Saturday, July 28, 2012

Policy-TEH NEW MINING BILL: IMPACT

After Nearly two years of Discussions and Delays, The revised MMDR Bill is likely to be placed in The Parliament. Will the protesting locals and industry elements finally find peace? Doubts remain. 

However, if industry analysts are to be believed, the implementation of the proposals of the MMDR Bill could erode profits of metal companies by 4-10% and the impact would be more on companies with more captive coal content. “The MMDR Bill is unfavourable to the metals and mining sector as miners will have to share 26% of their profits. If this happens, miners will lose around Rs.80 billion annually. In the short-to-medium term, the sector’s performance will become bleak due to the monsoons,” says SMC analyst Saurabh Jain. One more factor troubling the sector is the fear of an impending fall in Chinese zinc prices. “It is said that between June and August, smelters will sell stocks and cut output due to a lukewarm demand, which will reduce imports of concentrates,” adds Jain.

While most of the analysts contacted by B&E agreed on this, some also believed that it was too premature to forecast the exact impact on the companies. This line of thought is backed by the fact that there are many changes that are likely to happen after the draft Bill is presented before the Cabinet and Parliament. Also, given the discussions that are likely to be taken up while legislating this Bill, further delay cannot be ruled out.

However, there is a sentiment that in whatever form the Bill eventually becomes a law, the broad impact would eventually be negative for the companies. The passage of the new Bill has been delayed by close to two years now for want of consensus.

Miners, who are still unsure about the quantum of impact the new regulations would have, are scared, as their discussions suggest. They contest that the Indian mining industry is the most heavily taxed industry in the world consisting of various charges/levies under the old MMDR Act, Forest (Conservation) Act 1980, Environment (Protection) Act 1986, Labour Welfare Fund Act / Labour Welfare Cess, Income Tax Act 1961 (direct and indirect taxes) and other local tax as applicable. The present scenario suggests that there is an attempt in the draft MMDR Act, 2010, to make the levies heavier and make the sector appear unattractive to private investors, domestic or foreign. Agrees R.K.Sharma, Secretary General of the Federation of Indian Mineral Industries. “The proposals in the draft Bill will prevent much needed investments from flowing into the mining sector. Overseas companies will not be interested to invest in a highly-regulated and a highly-taxed sector,” he says. Also, the current government regulations permit 100% foreign direct investment (FDI) in most mining activities under the automatic route. However, the actual FDI flows (as per industry reports) have been a meagre $150-200 million. But this has not deterred the government from setting the ambitious target of increasing FDI in the sector to over $20 billion over the next few years. India has 85 billion tonne of mineral reserves, which are yet to be exploited. Encouraging FDI, many feel, can be important for the development of the Indian mining and minerals industry.
         
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Friday, July 27, 2012

Stratagem-INTERNATIONAL : EXECUTIVE COMPENSATION: ONE DOLLAR CEOS

What is it About a One Dollar an Year Compensation that Attracts some of The Most Powerful CEOs in Corporate America? Unfortunately, The Answer isn’t what it is Perceived to be. 

In 1978, Lee Iacocca (yes, the Iacocca who was kicked out by Henry Ford) was appointed as the CEO of Chrysler at a base salary of $360,000 per annum. In September 1979, the board decided to reduce salaries of bonus eligible executives by 10% for the next two years. The deducted amount would be converted into free shares of restricted stock and delivered two years later. However, citing concerns over the company’s financial health, Iacocca proposed that his salary be reduced to $1. He became a symbol of modern capitalism overnight but what went unnoticed was the fact that $359,999 (the salary cut) was converted into free shares. By the end of 1987, Iacocca had exercised stock options worth $43 million and was unwilling to part with the system irrespective of the company’s strong financial position.

On the face of it, the one dollar salary seems to be an act of unmitigated self promotion. But dig a little deeper and you’ll realise that there’s more to this than meets the eye. Take Apple’s Steve Jobs for instance. He rejoined the company in 1997 at a salary of $1. In January 2000, he was awarded the largest stock grant ever in business history (40 million split adjusted shares). But the dotcom bust made the options almost irrelevant. In 2001, the board issued an additional 15 million shares, but the shares further slid. In 2003, Jobs voluntarily surrendered all 55 million shares. The company disclosed in its proxy statement later that year that surrendered shares were compensated in the form of 10 million split adjusted shares. A derivative of the Black Scholes model was used in valuations, which made the shares worth $75 million. When the sale restriction lapsed in 2006, they were worth $640 million!

