India-focused Essar Energy posted core earnings well short of forecasts, hit by weaker refining margins and depreciation of the rupee, and warned it may scrap some power projects.Full-year earnings before interest, tax, depreciation and amortisation (EBITDA) were $624.8 million, compared with $696.5 million in 2010 and the average forecast of $685 million by 10 analysts which was supplied by the company.Essar is facing twin setbacks in India, its key market for oil products and electricity, due to delays in government approval to mine cheaper coal from its own resources and a court ruling which ended a tax break for a subsidiary."The full-year results reflect challenges on funding position, project execution and fuel sourcing," Deutsche Bank analysts said.Essar's shares, which are worth less than a third of their 2010 listing price, slumped 8.1 percent to 115.8 pence at 1042 GMT, making the company the biggest loser on Britain's bluechip index.Essar Energy -- 77 percent-owned by privately-held Indian conglomerate Essar Group -- is the majority shareholder in India-listed Essar Oil which is trying to review an Indian court ruling ending removing its deferred payment of sales tax.Essar Oil had deferred $1.24 billion under a tax break from the government of India's western state of Gujarat, where the company's Vadinar refinery is located. Under the previous deal, the sales tax had been repayable from 2021 onwards.Naresh Nayyar, Chief Executive of Essar Energy, said he was confident that any repayments due will be met through internal funding and new loan facilities, and that Essar Energy will be able to refinance a $450 million loan which expires in December."We don't see any issue of raising this capital or raising these funds and meeting our obligations in the case that our review petition is not successful," he said on a call with reporters.The company also said that it might not participate in a future $609 million capital raising planned by Essar Oil, potentially reducing its 87 percent stake in the unit.Essar Energy said it was having to source higher cost coal from outside India to fuel its power stations as it awaited government clearance for it to be able to start mining its own coal.As a result, Essar said it may shelve plans for three power projects which would require $3.1 billion of investment."Essar Energy has also decided to progress the construction of three of its later stage power projects at Salaya II, Salaya III and Navabharat I, totalling 2,970MW, which were due to be commissioned in 2014, only against certain milestones," said the company.Deutsche Bank analysts said that the decision to possibly scrap the power projects and not participate in the Essar Oil capital raise would give Essar Energy more headroom and make refinancing attempts easier.(Reuters)
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Power. That's what the National Thermal Power Corporation (NTPC) generates, literally. The country's biggest power producer, which lights up 30 per cent of India, has been undeterred by the entry of private players, and it plans to become a 75,000 MW company by 2017 and a 128,000 MW company by the year 2032. Even with its current installed capacity of 33,194 MW, NTPC is the biggest power generating company in the country. Its closest competitor from the private sector, Tata Power, has an installed capacity of just 2,977 MW. Small wonder then, that NTPC has emerged the winner in the power category in BW's Most Respected Companies (MRC) survey for 2011. It is worth noting that in this year's survey, power has been separated from infrastructure because of its growing significance. However, the company is not only about size. In fact, NTPC emerged numero uno on all parameters except one. It topped in innovativeness, depth and quality of top management, ethics and transparency, quality of products and services, people practices/talent management and global competitiveness. For financial performance and return to shareholders, both Tata Power and NTPC are tied in the first position.NTPC's size translates into numbers as well. In FY 2009-10, its sales of Rs 48,221.32 crore looms large over the likes of Tata Power (Rs 7,098.27 crore) and Power Grid Corp. (Rs 7,127.45 crore). That is to be expected, but NTPC's profitability is also impressive. Its operating profit margin (OPM) of 32 per cent in the previous fiscal is better than Tata Power's 30.2 per cent, though it pales in the face of Power Grid's OPM of 86.3 per cent. And though net profits grew by 6.42 per cent — from Rs 8,201 crore in 2008-09 to Rs 8,728 crore in 2009-10 — net profit margins grew by 18 per cent.And if the results of the first three quarters of FY 2010-11 are anything to go by, its growth story will continue in the coming year, too. In the first nine months (April-December), NTPC's total income has risen by 18.75 per cent to Rs 43,062.76 crore compared with the same period a year before. No 2: Tata Power Managing director Anil Sardana will have to work on strengthening the power generation business of the companyNo 3: PowerGrid Corporation Expanding the company's business to West Asia and North Africa is what CMD S.K. Chaturvedi is aiming for So, what makes it such a success story? Former chairman and managing director of the company, R.S. Sharma, who spent almost his entire career with NTPC, attributes the company's success to its new growth strategy. "Earlier, NTPC had 100 per cent ownership of all its power stations, now it is venturing more into joint ventures," says Sharma, who retired in August last year. "For example, we will acquire the Patratu thermal plant on a 74:26 ownership." The coal import cell (NTPC has plans to buy stakes in two of Indonesia's coal mines) and the initiation of a world-class integrated project monitoring system have also contributed to NTPC's success, according to Sharma.Apart from being aggressive in increasing its installed capacity — it currently has 15,740 MW under construction, including 1,320 MW hydro-based capacity — NTPC is diversifying its portfolio and also expanding its global footprint. The company is foraying into solar power projects and is eyeing Maldives for establishing them, a move that would enhance NTPC's green footprint. It is currently conducting a feasibility study in Maldives, and the final report is expected in the next few months.However, some of NTPC's projects have been plagued by environmental issues. Though the company claims that it is doing its bit to minimise pollutants from its coal-based projects by assigning new environmental measures such as launching environment services programmes, going for 100 per cent water recycling, installing back filters, etc., how far these would help is to be seen. It faced a major setback when its Loharinag Pala hydel project on the Bhagirathi river in Uttarakhand was scrapped by a group of ministers citing environmental concerns. NTPC has already pumped in Rs 700 crore in the project, and has approached the Centre for its revival.The company's current chairman and managing director, also the first non-NTPC person to hold this position, Arup Roy Choudhury, says, "These issues are a matter of interpretation. Development does have an impact on the environment and those who are in a decision-making position will agree that development is vital to a country like India. So, how we mitigate the effect of the environment in these projects is most important."Timely delivery of projects has been an issue with NTPC. Roy Choudhury agrees that in the past few months they have fallen behind schedule. But he feels it has more to do with them having optimistic targets rather than any serious problems. "We added 3,500 MW in the last plan and we'll add about 13,000 MW in this plan. We might be slow in our deliveries, but it is not that our targets are being missed."Analyst Jal Irani of Macquire-India, however, points out the glitches. "NTPC's biggest advantage is its cash balance, but it has to really pull its strings up with the private players such as Tata Power, Reliance Power and Adani Power getting very aggressive." Irani feels that with the new competitive bidding norms for tariffs, private players will make the most of it. Moreover, the capacity addition plans of NTPC are all long-term, and private players are catching up. For instance, Reliance Power aims to increase its installed capacity to 25,000 MW by 2017. Roy Choudhury, though, seems undeterred by the growing presence of private players. "Private players are no competition to us. They'll be a threat only when they can match up to NTPC's calibre and size. We encourage them because they are adding power for the country."Diversification seems to be the main focus of NTPC apart from capacity addition. From power distribution, to merchant power, to acquiring coal mines, the power major is making itself stronger. For many years, NTPC, a Maharatna company, has enjoyed near monopoly in the sector. Whether it continues to stay ahead will depend on its ability to implement its plans, and the aggressiveness of the private players. As of now, this story has a happy ending. (This story was published in Businessworld Issue Dated 14-02-2011)
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Petrol prices will not be raised this fortnight as state-owned oil firms apparently could not get political clearance for the over Rs 2 per litre hike in rates needed to achieve parity with the imported cost on account of the weakening rupee.Indian Oil (IOC) and other state-run firms, which had last month refrained from hiking petrol prices as the government was wary of protests while Parliament was in session, are not raising the rates even this fortnight, a source privy to the development said.Given the drubbing the Lokpal Bill got in the Rajya Sabha, the government does not want to alienate the Trinamool Congress, the most vocal opponent of fuel price increases within the ruling UPA.Furthermore, Assembly elections in five crucial states, including Uttar Pradesh and Punjab, have been announced and a hike in petrol prices would have created a "negative image", the source said.Oil firms, as per the usual practice, revise the rates for petrol on the 1st and 16th of every month based on the average imported price of oil and exchange rates during the previous fortnight. However, they postponed a decision on the hike on December 31 as it was New Year's eve.Today, the oil firms could not get the "informal political approval" they used to seek from their majority shareholder, the source said.A hike of over Rs 2 per litre was necessitated because the rupee depreciated to Rs 53.07 per US dollar in the second fortnight of December, based on which the rates on January 1 were to be decided. The average exchange rate stood at Rs 51.98 per US dollar in the first fortnight of December. International prices of gasoline, against which domestic petrol rates are benchmarked, averaged $111.71 per barrel in the second half of December, almost the same as in the previous fortnight.Petrol at IOC and Bharat Petroleum Corp (BPCL) pumps in Delhi is now priced at Rs 65.64 per litre, while it costs Rs 65.65 a litre at retail outlets of Hindustan Petroleum Corp.The trio had cut petrol prices twice in November in the wake of a drop in international oil rates. They reduced petrol prices by Rs 2.22 per litre, or 3.2 per cent, from November 16, followed by a Rs 0.78 per litre cut from December 1.The domestic rates, which were last revised on November 30, are pegged at a Rs 51.50 per US dollar exchange rate.State-owned oil companies use the fortnightly average of benchmark oil prices and exchange rates to revise retail rates on the 1st and 16th of every month.Petrol prices were freed from government control in June last year, but public sector companies continue to informally consult their parent Oil Ministry before taking any decision.The government continues to control rates of diesel, domestic LPG and kerosene, which are sold way below cost to keep inflation in check. The oil firms lose Rs 12.71 per litre of diesel, Rs 29.93 per litre of kerosene and Rs 326 per 14.2-kg LPG cylinder.(PTI)
