War chest to buy energy assets abroad
India is planning to set up a sovereign fund of about $20 billion to help state-owned ONGC to compete with its Chinese rivals in acquiring oil and gas assets abroad.
The oil and finance ministries are currently discussing the proposal in the backdrop of ONGC’s failure to acquire any assets last year and Beijing marching ahead, a senior oil ministry official said.
“We have proposed a $20-billion sovereign fund, but it is up to the finance ministry to work out the numbers and the model. There is unanimity of views in the government that such a fund should be set up as the country’s energy demands are expected to increase and acquisitions abroad are the only way to ensure energy security,” the official said. India’s foreign exchange reserves stood at $278 billion in the first week of this month.
Officials said the Chinese model would be studied closely by the government. China with $2.4 trillion of reserves has set up a $300 billion sovereign fund for energy and mineral assets.
R.S. Sharma, chairman and managing director of ONGC, said “such a fund would be very helpful in competing with China”.
Industry sources said “Beijing with its huge foreign exchange reserves gives low-interest loans to its companies to aggressively pursue the acquisition of overseas energy assets.”
ONGC Videsh Limited, the overseas arm of ONGC, can take investment decisions on its own up to a sum of Rs 300 crore. Beyond this, ONGC Videsh needs cabinet approval, which makes the bidding exercise time consuming.
Besides, in the absence of a sovereign fund, ONGC does not have the financial muscle to bid aggressively.
Officials said Chinese firms spent $32 billion last year buying oil, coal and metals assets abroad. ONGC, on the other hand, acquired only Britain’s Imperial Energy for $2.1 billion in December 2008.
In the past two years, Chinese firms have outbid ONGC in acquiring stakes in Swiss oil exploration firm Addax Petroleum, Iraq’s Halfaya and Zubair oilfields and Algeria’s Berkine Basin oilfields.
Earlier, government panels had proposed a sovereign fund to buy overseas assets. A committee headed by National Manufacturing Competitiveness Council chairman V. Krishnamurthy has asked the government to “establish a centralised fund for the acquisition of foreign companies or assets in various sectors.”
Mar 18, 2010
Mar 8, 2010
Move to list six PSUs
Around six profit-making PSUs are likely to hit the market in 2010-11, with the finance ministry setting a revenue target of Rs 40,000 crore from divestment.
“It could be four to six PSUs that would be listed, apart from a few follow-on offers this fiscal,” sources in the finance ministry said.
The sources said talks with the respective ministries overseeing the state-owned firms were at an advance stage, and a decision could be taken in the next two months.
Standing in the listing queue are Bharat Sanchar Nigam Ltd, Coal India Ltd, Rail India Technical and Economic Services, Cochin Shipyard, Telecommunications Consultants India and Manganese Ore India Ltd.
These firms meet the government’s criterion for listing entities that have made profits in the last three years, the officials said.
“This year, if we can put in Rs 25,000 crore (through stake sale), next year’s (budget target of) Rs 40,000 crore is modest. There need not be any serious backlash from employees or other stakeholders in the divestment process because it is a very marginal listing process. I don’t anticipate any problem on this,” revenue secretary Sunil Mitra has said.
Sources said the ministry was also considering a follow-on offer for two to three listed firms during the next fiscal.
This would be in addition to the follow-on offer of Engineers India Ltd, which is likely to hit the market in the July-September quarter.
As part of this move, MMTC, Hindustan Copper, Rashtriya Chemicals, National Fertilizers, and State Trading Corporation are on the government’s selloff agenda.
Since last year, ownership has been broad-based in Oil India Limited, NHPC, NTPC and Rural Electrification Corporation, while the process is on for National Mineral Development Corporation and Satluj Jal Vidyut Nigam.
NMDC’s follow-on offer is from March 10 to March 12, and the government plans to sell 8.4 per cent equity. Satluj has filed for application to make an open offer last month and is targeting to raise Rs 1,200 crore.
The market capitalisation of the five companies which have been listed since October, 2004 has increased 3.8 times from the book value of Rs 78,841 crore to a massive Rs 2,98,929 crore, finance minister Pranab Mukherjee had said in the budget, making a case for making the divestment programme broad-based.
The 13th Finance Commission has recommended divestment of the government’s stake in various entities, which should fetch Rs 3,81,000 crore to the exchequer.
Meanwhile, Sebi has allowed Coal India to offer shares to its employees, including those of its subsidiaries. The coal major, which is planning an IPO later this year, wants to reserve about 1 per cent of its shares for its employees. The government, which owns 100 per cent equity in Coal India, is planning to divest a 10 per cent stake through the proposed IPO.
Around six profit-making PSUs are likely to hit the market in 2010-11, with the finance ministry setting a revenue target of Rs 40,000 crore from divestment.
“It could be four to six PSUs that would be listed, apart from a few follow-on offers this fiscal,” sources in the finance ministry said.
The sources said talks with the respective ministries overseeing the state-owned firms were at an advance stage, and a decision could be taken in the next two months.
Standing in the listing queue are Bharat Sanchar Nigam Ltd, Coal India Ltd, Rail India Technical and Economic Services, Cochin Shipyard, Telecommunications Consultants India and Manganese Ore India Ltd.
These firms meet the government’s criterion for listing entities that have made profits in the last three years, the officials said.
“This year, if we can put in Rs 25,000 crore (through stake sale), next year’s (budget target of) Rs 40,000 crore is modest. There need not be any serious backlash from employees or other stakeholders in the divestment process because it is a very marginal listing process. I don’t anticipate any problem on this,” revenue secretary Sunil Mitra has said.
Sources said the ministry was also considering a follow-on offer for two to three listed firms during the next fiscal.
This would be in addition to the follow-on offer of Engineers India Ltd, which is likely to hit the market in the July-September quarter.
As part of this move, MMTC, Hindustan Copper, Rashtriya Chemicals, National Fertilizers, and State Trading Corporation are on the government’s selloff agenda.
Since last year, ownership has been broad-based in Oil India Limited, NHPC, NTPC and Rural Electrification Corporation, while the process is on for National Mineral Development Corporation and Satluj Jal Vidyut Nigam.
