New Delhi: Oil companies’ gains on diesel sales jumped 87 per cent within a fortnight on a historic slide in global crude prices. Their profits from diesel, recorded for the first time ever, continue as the government delays a decision on deregulating its price.
“The over-recovery on high-speed diesel (HSD), applicable for the second fortnight effective October 16, is now Rs 3.56 per litre. The over-recovery was Rs 1.90 per litre during the first fortnight of the month,” a petroleum ministry statement said.
Losses by Indian Oil, Bharat Petroleum and Hindustan Petroleum for selling diesel below market prices ended last month as crude prices slid and the government this year continued to raise local prices by 50 paise a litre a month.
The price of the Indian basket of crude oil has slumped 28 per cent from a peak of $115 a barrel in June. Lower demand from China and projections of weaker global economic growth, coupled with oversupply, are driving crude prices down.
According to the petroleum ministry, Indian Oil, Bharat Petroleum and Hindustan Petroleum are losing Rs 31.22 on every litre of kerosene sold in ration shops and Rs 404.64 on every cylinder of cooking gas. The companies are losing around Rs 139 crore a day by selling the kitchen fuels cheap, less than their Rs 156 crore daily loss over the previous fortnight.
The United Progressive Alliance (UPA) government had decided in January 2013 to decontrol diesel prices in phases through monthly increases of 50 paise until domestic rates achieved market parity. Since then, diesel prices have been increased by Rs 11.81 per litre in 19 installments. Prices were last revised on August 30 through a 57 paise hike to Rs 58.97 per litre.
With a continued slide in crude prices, the oil companies’ gross under-recoveries are likely to fall from Rs 139,869 crore in 2013-14 to less than Rs 80,000 crore in 2014-15. This will reduce the government’s Rs 63,000 crore fuel subsidy in 2013-14 by by over 26 per cent this year.
(Source: Business Standard October 17, 2014)
DELHI ACB CAN PROBE RIL GAS PRICING ROW: GOVT TO HC
New Delhi: Going back on what it had earlier told the Delhi high court, the Delhi administration on Thursday informed the high court that the state’s anti-corruption branch (ACB) did have jurisdiction to probe cases such as the one involving the price of gas produced from the Krishna-Godavari (KG) basin.
During the 49-day term of the Aam Aadmi Party (AAP) government in Delhi, ACB filed a first information report (FIR) naming Reliance Industries Ltd (RIL) chairman and managing director Mukesh Ambani, besides M. Veerappa Moily and Murli Deora, who were Union ministers at the time. RIL and the Union government challenged the FIRs in the Delhi high court.
The Delhi ACB’s power to investigate such cases came into question following a 23 July notification issued by the central government that restricted its jurisdiction to probing officers and employees of the state government. This kept central government officials out of the ACB’s purview.
In an affidavit filed through lawyer Rajiv Nanda, the Delhi government told the high court on Thursday that the home ministry had clarified to it that the July notification was prospective and becomes effective from the date of its publication in the official gazette.
As a result, the case can still be probed by ACB. The affidavit also stated that five other cases involving central government officials had been pending with ACB since before the notification.
FIRs were filed against RIL and the ministers on complaints from former cabinet secretary T.S.R. Subramanian, former navy chief R.H. Tahiliani, lawyer Kamini Jaiswal and former civil servant E.A.S. Sarma on the issue of pricing gas produced from RIL’s KG-D6 block.
The complainants alleged “collusion” between the government and RIL to increase the price, defrauding the public exchequer and compromising public interest.
RIL denied the allegations, terming them “irresponsible”. Moily, petroleum minister at the time the FIR was filed in February, also rejected the allegation, saying the price was decided on the basis of expert advice. Deora, too, challenged the FIR in the high court.
Senior lawyer Vikas Singh, who represented the Delhi government in the case, said, “Following the notification, the Delhi government had written to the centre asking it to clarify whether the notification was prospective or retrospective. Now, the centre has clarified the notification was not applicable to cases filed before it was notified.”
“Even though the notification only excludes central government officials from the purview of ACB’s investigation, since the case was one of conspiracy between government officials and Reliance, it could not have been investigated at all. We will go ahead with the investigation which had been stopped as a precaution after the notification came.”
Saying that he was going to challenge the July notification in this very case, advocate and senior AAP leader Prashant Bhushan said: “This is an illegal notification because the power to investigate an offence that is committed in an area is given to the local police of an area (in this case, ACB) by the Code of Criminal Procedure 1973. This power cannot be taken away by the central government.”
