Kerosene prices hiked by 25p, to pad-up OMC net; oil subsidy to fall
The government’s decision to effect monthly hikes in PDS kerosene prices by 25 paise a litre between July 2016 and April 2017 would reduce the PSU oil marketing companies’ under-recoveries on the fuel by R2,100 crore, Nomura said, adding that this would mean R1,190 crore savings on the government’s oil subsidy, given the current formula for sharing of the burden between the government and upstream oil companies, reports fe Bureau in New Delhi. Icra estimated the reduction in under-recoveries for FY17 as a result of the move at R760 crore and R2,040 crore for next fiscal. As per Icra’s earlier estimates, subsidy on kerosene was expected to be in the range of R9,000-12,500 crore in FY17 assuming crude price in the $40-50 per barrel band. In recent years, the oil marketing companies’ under-recoveries on the sale of petroleum products have reduced steeply, thanks to decontrol of diesel and the DBT scheme on LPG, besides benign crude prices. Under-recoveries on PDS kerosene, however, remained relatively sticky as its prices continued to be controlled, resulting in a doubling of their share in total under-recoveries between FY14 and FY16. While upstream firms was to escape the burden of under-recoveries for crude price up to $45 per barrel, post the monthly price hike policy, they may not have to bear any burden for crude price up to $50-52 a barrel, Icra predicted. “With monthly price revisions, the burden on PSU upstream companies is expected to be lower by Rs 700-760 crore in FY17 which may be 2.5% of the combined profits of ONGC and OIL reported in FY16,” it said. Nazair Jones Authentic Jersey
Singapore GRMs decline sequentially, Indian refiners expected to follow suit
Singapore gross refining margins (GRM), a benchmark of profitability for Indian refining companies, declined for the June quarter, sequentially as well as year-on-year (y-o-y). The measure came in at $5 per barrel compared to $7.7 a barrel in the March quarter and $8 a barrel in the June 2015 quarter. Margins declined primarily on account of decline in gasoline product cracks. Diesel cracks, on the other hand, showed some sequential strength. Cracks refer to the difference between crude oil price and refined product price. Gasoline cracks fell quarter-on-quarter (q-o-q) to $14.6 per barrel from $18-20 a barrel levels in the last four quarters, calculated Bank of America Merrill Lynch (BoAML). “Diesel cracks recovered to $10.3 per barrel from a six-year low of $9.1 per barrel in March quarter,” pointed out BoAML analysts in their June quarter preview, adding that all other cracks were sequentially lower. This trend would reflect in the Indian oil refining companies’ performance. They are broadly expected to report lower GRMs q-o-q. Reliance Industries Ltd (RIL) had reported a GRM of $10.8 a barrel for the March quarter. For the June quarter, brokerages expect the company to report sequentially lower GRM. Citi Research expects RIL’s GRM at $9.5 per barrel, while Edelweiss Securities Ltd pegs it at $10 a barrel. This would be RIL’s first sequential drop in profit after tax after five quarters of consistently improving operating performance, attributable almost entirely to refining, pointed out analysts from Citi Research. However, RIL’s petrochemicals business is expected to compensate for the lacklustre performance of the refining segment. Investors will be watching out for commentary on telecom business too. Inventory gains could help the performance of state-run refining and oil marketing companies—Bharat Petroleum Corp. Ltd (BPCL), Hindustan Petroleum Corp. Ltd (HPCL) and Indian Oil Corp. Ltd (IOCL). Analysts from Jefferies India Pvt. Ltd expect a weaker quarter for BPCL and HPCL (q-o-q and y-o-y) due to lower refining and marketing margins, though inventory gains should moderate the impact to some extent. However, IOCL’s GRM and earnings are expected to improve sequentially due to reversal of its high inventory losses in the March quarter. Meanwhile, oil producing companies—Oil and Natural Gas Corp. Ltd, Oil India Ltd and Cairn India Ltd—could well see sequential improvement in price realization, given the improvement in broader crude prices. Trey Burton Jersey
OVL’s dollar bond issue gets low investment grade ratings
