TAPI Petroleum Gas Pipeline

The Turkmenistan Afghanistan Pakistan India Petroleum Gas pipeline is scheduled for the start of construction in 2010 and the projections are that it will provide its first supply to India by 2015. The pipeline will run 1040 mi (1,680 km) pipeline will run from the Dauletabad Gas field in Turkmenistan to the Indian town of Fazilka, running through southern Afghanistan (Herat-Kandahar);and Quetta and Multan in Pakistan. As of 2006, Dauletabad had around 1.4 trillion cubic meters of gas reserves left. The pipeline has ane stimated cost of $ 7.6 million and the Asian Development Bank is co-ordinating efforts of the steering committee of the four nations' petroleum ministers. ADB is providing technical assistance in the form of feasibility studies, etc and it's agreed to provide financing for the project subject to the condition that it wouldn't crowd out private investors.
The project according to ADB studies is economically and financially feasible. The pipeline has a designed capacity of 3.2 billion cubic feet per day (around 30 billion cubic meters per year)

"Failure to Deliver" in the US Treasury market

At this post on credulous_prole's utterly correlated blog page Dr. Susanne Trimbath's work on the mechanics of the "failure to deliver" in the US Treasury debt market is explained.
Dr. Brad Setser's analysis of the latest Treasury International Capital (TIC) data for November 2008 shows a marked shift from long term to short term Treasury debt purchases by foreign central banks. His previous analysis shows a large volume of private purchase of US Treasuries in 2008.

Here's an extract from Dr. Susanne Trimbath's article:
"Because the financial regulators do not require that the actual bonds be delivered to the buyer, your broker credits you with an electronic IOU for them, and, eventually, with the interest payments as well. But the so-called “bonds” that you receive as an electronic IOU, called an “entitlement”, are phantoms: there aren’t any bonds delivered by your broker to you, or by the government to your broker, or by anyone. "

I strongly advise the reader to go through her entire analysis.

I think Dr. Trimbath's analysis might have a connection with the reduction in long term Treasury purchases by foreign central banks. I could be wrong here.

Theme: The Geoeconomic World War

The purpose of this essay is to elaborate on the theme of this blog. Private investors in India are concerned with the performance of stock market indices and the profitability of investments in particular sectors of the Indian economy. These barometers are affected significantly by geo economic and geo political developments which exercise what is largely an influence that is in my opinion under-appreciated by domestic investors.
A full fledged geoeconomic war is raging, a war in which few sovereigns and regions have the choice of an insulated neutrality, in my opinion. My view is that the decisions and actions of most policy making organizations constitute an effort to strike a balance amongst various interests, rather than a tendency to focus on a more general nationalism that is symbolized by these entities.
The oil and gas industry is one of the focus areas of this blog. The process of exploration, extraction and distribution of petroleum and petroleum gas products involves several significant policy interactions. Given the scale and economic importance of these activities, these interactions constitute what should be understood essentially as being amongst large rival commercial organizations operating in this sector. Oil companies however, can exercise a competitive influence on policies of a particular sovereign versus those of another; and influence that also acts in different directions on the policies of a particular sovereign.
Competition in this sector appears to have recently intensified to the respective financial sector backers. Those institutions exercise influence on the availability of credit; and therefore on the monetary policies of independent central banks; and the fiscal policies of sovereigns. Study of the ownership (and significant rapid changes in ownership); of financial institutions in different geographies is therefore reflective of geopolitical influences at cross purposes.
The competitive dynamics in the oil and gas industry has also broken out in more visible political events: such as regime changes, and, more recently, medium intensity military conflicts involving sovereigns and militant groups.
The overarching objective of analyzing information along these dimensions is to predict the likelihood of resolution of these conflicts. While there is a natural tendency to favor the limitation of collateral damage; for instance, in the form of widespread unemployment, or vicitimization of unarmed civilians in armed violence; that predisposition does not entail any political, nationalist, religious or other ideological affiliation for this author.
It follows that the resolution of these conflicts augurs very well for the performance of the stock market barometers, though limiting the collateral damage has much more humanitarian significance than the improvement of the stock market barometers.
It is also true that we should expect the markets to look ahead towards a particular resolution rather than wait on it to actually occur, and I hope this blog will contribute to the market participants' efforts to look ahead.

