Oil ministry proposes key changes in natural gas allocation policy

In a note to the EGoM headed by finance minister Pranab Mukherjee, the oil ministry has proposed to stop gas supplies to power producers that do not sell electricity at regulated tariff. Also, future gas allocations are to be made only to urea fertiliser plants and fuel allocation to phosphates and potassium fertiliser producers be stopped

New Delhi: The oil ministry has suggested key changes in the natural gas allocation policy in the view of sharp drop in output from Reliance Industries’ eastern offshore KG-D6 block, reports PTI.

In a note to the Empowered Group of Ministers (EGoM) headed by finance minister Pranab Mukherjee, the ministry has proposed to stop gas supplies to power producers that do not sell electricity at regulated tariff.

Also, future gas allocations are to be made only to urea fertiliser plants and fuel allocation to phosphates and potassium fertiliser producers be stopped.

The ministry has also proposed to revise the priority attached to city gas distribution (CGD) networks and place them next to fertiliser and stranded assets of power sectors and before the new demands of fertiliser and power sector.

Oil minister S Jaipal Reddy said it is for the EGoM to take a decision on these so that scarce domestic natural gas is available only for core sectors.

KG-D6 gas output has fallen to below 39 million metric standard cubic meters per day (mmscmd) after touching peak of 60 mmscmd in March 2010, prompting the ministry to suggest changes in the allocation policy.

Mr Reddy, who got a first hand account of problems being faced by power producers when corporate leaders, including Anil Ambani of Reliance Power and Ashok Hinduja of the Hinduja Group briefed him about the fuel shortages, said no dates for the EGoM have been fixed yet.

“They (power producers) explained the various aspects of problem which they are facing. I have already circulated a note for EGoM and these aspects will be brought before the EGoM,” he said.

Power producers wanted priority allocation of natural gas to meet the energy deficit in the country.

“Decision will be taken at the EGoM. Until EGoM meets, I cannot comment on their demands,” Mr Reddy said.

His ministry’s agenda for EGoM recommends that “future gas allocations be made only to urea fertiliser plants” as gas allocation to urea has been accorded top priority. It says that supplies to phosphates and potassium fertiliser producers be stopped since the government pays them a fixed subsidy and “cheaper input gas does not lead to lower subsidy burden on the government”.

It wants the EGoM to approve that “all existing and future allocations of NELP gas for power plants will be subject to the condition that the entire electricity produced from allocated gas shall only be sold to the distribution licensees at tariffs determined (or adopted) by the tariff regulator.”

Natural production from KG-D6 has fallen to less than 39 mmscmd from the 61.5 mmscmd peak in March 2010. The output is far short of the 70.39 mmscmd forecast in the Field Development Plan approved in 2006.

The fall forced the oil ministry to first apply a pro-rata cut in supplies to all consumers in July 2010 and with further dip in output it restricted supplies to only core sectors of fertiliser, LPG and power.


Reliance share buyback: What the market remembers

RIL may announce a price in the range of Rs850 to Rs900 per share for buying back 10% of its shares from the open market. There are two problems with this...

Reliance Industries (RIL), India’s largest petroleum company, is likely to consider buying back its shares in its board meeting scheduled on 20th January. The company did not provide any information on the size of the buyback, but according to market sources RIL may buy back about 10% if its shares from the open market to show the management's ‘strong’ belief and thus boost its current price.

“Whatever may be the company’s announcement, it is reasonable to expect that this will be largest ever buyback program in the history of the Indian capital market. Also, this buyback announcement will be a strong statement from the company’s management that they ‘feel’ currently the share price in the market is undervalued than the intrinsic worth,” said Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities said in a note.

But there are two problems with this. One, its is not a too lucrative a premium over the current depressed price and two, market players would remember that RIL is not a great believer of throwing money at the market. This is not the first time, RIL has announced a buyback. It had announced a buyback on 28 December 2004. On that occasion the maximum buyback price announced was at Rs285 per share (that is, pre-bonus price of Rs570 per share). The maximum buyback price RIL announced was about 10.87% premium over the share price just before the buyback announcement.

The buyback program, seven years ago, was kept at Rs2,999 crore, which was about 10% of the share capital and free reserves of Reliance as on 31 March 2004.

However, throughout the period, Reliance bought back its shares only on nine days. And, the total buyback done by the company was a measly Rs149.62 crore. So, the actual buyback program was just 5% of the total buyback size of Rs2,999 crore. The average price paid was about Rs521.39 per share. The actual buyback price could have been at a discount to the maximum buyback price.

Now, let’s take a look at the current position and the proposed buyback program of RIL. As of 31 March 2011, RIL had a share capital plus free reserves of around Rs1.46 lakh crore. The company's board of directors may announce 10% buyback, similar to 2004, which this time works out to about Rs14,600 crore. RIL may keep the buyback size in the range of Rs10,000 crore to Rs14,600 crore.