NMDC’s follow-on offer is from March 10 to March 12, and the government plans to sell 8.4 per cent equity. Satluj has filed for application to make an open offer last month and is targeting to raise Rs 1,200 crore.
The market capitalisation of the five companies which have been listed since October, 2004 has increased 3.8 times from the book value of Rs 78,841 crore to a massive Rs 2,98,929 crore, finance minister Pranab Mukherjee had said in the budget, making a case for making the divestment programme broad-based.
The 13th Finance Commission has recommended divestment of the government’s stake in various entities, which should fetch Rs 3,81,000 crore to the exchequer.
Meanwhile, Sebi has allowed Coal India to offer shares to its employees, including those of its subsidiaries. The coal major, which is planning an IPO later this year, wants to reserve about 1 per cent of its shares for its employees. The government, which owns 100 per cent equity in Coal India, is planning to divest a 10 per cent stake through the proposed IPO.
Ball set rolling for higher tax-free gratuity
The Centre has cleared an amendment whose logical conclusion is expected to exempt private sector employees’ gratuity up to Rs 10 lakh from income tax.
At present, gratuity below Rs 3.5 lakh is spared the tax. Companies can pay a higher amount but income tax will have to be paid on the sum above Rs 3.5 lakh.
The Union cabinet today cleared a proposal to raise the ceiling for payment of gratuity to private sector employees from Rs 3.5 lakh to Rs 10 lakh.
As a first step, the Payment of Gratuity Act will be amended which will officially permit companies to pay more, although many are already doing so.
The next step will be more crucial: amending the income tax act so that the exemption limit could be raised from Rs 3.5 lakh to Rs 10 lakh.
“The cabinet has approved the bill seeking to amend the Payment of Gratuity Act which will be introduced in the current session of Parliament,” Union labour minister Mallikarjun Kharge said.
“The proposed amendment will increase the maximum gratuity from Rs 3.5 lakh to Rs 10 lakh. The provision of the income tax act will be suitably amended for the benefit to continue,” he added.
The minister did not say when the income tax act would be amended. If the finance minister is willing, it can be done in this session itself.
The current exemption limit of Rs 3.5 lakh on gratuity payment means that an employee putting in 35 years of service (joining at the age of 25 and retiring at 60) can avoid paying tax if his basic salary is Rs 20,000 a month. If the income tax act is amended, the basic salary on which gratuity payment will be exempt from tax can go up to Rs 57,142 a month.
Those earning still higher can get more gratuity but will have to pay tax on the excess amount.
Gratuity is a statutory benefit paid by employers to employees who have completed not less than five years of continuous service. The number of years for eligibility varies in some organisations. All establishments employing 10 or more persons have to pay gratuity.
At the time of exit — either because of resignation or retirement or death — an employee or beneficiary will be paid 15 days’ salary, taking the last drawn salary as the basis, for every completed year of service.
The Sixth Pay Commission had recommended that the limit be raised to Rs 10 lakh for central government employees. The decision today is an attempt to bring parity between government and private employees.
In the last Parliament session, the Centre had amended the gratuity act to clarify the definition of an employee. Anybody who is earning a wage is classified as an employee. Teachers were also brought within the ambit of the act.
The Centre has cleared an amendment whose logical conclusion is expected to exempt private sector employees’ gratuity up to Rs 10 lakh from income tax.
At present, gratuity below Rs 3.5 lakh is spared the tax. Companies can pay a higher amount but income tax will have to be paid on the sum above Rs 3.5 lakh.
The Union cabinet today cleared a proposal to raise the ceiling for payment of gratuity to private sector employees from Rs 3.5 lakh to Rs 10 lakh.
As a first step, the Payment of Gratuity Act will be amended which will officially permit companies to pay more, although many are already doing so.
The next step will be more crucial: amending the income tax act so that the exemption limit could be raised from Rs 3.5 lakh to Rs 10 lakh.
“The cabinet has approved the bill seeking to amend the Payment of Gratuity Act which will be introduced in the current session of Parliament,” Union labour minister Mallikarjun Kharge said.
“The proposed amendment will increase the maximum gratuity from Rs 3.5 lakh to Rs 10 lakh. The provision of the income tax act will be suitably amended for the benefit to continue,” he added.
The minister did not say when the income tax act would be amended. If the finance minister is willing, it can be done in this session itself.
The current exemption limit of Rs 3.5 lakh on gratuity payment means that an employee putting in 35 years of service (joining at the age of 25 and retiring at 60) can avoid paying tax if his basic salary is Rs 20,000 a month. If the income tax act is amended, the basic salary on which gratuity payment will be exempt from tax can go up to Rs 57,142 a month.
Those earning still higher can get more gratuity but will have to pay tax on the excess amount.
Gratuity is a statutory benefit paid by employers to employees who have completed not less than five years of continuous service. The number of years for eligibility varies in some organisations. All establishments employing 10 or more persons have to pay gratuity.
At the time of exit — either because of resignation or retirement or death — an employee or beneficiary will be paid 15 days’ salary, taking the last drawn salary as the basis, for every completed year of service.
The Sixth Pay Commission had recommended that the limit be raised to Rs 10 lakh for central government employees. The decision today is an attempt to bring parity between government and private employees.
In the last Parliament session, the Centre had amended the gratuity act to clarify the definition of an employee. Anybody who is earning a wage is classified as an employee. Teachers were also brought within the ambit of the act.
Mar 2, 2010
Oil ministry in Parikh push for more cash
The petroleum ministry is likely to place the recommendations of the Kirit Parikh committee before the Union cabinet, adding fuel to the political fire over the petrol and diesel price hikes after the budget.
“The ministry will soon seek cabinet nod for implementing the Parikh report as the budget has not made enough provision for the revenue losses oil companies are suffering,” a senior petroleum ministry official said.
The official said the cabinet would take a final call on whether the report would be implemented fully or partially.
