Sunday, December 2, 2001, Chandigarh, India






National Capital Region--Delhi

THE TRIBUNE SPECIALS
50 YEARS OF INDEPENDENCE

TERCENTENARY CELEBRATIONS
B U S I N E S S

Enron struggles to survive
New York, December 1
Beleaguered energy giant Enron struggled to survive as former suitor Dynegy Inc warned bankruptcy court will not protect Enron’s lucrative assets from being acquired.

Mahindra & Mahindra eyes European market
Chandigarh, December 1
After carving a niche for itself in the tractor industry in the US, Mahindra and Mahindra is now eyeing the European markets. The company is likely to get technological back up from some Korean company, though the complete production unit might not be started there, said Mr K.J. Davasia, Executive Director, Farm Equipment Sector , while talking to The Tribune.

Octroi: how to raise funds for civic bodies
A
t last the octroi in Punjab stands abolished from December 1. The state government collects octroi on liquor which has to go to the civic bodies. Unfortunately, this money was got by the civic bodies on the orders of the court despite the political alignment at the state and civic body levels.

SIAM demands auto policy
New Delhi, December 1
Society of Indian Automobile Manufacturers(SIAM), the apex body of manufacturers of vehicles and vehicular engines, has urged the Government to come out with an auto policy and tune the proposals for the Union Budget 2002-03 according to the policy.



EARLIER STORIES
 

IN THE WONDERLAND OF INVESTMENT

  • Car loan
  • Housing loan
  • Keyman insurance

Land appurtenant
Q: Can the platform and hempen be excluded from plinth area for the purposes of assessment of fair rent?

  • Adman’s laugh
  • Just Desserts
  • Sensex 4000

Aviation security steps mooted
A
fter September 11 terrorist attacks in the USA, the confidence of people, particularly of air travellers, has been badly shaken. They have been apprehensive of travelling by air on any sector — be it national or international. The aviation/tourism industries have been hit hard. The experts, who compile data and statistics, say that twin industries have never faced such dismal situation as has been the case after September 11.
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Enron struggles to survive

New York, December 1
Beleaguered energy giant Enron struggled to survive as former suitor Dynegy Inc warned bankruptcy court will not protect Enron’s lucrative assets from being acquired.

Dynegy, which on Wednesday pulled out of its planned bailout, warned that a bankruptcy case likely to be filed by Enron would not stop it from taking the Northern National Gas pipeline.

Dynegy said any such action undertaken by the separate pipeline entity would have to be approved by it.

The strongly-worded statement by Dynegy, which owns $ 1.5 billion preferred stock in Northern Natural Gas acquired as collateral for its emergency cash infusion in Enron, is seen by most as a sign of the protracted legal proceedings ahead, Wall Street Journal reported today.

Meanwhile, Enron axed workers at its European unit on Friday. Out of the 5,000 people employed in Europe, Enron Europe retained about 250 staff members to help wind down the business, London-based Financial Times said.

Another report said the company had closed its positions on all mainland European power grids and stopped delivering electricity on Friday.

Enron shares, the most visible sign of the company’s spectacular collapse, took another tumble, falling 10 cents, or almost 28 per cent, to 26 cents on Friday.

Enron’s fall left its trading base bare. The company said there was no metals products listed on EnronOnline, the Internet-based trading system that recently provided about 90 per cent of the company’s earnings.

Financial Times said the Australian Securities and Investments Commission had banned Enron’s Australian subsidiary from trading new wholesale electricity derivative products because it was “not satisfied that the company had adequate financial resources to continue to trade.”

Companies approved to trade power in Australia must have a minimum of A$10 million ($ 5.2 million) in financial support behind them and Enron Australia’s last financial report showed it depended on the credit facilities provided or guaranteed by its US parent, the paper said.

In Scandinavia, the Nord Pool power bourse said it had closed all of Enron’s financial market contract positions cleared by Nord Pool.

Analysts fear that many power companies will not be so lucky and will be left exposed to millions of dollars of losses.

Financial Times quoted European groups as saying that their exposure was limited and that they should be able to make up the liquidity.

But US groups Reliant Resources, Dynegy, Mirant and American Electric Power said on Thursday their combined exposure was $ 265 million.

Leading lending banks, including JP Morgan Chase, Citigroup, Barclays and Deutsche Bank, are expected to be worse off, with exposure expected to run into billions of dollars, the paper added.

According to the Wall Street Journal the financial collapse of Enron could cost insurance industry $ 2 billion, causing the companies to take additional reserves as they report fourth-quarter earnings.

Dabhol sale

If Enron files for protection under Chapter 11 of the US Federal Bankruptcy Code, it may send sale of Dabhol power plant into a new holding pattern.

