Investments into India's power sector are slowing despite a chronic electricity shortage that threatens GDP growth, executives told the Reuters India Investment Summit, due to coal shortages, land hassles and an inability by distribution companies to raise tariffs.Asia's third-largest economy, where blackouts are common, faces a peak power shortage of 13 per cent as rising demand from industry, homes and shopping malls outstrips capacity growth.The energy-hungry nation needs to add over 75,000 megawatts in the five years to March 2017 to support its target of 9 per cent GDP growth, according to a government report. That will cost roughly Rs 1,098,300 crores, with half the investment to come from the private sector. But investor appetite is weak."We are very worried about the power sector, for the simple reason that it is the catalyst for growth," R Shankar Raman, chief financial officer at engineering conglomerate Larsen & Toubro, said at the Summit."Unless we fix that, much of the other investments are not going to happen easily," he said. Larsen & Toubro last month slashed its overall order growth guidance for the current fiscal year by two-thirds to 5 per cent, blaming slowing investments.Firms struggle to get permission for land purchases and coal supplies from state and central authorities, while state-run distributors have ramped up debts due to their inability to raise low tariffs - part of populist measures to provide cheap power to the poor.India's peak power deficit in October stood at 13.1 per cent, according to data from the Central Electricity Authority, up from 9.4 per cent a year previously."The situation in the power sector has definitely worsened. At this point, fresh investments on a large scale are not happening," said Salil Garg, director at Fitch Ratings India."In the short term, there are several issues hindering investments, and it is also clear that financial health of state utilities, which are the main buyers, will not improve soon."Planned projects have been put on hold and plants already under construction are also facing delays, Garg said.A slew of corruption scandals has put the government on the back foot and slowed reforms. That has hurt business sentiment, already suffering due to high interest rates, soaring inflation and global economic woes that have muted demand.India is likely to grow at around 7.6 per cent in the financial year to March 2012 compared with 8.5 per cent a year earlier, according to a Reuters poll."If there is a power shortage of 15 per cent, it obviously represents lost economic activity for industry," said Kameswara Rao, executive director for government and infrastructure at PriceWaterhouseCoopers India."Certainly there is a serious implication in terms of GDP impact," he said.Rising Costs, Low TariffsCoal accounts for 55 per cent of India's power generation capacity of 182,344 MW. While India holds 10 per cent of the world's coal reserves, power firms often struggle to access local supplies due to environmental and land acquisition delays, forcing expensive imports.Most new power projects - dependent on imported coal - have seen their costs jump in the past year due to the rise in global coal prices and a weakening of the rupee."If power companies have to sell power at lower rates when the cost of generation is going up substantially, it becomes difficult," M.V.S. Seshagiri Rao, chief financial officer of the steel and power-focused JSW Group, told the Summit."In the current scenario, power firms are at a disadvantage because of mismatch between cost and tariffs. That requires correction," he said, adding the group would only make further investments in the sector if it was assured of coal supplies.Shares in India's biggest power firms have been battered this year, with the sector index shedding 37 per cent since January, against a 22 per cent fall in the benchmark index.State-run power gear provider Bharat Heavy Electricals Ltd has seen its shares lose 44 per cent of their value.Ratings agency CRISIL last month warned of stress in the power sector due to rising losses and high debt among state-run distribution firms. CRISIL estimated power distribution companies would need to raise tariffs by 47 per cent just to break even in 2011/12."Unless we improve the health of the state electricity boards, the entire economic progress could come to a halt," Akhil Gupta, chairman of the Indian unit of US private equity firm Blackstone Group, which has almost $1 billion of investments in Indian power-related firms, told the Summit."Some states have not raised prices for 25 years. Imagine anything else in the world that has not changed in price for 25 years," he said.(Reuters)
