MonitorsPublished on Sep 06, 2005
Energy News Monitor I Volume II, Issue 11
All's not lost in Kazakhstan


oth developed and developing countries are scrambling to outbid each other in a mad race to secure fast vanishing energy assets with China leading the pack of developing countries. Kazakhstan's largest refiner PetroKazakhstan's addition to the Chinese kitty last month, where India emerged as a sluggish runner's up is the most vibrant example of the desperateness for assets in what is turning into a fiercely fought global oil war. The PetroKazakhastan deal made headlines around the world and drew especial attention in the Indian media where, thanks to excessive focus over the past few months, it was conceived as a battle won even before the first shot was fired. They are not to be blamed entirely because of the historic alliance forged between India's largest oil firm ONGC and the world's largest steel maker Mittal Steel a few weeks before the bidding. Mittal Steel boasts of massive steel operations in the iron ore rich central Asian country. The joint venture thus formed, OMEL (ONGC Mittal Enegy Limited) was undoubtedly a winning combination.


Annual Crude Production


Gas production

Net Profit


128.18 million tons

31.25 billion cubic meters

102.9 billion yuan




22.971 (BCM)

Rs. 12,725 Crore


7 MillonT





*All figures 2004 NA: Not Available

So when the results on August 22 were nothing short of a rude shock. OMEL was ousted by the Chinese oil giant CNPC in a US $ 4.18 billion deal.

Events followed quickly. While Minister of Petroleum Natural Gas and Panchayti Raj Mr. Mani Shankar Aiyar, touted as a pioneer in 'oil diplomacy', asked the group to go ahead and bid for the deal again, as India anticipated intervention by the government of Kazakhstan, which has an authority to overrule any deal if it wants to. Their was no word from the Kazak government immediately, only any agency report, a week later, quoted official sources from energy ministry of Kazakhstan as saying that both India and China were 'equal' in the eyes of the Kazak government and that the biding process done in London was 'fair' enough. Therefore there was no question of thinking of any other result.

"Kazakhstan Minister of Energy and Natural Resources Vladimir Shkonik has told us that Kazakhstan government will not stop CNPC International (an affiliate of state-run China National Petroleum Corp) from taking over PetroKazakhstan for the benefit of ONGC," a senior Kazakh official was quoted as saying.    According to the official another reason behind this was the history, "Two years ago, we brought a law to stop British Gas from selling its stake in Kashagan oilfield to outsiders. The legislation ensured that the BG stake remained within. If we were to do something, we would do like to do a similar thing."

With Kazakhstan Government putting its seal on the Chinese acquisition the saga came to an abrupt end. In the process India lost out on about 70-000-80,000 barrels of oil per day.

That's because PetroKazakhstan is the largest integrated oil company and the largest supplier of refined products in Kazakhstan. The refinery is considered to be one of the most modern refinery developed in the post Soviet era and produces cheapest possible refined oil in the region.    The Canadian listed company churns out roughly 149,732 bpd (barrels per day-first quarter 2005) with an average of about 100,000 bpd (cut down in the in following quarter because of environment concerns of gas flaring). As per the Kazakh government norms, it can keep roughly a little more than half of the produce for the local markets while the rest can be exported. This refinery is also modernizing itself; this year it will be designing the first phase of an Enhanced Oil Recovery project at its Kumkol fields as a means of increasing production and its reserve base.

In spite of the fate of the deal many questions still remained unanswered. Why did the deal go against OMEL in spite of the 'popular' sentiment including more money? Did the Mittal clout failed to reflect when it was most required?

Mittal group no doubt has massive support in Kazakhstan, the comfort level it enjoys here was perhaps the main reason why he turned to a field like energy when it forged an alliance with ONGC. It's Temirtau plant in Kazakhstan is one of the largest single-site integrated steel plants in the world and has a steel making capacity of 5.5 million tons per annum.

This steel plant with its own captive coal, iron ore and power exports 96 per cent of its output to other countries (Coal reserves- 1.5 billion tones, Iron ore-1.7 billion tones). Mittal Steel also operates a 435 MW thermal power station in the country.

ONGC on its part couldn't have left any stone unturned and it is believed to have been prepared to give more money to secure the deal, if it came to that.

However none of the two worked in the end as the Chinese announced their win telling the world how they have even received congratulations message from the Kazak government. The 'mystery' seemed to have finally been unraveled with China going announcing it's support for Kazakhstan's bid to join World Trade Organisation. But did it?

Looking beyond the immediate prism Kazakhstan's game plan looks very clear and the deal eventually looks to be coming from the same school of thought. For it is a country born about 15 years back surrounded by only two kind of states – the ones which have seen a mass rising and are considered unstable for the region (Turkmenistan, Uzbekistan and Kyrgyzstan) and the other two which wield Veto power (Russia and China).   

The anticipation of becoming a failed state itself or getting overpowered by the big two looms large over the moves that this country makes. It does not want to fall in the warp of the former and thus finds itself balancing the act and pursing a policy of pleasing all, inviting maximum investment wherever possible.

 "I think there should be three lessons from the developments in Ukraine and Georgia. First of all, governments should focus on pursuing economic reforms. Second, governments must pay attention to pursuing political reforms. All these kinds of reform are being pursued successfully in Kazakhstan. And it is not a final stage. We are determined to go ahead, " Kazakhstan's Minister of Foreign Affairs    Kassymzhomart Tokae said recently.  

He further explains the country's ambition to be the leader in its region when he says: Kazakhstan is considered to be a leader [in the region], in accordance with all acceptable economic criteria, but at the same time we want to be a leader in all aspects, not only the economic area [but also in] the political area. At the same time, political reforms are much more difficult to pursue because this is a matter of stability, a matter of security of the country, not only for Kazakhstan. As far as we are concerned, we have to bear in mind the so-called geopolitical context, what is occurring in the immediate neighborhood. Because Kazakhstan is a vast country with a relatively small population we have to be cautious. But it doesn't mean we want to stop the political transformation of our society, because the historic destiny of our country is to be a leader, and we don't want to lose this kind of leadership. Because Kazakhstan is a vast country with a limited population, if we lag behind some other countries, first of all of the post-Soviet countries, Kazakhstan could be marginalized, or even destroyed.

"We have a choice between remaining the supplier of raw materials to the global market and wait patiently for the emergence of the next imperial master or to pursue economic integration of the central Asian region," Nursultan Nazarbayev, the president of Kazakhstan reiterated in the State of the Union Address earlier this year.    

Understandably, for this land locked state the only escape route then is the Caspian Sea- a goldmine of natural resources. Oil naturally comes to the rescue. This country boasts of an estimated 35 billion barrels of crude oil with projected oil reserves of 100-110 billion barrels by 2015. Presently it produces about 59.227 million tones of oil annually while the internal consumption is 9.2 million tones (2004). This huge difference between demand and supply means that the country exports most of oil. The limited refining capacity, 9.4 million tones, means this is more profitable and perhaps inevitable. The oil and gas sector attracts the largest amount of foreign investment. Of the total amount of US$8.4 billion, US$5.3 billion went into oil and gas.

Some might however feel what has all this got to do with PetroKazakhstan? Well everything if one reads between the lines. A closer look at the energy deals being signed worldwide suggests that geopolitics has become the key deciding factor and that's perhaps what happened hear.    

The Kazak-Chinese cooperation has grown manifold over the years. China is already working on several projects in the Kazakhstan. CNPC has made a total investment of 1.3 billion USD in Kazakhstan projects (2004). In addition to this CNPC is extremely active in presenting itself as socially responsible (it says it has invested more then 15 millions USD towards such causes). It sells itself as a company, which is working 'hand in hand' to uplift the economic standards of Kazakhstan by bringing in new technology and increasing job opportunities. Many other projects also showcase the growing China-Kazak cooperation. A new rail link is being built along the border, which will provide seamless connectivity with western China (this area already has Chinese refineries) bringing the hungry dragon closer to dominating the Caspian Sea.

A statement by CNPC defines this relationship more appropriately, "Based on the guiding principle of mutual benefit and win-win situation, CNPC has fostered excellent collaboration relations with the Government of Kazakhstan and KazMunaiGaz. By means of investment and technological cooperation, CNPC has made great contributions to the development of Kazakhstan oil industry and the boosting of its local economy.    This acquisition, which is in line with international market regulations, is the natural choice of CNPC's business expansion in Kazakhstan, and it serves as part of CNPC's International Development Strategies."

The statement talks of 'long-term cooperation' and considers the acquisition of PetroKazakhstan as being another major step 'to tap further potentials in Kazakhstan'.

But Kazakhstan is not only doling out prized assets only to China, Russia and US are equally well received. In fact United States is the biggest investor here with US$3.1 billion. US based oil companies like Chevron have widespread operations in the country. United States itself has been taking interest in the region with 2004 witnessing an 86 percent rise in investment over 2003. So while Chinese were pleased to see PetroKazakhstan coming their way, Kazakhstan's foreign minister was in the US meeting Donald Rumsfeld and Condoleezza Rice and assuring them of continued support (It is the only central Asian country, which contributed troops to Iraq, something that even India abstained from).

In one the interviews he said, "We appreciate the role of the United States because it is the most advanced country in the world. It is the United States that first recognized Kazakhstan as an independent state, and we always keep our historic memory of this fact. We have to be pragmatists, which is why we welcome the active participation of the United States in the economic development of Kazakhstan, as well as the involvement of the United States in promoting democratic values in Kazakhstan. At the same time, we have to admit that we face the strategic interests of Russia, of China, who are immediate neighbors of Kazakhstan. We also closely cooperate with countries like India, Pakistan, Iran and Turkey, which are also involved in the region. Some people argue that there is a big game that is coming back to this region. Probably so, but for us it is not a game, it is hard work to maintain the balance of interests of the major countries," he announced signaling the importance it accords to various countries in that order.

India shouldn't mull then, it has only lost the first round and all it needs to is to keep pestering while building a more strategic relationship with this key central Asian country. Kazakhstan realizes India's importance as the President Nursultan Nazarbayev has already mentioned, yet like Russia calls China a brother and India a friend (when it comes to that) the same is true for Indo-Kazakhstan bonding. As for PetroKazakhstan, being runner's up isn't bad considering Unocal is still fresh on our mind- and China's.

(Views are personal)

(Email: [email protected])


Power Sector Reforms in India: Power to the Farmer


… continued from Vol 2, Issue  10

Sidharth Sinha

Tariff and Subsidy Regimes for Power Supply to Agriculture

The two fundamental issues in supply of power to agriculture are:

·          Metered tariff vs flat rate unmetered tariff

·          Direct subsidy vs tariff subsidy

The question of flat-rate vs metered tariff should be seen in the context of two part tariffs with a fixed ‘access’ charge and a per unit charge. In the single product situation instead of setting price equal to average cost an access/usage tariff can be designed to mimic the first best marginal cost pricing and subsidy scheme. If access demand is fixed and not sensitive to the access price, the usage fee is set at marginal cost and the access fee at whatever level is needed for the firm to break even when it minimises cost. With usage price based at marginal cost, the first best consumption levels are attained. The access fee basically covers the fixed cost. This is also known as the Coase result.

However, if access demand is price sensitive then the firm must be seen as providing two goods — access and usage. The two goods have separate and inter-related demand and there is a marginal cost associated with each good separately. Without a breakeven constraint, first best optimality would be attained by setting the access fee equal to the marginal cost of access and the usage fee equal to the marginal cost of usage. In the presence of a break-even constraint the second best solution would be Ramsey prices. The Ramsey prices would depend upon the assumptions about usage and access elasticities.

