Time is running out for India's aging state-run oil refineries as the new government of Prime Minister Narendra Modi looks set to free up diesel prices and open the gates to private sector competition.These refineries, commissioned mostly in the 1950s and 1960s during India's early industrialisation push, are inefficient and costly to maintain compared to their modern counterparts on the coast mainly operated by private companies.Their outdated machinery prevents them from using cheaper imported heavy crude as feedstock. They are also largely situated in remote and landlocked areas, restricting their potential to export fuel products.These factors have put a lid on refining margins, which appear set to narrow further with increased competition.The government may soon deregulate the diesel market so that it no longer needs to subsidise state-run refiners for selling the fuel at below-market prices. The move to market-based pricing is expected to bring the return of private refiners such as Reliance Industries and Essar Oil, threatening to erode the market share of the dominant state-run refiners.The competition will trim already slender margins. Gross refining margins, a key industry measure of profitability, of the aging refineries are below $3 a barrel, the ministry of petroleum and natural gas data shows.The older, state-run refineries, which account for a quarter of the nation's 4.3 million barrels per day fuel capacity, may be forced to reduce throughput or even seek federal monetary support. That, ironically, may upset the government's goal of supplying more diesel to counter falling local coal output and a growing electricity deficit."State refiners have to invest heavily and urgently to upgrade refineries to ensure adequate margins otherwise those with less than $3 a barrel gross refining margin could become unviable," said B.N. Bankapur, former head of refineries at IOC.India, the world's third-biggest crude oil importer, will decide whether to end government control of diesel pricing after polls in two states next month. A recent drop in crude prices and support for the move from top policy officials have raised the chances of the reforms getting the nod.The move comes as the Modi government seeks to curb a ballooning subsidy bill and mend strained public finances in a sluggish economy.Diesel makes up nearly half of India's fuel consumption and its usage is set to rise as Modi wants to boost the employment-generating manufacturing sector to push up economic expansion.Government-set selling prices for the state-run refiners, who also market fuel through their retail outlets, have led to revenue losses, and delays in payments of subsidies have sometimes squeezed the cash flows of the refiners.So the possibility of diesel deregulation has been viewed positively by analysts, with shares of state-run refinersIndian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp surging in the range of 60 per cent to 93 per cent in 2014.By comparison, the Sensex is up just 25 per cent.State-run refiners, however, have served the government's social agenda in past expansions. And protected by subsidies, the refiners focused on building their network of retail outlets rather than on upgrading and modernising.The government estimates state refineries need a hefty $13 billion of investments to upgrade facilities and produce cleaner fuels.Amid new competition, state refiners will find it tough to come up with investments needed to upgrade their old refineries, said Suresh Sivanandam, senior analyst at consultant Wood Mackenzie.Waiting In The WingsAn end to price controls may lure Reliance, which runs the world's biggest refining complex in Jamnagar coast inGujarat, and Essar back into the retail market.Reliance and Essar made a successful foray into retail fuel sales a decade ago before government subsidies to state-run refiners forced them out. Executives of both firms said they will finalize their retail plans once the government's stance on diesel deregulation is known.But Reliance has already initiated efforts to build a new 400,000 bpd refinery in India. Domestic sale of products from its export-focused 580,000 bpd refinery is uncompetitive due to heavy taxes.Apart from refining margins, state fuel retailers earn a marketing profit of about $3-$4 a barrel, a key source of revenue because of high volumes. Competition from the private refiners will erode that, oil industry analysts say."Within 2 years of deregulation state refiners' market share could shrink to about 75 percent, leading to a hefty decline in marketing margin. And then the inefficient plants will begin to pinch the companies," said S. Thangapandian, executive director at Dubai-based trading firm Gulf Petrochem.(Reuters)
