Haldia Petro sings march-alone tune
Ram Naik bypassed in selection of Gail chairman
No mercy mission for weak banks
Transfer pricing rules eased
Lyons Range passes scam buck
AV Birla carbon black brands to be merged
Foreign investors send Batata exit feelers
ADB offers infrastructure help
Private LPG firms in a spot

 
 
HALDIA PETRO SINGS MARCH-ALONE TUNE 
 
 
BY A STAFF REPORTER
 
Calcutta, Aug. 22: 
Purnendu Chatterjee, chief of the The Chatterjee Group, today said problems at the Haldia Petrochemical (HPL) will be resolved in 45 days.

Emerging from a meeting with Bengal chief minister with whom he discussed recent hiccups in the project, he said HPL will “stand on its own feet in 45 days”. “The three promoters will put their heads together to iron out glitches and help the company run smoothly,” he said.

An unflappable Purnendu said HPL is doing good business, its botttomline helped by a fall in international naphtha prices from $290-$300 per tonne to $ 185 per tonne in recent times. It is now purchasing the feedstock at $ 220 per tonne, inclusive of import duties.

At the same time, HPL’s products have penetrated deep — its marketshare is 63 per cent in the eastern region and 22 per cent for the country as a whole. If the good times last, the company expects to achieve an operating profit in the third quarter of the current financial year. It has already notched up a turnover of Rs 2,300 crore.

Asked what will happen if Indian Oil Corporation (IOC) does not come in as the fourth equity partner, the TCG chief said the three promoters will press ahead nevertheless. “We will do everything to run the project successfully,” he said while reciting Jodi tor dak suney keu na ashe, tobe ekla cholo re — a Tagore poem that inspires one to march ahead without the company of others.

Indian Oil believes HPL is worth Rs 3,500-4,000 crore, a valuation not accepted by the state government, which thinks it should be around Rs 6,000 crore.

The TCG chief, who has staked Rs 433 crore in Bengal’s showpiece industrial venture, said he will talk to banks and financial institutions to get them to restructure HPL’s colossal debt pile. “We hold constant dialogue with them. We have 30 bankers and have to solve the problem with all of them. The issue has to be discussed with financial institutions as well.”

Industrial Development Bank of India (IDBI) is the lead financial institution to HPL, which has run up debts up to the tune of Rs 4,000 crore. The company has been asking its lenders to reduce the rate of interest on the loans to the FIs.

Commenting on whether TCG will pick up the entire stake of the Tatas if they offload it, Purnendu said that he has only come to know about Tatas quitting the project from media reports. This will also be sorted out soon, he said.

The total size of the equity of HPL is Rs 1,010 crore. West Bengal Industrial Development Corporation and TCG had brought in Rs 433 crore crore and the rest 144 crore had come from the Tatas.

The three promoters at a later stage had pumped in about Rs 186 crore as an advance towards the project.

Briefing reporters after the meeting, the chief minister said: “It was a fruitful meeting. We will let you know about the developments of the project accordingly.”

   

 
 
RAM NAIK BYPASSED IN SELECTION OF GAIL CHAIRMAN 
 
 
FROM SHASHWATI GHOSH
 
New Delhi, Aug. 22: 
Petroleum and natural gas minister Ram Naik isn’t having his way on key appointments.

In an unprecedented move, the Prime Minister’s Office has forced the appointment of Prasanta Banerjee as chairman of Gas Authority of India Limited without the prior knowledge of the minister.

The move is an expression of the loss of faith in Ram Naik and marks the first time that a chairman of a public sector unit is being appointed with the prior knowledge of the man in charge of the administrative ministry that controls the public sector unit.

Banerjee, who was the executive director of Indian Oil Corporation, had been picked by the Public Enterprises Selection Board (PESB) to head Gas Authority of India.

However, Naik wanted to appoint Banerjee as IOC’s director (marketing).

A fresh recommendation in this regard was cleared by the minister and placed before the Appointments Committee of the Cabinet.

The committee ignored the new proposal and took up the earlier Public Enterprises Selection Board’s recommendation.

