Economic Strategy

Indian Shipping Companies strategy

2009-12-12T13:50:00.003+05:30

The global recession has driven down ship prices, with the price of used VLCC (very large crude carriers) plunging by 50%. In addition the delivery time for such used ships is only two-to-three months, as against two years for new orders. "We are especially scouting for oil tankers and offshore vessels that are up to five years old," says K.S. Nair, director (bulk carriers and tankers) at the Shipping Corporation of India (SCI).

Businessworld

While the price of a five-year-old VLCC has corrected from $160 million to $77.5 million, that of a five-year-old Suezmax has gone down from $105 million to $50 million. During the same period, the price of a five-year-old Aframax plunged from its peak of $80 million to $37.7 million. Recently, SCI invited bids for two medium-sized bulk carriers, two oil tankers and two offshore support vessels.

To some extent, those orders are for replacement to comply with new maritime rules that will bar single-hull tankers and dry bulk ships that are more than 25 years old from early 2010. "Freight rates follow the trends seen in the world economy," says V. Ashok, director and CFO of Essar Shipping and Logistics. He adds that with demand for oil falling in 2008 and strategic oil inventories in the US, which is the largest oil importer, remaining at all-time highs, freight rates would remain subdued over the medium term. This is likely to keep a check on ship prices.

Rural markets and Indian companies

2009-11-08T10:18:00.004+05:30

Did you know that 40% of motorcycle manufacturer Hero Honda's sales come from the rural markets? In fact, during the recent economic slowdown, Hero Honda managed to do rather well as the cash-paying rural India ensured that the company’s sales did not crumble because of scarce and expensive auto finance, something that hurt other two-wheeler producers. Hero Honda Motors Ltd reported an impressive 78.7% rise in earnings before interest and tax (Ebit), excluding other income, for the quarter ending in September.

Other Indian companies like telecommunication majors Bharti Airtel and Tata Teleservices have rolled out plans to tap the rural market. Godrej Consumer Products saw rural sales grow at 40 per cent in the past six months, compared with 20 per cent growth in urban sales. Companies such as Philips and even Eveready have rolled out new cheap lanterns to replace the kerosene ones specifically targeted at the rural market. Automaker Maruti markets its small cars like the Maruti 800, Omni, Alto and Wagon-R for the rural areas; the percentage of rural sales in the company’s total sales has reached 16%.

Pharma giant Roche Diagnostics (India), which has tied up with Delhi-based Mankind Pharma to market its new diabetes monitoring devices for the rural market. "The incidence of diabetes in rural areas is high and Mankind’s reach is very broad. This agreement has helped us significantly increase our sales in rural markets, where we still continue to look for new ways to expand our business," says Bhunesh Agrawal, chairman and managing director, Roche.

The number of urban households — 60 million — is less than half of the rural households (150 million) in the country. And despite growing urbanisation, it is generally accepted that even by 2025, over 60 per cent of the country’s population will still reside in rural India. But there are no clear statistics of the size of the rural market, and some evidence that farm activity is no longer the prime driver of the rural economy. "Almost 50 per cent of rural income now comes from non-farm activity such as kirana stores," says India’s chief statistician Pronab Sen. New roads connecting villages to cities will help villagers find better markets and better price for their produce, while giving corporate India more opportunities to sell goods and services to villages. Schemes such as NREGS and other construction-linked schemes like Bharat Nirman directly provide employment and cash to the rural consumer.
Businessworld

Power projects land acquisition

2009-10-19T05:27:00.005+05:30

Some of India's major power projects are facing hurdles in land acquisition. The power ministry’s own assessment of India’s first three UMPPs (Ultra Mega Power Projects) — Sasan in Madhya Pradesh, Mundra in Gujarat (above photo), and Krishnapatnam in Andhra Pradesh, with a capacity of 4,000 MW each — shows it has lagged behind in meeting its own commitments to the projects.
Businessworld
Kandula Subramaniam
For instance, for the Sasan project, the central and state governments had to acquire 3,474 acres of land and then hand it over to the project company. Till the end of September, it had acquired just 1,873 acres. Around 46 per cent of the required land is still to be acquired. The concept of UMPPs involves the government (through Power Finance Corporation) setting up special purpose vehicles for each project, and then handing over the same to the successful bidder with all clearances in place.

Land acquisition has been a major bottle-neck for other infrastructure sectors as well, especially the NHDP (National Highway Development Programme), where even linear tracts of land (as compared to bulk land in one area) could not be acquired on time, delaying even the Golden Quadrilateral that was started in 1999-2000.

India urban expansion

2009-10-02T12:36:00.004+05:30

Businessworld
Gurbir Singh
In 2008, for the first time the world’s urban population outstripped that of rural areas. In India, more than half the population will be concentrated in urban areas by 2041, estimates the World Bank. Says Junaid Ahmed, World Bank’s sector manager-urban for South Asia: "Urbanisation also boosts rural economies. As people migrate to cities, fewer people depend on land for a living."

The cities in the developed world have grown to a plan over centuries; but those in the emerging economies have exploded in the past two decades, proving to be a nightmare for city planners. Mumbai’s inner city boasts a population of 34,000 people per sq. km. Compare this to London’s 7,800 or New York’s 15,000 per sq. km. It is a pressure cooker existence in most Indian cities.

A 75-city index, developed by the ‘Mastercard Centers of Commerce’ last year, included only three Indian cities, and that too fairly low on the index. Mumbai was at 48th position, New Delhi at 61 and Bangalore at 66. London topped the chart. Within India, Mumbai, despite all its slums and traffic snarls, is still No.1 for its efficient work ethic, good power supply, and supportive industrial backup.

Another optimistic indicator is the strong performance of some of the tier-II ‘emerging’ cities. “Ahmedabad, Baroda and Visakhapatnam show a consistent performance on all indices,” says Amit Kapoor, chairman of the Institute for Competitiveness India. With cheaper real estate and affordable living standards, these will be the magnets of the future, even as migration to big cities has begun to plateau.

Essential items tax exempt

2009-09-04T14:01:00.003+05:30

rediff
The government has made essential items service tax exempt for transportation through railways and waterways. According to the notification issued by the Central Board of Excise and Customs (CBEC), the list of items exempt includes - edible oil seeds and edible oils; food grains (cereals and pulses) and flour, petroleum and petroleum products and Hank yarn made wholly from cotton. other items are raw jute and jute textile, seeds for food crops and fruits and vegetables, seeds for cattle feed, jute seeds, medicine/pharmaceutical products, relief materials meant for victims of natural or other disasters, defence or military equipments.

