BP agrees to record criminal penalties for US oil spill

BP Plc will pay USD 4.5 billion in penalties and plead guilty to felony misconduct in the Deepwater Horizon disaster, which caused the worst US offshore oil-spill ever.

The settlement includes a USD 1.256-billion criminal fine, the largest such levy in US history, the oil company said on Thursday. US Attorney General Eric Holder called the deal a “critical step forward” but was adamant that it did not end the government’s criminal investigation of the spill.

The government also indicted the two highest-ranking BP supervisors aboard the Deepwater Horizon during the disaster, charging them with 23 criminal counts including manslaughter.

The April 2010 explosion on the rig in the Gulf of Mexico killed 11 workers. The mile-deep (1.6 km) Macondo oil well then spewed 4.9 million barrels of oil into the Gulf over 87 days, fouling shorelines from Texas to Florida and eclipsing in severity the 1989 Exxon-Valdez spill in Alaska.

The company said it would plead guilty to 11 felony counts related to the workers’ deaths, a felony related to obstruction of Congress and two misdemeanors. It also faces five years’ probation and the imposition of two monitors who will oversee its process safety and ethics for the next four years.

Wall Street analysts said the deal will allow BP to focus again on oil production, while one US Senator from Louisiana said he hoped the settlement would not prevent his state and others from collecting civil penalties.

US-listed BP shares gained about 0.3 percent on Thursday while its London-traded shares were flat.

BP, which replaced its chief executive after the spill as its market value plummeted, still faces economic and environmental damage claims sought by four Gulf Coast states and other private plaintiffs.

“It certainly is an encouraging step,” said Pavel Molchanov, oil company analyst with Raymond James. “By eliminating the overhang of the criminal litigation, it is another step in clearing up BP’s legal framework as it relates to Macondo.”

The disaster has dragged BP from second to a distant fourth in the ranking of top Western oil companies by value.

PROBATION AND MONITORS

The settlement could also prompt a debate in Congress about how funds would be shared with the Gulf Coast states. Congress passed a law last year that would earmark 80 percent of BP penalties paid under the Clean Water Act to Louisiana, Mississippi, Alabama, Florida and Texas.

“With these unprecedented criminal penalties assessed, I urge the Obama administration to be equally aggressive in securing civil monies that can help save our Louisiana coast” through other avenues, Louisiana Senator David Vitter said in a statement. “I certainly hope they didn’t trade any of those monies away just to nail this criminal scalp to the wall.”

Larry Schweiger, president of the National Wildlife Federation, called the settlement a “good down payment” on what BP should ultimately pay, which the environmental group argues is tens of billions of dollars more.

BP said the payments would be spread over six years, adding it expected to be able to handle the payments “within BP’s current financial framework”.

The company has sold USD 35-billion worth of assets to fund the costs of the spill. Matching that, it has paid USD 23-billion already in clean-up costs and claims, and has a further USD 12-billion earmarked for payment in its spill trust fund.

The oil company said it has not been advised of any government authority that intends to debar BP from federal contracting activities as a result of the deal.

‘RECKLESS MANAGEMENT’

BP’s settlement does not resolve civil litigation brought by the US. government and US. Gulf Coast states, which could be considered when the case convenes in February 2013.

Alabama attorney general Luther Strange, who represents other spill-hit states in the case, said he intends to prove that BP’s actions were grossly negligent – a charge that would bring billions of dollars in extra liability if upheld.

Holder said at a news conference to discuss the criminal settlement that while the government and BP had held talks to resolve the civil claims, the sides had not been able to agree on a “satisfactory” number. He said a deal was still possible but the government was moving ahead to the February trial.

Negligence is a key issue. A gross negligence finding could nearly quadruple civil damages owed by BP under the Clean Water Act to USD 21 billion in a straight-line calculation.

Chief financial officer Brian Gilvary said the company’s provisions should be enough to cover liabilities, provided it avoids a conviction for gross negligence, and that it had shareholder support to fight the case should that happen.

“I can boldly defend where we are in the provisions today. If something were to happen in the trial that read across to gross negligence … then we would certainly take that to appeal,” he said on a conference call with analysts.

