Oil-poor India needs to supersize its Rosneft order: Gadfly
Vladimir Putin is said to be looking to sell almost a fifth of Russian state oil champion Rosneft and wants China and India to team up to buy it. Narendra Modi should negotiate for a bigger share. The attractions for Putin of splitting a stake between the world’s No. 2 and No. 3 oil importers are obvious. Russia has been fighting Saudi Arabia for market share in China for years, and often bests the world’s biggest producer in terms of import volumes into the People’s Republic. With the globe awash in oil and an initial public offering of Saudi Aramco in the works, equity in oil companies might be a more valuable resource in cementing trade relationships than the black gold itself. Still, China’s oil consumption appears to be slowing, with apparent demand plateauing and even declining since August last year. While Chinese companies have been lavish with their overseas investments of late, there’s no particular need to buy a chunk of Rosneft to secure a new source of energy supply. Indeed, of China’s big three oil exploration and production companies, refinery-heavy Sinopec is cutting production and PetroChina is growing it in the low single-digits. Only Cnooc is making a serious attempt to raise output. India is a different beast, with a shortage of crude that’s only going to get more acute as incomes rise and automobile ownership grows. Its state-run explorer Oil & Natural Gas Corp. is getting ready for a $5 billion spending spree to boost production off the country’s east coast and has assets in Sudan, Colombia, Venezuela, Brazil, Vietnam, Syria and Russia. With a geological shortage of exploitable oil, it’s ultimately those overseas fields that will end up plugging India’s output gap. New Delhi has long looked to its Cold War ally for a solution to its energy handicap. About 32 per cent of the 5.5 million metric tons of oil production from ONGC’s overseas arm ONGC Videsh last year came from its 20 per cent stake in the Sakhalin-1 project in Russia, which the Indian company acquired from Rosneft in 2001. That’s not enough to sate its appetite, though. At the peak of the 2008 financial crisis, Videsh somehow found $2 billion to purchase Imperial Energy, a then U.K.-traded producer with fields in Siberia. Last month, it paid Rosneft $1.27 billion for a 15 per cent stake in Vankor, one of the largest Russian oil fields to go into production in the last quarter century. Taking a stake in Rosneft itself — the whole 19.5 per cent slice would go for about $11 billion, people familiar with the matter said — seems a good idea in the context of that scramble for fuel. If you look at an oil company as a claim on its underground reserves of crude, Rosneft is about the cheapest way to source supply right now among the giant 1 million-barrels-of-oil-a-day producers. Each barrel of Rosneft’s developed reserves is worth about $4.16 of enterprise value, according to Bloomberg calculations — well below ONGC’s $7.16, not to mention figures north of $20 for the likes of Exxon Mobil, Total and Shell, and $46.62 for Cnooc. ONGC isn’t short of cash for acquisitions, either. Ebit over the most recent 12-month period was equivalent to almost 11 years’ of interest payments, comfortable relative to a median 3.34 years for the 17 members of the 1 million-barrel-a-day club. For producers with strong balance sheets, the ongoing weakness in oil markets is creating an attractive environment in which to pick up assets. If Rosneft is selling a 19.5 per cent stake, ONGC should abandon its dormant alliance with PetroChina parent CNPC, elbow the Chinese aside, and ask for the lot. This column does not necessarily reflect the opinion of Bloomberg LP and its owners. Harrison Butker Jersey
Cheap Oil Prompts ONGC’s Biggest Crude Exploration Binge
Oil and Natural Gas Corp., India’s biggest explorer, is preparing to spend on its biggest ever crude binge as sub-$50 oil halves the cost of rigs and services. State-run ONGC is contracting as many as five deepwater drill ships and dozens of jack-up rigs as it launches a $5-billion development program in the Krishna-Godavari Basin off the east coast of India, Chairman Dinesh Kumar Sarraf said in an interview. The company wants to make use of the drop in hiring rates for vessels and oilfield services to lower costs and boost profit, he said. “This is the largest ever campaign undertaken by us,” Sarraf said. “Never in the past have we had five rigs in offshore deep-water at one time. We believe this is the right moment when we can increase our investment.” The company, which intends to spend 11 trillion rupees by 2030 to raise output, is key to Prime Minister Narendra Modi’s target of cutting import dependence by 10 percent in the next six years. That goal is crucial for a country that imports