Petroscan March 2012

PETROSCAN (Monthly e-newsletter) March 2012

OIL, GAS & ENERGY NEWS • • • • • • • • • • • • • • • • •

INDIA TO CONTINUE IMPORTING OIL FROM IRAN’ OVL, GAIL have not bid for Cove Energy The petrol price myth Duties to hurt ONGC FY13 profit by Rs 5000 cr The gas reserve riddle IOCL, Dhamara port in pact for Rs 10,000-cr LNG terminal Ennore LNG terminal to cost Rs.4,320 crore No gas to power sector from ONGC fields: EGoM IOC buys Nigerian light crude, Egyptian heavy-traders GAIL (India): Buy ONGC allotment shows LIC was virtually lone institutional bidder L&T names Venkataramanan as new MD Karnataka government talks to HPCL and GAIL to supply gas Regulate petrol prices again: OMCs AI to directly import aviation turbine fuel IEA downgrades non-OPEC oil supply forecast for 2012 Chevron leaving Western Slope oil shale project PetroScan-March 2012

NEW & RENEWABLE ENERGY • Renewable energy is no longer ‘alternative energy’ • U.S. Sets Tariffs On Chinese Solar Panels

• Shell inks China’s first shale gas deal

• Shale gas in Poland could still be a game changer: Fitch • Shale gas exploration policy by March 2013: Jaipal Reddy

• Burning Ice: The Next Energy Boom?

• UP's first solar power plant starts functioning • Fuel efficiency, biofuels are driving down gas demand

• DuPont Says Solar Panels to Cost Less Than TVs • Adobe fuel cell installation blooms in San Francisco

SUSTAINABILITY & CLIMATE CHANGE • Climate change: unfolding story • HOW GREEN IS THE COMPANY?

• Few Oil & Gas Firms Set Environmental Goals • Maintenance is Key to Lowering Energy Costs

HSE • OSHA Adopts Globally Harmonized System of Chemical Labeling • Everyday chemicals ‘linked to obesity, diabetes'

GENERAL READING • Does high oil price really impede growth?

• RIL banks on global talent for next phase of growth •

India’s Mobile Connections To Exceed 900 Million To Achieve 72 Percent Penetration By 2016

• GE To Open New Technology Center in New Orleans • Adobe Set to Junk Annual Appraisals PetroScan-March 2012

• • • • • • • • • • •

Adobe Move Comes after Employees’ Grievances R&D tax incentives can spur investments Talking CSR in boardrooms India Road-Building Hits Record as Builders Pay to Work: Freight IOCL employees show off the ‘power of women’ How Can We Feed the Planet Without Destroying the Planet?

Government spending: dismal past raises future concerns AIMA Conclave: What consumer price index means for you IndianOil in India’s Top 20: Most Admired Companies China pares growth target for 2012

INNOVATION • 4 Myths About How Great Companies Innovate

INTERVIEW • IT'S TIME FOR GOVT TO HIKE FUEL PRICES, SAYS BPCL CMD • FOSTERING INNOVATION WITH SMALL STEPS

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OIL, GAS & ENERGY NEWS INDIA TO CONTINUE IMPORTING OIL FROM IRAN’ Reuters New Delhi: India will continue to import oil from Iran without violating any international law and has requested the United States and the European Union to take into account the country’s oil needs, oil minister said on Friday. Oil minister S Jaipal Reddy. “We have a systematic plan for receiving oil from Iran,” Jaipal Reddy told reporters at the Asia Gas Partnership Summit, but did not elaborate.

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The United States gave exemptions on Tuesday from its crippling financial sanctions to Japan and 10 EU nations it said had cut purchases of Iranian crude, but left Asian economic giants India and China exposed to the risk of such steps. “We continue to receive representations from the US and other countries. With respect to their sentiments, we have requested to appreciate our needs,” Reddy said.

India is Iran’s second-biggest oil client after China and Tehran used to supply about 12% of the south Asian country’s needs, worth about $11 billion a year. Reddy also said there would be no supply shortage. India, publicly disdainful of sanctions to pressure Iran, is privately pushing its refiners for substantial cuts in imports from the Middle Eastern country. State refiners planning to cut the size of their term deals with Iran have sought additional supplies from the world’s top oil exporter, Saudi Arabia, and fellow OPEC member Iraq.

OVL, GAIL have not bid for Cove Energy Cove, which owns 8.5% stake in a huge gas discovery off the coast of Mozambique, put itself up for sale in January and has received several takeover approaches New Delhi: ONGC Videsh Ltd and GAIL India combine have not bid for Cove Energy and are instead looking at preferential bilateral deal with Maputo. “The last date (for bidding) is over. We did not bid,” a GAIL official said on Friday.

Cove, which owns 8.5% stake in a huge gas discovery off the coast of Mozambique, put itself up for sale in January and has received several takeover approaches, including £1 billion offers from Royal Dutch Shell and PTT Exploration, the state-controlled Thai energy group. Cove’s main asset - the Rovuma Offshore Area 1 - may hold recoverable reserves of 30 trillion cubic feet of natural gas. OVL and GAIL are weighing a bid.

The official said the Indian consortium has asked the government to request Mozambique to support their bid in lieu of investment in their upstream and downstream projects. The sale process may be impacted due to Mozambique wanting to impose capital gains tax on the sale of Cove. Cove Energy has exploration and development assets in Africa. Besides Mozambique, it has assets in Tanzania and Kenya. US-based Anadarko Petroleum Corp is the operator of the Area-1 in Rovuma basin off Mozambique with 36.5% stake.

Bharat PetroResources Ltd, a wholly-owned subsidiary of BPCL, and Videocon Hydrocarbon Holdings Ltd, a wholly-owned subsidiary of Videocon Industries, hold 10% stake each in Area-1.

Mitsui E&P Miozambique holds another 20% stake. The balance 15% is with Empressa Nacional de Hidrocarbonetos (EIH), the national oil company of Mozambique. Anadarko plans to put up plants to liquify the gas (liquefied natural gas or LNG) so that it can be shipped to consumption centres in cyrogenic ships. The two LNG trains will have a capacity to produce 5 million tonnes of liquid fuel each.

The petrol price myth Finally, after ayear of pretension, state-owned oil firms have asked that petrol prices be regulated,once again, by the government. The question is were the prices deregulated to begin with? Oil firms did raise petrol prices now and then, but alwayswith trepidation at the political consequences. The results are obvious: the loss per litre of petrol continues to hover around Rs.5-6 per litre.

It will be interesting to see what the government does with this request.If it decides to regulate petrol prices again, its fiscal deficit will shoot through the roof—this government lacks courage to take politically far less onerous steps, its ability to charge right prices for petrol are zilch. It should have allowed oil firms to charge the right prices. That would have let it depoliticize pricing decisions and save itself from political trouble by easily claiming that the decisions were not of its making.

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Duties to hurt ONGC FY13 profit by Rs 5000 cr Published on Fri, Mar 23, 2012 at 13:26 | Source : Reuters Oil & Natural Gas Corp 's profit before tax will take a hit of Rs 5000 crore in 2012-13 due to budget proposals to raise duties on oil production, and an increase in service and other taxes, its chairman said.

The Budget for the fiscal year beginning in April proposed to raise cess on crude oil to Rs 4,500 per tonne from Rs 2,500 per tonne.

The state-run company has asked the government to adjust the extra burden from the budget against oil subsidies, Sudhir Vasudeva told reporters at an industry event.

The government subsidizes prices of diesel, kerosene and cooking gas to protect the poor from the impact of inflation pressures. This means producers such as ONGC must share the shortfall by selling crude to refiners at a discount.

Because of the subsidies, the total revenue losses of India's state-run oil companies are expected to rise to USD 28.5 billion in the fiscal year ending March, nearly double the amount in the previous year.

Summary of interview of Mr Sudhir Vasudeva, CMD, ONGC Budgetary measures will impact Oil and Natural Gas Corp ( ONGC ) by Rs 5,000 crore on PBT level (profit before tax), said Sudhir Vasudeva, chairman and managing director, ONGC in an interview to CNBC-TV18.

On Friday, while announcing the Union Budget 2012-13, Finance Minister Pranab Mukherji highlighted that the cess on crude would go up to Rs 4,500/bbl from Rs 2500. Going by last year's estimates, the company produced 27 million metric tonnes of crude and incremental cess will dent topline by Rs 4,600 and higher service tax would add another Rs 400 crore outgo.

Vasudeva also pointed that the firm needs atleast USD 55-USD 60/bbl in realization to support its capex plans for this year. However, he also remarked that Budget is not the platform for announcing fuel price hike as demanded by oil retailers. But he does hope for a price hike in petroleum products soon.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: What would you do to your net realizations, the cess now and what could be the additional payout in rupee terms?

A: In terms of rupee payout I think we will be burdened by another 4,600 or 4,700 crore. Along with that the excise duty and service duty increase, total impact on PBT would be of the order of about 5,000 crore.

Q: Could you just quantify as well in terms of the impact per barrel for ONGC? A: It is Rs 2,000 increase per barrel. So it comes to about USD 5.5-6 per barrel.

Q: Before we talk a little bit about the impact from Budget, I want an update as well on what is happening with ONGC's bid for Gujarat Gas. It is a very high profile bid and whether ONGC has been able to take any lead position?

A: I would rather not comment on that. We keep trying on various things. We keep trying acquisitions etc, it is premature to talk about any such thing.

Q: Given the kind of subsidy sharing that you are planning or that you are expecting this year in FY13 and the cess what kind of average realizations per barrel do you expect to have this year?

A: Your guess is as good as mine. All we need is remunerated prices. My predecessors along with me absolutely have no issue on paying this in subsidy on this nominated field because the government is well within their rights.

They would take this since we don't pay any profit on petroleum etc but at the same time since we support all our outlays based on our internal resources, we need to get remunerative prices. So something like between USD 55 and USD 60 is a bare minimum which we need to support our approvals.

Q: There was a large offer of sale of ONGC stock just a few days back, within a fortnight of that to make an announcement which is materially detrimental to your performance this year. Do you think it is in the spirit of corporate governance?

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A: This was not only for ONGC. This is for the hydrocarbon sector.

Q: Any indications from either the oil ministry or the finance ministry that they will engage in some dialogue with ONGC about the subsidy burden sharing issue? This time as well the kind of money that has been allocated for fuel subsidies seems short at least of what happened last year. Do you fear ONGC might again have to bear a greater part of the burden and that that one-third equation?

A: I would like to take a positive interpretation of this. If the honourable Finance Minister has allocated something like 43,500 crore against 68,000 crore, it is only an indication and also the statement of the honourable Prime Minister that we have to bite the bullet and subsidy burdens have to reduce. That means part of this burden would be passed on to consumers and we will not be unduly burdened.

Q: I am sure you would also be privy to any recommendations from the oil marketing companies with regards to price increases, any headway on that? Any hope that there maybe movement even on a decontrolled commodity like petrol or perhaps on LPG and diesel?

A: I cannot comment on that. OMCs have always been asking for increase on petrol price and also they are huge under recoveries both on diesel and LPG as far as liquid fuels are concerned.

The gas reserve riddle Variation in estimates of proven gas reserves from different equity partners in KG-D6 raises eyebrows, Business Standard Huge variation in estimates of proven gas reserves from different equity partners in KG-D6 is raising eyebrows. Is it a case of statistical jugglery? Or a case of differing regulatory compliance? Or, just a reflection of the falling production?

Tucked away in one of the charts that you will most certainly miss in its latest and recently published annual report, British oil and gas major BP has made a revelation that can be dramatic.

According to BP’s estimate, the proven reserves in the Reliance Industries Ltd (RIL) operated deep-water gas block of KG-D6 are just 1.4 trillion cubic feet (tcf). To put it in perspective, that’s five times lower than what Niko Resources, another partner in the same asset, had earlier estimated. If compared to RIL’s previous estimates, it will be down almost 10 times.

Such wild variance in estimates—and that too of proven reserves—about India’s flagship offshore hydrocarbon

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acreage has naturally caused quite a stir among market participants, Reliance watchers and the analysts’ fraternity.

“BP’s CY11 annual report surprised us when it stated that BP accounts for just 0.3 tcf of proven reserves (1P) for its 30 per cent stake in KG-D6, implying that gross 1P reserves in KG-D6, including the government’s share, is barely 1.4 tcf. We note that this is lower than 6.8 tcf gross 1P reserves as per Niko’s FY 11 reserve filing,” noted Gagan Dixit and Sapan Shah, analysts with Quant, a Mumbai-based broking house, in their report, published earlier this month.

“Given no other reserve purchase deal from Asia during CY11 by BP, we infer that 0.3 tcf 1P reserve acquisition is from KG-D6,” Dixit and Shah added.

In oil industry terminology, 1P accounts for reserves which are proven, 2P are the ones that are proven plus probable and 3P accounts for proven, probable and even possible reserves. 1P reserves in industry parlance is also called P90 (i.e., having a 90 per cent certainty of being recovered).

In August 2011, BP acquired 30 per cent participating interest in Reliance Industries' 23 oil and gas blocks, including the giant KG-D6 gas fields off the east coast for $7.2 billion.

Further revisions Niko has a 10 per cent stake in KG-D6 since the last 12 years. This nimble Canadian exploration company has so far always been conservative in its estimates. But since its annual filing last March, the company has revised its estimate even further. Last week, without divulging details, the Canadian firm said it expected a drop in reserves at Dhirubhai-1 and 3 (D1 & D3) gas fields. Previously, it was expected that D1 & D3 held about 11.3 trillion cubic feet of gas reserves.

This February, Niko Resources reported a quarterly loss on lower production from the D6 block and said the output decline could continue at the site. "Declines are expected to continue until workovers are completed and/or additional wells are tied in," Niko had said, adding that D6 gas production in December averaged approximately 38.79 million standard cubic metres per day (mscmd) for the entire block.

The current output is less than half of the peak 80 mscmd that RIL had projected as fewer wells were drilled than planned and seven wells ceased to produce due to the entry of sand or water. RIL had projected output of 34.5 mscmd of gas during March.

They have so far drilled 22 wells on D1&D3 but only 18 were put on production. Of these, six have ceased due to water/sand ingress.

Global compliance and us But why are the three estimates from the three stakeholders of the same asset so divergent?

RIL officials and some analysts say it’s largely due to the different rulebooks and regulatory guidelines that the different companies comply to.

When contacted, BP’s global spokesperson in London told Business Standard, “We do not discuss our booking of reserves at an individual field or country level, unless specifically split out in our annual report. However, BP reports only reserves that are classed as proven under SEC criteria.”

Under SEC classification, “proven” reserves are those reserves claimed to have a reasonable certainty (normally at least 90 per cent confidence) of being recoverable under existing economic and political conditions, with existing technology.

Until December 2009, 1P proven reserves were the only type the US Securities & Exchange Commission allowed oil companies to report to its investors. Since January 2010, the SEC now allows companies to also provide additional optional information declaring "2P" (both proven and probable) and "3P" (proven + probable +

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possible), provided the evaluation is verified by qualified third party consultants, though many companies choose to use 2P and 3P estimates only for internal purposes.

RIL does not follow the SEC norms while reporting, as they are not listed in the US. It has been maintaining a reserve potential of 10 tcf in the same KG-D6 asset, while acknowledging that due to technical issues the production has indeed gone down.

“RIL gets a third-party audit done by Gaffney Cline and Associates, a global consultant specialising in independent reserves estimation. It also follows the field development plan which is approved by the DGH,” said the head of research in a leading foreign brokerage firm, who did not wish to get named.

RIL officials agree the estimates they declare are the ones vetted by the Indian regulator, the DGH. However, the company spokesperson did not want to comment on BP’s findings.

“In India, there is no law or strict definition like the one provided by SEC. It’s still an evolving sector. But typically in India, 2P recoverable estimates (proven and probable, which has a 50 percent strike rate) are used by the industry,” said an RIL official who did not want to be identified.

The regulator, too, did not want to reveal the specific formula they use to vet reserves, but a senior DGH official clarified by saying, “We take into account P1 and P2 reserves. There are declaration/ discovery norms under which we take 100 per cent of the P1 and P2 reserves. We have all the data and we have in-place reserves and that never changes.”

The reality on ground Most analysts have already factored in a downward revision in the gas output from the blocks, as production has hit an all time low. “We factor in a 15 per cent lower recoverable reserve versus the 10 tcf estimated as per the last Addendum to the Initial Development Plan (AIDP),” wrote Rahul Singh, head of research at Standard Chartered Equity Research, along with his colleagues Avishek Datta and Saurav Anand, in their recent report on RIL. They are now factoring in a reserve of around “8.5 tcf for D1/D3 as against the initial estimate of 12.6 tcf in-place and recoverable reserves of 10 tcf.” For the R Series blocks, the figures hover around 1.5 tcf.

This is because the total capex factored in for development of the producing D1/D3 gas blocks was $8.84 billion and included drilling of 50 developmental wells. Instead, RIL till date has only drilled 18 in the main sands.

According to P Gopalakrishnan, an expert from DGH, “the shortfall in production is primarily due to non-drilling of adequate number of wells as per the AIDP. Drilling of wells becomes imperative to drain gas from un-drained areas in the proven area and to prove proven and probable reserves in the inter-channel areas. RIL and BP are currently working on a detailed field study to beef up production.”

With a continuous fall in production from D6 block for the last seven quarters, the worry is gathering momentum as the entire energy economics of the country is going awry. Power, fertiliser, steel plants and other industrial users who have built up a business case on cheaper availability of feedstock are running at sub-optimal capacity or have had to close operations.

But such low estimates from BP can have cascading implications. “We model in a KG-D6 future production profile at a constant annual production decline rate of 26 per cent, estimating 1.4 tcf reserve will be recoverable until fiscal 2020. At the end of fiscal 2012 and 13, theoretical production should be 26 mscmd and 20 mscmd,” Dixit and Shah had said in their note.

In simpler words: BP’s figures could mean the proven life of the D6 field would not be more than eight years (until fiscal 2020) if additional redevelopment capex is not set aside to upgrade other probable reserves to 1P reserves!

The other big question is, why are BP and Niko’s estimates turning out to be so different when both follow the same kind of classifications?

Ask this question and BP and Niko officials flatly refuse to make any comments. “Niko is governed by the North American laws. It has to get its reserves verified by an independent third party. It cannot disclose the details otherwise," said an industry source, tracking, Niko Resources.

Dixit and Shah, in their note, gave three possible explanations.

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* Non-availability of 2.8 tcf underdeveloped 1P reserves in Niko due to reasonable future gas prices used by BP at $4.1/million cubic feet versus aggressive $10/million cubic feet used by Niko to value reserves. * Differences in reporting dates of Niko (March 2011) and BP (December 2011), and as a result, BP have not accounted for April-December 2011 KG-D6 production of 0.4 tcf. * Remaining difference between Niko and BP can only be explained by technical parameters like lower in-place reserves recoverability estimates by BP. The issue now clearly is not so much about the in-place reserves as it is about its recoverability. “It’s quite evident that RIL initially was very aggressive while calculating the recovery rate. In deep-water assets, often recoverable reserves estimates change drastically after two to three years. And, as the performance of the wells are declining, that’s what is happening in the KG-D6 block as well. BP is also basing its calculations on that,” explained an oil and gas industry consultant who works closely with the two companies, on condition of anonymity. “Moreover, the commercial viability is also linked to how much gas you want to recover when the price is capped at $4.2/mbtu,” he clarified.

Whatever be the final statistics, in the Q4 CY11 earnings filing, BP has already reduced the value of its Indian E&P assets on books by $785 million, which hinted at the possibility of the impact of the drop in recoverable gas estimates. The reserve conundrum continues.

IOCL, Dhamara port in pact for Rs 10,000-cr LNG terminal Indian Oil Corporation ltd (IOCL) has signed a pact with the Dhamara Port Corporation Ltd (DPCL) to develop a Liquefied Natural Gas (LNG) terminal inside the port area at an investment of Rs 10,000 crore.

“A Memorandum of Understanding (MoU) has been signed between DPCL and IOCL for the development of a LNG terminal. Both the companies will soon come out with an official communique”, said a senior DPCL official.

Confirming the development, a top government official said, “IOCL is going to develop an LNG terminal at Dhamara port. The terminal will have a total capacity of 15 million tonnes per annum.”

IOCL is keen to develop the gas terminal in the eastern coast of the country as the region does not have any such terminal. The LNG terminal needs 250-300 acres of land and will be a part of DPCL's Phase-II expansion programme.

Besides, the oil behemoth plans to use the natural gas as fuel and as feed stock for its proposed oil refinery and petrochemical complex at Paradip. The refinery is expected to be commissioned by 2013.

It may be noted that IOCL authorities were in talks with DPCL officials since the second half of last year for the gas terminal. The oil marketing company was interested to sell the imported gas to industries based in and around the petrochemicals complex region.