·          Fixed access, sensitive usage: Since access is fixed (zero elasticity) all the mark-up for breakeven would be derived from the access fee. Usage would be priced at marginal cost. This is the Coase result.

·          Sensitive access, sensitive usage: Now both access and usage would be priced above marginal cost. The access fee would be lower and usage fee higher than in the case of the Coase result.

·          Sensitive access, fixed usage: The access fee is set at the marginal cost of access and since the elasticity of demand for usage is zero, the usage fee is set sufficiently higher to allow the firm to beak-even. This implies that a zero access fee will be second best optimal only if usage demand is fixed and the marginal cost of access is zero — an unlikely situation. Simple gains can, therefore, be expected from moving towards more reliance on access fees.

Exhibit 1: Tariff Regimes


Full cost tariffs (direct subsidy possible)

Tariff subsidy

Metered tariff (metering costs)




Quantity entitlements


No entitlements (rationing)

Flat Rate tariff (cost of monitoring pump capacity)


Difficult to achieve (rationing)


Status Quo (rationing)

In this context a flat rate charge would be optimal only if consumers are insensitive to the access charge and the marginal cost of usage is zero.

In the case of power, where marginal cost is quite significant, a flat rate tariff results in an inefficiently high level of consumption. Flat rate tariffs will, therefore, have to be accompanied by rationing. Additionally, with flat rate tariffs subsidies will be inevitable since with the break-even, no subsidy tariff would be so high as to cause a significant number of users to drop out altogether.

In the presence of measurement costs, flat rate tariffs may be optimal if the cost of measurement exceeds the efficiency loss resulting from zero usage charge. However, measurement may be necessary in any case for other purposes, such as energy accounting and measurement of losses. In the direct subsidy regime while tariffs cover full cost, subsidy is provided through cash transfers, either directly or through coupons, based on certain qualifying characteristics.

In the case of a general subsidy through below-cost tariffs, consumers with a higher level of consumption would enjoy a higher absolute level of subsidy. Tariff subsidies can be targeted in several ways. The most common and easy to implement is by limiting below cost tariffs and subsidies only to units of consumption below a certain level. This requires only measurement of individual consumption. Tariff subsidies can also be made available on the basis of consumer or end use characteristics. However, this would entail information on the consumer or the end use, and monitoring to ensure that supply is not transferred to other consumers through a secondary market, or to other uses by the same consumer. Such subsidies can be controlled by providing ‘entitlements’, i.e., limiting the subsidy to only a specified number of units. This would require measurement of individual consumption.

General subsidy through tariffs, without a system of entitlements, will require rationing in order to cap the total amount of subsidy. Rationing will not be required in the case of a tariff subsidy with entitlements and in the case of direct subsidy.

Tariff Regimes

Exhibit 1 explains the tariff and subsidy combinations.

A) Ideal: metered consumption with full cost, possibly two-part, tariffs. If necessary government can provide direct subsidies.

B) Second best: metered consumption with tariff subsidy, subject to entitlements (B1). Since aggregate subsidy is capped by entitlement, rationing may not be necessary. In the absence of a system of entitlements (B2) rationing will be necessary.

C) Infeasible: flat rate with no tariff subsidy. This requires rationing and very high flat rates.

D) Status Quo: flat rate with tariff subsidy. With no metering, entitlements are not possible, and hence rationing is necessary. During the transition from D to A, the system is likely to be in B or C.

Alternatives B, C and D require rationing. For energy accounting and measurement of T&D losses, alternatives C and D require measurement of aggregate consumption since individual consumption is not being measured.

Exhibit 2: Power Costs and Subsidies


Rating (hp)


Cost (Rs)

Power used


Cost / kwh


AP Transco cost at Rs 2.57 / kwh
































Both rationing and measurement of aggregate consumption will require physical separation of the agriculture supply network. In practice it may be more economical to separate the rural network instead of just the agriculture supply network. In the long run it will be desirable to separate the rural network both physically and organisationally. This may be necessary to enable faster privatisation of the ‘concentrated’ urban zones. The rural and agricultural segments may also require alternative organizational structures for efficient functioning.

(Courtesy: APARC Stanford IIMB Management March 2004)

(… to be continued)


India’s Reforms in the Hydrocarbon Sector

What Has Been Accomplished?

What Remains to be Done? - XVII


…continued from Volume 2 Issue 10            


Based on the recommendations of Expert Groups the government decided in 1997 to dismantle the Administered Price Mechanism (APM) in phases and as per the initial plan full deregulation was to be completed by 2002.   Since that decision, pricing of petroleum products has gone through various phases of decontrol. However five product categories, namely petrol, diesel, domestic LPG and PDS Kerosene continue to be commodities whose prices are ‘managed’ even after 2002 when APM was ‘officially’ dismantled.  In 2002, oil companies were allowed the leeway to sell petrol and diesel at market determined prices based on ‘import parity pricing’ while prices for PDS (Public Distribution System)  Kerosene and domestic LPG continued to be subsidised.  The term ‘market determined’ however was not completely true as oil companies could set prices for petrol and diesel based on the ‘import parity mechanism’ only after consultations with the Ministry of Petroleum & Natural Gas (MoPNG). 


Import Parity Pricing

Import parity price for petrol and diesel were that price an actual importer would pay for these products at a given point in time.  That price included FoB prices as quoted in Arab Gulf Market and reported by Platt and Argus, premium/discount as published in Platts and Argus, Ocean freight from mid-point in the Arab Gulf to Indian ports, insurance, customs duty, exchange rate, ocean loss, wharfage and port charges.


Current retail selling prices of petroleum products are built upon this notional price at which these products would have been imported into the country and not on the basis of actual ex-refinery price of these products.  The retail selling price of petrol and diesel is calculated by adding freight upto depots, marketing cost and margin, state specific irrecoverable levies, excise duty, delivery charges from depot to retail pump outlet, sales tax and other local levies and dealer commission to this basic price at the refinery gate. 


While the refinery gate price at all refineries in India are uniform as per the arrangement between oil marketing companies and refineries, the refinery gate price is revised every fortnight on the basis of prevailing international prices.  The marketing margins, dealer commission, delivery charges within free delivery zone are also maintained at the same level.  In the case of PDS Kerosene and Domestic LPG the government specifies the flat rate subsidies to be met from budgetary provisions for each depot or bottling plant.  After deduction of subsidy the retail price of these products varies with changes in international oil prices. 


Between 2002 and the end of 2003 companies set the prices of petrol and diesel every fortnight and these worked fairly well as international crude prices were relatively stable.  From 2004 oil prices started rising at rates that could not be captured by fortnightly revisions.  In addition, during the first two quarters of 2004 the MoPNG did not clear fortnightly price revisions proposed by oil companies – including that for PDS Kerosene and Domestic LPG.  During the second half of 2004, the government allowed limited freedom in revising the price of petrol and diesel within a price band.  The price band was set on the basis of the rolling average prices of petrol and diesel in the international markets. 


Accordingly oil companies were permitted to carry out autonomous adjustment in prices within a band of +/- 10 per cent of the mean rolling average C&F prices of the preceding 12 months and 3 months.  In case of breach of this band, oil marketing companies were to approach the Ministry of Finance through the MoPNG to modulate the excise duty rates so as to shield the consumer from high international oil prices.  This mechanism has been under considerable stress in the last one year (2004-2005) as international oil prices are continuously moving up to historically unprecedented levels.   Rather than increasing the retail price of oil, the government has resorted to reducing the excise duty on petrol, diesel, Domestic LPG and PDS Kerosene. For example, in the Budget (2005-06), the following changes in tariff structure were announced:



Before Feb 2005

Revised as on March 2005

Customs Tariff

Crude Oil


5 %


15 %



15 %



5 %



5 %



20 %

10 %

Excise Tariffs


23 % + Rs 7.50/ltr

8 % + Rs 13/ltr


8 % + Rs 1.5/ltr

8% + Rs 3.25/ltr


12 %


Domestic LPG

8 %


Source: Pricing of Petroleum Products, Standing Committee on Petroleum & Natural Gas.  Sixth Report.

Compared to the average Indian basket price of $ 27.98 per barrel during 2003-04, the average price from April 04 to January 05 was $ 37.87 per barrel.  During February 05 the average Indian basket price was above $40 per barrel and in March 05 it was close to $ 50 per barrel.   The retail price increases for petroleum products however were not proportional to these increases.  


Pricing of petroleum products has been a complex issue involving contradictory objectives.  On the one hand there are social objectives which essentially aim to provide the poor with cheap and easy to use commercial energy for cooking and lighting.  Subsidies on Kerosene and LPG are the instruments in place to achieve this.  There is also the objective of protecting the users of petrol and diesel from volatility of international prices which also serves the objective of controlling inflationary pressures on the economy.  But there are more stakeholders like oil companies currently owned primarily by the government.  As owner of these companies on behalf of the public, the government has the fiduciary responsibility of maximising return on investment. On the other hand the Government also has the objective of raising revenue for itself and taxation on petroleum products both at the state and central levels has been an important means for meeting this objective.   

… to be continued 


Natural Gas Availability

Production of Natural Gas during the period was of the order of 87 MMSCMD. Contribution from various sources is detailed below.




% Age














Supply of ONGC is affected by the accident in the MHN field. Currently gas supply is about 70% from the field. Apart from domestic production, RLNG from PLL Dahej contributed additional 17 MMSCMD, taking the total availability of gas to 104 MMSCMD. Supply of natural gas had been of the order of 90 MMSCMD with internal consumption of 11 MMSCMD. Balance 3 MMSCMD was flared, mostly technical flaring.

Gail’s pipeline project

Dahej – Uran pipeline - The project activities were kept on stay under the advice of Ministry of Petroleum. However, GAIL in its Board meeting stated that validity of tender for procurement of line pipe has expired and the same need to be re-floated. The Board after review has approved lifting of stay on the execution of the project. The Petroleum Ministry has vested GAIL with Powers to immediately acquire land at five locations under the urgency clause of Permanent Land Acquisition Act in order to speed up the project to develop infrastructure and construct pipeline. The five locations are Okha, Vanakla in Surat, Salej in Navsari, Rohina and Kanjanhari in Valsad 

Thulendi-Phulpur pipeline - Notification for acquisition under section 3(1) of PMP (Acquisition of Right of User) Act is completed. Publication in Gazette under section 6(1) is under progress. Tender has been floated for all packages and order has been placed for most of the packages. Order for line pipe has also been placed on M/s Jindal Saw Ltd

Vijaipur-Kota pipeline - Environment clearance for the pipeline is expected by next month. Order has been placed for work packages and tender has been floated for line pipe supply

Dadri–Panipat pipeline – The project is under hold in view of no clarity from Ministry of Petroleum on should own the project whether IOC or GAIL

GVK-Vemagiri pipeline project – 5.3 km 12” diameter pipeline from GVK to Vemagiri has been completed. Inertization is in progress. Pipeline commissioning would be synchronized with readiness of the Vemagiri power

KCJP–GVL loopline project (KG Basin IIPs) – ROU work has been completed and construction work has been awarded. Completion of pipeline is targeted by September 2005

Dahej-Jamnagar-Porbandar – Based on the demand scenario in the region, draft DFR has been prepared for pipeline project and is under study

Vijaipur-Pata – Draft DFR of pipeline project for transportation of C2/C3 from Vijaipur to Pata has been prepared and job for final DFR has been awarded . 

