In a sudden and unilateral action, Maldives on Tuesday decided to scrap the $500 million contract given to GMR Group for developing Male Airport, evoking a sharp reaction from India which said it sends a "very negative signal" to foreign investors.The Maldives Cabinet in a meeting on 27 November decided to terminate the contract, Maldivian President's Press Secretary Masood Imad told PTI from Male.In a statement, the Maldivian government said the decision to terminate the Concession Agreement signed on 28 June 2010, between GMR-MAHB consortium, Maldives Airports Company Ltd and the government was based on a paper presented by the Attorney General's office prepared after a "thorough research done for the past nine months by a Cabinet Committee".The paper is based on "technical, fiscal and economic issues" and also includes the legal advice of lawyers from the UK and Singapore regarding the agreement which was "legally invalid, and impossible to further continue".The Attorney General's office will initiate arbitration proceedings against GMR Male International Airport Ltd (GMIAL), the Cabinet decided, the statement said.The $500-million project was hanging in balance ever since the regime change in Maldives earlier this year. The GMR group had won the contract during the regime of former President Mohamed Nasheed.Some coalition partners of the current regime headed by Mohamed Waheed had also held a rally against GMR on 3 November.The airport contract was awarded to GMR through a 10-month long global competitive bidding process run by the then Maldivian government headed by Nasheed.In New Delhi, the External Affairs Ministry came out with a strong reaction saying the decision was taken without due consultations.India also asked Maldives to ensure Indian interests and security of Indian nationals in the Indian Ocean island country are "fully protected". "The decision to terminate the contract with GMR without due consultation with the company or efforts at arbitration provided for under the agreement sends a very negative signal to foreign investors and the international community", MEA spokesperson said.India, he said, expected that Maldives "would fulfil all legal processes and requirements in accordance with the relevant contracts and agreement it has concluded with GMR in this regard".The government of India would continue to remain engaged with the government of Maldives on this issue, he added.The GMR Group termed the Maldivian government's decision as "unilateral and completely irrational"."In a unilateral and completely irrational move the Government of Maldives has today issued a notice to the GMR Male International Airport Ltd (GMIAL) intending to take over the possession and control of the Ibrahim Nassir International Airport (INIA) under the pretext that the agreement is void," it said in a statement."This unlawful and premature notice on the pretext that the Concession Agreement is void is completely devoid of any locus standi and is therefore being challenged by the company before the competent forums," it said.The company said it disputes the contention that the Concession Agreement is void, and added that it has taken all measures to continue operations at the INIA."We are therefore taking all measures to ensure the safety of our employees and safeguard our assets. We are confident that the stand of the company will be vindicated in every way," the statement said.Nearly eight months after the regime change in Maldives, some Indian companies present there, including GMR, are blaming political interference for creating "undue challenges" for them.
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ConocoPhillips is to sell its 8.4 per cent stake in Kazakhstan oil field Kashagan for about $5 billion to Oil and Natural Gas Corp, a state-run Indian group looking to boost production. Kashagan, the world's biggest oilfield discovery since 1968, holds an estimated 30 billion barrels of oil-in-place, of which 8 billion to 12 billion are potentially recoverable, with first production expected next year. Start-up of the field has been delayed since 2005 due to cost overruns and disputes with authorities over taxes. With ONGC's domestic output flat for years, India now buys nearly 80 per cent of its oil needs and is the world's fourth-biggest oil importer. ConocoPhillips, which has been shedding overseas assets to cut debt and increase its investment in lower-cost domestic shale oil and gas, said on Monday the book value of assets related to its Kashagan interest was about $5.5 billion as of September 30, and it would take an after-tax impairment of about $400 million. The deal was expected to close in the first half of 2013. Fadel Gheit, oil