Shipyards and ship building

2009-08-12T10:07:00.004+05:30

India has a 5700 km long coastline with 12 major ports and 11 intermediate ports, but it ranks seventh in the global ship building business. Opportunities in shipping came up when industrial licensing was abolished, private companies entered the shipyard construction business, and new ports were sanctioned by many state governments. Indian shipping’s cause was also helped by the government, which had introduced in 2002 a subsidy of 30 per cent on the sale price of ships. The move was designed to help them compete in the global marketplace. As a result, Indian shipping industry’s order book grew multi-fold, from 0.3 million DWT in the 9th Plan (1997-2002) to 1.3 million DWT in the 10th Plan (2002-07).

In all, 14 companies announced newer or expansion projects worth $5 billion. Once implemented, these investments were to take India’s shipbuilding capacity up to 5 million DWT by 2012, helping it gain a global market share of 2.2 per cent. Given that these were infrastructure investments, the government allotted them land in coastal areas for free, or at very cheap prices. But then the global economy went into recession, trade declined, as did freight volumes and demand for new ships. World over, orders began to be postponed or cancelled, as many buyers could not pay for the ships they ordered.

Cochin Shipyards and Goodearth Maritime shelved their initial public offerings (IPOs). RIL’s Rs 8,000-crore plan to build a shipyard and a large-scale dredging company at Rewas, Maharashtra, stalled after the SEZ ran into land acquisition trouble. Engineering giant L&T, which operates a yard at Hazira in Gujarat, had announced plans to invest Rs 3,000 crore in a mega shipyard at Kattupalli in Tamil Nadu. A spokesman for the company says that the project is in a preliminary stage with land still to be acquired, and Rs 1,500 crore will be invested now. Mercator Lines Chairman H.K. Mittal’s “personal” venture to build two shipyards for cargo-carrying ships in Gujarat and Maharashtra for Rs 2,300 crore is yet to cross the preliminary stage. Mittal blames the delay on the crisis engulfing the shipbuilding industry: “Ships meant for exports are getting cancelled or delayed as buyers are not able to manage finance.”

Businessworld

Menawhile some infrastructure and merger plans in shipping continue. ABG Shipyard has increased its open offer price for Great Offshore to Rs 520 per share from Rs 450 earlier. ABG’s holding in Great Offshore now goes up to 9%. Bharti Shipyard is another contender, with a 19% stake, and its open offer being at Rs 405. Pipavav Shipyard, in which Punj Lloyd holds 22.34%, is likely to file a red herring prospectus for its initial public offer (IPO) within a week and is looking to raise nearly Rs 600-650 crore. Pipavav Shipyard’s (PSL) Rs 2,900-crore project to create an offshore fabrication yard by end-2009 is underway. PSL is, at present, constructing a number of Panamax bulk carriers of 74,500 DWT each. Also on schedule is ABG’s Rs 1,650-crore project in Dahej.

Rural banks statistics

2009-08-03T13:29:00.001+05:30

Even before nationalization, the proportion of bank branches in rural areas was over a fifth. After nationalization, banks started opening more branches in villages; by the end of the 1980s, 58 per cent of the branches were in villages. But then, banks somehow sickened of opening rural branches; by now the proportion of rural branches is no more than two-fifths. Why did they go off the villages? Their experience that farmers do not repay loans could have been a factor.

In 1980, a quarter of banks’ deposit accounts were rural; now the proportion is something like 8 per cent. But that does not mean that they are collecting less money in villages; the proportion of rural deposits has gone up from 3 to 8 per cent. In other words, banks are now having fewer accounts with larger balances in villages. Maybe, farmers got rich; maybe, banks discourage poor depositors.

But the change in depositors is nothing compared to the change in borrowers. In 1980, a quarter of banks’ borrowers were in villages, but the credit to them was just a 20th of the total. In other words, an average loan to a villager was one-fifth the size of the overall average. By 2008, the proportion of rural borrowers had fallen to a 40th of the total, while the credit given to them had exceeded a 10th of the total. In other words, the average rural loan was at least four times the overall average loan! Again, maybe villagers had become rich; but more likely, banks concentrated on the rich fellows in villages who ran trucks and buses or did wholesale business.

Businessworld

Indian corporates lobbying

2009-07-27T11:41:00.002+05:30

Disclosure reports filed by high-profile lobbyist firm BGR reveal that the Mukesh Ambani-run Reliance paid it $1.90 lakh (Rs 92 lakh) in April-June for lobbying US lawmakers, which was higher than the Indian government’s payment of $1.8 lakh (Rs 87 lakh). Nearly $5.6 million (Rs 26.8 crore) was spent in April-June and $4.6 million (Rs 22.08 crore) in January-March, taking the total to over $10 million, according to the report, filed with the US Senate.

The figures underscore the importance of US lawmakers in influencing a large number of policies affecting India and its firms.

BGR lobbyists have previously served in the White House and Congress. The firm is known to have been effective at stopping or changing many policies considered to be harmful for its clients. Together, the government and Reliance accounted for nearly three-fourths of the total spending. Tata Sons, software industry body Nasscom, Gujarat Flurochemicals, Sun Pharma and Orchid Chemicals are some of the other Indian corporates mentioned in the BGR report.
Telegraph India

Corporates in agirculture

2009-07-19T08:12:00.002+05:30

In India's agriculture sector small family farms constitute around 80 per cent of all land holdings. But they contribute only about 42 per cent of grain production and over half of all fruits and vegetables. Various land ceiling laws limit individual land holdings to 12 acres, and do not allow companies to buy farm land. Corporates have a way out in contract farming, where they either lease land from farmers or work directly with them.

"Fragmentation is environmentally destroying the farmlands," says Samar Gupta of Trikaya Agriculture. "The future is in aggregation, and it will work if farmers themselves set the pace of change." He has aggregated 125 acres of land and has leased another 120 acres from migrating farmers. By growing niche vegetables such as gherkins for local markets and hotels in Mumbai, Samar’s agro-business generates at least Rs 10 crore in revenues a year.

Jain Irrigation derives Rs 300 crore of its revenues from agri business by aggregating 7,000 acres of farmland to grow white onions and mangoes for Cargill, the global seed company. The fruits and vegetables are processed and shipped to Cargill, which in turn supplies them to retail companies around the world. “We work with 1,500 farmers, and have been working with them from the seed input stage,” says Anil Jain, MD of Jain Irrigation. But their model of contract farming has no formal signed contracts with the farmers. The arrangement is based on the strong relationship built by the company by selling drip irrigation systems to these farmers. Desai Fruit and Vegetable in Gujarat works with over 2,000 farmers aggregating over 5,000 acres of land. Most of the produce it contracts — bananas and mangoes — end up in Europe.