India’s gas demand is expected to reach 381 mscmd (million standard cubic metres per day) by 2015, compared with a supply of 202.9 mscmd. India has an LNG import capacity of 13.5 million tonnes per annum (mtpa) through two terminals, accounting for about 20 per cent of the country’s gas requirements.

Apart from IOCL, Petronet LNG was also keen on establishment of an LNG terminal in Orissa. The gas major had identified Paradip, Dhamara and Gopalpur as probable locations for its proposed project involving an investment of Rs 5000 crore.

Situated between Haldia and Paradip, Dhamara is one of the deepest ports of India with a depth of 18 meters, which can accommodate Capesize vessels up to 180,000 DWT (dead weight tonnage). DPCL, which is a 50:50 joint venture of L&T and Tata Steel, has been awarded a concession by Orissa government to build and operate the port for a period of 30 years.

Apart from Dhamara, IOCL has also shown interest to set up LNG terminal at Ennore port in Tamil Nadu and is understood to be scouting for partners for executing this project.

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Ennore LNG terminal to cost Rs.4,320 crore The Hindu IOC signs agreement with TIDCO for the project The proposed LNG (liquefied natural gas) terminal in Ennore, near Chennai, will have a capacity of 5 million metric tonnes per annum and is to be set up at an estimated cost of Rs.4,320 crore.

The project is to be implemented by a joint venture company, in which Indian Oil Corporation, Tamil Nadu Industrial Development Corporation Limited and others, including LNG suppliers, would be stakeholders.

IOC and TIDCO, on Thursday, signed an agreement, which sets out the broad framework for the joint venture for implementation and operation of the regasification terminal at Ennore port. There would be equity participation by TIDCO in the project as envisaged in a memorandum of understanding in August 2010 for co-operation in the development of infrastructure projects, including LNG import and regasification terminal in Tamil Nadu through a joint venture company, a release from IOC said. IOC would have a minimum of 26 per cent stake in the joint venture.

The heads of agreement was signed by IOC Chairman R. S. Butola and Principal Secretary, Industries Department, and Chairman and Managing Director of TIDCO, N. Sundaradevan, in the presence of Chief Minister Jayalalithaa at a function here.

On commissioning, which is expected to be 2015-16, the facility will supply natural gas/regassified LNG to the gas-starved southern states, particularly Tamil Nadu, and some parts of Karnataka and Andhra Pradesh. Sources in the oil company said the project would come up on about 130 acres.

IOC has already undertaken front-end engineering design (FEED), environment impact assessment (EIA) studies through reputed consultants and is making good progress on the project. It is also in discussions with various international LNG suppliers for the project.

No gas to power sector from ONGC fields: EGoM Dashing hopes of the power sector, an Empowered Group of Ministers (EGoM) today decided not to divert ONGC-produced APM gas from non-priority sectors, like petrochemical units, to electricity plants as volumes available were "very low".

The EGoM headed by Finance Minister Pranab Mukherjee felt there was only 3.84 million cubic meters per day of natural gas from state-owned ONGC's fields (called APM gas) that currently goes to non-priority sector. Of this, only 1.92 mmcmd can be diverted as users of rest cannot be switched due to reasons like low pressure.

"There is very little gas available (for diversion) in the first place... EGoM decided that things better be left as it is," Oil Minister S Jaipal Reddy told reporters after a 70-minute meeting.

The power sector had been lobbying for diversion of the APM gas in view of a sharp dip in output from Reliance Industries' KG-D6 gas fields to about 35 mmcmd from 61.5 mmcmd achieved in March 2010.

Most of APM gas already goes to priority sectors of fertilizer and power and there is about 5.23 mmcmd that goes to city gas distribution companies for sale as CNG and cooking gas. The EGoM felt this is also a priority sector as without APM gas, which is priced at one fourth the price of imported gas, prices of CNG and piped cooking gas would spiral.

APM gas and KG-D6 gas are currently sold at USD 4.2 per million British thermal unit. Reddy said the EGoM took note of the fall in output from KG-D6 but did not discuss price changes or pooling of rates as they were not on agenda.

Reddy said EGoM accepted his ministry's proposal for stopping KG-D6 gas supplies to power producers that do not sell electricity at regulated tariff.

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However, two merchant power plants in Andhra Pradesh that currently sell electricity at way above the tariff determined by the sector regulator, will not face disconnection as they have signed short term agreements with local distribution companies to sell power at regulated tariff.

Also, EGoM decided that gas allocations will be made to only urea fertiliser plants and fuel supply to phosphates and potassium fertiliser producers be stopped, he said, adding the three non-urea plants currently getting KG-D6 gas would continue to get the fuel.

The incremental revenues that they make from using subsidised gas for making market priced products, would be mopped up by Department of Fertilizer, he said. DoF will come out with a guideline for the same in three months.

KG-D6 gas output has fallen to about 35 mmcmd after touching a peak of 61.5 mmcmd in March 2010, prompting the ministry to suggest changes in the allocation policy.

Stating that the EGoM took note of the fall in output from KG-D6 fields, Reddy said the capacity to import gas in its liquid form (liquefied natural gas or LNG) was also limited to 7-8 mmcmd in next fiscal.

Against this, urea plants need 13.22 mmcmd of gas beyond 15.7 mmcmd, which has already been allocated from KG-D6. Similarly, 31.81 mmcmd gas for 14 power plants with a total capacity of 7,219.5 MW that are to be commissioned in the Eleventh Five-Year Plan period ending March 31 is eeded.

Currently, power plants have been allocated 32.67 mmcmd of KG-D6 gas.

IOC buys Nigerian light crude, Egyptian heavy-traders LONDON, Feb 20 (Reuters) - Indian Oil Corp (IOC), the country's largest refiner, has bought Nigerian light crude and Egyptian heavy crude in two tenders, traders said on Monday. IOC bought a 950,000-barrel cargo of Qua Iboe and the same volume of Escravos for April loading. The seller was Trafigura, traders said, but this was not confirmed.

In a separate tender, IOC bought Egyptian Ras Gharib from another trading house, the traders said. It was rare for the company to issue a tender by buy heavy crude. (Reporting by Ikuko Kurahone; editing by James Jukwey)

GAIL (India): Buy

March 17, 2012: Investors with a long-term perspective can consider buying the stock of GAIL (India), the largest gas transmission company in the country. While the company expands its transmission network, concerns about volumes stagnating due to dip in domestic gas production have taken a toll on the stock. Also, news about proposed caps on marketing margins of gas companies has added to the pain.

Near-term concerns on GAIL's gas transmission business seem justified, as recent December quarter volumes remained stagnant. But GAIL's expanded network should hold it in good stead in the next two-three years when

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gas availability in the country is expected to increase significantly. Also, a cap on marketing margins, if implemented, is likely to be a long-drawn process, and may exclude imported gas from its purview.

Despite gaining last week on news of the Dabhol LNG terminal being commissioned soon, the GAIL stock has been an underperformer. At its market price of Rs 367, the stock price discounts its trailing twelve month earnings by 12 times, lower than historical levels (15-16 times).

Expansion bodes well GAIL is progressing well on its expansion plans. The planned increase in pipeline network from 8,000 km to 14,000 km will boost its transmission capacity from around 170 mmscmd to 300 mmscmd by 2014. The expanded network would cover under-served but high-potential regions such as South India.

This should help GAIL meet the country's high demand for natural gas, which, given the commodity's cost advantage, outstrips supply.

The recent budget provision exempting natural gas imports for power plants from customs duty should further improve demand. The company's capital outlay for the expansion is expected to be around Rs 30,000 crore.

Given GAIL's big-ticket investments, there are concerns that gas shortage will result in the company's expanding network being under-utilised and its return metrics being depressed.

Decline in domestic gas supplies due to the dip in KG-D6 output has been an overhang on the GAIL stock. The concerns seem to be justified in the short-run.

Though the company has been able to maintain its transmission volumes by substituting imported gas (mainly spot cargoes) for domestic supplies, volume growth may be constrained in the near-term. Petronet LNG (the country's main gas importer and regassifier) is functioning at full capacity levels.

Over the long-run though, gas supplies are slated to rise significantly with capacity of existing LNG terminals being increased and new terminals being set up. At Petronet's Dahej plant, capacity is being expanded from 10 mtpa to 15 mtpa.

The first phase (12.5 mtpa) is expected to be complete by October 2013, while full expansion is scheduled for end-2015. Work is also on at the greenfield project at Kochi (5mtpa), which is expected to be commissioned by October 2012.

The Hazira LNG plant, operated by Shell, is also being expanded from 3.6 mtpa to 5 mtpa. Besides, both Petronet and Indian Oil are considering setting up 5 mtpa LNG terminals on the East Coast.

There is also likelihood of an increase in domestic gas supplies from 2014. All this bodes well for GAIL's pipeline utilisation.

In the near future, the 5 mtpa Dabhol LNG terminal, in which GAIL has 31.5 per cent stake, is expected to be commissioned by the end of this month or early April. This will operate at 30-40 per cent utilisation until the breakwater facility is ready in 2014.

Sourcing deals To meet its long-term gas requirements, GAIL has entered into a deal with US-based Cheniere Energy to source 3.5 million tonnes of LNG for 20 years commencing 2017. It has also begun investing in shale gas assets in the US. The company is also expanding its petrochemical business, which accounts for more than 20 per cent of its profits.

GAIL's strong financial position (despite the subsidy burden it bears on controlled fuels) and low leverage (0.17 as on September 2011) gives it leeway to fund expansion plans.

ONGC allotment shows LIC was virtually lone institutional bidder The insurer purchased 377.1 million, or 88.3%, of the shares offered in the auction, taking up its holding in ONGC to 9.48% Anirudh Laskar & Pramit Bhattacharya

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State-run Life Insurance Corporation of India (LIC) was on Monday allotted a 4.4% stake in Oil and Natural Gas Corp. Ltd (ONGC)—part of the 5% sold by the central government last week through the auction route. The allotment figure confirmed earlier reports that the stake sale on Thursday attracted few institutional buyers willing to pay even the floor price of Rs 290 per share.

The insurer purchased 377.1 million, or 88.3%, of the shares offered in the auction, taking up the insurer’s holding in ONGC to 9.48%, a little below the permitted ceiling of 10% under insurance laws.

LIC’s stake purchase in the auction, which was nearly dismissed as a failure, shows that the insurer has become the buyer of last resort, analysts said, and also disproved the government’s original argument that it was seeking to unlock value in state-run firms for the common retail investor through divestments.

The government is trying to raise money to reduce its fiscal deficit, which in the first 10 months of the fiscal year has exceeded its target for the entire year to 31 March.

LIC has been raising its stakes in state-run companies in most public offerings. The country’s largest financial institution currently holds stocks worth at least Rs 2.5 trillion in listed companies, as per Monday’s closing prices on BSE. The insurer has picked up a 5% stake each in four public sector banks—Bank of Maharashtra, Indian Overseas Bank, Punjab National Bank and Uco Bank—and will buy a 5% stake each in at least five other state-owned lenders—Dena Bank, Central Bank, Syndicate Bank, Allahabad Bank and Punjab and Sind Bank. LIC has invested roughly Rs 2,310 crore in buying stakes in the four banks in 2012 and is estimated to be spending roughly Rs 1,400 crore in purchasing shares in the five other lenders LIC picked up a 1.1% stake in the initial public offering (IPO) of SJVN Ltd. In Power Grid Corp. of India Ltd’s IPO, it bought a 1.86% stake in 2011, but did not invest in IPOs by Coal India Ltd, Oil India Ltd, NHPC Ltd and MOIL Ltd. The divestment in ONGC was the first through the so-called offer for sale method introduced on 1 February by the market regulator. Despite the efforts of six prominent bankers to the issue, the government struggled to convince investors to buy the shares on offer until LIC stepped in.

Sandeep Bhatnagar/Mint A statement issued by the government on Friday said the ONGC shares were sold at the volume-weighted average price of Rs 303.67 apiece and valid bids were received for 420.4 million shares, worth Rs 12,766.75 crore.

An ONGC announcement on Monday said LIC bought the 377.1 million shares of ONGC for Rs 11,069.6 crore. At Monday’s closing price of Rs 283.35, LIC’s loss on the investment was Rs 384.26 crore. The stock closed 0.89% up on BSE on Monday.

Other investors in the auction, in which the floor price was set at a premium to the prevailing market price, haven’t been identified.

A preliminary investigation by the stock market regulator has indicated an inordinate delay in the transfer of funds to the exchanges while executing LIC’s trades.

The government and the market regulator both said that due to a technical glitch in the updating system of share bids, LIC’s exact bid numbers could not be ascertained till late on Thursday and hence the final bid numbers for the ONGC auction were unknown till late. “There are three main conclusions that one can draw from the ONGC stake sale,” said Saurabh Mukherjea, head of equities at Ambit Capital Pvt. Ltd. “Firstly, the government has to rethink its pricing strategy in order to make its divestment programme succeed.

Secondly, there seems to be some kind of electronic failure owing to which bids were rejected, and the information dissemination mechanism collapsed in the dying market hours as also in the aftermath: we still don’t know what exactly happened. The third serious issue is the failure to get any response from investors other than

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LIC, which indicates that there was no significant effort at book-building prior to the auction to attract institutional investors,” he said.

“Investors will be circumspect when the next auction happens, but I expect the government will learn its lessons and price its next offering better and gauge investor appetite beforehand.” Mukherjea said.

The government has denied that it called on LIC to bail out the issue. A senior LIC official too denied that the insurer bought ONGC’s shares at the behest of the government.

With a nearly 9.475% stake in ONGC, LIC’s stake is nearly at the limit. Insurance Regulatory and Development Authority guidelines stipulate that an insurance firm’s holding cannot exceed 10% in any listed company.

Disinvestment secretary Mohammad Haleem Khan told reporters that LIC is a professionally managed body and takes investment decisions independently.

“They (LIC) were interested in ONGC in a big way. Do you think anybody in LIC has the authority to commit investment of thousands of crores without going through the proper process just because somebody from here (finance ministry) gives them a call,” he said.

When asked about the lack of interest from investors, Khan said, “This is not a normal FPO (follow-on public offer) where you talk about whether it has been oversubscribed by X number of times or Y number of times. Out of 42 crore shares on offer, we got bids for 54 crore shares. I don’t understand how can you say this is not a good response.”

He said there won’t be any more auctions of public sector units’ shares as “there is not enough time left this fiscal.”

Asked about the lessons learnt from the ONGC issue, Khan said such auctions needed to be carried out on one stock exchange, indicating that auctions at both the National Stock Exchange and BSE created confusion.

Khan said the government plans the IPO of National Buildings Construction Corp. Ltd (NBCC) in the last week of March. The government plans to offload a 10% stake in the company.

“The meeting on pricing (of NBCC stake sale) is likely to happen on March 22. The issue is likely in the end week of March,” he said. On the amount to be raised from the stake sale, Khan said it would be small and definitely less than Rs 1,000 crore.

In the current fiscal, the government will raise a little less than Rs 14,000 crore through disinvestment against the budget target of Rs 40,000 crore, he added.

L&T names Venkataramanan as new MD Infrastructure and construction giant Larsen and Toubro (L&T) on Friday named KV Venkatramanan as its new CEO while AM Naik stays on as executive chairman. The company split the posts of chairman and managing director in a major rejig, naming the 67-year-old Venkataramanan as managing director for three yaers. Naik has been elevated as executive chairman till 2017.

Venkataramanan is at present a whole-time director and president of the company’s hydrocarbon business.

Both Venkataramanan and Naik were scheduled to retire this year, as the company’s rules mandate retirement of directors at 67 years and 70 years for the managing director.

Under the new rules, the retirement age for

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directors remains unchanged, but for the CEO and MD it has been fixed at 70, and 75 for the chairman.

“It’s a complex company and we have a lot of investments. The bulk of the company is in projects business and I will run this company, while Naik will concentrate on restructuring, mergers and acquisitions and building up the verticals,” Venkataramanan, who will take charge on April 1, told HT over a telephonic chat.

L&T first discussed the separation of its various businesses with their own independent heads in 2009-10. Over the last six to seven months, the nomination committee has been meeting to discuss the proposal of separating the posts of chairman and MD. Venkataramanan said since the time the plan of forming independent companies was first proposed, the company had faced challenges in its growth which he expected to continue for two or three years. The vertical split plan is seen as Naik’s initiative, which could explain the extension given to him.

“Post 2017, after Naik, the post of chairman might be non-executive,” said Venkataramanan. He however ruled out any extension of his own tenure as CEO and MD after 2015.

During his tenure, L&T will also seek to list two or three of the new verticals, and increase its revenue from global operations. “Currently, 18% of our revenues come from our international operations, we hope to increase this to 25% over the next two to three years,” he said.

Karnataka government talks to HPCL and GAIL to supply gas The Karnataka government is in talks with Indian and international energy companies to arrange gas for three power plants for which it is planning to seek bids. Currently, it is in talks with GAIL India and Hindustan Petroleum Corporation Ltd to procure about 26 mmscmd for a total gas capacity of 2,100 MW. According to a person close to the development, after the government ties up the gas, it would approach private power producers to bid for these three power plants. The state government made failed attempts to seek bids for three power plants at Davangere, Gadag and Belgaum in 2010,. Each of these power plants have a capacity of 700 MW each, and entail a project cost of INR 3,500 crore. However, private power producers had expressed concerns on their ability to procure gas by themselves.

When these projects were initially planned, they expected at least some of the gas required to run these projects would come from domestic sources. However, it shifted to complete imported gas or liquefied natural gas after the domestic gas situation in the country became lean as RIL's D6 block's production, in Krishna Godavari district dropped.

The expression of interest was called for these projects and Request for Qualifications were issued, but players asked the state government to get a fuel linkage in place. After the gas linkage is secured, the power producers will bid only on the tariff. A state government official under the condition of anonymity said that “If we tie-up gas for these projects, then there would be more interested parties.” The state government, which is going on an global investor meet in June, is also planning to engage in talks with United Arab Emirates based gas suppliers for these projects as well.

The official further said that “We will have clarity on the actual bidding date of these power projects after June.”

After the contracts for the supply of liquefied natural gas are finalised, the state government will also work on setting up an LNG terminal at Tadadi port in North Karnataka. This is however still in the planning stage. Tadadi port itself is in the bidding stage and involves a project cost of INR 3,800 crore. Reviving these three power projects is a part of the state government's plan to infuse private capital into infrastructure development in the state. The Infrastructure Development Department has planned to seek private participation for 207 projects, involving a total investment of around two lakh crores.

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Regulate petrol prices again: OMCs Firms say a suspension of deregulation should be considered since losses are not being reimbursed by govt Utpal Bhaskar New Delhi: India’s oil marketing companies (OMCs), weighed down by losses because they can’t sell petrol at market price despite the commodity being “deregulated”, have written to the government asking that the fuel be included in the so-called administered pricing mechanism.

OMCs Indian Oil Corp. Ltd, Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd are compensated by the government for selling diesel, kerosene and liquefied petroleum gas at government-fixed prices. They aren’t for petrol since June 2010, when the government allowed oil marketers to fix petrol prices. However, they still have to get the government’s approval to raise prices.

The head of an OMC said that he and the chiefs of the other OMCs had written to the government in January saying that since their companies were not being reimbursed for the losses suffered on selling petrol at what were effectively government-mandated rates, the government could consider exercising a rule that allows the so-called deregulation to be suspended during extraordinary times. “We are yet to hear from the government,” added this person, who did not want to be named.

The rapid increase in the price of Brent crude, by 11.06% since 1 January, has only exacerbated the situation for OMCs. Mint reported on 14 March that these companies may witness a significant jump in losses, to Rs 2 trillion in the next fiscal year, on account of selling fuel below cost at state-mandated prices. Such an increase will impact the financials of the companies, which currently register losses of Rs 439.50, Rs 13.10 and Rs 28.67 on a cooking gas cylinder, one litre of diesel and the same volume of kerosene, respectively. The government subsidizes these losses.

A senior executive at another OMC confirmed the development. He, too, did not want to be named.

The government wants to move away from administered prices and its intention was articulated in 2010 when, apart from deregulating petrol prices, it also increased the price of subsidized natural gas sold by state-owned firms to the same level as that of gas from Reliance Industries Ltd’s field in the Krishna-Godavari basin.

An oil ministry spokesperson declined to comment.

Despite the increase in the price of crude oil, petrol prices have stayed at the same level, largely because the government didn’t want them raised in the run-up to assembly elections in Uttar Pradesh, Uttarakhand, Punjab, Manipur and Goa. The prices were last raised on 1 December. The results of the polls were announced on 6 March.

According to the oil ministry, OMCs lose around Rs 486 crore a day on account of selling petroleum products at government-mandated prices. The total losses on this account to be borne by refiners this fiscal are expected at Rs 1.32 trillion compared with Rs 78,190 crore last year, according to the ministry. In the nine months ended December, they stood at Rs 97,313 crore. The average price of crude oil in the Indian energy basket on 21 March was $123.62 (Rs 6,255) per barrel.

