On the road: A changing fortune, and Gadkari to the rescue
Nitin Gadkari might not have been a man of his word, but the goal-setting minister in charge of road transport, highways and shipping can take heart that he hasn’t shot too far off the mark, either. And in the ministry’s achievements, no less its missed targets, can be seen the broader narrative of infrastructure that is being rewritten under him. In only three years, the ministry has managed to drive private participation in the sector, adopt a more reasonable model for implementing projects – all this while shrugging off a media which has been nitpicking over Gadkari’s misses. To be sure, there have been a few of misses, as well. By December 2016 Gadkari’s ministry had awarded only 27 percent of the budgeted projects for FY16. Even construction target was 30 percent of the targeted number. By and large, Gadkari has been on the ball. According to a Crisil report, project awards in the roads sector have picked up thanks to the new hybrid annuity model (HAM) and engineering, procurement and construction (EPC) projects. Order book of 50 EPC-focused road developers grew two-fold from Rs 41,000 crore in FY14 to Rs 85,600 crore in FY17. In the current fiscal year, the order book is likely to touch Rs 1 lakh crore considering the expected Rs 48,000 crore worth of orders. Government’s strategy of moving away from the build-operate-transfer (BOT) model seems to be working. In 2013, all projects were under the BOT model but these have been reduced to just 20 percent by FY16 and in FY17 was only 10 percent. Road developers are enjoying their day under the sun with order book to sales at around 2.5 to 3 times the revenue as compared to 1.5 times revenue when the present government assumed office in 2014. There are a number of reasons why there has been an improvement in the overall performance of the ministry. A Kotak Securities report quoting a member of finance at NHAI (National Highways Authority of India) says that a focused attention to implementation and smoothening the process helped improve performance. Out of 73 stuck road projects at the start of the current government’s term, only nine are still languishing for varied reasons. The clearance processes were expedited by the creation of inter-ministerial committees and a periodic review directly by the PMO (Pragati programme). Rather than acquiring land after announcing the project, which resulted in time delays and cost escalation, NHAI now tenders new highways only after securing at least 90 percent of land along the corridor. In a rare display of team work between central and state government bureaucracy, the central government has roped in various states and their departments/bureaucrats to help NHAI handle the large volume of projects on the anvil. States like Maharashtra are helping to prepare a large number of DPRs (detailed project report) for NHAI. In order to incentivize private sector participation in roads, the government is clearing projects which are stuck in arbitration. In cases which are stuck in arbitration, the government has released 75 percent of the amount subject to bank guarantees even while hearings are on in higher courts. NHAI has processed all 53 of such arbitration cases and has released payments in seven of them. The rest of the payments will be released as soon as bank guarantees are furnished by the private parties. This move has helped build the confidence of private sector players who could not participate in bidding as a sizeable chunk of their money was locked up in arbitration. Moving to a hybrid-annuity model (HAM) where 40 percent of the construction cost is being funded by NHAI over the construction period through five milestone-based payments, private players are comfortable taking these projects on as are banks who feel comfortable with NHAI putting in a sizeable amount of money. However, the key to growth and implementation is the financing power of NHAI. Though the government has allocated Rs 64,000 crore for the ministry in the current fiscal, NHAI would need more resources to meet its borrowing plan of Rs 2.1 trillion over the next five years. An Rs 5,000-crore denominated Masala Bonds issue is lined up by the company but it would still need more