India to allow transnational pipelines on non-discriminatory basis

The Petroleum ministry has agreed to the European Union’s demand under GATT to extend the concept of non-discrimination to issues of transit of oil and gas pipelines, although with certain caveats like access to any player would be in line with the domestic regulatory regime, right of first refusal based on security and transit route shall be retained by Government. Also foreign players have to share investment and associated risks and tariff should be benchmarked to the existing policy.







ONGC discovers gas in Bay of Bengal

September 3, 2005. An offshore drilling operation by the PSU major ONGC has discovered natural gas in the Krishna-Godavari basin in the Bay of Bengal. The discovery is adjacent to a major natural gas field owned by India's biggest private firm, Reliance Industries, which found 11.9 trillion cubic feet of reserves three years ago.

India, Norway to drill oil in Gulf

August 30, 2005. ONGC will tie up with Norway’s state-owned oil firm Norsk Hydro to jointly explore for oil and gas in the Gulf region. Petroleum minister Mani Shankar Aiyar is pushing for a joint venture between Indian and Norwegian firms for exploration in India and third countries. ONGC and Norsk Hydro were negotiating an MoU on joint collaboration. A consortium of Indian Oil Corp and Oil India Ltd is also talking to StatOil of Norway for a similar exploration tie-up particularly for Russia. Norway’s upstream oil regulator, has the potential to become a model for India’s directorate general of hydrocarbon which the government wants to make the regulator for upstream oil and gas exploration and production business.


Kakinada refinery for Euro-3 fuels

September 6, 2005. ONGC-promoted export-oriented Rs 5,500-crore (Rs 55 bn) refinery project at Kakinada is going to be the first ever refinery in the world to be built along with bio-fuel processing facilities, which will produce Euro-3 grade diesel and gasoline. ONGC with AP govt. will set up a network on farming of Jatropha and sweet sorghum as part of the refinery project. The diesel and gasoline produced in the refinery will have an appropriate mix of bio-fuels, produced from these two crops. The refinery project will also cater to the domestic requirements. Proposed to be set up with a capacity of 7.5 million tonnes (mt) annually, Kakinada refinery is going to be ONGC’s nodal refinery for the country in the entire eastern coast as Kakinada port will emerge as a major port facility in the coming days. The refinery project will be completed within 36-40 months time from the date of achieving financial closure. Work on the project is expected to commence by this year-end. Pepco has been assigned to bring a ready-built refinery equipment from Europe, which will be re-erected at Kakinada. About 1,000 acres of land has been earmarked for the refinery. In the refinery project, ONGC and its subsidiary and the designated promoter of the project, Mangalore Refinery and Petrochemicals Limited (MRPL), will hold 20 per cent and 26 per cent equity respectively while IL&FS will hold the majority stake of 51 per cent. The state government will hold a nominal 3 per cent equity in the projects through the Andhra Pradesh Industrial Infrastructure Corporation (APIIC).

Oil firms seek dual pricing

September 6, 2005. Oil companies have proposed a dual pricing system for petroleum products in the wake of a sharp rise in international crude oil prices. The dual pricing policy would allow selling fuel to two-wheelers at lower prices and to four-wheelers at the import parity price. This would minimise the unprecedented losses faced by the oil marketing companies. Further, the mechanism also suggested a differential pricing system for petroleum products in cities and towns against rural areas. It argues that the government should look at rationalising the ad valorem duty on crude oil imports in the short-term, and eventually look at alternates like ethanol-blended fuel. India depends on imports to service over 70 per cent of its oil requirement.

IOC losing Rs $11.86 mn every day

September 2, 2005. Indian Oil Corp, the country’s largest oil firm, was losing Rs 52 crore (Rs 520 mn) every day on account of selling petrol, diesel, LPG and kerosene below the cost price and its accumulated losses this fiscal have mounted to Rs 7,350 crore (Rs 73.50 bn). Petrol was being sold at Rs 7.45 a litre discount and diesel at Rs 5.15 per litre. Domestic cooking gas was being sold at a loss of Rs 96 per cylinder and kerosene at Rs 12.85 per litre. The government has not let oil firms to raise prices despite global price crossing $70 a barrel.

RIL in excise net

September 1, 2005. The Central Excise and Customs Department issued a showcause notice to Reliance Industries Ltd, asking the company to explain why action should not be taken against it for unpaid duty amounting to Rs 9,500 crore (Rs 95 bn). The notice has been issued for non-payment of duty on export of petrol, high-speed diesel and aviation turbine fuel from the company’s Jamnagar refinery during the five-year period from August 31, 2000 to August 31, 2005. The basis of the notice is an observation made by the Comptroller- and Auditor-General’s office in Gujarat. The CAG has contended that though RIL was exempt from the payment of basic excise duty on export of petroleum products, it has to pay an additional duty on the same. RIL was to pay an additional excise duty at a rate of Re 1 per litre on the exports, which was later raised to Rs 1.50 per litre. RIL exported 10.2 mt of refining products to 30 countries in 2004-05. Iran in West Asia and Brazil in South America are some of RIL’s major markets for diesel and petrol.

IOC gears up for its largest bid

August 30, 2005. Indian Oil Corporation is gearing up to submit its largest ever bid to acquire a 51 per cent majority stake in the Tupras refinery, the largest refinery in Turkey. Tupras has an 86 per cent share of refining in Turkey. The Turkish government holds 66 per cent stake in Tupras which processes around 30 mtpa of crude. Tupras already has four refineries and is building a fifth one near Yarimca in western Turkey, to be completed by 2007. IOC is one of the 13 companies, which has qualified for placing a final bid. Royal Ducth Shell, ENI of Italy, Repsol of Spain, and OMV of Austria are some of the companies with whom IOC will have to compete in the final round. Turkey's strategic location makes it a natural "energy bridge" between major oil producing areas in West Asia and the Caspian sea regions on the one hand and consumer markets in Europe on the other. Turkey's port of Ceyhan is an important outlet both for current Iraqi oil exports as well as for potential future of Caspian oil exports. Turkey's Bosporous Straits are a major shipping link between the Black Sea and the Mediterranean Sea. Putting Tupras on sale is part of the privatisation programe initiated by the Turkish government. In addition to Tupras, Turkey is also in the process of privatising some of its assets in power, telecom and steel sectors.

Aviation fuel price hiked by 5 per cent

August 31, 2005.  State oil firms raised aviation turbine fuel (ATF) price by 5 per cent in line with the hike in international oil price. Aviation turbine fuel will be costlier by about Rs 1,600 per thousand litres with effect from midnight tonight for domestic airlines," an official of Indian Oil Corporation (IOC) said. For international airlines, which do not pay local sales tax, the hike would be in the range of $35-$40 per thousand liters. ATF prices were last revised on August 1, 2005 when it was raised by 1.8 per cent to Rs 32,321.65 per thousand litres (for domestic airlines).

Transportation / Distribution / Trade

Mahanagar Gas plans network expansion

September 6, 2005. Mahanagar Gas Ltd (MGL) is planning to add 50,000 more customers in the current fiscal in Mumbai and Thane. The country’s largest gas distribution company is investing Rs 200 crore (Rs 2 bn) in extending its pipeline network. The company hopes to extend its network to Dahej, Uran and Hajra by 2007and reach Pune by 2008. By 2009-10 it plans to cover the Mumbai-Pune-Nashik triangle. The massive expansion plan is likely to cost the GAIL, British Gas and the government of Maharashtra joint venture close to Rs 800 crore (Rs 8 bn). To meet its additional requirement of gas, MGL is looking at alternate sources such as the Hajra, Dahej and Dabhol. MGL was also hopeful of buying gas from the Krishna Godvari basin by 2009.

Oil and gas pipelines depreciation rate reduced

September 6, 2005. The rate of depreciation on oil and gas pipelines in the books of accounts has been changed to 3.17 per cent from 10.34. The new rate will be applicable on a retrospective basis from April 1, 2005. This was done following a request from Gail. According to Gail, there was a disparity in depreciation rates considered for tariff calculation purposes and for book accounting. This resulted in the books reflecting a lower asset value than the actual value.  This led to under-recovery of the cost of the asset as calculated in the tariffs. Gail contented that the true life of a pipeline asset was higher than that of normal plant and machinery and that the accounting depreciation rate for gas pipelines should be commensurate with the true life of the asset. 

Policy / Performance

Oil, gas price hike imminent: PM

September 6, 2005. An increase of Rs 2-3 a litre in the prices of petrol and diesel and a Rs 20-a-cylinder hike in cooking gas prices appear imminent with the government saying that a reduction in excise duty was not the solution to shield consumers from the impact of rising international crude oil prices. The Cabinet is expected to discuss a package, including an increase in the prices of petroleum products, left unchanged since June 21. Since the last revision, the cost of crude oil for Indian refineries has risen 26.2 per cent to $62.77 a barrel now. Prime Minister Manmohan Singh said that the government could not reduce excise duty as there would be a loss in the direct tax revenue and in dividends from oil marketing companies. The oil marketing companies posted a net loss of over Rs 1,200 crore (Rs 12 bn) during the April-June quarter this year.

Gail to invest in coal gassification project

September 5, 2005. GAIL (India) has decided to invest Rs 750 crore (Rs 7.5 bn) in a coal gassification project in eastern India. The company has identified Haldia and Durgapur in West Bengal and Talcher in Orissa as possible locations for the venture, given the availability of coal in these regions. The project is likely to have a coal handling capacity of 2,000 tonnes per day, which in turn, will produce gas to the tune of 3.4 million metric standard cubic metres per day (mmscmd). Gail will use the Shell Coal Gassification Process (SCGP) to produce synthesis gas or ‘syngas’. The process allows use of high ash content coal, as prevalent in India. Incidentally, this is the first time that the Shell process will be used in India. A detailed feasibility report on the project is currently being prepared by Uhde India in collaboration with its parent company, Uhde Gmbh, Germany, and is expected to be ready by October ’05. The DFR will look into various possible end uses of the synthesis gas, availability, proximity of source and quality of coal.

Crude import norms may be relaxed

Text Box: •	Move aims to diversify source of crude supplies, increase refining margins  
•	Oil Firms at present enter into annual contracts at an official selling price with state-owned companies abroad  
•	Petroleum ministry is in favour of allowing firms to tie up directly with equity holders in oil fields  

September 5, 2005. Petroleum ministry in favour of allowing firms to tie-up directly with equity holders in oil fields. The government may bring in a few changes in the crude oil import policy. The changes are being sought with a view to diversify the source of crude oil supplies and to increase refining margins. At present, Indian oil companies enter into annual or long-term contracts at an official selling price with state-owned companies abroad to meet a large part of their requirement. In addition, crude oil is also bought in the spot markets. The petroleum ministry is in favour of allowing the companies to tie up directly with equity holders in oil fields to procure at the official selling price, as determined by the exporting country. It, however, wants to ensure adequate checks before companies are allowed to enter into contracts at a negotiated price. The ministry felt that trading in crude oil might be speculative and that the Indian companies did not have sufficient expertise at present. The government has asked the coastal refineries to expand their storage capacity in order to stack up more varieties of crude oil, besides creating single-point mooring. The ministry also wants a higher strategic storage capacity than the proposed 5 mt and intends to involve private companies in the exercise. The ministry had asked oil companies to prepare a detailed proposal in this regard along with a clearly spelt-out policy and safeguards.