Because contract farming is an issue in the country, Indian companies are acquiring land in other countries, and developing alternative models. KS Oils, an edible oil refiner, has been given 50,000 acres of land by the Indonesian government to refine palm oil and create inclusive growth for 10 villages. For the majority of farmers who grow foodgrains — rice, wheat and pulses — the government offers a minimum support price, besides subsidies on fertiliser and other input. But contract farming by corporates in agriculture, offer new technologies, new agricultural produce, and new markets for agricultural products.
Businessworld
Vishal Krishna

Delayed monsoon agricultural growth

2009-06-29T14:28:00.004+05:30

The Monsoon is finally here but was delayed by more than two weeks; the Meteorological Department predicts Monsoon rains at 93% of normal this year. What impact will this have on agricultural growth? The dry Almatti Reservoir, took care of the irrigation needs of farmers in Bijapur, Bagalkot, Gulbarga, Bidar, and Raichur districts of Karnataka. Built across the Krishna River, the reservoir depends on Monsoon rains in the Western Ghats to fill up :

Businessworld reports that while agriculture’s contribution to GDP has been falling, at 18% now it can still upset the applecart. For every 1% drop in agricultural GDP, 18 basis points are deducted from overall GDP growth rates. According to a senior official in the agriculture ministry, agriculture growth of 0.5 to 1 per cent is being anticipated against the targeted 4 per cent. “If agriculture growth fails, no sector can compensate it to achieve the 6-7 per cent GDP target, since it will directly affect the purchasing power both in rural and urban India,” the offical says.

But others are not so pessimistic. Anil Jain of Jain Irrigation Systems told moneycontrol: "It is a matter of concern but it is still not time to panic because lot of farmers have still not sown a lot of seeds of whatever crops they wanted to do. And even if rains come within let us say two-weeks maximum, then still good amount of output will come and the impact may be only about 5-10% depending on whatever the crop shifting takes place.

For example let us say in Maharashtra lot of farmers are going for cotton. If the rains don’t come for the next 2-3 weeks especially dry land farmers, they will try and do some sunflower, urad or any other short crops."

Infrastructure hopes from the Budget

2009-06-22T14:06:00.002+05:30

Infrastructure companies are demanding a range of measures to enhance flow of funds into infrastructure development:

Investment) The Interim Budget had postponed the infrastructure investment target of 9 per cent of GDP to 2014 instead of 2012 set earlier. But with the signs of revival, the target may be advanced to 2011.

Disinvestment) The Government should also expedite disinvestment in PSUs to augment funds for infrastructure.

Bond market) A secondary market for debt trading should be in place to enable private sector raise funds in infrastructure space through long term corporate bonds.

Pension funds) could also be allowed to invest 10-15 per cent of their corpus in infrastructure bonds along the lines of permission granted to LIC to invest in equity.

Introduction of the common goods and service tax) will help the construction industry rationalise its tax structure and simplify compliance.

External commercial borrowings) The Government should permit domestic companies to refinance rupee loans through external commercial borrowings; capital gains tax treatment for special purpose vehicles (SPVs) have to be rationalised, say industry representatives.

Taxation) The law should be amended to reduce capital gains tax rates for SPVs on a par with listed companies. It is mandatory that infrastructure projects are handled through SPVs, which are generally unlisted and cannot get capital gains exemption granted to the listed/parent companies.

Similarly, dividend distribution tax should also be rationalised. Infrastructure development business calls for a multi-tier corporate structure with a holding company at the top which is a listed entity.

Build on core for growth
R Balaji

Tata Motors strategy

2009-06-10T08:30:00.003+05:30

Tata Motors has raised Rs 2,500 crore through advances for bookings of its low-cost car, the Nano. In the commercial vehicles segment the company unveiled its World Truck range, developed jointly with Tata Daewoo Commercial Vehicle (TDCV) of South Korea, at Mumbai on May 29. Rs 1000 crore was invested in this project and Tata Motors plans to roll out 55,000 World Trucks eacy year from its Jamshedpur plant. The World Truck can hit 100 km/hour and can travel about 700-800 km a day. The full range comprises multi-axle trucks, tractor-trailers, tippers, mixers and special application vehicles, with a carrying capacity between 10 to 75 tonnes....the trucks are also Euro III and Euro IV compliant in terms of emissions.

Tata Motors floated a Rs 4,200 crore bonds issue last month, with the guarantee of India’s largest bank SBI. The Rs 4,200 crore bond issue has been divided into four tranches maturing in two years, four years, five years and seven years. The Rs 1,250 crore seven-year tranche has been picked up by Life Insurance Corp. of India, while the rest is being refinanced through a consortium of 12 banks, including Citi, SBI, BNP Paribas and Bank of Mitsubishi, at 500 basis points over Libor. Tata Motors has also raised Rs2,200 crore through fixed deposits from the public.

The company stated in May that it had completed refinancing of the Jaguar Land Rover acquisition bridge finance, which stood at $3 billion. Tata Motors raised more cash by reducing its stake in Tata Steel, selling 11 million shares to promoter company Tata Sons for Rs 456.78 crore.

Economic challenges for the government

2009-05-27T05:41:00.003+05:30

The newly elected government is the same old government, without the grip of the left parties on its throat. It faces several economic challenges, many of them its own creation from the previous innings, according to Businessworld:

The UPA’s big contribution to the economy was that it simply did not do anything to meddle or get in the way of the market forces — the economy was handed over to them by the National Democratic Alliance, or NDA, in not too bad a shape either.

Government spending: The fiscal deficit for FY2009 stood at 6 per cent and the current year’s deficit (Centre and states combined) is likely to be over 10 per cent — among the highest in the world. To tackle the fallout of the global slowdown India's stimulus packages will spend Rs 1,75,000 crore. Social sector spending, including new schemes like NREGA, have too many leakages. Bihar Chief Minister Nitish Kumar — who recently calculated the extent of leakage in Bihar — has suggested a radical solution. Deposit Rs 10,000 in every Bihari bank account and abolish all the hundreds of porous welfare schemes.

Disinvestment: Perhaps one of the biggest achievements of the NDA government was its drive to disinvest PSUs through the strategic sale route, through which it raised Rs 10,350 crore. In the power sector all files and administrative approvals for disinvestment of equity in enterprises such as NTPC, NHPC and PGCIL are in place. These alone can bring in at least Rs 8,000 crore.

Infrastructure challenges: Of the total 33,097 km of roads planned, only 10,858 km have been completed as of February 2009, according to a recent study done by Morgan Stanley. About 50 per cent of highway tenders are yet to be awarded. According to monthly data released by the National Highways Authority of India (NHAI), not a single project was awarded between August 2008 and February 2009. Most of India’s highways are two-lane, with poor service and low speeds. Of the total 66,590 km of national highways, only 13 per cent is four lane, 55 per cent is two lane and 32 per cent is single lane. The power sector is also in trouble: The Electricity Act of 2001 (enacted in 2003) is yet to be implemented in its true letter and spirit. Against the target of 78,000 MW, the actual commissioning of additional generating capacity in the first two years of the 11th Plan has been 12,700 MW.