resources to keep the sector moving. Further, with a new avenue in the form of Infrastructure Investment Trust (InvIT) NHAI can securitize its highway assets and raise funds for future growth. However, a parliamentary panel recently pulled up NHAI for failing to raise targeted funding. NHAI was given a target to raise Rs 59,279 crore during FY17 but it could raise only Rs 27,831 crore till January 2017.Looking at the performances of road developers and their order books which gives a better visibility, Crisil upgrades are now twice as many downgrades in FY16. This is a sharp improvement to one upgrade for every nine downgrades in FY14, thus reflecting the changing fortunes of road sector. Allen Robinson Jersey
23 Blatant irregularities hastened Air India’s downfall: CBI
The Central Bureau of Investigation’s three FIRs in the ‘Air India scam’ which took place during the UPA regime have alleged blatant irregularities which hastened the downfall of the national carrier. The FIRs, accessed by TOI, said the civil aviation ministry decided to purchase 111 aircraft for Air India costing about Rs 70,000 crore at a time when the airline was showing a profit of about Rs 100 crore and didn’t have the capacity to purchase even a few aircraft. Due to this particular decision, the airline immediately went into huge losses, which increased every year to reach tens of thousands of crores, the CBI said, quoting from the allegation levelled by activist-lawyer Prashant Bhushan in his PIL before the Supreme Court. The FIRs mentioned an internal Air India report of 2000-01 which said the airline should only lease aircraft and not go for purchase. The view was overruled by the aviation ministry, the FIR said, quoting from Bhushan’s allegations which led the SC to direct a CBI probe. It was decided in 2004-05 that Air India will buy 68 aircraft instead of 28, as originally planned, a decision which quadrupled the expenditure from Rs 10,000 crore, as originally estimated, to Rs 44,000 crore. This apart, the government also decided to buy 43 planes for Indian Airlines at a cost of Rs 8,399 crore. “Concerns regarding potential difficulties of Indian Airlines in successfully funding the acquisition process with a positive NPV (net present value) was raised within civil aviation ministry, but were ignored,” the CBI FIR said, referring to one of the main allegations which led the court to direct the CBI to probe the alleged scam. Interestingly, the CBI said the acquisition programme had been under consideration since 1996 but never got traction, until 2004 when it suddenly picked up speed. “Between August 2004 and December 2005, the proposals were formulated by Air India, approved by its board, examined and approved by ministry, Planning Commission, department of expenditure, group of ministers and the cabinet,” the FIR said. Not just that, Air India signed the contract with Boeing to buy 68 aircraft on the same day, December 30, 2005, that the government cleared the purchase order. The CBI said NACIL (National Aviation Company of India Ltd), incorporated to merge Indian Airlines and Air India, had an equity base of only Rs 145 crore, yet it made a commitment to pay Rs 44,000 crore for procuring 111 new aircraft. It said loans for the purchase were taken from US and Indian banks, pushing the airline into debt and huge losses. Similarly, the CBI FIR into the leasing of planes said the ministry and officials of Air India/Indian Airlines decided to lease planes “dishonestly without due considerations regarding proper route study and marketing or price strategy”. “The leasing was done despite airline running with very low load because of largescale aircraft acquisition and several flights, especially overseas flights running almost empty at a huge loss,” the CBI said. For example, Air India leased 15 expensive planes when it did not have pilots to fly the aircraft, the FIR said, emphasising that this was “known to everyone”. In another instance of alleged irregularity, Air India dry leased four Boeing 777s for a period of five years in 2006 even when new planes for the airline were set to arrive in July 2007. This “resulted in five Boeing 777s and five Boeing 737s standing idle, leading to an estimated loss of Rs 840 crore during 