Decontrol of petrol prices not enough to tame subsidy bill
05 August 2010;business-standard.com:Jyoti Mukul:New Delhi: Despite the June fuel hike and deregulation of petrol prices, the government petroleum subsidy in the current year will be much higher than last year, creating pressure on the fiscal health of the country. The subsidy currently is Rs 17,108 crore, about 14 per cent higher than the Rs 14,954 crore given out in the entire 2009-10. This is despite the fact that the government has so far committed only Rs 3,108 crore cash subsidy to compensate oil marketing companies for their revenue loss for 2010-11. The Rs 14,000-crore subsidy approval for which the government sought parliamentary approval yesterday has already been accounted for by the oil marketing companies in the January-March quarter as receivables. In the government budget, it would be accounted this year. With global crude oil prices ruling around $80 a barrel, the government subsidy burden will rise further this year though it may postpone taking part of the burden on its books to next year. The benchmark Indian basket has breached the $75 average which was taken into account while arriving at the decision in June. It averaged around $77 from April 1 to August 2, a 10 per cent increase over $70 average in 2009-10. The Cabinet decision of fuel hike was based on a $75 average. Revenue loss on petrol at Rs 7,000 crore constituted about 10 per cent of the total underrecoveries, estimated at about Rs 72,000 crore prior to the increase in prices. Though the subsidy is now contained, the fact is that 70 per cent of the estimated underrecovery after the hike is due to LPG and kerosene pricing, that has not been decontrolled. “The decontrol of petroleum prices has not happened. Even in petrol, price should change daily alongside the international price. Still a lot of subsidy will have to be paid because of LPG and kerosene,” said M Govinda Rao, member, Prime Minister’s Economic Advisory Council. Senior executives in government-controlled oil marketing companies maintained the June decision would not change the situation substantially for the government since subsidy on petrol in any case was being provided by upstream companies last year. “The decontrol of petrol price still leaves a balance underrecovery which will have to be absorbed somewhere in the system, that is by the government, the oil marketing companies or the upstream companies. So far, we have had an ad hoc burden sharing formula. So, from that perspective, petrol decontrol is a direct relief. However, the decontrol in petrol and marginal increase in diesel, kerosene and LPG prices has been done on the assumption of a static crude oil price ($75 per barrel) which unfortunately is not true,” ONGC Chairman and Managing Director R S Sharma had earlier told Business Standard. Another official in the ministry of finance echoed his views but added that “at least a right signal has gone” that the government is open to the idea of total deregulation of petroleum prices. Petroleum Secretary S Sundareshan pointed out that without the hike, the subsidy burden would have gone up further. He said a total deregulation was not possible in one go due to political compulsions. “Whatever changes have been made are significant. We will build upon it,” Sundareshan told Business Standard. Rao said the hike did provide a cushion to some extent but if subsidy was not tackled there would be fiscal concerns and the government would need to cut expenditure on other items. “We will have to live with subsidy for some time. Politically it is not possible in the short-term but it can be made possible,” he added.
Reliance to buy 60 per cent stake in US shale-gas venture
05 August 2010;hindustantimes.com:New Delhi:Reliance Industries on Thursday said it will buy a 60 per cent stake in a shale-gas venture in the US for $392 million, the third unconventional gas acquisition made by the Mukesh Ambani-run firm this fiscal. RIL in a press statement said it will pay $340 million in cash and $52 million in drilling cost to Carrizo Oil and Gas Inc and its partners for a 60 per cent stake in the Marcellus shale-gas areas of central and northeast Pennsylvania. RIL President for International E&P Business Walter Van de Vijver said, "Reliance is excited about the opportunity to further expand presence in the Marcellus Shale in the United States. The Marcellus Shale is a giant rock formation underlying Pennsylvania, New York and other states. "The proposed joint venture (with Carrizo) will supplement strengths achieved through our recent joint ventures and further expand our footprint in North American shale gas operations." The Mumbai-based firm had in April bought a 40 per cent stake in Atlas Energy Inc's Marcellus Shale acreage for $1.7 billion. In June, it had agreed to buy a 45 per cent stake in Pioneer Natural Resources Co's - Eagle Ford shale natural gas asset in Texas for about $1.36 billion.
05 August 2010;timesofindia.indiatimes.com:NEW DELHI: Maruti Suzuki on Wednesday drove in a new, powerful version of its Alto model, priced between Rs 3.03 and Rs 3.16 lakh (ex-showroom Delhi). The Alto-K10, that sports the company's 1000cc K-Series engine, comes with an improved suspension, gear transmission and brake system. The Alto is the country's biggest-selling model and accounts for over 20,000 units monthly. "We expect brand Alto to achieve even higher numbers after the launch of this new variant," Maruti MD S Nakanishi said. K-series is the new generation petrol engine from Maruti and the 1000cc engine is already strapped on the WagonR, Estilo and A-Star compacts. The 1200cc version of the K-Series engine comes on the Ritz and Swift hatchback and Swift Dzire sedan. "There are a growing number of first-time buyers who seek more power, performance in car, without having to stretch to buy a higher segment car," Nakanishi said.