Fuel bill may drop as ethanol flows

September 3, 2005. With the government’s decision to go ahead with the ethanol blended petrol, the cost of petrol may actually go down in the coming months — even if the government decides, as looks likely, to hike petrol prices. Last year, the central government directed 10 states and a few Union territories to go green by blending ethanol (the fuel mix being 95 per cent petrol, 5 per cent ethanol) with petrol. With the central government having finalised tenders for procuring ethanol, north Indian states will get the green fuel faster than others. Recently, the tender to buy ethanol from the market for several Northern states was finalised at Rs 18.8 a litre. A MoU was signed between Indian Sugar Mill Association and the Ministry of Petroleum and Oil corporations.

Ethanol is considered to be environment friendly as it emits less carbon particles in the air. At 5 per cent cars do not require any design changes. Anything above 5 per cent will require car manufacturers to make internal modifications or programming changes to make it compatible to protect leakage from plastic and gasket fittings. There is a straight saving of more than Rs 5 a litre by mixing ethanol. Ethanol blending with petrol is not all that prevalent, in the US and Europe. However, in Brazil its used to the extent of 25 per cent. The process could not be implemented earlier as some states reported decline in sugarcane crop during ’03-04. Ethanol is primarily derived from rectified spirit and sugar molasses. Till September last year about 370 million litre of ethanol was supplied to the oil companies. But most of it remained unused. The price of ethanol was Rs 17.5 (basic) and Rs 22 a litre including taxes & duties. The price to the consumer was fixed at Rs 38 per lite at that time.

Oil won’t spoil economies: Unctad report

September 2, 2005. Chances of an unusual spurt in international crude oil prices plunging the global economy into a recession comparable to the ones witnessed during 1970s and 1980s are remote, says the annual report of United Nations Conference on Trade and Development (Unctad). The report says that the first and second rounds of price hikes have not led to inflationary pressures or restrictive monetary policy stance, especially in developed countries. Oil prices have lost considerable significance in the evolution of gross domestic product (GDP) in rich nations.

But for developing countries which depend heavily on oil, the report points out that the prospects of permanently higher oil prices are disturbing. At the same time efforts to isolate domestic prices from international oil prices will come to the rescue of these nations. The report, which has come at a time when crude prices in the international market have slipped to around $64 per barrel from a peak of around $70 per barrel, takes note of oil subsidies provided by countries like India, Thailand and Indonesia.

Crude oil imports dip 8.9 per cent

September 3, 2005. India’s crude imports fell 8.9 per cent in July on the back of a sharp decline in oil product demand, according to the petroleum ministry. Crude oil import at 7.656 mt in July was 8.9 per cent lower than 8.405 mt crude imported a year ago. This was primarly due to 5.8 per cent dip in petroleum product consumption to 8.795 mt when compared to 9.339 mt of July 2004. The fall in oil product demand was mainly due to a massive 9.1 per cent dip in diesel demand to 3.097 mt. LPG and petrol consumption were almost flat at 842,200 tonne and 702,100 tonne, while naphtha sales fell 11.4 per cent to 1.068 mt.

Indo-Venezuelan a well-oiled operation

September 2, 2005. The first high level meeting of the joint commission between India and Venezuela held in Caracas ended. The meeting emphasised India’s interest in Venezuelan oil and gas industry, particularly through agreements such as the one between ONGC Videsh Ltd and PdVSA of Venezuela to exploit the oilfield of San Cristobal. The meeting also covered a wide range of cooperation in various sectors including energy, poverty alleviation, railways, trade, science and technology and economic cooperation.

Rejig of oil PSUs must for new pricing policy: MoP&NG

September 1, 2005. Restructuring of oil PSUs has been identified as a prerequisite by the petroleum ministry (MoP&NG) for framing a new pricing policy for petroleum products. The ministry is of the view that a long-term solution to correct distortions in the existing pricing mechanism lies in consolidating the oil sector into two or three integrated entities. To have a sustainable pricing policy for petroleum products, India must have control over atleast 50 per cent of the crude oil requirements of our refineries. The ministry of the view that no pricing policy will work till India reduce its dependence on imported crude oil. While 25 per cent of the crude oil requirements can be met domestically, the balance 25 per cent has to come from overseas sources. And to get crude oil assets globally, India has to integrate the operations of its oil companies into two or three mega entities. In addition, the ministry is also of the view that all policies relating to energy resources, whether it is coal, oil or gas, should be handled by one ministry. It feels there should be one ministry looking after coal, oil and gas.

FinMin dumps oil price band plan

August 31, 2005. The finance ministry has turned down the petroleum ministry’s proposal to restore the price band mechanism for a change in petroleum prices on the ground that it would lead to ad-hocism in fiscal policies and will have serious macroeconomic consequences. The price band was set at plus and minus 10 per cent around the last three months’ rolling average prices and last one year’s rolling average prices.

China Gas seeks GAIL participation in Mongolia

August 31, 2005. GAIL (India) Ltd has been offered participation by China Gas Holdings Ltd (CGHL) in a petrochemical project in Mongolia. The feasibility study of the project had been prepared. The offer follows the discussions GAIL had with China Gas on business opportunities in gas sector in China and neighbouring countries. The Indian gas firm, as a part of its globalisation strategy, is pursuing various international business opportunities in the natural gas sector. GAIL entered into the fast growing Chinese gas market by taking 10 per cent equity in CGHL, a company which holds concession rights for setting and operating CNG and city gas distribution projects in 48 provinces of China.

ONGC turns to Ecuador

August 30, 2005. After losing the PetroKazakhstan deal to Chinese National Petroleum Corporation, ONGC is now looking for some solace in Ecuador. However, its bid for an oil-field-cum-refinery project in the country is hanging in the balance, as Ecuador is looking for investors who would take charge of developing the downstream sector as well. ONGC, for its part, is looking for a stake in a number of oil blocks in that country and is yet to promise such a wide exposure. The demands of Ecuador, Venezuela and Cuba are more or less the same. All are looking for investors who would not restrict their activities to the exploration and production of oil, but also take part in the development of the downstream sector — as is offered by the international oil majors. ONGC's problem is that promising such an exposure across the oil value chain is subject to the approval of the Petroleum Ministry, which, however, holds that the company's core competence lies in exploration and production. ONGC was invited to bid for the development of the Ishpingo-Tambochocha-Tiputini oil-field-cum-refinery project in Ecuador. The oil field, is estimated to have 909 barrels of reserve. The total investment in the project is estimated at around $2.5 billion.



Kanika Infotech plans power sector foray

September 6, 2005. Kolkata based information technology outfit Kanika Infotech Ltd is planning to enter into power and infrastructure sector following the emerging opportunities in these sectors in the country. The company will apply to ROC West Bengal shortly for the permission. The company has divided the entry into power in three phases. In the first phase, Kanika will set up a rice husk based power plant in Chhattisgarh. After the completion of the rice husk project, it is likely to set up hydel projects in Sikkim and Himachal Pradesh. The company will set up a solar energy based power plant in West Bengal in the final phase. It is also in the process of appointing an US based consultacy farm for carbon credit under United Nations Framework Convention on Climate Change for the rice husk power project. The company is looking at a 15 MW rice husk plant in Raigarh district of Chhattisgarh, which has many rice mills. The estimated project cost is around Rs 60 crore (Rs 600 mn).

Tata Power, DVC ink joint venture

 September 3, 2005. Tata Power Company has signed a joint venture agreement with state-owned Damodar Valley Corporation (DVC) for the proposed Rs 3,800 crore (Rs 38 bn) mega power plant of 1,000 MW Right Bank Thermal Power project developed by Maithon Power Ltd. Tata Power will hold 74 per cent equity in the venture and will infuse Rs 840 crore (Rs 8.4 bn) to the equity corpus, while DVC will chip in Rs 300 crore (Rs 3 bn) with 26 per cent stake. The project will be funded through a 70:30 debt-to-equity ratio and the financial closure is targeted by June 2006. As per current plans, the project will comprise two generating units, the first unit of which is scheduled to be commissioned by September 2009 and the second by March 2010.

Cement firm reduces power cost with captive plant

September 2, 2005. Madras Cements expects a saving of about 44 per cent per unit cost of power in its Alathiyur cement factory in Tamil Nadu following a complete shift to a captive power plant. The cost of captive power was Rs 2.25 per unit, while the cost of power supplied by the state electricity board was Rs 4 per unit. In March 2005, a 36 MW power plant was built. The plant is coal-based and came up at an investment of Rs 95 crore (Rs 950 mn). The company expects to save Rs 5 crore to Rs 6 crore (Rs 50-60 mn) a year following the development. The company had come out of the electricity grid, and would henceforth rely only on its own power source. The company is studying the possibility of selling surplus power generated by its Alathiyur plant to the electricity grid. The company expects the power consumption to be about 29 MW when the factory is running at full steam.

Transmission / Distribution / Trade

Western region heading for major power crisis

September 6, 2005. The western region comprising Maharashtra, Gujarat, Madhya Pradesh, Chhattisgarh and Goa is heading for a major power crisis in Months to come. The region, which is currently reeling under a daily power shortage of 7,045 MW, would face daily shortfall of over 9,000 MW by October-November mainly due to ever-increasing power demand for rabi season and the non- availability of power across the country to meet demand. Against the effective capacity of 32,000 MW in the region, only 25,000 MW is currently available. This is because power stations with total generation capacity of 7,000 MW are either in the forced or planned outages. Curiously, western region’s demand has shot up to a level of 31,448 MW though the actual availability was just 24,400 MW, leading to a daily shortfall of 7,045 MW. Maharashtra is facing a daily shortfall of over 3,000 MW. The state’s demand has shot up to 14,200 MW against power availability of 11,062 MW. Against the demand of 9,600 MW power, Gujarat has availability of 7,000 MW. In Madhya Pradesh, 4,200 MW of power is available against the demand of 5,000 MW and in the neighbouring Chhattisgrh the shortfall is of 292 MW.

India Inc takes to carbon trading

September 5, 2005. More than 112 Indian companies, including Hindustan Lever Ltd and Tata Steel, are set to trade in carbon credits. These companies are ready with clean technologies to bring down the emission levels of greenhouse gases and sell certified emission reductions (CERs) to developed countries. This is the largest portfolio for any country signatory to the United Nations Framework of Climate Change Convention (UNFCCC). The UN body certifies countries and companies that can trade in carbon credits under the Kyoto Protocol. According to World Bank estimates, India is expected to rake in $100 million (Rs 4.38 bn) annually by trading in carbon credits and Indian companies are expected to corner at least 10 per cent of the global market in the initial years. Globally, greenhouse gas emissions are expected to come down by 2.5 billion tonnes by 2012. Indian companies are expected to generate at least $8.5 billion (Rs 372 bn) at the going rate of $10 (Rs 438) per tonne of CER. By 2007, when actual trading will start, the cost of a tonne of CER was estimated to rise to $45 (Rs  1972).

