Expect a popular backlash if the government raises diesel prices to halt the subsidy drain on its finances - not only from the millions of poor who need cheap fuel but from increasing numbers of the well-off and businesses who don't.Faced with the risk that its sovereign credit rating could be cut to junk if it fails to rein in its fiscal deficit, the government is under pressure to cut runaway spending on fuel subsidies.But, already on a backfoot over corruption, slowing economic growth and the caprices of coalition allies, Prime Minister Manmohan Singh has held back. Like LPG cooking gas and kerosene, diesel is seen as a poor man's fuel and so the government fears it would be forced by popular outrage into a u-turn if it cut subsidies, just as it was when petrol prices were raised in May.It should fear less the wrath of the common man, however, than the hostility of big businesses and middle-class voters, who have become big users of diesel because it is so cheap and because regular power supplies are so unreliable.When the north of the country was hit by massive power blackouts on two consecutive days earlier this month, the lights stayed on in offices, five-star hotels and swanky residential areas across New Delhi as thousands of diesel generators purred into action.With petrol costing on average 42 percent more than diesel, there has been a jump in the share of cars powered by the subsidised fuel, while in the countryside only wealthy farmers who can afford a tractor or water pump benefit from the government's largesse."The economy is being dieselised," said a senior Finance Ministry official, who asked not to be named due to the sensitive nature of the matter. "People are using it to run their private generators, telecom towers, cars. It is no longer the poor man's fuel."Diesel subsidies cost New Delhi about Rs 41,100 crore in 2011-12, or 0.7 per cent of GDP, making the fuel much cheaper than petrol and costing state-run retailers about Rs 11.25 for every litre sold.Government data shows diesel accounts for nearly 44 percent of fuel consumption in Asia's third-largest oil importer compared with 35 per cent nine years ago.While trucks and buses still consume the bulk of diesel, analysts estimate that consumption by cars, generating sets, industry and mobile telecom towers has gone up to about 40 percent from 30 per cent in 2008-09, according to estimates by a government panel.Diesel cars make up about 40 per cent of new sales in India, from less than 20 percent a few years ago, data from an industry body shows. Almost all large, expensive SUVs and jeeps have diesel engines, as do many of the luxury saloons sold by companies like Audi or BMW.Petrol fuels India's ubiquitous two-wheelers, which tend to be used by the less well-off. For the very poor, it's a bicycle at best."I'm not really buying the argument that removing the diesel subsidy would disproportionately affect the urban poor. Industrial users, farmers and the middle class would bear the brunt of a price hike," said Jesse Mercer at PFC Energy.Drought Prompts Diesel Price CutFar from raising diesel prices, the government has just halved them to help farmers with irrigation in areas parched by a delay in the June to September monsoon, which could mean agriculture's share of overall demand will rise above an estimated 18 percent."The poor rainfall this monsoon season has added to the government's woes, as farmers need to use diesel-driven electric pumps to pump water for crop irrigation," said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight.But again, it is likely to be the wealthy with large farms who benefit most - in states such as Punjab, in the country's grainbowl, where rural incomes are nearly double the national average.Over half of farms greater than five hectares own their own diesel or electric pump while only 8 percent of farms with less than a quarter hectare do, according to a 2010 report by the India Human Development Survey (IHDS), a joint U.S.-India research body.The IHDS report showed tractors are used on just 4 per cent of India's mostly tiny farms, but in Punjab 43 percent of farms own their own tractor.While a diesel price hike would certainly raise road freight rates, with heavy goods vehicles accounting for upwards of a quarter of demand, the feed-through to inflation would be limited, Finance Ministry officials argue. The shift to rail transport from polluting trucks could even be a benefit.Analysts estimate a Rs 5 per litre increase - just under half current losses suffered by state-run retailers - would add 0.5-0.8 percentage points to headline wholesale price inflation, which is currently a little below 7 per cent.(Reuters)
