The increase has been steady, but it did not hit people immediately. It was one of the smartest moves by the UPA-II ministry — to hike high speed diesel (HSD) prices by 50 paise every month. And it has yielded results, without too much of a bickering, except when it was first announced in January 2013. With the Narendra Modi government continuing with the policy of the UPA-II government, diesel prices in Delhi have risen to Rs 57.28 per litre in June from Rs 47.65 per litre in January 2013. That has resulted in reducing the under-recovery on diesel to an all-time of Rs 2.80 per litre from Rs 4.41 per litre before the hike. It had stood at Rs 8.37 a litre in March. While the gradual hike in prices is important, what has also aided the fall in under-recovery this time round is the strengthening of the rupee vis-à-vis the US dollar. Currently the rupee is trading at Rs 59.03 to the dollar. It is believed that if the rupee rises to Rs 56 per dollar, the under-recovery will be wiped out. With the rupee strengthening against the dollar, the government is in a position to finally decontrol diesel prices. That’s important since diesel accounts for 44 per cent of India’s fuel consumption while petrol accounts for 10 per cent. With petrol already decontrolled, it means that more than half of India’s fuel consumption will be at market prices. While that is good, the impact on state-owned oil marketing companies (OMC) continues. As of June 2, OMCs are incurring a combined daily under-recovery of about Rs 262 crore on the sale of diesel, kerosene and domestic LPG. This is, however, less than the Rs 318 crore daily under-recoveries during the previous fortnight. While the under-recovery in diesel has come down, it is still Rs 32.87 per litre of kerosene. In the case of domestic liquefied petroleum gas (LPG), the under-recovery is to the tune of Rs 432.71 per cylinder. The government will now have to look closely at hiking the prices of LPG and kerosene which are generally perceived to be the common man’s fuel. With the rupee strengthening against the dollar, the price of the Indian basket of crude oil was $ 107.14 (Rs 6324.47) per barrel (bbl) on 30 May as against US$ 107.59 (Rs 6330.60) per bbl on 29 May. Anupjayaram@gmail.comanup@gmail.com
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For the sake of explanation, world’s largest coal miner, Coal India Ltd (CIL) can very well attribute the 18 per cent decline in its net profits - to Rs 4,434 crore for the January-March period - to a one-time write-off. But the public sector behemoth, which is being considered for a massive restructuring by the new government, will need to fix a lot of systemic problems if it has to maintain its profitability in the coming months.Here is why.While CIL claims that the decline in profits happened due to a write-off of Rs 876 crore as settlement for a quality dispute with its largest customer National Thermal Power Corporation, the fact remains that despite various claims, the company has failed to ramp up its production over the last two years.Production and sales by volume during the March quarter at 143.22 mt and 129.94 mt, respectively, were flat compared with last year. For the full year, the company produced 462.42 mt of coal—20 mt short of its target, but marginally higher than its previous year’s output of 452.21 mt.Now, let us look at the company’s production for FY14. CIL which accounts for over 80 per cent of the domestic coal production missed its output target of 482 MT in the last fiscal year and just produced 462 MT coal.A look at FY13 tells the same story. The company produced 452.5 MT coal, short of the goal of 464 MT in that year.It’s not only the inability to ramp up domestic production that is troubling CIL. Though flush with huge reserves, it has not managed to acquire significant overseas assets (just two acquisitions so far), an apparent sign of the company management’s inability to take quick decisions when it comes to aggressive biddings against other international companies.The company has also failed to acquire new technologies to exploit underground mines, say experts.Even though the company claims that more than technology, environment hurdles stop it from increasing production, but the fact remains that adopting clean technologies has not been the CIL’s top priorities.The decision of Narsing Rao, CMD, CIL to quit his tenure mid way will add to woes of the company in taking decisions which is used to enjoying its monopoly in the market, industry observers say.The only hope for the company is visible in the prospect of government preparing a plan to give more power to CIL’s subsidiaries. Trade unions, which otherwise have been dead against any disinvestment in CIL have shown positive signs on this issue. Unleashing the power of CIL’s subsidiaries is important for a behemoth finding it tough to fight its lethargy.
