State-run oil companies have served an ultimatum to the government that they will raise petrol prices by 15 per cent or Rs 9.6 a litre if excise duty is not cut or they are not provided compensation for Rs 49-crore per day loss on fuel sale."We have been very patient, not raising prices since December despite our cost of production spiralling. But there is a limit to which we can borrow money and produce fuel for the country," Indian Oil Corp Chairman R S Butola said here.IOC, together with Hindustan Petroleum and Bharat Petroleum, is losing Rs 49 crore per day on petrol sale alone.They are losing another Rs 573 crore every day on selling diesel, domestic LPG and kerosene below cost.Butola said oil PSUs in the first 15 days of April lost Rs 745 crore in revenue on petrol, whose pricing was freed from the government control in June 2010. But rarely have the product prices moved in tandem with cost as oil companies bowed to government diktats."We have suggested that the government should temporarily end deregulation and give subsidy to make up for the difference between cost of production and sale price.Alternatively, the government can cut the Rs 14.78 excise duty it collects when a consumer buys one litre of petrol," he said.The states also levy VAT or sales tax ranging from 15 per cent to 33 per cent (Rs 10.30 a litre to Rs 18.74 per litre), which too can be cut to avoid a price hike.If the suggestions are not accepted "we would have no option but to increase the price of petrol by Rs 8.04 per litre (excluding state levies) with immediate effect", he said. After including 20 per cent VAT, the increase in Delhi will come to Rs 9.60 a litre. Oil companies, Butola said, import crude oil at a price of $121.29 per barrel (being the average rate for 1st fortnight of April), and sell at $109.30 a barrel."This is not sustainable and cannot continue.Continuation of such pricing will only impede the ability of companies to import crude oil and may affect product supply- demand balance," he said."The company is awaiting the government's response to its requests and should no relief come forward, it will have no option but to effect the aforesaid increase in petrol prices," an IOC press statement issued later said.Butola said IOC and other oil marketing companies had approached the government several times suggesting that petrol may be brought under the ambit of 'controlled products' temporarily, or statutory levies may be lowered to the extent of loss being suffered.Petrol prices were last revised on December 1, when PSU oil firms reduced rates by Rs 0.65 a litre on top of an earlier price reduction of Rs 1.85 per litre effected from November 16, 2011.The international gasoline prices, against which the domestic rates are benchmarked, have since gone up to USD 132.45 per barrel."This is much higher than the price of USD 109.03 per barrel at which IOC and other oil marketing companies are selling petrol (excluding State levies)," the statement said.Oil PSUs "inability to effect the price increases during the period December 16, 2011 to March 31, 2012 has resulted into total under-recoveries (revenue loss) of Rs 2,287 crore."For the full 2011-12 fiscal, IOC lost Rs 2,236 crore on selling petrol below cost during different times of the year and the industry (IOC plus BPCL and HPCL) together lost Rs 4,859 crore. These were over and above Rs 138,800 crore the industry lost on selling diesel, domestic LPG and kerosene.(PTI)
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Coal India rose as much as 3 per cent, after its board agreed for the state-run company to sign a new fuel supply agreement with power producers that contained an average penalty of just 0.01 per cent for shortfalls in supplies.The clause contained in the new FSA is well below the current penalties of 10-40 per cent, according to J.P. Morgan.However, the near-term boost is unlikely to be sustained, J.P. Morgan argued, as its analysts say the more pressing issue is how Coal India can meet the government requirement that 80 per cent of its supply be provided to power providers.Those long-term supplies, which would be sold at lower prices than could be fetched in private markets, is at the heart of the tussle between U.K. hedge fund The Children's Investment Fund and Coal India's directors.J.P. Morgan maintained its "Underweight" call on the stock.(Reuters)
