MonitorsPublished on Sep 13, 2006
Energy News Monitor I Volume II, Issue 12
Oil and Gas Sector Restructuring: A Regulatory Perspective

(By Dr. Samir R. Pradhan*)


Subsequent to the initiation of broad macro economic reforms as crisis response measures in the early 1990s, restructuring of meso-economic sectors, such as the infrastructure sector was initiated in India. However, the intended outcomes of reforms and restructuring to infuse competitiveness and enhance efficiency across sectors are yet to be realized substantially. The initiatives specifically pertaining to the restructuring of the oil and gas sector need to be assessed minutely to reflect upon glaring policy deficits and finding ways to address the existing bottlenecks. This becomes urgent and utmost in the present environment of historically high oil prices and policy stalemate, seriously undermining the growth of the hydrocarbon sector in India. There is continuous debate and discussion about the role of government in the liberalized environment to address the emerging issues and developments in the sector in a coherent manner, thereby facilitating a smooth transition from the protected past to the competitive future. The current stage of transition of the Indian hydrocarbon sector can be attributed as the ‘stage of identity crisis’; peculiar to the patterned stages of transition due to deregulation witnessed in all liberalized energy sectors in the world. Therefore, in this context, the role of regulator comes to the centre stage of policy planning. This article highlights some issues in this regard, with a special reference to the oil and gas sector, and emphasizes on the utmost necessity of establishing regulatory structures in the Indian hydrocarbon sector.

The Legacy of Public Monopolies and Quintessence of Restructuring

The prevailing conditions and socio-economic compulsions of the vast majority in the period immediately after the country’s independence made public sector enterprises (PSEs) as the vanguard of national economic development. There were also credible ground realities that made the pattern of resource allocation primarily by the government through the PSEs to achieve the desired developmental objectives on the belief that the state would be the most efficient in optimally allocating the scarce resources among diverse set of competing immediate ends. Thus the state emerged as the mobiliser of savings and promoter of investment and regulator of national capital in the economy. Since the state became the primary agent of economic and social change, the private sector activities had to be strictly regulated and controlled to be consistent with the objectives of state policy such as equity and distributive justice. This way, like other sectors, the government became the sole service provider in the energy sector and consequently these sectors became self-regulated with administered pricing mechanisms, in stark contrast to the free play of market forces, thereby often resulted in sub-optimal commercial decisions. Nonetheless, the public sector development of the oil and gas sector have actually helped the emergence of such gigantic set up over the years that has the potential to adapt to the prevailing economic environment. Through budgetary support the stakeholders such as the national oil companies have really acquired the technical capabilities and resources to successfully participate in the activities of the globalised energy market of today.

However, the main drawbacks of the predominance of PSEs in the oil and gas sector are, the unsustainable burden of unproductive subsidies that divert government resources meant for other vital developmental goals, on the one hand; and on the other hand, the inability to make necessary investments in order to actualize the excess capacity in the sector to meet the requirements of the changing economic profile of the country. Thus, straddled with financial constraints and large investment requirements, along with increasing inefficiencies and the need to promote competition, the policy makers were compelled to look for private investments to augment the capacities of these sectors to match the demand requirements.

The major factors that have contributed significantly in initiating and carrying forward the deregulation of the Indian oil and gas sector can be identified as follows:

1.        Economically unsustainable unintended effects of the APM. Oil pricing in India has been used as a tool for achievement of the objectives of the government of the day, often incongruent with the basic economic rationale. The prices of politically sensitive products such as diesel, kerosene does not reflect the economic cost of production. Subsidies and cross subsidies have resulted in wide distortion in consumer prices and consumption pattern of petroleum product consumption, which resulted in diesel-propelled automobile fleet in the country. This further led to inefficient and wasteful use of highly subsidized low-priced fuel resulting in sub optimal inter-fuel substitution. Moreover, political compulsion often dictate pricing administration and thus the pricing system is inflexible to changes in global oil prices. The oil-pool deficit also became a source of serious concern. In a country, where nearly 70% of its oil requirements is met through imports, the accompanied fiscal ramifications of such distortionary policies are bound to weigh heavily on the domestic financial health as well as on the international competitiveness of the economy.

2.        Soaring Imports and Critical Investment Requirements. The period of reforms witnessed higher import of products as well crude due to the economic buoyancy. Given the high level of imports, the administered pricing mechanism, which insulated the economy from the global volatility, had lost its utility. Importantly, the need of huge investment to create sufficient infrastructure to meet the surging demand as well as to handle the surging imports, and the inability of the PSU Oil companies to make such investment, compelled the policy makers to encourage private investment both domestic as well as foreign in an enabling regime.

In 1995, therefore, the Ministry of Petroleum and Natural Gas (MoPNG) set up the Oil Industry Restructuring Group (known as the ‘R’ Group) to come up with a time bound programmes of reforms in the oil and gas sector. As a follow up of the ‘R’ Group recommendations, the government appointed an Expert Technical Group (ETG), an inter-ministerial committee, that recommended a phased transition to market driven pricing mechanism and necessary dismantling of barriers to make the sector world class.

Current Developments, Existing Barriers and Policy Deficits

The reforms and restructuring of the oil and gas sector has resulted in marked achievements in recent years. The upstream as well as the downstream segment has witnessed changes and positive developments:

·          Discovery of huge oil and gas fields in India after the illustrious Bombay High, primarily achieved by the efforts of private domestic as well as foreign and PSU oil & gas companies due to the New Exploration Licensing policy (NELP) Regime.

·          Self-sufficiency in Refining Sector and in fact India is exporting products to the Gulf region since the year 2003.

·          Emergence of India as a potential player in the global oil and Gas scenario.

