Oil decontrol on the backburner
Case weakens govt stand on tax breaks to FIIs
Bihar keen to promote infotech units
Rollover deals in A group by Nov
Rupee eases, poor $ inflow as conversion deadline
Tatafone to be hived off
Hind Petro keeps faith in joint ventures
Foreign Exchange, Bullion, Stock Indices

New Delhi, Aug 23 
The government is likely to slip on the proposed schedule for total deregulation of the petroleum sector, thanks to the political tightrope that it has to walk.

The Union Cabinet had endorsed that the oil sector would be fully decontrolled by April 1, 2002. But signals emerging from the corridors of power seems to indicate that the deadline is being deferred.

Total deregulation involves price decontrol which is not possible without abolishing cross subsidies that are operated through the oil pool account.

However, scrapping of oil pool will call for steep hike in prices of petro goods. In the post oil pool regime, prices of liquefied petroleum gas (LPG) and kerosene would almost double while diesel would be dearer by Rs 2 per litre.

The Vajpayee government cannot afford this. It prefers political virtue to economic prudence.

Though no formal decision has yet been taken to push back the decontrol process, the dithering political leadership is now reconciled to the fact that it simply cannot be implemented on April 1, 2002 as scheduled.

Senior officials in the ministries of finance and petroleum confirmed this.

The situation, however, can change if international prices of crude crash to a level below $ 20 a barrel which is unlikely to happen in recent future.

Apart from a couple of decisions on telecom, sources said, the BJP-led government had not shown the political will to carry through unpalatable policy decisions.

Interestingly, the same government is keen to advance the time limit set by the Cabinet to permit private players to enter petroleum marketing. Private sector refinery owners have been lobbying for marketing rights much ahead of the April 1, 2002 deadline. The government is preparing the ground to meet their demand.

Way back in September 1997, the Union Cabinet decided on the time schedule for the phased deregulation of the petroleum sector. It resolved to put prices of diesel on adjusted import parity and to reduce subsidies on cooking gas to 15 per cent and that on kerosene to 33 per cent by 2002. Thereafter, these subsidies were to be looked after by the general budget in the absence of an oil pool.

These bold decisions of the Deve Gowda government coupled with the subsequent dip in international oil prices almost totally wiped out the deficit in oil pool account by the end of December 1998.

However, the failure of the successive governments, beginning with the Gujral regime, to ensure phased reduction in subsidies complicated the price situation. The subsides on kerosene and LPG are near 100 per cent now.. The subsidy on diesel is about Rs 2 per litre which works out to Rs 1000 crore a month.

This is a nightmarish situation for the government. Any attempt to drastically prune these subsidies before April 1, 2002 can be politically suicidal.

International prices of crude and products have been rising over the last few months. The situation calls for price hikes but the government has been shying away from a decision. Official sources rule out any immediate price hike. A moderate hike, according to them, is likely only after international prices stabilise.    

New Delhi, Aug 23 
Finance minister Yashwant Sinha is likely to find it harder to defend the controversy-ridden circular issued in April by the Central Board of Direct Taxes (CBDT) that said foreign institutional investors who funnel funds into the country via Mauritius would continue to enjoy tax-free status. The CBDT clarification had been issued after a furore among the FIIs who were slapped with tax notices for misusing the provisions of a tax treaty with the island nation.

Sinha’s discomfiture is expected to stem from tax adjudication documents in the case of Cox & Kings Overseas Funds (Mauritius) Ltd, which had been investing in the Indian stock market. These documents reveal that income tax authorities had established that the investment firm carried out no business on the isle, nor did it ever raise money, acquire any property or invest in Mauritius. And that “its business decisions were taken by an investment company incorporated outside Mauritius.”

The description of the manner in which Cox & Kings Overseas Funds (Mauritius) operates could just as well fit the foreign institutional investors who got off the hook in April.

In a judgement given earlier this year, the adjudicator from Mumbai’s special range 12 made it clear that this and similar attempts by the FIIs to “treaty shop” — that is, use the tax breaks given to residents of country A by country B despite the fact that they had no interests in country A — were illegal.

The adjudicator quoted a Supreme Court judgment given in 1985 in the case of McDowell & Co vs CTO as clarifying that arguments that tax authorities cannot challenge abuse of treaty is not in accordance with law.

The tax laws of most countries include provisions or principles that disregard transactions undertaken for tax purposes if contrary to legal intent. It went on to say that if corporates employ “unusual or artificial measures to circumvent the words of the statute” or “measures that would not have been employed aside from tax considerations”, then this cannot be acceptable. It ruled that the firm was liable to pay both long-term and short-term capital gains as well as penalties on income earned in the financial year 1997-98.

Revenue officials say this rather strong judgment was brought to the notice of top North Block mandarins when they were issuing the circular. But it was disregarded.

