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BP & NIKO CANNOT BE PARTY TO ARBITRATION

ogNEW DELHI: Stung by Reliance Industries’ alleged bid to “influence” the foreign third arbitrator appointed by the Supreme Court in the KG-D6 block case, the government is set to approach the court with a plea that the relevant arbitration be done strictly within the country sans a foreign umpire.

 

Armed with a law ministry opinion conveyed to it recently, the petroleum ministry will also take the firm stand that RIL’s foreign partners, BP and Niko, should not be made a party to the arbitration, which was initiated by the Indian company, sources familiar with the matter told FE.

 

The government’s move would escalate the conflict between it and RIL over the alleged suppression of gas production at the once-prolific KG-D6 block by the company, leader of the consortium operating the asset. RIL has long said the decline in output was for geological reasons and has pitched for a hike in domestic gas price.

 

The government, on the other hand, slapped penalty notices of $2.3 billion on RIL for the production being below what was promised in the field development plan.

 

As for the two foreign oil majors, the development would add to the uncertainty over whether they would be eligible for the new gas price which the government is likely to come up with after an ongoing review of entire aspects of domestic gas pricing is over.

 

The sources said that the petroleum ministry is preparing a strong case to show that RIL has tried to persuade the former justice of the High Court of Australia, Michael McHugh, who the apex court had appointed as third arbitrator on April 29, to continue with the case, even after McHugh declined to assume the role. They added that this private company breached norms by directly communicating with the third arbitrator.

 

On May 29, McHugh declined to be the presiding arbitrator as directed by the Supreme Court, citing prior commitments. However, on the same day, King & Spalding, London-based legal firm representing RIL, wrote to McHugh to reconsider his decision. “It appears that McHugh has been persuaded by RIL lawyer to continue as the presiding arbitrator, not just by the request of King & Spalding, but perhaps also through other informal communications, which government or its lawyers have not been intimated about,” a source said.

 

Finally on July 10, McHugh had informed India’s apex court about his withdrawal from the case.

 

According to the government, Article 33.6 of the production sharing contract (PSC) does not provide for appointment of foreign national as a third arbitrator. Also, Article 33.9 of the PSC provides that the arbitration is governed by the Indian law and the seat of the arbitration ought to be New Delhi, and therefore, even the procedural law would also be the Indian law.

 

However, it may be recalled that the Supreme Court while appointing a foreign arbitrator in the case, had rejected the government’s plea with regard to the neutrality, impartiality and independence of the third arbitrator. Justice S S Nijjar in his March 31 judgment had rejected the petroleum ministry’s plea that only an Indian National can be appointed as the third arbitrator.

 

It remains to be seen if the Supreme Court would allow the petroleum ministry’s new plea for appointing an Indian as umpire arbitrator. RIL had named former Chief Justice S P Bharucha as its arbitrator while the government appointed former Chief Justice V N Khare as its arbitrator.

 

On July 25, RIL moved Supreme Court for appointment of an arbitrator in place of former Australian judge. Seeking modification of the apex court’s earlier order, RIL in its fresh application stated that the conduct of the government was in “brazen violation of the spirit of an arbitration. The fact that the government is acting in this fashion can only be considered to be unfortunate”. It further blamed the oil ministry for provoking McHugh not to accept the appointment.

 

The law ministry has now opined that BP and Niko cannot be party to the arbitration for various reasons, including the arbitration notice having been sent originally by RIL alone. UK-based BP and Canada-based Niko did not issue the arbitration notice in which ‘Section 11 application’ before the Supreme Court was moved, but subsequently, in March, the duo too sent notices. The foreign companies were left high and dry when the previous UPA government had refused to recognise them as parties to the ongoing arbitration. BP and Niko have since maintained that the arbitration initiated by RIL was as the contractor for KG-D6 block and as partners to the Indian company in the production-sharing contract, they were ipso facto represented by RIL.