·          Consolidation of India’s oil diplomacy through acquiring equity oil abroad.

·          Making the sector as a viable segment of asserting the economic power in the regional perspective.

However, there are certain anomalies and barriers and consequent policy incongruities that are acting as hindrances on the way of full-scale development of the sector. The existing barriers and policy anomalies sometimes question the real rationale of deregulation and restructuring. The sector is in a quandary on account of the policy deficits and more importantly due to lack of institution building, which is foremost for smoothening the transition from a protected environment to that of a competitive one. In this context, the pivotal role regulator comes to the fore.

Liberalized Environment and the Role of regulator

Restructuring the oil and gas sector to facilitate deepening of reforms in order to make it competitive and efficient to take care of the oil security imperatives by various means, is no doubt, a trend and pragmatic policy perspective, but it must complement other fundamental interests. It is a fact that, on account of externality, market forces do not always achieve the public policy objectives of energy security. This, no way, implies that the government needs to return to heavy-handed regulation. On the contrary, the government needs to achieve many of the objectives in a manner that is consistent with competitive market reforms. There is no need to go back to the days of vertically integrated structures and prescriptive regulations, instead, the government should adopt a more objective-based regulatory approach. In an objective-based regime, the government would prescribe the policy goals but allow the regulator to decide how to elicit these objectives from the market, and give the market the maximum operational flexibility to achieve those goals in the most innovative and efficient way possible.

The creation of regulatory bodies plays a crucial role in the process of restructuring. It is a fact that one of the primary reasons for instituting regulatory bodies is to limit political interference and manage competitive market trends, without compromising the inherent social and other obligations. That aspect seems to constitute a fundamental signal for attracting private investment. In this sense it can be argued that, having regulatory bodies is less interventionist than public ownership. Therefore, Baldwin and Cave have rightly remarked that:

“One reason for moving towards agencies may be the perceived need to take issues ‘out of party politics’ either in order to give continuity to achieve fairness in adjudication-so that, for instance, choices between different applicants for licenses will be seen to be made in a manner free from suspicions of political bias. Agencies, furthermore, may be less prone than ministries to interfere in day-to-day commercial affairs and decisions that are viewed as properly managerial. The scale of central government may also be kept within manageable proportions by avoiding ministerial regime. Despite the fact that different legal and institutional contexts can broadly explain the variety of regulatory frameworks from sector to sector, the main difficulty for regulators is the need of regulating industries in which different market structures can be observed. The main consequence of that process is the inadequacy of the traditional instruments to regulate natural monopolies. Therefore it can be argued that the simple creation of new regulatory bodies does not automatically assure execution of public interest functions. In this new context, those tasks require double learning process about the market structure evolution as well as the strategic behaviour of the companies.

In the competitive environment, the most important task of the regulator is to establish an incentive regime for encouraging long-term investments. In the oil and gas sector, the economic characteristics of investments are the long asset lives, the presence of sunk costs and the economies of scale. The financing of long-term investment projects primarily depends on the restructuring process of the sector and the return to private investments. Moreover, the mere entry of new players in the oil and gas sector does not automatically assure an increase in investment. The restructuring process requires substantial changes in market structure, regulatory mechanisms and in the management of the oil and gas companies, both the remaining state owned and the private companies.

In the reforming energy sector of most countries, the incumbent company, PSUs or private, always tries to use access conditions to its networks in order to maintain its dominant position, for which vertical de-integration is implemented while restructuring the energy sector in many countries of the world. Under these circumstances, it is fundamental for oil and gas companies to have access to and to maintain a captive market to reduce the uncertainty associated with the techno-economic characteristics of the industry. Therefore, even after the unbundling of the industry, attempts by the oil and gas companies to maintain access to the market through mergers/acquisitions, strategic alliances or still long-term contracts, in order to reset the competitive advantages of vertical integration positions can be expected.

Broadly, the regulatory framework serves certain basic purposes such as;

·          Facilitating the flow of investment

·          Improving the microeconomic sector performance

·          To seek the establishment of competitive pricing regime

·          To avoid market power of the principal players

·          In other words, level playing to all stakeholders.

However, these objectives can become contradictory some times, as in the deregulated environment, many existing companies are becoming multi-utility companies, that means, diversifying away from their core competencies to sustain the competitive challenges, and simultaneously controlling their multinational operations. Thus policy makers must pay attention in the establishment of the transition path rules in order to achieve the main objectives of the reforms. This task requires not only a consistent institutional design, but also a high degree of coordination of new institutions and investment decisions. Particularly in the oil and gas sector, the institutional designs must take into account the structural changes and possible convergence potentials.

In the present Indian energy scenario, the issues are at the forefront of discussion and debate, leading to policy stalemate. Since there is potential of convergence between energy sub sectors such as coal, oil, natural gas, and the power sector, the issue should be dealt objectively to demarcate coherent policy formulation. Moreover, government’s recent attempt to constitute a committee to look into the restructuring at length again, is in fact a sign of dilemma and hence policy deficit. Nevertheless, the sector being a sensitive one need a careful calibrated approach, which calls for initiating regulatory reforms by maintaining a judicious balance between political objectives and market realities.


To conclude it can be said that reform cannot be blamed for the problems that have recently compelled the government to raise prices and also put the companies in financial mess. Nor it is a fact that, government is inactive due to its structural compulsions. However, the government should pragmatically manage the political compulsions for greater competitive ends to facilitate the overall development of the sector. For this, the regulatory reforms must be put in place before restructuring the oil and gas sector. The imperative seems to incorporate the regulatory culture as a part of public policy in the country.


1.         Chang, H., ‘The Economics and Politics of Regulation’, Cambridge Journal of Economics, vol.21, no.6 (1997), pp. 703-728.

