Microsec -NEWS ANALYSIS
RAJESH DESAI
INFRASTRUCTURE
CERC drafts laws to stop market abuse
· The Central Electricity Regulatory Comm-ission (CERC) has issued draft regulations intended to prevent abuse of market power and regulate the conduct of companies harming or potentially harming competition in the sector.The proposals allow it to issue directions in the event of anti-competitive agreements, abuse of dominant position or anti-competitive combinations entered into by any entity, licensee, deemed licensee and licence-exempt ones.
· An agreement can be construed to have an anti competitive impact if it leads to creation of barriers to new entrants in the market; driving existing competitors out of the market and affecting long-term planning and quality of supply. When a power purchase agreement between generator and buyer bars the market to a new entrant, long-term consumer interest is likely to be adversely affected and provides a reason for the regulator to step in. Further, agreements not to invest in new technology to bring down the cost of producing electricity might restrict market development.
Construction rises 11% in Q1
· Despite high interest rates and land acquisition woes, construction activities in the quarter ended June grew at a 19-quarter high of 10.9 per cent, against 3.5 per cent in the year-ago period.
· Players and analysts attributed the rise in construction to execution of road projects awarded by the National Highways Authority of India (NHAI) last year. Analysts said real estate developers focused on completing existing projects; they did not line up for new ones. A low base effect was also cited as one of the reasons for the growth in construction.
METALS & MINING
Nalco, NMDC Unlikely to Rise Further
· Nalco and NMDC have gained 6% and 2% in market value, respectively, after the government announced plans to divest 12% stake in the former and 10% stake in the latter. But the euphoria may well be short-lived as both these stocks are already trading at significant premiums to their private sector peers. And given the concerns in sectors that they operate in aluminum and iron ore there is little room for further appreciation.
· As part of the finance ministry’s plans to raise.30,000 crore in FY13 through divestment, the government has invited merchant bankers and brokers to sell its stake in Nalco and NMDC. Though the pricing of the issues are not known, at current market valuations, a 12% stake sale in Nalco would earn the government.1,625 crore, while a 10% sale in NMDC would fetch.7,440 crore adding more cash to the already cash-rich companies.
· NMDC, which produced double the amount of iron ore Sesa Goa produced in FY12,trades at a price to earnings (P/E) ratio of 10.07 times while its private sector competitor trades at 5.15 times. The company is debt-free and currently has cash reserves of.20,264.58 crore, compared with.77.7 crore Sesa Goa has on its books. NMDC had increased iron ore prices recently, but with the 40% fall in global iron ore prices in the past six months amid concerns of a global slowdown in demand, NMDC might have to cut back this price hike in the coming months.
Ministerial ping-pong led to hasty vetting of coal applicants’ credentials |
· Even as the central government battles charges of having allowed the allocation of coal blocks in a hasty and suspicious manner, a close look at the minutes of the screening committee meetings to consider the allocation of blocks for power generation, mentioned in the CBI FIR against JLD Yavatmal Energy, gives rise to several questions. The committee, headed by the coal secretary, completed the exercise of recommending companies from among 207 applicants for the allocation of 15 coal blocks within 85 days, in three meetings between June 20, 2007 and September 13, 2007. · Within 43 days, the panel convened its third and final meeting on September 13, 2007 and it was said the verification reports from most of the state governments had been received and placed before the screening committee, according to the minutes. · Interestingly, it is also mentioned that in view of the large number of applications and the limited number of blocks on offer, the committee felt it would be reasonable to have a satisfaction level in the range of 40-70 per cent, to the extent feasible. · The committee then recommended names of private companies for the allocation of 15 coal blocks for power generation. The CBI in its FIR has alleged misrepresentation and deception by Congress MP Vijay Darda’s company, JLD Yavatmal Energy, and pointed at criminal conspiracy and negligence by coal ministry officials in the allocation of blocks during 2006-09. |
NMDC staff may get share quota under auction route |
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· The department of public enterprises has proposed a cap of ~200,000 for allotment of shares to each employee of NMDC at the time of the proposed 10 per cent government stake sale through the auction route. The method and procedure of allotment of shares to employees may also provide the maximum value of allotment to any employee which may be kept at ~200,000 as applicable in case of IPO/FPO.
· The department of public enterprises would need Cabinet approval for this as in the normal course companies do not reserve shares for employees under the offer for sale route. The government plans to divest 10 per cent paid up equity in NMDC through offer for sale of shares through the stock exchanges and is in the process of appointing merchant bankers for the same.
· The government currently holds 90 per cent stake in the country’s top iron ore producer after it offloaded 8.38 per cent holding of then 98.38 per cent stake in the company in March, 2010. Shares of NMDC are currently trading at around ~187.65 on the BSE. At the current market prices, a 10 per cent stake sale would fetch the exchequer around ~6,500 crore. The government proposes to raise INR30,000 crore from disinvestments in current fiscal. However, with five months of the fiscal already over, it has failed to come out with any public offering. · In a bid to accelerate the process of disinvestment, Finance Ministry is expediting the process of PSU stake sale so that issues could hit stock markets in time. Last fiscal, due to volatile market conditions, the government had to postpone divestments. It had raised only INR14,000 crore in 2011-12 against a target of INR40,000 crore. The government proposes to raise ~30,000 crore from disinvestments in current fiscal. |
AUTOMOBILES
Hike in tax on diesel cars unlikely before Budget
Diesel cars are unlikely to attract any additional taxes before the Budget next year. Government officials believe such a decision will be independent of the proposed diesel price hike of Rs 4-5 per litre.
The file with the detailed proposal from the Petroleum Ministry, along with observations of the Finance Ministry, auto industry and others, are with the Finance Minister, P. Chidambaram. Now he has to take a call on the sensitive issue..
Interestingly, the nodal Ministry for the auto industry — the Ministry for Heavy Industries — seems to be falling in line with the Petroleum Ministry.
A senior official in the Ministry of Heavy Industries said: How long can we support the auto industry’s demands for not raising the tax when the fiscal situation is becoming really difficult to handle? We believe a decision can be taken in the next Budget.
Amendment
Finance Ministry officials said there is no tariff cushion available. So, a change in duty will require an amendment in the Finance Bill.
Alternatively, the Finance Ministry can issue an ordinance or notification using the emergency power to raise the tax before the Budget, or even before the Winter Session. Auto sales numbers also seem to further the case for a higher duty on diesel cars. Industry sources reveal that diesel cars and Sports Utility Vehicles (SUVs) now account for over half the cars sold. With more companies coming out with diesel models and the increasing price differential vis-à-vis petrol, diesel car sales are set to increase even more.
Subsidy offset
In June, the Petroleum Ministry sought imposition of additional excise duty of Rs 1.7 lakh on small diesel cars and Rs 2.55 lakh on SUVs. The assumptions for additional duty rest on the average life-span of 10 years and mileage of 18 km for small cars and 12 km for SUVs. The Ministry’s argument is that the amount collected by way of additional duty could partially offset the subsidy payout for petroleum products.
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CA. Rajesh Desai