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A London-based NRI-led company will set up the world's largest steel modular building factory in Indapur in Maharashtra at a cost of Rs 100 crore.Chairman of the Modulex Modular Buildings Plc, UK, Suchit Punnose made the announcement at a function held here Tuesday night in the presence of Harshavardhan Patil, Maharashtra's Minister for Co-operation and Parliamentary Affairs, who is also an MLA from Indapur.Punnose said the factory would be built at a cost of Rs 100 crores and production would start in March next.Patil said, "All support will be extended to the project which is expected to provide employment for over 900 people." He said the state Government has already sanctioned 40 acres and may consider sanctioning another 30 acres for the project.Patil, who visited modular buildings in London, said the technology is required in India to support infrastructure and economic growth.Modulex's technology produces buildings with high quality on fixed cost and time guarantee, Punnose said."The factory will have four production lines with an annual capacity of 2 million sq ft, operating on an 8-hour shift 5 days a week for eleven months," he said.This equates to twenty 100-room hotels plus a 1,000 residential or office buildings of 1,000 sq ft each, or accommodation for 2,000 hospital beds, he added.The factory will be situated on a 40 acre site in Indapur MIDC Industrial Estate, Pune District, 280 kms from Mumbai."The design, the logistics and the technology compatibility studies have been completed, the land has been acquired, planning and all necessary permissions have been received, debt syndication has been finalised and now ground preparation has started," Punnose said.On the technology use and benefits, he said hotels, schools, hospitals, commercial offices, residential buildings, military accommodation and railway stations can be built very quickly with minimum disruption on site.For example, he said, a 100-room hotel can be constructed in 24 weeks, and 90 per cent of the work is completed offsite and only 10 per cent onsite.The cost of modular buildings is same as traditional buildings and can be built to any design required.Buildings can be as high as 22 floors, Punnose said.He said many hotels, such as Premier Inns, Travelodges and Days Inns are built using this technology in the UK.As many as 440 McDonalds restaurants were rolled out in the UK by the management team now employed by Modulex, Punnose said.(PTI)
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In a wheat field near the mighty Ganges river stands a cracked foundation stone surrounded by nibbling goats and farmers driving their cattle in the baking sun.Unveiled more than four years ago, it's all that remains of an ambition to build India's longest expressway, an eight-lane, 1,050-km (650-mile) road that would have run through Uttar Pradesh state and connected one of the country's most backward regions to the doorstep of the nation's capital.Supporters of the Ganga Expressway project say it would have helped transform Uttar Pradesh, India's most populous state and one of its poorest, and the lives of its 200 million people by slashing travel times and letting industry and townships sprout.But having been in and out of the headlines for years, the project has all but crumbled under the weight of political wrangling, opposition from farmers whose fields would have suffered, and a court order in 2009 stalling construction on environmental grounds."It's one of those projects that can change the development map of a region," said Gopal Sarma of the consulting firm Bain & Company."At the same time, there is the whole issue of how do you deal with people who have held onto pieces of land for literally hundreds of years, and are not really looking at compensation but are looking to continue a way of life that they have had?"The failure of the Ganga Expressway offers a snapshot of India's chronic infrastructure woes and a reality check on Prime Minister Manmohan Singh's recent promise to speed up more than 200 key projects.New Delhi has set an ambitious target to pump $1 trillion into an overhaul of infrastructure over the next five years, revamping roads, building airports and tackling endemic power blackouts. But, as the Ganga Expressway shows, such targets are all too often held hostage to harsh realities on the ground.It's also symptomatic of how, for India's leaders, political expedience often trumps the need to revive investor sentiment and growth. In recent months, one party in the ruling coalition blocked a proposal to open the retail sector to foreign investment and the government has dithered on slashing costly state subsidies on fuel, fertilisers and food."It was a very ambitious project," said a former top state official who was closely involved in the expressway proposal, speaking to Reuters on condition of anonymity. "The tragedy of the whole situation was that the politics came in. People don't know what is good for the state, good for the people, good for the country," the official added.Rough And RockyDriving across Uttar Pradesh's existing highways can be by turns treacherous or mind-numbingly slow. Cars and trucks jostle with bicycles, bullock carts, cows and goats along what