Tyre companies demand fixed customs duty on rubber

Under the current applicable ad valorem rate of duty, when natural rubber prices move up, consumers not only have to pay more to import rubber, but also have to bear the burden of customs duty, which goes up proportionately

The Indian tyre industry has asked the government to impose customs duty on natural rubber on a fixed basis, rather than ad valorem, on account of soaring prices of the commodity, reports PTI.

Under the current applicable ad valorem rate of duty, when natural rubber (NR) prices move up, consumers not only have to pay more to import NR, but also have to bear the burden of customs duty, which goes up proportionately, Automotive Tyre Manufacturers Association (ATMA) director general Rajiv Budhraja told reporters in Kochi.

"In the event of NR prices going above a certain level, that is about Rs 90 per kg, customs duty on NR should be on a fixed basis," Mr Budhraja said.

When the NR price was Rs75 per kg, the 20% customs duty worked out to Rs15 per kg and when the price was increased to Rs180 per kg, the same rate of duty (i.e. 20%) worked out to Rs36 per kg, he said.

Such a change in tariff rates was recently introduced in China to make the domestic tyre and rubber-producing interests more competitive and viable, he said.

Currently, the import duty on sheet rubber in China is 20%, or 1.6 yuan per kg, whichever is less. Since NR prices are currently hovering at around 23.10 yuan per kg, the customs duty on rubber sheet imports is less than 7%, he said.

Mr Budhraja said the industry has also sought duty-free import of two lakh tonnes of NR on a priority basis to "cool off" rising NR prices as well as cut down the production-consumption deficit, which has been projected at 1.76 lakh tonnes in 2010 by the industry. This is much higher than the Rubber Board's estimates of a production-consumption deficit of 85,000 tonnes.

The board had said there will a 75,000 tonne increase in production, but the industry feels this is an over-estimation, given that an increase of this order has never been achieved in 20 years.

The industry has also pegged consumption growth at about 12%-15%, whereas the board's estimation is 5%-6%, he said.

NR prices have touched an all-time high of Rs180 per kg, an 80% increase over the average June, 2009, price of Rs 100 per kg. The industry feels 'let down' at the absence of corrective steps by government, Mr Budhraja said. Not even symbolic action has been taken so far by the government, he added.

Mr Budhraja and an ATMA delegation were in Kochi to parley with the government-appointed panel, headed by the Rubber Board chairman, which was formed under a recent Delhi High court order. The court had directed the commerce ministry and Rubber Board to consider representations made by petitioners on natural rubber pricing issues.

Besides ATMA, the petitioners include the Indian Cycle and Rickshaw Tyre manufacturers and All-India Rubber Industries Association.

The delegation met the board chairman in Kottayam today.

ATMA raw materials group convenor Kaushik Roy said the industry has been held "hostage" to extreme uncertainty in terms of pricing and availability of NR, causing production disruptions and putting the planning process in disarray.

"The industry is being directed by original equipment manufacturers (OEMs) and transporters for price hikes, which are inevitable, as the entire price increase in NR cannot be absorbed," he said.

Most of the NR stock in the market is fresh stock. The industry does not find any evidence of the 2 lakh tonne plus buffer stock as stated by the Rubber Board, he said.

Tyre companies have made investments of over Rs12,000 crore in capacity addition (greenfield projects and expansion), primarily in high technology radial truck and bus tyres, which would be seriously jeopardised if the present concerns over high NR prices and availability issues are not addressed and resolved on a priority basis, he said.


Govt adopts cautious approach on FDI in multi-brand retail

As a formal move towards permitting entry of global retailers, the DIPP released a discussion paper on Tuesday inviting comments from stakeholders by 31st July

Unlike the defence sector, the government has adopted a cautious approach on opening up multi-brand retail to foreign investment, Department of Industrial Policy and Promotion (DIPP) secretary RP Singh said today, reports PTI.

"We have left it (fixing a cap on FDI) open. Based on the response which we get from the stakeholders, we will take a view," Mr Singh told PTI.

The secretary of the DIPP — which is responsible for the policy on the country's foreign direct investment (FDI) — indicated that the government has taken a cautious approach in the case of multi-brand retail.

"We have not taken a clear stand like we did in the case of defence. We did not give a stipulation as to what should be percentage (for FDI)" he said.

As a formal move towards permitting entry of global retailers like Wal-Mart, Carrefour, Tesco and Metro, the DIPP released a discussion paper on Tuesday inviting comments from stakeholders by 31st July.

India, at present allows 51% foreign direct investment (FDI) in single brand retail and 100% in the cash-and-carry (wholesale) formats. Though permitted in 1996, FDI inflows of just $195 million (about Rs900 crore) have come in the single brand retail segment, comprising 0.21% of the total FDI into the country.

Single brand investment is confined to sportswear, luxury goods, apparel, jewellery and handbags.

