New drug order to benefit MNCs
Quality watch on tea imports
TotalFina now joins race for Dabhol
Unocal gas pipeline soon

 
 
NEW DRUG ORDER TO BENEFIT MNCS 
 
 
FROM VIVEK NAIR
 
Mumbai, Jan. 19: 
The pharmaceutical industry is waiting with bated breath for the new drug policy to be announced by the government that will see the relaxation of price controls on several drugs, even as the Centre is believed to have almost finalised the dilution of the Drug Price Control Order (DPCO) to this effect.

Reliable sources indicated that the dilution in the DPCO, which has been hanging fire for nearly two years now, is round the corner and is likely to be announced by the government in the next few days. The order may see the government retaining control on only 25 per cent of the total drug formulations, down from the current 40 per cent, a move which is widely expected to have a positive impact on the toplines of several pharmaceutical companies.

Though industry circles are still looking forward to the main features of the proposed dilution, analysts feel that the key beneficiaries from this move will be multinationals like GlaxoSmithkline Pharma and Aventis Pharma, apart from domestic majors such as Cipla, Ranbaxy Laboratories, Sun Pharmaceuticals (India) Ltd and Dr Reddy’s Laboratories. However, companies like Novartis India are not expected to reap any benefits from the proposed move.

As per the current regulations, bulk drugs with sales exceeding Rs 4 crore come under price controls. Analysts expect this limit will be revised upwards to Rs 20 crore, but the more optimistic domestic industry feels that the government will raise it to Rs 50 crore.

Yet another criteria where a revision is widely awaited relates to market share, where the government is likely to exempt drugs having a share below 50 per cent, from the rigours of price control. Local manufacturers are however clamouring for decontrol to be extended to drugs that have over 50 per cent market share, a demand which analysts say is unlikely to be heeded by the government.

“Despite the relaxation in price controls, the government will try to ensure that no situation arises where a drug has an excessive market share and therefore it would not give exemption to those whose market share is in excess of 50 per cent,” an analyst pointed out.

Industry is also optimistic that the government will encourage drugs manufactured indigenously, by exempting them from price controls for a period of over 10 years, as against the present five. The pharma companies also expect to be provided with higher mark ups to boost investments in research.

C. Srihari, pharmaceutical analyst at Khandwala Securities, said as far as Glaxo is concerned, the company is likely to see price controls going in Zinetac, its major anti-ulcer product, apart from Cobadex Forte and Septran.

Similarly, in the case of Aventis India, it is felt that controls will go on products including Combiflam, Soframycin, Lasilactone, Lasix, Novalgin and Hostacycline. Cipla on the other hand may see controls being removed in the case of Ciplox, Novamox and Asthalin, while Dr Reddy’s could benefit in the case of Ciprolet. Ranbaxy too is expected to gain in products like Cifran and Histac among others.

The DPCO regime is primarily aimed at keeping drug prices within the reach of the common man, with fears that any removals in controls would lead to a runaway increase in prices. However, industry bodies like the Indian Drug Manufacturers Association (IDMA) point out that a study has revealed that the price increase in decontrolled formulations was only 4 per cent in 1999, more than the wholesale price index for the year.

The stock markets too have been warming up to the DPCO dilution, which they expect, will be announced shortly. Sources observed that this has been one of the major reasons fuelling the runaway increase in prices of some stocks like Glaxo in the past few sessions.

   

 
 
QUALITY WATCH ON TEA IMPORTS 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, Jan. 19: 
Concerned with the poor quality of tea that is being imported for re-export, the Union commerce ministry is putting in place a proper mechanism to ensure that tea, like any other food item imported into the country, conforms to the Prevention of Food Adulteration standards.

Senior commerce ministry officials said from Delhi, “The industry has been complaining for quite some time that cheap quality tea is being imported for re-export. We have found the case genuine and will soon come up with a mechanism to check this.”

Imports for the year 2001 have been estimated at around 15 million kg, with total imports in January to November expected to have touched 14 million kg.

K.S. David, additional chairman of the Indian Tea Association said: “This trend is disturbing since the increase in imports has been witnessed despite the abnormally low prices prevailing in the domestic market. More disturbing is the fact that imports in 1998 stood at only 9 million kg. Besides, about 99 per cent of the teas being imported into the country are meant for re-export. This has resulted in export-quality Indian teas flooding the domestic market, adding to the surplus and adversely affecting the price level.”