2.        Raj, J., ‘Is there a case for a super regulator in India: Issues and Options’, EPW, August 27 2005, Vol. XL, No 35, pp. 3846-3855.

3.        Pinto, H. Q., ‘Institutional design and Regulatory Reforms in the Energy industries: An International comparative analysis and Lessons for Brazil’, Oxford-BP Brasil research Paper, centre for Brazilian Studies, university of Oxford, No. 1, June 2002.

4.        Lefevre, T. and Jessie L. Todoc, ‘Energy Deregulation in Asia: Status, Trends, and Implications on the Environment’, CEERD Report, Asian Institute of Technology, 2004.

5.        Bacon, Robert, ‘A Scorecard for Energy reforms in Developing Countries’, Public Policy for the Private Sector, World Bank, April, 1999.

6.        Paper Clippings (ET, FE, HT, TOI, The Hindu, BS, DH).

§ Views are personal.  Queries can be addressed to the author at, [email protected]

Power Sector Reforms in India: Power to the Farmer

… continued from Vol 2, Issue  11

Rafiq Dossani

Price Regulation and Subsidy Design

There are some interesting approaches around the world that might be worth considering for India. As Prof Sidharth Sinha was saying, in the US, the Rural Electrification Administration and rural co-operatives started in 1936, when licencees for the large estates set up absurdly high charges for rural access. This has now led to some interesting situations, and in Sunrise Valley, Northern California, where rural had become semi urban, a few years ago, Pacific Power was charging eight cents a unit on one side of the street and on the other side, Sunrise Valley Rural Electric Corporation, a cooperative was charging five cents a unit. Some of that was due to cheaper power on account of the differential cost of regulation. The cooperative covered a huge command area with a very small population relying almost entirely on voluntary metering, with which they had not encountered problems. This is one model we could consider. The Chinese too followed the regime of heavy subsidy up till the mid 80s, just like in India, but after that they decided to freeze the old levels of power consumption, start metering power and charge a commercial rate for the excess above the old consumption level. On average, as new consumption overtook old consumption, that approach has worked out and was also a politically sensible way to raise rates.

When we started looking at India the literature revealed several willingness to pay (WTP) studies. WTP tries to measure by how much prices may be raised without affecting welfare (i.e. there should be no income effects arising from the item being a large percentage of total costs) and product utilisation (i.e. near inelastic demand in the range of the WTP). It is a valid concept for essential public goods in which quantity used is less than potential supply at the current price. However, in the case of power, the first condition will not apply. If you’re charged the true price of power and that comes to more than say 20 – 25% of your income, then it makes no sense to try and raise the power price because that’ll lead to a huge decline in welfare and you’ll have serious political problems. Further, since power is rationed, users will usually include those with WTP at the current price. Hence, it is likely that measured WTP will be close to the current price.

A survey was conducted by Professor Ranganathan and myself among 449 farmers in the Rayalseema, Telengana and coastal districts of Andhra Pradesh. The survey aimed at analysing the income effect, the nature of subsidies, the inefficiencies arising from quality problems and the usefulness of cooperatives, and suggesting approaches to distribution reform. The farmers had a median landholding of 14.27 acres and a median income of Rs 34,375, with an average pumpset ownership of 2.19 and average usage of for 7.22 hours per day (Exhibit 2). The survey was conducted in the year 2000 and many things have changed since then in terms of the pricing structure but the issues are still valid.

The conclusions we reached regarding income effect and subsidies were:

·          Income effect is significant. The true cost of power was Rs 43,844 to AP Transco, which was significantly more than the median income Rs 34,375. What the farmer now pays is Rs 4849. So if you start charging people the full cost the average farmer goes out of business. Moreover, there are political considerations also here. The average farmer will not accept paying anywhere near the true cost of power. Hence, WTP measures will not work.

·          Subsidies are regressive – richer farmers receive higher subsidies.

·          Multiple pumpset ownership may be linked to power pricing structure (lower charge for lower hp pumpset).

There were interesting findings about the continuity of supply and the inefficiencies resulting from interrupted supply.

·          Average continuity of supply, i.e., percentage of total hours supplied in a single block, is 72.01%, i.e, 2 blocks of 5.2 hours and 2.02 hours. We hypothesised that the more continuously you get your power, the less water you’ll use. (The problem of rewatering, for one, would not be there.) Our regression test revealed that if you get continuous power in a single block of 7.22 hours the number of hours used declines to 6.1 hours, yielding the utility a saving of 1.12 hours, or 15.5%.

·          Since landholdings were mostly contiguous, multiple pumpsets (typically located at a distance from each other) indicated higher fixed costs than needed and a higher pump set rating than what was actually used in order to ensure adequate water.

·          Pumpset users reported rewatering land frequently since, after interruption, this was the only way that water could reach farther parts of the land. Thus, groundwater was overused.

·          Inadequate power also leads to higher pumpset size than needed in order to ensure enough water is pumped during the time power is supplied.

·          Average annual pumpset repair cost per farmer of Rs 3826.64 may be linked to interruptions and low power quality.

So if you provided good quality power you could probably reduce a lot of these costs and significantly improve the economics of the utility. Coming to the performance of co-operatives, they do not have a significant presence in Andhra Pradesh, distributing less than 10% of the power. Co-operatives rely on the main utility for supply and many of them reported that they were poorly treated by the main utility, and that power was cut off to the co-operative area first, and the surrounding areas which were not covered by the co-operative were treated better. The study revealed that among those receiving APTransco power, 52.1% favoured privatisation, 32% favoured government supply and 15.9% favoured cooperatives. Among those receiving co-operative supply, 40% preferred co-operative supply, 35% favoured private supply and 25% favoured government supply.

