The ministry feels a Pandora's Box will be opened if the DGH move is approved, as public sector firms like GAIL India, too, have been charging a marketing margin, which is higher than what is being levied by Reliance, for several years now
New Delhi: The oil ministry has rebuked its technical arm, the Directorate General of Hydrocarbons (DGH), for reopening the issue of the marketing margin that Reliance Industries (RIL) charges on selling KG-D6 gas, but may seek the law ministry's opinion to ascertain if the firm can be asked to share those revenues with the government, reports PTI.
The ministry has conveyed its displeasure to the DGH at the highest-level over the reopening of a long-settled issue, sources privy to the development said.
It feels the DGH is wrongly interpreting the contract, which clearly states that the government is entitled to get a share of the price of gas at the delivery point. On the other hand, the marketing margin charged by the Mukesh Ambani-led firm is to be intended to cover the risk involved in carrying gas from that delivery point to customers' door-step.
The DGH recently asked RIL to add the $0.135 per million metric British thermal units (mmBtu) marketing margin to the KG-D6 gas price of $4.205 per mmBtu for the purpose of calculation of the government's profit take.
Sources said the ministry feels a Pandora's Box will be opened if the DGH move is approved, as public sector firms like GAIL India, too, have been charging a marketing margin, which is higher than what is being levied by Reliance, for several years now.
The same principle will have to be applied to gas produced from state-owned Oil and Natural Gas Corporation (ONGC), which is marketed by GAIL.
But to settle the issue once and for all, the ministry plans seek an opinion from the law ministry, they said.
The DGH demand also runs contrary to the stance the oil ministry took on the issue in Parliament last year.
The then oil minister Murli Deora had on 24 February 2010, told the Rajya Sabha that the marketing margin was a bilateral issue between the seller (Reliance) and the buyers.
The government approved the price for gas sales at the delivery point of the KG-D6 field as per the provisions of the Production Sharing Contract inked with RIL.
"The said price ($4.2 mmBtu) does not include any charge beyond the PSC delivery point. The marketing margin (levied by Reliance) is beyond the delivery point and arises as a result of the gas sale and purchase agreement signed between the seller and the buyer," Mr Deora had stated.
The PSC provides for sharing of revenues from the sale of gas between the government and the contractor at the said price at the delivery point. It does not envisage sharing of revenues earned by the contractor from marketing margins with the government, he had further said.
The marketing margin was in lieu of the risks and costs incurred by the contractor on marketing the gas. It is to cover risks like seller liabilities in case of non-supply, customers drawing less than their quota, non-payment of dues and settlement of disputes.
Sources said the DGH wanted the marketing margin to be added to the gas sale price of $4.20 per mmBtu so that profit-sharing between the contractor and the government is calculated at the total price of $4.335 per mmBtu charged by RIL from its customers.
At present, Reliance and the government split profits at the gas sales price of $4.20 per mmBtu after deducting the project cost.
Besides marketing risks, the $0.135 per mmBtu margin is charged by Reliance on account of its extensive efforts to identify customers, execute and manage gas sales and purchase agreements (GSPAs), as well as gas sales planning, daily gas sales operations, gas accounting and invoicing and collection, sources said.
The Anil Dhirubhai Ambani Group had in 2009 opposed the levy of a marketing margin by RIL, but agreed to pay it unconditionally after an oil ministry clarification.
Other gas marketers like state-run GAIL India also charge a marketing margin. GAIL charges a $0.18 per mmBtu margin on the sale of regasified LNG and about $0.12 per mmBtu for gas from fields like Panna/Mukta and Tapti and Ravva.
The growth in consumer durable goods output has slowed, but the major manufacturers are doing reasonably well
Growth in consumer durable loans outstanding deployed by scheduled commercial banks fell sharply to 8.9% y-o-y (year-on-year) in July 2011 from 22% in the previous month, suggesting consumer sentiment is turning negative in India, according to Nomura Financial Advisory and Securities (India).
The brokerage said in a report released this week that high interest rates and elevated inflation are bearing down on discretionary consumer spending in the country. Consumer durable goods output growth already dropped to a meagre 1% y-o-y in June 2011. With consumer durable loans falling sharply, consumer durable goods production remained weak in July 2011, and it is expected that this trend will persist until inflation and interest rates come down.
The consumer durables loans market in India is quite sophisticated with the lenders having introduced concepts such as quick and easy loan, zero equated monthly instalment (EMI) charges, loan through credit card and loan over phone.
This is how the eager customer has been able to afford the expensive consumer durables in his household for many years. This is not limited to the metropolitan cities. The growing rural demand is another factor that is helping home appliance makers.