The government plans to cut its subsidy bill to under 2% of the gross domestic product in 2012-13, as announced by finance minister Pranab Mukherjee on 16 March.

Angel Broking Ltd said in a 16 March report that this subsidy “would be insufficient if crude oil stays at current levels (above $115 per barrel) or retail prices are not revised upwards”. Another brokerage, Nirmal Bang Institutional Equities Pvt. Ltd, said in a 17 March report: “Even though no reforms were announced in the budget, the low subsidies forecast for FY13, which the market has discounted as unrealistic, could be an indicator that the government may announce market-determined pricing of subsidized products after Parliament’s budget session.”

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Subsidy on petroleum products has made the biggest dent in the government’s balance sheet. The oil subsidy shot up 78% to an estimated Rs 68,481 crore in the current fiscal year from Rs 38,371 last year. The government has substantially reduced the budgeted amount for the oil subsidy to Rs 43,580 crore in FY13. utpal.b@livemint.com

AI to directly import aviation turbine fuel The carrier is expecting an equity infusion in 2012-13 Ailing national carrier Air India has decided to go in for direct import of Aviation Turbine Fuel (ATF) in a bid to curb the escalating cost. The AI board, which approved the direct import on Tuesday, also gave a go-ahead to the state-owned carrier to soon appoint a service provider who would source the supply as well as provide the necessary infrastructure for storage and distribution of the same for in-plane fuelling. AI expects to end the year with a higher-than-budgeted performance in the revenues. However, the escalating cost in fuel is likely to set it back by an additional Rs. 2,200 crore and its fuel bill is estimated to be around Rs. 8,000 crore for 2011-12.

Added to this, the additional interest cost of Rs.1,500 crore eroded the profitability of the airline.

The board also took on record the progress on the restructuring of the working capital into long-term loans whereby Rs.11,000 crore worth of working capital is proposed to be converted into long-term loans and Rs. 3,400 crore into cash credit facilities. The government would provide support in respect of the non-convertible debentures of Rs. 7,400 crore. AI is expecting an equity infusion shortly in the financial year 2012-13, which would not only improve its operating and financial parameters but would also give considerable comfort to the institutional lenders in the form of better net worth. Meanwhile, AI's operating and financial performance up to February this year registered a continuous increase compared to last year. The passenger revenue during February 2012 went up to Rs. 949 crore from Rs. 718 crore in February 2011, registering a 32.2 per cent increase. As part of the risk management strategy, the board approved the hedging of fuel up to 20 per cent of the total international uplifts and allotted a specific amount in its budget. A risk management team of senior officials was set up in order to continuously monitor and take positions on fuel hedging.

IEA downgrades non-OPEC oil supply forecast for 2012 LONDON (Reuters) - Oil supply from non-OPEC countries will grow less than expected in the first quarter this year, the International Energy Agency (IEA) said on Wednesday, leaving its global oil demand growth forecast unchanged.

The agency, which advises industrialised nations on energy policy, said non-OPEC oil production will rise by 300,000 barrels per day (bpd) In the first quarter of 2012, down from 490,000 bpd in previous forecasts as unplanned shut-ins topped 750,000 bpd.

The agency also downgraded its full year non-OPEC production growth to 730,000 bpd from 900,000 bpd.

Oil consumption will grow by 800,000 bpd in 2012, but the IEA warned that high oil prices could stunt the recovery.

"Demand growth will likely remain stunted by weaker economic prospects, the more so if prices stay high," the IEA said.

Chevron leaving Western Slope oil shale project Chevron Corp. is pulling out of an oil-shale project on the Western Slope. Chevron, one of three companies holding a federal lease to research how to develop oil shale in Western Colorado, is “divesting” that lease, the company said Tuesday. “Chevron has notified the Bureau of Land Management (BLM) and the Department of Reclamation, Mining and Safety (DRMS) that it intends to divest its oil shale research, development and demonstration lease in the Piceance Basin in Colorado,” the company said in a statement. “While our research was productive, this change assures that critical resources — people and capital — will be available to the

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company for other priorities and projects in North America and around the globe. We will work with the BLM and DRMS to determine the best path forward, timing and other issues.”

Cary Baird, the Grand Junction-based spokeswoman for Chevron North America Exploration & Production Co., said the company had three people in working full time on its oil shale project, plus others working part time on it.

“Every single one of those people are being reassigned, so there’s no job loss whatsoever,” Baird said. “We have had subcontractors working on the project, but none at this time.” Oil shale formations, and the thick, sludgy “kerogen” they produce, are different from shale oil formations, such as the Front Range’s Niobrara, which produce crude oil. Supporters of oil shale have said the rock layers could be a significant supply of domestic crude oil — if the kerogen could be removed and heated. But many believe that research breakthroughs are years away.

“It’s clear that oil shale isn’t ready for prime time,” said Matt Garrington, the Denver-based deputy director of the Checks and Balances Project, a government watchdog group. “The Chevron decision is another in a long line of failed oil shale projects.” Chevron’s lease, for 152 acres in Rio Blanco County, was issued on Jan. 1, 2007, according to the federal Bureau of Land Management (BLM). “They can transfer or sell the leases, but the terms of the lease would still apply to the new company,” BLM spokesman Steven Hall said.

NEW & RENEWABLE ENERGY Renewable energy is no longer ‘alternative energy’ Source: liveminit.com Growth is energy hungry, and the aspirations of growing at 9-10% will place huge demands on the energy resources of the country. In this energy jigsaw, renewable energy will feature like never before in the 12th Plan and after.

By the rule of the thumb, India will require about 100 gigawatts (Gw)—100,000 megawatts—of capacity addition in the next five years. Encouraging trends on energy efficiency and sustained efforts by some parts of the government—the Bureau of Energy Efficiency in particular needs to be complimented for this—have led to substantially lesser energy intensity of economic growth. However, even the tempered demand numbers are unlikely to be below 80Gw. As against this need the coal supply from domestic sources is unlikely to support more than 25 Gw equivalent capacity. Imported coal can add some more, but at a much higher cost. Gas-based electricity generation is unlikely to contribute anything substantial in view of the unprecedented gas supply challenges. Nuclear will be marginal in the foreseeable future. Between imported coal, gas, large hydro and nuclear, no more than 15–20Gw equivalent can be expected to be added in the five-year time block.

As against this, capacity addition in the renewable energy based power generation has touched about 3Gw a year. In the coming five years, the overall capacity addition in the electricity grid through renewable energy is likely to range between 20Gw and 25Gw. Additionally, over and above the grid-based capacity, off-grid electricity applications are reaching remote places and touching lives where grid-based electricity supply has miserably failed. Newer applications in lighting, heating and household applications are now reaching a point of “unconditional competitiveness”. All of this is at a substantially lower carbon footprint. Renewable is thus no longer “alternative energy”, it is pretty much as mainstream as it gets.

The bottlenecks to renewable energy development are more practical. The nature of “infirm” electricity from renewable sources is somewhat different from conventional coal, gas or nuclear power. Large-scale ingress of such infirm electricity in the grid causes grid management problems. A utility control room becomes a much more

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complex and busier place as the proportion of renewable electricity increases. There is a natural reluctance on part of utilities to take in renewable electricity beyond a point.

Key to solving this conundrum is recognizing that renewable power is indeed infirm, but is predictable. Predictions made with reasonable accuracy on how much electricity will be generated at any time will lead to solutions being developed by pressing in quick response complementary sources of electricity to complement the renewable energy generation. Thus, pairing solar with gas, and wind with storage hydro can address the key issue of variability. This is more a management issue, and with the right policies and regulations on these aspects renewable electricity generation can receive a huge fillip.

That would still leave the issue of local grid management where large scale variations in generation can cause huge disturbances and lead to grid outages. This will need to be addressed through network strengthening and introduction of newer technologies such as Flexible AC Transmission Systems. Eventually, large scale renewable resources such as wind and solar would need to connect with the national grid and the power flows would become a part of the inter-state power flows.

Fortunately, in the area of renewable energy the country has been seeing quite a bit of progressive action led by the Central Electricity Regulatory Commission (Cerc). The regulator has acted extremely proactively to ensure that a Renewable Purchase Obligation is implemented at the state level. This has been backed by innovative commercial mechanisms such as tradable Renewable Energy Certificates that help states, which are deficient in renewable energy resources, fulfil their purchase obligations. Cerc has also made it mandatory to bring about “scheduling” of grid connected renewable energy from January 2012. This will bring about much desired predictability and reduce the impact of infirmity of the main renewable energy resources—wind and solar.

On its part the government of India has been working on filling some of the loopholes in the policy framework and the implementation wherewithal.

A credit enhancement mechanism for the solar projects under the first phase of the National Solar Mission has been put in place. The government has also approved the use of the proceeds of the coal cess accruing to the National Clean Energy Fund for investments in the transmission grid and improving reliability. A number of market innovations are also being proposed by the government to promote competition and bring down cost of renewable energy production and delivery.

All of these are positive pointers in the otherwise troubled energy scenario that the country is facing. However, it comes with an important caveat. Renewable energy resources are very local. For grid-based electricity production the resources are concentrated in a few states. Development is mired in land related issues, availability of permits, consents and clearances—all the typical issues that bog down infrastructure project development in India.

If the promise of renewable energy has to play out in practice, the government would need to demonstrate sustained leadership to overcome the issues, address state level parochial attitudes through the right mix of incentives, and remove bureaucratic sloth in the state machineries. Investor interest in renewable energy is high at this time, but can be very fickle. One has always suspected that the National Action Plan for Climate Change and its ambitious targets were born out of propaganda rather than belief. However, a combination of circumstances may just make achievement of some of the important targets possible to a significant degree. It is crucial that the country and its leadership do not let the opportunity pass.

Anish De is chief executive, Mercados EMI Asia.

Respond to this column at feedback@livemint.com

U.S. Sets Tariffs On Chinese Solar Panels

by The Associated Press The U.S. Commerce Department has imposed new import fees on solar panels made in China, finding that the Chinese government is improperly giving subsidies to manufacturers of the panels there.

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The department said Tuesday it has found on a preliminary basis that Chinese solar panel makers have received government subsidies of 2.9 percent to 4.73 percent. Therefore the department said tariffs in the same proportions will be charged on Chinese panels imported into the U.S., depending on which company makes them.

The tariff amounts are considered small, but the decision could ratchet up trade tensions between the U.S. and China. Several U.S. solar panel makers had asked the government to impose steep tariffs on Chinese imports.

They are struggling against stiff competition from China as well as weakening demand in Europe and other key markets, just as President Barack Obama is working to promote renewable energy.

"Today's announcement affirms what U.S. manufacturers have long known: Chinese manufacturers have received unfair ... subsidies," Steve Ostrenga, CEO of Helios Solar Works in Milwaukee, Wis., said in a statement. The company is a member of a group called the Coalition for American Solar Manufacturing.

On the other side, some U.S. companies argue that low-priced Chinese imports have helped consumers and promote rapid growth of the industry.

The new tariffs are low, making the Commerce Department decision "a relatively positive outcome for the U.S. solar industry and its 100,000 employees," said Jigar Shah, president of the Coalition for Affordable Solar Energy.

"However, tariffs large or small will hurt American jobs and prolong our world's reliance on fossil fuels.

Fortunately, this decision will not significantly raise solar prices in the United States."

Members of CASE include California-based SunEdison, Recurrent Energy, SolarCity and Westinghouse Solar, as well as China-based Suntech Power Holdings Co. Commerce said it was putting off until May 17 a decision on whether Chinese companies are dumping the solar panels on world markets, selling them below cost.

Trade tensions with China are especially sensitive at a time when the U.S. and other Western economies want to boost technology exports to revive economic growth and reduce high unemployment.

The U.S. and China are two of the world's biggest markets for solar, wind and other renewable energy technology. Both governments are promoting their own suppliers in hopes of generating higher-paid technology jobs.

The U.S. manufacturers' complaints have been amplified by the controversy surrounding Solyndra Inc. a California-based solar panel maker that filed for bankruptcy protection after winning a $500 million federal loan from the Obama administration.

Solyndra's failure embarrassed the administration and prompted a lengthy review by congressional Republicans who are critical of Obama's green energy policies. Solyndra has cited Chinese competition as a key reason for its failure.

U.S. energy officials say China spent more than $30 billion last year to subsidize its solar industry. Obama said in November that China has "questionable competitive practices" in clean energy and that his administration has fought "these kinds of dumping activities." The administration will act to enforce trade laws where appropriate, Obama said.

SolarWorld Industries America Inc., the largest U.S. maker of silicon solar cells and panels and a subsidiary of Germany-based SolarWorld, has led the U.S. manufacturers' complaints.

China announced its own probe in November, saying it will investigate whether U.S. support for renewable energy companies improperly hurts foreign suppliers.

Shell inks China’s first shale gas deal BEIJING (Reuters) – Global oil major Royal Dutch Shell said it signed a production sharing contract with China National Petroleum Corporation (CNPC) to develop a shale gas block in China, the first deal of its kind in the country.

China is in the very early stages of tapping its potentially large shale gas resources and the government wants to identify the right technology to unlock them in the next few years, aiming for a leap in shale production by 2020.

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“China has huge shale gas potential and we are committed to making a contribution in bringing that potential into reality,” Shell CEO Peter Voser said in the statement.

China’s top energy agency, the National Energy Administration (NEA) officially unveiled on Friday a target to produce 6.5 billion cubic metres (bcm) of shale gas by 2015, or roughly 6 percent of China’s current total gas production.

It intends to dramatically boost output to 60-100 bcm in 2020, a level some experts say is over-ambitious as it faces technological, environmental and regulatory roadblocks.

Zhang Yuqing, head of NEA’s Oil and Gas Department, has said foreign firms can enter product sharing contracts with Chinese firms or provide engineering services.

Shell has already conducted some exploration work on the Fushun-Yongchuan block covering 3,500 square kilometres in the southwestern province of Sichuan, the statement said, without giving further details.

China is likely to tender its second batch of shale gas blocks in April or May after awarding two out of four blocks in its first auction in July last year, Xiong Bingqi, an official with the Ministry of Land and Resources, has told reporters.

China started the shale push in late 2009, inspired by a shale boom in the United States. Its state energy firms have since then entered multi-billion-dollar U.S. shale deals with Chesapeake Energy <CHK.N> and Devon Energy Corp <DVN.N>.

At home companies have drilled several dozen wells and brought in firms such as Shell, Chevron Corp <CVX.N> and Hess Corp <HES.N> for joint studies.

However China has yet to start commercial shale production, though it is widely believed to hold the world’s largest shale resources.

CNOOC Ltd, China’s largest offshore oil producer, started seismic operation of a shale gas project in the eastern province of Anhui in December, the company’s first onshore exploration project in China. The block covers 4,800 square kilometres.

Executives of China Oilfield Services Ltd <2883.HK>, one of CNOOC Ltd’s sister companies and China’s largest oil service company, which derives nearly 30 percent of its revenue overseas, said on Wednesday that it would provide logging services for the Anhui shale gas project.

But China Oilfield chief executive officer and president Li Yong said prospects for shale development in China remained uncertain because of technical and environmental challenges.

“I have more faith in coalbed methane,” Li told Reuters after the company’s results briefing in Hong Kong on Wednesday. “The environmental impact from shale development has not been assessed yet.”

Shale gas in Poland could still be a game changer: Fitch Source: IRIS (22-MAR-12)

``Shale gas in Poland could still be a game changer for the country`s energy sector despite the disappointing shale gas reserve estimate published today by the Polish Geological Institute (PGI). PGI assessed most likely recoverable shale gas reserves to be between 0.35 and 0.77 trillion cubic meters (tcm), which is about one tenth the 5.3 tcm estimated by the US Energy Information Administration in April 2011. PGI estimates maximum recoverable shale gas reserves at 1.92 tcm,`` said Fitch, in a report. It further said the following: It is still too early to make any meaningful assumptions about the future of shale gas in Poland, believed to have one of the highest development potentials in Europe. Less than 20 exploration wells have been drilled by domestic and foreign companies, in many cases with disappointing results.

From a credit perspective, we view shale gas exploration as high risk and capital intensive. Partnerships among domestic companies to share exploration risks and costs, or more participation by foreigners would be positive.

The current degree of exploration for shale gas in Poland is neutral for the credit ratings of leading domestic energy companies, given modest amounts of planned capex relative to their total capex. However, a substantial increase in investment in shale gas exploration would add to high core capex requirements, reducing free cash

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flow and potentially pressuring ratings. The Polish government strongly supports shale gas exploration activity. It has urged large state-owned or state-controlled energy companies to invest in the sector.

Exploration by Poland`s energy companies at an early stage gives them a chance to become major players should the commercial availability of gas be proven over the next several years. This was not the case in the US, where the shale gas industry was developed by a number of smaller, independent players. Large US oil and gas companies have only recently started to be active in the sector, mostly through acquisitions.

We do not expect that the success in the US, which led to about a 50% decrease in US gas prices between 2008 and 2011, will be easily replicated in Poland. Commercial production in the first five to 10 years is unlikely to substantially lower gas prices given high breakeven costs. Also, Poland and the US differ both in terms of shale formations and the gas market structure.

The PGI shale gas reserve estimate, made in conjunction with the US Geological Survey, is still substantial. The shale gas reserves would be sufficient to cover Poland`s gas consumption for 25-55 years, in addition to 10 years coverage by conventional gas reserves. Substantial shale gas production could lower Poland`s dependence on gas imports (currently covering about 70% of gas demand), most of which comes from Russia. It would also shape Poland`s future power generation mix as the country aims to diversify from the dominance of coal in power generation by investing in renewables, nuclear energy and gas-fired power plants.

A number of foreign companies already have exploration concessions for shale gas in Poland, including ExxonMobil, Chevron, ConocoPhillips (through a service agreement with Lane Energy), Marathon Oil and Eni. Local players that have been granted exploration concessions include PGNiG, PKN Orlen, Grupa Lotos and Petrol invest.

Another three large domestic companies - PGE, Tauron, and KGHM - also plan to enter shale gas exploration. In January 2012, they signed three separate letters of intent with PGNiG regarding cooperation in shale gas projects.

Shale gas exploration policy by March 2013: Jaipal Reddy IANS Mar 13, 2012, 07.57PM IST NEW DELHI: By the end of next financial year India will have a national policy on exploration of shale gas, an unconventional natural gas resource trapped in sedimentary rocks, that would substantially reduce the country's dependence on imports, Petroleum Minister S. Jaipal Reddy said Tuesday.

"Shale gas policy is proposed to be announced tentatively by March 31, 2013," Reddy said in a written reply in the Rajya Sabha, adding the government has already started formulating the policy.

Reddy said the government has started consultation process with concerned ministries and departments to formulate the policy. "The announcement of shale gas policy will depend on completion of the consultation process with all the concerned authorities, including environmental safeguards required to be put in place under the regulatory regime for shale gas exploration and production," he said.

To explore the potential of shale gas availability in the country, India signed a memorandum of understanding with the US in November 2010. As per the deal, US Geological Survey carried out shale gas resource assessment in three Indian basins - Krishna Godavari, Cauvery and Cambay - in January this year.

Shale gas is emerging as an important source of energy in the US and is estimated to account for much as half the natural gas production in North America by 2020.

The minister said Directorate General of Hydrocarbons has assigned Ranchi-based Central Mine Planning and Design Institute Limited with the task of identification of areas and assessment of shale gas potential in Damodar and Sohagpur sedimentary basins.

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Burning Ice: The Next Energy Boom?

Oil companies and governments around the world are examining how to uncage huge amounts of methane gas locked up in undersea ice.

By Bruce Dorminey Methane hydrates present a potential lifeline to resource-poor nations like Japan, which already imports more than 90 percent of its fossil fuels. (Gtranquillity/Shutterstock) Set a lighter to an icy block of methane hydrate, a naturally frozen combo of methane gas and water, and flames spew forth at random.

However unlikely this fluke of nature may appear — burning ice — it could hold the keys to a vast wealth of untapped, clean-burning methane gas thought to exist deep beneath the outer margins of most continental shelves.

Its contribution may be peripheral to the immediate needs of Western Europe and North America, currently drowning in cheap natural gas, but it present a potential lifeline to resource-poor nations like Japan, which already imports more than 90 percent of its fossil fuels.

Although successfully created in the laboratory as early as the 1800s, gas hydrates were only discovered in nature in western Siberian permafrost in the late 1960s. And their structural vagaries, capable of trapping this frozen methane in molecular, lattice cages, are only now being fully appreciated under natural conditions. It is known, however, that these methane hydrates typically form only at low temperatures and under high pressure in rock sediments, usually hundreds of feet or more below the ocean surface.

