NEW DELHI: After announcing several labour reforms last week, the Narendra Modi government is considering allowing workers to participate in board decision of state-run firms such as Oil and Natural Gas Corporation, Coal India, NTPC, Indian Oil Corporation and BHEL. The policy proposal, an initiative of the labour ministry, is expected to be initially confined to state-run enterprises, but its scope could be enlarged later to include private firms, government and industry officials said.
“The labour ministry is expected to initiate consultations with all stakeholders, in cluding representatives of industry and labour unions from Monday ,“ a source with direct knowledge of the development said.
A similar proposal was initiated 34 years ago in the form of “the Participation of Workers in Management Bill“, which was introduced in the Rajya Sabha in May 1990, but was put on the backburner by various governments because the industry vehemently opposed it, sources said. Blue chip public sector companies such as ONGC, NTPC and IOC are still against the move while their respective administrative ministries are in-principle in favour of allowing workers’ participation in management of the company, sources said.
Executives in a state-run company said the move is impractical and workers’ participation could make decision-making cumbersome. “We are facing intense competition with global private firms.They have leaner management structures that help them in quick decision-making,“ one executive said requesting anonymity . “This is an extremely new thing and we will firm our views in due course,“ said a senior IOC executive, who is expected to attend the Monday meeting. IOC is representing public sector oil companies.
Industry representatives have a view that participation of workers in management should be limited to production levels only, that too in manufacturing industries, officials with direct knowledge of the matter said. During past meetings, trade unions have assured that workers in management would not hinder decision making and use the policy for the purpose of bargaining, the officials said. Trade unions say workers’ participation in management at all levels will help in increasing productivity and production. But they want to revamp the 34-year-old proposal to reflect current socio-economic reality, officials added.
“The NDA government is serious about labour reforms and believes that workers’ participation would strengthen their bond with the management and their involvement with the company,” an official in the labour ministry said requesting anonymity.
(Source: The Economic Times, October 20, 2014)
DIESEL PRICE DEREGULATION IMPACT: OMCS BRACE FOR COMPETITION
MUMBAI: The central government’s decision to deregulate diesel prices might have come as a Diwali bonanza for fuel retailers and customers, but it also means increased competition in the fuel retailing segment. This could eat into the margins and market share of the public sector oil marketing companies (OMCs), including Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL), which dominate over 95 per cent of the retail market.
The diesel price cut of Rs 3.37 a litre from Sunday was the first in the last five years. Diesel rates were last cut on January 29, 2009, by Rs 2 a litre to Rs 30.86.
Diesel sales account for about 55 per cent of overall sales of OMCs. With deregulation, private players Reliance Industries Limited (RIL), Essar Oil and Shell India will corner some share. If Oil and Natural Gas Corporation (ONGC) decides to venture into fuel retailing through its listed-subsidiary Mangalore Refinery and Petrochemicals Limited (MRPL), the company too could garner some market share.
Diesel deregulation means its prices will now be market-linked, making the customer pay more when global crude oil prices rise and vice versa. Global crude oil prices fell to $82.83 a barrel on Friday. Brent crude oil is down over 28.5 per cent since its high of $116 in June 2014.
RIL has been in discussion with its retailers to restart its outlets. So far the dealers have declined RIL’s offer. Due to high differential between diesel prices of state-owned OMCs and private retailers, RIL had to shut its fuel retailing business in some geographies. RIL had till 2008 cornered about 14 per cent of diesel sales in the country.
“Deregulation means RIL does not need to tie up with any state-run OMC. Now, RIL only needs to address the commission issues with us,” said an RIL retailer. RIL did not send out any communication till the time of going to press.
Meanwhile, MRPL already has a blueprint in place to roll out 120 retail outlets in the first phase of expansion strategy. The outlets will be first rolled out in its base state of Karnataka.
ONGC Chairman and Managing Director D K Sarraf had last month said, “I feel with the current petrol and diesel prices, the time is now right for MRPL (to venture into fuel retailing).”
MRPL has approval to set up 500 retail outlets and its parent company, ONGC, has approvals to set up 1100 retail outlets.
For Essar Oil and Shell India, which are already operating in the market, deregulation paves way to go whole hog on expansion.
Essar, with its 1,400 outlets in place, last year, decided to set up another 1,600 in the next three years, which will make it the largest private fuel retailer.
