28 Sept 2009;business-standard.com:New Delhi: Finance ministry asks it to deposit surplus funds only with PSU banks; loses Rs 200-300 crore in interest revenues annually. Oil and Natural Gas Corp (ONGC) has protested against the finance ministry’s directive of parking surplus funds with only the PSU banks, saying that the state-run banks, on getting assured business, act in a cartel and start offering interest rates lower then even retail deposits. ONGC, which has a cash surplus of about Rs 18,000 crore, is losing Rs 200-300 crore in interest revenues annually, after it was forced to discontinue the practice of calling competitive rates for parking its cash. “It has been observed that the rates of interest offered by public sector banks on bulk deposits are less than the rates offered by them on retail deposits for the same period of maturity,” ONGC Chairman and Managing Director R S Sharma wrote to Petroleum Secretary R S Pandey on September 3. “The difference in some cases is as high as 225 basis points.” Sister PSUs BSNL, BHEL, NTPC and SAIL, too, have opposed the bailout of state-run banks at their expense. Sharma wanted the petroleum ministry to convince the finance ministry to call a meeting of “PSUs having significant investible surplus funds to enable such PSUs to present their case.” “Although, the matter has been taken up with the Ministry of Finance and Department of Public Enterprises, we find no response,” he wrote. Sharma said the guidelines of the finance ministry dated December 1, 2008 advised uniformity of card rates for bulk deposits for different maturities across public sector banks. “However, the interest rates for bulk deposits offered by PSBs vary from bank to bank, with a difference of up to 100 bps,” he said, adding some of the PSBs did not accept deposits on the bulk deposit card rates published on their websites. “All these are in defiance to the guidelines of the Ministry of Finance by public sector banks (PSBs),” he said. Sharma said private sector banks were also representing to the company to place deposits with them at their card rates without inviting competitive bids, “which would not be a desirable practice.” ONGC, which had previously written to the government on the subject in July and August, wanted the finance ministry guideline to be scrapped and PSUs be allowed to call competitive interest rate bids from both PSBs and private sector banks. “The board of the company (ONGC) is required to protect the interest of all the shareholders, including the private and minority shareholders, and maintain highest standard of corporate governance,” he added.
28 Sept 2009;business-standard.com:Swaraj Baggonkar:Mumbai: Move appears inevitable to boost localisation content, for cost control. To support their mega car production plans in the country, French car maker Renault and Japanese auto giant Nissan seem likely to set up an engine and transmission facility that would entail further investment. Both initiated work on the Rs 4,500 crore, 400,000 units per annum joint venture plant at Oragadam near Chennai in June last year. This was after the share in investment amongst the partners was rearranged after the withdrawal of utility vehicle maker Mahindra & Mahindra from the originally tripartite venture. As both Renault and Nissan will be launching volume generating vehicles, including compact cars and sedans, over the next two to three years, they are also in the process of finalising the idea for an engine and transmission plant. Currently, Renault imports all its three engines (petrol and diesel) for the Logan sedan (built jointly with Mahindra) from Romania and Spain, as volumes of the car are significantly low. Since the localisation content is low, it has pushed up overall cost of the car. Kiminobu Tokuyama, managing director and CEO, Nissan Motor India, said: “Our current plan is to utilise a capacity of 2,00,000 and (later) 4,00,000, which is our commitment to the government of Tamil Nadu. We are not discussing product specification or product details as yet....(but) soon, I believe, we will start discussing some of the product specifications, such as engine capacity, transmission.” According to experts, typically a, engine plant with a size of 4,00,000 units or more will require an investment of a minimum of Rs 1,500 crore. The joint venture Renault Nissan Automotive India (RNAIPL) is a high volume project, comprising sales in not just the domestic market but exports as well. Both companies have expressed keen interest in taking advantage of the low cost of manufacturing in India and shipping production to markets abroad. Earlier, US auto giant Ford Motors signed a memorandum of understanding (MoU) with the Tamil Nadu government for setting up a 250,000 engines a year capacity unit, primarily to assist the company’s compact car, Figo, while increasing the localisation content to be price-competitive. Although Nissan hasn’t revealed price details of the compact car it intends to roll out in May next year from Chennai, the vehicle will need to have localisation content as high as 80 per cent to compete effectively with peers such as the the Suzuki A-star and Hyundai’s i10. Similarly, Renault’s compact car, sedan, derivatives of the Logan and other products of Nissan, which will come out from the same plant, will have to be priced competitively. The proposed engine plant of RNAIPL will cater to requirements of both companies, although the power, performance and character of the engine will be tuned to suit the basic needs of the typical vehicle.
