Companies & Sectors
“Gujarat State Petronet beats forecasts, volume decline sharp and worrisome”

With domestic volume declines likely to continue in the near term and not much new incremental LNG re-gas capacity available in Gujarat, volume growth outlook looks muted in the near term, said Nomura in report on GSPL’s Q4 performance

GSPL’s (Gujarat State Petronet) reported PAT of Rs1.61 billion for 4QFY13 (up 25% y-o-y, 36% q-o-q) was sharply ahead of Nomura’s forecast (Rs1.05 billion) and Bloomberg consensus (Rs1.07 billion). “Contrary to our and street view, the overall impact of tariff implementation order has been positive,” said Nomura Equity Research in its report on the company’s performance.

GSPL has applied the tariff order from 27 July 2012, and the net revenue gain of around Rs1 billion has been booked in 4Q.While the tariff order impact is positive, Nomura was surprised by the sharp decline in volumes. 4Q transmission volumes at 22.2mmscmd (its estimate: 25mmscmd) declined sharply by 29% y-o-y and 19% q-o-q. After reaching a peak in 1QFY12, volumes have been declining consistently as domestic supply keeps declining. But, now even demand is getting weaker. From the peak the volumes have declined 40%, and the near-term outlook remains weak, the brokerage report said.


GSPL has applied the Petroleum and Natural Gas Regulatory Board’s (PNGRB) tariff order (initial order on 11September 2012, zonal tariff on 19 February 2012). Rather than applying the order retroactively from 20 November 2008 (as demanded by PNGRB), GSPL has applied the tariff order from 27 July 2012 (the date of authorisation of network) in accordance with the interim order by the appellate tribunal (APTEL). GSPL has also started to book expenses for system use gas (SUG) from mid-February. SUG was hitherto not charged but taken in kind from customers. SUG charge expense is a key reason for the sharp rise in O&M expenses by 66% y-o-y and 52% q-o-q, according to Nomura.


On both retroactive implementation and SUG charges, and on several other aspects of the tariff order, GSPL has already challenged PNGRB in the appellate tribunal where the hearings are ongoing. Nomura believes PNGRB is on a weak footing (especially on demanding retroactive tariff implementation) and an early APTEL decision would bring clarity.

4Q agerage transmission volumes at 22.2mmscmd declined sharply by 29% y-o-y, and 19% q-o-q. From peak levels of 36.8mmscmd in 1QFY12, volumes have declined around 40% due to sharp decline in domestic gas availability. The company attributes the recent sharp volume decline to weak overall gas demand across sectors and very high LNG prices in Jan /Feb 2013. Current volumes also remain around 22mmscmd. With domestic volume declines likely to continue in the near term and not much new incremental LNG re-gas capacity available in Gujarat, volume growth outlook looks muted in the near term.


PPPs without transparency will only hurt public interests

Unless private investments are of good quality, they can become regressive and lead to crony capitalism, as it has happened all along in the PPP model, says EAS Sarma

EAS Sarma, former secretary of the Government of India, has said that public–private partnership (PPPs) are certainly not a substitute for good governance and as suggested by  United Nations Office on Drugs and Crime (UNODC) and others, unless there is total transparency, PPPs will tend to hurt the public interest. Consciously, the government should bring them within the purview of the Right to Information (RTI) Act, he said.


The former secretary, in a letter written to Montek Singh Ahluwalia, deputy chairman of Planning Commission, has said, “...the PPP route that the Planning Commission has so aggressively promoted all these years has opened doors to large-scale corruption in the country. The magnitude of the PPP scam is huge as the investments involved are large and the value of the public lands handed over to the private parties is enormous.”


There are around 758 PPP projects worth Rs4 lakh crore already taken up. They are largely in infrastructure sectors such as roads, energy, airports, ports and metros and in development sectors such as education, health and housing. The magnitude of investment in PPPs in India seems to be much higher than the global average. It amounts to 20%-30% of gross domestic product (GDP), whereas the global average is around 15%.


According to the UNODC report, in the absence of laws to govern either PPPs or public procurement procedures, the way these projects have been formulated and implemented has created an enormous scope for rent seeking and deficiencies in their outcomes.


“The General Financial Rules, 2005, are the rules followed for public procurement by government departments and ministries across the country. These rules do not have the status of legislation and violations do not attract much penalty. India currently has no clear rules for regulating PPP projects,” the report says.


