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POOLED PRICES, SUBSIDIES TO REVIVE GAS-BASED POWER

inNEW DELHI: The government is formulating a policy package aimed at infusing life into 26,489 MW of gas-starved power plants. The plan includes partially revisiting the gas pooling proposal, which the UPA government conceptualised but later turned wary about, given the huge subsidy cost it entailed.

 

As per the new plan, some 10,382 MW of administered price gas-based installed power capacity, running at a very low plant load factor (PLF) for want of the fuel right now, would get pooled gas — at a price higher than the APM gas price — with an assurance that the cost of power from these plants above a threshold of R5.50 per unit will be subsidised.

 

As for the balance gas-based capacity, sources said, some 7,000 MW based on gas from the Krishna-Godavari Basin and another 1,800 MW or so sans any gas allocation right now could be offered a financial package. Relaxed norms for external commercial borrowings and trade credits, extension of commercial operation date — which would give flexibility in loan repayment — and an additional three years of moratorium and waiver of interests are among the likely components of the package.

 

In addition, further loan facility would be made available from Power Finance Corporation for these units.

 

The cost of the proposed subsidy for APM gas-based units and financial incentives would still be much lower than the R56,000 crore estimated to implement comprehensive gas pooling for the entire 26,489 MW capacity. The plan, if implemented, will benefit power plants of NTPC, Essar Power, Lanco, GVK and GMR, among others.

 

The pooling mechanism for power stations based on APM gas would work as follows: Gas from different sources — domestic and imported RLNG — will be pooled to minimise the impact on each user from the expensive varieties of the fuel.

 

The weighted average price of the pooled gas would work out to $10.48 per million British thermal units (mmBtu) for FY15 and $10.27 for FY16, and the corresponding figures for cost of generation of power would be R8.25/unit and R8.12/unit. (Even though APM gas (at $4.2/mmBtu) is cheaper than the pooled gas price, the plants are starved of gas due to the scarcity of the fuel). The subsidy from now to FY16 end (to keep the price of power to the consumer at R5.50/unit) is estimated at R5,677 crore, sources said.

 

“The idea is to implement gas price pooling starting August this year, and up to FY16 end. It needs to be cleared by CCEA (Cabinet Committee on Economic Affairs),” a senior government official working on the proposal told FE.

 

He added that the proposed package would help salvage capital investments to the tune of R1 lakh crore from becoming non-performing assets. Gas-based power capacity right now is heavily underutilised. While domestic gas production is stagnating, imported LNG is prohibitively costly at $11-14/mmBtu.

 

In May, against the total gas requirement of nearly 100 million metric standard cubic metres per day (mmscmd) for the power sector, the availability was only 26.43 mmscmd including 1.01 mmscmd of RLNG.

(Source: The Financial Express, August 1, 2014)

 

FOREIGN PROMOTERS’ HOLDING IN BSE 500 AT NEARLY 3-YEAR HIGH

 

MUMBAI: Foreign promoters’ ownership in the BSE 500 universe climbed to an 11-quarter high in the June quarter, with experts saying they are looking for ‘strategic value’ in Indian markets.

 

Among the MNCs that have made open offers in recent days, Moody’s Singapore Pte acquired 21.55% stake in Icra for Rs 517 crore. The open offer concluded on June 16. UK’s liquor player Diageo made an open offer of Rs 11,449 crore for an additional 26% stake in United Spirits. The open offer closed on June 19. Pharma major Glaxosmithkline Pharmaceuticals saw a Rs 6,398-crore open offer by its foreign parent Glaxosmithkline, which closed on March 5. As per data from Prime Database, foreign entities made 16 open offers worth Rs 44,528 crore in FY14.

 

Foreign promoters’ holding, as a percentage of total equity in BSE 500, currently stands at 5.4%, show Capitaline data.

 

Experts say foreign promoters have been raising their stake to take advantage of the lower valuations prevailing three months back. “These foreign promoters have raised their stake on a five-year view. They are investing their surplus funds in Indian companies as they expect the economy to turn around,” said Pankaj Jaju, executive director, investment banking division, Axis Capital.

 

Among individual scrips, foreign promoters have raised their stake by 12.58 ppt in Siti Cable; from 17.41% in March quarter to 29.99% in June quarter. They have raised their stake in Sesa Sterlite and Cairn India by 2.1 ppt and 0.69 ppt, respectively. Experts expect MNCs to launch more open offers in the coming days.

 

“In the next six months, we could see some more open offers by foreign parents seeking strategic value,” said Pranjal Srivastava, head, capital markets, ICICI Securities.

 

YTD, CNX MNC has gained 25.56% against 22.32% gains for the BSE Sensex.

(Source: The Financial Express, August 1, 2014)

 

IIP SIGNAL: CORE SECTOR GROWTH JUMPS TO 9-MONTH HIGH

 

NEW DELHI: Output of eight crucial industries grew 7.3 per cent in June, the highest expansion after September 2013 and more than three times compared to just 2.3 per cent in May, official data showed on Thursday. This might augur well for the Index of Industrial Production (IIP) since these industries have almost 38 per cent weight in the index, feel economists.

 

Expansion of these industries had stood at just 1.2 per cent in a year ago period of June, 2012, which was also a factor in magnifying the growth in June of this year. Called core sector, these eight industries — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity — had risen eight per cent in September, 2013 at aggregate level, the earlier highest figure.

 

In the first quarter of the current financial year, core industries expanded 4.6 per cent from 3.7 per cent in the year-ago period.

 

In June, electricity generation recorded a phenomenal growth of 15.6 per cent, more than double of 6.3 per cent in the previous month. It was closely followed by the cement sector, which rose 13.6 per cent against 8.7 per cent in the previous month. Coal production also rose 8.1 per cent against 5.5 per cent. Steel production went up by 4.2 per cent against contraction of two per cent in May.

 

Production of crude oil and refinery products remained range-bound. Natural gas production fell 1.7 per cent in June against a decline of 2.2 per cent in the previous month. There is no single month in at least a year when natural gas production rose, clearly showing the problems the sector is engulfed with including pricing policies of the government. After rising for previous two months, fertiliser production again slipped into contraction by one per cent. Since the core sector constitutes more than one-third of IIP, the industrial growth is also expected to be robust in June, data of which will come in August.

 

“Yes, IIP growth is expected to be strong. We expect close to five per cent growth in the index,” said Arun Singh, senior economist with Dun & Bradstreet India. IIP growth had stood at 4.7 per cent in May.

 

If IIP indeed grows by five per cent in June, it would the second month of high growth compared to previous months. The industrial growth was highest at 2.6 per cent in July in 2013-14. IIP contracted in seven months of the year.

 

However, there is no one-to-one relation with core industry and IIP growth. For instance, the core sector expanded just 2.3 per cent in May and IIP rose 4.7 per cent. On the other hand, core sector grew 4.2 per cent in April and IIP went up by 3.4 per cent. Singh attributed this to poor showing by the other 60 per cent of IIP, including capital goods, consumer durables and basic products.

 

Volatile nature of capital goods could be seen as hindrance to exact link between core sector and industrial growth.

(Source: Business Standard, August 1, 2014)

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