15 August 2011;business-standard.com:Ajay Modi:New Delhi: With the drop in international petroleum product prices, the losses of oil marketers on diesel would come down by around Rs 1 per litre, while petrol will move into positive territory from the current loss of 71 paise per litre from tomorrow. Oil companies calculate their under-recovery or over-recovery of a product based on its trade parity (80 per cent import price weight and 20 per cent export price weight) for the previous fortnight. The price of the Indian basket of crude oil, that averaged $113.92 per barrel in the last fortnight of July, has averaged around $107 so far in the current fortnight, down six per cent. Global product prices have declined on apprehension of a fall in consumption in the US after a rating downgrade recently. The US accounts for around 30 per cent of global crude oil consumption and meets 60 per cent of its demand through imports. The oil companies are likely to make 10p on every retailed litre of petrol. The price of aviation turbine fuel (ATF) is expected to come down by around Rs 1,000 per kl from the current Rs 57,844 in Delhi. Currently, the oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum — incur an under-recovery or revenue loss of Rs 6.06 per litre of diesel. These companies, which purchase crude oil at market rates, are required to sell diesel, kerosene and liquefied petroleum gas (LPG) at government-subsidised prices, resulting in losses. The decline will help OMCs to perform better in the current quarter. All the three public sector companies incurred a heavy loss in the first quarter on heavy under-recovery that was not fully compensated by the government. On petrol, a decontrolled product, these companies incur a loss as they have not passed on the entire increase. “The industry’s loss on petrol will get wiped out from tomorrow midnight and there will be a marginal profit. If a similar trend continues in global prices for the next fortnight, there could be a reduction in prices,” said an industry official. The price of ATF, that account for 40 per cent of the operating cost for airlines, are already 40 per cent higher compared to last year’s corresponding price and exerting pressure on airlines. The decline, a relief, comes after a gap of six weeks during which prices moved up thrice.
14 August 2011;business-standard.com:Tehran: Iran hopes oil deliveries to India will return to a normal level now a long-running payment problem has been resolved, the head of international affairs at the National Iranian Oil Co. said in an interview published on Sunday. Talking to the semi-official Fars news agency, Mohsen Ghamsari, confirmed that all Indian customers had started to pay debts that had built up over the year and said if there had been a slowdown in supply in August due to the dispute, that was now over. "If the Indian refiners keep their word and pay their debts, I am hopeful that we will reach that 400,000 barrels," he said, referring to previous average daily exports to India. Iran had denied it halted shipments to India, but refiners there said they did not get supply notices for the month. Ghamsari said: "Oil exports to India have not been halted. Of course it is possible that these exports have been reduced because we needed to organise our financial situation." Indian Finance Minister Pranab Mukherjee said on Friday India and Iran had resolved their problem over payments, which started at the end of last year when, under US pressure, the Reserve Bank of India scrapped a long-standing regional clearing house mechanism. The disruption to Iran's oil sales with its second-biggest customer was one of the biggest single impacts of the US-led drive to isolate Iran, which it accuses of seeking nuclear weapons, a charge Tehran denies. Ghamsari confirmed that Iran had received at least 1 billion euros of the $5 billion debt. Iranian media quoted an Iranian central bank official on Saturday as saying 40% of the debt had been paid. The new payment mechanism, which uses Turkey's state-owned Halkbank to route payments to Iran, a potentially vulnerable point if Washington applied more pressure on Ankara to close the conduit. "Treasury has not been consulted on this conduit and has therefore not offered a view," US Treasury Department spokeswoman Marti Adams said in a statement. She did not say whether the Treasury would issue a judgment on the arrangement.
