MonitorsPublished on Jul 28, 2004
Energy News Monitor I Volume I, Issue 5
“Saving Iraq From Its Oil”

Escaping the resource curse


Oil riches are far from the blessing they are often assumed to be. In fact, countries often end up poor precisely because they are oil rich. Oil and mineral wealth can be bad for growth and bad for democracy, since they tend to impede the development of institutions and values critical to open, market-based economics and political freedom: civil liberties, the rule of law, protection of property rights and political participation.


Plenty of examples illustrate what has come to be known as the “resource curse.” Thanks to improvements in exploration technology, 34 less-developed countries now boast significant oil and natural gas resources that constitute at least 30 percent of their total export revenue1. Despite their riches, 12 of these countries’ annual per capita income remains below $1500, and up to half of their population lives on less than $1 a day.  Moreover, two-thirds of the 34 countries are not democratic, and of those that are, only three (Ecuador, Sao Tome and Principe, and Trinidad and Tobago) score in the top half of Freedom House’s world ranking of political freedom. And even these three states are fragile: Ecuador now teeters on the brink of renewed instability, and in Sao Tome and Principe, the temptations created by sudden oil wealth are straining its democracy and its relations with next-door Nigeria.


In fact, the 34 oil rich countries share one striking similarity: they have weak, or in some cases, nonexistent political and economic institutions. This problem may not seem surprising for the several African countries on the list, such as Angola and the Democratic Republic of the Congo, that have only recently emerged from civil conflict. But it is also a problem for the newly independent, oil and gas rich republics of the former Soviet Union, which have done little to consolidate property and contract rights or the ensure competent management or judicial independence. And even the richer countries on the list, such as Libya and Saudi Arabia, suffer from underdeveloped political institutions. Concentrated oil wealth at the top has forestalled political change.


Can Iraq avoid the pitfalls that other oil-rich countries have fallen into? The answer is yes, but only if it is willing to implement a novel arrangement for managing its oil wealth with the help of the international community.


From manna to witches’ brew


The problem for newly reconstituted states such as Iraq is that growth friendly institutions cannot simply be imported. They must be nurtured domestically over long periods of time. And time is a luxury that troubled developing countries with vast natural wealth rarely have.


Throughout history, many countries with natural resources have fared worse than “poorer” nations. In the seventeenth century, the Netherlands outdid resource rich Spain, despite the fact that the latter’s coffers were overflowing with gold and silver acquired in the New World. Similarly, Japan and Switzerland moved past Russia in the nineteenth and twentieth centuries. More recently, resource poor countries in eastern Asia have surged ahead of resource rich Argentina, Mexico, Nigeria, and Venezuela, all of which repeatedly went bankrupt or lapsed into political upheaval. Natural resource may seem like manna from heaven at first, providing new states the means to escape poverty and invest in schools and roads. And indeed, sometimes the money is spent wisely, as in Kuwait and Bahrain. More often, however, such riches prove a curse.


There are several explanations for why oil undermines societies. World prices for oil and similar resources are notoriously volatile, especially compared to those for manufactured goods, and so countries that rely on the export of natural resources are exposed too much greater uncertainty and risk. Fluctuations in price can create a dangerous cycle in which governments spend wildly when they are flush, only to be forced into disruptive and costly spending cuts (leaving schools with out teachers, or public building unfinished) when prices fall.


A second explanation for the oil curse is the so-called Dutch disease. As the Netherlands experienced when it discovered natural gas in the North Sea in the 1960’s, the exploitation of mineral resources can crowd out other activities in a country’s economy. When resources are discovered or their prices increase, a country’s currency becomes stronger. This hurts domestic manufactures, which soon find it difficult to compete with lower priced imports. More of the country’s labour and capital starts to be deployed in local non-tradable sectors, and unless corrective steps are taken, the whole country suffers, since it loses the benefits such as technological innovation and good management that strong domestic manufacturing sector can provide.


The most important explanation for the oil curse, however, has to do with the role natural resources play in impeding the development of a society’s economic and political institutions. Oil works its poison in many ways. Natural resources, unlike output created by human endeavour, yield large “rents,” which are rewards in excess of effort. But such rents are easy to appropriate either by the state or by the few who control the resources extraction. In the former case, as in Iran, Libya, and Saudi Arabia, one set of problems arises. The state is relieved of the pressure to tax and has no incentive to promote the protection of property rights as a way of creating wealth. As for the country’s citizens, because they are not taxed, they have little incentive and no effective mechanism by which to hold government accountable. This can lead to the unchecked abuse of state power and undermine the process by which political systems reconcile conflicting interests and demands. Indeed, such conditions make it very hard for political institutions to develop.


When a subset of the population is able to control the natural resource wealth, meanwhile, it can “buy” or “become” the state, as occurred in Angola or in what was then Zaire (now the Democratic Republic of the Congo). Even where the state and those who control its resources remain distinct (as in Russia and Venezuela), public officials tend to become corrupt.


Scarce success


The oil rich countries of the Middle East have so far escaped some of the worst side effects of mineral wealth but only because of the sheer magnitude of their oil resources relative to the size of their populations. And they have not avoided the stunted political and social development associated with oil. The UN Development Program’s 2002 Human Development Report identified the lack of press and other freedoms and the low status of women as key obstacles to the Arab world’s long run progress. Moreover, although current economic performance in the Middle East may be broadly satisfactory, it cannot be expected to remain so for long.


Cure for the curse


Given how bad oil and other natural resources have proved for the development of markets and political  freedom, how should they be managed in Iraq and other countries? Three options should be considered: privatizing oil resources, creating special oil funds that limit government discretion in spending the money, and transferring the proceeds from oil directly to


The first approach privatizing the oil sector has proved disappointing. In countries with weak institutions, assets of immense value have too often been sold at throwaway prices to a lucky few who happen to have good financial or political connections. In Russia, for example, privatization of the country’s Soviet oil companies and other resources only entrenched other economic imbalances of the status quo. The resulting oligarchic capitalism has undermined Russia’s market economy, making it more difficult to foster public trust in market institutions such as private property, the rule of law, and the sanctity of contracts.


The second alternative for dealing with a country’s oil wealth is the creation of special oil funds with constitutional or other restrictions on the use of revenues. This has been used in Kuwait and Norway for several decades, and in Colombia and Venezuela since the 1990s. Azerbaijan and Chad have also recently created such funds, and East Timor and Sao Tome and Principe plan to do so this year. Although they vary in detail, these national oil funds all represent an attempt to insulate and render transparent the spending of some or all of country’s oil revenues. The funds are meant to help stabilize a country’s spending, building up resources during the fat years to help the country weather lean ones and to help it save revenues for the benefit of future generations. The newer funds also aim to force suddenly cash rich governments to focus their spending on socially productive investments. Unfortunately, apart from Norway (with its strong government institutions and healthy democracy), the experience of national oil funds has not been encouraging.


The third alternative for managing a country’s oil wealth is distributing it directly to the people. It has a better record, at least in the few places (the state of Alaska and the Canadian province of Alberta) where it has been tried. (In both cases, the interest from oil funds, rather than oil revenue itself, is distributed.) Such systems minimize opportunities for corruption and misappropriation, since windfall revenue stays out of the hands of public officials. They also avoid the imbalance of economic and political power associated with private control of revenues. Moreover, in developing countries, the direct distribution of oil revenues would instantly increase per capita income, sometimes substantially, In Chad, for example, where per capita income is about $200 a year, equally distributing the country’s expected net oil revenues among its population would increase average income by 20 percent in 2008; in Sao Tome and Principe, the increase would be greater still. Such an increase would enable parents to keep their children in school, help farm producers diversify, and stimulate more government investment in roads and other infrastructure. In other words, distribution of oil revenues would aid the development of homegrown markets and local politics.


Proposals to distribute oil revenues to the public, however, are often met with two standard objections: that the loss of oil revenue to the government could cause macroeconomic instability, and that distributing revenues to the people only to then partially tax them back to finance public investment and other sensible government expenditures is inefficient. Neither objection is compelling. In macroeconomic terms, channelling oil wealth to the public instead of government shifts the problem of price volatility to individual households. And in countries with weak institutions, households are much better at managing volatility than is the government; in fact, they are better judges not only of how much to spend, but of what to spend it on.


Distributing oil revenues directly to people would be difficult in poor countries with limited administrative capacity, but not necessarily impossible. Before political problems overwhelmed Bolivia’s reforms, for example, its government managed to distribute thepension” returns from its share in privatized enterprises to all senior citizens.


The greater problem with implementing a distribution plan would be political. Change would meet resistance on the part of current beneficiaries with a vested interest in the status quo, be they workers in a state owned enterprise, oligarchs, or political incumbents. After the first year or so, moreover, the administrative apparatus for distribution would become vulnerable to cheating and corruption. Even immunization programs in poorer countries, for example tend to need donor attention if they are to maintain their integrity.


Help from outside


Luckily, Iraq is not as poor as Angola or Nigeria. And despite its current difficulties, Iraq is in one respect, an economic policy practitioner’s dream: it provides a relatively clean slate, allowing new policy approaches to be attempted with a minimum of resistance from vested interests. With the right solution in place the distribution of Iraq’s oil revenue directly to its people Iraq has good chance of beating the oil curse. To ensure that this happens, a provision should be incorporated into the new Iraqi constitution enshrining the right of each Iraqi household to receive a share of the country’s oil proceeds. This right would extend for a minimum period of say, ten years. The justification for this forfeiture of traditional, Westphalian sovereignty is straightforward: it would prevent future Iraqi governments even democratically elected ones from changing the arrangement for the given period. After it expired, the people of Iraq could, through the democratic process, determine their own arrangements for managing future oil proceeds.


This temporary forfeiture of traditional sovereignty, frustrating though it may be, would actually uphold and strengthen the underlying sovereignty of the Iraqi people. It may be the only practical way to develop democratic institutions free of the corrupting influence of oil and to ensure the long-term economic and political empowerment of ordinary Iraqis. The international community, ideally in the form of the UN, would supervise the implementation of this proposal.


The direct distribution of oil proceeds to the people could also help resolve the problem of Iraq’s foreign debt. Just how much of Iraq’s oil revenues should be distributed? On the one hand, the more that goes to the population, the less the chance that oil will spoil the new Iraq. On the other hand, 100 percent distribution is probably infeasible. Some oil revenues should thus be retained by the government. But at least 50 percent should be distributed to the people.


In the long run, and not just in Iraq, the international community needs to put pressure on oil companies, which too often abet local corruption. For example, during the last several years, some 34 multinational oil companies paid the Angolan government to extract and refine its oil without ever disclosing where the money was going or what it was being used for within Angola. The international community should push governments and oil companies for greater transparency in the governance of natural resources. Collective action is key, however, since it is not in the interest of any one company to become transparent and honest on its own. Such collective action can be ensured through coordinated efforts by government, the private sector, and civil society. Many efforts have already been made in this regard, including the Extractive Industries Transparency Initiative sponsored by the United Kingdom’s Department for International Development although so far with limited success. Real efforts must also be made to crack down on corruption. Western countries should pass laws analogous to the EU’s attempts to make the bribery of foreign officials a crime, and build on the UN’s Convention Against Corruption.


If the Iraqi experiment succeeds, the result will be a major boon and not just for Iraqis. A success in Iraq would also provide a powerful example for other resource rich countries to follow, illustrating how they could improve their economies and political systems. Resource rich counties must realize that change, even radical change, is less risky than maintaining the status quo, in which oil continues to wreak the kind of damage it has so often around the world.



