The government is set to unveil on Monday a schedule for a stock offering worth about $2.6 billion for state-run explorer Oil and Natural Gas Corp (ONGC), sources with direct knowledge of the deal told Reuters on Friday.The timetable would set the deal in motion, two sources said, after it was postponed several times this year because of turmoil in global markets and lingering concern over government fuel subsidies.A separate source said ONGC, as the company is called, is ready to file a prospectus with regulators at short notice and could also start meetings with investors next week.The sources did not want to be identified as they were not authorised to speak to the media on the plans.The government owns 74.14 per cent of ONGC and has said it plans to sell a 5 per cent stake in the offering.The sale is part of broader proposal to raise about $9 billion through share sales in public sector firms to help plug the government's fiscal gap and generate funds for schemes for the poor.(Reuters)
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A precedent has been set by the government in clearing the estimated $9.6 billion Cairn-Vedanta deal. The Cabinet Committee on Economic Affairs that approved the deal on Thursday was under pressure to ensure, that there is no revenue loss, like in case of 2G spectrum.The government expects to garner about Rs 17,000 crore if the approvals suggested by CCEA are accepted by the management of Cairn and Vedanta. But initial indications are that legal option is on top of the various options mulled by Cairn and Vedanta.Sources who attended the meeting said, there was consensus in CCEA, not to dilute on the ONGC stand on royalty payment. "The Oil Minister (Jaipal Reddy, Union Minister for Petroleum and Natural Gas) stood ground on royalty and cess issues." The suggestion by a few members in CCEA to get the royalty issue reexamined by a core group of experts was dismissed by him.To an observation by one of the cabinet members, that, foreign investors are closely watching government's decision on Cairn Vedanta issue. Reddy reiterated in the CCEA meeting held on Thursday evening, that government cannot be seen bending backwards to get foreign direct investment. "They (investors) need to see a firm government with clear policy," he was quoted by sources to have said at the meeting.Oil and Natural Gas Corp (ONGC), which has 30 per cent stake in three of the 10 oil fields, has paid a royalty and cess of Rs 21,802 crore for the whole field, to Government, on behalf of Cairn India on production from the Rajasthan oilfields. This, government has said, royalty and cess should be equitably shared by ONGC and Cairn.A senior analyst with a firm advising Cairn on the deal said, "A possible oversight by the CCEA (to ask Cairn pay royalty and cess), it will not be acceptable to Cairn." It seems so. A Cairn spokesperson said, "Cairn and Vedanta continue to work with the Government of India to secure the necessary consents and approvals." The tenor of the statement from Vedanta was same, even after the government notified the CCEA decision on its website.The government has thrown the ball in Cairn-Vedanta's court. A senior Vedanata official said, "It is a status-quo on issues raised by us with the government." CCEA's decision has not only questioned Cairn's arbitration proceeding on cess liability, but also sought an end to it, in various courts globally.A senior ONGC official, who helped draft the company's strategy in its submissions to GoM, said, "We expect them to accept, but are prepared for a longer battle in courts, provided, we get support from our largest shareholder (the Government)." The public sector oil major is confident, that it will get the support, considering that two major policy deciders in the government—Group of Ministers and CCEA hold the same view on Cairn-Vedanta deal.Cairn and Vedanta are non committal about the legal option.But, it should not be surprising if they were to knock the doors of justice soon. Considering, the CCEA has endorsed the suggestions made by the Group of Ministers in matters related to royalty and cess.Cairn had moved Delhi High court, challenging government's objection to the share holding between Carin and Vedanta in 10 Rajasthan oilfields and changes in production sharing contract. But, the Delhi High Court had upheld the government's sovereign right to safeguard its vital and strategic interests. Analysts advising Cairn, said, "The companies (Cairn and Vedanta) cannot go back on this deal, they will have to find way out and it will have to be forward, even if it is to be legal."The government approval came after 11 months of Cairn and Vedanta announcing the deal. Reddy after announcing the CCEA's decision said, "We are happy that we took the final decision…" The stakes are still high for Cairn and Vedanta, to make such a statement yet.(This story was published in Businessworld Issue Dated 11-07-2011)
