Petronet LNG — majority owned by Government of India — is one company that is perhaps closely watching the court case between the Ambani brothers over the supply of Krishna-Godavari Basin gas. The availability of natural gas from the KG Basin at lower prices can have an adverse impact on Petronet's business. But Petronet's management is not fretting yet. "It is a supply-based demand for gas in India," says P. Dasgupta, managing director and CEO of Petronet, hinting that there is space for all to operate. "We are happy being the third or fourth supplier in the country," he says. India's gas demand is set to increase from 180 million standard cubic metres per day (mmscmd) in FY08 to 280 mmscmd by year 2011-12. While Reliance Industries (RIL) can add 80 mmscmd at full capacity, experts say, there will still be latent demand.Petronet sources LNG (liquefied natural gas) through a strategic tie-up with Qatar's RasGas and sells it to three intermediate buyers — Gail, Indian Oil and Bharat Petroleum Corporation — who in turn sell gas to the end users. The company, however, recently announced plans to become its own customer by diversifying into power generation. It plans to set up two 1,200-MW power plants at Dahej in Gujarat and Kochi. As per industry estimates, gas procured at $6 per mmbtu could help generate power at Rs 3.5 per unit. This is much higher than coal-based projects — anywhere from Rs 1.6-2.5 per unit. The price dynamics have changed since RIL's gas find at the KG Basin. "Domestic gas of Reliance could now be much cheaper than $8-plus per million metric British thermal unit (mmbtu) paid by LNG customers currently," says Ballabh Modani, analyst at Enam Securities. Also, a CLSA brokerage report indicates pre-tax delivery price of $6 per mmbtu in Maharashtra and Gujarat for RIL's gas. For Petronet, it could be $7.5 over the next two years (see ‘Rather Costly'). Experts say it is only a matter of time, before the gas buyers switch loyalties. For instance, Ratnagiri Gas and Power (erstwhile Dabhol) has started sourcing gas from RIL instead of Petronet for its Maharashtra plant. Petronet was supplying gas to them at $7.8 per mmbtu, but now with RIL supplying at $6.2 per mmbtu, they are saving 35-40 paise per unit of power generated. RIL itself buys gas from Petronet at spot prices, but that is likely to stop once RIL scales up production. But there are other serious issues that are taking a toll on Petronet's margins. Escalating gas procurement cost and lack of long-term supplier and buyer contracts. The company is also in expansion mode. "Our long-term concern is that Petronet may find it difficult to sell long-term contract volumes as linkage of its LNG price to oil rises," says an analyst with a foreign brokerage house. Till December 2008, RasGas supplied gas to the company at a fixed rate — based on $20 per barrel pricing. But from this year, the prices will get increasingly aligned to market prices of oil — it hit $80 per barrel levels recently. "For the September 2009 quarter, average LNG procurement cost per unit (trillion British thermal unit, or tBtu) for Petronet increased by 43 per cent year-on-year (y-o-y) primarily because of the rise in the cost of contracted gas (owing to its linkage with Japanese cocktail crude prices) and rupee depreciation," says Deepak Pareek, an analyst at Angel Broking.A calculation by another brokerage shows that at an oil price of $80 per barrel, freight on board (FOB) price of gas from Qatar could rise to $10 per mmbtu for Petronet's Dahej operations and up to $10.7 per mmbtu at Kochi, which will get gas from Gorgon, Australia. The landed prices may be even higher after taking into account shipping, customs and regasification charges touching $13 per mmbtu (for Kochi terminal). At these rates, Petronet will find it difficult to attract buyers.The company recently went for capacity expansion. It increased its LNG regasification capacity at Dahej from 6.5 mmtpa to 11.5 mmtpa. It also plans to come up with 2.5 mmtpa facility at Kochi, which could be extended to 5 mmtpa. RasGas currently supplies 5 mmtpa and will supply an additional 2.5 mmtpa from next year, according to a brokerage report. From the Gorgon project — it inked a deal recently — its Kochi terminal would get 1.5 mmtpa. But that would pour in only by 2014, while Kochi terminal would be operational by early 2012. The viability of new projects is hinged on its ability to get long-term customers and that is where the plot of getting into power generation fits in. For now, the firm is dabbling more in the spot market. "We could break even with our first 7.5 mmtpa of operations and rest we could play in the spot market," says Dasgupta. Higher cost of sourcing LNG and higher extent of spotting has hit its margin. Its operating profit margins contracted to 7.4 per cent in the September 2009 quarter compared to 11 per cent in the same period last year mainly due to negative marketing margin and increase in LNG cost (see ‘Margin Woes'). Analysts believe that with likely increase in gas supplies from the KG basin, selling high quantity of spot volumes will be an arduous task for Petronet. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 30-11-2009)
Read More
India's infrastructure sector output grew 6.5 per cent in October from a year earlier, higher than a revised annual growth of 5 per cent in the previous month, government data showed on 30 November.The infrastructure output for eight sectors - coal, crude oil, oil refinery, natural gas, steel, cement, electricity and fertilisers - grew at 3.7 percent in the April-October period from 4.3 per cent a year earlier.The infrastructure sector accounts for 37.9 per cent of India's industrial output.(Agencies)
