NEW DELHI: State-owned oil companies have seen losses on diesel and cooking fuels drop by over 28% following a decline in international oil rates.
Oil PSUs, which at the beginning of the fiscal were losing Rs 670 crore per day on selling diesel, domestic cooking gas LPG and kerosene at government controlled rates, are now losing Rs 480 crore a day, industry sources said.
Losses on diesel, the most consumed fuel in the country, have come down from a record Rs 16.16 a litre to Rs 14.09 per litre. Losses on kerosene however are at lmost unchanged at Rs 32.06 per litre but those on domestic LPG has declined from Rs 570.50 per 14.2-kg cylinder to Rs 396.
Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum calculate the desired retail selling price of diesel on 1st and 16th of every month based on the average price of its international benchmark. LPG and kerosene rates are calculated on a monthly average on 1st of every month.
Sources said the three firms are projected to lose Rs 1,78,498 crore in revenue this fiscal, down from Rs 2,08,059 crore loss estimated at the beginning of the fiscal.
Oil Ministry has been seeking a meeting of a high-powered ministerial panel to revise rates of diesel, domestic LPG and kerosene for the first time in a year.
In addition, the decline in international oil rates have meant that oil firms are making a profit of close to Rs 1.46 a litre on petrol, a commodity which was deregulated by the government in June 2010.
The oil firms had last week hiked petrol price by a steep Rs 7.54 per litre. The hike was done considering an average gasoline price of $124.37 per barrel and a rupee-dollar exchange rate of Rs 53.17 in the first fortnight of May.
Gasoline price have since fallen to $115.77 per barrel in the second fortnight but rupee-dollar rate has worsened to Rs 54.96 to a US dollar during the period.
This average means that oil firms are making a profit of Rs 1.46 per litre at the current selling price of petrol of Rs 73.18 per litre inDelhi.
Sources said the three oil firms had in 2011-12 fiscal lost Rs 1,38,541 crore on selling diesel, domestic LPG and kerosene at government-controlled rates that were way lower than market price.
Of this, the government made good Rs 83,500 crore by way of cash subsidy while another Rs 55,000 crore was provided by oil and gas producers ONGC, OIL and GAIL.
PNGRB HAS NO POWER TO REGULATE TARIFF: HC
NEW DELHI | AHMEDABAD: The Delhi high court on Friday ruled in favour of Delhi gas utility Indraprastha Gas Ltd (IGL), stating the government regulator had no jurisdiction to fix rates or regulate tariff.
Riding on the favourable ruling, IGL’s shares skyrocketed 29% – the most since 2003, when the company was listed – closing at 249.35.
The court ruling settles, at least for the moment, the confusion surrounding the margins that gas utilities are allowed to earn. The regulator Petroleum & Natural Gas Regulator’s (PNGRB’s) order in April had knocked down the sector stocks over similar fears.
However, theDelhihigh court ruling has changed all that and city gas distributors have reasons to smile as they will now get more freedom to determine their tariff.
But the role and scope of the regulator has come under cloud, especially after the ruling.
A top official of a Gujarat-based CGD venture, who didn’t wish to be named, said, “Yet another blow to PNGRB’s order has raised questions against its existence. PNGRB faces challenges in authorising networks, and now it can’t determine network tariff, while safety of network is anyway taken care by different laws. It’s not clear what’s the job of PNGRB.”
He added that IGL had cooperated with PNGRB for four years knowing well that the regulator has no powers to determine its tariff.
Reflecting the buoyant mood, scrips of the country’s largest private sector CGD player Gujarat Gas Company Ltd and state venture Gujarat State Petronet Ltd shot up by 14.6% and 11.2% respectively on a day when the sensex dived 1.56%. The Petronet LNG scrip too gained 8.99% to close at 139.44 on Friday.
The court, in its decision, mentioned that PNGRB is not empowered to fix or regulate the maximum retail price at which gas is to be sold by IGL and other such entities. It also mentioned that the board doesn’t have the powers to fix any component of network tariff or compression charges for any CGD entity.
