Diesel and cooking gas (LPG) prices are unlikely to be hiked in India even after the end of the Monsoon Session of Parliament next week as the government is wary of taking such a decision at a time when it already has political battles on hand.Diesel, domestic LPG and PDS kerosene rates, which have not been revised since June last year, were expected to be raised after the Parliament session ends on September 7."It is extremely difficult under present circumstances to raise fuel prices," a top government source said in New Delhi. "I am not saying that it is impossible but it certainly does not look feasible at this moment of time".Even a hike in prices of petrol, a fuel which was freed from government control in June 2010, would be "difficult," he said.Oil PSUs are losing Rs 3.85 per litre on sale of petrol as global oil prices have firmed up since the last revision in July. Petrol price were last hiked by Rs 0.70 a litre on July 24. It currently costs Rs 68.46 per litre in Delhi and oil firms were hoping to be able to raise rates once Parliament session ends next week.The government has been in fire-fighting mode since the time Comptroller and Auditor General (CAG) in a report stated that undue benefit of about Rs 1.86 lakh crore was extended to private firms by allocating coal blocks for free since 2004.The source said while state-owned oil firms are empowered to revise petrol prices, a decision on diesel, domestic LPG and kerosene rates has to be taken by the Cabinet Committee on Political Affairs (CCPA).Oil firms are losing Rs 450 crore per day on selling diesel at prices that are Rs 15.55 a litre lower than its cost, kerosene at a discount of Rs 29.97 a litre and under selling of Rs 231 per 14.2-kg LPG cylinder. Oil minister S Jaipal Reddy hinted of government's desire to make up for the losses incurred by oil firms instead of raising prices when he told Lok Sabha in a written reply that he has sought reduction in excise duty on petrol."In order to offset the under-recovery (loss) on petrol, ministry of petroleum and natural gas has taken up the matter with the Ministry of Finance for bringing down the incidence of excise duty," he said.The government levies Rs 14.78 a litre excise duty on petrol and it can be lowered in proportion to the losses oil firms incur currently."In order to mitigate losses on sale of petrol, oil marketing companies had, inter alia, suggested to the government to either declare petrol as a 'regulated' product temporarily and provide cash compensation for the under- recovery or reduce the excise duty on petrol from Rs 14.78 per litre by an amount equivalent to the under-recovery on petrol," he said.Not raising prices would mean the government will have to shell out a massive cash subsidy this fiscal to make up losses incurred by state-owned oil firms on sale of diesel, domestic LPG and kerosene. At current rate, the three PSU firms may end the fiscal with a record revenue loss of Rs 1,67,468 crore.Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp lost Rs 47,811 crore on sale of the three controlled products during the April-June quarter. Of this, about Rs 15,000 crore was made good by upstream firms. The remaining was to be compensated by the government by way of cash subsidy but that hasn't come so far.In the absence of the subsidy support, IOC reported the highest quarterly net loss by any Indian company at Rs 22,451 crore. HPCL posted Rs 9,249 crore net loss in April-June while BPCL reported a net loss of Rs 8,836 crore.During 2011-12, the three oil marketing companies lost Rs 1,38,541 crore in revenue on selling diesel, LPG and kerosene at government controlled rates. To make up, the Government gave Rs 83,500 crore in cash assistance, while upstream firms like Oil and Natural Gas Corp chipped in Rs 55,000 crore.This fiscal, the government may have to give a record Rs 1,00,000 crore in cash subsidy, sources said.(PTI)
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Petrol price will be hiked by 30 paise per litre and diesel rate by 18 paise a litre after government decided to increase the commission paid to petrol pump dealers. The Petroleum Ministry on 25 October' 2012 decided to increase the dealer commission on petrol from Rs 1.499 per litre to Rs 1.799 a litre. The same on diesel has been hiked from 91 paise to Rs 1.09 a litre, official sources said. They said the hike would be effective either today or from tomorrow, depending on when the ministry issues a formal letter to oil companies. Petrol is currently priced at Rs 67.90 per litre in Delhi and diesel Rs 46.95. After the hike, petrol will cost Rs 68.2 per litre and diesel Rs 47.13 a litre. The increase in dealer commission is the first since July 2011. In July, the commission was hiked by 28 paise on petrol and by 15.5 paise on diesel. Federation of All India Petroleum Traders General Secretary Ajay Bansal said the hike is short of their demand of 67 paise increase in commission on petrol and 42 paise on diesel, considering steep hike in operating cost of a petrol pump. "A few of our operating costs like running pumps on generators, free services (like air and water) and increase in evaporation, seem to have not been taken into account while calculating the proposed commission," he said. The Ministry, he said, has assured to look into these in two months time. The government had earlier this month hiked commission paid to LPG distributors by Rs 11.42 per cylinder. Subsidised LPG in Delhi now cost Rs 410.42 per cylinder, up from Rs 399. The increase in commission paid to LPG dealers from Rs 25.83 per 14.2-kg cylinder to Rs 37.25 was effected from October 7.(PTI)