 

The government wants RIL to deposit the difference between the proceeds of gas sales at the current price of $4.2/mmBtu and the likely new (higher) price into an escrow account, supported by bank guarantee, till the arbitration award is finalised. The idea is that if RIL wins the arbitration, it can realise this fund and if it loses, the proceeds go to the government.

(Source: The Financial Express, August 4, 2014)

 

 

GOVERNMENT’S GAS PRICING PLAN MAY TRY TO KEEP BUYERS AND SELLERS HAPPY

 

The government wants to usher in a new gas-pricing regime that will balance conflicting interests of producers and consumers and rule out conflicts with gas producers without diluting the stand it has taken in disputes in gas-related matters.

 

Official sources said that the oil ministry has recently discussed merits of setting the price roughly mid-way between the existing $4.2 per unit and the rate of $8.4 calculated by the Rangarajan formula that the UPA’s Cabinet had approved, but not implemented because the Elections Commission did not allow it during the poll campaign.

 

The government is also keeping in mind the stand it has taken on gaspricing issues in the dispute with Reliance Industries. The oil ministry, under UPA’s Jaipal Reddy and Veerappa Moily as well as NDA’s Dharmendra Pradhan, has consistently taken the stand that it must penalise RIL for the fall in gas production at the KG-D6 block. RIL says output fell because of geological reasons and that its contract does not provide for such penalty.

 

However, since the oil ministry feels that gas production declined because the company did not drill more wells as suggested by the director general of hydrocarbons, it is not keen to let RIL charge higher rates unless the company produces the amount of gas that it was expected to produce according to the field development plan for the producing fields of the KG-D6 block.

 

The government is also considering specifying the gas price formula in the contract of oil and gas blocks it plans to auction with simplified revenue-sharing terms, which will avoid disputes, official sources said. Discussions are on in several ministries such as oil, power, fertiliser and finance to resolve the vexed gas pricing issues as the Cabinet had set the deadline of September 30, government sources said.

 

“This is a complex issue. We are discussing all options and their pros and cons. Such issues can’t be resolved in a hurry or under pressure. We are looking for a solution that will balance interests of consumers and producers in the interest of nation. But no decision has been taken as yet,” a government source with direct knowledge of the matter said.

 

Options under consideration include renewing the existing formula with necessary changes to factor in inflation, setting up an external panel to comprehensively examine the pricing issue, including the Rangarajan formula, modifying the formula in a manner that it should be acceptable to both producers and consumers at around $6-6.8 per unit rate and allowing producer and consumers to negotiate gas prices after government fixes sectorwise gas allocation, sources said.

 

Officials said the existing formula, which gave the $4.2 per unit price, was proposed by the producer and approved by the empowered group of ministers with some modifications in 2007. The formula was uniformly applicable for gas produced from blocks auctioned under NELP-I to VI, and it came up for revision from April 1, 2014.

 

ET first reported on July 2 that the government is taking a fresh look at the prevailing sevenyear-old gas pricing formula to fix new rates for gas, which are likely to be lower than the $8.4 per million metric British thermal units (mmBtu) approved by the Manmohan Singh government.

 

“The formula worked well for five years from the day first gas was produced in 2009 from one NELP block. The same can continue after adjusting its components to reflect current benchmark pricing. But at this price, some discoveries can’t be monetised,” the source quoted earlier said.

 

ONGC, RIL and GSPC are demanding $6-13 per unit price to make their discoveries in deepwater blocks commercially viable. Another option is to tweak the Rangarajan formula and calculate the price without factoring in the price in Japan, which does not produce gas.

 

Officials said that in the future, pricing can be left to the producers and consumers to negotiate, but currently the oil ministry does not think the market has developed sufficiently to allow this because the buyer is in a weak position.

 

The government is considering withholding applicability of new gas rates for RIL’s old fields until the outcome of the arbitration proceeding, in which RIL challenged the oil ministry’s decision to link cost recovery with output and deferred recovery of its $2.376 billion investments in the KG-D6 block until shortfall in gas output is met.

