More losses for oil companies as price rise option closes
11 March 2010;business-standard.com:Ajay Modi:New Delhi: Even before the start of the new financial year, the spectre of rising losses during 2010-11 has begun to haunt the three state-controlled oil marketing companies that account for over 90 per cent of the country’s retail petroleum products market. Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) are apprehensive that their under-recoveries (the gap between the retail prices and their refining and marketing costs) will rise on account of rising crude oil prices and the political constraints on the government to raise retail rates. “We expect under-recoveries to increase in the next year if prices are not increased since the average crude oil price next year is likely to remain higher from this year’s level of $70 a barrel,” said S V Narasimhan, director (Finance), IOC, the biggest of the oil marketing companies. The Indian basket of crude oil, which tracks benchmark Brent crude, has averaged $69.17 a barrel in the current financial year. However, the global economic recovery, crude oil prices have been rising in the past few months. The average in February 2010 was $73.65 and, by the end of the first week of March, the average price of the Indian crude oil basket had already crossed $77 a barrel. The oil marketing companies (OMC), however, are not hopeful of an early decision by the government to raise auto and cooking fuel prices. Confirming such fears, a government official said that the petroleum and natural gas ministry was yet to move on the recommendations of the Kirit Parikh committee on petroleum products. The Kirit Parikh committee report, which was submitted over a month ago, had suggested market-linked prices for petrol and diesel. However, only a partial increase of Rs 6 a litre for kerosene and Rs 100 per LPG cylinder were proposed. It also proposed a reduction in kerosene sold through ration cards by 20 per cent. An OMC official, who declined to be identified, also said the opposition outcry over the last increase in the prices of diesel and petrol (by Rs 2.55 and Rs 2.71 a litre, respectively) in last month’s Budget had put an end to their hopes of a further price rise in the next few months. The OMCs are already sitting on an unmet under-recovery of about Rs 19,000 crore in the current fiscal as the finance ministry struggles to meet its fiscal deficit target for 2009-10. The Budget for 2010-11 proposes to bring down the fiscal deficit to 5.5 per cent of gross domestic product (GDP) from 6.7 in the current year. With no adequate financial provision in the Budget for the next year to compensate the OMCs for their under-recoveries and the government’s political inability to raise prices in the next few months at least, the prospects of rising under-recoveries appear more than real. The three marketing companies are estimated to be together losing Rs 196 crore a day on the sale of petrol, diesel, kerosene and LPG, with IOC alone losing Rs 107 crore. For the full year, they are estimated to have under-recoveries of Rs 46,600 crore. A senior finance ministry official, however, pointed out that the government had provided Rs 3,108 crore for oil subsidies for the next year, pending a decision on petroleum prices. "There was no basis of providing a subsidy for the next year. Necessary provision can be made later in the supplementary to the Budget," he added. He further said there would be no impact on the fiscal deficit since by October-November, the trend in savings of other ministries would be known and the government would be able to effect savings in expenditure under other heads. A similar trend was seen this year when the amount provided was Rs 2,954 crore at the start of the year, rising to Rs 14,954 crore in the revised estimates. For the current year, the underrecovery on petrol and diesel is being compensated by upstream companies but the underrecovery on kerosene and LPG is supposed to be compensated by the government. After the discounts provided by upstream companies — Oil and Natural Gas Corporation, Oil India Ltd and Gas Authority of India Ltd — the OMCs are still left with losses of over Rs 31,000 crore. However, the Budget made a provision of Rs 12,000 crore for under recoveries in the current financial year. The OMCs incur an under-recovery of Rs 4.97 a litre on petrol, Rs 3.27 a litre on diesel, Rs 16.91 a litre on kerosene and Rs 267.39 on a domestic LPG cylinder. The recent increase of Rs 2.71 and Rs 2.55 a litre in prices of petrol and diesel, respectively, has impaired the ability of the government to act on the committee’s recommendations. This increase was taken following the restoration of the five per cent customs duty on crude and Rs 1 a litre increase in excise duty announced in the recent Budget.