In most cases, there was no competitive bidding for selecting the developers. Where there was competitive bidding, the tendering processes were rigged to select pre-determined bidders. The so called ‘independent’ consultants were not so independent, as many of them had a conflict of interest. In many cases, the companies were found to have colluded with the consultants. The bidders often misrepresented the facts to win the orders and misreported revenue to avoid revenue share to the government. The concerned government officials who were expected to ensure fairness in the selection of bidders and monitoring implementation awere either incompetent or outright corrupt.


In many PPP projects, public land is handed over to the private developer at a nominal rate and the suppressed value of the land is considered in computing the equity share of the government. As a result, the government becomes the minority shareholder. Had the market value of the land been considered, the equity share of the government in the PPP would have exceeded 50%, in which case it would have become a government company under the Companies Act.


As a result of undervaluation of the land and the consequent undervaluation of government equity, the PPP project surreptitiously avoids the rule of reservation for SCs/ STs/ OBCs. Since the government in such a case is only a minority shareholder, the private promoter often takes decisions not entirely consistent with the public interest. The government directors who are required to keep a watch over the affairs of the PPP have often become silent spectators or they have connived with the private promoter for personal gains.


“The Emaar MGF scam in AP is an example of this. In AP, there is a law, the AP Infrastructure Development Enabling Act of 2001which requires competitive bidding procedures to be followed in selecting the promoters of ‘mega’ projects but, rarely, has this law been complied with," Mr Sarma added.


There has been undue delay in the Centre enacting the Public Procurement Bill. One is not sure about the intentions of the government towards probity in procurement when ministries/departments such as coal, mines, telecom and atomic energy have openly defied all norms of transparency and competition in procurement by championing subjective procedures in allotment of coal and mineral blocks, sale of spectrum and placement of orders on multi-national companies (MNCs) on a nomination basis for nuclear power projects worth billions of dollars. The central ministries have in fact gone to the extent of swearing before the courts that such opacity and subjectivity are a necessity and a virtue.


Mr Sarma, the former secretary said, “I hope that the earlier IMF study on PPPs in 2006, my own EPW review of that study and the latest UNODC study wake up the government and the Planning Commission to the ground realities and trigger corrective steps before any further damage is caused.”


Here is the UNODC report on India: Probity in Public Procurement...




shailesh gandhi

3 years ago

Citizens should bring pressure on the planning commission to include a clause in its model PPP agreement that it is understood that all PPPs are public authorities as defined under the RTI Act. The law is clear but most PPPs use the delays in the judicial system to frustrate the law.

Nem Chandra Singhal

3 years ago

Rightly said sir.
Nem Chandra Singhal, Delhi

Sensex, Nifty may move sideways to lower: Monday Closing Report

If the Nifty holds above the day’s low, we may see a sideways move. However, the market trend is still down

A sell-off in oil & gas, power and consumer durables stocks and weak global cues led the market down today. If the Nifty holds above the day’s low, we may see a sideways move. However, the market trend is still down. The National Stock Exchange (NSE) reported a lower volume of 49.74 crore shares and advance-decline ratio of 584:793.


The market opened in the positive on support from Infosys, which continued to rally for the second day after the company’s board on Saturday reappointed NR Narayana Murthy as the executive chairman. On the other hand, the Asian pack was mostly lower on news of a contraction in Chinese HSBC Manufacturing PMI.


The Nifty opened 11 points higher at 5,997 and the Sensex started the day at 19,859, a gain of 99 points over its previous close. The gains in the IT sector helped the benchmarks hit their intraday highs in initial trade itself. The Nifty touched 6,011 and the Sensex inched up to 19,860 at their respective highs.


The benchmarks remained near their previous closing levels in the first hour of trade and trended lower on selling pressure from the auto and power sectors. The HSBC Manufacturing PMI coming in at a 50- month low of 50.1 for May also weighed on investors.


Barring IT and technology, all other sectoral gauges were in the red in late morning trade. Global cues remained weak in the noon session as markets in Asia were in the negative and the key European markets opened with sharp cuts on Chinese concerns and fears that the US Federal Reserve will taper its bond buying programme.


The market continued its southbound journey in the second session of trade on concerns about the pace of domestic economic growth. The Sensex fell to its lows shortly after 2.00pm with the index at 19,542 while the Nifty’s low came in at around 2.15pm as the index touched 5,916.


