BUSINESS STANDARD UPDATES 1-4-2012

Govt issues mandatory energy norms for firms

BS REPORTER New Delhi, 31 March Top industrial units of Reliance Industries Ltd, Hindalco, NTPC and Vedanta among others would now have to cut down on their energy consumption. The Union government has notified unit-specific energy use norms that would require these companies to put in an investment of ~10,000 crore to ~12,000 crore in energy-efficiency projects. While these norms would help reduce energy consumption, they would also create a market for tradable certificates. Units, which are unable to meet their target either through their own action or through purchase of certificates, will be liable for penalty equivalent to ~10,154 for shortfall of one tonne of oil equivalent. The Bureau of Energy Efficiency (BEE) has set targets for 478 units that account for about one third of 500 mtoe (million tonne of oil equivalent) of commercial energy consumed in the country through a notification issued on March 30, 2012. Issued under the Energy Conservation Act, 2011, the targets are to be achieved by 2014-15. These units from eight sectors, used 166 mtoe energy in 2009-10, which has to be reduced by 6.6 mtoe in three years. The targets, however, are not defined in terms of absolute energy use reduction, but in terms of the amount of energy used to produce a unit of the product. A senior BEE official said though the mandatory norms have not been notified under any international convention, it would help the country to prepare for any future global norms besides helping in checking energy requirements. “In countries like the United States, Britain and Canada, the power utilities define targets for users. But we felt such unit specific norms were required since some of them captive generation,” the official said. In anticipation of the notification, some of the companies have already started adopting energy efficiency measures. "It is a continuous process and we have been endeavouring to introduce more energy efficient subsystems in our existing projects whenever an opportunity for renovation presents itself," said a senior NTPC executive. Those units which are able to achieve greater energy efficiency improvements within the specified targets can capture the excess savings through the issuance of energy saving certificates. These certificates can be traded and bought by other units covered by the programme who may find it expensive to meet their targets through their own actions. In defining the norms, all energy forms like coal, furnace oil, fuel oil and power, except biomass and renewable energy, have been included. The sectors covered by the notification are iron and steel, cement, fertilizers, aluminium, pulp and paper, chloro-alkali, textiles and thermal power stations. Within each sector, only plants using more than a specified amount of energy are included in the targeted list. Overall, implementation of the norms would reduce energy consumption of these units by an average three-five per cent over three years. The BEE official said implementation of the standards would require intervention in three forms — complete change to cutthroat technology, 30-40 per cent adoption of generic technology and repair and maintenance practices.

FM defends amendment of I-T Act with retrospective effect

PRESS TRUST OF INDIA Kolkata, 31 March Finance Minister Pranab Mukherjee today defended the move to amend the Income Tax Act with retrospective effect following which UKs Vodafone may have to pay ~11,000 crore as tax for a buyout deal involving Indian business. "First the Supreme Court told in the Vodafone case that it has to be clearly indicated the intention of the legislature how it is going to tax," Mukherjee said at an interactive session organised by Calcutta Chamber of Commerce. "We came to the conclusion that we would not be able to tax on Indian assets purchased outside the country," he said. UK-based mobile operator Vodafone purchased Hong Kong-based Hutchisons telecom business, which included operations in India, in 2007 for $11.2 billion. Indian income tax (I-T) authorities said the deal would attract tax on it and sought ~11,000 crore from Vodafone, which challenged the move. The Supreme Court ruling held that Vodafone wasnt liable to pay tax following which the government has proposed to amend laws retrospectively to bring in the net such deals. "We will have to decide whether India will be a no tax country or India will tax. If the answer is yes, then whether to be taxed in India or at source of the company. Then comes the question how it is being protected from Double Tax Avoidance Agreement and tax exchange information in India," he said.

FinMin may clip powerof I-T assessing officers

SANTOSH TIWARI, New Delhi, 31 March As a part of amendments to the Budget proposals associated with transfer pricing, the finance ministry may either tweak or do away with the provision that allows an assessing officer to file appeal against his own order, based on the directions of the Dispute Resolution Panel (DRP). An officer associated with the discussions on the issue in the ministry said the proposal was brought following representations from the industry which said the department didn’t have the power to appeal against the orders based on the DRP’s direction. The orders were invariably against the assessees as the panel members avoided going against the revenue interest. He said it was expected that powers to the assessing officer to go in appeal against the order would improve the situation, but it had simultaneously created an anomalous situation in which the assessing officer would be appealing against his own order. The official said some sections of the industry had demanded withdrawal of the proposal on the premise that it would allow a junior officer to appeal against the order based on the direction of a panel of three officers senior to him. The ministry is now expected to make changes in the amendments to the Finance Bill. Including members from outside the income tax department in the DRPs is being seen as one of the possible solutions. The institution of DRP was created through the Finance Act, 2009, with a view to bringing about speedy resolution of disputes in the case of international transactions, particularly involving transfer pricing issues. Under the provisions of the Income Tax Act, the DRP has the power to confirm, reduce or enhance the variations proposed in the draft order. The income tax department, at present, does not have the right to appeal against the directions given by the DRP. The assessees have been given right to appeal directly to the Income Tax Appellate Tribunal (ITAT) against the order passed by the assessing officer. The memorandum explaining the provisions in the Finance Bill, 2012, says: “As the directions

Banks approve Bharati Shipyard CDR package

SHUBHASHISH AND ABHIJIT LELE Mumbai, 31 March Banks led by State Bank of India (SBI) approved a ~2,850-crore corporate debt restructuring (CDR) package for Bharati Shipyard at a meeting today. This would put the company in a milder repayment schedule. A source close to the company said, “Bharati Shipyard is happy with the debt recast.” Managing director P CKapoor was unavailable for comment. Under the new structure, the banks would convert 10 per cent of the company’s loans into compulsory convertible debentures. These would be converted into equity on maturity. Bharati Shipyard has also secured a two-year debt moratorium. This means the new debt repayment schedule would begin only after 18 months, giving the company enough time to tide over the unfavourable market conditions for shipyards. The cashflow to shipyards has been under pressure due to various factors, including the delay in payment of subsidies for capital expenditures by the central government. After the restructuring, the company would have to repay debts to all its lenders in eight-10 years, depending on their individual schedules. The average interest rate under the restructured debt is 11-12 per cent. The company had a total debt of ~3,250 crore and had asked for a CDR of loans worth ~2,850 crore. In January, Kapoor had told Business Standard ,“The majority of our orders come from European markets, which is currently facing challenging times. However, we are in the process of delivering five vessels in six months. The debt restructuring would help us optimise costs and resources in times to come.” Currently, the company has an order book of ~6,800 crore, to be executed by 2014. It is also in the advanced stages of completing two greenfield shipyards at Dabhol and Mangalore. These would ease Bharati’s debt problems and help in loan repayment, as these would be able to execute large orders. Outside the CDR, Bharati owes ~306 crore to five lenders, with the maximum exposure to Development Bank of Singapore, followed by L&T Infrastructure Finance Ltd, Catholic Syrian Bank, Tata Capital and SICOM, a finance company partly owned by government of Maharashtra. The company claims it would continue to meet these obligations according to their schedules, as no restructuring of deadlines is sought in these cases. The banks would convert 10 per cent of the company’s loans into