Banerjee’s appointment as the Gas Authority of India chief was cleared the day before yesterday. The official order is expected to be issued in a day or two.

This is the second time that Naik is being snubbed.

A few months ago, Naik was thwarted when he tried to block Keshav Saran’s appointment as the chairman of Engineers India Ltd (EIL).

Saran, the project director of NTPC, had been picked by the PESB but Naik chose to back M.K. Dalal, EIL’s project manager, as he was an internal candidate.

The Prime Minister’s Office overruled the minister’s decision and stuck to PESB’s recommendation.

   

 
 
NO MERCY MISSION FOR WEAK BANKS 
 
 
OUR BUREAUX
 
Aug. 22: 
Finance secretary Ajit Kumar today ruled out bailout packages for any weak bank and asked Allahabad Bank and Indian Bank to immediately restructure their operations and reduce the level of their non-performing assets (NPAs) within the prescribed limit of 8 per cent by end of this fiscal.

Although neither bank was promised any immediate succour in the form of a bailout package, Indian Bank was promised a package of about Rs 700 crore once the stronger banks paid back part of their capital stock to the government.

Allahabad Bank will have to reduce its NPA level by over 3 per cent as a result. It currently has an NPA level of 11.23 per cent, which, though high, is lower than 1999-2000 when it had an NPA level of 12.24 per cent. It had a gross NPA level of Rs 1,800 crore on March 31 this year.

Kumar told Allahabad Bank officials that though the bank’s income and operating profits have been going up, its provisioning for bad and doubtful debts have also risen by leaps and bounds.

While operating profits rose from Rs 211 crore in 1998-1999 to Rs 266 crore in 2000-2001, provisioning also went up from Rs 76 crore to Rs 226 crore in the same period, drastically depressing net profits.

Kumar is believed to have told Allahabad Bank officials that while their steps to cut down costs and shut down unviable branches was welcome, it should take far stronger measures to recover bad debts.

Talking to The Telegraph from Delhi after meeting the finance secretary, Samal said his bank had presented a revival plan under which it was ready to cut gross NPAs, reduce expenses, lease out prime properties, review 130 loss-making branches, focus on retail banking, trim the cost of deposits from 3.4 per cent and increase returns to 13-14 per cent.

The bank, which went in for a dramatic pruning of branches and a voluntary separation scheme, was not asked to go in for any painful branch closure exercise right now.

On Tuesday, the ministry had asked Uco Bank officials to cut down the number of branches they had by about 200 and consolidate their business. Uco Bank had sought a Rs 500 crore bail-out programme. But the government informed bank officials that the request could be considered only after they showed improved restructuring results and after stronger banks paid back capital to the government.

Many banks plan to repay capital to the government in a bid to reduce the government’s stake.

The Chennai-based Indian Bank was also spared the rigour of branch closures as it argued that it had managed to post operational profits in the last fiscal of about Rs 61 crore and reduce its NPA level from 16.18 per cent to 10.03 per cent. Bank officials promised Kumar they would be able to show a net profit this year against a net loss of Rs 67 crore in the last fiscal.

Today’s meeting is part of a series of meetings that the finance secretary is holding with “weak” banks in a bid to tone up the Indian financial system which has been hit hard by bad debts and poor performance. Bad debts within the banking system have already crossed Rs 60,000 crore. Kumar is slated to meet the top officials of Punjab & Sind Bank and UBI later this month as part of this initiative.

   

 
 
TRANSFER PRICING RULES EASED 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Aug. 22: 
The government today announced liberal transfer pricing rules aimed at increasing tax revenues by bringing global transactions within the tax net.

An official notification said transfer pricing norms have been made part of the income tax provisions by inserting two new rules, 10A and 10E.

The norms have been substantially liberalised from earlier draft proposals, allowing tax-payers to freely choose the most appropriate method for transfer pricing for the deals they conclude, as well as for information and documents required to be maintained and furnished.

It allows taxpayers to use multiple-year data pertaining to comparable transactions in determining the arm’s length price. They will be able to select the most appropriate method as long as their selection is made taking into account the factors prescribed.

