Energy News Monitor I Volume I, Issue 35

Some light at the end of the tunnel: Ingredients of Power Sector Reforms in

“What we learn to do, we learn by doing.”

Aristotle, Nichomachean Ethics

 

N K Singh, Jessica S Wallack

 

1.                   INTRODUCTION

 

Electricity is one of the linchpins of development.  At a microeconomic level, electricity facilitates education, sanitation, and other basic family investments in health and well being.  It is essential for macroeconomic success as well – electricity powers irrigation pumps, industrial machines, computers, and other basic inputs into gross domestic product.  The high-tech sector, in particular, relies on not only adequate supply but also reliability of electricity.  The competitiveness of Indian industry relies on reducing high costs and increasing the reliability of electricity supply.

 

The question is how to provide this service at a feasible cost.  The quality and coverage of electricity in India today leaves much to be desired.  Nearly 80 per cent of high-tech companies invest in on-site or at least back-up power generation.  Average electricity tariffs are 30 per cent higher than in China.  Consumers suffer daily power interruptions, and a single substation failure can take down an entire regional network affecting millions of people[1]. As India’s growth accelerates,  the unmet demand for electricity is rising.  The Ministry of Power estimates that an additional 100,000 MW of generating capacity will be needed to provide power for all by 2012.  At current prices,  this means an additional Rs. 9 trillion of investment will be needed,  not including the costs of restructuring state utilities and taking care of past liabilities as well as working capital, etc during the transition period[2].

 

India’s enormous geographical size, dispersed population, and regionally concentrated energy sources pose particular challenges for infrastructure design.  The public sector met these challenges at first through government-led generation, transmission, and distribution.  While this was effective in increasing installed capacity and extending the electricity network to many previously underserved rural areas, government provision of electricity did not prove to be a sustainable enterprise.  Government ownership without competition did not create incentives for efficient generation, or maintenance and expansion of networks. Policymakers used provision of low-cost electricity to gain support, crippling state and federal government utilities’ ability to cover costs and muting any market signals.  India’s power sector was unprepared for the increased in demand starting with the growth increase of the late 1980s. The 1990s brought a fundamental policy shift toward “corporatization” of the power sector by restructuring monolithic State Electricity Boards (SEBs), including the private sector in provision of electricity,  and developing new regulatory oversight to prevent abuse of market power.

 

The Electricity Act of 2003 (hereafter EA 2003) marks an important step forward in the legal framework for the electricity sector.  Designed to encourage competition in the electricity supply, the act is far more comprehensive than previous policy initiatives.  It not only continues the efforts to attract investment in generation by reducing licensing obstacles for investors,  but it also opens transmission and distribution to private sector involvement. Its provisions for open access to the transmission grid offer investors the potential for reaching customers across the country and moving toward a national power market. Nevertheless, EA 2003 leaves many transitional issues unspecified.  The first question is how to attract investment during the transition to a new regulatory system.  Second, many of the details of the market structure are left to regulators for clarification.  Some of these, such as tariff regulations, have been put into place, others, such as the framework for competitive bidding, are still under discussion.  Third, while the act establishes the Central Government as a leader and coordinator in electricity policy, there are multiple issue areas in which it requires the States’ cooperation and not much guidance as to sustaining this cooperation.  The roles of the existing central and state electricity regulatory commissions are still evolving, and many states are still in the process of creating independent regulatory committees. The goals of this paper are to summarize the state of policy reform in the electricity sector, comment on various proposals currently under discussion, and identify priority areas for future consideration.

 

Section 2 and 3 are contextual.  Section 2 provides a brief background”snapshot” of the physical and policy infrastructure.  We then provide some context for the Electricity Act of 203 with a section discussing the trajectory of reform efforts over the past decades lading up to EA 2003.  The fourth section summarizes the changes in electricity policy that have been passed into law already via the EA 2003,  as the act provides the guiding framework for many of the specific policy issues currently under discussion. Appendix 2 summarizes the basic plans for generation, transmission, and distribution sectors.

The fifth and sixth sections turn to analyze the various proposals currently under discussion for implementing some of the mandates in the EA 2003 as well as continuing to build on the Act’s provisions for reform.  Section Five outlines the various fiscal and financial incentives that are being considered (and some implemented) to attract investment in the electricity sector.  Some of the proposed changes to banking regulations, in particular, could have significant macroeconomic impacts. Section Six focuses on policies being discussed for three aspects of building competitive electricity markets: pricing in generation, transmission, and distribution, the logistics of trading power, and the transition away from the state-dominated electricity sector. These sections draw on the recently completed report of the Task Force on Power Sector Investments and Reforms chaired by N.K. Singh (hereafter TF) as well subsequent more specialized reports under discussion[3].

 

2.                   PHYSICAL INFRASTRUCTURE

 

As of Jan 2003, India had 107,533 MW of installed capacity, an increase of about 44 per cent over the level at the start of the 8^th Plan in 1993.  Regions vary substantially in installed watts per capita. [Table1] The islands have the highest installed capacity per capita, with 142.18 watts per person.  The western and southern regions follow close behind with 137 and 127 watts per capita respectively.  The Northeast lags behind with just under 60 watts of installed capacity per capita. Base load power shortage hovered between 8-11 per cent over the 1990s.  The gap between supply and demand increased steadily from 1998-99 (5.9 per cent) to 2002-3 (9.1 per cent), but dropped to 7.1 per cent this past year.  Shortages of peak power have been more severe but have also declined more noticeable over the decade.  The shortage was 20.5 per cent in 1992-3, but only 11.2 per cent by 2003-4.

 

Table 1

Region	Installed Capacity (MW)	Watts per capita	% Hydro	% Thermal	% Wind	% Nuclear
North	28452.56	92.62	30.21	65.58	0.06	4.15
West	31563.6	137.08	14.18	81.54	1.87	2.41
South	28451.76	127.37	35.19	58.48	3.59	2.74
Eastern	15399.68	67.76	14.73	85.25	0.02	0.00
Northeast	59.27	142.18	8.86	91.14	0.00	0.00
Islands	59.27	142.18	8.86	91.14	0.00	0.00
All India	106236.28	103.44	24.79	71.16	1.51	2.53

 

Source: Authors’ calculations based on statistics on power from Ministry of Power Annual Report 2002-2003, population statistics from Census 2001.  regions as defined by Ministry of Power: North (Delhi, Haryana, Himachal, J&K, Punjab, Rajasthan, UP, Uttranchal, Chandigarh), Western (Goa, Daman & Diu, Gujarat, MP, Chatisgarh, Maharashtra, Dadra & Nagar-Haveli), Southern (Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, Pondicherry), Eastern (Bihar, Jharkhand, West Bengal, Orissa, Sikim), North-eastern (Assam, Arunachal Pradesh, Meghalaya, Tripura, Manipur, Nagaland, Mizoram), Islands (Andaman & Nicobar, Lakshadweep)

 

Most of the power supply is based on thermal generation, with only 2 per cent from nuclear power and about 25 per cent from hydropower.  As shown in Table 1, the mix of power sources varies across regions.  The Northeast relies on a nearly even mix of Hydro and Thermal Generation, while the Islands and western region are far more dependent on Thermal generation.  Wind power is most prevalent in the South, where over three percent of installed capacity is wind power.  Nuclear power is concentrated in the Northern region, with some also in the West and South.

 

Recent capacity addition has been mainly in thermal power generation, a situation the Task Force regards as sub-optimal because hydro power tends to be lower cost than thermal generation.  Hydropower, however, is substantially more variable over seasons and is particularly risky if inter-regional transmission capacity is low and hydropower cannot be augmented during droughts.

 

The state governments typically supplies just over half of each region’s power, with the split between central government and private sector varying more across stats. [Table 2] The West and South as well as the Islands have the most significant private sector participation.

Table 2

 

The bulk of transmission is within the regions listed in Table 1 above.  Inter-regional transmission accounts for about 30 percent of total power transmission.  The grid often operate at different operating parameters: chronic surpluses in the East and shortages in the South, for example, have resulted in sustained functioning of these grids at frequencies beyond the regulated bound of frequency variation within 49.5 to 50.3 Hz. Transmission networks provide inter-regional transfer capacity of about 5,000 MW as of the end of fiscal year 2002-3.  Links between the West and South, providing 1,300 MW of transfer capacity, are the best developed, while East-West links offer only 450 MW of transfer capacity.  The Ministry of Power plans to build up transfer capacity to 29,500 MW by 2012[4].

The Central Government-owned Power Grid Corporation of India Limited (PGCIL) provides the bulk of inter-regional connectivity, with state transmission utilities providing much of the rest of the infrastructure.  Private participation in transmission is likely to increase under the new legal provisions of EA 2003[5]. Reliance Energy has approached the Maharashtra Electricity Regulatory Commission and the Delhi ERC for a distribution license using its own distribution system. The Central Electricity Regulatory Commission (CERC) also issued a transmission license to Tala Delhi Transmission Company Ltd., a JV Company between POWERGRID (49 per cent) and Tata Power (51) per cent in October 2003[6]. The SEBs are the primary distributors of energy, though, as in transmission, private sector involvement is likely to grow in the new legal environment.

 

A global perspective on opportunities in the Russian Oil & Gas Sector

 

(Continued from last issue)

 

Natasha Tsukanova

Vice President, Natural Resources Group, JP Morgan

 

(Excerpts from the edited text of presentations made at the First Energy Seminar on the theme ‘India-Russia Hydrocarbon Cooperation: Opportunities & Challenges’ organized jointly by ORF and OVL on 15 January 2005)

 

Another question about Timan Pechora is the evacuation of oil.  Yet with Lukeoil now focusing most of their financial resources in that province, there is a little doubt that the there will be improvements in transport bottlenecks. The advantage is that when one invests in a different place than where the oil typically flows like Western Siberia, you have the option to take the oil to the north.  As such you can then take the oil to the US, which is a very attractive market. Despite investments, Lukeoil and ConocoPhillips do not have a monopoly in this area. It is a huge area and has ample new licenses where reserves can be obtained.  In fact, in this particular region Indian companies could work with Lukeoil or even with Rosneft. The third example is the Russian Caspian.  It is fair to say that five years ago Russian Caspian was not viewed as one of the main potential growth areas in Russian hydrocarbon sector but today it is.  Companies like Lukeoil, Rosneft, and Gazprom are employing resources to develop this area.  The advantage for Indian companies would be that experience in Sakhalin can be leveraged here as resources are offshore. The main challenge here is the size of reserves but they have the potential to increase to significantly higher levels than in provinces like Western Siberia and Timan Pechora. Reserves are offshore which typically faces more problems - technically and seismically. However, with the current level of technology most experts agree that Russian Caspian is a very positive proposition and can be explored and developed.  Russian companies in particular are open for cooperation with international companies in the area of new technology and investments. Investments which are required for development of projects in Russian Caspian are again similar to that in Sakhalin.

 

Shtokmanovskoye and Prirazlomnoye rank as world-class developments but longer-term developments than the ones above.  Should Indian companies invest in these longer-term projects which in the next three to seven years can give access to substantial production? For international oil companies Shtokmanovskoye and Prirazlomnoye are extremely attractive and Total, ConocoPhillips, and Exxon are actively negotiating with Russian companies about involvement in these projects. Salymskoye is primarily a gas project and it is import to consider if Indian companies want to invest in gas based projects. Eastern Siberia is even longer term. But there is a pipeline to the Far East, which is now being improved by the Russian Government.  There is little doubt that Eastern Siberia would be developed and with the pipeline to the Far-East with bottlenecks removed it would be a very exciting export outlet.  It is exciting because from there you could take oil anywhere in the world, including India.

