Showing posts from December, 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 t…

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: Source: World Bank, Oil Rents (% of GDP)

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, su…