Archive for January, 2014

RIL to Give a Bank Guarantee of $120-135 million

January 28, 2014

Mukesh Ambani’s Reliance Industries Limited (RIL) along with BP and Niko, key partners in the KG-D6 block, is expected to announce a bank guarantee of $120-135 million (Rupees 750-850 crore) to get the benefits of higher gas price. This estimate is based on the proper formula devised by the Rangarajan Committee. As of now though, there has been no official communication from the Oil Ministry.

B. Ganguly, President and COO of RIL’s Business Operations Explorations and Production was quoted as saying, “What we understand is that the bank guarantee will be based on the actual daily output of the D-1 and D-3 fields (the producing fields in the D6 block off the Andhra Pradesh coast) multiplied by the difference between the new and the existing gas prices and the number of days of production.” He added that once RIL (and its partners) agreed to the bank guarantee calculations and the process of furnishing them the implementation side of things wouldn’t take too long.

This whole situation surrounding the new formula came to light after RIL sought permission to increase gas prices. At the time of notifying the new gas pricing policy, the government proposed that RIL could benefit from the price rise if RIL submitted a bank guarantee. The new price is likely to be almost double the current price of $4.2 a unit at the landfall point (gas is measured in million British thermal units), which RIL gets for the D6 block. This price also includes charges such as those of transportation, infrastructure and other local and State taxes.

The Oil Ministry has proposed to calculate the new gas price based on the average of the last four quarters. M. Veerappa Moily, The Petroleum and Natural Gas Minister has commented that the finalization of the bank guarantee submission would be done by February 10. What remains unclear is how RIL plans to pay this guarantee – as a lump sum amount or in the form of quarterly payments.

This whole story comes on the back of RIL finally increasing output from the Dhirubhai Wells (D1 & D3) in the KG-D6 block. The shortfall during the low period was close to one trillion cubic feet. Analysts expected production to reach 80mmscmd after 9-12 months of production. Output from the D-1, D-3 fields in the block started in April 2009. After hitting a peak of 60-61 mmscmd in early 2010, the output started to drop. The current production volume is 13 million standard cubic metres a day (mmscmd) and is likely to be maintained at this level or a little higher at 14-15 mmscmd during the fiscal.

It is expected that RIL along with Niko will begin the supply and sales related discussions with customers once the pricing issue is resolved. The agreements of sale that are owned by the aforementioned companies expire at the end of March. At the same time, they have over 50 agreements, of which 16 are live and with fertilizer companies.


Supreme Court gives all clear for Mukesh Ambani’s CRPF security cover

January 22, 2014

India’s businessmen have faced many threats for the past decades. Hence, it has become common practice for them to have a security cover around them.

India’s richest businessman, MukeshAmbani did face a slew of threats some time back and hence, it was decided to offer him security and cover from the Central Reserve Police Force (CRPF). The CRPF is the largest of India’s Central Armed Police Forces. The force is considered India’s largest paramilitary force and serves many functions including security, covert operations and counter-insurgenceoperations.

While the decision to award CRPF security to the RIL Chairman was lauded, some people thought otherwise. A petition was filed in June 2013 challenging a High Court order to provide Mr. Ambani with security. The crux of the petition challenged the Centre’s decision to grant the extra cover at Ambani’s cost on the basis of a threat perception to the industrialist’s life. However, India’s apex court, The Supreme Court upheld the order of the High Court and trashed this petition. This decision permitted the Centre to provide additional security cover from the Central Reserve Police Force (CRPF) to industrialist Mukesh Ambani.

The argument invoked by the petitioner’s lawyer in court was that the CRPF was meant to detect crime while maintaining law and order and could therefore not be deployed as security for a private individual.But additional solicitor general KevicSetalvad for the government and senior counsel Rafiq Dada appearing for Ambani said the term “maintenance of law and order” are wide enough to include power of the Centre to provide security to any individual too. They also commented that ‘for any other purpose’ also has to be interpreted widely.

The Supreme Court Bench, chaired by Justices H.L. Dattu and SharadBobde on January 20th announced the verdict. In their statement, the honourable judges expressed the view that Ambani was providing employment to thousands and was therefore entitled to CRPF level security.