 

Summary of investment opportunities

 

Cooperation with Rosneft in Western Siberia	√    Major production facilities in place √    Still significant development potential x    Limitations  on export of crude oil due to pipeline capacity
Cooperation with LOKOIL or other Russian companies or operatorship in the Timan Pechora province	√    Timan Pechora is a new ‘virgin’ development area √    Seismic risk is limited (ample reserves in place) √    Access to alternative export outlets x    Significant capex required for development x    Incumbent position of LUKOIL and ConocoPhillips in the region
Cooperation with Rosneft, LUKOIL or other players in the Russian Caspian	√    Sakhalin 1 experience can be well leveraged √    Access to new import routes x    Offshore fields present a higher seismic risk x    Value is dependent on development of new transport routes
Northern offshore developments in cooperation with Gazprom	√    Key fields: Shtokmanovskoye and Prirazlomnoye √    World class major projects x    High capex and long-term development

 

The investment climate in Russia

 

Micro-economic fundamentals in Russia are very robust.  Most observers agree that Russian economic growth is sustainable and macro-economic situation is quite stable. 

 

 

That stability has inspired international companies to make significant investment in Russia.

 

 

 When ONGC invested in Sakhalin-1, it was a big step forward and a ground-breaking transaction. ONGC was concerned about being one of the first investors to make a significant step in Russia. Today BP, Shell, ConocoPhillips and also companies like Marathon and Schlumberger have significant exposure in Russia. They are becoming important players in the field and they are all involved in active dialogue with the Russian Government about the legislation environment and other issues in the hydrocarbon sector. 

 

Summary of economic trends

 

 

Recent transactions

 

BP & TNK: This was an amazing step for BP in Russia as it involved an investment of $ 7.7 billion.  This is not a project as BP bought a Russian company and they co-manage the company.  This is one of the ways to operate in Russia.

 

ConocoPhillips: This is also a significant investment related to equity purchase. ConocoPhillips purchased shares of LUKOIL, but there is a joint venture too, which is focused primarily on one specific project. 

 

Total:  This is a gas sector project.  Total’s recent investment was done through acquiring shares in Novatek which is an independent oil and gas producer.

 

Schlumberger: Schlumberger has been in Russia for a long time but recently Schlumberger acquired a local Russian service company.  This is obviously their vote of confidence in the development of Russian hydrocarbon sector. 

 

Summary of recent developments

 

·         In April 2003 Marathon Oil Company announced acquisition of the Khanty Mansiysk Oil Corporation (KMOC) for USD 280 million

 

·         In February 2003, BP and Alfa Group/Acess Renova announced a new $ 7.75 billion Sakhalin II Project, an offshore development in Russia in which Shell has a 55 per cent interest, followed by a $ 1 billion investment in the Western Siberain oil field Salym in September

 

·         In December 2003 Schlumberger announced the expansion od its presence in Russia through a JV/acquisition of Petroalliance

 

·         In September 2004

 

o     ConocoPhillips announced a major equity investment and a JV with LUKOIL (app USD 1 billion

 

o     Total announced the acquisition of a 25 per cent stake +1 share in Russia’s largest independent gas producer Novatek

 

Concluding remarks

 

Key domestic trends in Russia today indicate increasing power and significance in the Russian hydrocarbon sector of State owned companies. With the acquisition of YuganskNG by Rosneft and the recent acquisition of Sevmorneftegas by Gazprom, it is clear that these two companies are playing a more important role today that they did five years ago and that is probably natural. If you compare Russia to other oil producing countries, national oil companies do play a very important role and Russia has fallen for this trend. 

 

No Kyoto market without Russia

Viktor Danilov-Danilyan

Director, Institute of Water Problems, Russian Academy of Sciences, corresponding member of the Russian Academy of Sciences

 

The Kyoto protocol will enter into force February 16, 2005, aiming to reduce humanity's negative impact on the biosphere and to slow down obvious climatic changes. As a supplement to the UN Framework Convention on Climate Change, the protocol specifies its activity in certain areas over a certain period. This activity has at least three important inter-connected aspects: climatic, environmental and technical-economic. The Kyoto protocol stipulates a set of measures to reduce the negative consequences of climatic changes. For example, carbon-fuel volumes must be reduced per unit of production. In other words, production processes must become less energy-intensive. Mankind will inevitably deplete its organic-fuel reserves and the best way to prepare for this time is following the Kyoto protocol's recommendations. The document aims to save energy and to replace fuel with "information". Any car or any other product combines natural substances and human knowledge. Information-related components account for an increasingly greater share of advanced technologies.

Kyoto provides a serious incentive for nationwide retooling programs. Russia's GDP is 210 per cent more energy-intensive than that of Europe and any sector can cut back on energy spending. First of all, this concerns the most energy-intensive sectors, i.e., the thermal power industry, the gas industry, metallurgy, oil refining, the chemical sector, cement production, and the pulp-and-paper industry.

The protocol will undoubtedly encourage the development of the Russian housing and municipal-utilities sector, which now loses more energy than any other sector and has the lowest energy-efficiency levels. The efficiency of heating systems is much lower than 50 per cent. In other words, these systems heat the environment rather than homes and apartments. Water pipes lose more than 50 per cent of the water, and it takes energy to pump water back and forth. Sadly Russia is at least 50 years behind the West in this sphere.  Work needs to be conducted to achieve a result. Unfortunately, there is no action program. However, the Natural Resources Ministry, the Industry and Energy Ministry, the Russian Hydrometeorological Agency, as well as the Federal Environmental Protection, Production Safety and Nuclear Safety Service, are drafting this document under the supervision of the Economic Development and Trade Ministry.

Many people claim that Russia will not earn enough money from greenhouse-gas emission quotas because there are other prospective "sellers". I am sure that a full-fledged Kyoto-protocol market is impossible without Russia. The country's potential quotas exceed European, Canadian and Japanese requirements taken together. It is unfortunate the United States has distanced itself from Kyoto. Its participation would have increased demand, making quotas more expensive. However, America might find it economically profitable to ratify the protocol, and then the White House will do so no matter what President Bush may say today. The Russian public heatedly debated the protocol's strengths and weaknesses. President Putin ended this discussion in November 2004. I agree that the decision to ratify the Kyoto protocol was primarily motivated by political factors. It was the price Russia had to pay for free trace access to the European Union and accession to the World Trade Organization. Still I am sure that political factors would have remained unconvincing, if Russia's authorities had not possessed evidence that the protocol was in the nation's interests. Moscow's decision was also evidently facilitated by the document's long-term positive effect on global climatic processes.

Naturally, the Kyoto protocol will not be the only attempt to influence climate change. International talks on activities in the "post-Kyoto period" (after 2012) will open in the next few months. A priority is to substantiate the importance of Russian ecosystems for the global environmental balance and assess their influence on carbon-circulation processes. Moreover, we must calculate the exact amount of nationwide carbon-dioxide emissions and how much is accumulated by our swamps and forests. Existing estimates differ three-fold and even more from each other. Russia accounts for nearly 25 per cent of the world's forests, so we will have to implement some ambitious research projects.

The Kyoto protocol's opponents mention dangers allegedly posed by this document. I can only say the following: There is always the risk that work will be organized poorly in Russia. But this is the only risk of the Kyoto protocol that I see.

NEWS BRIEF

 

 

OIL & GAS

 

 

ONGC's Mumbai High posts record output

 

February 18, 2005. ONGC's crude oil production from Mumbai High oil field reached 270,000 bpd, which is the highest in last five years. With continuous injection of latest technologies, the field is now heading to reach another landmark of 300,000 BoPD during next fiscal. The Mumbai High Oil field, which started production in 1976, was witnessing declining output in the 1990s. However, pragmatic management decisions for faster induction of a large variety of techniques and state-of-the-art technologies have helped ONGC to reverse the trend and produce record output.

 

ONGC picks up stake in Tripura SPV 

 

February 20, 2005.  Oil and Natural Gas Corporation has picked up 26 per cent equity of Tripura government in the special purpose vehicle (SPV) set up to fund infrastructure development in the state. After ONGC’s entry, the Infrastructure Leasing & Financial services (IL&FS) would hold about 50 per cent stake while the state government’s stake would be reduced to 24 per cent. The SPV was floated by Tripura government along with IL&FS with equal equity participation for the development of infrastructure in the state about six months ago. It would undertake development of projects including generation of power and evacuation of power from Tripura to demand centres, mostly in North and West. ONGC has planned the conversion of the idle gas in the gas fields in Tripura to power and a 750 mw power plant at a total investment of around Rs. 3,500 crore (Rs 35 billion).  Another SPV for the development of transmission system connecting the power generation plant of ONGC at Pallatana in Tripura to power pooling station of national grid at Bongaingaon in Assam is also proposed to be created. The cost of developing the transmission system is envisaged to be Rs. 1,000 crore (Rs 10 billion) and the PowerGrid Corporation of India Ltd has committed to take the majority equity stake in the transmission SPV.

 

ONGC, RIL slapped with recovery notices

 

February 22, 2005. The Choryasi taluka development officer in Surat has slapped notices to several corporate houses situated in Hazira belt, including Reliance, National Thermal Power Corporation (NTPC), Larsen & Toubro (L&T), Oil & Natural Gas Corporation (ONGC), over their failure to pay various taxes. These notices direct them to pay the outstanding panchayat tax and land revenue. The outstanding taxes of Reliance are Rs 6.602 million, NTPC Rs 4.633 million and L&T Rs 2.525 million. With outstanding dues of Rs Rs 14.2 million, ONGC tops the list. GIDC has to pay over Rs 6.8 million as taxes, while GHB owes Rs 278,000. The government has recently directed the concerned officials in all districts to concentrate on recovery of outstanding dues and intensify drive against defaulters. 

 

ONGC to float SPV for Nagaland project

 

February 16, 2005. Oil and Natural Gas Corporation has agreed in principle to float its first special purpose vehicle (SPV) for domestic oil exploration to soothe the feelings of the people of Nagaland and ensure that some benefits of oil extraction went to the local population. The SPV will be in form of a joint venture between ONGC and the Nagaland government for oil exploration in the state. ONGC currently has only one SPV, ONGC Videsh, for overseas exploration venture. All domestic operations are carried out by the company directly under basins. The Nagaland government will get a stake in the oil exploration and extraction activities in the state. ONGC secured around 16,000 square kilometre for exploration in Nagaland under NELP 3 and NELP 4.  However, oil exploration activities are yet to start following disputes over land ownership and the demand for additional royalty from the state government. Details of the joint venture are yet to be worked out and exploration in Nagaland would start as soon as the state government sent a formal response. Nagaland government is likely to hold its stake in the proposed SPV through Nagaland Mineral Development Corporation (NMDC) to the extent of 10-15 per cent stake. 

 

OVL to bid for stake in Kazakhstan fields 

 

February 16, 2005. ONGC Videsh Limited is planning to bid for stakes in oil and gas fields of Kazakhstan. Areas identified by OVL includes Darkhan, Yevgenia, Kurmangazy and some other structures along the Caspian Sea. A broad agreement for tie up in the energy sector may be signed between petroleum minister, Mr Mani Shankar Aiyar and his Kazakh counterpart Vladimir Shkolnik. The block in Darkhan should have about 3 billion barrels of oil reserves. Yevgenia is a small structure (1.5 mtpa of oil) where OVL will try for operatorship rights. India will renew its bid for a 10 per cent stake in Kurmangazy field. India had earlier bid for a stake in the field but did not get it. Russian state-owned companies OAO Rosneft and OAO Zarubezhneft each own 25 per cent of Kurmangazy, which has 7.3 billion barrels of oil in reserves. Kazakhstan’s state-owned oil and gas company Kazmunaigaz holds the rest. Kazakhstan is the second-largest oil producer among the former Soviet Union behind Russia.