Read More
Capital value expectations in India have turned positive for the first time in over a year, reflecting the first signs of recovery in the Indian commercial property market, says a survey by the UK-based Royal Institution of Chartered Surveyors (RICS). The turnaround is relatively evenly spread across the three major sectors of commercial property — office, industrial and retail. Rental expectations, however, remained negative — rents are still expected to decline, though at a lower pace.India has done better than major economies such as the US, the UK and Japan, where capital value expectations for the fourth quarter of 2009 remain negative. Other signs of an ease in the downturn include an increase in occupier demand for the second consecutive quarter and at a faster pace than in the last quarter. On the supply side, new projects continued to shrink compared with three months ago, while available space has increased. Use of incentives such as rent-free periods increased at a slower pace in the third quarter.Also, the fall in the number of bidders for each property was slower. Transactions continued to fall as per the survey, but at a much slower pace than in the previous quarter. In fact, the net balance of respondents reporting a rise in investor purchases turned positive in the office sector.The survey showed that rental freefall was easing across global property markets. Hong Kong and Brazil showed sharper recoveries with rentals actually expected to rise in the fourth quarter. Capital values are also expected to rise in some emerging markets.The RICS Global Commercial Property Survey is a quarterly survey that tracks trends developing in commercial property investment and the occupier market; it is conducted across 10 major markets. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 16-11-2009)
Read More
One more attempt has been made to track the not-so-transparent real estate market with the launch of the Real Estate Sensitivity Index (RESSEX) by Pankaj Kapoor-promoted property tracking firm Liases Foras. RESSEX will provide data through several verticals such as inventory (supply) index, sales-demand index, price index, which shows weighted average price against the unsold inventory, and business turnover index. The data will be collected in four survey months — June, September, December and March — which will be available in the updated index a month later. RESSEX promises to provide location-specific data across 400 locations in six cities covering as many as 10,000 projects. HDFC is supporting RESSEX to the extent it will help validate the data, says HDFC's joint managing director Renu Sud Karnad.This is not the first attempt at a realty index. The National Housing Bank already has a price-tracking index. However, most of the property data collection is done by broking firms such as CB Richard Ellis and Jones Lang LaSalle Meghraj. Being active realty players, the credibility of their reports is suspect.Notably, the main stakeholders, developers and builders, are not forthcoming in providing sales and pricing data; Mumbai-based builder Niranjan Hiranandani concedes that builders have not opened up their books. So, data collection will continue to be a problem. Another round of realty firms going public might increase the pressure to have transparency. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 30-11-2009)
Read More
The government plans to sell 10 per cent of its stake in Nuclear Power Corporation of India Ltd (NPCIL) through an initial public offering (IPO) that will list the company on the stock exchanges.At book value, the sale will fetch the government about Rs 2,500 crore but the actual realisation can be much higher depending on the pricing and timing of the issue.The Department of Disinvestment in the Ministry of Finance circulated a draft note seeking comments from concerned ministries on divestment of 10 per cent out of Government's 100 per cent shareholding in the company, sources privy to the development said.After comments of concerned ministries are received, the issue will be put up before the Cabinet Committee on Economic Affairs (CCEA) for approval.The issue is unlikely before the next fiscal as the company has to first split its share and appoint four independent directors on its board to meet SEBI's listing requirement.NPCIL has a paid up equity capital of Rs 10,174.33 crore comprising of 10.17 crore shares each having a face value of Rs 1000. Prior to the divestment, the shares will be split to bring down the face value to Rs 10.Post split, 101.74 crore share of Rs 10 each or 10 per cent government shareholding, will be divested in domestic market, they said.NPCIL had reported a net profit of Rs 1,906 crore on a turnover of Rs 7,914 core in 2011-12. It had a networth of Rs 25,428 crore.Sources said a 5 per cent price discount on the upper end of the price band may be allowed for the retail investors in the proposed IPO of NPCIL. The IPO will provide reservation to employees of NPCIL.(PTI)
Read More
