Time running out for India’s Bharat Petroleum sale
The government had planned to find buyers for majority stakes in BPCL and national carrier Air India in the April 2020 to March 2021 financial year, but is yet to shortlist bidders. Delhi expected to raise a record 2.1 trillion rupees ($28.7bn) from stake sales in state-controlled companies in 2020-21 but has so far raised less than 7pc of this amount, at just Rs138bn. The government netted Rs503bn from such sales last year, according to the finance ministry. Interest in BPCL has been moderate, with only Indian private-sector firm Vedanta and two US investment funds submitting bids. Potential suitors including state-controlled Saudi Aramco, Russia’s state-run Rosneft and US and European majors have declined to place bids. The government is yet to validate the three bids, which it must do before seeking financial offers. Bidders need to do extensive due diligence of BPCL, which is involved in several businesses areas and has a complex corporate structure. They need guarantees from the government that it will not interfere in the company after the sale, a process that may take several months. The BPCL acquisition also comes with several pre-conditions that may limit the buyer’s ability to reform the business. The government is selling a 53pc stake in the company but the buyer must also acquire an extra 26pc from the public, according to securities regulations. This could take the required investment to around $10bn, based on BPCL’s market capitalisation of about $11.5bn and taking into account Delhi’s aim to achieve a premium on the sale. Air India’s sale has been delayed because of sparse interest in the debt-laden airline. Foreign investors are concerned about investing in India after the supposedly business-friendly BJP government refused to abide by international arbitration awards after losing tax demand cases involving UK upstream firm Cairn Energy and telecom company Vodafone. India’s oil demand has been hit by Covid-19, raising further questions about the attractiveness of BPCL to investors. Demand for diesel is likely to decline by 11pc to 1.51mn b/d in 2020-21 from 1.69mn b/d a year earlier, with gasoline use expected to fall by 8pc to 640,500 b/d from 694,000 b/d, according to oil ministry forecasts. India has recorded more than 10.2mn Covid-19 cases, second only to the US. The economy is in a recession after contracting for two consecutive quarters, including a 7.5pc decline in July-September.
Countries where Iranian oil and gas revenues are blocked
Iran has been unable to obtain tens of billions of dollars of its assets in foreign banks, mainly from exports of oil and gas, due to U.S. sanctions on its banking and energy sectors. Iran has repeatedly asked the countries for access to the blocked revenues, even offering barter deals. But its efforts, including attempts to buy humanitarian goods and medicine which are exempt from U.S. sanctions, have mostly failed. Some of the frozen assets consist of money that Iran paid to Western countries for military purchases that were never delivered to Tehran when the Islamic Republic was established following its 1979 revolution. Iran seized a South Korean ship on Monday in what Washington has suggested is an attempt to assert Iranian demands for its frozen revenues there. Below is a list of some countries that owe Iran money for energy imports in recent years. SOUTH KOREA South Korea holds $7 billion in Iranian funds from oil sales, according to Iranian officials. South Korea, normally one of Iran’s largest oil customers, received a waiver in 2018 from the United States to continue purchases of Iranian oil for several months. However, after the United States placed a total ban on Iran’s oil exports and sanctions on its banking sector in 2019, the revenues became blocked in Seoul. The Governor of the Central Bank of Iran (CBI) Abdolnaser Hemmati warned Seoul in June 2020 that Iran would take legal action to gain access to the funds. IRAQ Neighbouring Iraq owes more than $6 billion to Tehran for importing gas and electricity, according to Iranian officials. Iran reduced the gas flows to Iraq in December as a warning to Baghdad to settle its outstanding gas dues. Iraq has paid some of its debts over the years, but U.S. sanctions and economic troubles in the country have made the transfer of money much slower than Iran expected. Hemmati said in October that Baghdad had agreed to release frozen funds for the purchase of basic commodities. CHINA Iranian state media have assessed Iranian revenues in the Chinese banks as high as $20 billion. However, Iranian Foreign Ministry spokesman Saeed Khatibzadeh said in October 2020 that Iran had no blocked assets in China. He said Iran had some “revenues” in the country that could be used when Iran needed them. China has continued buying Iranian oil in defiance of the U.S. sanctions, providing Tehran’s struggling economy with a financial lifeline. JAPAN Tehran has criticised Japan for blocking Iranian assets, which are estimated to be around $1.5 billion. Japan was one of the main buyers of Iranian oil before the sanctions. Foreign Minister Mohammad Javad Zarif told his Japanese counterpart in October 2020 that Iran should be able to use its foreign currency resources held in Japan, and denounced the limits preventing the purchase of medicine and food. LUXEMBOURG $1.6 billion in Iranian funds held by a Luxembourg-based clearing house are frozen due to the sanctions.