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Seventy Asian oil and gas companies, including those from India and China, were ranked in the 2012 Platts Top 250 Global Energy Company Rankings based on their financial performance in 2011. While ExxonMobil maintained its No. 1 position in the list, Cairn India topped the list for fastest growing companies with a three-year CGR of 119.8 per cent, Platts said at an award ceremony in Singapore held on 23 October.Of the 12 Indian companies in the global Top 250 rankings, half appeared on the 50 Fastest Growing list, which included Reliance Industries, Coal India, Indian Oil Corp and Gail, Platts said. China had 23 companies in the Top 250 list compiled by Platts, a global energy, petrochemical and metal information service provider.Commenting on the Asian companies performance, Platts President Larry Neal said the Asian companies were outperforming themselves year after year, which reflected the enormous growth and energy demand potential in the region. The list, however, was dominated by Western oil & gas majors, taking the top eight ranking of the list.ExxonMobil, which has maintained its number one position on the list for the past eight years, was followed by Royal Dutch Shell, Chevron Corp, BP Plc, OJSC Gazprom, Statoil, Total and ConocoPhillips. Chinese major PetroChina came in on the ninth spot with Roseneft Oil on 10.The Platts Top 250 Global Energy Company Rankings, now in their 11th year, are based on data compiled and maintained by S&P Capital IQ, which, like Platts, is a part of The McGraw-Hill Companies. The 2012 rankings reflect fiscal 2011 financial performance in four key areas: asset value, revenues, profits and return on invested capital (ROIC).(PTI)
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These are trying times for Hindalco Industries’ bauxite and thermal coal mining projects in Orissa and Madhya Pradesh. These projects have already been delayed by a couple of years; now, the worry appears to be how the delay will affect the upstream Aditya Alumina and Aluminium smelter and power plant project and the Utkal Alumina project with its integrated bauxite mines in Orissa, and the Mahan Aluminium smelter in Madhya Pradesh. Hindalco intends to commission these upstream projects in the next two years. But analysts said they were worried about how the delays, and the possibility of further delays, would affect the long-term profitability of the company, as the clearances for the mining and power projects, which have been caught up in the ongoing controversy, are yet to be announced. Hindalco officials say the issues will be sorted out soon. In fact, K.M. Birla, chairman of Hindalco’s parent firm Aditya Birla Group, said at the annual general meeting on 11 September: “The Mahan Aluminium project, Aditya Aluminium project and the Utkal Alumina refinery are all at an advanced stage of implementation. Post-stabilisation, these will be amongst the lowest-cost producers globally.”2012 was when the Utkal refinery was slated to be ready. Now, the datemay be 2014But sources close to the developments present a different picture altogether. “There were some environmental issues and local opposition in both states,” says one. “Coal mining for the Mahan project has been delayed because of the interference of the environmental ministry. In Orissa, the Birlas face challenges similar to the ones Vedanta Resources faced in bauxite mining.” This month, Vedanta finally shut its Lanjigarh refinery after failing to use bauxite from the Niyamgiri hills. Hindalco’s 1.5 million tonne Utkal Alumina refinery was slated for commissioning by December 2012, which may now be postponed to 2014. So far, Rs 4,500 crore has been spent on the Utkal project. Besides, Hindalco may have to buy bauxite from the open market, which may add to the costs. Analysts at ICICI Securities believe that even if the Mahan coal block — which is being developed in partnership with Essar Power — is made available, it will take around 15 months to ramp up production. “The coal project in Mahan has been delayed by almost a year,” says Ravindra Deshpande, analyst with Elara Capital. “The feeling is that coal will be available only from 2014, even if they start work now,” he adds. Environmental NGO Greenpeace, however, alleged that the Ministry of Environment and Forests had given its clearance to the block despite it being in a prime forest area. So, should Hindalco investors be worried? Arun Kejriwal, director at Kejriwal Research and Investment Services, says the delay will hit the projected revenue of the company adversely. “If the anticipated earnings per share is not realised, it will affect share price too,” he says. All this could compound Hindalco’s problems. The firm is investing Rs 10,500 crore in the Mahan smelter project. Of this, Rs 7,800 crore in debt has already been tied up, while the remaining amount is being funded through internal accruals. The longer the delay in rollout, the longer the payback period, and the higher the interest costs. Hindalco recently completed financial closure of its Rs 13,195-crore greenfield Aditya Aluminium smelter at Lapanga in Orissa, which is likely to be commissioned by the middle of 2013. The project has been funded through a debt-equity ratio of 75:25, with Rs 9,896 crore as debt. Though Hindalco’s fate may not be hanging in the balance because of these projects, the delays will definitely hurt.(This story was published in Businessworld Issue Dated 29-10-2012)
