More deals like ONGC-HPCL? Govt mulling mega PSU mergers to met divestment targets
Faced with the uphill task of mobilising disinvestment revenue in excess of the target of Rs 800 billion in volatile market conditions, the Centre may sell its majority stakes in one or two PSUs to other PSUs, in what could be a repeat of last year’s ONGC-Hindustan Petroleum Corporation deal. The companies the Centre could divest its stakes in include NHPC (which may be sold to NTPC), SJVN (to NTPC) and GAIL India (Indian Oil/Bharat Petroleum). Consolidation of power financing firms PFC and REC is also under consideration, though it is not immediately clear which one will be the acquirer (net worth and market caps of these firms are similar). The Centre’s 73.64% stake in NHPC is worth about Rs 175.65 billon now while its 65.61% equity in PFC is valued at Rs 137.18 billion and 73.64% in hydropower producer SJVN at Rs 69.04 billion at current market prices. The value of the government’s 53.34% stake in gas marketer and transporter GAIL is about Rs 459.67 billion. In the case of GAIL, however, the realisation to the government could be substantially lower as the company’s pipeline business would be separated before the sale. ONGC had bought the Centre’s 51.11% stake in HPCL for Rs 369.15 billion or about 37% of the government’s record Rs 1000 billion disinvestment revenue last year. In a presentation to Prime Minister Narendra Modi in April, PSU chiefs had proposed the creation of public sector behemoths by consolidating firms based on commonalities of functions to benefit from economies of scale, global competitiveness and access to cheaper capital. Given the volatile market conditions and few big stocks being available for offer for sale (OFS) of minority stakes, deals similar to ONGC-HPCL are being considered by the government, an official said. The country’s largest oil retailer IOC as well as BPCL have shown interest in the government’s stake in GAIL (India), the dominant gas marketer. NTPC, the largest thermal power producer in India, has also ventured into the hydropower generation business and a merger with hydropower firm NHPC would be synergistic. Similarly, an amalgamation of power financing firms PFC and REC could allow leveraging of common resources. The pipeline of probable deals would depend on the cash position of the acquiring PSUs, which are also undertaking huge capex to expand their businesses organically. NTPC has capex plans of Rs 22,300 while that of IOC’s is over Rs 200 billion in FY19. Recently, finance minister Arun Jaitley expressed confidence that the tax collection target for FY19 would be met, if not exceeded, and disinvestment receipts too would be in excess of the target of Rs 800 billion. However, the shortfall in goods and services tax collections and the fact that disinvestment receipts so far have been below Rs 100 billion are causes for concern. ONGC seeks lower royalty outgo to boost coffers Given the newfound stress on its books due to two mega expenditures incurred during the last financial year, state-run ONGC is looking at all possible ways to boost its coffers, including seeking an upward revision of the post-wellhead cost to reduce its royalty outgo on crude oil produced from nomination blocks. In 2007, the ministry of petroleum and natural gas through a gazette notification said that the wellhead price —on which royalty payment to the government will be calculated — of crude oil for nominated blocks of ONGC and Oil India shall be ascertained by deducting Rs 1,250 per ton of oil for onshore blocks and Rs 947 for offshore blocks as operational expenditure. “The amounts specified…shall be the post-wellhead cost which shall be valid for a period of three years with effect from 1st April, 2007 or such period till the revised rates are notified,” said the notification. These operational expenditures haven’t been revised since. In contrast, however, for all blocks offered after the nomination era, actual cost of production is allowed to be set off before calculating royalty payment to the government. ONGC has sought a revision with effect from April 1, 2010. Fields nominated to ONGC and Oil India account for 70% of domestic oil output. But production from these fields have stagnated around 25 million ton per annum for years. ONGC produces almost 87% of its crude oil production from nominated blocks. An ONGC source told FE that royalty should be calculated after deducting the actual operational cost as the firm is at present paying royalty on even the cost. “The operational expenditure are around four times the amount fixed,” said the source, adding that the ministry is still to respond on the issue. ONGC did not respond to an email seeking comments on the issue till the time of going to press. As reported by FE earlier, ONGC has also sought reimbursement for royalty and cess paid by it on behalf of its exploration partners for the pre-New Hydrocarbon Licensing Policy, soon after the Union Cabinet in July decided that these taxes will now be paid by all contractors as per their participating interests in blocks signed before 1999. In the 1990s, the government awarded some discovered oil and gas fields to private companies in order to attract investments in the hydrocarbon sector. As an incentive, however, the liability of payment of royalty and cess was put on state-run explorers (ONGC and Oil India) and they were made the licensees of the blocks. While ONGC and Oil India had the option to take PIs of 30-40% in the blocks or just remain the licensees without any stake, they were required to pay 100% of the statutory levies. An official from the ministry of petroleum and natural gas, confirming the development, said that though the government is still to deliberate on the issue, the company should limit its production costs as it reduces the government’s share. For oil explorers, production costs include pre-wellhead and post-wellhead expenses such as applicable operating costs of support equipment and facilities, apart from depreciation. A zero-debt firm till late last year, ONGC had to borrow Rs.250 billion