analyst at Oppenheimer, said ConocoPhillips was cutting its losses by selling its stake. "This project has been plagued by problems," said Gheit. "All along it was poorly handled. It is over budget and behind schedule." ONGC, India's fifth-biggest company by market value, has been investing to maintain output from its old fields and has capital spending plans of around 340 billion rupees this year and next. It is under pressure from the government to meet rising demand. With Indian state companies having often lost out to China in bidding for global energy assets, the Kashagan acquisition is the largest ever for ONGC. It is also the biggest outbound deal from India since mobile phone operator Bharti Airtel bought mobile phone operations in Africa for $9 billion in 2010 from Kuwait-based Zain. ONGC Videsh, the arm of ONGC that invests overseas, said the acquisition would likely add 1 million tonnes (20,000 barrels per day) to its annual production over 25 years, with its share of output significantly higher in later stages of development. ONGC Videsh's production in the year to March was 8.7 million tonnes. DiversificationThe deal comes as India pushes to diversify crude supplies away from Iran, which used to provide about 12 per cent of the country's 3.5 million bpd or so of imports before sales were hit by western sanctions aimed at curbing Iran's nuclear ambitions. It puts ONGC Videsh into what has been a fraught and expensive partnership between Kazakhstan and some of the world's biggest oil companies, which hope to use the departure of ConocoPhillips to gain greater operating control and extend their production-sharing agreements with the state beyond 2041. Kazakhstan, home to 3 per cent of the world's recoverable oil reserves and the largest former Soviet oil producer after Russia, has sought to revise deals struck with foreign energy companies in the lean post-Soviet years. Shedding AssetsConocoPhillips, which has been disposing of non-core overseas assets to cut debt and increase its exploration and dividend budgets, has already beaten its target of asset sales worth $20 billion by the end of 2012, including the sale of its stake in Lukoil, Russia's second-biggest oil producer. Last month, Kazakh oil and gas minister Sauat Mynbayev said ConocoPhillips planned to sell its stake. ONGC was also said to be one of a trio of Indian companies that had bid $5 billion for stakes in six of ConocoPhillips' Canadian oil sands assets, which the Houston-based oil major put on the block early this year. ConocoPhillips is still evaluating bids for the assets following "substantial" interest, said Rob Evans, spokesman for the company's Canadian operations. That asset package includes and interest the producing Surmont project, run in a joint venture with France's Total SA, and undeveloped leases. The ONGC deal is subject to government approvals as well as the pre-emption rights of Kazakhstan and other participants in the Kashagan field which is jointly controlled by state-run KazMunaiGas and six international companies, including Eni, ExxonMobil, Inpex Corp, Royal Dutch Shell, and Total. It is unlikely that Exxon or Shell would exercise their right of first refusal, citing the project's ongoing problems, Oppenheimer's Gheit said. "I'm not sure you want more of a bitter pill," Gheit said. ConocoPhillips stock was down 0.5 per cent at $56.42 in midday New York Stock Exchange trading.(Reuters)
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Wind turbine maker Suzlon Energy Ltd, which last month defaulted on a $200 million convertible bond redemption, has been admitted to India's corporate debt restructuring process, sources with direct knowledge of the situation said on 27 November.Suzlon's secured domestic debt totalling Rs 11,000 crore and due in five and six years will be restructured, with a two-year moratorium on interest and principal repayment, after which it will be repaid over eight years at a lower rate, one of the sources said. The restructuring does not apply to its overseas bonds. Suzlon declined to comment.Read: Clean Power: The Promise, PainRead more about Suzlon Energy(Reuters)
