News reports suggest that an internal assessment by the ministry for petroleum and natural gas contradicts the petroleum minister's statement that not only would the government be able to redeem all the oil bonds but also clear the additional dues of refineries during the current financial year. The internal assessment report reiterates that even the oil-pool account deficit would not be cleared until the fourth quarter of the next fiscal.

As per the report, (which is based on the average monthly accretion of the oil-pool account from March 1998 to October 1998) the government would require another 15 months from October 31, 1998 to clear the deficit. The rider being that foreign exchange rates and international oil prices remain at current levels and the accretion too is steady.

Payments made to oil companies, also reflect that the redemption of oil bonds is unlikely to be completed during the current fiscal. This means that oil companies specially, MRPL which is the most cashstarved of the lot will be hit as the company has been made on-account payment to the tune of Rs 288 crore against Rs 1,242 crore of oil bonds issued to it.

As for the likelihood of the oil-pool account deficit being cleared by the fourth quarter of next fiscal, there is just a possibility that it can be achieved in the next 15 months. This is because unless something drastic happens in the Middle East, oil prices at best are likely to remain low as the much expected price rise in winter did not take place. Furthermore, the expected volatility of the rupee against the dollar could also have a negative impact, neutralising to some extent the benefits of lower oil prices.

But perhaps, an event that could help in meeting the 15 month target is the lowering of subsidy for LPG and Kerosene. Though the government is ready to lower the subsidy on LPG, it is hesitant to do the same on kerosene due to political constraints. Any lowering of subsidy will result in lowering of the deficit on the oil poolaccount.

On the other hand, the government is also considering lowering prices of aviation turbine fuel (ATF). This while ATF cross-subsidises the subsidy on LPG and Kerosene, would further increase the oil-pool account deficit. However, in rupee terms contribution of ATF is small, which means the impact will be not very severe.

Hinduja power plan

Reports indicate, that the power project promoted by the Hindujas at Vizag has signed the fuel supply and linkage agreement with Coal India and the Indian Railways. At first sight the agreement would seem to be a win-win situation for all the parties concerned. However, the benefits would only accrue to the Hindujas, and not to the other two parties.

Logically the signing of the agreement would result in enhanced revenues to Coal India who have been passing through bad year with despataches being lower by 4 per cent and stocks being higher by 14 per cent. In simple terms the volume of coal transported would increase by 4.8 million tonnes (requirementof Hinduja Power Project). In addition one can conservatively add a dozen more IPPs would sign the FSA with coal India. Hence in three years time, Coal India could boast their offtake by minimum of 25 million tonnes per year. This is 10 per cent of their total turnover and has a value of more than four thousand crores per annum.

Similarly, the enhanced requirement of coal is directly proportional to the rise in rail traffic. At present the cost of transportation of coal is approximately Rs 72.84 per 100 kg of coal for 1,000 kms. Under the present rates the gain to railways for Vizag Power Project would work to Rs 349 crore annually. Further, since the wagons would be purchased by the project promoters and leased to railways the net gain to Railways would work out to Rs 325 crore.

Add to it the gains from coal transport from other IPP, railways might feel that perhaps lack of lines is only constraint in its revenue generation.

But things are not that simple. The risk from these projects could well offsetthe gains from the agreement.

Firstly, the power minsiter Kumarmanglam is quite serious about promoting mega-power projects, which offer lesser tarriff to the end-user. The mega power projects would be developed at pit-head. Due to this the variable cost of production of electricty can fall by 50 per cent. This would directly effect the viability of the IPPs and lenders would be extremely reluctant to fund the projects.

Secondly as per the agreement, the railways and the finance ministry would share the 400 per cent penalty on slippage of coal transport. The company is required to maintain 45 days of stock of coal. For operation of the plant at 68.5 per cent PLF, this translates into 4.8 million tonnes of coal per annum plus additional stocks of 0.6 million. From Coal India's point of view, the agreement means that they have to supply 92,000 tonnes per week.

This would mean that Railways would have to maintain ten dedicated rakes for transport of coal from Mahanandi Coal fields to Vizag, with supply offive full rakes of coal every week. In case the Railways miss out, they along with the finance minsitry would have to shell out Rs 2.5 crore for per day delay of each rake. This is indeed very risky and unless pressuried Railways would be reluctant to enter into more deals entered by the ministry to avoid the risk of liability.

Thirdly so far, there is no mention about who would install the washery at Mahananda Coal Fields which raises capital cost for Coal India and decreases its returns--all of which seems to suggest that the agreement perhaps is not that benefical to Coal India and Railways.

Emcee (With contributions from Shishir Asthana and Manish Saxena)