MUMBAI: The state-run oil marketing companies (OMCs) plan to revive branded petrol such as IndianOil’s XtraPremium and Bharat Petroleum’s Speed, backed by aggressive marketing, to make the most of a significant excise duty cut announced in the budget.
Sales of branded petrol, which contain additives that enhance automobile’s performance, had plummeted in recent years as they became Rs 7-10 per litre more expensive than the regular fuel, forcing companies such as Hindustan Petroleum Corporation (HPCL), Indian Oil Corporation and Bharat Petroleum Corporation (BPCL) to pull out such products from most outlets. But with finance minister Arun Jaitley announcing a cut in central excise duty on branded petrol to Rs 2.35 for every litre from Rs 7.50 a litre, such fuel would now be just about Rs 3 per litre costlier than regular petrol.
“Demand will definitely go up and we are making aggressive plans to relaunch some of our products and expand sales network,” Pramod Sharma, executive director at BPCL, told ET.
Indian Oil Corporation, too, said it plans to offer XtraPremium petrol on more outlets and may consider re-launching XtraMile branded diesel which it had stopped selling. At present, the country’s largest oil marketing company sells XtraPremium in only 600 outlets in the country, down from a peak of over 4,000 in 2007-08, when premium petrol was priced just about Re 1 more than regular petrol.
“We will be targeting owners of new-generation two-wheeler segment and new-generation premium cars,” IOC said in an email response to ET’s query.
The companies plan to roll out new marketing campaigns for their branded fuels over the next couple of months. “We are looking at localised campaigns to begin with so that we convert regular fuel users into branded fuel users,” said a senior executive at HPCL, which sells premium petrol under the brand PoWer.
While the oil marketing companies may ultimately hire advertising agencies for marketing campaigns, they may start with campaigns created internally because government companies have to follow certain procedures for selecting agencies and that may take time, said a senior executive of an oil marketing company.
Branded fuel offers better margins to oil marketers as well as dealers and petrol pump owners. The OMCs, which buy, refine and market fuel, add additives to the fuel and can sell the product at higher profit margin for the value addition.
Ravi Shinde, president of Petrol Dealers Association, Mumbai, said it’s a win-win situation for oil marketers, dealers and consumers.
“OMCs spend 75 paise-Rs 1 per litre on additives and can get very good profit margin. We too get better margin than unbranded fuel and of course the consumer gets more option,” he said.
Shinde expects demand for branded fuel to soar with prices falling. “Branded fuel doesn’t increase mileage, but has a detergent like quality that keeps the machine clean internally and the maintenance cost stays low,” he said.
The rising number of premium vehicles on Indian roads can also boost demand for branded fuel as owners of such machines are keen to take good care of their vehicles.
While overall passenger vehicle sales in the country declined 6.05% in 2013-14 to 2.5 million units, sales of luxury cars grew 6%-8% to about 35,000 units. In the two-wheeler segment, overall sales grew 7.31% in FY14 to 14.80 million units.
(Source: The Economic Times, July 24, 2014)
GOVT’S STAKE SALE PLANS SET FOR A DIWALI BOOST
NEW DELHI: The government’s disinvestment programme is set to get a boost this Diwali, with the finance ministry planning to hit the market to sell a five per cent stake in Steel Authority of India Ltd (SAIL) by October. This will be followed by a 10 per cent stake dilution in Coal India.
Apart from these two, the department of disinvestment has identified about a dozen other companies in which the government could offload shares this financial year. Since disinvestment in all identified public-sector undertakings (PSUs), except SAIL, is likely to begin from October, the government might have two issues on an average every month to meet its target of raising Rs 58,425 crore through stake sale this year.
Disinvestment in Coal India, the biggest issue of the year, is likely to fetch the government Rs 24,258 crore at the current market price. SAIL could add another Rs 1,800 crore to the government kitty.
“One or two big-ticket issues could come by October. SAIL will be the first to hit the market, followed by Coal India, and then the rest,” said a finance ministry official who did not wish to be named.
In the pipeline to go next for stake sale could be Power Finance Corp, Rural Electrification Corp, Tehri Hydro Development Corp (THDC) and SJVN. Among other issues likely to tap the market this year are NHPC, CONCOR, MMTC, NLC and MOIL. Most of the disinvestment will take place through the offer-for-sale (OFS) route. Besides THDC, there will be two more IPOs -for HAL and RINL.
Another big-ticket issue, of ONGC, is likely to make the exchequer richer by Rs 17,329 crore; this might take time as the firm has asked the government to resolve some issues before going for disinvestment.
The ministry official quoted earlier said all issues at Coal India had been sorted out and the government would be able to convince ONGC. too. He added the government might not get more than Rs 35,000 crore from both coal India and ONGC together, as the actual proceeds were expected to be lower than the current market valuation.
“A Cabinet note has already been floated for stake sale in many of these firms. Once the approval of the Cabinet Committee on Economic Affairs is obtained, road shows will be conducted,” the official added.
All these are expected to fetch a combined Rs 36,925 crore to the government this year. Also, it has projected Rs 15,000 crore from sale of its residual stake in Hindustan Zinc and Balco, and another Rs 6,500 crore from sale of Specified Undertaking of the Unit Trust of India’s (Suuti’s) stake in private companies.
If the first disinvestment of 2014-15 happens in October, the government will have to raise an average Rs 9,737 crore from the market every month. Since there are concerns of crowding of many issues in the second half, the ministry is trying to “space these out”. The government will also offer discounts to retail participants to encourage their participation.
SAIL, NHPC, MOIL and CIL will also help the government meet the Securities and Exchange Board of India (Sebi) requirement of having a 25 per cent minimum public shareholding within three years. There could also be some other companies where the government might dilute its holding this year, as there are more than 30 companies where it is required to bring its stake down to 75 per cent over three years.
Last year, the government could raise only Rs 25,841 crore, against the original plan of Rs 55,814 crore. A year before that, the actual mop-up was Rs 25,890 crore, compared with the Budget estimate of Rs 30,000 crore.
(Source: Business Standard, July 24, 2014)
NO GAS FROM RIL’S KG-D6 IS BEING SUPPLIED TO BANGLADESH, SAYS GOVT
NEW DELHI: During LS poll, AAP had alleged that RIL’s partner Niko Resources was selling KG-D6 gas in B’desh for half $4.2 per million British thermal unit rate that India pays them.