most of its oil. India will be the fastest-growing crude consumer in the world through 2040, according to the International Energy Agency. ‘Exceptional Strength’ “It makes immense sense for an oil explorer to undertake capex in the current times when oil field services costs and charter rates have dropped so sharply, especially if they have strong financial profile,” said K. Ravichandran, co-head, corporate ratings at assessor ICRA Ltd. “Lower debt in relation to reserves gives ONGC exceptional strength in comparison to others.” Offshore jack-up rigs which cost as much as $90,000 a day when oil was surging, now cost about half that, Sarraf said. ONGC shares rose 1.5 percent to 213.85 rupees, the most since June 9, in Mumbai. The benchmark index S&P BSE Sensex closed up 0.9 percent. The flagship explorer in Asia’s third-largest economy is betting its spending will pay off once oil prices revive. Production has declined in fields accounting for almost three-quarters of ONGC’s output, adding pressure to bring on stream new assets. “While the big investments are going to help ONGC in the long term, it can strain the profits in coming years if crude prices were to remain around $50 a barrel levels,” said Dhaval Joshi, a Mumbai-based analyst at Emkay Global Financial Services Ltd. ONGC is working on as many as six large projects on its western offshore fields and plans to spend about 300 billion rupees ($4.5 billion) during the fiscal year that started April 1. The company has awarded 36 major contracts across the country’s eastern and western coasts, worth a total 340 billion rupees, in the past year-and-a-half, including 13 offshore rigs. “We expect production would increase this year,” Sarraf said. “That’s why we need to add more and more fields.” The company expects to start gas output from the KG-basin block by mid-2019 with a peak production of 15 million standard cubic meters a day. Crude oil output will begin a year later and may go up to 77,000 barrels a day. Jeff Petry Jersey
Fox Petroleum Invites SHI to Bid for India’s FSRU LNG Terminal Project
Fox Petroleum Ltd., the Indian unit of Fox Petroleum Group of Companies, invited South Korean shipyard Samsung Heavy Industries Co. Ltd. (SHI) to participate in an engineering, procurement and construction (EPC) project for the floating storage regasification unit (FSRU) liquefied natural gas (LNG) terminal in Karwar, Karnataka on India’s west coast. “Initial negotiations is in progress,” the company said in a recent press release. The move follows a proposal made in September 2014 by Fox Petroleum to the Government of Karnataka for the development of the FSRU LNG Terminal project at Karwar. The firm said the volume of LNG to be gasified for the project is around 7.2 million metric tons (350.7 billion cubic feet) per annum. Fox Petroleum FSRU LNG Terminal (FP-FLNGT), the manager of the project, will design, finance, insure, construct, test, commission, complete, operate, manage and maintain the dedicated floating/offshore LNG Terminal. The FSRU LNG Terminal would be financed on build, operate and transfer (BOT) basis. The development of the project in Karnataka, costing approximately $1 billion (INR 70 billion), could create up to 3,000 jobs. Fox Petroleum indicated that 90 percent of these vacancies were expected to be set aside for local youths. The company added that the FSRU would be equipped to process 1 billion cubic feet (Bcf) of gas per day, while the onshore plant will have a storage capacity of 11.66 million cubic feet (330,000 cubic meters). Turning to the project’s financing needs, Fox Petroleum said the total cost for constructing the FSRU is estimated as $563 million, while the onshore plant is projected to cost $495 million. The firm intends to provide an update June 25 on the shortlist of EPC contractors for the FSRU LNG terminal project in Karwar. India’s energy demand has grown sharply in recent years, with the country surpassing Japan as Asia’s second largest consumer in 2008, according to data released earlier this month by BP Statistical Review of World Energy 2016. Enos Slaughter Jersey
Gail likely to realign Tamil Nadu pipeline to connect LNG terminal in Kochi with Bengaluru
Gail, India’s largest natural gas pipeline operator, will likely agree to Tamil Nadu’s demand of realigning the proposed pipeline to connect Petronet’s LNG terminal in Kochi with Bengaluru along the national highway, an issue that has held up Rs 3,300-crore project for years. The state wants to avoid damage to farms and the dispute has reached Supreme Court. Protests from thousands of farmers delayed the project that was to be completed by early 2013. This has hurt GAIL and Petronet. The Kochi LNG terminal is ready for almost three years but barely operational. Gail has now agreed to join a panel set up by the state to consider an alternative route. Top Gail executives recently met Tamil Nadu officials for discussion. Industry sources said if the new route is aligned along the highway, it would be 20% longer and more costly but Gail wants to complete the project quickly. It is reluctant as building the pipeline along a highway needs thicker pipes. Larry Murphy Womens Jersey
