BPCL sale: India plans tough annual targets for state firms to boost valuations
India plans to set tough financial targets for state-run firms to try to improve their valuations ahead of a push by Prime Minister Narendra Modi to privatize some companies, according to a draft government document and sources. The government, which is trying to rein in its fiscal deficit, wants state-run firms to focus on improving market capitalisation and dividend payouts from the 2021/22 fiscal year, starting April, as well as ramping up the sale of non-core assets, the sources said. State-run companies have traditionally largely targeted raising output and increasing revenues, rather than improving efficiency and valuations, contributing to years of share price underperformance versus the broader market. “The companies need to raise their valuation and profitability in a changing business environment. Then only we will be able to get a better price (from stake sales). Shareholders and investors should be rewarded,” said a government source with knowledge of the plan. After regaining power in 2019, Modi’s government prepared a plan [https://reut.rs/3nGyaZh to raise as much as 3.25 trillion rupees ($44 billion) over 5 years by selling down its stakes in companies including Oil and Natural Gas Corp, Indian Oil Corp, NMDC Ltd, Coal India, Bharat Heavy Electricals Ltd and BEML Ltd. It announced moves to privatize companies in non-strategic parts of the economy and reduce the number of firms in key sectors. The government has already initiated steps to privatize Bharat Petroleum, Container Corp and Shipping Corp. However, weak investor sentiment and limited demand have led to delays. So far this fiscal year to end-March 2021, the government has raised only a tenth of its targeted 1.20 trillion rupees stake sales. The planned changes in annual targets could be announced in next year’s federal budget, due in February, a second government source said. “The state run companies will need to deploy funds raised through asset monetization for issues like debt repayment. They should have return on capital employed and return on equity quite high on the margin,” the source said. For the first time, India will include annual targets for state-run companies on metrics such as earnings before interest, tax, depreciation and amortisation (EBITDA), according to the sources and a document on the draft guidelines, which is currently before a government committee. Other targets will include increasing market capitalisation or share price, as well as measures such as return on net worth and capital employed, they said. For unlisted companies an improvement in earnings per share will be a key parameter instead of market capitalisation, the document showed. Managers at state-run companies will have their bonuses and incentives linked to meeting the annual targets. India’s finance ministry and department of heavy industries did not respond to Reuters emails seeking comments. The new annual target structure has yet to be approved by the committee, which comprises officials from various ministries and the cabinet secretary, the first source said. Changes in the annual target policy had been suggested by the Department of Investment and Public Asset Management (DIPAM), which spearheaded the federal government’s stake sale drive, the source added. For companies in which the government wants to cut its stake, DIPAM will set targets like listing, buyback, offer for sale, minimum public shareholding norms and strategic disinvestment to help the government get a better price for any selldown, the document showed.
Saudi economy shrinks 4.6 per cent in Q3 as oil sector takes a hit
Saudi Arabia’s economy shrank more slowly in the third quarter as the government eased some coronavirus restrictions but the pandemic-hit oil sector continued to weigh on the broader economy, official data showed on Thursday. The economy shrank 4.6 per cent in the third quarter, rebounding slightly from the 7 per cent slump in the previous quarter but marked by declines in both the oil and non-oil sectors, the data showed. Saudi Arabia is facing its worst economic decline in decades after the COVID-19 pandemic curbed global crude demand and measures to contain it also hurt other sectors. The world’s largest oil exporter said on Tuesday it expects the economy to shrink by 3.7 per cent this year but to swing back to growth of 3.2 per cent next year. “This negative growth originated mainly from the contraction in the oil sector by 8.2 per cent and a negative growth rate of 2.1 per cent recorded in the non-oil sector,” the General Authority for Statistics said on Thursday about the third quarter data. The private sector, the main focus in Crown Prince Mohammed bin Salman’s plans to diversify the economy away from oil, shrank by 3.1 per cent, while the government sector grew by 0.5 per cent.
MP now mulls cow cess on fuel & LPG
At a time when fuel prices are on fire, the Madhya Pradesh government is mulling cow cess on petrol, diesel, and cooking gas. The government hopes to earn at least Rs 200 crore that it will funnel into cow welfare. If implemented, it would be the first major step to ensure funds for cows since the cow cabinet was formed on November 20. The cow is a revered animal for many. But the MP government seems hell bent on milking the cow dry. After constituting a cow cabinet, it is now going in for a cow cess. True, several other states have also opted for the same method, but putting the cow at the centre of so many state-driven initiatives is baffling.Times View The animal husbandry department has placed this proposal, citing that Punjab, Rajasthan, UP and Haryana already charge cow cess, say sources. According to sources, the department has proposed cow cess of 15 paise per litre on petrol and diesel — which is expected to fetch Rs 120 crore annually — and Rs 10 per cooking gas cylinder, aimed at mopping up Rs 83 crore.
