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Welspun Energy is betting big investments in renewable energy at a time when two diagonally opposite factors rule the power sector — the fact of worsening power deficit in the country and generation issues as also the high costs and low margins from renewable energy business.Welspun Energy (WEL) will invest over Rs 11,000 crore in the next three years on solar and wind energy projects, Vineet Mittal, co-founder and managing of Welspun Energy told Businessworld. WEL, which has already commissioned 116 megawatt (Mw) of wind and solar power projects with an investment of over Rs 4000 crore, plans to commission 1750 Mw of wind and solar power projects by 2016.For many years, investments in solar energy has been an viewed as an unprofitable business proposition because of the high raw material costs and big initial investment. But Mittal says the scene has changed. If the costs for setting up a solar project in India was nearly Rs 15-17 crore per MW three years ago, it has come down to nearly Rs 7-7.5 crore per MW. This was made possible mainly due to the crash of silicon prices and solar wafers, the most important part of a solar power generating equipment. Welspun Energy has been making profits from the first year itself, said the executive.India plans to double its renewable energy capacity from 25000 MW in 2012 to 55000 MW by the year 2017. As part of this, India is implementing the Jawaharlal Nehru National Solar Mission to develop 22,000 MW of solar capacity by 2022 covering both solar photovoltaic and solar thermal.WEL has about 150 MW of solar projects are at various stages of completion and will take off by the end of this year. Of this, solar projects will include 66 MW in Tamil Nadu, 32 MW in Punjab and another 23 Mw in various states. Plans are to have a mix of about 1000 MW of wind energy and 750 MW of solar power projects.Welspun Energy is promoted by Balkrishna Goenka, promoter of the $3.5 billion pipe-to-home textiles manufacturer Welspun Group and Vineet Mittal, a serial entrepreneur.In March, Welspun had achieved financial closure for a 130 MW solar project, India’s largest to date, coming up in Mandsaur district of Madhya Pradesh. This project is slated for commissioning by May 2014. Besides, the company had commissioned a 50 MW solar power project in Rajasthan, so far the largest in India.Welspun has already signed Memorandum of Undertsnding (MoU)s with the Andhra Pradesh Government to set up 500 MW of wind power and 100 MW of solar. Similar MoUs were also signed with the States of Rajasthan, Gujarat, Karnataka and Chattisgarh. Welspun Energy funds the project through a 75:25 debt-equity ratio and plans to fully fund the equity portion with internal funds. After achieving big scale of operations, the company will look to rope in private equity investments or go for an initial public offer, said Vineet Mittal.pb(dot)jayakumar(at)abp(dot)inpbjayan(at)gmail(dot)com(at)pbjayakumar
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Tata Power's troubles with the Mundra Ultra Mega Power Project (UMPP) are taking a turn for the worse. The project, already unviable due to high prices of imported coal, is now faced with poor financial health of power procurers who are not in a position to pay for the power they bought.On 3 December 2012, Coastal Gujarat Power Ltd (CGPL), the wholly-owned subsidiary of Tata Power Company (TPC) which runs the Mundra project, invoked its rights under the Power Purchase Agreement (PPA) and discontinued supply of power to three Rajasthan state-owned power distribution companies. The decision — following several notices sent by Tata Power to the discoms as required under the PPA — effectively terminates its contract.Tata Power has PPAs in place with seven procurers (distribution licensees) from five states - Gujarat, Maharashtra, Haryana, Rajasthan and Punjab. The Rajasthan discoms account for 10 per cent of the 4000-MW Mundra project, India's first UMPP. The company is planning alternate arrangements for contracting and selling the power which was given to the Rajasthan discoms.So far, three 800 Mw units of Mundra have been commissioned, and the fourth unit was synchronized last week. Tata Power says the fifth unit is under construction and is on schedule."Rajasthan discoms have been in default of paying its dues in a timely manner leading to large outstanding dues", said a Tata Power press release.A Tata Power official declined to reveal the quantum of money to be recovered from the procurers.CGPL had posted an operating income of Rs 647.9 crore in the first half of 2012-13, but had a net loss of Rs 625.9 crore for the period. Operating profit for the period was just Rs 8.6 crore. The company says loss in CGPL for the first half year is mainly due to impairment (Rs 250 crore) and high fuel charges reducing margins making operating profit inadequate to cover interest and depreciation.Mundra became a burden for Tata Power after Indonesia changed its coal policy last year and decided to sell coal at prevailing international prices. In 2006, Tata Power had bagged Mundra by offering the lowest tariff of Rs 2.26 per kilowatt hour, banking on Indonesian coal which was then selling at $35-40 a tonne. The new rules caused coal from Indonesia costlier, at a very high $120 per tonne.Tata Power has 30 per cent equity stake in Indonesia's coal mines - PT Kaltim Prima Coal and PT Arutmin Indonesia. Recently the company bought a 26 per cent stake in another Indoensian mine PT Baramulti Sukses Sarana Tbk (BSSR) for an undisclosed amount.Anil Sardana, managing director of Tata Power had told Businessworld earlier that the cost of production has shot up to over Rs 2.90 per kilowatt hour, making Munndra an unviable project. While Tata Power was lobbying for revising the 25-year valid PPA upwards by at least 70 to 90 paise, the power procurers had vehemently opposed the move.