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Adani Mining on Thursday took a step closer to the development of a A$2.2 billion ($1.94 billion) coal mining project in Australia after the federal government approved construction of a rail haulage line. The Australian unit of Adani Enterprises needed the approval of Environment Minister Greg Hunt to proceed with the 300-km (186-mile) line, after last month gaining clearance from the state of Queensland. Known as the North Galilee Basin Rail project, it is being designed to connect collieries owned by Adani and potentially other developers in the largely unpopulated Galilee Basin to the east coast port of Abbot Point. Despite analyst views that Adani's project would be unprofitable at current coal prices, the company remains committed to pushing ahead with it to supply power stations in India. India is home to the world's fifth-largest coal reserves but still needs to resort to imports as state-owned Coal India, which accounts for about 80 percent of the country's output, frequently falls short of its output target. "Today's approval is a significant milestone in the life of our integrated mine, rail and port project, helping transition from approvals to the build phase," said Jeyakumar Janakaraj, Adani Mining chief executive. Environmental groups have protested against Adani and Indian company GVK Hancock developing mines in the Galilee Basin as it could require dumping sand within the boundaries of the Great Barrier Reef to allow for the expansion of a nearby coal port. Earlier this month, Adani and GVK Hancock agreed to resubmit proposals offering alternative dumping sites on land. (Reuters)
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Mumbai has emerged as the world's least expensive city to live and work in, according to a latest real estate analysis.British capital London has overtaken Hong Kong as the most expensive city to rent living and working space, UK real estate major Savills said in its findings based on research in the world's top 12 financial hubs.London's overall real estate costs grew in US dollar terms by an annualised rate of 10.6 per cent in the first six months of the year, making it "the world's most expensive city for companies to locate employees." The annual cost per employee in London was put at $1, 20,568, with Mumbai at the bottom of the table at $29,742.Hong Kong is now at $1,15,717, New York and Paris are in third and fourth place with $1,07,782 and $1,05,550 respectively.Sydney came eighth at $63,630, Shanghai 10th at $43,171 and Rio 11th at $32,179."Despite its climb in the rankings from fifth to first place since 2008, London is still a way off the live/work accommodation costs record, set by Hong Kong in 2011 at $128,000 a year," Savills said, adding that Hong Kong was still "by far the most expensive city" in which to buy residential property, with prices 40 per cent higher than London although the gap was narrowing."Comparatively affordable" Rio and Sydney had seen significant increases in live/work costs since 2008 up 85 per cent and 58 per cent respectively but Savills said Rio still looked "highly competitive". Property SlowdownThe realty sector slowdown and lack of business confidence have brought Mumbai down to the 10th position among the top 15 global cities, in terms of office rentals, according to a Knight Frank survey report. The 15 cities surveyed were San Francisco, Madrid, New York, Singapore, Sydney, Washington, London, Mumbai, Tokyo, Mexico City, Paris, Hong Kong, Houston and Frankfurt. Mumbai which ranked sixth among global cities in 2007, slipped to the 10th position in 2014 mainly due to delayed revival of the Indian economy and lack of business confidence. "Delayed revival of the Indian economy and lack of business confidence took a toll on the Indian office market. This had led to Mumbai slipping from the sixth to the 10th rank in terms of rental ranking of global cities between 2007-14. While rental decline has been the primary reason, a depreciating rupee added fuel to the fire," Knight Frank Chief Economist and Director of Research Samantak Das said in the report. Office rentals in Mumbai are lowest at Rs 250 per square feet per month, compared to London and New York which stand at Rs 900 square feel and Rs 360 per square feet respectively, the report said. However, the city's office rentals are expected to grow by nearly 15 per cent over the next five years due to "improved sentiment," the report said. According to the report, current vacancy levels within the Mumbai office market lies at 23 per cent, which is the highest, as compared to the top 15 global cities. (PTI)