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As a member of the Council of Great Lakes Governors (CGLG) from USA, Vinny Gupta, the president and CEO of InNow LLC, visited India as part of the trade mission last month. Working with innovative technologies, Gupta and his partners are attempting to revolutionise the energy sector. InNow is an Ohio-based company, which works on commercialising selected emerging technologies in India and Far East. Currently the company is in the process of setting up a demo plant in USA, which will manufacture gasoline from plastic waste. Here, Gupta talks to BW| Businessworld's Moyna about the scope and need for innovative technologies in India in the backdrop of fast depleting natural resources.
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For the common man of India, the dream to own a house will soon turn into reality with the Narendra Modi-led NDA government taking charge. Issues such as affordability of real estate, delayed construction projects, delays due to litigations surrounding real estate projects, etc. impacted developers as well as consumers.The new government promises to aggressively promote affordable housing. Property is once again going to become the most popular investment option, as there will be significant appreciation in real estate prices on the heels of higher demand in the coming years. With the easing of regulations, developers are expected to speed up the construction process, providing relief to buyers who have already invested.The big names of the Indian industry have welcomed the new government with a hope that it will bring the economy back on track and raise the currently plummeting GDP to 8-9 per cent in the coming fiscal. The new government at the centre is expected to infuse life in the existing policy paralysis in the country by removing the major bottlenecks that are deterring growth.Revitalised Funding FlowFDI in the Indian real estate sector is expected to get a lift, resulting in amplification of fund flows and strengthening of the battered Indian rupee. With a clear majority triumph, the incumbent government will enjoy unwavering stability at the centre, which will in turn encourage investors’ sentiments with regards to the real estate market. Global investors are now markedly optimistic about the Indian economy, which is expected to witness more than 100% increase in foreign investment inflows, both via FDIs and FIIs, to above $60 billion in the current financial year, as compared to $29 billion during FY 2013-14.The urban development ministry is expected to repeal the existing restrictions on real estate firms by allowing foreign investment up to 49%, free of all conditions. This will help the real estate sector to raise foreign capital at competitive rates and reduce stakeholder dependency on the beleaguered local financial institutions. Foreign capital for urban renewal and slum redevelopment projects is also expected to see major relaxations.Boost To The Retail SectorThe retail sector is also expecting significantly enhanced domestic as well as foreign investments. India’s large but capital-constrained retailers have welcomed the liberalised rules that are expected to bring funding and new technologies into the sector. As a result, demand for retail space is going to increase enormously as more and more domestic retailers plunge in to reap the benefits of the new policies.Fast-Tracked InfrastructureThe completion of large infrastructure projects like the DMIC (Delhi Mumbai Industrial Corridor) and the DFC (Dedicated Freight Corridor) will be expedited. This, in turn, would mean development of many new cities across the belt of these projects. These massive on-going infrastructure projects will lead to a huge demand for warehouses, thereby giving a significant boost to warehousing and logistics-related real estate demand. Once completed, the growth of real estate at India’s hinterlands that will be connected by these corridors will be exponential.In terms of real estate, some of the urgent steps that the NDA government needs to take with immediate effect are:Reversal of the land acquisition actClearance of pending receivables to the private sector via fast-tracked bureaucratic decision-makingProvision of fiscal stimuli to improve industrial growthCreation of investment-friendly real estate market via lowered interest rates and increased employment generation.Further, the real estate market expects the government and the RBI to be on the same page with respect to checking inflation and curtailing of interest rates, so as to revive the tumbling demand for property in India.Developers’ HopesIndia’s developers are hoping that:The new government will expedite the process of granting regulatory approvals. The chronic lag in this regard has been a major obstacle for most of their projectsThe Real Estate Development Regulation & Development bill, which has been lingering for quite some time now, will be passedThe new government will ease land acquisition parameters so that availability of land is no longer a major constraint. Difficulties in acquiring land due to the current policies have led to vastly escalated real estate cost.With the slowdown in home sales, developers have