While the move will help the state-run firms to break even in their gas business, it will result in a hike in electricity generation tariff and fertiliser production cost
The government today more than doubled the price of natural gas produced by state-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd to $4.20 per mmBtu, at par with the rate at which Reliance sells its gas.
The Cabinet today approved an oil ministry proposal to raise the rate of gas sold to power and fertiliser firms from $1.79 per million British thermal unit (mmBtu) to $4.20, sources said.
ONGC and OIL will get $3.818 per mmBtu price for the gas they produce from fields given to them on nomination basis and after adding 10 per cent royalty, the fuel will cost $4.20 per mmBtu to consumers.
On top of the $4.20 per mmBtu, state gas transportation and marketing firm GAIL India would be allowed to charge 11.2 cents as marketing margin. Over and above this would be the taxes and other levies and pipeline transportation charges.
While the move will help the state-run firms breakeven in gas business, it would result in hike in electricity generation tariff and fertiliser production cost. But since fuel cost in power and fertiliser business is pass-through (wherein companies pass on the cost to consumers), it would not impact any of the companies that buy ONGC gas.
Also, GAIL which was not allowed to charge marketing margin would now benefit from the decision.
The government controls rates of gas, produced by ONGC and OIL from fields given to them on nomination basis (called APM gas). APM gas price were last revised in 2005 to Rs 3,200 per thousand cubic meters ($1.79 per mmBtu).
ONGC, in 2008-09, lost Rs4,745 crore in revenues on selling 17.71 billion cubic meters of gas at the government fixed rate.
The oil ministry had previously wanted to raise the gas price in stages to $4.20 per mmBtu. It wanted rates paid to ONGC and OIL to be immediately hiked Rs4,142 per thousand cubic meters ($2.32 per mmBtu). The consumer price at this would have been 10% higher at $2.55 per mmBtu.
Thereafter, in three more installments, the rates were to be hiked to $4.20 per mmBtu.
However, on the insistence of the finance ministry, the oil ministry withdrew the proposal and moved a fresh one seeking to raise the price of the gas under APM to Rs6,818 per thousand cubic meters or $4.20 per mmBtu, sources said.
Because of today's decision, ONGC would gain Rs 5833.78 crore more revenue a year.
The government has set $4.20 per mmBtu as the sale price of gas from Reliance Industries' eastern offshore KG-D6 fields, while the gas from BG Group-operated Panna/Mukta Tapti fields is sold at $5.73 per mmBtu.
Dr KP Krishnan may soon join the prime minister's Economic Advisory Council (EAC) as secretary. Besides advising on policy matters referred to the Council from time to time, the EAC also prepares a monthly report on economic developments both in India and abroad
Dr KP Krishnan, joint secretary of capital markets in the finance ministry, may soon join the prime minister's Economic Advisory Council (EAC) as secretary. According to sources, Dr Krishnan is likely to be replaced by Dr Thomas Mathew, the deputy director general of the Institute for Defence Studies and Analyses (IDSA).
Dr Krishnan, who belongs to the 1983 Indian Administrative Service (IAS) batch, had earlier worked as managing director, Karnataka Urban Infrastructure Development and Finance Corporation, and secretary for Urban Development and secretary for Finance Department, government of Karnataka. He has also worked as advisor to the executive director of the World Bank in Washington, DC.
Dr Mathew is also an officer from the 1983 IAS batch. Earlier, he had held several positions in the ministries of information & broadcasting, petroleum & natural gas, industries and defence— amongst others. He has been working at the IDSA since 2007.
The EAC to the prime minister was constituted on 29 December 2004. Dr C Rangarajan is the current chairman of the PM's EAC.
Apart from providing advice on policy matters referred to the Council by the PM from time to time, the EAC also prepares a monthly report on economic developments both in India and abroad for the PM. It monitors economic trends on a regular basis and brings to the PM’s attention important developments and suggests suitable policy responses.
Faced with increasing claims, insurance companies are planning to hike premiums for own-car insurance
If you’re thinking of insuring your spanking new car, be ready to shell out more for your own-car insurance. That’s because general insurance companies, which have been hit hard by the double whammy of rising claims and shrinking premiums (due to cutthroat competition after motor insurance was de-tariffed in January 2007), are gearing up to increase premiums for coverage against loss or damage to your vehicle, also called as ‘own-car’ insurance.
“They (motor insurers) are expected to increase their premiums based on the region and their own past experience of various car brands,” said Raj Bora, IFFCO-TOKIO’s vice president for management and corporate planning.
Motor insurance is the biggest revenue earner for non-life insurers, with nearly 60% of their sales coming from this segment. But ironically, it has also been the biggest drag on their profitability due to rising claims from motorists, both for own and third-party damages. While insuring one’s own vehicle from loss or damage is optional, third-party insurance—which covers you against liabilities if you were to get into an accident involving someone else’s vehicle—is mandatory for every automobile.
With underwriting parties making losses, prices of premiums having come down in the past and with claims rising—all since the de-tariffing of the industry in January 2007, insurance companies have decided to raise their premiums.
Since January 2007, insurance companies were allowed to sell their motor insurance premiums at a lesser rate and provide discounts to their customers, after an Insurance Regulatory and Development Authority (IRDA) order.
However, with falling premium levels and discounts being given to clients, the claim ratios increased, especially on small cars, mid-sized cars and sports utility vehicles (SUVs).
S Sreenivasan, Bajaj Allianz’s chief financial officer said that since January 2007, there was nearly a 40% drop in motor-insurance premiums by insurance companies.
“When de-tariffing of motor insurance took place, the prices fell down tremendously. However, this itself could not be sustained. The simple fact is that claims itself have continued to rise because of inflation,” said Kim Soon, chief operating officer of Bharti AXA General Insurance.
He also added that the structure of motor insurance premiums in the country has added to the problems facing the industry. “In India, if the vehicle is new then the insured declared value (IDV) attracts a higher premium. However, when the vehicle becomes old, then the IDV comes down. Yet, when it comes to claims, the claims cost doesn’t come down.”
Luxury car owners may not have to worry about increase in own-car premiums, because the amount being charged as own-car premium is already high for such vehicles.
For a low-end vehicle like the Maruti Alto which has an average ex-showroom price of Rs2.70 lakh, Bharti AXA has increased its premium for own-car insurance to Rs10,000 from Rs8,500 over the past three-four months.
In the future, insurance companies are also likely to become stricter while settling claims. If you have a bad claims record, then your motor insurance premiums are likely to rise.
With the rising amount of theft in the northern region and increasing amount of accidents in states like Uttar Pradesh and Punjab, insurance companies say that such areas may have to face higher premiums compared to other regions. This region could actually see a rise of own-car motor insurance premiums by at least 5% to 15%, said Ajay Shah, vice president, customer service-motor, ICICI Lombard General Insurance.