Essar Oil to raise $1.5 bn in foreign currency loans
14 August 2011;business-standard.com:Ahmedabad: Essar Oil Ltd (EOL) has said it would raise up to $1.5 billion (Rs 6,800 crore) in foreign currency loans to fund expansion. It may raise the funds through either of the instruments or a mix of these, including equity shares, convertible debentures, global depository shares or American depository shares or foreign currency convertible bonds by way of public and/or private offering in domestic or international market(s) and/or qualified institutional placement. “The company’s board has given an ‘in-principle’ approval to explore possibilities of raising foreign currency loans to the extent of $1.5 billion, instead of rupee loans, for its ongoing projects,” said chairman Shashi Ruia at the company’s 21st annual general meeting at Jamnagar in Gujarat yesterday. “The board has also deliberated the status of Essar Oil’s exit from Corporate Debt Restructuring and has decided to expedite the process to enable the exit before March 31, 2012,” he said. EOL is expanding its Vadinar refinery in Jamnagar. The Phase-I expansion, which will take the facility’s capacity to 18 million tonnes per annum (mtpa) from 10.5 mtpa, is expected to be completed by September. Ruia said EOL had completed 92 per cent work of the Phase-I expansion by June 30. The optimisation project, which will enhance the capacity to 20 mtpa, was 56 per cent complete by June 30. “We are confident the project will be completed by September 2012,” Ruia said. The completion of Phase-I refinery expansion will enhance the complexity of the facility from 6.1 to 11.8. The increased complexity means the refinery can increase the proportion of heavy and ultra-heavy crude it processes, and produce a higher proportion of middle and light distillates. EOL also intends to use the funds for other businesses, including coal bed methane (CBM) and exploration and production. On the exploration and production front, it has started test production at its Raniganj CBM block. As on June 30, the production was recorded at 33,000 standard cubic metres per day (scmd), which is being sold through truck mounted cascades. The block is awaiting approvals to start commercial sales. Ruia said revenue and profitability would rise significantly this year after the increase in the company’s refining capacity. EOL posted a net profit of Rs 469 crore for the first quarter ended June 30, compared to a loss of Rs 70 crore in the same quarter a year ago. Gross revenue jumped 37 per cent to Rs 16,478 crore. The board of directors approved the introduction of Essar Oil Ltd Employees Stock Option Scheme 2011 in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The board also enhanced the power of the company to create security on assets of the company for securing borrowings from Rs 30,000 crore to Rs 40,000 crore. The board also enhanced the borrowing powers of the company from Rs 30,000 crore to Rs 40,000 crore, over and above the paid-up capital of the company and its free reserves.
Aviation Ministry seeks uninterrupted ATF supply for Air India
14 August 2011;deccanherald.com:New Delhi: Coming to the aid of Air India, the Civil Aviation Ministry has sought uninterrupted supply of jet fuel to the cash-strapped carrier, saying steps were being taken to ensure regular payments to the oil companies. Days after a meeting, Civil Aviation Minister Vayalar Ravi had with his Petroleum counterpart S Jaipal Reddy, Civil Aviation Secretary Nasim Zaidi sent a note to this effect to the Petroleum Ministry on Friday, official sources said. The Ministry has said that oil supplies should not be disrupted in case of delay of a day or two by Air India in making daily payments, as the airline could face problems releasing funds on a day-to-day basis due to cash crunch, they said. Maintaining that abrupt stoppage of fuel supplies led to flight disruptions causing hardship to air travellers, it also assured that Air India, which has been put on a cash-and-carry mode since December seven, would inform the oil PSUs in advance if it feels that it would face such problems in the near future, they said. Latest official figures show that as on June 30, the total dues outstanding to IOCL, HPCL and BPCL were Rs 1,558.18 crore, Rs 342.27 crore and Rs 432.65 crore respectively, totalling over Rs 2,333 crore. Air India's fuel bill has also risen from Rs 12-13 crore to Rs 15-16 crore per day partly because of the rise in price of aviation turbine fuel (ATF). Airline officials say that out of a total daily average revenue collection of Rs 22 crore, Rs 16.7 crore is being paid daily to oil companies, leaving only Rs 5.3 crore to meet repayment of aircraft loans and part of interest payment on working capital The ailing national carrier had to cut down its flight operations between May 27 and June 2 when fuel supplies were disrupted by oil PSUs due to non-payment. As many as 147 out of an average 320 daily flights were cancelled then. The latest threat came four days ago when oil firms stopped jet fuel supplies, but resumed it within an hour following government directives. The airline gets around 225 kilo litre of ATF daily to meet its requirements. The oil marketing companies had placed Air India under the cash-and-carry scheme due to its huge outstandings. Airlines normally have a 90-day credit period to pay their fuel bills, but oil companies have refused to follow this rule with Air India after it defaulted on payments a few times. Air India has also been seeking discounts from oil companies, similar to the ones they give to private carriers. Oil companies give a Rs 1,600-1,800 per kilo litre discount to private airlines on promise of assured payment. After adding finance charges for a 90-day credit period, the discount comes to about Rs 3,600 per kilo litre. The note by Zaidi came a day after Civil Aviation Minister had a meeting with Petroleum Minister S Jaipal Reddy over the oil companies threatening to stop the ATF supply. Ravi said Reddy has directed the oil firms not to stop supplies without notice. "Unfortunately, sometimes the supplies are stopped and that disrupts the flights. I told Reddy, at least inform us.... He agreed and I think it will be good for Air India," he had said on Friday. Officials said Air India had failed to pay Rs 10 crore to Indian Oil Corporation, Rs 3.4 crore to Bharat Petroleum Corp Ltd (BPCL) and Rs 2.7 crore to Hindustan Petroleum Corp Ltd (HPCL) last week.
