Have you ever wondered why Diesel costs lesser than Petrol in India?? Is it because it is cheaper to produce? Or is there more Diesel than Petrol in the world?? No… the answer can be found elsewhere! Diesel has traditionally been priced lower than petrol to keep costs in general low (ie inflation low).
Diesel is used for transportation by road (both people and goods). Diesel is used by Indian Railways. Diesel is also used a lot by farmers for running all the irrigation equipment like tractors, pumps, crushers, etc.
Diesel is the most subsidized fuel in India. For instance, Fortune 500 company Indian Oil Corporation is losing Rs 243 crore daily of which diesel’s share is Rs 127 crore, followed by kerosene at Rs 75 crore, LPG (Rs 11 crore) and finally petrol (Rs 11 crore). This is also due to the fact that diesel accounts for more than 40% of India’s petroleum product consumption. But the crux of the matter is that companies are making huge losses by selling diesel at the current prices.
The under recoveries per litre of Diesel is higher than the under recovery on a litre of petrol. The above fact is also evident from the fact that Reliance Petroleum is exporting its diesel, since it cannot afford to sell it at a loss locally like the oil Public Sector Undertakings (read as HP, BP, IOC, IBP, etc). Shell for instance sells diesel and petrol at almost the same price in India.
A quick look at the diesel and petrol prices in two leading economies (US and UK) reveal a different picture all together.
United States: It would be interesting to note that since September 2004, the price of diesel fuel has been generally higher than the price of regular gasoline (petrol) all year round in the United States of America. As on September 1, 2008 a gallon of diesel was priced at US$ 4.12 and a gallon of gasoline was priced at US$ 3.68. (Source: Energy Information Administration – Official energy statistics of the US Government).
United Kingdom: As on date a litre of diesel is priced around GBP 1.24 and a litre of petrol is priced around GBP 1.12. (Source: www.petrolprices.com)
It is true that high diesel prices create inflationary conditions. So, if the government really wants to subsidise diesel… cant there be a better way whereby only the deserving get the subsidy?? The point I am trying to make is why should the government subsidise a person owning a car costing more than Rs 20 lakhs or even Rs 8 lakhs?? It is funny that a person owning a Maruti 800 or a Tata Nano in future would be subsidized lesser than a person owning a fancy SUV say a Audi Q7 or a Mercedes!!!
By looking at other countries which subsidies fuel used for public transport and farm equipment, the Indian government can learn a thing or two. For instance, in Ireland, businesses are allowed to claim back the 100% of the VAT on diesel but nothing for normal petrol while in Portugal, the amounts are 50% for diesel and 0% for petrol.
Or the Government could consider selling diesel for cars and diesel in cities at a different price (Dual pricing as it is called). But in case of duel pricing, our black marketers or innovative Indians, could end up with plans for obtaining the public transport diesel for private consumption or worse start buying trucks as caravans for private use!!!
Dual pricing is something I have been speaking with all of my friends. Anyone who has discussed petrol price with me will have heard me talk of dual pricing. It is heartening to see a press report which suggests that the PM wants to introduce dual pricing.
Untill any of the above happens; I will continue to subsidise the running expenses of a rich kid owning a diesel car which costs more than my petrol car!!!
Wednesday, September 3, 2008
Friday, July 11, 2008
Long way ahead... but not full distance
There is enough written about the Bengaluru International Airport in the press, blogs, etc. Most of the articles, blogs that I have come across or rather all of the blogs which have been selected by newspapers have contained criticisms about BIA. It was ridiculous to read some one 
complaining about the kind of trolley at BIA (I have seen the same trolleys at other airports).
My take on BIA… it is a wonderful airport but it is small. I think we have come a long way from the HAL airport but not gone the full distance!! If any person was expecting the airport to be like Changi or Heathrow from the day it started operations… I guess the problem lies with the expectations. For a beginning… this is a good airport. The only problem is that the airport is small.
I think the road from Jakkur to BIA is as good as it can be. I have
traveled more than thrice to the airport till date and I have not taken more than 90 minutes anytime…. I once traveled all the way from my house (in Banashankari) which was estimated to take more than 2 and half hours according to TOI. The critics had written off the airport before it even opened…. All those people seem to have gone into hiding now!!