(Source: The Economic Times, August 4, 2014)

 

GOVERNMENT SHOULD END COOKING GAS SUBSIDY AND OPEN UP LPG MARKETING TO PRIVATE SECTOR

 

The Narendra Modi government wants affluent customers to voluntarily pay market rates for cooking gas and opt out of subsidy for the sake of nation-building. Noble indeed, but such tactics won’t work.

 

Open-ended subsidies on LPG, used mostly by those who are not poor, is questionable. The principle that users must pay should hold for cooking gas. And the government that is strapped for funds, should not pander to the vocal middle class at the expense of the poor.

 

It should have a time line to phase out LPG subsidy for the non-poor. The UPA started the reform, cutting the number of subsidised gas cylinders per year to nine from 12 and linking the disbursal of LPG subsidy to Aadhaar-linked bank accounts. Unfortunately, electoral compulsions forced a retreat.

 

This must be reversed. But, first, the government should identify the poor so that LPG subsidy is only paid to them. It should also speed up Aadhaar enrolment and the numbers must be dovetailed to bank accounts of beneficiaries to ensure efficient and targeted delivery.

 

The administration must make sure that every beneficiary has an Aadhaar. The onus can’t rest with citizens, as was done when the government capped the number of cylinders, and let LPG dealers play havoc. Pricing reform will bring down rates for gas cylinders. We need to streamline supplies and end artificial shortages that let black marketeers thrive.

 

The government should open up LPG marketing to the private sector, and write rules on infrastructure sharing when independent retailers compete with state-owned companies. Similarly, the subsidy on kerosene that is mostly diverted to adulterate automotive fuel should be phased out, and the government should start projects to supply solar lanterns to the poor.

(Source: The Economic Times, August 4, 2014)

 

GOVERNMENT MAY CHIP IN TO FAST-TRACK RS. 75,000-CR NATIONAL GAS GRID

 

NEW DELHI: Close on the heels of a high-level presentation to Prime Minister Narendra Modi and in line with finance minister Arun Jaitley’ s budget proposals, the petroleum ministry is fast tracking plans to set up a national gas grid in the country.

 

After identifying 15,000 kilometres of new gas pipelines, which is likely to involve an investment of close to Rs. 75,000 crore, oil ministry officials are currently holding talks with their counterparts in the finance ministry for including the pipelines in the government’s scheme of providing viability gap funding (VGF).

 

“Pipelines are authorised by the Petroleum and Natural Gas Regulatory Board (PNGRB) by following a bidding process… It is felt that for speedy implementation, there is need to include the authorised pipelines in the government’s scheme for providing viability gap funding,” a senior ministry official said.

 

“PNGRB has been asked to prepare a roadmap on gas grid development, including an option for up to 20% VGF, within 6 months (by January 2015),” he added.

 

Pipelines identified for developing the gas grid include the 1,100-km Kakinada-Haldia, 600-km Kakinada-Chennai, 670-km Chennai-Tuticorin, 2,050-km Jagdishpur-Haldia, 800-km Barauni-Guwahati, 2,050-km Surat-Paradip, 1,584-km Mallavaram-Bhilwara, 1,670-km Mehsana-Bathinda, 740-km Bhatinda-Srinagar, 1,348-km Kochi-Bengaluru-Managluru and 2,500 km of other spur lines.

 

The current gas pipeline infrastructure is available mainly in the northern and western parts of the country as 60% of the total pipeline network and about 80% of the country’s gas consumption is confined to those regions.

 

Pipelines were initially laid from the source of gas to nearby developed markets and to major consumers such as fertiliser and power plants.

 

As a result, states closer to the gas source, for example Gujarat, Maharashtra and Andhra Pradesh, had the benefits of higher utilisation of gas and local development of the gas market. In contrast, the eastern region has no gas pipeline network and hence no consumption of gas.

 

The ministry feels that if the approvals are expedited, the pipelines can be completed before June 2019.

(Source: Hindustan Times, August 4, 2014)

 

OIL MINISTRY WANTS RIL TO SELL GAS AT $4.2; $6-6.5 PRICE FOR OTHERS

 

New Delhi: The oil ministry is looking at a price of $6-6.5 for all domestic natural gas but wants Reliance Industries to sell KG-D6 gas at old rate of $4.2 till it makes up for shortfall in supplies of past four years.