Still unresolved is potential liability faced by Swiss-based Transocean Ltd, owner of the Deepwater Horizon vessel, and Halliburton Co, which provided cementing work on the well that US investigators say was flawed.

Halliburton said it “remains confident that all the work it performed with respect to the Macondo well was completed in accordance with BP’s specifications for its well construction plan and instructions. Halliburton has cooperated with the DoJ’s investigation.” Transocean was not available to comment.

According to the justice department, errors made by BP and Transocean in deciphering a pressure test of the Macondo well are a clear indication of gross negligence.

Transocean disclosed in September that it is in discussions with the justice department to pay USD 1.5 billion to resolve civil and criminal claims.

BP has already announced an uncapped class-action settlement with private plaintiffs that the company estimates will cost USD 7.8 billion to resolve litigation brought by over 100,000 individuals and businesses claiming economic and medical damages from the spill

Biocon in pact with Bristol-Myers for ‘blockbuster’ drug

Biotech major Biocon has signed an option agreement with Bristol-Myers Squibb Company for Biocon’s IN-105, a prandial oral insulin product candidate.

“We had a setback in terms of a placebo effect. We are now trying to redesign and conduct a few trails to basically establish the ethicacy of the drug. This is an important step towards major licensing deals, which will only get triggered once get the outcome of these initial trails,” Kiran Mazumdar-Shaw, MD and Chairman of Biocon told CNBC-TV18.

Also Read: Looking at insulin biz to drive growth ahead, says Biocon

Under the terms of the agreement, Bristol-Myers Squibb will have the right to exercise an option to obtain an exclusive worldwide license to the program. Biocon will conduct clinical studies to further characterise IN-105′s clinical profile according to a pre-agreed development program up to the completion of Phase II.

“If the drug works like the way Bicon believes it will should, then it is a blockbuster in the making,” Shaw said.

At 09:24 hrs shares of Biocon were quoting at Rs 312.90, up Rs 6.10, or 1.99%.

Below is the edited transcript of Kiran Mazumdar-Shaw’s interview with CNBC-TV18.

Q: Could you just walk us through the contours of the deal in terms of what it involves on a license fee and the one time development fees as well that you have referred to in your release?

A: No, I would like to basically manage expectations. This is an Option agreement, which gets us to restart the clinical trial for which we had a setback in terms of a placebo effect. What we are now doing is to redesign and conduct a few trials to establish the ethicacy of the drug.

Certainly, this is a very important step towards major licensing deal, which will only get triggered once we get the outcome of these initial trials. These are early days yet. All it says is that the drug continues to hold very good promise. The big announcement will only come once it triggers the licensing deal.

Q: How soon do you expect to have clarity though on whether this is successful for phase II or not?

A: It will take atleast one and a half to two years before we get any data to demonstrate it ethicacy.

Q: What is the potential of this drug sells outside India? Could you give us any ballpark figure that we could work with?

A: If a drug works like the way we believe, it should then it is a blockbuster drug in the making because it is a huge opportunity for transforming the way diabetes is treated and that is what we are trying to establish.

Indeed the early findings and the all the kind of secondary end-point seems to suggest that this drug is certainly very ethicacious and it does what it is supposed to do. But the design of the trial was such that it did not quite bring out the true benefit of the drug and that is what we are redesigning in these next set of trials.

RBI keen to amend banking regulation bill

The Reserve Bank of India (RBI) is keen on the amendment of the banking regulation bill and the central bank wants powers including inspection of associates and dissolution of the bank board. They are keen about mandating these through the amendment of the banking regulation bill.
Also read: India to infuse capital into state-run banks: Chidambaram

The finance minister, P Chidambaram feels that the current guidelines also mandate these and hence, the amendment of the bill is not necessary. But, he has promised the RBI that the bill will be amended. He has also written to them saying that they should begin the process of applications for new banking licenses and the process will take about six to eight months.

Therefore, by May new banking licenses can be expected and by then the bill will also be passed by parliament. Both the developments will happen simultaneously and Chidambaram is keen about issuing banking licenses in the next six months.

HSBC remains underweight on India

Here are experts equity calls for the day on how the markets are expected to trade:
Bharat Iyer, JP Morgan: Earnings growth for Sensexcompanies was higher at 3 percent compared to our estimate of flat earnings. While consumer staples, healthcare and private sector banks reported better than expected earnings, utilities, materials, industrials and energy companies lagged expectations.