Such hydrates garnered some notoriety in 2010, when their presence stymied efforts to seal the blown Macondo well during the Gulf oil spill.

“The BP Deepwater Horizon Macondo well blew out 13,000 feet down,” said Arthur Johnson, a consulting geologist and chief of exploration at Hydrate Energy International in Kenner, Louisiana. “Hydrates didn’t cause the blow-out, but they complicated sealing the leak.” Hydrates have long been known to get in the way of drilling for undersea oil and natural gas, either by creating pipeline blockages and hazards while still frozen, or when heat from drilling releases their methane in its more volatile gaseous state.

Despite the news flap during the Deepwater Horizon disaster, hydrates’ potential as an alternative energy source remains mostly unappreciated. That’s partly with reason — to date, no one in the world can claim sustained gas hydrate energy production.

“The Japanese have by far led the world in their overall investment in looking at hydrates as a domestic energy resource,” said Tim Collett, a research geologist with the U.S. Geological Survey in Denver. “In 1995, the Japanese started the first hydrate research programs focused purely on energy potential.”

Recent events have goosed that interest. “After [last year’s] tsunami and earthquake damage to the Fukushima nuclear plant, the Japanese are actively working to phase out a lot of nuclear and go to natural gas,” Johnson explained. “The natural gas price there has jumped to $15 to $17 dollars per thousand standard cubic feet, so that’s an impetus to develop their own gas hydrate to generate electricity.”

To that end, the state-sponsored Japan Oil, Gas and Metals National Corporation has begun exploratory drilling in the Nankai Trough off Japan’s southeast coast. Koji Yamamoto, a corporation project director, says they will continue drilling four deep water holes until the end of March in preparation for a flow test early next year.

Conventional gas recovery from hydrates usually involves heating these with steam or hot water, or decreasing reservoir pressure enough to destabilize the hydrates into extractable gas and water.

But Japan Oil is also involved with the U.S. Department of Energy and Conoco-Phillips in testing a new method of producing methane hydrate energy on Alaska’s North Slope.

Conoco-Phillips is leading an effort to pump carbon dioxide into a 2,400-foot well in the western Prudhoe Bay oil field in order to learn how to extract a portion of the estimated 85 trillion cubic feet of methane gas thought to be buried under permafrost in the area.

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“This is a very small-scale, controlled scientific experiment,” said geologist Ray Boswell, technology manager for gas hydrates with the Department of Energy in Morgantown, West Virginia. “We have been able to inject carbon dioxide into a reservoir that’s 85 percent [methane] hydrate, then we will start dropping the pressure in a controlled fashion and wait to see what flows into the well to better understand these chemical processes.”

What is known, said Johnson, is that “if you pump CO2 into a methane hydrate reservoir, the CO2 will displace the methane hydrate by forming a CO2 hydrate and releasing the methane.”

Some 22 tons of liquid CO2 were trucked in for the tests, which will continue through April. However, if this particular extraction mechanism were being done on a commercial scale, the needed CO2 might be collected from a nearby power plant, for instance.

Meanwhile, for the last decade, Chevron has been heading a project in the Gulf of Mexico with the U.S. Department of Energy. In 2009, the project team drilled seven exploratory wells at three different locations some 200 miles offshore. Boswell said that expedition determined that gas hydrates did accumulate at high saturations in sand reservoirs within the marine environment.

As Johnson points out, any country with a deepwater coastline has hydrate potential.

“But in the U.S., with $100 a barrel oil prices, natural gas ought to be about $17 per thousand standard cubic feet,” he said. Instead, it’s about $2.50 per right now.

For gas hydrates to be economically viable in the U.S., Johnson estimates that they would need a wholesale price of at least $9 per thousand standard cubic feet. That’s not likely anytime soon. The world currently uses about 117 trillion cubic feet of natural gas annually; U.S. consumption is a little over a quarter of that total.

Unless the current shale natural gas market completely collapses, in the short run, extracting gas hydrate is unlikely to be economically feasible in North America. But it offers advantages that make it worth developing.

“Relative to coal, methane gas produces only half the CO2 and no mercury, particulates, or ash,” said Johnson.

“You might even be able to take CO2 produced from an [industrial] plant and sequester that CO2 for thousands of years, [with potential] tax credits for doing so.”

Couple its clean-burning potential with the fact that it’s so ubiquitous, and it’s arguably enough to give gas hydrate energy a hard second look. Some estimates put the global amount of gas hydrates at as much as 43,000 trillion cubic feet in sandstone reservoirs alone. Even if only half of that is recoverable, Johnson says that they could still represent a significant global energy reserve for well over a century.

UP's first solar power plant starts functioning ALLAHABAD: Amid growing emphasis on adopting alternative and environmental-friendly means to meet energy demands, the first solar power unit of Uttar Pradesh has started functioning on the outskirts of the city.

Situated at Naini, about 25 kms from Allahabad, the 5 MW solar power plant developed by Kolkata-based company, EMC Limited, as part of the Union ministry of new and renewable energy's Jawharlal Nehru National Solar Mission became operational on March 4.

"It took us nearly seven years to complete the project which involved a budget of Rs 80 crore. The costeffectiveness of this project can also be gauged from the fact that its maintenance would involve an yearly expenditure of not more than 70 lakh", Pankaj Kumar Chhonkar, project manager of the EMC, told PTI. He said electricity is being generated with the help of "21,300 solar modules which keep functioning efficiently even when the weather is overcast and involve virtually no environmental hazards which have been a major cause of concern with regard to power plants".

"The EMC had been entrusted with this project by the NTPC Vidyut Vyapar Nigam, with which the company has

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signed a power purchase agreement ensuring a sale for the next 25 years", Chhonkar said, adding that a total of 25 acres of land has been utilized for the purpose.

He said as per the agreement, "the Nigam will help EMC recover its costs while the private company will have to work in coordination with Poorvanchal Vidyut Vitran Nigam Ltd, a subsidiary of UP Power Corporation Ltd, and supply electricity to wherever requirement is felt".

"The EMC has been in the business of power generation and transmission for over four decades. Keeping up with the demands of our times, we seek to make use of our expertise in providing green and clean energy. Solar power has been a huge success in Rajasthan and Gujarat where a large number of such plants are functioning," he said.

Fuel efficiency, biofuels are driving down gas demand biofuel consumption is helping drive down demand for gasoline, said Daniel Yergin, chairman of IHS CERA. The Energy Information Administration projects that gasoline consumption will decline by about 7% over the next 25 years, and may even drop lower if the latest automotive fuel-efficiency measures are implemented. "The U.S. has already reached what we can call 'peak demand.' Because of increased efficiency, because of biofuels, we're not going to see growth in our oil consumption," March 22, 2012 The price of gasoline keeps rising for Americans, but it's not because of rising demand from consumers.

Since the first Arab oil embargo of the 1970s, the U.S. has struggled to quench a growing appetite for oil and gasoline. Now, that trend is changing.

"When you look at the U.S. oil market, you see that there's actually no growth," says Daniel Yergin, chairman of IHS Cambridge Energy Research Associates.

He says gasoline demand peaked in 2007 and has fallen each year since, even though the economy has begun to recover.

"The U.S. has already reached what we can call 'peak demand.' Because of increased efficiency, because of biofuels, we're not going to see growth in our oil consumption," Yergin says.

That view is shared by the government's official source of energy data, the Energy Information Administration. Its long-term projection is that gasoline consumption will steadily decline by around 7 percent over the next 25 years.

Howard Gruenspecht, the EIA's acting administrator, says the projection does not take into account the latest proposal on automotive fuel efficiency, likely to be approved later this year. It requires fleet averages of 54.5 miles per gallon.

"If you put those into the mix, we would expect a somewhat steeper decline in overall liquid fuels demand, and gasoline demand in particular," Gruenspecht says.

The Crossover Effect Gruenspecht says there are many reasons for the declining demand for gasoline. They include government mandates for the use of biofuels, like ethanol; and some demographic changes â&#x20AC;&#x201D; for instance, the graying of America (older people tend to drive less). The main factor, though, is the increasing efficiency of new cars and trucks.

Rebecca Lindland, director of research for IHS Automotive, says 27 percent of the new vehicles sold in 2011 were smaller, lighter, car-based versions of the SUV, called "crossovers."

"Those tend to get significantly better fuel economy than our traditional truck-based SUVs that used to account for 20 percent of all the vehicles we bought," she says.

Now, those big SUVs are less than 5 percent of sales, and the average fuel efficiency of the crossovers is 20 to 30 percent higher than the old SUVs.

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Of course, the higher price of gasoline plays a role in the changeover, says the EIA's Gruenspecht.

"I'm sure it's having some effect, but I don't think it's a major driver," he says.

Lindland agrees that the high price at the pump plays a role, but that's not the main consideration in consumers' vehicle purchases.

"What really matters to the consumer, what really drives their purchase decision, is whether the vehicle meets their wants and needs in terms of cargo load — whether people or stuff — and just their overall lifestyle," she says.

Standardizing Efficiency Lindland says the key to the decline in gasoline use is higher government fuel efficiency standards, which forced automakers to make more fuel-efficient cars that appeal to consumers.

If fuel economy was the top priority, says Lindland, sales of hybrids would be exploding. But they're not.

"Actually, hybrid sales have been declining the last two years. So we're down to just 2.1 percent of the market is hybrid sales," she says. "And so we're selling nine times as many small cars and, of course, more than 12 times as many crossovers."

Eventually, hybrids and electric vehicles will likely make a big contribution to curbing the U.S. oil appetite.

For now, at least, most of the increases in fuel efficiency are coming from improvements in conventional gaspowered cars, including turbo-chargers that make smaller engines more powerful, 6-speed instead of 3- or 4speed transmissions, smaller size and lighter materials.

Lindland says the next big improvement will be broad use of a start/stop feature that turns the engine off when you're at a traffic light, for instance, and automatically restarts it when you press on the accelerator. It's a feature already widely available in Europe

DuPont Says Solar Panels to Cost Less Than TVs

By Ehren Goossens on March 21, 2012 Solar panel prices, which have fallen 80 percent in the past three years, can fall further because the technology is simpler than many consumer electronics that are being made cheaper now, a DuPont & Co. (DD) executive said.

“Right now it would be cheaper to put 40-inch TVs on your roof than solar panels, which are much less complicated,” said Conrad Burke, general manager of the Wilmington, Delaware-based chemical company’s DuPont Innovalight unit, which makes a product that gets more power from panels.

The comments highlight the potential for solar panel costs to decline far enough that power from cells rivals that generated by fossil fuels. Burke said DuPont, whose materials are in 70 percent of the world’s installed panels, aims to hit $2 billion in solar sales by 2014 after $1.4 billion last year.

Solar panel makers led by Suntech Power Holdings Co. in China and First Solar Inc. (FSLR) in the U.S. have suffered slimming margins as increased competition drives down the price of cells.

TVs are cheaper because there are about five major manufacturers mass producing them, and solar may be similar in the future, Burke said. The pattern mimics the aluminum and mobile phone industries, which consolidated once technology enabled low-cost production.

Canadian Solar Inc. (CSIQ) Chief Executive Officer Shawn Qu said yesterday he expects that there will be only also only four to five major solar manufacturers by 2015.

Solar energy currently only generates 0.2 percent of the world’s electricity even though installations are growing by a third each year and the cost of its power is reaching parity with retail prices in Australia and Brazil, he said.

Adobe fuel cell installation blooms in San Francisco Software developer Adobe Systems has installed two Bloom Energy fuel cells that it estimates will provide about 35 percent of the electricity needs for its San Francisco office. In a blog by the company’s facilities director, Michael Bangs, Adobe said that it has completed the installation of two 200-kilowatt-capacity Bloom boxes. The

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technology, sometimes described as energy servers, use biofuels or natural gas to generate electricity, allowing commercial accounts to take at least part of their power procurement needs off the grid.

In a location such as northern California, where energy costs are particular high, there are a number of highprofile companies experimenting with fuel cells from Bloom and several other players, including FuelCellEnergy and UTC Power. (â&#x20AC;&#x153;Energy-in-a-box: More businesses try prime fuel cells.â&#x20AC;?) Adobe already uses 12 100-kilowatt Bloom boxes at its headquarters in San Jose, contributing about 30 percent of its energy needs. The site also boasts an installation of 20 Windspire units. These are propeller-free, vertical-axis wind turbines that are 30 feet tall, 4 feet wide and 650 pounds each. The units are on a sixth floor patio that is also a rooftop garden area.

SUSTAINABILITY & CLIMATE CHANGE Climate change: unfolding story The complexities and technicalities of climate change issues put off many news professionals The complexities and technicalities of climate change issues put off many news professionals. For this reason, even important global events such as the United Nations Climate Change Conference, which was held in Durban from 28 November to 9 December, do not get sufficient media attention. A dozen Indian journalists were present at the Durban summit, most sponsored by civil society groups realizing the critical role media coverage and resulting public opinion play in these discussions. The conference was significant because it produced a breakthrough on the international communityâ&#x20AC;&#x2122;s response to climate change.

During the summit, the world agreed to a new global climate change regime that will take force starting in 2020.

The principle of equity found its place and developing countries like India got a breather from universally binding restrictions that were being pushed by the European Union. This summit, also known as COP 17 (COP for conference of parties), saw India emerge as a leader and a voice of developing nations. It also had the backing of China in these critical negotiations, with significant implications for global trade practices.

Perhaps this was also the reason why it was mainly the business and economic publications in India that took the lead in covering the conference. A CMS Media Lab analysis of 34 Indian newspapers, for the period from 21 November to 20 December, showed that the coverage was maximum in The Economic Times, The Times of India and Business Standard. Hindustan Times, The Financial Express, The Statesman, Mint and Business Line also had significant coverage, including editorials and expert columns. Among Hindi dailies, Dainik Jagran took the lead followed by Dainik Bhaskar and Jansatta. Mainstream dailies such as the The Indian Express and The Hindu had minimal coverage.

Similarly, an analysis of six national news channels (DD News, Aaj Tak, NDTV 24X7, Star News, Zee News and CNN-IBN) during prime time (7pm to 11pm) from 21 November to 17 December pointed to skewed coverage. DD News aired the maximum of 18 stories on the conference. CNN IBN, Aaj Tak and NDTV 24x7 had few stories while Zee News aired only a single story on the conference. On the other hand, Star News did not to cover the conference during this period. Overall, Indian news channels gave less importance to the Durban conference compared with the Copenhagen summit held in December 2009.

The coverage of Indian newspapers, especially English newspapers, was far better than that of the news channels. In fact, newspapers published a significant number of analytical articles, editorials and features on the Durban conference. Despite predictions that the climate talks would fail to achieve the desired goals, the reporting by newspapers was fair and unbiased.

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The lack of interest in summit coverage by news channels could be attributed to various factors. Within the country, preoccupation with the corruption campaign led by activist Anna Hazare and the subsequent deadlock in Parliament on the Lokpal Bill was one reason.

Also, it had been broadly speculated before the summit that nothing constructive would emerge from the talks.

Unlike during the Copenhagen conference, when the US played a highly controversial role, in Durban there weren’t any controversies to arouse media excitement.

Finally, one-time events like the Durban conference don’t figure high among the priorities of media currently.

Therefore it’s not surprising to see coverage of these meetings decline from earlier years—not just in Indian but even in global media.

However, climate change issues are not going to go away and in fact are becoming more important by the day.

For example, in 2010 global emissions of greenhouse gases increased by 6% from the previous year. This is greatest one-year increase in history. The repercussions of such trends are felt beyond changes in the temperature and fluctuating weather trends.

Clearly, reporting on climate change issues presents a challenge to media professionals and organizations. This is where several civil society groups and UN organizations are stepping in to provide support to journalists to explain both the scienctific aspects and implications of such trends. Such support includes briefing sessions, field visits and fellowships for in-depth study of climate change issues.

Given the array of competing news stories vying for coverage, for more sustained reportage on climate change, editorial support and responsibility is critical.

However, for journalists looking for stories beyond the press releases and briefings, climate change and global warming as issues hardly lack news value. One has to only look around to realize it’s an unfolding story—rich in detail, drama and, potentially, impending tragedy.

HOW GREEN IS THE COMPANY? Greenco rates the environmental performance of a company using five levels.

The Green Company (Greenco) rating initiative of the Confederation of Indian Industry (CII) got rolling in early March, with the Bangalore International Airport Limited (BIAL) getting its certification. BIAL received the ‘Silver' rating for its environmental performance, and the company's certification put in place a green introspection effort by the Indian industry.

Greenco rates the environmental performance of a company, and thereby, is a step more advanced than certification under the ISO 14000 series, which assesses the environment management system. While a company can get ISO 14000 series certification if it has put its environmental management systems in place, the Greenco rating will come only if the company can show results across nine environmental parameters. In that sense, it is more of an end-of-the-pipeline assessment of a company's green behaviour.

PARAMETERS The nine parameters assess a company's performance towards energy efficiency; water conservation; use of renewable energy; mitigation of greenhouse gas (GHG) emissions; conservation and recycling of materials; waste management; establishment of a green supply chain; product stewardship; and lifecycle assessment.

The five-level ratings (Certified, Bronze, Silver, Gold and Platinum) give a scale for companies to benchmark themselves against the performance of similar institutions in the country and outside. While Gold would mean matching the national best, a Platinum-rated company should have environment standards equal to the best globally, say environment experts from CII.

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The pilot phase of the Greenco process had begun in February 2011, with 49 companies volunteering to get their operations rated. CII expects around 20 companies to get their rating by the end of 2012. The rating is valid for three years, after which the company could request for a fresh audit. It could request for a fresh rating even earlier, if it believes that its environmental performance has improved.

The development of the Greenco rating system was done through a consultation process within the country, initiated by CII. It brought together experts from across specialities to develop a common system, to assess the green footprint of its member companies, who represent different sectors of the industry.

Interestingly, though India has been consistently taking positions on greenhouse gas emission commitments in international negotiations, it has been slow to develop an action plan to reduce greenhouse gas emissions. The National Action Plan on Climate Change was released in 2008, and only in January 2010 did the Government constitute an expert panel, headed by Planning Commission Member Kirit Parikh, to develop low-carbon strategies for inclusive growth. The final report of this panel is yet to be published, 26 months later, and its interim report only lists out a menu of options, without articulating the ways and means to achieve a green growth.

GHG EMISSIONS In a year when the RioPlus20 global environmental conference is scheduled to be held in Rio de Janeiro in Brazil in June, the Greenco rating by the Indian industry is in line with the meeting's theme on developing a green economy. With three of the nine parameters — energy efficiency, renewable energy and mitigating GHG emissions — relating directly to the goal of reducing India's carbon footprint, and the rest contributing indirectly, the industry's initiative can contribute to a low-carbon growth.

In its interim report, the Kirit Parikh Committee has computed figures as to how much emission savings are necessary to have a 9-per-cent growth till 2020, and yet reduce the emission intensity (amount of GHG emitted per rupee) of the economy by around 25 per cent from the 2005 level. This would mean preventing the gross GHG emissions from growing beyond 4.81 billion tonnes in 2020 from the 2007 figure of 1.57 billion tonnes.

With the industry playing an active role in all three sectors of the economy — agriculture, marketing and services — it is its responsibility to reduce GHG emissions. When processes are put in place through Greenco rating for improving the environmental performance of power plants, factories, assembly units and some other facilities, they will reduce their emissions.

RESOURCE CONSERVATION However, it isn't the promise of public good alone that will motivate the industry. In the medium-to-long-term, reduced resource use will reduce costs and increase profits for companies. Reduced use of water and energy, conservation, recycling of material, use of renewable energy, and recycling can have an immediate impact on reduction of costs and improvement in profits.

The other parameters required for Greenco rating are more difficult. Assessing all the sources from which a company could be emitting greenhouse gases and reducing it per unit of production is more difficult.

Developing a green supply chain will make sure that the ancillary products used in a company's production process are themselves green. With Greenco auditors looking at this aspect, they will make sure that the company isn't moving the more polluting operations to smaller units.

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Product stewardship will make the producing company responsible for the product during its entire lifecycle, which, in turn, will encourage them to innovate, design and develop products that are less polluting during its life.

When all these parameters are considered, and a company gets a Greenco rating, then the improved marketing edge can be well worth the effort.

By volunteering for the Greenco rating, some members of the industry have started to make their operations greener. The industry will have to encourage more companies to get their operations rated. CII would also need to continue to maintain the standard of assessment, so that with the years, the credibility of Greenco rating grows in India and abroad. This is a small beginning, but if the momentum is built, then with the years, it could add to a greener footprint for the Indian industry.

Few Oil & Gas Firms Set Environmental Goals BP, ConocoPhillips, GazProm, PetroChina, SinoPec and Royal Dutch Shell have all failed to set specific sustainability goals, making the industry lag conspicuously behind others, according to a report by Green Research.