In 2009, Corporate Library (a US based research firm) came out with a report titled 2009 Proxy Seasons Foresights #7: The one dollar base salary which examined 18 CEOs who had served without salary in 2008. According to the Greg Ruel, Research Associate, Corporate Library “these CEOs had a combined total of almost $6 billion in stock of the companies at which they are employed, which leads us to conclude that voluntary forfeiture of salary and cash bonus is largely symbolic”. Confirming this doctrine is a research paper by Professors G. Loureiro, A. Makhija and D. Zhang christened Why do some CEOs work for one dollar salary? The authors studied 50 CEOs with $1 salary between 1992 and 2005, and found that “Shareholders of firms with $1 salary CEO salaries do not fare well in the aftermath of these adoptions. $1 salaries are a ruse hiding the rent seeking pursuits of CEOs who adopt these pay schemes.”

So what does this all prove? To begin with, it’s an indication that US regulatory bodies have an extremely weak stance on executive compensation. The recently introduced Dodd Frank Act does lay down provisions to introduce advisory “say on pay” voting by shareholders. But as the case with Steve Jobs demonstrates, that won’t really help. Shareholders must actively lobby for a system that scraps stock based compensation and links CEO performance and compensation to variables under his control which influence stock prices; so that the next time when a Larry Ellison proposes a reduction in salary to one dollar, we know that it’s a genuine step in the direction of shareholder wealth maximisation, and not a fulfilment of narrow personal goals to gain more shareholding within the company.



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Thursday, July 26, 2012

“Solar power has the best ROI”

George Khoury from Princeton Believes that Although Solar Energy is Expensive, it can Provide The Best Return on Investment

B&E: What initiatives from the businesses and policy makers do you think are necessary to encourage solar power generation?
GK: I believe that business and policy makers must present to the public three important facets to encourage solar power generation. First is energy efficiency – they must present quantitatively the efficiency of solar power. The second is safety. Thirdly, they must present how much cheaper and cleaner this energy source is in comparison to the alternatives. Not only must they present these, but they must demonstrate them consistently. Only then will the public embrace the use of solar Beyond this, effective advertising campaigns to promote the use of solar energy would be important as well.

B&E: Please elaborate on the challenges that both these technologies face towards becoming major sources of energy generators in the near future?
GK: Nuclear energy generation is always challenged with the problem of safety, especially in the light of those recent unfortunate events in Japan. If nuclear energy companies could demonstrate ample safety controls (much beyond their current levels) to ensure the safety of the public and biota in the surrounding regions in the event of a disaster, only then do I believe that the public can embrace its use with ease.

Comparatively, solar energy is much too expensive at the moment. Although considered an investment that will pay itself off in several years of use, the funds needed to purchase solar energy systems are still too expensive. I believe this that with time, the costs will decrease (similar to how the cost of sequencing a human genome has starkly been lowered over time as technology & innovation persisted & improved).





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Wednesday, July 25, 2012

Pakistan: The Real Rogue State And why India should not Trust America at all

In case we forgot, not very long back, Pervez Musharraf, the former President of Pakistan had told in an interview to CNN, “I think now, frankly, he [Osama bin Laden] is dead for the reason he is a kidney patient. I don’t know if he has been getting all that treatment in Afghanistan now. And the photographs that have been shown of him on television show him extremely weak. I would give the first priority that he is dead and the second priority that he is alive somewhere in Afghanistan.”

Cut to 2011, Osama bin Laden was hunted, and killed, not in any remote hideout in any tribal area of Pakistan, but in Abbottabad, which is just a few kilometres away from the Pakistan Military Academy and merely 60 miles from Islamabad. So much so, the entire region is known to be a hotspot and a boiling epicentre of terrorists, particularly al-Qaeda. This March, an Indonesian terrorist, Umar Patek, having links with al-Qaeda, was captured from this region. He was the one behind the Bali bombings and was an important agent of Jemaah Islamiya Tahir Shehzad (an al-Qaeda facilitator) who was also spotted in the same region.