 

 

IOC to have more distributors in AP

 

February 21, 2005. Indian Oil is planning to appoint 150 more Indane distributors in Andhra Pradesh during the next two years in addition to the existing 303. IOC have launched a value-added service initiative - star distributors for this purpose. These select Indane distributors would provide a range of services to the customers in terms of safety, reliability and convenience. IOC’s Visakhapatnam area office was catering to the needs of the five coastal districts of Srikakulam, Vizianagaram, Visakhapatnam and the two Godavari districts. Indian Oil had identified eight LPG distributors for conferring the star status in the first phase under the Vizag office. The star distributors would ensure weight checking of cylinders at the premises of customers, stringent pre-delivery checking, checking of valve pin and O ring for leakage, well-trained delivery personnel and prompt delivery at preferred timings. Refill delivery would be on the same day for bookings made up to 2 p.m. and there would be instantaneous action on leakage complaints. With a share of 48 per cent, Indane was the market leader in the country. It had 87 bottling plants and 4,570 distributors. It was providing fuel to 40 million households in the country. In the State, the company was supplying LPG to 3.17 million homes. The company had introduced 5-kg cylinders for the convenience of rural customers. The company had 46 auto LPG dispensing stations in the country, with 4 in the State. Six more such stations would be added during the current year.

 

HPL plans second cracker

 

February 21, 2005. The public sector Indian Oil Corporation has invested Rs. 150 crores (Rs 1.5 billion) in Haldia Petrochemicals Ltd (HPL), paving the way to become its fourth equity partner, even as HPL has begun working on plans to set up a second cracker. At present, Chatterjee Petrochem (Mauritius) and the West Bengal Industrial Development Corporation are the two chief promoters of HPL, with the Tatas holding a minority share. IOC's contribution paved the way for a holding of about 9.5 per cent. HPL had  chalked out plans for setting up a second naphtha cracker of 6.7 lakh (670,000) tonnes capacity at its existing site in Haldia at an investment of about Rs. 4,000 crores (Rs 40 billion). Internal studies and environment impact assessment have begun on this project, which was being targeted for completion by 2008-09. However, efforts would be made to meet most of the fund requirement from internal sources as HPL's heavy borrowings during its implementation phase affected its profitability badly. The company is now in the process of recasting its debt as part of the package approved by its consortium of lenders led by the IDBI. HPL has a battery of 70 lenders including overseas ones.  The size of the proposed initial public offer, targeted for a May launch, will also factor in the proposed expansion. HPL would like to build up a reserve. As per the CDR, HPL was slated to infuse Rs. 600 crores (Rs 6 billion) as additional equity by December 2004 (this deadline was later extended). While the Chatterjee Group has already put in Rs. 150 crores (Rs 1.5 billion), with IOC's contribution, a gap of only Rs. 300 crores(Rs 3 billion) now remain for raising through the capital market.

 

IOC seeks increase in LPG price

 

February 19, 2005. Indian Oil Corporation Ltd has sought an increase in price of domestic cooking gas, LPG, by over Rs 103 per cylinder and PDS kerosene by Rs 7.5 a litre, in view of rise in cost of raw material. International LPG and Kerosene prices have risen by almost 200 per cent to $374 per tonne and $382 per tonne respectively. But, domestic LPG and Kerosene prices have not kept pace with the changes, with only LPG price being raised marginally by Rs 20 per cylinder.  Based on the January 2005 prices, ex-storage-point price of LPG should be increased by Rs 7,307.19 per tonne (Rs 103.76 per cylinder) and kerosene by Rs 7,579.72 per kilolitres (Rs 7.58 per litre). The Government subsidy on LPG and Kerosene has remained static despite the worst ever increase in crude oil prices in 2004. Besides the oil companies have also not been allowed to raise retail prices, in step with the international prices, resulting in huge under-recoveries. For the 2004-05 fiscal, IOC has estimated its loss on LPG and Kerosene sale at Rs 7,566.80 crore (Rs 75.67 billion).

 

Retail outlet of IOC at Sirsi

 

February 17, 2005. Indian Oil Corporation is going to open the 21st retail outlet in Uttara Kannada district, at Sirsi in Karnataka. The bunk is developed as company-owned dealer-operated outlet. The IOC Mangalore division will commission petrol pumps at Mirjan in Uttara Kannada district, Arsikere in Hassan district and Subramanya in Dakshina Kannada district this month.

 

 

Gujarat Gas may buy stake in Adani Energy

 

February 22, 2005. Gujarat Gas Company Ltd (GGCL), a subsidiary of British Gas (BG), is scouting for a strategic alliance in the form of an acquisition or a stake in privately run gas distribution entities. The company could link up with Gujarat Adani Energy Ltd (GAEL), which, too, is looking at a strategic partner for its gas distribution business.  The move would come at a time when public sector majors such as GAIL India Ltd, Hindustan Petroleum Corporation Ltd and Indian Oil Corporation are finalised their plan to make foray into gas distribution in Gujarat. An evaluation process has been initiated for a possible opportunity with a few entities. Guarat Adani Energy may be one of those companies as it is laying its distribution network in Ahmedabad and Vadodara, two cities with high potential for the gas distribution business.  Gujarat Gas caters to 1,45,000 households besides over 1,800 commercial customers and 475 industrial customers. Gujarat Adani Energy, which has recently opened its first CNG station in the Maninagar area of Ahmedabad, has spent over Rs 130 crore (Rs 1.3 billion) in infrastructure building for the gas business, while the company was expected to invest Rs 300 crore (Rs 3 billion) for the same during next two years. If the merger takes place or even if Gujarat Gas picks up a significant chunk of Gujarat Adani Energy, an initial public offer (IPO) would be on the cards.

 

GAIL in talks with Australia’s Woodside Petroleum for gas 

 

February 18, 2005. GAIL (India) Ltd, which distributes 90 per cent of India’s natural gas, is in talks to buy five million metric tonne of liquefied natural gas from Australia. GAIL is seeking five million tonne of natural gas annually starting 2008. GAIL, the nation’s largest gas distributor, wants to secure supplies of 15 million tonne of LNG starting 2007-08. The company wants supplies to start in the fiscal year beginning April and is seeking bids for 20 to 25 year-supply contracts and short-term supplies of 5 to 10 years. Asia’s fourth-largest economy needs to import gas to run power plants to keep up with demands from an economy that expanded its fastest last year since 1989. GAIL wants to import LNG at terminals in Dahej, Kochi and Dabhol on the western coast of the country and Ennore on the east coast. 

 

GAIL deal for Tripura Gas

 

February 16, 2005. GAIL (India) Ltd has signed an agreement with Tripura Industrial Development Corp (TIDC) and Assam Gas Co Ltd (AGCL) to pick up 29 per cent stake in Tripura Natural Gas Co Ltd (TNGCL). TIDC and AGCL would hold 10 per cent equity each while the public, financial institutions and others would pick up the remaining 51 per cent. The Government of Tripura had decided in May 2004 that TNGCL would be the exclusive company to undertake retail gas distribution in the State. TNGCL will promote and expand its existing business of distribution and marketing of natural gas for consumers in domestic, commercial and industrial sectors, including distribution and marketing of CNG for use by consumers in the automotive sector. The State Government will provide all the necessary support, policy framework and fiscal incentives, if required, to enable gas usage in the State. TNGCL will undertake distribution and marketing of piped natural gas in and around Tripura to domestic, commercial, small industrial users and Compressed Natural Gas (CNG) as fuel for vehicles.

 

GAIL inks pact with Bangladesh firm

 

February 16, 2005. State-run gas firm GAIL (India) Ltd inked an agreement with Spectra International Ltd of Bangladesh to identify possibilities of cooperation in compressed natural gas (CNG) infrastructure development projects and gas retailing in Bangladesh. The Memorandum of Understanding (MoU) was signed by both entities. Under the terms of the MoU, GAIL would consider taking up CNG and gas distribution projects on a build-own-operate-transfer (BOOT) basis. Spectra will offer certain services required in the implementation of projects in a cost-effective and timely manner and provide necessary support and coordination in obtaining all the statutory clearances. 

 

 

Govt may seek time for green fuel compliance

 

February 21, 2005. The government is planning to appeal to the Supreme Court for an extension of the April 1 deadline for implementing the Bharat Stage II emission norms in these states. The automobile fuel policy, under the apex court’s directions, makes it mandatory for oil marketing and automobile companies to effect changes in the fuel quality and vehicles in phases. The government would seek a review of the order since oil companies were not in a position to supply Bharat Stage II fuel in the entire country. The review will seek a revised schedule for meeting the deadline in seven states. The schedule is likely to be staggered from June 1, 2005, to September 1, 2005. 

 

Iran hopes for fast progress on pipeline 

February 21, 2005. The Indian government’s consideration of joining a gas pipeline from Iran to India via Pakistan has created an encouraging atmosphere for advancing the project, Iranian foreign minister Kamal Kharrazi said. The visiting Iranian leader said that Pakistan should have no problem in going ahead with the proposed Iran-Pak-India gas pipeline project. The minister said he was hopeful the project would make fast progress. Australian consultant BHP Billiton’s feasibility study for the Iran-Pak-India gas pipeline, said that the 2775-km long pipeline project had sufficient safeguards against disruptions in supplies. He said the LNG and oil deals between the two countries provided a solid base for India’s energy security and its economic and industrial growth.

Long-term contracts for oil 

 

February 21, 2005. India plans to effect a subtle shift in its oil strategy towards securing long-term oil contracts. It will soon initiate discussions with leading crude oil suppliers including KPC of Kuwait, Saudi Aramco of Saudi Arabia, Somo of Iraq and Adnoc of UAE for entering into contracts beyond one year for import of crude oil. At present, the majority of crude oil imports are done by entering into annual contracts. Pricing is based on official selling price, which is the price prevailing during the month of loading. Longer duration oil contracts are needed mainly to address security of supplies, besides steady prices, in the backdrop of demand explosion in Asia, particularly in China and India. State-owned Indian Oil Corporation  the largest crude oil importer, has already forwarded a new strategy to the petroleum ministry for negotiating long-term oil contracts, with better pricing and commercial terms. This comes close on the heels of bilateral meetings held by petroleum minister Mani Shankar Aiyar during the recent Asian oil ministers’ summit. IOC’s suggestions range from negotiating a price band (with floor and ceiling) to entering into fixed price deals for some volume of the term contract to a ‘bundled package’ deal with the suppliers, comprising exploration, refinery upgradation, engineering and design project opportunities on nomination basis.  In addition, IOC feels new contracts must incorporate provisions like: a) undisrupted supply of contractual volumes even if OPEC cuts production b) flexibility to reduce term contract volume by 25 per cent at buyer’s option c) exit clause in force-majeure situation d) flexibility on change of grade. IOC have had preliminary discussions with some leading suppliers. However, formal proposals will be sent to the national oil companies of Kuwait, Saudi Arabia, Iraq and UAE, only after the ministry approves the terms proposed by IOC. And till a formal agreement is reached with the oil suppliers, India will continue with the current practice of annual contracts.

 

Plan to convert pipeline use hit refineries 

 

February 18, 2005. Indian Oil Corporation’s plans to convert the Kandla-Bhatinda pipeline usage from petroleum products to crude may end up hurting the interests of the refinery players operating in the western region in the long run. The 1,443 km pipeline commissioned in 1995, was conceived to transport petroleum products from the refineries in the western region, namely from Reliance Industries Ltd’s (RIL) Jamnagar refinery, Bharat Petroleum Corporation Ltd’s (BPCL) Bina refinery and Essar Oil Ltd’s (EOL) Vadinar refinery. The refineries owned by BPCL and EOL refineries are yet to be commissioned. Currently, public sector oil companies sell RIL’s products through their retail outlets, through a contract which is reviewed from time to time. The present contract between the PSUs and RIL ends on March 31, 2005.

Turkmenistan gas reserves inadequate

 

February 17, 2005.  Even as Indian gas companies have shown interest in making investments in Turkmenistan-Afghanistan-Pakistan (TAP) gas pipeline project, the ministry of external affairs (MEA) is unsure over the potential of such a project in view of uncertainty over gas reserves in Turkmenistan. The Turkmenistan domestic demand totals 15 billion-20 billion cubic metres, the maximum export volume to Iran is 10 billion-13 billion cubic metres, and the remainder is now contracted wholly to Russia. This leaves almost nothing upon which any further discussion of new pipeline construction in the near future might be based. Turkmenistan has been exploring for the last 13 years ways to diversify its gas-export options and lessen its dependency on the northern export route through Russia. Scores of alternative gas-export-pipeline projects have failed before they even started.