The sector is the only one, out of those Green Research has studied, in which a significant number of major companies do not disclose such goals. In the research house’s study of alcohol makers, most had specific goals.

In its papers on soft drink makers and pharmaceutical companies, all had specific targets.

This week’s report focused on the top 11 oil and gas firms, of which only five have set goals, Green Reseach said.

The study considered as goals only specific commitments that deliver environmental benefits and have either quantitative targets or specific timeframes.

It found that Italian producer ENI has the most goals, with 13. Petrobas was second, with seven targets; followed

by Total with six, ExxonMobil with two and Chevron with one.

GHG emissions were the most frequent type of goal, making up 34 percent of targets. Petrobras accounted for half of the 10 GHG goals in the group.

Energy efficiency was the next most popular type of goal, with 28 percent. It was followed by air emissions, such as volatile organic compounds, sulfur dioxide and nitrogen oxides, with 21 percent.

Environmental management – commitments to obtain environmental, health or safety certifications – came fourth, with 14 percent, and water use accounted for just three percent of goals.

Of the five companies with goals, all but ExxonMobil had targets for GHGs. All but Chevron had goals for energy efficiency.

Despite the overall lack of goals, all of the companies in the study report on their environmental performance, Green Research said. It said that all the companies publish reports describing projects they have undertaken and investments they have made to reduce their impact on the environment.

Shell has environmental programs directed at managing water use, developing biofuels, researching and deploying carbon capture and storage, and supporting wetlands conservation, Green Research said. The company also reported meeting a GHG target for 2010.

Last February three oil and gas associations published a second edition of joint guidance on improving transparency in environmental reporting.

Maintenance is Key to Lowering Energy Costs As green thinking and sustainability come to the forefront of business practices, well-run maintenance department with a focus on energy efficiency are becoming increasingly important, according to web site Sustainable Plant.

Good maintenance practice is the best way to reduce energy, optimize production and minimize waste according to an article on the web site titled Manage Assets for Sustainability – and Profit.

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Examples of best practice mentioned in the article include Mohawk Fine Papers in Cohoes, N.Y., – a keen proponent of energy efficiency measures since the 1990s. After its energy costs rose 30 percent over the past five years, the premium writing paper manufacturer instituted a more regimented maintenance schedule for its machines, and measured performance using an enterprise asset management system designed by Infor.

As well as realizing expected reliability benefits from improved preventative measures, the company also drove down its energy use as the machines were running more efficiently. The company has reduced its energy use by 15 percent so far and expects a further 15-to-20 percent drop, the web site reports.

Similarly, the City of Des Moines, Iowa, expects to reduced its energy costs at its wastewater reclamation plant by $40,000 a year through the use of an advanced EAM, the article says.

A report released this month by the American Council for an Energy-Efficient Economy says that American industry could cut its cut energy consumption by the year 2050 by almost half largely by focusing on optimizing manufacturing systems.

However, such improvements are being “crowded out” by too much focus on what the ACEEE calls risky and expensive bids to develop new energy sources, the report says.

HSE OSHA Adopts Globally Harmonized System of Chemical Labeling The U.S. Occupational Safety and Health Administration has revised its Hazard Communication Standard, aligning it with the United Nations’ Globally Harmonized System of chemical classification and labeling.

The new standard aims to reduce confusion about chemical hazards in the workplace, facilitate safety training and establish consistent labels and safety data sheets for all chemicals made in the U.S. and imported from abroad.

Under the standard, chemical manufacturers and importers are required to determine the hazards of the chemicals they produce or import and must provide a label that includes a signal word, pictogram, hazard statement, and precautionary statement for each hazard class and category, according to an online OSHA factsheet.

The new label format requires 16 specific sections, aimed at ensuring consistency in presentation of important protection information. Workers must be trained by December 1, 2013 on the new label elements and safety data sheet format, in addition to the current training requirements, the factsheet says.

This new standard should prevent an estimated 43 deaths and 535 injuries and result in an estimated $475.2 million in enhanced productivity for U.S. businesses each year, the department says. It is scheduled to be fully implemented in 2016.

An advanced Notice of Proposed Rulemaking announcing U.S. plans to align with the U.N. regulations was published in the Federal Register in 2006. In September 2011, 3E Company released a suite of software and online data management tools to help companies comply with OSHA’s alignment of its HazComm Standard with the GHS.

Everyday chemicals ‘linked to obesity, diabetes' Published: The Hindu , March 21, 2012 22:26 IST | Updated: March 21, 2012 22:26 ISTPTI Exposure to everyday items such as paint and plastics may to some extent cause weight gain and even raise a person's risk of developing diabetes, a campaign group has warned.

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In its report, CHEM Trust says that chemicals in the items of daily use are actually partially responsible for the obesity crisis and rising levels of diabetes, particularly in the developed world, a claim dismissed by independent experts.

The report, titled ‘Review of the Science Linking Chemical Exposures to the Human Risk of Obesity and Diabetes', has been penned by two academics from the University of North Carolina and Kyungpook National University in South Korea.

The two researchers reviewed some 240 research papers to reach the conclusion, The Daily Telegraph reported.

The route According to them, these harmful chemicals enter the food chain and build up in the body where these distrust human hormones to encourage the storage of fat, alter appetite and slow the rate at which fat is burned.

Unborn babies are at particular risk, the report said, adding that exposure to the chemicals should be reduced and national governments should act to ensure they were replaced with alternatives.

The report's co-author, Prof Miquel Porta at the University of North Carolina, said: “The epidemics in obesity and diabetes are extremely worrying.

The role of hormone disrupting chemicals in this must be addressed.

Considerable number “The number of such chemicals that contaminate humans is considerable. We must encourage new policies that help minimise human exposure to all relevant hormone disrupters, especially women planning pregnancy, as it appears to be the foetus developing in utero that is at greatest risk.”

However, experts have described the Greenpeace and WWF-funded charity CHEM Trust's report as “inconclusive.”

Dr Iain Frame, Director of Research at Diabetes UK, said: “We welcome the publication of this report, though it is important to emphasise that any possible effect of chemicals on obesity and diabetes is a difficult subject to research and as a result our understanding of it is very limited.”

Added Prof Richard Sharpe at Medical Research Council's Centre for Reproductive Health at Edinburgh University: “There is no direct evidence in humans that any such chemicals cause obesity or type 2 diabetes, although we know that poor diet and overeating may do so.”

GENERAL READING Does high oil price really impede growth?

The study finds that the impact of higher oil prices on oil-importing economies is generally small: a 25% increase in oil prices typically causes GDP to fall by about half of 1% or less….from the pages of MINT newspaper…

International Monetary Fund (IMF) chief Christine Lagarde recently cautioned that supply disruptions from Iran could push global crude prices by up to 30% from these levels and would impact oil importing low income countries like India. For this financial year till April, India’s oil import bill has risen 41% to over $132 billion, and accounts for nearly one-third of all imports. The Reserve Bank of India is resisting from cutting interest rates due to inflationary concerns against the backdrop of rising crude oil prices.

Recent Nomura’s report ”What if oil prices keep rising”, built a worst-case scenario of crude oil peaking at $150 per barrel. It expects the economic growth of Asian countries to slow down, currencies to weaken, inflation to move up and monetary policies staying hawkish. Subir Gokarn, deputy governor of Reserve Bank of India (RBI), recently had emphasized that RBI remains focused on economic growth even though rising oil prices have emerged as an inflationary risk since the central bank’s last policy review in January. The RBI had earlier in its policy statement in January said that its bias in the growth-inflation balance had shifted to growth.Oil prices are

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now hovering near $124 per barrel, against about $110 during RBI’s January policy statement. RBI has continually defended its tight monetary over last two years saying interest rates were hiked to strike a balance between growth and inflation. From March 2010 through October 2011, RBI has increased interest rates by a record 13 times to battle down high inflation which hovered around 10% for over a year during this time.

Our government had recently stated economic growth in the third quarter had slumped to over 2-year low of 6.1%. India’s annual wholesale price index (WPI), eased to 6.55% in January, the slowest rise since November 2009.Is our country beginning to feel the pinch of rising crude oil prices which is feared to trigger inflation again and thereby hurting growth? A working paper from IMF economists Tobias Rasmussen and Agustin Roitman published last year (Oil shocks in a global perspective: are they really that bad?) offers some explanation.

The paper states that “periods with high oil prices have generally coincided with good times for the world economy, especially in recent years.” And attributes the misconception to the fact that much of the research into impact of oil on growth revolves on the data related to United States of America (USA), which is an outlier according to authors. The authors also point out the fact that oil prices alone can’t explain recessions in the USA.The study finds that the impact of higher oil prices on oil-importing economies is generally small: a 25% increase in oil prices typically causes GDP to fall by about half of 1% or less. The paper states that oil price shocks are not always costly for oil-importing countries: although higher oil prices increase the import bill, there are partly offsetting increases in external receipts and that the adverse effects of oil price hike are mostly relatively mild and occurs with a lag. It is shown that there is an increase in the growth of export volumes ranging between 0.7% for the middle income countries and 1.3% in the low-income group, to which India is being grouped to here.These findings should encourage RBI to take a relook at growth inflation dynamics before its next policy action and could provide some respite to our industrial houses that are waiting with baited breath for the RBI to cut the interest rates.

RIL banks on global talent for next phase of growth Livemint.com After building businesses such as textiles, petrochemicals, crude refining, oil and gas exploration and retail from scratch with the help of overseas consultants and Indian professionals for over half a century, Reliance Industries Ltd (RIL) has started turning to foreign managers to run even day-to-operations that are becoming more complex as it seeks to usher in the next phase of growth at the conglomerate.

RIL, set up in 1958 by Dhirubhai Ambani, the son of a school teacher from Chorwad village in Gujarat, still has its old local hands serving as executive board members overseeing specific businesses, but the responsibility of managing some key units has shifted to expatriates recruited from the UK, the US, Thailand, Australia, Germany, Canada, Italy, Israel, South Africa, New Zealand and the Netherlands, among others.

RIL, which clocked `2.58 trillion in revenue in fiscal 2011, has relied in the past on the technical and management expertise of foreign consulting firms to help it set up complex businesses that required huge investment. The strategy, going forward, is to build such capacity in-house through employees and equity partners.

“RIL has been working with the best in the business, international managers/consultants, since its inception.

There was a need to do so as skill sets required to build scale and technology driven projects were not available in the country,” an RIL spokesperson said in an email.

“As RIL has grown over the years and today operates in vast geographies, there is a need to bring in leadership that has experience in working in such gruelling and varied environments. The shift in strategy is that these recruits are for specific line functions and not for projects. This will also help in creating a second line of managers who will be trained under the experienced leaders.”

At least 50 expats are working for RIL now, either directly on the company’s payroll, or on deputation from technology partners and suppliers, although foreign managers being seconded to the company for temporary

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assignments is not a new practice. Five of them are functioning as chief executives or chief operating officers of key businesses.

While rolling out telecommunications services in 2002, RIL relied heavily on external assistance from management consulting firm McKinsey and Co., which had set up six separate teams in India and abroad for the purpose.

Schlumberger Ltd, the world’s largest oilfield services firm, has worked with RIL since 2001 to help it develop the D6 gas reservoir in the Krishna Godavari basin, off the eastern coast of India. The reservoir went on to become India’s largest gas find till date, though output from the field has been declining since 2010, and has been an area of concern for the company. RIL’s attempt to seek solutions to operational challenges like those at D6 from the best in the business is evident from its deal with BP Plc., which was finalized in August 2011.

The UK energy conglomerate picked up a 30% stake in 21 oil and gas blocks operated by RIL for $7.2 billion.

More than the financial consideration, it was BP’s proven expertise in deepwater drilling that triggered the deal as it has been made clear that the overseas company will spearhead the oil and gas exploration and production business henceforth.

Though RIL has traditionally built and run businesses mostly by itself, it has been willing to let international experts take control of new ventures.

The shale gas assets RIL has bought into in the US is an example where it is a passive, financial investor, learning the new technology while the partner drives the business.

Between April and August 2010, RIL acquired stakes in three shale gas assets for an aggregate investment of around $3.44 billion.

In February 2012, RIL formally announced a joint venture with Russian petrochemical maker Sibur to build a butyl rubber facility at its Jamnagar facility in Gujarat. Though RIL will hold majority control of the new venture, executives of its Russian partner, which has the necessary technology, will be in Gujarat on deputation to run day-to-day operations.

As other large Indian businesses houses have similarly expanded operations globally, the role of expats has grown in significance.

The Tata group also has a number of foreign professionals working for it. Two key overseas acquisitions— European steel maker Corus Group Plc. and British car maker JaguarLand Rover—brought on board a number of such executives.

For instance, Ralf Speth, chief executive officer of Jaguar Land Rover, is now a director on the board of Tata Motors Ltd. Tata Motors’ aspirations of becoming an internationally reputed car maker saw the hiring of CarlPeter Forster, the former chief executive of General Motors Co., Europe, as group CEO and managing director in February 2010, a post he held till September 2011. Forster continues to be a non-executive director on the Tata Motors board.

Corus, which is now called Tata Steel Europe Ltd, has a number of foreign executives running the show, led by Karl-Ulrich Kohler, who is CEO and managing director.

A key expat executive who helped the Tata group get a substantial international footprint was Alan Rosling, who has served as an executive director of Tata Sons Ltd since 2004 and spearheaded many of its global acquisitions. He quit in 2009.

The Essar Group is another entity that has roped in an expat chief executive to head one of its businesses with Alwyn Keith Bowden functioning as president and CEO of Essar Projects Ltd, its infrastructure development arm.

However, RIL is perhaps the only group now that has expats in leadership roles across most of its core businesses.

The head of a large human resource consulting firm agreed that with the kind of scale and size that RIL had achieved, it wasn’t feasible to depend on external consultants for technical expertise all the time. He declined to be identified as he is not authorized to comment on a specific company. “To be seen as a cutting edge Indian

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company globally, it is important to invest in thought leadership and innovation,” this HR consultant said. “This can only come by investing in the best available human capital globally.”

Vivek Paranjpe, RIL’s chief human resource officer, said in an email that hiring global talent was a part of its endeavour to recruit the best available talent in leadership and “highly technical arenas”.

“We certainly need to have a balanced mix of local and global talent of high quality,” Paranjpe said. “We continue to be a destination for some of the best talent in the industries that we operate due to our size, scale, work practices and the inclusive environment.”

The strategy was to hire the “best in class irrespective of geographic/nationality considerations,” the RIL spokesman added. A senior RIL official, speaking on condition of anonymity, said these foreign professionals brought in certain “standard operating procedures”, which they had successfully implemented in the international corporations they had worked for earlier, and the move had yielded positive results thus far.

In certain businesses like petrochemicals, where there aren’t too many competitors of the same scale and size as RIL in India, it was essential to look for talent abroad, he added.

Ajay Soni, practice leader for leadership consulting for the Asia-Pacific region at international consulting firm Aon Hewitt, said that according to a study by his firm in November 2011, top Indian companies were increasingly focusing on “enhancing diversity in leadership, in terms of mindset, culture, nationality and gender.”

Hiring multi-cultural and multi-national professionals as senior leaders was a reflection of the kind of global stature that an Indian company was looking to achieve, Soni said.

India’s Mobile Connections To Exceed 900 Million To Achieve 72 Percent Penetration By 2016 In a report by Gartner, The India mobile subscriber base is forecast to reach 696 million connections in 2012, up 9 percent from 638 million in 2011. Total mobile services revenue in India is projected to reach US$30 billion in constant US dollars in 2016. The average revenue per user (ARPU) began to stabilize in 2011 – a notable change from the double-digit decline of ARPU between 2008-2010.

“The staggering growth of mobile connections has been driven by the expansion of mobile services in semi-urban and rural markets and the availability of cheap mobile devices,” said Shalini Verma, principal analyst, Consumer Technology and Markets, at Gartner. “However, the other performance indicators of the Indian mobile market seem modest in comparison to those of markets such as China.”

At US$40, the ARPU (avg. revenue per user) in India is among the lowest in the world and about one-third of that of China. India also lags behind China in mobile service penetration. The mobile service penetration in India is currently at 51 percent and is expected to grow to 72 percent by 2016, whereas China already achieved 71 percent mobile penetration in 2011 and is forecast to grow to 119 percent in 2016.”

Mobile data revenue has tremendous growth opportunities in India because of low Internet penetration. While fixed broadband is becoming a norm in several countries, India is lagging behind even emerging markets in fixed broadband penetration. India’s fixed broadband household penetration was 6 percent in 2011, which is lower than the overall penetration in emerging markets (estimated at 16 percent in 2011).

While Indian mobile operators have demonstrated “out of the box” thinking in IT and telecom infrastructure management to check operational costs, they have their work cut out to improve margins, by converting prepaid subscribers into postpaid.

With consumers perceiving mobile broadband as a basic necessity, mobile operators globally are reaping their investments in infrastructure through an increase in mobile data revenue. However, in India mobile operators have significant challenges, given the pragmatic nature of the emerging middle class with regards to their IT products and services spending. India could become the testing ground for innovative delivery and pricing models that could be replicated in other emerging markets. Mobile operators will need to focus on sound fundamentals such as improving the quality of service of mobile broadband.

“The industry is pegging its hope on market consolidation, which appears imminent in the aftermath of 2G license cancellations. Department of Telecom and Telecom Regulatory Authority of India have a pivotal role to play in

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removing uncertainties in policy-making, and license and spectrum management, so that the mobile operators can focus their energies on driving growth,” said Ms. Verma.

GE To Open New Technology Center in New Orleans Will hire 300 information technologists focused on driving innovation, speed, and commercialization of financial solutions at GE Capital NORWALK, Conn.--(BUSINESS WIRE)--GE (NYSE: GE) today announced that it will open the GE Capital Technology Center in New Orleans, Louisiana. The center is expected to grow to 300 information technology professionals over the next three years, and focus on developing innovative new software, processes and technologies to drive excellence for its financial services business, GE Capital. This commitment builds on the GE Works event held earlier this week in Washington, DC, where the Company announced 400 new Aviation jobs in the U.S. and a number of programs to promote economic growth in the U.S. “New Orleans has many of the things we need to build a center – a great location, talent, and an attractive business environment,” Brackett Denniston, GE’s senior vice president and general counsel, said. “These are high value, skilled jobs that will help us effectively respond to increasing demand in our financial services business, and better support GE Capital’s future growth by developing and deploying innovative technologies to make our businesses even more productive and competitive.”

“Information technology is a critical part of how we compete in the marketplace and support our key stakeholders,” said Martha Poulter, vice president and chief information officer (CIO) for GE Capital. “The New Orleans Technology Center, a first for GE Capital, will be a valuable asset for the business, giving us more capabilities and new talent to win.”

While hiring for the center will not begin until 2Q, interested candidates can go towww.ge.com/careers/ge_capital_technology_center.html for the latest information.

Louisiana Governor Bobby Jindal said, “Our unparalleled quality of life, New Orleans’ rapidly growing technology sector and our commitment to build the best economy of the future, right here in Louisiana, attracted GE Capital and brought this project to our state. With today’s announcement, Louisiana is continuing to prove our mettle in the software development world, the information sector and the corporate world. The bottom line is that we will not rest until Louisiana is known as a major hub of corporate headquarters and software and technology centers of excellence.”

“I’m really pleased to have worked side-by-side with folks at GE and state officials for several months to make these jobs a reality,” U.S. Senator David Vitter (R-LA) said. “Today’s decision by GE is further confirmation of the growth potential for the tech sector in Louisiana and a testament to the facilities and talent available in the region.

These are good jobs that will be filled by a ready and capable workforce, and they’ll be a significant boon to our local economy.”

New Orleans Mayor Mitch Landrieu said, "GE's decision to bring 300 new, high-tech jobs to New Orleans is major coup for our city. GE is an international business leader, and this announcement is a decisive show of confidence in our city's business climate. I look forward to having a community partner here like GE that is rooted in renewing and strengthening our country's global competitiveness through innovation and manufacturing. This project adds to the momentum we have seen locally and is a product of the unmatched coordination and partnership between the city, the state, and local economic development agencies and private businesses including GNO, Inc., the New Orleans Business Alliance, and Ochsner."

“The leadership demonstrated by Mayor Mitch Landrieu proved to GE that New Orleans has the talented IT workforce needed to make this new technology center successful,” said U.S. Senator Mary Landrieu (D-LA). “This investment will help with recruitment efforts with high tech firms, build our IT workforce and help raise New Orleans’ profile as an IT corridor. It will further highlight our work in the aerospace sector and position our region

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for continued growth in the digital media and movie industries. I am proud to be a part of the team that brought this center to New Orleans.”

This center, which is expected to open in mid-2012, is just one of several examples of GE investing in America and creating jobs.

