Thursday, December 04, 2014

Vertical Integration may light the bulb!

BSES, is one of the two distribution franchisee companies responsible for distribution of electricity in the city of New Delhi, India.
Though, BSES is owned by Reliance group, which has asset base across the value chain of electricity, the electricity supply is not assured from its counterparts in electricity generation.
The other distribution franchisee owned by Tata group is vertically integrated i.e. the the distribution franchisee entity of the group purchases electricity from it's counterpart in electricity generation.
In India, electricity prices are calculated by the individual suppliers, but are approved by a regulatory body, but may be squashed by the political parties.
hence, the electricity prices in most of the states in India are kept low, mostly due to the influence of the political parties. It has forced the distribution franchisees to a corner, where they are compelled to supply costly electricity but at the same time cannot recover their costs from the consumers. 
On top of that, the credit cycle or the time taken to recover the money from the consumers or from the Govt. takes eternity. Hence, only a few players who have big pockets and the wherewithal to lobby, influence and recover part of the losses can only survive as a distribution franchisee.
And even these big players are having a tough time surviving this supply/demand dynamics in electricity sector in India.
The only work around seems to be the option of vertical integration, where the same group controls the production to distribution of electricity. Not that I am suggesting the de-unbundling of utilities, but the adversities of ensuring a constant cash flow can only be effectively mitigated by assurance of activities across the value chain.
While a few states in India have surplus power, most of them are reeling in power crisis. It is not in headlines right now, due to the reduced demand pertaining to the seasonal variations. But, as summer starts kicking in, lot of news headlines would be surrounding the availability of electricity. 
We already saw companies trying to spread their wings across all the aspects of generation,transmission and distribution. We had Essar building its power plants, transmission line and also hope for distribution franchisee. As newer models of electricity open up including distributed generation, the big players will have to move towards confirming their sale and tie in customers through vertical integration. Players in Silos may end up either not having customers or have customers but no assured economical supply of electricity. Wait and watch!

Wednesday, December 03, 2014

Is crude price decline good or bad? – Energy Economics 102!! - Part 2

Continuing the discussion from the previous blog (Is crude price decline good or bad? – Energy Economics 102!! ), now that the decline in crude is seeing no decline, what next??

a) Acquisitions have become active... First the deal between Baker Hughes and Halliburton. Now the talks between Shell and BP. Wonder why Exxon is lying idle!!
This was bound to happen, as companies continue to fight for survival due to working capital issues and also to increase their revenue. This is the right time for big fish eating the small fish.

b) Social Planning: Many countries, especially the Opec ones derive much of their revenue from crude oil exports. The decline in crude prices have reduced their GDP by multiple basis points. Below is a chart that explains some of the impacts:


As you can see, the crude prices have reduced some of the least developed nations into a state of disarray. Countries like Saudi Arabia where oil revenue subsidizes all the activities, such huge decline will impact the structure of the economy itself. Probably more arab springs!!!


c) War: Hopefully lesser aggressive postures by crude exporting nations. The crude importing nations have more money to spend on wars. But hopefully violence due to aggressive pursuits may reduce.

c) Terrorists: Similar to the net crude exporting nations, Terrorist agencies like ISIS rely heavily on crude sales. ISIS makes around $3 mn per day on oil sales alone. They would have already seen their coffers filling 20% lesser. Hopefully this decreases their aggression. Unfortunately, for the same reasons more people from the countries affected by crude decline, may feel inclined towards joining these terrorist organizations. These agencies may offer an abode to many, indirectly relating the western aggression to the state of affairs and thereby luring them into the disturbing practices.

d) Infrastructure: Does it leave any chance for infrastructure expansion. Nope. No more pipelines, no more LNG plants. And what about the ones who are half way into implementing these capital projects. Pipelines like Keystone elsewhere in the world may not see the light of the day. Major LNG plants planned by Indian and Asian companies may start questioning their viability. 

