Archive for January, 2011

SCENARIOS – Govt’s difficult decision on diesel prices

Monday, January 3rd, 2011 | Finance News

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NEW DELHI (Reuters) – The government has deferred a decision on raising diesel and cooking gas prices to compensate state-owned oil marketing firms for revenue losses on selling these products below market prices.

New Delhi may have got cold feet on the sensitive political decision after a spurt in food inflation. But crude prices touched a 26-month high of almost $92 per barrel last week, raising the possibility of increasing the government's subsidy burden this fiscal year.

In June, the government freed up petrol pricing and raised the prices of other fuels and followed it up with another hike in petrol prices in early December.

Here are the possible scenarios for diesel pricing:

PRICES HELD STEADY

This is the most politically safe step at a time when inflation is high and the government heads for major state elections in Tamil Nadu, Kerala and West Bengal this year.

The government may also opt to do nothing ahead of the February budget parliamentary session, as it fears that increasing prices of petroleum products could open it up to more attacks from a belligerent opposition.

Government allies like the Trinamool Congress, which is a major political force in the election-bound West Bengal, may also oppose a rise in fuel prices.

IMPACT

* India's subsidy burden for the fiscal year ending in March may rise even though Finance Secretary Ashok Chawla said New Delhi would cap subsidies at a third of fuel-sale losses.

For this fiscal year, India has offered a subsidy of $3.79 billion, about 1.5 percent of total expenditure, but over five times the budgeted amount and 15 percent more than a year ago.

Oil Secretary S. Sundareshan has said the finance ministry will bear more than a third of the total revenue losses of state oil marketers.

* The move would not immediately imperil the 2010/11 target of a fiscal deficit of 5.5 percent of gross domestic product, as the government has a large cash balance at the central bank.

* Keeping the current opaque subsidy regime may hurt valuations of explorer ONGC and India's largest retailer IOC, and their share sales could be pushed back to the next fiscal year, which could mean the government misses its state-run firms' stake-sale target of $8.86 billion.

* Share prices in IOC, Hindustan Petroleum, Bharat Petroleum, ONGC and Oil India could suffer as they continue to sell products below market levels.

RAISING PRICES

This is an option that the government may be forced to exercise if crude prices shoot up further or remain at these high levels for some time.

Sundareshan said last month that revenue losses at oil marketers -- Indian Oil Corp, Hindustan Petroleum and Bharat Petroleum -- on fuel sales in the current fiscal year were estimated at 660 billion rupees ($14.6 billion).

He has also said any increase of more than 2 rupees a litre -- about 5 percent -- must be approved by the panel of ministers.

IMPACT

* Any rise in fuel prices would stoke inflation, possibly heading to 8 percent in December from 7.48 percent in November and well above the central bank's target of 5.5 percent by March.

High food inflation of more than 14 percent may lead to headline inflation staying at elevated levels for some time.

* A 5-percent rise in petrol and diesel prices could add about 1 percentage point to inflation, according to finance ministry officials.

* Raising diesel prices would help New Delhi reach its goal of reducing its subsidy expenditure to 1.7 percent of GDP in the current fiscal year from 2.1 percent last year and further to 1.6 percent and 1.4 percent, respectively, in 2011/12 and 2012/13.

* It would put added pressure on the Reserve Bank of India to raise rates at its policy review on Jan. 25.

* An increase in rates would encourage private firms Reliance Industries and Essar Oil to beef up local retail sales from their current negligible market shares.

* Revenue could increase at IOC, HPCL, BPCL and upstream firms ONGC, Oil India and GAIL (India), which now must offer discounts on crude sales and products to marketing firms.

* Share prices of all the oil firms could rise.

(Additional reporting by Rajesh Kumar Singh and Krittivas Mukherjee; editing by Alistair Scrutton and Tony Munroe)

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Apple woes continue as some oversleep in Asia and Europe

Monday, January 3rd, 2011 | Finance News

HONG KONG/HELSINKI (Reuters) – Some iPhone users in Asia and Europe complained of malfunctioning alarms on the first working day of 2011, even after Apple reassured users that its phones' built-in clocks will work from Monday.