Agriculture growth: The issues holding back agricultural growth are fairly well known. First is the problem of rural credit — or lack of it — which is a bane for poor farmers. More important is the question of rural infrastructure — proper roads, irrigation, access to markets in a quicker fashion, better support in terms of soil testing and fertilisers. Agricultural growth will help India's food security because food grain production has been falling behind requirements, and any boost in this area will automatically reduce the country’s dependence on imports of costly food grains, which then need to be sold at subsidised prices to the rural poor.

Procedural reforms: Setting up any kind of enterprise and seeking legal recourse remain tougher to do in India. Acquisition of land, and procedural matters, have been a huge hurdle in many new foreign investment projects. A government official recently met someone who wanted to open a new business near railway stations in India and that required a total of 19 clearances from 19 different agencies. "If the bureaucracy is trimmed as are procedures, investment will flow — both foreign and Indian," he says.
Businessworld
By M Rajendran with inputs from Raghu Mohan and Kandula Subramaniam

Indians investing abroad

2009-03-04T13:45:00.001+05:30

Businessworld
Raghu Mohan

The Liberalised Remittance Scheme (LRS), introduced in February 2004, permitted Indian residents to remit up to $25,000 per year for current or capital account transactions, or a combination of both. The limit was enhanced to $50,000 in December 2006, then to $100,000 in May 2007 and, finally, to $200,000 with effect from 26 September 2007.

The pattern of investment by Indians in foreign countries — after the limit was increased to $200,000 in September 2007 — is evident in the figures released recently by the Reserve Bank of India (RBI). And the surprise is: contrary to expectations that most Indians were investing in real estate abroad, it is equity and debt that garnered the lion’s share. At $144.7 million, equity and debt comprised a third of the total investments of $440 million in 2007-08. Realty was a distant third at $39.5 million, behind gifts at $70.3 million.

China's infrastructure projects

2009-02-19T08:25:00.003+05:30

The longest sea-crossing bridge, with a length of 36 kilometers and six lanes wide, spans Hangzhou Bay near Shanghai. It was built at a cost of 1.6 billion$ (11.8 billion yuan) after five years of construction and a further nine years of planning. The economic benefits of this expensive project are not clear; the traffic diversion has caused losses in the Zhejiang Expressway.
The US’s deepening recession is slamming China’s export sector, just as it has everywhere else in Asia. The immediate problem is a credit crunch not so much in China as in the US and Europe, where many small and medium-sized importers cannot get the trade credits they need to buy inventory from abroad.

As a result, some once-booming Chinese coastal areas now look like ghost towns, as tens of thousands of laid-off workers have packed their bags and returned to the countryside. Similarly, in Beijing’s Korean section, perhaps half the 200,000-300,000 inhabitants — mainly workers (and their families) who are paid by Korean companies that produce goods in China for export — have reportedly gone home.

With roughly $2 trillion in foreign-exchange reserves, the Chinese do have deep pockets to fund massive increases in government spending, and to help back-stop bank loans. Many leading Chinese researchers are convinced that the government will do whatever it takes to keep growth above 8 per cent. But there is a catch. Even if successful in the short run, the huge shift toward government spending will almost certainly lead to slower growth rates a few years later.

Simply put, it is far from clear that marginal infrastructure projects are worth building, given that China is already investing more than 45 per cent of its income, much of it in infrastructure. True, some of China’s fiscal stimulus effectively consists of loans to the private sector via the highly controlled banking sector. But is there any reason to believe that new loans will go to worthy projects rather than to politically connected borrowers?

In fact, China’s success so far has come from maintaining a balance between government and private sector expansion. Sharply raising the government’s already outsized profile in the economy will upset this delicate balance leading to slower growth in the future.

It would be preferable for China to find a way to substitute Chinese for US private consumption demand, but the system seems unable to move quickly in this direction. If government investment has to be the main vehicle, then it would be far better to build desperately needed schools and hospitals than ‘bridges to nowhere’, as Japan famously did when it went down a similar path in the 1990s. Unfortunately, China’s local officials need to excel in the country’s ‘growth tournament’ to get promoted. Schools and hospitals simply do not generate the kind of fast tax revenue and GDP growth needed to outperform political rivals.

Even prior to the onset of the global recession, there were strong reasons to doubt the sustainability of China’s growth paradigm. The environmental degradation is obvious even to casual observers. And economists have started to calculate that if China were to continue its prodigious growth rate, it would soon occupy far too large a share of the global economy to maintain its recent export trajectory. So a shift to greater domestic consumption was inevitable anyway. The global recession has simply brought that problem forward a few years.

Kenneth Rogoff
The author is Professor of Economics and Public Policy at Harvard University, and was chief economist at the IMF. Copyright: Project Syndicate, 2009.

Infrastructure Spending

2009-01-14T04:39:00.003+05:30

Work on the Bandra-Worli sea link project continues. (Pic by Satheesh Nair)

The government's plans to propel infrastructure spending from the current 5 per cent of GDP to 9 per cent by 2011, is hitting a dead-end. An estimated Rs 9,84,500 crore ($203 billion) of debt funds alone is needed to finance that. Where will the money come from?

Indian Banks

Indian banks are relatively small. Only 11 banks had equity above $ 1 billion (Rs 4,900 crore) in March 2007 — of which two were private sector banks. The total equity of the 82 scheduled commercial banks (including 29 foreign banks) was $ 49.8 billion.

Meanwhile, group exposure guidelines of the Reserve Bank of India (RBI) also limits a bank’s exposure to any group, to 50 per cent of its capital funds. This ceiling can be breached very quickly for companies specialising in infrastructure projects. For instance, a group company with two ultra mega power projects (of Rs 20,000 crore each), and a Rs 1,000-crore road project executed through separate special purpose vehicles (SPVs) can require debt funds to the tune of Rs 29,000 crore. So, RBI’s group exposure cap limits developers to their bank’s exposure ceiling.

Insurance and pension funds, also a source of long-term funds, are equally unenthused about lending money for infrastructure spending. Projections show that barely 5-6 per cent of the total debt funds needed for infrastructure come from insurance companies. Secondly Insurance Regulatory and Development Authority’s (IDA) investment guidelines call for project rating of not less than AA. Generally, infrastructure projects that depend on, say, toll collections or airport traffic get a BBB rating. Projects with minimum guaranteed revenue (like an assured offtake in power projects) get a higher rating, a source in the infrastructure sector explained. Therefore, important road or national highway projects would carry only a rating of BBB.