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Consider this: The government's revenue mop-up stood at Rs 5.2 lakh crore for the first nine months of 2011-12. The target for the entire fiscal was Rs 8.4 lakh crore. Industrial output slowed down to 3.6 per cent during the period. It was 8.3 per cent last year. In December industrial output grew a measly 1.8 per cent. It grew 8.1 per cent last year. Meanwhile, the government's expenditure zoomed to 92 per cent of the targeted fiscal deficit of 4.6 per cent for the current financial year. The government faces prospects of a revenue shortfall and ballooning fiscal deficit. These problems, in good measure, have been due to its own inaction at various levels of policy making. Now, with the annual budget around the corner, all eyes are on Finance Minister Pranab Mukherjee for a clear policy direction on a host of economic matters to revive growth. One such area is sustainable utilisation of natural resources, which is one of India's strengths but has remained unleveraged due to a lack of consistent approach by successive governments.Last year, for instance, the government set up a committee headed by former finance secretary, Ashok Chawla, to look into the methods of allocation, pricing and utilisation of natural resources following the 2G scam and a stand-off between brothers Mukesh and Anil Ambani over the terms of a natural gas supply pact. But it has not made the panel's findings public yet, much less act on it. "Creating a framework for a fair and transparent utilisation of natural resources is the most difficult economic issue in the country," says the chief economist of an industrial giant requesting anonymity. The industry is looking for a clear policy direction in several sectors of the economy to revive growth (AP) The way forward, however, is not very difficult. According to Gopal Jain, a Supreme Court advocate and an expert on regulatory matters: "There is no harmony between government policy, regulation and contract...The government should formulate the broad policy in consultation with the regulator. After that the regulator should drive the process, set the rules and manage the entire process of pricing and utilisation." So what are the critical issues that need to be addressed with regard to our natural resources? Let's take a look.SpectrumThe online auction of third generation wireless spectrum was seen as a fair attempt at allocating this resource. The government earned more than Rs 67,000 crore, but the industry led by Bharti Airtel's Sunil Mittal complained that pricing had "taken the sheen off the telecom industry". However, it was a good effort at leveraging the value of a resource. Says Amir Pasrich, a Supreme Court advocate and infrastructure law expert: "If we can't safeguard assets by procedures and honest dealings, we must do so with the use of market forces..." A report prepared by A Chawla-led panel on allocation, pricing and utilisation of natural resources is gathering dust (BW Pic By Tribhuwan Sharma) In contrast, the 2G scam and the subsequent cancellation of licences by the Supreme Court has only underlined the devastating impact of flawed policies on government and industry. "If auction is the way, then the government should ensure that it remains the consistent policy. Sure, policy matures and evolves with time. But this should not automatically mean that the previous pricing and allocation policy was illegal. Foreign investors are not happy with rules that change with retrospective effect," says the CEO of a global telecom company, requesting anonymity. The major problem areas for policy makers, however, are the other natural resources: Land and water, and what lies beneath. LandThe UPA government's Land Acquisition, Resettlement and Rehabilitation Bill has tried to address the problem of land valuation. It has led to stand-offs between industry and landowners and has stalled a number of projects. But, it has gaps. The law, for instance, has fixed the minimum price of land sold to private developers at twice its market value for urban areas and four times in rural areas. Also, it requires that at least 80 per cent of those living on that land should agree to sell. But the true market price of land rarely emerges in the face of rent ceilings, tenancy laws as well as Adivasi land laws. As a result, many state governments and industry leaders are upset with the law. For instance, Maharashtra says its target of acquiring 60,000 hectares for industrial usage will not be achieved because of the extra costs involved. break-page-breakMinerals, Oil And GasThere is a huge growth potential for India's $22-billion mining industry which contributes only about 1.9 per cent to the GDP as compared to Brazil, South Africa and Australia where mining's contribution is 5-7 per cent. But the government is doing little to help. The new Mines and