Saudi economy shrinks 4.6 per cent in Q3 as oil sector takes a hit
Saudi Arabia’s economy shrank more slowly in the third quarter as the government eased some coronavirus restrictions but the pandemic-hit oil sector continued to weigh on the broader economy, official data showed on Thursday. The economy shrank 4.6 per cent in the third quarter, rebounding slightly from the 7 per cent slump in the previous quarter but marked by declines in both the oil and non-oil sectors, the data showed. Saudi Arabia is facing its worst economic decline in decades after the COVID-19 pandemic curbed global crude demand and measures to contain it also hurt other sectors. The world’s largest oil exporter said on Tuesday it expects the economy to shrink by 3.7 per cent this year but to swing back to growth of 3.2 per cent next year. “This negative growth originated mainly from the contraction in the oil sector by 8.2 per cent and a negative growth rate of 2.1 per cent recorded in the non-oil sector,” the General Authority for Statistics said on Thursday about the third quarter data. The private sector, the main focus in Crown Prince Mohammed bin Salman’s plans to diversify the economy away from oil, shrank by 3.1 per cent, while the government sector grew by 0.5 per cent.
Commodities 2021: India oil sector to focus on comeback, consolidation and carbon
India’s appetite for oil is set to emerge from the red and post positive growth in 2021, a year that will likely witness key consolidation and mergers as well as refiners’ strategic push to devise ways to reduce their carbon footprint. Most analysts believe the worst for India’s oil demand is over. The country is set to witness the first year of negative oil demand growth in nearly two decades in 2020 on the back of the COVID-19 pandemic, but the government’s efforts to inject funds into infrastructure will support growth. In addition, the plan for a majority stake sale in state-run Bharat Petroleum Corp., Saudi Aramco’s planned purchase of a stake in Reliance Industries and the expected completion of refinery expansions — delayed from 2020 — will be some of the key themes that will dominate the headlines in 2021. “The year 2021 brings optimism for the energy sector not only in terms of a quick jump to pre-COVID levels, underpinned by structurally buoyant energy fundamentals, but also robust incremental growth enabled by the government’s thrust upon cross-sectoral reforms and conducive investment climate,” B. Anand, CEO of Nayara Energy, told S&P Global Platts. S&P Global Platts Analytics expects India’s oil demand in 2021 to recover to levels slightly above 2019 as the economy rebounds, with consumption expected to grow by 465,000 b/d, after declining 455,000 b/d in 2020. India’s mobility index continued to improve over the past few months, with November averaging 124% against pre-COVID levels, up from 104% in October. Vehicle sales are also witnessing growth. “India’s oil demand is expected to rebound next year as the nation continues to ease restriction measures to help lessen the pressure on the reeling economy,” Lim Jit Yang, advisor for oil markets at Platts Analytics, said. STIMULUS PACKAGE TO AID GROWTH In November, New Delhi announced a $35 billion package to stimulate the economy by boosting jobs, consumer demand, manufacturing, agriculture and exports. “The Indian government’s focus on infrastructure to boost economic growth is likely to buoy Indian oil demand next year, in particular for diesel. Already, demand has bounced back strongly and refiners are rushing to buy crude,” Amrita Sen, chief oil analyst at Energy Aspects, said. India’s demand for oil products rose 0.4% month on month in November to 17.83 million mt, or 4.7 million b/d, latest provisional data from the Petroleum Planning and Analysis Cell showed. Diesel demand rose 5.2% on the month, gasoline inched 0.4% higher, naphtha demand increased 3.3%, and jet fuel rose 4.8% in November. “We continue to see sustained strength in demand for products on the lighter end of the barrel, while middle distillates will struggle for a few more quarters,” Senthil Kumaran, head of oil for South Asia at FACTS Global Energy, said. India’s refinery runs hovered in the 4.3 million b/d range over June-October. The sharp increase in October demand and the conclusion of fall maintenance season helped to boost November runs by an estimated 400,000 b/d month on month, FGE said. “However, overall refinery runs will remain lower than pre-COVID-19 levels in the first half of next year, and might see a gradual recovery to pre-pandemic levels by Q4 2021,” Kumaran added. CONSOLIDATION TO GAIN SPEED Amid a recovering oil market, consolidation is expected to gather pace. Saudi Aramco is expected to continue pursuing its ambition to take a stake in Reliance Industries. However, the COVID-19 outbreak and the subsequent oil crash meant that a final decision on the joint venture could take much longer than anticipated and may not be free of hurdles and tough re-negotiations, although analysts believe that the planned tie-up is unlikely to fall apart. A joint venture with Reliance will guarantee a stable channel for crude at a time Aramco is sticking to its plan to increase its maximum sustained