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Tirupur, India’s ‘knitwear capital’, is a mere 25 sq. km in area, but accounts for a lion’s share of knitted garment exports. Garments worth Rs 21,000 crore a year are made in the town and its suburbs such as Kangayam, Palladam, Perundurai and Avinashi.Tirupur was like any other unassuming town in Tamil Nadu 10-15 years ago — no roads, water, sewage lines, good schools, etc. All that changed when the town became an important business hub for the who’s who of the fashion world globally. The transformation was made possible by the collective effort and business ambition of the 6,250-plus entrepreneurs of Tirupur. But now the town, and its businessmen, are facing a crisis. For the past four years, Tirupur has been experiencing the most prolonged downturn in its history. Business was booming till recession hit in 2008. For the first time in the history of the town, exports showed a negative growth at Rs 9,950 crore in 2007-08. Thereafter, exports have been flat at around Rs 12,500 crore. When exports had risen to Rs 11,000 crore in 2006-07, the exporters had set themselves a target of Rs 20,000 crore by 2012. But now that target seems a distant dream. LOOSE THREADSCOMPETITION: Bangladesh enjoys duty-free exports to EU while Indian exporters have to pay 25 per cent dutyRAW MATERIAL COST: Yarn prices, 40 per cent of production cost, have almost doubled from Rs 139 per kg in August 2009POWER CUTS: Power cuts last 8-10 hours a day. Use of generators has increased costs by Rs 2 lakh a dayLABOUR: Getting labour from faraway states means paying middlemen, which further increases costsThe entrepreneurs, however, are optimistic. “The worst is over and we will be back to normal soon,” says A. Sakthivel, chairman of the Apparel Export Promotion Council (AEPC) and president of the Tirupur Exporters Association (TEA). “We are waiting for the EU-India Bilateral Investment and Trade Agreement (BITA), which will place garment exports from India on a par with those from Bangladesh, and India too will enjoy duty-free status in EU.” TEA has also asked the commerce ministry to extend duty-free access to Bangladesh only for garments manufactured out of yarn and fabric imported from India.Beset With ChallengesThere are several reasons for Tirupur’s dip in fortunes — the most prominent being competition from Bangladesh. While Bangladesh enjoys zero duty on its exports to the EU, Indian garment exporters have to pay nearly 25 per cent. Further, 46 textile items have duty-free entry into India from Bangladesh, resulting in dumping of cheaper products here. Apart from traditional rivals such as China, Bangladesh and Pakistan, competition is also hotting up from countries such as Cambodia, Vietnam and Indonesia. Net result: margins have thinned to 10-15 per cent from peak margins of 20-30 per cent.Another major problem is mounting yarn prices, which constitutes almost 40 per cent of the production costs. Price of yarn has increased from Rs 139 a kg in August 2009 to Rs 275 per kg in February 2011. Now, the price hovers around Rs 231. Garment manufacturers are demanding that they be allowed to import cotton yarn duty-free, which will reduce the cost of sourcing raw material. “At present, only 35-40 per cent of the machines in Tirupur are working and the rest are lying idle,” says S. Rathinasamy, president of Knit Cloth Manufacturers Association (KNITcMA). Around 10 per cent of the 900 knitting units have already closed down while another 30 per cent are on the verge of closure, even as 25 per cent are functioning at half their capacity, says R. Rajamani, secretary of KNITcMA. break-page-breakThe mounting debt burden as well as the inability to repay loans is another issue for the unit owners. Tirupur has some 6,000 imported knitting machines that cost between Rs 10 lakh and Rs 1 crore per machine. While most manufacturers used low-capacity domestic knitting machines made in places such as Ludhiana, with capacities in the range of 50-60 kg a day, till the 1980s, they have now migrated to imported machines that have a capacity of 300 kg a day. European machines are 25 times costlier than local ones, while the Chinese and Taiwanese variants are around 15 times more expensive. A decent-sized unit generally has 10-12 imported machines and 20-25 domestic ones, bought with an investment of over Rs 2 crore.The other problem haunting Tirupur is one that is present in most textile clusters — pollution. Earlier, most of the 700-odd dyeing and bleaching units were allegedly discharging waste into the Noyyal river, a move that farmers protested against. The Madras High Court ruled in favour of the farmers in 1996 but the dyers appealed against it in the Supreme Court. The apex court sent the case back to the high court which, in January 2011, ordered closure of all the units unless they were able guarantee zero discharge. The closure caused the industry a loss of Rs 50 crore a day. But Tirupur managed to find suitable technology to escape the crisis. “Based on the customised technology we use now, 174 dyeing units attached to common effluent treatment plants (CETP) and 48 dyeing units with individual ETPs are now running on trial-run permission,” says S. Nagarajan, president of the Dyers Association of Tirupur.According to him, 484 dyeing and bleaching units have 18 CETPs and another 154 have their own ETPs. He is hopeful that the current technology, which has shown zero discharge possibility, will help bring the garment processing industry back on track.“We don’t have the resources to develop high-end technologies that can help to achieve zero pollution discharge; either the government or the pollution control board should have taken that initiative,” says G. Karthikeyan, general secretary of TEA.Like most other industries, the Tirupur garments industry is also plagued by labour issues. Half of the industry’s 350,000 direct workers are from outside the town and its suburbs. If the monsoon is good, they return to their home towns, resulting in high attrition. Garment exporters are forced to source manpower from faraway states such as Bihar, Uttar Pradesh and the North-east, paying commissions to middlemen which, in turn, leads to higher costs. Leons Christie, a gatekeeper at the Netaji Apparel Park — which showcases the town’s global production standards to visitors and buyers from overseas — sums up the gloomy scenario: “Earlier 1,000-1,200 buses carrying workers came in every morning and left in the evening; now, not even 300 buses come in and go.”Alcoholism among workers is a major issue affecting productivity. The town has over 360 Tasmac outlets (the state government-owned liquor retail chain), the largest concentration in Tamil Nadu,” says J. Gnanavelan, who runs Vedic Cultural Academy, a manpower skill enhancing firm in Tirupur.A shortage of skilled workers is another issue. “Now we are planning to introduce skill enhancement courses among workers,” says Raja Shanmugham, chairman of the NIFT-TEA Fashion Knitwear Institute.M.P. Muthu Rathinam, president of the Tirupur Exporters and Manufacturers Association (TEAMA), says orders are drying up for small exporters. TEAMA, which represents such exporters, claims to have 1,000 members. Rathinam’s firm Sankaray Exports employs 90 people. Formerly a worker for seven years, he has been exporting knitted garments mainly to France, Belgium, Canada, the US, Mexico, Germany and Spain, for the past 18 years. While his annual