OIL SUBSIDY: STILL A HEAVY BURDEN

Toeing the line of developing economies, India has been in favour of ‘oil subsidy’ since Independence. Although oil subsidies have somewhat been instrumental in reining  inflation, they have a negative impact on the fiscal deficit. Oil subsidy has become a key component of the government’s expenditure and the focal point of post-budget discussions.

At the beginning of the fiscal year, the under-recoveries of the oil marketing companies (OMCs) was expected to be in the range of R98,346 crore. But the drop in international crude oil prices brought it down considerably. Though the government shares a part of the under-recovery and another part is borne by upstream oil companies, the balance under-recovery has to be borne by the OMCs.

Oil subsidy has been a matter of concern for the oil PSUs, be it the oil marketing companies (OMCs) or the upstream oil companies. On the one hand, the OMCs have to bear a part of the under recovery and on the other, there is a time lag of six to eight months before they receive the compensation from the government. This results in liquidity crunch for the OMCs, leading to additional borrowing and interest burden.

Similarly, profits of the the upstream oil companies are affected since they share the under-recovery burden in the form of a ‘discount’ on crude oil prices.

The components being subsidised are petrol, diesel, PDS kerosene and domestic LPG. But it is often seen that the benefit of subsidy does not reach the target population.

Over time, the government realised the need to rationalise and phase out fuel subsidy. This was further propelled by the G-20 and Apec commitments and pressure from the International Monetary Fund. Hence, the government deregulated the price of petrol in 2010 followed by deregulation of diesel prices in October 2014. So, the prices on petrol and diesel are now market-determined, reducing the overall burden on the exchequer. This reduction is also visible in the budget estimates; the revised budget for fuel subsidy for 2014-15 has been estimated at R60,270 crore and the budget estimate for 2015-16 has been kept at R30,000 crore.

However, the government continues to subsidise kerosene and domestic LPG. The kerosene prices in India are far below the prices in its neighbouring countries. The price of kerosene is about R60.25 a litre in Pakistan, R53.49 in Bangladesh and R65.78 in Nepal. But the price of kerosene in Mumbai is R15.14 a litre, probably the lowest in the world. This meant an under-recovery of R16.19 per litre of PDS kerosene, despite the drastic fall in global crude prices. With a vast majority of the rural population relying on kerosene as fuel, this under recovery adds up to a substantial subsidy bill for the government. In addition, present under-recovery per cylinder of domestic LPG in Delhi stands at R143.68. Both these elements put together exert substantial pressure on the government and on the oil PSUs as well, who need to shoulder almost 50% of the overall subsidy burden.

In these testing times, the dwindling global crude oil prices do bring in some respite to the subsidy burden being borne by the oil PSUs. Average crude oil price for the Indian basket has fallen to $46.59 per barrel in January 2015 from $105.56 in April 2014. To that extent, oil PSUs have been lucky this year, but they cannot count on luck every year.

(Source: The Financial Express, March 11, 2015)

SETTING UP OF PETROLEUM, CHEMICALS AND PETROCHEMICAL INVESTMENT REGIONS

The Government of India has approved setting up four Petroleum, Chemicals and Petrochemical Investment Regions (PCPIRs) in the States of Andhra Pradesh (Vishakhapatnam – Kakinada), Gujarat (Dahej), Odisha (Paradeep) and Tamil Nadu (Cuddalore – Nagapattinam). These PCPIRs are at different stages of implementation. As per PCPIR Policy 2007, PCPIRs are infrastructure driven projects wherein Government of India provides support for development of external physical infrastructure linkages e.g. rail, road, port, airport, telecom through Viability Gap Funding (VGF). Budgetary allocation may also be provided wherever required. As per the approvals of Cabinet Committee on Economic Affairs (CCEA), VGF support of Rs. 805 million for Gujarat, Rs. 7.16 billion for Odisha, Rs. 12.068 billion for Andhra Pradesh and Rs. 11.46 billion for Tamil Nadu has been approved for different infrastructure projects. Rs. 15 billion have been approved as budgetary support for Tamil Nadu. No VGF funding has been released to any of the State so far. PCPIRs are the projects with long gestation period and may take around 15-20 years to achieve full potential.

