ONGC roots for control of IPCL
Decontrol of gas prices may hit royalty
Videocon to divest 30% in petro arm
Cellular firms press for fast-track connectivity
Fiat close to breakeven

 
 
ONGC ROOTS FOR CONTROL OF IPCL 
 
 
BY ANIEK PAUL
 
Calcutta, May 5: 
Oil and Natural Gas Corporation (ONGC) will pick up a substantial stake in Indian Petrochemicals Company (IPCL) if Indian Oil Corporation (IOC) wins control of the company by buying the 26 per cent stake being divested by the government.

“ONGC and Indian Oil have agreed to control IPCL jointly. We will foot up to 50 per cent of the cost of acquiring IPCL, if Indian Oil wins the bidding,” ONGC chairman Subir Raha said.

Besides the 26 per cent to be acquired from the government, Indian Oil will have to make an open offer for another 20 per cent of IPCL’s shares to investors.

Raha said the exploration major would consider bidding for Hindustan Petroleum and Bharat Petroleum—the two state-run petroleum companies lined up for selloff later in the year.

“We will consider it once the government lays down the terms and conditions for acquisition of the two companies,” he said.

ONGC has already sought a licence for retailing petroleum products, though Raha says his company has yet to make up its mind whether to enter the business.

Raha, however, says the point of investing in IPCL and the two other petroleum companies is to bring into ONGC’s stable all possible products and services that a petroleum company can offer.

“Everywhere in the world, petroleum companies have integrated their operations, but in India, that is yet to happen. The petroleum companies can do so either by coming together or by expanding their operations, but the integration is bound to take place,” Raha said.

ONGC is interested because two of IPCL’s three plants buy feedstock from the upstream major; Indian Oil supplies feedstock to the other.

“Our businesses are synergistic, and hence IOC and ONGC have decided to jointly control IPCL if it comes our way,” Raha said.

Sudan venture

ONGC and Indian Oil are trying to acquire a combined 25 per cent stake in an oilfield in Sudan, Raha said.

He, however, refused to disclose the price that may have to be paid for the equity. “It’s still under discussion.”

A consortium of four companies— Petronas of Malaysia, CNPC of China, Sudanese Petro and Talisman of Canada—own and run the oilfield.

The Indian petroleum giants are trying to buy out Talisman’s stake in the venture.

Investment in the oilfield, which produces a million tonnes of crude annually, will be made through ONGC Videsh— a 100 per cent subsidiary. The cost of the acquisition would be borne equally by Indian Oil and ONGC Videsh.

ONGC has acquired stakes in a large number of oilfields in various parts of the world. It pumped in $ 1.7 billion in Sakhalin, an oilfield in Russia — the biggest ever investment made by any Indian company abroad, and one of the biggest foreign direct investments in Russia.

Fund-raising plan

Raha said ONGC may have to raise Rs 5,000 crore from the market to carry out the planned exploration during the Tenth Five-Year Plan period. ONGC intends to invest Rs 46,500 crore over the next five years, and provide the amount entirely out of its own reserves.

“We may not be able to finance it out of our accruals as our reserves are depleting by Rs 2,500 crore annually, thanks to the government’s decision to double the cess levied on our crude from Rs 900 per tonne to Rs 1,800 per tonne,” Raha said.

“Unless this stops it would be impossible to meet the costs of exploration out of our accruals. We will have to raise at least Rs 5,000 crore from the market if we have to fulfil our objective. But raising the amount from the market may not be easy. Raising it by way of equity would weaken ONGC’s balance-sheet, while banks are normally unwilling to finance exploration projects,” Raha said.

No to refineries

ONGC has no plans to set up “stand-alone refineries” because margins in the business are low.

“We have no plan to go for stand-alone refineries as the margin in such a venture is a low 1.5-2 per cent,” Raha told PTI.

“It is not logical to go in for the refining business alone as the profit margin will be lower than even rate of interest in banks,” he added.

At the same time, he underscored the need for Indian refineries need to produce premium grades of petro products from the crude to ensure value maximisation.

Meanwhile, ONGC is working on the exploration of gas hydrates, a form of hydro carbons that is crystallised on the sea bed, under the government’s National Gas Hydrates Programme. “Indications are that we may get good results in west and east coasts,” he said.

On the hydro-carbon resources in the country, Raha said India has only 0.5 per cent of the world’s reserves of hydro carbons.

“However, there is no great risk of running out of our resources... As we go along, I am sure to find out more reserves of oil and natural gas.”

