Private oilcos may have to shell out windfall tax : ET

Private oilcos may have to shell out windfall tax

Private oilcos like Reliance Industries (RIL), Essar and Cairn may have to forgo some of their profits to share the huge subsidy burden in the oil sector. A proposal on these lines, which was first mooted by the Left parties, is now being considered “seriously” by the ruling party leadership, following a similar demand by the Congress’ latest political ally, the Samajwadi Party.

A windfall tax is normally levied on oil exploration and production companies who reap huge profits when global crude prices increase. Refinery companies, on the other hand, face pressure on their margins as costs go up. Sources in the know confirmed that the SP leadership, which has openly criticised the petroleum ministry’s stand on fuel prices, has demanded that private oil companies whose profits have surged thanks to high oil prices, need to share the subsidy burden.

A decision to this effect is expected towards the end of this month. The changing political landscape may revive the government’s proposal to widen the oil subsidy sharing mechanism, currently confined to PSU oil companies and the exchequer. It is understood from official sources that the proposal, mooted earlier from within the government, was summarily turned down by petroleum minister Murli Deora before.

According to official sources, it was proposed that the Reliance refinery should be asked to offer discount for at least two products, cooking gas (LPG) and kerosene, meant for the public distribution. While announcing the marginal fuel price hike on June 4, Mr Deora, however, said that he was against any such move to involve private companies, including Reliance, in sharing the oil price burden.

On June 4, at the prevailing crude prices ($129/barrel), the under-recoveries of oil marketing companies (OMCs) on the sale of petrol, diesel, PDS kerosene and domestic LPG was estimated at around Rs 2,45,305 crore for 2008-09.

Sources close to the current political developments said that SP has demanded that private companies like RIL are minting money due to rising global oil prices and they can’t be protected at the cost of common man and public sector companies. “The demand is in the public interest,” a source close to the SP leadership said. Many members of the Parliament (MPs) have been demanding that private refiners as well as exploration & production (E&P) companies like Cairn, Niko and GSPC should also contribute towards sharing of OMCs’ under-recoveries.

While E&P companies could offer discounted crude like ONGC (which would reduce costs for refineries and thus the loss on the selling price), refineries could sell the products at subsidised prices to public sector oilcos. As of now, public sector oil companies buy a marginal quantity of subsidised fuels like cooking gas and kerosene from the private refineries at import parity prices.

Currently, the under-recoveries are split by public sector E&P companies like ONGC, OIL and Gail through discounts, public sector OMCs like IOC, BPCL and HPCL through direct subsidised retail, and the government through oil bonds. On June 4, the government increased prices of three sensitive fuel products marginally — petrol by Rs 5/litre, diesel by Rs 3/litre and cooking gas by Rs 50 per cylinder.

The government didn’t increase the price of kerosene, a politically sensitive product considered to be used by the poor. Even as there has been a marginal price increase, public sector OMCs are losing Rs 14.92/litre on petrol, Rs 24.90/ litre on diesel, Rs 38/litre on kerosene and Rs 338.53 on every LPG cylinder.

IOC, which has over 50% market share in fuel retailers among PSUs, is losing Rs 383 crore per day on fuel sales. The losses are expected to go up significantly as the crude oil prices, currently hovering at around $145/barrel, are likely to touch $150/barrel mark soon.

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Source: ET

RIL in talks for Chevron's Kenya, Uganda biz : ET

RIL in talks for Chevron's Kenya, Uganda biz

Reliance Industries (RIL) is learnt to be in talks to acquire some downstream assets of US major Chevron in the African continent. Chevron’s assets in Africa include over 1,500 fuel stations, refining assets, terminals and depots in countries like South Africa, Namibia, Botswana, Lesotho, Zimbabwe, Malawi, Egypt, Kenya, Mauritius, Reunion and Uganda. Of these, Chevron may exit from East African markets like Kenya and Uganda. Confirming the move, a source close to the development said, “Chevron’s Kenya and Uganda operations are on the block.”

The Chevron spokesperson could not be reached for her comments immediately. An e-mail sent to Chevron remained unanswered. A RIL spokesperson declined to comment on this issue. The Kenyan government is learnt to have offered three billion Kenyan shillings to buy Chevron’s retail marketing operations in Kenya. With Chevron’s Kenyan and Ugandan operations up for sale as a combined unit, the government’s bid for the local business is at a disadvantage against international and national oil companies that are said to be pursuing the deal to grow their market shares in the region.

Kenyan energy permanent secretary, Patrick Nyoike, who was in Mumbai last week said, “We are facing stiff competition from other top private sector contenders, who are eyeing both the operations. We have asked them (Chevron) to unbundle the two operations to enable us to bid for the Kenyan operation in which we are interested. From India, Reliance and Essar are in talks with Chevron for buying out there African operations.” When asked for comments, an Essar spokesperson said, “As a group, we keep looking at growth opportunities in the sectors that we are in. However, it is not our policy to comment on any specific proposal.”