2007-2009”, the CBI said. The third FIR to probe Air India giving up profitable routes and schedules for private airlines alleged that “foreign airlines were given unrestricted entry into India and major routes were given to them without taking any reciprocal benefits”. Air India gave up Kolkata-Bangkok, Kolkata-Dhaka, Doha-Kochi, Kochi-Kuwait and domestic routes like Ahmedbad-Jaipur, Mumbai-Vadodara, Pune-Goa and Mumbai-Patna and others. “On all these routes, private airlines like Jet Airways, Kingfisher, Go Air, Indigo, Spicejet, Paramount Airways etc started operating and made profits,” the FIR said. On lucrative routes like Mumbai-Dubai and Mumbai-Doha, Air India reduced its flights and gave private airlines major market share, it added. Maliek Collins Authentic Jersey
As hints get stronger, privatisation of Air India is now looking inevitable
The government may soon offload the loss-making Air India with Finance Minister Arun Jaitley favouring divestment of the national carrier. Mired in debt for years, the state-owned airline has been staying afloat on taxpayers money and the government now seems to think that it is not worth spending more funds on its revival. In an interview with DD News over the weekend, Jaitley said that Air India’s market share today is around 14 percent but the debt is Rs 50,000 crore. “In this country, if 87 or 86 percent flying can be handled by the private sector… then they can also do 100 percent,” he added. This has been the strongest indication from the NDA government regarding privatisation of the state-owned airline. Recently, the government seems to have warmed up to the idea of divesting its stake in Air India. The statement by Arun Jaitley resonates with the views of many top government officials who have recently floated the idea of privatising the carrier. The aviation ministry is currently exploring various options, while the government’s policy think-tank NITI Aayog is also looking into the issue, including a possible strategic sale. Back in 2012, the Manmohan Singh-led United Progressive Alliance government had gave a Rs 30,000 crore bailout package spread over a decade to prop up Air India’s equity. Out of this fund, the company has already received Rs 22,280 crore. In an interview, then Civil Aviation Minister Ashok Gajapathi Raju told The Hindu that despite the Rs 30,000 crore bailout package approved for Air India in 2012, the national carrier remained a debt trap. He had said that the government cannot commit the taxpayers’ money for an eternity to revive the ailing company. Dennis Rodman Authentic Jersey
UDAN: Truejet, Alliance Air set to spread wings; check out the fares structure
Occupancies on the first of the UDAN routes, Delhi to Shimla, are nudging 100%, with apple traders, employees of the Indian Statistical institute (ISI) and tourists making use of the new service. In contrast, passenger loads on the other two Udan routes, operated by TrueJet, are around 60% currently, company sources said. The average uncapped fare on the Simla-Delhi route, which was around Rs 17,000-Rs 18,000 when operations kicked of on April 27, have come down to levels of Rs 15,000. The capped fare from Delhi to Simla is Rs 2,304 and the government provides a subsidy of Rs 3,340. Alliance Air, a subsidiary of Air India, offers 48 seats from Delhi to Simla and 15 on the return flight. The subsidised fare on the Hyderabad – Cuddapah route is Rs 1,920 and the subsidy received by the airline is Rs 3,402; on the Cuddapah – Hyderabad route the fare is Rs 2,000 while the government funds a subsidy of Rs 3,456. For the Nanded – Hyderabad route the current fare is Rs 1,610 and the subsidy provided is Rs 3, 060. “The uncapped fares are not too high since we want to generate demand. We hope to increase the occupancy on these routes in the next six months,” an executive from TrueJet told FE. Both Alliance Air and TrueJet plan to add routes and acquire more ATR aircraft. Alliance Air will start its operations on Delhi – Gwalior, Gwalior -Indore and Indore – Mumbai route from May 31. TrueJet will acquire two ATR 72-500 and one ATR 72-600 aircraft in the coming month to expand its fleet to seven ATR aircraft. Tyler Higbee Jersey
Why is the Government treating Boeing with kid gloves?