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Indian Power Minister Sushil Kumar Shinde has called on US corporate leaders to invest in India saying the country is moving on the path of massive investment in the energy sector.Shinde, Monday, also met the US Energy Secretary, Steven Chu, during which the two leaders discussed ways and means to enhance bilateral cooperation in the energy sector, in particular the alternate sources of energy and energy conservation.In his address to a meeting of US private sector organised by US India Business Council Monday, Shinde said India is moving on the path of massive investment in the energy sector, especially electricity generation and transmission."Energy security is of vital economic and strategic significance for us. A number of financial, technological and exploratory initiatives already exist with the US in clean and renewable energy and energy conservation and efficiency and we now need to explore economic partnerships between the Indian and US companies in this shift to clean energy," he said."There are excellent opportunities in India to examine the feasibility of clean energy technologies, which will be a win-win situation for India and the United States," Shinde said.No doubt India's power sector presents a massive opportunity to the American companies, Shinde acknowledged the concerns of the investors from the US."I am also aware of the concerns of investors with respect to land acquisition, coal sourcing, financial health of discoms, pricing reforms, payment security and contract sanctity," he said."Recognising the need for an overall and comprehensive legal architecture and a policy framework conducive to larger and more sustained investment in the power sector, the Government of India took numerous steps to facilitate reforms in the sector," he said.Shinde said the Indian government has proposed various proposals in the Budget 2012 to stimulate investments.A crucial Land Acquisition and Rehabilitation and Resettlement Bill is under the consideration of the Parliament, he said.(PTI)
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Acting on the Chaturvedi Committee recommendations, the power and finance ministries are converting 50 per cent of the losses of the power distribution companies (discoms) into state government bonds. Banks will be asked to extend the tenure of short-term loans to discoms with a moratorium on interest. The Chaturvedi Committee was set up in 2011 to devise a plan to restructure the loss-making discoms in Andhra Pradesh, Haryana, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu and Uttar Pradesh. Rating agency ICRA says the losses topped Rs 80,000 crore (before subsidies) in FY2012, up from Rs 63,500 crore in FY2010. Experts say the current situation is similar to the debacle of 2001 when state electricity boards (SEBs) default on payments to central generation stations necessitated a one-time settlement by the Centre. Then, the expert group on the settlement said the total accumulated dues of the SEBs were Rs 41,473 crore, consisting of Rs 25,727 crore of principal and Rs 15,746 crore of interest and surcharge.Of late, there have been no big defaults by discoms. However, debt has become a source of worry. While discoms have tried to pull up their socks, it will be three years before they will be able to sort out their woes, says an expert who does not wish to be named. Former power secretary R.V. Shahi is cautious: "The situation now is not as bad as it was in 2001 when default in paying the bills of power generators, coal companies and railways by state electricity boards was routine; today it is an exception. In 2001-02, SEBs were paying not more than 80 per cent of bills. By applying a carrot-and-stick policy during 2002-2007, the power ministry succeeded in arresting the ever increasing losses. The situation is pretty bad now but not alarming, it can become alarming in a couple of years if not corrected now."Will such restructuring turn out to be repetitive, an every once-in-a-decade problem? The power ministry says many checkpoints have been woven in to ensure an improvement in the bottom line of discoms — regular and adequate tariff hikes, a cut back on transmission and distribution losses, better financial discipline in operations, improved metering, and timely release of subsidies. The wave of tariff hikes in as many as 17 states in 2011 along with the sustained reduction in T&D (transmission and distribution) losses is seen as a silver lining."This plan is different from the one in 2001. If the states take necessary steps to fulfil these conditions, the Centre will put in some funds when the state comes to retire their bonds," says a senior ministry official. The ministry has approved a rating system to rank discoms according to their operating efficiency; new guidelines have been put in place for short-term procurement of power in order to cut down on expenses inflated by unplanned purchases.A high-level panel headed by V.K. Shunglu in its December 2011 report said over 70 per cent of the accumulated loss was financed by state-run banks; 42 per cent of which was backed by guarantees issued by state governments. In many cases, the cushion available in the form of states' guarantee redemption funds at Rs 40,000 crore to meet the commitment from possible default is grossly inadequate.(This story was published in Businessworld Issue Dated 18-06-2012)