10 March 2010;dailypioneer.com:Rakesh Bihari Jha:New Delhi: Ford is betting big on Indian car market as the US car maker is developing some more products keeping in mind the specific needs of this market even as it entered small car market on Tuesday with its aggressively priced ‘Figo’. “Ford Figo’s launch is the first step in the series of vehicles being developed keeping in mind the specific needs of Indian market,” said Ford Asia Pacific and Africa president Joe Hinrichs, adding, “we are looking at expanding this segment and work has already begun to develop next generation platform named ‘B’.” The entry level Ford Figo of 1.2 litre petrol engine is priced at Rs 3,49, 900, while 1.4 litre diesel engine car priced at Rs 4,47, 900. With the launch of Figo compact car market in India has become crowed and more competitive, as a result, Ford’s product will be in close competition with Maruti’s Swift and Ritz, Hyundai’s i10, GM’s Beat and Polo of Volkswagen. Ford, which managed to sell just about 30,000 units in 2009, entered the small car market with Figo to be a volume player. Explaining the reason behind developing some more products for Indian car market Ford India Managing Director Michael Boneham said: “You need more entries into the small car segment. We will continue to focus on that segment and the company will launch new vehicles in every 12-18 months.” He, however, declined to give details on planned car launches. Talking about its small car Boneham said : “Come heat, come dust, come Monsoon rains or Delhi traffic, the Figo was born and bred for India.” "Given where the sub B segment has traditionally been in terms of content, space and price, we feel Figo will open new opportunities for consumers looking for a better choice," he added. Like other global auto majors, the company also hopes to turn India into a small car export hub. “Figo would first ship to South Africa and we’ll be adding more markets as people across the region see how cool the Figo really is,” added Boneham. The plant, which manufactures other Ford models for India, too, has a total car-making capacity of 200,000 units a year and an annual engine manufacturing capacity 250,000 units.
10 March 2010;economictimes.indiatimes.com:Lijee Philip:MUMBAI: Mahindra & Mahindra (M&M) — the maker of tractors and utility vehicles, whose foray into the car market in a joint venture with Renault has been marred by public spats over management control — has started calling back some of its top executives in the JV, a clear indication that the agreement with the French company could be nearing an end. In the recent past, three M&M executives have left the joint venture as the two partners appear to be on the verge of separating. Nalin Mehta, the CEO of Mahindra Renault who has been appointed the new chief operating officer of Mahindra Navistar — the JV with the US company which will roll out heavy trucks — is the most recent and high-profile executive to return to the parent group. Jyoti Malhotra, the head of sales, and K Ravi, who was in charge of services, have also returned to M&M. Mr Mehta’s appointment as the COO of Mahindra-Navistar was announced internally at the end of last week while Mr Malhotra and Mr Ravi returned earlier this year. No public announcement has been made. &M’s spokeswoman said that it was the company’s policy to deploy key managers in different parts of the group. “In any scaled down activity, a realignment of business operations is imperative. it’s part of the M&M policy to look at frequent job rotations within the company and it’s part of the career planning.” Both M&M and Renault are likely to come out with a road map on the future of their partnership later this month. Renault had recently announced that it is setting up its own distribution network in India to handle future product launches and had also promised a statement on the future of the troubled joint venture — known as Mahindra Renault Private Ltd or MRPL — later this month. Renault, which sells the mid-size car Logan through MRPL, has said its plans to launch Fluence sedan and Koleos, a cross-over vehicle that combines the features of a car and a sports utility vehicle, in India in 2011. Officially, both M&M and Renault have maintained a diplomatic silence though the differences between the two have been in the public domain for a while. As chronicled in a number of ET stories, the two companies have been unable to agree on product development, innovation and pricing. M&M is understood to be unhappy with MRPL because it wants a greater say in engineering decisions, something which the French automobile major is unwilling to countenance. With the managements not pulling along, Mahindra Renault, a 51:49 joint venture between the two partners, is struggling to sell cars in large numbers due to uncompetitive pricing. The JV, which retails only the Logan, has seen sales fall from peak levels of 2,000 a month in 2007 to just 500 units a month in a booming market. In the April to February 2010 period, sales plunged 60% to 4,981 units. MRPL dealers have been dissatisfied with the very public inability of the two partners to get along. The Mahindra-Renault JV was announced in 2005. Set up with an initial investment of Rs 700 crore, it planned to roll out 50,000 Logans from M&M’s Nashik plant. Renault, headquartered in Paris, has resumed investments in a plant near Chennai which it is building with its global partner Nissan Motor and which is not part of the joint venture with M&M.