The government on Wednesday asserted that no gas from Reliance Industries’ eastern offshore KG-D6 block was being supplied to Bangladesh.
In the run up to the general election, Aam Aadmi Party (AAP) had alleged that RIL’s partner Niko Resources was selling KG-D6 gas in Bangladesh for half the $ 4.2 per million British thermal unit rate that India pays them.
‘The gas produced from KG-DWN-98/3 (KG-D6) block in eastern offshore is being sold domestically in India as per the allocation made by the government and no gas is being supplied to Bangladesh from this block,’ oil minister Dharmendra Pradhan told Rajya Sabha on Wednesday.
In a written reply to a question, he said Article 21.1 of the Production Sharing Contract for KG-D6 signed between the government and RIL, states that ‘the Indian domestic market shall have the first call on the utilisation of natural gas discovered and produced from the contract area (field).’
He said the current sale price of KG-D6 is $4.205 per mmBtu.
This price formula which led to a rate of $4.205, was valid for first five years of production. RIL began production gas from KG-D6 in April 2009 and the price was valid till 31 March, 2014.
‘Accordingly the formula was due for revision. The new Government has decided that the whole issue of gas pricing will need comprehensive re-examination. The Domestic Natural Gas Pricing Guidelines, 2014 have been kept in abeyance up to 30 September, 2014 and till that time, the domestically produced gas would continue to be priced at the rate prevailing on 31 March, 2014,’ he said.
The pricing guidelines, notified on 10 January, would have doubled the gas price to about USD 8.4.
To a separate question, Pradhan said cost of production of gas varied between $1.86 per mmBtu to $4.31 excluding levies and $2.47 to $4.80 per mmBtu including levies.
‘The average cost of crude oil and natural gas production varies from company to company and field to field depending upon size/type of the reservoir, location of reservoir, operating cost, financing cost, depreciation, depletion and amortisation applicable and accounting policy followed by various E&P companies as well as taxes and duties levied by the government,’ he said.
Cost of production includes operating cost, recouped cost (depreciation, depletion, survey and dry wells) and statutory levies, and excludes return on capital employed, he added.
(Source: Millennium Post, July 24, 2014)
GOVT SETS UP PANEL TO SUGGEST NEW GAS PRICING MECHANISM
NEW DELHI: The government has finally decided to dump the UPA’s formula for gas pricing suggested by a panel under then PMEAC chairman C Rangarajan. A new panel under Suresh Prabhu, the architect of power sector reforms during the Atal Bihari Vajpayee government, is being set up to come up with an alternative mechanism.
In a proposal sent for approval to the Prime Minister’s Office, the oil ministry has suggested the names of Pratap Bhanu Mehta and Bibek Debroy, CEO and faculty respectively, of think-tank Centre for Policy Research, as other members of the panel.
The Directorate General of Hydrocarbons, the ministry’s technical arm, will fill in with technical and financial workings of oilfields.
The ministry has suggested a deadline of August 31 for completing discussions with explorers and gas consumers such as urea and power plants. This is being done to allow the government ample time to examine the panel’s report and decide on the new formula by October 1.
The group of Cabinet ministers dealing with economic matters had on June 25 decided to defer implementation of the Rangarajan formula till September 31, which would have doubled gas prices to $8.8 per unit. This would have pushed up tariff of power from gas-fired plants, CNG and PNG prices as well as urea subsidy. The Cabinet panel had also decided to review the formula and come up with a new regime by October 1.
The ministry’s proposal makes it clear that no other agency with generic knowledge of gas pricing issues would be engaged to examine the panel’s report. It would be for the government to discuss and decide on the panel’s report, given the “tight” schedule for completing consultations, submitting the report and examination by the government.
The panel would be asked to take into consideration the arguments of power and fertilizer ministries against the steep hike suggested in the Rangarajan formula. The panel would also be asked to keep in mind the observations of Parliament’s standing committee on finance under former FM Yashwant Sinha.
Broadly, all of them had opposed the Rangarajan formula on the ground that such hefty hike in fuel price would put pressure on power consumers and farmers. If all their arguments are to be taken together, a price band of $5.6 to $6.7 per unit would be on the panel’s plate.
In this scenario, top government sources said it may not be incorrect to assume the panel would be looking to work backwards to arrive at an acceptable price. This can easily be done by removing the Japanese gas purchase benchmark from the formula and spot purchases.
Another option could be to look at rupee-pricing of gas. Finance minister Arun Jaitley had suggested this as an option during the Cabinet discussion on deferring gas price hike on June 25. His argument was that this would cushion prices against foreign exchange volatility.
(Source: The Times of India, July 24, 2014)
GAS ROW: ONGC AND RELIANCE INDUSTRIES PICK INDEPENDENT AGENCY
NEW DELHI: Oil & Natural Gas Corporation (ONGC) and Reliance Industries (RIL) have selected an independent agency to verify the state explorer’s allegation that RIL may be drawing gas from acommon reservoir in the two companies’ adjoining blocks in the KG Basin, said oil minister Dharmendra Pradhan on Wednesday. ONGC’s blocks have a common boundary with Reliance’s KG-D6 block.
Reliance has strongly denied the allegation, but the state-run company has stuck to its stand and even filed a case against the oil ministry in the Delhi HC, alleging that the government had turned a blind eye to the matter.
“Letter of award has been issued to the independent third party on July 3, 2014,” Pradhan told Parliament. He did not name the agency but government and industry sources said RIL and ONGC have jointly selected DeGolyer and MacNaughton (D&M), which had provided consultancy services to both companies in the past.
D&M’s selection has been endorsed by the oil ministry’s technical arm, the Directorate General of hydrocarbons (DGH). An official statement said the consultant was appointed after ONGC filed an “extraordinary” writ petition in the Delhi High Court against Union of India, DGH and RIL in May this year. ONGC requested the court to appoint an independent agency to establish if there was continuity of reservoirs between blocks of the two companies and to estimate the volume of gas. Also the agency would have to work out how much gas could be allocated to each reservoir, which the statement refers to as “gas balancing” if continuity was established.
