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An Investor and counsellor in Financial Market

Tuesday, March 31, 2015

Dear Smriti Iraniji, stop giving my money to IITians..


If IITians are so intelligent and can earn lakhs in their placements, why do they sponge off taxpayers' money?
Dear Smt Smriti Iraniji,


At the drop of a hat, every government, including yours, says that subsidies are bad for the economy and should be done away with.



Many of the subsidies in your ministry are going to those who don't deserve it. IITians are the most guilty of this pilferage. To make things worse, they hardly do anything for the country. Best-selling fiction is not known to help farmers.



1) To begin with, this is what they cost us
While it takes over Rs 3.4 lakh to educate an IITian per year, the student pays only Rs 90,000 per year. The rest is borne by the government. That is close to Rs 2.5 lakh per student per year, which is being paid by the tax payer. If one extrapolates this to all the 39,540 students in the Indian Institute of Technologies, the cost borne by the tax payer on educating IITians extends to 988.5 crore annually.



According to budget estimates, Rs 1703.85 crore is to be allocated to the IITs for 2015-'16.



2) What do we get in return for the Rs 1,700 crore we spend on them?
Inspite of producing 9,885 world-class engineers in computer science, electrical, electronic, chemical, mechanical, production fields every year...



a) The Geosynchronous Satellite Launch Vehicle, though successful with the Russian Cryogenic Engine, has time and again failed with the indigenous cryogenic engine. We have succeeded only once with our indigenous cryogenic rocket.



b) Indigenous submarines are still a distant dream because of the technological complexity in building them. Though many projects are coming up in our own shipyards, they are happening because we are merely manufacturing them in India with foreign technology.



c) The indigenous Indian Small Arms System rifles for our army, developed by the Defence Research and Development Organisation, have always been reported as problematic, and we import assault rifles from Israel.



Why could our world-class engineers, who are educated with tax payers' money, not have built them?



3) This is what our top IITians gave a miss
A Right to Information application that was filed recently has shown that less than 2% of engineers at the Indian Space Research Organisation are from IITs and the National Institutes of Technology. Our best space programme doesn't get our best engineers every year.



The army doesn't get engineers and officers from the IITs. Between 1986 and 2006, not a single IITian has joined the Indian army.



The DRDO has a shortage of more than 2,700 scientists, and it is stretched and overworked, but our world-class engineers don't find it challenging.



4) If an IITian wants to run an online shop, then why do I, a taxpayer, have to pay for his chemical engineering degree?
Going by 2013 figures, Flipkart, the online mega-store, recruited seven students from IIT Madras in 2013.



One can understand the logic behind Flipkart hiring a computer science engineer. But six of the hires had studied aerospace, chemical, metallurgy, bio-technology and engineering physics.  What specialist knowledge will they bring to Flipkart?



These students do not have any interest in what they learnt in their four-year undergraduate programme, and want to erase their history by moving to a different field.



5) Why did I pay for Chetan Bhagat's mechanical engineering degree?
I have nothing against Chetan Bhagat, but I do know that Indian taxpayers paid to make him a mechanical engineer. He has done everything but engineering.



Another RTI filed with IIM Bangalore has revealed that out of the current batch of 406 students, 97 students are from IITs. Fifty-six of these are students with less than two years work experience.



If all these engineers wanted to be was managers, why does the tax payer need to pay for their engineering education at the IITs?



6) Get a loan, why seek a subsidy?
All students from IITs can get collateral-free loans from nationalised banks for upto Rs 20 Lakh.



And IITians are obviously so awesome that companies are eager to pay them crores of rupees.


Then why should a world-class engineer who makes crores of rupees and adds no value to India be given a subsidised education at the IITs? Can't they get educated with a bank loan of their own and repay it after getting their huge salaries?



7) Remittances help forex? Nope, not really.
Whenever there is a debate on brain drain from the IITs, the remittances issue pops up. Many believe that IITians who go abroad send back remittances and contribute to foreign exchange reserves. However, it is a pittance for India.



A report in the Economic Times shows that out of the total remittances of $70 billion to India, the remittances from IITians who go to developed countries is much lower than the remittances from the Middle East to the state of Kerala.



Most of the Malayalis in the Gulf are blue-collar workers, not IIT engineers.
So, why should the common man subsidise an IITian's college fees?
This article was originally published on Saddahaq.com.

