What Air India’s seller and any future buyer should do to make the deal fly
At last, the government has decided to bite the bullet and sell Air India (AI). Now, the question is how: strategic sale, or sale through the stock market? Ratan Tata, possibly in alliance with Singapore Airlines, has shown interest, as have others like IndiGo and Qatar Airlines. Strategic sale is a political landmine, which could invite charges of favouritism — or, worse, corruption. ‘Strategic investors’ will always pick up the stakes in the secondary market. But that is not the government’s worry. The only downside of a market sale is that the Indian stock market may not be large enough to absorb this big a sale and fetch a good price. So, should AI’s assets be stripped and each component sold? Or to sell it as a going concern? Or to sell the profit-making subsidiaries — AI Express (low-cost carrier), AI Transport (cargo) and AI SATS (airport services) — land and office buildings separately, and the remaining as a ‘going concern’? The difference between the first and third options is that in the first, landing slots can also be auctioned independently. In the third option, it will be integral with the remaining portion of the airline. A detailed cost-benefit analysis has to be done to decide which is the best alternative. Air Lanka was sold to Emirates as a total airline, which was rechristened as Sri Lankan. It was considered that the government could have got more if the landing slots were sold separately. Severance pay and other obligations should be settled. The less GoI insists on the buyer to take on the existing staff, pilots included, the better price it can get. This is also the right time for GoI to bring a law that dilutes the job security of public sector employees and GoI’s financial obligations to them in the event of privatisation. Then comes the matter of how much to divest. The more the government holds a share in AI, the less will be the price it realises. At the same time, it has to retain its fiduciary responsibility. The British government did this, till recently, by holding one ‘golden share’ of the then-British Airports Authority (BAA, now Heathrow Airport Holdings), thereby holding overriding powers but without any dividends. This method could be ideal for AI’s privatisation too. Should foreign airlines be allowed to hold majority shares? The present rule allows, without breaching the existing cap, up to 100% with ‘other’ foreign players like sovereign wealth funds. This aspect needs a dispassionate and hard-nosed study. Then, should AI be sold all in one go? Or should it be progressively divested? Either way, the government will be on the horns of a dilemma, as China had experienced in its selling of shares of petro company Sinopec in the market. The Chinese government could not divest too much, as it would depress the price. And divesting slowly meant giving a signal to the market of continued government ownership, which meant prices going down after the sale. Another possibility is the adoption of the Maruti-Suzuki model: parking some of its stakes in public sector banks and realising the value later when the prices move up. However, this option is open to the criticism that public sector banks are not much better than our public sector undertakings (PSUs). Selling these stakes in PSBs would still remain a task for the government to avail the benefits of a price appreciation. Unlike a private-private sale, when the seller is not concerned with the events post-sale, in a government of India-private sale, the government has to be mindful of the post-sale consequences. This, again, creates a dilemma for GoI. A pro-monopoly structure post-privatisation will fetch a higher price and make the privatisation look successful in the eyes of the media and the public. But a pro-competitive structure post-privatisation will benefit the people in terms of a vibrant competition. In India, despite the presence of so-called ‘low-cost carriers’, prices have not come down to the extent that they are in the Far East Asian market. We still do not have vibrant competition. Incumbents have been sabotaging the entry of powerful competitive forces like Air Asia, which has significantly brought down prices by all carriers in the segments it operates. The airline and mobile telecom industries are similar in a way in that both are high fixed cost and near-zero variable cost industries. Thus, during the period of excess capacity, costs can go down to selfannihilating levels. Their only saving grace is to wait for the good times — when demand picks up and excess capacity vanishes, a feature of the airline industry — as it follows the business cycle. Samson Ebukam Authentic Jersey
