Bid to hike CNG price may raise transport cos

Public transport running on CNG (compressed natural gas) in cities such as Delhi and Mumbai as well as power is set to get costlier if the government approves an oil ministry proposal to raise the price of gas under government control by as much as 33%.

Since gas under government control fuels most gas-fired power generation and CNG services, their costs will rise proportionately. Present norms allow power producers to pass on the fuel cost to consumers. The hike in city transport, however, could be moderated by the service providers such as IGL in Delhi and MGL in Mumbai who could absorb part of the increase.

Official sources said the proposal, being prepared for consideration of the cabinet, envisages raising the price of controlled gas from Rs 3,200 per thousand cubic metres ($1.8 per unit) to Rs 4,250 per thousand cubic metres ($2.4 per mBtu) in the first round. Subsequently, it is to be raised to Rs 7,500 per thousand cubic metres ($4.2 per unit) by 2013 in stages.

Government controls the price of gas from fields given to state-run explorers without bidding. Gas from joint venture fields and the quantity bought and marketed by GAIL is market-driven and costs between $4.3 and $5.65 per unit. Next is imported LNG and finally gas from Andhra offshore field of Reliance Industries Ltd.

A ministerial panel had set $4.2 per unit as the price for RIL gas and the Planning Commission wants this to be the benchmark for pricing gas from all domestic sources. The increase in the price of controlled gas is also in line with a 2005 Tariffs Commission recommendation. Prices were last revised in 2005.

State explorers ONGC and Oil India will be the main beneficiaries. ONGC alone could mop up an additional Rs 2,000 crore per year. Producer price for ONGC is proposed at Rs 3,870 per thousand cubic metres from Rs 3,200. The consumer price would be 10% higher. The government too will garner Rs 750 crore more by way of taxes and royalty in the current year. This would rise to Rs 4,500 crore in 2013 when prices are brought at par with RIL's price.

Sources said consumer price for power and fertilizer units outside north-east would be fixed at 10% above the producer price, while for the plants in that region it would be 60% of the price. Consumer price for transport and small consumers outside north-east may be fixed at 20% above the price for power and fertilizer sectors.

AI gets Rs 2000cr lifeline

The cash-strapped Maharaja will not go bankrupt, at least for now. The government on Thursday agreed to inject Rs. 2,000 crore in this fiscal in a phase-wise manner of Rs 400 crore per month, subject to the airline cuts costs and increases revenue. The Pranab Mukherjee-headed Group of Ministers (GoM) met on Thursday and decided to do a monthly review of AI's performance before giving the next tranche of Rs 400 crore.

Without a bailout, the AI-IA combine — that has a monthly cash loss of Rs 400 crore — may not have survived beyond this year. The aviation ministry was eying Rs 5,000 crore and Rs 9,000 crore as equity infusion and aircraft purchase assistance over next three years. But the GoM has for now agreed to recommend to the Union Cabinet phase-wise infusion of fund till March 2010. Future funding will be decided on AI's progress card.

GoM's biggest worry was how deep-in-red AI would fund the Rs 55,000 crore order to acquire 111 new aircraft. The civil aviation ministry pointed out that AI-IA combine's aircraft order size has been halved in value terms.

"Out of the 111 new planes, 50 were wide body aircraft that accounted for over 65% of the total bill. Of these big ones, 27 Boeing 787 Dreamliners are nowhere on radar as they are yet to fly. Delivery of three Boeing 77 have been deferred to 2013 and three of them — already with AI — are being leased out. So, the aircraft order in terms of monetary value has been halved with these 33 twin aisle planes out of the radar," said sources.

Both Mukherjee and Chidamabaram are learnt to have been sceptical of AI's tall claims on revenue and cost fronts. "Employees must know this money has not come easily and focus on cost-cutting has to remain," they are learnt to have told Patel and the AI management. Patel told TOI: "A number of steps will be taken to cut costs by rationalising routes and leasing aircraft. Cutting salaries is not the only way to cut costs and the management must look at all other means very closely. There is no room for complacency as fund infusion is closely linked to achieving success on cost cutting and revenue generation."

The GoM is also learnt to have promised Arvind Jadhav, CMD, certain degree of freedom to take tough decisions without any interference. In a previous GoM, Chidambaram had questioned the accountability of bureaucrats who headed AI in the past and presided over its decline.

