Citizens' Issues
Who is hurting Andhra Pradesh in the KG Basin gas supply, asks Sarma

According to the former secretary, the decision to divert gas from KG Basin to Ratnagiri is aimed at whitewashing the dishonesty implicit in the erstwhile Enron project at the expense of consumers from AP

EAS Sarma, former secretary of the Government of India (GoI), has alleged that there are irregularities committed in the pricing, allocation and the management of the natural gas from Krishna Godavari (KG) Basin to the detriment of the public interest at the macro-level and to the detriment of Andhra Pradesh at the state level.
Mr Sarma, in a letter to Jaipal Reddy, minister for petroleum & natural gas (MP&NG) and Vinod Rai, Comptroller and Auditor General (CAG), has said that the manner in which the MP&NG has gone about in the allocation and pricing of natural gas from KG Basin raises important public finance concerns, which deserve a close scrutiny.
Earlier, the Empowered Group of Ministers (EGoM) had prioritised gas allocation to fertilizer plants as well as the Ratnagiri plant which was given special status as it was taken over by the Central and Maharashtra governments after the collapse of Enron.
Mr Sarma, in a separate mail to the CAG, said, "I understand that your office will be auditing RIL’s accounts shortly. I believe that, if your office confines itself to the accuracy of the capital expenditure details alone, and miss out on the larger diseconomies imposed by the MP&NG, you will be missing the wood for the trees. While auditing the capital cost figures is certainly important, the diseconomies also assume importance in view of the huge cost implications. Your intervention in such matters should be suo moto, as you have the Constitutional obligation to inform the Parliament on this.”
Yesterday, Mr Reddy while advising the Andhra Pradesh (AP) government to make an appeal to the prime minister and the EGoM for reviewing the decision said the state should go for power generation by regasified liquefied natural gas (RLNG) to overcome the power crisis.
However, Mr Sarma said, “Whoever has advised you (Mr Reddy) to make such a laughable statement are illiterate in economic logic and inconsiderate to protecting the legitimate interests of AP.”
“Purely on economic considerations, the natural gas produced in KG Basin should be used as close to the gas producing fields as possible, either for generating electricity or for manufacturing fertilisers, since the transmission of electricity through high tension transmission lines and transportation of fertilisers by rail, are any day cheaper than transporting gas to distant areas like Maharashtra and Delhi,” the former secretary said.
He said, “This implies that the consumers of electricity and fertilisers in AP are forced to pay an exorbitant price to help the political executive at the Centre to appease the consumers in Maharashtra and Delhi and also pander to the wishes of Reliance Industries (RIL).”
There is also an element of outright dishonesty in suggesting that AP should buy RLNG from the Middle East, Mr Sarma said, adding that it was Enron’s Dabhol plant that was supposed to get highly expensive LNG from Qatar. However, the electricity from it had turned out to be so expensive that erstwhile Maharashtra State Electricity Board (MSEB) could not sell it to its own consumers or export it to any state outside.
“I was a part of the Godbole Committee that examined this issue in detail and I am fully aware of the circumstances that led to Enron’s collapse, the high-level corruption among the politicians of Maharashtra and the Centre and the handing over of Dabhol to NTPC/GAIL under the name, ‘Ratnagiri’ power station. The decision to divert gas from the KG Basin to Ratnagiri is aimed at whitewashing the dishonesty implicit in the Ratnagiri project at the expense of AP consumers,” he alleged.
Mr Sarma said, “The political leaders at the Centre and in AP joined hands with RIL to sacrifice the interests of AP to benefit the company and obfuscate the issue of corruption at all stages.”
According to the former secretary, the cost of production of KG Basin gas is hardly $0.60 per million metric British thermal units (mmBtu). RIL had offered to supply it to NTPC at $2.34 per mmBtu. “Still, the Group of Ministers headed by Pranab Mukherjee had fixed the price at $4.20 per mmBtu. I have all the GoM correspondence on the subject, obtained under RTI Act. Who has profiteered as a result of this? Who are the politicians who benefitted from this?” Mr Sarma asked.
He alleged that RIL has initially inflated the gas deposits and the production profile to boost up investment in the company from the savings of several small shareholders. “The company has inflated the capital expenditure figures to get the same reimbursed from the government through ‘cost’ gas, to the detriment of the public exchequer. Later, it became evident that neither the deposits nor the production levels were anywhere near the original assurances. Who is behind this scam?” he said. 