Why debt-ridden, loss-making Air India is still an attractive buy for some
After the Union Cabinet allowed the divestment of loss-making Air India, several companies such as Tata Group, Indigo and Qatar Airlines have shown interest. But heavy losses and debt remain big concerns of a prospective buyer. However, despite its accumulated losses of more than Rs 50,000 crore and debt of about Rs 55,000 crore, Air India can still be a prized asset for the buyer. Though there is a perception that the national carrier is a lumbering behemoth not fit to churn out profits in a sector where margins are thin, Air India is actually not too big to turn around. Take employee-to-aircraft ratio, an indicator of efficiency as well as the scope of a turnaround. Aakansha Kaushik, a research scholar at JNU, writes in an article that the ratio is comparable to other profitable airlines. In 2015-16, Air India’s employee-to-aircraft ratio was only 106 for a fleet size of 136. IndiGo, the only large consistent profit-making carrier, operated at a higher employee-to-aircraft ratio of 116 though a lower fleet size of 106. IndiGo also had a lower number of maintenance-and-overhaul personnel than Air India. The national carrier has its own maintenance and repair centre, which gives it cost advantage over other players. Passenger load factor, which indicates capacity utilisation of an airline, is another positive for a prospective buyer. Air India’s load factor has improved consistently over the years and has equalled the worldwide average for the airline industry. But it is still slightly below the level of other major players in the Indian airline Industry Other factors that can lure a buyer are Air India’s large asset base, international flying rights, membership of the Star Alliance, valuable slots at big international airports and three profit-making subsidiaries. Air India’s three profit-making subsidiaries are Air India Express (low-fare international carrier), AI Transport Services (ground handling unit) and AI-SATS (a 50:50 ground-handling JV with Singapore Airport Terminal Services). Air India Express reported a net profit of Rs 296.7 crore in 2016-17. It was due to all these factors that Aviation Secretary R N Choubey said recently that Air India had huge value and would find many takers. “In the past three years, we have turned around Air India operationally. The airline is now cash positive,” Choubey said. Corey Coleman Womens Jersey
Solar energy draft policy of Goa government open to public for comments
The draft of the solar energy policy prepared by the Goa energy developement agency (GEDA) is now open for suggestions and comments from the public and stakeholders. The policy is available on the department of science & technology website, www.dstegoa.gov.in, and on the official government portal www.goa.gov.in. Comments have to reach the member secretary, GEDA, by post or through email: gedagoa@yahoo.com latest by 5.45pm on July 14. “Goa is richly endowed with moderate climate and bright sunshine for almost 8-9 months a year for generating solar power. The state entirely depends on thermal energy generated in other states. Goa being eco-sensitive, no thermal energy generation is possible in the state. To attain self-reliance in power generation and promote clean source of power, solar policy is being adopted. This would result in reduction of carbon emissions, “ the policy states. It goes on to add that the challenge before the state government is not only to meet the ever-growing demand for power, but also to progressively increase the share of renewable sources. Reggie Ragland Womens Jersey
Spain’s power and gas firm Gas Natural targets $40 billion EDP merger -sources
Spanish power and gas company Gas Natural has approached Portuguese rival EDP about merging to form Europe’s fourth biggest utility by market value, people familiar with the matter said on Monday. Talks over a potential 35 billion euro ($40 billion) deal and its potential structure are still at an early stage and there is no certainty over their outcome, four sources said, although Gas Natural chairman Isidre Faine has already sounded out his Portuguese counterpart Antonio Mexia about a tie-up. A deal would create an Iberian champion competing with France’s Engie and EDF and not far behind heavyweights Enel and Iberdrola. And it could trigger a long expected wave of consolidation among Europe’s biggest utilities as they seek to gain scale and shift their revenue streams towards renewables to protect profits from steep competition and narrower margins. A Gas Natural-EDP merger is seen as a