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Diesel prices are likely to come down by 37 paise a litre as Delhi government Thursday introduced a bill in the Assembly which is aimed at slashing the rate.Delhi Chief Minister Sheila Dikshit Thursday tabled the Delhi Value Added Tax (Second Amendment) bill in the Assembly which will be considered for discussion Friday.Following a hike in diesel prices in June, Chief Minister Sheila Dikshit had on June 27 announced slashing of the diesel rate by 37 paise a litre to cushion the impact of a rise in prices of the fuel.The decision could not be implemented as certain changes were required in the VAT Act to alter the sale price of diesel.Diesel price had gone up to Rs 41.12 after the hike of Rs 3.37 a litre in June and it will come down to Rs 40.75 if the amendment bill is passed in the House.The city government had arrived at the figure of 37 paise for cut in diesel prices by removing the 12.5 per cent VAT component on the hike of Rs 3.37.(PTI)
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After a series of blade damages in its wind farms over the past three years, Suzlon Energy is launching new wind turbines. The S 9X machines — an improved version of S-88 machines — will give better power output even at inconsistent wind speeds, John O'Halloran, president-technology and managing director at the German Research and Development Centre of Suzlon Energy told Businessworld.The fifth-largest wind turbine maker in the world, which posted profits for the fourth quarter of 2010-11 after successive losses since December 2009, has developed the turbine after two years of research and prototyping. Since the developed and emerging economies are pitching for green energy, analysts see a large market for Suzlon's new turbine. "But itshould ensure the product quality meets its credentials and claims," an analyst adds.Suzlon has already started marketing the S-95 DFIG (2.1-MW) model of the S 9X series and will launch another model of the S97 series early next year, says O'Halloran, who joined Suzlon in October 2009 from US-based Cummins Inc., where he was the executive director.Suzlon was mainly dependent on its S-88 (2.1 MW) machines, which it installed in 11 countries since 1995. These account for 4,100 MW of its total 15,000 MW installations worldwide.These blades had bled Suzlon in the past, it had to spend over $100 million over the past 2-3 years to implement a total blade retrofitting programme across its S-88 machines. Many project developers in the US and Latin America had complained that blades of some of the turbines had developed cracks."We are learning. Now the stress is on developing better technologies that can withstand weather and challenges in any geography", says Robin Banerjee, Suzlon's chief financial officer. Suzlon is one of the few original equipment manufacturers of wind turbines with its own blade testing facility. The blades used in the earlier machines were made in India and were installed in geographies ranging from extreme hot to extreme cold conditions.Suzlon employs about 400 engineers for R&D and maintenance of its machines. It has three R&D centres at Hamburg, Berlin and Rostock in Germany and one each at Pune, Aarhus in Denmark, Hengelo in The Netherlands and Tianjin in China.But, according to experts, Suzlon has a long way to go to match the technical expertise of leaders in the industry. It sells relatively smaller onshore power plants in the range of 600 KW to 2.1 MW. Suzlon's German subsidiary REpower sells rather larger machines with rated power capacities ranging from 2.05 MW to 6.15 MW. Its two models — 6M and 5M are also installed as offshore machines. In contrast, industry leaders have a much larger portfolio of products. Denmark-based Vestas has 16 models of on-shore machines (850 KV to 3 MW) and offshore machines (3MW to 7 MW), including giant turbines like the V-164 model whose blade diameter is the size of three football fields. Gamesa offers four different families of machines and is developing two families of new offshore turbines (the G11X-5.0 MW and the G14X of 6 MW-7 MW). When the outside wind is strong, Suzlon realises a crucial factor in its journey — R&D.(This story was published in Businessworld Issue Dated 11-07-2011)
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Nearly 20 years after he returned from the US, Lagadapati Madhusudan Rao heads India's largest private power-generating company, Lanco Infratech. He is a difficult man to meet since he is out of the country most of the time. Rao tells BW's Anup Jayaram that he is in the process of giving a professional touch to what has been a family-run business till now. Excerpts: What was the catalyst for Lanco to get into the power business? The opportunities in India came only after liberalisation in 1991. We were a small construction company in the early 1990s. There was an opportunity and we said let's look into it. The first experience that we had as a group outside construction was in the steel industry. From 1980-89, we were in Visakhapatnam. At the same time, we were looking for opportunities in other sectors. In 1993-94, seven power plants were given out through MoUs. In the second tranche, every state was motivated to develop independent power plants. We participated in the opportunity