Under the Kyoto Protocol, between 2008 and 2012, developed countries have to reduce emissions of greenhouse gases to an average of 5.2 per cent below the 1990 level. They can also buy CERs from developing countries, which do not have any reduction obligations, in case their industries are not in a position to lower the emission levels themselves. One tonne of carbon dioxide reduced through the Clean Development Mechanism (CDM) project, when certified by a designated entity, becomes a tradable CER. According to industry estimates, some Indian companies have entered into forward contracts with buyers from the European Union. These contracts are estimated at $325 million (Rs 14.24 bn). The World Bank has also purchased CERs from 10 companies. Tata Steel, HLL, Jindal Vijaynagar Steel, Essar Power and Gujarat Flurochemicals Ltd have specially designed projects to take advantage of the opportunity. Bharat Heavy Electricals Ltd is the only public sector firm which is planning to approach the ministry for approval. The projects range from cement, steel, biomass power, bagasse co-generation and municipal solid waste to energy, municipal water pumping and natural gas power. While the ministry has given the host-country clearance, the CDM projects will have to be approved by the executive board of the UNFCCC. Of the 15 projects approved by the UNFCCC so far, four are Indian. These four are: Gujarat Flurochemicals, Kalpataru Power Transmission Ltd, the Clarion power project in Rajasthan and the Dehar power project in Himachal Pradesh. India is the world’s sixth largest emitter of carbon dioxide with its present share in global emissions estimated at 6 per cent.

Huge post-tender benefits to discoms

September 2, 2005. The theft-reduction target that the Delhi government has set for power distribution companies is being seen as the main reason why tariffs have continued to be high in the Capital, even three years after privatisation. If five years after privatisation, theft levels continue to be around 34 per cent (a 17 per cent point reduction target was agreed to for a five-year period), the discoms, to break even, will still have to charge Rs 1.5 per unit of power that it buys for Re 1. That is, the paying customers will still have to pay 50 per cent more in order to make good the losses arising out of power pilferage. What complicated matters is that, when the Delhi government originally examined the bids for privatising the Delhi Vidyut Board (DVB), most bidders did not accept the criterion that the loss levels would have to be reduced by at least 20 percentage points. Only two bidders, BSES and NDPL, agreed to reduce the losses only by 13-14 per cent each. So, in order to get them to agree to reduce the losses by a greater amount, the government entered into talks, arguing that negotiations with the lowest bidder were acceptable under CVC guidelines.  According to a CAG report on power privatisation in Delhi, post-bid sweeteners such as an extension of the moratorium period on interest and principal repayment lowered costs by Rs 340 crore (Rs 3.40 bn) and allowed firms to utilise a loan of Rs 1,416 crore (Rs 14.16 bn) for two additional years without interest. It also said the lowering of loss-reduction targets deprived government-owned Transco, which sold power to the discoms, of around Rs 3,930 crore (Rs 39.30 bn). Besides, an additional support of Rs 850 crore (Rs 8.50 bn) was provided in order to lower the cost of power for the discoms. In addition, the CAG said, DVB had receivables of around Rs 3,107 crore (Rs 31.07 bn) that had not been taken into account by the consultant while setting the value of the utility. The valuation of DVB’s assets by SBICaps, the consultant, is another contentious issue. According to the erstwhile DVB’s accounts, its assets were Rs 5,600 crore (Rs 56 bn), yet when SBICaps did a “business value”, it arrived at a lower figure of Rs 4,263 crore (Rs 42.63 bn) of which Rs 3,103 crore (Rs 31.03 bn) were allocated to the discoms. SBICaps then decided to deduct Rs 743 crore (Rs 7.43 bn) of “accumulated depreciation” from this, a departure from the usual practice of either using the book-value-minus-depreciation method or the business-value method. Also, though the “business value” of DVB was arrived at before the post-bid sweeteners were thrown in, the “business value” itself was never revised upwards. Another problem area is the 16 per cent return assured to BSES and NDPL through a directive of the Delhi government. While this has been defended by saying that even the original Electricity Supply Act of 1948 prescribed this, the Act defines returns as the RBI rate plus 5 per cent. Today, with interest rates plunging, this no longer adds up to 16 per cent. However, since the 16 per cent rate has been set by the government, the regulator has no power to reduce this. Curiously, prior to DVB being privatised, its loss levels were hiked quite dramatically, from around 51.9 per cent for the year 2000-01 to 57.1 for 2001-02. What this means is that the loss-reduction target of the discoms also changed, and they could show higher reductions without actually having achieved them, and could claim a bonus payment. The bottom line, however, is that the regulator did not believe it either, and so set the initial loss level at somewhere between the figures for 2000-01 and 2001-02 after the privatisation deal was signed.

Transmission losses of Delhi discoms at 40 per cent

August 30, 2005. According to the Delhi Electricity Regulatory Commission (DERC) average technical and commercial losses (AT&C) of Delhi’s distribution companies at the end of 2004-05 stood at 40 per cent. Delhi’s losses (though now on the decline) are higher than states like Maharashtra, Andhra Pradesh, Haryana and Punjab, where such losses are around 15 per cent. The losses stand at 33.79 per cent for the Tata-owned NDPL, 50.12 per cent and 40.64 per cent for the two Reliance Energy-owned BSES Yamuna Power (BYPL) and BSES Rajdhani Power (BRPL).

Mumbai consumers can choose power co

August 30, 2005. Electricity consumers from Mumbai in particular and also from the rest of Maharashtra can now have a choice of drawing power from alternative suppliers. Maharashtra Electricity Regulatory Commission (MERC) kicked off an exercise to grant parallel licences to Tata Power Company (TPC), Reliance Energy Ltd (REL) and the newly formed Maharashtra State Electricity Distribution Company (MSEDC). MSEDC, with 39 distribution circles, is currently providing power to over 12.3 million consumers, while REL has over 2 million consumers. TPC supplies power to over 23,000 consumers largely from the industrial and commercial categories with few residential ones.


Policy / Performance

Programme to electrify all rural households in AP

September 3, 2005. All unelectrified habitations and households in rural areas of Andhra Pradesh will get power by the end of March 2008. The State Government will soon launch an Rs 1,736-crore (Rs 17.36 bn) programme to cover such places. The scheme seeks to provide power to 13,000 habitations and 4.336 million households that were not covered so far. The programme is being taken up as part of the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) launched by the Union Government. This scheme aims at providing all households access to electricity in the country by 2009. The State Government had sent detailed project reports for taking up electrification in habitations and households that were not connected so far in 22 districts. This was a follow-up after the State Government, Rural Electrification Corporation (REC) and power utilities signed an agreement last month. The Andhra Pradesh Government drew a plan to cover the habitations in two years, while giving access to all the uncovered households in three years.

Ministry seeks changes in mega power policy

September 2, 2005. The power ministry has sought changes in the mega power policy regime. This is likely to make getting a “mega status” easier for companies like Torrent and Jindal Power for their projects. For a project to get the status, the state to which it sells power has to agree that in case of a default on payments, the dues can be deducted from its central allocation. This condition is laid down in the Customs notification.

The power ministry now wants this clause removed. For private players, the condition is difficult to fulfill because states will not agree to provide payment security to them. On the other hand, public sector companies, covered under a tripartite agreement with the Centre and states, will easily fulfill the condition. Torrent and Jindal Power have proposed to set up a merchant plant, power from which power will be sold by the Power Trading Corporation. But the states to which power will be sold have not yet been identified. This is keeping the plant from getting the “mega status” for itself. The impasse can be broken if the clause is dropped.

With a “mega status”, a project gets a 5 per cent Customs duty and 16 per cent countervailing duty exemption on import of equipment. However, to date, no project has got benefits under this policy. When it was introduced in 1995, concessions were offered to 19 projects, of which only four — all in the public sector —are coming up. In 1998, the policy was made more general. However, in an attempt to push reforms at the state level, riders were added. At present, in order to avail benefits, a thermal project has to have a generation capacity of over 1,000 MW and a hydel project, more than 500 MW. Also, power has to be sold in more than one state.

Delhi govt and discoms to share burden

September 1, 2005. The Delhi government and private distribution companies – NDPL of Tata Power and BSES–in tandem have decided to share the burden of the rolling back of 10 per cent hike in electricity tariff. The discoms will give 5 per cent rebate to the domestic consumers and remaining 5 per cent will be borne by the government in form of subsidy. Agricultural consumers will benefit a great deal from the grant of full subsidy, which would bring back the tariff back to its pre-hike level. Subsidies from the government to the discoms will range between Rs 80 and Rs 90 crore (Rs 800-900 mn). The additional revenue from the 10 per cent tariff hike was Rs 320 crore (Rs 3.2 bn) of which Rs 220 crore (Rs 2.2 bn) would have gone to Delhi and Rs 100 crore (Rs 1 bn) to Tata’s NDPL, while BSES was not getting any benefit due to higher revenue gap.





Japan to release strategic oil reserves

September 6, 2005. The Japanese government unveiled plans to release some of its strategic oil reserves held by refiners to the oil market. The country will start releasing from about 200,000 barrels a day of crude oil and refined products from its oil reserves held by refiners to the market. The International Energy Agency announced that its 26 members, including Japan, would draw on 2 million barrels a day of oil over the next 30 days to help offset the loss of output and refining capacity in the U.S. caused by Hurricane Katrina, and restore confidence in the market.

OPEC to raise production by 500,000 bpd

September 6, 2005. OPEC is to add 500,000 bpd more to its production ceiling by end of this month. The OPEC's official production ceiling stands at 28,400,000 bpd but the members are overproducing by more than 1.5 million bpd. Saudi Arabia, Kuwait, Indonesia and Qatar are among proponent of output rise, while Venezuela is against such an increase on the ground that the cartel has not the sufficient capacity for such an increase.

New oil field discovered offshore Vietnam

September 4, 2005. Cuu Long Joint Operating Co., the operator of Vietnam's second-largest oilfield Su Tu Den, has discovered oil at a well off the country's southern coast. Tests conducted at the Su Tu Nau (Brown Lion) formation in Block 15.1, adjacent to Su Tu Den, measured crude oil flow of 9,100 barrels per day (bpd).

US company to build LPG storage tanks

September 4, 2005. US-based Chicago Bridge and Iron Co (CB&I) has won a Dh477 million ($130 million) contract to design and build liquefied petroleum gas (LPG) storage tanks for a natural gas processing expansion project in Ruwais, Abu Dhabi. CB&I said its contract is with Italy's Snamprogetti, which is the prime engineering, procurement and construction contractor for the owner, Abu Dhabi Gas Industries (Gasco), as part of its ongoing expansion. Gasco is expanding its existing facility at Ruwais that processes associated and non-associated gas from onshore oil production into marketable natural gas liquids for export. CB&I will be responsible for the engineering, procurement, fabrication and construction of four 83,600-cubic-metre nominal capacities, concrete full-containment LPG tanks.

Gas production to be increased by 10 per cent - Pak

September 4, 2005. The Pak government has decided to increase gas production by 10 per cent in the next few months to reduce the gap between its demand and supply. At present the gas production is 3.5 billion cubic feet and this will be enhanced by another 350 million cubic feet per day. As a short-term relief plan the government had asked gas companies to increase their production and divert gas from inefficient power generation plants to efficient ones. The difference between their generation capacities was more than 50 per cent. The government had initiated a two-pronged strategy to increase gas supply in the country - import of gas through pipeline from Turkmenistan, Qatar and Iran; and import of liquid natural gas.