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In its biggest acquisition ever, state-owned Oil & Natural Gas Corp (ONGC) on 26 November agreed to buy US energy giant ConocoPhillips' 8.4 per cent stake in the Kashagan oilfield in Kazakhstan for about $5 billion (approx Rs 26,000 crore). ONGC Videsh Ltd, the overseas arm of the state explorer, will pay a base price of $4.25 billion plus a share of working capital and other cash calls together with interest for the 8.4 per cent stake in the field that will produce 370,000 barrels per day (18.5 million tonnes a year) of crude oil. This will be the biggest acquisition by OVL, surpassing its $2.2 billion buyout of Russia-focused Imperial Energy in January 2009. It will be the biggest acquisition by an Indian company this year, and the sixth largest in the history. OVL is seeking oil and gas properties overseas to meet the nation's rising energy needs. India last year spent $140 billion on import of crude oil. The stake buy in Kashagan field is subject to approval of governments of Kazakhstan and India and also to other partners in the Caspian Sea field waiving their pre-emption rights. Italy's Eni, Royal Dutch Shell, France's Total, ExxonMobil and KazMunayGas have 16.81 per cent stake each, while Inpex of Japan has the remaining 7.56 per cent. Industry sources said ExxonMobil and Shell are seeking bigger stakes in the Kashagan oil field and operating control before starting to expand the project. OVL concluding the deal would depend on the two firms waiving their right of first refusal (ROFR) or pre-emption rights. Kashagan, the biggest world oilfield discovery since 1968, holds an estimated 30 billion barrels of oil-in-place, of which 8-12 billion are potentially recoverable. Plans have already been firmed to ramp up output to 450,000 bpd (22.5 million tonnes per annum). ConocoPhillips (COP) and OVL in separate but almost identical statements said the deal is expected to close in the first half of next year. "The acquisition would mark OVL's entry into the largest oil proven North Caspian Sea of Kazakhstan. From Phase 1, the acquisition is likely to add an average annual production of about 1 million tonnes for a period of over 25 years with a peak of about 1.6 million tonnes," OVL statement said. When Phase 2 and 3 are implemented, the OVL's share will be significantly higher. This will be OVL's second acquisition this year. It had a couple of months back bought stake in a group of oil fields in Azerbaijan for about $1 billion. Deals bigger than the one announced on Monday include Tata Steel's $12.2 billion takeover of European steel giant Corus, Vodafone taking over controlling stake in Hutch-Essar from Hutchison for about $11 billion and Bharti Airtel's acquisition of Zain Telecom's African assets for about $10.7 billion. Billionaire Anil Agarwal-led Vedanta Group's $8.6 billion acquisition of Cairn India is fourth and Hindalco Industries' buyout of Canadian firm Novelis Inc for $6 billion is fifth biggest. COP expects proceeds of S5 billion, including the purchase price and expected working capital and closing adjustments, according to a statement from the Houston-based company. Deals announced this year include Hinduja Group firm Gulf Oil Corp's acquisition of US-based speciality chemicals maker Houghton International Inc for S1.045 billion. Last month, Indian Hotels Co offered D1.86 billion to buy Hamilton, Bermuda-based Orient-Express Hotels Ltd. Besides, Rain Commodities reached an agreement this year to buy Belgium-based speciality chemicals group Ruetgers in a S918 million deal. "OVL has finalised definitive agreements for the acquisition of the 8.4 per cent participating interest of ConocoPhillips in the North Caspian Sea Production Sharing Agreement (NCS PSA) that includes the Kashagan field, in Kazakhstan," the company statement said. The acquisition, subject to relevant government, regulatory approvals, priority rights and consortium pre- emption rights, is expected to close in the first half of 2013. The Kashagan Field, located in the shallow waters (about 5 meters to 8 meters) of the Kazakh North Caspian Sea, is the world's largest current development project. The acquisition also bears a significant strategic importance for India in terms of contributing towards its energy security. OVL under the Perspective Plan 2030 is targeting oil and gas production of 20 million tonnes of oil and oil equivalent gas by FY'18 from current 8.75 million tonnes. This is to rise to 60 million tonnes by FY'30. (PTI)
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A unit of state-run Oil and Natural Gas Corp plans to raise up to $900 million (Rs 4,860 crore) in the first quarter of 2013 through a dollar bond issue to fund an acquisition in Azerbaijan, a top official said. ONGC Videsh, part of the country's largest energy explorer, has hired Deutsche Bank, Citigroup and RBS for the fund raising, two sources with direct knowledge of the deal told Reuters. The firm is expected to issue bonds with 5- or 10-year tenure and the deal is expected to hit the market in January after the documentation process is complete, the sources said. "Currently borrowing in dollars is available at cheaper rate. Our purchase of assets is in dollar and in our balance