in Andhra Pradesh. Among the seven fast-track projects, two were from Andhra. Hundred letters of intent were given all over the country. Each state had given 6-7 letters of intent. Out of close to 100 MoUs signed in the late-1990s with independent power producers (IPPs), Lanco Kondapalli is one of the few successful IPPs. We got the letter of intent in December 1997 and we were able to bring the project to financial closure in December 1998. Many projects failed in the power sector in that period. Very few people were able to successfully convert the opportunities into a project. Some of the marquee names of Indian industry are there in the power business. How do you compare to them?We are benchmarking ourselves from where we stand in capability in the construction business. We do not have to worry that the brand Lanco is not up to the big names. What is more important is that we realise where we have to go. Focusing on the best practices in the industry and on human resources are the only answers to remain a winner in this game. That is where our focus is. We are very unique to what corporate India is doing. There are a few things. Lanco is a family business. We — three brothers and a brother-in-law — decided that we needed to grow Lanco in a professional way. Most important is to separate ownership from management. In the past two years, the four of us went through multiple sessions along with the family business practice of PricewaterhouseCoopers Dubai to structure a constitution on how we need to position Lanco as a global operation. Second, we are developing initiatives in terms of people capability. The question is: do we have the right person at the right place? We have a very structured formal concept called LEO — leadership, entrepreneurship and ownership. As part of taking this forward, we are setting up the Lanco Academy. We have worked with Accenture to give shape to the Lanco Academy. A few years from now, 80-85 per cent of the senior leadership should be able to come from within Lanco itself. Do you see a shake-out in the power business? Are you looking to acquire new assets?Yes, we do see a shake-out. I would say that there could be one around 2015-16. Over the past two years, lots of people have set up projects with the intention of selling them. I do not think we will buy out. There are at least 10 companies that are serious and are here for the long term. All these companies, including Lanco, have a good portfolio of assets at different stages of development. We may not acquire any new assets.(This story was published in Businessworld Issue Dated 11-07-2011)
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Iran has threatened to halt oil supplies to India in August as it presses New Delhi to solve a payments dispute that has cast a shadow since December over the two countries' $12 billion annual crude trade.National Iranian Oil Co (NIOC), the state oil firm that supplies around 12 per cent of India's oil imports, set the deadline in a letter dated June 27 to Indian refiners, sources at the refiners and NIOC told Reuters on Friday.But Iran might be leery of losing market share in its second-biggest customer with Saudi Arabia already offering India up to 2.6 million barrels -- some 3 percent of the fast-growing Asian giant's imports -- as extra supplies for July."It's just their way of trying to put the ball back in the court of the Indian government so that they make a decision, because they don't want to be left hanging," said Praveen Kumar, head of South Asia oil and gas consulting at FACTS Global Energy."This is not something that the Iranians would like to do."Iran, facing increased isolation internationally, and energy-hungry India have been looking to resolve an impasse triggered in December when the Reserve Bank of India ended a regional clearing mechanism under US pressure."This is the first time they have written a letter to halt supplies, otherwise they were regular. We hope that a decision on a new payment mechanism would be taken by mid-July," a source at state-owned Mangalore Refinery and Petrochemical Ltd (MRPL) said.Two Iranian industry officials confirmed sending a letter to Indian refiners."We regret to inform you that NIOC would hardly be in a position to deliver the Iranian crude oil to our partners in India ... in August 2011 unless concrete solutions are worked out for remittances of NIOC's dues," the letter said, according to two sources who have seen it.A source at NIOC said it hoped to reach a solution soon."We have a very good relationship with all the refiners in India," said the NIOC source. "We want to come to a agreement on this problem."Feeling PinchAnalysts say Iran is putting pressure on India to accelerate the resolution of the payments mechanism dispute.India owes Iran $2 billion for oil imports in recent months, Seyed Mohsen Ghamsari, executive director for international affairs at NIOC said on May 31 after a meeting with Indian officials in New Delhi."Iran has really been feeling the cash flow pinch recently from not having received most of the payments for Indian exports for many months now, so