MCX-SX gets one-year conditional extension for currency trade

SEBI made it clear that the extension is applicable only to forex futures segment. The ‘conditional extension’ and will be subject to the outcome of decision of the Bombay High Court where the bourse is fighting a case on its application to enter the equity segment

Mumbai: MCX Stock Exchange on Wednesday said that regulator Securities and Exchange Board of India (SEBI) has extended for another one year its licence for currency futures trading, reports PTI.

Sources, however, said it is a ‘conditional extension’ and will be subject to the outcome of decision of the Bombay High Court where the bourse is fighting a case on its application to enter the equity segment. The final hearing is expected to come up on Friday.

They added that SEBI in a show-cause notice has asked MCX to explain why an extension should be given during the pendency of the case in the high court.

“We have received an extension of licence for currency futures trade for one year,” an MCX-SX spokesman told PTI here. Its licence to was to expire on Wednesday.

The extension could not be independently verified with SEBI.

When asked about the show-cause notice, the MCX spokesperson declined to comment as the issue formed a part of the high court proceedings between the exchange and the SEBI.

According to sources, SEBI also made it clear that the extension is applicable only to forex futures segment.

The extension will allow the privately-held exchange to continue offering trading in currency futures segment.

Currently, MCX-SX only offers trading in currency futures segment.

MCX-SX has more than 700 members and trading terminals in over 500 locations.

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No cost recovery of underutilised facilities for RIL: Solicitor General

Sources said no field development plan by any company anywhere in the world, including 40-50 put by state-owned ONGC, have gone exactly as per the plans put on paper because of uncertainty involved in behaviour of what lies several thousand feet below the earth

New Delhi: The Solicitor General of India (SGI) has held that Reliance Industries (RIL) should not be allowed to recover the cost of facilities that remain underutilised due to lower than anticipated output at its KG-D6 gas field, reports PTI.

RIL has built facilities to handle up to 80 million metric standard cubic metres per day (mmscmd) of gas but current production is less than 45 mmscmd, a phenomenon that oil regulator Directorate General of Hydrocarbons (DGH) blames on drilling of lesser number of wells than what the company had committed in 2006 when it won approval for investing $8.8 billion.

Sources privy to the development said the DGH had been pressurising RIL to drill the committed 22 wells by March 2011, so that Dhirubhai-1 and 3 fields can produce projected 61.88 mmscmd and MA field (also in the same block) another 8.1 mmscmd.

But when RIL, which was not confident of the geology after pressure at current 18 wells fell and some showed water ingress, refused, DGH proposed to allow only proportionate recovery of cost. On DGH insistence, oil ministry sought a view from the second highest law officer of the country.

SGI Rohinton F Nariman on 17th August opined that “the cost/expenditure incurred in constructing production/ processing facilities and pipelines that are currently underutilised/have excess capacity cannot be recovered”.

The Production Sharing Contract (PSC), however, does not envisage such a move and if oil ministry is to order such a thing, RIL is likely to challenge it and may initiate arbitration proceedings.

Sources said no field development plan by any company anywhere in the world, including 40-50 put by state-owned Oil and Natural Gas Corporation (ONGC), have gone exactly as per the plans put on paper because of uncertainty involved in behaviour of what lies several thousand feet below the earth.

ONGC had on about a dozen occasions changed field development plan for its prime Mumbai High oil and gas fields.

RIL is waiting for BP Plc, who has global expertise in deep-sea exploration, to come on board before recommencing drilling at KG-D6.

Mr Nariman in his opinion states that the government has ‘an arguable case’ to stop RIL from recovering expenditure which had “resulted in excess capacity/under-utilisation of the asset created” on account of its failure to adhere to the 2006 approved field development plan.

According to the 2006 plan, RIL was to drill a further 11 wells by March 2012 to raise output to 80 mmscmd and sustain it at those levels for nine years.

RIL has so far spent $5.693 billion and has already recovered $5.258 billion from sale of gas.

Mr Nariman advised that to the extent RIL has already recovered capital expenditure from sale of gas, “the cost entitlement of the contractor can be reversed”.

The Comptroller and Auditor General (CAG) in its report on KG-D6 field audit, which was tabled in Parliament earlier this month, had not commented on reasonability of RIL hiking the capital expenditure at the nation's biggest gas field from $2.4 billion proposed in 2004 to $8.8 billion estimate in 2006.

It, however, stated that with the gas output from KG-D6 falling to about 43 mmscmd, which is close to 40 mmscmd output level envisaged in the 2004 investment plan, raised “doubts if upgradation to 80 mmscmd with substantial increase in development cost (to $8.8 billion) was justified”.