sheet asset and liabilities are shown in dollars," D.K. Saraf, managing director of ONGC Videsh, the overseas arm of India's biggest energy explorer, told reporters. Hess Corp said in September it had agreed to sell its 2.72 per cent stake in the large Azeri, Chirag and Guneshli(ACG) group of oilfields, as well as its 2.36 per cent stake in an associated pipeline to ONGC for $1 billion. The sale of the pipeline to ONGC Videsh is expected to close in the first quarter of 2013, the US firm said in September, and is subject to Indian and other regulatory approval. Indian issuers can borrow up to $750 million in markets abroad under the automatic approval route and must seek Indian central bank permission to raise more. "If we get permission ,we will raise $900 million (Rs 4860 crore). Otherwise it will be $750 million (Rs 4,050 crore)," said a separate source with direct knowledge of the matter, adding that the borrowings will be made in January.(Reuters)
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It has been a year of power tariff hikes. Twenty-six states and five Union territories have gone in for one, out of which more than two dozen have effected double-digit hikes. Tamil Nadu leads with an increase of 37 per cent — the first after a gap of nine years in the case of domestic consumers; it will help the Tamil Nadu Generation and Distribution Corporation raise Rs 7,874 crore in additional revenues. The exceptions are West Bengal and Himachal Pradesh, which did have not gone in for an increase even though power purchase costs have zoomed.According to an estimate by ratings agency Crisil, while the cost of supply per unit of input energy has grown at 9.1 per cent per annum in the last three years, revenues of distribution companies (discoms) have seen an annual growth of just 5.2 per cent. The widening gap between costs and revenues is due to inadequate tariff revisions (partly due to political pressure), increasing input costs and minimal reduction in aggregate technical and commercial or AT&C (the difference between the power supplied and the revenue collected) losses. Large-scale tariff hikes alone will not prove to be a game-changer. Discoms continue to reel under accumulated losses of Rs 92,625 crore. According to a report by the Power Finance Corporation on ‘Performance of State Power Utilities’ for 2010-11, Uttar Pradesh leads the pack with the highest accumulated losses of Rs 45,124 crore. The state’s discoms have a low operational efficiency and a high incidence of theft, resulting in losses. Other big loss-making states are: Jammu & Kashmir (Rs 13,690 crore), Madhya Pradesh (Rs 12,918 crore), Tamil Nadu (Rs 9,980 crore), Jharkhand (Rs 6,079 crore), Haryana (Rs 5,941 crore) and Bihar (Rs 5,858 crore). On the other hand, six states have recorded profits for the same year: Kerala (Rs 1,727 crore), Andhra Pradesh (Rs 1,211 crore), Gujarat (Rs 936 crore), Goa (Rs 927 crore), West Bengal (Rs 438 crore) and Puducherry (Rs 171 crore). However, experts say that this is more because of discoms opting to shed load rather than buying expensive power to meet the needs of their consumers. “For years, there was neither a tariff hike nor a reduction in the AT&C losses of a majority of discoms. Now while states have hiked tariffs, the AT&C losses continue to be high,” says Anil Razdan, a former power secretary.Cutting Losses, Hiking TariffsBihar and Madhya Pradesh, with higher AT&C losses, have raised tariffs by 12.1 per cent and 7.2 per cent respectively. Before Delhi privatised its distribution business in 2002, its AT&C losses were as high as 57 per cent. Now, despite the losses coming down to 18.43 per cent through continuous efforts at increasing operational efficiencies, the tariff has been hiked by 22 per cent. The move has invited protests from activist Arvind Kejriwal and resident welfare associations across the city. However, there is no paradox. Delhi’s own power production is as low as 30 per cent of its peak requirement — 5,600 MW in summer (and between 3,000 MW and 3,500 MW in winter). Of this, Delhi’s own production is around 1,400 MW. The rest is bought from central companies such as the National Thermal Power Corporation (NTPC) over whose tariffs it has no control. A power purchase agreement signed with an old NTPC station might cost Delhi’s discoms anywhere between Rs 2.50 and Rs 3 per unit; the cost of power purchased from new stations which use expensive fuel is close to Rs 6 per unit. “The absence of tariff adjustment for the past few years in the light of increasing costs has resulted in the accumulation of a huge deficit,” says P.D. Sudhakar, chairman of the Delhi Electricity Regulatory Commission (DERC). “We have to