India Lost $33 Billion Giving Away Coal Mines, Auditor Says By Rajesh Kumar Singh and Abhijit Roy Chowdhury - Aug 17, 2012

India’s policy of allocating coal mines without auction may have cost the government 1.86 trillion rupees ($33 billion), the state auditor said in its final report of mining losses to the exchequer.
The Comptroller & Auditor General of India’s assessment, presented in the parliament today, said the mines gave undue benefit to companies including Jindal Steel & Power Ltd. (JSP) and Tata Steel Ltd. A Feb. 28 draft, which included state-owned companies, estimated the loss at 10.7 trillion rupees and triggered a probe by the Central Bureau of Investigation.
The report comes at a time when the government is battling a series of graft charges that have slowed down decision making and impeded reforms. Prime Minister Manmohan Singh, who was in charge of the coal ministry for part of the period under review, has been personally blamed by opposition parties for the loss.
“It’s over-simplification of mining valuations,” said Debasish Mishra, a senior director at Deloitte Touche Tohmatsu India Pvt. “One can’t compare the valuation of an operational mine with an unexplored mine as the risks are exponentially high at the beginning. Whichever mines were allocated for captive use to companies had no reliable data on reserves.”
The state auditor’s report on issuance of phone permits sold in 2008 had led to India’s biggest corruption probe and the arrests of government and company officials, and a cabinet minister.

Transparent Method

India began allocating coal mines to companies for their own use in 1993 and gave away 194 blocks with reserves of 44.4 billion tons. Almost half these reserves, spread across 142 blocks, were explored, the auditor said in the report.
“There couldn’t have been a more transparent method of allocating coal blocks at that time,” Coal Minister Sriprakash Jaiswal told reporters today in New Delhi. “It was the need of the hour to involve the private sector to boost coal production, as Coal India alone was unable to meet the rising needs.”
State-run Coal India Ltd. (COAL) is the world’s biggest producer of the fuel.
Of all the coal blocks allocated for captive use, only 30 have started production. Only one among the 57 blocks the state auditor took up for audit began production, Jaisal said.
The auditor estimated a gain of 295.40 rupees a metric ton and multiplied the number with the reserves at the captive mines. The estimate of gain was reached by taking the difference between the average price of coal and the average of cost of production at Coal India’s mines in the year ended March 31, 2011.
The estimate considered only open-cast mines. It counted 73 percent of the reserves at open-cast mines and 37 percent of reserves at mixed mines, according to the report.
India implemented an auction policy for the allocation of coal mines in 2010. The coal ministry subsequently prepared a list of 54 coal blocks with reserves of 19 billion tons for captive allocation. Some of these blocks will be auctioned and other given away to state-run miners, according to the coal ministry’s web site.
To contact the reporters on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net
To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net;

Hindalco to Double Sales on Audi, Jaguar Orders: Corporate India By Abhishek Shanker - Aug 16, 2012

Hindalco Industries Ltd. (HNDL), the world’s biggest supplier of aluminum to carmakers, may double group sales to $33 billion in five years as Audi AG (NSU) and other European carmakers swap steel with the lightweight metal.
“Automobiles are a huge prospect,” Debnarayan Bhattacharya, managing director of India’s second-largest producer of the metal, said in an interview. “The European auto market is booming. New environmental norms are an opportunity for aluminum makers.”
Billionaire Kumar Mangalam Birla’s flagship, contending with falling metal prices and rising costs, is betting regulation to cut carbon emissions and improve fuel efficiency in the U.S. and Europe will prompt carmakers to use more aluminum. Jaguar Land Rover plans to start selling its first all-aluminum Range Rover SUV next month, reducing the car’s weight by 39 percent, while Daimler AG’s Mercedes is using the metal for its 93,534-euro ($114,800) SL model.
Carmakers use about 50 million metric tons of steel a year globally, equivalent to the world’s total aluminum capacity, Bhattacharya, who’s also the vice chairman of Hindalco’s Atlanta-based unit Novelis Inc., said in his office in Mumbai. Stricter carbon emission norms in Europe are bound to lift aluminum demand, he said.
The trend to use aluminum “was started by Audi 20 years ago, and today many automakers including Jaguar are using the alloy” said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen in Germany. “This trend will continue for the next five years, before we see materials such as plastics and carbon fiber become more widespread.”