Nancy Birdsall* and Arvind Subramanian*








Disclaimer: The views are those of the authors.












ONGC requests return of subsidy


July 21, 2004. The Oil and Natural Gas Corporation (ONGC) has written to the ministry of petroleum, saying that the money that was taken from it in '03-04, as its share of the oil-subsidy burden, should be returned. ONGC paid about Rs 31 billion as its share of the subsidy in the form of cheaper crude oil sold to downstream oil companies IndianOil, Bharat Petroleum and Hindustan Petroleum. It has argued that the government's decision to split the subsidy bill three ways between ONGC and the downstream companies in '03-04 was taken to be a one-time call and investors around the world were had made their investment decisions on the premise. The petroleum secretary SC Tripathi has convened a meeting of chief executives of fuel retailers, ONGC and gas transporter Gail later this month to decide who will bear what amount of the under-recoveries. ONGC was also looking at an entry into non-conventional energy as a future strategy to growth. The company is planning to set up wind farms in Gujarat to generate about 100 MW of electricity for internal use.


ONGC's stake in MRPL increases in value


July 22, 2004. A year after acquiring oil refiner MRPL, upstream major Oil and Natural Gas Corp (ONGC)’s investment of Rs 10.4 billion is now worth over Rs 58 billion - a gain of over 400% in 15 months. In absolute terms, this is a gain of Rs 47 billion or about $1bn. When the Aditya Birla Group wanted to hive off MRPL, there was not much interest. In fact, Hindustan Petroleum (HPCL) was already a shareholder in MRPL with a 37.4% stake at the time and HPCL, an original promoter with the Birlas, would have been a natural choice to take over the company when the Birlas wanted to exit. This did not happen although HPCL did not divest its stake. HPCL's shareholding in MRPL's expanded equity is now 16.9%, with the value of its stake at Rs 13.7 billion.


ONGC to hive off CBM block exploration to contractors 


July 22, 2004. Oil and Natural Gas Corporation (ONGC) is planning to give its coal bed methane (CBM) blocks for exploration on contract basis. The company has identified three to four CBM blocks situated in West Bengal and Jharkhand for exploration.  Unlike oil and gas fields, 300 to 400 wells have to be drilled on each of the blocks.  The produce as well as the wells would be with the company. There would be no sharing of the products. Earlier, the company had given its marginal oil and gas fields for exploration on contracts basis. The company feels that it is not economical to go for exploration of the oil and gas fields and CBM blocks since the company is focussing on deep-water exploration because that was where huge reserves of fuel are trapped. ONGC has been working towards increasing its crude output in view of the heavy dependence on imports by the Indian refineries. The company has identified 94 discovered but unexploited fields and estimates more than 200 million tonne of oil in these fields. The gas reserves are expected to be more than 120 billion cubic metre.


ONGC to buy out HPCL in MRPL


July 23, 2004. ONGC is set to acquire HPCL's 17.4% holding at an estimated Rs 12 billion. Rough estimates indicate that ONGC has offered to buy the remaining stake in MRPL at Rs 37-38 per share. The offer to buy out HPCL's stake had been mooted by ONCG last September when it decided to take absolute control of MRPL. For ONGC, the control augurs well for its vertical integration plan. The Mangalore-based refining company will soon marketing its petro goods under its own brand name. The offer price of Rs 37-38 is based on Sebi guidelines, which say that the buyer should fix the offer price on the basis of the average scrip price of past six months. Although the MRPL scrip has been ruling higher than the offered price in the recent past, ONGC has stuck to its earlier decision of taking September as the cut-off date for calculating the offer price as the offer first made in September. HPCL, however, would want to take into account the recent share price to get a better deal. ONGC currently holds 71.6% in MRPL and HPCL 17.4%. The balance 11% is held by retail investors.


MRPL had posted a net loss of Rs 4.12 billion in '02-03 when it was taken over by ONGC. Equity infusion and debt restructuring have resulted in a turnaround. In just a year, MRPL made a net profit of Rs 4.59 billion in '03-04. In April '03 MRPL's debt stood at Rs 30 billion and the average cost of debt of 13.5%. The company has paid most of its expensive debt and has brought down its average cost of debt to 6%. MRPL is planning to expand capacity and increase exports to 3m tonnes. The offtake by domestic oil marketing companies has increased to 9m tonnes in the current fiscal.


ONGC for swap deal with Cairn Energy 


July 26, 2004. A fresh Cabinet note has been moved by the ministry of petroleum and natural gas for a package deal which involves an acquisition by ONGC of Cairn Energy's equity in two offshore blocks in the Krishna-Godavari and Cambay basin. On its part, ONGC will transfer part of its equity in two onland exploration blocks to Cairn Energy. The deepwater exploration block in KG basin is highly prospective, with recent commercial discoveries having been made by Reliance and ONGC in the adjoining block. Alongside, the Cambay basin block is a gas producing block with further potential of 141 billion cubic feet of gas. Cairn Energy Plc UK is an Edinburgh (Scotland) based company with oil and gas operations in India, Bangladesh and the North Sea. In line with its corporate strategy to focus on exploration, Cairn has decided to sell part of its interests in producing assets in India and Bangladesh.




IOC to modernise refineries overseas


July 23, 2004. Indian Oil Corporation (IOC) is planning to take up the modernisation of Eden (Yemen) and Mombassa (Kenya) refineries, besides entering into a memorandum of understanding with Nigeria's Edo province for setting up a refining facility. IOC proposes to create special purpose vehicles to undertake the modernisation and revamp projects, including those in Iran and Libya. The funding mechanism for the projects, estimated to cost $4 billion, will be worked out separately.  The MoU with Edo is expected to be signed next month, which would be followed by negotiations for concessions, including getting equity oil in the province. The IOC board has already cleared the proposal and the oil major is already in the process of bidding for the modernisation of another Nigerian refinery.  IOC has also been offered two refinery modernisation projects in Libya at an estimated cost of around $1.2 billion.


Gulf Oil to focus on retail lubricants


July 23, 2004. Gulf Oil, a Hinduja group company, has decided to focus on the retail lubricants market segment, as against the institutional market as margins for the former are much higher. In order to cater to the retail market, the company will expand the filling capacity at its lubricants unit situated in Silvassa by 50% at an estimated cost of Rs 50 million, by the third week of next month. Gulf Oil's decision to focus on the lubricants market comes in the wake of its lubricant division turning out a strong performance in the first quarter of this fiscal, with a turnover of Rs 556 million as compared to Rs 324 million previously, a 72.1% growth. The total revenues of the company during the same period have gone up by 30.2% to Rs 10.593 billion, and the net profit by 12.3% to Rs 63 million.


GAIL to invest in new projects in Kerala


July 22, 2004. GAIL (India) Ltd intends to invest a staggering Rs 104.5 billion ($2.7 billion) in three different projects in Kerala. The mega projects include: the Rs 70 billion integrated grassroot naphtha-based petrochemical complex in Cheemeni in Kasaragod district, and the development of a Rs 14.50 billion liquefied natural gas (LNG) terminal at Puthu Vypeen Island at Kochi and laying 500-km long pipelines. GAIL (India) is currently in the process of appointing consultants for the Kasaragod project and it expects to get the report in six months. The actual groundwork would begin at the site next May. According to estimates, Kerala requires 25 million cubic metres of gas per day. This would shoot up to 40 million cubic metres by the end of 2010.  1,000 acres of land had already been identified at Cheemeni for setting up the factory. The feasibility report for the LNG terminal project is currently underway. About 500 km pipelines would be laid at a cost of Rs 20 billion. The survey work for the Kochi-Kanjirakkod-Mangalore pipeline has been completed and is in progress for the Kochi-Coimbatore-Bangalore sector.


BPCL to set up 2 distribution JVs


July 23, 2004. Bharat Petroleum is setting up two new joint venture companies to distribute gas in Pune and Kanpur. The structure of the two companies will be similar to that of Indraprastha Gas, the compressed natural gas (CNG) utility in Delhi. BPCL and Gas Authority of India (Gail) will hold 22.5% each, with the remaining 50% to be offered to financial institutions. The Pune venture, tentatively called Deccan Gas, will be set up with a capital of Rs 1.3 billion. BPCL will source the gas from Petronet LNG's Dahej project. It is estimated that Pune will consume about 0.3-0.4m cubic meters of gas per day (mmcmd) in the initial stages, industry sources said. Gail is currently building a 350km pipeline from Dahej to Uran in Maharashtra. The gas will be carried to Pune through a spur pipeline. Competition in the city gas distribution segment is hotting up, with the cities divided up among BPCL, IndianOil and HPCL, with Gail being a common partner in each city. Mumbai-based Mahanagar Gas was also in the race for supplying gas to Pune. An investment of Rs 6 billion will be needed for the Pune project, according to a feasibility report.


Gas use could go up to 2mmcmd in about seven to eight years. The Kanpur gas distribution company is a smaller project, with a capital of Rs 1 billion. Gas supplies to Kanpur will be from Gail's HBJ pipeline. Besides Pune and Kanpur, BPCL also has the licence for supplies to Sabarkantha, Mehsana and Gandhinagar. Work on these projects is expected to begin soon. The gas to Gujarat will be supplied from Dahej. The downstream oil companies, who earlier focused on liquid fuels, are now diversifying into the gas business. The move is prompted by the realisation that a major portion of their naphtha sales will be replaced by gas in the coming years. Naphtha sales have been falling for the past two years and the product is already being replaced by LNG. 


BPCL to set up 400 modern convenience stores


July 23, 2004. Bharat Petroleum Corporation Ltd (BPCL) will strive to satisfy the customer needs better by setting up modern convenience stores in its retail outlets and the company hopes to generate at least 10 per cent of its profits through this secondary business. BPCL had about 2235 ‘In and out’ convenience stores in the four metros and other cities in the country and the number would be taken to 400 in the future. Anticipating the retail revolution in the country, BPCL was the first oil company in the country to start such stores in 1996 and the endeavour would be to fulfil "all customers needs and aspirations" at a single point.  In spite of certain initial hiccups, the idea had worked and the dealers were also happy with the results.


Competition for state run retailers


July 25, 2004. Reliance Industries and Essar Oil are in an overdrive to set up petrol stations and the retail sector, presently dominated by the state-run marketers, will undergo a change with a slew of private outlets going on stream this year. By March-end, Reliance was selling petrol and diesel from 77 retail outlets and Essar from about 25, mainly on highways. By July-end, Reliance would have a total 170 filling stations and Essar 35. By December, Reliance will have 340 stations -- 120 in north, 30 in east, 120 between Gujarat, Madhya Pradesh and Maharashtra and 70 in south India - and Essar 70.


Reliance plans Andhra refinery


July 24, 2004. According to the Chief Minster of Andhra Pradesh, Reliance Industries, India's largest private sector company, has committed to set up a refinery complex in Kakinada in Andhra Pradesh. The proposed refinery will be bigger in terms of investment than the company's refinery in Jamnagar, which is the world's largest grassroots refinery.