According to the panel’s suggestions, the subsidy burden of the government can be maintained at a “bearable” level if free market pricing of petrol and diesel is allowed along with periodic increases in the prices of cooking gas (LPG) and kerosene.
Trinamul Congress and the DMK have joined the Opposition in demanding the rollback of the fuel price hike. Petrol and diesel will cost about Rs 3 per litre more after the duty hike in the budget.
Finance minister Pranab Mukherjee has reportedly ruled out any rollback of duties. Mukherjee said the impact of a duty hike on inflation would be marginal in the long term and food inflation would soften in the next two or three months. However, analysts said the government would wait for the winter crop to hit the market before considering the Parikh proposals. The winter crop (rabi) is expected to bring down food inflation from the present rate of 18 per cent.
N.R. Bhanumurthy of the National Institute of Public Finance and Policy said, “Given the political economy situation, it appears unlikely that the (Parikh) report will be fully implemented in the medium term. However, the recommendations should be the long-term objectives of the government.”
Analysts said if the report was accepted, it would enable the government to cut expenditure as it would not have to make provisions for the fluctuations in global crude prices.
The petroleum ministry is likely to place the recommendations of the Kirit Parikh committee before the Union cabinet, adding fuel to the political fire over the petrol and diesel price hikes after the budget.
“The ministry will soon seek cabinet nod for implementing the Parikh report as the budget has not made enough provision for the revenue losses oil companies are suffering,” a senior petroleum ministry official said.
The official said the cabinet would take a final call on whether the report would be implemented fully or partially.
According to the panel’s suggestions, the subsidy burden of the government can be maintained at a “bearable” level if free market pricing of petrol and diesel is allowed along with periodic increases in the prices of cooking gas (LPG) and kerosene.
Trinamul Congress and the DMK have joined the Opposition in demanding the rollback of the fuel price hike. Petrol and diesel will cost about Rs 3 per litre more after the duty hike in the budget.
Finance minister Pranab Mukherjee has reportedly ruled out any rollback of duties. Mukherjee said the impact of a duty hike on inflation would be marginal in the long term and food inflation would soften in the next two or three months. However, analysts said the government would wait for the winter crop to hit the market before considering the Parikh proposals. The winter crop (rabi) is expected to bring down food inflation from the present rate of 18 per cent.
N.R. Bhanumurthy of the National Institute of Public Finance and Policy said, “Given the political economy situation, it appears unlikely that the (Parikh) report will be fully implemented in the medium term. However, the recommendations should be the long-term objectives of the government.”
Analysts said if the report was accepted, it would enable the government to cut expenditure as it would not have to make provisions for the fluctuations in global crude prices.
Feb 15, 2010
Gas price hike faces fertiliser hurdle
The fertiliser ministry has opposed an oil ministry proposal to raise the price of PSU gas sold under the administered price mechanism because it would increase its subsidy burden.
“We have prepared a cabinet note seeking an increase in APM (administered price mechanism) gas price. However, the fertiliser ministry has opposed it stating that it would increase the subsidy burden. The note, with comments from various departments, would be placed before the council of ministers soon,” a senior petroleum ministry official said.
The officials said the cabinet was unlikely to take a call before the upcoming budget.
In the note, the petroleum ministry has sought an increase in APM gas prices to $2.4 per million British thermal unit (mBtu) from $1.8 per mBtu. Eventually, it wants the price to be raised to $4.2 per mBtu, which is the one recommended by the empowered group of ministers for the gas produced from Reliance Industries’ fields in the Krishna-Godavari basin.
According to sources, the proposal, if accepted, would increase the fertiliser ministry’s subsidy burden, which is already at Rs 50,000 crore for this fiscal, by at least another Rs 20,000 crore.
“The government wants to cap the subsidy for fiscal management and any increase in input costs will raise the subsidy burden. There will be a problem in the allocation of the subsidy,” a fertiliser ministry official said. Fertiliser firms consume around 30 per cent of the APM gas.
The budget for the current fiscal has forecast an unprecedented fiscal deficit of over Rs 4 lakh crore, or 6.8 per cent of the gross domestic product.
The fertiliser ministry has opposed an oil ministry proposal to raise the price of PSU gas sold under the administered price mechanism because it would increase its subsidy burden.
“We have prepared a cabinet note seeking an increase in APM (administered price mechanism) gas price. However, the fertiliser ministry has opposed it stating that it would increase the subsidy burden. The note, with comments from various departments, would be placed before the council of ministers soon,” a senior petroleum ministry official said.
The officials said the cabinet was unlikely to take a call before the upcoming budget.
In the note, the petroleum ministry has sought an increase in APM gas prices to $2.4 per million British thermal unit (mBtu) from $1.8 per mBtu. Eventually, it wants the price to be raised to $4.2 per mBtu, which is the one recommended by the empowered group of ministers for the gas produced from Reliance Industries’ fields in the Krishna-Godavari basin.
According to sources, the proposal, if accepted, would increase the fertiliser ministry’s subsidy burden, which is already at Rs 50,000 crore for this fiscal, by at least another Rs 20,000 crore.
“The government wants to cap the subsidy for fiscal management and any increase in input costs will raise the subsidy burden. There will be a problem in the allocation of the subsidy,” a fertiliser ministry official said. Fertiliser firms consume around 30 per cent of the APM gas.
The budget for the current fiscal has forecast an unprecedented fiscal deficit of over Rs 4 lakh crore, or 6.8 per cent of the gross domestic product.
Feb 8, 2010
Parikh charges up private oil retailers
Private refiners Reliance, Essar and Shell plan to re-enter the petrol pump business in a big way if the government goes ahead with the Kirit Parikh panel’s recommendation to have free market pricing in petrol and diesel.
The private refiners had shut their pumps down when crude oil jumped to $147 a barrel and the state-owned refiners compensated for selling fuel below costs by the government.
“Private refiners are closely watching the government move. Free market pricing of petrol and diesel now is the most appropriate as it is around $70 to $80 a barrel,” industry sources said.
The first indication of their aggressive intent came from Essar group chairman Shashi Ruia who said Essar Oil planned to increase its petrol pumps to 2,000 in the next few months from 1,450.