L K Gupta, MD & CEO, Essar Oil, said, “This move will not only help in controlling the fiscal deficit, but also be advantageous for the consumers, as they will now pay market rates for fuel. Diesel deregulation will bring the private oil marketing companies’ retail network into system. This will increase competition, benefiting the end-consumer.”
While Shell India has around 100 retail outlets, it has been waiting for deregulation process to start scaling up its fuel retail operations.
For public sector OMCs, the challenge will be to retain their customers. Anticipating the deregulation and competition, these companies have already begun adding frills to their bouquet of services to beat competition. The frills include etiquette training to staff, automation of fuel retail outlets and strengthening of loyalty programmes.
“After diesel deregulation, we expect competition in the fuel retailing space to intensify. However, we have taken measures and are fully geared to meet future challenges,” said S Varadarajan, chairman and managing director of BPCL.
BPCL has so far automated 4,408 retail outlets. “Several focused initiatives like Customer Understanding for Business Excellence (Cube), retail outlet maintenance for ensuring maximum equipment uptime and vehicle tracking system are some steps taken for enhancing customer experience and retention. This will hold BPCL in good stead when the market opens up to competition,” BPCL said in its annual report.
As part of Project Cube, BPCL says it has learnt that adding small frills such as air pressure check of tyres or providing an oil-change facility free of cost or cleaning up the car’s windshield while a customer drives into a retail outlet can create loyalty. BPCL, which has 12,500 across the country, plans to add more.
IOC, the largest fuel retailer in the country with 23,993 outlets, has launched a professional training initiative – Project Chetna – to enhance service standards of customer attendants on the forecourt.
With an emphasis on customer satisfaction, IOC is automating its entire distribution chain, terminal and depot facilities.
During 2013-14, some 1,700 outlets of IOC were brought under automation, taking the total number of automated retail outlets to 6,077. Automating a retail outlet costs about Rs 78 lakh.
IOC says automation will help the customer, dealer, as well as the company. Automation includes providing the customer with a printed bill and providing the details of the transaction done. “Many times customers doubt the litres of fuel dispensed against the amount charged. With automation, if the customer so desires, he can see how the transaction took place and verify the veracity of the same,” said an official from IOC.
During 2013-14, the company also launched various mobile applications such as X-Sparsh for enhancing dealers’ productivity and X-Snehash for provision of relevant information on-the-go for retail customers. “Such unique initiatives of the Corporation are aimed at profit-oriented approach,” IOC said in its annual report.
“From Kashmir to Kanyakumari, we want to ensure our customers get the same experience. We are providing our staff with training in soft skills and have introduced the Club HP Star initiative where we have reduced the service time to customers to half. This is working well,” said a senior HPCLofficial.
With diesel being the most used fuel product in the agriculture sector and the transportation industry, which have a direct impact on food prices, cut in diesel prices will cool off inflation. Diesel has a weight of 4.67 per cent in the Wholesale Price Index, the highest among the 670 commodities in the index.
Drop in diesel prices will also bring the government’s subsidy bill down, as it will no longer have to reimburse oil companies for selling diesel at below-market price.
Last financial year, the government paid Rs 85,000 crore for selling diesel, LPG and kerosene at below-market prices. This year, the subsidy burden was estimated much lower at around Rs 63,000 crore.
Market-linking of diesel prices will further save the government over Rs 10,000 crore in subsidy payment this year, helping it meet its fiscal deficit target of 4.1 per cent of the gross domestic product.
(Source: Business Standard, October 20, 2014)
BUILDERS, LENDERS CAN BENEFIT FROM PROPOSED CHANGES IN ROAD CONTRACTS
NEW DELHI: The government is set to overhaul highway contract documents to provide extra comfort to lenders and project developers to get road projects going and boost investment. Some of the major changes proposed include the provision to align NHAI’s total project cost (TPC) with that of assessment made by the lenders, which will ultimately reduce the gap between lenders TPC and that of the national highway authority.
This is crucial for lenders considering the fact that in the past they have suffered due to a divergence in the project cost estimated by the developer and that of NHAI. In case of termination of a concession agreement, NHAI pays only 80% of the remaining debt based on its own TPC and not that of the cost worked out by the developers and bankers. “So, bankers face huge risk of losing. NHAI always tried to keep the project cost low to make them viable. But, when lenders engineer and developers assess the cost it is much more than that of NHAI’s official cost,” said a senior executive of a major infrastructure company.
