AHMEDABAD l THURSDAY l JUNE 21 l 2012 V O L V I I N O 1 8 2 0 P A G E S I R s 4 . 0 0 READ TO LEAD P5 C O R P O R A T E S In the news INDICES BSE Sensex Closing Up/down 16,896.63 ▲ 36.83 S&P CNX Nifty 5,120.55 ▲ 16.70 G20 to extend free trade vow for year despite division World leaders extended by one year their vow not to put up new trade barriers at the Group of 20 summit on Tuesday in a last-minute deal that exposed deep rifts over protectionism. The agreement to refrain from new protectionist measures until the end of 2014 as part of world leaders’ efforts to foster global growth was included in the final G20 communique. Mexican President Felipe Calderon said it was hard won and struck only at the very end of two-day talks in the Pacific resort of Los Cabos. ■ In a big success for India, the G20 countries agreed to give priority to investment in infrastructure in developing countries as a means of stimulating global growth. ■ We agreed to shift policy to give a boost to economic growth, says Manmohan, P2 R touches 3-month low, ends at 56.15/$ The rupee touched a three-month low on Wednesday and ended at 56.15, its second lowest closing in history, on worries that growth would slow further in the absence of interest rate cuts and lack of reforms. Further, most traders stayed on the sidelines ahead of the US Federal Reserve’s statement due late on Wednesday night. Expectations are that the Fed would announce fresh stimulus measures as the economic growth in US is still tepid. ■ P16 Europe, China hurt biz sentiment Asia's top companies are less upbeat on their business outlook than in the first quarter, with mounting concern over the euro-zone crisis and a slowdown in China’s growth, according to the latest Thomson Reuters/ INSEAD Asia Business Sentiment Survey. Indian companies were less positive than in the quarter before, with growth in Asia’s No.3 economy slumping to its lowest in nine years amid a sluggish policymaking environment and a weakening local currency. However, no company in the survey was negative, with seven neutral and six positive. ■ Page 17 F R O M : B A N G A L O R E Little EGoM can do on telecom sector woes as matter likely to go to court, and Presidential reference further ties its hands Sunil Jain C H A N D I G A R H C H E N N A I Sunil Jain New Delhi, June 20 N April 2007, Cairn India won a bid to explore for gas in the Palar Basin in Andhra Pradesh. In October 2010, it declared force majeure, implying its inability to work the project was due to circumstances beyond its control. For more than three years, Cairn never got permission to drill wells due to the fact that 40% of the explo- H Y D E R A B A D K O C H I K O L K A T A IF EXECUTED WELL, THE NEW SPV STRUCTURE WILL BE A GAMECHANGER FOR INFRA, BUT WILL TAKE SOME DOING. GOVT FACES OPPOSITION IN BUYING LAND FOR PPPs. OBTAINING OTHER CLEARANCES MEANS GETTING MINISTRIES/STATES ON BOARD I L U C K N O W M U M B A I Manmohan Singh, Prime Minister ration area it had won in a government bid fell under a restricted area demarcat- ed for the department of space. A similar thing happened to the Mumbai deep- water area it won in August 2010, and declared force majeure on in September 2011. Baiju Kalesh & MG Arun Mumbai, June 20 SHOT IN THE ARM ■ Micro Labs, founded by the Suranas, has a strong presence MERICAN drug maker Merck has begun talks with the Suranas, the promoters of the unlisted Micro Labs, to purchase the company a , person with direct knowledge of the development said. “Micro Labs and Merck have shared information,” the person said. Companies share information when they are willing to negotiate a future deal and are followed later by due diligence. A in active pharmaceutical ingredients & finished formulations ■ It has been growing at a CAGR of 14% to achieve sales of R1,500 crore, roughly one-fourth from exports ■ A deal could add strength to Merck’s therapeutic areas like cardiology, diabetology, ophthalmology & dermatology ■ Merck can also build scale to global ops in 30 countries as Dileep Surana Micro Labs CMD Micro Labs has access to 3,300 product registrations “ a policy we do not comAs ment on rumours or speculations,” a Merck (named MSD in India) spokesperson said in an email response. Micro Labs did not respond to an FE questionnaire mailed to an address on its website. Micro Labs, founded in 1973 by GC Surana, a pharmaceutical dealer, has a strong presence in active pharmaceutical ingredients (APIs) and finished formula- tions with a marketing and distribution network in both India and overseas. APIs refer to the raw materials used to make finished products. The company now man, aged by Surana’s two sons This time, half the block was part of an area reserved for a defence firing range. Ditto for another block, this time in the Krishna-Godavari Basin. Examples like this abound, of the government giving out projects to private firms that, for years, struggle with getting the necessary permissions from government agencies. ■ Continued on Page 2 ■ See Edit: PMO, UMPPs and PPPs, Page 8 OAL India chairman S Narsing Rao on Wednesday said the miner was unwilling to make changes in the penalty clause of fuel supply agreements (FSAs), since that would be detrimental to the company’s financial interests. “CIL will not agree to something