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Calling India a "valued partner", US Assistant Secretary of State for South and Central Asian Affairs Robert Blake said Washington will continue its dialogue with New Delhi on the issue of sanctions against Iran.Asked if India is undermining the sanctions regime against Iran by "ramping up" trade engagement, Blake said, "We continue to have a good dialogue with many countries, including India, on the Iran sanctions. India (is a) valued partner".Blake was responding to questions over social networking site Twitter.As the Obama administration imposed new sanctions against Iran, US had said last week that it was talking to India, Pakistan, Russia, and China about what they can do about weaning themselves from Iranian crude."We are engaged in conversations with all of these governments with regard to the importance of implementing existing international sanctions, national sanctions," State Department spokesperson Victoria Nuland had said when asked about several countries still doing business with Iran.(PTI)
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Running against time to meet the Rs 40,000-crore disinvestment target, the Centre decided to offload five per cent stake in ONGC on March 1 through auction route at a floor price of Rs 290 a share that could fetch the Exchequer about Rs 12,000-13,000 crore."The ONGC stake sale through the auction route (will take place) in couple of days," Oil Minister Jaipal Reddy told reporters after a meeting of the Empowered Group of Ministers (EGoM) which was chaired by Finance Minister Pranab Mukherjee."The floor price for the sale has been fixed at Rs 290 per share," ONGC said in a late night filing to NSE. The floor price, the minimum price for selling a share, is over 2 per cent higher than ONGC's closing price of Rs 283.05 on NSE and Rs 283.55 on BSE.The auction will be between 9.15 am and 3.30 pm.The government owns 74.14 per cent stake in ONGC and proposes to offload 427.77 million shares or 5 per cent equity. The sale may fetch the hard-pressed government about Rs 12,000-13,000 crore this fiscal.The shares would be sold to institutional as well as retail investors on the "price priority" basis.Six brokers including Citigroup Global Markets India, Morgan Stanley India Company and DSP Merrill Lynch will manage the share sale.The auction route or 'offer for sale of shares by promoters' involves very little paperwork and the whole process can be done within one trading day.Capital market Regulator Securities and Exchange Board of India (Sebi) had issued norms allowing promoters to sell stake by way of auction, through a separate window on BSE and the NSE, which has to be completed within a day.The auction route or 'offer for sale of shares by promoters' involves very little paperwork and the whole process can be done in just a trading day.This is the second disinvestment this fiscal, after mopping up Rs 1,145 crore through stake sale in Power Finance Corp. The government envisages to raise Rs 40,000 crore through disinvestments this fiscal.(PTI)
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After much debate, the modified Development Control Rules relating to construction and buildings in Mumbai have been implemented by the state government. These changes steered by chief minister Prithviraj Chavan aim to end corruption; but the provisions have left a divided community of builders, town-planners and architects. Among the major changes is the curtailment of the municipal commissioner's power to regularise conversion of flower beds, voids, terraces and lily ponds into covered areas that become part of the apartment. Earlier, these were shown as part of the sanctioned plan but were not treated as FSI (floor space index)/FAR (floor area ratio) of the building. However, they were built in a manner that they could be later merged. Builders sold these areas as part of the project to unsuspecting consumers. The new rules allow residential and commercial projects to increase permissible area by 35 and 20 percent, respectively, provided a premium is paid. The DC Rules (DCR 36) makes it incumbent on builders to provide more parking space in buildings by allowing three levels of basement parking. Municipal commissioner Subodh Kumar's circular also makes it mandatory for the building proposal department to clear all construction plans within 60 days of application. With as many as 20 clearances required, this department had become a cesspool of corruption. Though the clearance-in-60-days provision is part of the Maharashtra Region and Town Planning Act (MRTPA), it has now been reiterated as municipal fiat. Kumar is hoping to limit graft and speed up construction. PRITHVIRAJ CHAVAN ATTEMPTS TO CURB GRAFT In a joint statement, Ajay Piramal and Adi Godrej said the new provisions will create a "transparent and objective approval system". The Maharashtra Chamber of Housing Industry (MCHI), which had earlier opposed some measures, has supported the modified changes. Paras Gundecha, president of the MCHI, says the new rules will create a level-playing field and reduce the scope for arbitrary decision-making. However, Shashi Kumar, head (real estate and investment advisory), Birla Sunlife AMC, says that plans that were sanctioned before the new rules came into effect on 6 January but are not in tune with the new provisions, would have to seek fresh approval. This will leave many projects in a limbo, he says. Town planners such as P.K. Das fear that many provisions have been excessively watered down. For instance, the mandatory open space around buildings has been fixed at just 1.5 metres (5 feet) though the original recommendation was for 6 metres (20 feet). With high-rise buildings barely 10-15 feet apart, it will increase crowding. Despite such reservations, these changes are nonetheless a serious attempt to strengthen the rule book for an industry plagued by corruption. (This story was published in Businessworld Issue Dated 06-02-2012)