The PCPIR projects are already functional and realization of full potential is a gradual process. The Government has set up Steering Committees for monitoring the implementation of PCPIRs in various states. The PCPIRs have been promoted in domestic and international forum through exhibition, road shows and interaction with industry associations in order to attract investments.

(Source: Indian Oil & Gas March 11, 2015)

CENTRE DOES NOT PLAN TO WITHDRAW LPG SUBSIDY FOR THE WELL-OFF

New Delhi: There are no plans to withdraw the facility of subsidised LPG cylinders to financially well off people, even as 1.46 lakh such consumers have voluntarily given up the subsidy, the government said on Tuesday.

“As on February 23, 2015, approximately 1.46 lakh consumers have voluntarily given up LPG subsidy on their domestic LPG connections,” Minister of State for Finance Jayant Sinha said in a written reply in Rajya Sabha. “There is no proposal under consideration by the government to withdraw subsidised cylinders to the financially well off people,” he added.

However, government has launched an initiative for such LPG consumers to voluntarily give up their subsidy, he said.

In reply to a different question, the minister said that components of cash subsidies are transferred to individuals or institutions in their bank accounts electronically on DBT platform.

“DBTL PAHAL has been launched across the country wef January 1, 2015 where subsidy is transferred directly into the bank accounts of beneficiaries. DBT under food and fertiliser has not yet started,” Sinha said.

(Source: Millennium Post March 11, 2015)

INDIAN OIL, KOLKATA FIRM TIE UP FOR FIVE KG GAS CYLINDERS

Rural IT services enabler Sahaj e-Village (SEVL) on Monday said it has signed an agreement with the IOC for selling five kilogramme cooking gas cylinders across Assam, Bihar, Odisha, Tamil Nadu, Uttar Pradesh and West Bengal. The initial agreement with the state-owned Indian Oil Corporation (IOC) is meant to sell the cylinders through its Common Service Centers (CSC).

“We are extremely pleased to have tied-up with Indane and are sure that this critical service would increase adoption as well as improve conditions in the Rural markets we serve,” Sanjay Panigrahi, the chief executive officer of the rural IT enabler, said in a statement.

Part of infrastructure finance company, Sreai, the private firm has more than 27,000 CSCs across the nation which reaches out to 270 million people in rural India. According to the Kolkata-based company, 142 million rural Indian households use firewood and other solid fuels, such as animal dung, charcoal, crop waste and coal, as their primary source of household energy.

The soot generated not only results in air pollution caused by fumes from cooking, heating and lighting activities but also shortens life span of people in rural India. “The only solution to bring about a change in the cooking habits of rural Indians is to introduce clean-burning LPG (Liquefied Petroleum Gas) connections in every rural household by setting up low-cost distribution agencies across rural India,” it said.

(Source: SME TIMES March 11, 2015)

I-T DEPARTMENT SLAPS $1.6 BILLION TAX DEMAND ON CAIRN ENERGY PLC

NEW DELHI: Income Tax Department today slapped a Rs 10,247 crore ($1.6 billion) tax demand on Cairn Energy Plc, which termed the action as “very disappointing” and said it would contest the order.

The tax demand relates to an alleged Rs 24,500 crore worth capital gains it made in 2006 while transferring all its India assets to a new company, Cairn India, and got it listed on the stock exchanges.

The company said the order came at a time when the BJP government has been publicly talking about the negative impact of retrospective taxation on “international reputation and investor sentiment towards India”.

In a statement, Cairn said it has received “a draft assessment order from the Indian Income Tax Department.”

“The draft order addressed to Cairn’s subsidiary, Cairn UK Holdings Limited, is in respect of fiscal year 2006-07 to the amount of $1.6 billion plus any applicable interest and penalties,” it said.

Cairn said it has instructed its counsel to file a Notice of Dispute under the UK-India Investment Treaty in order to protect its legal position and shareholder interests.