Today’s announcement in New Orleans is part of a three-year trend of GE investing in technology centers in important American cities, similar to New Orleans, across the country. In Detroit, GE opened the Advanced Manufacturing and Software Technology Center that employs roughly 800 information technologists and will bring 1,100 jobs to Michigan by 2013. In Richmond, Virginia, GE opened the Information Security Technology Center that will house 200 hi-tech IT security professionals. In San Ramon, California, GE’s Global Software Center will hire 400 software professionals focused on increasing the pace of innovation, collaboration and commercialization of new technologies.

In 2011 alone, GE announced the creation of over 8,000 new U.S. jobs and today’s commitment brings total new U.S. job announcements since 2009 to over 13,500. GE’s ongoing job creation, including previously announced plans to build 16 U.S. factories, will provide sustained U.S. job growth in 2012 and beyond.

Earlier in the week, GE announced plans to invest in a number of additional job creation projects and economic development programs: • Launching pilot programs with partners to improve healthcare delivery in Louisville, KY, and Erie, PA, to achieve better health at lower costs in each community. This follows a successful program in Cincinnati that has resulted in significantly lower costs for both local employers and providers while improving access and maintaining quality care.

• Hiring 5,000 U.S. veterans over the next five years and sponsoring a “Hire our Heroes” partnership with the U.S. Chamber of Commerce to help veterans integrate into the civilian workforce and match them to jobs.

• Opening several manufacturing skill-building centers called “GE Garages” to spark interest in skills for jobs and partnering with GOOD/Corps on the What Works Project, a new interactive platform to highlight what works by inviting the public to submit stories, images or video depictions of what is currently driving American competitiveness. The project will award up to $10,000 each week through November to selected non-profit organizations that support American jobs and skills training.

• Doubling the number of GE engineering interns to more than 5,000 as part of an initiative proposed by the President’s Council on Jobs and Competitiveness to add 10,000 more engineering graduates a year in the U.S.

Adobe Set to Junk Annual Appraisals Company to rely on regular feedback round the year to rate & reward staff The Economic Times About 10,000 employees at Adobe Systems, including 2,000 in India, have just completed what could probably be their last performance review. The global product services company plans to scrap the age-old practice of being pitted against colleagues and measured up by the bosses once a year.

“We plan to abolish the performance review format,” says Donna Morris, senior VPHR at the company. Still in its blueprint, the plan is to have managers give regular feedback to their teams to ensure a quicker and continuous selfactualisation, rather than wait for the year-end.

Adobe took the plunge after it entered the digital marketing space, which required a completely different gamut of customer base and marketing strategies that called for an overhaul of HR processes as well. “Instead of feedback, we will look at feed-forward," says Jaleel Abdul, HR head for the Indian arm. Not a borrowed practice,

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the roots can be traced to management guru Marshall Goldsmith's theory on how instant and real-time feedback can boost performance.

“Course correction is also faster and more immediate this way,” says Abdul.

Companies constantly innovate and tweak their appraisal systems.

Should Cos Scrap Yearly Reviews?

WHY... Once-a-year review may be based on top of mind recall Regular feedback can help improve performance continuously Unfair to pit employees against one another in an annual exercise WHY NOT... Difficult to monitor employee’s work constantly, especially in virtual teams Promotions and increments may get complicated Difficult to get the best out of employees without annual targets and reviews

Adobe Move Comes after Employees’ Grievances Google emphasises a 360-degree appraisal where employees are assessed by peers, bosses and subordinates.

Microsoft now places greater emphasis on employee behaviour rather than on targets.

But hardly any company has gone as far as Adobe. “Performance improves with more feedback and a structured way is not often required,” says Abhijit Bhaduri, chief learning officer for Wipro, commenting on Adobe’s plans.

“However, for firms with larger staff, (annual) appraisal systems help.”

“It’s a bold move and speaks of the maturity of the organisation, but sometimes controls are required for checks and balances,” says Rajiv Krishnan, market business leader for Mercer’s human capital services. Krishnan cites the instance of a recruitment firm that years ago decided to remove targets from KRA of employees.

The strategy worked very well for the first six months, but only for those in leadership levels.

“It became difficult for those below, who lacked the maturity to handle work without targets. Also one cannot give feedback on a daily basis and for virtual teams there is no way one can get monitored every day,” he says. But Adobe took that call when Morris noticed many grievances regarding appraisals every year. And often the boss would assess a member keeping his last achievements or failures in mind instead of the work done throughout the year — popularly called the ‘recency effect’. Doing away with the annual reviews will help prevent 'the top of the mind recall' problem as well.

Adobe is yet to fully decipher how it will work out promotions and increments, both of which will demand a relative assessment of employee performance.

Annual salary raises in all probability will continue, but these will not be on the basis of one annual review. This will be decided after tracking the performance on a regular basis. “It’s about changing culture and mindsets where the managers will have huge responsibilities,” informs Abdul. The company realises it needs to spit-polish skills of managers to equip them to give performance feedback on an ongoing basis. Training for this started first in Bangalore in 2011.

Called ‘managerial essentials’, the training involved intensive coaching for managers; it is now being adopted globally. The next phase is called leadership essentials for the top brass for strategy building.

This may also require different continuous appraisal tools, details of which are yet to be finalised. Managers and employees have given the idea a thumbs-up. Could this be a glimpse of the future workplace?

R&D tax incentives can spur investments Business Line India growth story… IPR protection, vital to becoming an R&D hub.

Globally, many governments are encouraging R&D spending and provide corresponding incentives in the form of tax credits, tax deductions and grants.

March 25, 2012:

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Is India serious about its research and development (R&D) aspirations? The President, Ms Pratibha Patil, announced 2010-20 as the decade of innovation.

The Prime Minister, Dr Manmohan Singh, has emphasised the need to increase our R&D spend, given our relative positioning, among other things, vis-Ă -vis China.

Whether it is goods or services, we cannot grow and compete without adequate R&D. India's approximate expenditure on R&D as a percentage of gross domestic product (GDP) is 0.80 per cent, whereas it ranges from 1.6 to 3.5 per cent in countries such as the US, Japan and China.

Thus, others are spending more on an expanded base! In a recent report, India was ranked 33{+r}{+d} on R&D spend; conversely, the US was ranked 6th.

Sweetening the deal Whether tax incentives mobilise spending or not is a long, open debate generating questions. It is but natural that business will do what is right for business â&#x20AC;&#x201D; no one will spend money if it does not make business sense.

However, tax incentives do help spur spending and investment. They also help in sweetening the deal. Citing our globally leading IT and ITeS industry as evidence, tax incentives went hand in hand as the industry grew over the last few decades. Multinational companies have set up thousands of R&D centres and invested billions of dollars in R&D in China. China provides generous tax incentives for R&D. So do other developed countries like Australia, France, etc. Thus, globally, many governments are encouraging R&D spending and provide corresponding incentives in the form of tax credits, tax deductions and grants. This is evidence that tax incentives help.

To be fair, India has always taken steps to continuously promote R&D, whether through providing tax incentives or other schemes. Competent bodies like the Department of Scientific and Industrial Research and Council of Scientific and Industrial Research help in this direction.

Historically, R&D tax incentives have always been provided, even in the 1922 Income-Tax Act. In 1974, the tax incentives were enhanced under the 1961 Income-Tax Act. Broad-base benefits At present, income-tax law provides a weighted deduction of 200 per cent on qualifying R&D expenditure incurred on in-house R&D facility. Also, generally, taxpayers incurring R&D expenditure in the course of their business are eligible to claim 100 per cent of the expenditure as a tax deduction. Additionally, Customs duty benefits are also provided on certain capital goods required for R&D. Laudably, the Union Budget 2012 proposes to extend the benefit of weighted deduction on R&D expenditure described above for further five years.

If all this benefit is already being provided, where is the gap?

Today, the weighted tax deduction of 200 per cent on qualifying in-house R&D expenses does not cover the all sectors: there is a need to broad-base the deduction, including even services under it.

Standalone R&D entities are not eligible for the tax incentive. Earlier Section 80IB(8A) provided this benefit. This benefit should be reinstated.

A comprehensive R&D tax-incentive regime could drive broad-based investments since tax incentives are also an important element in the decision of a company.

However, in addition to tax incentives, a stronger intellectual property protection and enforcement regime would also be important to make India an R&D hub, leading to more employment and investments that will ultimately fuel growth.

Talking CSR in boardrooms Business Line Without a measurement system, it is difficult to ascertain whether value for money is being achieved.

March 25, 2012:

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If the Companies Bill, 2011 is passed, Corporate Social Responsibility (CSR) would have a board-level mandate in companies across the country. And it will be part of a company's annual financial statement approval process and reporting procedures.

Role of committee The Companies Bill mandates in Clauses 34 and 35 that every company with a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more in a financial year, will have to form a CSR committee under its board, consisting of three or more directors, of which, one should be an independent director.

The role of the committee will be to formulate and propose the company's CSR policy to the board, recommend the amount of expenditure to be incurred and, from time-to-time, monitor the CSR policy.

The board's key roles are to approve the policy and to ensure the activities mentioned therein are implemented.

The policy and progress thereunder are to be reported by the board in the company's general meetings. The Bill also stipulates that companies under this purview should make â&#x20AC;&#x153;every endeavourâ&#x20AC;? to ensure that they spend in every financial year, at least 2 per cent of their average net profits made during the three immediately preceding financial years, and if they do not, specify the reasons for not spending the amount.

Major implications The new Bill has wide-reaching implications for the way that CSR is conducted and reported in India. Much more scrutiny of investments made in the CSR and the returns achieved will take place both within and outside companies.

Yet, and regardless of any regulation, a company spending money on CSR from its hard-earned profits should be able to understand and assess the social and economic return created.

Like any other business investment, monitoring of accountability and performance of CSR spend should be a board-level activity â&#x20AC;&#x201D; monitoring in terms of value created within the communities which the CSR targets, as well as for other internal and external stakeholders in the company.

A commonly held perspective is that robustly measuring CSR value creation and presenting it in boardroomspeak is not possible.

Measurement system This may be one reason why many corporates stop short at only measuring outputs of their investment (example, number of schools supported), without delving further into understanding the outcomes of that support (example, on gross enrolment ratios, dropout rates, learning outcomes, and further changes (example, in terms of someone's earning ability, empowerment, and so on).

Without a robust measurement system, it becomes difficult for companies to not only understand whether they are on track with their CSR strategy but also put in place an implementable strategy and a set of programmes with realistic targets.

Defining a measurement system is normally part of a larger CSR planning process, where the theory of change of a CSR programme along with its results/impact mapping is undertaken.

Without a measurement system, it is also difficult to identify where further investments are required or not, and whether value for money is being achieved.

It may also result in a missed opportunity to highlight to a wider audience, the critical importance and impact created by one's CSR programmes. Yet, measuring social return robustly and at scale is possible.

India Road-Building Hits Record as Builders Pay to Work: Freight India is awarding highway- construction contracts at a record pace, and saving taxpayers money, as builders stop asking for subsidies and instead offer fees to lay and operate new toll roads.

Competition among builders such as GMR Infrastructure Ltd. (GMRI), Larsen & Toubro Ltd. and IRB Infrastructure Developers Ltd. (IRB) has helped the National Highways Authority of India win payments, or

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premiums, for at least 23 of the 35 projects it has offered since April 1, said G. Suresh, its chief general manager for finance. He didn’t elaborate. The body will award tenders for 7,300 kilometer-lanes of highways this fiscal year, worth about 570 billion rupees ($12 billion), and 9,000 kilometers next year.

“Many of the projects where we thought we’ll have to pay subsidies, we actually got premiums,” said B.K. Chaturvedi, who headed a government committee on highway development and a member of the state Planning Commission. “It’s a good thing there’s competition.”

Construction companies have stepped up bids for highways as growing vehicle ownership is spurring traffic and because of a slowdown in other sectors such as building power plants. The work will improve roads (LT) ranked worse than Botswana’s by the World Economic Forum and ease congestion that contributes to about 440 billion rupees of harvested foods going to waste each year, according to government estimates.

“India’s road network is barely adequate to maintain its current growth trajectory,” said Shailesh Kanani, an analyst with Angel Broking Ltd. in Mumbai. “Positively, the political will to acknowledge and address this issue is now visible.” $1 Trillion Spending India’s investments in roads could rise to $145 billion in the five years to 2017 from about $69.8 billion in the previous five years, according to a PricewaterhouseCoopers LLP. study. The country plans to spend a total of $1 trillion on roads, railways, airports and other infrastructure in the period.

The national highway system, a predominately two-lane network linking major cities, carries 65 percent of India’s freight and 80 percent of passenger traffic. In about six years through October 2011, the highway agency oversaw 5,182 kilometers of construction, including new highways and improvements.

Prime Minister Manmohan Singh in August 2009 set a goal of building 20 kilometers of highways a day. The nation has added 823 kilometers, or about 2 kilometers a day, since then as construction slowed, Tushar A. Chaudhary, junior road transport and highways minister, told lawmakers in parliament Dec. 12.

Tenders Online Construction is now speeding up, partly because the agency has made it easier for builders to compete for projects by accepting tenders online and by creating a list of prequalified bidders. Winning bidders get to collect tolls for as long as 30 years before transferring the highways to the state, Suresh said. Toll fees are decided by the National Highways Authority.

The highways have become more lucrative for builders and the government as the rising number of cars and trucks boosts traffic and tolls. India’s car sales in the year ended in March jumped 30 percent, the biggest gain in at least nine years, according to Society of Indian Automobile Manufacturers. Sales may triple to more than six million by 2018, Rothschild forecast in a December report.

“Traffic risk is something to be taken on by the developer,” said Virendra Mhaiskar, chairman of IRB Infrastructure, which has constructed roads including the Mumbai-Pune highway. If the builder is confident of generating enough tolls to cover costs and make a profit, it can offer the extra anticipated funds to the government as premiums to secure the contract, he said.

Overestimating Traffic Builders run the risk of overestimating future traffic and tolls, which could cause them to pledge unprofitable levels of fees, said Parvesh Minocha, managing director, transport division at Feedback Infrastructure Services Pvt., which advises clients on construction projects.

“The premium bids are increasingly becoming a cause for worry,” he said. “The worry will start manifesting a couple of years down the line when you have to give the NHAI what you promised and also put in money to build the roads.”

L&T, the nation’s biggest engineering company, decides to make premium bids for projects based on factors including traffic expectations, competition from other roads, the type of traffic the highway will attract and the ease

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of construction, said S.N. Subrahmanyan, director and senior executive vice president of its construction division.

He didn’t say how much premiums the company has so far paid.

The builder fell 3.5 percent to 1,301.9 rupees at close of Mumbai trading. It’s fallen 14 percent in the past year.

IRB Infrastructure declined 2.9 percent and GMR Infrastructure dropped 5.3 percent today.

Reliance, Adani Builders may also be chasing road projects to help replenish orderbooks amid a slowdown in power-plant orders, said Manish Agarwal, an executive director at the Indian unit of PwC.Reliance Power Ltd. (RPWR), Adani Power Ltd. and other electricity generators have delayed building $36 billion of power stations because of concerns about coal supply.

L&T, based in Mumbai, has orders to build 100 billion rupees of roads, Subrahmanyan said. The builder boosted the number of road projects to 7,171 lane-kilometers in the first nine months of this fiscal year from 5,701 lanekilometers a year ago, according to company presentations on its website. The number of power projects remained unchanged at 5 during this period.

Power Plants That means power plants now account for 29 percent of L&T’s orderbook, compared with 37 percent a year ago.

Roads and other building projects’ share has jumped to 40 percent from 32 percent.

“For investors, a company’s valuation seems to be driven by its orderbook,” said Agarwal. “If a company wins a bid, they see it as fantastic.”

Welspun Infratech Ltd., a unit of JPMorgan Chase & Co.- backed Welspun Corp. (WLCO), has won road projects worth 10 billion rupees since 1999, including a 185-kilometer stretch in the central Indian state of Madhya Pradesh, without offering premiums, said Assistant Vice President Rajeev Kumar. Still, the company is willing to offer fees.

“We aren’t averse to offering a premium to win a deal,” he said. “If the deal is good, why not?”

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi atkmeenakshisu@bloomberg.net To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

IOCL employees show off the ‘power of women’ DNA / DNA Correspondent / Sunday, March 18, 2012 8:00 IST India’s largest company by sales with a turnover of Rs3,28,744 crore and profit of Rs7,445crore (2010-11), Indian Oil Corporation Ltd. (IOCL) is the highest ranked Indian company in the Fortune 500 listings, ranked at the 98th position. But on March 11, the company’s management wanted its women employees to feel power of a different kind.

Forty-five women from the western region office of IOCL participated in the Stayfree DNA I Can Women’s Half Marathon. SS Bapat, executive director, regional services — western region, said, “We wanted them to experience the power of women.”

With a huge workforce of 34,000 spread all over the country, this public sector company has just 166 women posted at the 20+ offices in Mumbai. And nearly 25% of them showed up at the Bandra Kurla Complex (BKC) ground on March 11 under the banner of Women In Public Sector (WIPS) supporting the women’s marathon.

With the energy and enthusiasm of little girls, the women in the 25-35 age group ran in all three categories supporting the three causes — girl education, cervical cancer and safety of women at the workplace. Their banner aptly stated: “Running for the cause with one spirit.”

Saraswati Joshi, 30, assistant manager in the company’s finance department (western region) finished 21km in 2 hours and 40 minutes. Three other employees — Thresa Almeida, Renuka Nair and Merrin James completed the 10km Spirit Run. Others like Preeti Dhurnadhar finished the 5km Fun-Run. A regular walker, Joshi had participated in this year’s Mumbai Marathon as well.

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How Can We Feed the Planet Without Destroying the Planet?

Published on GreenBiz.com (http://www.greenbiz.com)

By Matthew Wheeland Created 2012-01-19 11:06 Although it's not often addressed in the larger business world, food is a hot-button issue for everyone on the planet, but perhaps much more so than almost anyone knows. In fact, according to Jon Foley, director of the University of Minnesota's Institute of the Environment, making agriculture more productive and more sustainable is probably the single biggest environmental challenge of the 21st century.

Foley laid out his case during the first One Great Idea session at the GreenBiz Forum in Minneapolis, the first of three one-day events digging in to the findings of the State of Green Business Report, published this week by GreenBiz Group.

"How are we going to feed the world, and simultaneously deal with sustainability?" Foley asked. "That's the question that's been haunting me most lately."

Billed as "a business case for the Earth," Foley discussed the three big challenges that agriculture faces now, and five ways to overcome those challenges by 2050.

The three challenges: 1. Meeting the needs of the world's population today. There are about 7 billion people in the world now, and about 1 billion of them are malnourished and don't necessarily know where their next meal is coming from.

Ironically, Foley said, there are also about a billion people in the world who are overweight, which poses its own kind of challenges.

2. Meeting the needs of the next two billion. Even with a billion people at risk of starvation every day, the numbers are only going to get worse, as the global population climbs to an estimated 9 billion by 2050. If we're struggling already to meet the food challenge, how will we scale it up rapidly, given that it's taken us 10,000 years to get to our current agricultural production and we have just 38 more years to double it. "I can tell you right now we are nowhere near being able to do that," Foley said.

3. Doubling food production sustainably. Right now, agriculture is the world's largest environmental problem, Foley said, and it's only going to increase. Global food production currently uses about 40 percent of the world's land, 70 percent of its water, and is responsible for at least 35 percent -- and possibly 45 percent -- of the total greenhouse gas emissions from human activity. Given the level of carbon emissions that we need to reach by 2050 to stem the worst impacts of climate change, it can't be done without fundamentally changing agriculture.

"The real challenge, of course, is to do all of this simultaneously," Foley said, "and that's why this will probably be one of the hardest things we have to do in the 21st century."

Fortunately, Foley has a plan, or at least a map. Actually, he calls it a business case for the Earth, and even if it's not going to be easy, it helps to make the challenge seem more manageable when it's broken into relatively small chunks.

1. Stop deforestation. "Grow more food, but not at the expense of rainforest and savannahs and peatlands," Foley said. "Let's stop growing agriculture, let's freeze the footprint of agriculture to where we have it today." The expansion of agriculture is the single biggest driver of species extinction in the world, Foley said.

2. Improve productivity. If we can't expand agriculture's reach, we will have to improve how much food we grow on the land we have. Foley said that right now, most of the research and development funding that goes to agriculture is working on making the world's best farms more productive, rather than improving things at the bottom of the pyramid. Foley said that across the world, there are tremendous opportunities to significantly boost food production without using more land and without harming the environment.

3. Improve resource efficiency. Much of those improvements can come by being smarter with the water, energy and chemicals we use to grow food today. Foley said it takes on average one quart of water to create one calorie of food energy. But that average varies widely: Israeli farmers can grow food with one-tenth the water use,

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because they use highly efficient drip irrigation. Meanwhile, in very similar climates in northern India or Pakistan, farmers can use 20 to 30 liters of water per calorie. "So between the most and the least efficient producers in the world, there's a 200 to 300-fold difference in efficiency, and there are huge opportunities to be saving water, energy and reducing pollution, while growing the same amount of food," Foley said.