Emission Rules

Hindalco’s shares have fallen 19 percent in the past year, compared with a 5.5 percent gain in the benchmark BSE India Sensitive Index. The stock dropped 2.8 percent to 116.7 rupees in Mumbai yesterday.
The European Union renewed its crackdown on carbon-dioxide emissions from cars by seeking a binding target for 2020 that’s 27 percent below the existing limit. The European Commission on July 11 proposed to cap average emissions by passenger vehicles in the EU at 95 grams a kilometer in 2020 through varying targets for individual manufacturers ranging from Volkswagen AG to General Motors Co.
Aluminum content in Europe will rise by more than 25 kilograms per vehicle by 2025, Novelis, which supplies Jaguar Land Rover (TTMT), Bayerische Motoren Werke AG, Daimler AG’s Mercedes- Benz and Audi among others, said in June. Audi, owned by Germany’s Volkswagen AG, registered a 12.4 percent gain in sales in the seven months to July, while BMW posted a 7.6 percent rise in the same period.

Earnings Drop

Alcoa Inc. (AA), the largest U.S. aluminum producer, in July reported second-quarter earnings and revenue that beat analysts’ estimates as a result of an increase in orders from the automakers including Ford Motor Co. and Honda Motor Co.
Hindalco, which bought Atlanta-based Novelis in 2007 to gain 20 percent of the high-end aluminum market and customers including Coca-Cola Co., reported its biggest profit drop in three years in the three months ended June 30 at its Indian operations due to lower prices on the London Metal Exchange and higher costs, according to a statement to exchanges on Aug. 14.
Novelis reported a 20 percent increase in net income at $91 million in three months ended June 30, according to a release on the same day. The company aims to add 900 kilotons of capacity, it said without giving a timeline.

China Plant

Novelis also plans to spend $100 million to build a 120,000-ton automotive sheet facility in China and will start construction at the end of this quarter, Chief Executive Officer Philip Martens said on Aug. 14. Global automotive demand for aluminum is forecast to grow 25 percent in five years, he said.
“At present we supply from our European unit,” Bhattacharya said. “With rising demand in both the regions we have decided to set up a new unit,” in China.
Sales of luxury car brands took off in the last six months, Peter Jones, chief executive officer at Lookers Plc, a U.K. car dealership and parts supplier said on Aug. 15. Profit per unit on new cars increased 11 percent, he said.
Hindalco’s increasing focus on automobile makers may be affected should the governments defer deadlines for cutting carbon emissions, said Bhavesh Chauhan a Mumbai-based analyst at Angel Broking Ltd.

Regulation Delayed

U.S. auto and environmental regulators delayed, past a self-imposed deadline of Aug. 15, the release of a final rule requiring automakers to raise the average fuel-economy of their fleets to 54.5 miles per gallon by 2025. President Barack Obama’s administration didn’t say when it will issue the rule targeting model-year 2017 passenger vehicles sold in the U.S.
Hindalco is boosting capacity at home to meet rising demand. It is spending 270 billion rupees ($5 billion) by fiscal year 2015 that will almost triple its domestic capacity to 1.7 million tons helping boost revenue.
The company, set up in 1958 by Birla’s grandfather Ghanshyam Das Birla, is building aluminum smelting capacities in the central state of Madhya Pradesh and in the eastern states of Odisha and Jharkhand with capacities of 360,000 tons each. The project in Madhya Pradesh was scheduled to start in December, according to a September report on the company’s website.
“I don’t think they will be able to finish their greenfield projects in India by 2015,” said Angel Broking’s Chauhan, who has a neutral rating on the stock. Coal needed to fuel the company’s power plants “aren’t coming on time,” he said. Bhattacharya said he doesn’t expect see further delays.

Raw Materials

Hindalco, which had $16.4 billion of sales in the year ended March 31, is seeking supplies of raw materials outside India to cut production costs, Bhattacharya said.
The company aims to secure raw material supplies including bauxite and coal to fire its projects, Bhattacharya said. The two materials account for 60 percent of the cost of producing the metal.
“I don’t want to put all my eggs in one basket -- that is India,” Bhattacharya said, without elaborating. “We are currently evaluating other opportunities outside. We may go for some mines or form joint ventures.”
To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net
To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net

China Gains as $17.5 Billion Subsidy Curbs ONGC Buyouts By Pratish Narayanan - Aug 15, 2012