Government to make changes in section 56(2) of Income Tax Act in a bid to promote startups
The government has removed the so-called ‘angel tax’ for investors providing funding to startups under its ambitious plan to boost entrepreneurship and job creation in the country. Funding to startups, notified under the government-approved plan announced by PM Narendra Modi in January, will not face tax even if it exceeds the face value. Resident angel investors, domestic family offices or domestic funds which were not registered as venture capital funds can now heave a sigh of relief and not worry about the invested amount getting taxed. Under existing rules, funds raised by an unlisted company through equity issuance are covered under this tax to the extent the amount is in excess of the fair market value. Such extra inflow is taxable as “income from other sources” under Section 56(2) of the Income-Tax Act and charged the corporate tax rate, resulting in an effective tax of over 30%. The venture capital industry has been lobbying for removal of this tax, terming it a big deterrent to investments. In many cases, the valuation of startups is far in excess of market value as it is based on the promise of the idea and not the immediate worth. In such a case, the startup would end up losing a chunk of the inflow to this ‘angel tax’. The Central Board of Direct Taxes has issued a notification to this effect, exempting startups raising investments from the rigours of Section 56(2)(viib). “This has been long awaited and is a very welcome step. The abolition of this so-called ‘angel tax’ has been a long-standing demand of the industry,” said Amit Maheshwari, partner, Ashok Maheshwary &Associates LLP. However, earlier investments can still be questioned by tax officers as being overvalued in the light of declining valuations globally and in India, he said. Michael Raffl Womens Jersey
Sellers seek regulatory body for online marketplaces
The All India Online Vendors’ Association (AIOVA), a lobby group of sellers on online marketplaces, urged the government to set up a regulatory body for ecommerce. They also requested to resolve certain taxation issues faced by them during a meeting with Jayant Sinha, minister of state for finance. According to the seller body, online vendors end up paying taxes on commission charged by marketplaces and courier charges in the form of value added tax and service tax. They requested relaxation in these taxes. “We are paying tax on sale value and on expenses such as commission, courier and other services which is approximately 25-30% of the cost of sales. Hence we are facing double-taxation. Reducing those taxes will reduce our cost of sales,” said the spokesperson of the online vendors’ association. The representatives of 1,000 medium and large sellers also complained about “mismanagement by marketplace executives and lack of interest in solving the problems with mutual consultation”. The group requested the need for setting up a regulatory body for ecommerce in order to take up issues pertaining to the sector in the lines of those for telecom, insurance and markets. A letter presented to the minister requested: “Safeguard the interest of stakeholders, make marketplace accountable to a regulator, and take seller association in consultation while bringing in policies related to ecommerce marketplaces.” According to the online vendors’ association spokesperson, on issues that weren’t related to the finance ministry, the minister directed them to the concerned departments. Tyus Bowser Jersey
CAIT wants separate ministry to govern domestic trade
The Confederation of All India Traders (CAIT), in a communication sent to Prime Minister Narendra Modi, has urged for a national policy for retail trade along with a separate ministry for internal trade. It has also suggested that foreign trade should be transferred to ministry of external affairs and ministry of commerce should be designated to look after the domestic trade. The CAIT has also suggested that MUDRA should be made an independent regulator since loans under MUDRA are yet to reach the actual beneficiary targetted under the original plan. Agreeing that e-commerce is a promising business of future, it has called for specific guidelines and a law for governing domestic e-commerce. CAIT has suggested a mass national campaign by the government for encouraging digital payments in the country should be taken up. It says this will curb curb black money. “The CAIT in association with MasterCard and HDFC Bank has already launched a national campaign for cashless economy since last more than one year in line with your Digital India vision,” says the letter to Modi. Matt Niskanen Jersey