Its CEO Simon Thomson said, “Cairn has consistently confirmed that it has been fully compliant with all relevant legislation and paid all applicable taxes in India and we are confident of our position under the UK-India Investment Treaty.

“Against a backdrop of regular engagement with the Government of India since January 2014 it is very disappointing to have received a draft assessment order at this time. Since the election of the BJP, senior Government Ministers have consistently commented on the negative impact the issue of retrospective taxation has had on international reputation and investor sentiment towards India.”

The Income-Tax Department had in a January 22 order held that the Edinburgh-based firm made capital gains of Rs 24,503.50 crore when it transferred its entire India business from subsidiaries incorporated in places like Jersey, a tax haven, to the newly incorporated Cairn India in 2006.

According to the I-T Department, Cairn received Rs 26,681.87 crore for the asset transfer against its entire investment of Rs 2,178.36 crore in the India business.

After transferring the assets, the Scottish explorer listed Cairn India on the stock exchanges through an initial public offering (IPO) in 2006 that raised Rs 8,616 crore.

Cairn Energy, which had in 2011 sold majority stake in its Indian unit to mining group Vedanta for USD 8.67 billion, still holds 9.8 per cent stake in Cairn India.

“Cairn continues to be restricted by the Indian Income Tax Department from selling its 10 per cent shareholding in CIL, currently valued at approximately USD 700million. Supported by detailed legal advice, on the strength of the legal protections available to it under international law, Cairn does not intend to make any accounting provision in respect of the draft tax assessment. In addition, Cairn will seek restitution of losses resulting from the attachment of its CIL stake since 2014,” it said in the statement.

“Correspondence received from the Income Tax Department indicates that the assessment stems from amendments introduced in the 2012 Finance Act which seek to tax prior year transactions under retrospective legislation. The transactions subject to the assessment are those undertaken to effect the group reorganisation that was required to enable the Initial Public Offering of Cairn India Limited (CIL) in 2007,” it said.

Cairn said it has been fully compliant with the tax legislation in force in each year and paid all applicable taxes.

“Cairn strongly contests the basis of the draft assessment and the Notice of Dispute is supported by detailed legal advice on the strength of the legal protections available to it under international law,” it said.

Under the terms of the UK-India Investment Treaty, the Government of India and Cairn are now required to enter a period of negotiations to seek a resolution to the dispute. To the extent that a satisfactory resolution is not reached during that period, an international arbitration panel will be constituted to adjudicate on the matter.

Thomson said: “This issue is confined to our interests in India and the Group remains well funded to deliver all of our objectives and commitments and we look forward to moving forward with our strategy whilst this issue is resolved under legal process.”

(Source: The Economic Times, March 11, 2015)

CHEVRON TO SELL MORE ASSETS AMID DROP IN OIL PRICES

NEW YORK: US oil giant Chevron Tuesday said it plans $15 billion in asset sales through 2017 as it seeks to maintain a strong dividend for shareholders amid lower oil prices.

The divestment program expands by 50 percent a previous target to sell $10 billion in assets through 2016, according to a presentation by Chevron chief executive John Watson.

In 2014, Chevron divested $6 billion in assets, including the $1.3 billion sale of a stake in a Chad oil project to the Republic of Chad. The deal also comprised Chevron’s interest in a pipeline system that transports oil from Chad to Cameroon.

Watson said the company was on track to increase production from 2.57 million barrels of oil equivalent per day in 2014 to 3.1 million in 2017. Major projects ramping up include Texas shale ventures and natural gas developments in Australia and Angola.

“We are well-positioned to manage through the recent drop in commodity prices and are taking several responsive actions, including curtailing capital spending and lowering costs,” Watson said.

Shares in Dow member Chevron plummeted 3.1 percent to $48.46 in late-afternoon trade.

The move follows Chevron’s January announcement of a 2015 capital budget of $35 billion, down 13 percent from last year. The company also halted its share buyback program, citing the big drop in oil prices.

In recent months, Chevron has also withdrawn from exploration ventures in Poland, Romania, Lithuania and Ukraine.