"By early January, a number of tough steps will be taken. This will be in terms of cutting loss-making routes and instilling discipline," said highly-placed sources. AI loses Rs 3,000 crore on 30-odd routes alone and most of them could be closed.

AI scraps performance incentives

Air India on Wednesday decided to drastically cut the salaries of its top management — functional and executive directors. The performance-linked incentive (PLI) component of their pay, which accounts for 60% to 80% of the total package, has been completely scrapped for those on board on deputation from the government. The 36 AI-IA directors used to get anywhere between Rs 55,000 and Rs 5.2 lakh as PLI every month.

Airline employees who have made it to the board after years of service will face a huge cut in PLI as this has now been brought within department of public enterprise guidelines under which PLI can't be more than half of the salary. For instance, the ED (operations) has a basic salary of Rs 73,240 with a monthly PLI of Rs 521,425.

Similarly, ED (engineering) has a salary of Rs 76,169 and a monthly PLI of Rs 162,529. Now following Wednesday's board decision — taken amid stiff opposition from directors, PLIs can't be more than half the salary which would mean a knock of almost Rs 4.9 lakh and Rs 1.2 lakh per month for the EDs operation and engineering. The non-technical board members used to get a PLI of under a lakh which would also get slashed.

"Government nominees on board who are ex-officio there don't get any PLI. IAS and IPS officers sent on deputation there like director (vigilance) will henceforth not get any PLI at all. If the CMD happens to be an IAS or IPS posted there, he or she will also not get any PLI," said a top board member.

This move has left directors fuming. "We'll now get less than many of our juniors. Our take-home was under a lakh after deductions and now it will be almost half that amount. The airline could not touch pilots' PLIs as they can ground the airline with a strike," said an angry board member. Another board member said: "The airline's morale has never been lower. People right from top to bottom now wonder if this is being done deliberately to cover up for ministry's mistakes like merger and huge aircraft orders for which we are being made scapegoats," the member said.

Importantly, the move has come just a day before Pranab Mukherjee-headed Group of Ministers (GoM) meets to decide on the issue of funding AI. The ministry is seeking Rs 5,000 crore and Rs 9,000 crore as equity infusion and aircraft purchase assistance from the government over next three years. But the GoM told AI clearly that it had to make progress on wage cut front to get any money.

7 years ban for Pyramid Saimira

Market regulator Sebi on Tuesday banned Pyramid Saimira Theatre Ltd (PSTL) for seven years from accessing capital markets. It charged the company of issuing shares to non-employees under the "employee quota" prior to its IPO in December 2006, who walked away with "unlawful gains". The order, issued by M S Sahoo, wholetime member, Sebi, said, "PSTL aided and abetted the seven persons to corner shares of PSTL under the employee category to the detriment of the common investors". Reacting to the order, P S Saminathan, chairman of PSTL, told The Times of India, "this (the order) is ridiculous and arbitrary decision without any reason. We will definitely appeal against this order."

Birlas to foray into hotel industry

For the first time in their close to 100-year history, the Birlas are entering the hospitality arena. The Birla Group- a part of corporate folklore in the country, along with the Tatas - is going to set up its first hotel on a closed mill plot in Mumbai.

Although the Birla empire - spread across the various family groupings (BK, AVB, KK, CK, SK, Yash and MP Birla groups) - pretty much covers the entire business spectrum, from textiles, metals and cement to automobiles, tea, IT and media, the Birlas had never tried their hand in the hotel arena.

Basant Kumar Birla, the oldest member of the Birla family, told TOI that his group has decided to set up a luxury hotel near Worli, in south Mumbai, on unutilised land belonging to Century Textiles & Industries. "We will not run the hotel. Five big groups from India and abroad have approached us for managing it. We will get a fee, which will be revised every three years," Birla said.

The group may also use the land for commercial real estate, the industry doyen said. "We want to optimise the value of the land belonging to Century Textiles. The value will appreciate if we develop it. We will not sell the land. The company will return 15-20% of the land to the state government, as per rules, and the rest will be developed," he added.

Century Textiles senior president R K Dalmiya said the mill has been shut since 2006. "All the mills in the area are closed for environmental or other reasons. The mill occupies 40 acres, of which we own 30 acres. The balance is lease-hold land for which the group has an existing 999-year lease with the Wadia Group," he said, adding that a Singapore-based architectural firm has been appointed as adviser for the hotel project.