RIL shares are currently trading at around Rs770. “Assuming about 10% premium, the maximum buyback price may be fixed at about Rs850 per share. However, the company may choose the maximum buyback price in the range of Rs850-Rs900 per share,” said Mr Thunuguntla. Will this again turn out to be just hope?

At present RIL has a cash reserves of around Rs85,000 crore and can easily go in for the buyback program. However, the company had lined up huge expansion plans in the oil and gas, telecom (broadband) and retail and therefore it may wish to preserve as much cash as possible.

Last month, Nomura downgraded RIL to ‘neutral’ from ‘buy’ due to concerns on gas and new worries on gasoline cracks. “Recently, exploration and production (E&P) news flow has worsened and refining margins sharply declined. Earnings momentum is likely to slow down despite a weaker rupee assumption. We cut our earnings per share (EPS) estimates by 10%-17% and target price by 18% to Rs870. Given RIL’s underperformance, we do not foresee much downside, but refining weakness is a near-term concern, and positive E&P triggers continue to remain elusive. Downgrade to Neutral,” Nomura had said in a research report.

"Whatever may be the buyback size the company may announce, the investors shall remember that there is no mandatory requirement that the company shall buy the entire amount of buyback," Mr Thunuguntla added.

On Wednesday, RIL shares closed 4.94% higher at Rs776.9 on the Bombay Stock Exchange (BSE), while the benchmark Sensex ended flat at 16,451.4 points. Already the premium between the current price and buyback price has narrowed considerably. To make its meaningful, RIL could have set a buyback price of Rs1,000. This would leave seasoned players sceptical about whether the programme is a half-hearted one.



Shibaji Dash

5 years ago

Which modality RIL will adopt ? Buy back from share holders as if it were rights? Or, buy directly from the market through brokerages?Whatever be the modality, tax implications will be relevant. Incidentally, what could be the objective of spending cash in buy back instead of using the cash in paying up part of the debt in the balance sheet ?The Board has fixed a ceiling price for buy back. The company including its subsidiaries may may buy for less. Any comment on this ?


5 years ago




5 years ago

Why does RIL bit give BONUS shares, in a very liberal way say 10:1 vasis PLUS Right Sares too to the present share holders???It is about time that the RIL investors get benefitted..

Shibaji Dash

5 years ago

Section 46A of the IT ACT inserted wef 1/4/2000 charges capital gains tax on the gain made by the share holders in case of a company buying back its own by way of the shareholders formally consenting to the company's proposal. RIL having issued Bonus shares in 2009, the share holders would hardly get any meaningful relief from indexation. Those who bought RIL shares in 2010 are very likely to lose as the quoted price in large part of that year was Rs. 1000/- or above.Much cash from RIL' book will of course fall to the lap of promoters and the entities controlled by them and holding RIL shares. In short, genuine retailers loyal to RIL are very likely to be hit if the price of buy back is fixed below Rs. 1000/-. In the current legal regime of buy-back provisions under the Companies Act are hostile to the official slogan of 'Share holders' democracy".

Vinay Joshi

5 years ago


Reliance may ANNOUNCE in its Board meeting, the decision of its ONE MEMBER Board, Mukesh Ambani of buy back!


Which of the following directors will refute? ONE MAN BOARD ‘dikkat’

Mr. R.A Mashelkar, Prof. D.C Jain, Prof. Ashok Misra, Dr.D.V Kapoor, the only possibility is M.L Bhakta voicing his concern which will be done away with – least of all Mr. Y.P Trivedi.

Why MLD talks about a Board meeting – synonymous to one man Board – resolution passed.

RIL-ETV deal regulators are probing it.

Have they made adequate disclosures? Where are the listing norms? The AP, HC, is hearing a petition that alleges the investment was pay-off to Chandrababu Naidu, RIL denied it in its affidavit. They got in Nimesh Kampani, JMF!?

Coming back to buy-back , in fifty two weeks RIL has lost abt 22.15% against benchmark index decline of 12.9%.

Its Q3 results are for everyone to watch, refining margins, & if I put it modestly its worst earnings.

So this gimmicks. Sooner than later RIL weightage in Sensex will slip, it can also be out, it was prodded only coz of its petro earnings but now Q3 margins can be lower than S’Pore GRM.

Well at this point in time we can only await RIL manipulations.




In Reply to Vinay Joshi 5 years ago

This is what Nomura had said about RIL....
"Since refining operations commenced in FY01, RIL has always reported premiums vs. the Singapore complex benchmark. However, these premiums have continuously reduced over the past several quarters. With further weakening of light distillates and the strength in fuel oil, we think this trend may continue. We estimate that at current margins, Reliance may well report a discount to the Singapore complex margins in 3Q."


5 years ago

It seems there is some new SEBI rule/guideline which forces a company which is undergoing buy-backs to buy atleast 15% of the announced buyback size.