turnover used to be over Rs 12 crore, it has come down to Rs 2-3 crore in the past three years. break-page-breakThe same is the case with R. Rathinasamy, owner of RVR Exports, which employs 40 people. He is a merchant exporter, and executes orders on behalf of exporters from places such as Mumbai. If RVR was doing business of over Rs 3 crore annually three to four years ago, now it does just over Rs 1 crore.Fortunately, labour unrest is not an issue in Tirupur as the six dominant trade unions have traditionally been on good terms with the industry. TEA signed a four-year wage agreement with the trade unions in February this year, which is valid till 2016.Tirupur’s units face another problem that all industries in India do — lack of power. On an average, the town faces power cuts of 8-10 hours a day (as does the rest of Tamil Nadu). Running units on generators has increased costs by Rs 2 lakh a day for some of the larger units.To add to all their woes are credit issues and mounting debts. However, timely support from the state and Centre has eased the situation to an extent. The Tamil Nadu Industry Investment Corporation (TIIC) recently announced a 3 per cent interest waiver on new loans to micro, small and medium enterprises. The Foreign Trade Policy 2009-14 also offers a breather to Tirupur with the continuation of the technology upgradation fund scheme and debt restructuring for the knitwear sector.Tamil Nadu chief minister J. Jayalalithaa recently announced a Rs 200-crore interest free loan for Tirupur to resolve its pollution issues.However, not all infrastructure initiatives by TEA have been successful. While the Tirupur Export Knitwear Industrial Complex (TEAKIC) generates Rs 800 crore in turnover, a similar initiative at Kanjikkode near Palakkad in Kerala did not take off due to labour and other issues. TEA has exited this joint venture with the Kerala Government. The TEA Lemuir inland container depot for streamlining cargo from Tirupur to various ports has also not become functional due to the lack of demand. The financial health of the New Tirupur Area Development Corporation, a joint venture of TEA, Tamil Nadu government and IL&FS, to supply water and sewage facilities to Tirupur is also precarious. Another TEA initiative, an e-Readiness Centre to help the Tirupur units implement hi-tech ERP solutions with Microsoft and some other leading domestic software companies, has also failed to take off.The Domino EffectNo one in Tirupur is immune to the slump — be it a garment exporter or a logistics company, a hotel or a car showroom, movie hall or even a liquor shop. The anatomy of Tirupur’s business is such that all its entities are connected — a cluster business that involves knitting units (900 of them), dyeing and bleaching units (700), fabric printing units (500), garment-making (2,500), embroidery (250), compacting and calendaring units (300), all supported by about 500 ancillary units that help get the final garment ready for shipment. Only 15-20 exporters have integrated manufacturing facilities; the rest rely on specialists.A slight delay in promised delivery schedules in this chain can break the back of any millionaire, reducing him to penury. Buyers normally set a delivery schedule of 120 days for an exporter. If a small exporter fails to deliver on time, his entire investment can be wiped out. And such cases are common in this town. The largest exporter’s turnover is a little under Rs 1,000 crore a year; two other units have a turnover of over Rs 400 crore; two are just above Rs 200 crore in revenues, 10 units net over Rs 100 crore annually. The rest are small- and medium-scale exporters. Overall, there are about 700 exporters in Tirupur. Though no one is ready to reveal exact numbers, but Eastman, SP Apparels, Dollar, Poppy’s, Prem Knit, KPR and Meridian are some of the names that are considered to be the largest ones.Moving With The TimesChallenges are not new to Tirupur. Its tryst with knitwear started way back in 1929. Locals say one Kalam Khadir Sahib had gone to Calcutta that year to buy a film projector with the idea of starting a cinema hall in Tirupur. But he returned with a knitting machine that worked on a bullock cart-like wheel. He and his brother Satar Sahib started Baby Knitting Company, which made vests. By the middle of the 1950s, many knitting factories had come up in Salem and Madurai. A series of strikes in these factories led to the opening of more knitting factories in Tirupur. By 1960, about 230 units came up here and by the 1970s, these composite mills were targeting the domestic market. Tirupur turned to exports in the 1980s and started subcontracting production. HEAVY LOAD: Businessmen carrying fabric on their mopeds was a common sight earlierVerona, a garment importer from Italy, came to the town in 1978 to buy white T-shirts. Realising the town’s potential, the company sent skilled workers the next year to teach the locals how to make coloured garments. In 1981, European retail chain C&A came to source from Tirupur. In 1984, Tirupur exported undergarments worth Rs 9.69 crore. Soon, from producing low-value undergarments and summer wear, exporters moved to high-value winter garments. Exporters, about 30 per cent of whom are originally from north India, now organise two global fairs every year in Tirupur — for summer and winter wear. While Tirupur was turning into a major textile hub, the town’s infrastructure remained substandard. Ten years ago, it had only two tarred main roads. There were no proper drainage or sewage lines. Small businessmen carrying almost a mini truck-load of grey fabric on small TVS 50 mopeds were a common sight. So were the 500-odd tankers that used to ply to supply water from the faraway Bhavani river to the units.But as the town’s fortunes improved, so did its infrastructure. Now Tirupur is run by a corporation and its roads are tarred and well-maintained. The TVS 50s have given way to mini-trucks and pick-up vans. Tankers have vanished; water comes through a pipeline from the Cauvery river 55 km away and, en route, more than 30 villages are supplied water. Crammed shops selling undergarments by the kilo in narrow lanes have made way for gloss-fronted shops selling branded garments and export rejects. The numerous ISD booths in each lane (where exporters used to queue up at nights to talk to overseas buyers) have also vanished. Multiplexes, luxury car showrooms and good hotels are aplenty.Overcoming OddsThe recent reverses notwithstanding, the town’s entrepreneurs are determined to keep the rosy picture alive despite the challenges. “My feeling is that by early next year, we will be back on track,” says Karthikeyan, a veteran exporter and general secretary of TEA.Sakthivel says they are now devising strategies to move ahead. “Tirupur is dependent on EU and the US for 75 per cent of its business. But there are big opportunities in many other countries and we are going to tap them.” In future, the ideal business mix should be 40 per cent from Europe, 25 per cent from the US and 35 per cent from non-traditional countries, he adds.In July, around 150 exporters from the town went to Japan, a knitwear market dominated almost entirely by the Chinese. “The response is good and the Japanese market is promising as after our Comprehensive Economic Partnership Agreement, garment tariffs have been reduced to zero,” says Sakthivel.About 25 exporters also visited the Magic Fair in Las Vegas and the London Garment Expo in August. There are signs of a revival and Tirupur hopes to get orders soon.In September, Sakthivel and his team went to Israel, a country largely unaffected by the recession. “That market is promising and we have got orders,” says Karthikeyan. Latin America, Australia, New Zealand, Russia and South Africa are the other new target markets. “We have been through many crises and we will prevail; that is the resilience of this determined town which we made from nothing,” says 74-year-old Karthikeyan.Confidence and optimism are essentially what put Tirupur on the map. It’s not for nothing that the town is nicknamed ‘Dollar City’ and ‘Kutti Japan’ (small Japan, drawing from how Japan rebuilt itself after World War II). p(dot)jayakumar(at)abp(dot)in(This story was published in Businessworld Issue Dated 05-11-2012)