RIL turns its attention towards oil in Venezuela

January 17, 2014

Reliance Industries Limited (RIL) is continuing in its expansion and ambitious growth plans in the Oil & Gas sector. The MukeshAmbani owned company is contemplating picking up a 11% stake in one of Venezuela’s biggest petroleum projects. This would undoubtedly strengthen relations between the oil rich South American Country and its biggest Indian customer.

RIL operates the world’s biggest refinery complex in Jamnagar, Gujarat. 80% of the industry giant’s revenues come from refining. The company aims to get cheaper, heavier crude oil for its refineries so as to eventually increase its margins.

The Latin American Nation of course has some of the biggest deposits in the world. RIL has been a big customer of the country’s crude oil and Venezuela is in fact the largest supplier of crude oil to the same. In 2012, the company signed a 15-year deal to buy up to 400,000 barrels per day (bpd) of heavy oil from its state-run oil company, Petróleos de Venezuela S.A. (PDVSA.)

Swagat Bam, SVP at RIL was quoted as saying, “We are looking to participate in the heavy oil upgrades project and a farm-in in the Carabobo-1 block, taking over the participating interest of Petronas,” at the Petrotech conference. Reliance is also examining entry into the Ayacucho-8 block in a joint venture with PDVSA, Bam said.

Venezuela’s oil fields have garnered interest from many oil majors around the globe. According to sources, disputes between the Malaysian company Petronas and, Venezuelan authorities and PDVSA led to the Asian Firm exiting the Petrocarabobo project in Venezuela’s Orinoco belt. The project also had equity from Repsol of Spain and three Indian Oil Companies – ONGC, Oil India and Indian Oil Corporation. The project planned to invest around $20 billion over 25 years and involves building a 200,000 barrel per day upgrader to convert heavy crude into light crude oil.

RIL has also been keen to establish its presence in Mexico after a change of regulatory stance in the North American country. However, there are no firm plans to do so as of now according to officials. Reliance currently buys 60,000 bpd of oil from Mexico. In December, Mexico’s Congress voted to open up its oil and gas sector to private investment in the biggest overhaul of the industry since it was nationalized, as the country seeks to revive flagging output. Bam, commenting on the same was quoted as saying, “Our working relationship with petroleum regulators and NOCs (national oil companies) in LatAm countries has always been exemplary and this has given us great sense of confidence.”

Reliance, India’s largest private sector company by revenue, has seen a sharp fall in output at its KG D6 gas block off the east coast, since 2010, raising investor concerns over its exploration business.Its overseas exploration business mainly comprises stakes in three shale gas joint ventures in the United States that it acquired in 2010.


Reliance Retail and Big Bazaar rope in Kirana Stores to Expand Operations

January 10, 2014

The retail sector in India has seen incredible growth over the last few years. It has seen many corporate houses that had very little experience in this sector venture in and actually achieve a good amount of success. Future Group’s Big Bazaar and Reliance Industries Limited (RIL) owned Reliance Retail are two such brands. After mulling over various strategies to expand operations, the two retail giants have decided to rope in local Kirana-walas with a view widen product reach and expand their operations to newer territories.

The two brands are following different paths for the same. Mukesh Ambani owned Reliance retail are speeding up their expansion of wholesale cash-and-carry stores. On the other hand, Big Bazaar, owned by Kishore Biyani’s Future Group has undertaken its Big Bazaar Direct Programme – in this, Kirana Stores can become a franchisee for the big retailer.

Analysts say that this move by both the retail chains is bound to increase growth. Big organized shopping mall type stores may not be successful in small towns or villages. Hence, pushing products through these small grocery stores or Kirana Stores is highly beneficial for the brand in the long run.

At the same time, small traders remain skeptical of this move are not too optimistic on being co-opted by the big boys. Praveen Khandelwal, secretary-general, Confederation of All India Traders, was quoted as saying, “Organized retailers are in the business for making profits and are least bothered of the small traders. They use predatory pricing tactics to ultimately wipe-off the smaller guys. Even their wholesale stores are nothing but retail in disguise, since they are giving membership to anyone, when it was only meant to be for traders.”