Industry majors seek stake in Indian gas block

September 2, 2005. Britain's BP Plc and BG Group, France's Total SA and Brazil's Petrobras are looking at taking a stake in the development of India's biggest natural gas discovery. State-owned oil producer Gujarat Petroleum Corp struck gas off India's southeast coast in June. The find is estimated at 20 trillion cubic feet (566 billion cubic metres), worth about $50 billion. It needs to invest Rs15 billion ($341 million) to develop the block, where it is an operator with an 80 per cent stake. Canadian explorer Geoglobal Resources Inc and India's Jubilant Enpro are minority partners.

Norsk Hydro hopes 100,000 bpd from Iran field

September 1, 2005. Norwegian energy and aluminum group Norsk Hydro hopes to produce 100,000 barrels of oil per day from a field in Iran starting around 2010. Hydro was completing a fifth test well of the Anaran field near Iran's western border with Iraq. Hydro would have to enter into new negotiations with the Iranian authorities if the field were declared commercial and developed. Hydro began an exploration deal with the Iran National Oil Company (NIOC) in 2000 and has a 75 per cent stake in the Anaran block with Russia's Lukoil holding the remaining 25 per cent. But Hydro would have to hold new talks with Tehran on its stake if the field were developed.

Petrobras gets operating rights in Nigeria block

August 31, 2005. Brazil's state oil company Petrobras bought operating rights to explore at an offshore block in Nigeria for $81 million, expanding its presence in the African country expected to become Petrobras' key overseas production base. Petrobras it won a 45 percent stake in the deep-water Block 315, with Norway's Statoil holding another 45 percent and Nigeria's Ask Petroleum System with the remaining 10 percent. Block 315 lies at depths ranging from 1,000 to 2,000 meters below sea level off the northern Niger delta, presenting similar geological conditions as giant oil fields Bonga and Erha, as well as the Abo field, already in production. Petrobras is already working at 3 blocks in Nigeria, including two that discovered big oil fields - Akpo and Agbami, which should start producing in 2008.

Philippines offers areas for exploration

August 31, 2005. The oil-importing Philippines would open four prospective oil and gas exploration areas and 11 geothermal fields in its second round of contract offers for energy companies. The Southeast Asian country, which buys nearly all its daily oil requirement of 330,000 barrels, will also ask investors to explore and develop seven coal areas as part of its plans to reduce dependence on imported oil, which has scaled record highs. The Philippine government held its first licensing round from August 2003 to March 2004.It awarded this month a gas and oil exploration area to a group led by Anglo-Australian diversified mining firm BHP Billiton, which last year bid for two oil blocks in the deepwater part of the Sulu Sea in southern Philippines. The government offered 46 oil and gas blocks in March 2004, but only BHP submitted a bid and was awarded the contract.

LUKoil spends $2 bn in investment

August 31, 2005. LUKoil, Russia's largest oil producer spent around $2 billion in the first half of 2005, or 45% of its annual budget. According to preliminary estimates, the company invested $1.4 billion, or 48% of its 2005 investment program, in prospecting and oil and natural gas production. LUKoil invested a total of $158.9 million, 52% of the budget, in refineries. The company's stock of raw materials increased by more than 60 million metric tons of oil equivalent over the first half year, according to preliminary estimates, which is equal to the figure for the same period in 2004. LUKoil's proven reserves will last for the next 30 years. In 2004, the company produced 86.3 million metric tons of oil. This year, LUKoil, in cooperation with its subsidiaries and companies in which it holds shares, and as part of foreign projects, is expected to produce 90.2 million metric tons of oil.


Tatneft sells refining assets, to build new plant

September 2, 2005. Russia's mid-sized oil firm Tatneft had sold key equipment in its refinery, as it wanted to build a new one. The 500,000-barrel-per-day producer located in the Volga region of Tatarstan. Tatneft, which is controlled by the local government, would allow it to speed up a long-delayed plan to build a new $2.5 billion 200,000-bpd refinery by 2008-2010. Due to the start-up of the new plant construction and in line with the previous decisions by Tatneft and the security council of the republic of Tatarstan, the Nizhnekamsk refinery and TAIF have concluded deals on the sale of main assets of Nizhnekamsk at a cost to compensate construction and modernisation expenses.

Glance at Oil and Gas Refineries in Gulf

September 1, 2005. Oil and gas refineries and producers remain disrupted by Hurricane Katrina, but most are reporting no major damage. Here's a look at the status of refinery and production in the Gulf.

 Supply shortage warnings:

·          Florida warns natural gas supply cuts could lead to electricity shortages.

·          North Carolina governor warns of "significant loss of gasoline in the Southeast."

·          Petroleum Traders Corp., the country's largest independent fuel wholesaler, said it has been cut off by BP PLC and largely cut off by Marathon Oil Corp.

·          Exxon Mobil Corp. warns some fuel supply disruptions inevitable; company keeping retail gasoline prices at company-owned stations unchanged.

·          Chevron Corp. restricting supplies of gasoline to wholesalers from its East Coast terminals.

·          Royal Dutch Shell maintains freeze on prices charged to fuel wholesalers at its terminals in storm-hit areas of Louisiana, Mississippi, Alabama and Florida.

Refineries shut in:

·          Norco, La. - Valero Energy Corp.'s St. Charles refinery, at 260,000 barrels a day, suffers no serious damage, has restored power. Access to Motiva Enterprises' refinery, 225,000 barrels a day, is limited, and they are delaying a damage assessment.

·          Convent, La. - Motiva Enterprises' refinery, 235,000 barrels a day, may restart as damage is light and staffing good.

·          Meraux, La. - Murphy Oil Corp.'s refinery, 120,000 barrels a day, looks less damaged than feared. Entergy Corp. said the refinery may face power outages for longer due to heavy flooding in the region.

·          Chalmette, La. - Exxon Mobil Corp.'s refinery, 183,000 barrels a day, remains shut and evacuated; company has no information on damage or restart. Entergy said the refinery may face power outages for longer due to heavy flooding in the region.

·          Belle Chasse, La. - ConocoPhillips' Alliance refinery, 255,000 barrels a day, remains shut; no information on damage or restart.

·          Garyville, La. - Marathon Oil Co.'s refinery here, 245,000 barrels a day, finds no significant damage. It began production and plans to restart producing gasoline, diesel and jet fuel.

·          Pascagoula, Miss. -- Chevron Corp.'s refinery here, 325,000 barrels a day, refinery remains shut and evacuated; area saw severe flooding.

Refinery run cuts:

·          Exxon Mobil's 494,000 barrel-a-day Baton Rouge refinery.

·          Valero Energy's 86,000 barrel-a-day Krotz Springs refinery.

·          Premcor's 190,000 barrel-a-day Memphis refinery.

·          ConocoPhillips' 239,400 barrel-a-day Lake Charles, La., refinery.

·          BP PLC at unnamed U.S. refineries.

·          Total SA's 180,000 barrel-a-day Port Arthur, Texas, refinery.


·          U.S. Minerals Management Service said about 90 percent of daily oil output and 79 percent of daily natural gas output were shut down in the Gulf

·          Royal Dutch Shell PLC reports "significant damage" at Mars oil and gas platform and damage to a key offshore pipeline hub.

·          Port Fourchon sees no severe flooding, but siltation is a concern and power is out.

·          Dominion Resources reports minimal damage at its six large production platforms.

·          Total SA reports no significant damage.

·          Newfield Exploration Co. said a production platform at Main Pass 138 appears lost in the storm; facility was producing 1,500 barrels a day.

·          Murphy Oil Corp. reported no significant damage apparent at Medusa and Front Runner platforms.

·          Exxon Mobil said offshore structures appear to have minimal damage.

·          Anadarko Petroleum Corp. said its Marco Polo platform appeared to have escaped serious damage.

·          Kerr-McGee Corp. restarted 55,000 barrels of oil-equivalent a day of Gulf output. Total Gulf output was 130,000 before Katrina.

·          U.S. Coast Guard reported five Gulf of Mexico rigs missing, two adrift, two listing and one grounded.

·          Devon Energy Corp. restored about 50 percent of its Gulf of Mexico oil and natural gas production it had voluntarily suspended prior to the hurricane.

·          Nalco Holding Co. said overall operations remain difficult to assess, though manufacturing operations sustained no major damage. Nalco plants in Scott and Port Allen, La., resumed operations with minimal destruction.

·          W&T Offshore Inc.'s drilling rigs and production platforms in the Gulf appear to have sustained minimal damage.

·          Marathon Oil reboarded all of its Gulf of Mexico platforms. It reported minimal damage at its Ewing Bank platform, but said there was some "serious" damage at South Pass, where it operates three platforms.

·          El Paso Corp. said first inspections showed minimal damage. Only one platform of 61 inspected, out of 77 total, was destroyed. Daily output is down to nearly 80 million cubic feet a day, from about 205 million cubic feet a day before the hurricane.

·          One of Helmerich & Payne Inc.'s eight active platform rigs in the Gulf suffered considerable damage. On first assessment, the others are little or not damaged.

Limited service restored:

·          Kinder Morgan Energy Partners' Plantation Pipeline, on its fuel pipeline serving the Southeast.

·          Colonial Pipeline, on its fuel pipeline serving the East Coast.

·          Louisiana Offshore Oil Port and Royal Dutch Shell's Capline pipeline.

Natural gas supply:

·          Enbridge Inc. reported damage to 800 million cubic foot-a-day Mississippi Canyon Corridor pipeline system.

·          Williams Cos. lifted force majeure on Transcontinental Pipeline, the key pipeline supplying consumers in the Northeast.

·          Gulfstream Natural Gas System LLC, a joint development between Williams Cos. and Duke Energy Corp., said its 691-mile natural gas pipeline is fully operational after suffering no significant damage.

Transportation / Trade

Oman seals Dolphin gas sales pact

September 6, 2005. Dolphin Energy Limited announced that the company has signed a gas sales agreement with Oman Oil Company (OOC) to deliver an average 200 million standard cubic feet of gas per day to OOC from early 2008. It is based on detailed discussions between Dolphin Energy and OOC, subsequent to the signing of a Memorandum of Understanding for future gas supply on April 20, 2004. A Joint Steering Committee was established under the MOU to determine commencement dates for gas supply, as well as quantities and price.

Gas Natural bids $986 bln for Endesa

September 6, 2005. Spain's Gas Natural unveiled a 22.5 billion euro ($986.4 bln) cash-and-share bid for Endesa in a move to reshape Spain's energy sector and create one of the world's biggest utilities. It will offer 0.569 newly issued shares and 7.34 euros cash for each Endesa share.  The Barcelona-based gas distributor and wholesaler had an agreement with Spanish power company Iberdrola to sell it 7 billion to 9 billion euros of assets to ease any competition concerns.

Russian gas giant sending team for pipeline talks

September 6, 2005. A high-level delegation of the Russian firm, Gazprom, will visit Pakistan early next month to begin discussions to lead a consortium for the construction of the $7.4 billion Iran-Pakistan-India gas pipeline. It will be the first visit to Pakistan by the Gazprom chairman — the world’s largest gas company with over 20 per cent share in global gas production. The project is estimated under different calculations to yield between $8-21 billion in transit fee to Pakistan over a period of 30 years for allowing use of its territory to carry a 2,670-km gas pipeline. Gazprom, along with TotalFinaelf of France and Malaysian Petronas, is the major shareholder of Iranian South Pars field, from where Iran would supply gas to Pakistan and India through the multi-billion dollar trans-national pipeline. The Russian energy giant has already held numerous rounds of talks with authorities in Iran and India to lead or at least become an active player in the consortium to lay a 2,670-km gas pipeline from Iran to India through Pakistan. Indian companies like Indian Oil Company (IOC) and GAIL are also expected to join the consortium.

