Argentina opens tender for $2 bn Vaca Muerta gas pipeline
Argentina has opened the tender for a new $2 billion gas pipeline from the huge Vaca Muerta shale field, which according to the country’s Energy Secretariat, should be completed the middle of 2021. The pipeline, which a government source previously estimated would cost $2 billion, will run from the southern province of Neuquen to Salliquelo, a town in the province of Buenos Aires. “It is expected that by the (Southern Hemisphere) winter of 2021 it should be finished, so we are in a hurry to get (the tender) out,” Carlos Casares, undersecretary for hydrocarbons and fuel, told Reuters at the Argentina Oil, Gas, and Energy Summit in Buenos Aires. “Any investor that has won the tender will be given an escape route if the economic context does not allow it to be built,” he said, explaining that they had to take into account upcoming elections that are stoking political uncertainty. President Mauricio Macri, who will seek re-election in October, is betting on the development of Vaca Muerta to cut energy imports and make the country a net exporter of hydrocarbons, creating a new source of foreign currency income. Vaca Muerta is a non-conventional hydrocarbon formation the size of Belgium, which could house one of the largest reserves of unconventional hydrocarbons in the world.
Reduction of government stake in oil companies a credit negative: Moody’s
The government’s latest plan to reduce stake in select state-run companies including oil and gas firms could be credit negative for Indian Oil Corporation (IOC), Bharat Petroleum (BPCL) and Oil India, Moody’s Investors Service said in a report. “A reduction in the government’s direct stake to below 51 percent could result in a lower assessment of support incorporated into the rating of these companies, a credit negative. The Baa2 ratings of IOCL and BPCL incorporate two notches of uplift, while that of OIL incorporates one notch of uplift,” the report said. According to the rating agency, a change in policy along with Rs 1.1 trillion disinvestment target indicate that the government’s direct ownership could fall below 51 percent in the state-owned oil companies – Oil and Natural Gas Corporation (ONGC), IOC, BPCL and Oil India, who had a market capitalization of Rs 4.5 trillion as on 5 July 2019. The government is open to reducing its stake to as low as 40 percent, according to an Economic Times report. “The idea is to unlock the value in these firms. In the case of oil firms, their cross-holdings amongst each other give us that space,” an official told ET. Analysts point out that reducing stake in state-owned oil and gas Public Sector Undertakings may leave less room for these companies to divest their cross-holdings. “We highlight that as the government brings down its ‘effective’ stake in these companies to 51 percent gradually through disinvestments, the energy PSUs may not be able to divest their investment cross-holdings, as it becomes strategic for the government to retain a majority stake and control,” Kotak Institutional Equities said in a report. It added that GAIL, IOC, Oil India and ONGC hold significant cross-holdings in each other, which may have to be held in the long run in case the government reduces its stake over the next few years. Finance minister Nirmala Sitharaman had in her budget speech said the government was considering the option of taking its stake below 51 percent to an appropriate level on a case-by-case basis in companies that have to be retained under state control. She noted that the government has decided to modify the 51 percent government stake definition to include the holdings of state-controlled entities. Also, in a post-budget interaction, Department of Investment and Public Asset Management secretary Atanu Chakraborty had said the government had made the separation between control and 51 percent stake for the first time.