In the case of cash-and-carry trading, FDI of $1.77 billion (about Rs8,000 crore) has come since April, 2006, when it was brought under the automatic clearance route, though it was opened in 1997.

In the paper on FDI in defence, the DIPP favoured 75% foreign investment. It had said that even 100% would be desirable. However, the ministry of defence is known to be opposed to increasing the FDI cap beyond the existing 26%.

Asked how soon multi-brand retail, a politically sensitive sector employing about 33 million people in the neighbourhood mom and pop (kirana) stores, would be thrown open for overseas investment, Singh said it was difficult to fix a timeline.

"We cannot say... depends upon the kind of response we get, kind of concerns people express," he said, adding, "We have to find ways of addressing (concerns) and we are trying to build a consensus to the extent possible."

He said concerns over the impact on small traders by the entry of big retailers have to be taken on board. "You have to see how to integrate the retail sector with this value chain, that is important," Mr Singh said.

He said it also has to be seen how unorganised retail should cope with the competition.


Ambanis' revised gas supply pact valid only till 2022

2022 is the year when the revised non-compete agreement between the two Ambani brothers that bars Mukesh from taking up gas-fired power projects ends

Anil Ambani Group firm Reliance Natural Resources’ (RNRL) new gas supply agreement with Reliance Industries (RIL) is valid only till 31 March, 2022 and even in this, there is no mention of volume or the tenure of gas supply, reports PTI.

While the gas would be given by Mukesh Ambani-led RIL to the Anil Ambani group firm at the government specified price, the duration of the gas supply will be decided in the Gas Sales & Purchase Agreement (GSPA) as and when the two sides sign it.

The fuel supply, under such an agreement, could stretch beyond 2022 — depending on availability and allocation by the government.

2022 is the year when the revised non-compete agreement between the two Ambani brothers that bars Mukesh from taking up gas-fired power projects ends.

RNRL and RIL on 25th June signed a new Gas Sales Master Agreement (GSMA), which replaced a similar contract of January 2006, outlining the Mukesh-run firm's intent of supplying gas to Anil Dhirubhai Ambani Group (ADAG) power plants on terms set by the government, industry sources said.

The GSMA does not mention of any volumes that RIL will supply to the ADAG firm or specific power plants which will receive it and only states that gas will be supplied to power plants that are sanctioned by the government for receiving gas.

The new supply agreement was entered into after the Supreme Court on 7th May rejected RNRL's case for gas at rates lower than government approved price. The court had asked RIL and RNRL to enter into a suitable agreement bearing in mind the government's right to approve price and users.

Sources said the price of gas in the GSMA is stated to be according to the pricing formula that the government had approved in 2007. According to this formula, RIL is selling gas from its eastern offshore KG-D6 fields at $4.2 per million British thermal unit (mmBtu), at $60 dollars per barrel, till March 2014.

The rates may change in 2014 if the crude benchmark in the formula is changed in line with the international oil trend at that time.

Sources said unlike the January 2006 GSMA that provided for RIL supplying 28 million standard cubic meters per day (mmscmd) of gas to ADAG plants like the mega 7,800 MW Dadri unit near New Delhi at a fixed price of $2.34 per mmBtu for 17 years, the new supply pact does not mention either volumes or duration.

Once, the government approves of allocation to an ADAG power plant, RIL will enter into a specific Gas Sale and Purchase Agreement (GSPA) for supplying gas to the unit.

"This Agreement (GSMA) shall be effective upon its execution and shall terminate on 31 March, 2022. Provided, however, the GSPAs entered into pursuant to this 2010 Gas Master Supply Agreement shall remain in force and effect in accordance with their respective terms," a source said, quoting from the renegotiated GSMA.

So, if the government was to allocate gas for a tenure longer than the validity of GSMA, RIL will enter into GSPAs for the said duration and supply gas to ADAG plants accordingly.

Also, RIL is to supply gas to RNRL and its affiliates.

Affiliates are defined as Reliance Infrastructure Ltd and its subsidiaries and Reliance Patalganga Power Ltd and its subsidiaries.

Subsequent to signing of the GSMA, RNRL is being merged with another Anil Ambani Group firm Reliance Power, which plans to set up the Dadri plant, besides new units in Gujarat, Maharashtra and Andhra Pradesh, will inherit the GSMA.

In the new GSMA, RNRL has not only agreed to pay the price approved by the government but also a marketing margin of $0.135 per mmBtu.

RNRL had last year refused to pay marketing margin to RIL terming them as "illegal". It subsequently paid the amount, charged by RIL for its marketing effort, "under protest."

In the GSMA, the two firms have agreed that level of production of gas from the block would be subject to the Development Plan approved by the government.

Also, RNRL has agreed to not trade the gas it gets from RIL and the usage being restricted to the plants to which it is allocated.


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