Monday, March 30, 2015

Emerging Market Funds See Outflows; China, Turkey Smarting

Emerging market equity funds recorded outflows for a third consecutive week, with big redemptions from China and Korea during the week ending March 25, according to EPFR Global.
This week, shares in Brazil and India were among the biggest losers, while stocks in Nigeria and Greece produced no-news-is-good-news rallies. EPFR Global noted that investors unloaded Turkey equity funds for the eighth week, with the benefits of cheap oil and a competitive currency seen earlier this year “overshadowed by the volatility of Turkey’s currency and the recent tension between the government and central bank over monetary policy.” Redemptions from Latin America stock funds fell to a five-week low, EPFR writes, adding:
The latest outflows from China Equity Funds were broadly based and came during a week when data showed that Chinese manufacturers continue to struggle and that Chinese banks are wrestling with an increase in non-performing loans. Managers of diversified fund groups appear, however, to be less worried that investors. The latest allocations data show average China weightings for GEM Equity Funds are just shy of the record high they hit in January and, for Asia ex-Japan Equity Funds, are at levels last seen in the fourth quarter of 2010. Vietnam equity funds were hit hardest among all emerging market country fund groups in flows as a percentage of assets under management. Although the country is growing at a 6% clip thanks in part to solid levels of direct foreign investment, its frontier market asset class has slipped out of favor with mutual fund investors after two strong years. Frontier Markets Funds have now posted outflows for six consecutive weeks, their worst run since the third quarter of 2012.
Emerging market bond funds have snapped two weeks of outflows, as angst over the U.S. Federal Reserve’s mid-March meeting subsides, EPFR notes. The Western Asset Emerging Markets Income Fund (EMD) rose 2% in the week that was, while the SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF (EMCD) fell 0.6%. The largest developing market bond ETF, the iShares JPMorgan USD Emerging Markets Bond ETF (EMB) was up 0.2%
For the week, the Vanguard MSCI Emerging Markets ETF (VWO) and the iShares MSCI Emerging Markets ETF (EEM) each fell 1.6%. In comparison, funds focused on Nigeria, China, Greece and Chile outperformed. Here are some of the significant moves in emerging market funds this week. First the winners:
The Global X MSCI Nigeria ETF (NGE) rose 6.5%.
The iShares MSCI Chile Capped ETF (ECH) rose 1.7%.
The Market Vectors China ETF (PEK) rose 1.5%.
The Global X FTSE Greece 20 ETF (GREK) rose 1.4%.

Among funds that slipped lower, underperforming the broader trend in emerging markets:
The GlobalX MSCI Argentina ETF (ARGT) fell 4%.
The iShares MSCI Brazil Capped ETF (EWZ) fell 4%.
The iShares MSCI Turkey ETF (TUR) fell 3.3%.
The iShares India 50 ETF (INDY) fell 2.9%.
The Market Vectors Egypt ETF (EGPT) fell 2.9%.
The Market Vectors Russia ETF (RSX) fell 1.6%.

Friday, March 27, 2015

Land agitators forget even a farmer’s son needs a job- by Gurucharan Das



India elected Narendra Modi to control inflation, restrain corruption and bring back jobs. Inflation has come under control; there has been no corruption scandal in the past ten months; but jobs are nowhere in sight. Modi is banking on his ambitious ‘Make in India’ programme to revive manufacturing and deliver a million new jobs that are needed each month. But the problem is that manufacturing is precisely the sector that has historically let India down. Since 1991, India’s growth has been driven largely by services. Can Modi reverse this unhappy trend and usher in a genuine industrial revolution that has lifted 400 million people out of poverty in China? 

Pessimists think not. With the coming of robotics, 3D printing, and digitally controlled lasers, manufacturing is so automated now that it is no longer possible for an unskilled farm labourer to aspire to a factory job. Moreover, manufacturing jobs, which are presently leaving China because of rising costs, are likely to go elsewhere — Southeast Asia, Mexico, and even Bangladesh. India remains unattractive because of its notorious red tape and poor infrastructure — made worse by UPA’s ‘tax terrorism’ and an impossible land acquisition law that has stopped land transactions. Thus, India has missed the bus.

Optimists, on the other hand, believe that even though industry is no longer the royal road to high income, India can benefit hugely from a resurgence in manufacturing. Our manufacturing share in GDP (16%) is so low — roughly half of other emerging economies — that India still has great potential to shift sizeable labour from farms to small, low-tech factories. Recent experience proves this. During the boom decade of 2002 to 2012, an impressive 5.1% workers per year moved to organized-sector jobs and delivered five times higher productivity. This revolution was reflected in all-round rise in labour wages, including rural wages. Because of rigid labour laws, growth in ‘informal’ jobs in the organized sector was greater, but at least informal jobs are better than no jobs.

I am with the optimists. Railways and defence sectors have suddenly emerged as new engines of industrialization in India, thanks to two highly capable men in Modi’s Cabinet. The first evidence came in Suresh Prabhu’s visionary railway budget, which was the best in memory. Manohar Parrikar’s vision of transforming India from the world’s largest arms importer to a more self-reliant military power has already begun to bring Indian companies and foreign technology providers to make defence equipment in India. A third engine is the revolution in e-commerce which holds the potential to create ten million jobs in the next three years, and might result in India skipping the supermarket stage, jumping from the kirana store to online retailing, much in the way many Indians skipped landlines and moved to cellphones.

