"City gas distribution and piped gas distribution are potential areas which we have been identified for diversification. We also intend to tap shale gas, since the price of natural gas is rising," OIL director for exploration & development Baikunta Nath Talukdar said
Mumbai: State-run Navaratna oil explorer Oil India (OIL) is chalking out an expansion and diversification strategy that could also include an entry into the city gas distribution space, reports PTI.
"We plan to pursue a cautious strategy for our exploration initiative. We are looking for sure-bets, because exploration is a risky activity. Even when it comes to domestic exploration, we intend to bid for the next NELP (New Exploration Licensing Policy) auctions very selectively," OIL director for exploration & development Baikunta Nath Talukdar said here.
The company is considering entering the gas transportation market since it already has expertise in laying pipelines and transporting gas through pipelines. "We would like to market our gas directly to consumers. We may tie-up with a gas marketing company for this," Mr Talukdar said.
"City gas distribution and piped gas distribution are potential areas which we have been identified for diversification. That apart, we also intend to tap shale gas, since the price of natural gas is rising," Mr Talukdar said.
With respect to overseas exploration ventures, the company plans to focus its efforts on fields that have already been discovered. Earlier, the company had set aside 40% of its surplus funds for exploration initiatives. Now, that figure has risen to 52%.
OIL also intends to improve recovery from existing oilfields. It is already engaged in increasing the productivity of mature oilfields by inducting new technologies and company has begun horizontal drilling in some fields to enhance recovery.
Nevertheless, the diversification strategy will be conservative, with OIL sticking to areas in which it has some expertise, Mr Talukdar said.
Oil India has also picked up a 26% stake in the Numaligarh Refinery, as well as a 23% stake in the pipeline through which it supplies gas to the refinery.
"The pipeline business is attractive. Besides, we already have experience in this area. We also plan to pick up a 10% stake in the Dibrugarh gas cracker plant, to which we will be supplying gas," he said.
The Dibrugarh plant is promoted by state-run Gas Authority of India.
The company has had its share of set-backs. It could not discover oil in its exploration acreages in Libya and the process of relinquishing these blocks is on. It plans to write off the Rs56.8 crore expenditure incurred on the unsuccessful venture in Libya, a company official said.
Last week, the company had hinted at a possible asset-buy in Africa by picking up a stake in the exploration assets of Gabonian firm Etablissements Maurel et Prom.
"The block already has a discovery. We have our own people evaluating it, besides experts from other countries. A decision will be taken on our investments in Gabon after a feasibility study," Mr Talukdar had said.
The company also has a 3.5% stake in a consortium that bought oil wells in Venezuela.
"We will be producing around 400,000 barrels of crude, of which we will be entitled to 14,000-15,000 barrels. Production should begin by the third quarter of calendar 2012. Initial production will be sold or swapped," OIL director Nripendra Kumar Bharali had said.
The state-run upstream firm has invested $450 million in Venezuela's Orinoco super heavy oil belt. The asset is believed to hold around 3 billion barrels of reserves.
Oil India is a part of a consortium that includes Spanish explorer Repsol, ONGC Videsh, Indian Oil and Petroleos de Venezuela SA of Venezuela. However, recoveries under the project are expected to be low, because of the 'super heavy' nature of the crude.
In the past few days, a veritable game of musical chairs has been played out between the country's three most-valued firms on the bourses
Mumbai: Reliance Industries (RIL) today reclaimed the numero-uno position in the domestic market capitalisation charts, racing past state-run Oil & Natural Gas Corporation (ONGC) to emerge as the country's most-valued company yet again, reports PTI.
With a market value of Rs2,42,283 crore at 10:27am this morning, RIL surpassed ONGC's market cap of Rs2,38,270 crore to reclaim the top position.
On Friday, ONGC had toppled billionaire Mukesh Ambani-led RIL to claim the title of the country's most-valued company.
Shares of RIL went up by 3.49% to touch an early high of Rs744.65 on the Bombay Stock Exchange (BSE) today. The surge in the bellwether stock was a significant contributor to the overall bullish trend in the market, with the benchmark Sensex trading higher by 348.39 points at 16,197.22 at 10:27am.
The share price of ONGC, too, rose by 1.43% to touch an early peak of Rs282 on the BSE.
At the end of Friday's trade, RIL had a market cap of Rs2,35,571 crore, while ONGC commanded a market value of Rs2,37,842 crore.
RIL had first toppled ONGC to become the country's most-valued firm way back in late 2006, but the state-run energy giant later reclaimed the top position, albeit only for a few brief period.
In the past few days, a veritable game of musical chairs has been played out between the country's most-valued firms on the bourses.
Earlier, on 17th August, state-run Coal India (CIL) had dethroned RIL to become the country's top-valued firm.
Then, two days later on 19th August, RIL briefly slipped to third position in the valuation charts, after CIL and ONGC, only to reclaim the No 2 position by the market close.
CIL's stint at the top proved to be short-lived, with RIL reclaiming this position within six days on 23rd August.
A day later, on 24th August, CIL lost further ground and slipped to third position in the valuation charts after RIL and ONGC.
CIL continues to be the country's third-most valued company, with total market capitalisation of Rs2,31,052 crore this morning.