Many ‘maharatna’ and ‘navratna’ cos may lose PSU tag post equity dilution
Several of ‘maharatna’ and ‘navratna’ companies, including ONGC, IOC, GAIL and NTPC, could soon become independent board-run entities outside the scrutiny of CAG and CVC if the government implements a proposal to take out the PSU tag from some of the entities after its shareholding falls below the threshold 51 percent mark. Government sources said that Finance Ministry is planning to approach NITI Aayog to prepare yet another list of PSUs where their holding could be brought down to below 51 percent and also point out which of these could shed the PSU tag and become independently board-run private companies. For a company to remain a government-controlled public sector undertaking (PSU), either the Centre or the state government or both together should hold more than 51 percent stake in it. The Budget proposed that 51 percent stake could include direct and indirect shareholding of the government through other state-run companies and financial institutions. “As per the definition of a government company, the Central government and the state government together have to have 51 percent equity. If that comes down, then it does not have the character of the government company. So when this decision is taken, we will also be consciously deciding whether that particular company needs to be retained with the tag of the government company,” Finance Secretary Subhash Chandra Garg told IANS when asked about the government’s plan on privatization. Though Garg did not elaborate, sources said three categories of companies would be retained by the government: one where government and its institutions hold 51 percent or more, second where government stake is below 51 percent but the company still retains PSU tag with a change in law and third; where companies become almost private entities with government holding of say, 26 or 40 percent, and is run by a board. It is the third set of companies where several professionally run ‘maharatna’ and ‘navratna’ PSUs would fall. The government intends to offer complete freedom to some of these entities to run their operations while also keeping the entities outside the scrutiny of CVC and CAG. At present, there are more than two dozen CPSEs that are widely held by the public with a government stake of less than or close to 60 per cent. These include ‘maharatna’ and ‘navratna’ CPSEs like Engineers India Ltd (EIL-52%), Indian Oil Corporation (IOC-52.18%), Bharat Petroleum Corporation (BPCL-53.29), Gail India (52.64%), Oil and Natural Gas Corporation (ONGC-64.25%), Power Finance Corporation (PFC-59.05%), Powergrid Corporation (PGCIL-55.37%), NTPC, Shipping Corporation of India (SCI-63.75%), Bharat Heavy Electricals (BHEL-63.17%), NBCC (68.18%), Container Corporation (Concor a” 54.80%). Some of these may be earlier targets for bringing down equity below 51 percent level. If the government sells more of its equity in these entities, it could also raise its disinvestment proceeds easily from the market without looking at other instruments such as share buyback, new issues of ETFs or higher dividend payout from PSUs including the declaration of a special dividend. This would also eliminate pressure on achieving disinvestment target, as even a small issue by a bluechip PSU can get better realization for government shares. The shares of most of these companies have got a good valuation from the market. The government has set a disinvestment target of Rs 105,000 billion for FY20.
ONGC Videsh to miss disinvestment bus despite Modi govt’s ambitious target
The Narendra Modi government might be keen to take a number of central public sector enterprises to the stock market, but it has put the plan to list ONGC Videsh Ltd (OVL) — the overseas investment arm of the Oil and Natural Gas Corporation — on the backburner. The Modi government has decided to proceed with an aggressive disinvestment programme, with a revised target of Rs 1050 billion, but is not comfortable with the idea of launching an initial public offering for OVL. “ONGC Videsh is still heavily dependent on the parent company for manpower and other critical operations. Though the company has registered strong financial performance, it may not be a prudent decision to list it as a separate entity at this stage,” a government official not wishing to be named told ThePrint. Last year in December, ONGC was toying with the idea of listing the profitable OVL as a separate company. The proposal, however, did not see the light of the day as market conditions were not conducive. The government has also decided, as reported first by ThePrint, to put on hold the proposal of merging public sector oil companies. The focus instead will be on increasing domestic production. Sources said there will be no mergers of oil PSUs in the immediate future after the marriage between ONGC and Hindustan Petroleum Corporation Ltd (HPCL) led to multiple problems. Review of all projects OVL has made investments in oil and gas projects in numerous countries, including Iran, Venezuela, Colombia and Mozambique. Sources said the government might review all major investments made overseas by OVL to ensure that each of them functions smoothly, and avoid any disruption. Last month, an informal ministerial group under Union Home Minister Amit Shah held a meeting to review the $2.2-2.4 billion investment proposal in Mozambique by the Bharat Petroleum Corp. Ltd. Besides Shah, the meeting was attended by Oil Minister Dharmendra Pradhan, External Affairs Minister S. Jaishankar, and Commerce Minister Piyush Goyal, among others. Earlier, in the wake of falling global crude prices, Pradhan had raised concerns over investments made by public sector firms in the Rovuma Offshore Area-1 in Mozambique. The investments made during the UPA era were estimated at about $6 billion. “There is a need for regular reviews by top level officials as these include huge investments overseas and there is little scope to go wrong,” the official quoted above said. Amid rising geopolitical tensions, India’s total crude oil production has been a cause for concern. The country’s total crude production was 37.5 million metric tonnes in 2014-15, but has fallen to 34.2 million metric tonnes in 2018-19, leading to increased imports.