been battling a severe liquidity crunch and a rise in their inventory levels. Many prospective buyers have abstained from investing in property because of market negativity, an unstable government at the centre, high inflation, high interest rates on home loans, etc.Now, with the stock market rocketing and the Indian rupee appreciating, these buyers are expected to snap into action. Increased sales, along with availability of funds from both domestic and foreign investors, will bring significant respite to developers and finally bring an end to the liquidity crunch that they have been facing.The Hope MantraThe three major promises made by the NDA in their manifesto that have direct pertinence to the real estate sector are:1. The development of 100 new cities2. Putting a new land use policy in place3. Planning for low-cost housingModi’s pledge to implement an affordable housing policy and thereby provide homes to every Indian family presents a $150 billion business opportunity to the sector. The real estate industry now also has real hopes of being granted the coveted industry status, which will further ease fund flows.Meanwhile, consumers are optimistic about the impact that the new government will have on real estate pricing, and expect a reduction in home loans, the implementation of the proposed GST framework and the implied tax benefits to buyers.The author is CEO – Operations of JLL India
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Deustche Bank’s decision to not fund the Adani’s contested port expansion project near the Great Barrier Reef in Australia may just be shrewd business sense rather than sudden environmental consciousness.At the annual general body meeting of Germany’s largest international bank Deustche last week, the co-chief executive announced that the bank will not fund Adani Group’s contested project plans for the expansion of the Abbot Point port in Australia. Largely the move is being viewed as a victory for the green activists, who have been protesting the project ever since the 99 year long lease was signed between the Indian Conglomerate and Australian government in 2011. The port located barely 25 kilometres in the from the Great Barrier Reef is aimed at aiding the evacuation of the coal mines estimated to be around 30 billion Australian dollars worth, in the Galilee basin of Queensland acquired by the Adani group.Though Deustche official announcement says that the main reason for withdrawing from the deal is the lack of consensus between UNESCO and Australian government on the danger to the Great Barrier Reef, experts say the move indicates the unwillingness of Deustche Bank to fund a project that is too risky. As seen in India and across the globe conflict with local resources, people or the environment are the key cause of reversal of approvals, withdrawal of clearances and stalled projects. Be it Vedanta’s mining project in Niyamgiri hills of Orissa, POSCO’s steel plant, ExxonMobil’s Pegasus Pipeline from Canada to USA or the Gyama Pollymetallic mine in Tibet operated by China. Sooner or later the conflict gains prominence – resulting in huge set back to investments and on-going production in such contested projects.The Australian project has been mired in controversy right from the start and some experts have claimed that the location and lack of infrastructure in the region have prompted international players to abandon their stakes. Investors like Rio Tinto, BHP Billiton etc have given up their stakes in the port terminal, analysts believe because the multi-billion dollar investment is unfeasible since the mining boom has ended and worldwide market coal prices are on a slump. Plus the Galilee Basin is extremely remote with little infrastructure in and out.Adani and GVK are among the last remaining investors for the port terminal and while the former refused to comment, GVK has underplayed the withdrawal claiming it will have no impact on the ongoing projects. The project has already been stalled for two years due to protests of the environmental lobby, who have also been joined by tour operators and the general economic down turn. The Indian political scenario and more expensive coal may have also had a role to play in the project not having taken off so far. But coming back to the current port project, which has been cautioned against even by the world heritage agency – UNESCO as the reef is on the list of world heritage sites. The barrier reef is termed as the world’s “largest natural feature” and has been created over 600,000 years by billions of coral polyps, boasts of many under sea wonders like the world’s largest collection of coral reefs, 400 types of corals, 1,500 fish species and 4000 types of mollusc to name a few. The UN agency is scheduled to decide whether the port expansion will adversely impact the reef or not, later this month – so far it has only cautioned against construction expressing concern.It would appear the German bank has chosen to be cautious and not sorry – the best step given the increasing natural resources conflict worldwide. Whether due to environmental concerns or business interest the decision highlights the importance of the need for development and environment to go hand in hand.
