ONGC MOST PROFITABLE PSU, BSNL WORST PERFORMER IN 2013-14

NEW DELHI: Oil explorer ONGC was the country’s most profitable PSU in 2013-14, while telecom major BSNL was the worst performer, says the Economic Survey.

The pre-budget survey for 2014-15 said the net profit of 163 profit-making CPSEs during 2013-14 was Rs 1,49,164 crore, while the net loss of 71 loss-making CPSEs was Rs 20,055 crore.

Oil and Natural Gas Corporation (ONGC), Coal India, National Thermal Power Corporation, Indian Oil Corporation, and National Mineral Development Corporation were the top five profit-making CPSEs during 2013-14.

Bharat Sanchar Nigam Ltd (BSNL), Air India, Hindustan Photofilms Manufacturing, Hindustan Cables, and State Trading Corporation of India were the top five loss-making CPSEs in the same period.

Financial investment, which includes the sum of paid-up capital and long-term loans, in all the CPSEs stood at Rs 9,92,971 crore as on March 31, 2014 showing an increase of 17.46 per cent over 2012-13.

The contribution of CPSEs to the central exchequer by way of divided payment, interest on government loans, and payment of taxes and duties increased from Rs 1,63,207 crore in 2012-13 to Rs 2,20,161 crore in 2013-14. This was primarily due to increase in contribution towards dividend payment, excise duty, customs duty, corporate tax, and dividend tax.

A total of 290 central public sector enterprises (CPSEs) existed under the administrative control of various ministries/ departments as on March 31, 2014. Of these, 234 were operational and 56 under construction.

(Source: The Economic Times, February 28, 2015)

JAM WILL PLUG THE HOLES IN SUBSIDY PIPELINE

NEW DELHI: The Indian economy can hope to achieve ‘nirvana’ by better targeting of subsidies — which, on the one hand, protect the poor, while, on the other, allow prices to perform their due role in allocation of resources. This, in turn, will boost growth.

Economic Survey 2014-15, perhaps for the first time, takes a holistic view on India’s subsidy conundrum, detailing item-wise allocation, estimated number of beneficiaries and the leakages.

It suggests dovetailing the Jan Dhan Yojana with Aadhaar and Mobile platform (JAM) to transfer subsidies directly in cash as a solution to ensure minimum leakage.

Relying heavily on published reports, surveys, studies and its own analysis, the Survey shows that around Rs 3,78,000 crore or around 4.24 per cent of gross domestic product is annually spent by the Centre in providing subsidised rice, wheat, pulses, sugar, kerosene, LPG, naphtha, water, electricity, diesel, fertilisers, iron ore, railways through various schemes and programmes like the public distribution system, cheap kerosene, etc. 

It also cites examples and instances from ground where alternative method of subsidy transfer have actually plugged leakages for example distribution of Mahatma Gandhi National Rural Employment Guarantee Act payments in Andhra Pradesh via Aadhaar-linked bank accounts.  In rice and wheat alone, the government provides both producer and consumer subsidies totalling about Rs 1,25,000 crore a year.

“Prima facie, price subsidies do not appear to have had a transformative effect on the living standards of the poor, though they have helped poor households weather inflation and price volatility, but they may not be the government’s best weapon of choice in the fight against poverty,” the Survey notes. Besides, it offers large rent-seeking opportunities to black marketers.

It says price subsidies are often regressive, which benefits rich household more than the poor ones.

“If one were to plot the distribution of welfare gains against income, the benefits of a regressive price subsidy would increase as we move up the income distribution,” it said.

Electricity: The survey shows that power subsidies actually only benefit just 67.2 per cent of households that are electrified. The top quintile consumes around 37 per cent of the total electricity subsidies, while the poor consume just 10 per cent of total subsidy.

Fuel: The survey shows poor benefit just Rs 10 per person from cheap LPG gas, while for the rich this benefit moves up to almost Rs 80 per person.

Kerosene: In case of kerosene, the survey shows that just around 46 per cent of the total consumption of cheap kerosene in the country is by below poverty line families and those under the Antodaya Anna Yojana (AAY), while the rest is availed by people who actually do not need it.  “A majority (51 percent) of subsidized kerosene is consumed by the non-poor and almost 15 percent of subsidised kerosene is actually consumed by the relatively well-off (the richest 40 percent),” the survey showed.