knowing that it will falter,” Rao said, indicating that the company might fail to meet its supply commitments. Rao added, “It’s a known fact that we will falter in meeting the 80% trigger level.” The new FSA lays down that CIL is liable to pay a penalty of 0.1% and the penalty clause will be triggered if CIL fails to supply less than 80% of the amount of coal contracted. In previous FSAs, the penalty was a much stiffer 10%. “We cannot sign agreements for paying penalties. Whatever decision the board took regarding the FSA was for protecting our financial interests,” Rao observed. The reduced penalty in the new FSAs has sparked off protests from power producers and the power ministry. In fact, Prime Minister Manmohan Singh is scheduled to hold a meeting on Friday to address the issue. Rao said the CIL board had not yet deliberated on the issue though it had become an extremely contentious one. He was, however, clear that CIL would act according to its ministry's guidelines.“Let us see how the coal ministry reacts to the Prime Minister's meet and what we asked are to do. I have no authority today to make any changes in the clauses of the FSA and have to go along with whatever has been approved by the board,” Rao said. He added, “If we at all need to make any changes we would have to go back to the board to find a workable alternative.” The CIL chairman also observed that although the government had allowed for C Banks to pare exposure to SEBs; REC & PFC asked to share load fe Bureau Subhash Narayan New Delhi, June 20 Mumbai, June 20: While Indian banks say they may not immediately have to pay a higher cost for loans from the overseas market, following the revision in outlook by Fitch from stable to negative, they anticipate lenders will soon price in potential ratings downgrades for India. On Wednesday Fitch re, vised the outlook on the BBB- long-term foreign currency issuer default rating for several India-based financial institutions from negative to stable, while affirming the rating. Most banks are refraining from borrowing overseas just now though the State Bank of India plans to hit the US bond market to raise $1 billion. “We would like to wait to raise money at more favourable rates and in any case our loan repayments are due in 2013,” said Bank of Baroda CMD MD Mallya. “The funding requirements are quite comfortable at this moment and we’re not looking to raise any money overseas,” said Axis Bank treasurer Parthasarathy Mukherjee. “The rupee’s drop has been steep and that would push up the of refinance,” a leading private sector banker pointed out. S&P downgrade would be setback for India’s hope to grow: Powell T HE possible downgrade of India’s investment status by Standard & Poor’s “reflects” some of the current problems India is having, US ambassador to India Nancy Powell told the Asia Society in an interview in Washington. UBLIC sector banks will limit their exposure to loss-making state electricity boards (SEBs) by sharply cutting the amount of short-term loans extended to these entities for meeting their daily expenses and repayment of interest. As per a debt restructuring package finalised by the Prime Minister’s Office (PMO) for SEBs and distribution utilities, banks would be required to meet only 50% of the shortterm loans required by these entities while the balance would have to be funded by state-owned Rural Electrification Corporation (REC) and Power Finance Corporation (PFC). “Banks are reluctant to extend fresh loans to discoms (distribution companies) fearing that it would add to their non-performing PMO’s DEBT RESTRUCTURING PACKAGE NEEDS BANKS TO MEET ONLY 50% OF THE SHORT-TERM LOANS REQUIRED BY LOSS-MAKING POWER BOARDS P assets (NPAs). The finance ministry was also not keen on allowing additional exposure of banks in this risky sector. It has, therefore, been decided to divide the respon- sibility between banks and NBFCs (non-banking financial companies),” said an official in the finance ministry privy to the development. When contacted, PFC BHEL, L&T to gain as power equipment import duty plan set to be approved A FTER holding it up for over four months, the government will finally approve the proposal to levy import duty on power equipment to protect the interests of domestic engineering firms such as BHEL and L&T from an onslaught of cheap imports from China. The PMO on Wednesday asked the power ministry to float a new Cabinet note to levy duty on power equipment and put it up for fast-track clearance. ■ P2 D E L H I Indronil Roychowdhury Kolkata, June 20 Dileep and Anand has been growing at a compound annual growth rate of 14% to achieve a sales of R1,500 crore, roughly one-fourth from exports, the company website said. The company has set a target to achieve sales of $1 billion by 2015. A deal, if signed, could add strength to Merck’s therapeutic areas like cardiology , diabetology ophthalmology , and dermatology along with many US Food and Drug Administration-approved plants and dedicated research and development centres. ■ Continued on Page 2 Lenders may price in more downgrades, fear banks N E W P U N E Changes in FSA penalty clause to hit finances: CIL Merck in talks to buy Micro Labs rating outlook to -ve, P16 Presidential tangle cable digitisation GREEK PRO-EURO PARTIES CLINCH