"Numbers four and five [on this list] are the ones that get me into a lot of trouble, where I get death threats and stuff like that," Foley said. "Seriously."

It's not hard to see why: 4. Change diets. In the United States, only about 10 percent of the food grown is for human consumption. The rest is for industry -- biofuels and livestock feed, primarily. "If you look globally, 60 percent of our crops are for humans and 40 percent is not -- we could change that and feed many more people with less environment impact than we do today," Foley said," "but it requires fundamental change at the consumer level, retail level, and all the businesses in between."

5. Stop food waste. Beyond growing lots of food for non-human use, we waste a truly staggering amount of food: Foley said that 30 to 40 percent of the world's food is wasted.

These five steps -- ambitious and world-changing to say the very least -- would together make it possible to double the world's food production and cut the environmental impacts of agriculture by at least half, and Foley thinks reductions along the lines of 80 percent are more likely.

In closing, Foley suggested a new term for how to think about food and farming.

"I think we need to move to an entirely new paradigm about feeding the world, and doing it at the global scale with global strategies," Foley said. "Instead of calling it agriculture, which we've had for 10,000 years, maybe it's time for something new, what I like to call terraculture, or farming for the whole planet."Farming photo via Shutterstock.

Government spending: dismal past raises future concerns For 2012-13, with nominal GDP growth likely to be lower, itâ&#x20AC;&#x2122;ll be a tall order for the government to whittle down revenue expenditure Mark to Market Much is expected from the Union budget this year. The Reserve Bank of India (RBI) has said the two main things that need to be done by the government are: a) reducing the fiscal deficit, and b) switching expenditure from consumption to investment.

The hope is that reducing the deficit will give leeway to the central bank to lower rates, while increasing investment will help improve supply, thus lowering inflation in manufactured goods. The Purchasing Managersâ&#x20AC;&#x2122; Indices show that capacity constraints have tightened for manufacturing, with a rise in backlogs of work and a lengthening of supplier delivery times. Therefore, whether the government will be able to achieve these twin objectives will be the real test of the budget.

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The chart shows total revenue and total capital expenditure by the central government as a percentage of nominal gross domestic product (GDP). Note that even the budgeted figures for 2011-12 showed lower capital expenditure as a proportion of nominal GDP than in the previous year. That could be one of the contributing facts to the sharp fall in overall investment demand during the current fiscal year.

On the other hand, the budgeted estimates for 2011-12 do show lower revenue expenditure as a percentage of nominal GDP, but the final figures and indeed the revised estimates will likely be much higher due to spending on subsidies.

In short, the track record is certainly not favourable. For 2012-13, with nominal GDP growth likely to be lower, itâ&#x20AC;&#x2122;ll be a tall order for the government to whittle down revenue expenditure.

AIMA Conclave:

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What consumer price index means for you The CPI includes items such as prepared meals and clothing, besides services like healthcare and education Lisa Pallavi Barbora If you do your own eggs and milk shopping everyday, you would know that egg prices have been rising steadily through 2011 and are 10% higher than last year and that milk prices are 20-25% higher. Not to mention the increase in your house rent, which in most parts of the country rises by at least 10% each year.

So although we saw the wholesale price index (WPI) move up, we know that the real change in prices of things we spend on was higher. Till last year, we had no way to record what the retail price inflation was. This year a new consumer price index or CPI has been introduced to measure inflation.

We all know that inflation is hitting us as household bill amounts get higher and higher. But what does the CPI mean to you? The urban CPI for February came in at 9.45%. Does it mean your food articles are more expensive by 9.45%? Or is it utilities or house rent? And it is more expensive compared with what?

How do you reach a number for CPI? The CPI is like your shopping basket. It is a selection of goods and services which show what you spend on.

Since itâ&#x20AC;&#x2122;s a nationwide aggregate, the basket tries to represent an average individual and is not specific to you.

There are two baskets, one for an urban consumer and another for a rural consumer and then there is a combined basket to represent both together. The idea behind building this basket is to see how the prices of items in it have changed over the years. This change is shown as a percentage and is the inflation you face.

Each separate item in this basket has a value. The first time an item is picked, its value is pegged at 100 (in this case, the basket is valued starting in the year 2010) and then moves according to price change every year. For example, you know how expensive milk has become; in two years from 2010 January to 2012 January, the index of dairy products has moved from 100 to 122.4 (urban index).

Just like you segregate your shopping by moving from one section such as frozen foods to another such as soaps and shampoo, the CPI basket also groups individual items into sub-groups. For example, food, beverages and tobacco is a sub-group, which includes products such as fish and meat, cereals and vegetables.

Clothing, bedding and footwear is another subgroup, which includes items like footwear. All these together make a complete basket. In the new CPI, there are five such sub-groups.

So, the final cost of the basket depends on the price of individual items and the space they occupy (weightage).

Whatâ&#x20AC;&#x2122;s more expensive this month

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Illustration by Shyamal Banerjee and graphic by Yogesh Kumar The new CPI basket for inflation has been in use for two months now. And no surprises, data shows the inflation basket costs more mainly on account of higher prices from items other than basic food articles. This is happening because you are spending more on packaged food and activities other than eating at home. While price rise in cereals, pulses and items such as sugar remain low, vegetable prices are actually seen to be falling. On the other hand, oil, proteins and dairy products are all getting more expensive.

Says Dharmakirti Joshi, chief economist, CRISIL, “These categories are linked to changing foods habits. Higher incomes have meant more demand but the supply doesn’t match up leading to higher prices.”

Other non-food items such as clothing, housing, fuel and house requisites are all showing double-digit inflation for both January and February. This is raising the average price of the basket and pulling inflation higher.

Although these items individually occupy a small space in the basket, together they constitute a large part of it.

Thus, if costs for these items rise together they can make the aggregate cost of the basket much higher. Agreed Joshi, who said high prices in these categories can keep inflation high and if along with that vegetable and cereal prices also flare up, then we can see sharp spikes in inflation.

Similarly, the contribution of an item which occupies a large space (high weightage) can be low if its prices are rising slowly. Sample this, the item cereals and products contributed only around .06% to the overall inflation despite a weight of 8.73% in the basket on account of low price rise.

How is CPI different from WPI? Until now, “inflation” was a reference to the WPI, which is also a basket of products where price changes are compared annually. But the items put in the WPI basket are very different from that in the CPI basket. As the name suggests, the former is a wholesale basket of goods and nearly 65% of it is occupied by manufactured goods, which include things such as metals, chemical products, rubber, machinery and parts.

You won’t find these items in your regular shopping list right? So the CPI basket, which includes items such as prepared meals and clothing and services such as healthcare and education, is more like your shopping basket and relates more to you.

The common part of the two indices are fuel and food articles, but here too the CPI focuses mainly on endconsumption related items, whereas the WPI has a mix.

Says N.R. Bhanumurthy, professor, National Institute of Public Finance and Policy, “A substantial difference between the two is the presence of the housing index within the CPI, which was missing in the WPI. There is some linkage between the two indices as wholesale prices ultimately get reflected in retail prices, albeit with a lag. This is what happened with vegetable prices, WPI showed a softening from January and this is now reflected in the CPI.” Don’t just look at the final number The final inflation number published for the CPI every month gives you an estimate of how the price of the entire basket has changed compared with the same month last year. To make sense of this number in relation to your expenses, it helps to know the list of items included in the index and their weightage or the space that they occupy in the basket.

Says Bhanumurthy, “It is a consolidated index so weightage matters. If the housing index has a high weightage it will reflect more in the overall inflation figure.” The magnitude of impact on you will depend on your personal basket of products and services.

It is early days to judge the credibility of this index. Even so, this is a critical figure for shaping monetary policy decisions and the interest rate regime.

Additionally, knowing the details of what is in the basket can help you understand which aspect of your living expenses are getting dearer and at what pace.

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IndianOil in India’s Top 20: Most Admired Companies Reflecting IndianOil’s long standing commitment to the country and the brand loyalty and consumer mind space enjoyed by it, the Corporation has been ranked among the top 20 companies in the recently released list of India’s 50 Most Admired Companies published by Fortune India.

"Just as Fortune India 500 is the classic standard of size, the ranking of India's Most Admired Companies is the stand-out meter of status. In times of economic improbability, a peer ranking such as this is a comforting sign that India Inc is on the right pathway," writes the Fortune India Magazine

China pares growth target for 2012 The reduction of the growth target to 7.5% signals that focus is on quality rather than the speed of expansion Aaron Back & China sent a strong signal on Monday of its intention to focus more on the quality rather than the speed of future economic expansion, lowering a largely symbolic growth target for this year after keeping it unchanged for seven years.

Opening the National People’s Congress (NPC), the annual meetings of China’s legislature, Chinese Premier Wen Jiabao said in a speech that Beijing aims to deliver economic growth of 7.5% this year, after setting the target at 8% for seven straight years, in a widely expected move that indicates Beijing’s willingness to reconcile with slower growth in exchange for more balanced and sustainable development.

After delivering torrid, mostly double-digit economic growth over the past three decades, China is now faced with growing constraints such as a dwindling supply of natural resources, environmental pollution and fast-rising labour costs.

Actual economic growth has consistently outpaced official targets in recent years. The country’s gross domestic product in 2011 grew 9.2%.

Last year, Wen set a 7% target for average annual growth over the five-year period from 2011 to 2015, a sign that Beijing intends to engineer a very gradual slowdown.

“They’ve been signalling that they want to de-emphasize headline growth and put more emphasis on the quality of growth,” said Tim Condon, head of Asia research at ING Financial Markets. Problems such as those related to the environment “have definitely gone up in prominence”, while the government also needs to address concerns such as those regarding the distribution of income, Condon said.

In his government work report to the NPC, Wen said the government aims to contain consumer price inflation at around 4% this year. Last year, the consumer price index rose 5.4%, above the official target of within 4%.

Condon said this year’s 4% target “is a little on the high side”, and that ING forecasts 3.5% partly because it expects food prices to gradually decline.

Wen also reiterated Beijing’s official line of maintaining a prudent monetary policy and a proactive fiscal policy, and set a 14% growth target this year for M2, China’s broadest measure of money supply.

“We aim to promote steady and robust economic development, keep prices stable, and guard against financial risks by keeping the total money and credit supply at an appropriate level and taking a cautious yet flexible approach,” he said.

China would also continue to improve the mechanism for setting the yuan exchange rate, make it more flexible and keep the exchange rate at an “appropriate and balanced” level, Wen said.

Stressing the need to steer China’s growth model away from labour-intensive exports, Wen said the country would work to expand domestic consumer demand. “We will move faster to set up a permanent mechanism for boosting consumption,” he said.

In a wide-ranging speech, Wen said the authorities would introduce structural tax cuts and help small and midsize businesses with preferential tax policies.

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He also said Beijing would step up its supervision of local government debt, an area that carries potential risks for China’s banking system after the unprecedented lending binge engineered after the 2008 global financial crisis.

Wen also reiterated the government’s long-standing pledge to bring property prices down to “reasonable” levels, adding that the authorities would strictly implement and gradually improve various forms of housing-purchase restrictions.

INNOVATION 4 Myths About How Great Companies Innovate WRITTEN BY: Jeffrey Phillips HOW DO APPLE, GOOGLE, AND 3M CONTINUE TO DISRUPT THEIR MARKETS? THE TRUTH DOESN'T LIE IN COMMON MYTHS ABOUT VISIONARY LEADERS OR BUSINESS STRATEGY, BUT RATHER SIMPLER TRUTHS, ARGUES JEFFREY PHILLIPS IN "RELENTLESS INNOVATION." The following is an excerpt from Relentless Innovation: What Works, What Doesn’t--and What That Means for Your Business by Jeffrey Phillips.

In the United States alone there are hundreds of large, successful firms with recognizable brand names that we encounter every day. We constantly hear innovation success stories about firms like Apple and Procter & Gamble, but we rarely hear about innovation in their direct competitors, Dell and Unilever, much less about innovation in any of the thousands of firms worldwide that compete in these markets. In every region and industry the same pattern is repeated: A small handful of firms are recognized as consistent innovators, used as case studies and examples, while we hear little or nothing about innovation in the vast majority of the other firms in those industries.

So what is it that differentiates a successful, consistent innovator from its close competitors, firms of the same relative size that compete in the same industries and geographies, that aren’t viewed as innovative? What factors or attributes accelerate innovation in these successful companies? Are those factors or attributes lacking or underrepresented in lower performing firms? Or are firms like Apple and Google better at attracting marketing and publicity? Is it safe to say that the majority of firms in every region of the globe are not innovative, or is it simply that they don’t receive as much media attention? What happens at Target that does not take place at Kmart?

What is Apple doing that Dell is not? And what about 3M compared to Avery Dennison?

Several possible factors spring to mind, including the executive management, the nature of the industry, or the capabilities of a firm’s research and development teams. Much of the mythology built around innovation identifies these factors as the main components of innovation success and it is true that each of them may contribute to a stronger innovation capability. But in the long run, none of them are the key drivers. Let’s review the myths and debunk the conventional wisdom, then confront the simpler realities.

EXECUTIVE MANAGEMENT Myth: Individual, innovative leadership accounts for the majority of a firm’s success.

Truth: Sustained innovation success does not rely on visionary leaders alone.

In the 1990s, a cult of personality arose around some senior executives, especially individuals like Jack Welch of General Electric and Lou Gerstner of IBM. The media led the public to believe that these CEOs accounted for much of their firms’ success while they were at the helm. During Welch’s tenure at GE he implemented several programs that were attributed with driving new value and differentiation for the company, including ranking employees into categories and only participating in markets or industries in which GE could be one of the top three players. Many analysts have also attributed much of GE’s success in the 1980s and 1990s to Welch’s leadership.

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ALTHOUGH HE WAS A VISIONARY, OLSON DID NOT FORESEE IMMINENT CHANGES. Strong, visionary leaders matter, but do visionary leaders account for the differences in innovation competence?

Certainly, to some degree. For example, everyone recognizes Steve Jobs’s influence on Apple and the company’s decade-long dominance in consumer electronics and innovation. Jobs, however, isn’t the only visionary leader in the computing space, which was created by a number of innovative trend-setters.

Look no further than Kenneth Olson, the founder of Digital Equipment Corporation (DEC), who disrupted the mainframe market with minicomputers, but failed to see the further disruption of the minicomputer market by the personal computer. He is attributed as saying “there is no reason anyone would want a computer in their home.”

Although he was a visionary leader, Olson did not foresee the imminent changes in the computing market, and DEC was soon disrupted by personal computer (PC) manufacturers such as Compaq, which made the first “portable” PC. Michael Dell at Dell Computer is every bit as dynamic a leader as Jobs is at Apple, and he was heralded as an innovative leader in the 1990s, constantly on the cover of magazines like Fortune and Forbes. Dell disrupted the existing business model in the PC market, which enabled his company to grow faster and supplant many larger and well-established firms, including Compaq. In fact, far more people own Dell PCs than own Apple PCs, yet Jobs is constantly feted as an innovator while Dell is hardly considered in the same league.

Dell and Olson were both recognized for their vision and innovative capabilities at a point in time, but their firms did not sustain innovation over time. But, back to the initial question of how much impact a CEO has on innovation. If we assert that Jobs is a unique case, can we identify innovative firms that don’t have visionary CEOs? Certainly; W. L. Gore is an excellent example.

W. L. Gore is a privately held firm with more than $2.5 billion in revenue, headquartered in Newark, Delaware.

Gore manufactures Gore-Tex, the waterproof, breathable fabric that is used in a wide range of outdoor clothing and gear. The company has sought and found numerous uses for its PFTE polymer, creating dental floss, coatings for guitar strings, medical devices, and other applications. Beyond product innovation, however, Gore is also an innovator in organizational structure. Gore has an exceptionally flat organizational structure with no formal reporting hierarchies or organizational charts--its CEO was actually elected by its employees. Innovation at the company is therefore driven not by a single visionary CEO, but by the individuals and teams throughout the business.

Further, consider Target or 3M, firms identified earlier, which are far more innovative than their competitors. While these firms are recognized as innovation leaders, I suspect most people would have difficulty picking out any member of the executive team of either firm in a police lineup.

Another thought experiment may help clarify whether or not executive leadership is a significant driver or barrier for innovation. Let’s assume that Steve Jobs could be magically and instantly transported to Austin, Texas, where he becomes the CEO of Dell. If this were to happen, do you think Dell would become dramatically more innovative overnight, or even in several years? If Target’s CEO was recruited to Kmart, or 3M’s CEO was remanded to become the CEO of an abrasives company, would those firms instantly become innovative? Would these firms attain the level of relentless innovation of the leaders in their industries or markets, even over time?

I’d stipulate that the answer is no. Simply put, there’s more to sustained innovation than a visionary executive.

Visionary, innovative, executive leadership may occur periodically, and while it may contribute to sustained innovation, it is not the only contributor to successful, long-term innovation. Sustained innovation success does not rely on visionary leaders alone.

INDUSTRY COMPETITION AND SPECIFICS Myth: The level of industry competition dictates the amount of innovation.

Truth: Industry competition is a factor in fostering innovation, but it doesn’t guarantee innovation leadership.

If executive leadership alone doesn’t account for innovation success, then perhaps the level of industry competition fosters more innovation. After all, it seems some industries are more innovative than others. A look at

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the mobile phone handset market provides perspective on a highly competitive and innovative industry.

Consumers expect their wireless devices to offer valuable new features and capabilities. Yet, recent history suggests that while many firms in the space have been considered innovative, few of them have sustained leadership for any length of time. Nokia is a great case study in this regard as it was considered the market leader in innovative handsets for many years.

NOKIA’S CEO WROTE AN OPEN LETTER, DESCRIBING THEIR POSITION AS A 'BURNING PLATFORM.' Nokia is an example of a company that has reinvented itself as times and needs changed. Originally a paper company, the firm has shifted its focus and business model at least three times over the course of almost 150 years. Nokia entered the cellular handset market in the late 1980s and as of 2010 was the leading handset manufacturer in terms of volume. Yet its market share has dropped precipitously according to industry analysts as it has failed to anticipate new needs and offer compelling new products.

At the time Nokia was the leading handset developer, its researchers actually designed a touchscreen mobile handset (this was years before Apple’s iPhone), but the concept was rejected by executive management, which had become complacent and comfortable with current profits. In early 2011, Nokia’s CEO wrote an open letter to his employees, describing Nokia’s position in the handset space as a “burning platform” based on the company’s shrinking market share.

As Nokia stumbled, Motorola took its place as the innovation leader in the handset industry with the RAZR phone, for a short period. The designers of the RAZR were featured in the business press and were hailed as the new leaders in cell phone design. Yet in just a few years Motorola was dethroned by Apple, showing that it was no more able to innovate consistently over time in the cell phone space than Nokia. It remains to be seen whether Apple will suffer a similar fate with the introduction of the Android operating system and new smartphones based on that technology.

While the competitive nature of an industry does increase the likelihood of innovation, it does not guarantee a firm will sustain innovation focus.

The point is that within less than a decade several firms wore the crown as the “innovation” leader in cell phone/smart-phone development and design, and all of them demonstrated periodic innovation. Yet only Apple appears to be able to sustain innovation. Just because one firm held the leadership mantle and received higher profits during its own leadership period has not meant that such firms could sustain innovation over time.

THE FAST FOLLOWER Myth: It is possible for firms to copy the product or service offerings of market leaders while retaining competitive advantage through low costs or higher service.

Truth: To remain competitive, firms must increase their innovation capabilities instead of playing 'follow the leader.'

A quick review of firms in the United States demonstrates that most industries or markets have one wellestablished innovator and several “fast followers.” The majority of firms in any industry don’t heavily invest in innovation. Most companies assume they can copy the strategies of the leader in their market and still retain competitive advantage through low cost or higher service--or simply through the lethargy of their customer base.

Such organizations will even argue that their strategy is to be a “fast follower.” This strategy, however, is usually a difficult one to pursue and it is increasingly a dangerous proposition. There are at least four problems with a business plan of this kind.

'FAST’ FOLLOWERS SUFFER THE MOST AS NEW INNOVATIONS ENTER A MARKET. The first problem is in the word “fast.” Customer demand and expectations are changing much more quickly than many firms have the ability to keep up with. Few products or services have the luxury of extended life cycles or little competition. A growing base of consumers with new expectations and new demands only fuels the fire for more products and services. Firms that claim to be fast followers are often merely just followers. As a firm grows and matures, its bureaucracy, decisions, and approvals inhibit its ability to bring a new product to market quickly.

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The company can’t respond fast enough to innovators or consumer demands. In this period of rapid change and global competition, innovation isn’t a “nice to have” but an important core competence; those firms that can’t keep up will inevitably perish.