 

The ministry last week internally discussed tweaking the formula suggested by the C Rangarajan Committee to bring down the proposed increase from $8.4-8.8 per million British thermal unit to $6-6.5, a rate that will be affordable to most consumers and also incentivise exploration, sources said.

 

The new rate, the ministry believes, would be acceptable to the international investors and would help in monetising discoveries of Gujarat State Petroleum Corp (GPSC) in Deendayal Block in Bay of Bengal as well as those of RIL in Cauvery (CY-D5), KG-D6 (R-Series) and Mahanadi (NEC-25) block, which are not viable at current $4.2 per mmBtu rate.

 

Sources said a presentation made at the meeting stated that the new price will be applicable in case of RIL’s KG-D6 block only after shortfall in gas production of last four years (about 1.9 trillion cubic feet) is delivered at old price. For subsequent production (about 2.5 Tcf), the new price will apply.

 

Though the stipulation appears to be the same as the one approved by the Cabinet under the previous UPA regime when it gave nod to the Rangarajan formula, but there appears to be a major shift going by the contents of the presentation.

 

Sources said the previous UPA Government had stipulated that the new rate will not apply only to KG-D6 block’s Dhirubhai-1 and 3 gas fields, which have not produced as per targets in last four years. While the new rate was to apply on all other fields in KG-D6 block, it would kick-in for D1&D3 only after the shortfall is made up.

 

The new rates were to apply for gas from currently producing MA field in the same KG-D6 block as the government had accepted geological reasons forwarded by RIL for its output lagging targets.

 

In the presentation, the ministry states that “for KG-D6 block of RIL, new price will be applicable only after shortfall in gas (about 1.9 Tcf) is delivered at old price.”

 

Going by the language of the presentation, it would imply that the entire output of KG-D6 field including MA and production from newer fields like R-Series and satellites will not get the revised rate till the shortfall in output is met.

 

Sources said if this is the case, no new field in KG-D6 block will be put on production as they are unviable at the current rate of $4.2. The presentation in another slide states that the new rate would help in monetising discoveries like R-series that are not viable at $4.2.

 

The ministry in the presentation stated that RIL’s has about 5 Tcf of gas reserves in gas finds its KG and Mahanadi basin block that are valued at $21 billion at current price of $4.2 and at $42 billion at $8.4 gas rate. It would take $14 billion to bring these finds to production, irrespective of gas price.

 

RIL, the presentation states, will earn $7 billion (Rs 42,000 crore) in revenues at $4.2 gas price and $28 billion (Rs 168,000 crore) at USD 8.4 gas rate.

 

Of this about 45 per cent is expected to come to government in royalty, profit petroleum and taxes. The balance is to be distributed among RIL and its partners BP of UK and Canada’s Niko.

 

The previous UPA government had in January this year notified the Rangarajan formula for implementation from April 1 but before a new rate could be announced general elections were declared and on advice of Election Commission the revision in gas price deferred by three months.

 

The new Government on June 25 put it off by another three months pending a comprehensive review. Sources said the Ministry feels that some elements of the Rangarajan formula have no relevance to pricing in India and should be removed.

 

The Rangarajan panel had proposed that all domestic gas should be priced at an average of liquid gas (LNG) imports into India and rate prevelant at US and UK trading hub as well as LNG imports into Japan. This formula would have led to a doubling of domestic gas price to $8.4 in April and to $8.8 for the current quarter.

 

The Ministry feels that the formula has included Japan’s import prices even though that country is not a producer. Also, it has “wrongly” assumed that prices at US hub and UK hub are equal to wellhead prices.

 

Besides, it has given equal weight to small Indian importsalong with US and European trading volumes, sources said, adding that the ministry feels the correct way was to work out weighted averages.

(Source: Pioneer August 4, 2014)

 

GOVT TO REVIEW CRUDE OIL SOURCING NORMS OF PSUs

 

New Delhi: India, with an annual oil import bill of nearly $150 billion, would do anything to reduce this burden.