With Sinha under attack in Parliament and media speculating on how the circular benefited an investment firm where his daughter-in-law was employed, the adjudication is sure to embarrass the BJP government further. Says CPM MP Nilotpal Basu who is spearheading the opposition’s fight against what it considers misuse of the treaty, “It is definitely a case of bending the letter of the law to take advantage of a treaty which was never meant to benefit anyone other than Mauritius residents.”

Both Basu and CBDT officials argue that a large number of FIIs, media and multinational manufacturing firms have set up shell companies in Mauritius merely to get tax breaks in India. And this was never the intent of the treaty approved by Parliament.    

Jamshedpur, Aug 23 
The Bihar Industrial Commission is keen to promote industries relating to the information technology sector in the state, Tisco managing director J.J. Irani said today. Irani, who is also the chairman of the commission, said it has approached Nasscom for this purpose.

“The commission feels that the state is lagging in the infotech sector. We have contacted Dewang Mehta of Nasscom and requested him to draw up a blueprint for promoting infotech industries in Bihar,” he said.    

Mumbai, Aug 23 
The Securities and Exchange Board of India (Sebi) and the premier stock exchanges today charted a roadmap to bring stocks in the specified list within the ambit of rolling settlement by the end of November.

Representatives of stock exchanges having trading segments for the carry forward and automated lending and borrowing mechanism (ALBM) attended the meeting that was attended by the market regulator.

The move sent tremors through the stock markets and at, least temporarily, stopped the bulls in their tracks as the realisation sank in that this could spell the end of the popular 90-day modified badla system.

The sensex dipped by 16.44 points to 4444.79, paring the gains arising from Tuesday’s 52-point surge in the bellwether index.

However, Ajay Menon of Geojit Securities, a NSE broking outfit, said the move would not affect the stock markets in the long-term.

At the meeting, the market regulator stressed its resolve to introduce compulsory rolling settlement, but said this would be implemented in phases.

Currently, Sebi has introduced compulsory rolling settlement for 163 scrips in the non-specified group. To facilitate the introduction of rolling settlement for stocks in the specified group and those scrips that enjoy benefits under the automatic and lending borrowing scheme, the Sebi board had sometime back approved the introduction of a new carry forward system under the rolling settlement and continuous net settlement.

the introduction of these new facilities will require changes in the software. The meeting also evaluated the preparedness of the exchanges to introduce the changes. Sebi’s apprehensions on this score were allayed by the stock exchange representatives.

The exchanges also reiterated their seriousness about the introduction of these new products to facilitate the expansion of rolling settlement.

Sebi executive director Pratip Kar said the representatives of six major stock exchanges had agreed to the November-end deadline for ensuring that their systems were ready for CFS in rolling settlement.

Simultaneously, the ALBM in rolling settlement would be introduced on the National Stock Exchange in a phased manner, he said.

The representatives of National Stock Exchange (NSE), Bombay Stock Exchange (BSE), Delhi Stock Exchange (DSE), Calcutta Stock Exchange (CSE), Madras Stock Exchange (MSE) and Ahmedabad Stock Exchange attended the meeting.

The Sebi board approved the introduction of carry forward system in rolling settlement in both daily and weekly maturities of one to five days and continuous net settlement (CNS) at its meeting held on June 14.

Already, BSE and NSE have taken some steps for the introduction of the carry forward under the rolling settlement and the continuous net settlement facility.

Sebi said these steps include drawing up business requirements specifications, development of software and back office software at the exchange level and broker level. The representatives were confident that they will be in a position to complete the software development and make the products available by the end of November.

This would facilitate the inclusion of more scrips including specified shares and shares included under NSE’s ALBM to be brought under compulsory rolling settlement in a phased manner.    

Mumbai, Aug 23 
The rupee today turned weaker against the dollar even as the RBI-stipulated deadline for the EEFC account holders to convert 50 per cent of their accounts expired.

The absence of any significant dollar inflow pulled the Indian currency down by around 10 paise to close at 45.78/79 against it previous close of Rs 45.68/69.

Early last week, the central bank directed dollar denominated exchange earners foreign currency (EEFC) account holders to convert 50 per cent of their account into rupees by August 23. This had generated a widespread opinion that today’s trading would see a massive inflow of the greenbacks.

However, contrary to the expectations, the inflow did not take place. Some of the dealers opined that most of the exporters have “matched-off” their dollar positions. “It seems that exporters have resorted to undertake a swap by selling spot and buying forward dollars for their import purposes. Such selling does not result in dollars actually coming into the market,” an analyst with the HDFC Bank said while explaining the reasons as to why the expected inflow did not take place.

Dealers now expect the RBI to scrap the entire scheme in the event of the Indian currency losing its value significantly in the days to come.

With demand for the greenbacks now strong, most of the dealers expect the rupee to lose its value in the immediate term. “The rupee may soon touch the Rs 45.90 level to a dollar,” an analyst with the foreign bank pointed out.

In today’s trading, renewed dollar demand from corporates and importers pulled down the rupee despite expectation of improved dollar supplies from exporters complying with the RBI’s deadline.    