Transport / Trade


Essar to lay petro pipeline in Tamil Nadu


July 20, 2004. Essar Constructions Limited said that it along with Stroytransgaz of Russia has secured an order for laying a petroleum product pipeline in Tamil Nadu from Indian Oil Corp. The project covers laying of a 683-km product pipeline connecting Chennai, Trichy and Madurai with a branch line to Sankari. The project is expected to be completed in 11 months at a cost of Rs 740 million. The scope of the project includes laying of pipeline from Chennai to Asanur (256 km), Asanur to Madurai (270-km) and Asanur to Sankari (157 kms). The pipeline would pass through two river crossings at Coleroon and Cauvery and will be laid by horizontal directional drilling method.  This pipeline would be an addition to the already existing product pipeline network of IOC, which stretches over a distance of more than 7250 km. The purpose of this pipeline would be to feed the IOC product demand centre that lie within the Chennai, Trichy and Madurai districts. Recently, the ECL-STG combine had completed a gas pipeline project of 200 kms of Gujarat State Petronet Ltd ahead of schedule. ECL is part of Rs 170 billion Essar Group


BPCL-GAIL JV bags piped natural gas contract 


July 21, 2004. Bharat Petroleum Corporation Ltd (BPCL) and Gas India Ltd (GAIL) have edged out Mahanagar Gas Ltd (MGL) for the Rs 6 billion piped natural gas project in Pune. BPCL and Gail have formed a joint venture for the project whereby each will have a 22.5 per cent stake. The state government will have a five per cent stake. The remaining 50 per cent will be offered to financial institutions and others. MGL was contesting for the project, since it is already implementing the piped natural gas project in Mumbai. MGL contended that it should be allowed to implement the project as an extension of the Mumbai project.  The first phase includes setting up of the necessary infrastructure for supplying the gas to customers. This would take about three years. The second phase would take between six to 10 years whereby the gas would be actually supplied. The JV has tied up Petronet LNG where 0.4 MMBTU of liquefied natural gas (LNG) has been allocated to the JV to begin with. The demand is expected to increase to 3 MMBTU.


Earlier, there were differences of opinion between Gail and BPCL over the nature of the joint venture. Gail was demanding a 26 per cent stake for itself and 20 per cent stake for BPCL, the latter had suggested that the JV should be on the lines of Indraprastha Gas Ltd (IGL) with 22.5 per cent stake each which has finally been adopted. The project will now gain momentum with the commissioning of the LNG terminal at Dahej in Gujarat.


Reliance hires tanker for crude transport


July 23, 2004. Reliance Industries has paid a record rate to hire a 2 million barrel oil tanker. The tanker will ship 270,000 tons of crude oil from the Persian Gulf to Reli-ance's Jamnagar refinery.  The previous record Worldscale rate paid for a 2 million barrel tanker, or very large crude carrier was, Worldscale 195 in October 2000. Freight rates for very large crude carriers, or VLCCs, that ship oil from the Persian Gulf have more than tripled in the past year because near-record OPEC production has increased demand. Rates usually touch their annual low in July and August, when the Northern Hemisphere uses less heating oil. The vessel's operator will earn the equivalent of about $130,000 a day, according to estimates. 


IFFCO tender for regassified gas


July 22, 2004. The Indian Farmers Fertiliser Co-operative Ltd (IFFCO) has invited bids for the supply of 20 million standard cubic metre per day of regassified gas for fuelling its proposed power projects at its various plants. The move is a part of its plan to diversify into the power sector. The fertiliser major intends to set up four gas-based combined cycle power projects at its existing facilities at Kalol in Gujarat, Nellore in AP, and Aonla and Phulpur in UP by 2013 at an estimated cost of Rs 140 million. Each of these plants will have a power generation capacity of about 1,170 mw. Iffco will need 5 mmscmd of gas each at the proposed power plants. The last date for submission of preliminary bids, along with rates, is August 20.


IOC plans gas pipeline grid in Gujarat


July 22, 2004. IOC is reportedly planning to set up its own gas pipeline grid in Gujarat. The company is likely to apply shortly to the government for the necessary right of way permission. It may be recalled that Indian Oil and Gujarat State Petroleum Corporation had recently reached a broad understanding for mutual cooperation in various emerging opportunities across the value chain of gas business in Gujarat. Besides, there were plans to set up a joint venture with GSPC for CNG retailing in the state. According to the original plans, the joint venture was supposed to invest Rs 3.1 billion in the project. The fate of this JV is now uncertain.


Gail, BPCL to tap Reliance for Pune piped gas project 


July 26, 2004. Gail India Ltd and Bharat Petroleum Corporation Ltd (BPCL) have approached Reliance Industries Ltd (RIL) for sourcing natural gas, for its piped natural gas project in Pune. Gail and BPCL will implement the project through a joint venture (JV) in Pune and Lucknow. The JV which will begin work on its project in Pune early next year has tied up with Petronet LNG for its current requirements. Petronet has a 5 MMBTU LNG terminal at Dahej in Gujarat.  The JV has been assured by Petronet LNG that their quota would be increased since the capacity of the Dahej terminal is being doubled from the present 5MMBTU to 10 MMBTU. The JV has estimated that their peak requirement for Pune would be around 3 MMBTU once the project is fully implemented, depending on the number of households converting to piped gas. The project is being implemented in Pune city and its outskirts.


The Rs 6 billion project would be implemented in two phases. The first phase would be completed in three years which will involve the creation of the infrastructure for gas transportation. The second phase is expected to take anywhere between six and ten years; the actual supply of gas would begin here. Gail and BPCL have a 22.5 per cent stake each in the project while the state government holds a five per cent stake. The remaining 50 per cent would be offered to financial institutions.

Policy / Performance


LNG pricing to be reviewed


July 22, 2004. The tariff commission has been asked to examine the pricing mechanism of imported liquefied natural gas (LNG) supplied as feedstock to domestic consumers. An inter-ministerial group also decided that the government would try to locate LNG sources, other than Qatar, to get better deal.  The ministry of petroleum and natural gas and the ministry of power have also been asked locate sources other than Qatar ‘to discover the real price of LNG’.   In a presentation to the inter-ministerial group, the fertiliser ministry argued that the current LNG price did not encourage units to shift from costlier naphtha to LNG and improve their competitiveness. The fertiliser ministry sought a reduction in the regasification cost to below $0.20 per million British thermal unit (MBTU) from $ 0.58 per MBTU at present. It also proposed a cut in the pipeline transportation charges to make the fuel affordable.


National Commodities Derivative Exchange from September


July 22, 2004.  India is to set up a National Commodities Derivative Exchange (NCDE) from 1 September 2004. Large companies who buy LNG from Gujarat State Petroleum Corporation on the Dahej pipeline will then be able to buy and sell fuel daily on the National Commodities and Derivatives Exchange. NCDEX is one of the three new online demutualised bourses. India's biggest gas transmission and marketing company, Gail, is expected to enlist with the NCDEX in the next five months for its HBJ pipeline users. That will make natural gas trading a truly pan-Indian market, where companies can make money from the mismatch in natural gas demand and supply for individual users. Companies buying natural gas from Gujarat State Petronet, which operates the Dahej pipeline, include Essar, GNFC, IPCL, Narmada Chemataur Petrochemicals, Videocon Narmada, Kribhco, GIPCL, GSFC and City Distribution for Baroda and Ahmedabad. Gujarat State Petroleum Corporation sells LNG to companies like Gujarat Gas Company, Gujarat Alkalies and Chemicals, Gujarat State Fertilizers Company and Gujarat Electricity Board. Gujarat State Petronet supplies gas worth at least Rs 20 million to its customers daily. The Gujarat government, owner of GSPC, has signed an MoU with NCDEX to introduce a platform and spot contract for trading natural gas. Initially, NCDEX will introduce a delivery-based contract for spot trading up to 10 days, where Hazira prices will act as a benchmark. The contract will be available to all users of natural gas on 350 kms of the Dahej pipeline. The aim of the natural gas market is to allow companies to profit from the imbalance created by current contracts signed with gas marketing companies.


BPCL & IBP to lose because of subsidy  


July 21, 2004. Bharat Petroleum Corporation Ltd (BPCL) and IBP Ltd are set to slip into the red in the first quarter of the current fiscal 2004-05 owing to the burden imposed by sale of LPG and kerosene at below cost price on the tacit direction of the Government. While BPCL is likely to post a net loss of around Rs 280-320 million, IBP Ltd is likely to witness a higher net loss of around Rs 400 million. The public sector oil marketing companies Indian Oil Corporation (IOC), BPCL, Hindustan Petroleum Corporation Ltd and IBP Ltd have suffered an under-recovery of around Rs 50 billion during April-June. At the meeting, IOC said that it could post a profit of around Rs 13 billion this quarter while HPCL said that it could record a profit of roughly Rs 900 million. The meeting was convened by the Government to examine the option of directing Oil and Natural Gas Corporation (ONGC) and GAIL (India) Ltd to share the burden borne by the oil marketing companies on account of sale of LPG and kerosene at non-remunerative prices.


Strategic oil reserve proposal to be reviewed


July 22, 2004. The NDA government's proposal to build strategic oil reserves that will ensure energy security for the country will be reviewed by the UPA government.  The group of ministers (GoM) on an integrated energy policy committee chaired by Planning Commission member Kirit Parekh will take a view on the proposal. The proposal to create strategic reserves of 5m metric tonnes of crude was cleared by the Union Cabinet in January. It was estimated to cost Rs 65 billion and this involved an expenditure of Rs 49 billion on buying crude at an average price of barrel at $26-27 and capital expenditure of Rs 16.4 billion. The annual inventory carrying cost and maintenance was estimated at Rs 6.45 billion. The NDA had also considered a Rs.0.15 cess on diesel and petrol to partly finance the cost of building the strategic reserves.


Diesel to cost more in Delhi


July 23, 2004. The Delhi state government has proposed wide-ranging changes in the tax regime for diesel vehicles in its Budget for 2004-05. To begin with, the sales tax on diesel was proposed to be raised from 12 per cent to 20 per cent. It also proposed to amend the Delhi Motor Vehicle Act in order to levy an additional 2 per cent road tax on private non-transport diesel vehicles.  The Budget also proposed to introduce an entry tax for all diesel vehicles coming in to Delhi. In addition, the Budget also proposed to change the road tax rates to 2 per cent for vehicles below Rs 400,000 and 4 per cent for vehicles above Rs 400,000. The move is expected to impact the sale of diesel vehicles, especially multi-utility vehicles and sports utility vehicles in Delhi. However, it can not be ascertained what will be the impact on the price of diesel. 


LPG, kerosene subsidies to stay till 2007


July 26, 2004.  The government has decided to extend subsidies on cooking gas and kerosene till March '07. The Budget will make allocations to part-fund the subsidy bill for the two products. The oil refiners, too, could now look for some additional relief. Since the government has decided to continue with the subsidy policy, additional allocations will be provided to oil companies, either in the supplementary Budget or in next year's allocation. The subsidy for cooking gas was fixed at Rs 67.75 per cylinder in '02, when prices were first deregulated. Since now the fixed subsidy amount is being phased out in a five year span, the allocation for this year would be in the region of Rs 40 per cylinder. However, the interim budget presented by the NDA government had slashed the subsidy amount by one third to Rs 22 per cylinder under the assumption that subsidies would be withdrawn by the end of this fiscal.