RIL refused to comment and said it needed 24 hours to reply. The case will come up for further hearing on 28 October.
(Source: Mint October 17, 2014)
RELIANCE INDUSTRIES’ CREDIT METRICS TO REMAIN STABLE OVER 12 MONTHS: MOODY’S
NEW DELHI: Moody’s Investors Services today said Reliance Industries’ credit metrics will remain stable over the next 12 months on the back of strong earnings contribution across the refining and petrochemical segments.
“In fact, RIL’s credit profile will improve upon the completion of its planned capex, as the projects in its refining segment will enhance its refining margin by about $2-2.5 per barrel,” said Vikas Halan, Moody’s Vice President and Senior Credit Officer.
RIL results for the quarter ended September 30 were largely stable on contributions from the downstream refining and marketing segment and a modest improvement in the petrochemicals business, which more than offset the continued weak results from the upstream oil and gas segment, Moody’s said in a statement.
Despite the increase in its total borrowings with the new $ 750 million loan from Korea Exim Bank to fund its telecom business, RIL’s credit profile continued to remain within its rating parameters as a result of a modest improvement in earnings in the quarter.
Its strong liquidity position also provided support to its credit metrics. It had cash and cash equivalents of Rs 83,456 crore compared to total debt of Rs 142,084 crore.
“RIL’s financial profile over the next 12 months will be supported by strong earnings contributions across its refining and petrochemical segments, even as the company increases its borrowings to partially fund its large Rs 180,000 crore capex plan,” Halan said.
Moody’s in its report, ‘Modest Improvement in Reliance Industries’ Q2 Results Supports Credit Profile’, said the firm’s refining business should improve over the next 2-3 years, as the company focuses on improving its yield pattern.
It points out that RIL is in the process of establishing the world’s largest petroleum coke gasification project in Jamnagar. Once completed, this project will convert petcoke from its refinery to high-value fuel.
Moody’s report says that RIL’s downstream refining and marketing segment is its key earnings contributor, reporting stable results in 2Q despite continued softness in regional refining margins.
According to Moody’s, the government’s decision to delay the increase in domestic natural gas prices by another six weeks to November 15, 2014 is credit negative for RIL, because the decision further delays the increase in revenues and EBITDA that would have resulted from revised gas prices, which were expected to nearly double to $8-8.4 per million British thermal units (mmbtu) from the current $4.2.
Moody’s anticipated a $400 million revenue increase for RIL if prices had risen on April 1, 2014.
“The new government’s announcement that it would review the gas pricing formula, creates more uncertainty, and could lead to prices below those calculated under the formula approved by the previous administration,” the statement said.
(Source: The Economic Times, October 17, 2014)
HALDIA ROW DRAGS ON AS REVIVAL HINGES ON WORKING CAPITAL
KOLKATA: Haldia Petrochemicals Ltd (HPL) is caught in a catch-22 situation.
Its founders have agreed to resolve their prolonged fight for management control. However, the management change is contingent on it restarting production at full capacity. The beleaguered petrochemical company can’t do so because banks refuse to extend working capital loans until the promoters make peace. This has resulted in a stalemate.
Founded in the 1990s by the West Bengal government and The Chatterjee Group (TCG), HPL has faced a decade-old fight over control. Production was suspended more than three months ago after a boiler breakdown.
Just a month back, the promoters agreed to resolve the dispute. The state government agreed to sell 520 million of its 675 million HPL shares to TCG and cede control. The state, which currently owns 40% in HPL, is looking to pare its stake to 9% through the proposed share sale. TCG currently owns 41%.
But like most prior agreements between the two, this one too looks jinxed. The reason is HPL’s inability to restart production for want of working capital and TCG’s refusal to buy the state government’s shares unless conditions set by it are fulfilled.
One of the key conditions set by TCG for paying `25.10 a share—adding up to a total of `1,300 crore—for the state government’s stake is that HPL will restart production and demonstrate that the plant has been restored to operate at full capacity.
To operate the plant at 100% capacity, the company needs to buy naphtha, its main feedstock. Working capital required to fulfil this condition has been estimated at `1,000 crore, but banks are refusing to lend until the promoters resolve their dispute over control.
It is widely known that HPL has not been able to restart production because it does not have working capital, said a key state government official, asking not to be identified.