I also traveled by the Volvo bus last week…. And it took one hour to reach Infantry Road. It was a pleasant experience.
I dint want to write about the airport being good until I had experience more than once. Also, I wanted to write only after the excitement of the new airport vanishing. Both of them have happened now and the airport still looks good for me! People who want to complain can find a reason to complain about everything in life…………
complaining about the kind of trolley at BIA (I have seen the same trolleys at other airports).My take on BIA… it is a wonderful airport but it is small. I think we have come a long way from the HAL airport but not gone the full distance!! If any person was expecting the airport to be like Changi or Heathrow from the day it started operations… I guess the problem lies with the expectations. For a beginning… this is a good airport. The only problem is that the airport is small.
I think the road from Jakkur to BIA is as good as it can be. I have
traveled more than thrice to the airport till date and I have not taken more than 90 minutes anytime…. I once traveled all the way from my house (in Banashankari) which was estimated to take more than 2 and half hours according to TOI. The critics had written off the airport before it even opened…. All those people seem to have gone into hiding now!!I also traveled by the Volvo bus last week…. And it took one hour to reach Infantry Road. It was a pleasant experience.
I dint want to write about the airport being good until I had experience more than once. Also, I wanted to write only after the excitement of the new airport vanishing. Both of them have happened now and the airport still looks good for me! People who want to complain can find a reason to complain about everything in life…………
Saturday, March 22, 2008
Where will we finally land............
The delay in opening of the BIAL has only given more time for the debate on whether to close the HAL airport or not to continue. It is surprising that this question has cropped up and is being debated publicly a few months before the opening of BIAL when the decision to close the HAL airport and make BIAL the only airport in Bangalore was take a few years back.
The most common reason cited by people who are fighting to keep the HAL airport is the lack of infrastructure and the difficulty in getting to BIAL. It is not a case of Devanhalli or BIAL becoming farther to the city in the last few months... the distance has been the same since the time construction on BIAL began. The NGOs, airline companies, frequent flier, businessmen who are now against the closure of HAL airport could have fought from the past few years to put the right infrastructure in place. Instead of filing a PIL now, instead of having website surveys now, instead of having online petitions now... the same people could have taken some actions earlier to force the government to create quality infrastructure to get to the airport.
Be that as it may, the ground reality is that we don’t have quality infrastructure in place to ensure that we get to BIAL in a reasonable time. It needs to be acknowledged that it could take nearly 3 hours to get the airport from areas such as JP Nagar, Electronic City, Bannergatta Road, Rajarajeshwari nagar, etc. The other reasons given to keep the HAL airport open are the feasibility of Low Cost Carriers (LCCs) operating from BIAL, the infrastructure at HAL airport being rendered redundant, the revenue loss for HAL!
Understandably, BIAL is against keeping the HAL airport open since closing of the HAL airport is one of the terms and conditions of the agreement signed by the Government. Also, I understand that BIAL's under development fees and other revenue calculations are based on the assumption that BIAL will be the only operational airport for commercial and cargo flights.
In my view, the arguments of LCCs making losses and HAL losing out on revenue are not worth considering. When somebody is running a business and there are some external factors (including government policies) which make the business less profitable… I don’t think the businessman can cry foul… instead he would need to come up with creative solutions to stay in business. I don’t think HAL airport can be kept open so that LCCs can break even nor can it kept open to ensure that HAL makes the Rs 300 crores that it has been earning annually.
As regards, the other reasons for keeping the HAL airport open ie BIAL rendering the infrastructure at HAL redundant; it may be worth while to examine the option of making the HAL airport an airport which is open for charter aircrafts. We have a lot of companies which now want to get into the business of providing charter aircrafts. Further, the HAL airport can be used by companies owning small aircrafts to offer pick-up and drop services to BIAL. There are many ways of using up the infrastructure created at HAL airport.
Now I come to the last reason and strongest reason for keeping the HAL airport open which is the lack of quality infrastructure to get to BIAL. I think this is a fair ask. But the government is also required to adhere to the agreement with BIAL. Hence, there is a requirement to balance the two.