The norms also make documentation requirements less stringent. “Documentation requirements shall not be applicable in cases where the aggregate value of international transactions entered during a year is up to Rs 1 crore,” the official release said. Finance ministry officials said this is being done to reduce the extra workload of revenue officials.

The release said the new rules had modified some provisions of the draft rules issued by the finance ministry in May this year.

Considering the complexity of the transfer pricing methods, the Central Board of Direct Taxes (CBDT) will soon issue a circular on various aspects.

The CBDT will not make any adjustments to the arm’s length price adopted by tax payers if such a price varies by 5 per cent with that determined by the assessing officers.

Moreover, no adverse view will be taken in case documentation requirements are not fulfilled for transactions entered during April-August 2001.

There is, however, no change in the proposed 100 per cent to 300 per cent penalties for tax dodgers, designed to ensure that income is not transferred out of India.

The transfer pricing reforms, first announced in the Finance Bill 2001, give tax officials sweeping powers to impose penalties for willful negligence in setting prices and for failing to maintain documentation.

The penalties can range from 100 per cent to 300 percent of a transfer pricing adjustment if a tax official imposes a transfer pricing adjustment or disallows a deduction.

The CBDT has said that there will be checks and balances to ensure that multinationals— who will bear the brunt of the transfer pricing rules — are not unduly harassed.

   

 
 
LYONS RANGE PASSES SCAM BUCK 
 
 
BY ANIEK PAUL
 
Calcutta, Aug. 22: 
The Calcutta Stock Exchange (CSE), has emphatically denied that a surveillance failure on its part led to the nation-wide stock scam, as well as that it had to be bailed out by the Unit Trust of India (UTI).

In its reply to the Joint Parliamentary Committee (JPC) probing the recent stock market scam, the bourse, while admitting lapses in surveillance and collection of margins, has alleged that the crisis was triggered off by Mumbai-based brokers not fulfilling their commitment to CSE members. The exchange filed its formal reply with the panel last week, CSE executive director N. Dasgupta said.

“The exchange also denies the allegations made by some JPC members that the UTI bailed us out. The fact is that UTI bought 13.3 lakh DSQ Software shares from the CSE at a hefty discount,” Dasgupta added.

“UTI did not do us a favour — the mutual fund major actually seized the opportunity of buying cheap, which cost us Rs 2.73 crore. The fact that this turned out to be a sticky investment because it could not subsequently make a profit selling those shares is UTI’s problem,” he said.

The government-appointed Tarapore Committee investigating UTI’s investments, will also examine the mutual fund’s role in rescuing the bourse from the early-March crisis.

Reacting to the bourse’s stand, an UTI executive director had earlier said, “We are now being held guilty for playing the saviour — a role often thrust on us. If we did not step in on March 9, the CSE would not have managed to clear the payout, and the exchange would have had to be closed down.”

Dasgupta said some JPC members have alleged that the CSE’s surveillance lapses were responsible for bringing the country’s capital markets to its knees. “I have vehemently refuted such allegations in the meeting with the Securities and Exchange Board of India (Sebi) earlier this month. The CSE members were not responsible for pulling down the prices of momentum stocks like HFCL, DSQ Software, Global Telesystems and Zee,” he added.

Sebi, in its report to the JPC, has observed that the Mumbai-based broker Ketan Parekh had duped CSE members.

The market regulator’s report said Parekh asked his Calcutta-based associates to buy stocks like HFCL, while he himself went on a selling spree. The ploy was to prevent prices from falling, the report said.

Meanwhile, the CSE’s turnover today touched a historic low of Rs 10.88 crore. Brokers said with the two Mumbai-based bourses — the Bombay and National Stock Exchanges — being closed today, the CSE had no clear trend to follow.

   

 
 
AV BIRLA CARBON BLACK BRANDS TO BE MERGED 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, Aug. 22: 
The Aditya Vikram Birla group is set to bring its three carbon black brands — Hi Tech Carbon, Thai Carbon Black and Alexandria Carbon Black, under one umbrella, to be christened Birla Carbon.

A senior group official said the decision to merge the brands into a single entity has been taken to consolidate the company’s position in the global market.