This official added that with the state government agreeing to yield control, it is now Purnendu Chatterjee’s responsibility to bring in working capital, referring to TCG’s US-based founder who is also a director on HPL’s board.
A close associate of Chatterjee said that though the state government has agreed to sell a substantial part of its stake in HPL to TCG, it hasn’t yet transferred control. “How can TCG raise working capital for HPL if it is neither a majority shareholder nor in control of the management?” this person asked. He declined to be named.
If the state had transferred control to TCG even before the sale of shares, it would have empowered Chatterjee to negotiate with lenders, this person added, asking not to be named.
The state government has been in control of the firm since Partha Bhattacharyya, a former Coal India Ltd chairman, stepped down as its managing director in June 2012. Chatterjee had fielded Bhattacharyya in 2011 with the concurrence of the erstwhile Left Front government of West Bengal.
Chatterjee did not answer phone calls or reply to text messages.
Amit Mitra, West Bengal’s minister for finance and commerce and industries, did not respond to an email seeking his views.
“We have a chicken-and-egg situation which could scupper the deal,” said Chatterjee’s associate cited above.
“There’s a great deal of mistrust between the two co-promoters,” said a former principal secretary in the commerce and industries department. “It is because of this mistrust that they have not been able to conclude a deal and have been fighting court cases for so long,” he added. He, too, didn’t want to be named.
Failure to settle the spat this time, however, could have more serious implications for HPL than any failed agreement in the past, according to the former principal secretary. The latest agreement was concluded under pressure from HPL’s lenders, and if this one, too, fails to end the imbroglio, it might be impossible for the company to restart production any time soon. That, in turn, could force lenders to declare loans given to HPL as a non-performing asset.
(Source: Mint October 17, 2014)
HIRANANDANI GROUP AWARDS CONTRACT TO SENER-AFCONS FOR LNG FACILITY
NEW DELHI: Real estate firm Hiranandani Group has awarded a contract to Sener-Afcons J.V. for an 8 million tonnes per annum LNG import, storage and regasifications terminal at Jaigadh port at Ratnagiri in Maharashtra.
“H-Energy Gateway Private limited (HEGPL), a Hiranandani Group Company, has issued a Letter of Award to Sener-Afcons J.V. for the EPC contract for an 8 million tonnes per annum LNG import, storage and regasifications terminal,” the group said in a statement.
This will be the first truly merchant terminal in India which will function exclusively on a tolling model.
The Front End Engineering and Design (FEED) of the project was carried out by Hyundai Engineering and reviewed by WorleyParsons.
Bids for the offshore supplies and the EPC works were invited from international and domestic EPC companies in August 2013 and were evaluated by the HEGPL project team with the support of HR Wallingford and WorleyParsons, its technical advisors.
“We are extremely pleased with the technical capability and commercial competitiveness of Sener Afcons and are pleased with the value that this terminal will bring to the market. The project will be able to offer the lowest regasification tariff with the maximum flexibility to its long-term customers,” Darshan Hiranandani, Director, H-Energy said.
The facility would be on its way to commissioning in 2018, the statement said.
(Source: The Economic Times, October 17, 2014)
AS OIL PRICES PLUMMET, SAUDI ARABIA FACES A TEST OF STRATEGY
BEIRUT, Lebanon — With global oil prices plunging at a pace not seen since the 2008 financial crisis, Saudi Arabia is emerging as a central player, accused by some of deliberately depressing the market to weaken rivals like Iran but looked to by others as the only hope of ending the rout. Still others say that the oil colossus is merely struggling to deal with its diminished position in an industry it once dominated.
For their part, Saudi officials have signaled that they are prepared to endure reduced profits rather than slash production in an effort to prop up prices, as they did to their later regret in the early 1980s.
Yet the Saudi acceptance of lower prices has even touched off a controversy inside the kingdom. This week, the billionaire investor Prince Alwaleed bin Talal released an open letter to the Saudi oil minister, Ali al-Naimi, criticizing him for saying that lower oil prices were no cause for alarm.
In the letter, Prince Alwaleed called the price drop a “catastrophe that cannot go unmentioned” and suggested it could harm the kingdom’s budget.
Some analysts say Saudi Arabia runs few risks in letting oil prices remain low because the government has large financial reserves and low debt that could help it ride out budget deficits. But there are dissenters, like Badr H. Jafar, a senior oil executive from the United Arab Emirates, who thinks Saudi Arabia will need higher oil prices eventually to support high levels of social spending.
