GST structure for airlines: What’s in store for economy, business class and lease rentals
With airlines in India doing brisk business over the past few years on the back of rising incomes and cheaper air tickets due to low oil prices, Goods and Services Tax (GST) is likely to impact air travel. If you are a frequent flier, you will witness effects of GST tax rates on your airfares henceforth. GST council has lowered the tax rate in economy class flight ticket to 5% from previous service tax of 6%. However, it increased business class tickets at a GST tax slab of 12% versus previous service tax of 9%. Moreover, airlines can only claim input tax credit (ITC) on input services for the economy class, while in case of business class they can claim ITC for spare parts, food items and other inputs excluding cost on aviation fuel turbine (ATF) as it falls under purview of GST. The government has also levied a GST of 5% on lease rentals paid by airlines. A major portion of the airline’s revenue is generated from economy class as this segment offers higher amount of seats. In India, airlines like Jet Airways, SpiceJet, Vistara and state-owned Air India offer business class seats. Ashish Shah and Jiten Rushi, analysts at IDFC Securities believe that migration to the GST regime would be largely neutral for the airline sector. In ICRA’s view, these rates changes are not material, and should not have any major impact on the air passenger growth. However, the lowering of tax rate on economy class travel is line with the focus of the Ministry of Civil Aviation to make flying affordable for masses. Jordan Berry Jersey
Air India Privatisation: Lessons from the Past
The decision to privatise Air India (AI) is absolutely well-timed. A large swathe of the Indian middle-class is increasingly impatient at having to foot the bills for excesses and corruption of politicians, policy-makers, bankers and others. Let’s face it; we have been carrying the burden of this white elephant for a long time without realising it, since bailout funds released by the exchequer cannot easily be correlated to increased taxes. The government has decided to set up a committee, headed by finance minister Arun Jaitely, to explore disinvestment options for Air India and its five subsidiaries and decide the quantum of divestment (100%, 74% or 51%). The Tatas, who founded and built AI into a top airline (only to have it nationalised by prime minister Nehru in 1953) are, naturally, front-runners to acquire the now bloated and troubled airline. However, it is important that the National Democratic Alliance’s (NDA’s) mistakes (in 2002) should not be repeated this time around. For starters, AI owns prime properties around the world which need to be liquidated to reduce its gargantuan debt burden of Rs52,000 crore and make it more attractive. AI has been making losses for a decade and is living off a Rs30,231-crore bailout sanctioned by the United Progressive Alliance (UPA) government in 2012. Nearly Rs24,000 crore of this has been disbursed without even a plan or effort to reduce the debt burden. Over time, its market share has shrunk to 14% of the domestic traffic and 17% of the traffic from India. The UPA government was primarily responsible for pushing AI deep into the red through the reckless purchase of aircraft. The Central Bureau of Investigation (CBI) is understood to be investigating those deals. But three years after the NDA has taken charge, there is still no attempt to cut costs, shed assets and reduce the taxpayers’ burden. Consider this. As recently as May 2017, the Times of India reported that AI had floated a Rs3.5 crore tender to convert its iconic building at Mumbai’s Nariman Point into an art-museum to house its precious art collection which, apparently, includes the works of VS Gaitonde. Tedric Thompson Jersey
HPCL, ONGC merger moves Cabinet, but deal may still take 1 year after nod
The Department of Disinvestment has reportedly issued a Cabinet note on the proposed amalgamation of the state-run refiner Hindustan Petroleum Corp Ltd with the giant oil explorer Oil and Natural Gas Corp, amid news reports of the Prime Minister’s Office’s disappointment on the slow progress in the government’s quest to create a huge energy PSU of the global scale. However, a deal may still not be immediately in sight, as the handover of HPCL to ONGC may take one year even after the government securing the Cabinet nod, hindi news channel CNBC Awaaz reported citing unidentified sources. Earlier last week, ET Now had reported that the PMO, which is firm on merging the two oil companies, had expressed unhappiness with the slow pace of movement on the proposed sale of HPCL to ONGC. CNBC Awaaz reported that the government will seek an in-principle approval from the Cabinet for sale of 51% equity stake in HPCL to ONGC. It added that in the process of handover of HPCL’s management control to ONGC, the