India is an energy deficit nation.
The average middle-class Indian bleeds some 15% of his earning for energy - in the form of fuel for his/her vehicle, keeping the home lit, to commute by public transport and occasionally fly.
If one goes by India's GDP of roughly US$ 3 trillion, India spends some US$45 billion [Rs.240,000 crores] on fuel.
That money comes out of the average Indian taxpayer's purse.
And most of this money goes waste!
Here is how:
When compared to the United States of America, India’s per capita consumption of energy – purely on the basis of availability – is some 3%.
India’s can supply only some 40% of its demand for electricity.
Industries are getting choked.
This winter, people will freeze in the north due to power-cuts.
Yet, in India, electricity is stolen rather – openly.
Political parties rarely pay for their jamborees organised in the streets.
Someone hooks a wire from the main for the do and then unhooks after it is over and that is it.
Most of the government owned companies have not paid their dues to the same governments’ power generating companies or the electricity boards.
How bad is the situation?
One of India’s most respected dailies – The Hindu said thus on October 12 2012 under the headline Throwing Good Money After Bad Money authored by CRL Narasimhan:
A package of measures at an estimated cost of Rs.1.90 lakh crore approved by the Cabinet Committee on Economic Affairs last Monday seeks to recast the finances of the State electricity distribution companies (discoms).
The package, which has been in the making for a long time, comes ten years after the Central Government extended a one-time settlement of the dues of State electricity boards (SEBs).
Quite obviously, the financial position of the discoms has not improved since then. The primary reason has been inability or unwillingness of the mostly State-owned distribution companies to adhere to the terms of the previous bail-out. One singular failure has been in not revising electricity tariffs at frequent intervals in line with the rising costs of production. Besides, a related covenant to set up a transparent, independent tariff regulator has not been observed, and wherever formed, the regulators have been mostly toothless.
The States and their electricity boards are now mandated to revise the tariff regularly. But even if they adhere to this key condition, they have a long way to go before the power distribution business acquires a degree of solvency.
Barring a few honourable exceptions, most of the discoms are in a financial quagmire, unable to raise working capital. Short-term loans taken from banks and financial institutions have reached menacing proportions, and are being serviced only by fresh borrowings.
The big, rich, respectable guys and gals also steal fuel and much more.
Here is something from the aviation sector – in the news for all the wrong reasons – thanks to one Vijay Mallya or so it would seem.
But, there are big surprises!
Imagine someone borrowing a tank full of fuel from a vending station near one’s home.
The excuse, “Sorry, I forgot my purse.”
The fuel vending station obliges.
Would the petrol pump provide fuel again if the bill isn’t settled?
Given hereunder are excerpts from what I wrote in 2010!
Now read excerpts from the above report whose link is cited to know what happens when the companies happen to be big!
[The situation, my sources in the civil aviation ministry told me not long ago, has remained unchanged.]
Indian and foreign airlines owe around Rs 1,200 crores to the Airports Authority of India.
While the national carrier Air India and its subsidiary companies lead the pack of defaulters clocking total dues of roughly Rs 640 crores, [Air India and Indian Airlines have registered dues of Rs. 242.03 crore and Rs. 365.51 crores respectively] the cumulative dues of all private airlines to the Airport Authority of India worked to a whopping Rs. 375.13 crores.
Kingfisher whose boss Vijay Mallya pooh-poohed the demand for fair fares on record [citing economics’ principles of demand and supply Saturday] – sadly, is the single largest defaulter.
The company’s outstanding to AAI in terms of fees for using the airports is Rs 224.82 crores.
The other companies like Jet Airways and SpiceJet figure prominently in the rogue-list.
Did anyone ask the defaulting companies to pay up?
“Well, letters were sent…and we have no clue as to when the money will come. Mr Vijay Mallya, a member of parliament and Kingfisher's decision maker is a very busy person and can seldom be reached. Plus, he is so influential that we cannot dare question him,” said an official of the AAI.
Queries about Jet Airways and Spice Jet got similar replies.