Limited pricing flexibility to oil companies


July 27, 2004.  The government granted oil companies the flexibility to alter the prices of petrol and diesel within a 10 per cent band.  It also agreed to a proposal, floated by the petroleum and natural gas ministry, to establish a crude oil and petroleum products price stabilisation fund. The deadline for phasing out subsidies on cooking gas and kerosene has also been extended to April 2007.  Oil marketing companies, Indian Oil, Bharat Petroleum, Hindustan Petroleum and IBP, may now raise or lower petrol and diesel prices by up to 10 per cent every fortnight in step with the costs.  The companies will now consider the C&F price of crude oil instead of the FOB price. The new pricing policy will come into effect from July 31, when the next fortnightly revision is due.


No divestment clause for global oil majors 


July 27, 2004. The government has permitted the global oil majors Caltex, Exxon-Mobil, Total Petroleum and ELF, to dispense with the mandatory 26 per cent disinvestment clause. The oil companies have been exempted from divesting 26 per cent equity in their wholly-owned Indian subsidiaries in light of the changed foreign direct investment (FDI) guidelines, which allows 100 per cent foreign equity in the trading of petroleum products. The multinational oil majors had been allowed to buy out their joint venture (JV) partners from their respective subsidiaries in 1998-99 on the condition that they would divest a minimum of 26 per cent equity to the Indian public over a period of five years. 


Oil stocks surge on pricing autonomy 


July 27, 2004. Oil marketing and refinery stocks surged following governments' initiatives to grant state-run oil refineries limited freedom to price petrol and diesel products. As a result, almost all the state-run refinery companies gained ground with Indian Oil Corporation (IOC) rising 6.15 per cent to Rs 382.90, Bharat Petroleum Corporation Limited (BPCL) surging 5.26 per cent to Rs 347.15, Hindustan Petroleum Corporation Limited (HPCL) up 3.10 per cent to Rs 309.30 and IBP up 0.86 per cent to Rs 519.05. The rise in refinery stocks also helped in lifting the market with the 30-share BSE Sensex ending 44.83 points higher at 5,118.17. Moreover, the PSU index also witnessed a rise of 1.91 per cent to 3303.33.





BHEL bags order for HPCL captive unit


July 19, 2004. Bharat Heavy Electricals Ltd (BHEL) has bagged an order for setting up a 40 MW co-generation captive power plant on a turnkey basis, according to an official release. Hindustan Petroleum Corporation Ltd (HPCL) has placed the order worth Rs 218 crore for setting up a captive co-generation power plant, as part of its clean fuels project at Vishakhapatnam in Andhra Pradesh.


Kerala plans to rope in private sector for 60 small hydel projects


July 19, 2004. The Electricity Minister, Mr Kadavoor Sivadasan, said that the State Government had identified 60 small and mini hydro-electric projects that could be developed with private participation. Replying to questions in the State Assembly, the Minister said tenders had been floated in respect of 32 of these projects, 13 of which elicited response. Four small hydro-electric projects involving Chinese technical assistance had been completed. Special teams had been set up for the speedy implementation of another six in the series. Permission had been granted to five companies for setting up captive power plants.


68 new sites identified for hydro projects


 July 21,2004.  The Central Electricity Authority (CEA) has identified 68 sites with a generation capacity of 26,819 mega watt for hydro power projects with tariff below Rs 2.50 per unit.  According to preliminary feasibility reports prepared till July 5, 154 of the 162 identified sites have a potential to generate 47,190 Mw electricity.  The CEA has now offered the sites to Central public sector units for preparation of detailed feasibility reports. The 162 sites, spread across 16 states, will have an aggregate installed capacity of 50,560 Mw.  The total hydro-electric potential in the country is estimated at 84,000 Mw at 50 per cent load factor. The present installed capacity in the sector is estimated at 29,000 Mw, with 14,000 Mw proposed to be added during the Tenth Plan period. Another 20,000 Mw is expected to be added during the Eleventh Five Year Plan. 


Govt to help companies set up wind power units


July 22, 2004. The government would look into allowing companies to sell electricity generated from wind power, energy minister Saurabh Dalal said.  The minister asked big industries in the state to set up wind energy units and assured them all help from the government in establishing such units.  The minister said electricity generated using coal would cost about Rs 4.50 a unit and that from gas costs Rs 4 a unit. Wind power will cost only Rs 3 a unit, he said.  Anil Kane, chairman, Indian Wind Energy Association, said wind power generation has a huge potential in the state which has a coastline of 1,600 kms. But the state has not posted much progress on this front, said Kane. 


BHEL bags order from West Bengal


July 22,2004. Bharat Heavy Electricals (BHEL) has bagged a Rs 150 million order from West Bengal renewable energy development agency for setting up five stand-alone solar power plants in Sunderbans islands. Under the contract, BHEL would design, build, supply and commission two plants of 110 kilowatt peak (kwp) capacity and three plants of 55 kwp each within the next one year, a BHEL release. The state-owned company would also install the associated overhead distribution lines in the five islands, it said, adding BHEL would operate the plants for 10 years. Each plant would be equipped with high efficiency battery banks, state-of-the-art inverters and electronic control systems to ensure reliable supply. Pre-paid meters would also be introduced in the islands to regularise electricity consumption and maximise revenues, it added.


Ten power projects achieve financial closure under IIG


July 21, 2004.  Ten major power projects totalling 3,472 MW have achieved financial closure through the inter-institutional group (IIG) approach and another eight are expected to achieve financial closure. The number of projects short listed for the fast track clearance would add up to an additional capacity of 8,067 MW. The major projects which have secured financial commitments include Torrent's project in Gujarat, Jindal group's Raigarh project, GVK's Gautami power project, the Mangalore thermal power project of the Nagarjuna group and the Malana-II project in Himachal Pradesh. The total debt committed to these projects would be close to Rs 100 billion. The IIG comprises a group of financial institutions and banks that have come together to evaluate fundable projects and commit funds to viable projects. In the power sector, FIs have been concentrating on projects with acceptable tariffs in the range of Rs 2-2.50 per unit. Also, the projects (which in most cases have got their basic requirements in place) will be taken up on the basis of economic costs and preference will be given to competitively bid projects.


GAIL to enter power sector  


July 21, 2004.  After petrochemicals, a foray into the power sector is the next biggest investment stop for GAIL (India) Limited. On its plans are an investment of Rs 40-50 billion in the next five years for creating a generating capacity of 1000-1500 mw.  An expression of interest (EoI) for participating as a joint venture partner in the 1000 mw plus gas-based Bawana power project has already been submitted by GAIL to the government of Delhi. Senior state government officials disclosed that even Tata Power is quite keen on Bawana and GAIL and Tatas may do this project jointly.  In addition, GAIL is also working out details of setting up new power projects along its Rs 230 billion national gas grid project. GAIL is also pursuing revival of Ennore LNG project, which too has a 1050 MW linked power project. Besides, GAIL has already joined hands with Tata Power and British Petroleum to jointly bid for the Dabhol Power Company (DPC), as and when the process is rolled out.  It has recently acquired 12.6 per cent equity in a 156 mw power project in Gujarat State Energy Generation Ltd (GSEG). The idea is to leverage its strengths in the natural gas and LNG sector with the opportunities that exist in the power sector.


BHEL to set up solar power plants


July 22, 2004. The Electronics Division of Bharat Heavy Electricals Ltd (BHEL) has won a contract to set up five stand-alone solar power plants in the Islands of Sunderbans, West Bengal. The Rs 150 million contract is a repeat order from the West Bengal Renewable Energy Development Agency (WBREDA), which successfully commissioned the State's first largest stand-alone solar power plant in Mousuni Island recently.  BHEL's scope in the contract includes design, manufacture, supply, erection, testing and commissioning of two stand-alone solar power plants of 110 kWp each and three stand-alone solar power plants of 55 kWp each, with associated LT overhead distribution lines in five islands under the Sunderbans area of West Bengal. Besides, the company will operate and maintain the plants for 10 years on a turnkey basis. All the five power plants are expected to be commissioned during the next 12 months. Each plant will be independently catering to the power requirements of the islands. Besides providing power to individual houses, street lights, school buildings etc., pure drinking water pumping system is included as an inbuilt system of the project. With a view to ensure reliable, quality power supply to the islanders, each plant will be equipped with high efficiency battery banks, inverters and electronic control systems. The concept of pre-paid metering system to regularise power consumption and revenue collection is being introduced which is superior to the systems available in urban areas utilising conventional power plants.


Meet on captive power in Hyderabad


July 22, 2004. With the high level of tariffs for HT consumers and low priority being accorded to the industry during the time of power shortage, more and more industries in the country are going for captive power generation, according to speakers at a seminar on `Captive power generation - Steam route' here. Inaugurating the seminar, Mr R.K. Sharma, Director (Technical) of the National Hydroelectric Power Corporation Ltd, said the Electricity Act 2003 provided for trading of electricity and open access to transmission and distribution of power. On account of this, it was possible for an industry located in a particular State to have a captive power unit in another State. Around 120 senior level managers representing various industrial segments, manufacturers and consultancy organisations attended the seminar, organised by the Hyderabad Chapter of the Indian Institution of Plant Engineers.


Power ministry wants another 100,000 MW


July 23, 2004. Power minister P M Sayeed has said the government planned to have an additional capacity of 100,000 MW in 10 years time. He said this while reviewing the performance of NTPC with senior officials.  Sayeed said the NTPC was to add 10,000 MW to the 41,000 MW slated to be achieved in the 10th plan. The 11th plan target is to achieve 60,000 MW. He said the government had formulated a plan which would take the per-capita consumption of electricity to over 1,000 KW/hr by the 11th plan from the present level of consumption of 580 KW/hr. He further said that efforts should be made for producing power at the lowest possible cost by opting for cost-effective project. Thermal generation should also be made compatible with environmental requirements, he said. 


Germany to assist in power projects


July 25, 2004. Germany would extend financial assistance for setting up infrastructure in the power distribution sector in Andhra Pradesh. A nine-member high-level team headed by Jean Claude Van Duysen, which held a detailed discussion with the officials of APTransco, agreed in principle to fund the projects which aimed at long-term sustainable development by setting up infrastructure in distribution sector in Andhra Pradesh. The German team, representing the European Institute for Energy Research during its two-day meeting, expressed willingness to take up pilot projects in Hyderabad region apart from Bangalore. Germany, which has already agreed for funding the expansion of Vijayawada Thermal Power Station, may take up the implementation of the projects in phased manner in the next two to eight years, the release said. APTransco requested the team to provide special financial assistance for development and improvement in power sectors in rural areas in the State, the release added.


Transmission / Distribution / Trade


Tata power to sell Wadi unit to ACC


July 20,2004.  The Tata Power Company is planning to sell its 75 mw power plant at Wadi in Karnataka back to the Associated Cement Companies (ACC).  The Wadi plant has an installed capacity of 4.7 million tonne and is the largest unit in ACC which has a total installed capacity of around 19 million tonne. If the deal goes through, this will be a case of Tata Power reselling the power plant to ACC. 


Reliable power supply in Delhi soon


July 19, 2004. Delhi Transco along with power discoms - BSES and NDPL - would be making substantial investments worth Rs. 20 billion in upgrading the electricity distribution system of the Capital. The BSES alone is purchasing equipments worth Rs. 9 billion.  Pricing was said to be largely dependent on how much losses were brought under control with active cooperation of the consumers. Rate of load shedding was 3 per cent of the total power supply in 2001-2002, but after privatisation it reduced to 2.3 per cent in 2002-2003 and dropped further to just 1 per cent in 2003-2004. 