The leakage which is an off-shoot of this ill-directed subsidies leads to annual loss of almost Rs 10,000 crore to the exchequer. “We calculate that if leakages are checked then kerosene consumption of states can be met even if the current PDS allocation is lowered by a staggering 41 per cent,” the Survey noted. Kerosene subsidies totaled Rs 30,574 crore in 2013-14 and are expected to cost Rs 28,382 crore in 2014-15.

Foodgrains: The survey notes that around 54 per cent of the wheat allocated through the Public Distribution System (PDS) amounting to around Rs 12,600 crore per year and 15 per cent of rice amounting to around Rs 5,800 crore does not reach the intended beneficiary. Mis-directed subsidies lead to mono-cropping between rice and wheat.

Railways: The survey shows that controlled rail fares benefit the wealthy households more than the poor, for whom it is actually meant, as poor households constitute just 28.1 per cent of the total originating passengers on non-suburban trains.  This leads to railways running perpetually at a loss; making them inefficient and also weaning away traffic towards roads because of cross-subsidization with freight. 

Solution: The survey suggests supporting the poor by dovetailing Jandhan Yojana, Aaadhar and mobile technology (JAM) for better identification of beneficiaries in a less distortive manner. Apart, from JAM, the survey also advocates using mobile money platform and post offices for direct transfer of cash and cutting leakages. “If the JAM Number Trinity can be seamlessly linked, and all subsidies rolled into one or a few monthly transfers, real progress in terms of direct income support to the poor may finally be possible,” the Survey noted.

(Source: Business Standard, February 28, 2015)

INDIA’S CARBON TAX ALREADY MUCH ABOVE GLOBAL EXPECTATIONS

NEW DELHI: The Economic Survey advocates India, which imposes a higher carbon tax on most of fossil fuels, could do more in the case of coal.

It has played a line, not often taken by the government before – the high that the excise duty on petrol and diesel is an implicit carbon tax, India imposes on its consumption of fuels that cause greenhouse gas emissions leading to global warming.

Read our full coverage on Union Budget

The report says, “India has moved from a carbon subsidisation regime to one of significant carbon taxation regimes – from a negative price to a positive price on carbon emissions.”

Since October 2014, the report’s authors say, the government has “increased the carbon tax by nearly $60 per tonne of carbon dioxide in case of petrol and nearly $42 per tonne in the case of diesel”.

Under the new global climate change agreement, there are pressures on developing countries to do more to reduce their emissions. By one or the other mechanism, the attempt expected is to put a price on the carbon content released on burning fossil fuels such as petrol, diesel and coal. This pricing ensures reduced use of the fuel and shifting industry and different economic sectors to produce goods either more efficiently or shift to cleaner fuels by making the latter more competitive.

Suggesting India is already doing more than its fair share to fight climate change by taxing fossil fuel consumption, it notes, “In absolute terms the implicit carbon tax is substantially above what is now considered a reasonable initial tax on carbon dioxide emissions of $25-35 per tonne.” But the report notes that this is not the case with the coal cess of Rs 100 per tonne.

In the case of coal, the chief economic advisor of the National Democratic Alliance (NDA) government and his team suggest, if one was to account for health costs and climate change costs of burning the black gold, a tax of $15 per tonne would still ensure that large scale coal power plants continue to break even and yet bring down India’s emissions by 358 million tonnes a year – more than the entire emissions of France. But the report warns this is a hypothetical exercise, “since the reduction in profits of power plants would lead to calls for rationalising power tariffs which would he highly disruptive”. In other words, the price of power for consumers would have to go up substantially.

The report puts the caveat that while taking these decisions, the government needs to remember that increase in power prices would have an impact on the access to energy for the poorest, “which must remain a fundamental objective of policy”.

(Source: Business Standard, February 28, 2015)

ECONOMIC SURVEY BATS FOR 5-FOLD HIKE IN COAL CESS FROM R100/TONNE

NEW DELHI: Stressing the need for carbon emission reduction, the Economic Survey batted for a five-fold hike in coal cess from R100 per tonne currently to cut down 11% of the country’s entire carbon emission.

“Bringing domestic (coal) prices at par with the international prices would require an increase of cess to $9 per tonne or R498 (a five-fold increase),” the document said and added that the impact of such a cess would be within the range of keeping most coal-based power plants profitable given the current tariff structure. Recently, coal cess was revised from R50 per tonne to R100 per tonne.