production capacity to 13 million b/d, from 12 million b/d. India has also decided to divest the government’s 52.98% stake in BPCL. An evaluation committee is looking into expressions of interest from Vedanta, Apollo Global and Think Gas. A majority stake in BPCL will give the buyer access to around 14% of India’s oil refining capacity of 5.2 million b/d and about 25% of the fuel market share in India. In addition, India will remain a hotspot for overseas investors looking for a pocket of opportunity in the oil sector as it advances its ambition to pursue refining expansion. Prime Minister Narendra Modi has said that plans are in place to grow India’s refining capacity from about 250 million mt/year currently to 400 million mt/year by 2025. But some analysts doubt India will be able to expand its refining capacity at the pace Modi highlighted, although they were unanimous in the view the country’s refining expansion was far from over, which could provide an opportunity for global oil firms to not only sell incremental crude volumes, but to also consider taking stakes in projects.
EU agrees its green transition fund will not support natural gas
The European Union’s flagship fund to wean regions off fossil fuels will not finance natural gas projects, EU governments said on Wednesday, ending a debate over whether to make the fuel eligible for support. Gas emits roughly 50 per cent less CO2 than coal when burned in power plants, but it is associated with leaks of methane, a potent greenhouse gas. Envoys from the EU’s 27 member countries endorsed the deal on Wednesday, which was struck between EU governments and the European Parliament last week. Under the deal, the fund cannot be used to support any investments linked to fossil fuels, including natural gas. The Just Transition Fund will not back investments in nuclear energy either. Some EU countries and lawmakers pushed to secure support for gas. Lawmakers said the final deal was a trade-off, which secured a gas-free Just Transition Fund in exchange for letting gas projects receive a smaller amount of funding under certain conditions from a separate European Regional Development Fund. The Just Transition Fund will target regions dependent on most-polluting fuels, such as coal and peat, with Poland, Germany and Romania expected to be the biggest beneficiaries. German Green lawmaker Niklas Nienass said he had supported this compromise as a way to minimise funding for fossil fuels. “The margin to actually spend money on gas in the ERDF is quite small,” he said. The Just Transition Fund will have 17.5 billion euros ($21.33 billion) from both a coronavirus recovery fund and the EU’s budget for 2021-27. The money is meant to attract further private sector cash to support green industries and retrain workers from polluting sectors. “We cannot implement the European Green Deal without mitigating the consequences for those most affected by the decarbonisation of our economy,” German Economy Minister Peter Altmaier said in a statement, referring to the EU’s plan to eliminate its net greenhouse gas emissions by 2050.
China’s LNG imports could hit record high in Dec as demand bounces back
China’s liquefied natural gas (LNG) imports could hit a record in December on strong industrial demand and a continued gasification push, trade sources said. The world’s second largest LNG importer after Japan is on track to import its highest monthly volumes since December 2019, Refinitiv shiptracking data showed. December’s imports may set a new record, with domestic gas consumption for early December up 20% year-on-year, two sources familiar with the Chinese gas market told Reuters. “Domestic gas demand is really strong, as some provinces and cities are rushing to hit their five-year goals for coal-to-natural-gas switch, creating new pockets of industrial demand,” said a Beijing-based gas trader. China pledged to switch 7.09 million households in 45 cities in northern China from coal to gas or electricity this winter, part of its ongoing plan to use gas to cut emissions. China’s apparent consumption of natural gas increased 5 percent year on year to 257.73 billion cubic meters in the January-October period, according to latest data from the National Development and Reform Commission (NDRC). October alone saw an 11.4 percent jump year-on-year in natural gas consumption, reaching 26.78 billion cubic meters, NDRC data showed. “Gas demand has been robust with industrial usage driven by strong exports being the key driver,” another Beijing-based source said. China’s exports rose at the fastest pace in almost three years in November on booming global demand for appliances, clothing, personal protective gear and other goods. China’s demand for gas for heating has also been rising. Still, with Asian spot LNG prices at their highest since 2018 Chinese buyers may slow imports from January, several sources said. “It feels like the gas crunch in 2017 is reappearing once again. Prices are soaring crazily but still it’s almost impossible to find any supply….I have no choice but to halt business for a while,” said a Tangshan-based LNG trader who buys imported LNG from a state-backed energy company and sells it to local users, such as steel mills and gas stations.
