With the prospects of oil and gas finds improving over the last five years, one would expect the government to extract higher rent in any fresh auction of exploration blocks. However, it appears, the opposite is set to happen in 19 of the 52 blocks that have been auctioned under the sixth round of the New Exploration Licensing Policy (NELP) and are awaiting Cabinet approval, as the article goes to print.

What's more is that Petroleum Minister Murli Deora himself is not entirely convinced about the auction process. He fears the government could lose a few billion dollars. The main beneficiaries: Reliance Industries (seven blocks) and Oil India (six blocks). And, his concerns, set aside recently by a group of Secretaries (from his own ministry, finance ministry and law ministry), are valid. Because of the high-risk nature of the business, explorers are allowed to recover costs upfront in case they strike hydrocarbons. What follows thereafter is sharing of revenues between the government and the explorer from further sales. The more the explorer is willing to share with the government, the greater the ability to win the bid.

From Reliance's winning bid (the big strike in kg basin area in 2002) in the first round of the NELP in 2000, to the present (NELP V), the government's take has improved. This is captured in a bid process by a technical term called investment multiple (IM)-revenues from the field divided by the costs incurred. For instance, for the discovered field in kg basin, RIL has offered to part with 85 per cent of its revenues when the IM hits 2.5. However, in 19 of the 52 winning bids in the current NELP VI round, bidders have offered higher government share from their revenues at lower IMs. Bidders appear willing to defer their profits and fill the government coffers, since they are fairly sure of striking oil and gas. That's exactly Deora's concern-will government share really improve? Especially, in the case of large finds, where large volumes will flow from the well over a considerable period of time (when higher IMs kick in)?

--Balaji Chandramouli

Snipping the Apron Strings
Are the decks cleared for SBI's disinvestment?

In a move aimed at divestment of equity in the largest bank in the country, the government has decided to buy out the Reserve Bank of India's (RBI) 59.73 per cent equity, held for over 50 years, in the State Bank of India (SBI). In an otherwise cashless deal amounting to Rs 40,000 crore, there are voices of dissent within the bank on issues of 'valuation' and 'likely government interference.' The state-owned bank owns huge real estate properties, both office premises as well as residential which are currently valued at Re 1 in the books. So, the real value of SBI-if valued like any other company including some of the growing unlisted non-banking ventures like SBI Mutual Fund, SBI Life insurance, SBI Caps etc.-will be much higher than current market price on the bourses. "There are public shareholders and the government should come out clean on the valuation issues," says an SBI insider. On the BSE, SBI is trading at Rs 1,196 per share.

The official line for the transfer is to avoid any conflict of interest arising from RBI as a regulator holding a majority stake in a bank. "There is an ulterior motive behind the whole deal," says G.D. Nadaf, President of the SBI Officers' Association.

Market experts see the transfer as a first step towards disinvestment. However, above the 51 per cent threshold (which the government is unlikely to breach), there is just 8.7 per cent equity available for any future sale.

Insiders, however, now fear more interference from the government on appointments and other policy matters. On the other hand, the RBI's 'strategic inputs' will clearly be missed.

-Anand Adhikari

Dash For Cash
Airlines need truckloads of investments to finance growth.

Many of them may be low-fare, but as far as investments go they're out-and-out guzzlers. That's the primary reason for India's crop of no-frills airlines-as well as a couple of their full-service counterparts-scouting for funds. For instance, SpiceJet recently raised Rs 140 crore by roping in the Tata group and BNP Paribas in addition to other investors through a preferential issue of equity shares. The money is expected to be utilised for investments in strengthening SpiceJet's call centre operations and for engineering purposes. Low-cost pioneer Air Deccan, too, is said to be looking at options to raise money. The company, which collected Rs 360 crore from the capital markets via an initial public offering, is on the lookout for funds again. Managing Director G.R. Gopinath told BT that private equity players have suggested a further dilution of stake in the airline. "They have said that we could consider diluting 10-15 per cent of our equity since there has been a renewed interest in the aviation sector," says Gopinath. Media reports have mentioned that Texas Pacific Group (TPG), Carlyle, General Atlantic Partners and Reliance-ADAG as among the interested parties. Gopinath declined to ratify the names. GoAir, which is completely funded by the Wadia family, is not shut to the idea of going public. In an earlier interview to bt, Jeh Wadia, md, GoAir, said that his company, over the next 2-3 years, will look at various equity and debt options. The market has been abuzz with news that GoAir is in discussions with private equity players. "An IPO is possible but we will do it only when we think the time is right. We are in no hurry," Wadia had told BT.

Even full-service carrier, Jet Airways, in 2006, announced its intention to raise $800 million (Rs 3,600 crore) through a combination of Foreign Currency Convertible Bonds (FCCBs) and Global Depository Receipts (GDRs). This was largely for the acquisition of aircraft. Last September, the company decided to defer that until market conditions were more conducive. It is unclear when Jet will take a decision on this. Jet plans to invest over $2 billion over three years to acquire new aircraft. Indian aviation is set for growth-but that growth calls for truckloads of moolah.

-Krishna Gopalan