|Lay 'em thick: Distribution
will be key to making natural gas a much more cost-effective
source of energy
soon in the future, a 1,400-km gas pipeline will snake its way from
Kakinada to Ahmedabad. But this won't be just another energy sector
investment. It will mark the private sector's maiden foray into
a business long monopolised by GAIL India. To be built by Reliance
Industries, the Rs 3,000-crore pipeline will transport gas from
Reliance's offshore field in the Krishna-Godavari (kg) basin to
NTPC's Kawas and Gandhar power project in Gujarat. Making that possible
will be a change in the pipeline policy, to be sent soon to the
Union Cabinet for its approval, that will end GAIL's privilege as
the sole builder of gas pipeline on trunk, or interstate, routes.
At the moment, Reliance is the only energy
company to have made known its plans to invest in its own pipeline,
but it's almost certain that other players will follow suit. In
the recent past, major gas reserves have been struck on the East
and West coasts of India and onshore in Rajasthan by companies such
as Reliance and Cairn Energy. That apart, LNG is now being imported
into India by Petronet LNG (a consortium of IOC, BPCL, ONGC and
GAIL), and a couple of others like Shell Gas and Power have plans
of bringing in natural gas starting end of this year.
Transporting natural gas from the landing site
to institutional consumers such as power and fertiliser companies
will require a network of pipelines across the country. Says A.M.
Uplenchwar, Director (Pipelines), IOC: "Once the government
allows multiple players, we'll go all out."
Although GAIL contends that allowing
multiple operators will lead to potential supply disruptions, the
government is unlikely to have too much trouble deciding in favour
of it. Set up by the government in 1984 with the sole mandate of
developing pipeline network and marketing gas, GAIL got to build
and control all the trunk routes (a total of 4,500 km) including
the 2,700-km Hazira-Bijaipur-Jagdishpur (HBJ) line, while some of
the intrastate pipelines, open to competition, went to regional
players like Assam Gas and Gujarat State Petronet.
| Despite GAIL's contention that allowing
multiple players will lead to disruptions in supplies, the government
is likely to rule in favour of greater competition
But the nature of gas business has changed dramatically
since. Besides ONGC and oil, private companies like Reliance, Shell,
Cairn Energy and Niko have entered exploration and production. This,
in turn, has boosted gas production. The turning point came in October
2002 when Reliance reported discovery of a huge gas reserve in kg
basin, and it wanted to transport gas from here to the western parts.
Ordinarily, it would simply have been an issue of hammering out
a transportation agreement with GAIL. But here's the problem: over
the years, GAIL has diversified both into exploration and distribution.
Its new status, therefore, puts it head on with other players such
Now it seems the UPA government will favour
a multi-operator national gas grid as India currently has multiple
sources of gas and a huge market to satisfy. So GAIL's plans of
becoming the sole implementing agency for building a national gas
grid (approximately 8,000 km with an investment of Rs 23,000 crore)
may not happen. Even the Planning Commission, responding to a GAIL
pitch early this year for retaining its monopoly, said that granting
exclusivity to the PSU in any segment of the gas infrastructure
will be counter-productive as it is present in gas production, transmission,
distribution and trading. In any case, the plan panel said, the
government should first appoint a regulatory agency for gas pricing
before allowing GAIL to set up the proposed national gas grid. Anindya
Chowdhry, Chief Advisor (Strategy), Shell Gas & Power, says
that pipeline business needs to be "isolated from the rest
of the businesses a company does"; otherwise the regulator
will have difficulty in determining pipeline tariffs.
| WAITING TO GO
There are a dozen potential entrants
into pipeline, but these could be the bigger ones.
Awaiting government approval for its 1,400 km Kakinada-Uran
pipeline proposal. Will be a major player in gas transportation
The gas exploration and production giant has plans to lay
pipelines across the country barring areas where distribution
partner GAIL already operates.
As part of a consortium that includes Russia's Stroytrangaz
and Essar Constructions, IOC has already commissioned a Rs
198-crore Baroda-Ahmedabad-Kalol gas pipeline project for
Gujarat State Petronet. Has other projects on the cards.
Gujarat State Petroleum Corporation
Government-owned, it is already setting up a 2,500-km pipeline
in Gujarat. Once the interstate network is open for multiple
players, GSPC is likely to get into trunk routes too.
Gas pricing is as much a driver behind the deregulation.
Reliance argues that PSU costs were inflated and its own pipeline
transportation charges would be substantially lower than those of
GAIL. For instance, Reliance has won the bid to transport gas to
NTPC's plants in Gujarat for 48 cents (Rs 22.25) per million metric
British thermal units (MMBTU) compared to what GAIL charges (70
cents, Rs 32.45) on the HBJ grid. (GAIL says it is willing to offer
40 cents per MMBTU.) Says Rajiv Thakur, oil and gas analyst at ICRA:
"If Reliance gets the go-ahead and other players follow suit,
there will be a fair amount of competition that will result in more
competitive pricing, benefiting the consumers."