In my view, the best way to achieve this would be to keep the HAL airport open only till the road to BIAL gets ready and for HAL to enter into a revenue sharing agreement with BIAL for the said period. The revenue share would ensure that BIAL is not worse off by letting HAL operate the airport, HAL would also not be worse off since it makes some money and the public at large would also not be worse off. I think this could possibly be a solution acceptable to all.
The most important reason why I am against keeping the HAL airport open is as long as we have the HAL airport open, the work on the road to BIAL will never be done on fast track. We react in panic situations well.
A classic example of what I am stating above is BIAL itself…. If the HAL airport had not reached its full capacity… I don’t think Bengaluru would have ever had a swanky new international airport in such short time… we would have managed to continue with the HAL airport!!!
The most common reason cited by people who are fighting to keep the HAL airport is the lack of infrastructure and the difficulty in getting to BIAL. It is not a case of Devanhalli or BIAL becoming farther to the city in the last few months... the distance has been the same since the time construction on BIAL began. The NGOs, airline companies, frequent flier, businessmen who are now against the closure of HAL airport could have fought from the past few years to put the right infrastructure in place. Instead of filing a PIL now, instead of having website surveys now, instead of having online petitions now... the same people could have taken some actions earlier to force the government to create quality infrastructure to get to the airport.
Be that as it may, the ground reality is that we don’t have quality infrastructure in place to ensure that we get to BIAL in a reasonable time. It needs to be acknowledged that it could take nearly 3 hours to get the airport from areas such as JP Nagar, Electronic City, Bannergatta Road, Rajarajeshwari nagar, etc. The other reasons given to keep the HAL airport open are the feasibility of Low Cost Carriers (LCCs) operating from BIAL, the infrastructure at HAL airport being rendered redundant, the revenue loss for HAL!
Understandably, BIAL is against keeping the HAL airport open since closing of the HAL airport is one of the terms and conditions of the agreement signed by the Government. Also, I understand that BIAL's under development fees and other revenue calculations are based on the assumption that BIAL will be the only operational airport for commercial and cargo flights.
In my view, the arguments of LCCs making losses and HAL losing out on revenue are not worth considering. When somebody is running a business and there are some external factors (including government policies) which make the business less profitable… I don’t think the businessman can cry foul… instead he would need to come up with creative solutions to stay in business. I don’t think HAL airport can be kept open so that LCCs can break even nor can it kept open to ensure that HAL makes the Rs 300 crores that it has been earning annually.
As regards, the other reasons for keeping the HAL airport open ie BIAL rendering the infrastructure at HAL redundant; it may be worth while to examine the option of making the HAL airport an airport which is open for charter aircrafts. We have a lot of companies which now want to get into the business of providing charter aircrafts. Further, the HAL airport can be used by companies owning small aircrafts to offer pick-up and drop services to BIAL. There are many ways of using up the infrastructure created at HAL airport.
Now I come to the last reason and strongest reason for keeping the HAL airport open which is the lack of quality infrastructure to get to BIAL. I think this is a fair ask. But the government is also required to adhere to the agreement with BIAL. Hence, there is a requirement to balance the two.
In my view, the best way to achieve this would be to keep the HAL airport open only till the road to BIAL gets ready and for HAL to enter into a revenue sharing agreement with BIAL for the said period. The revenue share would ensure that BIAL is not worse off by letting HAL operate the airport, HAL would also not be worse off since it makes some money and the public at large would also not be worse off. I think this could possibly be a solution acceptable to all.
The most important reason why I am against keeping the HAL airport open is as long as we have the HAL airport open, the work on the road to BIAL will never be done on fast track. We react in panic situations well.
A classic example of what I am stating above is BIAL itself…. If the HAL airport had not reached its full capacity… I don’t think Bengaluru would have ever had a swanky new international airport in such short time… we would have managed to continue with the HAL airport!!!
Friday, February 29, 2008
Its Ballot all the way............
Since the time the FM finished presenting his budget. I have been pondering since then one proposal... farmer loan waiver costing Rs 60,000. This proposal makes sense only when i look at it from two perspectives... the first, from the perspective the farmer who gets the waiver and second, from the perspective of the parties in the UPA government which have instantly won a huge vote bank.