He says the immediate strategy of the Saudis is to discourage high-cost producers in the United States and Canada and to “serve as an inherent warning to other producers in advance of an OPEC meeting next month that they will all need to make production cuts together if they are to curb this bearish trend.”
Others say the kingdom is facing lower prices no matter what it does because it cannot control the causes of the price dive, which include the drilling frenzy in North America and falling demand in Europe, Japan and much of the developing world. So it makes sense for the Saudis to defend their share of the global market, oil experts say.
“This is a war of economic necessity,” said Philip K. Verleger, president of PKVerleger, an energy consulting company.
That necessity primarily is a product of a 70 percent increase in United States oil production since 2008, which has cut imports from OPEC producers in half. Suddenly, Saudi and Nigerian crude that once flowed freely into the United States is competing for market share on Asian markets, where buyers are demanding lower prices. To make matters worse, the United States could be poised to become a major exporter over the next decade and cut further into Saudi markets.
Gary N. Ross, the chief executive of PIRA Energy Group, a New York-based consulting company, said that Saudi Arabia appeared to be applying lessons learned in the early 1980s, when it responded to a similar glut in the market by cutting production to keep the price up. That cost it valuable market share it later struggled to win back, he said.
This time, he said, Saudi Arabia is doing the opposite: accepting lower prices to keep its share of the market. And if that policy also happens to harm the kingdom’s rivals, so much the better.
“It is convenient that this is happening at a time when Iran is getting stronger and when Russia, a huge oil exporter, has been a thorn in the side by supporting Assad,” Mr. Ross said, referring to President Bashar al-Assad of Syria. “But I don’t think you need a political motivation here.”
The drop in the world oil price could cut into Saudi Arabia’s growing effort to use its economic might and religious credentials as the home of Islam’s holiest sites to expand its influence across the Middle East.
It has recently supported campaigns against political Islamists in Egypt and elsewhere, bankrolled rebels seeking to topple Mr. Assad and sent tanks to help quell a political uprising in Bahrain lead by that kingdom’s Shiite majority against its Sunni rulers.
Saudi Arabia has also joined the American-led military coalition to fight the Islamic State, the jihadist group that has seized territory in Iraq and Syria.
Underpinning many of Saudi Arabia’s struggles is its rivalry with the Shiite powerhouse Iran for influence across the Arab and Muslim worlds.
Lower oil prices would increase the economic strain on Iran, which is already struggling under international sanctions aimed at persuading it to give up its nuclear program. They are also likely to hurt Russia, which has proved to be among Mr. Assad’s most powerful foreign allies and his greatest defender in the United Nations, and which is also feeling the pain of economic sanctions over its Ukraine policies.
Such considerations cannot be far from the minds of Saudi decision makers, said Jean-François Seznec, a political economist at Georgetown University.
“It is really Iran who is getting hurt, and I am wondering to what extent the Saudis are not pursing the lower price to bring Iran to the bargaining table,” Mr. Seznec said.
Others, however, said that although lower prices may serve Saudi Arabia’s political ends, they were not driving its oil policy.
“I don’t think that Saudi Arabia is in the business of trying to manage global politics through oil policy,” said Sadad Ibrahim al-Husseini, the former executive vice president of Saudi Aramco. “That is a fiction.” – NYT
(Source: The Economic Times, October 17, 2014)
OIL AT FOUR-YEAR LOW BELOW $83 ON ECONOMIC WORRIES
NEW DELHI: Brent crude dropped to a four-year low below $83 a barrel in intraday trade on Thursday, losing 28% since its June peak and over 25% so far in 2014, as the fight to capture the export market prompted key producers, especially in the Organization of Petroleum Exporting Countries (Opec), to refrain from production cuts even when demand crawled.
Copper hit a six-month low intraday, weighing on other base metals, mirroring a broader fall across stock and commodity markets, while safe-haven gold saw some volatility as well. The Thomson Reuters Jefferies CRB index, which tracks the movement of 19 commodities, was down 0.95% at 271.96 by 8.20 ET on Thursday.
Brent crude for November hit $82.72 a barrel, the lowest since November 2010, before clawing back some losses to trade at $83.16 a barrel by 0914 GMT, still down 62 cents. US crude shed $1.01 to $80.77 a barrel.