SCI eyes stake in Swan Energy’s Jafrabad LNG port project
Shipping Corporation of India Ltd (SCI) is weighing a plan to buy stake in a 10 million tonnes (mt) a year capacity floating storage and regasification unit (FSRU)-based new LNG port being constructed by Swan LNG Private Ltd off the Jafrabad coast in Gujarat’s Amreli district with an investment of ?40 billion, a least two officials at the Mumbai-based firm said. “We are evaluating a proposal to invest in the Jafrabad LNG port project,” a director-level official at the company said, asking not to be named. Japan’s Mitsui O.S.K Lines Ltd, the long-standing partner of state-run SCI in four LNG tankers leased to Petronet LNG Ltd, has an 11 percent stake in Swan LNG Pvt Ltd. Swan Energy Ltd, a textiles and real estate group, has a 63 percent stake in Swan LNG Pvt Ltd. MOL is one of the world’s largest LNG carrier operators and Japan’s only FSRU owner and operator. The project involves building LNG port facilities utilizing a new build FSRU along with a floating storage unit (FSU) for receiving, storing and regasifying LNG with an initial capacity of 5 mt. The FSRU and FSU will be leased on a long-term bareboat charter basis and connected by ship-to-ship transfer equipment. The 180,000 cubic meter storage capacity FSRU serving the project is being constructed at South Korea’s Hyundai Heavy Industries Co Ltd. It will be owned by Swan Energy through its subsidiary Triumph Offshore Pvt Ltd and MOL has an option to participate in the FSRU joint ownership. The FSU will have a capacity of as much as 145,000 cubic meters. Besides, MOL will participate in many facets of the project—billed as India’s first new building FSRU project—as technical partner including operation and maintenance of the FSRU and FSU. The terminal is slated to start operation in early 2020. FSRUs are drawing attention as a solution for flexibility and mobility in the LNG supply chain. In October 2017, Swan Energy Pvt Ltd was awarded the rights by the Gujarat government to develop and operate the LNG port for an initial period of thirty years which can be extended by another 20 years. By participating in the Jafrabad LNG project, SCI is looking to strengthen its presence in the LNG shipping business. It is the only Indian shipping company with experience in LNG transportation. The company, in partnership with Japan’s Mitsui O.S.K Lines, NYK Line, and K-Line, has leased four LNG tankers to Petronet LNG Ltd to transport LNG to its facilities located at Dahej in Gujarat and Kochi in Kerala. It holds a 29.08 percent stake each in two LNG ships and a 26 percent stake each in the other two LNG carriers. It is also the technical and commercial manager of two of the four LNG ships.“We are definitely going to manage that project (the FSRU and FSU). We are the only ones in India capable of doing that. We are open to picking up a stake in the Jafrabad LNG port project,” the SCI official mentioned earlier said without giving details on the quantum of the stake and the investment. Terrell McClain Jersey
Increased gas use could reduce diesel demand, says Indian Oil executive
India’s biggest state-owned refiner Indian Oil Corp said on Wednesday that a gradual rise in India’s natural gas consumption could reduce local diesel demand. “Rising use of gas to begin denting diesel demand in five to seven years,” said B V Ramagopal, the director of refineries at Indian Oil. Keeping in mind the increasing demand of natural gas in the country, the company is currently in the process of expanding its natural gas business, said Ramagopal. Indian Oil is building up a liquefied natural gas terminal in the eastern coast of India and has been aggressively bidding for city gas distribution projects in the last few months. Kam Chancellor Womens Jersey
Indian govt did not tell refiners to halt Iranian oil imports: Source
India’s government has not told the country’s oil refiners to halt their imports of Iranian crude, a government source said on Wednesday, even as most Indian refiners have cut down their imports ahead of U.S. sanctions on Iran. “We have good relations with Iran and the U.S. and our decision is not hinged on energy,” said the government source. India has close diplomatic ties with Iran and is also building the strategic Chabahar port in the Middle Eastern country. It is expected to be operational by 2019. However, at the same time, India is closely working with U.S. to further its strategic interests and recently signed a military communications agreement with the United States. Paul Martin Jersey