Wednesday, February 6, 2013

COAL REFORMS: POWER WOES

Reforms in coal sector, on which India’s power generation is heavily dependent, have seen a faint light on the distant horizon courtesy reform proposals in this budget. B&E’s anchal gupta argues that the steps may be too small considering the delay and a lot more needs to be done, quickly.

 fact not just power, other core sectors dependent on coal feel strangled too. As per Ashok Jainani, Analyst, Khandavala Securities, “India largely depends on imported metallurgical coal for steel making. Our met-coke imports are as high as 80% of requirements and the situation is likely to remain so in the foreseeable future. As regards thermal coke, it still remains highly protected business within government control.”

The starting blip is that mining lease, i.e. access to land for mining is the state’s prerogative, while mining rights, i.e. access to the mineral below the land is the Centre’s call. The process of getting a lease and a license takes half a generation. AreclorMittal and Posco are some outsider victims in this lease-rights-land-acquisition jigsaw. However, thanks to a ‘gentleman’ named Madhu Koda, centre may have got a wake up call, albeit 2-3 decades late. With Finance Minister Pranab Mukherjee announcing the leasing of coal blocks for captive mining through open auctions and allowing captive miners to hold just 26% in FDI for any coal block, competition might just bring the black gold up a little faster. But the second and critical issue remains stuck. The Coal Reform Bill introduced in the Parliament in 2001 hasn’t even stayed on the table for long while its counterpart the Electricity Act 2003 has changed India’s power sector landscape. The bill, in essence, would open up coal mining for non-captive users and thus coal can be sold and bought in the open market. But the tentative script of the bill seems to be buried much deeper than its black protagonist.

Interestingly though, the talk of the town has been the cess of Rs.50 per tonne of coal mined. A first step towards incentivising the renewable energy sector in the country, it is at present just a needle in a haystack. “The cess levied on the coal mined will result in an increase in the power tariff for the companies who are in the regulatory business model (cost plus) as all the cost increase is a pass through for these companies. Those selling power on merchant basis would have to take a hit to that extent as the pricing is based on market forces,” says Solanki. However some experts estimate that the cess will lead to revenue, on a national basis, to the tune of Rs.30 billion per year, and will contribute massively to the National Clean Energy Fund (NCEF) proposed in this budget.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 


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Tuesday, February 5, 2013

CITIBANK: VIKRAM PANDIT

More so when it wears the Citi crown! Is Vikram Pandit drowning in a vicious cycle? by Deepak Ranjan Patra

Pandit has made some progress to help Citi avoid slipping into oblivion last year by slashing a great chunk of its non-core assets and businesses. Moreover, Pandit has also managed to cut Citi’s payroll bills by almost 20% to $25 billion, by downsizing employee strength from a high of 375,000 to 265,000 globally. But then, it’s a competitive and comparative world. So when Vikram Pandit says, “We have made enormous progress in 2009... We greatly improved Citi’s capital strength, reduced the size and scope of the company, and refocused our business strategy to take advantage of our unmatched global network,” in a press statement, it raises a lot of eyebrows. From a loss of over $27 billion in FY2008 to just $1.6 billion is surely an enormous progress for Pandit, but it’s prone to questioning from the rational observer for two basic reasons. First, Citi’s peers are at a healthy profit; and second, Pandit’s excuse for the loss, $6.2 billion in debt repayment, is just a small part of $50 billion that the bank has taken from the government. Investors are concerned that the bank, wishing to return to the top of the tables, is still a clear laggard.

With the heat rising against him, Pandit has now decided to play new cards; by reshuffling the top honchos. Some of the moves are clearly well thought of. The most critical of the list is the replacement of Terri Dial, Chief Executive of Consumer Banking for the Americas by Manuel Medina-Mora, head of Citigroup’s Latin American businesses. The move, as believed at the Citi headquarter, is expected to bring in an overhaul in the retail banking business. But Pandit hired Dial amidst similar sentiments among his first major hires after joining Citi. Also, Medina-Mora has absolutely no banking experience in the hyper competitive North American retail market. Is this just a plain shot in the dark?

However, Pandit has received a little cushion from rating agencies like S&P, who left Citi’s ratings unchanged despite the weak Q4 results. The agency finds Citi’s financial performance stabilising. Scott Sprinzen, Primary Credit Analyst, S&P tells B&E, “Citi has completed a number of major actions during the past 18 months to offset the impact of net losses on its equity base, increase its total capital, and bolster the quality of its capital.” Also net additions to the loan-loss reserve ($802 million) were the lowest in several quarters and total allowance for loan losses stands at a satisfactory level of 5.9% of total loans. Adds Tanya Azarchs, Secondary Credit Analyst, S&P, “Cost-cutting efforts continue to yield results.” (Citi refused to comment).


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
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Sunday, February 3, 2013

Wrong said Fred!

$99 billion purchase of ABN Amro – suicidal!

To every proverb, there is an anti-proverb; and in capitalism too! Here’s what Fred Goodwin (CEO, RBS) said about the October 2008 purchase of ABN Amro, “We are happy we bought what we thought,” and this was the anti-statement from Philip Hampton, Chairman, RBS, “The ABN Amro acquisition can’t be undone… it was the wrong price, the wrong way to pay, at the wrong time and the wrong deal!” The two contradictory statements in a way, say it all. The consortium (RBS, Fortis and Santader) with synergy expectations of €2.28 billion annually, ended up overvaluing the financial entity and paid 3x of book value, a blood-freezing $99 billion; and this came at a time when other banks were trading at book value! ABN Amro had sold its LaSalle Unit to BofA, therefore it made no sense for the consortium to pay such a hefty sum for the under performing bank with emaciated Asian operations. It all came down to one reason – ego; of not allowing Barclays to win. Wrong price, wrong value, wrong time & well... a completely wrong deal.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
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