The government has cut subsidies and increased taxes on fossil fuels (petrol and diesel) turning a carbon subsidy regime into one of carbon taxation. This move has significantly increased petrol and diesel prices while reducing annual carbon emissions, the survey observed and stressed for further reform in petroleum pricing policies as “potential large gains were still to be reaped”.

The total collection so far under the National Clean Energy Fund has crossed R17,000 crore and till September, 2014, 46 clean energy projects worth R16,511.43 crore have been recommended for funding out of this fund.

The survey said the global agreement on climate change, expected by December under the UNFCCC, applicable to all countries must be ambitious, comprehensive, equitable and balanced taking into account the huge development needs of the developing countries as it singled out proposed renewable energy projects as the tool of negotiation for various agreements that the country was likely to enter into in the coming months.

“In the next five years, proposals are likely to generate business opportunities of the order of R10 lakh crore in the renewable energy sector,” the survey said adding that the sector offers opportunity for businesses to set and scale up industry and leapfrog technologies. Some of the immediate plans include scaling up cumulative installed capacity to 1,70,000 MW and establishing a National University for Renewable Energy.

(Source: The Financial Express, February 28, 2015)

KERALA PLEDGES SUPPORT TO GAS PIPELINE PROJECT

KOCHI: A meeting of stakeholders of the LNG pipeline project, which was convened here on Friday, decided to provide support to GAIL India, entrusted with the task of completing the work.

At the meeting, chaired by the Chief Secretary, it was promised that the government machinery would ensure that the laying of the pipeline was done in a time-bound manner.

GAIL representatives pointed out that the work had been stopped in the face of opposition from people.

The company had already tried to remove apprehensions among people regarding land utilisation.

GAIL India representatives expressed readiness to complete the project within 15 months if the land issues were resolved.

(Source: Hindu February 28, 2015)

HPCL DISTRIBUTES TWO-WHEELERS TO WINNERS

It was a memorable day for K. Bhanu, Suryaprakash, Nagaraju, Kotaiah and Srinivas from Krishna district on Thursday as they were presented five two-wheelers each under the Hindustan Petroleum Corporation Limited’s (HPCL) “Dasara Deepvali Dhamaka” campaign.

The Vijayawada Retail region of HPCL conducted the campaign across 230 fuel stations across Krishna, Guntur, Ongole, Nellore, Khammam and Nalgonda.

The five winners from Krishna district were picked through a lucky draw .

The two-wheelers keys were presented to the winners by HPCL Senior Regional Manager G. Seetharamayya and Assistant Labour Commissioner K. Venkata Rao at Aruna Sree Filling Station, Autonagar in the city on Thursday, said a press release.

(Source: Hindu February 28, 2015)

OIL BARGAINS FOR ASIA STRETCH TO MEXICO AS SHIPS SET SAIL

TOKYO/SEOUL: Ships carrying oil from Mexico are sailing to South Korea for the first time in more than two decades as the U.S. shale boom brings bargains from around the globe.

The voyage is evidence of the competition OPEC producers face as the U.S. pumps the most oil in more than three decades, exacerbating a global glut in supplies while demand slows in Asia. Refiners in South Korea and Japan ordered at least eight cargoes from the Latin American nation this year, including the most heavily discounted Mexican oil in two decades, according to company officials and shipping data compiled by Bloomberg.

The fight for market share among global producers is playing out in Asia as increased output from American shale fields reduces the need for imports in the world’s biggest oil-consuming nation. Mexico’s sales to the U.S., its largest buyer, dropped 6.5 percent in the first eleven months of last year.

“Middle East and Mexican crude grades have similar specifications, which means Korean refiners don’t have to change much when they process Mexican oil,” Kim Jae Kyung, a research fellow at Korea Energy Economics Institute, said by phone Thursday. “Middle East producers will have to fight for market share.”

Petroleos Mexicanos, the national oil producer known as Pemex, sold its Isthmus light crude in February to Asian buyers at $7.85 a barrel below the average of the benchmark Oman and Dubai grades. That was the biggest discount since at least 1995, data compiled by Bloomberg show. The discount for the company’s Maya heavy grade was the most since 2009 in January, according to the data.

Pemex press officials didn’t respond to e-mailed questions seeking comment. The company was planning to export light crude to Japan, Hawaii, India and Switzerland, and would continue to pursue new partners in Asia and the Pacific region, Gustavo Hernandez, Pemex’s director of exploration and production, said last year.