(Source: The Economic Times, July 24, 2014)
IN RAJYA SABHA:
STEPS TAKEN TO MEET THE INCREASING ENERGY DEMAND
NEW DELHI: The Minister of State (I/C) in the Ministry of Petroleum & Natural Gas Shri Dharmendra Pradhan informed the Rajya Sabha in a written reply today that during the year 2013-14, the consumption of petroleum products was 158.2 MMT against a total production of 35.5 MMT from indigenous sources(figures are provisional).
The Minister said that the following steps are being taken to meet the energy demand and strengthen the country’s energy security:
(i) The Government, and the Exploration and Production (E&P) companies have taken several steps to enhance oil and gas production in the country, which inter-alia, includes:
- Offering of exploration blocks under New Exploration Licensing Policy (NELP) – 254 exploration blocks awarded.
- Implementation of improved oil recovery and enhanced oil recovery schemes by E&P companies for ageing fields.
- Development of unconventional sources of hydrocarbon such as Coal Bed Methane (CBM) and Shale Gas.
- Policy for geo-scientific data acquisition through public funding.
(ii) Pursuing various E&P opportunities in India and abroad to have a balanced portfolio of exploratory, developing and producing oil and gas assets.
(iii) Pursuing transnational oil and gas pipeline projects.
(iv) Construction of strategic crude oil reserves of 5.33 million metric tonnes capacity.
The Minister informed that our oil companies have E&P assets in 24 countries namely, Australia, Azerbaijan, Bangladesh, Brazil, Canada, Colombia, East Timor, Gabon, Indonesia, Iran, Iraq, Kazakhstan, Libya, Mozambique, Myanmar, Nigeria, Russia, South Sudan, Sudan, Syria, USA, Venezuela, Vietnam and Yemen. OVL is currently producing oil and gas from 13 projects in 8 countries viz., Russia, Sudan, Vietnam, Azerbaijan, Myanmar, Colombia, Venezuela and Brazil. During 2013-14, OVL’s share in production of oil and oil-equivalent gas was 8.36 MMTOE.
India is actively engaged in bilateral and multilateral cooperation with foreign countries. To strengthen the country’s energy security, the Ministry of Petroleum & Natural Gas is engaged in oil diplomacy. India’s oil PSUs in particular are being encouraged to adopt a global vision in their pursuit of raw materials and raw material-producing assets abroad, and to vigorously pursue acquisition of oil and gas assets overseas.
(Source: PIB Press Release, July 23, 2014)
IN RAJYA SABHA:
INDEPENDENT AGENCY FINALIZED TO LOOK INTO THE ISSUE OF CONTINUITY OF BLOCKS OF GAS RESERVOIRS
NEW DELHI: The Minister of State (I/C) in the Ministry of Petroleum & Natural Gas Shri Dharmendra Pradhan informed the Rajya Sabha in a written reply today that ONGC, in July 2013 has stated that the wells drilled in blocks KG-DWN-98/3 by RIL in the vicinity / on boundary of ONGC’s nomination Godavari PML and NELP-I Block KG-DWN-98/2 may be draining gas from ONGC’s gas reservoirs. These ONGC’s blocks, viz-a-viz, PML (Godavari PML – Nomination Blocks) and KG-DWN-98/2 (NELP-I Block) are located in deep water, and contiguous to RIL operated block KG-DWN-98/3. Both ONGC and RIL have made hydrocarbon discoveries in their respective blocks. While RIL is producing gas from its block since 2009, ONGC is yet to start production from its block.
ONGC wrote a letter to DGH in July 2013 that E&P data of KG-DWN-98/3 may be provided to ONGC for analyzing field continuity of the pools. Several meetings and dialogues between ONGC and RIL were held to resolve the dispute regarding continuity of reservoirs. DGH asked RIL to share its E&P data with ONGC which was provided by RIL to ONGC. Similarly, ONGC also shared its technical data with RIL.
In May, 2014, ONGC filed an extra-ordinary writ petition in Delhi high court against Union of India, DGH and RIL with a request to appoint an independent agency to establish the continuity of reservoirs between KG-DWN-98/2 block operated by ONGC and KG-DWN-98/3 block operated by RIL and to estimate the volume of gas and also for working out gas balancing between the above reservoirs if found to have continuity.
Subsequently, ONGC and RIL, under the supervision of DGH, has finalized an independent agency to establish if the reservoirs between KG-DWN-98/2 block operated by ONGC and KG-DWN-98/3 block operated by RIL have continuity. Letter of award has been issued to the independent third party on 03.07.2014.
(Source: PIB Press Release, July 23, 2014)
IN RAJYA SABHA:
LOSSES TO PUBLIC SECTOR OMCs DUE TO SUBSIDY ON OIL AND GAS
NEW DELHI: The Minister of State (I/C) in the Ministry of Petroleum & Natural Gas Shri Dharmendra Pradhan informed the Rajya Sabha in a written reply today that the Public Sector Oil Marketing Companies (OMCs) namely; Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) are estimated to incur an under-recovery of Rs. 98,345.55 crore during financial year 2014-15. This is based on (a) the actual under-recovery incurred during the period from April-July, 2014; and (b) estimated under-recovery for the period from August, 2014 to March, 2015 as per current Refinery Gate Prices, As per the audited under-recovery claims submitted by OMCs, the company-wise and product-wise breakup of under-recovery incurred during 1st quarter of 2014-15 is given below:
(Rs. Crore)
| Product | IOCL | HPCL | BPCL | Total |
| Diesel | 4,236.94 | 2,230.27 | 2,570.19 | 9,037.40 |
| Subsidized Domestic LPG | 6,059.51 | 3,079.47 | 2,990.37 | 12,129.35 |
| PDS Kerosene | 5,031.89 | 1,310.27 | 1,181.83 | 7,523.99 |
| Total | 15,328.34 | 6,620.01 | 6,742.39 | 28,690.74 |
On the question of the latest CAG report about public sector OMCs having made a huge profit during 2007-12 by selling oil & petroleum products to consumer, the Minister replied that the OMCs could report meager profits only as a result of getting significant compensation of their under-recoveries from the Government and the public sector upstream oil companies. If the under-recoveries were not compensated to OMCs, all of them would have reported huge losses as shown in the Tablet below:
(Rs.crore)
| 2007-08 | 2008-09 | 2009-10 | 2010-11 | 2011-12 | Total | |
| Combined PAT of OMCs | 9,679 | 4,261 | 13,060 | 10,531 | 6,176 | 43,707 |
| Provision for Taxation | 4,107 | 1,784 | 5,537 | 3,323 | 680 | 15,431 |
| Profit before Tax | 13,786 | 6,045 | 18,597 | 13,854 | 6,856 | 59,138 |
Less: Compensation received
| Oil Bonds/Budgetary Support | 35,290 | 71,292 | 26,000 | 41,000 | 83,500 | 2,57,082 |
| Upstream assistance | 25,708 | 32,000 | 14,430 | 30,297 | 55,000 | 1,57,435 |
| Total Compensation | 60,998 | 1,032,92 | 40,430 | 71,297 | 1,38,500 | 4,14,517 |
| Estimated Loss of OMCs without compensation | (-) 47,212 | (-) 97,247 | (-) 21,833 | (-) 57,443 | (-) 1,31,644 | (-) 3,55,379 |
Further, during this period (2007-12), OMCs themselves contributed Rs. 28,680 crore towards under-recovery, paid Income Tax of Rs. 15,900 crore and Dividend of Rs. 9,284 crore to the Government. Thus, the cash outflow on these accounts was Rs. 53,864 crore.