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India must bring in more private miners to develop coal reserves which majority state-owned Coal India Ltd has left untapped, Tata Power Company Ltd executive Amulya Charan said on Tuesday.India is among the world's fastest-growing coal importers, according to analysts Wood Mackenzie.The country is battling chronic power shortages which are hampering the economy, largely due to the yawning gulf between domestic coal supply, demand and its ability to import fuel.Coal India aims to raise its output to 464 million tonnes in 2012/13 after missing its scaled-down target for the previous year and is separately considering importing up to 15 million tonnes of coal at prices far exceeding domestic levels to help bridge that gap but these measures are not enough, Charan said.India is likely to import up to 80 million tonnes of thermal coal in the current financial year."Why should Coal India, a mining company, be in the business of importing coal - something needs to be done so that more is produced in the country," Charan said."Coal India's monopoly needs to be broken, private mining firms need to come in and start producing from its reserves, the sector needs to be opened up to some competition," he added."Private miners would have a different approach and would bring reserves into production more quickly," he said.Coal India, the world's biggest single coal mining company, has struggled to hit production targets for years because of difficulties compensating people for moving from their land and infrastructure problems.Most of the country's coal is in the north and there is not sufficient rail capacity to move it efficiently around the country to where it is needed.Meanwhile, there is deadlock in discussions between the cabinet, the power generators and Coal India, with each party wanting the others to pay for the extra cost of imports and meaninglessly small penalties for Coal India if it fails to deliver contracted tonnages, he said."I think it will take another two to three years before there is any progress in these discussions but we are hopeful," he said.One aspect of India's power shortage which gains little attention is the loss of generated electricity due to inefficient transmission and distribution, he said.Up to 40 per cent of power can be lost through inefficient transmission and distribution, compared to around 6 per cent in the Europe and the US, a statistic which, if it could be improved, would reduce the country's urgent need for coal, he said.(Reuters)
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Still battling the fallout of last month's steep Rs 7.54 a litre hike in petrol price, the Indian government said on Friday that it is not considering raising rates of diesel, domestic gas (LPG) and kerosene for the moment."I will only say there is no thinking on this matter. No date for meeting of Empowered Group of Ministers (EGoM) has been fixed," Oil Minister S Jaipal Reddy told reporters here.The EGoM on fuel prices, headed by Finance Minister Pranab Mukherjee, has not met since June last year even though depreciation in the rupee and rise in international oil prices have raised the cost of imports."On this date, there is no thinking. No EGoM meeting has been fixed," Reddy said.The criticism of May 24 petrol price hike has not ended even after a Rs 2.02 a litre dip in rates this month. Primary opposition Bhartiya Janata Party on Friday called for Jail Bharo agitation from June 22 demanding a complete rollback.State-owned oil companies at present lose Rs 475 crore per day on selling diesel, domestic LPG and kerosene. Diesel is being sold at a loss of Rs 14.09 a litre, kerosene at Rs 32.06 per litre loss. Oil companies lose Rs 396 on sale of every 14.2-kg domestic LPG cylinder.IOC (Indian Oil Corporation), Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited had together lost Rs 138,541 crore in revenue in 2011-12. This year they are projected to lose a record Rs 178,498 crore.The EGoM had in June 2010 taken an in-principle decision to deregulate or decontrol diesel prices but its implementation was deferred.The minister had recently stated that he was urging Mukherjee to convene meeting of EGoM soon.Reddy said he was not considering dual pricing of diesel subsidised price for trucks and another rate for high-end luxury cars and power gensets, as it was not practical to implement.Also, his proposal for levying a one-time duty of Rs 80,000 on diesel cars was under consideration of the Finance Ministry.(PTI)