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The Supreme Court has cancelled all coal block allocations made since 1993 – barring four, sending the share prices of major companies tumbling. However, by the end of day, the market had mostly recovered. The ball is now in the government’s court, which needs to act and minimise the set-back, say experts.The much awaited order deciding the fate of coal blocks deemed illegal last month by the Supreme Court (Read Also: Coal Block Allocations) is the necessary bitter pill, with far reaching impact. Putting an end to the uncertainty of coal blocks allocated over the last three decades, the apex court has laid the foundations of a possible haul-up of the sector. But as a natural consequence, it also has caused a flurry in the market and investor sentiment. Ramesh Vaidyanathan, managing partner at Advaya Legal says, “the verdict seriously questions the credibility of government licensing process and will have an adverse impact on foreign investment.”At the same time the order is also being viewed as a two-edged sword by industry experts (Read Also: Dark& Damned) and they caution the government against apathy, urging the authorities to take quick steps and reduce the damage. “This is a moment for serious introspection and corrective action on the part of the political establishment,” says Vaidyanathan. Reiterating the illegal manner of giving out the coal blocks, the Supreme Court bench headed by Chief Justice RM Lodha pointed out, “allocations are illegal and arbitrary; the allottees have not yet entered into any mining lease and they have not yet commenced production. Whether they are 95 per cent ready or 92 per cent ready or 90 per cent ready for production (as argued by some learned counsel) is wholly irrelevant. Their allocation was illegal and arbitrary, as already held, and therefore we quash all these allotments.” (See: COURT ORDER) The Order In A NutshellThe Order says: Our judgment highlighted the illegality and arbitrariness in the allotment of coal blocks and these “consequence proceedings” are intended to correct the wrong done by the Union of India'Click Here For Full Story In August, the court while calling the government’s process of coal lock allocations arbitrary, had ad hoc declared the 218 block allocations made since 1993 illegal and reserved the decision on the future of these blocks after “further study”. In response various stakeholders - the union government (Read Also: Govt Urges SC Not To Cancel Some Illegal Coal Mines), power producers association, sponge iron manufacturers association and even petitioners made submissions in court both for and against the cancellation of these blocks. And today, while cancelling all but four – Ultra Mega Power Plant (UMPP) connected coal blocks - the court emphasised that “all parties likely to be adversely affected were given a hearing.”Spreading GloomAditya Birla Group chairman Kumar Mangalam Birla said the Union Government should ensure that the massive investments made by the companies to acquire coal blocks do not go down the drain following Supreme Court's order cancelling the mine permits.The cancellations do not come as a surprise but at a heavy cost. Given the court’s ire about the allocation processes followed, the large loss to the Indian treasury reported in 2012 by the CAG and the reach of the coal scam spreading from the PMO office, public undertakings like Hindalco to big private industrial houses like Jindal Steel and Power, the cancellations appear to be a natural consequence. “Once the SC came to the conclusion that the coal allocations were arbitrary, cancellations were perhaps inevitable,” says Vaidyanathan of Advaya Legal.But it is an inevitability India Inc was hoping against hope would not take place, especially at this stage when the economy is just beginning to show green shoots after almost two years of stagnation.“Unfortunately, a far reaching impact is on the sovereign risk perception relating to India” says Kuljit Singh, Partner-Infrastructure Practice, EY. According to him such a judgment enhances the perception of sovereign risk – i.e. risk that past decisions of the sovereign authority like the government can be undone."Now, the government has the opportunity to bring about sweeping reforms in the sector,” says Singh. He explains that the reforms cannot be piece-meal as seen in the past. The government needs to address three core issues plaguing the sector – end-use restriction, dominant role of Coal India and lack of transparency in allocation, which can be achieved through large scale competitive bidding says Singh. We need en-mass reforms and it is important this opportunity not be lost,” he emphasises.Other cases that have created this sentiment in the market are the retrospective tax order and the 2G licence cancellations. And as Debasish Mishra, Senior Director with Deloitte