Regulators for free & fair oil industry
Retailing tied to refining
Reality rattles fantasy financiers
Industry still not out of the woods: Ascon
Cola combatants take to water

New Delhi, Dec. 16: 
The petroleum ministry has finalised a draft Cabinet note on a regulator for the downstream sector that will monitor and regulate pipeline tariff, and police industry against cartelisation or other malpractices.

The government has already taken a decision that it needs two separate regulatory bodies for downstream and upstream sectors.

While the director general of Hydrocarbon Resources will act as the provisional regulator for the upstream sector, the government wants to put in place the downstream regulator in place before market is thrown open next April.

Sources said the note, which has been accepted in principle by the finance ministry, seeks to give the regulator powers to monitor and regulate tariffs on the use of common facilities such as pipelines and mega-storage facilities.

This assumes importance as most pipelines in this country are owned almost solely by the Gas Authority India Ltd and most new companies would have to depend on this state-run company for their needs.

Being virtually a monopoly, these private sector players had been clamouring for protection from it. They cited the case of the Airports Authority of India and state-run airlines which allowed private airlines infrastructure facilities at far higher costs than that charged from Indian Airlines or Air India.

The draft note, which will be soon circulated to all concerned ministries, also provides for protecting consumers’ interest on issues like fair pricing, proper quality and easy availability of petro products.

Sources said the draft note has special clauses which will allow the regulator to step in and penalise petroleum companies that violate these norms. Heavy financial penalties can be slapped on them and passed on to affected consumers.

Similar powers of levying fines and even cancelling marketing rights will be given to the regulator for use against possible cartelisation, price rigging or other kinds of market abuse. The regulator will also be given powers to arbitrate in conflicts between various oil sector companies including refineries and distribution companies.

The regulatory body will be headed by a person who is either a retired or sitting judge of the Supreme Court and will have as members between three to seven experts with experience in the fields of marketing, mineral science, economics and administration.

Sources said in case the government decides to go ahead with some form of price controls after Aril 2002, the regulator will also be charged with fixing these prices and determining any fair subsidy which should be paid to oil companies either from a common fund or from the government account.


New Delhi, Dec. 16: 
Even as plans for a petroleum products market regulator are being finalised, the government wants to set down a set of norms to carve up the market between state-run and new private oil companies. It also wants to force all oil companies to open up a part of their retail chain in rural and far flung areas as well as earmark part of the retail chain for scheduled castes and tribes.

If the government has its way, the retail market will be divided in proportion to to the refining capacity owned by each company.

For instance, if x per cent is the combined refining capacity of state-run oil companies and y per cent is the combined refining capacity of private players, the number of retail outlets for petrol and diesel for PSUs would be limited to x per cent of the total number of retails while private companies would be entitled to set up y per cent.

This in turn will be sub-divided on the basis of each company’s refining capacity. Marketing rights would of course be conditional on a company producing at least 3 million tonnes of crude annually, besides the stipulated condition of investing at least Rs 2,000 crore in exploration, production, pipelines or terminals.


New Delhi, Dec. 16: 
Banks are in reel trouble. Overzealous bankers who chased the rainbow of film financing — which began in 1999 when the film business was declared an industry giving it access to bank finance — have burnt their fingers badly.

By the end of the first half of this fiscal, over 70 per cent of all films financed by banks have bombed at the box office and the loans have turned into non-performing accounts (NPAs) — the banking euphemism for bad debts. One reason for this is that banks are not allowed to lend over Rs 10 crore to a film project, which means that they have had to steer clear of the Bollywood blockbusters and confine their exposures to regional films.

The banks are now scrambling to find a hedge against further risks. For starters, they have requested the authorities to allow insurance cover against non-completion of films — one the biggest hazards in the world of film business — and allow empanelment of experts to review film projects. They also want to rope in the National Film Development Corporation — the state-run agency that funds small budget movies — for assistance.

According to the latest available data, as many as 105 of the 166 films financed by the banks have cratered at the box office and loans worth Rs 123.67 crore out of the total amount of Rs 171.71 crore have turned into NPAs as on September 30 this year.

This means that 70.75 per cent of the amount financed has turned into NPAs. It also means that nearly 63 per cent of the total films financed have turned into bad bargains for the banks.

Trade experts say that most of these films are low-budget B and C grade films and many of the projects are yet to be completed. Surprisingly, the bulk of these films have been financed by the trouble-stricken Indian Bank. It had lent money to a whopping 92 films worth Rs 110.69 crore of which 77 have turned into NPAs with the amount involved being an astounding Rs 108.34 crore. In other words, nearly 98 per cent of the commercial films financed by Indian Bank have turned into NPAs.

Indian bank has now decided to put a freeze on film financing, says its General Manager (Credit) Santhanam Raman.

“Most of the film financing we did was not in the area of production, exhibition or distribution — the three areas now treated as film financing. Our primary area has been financing of recording studios, dubbing theatres, decoration, props, lighting, costumes and other allied areas,” he said. As compared to commercial films, banks have been somewhat successful with documentaries and TV serials. Of the 37 projects financed involving a sum of Rs 28.56 crore, only 11 have turned into NPAs with the amount involved being Rs 4.58 crore, just 16 per cent.

The shrewd players have been the Indian Overseas Bank and Uco Bank which have yet to register a single rupee as NPA. Though the amount financed by Uco was only Rs 1.9 crore, Indian Overseas Bank financed Rs 33.07 crore with no NPAs at the end first-half of this fiscal. In the documentaries/TV serial segment, the most capable bank has been the Bank of Baroda whose single project involving Rs 72 lakh has not turned into a NPA. However, the other banks have managed to record NPAs, albeit at a much lower rate than commercial films, making this a less risky investment avenue than commercial films.