good strategic fit as EDP has made big headway in renewable power while Gas Natural remains strong in gas-fired or coal generated electricity. The two have a complementary footprint, especially in Latin America where the Spanish firm is strong in Chile and Mexico and the Portuguese group in Brazil as well as in the United States. “The combination of the two companies is quite attractive as Gas Natural lacks power generation in Latam and renewables. But the key to the deal is the politics”, said a major shareholder in one of the two firms. EDP declined to comment. Gas Natural said it was not in merger talks with EDP. CROSS-BORDER DEALS Any attempt to consolidate Europe’s fragmented energy market has so far raised eyebrows among European competition authorities who fear it could translate into higher prices. But sector insiders say the mood for cross-border deals has changed since the French election victory of Emmanuel Macron who has been a strong advocate of creating European champions. Meanwhile, Spain’s prime minister Mariano Rajoy and his Portuguese counterpart Antonio Costa, are working on increasing connections between the energy grids of the two countries and with Europe and none of either group’s main shareholders is seen as raising objections if the price is attractive. A merger would also mark the latest effort by Spain’s Criteria, which owns direct or indirect stakes in Caixabank , Abertis, Gas Natural, Repsol or Telefonica, to restructure its portfolio. The holding company, which is also managed by Faine, wants to focus on smaller stakes in bigger companies with potentially less political influence but higher financial returns. Criteria, which is reviewing a potential tie-up between toll road operator Abertis and Italy’s Atlantia, declined to comment. But it has a track record for such deals and in 2014 exchanged 100 percent of Agbar for 5 percent of Suez. “Faine has done it with Agbar and is about to do it again with Atlantia and Abertis,” a source with knowledge of the deal said. “Now, he is looking towards Portugal to replicate the move with Gas Natural and EDP.” Alex Anzalone Jersey
Trump to promote U.S. natural gas exports in Russia’s backyard
President Donald Trump will use fast-growing supplies of U.S. natural gas as a political tool when he meets in Warsaw on Thursday with leaders of a dozen countries that are captive to Russia for their energy needs. In recent years, Moscow has cut off gas shipments during pricing disputes with neighboring countries in winter months. Exports from the United States would help reduce their dependence on Russia. Trump will tell the group that Washington wants to help allies by making it as easy as possible for U.S. companies to ship more liquefied natural gas (LNG) to central and eastern Europe, the White House said. Trump will attend the “Three Seas” summit – so named because several of its members surround the Adriatic, Baltic and Black Seas – before the Group of 20 leading economies meet in Germany, where he is slated to meet Russian President Vladimir Putin for the first time. Among the aims of the Three Seas project is to expand regional energy infrastructure, including LNG import terminals and gas pipelines. Members of the initiative include Poland, Austria, Hungary and Russia’s neighbors Latvia and Estonia. Trump’s presence will give the project a lift, said James Jones, a former NATO Supreme Allied Commander. Increased U.S. gas exports to the region would help weaken the impact of Russia using energy as a weapon or bargaining chip, said Jones. “I think the United States can show itself as a benevolent country by exporting energy and by helping countries that don’t have adequate supplies become more self-sufficient and less dependent and less threatened,” he said. Trump’s Russia policy is still taking shape, a process made awkward by investigations into intelligence findings that Russia tried to meddle in the 2016 U.S. presidential race. Russia denies the allegations and Trump says his team did not collude with Moscow. Lawmakers in Trump’s Republican Party, many of whom want to see him take a hard line on Russia because of its interference in the election and in crises in Ukraine and Syria, support using gas exports for political leverage. “It undermines the strategies of Putin and other strong men who are trying to use the light switch as an element of strategic offense,” said Senator Cory Gardner, a Republican from Colorado who is on the Senate Foreign Relations Committee. The Kremlin relies on oil and gas revenue to finance the state budget, so taking market share would hurt Moscow. “In many ways, the LNG exports by the U.S. is the most