Even after chronic technical failures of Dreamliner aircraft and Air India’s reputation taking a beating, the government is yet to take the US-based aircraft manufacturer, Boeing to task. In the last 3 weeks, a number of flights between Kolkata and Delhi were cancelled due to technical snags in the Dreamliner and such glitches are being reported very often in the airline’s international sectors as well. Air India’s Engineering Union had urged the management last year to defer deliveries of the remaining aircraft. It also urged that the manpower for frequent unscheduled snags be compensated, including damages for hampering the airline’s on-time performance. But, the Ministry of Civil Aviation has still not initiated any action and is rather still taking delivery of the 5 remaining aircraft. Meanwhile, according to officials, Boeing is in talks with Air India to revise the delivery schedule for the remaining aircraft. Boeing wants to deliver all of them by March 2018. On the other hand, the Central Bureau of Investigation (CBI) is yet to conclude its investigation into this deal. The Comptroller and Auditor General (CAG) had in its report, submitted to Parliament in 2011, found fault with the then Aviation Minister, Praful Patel, for not supporting the airline, which has lurched from one crisis to another over the past few years and now finds itself in a debt trap. Malik Jefferson Authentic Jersey
Wind power competitive bidding will reduce tariffs, squeeze returns: CRISIL
Competitive bidding in the wind power sector would change the market landscape leading to a sharp reduction in tariffs, pressure on returns across the value chain, and consolidation of the market towards independent power producers, according to research and ratings agency CRISIL. According to its report released today, under-construction capacities without Power Purchase Agreements (PPAs) are the most at risk. “To compete in bids, developers are likely to put pressure on wind power original equipment manufacturers (OEMs), denting their profitability. Also, developers would go for the self-development model, piling more pressure on OEM margins as the premium charged for value-added services like clearances, wind resource assessment and grid connectivity would come down,” said Prasad Koparkar, Senior Director, CRISIL Research. He also stated OEMs having land banks with high wind potential and proximity to the central transmission utility will be less impacted because these would fetch a premium. The report notes that while deployment of latest technology and lower financing charges would reduce generation cost, aggressive bids by developers to scale up their portfolios will mean suboptimal equity internal rate of return. ”However, the market for wind power would expand with more active participation by the central government, which reduces the risk for developers. Higher offtake from power distribution companies with lower tariffs will also support capacity additions, “the report said. Crisil also said that eventually, overall compliance with the renewable purchase obligation is expected to increase due to bidding, particularly by non-windy states such as Uttar Pradesh, Haryana, Delhi, Odisha and Chhattisgarh. Mike Remmers Authentic Jersey
India to be first in world to run all government ports on green energy
All 12 major domestic ports will soon switch to renewable energy to meet their entire power requirements, making India the first country to have all government-owned ports running on solar and wind energy. The government plans to install almost 200 megawatt solar and wind power generation capacity at the ports by 2019, officials said. Almost 150 mw of this will be solar power and 50 mw wind power generation capacity. The capacity could be ramped up to 500 mw in the next few years. On Tuesday, a high-level conference attended by shipping minister Nitin Gadkari, top officials and chairmen of several port trusts was held at JNPT in Mumbai to discuss the road map of implementing the green ports project. “Total initial investment in the project is expected to be Rs 500 crore. These renewable energy projects will help in reduction of carbon emission and lead to improvement of environment around the ports,” said a senior government official, who did not wish to be identified. The government has also decided to meet the power requirements of smart port industrial cities coming up at Kandla Port and Paradip Port to be met though green renewable power sources. “All our ports are cash-rich and we made total profit of Rs 5,000 crore in the last fiscal. The ports have started the process of setting up renewable energy projects from profits,” the official said. The wind energy projects will be executed at three major ports – Kandla, VO Chidambaranar Port and Kamarajar Port. The