Another Volte Face on Extradition of Mumbai Terrorists

Pranab Mukherjee: " We have never given up the demand that the perpetrators of terror acts should be extradited to India. There is no question of that or climb down."
The deal is more obvious now, according to me. If Pakistan wants to be friends with Iran, it can't be friends with India at the same time. Because Indians are great pals of the US Department of State. And the Department of State is friends with Israel. Israel doesn't like the Hezbollah and the Hamas. Iran happens to be supporting the Hamas quite openly.
This is like a geo-political roulette wheel :-)

Nuclear Power: Westinghouse Electric Company

Westinghouse Electric Company, a US-based nuclear power firm, signed a memorandum of understanding with India's largest engineering company, Larsen and Toubro Ltd. to manufacture modular nuclear power reactors yesterday (Friday).
WEC is also exploring the possiblilty of a partnership with the state owned Nuclear Power Corporation of India, Meena Mutyala, WEC's vice-president for global growth and innovation, said. (Source: Print editition of The Economic Times today)
Other corporate nuclear power companies with plans to set up in India include General Electric and Areva, a France-based company with a listed unit in India.
The Russian government representatives also visited New delhi and signed a vague MoU related to nuclear power. I don't rate the chances of a Russian firm manufacturing nuclear power reactors in India as very high, for obvious geo-political reasons.

Geopolitical Insights from "The Economic Times" (today's print edition)!

The following analysis is from the January 16, 2009 print edition of The Economic Times (Bennett,Coleman & Co Ltd.).

On Page 02 you see the report titled "Pranab will settle for Pak trial now". Foreign Minister Pranab Mukherjee is now willing to accept a transparent trial in Pakistan for those who have committed crimes against India, viz. the perpetrators of the Mumbai terror attacks. What Pranab Mukherjee actually said, and he is quoted in the paper is: "Indian fugitives should face Indian justice. Others who have committed crimes against India should also be extradited. But if for some reason that is not possible, then there should be a transparent trial in Pakistan." The author correctly sees this as very different from the earlier Government of India demand that the terrorists should be "handed over to us to face trial".

On Page 19, there is a small block titled "Pakistan might opt out of IPI gas pipeline project". 'An unnamed Petroleum Ministry official' (in Islamabad) has told the Economic Times journalist that with Iran seeking an exorbitant $10 to $11 per mmBtu of gas from Pakistan, Pakistani authorities might recommend to their Parliament to abandon the proposed $7.4 billion tripartite Iran-Pakistan-India gas pipeline project.

India has been uninterested in having any agreement with Iran over this proposed project for quite some time now. Remember that the earlier Petroleum Minister of India, Mani Shankar Aiyar stepped down from his portfolio and Murli Deora became the new Petroleum Minister precisely because the Government of India was not interested in having either a petroleum pipeline, or a petroleum gas pipeline built from Iran through Pakistan to India. Mr. Mani Shankar Aiyar was a career diplomat in the Indian Foreign Service who was posted in the Middle East for a long time.He later won election to the Parliament and was an aggressive proponent of the Iran-Pakistan-India oil pipeline project. The United States plan is to have a new pipeline built southwards from the Caspian Sea through Afghanistan to an Arabian Sea port in Pakistan.

The report today that Pakistan hasn't yet finalized their decision on the project, but that they now might not go for it, is therefore representative of some kind of a shift on this issue.

The two reports are obviously linked. The United States Department of State, behind the scenes, is brokering a deal here. The deal is simple. Pakistan shouldn't co-operate with Iran. They should go for the US-backed pipeline project instead. Then the Department of State friends in India won't go after the Zardari regime to extradite their henchmen, who conducted the Mumbai terror attacks.

This post should also indicate to you good methods to use while reading the financial press. It's important to separate facts from interpretations made by the authors. It's even more important to acquire a contextual awareness, either by reading over time, or by reading related materials when you come across something new. You're advised to cultivate the ability to link various reported developments (that you consider as facts) and understand the evolution of the unfolding themes. It's a very good habit to check data from different sources to be sure that what you think are facts are supported by various commentators.

Infosys "Constant Currency" Q3 results!

I don't have anything against Infosys. This is an objective assessment of what was stated by the Infosys Board members on CNBC TV18 telecasted discussion of the Q3 results.

Along with millions of investors, IT employees, etc I watched the Infosys Q3 results discussion with the highly regarded Infosys Board; with presenters Udayan and Mitali a few days back. My view is that Infosys revenues fell during Q3. Infosys fired a large number of people and asked a large number of people on site to go on loss of pay leave. This reduced their outflow on salaries. The USD/INR exchange rate improved the company's margins. Overall, revenues fell in all geographies when measured in the same currency against previous quarter numbers. Margins improved because of a stronger dollar, and because of the culling of the bench. Infosys didn't do anything miraculous in terms of their business process to improve their margins dramatically.

The outlook for CY 2009 is truly dire. A lot of clients are on the verge of bankruptcy filing. There's little chance of any new projects coming Infosys's way. It's a volatile currency world. Infosys just has an unsophisticated foreign currency receivable hedging process, in which they mainly use non deliverable currency forward contracts, like a commodity export/import business. There was really nothing objective to cheer about in the Q3 results. Yet the stock price rose after the Board's TV discussion of the Q3 results.