05 August 2010;business-standard.com:New Delhi:Mumbai: The final blueprint of the multi-crore global tie-up between Volkswagen and Suzuki Motor Corporation has started to unfold, with Maruti Suzuki looking at becoming an original equipment maker (OEM) in cars for the German automaker for markets outside India. Maruti Suzuki may forge a manufacturing deal with Volkswagen and the deal could be on the lines of its tie-up with Nissan, Japan’s fourth-largest carmaker. “Talks are on with Volkswagen. Collaboration can happen in production and product planning between the two companies. The possibility is that we will act as the original equipment maker (OEM) to Volkswagen,” said Shinzo Nakanishi, managing director and chief executive officer of India’s largest passenger vehicle manufacturer. He was speaking to reporters at the launch of an upgraded version of its best-selling Alto hatchback. Maruti Suzuki makes the Pixo hatchback, essentially the A-star, for Nissan. The company makes nearly 35,000 units of the small car every year for Nissan and the vehicle is sold as an entry-level car in Europe. Volkswagen had picked up nearly 20 per cent in Suzuki Motor last year for $2.5 billion to gain small car technology and explore different markets. Although finer details of the plan between the two companies are not known, Maruti sources said since Suzuki had extensive expertise in building small cars in Indian and Japanese markets, products for Volkswagen would be built for the same category. “There are several existing products with Suzuki, as well as product programmes from Volkswagen, which can be explored for this purpose. There are several opportunities which can be properly explored,” said a Maruti executive. Due to rising fuel costs and stricter emission norms, small cars are in good traction in Europe. While India and Japan remain as large production bases for Suzuki, the company has achieved tremendous cost efficiencies in India due to its large- scale presence. Sources said Volkswagen was sourcing technological help of Suzuki to fine-tune its compact car Up!, a concept car it had showcased three years ago. The cost of manufacturing this five-seater small car is way beyond the car models it has to compete with. Maruti Suzuki is working towards increasing its installed capacity by 50 per cent to 1.5 million units over the next five years. For this, the company will double its Manesar plant’s production capacity of to 600,000 units a year. The company achieved the manufacturing target of one million units last financial year.
04 August 2010;business-standard.com:Ajay Modi:New Delhi: Sets interim level of Rs 27/lt, expert panel to work out a formula. The group of ministers (GoM) on the ethanol-petrol blending programme has fixed an interim price of Rs 27 per litre for ethanol to be used, a reiteration of the level it had fixed earlier. This is despite an offer by the country’s largest sugar company, Bajaj Hindusthan, to sell it at about Rs 25 per litre. In a letter dated July 22, Bajaj Hindusthan, also the largest ethanol supplier in seven states, wrote to Union petroleum secretary S Sundareshan, requesting the ethanol-petrol blending programme begin at the earliest. “In our opinion, to start with, you can start the programme at ‘Benchmark’ price, inflation-adjusted over and above the last contract price (of Rs 21.50 per litre)”, the letter said. Wholesale price index inflation in 2007-08, 2008-09 and 2009-10 was 4.60, 8.43 and 3.84 per cent, respectively. After adjusting this into the 2006 ethanol price of Rs 21.50, the price works out to Rs 25.33. On July 26, the GoM, chaired by Finance Minister Pranab Mukherjee, fixed the Rs 27 interim price and decided a committee headed by Planning Commission member Saumitra Chaudhuri would propose a pricing formula and recommend a price to be finally approved by the Cabinet. The interim price of Rs 27 will then be adjusted. The formula will take into account the dynamics of sugarcane and petrol prices. Apart from Mukherjee, the other group members who attended the meeting were food and agriculture minister Sharad Pawar, petroleum minister Murli Deora, heavy industries minister Vilasrao Desmukh and new and renewable energy minister Farooq Abdullah. Ethanol blending with petrol at five per cent continued for about two years before coming to a halt in October last year due to low supply. During this period, the oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum — bought ethanol from sugar companies at a price of Rs 21.50 per litre. An earlier meeting of the GoM in April this year had fixed a price of Rs 27 per litre for ethanol. However, due to reservations expressed by chemicals minister M K Azhagiri, another meeting of the GoM was convened last week. The GoM, Azhagiri said in a letter to the finance minister in April, should reconcile the differences between various stakeholder ministries on the issue and not decide on the price of the commodity. Accordingly, another meeting of the GoM was convened. The two primary consumers of molasses-based alcohol (which is further processed to make ethanol) are the potable liquor sector and chemical producers. The chemical industry had been opposing the mandatory nature of blending and a fixed price of Rs 27. In spite of the opposition by the chemicals ministry and the offer by Bajaj, the GoM reaffirmed the Rs 27 per litre price. The sugar industry, which is the main producer of ethanol, had been all along lobbying for a price increase from Rs 21.50 per litre (for the supplies made between the years 2006-09) to Rs 27 per litre through its apex body, the Indian Sugar Mills Association. Bajaj Hindusthan is not a member.
04 August 2010;deccanherald.com:Bogota: Colombian state oil company Ecopetrol S.A. and Canadian firm Talisman have reached an agreement to buy the Colombia operation of BP Plc for $1.75 billion. The deal for BP Exploration Company Colombia Limited includes all of the Britain-based multinational's assets in the Andean nation, Ecopetrol said in a statement.Ecopetrol will have a 51 percent interest, with the remaining 49 percent going to Talisman. BP Exploration Colombia which has an estimated 94 million barrels in reserves currently produces around 24,000 barrels per day. "I am really pleased with this deal. It fits into our strategic plan perfectly, bringing new reserves, production and potential areas for our exploratory portfolio," Ecopetrol CEO Javier Gutierrez said. Ecopetrol, Latin America's fifth-largest oil company, accounts for 60 percent of Colombian production and also has a presence in Brazil, Peru and the US. Talisman began operating in Colombia more than a decade ago and has stakes in 14 exploration and production blocks in the Andean nation, two of them in partnership with Ecopetrol.
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