Net worth-based MAT on anvil
PSU banks’ shaky arms on the block
Jindal Polyesters plans unit in Bhuj
Demutualisation tops Sebi board agenda
Cup of cheer defuses border blues with Pak
Power hunt in the bowels of the earth
CSE looks at ways to break brokers’ logjam

 
 
NET WORTH-BASED MAT ON ANVIL 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, Dec. 25: 
The government is likely to change the norms for calculating minimum alternate tax (MAT) in the forthcoming budget, increasing the quantum of tax that pre-MAT zero-tax companies like Reliance Industries will have to pay.

The Central Board for Direct Taxes (CBDT) wants the Cabinet to accept its suggestion that MAT should be raised to an aggregate of 0.75 per cent of the company’s net worth plus 10 per cent of the dividend being paid out by it.

Officials clarified that net worth will be calculated at the value of capital employed by the company and will not include its savings, otherwise this would be regarded as a disincentive to corporate savings and investment.

MAT — a tax imposed on those profit-making companies which use a variety of tax shelter schemes to avoid paying normal corporate taxes — is currently pegged at 7.5 per cent of its book profits, or commercial profits.

CBDT officials said they felt even the provision of imposing a MAT on the basis of book profits is being manipulated by various changes in accounting practices and by under-reporting income.

“It consequently makes sense to go by the Parthasarthi Shome Committee report on MAT and switch over to taxing on the basis of net worth,” officials said.

Consequently, the board agrees with the premise that the base should not be based on reported commercial profits but rather on the real ability to earn.

Corporates, however, are opposing this move tooth and nail and both the major chambers — CII and Ficci — have lobbied the government against the retention of MAT. Ficci has been arguing before the finance ministry that even if MAT is retained, it should allow corporates which have paid them to claim discounts in later years when they pay full corporate taxes!

Officials said the reason why they would like the MAT to combine a tax on dividend is because the corporates would otherwise transfer their current profits into savings to be given out as dividend in a later year.

“The Shome Committee had calculated that changes in MAT calculations from book value to net worth would bring in an additional Rs 7,000 crore. We do not think this will net that kind of huge sum but an increase of Rs 5,000 crore can be safely expected,” they said.

Many companies have been avoiding payment of corporate taxes that currently stand at about 38 per cent for those in the top bracket, by misusing provisions for depreciation.

Excessive depreciation, officials feel, has led to over-capitalisation of companies and encouraged mergers and amalgamations meant solely to help companies save on taxes.

CBDT chief

The chairman of the Central Board of Direct Taxes O. P. Srivastava will retire on December 31, setting at rest speculation that he might get an extension in view of the ongoing budget exercise.

“There will be no extension and appointments committee of the Cabinet has already cleared his superannuation on December 31,” finance ministry sources said today.

The senior most CBDT member P K Sharma would succeed Srivastava as chairman, they added.

   

 
 
PSU BANKS’ SHAKY ARMS ON THE BLOCK 
 
 
FROM VIVEK NAIR
 
Mumbai, Dec. 25: 
Driven to the edge by smarter adversaries and hemmed in by convulsions in the capital market, nationalised banks are looking at the option of divesting, fully or partly, their stakes in struggling merchant banking and mutual fund subsidiaries.

State Bank of India, Bank of Baroda (BoB) and Punjab National Bank are among those scouting for a strategic partner for their arms.

Others, like Corporation Bank, are close to an agreement with Life Insurance Corporation for their merchant banking business. The desperation of banks to divest their interests in these subsidiaries has reached a point where they are even ready to hand over the reins of control.

Punjab National Bank (PNB) is one of those that may offer control in its subsidiaries — PNB Capital Services Ltd and PNB Asset Management Company —to a strategic partner, the hunt for whom is now under way.

The Delhi-based bank decided to look out for allies earlier this year after the two businesses wobbled. However, it still believes that both have tremendous potential, which could be harnessed better by roping in a partner which has enough experience in these areas.

PNB chairman and managing director S. S. Kohli told The Telegraph that his bank was “flexible” on the amount of equity that could be offered to an ally. Negotiations are under way with a few potential allies, and a deal is likely to be signed by the second week of January.

Officials said one of the main reasons why banks are looking for a partner is that the subsidiaries have wilted under stiff competition and tough market conditions.

Such subsidiaries were set up at the height of the stock boom, which has petered out now. “Most of the banks then did not have the expertise required for such businesses. They have tried to acquire the skills only during the past few years by building up a good research base and creating a separate cadre,” said K. Kannan, former chairman and managing director of Bank of Baroda.

PNB Caps, which offers merchant banking, loan syndication and project-appraisal services, has been losing money over the years, prompting the Reserve Bank of India (RBI) to say that it should be shut down.

However, PNB had urged the apex bank to reconsider its suggestion and clear the induction of a strategic partner.

“In the era of competition, banks should focus on their core competence, which is lending,” Kannan added.