At the Q3 results discussion the "constant currency" reasoning was presented by the Board.

While discussing revenues, the Board asked investors to take the view that there wasn't much decline in "underlying business volume" because you have to allow for the currency fluctuation. For instance revenues from the UK and Europe showed up lower when measured in USD because the US dollar strengthened against the GBP and EUR.

While discussing margins and net profits, one Board member stated that Infosys has a model which helps them to retain high margins even when the utilization is lower. The current crisis is a test of the model, he indicated.

I don't think there is any such model which can defy basic arithmetic. The viewer was supposed to accept the revenue as ok, as not having declined much, in "constant currency" terms. While looking at margins and net profit, the Infosys Board didn't apply their constant currency argument.

The good margins weren't because of a strengthening dollar, according to the Infosys Board. Infosys has a secret model that nobody has heard of. The model helps them to make high margins even when they have fewer people working on projects.:-)

Sold Satyam @ Rs. 36.45 on Jan 12

I didn't make any posts since Jan 12. On Jan 12, in the afternoon after lunch I noticed that Satyam had gone up to around Rs. 36.50. I sold it on instinct. I had previously exited my Nifty shorts as I mentioned somehwere else. Since the 12th I haven't done any trades.
I was bearish on the Nifty for the January series. I exited all my shorts the day of the Satyam Panic and after that I went long in Satyam delivery, stayed on for one trading day with a weekend in between and sold off the Satyam shares.
I've had a lot of difficulty taking a view on the Nifty since the day of the Satyam Panic.

No view on Nifty this morning

I closed out my Nifty shorts in the wake of the Satyam panic and bought Satyam at Rs. 21.05. Today I have no view to offer on the Nifty.
It's the third anniversary of my late father's passing away today.

January 08 2009 - EGoM decision on RIL Gas supplies to Reliance Power

Anil Ambani's entity plans a Gas based power plant at Dadri in uttar Pradesh and the EGoM has decided to direct RIL to supply gas to the 7,480 mw plant if it's available from the Kaveri-Godavari basin. The EGoM meeting was attended by Petroleum Minister Murli Deora, Law Minister HR Bharadwaj and Power Minister Sushilkumar Shinde, according to a front page ET exclusive report in the financial daily, The Economic Times dated January 08, 2009. The article is titled 'End in sight to Ambani Gas Row'.

December 24 2008 - Justice KK Tated Transferred to Aurangabad Bench from the Mumbai High Court

Justice KK Tated was transferred on December 24 2008 as part of a routine re shuffle. Ram Jethmalani and Mukul Rohtagi, both lawyers representing RNRL requested continuation of Justice KK Tated on the same Mumbai High Court Division Bench to facilitate early hearing of the case.

December 11 2008 - Govt Withdrew its affidavit filed in favor of Mr Mukesh Ambani

http://domain-b.com/industry/oil_gas/20081211_government_withdraws_affidavit.html

The Division Bench of the Mumbai High Court consisting of Justice KK Tated and Justice JN Patel suggested the Government withdraw its affidavit stating that "Sale of Gas at a price less than $4.20 per million British Thermal Units is not envisaged according to the decision taken by the Government of India's Empowered Group of Ministers with respect to the Production Sharing Contract between the Govt. and Reliance Industries Ltd.", according to the linked article.

The RIL-RNRL dispute

This article provides good numerical facts about the dispute but appears to me to be slightly biased.

The CPI Central Committee condemns the Essential Services Management Actions

Here today you see that The Central Committee of the Communist Party of India has condemned alleged arrest and detainment of the officers of the 14 Oil Public Sector Units under the Essential Services Management Act and the Government's threat to 'call in the Army' to deal with the strike.
"The major point of demand has been the demand of the officers for a "five year tenure" of their wage-revision instead of ten years." according to this article.

Executives of Indian Oil Corporation and Gas Authority of India Ltd. strike for 3 days and end it today

Another IBN Live report states the strike has ended with hard talk on wages from Petroleum Minister Murli Deora.