PNGRB, in its order dated April 9, 2012, had asked IGL, the sole supplier of compressed natural gas in Delhi & NCR, to cut down its network tariff by 63% and compression charges by 53% and also notified that the difference “will be reflected through appropriate reduction” in natural gas selling prices in a retrospective decision. It had also asked the company to refund the difference to its customers for the period from April 1, 2008, till the date of issuance of order.
IGL had contested the gas regulator’s retrospective order to fix its network tariff and compression charges, mentioning that PNGRB is not entitled to regulate the price of gas sold by the company and there will be huge financial losses to the company in case of refund and/or slashing of selling price.
Both IGL and its parent company GAIL refused to comment on the development.
LET’S LOOK BEYOND COAL, OIL
The Integrated Energy Policy (IEP), approved by the Government of India in 2008, estimates that the country’s energy needs will grow 5-7 per cent per annum. This will sustain an inclusive economic growth of 9 per cent over the next 20 years to eradicate poverty and meetIndia’s human development goals.
This will require an increase inIndia’s primary energy supply by 4 to 5 times and electricity generation capacity by 6 to 7 times of 2003-04 levels through 2031-32.
The IEP also indicates that dependence on imported oil will be over 90 per cent (by 2030-31) while reliance on imported coal is likely to increase significantly — from about 10 per cent now to about 30 per cent in 2030.
The energy mix in 2030 is likely to remain unchanged, with fossil fuel staying as the main source of energy. This presents two major challenges related to the external environment.
The first one relates to an increasingly climate-constrained world where economic growth cannot continue to be an independent variable without regard for attendant environmental and social imperatives and objectives.
The incremental costs associated with these objectives now need to be factored in to the economic growth, increasing the cost and affecting affordability of energy and thereby its access.
The second challenge relates to global access to fossil fuel sources, given thatIndia’s share in the global fossil fuel market is a little over 5 per cent of global consumption, according to the International Energy Agency (IEA).
In order to realise the economic growth objectives that IEP highlights,India’s global share of fossil fuel must increase significantly to at least 15-20 per cent, taking into consideration the recent trend of growth in fossil fuels in the world.
For this to happen, it would be necessary that there are new discoveries of fossil fuels (which has not been seen for some time); or the developed nations, having high share in the global fossil fuel market, vacate their share; or alternate sources of energy or energy processes evolve; or a combination of the three happens expeditiously.
Going by recent experiences, the first two do not seem plausible. Global oil production has not seen a surge in the past few years. The ongoing impasse on a global climate change regime is shifting the timelines for developed countries to vacate the global carbon space for equitable development of the rest of the world. ForIndia, heavily dependent on imported oil and increasingly becoming reliant on imported coal, a strategic shift is necessary in the quest for energy security.
The third option — find new sources of energy — is, however, looking a bright prospect. The two main candidates that could hold the key to sustainable development are nuclear energy and solar, given that other forms of renewables, such as hydro, wind and biomass, abound with several negative externalities that increase costs in order to make them commercially viable.
While environment and human dislocation has been inhibiting development of hydro resources, in addition to the high costs of mitigating them, estimated at about 50,000 MW, the low reliability of wind and biomass prevent them from becoming base power sources.
Nuclear energy, in the backdrop of the recent reverses inJapan, is being looked at with scepticism by a host of stakeholders, in particular, the civil society. The recent opposition in Tamil Nadu is a case in point.
Solar energy, which has vast potential inIndia, has of late become a viable option. The Jawaharlal Nehru National Solar Mission, launched as a part of the National Action Plan on Climate Change (NAPCC), has initiated market transformation in this sector with impressive outcomes.
The reverse auction undertaken by the Ministry of Power (MOP) and Ministry of New and Renewable Energy (MNRE), has led to market competition and price discovery, leading to reduced subsidy under the Solar Mission by almost 50 per cent.