While Jet Airways is yet to reveal who its real owners are, SpiceJet is being virtually controlled and owned by one Kalanidhi Maran – elder sibling of Union Minister from the DMK – Dayanidhi Maran.
Here is the complete list: Jet Airways and JetLite combined: Rs 50.36 crores, SpiceJet: Rs 12.79 crores, IndiGo: Rs 7.27 crores, GoAir: Rs 5.47 crores, Paramount Rs 4.58 crores, other private carriers including charter companies: Rs 69.84 crores.
International airlines operating in India too owed AAI a total of Rs 161.20, of which Emirates has to pay Rs 19.06 crore!
Government of India’s rules in these matters is very clear.
Private and foreign airlines have to deposit a sizeable amount as security with the AAI to avail of the credit facility.
In case of default, the amount is supposed to be adjusted from this deposit.
Aeronautical charges that include navigation, landing and parking fees.
The bills are raised twice a month are supposed to be settled before the issuance of the next bill.
The non-aeronautical bills raised on a monthly basis are to be settled within a 30 day grace time.
Well overdue fuel bills payable by private airlines were a little over Rs. 1800 crores around the same time and the monies were payable to public sector oil firms that do not give a day’s credit to any normal citizen of this country!
This too is part of parliamentary records attributed to the relevant minister – J Prasada.
Here is another rogues’ list and their dues:
Jet Airways: Rs 960.15 crores
Kingfisher had Rs 814.49 crores
Jet’s sundry creditors’ list:
Indian Oil: Rs 830.4 crores
Bharat Petroleum: Rs 129.74 crores
Hindustan Petroleum: Rs 0.01 crores
Kingfisher’s sundry creditors:
HPCL Rs 536.04 crores
BPCL Rs 248.55 crores
Indian Oil Corp Rs 29.9 crores
Money owed by the others to major Indian Oil public sector companies:
Spicejet: Rs 74.5 crores
Paramount Airways: Rs 19.28 crores
Go Air: Rs 18.8 crores
Indigo: Rs 0.6 crore
Since July some of the defaulting companies have been, according to Prasada, placed on a “cash and carry” mode.
Interest is recovered on all overdue payments by cashing deposited bank guarantees and post-dated cheques for recovery of their outstanding dues.
Kingfisher Airlines has been on carry mode since July 1 2010 for HPCL.
BPCL has filed a winding up petition in the Mumbai High Court against the Vijay Mallya-owned company.
According to the minister for civil aviation Jitendra Prasada, the entire dues were to be cleared by November 2010.
Actually, is it too costly to run an airline?
Investigations say, NO!
What is the cost to keep a gas-guzzling Boeing 737 [almost phased out in India already] 128-seater on air per hour including all fuel charges, their tax overheads, landing and parking charges, airhostesses and pilots’ salaries etc?
Roughly, the ballpark price is Rs.47,000 including advertisements, establishment, landing, take-off- parking, fuel et al, blah, blah.
So that makes it a little under Rs.370 per hour per passenger in this gas-guzzler.
A flight to New Delhi takes roughly 3 hours give or take a few minutes from Mumbai.
And that works out to Rs.1170.
But private airlines will be collecting a minimum Rs.12000 per seat during Diwali for this sector!
“The average aircraft being used these days has more seats and consumes less fuel. Further, most tickets are being issued only through agents and the overheads have sizeably come down. And finally, since the advent of e-tickets, the need to print costly inbuilt red-carbon-paper tickets has virtually disappeared. So, the real cost per Mumbai Delhi flight perhaps is less than Rs.1000 per seat and this can arguably include ATF surcharges – under certain specific conditions. As per normal business practices, if the cost of an item is Re.1, one charges Rs.4 to recover all costs including interest. So, instead of charging us Rs.4K, why are the airlines emptying our purses to the tune of Rs.12K and more?
Can this be cross-checked?
Here is the website:
For the purpose of this story, the research said its operational cost per hour for a Boeing 737-200 works out to US$ 11.87 per seat.
At current exchange rate of the US$, this works out to Rs.640!
A Mumbai-New Delhi flight is roughly 2 hours.