The most important reason to believe that Modi will succeed is progress in the ‘ease of doing business’ campaign. The Centre and states are working closely to cut red tape to achieve the vision of one paper, one payment, one point of contact for the investor — all online. For imports and exports, the number of forms has been cut from nine to three. Maharashtra has decided to abolish half the approvals for starting a business. Punjab has taken power away from its departments and physically housed all approvals in a single office. But the best in class are Andhra and Telangana. An impressive e-biz portal is already up, tracking 14 different services/approvals. Rivalry between states will culminate this summer when the Prime Minister will announce statewise rankings in the ‘ease of doing business’ based on an extensive survey.

Never before in India’s history has there been so much urgency and determination to create jobs. The Budget has done its bit to kickstart investment in infrastructure. But vested interests are fighting back. So is the Opposition, which has taken to the streets against the land ordinance, pitting farmers versus industry, and forgetting two things: 1) Even the farmer’s son needs a job; 2) The ordinance is mainly trying to undo the red tape in the 2013 law — the hundred-odd signatures and 50 months required to buy an acre of land. If Modi eventually succeeds, two prizes are waiting at the end: India may finally experience an industrial revolution plus a demographic dividend.

Monday, March 23, 2015

Commodity Trade Call

Buy Mcx Copper April contract,
Closing 382.25
Add @ 375-372-370

Target- 390-400-405

Stoploss 357

Thursday, March 19, 2015

Our comments on Yellen's Statements...

Yellen's statements have been very clear. They are willing to do whatever it takes ‎to keep moving ahead. We need to see first quarter earnings of all companies as the businesses now have to catch up with the valuations that have run-up. 

Japan and Europe are in ZIRP and Scandinavia is already in NIRP. EMs are with moderate to high interest rate zones and cuts will be coming. So, US will increase rates but mostly will do it in Sept.

Staggered buying is a must as global money will flow into equities as bond market yields too are negligible. So, equities have a long bull run but will be slow and volatile in nature.

Wednesday, March 18, 2015

Logistics set for a rapid growth

India’s logistics sector is poised for accelerated growth, led by GDP revival, ramp up in transport infrastructure, e-commerce penetration, impending GST implementation, and other initiatives like ‘Make in India.’
This offers opportunities across the spectrum for companies in transportation, storage, distribution, and allied services.
Empirical evidence suggests the Indian logistics industry grows at 1.5-2 times the GDP growth. Moreover, infrastructural bottlenecks that have stifled sector’s growth and promoted inefficiency are being addressed by the government.
Building of dedicated rail freight corridors will promote efficient haulage of containerised cargo by rail. One key advantage of the dedicated freight corridor is that freight trains could be run on time tables similar to passenger trains, and the frequency can be theoretically increased to one train in 10 minutes. This will reduce time for goods transportation between Mumbai and Delhi to 18 hours from 60 hours now.
Logistics-spend
Also, setting up of various industrial corridors along the dedicated freight route will metamorphose the warehousing business– from small warehouses spread across the country to large, global-size warehouses concentrated in a few hubs.
The proposed new goods and services tax (GST) regime and e-commerce will alter the landscape in warehousing, supply chain management and third party logistics business. GST implementation will be a game-changing event for businesses and particularly for organised logistics players.
The report says logistics requirement for e-commerce will grow  as exponentially as e-commerce.
Indian logistics sector is estimated to have grown at a healthy 15% in the last five years. However, growth in sub-sectors varies, with the lowest being in basic trucking operations and highest in supply chain and e-tailing logistics. Some studies estimate the share of India’s logistics spend in GDP at 13% (versus 7-8% in developed countries), implying overall size of $180-220 bn (direct costs +wastages from inefficiencies). A comparison with other countries shows inefficiencies are high in the Indian logistics sector.
Infrastructural bottlenecks across modes (rail, road, waterways) have stifled the sector’s growth. Capacity constraints and inefficiencies can be noted from the high transit time in rail as key train routes operate at >110% utilisation, thus leading to an average speed of 25 km per hour. The road sector is fraught with inadequate and low-quality highway availability, thereby limiting the trucks’ size and impacting economies of operation.
Despite being an economical mode of transport, railways has lost market share in freight movement to roads in the last few decades due to capacity constraints. Compared to other countries, India’s rail share in goods transport is 31%, which has come down from 60% in 1980s and 48% in 1990s.
Another key constraint is administrative delays. Despite being a relatively low-cost country, logistics cost in India is higher due to administrative delays led by paper work—leading to huge inventory investments and wastage—and a complex tax structure.
Also, low penetration of new technology in the supply chain process is resulting in damage of goods. India has the least warehouse capacity with modern facilities, and given the fragmented industry state (large share with unorganised players), investment in IT infrastructure is almost absent at required scale.
Logistics encompasses a wide array of services like transportation (air, surface, internal waterways, sea), storage (warehousing, logistics parks, container depots, cold chains) distribution (courier service, e-tail deliveries),and  integrated/allied services (freight forwarding, 3PL) and investment in logistics boosts growth in its upstream and downstream economic activities, says the report.

