In the beginning was the Sunderarajan Committee. Then came the R-group. And recently we had the Nirmal Singh Committee. All three committees staffed by eminently qualified personnel, and all of them reaching the same conclusions -- deregulate the oil sector promptly. And yet the petroleum ministry has now developed cold feet in implementing the Nirmal Committee recommendations -- at least so far as the timing of the reforms are concerned. Though the ministry has agreed for a complete phaseout of the administered pricing mechanism (APM) by the year 2001-02, it has shied away from a firm commitment to a year-wise phased duty reduction, as recommended by the committee. This is a strange stance, as it will penalise the consumers by keeping duty rates high.

High import duties on crude oil will keep the prices of downstream products also high. Downstream industries such as petrochemicals and chemicals will be affected as their raw material will be more expensive, thus making them uncompetitive. Foreign investment in downstream industries will be affected, since imports will be more attractive.

Nor does the government have cause to cavil about lower revenue collection. According to the Nirmal Committee, the phased reduction of duties would maintain government revenue not only above current mobilisation but also at 1.5 per cent of GDP, a fairly high figure by international standards. The duty rationalisation, together with dismantling of APM, was expected to significantly enhance the revenues from disinvestment in national oil companies as well.

One reason for not phasing out the duties could be to ensure that there is an adequate surplus in the oil pool to repay the oil bonds issued by the government recently. Higher import duties add to the oil pool, from where the payment for the oil bonds has to be made. No wonder the government seems to be in no hurry to dismantle the APM, while higher customs duties also help. And so far as the entire deregulation process is concerned, it may be recalled that it took just 11 months for the Philippines to deregulate the sector.

Asian Hotels

The dual problems of being a single property hotel and falling occupancy levels have caught up with Asian Hotels (AHL). For the half year-ended September 1997, income from operations have dropped 10.17 per cent to Rs 68.70 crore. However, with AHL shifting over to a dollar denominated tariff system, the company's revenues have been insulated to large extent from the recent bout of rupee depreciation -- a fact reflected in the forex earnings of Rs 57.37 crore now accounting for almost 84 per cent of the company's revenues (74 per cent last year).

Despite a management contract with Hyatt International Asia-Pacific which gives AHL access to Hyatt's global reservation system, the company has not escaped the disturbing trend of lower business and tourist arrivals in India. AHL also follows the policy of an annual hike in tariffs every year in October which has not helped increase the ARRs. Together with the fact that AHL was unable to control costs, this has squeezed operating profit margins which dipped from 51.94 per cent to 49.14 per cent.

Interest costs continue to remain marginal at Rs 0.03 crore, thanks to AHL's zero-debt status. Buoyant "other income" at Rs.6.73 crore and a modest rise in depreciation have cushioned pre-tax profits. A lower effective tax rate has resulted in a relatively small 5.9 per cent drop in the net profits which were at Rs 33.22 crore.

AHL has drawn up impressive expansion plans which include new properties at Mumbai, Calcutta and Bangalore. However, since these projects are in a stage of infancy, revenue accruals are still quite a few years away. With the current sluggish trend set to continue, funding requirements for the new projects could put further pressure on cash flow at AHL. But then, the risk of being a single location property would decline.

Finolex Industries

Finolex Industries Limited ( FIL) has posted depressing results for the first half of 1997-98. Though net sales have increased by 23.66 per cent to Rs 329.07 crore, operating margins are down to 13 per cent from 21 per cent. PVC prices have been declining consistently over the last six months. This has decreased realisations from its suspension grade S-PVC and emulsion grade E-PVC production divisions. Commensurately net profits have also come down a steep 77 per cent to Rs 2.26 crore. Lower accruals from investments have significantly eroded "other income" by 50 per cent. But interest costs have come down by 14.5 per cent as FIL has already availed itself of a foreign currency ECB loan of $9.6 million.

FIL might further get hit in the second half as PVC prices are expected to come down by 10 to 15 per cent. However, other income would spurt significantly as FIL has leased its private jetty at Ratnagiri to Bharat Shell Ltd for importing LPG. The company is also exploring the prospect of entering into similar lease arrangements for other petroleum products. FIL has also been recently granted permission to export PVC from its jetty but these benefits would be reflected fully in the financial year 1998-99.

FIL, at present, has been saddled with high power costs. At present it is negotiating a 10-year foreign currency loan to fund its Rs 100-crore captive co-generation plant (25 MW) at Ratnagiri. Reduced interest and power costs hold the key to FIL's profitability in the future.