Interestingly, Caltex’s Uganda country chairman, John Matovu, last month said “Caltex is not up for sale. We have made no decisions regarding any new divestitures. Chevron Corporation, the parent company of Caltex, constantly evaluates its operations to determine whether it needs to make changes to improve returns on capital and generate the strongest possible cash flow. Evaluations were going on to determine options for the company,” an African website quoted Mr Matovu as saying. An African business daily had earlier quoted Chevron’s Kenya CEO, Raymond Ndieffe, as having said that “Chevron continually evaluates our business operations to determine whether we need to make changes.

As a part of this strategy, evaluations are ongoing to determine what options are available to us”. RIL is aggressively scouting the globe for oil terminals to bring itself closer to the market for crude and refined end-products. After being forced to close over 1,400 retail outlets in India, the company is looking overseas to buy downstream retail assets. A RIL source said, “Africa is an exciting market for us. We are looking at various options.” RIL’s president for international business, Atul Chandra, had earlier told ET, “The company is looking at acquisitions in various markets, including Africa.”

RIL chairman Mukesh Ambani, in his AGM speech last month, hinted at RIL’s mode of growth changing from organic to acquisitions. “The span of growth is rapidly extending from India to global and in the process, Reliance is poised for a historic leap from India’s number one company to one of the world’s leading energy giants.” An analyst working with an international research firm, said, “It makes sense for Reliance to buy downstream assets in Africa primarily because its new refinery is likely to commence soon. Since it has closed down its India retail operations, it may export a part of its refinery products to African markets. Essar will also be interested, given its negotiations with the Kenyan government to buy majority stake in the Mombassa refinery.”

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Source: ET

Markets near intermediate bottom level: ET

Markets near intermediate bottom level

The market finished lower for a seventh successive week, with the Sensex ending 2.92% or 348 points lower, and Nifty losing 2.92% and CNX Midcap falling 4.98%. However, the statistic hides two rallies during the week that added up to 1,063 Sensex points.

BHEL was the biggest winner among Sensex stocks with an 8.7% gain. Other winners with gains between 7.5% and 2.4% included Jaiprakash Associates, ONGC, Satyam, L&T, Ranbaxy, Infosys and NTPC. ACC was the biggest loser with a 17.5% loss. Other losers were Maruti Suzuki, Grasim, Reliance Energy, Tata Steel, Tata Motors, Ambuja Cements and ICICI Bank with losses between 14.7% and 8%. Triveni Engineering was the biggest winner among non-Sensex stocks with a 23.6% gain. Other non-Sensex winners with gains between 14.3% and 5.9% were India Infoline, Orchid Chem, i-flex solutions, Renuka Sugars, Praj Inds and Gokul Refoils. Recently listed Niraj Cement was the biggest loser among non-Sensex stocks with a 58% loss. Other losers were MVL, Pyramid Saimira, Gwalior Chemicals, JSW Steel, Sejal Architectural Glass, Adlabs Films, MRPL, Rajesh Exports and Gujarat NRE Coke with losses between 27.5% and 16.9%.

INTERMEDIATE TREND: The intermediate downtrend that began on May 5, when the Sensex reversed downward after peaking at 17736, persists. But the two bouts of strong buying on Wednesday and Friday suggest an intermediate bottom is a possibility around current levels. The levels above which the downtrend will end remain 14450 for Sensex, 4325 for Nifty, and 5698 for CNX Midcap. Global indices are also in intermediate downtrends. The Dow has to cross 12400 to begin an intermediate uptrend.

LONG-TERM TREND: The indices made fresh bear market lows last week, and remain in major downtrends. This means we are still in a bear market. The market’s long-term trend will turn up if the Sensex closes above its last intermediate top of 17736, Nifty above 5300, and CNX Midcap above 7192. Global indices are also in major downtrends, but most have remained above their last intermediate bottoms. Indian and Chinese indices breached their last lows a few weeks ago, and the Dow did so more recently. Some European indices followed suit last week. The odds can shift in favour of a global bull market if the current intermediate downtrends end in higher intermediate bottoms for most indices. The Dow will enter a bull market by closing above its last intermediate top at 13200.

TRADING & INVESTING STRATEGIES : Long-term investors should wait for this intermediate downtrend to end. But some exposure can be taken as the downside risk is reduced with the Sensex having fallen almost 40% from its January high. A 25% exposure with a pessimistic 20% downside risk presents only a 5% portfolio risk. Banks, realty, construction and capital goods are still in long-term downtrends, and should be avoided. Software and pharma scrips and are not falling as heavily, and are better suited for long-term investing. The intermediate downtrend is now nine weeks old, and day-trading may work better then swing trading, as abrupt changes are occurring frequently.

GLOBAL PERSPECTIVE: All major international markets are in intermediate downtrends, and also lost further ground last week. But the March lows have not been violated yet for most markets. The Sensex has lost 12% in the 12 months that ended on Thursday, taking it to 12th spot among 40 well-known global indices. Egypt continues to head the list with a 18.7% gain. Russia and Brazil are next. The Dow has lost 16.9% and Nasdaq 15.1% over the same interval. (The author is an independent technical analyst)
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Source: The Economic Times