Monday, March 16, 2015

Falcon Eye : The Future of Surveillance


Details about a covert security relationship between Israel and the United Arab Emirates have emerged, revealing a high-level partnership that has seen an Israeli-owned company become responsible for protecting the critical infrastructure of Abu Dhabi.
Emirati authorities, according to well-placed MEE sources who work closely with the companies involved, have contracted an Israeli-owned security firm to secure oil and gas installations in the UAE as well as to set up a globally unique civil surveillance network in Abu Dhabi that means “every person is monitored from the moment they leave their doorstep to the moment they return to it,” according to the source.
The UAE does not recognise Israel as a state and the two countries do not officially have any diplomatic or economic relations, a policy borne out of stated Arab solidarity with the plight of Palestinians living under Israeli occupationRevelations of a security relationship, which analysts have said would require the prior permission of both countries’ leaderships, will likely irk citizens of the oil-rich monarchy who are viewed as overwhelmingly opposed to Israel and its occupation of the Palestinian territories.
In December, MEE revealed details of a secret jet being flown between Tel Aviv and Abu Dhabi by analysing publicly available flight data. At the time it was not known who was commissioning Swiss airline PrivatAir to operate the route, although Israeli daily Haaretz hinted that it may be entrepreneur Mati Kochavi as his security company Asia Global Technology (AGT) International was known to be doing business in the UAE.
An MEE business source in Abu Dhabi, who is familiar with the workings of AGT, said Kochavi is at the heart of Israeli security trade in the UAE and is the one commissioning the private jet. The source, who asked to remain anonymous, said Kochavi has become an “almost constant visitor of Abu Dhabi”.

Covert business ties between Kochavi and UAE companies

Kochavi, according to Haaretz, lives in the United States and made a “fortune” in the property market before becoming involved in homeland security after the 11 September 2001 attacks in New York. He is said to have “forged contacts” within Israel’s military establishment and in 2013 it was reported that his AGT digital-based security company was operating on five continents managing contracts worth $8bn.
After setting up the Swiss-based AGT in 2007 Kochavi won his first contract with the Abu Dhabi government in 2008. The AED3bn ($816m) agreement contracted his company to “protect all the vital facilities within the emirate of Abu Dhabi” according to a report in the same year by al-Ittihad, the second largest Arabic language newspaper published in the UAE.
It was the beginning of a lucrative relationship for AGT but in order to comply with UAE law they needed local partners, who have been identified as Advanced Integrated Systems (AIS) and Advanced Technical Solutions (ATS). The 2008 deal saw the three companies provide “surveillance cameras, electronic fences and sensors to monitor strategic infrastructure and oil fields” including securing the UAE's borders, for Abu Dhabi’s Critical National Infrastructure Authority (CNIA).
AIS does not have a website, although it posted a profile to a UAE-based job site that said “traditional defence technologies cannot meet the overwhelming security needs of the modern era” while outlining the company’s security services:
"AIS takes a holistic approach to security, integrating physical security technologies such as sensors with information technologies such as databases, software, and artificial intelligence, while incorporating its operational expertise throughout.”
ATS describes itself as “a highly qualified telecommunication solutions provider with extensive experience and global capabilities, specialising in turnkey telecom projects for the oil & gas industry.”
The three-way business partnership has been shrouded in secrecy – AGT makes no mention of working in the UAE on their website and AIS have no online platform – but local UAE press reports have hinted at their working relationship.
The Dubai-based news site Emirates 24-7 reported in 2008 that AGT had been awarded a contract to protect “critical assets” in partnership with AIS and a 2011 article from UAE-based English language newspaper Khaleej Times referenced a partnership between AIS and ATS.
The two UAE firms, AIS and ATS, share office space on floor 23 of Sky Tower on al-Reem Island in Abu Dhabi.
An MEE source in Abu Dhabi, who works in high-level business and is close to the three companies involved, said AGT bases its UAE operations out of the AIS offices in Sky Tower.
Israeli and Emirati leaders have not commented on the direct trade taking place between the two countries, but last year, Sheikh Mohammed bin Rashid al-Maktoum, the ruler of Dubai and UAE Prime Minister, said that the Emirates would be willing to trade with Israel if they made peace with the Palestinians.
“We will do everything with Israel – we will trade with them and we will welcome them – but sign the peace process,” he said.
The UAE and Israel have been increasingly viewed as potential, if not already, regional allies due to both countries’ opposition to Iran and Hamas.
In spite of the two countries not having official relations, at least publicly, the AGT, AIS and ATS business partnership has flourished and now dominates the UAE homeland security market.  
“In the UAE alone we hold 80 percent of the national security market,” said AIS chief executive officer Khalfan al-Shamsi after a homeland security exhibition held in Paris during June 2012.
This market domination has coincided with the advent of the Arab Spring and while the UAE has avoided the domestic upheaval seen elsewhere, the uprisings have led to authorities tightening legislation covering online activities and expanding surveillance to an unprecedented level.