in India explains, “Government needs to expeditiously devise the parameters of coal block bidding and start bidding process as soon as possible. This will ensure minimum disruption for affected companies.”Invested companies’ margins are going to be hit hard in the current fiscal. “The short-term impact is immediate and significant, says Kameswara Rao, Energy leader at PwC India. According to him, the market reaction is unavoidable given the financial impact of the fine levied by the court, which could total to about Rs 9,000 crore in the books of the companies. Ficci President Sidharth Birla said: "The cancellation of coal blocks involves significant investments and will obviously impact the economy and investment climate, therefore a quick response from Government will help allay the apprehensions"."I am hopeful that this decision would act as a precursor to review of coal sector policy paving way for full-fledged coal reforms starting with amendment in Coal Mines Nationalisation Act, 1973 and Mine Minerals (Development and Regulation) Act, 1957 to facilitate entry of private entities in coal exploration and mining," he added.Eye To The FutureAll may not be lost as the order provides a huge opportunity say industry experts. Plus the fact that barely 5 per cent of the allocated coal blocks were actually producing any coal, the far reaching impact on energy security is limited. In the hope that the government will bring up the promised auctioning of the coal blocks at the earliest, it is expected that coal production as such may not be impacted for too long. The order comes with the rider of a possible clean and efficient system in the near future.“Now, the government has the opportunity to bring about sweeping reforms in the sector,” says Kuljit Singh of EY. He explains that the reforms cannot be piece-meal as seen in the past. The government needs to address three core issues plaguing the sector – end-use restriction, restriction of sale in the open market and lack of transparency, which can be achieved through competitive bidding says Singh. “We need en-mass reforms and it is important this opportunity not be lost,” he emphasises.But others like Kameswara Rao advise caution against banking on the new processes to be put in place. “Auctions will increase cost as a purchase consideration will have to be paid, at least to the extent of floor price, in addition to change-over costs in event another bidder wins the block. Auctions of operating blocks will only give us fairness but not additional value.” He says we need to wait for the much needed amendments to coal mining law to actually reap benefits of a clean, transparent and efficient coal market. moyna@businessworld.inmmatbworld@gmail.com
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The Supreme Court ruled on Wednesday (24 September) that companies will have until end-March next year to return most of the coal blocks (214) allocated illegally to them by the government since 1993, which could worsen an already severe shortage of the fuel in the short-term and raise imports.The court ruled last month that the country's decades-old method of granting coal mining concessions was illegal and arbitrary, putting investments worth billions of dollars at risk. The Bombay Stock Exchange benchmark Sensex plunged 215 pts at midsession after the Supreme Court ruling.The court declared last month that India's decades-old method of granting coal mining concessions was illegal and arbitrary. The latest ruling will allow the government to come up with a plan to auction the blocks. The verdict sent shares of Jindal Steel and Power Ltd, Hindalco Industries Ltd and Tata Power Co Ltd sharply lower. The court, led by Chief Justice Rajendra Mal Lodha, let off two coal blocks operated by Reliance Power and one each by state firms NTPC Ltd and Steel Authority of India Ltd. The government's award of more than 200 coal blocks to steel, cement and power companies was at the centre of the "Coalgate" scandal. An auditor report in 2012 said the underpriced sales had cost the exchequer as much as $33 billion. The government had earlier proposed auctioning the blocks, a process that is likely to take months. Legal wrangling and investigations into the concession process meant there was a tepid response to India's first coal block auction in February. The government withdrew the auction after only two firms bid for one of the three blocks on offer. The court said that 42 coal blocks under production or about to commence production will remain with their present management for the next six months till the central government decides on their reallocation.The ruling sent shares of Jindal Steel and Power Ltd, Hindalco Industries Ltd and Tata Power Co Ltd sharply lower. The