Global rating agencies Moody’s and S&P today assigned low investment grade ratings to a US dollar bond issue of ONGC Videsh Ltd to fund its acquisition of 15 per cent stake in Russia’s Vankor oilfield. “Moody’s Investors Service has assigned a Baa2 rating to the proposed foreign currency senior unsecured bonds to be issued by ONGC Videsh Vankorneft Pte Ltd (OVVPL), a wholly owned subsidiary of Oil and Natural Gas Corporation (ONGC),” the rating agency said in a statement. S&P Global Ratings assigned its ‘BBB-‘ long-term issue rating. The state-owned firm will “unconditionally and irrevocably guarantee the notes,” it said. “We consider the proposed notes as ONGC’s debt obligation because the notes are issued by a 100 per cent-owned subsidiary set up to raise funds for ONGC.” ONGC Videsh, the overseas arm of ONGC, expects to use the proceeds of the proposed notes to refinance existing bridge loans incurred to acquire a 15 per cent stake. S&P said the rating on ONGC reflects the company’s strong competitive position as one of Asia’s largest oil exploration and production companies with a long reserve life, stable production and good profitability. However, ONGC’s production is concentrated in India, particularly the Mumbai basin, and its expansion outside India is in higher-risk countries, it said adding the company is also exposed to negative government intervention, such as the sharing of oil subsidies. “The restriction of a guarantee to a finite amount is driven by regulations in India, which do not allow open-ended guarantees for obligations of offshore subsidiaries, rather than an actual intention on ONGC’s part to restrict its liability under the bonds,” said Vikas Halan, Moody’s Vice President and Senior Credit Officer. Moody’s said ONGC’s issuer ratings incorporate expectation that the impact of declining oil prices on the company’s cash flows will remain low, as the company. Dmitry Kulikov Authentic Jersey
This is the one privilege that Air India has, but the cabinet might soon take it away
Until now, Air India, India’s flag carrier airline, had the privilege of being the only airline that carries government employees on official tours. However, the civil aviation ministry is preparing a cabinet note, asking for permission to allow it to opt for the airline offering cheapest fare. “The finance ministry, in one of the review meetings, has asked us to abolish this rule mandating Air India for official flights,” a senior aviation ministry official told ET on the condition of anonymity. “We are preparing a Cabinet note, which should reach the Cabinet for approval in 15 days,” he added. In the past, Air India has faced some wrath from some members of the government, which could also be the reason behind the ministry considering this change. Cabinet Minister M Venkaiah Naidu had taken to the social networking site Twitter when he missed a meeting because of delay in his Air India flight. However, as per analysts, the move is set to hurt the national carrier because when given a choice, government employees might not choose Air India. David Andrews Jersey
How is Rs 100/kg for excess baggage reasonable; Delhi High Court asks DGCA
Delhi High Court today asked aviation regulator DGCA how the figure of Rs 100 per kg for checked-in excess baggage between 15-20 kgs was reasonable as was contended by it. “You have not said what is the basis for the figure of Rs 100 per kg,” Justice Sanjeev Sachdeva asked. “How do you call it reasonable? Why not Rs 75 or Rs 150,” the judge asked after Additional Solicitor General (ASG) P S Patwalia, appearing for DGCA and the Ministry of Civil Aviation, said the Rs 100 figure was chosen as it was “reasonable”. ASG Patwalia, in response to the queries, also said the Director General of Civil Aviation (DGCA), as an expert body, was competent to arrive at the figure and if the airlines were aggrieved by it, they should have approached it. He also said that only four airlines had approached the court, all members of the Federation of Indian Airlines (FIA), against DGCA’s regulation which came into effect from July 1. As per the new regulation, airlines have been asked to charge Rs 100 per extra kg till 20 kg as against their current rates, ranging from Rs 220 to Rs 350. Currently, all domestic carriers allow free checked-in baggage up to 15 kgs. Only Air India allows free baggage up to 23 kg. During the arguments, the ASG said the different rates charged for excess checked-in baggage by the airlines was discriminatory and warranted interference by DGCA. The court, however, observed that discrimination would have to be seen vis-a-vis passengers and not airlines and asked what was the material considered by DGCA to come to the conclusion that there was discriminatory pricing. The ASG said DGCA relied on complaints received by it from passengers to come to the finding relating to discriminatory pricing. Patwalia also argued that DGCA had the power under the rules to regulate air tariff and it can regulate unbundled services, like selection of seats, booking meals etc, by way of its April 30, 2013 circular under which the services were unbundled and that circular has not been challenged. Geoff Swaim Authentic Jersey
Vistara to begin overseas operations with Saarc, Gulf by H2 of 2018