Tatas to expand power systems division


July 21. 2004. Tata Power Company has planned a five-fold expansion of its power systems division over the next three years. The company hopes to increase the division's turnover to Rs 5 billion by 2006-07. Tata Power had acquired the power systems division, which undertakes contracts to construct transmission networks, from Tata International Ltd three years ago. TPC now hopes to undertake international contracts through the division. The company will add more than 200 people to its current strength of 40 in the next couple of years to meet its growing needs. The power systems division has orders worth Rs 4.28 billion on hand, including a $38 million order from Power Grid Company of Bangladesh, said to be the largest transmission line contract awarded in that country.


NTPC, MMTC & Lanco bag trading licences 


July 24, 2004. The Central Electricity Regulatory Commission (CERC) has decided to issue inter-state power trading licences to National Thermal Power Corporation (NTPC), Metals and Minerals Trading Corporation (MMTC) and Lanco Electric Utility Limited (LEUL), part of the Rs 8 billion Lanco group. NTPC's trading arm - NTPC Vidyut Nigam Limited (NVNL) - has been granted the 'E' category licence while MMTC has been awarded the Category 'C' licence and Lanco has got the Category 'A' licence.  The 'E' category is the second highest grouping listed by CERC wherein the company can undertake trading of 700-1,000 million units per annum covering the jurisdiction of the entire country for a period of 15-20 years. Under Category 'C', a company can undertake trading of 200-500 million units of power while in category 'A', a company can trade volumes of up to 100 million units per annum.


ONGC to ink power sale pact with PTC 


July 23, 2004. Oil and Natural Gas Corp-oration (ONGC) will shortly enter into a memorandum of understanding (MoU) with the Power Trading Corporation (PTC) for selling its entire additional power from its existing gas-based generating units as well as new power projects.  ONGC might also ask PTC to pick up a minority equity stake in its new power projects.  At present, ONGC is generating close to 1000 mw at its offshore platforms. It proposes to set up a 1000 mw power project at Dahej in Gujarat, a 1400 mw plant in Karnataka and a 250-500 mw project in Tripura. Alongside, ONGC is also planning to generate power on its own or through special purpose vehicles (SPVs) from its dispersed, isolated and marginal gas producing fields spread in the states of Gujarat, Assam and Tamil Nadu. Plans are afoot to generate 200 mw from the onshore fields of Assam, 250-500 mw from Tripura and around 310 mw from the offshore C22 series, off the Mumbai coast.


New rules for power distribution licences


July 26, 2004. The government intends to put in place rules for granting second and subsequent power distribution licences.  The draft National Electricity Policy, circulated by the power ministry earlier this month, has proposed duty cuts for equipment and fuel by the Centre and states to attract higher investment.  The new rules will be notified shortly. It has also proposed a greater internal resource mobilisation by public sector companies to meet the estimated investment target of Rs 9000 billion over the next ten years.  The paper has suggested that the second licence holder should get an area, which is at least the size of a revenue district to make the operations economically viable. 


SEBs can take more time for recast: Sayeed


July 26, 2004. Union minister of power P M Sayeed, told an industry gathering that it was to address the concerns raised by different states. He also informed that the mandatory date of June 10, 2004, for unbundling and replacing the state electricity boards (SEBs) has been extended. The minister said that the reorganisation of SEBs and separation of trading from state transmission utilities were two concerns raised by the states. He informed that the June 10 deadline for disengagement of STUs from trading in electricity has also been extended. "The government has prepared a draft National Electricity Policy in wide consultations with states and other stakeholders. The draft policy sets the priority for development of power sector in accordance with the national common minimum programme," he said adding that the policy was to be finalised after consultations with the state governments. 


Policy / Performance


Gujarat power cut move to hit industry hard


July 20, 2004. The Gujarat Electricity Board's (GEB) announcement that it will reduce power supply to the industry to channel it to the agriculture sector would mean that industries in the state will be able to function for just five days a week instead of six.  Large industries, which used to run on their own captive power plants, will also be affected as GEB has doubled its tariff to Rs 0.40. Ficci is planning to make a presentation to the state government on the issue.  The demand of power has increased substantially in rural areas due to delayed or scanty rainfall. GEB claims it does not have adequate supply to meet the demands of both agriculture and industry.  The normal consumption of power during the normal monsoon season is around 7000 mw. In the current monsoon season, due to delayed rain, demand of power has increased in rural areas to irrigate their fields.


Restore full gas supply to private power projects: AP Govt


July 20, 2004. The Chief Minister, Dr Y.S. Rajasekhara Reddy, has urged the Union Minister of Petroleum and Natural Gas, Mr Mani Shanker Aiyar, to direct the Gas Authority of India Ltd (GAIL) and the Oil and Natural Gas Commission (ONGC) to augment gas supply as per the agreed allocations to the existing independent power projects (IPPs) and the new power plants scheduled to be commissioned in the State by May 2005. In a letter to Mr Aiyar, the Chief Minister pointed out that the existing four gas-based IPPs in the State were being operated at less than 70 per cent of their rated capacity due to short supply of natural gas from GAIL.  As against the allocation of 4.85 MCMD, the actual quantity of gas supplied to the four IPPs (GVK, Spectrum, Lanco and BSES) in 2003-04 was 3.68 MCMD. Consequently, Dr Reddy said, there were power shortages in the State. The consumers had to pay higher power tariff due to increased cost of power procured from alternative sources and payment of full fixed charges for the entire capacity of 999 MW of the IPPs, even though the energy produced by them was restricted due to inadequate gas supply.


Reliance, Temasek JV to invest $200 million in power sector


July 26, 2004. Reliance group and Singapore state investment arm Temasek Holdings will jointly launch a $200 million venture capital fund to invest in India's power sector. The fund is likely to be launched in the next few weeks, but the timing will depend on market conditions. Temasek and Reliance will each provide half the money for the fund, whose lifespan is likely to be seven years. Analysts expect the entire Indian power sector - generation, distribution and transmission - to grow rapidly over the next decade following a landmark electricity law passed last year aimed at improving transmission and generation.  Analysts estimate an investment of about Rs 40 million is required for each megawatt addition, implying a total expenditure of Rs 1150 billion ($25 billion) for the capacity due to be added in the five-year plan to 2007.








Russia to review oil field terms


July 20, 2004. Russia's natural resources ministry will draw up new deadlines for consortia hoping to develop huge fields, the ministry said, easing fears licenses could be revoked. Current deadlines for developing the fields including the offshore arctic Shtokman field and Kovykta in eastern Siberia have proved unrealistic due to the locations' inaccessibility. That has raised the prospect of cancelling licences held by operators including BP and Exxon-Mobil. A ministerial commission met to review terms for a number of fields and found that licence holders had breached terms mostly related to development and drilling schedules. The Shtokman deposit, located on the shelf of the Barents Sea beyond the Arctic Cirle, has reserves of 3.2 trillion cubic metres of gas and 31 million tonnes of gas condensate.


Chevron Texaco sells Congo oil unit


July 20, 2004. ChevronTexaco Corp. confirmed that it sold its Congo unit Muanda International Oil Co. to a unit of European oil exploration company Perenco SA. Financial terms of the sale, which closed Jul. 1, were not disclosed. The unit operates and holds a 50 percent stake in the Congo's 390-square-mile offshore concession, from which 19,000 barrels of oil per day are currently produced from seven fields. The other partners are Japan's Teikoku Oil Co. and ODS Ltd.  ChevronTexaco plans to retain an office in Kinshasa to consider other opportunities in the region, noting that the company and its partners intend to invest more than $20 billion in Africa-related energy projects over the next five years.


Sales contract signed for CBM from Coal Creek


July 20, 2004. As part of its ongoing field development program, Petrol Oil and Gas Inc. is pleased to announce it has signed a multi-year contract for the sale of coal bed methane (CBM) and other natural gas from wells on its Coal Creek project in southeastern Kansas. Petrol expects to begin selling gas to Big Creek Gas Field Services, LLC under the terms of this contract within 30 days. To date, the company has drilled six pilot wells on its Coal Creek Project and is finalizing the stimulation process on each well in order to connect them to the Big Creek gas sales line and into commercial production. Petrol is planning an aggressive drilling program, as its large 165,000-acre leasehold overlying the Cherokee Group of coal seams in southeastern Kansas and southwestern Missouri can support about 1,700 producing gas wells. The flat terrain of eastern Kansas offers ease of access for rigs, fracturing equipment and other development activity; furthermore, the shallow depths associated with the multiple coal seams being targeted means drilling and production operations can be performed at a very low cost per well.


Yukos's largest oil-producing unit to be seized, sold 


July 20, 2004. Yukos Oil Co.'s largest oil unit, which accounts for two-thirds of the company's output, will be seized and sold as Russia tries to recover 99.4 billion rubles ($3.4 billion) in back taxes, the Justice Ministry said.  The business known as OAO Yuganskneftegaz pumps 1 million barrels of oil a day, equal to supplies from OPEC member Indonesia, and values its assets at $1.79 billion under Russian accounting rules. Shares of Moscow-based Yukos, Russia's No. 2 oil producer, fell 16 percent, the biggest loss since April 2000. The business to be sold is worth about $12 billion in a `fire sale,’ according to a report by analysts.


The yearlong probe into Yukos and its biggest shareholder, Mikhail Khodorkovsky, increased the perception of risk regarding Russia, leading investors to pull billions of dollars from the country. World oil prices have risen on concern of reduced shipments from Russia, the world's second-biggest oil supplier after Saudi Arabia. Yukos said that bailiffs might disrupt output as they sought to enforce the tax bill. Brent crude oil futures rose 3.2 percent the following day. Bailiffs are now appraising the value of Yuganskneftegaz, the Justice Ministry said in a statement.


OPEC to discuss output hike in September


July 21, 2004. The Organisation of Petroleum Exporting Countries (OPEC) will discuss a possible output rise for September, OPEC president Purnomo Yusgiantoro. Asked whether OPEC plans such an increase, Yusgiantoro replied, "We'll discuss it."  He said he would travel to Vienna to discuss a report by a team which monitors market developments. "I'm going there to see the latest supply and demand balance," he said. Yusgiantoro said there was a tendency for oil prices to rise owing to increasing demand but added that OPEC had increased production. OPEC agreed last month to raise its output ceiling by 2.5 mb/d in two stages in its effort to curb high world prices. A rise of two million barrels per day began this month while the 500,000 rise is due to go into force on August 1. Yusgiantoro, who is also Indonesia's energy minister, said calls by OPEC for non-members to raise production have received no response even though they have large spare capacity. Yusgiantoro said OPEC still had spare capacity but only for a short term. "That is why we asked non-members to help increase world oil supply," he said.


Saudi may up oil output to 9.5m b/d in August


July 21, 2004. Top oil exporter Saudi Arabia may boost production close to 9.5m barrels per day (b/d) in August, a 400,000 b/d rise on this month, to meet customers' demand for more crude, a Gulf industry source said. The kingdom, OPEC's leading oil producer, has been pumping about 9m b/d since June to try to cool a relentless rally that has pushed US prices beyond $40 a barrel. "Saudi Arabia might be as high as 9.5m for the month of August," the source said. "They're trying to satisfy their customers. When buyers start asking for more oil, Saudi Arabia gives it to them." It is believed that stubbornly high oil prices were not being driven purely by market fundamentals.  The market is deciding the price as a result of many factors such as perceptions about supply and demand, products markets, geopolitics and interest rates. Supplying 9.5m b/d would leave Riyadh with about 1m b/d of output to spare at a time when dealers are preoccupied with the world's shrinking oil production capacity. The lion's share of the excess is in Saudi Arabia's hands. Riyadh last boosted production to about 9.5m b/d in the spring of '03 to cover a shortage caused by strikes in fellow OPEC members Venezuela and Nigeria and a break in Iraqi exports after the US-led invasion. 