Jitendra Sriram, HSBC: While policy announcements will take time for economic growth to recover, the recent run-up leaves valuations expensive. While we remain Underweight on India, we have raised our Sensex targets to 18,700 for 2012 and 20,000 for 2013 after the positive turn of events. We like ICICI Bank, JP Associates, Tata Power and IL&FS Transport.

India’s ambitious plan to cut red tape gets tangled

India’s boldest attempt in two decades to sweep away the remnants of the “License Raj” permit system that has crippled infrastructure development has fallen victim to the very scourge it was designed to defeat.

A proposal for a government panel chaired by Prime Minister Manmohan Singh to fast-track major infrastructure projects and boost a flagging economy seems to have stalled amid bickering between the finance and environment ministries over its powers, and an apparent reluctance to proceed without consensus.

The dispute underscores the fears of investors and business leaders that New Delhi’s new-found reformist zeal could be undone by a lack of governance and political will to drive further economic liberalisation.

The brainchild of Finance Minister P. Chidambaram the proposed National Investment Board (NIB) was expected to win swift passage through the cabinet last month. But it has yet to make it on to the weekly agenda.

Investors and economists say the NIB should be a top priority for the government given the regulatory delays holding up projects worth nearly 2 trillion rupees in the road, power, coal and mining sectors alone.

“NIB, NIB, NIB,” Rajiv Lall, managing director of infrastructure financing firm IDFC Ltd told Reuters on the sidelines of a World Economic Forum meeting last week, when asked what reforms the government needed to carry out next.

The NIB aims to provide a single-window clearance for large projects that today are bounced from one ministry to another for various approvals, a process that can some times take years.

However, the Environment Ministry opposes the NIB, fearing that it will not only undermine its authority but also weaken the system of checks and balances within the government.

“This current proposal is completely unacceptable as it will decimate the role of individual ministries in taking responsible decisions,” Environment Minister Jayanthi Natrajan said in a letter to the prime minister that was leaked to media.

The ministry has blocked several high-profile industrial and infrastructure development projects. Natrajan’s influence comes from her perceived closeness to Sonia Gandhi, the powerful chief of the ruling Congress party, who favours populist policies.

The tussle reflects India’s struggle to balance the need to foster economic growth with a desire to protect the environment.

Poor infrastructure is often cited by economists as one of the biggest obstacles to more robust economic growth.

TURF WAR

A typical infrastructure project requires clearances from 19 federal ministries and on an average 56 permissions on issues ranging from the environment to defence. The whole process takes up to 24 months.

Now, the NIB faces a similar set of bureaucratic hurdles.

“Any decision to take place which has implications for a very large number of ministries, you need to have inter-ministerial discussions and create a consensus,” said Arvind Mayaram, economic affairs secretary at the Finance Ministry.

He said a decision could be taken within three weeks.

Government officials said the prime minister’s office had asked the Finance Ministry to revise the proposal after failing to broker a compromise between the two ministries.

“We are hopeful that it will eventually get resolved. They (the Environment Ministry) seem to have misunderstood the structure,” said a Finance Ministry official, declining to be named. “They should understand that the interests of the country are far more important than the concerns for their turf.”

The Environment Ministry declined to comment.

The turf war between two ministries reinforces a frequent criticism of Singh – that he has poor control over his ministers. Such squabbles in the past forced him to defer important decisions related to the economy and national security.

“I hope the same fate does not fall to my proposal for a National investment Board,” Chidambaram lamented recently.

India among key emerging markets for Gulf firms: Study

As the demand for petrochemical products moves East, India, with a burgeoning middle-class that will number around 400 million by 2025, is among the most important growth markets for companies from the Gulf, a new study says.

According to the study by Roland Berger Strategy Consultants, in order to supply new markets in a sustainable way, companies must accumulate comprehensive know-how to drive technologies, research and efficiency – either through collaborations or through acquisitions.

Rising oil and gas prices, growing demand from Asia and other emerging economies and strong global competition are presenting petrochemical companies with new challenges and long-term reliable access to feedstock, technologies and markets is becoming increasingly important, the report said.

