Evonik to Acquire Monarch Catalyst of India

Evonik Industries   to strengthen its global catalysts business, has signed an agreement with Monarch Catalyst Pvt. Ltd., India to acquire 100% of the company’s shares. The transaction is expected to close during the first half year of 2015 subjected to  regulatory approvals.

Evonik with its Business Line Catalysts is a global leader in producing specialty catalysts, custom catalysts and catalysts components for the Life Sciences & Fine Chemicals, Industrial & Petrochemical and Polyolefines market segments. This bolt-on acquisition in India with annual sales in the low double-digit million € range complements Evonik’s leading positions in activated base metal catalysts and precious metal catalysts. Monarch’s global oils & fats hydrogenation catalysts business is a broadening of the Evonik catalysts portfolio. Monarch Catalyst has about 300 employees.

Shift to new base year lifts India GDP growth in FY14 to 6.9%

India  revised its  growth rate to  6.9 %  in 2013-14, almost 50 per cent higher than the 4.7 % estimated earlier.  The growth estimate was revised on account of  a  move  to adopt 2011-12 as the base year for computation of national incomes instead of   earlier base 2004-05.

India  has decided to adopt the international practice of presenting industry-wise estimates as ‘Gross value added at basic prices’ (GVA) instead of  GDP at  factor cost. With this move, ‘GDP at market prices’ will be the basis for ascertaining GDP.

The Centre had set a fiscal deficit target of 4.1 per cent of GDP for 2014-15 and achieving this target will not be much of a challenge now since  the GDP computation concept has been changed and also given that global oil prices have plummeted.

These latest numbers are likely to give more elbow room to the Finance Minister in the upcoming Budget and one can expect  spending to go up without the government dithering from its fiscal target.

Powering the future,- Alternate energy

Once dismissed as kooky ideas spawned by impractical environmentalists, alternative energies are now part of the energy plans and policies of most nations. “Governments all over the world recognise the importance of renewable energy as fossil fuels are finite,” & now aggressively planning investments in renewable energy projects. “Worldwide, the renewable energy industry is growing at 20-30 per cent per annum. Demand exceeds supply in some sectors such as wind energy, and companies are generating returns in excess of their cost of capital.

Fifteen European Union nations, including Spain and Germany, who are world leaders in renewables, have committed to generating 20 per cent of the energy using alternative technologies by 2020. India has also put in place several renewable initiatives and the country is now the world’s fourth-largest generator of wind energy with an installed capacity of 7,093 MW.

Entrepreneurs are venturing into solar power because of the phenomenal growth potential. The United Nations Environment Programme Report (2007) states that renewable energy projects received a record $100 billion (Rs 4,40,000 crore then) in investment in 2006, up from $80 billion (Rs 360,000 crore then) in 2005. Interestingly, venture capitalists are now some of the biggest investors in alternative energy, and their track record of almost single-handedly creating the computer and bio-technology industries is also boosting the industry’s prospects. With glaciers melting, weather patterns changing and the hole in the ozone layer getting larger, western public opinion is increasingly pushing politicians to search for greener energy. In Asian countries such as India and China, there are also more mercantile reasons to follow suit.

India currently produces 130,000 MW of energy a year and this figure will need to double within the next decade. The cost of building the mostly coal-fired plants slated to produce this energy will be a staggering Rs 5,34,000 crore. The environmental and health costs will be even steeper. India is already the world’s fifth-largest polluter, and hospitals across the country are reporting sharp increases in lung and breathing problems, from asthma to cancer. India’s oil bill has also shot up from $7.5 billion (Rs 26,250 crore then) in 1996 to a whopping $50 billion (Rs 2,20,000 crore). By 2010, when Indian consumers are estimated to own 15 million cars, the country’s oil consumption will be twice today’s 2.1 million barrels a day, the US Energy Information Administration says. With global oil production barely 1 million barrels over the global consumption rate of 81 million barrels a day, the surge in demand from India (and China) could eventually lead global demand to outstrip supply, causing fuel prices to shoot up to $100 a barrel. This could cause India’s oil bill to quadruple to $200 billion a year by 2025! More significantly, India will be the only major economy in the world other than Japan importing 90 per cent of its oil needs, a strategic lacuna.

