Companies & Sectors
“Not harsh, but a poor tariff order” on Gujarat State Petronet, says Nomura

“PNGRB has tried to explain in detail the rationale behind the tariff order for Gujarat State Petronet. But we think it is not a progressive order. It would create more confusion in the near term, and as it is applied with retroactive effect,” says Nomura Equity Research  

 
The Petroleum & Natural Gas Regulatory Board (PNGRB) has finally issued the “provisional initial unit” tariff order for Gujarat State Petronet (GSPL). On first look, compared to PNGRB’s earlier tariff orders for other entities, the order appears soft, according to a Nomura Equity Research Quick Note. The determined tariff of Rs23.99/mmbtu (Rs904/scm) seems good for GSPL, in Nomura’s view, and better than street expectations of Rs750-Rs850/scm. Even as the headline tariff indicates a tariff reduction, and payout for retroactive implementation, we think the actual payments may not be much, and GSPL’s average reported tariff numbers may not decline much. But in the short term, there will be added confusion till clarity emerges on retroactive payments, and actual impact on GSPL’s realised tariffs going forward.
 
The new tariff is 12% lower than the current tariff; but only 2% lower than past five-year average tariff. The tariff order is a retroactive order applicable from 20 November 2008. The current tariff order is a provisional tariff order with final tariff to be decided in a year’s time. By the time PNGRB finalises the final tariff, the term of the current order (November 2013) may well lapse.
 
According to the Nomura Equity Research Quick Note, even as the tariff order is much longer and PNGRB has tried to explain in detail the rationale on several issues, we think it is not a progressive order. It would create more confusion in the near term, and as it is applied with retroactive effect, the order itself could become stale very soon.
 
Nomura points out that the order is only for GSPL’s high-pressure network. It is silent on its low-pressure network. The network is operated as a single network and GSPL does not disclose its numbers separately for these two networks. Given that order is coming after such a delay, Nomura feels an order for both networks together would have made much more sense.
 
PNGRB has considered an inflation rate of only 4.5% as per “extant practice”. This rate is too low, in Nomura’s view, when current headline inflation rates range 8%-10%.
 
Nomura observes that the tariff order continues to disallow unaccounted for gas. Even as GSPL submitted that such losses are industry wide, and cited international reports/ practices, PNGRB did not agree similar to earlier orders.
 
PNGRB insists on accounting depreciation rate of 8.33% for periods prior to April-2010, even as the ministry of corporate affairs has now allowed the rate of 3.17%. For its book of accounts GSPL had charged the rate of 8.33% as conservative accounting, but for tariff calculations it was asking for the permitted rate. PNGRB has disallowed this on the grounds that it would result in higher net fixed assets and thus a higher tariff. Nomura feels that GSPL should have been given the benefit of a lower rate of depreciation.
 
PNGRB has also disallowed ongoing capex of Rs10 million per km of spur pipelines beyond FY15, as GSPL could not give enough data. Nomura’s point of view is that 50km of spur pipelines each year looks reasonable.
 
Finally, Nomura points out that the working out of past tariff and system usage charges will be cumbersome and create confusion. 
 

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RBI relaxes ECB norms for infrastructure companies

The central bank allowed companies engaged in infrastructure sector to raise bridge finance from overseas market under the automatic route

 
Mumbai: Giving a boost to infrastructure sector funding, the Reserve Bank of India (RBI) has relaxed the external commercial borrowings (ECB) norms to help companies raise more funds from overseas markets, reports PTI.
 
The RBI has allowed companies engaged in infrastructure sector to raise bridge finance from overseas market under the automatic route.
 
"On a review, it has been decided to allow refinancing of such bridge finance (if in the nature of buyers'/suppliers' credit) availed of, with an ECB under the automatic route," the central bank said in a notification.
 
Under the earlier provision, the companies were required to take permission of the RBI for raising bridge finance, which is a kind of interim arrangement for short-term credit.
 
The Reserve bank through a separate notification, has also allowed companies in infrastructure sector to raise ECB up to a maximum period of five years for importing capital goods.
 
Under the new norms, the trade credit should not be for a period of less than 15 months and also not in the nature of short-term rollover finance.
 
Earlier, the companies could raise ECBs for a period ranging from one year to three years.
 
The RBI notification further said that the all-inclusive costs, which include arranger fee, upfront fee, management fee among others, of such borrowing should not be over 3.5% of six months Libor.
 
The credit facility would be available up to $20 million per transaction for import of capital goods as classified by the Directorate General of Foreign Trade (DGFT).
 
The Reserve Bank has also relaxed the ECB norms for repayment of Rupee loans within the overall ceiling of $20 billion.
 
As per the RBI notification, the permissible limit of ECB has been increased from 50% to 75% of the average foreign exchange earnings realised during the past three financial years or 50% of the highest forex earning in a year.
 
The limit of maximum ECB which can be availed by an individual or group company under the scheme has been pegged at $3 billion.
 
Earlier the maximum permissible ECB under the scheme was limited to 50% of the average annual export earnings realised during the past three financial years.
 

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Deposit proceeds from Deccan Chargers’ sale in ICICI bank, says HC

The High Court while hearing an application filed by Tata Capital against Deccan Chronicle Holdings, said sale proceeds from the auction of IPL team franchise Deccan Chargers should be deposited with ICICI bank after paying 5% to BCCI

 
Mumbai: The Bombay High Court has directed that proceeds of the sale of Indian Premier League (IPL) team Deccan Chargers be deposited with the ICICI bank after paying 5% to Board Of Control For Cricket In India (BCCI), reports PTI.
 
The order was passed by Justice SJ Kathawalla while hearing an application filed by Tata Capital against Deccan Chronicle Holdings Ltd (DCHL), owners of Deccan Chargers, for recovery of a Rs101 crore loan.
 
Counsels Janak Dwarkadas and Ashok Paranjpe, appearing for Tata Capital, argued that there should be transparency in the bidding process.
 
"BCCI has claim of only 5% of the sales proceeds. The remaining amount is available for creditors of Deccan Chronicles," they argued.
 
After accepting their contention, Justice Kathawalla directed that the sale proceeds to be deposited with ICICI bank after paying 5% to BCCI. The auction is to be opened on 13th September in Chennai.
 
"The auction is directed to be conducted under the supervision of MD Narvekar, official assignee of the High Court. The sales proceeds received from the sale of the IPL team known as Deccan Chargers shall be deposited with the ICICI bank after paying 5% to BCCI. The amount deposited with the ICICI bank shall not be disbursed or appropriated without permission of this court," Justice Kathawalla ordered.
 
The matter has been posted for further hearing on 17th September.
 
Tata Capital had moved the application today in an arbitration petition filed by them against DCHL for recovery of their loan amount of Rs101 crore.
 
According to the petition, a term loan had been sanctioned by Tata Finance to DCHL which it allegedly defaulted in repaying. A notice was served and it promised to repay the loan within the specified period.
 

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