It is important to understand that MFIs co-opted local leaders as agents in their desire to grow rapidly, to cope with the costs of servicing the last mile and maximize profits
A few days ago I wrote that the proposed microfinance development bill must build safeguards against the presence of (notorious) agents in the decentralised microfinance model, which has become prevalent in India in the past few yearsi . That these notorious agents played an important role in the microfinance crisis needs no emphasis, but it is important to understand why they were used in the first place. And the stakeholders (including the Union Ministry of Finance and the Reserve Bank of India) which are involved in drafting the bill must try and isolate the reasons for the use of agents, as only then can appropriate safeguards be built into the regulatory framework that is being put in place.
I will try and describe some of the key reasons and these are based on my interactions with various types of agents and especially, center leader/group leader turned agents in various parts of India.
The desire of many MFIs to rapidly build scale
At least initially, the desire to use center or group leaders as agents seemed to have emanated from the desire of MFIs to build scale quickly in the delivery of microfinance services to low-income people. And many MFIs did get carried away and did not give a second thought to the kind of impact that these agents may have in the long run.
As one MFI staff put it, "We wanted to disburse several croresii of rupees on a daily basis and there was a lot of pressure from the senior management and also bankers/equity investors. We were told that if we show exponentially increasing disbursements, we would be able to attract more equity capital and also go in for a large IPO. Of course, stock options had by then become the standard way of compensating staff and this skewed the incentives all the more…."
Consistent pressure on MFIs to reduce interest rates
A second reason seems to be the pressure to reduce interest rates and this is something that I have always been saying - 'servicing the last mile is costly in microfinance and any attempts to force (artificial) interest rate reductions will cut out important controls and may even force MFIs to adopt short cuts'. And that is exactly what seems to have happened.
The drive for artificial interest rate reductions and the constant pressure on MFIs to achieve this seems to have resulted in several things: (a) omission of important client level and other controls at the last mile; (b) the proliferation and use of the decentralised model in its ultimate form-the agent-led model of microfinance; (c) further reduction of engagement with client (which was a significant one even in the original Grameen model adapted to use in India); and several other aspects that favoured decentralisation of microfinance operations.
Adoption of profit/value maximization syndrome by many MFIs
Another reason appears to be the pre-occupation of MFIs with the efficiency and value maximization syndrome-as part of the commercial microfinance movement over the past four years-where cost leadership (at scale), profit maximization and shareholder value enhancement became the order of the day, courtesy equity investors and others including bankers.
According to one senior manager at an MFI, "We started to look at ways to increase case load of staff significantly and this meant that we reduced the duration of center meetings, where we conducted these directly. Then, we realised that we could do better by outsourcing it with some quality checks and that is how the center/group leader agent came in. As these efforts expanded, in some cases we faced serious delinquency problems and to counter that in an effective manner, we used local opinion leaders and these strong men/women later became agents themselves. And then, there was no real exit and loan after loan had to be made and as long as the problems did not show up, we were not bothered. The use of agents was soon picked up by many MFIs and in fact, that used to be the strongest and fastest way to the rapid burgeoning growth that the microfinance sector in India wanted. Multiple-lending and high-indebtedness became natural phenomenons in the agent-led model of Indian microfinance."
Therefore, though there could be other reasons (as well) for the use of agents, these aspects of "building scale quickly", the "pressure to reduce interest rates" and the "desire to be a cost leader and maximize profits and value to shareholders" look to be the major ones that have pushed the Indian microfinance industry to using agents in a decentralized model. Further, while there are several types of agents, the most common one is where the center leaders become (informal) agents for the MFIs-a logical and easy extension of the decentralised microfinance model.
Hence, when coming out with the microfinance bill, I hope that the Union Ministry of Finance (MoF) and Reserve Bank of India (RBI) look closely at the prevalent agent models (including the rationale for their existence) and build sufficient safeguards against their use through supervision and other mechanisms. If this (building safeguards against their use) appears difficult, an alternative approach could be for them to consider streamlining and legalising the centre leader type agent model and building greater accountability into this type of arrangement- especially, if they feel that this model can be fitted under the RBI business correspondent regulations. However, the political agent microfinance model should be banned without question. All of these are aspects that the Union MoF and the RBI should look into and provide guidance on, as part of the regulatory architecture being framed.
Without question, there is increasing evidence about the (I would even say widespread) use of agents in Indian microfinanceiii , but the industry and key stakeholders continue to be in denial mode, often pretending that there is nothing wrong at all. I do sincerely hope that the microfinance industry in India and regulators such as the RBI and Union MoF take notice and together tackle this Frankenstein monster—either by bringing them under a robust legal framework or by ensuring that they just cannot operate-as otherwise, financial inclusion (let alone poverty reduction/alleviation) in India will just remain a mirage and never become a reality.
i Implementation safeguards against notorious agents are an imperative for the proposed microfinance bill, (http://www.moneylife.in/article/implementation-safeguards-against-notorious-agents-are-an-imperative-for-the-proposed-microfinance-bill/19017.html)
ii$1 = 46 rupees and 10 million rupees = 1 crore
iii Microfinance in Crisis: the Case of the Hidden City, Microfinance Focus, 25th Jan 2011 by Daniel Rozas and Karuna Krishnaswamy; Srinivasan N., (2010), "Microfinance in India State of the Sector Report", Sage Publications; and Thorat, YSP and Ramesh S Arunachalam, (May, 2005), "Regulation And Areas Of Potential Market Failure In Micro-Finance", paper presented at the NABARD high-level policy conference in New Delhi and several others.
(The writer has over two decades of grassroots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural/urban development and urban poverty alleviation/governance. He has worked extensively in Asia, Africa, North America and Europe with a wide range of stakeholders, from the private sector and academia to governments).