Govt mopped up 80 per cent more from fuel cess than expected
The government has mopped up nearly 80% more road and infrastructure cess levied on petrol and diesel compared to what it had estimated for 2020-21. According to the Budget documents, the receipts on this account increased to nearly Rs 2.3 lakh crore in the revised estimates compared to the nearly Rs 1.3 lakh crore, which was projected in the Budget. While this increased flow of revenue has pinched vehicle owners, it has come as a big help to the government to increase expenditure in some sectors. For example, the entire allocation of Rs 50,000 crore for Jal Jeevan Mission in rural areas for 2021-22 will come from road and infrastructure cess. The government has hiked the allocation by five times for this scheme to ensure tap water connection to every rural household. Similarly, around 65% of the entire budgetary allocation for the road transport and highways ministry will come from this cess. Earlier the cess from fuel, known as Central Road Fund, was primarily used for development of highways and rural roads. But since the government renamed this fund as Central Road and Infrastructure Fund in 2019, it has been earmarking portions of the fund for other infrastructure sectors such as ports, shipyards, inland waterways, airports, railways, urban public transport, energy, water and sanitation, communication infrastructure.
India warns rising oil prices may dampen global economic recovery
India’s oil minister Dharmendra Pradhan warned on Thursday that rising oil prices could hurt global economic recovery in the aftermath of the COVID-19 pandemic that caused most economies to shrink last year. Global crude oil prices rose to their highest in about a year this week as production cuts by the Organization of the Petroleum Exporting Countries and their allies including Russia tilted the market balance towards a deficit. [O/R] [x] That has propelled gasoline prices to record levels in the world’s third biggest oil consuming and importing nation. “Efforts at artificially distorting prices will have a dampening effect on the fragile global economic recovery that is underway,” Indian oil minister Dharmendra Pradhan said at the South Asia Commodities Forum of S&P Global Platts. Last month also, the minister blamed OPEC+ for high oil prices. “While we do not favour too low prices, we also do not support high prices, which deny energy access to millions in India,” he said. India imports about 85per cent of its oil needs and half of gas demand. “If the world has to grow as a whole, there has to be a mutually supportive relationship between producers and consumers. It is in the interests of producers that oil-dependent economies keep growing steadily,” Pradhan said. India has been diversifying its energy sources to cut dependence on Middle Eastern producers, he said, adding the nation sees ‘enormous potential’ to strengthen its relations with the U.S., mainly on imports of liquefied natural gas (LNG). The U.S. is one of the top ten oil suppliers to India, he said. To meet its growing energy needs India is also investing $143 billion in domestic projects to boost local outputs and build oil and gas infrastructure including an 80per cent jump in refining capacity to 9 million barrels per day, he said. Pradhan said the country is adopting cleaner energy sources to fuel its economic expansion but baseload will continue to be met by oil and gas.
GAIL bifurcation plan put on hold; co to monetise pipelines through InvIT
The Oil Ministry has put on hold a plan to bifurcate state-owned gas utility GAIL (India) Ltd so as not to dilute the firm’s ability to finance the massive infrastructure building plan, a top official said on Thursday. GAIL is India’s biggest natural gas marketing and trading firm and owns 60 per cent of the country’s 26,284-km gas pipeline network, giving it a stranglehold on the market. To resolve the issue, it was proposed that GAIL’s pipeline business should be hived off into a separate entity. “GAIL has massive plans to double its pipeline network to 34,000-km and there is a realisation that its ability to borrow funds to fund these should not be hampered,” the ministry official involved in the decision-making process said. The plan was to transfer pipeline business into a subsidiary, while GAIL was to hold the core business of marketing natural gas and petrochemical production. “The subsidiary may not have been able to raise the funds at rates which a combined balance sheet of GAIL can get,” the official, who wished not to be named, said. Creating pipeline infrastructure, which will take the environment-friendly fuel to unconnected places in the country, is key to the government objective of making India a gas-based economy. The government is targeting raising the share of natural gas in its energy basket to 15 per cent by 2030 from the current 6.2 per cent. The official said GAIL will monetise some of its pipelines by selling a minority stake through instruments like Infrastructure Investment Trust (InvIT). “The idea is transfer pipelines with steady revenue stream into a trust whose units can be sold to investors and the same can be traded on the stock exchange,” he said, adding GAIL will upfront get money from such a sale that can be used for capital expenditure. To start with, GAIL plans to monetise Dahej-Uran-Panvel-Dabhol pipeline and Dabhol-Bengaluru pipeline. InvITs are like a mutual fund, which enables direct investment of small amounts of money from possible individual / institutional investors in infrastructure to earn a small portion of the income as a return. GAIL will retain a majority stake in the pipelines that run from Dahej in Gujarat to Dabhol in Maharashtra and from there to Bengaluru in Karnataka. The InvIT may involve selling a 10-20 per cent stake initially, he said. GAIL owns and operates a natural gas pipeline network that spans 15,673.3 kilometres, mostly in the western, southern and northern parts of the country. It is building more pipelines in the eastern part of the country. The official said the bifurcation of GAIL was planned to address complaints of natural gas users about not getting fair access to the GAIL pipeline network to transport their fuel. The conflict arising out of the same entity owning two jobs will get resolved with the setting up of an independent transport system operator (TSO), which will manage the common carrier capacity of GAIL and other pipelines in the country, he said. The government has a 54.89 per cent stake in GAIL India.