The more i think about this proposal, the more downsides i note. Isn't this move a disincentive for farmers to be honest in repayments? How would a farmer who repaid the loan by taking pains to save money, cutting down on his meals feel?? Shouldn't the farmers who repaid honestly be also given the money back??
Mind you, I am not against the Government helping the poor farmers. I am against the way of helping them. I am against rewarding the defaulting farmers and leaving out the farmers who were prompt in repayment. I am sure there would have been honest farmers who would have sold parcels of land to repay loans. Why should only the farmers who borrowed be benefited? Why shouldn't this amount be given as a one time grant to all farmers? The farmers who have borrowed can use it to repay the loans and the other can have this as a saving. That way you incentivize the honest farmer do not do any harm to the farmer with a loan.
This loan waiver scheme is akin to the VDIS scheme. The scheme in my view encourages farmers not to repay just like a VDIS encourages black money. Farmers don't repay with a hope of getting a wavier once in five years or so. There is no economic sense in farmer loan wavier. There is only political sense. I am sure the Finance Minister would not have taken this step had this not been his last budget. T
his move is clearly done only with an eye on the ballot. I am sure the farmers loan waiver will be something which Ms Sonia Gandhi and her team will talk about in all their election speeches!!
The more i think about this proposal, the more downsides i note. Isn't this move a disincentive for farmers to be honest in repayments? How would a farmer who repaid the loan by taking pains to save money, cutting down on his meals feel?? Shouldn't the farmers who repaid honestly be also given the money back??
Mind you, I am not against the Government helping the poor farmers. I am against the way of helping them. I am against rewarding the defaulting farmers and leaving out the farmers who were prompt in repayment. I am sure there would have been honest farmers who would have sold parcels of land to repay loans. Why should only the farmers who borrowed be benefited? Why shouldn't this amount be given as a one time grant to all farmers? The farmers who have borrowed can use it to repay the loans and the other can have this as a saving. That way you incentivize the honest farmer do not do any harm to the farmer with a loan.
This loan waiver scheme is akin to the VDIS scheme. The scheme in my view encourages farmers not to repay just like a VDIS encourages black money. Farmers don't repay with a hope of getting a wavier once in five years or so. There is no economic sense in farmer loan wavier. There is only political sense. I am sure the Finance Minister would not have taken this step had this not been his last budget. T
his move is clearly done only with an eye on the ballot. I am sure the farmers loan waiver will be something which Ms Sonia Gandhi and her team will talk about in all their election speeches!!
Tuesday, February 26, 2008
Free On Board.......
The proposed issue of bonus shares has been approved by the Board of Reliance Power and the Company will seek the shareholders approval through a postal ballot shortly. Some of the issues that i had rasied have been addressed. I have discussed below the current status of the issues i had highlighted.
1. Legal framework
I have extracted below the response given by Reliance Power to the stock exchanges in response to some of the questions raised by BSE:
"The proposed Bonus Issue will be made by the Company in accordance with the applicable provisions of the Articles of Association and the Listing Agreement and subject to the approval of Shareholders. The Promoters of the Company have indicated to waive their entitlement for the said bonus shares in accordance with law and in the broader interest of protecting and enhancing value for over 4 million institutional and retail investors of the Company. Accordingly no bonus shares will be issued and allotted to the Promoters."
This issues appears settled though i would want to know what resoultions they would pass, which sections of the Companies Act they would rely on, etc.
2. How will he chose the eligible investors?
I have extracted below the response given by Reliance Power to the stock exchanges in response to some of the questions raised by BSE:
"Bonus Shares will be issued as above to all Members (excluding Promoters) who are identified as Shareholders of the Company on the Record Date, which shall be fixed by the Company in consultation with the Stock Exchanges and in compliance with provisions of the Listing Agreement."
It is clear that the company is yet to decide on the eligible investors list and they would be depend on the record date. Fixing of the record date assumes importance given the discussions in my earlier post.
3. Will the shareholders actually profit or will it be a perception??
This would depend on the listing price post-bonus. We will have to wait and watch!!
4. How will it impact Reliance Energy Limited??
This issue has been addressed and has been addressed well. Anil Ambani proposes to transfer shares free of cost to REL to maintain the 45% shareholding that REL has in Reliance Power. This is a welcome move as far as the shareholder of REL (including me) are concerned.