On the contrary, it is probably the right time for countries to invest in Strategic petroleum reserves (SPR). India has been planning SPR for quite some time, but the decline in crude prices rightly increases the need for SPR or building the SPR equivalent storage mechanisms in shorter span.

e) Shale: Leave aside US, which has already invested so much in Shale. What about countries planning to or are in the early stages of development of shale gas. It'd become increasingly tough and unviable to invest in shale gas developments. Investments in this sector will be little leading to a decline in potential exploration opportunities.

f) Sustainability: Sustaining the sustainability across the world will become a huge issue. The incentive to shift to renewable went down and the emission reductions, if any, that were happening across the world have paused. 

The impact of these would be tough to predict at this juncture, but it is going to impact quite hard. When... leaving it for your own judgement!

Monday, November 10, 2014

Is crude price decline good or bad? – Energy Economics 102!!

Crude prices have declined by more than 20% since June this year, creating turbulences/confusion across various governments.
So, the question: Is it good or bad?
The answer is: If you are a net oil exporting nation then it is bad for you and if you are a net oil importing nation then it is good for you.
Going away from Macro Economics into Micro Economics,
All oil producing companies are having a tough time trying to sell their product. Going by the analogy of countries all oil consuming companies should start feeling good.
But on the contrary, every one is suddenly concerned whether they are oil producing company or oil consuming company. Why?
Many oil/energy consuming companies which are heavily dependent on oil & natural gas as their input have seen a decline of more than 20% in their input costs. So, technically their margins should have gone up. Yes, the margins would go up only for those companies whose sale price hasn't come down as much as the input cost. For those companies, whose selling price is directly dependent on the input price, eg: utilities, fertilizers and other regulated industries etc., they have seen a sudden decline in their selling price and thereby their revenue. This lead to a huge decline in the market capitalization and accordingly their ratings in the markets. This has decreased their ability to raise debt and hence so much more downward pressure on their valuation and stock prices.
Now, let us dwelve a bit further. What is causing this decline?
Price of primary sources of thermal energy (coal, gas, crude oil) depends on various factors including cost of production and more importantly on the supply/demand factors. Right now, with US continuing to increase more and more crude oil and the OPEC nations not decreasing their production, the supply side has continued to be remain stable. But on the demand side, there is continuous pressure due to the expected decline in growth rates of various countries (whatever!!).
The other factor is the "stability in the instability in Middle East region" and the other politically volatile regions of the world. (Yes, I did say that).  Oh yeah, the other most convoluted and hardly understood factor is the interest rate. The oil demand is low inspite of such low interest rates across the world. So any increase in interest rates is only going to decrease the growth rate thereby reducing the demand for oil much more and hence leading to lesser crude prices.
So, now the question is: Is it the right time to invest in energy savvy companies?
The un-political answer is. Yes invest in energy consuming companies for they will do better as long as the prices continue to remain low. And, yes invest in energy producing companies as well since their stock prices are so low and are going to re-bound soon.
Now to answer another question: What about future generations, is it good for them?
Answer is: Do future generations really know what is happening now. But yes, we should be concerned about their well being because we continue to burn more fossil fuel and hence more emissions... And the story goes on!

Sunday, August 10, 2014

Washing feet or hands .. which is more important???

The other day during a journey we halted for a while and when asked for a proper place for defecation, we were disappointed and disgusted at the place, and yet they were charging money to use that place.

It may not come out as a surprise to many, but many of us in India still wash our shit with our hands!!

We are just too ashamed to discuss about it. How many of us tried different and innovative techniques to try and use water instead of paper to perform the daily duty. But that's not the agenda of the blog. Wiki has a very good page about it (Human_feces)

We have a belief that whenever we come out of toilet, it is really important to wash our feet. While, yes there is emphasis to wash our hands but we are specifically asked to wash our feet since misfortune may follow un-washed feet. Nothing was said about the hands part!!!!

I was going through this article today which said that 60% of the open defecation of the world is in India due to various reasons (fixing-dreadful-sanitation-india)It continues to happen all across the country, but it has only increased in the northern states of UP, Bihar, Jharkhand and West Bengal.

We hate to discuss about it, and look down upon the topic. We continue to go to foul latrines and yet not bother too much about it. We've got so immune to it, that open sewers have become a way of life.

