Hot air in the pipeline: shell's LNG terminal at Hazira

On February 23, 2005, the seven-member Gas Industry Group (GIG), comprising leading gas companies in the country-BG India, Exxon Mobil, Shell Gas & Power, Gujarat Paguthan Energy, Gujarat Petroleum Company Limited, Gujarat Gas Company and Reliance Industries-finally had to turn to the press for help. They had been trying for months, without success, to get the Union Power Ministry to address their concerns.

The provocation: a recent addition to the Draft Pipeline Policy, which made it mandatory for all players using the pipeline network of GAIL (India) Ltd. to make available a certain percentage of the evacuated gas to it. GIG wants to pay GAIL in cash for using its grid. The reason: paying a part of the access and transit fees in gas makes it virtually impossible for GIG members to commit definite gas supplies to their buyers. "It will be virtually impossible to market gas under the new circumstances," contends Nigel Shaw, CEO, British Gas, India.

There seems to be some logic in the GIG argument. Since gas production varies from year to year, meeting commitments is a difficult proposition even in the best of times. Parting with a portion of gas to GAIL will only compound the problem. But the government is unwilling to give in: it needs the additional gas to meet its social obligations, which the private players are unwilling to do.

But this is not the only problem dogging the still-to-be-announced pipeline policy. Another sticking point: should GAIL alone develop the proposed nationwide gas pipeline grid or should other (private) players also be allowed to participate? This has forced GIG members to adopt a wait-and-watch policy, thus, slowing down the development of this sector. Shell, which has already invested around $750 million (Rs 3,300 crore) in its Indian LNG business, now finds that it cannot reach, or find, new customers because of government regulations.

Gas pricing is another contentious issue. The government has capped gas prices at around $2 (Rs 88) per million metric British thermal units (MMBTU) to subsidise fertiliser plants. "Any price less than $5 (Rs 220) per MMBTU is uneconomical and, therefore, unsustainable," says a senior Shell official. Even Exxon-Mobil and Gujarat Gas feel that there is a need to set market-related prices for gas. Further, with local gas distribution being thrown open in many cities, new regulations are needed for the award of licenses and for issues relating to the delineation of exclusive distribution areas and period of contract. Nothing seems to have been done on this front.

An independent regulator is clearly the need of the hour, but with the Petroleum and Natural Gas Regulatory Bill still pending in Parliament, no solution seems in sight. The industry demand is reasonable: clear demarcation of responsibilities between the Ministry of Petroleum & Natural Gas and the regulator. GIG members also want a separate regulatory authority for the gas sector-as in the US and UK-and not one that is clubbed with the oil sector "because of the different needs of this sector".

There is a crying need for speeding up the development of this sector: gas isn't just more environment-friendly, its use can also substantially bring down the cost of fertiliser and power in this country. Replacing the more expensive naphtha (cost: $9-12 or Rs 396-528 per MMBTU) with gas as feedstock for power and fertiliser plants will also save the government huge amounts as subsidies. Is the government alive to these possibilities? The time to act is now.

-Ashish Gupta

Mittal Turns To India
Steel czar L.N. Mittal finally unveils his plans for India.

Mittal Steel's L.N. Mittal: Homecoming

Lakshmi Niwas Mittal is looking homeward. In the first week of May, Mittal, Chairman and CEO of the $31-billion (Rs 1,36,400-crore) Mittal Steel Company NV, sent a three-member team to Jharkhand. Its brief: initiate talks on setting up a greenfield steel plant in the state. The team, which included Mittal Steel's Head of Finance & Corporate Treasury, Sudhir Maheshwari, and its Director, Mining, M.P. Singh, conducted an aerial view of Chaibasa in Manoharpur district of Jharkhand, and then met state Chief Minister Arjun Munda, and Minister for Mines Madhu Koda. The company will now conduct a feasibility study on the project and submit a proposal to the state government.

Mittal, who built his empire buying and turning around ailing steel companies in Europe, Asia, Africa and the US, has not yet frozen the size of his Jharkhand venture. There have been reports that he is planning to invest $5.5 billion (Rs 24,200 crore) on a 10 million-tonne greenfield plant-his first such project. But the company is being tight-lipped about its plans. "Mittal Steel is a global company and we are very interested in the Indian market, and would look at appropriate opportunities as they present themselves," a spokesperson at the company's London headquarters told BT.

-Swati Prasad

The Real Estate Boom
There's a correction around the corner, but it may not last too long.