are often narrow and potholed roads, gumming up traffic and prompting drivers to veer dangerously across lanes to overtake.With a creaking rail network, India relies heavily on such highways to transport goods. But their often-shoddy condition saps the competitiveness of companies and creates supply bottlenecks that have helped keep inflation uncomfortably high.The average speed of trucks travelling on Indian roads is just 35 km (22 miles) per hour, less than half the 75 km (47 miles) in the United States, according to a report by global management consultancy McKinsey and Company.The Ganga Expressway was supposed to help change all that. Conceived under Mayawati, a four-time chief minister of Uttar Pradesh with prime ministerial ambitions, the stone was unveiled with much fanfare on her 52nd birthday in January 2008.A contract to build the road was awarded to a unit of Jaiprakash Associates, a construction and infrastructure giant that also built India's Formula One track. Sameer Gaur, a top executive at the group who led the project, declined to comment for this article.Under the state government's proposal, the company was to both fund and build the project. In return, it could charge toll fares and develop potentially lucrative real estate along the road - a version of the public-private-partnerships (PPP) that cash-strapped Indian governments have pushed in the sector.But as is so often the case in India's troubled infrastructure story, one person's key development project is another person's land grab.Farmers, egged on by what was at that time the state's main opposition Samajwadi Party (SP), said the project would rob small landholders of fertile land and their livelihoods.Grumbling about inflation, power and water shortages, the farmers have scant faith in politicians and struggle to see how a massive highway running over their lands would benefit them."The government has done nothing for us except raise prices," said one, Dinesh Rai. "We are fooled by every party that comes in.""What are we going to sell if we can't grow anything? What will we carry along an eight-lane road? Mud?" joked another, Jitender Kumar Yadav.The SP, which booted Mayawati out of office in state elections in March, called the project a conspiracy and staged protests.Ambika Chaudhary, the revenue minister in the new government, proudly told Reuters his activists, then in opposition, caused such a furore that Mayawati scrapped a planned trip to lay the foundation stone in 2008. Instead, she unveiled it at the state capital, Lucknow, and later had the stone transported to its current location."She did not dare to come to Ballia," Chaudhary said. "We protested like anything and the programme was cancelled."Red TapeOfficially, the Ganga Expressway still exists on paper, but with SP in power in Uttar Pradesh, it is unlikely to be built, at least for years.Across India, poor infrastructure has helped put the brakes on the once-stellar growth of Asia's third-largest economy, which has dropped to its slowest pace in nine years, and businesses are clamouring for more policy action.Lacking the financial muscle that China has to bring its infrastructure up to speed, New Delhi has turned to the private sector to fund half of the $1 trillion target.But time after time, big investments fall prey to red tape and battles over land, stalling projects for years. Firms complain bureaucracy and corruption delay the awarding of contracts, while debt to fund new ventures is scarce and the market in which to bid for them too aggressive.As a result, New Delhi has consistently missed construction and funding targets for many sectors in recent years. Out of 583 projects worth more than Rs 150 crore ($27 million) each, 235 are delayed, according to the government's 2011-12 economic survey.Roads are the worst hit, although the $8 billion Golden Quadrilateral project, that links big cities New Delhi, Mumbai, Kolkata and Chennai with modern highways, has been mostly completed.Examples abound of projects hit by similar woes to the Ganga road. The KMP Expressway, aimed at slashing congestion in the capital, was meant to be completed a year before the 2010 Commonwealth Games in Delhi. Instead, land disputes and delays in obtaining clearances caused it to miss several deadlines and it is now scheduled to be finished next May.Bain's Sarma estimates that India will only achieve about $650 billion of the $1 trillion target, and that number could fall further if the government fails to lift corporate sentiment with some key policy decisions over the next 3-6 months."We still are facing huge policy paralysis to get projects moving forward. Project pipelines are slow," he said.Facing an avalanche of criticism over his government's handling of the economy, Singh has raised infrastructure targets and rolled out a system to track key projects.A senior government adviser, speaking on condition of anonymity, said the renewed push would help make individual ministries more accountable on performance, but added that he didn't "expect miracles".For now, infrastructure players will likely wait and see whether Singh can deliver on his promise of a new impetus."(We're) not too optimistic, to be frank with you, because it is not the first time that such intentions have been made public," Vinayak Chatterjee, the chairman of Feedback Infrastructure Services, told Reuters Television."But I think there is a sense of fatigue with mere announcements of targets or mere announcements of new projects."(Reuters)