firms have already spent heavily on steel and power plants based around the coal blocks.IIDBI Bank Shares Down 5.3%, Coal India Up 5%State-run lender IDBI Bank Ltd has close to Rs 2000 crore ($328 million) loan exposure to companies affected by a Supreme Court order scrapping coal blocks but not all of it will be problematic, the lender's head said on Wednesday."We are assessing," M.S. Raghavan, chairman and managing director of IDBI Bank, told Reuters after the Supreme Court's verdict.IDBI Bank shares were down 5.3 per cent compared to a flat performance in Nifty. The Bank Nifty fell about 1 per cent.Coal India shares, however, jumped 5 per cent once the Supreme Court verdict was up. Sensex Down 215 PtsThe benchmark BSE Sensex plunged over 215 points on Wednesday in the late afternoon trade as stocks led by metal sectors faced selling pressure after the Supreme Court cancelled 214 coal block allocations.The Sensex after opening in positive zone, succumbed to selling pressure and dropped by 215.69 points, or 0.80 per cent, to 26,560.00 at 1415 hours with capital goods, realty, consumer durables, metal and banking sector stocks retreating to selling pressure.The NSE 50-share Nifty dipped below the 8,000 mark by falling 67.05 points, or 0.84 per cent, to 7,950.05.Major losers were Jindal Steel Power 9.77 per cent to Rs 190.15, Hindalco by 0.38 per cent to Rs 156.45Other losers were ICICI Bank, HDFC Ltd, BHEL, Axis Bank, Bajaj Auto, Hero Motoco, Tata Motors, L&T, Tata Steel and TCS.Besides, persistent selling by foreign funds on the bourses also dampened sentiments, they said.(Agencies)
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Home prices in the capital are set to go up further with the Delhi government on Monday (22 September) hiking the circle rates - the minimum valuation at which properties have to be registered - by up to 20 per cent with an aim to check black money component in sale and purchase transactions.As per the decision approved by Lt Governor Najeeb Jung, the circle rate has been increased to Rs 7.74 lakh per square metre of land from Rs 6.45 lakh in category A residential colonies like Greater Kailash, Defence Colony, Gulmohar Park, Panchsheel Enclave, Anandlok, Green Park, Golf Links and Hauz Khas.This means nobody would be allowed to buy land and immovable properties in these colonies for less than Rs 6.45 lakh per sq metre.The new rates come into effect from Tuesday (23 September).The land rates in Category B neighbourhood like Andrews Ganj, Kalkaji, Munirka Vihar and Nehru Enclave have been increased to Rs 2,45,520 as against current rate of Rs 2,04,600 per sq m.The circle rates in the city was last revised in November 2012. The rates were then hiked by a whopping 200 per cent.For C category colonies, the circle rate has been hiked to Rs 1,59,840 from current Rs 1,33,224 per square metre while in neighbourhood under Category D the new rates will be Rs 1,27,680 as against existing rate of Rs 1,06,384.The rate for colonies under category E has been hiked from Rs 58,365 to Rs 70,080 per square metre while for F category colonies the rate will be Rs 56,640 as against current rate of Rs 47,140.In respect of category G colonies, the new rate will be Rs 46,200 per square metre as against existing Rs 38,442 while for H category colonies it has been hiked to Rs 23,280 from Rs 19,361.The circle rates were first introduced in Delhi in 2007, dividing the capital into eight categories, and were notified under the provisions of the Delhi Stamp (Prevention of Undervaluation of Instruments) Rules, 2007 on July 18, 2007.(PTI)
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India will get a major boost in its quest for greater access to hydrocarbons in Central Asia as it is all set to get full membership of the Shanghai Corporation Organisation,comprising all major energy producing nations of the region and dominated by China and Russia.India, one of the largest energy consumers in the world, is keen to get the membership of the grouping as it will help it play a major role in the SCO energy club which was set up to create a unified energy market as well as to ensure cooperation among major oil and gas companies from the member nations.Three major suppliers of energy -- Russia, Turkmenistan and Kazakhstan ? have been playing crucial role in the SCO energy club and the Indian government feels getting membership of the bloc will give it greater access to a number of key energy projects in the region.Government sources said SCO membership will also help to make headway in the proposed pipeline project from Russia to India, being billed as one of the most ambitious initiatives in recent years in the energy sector in the region.India does not want the pipeline, which may cost over