(Source: PIB Press Release, July 23, 2014)
SURESH PRABHU TO HEAD PANEL TO REVIEW GAS PRICE
New Delhi: Prime Minister Narendra Modi has chosen former power minister Suresh Prabhu to review the previous UPA government’s decision to raise the price of natural gas that would have led to a cascading effect on power tariff, urea costs and retail price of piped cooking gas.
Following Modi’s directive, the petroleum ministry has moved a proposal to set up “a group of eminent persons” to assist the government in formulating “an appropriate view”, which includes the freedom to suggest an “alternative formula/pricing guidelines”.
“As discussed, the group could consist of Suresh Prabhu, Pratap Bhanu Mehta and Bibek Debroy, if they are agreeable,” says the proposal awaiting petroleum minister Dharmendra Pradhan’s approval. Mehta is president and chief executive of Centre for Policy Research while Debroy is a faculty member in the same centre.
An “indicative” terms of reference for the committee includes “revisiting the Natural Gas Pricing Guidelines of 2014 (NGPG 2014) and the Rangarajan formula and the possibility of applying the same in its present form or with modifications”.
“Observations made by Parliamentary Standing Committee would also need to be considered,” it emphasises.
Rangarajan’s formula would have more than doubled gas price to around $8.8 per million British thermal unit, raising power cost by over Rs 2 per unit, urea production cost by Rs 6,228 per tonne and piped gas by Rs 8.50 per kg.
Both Parliamentary Standing Committee on Finance and the Standing Committee on Petroleum made adverse comments on the formula approved by the UPA in June 2013. It has been challenged in the Supreme Court and an FIR is pending in Delhi’s Anti-Corruption Bureau on the issue.
The proposal says the committee would have to consider pricing regimes in other countries, production sharing contracts signed between exploration firms and the government, impact of price revision on power, fertiliser, economy and the gas demand-supply scenario, and price impact on the exploration activities.
It moots “extensive consultations with stakeholders so that their concerns can be addressed” within the legal stipulations as well analyse the possibility of a uniform gas pricing regime in the country.
The committee would be given time until August 31 to submit its report “so that the government has sufficient time for taking a view of its recommendations and to take a decision before September 30”. Within this timeline, the committee would have to invite public comments through the web as there was not enough time.
Last month, the Cabinet Committee on Economic Affairs deferred the implementation of Rangarajan price formula by three months for a comprehensive review keeping public interest in mind.
(Source: Indian Express July 24, 2014)
OIL MINISTRY CONFIRMS AUSTRALIAN JUDGE’S WITHDRAWAL FROM RIL CASE
New Delhi: The Ministry of Petroleum and Natural Gas confirmed that former Australian Judge Micheal McHugh has quit as the Chairman of an arbitration tribunal in the case between Reliance Industries Ltd and the Ministry on the cost recovery from KG-D6 block.
The Ministry stated in a Facebook post on its official page that McHugh has communicated his decision. The Supreme Court had named McHugh as the third arbitrator.
RIL had named former Chief Justice SP Bharucha as its arbitrator while the Government appointed former Chief Justice VN Khare as its arbitrator.
McHugh had withdrawn on May 20 and the Ministry said that he cannot be re-appointed after withdrawing once.
(Source: Business Line July 24, 2014)
WE HAD CHALLENGED MCHUGH DECISION TO RETURN: OIL MIN
New Delhi: Former Australian judge Michael McHugh had to quit as chairman of an arbitral tribunal in the Reliance Industries’ KG-D6 cost recovery dispute as Oil Ministry challenged his decision to return after he initially withdrew from the post.
Oil Ministry in a Facebook post confirmed that McHugh has ‘communicated his decision that he would cease to act as the Chairman of the Arbitral Tribunal.’
The Supreme Court had on 29 April named Michael Hudson McHugh, former judge of the High Court of Australia, as the third arbitrator in the dispute over cost recovery in KG-D6 gas block.
McHugh, however, on 20 May, withdrew as the chairman of the tribunal to which RIL had named former Chief Justice of Supreme Court S P Bharucha as its arbitrator and government appointed former Chief Justice of the apex court and V N Khare its counsel. McHugh had said he was not contacted before the appointment was made.
He, however, had a change of heart after counsels of the partners in KG-D6 block reportedly wrote to him.
The ministry, however, felt that an arbitrator appointed by the Supreme Court cannot re-appoint himself once he withdrew.
‘This (the final withdrawal from the case) is in response to the government’s stand that he ceases to be the chairman of the tribunal once he has declined to act as the presiding arbitrator,’ the ministry said in the Facebook post.
The ministry said McHugh had initially ‘expressed his inability to continue as the chairman of the tribunal in view of his prior engagements. However, later he had reconsidered his decision and had decided to continue as the presiding arbitrator, which was challenged by the government under the provisions of Arbitration and Reconciliation Act 1996.’