total capacity of the wind energy projects is estimated to be 70 mw. “These projects will also help reduce cost of power purchased by utilisation of renewable energy for power generations,” the official said. A total of 7 mw of solar projects has already been commissioned at Vishakhapatnam Port, Kolkata Port, New Mangalore Port, VO Chidambaranar Port and Mumbai Port. The remaining solar power projects will be commissioned in phases and are expected to be completed by 2019. These projects are part of the green port initiative launched by the shipping ministry. Separately, Indian Railways has sharpened its focus on undertaking renewable power projects. The national transporter plans to install 1,000 mw of solar plants, which will be installed on signalling panels and rooftops of rail stations. There’s another plan to install 200 mw of wind energy in the next five years. Jerry Rice Womens Jersey
GST impact on thermal power sector to be marginally positive: ICRA
Reduction in tax rate on domestic coal will provide a relief in the cost of power generation even after accounting for an increase in capital cost due to higher tax rates in boiler, turbine, generator segment, research and ratings agency ICRA said today. The GST Council earlier this month placed domestic coal under the 5 per cent tax slab under the Goods and Services Tax (GST) while imported coal will continue to attract basic customs duty (BCD). “It is estimated to provide relief in variable cost of generation by about 3-4 paise per unit in case of domestic coal. However, the variable cost of generation for imported coal generators would increase by 7 paise per unit,” the report said. Given that the tax slab for coal varied from 11 to 12 per cent, it will lead to a positive impact for domestic coal users and a negative for imported coal users according to ICRA. On the other hand, for the wind energy sector, the impact of GST is marginally negative due to increase in capital cost — higher tax rates in wind turbine generator—as the wind energy sector has been availing various concessional rates and tax exemptions, the report added. According to ICRA, there will be a marginally negative impact on Boiler, turbine and generator equipment for thermal power projects for which GST would be applicable at the rate of 18 per cent. “Overall impact including for balance of plant equipment and GST on service component is estimated to increase the capital cost for imported BTG based projects by 2 per cent,” the report said. As per the government’s notification, BCD would also continue for imported components. ICRA report stated its impact would vary depending on the Value Added Tax (VAT) rate applicable in a state and the mix of imported equipment. Tomas Plekanec Womens Jersey
GDF Suez Cape Ann deal heralds new liquidity for FSRUs
Höegh-owned, Engie-chartered GDF Suez Cape Ann will be the first floating storage and regasification unit (FSRU) based in India. H-Energy has fixed the vessel at Jaigarh in the west of the country from June next year. Various India-based FSRU projects have stalled, mostly because of cost and projected demand. H-Energy chief executive Darshan Hiranandani tells LNG World Shipping that he fixed GDF Suez Cape Ann for a very keen price. “Two years ago FSRU charter rates were so expensive that only governments or super-majors could afford these ships, to support 20-year offtake contracts,” he said. Mr Hiranandani’s comments raise an intriguing question – what does it cost to charter an FSRU? LNG carrier charter rates are transparent. In May, modern ships lifting Atlantic Basin LNG spot cargoes were earning US$30,000-US$45,000/day. “General LNG rates have fallen substantially, but that has been a trend for longer than two years,” says MSI director Stuart Nicoll. “ A lot of old LNG ships are seeking conversion, which should mean more interested parties bidding for FSRU work. “That should certainly make the FSRU market a lot more competitive.” Simpson Spence Young (SSY) Gas director Debbie Turner says that without knowing how Engie will support the H-Energy charter, it is impossible to determine the rate. “H-Energy got a cheaper deal [because they] have a small FSRU,” Ms Turner says. No market If GDF Suez Cape Ann is affordable, this must be because the market is deteriorating or oversupplied – or because the ship’s circumstances have changed, Mr Nicoll says. “The ship is on long-term charter to Engie, at what seems to be a very high rate if you take Höegh’s accounts at face value, having cost nearly US$300 million to build. “There was a break clause in the initial 20-year charter last year or at any time thereafter giving two year’s notice, but it doesn’t seem to have been exercised. That would imply that Engie needs a decent income on the vessel to cover its costs. This