 

The Ministry of Petroleum and Natural Gas is now taking a step in this direction. After a gap of almost 13 years it is reviewing the norms for crude oil sourcing by public sector oil refiners.

 

According to industry estimates, by just correcting the existing sourcing norms, every dollar saved by the PSUs would shave almost $450 million from the import bill.

 

Constrained by Government norms, Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation end up buying crude oil at higher prices vis-à-vis their private sector counterparts.

 

PSU refiners are not allowed to negotiate with suppliers unlike their private sector counterparts. Neither can they procure distress cargo. They can buy their crude oil only from those multinational companies identified in the guidelines.

 

“The Government is working on amending the norms … even if a dollar is saved it makes a huge difference to the country’s import bill,” said a senior Ministry official.

 

The three refining companies are expected to make a presentation to Petroleum Minister Dharmendra Pradhan in the coming weeks.

 

Almost 80 per cent of crude oil is imported through term contracts and the balance from spot tenders. “This does not allow companies any leeway on price negotiations,” an oil sector official said.

 

According to him, most term suppliers tie up contracts with various buyers. Internationally, spot crude sourcing is done over the counter through negotiations between the buyer and seller. “Oil PSUs follow the tendering process which may not always get them the best deal,” the official added.

 

The pricing of crude oil imported against term contracts is based on the seller’s official selling price. This is applicable to all term customers.

 

It remains to be seen what will happen after the presentations are made to the Minister. “Let’s face it, India is not China, where the Government ruthlessly pulls out all the stops to protect its companies and the world listens to these demands,” said a PSU oil executive.

 

The slow pace of oil discoveries in India is also contributing to the high import bill. This is where ONGC is expected to play a more aggressive role in future. It has been nearly four decades since a major find like Bombay High was made.

 

The Government is inclined to ask ONGC to focus on its core competence of exploration and give other plans (especially its downstream diversification) a break.

 

The import bill and subsequent subsidy support mechanism is causing havoc with refiners’ balance sheets. Ironically, cash-rich ONGC has been hurt the most since it ends up throwing a lifeline of over Rs. 10,000 crore each quarter to the refining trio.

(Source: Business Line August 4, 2014)

 

DGH REJECTS ONGC’S THREE KG GAS DISCOVERIES

 

New Delhi: After rejecting Reliance Industries’ gas finds, upstream regulator DGH has refused to recognise three gas discoveries of state-owned Oil and Natural Gas Corp (ONGC) for not doing its prescribed conformity tests.

 

The Directorate General of Hydrocarbons (DGH) has not approved Declaration of Commerciality (DoC) for three out of the 11 discoveries ONGC has made in its Krishna Godavari block KG-DWN-98/2 (KG-D5) in Bay of Bengal, sources said.

 

ONGC proposes to develop these finds in three clusters — combining finds D and E in KG-D5 block with discovery in neighbouring G-4 block as Cluster-I and developing all other finds except ultra deepsea UD-1 discovery as Cluster-II. The UD-1 find is to be developed as Cluster-III. Sources said that while DGH is agreeable to DoC for the Cluster-II finds, it has not approved the same for discoveries D, E and UD-1 in absence of surface flow data and Drill Stem Test (DST) data.

(Source: Millennium Post August 4, 2014)

 

 

OIL COMPANIES SET TO WIPE OUT DIESEL LOSSES BY DIWALI

 

MUMBAI: Diesel, the nation’s most consumed fuel, is headed for full deregulation by Diwali. After the government raised diesel prices by 50 paise from Friday, under-recoveries — the difference between cost price and selling price — on every litre of diesel sold has now reduced to just Rs 1.33. And if the international crude prices and rupee-dollar exchange rate remain stable, the losses will be completely wiped out by October-end.

 

Diesel currently retails at Rs 66.63 per litre in Mumbai and Rs 50.40 in Delhi.