The most important aspect would be the "Record Date". The "gift" (if it can be called so) of shares by ADAG group companies to REL would open up discussions on a few more tax and legal issues!! This is a space worth watching and i would continue to keep on eye on this.
1. Legal framework
I have extracted below the response given by Reliance Power to the stock exchanges in response to some of the questions raised by BSE:
"The proposed Bonus Issue will be made by the Company in accordance with the applicable provisions of the Articles of Association and the Listing Agreement and subject to the approval of Shareholders. The Promoters of the Company have indicated to waive their entitlement for the said bonus shares in accordance with law and in the broader interest of protecting and enhancing value for over 4 million institutional and retail investors of the Company. Accordingly no bonus shares will be issued and allotted to the Promoters."
This issues appears settled though i would want to know what resoultions they would pass, which sections of the Companies Act they would rely on, etc.
2. How will he chose the eligible investors?
I have extracted below the response given by Reliance Power to the stock exchanges in response to some of the questions raised by BSE:
"Bonus Shares will be issued as above to all Members (excluding Promoters) who are identified as Shareholders of the Company on the Record Date, which shall be fixed by the Company in consultation with the Stock Exchanges and in compliance with provisions of the Listing Agreement."
It is clear that the company is yet to decide on the eligible investors list and they would be depend on the record date. Fixing of the record date assumes importance given the discussions in my earlier post.
3. Will the shareholders actually profit or will it be a perception??
This would depend on the listing price post-bonus. We will have to wait and watch!!
4. How will it impact Reliance Energy Limited??
This issue has been addressed and has been addressed well. Anil Ambani proposes to transfer shares free of cost to REL to maintain the 45% shareholding that REL has in Reliance Power. This is a welcome move as far as the shareholder of REL (including me) are concerned.
The most important aspect would be the "Record Date". The "gift" (if it can be called so) of shares by ADAG group companies to REL would open up discussions on a few more tax and legal issues!! This is a space worth watching and i would continue to keep on eye on this.
Monday, February 18, 2008
Unconventional Power!!!
There are many things unconventional about Reliance Power's IPO and the happenings thereafter... the largest IPO, largest collection, largest refund, largest family of shareholders and to top it all... trading below the offer price from the day of listing!! Anil Ambani has now come up with another unconventional idea.... he has announced his plan to compensate investors with "free" bonus shares for the losses suffered!!
The Board of Reliance Power is meeting on February 24, 2008 to consider allotment of free bonus shares for all its shareholders other than the promoters as one of the measures to help curtail the losses incurred by its investors. This is the probably the first time a company is attempting to do something like this. This comes with its own share of issues:
1. Legal framework
In my opinion, a company has to allot bonus shares to all shareholders (of a particular class) and a company cannot allot bonus shares only to one group of shareholders (of a particular class). A shareholder can renounce his right to participate in a "rights issue", a shareholder may chose not to participate in a "buy-back offer", a shareholder may chose not to participate in a "open offer", I don’t think a shareholder can renounce his right to get bonus shares - Though a set of people argue that there is nothing in the law which prohibits a shareholder from renouncing his bonus shares. The moot question here is, are bonus shares optional?? The answer I think is "no".
Hence, it would be interesting to see how ADAG addresses this. He may get the promoters to renounce the bonus shares or get them to gift some of their shares to the investors.
2. How will he chose the eligible investors?
The second and a more important question is, how will Anil Ambani choose the investors who are eligible for the bonus shares?? Let us assume he chooses the list of shareholders who were allotted shares as a part of the IPO, then he would end up giving "free" shares to even people who have sold their shares at a profit (remember… there were trades on the first day at prices greater than Rs 430). Alternatively, let us assume he chooses today as a cut-off date and allots shares to all shareholders who hold shares today, then he would end up giving "free" shares to people who have purchased shares at less than Rs 430 and end up not giving "free" shares to people who sold shares at a loss between the day of listing and today (at a price less than Rs 430).
3. Will the shareholders actually profit or will it be a perception??
Finally, it would be interesting to watch if the shareholders will actually make any money. The EPS of the company (when it starts to make profits!!) will be lower after considering the fresh shares. Hence, the price should correct and go down a little. In my opinion, the share will not trade at the same price after the "free" shares are distributed and therefore ADAG may not compensate the shareholders by much (an investor holding 10 shares while the price is Rs 400 is not worse off compared to an investor holding 16 when the price is Rs 250).