threatening U.S. policy to Russia,” said Michal Baranowski, director of the Warsaw office of think-tank the German Marshall Fund. COMPETITIVE ARENA The U.S. is expected to become the world’s third-largest exporter of LNG in 2020, just four years after starting up its first export terminal. U.S. exporters have sold most of that gas in long-term contracts, but there are still some volumes on offer, and more export projects on the drawing board. Cheniere Energy Inc, which opened the first U.S. LNG export terminal in 2016, delivered its first cargo to Poland in June. Five more terminals are expected to be online by 2020. Tellurian Inc has proposed a project with a price tag of as much as $16 billion that it hopes to complete by 2022, in time to compete for long-term contracts to supply Poland that expire the same year and are held by Russian gas giant Gazprom . “We would like to be a supplier that competes for that market,” Tellurian Chief Executive Meg Gentle told Reuters. A global glut in supply may, however, limit U.S. LNG export growth, regardless of Trump’s support. The glut has depressed prices and made it difficult for LNG exporters to turn a profit, said Adam Sieminski, an energy analyst with the Center for Strategic and International Studies. Russia has the advantage in Europe due to its proximity and pipeline connections. “Europe is going to be the great competitive arena between Russian gas and LNG,” said Daniel Yergin, the Pulitzer Prize-winning oil historian and vice-chairman with IHS Markit analysis firm. NORD STREAM Europeans will be watching to see whether Trump clarifies his administration’s position on a new pipeline to pump Russian gas to Germany, known as Nord Stream 2. The U.S. Senate in June passed a package of sanctions on Russia, including provisions to penalize Western firms involved in the pipeline. The new sanctions have stalled in the House of Representatives. The U.S. State Department has lobbied against the pipeline as a potential supply chokepoint that would make Europe more vulnerable to disruptions. The threat of sanctions adds to tensions between Washington and Berlin. Germany’s government supports the pipeline, and Trump’s position on it is a concern for European diplomats. Jamie Collins Jersey
GST shines on renewable energy sector
The renewable energy sector is quite content with GST provisions. Contrary to earlier fears of sale of solar equipment – panels, modules and inverters – being taxed at high rates, the GST on such sales has been set at 5 per cent. “The net effect on solar projects will be 3.5-4.5 per cent,” said Raj Prabhu, co-founder and CEO of Mercom Capital Group, which tracks the segment. “There will be issues with power purchase agreements as they will vary from state to state but 5 per cent GST is much more palatable than the expected 18 per cent.” The only worry is that for very small installations of 100 kw in residential sector, solar inverters used will invite 28 per cent GST. Similarly, in wind segment, sale of turbines and other equipment will attract GST of 5 per cent, the same as VAT did earlier. However, most wind equipment manufacturers also take on the task of setting up projects for developers, and this being a service, will attract 18 per cent GST, up from 12 per cent tax on engineering services earlier. “All engineering services are currently in 18 per cent bracket,” said D V Giri, secretary general, Indian Wind Turbine Manufacturers Association. “We have asked for the entire gamut to be brought into 5 per cent slab.” Solar projects involving civil and works contracts will be taxed at 18 per cent. “There will be an increase in solar tariffs to which key contributors will be operation and maintenance, component costs and civil, works contracts,” said Prabhu. A.J. Green Jersey
GST: LPG becomes costlier by Rs 32 as tax rate increases, subsidy comes down
Even as the Narendra Modi government basks in the glory of a successful launch of the Goods and Services Tax (GST), the common man has seen mixed cues, as prices of some products have gone higher, while those of some others have reduced. Reports said on Monday that households will have to shell out more for a cylinder of cooking gas or LPG (Liquefied Petroleum Gas) from this month, owing to the new tax regime combined with a reduction in subsidy. LPG has been put in the 5 per cent GST slab, where earlier some states had absolutely no tax on the household essential and some others had a VAT between 2 to 4 per cent. Not only this, the common man will also have to pay more as installation, administration and documentation charges for new connections and also for the mandatory two-year inspection, reported