“Moreover, this will bring synergy into the company’s carbon black business, both in terms of technology and raw material inputs. This is required to increase market share,” the official said.

The Aditya Vikram Birla group, which holds a 7 per cent market share in the carbon black business world-wide, ranks fifth in the global marketplace. At present, the group holds around a 30 per cent market share in the country, and comes second after Phillips Carbon Black of the RPG group. Globally, the group’s competitors are carbon black giants like Cabot, Degussa, Columbian and Continental.

Sources close to Kumar Mangalam Birla, said he is keen on doubling market share by the end of the next fiscal. “He is not very happy with the current marketing position for the carbon black business and wants radical changes. The single brand concept, which has been developed internally, is only the first major step in this direction,” they added. The official said this business is passing through a tough time especially due to the stagnant automobile sector, its largest consumer.

“The auto sector consumes more than 80 per cent of our products and hence our growth depends on that sector in a large way,” he said. The group’s exposure to the carbon black business is through Indian Rayon, Thai Carbon (a wholly owned subsidiary in Thailand) and Alexandria Carbon, a 50:50 joint venture with the Egyptian government.

Indian Rayon has a capacity of 1.1 lakh tonnes, which may be increased once the market looks up.

Birla said the company will “continue to build upon our market position through a widened product portfolio, backed with superior technical service.”

“We will add to the bottomline through product development efforts, especially high-value speciality grades of carbon black and products for non-tyre applications. We believe new product development will lead to the creation of niche segments,” he added.

Thai Carbon has seen phenomenal growth over the past two decades, with production capacity touching nearly 1.5 lakh tonnes from merely 16,000 tonnes at the time of inception.

The company, which has world’s largest carbon black plants based in one area, supplies carbon black to all six continents from a single location. Its clientele includes multinational tyre companies like Dunlop, Bridgestone, Goodyear, Michelin and Continental.

The long-term outlook for the carbon black industry, sources said, is positive, though it may have bumpy rides in the short term.

The AV Birla Group also plans to emphasise on exports for the Indian Rayon division, because the domestic market is in a bad shape.

   

 
 
FOREIGN INVESTORS SEND BATATA EXIT FEELERS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Aug. 22: 
A few foreign investors in Birla Tata AT&T Ltd (BTAL) are understood to have expressed their intention to leave the alliance, fearing their stakes will shrink further after BPL is merged with the combine.

Institutional sources pointed out that the lenders, comprising largely foreign banks, have already expressed their intention to quit. “With valuations of telecom companies world over declining and the fear that their overall stake in the project would dwindle, these foreign lenders have said that they would like to go out,” a senior official from one of the financial institutions told The Telegraph.

The official, however, added that the shareholding pattern is not likely to change drastically after the exit of these banks as their stake was not too large. While AIG is one of the institutions with a stake in the venture, sources said it is unlikely to pull out from the merged entity. Sanjeev Aga, president and CEO of Birla Tata AT&T, was not available for comment.

BTAL is presently in the midst of a debt restructuring programme where it plans to recast outstanding loans of around Rs 2,000 crore for reducing the interest costs. Sources close to the Industrial Development Bank of India (IDBI) which is one of the institutions chosen for the mandate said that it would take around three months for the programme to be completed.

The combine is now involved in the process of submitting a detailed business plan, to the institutions following such an instruction from the latter.

Plans are now underway for moving towards a common brand name and a new corporate identity.

Sources divulged that the company is also expected to elucidate on the organisational structure that will be followed in the event of the impending merger with BPL. BPL operates mobile networks in Bombay and the states of Maharashtra, Kerala and Tamil Nadu through two operating companies BPL Cellular and BPL Mobile Communications Ltd. France Telecom, holds a 26 percent stake in BPL Mobile Communications and the company has announced that it will continue its investment in BPL.

The merged entity is expected to result in the creation of the largest cellular joint venture company in the country with a subscriber base close to one million. As per the equity structure announced, while BPL Communications will own 49.32 percent of the new entity, AT&T and the Birla and Tata groups will each hold 16.9 percent stakes.