 

India, Iran to discuss price mechanism for gas supply

 

February 18, 2005. Iran and India may work out price mechanisms for delivering natural gas in three months from now. The visiting delegation of NIGEC, which was recently in discussions with GAIL and the petroleum ministry for the pipeline project, has suggested that the two sides can meet in June to work on the price issues of the piped gas. What’s more, the company along with its Australian consultant — BHP Billiton — has even expressed interest in marketing a part of the gas being exported to India. Iran has agreed to deliver the gas on the Indian border in line with petroleum minister Mani Shankar Aiyar’s proposal of a direct commercial agreement on import of gas from Iran. This would essentially mean that India would not participate in the laying of the pipeline from Iran to India travelling through Pakistan. Although India is open to the idea of corporate and sovereign guarantees, it is not willing to have any equity participation in the pipeline project. BHP/NIGEC wants India and Pakistan to sign the International Energy Charter, thus committing themselves to protecting investment and agreeing to a dispute resolution framework. The consultants have also suggested involvement of an international consortium of bankers and oil firms for building and operating the project. During the discussions, it was decided that a Broad Overarching Agreement between the three countries involved would be desirable to conclude the issue expeditiously. GAIL will provide all information related to the Indian side for completing the detailed feasibility study for the pipeline, which is scheduled to be completed by June this year.

 

NIGEC, GAIL agree on gas delivery point

 

February 17, 2005. The National Iranian Gas Export Company (NIGEC) has agreed to the proposal of GAIL (India) Ltd to have the delivery point of gas at the Indian border. The breakthrough in the ongoing discussions between India and Iran on the Iran-Pakistan-India gas pipeline was achieved at a high-level meeting between GAIL and NIGEC.

 

Huge Australian LNG imports planned 

 

February 16, 2005. India is planning to import huge quantities of LNG from Australia. A proposal to set up a greenfield LNG liquefaction plant in Australia with a initial capacity of 5 million tonne per annum (mtpa) has been mooted by the petroleum ministry. Alongside, suitable farm-in opportunities in various oil and gas blocks in Australia are also being explored by domestic exploration major Oil and Natural Gas Corporation. ONGC has informed the ministry that it is planning to import about 6 million tonne of LNG per year from Australia for its proposed LNG terminal at Mangalore. GAIL has already initiated talks with Australian companies for sourcing around 1-1.5 mtpa of LNG for Dabhol terminal while Indian Oil is also looking at Australia for importing LNG for its Ennore plant. As all the three mainstream oil and gas companies — ONGC, Indian Oil and GAIL — are keen to import LNG from Australia, the ministry of petroleum and natural gas has decided to constitute a consortium headed by ONGC/OVL for setting up the liquefaction plant and also to pursue farm-in arrangements. IOC and GAIL will be the other partners of this consortium. Petroleum Ministry also decided that quantities of up to 5 mtpa of LNG would be handled by ONGC while any quantity in excess of 5 mtpa would be handled by IOC. GAIL will simultaneously pursue the quantities required for the existing capacity for Dabhol project.

 

POWER

 

 

Wartsila inks power sale pact with PTC

 

February 16, 2005. Wartsila India Ltd, a subsidiary of Wartsila Corporation, and PTC India Ltd (formerly Power Trading Corporation of India) signed a MoU for the sale of surplus power. This agreement facilitates the utilisation of excess power generated by Wartsila's customers through PTC. With a turnover of Rs 300 crore (Rs 3 billion), Wartsila India has some 190 customers. The company has delivered 560 DG sets that generate around 2,750 MW of power. Many of these customers have surplus generation capacity in their plants.

 

Chennai Petro, Neyveli power project to cost less

 

February 16, 2005. The cost of the 492-mw power project in North Chennai that is promoted by Chennai Petroleum and Neyveli Lignite is likely to fall by about Rs 300 crore (Rs 3 billion) to a level of Rs 2,400-2,500 crore (Rs 24-25 billion) because interest rates have softened since the project’s conception. The project was conceptualised a few years ago when the prevailing interest rate was about 15 per cent. On the strength of the current balance sheets of Chennai Petroleum and Neyveli Lignite, the power project is expected to raise loans at a lower cost. The project, however, is at an early stage. The partners are to float a company which would complete the project and run it thereafter.

 

Smallest unit to power NTPC growth 

 

February 17, 2005. NTPC’s smallest unit is set to emerge as the jumbo among its current fleet of LNG-fed plants, as Prime Minister Manmohan Singh laid the foundation stone for the Rs 7,584 crore (Rs 75.84 billion), 1,950 MW phase II of Kayamkulam unit. This spells a giant stride from 350 MW to 2,300 MW by 2012. It has given the name as  Rajiv Gandhi Combined Cycle Power Project. The 1,950 MW capacity augmentation would be staggered through three modules of 650 MW each. The first module would be ready by July 2008. LNG will replace naphtha in the Kayamkulam combined cycle plant, knocking down the sale price from the present Rs 3.5 per unit to just Rs 2 per unit.

 

 

Neepco to invest Rs 38.60 billion in three new power projects 

 

February 21, 2005. Public sector North Eastern Electric Power Company (Neepco) has planned an investment of Rs 3,860 crore (Rs 38.6 billion) for undertaking three new power generation and transmission projects. These include the Rs 2,497-crore (Rs 24.97 billion) Kameng HE Project (600 mw) in Arunachal Pradesh, Rs 865-crore (Rs 8.65 billion) Tripura (280 mw) gas-based power project and Rs 500-crore (Rs 5 billion) Tripura-Kopili Transmission System for evacuating power from its Tripura project. Neepco generation has increased from 3000 million units in 2002-03 to 5000 MU in the last two years. This is mainly from its Ranganadi hydel project in Arunachal Pradesh and Doyang project in Nagaland.

 

Centre plans 27 new coal projects

 

February 21, 2005. The Centre has planned 27 new coal projects to meet the growing demand for coal in the country. An expert committee led by S Sankaran will suggest steps to step up coal production, improve the quality of coal, especially to reduce ash contents and rescue the coal sector from the clutches of the mafia. A total of 30 per cent of the industrial establishments are fictitious and they sell coal allotted to them in the black market. A drive has been launched to identify bogus establishments, he said.

 

Why power eludes Bihar

 

February 21, 2005. Electricity is available in only 15-20 per cent of the villages in Bihar. The region has electricity, but it gets power for around 15-20 minutes of the 24 hours. Alauli is supposedly on a motorable road from the district headquarters, Khagaria. It takes two hours to cover a distance of 18 km.  The providers of electricity have their own problems. Bihar, especially, after its division, produces no power and has to buy electricity from the power-surplus Eastern Grid. The Muzaffarpur Thermal Power Station has been closed for more than a year now, because the power board discovered it cost more to keep the plant running than the power it produced. The Barauni Thermal Power Station operates two or three days a week and a maximum of a week or 10 days a month. It operates at 15-20 per cent capacity. The state buys power from the National Thermal Power Corporation’s Kahalgaon, Tal-cher and Farakka units, the National Hydro Power Corporation’s Rangsit and Sikkim units and from the Power Trading Corporation that supplies power from Bhutan’s Chukha hydro power project.  These agencies also want their bills settled in cash. At the same time, the power board has to pay the wages and salaries of its predominantly non-technical staff. The state’s power bill every month is Rs 95 crore (Rs 950 million). With salaries, this adds up to Rs 130 crore (Rs 1.3 billion). Tariffs, especially domestic tariffs, are graded on the basis of units consumed. But the domestic tariffs are absurdly low, the lowest in India. For a home that consumes 100 units or less, the tariff is Rs 1.80 paise a unit.  Industry and commercial establishments, on the other hand, pay as much as they do in states like Delhi and Punjab. The state collects revenue amounting to Rs 65 crore (Rs 650 million). The state accumulates a deficit of around Rs 25 crore (Rs 250 million) a month. They admit that not only do they have to revise their tariffs upwards (this was done last in 1993), but also that they will face an explosion of demand when more an more villages like Alauli are electrified as part of the rural electrification programme that is going on apace. The state power board is trying out outsourcing - for maintenance, bill preparation and revenue -collection. But at peak demand, once the first phase of electrification is over, Bihar will require four to five times the amount of power it gets now - it buys between 800 Mw currently to satisfy a demand of 1,000 Mw.

 

Orissa wants free power from projects  

 

February 21, 2005. While the Union power minister is trying to convince states to forgo the free power they are entitled to from hydro projects, Orissa has launched a campaign to get free power from export-oriented thermal power projects coming up in the state. The government has written a letter to the Union power ministry, demanding compensation from such power projects. It has pointed out that the state would not get any benefit from such projects even though it would suffer owing to depletion of resources and pollution. With 51,571 million tonne of thermal grade coal, almost 25 per cent of the country’s reserves, and abundant water resources, Orissa has the potential to become the Ruhr of India. Realising it could be the nation’s powerhouse, the state government is working out a policy for thermal generation. The draft policy suggests export-oriented plants compensate the state for the use of its natural resources and infrastructure. At present, states get 12 per cent of the hydro power generated each year, free of cost. The cost is recovered from the rest of the electricity sold, which makes the rates uncompetitive for paying consumers. However, many states, like Jammu & Kashmir, Arunachal Pradesh and Madhya Pradesh have decided not to take free power from hydro projects for the time being.

 

Approval for gas-based projects soon 

 

February 21, 2005.  The Maharashtra government is shortly expected to give its in-principle approval for expansion of the gas-based Uran project and development of a greenfield project at Talegaon in Pune district. The Maharashtra State Electricity Board (MSEB) proposes to increase the generation capacity of the Uran gas plant to 1,400 mw, while it has prepared a plan to set up a gas-based plant with 1,000 mw capacity at Talegaon. Currently, MSEB has to daily shed a load of 2,000 to 3,000 mw to meet the rising peaking shortfall. Currently, MSEB’s Uran plant, despite having a generation capacity of 950 mw, has been operating at 450 mw due to lack of adequate gas supply. The plant is getting gas of about 2.5 million cubic meters a day against its agreement with GAIL to supply 3.5 million cubic metres a day. MSEB is exploring the possibility of getting additional gas not only from GAIL but from other suppliers, too. It has received expression of interest from Bharat Petroleum, Shell Hazira Gas Pvt Ltd., Indian Oil Corporation and GAIL. GAIL has communicated to MSEB that the gas pipeline completion may take place in June 2006 and gas would be available thereafter. As far as the Talegaon project is concerned, MSEB is banking upon gas availability from the Dahej pipeline and from Reliance Industries.

 

BCCL to earn via e-auction 

 

February 21, 2005. Bharat Coking Coal Ltd (BCCL), a chronic loss-making subsidiary of Coal India Ltd (CIL), expects to earn an extra Rs 120 crore (Rs 1.2 billion) by selling coal through e-auction and sees it as a means of turning around. The recent initiative of the coal ministry, CIL and BCCL to sell coal via e-auctions is seen as a major reform that will curb, if not eliminate, black marketing in coal. While core sector users will continue to get coal via the usual routes, e-auctions are expected to weed the third parties who get the coal officially and sell it to users. Such e-auctions would also be beneficial for Eastern Coalfields Ltd, another loss-making subsidiary of CIL. 

 

Govt for more private players in hydro power sector

 

February 20, 2005. Concerned over the small number of private players in the hydro power sector, Power Minister P M Sayeed said the government will work towards bringing about policy measures to encourage private players. The contribution of private players in the hydro sector has remained minimal. There is vast potential of hydro power in the country still to be tapped, he said. The share of hydro power in the country's total installed capacity of 116, 000 MW has fallen to 27 per cent, he said adding, government was working towards increasing it to 40 per cent to meet the peak load demand. The 50,000 MW hydroelectric initiative initiated by the power ministry in 2003 was also progressing well. Power Secretary R V Shahi said in the 10th plan hydro sector has been allocated Rs 17,000 crore (Rs 170 billion) out of gross budgetory support of Rs 25,000 crore (Rs 250 billion) for the power sector.