28 Sept 2009;business-standard.com:Sarath Chelluri:Mumbai: Rising demand for cleaner and cost efficient fuels, and the forthcoming Commonwealth Games are positive triggers for Indraprastha Gas. The recent decision of the Delhi High Court giving reprieve to city gas distributor, Indraprastha Gas, to operate in neighbouring Ghaziabad has brought the company into the limelight as the sector’s regulator had earlier rejected its licence application. This move comes at a time when demand for CNG is increasing in the NCR regions (home to the largest number of four wheelers and expanding population), which could get a further boost during the Commonwealth Games. While CNG is considered to be environment friendly as compared to other fuels, consumers are increasingly turning towards it as it is cost efficient too. The increasing conversion by newer segments (cars, LCV, buses) and geographical expansion into neighbouring areas would churn robust revenues for the company, going ahead. To meet the increased demand, IGL has already entered into gas sourcing arrangements with RIL and GAIL for additional capacities. Robust demand The company exclusively supplies CNG (compressed natural gas) in the national capital region (NCR). While as many as 12,000 public transport vehicles are already sourcing CNG from IGL, the company is also gaining from increasing conversion of private vehicles (average of 4000-5,000 vehicles per month) into CNG in the recent past. As per estimates, the operating cost of CNG vehicles is 66 per cent cheaper than petrol and 36 per cent lower than diesel vehicles. Besides CNG, the company also supplies PNG (piped natural gas) to 1.38 lakh households. PNG occupies around 7-8 per cent of the revenue pie. In terms of volumes, the proportion of PNG to total volume is increasing, which along with relatively better realisations makes piped gas a profitable proposition for the company. In fact, PNG sales grew by 27 per cent over the last one year compared to CNG sales of 20 per cent. With estimated LPG (liquefied petroleum gas) connections of around 40 lakh in Delhi and cost advantage that PNG enjoys over LPG has been driving up the volumes for the company. For 2009-10, the company plans to add a further 50,000 connections. Additional triggers The cost advantages of CNG over petrol and diesel have accelerated the conversions of private vehicles to CNG. The management expects the conversion rate to remain at around 5,000 vehicles per month, which would help sustain CNG demand going ahead. In October 2010, New Delhi would play host to Commonwealth Games. In this context, the government will be introducing around 2,000 high capacity buses and 20,000 radio taxis to strengthen the transport infrastructure. As a result, CNG volumes are expected to increase by about 25 per cent in time for the start of the games, compared to 19-20 per cent as of now. In a move that would help the company consolidate its position in NCR, recently, the Delhi High Court has allowed the company to sell CNG in Ghaziabad (currently two gas stations) apart from the existing network in the Noida region. Further, it is seeking permission to enter into newer regions like Gurgaon and Faridabad. However, the matter is pending with the Court. To meet the growing demand from these regions including Delhi, the company is planning to set up additional 30 gas stations in 2010; it had added 18 in 2009 taking the tally to over 180. The company is also enhancing its compression capacity from the present 26.76 lakh kg per day to around 30-35 lakh kg per day by Commonwealth Games, which should supplement its CNG business. Margin drop Due to the surge in demand for CNG, the company overdrew gas (above the allocated quantity of 2 mmscmd for Delhi) in the last few quarters. This had led to higher over-drawal costs and thus, increased costs. Operating margins thus, slipped to 31 per cent in the third quarter of 2008-09, the lowest in the last thirteen quarters, as compared to 40 per cent it enjoyed between 2007 and early 2009. Positively, the margins stood higher at 36 per cent in June 2009 quarter as IGL had hiked prices, which would cushion margins going ahead. For augmenting supplies, IGL has recently tied up for KG gas and engaged with BPCL and GAIL. While the commencement of KG gas supply and the expected APM gas price hike would increase the blended gas costs, the company believes that it could offset the cost increase by containing expenses as well as increasing gas prices. Hence, expect the margins to be around 35 per cent in the next two years. Conclusion IGL has marketing exclusivity in the NCR only until December 2011. This could sound alarm bells but its first mover advantage, an extensive distribution network and existing gas sourcing agreements would make it difficult for competitors to make a dent into IGL’s prospects in any significant manner. The demand for CNG from private vehicles could get a boost with car manufacturers introducing models with factory fitted CNG kits. Meanwhile, the company has earmarked around Rs 500 crore for setting up CNG stations, new PNG connections and expansion into regions like Noida and Ghaziabad. As a debt free company generating annual cash flows of Rs 200 crore from operations would help fund its growth plans adequately. The robust demand and the increased capital outlay would help the company deliver an average growth of 20 per cent in the next two years. At Rs 164, the stock is trading at 9 times its 2010-11 estimated EPS and can deliver 15 per cent returns in a year’s time.