Vinay Joshi

In Reply to bhaskar 5 years ago


No such guidelines are there!



5 years ago

only show off ... all companys must follow this style


Vinay Joshi

In Reply to shah 5 years ago


All co's do not have B/S strength!


South Indians, too, shiver in the wake of harsh winter

Cold wave conditions are not restricted to North India this winter. Small towns in Karnataka and Andhra, too, have unusually cold nights

In Chandigarh, on 7 January 2012, the weather news was that there will be no morning assembly in any government school until the weather conditions improve. The relaxation has been given by the Union Territory’s (UT) education department. In Jamshedpur on 11 January 2012, the news was that all schools were ordered to remain closed till 14 January 2012. In wake of the bad weather, the district administration had called for the closure of the schools till the weekend. In Kanpur, on 5 January 2012, the weather news was that thick clouds and strong winds brought down the temperatures. Some areas even witnessed light showers during the evening.

This is in the northern parts of India where Indians are familiar with cold wave conditions for many years. What about places in the south where winters have been pleasant over the years?

The harsh cold weather, on 17 January 2012, broke records in many places, with Madikeri (Karnataka) registering its lowest in 132 years at 4.8 degrees Celsius, Mysore’s coldest day in 120 years was at 7.7 degrees Celsius and Bangalore’s coldest day of January in the past 19 years with minimum temperature dropping to 12 degrees Celsius. The temperature in the twin cities of Hubli-Dharwad dipped suddenly to 9.3 against 11 degrees Celsius in the last three days. Bijapur recorded the lowest-ever minimum temperature at 8.4 degrees Celsius. Even Gadag was chilly at 12 degrees Celsius against 14, which was recorded in the last two days. Haveri recorded 9 degrees Celsius.

Look left, and you see a westerly storm heading South (towards Tamilnadu) and look right and you see a monster of an easterly heading also South (Karnataka & Andhra).

This is why probably Andhra and Karnataka felt the impact of cold more than Tamilnadu

The residents in Karnataka and other parts of south India have been taken by surprise and struggle with even their daily routine. The weather forecast in Karnataka still has the temperature warning: Moderate to severe cold wave conditions would prevail over interior Karnataka in the next two nights.

In Andhra Pradesh, too, the winter has been severe on account of which four elderly persons died of chilly winds blowing across coastal and north Telangana districts. Two women each died in Bapatla and Visakhapatnam. Adilabad shivered as mercury fell to 4 degrees Celsius.

In the metropolitan cities, the night temperature is still mild with Kolkata recording 14 degrees Celsius, Mumbai at 18 degree Celsius and Chennai recording a pleasant 17 degrees Celsius.

Punjab’s Pathankot, which saw its first snow in more than 40 years on 7 January 2012, recorded a maximum temperature of 17 degrees Celsius and a minimum of 7 degrees Celsius. Amritsar was a little cooler, at 16.7 and 4.4 degrees Celsius.

The Met department told the media that rain, cloudy skies, icy winds and fog were only adding to the chill, making the weather feel colder than it really is.

According to the Times of India, B Puttanna, director, in-charge, Bangalore Met department told the media:  “The severe cold wave from the north and north-east, combined with clear skies, has appreciably brought down the minimum temperatures across the state. Also, the shorter day time and longer nights have reduced the radiation on Earth’s surface...Last week, the temperatures in Karnataka were above normal. But this week after the severe cold wave affected North India, the temperatures in various parts of the state have gone down by 7-9 degrees Celsius.”

Also, according to the Times of India, MB Rajegowda, an agro meteorologist, “The severity of cold also depends on the air-moss strip passing through the co-ordinates of Karnataka. This strip keeps shifting and the area which falls under this strip gets affected by the cold wave. The prolonged north-east monsoon has contributed to the cold spell.”

Cold wave conditions have spread to eastern India, too, with dense fog conditions blocking incoming solar radiation and bringing down day temperatures. Cold wave conditions continued to hold over many parts of Orissa, Jharkhand and Chhattisgarh for a couple of days.

For several years now, climate sceptics have amusedly eyed a phenomenon known as “The Gore Effect” to give arguments against global warming a tinge of humour. “The Gore Effect” is a concept suggesting a causal relationship between unseasonable cold weather phenomena and meetings associated with global warming, with particular emphasis on events attended by ex US vice-president, Al Gore. We, in India, are having a severe winter even without the “Gore Effect”.



Sornam Alagarsamy

5 years ago

we all agree to carbon Emissions will one day freeze this world..i agree with Mr Algore...
Chennai is too cold..nobody will trust ,,but true
we must grow trees in billions to save climate and Environments safe.


5 years ago

I agree to " AlGORE " effect..we trust global warming is just begins in south India.Iam 70 and i have never seen sucha climate ,,,till 2000
now we feel extreme cold season in Tamilnadu...
we must work for climate control work ..plant trees

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