it is perhaps not surprising they are trying to pressure their counter parties into finding a solution," said Samuel Ciszuk, Senior Middle East & North Africa Energy Analyst at IHS Energy."Iran is putting pressure on the Indian government. But Saudi is there to offer additional volume ... So if Iran loses India, it is a loss of a big chunk of the market and it can be a double whammy for Iran."Saudi Arabia is lifting output after Iran and others blocked a wider oil supply boost at the June 8 meeting of the Organization of Petroleum Exporting Countries.A source at Hindustan Petroleum Corp said his company would increase supplies from term volumes instead of tapping the spot markets if Iran cut off shipments.Earlier this year, Germany allowed India to pay for the oil via Hamburg-based EIH bank, which handles international trade for Iranian companies.But India halted that conduit in early April after discussions with German Chancellor Angela Merkel, and EIH has since come under EU sanctions.(Reuters)
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The Central Bureau of Investigation (CBI) have charged former oil and gas exploration regulator V.K. Sibal with criminal conspiracy and granting undue favours to a private seismic exploration firm, a CBI source said on Friday.Sibal could not immediately be reached for comment.The CBI had earlier in the day searched the house of Sibal, a former director general of hydrocarbons, which regulates oil exploration and production, the police source had said."A FIR (charge) has been filed against him," the source at the CBI said on condition of anonymity."He has been charged with 120B criminal conspiracy and undue favours to a private firm," the source said, referring to the relevant section of the Indian Penal Code.The case involved certain seismic explorations carried out by the firm in India, the source said.The source declined to say if Sibal would be arrested. Earlier, the Comptroller and Auditor General (CAG) said the issue related to the development of Reliance's D6 block in the Krishna Godavari basin, India's largest gas field, causing unquantified losses to the government.Sibal has not so far commented on the case. The oil ministry said on June 13 it would reply to the CAG report within two weeks.(Reuters)
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The control room of the 600-MW Udupi Power Corporation in south Karnataka has a staff of just 20. With the monsoon hitting the Konkan coast, demand for power in the region has fallen sharply. The imported coal-based plant of power and engineering, procurement and construction (EPC) major Lanco Infratech is generating only a little over 400 MW. It has also synchronised its second 600-MW unit, which is expected to start commercial operations once the transmission link is ready by end-2011.The fifth floor of Lanco House in Gurgaon is also sparsely populated. The floor that houses the board room and offices of the top management of the company, is lined with waist-high green granite. The off-white walls are peppered with dozens of paintings including M.F. THE LANCO GAME PLAN Join hands with a global company for power equipment manufacture in India Setting up solar photovoltaic equipment manufacturing plant in Chhattisgarh with an investment of Rs 1,370 crore Establish power plants in emerging markets Acquired Griffin Coal in Australia to ensure fuel security Wants to establish solar power ventures in Europe Setting up Lanco Academy to train key employees Husain's and Souza's. In 2009, Lanco Infratech did a King George V when it moved its corporate office from Hyderabad to Gurgaon. It shifted 700 employees to the Millenium City. Two years later, almost a quarter of Lanco Infratech's 7,000 employees are based in Gurgaon. Being close to the power centre is quite important, even if you are a power utility.The Rs 8,000 crore-Lanco is among a clutch of companies that are investing in expanding India's power generation capacity. It has an installed capacity of 3,300 MW and will add another 6,000 MW in the next few years. By 2015, it will invest Rs 35,000 crore to add another 6,000 MW, raising the total capacity to 15,000 MW. By then, Lanco will be present across 20 states and is slated to have 20,000 employees.In contrast, in 2005-06, it was a Rs 152-crore construction company with profits of less than Rs 10 crore. In 2010-11, profits are Rs 446 crore. Today, Lanco is among the biggest private power companies in India. Rivals include Tata Power (generation capacity 3,120 MW), Reliance Power (1,033 MW), Adani Power (1,980 MW) and Jindal Power (1,000 MW). State-owned NTPC leads with close to 35,000 MW capacity. Lanco, however, believes that for its private sector rivals, power is just another business, while it is focused on the entire power value-chain.Can Lanco pull it off over the next four years? It has incurred a net debt of Rs 23,733 crore. Around 85 per cent of the debt is long-term and repayable over 15 years. It is currently setting up eight power plants including at Amarkantak, Anpara, Kondapalli expansion and Vidarbha. Barring power, EPC and infrastructure, Lanco