The conclusions we reached regarding co-operatives were:

·          Co-operatives are favoured over privatization and government supply by users with experience of co-operatives, while others favour private supply the most.

·          The preference may be linked to the higher probability of paying a bribe for connection and higher burnout problems under state supply. Some co-operatives reported using load-balancing equipment at the substation to reduce quality problems.

What does this imply for distribution reform?

·          Natural monopoly means that no firms will survive without regulation and, with regulation, only one firm ought to exist. Is electricity a natural monopoly? The answer is mixed. Natural monopoly arises from two sources. From economies of density and economies of geography.

·          Economy of density, i.e., lower average costs arising from raising usage per customer or number of customers in the area, is empirically true. However, it does not apply to increasing geography, i.e., covering unserved areas, and there are likely to be diseconomies of geography. It is true of both developed and developing countries, that beyond one million populations there are diseconomies of scale and this would be true of India as well. This implies that rural areas, for example, could be served by independent distribution companies.

·          Cross-subsidisation is easiest to administer in larger firms. Alternatively, a universal service pool to allow cross-subsidisation from urban to rural areas can be created. The survey has shown that rural users will need subsidy; an additional reason for continuing subsidy is that it reduces migration to urban areas, i.e., urban users may be taxed for this privilege.

·          Political forces should be squarely addressed in any reorganisation. Political forces arise not only from subsidised users (external forces) but also from labour (internal) and shareholders (external) who will come up once private distribution comes in.

·          Large firms are empirically shown to be more subject to internal political forces than small firms. The reasons include high fixed costs for exercising political influence, greater stakes and moral hazard. Co-operatives have historically been the best at coverage and have needed the least regulation, compared with municipals and private firms. Co-operatives are most subject to political forces from users and municipals are most subject to internal political forces.

·          Regulation of private firms increases the power of both labour and subsidised users.

The outcomes of reform, if left to the action of natural political forces, will be complex and hard to predict. Thus, in states with strong labour unions, large, regulated private firms may be the likely outcome of reform rather than small, regulated private firms or co-operatives. In states with large, unserved rural areas, small co-operatives may result. Given the existence of economies of density and diseconomies of geography, policymakers should lend their own weight in support of multiple distribution structures.

References and Notes:

1.         Godbole, Madhav, et al, 2001, ‘Report of the Energy Review Committee’, Part II, July 11. This committee is popularly referred to as the Enron Review Committee.

2.        Sankar, T L, 2002, ‘Towards a People’s Plan for Power Sector Reform’, Economic and Political Weekly, Oct 5; 2002, ‘Power Reforms in India – The Search for Indigenous Model for Promoting Competition’, Energy for Sustainable Development, Dec.

3.        Reddy, A K N, comments in support of T L Sankar’s, ‘Towards a People’s Plan for Power Sector Reform’, Economic and Political Weekly, Oct 5, 2002.

T L Sankar is Advisor, Energy Group, Administrative Staff College of India, Hyderabad. [email protected]

Sidharth Sinha is Professor, Finance and Accounting, Indian Institute of Management Ahmedabad. [email protected]

Rafiq Dossani is a Senior Research Scholar at Stanford University. [email protected]

(Courtesy: APARC Stanford IIMB Management March 2004)






ONGC, NGRI pact to enhance oil recovery

September 11, 2005. ONGC has joined hands with National Geophysical Research Institute (NGRI), Hyderabad, and the Norwegian University of Science and Technology (NTNU), Trodheim, Norway, to carry out collaborative work to improve secondary recovery of oil from the Indian oilfields operated by ONGC. Towards this initiative, a memorandum of understanding was signed recently at Oslo, Norway.

The average oil recovery rate in India is barely about 25 per cent, which is much lower compared to what is achieved in Norway where over 60 per cent is extracted. Hence, this initiative was taken by NGRI to collaborate with NTNU, Norway, aimed at improving the productivity. 

Essar Oil & Gardes Energy for JV in exploration

September 9, 2005. The Ruias-promoted Essar Oil has struck a deal with the US-based Gardes Energy Services for driving up its exploration business. The two are joining hands to form a 50:50 joint venture, which will offer the technology and allied services for drilling and exploration in coal bed methane (CBM) and oil and gas in India as well as abroad. The immediate focus will be on Russia, Kazakhstan, China and Turkey besides India. For Gardes Energy, known for its proprietary technology for multi-seam, multi-lateral drilling process for recovery of CBM and shale gas, the JV will not only mark the foray into India, but the region itself.

The company’s state-of-the-art technology enables higher gas recovery rates and thus, substantially reduces the costs of drilling and completion. The company’s technology has proven to increase methane and gas recovery rates by as much as eight times compared to the traditional CBM extraction methods. The JV is likely to be registered in Dubai as the company wants to pursue global business opportunities in a big way. The JV will follow a revenue-sharing model that will be based on the proportion of work each partner does in a particular project. In India, the JV will take off its first exploration project at the Essar Oil-owned Raniganj East (West Bengal) CBM block. The JV is already in talks with companies like Reliance, Great Eastern Energy and ONGC for bagging the drilling and exploration work at their respective CBM blocks.

ONGC, GSPC to jointly develop KG gas block

September 7, 2005. ONGC and GSPC will jointly develop GSPC’s 20 trillion cubic feet (TCF) natural gas block in the Krishna Godavari (KG) basin, subject to government approval. GSPC had received expression of interest from several oil and gas majors for the same. However, the company, which had earlier said that it would prefer to develop the KG gas block on its own, may now partner with ONGC, which has decades of experience in exploration and production (E&P). The natural gas production from the block is expected to start by December 2007 with an initial output of 10 million metric standard cubic metres a day (MMSCMD). The production is later expected to touch 80 MMSCMD.


