State refiners have cut petrol prices by Rs 0.78 per litre, the second reduction in two weeks.The reduction was lower than the anticipated Re 1 per litre because of firming of international prices and drop in rupee during past 48-hours.Petrol in Delhi will cost Rs 65.64 per litre against Rs 66.42 a litre currently.The reduction comes on back of a 3.2 per cent or Rs 2.22 per litre cut in rates effected from November 16, the first reduction in retail prices in nearly three years and the first since prices were decontrolled in June 2010.Refiners discuss prices every two weeks and so far in this fortnight, spot FOB gasoline prices in Singapore have averaged $108.76 a barrel compared with $114.13 in the previous fortnight, according to Reuters calculations.India's three state fuel retailing giants, IOC, Hindustan Petroleum Corp and Bharat Petroleum Corp tend to move their prices in tandem.Petrol is nowhere near as widely used as diesel in India -- accounting for around 10 percent of fuel demand compared with about 40 percent for diesel -- but it is high-profile because it powers many of the cars owned by the growing middle class.Gasoline has a 1.09 percent weighting in the inflation index and near double-digit consumer prices have provoked criticism of the government, which subsidises other fuels such as diesel and cooking gas.The widening price gap between gasoline and diesel has slowed the growth of gasoline consumption, which has recently fallen behind that of diesel.(Agencies)
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The past two months have seen the Indian power sector limp from one crisis to another. Last month Damodar Valley Corporation (DVC) threatened to stop power supply to two distribution companies (discoms) — BSES Rajdhani Power and BSES Yamuna Power — in Delhi. Much to the relief of DVC, the issue was resolved after the Supreme Court's intervention which instructed the distribution companies to pay Rs 45 crore by November out of the Rs 141.24 crore the companies owed. This is the second time in past few months that the Capital has been on the brink of a major power outage. Both times, it was a payment crisis. In September, state-owned National Thermal Power Corporation (NTPC) threatened to stop supply of power to BSES Rajdhani and BSES Yamuna if dues of over Rs 900 crore were not cleared. BSES, later, agreed to pay the arrears within a month. The power payments crisis is not restricted to Delhi. Across the country, state electricity boards (SEBs) have accumulated bad debts amounting to over Rs 75,000 crore. It is estimated that by 2014-15, this will rise further to Rs 125,000 crore. Five states — Rajasthan, Tamil Nadu, Uttar Pradesh, Haryana and Madhya Pradesh — account for close to 70 per cent of the bad debts today. In effect, the power sector is heading for a crisis similar to the one it faced in 2001. That year, the government bailed out the utilities by writing off Rs 41,000 crore. Thanks to the payment crisis, banks have now imposed an embargo on fresh loans to power utilities and distribution companies. The risk that banks face is due to two reasons: rising losses and debt levels in power distribution companies, and the shortage of fuel availability for power generation. Most banks have hit the cap on lending to the power sector. Already Bank of India is set to restructure a quarter of its power loans while Allahabad Bank has frozen lending to the sector. Owing to subsidised tariffs, the mounting losses of distribution companies have, in fact, put the country's financial system under strain. What is surprising is the fact that this is happening in an economy that is growing at over 8 per cent per annum. Insufficient Tariff HikePower demand is rising at close to 10 per cent per annum. However, distribution companies do not have the freedom to hike tariffs which are still regulated by the state governments. While in most states farmers are provided free power, bulk users like industry end up paying more. That is in sharp contrast to what happens in other countries where industrial power is cheaper. As state governments subsidise power to domestic and farm users, discoms face the music of such anti-economic policies. Power generation costs depend, to a large extent, on fuel costs. In India, it ranges from a low of 28 paise a unit (where power plants have access to captive mines) to Rs 2.60 a unit in the case of imported coal. Therefore, a power plant that survives on imported coal would seek close tariffs of at least Rs 3 per unit. However, tariffs across the country are much lower. In many states, power tariffs are revised after a gap of several years. A classic case is Tamil Nadu, which is one of the biggest defaulters. Tariffs in the state ranges from Rs 1.10 per unit to Rs 4.05 a unit. The state offers free power to farmers and power looms that consume less than 500 units in two months. The power tariff in Tamil Nadu is an average of Rs 2.35 per unit. The gap between cost to serve and revenues in the state is Rs 1.66 per unit. The power tariffs were hiked last in 2010 after a gap of seven years. In Delhi, power tariffs were increased by 21.7 per cent this August after a gap of five years. A BSES spokesperson points out that despite the recent hike in power tariffs in the capital, it is still incurring a loss of Rs 1.13 per unit.The problem of distribution companies gets aggravated because the power generating companies (most of which are run by private players) threaten to pull the plug in case of non-payments. These power-generating companies refuse to lose money simply because states consider free power to be a part of vote-bank politics. As a larger chunk of power in the country is generated by private power plants, the pressure on distribution companies to meet payment commitments is bound to rise. Over the past few months, many states have finally begun to bite the bullet and increase power tariffs. In September, Gujarat raised power tariffs by 22 paise a unit. Punjab hiked rates by 7-12 per cent. Others like Rajasthan have not revised tariffs for years due to political compulsions. Moreover, high technical and commercial losses