Century Textiles has already set up an advanced greenfield textile mill with an investment of Rs 850 crore at Bharuch in Gujarat. The mill was inaugurated by Gujarat chief minister Narendra Modi in the presence of B K Birla and his grandson Kumar Mangalam Birla (chairman of AV Birla Group) in October. "The new mill alone will take care of most of our requirements," Dalmiya said.

Jet, Kingfisher hike fuel surcharge, SpiceJet too may follow

The hike comes into force with immediate effect, both said. "Effective today, the fuel surcharge levied by Kingfisher Airlines for travel on domestic sector stands revised upward," a Kingfisher Airlines statement said. The fuel surcharge on flights below 1,000 kilometres has been hiked by Rs 100 while for flights above 1,000 kilometres it would be Rs 200, the statement said. A Jet Airways spokesperson said, "We have increased the fuel surcharge by up to Rs 200 on all our domestic flights across Jet Airways, JetLite and Jet Konnect with immediate effect." Budget carrier SpiceJet said that it was mulling a similar hike to partially offset increasing operating costs. "We are contemplating a nominal Rs 100-200 increase to partially offset the recent nine per cent increase in fuel price," SpiceJet's Chief Executive Officer Sanjay Aggarwal said.

After call charges, SMS rates may be next to tumble

Paying 50 paise to Re 1 per SMS, depending on your package? Well, the cost to your mobile service provider of delivering message to another mobile network is less than 1 paisa. That's because an average SMS consists of 1KB data, which takes a fraction of a second for transportation and termination. This revelation not only belies claims that India has among the lowest telecom tariffs in the world, it could also set the stage for SMS rates to fall sharply. Voice calls are already being offered at 1 paisa per second. As new entrants flood into the market, SMS tariffs could become the next major frontier of the pricing war now raging in the Indian mobile services industry. SMS and other value-added services form 10% of the Indian telecom industry's annual Rs 1 lakh crore-plus revenues. The current regime followed by telecom operators is `bill and keep'. This means your operator keeps the entire amount that he bills you for the SMS and pays nothing to the network on which the SMS is sent. This is for two reasons. First, the proportion of traffic across networks is roughly equal, and second, the cost of termination is negligible. Trai has so far refused to regulate SMS tariffs along with some other tariffs under what is known as forbearance. Forbearance is usually adopted by regulators when they believe that competitive markets are working and tariffs reflect true costs. As it turns out, the true cost of sending an SMS would never have come to light if new entrants had not been forced to sign interconnection agreements with existing operators at a price that is far higher than the actual cost. Several potential new entrants told TOI this points to a clear need for immediate regulatory intervention. If the price of sending an SMS reflects true costs, it should fall to no more than a few paise, they point out. While telecom minister A Raja has been talking about reducing telecom tariffs by bringing in new competition, it is ironic that factors driving telecom tariffs are coming to light due to infighting between existing operators and due to lack of pro-active regulation. Bejon Misra, chairman, CCEA or Cell for Consumer Education & Advocacy told TOI, "Recent developments have shown that India's claim of having the world's lowest tariffs is not true. Trai must promptly intervene to prevent cartelisation by incumbents aimed at defeating the interests of consumers by preventing cost-based tariffs." Predictably, the Cellular Operators Association of India (COAI) has a different view. Speaking to TOI, its acting director general T R Dua said, "Trai has followed forbearance and that should remain its policy." Several incumbents refused to comment on the true costs of terminating an SMS but admitted to the existence of a big margin. Stein-Erik Vellan, MD of Unitech Wireless, told ToI, "The lack of cost-based Interconnection Usage Charge (IUC) is perhaps the most significant anti-competitive practice that is hindering free and fair competition. It needs to be overhauled. The regulator made an exception to its policy of forbearance in the spirit of fair play when it intervened earlier to reduce IUC charges for voice calls from 30 paise to 20 paise. Trai must undertake a similar regulatory intervention to create a level playing field in the industry". Unitech Wireless may be among the first new entrants to launch service in December. As more new entrants prepare for launch, Trai may have no choice left but to intervene. A senior Trai official admitted to TOI that the last review in March had not included a new tariff policy for SMS. "However, new operators have to survive and flourish so we will need to intervene if they complain to ensure a level playing field," he said. Experts and consumer activists, however, argue that given Trai's own cost data from its IUC regulation of August 2006 vintage, it need not wait for complaints but should act decisively and immediately.