IOC lost Tupras bid

September 12, 2005. Indian Oil Corporation lost the race to acquire 51 per cent in Tupras (Turkish Petroleum Refineries Corp) to a consortium of Shell and Turkish company Koch Holdings. The Shell-Koch Holdings consortium won the auction for $4.14 bn (Rs 181 bn). This is India’s second major failure to acquire a global oil and gas property in less than a month. The ONGC-Mittal combine had recently lost in the bid to acquire Canada-based Petro-Kazakhstan to China’s CNPC. Tupras was of major geo-political importance to India since Turkey is the gateway to Europe and could have meant access to Caspian crude. A listed, profit-making firm, it has a market capitalisation of about $3.5 bn (Rs 153 bn). IOC bid up to $4.12 bn (Rs 180 bn).

MRPL plans to increase refining capacity

September 12, 2005. Mangalore Refineries and Petrochemicals Limited, the refining subsidiary of ONGC, plans to add over 40 million tonne per annum (mtpa) of fresh refining capacity in the near future. The exact timeframe and the total investments have not been mentioned yet. The expansion is in addition to the company’s existing refining capacity of 9.69 mtpa of rated capacity at Mangalore. MRPL is already processing close to 12 mtpa of crude. This, coupled with the 40 mtpa of planned addition, will make MRPL’s 52 mtpa capacity one of India’s leaders in refining. India’s current refining capacity stands at 127.69 mtpa, of which, Indian Oil and its subsidiaries have a combined capacity of 52 million tonne followed by Reliance’s 33 mtpa.

MRPL has planned a new integrated refinery cum petrochemicals complex with a crude refining capacity of 15 mtpa in the special economic zone (SEZ) at Mangalore. This new plant has been conceived as an export oriented unit and will be set up with a foreign oil and gas major. Also on the anvil is OVL’s refinery project of 10 mtpa capacity at Angola. MRPL has plans to set up a new refinery of 5 mtpa at Kakinada in Andhra Pradesh besides a 7.5 mtpa refinery at well head of Barmer, Rajasthan in joint venture with Cairn Energy. The company is already working on plans to expand the capacity of its 9.69 mtpa refinery at Mangalore to 15 mtpa.

IOC to train Sudanese company engineers

 September 12, 2005. IOC experts will train engineers of Greater Nile Petroleum Operating Company (GNPOC), a Sudanese company, in petroleum pipeline operations. Two training programmes have been lined up in operations and maintenance for 16 and 14 months. IOC has conducted advanced training programme for four batches of technicians and engineers of GNPOC at its pipeline installations during the last two years. IOC has offered services for developing maintenance system activities like condition monitoring, designing different scheduled maintenance formats, developing history card and monitoring spares requirement to ensure its availability in time. 

Reliance refinery boosts excise collection

September 9, 2005. High crude prices and the Jamnagar refinery of Reliance Industries are expected to give the central excise department its highest ever revenue of over Rs 7,000 crore (Rs 70 bn) from Gujarat. In the first four months of current financial year, central excise department mopped up Rs 2,076 crore (Rs 20.76 bn) from Jamnagar refinery of Reliance Industries.

The change in policy on collection of central excise on petro-products and unprecedented jump in crude prices have made this possible. From September 2004, central excise on petro-products- petrol and diesel is being collected from the refinery gate instead of pump outlets from where its was sold.  

Since Reliance refinery products are also sold in other states, the excise revenue was split among various states. With the change in policy on collection, and excise being collected from refinery gate, it was being credited to the Ahmedabad excise commissionerate. Central excise for Ahmedabad zone collected Rs 1,843 crore (Rs 18.43 bn) from sale of diesel from Jamnagar refinery in the last financial year. This fiscal, in case of petrol, excise collection during the first four months was at Rs 619 crore (Rs 6.19 bn). With over eight months to go in the current financial year, revenue from these two products of Jamnagar refinery was expected to cross Rs 7000 crore (Rs 70 bn) in 2005-06. Since naphtha, LPG and kerosene enjoyed central excise exemption, the duty was only on motor spirit and HSD.

 Petrol, diesel price hiked

 September 6, 2005. The government allowed the oil marketing companies (OMCs) to hike petrol and diesel prices by Rs 3 a litre and Rs 2 a litre, respectively. This is less than the Rs 5-6 a litre hike demanded by oil companies. LPG and kerosene prices have been left unchanged. The government also announced a new subsidy sharing package to offset the projected Rs 40,000 crore (Rs 400 bn) under-recoveries of OMCs on sale of petro products this fiscal. It has, however, not tinkered with the excise duties on petrol and diesel or customs duty on crude oil, as indirect tax collections till date are below projections. The finance ministry had cited a Rs 3,628 crore (Rs 36.28 bn) loss in revenues against the projected revenues of Rs 64,738 crore (Rs 647.38 bn) for 2005-06. The hike will net Rs 5,000 crore (Rs 50 bn) to the OMCs and around Rs 700 crore (Rs 7 bn) to the exchequer by way of excise duty on petrol and diesel.