CRISIL cuts India’s GDP growth forecast to 5.5% from 6.5%

CRISIL Research cited adverse impact of rainfall deficiency and worsening Eurozone outlook for the downgrade

CRISIL Research has cut India’s real GDP (gross domestic product) growth forecast for 2012-13 to 5.5% from its earlier forecast of 6.5%. The downward revision in India’s growth forecast factors in the adverse impact of rainfall deficiency (an expected deficiency of 15% for June-September 2012 monsoon season, as per Indian Meteorological Department) and worsening of the Eurozone growth outlook. 
Despite slowing growth, the research agency has revised up its average WPI inflation forecast for 2012-13 to 8% from 7% released earlier, to reflect the adverse impact of deficient monsoon on food inflation.
The revised growth forecast assumes that the stretched fiscal situation will limit the ability of the government to give a generous stimulus to the economy. If it does so, then growth will go up but so will the fiscal deficit. Similarly, high inflation will tie the hands of the Reserve Bank of India (RBI) in aggressively cutting rates to stimulate the economy.
The revised growth forecast does not take into account any substantial fiscal stimulus that may be provided to the economy to arrest and reverse a growth slowdown. A fiscal stimulus may create some upside to industrial and services growth. Upside to growth can also arise from sorting out policy-related issues in mining and power sectors.
According to the IMD, rainfall for the south-west monsoon season is likely to be around 15% deficient, close to the 20% deficiency recorded in June-July. Even if there is a partial recovery in rainfall in the coming weeks, an overall deficiency of 15% would imply that 2012-13 will end up as a drought year and will result in a substantially lower sowing not only in the Kharif season, but will also adversely influence the Rabi crop. As a result, agriculture GDP would not grow this year and would record ‘zero’ per cent growth compared to CRISIL’s earlier estimate of 3% under the assumption of normal monsoon.
On the global front, CRISIL’s forecast takes into account the worsening of the Eurozone economy. According to S&P’s revised forecast, the Eurozone economy will shrink by 0.6% in 2012 compared with the previous forecast of ‘zero’ per cent growth. The deterioration in the economic outlook for Europe, including a recession-hit UK, implies that India’s IT/ITES sector, which exports around 20%-25% of its exports to the region, will experience a slowdown. India’s merchandise exports (clothing, iron & steel, electronics and gems & jewellery) too will decelerate further (Eurozone accounts for 15% of India’s total exports).
While the growth forecast has been revised downward, WPI inflation forecast has been revised up to 8% to reflect the higher-than-anticipated increase in food inflation. Besides, a weak rupee will continue to offset the gains from lower global crude oil, commodity and metal prices, and keep the cost of imported items high. On the flip side, lower GDP growth in both India and the Euro zone will result in a decline in manufacturing inflation. The flaring up of food inflation will, however, raise inflationary pressure.
The lower GDP growth will impact government revenue growth, which would be lower than estimated earlier. This is expected to push up the fiscal deficit forecast to 6.2% from the earlier forecast of 5.8% of GDP. This deficit forecast does not take into account any substantial stimulus that may be given to the economy to boost growth. Given the higher fiscal deficit and, consequently, higher government borrowings, the pressure on the 10-year G-sec yield would remain high. “We expect the yield at around 8%-8.2% by March-end 2013, even if the repo rate is cut by further 75-100 basis points by the RBI in the rest of the fiscal year”, CRISIL Research said in its report.