The benchmarks settled off the lows, but down for the second consecutive day. The Nifty closed 47 points (0.78%) down at 5,939 and the Sensex finished trade at 19,610, a decline of 150 points (0.76%).


The broader indices finished mixed as the BSE Mid-cap index gained 0.26% and the BSE Small-cap index fell 0.12%.


The sectoral gainers were BSE TECk (up 1.11%); BSE IT (up 1.01%); BSE Metal (up 0.38%) and BSE Realty (up 0.33%). The main losers were BSE Oil & Gas (down 1.84%); BSE Power (down 1.02%); BSE Consumer Durables, BSE Capital Goods (down 0.99% each) and BSE Auto (down 0.84%).


Out of the 30 stocks on the Sensex, 10 settled higher. The top gainers were Infosys (up 4.42%); Jindal Steel & Power (up 1.64%); GAIL India (up 1.42%) and State Bank of India (up 1.07%). The major losers were Hero MotoCorp (down 3.65%); Bajaj Auto (down 3.32%); ONGC (down 2.85%); Sun Pharmaceutical Industries (down 2.68%) and HDFC (down 2.40%).


The top two A Group gainers on the BSE were—CRISIL (up 20%) and GlaxoSmithKline Pharmaceuticals (up 6.15%).

The top two A Group losers on the BSE were—Suzlon Energy (down 9.96%) and Jaypee Infratech (down 6.99%).


The top two B Group gainers on the BSE were—Anjani Portland (down 19.89%) and Tirupati Inks (down 19.97%).

The top two B Group losers on the BSE were—Williamson Financial Services (down 19.50%) and Eskay Knit India (down 19.05%).


Of the 50 stocks on the Nifty, 17 ended in the in the green. The main gainers were Infosys (up 4%); Lupin (up 2.35%); Reliance Infrastructure (up 2.26%); JSPL (up 2.13%) and Tata Steel (up 1.97%). The key losers were ONGC (down 3.51%); Asian Paints (down Bajaj Auto (down 3.32%); Hero MotoCorp (down 3.30%) and Ranbaxy (down 3.29%).


Markets across Asia settled lower as China's HSBC’s Purchasing Manager's Index (PMI) fell to 49.2 for the month of May, below the 50-mark that separates expansion from contraction. An improvement in the growth outlook in the US re-ignited concerns of the Federal Reserve tapering its bond-buying programme, which also weighed on investors’ sentiments.


The Shanghai Composite shed 0.06%; the Hang Seng declined 0.49%; the Jakarta Composite tanked 1.92%); the KLSE Composite fell 0.16%; the Nikkei 225 tumbled 3.72%; the Straits Times dropped 0.61%; the Seoul Composite lost 0.57% and the Taiwan Weighted settled 0.65% down.


At the time of writing, two of the three the key European indices were in the red while the US stock futures were in the green, indicating a firm opening for US stocks later in the day.


Back home, foreign institutional investors were net sellers of equities totalling Rs504.02 crore on Friday whereas domestic institutional investors were net buyers of stocks worth Rs203.11 crore.


Pharmaceutical major Dr Reddy’s Laboratories and Fujifilm Corporation today said they have decided to terminate the memorandum of understanding (MoU) to enter into an exclusive partnership in the generic drugs business for the Japanese market and to establish a joint venture in Japan. Though the MoU for generic drugs has been cancelled, both the companies will explore partnerships in other related areas, said a statement issued by DRL. The stock gained 1.10% to close at Rs2,115 on the NSE.


Speciality steel and wire rope maker Usha Martin has signed a technical assistance agreement with Aichi Steel Corporation (ASC), a leading speciality steel and forging company of Japan. The deal aims to improve Usha Martin’s production efficiencies and utilise its facilities to produce higher value steel products. The stock surged 2.16% to close at Rs23.60 on the NSE.


Mumbai-based Welspun Corp today said it has demerged Welspun Infra Enterprises from Welspun Corp and renamed it as Welspun Enterprises. The demerged firm will focus on steel, infrastructure, oil and gas exploration and energy. The existing company Welspun Corp will solely focus on pipes and plates business in India and globally, it said in a release. Welspun Corp advanced 4.07% to close at Rs47.30 on the NSE.


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