Transportation / Distribution / Trade

GAIL to monetise gas in Bangladesh

September 11, 2005. GAIL (India) Ltd has offered to assist Petrobangla (Bangladesh Oil, Gas and Minerals Corporation) for monetisation of stranded gas from Kutubdia offshore gas field located in South-East Bangladesh. Monetisation of stranded gas means bringing natural gas to the markets through other alternative means (other than pipelines) so as to make commercial utilisation of the stranded gas. The limited natural gas reserves in an isolated field, whose quantity is not sufficient to make transportation of natural gas from those fields economically viable by pipelines, is generally termed as stranded gas. GAIL has offered to provide full support and consultancy services to Petrobangla for examining these options for monetisation of stranded gas from the gas field. Apart from transporting gas in compressed form in cascades, the other options that may be considered for monetisation of stranded gas include compressed natural gas (CNG) marine transportation by ships and installing gas turbine for power generation. The power thus generated could subsequently be transmitted by laying sub-sea cables. GAIL is currently pursuing projects in various sectors such as exploration and production, CNG, liquefied petroleum gas (LPG), and energy management and training in Bangladesh.

BPCL for Black sea crude

September 11, 2005. Bharat Petroleum Corporation Ltd has finalised the import of Azeri light crude from the Caspian Sea region in Azerbaijan from the oil major British Petroleum. About 600,000 barrels of crude oil will be transported from Azerbaijan through the Baku-Subsa crude pipeline in October this year and it will be loaded in the tanker/vessel at Subsa port (Georgia) at the Black Sea. The ship will travel through the Black Sea, the Mediterranean Sea (through Bosphorus, Istanbul, Turkey) and the Red Sea (through Suez canal) to BPCL's Mumbai Refinery. The deal was struck by BPCL, following efforts by the Union Petroleum Minister, Mr Mani Shankar Aiyar, who was keen to bring CIS (Commonwealth of Independent States) countries' oil to India. BPCL is also negotiating with Azerbaijan state oil company Socar for a long-term contract. The supplies will be made through the Baku-Tbilsi-Ceyhan pipeline. Currently, the line filling activity is in progress and the pipeline is expected to commence operations by January 2006, which would facilitate greater procurement of crude oil by companies from the Caspian region.

While BPCL has contracted the first shipment of oil from the Caspian region, Mr Aiyar has mooted using an Israeli pipeline if India was to get larger volumes of oil from the Central Asian and Caspian sea region. The 254-km long Eilot-Ashqelon pipeline could be used for transporting East Mediterranean crude to the Red sea, from where it can be shipped to India. Oil could be pumped from the Caspian region into BTC pipeline to reach the Mediterranean Sea, from where it could be pumped into the Israeli pipeline for very large crude carriers (VLCCs) to pick up at Red Sea for transporting it to India. Russia had also proposed to use the Israeli pipeline for export of oil to Asia. Russia had long been considering increasing its oil sale to Asia, whose demand for oil has surpassed that of Europe. India, among big Asian importers, is intentionally reducing its dependence on the oil from the Gulf. The Israeli pipeline provides an alternative for oil companies and saves their oil tankers, which are too big to pass through the Suez Canal, from going all the way around Africa to supply crude to Asian buyers.

CAIT condemned IGL on Vat

 September 12, 2005. Confederation of All India Traders (Cait) has condemned IGL for 20 per cent value added tax (Vat) charged by it from consumers for supplying piped natural gas (PNG) in Delhi, even as the state tax department said there was nothing wrong with the tax rate. However, Cait said that PNG should either be exempted from Vat as it is part of CNG or attract 12.5 per cent tax since it forms part of the residual items not mentioned in the Delhi Vat Act. However, IGL contested that CNG was formed while exerting pressure on natural gas, while PNG was formed after reducing the pressure. The Schedule IV says that petroleum products other than LPG, CNG and kerosene such as naphtha, aviation turbine fuel, spirit, gasoline, diesel, furnace oil, organic solvent, coal tar, wax and mixture and combination of these products will attract 20 per cent Vat.

MIDC plans to float new co for LNG supply

September 9, 2005. Maharashtra Industrial Development Corporation (MIDC) is planning to float a new company, Maharashtra Gas Transportation Company, to supply liquefied natural gas to industries in the state. MIDC is in talks with Gujarat State Petroleum Corporation (GSPL) and Petronet LNG to source LNG for supply. MIDC has roped in Pricewaterhouse Coopers to conduct a pre-feasibility study for its first proposed pipeline, which would entail laying a 50 km pipeline from Talasari on the Maharashtra-Gujarat border to Tarapur in Thane. The project would need an investment of about Rs 200 crore (Rs 2 bn). The project implementation could take another 18-20 months. India is a growing natural gas market and being a leading industrialised state in India, Maharashtra’s gas demand is huge. According to the Energy Information Administration, natural gas use was nearly 25bn cubic meters in ‘02 and is projected to reach 34 bn cubic meters in ‘10 and 45.3 bn cubic meters in ‘15.

GAIL forays into oil marketing

September 9, 2005. GAIL has forayed into marketing of crude oil with the flagging off of the first tanker of crude oil produced by GAIL from the Cambay basin as a consortium partner with 50 per cent participating interest with Gujarat State Petroleum Corporation Limited (GSPCL). Gail (India) has sold its first consignment of crude oil to Indian Oil Corporation's Koyali refinery in Gujarat. The crude was produced from block CB-ONN-2000/1. Two tankers of 20,000 litre each were flagged off from the well. With this development, GAIL’s exploration and production activity has started yielding revenues. Initially, it is expected to be about Rs 18 crore (Rs 180 mn) per annum, which would increase four fold in subsequent years. GAIL has been able to achieve the production of crude oil within a short time due to the installation of early production system (EPS) under initial development plan for early monetization of the reserves. Initial production from the field is around 350 barrels per day (bpd) which is expected to go up to 1500 bpd in future. Oil is being dispatched to Koyali refinery of Indian Oil via ONGC Central Tank Farm at Navagam (Gujarat), through tankers and pipelines.  