The study ‘Global Petrochemicals: Who Is Really Benefitting From The growth In The New World?’ analyses the current situation across the petrochemical industry and outlines possible solutions. “Strong economic growth and the rise of the middle-classes in many emerging economies is shifting the focus of global demand for petrochemical products eastward,” Jaap Kalkman, a partner with Roland Berger Strategy Consultants, said.

In case of China, demand for petrochemical products is forecast to rise through 2015 at around 6 percent a year, and in the Middle-East by as much as 11 percent. By contrast, annual growth rates in Europe and the US will stick at around 1 percent. India, with a growing middle-class that will number around 400 million by 2025, is one of the most important growth markets for companies from the Gulf, it said.

Whereas European and US petrochemical companies enjoyed a marketshare of around 62 percent in the 1980s, it had already fallen to just 30 percent in 2010.

New suppliers from the Gulf States or parts of Asia have been consistently gaining marketshare since the 1990s, thanks to their enormous price and transport advantages. “In recent years, new oil and gas extraction technologies have made production from unconventional sources, such as shale gas, economically viable,” Roland Berger partner Alexander Keller said.

“Countries like the US and Canada have benefited strongly from the major shale gas reserves they hold and are becoming an attractive base for a lot of companies setting up refineries,” Keller said. In Europe, stricter environmental protection laws mean the industry will not expand into unconventional gas feedstock. As one of the largest Asian growth markets, China cannot satisfy domestic demand for petrochemical products from its own feedstock and products.

According to the report, the government is promoting the creation of local research and development clusters, especially with European and US companies to enable Chinese firms enter into partnerships with outside players or build up their own capacities.

RBI chief: A hawk flying solo against inflation

The Reserve Bank of India (RBI) Governor Duvvuri Subbarao’s standoff with a finance ministry that wants interest rates reduced sooner rather than later may prove the defining moment of his tenure.

But while he wins plaudits for asserting the RBI’s autonomy, Subbarao’s policy draws mixed reviews.

Indian interest rates are among the highest of all the major world economies at a time when the country is set to register its worst growth rate in a decade, yet inflation has remained uncomfortably high for nearly three years.

With his term expiring next September, Subbarao has less than a year to vindicate his stance as a hawkish global outlier.

Interest rates should come down, the question is when. The RBI has repeatedly said that depends how long the government takes to rein in a fiscal deficit, financed by heavy borrowing, that has credit rating agencies thinking about relegating India to junk bond status.

Late last month, the day before the RBI’s quarterly monetary policy release, Finance Minister P. Chidambaram held a hastily called news conference to outline a roadmap for reducing fiscal deficit, in an unsubtle bid to persuade Subbarao to cut interest rates for the first time since April.

Three days earlier, Subbarao told Chidambaram during their pre-RBI policy meeting of his intention to keep rates on hold. He stuck to his guns, opting instead to ease policy through lower cash reserve requirements so banks had more money to lend.

By defying the very public pressure to cut rates, Subbarao has dismissed speculation that he might bend to the newly appointed minister’s will, even though Chidambaram had handed him the RBI governorship during a previous stint as finance minister.

A career civil servant, Subbarao had been the most senior bureaucrat in the finance ministry, but he was new to monetary policy when he took office in September 2008, against the backcloth of the global financial crisis.

“The first 18 months he was, I think, actually very dovish, and behaved in line with expectations,” said Robert Prior-Wandesforde, an economist with Credit Suisse in Singapore.

“However, he does seem to have been able to assert himself now much more and has been able clearly to shake off no doubt a huge amount of political pressure on him, and I think to some extent he should probably be applauded for so doing.”

FASTIDIOUS AND FIT

Subbarao, 63, has grown into his role since those early days after the Lehman Brothers collapse, when some criticised him for going along with New Delhi’s desire for an aggressive easing in policy, that also laid the ground for a spurt in inflation.

An avid walker who has a treadmill at home, the lanky central bank chief is mild-mannered and courteous in public, remembering names and eschewing formality. He can be forceful in meetings and does not hide his feelings, those who know him say.

“Inefficiency makes him angry,” one bank insider said.

Fastidious, punctual, and a stickler for presentation, he pays attention to minutia like fonts and margins in documents.