OPEC output adequate


July 22, 2004. US light crude for September delivery was one cent to $40.45 a barrel after falling $1 earlier. In that session the expiring August crude contract briefly touched a six-week peak at $42.30, just 15 cents off the all-time high for US crude futures at $42.45, before falling back sharply.  London's Brent crude rose 15 cents to $37.16 a barrel.  Fresh data from Chinese Customs showed June crude imports at a record of more than 11 million tonnes, while the country's buying for the first six months rose 39 per cent from a year ago to a little over 61 million tonnes.  China, which imports roughly one-third of its crude oil needs, overtook Japan last year to be the second biggest oil consumer after the United States.  Strong demand has heightened concerns over a lack of spare capacity with by geopolitical tensions in Iraq, Saudi Arabia, Nigeria, Venezuela and Russia - all major oil-producing nations.  The OPEC producers' cartel meeting will raise its official output ceiling by 500,000 b/d from Aug. 1 to 26 million b/d, although actual group production is estimated roughly two million b/d above that level. 


Libya: A new promised land for oil investors


July 21, 2004. Many multinational oil companies, previously enamoured of Iraq, have shifted their focus to Libya now that it is shedding its pariah status and their frustrations have increased in Iraq amid growing security fears and uncertainty over that country's investment climate. The reason for the attraction is simple: Libya produces about 1.5 million barrels of oil a day but would be able to double that in a decade with large infusions of American investment and new drilling technologies, according to industry analysts. In the early 1970s, Libya produced 3.3 million barrels a day.


Gas deliveries begin from Algeria’s In Salah


July 21, 2004.  Gas deliveries from Algeria's In Salah project in the Sahara desert began on July 18, pumping to the Italian market, according to Norwegian energy group Statoil which has a 31.85 percent stake in the field. In Salah is Algeria's third-largest gas project and gas from In Salah is piped through a new 500-kilometre (311-mile) export pipeline to Sonatrach's big Hassi R'Mel field, which is the hub for all gas pipelines in the Sahara, Statoil said. From there In Salah gas is piped via Tunisia to Sicily and into the Italian distribution network, Statoil said. The Norwegian group also has a 50 percent stake in Algeria's In Amenas gas and condensate field on the border of Libya. That project is due on stream in 2005. Agreements making Statoil a co-operator and partner in these two fields were recently approved by the Algerian government, the company said.


Shell Canada acquires additional oil sands acreage


July 22, 2004. Shell Canada Ltd. has acquired two undeveloped oil sands leases in northern Alberta from EnCana Corp. for an undisclosed sum, it said. The leases, one of which has estimated oil sands reserves of one billion barrels, are 20 km (12 miles) from Shell Canada's 155,000-barrels-a-day Athabasca Oil Sands Project, it said. Shell said that the purchase of this large, high-quality resource fitted well with their long-term plans to grow its Athabasca oil sands business. The company said the property with the resource estimate, Lease 9, could support a 100,000-barrel a day mining project. Additional drilling on the other acreage, Lease 17, is needed to determine the size of the reserve, it said.


Petrobras studies Cuba's deepwater oil potential


July 23, 2004. The head of Brazil's state oil company Petrobras will be in Cuba over the weekend for talks on deepwater oil exploration and the building of a lubricants plant, a company official said. Epifanio said Petrobras is analyzing available data on two blocks in Cuban territorial waters of the Gulf of Mexico, in the same area where Spanish oil major Repsol YPF has almost completed drilling of a first exploratory well. Petrobras had been evaluating three blocks, and a diplomatic source in Havana said the Brazilian company had discarded one as uninteresting. Since June, Spain's Repsol has been drilling a wildcat 18 miles (29 kms) off Cuba's northwest coast in waters a mile deep. The first ever well sunk in the 43,000-square-mile exclusive economic zone Cuba opened to risk contracts in the Gulf is being watched closely by the oil industry and Cubans hoping for an oil bonanza.


Chevron Texaco venture discovers oil and gas in Thailand


July 23, 2004.  A Thai unit of ChevronTexaco Corp and Thailand's PTT Exploration and Production PCL said that they have discovered oil and gas at Block G4/43 in the Gulf of Thailand. They had drilled two wells, Lanta number one and two, since June and have found 280 feet of oil and gas pay at the Lanta number one and 194 feet of oil and gas pay at the Lanta number two, a statement said. The discovery was an initial success in proving the block's petroleum potential and the companies planned to conduct a seismic survey and drill two more wells in 2005, PTTEP said. Chevron Offshore (Thailand) Ltd (COTL) owns an 85 percent stake in the block and the rest is held by PTTEP International, a wholly owned unit of PTTEP. The block is close to Block B8/32 where COTL produces an average 46,000 barrels of oil per day, making it Thailand's top oil producer. COTL also produces about 230 million cubic feet of gas per day from Block B8/32. ChevronTexaco, holds a number of petroleum licences in both Thai and Cambodian waters in the Gulf of Thailand, where it is the largest oil producer.


Iranian, French companies to develop South Pars


July 25. 2004. Nico and Petroiran companies from Iran and Schlumberger-Iran Company will join hand in developing the oil layer of South Pars gas field. Multilateral negotiations among contractor companies, Pars Oil and Gas Company and the National Iranian Oil Company for presenting South Pars oil layer project as buyback are going through final stages. Petroiran Development Company is to sign the contract for developing the oil layer while Nico will finance the project and Iranian branch of Schlumberger-Iran Company will manage the project under supervision of Petroiran.


Venezuela proposes raise of OPEC price ranges


July 26, 2004. Venezuela will propose an increase in the oil price range established by the Organization of Petroleum Exporting Countries (OPEC) at the next meeting in September, Venezuela's oil minister said. Venezuela has asked to have a technical evaluation of the price range to determine the possibility of raising it from its current range of between US$22 and US$28. The OPEC meeting is Sept. 15 in Vienna, Austria. Other OPEC members, including Saudi Arabia, say they agree with the current price range. Venezuela, the world's No. 5 oil exporter, produces more than 3 million barrels of oil a day, according to the government. Critics say the number is closer to 2.5 million. Ramirez said OPEC would continue to monitor the market before deciding whether to increase the caps on production levels. OPEC decided in June to raise production by 2 million barrels a day in July, and by an additional 500,000 barrels a day in August to lower oil prices that have been over US$40 a barrel this year. But Venezuelan officials say that production hikes will not bring down oil prices, which are high because of the conflicts in the Middle East.


Algeria's Saharan Blend finds niche market in Asia


July 26, 2004. Algeria is expected to further boost its crude oil exports to Asia as its output rises, after the producer sold up to 2.5 million barrels of Saharan Blend for July-loading to regional buyers. Traders said India would receive its first cargo of Saharan Blend crude this summer, with one million barrels sold for loading in July and another million barrels for August. Singapore Petroleum Company (SPC) also bought one million barrels of Saharan Blend for July loading. ExxonMobil Corp could also bring some Saharan blend crude for lifting in July for its Japanese oil refining unit TonenGeneral. Algerian state oil firm Sonatrach signed earlier this year a one-year contract with Chinese trader Unipec to supply two million barrels of Saharan Blend every quarter, traders said. Sonatrach sold its first Very Large Crude Carrier (VLCC) of the light sweet crude to the Chinese buyer in March, for loading in April. Sonatrach clinched its first term crude contract with an Asian customer around two years ago when it started selling Saharan Blend to Indonesia's Pertamina. It exports around one million barrels a month to Indonesia.


Riyadh hints at oil production increase


July 26, 2004. Saudi Oil Minister Ali al-Nuaimi hinted that his country could increase its daily oil production "in the medium term." "We have enough resources to raise our production (currently 9 m/d) in the medium term to 12 or 16 million," he said. "In the north of the country, in the Red Sea and the 'Empty Quarter' there are areas which we have not yet intensively explored", he added. He also stated that the "few attacks seen today" in Saudi Arabia would "not disrupt" oil production. "Only a catastrophic war could put all our production sites, all our terminals and pipelines, out of action," the minister said. Extremists claiming to be linked to Al-Qaeda have struck several times in Saudia Arabia in recent weeks. "Al-Qaeda in Saudi Arabia, what's that? Its the illusion of a force which does not exist. Its imaginary", he stated. Naimi also reiterated Riyahd's intention to maintain official OPEC quotas, set at between $22 and $28."Saudi Arabia set itself this goal and does everything in its power to stick to it", he said, adding that "the $42 (seen) a few weeks ago is far too high".


CNOOC makes new oil find in South China Sea 


July 26, 2004. CNOOC Ltd. reported a successful wildcat drilled on its 100% owned Huizhou (HZ) 26-3 prospect in the Pearl River Mouth basin of the South China Sea. The HZ 26-3-1 well, in the Huizhou trough in the eastern South China Sea about 170 km southeast of Hong Kong, was drilled to 3,780 m TD in 110 m of water. Drill stem tests through a 7.94 mm choke flowed more than 1,400 bbl of 41-43° light gravity crude and nearly 2 MMcfd of gas. The company said the find would help maintain the area as a core production basin for further exploration.


Production begins from Pakistan’s Chanda oil field


July 22, 2004.  Pakistan's state-run Oil and Gas Development Company Limited, the country's biggest exploration firm, has started production at its Chanda field. The new output should cut the country's oil import bill by $25 million a year. Pakistan spent $3.1 billion on oil imports in the last fiscal year ended June 30. The new output is expected to add 2,500 to 3,000 barrels of oil and 10 million to 15 million cubic feet of natural gas a day to the country's production, said the official. OGDCL, which owns 50 percent of the country's oil and 40 percent of gas reserves, currently produces 26,000 barrels of oil and 751 million cubic feet of gas a day. Pakistan produces a total of around 65,000 barrels of oil a day, which accounts for 20 percent of its oil needs. The country is self-sufficient in gas production at 3.5 billion cubic feet a day. OGDCL is the operator of the Chanda field, with a 72 percent share. Government Holding Ltd. and Zaver Petroleum Corp. hold stakes of approximately 17 percent and 11 percent, respectively, in the field, which is located in North West Frontier Province.


Oil, gas discovered in Mirpurkhas, Pakistan


July 23, 2004. Orient Petroleum Inc (OPI) has discovered oil and gas in its Ali-1 well in Mirpurkhas block in Sindh province, thus allowing the country to save $25 million in foreign exchange. OPI has made this discovery in the Ali-I situated in block 2,568-7 in Zone II at Hyderabad-Sanghar-Nawabshah-Umerkot-Khipro area. This was the 17th well being dug in search of hydrocarbons and hoped the success would prove to be beneficial for the country. The spud well flows 22 million cubic feet of gas and 350 barrels of oil and this success would give a saving of $25 million to the country. The block has an area of 333.5 square kilometres in the Mirpurkhas district of Sindh. The company was granted licence on December 29, 1999 for a period of 102 months that was later extended first for a year and then for another eight months. He said at the time of award of licence, the company pledged to make an investment of $2 million, which included 2-D and 3-D seismic survey and an exploratory well. In January this year, the company along with its joint venture partners, BowEnergy Resource (Pakistan) SRL, Zaver Petroleum Corp and Government Holdings made a gas discovery in their Usman-1 well.