 

Gujarat govt plans 2000 MW unit in MP

 

February 19, 2005. The Gujarat government will soon set up a 2000 MW power plant in Madhya Pradesh (MP). The memorandum of understanding (MoU) for the Rs 8000 crore (Rs 80 billion) project is likely to be signed shortly. This follows the Central government’s offer for setting up a unit in MP, which is facing a severe power shortage. A special purpose vehicle (SPV) would be set up for the power project with the Gujarat and MP governments sharing the costs as well as the electricity generated from the plant equally.  The proposed plant is expected to bring in additional power for the rural areas in Gujarat that have been facing power crisis. The mega plant will produce power at the cost of only 65 paise per unit as coal mined from the captive coal mines in Madhya Pradesh would be used to fuel the plant.

 

The location for the plant has not been finalised yet. The Centre wanted the state government to take part in this project as Gujarat shares its border with Madhya Pradesh and power transmission to both states would not be very difficult. This development comes at a time when the Gujarat government has been working desperately to meet the increasing demands of power from both industrial sector and domestic consumers. It has already decided to set up a 300 MW lignite-based power generation unit within the next three years.  The state government has also decided to give a new identity to the world’s ‘Greenest City’ Gandhinagar. It plans to make the city a ‘Surya Nagari’, with all the energy needs being met from solar power. 

 

Coal ministry to seek CCEA approval for expansion 

 

February 18, 2005. To increase coal production, the ministry of coal will soon be submitting four expansion projects to Cabinet committee on economic affairs (CCEA) for approval. The expansion projects will add about 25 million tonne (mt) of production per year. These projects are Dipika expansion project for an additional 10 mt; Gevra, for an additional production of 4 mt, both of South Eastern Coalfields Ltd; Rajmahal expansion project for an additional production of 6.5 mt of Eastern Coalfields Ltd and Ashoka expansion project for an additional production of about 5 mt of Central Coalfields Ltd. CCEA had recently approved 3 new coal projects — Kuldah, Bhubaneswari and Kania Projects of Mahanadi Coalfields Ltd— which are to contribute an additional production of 23 mt. The ministry of coal is speeding up clearances for various projects to meet the revised production targets in the context of the prevailing shortage scenario. The finance ministry has approved the conversion of government loans to Eastern Coalfields Ltd (ECL) and Bharat Coking Coal Ltd (BCCL) into equity. Both these have been declared as sick companies.

 

New rural electrification scheme approved 

 

February 17, 2005. The government approved the new ‘rural electricity infrastructure and household electrification’ scheme providing free single point connection to households below poverty line (BPL). This will provide a decentralised power distribution and supply system. The existing scheme of ‘accelerated electrification of 100,000 villages and 10 million households’ will be replaced by the new scheme. The minimum need programme for rural electrification will be merged with the new scheme. The scheme will provide a 100 per cent subsidy for single point connection to BPL households. The scheme enjoys 90 per cent capital subsidy for financing projects involving the creation of 33/11 kv or 66/11 kv sub-stations in the rural areas.

       

Maharashtra to buy entire DPC output

 

February 17, 2005. Crippled by power shortages of about 3,000 MW, the Maharashtra Government has agreed to buy the entire output of power from Dabhol Power Company (DPC) at Rs 2.30 per unit but it is not likely to flow into the grid for nearly over a year possibly more as several pre-revival issues remain to be sorted out. The coast-based plant near Guhagar built by Enron, Bechtel and General Electric has been in mothballs since May 2001 when the State-owned utility rescinded the power purchase agreement (PPA). At that time, the 695- MW phase 1 was operational; the 1,444-MW phase II was almost ready. The Maharashtra State Electricity Board, while annulling the contract to buy, cited misrepresentation of equipment standards and misleading efficiency claims revealed by poor performance. The MSEB was paying Rs 7 per unit at that time, adversely impinging on its fiscal health. Currently, energy is being bought from other States at Rs 3.15 per unit and more. The Centre is trying to catalyse the plant's revival and for the first one year it may be operated by the National Thermal Power Corporation before it is put up for bids.

 

Rs 20 billion for rural power

 

February 16, 2005. The government is expected to allocate Rs 2,000 crore (Rs 20 billion) for rural electrification in the Budget. The programme, which aims at supplying electricity to all rural areas over the next five years, is to be jointly implemented by the Centre and state governments. Fifty-six per cent of rural households do not have power supply.  A committee of secretaries, including those of power, finance and the Planning Commission, had recently approved the power ministry's revenue model. It envisages an enhanced capital subsidy of 90 per cent, against the current 40 per cent. At present, 90 per cent capital subsidy is available only to special category states. The proposal was approved in-principle by the Cabinet.  The power ministry has been asking for decentralised management, proposing that states must be made to agree to a system of franchisees for collecting user charges. This, the states say, can be done by roping in the NGOs and panchayats. Other than household electrification, the programme aims at setting up rural electricity infrastructure for agriculture and irrigation, small and medium industries and social services like health and education. Phase I of the project envisages an investment of a little over Rs 6,000 crore (Rs 60 billion). 

 

DPC’s Indian lenders to acquire offshore debt  

 

February 16, 2005. Efforts to revive the beleaguered Dabhol project have received a boost with Indian and offshore lenders to the now fallen Dabhol Power Company (DPC) arriving at a settlement. As per the deal, the Industrial Development Bank of India (IDBI)-led lenders would pay $230 million to offshore lenders for acquiring their debt. There has been outstanding principal due of $289 million as on date payable to offshore lenders. Indian and offshore lenders have been engaged in negotiations since last year. Offshore lenders have advanced loans worth $310 million to DPC. If interest and other charges are added, the total outstanding stands at $410 million. Against this, offshore lenders were initially demanding $240-260 million whereas the Indian lenders had offered to pay $146 million to acquire offshore debts.

 

 

OIL & GAS

 

 

Marathon discovery in Angola

 

February 15, 2005. Marathon Oil Corporation announced that its subsidiary, Marathon International Petroleum Angola Block 31 Limited, has participated in the fifth deepwater discovery on Block 31 offshore Angola. The Palas-1 discovery was drilled in the southeastern part of Block 31 approximately 60 kilometers (37 miles) southeast of the planned Northeast Development Area where the previous four discoveries were made. The Palas-1 discovery well is located approximately 160 kilometers (100 miles) off the Angolan coast in 1,602 meters (5,256 feet) of water. The well was drilled to a total depth of 3,770 meters (12,367 feet) and tested at a maximum rate of 5,330 barrels of oil per day through a 40/64 inch choke.

 

Russia to increase oil and gas output

 

February 16, 2005. Oil production may increase from 9m to 11m barrels a day; gas output may advance from 623bn cubic meters to 764.6bn cubic meters a year. These forecasts were made by LUKoil President Vaghit Alekperov. Alekperov commented that it would be possible to reach these figures, provided that the transportation infrastructure develops adequately. Alekperov reported that Russia's oil exports to the USA totaled 145,000 bpd in 2004; exports to China amounted to 216,000 bpd. He also added that the emergence of Russian oil on the global market is capable of changing the balance of supply and demand both in the Atlantic and Pacific regions depending on where the most part of oil will be delivered. The LUKoil head also expressed his interest in delivering gas to the USA.

 

Van Leeuwen Buizen awarded contract in Iran

          

February 17, 2005. Van Leeuwen Buizen has been awarded a contract worth more than US$ 21 million by an Iranian contractor for the supply of valves on the Salman Offshore Oil and Gas Field in Iran. The development project for Salman Oil and Gas Field, located in the Persian Gulf, aims at daily production of 50,000 barrels crude oil and 540 million cubic feet gas. The total project scope includes the reconstruction of five platform jackets and seven platform topsides as well as related bridges. Completion of the project is scheduled for mid 2005.

Santos takes over gas field

 

February 18, 2005. Santos Ltd gained operating control of the Patricia Baleen gas field in the emerging Gippsland gas hub after acquiring assets from Basin Oil Pty Ltd. The acquisition will increase Santos’ 2005 production by about 1.3 million barrels of oil equivalent (mmboe) and add eight mmboe to its proven and probable reserves. The acquisition is a strategic one for the company which boasts 643 mmboe of proven and probable reserves and a 2005 production target of 60 mmboe, strengthening the Adelaide-based company’s foothold in the strategically important Gippsland Basin. Basin Oil holds all of OMV Petroleum Pty Ltd’s Gippsland Basin and Cooper Basin assets and will include 40 per cent of the Patricia Baleen project, 40 per cent of Sole gas field also in the Gippsland basin and 2.1 per cent of the Cooper Basin.

 

Texas discoveries

 

February 18, 2005. Valkyries Petroleum Corp. announced the testing results on its two new discoveries in the South Texas play. The Diamond discovery well tested gas at a rate of 612 thousand cubic feet per day with no water from 12 feet of perforations in the Pettus sands at a depth of 4,518 feet using a 10/64th inch choke. Petrophysical analysis of the electrical logs in this section shows porosities of between 30 and 40 percent.

 

Mexico needs partners for deep sea oil

 

February 21, 2005. Mexico needs to work with as many industry players as possible to explore potentially huge deep-sea oil reserves that are crucial to its future output. Chris Sladen, British Petroleum's vice-president for exploration and production in Mexico, told an energy forum that the risks and challenges of drilling down to depths of over 2,000 meters mean success depends on technical and financial collaboration. Sladen said Mexico would need to invest around $200 billion over roughly 20 years to access deep sea reserves which state-oil monopoly Petroleos Mexicanos (Pemex) has said could be as large 54 billion barrels of crude oil equivalent. Pemex said earlier this month it needed $15 billion per year over 15 years to access its deep sea reserves. Pemex is talking to international oil companies including BP about helping it exploit deep water reserves for which it lacks cutting-edge technology, expertise and funding.

 

ExxonMobil gets oil rights in Nigeria

 

February 21, 2005. ExxonMobil Corp. received approval to exercise its rights in five offshore oil blocks on offer by Nigeria and Sao Tome to pave the way for final licence awards to be made, the bidding authority said. The exploration blocks are located in the Gulf of Guinea, which has seen a swathe of huge deepwater oil discoveries over the past decade and could provide the United States with a strategic supplement to its energy supplies from the crisis-ridden Middle East.  The U.S.-based energy giant has a right to a 25 percent stake in any two blocks in the second bidding round which began in December, the Nigeria-Sao Tome Joint Development Authority (JDA) said in a statement. The JDA received bids from 23 firms for five blocks in the deep waters shared by Africa's top oil producer and Sao Tome, a tiny, impoverished island nation taking its first steps into the world of big oil.

 

 

HSBC to advise on China oil refining project

 

February 18, 2005. HSBC Holdings Plc. has been hired as financial adviser for a $3.6 billion oil refining and petrochemical project in southeastern China. The project is sponsored by a 50/50 joint-venture between Sinopec Corp. and China's Fujian provincial government, ExxonMobil Corp. and Saudi Aramco. It is scheduled for operations in 2008. HSBC has "been mandated as financial adviser for the Fujian project". HSBC has yet to discuss with the project sponsors on how to finance the project, involving the expansion of an existing refinery to 240,000 bpd from 80,000 bpd, and the construction of a petrochemical complex. HSBC can arrange project finance a method of financing secured against future cash flow of the project or just commercial loans guaranteed by the sponsors.

 

Plans for new Yemen refinery

 

February 21, 2005. Yemeni businessmen and foreign investors are planning to begin building a new 60,000 bpd oil refinery early this year on the Red Sea at an estimated cost of nearly $300 million. Yemeni businessmen will invest around 40 per cent of the total, and a foreign-owned contribution will contribute the remaining 60 per cent. The planned refinery will be located on Ras Issa near Al-Hodeidah on the Red Sea, 270 km west of Sana'a.  There are currently two oil refineries in Yemen, one in Aden established in the 1950s by British Petroleum and another in Marib built in the 1980s to service the fields operated by Hunt Oil. These refineries produce 90,000 bpd of gasoline for local consumption, covering just half of the local demand, which exceeds 180,000 bpd.