Data from state-run Korea National Oil Corp. shows the last time the North Asian country bought oil from Mexico was in July 1992. Pemex said in February 2014 that it shipped crude to Japan for the first time in 11 years.

Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries, has cut the price differential for its crude supplies to Asia 10 times in the past 15 months, setting its benchmark Arab Light at a record discount of $2.30 a barrel in March. Other Middle East suppliers including Iran and Kuwait typically follow the kingdom’s pricing.

Saudi Arabia led a decision by OPEC in November to maintain output quotas in an attempt to curb higher-cost supply from outside the group and reduce an oversupply that drove global prices almost 50 percent lower in 2014.

Asia will account for two-thirds of the growth in global oil demand this year, according to the Paris-based International Energy Agency. Daily consumption of 31.2 million barrels will take the region above the Americas at 31.1 million barrels.

Asian refiners are diversifying suppliers to strengthen their bargaining position, according to Kim.

South Korea’s GS Caltex Corp. bought 1 million barrels of Mexican crude for delivery next month as the company seeks to diversify its supplies, said a company official who asked not to be identified because of internal policy.

Cosmo Oil Co., a Japanese refiner, bought three Isthmus oil cargoes of 1 million barrels each for delivery this year, said a company official who asked not to be identified. The crude will load from the Salina Cruz port on Mexico’s west coast, according to the official.

Hyundai Oilbank Co., which operates the Daesan refinery in South Korea, ordered four shiploads of oil from the Latin American country for delivery this year. They include the vessels Maran Penelope and Narmada Spirit, according to ship fixture data compiled by Bloomberg.

Japan’s largest refiner, JX Nippon Oil & Energy Corp., is buying Isthmus oil for this year, said a company official who asked not to be identified citing internal policy. He declined to provide more details. — Bloomberg

(Source: The Financial Express, February 28, 2015)

SAUDIS’ OIL PRICE WAR IS PAYING OFF

London/Dubai: Three months after Saudi Arabia made clear it was going to let oil prices keep tumbling, the strategy is showing signs of working.

US drillers are idling rigs at a record pace, gutting investment plans and laying off thousands of workers.

Those steps highlight how the Saudi-led Opec decision on November 27 to maintain output levels and protect its market share is having the desired effect – pushing prices down so far that they threaten to curb output in the US and other non-Opec countries. Saudi Arabia, the most powerful member of the Organization of Petroleum Exporting Countries, will maintain that tack when the group next meets in June, according to some of the world’s biggest banks.

The strategy “is working,” Francisco Blanch, head of commodities research at Bank of America Corp in New York said by phone. “It is having the effect that we would expect, which is a decline in investment and ultimately supply, and somewhat higher demand. We think this change is for good.”

The number of rigs drilling for oil in the US dropped by 37 last week to 1,019, the fewest since July 2011, data from Baker Hughes Inc. showed February 20. Since December 5, a total of 556 have been taken out of service. Oil explorers including Royal Dutch Shell Plc and Chevron Corp have announced spending cuts of almost $50 billion since November 1.

Transocean Ltd, the world’s largest offshore driller, had its credit rating cut to junk February 25 by Moody’s Investor Service on concern the company will increase debt levels while the drilling market deteriorates. It has about $9 billion of borrowings.

Oil has rebounded 14 per cent in February, following a drop of more than 50 per cent since June, in part because of the decline in drilling, which signaled supply growth will slow. Lower prices also spurred demand from bargain hunters, putting European benchmark Brent crude on track for its first monthly gain since June.

US benchmark West Texas Intermediate for April delivery gained 67 cents to $48.84 a barrel in electronic trading on the New York Mercantile Exchange at 11:38 am Singapore time. Brent added 73 cents to $60.78.

Demand is growing and markets are “calm,” Saudi Arabian Oil Minister Ali Al-Naimi said February 27 in the Red Sea city of Jazan in the nation’s southwest.

US oil production will cease its month-on-month growth in April because of the drop in the rig count, Marios Maratheftis, the Dubai-based global head of research for Standard Chartered Plc, said in Dubai on February 23.

The US Energy Information Administration reduced its 2015 US crude production forecast to 9.3 million barrels a day in February from 9.42 million in November. The EIA projects output will fall in the third quarter for the first time in four years.