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India's oil refining capacity will exceed 6.2 million barrels per day (bpd) by March 2017 from about 4.26 million bpd now, Oil Secretary G.C. Chaturvedi said in a speech delivered to an industry function on Monday.India and other emerging markets are boosting refining capacity to feed rising regional demand, while their counterparts in the United States and Europe restructure or shut plants as fuel sales slow.Chaturvedi also said India's oil consumption is set to grow by over 4 per cent in the next 10-15 years as compared to the global oil demand growth of only 0.8 per cent.He said diminishing availability of crude oil and its high prices are a matter of concern as India's per capita energy consumption will have to increase to power its economic growth.(Reuters)
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Offsetting a troubled present with a glorious past and rosy future prospects, Mukesh Ambani, Chairman of Reliance Industries (RIL) delivering keynote address at the 38th AGM on Thursday said businesses of the company were impacted by inflation, subsidies and lower growth and that RIL will continue to create value across businesses and aim to outperform global peers. Partnerships will be the key to the company's future growth and it would partner with global leaders across all of its businesses.The assurance came as Reliance shares fell by a third last year. The stock trades near a 3-year low and its market value has sunk to below $41 billion, dumping Ambani from the top of Asia's rich-list. Shares in the company traded with over 1 per cent gains on Thursday.Reminding shareholders of a glorious past, Ambani said Reliance has a unique track record of organic growth and value generation for last 34 years. An investment of Rs 1,000 in our IPO has grown to Rs 7.78 lakh today."He also said RIL expects to double its operating profit over the next four to five years.The company also plans to invest Rs 1 lakh crore ($18 billion) across its businesses in India over the next 4-5 years, he said.Further, Reliance Industries hopes to produce an additional 30 million cubic metres per day of gas at its KG-D6 field off India's east coast, Chairman Mukesh Ambani said. The additional production will be realised through further exploration and development at the field, Ambani told shareholders at the company's annual general meeting on Thursday.Speaking on RIL-BP partnership, Ambani said that it would bring in best technology to achieve best results. "Partnerships similar to BP will be important for company's growth; RIL has grown stronger due to expansion of asset base."Ambani said that the company was seeing an exceptional volatility in input costs. However, he reiterated that RIL will continue to invest in India in the next decade. "Investments in organised retail will create more jobs," he added.The energy-focused conglomerate reported its second consecutive quarterly drop in profit during the three months to March, its shares are near a three-year low, and its rising cash pile has fuelled investor disquiet.Mukesh Ambani Says At 22.5% Of Share Buyback TargetThe stock price of RIL could be expected to go through a phase of consolidation this year. The best to happen for the stock will be a simultaneous buyback and expansion of the current petrochemical capacity from 15 mt to 25 mt.Reliance Industries has bought back 27 million shares to date, 22.5 per cent of its share buyback target, Chairman Mukesh Ambani said.Reliance announced in January it would buy back up to 120 million shares at a maximum value of Rs 10,440 crore, its first share buyback since 2005 and the biggest ever in India. Ambani said on Thursday new projects in petrochemicals and refinery business would come online in the next 2 to 3 years.Investments in refinery downstream would add 30-40 per cent to margins while retail business would be a significant and profitable business for RIL within 3 years, he said. He said 4G commercial rollout plans are being finalised even as the company bets big on shale gas production with output projected to grow ten times in five years from current 30 billion cubic feet. "Even after this investment of Rs 100,000 crore, our balance sheet will be the strongest not only in India but in the world," he said.The company plans to achieve Rs 40,000- 50,000 crore in sales from its retail business in 3-4 years, Chairman Mukesh Ambani told shareholders on Thursday.Reliance operates 1,300 stores under its retail business that sells consumer goods, including apparel, food and electronics. Reliance Retail is India's second biggest retailer in the country after Future group that owns Big Bazaar and Pantaloon Retail. In the year-ended March, Reliance Retail clocked sales of nearly Rs 7,600 crore. Ambani said India's current economic woes are temporary saying he had full confidence in the nation's economic resilience to overcome difficulties and emerge stronger. "We currently finalising plans to offer nationwide digital services," he said.
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