14 August 2011;economictimes.indiatimes.com:LONDON: If history is any guide, another oil-induced recession may be just around the corner, at least for the United States and some of the other developed economies. Every time that the cost of oil relative to global economic output has hit current levels -- and that's even after sharp falls in spot prices this month -- it has heralded a slump. And while economists and analysts say a serious slowdown can still be avoided, many add that unless oil and energy prices fall much further and -- most important -- stay down, the world economy could be in serious trouble. "We are in a danger area for the world economy," said Christophe Barret, global oil analyst at Credit Agricole. The warning signal flashing is what economists call the "oil expense indicator": the share of oil expenses as a proportion of worldwide gross domestic product (GDP) (oil prices times oil consumption divided by world GDP). Since 1965, this has averaged roughly 3 percent of GDP, and it has only exceeded 4.5 percent during three periods: in 1974, between 1979 and 1985 and in 2008. Each period has seen severe global recessions. In 1973/74, during the first global "oil shock", oil prices rocketed after an Arab oil embargo in response to an Arab-Israeli war disrupted oil flows and triggered panic buying. In 1979, revolution in Iran knocked out much of the country's oil output and was followed by a long Iran-Iraq war, bringing a second "oil shock". In 2008, propelled by a housing bubble, speculative buying of new debt instruments and a commodities boom, oil prices exceeded $100 per barrel for the first time and soared to a record high above $147, helping trigger financial crisis and the worst slump since World War II. "DRAG" This time, oil prices have soared following the loss of around 1.6 million barrels per day (bpd) of Libyan oil, uprisings across the Middle East and North Africa and rapid economic growth in China, India and other developing economies. Using the oil expense indicator, economists say Brent crude , the international oil benchmark, would need to be in the low $90s per barrel to be under the 4.5 percent danger mark. In fact, Brent hit a two-and-a-half-year high of more than $127 per barrel in April and, with the exception of an intra-day dip on Tuesday, has been over $100 for six months. Even after a fall of more than $20 from its early-August high on worries over a slowdown in the developed economies, Brent is still not far off $110 per barrel. Oil is a key global cost because it is crucial to every part of the economy, powering manufacturing and the production of food and other commodities, fuelling transport as well as being a building block for industries such as plastics and electronics. If it is too high for too long, the results are dramatic. "The last two times that energy as a share of global GDP neared ... the current level, the world economy experienced severe crises: the double dip recession of the 1980s and the Great Recession of 2008," Merrill Lynch analysts led by Francisco Blanch said in a note to clients. Economists reinforce their warnings over the possibility of an impending slowdown with data showing that oil demand has begun to shrink in some countries in response to high prices. LEADING INDICATOR Oil data lags, but the latest U.S. figures, for May, show a drop of 4.7 percent year-on-year in U.S. gasoline demand.
Maruti Suzuki slashes production of Alto, WagonR, Estilo and Ritz on poor demand
13 August 2011;economictimes.indiatimes.com:NEW DELHI: An inventory pile-up at its dealers has forced Maruti Suzuki, the country's largest car maker, to cut production this month as it grapples with a demand slowdown in the sector triggered largely by high interest rates and fuel prices. Barring Swift and Dzire, the production of the high-volume Alto, WagonR, Estilo and Ritz hatchbacks has been reduced, Maruti Chairman RC Bhargava said on Friday. Maruti makes more than half the cars sold in the country. "We are adjusting our production with market conditions. There are some models which are not moving fast enough given the sluggish demand. So, we have tweaked the production schedule to keep our inventory at the normal level," he said. Car sales declined 16% in July, their first drop in two-and-half years, as rising interest rates and fuel prices forced customers to postpone purchases. The Reserve Bank has raised its key rate 11 times starting March 2010, pummeling demand. In India, some four-fifths of the cars sold are financed. Although Maruti is the first car company to formally announce an output cut, it had produced 17,000 fewer cars last month after it "rationalised" production between its Gurgaon and Manesar plants. The carmaker sold 75,300 vehicles in July compared with 100,857 units a year earlier. The company has built enough buffer to meet market demand, which it expects to revive during the festive season beginning September 1. "The current slowdown is short term and the demand is expected to revive during the festive season," said Maruti managing executive officer (marketing & sales) Mayank Pareek.
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