disinvestment will be done via a strategic stake sale. As has been reported earlier, the government is said to be planning to combine HPCL with ONGC by December this year by selling its 51.1% stake in the former to the latter for $4.5 billion (about Rs 29,000 crore). The Ministry of Petroleum and Natural Gas is learnt to be in favour of adopting a subsidiary model for combining the two oil PSUs instead of merging the companies, making ONGC the parent company of HPCL, the reports had said then, adding that the government would decide final model of combining in few months. Further, the government will form a Group of Ministers (GoM) to frame guidelines, price and timeframe for the share sale, CNBC Awaaz reported, adding that Finance Minister Arun Jaitley, road minister Nitin Gadkari and oil minister Dharmendra Pradhan will be part of the proposed GoM. A vertically integrated oil company would be better able to absorb the fluctuations in the global crude oil prices, as when the exploration unit will suffer from falling prices, the refining unit will benefit, and vice versa. Earlier in February, Finance Minister Arun Jaitley proposed setting up an integrated oil PSU (public sector undertaking) by merging companies with synergy in order to match the scale of the global oil giants. India’s largest oil and gas exploration and production company ONGC said then that the proposed integration of oil PSUs will be a big positive for the sector as an integrated company is well positioned to handle volatility in crude oil prices. Negotiation power of a large oil company is better with its business partners, it had said. Jake Gardiner Womens Jersey
Renewable energy boost: 4 Indian solar, wind power firms plan to raise $2.5 billion in offshore bonds
Four Indian renewable power producers are planning to raise up to $2.5 billion via dollar bonds offshore because of caution among domestic lenders, banking sources said. In addition to the four solar and wind power firms, a fifth company that invests in renewable projects, Adani Group, has raised $250 million via a loan but has yet to publicly announce the borrowing, the sources told Reuters. A source working with one of the bond issues said foreign borrowing was attractive because state banks were reluctant to lend due to existing bad loans to the power sector, while domestic banks worried about falling tariffs for solar power. Foreign investors have been attracted to the sector by India’s commitment to expand renewable power capacity, with plans to invest close to $150 billion to meet its 2022 targets, analysts and bankers said. New York-listed Azure Power Global Ltd, which has projects in the states of Rajasthan, Punjab and elsewhere, planned to raise $500 million via a dollar issuance, two bankers said. Continuum Energy, a firm backed by U.S. bank Morgan Stanley that has projects in the southern state of Tamil Nadu and western state of Gujarat, planned to raise $400 million, the two bankers added. Wind and solar power firm Greenko Group, backed by Singapore sovereign wealth fund GIC and Abu Dhabi Investment Authority (ADIA), planned a $1 billion issuance to refinance a dollar bond raised three years ago, three bankers said. IL&FS Energy, which has thermal and solar power projects, was considering a dollar bond issue worth $500 million, said a source with knowledge of the deal but not involved in the process. The fifth firm, Adani Group, which is controlled by billionaire Gautam Adani, has already raised $250 million via an offshore loan to invest in its solar power project in Karnataka, one of the bankers said. The companies did not immediately respond to requests for comment. Solar tariffs hit a new low in May when SBG Cleantech, which has SoftBank Chairman Masayoshi Son as one of its promoters, bid 2.44 per unit for building a solar park in the western state of Rajasthan. Solar power players bid for the right to build projects on parcels of land that are set aside by the government. The player agreeing to sell the power it generates at the lowest price per kilowatt hour, are leased the land at a nominal price. Despite the decline in tariffs, overseas investors scouting for higher yields are keen on such dollar bond issues, the bankers said, adding many were drawn by Indian Prime Minister Narendra Modi’s commitment to boosting renewable power output. India, a signatory to the Paris climate accord, has an ambitious plan to raise renewable energy capacity to 175 gigawatts (GW) by 2022 from a current capacity of 57 GW. Abhishek Tyagi, senior analyst at Moody’s, said India would have to invest “close to $150 billion to meet its 2022 renewable energy targets”, adding much of that was expected to come from foreign financing due to constraints among domestic lenders. Ndamukong Suh Authentic Jersey
ONGC Videsh to acquire 30% petroleum participating interest in Namibia