Mineral Development and Regulation Bill requires coal companies to share 26 per cent of their profits with the local community and non-coal companies 100 per cent of their royalty. Says Mukesh Kumar, president and COO of Vedanta Aluminium: "The Supreme Court's formula is better. It has asked for 5 per cent of profit before tax to be invested every year in 50 km area of the plant. Also, a special purpose vehicle should be created to ensure that money is invested locally." Then, there is illegal and environmentally damaging mining, which is preventing the right valuation and utilisation of minerals. "The government must get all environmental clearances, check the mineral resource available in a transparent way and then auction the sites,'' says Chandra Bhushan, deputy director general of Centre for Science and Environment. "If tasks are left to the bidders, they will find ways to navigate around the laws." CAPPED FLOWS: Inconsistent policies are keeping foreign investors away (Bloomberg) Fixing the right valuations of natural resources is a concern elsewhere, too. Says Mark Runacres, India adviser, Confederation of British Industry: "The valuation of natural capital is currently being explored by the UK government through its Natural Environment White Paper and through the resource efficiency roadmap at the EU level. The government is setting up two committees which relate to valuing natural capital."Interestingly, the Federation of Indian Mining Industry, FICCI and CII have endorsed the auction method for areas where minerals have been identified. But the progress has been tardy. Of the 30,000 sq. km area that is believed to have bauxite, only 2,352 sq. km has been mined. "There has to be more transparency in oil and gas prospecting too,'' says Bhushan. "There are too many claims and counter-claims on oil and gas field discoveries." What is needed is an independent regulatory mechanism to harvest this extremely valuable resource. The Directorate General of Hydrocarbons is a division of the petroleum ministry. And the Petroleum and Natural Gas Regulatory Board is not allowed to regulate production and exploration policies. Both bodies need to be strengthened and made independent. Despite several rounds of exploration bidding, industry remains sceptical of the process. Also, taxation issues and inconsistent policy have kept foreign investors away. Production sharing contracts between PSUs (Public Sector Unit) and domestic and foreign corporations were hotly debated in the gas supply row between the Ambani brothers last year. Development needs deep thinking and mature policies. The government has been collecting money to compensate people for taking away their land, but it has not been able to do enough with it. The Compensatory Afforestation Fund Management and Planning Authority under the Ministry of Environment and Forests has about Rs 15,000 crore of reserves yet to be invested in the people who need it. Much of these economic policies will work if enough political ground work is done. If done well, the government could be looking at surpluses of a few thousand crore of rupees and not deficits. It does not have to dig too deep for rich solutions. bweditor(at)abp(dot)in(This story was published in Businessworld Issue Dated 27-02-2012)
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The government on Thursday moved forward to implement its decision to allow Indian carriers to directly import jet fuel, with the Civil Aviation Ministry writing to the Commerce Ministry to take the necessary steps.The decision was taken earlier this month at a meeting of a Group of Ministers on aviation, headed by Finance Minister Pranab Mukherjee, that the Commerce Ministry would permit direct import of Aviation Turbine Fuel (ATF) "by or on behalf of Indian carriers directly as the actual user and on actual use basis," officials said here.The cash-strapped Indian carriers, particularly Kingfisher, have been demanding allowing of direct imports due to the high incidence of taxation on ATF by state governments which led its price to be 30 to 40 per cent higher in India than in countries like Singapore, Japan, and those in the Gulf and in Europe.However, the officials said the Indian carriers would have to make their own tie-ups with the suppliers having infrastructure to import ATF directly for their use.The sourcing of ATF through direct imports would lower the overall procurement cost for the airlines as sales tax varying from four to 30 per cent in different states would be required to be paid only when local purchase was unavoidable, they said. The decision would also bring down the cost of working capital to the airlines, as suppliers' credit on lower interest rates would become feasible, the officials said.The Civil Aviation Ministry had sent the letter to Commerce Ministry on Wednesday, they said.Most of the Indian airlines owe substantial amounts to oil companies on account of jet fuel.Air India owes over Rs 4,170 crore to public sector oil companies in unpaid jet fuel bills, according to figures tabled in Parliament, while all other private carriers together have dues worth over Rs 2,000 crore.Flight schedules of airlines like Air India and Kingfisher have been disrupted on several occasions in the past few months due to these oil firms stopping ATF supplies due to non-payment of dues.Following frequent disruption to flights, Government recently asked the oil PSUs to extend the credit period to 90 days.Since the days of Praful Patel, successive Civil Aviation Ministers, including incumbent Ajit Singh, have written to the Chief Ministers of all states to bring down the rate of sales tax on ATF in order to make ATF cheaper for the Indian carriers.However, most of the states have not responded favourably, the officials said.They said the revenue from sales tax on ATF contributes only 0.5 per cent to two per cent of the total sales tax collection of the states.But for the airlines, it is almost 40 per cent of the total operational cost, imposing a heavy burden on the beleaguered companies.(PTI)