Had McHugh not quit, the ministry would have approached the Supreme Court seeking appointment of another person in his place.
In November 2011, RIL had started arbitration proceedings against the government, seeking a decision on its entitlement to recover investments made in the KG-D6 gas field from sales.
The government had disallowed as much as $1.005 billion of its investment as KG-D6 output lagged targets.
Production from main fields in the block was way short of 80 million standard cubic metres per day target.
The cost disallowed was raised to $2.376 billion for output lagging targets in four years ending 31 March, 2014. RIL and its partners say the action is not as per the production sharing contract (PSC) and they are entitled to recover all costs of the block in the Bay of Bengal.
(Source: Millennium Post July 24, 2014)
INDIA’S JANUARY-JUNE IRAN OIL IMPORTS CLIMB BY A THIRD
New Delhi: India’s crude imports from Iran rose by a third in the first half of the year, data from trade sources showed, after the shipments were boosted following an interim deal to slow Tehran’s nuclear activity and ease Western sanctions.
India, Iran’s top oil client after China, raised the imports to some of the highest levels in nearly two years in the first quarter, partly to make up for deep cuts in 2013 due to the lack of insurance coverage for refineries processing Iranian oil.
Intake rates have eased off since but are still running significantly higher than last year. Indian refiners shipped in 281,000 barrels per day (bpd) of oil from Iran between January and June, up from 211,400 bpd in the same period a year ago, data on tanker arrivals from trade sources shows.
In June, imports from Iran dropped by about a quarter from May to 167,300 bpd, the lowest in 10 months. The June intake was up about 19 % from the same month last year.
India cut supplies from Iran by nearly 40% last year, the largest reduction by Iran’s top clients – which besides China and India, includes Japan and South Korea.
China also boosted its imports after the temporary deal between Tehran and Western powers was signed in November last year, with imports from Iran rising by 50% in the first six months of this year.
Iran and six world powers agreed to a four-month extension of the temporary deal after missing a 20 July deadline to reach a final agreement on curbing Iran’s nuclear programme in return for the end of sanctions.
Asian buyers are expected to import about 1.25 million to 1.3 million bpd of Iranian oil in the first half of the year, industry and government sources have said.
South Korea’s imports from Iran fell 11% in the first half of the year, while Japan has yet to report is oil imports for June.
State-run Mangalore Refinery and Petrochemical Ltd was the biggest India client of Iranian oil in June followed by Essar Oil Ltd, the data showed. MRPL and Essar are India’s only two regular monthly importers of Iranian crude.
Iran’s share of total Indian oil imports rose to 7.3% in the first half of this year compared with 5.4% last year, the tanker arrival data also showed.
In the first half of the year India’s import of oil from Latin America and Middle East has declined marginally while that from Africa has risen.
Overall, India shipped in 10.8% less crude in June than a year ago, the data showed. Total crude imports for the January-June period fell 1%.
(Source: Mint July 24, 2014)
GAS PRICING UNCERTAINTY STOPS GSPC FROM STARTING PRODUCTION
NEW DELHI: Gujarat State Petroleum Corporation (GSPC), that is ready to pump natural gas from its Krishna-Godavari (KG) basin block, has not started commercial production, which industry and official sources say may be due to the uncertainty over gas prices.
Gujarat’s energy minister Saurabh Patel announced this month that the state government’s company GSPC had successfully extracted gas in the offshore KG basin and brought it to the mainland. But, Patel did not give any time-frame for commencing commercial production from the Deendayal block, which was initially supposed to start production in 2007.
GSPC wants to sell gas at about $13 per unit. The current gas price for output from fields discovered under the new exploration licensing policy (Nelp) is $4.2 per unit. The government has said this price would continue up to the end of September.
Sources said GSPC is not sure whether the revised price will be applicable retrospectively. “The company would not like to commence commercial production at this juncture and be classified as old producing fields, losing the new price advantage,” a source familiar with the matter said. However, another source said there may be other factors that have delayed production for the company that has frequently postponed the start of gas output from the block.
GSPC officials did not respond to ET’s queries.
The company is demanding higher price because cost of producing gas from the deepwater region in the east coast is high, mainly because of high temperature and pressure, industry sources said.
(Source: The Economic Times, July 24, 2014)
RIL WANTS HIGHER PRICE FOR GAS, UPSET WITH $8.4/UNIT
Mukesh Ambani-led Reliance Industries Ltd (RIL) has told the petroleum ministry that the new price of $8.4 a unit for gas is not the right price and was “well below the arm’s length price.” The company has also sought a price correction from 2012, thereby rejecting wholesale the $4.2 per unit being paid to it for the past five years.
Arm’s length price refers to the prevalent market price or that derived in line with market realities.
“This price (of $8.4 a unit) is well below the arm’s length price for gas… The claimants (RIL and its partners BP and Niko) do not regard this revised figure of $8.4 a unit, to reflect the arm’s length price,” RIL said in a recent letter to the government.
The RIL spokesperson refused to comment. A senior petroleum ministry official, however, told HT that a review of the new price hike was already underway and since the matter was part of an arbitration, it would be discussed at the appropriate forum.
“Given the GOI’s failure to respect the terms of the parties’ contract … and its continued reluctance to discharge its contractual obligations in the manner suggested by the contractor (RIL) in 2012…, the claimants (RIL, BP and Niko) claim that they have been denied market price since no later than January 2012 and are entitled to damages arising from this,” RIL said in the letter.
“The government’s failure to approve a market-based price formula for sales of gas occurring after April 1, 2014 constitutes a continuing breach of the production sharing contract and claimants are entitled to sell the gas produced and saved from block KG-D6 at competitively-determined market prices forthwith,” it added.
RIL’s letter follows the Narendra Modi-led gover nment’s decision to review and defer by three months the new gas price of $8.4 a unit that was fixed by the previous UPA government in line with a formula proposed an expert panel headed by C Rangarajan.
In a recent interview to HT, petroleum minister Dharmendra Pradhan had conveyed his government’s reluctance to accept the new has price of $8.4 a unit, questioning the intent of the expert panel to use global benchmarks to arrive at price of gas produced and sold in India.
“Why should we fix our natural gas prices based on benchmarks linked to developed markets such as Japan,” he had said.