liquidate a deficit of Rs 6,900 crore. It can’t be done in one stroke; it would have to be spread over 2-3 years. Apart from the tariff hike, we have decided to levy a surcharge of eight per cent to liquidate the deficit,” he says, adding, “a further hike would depend on power purchase costs and, in case they do not go up, there would not be any significant increase in the tariff.” Says Pramod Deo, chairman of the Central Electricity Regulatory Commission: “If the losses were still as high (in Delhi), the hike would have been much more.” PROMOD DEO, CHAIRMAN, CENTRAL ELECTRICITY REGULATORY COMMISSION “The Forum of Regulators has suggested that all states go for separate feeders so that AT&C losses can be better determined.”Other states have played it differently — they have opted to spread the tariff adjustment so as to not shock consumers with a bigger power bill. The flip side is that they have failed to cut their AT&C losses, leading to good money being thrown after bad. “States with a high incidence of power theft need to bring down losses, otherwise a tariff hike only punishes honest consumers,” says Razdan. “Tariff hikes are essential for discoms. The problem with states is that they don’t have money to improve the quality of power supply. Higher the AT&C losses, higher the hikes will be,” says Vivek Sharma, head of energy practice at Crisil.The True Picture While AT&C losses are a cause of worry, the actual extent of losses may be much higher. In the case of Gujarat, so far the only state to separate the feeders for rural and urban areas, distribution losses went up by 30-40 per cent in rural areas after the separation. This helped it narrow down the cause which, until then, had be lumped under the broad head of agricultural consumption. “The Forum of Regulators has suggested that all states go in for separate feeders so that AT&C losses can be better determined. This way the goalposts won’t keep changing,” says Deo of CERC. Power is set to get expensive with all three factors — power purchase costs, AT&C losses and tariff — affecting the balance between revenues and cost of power supply. The distribution sector has seen a slew of reforms in the past few months with the losses of state electricity boards getting restructured and a hike in tariffs. But it is now up to discoms to slash losses. chhavi(dot)tyagi(at)abp(dot)in(This story was published in Businessworld Issue Dated 03-12-2012)
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State oil companies intend to press ahead with plans to buy stakes in Canada's oil sands and believe they will not run afoul of tougher Canadian rules on foreign ownership of the sector. A consortium of Oil and Natural Gas Corp, Oil India Ltd and refiner Indian Oil Corp is among three bidders shortlisted to buy stakes in Canadian oil sands owned by ConocoPhillips. The assets could be worth up to $5 billion. "We are very much in race for Conoco's assets," an official at one of the Indian consortium partners told Reuters, declining to be identified. The consortium submitted its bid in July. "Our deal will not be affected as our understanding of the new rule is that JV stake sale or non-controlling stake sale are welcomed by Canada. However complete takeover will be approved as an exception," he added. On Friday, Canada approved a $15.1 billion bid by China's CNOOC for Nexen and a $5.3 billion takeover of Progress Energy by Malaysia's Petronas, but shut the door on similar deals in the future. Prime Minister Stephen Harper said Canada would not deliver control of the country's oil sands -- the world's third-largest reserves of crude -- to another government. The tougher new approach restricts state-owned enterprises to minority stakes in Canadian enterprises except in "exceptional cirsumstances". "Our understanding is the restriction would apply only in the case of transactions at the corporate level and not at the asset level," said a resources banker with a leading U.S. bank in India, declining to be identified. The ONGC-led consortium has not asked for any clarification yet on the new rule, the official said. T.K. Ananth Kumar, director of finance at Oil India Ltd, one of the consortium partners, said the group would be discussing the development with bankers. "Getting into unconventional energy is important for us. We want to get into this if the returns are good, that is why we have agreed to partner," he told Reuters. Search For AssetsRising energy demand in India and stagnant domestic output have made the country the world's fourth-biggest crude importer. Western sanctions squeezing Iran, once India's second-biggest supplier, have added urgency to New Delhi's quest to secure additional energy