Here’s when growth can be too much of a good thing — oil supplies. The US Energy Information Agency put out its weekly report showing that oil at the storage facilities in Cushing, Oklahoma, doubled from last year to nearly 52 million barrels. Last year, it stored just 28.3 million barrels. And its not just a logistical problem of transporting all that oil. Global models of production and use are not built to factor in a US production of more than 7 million barrels a day, according to analysts. Even with increasing exports of gasoline — think of how the US used to be an oil importer not too long ago — there is simply not enough demand from refineries. And oil producing economies like Saudi Arabia cannot cut back production, they need the revenues. There have been media reports that Nigerian oil for delivery in February is unsold and still stuck on container ships because the US is producing more. So is Iraq, which also desperately needs oil revenues to rebuild its economy. So now, wait for the fall in oil prices. (This story was published in Businessworld Issue Dated 28-01-2013)
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The Reserve Bank of India (RBI) said on Monday it has relaxed overseas borrowing limits for infrastructure finance companies, a move that will enable companies in the investment-hungry sector to raise funds more easily.The RBI said infrastructure finance companies will no longer need to seek approval for raising funds overseas equivalent to up to 75 per cent of their owned funds. The limit had been 50 per cent.India's infrastructure companies raise a large chunk of their borrowings from overseas because of attractive rates.The RBI also relaxed the hedging requirement for currency risk for these companies to 75 percent of the exposure, from an earlier limit of 100 per cent.(Reuters)
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Anglo-Dutch oil major Royal Dutch Shell Plc said Monday, 4 February, 2013 that its Indian unit will challenge a transfer pricing order by Indian tax authorities relating to a transfer of shares to its parent and is evaluating all options for redressal.The company said a Rs 15,220 crore adjustment has been proposed in the transfer pricing order by the tax authorities on account of issue of equity shares by Shell India to its sole parent Shell Gas BV in March 2009.Shell said 87 million shares had been issued at Rs 10 each, but the order by the tax authorities had valued these at Rs 183 per share."Taxing the money received by Shell India is in effect a tax on foreign direct investment (FDI), which is contrary not only to law but also to the spirit of the recent global trip by the Finance Minister," Shell's India Chairman Yasmine Hilton said in a statement.Shell has been the latest global company to have a run-in with tax officials in the country."Shell India tax experts have indeed been in discussions with the Indian tax authorities on this issue over the past week and do not agree with their views," a Shell spokesman said in a statement emailed in reply to a query from Reuters on the basis of a report in Mint newspaper."The tax officer has now made an assessment and passed an order which we have not yet received. We will review the order and initiate consequent appropriate actions," the spokesman said in an email late on Saturday to Reuters.The Shell India case comes amid uncertainty about the outcome of a more-than $2 billion tax dispute between Vodafone Group Plc and the tax office that has dented corporate investor confidence in the country.Vodafone, the largest corporate investor in India, has repeatedly clashed with authorities over taxes since it bought Hutchison Whampoa's local mobile business in 2007. While the Supreme Court backed Vodafone's position that it does not owe tax on the deal, a subsequent law change enabled India to impose tax on mergers retrospectively.Indian officials and Vodafone have held recent talks on the dispute.(Reuters)
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Prime Minister Manmohan Singh on 7 January 2013 pushed for phased rationalisation of energy prices to bring them in line with international prices to meet the targeted rapid inclusive and sustainable growth.Energy remained under-priced in the country with coal, petroluem products and natural gas prices remaining well below international prices, he said laying the foundation stone for the Rs 14,225 crore BPCL-Kochi Refinery's Integrated Refinery Expansion Project at nearby Ambalamugal."To meet our target of rapid inclusive and sustainable growth, we must undertake a phased rationalistion of engery prices," Singh said.The Prime Minister said the central and state governments must work together to create awareness among the public on the need for curbing energy subsidies."To achieve our target of rapid growth, we need adequate supply of energy at affordable price. Oil and gas will continue to meet a very large part of our energy requirements for many years to come," he said.Pointing out that India remained dependent on imports for meeting a major portion of its crude oil requirements, he said "it is for this reason, we will require largescale investments in the field of exploration for oil and gas."He said the government remained committed to encouraging companies to undertake domestic explorations for oil and gas."Our public sector companies are also looking at opportunities abroad. I am happy to know that BPCL has made significant successes in the upstream exploration and production sectors, particularly in Mozambique and Brazil," Singh said.The BPCL-Kochi refinery project, expected to be completed by December 2015, aims at meeting the country's growing energy needs and make auto fuels more environment-friendly.It envisages increasing the refining capacity of the Kochi refinery from the present 9.5 million metric tonnes per annum (MMTPA) to 15.5 MMTPA. (PTI)