   

 
 
DECONTROL OF GAS PRICES MAY HIT ROYALTY 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, May 5: 
The Oil and Natural Gas Corporation (ONGC) may be slapped with additional royalty even as the Centre mulls over a move to deregulate natural gas prices in stages by bringing them to 100 per cent parity with international fuel oil prices in the next financial year.

Industry circles point out that while the corporation currently has to pay royalty to the tune of 10 per cent of the selling prices of natural gas, this may be hiked to 20 per cent in tandem with the deregulation process.

They however, added that the impact of such a hike would be minimal as the corporation could reap hefty dividends in the wake of controls being removed on natural gas prices next year.

It is believed that while the ministry of petroleum and natural gas is currently working out finer details in this front, there could be a 50 per cent hike in natural gas prices from the current levels in the next few months.

Currently, the government has fixed a floor price of Rs 2,150 per thousand standard cubic metres and a ceiling price of Rs 2,850 per thousand scm of gas.

While this works out to a parity realisation (gas prices in the country are benchmarked to basket of fuel oil prices) of around 44 per cent to ONGC, sources added that in case of a 50 per cent hike in natural gas prices, parity realisation to the corporation would rise to around 50 per cent.

   

 
 
VIDEOCON TO DIVEST 30% IN PETRO ARM 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, May 5: 
The Videocon group plans to divest a 30 per cent stake in its wholly owned subsidiary, Videocon Petroleum, to raise over Rs 950 crore.

The funds will be used to part-finance future acquisitions in the petroleum sector, including Hindustan Petroleum Corporation and Bharat Petroleum Corporation, when they come up for disinvestment.

The group will not come out with a share issue in the domestic market to raise funds. It has plans to float a $ 200-million American Depository Receipt (ADR) issue to divest the 30 per cent stake in its petroleum subsidiary.

Sources said discussions with several foreign petroleum majors are under way. It is expected to come up with the ADR issue some time in August.

The subsidiary is currently operating an oil exploration project in the Krishna-Godavari offshore — six block — near Kakinada in Andhra Pradesh.

It is eyeing other projects as well in exploration and production. These are the ones that are likely to be thrown open to bidding in the new energy licensing policy.

“The company is already in the upstream sector and once it has a presence in the downstream segment, either through acquisitions or otherwise, it will be in position to grow as a strong oil company,” sources said.

The valuation of the petroleum arm of the Videocon group is around Rs 3,350 crore.

Sources pointed out that the group, which emerged as a strong player in the mid-80s’ in the field of electronics and white goods sector, is now fast moving into the oil sector.

“The reason is simple. The oil sector has tremendous potential, especially since the administered pricing mechanism (APM) has been dismantled. Although there will be more players vying for a slice of the market, it is only the serious players who will ultimately stay in the oil sector and grow.”

The group has veered around to the view that the business of consumer durables will not be able to provide good returns on investment because of stiff competition.

“The domestic market is flooded with colour television and audio products from several domestic and foreign companies. It is putting a pressure on the margins and even if volume grows, you are not sure about your profitability,” they said.

Videocon International, for instance, had registered a 31 per cent fall at Rs 32.4 crore in its net profit for the quarter ended in March 2002 from Rs 42.4 crore in the previous year.

The total income has also come down during the same period from Rs 906.67 crore to Rs 887.9 crore. This is despite the fact that the last quarter augured well for most of the companies in the consumer durable sector.

Videocon International has already put in over Rs 90 crore in the equity of its petroleum venture. It is currently looking for a strategic partner, which will not only subscribe to part of the ADR issue in addition to its normal investment, but also offer technical assistance to Videocon Petroleum.

   

 
 
CELLULAR FIRMS PRESS FOR FAST-TRACK CONNECTIVITY 
 
 
FROM M RAJENDRAN
 
New Delhi, May 5: 
Cellular operators are pressing for shorter lead times for notifying their interconnection requirements to fixed-line telephony operators.

The Cellular Operators Association of India (COAI) has suggested that a service provider seeking interconnection should be asked to provide relevant information three months in advance, instead of the 12 months suggested by the Telecom Regulatory Authority of India (Trai) in its draft paper on the Reference Interconnect Offer (RIO).

While submitting its recommendations for the model RIO that will be drawn up by Trai, the cellular operators forum said: “If either party fails to make available the interconnect capacity within three months (or agreed additional time) of the placing of formal demand, he shall pay liquidated damages to the other party.”

“It is important to ensure that the time required to set up new inter-connection links is kept as short as possible to enable new entrants to establish their networks and provide services at the shortest possible time,” said a senior executive of a cellular service provider.