Other large oil companies, including ExxonMobil and Royal Dutch Shell, have also trimmed spending in response to about a 50 percent drop in oil prices since June. Leading oil services companies, including Halliburton and Schlumberger, have announced deep job cuts.

(Source: The Economic Times, March 11, 2015)

CAIRN REDUCES YEARLY LOSSES, PLANS MORE SENEGAL WELLS

London: Oil explorer Cairn Energy Plc reported a decline in yearly losses after tax to $381 million and announced it plans to drill at least three more wells this year in Senegal where it made some promising discoveries in 2014.

Cairn, which currently has no revenue as it purely focuses on exploration work, said its net cash balance stood at $869 million at the end of 2014, putting in a solid financial position ahead of expected first sales in 2017.

Cairn has been unable to sell the 10 percent share it holds in Cairn India, worth around $703 million at the end of the year.

Meanwhile, Cairn Energy on Tuesday said it is engaged with the Indian government to resolve a tax dispute that has stalled sale of its 10% stake in Cairn India Ltd and led to 40% job cuts. “We note the comments made by the new BJP (Bharatiya Janata Party) government about the impact of retrospective tax legislation and the negative signal it sends to the international investment community,” Cairn chairman Ian Tyler said in the 2014 earnings statement. “Our approach to date has been to focus on engagement with the Government of India and resolving this matter clearly continues to be a high priority,” he said.

(Source: Mint March 11, 2015)

RIL HEADS THE LIST OF TOP 10 ASSET FIRMS

The list contains eight public sector firms and two private sector firms. At the end of 2014, India has 68 billionaires and occupies the seventh slot in that club globally. On Tuesday, the Ministry of Corporate Affairs has come out with the names of top ten corporates having assets ranging from Rs.890 billion to Rs.3680 billion, based on the balance sheets filed for March 2014.

Finance Minister Arun Jaitley, on Tuesday, released the list containing eight public sector firms and two private sector firms (Reliance Industries and Housing Development Finance Corp). RIL occupies the first slot among the corporates, in terms of assets, with over Rs.3680 billion for the year ended March 2014. The second slot is taken by Indian Oil Corp with assets of Rs.2520 billion.

The latest list contains asset details of 416000 firms valued at Rs. 117,080 billion. The share of top 10 firms, at Rs.17,890 billion, accounts for 15.3 per cent of the overall value. HDFC was in the third slot, followed by Power Finance Corp, NTPC, Rural Electrification Corp, Power Grid Corp, LIC Housing Finance, Steel Authority of India and Bharat Sanchar Nigam Ltd. PFC’s assets stand at Rs.1,940 billion, NTPC at Rs.1,800 billion, REC at Rs.1,530 billion, Power Grid at Rs.1,400 billion LIC Housing Finance at Rs.957.77 billion, SAIL at Rs.919.62 billion and BSNL at Rs.893.33 billion.

(Source: Indian Oil & Gas March 11, 2015)

HPCL ACKNOWLEDGES WOMEN STAFF’S CONTRIBUTION

VISAKHAPATNAM: Marking the International Women’s Day, the Hindustan Petroleum Corporation Limited (HPCL)-Visakh Refinery organised a programme here Monday wherein all the city-based women employees of HPCL were present.

General manager (HR) ASV Ramanan thanked all the women employees for their contribution to the company’s development.

P Nirmala Devi, director of department of yoga and consciousness, Andhra University, stated that womanhood was blessed with inherent power which was the real source of empowerment. She suggested a few tips on striking a balance between professional and personal life.

ICICI Bank chief manager B Manimala briefed on the  challenges women were facing these days and suggested some measures to overcome those challenges. HPCL manager (HR) Sudha Mohan welcomed the gathering. Officer (HR) Itee Ipsita, chief manager (HR) MJ Satya Rao and senior manager (HR) US Sarma also spoke.