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There are cries from all quarters that Narendra Modi led Union Cabinet should have less number of ministries to improve the policy making and implementation under the new government. BW|Businessworld has taken up the case of the energy sector and has argued both for and against a combined ministry. While Neeraj Thakur has argued against doing away with all the energy-related ministries in favour of a single one, Moyna has pointed out why renewable energy could be the biggest beneficiary of an integrated energy policy. The verdict remains undecided and we have to wait till the next week when the BJP government completes its cabinet formation. Meanwhile, decide what you want Why Having Seperate Ministries For Energy Sector Makes SenseWhile there is no doubt that in the past 15 years many of the ministries were created just to please the leaders of the coalition partners, but the importance of having separate ministries to provide enough voice to each sector cannot be ignored. Take for example, the existence of five different ministries in the energy sector- Ministry of Petroleum and Natural Gas, Ministry of Coal, Ministry of Power , Ministry of Mines and Minerals and Ministry of New and Renewable Energy. Even as there is a demand of clubbing all these ministries into one, to improve efficiency, a fresh look at the argument gives a different picture. While it is good for the country to have an integrated energy policy and the Planning Commission has even come out with one such document, but at the implementation level, there has been a conflict of interest between all these ministries in the past few years. Take for example, the issue of natural gas pricing in the country. While the Ministry of Petroleum and Natural Gas under the UPA government left no stone unturned to increase the price of gas twice in its tenure, the ministry of power always stood against such a move. Reason being, every penny earned by the natural gas companies in the country resulted in a loss to the power generation companies.At the time when the Ministry of Petroleum was preparing to increase the price of natural gas in the country, the ministry of power had fought tooth and nail by clubbing with the ministry of fertilizers against the proposed hike. It had even made presentations to the ministry of finance saying $ 1 increase in the price of natural gas will cost additional Rs 1,040 crore burden on the power sector. Even though the Ministry of petroleum went ahead with a hike in the natural gas price, but the voice of the power sector was raised by the Power ministry because it had an independent minister. Conflict of interests existed the ministry of coal and the ministry of power, as well. The Power sector companies –private as well as public- had several issues with Coal India Ltd, a Company that reports to the Ministry of Coal. The issues range from the quality of coal to pooling of imported coal with domestic coal to meet the increasing fuel demand of the sector. While Coal India has been supported by its parent ministry on all issues, the voice of the power sector companies has been raised by the Minister of Power at various platforms. While having one minister for all the ministries will allow the government to take quick policy decisions, but at the same time it will also mean that there would not be any voice of dissent, which may prove to be detrimental for the growth of certain sectors. Why Renewable Energy Could Gain From An Integrated Energy PolicyThe perennial sidekick within the energy sector – the renewable energy segment – could be the biggest beneficiary of the BJP government’s integrated energy policy if Modi decides to adopt a holistic approach to ensure energy security for the country. Irrespective of being administered under a separate ministry, renewable energy sector have hitherto felt ignored as compared to oil and gas, coal and power sectors when it comes to implementation of policies and incentives that are meant to fuel growth in the overall energy. Experts believe that a change in perception and a holistic approach is all that is needed to enforce the existing renewable energy purchase obligations. With the kind of centralisation of power the Prime Minister’s Office (PMO) is expected to enjoy, and the talks of merger of ministries that are functioning in related areas like that of the energy sector, experts are hoping that the new government could take into account a larger picture that ensures competitive tariffs, and weighs environmental concerns associated with fossil fuels and renewables before taking a policy decision. Currently, the secondary status of renewable energy is visible through the delay in connecting it to the grid, increasing the pie-share or even enforcing the priority due to the sector. Considering renewable energy addresses two of the most important concerns plaguing the power sector – fuel shortage and environmental degradation, the authorities need to give it more space than being currently accorded, experts feel. In fact, the wind energy, which has been a part of the Indian power sector for over a decade, and the solar energy, in use for half a decade, got connected to the grid only two years ago. However, authorities like the Power grid and Central Electricity Regulatory Commission or Central Electricity Authority have failed to give the priority due to the renewable energy sector – evident from the recent waiver requested by distribution companies (discoms) of Delhi, Gujarat, Tamil Nadu etc in the last six months. In the past, many of the complaints of project developers are examples of the step-motherly treatment given to renewable energy. Even if grid connected renewable power is generated, distribution agencies prefer to take fossil-fuel based power. The troubles and concerns of the renewable energy sector are well known and well documented by now. While the sector has been plagued by policy indecision, flip-flops, foreign dumping, unmet targets, poor evacuation, low implementation on ground, investor troubles etc the biggest failure has been the non-implementation of renewable energy purchase obligations. As with most sectors, the blame game may continue regarding whose fault it has been especially since the capacity addition last fiscal was almost a 1000 mw below the set target. Often the seasonal and day variations of renewable energy are cited as reasons for lack of reliability and renewable energy not being the first choice of Discoms. But project developers as well as seniors officials in Ministry of New and Renewable energy have shown and developed technologies to combat this hurdle. The fact that many RE project developers are facing investment crunch is also blamed on RE not being purchased, with the result that projects fail to show assured returns. With the ambitious target of 55,000 MW of renewable energy capacity addition in less than 8 years, attitude to renewable energy needs an overhaul. Internationally renewable energy is now close to 50 percent of the total energy pie in some countries, which has been largely made possible by reducing fossil fuel subsidies and giving preference to power generated through renewable sources. For this to become a reality it would be required to ensure the implementation of renewable energy purchase obligations, meeting renewable energy targets of capacity addition and power generation.