COAI has also suggested to Trai that the RIO should include within its Service Level Agreement (SLA) for physical interconnect, time scales for delivery that are within a maximum of 30 days. These time scales shall be the maximum limit for the delivery of ready-for-service circuits from the time of acceptance of the demand.

Trai will discuss these issues along with suggestions and recommendation at an open house to be held later this month, and is expected to announce a reference model RIO before June.

The cellular operators have also demanded a change in the description of land-line telephones from basic telecommunication services to fixed telecommunication in the new Reference Interconnect Offer (RIO) agreement. They have said the RIO should be reviewed every six months.

COAI has demanded that the definition of fixed telecommunication service should be clarified further, similar to definition of cellular mobile telecommunication service. It feels the establishment of regular process will result in a more efficient use of time and resources.

The cellular operators have also expressed their inability to print a directory since more than 50 per cent of the subscribers are in the pre-paid category and there is a frequent churning of these customers.

   

 
 
FIAT CLOSE TO BREAKEVEN 
 
 
FROM SATISH JOHN
 
Bangalore, May 5: 
Fiat India is riding high on the Palio success story. With sales from its factory at Kurla in the heart of Mumbai expected to touch 50,000, the Indian subsidiary of the Italian carmaker hopes to come close to breakeven by the end of 2002.

“I am happy with our performance,” Fiat India managing director M. P. Bianchi said.

Fiat is now set to join the ranks of carmakers that are also making profits, such as Maruti and Hyundai, a sign that the industry may be recovering. Telco, with its new Indica, is also set to join the bandwagon.

“The Kurla factory is running two shifts a day and may even look at three shifts if the market so demands. The factory has constraints as the plant’s maximum production capacity is around 250 cars a day. It currently makes 220 cars a day. Fiat may even look at setting up a new plant in Ranjangaon in Pune, but its early days yet.”

The company saw its monthly market share increase from 1.3 per cent in August 2001 to about 10 per cent in April this year, as sales in April this year rose 739 per cent increase over that a year ago, and 5 per cent over the previous month.

“We sold 4203 cars in April 2002, compared with 501 cars in April 2001. As of today we also have an order bank of 4500 cars,” Bianchi added.

Bianchi said Fiat has the ability to set up a new plant adjacent to the Telco factory within a short span of six months.

The confidence has stemmed from the growing demand for the Palio. “We have increased production levels at the Kurla plant from 70 cars at the time of the Palio’s launch in September 2001, to the current level of 220 cars per day, on a two-shift basis. Bianchi expects the production capacity to be stretched to 250, with New Siena accounting for 7,000-8,000 cars per annum.

Initially, having badly misread the Indian marketplace, the company was floundering what with its offering of Fiat Uno, Siena (the older version) and the Siena Weekend. But all that is a thing of the past. The company has, since then, made a smart turnaround and is making cash profits.

Localisation levels in the Palio have also increased from 75 per cent at the time of the launch, to a current level of 85 per cent. Dealerships have been increased from 51 to 62 and by the end of the year will touch 75. Fiat will also hike the number of service points from 100 to 150.

“We had opened a new market,” Bianchi said, referring to the ‘Siena Weekend,’ which failed to make a dent in the market. Fiat is however unfazed by the rejection. It plans to launch another model in the station-wagon segment called the ‘Palio Weekend’. It will have the complete works with a higher ground clearance, 1900 cc engine, fog lamps, and will be positioned in the multi-utility vehicle segment.

“We want to be perceived as an innovator in the marketplace.” The launch is expected in the fag end of the month. It also plans to launch a diesel version of Palio by early 2003.

Meanwhile, Fiat plans to enter into a tieup with General Motors India for sharing logistics and spare parts.

New Siena hits roads

Having tasted blood in the highly competitive ‘B’ segment of the Indian car market with Palio, Fiat India today launched the ‘New Fiat Siena,’ aggressively pricing the four versions of the C segment sedan at points that could under cut existing players.

The move could spell a flurry of activity in the three-box car segment, which is 13-14 per cent of the total car market of six lakh cars. Siena has put on offer an AC and power steering in all the four variants as standard fittings, that not many competitors have made available. The new models will replace the older version of Siena.

“It’s going to shake up the market”, says Murad Ali Baig, an auto analyst and columnist, immediately after the price labels were announced.

The prices ex-showroom in Delhi for the four variants are: 1.6 Maestro at Rs 6,70,000, 1.6 ELX at Rs 6,10,000, 1.6 EL at Rs 5,65,000 and 1.2 Ex at Rs 4,85,000.

   
 

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