Even though the pipeline policy envisages a
common carrier principle with an additional 25 per cent capacity
to transport gas other than one's own, it's not just about transporting
gas. Says Sandeep Biswas, Senior Manager, Accenture: "The issue
is availability of gas at competitive prices and not availability
of gas per se."
But the reason why there will be a rush to
set up gas pipelines is that in the foreseeable future gas is expected
to remain a major source of energy. And according to O.P. Sharma,
President, Saw Pipes, manufacturer of oil and gas pipes, "gas
(unlike oil) can only be transported via a pipeline". That
means the pipe dreams of GAIL's competitors will sooner than later
With Rediffusion DY&R almost in its bag, Martin
Sorrell's WPP Group will control nearly half of the media spend
in the country.
WPP's Martin Sorrell: Lord of advertising
Martin Sorrell has now become the second Edward VII, the emperor
of India,'' says Suhel Seth, CEO of Equus Red Cell, commenting on
ad-conglomerate WPP-owned Young & Rubicam's reported takeover
of the Rs 1,000-crore Rediffusion DY&R from its majority Indian
owner-managers, Diwan Arun Nanda and Ajit Balakrishnan. Seth, an
ad-man about town, may be given to exaggerations, but this time
he's bang on. With Rediffusion almost in its portfolio, WPP, which
already owns a clutch of outfits in the country (see WPP's India
Empire), will control half of the Rs 8,600-crore market for advertising.
''An aberration has been corrected,'' says Ranjan Kapur, Country
Head of WPP India, a liaison office, referring to $6.76-billion
(Rs 31,096 crore) WPP's minority status in Rediffusion for almost
two decades now.
Negotiations with Rediffusion started more
than a year ago, and the purchase is likely to have been struck
at an enterprise valuation of approximately Rs 150 crore. Nanda,
however, says that "it's premature to speak of valuations at
this stage," since "no deal has been agreed upon."
However, he adds that "the timing and extent of an increase
of (Y&R) stake are all aspects of ongoing discussions"
While the deal per se hasn't surprised the
industry, it does throw up some interesting questions at the fundamental
level. For one, does this takeover, of one of the last big Indian-owned
agencies, indicate the end of Indian ownership in advertising? With
nearly half of the market under its belt, has WPP, even though just
a holding structure back in the United Kingdom, become too big in
India for the industry's own good? Will competing networks such
as IPG, Omnicom, Publicis, Dentsu and Havas take cue from an aggressive
WPP and up their ante in the country?
| Most people in the industry agree that at
the creative end group-wise synergies is a non-issue, since
all agency brands compete aggressively for the same business
''Ownership does not matter. What matters is
ideology, and Indian managers will drive ideology in this market,''
says O&M India's Chairman & National Creative Director,
Piyush Pandey. He may be right. Most people in the industry agree
that at the creative end, group-wise synergies is a non-issue, since
all agency brands compete aggressively for the same business. And
that media consolidation has already happened with Group M accounting
for around Rs 3,000 crore worth of ad purchase. So, Redffusion's
media kitty being added to Group M it won't change the rules of
the game any significantly.
With Reliance-backed Mudra Communications the
only big Indian-owned agency (Omnicom's DDB Needham owns just 10
per cent in it) still standing solo, does it mean that any agency
worth buying in India, from a global group's point of view, is already
bought? Well, yes and no. If you look at agencies such as Madison
Communications, which is perhaps the only serious competition to
WPP's Group M in India and is headed and zealously guarded by the
feisty Sam Balsara, the answer is a No. Then, for every Madison
there are dozens of small and medium Indian-owned agencies that
are game. So there is room for more acquisitions by WPP or one of
its rivals. ''Sadly, from the point of view of Omnicom or IPG, there
is just no big agency left worth looking for acquisition in India,''
says the CEO of one the Omnicom group agencies (Mudra Communications,
RK Swamy BBDO and TBWA Anthem) in the country.
WPP'S INDIA EMPIRE
» RMG David
Except for Group M, which is a media planning and buying outfit,
all the agencies are in the creative business. Rediffusion
DY&R, however, has both creative and media planning and
The moot question, then, is, if there isn't
enough size to be picked up through acquisitions, how will Omnicom,
IPG and Publicis take on WPP in India? ''Well, they could push,
much like WPP, for a media consolidation across their agencies in
India,'' says a senior manger at one of the IPG agencies (Lowe,
McCann Erickson, FCB Ulka and Enterprise Nexus) in India. Problem:
IPG and Omnicom's track record here has not been exactly impressive,
what with Omnicom unable to up its stake in Mudra or even launch
its group wide media arm, Optimum Media Direction (OMD) in the country.