“These resources belong to our people. Why are we so worried about what well-head price exists in other countries without worrying about the end-use price prevailing in our country?” he had questioned.
RIL and its partners—BP and Niko — have already initiated arbitration proceedings against the government for delaying the hike in natural gas prices.
(Source: Hindustan Times, July 23, 2014)
CAIRN INDIA EYES OIL & GAS RESERVES OF 7 BILLION BARRELS
MUMBAI: Cairn India is stepping up its exploration programme with the aim to increase its reserves of oil and oil equivalent gas to 7 billion barrels from the earlier estimate of 4.6 billion barrels, the company said Wednesday.
Company executives indicated that gas would play a key role in the company’s growth going ahead and it is gearing up to double output from 48 million standard cubic feet per day (mmscfd) produced in the first quarter of 2014-15. “We continue our drilling programme targeting a total of $7 billion barrels of hydrocarbons in place. Majority of the exploration wells drilled to date have shown hydrocarbons. In order to optimise the Rajasthan development, we are continuing to deploy the most innovative technology in our work programmes,” chairman Navin Agarwal said.
The Vedanta group-controlled Cairn India said it will invest $200 million over the next three years in developing the Raageshwari Deep Gas field and associated field facilities and pipeline.
“There are two parts to gas. One is what we are exploring and one is what we are discussing with the joint venture partner ONGC for roughly close to 1 TCF and how to get this into production before end of FY16,” said Sudhir Mathur, interim CEO, Cairn India.
The company estimates that it can produce 100 mmscfd of gas from the Rajasthan block and is building pipeline infrastructure to support it.
(Source: The Economic Times, July 24, 2014)
CAIRN INDIA WITHDRAWS RETRO TAX CHALLENGE
NEW DELHI: Cairn India on Wednesday withdrew its suit challenging the validity of the controversial 2012 retrospective amendment to the Income Tax Act that imposed tax liabilities on several high-profile offshore transactions of Indian assets including Cairn’s, reports Kaushal Shroff in New Delhi. By withdrawing the petition, analysts said, it is making an attempt to get the benefit of a proposed new arbiter for fresh tax demands under the law for retrospective taxation. Finance minister Arun Jaitley in his Budget proposed to set up a high-level CBDT committee that would analyse and determine what needed to be taken up in respect of all “fresh cases” arising out of the retrospective activity of the law. In Cairn’s case a show-cause notice has been issued, but no tax demand has yet been made.
The energy major would like its 2007 restructure of Indian assets to be reviewed by the panel. CBDT chairman RK Tewari recently said only fresh cases coming to the notice of assessing officers would go to the committee.
Meanwhile, the company also managed to secure the liberty to approach the court in case its interest is affected by the tax department.
Earlier, in May Cairn had challenged the retrospective amendment following an order of the department attaching Cairn Energy’s 10.3% stake in Cairn India — the Scottish oil giant’s only remaining asset in India after selling its Indian business to UK’s Vedanta Resources. (Vedanta retained Cairn India’s name after the $8.7-billion deal in 2007.)
The shares were attached after Cairn UK Holdings recently filed a ‘no income’ return in India in response to a show-cause notice issued by the I-T authorities relating to Cairn’s transfer of Indian assets to the then newly-formed Cairn India from certain offshore entities in Jersey in 2006-07. Authorities claim the transaction led to capital gains in the hands of Cairn UK Holdings, which is taxable in India.
Cairn’s move comes close on the heels of Netherlands-based Vodafone International Holdings issuing a fresh notice to India seeking international arbitration to resolve a Rs 20,000-crore tax demand it is facing on its purchase of Hutch-Essar seven years ago.
In its Budget, the government had said that existing litigation – for instance, Pasteur Holdings’ 2009 acquisition of Shantha Biotech – against the retrospective tax is something it expected the courts to resolve.
(Source: The Financial Express, July 24, 2014)
CAIRN INDIA MAY ESCAPE SEBI PENALTY DESPITE FAILING TO MEET NEW BUYBACK REGULATIONS
Cairn India, which managed to repurchase a meagre 21.47% of the total shares targeted from the R5,725-crore buyback, may seek Securities and Exchange Board of India’s (Sebi) exemption for non-compliance of buyback regulations, said three people familiar with the deal and the regulations associated with it.
The oil & gas exploration company, controlled by Anil Agarwal-led Sesa Sterlite, bought back 3.67 crore shares from investors of the total 17.09 crore it was looking to acquire, showed stock exchange data. Sebi’s new norms released in June last year require companies to acquire at least 50% of the funds earmarked for buybacks.
While the exact amount of buyback price was not publicly available, the company is believed to have spent about R1,230 crore based on the maximum buyback price of R335 per share. Moreover, Cairn India’s last buyback transaction took place on May 9, two-and-a-half months before the date of closure.
While the failure to achieve a minimum 50% repurchase could attract a penalty under the revised norms, Cairn India could get an exemption, said industry observers. This is because the company missed its target after Cairn Energy decided to withdraw its participation, pending the resolution of a tax dispute with the Indian income-tax department.
“Non-compliance of buyback norms may attract a penalty, but the company may get an exemption from it. Technically, Sebi will take a final call,” said a person familiar with the matter, on conditions of anonymity.
The tax authorities restricted the Edinburgh-headquartered company from selling its stake in Cairn India until the completion of assessment of the company’s finances for the year ended March 2007 in relation to Vedanta Resources’ acquisition of Cairn Energy’s stake in the Indian subsidiary.
Lalit Kumar, partner at law firm J. Sagar Associates, also ruled out the possibility of any penalty on Cairn India, citing the paragraphs 15B (8) a,b, and c under the Buy Back of Securities (Amendment) Regulations.
“If a company, which proposes to buy back its shares, is willing to buy back but a shareholder is unable to sell the shares on account of an order prohibiting the shareholder from disposing the shares, like if there is an order of income-tax authority during the pendency of any case, then in my opinion, the non-compliance should not affect the company or attract any penalty on the company,” Kumar said. Also, Cairn India may not feel the need to seek Sebi’s exemption if the merchant bankers can certify the non-compliance as exceptions provided in the regulations, Kumar added.
A Sebi official declined to comment. A separate query sent to Cairn India’s spokesperson did not yield any response at the time of going to print.