(Source: The New Indian Express, March 11, 2015)

HPCL-VISAKH CISF UNIT CELEBRATES RAISING DAY

VISAKHAPATNAM: The Central Industrial Security Force (CISF) unit of  Hindustan Petroleum Corporation Limited, Visakh Refinery, celebrated its 46th Raising Day at HPCL-VR Complex, Malkapuram Tuesday. Executive Director, HPCL-VR, G Sriganesh took the salute at the CISF parade at  the parade grounds, followed by various demonstrations of CISF personnel.

Addressing the programme, Sriganesh appreciated the CISF personnel for providing excellent security service to the country. He made a special mention of the security at all the airports where CISF take care of people’s safety. Thanking the local unit of the CISF, Sriganesh lauded the dedicated service of the local CISF to the VR.

In his welcome address, assistant commandant, CISF, TS Raju dwelt upon the history of creation of the CISF in 1969 and the various activities undertaken by the CISF during the past 46 years. From a meager strength of 3,000, today CISF has grown into more than 1.41 lakh personnel and has been providing security to critical industrial establishments of the Centre and protecting the natural resources of the country very  effectively, he added.

Later, Sriganesh handed over prizes to various CISF personnel for their excellence in various competitions held earlier. The ED planted a sapling on the occasion at the CISF Barracks.

(Source: New Indian Express March 11, 2015)

BRENT OIL FALLS TO $57 ON STRONG DOLLAR AND SUPPLY

LONDON: Brent crude futures fell to around $57 a barrel on Tuesday as the dollar hit multi-year highs and the oil market remained hobbled by oversupply and weak demand.

The US dollar touched a near 12-year peak against the euro and an eight-year high against the yen, hurting commodities priced in dollars by making them more expensive for holders of other currencies.

At 10.29 am EDT, Brent LCOc1 was down $1.52 at $57.01 a barrel, having touched an intraday low of $56.81 after US traders arrived at their desks. US crude CLc1 was down 47 cents at $49.53 a barrel.

Traders and analysts said there was a risk of further falls as speculative net long positions were so high, particularly in Brent, while the fundamental picture remained one of weakness with no sign of any slowdown in production.

“In order to balance the market we need the supply glut to be brought down, by rising demand or lower supply,” Ole Hansen, senior commodity strategist at Saxo Bank, said.

Demand from China, the world’s second-largest oil consumer, slowed in February as the Lunar New Year holiday cut into shipping volumes.

At the same time, global refinery maintenance is about to peak, with global offline capacity assessed at 5.7 million barrels per day in April, according to Energy Aspects.

“Brent is looking increasingly heavy with a decline likely to lowest levels in almost four weeks expected within the next couple of sessions,” oil analysts at Jefferies Futures said in a note.

Carsten Fritsch, an oil analyst at Commerzbank, said Brent had tried and failed to regain the $60 level on Monday, which had triggered a round of selling from short-term investors. “Brent could see further declines now, given the large overhang of speculative long positions,” he said.

US crude has held up a little better because of a report from market data firm Genscape showing only a modest stock build last week at the Cushing, Oklahoma delivery point.

Investors are waiting for weekly US inventory reports from industry group the American Petroleum Institute and the US government’s Energy Information Administration to see whether the Genscape numbers are confirmed.

(Source: Business Standard March 11, 2015)

GLOBAL CRUDE OIL PRICE OF INDIAN BASKET WAS US$ 57.40 PER BBL ON 9TH MARCH, 2015

The international crude oil price of Indian Basket as computed/published today by Petroleum Planning and Analysis Cell (PPAC) under the Ministry of Petroleum and Natural Gas was US$ 57.40 per barrel (bbl) on 9th March, 2015. This was lower than the price of US$ 58.73 per bbl on previous publishing day of 6th March, 2015. In rupee terms, the price of Indian Basket decreased to Rs 3594.39 per bbl on 9th March, 2015 as compared to Rs 3653.01 per bbl on 6th March, 2015. Rupee closed weaker at Rs 62.62 per US$ on 9th March, 2015 as against Rs 62.20 per US$ on 6th March, 2015.

(Source: Indian Oil & Gas March 11, 2015)