Bloggers, Facebook and Twitter users complained they missed flights or were late to arrive at work, as the alarm built into Apple's iPhone failed to go off for a third straight day for some users.

"My iPhone alarm didn't work again," user sueannlove from Singapore tweeted on the social networking site. "Time to dig out (the) old school alarm clock."

Similar messages were sent by iPhone users in Britain, Netherlands and other European countries.

The problem was not limited only to the iPhone, with some owners of other Apple products, such as its iPod music players, also complaining of a similar problem with their alarms.

"Apple certainly needs to fix it as soon as possible, but I doubt this will impact sales or reflect negatively on Apple itself," said Gartner analyst Carolina Milanesi.

Apple was not immediately available for comment in Asia and Europe, but it said on January 2 that it was aware of the problem with non-recurring alarms and that the iPhone's alarm will begin functioning normally again on January 3.

Some users said their alarms worked properly on Jan 3.

"This is not a major issue for Apple, but it is sad that they have the same error on vital dates," said John Strand, founder and chief of Danish telecoms consultancy Strand Consult.

The iPhone alarm system failed to recognize changes in daylight savings time in 2010, causing some users to sleep in an hour longer, according to media reports.

The last time Apple was embroiled in publicity problems was in July last year after the launch of the iPhone 4, when reports about bad reception snowballed and forced the company to call a news conference to address the issue, dubbed "antennagate."

This had no visible impact on Apple's sales as the firm sold more than 14 million iPhones in July-September quarter, more than ever before, and is now the world's second largest smartphone manufacturer behind Nokia.

(Editing by Lincoln Feast and Louise Heavens)

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Small business borrowing jumps again: PayNet

Monday, January 3rd, 2011 | Finance News

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CHICAGO (Reuters) – Borrowing by small U.S. businesses jumped in November to the highest level in more than two years, PayNet Inc reported on Monday, as entrepreneurs invested in their businesses and did a better job of paying existing debts.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to U.S. small businesses, rose 17 percent in November from a year earlier, PayNet said.

It was the fourth straight double-digit jump and the ninth consecutive monthly increase of the gauge, which measures the loans, leases and lines of credit that small businesses originate to finance investment in their operations.

The index, which uses January 2005 as its base, rose to 88.3 in November, its best showing since September 2008 and up from 79.8 in October and 75.3 last year.

"This provides definitive proof that the small business economy is continuing to grow and recover," Bill Phelan, PayNet's president, said in an interview. "Everywhere you look at the index, it's very, very positive."

Separate data released by PayNet on Monday showed that fewer companies are falling behind on existing loan payments, another positive economic sign.

Accounts in moderate delinquency, or those behind by 30 days or more, fell to 2.51 percent of receivables in November from 2.65 percent in October and 4.26 percent last year, PayNet said.

Accounts 90 days or more behind in payment, or in severe delinquency, fell to 0.76 percent in November from 0.78 percent in October and 1.42 percent last year.

Accounts behind 180 days or more, or in default and unlikely to ever get paid, fell to 0.79 percent of total receivables in November, down from 0.81 percent in October and 0.88 percent last year, according to PayNet, which provides risk-management tools to the commercial lending industry.

"Non-current balances continue to decline," Phelan said. "So asset quality for lenders is continuing to improve, too."

Phelan said improvement was likely to increase lender confidence in small businesses in 2011, creating a virtuous cycle that would funnel more money into the critical sector, which accounts for most of the nation's new hiring.

The big question, of course, is whether the increased borrowing presages increased hiring. The December U.S. employment report, which will be released on Friday, will provide at least a preliminary answer.

Economists polled by Reuters are forecasting a gain of 140,000 private sector jobs and a slight decline in the unemployment rate to 9.7 percent.

The Thomson Reuters/PayNet small business lending index is correlated to developments in the overall economy, with changes in the index preceding changes in the overall economy by two to five months.

PayNet collects real-time loan information, such as originations and delinquencies, from more than 200 leading capital equipment lenders.

(Reporting by James B. Kelleher; Editing by Leslie Adler)

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