC, whose stock hit a record high in July and has outperformed the broader market this year as the refiner benefits from cheaper global crude prices. It will sell about 242.8 million shares in Indian oil in Monday's auction. Individual investors can buy the stock at a 5 per cent discount to the final bid price, the government said in a regulatory filing. The government has missed its divestment target for the last five years in a row. Last month, the government raised about $260 million from the sale of a 5 per cent stake in Power Finance Corp Ltd, after the auction received bids for more than twice the number of shares on offer. Citigroup, Deutsche Bank, Nomura and Indian investment banks JM Financial and Kotak Securities are the managers of the Indian Oil share sale.(Reuters)
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A day after RBI governor Raghuram Rajan advised builders stuck with unsold inventories to cut rates, realtors' body CREDAI (Confederation of Real Estate Developers’ Association of India) on Friday (21 August) said there is no scope to reduce housing prices and demanded that interest rates on home loans as well as taxes should be reduced to boost demand. “While we respect the RBI governors concern for kick starting the real estate sector, it would be prudent to say that from the developers side a substantial reduction in prices has already happened across the country and any further decrease in sale prices would be a deterrent for the growth of a sector that contributes so much to the economy and employment at large. The onus is now upon the state government to rationalise taxes, ready reckoner rates and streamline the approval process to bring down property prices and provide relief to home buyers. A rate cut in the home loans is the need of the hour to relive the home buyer of the huge burden of mounting EMIs. Industry on its part is eager to focus on execution and supply of good quality housing stock to enable the governments ambition of housing for all by 2022. But at the same time, we seek the guidance and cooperation from statuary and legislative bodies to be able to positively work towards Prime Minister Narendra Modi’s vision,” said CREDAI president Getamber Anand. "Any further decrease in sale prices would mean an out of pocket expense for the developers thereby acting as the last nail in the coffin of an industry which contributes so much to the economy and employment at large," he added. Credai, which has about 10,000 realty developers as members, sought that government should rationalise taxes and circle rates while interest rates on home loans should be cut. "It is now largely up to the state to rationalise taxes, ready reckoner rates and streamline the approval process to bring down property prices and provide relief to the end user. A rate cut in home loans is the need of the hour to relive the home buyer of the huge burden of mounting EMIs," Anand said. Raghuram Rajan is famous for correctly pointing out the prevailing risks in the global financial system back in the mid 2000s and warned leading policymakers at a Jackson Hole conference about a potential financial armageddon. He has been famous since then. Rajan, on Thursday said real estate developers should consider cutting prices on their unsold inventory property to help clear up the stock as also help boost new demand. "I do believe that real estate developers, who are sitting on unsold stocks, should reduce prices on unsold stocks,’’ said Rajan during an interaction with Arundhati Bhattacharya, chairman of State Bank of India in Mumbai. "We need the market to clear up . . . we don’t need a situation where prices are high and demand doesn’t pick up." Coming hard on property developers, top mortgage lender HDFC's Chairman Deepak Parekh had said in June that they are unrelenting on pricing despite a growing inventory of unsold housing units. Parekh also asked the developers to shift their focus away from high-end luxury housing and said the "real demand is in the affordable housing segment". In an interview with BW | Businessworld, dmg India country head Tej Kapoor has said that "real estate market has almost touched the bottom. We have more than 4 years of unsold inventory in market. The dichotomy is that on one hand we have housing shortage problem and on other hand 284,000 unsold units which explains to you that the price curve is just not right and sooner or later the correction is bound to happen". - (Read more ) Teaser Loans Back?Citing rising real estate inventory, SBI Chairperson Arundhati Bhattacharya on Thursday (20 August) had urged RBI to consider re-introduction of ‘teaser loans’. They are a tool to attract borrowers with low interest rates for the first 2-3 years of the total loan tenure. “I am told that real estate stock is at 2-year high and I was thinking if it is possible for a little while...could something of this (teaser loan) kind could be allowed, given the fact that this is one of the portfolios where NPAs are the lowest,” Bhattacharya told Raghuram Rajan.Referring to home loans, SBI’s Bhattacharya said the NPAs from this segment are minimal. In a situation similar to 2008, SBI could offer home loans at a rate lower than its base rate for an initial period and raise it in the subsequent years. Schemes on similar lines had helped lift demand after the global financial crisis in 2008. The same could happen now. Bhattacharya emphasized that due diligence on these loans would be the same as for all other regular loans.
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Oil prices resumed their downward trend on Friday pulled lower by weaker global stock markets and a sharp contraction in China's manufacturing activity, with the U.S. benchmark on track for its longest weekly losing streak since 1986. Activity in China's factory sector shrank at its fastest pace in almost 6-1/2 years in August as domestic and export demand dwindled, adding to worries about lower demand for crude in the world's second biggest oil consumer. Asian stocks fell on Friday morning, following Wall Street down as fears took hold of a China-led deceleration in global growth. Key oil benchmarks were trading near 6-1/2 year lows, with the U.S benchmark headed for its eighth straight weekly decline, the longest weekly losing streak since 1986. In late 1985, oil prices slumped to $10 from around $30 over five months as OPEC raised output to regain market share following an increase in non-OPEC production. U.S. crude for October delivery was 59 cents lower at $40.73 a barrel at 0328 GMT. The September contract, which expired on Thursday, ended 34 cents higher. The U.S. benchmark hit a 6-1/2 year low of $40.21 a barrel on Thursday. Brent was on track for its seventh weekly decline in the past eight, trading 56 cents lower at $46.06 a barrel, after settling 54 cents lower on Thursday. The dollar continued retreating on shrinking expectations of an U.S. interest rate hike in September, providing some support for oil prices. U.S. crude inventories continued to rise last week, as imports rose and shale production fell slower than anticipated, despite falling prices. "The only silver lining we are seeing coming from the United States is that refining rates remain high and that crude production continues to fall," Singapore-based Philip Futures said in a note to clients. Despite the rout in oil prices, some mutual funds keep ploughing money into oil exploration and production companies in the United States in a bet that production will retreat sharply over the next 12 months, setting the stage for a rebound towards $65-70 per barrel. A glut of U.S. oil is about to repeat itself north of the border, with traders scrambling to secure more storage space in western Canada as crude stockpiles surge to record highs. Spot prices of Western Canada Select (WCS), a marker for heavy, diluted bitumen from Alberta's oil sands sank to a 12-year low near $20 per barrel. (Reuters)
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