IIFCL and IDFC

IDFC’s managing director Rajiv Lal made a presentation to the government, highlighting serious problems in infrastructure finance, which involve asset-liability mismatches, exposure limitations, and prudential norms. The Infrastructure Development Finance Corporation (IDFC) specialises in infrastructure lending (debt and equity).

In the stimulus package announced on 2 January, the government allowed IIFCL (India Infrastructure Finance Company) to raise Rs 10,000 crore through tax-free bonds for refinancing bank lending of longer maturity to "eligible infrastructure bid-based PPP (public-private partnership) projects". The very fact that IIFCL’s refinance window is for port and road projects is a tacit agreement that bank funds are not available for such projects.

If the amount raised adds up to to Rs 40,000 crore, it will enable infrastructure investments of about Rs 1,00,000 crore (debt and equity together). But this is still a far cry from the Rs 9,84,500 crore of debt funds needed for the infrastructure sector, by 2011-12.

Non-banking finance companies (NBFCs) and external commercial borrowings (ECBs) are other sources of funds for infrastructure projects. But Prime Minister Manmohan Singh told Parliament last year that sources of funds such as ECBs, and also working capital funds, had dried up due to the global credit crunch and slowdown.
Businessworld
Kandula Subramanium

Tata Sons

2008-12-26T11:44:00.004+05:30

The Tata Group had revenues of about $62.5 billion in the fiscal year ended March 31, 2008, and operates in sectors including software, steel, energy, automobiles, hospitality, and consumer products. Founded by Jamsetji Tata in the mid 19th Century, the group's 27 publicly listed enterprises have a combined market capitalisation of some $60 billion and a shareholder base of 3.2 million, the group's website said.

Its top companies include Tata Steel, Tata Consultancy Services (TCS), Tata Motors, Tata Tea, Tata Chemicals, and Tata Power.

Tata Group was leading corporate India's overseas expansion, having notched up the country's biggest foreign takeover with its $13 billion deal to buy Corus in 2007, and putting Indian industry on the map with the Nano car project. The global financial meltdown has hurt the Tata Group by making it more difficult to refinance short-term loans taken out by Tata Motors for the Jaguar/Land Rover deal.

Plans to raise 41.5 billion rupees ($825 million) via two rights issues in October to repay the loans were hit by a stock market slump, with company founders raising their stake to 42 percent from 33 percent as they covered most of the issue.

That month, Tata Motors also said it was rethinking its plans to raise $600 million overseas due to falling markets, and was also reviewing its expansion plans due to softening demand.

In November, Ratan Tata, chairman of Tata Sons, the holding company of the Tata Group, wrote to the heads of group companies, telling them to finalise all pending loan and funding agreements, even if it meant accepting higher interest rates, and put the conglomerate's acquisition plans on hold.

The launch of the Nano, greeted with a rapturous welcome at the Delhi autoshow in January, has been pushed into 2009 after Tata Motors shifted production to Gujarat state in October.

Violent protests by farmers unhappy with the compensation for their land had forced Tata Motors to stop work on the factory in West Bengal state where it planned to build the Nano, which at 100,000 rupees ($2,000) is slated to be the world's cheapest car.

At least 183 people were killed in India's financial capital after Pakistani terrorists struck two of Mumbai's best-known luxury hotels, including the Taj Mahal Palace hotel, the flagship of Tata Group's Indian Hotels Co Ltd.

"The Mumbai attacks add to these adverse conditions. No company can emerge unscathed out of this," said Rishi Sahay of consultancy firm IndusView Advisors. "But the Tata Group will come out it after some time. The kind of balance sheet they have is difficult to underestimate. They have an excellent brand name and they always manage to pull out some miracle from their hat."

Indian Hotels has said it will restore the heritage hotel. "We will rebuild every inch that has been damaged in this attack and bring back the Taj to its full glory," said R.K. Krishna Kumar, vice chairman of Indian Hotels.

Reuters

By Sumeet Chatterjee

The original article described the Pakistani terrorists as "militants", which I have changed and linked to my earlier blog post.

In terms of market capitalization of the Tata Group companies, TCS is the largest, followed by Tata Steel, Tata Power and Tata Motors. Retail investors own nearly a quarter of the various listed Tata group companies. There are also unlisted companies like Tata Industries and Tata Sky.

The Tata Groups holding company is Tata Sons, which is also unlisted. Tata Sons holds major stakes in the Tata group companies and in the unlisted companies under its ownership. Tata Sons is one of the the most closely held and highly valued companies in India.

Thorium reactors the future

2008-12-16T08:24:00.006+05:30

Monazite, from which Thorium is extracted, is abundant in Kerala state's coastline.

India must introspect on which nuclear fuel it will choose to achieve its goal of generating 20,000 MW of nuclear power by 2020 — uranium, which the whole world uses, or thorium, a fuel India can source locally and has technical capabilities in, but which remains unproven commercially? The choice will determine over Rs 1 lakh crore of immediate orders for equipment and project management services, a lifetime of maintenance services contracts and an opportunity to stamp the future of India’s ambitious civil nuclear energy programme with the technology’s supremacy.

"If anything is to be approved, it should be thorium," says Seth Grae, president and CEO of US-based nuclear power consulting firm thorium Power. "India should use local thorium reserves. Compared to other extractions, thorium extraction is a simple procedure."

The lobby working against thorium is that of the established reactor builders, technology providers and nuclear-plant operators, who would rather milk their investments in uranium fuel technology they are currently using rather than spend millions on learning and ratifying a new technology.

Thorium is back in nuclear debates almost 50 years after it was banished as an unviable technology. Ironically, the world's first nuclear power plant at Pennsylvania in the US was built using thorium fuel. Although thorium is three-four times more abundant in nature than uranium, the West embraced uranium as the programme could double up for nuclear weapons too. Thorium, though, has several advantages:

Unlike uranium, thorium cannot be readily used as weapon-grade fissile material

Thorium reactors produce 70 per cent less nuclear waste compared to uranium reactors

Spent fuel from thorium reactors is 90 per cent less radioactive than uranium spent fuel

Thorium fuel is 5-10 per cent cheaper and less price-volatile than uranium fuel

Thorium is three-four times more abundant on Earth than uranium

The entire Indian nuclear programme is built around the heavy-water technology that is better suited for thorium use. No other nation, except Russia and, to an extent, Germany, has since worked on heavy-water technology development. More than five decades ago when Homi Bhabha conceived the nuclear programme, it was tailored to eventually use thorium because India has 290,000 tonnes of thorium reserves — the world's second largest behind Australia’s 300,000 tonnes.

India is the only country to be setting up a 300-MW plant at Kalpakkam near Chennai that will be a stepping stone to commercial thorium power generation; the plant is being designed for an astonishing 100-year lifetime! It had been conceived after a trial-run in a 30-KW reactor, also at Kalpakkam. As the next step, a thorium reactor is currently being vetted at Bhabha Atomic Research Centre (Barc) in Mumbai for technology and design.