So, its cost including the ads are Rs.1280. So why is the fleeced pigeon called the flyer asked to cough up Rs.7K or more when the airport taxes and other duties aren't more than Rs.1.5K?
The flying white elephant called Air India has this dubious history.
Source: Reuters, April 2012
All eyes in India are focused skyward, as the government steps in to keep state-owned national carrier Air India flying. The company has begun restructuring its debt in what is the country's largest ever liability management exercise.
However, even with the jumbo INR224.68 billion rupees (USD$4.2 billion) financial recast, the airline still needs to make major operational and business changes as it seeks to earn its first profit in some five years.
The restructuring comes at a time when other private players are suffering too. Kingfisher Airlines, for one, is in severe distress and might even file for bankruptcy - and that after already having gone through a similar restructuring exercise.
Indeed, even with government assistance, the problems faced by Air India remain considerable.
Along with long-term borrowings for purchasing its fleet, the carrier's total outstanding debt stood at an unsustainably high INR431.12 billion rupees as at the end of September last year.
Its financial turnaround plans include a INR300 billion rupees equity infusion from the state, staggered until 2020, which includes INR67.5 billion rupees upfront, INR190 billion towards aircraft purchases and INR45 billion to fill wage bill and interest payment shortfalls.
On top of the equity, though, Air India is converting INR214.98 billion rupees of debt facilities into three parts - INR46.20 billion rupees of cash credit limits, INR104.48 billion of long-term and INR74 billion rupees of short-term loans.
In Air India's favour is that its 19 lenders are mostly public sector banks. They have agreed to provide relief to a fellow state-owned company by agreeing to haircuts and moratoriums.
On the long-term 15-year debt, Air India will be given a moratorium on interest for a year and a two-year moratorium on the principal amount. The long-term debt was also rejigged so that now it pays a uniform 11 percent interest rate to all lenders.
The haircut is similar on the short-term loans which Air India proposes to refinance via a 15- to 20-year INR74 billion rupees bond sale before September 30.
Again the government will be the key. As the bonds will be guaranteed by the state, they are expected to be picked up by pension and provident funds.
On top of that, the company has already announced plans to raise USD$1 billion from the offshore markets to replace expensive onshore debt with cheaper foreign money.
If the financial workout seems straightforward, more serious questions arise over the operational changes needed to reduce day-to-day expenses. Air India's employee cost is INR0.81 per ASKM (available seat kilometre) in the 2011 financial year, which is nearly double the industry average.
(Jet Airways' is INR0.39 and Kingfisher's INR0.42.)
The company says it will rectify that by deploying proper planes on different routes, a strategy known as network modelling. The reengineering has been a long time coming. Air India started talking about an equity infusion from the government in 2010 and hired SBI Caps to work on the detail. But the exercise was dropped after an initial contribution, as soon as the company realised that the problem needed to be handled on a much higher scale.
The problem stemmed from a fast-deteriorating financial condition, compounded by Air India's dwindling market share. Between 2008 and 2011, the company reported cumulative net losses of INR201.92 billion rupees.
The proposals to deliver on a promise of positive EBITDA starting in 2013 include the spin-off of allied businesses - maintenance, overhaul and ground handling - which should help lower employee costs and bring in revenue.
“Air India has no option, it has to do all these changes within the set timeframe. In no circumstances should these fail,” said a source.
If the company succeeds, though, hopes are that profitability may once again be restored.
Air India is on a par with peers using certain industry parameters, such as load factor and on-time performance.
And the carrier could in addition benefit from travel growth.
Crisil, a local agency, has estimated domestic and international demand for the industry to grow at an annual pace of 12 percent between 2011-16.
Is Kingfisher broke?
That is what one is led to believe by the television and newspaper reports.
Kingfisher owes over Rs.8,000 crores to nationalised banks that have lent money sans any tangible security.
Is Vijay Mallya broke?
Here are some more details:
India’s beer trade has a declared annual turnover of roughly Rs.10, 000 crores.
The illegal side of the frothing trade is said to be worth at least five times more.