Falcon Eye: the mass surveillance of Abu Dhabi

A key project for the AIS-ATS-AGT tripartite business partnership was announced with three deals worth $600m in February 2011 to supply “local law enforcement agencies with ‘complete holistic solutions that includes different types of sensors integrated into one command and control system’.” 
Although AGT were not mentioned in the report announcing the deals, their involvement in the project – known as “Falcon Eye” – is confirmed by the LinkedIn profile of David Weeks, a former vice-president of operations at Kochavi’s company.
The Falcon Eye project is an emirate-wide surveillance initiative approved by Crown Prince Mohammed bin Zayed al-Nahyan, who has, according to the New York Times, a secret private mercenary army that was established by Erik Prince, the founder of private security firm Blackwater.
Few details of the project are publicly available, although it is mentioned in a brief – using the name “Safe City” – posted online by a security company given a reference by AIS and ATS:
“The Abu Dhabi Safe City project enables multiple governmental agencies to utilise a unified, cost-effective city platform for an abundance of crucial city functions including crime prevention, traffic management, and emergency preparedness. The project infrastructure consists of high-definition sensors powered by advanced data processors and analytics, an integrated intelligence and investigation tools and multiple tailored to various governmental agencies use.”
A programme manager at AIS, Hassan al-Taffaq, states on his LinkedIn profile that he has worked on the "city-wide CCTB unique project in the world [sic]" since 2010 and that it had a delivery date of 22 March 2013.
David Weeks, the former vice-president of operations at AIS and AGT who was employed between August 2006 and July 2008, references the early stages of Falcon Eye under a list of responsibilities during his time at the company.
On his profile it says he was “UAE project director of all contract efforts related to the Abu Dhabi City Surveillance project” and responsible for the “integration of over 500 electro-optic systems, cameras, license plate recognition systems, and command centre.”
His involvement was clearly at the early stages of the deal, as he left the company in 2008, but since then Kochavi’s AGT has engaged in research that would appear useful for Falcon Eye.
AGT lists the German Research Institute for Artificial Intelligence (DFKI) among its partners, as has AIS in Abu Dhabi, and the Zurich-based company said it has worked with DFKI to “research around the use of advanced technologies for high-resolution safety, security products and Big Data Artificial Intelligence.”
“AGT takes research results from DFKI and other academic partners and applies them to the business contexts of our target customers,” it says on its website. “One of our joint projects applies video analytics research results to the problem of automatic vehicle tracking; our work has already produced a usable prototype.”
It is not known if the prototype has been used in AGT’s Abu Dhabi work – none of the three companies involved responded to requests for comment – but Kochavi’s approach to use big data analytics and the Internet of Things is key to his security solutions approach, according to his company's website.

“It sounds like Sci-Fi but it is happening today in Abu Dhabi”

The Internet of Things applies unique identifiers to objects, or in the case of Abu Dhabi, people to be followed, and provides large amounts of data on all aspects of an individual’s movements and activities based on the surveillance equipment used. Tools for the collection of data include all manner of devices, from cameras on the street to smart devices connected to the internet in the home and beyond.
“There are CCTV cameras on all of Abu Dhabi’s roads, as well as cameras in every public and commercial facility, all of which are connected to one central system that in turn is interfaced with a ‘Big Data Analytics’ operation,” said an MEE source, close to the Falcon Eye project, who asked to remain anonymous due to the sensitivity of the issue.
The Internet of Things, according to AGT’s own research, “generates a tremendous amount of mostly unstructured raw data that lacks context”, which is where the big data analytics comes in.
Big data analytics organises unstructured information in such a way that it identifies patterns in behaviour, so as to inform authorities about a perceived threat level. 
AGT has published a DIKW pyramid – Data, Information, Knowledge, Wisdom + Decisions – explaining how “raw data at the bottom of the pyramid” is filtered to “well-informed decisions at the top”.
(AGTInternational.com)
MEE’s source close to Falcon Eye said the scale of surveillance was huge.
“Every person is monitored from the moment they leave their doorstep to the moment they return to it. Their work, social and behavioural patterns are recorded, analysed and archived. It sounds like sci-fi but it is happening today in Abu Dhabi.”