Share of natural gas in energy basket will be more than doubled: PM Modi
Enunciating his energy roadmap, Prime Minister Narendra Modi on Tuesday said the share of natural gas in India’s energy basket will be more than doubled, energy sources diversified and the nation will be connected with one gas pipeline grid to help bring affordable fuel to people and industry. Inaugurating a 450-km natural gas pipeline between Kochi in Kerala to Mangaluru in Karnataka, he said India under his government is seeing unprecedented work on highways, railway, metro, air, water, digital and gas connectivity which will aid economic development. The government has an “integrated approach to energy planning. Our energy agenda is all-inclusive,” he said. While on the one hand, the natural gas pipeline network is being doubled to about 32,000 km in 5-6 years, on the other, work on the world’s biggest hybrid renewable plant combining wind and solar power has started in Gujarat. Also, the emphasis is being laid on manufacturing biofuels as well as electric mobility, he said. These measures will help India move away from being highly dependent on polluting coal and liquid fuels for meeting its energy needs. As much as 58 per cent of all energy consumed in the country currently comes from coal while petroleum and other liquids make up for 26 per cent of the energy basket. Share of natural gas is just 6 per cent while that of renewables is less than 2 per cent. Modi said the share of natural gas, which is cleaner and can be transported through pipelines thereby cutting vehicular movements needed for other fuels, is targeted to be raised to 15 per cent by 2030. By the same time, petrol will be doped with as much as 20 per cent of ethanol extracted from sugarcane and other agro products, he said.
Gas pipeline to benefit Karnataka’s coastal districts: CM
The 444-km Kochi-Mangaluru natural gas pipeline, which Prime Minister Narendra Modi commissioned on Tuesday, would benefit industrial, commercial entities and households in Karnataka’s coastal districts of Dakshina Kannada and Udupi, Chief Minister B.S. Yediyurappa said. “The pipeline will benefit hundreds of households, commercial establishments and industries in Dakshina Kannada and Udupi districts, as natural gas is economic, eco-friendly and a clean fuel for use,” said Yediyurappa in a statement. The Chief Minister participated in the virtual event earlier in the day through video-conferencing from his home-office. Terming the pipeline dedication to the nation historical, he said the natural gas would cater to the growing demand for eco-friendly fuel by power and fertiliser plants across the state, spur industrial growth, and create hundreds of jobs. Though the Kochi-Mangaluru pipeline project was launched in 2009, protests and land acquisition for laying the pipes in Kerala delayed it, escalating its cost from the initial cost of Rs 2,915 crore to Rs 5,750 crore. “The long pipeline supplies gas in liquid form from the Petronet Liquified Natural Gas (LNG) plant at Kochi where the imported LNG is stored and regassified,” Gail official Jyoti Kumar told IANS. The pipeline has been supplying the Mangalore Chemicals and Fertilisers (MCF) at Panambur in the north of Mangaluru since December to produce urea, replacing naptha as feedstock. “The pipeline will soon supply the gas to Mangalore Refinery Petrochemicals Ltd (MRPL) and state-run ONGC’s Mangalore Petrochemicals Ltd (OMPL),” said Kumar. Noting that Karnataka would equally benefit from the inter-state project with uninterrupted supply of eco-friendly and affordable fuel in the form of piped natural gas (PNG) and compressed natural gas (CNG), Kumar said a parallel pipeline from Trissur and Palakkad in north Kerala to Bengaluru via Coimbatore and Krishnagiri in Taml Nadu would cater to all users in the state.
Early inclusion of natural gas into GST fold likely
With states coming on board over GST compensation issue, the Centre is gearing up to get their consent over inclusion of petroleum products under the new indirect tax fold. Sources privy to the development said that based on Petroleum Ministry’s suggestion, the Centre may take up with GST Council the issue of bringing natural gas under the Goods and Services Tax (GST) regime to begin with before entire oil and gas sector is brought under it. Though the dates for next GST Council meeting is yet to be finalised, finmin sources said its due and may take place anytime after the budget presentation. With revenue position already strained due to Covid-19 outbreak, states have been reluctant to consider bringing high revenue generating petroleum products under GST fold. But the dual tax treatment is affecting the sector and hampering government’s plan to develop a gas-based economy in the country. Sources said that with this in mind, a phased approach to inclusion of petroleum products under GST may be adopted with natural gas falling first in the queue. Inclusion of gas would not pose a challenge for the GST Council as it is largely an industrial product where a switchover to the new taxation would not be difficult. The revenue implication for the states is also low in the case of this switchover. “States are in fairly better position now with GST revenue hitting over Rs 1 lakh crore mark for past few months and Centre has also improved their liquidity position through additional borrowing schemes under Aatmnirbhar Bharat package. This should make phased inclusion of petroleum products under GST easier for the council,” said an official source in the oil ministry. The gross GST collections touched a record high of over Rs 1.15 lakh crore in December – the highest since the implementation of the regime. As part of its efforts to build concensus with the states on GST launch, the previous Narendra Modi government had decided to exclude five petroleum products — crude oil, petrol, diesel, ATF and natural gas — from the list of items placed under GST, but included products such as cooking gas, kerosene and naphtha in the new regime. This created a messy situation for the companies, as they were required to comply with both the old and new tax regimes. Moreover, tax credits are not transferable between the two systems. GST levy on natural gas would help state-run oil companies such as ONGC, IOCL, BPCL and HPCL to save tax burden to the tune of Rs 25,000 crore as they would get credit on taxes paid for inputs and services. Tax credits are not transferable between the two different taxation systems. Last year, Oil Minister Dharmendra Pradhan had also made a strong case for the inclusion of natural gas in GST, saying that if polluting coal can be included, the environment-friendly fuel certainly deserves a place in the new tax regime. He also favoured bringing other petro products under the GST gradually. Gas sales, including CNG and piped gas supplies, attract VAT ranging from 5-12 per cent.