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The issues of India’s power sector are getting worse. While thermal capacity addition plans are tripping mainly due to the unavailability of coal, manufacturers in the other two main segments of the industry — transmission and distribution (T&D) — are now fighting for survival. For the first time in 10 years, the Indian electrical equipment (EE) industry has seen a negative growth of 2.4 per cent in the first quarter of 2012-13 (against a growth of 13.8 per cent in the same quarter in 2011). The growth has declined to –3.9 per cent in first five months of the fiscal and is expected to further slip to –4.2 per cent for the first half of 2012-13. Generation equipment such as boilers, turbines and generators comprise 26 per cent of the Rs 1.2 lakh crore EE industry. The rest is made up by T&D and allied sectors, which make transformers, switchgear, transmission lines, etc. In the last few years, the EE industry has doubled its capacity on the back of huge power generation capacity addition plans in the 11th and 12th Five-Year Plans. “Now, capacity utilisation of the T&D industry has come down to 67 per cent from 80-85 per cent a few years ago, and many units are on the verge of closure,” says J.G. Kulkarni, vice-president of Crompton Greaves and president of the Indian Electrical and Electronics–3.9 per cent was the growth of EE sector till Sept.Manufacturers Association. The main reason for the slump is the threefold growth in imports from China since 2005-06. China’s share in Indian imports of EE stands at 44.5 per cent (2011-12), growing at a compound annual growth rate of 57.5 per cent in the last six years. “In the case of rotating motors, growth of domestic manufacturers’ revenues has come down by 10-12 per cent in the last six months. Imports have grown by 65 per cent during the same period,” says Anil Nayak, an executive with Bharat Bijlee. The situation of insulator makers is even more grim, due to a lack of new orders, project delays and a severe cash crunch owing to non-payment by electricity boards. Industry experts say import duties on most of the generation equipment for non-mega projects and T&D equipment are quite low (around 5-7.5 per cent) and are being further lowered under various free-trade agreements. They say domestic EE manufacturers suffer a cost disadvantage of about 14 per cent against Chinese imports. Chinese manufacturers also get export subsidies, giving them a 24 per cent cost advantage. Chinese firms such as transformer maker Tebian Electric Apparatus Stock and Baoding Tianwei are already planning to set up manufacturing units in India. The Centre’s decision to impose about 21 per cent import duty on power generation equipment will also not be of much help to the T&D sector. The poor financial health of state electricity boards, the main customers of T&D companies, has made the problem more acute for the power sector. Considering these issues, the Department of Heavy Industry is developing an ‘Indian Electrical Equipment Industry Mission Plan 2012-2022’ to lay down a clear 10-year road map for enhancing the competitiveness of the domestic EE sector.(This story was published in Businessworld Issue Dated 26-11-2012)
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It’s a business dictum that when uncertainty is high, you don’t dig big holes. Companies in two industries that may be in big holes just now are telecom and power. So one has to wonder: does it make strategic sense for the promoters of Sun Pharmaceuticals, the largest drug company by market capitalisation to diversify into those sectors?On October 26, Sudhir V Valia, the brother-in-law of Dilip Shanghvi, managing director and founder of Sun Pharma, hit the headlines by entering into a joint venture with Norwegian telecom firm Telenor; Valia’s Lakshdeep Investments & Finance will be Telenor’s partner in their new venture Telewings Communications, which will participate in the forthcoming 2G spectrum auction.Lakshdeep Investments & Finance holds just over one per cent of Sun Pharma. Media reports cited InGovern Research Services, a consultancy firm that advises investors on corporate governance and proxy voting, as saying that Lakshdeep’s 26 per cent equity in the Telenor joint venture is in the range of Rs 2,000 to Rs 2,500 crore. The firm’s current funding sources amount to Rs 1000- Rs 1200 crore; the balance will have to be loans, Ingovern adds.Earlier this month, Sun Pharma’s board approved a resolution that would allow the company to raise Rs 8,000 crore in loans; the firm also has about Rs 6,000 crore in cash and cash equivalents on its books. So there has been speculation among industry observers that this could be used to part-finance the telecom business.But Sun Pharma denies the move. "We don't have any plans to fund Lakshdweep Investments,” says a company spokesman. “The resolution passed by the board was an enabling resolution; we will be seeking shareholder approval to raise the money.”"This is baseless speculation, and at this point of time even I do not know how much assets we (Telewings) are going to get in the auction (2G spectrum),” says Valia. “We have to wait till the auction to decide how much I will have to invest." He says that he has various funding options available in his personal capacity to complete the deal.In fact, both the telecom and power generation ventures – more on that later – are personal investments of Shanghvi (he is worth $9 billion, according to Forbes magazine) and Valia, not part of the company. Is it possible that these moves were in the offing for quite some time? A few months ago, in May this year, Dilip Shanghvi stepped down as chairman of the company in May paving way for Israel Markov, the former CEO of Teva Pharma to become chairman. Valia also stepped down as chief financial officer (CFO) to make way for Uday Baldota, another long-serving Sun Pharma executive.Readers may recall that a year ago, Shanghvi made the surprising announcement that he was setting up a power generating business with a 2,600 MW plant in Andhra Pradesh. He also then picked Valia to spearhead that venture, Alpha Infra Projects.But since that time, the scenario has changed somewhat. "We have the various clearances in place and are waiting for coal linkages and other problems related to the thermal power segment of the sector to settle down to launch this project," says Valia.Will there be other such investments? Valia doesn’t duck the question. “We are looking at good opportunities (to invest) and that may take time,” he says. But for Shanghvi, Sun Pharma will continue to be the center of his solar system.