"India is ahead of the curve of almost everybody in thorium-fuel reactors," says D.V. Kapur, director of Reliance Industries and former power secretary. "But, at what stage thorium reactors will be possible is still a question."

Businessworld
Rajeev Dubey

Economic impact of Pakistani terrorism

2008-12-03T07:51:00.003+05:30

His crazed eyes said it all. Sadistic glee was etched across the face of the fidayeen captured by closed-circuit cameras at the erstwhile Victoria Terminus in Mumbai as he shot wantonly into the crowd of commuters headed home after a day’s work. By the time he and his band of 20-odd juvenile terrorists had been killed or captured — or had escaped — after killing nearly 200 people and injuring more than 350. Even though the government now says that there were only 10 terrorists, 9 killed and 1 captured and in interrogation, most security analysts around the world don't believe that. The feeling among Indian analysts is that the others, "May have disappeared into the western suburbs in preparation for a future attacks on places such as airports, key bus terminals and business premises such as BKC (Bandra Kurla Complex)."

"These attacks are simply to hamper India’s economic growth," saysMadhav Nalapat, professor of geo-politics at the Manipal University. "The ISI is desperate to stop India’s progress because this gives us more global clout and power, and that threatens them."

The economic focus of the attacks is also clear given their targets. While terrorists often hit economic symbols and civic landmarks, such as the veritable Taj Mahal Hotel (picture above), a symbol of India’s independence and dignity, the Pakistanis started their butchery at the Leopold Café in Mumbai, a favoured watering hole with backpackers and tourists.

Pallavi Dalal, a fashion designer, says she was enjoying drinks with friends at Leopold when the gunmen came. "We only managed to get a table at a far corner near the side entrance, and that saved us," she says. "When we heard a loud crackling noise, we looked around and saw these two chaps crossing the road and firing into Leopold with automatic weapons. We ran out from the side entrance and down the lane into the first building we saw. Firing blindly, they then ran down the lane we had escaped, towards the Taj Hotel. They were shooting all the time, sometimes with one hand, and only stopped to renew the magazine of what we sensed were AK-47s."

That the Pakistani terrorists then rounded up people with British, American and Israeli passports has furthered reinforced this view with the public. "The terrorists are trying to shatter confidence in India among the global community," says Nivedita Dasgupta, a Mumbai-based independent corporate trainer.

The government knew terrorists used the sea route to transport the explosives used in the 1993 Mumbai blasts, and even had fresh warning from the army and intelligence agencies about the possibility of terrorists hitting Mumbai via the sea. The IB source says that a combined meeting of agencies — held a few days before the attacks — called for a review of coastal security. But all this failed to stop Ismail and his fellow fidayeen, who came to Mumbai from Karachi via the Rann of Kutch in Gujarat using firstly the MV Al-Husseni, a Pakistani merchant vessel provided no doubt by the Pakistan navy. They then hijacked the Kuber, an Indian fishing vessel and brutally murdered its crew and wore their clothes and other effects, like red threads on the wrist, to pass off as fishermen.

Already, IHS Global Insight, a US economic forecasting firm, has raised India’s security risk rating by 0.25 to 3.50 "to reflect the continued volatility in Mumbai and the potential for coordinated attacks in separate locations". The British High Commission and American Embassy have also issued travel advisories. And it is estimated that even if 10 per cent of foreign companies restrict travel to India over the next year, the country could loose $1-7 billion in investment.

Air France and KLM have already cancelled flights to Mumbai, and with aviation also hurting because of the anti-government demonstrations in Thailand, there is a growing sense of panic in the industry. Several large tour operators are defaulting on payments, including Raj Travels, which has already defaulted on its payment to airlines.

The terror attacks have also jeopardised the CphI, among the largest global conventions on pharmaceuticals, which was to start on Friday at the Bombay Exhibition Centre. The conference was expected to do business to the tune of Rs 500 crore, and now stands postponed to 2009. Many of the 5,000-10,000 attendees expected are already backing out, says Ajit Kamath, chairman of Arch Pharmalabs, who was helping organise the event. Kamath now worries that China, which has projected its relatively terror-free image with much success, might appear more attractive as a business destination in the short term.

For now, all politicians are making the right cooperative noises. But this is expected to change soon as the BJP, Left and Congress have very divergent views on how to deal with terror. Professor Madhav Nalapat says that over the past four years, the UPA government has forced the security apparatus to follow a "politically correct approach" that is backfiring. "Some sensitive localities have not been entered, searched, etc., for years. And now I fear things are running out of control," he says. Some intelligence reports have maintained there are 100,000 fidayeen waiting in India for attack orders. And Nalapat says, "It could take 10-20 years to end the problem unless we get serious."

Businessworld
Inputs by Gurbir Singh, Gauri Kamath, Dhanya Krishnakumar, Shalini S. Sharma, Noemie Bisserbe, Pierre Mario Fitter, Manashwi, Sreevalsan Menon, Janhavi Abhyankar and Deepti Bose

Rose exports India

2008-11-24T05:18:00.003+05:30

Rose Farm in Pushkar, Rajasthan. Photograph by Cathryn Game

Indian rose exporters, hit by a dip in local production, have been bracing for lower margins. Domestic production has been low because rains were spread over more days, depriving rose farms of the sunlight they require for growth. Coupled with higher labour and input costs, weather patterns are "definitely impacting production and bottom lines massively," said Manjunath Reddy, managing director of Bangalore-based Meghna Floritech Ltd and a committee member of the South India Floriculture Association, an industry body, which estimates a reduction of 20-25% in rose production this year.

Indian rose farms are located in two clusters at Bangalore and Pune, and flower growers typically export over 60% of produce between September and March. For the rose trade, the festive season running up to Valentine’s Day on 14 February, is a boom time for sales. Roses from Rajasthan have traditionally been used for fragrance, essence, rose water, and other edible products. But now Rajasthan has a research facility at the agriculture university in Udaipur to help farmers grow roses for consumers overseas.

"We expect this Valentine's to be quite normal and the prices that we are talking about are pretty much the same prices that we did last year, but in rupee context, it is better though our sales currency is euro," said K.S. Ramakrishna, managing director of Bangalore-based Karuturi Global Ltd, the world’s largest exporter of roses. The rupee has depreciated 22% against the dollar, by 9% against the euro and 33% against the yen since the start of this year, according to Bloomberg data. That translates into more rupees for every dollar, euro or yen that is earned by exporters, who had been hit last year by the steep appreciation of the local unit.