UAE security has become “hostage to the Israelis”

Although Kochavi’s AGT has been doing business as a private company in Abu Dhabi, political analysts have previously told MEE that trade must be approved by both Israeli and Emirati leadership.
“The relationship is high-level and the business has to be done with the blessing and participation of state actors but, of course, nobody admits this,” said Yitzhak Gal, professor of political economy at Tel Aviv University.
UAE Foreign Minister Sheikh Abdullah bin Zayed al-Nahyan is known to have had, in the past, “good personal relations” with former Israeli Foreign Minister Tzipi Livni, according to a 2009 leaked diplomatic cable from Wikileaks. 
Israeli authorities have allowed the trade to pass freely with the UAE, although their refusal to allow a shipment of drones to be delivered to Abu Dhabi in 2011 has led to a protracted financial dispute between AGT and Emirati authorities.
Abu Dhabi had paid a $70m advance for the drones, according to a 2012 Intelligence Online report, but the sales and export department at Israel’s defence ministry blocked the deal.
MEE’s Abu Dhabi-based business source said Israeli authorities barred the deal from being delivered because it would pose a threat to Israeli national security if the “sensitive technical know-how were to be leaked to other parties”.
The source said the financial dispute is ongoing and has led to staff cuts at one of Kochavi’s other companies, which has played a key role in providing the equipment for AGT’s work in Abu Dhabi.
Logic Industries, which produces security software, was established by Kochavi in 2006 and operates out of Kibbutz Yakum in Israel.Amos Malka, a retired Israeli army officer who served as head of the country’s intelligence between 1998 and 2001, is Logic’s chairperson and MEE sources said “a group of retired senior Israeli army and intelligence officers” hold a plethora of key positions at the company.
It was revealed by Haaretz on 9 February that Logic will fire 250 of its 600 workforce “at the behest of a major client from the Gulf”. Military censorship in Israel, which allows for the barring of articles deemed damaging to national security, likely prevented the newspaper from naming Abu Dhabi as the client.
The company told Haaretz the staff layoffs were down to “a key project […] reaching its conclusion during the course of the year and that the company was adjusting its staffing accordingly”. The report said “the contract with the key customer (believed to be Abu Dhabi) will be moved from Logic to AGT” and that the Swiss-based company will hire new staff to replace the sacked Israelis.
While the financial dispute has imperilled AGT’s business in Abu Dhabi, MEE’s source said “the contract is too big and too far down the line to be scrapped”.
“Getting out of the deal (for the UAE) will be difficult, if not impossible. Security in the UAE has become hostage to the Israelis.”
The UAE and Israeli embassies in London did not respond to requests for comment at the time of publication.


Friday, March 13, 2015

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Wednesday, March 11, 2015

Saudi Arabia acted as a safety net in the market, but as prices fell the game changed, writes Anjli Raval


Description: http://im.ft-static.com/content/images/733d7eb5-e8bf-4e5c-a1e8-0d1edda64d17.img©Barry Falls
Saudi oil minister Ali al-Naimi
The oil traders and hedge fund managers who gathered for dinner at Mike’s Bistro in Manhattan vied for the attention of Nasser al-Dossary, Saudi Arabia’s representative to Opec and Freepoint Commodities’ guest of honour.
Scattered over half a dozen tables, the 30 attendees took turns sitting next to the man they believed had the ear of Ali al-Naimi, the kingdom’s 79-year-old oil minister and the most influential person in the energy industry.

It was October 7, and the price of oil had been falling precipitously since June. Everybody wanted to know when Saudi Arabia would take charge and stem the plunge. “Of course you’re going to cut production,” declared one guest.
“What makes you think we’re going to cut?” the Saudi official replied.
The throwaway remark, recounted by one of the attendees, reverberated across markets. It was the first sign that Saudi Arabia would not come to the oil market’s rescue, shattering long-held assumptions about the kingdom’s oil policy and shaking up a world energy order in place for decades.
During periods of instability, the Saudis have adjusted their production to restore balance. But last year, as concerns about oversupply escalated, the kingdom changed tack and refused to act as the oil market’s safety net. Cutting output, Saudi Arabia believed, would only help its rivals — and it was time to take a stand.
A month later, with crude still falling, Saudi Arabia strong-armed its Opec peers into supporting its decision not to intervene in the market. Mr Naimi would later describe this moment as “historic”.
 