PM Narendra Modi sets infrastructure targets for ministries to speed up action
In an ambitious drive to step up infrastructure investment and speed up execution, Prime Minister Narendra Modi has set targets for key ministries that have to be delivered by end of the financial year to effect visible change on ground. “Targets for infrastructure sectors have been approved by the Prime Minister and communicated to ministries. These will now be regularly monitored by NITI Aayog and reviewed by the Prime Minister himself on a quarterly basis,” a government official told ET. The high-level intervention comes after NITI Aayog made sectoral presentations to Modi last month, highlighting tardiness in many areas. Targets were communicated last week to infrastructure sector ministries of railways, roads, ports, civil aviation and others, with detailed timelines. The Prime Minister has identified 26 action points under 12 heads for roads and 36 action points for railways under about a dozen heads that need quick action by ministries to implement them in a time-bound manner. NITI Aayog presentations had flagged the progress in the last two areas —shortcomings and action points. Similar targets have been set for others as well, such as the number of villages that have to be electrified. Deadlines for these actions range from three months to up to three years for different key actions and there is clear indication that Modi does not want any slippage. Some big-ticket interventions include raising long-term funding for road projects, developing a contractor rating system that would incentivise early project completion, bringing about organisational reforms in Indian Railways, improvement in governance structure by setting up an independent regulator to correct tariff imbalance in railways. The ministry of road transport and highways has been asked to finalise highway network expansion and operations plan for next three years by September this year, while accelerating the rate of construction of roads in the North-East by six months to November 2016. Indian Railways has been asked to increase the total lines commissioned from 7-8 km per day to 10 km per day by FY2017 and 15 km per day by FY2019 besides increasing the average speed of freight and passenger trains by 5 km per year every year for next five years. The meeting has also tasked the ministries for roads and finance to expedite finalisation of PPP renegotiation framework and public contracts bill by September 2016. NITI Aayog has to steer progress and has — at a recent meeting with Modi — already identified nodal ministries/divisions that would be made accountable for all hits and misses. In absence of private investment, the government is now counting on public investment to drive growth and has a spending target of Rs 7 lakh crore Rs 3 lakh crore from budget and Rs 4 lakh crore from resources of public enterprises. It is keen that this amount is fully utilised. Chris McCullough Womens Jersey
Gujarat collects over Rs 2 crore in a month in entry tax from e-tailers
From May, the state government has begun collecting entry tax on items bought online by consumers from Gujarat, and in a month, has been able to collect above Rs 2 crore by taxing e-tailers. State authorities are hopeful that the collection would increase manifold once the government sorts out the online sales and physical check-post tracking system. The new levy was introduced in this year’s state budget to provide a level playing field to local dealers and to tax e-commerce transactions. The state commercial tax department, however, could not start collecting the tax from April itself due to some technical glitches, said officers. The entry tax on online purchases is calculated on the basis of difference in VAT rates between Gujarat and the state from where the item was sent. Though some e-tailers have challenged the move in high court, there has been no interim stay on the tax. Sources said Amazon India is one of the major players currently complying with the tax, while many big e-tailers are taking a wait-and-watch approach, given the cases pending in the high court. The state commercial tax department, however, has asked all e-tailers to shell out entry tax. P D Vaghela, commissioner, commercial tax department, said, “We have implemented the entry tax on online goods sold in Gujarat from the April 1. However, due to some software issues, we could not collect entry tax for the first few days. The collection was around Rs2 crore in May, but we hope it will increase considerably, as we have allowed