The series of incidences and the proximity to Islamabad and the Pakistan Military Academy, suggest nothing else but how the Pakistan government always knew about the whereabouts of Osama and also provided him a safe haven. Otherwise, how else could have Osama stayed safely right under their nose? In spite of his members being found and killed, he never got spotted. It is normal military and anti-terror routine to sanitise the vicinity of such strategically sensitive locations and check for other such terror elements, even after a single capture. Moreover, the military academy near Osama’s hideout was visited just a month back by the Pakistani military chief General Asfaq Parvez Kayani. All these clearly indicate that the Pakistani government always knew about Osama; and similarly, they know of all such other such extremist leaders and groups, about whom they habitually and perpetually feign ignorance.

And it is not just about al-Qaeda or Osama, but even masterminds like Abu Zubaydah (found in a safe house in Faisalabad), Ramzi bin Al Shibh (the key facilitator of 9/11, caught in Karachi) and Khalid Shaikh Mohammad (cornered in Rawalpindi) were all hunted down in Pakistan. Call it coincidence, but all these terrorists were found not in any remote locations of the Afghanistan-Pakistan border, but in urban cities of Pakistan. Mullah Abdul Ghani Baradar was captured on February 8, 2010, from Karachi while so many more were captured in Quetta, a prominent city in Pakistan. Not just this, WikiLeaks has time and again provided information about how Pakistan has gone about harbouring terrorists! It has pointed out that a Pakistani general Hamid Gul was linked with al-Qaeda operatives. And to hit the final nail on the coffin, on May 4, 2011, WikiLeaks revealed how Pakistan’s security services tipped Osama whenever US troops approached and “smuggled al-Qaeda terrorists through airport security” to ensure that they escaped capture.

When it comes to India, even the Lashkar-e-Taiba (LeT), known for their terrorist attacks on Mumbai in 2008, are still active in Pakistan. Almost a decade back, the TIME magazine had reported that the Pakistan Army, through its 12th Infantry Division, aids and funds members of LeT and also provides fire cover during infiltration. In December 2001, the Indian Parliament was attacked by a well-trained set of terrorists, funded by agencies within Pakistan. Later, it was confirmed that the Inter Services Intelligence agency (ISI) was the one funding the attack. The July 2006 terror strikes in Mumbai local trains were executed by SIMI, Lashkar-e-Taiba and ISI. Even the July 2008 attack on the Indian embassy in Kabul, which killed 58, had ISI involvement as per a New York Times report and WikiLeaks. The terror group SIMI, also called the Indian Mujahideen, which was banned in 2001, has been active with the support from al-Qaeda and other extremist outfits based out of Pakistan. The icing was when Ajmal Kasab was captured alive in the November 2008 attack (which killed 130 people), that confirmed Pakistan’s complete involvement. Even after all this, Pakistan has maintained its hypocritical lip-service towards handing over Dawood Ibrahim and terrorist leader Masood Azhar to India.

All of this clearly indicates that Pakistan has outgrown into a real rogue State and is increasingly becoming a threat to global security, and India in particular. And this is exactly where we need to realise that the enemy is not just Pakistan, but America as well. They have killed Osama because Osama dared to attack them only. Otherwise, one must never forget that Osama was created by the Americans to destroy the former USSR. It is common American practice to use such elements to destabilise countries. From using Osama against USSR, to killing Presidents of neighbouring countries, to putting ruthless dictators in countries of strategic importance for their own gains, to bombing countries shamelessly for oil, the American establishment has done it all. What they are doing right now in Libya is the worst possible act. They are taking revenge on a 40-year-old issue and settling scores with Gaddafi for having united the OPEC nations then and for having raised the oil price – something which resulted in the massive transfer of wealth from the Western nations to the Middle East. Today, in a totally undemocratic manner, America is bombing that nation and killing people for no reason but oil. The heights of it is that all this while, they knew Pakistan is the nation which is hiding Osama and supporting his terror activities; yet, since they need to use Pakistan against India, they have not been acting against the nation. They have just been cleansing it of those terrorist elements who are potentially dangerous to US – but still not declaring it a terrorist nation, at a point when the reality is very clear now. Pakistan is the terrorist nation #1 in the world today. Such is the sham that even during the presidential address, Obama maintained that Pakistan was cooperative – while the truth is that the US didn’t even inform Pakistan of the operations, knowing fully well that they would then shift Osama away.


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