   

 
 
JINDAL POLYESTERS PLANS UNIT IN BHUJ 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Dec 25: 
Jindal Polyesters is planning to invest Rs 125 crore on a new production plant at Bhuj in Gujarat which will manufacture BOPP (Biaxially Oriented Polypropylene) film. The unit will have a capacity of 30,000 tonnes per annum.

The project will involve the installation of two production lines. Around 75 per cent of the production will be targeted at the domestic market and the remaining 25 per cent will be for exports to markets including the US, Australia and Europe. The project is expected to be in commercial production by December 2002.

According to the company, the domestic market for BOPP film is 50,000 tpa, expected to grow to 70,000 by 2003. The present installed capacity in the country is 60,000 tpa. “We are setting up the facility to cater to this growth in demand,” said the company.

In December 2000, Jindal Polyster added a new 12,000 tonnes per annum thick polyester film line unit, dedicated to the export market.

   

 
 
DEMUTUALISATION TOPS SEBI BOARD AGENDA 
 
 
FROM SATISH JOHN
 
Mumbai, Dec. 25: 
The board of directors of market regulator Securities and Exchange Board of India (Sebi), is expected to meet in a few days’ time for the last time in the current calendar year, in what is being considered as one of its most crucial board meetings in recent times.

The meeting, which has been postponed on several occasions, is now slated for December 28.

It will deliberate on issues as diverse as the demutualisation of stock bourses — an issue pending before the market regulator for several months now and also decide on the pricing of open offers for public sector units, an issue that has raised the hackles of the disinvestment ministry. Further, the meeting will also deliberate on ways to lessen the impact of the Supreme Court judgement on broker fees, to a class that is already reeling under bad market conditions and poor trading volumes. The Sebi board will chart the road map for undertaking the demutualisation of the stock bourses. The meeting will discuss the various pros and cons of structures like the country’s very own National Stock Exchange, and also consider the New York Stock Exchange pattern, where the brokers play a meaningful role.

Moreover, it will consider an indigenous plan under which brokers will comprise 40 percent of the total strength of the board. The plan will consider the feasibility of retaining a broker as president of the bourse, but in the non-executive capacity. If this plan gains acceptance, it would mean that brokers will still have a role to play, albeit a marginal one, in the affairs of the stock exchanges.

The Sebi board will also discuss ways to ease the hardship of brokers in meeting with the Supreme Court judgement on brokers’ fees. The order ruled in favour of Sebi, had asked brokers to deposit fees with retrospective effect to the market regulator. It would mean crores of rupees, which the brokers, in the present climes, can hardly afford. The board will deliberate whether the huge liabilities run up by the brokers can be deferred or paid in installments.

Another issue likely to be discussed is the contentious issue of the pricing of PSU offers. The disinvestment ministry has been very categorical that the offer should be made at the same price at which the government sells its shares to the highest bidder. However, Sebi has taken a stand favouring small investors, arguing that the average price on the bourses in the past six months should be the only criteria for fixing the price.

   

 
 
CUP OF CHEER DEFUSES BORDER BLUES WITH PAK 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, Dec. 25: 
Tea exports to Pakistan have increased by around 1 million kgs till September this year, despite cross border tensions.

Pakistan imported about 2.5 million kgs of Indian tea as against 1.5 million kgs till September last year. “We expect this will reach to almost 5 million kgs this year. The export figures available till September reveal that tension across the borders have not affected the trade so much. While there had been some delay in shipment following the September 11 attacks, exports did not stop,” industry officials said.

The Pakistan Tea Association had signed a memorandum of understanding early this year with the Indian Tea Association (ITA) to import about 10 million kgs of tea. “We may not achieve that amount, but there will be a definite rise in exports to Pakistan compared with last year,” officials said. Pakistan’s annual tea consumption is around 135 million kgs. Pakistanis prefer the African crush, tear and curl (CTC) tea — darker and stronger.

Indian tea however has suffered major setbacks in countries like Russia, UK, Poland, UAE, Libya, Turkey and Japan. Total exports till October were down by 18.4 million kg from lsat year’s figure. While gross export figures for October are not available, till September, it stood at 133.2 million kgs as against 148 million kgs in the previous year — a fall of almost 14.8 million kgs. Exports to Russia were down 6.6 million kg, those to UK by 3.9 million kgs and Poland by 2.5 million kgs. Similarly exports to Libya fell 3.6 million kgs, to UAE dipped 1.8 million kgs, to Turkey down 2.1 million kgs while exports to Japan were lower by 1.1 million kgs.

However, Indian tea has gained markets in Netherlands, USA, Iran and Iraq, apart from Pakistan. The ITA had identified some key markets like Russia, Pakistan, Iran, Iraq, Saudi Arabia and Egypt, where Indian tea needs to be pushed more aggressively. While exports have dropped, imports till October rose by almost three million kgs to 13.09 million kgs.