Sources in Reliance Industries said they would re-enter the business if the government provided a level-playing field to the private players.
D.R. Dogra, chief executive officer of Credit Analysis & Research, said “the complete deregulation may prompt private players such as Reliance, Essar and Shell to reopen their retail fuel outlets, putting pressure on the market share of public sector oil marketing companies.
“In the past, the entry of private players in the retail fuel market had resulted in an erosion of about 10 per cent in the market share of the public sector companies.”
PSU fears
Sources in the state-owned refiners said they would suffer immensely if the government just freed petrol and diesel prices, while leaving kerosene and LPG untouched.
“Private sector players would then have a field day because they can sell petrol and diesel at market-determined prices. Two-thirds of our losses are from cooking gas and kerosene,” the sources said.
The private firms had a market share of 14 per cent in 2006, but it had gradually reduced to a negligible sum following the spike in crude prices and absence of a compensating mechanism.
Reliance had to shut its retail operations down after global crude oil prices peaked. Essar and Shell India also closed some of their pumps, but when crude prices softened, they restarted some operations.
Free pricing
Arguing for free market pricing in its report, the Parikh committee said “a market-determined pricing system for petrol and diesel can be sustained in the long run by providing level playing field and promoting competition among all players, public and private, in the oil and gas sector.”
The report said a spike in crude price from $70 a barrel to $120 a barrel would result in an increase of around Rs 160 per month for two wheeler users and less than Rs 1,000 per month for car owners.
Private refiners Reliance, Essar and Shell plan to re-enter the petrol pump business in a big way if the government goes ahead with the Kirit Parikh panel’s recommendation to have free market pricing in petrol and diesel.
The private refiners had shut their pumps down when crude oil jumped to $147 a barrel and the state-owned refiners compensated for selling fuel below costs by the government.
“Private refiners are closely watching the government move. Free market pricing of petrol and diesel now is the most appropriate as it is around $70 to $80 a barrel,” industry sources said.
The first indication of their aggressive intent came from Essar group chairman Shashi Ruia who said Essar Oil planned to increase its petrol pumps to 2,000 in the next few months from 1,450.
Sources in Reliance Industries said they would re-enter the business if the government provided a level-playing field to the private players.
D.R. Dogra, chief executive officer of Credit Analysis & Research, said “the complete deregulation may prompt private players such as Reliance, Essar and Shell to reopen their retail fuel outlets, putting pressure on the market share of public sector oil marketing companies.
“In the past, the entry of private players in the retail fuel market had resulted in an erosion of about 10 per cent in the market share of the public sector companies.”
PSU fears
Sources in the state-owned refiners said they would suffer immensely if the government just freed petrol and diesel prices, while leaving kerosene and LPG untouched.
“Private sector players would then have a field day because they can sell petrol and diesel at market-determined prices. Two-thirds of our losses are from cooking gas and kerosene,” the sources said.
The private firms had a market share of 14 per cent in 2006, but it had gradually reduced to a negligible sum following the spike in crude prices and absence of a compensating mechanism.
Reliance had to shut its retail operations down after global crude oil prices peaked. Essar and Shell India also closed some of their pumps, but when crude prices softened, they restarted some operations.
Free pricing
Arguing for free market pricing in its report, the Parikh committee said “a market-determined pricing system for petrol and diesel can be sustained in the long run by providing level playing field and promoting competition among all players, public and private, in the oil and gas sector.”
The report said a spike in crude price from $70 a barrel to $120 a barrel would result in an increase of around Rs 160 per month for two wheeler users and less than Rs 1,000 per month for car owners.
Feb 4, 2010
Panel pill to tame fuel subsidy
Government subsidies on fuel could be maintained at a “bearable” level of Rs 20,000 crore per year irrespective of the price of crude in the international markets, if the government implements the Kirit Parikh panel report.
The panel said this could be done through free pricing of petrol and diesel, periodically raising prices of cooking gas cylinders (LPG) and kerosene, reducing the allocation of kerosene and directing ONGC Ltd and Oil India Ltd to part with some of their earnings when crude price goes above a certain level.
“If petrol and diesel are allowed free-market pricing, kerosene and domestic LPG prices are raised periodically… the subsidy burden of the government would come down substantially,” Kirit S. Parikh, chairman of the committee on sustainable pricing of petroleum products, said after submitting its report to petroleum minister Murli Deora.
The committee also suggested that when the crude oil price crossed $60 per barrel, state-owned Oil and Natural Gas Corporation Ltd (ONGC) and Oil India could be asked to part with a proportion of their excess earnings. This is only on crude produced from their nomination blocks.
Parikh said even if the price of crude changed from $70 per barrel to $140 per barrel “the burden on the budget of the government would remain stable at about Rs 20,000 crore, and that I think is a bearable burden for subsidy”.
He said “the government should compensate the gap by providing cash subsidy from the budget. The oil firms marketing PDS kerosene and domestic LPG should be compensated fully for their under-recoveries.”
N.R. Bhanumurthy of the National Institute of Public Finance and Policy said, “The recommendations should be the long-term objectives of the government, but given the political economy situation, it appears unlikely that they would be fully implemented in the medium term.”
In the sharing of revenue, if crude moved beyond $60 per barrel, the report suggested the levy of a special oil tax on ONGC and OIL. Parikh said such a levy should be restricted only on blocks given on a nomination basis.
According to the Parikh report, when crude price rules in the range of $60-70 per barrel, 20 per cent of the excess price over $60 should be the taxable rate.
When crude is in the range of $70-80 per barrel, the rate should be 40 per cent of the excess price over $70.
For crude at $80-90, the recommended levy is 60 per cent above $80. Beyond $90 per barrel, it is 80 per cent above $90.
In its presentation before the committee, ONGC had stated that a crude price hike led to an increase in the cost of inputs such as field service material and equipment. “(Therefore) SOT rate should be calibrated so that ONGC is able to retain some portion of increase in price to cover rise in costs.”