Oil & Natural Gas Corp. (ONGC), India’s biggest state-run explorer, is lagging behind Chinese peers in the race for overseas assets after subsidies to cap fuel prices drained profit by $17.5 billion over the past decade.
“If it weren’t for the subsidies, all that money would’ve gone into overseas acquisitions,” Chairman Sudhir Vasudeva said in an interview. “We’d definitely have been more aggressive.”
ONGC has spent 1.7 trillion rupees ($30 billion) on discounts since India asked state energy explorers to share the cost about a decade ago, draining profit by about 971 billion rupees, Vasudeva said. ONGC pays state refiners that sell fuels such as diesel and kerosene at below-market rates to temper inflation in a nation where almost 800 million people, according to the World Bank, live on less than $2 a day.
The burden is paring ONGC’s ability to challenge Chinese rivals, which made 95 overseas oil and gas purchases worth $86.4 billion in the past decade, according to data compiled by Bloomberg. ONGC, based in New Delhi, has made seven acquisitions valued at about $8 billion in the same period.
“India is very vulnerable to oil because it imports almost 80 percent of its needs, so companies like ONGC need to buy overseas assets,” said Taina Erajuuri, a Helsinki-based money manager at FIM Asset Management, which oversees about $1.2 billion in assets. “China can pay much more because of its huge foreign-exchange reserves, and this has made them more aggressive.”
Indian Oil Corp. (IOCL) reported the nation’s biggest corporate loss this month after the government failed to compensate it for capping fuel prices. The state-run company’s loss widened to 224.5 billion rupees in the three months ended June 30 from 37.2 billion rupees a year earlier.

Videsh Output

ONGC has gained 2.2 percent in the past 12 months, compared with a 5.3 percent increase in the benchmark BSE India Sensitive Index and Brent oil’s 3.7 percent gain in London.
ONGC Videsh Ltd., the overseas unit that can produce about 10 million metric tons of oil equivalent a year, may have doubled its output through acquisitions had the subsidy funds been used for buyouts, Vasudeva said.
State-owned explorers will pay refiners 550 billion rupees as subsidy for the year ended March 31, two people with knowledge of the matter said May 21.
While ONGC, which started in 1955 as a division of the Ministry of Natural Resources, wants to increase international production sixfold by 2030, it has been beaten by overseas rivals in the quest for assets from Latin America to Africa as developing economies in emerging markets seek to secure energy supplies.

Tullow Stake

ONGC failed to win Exxon Mobil Corp. (XOM)’s 25 percent stake in an Angolan oil block after making a $2 billion offer, two people with knowledge of the matter said in March last year. Sonangol EP, Angola’s state-run oil producer, bought the stake, the company said on Feb. 24.
A joint offer by ONGC, Indian Oil and Oil India Ltd. to buy a 33 percent stake in London-based Tullow Oil Plc’s Ugandan exploration interests failed as the consortium was outbid by Cnooc Ltd. (883), the Hong Kong-listed unit of China’s biggest offshore oil and gas explorer, a person familiar with the matter said in June 2010.
Earlier this year, ONGC and GAIL India Ltd. said they were participating in the sale process of Cove Energy Plc. (COV) In June, ONGC Videsh said it wouldn’t make an offer for Cove, for which Thailand’s PTT Exploration & Production Pcl (PTTEP) bid 1.2 billion pounds ($1.9 billion).

Syria Sanctions

ONGC is seeking alternatives as oil output from its Sudan and Syria fields is disrupted, and it faced criticism from India’s auditor for its most expensive acquisition.
Output by ONGC Videsh, which has 30 projects overseas, dropped 7.4 percent to 8.75 million tons of oil equivalent in the year ended March, according to a May 21 company statement.
Syria is producing fewer than 200,000 barrels of oil a day, almost half its output before an uprising against the regime of President Bashar al-Assad began in March 2011, Oil Minister Said Hunaidi said on Aug. 3. The U.S. and European Union have imposed sanctions on the country following al-Assad’s crackdown on protesters. More than 21,000 people have died in the unrest, according to the Syrian Observatory for Human Rights.
“There’s no certainty when production will start again in Syria. We’re in a difficult position there,” Vasudeva said.
South Sudan halted production in January after a pipeline payment dispute with neighboring Sudan. The two nations reached an agreement on Aug. 4. Restarting production may take six months or longer, the International Energy Agency said on Aug. 10.

‘Politically Unstable’

ONGC’s biggest acquisition was the 1.4 billion pound purchase of Russia-focused Imperial Energy Corp. in 2009. ONGC Videsh lost 11.8 billion rupees in the 15 months ended March 2010 because of lower production from its Russian fields operated by Imperial, the Comptroller & Auditor General of India said in March 2011.
The company is close to an agreement to buy its first shale gas asset in the U.S. and plans to spend at least $1 billion on purchases, D.K. Sarraf, managing director of ONGC Videsh, said on March 2. ConocoPhillips (COP) and ONGC have signed an agreement to develop shale resources in India and North America.
ONGC, which had more than 200 billion rupees of cash as of March 31, may not get a cheap asset in developed nations like the U.S., FIM Asset’s Erajuuri said.
“They need to look at countries in Africa that may be politically unstable, but will provide good assets for a better price,” she said.
To contact the reporter on this story: Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

Subbarao Says India Lacks Scope for Stimulus to Counter a Crisis By Anoop Agrawal - Aug 13, 2012

India has no space for economic stimulus to respond to a future crisis partly because it faces elevated inflation, central bank Governor Duvvuri Subbarao said.

