ONGC's Bombay High: The Reliance gas strike is bigger

Dhirubhai 1, Dhirubhai 2, and Dhirubhai 3 came into being on October 31, 2002. Sometime around noon that day, in the course of his speech at the company's annual general meeting (AGM) Reliance Industries Chairman Mukesh Ambani announced the renaming of the three fields where the company had struck gas-in block KG DW 6/98 in the Krishna-Godavari Basin in the southern state of Andhra Pradesh-after his father, the company's previous Chairman, the late Dhirubhai Ambani. ''The gas availability to consumers in the country will increase by almost 60 per cent,'' he added.

India will have to wait up to four years for that, the time it will take Reliance to 'commercialise' its find of 7 trillion cubic feet of gas out of which 5 trillion feet is recoverable-a number that translates into a delivery of 40 million standard cubic feet (MSCF) of gas a day, 1,461 days from now. That's between 60 and 70 per cent more than what ONGC's famed Bombay High produces and Satyam Agarwal, an analyst with Mumbai-based Motilal Oswal Securities reckons it will fetch Reliance Industries between Rs 7,500 crore and Rs 8,000 crore a year (work it out for yourself; gas is priced at Rs 5 a cubic metre in the international market).

The quantum of Reliance's strike has shaken everyone. ''People have been talking about gas discovery in this basin, but not on this scale,'' says Anjan Majumdar the Head of IBM Business Consulting Services' Oil and Gas Practice. Still, the find, large as it is, won't change things much. Last year (2001-02), India consumed around 150 MSCF of gas; ONGC, Oil India Ltd, and the several gas JVs operating in the country together supplied 66 MSCF; the rest was imported. And the Ministry of Petroleum and Natural Gas estimates demand to increase to 231 MSCF by 2006-07 and 313 MSCF by 2011-12. Gas self-sufficiency, then, isn't on India's near-term horizon, not unless companies make a few more strikes of similar magnitude to Reliance's. For the record, on the same day as Reliance's AGM, ONGC announced that it had struck oil and gas-the quantum of reserves was being ascertained as this magazine went to press-off the coast of Andhra Pradesh.

Nor does Reliance's strike do anything for the chances of finding oil in the Krishna-Godavari basin. ''Most fields in the basin are gas-bearing,'' says Ardhendu Sen, a Senior Fellow at the Tata Energy Research Institute. ''They are unlikely to yield any crude.'' There's a sliver of a chance of the find reducing India's dependence on crude imports. Eight out of every 10 cubic feet of gas burnt in India is used by the fertiliser industry, and the bulk of refined crude, some 80 per cent-petroleum and diesel-is used by the transport industry. If more trucks turn to CNG, India could save precious foreign exchange by importing less crude.

Gas is also a preferred substitute to coal and naphtha in thermal power plants. Apart from being a cleaner fuel, it costs less to pipe gas to power plants than to ship coal or naphtha to it. Gas turbines, however, cost more than conventional ones-by a factor of 35 per cent-and the fuel may not find too many takers in the power sector. What the gas find will do is scotch the ambitious plans of the LNG (Liquified Natural Gas) industry. Gas produced domestically is about 40 per cent cheaper than LNG. Ergo, no new LNG plants will come up in India.

Reliance won't have it easy piping the gas to the market. ONGC's gas is piped on Gas Authority of India Ltd (GAIL) pipelines; Reliance will probably have to create a pipeline network from scratch. And it will have to compete with ONGC, which offers gas to fertiliser and power plants at a subsidised Rs 2,850 for thousand standard cubic metres per day, as compared to the market (read: import parity) price of Rs 5,800 for thousand cubic metres per day. Maybe in the four years it takes Reliance to pipe its gas, free-market dynamics will catch up with the public sector major.

-Ashish Gupta

CELL CULTURE
Slippery Grip
Nokia is fast losing share to smaller rivals.

When you are the market leader, you have everything to lose. Ask Nokia. As recently as 2000, the Finnish giant accounted for five out of every 10 handsets sold in India. Its marketshare, according to estimates provided by industry has since dropped to 37 per cent. Says Pankaj Mohindroo, President, Indian Cellular Association (an association of handset manufacturers): "As the legal market grows, Nokia will stabilise at its international share of 30 to 35 per cent."

Price has been one reason for the market's shift away from Nokia. Its best-selling model, 5110, reigned for more than three years as one of the cheapest handsets at Rs 5,900 (it cost lower in the grey market). Then came Motorola with its T-180 priced at Rs 3,500 with dual ban compatibility and the 5110 lost its sheen and was phased out in October 2001. Nokia, however, disagrees it is losing its touch. Says Gautam Advani, Head (Marketing & Corporate Communications), Nokia India: "There is no downward trend in Nokia's marketshare. It's going up and it's going up very well."