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Novartis is gearing up for the final round of legal battle to get patent protection for its cancer drug Glivec in India.The Supreme Court will start a two-month long hearing on the case from September 11. The Basel, Switzerland based multinational drug major is challenging a few crucial provisions in the Indian Patent Law on patentability criteria. The ongoing legal battle for the last seven years had attracted international attention.Those who campaign against Novartis say the case is an attempt to threaten the availability of affordable medicines for the world’s poorest patients. Novartis says its attempts are to protect the rights related to innovation made by spending massive money on research and development.Following the rejection of its patent application for Glivec, Novartis had filed a case in May 2006 challenging the patent office’s decision at the Madras High Court. After an year, the court directed the case to be heard by the Indian Patent Appellate Board (IPAB). In July 2009, the IPAB turned down Novartis' patent claim and ratified the decision of the patent office.IPAB observed that the drug cannot be granted patent under Section 3(d) of the Indian Patent Law, since the drug is not a new invention and is only a minor tweak of an older compound that already has apatent, and is therefore only an incremental innovation (‘ever greening’ of patents) without significantly enhancing therapeutic efficacy. Patent experts say Novartis’s arguments to win the case in the apex court are likely to revolve around the interpretation on ‘enhancing therapeutic efficacy’, rather than trying to shot down Section 3 (d) clause of the Indian patent law.Novartis says Glivec, whose chemical name is imatinib mesylate, is not an ‘evergreen’ drug and had got patent in 40 countries, including China, Russia, Taiwan and all major developed countries.“We developed the mesylate salt of imatinib and then the beta crystal form of imatinib mesylate to make it suitable for patients to take in a pill form that would deliver consistent, safe and effective levels of medicine. This process, which took years, was more than just an incremental improvement – it was a breakthrough -- and certainly cannot be interpreted as "evergreening”, says a fact-file on Glivec published by Novartis.Novartis’ decision to continue the legal battle in Supreme Court is despite a global campaign to drop the case. In February, an international non-governmental organisation coalition, which included Oxfam, Act Up and Health Gap, had urged Novartis to drop the Glivec patent case in India.“What is at stake goes far beyond the only granting of a patent for this anti-cancer drug. This legal challenge aims in fact at weakening a legitimate and invaluable public health clause of the Indian law, section 3(d), which intends to limit the multiplication of patents on trivial changes to existing medicines, a common practice by multinational pharmaceutical companies”, says Patrick Durisch, health programme coordinator of the ‘Berne Declaration’, which asked Novartis to drop the case.“With net sales of $4.7 billion in 2011, Novartis can easily survive without a patent for Glivec in India, whilst its designated successor, Tasigna (Nilotinib-a blood cancer drug), was already granted one in India”, he says.Whether Novartis wins the case in Supreme Court or not, the battle for Glivec patent will remain as one of the longest and most controversial intellectual property debates on medicines in India.
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Multinational drug majors’ concern against India’s patent rules now has another example to highlight. On September 14, the Intellectual Property Appellate Board (IPAB) in Chennai dismissed German drug maker Bayer's appeal to stay the Compulsory License (CL) issued to Hyderabad based Natco to manufacture kidney cancer drug sorafenib - branded as Nexavar.In a landmark decision in March, the patent controller had issued India’s first Compulsory License allowing Natco to sell its generic drug at Rs 8,800 or less for a month's treatment and pay 6 per cent royalty to Bayer on the total sales. The patent office had observed the German firm was selling the drug at Rs 2.8 lakh a month. The CL was granted on grounds of affordability to the patients. As per Section 85 of the Indian Patent Act, a CL can be issued if the patented invention is not available ‘at an affordable price to the public’. The CL was granted considering factors like the ‘drug was not reasonably priced’, ‘was not adequately available’, and was ‘not manufactured in the country’.It is estimated that over 30,000 patients in India are suffering from advanced kidney and renal cancer."The right of access to affordable medicine is as much a matter of right to dignity of the patients and to grant stay at this juncture would really affect them and further, it would in effect amount to deciding the main petition itself. Though this is not a reason why we are not granting stay, yet this is an additional factor,” the IPAB said in its 17- page order.The IPAB is yet to take a decision on Bayer’s appeal against the CL granted by the patent office.Sorafenib product patent was granted in India in 2007. This patent was opposed by Cipla at post grant level and launched its generic sorafenib. The patent infringement case filed by Bayer against Cipla is pending at the Delhi High court. Bayer had earlier tried to prevent generic launches of the drug by filing a separate litigation demanding patent-product approval linkage, which was rejected by Delhi high court and by the apex cout in appeal. Earlier, Bayer’s writ petition challenging controller decision on Natco’s CL is disposed of by Bombay high court and asked Bayer to file in Delhi high court.Market sources say Cipla, which is fighting a case against Bayer for launching its generic version of Nexaver, also sells the drug at less than Rs 7,000 for a month’s treatment. Natco is also selling the drug at a discounted price to tap the Rs 22-25 crore market for kidney cancer. Bayer had also offered to sell the drug at about Rs 30,000 per month.“Now the option left before Bayer is to approach the Supreme Court to revoke the decision of IPAB and get a stay”, said a patent attorney, who had represented domestic companies in some of the earlier patent cases. Recently, the Delhi High Court had ruled in favour of Cipla against Swiss drugmaker Roche, over its cancer drug Tarceva. In another high-profile legal battle, Novartis is challenging the Indian Government against the decision of the Indian patent office not to grant patent for its cancer drug Glivec. Novartis is also questioning Section 3(d) of the Indian Patent Act which says ‘frivolous" inventions as non patentable. The case is now before the Supreme Court. With innovator companies beginning to taste domestic industry-friendly decisions by India’s patent office, it is likely that more patent litigations will take place in the future.