The second problem with “fast” followers is that they become accustomed to following. Since these companies don’t exercise any creativity or innovation skills, those capabilities have atrophied or they aren’t valued within their organizations. This lack of innovation skills leaves the fast follower with only one recourse: to eliminate costs and inefficiencies since they can’t hope to command the attention and margins that accrue to innovators. Given new economic shifts, global competition, and customer demand, firms that cannot create new, interesting products and services exist on the very brink. To remain competitive, firms that haven’t relied on innovation as an advantage must increase their innovation capabilities, not try replicating others’ successes.

Third, “fast” followers often don’t understand what features or benefits the customer values in a product, and what challenges or issues exist in those products. By simply copying an existing product or service, they risk duplicating all the problems or issues that exist within the innovative product. Since the “fast” follower does little research, the company often doesn’t know which features or benefits are important and should be emphasized, or what hidden issues or concerns exist with the product. “Fast” followers often make the same mistakes as innovators do, but they have less opportunity to respond and encounter a customer base that has recognized both the benefits of the product or service and the issues or constraints.

'FAST’ FOLLOWERS OFTEN DON’T UNDERSTAND WHAT FEATURES OR BENEFITS THE CUSTOMER VALUES IN A PRODUCT. Finally, “fast” followers suffer the most as new innovations enter a market. They are more accustomed to implementing the business models and offerings of the innovation leaders after the models have been proven.

Fresh entrants, unbound by the shape and structure of the market or competition, will enter to disrupt the existing order and make older products, services, and companies obsolete. Innovators by their very nature are constantly scanning the horizon, looking for emerging threats and new entrants. They spot disruptive trends and shift nimbly into new opportunities. Industry laggards and fast followers are impacted by disruptions far more than innovators, but the impact is more severe on fast followers since laggards really had little to lose. Since such companies are neither fast nor particularly insightful, they lose the most in a market disruption as they can’t shift away from their existing models and structures quickly enough.

The “fast follower” strategy is increasingly a difficult business proposition. Firms that focus their efforts on innovation rather than fast duplication will succeed.

As Michael Treacy established in his book The Discipline of Market Leaders, there are three differentiated positions in any market: product leadership, operational excellence, and customer intimacy. Innovation is a tool that can help an organization achieve leadership in any one of these differentiated pursuits, but clearly only one firm in an industry can be the “best” at any of these strategies. For example, we could argue that in the retail space, Target is the product leader, partner-ing with leading designers to bring interesting, attractive, and affordable products to the mass market. Wal-Mart is the operational efficiency leader, innovating new data streams and distribution tactics to keep costs and prices low.

Nordstrom is the customer intimacy leader, creating a completely unique and valuable relationship with its customers. Every other retail firm lags behind these firms in one or more of the three strategic areas, and new competitors seek to enter the retail space and disrupt the leaders, much less the laggards. Innovation is a long and winding road. Thankfully, you can steer.

SUSTAINED INNOVATION Myth: Due to changes in a globalizing world, no firm can sustain innovation leadership over the long term.

Truth: Sustained innovation resides in factors that companies can control.

Some observers argue that given heightened competition, accelerating global trade, and increasing customer demands, no firm can sustain innovation leadership over the long term. This argument, however, ignores the results of a firm like 3M. Except for a brief period between 2000 and 2005 under former GE executive James

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McNerney, whose focus was on profitability and efficiency, 3M has had a long history of innovation leadership, creating a range of products and services. Certainly the Post-It is probably the most well known, but over the last 50 years 3M has entered countless markets and industries, tailoring new innovations to different geographies, technologies, and market needs. Though 3M continued to innovate in spite of McNerney’s focus on efficiency, when George Buckley replaced him as CEO, one of Buckley’s first actions was to reemphasize innovation as a core capability, providing fresh focus and funding for those activities.

In my experience, it is completely possible for a firm to develop and sustain an innovation capability over time, just as a firm is able to create and sustain market leadership over time. Innovation capability resides less in markets, strategies, technologies, or leadership than we typically suppose, and more specifically in factors that companies can control--culture, business attitudes and perspectives, focus, and intent. That’s the real lesson we can learn from relentless innovators: what drives long-term, successful innovation are the same factors that shape the way people think and act in any business--operating models, strategies, rewards, culture, and processes.

INTERVIEW IT'S TIME FOR GOVT TO HIKE FUEL PRICES, SAYS BPCL CMD Bharat Petroleum is looking to hike petrol prices soon, the company’s chairman and managing director RK Singh told CNBC-TV18.

Though the government is not directly involved in petrol pricing after the fuel was deregulated a couple of years ago, it still enjoys the right to intervene.

He also said that even diesel, kerosene and liquefied petroleum gas (LPG) should be de-regulated, but marginal hike will not help lower oil companies mitigate their losses.

Currently, all oil companies are reeling under losses of over Rs 1.5 lakh crore due to selling petroleum products at government dictated prices Below is the edited transcript of his interview with CNBC-TV18's Sonia Shenoy and Udayan Mukherjee.

Also watch the accompanying videos.

Q: Post the elections and the Budget, prices are still the same despite crude being at USD 125. How much longer will you have to wait to raise prices?

A: As far as the price of sensitive products like diesel, kerosene, LPG is concerned, the government will have to take a call. We will certainly increase the price of petrol. We are watching the situation and the movement of the price in the international market. Very soon, we will take a call on that. In my view, if the subsidy has to be kept at the level that has been provided for by the government, I don’t think there is any other option other than increasing the price. When and how much is the issue - the government will have to decide on that.

Q: What call needs to be taken on petrol? The under-recovery is now reaching Rs 7 a litre. Surely the government must have told you not to raise prices. Isn’t that the situation?

A: No, I don’t think there are any such instructions from the government. But being a government company, we have to consult with different agencies in the government. So, I think we will take a call very soon. The underrecovery has gone up to more than Rs 6 and the international price of petrol has gone up to about a USD 135 a barrel. The situation is very bad. But I think we will have no option but to increase the price. We will let you know as to when we do that.

Q: You have been saying you have to take this decision in consultation with government agencies. But petrol is a deregulated item. So either you are saying that the market price has gone up but you have

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chosen not to raise prices or that these government agencies have told you not to raise prices - which is it?

A: No, they have not told us to not raise the price. But what has happened is that you must appreciate that whatever decision we take. If it is going to impact the public at large, we, being a government company, cannot lose sight of the governmentâ&#x20AC;&#x2122;s compulsions. We have to take a decision in consultation with the government.

There is no interference from the government. There is no subsidy from the government yet being a government company, we cannot simply do whatever we like to do.

Q: How do you call petrol a deregulated item? I thought the whole purpose of calling a product deregulated is when the price automatically changes with the market price, and that you do not have to incur marketing losses on selling that product. If that is not the case, can you enlighten us on what petrol being a deregulated product actually means?

A: While deregulating petrol, there was a condition set forth. Although oil companies will have the liberty to raise or decrease the prices, the government can intervene if the situation is abnormal. Abnormal in the sense if it is too much of burden on the consumer or if it is something which cannot be absorbed in the market, then the government will certainly intervene. When will that situation come? Current prices are very high. The government is well within its right to intervene in an abnormal situation. Therefore, we will have to see all these conditions. We will have to see the rate of inflation, public opinion and public reaction. In that context, consultation with the government becomes very important.

Q: Has the government intervened in the last few weeks and prevented you from raising prices?

A: No, they have not directly or indirectly intervened. Since we have to take into account the public interest, we are in consultation with the government. I donâ&#x20AC;&#x2122;t know how one defines intervention. In my opinion, consultation is not intervention.

Q: You can call it by any name. You have your economic interest in mind as a listed company. Why would you incur this loss of hundreds of crore every week as an economic entity if your hands are not tied by the government? How can you not raise the price of the commodity out of public interest? You are not the Reserve Bank of India who has to look at inflation. You are BPCL. A: I agree but we are also a government company. _PAGEBREAK_ Q: Does that make you an NGO? A: No. But we are certainly a government company. Therefore, we cannot do everything, which is not in the interest of the government.

Q: So then you have no say or control over when petrol prices will be raised?

A: No. We have a say. The government doesnâ&#x20AC;&#x2122;t tell us how much to increase, when to increase and whatever the loss is because they are not compensating the losses. You are insisting on the fact that the government has told us not to raise. It is not so.

The consultation process is in progress. I think we will soon take a view. We will soon raise the price because the kind of losses that we are incurring without any support from any quarters is not sustainable.

Q: Which are these agencies in the government that you consult with? Is it the oil ministry or the finance ministry?

A: The finance ministry has no role to play. But when I say government, it is basically the petroleum ministry with whom we do the consultation.

Q: Are you clear that these losses that you are incurring on not passing down petrol prices will not be recompensated to you by the government?

A: There is no such scheme. Petrol prices are outside the subsidy scheme.

Q: Are you incurring these losses in the public interest knowing well that this will not come back as compensation at the end of the year unlike diesel and kerosene?

A: You may say so.

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Q: Let me come to the other issues then. There is some expectation that there might be a small price hike in LPG when you decide to pass on the price of petrol as well. Is it on the cards at all?

A: In my view, if the subsidy of Rs 43,000 crore provided for in the Budget has to be maintained, the government has no option but to raise the prices. Whatever possibility existed in terms of duty restructuring has already been done last year.

There is no further scope of doing anything with the duty elements. The duty in crude is zero. There is a reduced duty on diesel and no duty on kerosene or LPG. All that was possible has been done. The only option available now is to raise the prices.

How much and when to raise is something which the government will have to be decide. Under-recovery on diesel stands at Rs 14, while that on kerosene is Rs 30 and around Rs 400 on per LPG cylinder which is not sustainable. Even if the government raised the price, it will not be possible for them to raise the price to such an extent that losses will be reduced.

The current crude price is USD 125 while the current under-recovery on diesel is Rs 14, which accounts for 45% of the total sales. Unless the price is increased by Rs 4-5-6, I don’t think it will be possible for the government to maintain the subsidy level at Rs 43,000 crore. This is bound to go up unless crude prices come down drastically.

Nobody can predict that but I can understand the government’s dilemma. They will have to increase the price. But they cannot increase it to the extent that is required. Therefore, maintaining Rs 43,000 crore will be a very tough task for the government. It will be very difficult for the government to raise the price to such an extent. If prices are raised by Rs 8-10 or Rs 7, there will be a public outcry as we have seen in the past. But how much they will increase and when they will do so is something they will have to decide. I can’t talk on behalf of the government.

Q: It is interesting to note that Rs 43,000 crore is not a realistic oil subsidy level given that it almost touched Rs 70,000 crore in the year gone by. Do you expect that this year too, the oil subsidy will be much higher at least than Rs 43,000 given the political compulsions and the public interest?

A: Yes, it will be more than that. I don’t think government will be in a position to increase the price if the crude prices continue to be at current levels. Let’s say if crude comes down to USD 100, it will be easy for the government to raise the prices not to a very high level and yet maintain the subsidy level of Rs 43,000 crore.

It all depends how crude prices and product prices move in the international market. But as things stand today, if crude prices continue to be at current levels, it will be difficult for the government to maintain the subsidy within Rs 43,000 crore.

Q: Since you spoke about public interest, and you have consultations with government with government agencies, what is an acceptable level of an LPG price increase which will be acceptable and can be passed through? Clearly, Rs 400 is out of the question. What would you recommend if these government agencies asked you of an acceptable level of an LPG price increase?

A: On behalf of an oil company, as a professional and as a real oil man, I would say that all these products should be deregulated. In my view, the purchasing power has gone up. There will be public outcry for a while but all these should be deregulated. Coming back to LPG, at least Rs 50-60 per cylinder should be increased. It again depends on how the prices move in the international market.

I cannot make any prediction or any comment because ultimately, the government has to decide. There is a large population of LPG users today who do not deserve to be given subsidy. I don’t know why the media is not creating this kind of opinion. Today, a large part of the LPG population is in the urban area, whose income is much more and they don’t deserve subsidy.

Q: What kind of a political construct do you see now? Do you see any major policy issues or policy reforms happening during the course of the next 12 months or do you think the government is in too much of a corner to even attempt all those things?

A: I think the government is in too much of a corner to even attempt. Need I say more after the circus that we saw with respect to what happened to the Railway Minster? What was Diensh Trivedi trying to achieve? If you hike

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railway fares by 30 paise per kilometer, it would have just bought in something like Rs 3,000 to 4,000 crore into the railway’s kitty.

In 2006, railways had a surplus of Rs 4,000 to Rs 5,000 crore. I am told as of March 31 2011, which is the latest number that is available from the railways end, the railways have a surplus of Rs 5 crore. Some people say that is actually a deficit. If you can’t even bring the railways back into health knowing very well that modernisation alone of the railways would entail spending something like Rs 5.6 to 5.7 lakh crore then it clearly tells you the story that the government is caught in a bind and how.

You have seen references being made to GST, references being made to curtailing oil subsidies, references being made to allowing 49% FDI in aviation. Is the government even bothering to make these passing references? What is the point in talking about a GST, when everyone knows that a GST can only happen if there is a constitutional amendment which gives the central government sweeping power to tax goods and services right up to the retail stage? Do you think with strident allies like DMK, TMC and NCP the government will even attempt anything like that? So, even to make a passing reference to GST I think is just pulling wool over people’s eyes. That is why I do not feel that the Budget was either realistic, pragmatic or even credible which most people have been saying about this Budget. I think it is pure hogwash. The food subsidy number, the oil subsidy number, the fertiliser subsidy number defy logic.

We were to move to a nutrient based subsidy regime on urea in 2008-2009. Come 2012, urea subsidies has still not moved to nutrient based subsidy regime. We sell urea to our farmers at Rs 5,000 a tonne whereas the imported, the landed cost of urea is Rs 13,000 a tonne. The cost of producing urea is something like Rs 10,000 to Rs 11,000 a tonne. Guess what kind of subsidy will the government will have to bear on the urea front, given that we still import some bit of urea, were the rupee to depreciate from the current levels and go back to 53 or 54. The real cost of subsidy burden would shoot up dramatically.

Given that inflation has been coming down, but prime lending rates are between 11 to 15% or thereabouts, the real cost of funds is as high as it has ever been in the past three years. I think all this in place to even assume the government to attempt anything which is reformist is expecting a bit too much.

I don’t think any of us was expecting anything from this Budget. But that certainly does not mean that it is redemption time for the Finance Minster. He had an opportunity and clearly this was a missed one.

Q: I am trying to create this opinion. But you are speaking in many voices. You start by saying I cannot raise petrol prices for people who own cars and two wheelers. You are saying I want to protect them because of public interest and that’s why I am not raising prices. Then, you go onto say that LPG prices should be deregulated and prices raised by Rs 400 because they do not deserve LPG subsidy. Now tell me which is right?

A: Who is using LPG? Right now, if you see most of the customers using LPG are in urban areas. I am not against giving subsidy on LPG to people who deserve it. But the people who need it in the villages are getting at a higher cost than the people who don’t need the subsidy.

Logistically, the poor man in the village goes all the way, that is how the government has taken the right decision of creating LPG distribution agency in the village and rural areas so that their cost is reduced. But today, a large population of LPG users lives in the urban areas.

Q: I got your point. You are preaching to the converted. I agree 100% with you that LPG subsidy should not be there and you should be free to raise prices. You don’t need to argue that point.

A: Subsidies should be there for those who need it, not for everybody, as things stand today.

Q: Having said that, how can you in the same tone say that you cannot raise petrol prices for people who own cars and two wheelers because of public interest as a public sector company. Is that not going against the very logic that you are putting forward for LPG? A: You are hung upon petrol. Let me clarify. We have raised petrol prices in the past many times. We have raised and reduced also. But when the situation becomes abnormal, anything that we do, we have to take into account

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several other implications. That is the process we are going through. So donâ&#x20AC;&#x2122;t take it as a literal meaning that public outcry did that.

We are in a retail market. We are dealing with the public on a day in, day out basis. How can we just ignore the public sentiment? We are marketing so many other things to them. We are trying to create a brand image for us.

We are trying to improve many other things which we are trying to work on. So to say that I am going to ignore totally what the public problem is, is also too much of an expectation from us.

FOSTERING INNOVATION WITH SMALL STEPS TERRY TIETZEN is founder and chief executive of Edatanetworks, a developer of customer loyalty software.

Q. Tell me about some early leadership lessons.

A. I started caddying at a young age. I basically interviewed the people I was caddying for, figuring how they got to where they were and what principles guided them. I memorized everything they said and listened to them talk about deals they were making. You can learn a lot about people by the way they play golf. The game is selfpolicing. You declare if your ball is out of bounds, and you penalize yourself. If you abuse the game, you're only cheating yourself.

Q. What about other influences?

A. Certainly my parents. My mom drove my creativity and my dad told me that when you give your word, it's your bond. When I was 14, I got my first Honda minibike. My dad brought me into his office and typed up a contract for me about where I could go on the bike, that I'd always wear a helmet and never give anyone a ride on the back of the bike.

So on the first day with my bike, I have a friend on the back, neither of us wearing a helmet. My dad takes me into the house, and said, ``Hey, did you just sign this?'' I said, ``Yeah.'' And he said: ``Well, I'm going to teach you something. You need to understand that a contract is a two-way agreement.

You broke your responsibilities.'' So he sold the minibike back to the people we bought it from the same day. That taught me a lesson I'll never forget.

It was like that when I worked for Arnold Palmer's golf course design company. They taught me the ethics of a handshake. When you work for Arnold, it starts with a handshake, and then you're on the team.

Q. Now you're running an innovation and technology company. How do you hire?

What qualities are you looking for?

A. I like a person with communication skills, first and foremost. I love a person who's worked and volunteered in a meaningful way for a not-for-profit or community organization. They tend to be more understanding of other people's needs, and not so self-interested. And you've got to guard against negativity in a creative company.

Negativity will wipe out innovation. You get one guy saying, ``I don't think we can,'' and then everybody starts thinking that.

Q. What other lessons have you learned about innovation?

A. Innovation doesn't just happen at your desk. It happens in the weirdest places and times. You get ideas through watching the world and through relationships. You get ideas from looking down the road. You have to be available to adapt on the fly. In real innovation, being comfortable isn't good. I don't want to be comfortable. I always want to be on edge, because that edge gives you energy and excitement. What's new? What's next?

That's how you stay ahead. Q. How do you create that urgency on a team?

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A. As a leader, you have to be part of the team, and you have to share the good, the bad and the ugly with everyone.

They'll rise to the challenge. When they know you're having a bad day, they'll want to try to help the team win.

But if you don't tell them, if you always tell them it's just sugarplums, they'll walk around in a fantasyland. If there's a problem, you get the whiteboard out, people will spark some ideas, and you figure out a plan on the fly.

On a small innovation team, you do quick sprints every day and learn on the fly. So part of innovation is just asking again and again, ``What did we get done?'' That's why I have every team member send me an update every day. No matter where I am in the world, I get an update. Q. What do you want to know?

A. Simple, high-level things. What they set out to do today and what they plan to do tomorrow. That way, they can feel the progress. Part of the progress is being able to have them included in the journey, not just feeling isolated.

They need to feel it like a wave. It comes up and down, and it's never perfect. By sending me three or four bullets every day -what I did today, what I'm doing tomorrow -they see short-term goals much easier than feeling overwhelmed by a goal that might seem hard to imagine reaching. Innovation has to have short windows. A good friend in Silicon Valley taught me an expression: you have to ``feed the monster a cookie.'' Q. That's a new one on me. What does it mean?

A. Let's say I've got a big idea that seems far-fetched to you, and you're having trouble seeing how we'll accomplish it. So I start small. You're a monster in my mind. I have to give you a cookie so you'll start liking the idea and not feel so overwhelmed. So you have to break it down into smaller steps. I had to realize that part of having a vision is to be able to translate to people where you want to go and how you'll get there, but with a feedthe-monster-a-cookie approach. People need the buy-in. Give them little nibbles and then they'll get there soon enough.

Q. What else have you learned about innovation?

A. You have to be careful about gab sessions where you ask people to give their opinions. The downside about opinions is everybody has one. You can open up a Pandora's box. You destroy innovation sometimes by asking for too many opinions, because people can feel dejected and put their head down if their idea doesn't get accepted right away.

Q. So how do you avoid that?

A. Easy. You say: ``Listen, I have this vision right now. I'd like to share with you how I think it will work. Then can all of you do me a favor? Go work on it and tell me what you think at the end of the day.'' I get their buy-in by working on it rather than asking them their opinion upfront. Otherwise, it's a tug of war all the time.

Then they start giving me daily updates on what they got done today, and what they're going to do tomorrow.

And in the planning for tomorrow they give you the great innovation before their opinion. Because opinions can cause tension -people tend to compete over whose opinion is better -and you never get anywhere. You can actually talk yourself out of real innovation.

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