Transporters in Rajasthan fear cess on fuel will put brakes on business
The decision to impose agriculture infrastructure cess on petrol and diesel prices has become a matter of concern for transporters in Rajasthan who are already battling high fuel prices. Transporters claimed that as opposed to the claims by the Centre, this cess will have an adverse effect on their livelihood as even now they prefer to get diesel from neighbouring states where prices are lower. With both petrol and diesel costing over Rs 90 per litre, the bit of relief which they got from reduction in VAT from the state government would be nullified now, claimed the transporters. Anil Anand Arora, Jaipur Transport Operators Association, elaborating further on the hardships being faced by them, said, “We have been sustaining losses and finding it difficult to maintain earnings as the price of diesel has been continuously increased in the state. With various types of taxes it has become difficult to make ends meet. While the Sensex has surged, which is good news, the additional cess on petrol and diesel inevitably will make it even more difficult for the industry to survive, let alone garner any kind of profit. The negligible reduction of VAT on fuel after repeated requests will also not bring in any relief after this cess.” The transporters further added that owing to high costs of fuel, most of them prefer to get diesel from the neighbouring states as the difference is around Rs 10 per litre. Meanwhile, the central government claimed that the agri-infra cess of Rs 2.5 per litre petrol and Rs 4 per litre diesel will not result in price increase for end users as higher cess will be adjusted with lower customs duty. While fuel dealers agree to this, they also claimed that there was an urgent need to bring down the prices in the state. Sunit Bagai, president, Rajasthan Petroleum Dealers Association told TOI, “During Covid-19, VAT was increased on petrol by 8% and on diesel by 6%, but now when the situation is more like pre-pandemic then the price of fuel should be reduced as we earn more revenue. There are various ways of doing it, including rolling back the Covid tax as well as doing away with the road tax which has been in place for nearly a decade.
Indian Oil to monetise pipeline assets, says many investors interested
State-owned Indian Oil Corporation (IOC) is likely to sell stakes in one or two of its vast network of crude oil and petroleum product pipelines in the country under the asset-monetization plan, but won’t give up control, its Director (Finance) Sandeep Kumar Gupta said Tuesday. “InvIT could be one model which we may look at but we won’t sell 100 per cent. We will remain the operator,” he said on a conference call with analysts and investors. Finance Minister Nirmala Sitharaman in her Budget for fiscal year beginning April 1, announced monetisation of oil and gas pipeline assets of IOC, gas utility GAIL (India) Ltd and Hindustan Petroleum Corporation Ltd (HPCL). Gupta said IOC’s pipeline assets offer huge potential for unlocking value and a lot of investors are looking at investing in such assets. He, however, did not name the investors. IOC operates a network of more than 14,600-km of pipelines that are used to transport crude oil to refineries and fuel to consumption points. Gupta said the company cannot let go of control of the pipelines as they are critical to the operations of the company. Only a minority stake in the pipelines will be sold. The proceeds of such monetisation would initially go towards boosting capital spending of projects such as one for producing hydrogen fuel, renewable energy ones or petrochemical plants, he said. The government, which owns 51.50 per cent of IOC, may also tap into the funds by seeking a special dividend. “We may sell stake in one or two pipelines to begin with,” he said. GAIL too is planning to launch an InvIT of its two gas pipelines between Dahej and Bengaluru. The nation’s top gas marketing and transportation firm plans to monetise the Dahej-Uran-Panvel-Dabhol pipeline and Dabhol-Bengaluru pipeline by setting up an Infrastructure Investment Trust (InvIT). InvITs are like a mutual fund, which enables direct investment of small amounts of money from possible individual/ institutional investors in infrastructure to earn a small portion of the income as a return. GAIL too plans to retain a majority stake in the pipelines that run from Dahej in Gujarat to Dabhol in Maharashtra and from there to Bengaluru in Karnataka. GAIL owns and operates a natural gas pipeline network that spans 12,502 kilometers, mostly in the western, southern, and northern parts of the country. It is building more pipelines in the eastern part of the country. Asked if IOC can also look at hiving off retail fuel outlets into a separate subsidiary for unlocking value, Gupta said, such a possibility cannot be ruled out but there is no such move on the radar. Gupta expects crude oil prices to soften after