Armed with $750bn in foreign exchange reserves, Saudi Arabia led a battle against high-cost producers — from the US to Brazil and Russia — betting that a period of lower prices would force them to cut their output. The tactic might hurt revenues in the short term, the reasoning went, but it was necessary to protect market share for the long term.
The move had a huge and immediate impact. The budgets of big oil exporting countries were thrown into disarray. Energy companies had to tear up their investment plans. Financial markets were rocked.
The shift in Saudi oil policy that was crystallised between June and October has been the subject of intense speculation. Some suspected it was rooted in geopolitics: one theory held that the Saudis, acting under US influence, deliberately sought to undermine rivals Russia and Iran. But a close examination of Saudi actions suggests an unexpected series of global political events and — crucially — a misreading of the market were the driving forces behind Riyadh’s gamble.
June 2014: ‘A tipping point’
A presentation at the June 11 Opec meeting in Vienna informed ministers of slowing global oil demand and rising supplies. But Saudi Arabia thought the price of oil was safe. The Middle East was ablaze, with Libya in chaos and Isis, the militant Islamist movement, seizing territories across Syria and Iraq.
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Investors calculated the turmoil would cut supplies and push oil prices towards $130 a barrel. John Kerry, US secretary of state, sought assurances from the late King Abdullah bin Abdulaziz al-Saud that Riyadh would “do what would be required” to address any supply disruptions caused by Isis, one US state department official said.
But events on the ground wrongfooted the experts. In Libya, where production had plummeted from 1.4m barrels a day to less than 200,000 b/d amid protests, strikes and blockades, there was a sudden turnround. In late June, talk spread of rebel-held ports and oilfields reopening; within three months production rallied to 900,000 b/d.
In Iraq, Opec’s second-largest producer, Isis failed to capture the country’s main oil producing regions, removing another supply threat. This, says Bhushan Bahree, an analyst at IHS Energy, was “a tipping point for the oil market”.
July : Underestimating US shale
Another surprise awaited. Oil in excess of $100 a barrel had boosted supplies from Brazil to Russia. But the growth in the US was stellar. Monthly US crude production hit a near 30-year high, averaging around 8.5m b/d and would later surpass 9m b/d. “It beat our most optimistic expectations,” says a senior US official.
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Technological advances, fuelled by cheap debt courtesy of the US Federal Reserve’s quantitative easing programme, had unlocked more oil than anticipated from shale formations. Initially the diversity of supply was welcomed by Riyadh as a force for stability. Rising US production reduced its imports, easing pressure from supply disruptions in countries such as Libya, Iran and Nigeria. (The US has had a ban on most crude exports since the 1970s.)
But the Saudis doubted the sustainability of shale, given its production costs — break-even prices range between $30 and $90 a barrel for shale, compared with Saudi oil, which costs less than $10 a barrel to produce.