 

Diesel prices were deregulated by the first NDA government almost a decade ago but this major reform remained only on paper because of political compulsions. However, the UPA-II government, to correct the country’s fiscal situation, in 2013 decided on small monthly hikes of 50 paise per litre of diesel till the under-recoveries on this sensitive fuel are fully wiped out. Since January 2013, on a cumulative basis, diesel prices have risen by Rs 11.24 per litre in 18 instalments.

 

Narrowing losses on the sale of diesel have also brought cheer to investors, triggering a rally in the stock prices of state-owned oil marketing (OMCs) and exploration companies, including HPCL, BPCL, Indian Oil, ONGC and Oil India.

 

A top official with Indian Oil told TOI, “Diesel is now sold at a loss of Rs 1.33 per litre. If the rupee strengthens a bit and international crude oil price softens a bit, the marginal losses on diesel sales will be fully wiped out.”

 

A director of another Mumbai-based OMC said, “Considering that crude oil prices and the rupee-dollar exchange rate remain unchanged, the company will be profitable in selling diesel by another three 50-paise hikes or latest by Diwali.”

 

The monthly increases on diesel prices had trimmed under-recoveries to less than Rs 3 per litre in May 2013 but a sharp fall in the rupee — to a low of nearly 69 to a dollar by end-August 2013 — led to losses on diesel sale widening to Rs 14.50 per litre by September. Monthly increases have continued and the rupee has since strengthened.

 

“Hypothetically, yes we are headed for deregulation of diesel prices. But crude oil prices and the exchange rate should not fluctuate as it happened last year,” said a senior HPCL official.

 

In addition to losing Rs 1.33 per litre of diesel, OMCs are also losing Rs 32.98 per litre of kerosene and Rs 447.87 for every refill of cooking gas with effect from August 1, leading to a combined daily under-recovery of about Rs 226 crore on these petro products.

 

Total under-recoveries for the financial year 2014-15 is projected at Rs 91,665 crore, or 65% of last year’s figure of Rs 1,39,869 crore. The last time OMCs reported under-recoveries of less than Rs 1 lakh crore was in 2010.

 

Falling under-recoveries not only have far-reaching implications on the finances of OMCs, but also on the government and upstream oil firms like ONGC and Oil India, since their share in the aggregate amount would also come down. Besides, it will provide a level-playing field to the private sector oil retailers like Reliance Industries, Essar Oil and Shell India to once again scale up fuel retail operations and increase competition.

 

Since declining under-recoveries have strong positive implications on the finances of OMCs, it’s reflecting on their stock prices too. So far in 2014, the stock price of HPCL has gained 77% to Rs 402 while BPCL is up 70% at Rs 577 and IOC has gained over 60% to Rs 329. Even the stock price of upstream oil firms are on the upswing with ONGC up 34% this year at Rs 386 and Oil India has risen 17% to Rs 565.

(Source: The Times of India, August 4, 2014)

 

SLIM DIESEL DECONTROL HOPE

 

New Delhi: State-owned oil companies are unlikely to get the freedom to sell diesel at market rates when the revenue losses are gone.

 

The oil ministry is planning to seek the cabinet’s approval to maintain some administrative control on diesel after the under-recovery becomes zero. The losses are already less than Rs 1.50.

 

“Once the diesel price is on a par with the market rate, we will take the proposal to the cabinet. Unlike petrol, the government does not want to let diesel completely off the hook, as a huge market fluctuation might affect other sectors, too. The cap on the price hike will be a political decision,” a senior oil ministry official said.

 

The fuel accounts for 44 per cent of the country’s consumption of petroleum products. Therefore, any significant increase in its price can have a cascading effect.

 

Diesel has a weightage of 4.67 in the wholesale price index (WPI), the highest among the 670 commodities in the index.

 

“Empirical estimates show that every 10 per cent increase in global crude prices, if fully passed through to domestic prices, could have a direct impact of 1 percentage point increase in overall WPI inflation and the total impact could be about 2 percentage points over time as input cost increases translate to higher output prices across sectors,” N.R. Bhanumurthy of the National Institute of Public Finance and Policy said in a working paper.