Suzuki raises Maruti stake, fuels talks of full control
8 March 2010;economictimes.indiatimes.com:Gaurie Mishra & Nandini Sen Gupta:NEW DELHI: Suzuki Motor Corp has raised its stake in Maruti Suzuki to 55%, triggering speculation about the Japanese firm’s intentions for its Indian subsidiary and whether the move is part of a larger plan to take full control of the country’s top carmaker. Suzuki raised its stake in Maruti by 0.8% through secondary market purchases “very recently”, two persons familiar with the matter told ET. One of them, an investment banker, said Suzuki was set to increase its stake further. Indian rules allow companies to make creeping acquisitions of up to 5% a year and any increase beyond 55% will require Suzuki to make an open offer for another 20%. A spokesman for Maruti, whose website is still to reflect Suzuki’s revised holding in it, declined to comment, while several emails set to Suzuki remained unanswered. However, a person close to the company said “any change in the stakeholding will only come up before the board at the statutory board meeting scheduled for the third week of April”. Maruti, which sells every second car in India, has established itself as the crown jewel in Suzuki’s global operations and is a rare bright spot for sales across the world. It already contributes nearly 80% of Suzuki’s profits, and in volumes too, it has eclipsed its parent’s tally. Auto analysts and former Maruti officials say the increase in the stake at this juncture could well be part of a larger strategy to gain full control of Maruti, especially in the light of Suzuki’s latest alliance with Volkswagen that saw the German group pick up a 20% stake in the Japanese group. “It would be interesting to see what plans Suzuki and VW have for Maruti because their alliance has a significant focus on the Indian market,” noted an analyst at a Mumbai-based brokerage. Despite a flourish of global carmakers gnawing at its market share, India continues to be a lucrative market for Suzuki. Indeed, Maruti sold 96,650 cars in February, the 22% leap from a year ago its best monthly performance yet. “There’s no reason why Suzuki would want (it) ... unless it has a ... larger game-plan lined up,” one former Maruti official said. “Suzuki gets nothing by upping its stake unless it has a longer term strategy of which this is a part,” added the analyst. After Suzuki, FIIs and LIC are the biggest stakeholders in Maruti, owning 22.21% and 11.22%, respectively. Maruti’s current market value is around $10 billion, and if Suzuki were to fully delist the company, it would have to shell out nearly $5 billion at current prices. Shares in Maruti ended 0.16% lower at Rs 1,457 on the BSE on Friday. Maruti is looking to increase its capacity from 1 million units a year by up to 75% in the next five years. “Depending on how the car market performs, we would like to reach 1.5–1.75 million units a year by 2015.” Maruti Suzuki MD Shinzo Nakanishi told ET in an earlier interview.