has identified two new verticals — solar power and natural resources. Infrastructure includes roads, metro rail and port projects. It also plans to enter power equipment manufacturing to counter the restrictions on import of power equipment, and is identifying an international partner for the venture, as have many others. Lanco also plans to enter Bangladesh, Indonesia and West Asia. It has just bagged an EPC order for an Iraqi power plant. It is also looking at projects in Nigeria, Ghana, the Philippines and South Africa. Gaining PowerLanco is in a sector where demand will continue to rise for many years. In the 11th Plan period (2007-12), India will add around 55,000 MW capacity. That is more than double the 21,000 MW added in the 10th Plan. At 174 gigawatts (174,631 MW), India has the fifth largest power generation capacity globally — after the US, China, Japan and Russia. This should reach 300 GW by 2017, making it the third-largest power generator globally. The private sector is slated to add 100,000 MW in the 11th and the 12th Plan periods."We are bullish on power," says Lanco Infratech chairman Madhusudan Rao. He agrees that there will be ups and downs, but a country that is growing at 8 per cent needs a sustained increase in its power generation. Despite increase in capacity, India is way behind China that already has 900 GW capacity. In the past six years alone, China added 400 gigawatts.break-page-breakThe biggest independent power producer, Huaneng Power China, has a capacity of over 54,000 MW. It is one of six such companies in China. Huaneng develops, builds and operates power plants — a model that Lanco, too, has adopted. Unlike other power utilities, Lanco is present across the entire power value-chain — construction, EPC and operating power plants. Says Rao: "You cannot be successful in the infrastructure sector without having a strong construction base. Since we are an integrated company, we have the skills to successfully complete projects on time." It commissioned the Lanco Kondapalli project almost two years before the other companies that had got approvals at the same time. But will such big plans of increasing capacity stretch the company? Says J. Suresh Kumar, the company's CFO: "We will fund all the projects from internal accruals. At an appropriate time, we will raise capital by listing the power business. But there is no hurry to do this." He adds that all projects have achieved financial closure and the debt sanctioned will be drawn. THE LANCO NAME Lanco started off as a construction company in 1986. In the mid-1990s, as the government opened the power sector to private competition, it entered power.The name Lanco is an abbreviated form of Lagadapati Amarappa Naidu and Company. Naidu was the paternal uncle of the Lanco Infratech's top management team. Lanco's running is controlled by three brothers — L. Rajagopal, L. Madhusudan Rao and L. Sridhar — and brother-in-law G. Bhaskara Rao. Though founded by L. Raja-gopal, the company is now being run by Madhusudan Rao and G. Bhaskara Rao. Younger brother Sridhar is in the entertainment business, while Rajagopal quit the management when he became a politician in 2002. He is now a Congress MP from Vijayawada. Lanco is moving towards being a professionally-run firm. Family members will exit when they turn 60. Already professionals head various divisions. When Bhaskar retires in four years, Madhusudan may be the only family member involved in Lanco's day-to-day operations. A senior executive in a rival power company agrees with that logic but does not think Lanco will be able to meet its 15,000 MW target as it takes 3-4 years to commission a power project. Two other problems that could affect Lanco are getting linkages and ensuring fuel security. It has taken care of the latter to an extent by acquiring the Griffin coal mine in Australia.New Ventures, Old ProblemsIn solar power, Lanco aims to be a global player. It already has a corporate office in London and is present in Germany, France, Italy, Canada, Spain and the US. The company's solar expansion plans fit in with the central government's National Solar Mission with a target of 20 GW of solar power generation by 2020. By 2013, India should have 1 GW of solar capacity. Says V. Saibaba, CEO of the solar division: "The future is solar. As solar volumes rise, costs will fall." To meet the rising demand for solar power, it is setting up a solar PV cell manufacturing project in Chhattisgarh. The first phase will involve an investment of Rs 1,370 crore. Saibaba says during 2014-19, thermal and solar power production costs will merge. That could see the beginning of a surge in global solar power capacity addition. break-page-breakAlready, there is a case for solar power in the telecom tower business. The 360,000 telecom towers need 3,500 MW of power. While solar power can be provided at Rs 12/KW hour now, diesel costs Rs 13-15/KW hour. As diesel rates rise and solar power rates decline, the balance will shift. It is estimated that in the next few years, solar will be as big as information technology was a decade ago. However, unlike