High rise: You may have to pay less for this

If you're already counting the capital appreciation on the dream house you bought two years ago, we suggest you hold the bubbly. The rise in real-estate prices seems set to slow down. "A correction will happen over the next six months to a year," feels Chanakya Chakravarti, Joint Managing Director, Cushman & Wakefield. The good news is that it could be limited to overheated markets like Gurgaon and Noida in the National Capital Region, and parts of suburban Mumbai such as Goregaon, Malad and Powai.

Even though demand for housing remains buoyant, there is evidence that some buyers are postponing their purchases. The reasons: interest rates on housing loans have inched up and discounts are no longer on offer. And, with property prices soaring, the difference between the rent of a housing unit and its equated monthly instalment is widening. "Rental income will not justify investment in property compared to other investment opportunities, unless the investor is betting on capital appreciation," says Kashyap. But builders disagree. "I expect to see a 15 per cent increase in demand this year," says Niranjan Hiranandani, Managing Director, Hiranandani Constructions. That's heartening. And if the economy continues to grow at the current clip, the correction, when it comes, won't last for too long.

-Swati Prasad

AUTO
On A Slow Charge

Novel: Reva's Maini with the new Reva

The Reva electric car has three crucial defects: it is extremely slow (maximum speed: 60-65 kmph), has limited range (80 km in "economy" mode) and is unattractive to behold. So Chetan Maini, Managing Director of Reva Electric Car Company, hired car designer Dilip Chhabria to correct these flaws. The result: Reva NXG, a roadster that has better range-200 km-snazzier looks, better suspension, an on-board tablet pc with Global Positioning System software and GPRS Internet connectivity, and a top speed of 120 kmph. "This car can just rocket off the start-line," Maini boasts. He has no plans of productionising the NXG just yet; it is just a technology demonstrator. Meanwhile, Indians still haven't got used to the idea of charging cars. That's why, despite a running cost of only 40-50 paise per km, Maini is targeting sales of only 1,200 cars this year, one-third of them from exports.

-Kushan Mitra

SELF WORTH: ASHOK K. PARMAR
Try, Try And Try Again
Ashok Kumar Parmar has struck a blow for small investors.

He is not your typical corporate raider. Yet, for the last few months, Pune-based Ashok Kumar Parmar, 54, has been making headlines for demanding berths on the boards of companies in which he's acquired up to14 per cent stakes. His latest target: the Aurangabad-based, Dhoot-controlled Videocon Communications, in which he holds 14.6 per cent.

Parmar started picking up Videocon Communications shares from the market in December 2004, when they were trading at Rs 42, a price-earnings (PE) multiple of only two. "In a market where almost everything is trading at PEs of 10-plus, Videocon Group shares are ruling at abysmal levels," he says. His earlier attempts at getting on to the board of Videocon Appliances failed; and Parmar booked a Rs 3-crore profit in November last year by selling a 12 per cent stake in the company, where he continues to hold about 2 per cent. "I haven't met the Dhoots yet," he says, describing how a meeting with Videocon Chairman Venugopal Dhoot, scheduled for March 30, 2005, was cancelled at the last minute. But Parmar is undaunted by the failure of his attempts at getting board berths in listed companies like Videocon Appliances, Sai Service, Elecon Engineering and Indian Hume Pipes. He has diluted his holdings in all of them. Interestingly, the man still can't operate a computer, and prefers to call ICICI Direct four-to-six times every day to put his deals through. Parmar's other favourite stocks: IDBI, GE Shipping, IOC and Vijaya Bank.

A commerce graduate from Belgaum, (Karnataka), Parmar came to Pune in 1972. After a six-year stint with Maharashtra Synthetics at a paltry salary of Rs 150 per month, he set up a grocery store in 1979 and forayed into construction in 1983. For the last 22 years, Parmar Builders, his real-estate company, has taken up one project at a time. In 2002, Parmar entered the stock market, which, he says, "is much cleaner" than the construction sector, "to secure the future of his three sons", two of whom are MBAs from the Indian Institute of Management, Bangalore, and the third a mechanical engineer from SSPM, Pune University.

Says Parmar, who enjoys gardening: "I will keep trying to get berths on the boards of companies I invest in. Maybe I'll get lucky after 10 tries." Whether he does or not is immaterial to the bigger picture; his efforts have already helped unlock huge value for the small investor.

-Roshni Jayakar