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Refiner Essar Oil said a tribunal had ruled against the company in a case relating to its Rs 3020 crore insurance claim for damages sustained by its refinery during a cyclone in 1998."The verdict has no impact on our business since the claim amount has never been accounted for in Essar Oil's books," the company said in a statement on Tuesday.Essar had drawn an insurance policy with state-run United India Insurance Co in 1996, the company said.(Reuters)
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GMR Infrastructure Ltd is in talks with private equity investors to raise roughly Rs 84,000 crore by selling stakes in road projects, three sources with direct knowledge of the mattter said.The company is in talks with a fund jointly managed by India's largest lender, State Bank of India, and Australia's Macquarie Group for an investment, sources said.It is also in talks with UK-based private equity firm 3i Group Plc and IDFC Project Equity, a fund managed by India's Infrastructure Development Finance Co, said the sources, who declined to be named as the negotiations were not yet public.GMR is also looking at an eventual initial public offering of its road assets, said the sources.GMR Infrastructure, IDFC, 3i and SBI-Macquarie all declined to comment.(Reuters)
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State-run Oil and Natural Gas Corp and GAIL India plan to offer Rs 9,840 crore to acquire Africa-focused gas explorer Cove Energy, a local media report said, joining a bidding war over the UK-listed company.The offer would beat a Rs 8,708.40 crore bid by Thai state-controlled oil and gas group PTT and Royal Dutch Shell Plc's offer worth Rs 7,872 crore earlier this month, which already represented a 70 per cent premium to Cove's share price when it announced plans to sell in January.ONGC Videsh Ltd, the overseas investment arm of oil explorer and producer ONGC, and GAIL could make their combined bid this week, the Times of India newspaper reported on Tuesday, citing sources familiar with the matter.The state-run consortium may value London-listed Cove at 245 pence-a-share, the report said.Officials at ONGC Videsh and GAIL could not be immediately reached by Reuters.PTT said on Friday it planned a 220 pence-per-share bid with a proposed offer worth 1.12 billion pounds, trumping Shell's offer for Cove. PTT declined to comment on the newspaper report on Tuesday.The emerging battle reflects intense industry interest in East Africa, a previously little-explored area which is tipped to become a major natural gas producing region.Cove's main asset is an 8.5 per cent stake in Mozambique's Rovuma Offshore Area 1, where another operator Anadarko said recoverable reserves could top 30 trillion cubic feet of natural gas.Bharat Petroleum Corp and Videocon Industries Ltd own a 10 per cent stake each in the Rovuma block.Cove kicked off a sale process in January, and Shell attempted to pre-empt rivals by making an early 992 million-pound offer proposal, which was described by analysts when it was announced as stretched .Companies eyeing Asia's rapid growth have been keenly seeking opportunities to buy up global resource assets.Indian steel, power and coal companies have been scouting for overseas coal mines to satisfy demand from the fast-growing economy, Asia's third largest.But state-run companies such as Coal India, GAIL and ONGC have not been particularly successful in closing large overseas acquisitions in recent years and have shied away from bidding wars despite sitting on huge piles of cash.An Indian state consortium of five companies in January last year decided not to counter Rio Tinto's Rs 19,188 crore bid for Australian miner Riversdale, after hiring a consultant and spending weeks weighing bid options.(Reuters)
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Coal India will implement a new pricing mechanism by the month-end but will ensure this will not result in higher prices for power producers, coal minister Sriprakash Jaiswal said.Earlier this month, the state-run miner decided to benchmark the pricing for non-coking coal to gross calorific value (GCV) from the current useful heat value (UHV) based gradation, a move that is expected to push up costs for cement and steel makers."We are going ahead with GCV pricing. But all complaints of power producers will be addressed by month-end," Jaiswal told reporters, assuring there would be minimal impact on power companies.(Reuters)
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