UAE offers to invest in gas pipeline project

September 4, 2005. The United Arab Emirates (UAE) has offered to invest in any of the gas pipelines from Iran or Turkmenistan to Pakistan and India. The Trans-Asia of the UAE is prepared to come forward for building the pipeline that would cost $4.2 billion. The interest has been conveyed to the authorities concerned here. The UAE has taken a deliberate decision to make investment in Pakistan in a big way in the backdrop of the long-standing brotherly ties of the two countries. At present, Pakistan is the biggest destination of UAE’s foreign investment. The UAE understands that investment in Pakistan is secure and the country has no problem with regard to the stability and security.

Beijing clamps down to avoid LNG capacity glut

September 3, 2005. China has clamped down on state oil firms' frenzied plans to build more than a dozen natural gas import terminals, raising questions about its commitment to the cleaner fuel. Following moves to head off looming capacity gluts in the power and steel sectors by limiting new construction or shutting down plants, Beijing has told its oil majors they can build only one liquefied natural gas (LNG) terminal in each coastal province over the next few years. There is not a big enough market to build so many terminals at once, so the government issued guidelines to build batch by batch. Beijing is keen to clean skies clouded by smog from coal-burning plants and diversify a power industry reliant on the dirty fuel for around three-quarters of its generating capacity.

But central planners are worried that state-owned oil companies now jockeying for position in the LNG import business may be wasting money on regasification terminals that could stand idle if new gas-fired power plants are not ready in time. To avoid this, it has carved up the country, assigning the south to CNOOC, and the north to rivals PetroChina and Sinopec although one or two terminals will still be built outside each firm's "territory". The three majors had proposed some 18 terminals along the coast, but the energy-policy setting National Development and Reform Commission (NDRC) is insisting on only one receiving hub in each province or major city while demand remains unclear so about half of unapproved proposals will be shelved for now.

Pipeline pact in December: Natwar

September 3, 2005. Pakistan, India and Iran are expected to sign a pact in December, which will enable them to go ahead with the proposed $7.4 billion pipeline project to supply natural gas from Iran to Pakistan and India. Tehran had agreed to supply five million tons of liquid natural gas to India annually. India had asked for 7.5 million tons of gas supply. An Indian energy sector delegation will visit Pakistan next week to proceed with dialogue on the execution of the project. Iran would forward its proposals regarding terms of reference for the project next month.

New deal to link gas well to Moomba pipeline

September 2, 2005. Petroleum companies Enterprise Energy and Great Artesian Oil and Gas have signed a landmark deal to link a new gas well to the Moomba pipeline. It will be the first time that a third party will sell gas to the South Australian Cooper Basin producers, which is a group of companies led by Santos.

First Gazprom LNG tanker to U. S.

September 2, 2005. Gazprom, Russia's natural gas monopoly will make its first supply of liquefied natural gas (LNG) to the U.S. The Castillo de Villalba tanker, carrying 60,000 metric tons (80 million cubic meters) of LNG, would arrive at the nation's largest LNG import facility Cove Point, Maryland. This is a new era in Gazprom's international economic activity, which marks the beginning of credible and regular supply of our energy resources to the United States, that Gazprom would dispatch at least five tankers carrying LNG next year.

Gazprom to sell more LNG to US in 2006

September 2, 2005. Russia's gas monopoly Gazprom would sell 5 more liquefied natural gas (LNG) spot cargoes on a swap basis to the United States in 2006 after its first successful deal this month. By mid-2006 the Russian giant also expects to clinch a final deal with Royal Dutch/Shell to swap a share in Gazprom's huge Zapolyarnoye Siberian gas field against Shell's stake in the LNG project off Russia's eastern Sakhalin Island. The world's largest gas producer also said it would choose five partners out of nine contenders for its huge Shtokman Barents Sea field before the end of 2005 to further strengthen its position on the booming LNG market. By 2009, Gazprom wants to have its own LNG terminal in the Baltic port of Ust Luga near St Petersburg, which could receive output from existing pipelines.

ExxonMobil to increase gasoline supply to U.S.

September 2, 2005. ExxonMobil's second largest U.S. refinery, located in Baton Rouge, Louisiana, will be increasing the production of gasoline and other fuel products over the next several days and will promptly ramp-up production rates further as crude supply from the Louisiana Offshore Oil Port (LOOP) and other sources increase above today's levels. This will help ease customer demands in regions hit hardest by Hurricane Katrina. The U.S. Department of Energy has approved ExxonMobil's request for a loan of up to 6 million barrels of oil from the nation's Strategic Petroleum Reserve to help ExxonMobil gain access to additional crude supplies at Baton Rouge. Over the past several days the company has coordinated with governments, industry and utilities to restore power to industry pipelines and Mississippi River marine transportation so that crude can be delivered to the refinery. Increasing production at ExxonMobil's Baton Rouge refinery should have significant positive impacts to customers. The next step is to work with industry to restore pipeline transportation to increase product supplies in areas affected by the hurricane. This has been difficult due to the outage of the Colonial and Plantation Pipeline systems. Plantation Pipeline is now reportedly open at near full capacity.

FMC Tech wins $115 mln Congo project

September 1, 2005. FMC Technologies Inc. which designs technology systems for the energy industry, won a $115 million contract to supply subsea systems to the Moho Bilondo Project off the coast of the Congo. Moho Bilondo, which is majority held by French oil group Total SA, is expected to peak at 90,000 barrels per day and is expected to come on stream in 2008.

Russian gas supplies to Ukraine

September 1, 2005. Russia will supply gas to Ukraine for USD160 per 1,000 cubic meters and tariffs for gas transportation via Ukraine might double. Industry watchers say that price sought by Gazprom of USD180 to might hardly be agreed on. The two parties are in talks now and these negotiations could be over and the conflicting parties might enter into an agreement on the issue late in 2005. Ukraine is largest gas transporter and without it Gazprom cannot meet its obligations regarding gas supplies to Europe. If prices for gas supplied to Ukraine are increased to USD180 per 1,000 cubic meters Ukraine could set price for oil transportation being 3-4 times higher than the current one.

Statoil ASA wins gas contract from Statkraft

September 1, 2005. The Norwegian oil and gas company Statoil ASA had signed a long-term gas delivery agreement with the Norwegian state-owned power utility Statkraft. The agreement covers deliveries of some 300m cubic metres of gas per year to the planned Naturkraft power plant at Karsto, north of Stavanger. The power plant is 50/50-owned by Statkraft and Norsk Hydro ASA. No financial details were disclosed.

Petronet to up capacity at LNG terminal

September 1, 2005. Petronet LNG Ltd plans to more than double the capacity of its liquefied natural gas (LNG) terminal in western India to 12.5 million tonnes by 2008 from 5 million currently. Petronet, which made its stock market debut last year, was launched by the Indian government to import LNG to meet the energy needs of a booming economy, and to build the terminals. Earlier this year, the firm said it would raise its capacity at the Dahej terminal in Gujarat to 10 million tonnes a year, by building two new LNG storage tanks.

The additional capacity will raise Petronet's plan-ned investment by Rs4 billion to Rs17 billion ($386.4 million), a Petronet source, who did not wish to be identified. India's state-run firms Oil and Natural Gas Corp Ltd, Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and GAIL (India) Ltd together own 50 per cent of Petronet. Gaz de France has a 10 per cent stake, with the remaining 40 per cent held by public and institutional investors.


Policy / Performance

Gazprom and partners to sign Baltic deal

September 6, 2005. Russian gas firm Gazprom, German utility E.ON and Wintershall, a unit of German chemical maker BASF will sign an agreement to build a Baltic Sea pipeline. The total project cost will be around two billion euros ($2.51 billion), with Gazprom taking a majority and the remaining stake split equally between its partners. The contract will allow for the possibility of a third foreign partner. If none is found, BASF and E.ON will split the minority stake equally between them.

Russia's oil is key to development of global economy

September 4, 2005. The future development of the global economy is impossible without Russia's energy resources. The goal of participation in the Days of Russia's Oil and Gas organized in the context of the EXPO-2005 international trade show in Japan is to show how Russia's energy sector influences global economy and demonstrate the capabilities of the Russian energy industry in terms of cooperation with large Japanese companies. Russia should be more aggressive in the Far East considering high demand for energy supplies on the part of Asian countries, primarily China, and also knowing that the prices for fuel-carriers in the region are 10%-20% higher than those in Europe. Russia has unique experience in the construction of oil and gas infrastructure and wants to attract the interest of Japanese corporations to joint projects in the energy sphere. Despite the resistance of certain Japanese government officials, "the current situation has changed and new opportunities for future cooperation have appeared.

SK Corp signed deal for Inchon Oil

September 2, 2005. Top South Korean oil refiner SK Corp. signed a preliminary agreement to buy rival Inchon Oil Refinery for 3.2 trillion won ($3.11 billion), in a deal that would boost its refining capacity by a third. The deal includes 1.6 trillion won worth of bond purchases and a paid-in-capital increase of a further 1.6 trillion won.

26 Nations to release 60 mln barrels of oil to US

September 2, 2005. Twenty-six countries in an international energy consortium will release more than 60 million barrels of crude oil and gasoline to relieve the energy crunch caused by Hurricane Katrina in the United States. As part of that effort, the Bush administration will release 30 million barrels of crude oil from U.S. reserves. The fuel being released by the Paris-based International Energy Agency will be in the form of both crude oil and gasoline and will be released over the coming month. The reserves will amount to about 2 million barrels a day coming into U.S. markets.

The oil would be put up for bids from the Strategic Petroleum Reserve next week with the first deliveries in 11 to 14 days. Already there are 20 ships carrying gasoline from commercial foreign stocks to the United States. Katrina has disrupted 90 percent of the oil production in the Gulf of Mexico. Nine Gulf Coast refineries have been shut down by electrical problems, flooding and other damage caused by Katrina. Two major pipelines carrying gas to the Midwest and East also have been partially disrupted by the Hurricane.

Japan oil imports fall in July on tepid demand

September 01, 2005. Japanese oil demand contracted in July versus last year as cooler weather dampened power and auto fuel use, allowing refiners to lift oil product exports to the highest in 30 years. Wholesale oil product sales fell 3.5 percent to 18.47 million kl (3.75 million bpd) in July from a year ago, led by a 9.5 percent decline in fuel oil sales and a 4.5 percent drop in gasoline, the Ministry of Economy,. Domestic demand has been in a downtrend, especially fuel oil for electricity generation. So refiners are turning surplus output to exports.

Demand in July was especially weak for fuel oil and gasoline because the weather was cooler than last year’s record-hot summer, reducing air-conditioner use. Japan’s oil demand has been almost flat in the past decade due to its sluggish economy and rising efficiency. The exception was in 2003, when utilities pushed up purchases to compensate for nuclear power plant closures. Crude oil used for power generation in July eased from June amid reduced electricity demand from utilities, although it stood fractionally higher than a year ago. The average temperature in July at nine major cities in Japan was 1.9 degree Celsius below a year earlier, data from the country’s weather agency showed. The capital Tokyo was 2.9 Celsius lower than a year ago. Although domestic demand disappointed, refiners lifted operations to capitalise on booming international margins, with Japan’s higher-quality consumer fuels finding an ever-wider audience in the United States and industrialised Asia. Refiners ran at 83.7 percent of their total capacity, up from 78.5 percent in June, the data showed.