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State-owned oil firms are losing Rs 1.37 a litre on petrol despite last month's Rs 0.70 per litre hike in price, Oil Minister S Jaipal Reddy said on 14 August' 2012 but did not indicate if the rates will go up anytime soon.Reddy said that while the average price of crude oil in 2012-13 in the international market has been slightly lower than the average of 2011-12, the fall in rupee value against US dollar have made imports costlier by 7 per cent.The basket of crude India buys has averaged $ 105.22 per barrel this fiscal, down 6 per cent from $ 111.89 per barrel in 2011-12. But rupee has depreciated to Rs 54.64 a US dollar, as compared to Rs 47.95.This has resulted in actual cost of crude oil purchase going up by 7 per cent to Rs 5,749 a barrel in 2012-13 from Rs 5,365 last fiscal, he said. "Due to rise in international price of petrol, their (oil companies') under-recovery (or revenue loss) on sale of petrol is Rs 1.37 per litre," Reddy said in a written reply to a question in the Rajya Sabha today. He however did not say if the oil companies will raise price of petrol, a commodity which was deregulated or freed from governmnt control in June 2010. "Since then (June 2010), the public sector oil marketing companies have been taking decision on the pricing of petrol in line with the international oil prices and market conditions," he said. This fiscal, oil firms have revised prices only on four occasions - raising it by a steep Rs 7.54 a litre from May 24 before cutting them by Rs 2.02 per litre from June 3 and by Rs 2.46 a litre from June 29. They last raised petrol price by Rs 0.70 a litre from July 24."...though the average price of Indian basket of crude oil in terms of dollar per barrel this year is lower by 6 per cent than the last year's average price but simultaneously due to depreciation in average value of rupee per US dollar by 14 per cent, the average price...in rupee term this year has indeed increased by 7 per cent," Reddy said. Besides petrol, oil firms are losing Rs 12.06 per litre on diesel, Rs 28.54 a litre on PDS kerosne and Rs 231 per cylinder on domestic cooking gas ( LPG).They lost Rs 47,811 crore on sale of the three controlled products during the April-June quarter. This was on top of Rs 1,38,541 crore of revenue loss in 2011-12.(PTI)
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Essar Energy Plc said it received provisional approval to clear forests at its Mahan coal block in India's Madhya Pradesh state, but its shares fell as the news highlighted regulatory hurdles delaying its power projects in the country.The company is facing twin setbacks in its key market for oil products and electricity due to delays in government approvals to mine coal to supply its power projects, and a ruling that ended a major tax break for an oil subsidiary.Essar Energy, 77 per cent-owned by privately held Indian conglomerate Essar Group said on Monday it was still awaiting final approval from the Indian Cabinet to clear forests at the Mahan site, where the company is building a power plant.If Essar Energy is not in a position to supply coal from its own mines, it will have to buy more expensive coal from overseas or from domestic producers.Deutsche Bank analyst Lucas Herrmann said sourcing fuel at market rates could also lead to "challenging economics" for Essar's Tori power plants in the state of Jharkhand, where the company is also awaiting approvals to start mining to supply power plants due to come on stream in 2014.Essar shares fell as much as 7.7 per cent.The company will continue its dialogue with state and central governments to ensure the approval process does not lose momentum, Chief Executive Naresh Nayyar said in a statement.Arden Partners analyst Adam Forsyth said the provisional approval for Mahan boded well for other projects.Essar Energy also said it was negotiating with Indian lenders to arrange for a new debt facility of about $1 billion to meet a sales tax liability at Essar Oil Ltd, through which it operates its oil and gas business in India.An Indian court recently ruled that Essar Oil could not defer payment of about $1.24 billion in sales tax.The company had deferred paying the tax under a tax benefit programme offered by the western state of Gujarat, where its Vadinar refinery is located.Essar Energy, which recently changed its accounting period, recorded $737.1 million in core earnings for the 15 months through March. The company said this compared with analysts' average forecast of $713 million for earnings before interest, tax, depreciation and amortisation.Thomson Reuters I/B/E/S did not compile forecasts for the company's earnings for the 15-month period.The company's shares, which have lost nearly a third of their value since the beginning of the year, fell to a low of 116.1 pence.(Reuters)
