Economy
Falling oil prices renewed hopes for India's energy economy, security
New Delhi : For India's energy sector, the past year held promise, thanks to a commendable fall in electricity shortage, a global recognition for the country's focus on renewables, a grand plan to shore up the finances of state-run utilities and a sharp fall in the cost its oil import basket to the lowest level since 2014.
 
At the same time, there were some misses as well, notably on the oil exploration front which still awaits the new policy for auction of oil and gas blocks and the announcing of the premium to be paid on natural gas for all new discoveries in difficult deep-sea areas.
 
The government, late in the year, did manage to circulate a consultation paper inviting comments, about easing doing business in exploration that proposed to free domestic natural gas pricing and replace the existing production sharing contract by the revenue-sharing model for all future hydrocarbon acreage auctions.
 
The price of domestic natural gas fell this year on applying the NDA government's new formula for calculation, and was cut 18 percent, from $4.66 per unit to $3.82 per unit, for six months starting October 1.
 
What defined India's petroleum sector in 2015 was the plunge in global crude oil prices driven by a supply glut that saw the Indian basket of crude oils fall by over 60 percent from levels of well over $100 a barrel to less than $35. While this reduced foreign exchange outflow and improved the country's current account deficit position, producers piled up major inventory losses.
 
In the second half of the fiscal, the government approved auction of 69 small and marginal oil and gas fields on a new revenue sharing model, where bidders will quote the revenue they will share with the government at both low and high ends of the price and production band. The new revenue sharing model will replace the controversial production sharing contracts (PSCs) - by which oil and gas blocks are awarded to those firms which show they will do maximum work on a block - that has governed bidding under the earlier nine New Exploration Licensing Policy rounds.
 
Domestic gas producers continued the wait for a decision pending from the year before. While approving a new gas pricing formula in October 2014, the government had decided that new gas discoveries in deep-water, ultra-deep sea or high-temperature and high-pressure areas will be given a premium over and above the approved price.
 
The year also saw Reliance Industries, which had made four consecutive gas discoveries with close to 500 billion cubic feet of in-place reserves, surrendering its Krishna Godavari basin gas discovery block, KG-D3, owing to operational restrictions placed by the defence ministry.
 
Moving to the wider energio scenario, the country's electricity shortage also fell to its lowest level ever from 8.5 percent in 2011 to 2.4 percent in October, while the peak shortage dipped to 3.2 percent from 10.6 percent, as per official data.
 
The focus, nonetheless, was in the renewable energy space.
 
At the beginning of 2015, the Government has up-scaled by more than double the targets set for renewables at 175 GW by 2022 -- which includes 100 GW from solar, 60 GW from wind, 10 GW from bio-power and 5 GW from small hydro-power.
 
"India is graduating from megawatts to gigawatts in renewable energy production," Prime Minister Narendra Modi said. India also made a commitment that 40 percent of its cumulative capacity will be from non-fossil fuel based resources by 2030 if it gets low cost technology and international financing.
 
At the UN climate change talks in Paris last month, Modi launched an alliance of 120-odd nations to tap solar energy better and asked the rich nations to shoulder their responsibilities in protecting the environment, with funding and transfer of clean technology to poor and emerging economies without further delay.
 
Oil continued to slide, stepping up pressure on India to acquire assets abroad and build its strategic petroleum reserves at home.
 
The year closed with India signing major deals last week with its time-tested ally Russia, where the former returned after six years for a slew of oil deals worth around $2-3 billion. Rosneft, the world's largest publicly-traded oil company, formalised sale of 15 percent stake in its subsidiary Vankorneft to ONGC Videsh (OVL) for $1.3 billion. The deal gives OVL access to Rosneft's Vanko, Russia's largest onshore field developed in the past 25 years. This was followed by agreements for giving OVL partnerships in other onshore fields.
 
In December, the government allowed Oil and Natural Gas Corp. (ONGC) to convert Rs.5,000 crore of existing loans to its overseas arm OVL, into equity in order to expand the exploration and production business abroad, including by acquisition of oil and gas assets. The company is currently running 36 projects in 17 countries and has 13 producing blocks.
 
The year closed also closed with the realising of a major milestone for the wider region by starting construction of the long delayed 1,735 km-long gas pipeline from Turkmenistan through Afghanistan and Pakistan to India (TAPI).
 
Along with India's Vice President Hamid Ansari, others present at the ground-breaking ceremony earlier this month in Mary in Turkmenstan were Turkmen President Gurbanguly Berdimuhamedow, Afghanistan President Ashraf Ghani and Pakistani Prime Minister Nawaz Sharif.
 
Highlights:
 
* Global crude oil prices plunge from well over $100 to below $35
 
* Nod for auction of small and marginal oil and gas fields on a new revenue sharing model
 
* Government proposes replacing production sharing contract by the revenue-sharing model for future hydrocarbon acreage auctions
 
* Electricity shortage falls to lowest level, from 8.5 percent in 2011 to 2.4 percent in October
 
* Target for renewable energy production more than doubled at 175 GW by 2022
 
* Modi launches "solar alliance" of 120 nations to tap solar energy better 
 
* ONGC signs oil deals potentially worth around $2-3 billion with Russia's Rosneft
 
* Construction started in December of the long delayed TAPI gas pipeline from Turkmenistan through Afghanistan and Pakistan to India.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Chennai floods hit auto sales in December
Auto sales will be muted across segments during December, due to the Chennai floods. Sales of passenger vehicles will face the maximum impact, says Nomura
 
The floods in Chennai earlier in December would affect auto sales during the last month of 2015, says Nomura in a note.
 