Till last year, upstream firms such as ONGC were asked to bear one-third of the total revenue loss suffered by the state-owned oil marketing companies for selling fuel below cost.
This year, they have been mandated to bear all of the revenue loss for selling petrol and diesel below cost.
ONGC has in the six years since 2003-04 doled out Rs 86,005 crore in fuel subsidies; this year it has already paid over Rs 5,000 crore.
In 2008, the B.K. Chaturvedi committee had recommended that the special oil tax should kick in at $75 per barrel, but its report had been not implemented so far.
The Parikh committee is the third panel constituted by the government on oil pricing. The recommendations of the previous C. Rangarajan and Chaturvedi committees have not been fully implemented.
Government subsidies on fuel could be maintained at a “bearable” level of Rs 20,000 crore per year irrespective of the price of crude in the international markets, if the government implements the Kirit Parikh panel report.
The panel said this could be done through free pricing of petrol and diesel, periodically raising prices of cooking gas cylinders (LPG) and kerosene, reducing the allocation of kerosene and directing ONGC Ltd and Oil India Ltd to part with some of their earnings when crude price goes above a certain level.
“If petrol and diesel are allowed free-market pricing, kerosene and domestic LPG prices are raised periodically… the subsidy burden of the government would come down substantially,” Kirit S. Parikh, chairman of the committee on sustainable pricing of petroleum products, said after submitting its report to petroleum minister Murli Deora.
The committee also suggested that when the crude oil price crossed $60 per barrel, state-owned Oil and Natural Gas Corporation Ltd (ONGC) and Oil India could be asked to part with a proportion of their excess earnings. This is only on crude produced from their nomination blocks.
Parikh said even if the price of crude changed from $70 per barrel to $140 per barrel “the burden on the budget of the government would remain stable at about Rs 20,000 crore, and that I think is a bearable burden for subsidy”.
He said “the government should compensate the gap by providing cash subsidy from the budget. The oil firms marketing PDS kerosene and domestic LPG should be compensated fully for their under-recoveries.”
N.R. Bhanumurthy of the National Institute of Public Finance and Policy said, “The recommendations should be the long-term objectives of the government, but given the political economy situation, it appears unlikely that they would be fully implemented in the medium term.”
In the sharing of revenue, if crude moved beyond $60 per barrel, the report suggested the levy of a special oil tax on ONGC and OIL. Parikh said such a levy should be restricted only on blocks given on a nomination basis.
According to the Parikh report, when crude price rules in the range of $60-70 per barrel, 20 per cent of the excess price over $60 should be the taxable rate.
When crude is in the range of $70-80 per barrel, the rate should be 40 per cent of the excess price over $70.
For crude at $80-90, the recommended levy is 60 per cent above $80. Beyond $90 per barrel, it is 80 per cent above $90.
In its presentation before the committee, ONGC had stated that a crude price hike led to an increase in the cost of inputs such as field service material and equipment. “(Therefore) SOT rate should be calibrated so that ONGC is able to retain some portion of increase in price to cover rise in costs.”
Till last year, upstream firms such as ONGC were asked to bear one-third of the total revenue loss suffered by the state-owned oil marketing companies for selling fuel below cost.
This year, they have been mandated to bear all of the revenue loss for selling petrol and diesel below cost.
ONGC has in the six years since 2003-04 doled out Rs 86,005 crore in fuel subsidies; this year it has already paid over Rs 5,000 crore.
In 2008, the B.K. Chaturvedi committee had recommended that the special oil tax should kick in at $75 per barrel, but its report had been not implemented so far.
The Parikh committee is the third panel constituted by the government on oil pricing. The recommendations of the previous C. Rangarajan and Chaturvedi committees have not been fully implemented.
Petro potion tickles & rattles
- Radical proposals to raise prices leave govt with unenviable option
The Manmohan Singh government has been served a chalice of petroleum reforms too bitter to swallow politically but irresistible economically.
Transportation and kitchen fuel prices could rise if the government marshals courage to accept the sweeping recommendations made by a committee that suggested market-determined pricing of petrol and diesel, an increase of Rs 100 per cooking gas cylinder and a Rs 6-per-litre hike in the price of kerosene sold through ration shops.
“The current petroleum product pricing of the government is not sustainable,” said Kirit Parikh, chairman of the committee, after submitting the report today to petroleum minister Murli Deora.
Deora later said the Parikh report would be placed before the cabinet for discussion within a week. “We are very keen not just to discuss (the report) but also see what can be done for consumers and the government,” Deora added.
Parikh believes that the government, which is under pressure to put a lid on rising subsidies, will be receptive to the radical proposals. (See chart)
“This is the best time to free prices of petrol and diesel. The price increases will be very low now…. You ought not to wait for crude oil prices to touch $120 a barrel,” he added. Crude oil prices are currently hovering around $76 a barrel.
Industry sources said the price of petrol could go up by Rs 4.70 per litre and diesel by Rs 2.30 per litre if the government grants pricing freedom to the state-owned oil marketing companies like Indian Oil Corporation.
The economics may be right but the proposals have come at a time the government is battling price rise in a year elections will be held in Bihar.
Analysts expect political pragmatism to override economic wisdom, prompting the government to adopt only a few token measures.
“The government has to bite the bullet sometime but the quantum of the increase may not be as much as suggested by the panel,” said D.K. Joshi, economist with rating agency Crisil.
Political parties said they would oppose any move that raised the prices of essential commodities.
“We are confident that the government would keep the larger picture in mind while arriving at an appropriate decision,” said Congress spokesperson Manish Tiwari.
The government, which rode to power on the populist aam admi plank and the slogan of inclusive growth, will be hard pressed to raise the price of kerosene sold through the ration shops which hasn’t been changed since March 2002.
The committee felt that a price of Rs 15 per litre was justified as 35 per cent of kerosene sold through the ration shops was being diverted for unauthorised purposes including adulteration of diesel.
The committee believed that an inflated fuel bill for motorists – estimated at a maximum of Rs 1,000 a month for car owners based on an all-India average of driving distances and assuming global crude oil prices surge to $120 a barrel from current levels – is entirely bearable. People who live in the metros may have to pay somewhat more.