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There appears to be no resolution in the stand-off between the nation’s coal monopoly Coal India (CIL) and power producers on pricing the coal imported via CIL for upcoming power plants. Power producers are expected to sign the fuel supply agreement (FSA) before their memorandum of understanding with CIL expires on 31 December. Though the FSA does not specify the price of the imported coal, it does make CIL liable to pay penalties to power producers if its supplies are anywhere short of the 80 per cent commitment. Of this, only 65 per cent has to be from its own mines, and the balance 15 per cent can be imported. CIL proposes to do this on a cost-plus basis through the canalising agencies — Metals and Mineral Trading Corporation (MMTC) and the State Trading Corporation (STC). The debate now is on the pricing of the imported coal. Power producers have to choose if they would rather import the coal directly, or have it routed via CIL, which may substantially hike their costs. But should they choose to import the coal directly, CIL will only be responsible for the promised 65 per cent from its own mines and, thus, will not be liable to pay a penalty on the remaining 15 per cent. “Channelising (imported coal) through CIL will include CIL’s administrative cost, which may be incremental. CIL will not keep itself open to liabilities and will seek to keep (protect) its margins,” says Dipesh Dipu, partner at Jenissi Management Consultants.20% Is the saving in costs to NTPC when it decided to import coal on its own Power company NTPC had faced the same dilemma, and now imports coal on its own after imports through CIL became unaffordable. And that “brought the cost down by 20 per cent”, says Arup Roy Choudhury, chairman and managing director of NTPC. A power industry official, who did not want to be named, says, “power companies are keeping their options open... Producers will opt for direct imports to get the right quality at the right time and at a competitive price”. Should CIL fail to fulfil its supply commitment, it will have to pay the firms a penalty (for example, 1.5 per cent for short-supply in the 80-65 per cent bracket, to 40 per cent for supplies below 50 per cent). The debate on FSA has been long drawn with issues such as trigger level and penalty clauses. CIL has refused to entertain any more discussion on the price of imported coal, and sent the modified FSA to the Central Electricity Authority and power producers for their comments. (This story was published in Businessworld Issue Dated 29-10-2012)
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The revised Land Acquisition Bill — officially called the Land Acquisition, Rehabilitation and Resettlement (LARR) Bill — has got the nod of the Group of Ministers (GoM). Once the Cabinet approves it, it is likely to be moved during Parliament’s winter session. The GoM was constituted after the original draft of the Bill attracted opposition from several ministers. Among other issues, a provision that required the consent of 80 per cent of affected landowners was considered anti-industry. The new draft, in a bid to please everybody, has raised the hackles of all stakeholders. The reworked Bill has downsized the consent formula for public projects from the earlier requirement of 80 per cent of the landowners to two-thirds of those being ousted. It has also done away with the retrospective application of the law. The date of implementation will be notified later, rural development minister Jairam Ramesh said. For ‘Schedule IV areas’ inhabited by tribal communities, consent of the local self-governing bodies will be mandatory. Compensation too has been brought down for rural land from six times market value in the original draft to four times. Urban land compensation remains at double the market value. The 100-year-old, archaic Land Acquisition Act is truly a stumbling block to industrialisation in India. For instance, Orissa’s Industrial Development Corporation’s (IDCO) CMD, Pradeep Kumar Jena, had admitted to BW that IDCO, charged with acquiring land for industrial development, had only delivered 35,000 acres since 2006 compared to the demand of 150,000 acres for industrial units waiting in the queue. After Tata Motors’ Singur fiasco and steel baron L.N. Mittal having publicly torn up his business plans for India, the government has been under pressure to come up with a workable land acquisition law. 4 times market rate is what has been proposed as compensation for rural landWill the new Bill address these