companies to set their system.” “We have asked all the companies to pay advance tax as well as send their weekly sales details. We are cross checking them with the goods movement data at check posts for all online companies. We are charging only the difference between the taxes here and in other states. One or two companies have challenged it in the high court, but the court has not given any stay. So, all the companies have started paying entry tax,” Vaghela added. How the entry tax is calculated? The new levy was introduced in this year’s state budget to provide level playing field to local dealers and tax e-commerce transactions. The state has now worked out a formula and decided to charge difference in VAT rates between Gujarat and a state from where a particular product is supplied as entry tax. “Maharashtra charges 5% VAT on mobile phones and Gujarat has 15% VAT, the difference works out to be 10%. If someone from Gujarat buys a mobile phone through an e-commerce website and it is sold by a dealer in Maharashtra, the e-tailer will have to pay differential 10% as entry tax. The VAT can then be charged from the consumer,” explained a senior government official. Chris Jones Authentic Jersey
₹500-crore annual subsidy to fuel regional flights: Aviation Secretary
The Regional Connectivity Fund (RCF) proposed to offset the losses incurred by airlines for connecting un-served airports is likely to have a corpus of ?500 crore per annum. The Fund will be aided through a cess in order to subsidise flights connecting un-served airports under the Regional Connectivity Scheme proposed in the Civil Aviation Policy. The scheme has proposed capping air fares at ?2,500 for one-hour flights connecting un-served airports. “We will give this subsidy for three years, time enough for the airlines to know whether the route will work or not,” said Civil Aviation Secretary RN Choubey, adding that “ideally I would have liked the fiscal incentives to be in sync with the aviation policy period of 10 years, as most of the acquisition of planes happens through leasing and not outright purchase. For leasing to be successful, it normally should be for 10-12 years.” “However, we have promised that the fiscal incentive can be extended for 10 years. But, people don’t invest on promise. This is one aspect where I succeeded only partly. But, there are several aspects where the ministry succeeded quite well,” he said. Choubey told BusinessLine that the amount that will help subsidise flyers from tier-II and tier-III cities. It will be collected from all passengers except those flying to the North-East, island territories, and from flights on aircraft smaller than 80-seaters. Viability gap funding The corpus from this cess will go to the Airports Authority of India (AAI). Under the new scheme, the AAI will transfer the amount collected as Viability Gap Funding to airlines that fly to airstrips that are now un-served. “We are looking at it as a demand-driven thing,” he said, while accepting that even the government does not have a very good idea about how many of these un-served airports would come forward. Choubey also fears that the western and southern regions, which connect small airstrips well, may walk away with this scheme. “We are ensuring sufficient dispersal as well. We will have that check,” he added. India has nearly 450 airstrips, of which only 80 airports operate with scheduled commercial airlines. The scheme’s benefits are not applicable to airports where flying is currently happening. The rest — 370 un-served airports — will be eligible for the scheme. The idea is to develop these as no-frills airports. Initially, the plan is to develop 60 airports, including 10 under AAI, with government support. “If that number turns out to be more than 60, the better,” Choubey added. No additional charges Moreover, several measures have been suggested in the policy to keep the cap at ?2,500, he explained. “The excise duty on ATF sold at the un-served airports will be at 2 per cent; VAT on ATF will not be more than 1 per cent; service tax on the tickets will be at 1 per cent. Besides, there will be no landing, parking, air navigation charges on the un-served airport by the AAI,” he said. On whether States will be wiling to let go of VAT, he said: “They will be. In an airport where even one flight doesn’t come and, therefore, not a drop of ATF is sold, they don’t get one paisa of VAT. There is no revenue foregone.” While Choubey is looking at competition in the sector, he also expects the national carrier, Air India, to rejig its strategy. “Air India has done well largely due to the fall in crude prices. They have made an operational profit. They will make a net profit in 2018-19, which, as per the government’s turnaround plan, is to come in 2021-22. They will be three years ahead,” he said.