The Saudis “did not believe the actual potential of the US shale revolution,” says Leonardo Maugeri, a former executive of Italy’s state-owned oil company Eni, who last year briefed Saudi officials on their new rival. “They totally underestimated the resilience of this oil.
Even so, they were apprehensive. Throughout 2014 the Saudis enlisted analysts from ExxonMobil to investigate the break-even costs, debt financing and the output horizon for US shale, say two people familiar with the study.
August : ‘A new reality’
As demand fell more than expected in Europe, Riyadh had been slow to pick up on weakness elsewhere: China.
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There were indications that the market had been softening, but the data were hard to read. “If you are a refiner in China and you don’t need as much crude, you will drop other peoples’ cargoes first. Saudi Arabia has priority status,” explains one Gulf oil consultant.
But refiners in China as well as Vietnam and India began telling Saudi Aramco, the state oil company, that they needed less than their full crude oil allocations and wanted lower prices, say people familiar with the talks.
A series of steep cuts to export prices for Asian buyers followed. Yasser Elguindi, oil analyst at Medley Global Advisors, says the aggressive pricing was a sign of how seriously Riyadh was fighting for market share as it sought to be Asia’s supplier of choice.
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“Saudi Arabia has been concerned about its exports to China. [It] has been losing market share to Venezuela, west African producers and others,” he says. With exports to the US reduced by the shale boom, these producers, alongside Opec peers, had been pushing for customers in China.
Chinese imports from Saudi Arabia, which stood at 1.3m b/d in January 2013, fell to around 900,000 b/d by August 2014. Although imports and prices have since picked up, the drop illuminated a festering concern.
If the US loosens its crude oil export ban, as many expect, “this is a trend that will only accelerate,” Mr Elguindi says. Riyadh had no choice but to “protect its market share against competitors inside and outside Opec,” he adds.
Although analysts had been told by Saudi officials as early as 2012 that the market should not expect it to make unilateral cuts, these were hypothetical discussions until last summer. But now there was a shift.
“We knew that this day was coming, it was only a matter of when,” says Mohammad al-Sabban, a senior adviser to the Saudi oil minister from 1996 until 2013. As oil approached $100 a barrel, he says “it was clear we were facing a new reality”.
September : ‘We are not convinced’
There was speculation of a policy split at the highest levels in Riyadh. Some were believed to be arguing that falling crude prices were little more than a short-term blip. It also seemed that cuts were still on the table. One Saudi official told the FT: “If we see into it that demand is not maturing as expected . . . then we will cut. But right now we are not convinced with what we’re seeing on the demand side is permanent.”
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Others warned that a new era was dawning. They argued it was time to teach a lesson to high-cost energy players and their financiers — from shale to solar — to maintain Saudi Arabia’s long-term competitiveness and oil’s place in the energy mix. Yet Mr Naimi and other officials appeared sanguine. “Have you ever seen me concerned?” he asked reporters. “This is not the first time prices change. They always change.”
Diplomats close to the oil ministry say the institutional reference point was the 1980s, when oil minister Zaki Yamani slashed production in response to North Sea supplies.
The move sent prices into the single-digits and led to a loss in market share. “Through history, when a drop in demand is followed by a cut in Saudi production, it has not gone too well for them,” says a western official in Riyadh. Mr Naimi believed this, too.
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But even as the perfect storm was brewing, it was not until prices started “declining very rapidly” in the second half of last year that it was felt action was needed, says Abdalla El-Badri, secretary-general of Opec.
In September alone Brent dropped almost $9 as capital flight from risky commodities to more secure investments such as US treasuries hit the oil price.
At this crucial period the oil minister disappeared from public view, taking a holiday in the Seychelles. Other Saudi ministers and executives were also away for the Eid religious holiday.
“Nobody was at the controls,” says an industry insider.
October : Crunch time in Riyadh
Decision-making in Riyadh is often slow and lacks transparency. But the first hint of a shift came with Mr Dossary’s remarks which filtered through the investment community. Other Saudi officials then began echoing the message.
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“By October a policy was in place,” says a western diplomat in Riyadh. Production cuts were not completely off the table but they were “highly unlikely”.
In public, Mr Naimi — who has driven the kingdom’s oil policy since 1995 and is the most powerful among non-royal technocrats — stuck to stock phrases. A person briefed by Saudi Aramco executives says the “haphazard” communication to the market was driven by uncertainty in Riyadh. “They [the Saudis] were reacting.”
November : ‘An impossible situation’
The run-up to the November 27 Opec meeting in Vienna was dominated by calls from the cartel’s poorest members, from Venezuela to Iraq, to cut production. But Saudi Arabia was not prepared to shoulder the lion’s share of any Opec cuts. Non Opec producers would have to share the burden.
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“Naimi has been around for a while and he knew that this is an impossible situation for Opec to resolve [alone],” says Sadad al-Husseini, an ex-Saudi Aramco executive. “To try and police this kind of market was not possible.”
Rafael Ramírez, Venezuela’s representative at Opec, tried to pressure Mr Naimi into a production cuts deal and arranged a meeting with the Russians and Mexicans on November 25.
The Saudi oil minister is said to have told the Russians that with both countries producing roughly 10m b/d, any potential cuts should be equal. The Russians refused. Accustomed to non-Opec countries failing to support painful decisions, Mr Naimi enlisted the support of its Gulf allies to accept a rollover of the 30m b/d production target. The rest soon capitulated. “Opec members were told that cuts of 1.5m b/d would be needed . . . but the decision was not based on supply/demand fundamentals. Quite honestly, it was strategy alone,” says a person familiar with the meeting.
December : ‘What happens to my share?’
Within three weeks of the meeting, Brent stood at $60 a barrel, the price at which Gulf producers believed oil would bottom out. Khalid al-Falih, chief executive of Saudi Aramco, like others in Riyadh’s small coterie of decision makers, was stunned by the speed of the fall and described it as “surprising”.
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Stress tests at Aramco in preparation for the 2015 government budget implied an average oil price at $80 a barrel for this year, Saudi economists say. But in the new year oil touched almost half this level. As prices declined rapidly, Mr Naimi gave his fullest explanation yet of the decision to maintain supply. “It is not in the interest of Opec producers to cut their production, whatever the price is,” he told the Middle East Economic Survey. “If I reduce, what happens to my market share? The price will go up and the Russians, the Brazilians, US shale oil producers will take my share,” he added.
The shift from publicity shy to publicity seeking leader was striking. Some say Mr Naimi was responding to domestic critics. The Saudi stock market had slumped and business leaders openly questioned the wisdom of allowing prices to fall.
Epilogue : Survival of the fittest
The market turmoil — whether engineered or merely managed chaos — has come as Saudi Arabia faces a delicate political transition. The late king’s successor King Salman reconfirmed Mr Naimi in the first cabinet reshuffle, indicating support for his policy. But the new monarch’s son was promoted to deputy oil minister and the Supreme Petroleum Council, which oversaw the country’s oil sector, was replaced by a new body.
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Mr Naimi, who has traditionally had a free hand on oil policy, is confident his strategy has worked. Demand for Saudi oil has picked up, and prices have rebounded on the back of news pointing to drilling and investment cutbacks.
But as he engages in a battle of survival of the fittest — armed with low-cost production, a hefty war chest and low debt — many are not convinced significant production shutoffs are imminent and ask if the strategy has truly deterred investors away from expensive oil. The oil ministry and Saudi Aramco did not respond to request for comments. Others are still asking if the November decision is to the benefit of Opec, Gulf countries or, as some fear, Saudi Arabia alone.
“If the Saudis had cut they would have been the idiot at the party. They would have done what everyone wanted, but they would also have been the one that everyone else laughed at,” says one long-time Opec analyst. “Ultimately, Naimi has told the world the Saudis would not be the ones to mop up everyone else’s mess.”
Additional reporting by Simeon Kerr, Neil Hume and Andres Schipani