which stand at 28 per cent and inadequate subsidy payments from states have led SEBs to incur losses to the tune of Rs 68,000 crore in fiscal 2011 as per the estimates of the draft Shunglu Committee report. break-page-breakOver the years, as the private sector added capacity, there has been a sharp rise in power generation. But payment problems are not restricted to distribution companies alone. The power payment crisis stems from the power generating companies which are bogged down by rising coal prices, burgeoning SEB losses and the inability of distribution companies to hike tariffs. Inadequate Coal AvailabilityOne of the biggest problems faced by power generating companies relates to inadequate supply of coal. Over the past few years, coal production by state-owned Coal India has been largely static. During 2010-11, Coal India produced 431 million tonnes, which is just marginally more than what was produced in the previous fiscal. As the country added 8 per cent to its generating capacity during the fiscal, the pressure on supply of coal has increased. After all, over 55 per cent of India's power generation is fuelled by coal. Therefore, the shortage of coal has begun to bite power generating companies. AT A LOW: Powergeneration companies are running short on coal (BW Archive) Getting adequate coal supply is critical for power generation because over half of India's 182 GW (182,000 MW) power generation capacity is coal-based. To cover up the shortfall in supply, many private power utilities have invested in acquiring coal assets in Australia, Indonesia and South Africa. Over the past couple of years, domestic power companies have invested over $8 billion in acquiring coal assets. However, blending imported and domestic coal raises the cost per unit to Rs 4 as opposed to just Rs 2.50 per unit in case of domestic coal alone. J. Suresh Kumar, chief financial officer, Lanco Infratech, says, "SEBs are aware that input costs are rising. That is why we are seeking an increase in tariffs." He adds that over the next 3-4 years, coal supply for power plants will continue to be an issue. The problem is not restricted just to the higher price of imported coal. As India seeks to tie-up with the coal assets abroad, countries are imposing restrictions on its exports. Recently, Indonesia has said it would not allow exporting companies to sell coal at prices below notified rates. Earlier, there were no restrictions by the Indonesian government on coal pricing. Australia, too, has issued a draft mining law to impose tax on coal and iron ore projects from next year. Says Anil Sardana, CEO, Tata Power, "For projects based on imported coal, we are exploring alternatives to salvage this situation. We believe blending of coal can control the price to some extent. Therefore, we are sourcing low-grade coal from Indonesia, Africa and other existing mines and will do trial runs to find if they would be capable of reducing the cost of power for our ultra mega power plants." WHAT IS THE WAY OUT? Initiate distribution reforms across states Stop provision of free power to farmers Allow distribution companies to increase tariffs Increase production of domestic coal Improve coal linkages to power plants Even if imported coal is available, there is no running away from the fact that fuel prices — be it coal or gas — are only going to rise. That will, in turn, lead to an increase in power generation costs. Currently, the power payment issues are largely restricted to five states. "We are experiencing delays in payment from Tamil Nadu and Uttar Pradesh. Andhra Pradesh and Karnataka are paying up," says Kumar. Here too, while earlier the states paid up within a fortnight to claim early payment discounts, now they seek a month-long credit period to make payments. For utility companies, while input costs are rising, margins are on the decline. Distribution ReformsThe acute payment crisis has prompted banks and financial institutions to stop disbursing credit to the state electricity boards. Sambitosh Mahapatra, executive director, PricewaterhouseCoopers says, "We are heading towards a crisis quite similar to what happened in 2001. Now the need is to extend distribution reforms to other states." In 2001-02, the Central government had bailed out state electricity boards after they defaulted on payments to NTPC and NHPC. Mahapatra points out that after distribution reforms in Delhi, aggregate technical and commercial (ATC) losses fell sharply from 60 per cent in 2002 to 17 per cent now. Once distribution losses come down, much of the problems of discoms will come down. Need To Hike Tariffs The answer to the crisis is quite simple. There is no choice but for power companies to hike tariffs. If need be, there should be a mandated annual hike in tariffs. However, as power is a concurrent subject, each state will have to take its own decision. It is unlikely that there will be consensus. But for the power distribution companies to survive, tariff hikes would be imperative. There are simply no short cuts here. Despite the current situation, the power sector is quite confident that all contentious issues will be sorted out by December. That could be quite a relief to the government, the power sector and the investors alike. anup(dot)jayaram(at)abp(dot)in(This story was published in Businessworld Issue Dated 21-11-2011)