The more realistic medium-term assumption is that car owners in metros should expect a Rs 7 per litre hike in petrol prices, which would translate into a little over Rs 600 increase in monthly petrol bills if crude oil prices stay under $80 a barrel.
In the case of two-wheeler owners, the committee says the additional increase will be only Rs 50 a month (on the basis of an all-India average of driving distances and fuel efficiency standards) or Rs 80 a month in metros.
In the unlikely event that crude prices surge to $ 120 a barrel, the two-wheeler owners will have to pay just Rs 160 more every month – which it reckons isn’t going to be hard on the pocket.
The committee also said that there was no social reason to subsidise gas-guzzling sports utility vehicles (SUVs) and, therefore, proposed diesel prices should also be market determined.
- Radical proposals to raise prices leave govt with unenviable option
The Manmohan Singh government has been served a chalice of petroleum reforms too bitter to swallow politically but irresistible economically.
Transportation and kitchen fuel prices could rise if the government marshals courage to accept the sweeping recommendations made by a committee that suggested market-determined pricing of petrol and diesel, an increase of Rs 100 per cooking gas cylinder and a Rs 6-per-litre hike in the price of kerosene sold through ration shops.
“The current petroleum product pricing of the government is not sustainable,” said Kirit Parikh, chairman of the committee, after submitting the report today to petroleum minister Murli Deora.
Deora later said the Parikh report would be placed before the cabinet for discussion within a week. “We are very keen not just to discuss (the report) but also see what can be done for consumers and the government,” Deora added.
Parikh believes that the government, which is under pressure to put a lid on rising subsidies, will be receptive to the radical proposals. (See chart)
“This is the best time to free prices of petrol and diesel. The price increases will be very low now…. You ought not to wait for crude oil prices to touch $120 a barrel,” he added. Crude oil prices are currently hovering around $76 a barrel.
Industry sources said the price of petrol could go up by Rs 4.70 per litre and diesel by Rs 2.30 per litre if the government grants pricing freedom to the state-owned oil marketing companies like Indian Oil Corporation.
The economics may be right but the proposals have come at a time the government is battling price rise in a year elections will be held in Bihar.
Analysts expect political pragmatism to override economic wisdom, prompting the government to adopt only a few token measures.
“The government has to bite the bullet sometime but the quantum of the increase may not be as much as suggested by the panel,” said D.K. Joshi, economist with rating agency Crisil.
Political parties said they would oppose any move that raised the prices of essential commodities.
“We are confident that the government would keep the larger picture in mind while arriving at an appropriate decision,” said Congress spokesperson Manish Tiwari.
The government, which rode to power on the populist aam admi plank and the slogan of inclusive growth, will be hard pressed to raise the price of kerosene sold through the ration shops which hasn’t been changed since March 2002.
The committee felt that a price of Rs 15 per litre was justified as 35 per cent of kerosene sold through the ration shops was being diverted for unauthorised purposes including adulteration of diesel.
The committee believed that an inflated fuel bill for motorists – estimated at a maximum of Rs 1,000 a month for car owners based on an all-India average of driving distances and assuming global crude oil prices surge to $120 a barrel from current levels – is entirely bearable. People who live in the metros may have to pay somewhat more.
The more realistic medium-term assumption is that car owners in metros should expect a Rs 7 per litre hike in petrol prices, which would translate into a little over Rs 600 increase in monthly petrol bills if crude oil prices stay under $80 a barrel.
In the case of two-wheeler owners, the committee says the additional increase will be only Rs 50 a month (on the basis of an all-India average of driving distances and fuel efficiency standards) or Rs 80 a month in metros.
In the unlikely event that crude prices surge to $ 120 a barrel, the two-wheeler owners will have to pay just Rs 160 more every month – which it reckons isn’t going to be hard on the pocket.
The committee also said that there was no social reason to subsidise gas-guzzling sports utility vehicles (SUVs) and, therefore, proposed diesel prices should also be market determined.
Feb 3, 2010
Kitchen comfort under threat
Consumers may get only six subsidised LPG cylinders every year and pay the market rate for additional purchases in that year.
This recommendation, which may lead to less use of this ubiquitous device in Indian kitchens, could find its way in the report of the Kirit S. Parikh committee on sustainable pricing of petroleum products. The panel is likely to submit its report tomorrow.
If the recommendation goes through, consumers would have to pay around Rs 600 to Rs 650 per cylinder, almost double the amount they pay now.
Sources said the panel which met today to finalise its recommendations favoured market-linked pricing of petroleum products and subsidies only for the needy rather than the general population.
They said a final call on the recommendations of the report would be taken by Prime Minister Manmohan Singh after considering other factors such as inflation and political concerns.
Officials said the huge gap between commercial cylinders, which cost Rs 1,000-1,200 per 19kg cylinder, and the domestic ones often led to diversion of the later for commercial purposes.
The last Economic Survey had stated that the subsidy regime for LPG and kerosene had to be reformed so that “all the needy get the intended benefit... limit LPG subsidy to a maximum of 6-8 cylinders per annum per household”.
The B.K. Chaturvedi committee report submitted in 2008 had made a similar suggestion. But the Union government sat tight on the report as it was in an election mode then.
According to sources, the time is right for the government to limit subsidy — firstly, the fiscal deficit in this financial year is seen at Rs 4 lakh crore, which needs to be redressed and second, the government has a clear mandate for the next four years, which should help it to push through the unpopular proposal.
The Chaturvedi panel had said that the subsidy should be brought down to zero in four years. It said six cylinders should be subsidised in the first year, four in the second, two in the third and none in the fourth year.
Households should be encouraged to subscribe to the piped city gas network, wherever available.
For BPL families, the LPG subsidy as well as that for kerosene should be provided either through smart cards or through direct cash transfers, the panel said.
Oil ministry officials said subsidised prices of LPG and kerosene were “greatly misaligned… leading to huge uneconomic use and unintended benefits to certain classes of consumers”.