27 Sept 2009;hindustantimes.com:New Delhi: After being charged of levying “unjustified marketing margins” on the sale of gas from its KG-D6 gas fields, the Mukesh Ambani controlled Reliance Industries Ltd (RIL) has defended its case saying it was essential to cover risks and costs incurred by it in marketing of gas. “The marketing margin being charged by RIL on sale of KG-D6 gas is fair and justified consideration for the risks and costs undertaken in the GSPA (gas sales and purchase agreement), including such risks and costs beyond the delivery point," RIL wrote to the secretaries of power and petroleum on September 25. RIL said the $0.135 (Rs 6.62) per unit marketing margin over and above the price was to cover risks like sellers liabilities in case of non-supply, customers drawing less than their quota, non-payment of dues and settlement of disputes and claims on quality, quantity or terms of the gas sales and purchase agreement. Terming the marketing margin as illegal, the Anil Ambani group firm Reliance Infra had first refused to pay the levy prompting RIL to issue a notice for suspension of fuel supply for “default”. Joining the issue with Reliance Infra, the state-owned NTPC also asked the power ministry to seek a specific confirmation for the levy charged by RIL from the petroleum and natural gas ministry. NTPC has sought to know whether the margins levied by RIL had government’s approval.
24 Sept 2009;hindustantimes.com:New Delhi: State-owned Oil and Natural Gas Corporation (ONGC) said on Wednesday that it has intensified its efforts to increase domestic oil and gas production to offset the natural decline in output for the last five years that has set in its existing oil and gas fields including the prestigious Mumbai High. Notifying seven new oil and gas discoveries by ONGC in the last six months, ONGC chairman and managing director R.S. Sharma said the company is investing over Rs 50,000 crore (around $10 billion) in developing new oil and gas fields and increasing output from existing ones. Of this amount, over Rs 16,000 crore is being invested to improve output from seven fields, Sharma said. ONGC has invested over Rs 14,000 crore since 2000 for improving the oil recovery from its ageing fields including mature fields like Mumbai High. “ONGC is investing more than Rs 15,000 crore in the second phase of redevelopment of its prime Mumbai High fields in the western offshore. It is investing Rs 8,061 crore,” he said. ONGC has so far made 117 oil and gas discoveries since 2003. Sharing the envisaged growth in its crude oil and gas production, Sharma said, “By 2012-13, ONGC’s crude oil production will go up to 29 million tonnes while its natural gas production would peak up to 72 million standard cubic metres of gas per day (mmscmd).” The existing crude oil production is 25.4 million tonnes while that of gas is about 62 mmscmd. Sharma said he expects the crude oil prices to firm up in the coming months. “I cannot say when the crud oil prices would touch $100 a barrel but what I can say is that I expect the crude oil prices to move up steadily in the coming months.” Rise in crude oil prices would result in higher realisations from crude sales for oil exploration firms. In the international oil market, price of crude oil (light sweet crude variety) rose by $1.84 a barrel, or 2.64 per cent to $71.55 a barrel on the New York Mercantile Exchange (NYMEX) on Tuesday after the dollar declined and US stocks advanced.
24 Sept 2009;timesofindia.indiatimes.com:NEW DELHI: US auto major Ford, the only one of Detroit's Big Three automakers to have avoided bankruptcy said on Wednesday that India would be a "key element" in the company's strategy to beat the global downturn as it moves to develop more small cars on the low-cost engineering learnings from the Indian market. Ford chief executive officer Alan Mulally, here for the unveiling of the company's first small car for the Indian market ‘Figo' (Italian slang for ‘cool') — that hits the market in early 2010 — said the share of compact cars to total global auto sales would continue to rise in the coming years as people opt for more cost-effective vehicles. "The growth is here (small cars)... When you look at vehicle size, about 60% of the vehicles worldwide would be smaller vehicles like the new vehicle here," Mulally said as he made a case for the development and launch of new compact models to boost demand. India, he said, was an important country for Ford as it works to develop small cars for various regions and markets. "India already has leadership in this area, considering that 70% of cars sold here are small cars. It is, thus, a key element in our global product development efforts and we will continue to increase research and development and product development initiatives here over time," Mulally told TOI.While the company refrained from giving out the price of the car, it is expected to come in the Rs 3.5-4 lakh range. Ford plans to roll out the car in a petrol engine just under 1200cc and diesel under 1500cc. Ford is investing $500 million to double capacity at its car plant near Chennai ahead of Figo's launch. The plant will be able to produce 2 lakh cars a year, some of which the company aims to export Asia Pacific and African regions.
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