The government will soon announce a slew of changes in its road policy, which will determine how national highway projects are awarded and financed. The new policy will offer a flexible approach.There are three modes of delivery — BoT (build, operate and transfer) toll, where road projects are given to developers who collect toll revenues; BoT (annuity), where developers build and own the road but get money from the National Highway Authority of India (NHAI) on an annual basis; and EPC (engineering procurement construction), where NHAI owns the road after it is built by the contractor. According to a Cabinet decision, implementation of road projects on all three modes of delivery would be done "concurrently rather than sequentially".In another Cabinet decision, the largest highway programme, NHDP IV (upgradation of 20,000 km of highways), would mostly be undertaken with government support. Transport Minister Kamal Nath just finalised a work plan for 2009-10, which includes 12,652 km of fresh projects. Of these, over 8,000 km would be through the BoT (toll route). As part of the financing plan, apart from appointing a special group of ministers to sort out some outstanding matters, it has been decided that a third of the total approved borrowing of Rs 30,000 crore for IIFCL (India Infrastructure Finance Corporation) will be transferred to NHAI. Added to this, it has also been decided that the ministry of finance would provide a letter of comfort to NHAI that confirms availability of cess funds "till at least 2030-31". var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 30-11-2009)
Read More
The draft direct tax code issued by the finance ministry has thrown highway developers into a tizzy. Their worry: the code might impact some of the tax sops given to the sector under the current Income Tax Act. Over the past few days, developers have been engaged in discussions with finance ministry and road transport ministry officials to make some changes to the code. The government has also appointed PricewaterhouseCoopers to give feed- back on the impact of the proposed clauses in the new tax code.Highway developers and their subcontractors were given a 10-year tax holiday on projects under Section 80-IA of Income Tax Act. The new code proposes to remove the sop for subcontractors. The finance ministry is expected to clarify its position on service tax on developers who build roads on build-own-transfer basis; it is also not clear whether there would be service tax on maintenance of roads. While the ministry is expected to study the revenue impact of extending some of the demands put forward, these tax-related issues have sprung up when the government is giving final touches to revised procedures to bid for and build highway projects. Hopefully, the ongoing parleys will resolve this taxing proposition. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 19-10-2009)
Read More
The litany of complaints by consumers against builders is unending. There is no penalty for delays; short-changing consumers in the name of ‘super built-up area' has become the practice. In this environment, the move by the Ministry of Housing and Urban Poverty Alleviation to enact a law to establish a regulatory authority and an appellate tribunal for the realty sector is important. Nick H. Thomlinson, senior partner and head of the London-headquartered property broking house Knight Frank was in Mumbai recently. He speaks to BW's Gurbir Singh about regulation and other issues. Excerpts from the interview: Do you think regulation can clean up the mess in the Indian realty sector? India should have a regulatory body. There are practices that are not ethical and the government should spell out the rules. It is only the government that can do it as we have seen voluntary codes do not work. Is there a precedent for regulation? How is it in the UK? Regulation is a function of the maturity of the market. The Royal Institution of Chartered Surveyors (RICS) is an apex body that enforces professional standards and ensures property transactions follow strict rules and guidelines. RICS is trying to go global and even has an Indian chapter. But ultimately, it is only a professional body. Have property broking houses like yours had a cleansing effect on the Indian property market? Our impact has been positive as we insist on ethical practices. Knight Frank and other international broking firms came in with the big MNCs. These companies wanted a comfort level they were used to in other markets. For instance, we have a global mandate with Aviva Insurance. We have some regional mandates, too. With the MNCs and their brokers, came international standards in property transactions. But it is still a long way to go. We (MNC broker firms) represent only 5 per cent of the property transactions, and that too in the metros. Is the worst over in the international realty markets? No, growth has still not come back. However, a lot of companies are using this period as an opportune time to consolidate; to move to newer and cheaper premises and lower their overheads. I would guess real growth would return only in 2010, that too probably in the latter half. There have been reports of some pick-up in demand in the housing sector in both England and the US. What do you think? England has been defying all the doomsayers. The second quarter of this year saw the slowing down of the fall in prices, and then from August we saw prices beginning to rise marginally. These are positive indicators considering nothing happened — there was a virtual freeze — between September 2008 and May this year. In the US, though there are some signs of activity, prices and demand are still not picking up from the lows. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 23-11-2009)
Read More