 

However, arguing in favour of decontrolling diesel, he said that “this would enable demand to adjust appropriately to price signals, reduce fiscal deficit and make the inflation number more representative of underlying inflation conditions”.

 

The difference between the cost of diesel production and the retail selling price has narrowed to Rs 1.33 per litre by the end of July because of the softening of international oil rates, depreciating rupee against the dollar and the new government continuing with monthly prices hikes.

 

The government had in January 2013 decided to raise diesel prices in small doses of 40-50 paise per litre every month till the losses are completely eliminated.

 

Rates have cumulatively risen by Rs 11.24 per litre in 18 instalments since January 2013 when the previous UPA government had decided on marginal monthly hikes.

 

However, this has not dampened sales. Diesel consumption for the second consecutive month grew 3.4 per cent in June and 0.3 per cent during the April-June period. This is the highest growth in diesel consumption since April 2013.

 

“The main reason for higher growth has been the delayed monsoon leading to a higher use of DG (diesel generator) pumping sets for irrigation, higher vehicular movement because of increased economic activities, power deficit, resumption of mining activities and improved port traffic,” a report prepared by the Petroleum Planning and Analysis Cell said.

 

The total under-recovery on the sale of sensitive petroleum products stood at Rs 139,869 crore in 2013-14. Of this, Rs 62,837 crore was accounted for by diesel alone.

 

In the first quarter of this fiscal, PSU oil companies have suffered a loss of Rs 28,691 crore for selling diesel, domestic cooking gas and kerosene below market price. Of this, diesel accounted for Rs 9,037 crore.

(Source: Telegraph August 4, 2014)

 

 

BIG STRIDES IN US SHALE GAS DEAL

 

New Delhi: While the world concentrated on the public spat between India and America that eventually scuppered a new global trade agreement in Geneva last week, the two sides were engaged in a meaningful dialogue to hammer out arrangements that will allow shale gas exports from the US.

 

Indian officials would like to finalise a deal that Prime Minister Narendra Modi and President Barrack Obama can sign in Washington during a visit scheduled in September.

 

The deal would involve an India-specific general waiver to laws which currently restrict US sales of oil and gas only to countries with which it has free trade agreements.

 

The issue was taken forward and the architecture for the deal was discussed at the fifth India-US Strategic Dialogue, a first cabinet level meeting between the new Indian government and the US administration.

 

US commerce secretary Penny Pritzker and deputy secretary of energy Daniel Poneman were engaged in talks with Indian officials on this issue.

 

The US has already given a special waiver to India’s state-run gas pipeline giant GAIL to buy shale gas from America.

 

The GAIL deal will see the company importing 3.5 million tonnes per annum (mtpa) of gas for 20 years, starting 2017-18, from Sabine Pass LNG.

 

As part of the build-up to the move, the US India Political Action Committee (USINPAC) hosted a packed legislative briefing at Capitol Hill last week when secretary of state John Kerry was holding meetings in India.

 

US Congress will soon be voting on bills that will in effect allow shale gas exports to India.

 

Rahul Srinivasan, USINPAC director (LNG initiative) said: “The focus of our grassroots campaign has been to support two House bills (H.R.6, H.R. 2771) and a Senate companion bill (S. 2494). If passed, the bills are intended to change current law and enable US exports to India.” Several members of the House Energy & Commerce Committee and co-sponsors of the House Bills addressed the USINPAC-organised legislative briefing. Republican Congressman and influential member of the House Committee, Ted Poe told the meeting: “Like the Blue Bell ice cream company, our motto on LNG should be: We eat all we can, and we sell the rest. Where should we sell it? India.”

 

A McKinsey study says North American gas developers are keen to export their shale gas finds to markets willing to give a higher price. By the end of 2013, the US department of energy had applications for building LNG export terminals with a potential of 288 million tonnes.

 

If even one-third of this capacity were built, it would have a significant impact on global LNG prices, threatening the viability of higher cost capacity additions in countries such as Australia and Russia.

 

With China working furiously to develop its own untapped huge reserves of shale gas, the US companies see India as the most viable energy market in the long run.