A new proposal will reconcile NHAI’s TPC with project cost appraised by lenders before financial closure happens. This will be done in consultation with the independent engineer, developer and lenders’ engineer. “The reconciled TPC to be relevant for termination payments only,” mentioned a policy document circulated by NHAI for major amendment in the existing model concession agreement (MCA).
Providing more comfort to lenders, NHAI has proposed co-insurance for lenders/ bankers along with NHAI and the developers, which will help them cover their risk in case of problems. At present, only NHAI and developers get the insurance claim in case of problems or damage to the asset during construction and operation whereas lenders get nothing despite largely it’s their money that is at risk in such cases. Though this provision will increase the annual premium payable to insurance firms, it will protect the interest of lenders.
To facilitate greater participation of private players, there is also a proposal for change in ownership and full divestment of equity by the developers immediately after NHAI allows it to collect toll. This will help companies specialized in construction to take up new projects. Considering land acquisition has been the key stumbling block in project take off and completion, there is a proposal to acquire at least 80% of required land before NHAI allows work to start. Similarly, NHAI has proposed to relax norms for payment of premium (upfront annual revenue quoted by developers). While at present the developers need to make premium payment as soon as tolling starts, the amendment proposed has the provision where developers would be asked to pay premium four years after tolling starts.
“This has been proposed since concessionaires don’t get huge toll revenue in the first few years and they need to meet other major financial demands. But, to ensure that we don’t lose the promised amount during the contract period, there will be a provision to escalate the annual premium payable by a developer by 3% upto 10th year of tolling and 8% thereafter,” an NHAI official said.
These proposals will be soon placed before the apex committee under cabinet secretary, which has been authorized by the government to make amendments in the MCA.
(Source: The Times of India, October 20, 2014)
REAL GAS PRICE FOR COMPANIES TO BE $6.2 PER UNIT
NEW DELHI: Industrial consumers will actually pay about $6.17 per unit for domestic gas instead of $5.6 announced by the government on Saturday because of changed parameter for determining heating value in the new formula.
The government on Saturday announced a new pricing formula on the basis of recommendations of a panel of secretaries. The new formula made several changes in the mechanism suggested by a panel under C Rangarajan that was approved by the UPA government.
The key change in the new formula is a shift from net calorific value (NCV) to gross calorific value (GCV) for calculating the price for each unit of gas. Calorific value is the quantity of heat produced by burning one unit of fuel at constant pressure and at zero-degree temperature.
Gross calorific value assumes that moisture present in fuel turns into vapour, which adds to heating during combustion. Net calorific value is the actual heating users get and assumes that there is heat loss from moisture turning into vapour during combustion. As a result, the heating property under GCV is higher than NCV and entails a 10% lower price for each unit of fuel.
The existing gas price of $4.2 per unit is on the basis of NCV. The gas sale purchase agreements between sellers and buyers specify the price on the basis NCV. Now that the government has changed the heat value parameter to GCV, the actual price on the ground would be higher by 10%, or $6.17 per unit, marking nearly 45% increase against 33% indicated in $5.61 announced by the government.
TOI had on June 24 first reported that the government was looking at a price of $5.5-6.8 per unit.
Gas sellers are now expected to change the pertinent terms in tune with the new formula. “It is not a complicated thing (to change the heat value parameter) in the agreements. On the ground it would mean broadly adding 10% to the new price,” an executive, who deals with such matters for a gas seller said on condition of anonymity.
The fact, however, is that even under the GCV regime, the new price would be much lower than $8.4, or double the present price, estimated on the basis of Rangarajan formula.
Oil minister Dharmendra Pradhan had on Saturday said PM Narendra Modi made it clear that common man should be protected from any major impact from the gas price hike.
Pradhan said CNG and PNG suppliers (such as Indraprastha Gas Delhi) would see how much they can absorb, gas transporter GAIL would look at pruning transportation charge wherever possible and states would be urged to lower taxes to avoid any sharp rise in CNG or PNG prices.
The new price appears acceptable to power and fertilizer industries also. Though the cost of power from gas-fired stations is estimated to rise by 45-55 paise per unit, the impact on overall tariffs would be minimal since such type of plants account for about 7% of generation capacity.
(Source: The Times of India, October 20, 2014)