It holds a participating interest in 13 exploration blocks and has managed to extend the partnership in these ventures to various companies such as ONGC, GSPCL, Gazprom, OIL, IOC, Hardy Exploration & Production, Enpro Finance Private Ltd., Daewoo, OVL and Korea Gas Corporation. Similarly, GAIL’s participating interest in these blocks varies between 10 to 80 per cent and in basins such as Mahanadi, Bengal, Gujarat -Saurashtra, Mumbai, Cambay, Assam-Akaran and Cauvery. With the proposed move to acquire stake in the Yadavaran fields in Iran, GAIL’s kitty would increase to 16-18 blocks from the present 13 blocks in the domestic and foreign markets in the medium term. Further, GAIL has also got stake in the A-1 block in Myanmar where it is likely to get a stake in the A-3 block in Myanmar as well. The strategy is to acquire exploration and production acreage in the international arena in consortium with international players. 

IOC for pipeline between Chennai-Bangalore

September 9, 2005. IOC has started examining the best possible route to lay a pipeline between Chennai and Bangalore to transport petroleum products. A detailed route study would be completed in three months. The planned pipeline would require an investment of Rs 290 crore (Rs 2.90 bn) and span about 290 kilometres. Bangalore is already being served by a pipeline that brings in petroleum products from Mangalore. The pipeline coming from Chennai would be used to evacuate Chennai Petroleum’s output for the Bangalore and surrounding markets. The key benefit from using pipelines to transport petroleum products is that it reduces transport cost to about one-tenth of the amount spent when using road transport. IOC has already commissioned a 526 kilometre pipeline from Chennai to Madurai via Trichy recently. At present, the pipeline moves 220 metric tonne of petroleum products every hour. According to IOC the petroleum products’ movement through the pipeline was equivalent to using 15 tank lorries every hour. The Chennai-Trichy-Madurai pipeline required an investment of Rs 409 crore (Rs 4.09 bn), and is IOC’s first such project in Tamil Nadu. The only other pipeline for petroleum products in Tamil Nadu is the one put up by Petronet that starts from Kochi and ends in Karur. 

Policy / Performance

Quarterly bids for oil-gas blocks: MoP&NG

September 12, 2005. As part of its new exploration policy, the petroleum ministry (MoP&NG) is actively considering a proposal to offer blocks on a quarterly basis, round the year. Ministry said the ultimate objective is to move towards an open acreage regime. Shifting to an open acreage system requires setting up of a Central Data Repository thro-ugh enactment of a law. The law will then direct all exploration companies to share geo-scientific data with the repository, which can be purchased by others at a nominal cost. The interest expressed by companies for particular blocks may be announced with an intent to seek interest of other companies. The offer can be kept open for three months and the interested bidders could then compete.

Upstream majors slip on new subsidy formula

September 12, 2005. The share of upstream oil and gas companies like ONGC, GAIL and Oil India Ltd in the subsidy on petroleum products has more than doubled under a new formula announced by the government. ONGC has written to the petroleum ministry complaining about the formula. The company had already given discounts of Rs 2,876 crore (Rs 28.76 bn) to oil marketing companies during the first quarter of the current financial year as its share of the burden, though it should give discounts of Rs 1,380 crore (Rs 13.80 bn) during 2005-06. According to estimates, discounts given by the upstream companies now stand at Rs 14,000 crore (Rs 140 bn) for the year, a jump from Rs 5,948 crore (Rs 59.48 bn) last year. Under the new formula, ONGC’s share of the subsidy burden will be Rs 12,320 crore (Rs 123.20 bn). ONGC will also be asked to pitch in through a special dividend which will not make up for under-recoveries but cover a part of the Rs 6,000-crore (Rs 60 bn) shortfall in the Centre’s revenue from the petroleum sector.    

The previous formula was used for the upstream companies to take over a third of the under-recoveries. The remaining used to be borne by the oil marketing companies. The government had, on September 6, decided that upstream companies would have to bear Rs 14,000 crore (Rs 140 bn) of a total of Rs 40,000 crore (Rs 400 bn) of under-recoveries expected to be incurred during 2005-06 because of selling petrol, diesel, kerosene and LPG below the import parity price. The upstream companies will share this burden in the ratio of their incremental profit after tax (PAT) in 2004-05 versus that in 2001-02. ONGC and OIL will offer a discount of around $20 (Rs 876) a barrel on crude oil supplies to refineries. Stand-alone refineries, along with private refiners like Reliance Industries, will be asked to take a Rs 5,000 crore (Rs 50 bn) cut. Reliance Industries and Mangalore Refineries (MRPL) would together give around Rs 2,500-Rs 2,700 crore (Rs 25-27 bn) discounts this fiscal.

GAIL plans investment in Kerala

September 12, 2005. GAIL Ltd will invest Rs 9,750 crore (Rs 97.50 bn) in Kerala through four major projects, which will be cleared within two months by the board as part of downstream projects of proposed LNG terminal at Puthuvype near Kochi. Rs 7,000 crore (Rs 70 bn) gas-based petrochemical complex at Ambalamugal (Kochi division of FACT) will be the major project followed by the Kochi -Kannur-Coimbatore-Bangalore, 900 km gas pipeline project with a total outlay of Rs 2,000 crore (Rs 20 bn). By adding an investment of Rs 2,400 crore (Rs 24 bn) for the LNG terminal, the combined investment of GAIL and Petronet LNG Limited (PLL) in Kerala will be of Rs 12,000 crore (Rs 120 bn). The sub-sea pipeline to Kayamkulam thermal power station of NTPC and Kochi piped gas project in line with Indraprastha Gas in New Delhi are the two other projects proposed by GAIL and the combined investment for the projects will be Rs 750 crore (Rs 7.5 bn). The piped gas project will be implemented in association with BPCL and Kerala State Industrial Development Corporation. 