5 years ago

all rating agency is scam. this forcast is without visiting the area of india and without knowing how farming does. sitting on computer they derive this. this forecast will 100% goes wrong.

Morgan Stanley expects bull market to pick up

The investment bank feels that India is on the verge of a massive bull market, the fuel to which will come from RBI cutting interest rates and a pick up in investments by corporate India

The Indian research arm of Morgan Stanley (MS) is expecting the bull market to pick up in the upcoming months and investors could expect as much as 14% returns over the next 12 to 18 months. However, this is subject to Reserve Bank of India (RBI) cutting rates by half a percentage point, or 50 basis points, in their next monetary review meet which is on 17 September 2012. The investment bank, in its latest report titled “When Will the Next Raging Bull Market Start? Here Is Our Framework”, has identified various factors and signals that point to a possible broad-based market recovery and a bull market ahead. It has said, “In summary, we believe that the market is preparing itself for the next big bull market, though we are not quite there yet. Meanwhile, investors can continue to make outsized returns because individual stocks, both large and small, are already in bull market.”

The first indicator is the Nifty range. While MS doesn’t quite admit that the Indian market is in a bull market phase, it feels that it is valued at levels that will leave ample space for an upside. The report said, “The Nifty seems to be a in a big trading range of circa 4,500 to 6,000. The market is in the lower half of this range, leaving us with decent upside—which we think can materialise in the coming months—but the market, is seemingly not breaking new levels.” So, it must first break new to make stage for the next bull cycle.

However, the investment bank feels that the yield curve will provide further clues to this. It has pointed out that the inversion of the yield curve has ceased which could mean that short rates (i.e. 91-day yield) could fall faster than long term yields (i.e. 10-year yields), which in turn could set the stage for expansion of the economy vis-a-vis access to long-term credit, as borrowing costs of long-term debt instruments will start to become attractive. This is, of course, subject to inflation expectations and how the RBI tackles it. If inflation does indeed fall, then there is a possibility of this happening. The investment bank said, in its report, “Core inflation is declining quite sharply, and this could form the basis for lower short rates in the coming months.”

Apart from interest rates, investors are concerned about lack of investment from corporate India, as profitability depends on investments, which in turn would lead to bull markets. In other words, according to the report, “profit margins are the interplay of the investment and consumption rates in the economy. The investment rate reflects revenue potential. The bottomline is that the investment rate is a critical driver of a major margin expansion cycle.” Despite slow down of government & consumer consumption and low asset turn, the investment bank believes that asset turnover and excess returns will pick up and trigger a new investment cycle which will pave the way for the next bull market. It said, “We see a recovery in asset turns and excess returns over the next 12 months to form the basis for a new investment cycle.”

One of the most discerning pieces of investment information is valuation. However, the bank has cited that there is value to be sought in companies having attractive price-to-book value levels, and there’s money to be made only with those companies having such depressed valuations. The report said, “Currently, valuations either are in the bottom deciles or close to them. This augurs well for forward equity returns.” However, it must be pointed out that each company should be looked at separately to assess book values. It is not known whether they have updated all of its numbers to reflect 2011-12 fiscal. Some companies would have come out with annual reports, while some are still pending.

Finally, it concludes by quantitatively evaluating what investors can expect, and hope to, make if their assessment turns out to be correct. MS came up with their own proprietary model using the gap between earnings yield and 91-day treasury yield to assess forward earnings. It said, “We find a very strong relationship between this gap and three-year forward equity returns. Rates need to fall further (i.e. liquidity has to improve) in order to make equity attractive.” Thus, for this to happen, RBI would need to cut rates by as much as 50 basis points, which would mean returns of as much as 14% could be a possibility. The report concluded, “We peg fair equity returns at 14% and the model currently implies a three-year compounded annual growth rate (CAGR) in returns of 12%. Rates need to fall by around 50bps to make projected equity returns to the ‘fair’ threshold.”


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