The market regulator strengthened buyback regulations last year, making it mandatory for companies to buy back 50% of the earmarked funds from 25% earlier. It increased the cooling-off period between two buybacks of a company to one year from six months and, separately, asked companies to create an escrow account towards security for performance equivalent to at least 25% of the amount earmarked for buyback.
“If they fail to do so, the amount in the escrow account will be forfeited, subject to a maximum of 2.5% of the total amount earmarked,” said a Sebi release on buybacks last June.
Sebi norms grant relief in the event of non-compliance where: a) volume weighted average market price of shares during the buyback period was higher than the buyback price, b) inadequate sell orders despite the buy orders placed by the company as certified by the merchant banker, and c) where circumstances were beyond the control of the company and in the opinion of the Sebi merit consideration.
(Source: The Financial Express, July 24, 2014)
CAIRN INDIA PEGS RAJASTHAN GAS RESERVES AT 1 TCF
Mumbai: Cairn India Ltd , the oil and gas arm of Anil Agarwal -controlled Vedanta Resources Plc , has estimated its Rajasthan gas reserves at 1 trillion cu. ft (tcf), with the potential of significantly higher gas reserves should the current exploration activities yield commercially viable reserves, the company management said at its eighth annual meeting on Wednesday.
Later in the day, in its first quarter earnings note, the company announced that it also plans to double gas output from its Barmer basin in Rajasthan by the end of the fiscal.
This is, however, not expected to add to the revenue and profit in the current year, analysts say.
Cairn India had been aggressively developing gas deposits in the Barmer basin as higher gas reserves can strengthen the chances that the company gets a 10-year extension to operate the fields after the current production-sharing contract (PSC) with the government ends on 14 May 2020.
So far, the company is only entitled to a five-year extension, but under the terms of the PSC, if it can establish potential commercial gas sales beyond 2020, it can also be awarded a 10-year extension.
While addressing the shareholders, Navin Agarwal, chairman of Cairn India, said, “While we had commenced commercial sale of gas from the block last year, there is potential for significant expansion. This represents a unique opportunity to establish Rajasthan as a major player in the Indian natural gas market. We have now identified the Raageshwari Deep Gas (RDG) field that has significantly higher gas resources.”
Sudhir Mathur, the interim chief executive officer of the company, said the current estimates show that the gas reserves of Cairn India in the Barmer basin in Rajasthan could be at 1 tcf with potential to go even higher.
“There are two parts to the gas, one which we are exploring and one that we are discussing with our joint venture partner ONGC (Oil and Natural Gas Corp. Ltd), which is close to 1 tcf. We are looking at putting that into production before end of fiscal 2016,” he said.
According to data available with the Petroleum Planning and Analysis Cell (PPAC), a statistical body under the ministry of petroleum and natural gas, 1 tcf of reserve could produce up to 4 million standard cu. m per day (mscmd), which is almost half of 8 mscmd produced from the D1 and D3 fields of Reliance Industries Ltd (RIL) in the D6 block in the Krishna-Godavari basin.
Currently, the company is producing just over 230,000 standard cu. m per day and it will go up to 450,000 standard cu. m per day by fiscal 2015 end, according to the company.
Analysts say if the entire 1 tcf is monetized by fiscal 2016, the company can earn an additional revenue of `2,300 crore and a profit of `1,000 crore annually.
The company’s net profit for the quarter ended 30 June fell 65% to `1,092.92 crore, a drop from `3,127 crore in the year-ago period.
This was mainly attributed to the change in method of depreciation from straight-line method to unit of production as specified by the Companies Act, 2013, which was implemented from 1 April, said the company in the results note.
Its revenues for the quarter increased 10.3% to `4,482.85 crore from `4,063 crore posted in the corresponding period last year.
The company posted an operating profit or Ebitda (earnings before interest, tax, depreciation and amortization) of `3,052.1 crore and operating margin of 68% for the quarter compared with `2,910 crore and margin of 71.6% reported in the first quarter of last fiscal.
A Bloomberg poll of 33 analysts expected revenue at `4,600.6 crore and net profit at `2,756 crore.
(Source: Mint July 24, 2014)
CAIRN’S PAT DOWN ON HIGH DEPRECIATION CHARGES
Cairn India has lined up a $3-billion capital expenditure programme to improve production from its known discoveries in Rajasthan. The company intends to deploy 81 per cent of this over FY15 and FY16 to boost production. However, the company reported a weak set of numbers for the June quarter, as net profit declined sharply on higher depreciation. Revenue, post profit-sharing with the government and royalty expense in the Rajasthan block, has grown 10 per cent year-on-year (y-o-y) to Rs 4,483 crore, primarily on account of higher realisations, better volumes and rupee depreciation, despite higher profit tranche.
However, sequentially revenues are down 11 per cent. Operating profit is up by a modest three per cent to Rs 3,029 crore but sequentially it is down 15 per cent. The change in depreciation policy, under the new accounting norms, has led to a sharp decline in the profit after tax, which has fallen 65 per cent y-o-y and 64 per cent quarter-on-quarter to Rs 1,093 crore. Accordingly, the diluted earnings per share are lower at Rs 5.76. The fall in the rupee has resulted in forex gains of Rs 99 crore during the quarter.
While the average daily production of oil and gas (total gross operated) rose three per cent y-o-y to 226,597 barrels of oil equivalent, sequentially production dropped three per cent. The decline in gas output has been sharper than oil. While oil output has risen three per cent to 209,846 barrels per day, sequentially it is down three per cent. Gas output is down 12 per cent y-o-y to 48 mscfd. Sequentially, gas output has declined 10 per cent. While blended average price realisations have risen moderately up four per cent y-o-y to $97 a barrel of oil equivalent, there has been a decline in gas realisations. Realisations from gas have risen 15 per cent y-o-y to $5.6 per mscf, sequentially realisations are down eight per cent. The company says it is targeting a growth rate of 7-10 per cent over the next three years.
(Source: Business Standard July 24, 2014)
JSW ENERGY EYES DISTRESSED ASSETS TO GROW
MUMBAI: JSW Group CMD Sajjan Jindal said that JSW Energy is planning to buy distressed assets to supplement its growth.