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Prime Minister-elect Narendra Modi is exploring breaking up state behemoth Coal India Ltd and opening up the sector to foreign investment to boost output and cut imports, said two sources with knowledge of the matter. Red tape, strikes, protests against land acquisition and delays in obtaining environmental approvals have kept coal output far below demand, making India the world's No.3 importer even though it sits on the fifth-largest reserves. Modi wants to fix the coal sector quickly to ensure unbroken electricity supply across the country, as in his home state of Gujarat where manufacturing has flourished. Coal generates more than half of India's power and is the cheapest form of energy. Any reform will begin with Coal India, as it accounts for 80 per cent of India's total coal output, said a source at Modi's Bharatiya Janata Party (BJP). The world's largest coal mining company has failed to meet its output targets for years. "The story is about Coal India, whose productivity as we all know has been poor," said the source, a member of the BJP's economic policy team. "What we have in mind is bringing changes inside-out in the company within a stipulated time period." There is a possibility of converting various units of Coal India into independent companies, and making respective state governments equity holders to help speed up land acquisition and other such processes, a top Coal India official said. Credit Suisse analysts Neelkanth Mishra and Ravi Shankar wrote in a May 19 note that disappointing domestic coal output is one of the main reasons for the slowdown in India's investment cycle. Raising coal volumes is likely to be a top priority for the new government, they added. "The only meaningful solution, though much harder to implement, is to either break Coal India up, and divide ownership of its subsidiaries among the states where they operate, or in some way introduce an incentive structure so that the respective state governments participate in the growth of coal mining in their states," they wrote. Sources say that no big-bang steps should be expected immediately as lot of consultation is still going on. But the thumping victory for Modi will make decision making easier. Foreign InvestmentApart from using modern mining technologies to boost efficiencies and convert "challenging mines into modern mines", the government will also explore international private-sector partnership in a significant way, said the BJP source. Another idea under consideration would be to auction coal blocks through open tenders, as India already does for oil and gas deposits. The officials from BJP and Coal India said that many global miners are keen to invest in India's coal sector. "India is a coal superpower, both in terms of production and consumption - foreign interest is natural," the BJP official said. India's coal production in the 11 months through February was 497.2 million tonnes, according to data from the Ministry of Mines. Output was 557.8 million in the whole of 2012/13. Research firm OreTeam says that according to its data, India imported 158.8 million tonnes of coal in 2013/14. The Ministry of Coal said in February that imports hit 145.8 million in 2012-13, with more than half of that coming from Indonesia. Australia, South Africa and the United States are India's other main suppliers. (Reuters)
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The resistence being shown by Delhi’s three power distribution companies on getting their accounts audited by the Comptroller and Auditor General of India (CAG) is uncalled for. If anything, this audit will help them come out clean in public on their long pending issues with the Delhi Electricity Regulatory Authority (DERC). The private sector companies aver that the government auditor has no right to audit their financial accounts. The same argument was made by Reliance Industries in case of KG-D6 basin and the telecom companies during the investigation of 2G spectrum scam. This simplistic interpreation of the law under which the CAG was established says that CAG can audit the accounts of only government sector companies, but in the era of Public Private Partnership and where the private sector firms are doing business using the assets of the government, the private sector companies will have to go through the scrutiny of the public auditor. The Supreme and the the High Court have manifested this in their rulings. In its affidavit, the CAG has said that that out of 311 queries raised by it, 211 have been responded in full, 20 queries were partially answered. Tata Power Delhi on its part has said that owing to the voluminous nature of data of the pending requisitions, some amount of time is needed to compile and respond. Reliance Infra owned BSES Rajdhani has said "We have been fully co-operating in the audit process and would continue to do so. We have already submitted complete information on 306 queries, spread over 20,000 pages. Auditors have also been provided viewing rights on our entire data base. While there could be some merit in the time taken by Delhi’s distribution companies in providing their details, it is a well known fact that even the ministry of coal played the same tactic during the CBI investigations on the coal scam and the court will sooner or later take cognizance of this fact. Delaying the result of the ongoing audit could be a good tactic in the hope that a favourable government comes to power in Delhi and uses its clout to subdue the auditing process of the Delhi discoms’ financials. But, if the companies have clean accounts by cooperating with the CAG, they will actually be able to resolve the issue of Rs 27,000 crore of dues that the DERC owes to them collectively.
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