Profit margins are at least 50% of the turnover.
The UB Group [owned by Mallya and Heineken] website says about itself thus:
The Beer brands manufactured and marketed by United Breweries Ltd. have always been recognized for their international quality. That's Beer at its best for the discerning consumer!
A name synonymous with beer in India - Kingfisher stands for excitement, youth and camaraderie.
The largest selling Beer in India, Kingfisher commands a market share of over 36% in the country with 1 out of every 3 bottles of beer sold in India being a Kingfisher brand.
We [Kingfisher] are also available in 52 countries across the globe.
What is the personal wealth of Vijay Mallya?
The website of the same company provides the answer:
Dr Vijay Mallya, a well-known industrialist, is the Chairman of the United Breweries Group.
The Group today has an annual turnover of U.S. $ 1.2 billion.
The local business areas of the Group encompass Beverage Alcohol, Life Sciences, Engineering, Agrochemicals, Information Technology, Fertilizers, Print Media and Infrastructure development.
Dr Mallya is the Chairman of Public Companies both in India as well as abroad.
He has been a Member of Parliament [Rajya Sabha] elected from Karnataka State.
The UB Group enjoys controlling roughly 50% of India’s hard liquor trade estimated to be roughly Rs.180,000 crores.
In other words, its hard liquor turnover is roughly Rs.90,000 crores.
What are the profit margins in the liquor trade?
To understand that, one needs to know what is contained in a bottle of hard liquor.
Roughly, a ‘full bottle’ contains some 750 ml of liquid.
Of that 43% is alcohol.
Generally, a bottle of Indian Made Foreign Liquor [IMFL] ideally identified as whiskey, rum, brandy, etc is industrial alcohol also known as rectified and/or neutral spirit – a by-product of sugar. At the factory end, it is priced roughly Rs.25/litre for 99.99% purity.
If a full bottle is 750 ml, its 42.8% in terms of pure liquor has a cost quotient of Rs.10.70. The rest of the contents of a ‘full bottle’ are water, colouring, flavour, the container, its label and branding costs.
All found that works out to Rs.25!
One buys the same thing as a branded item in a liquor shop at roughly Rs. 400!
Liquor manufacturers are not meant to sell directly to the customers … but ought to go through state run distribution set ups – like TASMAC in Tamil Nadu and similar entities all over India.
Liquor companies sell their product to the government entities at roughly Rs.60 a bottle [a gross profit margin of 135%].
Sources at Prohibition Enforcement Wings of various state regimes, excise department of the central government and states’ commercial taxes departments indicate that liquor manufacturers declare only 15% of their installed capacity and sell the rest illegally.
In other words, illegal liquor trade is worth some 4 times the official estimate … or enjoys an annual turnover of Rs.800,000 crores.
Since this illegal income is never taxed, its profit margins are some 90% or Rs.720,000 crores.
Kingfisher enjoys some 50% of the trade or roughly Rs.320,000 crores whose profits estimated at 90% Rs.270,000 crores are retained illegally.
In other words, Mallya could be worth much more than what he has declared in his assets.
Is anyone asking any tough question to Mallya?
Can his employees really do anything to the bearded guy who gallivants with some of the most beautiful women on earth?
Can anyone really negotiate hard with Mallya?
Are the banks demanding their money back?
What happens when the leased aircraft are carted away from Indian airports once the airport and other dues are paid by those companies that have lent the aircraft?
Will the employees manage to get 5% of their dues?
How much will the recovery of the nationalised banks of India be in such a scenario?
Is anyone touching Vijay Mallya?
He will be attending the Formula 1 do in New Delhi under police and other protection even as one of his employees in the same NCR or national capital region grieves about his wife who committed suicide because the salaries never came for over 7 months.
Is Mallya paying all the dues?
Have the striking employees of Kingfisher been forced to go back to work with a carrot dangled in front of them in view of the forthcoming Diwali?
Have the false promises made to Kingfisher employees been broken by Mallya and his cohorts?
Will it be done again?
One only has to look at the track record of Mallya to guess what he will do!