Cash hunt before dotcom dirge
ONGC deprived of funds amid crude price spurt
RBI stops issuing new licences for local area bank
Indian Hotels plans Rs 90cr facelift for Taj chain
Tea prices to firm up

 
 
CASH HUNT BEFORE DOTCOM DIRGE 
 
 
BY RAJA GHOSHAL AND JAYANTA ROY CHOWDHURY
 
New Delhi, Oct. 1: 
It isn’t difficult to own a website. But it’s hard to take it far unless it makes money for itself, and its owner, who sinks a fortune to get it up and running.

The dotcom dirge has not started, but it is a wake-up call for online entrepreneurs who think advertisements are the only tickets to profit.

The writing is on the wall (web?). In the welter of websites, it is the canny few which find new revenue streams that will live through the shake-up. Many are already at work.

Having opted out of the race for eyeballs and space, they are now realising that survival may lie in selling. Everything, from products to entertainment to services, is on offer.

Says Marc Miller, general manager (South Asia), Space media: “On the internet, advertising is just one revenue stream of the many. Very few websites are profitable on advertising alone.”

Transaction fee from service-based features is a much favoured and viable revenue stream for websites. Channel partnership, co-branding, joint marketing opportunities are other sources.

While advertising still appears lucrative, it need not be of the kind we have known it. It can be in the form of sponsored features, links to other sites, sponsored content, all of which brings in money. Partnership, rather than plain promotion, is now the name of the game in the dotcom heap.

Agrees Sunil Lulla, president & CEO, Indya: “Internet is not about building one business, but many of them, simultaneously,” he says.

Besides, wheels within wheels in the web world results in a scenario where a potential advertiser may set up his own website, and may not venture out for online ads.

For offline ads, an entrepreneur has take to recourse to traditional media. Optimists such as Lulla feel that if the website notches up enough eyeballs, then advertisers would be keen on it, as is the case in other media forms. Lulla says the focus is to bring in a new audience for his website all the time.

According to Miller, internet as a part of a larger media-mix, is much too small for India given that it has not acquired the kind of critical mass needed to make it a popular medium.

“A lot of traffic on Indian websites comes from outside India. Naturally, that won’t excite those whose products are meant and designed for being sold largely in India,” he says.

Kajaria Ceramics is one of the many potential advertisers, which has decided to turn into an e-tailer. Rishi Kajaria, a 20- something scion of the industrial family, has floated the venture. Floor2floor.com displays and sells construction material, interiors are displayed for sale, including of course, his own family’s.

The site doubles up as a sales-point on the Web as well as a branded ad for the family concern. Naturally, Kajaria will start putting up computer screens with his site on at all ceramic showrooms owned or franchised by his company.

First-time businessmen who think the Net can place them on the same footing as an Ambani or a Modi have come to the conclusion that e-tailing is the way to accomplish their goal.

Says Amod Dadich of BuyAsOne.com: “We know it is tough to exist on ad revenues alone. So, we took to e-tailing.” “BuyAsOne wants people wanting to buy a consumer good to come together on its site and bid down prices of goods to as low a level as possible. Companies selling products will be willing to give larger discounts if consumers can pool in their purchases. This gives these firms big volume sales,” he adds.

Dadich, of course, hopes to live off a 2-3 per cent commission he will charge from companies which sell their goods through his site.

Says Anil Sengupta, a financial consultant: “It does not pay for websites which e-tail to sell low cost or low-volume products, such as books.

This is one of the reasons why Amazon.com is a loss-making proposition even though it is one of the most popular sites on the worldwide Net,” he said.

The answer to the predicament, says Sengupta, is to sell high-value products or services that bring in more moolah.

He says he is currently advising a company on a revenue model based on re-selling customised software applications which would be submitted to the company by developers who do not have the wherewithal to sell on their own, or feel are being conned by existing buyers with a ‘crummy deal’.

“Essentially, the site will be a glorified agent for independent software designers, but we feel it is in a position to make money. It is not that everybody is deserting advertisers,” he added.

Chequemail.com, a popular Mumbai-based e-mail service, depends on advertisers to pay for its operations.

More important, it has gone a step ahead, sharing 30 per cent of its revenues with its registered e-mail users.

“We have already paid two installments to our subscribers,” a spokesperson for the service said. However, the actual revenue earnings of the site still remain shrouded under a cloud of secrecy.