As creditors lined up in bankruptcy court, the Indian project would be “just another thing in that mess,” media report said quoting Abhay Mehta, author of a book on the power project.

It could take a minimum of six months to a year for a sale to proceed, he said, adding in the meantime interest payments may stop and banks that would need to start listing Dabhol debt as “non-performing” be hit hard. PTI
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Mahindra & Mahindra eyes European market
Tribune News Service

Chandigarh, December 1
After carving a niche for itself in the tractor industry in the US, Mahindra and Mahindra is now eyeing the European markets. The company is likely to get technological back up from some Korean company, though the complete production unit might not be started there, said Mr K.J. Davasia, Executive Director, Farm Equipment Sector , while talking to The Tribune. He was here on a two-day official visit to inaugurate Mahindra Tractor World showrooms at Sunam and Rampura Phul each.

He said the company which did not export very large number of tractors aims to sell atleast 10,000 tractors in the foreign market by 2006. This would include 10,000 for America. Other countries to which the company is exporting are South Africa, Egypt, Nepal and Sri Lanka.

Mahindra and Mahindra restructured its strategy last year and is now largely focussing on product development and marketing on which it is spending almost 70 per cent of its budget annually, said he.

Endeavouring to develop a uniform brand presence and world class marketing the company is now focussing its attention on its new generation showrooms ‘Mahindra Tractor World’. These showrooms will provide all the facilities, right from buying, spare parts to after sale services at par with the international standards, he said.

Recession has had its impact on the tractor industry as well, but that has only forced companies to come up with latest technology, innovative products. Last year of the total 79,000 tractors it sold in the country, 6,000 were sold in Punjab only. “The farmer in this state is very progressive as we see even wider market in future in Punjab”, said Mr Davasia.

The other major tractor markets in the country are Haryana, Uttar Pradesh, Madhya Pradesh, Gujarat, Maharashtra and Andhra Pradesh. He said today the company is giving the same quality product to the farmer here as it is giving to the users in the US. “The idea is to ensure a uniform brand presence everywhere”, he said.

While Arjun 605 D 1 45 HP and 60 HP have already been launched, the 50 HP model will be launched within three months, Mr Davasia said.
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Octroi: how to raise funds for civic bodies
P.D. Sharma

At last the octroi in Punjab stands abolished from December 1. The state government collects octroi on liquor which has to go to the civic bodies. Unfortunately, this money was got by the civic bodies on the orders of the court despite the political alignment at the state and civic body levels.

The first shot of octroi abolition is the complete stoppage of developmental works. In Ludhiana alone Municipal Corporation has works worth over Rs 150 crores in hand. Most of them may suffer.

Industry is scared about the alternative source of revenue. Any addition burden on sales tax shall be resented due to obvious reasons. Industry is already paying very high rate of house tax and there is absolutely no scope for increase. Burden of octroi on electric consumption is already very heavy and so no increase is possible.

It is likely that the state government in a huff may increase the rate of octroi on power. Octroi on power consumption by industry is basically discriminatory in nature. This levy was started with 2 paise a unit in 1994 and gradually increased to 7 paise a unit. There are industrial units like power intensive ones which consume much power but return on turnover is very meagre and many a times it is negative. For instance steel furnaces which are running in loss are paying octroi on power to increase their losses. Is it fair? On the other hand there may be industries which generate relatively much higher profit with very low power consumption. Is it not discrimination and unfair? Logically this levy on industry either should go or continued with some rationale by putting ceiling on the gross amount.

For the development of cities and towns every citizen must contribute. The state government abolished house tax. This was grossly a wrong decision taken for political reasons. Now with the abolition of octroi, introduction of house tax is the only viable source of revenue. Rules and procedures for house tax collection have to be drastically simple. Tax may be collected per metre of the housing plot irrespective of construction made on it. There is a thinking in official circles that house tax may be levied according to the value of the house. This is not fair as many house owners may not have running incomes to pay such high taxes. Tax rate should be moderate and it should be according to the size of the plot.

In Ludhiana and other major industrial cities even a owner of small plot can not be taken as poor. With no exemptions house tax can generate revenue matching with octroi collection. In Ludhiana in particular the number of vehicles is growing at an alarming pace. Substantial revenue is possible by taxing personal vehicles.

There is lot of scope for service tax on some services. Entertainment industry is booming. It can be taxed comfortably.

Spending side also needs rationalisation. Big projects like fly overs should be financed by ad hoc cesses to be paid by every citizen. Comfortable revenue position tempted corporations to undertake projects which could be avoided due to their low priority in terms of benefit to the public at large.