The setting up of the Solar Energy Corporation of India Ltd (SECL), a public sector company under the MNRE, will further develop the market and help solar energy attain tariff parity with fossil fuels in next few years.
This augurs well for the country, specially if solar energy could transform into a base load candidate — the emerging solar thermal technology being at the forefront of this objective.
Energy growth, as it seems at the moment, has to account for various externalities — social, environmental as well as economic.
The graphs accompanying the article highlight the fact that energy cost, proportionate to the per capita income, is almost 20 times more than that of theUSand order of magnitude higher than most developed countries.
Both the Central and State governments will have to evolve policy responses to ensure that affordability does not exacerbate the already strained commercial viability of the sector and thereby its economic interest and investments. Innovative polices and measures need to be unveiled as energy subsidies cannot sustain the business model for long. The Government, mindful of the challenges, has initiated measures to ensure that the country treads a low carbon growth strategy, which not only reduces the vulnerability to climate change but also ensures a stable, affordable and equitable energy access for all.
AlthoughIndiahas not created the problem of climate change, which is largely due to the historical emissions of the developed countries, it has to be a part of the solution.Indiahas already announced that it will reduce the emissions intensity of its GDP by 20-25 per cent over the 2005 levels by the year 2020, through pursuit of proactive policies.
The Twelfth Five Year Plan will have as one of its key pillars, a low carbon inclusive growth based on the interim report prepared by an expert committee chaired by Dr Kirit Parikh, former Member of the Planning Commission.
The report recommends a slew of measures covering demand and supply side in the power sector, which will be the hardest hit by the emerging climate change regime.
Reducing electricity demand by use of more efficient appliances, introduction of more fuel efficient power plants and changes in the mix of power plants have been recommended. In the transport sector, promoting goods transport by railways, mass transport for passenger movement, facilitating non-motorised transport and increasing fuel efficiency of vehicles have been suggested by the expert committee. In the industrial sector, reducing energy intensity and emissions by technology interventions, and reducing energy needs of commercial buildings have been recommended.
The energy strategy in the 12th Plan will need to usher in transformational changes in development of the sector. The combination of supply and demand side interventions will need to balance competing demands of environmental concerns, fuel shift, and affordability in sustaining high economic growth in the next two decades.
PM FORMS PANEL TO REVISIT PSCs IN HYDROCARBON EXPLORATION
NEW DELHI: With the aim of reviewing its system of awarding concessions for oil and gas exploration and production, being followed since the last 15 years under the New Exploration Licensing Policy (NELP), Government has decided to constitute a six-member panel led by Prime Minister’s Economic Advisory Council (PMEAC) Chairman C Rangarajan.
According to a statement issued by the Prime Minister’s Office (PMO), the panel has been formed at the request of the Petroleum Ministry, which felt the need for doing so as it wanted to look into how the policy design has impacted oil and gas exploration and production.
Subsequently Prime Minister Manmohan Singh has approved the constitution of the committee to review the Production Sharing Contracts (PSCs) in Hydrocarbon exploration.
Other members of the panel are Planning Commission member B K Chaturvedi, former Supreme Court judge Jagannadha Rao, Ramprasad Sengupta, former bureaucrat J M Mauskar, and Managing Director of ONGC Videsh Ltd Joeman Thomas.
The Committee is to look into all modifications necessary for future PSCs so as to enhance production of oil and gas and the Government’s share of this while minimising procedures for monitoring the expenditure of producers.
HPCL-MITTAL TO RAISE RS 5 BILLION VIA BONDS
MUMBAI: HPCL-Mittal Pipelines plans to raise 5 billion rupees ($89.04 million) in a bond sale, and is currently in talk with bankers, three sources aware of the plans said on Friday.
Bankers said the firm is looking to issue secured bonds with a 4 percent coupon rate and a premium on maturity. The bonds are rated “AA-(ind)” by Fitch Ratings India.
The proceeds of the non-convertible debenture will be used to prepay part of its existing rupee term loans, the sources said.