So why hasn’t the alternative energy revolution already happened? Until, recently, the technology just wasn’t there and the cost of producing a MW of wind or solar power was up to five times that of fossil fuels. Now, the costs are evening out, but the challenge for the alternative energy industry is to achieve the scale necessary to become competitive. Standing in the way of this is the powerful oil and gas lobby, which has consistently tried to tie down the alternative energy industry like a bonsai tree. There are only two ways of combating the environmental and human cost of using fossil fuels. “If the government levies an energy tax, like a tax on the pollution caused due to use of conventional energy, it can then try to cover the (environmental and human) cost. This is a rational option but not a social one, as the common man will suffer. The alternative is to provide renewable energy a privileged market: no taxes, zero interest rates, and a new tariff law.”

According to US media reports, the Bush administration, after a series of meetings with a group of energy industry representatives and lobbyists, drew up a controversial National Energy Plan, which doled out $33 billion in public subsidies and tax cuts to the oil, coal, and nuclear power industries. In India, the privatisation of oil exploration has also created a huge anti-alternative energy lobby led by oil companies such as Reliance, Essar Oil and Videocon, in cahoots with auto companies. A sign of their power came when New Delhi recently withdrew a Rs 1 lakh per car subsidy it was about to give the Reva, India’s first electric car.

More importantly, supporters of alternative energy insist that the “full cost” of using fossil fuels is hidden — and could even be higher than the cost of many alternative technologies — because the health, environmental, and defence costs associated with using fossil fuels are not built into their purchase cost. For example, The US-based International Center for Technology Advancement says a gallon of gasoline in the US that costs consumers about $3 (Rs 120) would end up costing the nation about $15 (Rs 600), if the full cost of the medical costs associated with treating people suffering from pollution-related illness, the economic costs of the days lost at work because of people ill with pollution-related problems, the cost of cleaning up the environmental damages caused by fossil fuels and astronomical defence costs associated with oil security were added up.

Given the oil and auto industries have more than a trillion dollars in revenues and have planned investments of nearly $50 billion by 2010, Governments are worry that hurting these industries could dampen growth and damage other industries, such as shipping and ports, steel, petrochemicals, auto ancillaries, and rubber. But supporters of alternative energy, say these losses would be balanced by the totally new industries renewables would create, in the same way that the IT revolution initially cost jobs and killed some industries, such as answering services, but went on to boost global growth.

Significantly, with renewable energy technology maturing and awareness rising, many consumers are sidestepping such policy conundrums and turning into early adopters of these technologies. Still, no alternative energy technology is even close to fulfilling its full promise. More than technological changes, consumers will have to change their attitudes and habits before alternative energy can become what it should — the only energy. Imagine mankind powered by infinite renewable energy. The benefits are driving governments, businesses and individuals all over the world to follow that dream. They know there is no real alternative.

BW

OIL PRICES - How vulnerable is India to high oil prices?

Higher global crude oil prices will adversely impact GDP growth rates, inflation, the fiscal deficit and the current account deficit, but the country's macroeconomic stability is unlikely to be threatened.

Rising oil prices since 1999, initially as a result of OPEC supply-management policies, and later due to geopolitical uncertainties, had driven the international crude oil prices to an unprecedented level. Though oil prices have fallen recently from their peak levels, a sudden spike, which could be caused as much by a disruption in oil supplies as by demand increases, cannot be ruled out. The geopolitical situation in west Asia may well change abruptly. Also, the International Energy Agency in its recent World Energy Outlook (2006) has stated that over 70 per cent of global primary energy demand in the future will come from developing countries, led by China and India. This means prices of oil and gas will have a crucial bearing on the prospects of these economies.

How much of a threat do high oil prices pose to the Indian economy? If we go by the performance over the last few years, then it is quite evident that high oil prices have had very little impact on the growth in the Indian economy. Is this indicative of the Indian economy’s resilience to withstand high oil prices? Perhaps, yes, so far. However, the prospect of the economy withstanding the impact of persistently high oil prices will depend how they behave in the future.

In order to test the vulnerability of the Indian economy to higher oil prices, we carried out a combination of statistical and simulation exercises to look at how different oil price outcomes (average price during the year) will impact the four macroeconomic indicators — growth rate, inflation rate, the fiscal deficit and the current account deficit. Taking a baseline scenario as an average annual price of $64 per barrel, we look at an optimistic scenario with $55 per barrel and pessimistic ones with $80 and $100 per barrel.