Kerosene and cooking gas cylinders comprise the lion’s share of revenue losses suffered by the three state-owned oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum.
Petroleum secretary S. Sundareshan said in the current financial year the three state-owned retailers were estimated to lose around Rs 31,000 crore on cooking fuels and around Rs 10,000 crore on petrol and diesel.
Consumers may get only six subsidised LPG cylinders every year and pay the market rate for additional purchases in that year.
This recommendation, which may lead to less use of this ubiquitous device in Indian kitchens, could find its way in the report of the Kirit S. Parikh committee on sustainable pricing of petroleum products. The panel is likely to submit its report tomorrow.
If the recommendation goes through, consumers would have to pay around Rs 600 to Rs 650 per cylinder, almost double the amount they pay now.
Sources said the panel which met today to finalise its recommendations favoured market-linked pricing of petroleum products and subsidies only for the needy rather than the general population.
They said a final call on the recommendations of the report would be taken by Prime Minister Manmohan Singh after considering other factors such as inflation and political concerns.
Officials said the huge gap between commercial cylinders, which cost Rs 1,000-1,200 per 19kg cylinder, and the domestic ones often led to diversion of the later for commercial purposes.
The last Economic Survey had stated that the subsidy regime for LPG and kerosene had to be reformed so that “all the needy get the intended benefit... limit LPG subsidy to a maximum of 6-8 cylinders per annum per household”.
The B.K. Chaturvedi committee report submitted in 2008 had made a similar suggestion. But the Union government sat tight on the report as it was in an election mode then.
According to sources, the time is right for the government to limit subsidy — firstly, the fiscal deficit in this financial year is seen at Rs 4 lakh crore, which needs to be redressed and second, the government has a clear mandate for the next four years, which should help it to push through the unpopular proposal.
The Chaturvedi panel had said that the subsidy should be brought down to zero in four years. It said six cylinders should be subsidised in the first year, four in the second, two in the third and none in the fourth year.
Households should be encouraged to subscribe to the piped city gas network, wherever available.
For BPL families, the LPG subsidy as well as that for kerosene should be provided either through smart cards or through direct cash transfers, the panel said.
Oil ministry officials said subsidised prices of LPG and kerosene were “greatly misaligned… leading to huge uneconomic use and unintended benefits to certain classes of consumers”.
Kerosene and cooking gas cylinders comprise the lion’s share of revenue losses suffered by the three state-owned oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum.
Petroleum secretary S. Sundareshan said in the current financial year the three state-owned retailers were estimated to lose around Rs 31,000 crore on cooking fuels and around Rs 10,000 crore on petrol and diesel.
Feb 1, 2010
Satyam in time plea for SEZs
Mahindra Satyam has sought more time from the authorities to set up its three special economic zones (SEZs) in Andhra Pradesh.
“We have decided to go slow on infrastructure and expansion because of global economic recession in IT, in particular. The company is in the process of analysing the worldwide economic situation to amend the expansion plans appropriately,” Mahindra Satyam said.
The board of approval for special economic zones, headed by commerce secretary Rahul Khullar, will take up the matter on February 11.
Satyam Computer Services, now called Mahindra Satyam, plans to develop three SEZs — at Hitec City and Bahadurpally (both in Hyderabad) and Thotlakonda (near Visakhapatnam) — in Andhra Pradesh.
The three proposed tax-free zones have already been given an extension, which would lapse in June.
The company said it had completed the first phase of the 12-hectare SEZ at Hitec City, with a built-up area of 2,41,064 square feet.
“We spent Rs 78 crore on this. Work for the second phase is in progress and is likely to be completed by September. We expect exports to commence by the end of next fiscal,” the company informed the board of approval.
The zones that get in-principle approval have to complete land acquisition within a year of approval, while a formally approved SEZ with land under possession has to make the tax-free enclave operational within three years.
Officials said the new management of the company, which is reviewing Satyam’s past activities, wanted to go slow on the SEZs as there was no demand for space.
The SEZ Act of 2005, which became effective from February 10, 2006, gave units within the zone and their developers certain tax benefits.
Under the act, developers are entitled to 100 per cent tax exemption on profits for 10 years on the trot during the first 15 years of operations.
Units are entitled to a 100 per cent tax exemption on export profits during the first five years of operations and 50 per cent exemption for the next five years.
From the 11th to the 15th year, the units are eligible for a 50 per cent waiver on reinvested profits.
So far, extensions have been granted to 105 developers. More than Rs 1 lakh crore has been invested in around 100 SEZs.
The BoA has so far notified 335 SEZs, while 147 have got in-principle approvals.
Mahindra Satyam has sought more time from the authorities to set up its three special economic zones (SEZs) in Andhra Pradesh.
“We have decided to go slow on infrastructure and expansion because of global economic recession in IT, in particular. The company is in the process of analysing the worldwide economic situation to amend the expansion plans appropriately,” Mahindra Satyam said.
The board of approval for special economic zones, headed by commerce secretary Rahul Khullar, will take up the matter on February 11.
Satyam Computer Services, now called Mahindra Satyam, plans to develop three SEZs — at Hitec City and Bahadurpally (both in Hyderabad) and Thotlakonda (near Visakhapatnam) — in Andhra Pradesh.
The three proposed tax-free zones have already been given an extension, which would lapse in June.
The company said it had completed the first phase of the 12-hectare SEZ at Hitec City, with a built-up area of 2,41,064 square feet.
“We spent Rs 78 crore on this. Work for the second phase is in progress and is likely to be completed by September. We expect exports to commence by the end of next fiscal,” the company informed the board of approval.
The zones that get in-principle approval have to complete land acquisition within a year of approval, while a formally approved SEZ with land under possession has to make the tax-free enclave operational within three years.
Officials said the new management of the company, which is reviewing Satyam’s past activities, wanted to go slow on the SEZs as there was no demand for space.
The SEZ Act of 2005, which became effective from February 10, 2006, gave units within the zone and their developers certain tax benefits.