 

Masjed Soleiman gas refinery next year

 

February 22, 2005. Iran’s most modern refinery will be officially inaugurated in Masjed Soleiman next year. Director of the project told that building the refinery has so far progressed more than 93 percent. Gholamreza Askari said that the project was launched in January 2003 and was delayed by heavy rainfall during the current year. The refinery is capable of processing 38,000-50,000 cu. m. gas per hour and takes advantage of digital technology. Askari stated that more than 40 percent of equipment used for building refinery has been made in the country. In addition to refining one million cu. m. gas per day, which can be increased to 1.5 million cu. m., the refinery will produce 700-800 barrels gas condensate. The official stated that the refinery has been designed by the National Iranian Gas Company and needed feedstock will be supplied by a 12-inch, 25-km pipeline, which starts at Naft Sefid oil field

 

 

Shtokman field could supply Europe

 

February 15, 2005. Gas from Russia's undeveloped offshore Shtokman field could be shipped to Europe as well as to feed Gazprom's planned liquefied natural gas plant, Tore Torvund, president of Norsk Hydro Oil and Energy said. Russian monopoly Gazprom hopes to name a partner by mid-2005 to help develop the field in the arctic Barents Sea, which has one of the world's biggest gas deposits, with 3.2 trillion cubic meters of gas and 31 million tonnes of condensate. Norwegian group Norsk Hydro is one of five possible partners for the project. Gazprom has said it hoped to build the LNG export terminal to market gas from the field as part of its strategy to supply U.S. markets. The first stage of Gazprom's planned development will involve producing around 30 billion cubic meters of gas to supply the LNG plant, which will have a capacity of up to 15 million tonnes of LNG a year.

 

China to get 40 pct of gas from Gorgon

 

February 16, 2005. ChevronTexaco Corp. expects about 40 percent of natural gas from the large Gorgon project off Western Australia to be supplied to China. About 40 percent of the remaining gas was expected to be supplied to Japan and Korea while 20 percent would be supplied to the U.S. West Coast. The move comes as energy-thirsty countries like China play an increasing role in natural gas deals. The $11 billion Gorgon project is expected to deliver in 2008 its first liquefied natural gas (LNG), a super-cooled, compressed form of gas.

 

FERC's Wood sees eight new LNG terminals by 2010

 

February 16, 2005. Eight new LNG receiving terminals should appear in the United States by 2010, the chairman of the Federal Energy Regulatory Commission said. He said he expects LNG to more than replace depleted domestic natural gas production, meaning some new pipeline and storage will be needed to serve inland markets. "There will be a need of some enhancement of Gulf capacity," Wood said. Currently, more than 50 new regasification terminals are on the drawing board for North America. On the regulatory front, Wood said he looks forward to resolving the current intergovernmental battle between FERC and the California Public Utilities Commission (CPUC) over LNG terminals, specifically one at Long Beach proposed by Mitsubishi Corp. subsidiary Sound Energy Solutions.

 

Russia will continue to supply oil to Hungary

 

February 16, 2005.  Russian Prime Minister Mikhail Fradkov confirmed Russia's intention to continue fulfilling its previous obligations to supply oil to Hungary. "We discussed the issue of oil supplies from Russia to Hungary. We confirmed that Russia would continue fulfilling its previous obligations," Mr. Fradkov said. In Mr. Fradkov's opinion, Russian-Hungarian cooperation in the fuel and energy sphere is promising.

 

Proposed pipeline projects for Canadian crude

 

February 17, 2005. Pipeline companies are in a race to add up to 600,000 bpd of new shipping capacity to refining markets in the United States and beyond as a spate of oil sands projects start over the next 10 years.

 

Sakhalin, Tokyo Gas finalise 24-year LNG deal

 

February 18, 2005. Sakhalin Energy said it agreed to sell Tokyo Gas Co. 1.1 million tonnes a year of LNG for the next 24 years, marking the project's first full sales and purchase agreement (SPA). The deal finalises an agreement in principle that the two firms had signed in May 2003. Sakhalin Energy will start supplying LNG to Japan in November 2007. Tokyo Gas said it decided to buy LNG from the Royal Dutch/Shell-led Sakhalin II project, based on an island in Russia's Far East, because of its proximity to Japan. Sakhalin Energy said the deal was worth about $3 billion over the life of the contract. Japan's biggest gas distributor, Tokyo Gas currently buys about 8.2 million tonnes of LNG from suppliers such as Malaysia and Indonesia. Sakhalin II is Russia's largest ever foreign investment. Operator Shell owns a majority 55 percent stake. Mitsui & Co. holds 25 percent and Mitsubishi Corp. 20 percent. Shell said it had sold 70 percent of the 9.6-million-tonne annual capacity of the $10 billion project, and said it expected to sell all of it within three years.

 

CPC capacity might be increased in March

 

February 21, Kazakh government might decide to increase the capacity of an oil pipeline managed by the Caspian Pipeline Consortium (CPC) up to 68 million tons per year as early as on March 1, announced Kazakh Energy and Mineral Resources Minister Vladimir Shkolnik during his speech in the lower chamber of the Kazakh Parliament. The Kazakh minister said that the increase of the CPC oil pipeline capacity was necessary due to the expansion of the second stage of the Tengiz field. "The field will see the increase of oil production output up to 20-30 million tons, the surplus oil will have to be transported somewhere else and we do not have an alternative other than increasing the capacity of the CPC pipeline," Mr. Shkolnik said.

 

Lukoil to enter German oil market

 

February 21. LUKOIL Vice-president Leonid Fedun is negotiating the purchase of a 50-percent stake in Germany's Ruhr Oel GMBH company. Germany, Europe's largest fuel market, also ranks as the fourth largest fuel market in the world. Ruhr Oel accounts for nearly 20 per cent of the entire German fuel market, annually refining 50 million tons of crude oil. British Petroleum and PdVSA (Petroleos de Venezuela) currently own 50 per cent stakes each. PDVSA has repeatedly tried to sell its stake in Ruhr Oel because it is difficult for PDVSA to turn a profit making daily crude oil deliveries to German refineries in light of sky-high global oil prices. Venezuela wanted to sell its Ruhr Oel stake to Russia's Alpha Group in 2003, with experts estimating the potential deal at $600-900 million.

 

Commercial supply of gas from Gurguri field

 

February 19, 2005. Commercial supply of natural gas from Gurguri oil and gas fields in Karak district in Pakistan has been started through 78 kilometre-long 10 inch-diameter pipeline to Kohat and other parts of the country. This is in addition to the production from Shakardarra oil fields in Kohat from where nine million cubic feet gas and 2,500 bpd is being supplied to Punjab since July last. Huge oil and gas reserves were discovered in the most backward and barren area of southern NWFP, Gurguri, in 2002. The gas reserves are estimated to be 100,000 trillion cubic feet whereas 300 barrel oil was also being produced by the facility daily. The oil wells could produce up to 4,000 bpd.

 

New pipelines for distribution of gas in Norway

 

February 19, 2005. The coalition government and the Labour Party have agreed on a plan to build pipelines for the distribution of natural gas from the west coast of Norway to Grenland in Telemark and along the Trondheims Fjord to Skogn. The parliamentary majority have agreed that times have come to increase the domestic use of Norway's large resources of natural gas. The agreement is based on the assumption that the projects will be partly state financed. The four parties are agreed that Statnett or another state-owned company will cooperate with commercial interests and the local industries in Grenland and Troendelag, in order to realize the plans for building the pipelines.

 

 

Western firms 'doomed' to invest in Russia

 

February 15, 2005. Western energy companies are "doomed" to invest in Russia because of the lure of the country's abundant oil and gas resources, the president of Russian oil giant Lukoil said.  New Russian government rules barring foreign companies from bidding on the country's most lucrative natural resource deposits have raised fears the country has become hostile toward foreign investors. The Russian Ministry for Natural Resources has said it would only accept bids for strategic energy and metals concessions from companies that were at least 51 percent Russian owned. Russia's oil reserves are believed to total about 13 percent of the global total, while its gas reserves are about 25 percent of the global total.

 

Bullish BG looks to further growth

 

February 15, 2005. BG Group continued to outshine bigger industry peers last year by replacing all of the gas and oil it extracted from the ground.  Britain's biggest independent energy group also raised production targets and its sustained performance will lend weight to speculation that it could become a takeover target. However, some analysts raised concerns about an increase in finding and development costs and one said there was an “element of ‘trust me'” that BG would deliver its big projects beyond 2008.

 

Venezuela & Brazil sign trade pacts

 

February 16, 2005. Venezuelan President Hugo Chavez and his Brazilian counterpart, Luiz Inacio Lula da Silva, signed bilateral trade agreements in their effort to establish a strategic economic alliance between the two South American nations. Chavez and Lula da Silva signed a series cooperation accords, including joint ventures between the two countries' state-owned oil companies hinged on building a refinery in northeastern Brazil with technical assistance from Petroleos de Venezuela, or PDVSA, and opening Venezuelan oil fields to exploration by Brazil's Petrobras. Other agreements signed included deals to cooperate on agricultural and scientific development, increase commercial trade, and build bridges and highways connecting to two neighboring countries. Chavez said Venezuela was willing to ink other trade deals with fellow South American nations, including Argentina, instead of the United States, even if it would meant lower profits for oil-rich Venezuela.

Pakistan Govt. approve energy plan

 

February 16, 2005. President and Prime Minister approved an action plan to meet Pakistan’s growing energy requirements in the immediate, medium-term and long-term perspectives. The two leaders observed at a presentation on Energy Security Action Plan, that Pakistan had abundant energy resources, which needed to be harnessed through an institutionalized strategy for optimum utilization. Under the action plan, Pakistan aims at meeting its development requirements keeping in view the international trends in the energy sector and availability of resources. The action plan sets out to achieve exploration and maximum utilisation of indigenous resources like oil, gas and coal and alternative sources like solar and wind energy. It will seek increase in hydel power production through construction of a series of hydropower projects and proposes integration of coal mining in the power generation.

 

Oil Giant Repsol announces five-year plan

 

February 16, 2005. Spanish-Argentine oil giant Repsol YPF announced plans to invest $1.1 billion in western Argentina over five years on exploration and refining projects. A company said the investments would be made in Mendoza province over the next five years. Repsol's said the outlay is to be spent on "exploration, production and the development of reserves," with this year's expenditures totaling $140 million. He said the plan also would include investments to upgrade the Lujan de Cuyo refinery in western Argentina to meet new gasoline sulfur requirements taking effect in 2008. Repsol announced separately last month that it planned to invest a total of $1.2 billion in Argentina this year alone on various projects.

 

Myanmar's gas riches attract Asian investors

 

February 17, 2005. Politically and economically isolated for more than a decade, Myanmar is being thrown a lifeline by its Asian neighbours, which are jostling to spend billions of dollars to tap the country's energy resources. Slightly smaller than the US oil state Texas and bordering the Andaman Sea and the Bay of Bengal, little explored Myanmar is estimated to hold 13-15 trillion cubic feet (tcf) of natural gas, 7 per cent of total proven reserves in Southeast Asia.  Aggressive state companies from China, India, Thailand, Malaysia and South Korea, undaunted by US and European sanctions, are looking to invest their big cash piles to develop Myanmar's gas fields and build pipelines and hydropower dams. Oil and gas is a key source of revenue and one of the few growth areas for Myanmar's economy.