Of all its rivals, Samsung has emerged Nokia's biggest challenger. The Korean rival has doubled its marketshare to 20 per cent in just three years-and not just on the strength of pricing. Points out Parijat Chakraborty of IDC India, "Samsung's Blue-i changed the market dynamics. After that the other brands also started focussing on dual display." If there's anything market leader Nokia must hate, it is having to play catch up.

-Ankur Sabharwal

10P5
Mere Paper
Should the Tenth Five Year Plan be taken seriously? We think not.

Planning Commission's Deputy Chairman K.C. Pant: The sky is the limit

The stockmarket couldn't care less, about it investment bankers ignore it, companies regard it with studied indifference, the man on the street probably doesn't even know of its existence, even high-brow academics hardly discuss it.

The it in question is the approach paper to the Tenth Five Year plan and it shouldn't have provoked this reaction, or lack of it. After all, the need for a medium-term strategy for the country as a whole cannot be discounted.

D.K. Srivastava, a professor at the National Institute of Public Finance & Policy lays the blame for the universal apathy the Plan triggers at the door of its author, the Planning Commission. ''The present incarnation of the Planning Commission has little relevance in a market economy.''

Srivastava would like to see the Commission stop trying to micro-manage all sectors of the economy and focus largely on areas the private sector is sometimes afraid to touch, such as education, healthcare, and housing. ''In other sectors, it should play the role of a facilitator to the private sector,'' he adds.

Forgiving the Planning Commission all that, it is still difficult to take the Plan seriously. Attribute that to its irrational exuberance. Between 2002-03 and 2007-08, for instance, it expects the Indian economy to grow 8 per cent, year after inexorable year. Its sequential growth rate estimates are even more sanguine: 6.7 per cent in 2002-03, 7.3 per cent in 2003-04, and 8.1 per cent, 8.7 per cent, and 9.2 per cent in the three years running up to 2006-07.

In the last three years of the Plan, then, the Indian economy will grow at an average of 8.7 per cent every year. With actual growth failing to cross the 6 per cent mark over the past few years, it is easy to understand why no one, within the government or outside it is willing to take these numbers seriously.

The Plan's tone of cheery optimism continues through the rest of its projections. It expects industrial production to increase at the rate of 10 per cent a year; the prevailing rate is an anaemic-by-comparison 5.04 per cent. It expects the disinvestment process to bring in Rs 78,000 crore of revenues over the next five years.

A target of Rs 16,000 crore a year does seem a bit much, especially when seen in the context of the bickering within the ruling National Democratic Alliance over privatisation. And it hopes to see an increase in savings from 23.31 per cent of GDP to 26.84 per cent over the next five years. With interest rates on a downward slope that seems unlikely.

The Union Cabinet cleared the three-volume, 2,000-page Tenth Plan document which, apart from everything else mentioned above, lays the roadmap for far-reaching labour, tax, and fiscal reforms on October 30, but not without extracting its pound of flesh.

The Plan document was cleared, the government said, ''pending a final view on the disinvestment of public sector enterprises''. That should happen by December 7. As for the numbers projected by the Plan, they won't happen anytime soon.

-Ashish Gupta

GUVSPEAK
''Variable interest rate mechanism will benefit all''

RBI's Bimal Jalan: Perfecting the balancing act

Presenting his 10th monetary and credit policy on October 29, Reserve Bank of India Governor, Bimal Jalan cut the bank rate to 6.25 per cent, the lowest it has been since May 1973. A day after he presented the policy Jalan spoke to BT's Roshni Jayakar on his reading of the impact of the cut. Excerpts:

The low interest rate is attractive to borrowers, but won't it scare people into not saving?

We discussed the issue in the annual credit policy. In our country, savers are different from borrowers. Protection of savers' interest is a priority, as otherwise the financial savings can get eroded. We see the answer to reconciling the interests of savers and borrowers through a variable interest rate mechanism whereby the variations in the interest rates will benefit both borrowers and savers.

Following the cut in bank rate cut, most banks have cut their deposit rates and not the Prime Lending Rates. Was there an expectation of a PLR cut?

It is for the banks to decide on prime lending rates. The Reserve Bank of India (RBI) is sending out a comfort message that liquidity situation is favourable and that the interest rate outlook is positive despite the drought. We are trying to stabilise expectations. The conditions are now favourable for people to make their investment decisions.

Do you see the investment picking up soon?

The monetary policy can only create a suitable environment for investors. The actual decisions have to be made by those who have to invest.

While the AAA rated corporates can borrow at sub-PLR, the second and third rung corporates continue to borrow at 16 to 18 per cent. They are not getting credit at low rates. The policy seems to have not done nothing to change that.

We have highlighted that issue in the policy. Certainly we want the investment to be more broad-based. Also, as we have seen in case of housing finance, lower rates have benefitted everybody. In our view, to be sustainable, a lower interest rate regime has to benefit all.