Opec sees lower 2020 demand for its oil, points to surplus
Opec on Thursday forecast world demand for its crude will decline next year as rivals pump more, pointing to the return of a surplus despite an Opec-led pact to restrain supplies. Giving its first 2020 forecasts in a monthly report, the Organization of the Petroleum Exporting Countries said the world would need 29.27 million barrels per day (bpd) of crude from its 14 members next year, down 1.34 million bpd from this year. The drop in demand for Opec crude highlights the sustained boost that Opec’s policy to support prices by supply cuts is giving to US shale and other rival supply. This potentially gives US President Donald Trump more room to keep up sanctions on Opec members Iran and Venezuela. “US tight crude production is anticipated to continue to grow as new pipelines will allow more Permian crude to flow to the US Gulf Coast export hub,” Opec said, using another term for shale oil. Opec in the report also forecast that world oil demand would rise at the same pace as this year and that the world economy would expand at this year’s pace, despite slower growth in the United States and China. “The 2020 forecast assumes that no further downside risks materialize, particularly that trade-related issues do not escalate further,” Opec said of the economic outlook. “Brexit poses an additional risk, as does a continuation in the current slowdown in manufacturing activity.” Opec and its allies last week renewed a supply-cutting pact until March 2020, citing the need to avoid a build-up of inventories that could hit prices. Opec also said its oil output in June fell by 68,000 bpd to 29.83 million bpd, above the 2020 demand forecast. This suggests there will be a 2020 supply surplus of over 500,000 bpd if Opec keeps pumping at June’s rate and other things remain equal.
Assam Gas Company, Oil India, GAIL sign agreement for setting up of new CGD
Consortium of three Public sector units , Assam Gas Company Ltd (AGCL), Oil India Limited (OIL) and GAIL Gas Ltd on Thursday signed a joint venture agreement for incorporating a new company for implementation of the City Gas Distribution (CGD) Networks. The Joint Venture Company shall implement the City Gas Distribution (CGD) Networks and supply Piped Natural Gas to the domestic, commercial and industrial customers and CNG (Compressed Natural Gas) to the vehicles in Kamrup, Kamrup (Metro), Cachar, Hailakandi and Karimganj districts in Assam. In these five districts, approximately 4.16 lakh households will be connected with the Piped Natural Gas (PNG) and 72 CNG stations will be set up in these districts. In a statement the state government stated, Government of Assam, “ Under the persuasive follow up of the Government of Assam, the National Gas Grid Pipeline (Urja Ganga Project) which was originally planned for extension from Jagadishpur in Western Uttar Pradesh, to Haldia in West Bengal, was consented to be extended to Guwahati in Assam, by the Government of India through an intermediate spur line from Barauni in Bihar to Guwahati and the Gas Pipeline construction work is being carried out by GAIL India Limited. The Barauni to Guwahati section of the Nation Gas Grid is likely to be completed by December, 2020. Thereafter, eight states of the North East will be connected by Indradhanush Gas Grid Ltd. to the National Gas Grid.” Managing Director, AGCL., Aditya Kumar Sharma; Executive Director (Business Development), Oil India Limited, S. K. Singh; CEO, GAIL, Gas Ltd., A. K. Jana signed the Joint Venture Agreement in the presence of Industries & Commerce Minister Chandra Mohan Patwary, Media Adviser to Chief Minister, Hrishikesh Goswami. The statement stated with the connection of Assam to the National Gas Grid, steady supply of Natural Gas shall initiate a spurt in the industrial sector, power generation sector, automotive CNG sector and domestic piped gas to households sector and it will act as a catalyst to trigger immense development and employment opportunities throughout Assam and other parts of Northeast Region. The supply of Piped Natural Gas to the industrial, commercial and domestic customers in the first phase in Kamrup, Kamrup (Metro), Cachar, Hailakandi and Karimganj districts will be a major initiative in this regard. AGCL, along with OIL and GAIL Gas Ltd (GGL) formed a Consortium and bid for laying, building and operating the City Gas Distribution Networks in two Geographical Areas (GA) in Assam. GA-2 comprises of Cachar, Hailakandi and Karimganj districts and GA-3 comprises of Kamrup and Kamrup (Metro) districts. After competitive bidding, the Consortium won and was awarded by the Petroleum & Natural Gas Regulatory Board (PNGRB) the authorization for the work. Around Rs.1,700 crores will be spent for the purpose in the coming years. Around 95,000 households will be connected with the Piped Natural Gas (PNG) and 21 CNG stations will be set up in Cachar, Hailakandi and Karimganj districts at an estimated cost of approximately Rs. 500 crores. Around 3,21,000 households will be connected with the Piped Natural Gas (PNG) and 51 CNG stations will be set up in Kamrup and Kamrup (Metro) districts in the coming years at an estimated cost of approximately Rs. 1,200 crores. The Government of Assam has initiated the preliminary work on the project and the Detailed Feasibility Study has been completed. Domestic and commercial pipe gas connections in Guwahati city will be available within the next two years on the city being connected with the National Gas Grid. In addition, CNG Stations will also be set up during this period to meet the requirement of clean fuel for transport sector.