“Inflation is high, oil prices though they have come off $100 a barrel are at elevated levels, the external sector is under stress,” Subbarao said in a speech in the southern Indian state of Kerala yesterday. “There is just no space for fiscal or monetary response.”

The Reserve Bank of India left interest rates unchanged in July, breaking with a wave of cuts in borrowing costs from China to Brazil as the global recovery falters. The pace of Indian price rises has held above 7 percent for most of 2011, stoked by food and energy costs and a drop in the rupee, curbing Subbarao’s scope to counter the slowest economic expansion in almost a decade.

“Some sacrifice in growth is inevitable and an unavoidable cost in bringing inflation down,” Subbarao said. Core inflation at 5 percent is “still quite high,” he also said.

The rupee has tumbled about 18 percent against the dollar in the past 12 months, making imports more expensive. It weakened 0.1 percent to 55.3438 per dollar at the 5 p.m. close in Mumbai yesterday. The BSE India Sensitive Index of stocks advanced 0.4 percent. The yield on the 8.15 percent government bond due June 2022 rose to 8.20 percent from 8.16 percent on Aug. 10.

The central bank kept its benchmark repurchase rate at 8 percent last month for a second meeting. Headline inflation probably exceeded 7 percent for a sixth straight month in July, according to the median estimate of 29 economists in a Bloomberg News survey ahead of a report due today.

Growth in Asia’s third-largest economy slowed to 5.3 percent in the three months through March from a year earlier, the least since 2003.

“In other emerging economies, inflation has also come down,” Subbarao said. “In India, even as the growth has come down, our inflation has not come down. India is somewhat of an outlier in the world.”

At the same time, Subbarao also said that India’s long-term growth story remains credible.

To contact the reporter on this story: Anoop Agrawal at aagrawal8@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

ONGC Profit Rises 48% After Rupee Value of Oil Sales Gains By Pratish Narayanan and Rakteem Katakey - Aug 11, 2012

Oil & Natural Gas Corp. (ONGC), India’s biggest energy explorer, reported a 48 percent increase in first-quarter profit after the rupee value of crude sales rose.

Net income climbed to 60.8 billion rupees ($1.1 billion), or 7.10 rupees a share, in the three months ended June 30, from 40.95 billion rupees, or 4.79 rupees, a year earlier, the New Delhi-based state-owned company said today in a stock exchange filing. The median estimate of 32 analysts compiled by Bloomberg was a profit of 54.4 billion rupees. Sales rose 24 percent to 200.8 billion rupees.

The rupee’s decline in the quarter countered falling crude prices for ONGC, which bills customers in U.S. dollars and increases earnings after conversion into the local currency. The explorer plans to spend 1.25 trillion rupees to boost oil and natural gas output in the next five years.

“This quarter, the lower rupee boosted their profit,” Sujit Lodha, a Mumbai-based analyst at Asian Market Securities Pvt., said before the earnings announcement. “ONGC also has to find more reserves and increase production. That’s where growth is going to come from.”

ONGC has gained 8.7 percent this year compared with a 14 percent increase in the benchmark Sensitive Index (SENSEX) and briefly became India’s biggest company by market value last month. The stock fell 0.3 percent to 278.95 rupees yesterday, giving it a market value of $43 billion, third-highest among the nation’s publicly traded companies.

“Since oil and gas are priced in dollars, the rupee’s depreciation last quarter boosted revenue and profit,” Chairman Sudhir Vasudeva said. “This is even though the net realization per barrel fell.”

Four Discoveries

The explorer made four discoveries in the last month, it said in the statement. Oil production rose 3.2 percent to 6.543 million tons while gas production was 6.417 billion cubic meters.

ONGC is mandated by the government to give discounts on oil supplies to state-run refiners to partly compensate them for selling fuels below cost. It needs to sell crude for at least $55 a barrel to fund capital expenditure, Vasudeva said July 25.

The company said it sold crude oil at $46.62 a barrel in the quarter compared with $48.74 a barrel a year earlier. Discounts given to refiners were 123.5 billion rupees, compared with 120.5 billion rupees a year earlier, according to the statement. During the quarter, the discount per barrel was $63.27 a barrel compared with $72.53 a barrel a year ago, Vasudeva said.

Brent Benchmark

Brent crude, a benchmark for more than half of the world’s oil, averaged $108.76 a barrel in the quarter, 7 percent lower than a year earlier. The rupee declined 8.6 percent against the U.S. dollar in the period, the worst performer among major currencies in the Asia-Pacific region.

The explorer may spend an additional $1 billion to acquire shale assets in the U.S. It plans to focus on shale and deepwater areas to double production and triple profit by 2030, Vasudeva said May 29.

To contact the reporters on this story: Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net