"We expect subdued growth across segments as production was impacted by the Chennai floods. We expect maximum impact in passenger vehicles (PVs) followed by two wheelers (2Ws) and medium and heavy commercial vehicles (MHCVs). However, tractors are likely to continue strong double digit growth benefitting from a favourable base," it said in a research report.
 
In passenger vehicles, Nomura expects industry volumes to remain flat in December compared with same month last year. It sees, major players like Maruti Suzuki India Ltd (MSIL), Hyundai Motor India Ltd and Mahindra & Mahindra (MM) reporting low single digit growth during December 2015.
 
It said, "We expect MSIL to report about 6% growth in domestic volumes (on adverse base, 13% in December 2014), led by new launches like Baleno and S-Cross. We expect inventory levels to moderate as plants will be shut for maintenance from 28 December 2015 to 3 January 2016. Among unlisted original equipment manufacturers (OEMs), Hyundai, Renault-Nissan and Ford are likely to see only modest growth due to the impact of the Chennai floods. Others like Honda, General Motors and Toyota will likely see volume declines, in our view."
 
Talking about medium and heavy commercial vehicles (MHCVs), Nomura says it expect this segment to grow at 12% in December due to an adverse base. "In terms of OEMs, we expect Ashok Leyland (AL)’s volumes to increase by about 5%, impacted by the adverse base. While the company lost four-five days’ production because of the Chennai floods, we expect limited impact on wholesales due to higher inventory. We expect Tata Motors (TTMT)’ domestic volumes to rise by around 11% y-y and VE Commercial Vehicles Ltd (VECV)’s MHCV volumes to grow by about 20%," it added.
 
Nomura sees the two-wheeler segment to witness a growth of about 3% during December, mainly on weak demand from rural India. It said, "We estimate bike volumes to remain flat, while scooter volumes are likely to grow by about 8%. In terms of OEMs, we expect production loss of about 11,400 to 25,000 units for Royal Enfield (RE) and TVS Motor Company (TVS). Thus, overall volumes are likely to grow 17% and 4.5% for RE and TVS, respectively. Bajaj Auto is likely to report a modest 3.5% growth while we expect Hero MotoCorp Ltd (HMCL)’s overall volumes to decline by 1.5%. Honda Motorcycle and Scooter India, Pvt Ltd (HMSI) is likely to report a 9% decline".
 
Auto Sales in December 2015

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How factoring benefits companies to get prompt payments
Factoring allows companies to receive immediate cash on their sales without having to wait for payments to come in from customers in due course
 
In view of the advantages of assignment of receivables over lending against receivable as defined in the Factoring Regulation Act, 2011 (the Act), companies may strategically decide to undertake transactions that are in the style of assignment of receivables rather than lending against receivables. While the business of factoring covers both assignment of receivables and lending against receivables the provisions of chapter 3, 4 and 5 of the Act are not applicable to lending against receivables.
 
Factoring works mainly on the principle of seller selling the receivables of a debtor to a specialized financial intermediary called a factor. The sale of the receivables takes place at a discount and the ownership of the receivables is transferred to the factor who shall on purchase of receivables, collect the dues from the debtor instead of the seller, enabling the seller to receive upfront funds from the factor. This allows companies to receive immediate cash on their sales without having to wait for payments to come in from customers in due course. With the purchase of the receivables, the factor enters the shoes of the seller and dawns the liability under the contract.
 
The business of factoring in India is regulated by the Factoring Regulation Act, 2011. The Act defines the terms ‘factoring business’ and ‘factor’.
 
Section 2(i) of the Factoring Regulation Act, 2011defines factor to mean:
 
“a non-banking financial company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934) which has been granted a certificate of registration under sub-section (1) of section 3 or any body corporate established under an Act of Parliament or any State Legislature or any Bank or any company registered under the Companies Act, 1956 (1 of 1956) engaged in the factoring business;"(Emphasis Supplied);
 
Further, Section 2(j) of the Act defines factoring business which states that:
 
"factoring business means the business of acquisition of receivables of assignor by accepting assignment of such receivables or financing, whether by way of making loans or advances or otherwise against the security interest over any receivables but does not include— (i) credit facilities provided by a bank in its ordinary course of business against security of receivables; (ii) any activity as commission agent or otherwise for sale of agricultural produce or goods of any kind whatsoever or any activity relating to the production, storage, supply, distribution, acquisition or control of such produce or goods or provision of any services" (Emphasis Supplied)
 
Further Explanation under the Section 3(2) of the Act defines the principal business criteria for an NBFC-Factor. It states that:
 
For the removal of doubts it is hereby clarified that a non-banking financial company engaged in factoring business shall be treated as engaged in factoring business as its "principal business" if it fulfils the following conditions, namely:— 
 
(a) if its financial assets in the factoring business are more than fifty per cent of its total assets or such per cent as may be stipulated by the Reserve Bank; and 
(b) if its income from factoring business is more than fifty per cent. of the gross income or such per cent. as may be stipulated by the Reserve Bank.
 
Given the above pretext, it is clear that an NBFC principally engaged in the factoring business will be referred to as a Factor under the Factoring Regulation Act, 2011. 
 
For the purpose of definition of factoring business, it can be construed basis that the business has two limbs first being assignment of receivables and second being financing / lending against receivables. However, if one was to read the Preamble of the Act, the focus of the Act was to facilitate assignment of receivables. Therefore, the larger construct and substantive clauses in the factoring Act deals with assignment of receivables as also is evident from the reading of Chapter III onwards of the Factoring Act. 
 
Following chart is a graphical representation understanding of factoring business by entities as specified in the Act and the kind of business they may undertake to qualify to be a factor:

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COMMENTS

TIHARwale

1 year ago

where is Canara Bank floated factoring arm. gone down the drain. Banks do finance advances against supply bills factoring is identical to that.

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