“When he came to RBI he got his table designed in exactly the same size and shape as he had in the finance ministry, which presumably he had designed there as well,” recalled Usha Thorat, a former deputy governor.

He has sought to make the central bank more open, doubling the frequency of scheduled policy reviews to eight per year, and ordering the minutes to be published, in line with the practice at central banks in developed economies.

Under Subbarao, the RBI began giving short-term guidance on the policy outlook. He also simplified policy by ditching a two-track rate “corridor”, making the repo rate the operative policy rate.

HAWKS AND DOVES

While the RBI is not independent, it operates with a high degree of autonomy.

Subbarao held off pressure from New Delhi to cede the RBI’s role as the government debt manager. He also publicly showed dislike of the then Finance Minister Pranab Mukherjee’s creation of the Financial Stability and Development Council, which put the minister at the helm and Subbarao on a subcommittee.

On monetary policy, Subbarao’s hawkishness has clashed with the growth-oriented leanings of New Delhi.

Persistent food inflation and a scandal-weakened coalition government with a bias towards costly populism have made Subbarao’s job difficult, although he has not escaped criticism.

While inflation is safely below the double digits hit in 2010, it remains high, at 7.8 percent in September. GDP growth is expected to be as low as 5.5 percent for the fiscal year ending in March.

Surjit Bhalla, chairman of Oxus Investments and a frequent RBI critic, said the central bank has shifted the parameters for setting policy from wholesale price index inflation to core inflation to real interest rates and the fiscal deficit.

“They don’t communicate their framework,” he said.

After 13 rate increases between March 2010 and October 2011, Subbarao has held the policy repo rate at 8 percent since a cut in April, but has lowered the cash reserve ratio (CRR) by a combined 175 basis points since January.

Abheek Barua, chief economist at HDFC Bank in New Delhi, said the RBI could have sought more credit for cutting CRR, a s a 2 5 basis point cut in September prompted banks to lower lending rates by the same level.
“The finance ministry hasn’t got the message or is under the impression that nothing has been done on rates,” Barua said. “It’s turned into a bit of a silly game, where the RBI actually induced a fair bit of change in lending rates but because of this inflation bogey doesn’t want to advertise it too much.”

Inflation probably hit 11-month high in October

India’s headline inflation likely accelerated to an 11-month high in October on costlier fuel and food, a headache for the government in a battle with the central bank over spending and high interest rates ahead of state elections.

Wholesale prices – India’s main inflation gauge – rose an annual 7.96 percent, according to a Reuters poll of economists, faster than the 7.81 percent reported in September. Headline inflation has averaged close to 9 percent since January 2011. The government will release the data at around 12 p.m. on Wednesday.

With the economy on track to post its slowest growth in a decade, the government is pressing the central bank to join efforts to revive activity ahead of a general election due in just over a year and several state polls before that. Election-related spending could put additional upward pressure on prices next year.

But the Reserve Bank of India (RBI) has thus far rebuffed those calls, saying prices are still rising too fast to risk loosening policy much. The bank says rising rural wages, a result of government policies, are stoking inflation.

The next monetary policy review is due in December. The central bank has said any interest rate cut is “highly improbable” at that meeting, since it expects price pressures to remain elevated following a hike in the price of heavily subsidised diesel in September.

The fuel is widely used by trucks ferrying commodities around the country. A 14 percent increase in the price – the first in 15 months – was expected to add 110 basis points to overall inflation between September and December, the RBI said.

The government was forced to tackle diesel prices after Standard & Poor’s and Fitch warned that the burgeoning fiscal deficit put India’s investment grade credit rating under threat.

Last month, the government announced additional steps including spending cuts, a move perceived to be an olive branch to the RBI.

RURAL ECONOMY

The central bank has in the past criticised the government’s expansive fiscal policy, which it said undermined the battle against inflation and lowered growth prospects. It had set out fiscal consolidation as a pre-condition to lower interest rates.

Finance Minister P Chidambaram’s argues that monetary policy has limitations in an emerging economy such as India that needs to borrow to fund investment and social development. He says policymakers must learn to live with some inflation.