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If in the future, monorail’s history in India is written, jailed Pakistani terrorist Ajmal Kasab will feature prominently in the write-up. Consider this: the Mumbai terror attack by Kasab and his fellow terrorists on 26 November 2008 came just two days before a function to mark the start of construction of the Mumbai monorail, where Prime Minister Manmohan Singh was supposed to be the chief guest. Needless to say, the grand launch was delayed by three months. Then, almost a year was lost because security concerns stalled the monorail line near Arthur Road Jail, in which Kasab is housed under heavy security. Despite these hiccups and a few environmental issues, by early next year, the city of Mumbai will boast of the first modern monorail system in India — if all goes as planned. It will be the harbinger of a wave that is set to sweep across India in the field of monorail systems and transportation infrastructure. If the plans take off, India will become the monorail capital of the world. At present, 13 projects, covering between 300 and 350 km, at a cost of Rs 30,000-Rs 35,000 crore over the next 3-5 years, are in either the planning or implementation stage across the country. But is it all worth it? “We expect an investment of a minimum of $5 billion in the coming years in India on monorail systems on some 21 projects that are in the pipeline,” says Kanesan Veluppillai, president of Scomi International, the Malaysian monorail systems maker which is implementing the Mumbai monorail along with its consortium partner Larsen & Toubro (L&T). Such a mad rush for monorail — no longer preferred as a mode of mass transportation the world over due to its low passenger capacity — is unheard of in the history of monorail systems. Most monorail experts of yesteryear have, over the past 3-4 decades, either exited the business or moved to other advanced transportation techniques due to lack of clientele. However, sensing an opportunity in India, most of those remaining in the field are flocking to the country — including the three major players: Scomi, Bomabardier and Hitachi. Some are even looking to set up their own rake-manufacturing facilities in the country. But the moot question remains, is monorail the right mass transportation medium for populas Indian cities? Waning PopularityInterestingly, no country has had a monorail network of the scale that Indian cities are looking to build. COUNTRYWIDE CONNECT: Monorail has lost out on appeal in most parts of the world, but in India it appears set to grow with many plans afoot(Click to view enlarged image)According to the Monorail Society, an organisation that pushes for its wider acceptance, Asia’s first such project was opened in 1986 at the Lotte World in South Korea, a three-car train carrying 18 passengers and connecting two stations: an indoor amusement park to an outdoor island. China’s first monorail project was a similar small 1.7-km project at a theme park in 1993. Its first urban monorail started in 1998 at Shenzhen, covering 3.8 km; but its first major monorail system was opened only by 2005 in Chongqing, a 55.5- km stretch connecting 43 stations and carrying 30,000 passengers per hour during peak rush. Other than that, not many new projects have come up in Asia, with the possible exception of an 8.6-km-long project in Kuala Lumpur. Of the seven new monorail projects under construction in Asia, the longest stretch is at Daegu in South Korea: a 24-km length that is being managed by Hitachi. Africa is yet to see a monorail in operation (at Port Harcourt in Nigeria, a 6.4-km project is in progress). Australia has just three monorail lines, all started in the 1988-89 period. In Europe — where the first monorail system was started in 1901 at Wuppertal in Germany — only one project is coming up, a 5-km solar-powered monorail to connect Bologna airport with its central railway station. In Japan, where 11 monorail systems operate, the last one to come up was back in 2003. In 1959, Disneyland made monorail systems popular in North America. However, just nine monorail systems have come since then, the last in 2004 in Las Vegas.Apart from India, the only other nation where a larges-cale monorail project is coming up is Brazil. The city of Manaus will construct a 20-km-long monorail with nine stations in time for the soccer World Cup in 2014. Scomi is implementing the project. Sao Paulo is alos working on implementing a monorail network, with three lines covering nearly 100 km. Monorail Versus Metro“Monorail is a suitable system for urban transportation. There are many opportunities for us to introduce monorail systems the world over; not just in India, but also in China, South-east Asian countries, etc.,” says Satoko Yasunaga, a spokesperson for Hitachi Asia (Singapore). Hitachi is one of the largest players in this field, having constructed monorail systems in Singapore, Tokyo, Osaka, Chongqing (China) and South Korea. Harsh Dhingra, chief country representative of Bombardier Transportation India, says that India, with its congested cities, where alignment of metro routes is not always possible, monorail is the most obvious alternative. He notes that some nine Indian cities have a population of more than 5 million and, by 2051, more than 35 cities will reach that figure. To cater to such a large urban population, India needs a comprehensive, sustainable and integrated rail transportation system, says Dhingra. Veluppillai of Scomi notes that with 40 per cent of India’s population set to live in urban areas, there will be a need for extensive transportation infrastructure: more metro and railway lines, roads, sidewalks, foot overbridges and cycle tracks. “It is not possible to acquire large tracts of land by displacing people in thickly populated areas for a mass rapid transportation system such as the metro. One practical solution is to create connectivity to existing suburban railheads with monorail, which requires less space,” he says. Philippe Delleur, senior vice-president, international network, Alstom, another global mass transportation provider, says metros and monorail are complimentary to each other and one is not a substitute for the other; each has its own advantages and disadvantages. “Globally, monorail is suited for small capacity routes and as feeder to the existing metro network. Increasingly, Indian cities, especially tier-2 cities, are looking at monorail as a means of urban transportation. Monorail is being considered as a feeder to the metro,” he says. For Delleur, the advantage of monorail lies in its ability to operate in restricted spaces. Monorail can be incorporated into a conventional rail-based design without the disadvantages of having proprietary trains. Globally, more than 50 monorail systems are in operation and it is generally perceived as a leisure park technology because of its attractive looks and small passenger capacities. The capacity of a monorail typically ranges from 2,000 passengers per hour per direction (pphpd) to a maximum of 48,000 pphpd when a monorail is used for mass transportation, depending on the number of cars. As against this, mass transportation systems such as the metro can carry over 70,000 pphpd. The question is: what happens when cities need higher carrying capacity while the central channel of major roads of the city are occupied by low capacity monorail? break-page-break In the case of the Mumbai monorail, the plan is to have 15 trains of four cars each, which will carry around 1.25 lakh people every day. In comparison, the Mumbai suburban railway carries 72.4 lakh commuters daily, while the Mumbai Metro One, the Versova-Andheri-Ghatkopar Corridor Mass Rapid Transit System (MRTS) project being developed by Reliance Infrastructure, is expected to carry six lakh commuters per day on completion. Viability