Nothing seems to have deterred the people operating Reliance Retail though. The RIL owned entity which commenced operations in 2011 has opened 12 more stores in the last 10 months. And they’re not slowing down; this pace of expansion is growing. A person close to the retail chain said, “We are catering to institutional consumers, hotels, resorts, cafes, catering companies etc, but kiranas are among the biggest target group.”

The Reliance owned stores have also made in-roads into the wholesale store business. It’s converting some of its stores into wholesale store businesses. About a million partners i.e., institutional customers have signed up for the wholesale business. Small shop owners, as well as people who own grocery stores in small towns are being part of member meetings to understand their needs. When contacted, a company spokesperson said only three stores are being converted and it will continue to expand across all formats, including retail and wholesale.


‘Only Vimal,’ RIL’s first big product returns to the Limelight

January 3, 2014

When the ambitious Dhirubhai Ambani started Reliance Industries Limited (RIL) many decades back, one of the first segments targeted at the mainstream audience was textiles. With the launch of ‘Vimal,’ RIL competed with industry giants in this segment. Vimal was launched in 1966 by the iconic businessman and achieved phenomenal success in the 70’s and 80’s. It was during this time that the brand expanded massively and by using a meticulously crafted marketing strategy that involved the use of the top models at the time, achieved cult status.

However, with time Vimal garnered a slightly lesser focus from RIL as their primary attention was diverted towards Oil & Gas, petrochemicals and retail. However, the company is aiming to make ‘Vimal’ one of the top brand in the clothing segment again.

After a hiatus of sometime, RIL has decided to rechristen ‘Vimal’ as ‘Only Vimal.’ It has also launched a new range of clothing called ‘Unformals.’ Its Unformal range is now geared to meet the youth’s changing preferences in work wear. The brand’s Unformal range of fabrics has been increasingly making noise, getting in step with the changing customer and winning back the parent’s interest in a low-margin sector. The aim with the new range of clothing is to move away from office-wear that is traditional, dreary grey, blue and black and bring in some fresh new ideas into this segment. Also, the growing trend of wearing semi-formals at work, of wearing a blazer with jeans and without a tie, is something that the brand is keen to pounce on.

Anand Parekh, business head of the textiles division of Reliance, when talking about this said, “We have been studying this market for a long time and there has been a significant change in the way men have started to dress. We realised that people have started to wear formal clothes in a very different way.”

Vimal has many features in its clothing line that retain traditional aesthetics and sensibilities but rank high as far as fashion quotient is concerned. Its Fashion Jacketing fabric feels woolen but is lightweight enough to be worn through the year. The country’s largest fabric exporter also has Fashion Cottons for shirts that keeps the cloth wrinkle-free and colour fast, despite the look and feel of cotton fabric. Taking cue from the success the brand had achieved in the 70’s and 80’s, the parent company, Mukesh Ambani’s RIL is yet again placing a huge emphasis on marketing; and rightly so. Vimal started in its latest campaign by Scarecrow Communications in August 2013 with a ‘No Tie Day.’ The concept here was to have flash mobs in malls and also host tie burning parties. Another range called ‘Fashion and Feel’ which a blend of polyester and viscose was launched. Using digital and print media, Vimal’ sunformal category received a heavy dose of advertising on public forums.

For an industrial behemoth such as RIL, textiles form a small percentage of its revenues. In spite of this, the company has been trying to bring Vimal to the forefront after years of living in the shadows. “We have been trying to revamp the brand in the last seven to eight years,” says Parekh. Only Vimal’s flagship range, Unformal’s contribution to Reliance’s textile revenues is 10 to 15 per cent and is expected to increase to 30 to 40 per cent in the coming years. Reliance is looking at 22 per cent growth in textile revenues this year.But with fabric brands underlining the perfectly-tailored garment to make the customer stick with fabric-buying (most brands now offer tailoring at their stores, for example), Vimal too is stepping up its marketing.