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The Airlines blink - Views on News from Equitymaster
 
 
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  • Aug 3, 2009

    The Airlines blink

    Flyers who must have been perturbed by the proposed strike of domestic airlines, can relax at least for the time being as the strike has been called off. Jet airways and Kingfisher along with six other private airlines, had declared to suspend domestic operations for a day (18th August) in order to pressurize the government for a bailout. But a few low cost airlines like Indigo and Spicejet withdrew from the decision because a complete bailout package was not on their minds, unlike the full-service carriers. All they were demanding was a rationalisation of tax on aviation turbine fuel, which accounts for 40% of their operational cost.

    They were also demanding a reduction of the parking and airport charges, which are 50% to 60% higher than international standards and drive up their costs by US$ 250 m annually. Though we don't know how this story will unfold, in our opinion, it is a lot wiser to have a dialogue with the government, rather than alienate thousands of passengers by causing so much of inconvenience to them.

    Oil Ministry set to reply to Anil Ambani
    The dispute over KG basin gas continues to simmer. Last week, Anil Ambani had come out all guns firing in RNRL annual general meeting, accusing the petroleum ministry of bias. As per a leading business daily, the finance minster and the law minister are now rallying around the petroleum minister. They have had several meetings attended by senior bureaucrats and legal experts. In fact, the petroleum is likely to come back with a reply today.

    It may be noted that as per the memorandum of understanding signed between the brothers in 2005, Mukesh Ambani's RIL has to supply 28 million standard cubic metres per day (mmscmd) of gas to Anil's RNRL at US $2.34 per million British thermal unit (mmBtu). RIL would like the price to be US$ 4.2 per mmBtu. The government's position is that minerals found in India are national property and private deals cannot overrule government utilization policy.

    In our opinion, the entire episode is unfortunate because it involves an important asset (KG basin) in a strategic industry (domestic natural gas). The confusion and mudslinging is a very poor advertisement for international oil & gas majors to participate in exploration in India. The government should have ensured that there was greater clarity right from the beginning, in the terms under which the KG basin blocks were explored and developed. With over 70% of our hydrocarbon requirements being imported, surely we need to be more thorough with our regulations so that such problems do not crop up later.

     

     

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