In nutshell the loss of revenue through the abolition of octroi can be made up very easily provided rational decisions are taken. Going by the thinking in official circles, much of the burden will be put on industry. In the ongoing recessionary environment industry cannot take any additional burden howsoever small it may be.
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SIAM demands auto policy
Tribune News Service

New Delhi, December 1
Society of Indian Automobile Manufacturers(SIAM), the apex body of manufacturers of vehicles and vehicular engines, has urged the Government to come out with an auto policy and tune the proposals for the Union Budget 2002-03 according to the policy.

SIAM President R.Seshasayee said in a statement here that there should be a uniform excise duty on automobile chassis activity changing the present system of imposing excise, 16 per cent, on the organised sector alone.

Alternatively, Mr Seshasayee suggested that a specific duty of Rs 4200-Rs 8400 may be collected at the point of the chassis and exempt body building activity completely. This would ensure fair play for the organised sector, he said.
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IN THE WONDERLAND OF INVESTMENT

by A. N. Shanbhag

Car loan

Q: I am a salaried employee and have taken personal car loan for my car (Personal use only) of Rs 2,38,000 and I am paying EMI of Rs 6000 pm on that. Till date, there was no Income tax exemption on such interest payments, but I am told that some benefit is being passed to borrower. Can you please tell me what exactly is the rebate.

— Divya Nath

A: Your query is not clear. Have you taken a loan from your employer? If so, what is the rate of interest? If the rate is less than 10 per cent, perk value of loan made available to the employee by the employer, or any person on his behalf shall be the interest amount computed @ 10 per cent p.a., less the actual interest paid by you, if any. Are you using the car for commuting between office and work place? In that case, you are using the car partly for official and partly for personal use.

Are you getting any fixed allowance for such commutation? In that case, Circular No. 586 dated 13.5.98 has clarified that an allowance of an employee for commuting between the place of residence and place of duty is exempt upto Rs 800 per month.

Housing loan

Q: I am going for a housing loan in SBI. I have been asked to choose between floating and fixed interest rate. My repayment is for a period of 10 years. Which is the best option as of now.

— Ravi

A: To begin with the floating rate is higher than the fixed one. The difference between the two can be perceived as an insurance premium charged as a protection against falling interest rate in future within the period of the term of 10 years. In the opinion of SBI, the two rates are equivalent. As far as you are concerned, if you feel that the rate will fall more steeply in future, go for fixed rate. Opt for floating rate if you feel that the rate may not fall as steeply or in fact may rise. If I were you, I will rely on SBI’s perception rather than mine.

Keyman insurance

Q: I am an insurance agent. Your article on keyman insurance has helped me lot to explain the policy to my prospective clients. I am stuck at one specific query of my client who has raised doubts that whether a partnership firm can take keyman policy on the lives of its key partners?

Explanation of Sec. 10 (10D) of ITA states, “For the purpose of this clause ‘Keyman insurance policy’ means a life insurance policy taken by a person on the life of another person who is or was the employee of the first mentioned person or is or was connected in any manner whatsoever with the business of the first mentioned person.

This definition is very confusing because in first part it refers to employee and then to any person. Kindly send your comments and solution to my client’s query.

— Dilip Kokane, 177, Main road, Ahmednagar

A: I agree with you. The language of our legislation lacks clarity. A ‘person’ includes partnership firms as well as an individual. Now, I will replace the word ‘person’ with appropriate words in your context.

‘Keyman insurance policy’ means a life insurance policy taken by a firm on the life of an individual who i) is the employee of the firm or ii) is connected in any manner whatsoever with the business of the firm.

LIC has designed ‘Keyman Insurance’ to enable companies and partnership firms to indemnify themselves against the loss or reduction of future earnings that may result from death or registration of the keyman.

The Keyman cannot be given if i) he has a share, equal to or more than 51% in the firm ii) his family (spouse and minor children) has a share of equal to or more than 70% of the capital in the firm iii) the company is incurring losses consistently and iv) the keyman is illiterate. From July 2000, it is extended to partners of a firm or a shareholder of private limited companies or closely held public limited companies under some prescribed conditions.

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RENT CASES

by Praful R. Desai

Land appurtenant

Q: Can the platform and hempen be excluded from plinth area for the purposes of assessment of fair rent?

A: S.C. was deciding this point in M/s Shaw Wallace & Co. Ltd. v Govindas Purshotamdas (2001 (2) R.C.J. 90) as under:

From a plain reading of S. 2 (2) and S. 4, it is clear that the expression ‘building’ includes any building with the garden grounds and out-houses appurtenant to such building or part of such building let or to be let along with such building.