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Government is likely to come out with 10 per cent stake sale offer of Oil India in the second fortnight of this month, followed by NTPC's issue in the first 14 days of February, a finance ministry official said on 7 January' 2013. "We will come out with Oil India issue in the second fortnight of January and in the first fortnight of February NTPC will hit the markets," Disinvestment Secretary DK Mittal told reporters here. As part of the its Rs 30,000-crore disinvestment target for this fiscal, the government plans to divest 10 per cent stake in Oil India, which could fetch around Rs 2,700 crore at the prevailing market price. Besides, a 9.5 per cent stake sale in NTPC could reap over Rs 12,000 crore for the exchequer. The government proposes to divest 9.5 per cent stake in NTPC via Offer for Sale (auction) route. The government holds 84.5 per cent stake in the NTPC. Post-disinvestment, the government stake would come down to 75 per cent. NTPC became public with an initial public offer(IPO) in 2004. Before the fiscal-end, the government has a mammoth task to achieve the Rs 30,000-crore target set in the 2012-13 Budget. So far, it has managed to raise over Rs 6,900 crore through minority stake sale in PSUs. While NMDC issue had fetched Rs 6,000 crore, stake sale in Hindustan Copper yielded Rs 808 crore for the government. Earlier, the government had realised Rs 154 crore from NBCC initial public offering. The government has already identified 10 companies, including Oil India, SAIL and Hindustan Aeronautics. It plans to sell 10 per cent stake each in Rashtriya Ispat Nigam Ltd and Hindustan Aeronautics Ltd. Besides, it plans to offload 12.15 per cent in Nalco, 10.82 per cent in SAIL and 9.33 per cent in MMTC. Also, a 5 per cent stake sale in BHEL and another 4.01 per cent in Hindustan Copper are in the pipeline.(PTI)
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Tata Power's troubles with the Mundra Ultra Mega Power Project (UMPP) are taking a turn for the worse. The project, already unviable due to high prices of imported coal, is now faced with poor financial health of power procurers who are not in a position to pay for the power they bought.On 3 December 2012, Coastal Gujarat Power Ltd (CGPL), the wholly-owned subsidiary of Tata Power Company (TPC) which runs the Mundra project, invoked its rights under the Power Purchase Agreement (PPA) and discontinued supply of power to three Rajasthan state-owned power distribution companies. The decision — following several notices sent by Tata Power to the discoms as required under the PPA — effectively terminates its contract.Tata Power has PPAs in place with seven procurers (distribution licensees) from five states - Gujarat, Maharashtra, Haryana, Rajasthan and Punjab. The Rajasthan discoms account for 10 per cent of the 4000-MW Mundra project, India's first UMPP. The company is planning alternate arrangements for contracting and selling the power which was given to the Rajasthan discoms.So far, three 800 Mw units of Mundra have been commissioned, and the fourth unit was synchronized last week. Tata Power says the fifth unit is under construction and is on schedule."Rajasthan discoms have been in default of paying its dues in a timely manner leading to large outstanding dues", said a Tata Power press release.A Tata Power official declined to reveal the quantum of money to be recovered from the procurers.CGPL had posted an operating income of Rs 647.9 crore in the first half of 2012-13, but had a net loss of Rs 625.9 crore for the period. Operating profit for the period was just Rs 8.6 crore. The company says loss in CGPL for the first half year is mainly due to impairment (Rs 250 crore) and high fuel charges reducing margins making operating profit inadequate to cover interest and depreciation.Mundra became a burden for Tata Power after Indonesia changed its coal policy last year and decided to sell coal at prevailing international prices. In 2006, Tata Power had bagged Mundra by offering the lowest tariff of Rs 2.26 per kilowatt hour, banking on Indonesian coal which was then selling at $35-40 a tonne. The new rules caused coal from Indonesia costlier, at a very high $120 per tonne.Tata Power has 30 per cent equity stake in Indonesia's coal mines - PT Kaltim Prima Coal and PT Arutmin Indonesia. Recently the company bought a 26 per cent stake in another Indoensian mine PT Baramulti Sukses Sarana Tbk (BSSR) for an undisclosed amount.Anil Sardana, managing director of Tata Power had told Businessworld earlier that the cost of production has shot up to over Rs 2.90 per kilowatt hour, making Munndra an unviable project. While Tata Power was lobbying for revising the 25-year valid PPA upwards by at least 70 to 90 paise, the power procurers had vehemently opposed the move.