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Essar Oil has filed a petition in the Supreme Court seeking to review a judgment that prevents the company from deferring payment of a sales tax, Essar said.The petition seeks to review a ruling by India's top court in January that invalidated a judgment made by the Gujarat High Court in 2008. The earlier high court ruling permitted the company to pay the sales tax in deferred instalments.Essar Oil, 87 per cent owned by London-listed Essar Energy, has deferred Rs 6,100.80 crore under a tax benefit provided by the government of Gujarat, where the company's Vadinar refinery is located.Essar Energy lost around a quarter of its market value in a single session after the January ruling.Shares in Essar Oil extended gains after the announcement on Thursday, rising as much as 3.3 per cent in a Mumbai market down 0.8 per cent.(Reuters)
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As we enter 2012, the search for a chairman for the National Highway Authority of India (NHAI) promises to set a new record in slow government decision making.Brijeshwar Singh, the last full-time chairman, retired in December 2010. The search for his successor had begun six months prior to his retirement, but to no avail. Now, road secretary A.K. Upadhyay holds the charge of chairman. When C.P. Joshi took charge as road transport and highways minister in January 2011, he decided to include private sector professionals. In July 2011, Prime Minister Manmohan Singh set a three-month deadline for selection of a new chairman. In August, Joshi's ministry moved a proposal to include CEOs of top infrastructure firms with a turnover of Rs 3,000-Rs 5,000 crore. Prior to this, the eligibility was restricted to heads of PSUs and officials of additional secretary level or above.Sources say that the ministry had written to the Appointments Committee of the Cabinet seeking approval for this, which has been given.The rules and criteria for selection are yet to be notified. According to NHAI sources, the latest tussle has arisen because the Department of Personnel and Training (DoPT) is doing "everything in its power to block this proposal". Says one NHAI source: "You underestimate the tenacity of the bureaucracy when it comes to preserving their own interests. Even if they don't benefit directly, they will try to keep such assignments limited to themselves." In his view, it will take more than just one minister's will to break this cosy nexus, because it is like "opening the floodgates". Once this kind of widening of criteria is permitted in one area, it could easily spread to other coveted posts such as chairman of Trai or Competition Commission.The roads ministry has now turned the tables and sent a reminder to the DoPT, while expressing displeasure at the non- responsiveness of the personnel department but to no avail. Unless the department approves and notifies the rules and criteria for selection, applications for the post cannot be invited.The post of NHAI chairman remains a coveted one for most since it is a secretary-level post; during Kamal Nath's regime, the term of the post was extended from three to five years. Typically, when most IAS officers become secretary-level, they have two-three years of service left. The chairmanship gives them the opportunity to enjoy secretary-level benefits for five years.Will NHAI have a full-time chairman before the end of 2012? It is anybody's guess, say companies in the highway sector. (This story was published in Businessworld Issue Dated 09-01-2012)
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The Delhi Government's decision to invest equity worth Rs 500 crore in Reliance ADAG's BSES Rajdhani and BSES Yamuna (provided the Reliance Group also brings in equal equity) sets a bad precedent. Now the Tatas also want a similar equity infusion. After privatising the distribution of power in Delhi, the government has no business in putting in more money in the loss-making companies that handle distribution; the step does not in any way solve the long-term problems of the sector in the state.The two BSES companies have held that they are making losses due to low tariffs, which has led them to defer payment to the power generating firms from whom they buy electricity.If that argument is true, the tariffs need to be revised. On the other hand, if the BSES companies are in a financial mess due to inefficiency, nothing needs to be done to help them. It is, after all, not the government's job to help private companies that cannot run their businesses properly. By putting in equity, the Delhi government is essentially using the tax payer's money — and using it inefficiently.Sure, the government needs to act urgently to make sure that consumers in Delhi do not suffer from a power crisis. But putting money in the form of equity in the BSES companies is not the correct step. STRICTLY BUSINESSHow to make Delhi a better place to live and work? Chief minister Sheila Dikshit has an idea — make the National Capital Region a common economic zone. Her logic: it will ensure uniform development of satellite towns, and de-congest the capital city. (This story was published in Businessworld Issue Dated 09-01-2012)
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