ONGC Videsh has signed definitive binding agreements with Tullow Namibia Limited (Tullow), a wholly owned subsidiary of Tullow Oil plc, on 28th June 2017 for acquiring 30 percent 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 percent in the license. Pancontinental 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. The completion of the present transaction would mark ONGC Videsh entry in Namibian offshore and is consistent with its strategic objective of adding high impact exploration and production assets to its existing E&P portfolio. Johnathan Joseph Authentic Jersey
Power utilities can save up to Rs 20,000 crore through improved scheduling: Piyush Goyal
Power, coal, renewable energy and mines minister Piyush Goyal today launched an app that provides information on availability of cheaper electricity to state power utilities allowing improved scheduling and optimum utilization of coal. The app named Merit Order Despatch of Electricity for Rejuvenation of Income and Transparency (MERIT) can help distribution utilities achieve savings of upto Rs 20,000 crore annually, Goyal said. “With 1,20,000 crore units of electricity being consumed in the country now, which will go up to 2 lakh crore units in five years, this app, at a conservative estimate, can help save 10 paise per unit…which makes for a straight saving of Rs 20,000 crore a year for discoms,” news agency IANS quoted Goyal as saying. The app has been developed by the power ministry in association with POSOCO and Central Electricity Authority (CEA). The app is designed to display information regarding the merit order which includes daily state-wise marginal variable costs of all generators, daily source-wise power purchases of respective states with source-wise fixed and variable costs, energy volumes and purchase prices. “The initiatives launched today will reflect a government in action fulfilling the promises made to the people of India. It also provides an opportunity to the people and the media to monitor our work and keep questioning what is happening in the power sector,” Goyal said at the launch. The electricity tariff Policy of 2016 mandates the state discoms to follow the merit order for procurement of power and provides that there should be uniformity in the merit order mechanism. “Most states follow merit order operation. However, details in this regard need to be made transparently available. Hence, there was a need to have a mechanism to quantify deviation from merit order and check its reasonableness. The adherence to merit order optimizes the power procurement cost and benefits both utility and ultimate consumer,” the ministry said in a statement. Goyal also launched an e-bidding portal that aims to facilitate states in inviting bids for procurement of power from the prospective Independent Power Producers (IPPs) in a transparent manner by transferring their domestic coal under the scheme of flexibility in utilization of domestic coal. “Few years back, when coal linkage rationalisation was undertaken, it led to huge savings. This portal is again going to bring in improvement in savings. It will also provide flexibility in a transparent method of buying power,” power secretary Ajay Kumar Bhalla said. The portal has been jointly developed by the ministry of power, along with PFC consulting Ltd and MSTC Ltd. The successful bidder on the app will be selected through the e-reverse bidding process. Phil Esposito Authentic Jersey
ONGC rescinds pacts with Schlumberger, Halliburton
State-run ONGC has rescinded the initial pacts for outsourcing production from its ageing fields in Gujarat and Assam to international service providers Schlumberger and Halliburton after the oil ministry objected to the contract being handed over without bidding. Oil and Natural Gas Corp (ONGC) had on December 7 last year signed Summary of Understanding (SoU) to give its Kalol field in Gujarat to Halliburton and Geleki field in Assam to Schlumberger to help in raising production above the current baseline output. Though the agreements were signed in presence of Oil Minister Dharmendra Pradhan during the bi-annual Petrotech Conference, the ministry felt it was not proper to give away such contracts on nomination basis, sources privy to the development said. The ministry in no uncertain terms told ONGC that such nomination contracts will not be acceptable, they said. The ONGC board, which had approved the MoU, thereafter too took a similar and cancelled the SoUs, they said.The company last week invited expression of interest (EoI) from service providers for undertaking production enhancement from its mature oil and gas fields. The 15-year Production Enhancement Contract (PEC) will require the oilfield service producer to commit to invest in capital expenditure and operating expenditure to increase production form the existing ‘baseline’ output. HomeIndustry ONGC rescinds pacts with Schlumberger, Halliburton ONGC rescinds pacts