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Ashok Piramal Group (APG), IDFC Project Equity Fund, and SNC-Lavalin Group Inc -- Canada's biggest engineering group and one of the world's largest -- on Tuesday agreed to jointly develop road and highway projects in a public-private partnership.Piramal Roads Infrastructure will own 51 percent equity in the partnership, India Infrastructure Fund (IIF), managed by IDFC Project Equity, will hold 39 percent stake, while SNC-Lavalin will own the remainder, the companies said in a joint statement."Together with APG and SNC-Lavalin, we believe that we have put in place the foundations for an aggressive and profitable growth in the Indian roads' BOT (build, own, transfer) business and hope to have a portfolio of projects in excess of $1 billion over the next 3 to 4 years," managing director of IIF Aditya Aggarwal said in a statement.The partnership will commit $250 million-$300 million in equity in a combined fund over the next 3-5 years, and the group plans to eventually list the partnership, said Rajeev Piramal, vice-chairman of the Ashok Piramal Group.India has pledged to spend $1 trillion on upgrading its creaking power plants, railways and ports in the five years to 2017 to deal with a key bottleneck to continued growth. Private cash has been pencilled in for half of that."We were looking for a team that would stay for all future road bids. And the Piramal Group and SNC bring complementary strengths and really supplement our own credentials," M.K. Sinha, chief executive of IDFC Project Equity told reporters."We are looking at this as a permanent consortium for all future road bids."(Reuters)
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State-run retailers may cut petrol prices excluding local tax by at least 60 paise a litre from November 16 as softening Singapore prices have partially offset the impact of a declining rupee, an industry source said on Friday.It would be the first decrease since June 2010 when the Congress-led government freed petrol prices. A series of hikes since then have drawn criticism from political allies and stirred public outcry amid high inflation."If the rupee continues at current levels and if Singapore FOB (free on board) gasoline spot prices continue to average $115.80 a barrel, oil companies may reduce basic prices by at least 60 paise a litre," the source, who requested anonymity, told Reuters.Last week state-run oil retailers raised petrol prices by Rs 1.50 a litre, which rose to Rs 1.80 a litre after adding local taxes in Delhi. (Reuters)
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Reliance Industries said on Monday it has begun arbitration proceedings against the government to have the company's entitlement to recover its costs related to KG-D6 block, off the country's east coast.Reliance said in a statement it was concerned by media reports that the oil ministry would seek to restrict the amount of the costs recovered by the company from its revenues from sale of gas produced from the D1 and D3 fields in the KG-D6 block.(Reuters)
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The state refiners could cut petrol prices by about one rupee a litre or 1.5 per cent as softening Singapore spot gasoline prices have offset the impact of a declining rupee, an industry source said on Monday.The companies cut petrol prices by about 3.2 per cent earlier this month, the first reduction in retail prices in nearly three years and the first since prices were decontrolled in June 2010."As per current calculations, there is scope to cut the basic price of petrol by about Rs 0.85 a litre, including taxes it should be about one rupee. We have to see price movements in the next two days also before deciding the final impact," the official said on condition of anonymity.Refiners discuss prices every two weeks and so far in this fortnight, spot FOB gasoline prices in Singapore have averaged $108.76 a barrel compared with $114.13 in the previous fortnight, according to Reuters calculations.Oil companies had earlier this month cut gasoline prices considering the rupee average at 49.30 to a dollar, an Indian Oil Corp press release said. Since then, Reuters data shows the rupee has decline to an average 51.78.India's three state fuel retailing giants, IOC, Hindustan Petroleum Corp and Bharat Petroleum Corp tend to move their prices in tandem.Gasoline is nowhere near as widely used as diesel in India -- accounting for around 10 percent of fuel demand compared with about 40 percent for diesel -- but it is high-profile because it powers many of the cars owned by the growing middle class.Gasoline has a 1.09 percent weighting in the inflation index and near double-digit consumer prices have provoked criticism of the government, which subsidises other fuels such as diesel and cooking gas.The widening price gap between gasoline and diesel has slowed the growth of gasoline consumption, which has recently fallen behind that of diesel.(Reuters)
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Mahindra Ugine Steel said on Friday its board has approved a slump sale of its steel division to its new unit and agreed to rope in Sanyo Special Steel and Mitsui & Co as joint venture partners for the new unit.Sanyo will invest Rs 111 crore in the JV with a 29 per cent stake, Mitsui Rs 76 crore for a 20 per cent stake and the rest will be held by Mahindra Ugine, it said in an exchange filing, but did not provide the value of its own stake."Mahindra Ugine is expected to drive general management, Sanyo will lead the manufacturing function while Mitsui will support the marketing function of the joint venture," it said.The JV will help Mahindra Ugine achieve improved productivity and enhance both cost and quality to international standards, the statement said.Sanyo expects to strengthen its global growth expectations by having a share of the growing special steel demand in India from this JV, while Mitsui will strengthen its ties with its partner Mahindra Group, the statement added.At 12:33 pm shares in Mahindra Ugine, valued by the market at Rs 191.52 crore, were 2.56 per cent down to Rs 57, with volumes 13 times higher than its 30-day average, while the benchmark was down 1.25 per cent.(Reuters)
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An increase in power tariffs in India is inevitable given the sharp rise in coal prices, the head of Central Electricity Regulatory Commission (CERC) told reporters on Thursday.Indian power utilities have been scouting oversees for coal assets to fuel the burgeoning power demand from Asia's third largest economy, with state-run Coal India, the world's largest coal miner, unable to fulfill the entire domestic demand.Global thermal coal prices have been trading at around $120 a tonne, more than 20 per cent higher than prices a year ago when prices were below $100 per tonne.(Reuters)
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