Following the Centre’s diktat which prevents a single company from owning two licences to offer services in one state, BPL is now planning to sell its Maharashtra circle.

   

 
 
ADB OFFERS INFRASTRUCTURE HELP 
 
 
BY A STAFF REPORTER
 
Calcutta, Aug. 22: 
The Asian Development Bank (ADB) is in talks with the West Bengal government to provide technical assistance for working out a regulatory framework that will boost private investment in infrastructure projects in the state.

The bank already has a presence in the state through a $ 210-million investment in the prestigious North-South Corridor project, connecting Haldia to Siliguri.

Thevakumar Kandiah, senior investment officer, ADB, who was in the city to address ‘Fintech 2001,’ said the bank will provide assistance to the tune of Rs 2 crore. The entire project once in place, will help the state provide a one-stop shop to investors.

Regarding the North-South Corridor project, Kandiah said the consultant to the project is yet to be appointed. “The contract for the project will be awarded in April next year,” he said.

Commenting on the bank’s India outlook, Kandiah said between 1995-99, ADB invested about $ 600 million annually in different infrastructure projects.

The bank has decided to increase that figure to $ 1.2-1.5 billion annually between 2000-04, with investments mainly in the energy, transport and urban development sectors.

Regarding further investments in West Bengal, Kandiah said in 2003, ADB will provide assistance to the state for setting up a small expressway and also to upgrade National Highway 3 and 34 and state highways 1 and 10. Similarly, in 2004, the bank plans to invest $ 200-350 million in small and medium-sized urban development projects.

ADB’s funds mainly flow into states like Gujarat, Madhya Pradesh and Kerala. “50 per cent of the bank’s assistance goes to these three states. They have the willingness to undertake reforms. Kerala has taken a loan from us for its fiscal resource programme to reduce the state’s budgetary deficit,” the ADB official said.

Commenting on the investment environment in the country, he said the development process is hindered by the inability to unbundle and mitigate risk. Besides, he said, the country is unable to provide structurally-financed projects.

“The private–public interface is also very poor,” Kandia further added.

   

 
 
PRIVATE LPG FIRMS IN A SPOT 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Aug. 22: 
Faced with diminishing margins on one hand and tough business conditions on the other, private sector LPG manufacturers are scurrying for cover, seeking protection from the government for survival.

Apart from demanding that the subsidies, which cushions the public sector be extended to them, the private players have asked the government to bring down import duties and sales tax.

S K Hazra, president, Indian LPG Industry Association, said while the total investment made by the private sector is over Rs 1,000 crore so far, the 40 per cent subsidy on a domestic cylinder which cushions the public sector, continues to be an area of conflict.

The subsidy, he added, amounted to Rs 165 as against a retail-selling price of over Rs 220.

The industry has now urged the government to establish a level playing field by extending the subsidy, tentatively fixed at 15 per cent, to the private players from the year 2002, when the administered price mechanism is proposed to be dismantled.

Besides, the industry has also sought a reduction in various duties. The Indian LPG Industry Association (ILPGA) has pointed out that while import duty presently stands at 10 per cent, the countervailing duty is at 8 per cent and sales tax varies from 6 per cent to 19 per cent.

The association has also sought exemption from countervailing duties and sales tax, to the extent of the subsidy contemplated by the government.

Industry sources said post-liberalisation, several smaller units have already been forced to shut down operations and margins of the existing players are under increasing pressure due to the lack of a level playing field.

A senior official from one of the multinational firms presently engaged in marketing liquid petroleum gas, said the conditions in the sector have even affected other operations.

Some of the multinational majors in the business include Shell, Caltex and Mobil, among others.

While estimates put local consumption at over 7 million tonnes, domestic production is put at over 6 million tonnes, with the rest being imported.

Public sector companies hold the lion’s share of over 90 per cent in the domestic market.

Moreover, industry circles here said while public sector companies sourced over 80 per cent of the LPG locally from refineries and the rest through imports, private players had to import their entire requirement.

Though the government had stipulated that the public sector should maintain import parity while fixing LPG prices, state-owned companies have been resisting such a move.

   
 

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