 

The US is also working on a long-term strategic and economic partnership with India.

 

The US Energy Information Administration estimates that China has 1,115 trillion cubic feet of recoverable shale gas. This is the largest in the world. In contrast, India is believed to have reserves estimated between 32 trillion cubic feet and 63 trillion cubic feet. India is believed to have more coal bed methane than shale gas.

(Source: Telegraph August 4, 2014)

 

GULF OIL SETTING UP PLANT IN CHENNAI

 

Hyderabad: Gulf Oil Lubricants India Limited (GOLIL), part of the Hinduja group, is setting up a 75,000-KL capacity plant in Chennai at a cost of about Rs 120 crore. It is also expanding the capacity of its existing plant at Silvassa in Dadra and Nager Haveli from 75,000 KL to 90,000 KL.

 

GOLIL, the lubricant division of Hyderabad-based Gulf Oil Corporation Limited (GOCL), has been demerged and listed on the BSE and NSE recently. The revenue of GOLIL in 2013-14 stood at Rs 1,017 crore.

 

According to Gulf Oil International chairman Sanjay G Hinduja and GOLIL managing director Ravi Chawla, the lubricant business has reached the size and scale to take up its future in a more focused manner independently. Hence, GOLIL will manage the standalone lubricant business in India under Gulf Oil brand.

 

They said that all business segments of GOCL have been managed as separate business segments and operations of the lubricants business does not affect in any way on account of the demerger.

 

In an e-mail response to Business Standard queries, they said GOLIL focus had been to consolidate its strength in the DEO (diesel engine oil) segment and to increase market share in motorcycle and car segments as well. The company was also constantly looking for tie-ups with new OEMs (original equipment manufacturers).

 

Chawla said the lubricants business had attained a combined annual growth rate of about 15 per cent in revenues and 42 per cent in profits over the last six years. With the demerger, the company has plans expand its current 7 per cent market share in the open market.

(Source: Business Standard August 4, 2014)

 

AUTO FUEL DEALERS UP IN ARMS AGAINST MULTIPLE TAXES

 

MUMBAI: Nearly 4,000 petrol and diesel pump dealers across Maharashtra (except Mumbai) are up in arms against the recovery of multiple taxes by civic bodies and the state government. The auto fuel operators have spoken about the loss of sales they face due to the payment of sales tax, value added tax (VAT), Octroi, local body tax (LBT), export LBT and state specific cost. These multiple taxes, they argue, also lead to higher price of auto fuel in various cities and towns in the state.

 

Auto fuel dealers, under the banner of Federation of All Maharashtra Petrol Dealers Association (FAMPEDA), have come together to press for a “One Maharashtra One Tax” regime and have decided to observe a holiday on August 11 across the state to press for their demand. FAMPEDA has also appealed to the state government to abolish State Specific Charge (SSC) or reduce VAT by three per cent to bring prices at par with neighbouring states.

 

“Due to various taxes, petrol and diesel are costlier in Maharashtra by Rs 5 to Rs 6 a litre. Mumbai collects Rs 2,500 crore (SSC) as Octroi on crude. The finished product is sold in Maharashtra and other states. But SSC is levied on Maharashtra consumers only. Besides, 25 municipal corporations are levying LBT at the rate of two to five per cent,” Uday Lodh, FAMPEDA president told Business Standard. Further, Lodh complained that due to the high base of prices, petrol pumps situated in Maharashtra’s border districts are suffering a lot.

 

They are proving costlier when compared to six neighbouring states. The diesel sales have migrated and due to this, 1,000 petrol pumps have been affected badly. A state government official said that the government was in the midst of introducing a new tax to replace LBT. Interestingly, auto fuel dealers have received a major boost after the petroleum ministry upheld their cause. In one of the representations made by the auto fuel operators from Navi Mumbai, the petroleum ministry has called upon the Navi Mumbai municipal corporation to withdraw export LBT and rationalise VAT on petroleum products.

(Source: Business Standard, August 4, 2014)

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