RIL submitted an initial development plan (IDP) for Dhirubhai-1 and 3 gas finds in May 2004 with capital expenditure of $2.4 billion. This was followed up with an Addendum to the IDP (AIDP) in October 2006 proposing $5.2 billion capex in Phase-1 and $3.6 billion in Phase-II.

“Most procurement activities were undertaken late in the line with the schedules of the IDP of May 2004. By contrast, activities in respect of items in the AIDP were initiated even before the submission/approval of the AIDP. Clearly, the development activities of the operator were guided by AIDP, rather than IDP,” CAG had said in the report.

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No black and white answers in economics on inflation: Kaushik Basu

“I do expect December inflation to be a fairly reasonable decline. But till then it will remain choppy,” chief economic adviser Kaushik Basu commented

New Delhi: Terming near double-digit inflation as ‘uncomfortable’, chief economic adviser Kaushik Basu on Wednesday said there is no black and white answer in economics and the Reserve Bank of India (RBI) will have to balance containing price rise and promoting growth at its review of credit policy on Friday, reports PTI.

“There is no black and white answer... RBI will have to balance out these two—controlling inflation and not dampening growth too much,” Mr Basu who is chief economic adviser to the finance ministry said.

He said inflation is likely to remain elevated till end of the calendar year and only start moderating after December.

“I do expect December inflation to be a fairly reasonable decline. But till then it will remain choppy,” he said.

His comments came after inflation climbed to 13-month high of 9.78% in August, from 9.22% in July, on the back of expensive food and manufactured items.

The RBI) has already hiked its key-policy rates 11 times since March, 2010 to curb demand side inflation. It is scheduled to announce its mid-quarterly review of credit policy on 16th September.

Department of Economic Affairs secretary R Gopalan said the RBI’s monetary tightening had had only a limited success.

The central bank has to ‘change from being accommodative to one of aggressively combating inflation,” he added.

“The benchmark short-term policy rate was raised in quick succession from March 2010. While this tightening has been able to anchor inflationary expectation up to a point it has had limited success in lowering inflation rates to acceptable levels,” Mr Gopalan said.

This is also the ninth consecutive month when inflation has remained above the 9% mark.

While the sustained inflation is likely to put pressure on the central bank to continue with its tight monetary policy, there is concern on the growth front.

Industrial production fell to a 21-month low of 3.3% in July. Besides, gross domestic product (GDP) growth also moderated to 7.7% in April-June period, the lowest in six quarters.

India Inc and experts have blamed the high interest rates for increasing the cost of borrowing and said this has put pressure on fresh investments and hindered growth.

Most economists, however, said that as inflation remain at an elevated level the central bank is likely to go for another rate hike at its mid-quarterly review of credit policy on 16th September.

“No doubt the RBI is in a dilemma but inflation control remains its prime agenda and so we expect it to go for another hike of 25 basis points on 16th September,” Crisil chief economist DK Joshi said.

While rate hikes have not shown the intended effect, inflation would have been much more if RBI had not resorted to a monetary tightening, Mr Joshi said.

Assocham said rate hikes by RBI had ‘limited success’ in curbing inflation as global commodity and oil prices have been remained elevated due to easy money policies of developed nations that boosted liquidity in global markets.

“Any rate high by RBI at this juncture will seriously impact the growth which is already showing signs of fatigue...

Assocham calls for a pause (in the hikes),” it said in a statement.

Standard Chartered senior economist Anubhuti Sahay said there are not enough policies to ease supply side pressure and inflation is expected to remain high in near future.

However, she said that the moderation in growth ‘is not yet broad-based’.

She felt RBI is likely to go in for another hike of 25 basis points in its key-policy rates. Before the interest rates peak, there could be yet another revision in October, Ms Sahay said.

Besides, the local factors, high international commodity prices are adding to the problem.

Weakening of rupee against the US dollar is also a bad news for the policy makers grappling with inflation.

“The recent depreciation of the rupee relative to the US dollar would exert pressure on the prices of imported items...

Accordingly, we expect the RBI to persist with monetary tightening and hike the repo rate by 25 basis points in the upcoming policy review, despite the sluggish industrial growth,” ICRA economist Aditi Nayar said.

India imports around three quarters of its oil and gas from abroad and international commodity prices continue to remain elevated, despite the crisis in US and Eurozone.

Deloitte, Haskins & Sells director Anis Chakravarty said that the tightening has not the desired impact the apex bank should halt rate hikes.

“We are at a stage where monetary policy is not having the desired impact. The dilemma with RBI is not only to adjust between growth and inflation but also whether its policy is having the desired impact and what is the alternative,” Mr Chakravarty said.

The monetary tightening is getting reflected in expensive purchases, interest rates and other aspects of daily life, he added.

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