Pak raised petrol and diesel prices

September 1, 2005. The Oil Companies Advisory Committee (OCAC), after a gap of two months, has finally decided to squeeze consumers by increasing petrol price by Rs3.67, from Rs48.94 per litre to Rs52.61. It also nudged up diesel rate by Rs2.85 per litre, from Rs31.74 to Rs34.59. The OCAC said in a handout that the price of HOBC had been enhanced to Rs58.46 from Rs54.33; kerosene to Rs31 from Rs29.53 and light diesel oil to Rs29.22 from Rs27.84 per litre.

Product Existing Revised Increase as follows:





Motor Spirit








Kerosene Oil




Light Diesel Oil




Oil price may drop at any time - oil expert

September 1, 2005. The oil price is liable to fall at any time. The oil market is overheating due to the situation in Iraq, the hurricane in the U.S., and a number of other factors, the oil price has therefore gone up. However, the main reason for the high oil price is the weak dollar. While the dollar remains low, oil prices will remain high. The market is subject to fluctuations, and the higher prices rise, the lower they will then fall... Seventy dollars per barrel is too high a price, and of course it will not remain this high for long, particularly in view of the fact that OPEC has decided to increase oil extraction. Both high and low prices are bad for the global economy - it is better for them to be stable and predictable.



229 firms in race to install 23 small power plants in B’desh

September 2, 2005. Finally a total of 229 local firms appeared in the race for setting up small power plants as they submitted their respective initial proposals to the authorities by the deadline. A total of 335 firms had collected the Expression of Interest (EoI) forms from different electricity-supply agencies like PDB, REB and DESCO to vie for the proposed 23 small power projects (SPP) that would be set up across the country. Each EoI format costs Tk 10,000. As per the government-set deadline, all the agencies — the PDB, RED and DESCO — have to complete their selection process within a short time of 15 days. Then the agencies will send the list of selected firms to the Bangladesh Energy Regulatory Commission (BERC) so that the watchdog agency could issue licences to them for setting up the projects. Finally, the Bangladesh Energy Regulatory Commission (BERC) will ask the selected firms to take license, fulfilling a number of criteria, to invest in such SPP projects. The deadline for submission of license to the BERC is November 30, 2005. The BERC will hold public hearing before issuing the licences to the selected firms. As license fee, Tk 5000 will be charged against each megawatt of the capacity of a plant.

Sri Lanka plans coal-fired electricity plant 

September 1, 2005. Sri Lanka will spend $400 million to build its first coal-fired power plant, as the government tries to cut fuel costs and meet electricity demand spurred by a cease-fire in its 20-year civil war. Construction of the plant at Norocholai, north of the capital of Colombo, will start in the first quarter. The plant will produce 300 MW by 2010 and as much as 900 MW as demand rises. The generation cost will be half that of an oil-fired plant. Sri Lanka is opting for a coal-fired plant as oil prices surge. The island gets about 65 percent of its electricity from oil-fired plants and imports all the fuel it needs to run them. The nation has been unable to increase hydropower because of a lack of rain-catchment areas and reservoirs. Electricity demand in Sri Lanka is rising at about 8 percent a year, making 100 megawatts of new generating capacity necessary annually. China will give a loan to finance the new plant. Sri Lanka's electricity board signed an agreement with China National Machinery and Equipment Import and Export to build the plant.

Two 900mw thermal plants on anvil in Pak

September 1, 2005. The Pak government decided to set up two thermal power plants of 900 MW in the Wapda system and provide additional 300 MW power supply to the Karachi Electric Supply Corporation by 2007 to overcome power shortages. The country was estimated to face a power shortfall of about 1,240 MW in Wapda and the KESC system and hence immediate measures were required to meet the additional demand well before time. The meeting directed Wapda to choose two locations out of three already identified by it, including Nandipur, Lahore and Faisalabad. The two projects would have a power generation capacity of 450-mw each having a total cost of about Rs35 billion and would be completed by 2007. Wapda has been asked to submit details in this regard within three weeks for further procedure and international competitive bidding.

Transmission / Distribution / Trade

Indian mulls Myanmar power unit

Text Box: •	Alternative to the proposed pipeline via Bangladesh 
•	Plan mooted after Dhaka raised bilateral issues with India as a condition for going ahead with earlier project 
•	A pipeline from the Northeast bypassing Bangladesh is technically and financially unviable 

September 02, 2005. India is examining the option of setting up a medium size gas-based power plant in Myanmar as an alternative to the proposed pipeline via Bangladesh. The plant could use ONGC and GAIL’s share of natural gas from a block there and the power generated could be supplied to the Northeast. The plan is being discussed within the petroleum ministry though there are doubts on the viability of such a move. One of the arguments against the proposal is that a medium size project for the Northeast is not viable and it is only because ONGC is losing gas in Tripura that the public sector company has been asked to set up 700 MW project along with the state government. The power plant option was mooted after it was felt that a pipeline via Bangladesh was not working out, with Dhaka raising bilateral issues with India as a condition for going ahead with the project. The other option of a pipeline from the Northeast bypassing Bangladesh is considered technically and financially unviable. Alternatives to the Bangladesh option also include getting the gas in compressed or liquified form. While GAIL could move ahead with the CNG option on experimental basis for coastal transportation, the LNG option is very costly. The alternatives are being examined as it is felt that if India did not take steps to pump out gas from Myanmar, it may lose the potential source to China or Korea. GAIL has already been asked to initiate preliminary works on the onland pipeline project through the northeastern states, which includes route survey, and environmental impact assessment. The petroleum ministry is in favour of pursuing the Northeast option while simultaneously pushing for the option of pipeline through Bangladesh. ONGC Videsh and GAIL have 20 and 10 per cent interest in A1 block in Myanmar which is currently estimated to produce about 18 mscmd for 20 years.

Policy / Performance

Pak ECC decides to lift ban on power generation from gas

September 6, 2005. The Economic Coordination Committee of the federal cabinet has decided in principle to lift a ban on power generation from gas by industrial units to reduce production cost. The government wanted to explore use of alternate sources of energy in the country in the wake of "unprecedented" increase in petroleum prices in the international market. The use of coal for producing electricity was being encouraged, as it was a cheaper source compared to oil and gas. Country’s gas reserves would last for 20 to 25 years and the government will import gas from Iran through pipeline.

Civil use of N-energy allowed - IAEA

September 3, 2005. The International Atomic Energy Agency (IAEA) has mandated Pakistan to extensively use nuclear energy for civilian purposes in agriculture, industrial, health, education and environment sectors. The IAEA had decided to offer substantial funding for 24 research projects, findings of which would be shared with other Asian countries. The IAEA directed that all the nuclear energy-related projects must be opened for monitoring by its officials to ensure that everything was done for civilian use and not for manufacturing nuclear weapons. Pakistan had become the “highest recipient of IAEA’s financial and technical assistance” and that the relevant international agencies and Islamabad’s bilateral supporters had been taken into confidence about the application of nuclear energy for civilian purposes. The IAEA had allowed the Pakistan Atomic Energy Commission to amply use nuclear energy for improving the performance of agriculture, industrial, health, education and environment sectors. The PAEC laboratories, including the Pakistan Institute of Science and Technology, had started providing extensive services to civilian organizations after the IAEA’s approval. IAEA officials admitted that a number of sanctions imposed by the United States and the West in the past on Pakistan’s civilian nuclear projects were unjustified, for which the country should be compensated by allowing it to use nuclear technology in manufacturing, industry etc.  The government had provided Rs178 million for reclaiming 25,000 acres of salinity-hit and waterlogged land by using nuclear technology.

India for partnership in fusion reactor project  

August 30, 2005. When Prime Minister Manmohan Singh visits Paris early next month on a bilateral visit, one of the key issues on his agenda will be to lobby with France to include India in the ambitious project to build a nuclear fusion reactor. Dr Singh’s efforts, part of the quest to make India energy reliant, will be to press for membership of the six-nation consortium which is going ahead with the International thermo-nuclear experimental reactor (ITER) project, to be built in Cadarache in France. Topping the agenda in France will also be discussions on light water reactors (LWRs) and small-sized (220 MWe) or medium-sized (540 MWe) pressurised heavy water reactors (PHWRs). Partnering the ITER project are the European Atomic Energy Community, China, Japan, South Korea, Russian Federation and US. India has already written to all the six partners seeking participation in the 10 billion euro (Rs 537 bn) project.

Renewable Energy Trends



Wind power industry seeks more sops

September 1, 2005. The wind power sector in the country is asking the power utilities to buy at least 25 per cent from renewable energy sources for their energy pool. This would enable the country to have 25 per cent of its power capacity based on renewable sources by 2030. Represented by the Indian Windpower Association (IWPA), the sector is seeking adequate evacuation facilities, a long-term uniform wind energy policy for all states and faster implementation of the Electricity Act, 2003. The Association has demanded enhancement of the rate of accelerated depreciation to 100 per cent from the present 80 per cent and the restoration of the Textile Upgradation Fund Scheme (TUFS) for the installation of wind power generators. The association also demanded priority sector lending status for investments in renewable energy sector and exemption from the minimum alternate tax (MAT) and continued income-tax waiver on power produced from renewables. Since the prime locations for wind power generation are already crowded, the association wants the development of the next best locations and facilities and concessions to invest in those areas as is being done for industries in the backward areas. With 3595 MW India has now become the fourth wind power country in the world after Germany, Spain and the US. Of the new capacity in 2004-05, 670 MW was in Tamil Nadu. The total installed wind power capacity in the state now stands at 2037 MW, accounting for 56.6 per cent of the national capacity.

Molasses allowed to move out of UP

September 1, 2005. The Uttar Pradesh government has amended the molasses policy for 2004-05, valid till October this year. Under the amendment, the government has allowed 10 per cent of molasses produced to be sent outside the state. The government, in November last year, had banned the movement of molasses outside the state, apprehending a fall in production. However, the ban exempted sending molasses to chemical units in Uttaranchal. The amendment will remain in force till the new policy is formulated and announced by the state government. The government will charge Rs 11 per 100 kg on the molasses consumed in the state and Rs 15 per 100 kg on sending out. Against the estimated 20,000,000 quintal (one quintal =100 kg) of molasses production during 2004-05, the total production till July 15 last, was 23,700,000 quintal. With the available balance of 1,131,000 quintal of 2003-04, total availability of molasses during 2004-05 is 2,490,000 quintal. Of the total available molasses in UP, 16,300,000 quintal was consumed within the state, 1,400,000 quintal was exported to Uttaranchal and 48,000 quintal was exported to other states and 7,100,000  quintal molasses was still available in the state.


Canada Approves 30 MW Wind Farm

September 2, 2005. Approval to build a 30-MW wind power project near Taber, Alberta was granted by the Alberta Energy and Utilities Board to three partners, Suncor Energy Products, EHN Wind Power Canada and Enbridge. They have also applied for funding under the Canadian government's Wind Power Production Incentive.  It is expected to generate enough clean electricity to power approximately 14,000 Alberta homes and displace the equivalent of at least 88,000 tons of carbon dioxide per year. Construction on the $60-million Chin Chute Wind Power Project is expected to begin in September, with timelines subject to completion of an environmental review. The facility is due to be commissioned in late 2006.



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