New Delhi, Dec. 16: 
The downtrend in the manufacturing sector witnessed in the first two quarters of the fiscal due to the overall economic slowdown continues to affect major segments in the third quarter, according to the Ascon Industry Monitor released by the Confederation of Indian Industry (CII).

The survey finds that only seven sectors showed an excellent growth rate of more than 20 per cent. While 57 out of the 110 sectors surveyed showed moderate growth of 0-10 per cent, 17 showed a high growth of 10-20 per cent, and 28 suffered from negative growth.

“Some sectors have started showing signs of revival and may pick up from the end of this year. The revival can be sustained provided the government adheres to the reform proposals it is committed to,” CII said.

The survey, which compares 110 manufacturing sectors and 12 services sectors for the period April-December 2001 over April-December 2000 reveals the downturn is mainly due to the slowdown in some auto sectors (including auto component), basic goods like crude oil, fertiliser, cold rolled steel, electronic goods and consumer durable items.

While aluminium, nylon filament yarn, telecom equipment, transformers, lead and lead alloy have moved from negative to positive growth, mopeds and colour televisions have shown negative growth compared with last year.

The survey also confirms the downtrend in sales in 66 sectors. In fact, the number of sectors reporting negative growth has gone up to 21 from nine in the previous corresponding period, though the number of sectors posting moderate growth increased from 32 to 34 sectors.

The number of sectors which showed excellent growth also fell from 6 to 3 in this quarter, as did the number of sectors in the high growth category, which fell from 16 to 9 in April-December 2001 over the same period last year.

Exports have also suffered a major setback. Out of 47 sectors surveyed, the number of sectors that showed excellent growth have decreased from 18 to five in the current quarter, compared with the previous comparable quarter.

There has been a slight increase in the high growth sectors from 11 to 13, while 12 sectors have shown moderate growth. The number of sectors posting a negative growth rate has gone up to 16 from last year’s figure of 11.

Regarding performance in the services sectors, the Ascon review shows that out of 12 sectors surveyed, three reported excellent growth of more than 20 per cent, including housing finance (30 per cent), cellular services (70 per cent), software services (33 per cent).

The construction sector recorded a 5 per cent growth, though export of project services suffered a setback and actually posted a negative growth rate of 23 per cent. Six other sectors suffered negative growth—air cargo (-2.3 per cent), hotel/tourism (-25 per cent), leasing/hire purchase (-12 per cent).

The slowdown can be seen from the fact that against the estimated growth rate of 9 per cent for the auto segment in April-December over the same period last year, actual growth in the quarter stood at 12 per cent.


New Delhi, Dec. 16: 
Even as the fizz raised by the cola wars is yet to settle down, Coke and Pepsi are bracing up for another battle of the bottle — this time for the bottled water market, which is one of the fastest growing segments in the non-alcoholic beverages business.

The two multinationals are late entrants in the country’s bottled water business, with the Ramesh Chauhan-owned Bisleri commanding almost 50 per cent of the Rs 1,000-crore market that has been growing at a comfortable 30 per cent every year. Compare that with the Rs 6,000-crore soft drinks market where growth rates have been virtually flat all through last year and the cola majors’ interest in the business is clear. Pepsi came up with Aquafina in 1995, and Coke responded four years later with its bottled water brand Dasani, in the US. In India, Pepsi was again first to hit town, test-marketing Aquafina in Mumbai in September 1999, while Coke followed with Kinley in August 2000.

At present, Coke has 14 production plants for making bottled water against Pepsi’s five. The two are now ready to make up for lost time, getting more aggressive and lining up huge investments for the segment.

Coke, for one, intends to set up another 11 plants over the next year. “We plan to invest approximately Rs 30-35 crore in our water business over the next year,” a company spokesperson said. The investment will be shared by Coca Cola and its bottlers.

Not to be left behind, Pepsi plans to “come up with 5-8 new production plants for Aquafina in the next two years”, a spokesperson said. Aquafina is now available in 30 cities while Kinley is available almost across the country. “In 2002, the aim will be to make Aquafina a national brand,” he said.

“Each production line for Aquafina is in a separate area and requires a special filtration process. The cost for each bottling water production line comes to Rs 10 crore or so,” said the spokesperson. He said most of the expansion will be through franchisees. At present, Pepsi owns four Aquafina bottling plants while one is owned by Ravi Jaipuria, a franchisee.

Of Kinley’s production plants, four are company— owned and the rest are either contract manufacturers or direct franchisees, a spokesperson said. While the company’s own bottling plants are near Bangalore, Mumbai, Delhi and in Goa, the others are in Jammu, Faridabad, Ahmedabad, Surat, Coimbatore, Chennai, Hyderabad, Khamam (in Andhra Pradesh), Jamshedpur and Calcutta. The plants which churn out Kinley are not exclusively dedicated for the water business but also make other carbonated drinks from the company’s portfolio. The general trend is dedicating one production line in the plant for bottled water.

Coke says it is finalising business plans for Kinley. It is too early to say what the ratio between company-owned plants and contract manufacturers will be. “We plan to increase our capacities in Andhra Pradesh and Tamil Nadu,” the Coke spokesperson said. Coca Cola maintains that Kinley has a 25 per cent market share in the retail pack segment. It says the bottled water business accounted for about 5 per cent of its overall sales turnover of Rs 3,200 crore in 2000.


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