4. How will it impact Reliance Energy Limited??
As per the press release from Reliance Power - "the promoters have indicated that they will accept the dilution of the promoter group's shareholding in Reliance Power in the broader interest of protecting investors". As per the offer documents, the post-IPO holding of the promoter group would be around 89% and Reliance Energy Limited owns almost 45% of the company (post-IPO). The above statement would mean that Reliance Energy Limited has indicated that it is accepting the dilution. Doesn't this require the approval of the shareholders of REL? Isn't this move to dilute a holding in Reliance Power detrimental to the shareholders of REL? Wouldn’t this affect the valuation of REL?
The Reliance Power Board is meeting on February 24, 2008 to consider options to reduce the cost of acquisition of the shares and help the investors cut their losses. One of the proposals being considered is the issue of “free” bonus shares discussed above. The top brass and the legal team of ADAG will really have to “POWER ON” their brains to achieve the above… else the Street will “POWER OFF” all future issues of ADAG.
The Board of Reliance Power is meeting on February 24, 2008 to consider allotment of free bonus shares for all its shareholders other than the promoters as one of the measures to help curtail the losses incurred by its investors. This is the probably the first time a company is attempting to do something like this. This comes with its own share of issues:
1. Legal framework
In my opinion, a company has to allot bonus shares to all shareholders (of a particular class) and a company cannot allot bonus shares only to one group of shareholders (of a particular class). A shareholder can renounce his right to participate in a "rights issue", a shareholder may chose not to participate in a "buy-back offer", a shareholder may chose not to participate in a "open offer", I don’t think a shareholder can renounce his right to get bonus shares - Though a set of people argue that there is nothing in the law which prohibits a shareholder from renouncing his bonus shares. The moot question here is, are bonus shares optional?? The answer I think is "no".
Hence, it would be interesting to see how ADAG addresses this. He may get the promoters to renounce the bonus shares or get them to gift some of their shares to the investors.
2. How will he chose the eligible investors?
The second and a more important question is, how will Anil Ambani choose the investors who are eligible for the bonus shares?? Let us assume he chooses the list of shareholders who were allotted shares as a part of the IPO, then he would end up giving "free" shares to even people who have sold their shares at a profit (remember… there were trades on the first day at prices greater than Rs 430). Alternatively, let us assume he chooses today as a cut-off date and allots shares to all shareholders who hold shares today, then he would end up giving "free" shares to people who have purchased shares at less than Rs 430 and end up not giving "free" shares to people who sold shares at a loss between the day of listing and today (at a price less than Rs 430).
3. Will the shareholders actually profit or will it be a perception??
Finally, it would be interesting to watch if the shareholders will actually make any money. The EPS of the company (when it starts to make profits!!) will be lower after considering the fresh shares. Hence, the price should correct and go down a little. In my opinion, the share will not trade at the same price after the "free" shares are distributed and therefore ADAG may not compensate the shareholders by much (an investor holding 10 shares while the price is Rs 400 is not worse off compared to an investor holding 16 when the price is Rs 250).
4. How will it impact Reliance Energy Limited??
As per the press release from Reliance Power - "the promoters have indicated that they will accept the dilution of the promoter group's shareholding in Reliance Power in the broader interest of protecting investors". As per the offer documents, the post-IPO holding of the promoter group would be around 89% and Reliance Energy Limited owns almost 45% of the company (post-IPO). The above statement would mean that Reliance Energy Limited has indicated that it is accepting the dilution. Doesn't this require the approval of the shareholders of REL? Isn't this move to dilute a holding in Reliance Power detrimental to the shareholders of REL? Wouldn’t this affect the valuation of REL?
The Reliance Power Board is meeting on February 24, 2008 to consider options to reduce the cost of acquisition of the shares and help the investors cut their losses. One of the proposals being considered is the issue of “free” bonus shares discussed above. The top brass and the legal team of ADAG will really have to “POWER ON” their brains to achieve the above… else the Street will “POWER OFF” all future issues of ADAG.
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