For many, it may not even come out as a topic to discuss about. Fortunately, our PM is vocal about it when he said that Indian needs more toilets than temples.

I just hope they simply do not wash off their hands from this issue!

Hope Dakota doesn't become Dakota!!

North Dakota has seen an increasing trends in various kinds of violence. Drug abuse, domestic violence and various other crimes have seen an upsurge in the recent years, albeit it still is below the country's average.
Now, why am I suddenly writing about North Dakota??
This is one state, which has seen a sudden rise in shale gas production, which has more than doubled in a span of a small time. It now has one of the largest proven reserves and is expected to play a strong role in making US, the leading natural gas producer.
The new oil & gas has produced lot of jobs, especially in mining, oil & gas technicians and various other jobs and suddenly the unemployment opportunities have become a thing of the past.
While I was going through a movie, I realized that many places across the world, which have seen a sudden upsurge in wealth have become some of the most insecure places. For example, many countries in Africa, Central & Latin America, Middle East, Central India have seen an increase in violence with a seemingly very strong correlation to the rise in natural resources extraction/production in those places.
Even various towns, which have transformed overnight into big cities have been far from successful in curbing the crime. I can quote the example of Gurgaon, a town next to the capital of India which has transformed into one of the world's fastest growing cities has seen such crimes that moving around the city post sunset became a contentious issue. While things have stabilised now, the sudden transformation was something that neither the existing people nor the immigrants could cope with.
With so many examples in hindsight, I wondered what would be the impact of shale gas on violence and crime in USA. Would all those places which have seen a sudden increase in wealth become crime prone. Looks like it may be the case. Further research may actually prove the correlation between the rate of increase of wealth to crime, subject to various conditions.

Or is it that US may actually not see major crimes because of effective judiciary, which may prevent the stakeholders from going that route. It would be few years before the actual trends come out. 
But, as of now history is seemingly repeating again! I so wish am wrong. It'd also be interesting to see, how things shape up in Colarado as well. More so, since they have legalized marijuana!!

PS .. In one of the dialects in my mother tongue, Dakota stands for "useless" .. I just hope the sudden rise doesn't make Dakota a dakota!!!

Wednesday, April 09, 2014

Mensus!!

The topic continues to intrigue me. Honestly I continue to not understand it at all. As a boy from south India, where any open discussion regarding the biology of a woman is considered taboo, it took me quite a while to realize what exactly is it. Since then, it's been a confused topic for me.

We, do follow this tradition of keeping women separate during the mensus stage. I did ask why, never got a valid explanation. No one at home complained about it. But things aren't as straight forward as they seem. 

It is one of the traditions/rituals unknown, and appear to be un-called for. I am still looking for answers. It is not a philosophical journey. But it is another case where I should fight on behalf of ....!! 

I've started asking questions. It is one of those instances where I think it is wrong, yet I hope it is correct.

Wiki has some answers, read some interesting blogs (Menstruation perspective), but am not entirely convinced either ways. (Or do I not wish to get convinced?)

Many of the conservatives (I've so far acted like one) say, it is women who enforce this act, more than men. But that has been the case with many rituals/traditions in India, which is more to do with subjugation of women and their thoughts.

As my wife is quoting, I need not think about it and remain aloof. But would she appreciate if I do not question this and boast about my opinions. Certainly not. 

The first time, a woman reaching menstruation is celebrated. The girl herself is confused and not sure what happened and why is there a celebration. And the poor boys, are simply having fun that there is a function, and utterly clueless about the reason for the celebration. After that, it is a life long monthly affair (well .. mostly). Many women have horrid experiences during those three days and actually dread it. And hey it is just not the mensus time but even the pre-mensus time (the infamous syndrome). Women get cranky and are directed by only they and god knows what hormones!!

Nonetheless, the whole episode still remains contentious while being discussed. Do women feel comfortable discussing about it? If yes, then what and why, and if not, then why not?

Many may say why make such a big fuss about it. It is just another aspect of being a woman. But, this aspect of women is probably the least discussed and lesser understood by their counterparts.

It remains one of the most unknown aspects for me, and my curiosity will continue to pour into the next edition of this article...