India’s floriculture exports for the year ended March were valued at Rs338 crore, according to the Agricultural and Processed Food Products Export Development Authority, or Apeda, a Union government agency. Cut flowers such as rose stems constitute around 25% of India’s floriculture exports, which are less than 1% of the international trade in flowers. Commercial floriculture gives greater yield to farmers and takes less labour and water than traditional foodgrain.

Livemint
Ajay Sukumaran

Invest in infrastructure

2008-11-12T04:30:00.003+05:30

In August 1998, the AB Vajpayee government had unveiled two mega road infrastructure projects — construction of national highways, popularly known as the east-west and north-south corridors, and modernisation of the country’s major airports.

The highway projects got off to a flying start and contributed to the growth momentum the economy gained in the following five years. The airport modernisation project got delayed during the tenure of the Vajpayee government. It was the Manmohan Singh government that began its implementation. And an expanded highways project was also taken up for implementation by the Manmohan Singh government.

Government officials admit that there is now need to announce a few more mega infrastructure projects like the ones that were initiated by the Vajpayee government. Not just to earn some electoral dividends six months from now, but also to improve the economy’s prospects of beating the recession.

What Prime Minister Manmohan Singh continues to do (he did that again while in Muscat on Sunday) is only to talk about the need for a $500-billion investment in India’s infrastructure sector. China, in sharp contrast, is not talking. It has announced a $586-billion plan for investments in infrastructure projects to stimulate the Chinese economy.

Considering that the Indian economy is going through one of its worst crises, you would have also appreciated the government’s eagerness to launch schemes that would entail huge expenditure on projects, create jobs and hopefully some more demand.

On November 6, the Cabinet approved a Rs 950-crore project to construct Afghanistan’s Parliament building and the Indian chancery complex in Kabul. In addition, it enhanced the productivity-linked monetary reward scheme for port and dock workers, approved the national biodiversity action plan and ratified the agreement on the transfer of sentenced persons between India and the Hong Kong Special Administrative Region

The Union Cabinet and the Cabinet Committee on Economic Affairs (CCEA) approved a Rs 1,339-crore national project to construct 53 kilometres of new broad-gauge railway tracks in Sikkim. A Rs 574-crore 110-MW hydroelectric project in Arunachal Pradesh, dredging of the Vallarpadam terminal at Cochin at a cost of Rs 381 crore, a Rs 350-crore biotechnology research programme in partnership with industry and some other schemes to set up border check posts and schools in educationally backward areas were among other major decisions taken at that CCEA meeting.

Central government officials concede that this surely does not indicate that the government is just a few months away from general elections. Nor does it show any urgency on the part of the government to announce some big projects to pump-prime the economy as large sections of Indian industry have demanded during their recent interaction with the government in the wake of the global financial crisis.

Business Standard
AK Bhattacharya

Tata Tea rural initiative

2008-11-05T10:41:00.005+05:30

The growth of local tea companies in UP, despite the fact that Tata Tea and HUL were also growing, posed uncomfortable questions. Sent out to seek answers, the Tata Tea sales teams as well as the hired consultants, came back with the same answer — Tata Tea was not selling in more than 100,000 villages in UP.

Local industry bought cheaper CTC tea from auctions and packaged it into poly-packs in backyards. With zero advertising, retailers pushed this product for higher margins, often Rs 40 per kg as against the Rs 20 the organised sector could offer. Realising that the local tea industry had resurfaced in rural areas, Sachin Vyas general manager for sales and distribution at Tata Tea, opted to reach rural consumers through NGOs, despite the severe apprehensions of other team members. "These institutions had access to people like none other," says Vyas. Eventually, the Sir Ratan Tata Trust and the Dorabji Trust screened 12 names.

The rural initiative was launched in December 2005. Named Gaon Chalo, meaning "let's go to the villages", the intiative saw Tata Tea joining with 12 NGOs to spread its reach across rural UP. By the end of 2006 Tata Tea added more than 20,000 retailers, including 500 new rural distributors, in 10,000 villages across UP to its distribution network.

"The whole problem with any rural initiative is that people think it’s unviable since a lot depends on retailers’ sincerity and integrity," says Vyas. "You need large investments and the creation of a feasible infrastructure."

MoUs were signed with NGOs (Rural Dealer-1) to act as main distributors at a district level, collecting various products from Tata Tea on credit before giving them to mobile rural distributors (RD-2), also on credit, who would then visit a fixed number of villages periodically to supply tea to small rural retailers (RD-3), who in turn sold to rural consumers. RD-3s made payments to the RD-2s on subsequent visits to replenish stock, and so on up the chain. An average RD3 now earns an additional monthly income of Rs 300-1,000, while an RD2 earns Rs 5,000-7,000. Eventually, NGOs made payments and took supplies from the company.

"Our status as facilitators of rural income has improved our image and financial position," says Raj Shekhar of Irada, an Allahabad-based NGO. And Meenu Tyagi of Sabla, a Rae Bareilly-based NGO, notes that a steady, locally-earned income curbs migration to urban areas to a large extent. "My value and status in society has increased because of the Tata name," says Sanjeev Kaushik, an RD2 supervisor in Muzzafarnagar.

A Gaon Chalo pilot is now being attempted in Madhya Pradesh. The next phase is expected to see most group products (automotives, salt, consumer goods, telecom, insurance) being introduced to this permanent, exclusive distribution chain under a programme called Tata Hut.

Businessworld
Sreevalsan Menon

Foreign exchange

2008-10-27T09:12:00.002+05:30

If you were at a foreign exchange counter at any Indian airport last week, the quoted rates would have shocked you: a little more than Rs 45 if you were to sell them and more than Rs 53 if you wanted to buy. The spread of nearly 18 per cent between the two prices is shocking; usually it ranges around 5 per cent, which is already higher than what a bank would charge you.

Businessworld
Srikanth Srinivas

But exchange rate volatility also raises a set of issues that may have not mattered six months ago. For one thing, no one is certain how much more the rupee will depreciate, and what that will do to corporate India’s prospects.

Second, the spectre of large capital outflows on top of the $12 billion that foreign institutional investors (FIIs) have already taken out of Indian markets raises questions about the quality of the inflows that led to the huge build-up of reserves until March, even May this year.

Third, while India may have the fourth largest reserves in the world, we are also the fifth largest debtor nation — at $221 billion —according to the World Bank’s Global Development Finance 2008 report. Which brings us to an extreme question: in the event of sudden and large reversals, will our current reserves be enough?

Many like Krishnamurthy take heart from the ‘fierce and coordinated’ intervention by central banks around the world, including the Reserve Bank of India (RBI). They point to the fall in oil and commodity prices (the Indian crude oil basket is about $62 a barrel right now), which implies that the trade deficit that has widened sharply in the past two months, will do better.