is especially the case after GDF Suez Cape Ann’s employment fell through on the Tianjin project.” There is not yet a market for FSRUs, says Drewry senior research analyst LNG Shresth Sharma. “Usually, there is no general charter rate for FSRUs. It depends on the vessel specification – new-built or old, contract duration, vessel-employment flexibility, and so on,” he says. Rates that FSRUs have fixed in four earlier deals suggest a figure for some tonnage, see table. “In 2013-2015, the rate has hovered between US$120,000-US$150,000/ day,” Mr Sharma says. “However, of late the charter rate for FSRUs has also been coming under pressure and rates are currently around US$100,000 per day.” Another broker, speaking off the record, highlights the variables: “I am intrigued by H-Energy’s comments. FSRUs have not come down that much in price. They are still around US$110,000-US$135,000/day, depending on the project requirements. “This really is the question. Project requirements saw an Excelerate vessel fixed into Israel at around US$170,000/ day. Why? They took the infrastructure from the Gulf Gateway and placed it offshore Israel, then put the total cost into the charter hire. And within a one-year time period.” The broker says Golar LNG Partners fixed its larger FSRUs for US$125,000-US$135,000/day. Other deals offered a golden handshake. “The second FSRU that went into Egypt gave a very cheap rate for the first six months, then went back up to the US$120,000s for the remainder,” the broker says. “These vessels are all in the region of 170,000m³ and can process up to 7.4 million tonnes a year.” A second broker says Turkish project partners Kolin, Kalyon and Etki Liman fixed GDF Suez Cape Ann sistership Neptune for a very low US$20,000-30,000/day, “plus significant additional operating expenditure, increasing the total costs to US$50,000-70,000/day. From the shipowner point of view, this may be a competitive deal; this project had an element of urgency”. Segments This second broker sees FSRU charters as a three or four-tier market: • First-generation FSRUs, built in the 2000s • Modern, standard-sized FSRUs circa 170,000m³, owned by Höegh, BW Gas and Golar • Barge-based FSRUs/converted floating storage units (FSUs) • Mitsui OSK’s 260,000m³, 2017-built FSRU, now seeking a short-term fixture “Charter rates for some of those older ships can be quite competitive, particularly when the vessel in question has been unemployed as an FSRU,” this broker says. “It probably doesn’t cost much more than US$100,000/day to charter such a ship.” The fourth tier is a category of one: Mitsui OSK’s (MOL’s) giant FSRU to be delivered this summer and chartered to Uruguay-based Gas Sayago to import up to 4 mta. However, Montevideo will not need the FSRU until autumn 2018. MOL director Takeshi Hashimoto told this publication in January that he hoped to fix the FSRU “for about one year”. Industry sources name Turkey, Argentina and Hong Kong as prospective suitors. MOL is said to be negotiating a short-term deal of US$130,000/day – if the counterparty is solid. Höegh LNG president Sveinung Støhle says Hong Kong Electric (HKE) wants a 170,000m³-260,000m³ FSRU. Enarsa of Argentina is said to be looking for an FSRU the size of a Q-flex or even a Q-max LNG carrier for the Puerto Rosales project. Brokers doubt these large FSRUs will become the norm. “We don’t anticipate a trend towards building bigger units,” says the second. “Ships on this scale do not offer the flexibility that is the unique selling point of an FSRU. “To build it for a specific project, you need a 20-year charter agreement to justify the cost – all of that comes at a price. You can only justify having so much more storage for a market of significant demand. “Bigger FSRUs might seem the perfect solution to a high-demand market. But ordering such a unit presents a greater risk than usual for owner and financier.” Liquidity All the brokers feel the FSRU business is changing, in terms of pricing and liquidity. By June, Höegh and BW Gas had received the first two of six FSRUs
Gujarat Gas enters into non-binding MoU with PLL
Gujarat Gas has entered into a non-binding MoU with Petronet LNG (PLL) for exploring – dispensing and marketing of LNG including the L-CNG at GGL CNG stations. Earlier in January, Petroleum and Natural Gas Regulatory Board (PNGRB) had granted permission to the company to lay, build, operate or expand city or local natural gas distribution network (CGD) in Ahmedabad, Gujarat. Gujarat Gas (formerly known as GSPC Distribution Networks ), has emerged as India’s largest city gas distribution player with presence spread across 19 Districts in the State of Gujarat and Union Territory of Dadra Nagar Haveli and Thane GA which includes Palghar district of Maharashtra. Kareem Martin Womens Jersey