Calcutta, Aug 23 
Tata Telecom, the 50:50 joint venture between the Tatas and Lucent Technologies, has decided to hive off its Tatafone division (TFD) into a separate company.

The move is seen as a precursor to the ultimate sale of Tatafone, which has been suffering heavy losses for the last several years. Confirming the move, a senior Tata Telecom official said the board of directors has reached a consensus on the issue.

“The process of separating the division into a new company will start very soon,” he added.

The official, however, refused to comment on rumours that the company was also trying to sell Tatafone as a going concern.

“Our first task was to reorganise the division under a new company and then look for a strategic partner,” he said.

The official also categorically stated that Lucent will not be a part of the new company. Sources said Lucent was not keen to carry the burden of the loss-making division, which was formed following the merger of Tata Keltron with Tata Telecom three years ago.

Keltron, which was the joint venture partner in Tata Keltron, had pulled out from the loss-making joint venture and the unit was ultimately merged with Tata Telecom.

TFD however, failed to make a dent in the domestic market, with its sales turnover slipping down to Rs 32 crore in March 2000 from Rs 46 crore in the previous year.

The division suffered a loss of Rs 9.26 crore in 1999-2000 against a loss of Rs 5.64 crore in 1998-99, although the overhead expenses, according to the company, were under control.

Sources said the poor performance of the division was mainly responsible for the company’s net loss of Rs 13.25 crore last year, against a profit of Rs 3.90 crore in the previous year.

The company’s cash cow is the business communication division, which recorded a turnover of Rs 150 crore last year against Rs 129 crore in March 1999. It made an operating profit of Rs 4 crore against the previous year’s loss of Rs 2.58 crore after implementing a turnaround strategy.

The business communication division has set an ambitious target of growth in the current year with the rising sales of Definity systems and call centres, an automated teleservice system.

The company expects that the demand for call centres will grow exponentially in the current year.

“We hope to make a substantial profit as soon as the TFD is separated,” a senior company official said.    

Mumbai, Aug 23 
Hindustan Petroleum Corporation Ltd (HPCL) has decided to continue with its joint venture approach to exploit opportunities in areas of exploration and production, marketing infrastructure and exports.

The public sector oil major has, so far, adopted this process to set up new projects, both in the downstream and upstream areas. “The joint venture approach has benefited the corporation in terms of shared approach to investments, avenues to receive expertise and achieving synergy in skills,” HPCL chairman H.L. Zutshi has said in the recent annual report.

The corporation is now planning to invest over Rs 8,000 crore during the Ninth Plan period in various ongoing and proposed schemes. These include modernisation and expansion of the existing refining capacity, new product pipelines and development of marketing infrastructure.

One of the major projects of the company is the nine million tonne Punjab refinery project at an estimated investment of Rs 9,806 crore, including a foreign exchange component of Rs 3,219 crore. The project, to be financed through a debt equity ratio of 5:1, will see Hindustan Petroleum commencing on its own and subsequently the induction of strategic or financial partners.

Apart from this, HPCL is implementing a 250 km Bhatinda-Pathankot multi-product pipeline at an estimated cost of over Rs 433 crore.

It is also setting up a joint venture 500 mw power project at Vishakhapatnam along with Andhra Power Generation Company and another partner which is yet to be identified. The preliminary cost of the project has been put at Rs 2,208 crore, which includes a foreign exchange component of Rs 639 crore.

HPCL said the second year of deregulation of some of the refinery products witnessed greater volatility in margins. Even as crude oil prices touched a high of over $ 30 per barrel, product prices also fluctuated, but not to the same extent, exerting downward pressure on the margins. In marketing too, there was increased competition due to imports.

Despite this trend, officials said the company expected refinery margin to improve while marketing is expected to continue to feel the influence of imports and surplus product availability.

Some of the joint venture projects in which HPCL is a partner include the Mangalore Refinery and Petrochemicals Ltd (with the A.V. Birla group), Hindustan Colas Ltd (with Colas of France for producing and marketing bitumen), Petronet India, Prize Petroleum (joint venture E&P company) and South Asia LPG Co. Ltd (with Total of France).

Hindustan Petroleum is now implementing a project that entails the construction of seven LPG bottling plants with a total capacity of over 1.50 lakh tonnes at an estimated cost of over Rs 100 crore.

In the Ninth Plan, the company through setting up of new plants and augmenting capacity in existing units, plan to put up a total bottling capacity of around 8 lakh tonnes.    


Foreign Exchange

US $1	Rs.45.79	HK $1	CLOSED
UK £1	Rs. 67.86	SW Fr 1	CLOSED
Euro	Rs. 40.93	Sing $1	CLOSED
Yen 100	Rs. 42.64	Aus $1	CLOSED
*SBI TC buying rates; others are forex market closing rates


Calcutta	Bombay

Gold Std (10gm)	CLOSED	Gold Std (10 gm	CLOSED
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Stock Indices

Sensex	4444.79		-16.44
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