Foreign exchange reserves

As the global financial crisis deepens, FIIs may end up taking out more than the $12 billion that they have taken out of our stockmarkets so far.

Corporate India has about $62 billion outstanding in external commercial borrowings (ECBs), starting from 2002. Repayment of about 20-25 per cent of which is estimated to fall due this year. That means another $12-15 billion will likely go out in the next few months.

From July 2006 to March 2008, accretion to foreign exchange reserves grew very rapidly; but from April to June 2008, addition dropped alarmingly. Reserves management then was about managing the demand side of capital flows: discouraging them. Now, it is all about managing the supply side of capital — making sure we have enough.

Under the present situation, if another $60 billion — through a combination of ECB repayments and FII sales — were to be taken out, it would absorb all the rupees released by cutting CRR to 3 per cent (Rs 1,80,000 crore) and an unwinding on the market stabilisation scheme (MSS) (about Rs 1,25,000 crore) that the RBI used to mop up excess liquidity.

Before 1990, foreign exchange reserves accounted for 6-8 per cent of GDP for most countries. Today, they account for close to 30 per cent; East Asian economies built them up as insurance against capital flight, with India following suit. And that is now being flight-tested.

Free Markets ended in 1912

2008-10-15T05:10:00.004+05:30

Businessworld
Robert F Bruner
(The author is Dean, Darden Graduate Business School, University of Virginia)

The immense rescue legislation passed by the US Congress marks a historic watershed for the world. Critics from both ends of the political spectrum proclaim the passing of free-market capitalism. If you think the world has had a free-market financial system, think again. A free market avoids the distortions due to regulation; buyers and sellers drive the outcomes; competition is rigorous, and can produce volatile results; there is free entry and exit; investors are free to take risks, harvest any gains and bear any losses.

The free market in finance in the US ended in 1912 with the legislation to create the Federal Reserve System, the central bank. ‘Free market’ does not describe well the financial services industry in the world today: government agencies regulate the entry, exit, and combination of financial institutions; they oversee the transparency of financial reporting and securities underwriting; they influence credit and capital policies of lenders; they manage the money supply through which they drive interest rates and inflation expectations; and they provide the electronic system through which vast quantities of cash are transferred.

Government-sponsored entities such as Fannie Mae and Freddie Mac fuelled the extraordinary expansion of mortgage lending. Since 1978, the US government has managed financial markets to maintain full employment and stimulate economic growth. Similar practices prevail in many other countries.

Government coffers are easy targets for special interest groups seeking to save certain firms, jobs and industries. With the bailout of the US banks, you can be sure the auto and air transport industries will be close behind seeking a safety net. Risk-reduction afforded by regulation is not costless. Do we want an absolutely risk-free society? Absolute risk reduction would choke off innovation, entrepreneurship and growth.

The current crisis is distinguished from previous crises by very great complexity, high speed of news and cash, and very large scale. It is hard to imagine the wreckage that would have occurred by now without the government’s interventions to date. The regulatory innovations roiling the markets do not strike me as the death knell of comparatively free-market capitalism. Or at least, if there is a death to grieve, then it must have happened a long time ago.

Fuelling power

2008-09-23T10:53:00.003+05:30

Businessworld
Kandula Subramaniam

India has an installed power generation capacity of slightly over 145 gigawatt (GW). Of this, over half, or 77 GW, is in thermal coal projects and another 59 GW in gas/liquid fuel power projects. While nuclear power capacity adds up to 4 GW, the balance is in the form of hydro and other renewable energy projects. At one level, the government promises to add over 780 GW of fresh capacity during the current Eleventh Plan, but even the existing assets are being underutilised due to fuel shortage. And a coal and gas shortage threatens to aggravate this by delivering substantially less than the 145 GW installed capacity.

This month, of the 77 coal-based plants, the number of plants with less than a week’s stock of coal stood at 48, and those with less than four days’ stock - dubbed as critical - stood at 25.

It gets worse when it comes to gas-based stations. Take, for instance, GVK’s new 220-MW Jegurudau power plant in Andhra Pradesh, which is ready but there is no gas supply. Commissioning of two other 909-MW stations (Gautami and Konaseema) is held up due to gas shortages. Documents accessed by BW show that the 41 gas/liquid fuel-based power projects — spread across the private and state sectors — barely get 58 per cent of their fuel requirements.

Despite all efforts by the Centre to revive the erstwhile 2,000-MW Dabhol power project (now called Ratnagiri Power) directly under the supervision of the UPA government’s first empowered group of ministers chaired by Pranab Mukherjee, the project still does not have an assured source of gas supply for the entire unit.

Ratnagiri Power (Dabhol) still does not have assured gas supply (Pic by Sanjit Kundu)

Some power plants such as Kayamkulam (350 MW) in Kerala; Maithon (90 MW) in Jharkhand; Basin Bridge (120 MW) in Tamil Nadu; Tanir Bavi (220 MW) in Karnataka; and the 174-MW Cochin project in Kerala are awaiting supplies that would allow them to switch over to natural gas from otherwise expensive alternatives such as naphtha.

Power tariffs are split into two components: fixed and variable charges. While the variable charge is dependent on the fuel consumption, the former takes into account return on equity, debt servicing requirements and operation and maintenance charges. In the event an alternative fuel is not allowed by the concerned state government, the contract period would be reworked and the time period would be extended to allow the recovery of the fixed costs. That way, the fuel risk and even the payment obligation are going to be borne by the final consumer.

Vote-bank obsessed politicians give priority to fertiliser plants and LPG extraction units from available fuel, leaving gas for power stations at third place.

Nuclear Power

Before the signing of the nuclear deal, the nuclear fuel shortage had forced the Nuclear Power Corporation to slash production of power to half of the plants' capacities.

The nuclear power industry has been a government monopoly; there will be influential voices within the government that will want to keep it that way. The current reactors will remain with the government, and it would make sense if the government expanded its programme with foreign technology to a certain extent, since it is important to keep the official nuclear establishment up-to-date. But much faster expansion of generation capacity can be achieved if the private sector is brought in at this stage to import and learn technology and construct atomic power stations.

It would be a good idea to choose half a dozen firms, contract them to build nuclear power stations, and leave them free to make or buy the technology, subject to technical supervision from the Atomic Energy Commission.

The French minister of state for foreign trade, Ann Marie Idrac, is currently in New Delhi to enhance trade between the two countries. With 58 standardised nuclear power reactors, France today has a leading and unique position in the world, thanks to the scale and continuity of its nuclear programmes, particularly in terms of safety and operational records. He said, "In 1998, France initiated the political process that led to the NSG granting an exemption to India on September 6, 2008. The successful completion of the process now offers India the possibility of cooperating fully with France on all aspects of civil nuclear energy, including the supply of equipment, nuclear material and reactors to India."