05 March 2010;business-standard.com:Swaraj Baggonkar:Mumbai: Nissan will continue to source the Pixo, a small car from Maruti Suzuki, until the contract expires in 2012, thus laying to rest any speculation that the Japanese company was reconsidering the deal following Volkswagen’s purchase of a stake in Suzuki. Nissan currently does not have a small car in its line-up for the European market, which is fast moving towards compact and fuel-efficient hatchbacks. It currently sources the A-Star model from Maruti Suzuki and sells this as the Nissan Pixo in Europe. German car maker Volkswagen bought a stake of nearly 20 per cent in Suzuki for $2.5 billion in December last year, in an attempt to strengthen its plans for the compact car segment in burgeoning automotive markets such as India and China. Experts stated that since the Pixo competed with Volkswagen’s Lupo (a compact car) in the European market, the Japanese company would have to reconsider the sourcing agreement with Suzuki. Recently, Nissan’s Executive Vice-President Colin Dodge stated: “We do not know yet whether that strategy is still good, with Suzuki joining Volkswagen. A lot of people believe not, and we are thinking about it.” No replacement for Pixo But, according to Maruti Suzuki Chairman R C Bhargava, Nissan will have to continue the sourcing agreement as the Japanese company still does not have a replacement model for the Pixo, which is doing quite well in Europe. “Nissan will be left without a small car if they terminate the agreement. We have had no formal dialogue with the company so far on the issue and our understanding is that the deal will continue for the entire duration, which extends till 2012,” stated Bhargava. “Even if in future VW was to source a small car from us, it would not be similar to the A-Star,” he added. Replying to a questionnaire, Nissan stated: “Nissan has confirmed that both companies will continue to comply with the OEM (original equipment manufacturer) agreement.” A successful model Nissan’s manufacturing agreement with Suzuki, signed in 2006, has given it a ready car that is an all-new compact car developed by Suzuki from scratch. The A-Star, in the news recently for being recalled by Maruti for rectifying a fuel leakage problem, has been very successful in the overseas market. This prompted Nissan to nearly double its sourcing target to 54,000 units this financial year, up from the 30,000 units planned earlier. With VW planning an aggressive foray into the small car market over the next few years with expansive aid from Suzuki, the future prospects of Nissan’s deal with Suzuki look bleak, as VW may not want to share its small car details, which will entail huge investments with a third company. Nissan will start selling its all-new compact car in the international and in the Indian market from this year. This four-door, compact hatchback will be made at its Chennai facility and will be launched by May. The car will also be exported to Europe.
Essar Oil plans Rs 4,000-cr investment for CBM blocks
05 March 2010;business-standard.com:Nevin John:Mumbai: The Ruias-controlled Essar Oil plans to invest about Rs 4,000 crore in the next three years for developing its three coal bed methane (CBM) blocks in Jharkhand, Gujarat and West Bengal, having recoverable gas reserve of close to seven trillion cubic feet (tcf). “The existing recoverable gas would be valued about $4 billion at the current contract prices. With the commencement of CBM production in three blocks, Essar’s exploration and production (E&P) will be poised for a significant growth and the additional cash flow will help the company pay off the debts,” said an industry source. According to sources, the company has already spent Rs 150 crore for exploration at these CBM blocks. According to the latest Competent Person Report (CPR) of two US-based consultant firms, Netherlands Sewell & Associates Inc and Advanced Resources Inc, Essar’s recoverable resource at Rajmahal block in Jharkhand stood at 4.7 tcf, against the earlier estimate of 1.3 tcf. Also, the company has found 0.75 tcf CBM gas reserve at its Mehsana block in Gujarat. Directorate General of Hydrocarbons (DGH) had earlier approved recoverable reserves of 1 tcf at the company’s Raniganj block in West Bengal. “As certified by internationally recognised reserve consultants in the latest CPR, the estimate for recoverable resources and reserves at our CBM blocks has more than doubled to seven tcf,” said Shishir Agrawal, chief executive officer — Exploration & Production, Essar Oil. “Essar Oil’s E&P business owns rights in some strategic oil and gas blocks across the world, with significant production potential. In India particularly, we are emerging as a dominant player in gas. We have a highly skilled and competent project execution team that has employed several cost-effective technologies, to keep our risks and operating expenditure low.” Gas flow from Raniganj has already started, and sales are likely to commence by early April. In the CBM IV Round, Essar was announced as the provisional winner of Block Rajmahal in Jharkhand. As per CPR, the recoverable resource is estimated at 4.7 tcf, compared to the earlier estimate of 1.30 tcf. Earlier, DGH estimate indicated Rajmahal to be a very good CBM potential with 3.2 tcf of gas, which is now estimated at 9.50 tcf in the CPRs.
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