South Pars gas field to be operational late August


July 26, 2004. The first phase of a project for developing South Pars Gas Field will be inaugurated in the presence of President Mohammad Khatami during Government Week (August 23-29). The national project comes on stream, 25 million cubic meters of natural gas will be added to the national gas production capacity. Additionally, 40,000 barrels of liquefied gases worth 1.2 million and 200 tons of sulfur will be produced in gas refineries in the first phase. 92 percent of methane gases produced in the refinery would be for consumption by households, autos and industrial sector. The first phase of the project for development of South Pars Gas field on 138 hectares of land has been underway since 1999 and has so far incurred a cost of about one billion dollars. The refinery produces about one billion dollars worth of products.  70 percent of the project had been implemented by Iranian and 30 percent by foreign companies. Once the first as well as the fourth and fifth phases of the project for development of South Pars gas field are completed by end of the year on March 20, 2005, gas extraction from Iranian sector of South Pars would equal that in the Qatari part of the field. About two billion dollars more will be invested in establishment of South Pars gas field in the fourth five-year economic development plan (2005-10). About $ 60 billion will be invested in infrastructure and refining projects in South Pars in the next 10 years.




Dow to build Oman petrochemical complex


July 20, 2004. Dow Chemical Co. will build and operate a petrochemical complex in Oman, tapping large natural gas reserves in a country that is also close to fast-growing Asian markets. The project is a joint venture that will be half owned by Midland, Michigan-based Dow. The government of Oman and its Oman Oil Co. S.A.O.C. each will own 25 percent. Construction of the complex, to be located in the Sohar Industrial Port Area, is expected to start in 2005. The complex will use Oman's natural gas to turn out chemicals such as polyethylene, used in plastics. Natural gas is a key ingredient in a wide range of chemicals.  The complex will include feedstock production facilities, a gas cracker and three polyethylene production units. Begleiter expects construction to finish in 2008 or 2009.


China approves $3.1 billion refinery projects


July 23, 2004. China has approved the building of two oil refineries on the east coast costing more than $3 billion to help meet its surging demand for petroleum products, Beijing-based industry officials said. The two projects, expected to be completed around 2007/2008, would account for roughly 7 % of the country's current total refining capacity of 6.2 million b/d. Top state refiner, Sinopec Group, would build a 10 million tonne-per-annum (mmt/a), or about 205,500 barrel-per-day (b/d), refinery in Shandong province, at $1.2 billion. CNOOC Group, China's third-largest oil and gas firm, was permitted to build a $2.1 billion oil complex in southern Guangdong province, with a capacity of 12 million tpy (246,600 b/d), a company official said, confirming earlier media report. CNOOC's project, to be located in Huizhou city, marks its first major refinery investment. It also paves the way for the offshore oil producer to enter China's lucrative domestic oil market dominated by Sinopec Corp and PetroChina.


Iran to launch refinery in Masjed Soleyman


July 26, 2004. Iran is to launch the most modern gas refinery in the second half of the current calendar year, director of the project Gholam-Reza Askari said. More than 90 percent of the structures have been installed. Masjed Soleyman Oil and Gas Recovery Company produces 112,000 barrels per day of crude. The output has increased by 10,000 bpd compared to the preceding year. It is hoped that the production would hit 18,000 bpd in the near future. At moment, Masjed Soleyman produces 175 million cubic feet of gas for delivery to Bandar Imam Petrochemical Complex.


Transportation / Trade


Sale of natural gas assets in Alberta


July 20, 2004. Paramount Energy Trust said that it has doubled its natural gas production capacity with a C$208 million ($159 million) deal to purchase assets in northeastern Alberta. Paramount said the purchase, along with its recent acquisition of Cavell Energy for C$148 million including debt, will allow it to increase its monthly distribution by 2 Canadian cents to 20 Canadian cents per unit, a rate it expects to continue through 2004. The new assets have average production of about 47 .5 million cubic feet a day and 84 billion cubic feet of proven and probable reserves, Calgary-based Paramount said.


Iran starts to build pipeline to Armenia


July 21, 2004. Iran has started to build its 100-km section of the Iran-Armenia gas pipeline, Armenian Ambassador Plenipotentiary to Iran Gegam Garibjanian said that an Iranian company is building the pipeline using state funds and that the 40-km Armenian section of the pipeline would also be built by an Iranian company, whose representatives arrived in Armenia over the past few days. ZAO Armrosgazprom announced earlier that its plans to participate in the construction and operation of the Iran-Armenia pipeline. ZAO Armrosgazprom was set up in 1997 with a charter capital of $280 million. The company includes the entire gas transport and distribution system in Armenia. The company's shareholders are Gazprom and the Armenian Energy Ministry, 45% each, and Itera, 10%. According to the feasibility study for the project, developed by Gazprom, the project will cost $140 million. Armenia and Iran signed an agreement on May 13 for the construction of a pipeline between the two countries. The pipeline is 141 km long, inducing 41 km in Armenia and 100 km in Iran. The total cost of the project is estimated at $210 to $220 million. Gas should start to arrive in Armenia from January 2007 and would be used at Armenian thermal power plants to produce electricity for export to Iran.


South Korea cancels two gas cargoes


July 22, 2004. South Korea's LG-Caltex Oil Corp. has cancelled at least two gas oil cargoes, one booked for export in late July and another for second-half August, due to lost output from its strike-hit refinery. LG-Caltex had scrapped the late-July loading of a 450,000-barrel cargo and a 300,000-barrel parcel for the second-half of August bound for Singapore. LG-Caltex was scheduled to export 160,000 tonnes (1.192 million barrels) of gas oil for July. It was forecast to export just 80,000 tonnes (596,000 barrels) of the product in August, although some expected a bigger volume before the strike.


LG-Caltex buys prompt July gasoline cargo


July 23, 2004. South Korea's strike-hit LG-Caltex Oil Corp. has bought about 250,000 barrels of gasoline from ChevronTexaco Corp  in a bid to meet commitments to end-users. Shipping sources said the cargo is slated for loading July 27-July 30 from a port in Taiwan. The parcel was most likely 92-octane supply, traders said. LG-Caltex was forced late on Monday to close its 650,000-barrel-per-day refinery as unionised workers went on strike. The refiner said its operating capacity had recovered to 70 percent from 30 percent a day ago. LG-Caltex has declared a force majeure on more than 3 million barrels of oil exports booked for July and August, but sources said the refiner has been reorganising its oil products programme in order to meet some commitments. The refiner, South Korea's second biggest, is a 50-50 joint venture between South Korea's LG Group and U.S. oil major ChevronTexaco.


Georgia shuts down BP pipeline


July 26, 2004. Georgian environmental authorities have halted construction on a section of the Baku-Tbilisi-Ceyhan pipeline seen as a key to reducing Western dependence on Middle Eastern oil. Construction was stopped because BP, which heads the consortium building the pipeline, had not submitted paperwork guaranteeing specific environmental protections for a section of the pipeline passing through the Borjomi Gorge.  The gorge, 150 kilometers west of Tbilisi, is famed for its mineral springs and spas, and bottled water from the gorge is one of Georgia's most widely known exports. The ministry expected BP to submit the necessary documents within two weeks. A BP representative told Prime-Tass that construction of the Georgian section of the pipeline was 60 percent finished when work was suspended.


Iran-Pakistan-India gas line must be speeded up: Aziz


July 23, 2004. Federal Finance Minister Shaukat Aziz has said that work on the Iran-Pakistan-India gas pipeline project needed to be expedited after mitigating all risks and taking into account the interests of all three parties. Mr Aziz said this at a meeting with Indian External Affairs Minister Natwar Singh who had called on him at his office recently. Mr Aziz said that SAARC has the potential to develop into a vibrant organisation and needs to act as a platform for economic cooperation to alleviate poverty, illiteracy and under-development in the region. He said South Asian countries were blessed with human capital and natural resources and have the potential to become centres of economic activity. The January 2004 declaration provides the foundation to leverage SAARC's potential, he added. Mr Aziz said Pakistan is committed to pursuing peace with India and resolve all differences and disputes, including the issue of Jammu and Kashmir.


Dismantling gas price pact in Pakistan to boost industry      


July 23, 2004. With the dismantling of the Gas Price Agreement (GPA) 1982, PPL's profitability is likely to soar even if crude oil prices remain stable, and production remains stagnant. The government has put in place a revised gas pricing mechanism for the pricing of gas from the Sui and Kandhkot gas fields, which will be completely implemented by financial year 2008. Under the mechanism, the prices of gas from the two fields will be increased to a level of 50 percent of the prices under the Petroleum Policy 2001. Currently, the gas prices of Sui and Kandhkot fields are the lowest among all the fields. Although this anomaly is not likely to be removed completely, sector analysts believed that it represents a substantial improvement over the previous pricing formula. With the implementation of the revised Gas Price Agreement, the selling prices of Sui and Kandhkot gas fields are likely to go up even if oil prices remain stable.


Pakistan to explore Iran's CNG market


July 26, 2004. A ten-member delegation is expected to go to Iran during the first week of August for exploring avenues in seeking potential market for the Compressed Natural Gas (CNG) industry. This was decided at a meeting of stakeholders in the CNG business with the Additional Secretary. Malik Khuda Baksh, President, CNGSOAP, informed the Additional Secretary that Pakistan can offer know-how in operational, construction, maintenance and engineering side of the CNG sector where it has ample manpower and technical expertise. Besides, Pakistan can introduce 'mother-daughter concept' in Iran - a concept, which is applicable, where laying of natural gas pipelines is very expensive.


Georgia interested in gas via Iran-Armenia pipeline


July 26, 2004.  Georgia is interested in the idea of importing Iranian gas via the Iran-Armenia pipeline, Georgian Foreign Minister Salome Zurabishvili said. The Georgian authorities are ready to look at this idea as they aim to develop transit shipments through the Caucuses, she said. Earlir, Armenian Foreign Minister Vardan Oskanian was cited as saying that in talks held in Teheran at the start of July with Georgian President Mikhail Saakashvili and Iranian authorities on cooperation in Iranian gas transportation to Europe, two transit options were discussed. One envisages transportation through Armenia and the other through Azerbaijan. Iranian and Georgian media have reported that Georgia's Energy Ministry prefers the Azerbaijan option.


Policy / Performance


China interested in cooperation with Iran


July 24, 2004. Director General of energy bureau at China's National Development Reforms Commission announced that his country was ready for more cooperation with Iran in such fields as trade, engineering, and oil refining. Due to China's burgeoning population, any problem in energy sector could have negative effects on Chinese economy. The official stated that energy consumption in China last year comprised 67 percent coal, 22 percent oil, 2.8 percent natural gas, and 7.4 percent hydropower. He said that China's energy industry was open to the whole world and also followed regulations set by environmental and international bodies such as WTO and IEA. China is the world's third energy producer and its energy production stood at more than one million coal units, 1.6 million tons crude oil and 280 billion units electricity last year.


Iraq, Syria sign oil cooperation accord


July 26, 2004. Syria and Iraq signed an oil cooperation and barter accord during a visit to Damascus by interim Prime Minister Iyad Allawi, the government daily Tishrin reported. Under the accord, signed by Syrian Oil Minister Ibrahim Haddad and his Iraqi counterpart Thamer Ghadban, Syria is to supply kerosene, benzine and liquefied gas in exchange for Iraqi crude, it said.