Under the act, developers are entitled to 100 per cent tax exemption on profits for 10 years on the trot during the first 15 years of operations.
Units are entitled to a 100 per cent tax exemption on export profits during the first five years of operations and 50 per cent exemption for the next five years.
From the 11th to the 15th year, the units are eligible for a 50 per cent waiver on reinvested profits.
So far, extensions have been granted to 105 developers. More than Rs 1 lakh crore has been invested in around 100 SEZs.
The BoA has so far notified 335 SEZs, while 147 have got in-principle approvals.
Jan 31, 2010
NTPC to import coal
NTPC Ltd plans to import coal directly, starting next fiscal.
“We plan to import 15-16 million tonnes of coal directly from next year,” R.S. Sharma, chairman and managing director of NTPC, told The Telegraph.
The government had nominated state-run MMTC to import 12.5mt coal on behalf of NTPC last year.
The tender, reissued at the end of August, faced delays and affected production at some NTPC units.
NTPC’s total coal requirement during 2009-10 is estimated at 150 million tonnes.
The power producer is also close to striking a coal block deal in Mozambique or Indonesia to secure its coal supplies.
Earnings boost
NTPC is targeting at least Rs 2,400 crore by selling power in the open market in the next few years. It is creating 2,000mw of fresh capacity, including two units of 500mw each at Farakka and Korba.
“These two units will generate at least 8 billion units of power. Even if we sell the power at Rs 1.5 per unit, we earn a revenue of Rs 1,200 crore. Another Rs 1,200 crore will come when the additional 1,000mw of merchant power generation is set up,” NTPC director (commercial) Inderjit Kapoor said today on the sideline of the company’s upcoming FPO roadshow in Calcutta.
NTPC Ltd plans to import coal directly, starting next fiscal.
“We plan to import 15-16 million tonnes of coal directly from next year,” R.S. Sharma, chairman and managing director of NTPC, told The Telegraph.
The government had nominated state-run MMTC to import 12.5mt coal on behalf of NTPC last year.
The tender, reissued at the end of August, faced delays and affected production at some NTPC units.
NTPC’s total coal requirement during 2009-10 is estimated at 150 million tonnes.
The power producer is also close to striking a coal block deal in Mozambique or Indonesia to secure its coal supplies.
Earnings boost
NTPC is targeting at least Rs 2,400 crore by selling power in the open market in the next few years. It is creating 2,000mw of fresh capacity, including two units of 500mw each at Farakka and Korba.
“These two units will generate at least 8 billion units of power. Even if we sell the power at Rs 1.5 per unit, we earn a revenue of Rs 1,200 crore. Another Rs 1,200 crore will come when the additional 1,000mw of merchant power generation is set up,” NTPC director (commercial) Inderjit Kapoor said today on the sideline of the company’s upcoming FPO roadshow in Calcutta.
Jan 28, 2010
Fuel prices await rule tweak
Fuel prices may change more frequently with shifts in global crude values, while the burden on consumers will be different for petrol, diesel, kerosene and LPG
These far-reaching changes can figure in the report of the Kirit Parikh panel on fuel prices, which will be tabled soon.
Officials said the huge fiscal deficit and the need to improve the health of the PSU oil firms might force the government to take some harsh measures based on the recommendations of the panel.
However, not all the recommendations will be accepted given the rising inflation and the fact that fuel prices are a politically sensitive issue.
As part of a differential pricing strategy, the burden will be most on users of petrol while it will be least for kerosene. Pricing norms will also be applicable to diesel and LPG.
Instead of hiking prices at one go, sources said, the panel can recommend a series of increases over specific time periods. Besides, to arrive at the prices for, say, the next 15 days or a month, the panel may propose taking the average of the previous six or three months, meaning a marginal rise in prices.
The suggestion of dual pricing for diesel — one linked to global crude prices for bulk users, and another for retail consumers — may not come through as it can result in black marketing. “Dual pricing, if applied, may also lead to leakages and diversion of resources for which effective and strict implementation is needed,” the sources said.
They said for domestic LPG cylinder and kerosene the panel could recommend a targeted subsidy mechanism through smart cards as it would not only reduce the subsidy burden but also directly provide benefits.
The panel is also trying to drop the ad hoc discounts that upstream oil firms such as ONGC, Oil India Limited and GAIL (India) Limited give to the public sector refiners.
Instead, a special tax would be levied on them whenever crude prices moved beyond a level, and the corpus distributed among the refiners.
Fuel prices may change more frequently with shifts in global crude values, while the burden on consumers will be different for petrol, diesel, kerosene and LPG
These far-reaching changes can figure in the report of the Kirit Parikh panel on fuel prices, which will be tabled soon.
Officials said the huge fiscal deficit and the need to improve the health of the PSU oil firms might force the government to take some harsh measures based on the recommendations of the panel.
However, not all the recommendations will be accepted given the rising inflation and the fact that fuel prices are a politically sensitive issue.
As part of a differential pricing strategy, the burden will be most on users of petrol while it will be least for kerosene. Pricing norms will also be applicable to diesel and LPG.
Instead of hiking prices at one go, sources said, the panel can recommend a series of increases over specific time periods. Besides, to arrive at the prices for, say, the next 15 days or a month, the panel may propose taking the average of the previous six or three months, meaning a marginal rise in prices.
The suggestion of dual pricing for diesel — one linked to global crude prices for bulk users, and another for retail consumers — may not come through as it can result in black marketing. “Dual pricing, if applied, may also lead to leakages and diversion of resources for which effective and strict implementation is needed,” the sources said.
They said for domestic LPG cylinder and kerosene the panel could recommend a targeted subsidy mechanism through smart cards as it would not only reduce the subsidy burden but also directly provide benefits.
The panel is also trying to drop the ad hoc discounts that upstream oil firms such as ONGC, Oil India Limited and GAIL (India) Limited give to the public sector refiners.
Instead, a special tax would be levied on them whenever crude prices moved beyond a level, and the corpus distributed among the refiners.
Jan 25, 2010
Jan 20, 2010
Jan 13, 2010
Jan 3, 2010
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