 

Export duties on Russian refined products

 

February 18, 2005. The Russian government has issued a decree setting new export duties on refined petroleum products. Under the decree, the duty on light by-products of petroleum refining (such as benzene, toluene, propane, butane, oils, etc.) shall be raised to 68.2 dollars per ton, from the current $57, whereas the duty on dark by-products (liquid fuels) shall be lowered to 36.7 dollars per ton, down from $45.4.  Alexander Sakovich, deputy head of the Finance Ministry's Customs Duties Department, explained that a new method had just been introduced to calculate export duties on refined petroleum by-products. According to him, calculations will be based on the two-month average of the price of Russian crude on the world market rather than the duty on crude exports, as has been the case until now.  The margin between the average price of crude and the untaxed minimum of $109.5 per ton will be multiplied by 0.236 for fuel oil and by 0.438 for other by-products. The newly-set duties have been calculated on the basis of Russian crude's average price in November and December 2004, or 36.36 dollars per barrel.

 

Kazakh, Indian ministers discuss oil, gas cooperation 

 

February 18, 2005. A meeting of the Kazakh-Indian intergovernmental commission was held in Astana. The development of relations in the oil and gas sector was the main topic. Indian Natural Gas and Petroleum Minister Mani Shankar Aiyar is leading the Indian delegation. The guests outlined a quite wide area of interests in exploring and developing Kazakhstan's hydrocarbon deposits. However, Kazakh Energy and Mineral Resources Minister Vladimir Shkolnik said that Indian companies would take part in tenders and contests on the general terms. The North-South transport corridor project was another topic of discussion. The project provides for building communications and logistics research. All this is necessary to ensure the free movement of goods, including oil and gas from the shores of Finland to the states of the Pacific region. Following the meeting a protocol and a memorandum were signed between the Kazmunaygaz Kazakh national oil and gas company and the Indian company ONGC Videsh Ltd.

 

Taiwan sets up task force to promote saving energy 

 

February 18, 2005. The Ministry of Economic Affairs (MOEA) set up a task force to provide government agencies and the business sector with information on how they can better save energy. MOEA officials said that the task force, formed by officials and experts from the Bureau of Energy, Chinese Petroleum Corp, China Steel Corp and Taiwan Power Co, will make a tour across the nation to teach government agencies, large energy-consuming enterprises and shopping malls how to save energy. Taiwan will save energy equivalent to the consumption of 295,000 kilolitres of oil and will reduce the emission of 810,000 tons of carbon dioxide a year if the energy-saving measures to be promoted by the task force are implemented, they noted. Steel mills, petrochemical plants, manufacturers of cement, paper, textiles and electronics, power plants, government offices, schools, hospitals, department stores, hotels, convenience stores, shopping malls and theatres are the main targets of the task force.

 

Indian minister in Russia to secure oil, gas investment 

 

February 21, 2005.  With Russia emerging as a world energy power, Indian Petroleum Minister Mani Shankar Aiyar asked the country's oil and gas companies to heavily invest in India's burgeoning oil and gas sector under the New Exploration Licensing Policy (NELP). Addressing a jam-packed road show organized by his ministry to promote the stage five of NELP, under which India has offered 20 oil and gas blocks to foreign investors for exploration and development. He reminded that Soviet Union and Russia had played a great role in building Indian oil and gas industry when in 1955 Russian oil specialists struck oil in India and belied the 150 years of British claims that there were no energy  reserves in the country. Russia's oil major Gazprom is already in 50-50 tie up with GAIL for exploration and production of an offshore gas field in the Bay of Bengal. Aiyar underscored that Russia, as Asia's biggest energy producer, could enter into a strong partnership in building a stable Asian oil market with soaring Chinese, Indian, Japanese and Korean demand. "Asia is most divided continent on earth, but there are no objective reasons for this. We have been kept divided by outside powers. But oil and gas pipeline grids will unite Asia," he said. Aiyar said he has been authorized by the government to enter into negotiations for building gas pipeline from Turkmenistan to India via Afghanistan and Pakistan. "My cabinet colleague K. Natwar Singh has had path-breaking talks in Islamabad and I am shortly expecting invitation to visit Pakistan to speed up Iran-Pakistan-India gas pipeline which in future could go through India to China's southern Yunnan Province," he said. During his visit, Aiyar is to hold extensive negotiations with the Russian officials including Deputy Prime Minister Aleksandr Zhukov, Energy Minister Viktor Khristenko, Gazprom Chairman Aleksey Miller and Rosneft CEO Sergey Bogdanchikov to expand India's investments in Russia's oil and gas sector beyond Sakhalin-1, including picking stakes in Yukos core asset Yuganskneftegaz.

 

India ready to invest $25 billion in Russian oil

 

February 22, 2005 India is ready to pay an incredible price for the right to produce oil and gas in Russia. According to a Russian government official, the Indian oil and gas ministry has sent a letter to Russian Prime Minister Mikhail Fradkov proposing $25 billion in investment in Russia. After arriving in Moscow, Aiyar Mani Shankar, India's minister of petroleum and natural gas, confirmed that his country was ready to invest billions of dollars in Russia. He specified the projects that interested him the most, one of which was a share in Yuganskneftegaz, the former Yukos subsidiary that state-run Rosneft bought in December. Indian companies would also like to work as part of the Sakhalin-3, which Russia could hold a tender for this year, and are interested in Rosneft's assets, the Vankorskoye oilfield and Severnaya Neft project. The minister also said that Indians would welcome investors from Russia. "The figure of $25 billion is comparable with the capitalization of LUKoil and Surgutneftegaz taken together," says Kakha Kiknavelidze. He points out that this money could buy a Sibneft one and a half times over, whereas Yuganskneftegaz was sold for a mere $9.35 billion. However, the expert does not believe Indian investors are ready to produce all the money in one go, but sees a timetable of between 15 and 20 years as a more credible prospect. However, the government source says Russia has several other issues to address, notably the Yugansk sale to Rosneft, which Yukos is contesting in a US court, before it can negotiate with ONGC, India's largest oil company, about its role in the aforementioned projects. The court proceedings in America deterred Gazprom from bidding for Yugansk and delayed its anticipated merger with Rosneft. The government official admitted that uncertainty over this transaction complicated negotiations with the Indian partners.

 

POWER

 

 

Kuhrang hydro power plant inaugurated in Iran

 

February 16, 2005. The 35-megawatt Kuhrang Hydro Power Plant was inaugurated in this southwestern province. The plant, established at a cost of 350 billion rials, has a projected capacity of 128 million kilowatt-hours of energy annually. Kuhrang Hydro Power Plant has created 600 job opportunities for provincial residents. The plant's operation, the country's electricity production will rise from 4,000 megawatts to 12,000 megawatts by the end of the Fourth Five-Year Development Plan. The 500 megawatts of total electricity supply is to be provided by the country's private sector. The Kuhrang Hydro Power Plant is located 86 kilometers west of the provincial capital Shahre Kord.

 

Ranhill converting Sabah power plant

 

February 17, 2005. RANHILL Powertron Sdn Bhd, a 70 per cent-owned subsidiary of Ranhill Power Bhd, has signed a conditional acceptance letter for an offer to undertake a RM274mil engineering, procurement and construction contract to convert the Teluk Salut Power Plant at Menggatal, Kota Kinabalu, from 120MW to 190MW.  Ranhill Power said in a statement the offer was from Ranhill Engineers and Constructors Sdn Bhd, a wholly-owned unit of Ranhill Bhd.

 

Centrica buys Argus-Indexed UK Power

 

February 18, 2005. Centrica plc, the UK's largest household energy supplier signed a power supply contract based on the Argus/McCloskey API 2 coal index, as part of its aim to further increase diversity in its power portfolio. The deal is Centrica's first coal-indexed power purchase and represents the first step in the company's strategy to increase the link between input costs and coal pricing. Although Centrica receives around a quarter of its gas requirements from its own production, it remains a large net buyer, and is continuing to focus on meeting its energy procurement requirements from a range of sources.

 

 

CHEY announces power supply contract

 

February 16, 2005. China Energy & Carbon Black Holdings, Inc. announces that its newly acquired subsidiary South Xinjiang Power Holdings Limited has signed a power supply contract with Zhe Pu Textile Company Limited. The contract is for South Xinjiang Power to supply Zhe Pu Textile with 1,500 kilowatts of electricity on a "continuous and non-disruptive" basis at a pricing of 5.16 cents per KWh in 2005 (Annualized revenue of approximately $678,000.00), and market price thereafter.

 

Africa, new market for Iran’s energy

 

February 22, 2005. Africa represents a lucrative market for Iran’s energy projects, an Iranian industrialist says. “We have close cooperation in electricity with three African nations and we have started negotiations with two others”. He said Iran signed electricity deals with Nigeria, Senegal and Zimbabwe during a recent African tour of President Mohammad Khatami. “Our deals with Nigeria and Senegal totaled 80 million euros while the value of our agreement with Zimbabwe stands at 140 million dollars.” “We are also continuing talks with Mali and Benin for building power plants.” The official stated that his company has so far reached more than 700 million dollar worth of deals, adding that the figure will rise to one billion dollar in the forthcoming year

 

KPLC to export electricity to Uganda

 

February 22, 2005. Kenya is exporting 10 megawatts of electricity to Uganda on daily basis to alleviate power rationing that has hit the neighbouring country. Industry sources said the export agreement between the Kenya Power and Lighting Company (KPLC) and Uganda Electricity Transmission Company (UETC) was signed recently. Industry insiders said Kenya started exporting the 10mw to Uganda beginning February this year. The export deal has already been forwarded to the Electricity Regulatory Board (ERB) for approval.

 

Chesf to invest US$155mn in transmission - Brazil

 

February 22, 2005. Brazilian federal energy company Chesf plans to invest 400mn reais (US$155mn) in transmission in 2005, up 30 per cent from 309mn reais in 2004, the company's transmission operations. Most of the investment will be to strengthen transmission operations in Ceará and Piauí states in the country's northeastern region where Chesf operates. The main investments will be to build two lines Chesf won contracts for in a 2004 tender; the 200km, 230kV Milagres-Tauá line estimated at 67mn reais, and the 120 km, 230kV Milagres-Coremas line that will need 37mn reais investment.

 

Baseload power facilities needed in Panay Island

 

February 17, 2005. There is a need to put up baseload power facilities in Panay Island to solve on impending power shortage in the island. Energy Undersecretary Guillermo Balce said the construction of baseload power plants, which are running 24 hours, is a permanent solution to the power deficiency in the island. Balce has appealed to the people of Panay Island for their sobriety in the midst of plans to put up additional power generating capacity in the island, located at the tail-end of the Cebu-Negros-Panay grid. Balce said a power plant operating on a 24-hour basis and running at a high capacity factor, which a baseload plant could deliver, is considered to be the most efficient and viable. 

 

Power companies invest in Venezuela

 

February 16, 2005. State-owned and private power companies operating in Venezuela invested about US$1bn in 2004 to meet growth of about 7 per cent in demand, the executive vice-president of the Venezuelan power sector chamber Caveinel, Carlos Pérez Mibelli, said. Of the US$1bn investment, US$600mn was for generation, US$200mn went on transmission and the rest on distribution. State companies led the investment with about US$600mn, including Cadafe, which deals mainly with distribution, and Edelca, which deals with hydro generation.

Regulators approve BC Hydro power deal

 

February 17, 2005. Provincial regulators approved an energy purchase contract between BC Hydro and developers of a 262 megawatt power plant on Vancouver Island near Nanaimo. The British Columbia Utilities Commission approved the agreement between BC Hydro and Duke Point Power LP, contingent on the utility securing natural gas transport deal with Terasen Inc. Terasen won approval this week to build a C$100 million ($81 million) liquefied natural gas storage facility in the area. Provincially owned BC Hydro was forced to look for a private partner for the proposed project after regulators shot down an earlier plan as too costly. Both plans have drawn opposition from environmentalists. The plant's investors include Pristine Power and a unit of the Macquarie Group. The plant would begin operations in 2007.