USD 40 billion, to enter India through Pakistan and may look for alternative route including through China."The SCO membership will help India get a foothold in major energy projects involving Central Asian countries. It will ensure India's integration with the region," a top government official told PTI.India had formally applied for membership of SCO in its summit meeting in Dushanbe on September 12 where External Affairs Minister Sushma Swaraj had said India was ready to step up engagement with the grouping.India is almost certain to get the SCO membership within a year as China has backed the move. India has been an observer at SCO since 2005 and has generally participated at the ministerial-level at summits of the grouping which focuses mainly on security and economic cooperation in the Eurasian space.(PTI)
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India will get a major boost in its quest for greater access to hydrocarbons in Central Asia as it is all set to get full membership of the Shanghai Cooperation Organisation (SCO),comprising all major energy producing nations of the region and dominated by China and Russia. India, one of the largest energy consumers in the world, is keen to get the membership of the grouping as it will help it play a major role in the SCO energy club which was set up to create a unified energy market as well as to ensure cooperation among major oil and gas companies from the member nations. Three major suppliers of energy - Russia, Turkmenistan and Kazakhstan - have been playing crucial role in the SCO energy club and the Indian government feels getting membership of the bloc will give it greater access to a number of key energy projects in the region. Government sources said SCO membership will also help to make headway in the proposed pipeline project from Russia to India, being billed as one of the most ambitious initiatives in recent years in the energy sector in the region. India does not want the pipeline, which may cost over $40 billion, to enter India through Pakistan and may look for alternative route including through China. "The SCO membership will help India get a foothold in major energy projects involving Central Asian countries. It will ensure India's integration with the region," a top government official told PTI. India had formally applied for membership of SCO in its summit meeting in Dushanbe on September 12 where External Affairs Minister Sushma Swaraj had said India was ready to step up engagement with the grouping. India is almost certain to get the SCO membership within a year as China has backed the move. India has been an observer at SCO since 2005 and has generally participated at the ministerial-level at summits of the grouping which focuses mainly on security and economic cooperation in the Eurasian space. India's key ally Russia has been favouring India's permanent SCO membership, saying the largest democracy joining the group will add weight to the organisation. Another major oil-producer Iran is also aspiring to become member of the SCO. SCO was founded at a summit in Shanghai in 2001 by the Presidents of Russia, China, Kyrgyz Republic, Kazakhstan, Tajikistan and Uzbekistan. India, Iran and Pakistan were admitted as observers at the 2005 Astana Summit. Last week, during his meeting with Prime Minister Narendra Modi, Chinese President Xi Jinping had supported India's bid for SCO membership. Officials said an SCO membership will help India address its growing energy needs. India has oil deals with Russia, Kazakhstan and was working on a gas deal with Turkmenistan. They said the SCO platform will also help speedy implementation of the TAPI (Turkmenistan-Afghanistan- Pakistan-India) gas pipeline project The nearly 1,800-km-long TAPI pipeline would originate from Turkmenistan and pass through Afghanistan and Pakistan before entering India. It will have a capacity to carry 90 million standard cubic metres of gas per day (mmscmd) for a 30-year period and scheduled to be operational in 2018. India and Pakistan would get 38 mmscmd each, while the remaining 14 mmscmd will be supplied to Afghanistan. Kazakhstan had recently offered ONGC Videsh Ltd (OVL) a stake in medium-sized Abai oil block in Caspian Sea. The Indian government is of the view that SCO membership will offer India more opportunities to work closely with China in certain areas including in Afghanistan. India also feels as SCO member, it will be able to play a major role in addressing the threat of terrorism in the region. India is also keen to deepen its security-related cooperation with the SCO and its Regional Anti-Terrorism Structure (RATS) which specifically deals issues relating to security and defence. (PTI)
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