K Satyanaryan, CEO of cricketinfo.com, takes a more realistic position, saying revenues from advertisements were a hot proposition only in the initial days of the dotcom rush.

“As the euphoria subsides and gives way to some serious bout of stock taking, it is now quite clear that ads on the website cannot fetch a lot of money in India, especially for the startups. If a website is rich in offerings, content syndication can turn out to be an important revenue stream,” he adds.    


 
 
ONGC DEPRIVED OF FUNDS AMID CRUDE PRICE SPURT 
 
 
FROM OUR SPECIALCORRESPONDENT
 
New Delhi, Oct 1: 
In the late 80s, the charge against the Oil and Natural Gas Corporation management was that it flogged fields in Bombay High to achieve crude-production targets.

Though the charge remains unsubstantiated, the ministry of petroleum and natural gas has taken a cue from it and has begun flogging Oil and Natural Gas Corporation to take away all its cash surpluses.

The unprecedented cash crunch facing the oil sector, triggered by the steadily rising oil prices in the international market, has forced the government to rob Oil and Natural Gas Corporation of its dues.

Unable to honour its own commitments on prices for domestic crude and after having forced the two upstream national oil companies to bear almost the entire burden in the Oil Pool Account, the government is now considering a proposal to ask refineries to pay to Oil and Natural Gas Corporation and Oil India only Rs 4,000 per tonne of crude. The balance would be overdues.

The move has created panic among senior executives of these companies as this could mean a cash drain of Rs 4,200 crore every year. If this happens, Oil and Natural Gas Corporation and Oil India will have to shelve their development plans and acquisition proposals overseas. Oil and Natural Gas Corporation has finalised a $ 2-billion re-development plan for Bombay High. It is also under pressure to repay the external commercial borrowings (ECBs).

According to a November 1997 Cabinet decision, Oil and Natural Gas Corporation and Oil India were to be paid 75 per cent of the weighted average of FOB price of actual imports in 1998-99 to be raised to 77.5 per cent in 1999-2000, 80 per cent in 2000-01 and 82.5 per cent in 2001-02. The entire petroleum sector is to be deregulated with effect from April 2002.

The refineries processing domestic crude were, however, required to pay full import parity (landed cost) of crude oil which includes elements such as FOB price, freight, insurance, ocean loss, landing charges, customs duty.

Difference between the full import parity on landed cost basis and Cabinet-endorsed percentage of the FOB price goes to Oil Pool Account to be utilised for the redemption of Oil bonds of Rs 13,000 crore issued in March 1998.

Till December 1999, Oil and Natural Gas Corporation and OIL contributed Rs 10,000 crore to the Oil Pool Account for the redemption of bonds. However, sources say the contributions from downstream companies to redeeming the bonds had been negligible.

Private oil companies which entered into production-sharing contracts to develop proven oil fields such as Panna and Mukta are paid international prices for their crude while Oil and Natural Gas Corporation and OIL get only 80 per cent of FOB price, with a ceiling of Rs 5,570 which works out to 47 per cent of international FOB price. Thus, Oil and Natural Gas Corporation does not even get half the international price of oil.

If the royalty and cess are excluded, the price of crude for domestic PSUs works out to Rs 3,870 per tonne. Neither the multinationals nor the Indian private sector drills in frontier basins where the cost of exploration and risk the highest. ONGC, as a national oil company, has been drilling in areas considered hostile.

The management’s of ONGC and OIL have begun lobbying the government against the present policy which, if pursued, will not leave any cash surplus for them to continue exploration.    


 
 
RBI STOPS ISSUING NEW LICENCES FOR LOCAL AREA BANK 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, Oct 1: 
The Reserve Bank of India has temporarily suspended processing of any fresh applications for local area banks (LABs), pending a review of the performance of the existing ones.

The apex bank will review the performance of the existing players and then take a fresh look at the guidelines for new entrants.

A senior RBI official said, the bank will not process any fresh applications for LABs. The in-principle approvals that have been granted were received earlier. The official added that a review is possible only after information about the working of these banks was available.

RBI decided to review the guidelines as the central bank was compelled to withdraw the in-principle approval accorded to four out of the total eight banks that have received clearance.

The LABs whose in-principle approval were revoked included the Manipal Area Local Bank, Local Area Bank of Kongunadu headquartered at Salem and Central Gujarat Local Area Bank. The official said that the approvals have been withdrawn as the banks did not set up operations, despite the approvals being granted in January 1997, December 1998 and January 1999 respectively.