Pakistan gas companies seek increase in tariff


July 21, 2004. Dissatisfied with recent 10 per cent hike in the gas tariff, Sui Southern Gas Company Ltd. (SSGCL) and Sui Northern Gas pipeline Ltd. (SNGPL) have sought further increase in gas charges. Both State run Gas companies have filed identical petitions before the Oil and Gas Regulatory Authority (OGRA) seeking further increase in gas tariff. Both companies are not satisfied with the recent decision of the government increasing the rates of gas for domestic, commercial and industrial units from 5.7 percent to 10 percent and pleaded for further rise in the gas tariff. They contended that 10% increase is not sufficient for determination of their estimated revenue requirements for fiscal year 2004-5. OGRA is empowered to determine annually the revenue requirements of the gas utilities on the basis of prescribed rate of return taking into account the cost of gas, prudent capital investment and cost and depreciation etc.


Pakistan to promote petroleum industry


July 22, 2004. The 2004-05 Trade Policy, which was announced by Commerce Minister Humayun Akhtar in Islamabad is likely to give a boost to petroleum, mining and construction sectors, analysts said. One analyst said the three sectors, which employ thousands of people throughout Pakistan, could derive much benefit from the new policy provided it was not misused. In the Trade Policy, Humayun said: "Import of used hand plant, machinery and equipment excluding Passenger Transport Vehicles, Trucks, Static Road Rollers up to 12 tonnes capacity, will be allowed to the Construction, Mining, Oil and Gas and the Petroleum Exploration and Production Sectors."






Construction of Iran’s Isfahan power plant begins


July 19, 2004. Building south Isfahan power plant as the first power plant that would be constructed as BOT started has begun. This is the first power plant whose guarantee has been given to investors by Ministry of Economy and Finance. The project will be carried out through investments to be made by Germany, the United Arab Emirates, and Iran. Implementation of the project started a while ago and has so far progressed 30 percent. The power plant will enjoy six 159-MW units for a total production of 954MW electricity. Total investment for the project has been estimated at 320 million euros. BOT, A Suitable Solution For Encouraging Private Investments BOT is a good way for encouraging private sector's investments in a country which is short of financial resources.


Japan to finance power project in Mexico 


Jul 20, 2004.  Japan Bank for International Cooperation (JBIC) said that it was providing $210 million in financing for a power plant to be constructed by Electricidad Sol de Tuxpan (EST) in the Mexican state of Veracruz. Japan's Mitsubishi Corporation and Kyushyu Electric Power Co., Inc., have joint stakes in the project, which will be jointly financed with Mizuho Corporate Bank, the Bank of Tokyo-Mitsubishi and the Tokyo branch of Standard Chartered Bank. JBIC will also provide a guarantee that covers the political risk in Mexico for the portion financed by the private financial institutions.


Russia and Iran move toward nuclear power station completion


July 21, 2004. Alexander Rumyantsev, head of Russia's Federal Atomic Energy Agency, met Iranian Ambassador Gholamreza Shafee in Moscow to discuss progress in the construction by Russian experts of the Bushehr nuclear power station. The sides also discussed matters related to the signing of a treaty on returning spent nuclear fuel to Russia and a number of aspects related with Rumyantsev's visit to Tehran, which is scheduled to take place this autumn. Russia is completing the construction of the station's first generating unit. The contract for building the station was signed in 1995. The 1,000 MWt/h light-water reactor is considered to be a world leader in terms of safety and its operational capabilities. The reactor will use nuclear fuel imported from Russia. The first fuel delivery for the Bushehr power plant will be dispatched, according to the technological arrangements, no earlier than six months before the first trial, which is scheduled for the end of 2005.


China approves 2 nuclear projects


July 22, 2004. The State Council gave the nod for construction of two new nuclear projects. This is the first time that the government has approved new nuclear projects in more than five years. The two projects are the second phase of Lin'ao Nuclear Power Plant in South China's Guangdong Province, and Sanmen Nuclear Power Plant in East China's Zhejiang Province. Both will install two 1,000-megawatt nuclear reactors. It was believed that the nuclear power plant in Qinshan would precede those in Lin'ao and Sanmen in getting the green light. Vice-Premier Zeng Peiyan, who chaired meeting, indicated that Chinese companies will increase localization in design, equipment supply and construction in the two new projects.


New coal reserves found in China


July 24, 2004. Chinese geological workers have found new coal reserves estimated at 1.4 billion tons in Wenshui County in north China's Shanxi Province. Sources from China Coal and Geology Corporation, one of the organizers of the discovery, said workers sunk six pits and explored a land covering 74 sq km to the southeastern edge of the Xishan Coalfield inside Wenshui County before finding the reserves. The exploration has proven that the coal is hidden deep, and coke dominates the reserve, said the sources. An executive with China Coal and Geology Corporation believed the prospects for further development is bright.


Pakistan power generator applies for conversion to gas


July 21, 2004. A power generation company Sitara Energy Limited (SEL) has applied to NEPRA for conversion of its power plant from furnace oil to gas. The management of the power station, located 33 km from Faisalabad on Sheikhupura Road with installed capacity of 47.68 MW (5.98x5), intends to convert to gas as per government priorities to encourage use of indigenous fuel and save foreign exchange on import of furnace oil. Its capacity will remain approximately the same after the proposed modification while existing furnace oil engines would be used as standby after starting operation of gas generators. Meanwhile, NEPRA has invited comments from the stakeholders on the proposed modification.


Pakistan Power projects to be on fast track


July 23, 2004. Federal Minister for Water & Power and SAFRON, Aftab Ahmed Khan Sherpao has said that the government has decided to undertake power projects on a Fast Track basis to deal with the near future increased power demand in the country. The minister said that the power demand in the country is rapidly increasing and this has created a power shortage for KESC and a near future shortage for WAPDA. The minister showed serious concern over the fact that KESC is presently facing a shortage of 300MW electricity and this would increase if new power projects are not added to the KESC system. The meeting decided to allow the setting up of power projects in Fast Track to cover the power shortages and meet this increasing power need.


Transmission / Distribution / Trade


UK Drax power plant, UK Coal sign coal supply deal


July 20, 2004. Britain's largest power station Drax has agreed a contract with mining company UK Coal for the delivery of 14 million tones of coal over the next five years, the companies said. The value of the contract is linked to fluctuations in international coal prices and will range from almost 400 million pounds ($742 million) to 450 million pounds before inflation. Deliveries will start at 0.5 million tones in 2005, rising to four million tones by 2007. Together with existing contracts, this will result in UK Coal supplying 18 million tones to Drax over the next five years. Drax, which can produce 10 percent of the country's electricity, is in the hands of banks after its U.S. owner AES Corp withdrew financial support from the plant last year following a slump in UK wholesale electricity prices.


Pakistan to spend Rs 7 billion to improve supply 


July 25, 2004. The chief executive of the Peshawar Electricity Supply Company (Pesco) has said the company will spend Rs7 billion during the current fiscal year to improve the power supply system in the NWFP. Brig Tahir Saeed Malik was briefing Federal Minister for Water and Power Aftab Ahmad Khan Sherpao on Pesco performance, according to a press release issued here on Sunday. The chief executive said the company had reduced its line losses and recovered Rs 27 billion this year, up by 11 per cent against last year's Rs18 billion. The minister was also informed that except in the southern districts where system was overloaded due to the closure of Chasma power plant, no load shedding was done in any part of the province. He said 1,787 out-of-order transformers in the province had been replaced with new ones.


Global Renewable Energy Trends


World Bank closes consultation on position on renewables


July 21, 2004.  The World Bank will promote the use of renewable energy and energy efficiency to combat climate change, according to a draft response to its internal review of extractive industries. The Bank will respond to the recommendations by taking “speedy movement” in its strategy on renewables to use programs and policies “to ensure that renewable energy and energy efficiency are seen as economically viable and essential ingredients in the energy choices of our member nations, not marginal considerations.” It will commit to a target of at least 20% average growth each year in commitments to both energy efficiency and renewables over the next five years, and then reassess its goal. The Bank is also prepared to “convene or participate in a steering group of nations, academic and research institutions, civil society and industry that can help frame a broader agenda on renewable energy (including policy reform, research, and financing)” and it welcomes ideas and suggestions for this coordinating mechanism. To foster greater collaboration across national and institutional lines.


Wind will match fossil electricity by 2020


July 21, 2004. The cost to generate electricity from wind turbines will rival the cost of power from fossil fuel facilities by 2020, if government increases its targets for renewables. “The results from government and industry sources in the USA, Europe and Australia are all forecasting ongoing price declines for wind energy of between 30% and 50% over the next 15 years,” Karl Mallon, co-author of ‘Cost Convergence of Wind Power & Conventional Generation in Australia.’ The report was produced by the Australian Wind Energy Association to review future costs for power from wind, coal and natural gas sources. “With continuing economies of scale in Australia, wind projects installed in 2020 can expect to be cost competitive with fossil fuel energy supplies,” but he warns that the domestic wind energy industry will have met the current Mandatory Renewable Energy Target for 2010 by 2007, “so there will need to be a substantial increase the MRET target to stay on track.”


The current cost difference for generate In Australia is “significant” with coal as low as 3.5¢, gas at 4¢ and wind at 8¢/kWh. However, this gap is steadily narrowing, the report notes. Provided that growth of the wind industry keeps up with international levels, Australia can expect the price of wind to overlap with gas between 2008 and 2016, and start to overlap with coal from 2016 on, with wind prices continuing to drop after that. .


Wind industry releases draft guidelines for sustainability


July 21, 2004. Wind power must be “developed and operated in a sustainable manner” if it is to play an important role in addressing the major global challenges of this century, and the wind industry has published guidelines to achieve that goal. Wind power, in combination with other renewable energy forms and appropriate storage facilities, “is making, and will continue to make, a significant contribution” to the challenge of alleviating poverty and increasing living standards through the provision of affordable access to electricity and basic services, says the World Wind Energy Association in its draft ‘Sustainability & Due Diligence Guidelines’ for wind energy development. That goal is a “necessary step towards achieving more equity between different socio-economic groups within nations, and between developed and developing nations.”


Rape seed for power generation


July 24, 2004. Britain's first electricity generating station powered by the rape seed is to be built on a Yorkshire farm. It will mark a significant step forward in the development of electricity from biomass, or plant material. The man behind it, Clifford Spencer, has led the way in Britain in the production of non-food crops: next year his company will grow 70,000 acres of plants for use in industry rather than food. The biomass power scheme has gone into partnership with the giant Anglo-Swiss agribusiness Syngenta, which is providing a specially developed high-yielding rape variety by more than 100 local farmers under contract.  This new generating station is significant also as a potentially important contribution to the fight against climate change.


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1The list includes Algeria, Angola, Azerbaijan, Bahrain, Brunei, Cameroon, Chad, Colombia, the Democratic Republic of the Congo, Ecuador, Egypt, Equatorial Guinea, Gabon, Iran, Iraq, Kazakhstan, Kuwait, the Kyrgyz Republic, Libya, Mexico, Nigeria, Oman, Qatar, Russia, Sao Tome and Principe, Saudi Arabia, Sudan, Syria, Trinidad and Tobago, Tunisia, Turkmenistan, the United Arab Emirates, Venezuela and Yemen.


*Nancy Birdsall is President of the Center for Global Development.

Arvind Subramanian is Division Chief at the International Monetary Fund


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