March. The current hardening was due to cuts by OPEC plus but fundamentals remain weak, which will exert pressure on prices, he said adding current rates won’t sustain. The rise in international oil prices has driven retail fuel rates to their all-time high levels. IOC owns and operates five pipelines for transporting crude oil from ports on coast to its refineries. The longest among them is the 2,646-km Salaya-Mathura pipeline from Gujarat to Uttar Pradesh. Besides it owns and operates 22 petroleum product pipelines transporting fuels such as petrol, diesel and ATF. IOC also owns two natural gas pipelines – 132-km Dadri-Panipat and 1,421 km Ennore-Tuticorin line, and two LPG lines – 280-km Panipat-Jalandhar and 873-km Paradip-Haldia-Durgapur.
Indian Oil may form subsidiary for retail assets to unlock value
Indian Oil Corp could create a subsidiary for its retail assets to help unlock value, the head of finance at India’s largest refiner said on Tuesday, a day after the government announced plans to monetise IOC’s pipeline assets. “Presently it is not on our radar but a possibility of any such thing to unlock the value cannot be ruled out,” Sandeep Kumar Gupta said on an analysts call when asked if IOC plans to hive off its fuel retailing business into a separate company. Finance Minister Nirmala Sitharaman in her budget for fiscal year from April, announced plan to monetise oil and gas pipeline assets of IOC, gas utility GAIL (India) Ltd and Hindustan Petroleum Corporation Ltd. Shares of IOC fell 27.6% in 2020, while the broader Nifty 50 index gained 14.9%. IOC operates a pipeline network of 14,600 kilometres with a capacity to transport 94.42 million tonnes per annum of crude and fuels and 21.69 million cubic metres per day of gas. The company has not yet decided on how to monetise its pipeline assets, Gupta said, adding IOC would keep control of them as they are critical for its operations and link ports and fuel storage depots with refineries. “One model could be InvIt (infrastructure investment trusts) and it is not necessary we do 100% stake sale of our (pipeline) assets together,” he said. IOC may initially sell stakes in one or two pipelines, he said. The company would use proceeds of the stake sale on new projects such as petrochemicals, renewable energy and hydrogen production.
Exxon, Chevron CEOs discussed merger in early 2020
The chief executives of ExxonMobil Corp and Chevron Corp held preliminary talks in early 2020 to explore combining the two largest U.S. oil producers in what would have been the biggest merger of all time, according to people familiar with the matter. The discussions, which are no longer active, are indicative of the pressure the energy sector’s most dominant companies faced as the COVID-19 pandemic took hold and crude prices plunged. The talks between Exxon Chief Executive Darren Woods and Chevron CEO Mike Wirth were serious enough for legal documents involving certain aspects of the merger discussions to be drafted, one of the sources said. The reason the talks ended could not be learned. The sources requested anonymity because the matter is confidential. Exxon and Chevron, which have market capitalizations of $190 billion and $164 billion, respectively, declined to comment. Exxon and Chevron’s shares nosedived last year after a Saudi-Russian price war and fallout from the novel coronavirus outbreak caused the value of oil to crater. Exxon’s stock was hit hardest, as investors raised concerns about the company’s long-term profitability and spending decisions. In their talks, the CEOs of Exxon and Chevron envisioned achieving synergies through massive cost cuts to help weather the downturn in energy markets, one of the sources said. At the end of 2019, Exxon employed about 75,000 people and Chevron roughly 48,000. Following the aborted talks with Exxon, Chevron went on to acquire oil producer Noble Energy in a $5 billion cash-and-stock deal that was completed in October. A combination of Exxon and Chevron would have faced significant hurdles, including antitrust concerns and objections from corporate rivals. Some U.S. lawmakers, mainly Democrats, have faulted Big Oil for contributing to climate change, which President Joe Biden’s administration has made a top priority. News of the unsuccessful talks emerged as Exxon has come under pressure from some of its shareholders over its strategic direction. Engine No. 1, a investment firm based in San Francisco, last week nominated four directors to Exxon’s board and is pushing the company to spend its cash better, preserve its dividend, and invest more in clean energy. Exxon is also in the crosshairs of hedge fund D.E. Shaw, which is pressuring the company to cut costs and improve performance. Exxon reports fourth-quarter results on Feb. 2. Chevron last week reported a surprise $11 million fourth-quarter loss as low margins on fuel, acquisition costs and foreign currency effects overwhelmed improved drilling results.