Other banks which have received the RBI’s nod are Capital Local Area Bank at Nakodar in Punjab, Coastal Local Area Bank at Vijaywada in Andhra Pradesh and Vinayak Local Area Bank at Sikar in Rajasthan.

The move to set up local area banks had been initiated by the then Union finance minister P. Chidambaram in his Union budget for 1996-97. Private LABs were envisaged to help in mobilising rural savings by local institutions and at the same time make them available for investments in local areas. However, trade unions have opposed the LAB concept on the grounds that they will become easy route for local landlords to mislead poor farmers.

Under the LAB structure, the private promoter will be required to bring in the entire Rs 5 crore equity and the bank will have jurisdiction over two to three districts.    


 
 
INDIAN HOTELS PLANS RS 90CR FACELIFT FOR TAJ CHAIN 
 
 
FROM SATISH JOHN
 
Mumbai, Oct 1: 
Indian Hotels has embarked on a major programme of renovation and upgradation of its prime properties. The company has undertaken such a project almost after a decade.

The project costing Rs 90 crore will concentrate on areas like the lobbies, restaurants as well as guest floors and back of the house of the monumental buildings of the Taj chain of hotels.

The group has hired internationally renowned designers — Hirsch Bedner Associates of USA, Wilson & Associates and Leo Designers from Singapore for the renovation work. Indian Hotels intend to uplift the hotels to the rank of the finest international hotels. Simultaneously, there are plans to enhance the traditionally renowned services and products of the Taj group, said officials of the company.

In New Delhi, Mumbai, Chennai, Bangalore and Calcutta the hotel chain is providing high speed internet access from the guest rooms via the online service, Taj Connect. Indian Hotels claim that it is the first company in the domestic service industry to offer such a connectivity.

The company is exploring the possibilities of online business by marketing properties and improving customer interface through its website.

According to the officials, online booking has increased the occupancies during summer. Conducting business via the website will reduce the communication costs from Rs 20 crore to Rs 2 crore, said Prashant Shukla, senior vice-president, (technology) at Taj group of Hotels.

“One can log on to our site for online shopping at the Taj store Khazana, make reservations for dinner at Shamiana in Mumbai or log on for online reservations for stay at St James Court in UK,” added Shukla.

The focus areas are luxury hotels Mumbai, New Delhi, Calcutta. Taj Krishna in Hyderabad and Taj Samudra in Colombo are also on list of priorities for this year’s renovation.    


 
 
TEA PRICES TO FIRM UP 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, Oct 1: 
The cup that cheers may itself soon have something to cheer about, with tea prices looking up at last. Indian tea prices, which have been depressed for quite some time, are expected to shoot up by around 10 per cent from January 2001, following an unprecedented demand-supply mismatch, according to industry sources.

Sources said adverse climatic conditions were expected to result in a 6 per cent shortfall in tea production in September, which in volume terms may cross four million tonnes.

On the other hand, exports are particularly looking up in the US and Saudi Arabian markets, in addition to the captive market in Russia.

According to the Indian Tea Association’s projections, the current year’s exports may go up to a record 225 million kg against last year’s exports of 190 million kg. The ITA forecast has pegged the total production at 840 million kg, as against 805 million kg in 1999.

A senior ITA official said tea production up to August was higher over the pervious corresponding figure by around 35 million kg.

“Had production levels remained intact, closing stocks would have remained at around 11 million kg, as compared with the opening stocks of 33 million kg,” sources said.

The ITA official said taking the current shortfall in consideration, the current year may, for the first time in recent years, end without any closing stocks.

What is more important, he pointed out, is that the autumnal leaf is processed in a big way to prepare orthodox tea, which always fetches better prices. Hence, any shortfall in production during this season has an impact on prices, he added.

ITA, however, is upbeat about tea prices next year because of the growing demand both in the domestic and export market. Domestic demand alone is estimated to be over 20 million kg this year.

Further, a high-level delegation will visit the US around October 13 and 22 to promote Indian teas. “Indian tea lost the US market after 1977 because of a government decision. Now we are trying to regain the lost glory,” said Vinay Goenka of Warren Tea.

Two other delegations to expand markets in Saudi Arabia and East Europe, including Russia are also on the cards. These two delegations may be sent in October-end or in November.    

 

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