“JSW Energy has not been growing over the last 3-4 years. It has been more or less stagnant with no real projects on hand except for the Kutehr hydro project in Himachal,” Jindal said after JSW Energy’s annual general meeting on Wednesday. “So we are now planning to look at a situation where we can grow organically and inorganically. There are many opportunities where we see a number of projects which are under stress — we will acquire those assets and consolidate them in JSW Energy.”
JSW Energy, which announced its first-quarter results on Wednesday, will also not participate in any UMPP bids, Jindal added.
Sales for the quarter ended June rose 3.7% year-on-year to R2521.54 crore while its net profit increased 53.5% to R335.32 crore for the same period. JSW Energy cut down on its power purchase cost significantly with a drop of 64% to R125.1 crore. However, its fuel costs rose 11% y-o-y to R1,174.8 crore due to depreciation in rupee partially offset by a decline in international coal prices.
JSW had in its 2014 annual report said that it is looking to raise R5,000 crore through the QIP route. Jindal said a part of the funds raised through this equity infusion could be utilised for its acquisition plans.
(Source: The Financial Express, July 24, 2014)
CAIRN INDIA PROFIT DROPS 65% IN Q1
MUMBAI: Private oil and gas explorer Cairn India, a Vedanta group company, has reported a 65 per cent fall in its consolidated net profit for the April-June 2014 quarter at Rs 1,093 crore, compared with Rs 3,127 crore in the year-ago period. The company attributed the decline in profits to a change in depreciation calculation from the straight line method (SLM) to the unit of production (UOP). This resulted in Cairn making a one-time charge of Rs 1,627.39 crore to account for depreciation in previous years. Revenue from operations stood at Rs 4,483 crore, up 10 per cent from Rs 4,063 crore last year.
The net profit was below Street consensus estimates of Rs 2,538 crore, but revenues were mostly in line with market expectations. The stock gained less than a per cent in trading on Wednesday against 0.5 per cent in the Sensex. The results were announced after market hours on Wednesday. Profits would have been even lower if not for a sharp jump in other income to Rs 418 crore from Rs 125 crore in the corresponding quarter last year. Core operating profit (excluding other income) was up 4.9 per cent year-on-year – from Rs 2,909 crore in the June quarter last year to Rs 3,052 crore in the quarter under review. Higher operating expenses, coupled with slower revenue growth, resulted in a 352 basis-point decline in operating margin to 68 per cent from 71.5 per cent a year ago. Hundred basis points add up to one per cent.
The company is projecting a faster revenue and profit in the forthcoming quarter on the back of a step-up in gas production. “With multi-Tcf (trillion cubic feet) potential, we expect gas to be a significant contributor in our product mix. Before the end of FY15, we anticipate doubling of gas production from Rajasthan,” said Sudhir Mathur, Interim CEO, Cairn India.
Cairn’s two main projects of enhanced oil recovery and debottlenecking of Mangala Processing Terminal are according to schedule. “We are confident of not only achieving the stated exploration target of three billion barrels of hydrocarbons in-place, ahead of schedule, but also of adding another three billion barrel to our un-risked prospect inventory,” Mathur added.
The company plans to invest $200 million (Rs 1,200 crore) over the next three years in developing the natural gas finds in its Rajasthan block. It said the gas business would be “large and substantial” and a major growth driver. “This gas is very similar to that in North America. We are sizing it up now and are bringing in technology from North America for this,” said Mike Yeager, chairman of Cairn India’s operations review board. Cairn India held its eighth annual general meeting here on Wednesday. Cairn India had started gas production from the block last month, with a cumulative sale of 2.7 billion standard cubic feet (scf) in 2013-14. It estimates a higher potential in the block and is building facilities that can handle up to 100 million scf a day of output, the company said in its annual report.
Overall, Cairn India will invest $3 billion (Rs 18,000 crore) in capex in the next three years. “We are confident that this will lead to a reserve replacement ratio of 150 per cent and help us deliver a growth (annually) of seven to 10 per cent in production over the next three years from the Rajasthan block,” said Navin Agarwal, chairman, Cairn India.
(Source: Business Standard, July 24, 2014)
OIL IMPORT FROM IRAN CLIMBS BY A THIRD IN H1
NEW DELHI: India’s crude imports from Iran rose by a third in the first half of the year, data from trade sources showed, after the shipments were boosted following an interim deal to slow Tehran’s nuclear activity and ease Western sanctions.
India, Iran’s top oil client after China, raised the imports to some of the highest levels in nearly two years in the first quarter, partly to make up for deep cuts in 2013 due to the lack of insurance coverage for refineries processing Iranian oil.
Intake rates have eased off since but are still running significantly higher than last year. Indian refiners shipped in 281,000 barrels per day (bpd) of oil from Iran between January and June, up from 211,400 bpd in the same period a year ago, data on tanker arrivals from trade sources shows.
In June, imports from Iran dropped by about a quarter from May to 167,300 bpd, the lowest in 10 months. The June intake was up about 19% from the same month last year.
India cut supplies from Iran by nearly 40% last year, the largest reduction by Iran’s top clients — which besides China and India, includes Japan and South Korea. China also boosted its imports after the temporary deal between Tehran and Western powers was signed in November last year, with imports from Iran rising by 50% in the first six months of this year.
Iran and six world powers agreed to a four-month extension of the temporary deal after missing a July 20 deadline to reach a final agreement on curbing Iran’s nuclear programme in return for the end of sanctions.
Asian buyers are expected to import about 1.25 million to 1.3 million bpd of Iranian oil in the first half of the year, industry and government sources have said.
South Korea’s imports from Iran fell 11% in the first half of the year, while Japan has yet to report is oil imports for June.
State-run Mangalore Refinery and Petrochemical was the biggest India client of Iranian oil in June followed by Essar Oil, the data showed. MRPL and Essar are India’s only two regular monthly importers of Iranian crude.
Iran’s share of total Indian oil imports rose to 7.3% in the first half of this year compared with 5.4% last year, the tanker arrival data also showed.
In the first half of the year India’s import of oil from Latin America and West Asia has declined marginally while that from Africa has risen. Overall, India shipped in 10.8% less crude in June than a year ago, the data showed. Total crude imports for the January-June period fell 1%.
(Source: The Financial Express, July 24, 2014)
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