The statistical estimate of GDP with respect to the price of oil is a useful summary measure of the sensitivity of the economy to an increase in oil price. The estimates of the relationship between GDP and oil prices, however, depend to a degree on what oil price measure we use. Many studies simply use the international price of oil assuming full pass-through to the domestic economy — a method we know is not really applicable to the Indian economy. Therefore, in the four scenarios presented, we have not taken the international price of oil as such, but the pass-through of international oil prices to the domestic economy, which is reflected in the Wholesale Price Index (WPI) for mineral oil. Based on the mineral oil component of the WPI, we have estimated GDP growth under alternate oil price scenarios.

A hike in oil prices increases the production cost of goods and commodities as well as transportation costs. This increase in input costs is passed on to the consumers, who ultimately end up paying higher prices. In our exercise, we used elasticity measures to quantify the impact of higher oil prices on general WPI, and hence on inflation.

We have also simulated fiscal deficit scenarios using a model that takes into account the international oil prices and their impact on the government’s payment of subsidies, and tax collections through impacted GDP. The gap between international and domestic prices of cooking fuels is increasing due to stagnant domestic cooking fuel prices coupled with higher international oil prices. Therefore, it would adversely impact the government’s overall subsidy bill and hence the fiscal deficit. Beyond this, however, economic activity in general tends to slow down due to higher oil prices, and this will lead to a lower tax collection and hence a higher fiscal deficit. Thus, we see the fiscal deficit of the government impacted via two channels.

For a country like India, which is heavily dependent on imported oil, ceteris paribus, a substantial increase in the international crude oil price will also lead to an increase in the oil-import bill. However, the slowing down of GDP growth due to higher oil prices will have an offsetting impact on non-oil imports. Both these factors will determine the net effect on the current account balance. We have treated oil and non-oil imports separately to find out the impacts of higher international oil prices. For oil imports, an algebraic decomposition of oil import intensity of GDP has been made. Non-oil imports have been linked to the activity in the economy captured through impacted GDP following a change in international oil prices. These specifications allow us to generate potential current account scenarios.

Our analysis of the impact of high oil prices on the Indian economy reveals some interesting results. Under the most likely scenario (average basket price of around $64 per barrel during 2006-2007), our results show that GDP growth would be 8.3 per cent and inflation would be 5.0 per cent. The fiscal deficit as a percentage of GDP would settle at 3.9 per cent and the current account deficit is estimated to be around 1.0 per cent of potential GDP.

At the basket price of $55, the Indian economy is expected to experience GDP growth of 8.7 per cent. Our simulation shows that inflation would be around 4.2 per cent, and the fiscal deficit would become 3.9 per cent of the potential GDP. The current account deficit would come down to 0.2 per cent of India’s potential GDP.

If the price touches $80, GDP growth would drop to 7.8 per cent and the inflation would cross the 6.0 per cent mark. The fiscal deficit as a percentage of potential GDP would become 4.0 per cent. Thus, our analysis indicates that if the Indian basket touches $80/barrel, it is unlikely that the fiscal deficit target for 2006-2007 would be met. The current account deficit would rise to 2.6 per cent of potential GDP.

While $100/barrel now appears increasingly improbable, it does serve as a reasonable limiting case in the simulation exercise. Under this scenario, while the GDP growth would further shrink to 7.1 per cent, inflation would inch up to 7.7 per cent. The fiscal deficit/GDP ratio would further increase to 4.2 per cent due to both a reduction in tax revenues and the government’s additional expenditure to fund increase in subsidies. The current account deficit would bloat to 4.5 per cent of potential GDP. The significant deterioration in the current account deficit, combined with declining capital inflows because of slower growth, might push the economy to the brink of a balance of payments problem. But, as we have said, the probabilities are rather remote and within the bounds of realism, macroeconomic stability does not appear to be threatened by high or rising oil prices.

To sum up, higher global crude oil prices will adversely impact all parameters included in our analysis, but the economy appears remarkably resilient. On average, a $10/barrel price rise reduces GDP growth by around 35 basis points, increases inflation by 75 basis points and fiscal deficit/GDP and current account deficit/GDP ratio by around 7 and 97 basis points, respectively.

BS