Question“Worldwide, monorail has found far less acceptance than metros or trams as an urban rail transport mode,” admits Delleur. In fact, more than 50 monorail projects in different parts of the world have been decommissioned in the past for various reasons, chief among them being economic unviability. “Monorail is seen as a good option only for the last-mile connectivity and its viability is dependent on the traffic density of each corridor. Such feeder systems cannot survive only on revenues from passenger traffic and require a viable economic model such as public funding (like viability gap funding) or subsidies or other streams of revenue such as real estate development,” says Sanjay Sethi, senior executive director and head of the infrastructure group at Kotak Investment Banking. In fact, India had two monorail systems earlier: the first being the one that was used by the British to transport tea from Kundala Valley in Munnar in Kerala. The second was the Patiala State Monorail Trainways (PSMT) — a partially road-borne railways system running in Patiala from 1907 to 1927. While the former was stopped due to a flood in 1924, the latter was abandoned following the death of its patron, Maharaja Sir Bhupinder Singh of Patiala. The period between 1950 and 1980 was bad for monorail. City planners preferred to invest in cheap transport systems such as buses that could ferry more passengers instead of investing in monorail that incurred high costs, and carried fewer passengers. Experts says that most of the surviving monorail systems are dependent on revenues from the tourism industry. The coming of mass rapid transport systems such as the metro virtually killed the market for monorail. (L-R) BW Pics By Tribhuwan Sharma and Subhabrata Das However, the industry revived post the 1980s with the development of modern mass transit monorail systems, running on elevated beams. “With improvement in technology and higher passenger capacity options, the cost of construction of a monorail network has come down,” says Veluppillai. The Indian StoryLike most Indian infrastructure projects, the upcoming monorail projects are also experiencing delays, cost escalation and viability issues. In Mumbai, initially the Mumbai Metropolitan Region Development Authority (MMRDA) wanted to construct eight monorail lines at a cost of more than Rs 20,000 crore. MMRDA’s plan to construct a second monorail connecting Kalyan-Bhiwandi-Thane was suspended after the consulting agency, RITES, said it would require 90 per cent viability gap funding to make the project viable. Later, the MMRDA dropped its plans to add new lines and decided to concentrate only on the first line, a 19.5-km stretch from Chembur to Wadala and then to Jacob Circle, with an investment of over Rs 2,460 crore. The line between Chembur and Wadala is expected to be operational by December this year or January and the line from Jacob Circle to Wadala is to be ready a year later. MMRDA has planned the line as a feeder service to the existing suburban railway network. L&T and Scomi have been contracted to build and operate the monorail until 2029. Similarly, the Delhi administration’s plans to construct a 90-km, six-line monorail network have been whittled down to 1-2 lines — one in East Delhi, linking Shastri Park with Laxmi Nagar via Trilokpuri in an 11-km route. Experts say that while a 4-car metro train would require an expenditure of over Rs 200 crore per km on elevated lines (in the case of an underground metro, it can cost up to Rs 600 crore), the cost for a monorail would range between Rs 120 and Rs 150 crore per km on elevated lines, depending on land costs. “Mumbai monorail’s cost is nearly Rs 123 crore per km (worked out about five years ago) and with new construction technologies and opportunities for rolling stock makers like manufacturing options in India, it can further come down for new projects,” says Scomi’s Veluppillai. The construction time is also comparatively lesser for monorail, which is built using either suspension technology or straddle beams, and with cars running on rubber tyres. “We have the capacity to complete such lines in 36 months provided land and other clearances are given,” says Veluppillai. Chennai’s plan was to construct an 111-km- long monorail project at a cost of Rs 16,650 crore, at a rate of around Rs 150 crore per km. Then the state government revised the plan to a 54-km phase-I, costing some Rs 8,050 crore. The current status is that Scomi International, Hitachi, Bombardier, L&T, Gammon and IL&FS have qualified for the final request for proposals stage. Though the Kolkata monorail project was awarded even before the Mumbai project, it is yet to reach the implementation stage. The project, awarded to Andromeda Technologies of Kolkata, was slated to get under way by 2011, but it is nowhere near completion. The project was for constructing a monorail from Budge Budge to Taratala, a distance of 20 km, on a build-own-and-operate basis at an approximate cost of Rs 60 crore per km. The National Transportation Planning and Research Centre (Natpac), which did the feasibility study of the Thiruvananthapuram monorail project, says the cost works out to Rs 125 crore a km in the first phase and Rs 118.7 crore a km in the second. The study says the financial internal rate of return will be 7-13 per cent and the economical internal rate of return will be around 12.6 per cent, which makes the project viable, on the assumption that 40 per cent of the current road traffic will move over to the monorail, once it takes off. “The major challenge we foresee for these projects will be funding to make them viable from a social and economic point of view. The second major challenge will be timely land acquisition where city municipal bodies have to play a major role,” says Dhingra of Bombardier. Sensing the opportunity, manufacturers of monorail are devising their plans around India. Scomi plans to make India its hub so that it can go looking for monorail projects in Sri Lanka and Bangladesh. In India, Scomi already has a team of 100 in place. “We have a 200 rake car- manufacturing unit in Kuala Lumpur and another one is coming up in Brazil. Once we get a sizeable order, we will think of starting a manufacturing unit in India,” says Veluppillai. Bombardier — the first multinational company to set up a wholly-owned railway manufacturing plant in India for the production and final assembly of bogies and car bodies at Savlinear Vadodara with an investment of `33 million — is currently vying for monorail projects by offering its INNOVIA Monorail 300 systems for the Kozhikode and Thiruvanthapuram monorail projects, as well as for those planned in Delhi, Mumbai and Chennai. Bombardier has an order book of more than 600 cars from the Delhi Metro alone. “Our recent investments demonstrate that we are committed to the development of rail transportation in India. Bombardier is always exploring opportunities to bring in advanced global rail technologies in all countries that it operates in,” says Dhingra. Alstom has a wait-and-watch policy to tap the Indian monorail opportunity. “We will closely watch the experience of the first monorail projects in India and refine our strategy accordingly. Meanwhile, we will have the ability to participate in projects by providing signalling and train control systems,” says Delleur. Hitachi’s spokesperson says the company is now looking for opportunities in India. The company is also looking at partnering local players as an option. “It is a very important alternative. Generally speaking, the partnership with a local entity will be very important to contribute to each country’s social infrastructure,” says Hitachi’s Yasunaga. While the enthusiasm of city planners and monorail makers augurs well for the ever-growing number of urban Indian commuters, it remains to be seen how many of these projects actually become a reality. With inputs from Joe C. Mathew p(dot)jayakumar(at)abp(dot)in (This story was published in Businessworld Issue Dated 17-09-2012)