Russia's Gas Supplies to Europe through Ukraine

Daryna Krasnolutska in Kiev reported on Bloomberg that at 07:44 a.m. on January 07, 2009, OAO Gazprom, Russia's Gas export monopoly cut off ALL GAS SUPPLIES TO EUROPE THROUGH UKRAINE. This was confirmed both by NAK Naftogaz Ukrainy, the Ukranian utility and by Alexander Medvedev, the Deputy Chief Executive Officer of OAO Gazprom.
The article quotes the Naftogaz spokesperson, Valentin Zemlyanski as saying that Gas supplies to EUROPE through Ukraine were CUT to 74 million cubic meters a day from the normal levels of about 300 million cubic meters a day.
The reason for the capitals is to make sure the article is understood correctly. Russia significantly disrupted European Gas supplies on January 07. Read the post below to know what happened to Iran's Gas supplies in the following week.
I don't have sufficient insight right now on OAO Gazprom's Nord Stream and South Stream Links for Gas exports to Europe. I'd appreciate any further information/insights.

Reliance Industries Ltd., The US Exim Bank and Iran Gas supplies

On Dec 20, 2008, this report on India Business News Live stated that 8 United States Congressmen, 4 from the Republican Party and 4 from the Democratic Party wrote to James Lambright, President of the United States Export-Import Bank asking the bank to secure an understanding with Reliance Industries Ltd. that gasoline supplies to Iran will be suspended before the disbursement of two loan guarantee packages worth $ 900 million. Prior to the Exim bank transaction, RIL received a loan of $ 400 million from JP Morgan in August 2008.
The Reliance Industries Ltd. expansion program will significantly improve United States exports to India.
On January 08, 2009, energy business review reported that RIL has announced it is suspending gasoline supply to Iran after fulfillment of its existing contract.
Following an Iran News Blog with great cartoons on it has paid off in terms of financial insight today.

Buy Satyam at prices between Rs. 20 and Rs. 25 today for a long term profit

Starting with my disclosure, I just turned bullish on Satyam at Rs. 21.05. My volumes are insignificant and I want to hide my trade data to create a deliberate miscalculation in the reader's mind that I might secretly be a billionaire.
Today I'm betting that Satyam will continue as a going concern.I'm also assuming that Ram Mynampati and various other folks in the Satyam management will continue to be on the Company's rolls. I would put margins in the Indian IT services industry at close to around 28% operating margin when INR/USD is at around 42. Satyam's market cap today is close to Rs. 707 crore. Last year's annual revenue was well above Rs. 8000 crore. If the company continues, then my money will come back at most in a year's time, by the most conservative possible estimate.
Satyam has frequently delivered quarterly net profits worth hundreds of crores. It's stock price is down from around Rs. 170 levels during the recent controversy, and much higher levels before the Maytas campaign began in earnest. Satyam is a good buy.

Gulf of Mannar Oil Exploration and The Fall of KiliNochchi

On closer scrutiny the theme of the conflict in Sri Lanka is the same as that on the Gaza strip. The Air Tiger attacks on oil storage facilities, especially in the Sinhala capital of Colombo have prejudiced powerful international interests to ensure the decimation of Tiger forces in Lanka.
The Gulf of Mannar is being explored by the Government of India owned Oil and Natural Gas Corporation Videsh Ltd., British owned Cairn Energy Plc. (through Cairn India and Cairn Lanka), and the China National Petroleum Corporation.
I'm posting several links on the Gulf of Mannar Oil exploration for reference.
http://www.google.co.in/search?hl=en&q=Tigers+attack+oil+storage+facilities+from+the+air&meta=
http://karainet.blogspot.com/2008/03/offshore-oil-and-production-sharing.html
http://www.ongcindia.com/financial_30Sept_08.asp
http://www.pucsl.gov.lk/pdf/ENERGY%20POLICY.pdf
http://www.kompass.com/en/LK005838#
http://www.ustr.gov/assets/Document_Library/Reports_Publications/2007/2007_NTE_Report/asset_upload_file713_10981.pdf
http://www.laugfs.lk/profile/laugfs_profile.pdf
http://www.southasiaanalysis.org/\papers22\paper2181.html
http://www.livemint.com/2008/02/01142540/ONGC-Cairns-India-bid-for-Sri.html
http://www.thesundayleader.lk/20081005/BUSINESS.HTM
http://www.tamilnet.com/art.html?catid=13&artid=23425
http://lankasun.com:8000/index.php?option=com_content&task=view&id=7104&Itemid=28
http://www.rediff.com/news/2009/jan/02ltte-concedes-kilinochi-defeat-in-lanka.htm

Update: Who owns Satyam Today?

CNBC TV18 reported at the end of trading yesterday that Aberdeen Asset Management, the largest shareholders of Satyam till yesterday, sold all of their 5.3% holdings in the company at close to Rs. 40 levels. Similarly the volume of trade in Satyam shares was nearly 50% of the total shares outstanding.
This should raise a significant question in the investor's mind as to who owns Satyam as of this morning?
I would like to reverse my recommendation to readers to go long on Maytas. Not just yet.
Today I'm going back to my analysis of the Natural Gas industry.