Times of India. Additional cylinders have also been put under 18 per cent tax slab. The price rise is expected to be anywhere between Rs 12 and Rs 15 per cylinder, in states that earlier levied no tax on the fuel. In other states, the rise will depend on the gap between the rate of GST on LPG and rate of VAT applicable earlier. Moreover, the amount of subsidy has also been reduced, effective June, 2017. Speaking to the TOI about the reduction in subsidy, National Secretary of All India LPG Distributors Federation Vipul Purohit said, “The subsidy amount of Rs 119.85 paid to eligible consumers in Agra, for example, till June has also been reduced. According to the new notification, they will receive only Rs 107 in their bank accounts.” When put together, both these changes will effect the prices by Rs 32 per cylinder, depending on the state, said TOI. Factors like transportation and storage logistics will be contribute to the difference in pricing between various states. It is pertinent here to mention that there has been no effect of GST on the subsidy, and that the subsidy amount varies every month, due to change in the gap with international price. On the other hand, the prices of commercial LP cylinders will come down by about Rs 69, due to GST. Earlier the total tax on LPG for commercial use attracted a tax levy of 22.5 per cent (8% excise duty and 14.5% VAT), while under GST, it has been put under the 18 per cent tax slab. Ivan Rodriguez Womens Jersey
IOC launches 450-kg jumbo LPG cylinder in Coimbatore
Indian Oil Corporation on Monday launched 450-kg Indane Jumbo LPG cylinder in the Indian market. Indane Jumbo called the “Mini-Bulk” is available in minimum footprint size with a flow rate of up to 2,000 kg/hour and does not require licence to use. Talking to reporters on the sidelines of the launch, Indian Oil Executive Director – Tamil Nadu and Puducherry, R Sitharthan said Coimbatore, being a very industrialised city, was the best place to introduce the product in India. “With this launch we expect to meet the need of industries where space is a constraint and constant changeover is not possible.” he said. Despite its size, “Jumbo” is easy to handle and can be installed quickly, as ease of operation was one of the primary things that were kept in mind when it was conceptualised, apart from meeting the high flow rate requirement, he said. Being the most profitable PSU in India and ranked 161st in Fortune 500 Global List, with a revenue of 54.7 billion US Dollars, IOC is handling 11 out of 23 refineries in India and 12,848 kms of pipelines across the country, he said. Launched in 1970, Indane is delivered to the doorsteps of over 98 million households and sales crossed 10 million metric tonnes (MMT) after registering 10 per cent year-on-year growth during 2016-17, he said. Indane is now available in compact 5 kg cylinders for rural, hilly and inaccessible areas, 14.2 kg cylinders for domestic use, and 19 kg and 47.5 kg and 450 kg for commercial and industrial use, Sitharthan said. With 91 bottling plants in upcountry locations with state-of-the-art safety features, two million cylinders are rolled out a day, making the company the second largest marketer of LPG globally, after SHV Gas of the Netherlands, he said. The company has released an all-tie high 15 million LPG connections (PMUY + non-PMUY) during 2016-17 against 10.3 million during the last financial year, he said. Sitharthan said that as of today, a total of 44,43,637 customers had joined the “give it up” campaign resulting into savings of Rs. 17.5968 billion. Martin Jones Jersey
ONGC Videsh enters Namibian offshore
ONGC Videsh Limited (OVL) is eyeing entry in the Namibian offshore oil assets through definitive binding agreements. An official statement said, OVL has signed definitive binding agreements with Tullow Namibia Limited (Tullow), a wholly owned subsidiary of Tullow Oil plc, on June 28. These agreements are for acquiring 30 per cent participating interest in Namibia Petroleum Exploration License 0037 for Blocks 2112A, 2012B and 2113B and related agreements (License) out of Tullow’s existing participating interest of 65 per cent in the License. Pan continental Namibia (Pty) Limited with 30 per cent Participating interest and Paragon Oil and Gas (Pty) Limited with 5 per cent participating interest are other partners in the License. Tullow is the operator of the License and shall continue to remain operator after acquisition by ONGC Videsh. The acquisition is subject to satisfaction of customary conditions precedents including approvals of Namibian regulatory authorities and joint venture partners. Captain Munnerlyn Jersey