India’s petrol sales up 10 per cent in December so far, diesel lags
India’s petrol consumption spiked 9.5% in the first fortnight of December from a year ago but diesel demand still ran 5% short of the pre-pandemic days, indicating the economy is yet to come out of the woods. Data shows diesel sales of public sector retailers, who command about 90% of the market, rose 1.6% in the first fortnight of December from the same period of November. Diesel consumption, one of the barometers of economic activity, had fallen 7% from the year-ago period in November after shooting past the prepandemic level for the first time in eight months in October, clocking a 6% year-on-year growth. In contrast, petrol demand jumped more than 9.5% over the year-ago period on the back of a 4% increase in passenger car sales in November.
World faces long-term oil supply gap despite COVID demand destruction
Inadequate investment in exploration and new drilling may leave the world without enough oil in 20 to 30 years despite a shift towards renewable power sources, top energy analysts say. The long-term outlook contrasts with today’s situation where plunging oil demand due to the coronavirus crisis has left the market oversupplied, prompting the Organization of the Petroleum Exporting Countries, Russia and their allies, a group known as OPEC+, to curb output. Weak demand has piled pressure on producers and energy majors as they seek to pivot to low-carbon energy. It has sapped them of funds to invest in new oil assets so they can meet an expected rise in crude demand as the global economy recovers. The Paris-based International Energy Agency said it was not clear if adequate investment in oil supplies “will come in time and, if it does come, where it will come from.” Sufficient long-term oil supplies “should not be taken for granted,” it wrote in its annual outlook. Norwegian consultancy Rystad Energy said in a report this month that the world would run out of the oil supplies it needed by 2050 unless there was sharp rise in exploration. It said was $3 trillion in capital spending was needed to tap 313 billion new barrels of oil from existing underdeveloped fields or from new undiscovered fields. “The scope of exploration will have to expand significantly unless we see a momentous transition in the global energy mix sooner than currently expected,” said Palzor Shenga, Rystad’s senior upstream analyst. Energy consultancy Wood Mackenzie said existing discoveries needed investment to meet future oil needs but said current low-level demand, high costs of developing new resources and the associated risks had deterred oil companies from acting. “Only about half the supply needed to 2040 is guaranteed from fields already onstream. The rest requires new capital investment and is up for grabs,” the consultancy said.
No change in petrol, diesel prices for 8th consecutive day
Oil marketing companies continued to hold back any change in the retail price of petrol and diesel continuing with their wait and watch stance that has kept the prices of two auto fuels static for the past eight days. Accordingly, there was no change in retail price of auto fuels on Tuesday with price of petrol remaining at Rs 83.71 a litre and diesel Rs 73.87 a litre in Delhi. Across the country as well the price of the two petroleum products remained unchanged. OMCs have gone on a pause mode at a time when news of successful coronavirus and expectations of big pick up in demand had kept crude on the boil with prices breaching $ 50 a barrel mark. Crude, however, has remained static for the last few days reducing any pressure on upward revision in the fuel prices. Petrol prices was very close to breaching the all time high level of Rs 84 a litre (reached on October 4, 2018) when it touched Rs 83.71 a litre on Monday. But the march has been halted ever since then with no price revision by the OMCs. Global crude prices have risen almost $ 10 a barrel in the last one month to reaching over $ 50 a barrel now. But even at this level, it is far less than average crude price of $ 80.08 a barrel in October 2018 when petrol price reached a high of Rs 84 a litre in the Capital. With Tuesday’s pause, fuel prices have now increased on 15 of the past 26 days with petrol prices rising by Rs 2.65 per litre and diesel by 3.41 a litre. Petrol prices had been static since September 22, and diesel rates hadn’t changed since October 2. Though retail pricing of petrol and diesel has been deregulated and oil marketing companies were following a daily price revision formula, the same was suspended for almost two months to prevent volatility in international oil markets from impacting fuel prices regularly during the pandemic.