Consumer Electronics and Appliance Manufacturers Association (CEAMA) expects that rural India will consume 20% of the consumer durable industry's production over the next five years. In spite of all these favourable factors pushing sales, the growth in demand is uniformly sluggish in the current season and a cause for concern for manufacturers.
The consumer durable goods section of the index of industrial production (IIP) grew by 3.3% in the June 2011 quarter compared with 19.7% in the corresponding period last year.
Consumer durables, which are popular and sought after by the Indian customer, include air conditioners, refrigerators, washing machines, sewing machines, electric fans, watches and clocks, microwave ovens, televisions, audio and video systems, personal computers, mobile phones, digital cameras, DVDs (digital video disk) and camcorders.
All these items require advanced manufacturing technology and the salesman has to educate the customer, when required. The purchase decision is done over time and is often planned with a loan being taken for the purchase. The loan has to be repaid over several months from the disposable surplus available in the monthly income. With inflation eating into the disposable surplus, growth in demand has been adversely affected.
According to the report, as the consumer durables market is dominated by multinationals for many products, the stock valuations and the stock market's evaluation are not important. Yet, Voltas, Hitachi Home & Life Solutions, Blue Star, Whirlpool of India, Havells, V-Guard Industries, Bajaj Electricals and TTK Prestige are doing reasonably well in the stock market. Price-earnings (PE) ratios of these companies are in the region of 9-16 times with the exception of TTK Prestige, which has a PE ratio of 31 times.
Government policy on controlling inflation, and in particular , the Reserve Bank of India's (RBI) setting of interest rates will be the key factors in seeing the market improving to higher growth levels. Till then, it is not just the consumer durables market, which is on a downswing, but also others who eye the consumer's monthly disposable surplus. "Lots of activities like eating out, purchase of garments, travel and others could be curtailed," fears Rajesh Shukla, director of the National Council of Applied Economic Research (NCAER) centre for macro-consumer research.
Sports minister says, Mr Aiyar told the prime minister at the time that work on infrastructure was making progress, but this was not true
In the days before the arrest of tainted Commonwealth Games organising committee chief Suresh Kalmadi, a letter by former sports minister Mani Shankar Aiyar became the focus of attention, for it contained a warning from the minister to the prime minister about Mr Kalmadi's extravagant ways. But Mr Aiyar may have to answer some questions himself, for the current sports minister believes that Mr Aiyar's 'obstructionist' role may have also been responsible for delays and consequently increased cost of the project.
In a letter to the prime minister dated 8th July, Ajay Maken has said, "Shri Aiyar, as minister-in-charge for about two years, ironically played an irreparable obstructionist role that led to inordinate delays resulting in huge cost and time overruns. This, even as he kept writing to the prime minister, saying that the infrastructure works are satisfactorily under progress."
A copy of this letter was accessed by RTI activist Subhas Chandra Agrawal through an appropriate application. Mani Shankar Aiyar declined to comment on Ajay Maken's letter to the prime minister.
In a 'Report on CWG Issues' to the prime minister, Mr Maken says that even though Mr Aiyar had declared that he had forewarned the prime minister about the escalation of budgetary sanctions for the organising committee (OC) of the CWG, he had approved allotment of Rs767 crore to the OC as a minister-of-state. The sports minister wrote that the "corruption charges" over the CWG "emanated essentially out of the inordinate delays in the execution of various infrastructure projects".
He also stated that "the favourable clique of the sports minister and sports secretary during 2003" was responsible for Mr Kalmadi's appointment as chairman of the organising committee of the CWG. Mr Maken mentioned that the host city contract (signed by the then Bharatiya Janata Party-led NDA government in 2003), mandated that the chairman of the India Olympic Association (IOA), Mr Kalmadi, become the chairman of the OC of the CWG. Mr Kalmadi's appointment was 'inevitable' because then there were no other candidates available. Hence, Mr Maken writes to the prime minister, the issues raised by Mr Aiyar and which received media attention, are 'non-issues'.
To underline the issue, Mr Maken has forwarded copies of letters written by Mr Aiyar, CWG contracts and the ministry's observations on them. He says that despite the 'forewarning', Mr Aiyar also wrote to the prime minister on 25th October 2007 saying that physical infrastructure was making progress, which was not true.
In the same letter of 25th October 2007, Mr Aiyar warned about the escalating costs, saying that other sports events hosted by India in the past had cost the exchequer considerably less. He said that Mr Kalmadi should approach the market for money instead of asking for astounding amounts of government funds. He expressed dissatisfaction over the functioning of the OC and urged that it be recast.
After the CWG scam broke, the sports ministry asked for the attorney general's advice on the removal of Mr Kalmadi. The attorney general responded, saying that the government which had appointed him could also remove him, and that the appointment was not binding. Mr Kalmadi was dismissed a few weeks after the conclusion of the Games.