COALITION DEAL TO REVISE EU-IMF BAILOUT Govt to clear govt hurdles: PMO ■ Fitch cuts ICICI, SBI & PNB EDIT P8 I N T E R N A T I O N A L N E W S M&M WORKING ON NEW SCORPIO PLATFORM; SSYANGYONG SUV REXTON COMING IN TWO MONTHS P U B L I S H E D P2 Four-month extension in metros for P6 chairman and managing director Satnam Singh expressed his ignorance about the new proposal. Though loans to SEBs are guaranteed by state governments, banks have now become reluctant to lend more to them (and even stopped fresh loans) due to high levels of losses and the absence of a time-bound and credible programme to restore the financial health of discoms. NBFCs have already set out stiff conditions for extending fresh loans to discoms. The total bank loan outstanding to the power sector stands at a R3 lakh crore as per the latest Reserve Bank of India data. Power sector loans account for almost half of banks’ total exposure to the infrastructure sector. Sources said that new scheme would be put in place only after the financial restructuring package is implemented. ■ Continued on Page 2 the import of 45 million tonnes of coal, not a single customer had so far asked the company to import coal on its behalf. So far CIL has signed 27 FSAs of a total clientele of 49 power producers, and most of the private sector companies, according to Rao, have signed up. “It is largely the public sector companies that have not signed the FSA,” Rao said, adding that the crux of the problem lay in the 80% trigger level, which CIL needs to retain. “This is a petty issue. We have our own prerogative in pricing and the government has its own interest in overseeing it,” Rao said. He said CIL doesn't intend to take coal prices to international levels, since its pricing We cannot sign agreements for paying penalties. Whatever decision the board took regarding the FSA was for protecting financial interests S Narsing Rao, Coal India chairman mechanism only involved cost of production and margins. CIL, unlike other coal companies in other countries, does not have to pay a price for reserves, which keeps its prices much below the international level. “The GCV (gross calorific value)based pricing is only a shift in mechanism and has nothing to do with international parity pricing,” Rao said. CIL ready to talk to TCI M ORE than three months after the UK-based The Children Investment Fund raised a red flag over mismanagement of Coal India and repeated government interference, the miner has indicated for the first time that it is ready to talk to the institutional shareholder. ■ Page 11 Role of monsoon lessens with swelling granaries Sandip Das New Delhi, June 20 T is a truism that the monsoon remains critical to the country’s agricultural output. However, successive years of bumper rice and wheat production leading to huge stocks, an improvement in irrigation facilities and a thrust on horticultural crops mean that in the event of deficient rainfall, the impact on grain supplies will be moderate. As of June 1, the Food Corporation of India (FCI) held an all-time record of over 82 million tonnes (mt) of grain (mostly rice and wheat). This is well over the combined buffer stock and strategic reserve norms of 31.9 mt. “The monsoon rain does I impacts agricultural activities, particularly in the rain-fed regions of the country. But with huge stocks of foodgrains at the government’s disposal, the impact on supplies would be minimal,” said PK Joshi, director (South Asia), International Food Policy Re- search Institute. clined to 89 million tonnes This was borne out in 2009- (mt) from the previous year's 10, when the monrecord output of soon rainfall was ■ Rains advance to 99.18 mt. Yet this 21.8% below nor- central, south and 10-mt drop in outmal between June east India, Page 15 put did not disrupt and September, supplies because leading to drought-like condi- of the government's massive tions in many parts of the stockpile of the grain. country Rice production de. Another factor aiding the government was a better winter or rabi output. “The contribution of rabi crop in total foodgrains production has been rising steadily during last few years,” Ramesh Chand, director, National Centre for Agricultural Economics and Policy Research said. AGRICULTURAL GROWTH RATE GROWTH RATE DURING FIVE-YEAR PLANS GRAIN PRODUCTION TREND % of annual growth In % In million tonne 5.00 2007-08 2009-10 2.3 1.10 7.00 2.50 2007-08 2008-09 2009-10 1.00 2010-11 2011-12 10th Plan 2.44 2008-09 9th Plan 11th Plan 3.28 12th Plan 4 (target) 2010-11 2011-12 230.80 234.47 218.11 244.78 252.56 Source: Agriculture ministry, Economic Survey Rabi crops such as wheat and coarse cereals, maize, and oilseeds such as soyabean, groundnut and mustard, which contribute more than half of the total agricultural output, are grown mostly in irrigated regions such as Punjab, Haryana, western Uttar Pradesh and Madhya Pradesh. This is one reason that even during the rain-deficient 2009-10 season, wheat production did not decline. States, too, have been pitching in. During 2009-10, the state governments — particularly the states in northern and northeastern region – initiated early sowing of rabi crops to better utilise the residual moisture in the soil. ■ Continued on Page 2
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