BRENT CRUDE FALLS BELOW $100, PETROL PRICE CUT LOOKS IMMMINENT
NEW DELHI: International benchmark crude oil, Brent fell below $100 per barrel for the first time since October putting pressure on oil firms to cut petrol rates, which saw a sharp hike last week by 7.54 a litre.
Brent crude oil was trading at $98.2 a barrel on Friday evening, down from about $119 a month ago. Prospects of weak global demand due to the turmoil inEuropeand discouraging employment data in US have helped crude prices drop about 8% since the beginning of 2012. But Indian petrol prices have gone up by 11.5% during the same period.
Officials in the government and oil companies say petrol prices will soon be reduced by more than 2 a litre, but political considerations will decide its timing.
Indian Oil, Hindustan Petroleum and Bharat Petroleum deferred their decision to cut petrol rates from Friday as the move would give “undue credit” to BJP, which had called for a nationwide strike on Thursday against the price hike, officials said.
Officials said the political leadership would decide the timing of the price cut, which may be on this weekend itself. “It will be sooner than later,” another official with direct knowledge of the matter said.
Softening of international crude oil prices has also reduced the oil companies’ revenue losses on diesel, kerosene and cooking gas from June 1, official data released on Friday said. Companies’ revenue loss on cooking gas dropped sharply by 84.5 per cylinder while the decline, at about 1 per litre, was marginal for diesel and kerosene.
A declining trend in international crude oil prices would ease pressure on the government to some extent to “immediately” raise prices of diesel, kerosene and cooking gas, officials said. “But depreciation of rupee is a major concern,” one official said.India, which imports 80% of its oil requirement, purchases crude oil in dollars.
“If this trend continues and dollar appreciates, the government would not immediately convene the meeting of the empowered group of ministers (EGoM),” one official said. The EGoM reviews and fixes retail prices of diesel, kerosene and cooking gas.
The average exchange rate, which was 53.41 for a dollar in fortnight ended May 15, fell to 55.36 on the previous fortnight ended May 31.
The government, which was planning to convene a meeting of the EGoM after the Budget session of the Parliament, deferred the decision after oil firms raised petrol prices last week that raised stiff opposition from within the ruling coalition. The government freed pricing of petrol since June 2010, but it still controls retail prices of diesel, kerosene and cooking gas to shield consumers from volatility of international markets. According to IOC officials, state companies are estimated to lose 1,78,498 crore in revenues in 2012-13, which is 24% more than the previous year. In 2011-12, the government and the upstream firms such as ONGC and OilIndiapaid 1,38,500 crore compensation to state-run fuel retailers for selling diesel, kerosene and cooking gas below market rates.
GAIL, REC PLAN TO RAISE MINIMUM RS 500 CRORE EACH NEXT WEEK
KOLKATA: Action will be back on the corporate bond market next week with Gail (India) Ltd and Rural Electrification Corp (REC) planning to raise Rs 500 crore each in non convertible debentures or NCDs.
Both the state-run companies have invited bids from investors for their private placement issues.
Gail said it may retain bids up to Rs 750 crore, or greenshoe up to 50% of the issue size. The fund will be used for ongoing capital expenditure, according to the term sheet for the issue. It has fixed a ceiling on coupon of 9.40% for the bonds which are rated most safe by rating companies CARE and Crisil.
The entire principal amount of Gail’s bonds will be secured by way of first pari passu charge on its fixed and/or current assets. The said security will be created in favour of the Trustees.
REC did not specify the size of greenshoe for the 7-year and 10-year issues. The state-run power financier is one of the most active mobiliser of funds from the bond market.
VALUATION OF GUJARAT GAS LOOKS UP
MUMBAI: The Delhi High Court’s ruling in favour of city gas utility Indraprastha Gas Ltd (IGL), in its case against the Petroleum & Natural Gas Regulatory Board (PNGRB), may benefit the valuation of Gujarat Gas, said industry players and analysts.
IGL had moved court after the gas regulator asked it in April to cut down its network tariff by 63 percent. Also, in a retrospective decision, PNGRB asked the company to refund the difference to its customers for the period from April 1, 2008, until the date of issuance of the order.