But that may change with the realisation setting
in that a big market such as India cannot be left unattended for
long. And WPP-what with its $1.3-billion bid for Grey Global if
it comes through-will only get more powerful in India. ''Omnicom
may soon tie-up with Mudra to launch a majority owned new agency
in India. And IPG's media arm, Magna, will be here, latest by April
2005,'' says the CEO of a WPP competing network-agency in India
Looks like Sir Martin, who loves a good fight,
be it over his pay packet or a takeover (of Grey Worldwide at the
moment), will finally have competition gearing up for a real fight
Most people in the industry agree that at the
creative end group-wise synergies is a non-issue, since all agency
brands compete aggressively for the same business
Tux To Fly
Big Blue is pushing Linux-especially in India.
|Go Open Source: IBM India's Linux revenues
are up 50 per cent in 2004
years after IBM's former CEO Lou Gerstner decided to put the it
giant's weight behind the open source movement, and especially back
Linus Torvald-fathered Linux operating system (OS), it has set aside
a billion dollars to fuel the movement across the world. Not surprisingly,
a sizeable chunk of it is coming to India, which unlike America
or Europe, does not have a market that is already wedded to proprietary
OS. "We have identified the emerging markets of BRIC (Brazil,
Russia, India, China) as thrust areas for Linux," says Jyothi
Satyanathan, Linux Business Manager for ASEAN and South Asia, IBM.
(FYI, the company is also scouting for a Head of Linux for India.)
At the moment, some 2 per cent of the total
installed pc base in the country runs on Linux, according to estimates
by Manufacturers Association of Information Technology. But the
numbers are steadily increasing. IBM India's revenues from Linux,
for example, has seen a 50 per cent jump from last year to this
year. This growth, however, has come mostly from the enterprise
Why is IBM going out of its way to mid-wife
Linux in India? For a variety of reasons, most of which have to
do with cost and security, most governments in Asia, China and India
primarily, want to adopt open source software. By pushing Linux,
IBM not only gives customers what they want but should also make
more profits since it does not have a Microsoft to pay for the OS
it puts on its servers and desktops. Recognising the potential of
the government sector, IBM has set up a Centre of Competency in
Bangalore to provide an infrastructure for Linux testing, prototyping
and training to the Linux user community, besides IBM's business
partners like resellers. That apart, it has tied up with Karnataka
and West Bengal on e-learning initiatives based on Linux. If IBM's
efforts pay off, Tux (the Linux logo of a penguin) may actually
take wings in India.
"Linux Is $6-billion-big In India"
Stallings is the worldwide head
of Linux for IBM. He spoke to BT's
on Linux's progress
over the recent past. Excerpts:
On IBM pushing Linux since 1999
We are happy with the progress we've made. The
speed with which a lot of corporations are moving to Linux is really
surprising. Analyst data put Linux-based server shipments at about
$1 billion every quarter. Which means Linux has clearly emerged
as an alternative to Windows. Even a couple of years ago, some people
would have doubted that happening.
On Linux in India
You'd be surprised to know that already there
is a $6 billion-big Linux market in India, but most of that is going
to markets abroad like the US. But we find governments very interested
in open source, and I think India is going the right way in building
a Linux ecosystem.
On Linux vs Windows
Let me tell you, it's not about Linux or Windows.
Just because people are switching to open standards doesn't mean
Windows is going to go away. We believe in giving our customers
choice. In fact, one of our server initiatives offers OS/400, AIX,
Linux and Windows so that customers can run different operations
on the same server.
Honda's Recall Woes
two months ago, Honda-Siel Motors recalled some 12,000 of its new
Honda City cars. Last fortnight, it announced that it was recalling
2,000 of its Accord luxury sedans as well. What's going on? Nothing
unusual, says Neeraj Garg, a spokesperson for Honda-Siel Motors.
''This is an international recall, and the cars we have recalled
in India are those with potentially defective components that were
sent to us, and only the hood top requires replacing. Otherwise
only a bit of tweaking is required. This is not similar to the City
recall,'' he says.
But wouldn't two product recalls in two months
hurt Honda's brand image in India? If Honda City's experience is
anything to go by, then maybe not. There is still a three-to-four
week waiting for the City, and it still sells more than 2,500 units
every month. When the Accord recall was announced, it was the market
leader in its segment and had sold over 3,000 units since its launch
a year ago. ''From what I have seen, customers have not complained
about the recall at all. This is all part of our corporate transparency
strategy," says Garg. No doubt, it is also a sign of the car