David, who is also the managing director of the Goodricke Group said: “If we analyse the import profile for 2001, it appears that out of the total imports of 14.71 million kg between January to November, approximately 12 million kg has been in the orthodox category. The bulk of this is being sourced from Indonesia and Vietnam at an average price ranging between Rs 42-53 kg per kg. This further reiterates the need for correction of our present product-mix. The quality of the tea imported into India for re-export is also a matter of concern as this affects the image of Indian tea in the world market.”

The Indian tea industry has decided to produce more orthodox teas from the coming season. Following a representation made by the industry, the Tea Board has also introduced a scheme for upgrading tea factories to facilitate orthodox production. The scheme offers a 25 per cent subsidy for upgrading machinery and to meet other replacement costs.

The tea industry has also submitted a detailed proposal for enhancing DEPB rates from 2 per cent at present to 10 per cent, on export of orthodox and green teas.

Further, to give a boost to tea production, the industry has requested the West Bengal government to withdraw the cess on green leaf as a temporary measure, to enable it tide over the present financial crisis. The industry has also been lobbying the state government to favourably consider its appeal regarding withdrawal of salami imposed in 1994.

   

 
 
TOTALFINA NOW JOINS RACE FOR DABHOL 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Jan. 19: 
TotalFina Elf, the French energy major, will be among the five probable suitors for Dabhol Power Company—the beleaguered Indian subsidiary of trouble-torn bankrupt Enron Corp.

Confirming the rumours that had been swirling around in the market for sometime, IDBI chairman P.P. Vora today said, “the French energy major TotalFina Elf is the fifth company to evince interest to buy out the 85 per cent stake held by Enron, GE and Bechtel.

IDBI is the lead financial institution for the domestic lenders which is grappling to find a way out to revive the 2,184 MW Dabhol project.

The French company is serious about its interest in the project and is a strong player who can take over a power company of this size, he said.

Vora was speaking to reporters on the sidelines of a seminar on corporate governance. Officials from TotalFina have already started studying the Dabhol project in detail. Interestingly, TotalFina was partnering Tata Power and Gas Authority of India Ltd (GAIL) in a joint venture for setting up a liquefied natural gas terminal. The joint venture was called off recently by both the parties.

TotalFina is the world’s largest oil company with a turnover of over $ 116 billion.

The French oil major already has a presence in India, through a wholly-owned lubricants company, TotalFinaElf Lubricants, Elf Gas in Bangalore and South Asia LPG, a joint venture with HPCL.

Universal banks

Financial institutions planning to turn themselves into universal banks should get three to four years’ time to meet regulatory requirements like cash reserve ratio (CRR), Vora said.

Allocating huge amount of resources for CRR or statutory liquidity ratio from the very beginning may not be a workable proposition, he added.

“With tight supervision from Reserve Bank of India, a phased programme to meet regulatory norms will not pose systematic risk,” he said.

Though IDBI has submitted a blueprint to RBI for converting itself into a universal bank, some modifications to the IDBI Act is necessary, he added.

   

 
 
UNOCAL GAS PIPELINE SOON 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, Jan. 19: 
Unocal—the US gas multinational—is in the final stage of negotiation with the Bangladesh government to export gas from Bibiyana field to India. Sources said the Bangladesh government has, in principle, given clearance to the proposed 1,363-km long pipeline through which the gas will be transported from the Bibiyana field to the Indian border. However, a formal decision is yet to be taken by the Bangladesh state owned oil company, Petrobangla.

Unocal has already invested a substantial amount in the Bibiyana field. The company is very optimistic about the potential of huge gas reserves in Bangladesh. “The Bibiyana reserve is much greater than many of the known Indian gas projects and the price of the gas, once imported, will be available at a much competitive price,” sources said. Unocal has already held informal meetings with the state governments, including West Bengal, through which the pipeline will run in India.

“The company needs two things from the state governments. These are: right of way and an outline about what could be the possible demands from local industrial units,” sources said.

West Bengal, for instance, will immensely benefit from the project as it is advocating the installation of gas-based industries in the state, they added. The company will soon submit a detailed plan to the West Bengal government.

Sources said the pipeline in Bangladesh side will require an immediate investment of $ 500-700 million.

   
 

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