Vistara, which was in the forefront to get the 5/20 rule partially scrapped, today said it “will not be rushing into international operations” and that something towards this is “unlikely before June 2018”, when it will get the delivery of the 20th aircraft. “We are not rushing into international operations. It’s not a race for us. But we will definitely do it. We will get the delivery of our 20th plane by the first half of 2018. “So, with the government retaining the 20-plane clause for international operations, I think we will be able to take a call only after that. Of course, we are reviewing and refining our international strategy,” Vistara chief strategy and commercial officer Sanjiv Kapoor told today. Kapoor, who joined the Tata Sons and Singapore Airlines promoted Vistara only recently, further said their international operations will begin with the Saarc markets and the Gulf as their present set of planes (A320s) could serve short-haul markets the best. Kapoor, who was here to launch a co-branded credit card with Axis Bank, also said the airline, which has only 11 aircraft at present, will get the delivery of two more A320s by October. “The first set of routes that we will launch internationally, will be the routes that can be flown by our existing aircraft (A320s which are narrow body planes by Airbus) which will be routes within three, three-and-a-half hours from our Delhi hub,” Kapoor said. “So, that means South Asian nations will be our first focus international destinations along with the Gulf,” he said, adding markets like Bangladesh, Nepal, Bhutan, the Maldives, Sri Lanka and even Afghanistan have great potential. He said Pakistan is of course the largest market, but that is not likely to happen given the relations between the two nations. Last month, the government had partially scrapped the contentious 5/20 rule, which mandated an airline to have five years of domestic operational experience and 20 planes to become eligible for international operations, by removing the five years of domestic operational experience clause. The new rules came in despite strong opposition and hectic lobbying by older rivals such as Jet Airways, Spicejet and Indigo. A. J. Cann Authentic Jersey
Additional air traffic difficult to sustain unless airport infrastructure is developed: Experts
The aggressive fleet expansion by Indian carriers may far outstrip the growth in demand for air travel, forcing airlines to take a hit on margins. The additional capacity will also be difficult to sustain unless airport infrastructure in the country is rapidly developed, said industry experts. Wadia-group owned budget carrier Go Air on Tuesday said it has signed an initial pact to buy 72 of 180-seater Airbus A320neo planes. Taking these into account, Go Air, IndiGo, SpiceJet and Jet Airways will have ordered a total of 691 planes since 2011. Most of these are narrow-bodied planes, primarily used for domestic operations. Data from a recent note by global consultant CAPA-Centre for Aviation shows that India’s current fleet size is about 63% of South Asian carriers’ fleet size, but its order book is 95% of the total orders from this region. Airbus has said it will deliver one plane every week to Indian carriers for the next ten years. Malaysian low-fare carrier AirAsia Bhd too has placed an order for 100 A321neos. Some of these, or the older planes they replace, will come to its Indian unit. SpiceJet is planning an order of about 100 planes, Air India has said it will lease 44 planes in the A320 family, and Vistara too is expected to place an aircraft order shortly. “We shall see significant oversupply over the next 5-7 years. The orders just placed don’t worry me as they will be delivered several years later. But even going by the previous orders, a total of about 110 planes will be delivered between April 16 and March 18. There will be an impact on yields — there is already a double digit dip — and airlines will return to profitless growth, especially as the cost creep continues,” said Kapil Kaul, CEO, South Asia at CAPA. To be sure, India’s domestic air traffic grew at 18.8% in 2015, the fastest clip in the world, according to data from the International Air Transport Association (IATA). But this will peter out, said analysts. “Our domestic supply-demand model shows an implied annual growth rate of only 14% between FY17 and 20E on the basis of current order book perspective. As such, aircraft supply based on current order book will lag demand leading to potential upward pressure on yields,” said Ansuman Deb of ICICI Securities in a recent note. IndiGo has said the fleet expansion is necessary to unlock India’s massive potential for air travel demand: a miniscule percentage of its 1.3 billion population currently travels by air. Others have said the potential will remain unrealised if the country’s airport infrastructure isn’t developed. “Where are they going to get (flight) slots? Where are they (the planes) going to be parked? Where are they going to fly? Because for the next five years, Mumbai is not going to have a new airport. The other metro airports will also take 4-5 years to build new runways. If they are going to be deployed in routes which are secondary or tertiary, then obviously there will be a lot of capacity added and there will be pricing pressures,” said Sanjiv Kapoor, chief operating officer of Vistara, the joint venture carrier between Tata Sons and Singapore Airlines. Dwayne Harris Authentic Jersey