Analysts said the verdict may force Gujarat State Petroleum Corporation (GSPC) and its partners, Oil and Natural Gas Corporation and Bharat Petroleum Corporation, to revise their offer to buy a 65.12 per cent stake in Gujarat Gas Corporation (GGCL).
GSPC and its consortium partners had offered Rs 3,800 crore to Rs 3,900 crore for the stake. But BG wants around Rs 4,500 crore for its stake.
Shares in IGL surged 28.7 per cent after the news. Stocks in Gujarat Gas and Petronet LNG rose 14 and nine per cent, respectively.
“We expect the PSU consortium to revise its offer. This verdict is positive for IGL and also for GGCL. There will be an upside in stock price for sure,” said Kamlesh Kotak, head of Asian Market Securities.
A consortium member said though the market had responded positively, the consortium would take some time to study the implications and weigh if the offer needed a revision. “We think PNGRB will not sit tight. It will certainly appeal in the higher court. If that happens, well and good. Else, we will see if the offer needs a revision at all,” said the consortium member.
“When we made the offer, it was not based on IGL’s case. So, we will have to study if it will have any impact at all now,” he said.
However, consortium members have been maintaining since April that the IGL case has impacted the valuations of GGCL.
BP TO SELL STAKE IN RUSSIAN JOINT VENTURE TNK-BP
LONDON: BP put its half-share of its huge Russian joint venture up for sale on Friday, a bold step that would abandon nearly a third of BP’s output, cut it loose from hostile partners and let the Russian state tighten its grip on the world’s biggest oil industry.
A sale of its half stake in TNK-BP could raise around $30 billion for BP, which would help to fund the ongoing cost of cleaning up the 2010Gulf of Mexicooil spill and allow it to invest in higher growth deals.
It also signals a reorganization of the oil industry inRussia, the world’s top producer, where Vladimir Putin returned to the presidency this year with stern views about foreign firms holding strategic assets.
TNK-BP isRussia’s third largest oil producer, and BP’s stake represents one of the biggest foreign investments ever made in the country. It has earned BP huge profits but has long been plagued by acrimonious legal battles between BP and its Russian partners, theAARconsortium of billionaires.
For BP, selling out would mean giving up annual dividends which hit $3.7 billion last year and losing around 30% of its oil and gas production, but it would free it to explore higher-growth ventures elsewhere.
The London-based group said it had received “unsolicited approaches” but declined to name its suitors.
Given the Kremlin’s desire to exert influence over the oil sector, analysts and bankers immediately identified state-backed players, and especially Rosneft, as the most likely buyers.
“We believe that the eventual buyer will have to beRussia- a 2 million barrels per day company (1 million barrels per day net to BP) is just too strategic forRussiato let fall into foreign hands,” said Oswald Clint, oil analyst at Bernstein.
BP andAARhave had disputes almost since the creation of TNK-BP in 2003. In 2008, BP Chief Executive Bob Dudley, then CEO of TNK-BP, was forced to fleeRussiaunder what he described as a campaign of harassment fromAAR.
Last year, tension flared after BP signed an Arctic exploration deal with Rosneft. An arbitrator later ruled that deal was in contravention of the TNK-BP shareholder agreement, under which the British firm was barred from dealings inRussiaoutside the joint venture. BP offered to buyAARout for around $32 billion, with a plan to subsequently sell the stake on to Rosneft, to settle the spat, BP sources said at the time.
On Monday, one of theAARbillionaires, Mikhail Fridman, resigned as chief executive of TNK-BP, citing a breakdown in relations with BP and reigniting the debate around TNK-BP’s future.
BP sources said they believed the resignation was a tactic to force BP to buy out AAR’s stake in the venture, and in a newspaper interview published on Thursday, Fridman said he would consider a sale.
Previously, AAR has mooted buying out BP and sources close toAARhave said they would be prepared to pay $25 billion for the stake.