problems? Industry captains are still examining the small print, but most of them are concerned that it will push up project costs. Chandrajit Bannerji, director-general of the Confederation of Indian Industry (CII), says, “The positive note is that the Bill recognises the paramount role of government in acquiring land for industry. Corporates can’t do it themselves. However, if the proposed compensation package, along with the solatium of 30 per cent for relief and rehabilitation (R&R), is implemented, cost of projects is likely to shoot up 3 to 3.5 times.” Similarly, mandatory approval from local bodies for land in tribal areas will also hurt. In most mineral-rich states like Orissa and Jharkhand, 50 per cent of the land is in forest and tribal belts. Pushing past highly-politicised panchayats and zilla parishads will be tough. Meanwhile, the Left parties have already taken a stand against the ‘anti-people’ land Bill. CPM’s Brinda Karat said that by lowering the consent ceiling to 66 per cent, the government had diluted the Bill in favour of corporates. The Bill was introduced last year in September in Parliament. It is unlikely that the new draft will see the light of day in the current form. (This story was published in Businessworld Issue Dated 29-10-2012)
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Private equity firm Sun-Apollo will invest up to $50 million in projects developed by Indian real estate company Sobha Developers, sources with direct knowledge of the matter told Reuters. The investment will be on a project basis, and Sun-Apollo will invest 20-25 per cent of its commitment in the first project, one of the sources said. Executives at Sobha and Sun-Apollo could not immediately be reached for comment. Sobha, based in Bangalore, has built more than 51 million square feet of homes and offices since its inception in 1995.Sun-Apollo, a joint venture between India's Sun Group, controlled by the Khemka family, and US-based AREA Property Partners, formerly called Apollo Real Estate Advisors, raised more than $600 million in 2006 to invest in real estate projects in India. In December 2011, it invested about Rs 450 million in a subsidiary of Mumbai-based Godrej Properties.Private equity investments in real estate fell 44 per cent in the September quarter to $394 million from $726 million a year earlier, according to Venture Intelligence, an industry data tracker.(Reuters)
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July 29 saw one of the worst crises in India’s power system when the northern grid collapsed plunging seven states into darkness. The administration was running around trying to get the system running properly when the grid collapsed again two days later, this time taking the eastern grid down with it. And thus, 21 states and over 600 million people were left powerless.It took more than two days for the grid to function properly again. A total of 48,000 MW of capacity was affected during the blackout and as per some estimates, power companies lost more than Rs 500 crore during the blackout.Responding to the crisis, the power ministry held a meeting with the chief ministers and the power ministers of the northern states where it was decided to prepare contingency plans to help the states deali better with a similar situation in future.In accordance with this, the Union ministry of power and the Delhi government announced an islanding scheme for Delhi on October 17, 2012. The scheme once implemented will prevent the state from going absolutely powerless in case of any future grid disturbances.“The grid crisis which occurred in July was a wake-up call and this is in response to that,” said the Delhi chief minister Sheila Dikshit while announcing that the islanding scheme will be ready by January next year, five months before it was scheduled.The announcement was made in a joint press meet called by the ministry of power and the Delhi Chief Minister.According to power minister Veerappa Moily, the cost of implementing the islanding scheme will vary from state to state. In Delhi, it is estimated to cost around Rs 25 crore. While islanding schemes already exist in Mumbai and Kolkata, the power network of Delhi is much more complex and four islands have to be created for Delhi as against two in Kolkata. Further, the complexity of the Delhi network requires several additional measures like development of an intelligence system for centralised decision making, augmentation of generation within Delhi, maintaining dual source of supply to essential loads, etc.In case of any future grid disturbance, the islanding scheme will seek to first isolate Delhi from the regional grid and will then strive to meet the electricity requirement of emergency services like railways, hospitals, water treatment, etc.The essential load requirement of Delhi at present is 930 MW but the system would be able to handle 3,400 MW of load. Delhi currently has a peak requirement of 5,500 MW.The power minister said that the Uttar Pradesh, Punjab, Haryana and Jammu and Kashmir governments have also approached the ministry for islanding schemes and it would take the ministry two months to finalise the plan for these states.
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