Diesel demand moved to used car market, rural customers over years
Diesel’s share in used car sales has more than doubled in the last 5 years as buyers in smaller towns prefer this fuel coupled with not so stringent environmental laws in these locations, a study said. In 2015, 36% of all used car sales were diesel vehicles. In 2020 that has jumped to 65%, a study by Droom, a used car buying portal said. Used car marketers say the rise in numbers is because of a sudden increase of diesel vehicle supply in the used car pool as metro markets move towards petrol and also because diesel has a solid presence in hinterland and rural markets. Used car marketers say diesel rules the used car market because post BS6 a diesel used vehicle is simply a better bargain. “Diesel vehicles have far more compelling pricing than petrol. In 2020 the average selling price of used diesel vehicles on our platform declined 15% year on year as diesel lost shine in the new car market,” said Sandeep Aggarwal, founder chief executive officer(CEO), Droom. For non-metro customers this meant they could now buy their dream SUVs at a more affordable price in the used mart. “Customers in non-metros prefer diesel to petrol because the price differential between petrol and diesel versions make them more economical,” agreed Amit Kumar, chief executive officer, OLX Autos. The diesel demand is also a reflection of hinterland markets joining the SUV craze. “The share of diesel cars in the used car pool has been increasing especially in SUVs in the period 2013-2017 from where most used cars come into the market currently. SUVs which are gaining customer preference and share are largely diesel powered and the demand for SUVs is so strong in the used car market that there is a demand-supply mismatch for popular models,” said Ashutosh Pandey, CEO Mahindra First Choice Wheels.
BP profit sinks as epidemic pummels demand
BP’s fourth-quarter profit sank to $115 million, missing analysts’ forecasts, pummelled by continued weak energy demand due to the coronavirus epidemic and weak trading results. On annual basis, BP sunk to a loss of $5.7 billion, its first in a decade after it wrote down the value of oil and gas assets by $6.5 billion as a result of sharply lowering its long-term energy prices. Its fourth-quarter underlying replacement cost profit, the company’s definition of net income, of $115 million fell short of the $360 million seen in a company-provided survey of analysts. That compared with a $86 million profit in the third quarter and a profit of $2.6 billion a year earlier. (This story corrects to show forecast was for a $360 million profit (not loss)in paragraph 3)
France urges Germany to scrap Russia gas pipeline over Navalny
France on Monday urged Germany to scrap a major gas pipeline project with Russia in protest over the detention in Moscow of opposition leader Alexei Navalny, but the plea fell on deaf ears in Berlin. “We have always said we have the greatest doubts on this project in this context,” European Affairs minister Clement Beaune told France Inter radio. Asked specifically if France wanted Berlin to drop the project, Beaune said: “Indeed, we have already said this.” Nord Stream 2 is a 10-billion-euro ($11-billion) pipeline that will run beneath the Baltic Sea and is set to double Russian natural-gas shipments to Germany, Europe’s largest economy. The United States and several European countries such as Poland have criticised the project, saying it will increase German and EU dependence on Russia for critical gas supplies. German Chancellor Angela Merkel has stood by the project, and work resumed on it in December after an almost year-long pause due to American sanctions. Asked about the French objections, Merkel’s spokeswoman on Monday said “the government has not changed its basic position” in support of Nord Stream 2. France’s Beaune said European leaders were weighing new sanctions against Russia over President Vladimir Putin’s crackdown on the opposition led by Navalny, who was arrested in mid-January and faces a trial that could see him detained for years. Thousands defied government warnings to protest across the country on Sunday in a second weekend of mass demonstrations against the arrest of Putin’s most prominent opponent. “Sanctions have already been imposed, we could do that but we have to be clear, they will not be enough,” Beaune said. “The Nord Stream option is one under consideration,” he added, while acknowledging that “it’s a decision for Germany, because the pipeline is in Germany.” Merkel’s spokeswoman condemned the violent crackdown in Russia and called for “the immediate release” of detained protesters as well as Navalny himself.