“Opec’s long-game strategy is on track,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said by e-mail. “It’s suffering short-term financial pain for long-term gain.”

There is a cost to Opec, of course.

Oil’s plunge will reduce the group’s revenue by about 37 per cent this year, according to the US Energy Information Administration. Export revenues for 11 of Opec’s 12 members, excluding Iran, will shrink to $446 billion in 2015 from $703 billion in 2014, the EIA estimates.

Saudi Arabia’s government said December 25 that it expects a budget deficit in 2015 of 145 billion riyals ($38.7 billion), up from 54 billion in 2014.

The Saudi strategy has been criticised by Venezuela, which the International Monetary Fund estimates will suffer an economic contraction of 7 per cent this year, and Iran, which the IMF says will be deprived of $48 billion of revenues over two years. The Nigerian oil minister and current Opec president, Diezani Alison-Madueke, said she may convene an emergency meeting of the group, the Financial Times reported February 23.

There’s no plan for such a gathering, according to a delegate who asked not to be named. Opec’s financially vulnerable members have little sway over policy because they’re unwilling to cut production, leaving decision-making power with Saudi Arabia, according to Mike Wittner, head of oil markets research at Societe Generale in New York.

Even having its own way, Saudi Arabia isn’t guaranteed success, according to Barclays Plc. Global markets remain oversupplied, prices haven’t fallen enough to press Opec’s rivals into cutting sufficiently and increasingly efficient shale producers could restore output, said Miswin Mahesh, an analyst at Barclays in London.

“It’s still a very hard road,” said Mahesh. “We haven’t really seen an outright chunk of US shale or any other high-cost production falling.”

The US pumped 9.29 million barrels a day in the week ended February 20, the most in three decades, according to the EIA.

On the other hand, the International Energy Agency, a Paris-based advisor on energy policy to 29 developed nations, boosted its estimate of the world’s dependence on Opec in a February 10 report, citing lower forecasts for other nations. OPEC will need to provide 600,000 barrels a day more in 2019 than the IEA predicted in its previous long-term outlook.

“If I’m sitting in Saudi Arabia, I’d say it looks like the plan is on its way to working,” Wittner said. “It does need to be reflected in real supply. But all the signs are pointing in the right direction.”

(Source: Business Standard February 28, 2015)

BRENT RISES ABOVE $61, SET FOR FIRST MONTHLY GAIN SINCE JULY

London: Crude oil futures rebounded on Friday and Brent headed for its first monthly gain since July, helped by strong investor inflows, an improving demand outlook and supply outages.

At 0955 GMT, Brent crude futures were up $1.50 at $61.54 a barrel, while US crude was up $1.23 at $49.40 a barrel. Both contracts tumbled on Thursday, with US crude falling hardest.

Brent is trading at a premium of about $12 to US crude, which remains hamstrung by massive inventory builds. This is the widest spread since January 2014.

“The main event this week has been the widening of the spread between Brent and WTI (US crude),” Ole Hansen, senior commodity strategist at Saxo Bank, said. “WTI is still only a few dollars above the lows, but Brent has lifted off.”

Brent is up around 15% this month from January’s close of $52.99, on course for its biggest monthly gain since May 2009. US crude is also set for its first monthly rise in eight, but with a modest gain of about 1.9%.

Brent is being helped by factors including positive euro zone and Chinese data, plus supply disruptions in Libya, said Hans van Cleef, energy economist at ABN Amro.

China’s implied oil demand is set to grow by 3% this year, the country’s top energy group China National Petroleum Corp said, surpassing the International Energy Agency’s forecast of 2.5%.

At the same time, disruptions to production and exports from Libya and Iraq in recent weeks have contributed to tightness in the physical market in the Mediterranean.

In the North Sea, Norway’s Statoil has shut its Statfjord C platform after discovering cracks in the flare tower. The entire Statfjord field, which includes two other platforms, produced about 81,000 barrels of oil equivalent last year.

But analysts at JBC Energy warned that supply-side support could wane in coming weeks. “Many of the outages that we have witnessed of late appear bound to come back next month,” they said in a note.

The latest Baker Hughes rig count number will emerge later on Friday, providing an update on how the US shale industry is responding to lower oil prices.

The active drilling rig count in North Dakota, the country’s No. 2 oil-producing state, dropped to 119 on 26 February, versus 193 last year, state data showed.

(Source: Mint February 28, 2015)