Money Morning…


Cabinet to meet today; (A) Decision likely on pooling of gas and coal; (B) Decision on FDI relaxation for construction today – Construction companies like NCC, HCC, McNally Bharat etc; Power producers like Torrent Power, Tata Power, Adani Power, NTPC (+ve); Power financing companies like PFC, REC, Axis Bank, ICICI, SBI, PNB, BOI etc (+ve)

Decision likely on pooling of gas and coal
The Cabinet Committee is likely to decide on pooling gas and coal prices at its meeting today. The government proposes to supply any additional gas produced in the country in the next four years to power stations along with imported liquefied natural gas. State-run GAIL India will be the pool operator and will supply the fuel to power stations at an average ‘pooled price of domestic and imported gas.

The electricity from the plants will be supplied to power distribution companies at Rs 5.5 per unit. The government also proposes to subsidise firms operating gas based power stations from the National Clean Energy Fund (NCEF) made up of a cess collected from coal miners. After much deliberation, the fixed cost of the gas-based plants is planned to be capped at Rs 1.30 per unit of electricity that will allow the operating companies to meet financial obligations and prevent idle projects.

The plan includes simplifying procedures for availing customs duty waivers on LNG and scrapping value-added tax and central sales tax collected by states. Gas transporters GAIL India and Reliance Gas Transportation Infrastructure Ltd will be asked to take a 20% cut in pipeline tariff, which will help them improve utilisation of pipelines. GAIL will also be asked to halve its marketing margin to $0.1 per million British thermal unit.

A separate plan to provide long term coal supplies to developers of power plants that have had their attached coal mines cancelled by the apex court is also likely to be considered by the Union Cabinet today. The power ministry proposes such supplies to captive block based power projects that have secured debt, placed equipment orders and acquired land.

We believe, the govt is keen to resolve the crisis of gas and coal availability for power plants in India and if implemented properly, it will big boost to power generating companies and power financing companies. This development is positive in short to long term for power producers like Torrent Power, Tata Power, Adani Power, NTPC and power financing companies like PFC, REC, Axis Bank, ICICI, SBI, PNB, BOI etc.

Decision on FDI relaxation for construction today
The DIPP has proposed to bring down the minimum built-up area requirement for FDI in construction projects from 50,000 sq metres to 20,000 sq metres. It has also proposed reducing the minimum capital requirement for such projects from USD 10 million to USD 5 million. The move is aimed at attracting more foreign investment in construction and real estate sector. The proposal is likely to come up at the Cabinet meeting today.

We believe this development to be positive in short to long term for construction companies like NCC, HCC, McNally Bharat etc.

Cabinet may take up plan to liberalise FDI in construction sector
“FDI in construction note is with the cabinet for approval and will likely be considered on Wednesday. Comments from various ministries and departments have been incorporated,” Developers will be exempt from restrictions in size, minimum capitalization and exit, if they commit 30% of project cost to affordable housing. The sector attracted $1.2 billion in FDI in 2013-14, down 8% from the previous fiscal. Minimum built-up area in case of serviced housing plots is proposed to be cut to 5 hectares from 10 hectares and the minimum lock-in period of 3 years after the completion of the project is proposed to be dropped. The government hopes the easier rules will also help faster completion of projects delayed by a squeeze on funds due to elevated debt levels.

India-Vietnam sign crucial agreements; PM Modi stresses on importance of ties
PM Modi invited the Vietnamese companies to join the accelerated economic growth programme ‘Make in India’ for reaping the benefits of this new initiative. They agreed to utilize the Customs Cooperation Agreement and Maritime Shipping Agreement between the two countries for facilitating more intensive economic engagement. PM Modi said that India’s defence cooperation with Vietnam is among the most important ones. “India remains committed to the modernization of Vietnam’s defence and security forces.

U.S. Consumer Confidence Index Rebounds To Seven-Year High In October
After reporting a sharp pullback in U.S. consumer confidence in the previous month, a significant rebound in consumer confidence in the month of October. The consumer confidence index climbed to 94.5 in October from an upwardly revised 89.0 in September. Economists had expected the index to edge up to 87.0 from the 86.0 originally reported for the previous month.

Japan Industrial Production Jumps 2.7% In September
Industrial output in Japan added a seasonally adjusted 2.7% on month in September, the Ministry of Economy, Trade and Industry said in preliminary reading. That beat forecasts for an increase of 2.2% following the 1.9% contraction in August.

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