sources. India's state oil companies, tasked with scouting for oil and gas assets abroad to meet rising demand in the nearly $2 trillion economy, have moved with uncharacteristic speed in recent months to secure interests overseas. Last month, ONGC Videsh, the overseas arm of state-run ONGC, agreed to pay about $5 billion for ConocoPhillips' 8.4 per cent share of the Kashagan field in Kazakhstan, the world's largest oilfield discovery in four decades -- which could boost its output by about 16 per cent within a year. Earlier this year, it also agreed to pay $1 billion for a small stake in the Azeri, Chirag and Guneshli (ACG) group of oil fields in Azerbaijan and a stake in an associated pipeline. State-run GAIL India is also considering buying liquefied natural gas (LNG) assets in Canada, Peru, and Trinidad put up for sale by Spain's Repsol. The recent spate of expenditure could, however, hinder ONGC's immediate efforts to make large-size deals such as the one for Conoco's Canada assets, analysts said. "Because ONGC has just announced the Kashagan deal, it (the Canada deal) may be too much for them to take on quickly. There may not be such big deals for next 6-8 months," said Dayanand Mittal, an oil and gas sector analyst at Mumbai's Ambit Capital. "The IRR (internal rate of return) will be lower versus conventional oil-and-gas assets since capital expenditure is significantly higher," he added.(Reuters)
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What does one do if you have invested hours of management time and effort, $240 million, hired several employees and relocated your own employees to a foreign country — to find the carpet pulled from under your feet? That is precisely the situation in which GMR’s top management finds itself in the $500-million GMR-Male airport venture. Ever since the government changed in Maldives, the new regime has been systematically reversing key decisions taken by the previous government; the airport being one such decision. In a week that went like a yo-yo for the GMR top brass, it appeared for a while that the Singapore high court’s (GMR had moved for arbitration in Singapore) ruling would ensure that the airport remained in GMR’s hands. The Indian government also threw its weight behind the Bangalore-headquartered infrastructure company in the early part of the week, only to relent in the latter half. That the Indian government will not let the matter escalate into a diplomatic row is quite evident. 20% of the group’s airport revenues come from the Male projectOn Thursday, 6 December, GMR’s efforts to retain the facility suffered a further setback as the Singapore Court of Appeals over-ruled the judgment of a lower court on Tuesday, and ruled in favour of the Male government taking back the airport. With the new ruling, sources were of the view that the Indian government will also ease the pressure on the Male government. Because, if despite the pressure the airport is taken over on the night of 7 December (as we go to press), as the new regime has declared its intention to, the superpower that India is in the region will face a diplomatic embarassment. Faced with this situation, GMR’s top brass has been trying to decide the minimum level of compensation (the company has given a figure of $240 million for the investment it has made so far); whether it has any other legal option; and whether it makes better sense to cut one’s losses and go home. In any case, the prospect of running, building and managing an airport facility in a hostile environment is not an attractive one. Was this kind of unilateral action not considered at the time of signing the contract? It appears that the contract had only ‘customary’ termination clauses in case of default by either party; but nothing was in place in the contract for this kind of a move. However, even with a high level of compensation, the loss of the Maldives airport will hit the group’s revenues and bottom line as 20 per cent of the group’s airport revenues come from this airport. This figure was expected to increase as the project progressed to later phases. A detailed email query to GMR by Businessworld remained largely unanswered as the management claimed to be mulling over many of the issues raised. They did, however, say that the level of compensation — which is perhaps what it would now all boil down to — remained ‘uncapped’, partly due to the fact that several sub-contracts would also have to be terminated. The bitter end of the group’s Maldives venture brings the focus back to the risks involved in running big-ticket foreign operations. (This story was published in Businessworld Issue Dated 17-12-2012)
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