The government is trying hard to get the economy back on track to bolster its re-election bid in 2014. An economic revival would help him generate resources to fund his big-ticket welfare programmes meant for its core constituency comprising poor and rural voters and mitigate anger at rising prices.

Some of those welfare measures such as frequent revisions in farm support prices and a rural employment guarantee scheme have turned India into a higher cost economy.

Farm support prices for rice has nearly doubled in the last five years. During the same period, government spending on the rural employment guarantee scheme has nearly tripled, pushing up wages and farm costs.

Rising rural income is underpinning the pricing power of manufacturers. Data shows firms are still able to pass on more than 50 percent of their cost increases, resulting in sticky core inflation.

A steady increase in rural household income has also increased the demand for protein food items, which is keeping food inflation high.

The RBI expects inflation to start moderating in the January-March quarter and ease to 7.5 percent in March – still way above its perceived comfort level of between 4-5 percent.

Greece passes 2013 austerity budget

Greek lawmakers approved the country’s 2013 austerity budget early today, an essential step in Greece’s efforts to persuade its international creditors to unblock a vital rescue loan installment without which the country will go bankrupt.

The budget passed by a 167-128 vote in the 300-member Parliament. It came days after a separate bill of deep spending cuts and tax hikes for the next two years squeaked through with a narrow majority following severe disagreements among the three parties in the governing coalition.

Prime Minister Antonis Samaras pledged that the spending cuts will be the last Greeks have to endure.

“Just four days ago, we voted the most sweeping reforms ever in Greece,” he said. “The sacrifices (in the earlier bill and the budget) will be the last. Provided, of course, we implement all we have legislated. ”

“Greece has done what it was asked to do and now is the time for the creditors to make good on their commitments,” he stressed.

Athens says that with the passage of the two bills, the next loan installment, worth about USD 40 billion, should be disbursed. Without it, the government has said it will run out of cash on Friday, when USD 6.35 billion worth of treasury bills mature.

Finance ministers from the 17-nation eurozone are meeting in Brussels later today, with Greece high on the agenda. However, German Finance Minister Wolfgang Schaeuble has indicated it is unlikely that the ministers will decide on the disbursement at that meeting.

“We all want to help Greece, but we won’t be put under pressure,” Schaeuble told the weekly newspaper Welt am Sonntag.

Schaeuble said the so-called troika of debt inspectors likely won’t deliver their report on Greece’s reform program by today. The creditors also want to see what the debt inspectors have to say about Greece’s debt sustainability.

But speaking minutes before the vote, Samaras pledged the bailout funds would be disbursed “on time.”

Finance Minister Yannis Stournaras also stressed the precariousness of Greece’s cash reserves, with the treasury bills due on Friday.

“Without the help of the European Central Bank, the refunding of these treasury bills from the banking system will lead the private sector to complete suffocation,” Stournaras said.

September IIP seen at 3.2%: What does it mean?

September IIP may come in higher at more than 3% led by stronger core sector growth. CNBC-TV18’s Ekta Batra reports. A couple of key pointers is that the IIP poll or the consensus estimates are currently throwing up a figure of around 3.2 percent. This compares to the 2.7 percent in August which is a month on month pick up simply indicating that the trend would then be on the upside in the second half of the fiscal.

The core sector data that came out a couple of weeks back, and has 40 percent weightage on the IIP, came in at 5.1 percent. It was the highest figure in the last 7 months, indicating that there could be a pick up in the likes of manufacturing because sub-sectors within the core sector, such as fertilizers, coal and electricity, have seen a pick up in September.

A lot of economists will be watching out for the capital goods number because the space has become less volatile over a period of time.

In the past three months, the volatility has come down to a reduction in terms of capital goods. Remember, it was showing a decline of around 20 percent at one point in time. That has reduced around 11.5 percent and to put things into perspective in the previous month it was down only 1.7 percent on month on month basis. So if in case there is a lower IIP figure where the range is lower at 2.5 percent level then that’s the reason why the analysts are predicting that figure of around 2.5 percent will be predicated on a volatile cap goods number.

The other factor which a lot of analysts or economists are watching out for will be the consumer goods. The consumer goods saw quite a pickup in the previous month so that is one key factor which a lot of analysts will be watching out for. Otherwise it is expected at around 3.2 percent.