   

 
 
POWER HUNT IN THE BOWELS OF THE EARTH 
 
 
FROM M. RAJENDRAN
 
New Delhi, Dec. 25: 
Enron Corp has gone bust and Dabhol Power Company has shut shop. Enron, AES Transpower, Mirant Power, Cogentrix, Ogden ... the list of foreign partners who have dropped out of power projects grows longer by the day.

Industry says power shortages, which has ballooned to over 10,000 MW, is the biggest infrastructural constraint today.

So, if you are looking for a solution to the power problem, where would you go?

National Hydroelectric Power Corporation (NHPC) reckons it will hit pay dirt with geo-thermal energy tapped the hot crust of the earth.

Geothermal energy is produced by harnessing the heat from the innards of the earth. This is the same energy that rises naturally to the earth’s surface in the form of hot springs, geysers, and volcanoes. Geothermal systems are located in areas where the earth’s crust is relatively thin.

Sure, the solution is capital intensive, but NHPC claims that it will yield power at Rs 2 per unit making it the cheapest source of energy — cheaper than coal-fired thermal plants, hydel power, gas-based power plants like Dabhol (which at one stage charged the Maharashtra State Electricity Board Rs 7 per unit) and nuclear energy.

By drilling into the ground and inserting pipes, hot water or steam can be brought to the surface. In some applications, this heat is used directly to heat homes or provide process heat for businesses. In other areas, steam is used to drive a turbine to generate electricity.

NHPC is so kicked by the idea that it has wangled the right to exploit geo-thermal energy in the country. Seven to eight years ago, this right had been conferred on the Oil and Natural Gas Commission (ONGC) which did precious little to harness this non-conventional source of energy.

Fed up with ONGC’s apathy, the ministry of non-conventional energy sources has asked the NHPC to tap the estimated 20,000 MW of geo-thermal energy which is in the ground.

The state governments of Bihar and Jharkhand have approached NHPC to tap 50-60 MW of geothermal power in the states.

The power public sector company has set up a pilot project to exploit this untapped power source at Tattapani in Madhya Pradesh and has appointed US-based GeothermEx as consultant to prepare a feasibility study.

The US consultants will not only prepare the feasibility report but also supervise in exploitation involving deep drilling and preparation of detailed project reports.

Sources in power ministry, “Earlier, the ministry of non-conventional energy had given the project to ONGC, but we did not get the desired results. We felt NHPC, with its expertise in hydro power, could successfully tap this huge untapped power potential.”

“The success or failure of 300 kilowatt Tattapani project will determine the future of geothermal energy in India. NHPC will be the nodal agency for exploitation of this new energy in the country,” sources added.

According to a survey of Geological Survey of India (GSI), the country has a geothermal capacity of 20,000 MW spread over 340 locations and not even a single mw has been utilised.

Most countries in the world have exploited at least 10 per cent of the minimum geothermal potential in their country. US has exploited 2,800 MW New Zealand 1,500 MW, Philippines, 1000 MW, and Italy has tapped 800 MW, sources in NHPC said.

“The investment on one geothermal power project is about Rs 20-25 crore to generate 1 MW of power but it can come down to Rs 10 -15 crore if the project size is big. The life expectancy of the project is about 10-15 years,” NHPC officials said.

The cost per megawatt of generation using coal and hydro resources in Rs 5-6 crore and Rs 12 crore per megawatt for naphtha-based fuel.

   

 
 
CSE LOOKS AT WAYS TO BREAK BROKERS’ LOGJAM 
 
 
BY A STAFF REPORTER
 
Calcutta, Dec. 25: 
The Calcutta Stock Exchange (CSE) board will meet on Wednesday to discuss various issues, including the crisis hanging over the forthcoming annual general meeting of the bourse on December 29.

Sebi executive director Dharmishta Rawal, the market regulator’s nominee on the CSE board, is expected to attend the meeting. This is also likely to give her some impression of the impasse between the brokers and the management.

The exchange is set to hold elections for broker-directors at its AGM on Saturday, even as Sebi racks its brains on demutualisation of bourses. The brokers have threatened to boycott the AGM if they are denied board berths.

If the brokers boycott the AGM, the management of the bourse will not be able to get the accounts for 2000-01 approved, and will have to refer the matter to the Company Law Board. “The CSE board has already taken legal opinion on the matter, and the details will be discussed at the meeting tomorrow,” a CSE official said.

On the other hand, if the brokers are allowed to return to power in keeping with the statutes of the exchange, some members of the Sebi-appointed board, now managing the bourse, are likely to step down.

The brokers had decided to abstain from the elections, but sensed the opportunity of seizing power after Sebi’s board meet on December 14 — in which demutualisation was supposed to to discussed — was deferred.

Despite the finance minister’s announcement of keeping them out, Calcutta brokers feel Sebi cannot ask them to stay away from the management when their counterparts in Ahmedabad and Delhi have not been deposed.

   
 

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