with Schlumberger, Halliburton State-run ONGC has rescinded the initial pacts for outsourcing production from its ageing fields in Gujarat and Assam to international service providers Schlumberger and Halliburton after the oil ministry objected to the contract being handed over without bidding. By: PTI | New Delhi | Published: July 5, 2017 3:09 PM 7 SHARES Facebook Twitter Google Plus The ONGC board, which had approved the MoU, thereafter too took a similar and cancelled the SoUs, they said. (Reuters) State-run ONGC has rescinded the initial pacts for outsourcing production from its ageing fields in Gujarat and Assam to international service providers Schlumberger and Halliburton after the oil ministry objected to the contract being handed over without bidding. Oil and Natural Gas Corp (ONGC) had on December 7 last year signed Summary of Understanding (SoU) to give its Kalol field in Gujarat to Halliburton and Geleki field in Assam to Schlumberger to help in raising production above the current baseline output. Though the agreements were signed in presence of Oil Minister Dharmendra Pradhan during the bi-annual Petrotech Conference, the ministry felt it was not proper to give away such contracts on nomination basis, sources privy to the development said. The ministry in no uncertain terms told ONGC that such nomination contracts will not be acceptable, they said. The ONGC board, which had approved the MoU, thereafter too took a similar and cancelled the SoUs, they said.The company last week invited expression of interest (EoI) from service providers for undertaking production enhancement from its mature oil and gas fields. The 15-year Production Enhancement Contract (PEC) will require the oilfield service producer to commit to invest in capital expenditure and operating expenditure to increase production form the existing ‘baseline’ output. “The remuneration model will be a tariff which is to be paid in $per barrel of oil and $per million British thermal unit for gas for any ‘incremental’ hydrocarbon produced and saved over the baseline,” the EoI said. “Baseline shall be prepared by ONGC and vetted and certified by a third party of international repute.” All the oil and gas produced will belong to ONGC and the service provider arrangement is being entered into to get the best technology available, sources said. Under the terms of SoUs signed in December last year, Schlumberger and Halliburton were to invest capital and share technical expertise in the two stagnant but producing oilfields. If they are able to increase output, they were to be paid a pre-determined fee on each additional barrel of crude oil produced. Besides Schlumberger and Halliburton, ONGC was also in talks with Weatherford International and Baker Hughes Inc for similar arrangement for other fields. But after the oil ministry disapproval, all such deals are off and all such contracts will be entered only when a service provider offers the highest increase in output in a competitive bidding, sources said. Demetri Goodson Womens Jersey
AirAsia India says GST to shave off Rs 400 crore from airlines
Low-cost carrier AirAsia India today said the new tax regime will leave the aviation industry poorer by about Rs 400 crore annually if the government does not roll back the levy. “On an average, an operator will have to pay an additional Rs 10-12 crore per aircraft in additional levies, which include the 5 per cent duty on plane imports. This will put an additional Rs 400-crore tax burden on the airlines that lease out planes,” AirAsia India managing director and chief executive Amar Abrol said here. But he said the airline has decided not to pass on this additional burden to customers as it expects the government to rollback the duty. “The problem is that credit set-off of 3 per cent is available only on services and not on purchase of machinery or aircraft imports. Overall, it seems to be a negative impact and the details are being worked out,” he said. However, the 1 per cent reduction in taxes on economy ticket to 5 per cent in GST is good for the industry, he said. “As of now there is 5 per cent levy on aircraft imports. The industry is discussing with the aviation and finance ministries for exempting this. We will also have to pay 3 per cent GST on lease rentals but that is is available for credit set-off,” Abrol said. The three-year-old airline closed last fiscal with a revenue of Rs 1,000 crore and Abrol said he hopes to cross that number by December this year as the company will be deploying four more planes by then. “We are getting our 11th plane this week, which will be deployed from August 1. By Diwali, we will have three more. This should help us increase frequencies,” he said, adding the airline hopes to have the magical 20 planes by 2018 Diwali. Meanwhile, the airline announced adding Bhubaneshwar to its list of destinations and also adding six new routes connecting New Delhi, Jaipur and Bagdogra to Kolkata. The airline, which began operations in June 2014, had reported a net loss of Rs 7.8 crore in the March 2017 quarter, down from Rs 26 crore in the December and Rs 65 crore in the September quarter. Devontae Booker Jersey