 

China power plant loans advance

 

February 21, 2005. Two Western firms are one step closer to building nuclear power plants for energy-hungry China. The U.S. Export-Import Bank has given preliminary approval for up to $5 billion in loans to Westinghouse Electric Co. for the proposed construction of four nuclear power plants in the country. San Francisco-based Bechtel Corp. is among the other U.S. suppliers involved in the Westinghouse proposal. The Chinese government is accepting bids for the plants, which are needed to meet the increased demand for power in the heavily industrialized region of the country, and the contracts will be awarded this year. About 80 percent of China's electricity is supplied by fossil fuels, mainly coal, according to the World Nuclear Association. The country has nine nuclear reactors in operation and two units under construction, and plans a fourfold increase in its nuclear capacity by 2020.

 

Turkey and Iran to consume Armenian power

 

February 22, 2005. The Russian UES (United Energy Systems) Company plans electricity supplies to Turkey and Iran, UES chairman said. The UES manages a set of generating facilities in Armenia. It keeps in trust management 100 percent of the Armenian nuclear power plant. As part of its debt repayment for the Russian nuclear fuel, the UES has received the property set of the Sevan-Razdan cascade and manages the Razdan heat and power plant. According to Mr. Chubais, the UES priority project in Armenia is the fifth unit of the Razdan facility.

 

Russia interested in India's investments into energy sphere

 

February 22, 2005. Russia is interested in Indian investments into the energy sector, Russian Vice Premier Alexander Zhukov said at a meeting with Indian Petroleum and Natural Gas Minister Mani Shankar Aiyar. "Russia is ready to consider different versions of such cooperation," Mr. Zhukov said. Russia sees India as a strategic energy partner and the Russian government is ready to take much effort in this sphere, he said. Mr. Aiyar said that a presentation of various projects, including one in the field of survey and production in India, was recently held for Russian oil and gas companies. He asked the Russian government to encourage companies willing to participate in Indian projects. India and Russia are interested in joint projects not only on their territories, but also in other CIS countries, Iran and others, where joint bilateral cooperation is possible, he said. Russia would like to consider Indian proposals for participation in projects involving Gazprom, Rosneft and Transneft, Russian Industry and Energy Minister Viktor Khristenko said when he met with Mr. Aiyar, according to a ministry statement. Mr. Khristenko outlined Russian interest in Indian companies' participation in geological survey and prospecting, the development of production fields of raw hydrocarbons in the Timan-Pechora oil and gas province, East Siberia and the Far Eastern region, West Siberia, the Barents and Okhotsk sea shelves.

 

 

 

MoU for bio-diesel plant

 

February 21, 2005. Kakinada Special Economic Zone (KSEZ) has signed an agreement with Natural Bio-Energy India for setting up the first eco-friendly bio-diesel plant. The 300-TPD integrated bio-diesel plant would be set up in the port town of Kakinada at an estimated cost of Rs 139.50 crore (Rs 1.4 billion) by Natural Bio-Energy India in joint venture with Energia GMDH, Austria. Kakinada SEZ is a port-based special economic zone project promoted by Kakinada Sea Ports Limited, ONGC and IL&FS.

 

TMB sanction for windmills

 

February 21, 2005. The Tamilnadu Mercantile Bank is promoting the setting up of windmill units to augment the sources of energy for generation of electricity. The bank has so far sanctioned Rs 179.70 crore (Rs 1.8 billion) during the current financial year for setting up of 27 windmills in Sanganeri, Ayakudi,Pazhavur, Kangayampalayam, Anthiyur, Panagudi, Karunkulam, Ponramapuram and Puliyur for generation of wind energy of 34.725 MW.

 

Pacific Renewables plans bio-refinery

 

February 18, 2005. The US-based Pacific Renewables Inc is planning to set up a bio-refinery in Gujarat. The company, which has completed a techno-economic feasibility study for the project, is in talks with the state and civic bodies for various clearances. The estimated Rs 5,000 crore (Rs 50 billion) project may be set up on the outskirts of Vadodara city, around 110 km north of Ahmedabad. Pacific Renewables will be following the co-operative model for procurements of raw material for its operations and raw materials would be mainly municipal and industrial waste. The bio-refinery would have a capacity of 150 tonne per day. The process of commissioning the pilot project with a refining capacity of 10 tonne per day has been initiated at Pore near Vadodara. The company has already procured land for the pilot project, while the state is expected to sanction land for the entire project. 

 

Bio-diesel plant at Nalgonda

 

February 17, 2005. The German Ambassador to India, Mr Heimo Richter, laid the foundation stone for the Rs 17-crore (Rs 170 million) bio-diesel project, claimed to be the first commercial bio-diesel plant in the country. The project, being taken up by Southern Online Bio Technologies Ltd (SBT), would be operational by November-end. It would produce 10,000 tonnes of bio-diesel annually. The German Government recently approved a grant of 3.80 lakh euros (Rs 20 million) for the project. The SBT company proposed to raise Rs 11.4 crore (Rs 114 million) through the public issue, while coming out with a rights issue to raise Rs 5.7 crore (Rs 57 million). The use of bio-diesel produced at the unit would help avoid 27,000 tonnes of carbon dioxide a year. The company received the ‘host country' approval from the Ministry of Environment, entitling it to sell carbon points. The company received expression of interest for buying such points from a consortium of European companies. The plant would consume seeds of pongamia, jatropha, neem and other oil-bearing trees. Bio-diesel would be blended with regular diesel for use in vehicles. The eco-friendly oil substantially reduced vehicular emissions.

 

Wind energy producers seek performance-based sops

 

February 18, 2005. Wind energy producers have sought the introduction of an innovative performance-based incentive system in place of the existing tax incentive scheme. The new system, it is felt, would help in expediting the growth of the wind energy sector. The sector has an installed generation capacity of about 2,800 MW, as on September 2004. Making a formal submission to the Finance Ministry to this effect, the Indian Wind Energy Association (InWEA) has suggested that the existing provision of an accelerated depreciation regime be reduced to a normal depreciation regime and the indirect fiscal benefits provided, as tax foregone, be linked to performance. For smoother implementation of the change in tax structure, it has proposed the introduction of tax credit certificates (TCCs) in place of the current system of accelerated depreciation. The proposed TCCs would expand investor base and reduce the cost of wind electricity to the utilities. Wind energy today enjoys an accelerated depreciation benefit at the rate of 80 per cent. While this has brought in a large amount of investment into the sector, it has effectively shut out independent power producers (IPPs) and foreign institutional investors who are unable to absorb this upfront depreciation benefit.

 

Exports of solar power equipment set to double

 

February 17, 2005. Exports of solar power generation equipment from the country are set to double in the next three years. After the Kyoto protocol was signed, several developed countries like Japan, US, UK and Germany are giving top priority to generate solar power and bring down pollution levels in the power generation sector. These countries are now importing solar power generation equipment from India in a big way. The demand for solar power generation equipment is slowly picking up within the country also. At present, the equipment cost is high. If we want to generate 1 MW of power through solar systems, we need to invest about Rs 30 crore (Rs 300 million). If we can produce the required equipment in a massive scale, the investment cost for a 1-MW power station will be between Rs 5 crore (Rs 50 million) and Rs 10 crore (Rs 100 million). 

 

Shell Solar signs energy MoU

 

February 18, 2005. The Malaprabha Grameena Bank signed a Memorandum of Understanding (MoU) with the Shell Solar Company, Bangalore for providing solar energy to the public at a low rate of interest. The Shell Solar Company has undertaken extensive research to produce cheap appliances for use at homes, shops and agriculture among others. The appliances are now ready for use. As per the MoU the MG Bank will provide loans at just 5 per cent to those desiring to install solar energy equipment. The appliances range in price from Rs 12,000 to Rs 350,000. The bank will provide 85 per cent of the cost as loan. The Shell Solar Company will provide after sales service to the customer.

 

 

California hotel to get power from fuel cells

 

February 19, 2005. Starwood Hotels & Resorts Worldwide said last week it will power a California hotel with fuel cells by year's end. Four 250-kilowatt fuel cell power plants will convert natural gas into electricity and heat. Fuel cells are, in effect, large, continuously operating batteries that generate electricity as long as fuel is supplied. Because the fuel is not burned, pollution is dramatically reduced. The plant, which is about the size of a semi-trailer, will supply base load electricity for the 1,044-room Sheraton San Diego Hotel & Marina.

 

Egypt, Germany sign contract for wind-power

 

February 22, 2005. Egypt and Germany have signed a contract to jointly finance the construction of a wind-energy power station in the Zaafarana area on the Red Sea. The German Reconstruction Bank has offered finance of 75 million Euros to the project. The project is part of a national drive to utilize wind energy and that the station would be operational and connected to the national electricity network by 2007. He mentioned that a 700,000 EU grant was currently funding a wind-farm feasibility study in the Gabal El-Zeit area.

 

CO2 capture project starts phase 2

          

February 21, 2005. The CO2 Capture Project (CCP) announced the commencement of the second phase of an important and strategic project to develop technologies that could mitigate GreenHouse Gas (GHG) emissions.  CCP is a Joint Industry Project whose participants are BP, ChevronTexaco, ConocoPhillips, Eni, Hydro, Petrobras, Royal Dutch/Shell Group of Companies (Shell) and Suncor.  CO2 Capture and Storage (CCS) is a technique to capture and geologically store the CO2 associated with the use of energy derived from fossil fuels. CCS is gaining increasing support as an option for mitigating GHG emissions. The first phase of CCP (CCP1) cost $50 million and developed a range of technologies to reduce the cost of CO2 capture and provide assurance that CO2 can be securely stored geologically.  Capture technologies include Pre- Combustion, Post-Combustion and Oxyfiring. Eight companies (BP, ChevronTexaco, EnCana, Eni, Hydro, Shell, Statoil and Suncor) and three governments (USA, EU and Norway) collaborated to manage and fund this technology development. The second phase of the project (CCP2) has now commenced, building on the achievements of Phase 1 by developing a focused suite of capture technologies to be ready for pilot testing by the end of 2007.  CCP2 also aims to demonstrate that the geological storage of CO2 is secure and can provide an attractive GHG mitigation option. The project has already received initial funding from the US Department of Energy and the Norwegian Research Council and plans to build on this with additional government support, forming a strong public/private partnership.

 

Kyoto and beyond

 

February 21, 2005. Nearly seven years after being agreed upon, the Kyoto protocol has finally come into force from February 16. The protocol is intended to reduce air pollution from greenhouse gases, rekindling hopes that the world will avert major ecological disaster due to global warming. It paves the way for an entirely new form of international commerce by way of carbon trading. Many believe that the emerging business, which will revolve around the trading of harmful gas emission reduction credits, will be much bigger than most other single commodities on the market today. Environment-conscious developing countries like India are among those looking for trading opportunities. Futures trading in carbon credits has already been on for some time now, while spot marketing has just begun. It is expected to acquire proper shape by 2008.  Though the Kyoto accord has been signed by 141 countries, it essentially binds only 38 industrialised nations to lower their emissions by 5.2 per cent from their 1990 levels by 2012. The 38 nations account for 55 per cent of the global emissions of six key ozone-depleting greenhouse gases. Developing countries have been exempted from emission cut commitments.  There is a degree of scepticism about the actual beneficial impact of Kyoto on two counts. First, and truly foremost, is the refusal of the world’s two major polluters—the US and Australia—to participate in it. While the US produces about a quarter of all the world’s greenhouse gases, Australia generates the most per capita emissions.

 

Despite claims by the Bush administration that it is pursuing a domestic clean environment programme that is as good as Kyoto, the country’s harmful emissions today are some 15 per greater than they were in 1990. The other cause for concern, strangely enough, is on account of those developed countries which have willingly taken on emission reduction commitments. Since none of them wants to put its own industries at a disadvantage, they have set themselves generous emission reduction quotas.  Optimists feel that both these concerns can be addressed in the next round of negotiations for thrashing out a successor to Kyoto in the post-2012 era. Hopefully, the rapidly growing pressure on the US and Australia to join the global mainstream will work. Under the new economic order, nobody can plough a lonely furrow for long.

 

 

 

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