IT, many projects in the power sector have failed to take off. That is attributed to high capital expenditure, long gestation period and complicated pricing models. Lanco regularly gets offers from companies looking to exit the business. But the valuation sought in most cases is too high. Naga Prasad Kandimalla, CEO of business development at Lanco Infratech, says: "On an average, we get an opportunity to acquire a power utility every fortnight. But we have not acquired any project." While there are many power projects in the pipeline, Kandimalla foresees a shakeout after 2014. Says CFO Kumar: "Many bidders took a risk on power projects. They were assured that Coal India will meet all linkages. With that not happening, a shake-out is imminent."Like most power companies, Lanco's focus is mostly on thermal power. But it has set its eyes on hydel power, too. Says S.K. Mittal, CEO of the company's hydro division: "Hydel power is a risky business. So, while companies have projects worth close to 30,000 MW on the books, work is happening only on 3,000 MW." FAIR SHARE OF CONTROVERSIES Lanco Infratech, which was under the radar for quite some time, has had its fair share of controversies. It came into prominence in 2006, all of a sudden, when it won the bid for the Sasan ultra mega power plant (UMPP) in Madhya Pradesh. The Lanco-Globeleq bid was for Rs 1.19 per unit, the lowest price ever quoted for a thermal power project in India. However, within months, Lanco Infrastructure and Jindal Steel & Power acquired the joint venture partner, Globeleq Singapore. As a result, in July 2007, the Empowered Group of Ministers (EGoM) cancelled the Lanco bid as it was alleged to have violated norms by quoting the financial and technical strength of its foreign partner's parent company at the time of bidding. The Sasan UMPP was then allocated to Reliance Energy. It will initially supply power to seven states across north and west India. Around the same time, Lanco's managing director, G. Venkatesh Babu, was allegedly apprehended at the Hyderabad airport with Rs 36 lakh in cash. Initially it was perceived that the money belonged to Lanco Infratech. The controversy died soon after Babu admitted that the cash was his own and not that of the company. However, it does help when Lanco founder L. Rajagopal is a member of Parliament elected on the Congress ticket from Vijayawada. (BW Pic By Tribhuwan Sharma) While power capacity can be set up, having the talent to manage it is critical. Though there are enough engineers graduating each year, their quality is questionable. To counter the manpower shortage, Lanco is setting up the Lanco Academy to train employees. It has also devised a formal training process — called LEO (leadership, entrepreneurship and ownership) — to build people capabilities.While people issues can be sorted out at the company level, policy and regulatory issues — fuel supply, land acquisition, pollution control, water supply, evacuation of generated power and distribution — require the government's help. TroubleshootingThe logistics of fuel supply is complicated. Coal in India has a high ash content. So, companies look to import coal, which raises costs. Lanco has recently acquired the Griffin coal mine in Australia, which produces 4 million tonnes annually. This can be ramped up to 15 million tonnes. Acquiring coal mines is critical as India is expected to import 200 million tonnes of coal annually by 2017. While fuel can be imported, land and water supply is domestic. Land acquisition is a problem, although land costs form less than 5 per cent of the total cost of a thermal power project. Moreover, once power is generated, it needs to be distributed. The poor financial state of the distribution companies in India is a big choke point. As many distributing companies are in the red, power companies are not able to raise tariffs. Second, political compulsions hinder any hike in tariffs — many states, for example, provide free power to farmers. Says Kumar: "It is not as if there is a complete breakdown of the discoms. There are enough state electricity boards (SEBs) willing to buy power at Rs 4-4.5 per unit." Three SEBs — Tamil Nadu, Rajasthan and Uttar Pradesh — account for 70 per cent of SEB losses. In Tamil Nadu, power tariffs have fallen over the past 3-4 years. Also, at a macro level, while power is a state subject, regulation and policy are central subjects. Says G. Venkatesh Babu, managing director, Lanco Infratech: "While everyone agrees that power brings in development, there is a lot of activism in the sector. Just 10 people can bring a project to a halt." But can a company get into solar, thermal and hydro power together and not feel stretched? Yes, says Kumar, since there are independent management teams with CEOs for each business.One thing is for sure. As the demand for power rises, Lanco will be among the few private companies in a position to fulfill the need. There is a powerful case ahead for Lanco. anup(dot)jayaram(at)abp(dot)in(This story was published in Businessworld Issue Dated 11-07-2011)
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