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Oil India share sale got over-subscribed on 1 February even before the closure of market hours and the government is estimated to get a minimum of Rs 3,100 crore from the third divestment this fiscal.The OIL offer for sale (OFS) got bids for 9.4 crore shares against 6 crore shares on offer.The auction, which started on 1 February morning, got bids for over 7.50 crore shares as on 1459 hours against an offer of over 6.01 crore, as per data on National Stock Exchange.The indicative price, which is the weighted average price of all valid bids, was Rs 518.04 a share. At this price, the government would garner at least Rs 3,100 crore.The government had fixed the floor price for the 10 per cent share auction of OIL at Rs 510 apiece.Shares of OIL were quoting at Rs 527.8, down 2.26 per cent from its previous close on NSE.Bids for over 4.94 crore shares were with 100 per cent margin, meaning if the bidder decides to withdraw later they can do so. Bids that came in with zero per cent margin were over 2.56 crore shares, according to the NSE data.The final bid figures would come after close of market at 1530 hours.The government is selling 6.01 crore shares or 10 per cent of its stake in OIL through the offer for sale route.To make the offer for sale process more transparent, market regulator Sebi last month had allowed disclosing the indicative price throughout the trading session.The government holds 78.43 per cent stake in the company which would come down to 68.43 per cent after disinvestment.OIL's paid-up capital as on March 2012 was Rs 601 crore."We expect a good response (to OIL issue)," Disinvestment Secretary Ravi Mathur had said yesterday, adding that the floor price of Rs 510 a share was at a good discount.FIIs such as T Row Price, Geosphere, Prudential, Mirae and Amundy and domestic participants included LIC, GIC and Kotak have subscribed to the issue. OIL got listed on stock exchanges in 2009.As on March 31, 2012, the company had employee strength of 8,096.The government has fixed a disinvestment target of Rs 30,000 crore for the current financial year. With the OIL issue going through successfully, the receipts from PSU stake sale are set to cross Rs 10,000 crore while two more months are remaining in the current financial year.(Agencies)
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Diesel prices will be hiked by 40-50 paise per litre every month till losses on the nation's most used fuel are completly wiped out, Oil Minister M Veerappa Moily said on 1 February. The government is aiming to raise the price of subsidised diesel in small amounts every month to prop up public finances without causing a popular backlash before the 2014 polls. Until further orders, oil marketing companies can increase it (diesel price) by 40-50 paise (per litre) every month," the oil minister told reporters in New Delhi.The government had on January 17 decided to move towards deregulating or freeing diesel prices from state control and gave powers to state-owned oil firms to raise prices in small measures every month till all of their losses are wiped out.Fuel subsidies are a drain on India's finances and the government is struggling to bring the deficit within a target of 5.3 percent of gross domestic product for the financial year ending March. India is the world's fourth biggest oil importer. India imports 80 per cent of the crude it refines, about 3.7 million barrels per day. Benchmark Brent crude prices were at their highest annual average on record last year at around $111 a barrel, significantly raising the country's energy bill.The government has called for increases of about Re 0.5 per litre each month, a source at one of the oil retailers with direct knowledge of the development told Reuters on Thursday.Bulk buyers will have to pay market rates for diesel, which accounts for 40 per cent of fuel consumption in the country, the source, who requested anonymity, said. According to a government calculation, this step will affect almost a fifth of diesel sales and should boost by some $2.4 billion annually revenues at the companies, which suffer losses selling fuel below cost. Diesel is currently sold at a loss of over Rs 10.80 per litre.On January 17, oil firms hiked diesel price by 45 paise. After including local VAT, the increase in Delhi came to 50 paisa. The diesel now costs Rs 47.65 a litre in the capital.Read Also: Govt Allows Oil OMCs To Raise Diesel PricesRead Also: Diesel PricesMoily said the decision to raise diesel prices in small doses every month will stand "until further orders". He, however, did not say when the oil firms will effect the second price increase.Deutsche Bank estimated an increase in the diesel price by 50 paise per month would raise oil company revenues by Rs 21,500 crore, or Rs 12,000 crore taking into account increased spending on cooking gas.It is not clear for how long the monthly increases will run.Petrol prices will be cut by 25 paise per litre from 1 February, the source said. These were freed up in June 2010 but have also largely remained under the government's control.After the government's earlier announcement, share prices for the main oil marketing companies rose sharply.The rupee hit a one-month high, while yields on Indian bonds dropped in a sign the market expects the new policy will result in lower subsidies in the medium-term.The decision for retail price hike was coupled with a move to charge bulk consumers like defence, railways and state transport undertakings market price which is almost Rs 10 a litre more than retail selling rate, to save an estimated Rs 12,907 crore in annual subsidy.Moily said he had heard of States like Gujarat and Tamil Nadu asking their public transport fleet to refuel at petrol pumps instead of buying diesel from oil firms directly as is the current practice. This is being done with a view to avoid paying the market price mandated for them."We need to look into that (issue). I have also heard about it. We are ceased of that matter," he said, adding when rules are laid there are people who find ways to circumvent it.Instead of buses being asked to refuel at petrol pumps, the states should reduce high local sales tax or VAT on diesel to cut prices, Moily added.A Balancing Act Between Politics & Economics"This is a brilliant balancing act between politics and economics. This is one step backwards and one step forward," said N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy."While the decision on the LPG cylinder will pacify their political constituency, the decision on diesel sends out a message to the (central bank) that the government is serious about tackling subsidies and controlling the fiscal deficit."The Reserve Bank of India (RBI) has long called on the government to reduce its fiscal deficit, which drives government borrowing and keeps upward pressure on interest rates. The central bank meets on January 29 to set monetary policy and has signaled that it is likely to cut interest rates.Ratings agencies had threatened to strip India of its investment-grade credit rating if the government did not take steps to curb the widening fiscal deficit. Finance Minister P. Chidambaram has vowed that the deficit will not exceed 5.3 percent of GDP this financial year.
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