Hindustan Powerprojects, Lanco in dispute over bank guarantees
Hindustan Powerprojects has begun to invoke Rs. 500 crore bank guarantees of Lanco Infratech, citing non-fulfilment of a work contract, triggering abitter row between the companies. Lanco, which is already facing the heat from lenders, has written to nine banks urging them not to allow encashment of bank guarantees it had submitted as the contractor for Hindustan Powerprojects’ Annupur power project in Madhya Pradesh. In its note to bankers, Lanco has alleged serious malpractices by Hindustan Powerprojects which it says are worthy of official investigation. Lanco did not respond to ET’s queries but Hindustan Powerprojects has strongly denied the allegations and said it had exercised its legal rights to protect the interests of stakeholders. “Considering the unfulfilled contractual obligations, Hindustan Power exercised the legal remedial action that is available to the company as part of its contract. Lanco Infratech had approached the High court for an injunction against Hindustan Power from encashing the bank guarantee which the Hon’ble court had rejected on Saturday, 01/07/2017,” the company said in an emailed response to ET’s query. Lanco told bankers in its letter, seen by ET, that encashing bank guarantees was discussed at a meeting between Hindustan Powerprojects Chairman Ratul Puri and Lanco Executive Chairman L Madhusudan Rao on June 30 at a hotel in Delhi. Lanco alleges that in the course of the meeting attempts were made to allure its chairman to agree with the encashment of bank guarantees. It further alleged that Hindustan Powerproject’s chairman had said that his company needed money to tide over its own financial difficulties. Hindustan Powerprojects denied these allegations. “Hindustan Power has always followed the highest standards of integrity in the truest spirit and denies the baseless allegations made by Lanco Infratech with an intention to thwart the legal recourse available to us,” it said. “With a view to safeguard the interests of our stakeholders and the operations of the thermal asset, the company had to encash the bank guarantees. To put things in perspective, Hindustan Power has multiple claims against Lanco Infrastructure including large cash advances and unfinished work at the thermal site,” it said. Lanco has demanded a CBI enquiry into the matter and stated that in 2013 Hindustan Powerprojects coerced Lanco to exit bidding process for power supply to Uttar Pradesh by threatening to encash the same bank guarantees. J.J. Nelson Womens Jersey
Discoms save Rs 12,000 crore interest outgo after states take over debt
Power distribution companies have saved Rs. 12,000 crore interest outgo after states took over their debt as part of the Centre’s Ujwal Discom Assurance Yojna (UDAY), the Union power ministry has said. Governments of 16 states have taken around Rs.2.08 lakh crore debt of the distribution companies as per terms of UDAY agreements. These loans were running at interest rates of around 11%-12% per annum and now be serviced by states at 7%-8.5%. A few discoms have also restructured their balance loan portion, reducing the interest burden by another 3%-4%, the ministry said in a statement issued on Tuesday. The average gap between cost of power supply and revenue has decreased to 45 paise in FY17 from 59 paise in FY 16 in the backdrop of reduced interest outgo, tariff rationalisation and improved billing, it said. At all India level, billing efficiency has increased by 2% to 83% in 2016-17 while the average aggregate technical and commercial loss has come down to 20.2%. Power procurement cost has reduced in many states including Goa, Jammu & Kashmir and Gujarat. The average cost of power purchase has reduced to.`4.16 per unit from .`4.20 per unit in FY16. While 16 states, including Jharkhand, Chhattisgarh, Rajasthan, Uttar Pradesh, Punjab, Bihar, Haryana, Jammu and Kashmir, Andhra Pradesh and Tamil Nadu, joined Uday for debt recast, while 10 other states including Gujarat, Uttarakhand, Goa, Karnataka, Manipur, Sikkim, Arunachal Pradesh and Kerala joined for operational benefits. Puducherry is also part of the scheme for improving operational efficiency of its discom. As per the scheme, total liability opted for restructuring by 15 states through bond issuances was Rs. 2.69 lakh crore. So far, states have issued bonds of entire .`2.09 lakh crore and discoms have issued bonds worth Rs.23,000 crore. Bonds worth .`37,000 crore are yet to be issued. In all, 86% of the restructurable debt of states has been restructured so far under Uday, the statement said. Evgeny Svechnikov Authentic Jersey