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India will reduce the lock-in period for foreign investment in some long-term infrastructure bonds to one year from three years, a finance ministry official said on Monday.Asia's third-largest economy took a handful of measures to prop up the embattled rupee on Monday, including increasing the limit on foreign investment in government bonds by $5 billion to $20 billion.(Reuters)
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India's three big state-run oil retailers together hold oil bonds worth about $5 billion, which is likely to be the maximum amount of dollars these companies will be able to buy directly from the Reserve Bank of India (RBI).There have been talks that the RBI may sell dollars to oil companies directly against oil bonds to reduce demand from market and contain volatility in the rupee.Indian Oil Corp, Hindustan Petroleum Corp Ltd, Bharat Petroleum Corp Ltd hold oil bonds worth 150 billion rupees, 69 billion rupees, and 60 billion rupees, respectively, officials from the oil companies told Reuters.The rupee rallied on Monday on hopes for government measures to halt a slump in the currency, which hit a record low on Friday, with traders saying action to boost long-term foreign investment would be the most effective step.Finance Minister Pranab Mukherjee said on Saturday that India would unveil measures on Monday but gave no details.The RBI last sold dollars to oil companies against oil bonds between 2008 and 2009.(Reuters)
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Nine years and several extensions later, Jharkhand is set to unbundle its electricity board by the end of this year. The Jharkhand State Electricity Board (JSEB) has appointed the Power Finance Corporation (PFC) as its consultant to take it through the complex process of unbundling the board into separate utilities for generation, transmission and distribution. "PFC has already made two presentations on the process. A third (presentation) would be made in July on the employee benefits and liabilities among other things," says S.N. Verma, chairman of JSEB."The principal reason for unbundling SEBs is to separate the function of transmission from distribution to avoid possible conflicts that might arise when somebody has to use Open Access. It is the first step towards the implementation of Open Access and introduction of competition in the energy sector," says Vivek Sharma, director of rating agency Crisil. The unbundling process involves fixing liabilities and dividing them into three sections, which are then transferred to the state government and converted into state bonds. The new companies start with zero liabilities.Before the Electricity Act (2003), the functions of generation, transmission and distribution were executed by one board. It meant electricity was produced, bought, transmitted and distributed to the end consumer by a single entity. It led to large inefficiencies in the system and large outstanding debts. And it was impossible to introduce competitive mechanism like Open Access into the system without delinking transmission from distribution.But only 12 states managed to unbundle their boards by 2007; six more completed the process during the 11th Plan. The ministry informs there is no date by which the remaining states have to unbundle. The matter is more or less in the hands of the states.States that have unbundled utilities have seen mixed results and the examples of bad performing states are often cited by employees who oppose it. While Gujarat, Andhra Pradesh and Karnataka have unbundled and bettered their finances, Uttar Pradesh, Tamil Nadu, Rajasthan and Haryana have belied the expectations of the Electricity Act.Can the failure of a few states be held against unbundling? "It is only the first step towards increasing efficiency. These states failed to take other initiatives such as regular filing of tariffs and progressive reduction of AT&C (aggregate technical and commercial) losses. For instance, mere separation into a distinct utility is not going to improve the distribution business, and unless reforms are initiated, no distribution utility can pick up," says Sharma.What lessons has Jharkhand learnt from other states? "We have looked at both the success stories and the states which have not been doing well even after unbundling We would ensure we learn from the mistakes of others and benefit from the examples of successful states," says Verma.(This story was published in Businessworld Issue Dated 02-07-2012)
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