In view of the expansive definition of the term, any structure which is part of the premises let out or to be let out comes within the purview of ‘building’. This position becomes further clear on reading S.4 (4) wherein, it is provided that the total cost referred to in sub-section (2) and sub-section (3) shall consist of the market value of the site in which the building is constructed, the cost of construction of the building and the cost of provision of anyone or more of the amenities specified in Sch.1, as on the date of application for fixation of fair rent.

Therefore, held the S.C. that the contention that the ‘platform and the hempen’ are not to be included in calculating the area for the purpose of assessment of fair rent, since it cannot be used as a building, cannot be accepted having regard to the facts found in this case. The H.C. in the view of the S.C. did not commit any illegality in including the said structures within the plinth area for the purpose of fixation of fair rent.

In that way, the S.C. dismissed the appeal.

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GRAPEVINE

Adman’s laugh

Given that both, Outlook and The Week are not really setting the city afire with the editions, their comical circulation potshots at each other had the city in splits. But guess who laughed the loudest? Not the public, not even the India Today team, but the advertising agencies of those two publications.

Just Desserts

It seems that the cost cutting fever has afflicted IDBI too, albeit rather belatedly. Amongst other measures, it seems, desserts are now out of bounds for its staff. If all this were not so comi-tragic, one might have suggested that a hefty pay package slash too is in order given the state of its affairs.

Sensex 4000

The dramatic turnaround in market sentiment is so strong at the moment that several leading brokers whisper that the BSE Sensex will breach the 4000 points level before the calender year is out. Any takers?

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AVIATION NOTES

by K. R. Wadhwaney

Aviation security steps mooted

After September 11 terrorist attacks in the USA, the confidence of people, particularly of air travellers, has been badly shaken. They have been apprehensive of travelling by air on any sector — be it national or international. The aviation/tourism industries have been hit hard. The experts, who compile data and statistics, say that twin industries have never faced such dismal situation as has been the case after September 11.

Disturbed at the trends emerging after these attacks and the subsequent crash, the Foundation for Aviation and Sustainable Tourism (FAST), under the guidance of its president and former secretary of the International Civil Aviation Organisation (ICAO), Dr S.S. Sidhu, organised a round-table discussion on the subject of challenges to the security of civil aviation.

Eminent security and aviation personalities, like Mr M.L. Bhanot, a former head of aviation security (ICAO-Montreal), Mr Sunil Arora, CMD (Indian Airlines), and Mr Arun Anand (AAI) made their presentation and appraisal. Mr Bhanot presented a detailed and in-depth study of incidences of hijacking. The DGCA, Mr H.S. Khola, talked about security problems that have been plaguing the aviation sector. The ticklish issue of security personnel being guilty of breach in security was also highlighted. Dr Sidhu’s twin themes were: how to spread awareness and successfully combat such volatile attacks and hijackings.

Some of the suggestions were that cockpit door should be rock-like and there should be air marshalls to safeguard passengers on board and the aircraft.

Reinstatement

As a result of the clean chit by the CBI, the Managing Director of Air India, Mr Michael Mascranehas, has been reinstated by the Civil Aviation Ministry. Mr Mascranehas held the office for only two days but he walked out of the Nariman Point office with his head high.

Charged with showing undue favours to the London GSA (General Sales Agent), Mr Mascranehas was suspended. The orders revoking his suspension have since been signed by the Minister for Civil Aviation, MR Shahnawaz Hussain.

Mr Mascranehas, who reportedly wore a relaxed look after months’ of anxiety, is expected to withdraw civil cases that are pending in the Bombay High Court.

The CBI has, however, held three other officials ‘guilty’. The ministry has sent the report to the Central Vigilance Commission for its views before taking action against the officials.

Most of Air India’s woes, particularly of finances, will get sorted out if greater prudence is shown in appointing GSAs abroad. Financial figures of the airline for the past three decades show that the airline has suffered while GSAs have prospered.
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BIZ BRIEFS

S.J. Raina
New Delhi, December 1
Mr S.J. Raina has been appointed Director General of the Council for Cement and Building Materials. He replaces Mr D.B.N. Rao, who has retired. TNS

SBP focus
Patiala, December 1
The State Bank of Patiala will now concentrate its focus on retail and personal banking. This was disclosed by General Manager (Operations), Mr J.R. Devgan at a seminar organised by the bank here today. OC

HDFC Bank
Patiala, December 1
The HDFC Bank, Patiala plans to open an Offsite ATM at Punjab State Electricity Board Headoffice here shortly following which account holders from PSEB will be provided certain benefits besides facility of Zero balance saving account. OC
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