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For oil marketing company (OMC) Hindustan Petroleum Corporation (HPCL), 2013-14 was a landmark year. First, Nishi Vasudeva took over as chairperson and managing director of the four-decade-old company, thus becoming the first woman executive in India to head a Navratna public sector undertaking (PSU). Second, it trumped other PSU OMCs in sales growth and recorded the highest level of net profit in the past decade. This helped HPCL retain its sixth position in the BW Real 500 rankings for 2014.The company’s total income rose 8.32 per cent over the previous year to Rs 2,35,599.16 crore while operating profits jumped 41.33 per cent to Rs 6,705.26 crore. Profit after tax (PAT) nearly doubled to Rs 1,080 crore in FY 2014, from Rs 501 crore in FY 2013. The company clocked all-time high sales of 31 million tonnes (mt) for petroleum products, with a growth of 4.1 per cent over the previous year — the highest among OMCs. This growth is noteworthy considering that consumption of petroleum products in India crawled upwards by 1.3 per cent to touch 160 million metric tonnes (mmt) in 2013-14. “This robust performance is due to consistent implementation of best practices in operations, institutionalisation of strategic initiatives and enhanced employee engagement,” Vasudeva said in her maiden address to HPCL shareholders in September. In 2010, HPCL launched its short-term growth plan, Target Shikhar, focused on improving refining profitability, investments in new areas and operational efficiency. Implementation of the plan has helped the company post better results ever since. The key drivers of HPCL’s growth in 2013-14 were timely recoveries from the government and better refining and marketing margins. The company’s pipeline throughput rose to 15.69 mt in 2013-14 from 14.04 mt the year before. Industry observers say HPCL’s gross refining margin (GRM) and capacity utilisation were better than the expected under-$3 a barrel. HPCL’s uncovered losses on selling diesel and cooking gas dropped to Rs 482 crore on account of a Rs 15,215-crore cash subsidy from the government and Rs 16,771 crore in assistance from upstream firms. The government’s decision in January 2013 to allow OMCs to periodically hike diesel prices by 50 paise every month also helped. An appreciating rupee and consistent diesel hikes enabled HPCL pare diesel losses from Rs 8 a litre in January to Rs 2.8 a litre by the end of the financial year. Vasudeva says the company is working on Udaan 2030, a long-term plan focused on cost optimisation and maximising profitability. In this connection, it is implementing two strategic initiatives for central procurement and margin management by integrating end-to-end processes across crude sourcing, refining, storage, distribution and marketing operations.To stem the imbalance between sales and refining capacity and bring newer refineries into action, HPCL is ramping up the capacity of its Visakhapatnam refinery from 8.3 mmt per annum to 15 mmtpa. It is planning to increase the capacity of its Mumbai refinery from 6.5 mmtpa to 10 mmtpa. HPCL is also collaborating with the Rajasthan government to set up a 9 mmtpa refinery-cum-petrochemical complex.The company ventured into international exploration and production (E&P) of petroleum products through its subsidiary, Prize Petroleum, which has acquired a 21 per cent participating interest in two E&P blocks in Australia. Vasudeva says HPCL will focus on strengthening its existing businesses, while leveraging opportunities in E&P and natural gas and diversifying into petrochemicals. Considering its good run and the government’s supportive policies, HPCL may have already taken off on its Udaan 2030 mission.(This story was published in BW | Businessworld Issue Dated 17-11-2014)
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R.K. Singh retired as chairman and managing director (CMD) of Bharat Petroleum Corporation (BPCL) towards the end of FY 2013, after notching up the highest ever profit after tax (PAT) in a financial year. His successor, S. Varadarajan, bettered the performance in his very first year, with an all-time high net profit of Rs 4,052.98 crore — a growth of 109.33 per cent over the previous year. Not just profit; BPCL’s overall performance helped it retain its position in BW’s Real 500 rankings for 2014.In FY 2014, BPCL recorded a total income of Rs 2,65,806.39 crore, a growth of 8.99 per cent over the previous year. During the year, its operating profits grew 31.18 per cent, to Rs 10,758.74 crore.BPCL’s refineries at Mumbai and Kochi recorded a gross refining margin (GRM) of $4.33 per barrel, the highest among public sector oil marketing companies. These refineries achieved a crude throughput of 23.35 metric million tonnes (mmt) for the year, as against 23.21 mmt in the previous year. Marketing of petroleum products has been a strength of BPCL’s, which has a market share of 23.48 per cent among state-run oil marketing companies. Its retail sales went up 5 per cent over the previous year. In fact, it achieved the highest throughput from its retail outlets, at 185 kilolitres per month. The company added 882 new retail outlets to its network during the year. BPCL’s industrial and commercial business segment, however, saw a decline in sales of various products due to sluggish market conditions and high energy costs. On the other hand, logistics optimisation and strategic network expansion helped aviation fuel sales gain their highest ever market share of 25 per cent during the year.BPCL’s gross under-recoveries stood at Rs 34,500 crore, of which upstream compensated to the extent of Rs 15,600 crore (45 per cent), the government Rs 18,400 crore (53 per cent) and the rest had to be borne by BPCL. “The lower subsidy burden and the timely release of compensation by the government have helped ensure better working capital management, leading to lower borrowings and interest outgo during the year,” says Varadarajan. A recent Motilal Oswal research report says BPCL is going to benefit as overall under-recovery on diesel, kerosene, LPG and petrol is set to reduce 50 per cent by 2015-16 and the de-regulated era will increase marketing profitability. Further, the company is going to benefit from lower interest costs in the coming years. Industry observers believe that the expansion plans and investments being made by the company, mainly in upstream exploration and production (E&P), are going to take BPCL to a new level. “We have drawn up ambitious investment plans across the entire value chain — from E&P to refining and marketing operations and capital expenditure — totalling Rs 10,000 crore per annum,” says the CMD. The total refining capacity is set to increase from the current 30.5 mmt to 47.5 mmt by 2017. BPCL is expanding the capacity of the Kochi refinery from 9.5 mmtpa to 15.5 mmtpa, and modernising its processing facilities to produce auto fuels conforming to Euro IV and V norms. The integrated complex, with a capital outlay of over Rs 16,500 crore, is expected to be completed by May 2016. The Mumbai refinery is also being modernised and an expansion is planned at the Bina refinery in Madhya Pradesh.The company is also investing on improving its marketing infrastructure — setting up cross-country pipelines to transport fuels and ramping up automation of retail outlets. With these initiatives, BPCL is geared to meet the challenges of the future, says the CMD. Investors seem to be thinking along the same lines if the stock price is anything to go by. (This story was published in BW | Businessworld Issue Dated 17-11-2014)
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