Breathing easy is a country like India, which meets 78% of its oil demand through purchases from overseas, as the price of the Indian crude basket dropped to $83.85 per barrel as of Wednesday, compared with $87.46 a day before and down 9% from the average price of $92.02 in the fortnight through October 10.
Brent crude has has fallen from a nine-month high of $115.71 hit in June when Islamic State’s insurgency into Iraq threatened to disrupt supplies.Prices have since slipped on concerns about global economic growth and downward revision in oil demand forecasts by the International Energy Agency. Plentiful supplies in the US further drove down prices. According to industry group American Petroleum Institute, US crude inventories rose 10.2 million barrels to 370.7 million barrels.
A request by Venezuela for an emergency meeting of the Opec ahead of the group’s scheduled gathering on November 27 — believed to be aimed at working out measures to stem the slide in prices — hasn’t elicited any response from other members yet.
Copper prices crashed to their lowest in six months in intraday trade on lingering concerns about economic growth in China, the world’s largest metal consumer. Three-month copper on London Metal Exchange dropped 1.1% to $6.568 a tonne at 0956 GMT, having hit $6,558–its lowest since mid-April — earlier in the session and extending a 2% fall in the last session.
Reports that Chinese firms could effect a 7% cut in capital spending this year, the sharpest annual fall since the financial crisis, spooked the market. A decline in US retail sales in September, released on Wednesday, just worsened slowdown fears and helped stoke a sell-off on Wall Street.
Other base metals also tracked the drop in copper on Thursday. Lead hit its meanest in 17 months at $1,962.25, while nickel declined to a seven-month trough of $15,374 and tin to $19,360, a 15-month low.
Gold hovers around a one-month high hit in the last session, with spot gold gaining 61 cents at $1,242.63 an ounce by 7.43 ET. The metal had scaled its peak since September 11 at $1,249.30 on Wednesday, as investors sought to flock to haven assets in view of a fall in stocks and other commodities. December gold futures in the US, however, eased from Wednesday’s one-month high to trade at $1,243 per ounce, down $1.80 an ounce.
(Source: The Financial Express, October 17, 2014)
MCX-CRUDE OIL ON A FREE FALL
The crude oil futures contract traded on the Multi Commodity Exchange (MCX) tumbled about 6 per cent over the past week. It is currently trading near Rs. 4,960/barrel.
A sharp fall in the global crude oil prices has dragged the MCX futures contract down.
The WTI crude oil ($80.5/barrel) has fallen below its important support at $83. The outlook is bearish and there is a strong possibility for it to decline further to $73.5.
Key resistances for the contract are at Rs. 5,200 and then at Rs. 5,270 – the 200-week moving average.
As long as the contract trades below these levels a fall to Rs. 4,450 looks likely in the coming days.
Traders with a short-term perspective can initiate fresh short position at current levels. Stop-loss can be kept at Rs. 5,280 for the target of Rs. 4,450.
Any intermediate rally to Rs. 5,100 and Rs. 5,200 can be used as a good opportunity to accumulate more short positions.
MCX-natural gas: The MCX-natural gas futures contract traded in the range between Rs. 234 and Rs. 239 per mmBtu in the past week. The contract is currently poised near the upper end of this range at Rs. 238.
With muted trading action over the past week, the view remains the same as mentioned in this column last week.
Key trend line support is at Rs. 231.85 which can cushion any immediate fall.
A reversal from this level can take the contract higher to Rs. 250 levels. Investors can hold on to the long positions taken last week.
Retain the stop-loss at Rs. 229 for the same target of Rs. 245.
The outlook will turn negative if the contract declines below Rs. 231.85. The next targets will be Rs. 229 and Rs. 226.
(Source: Business Line October 17, 2014)
DAILY CRUDE OIL PRICE OF INDIAN BASKET WAS US$ 83.85/BBL ON 15TH OCTOBER, 2014
Regarding daily international crude oil price of Indian Basket as published today, the price was US$ 83.85 per barrel (bbl) on 15th October, 2014 as against US$ 87.46 per bbl on 14th October, 2014. In rupee terms, the price of Indian Basket decreased to Rs 5124.07 per bbl on 15th October, 2014 as compared to Rs 5344.68 per bbl on 14th October, 2014. Rupee closed stronger at Rs 61.11 per US$ on 14th October, 2014 as against Rs 61.25 per US$ on 13th October, 2014.
(Source: Indian Oil & Gas October 17, 2014)