Easy sail for foreign LNG carriers

September 10, 2005. Foreign shipping companies bringing in Liquefied Natural Gas into India may not be required to have a mandatory 26 per cent Indian participation till 2008. Keeping in mind the rising crude oil prices, the commerce ministry has proposed that the Directorate of Shipping guidelines that make the minimum Indian participation mandatory be deferred for three years. This is because prohibiting foreign companies from bringing in LNG on their own vessels would lead to an 8-25 per cent increase in gas prices. A draft Cabinet note on this issue has suggested that the import of LNG be allowed on the cost insurance and freight (CIF) basis and on the free-on-board (FOB) basis. The shipping department had earlier proposed prohibiting imports on the CIF basis, whereby the seller or the foreign company itself made the shipping arrangements. This proposal is still pending with the commerce ministry. Allowing only free-on-board (FOB) imports (where India will make the shipping arrangements), will ensure that shipping companies cannot circumvent the DG Shipping guidelines. This is because if the seller makes the shipping arrangement, the Indian guidelines would not apply. In fact, Shell imported its first consignment of LNG from Australia for its Hazira plant on a CIF basis in April this year after the DG Shipping guidelines came into force. The import norms for LNG are being considered in the backdrop of a demand by the European Union to allow companies like Shell to use its own vessels for exports to India.

The main reason behind the prices shooting up with shipping LNG on Indian flag vessels was the tax structure domestic companies were subjected to. For instance, foreign shipping companies were not required to pay that dividend tax. The ministry is of the view that the present DG Shipping guidelines would allow Indian shipping industry to gain a foothold in the transportation of LNG.

APEC to fight against oil hike

September 9, 2005. Finance ministers from Pacific rim nations, 21-member Asia-Pacific Economic Cooperation (APEC), pledge to share responsibility to fight high oil prices and other impending risks to the global and regional economies. The APEC also said that members should shoulder their individual burdens to help address global imbalances. These efforts include fiscal consolidation to increase savings in the United States, further structural reform in Japan and more flexibility in the exchange rate systems of developing countries. On the risk of sustained high energy prices to growth in the APEC economies, the members called for "adequate investment in oil production and refining capacity as well as technology transfer for energy conservation." They also urged the continuation of efforts to reduce "demand-distorting subsidies" and called for the dialogue between the oil producing and consuming countries to be strengthened.

Fuel's paradise: Cos change gear after petro burn

September 9, 2005. Rising international crude prices and the consequent increase in petrol and diesel prices are forcing car manufacturers to take a relook at their marketing strategy. They’re now trying to shift consumer focus towards more fuel-efficient vehicles. While car manufacturers like Maruti Udyog and Tata Motors have been stressing on fuel-efficiency as they are predominantly small cars majors, others like General Motors, Toyota and Hyundai are likely to focus on fuel-efficient small cars too. Car manufacturers indicate that they will take time to develop a different batch of fuel-efficient engines. Higher fuel bills may impact the sale of passenger cars and consumers are likely to make a beeline for two-wheelers. Or they may prefer diesel vehicles over petrol ones. Either way, this will impact the volume of car sales in the future. This is the worry that confronts car makers as the country nears the festive season, during which, sales of FMCGs, white goods and automobiles usually peak.

ONGC to expand presence in Bengal

September 9, 2005. ONGC is planning to strengthen its operations in Kolkata, with the chances of striking natural gas near Sunderban in the Bay of Bengal basin, brightening. The results of the final phase of testing in Sunderbans would be available in the next two weeks. ONGC is interested in coal gasification project, both underground and surface, with West Bengal.

Measures to reduce petro prices impact announced

September 9, 2005. Reserve Bank of India (RBI) has announced that the central bank has put in place some mechanisms to cushion the impact of recent petro prices. RBI would continue to keep down the inflationary expectations, which will help to keep the interest rates low and enable domestic companies to be globally competitive. RBI had already accounted the possible petro prices hike in the last quarterly monetary policy review. However, RBI has suggested that even if the oil prices do not rise further, but still remains at these levels, it would impact the growth rates globally which could percolate down to hamper the domestic growth rates.

ONGC to clear crude in Rajasthan

September 8, 2005. The Centre has nominated ONGC to evacuate the crude oil in Rajasthan's Barmer district and set up a refinery where large reserves of light and heavy crude oil to the tune of 300-400 mt were proved. The Centre nominated ONGC after finding its proposal to be more suitable for Rajasthan's crude. Others who had submitted proposals were HPCL and IOC.

ONGC to partner with Cairn for JV

September 7, 2005. ONGC and the Scottish energy major Cairn Energy are planning to enter into a co-operation agreement for jointly undertaking investments in the oil sector. Investments close to $2 bn (Rs 87.62 bn) have been lined up by the two companies in various midstream and downstream activities relating to crude production, evacuation and for setting up the Rajasthan refinery project, subject to government approval. Cairn Energy is the operator in the Rajasthan oil fields while ONGC has a 30 per cent equity in these fields. ONGC and its subsidiary Mangalore Refinery and Petrochemicals Limited (MRPL) have been nominated by the petroleum ministry to get the crude from Rajasthan oil fields. ONGC was now expecting a approval for being awarded the execution of 7.5 mtpa well-head refinery to be set up at Barmer to process this crude. The refinery project will be executed jointly by ONGC and Cairn. The Cairn fields in Rajasthan will commence production from last quarter of 2007 at an output of little over 100,000 barrels per day (5 mtpa), peaking to around 130,000 bdp (6.5 mtpa) from 2008 to 2011. The production would decline from year 2012, reaching a low of around 20,000 bdp by 2023.



Torrent Power keen on coal-fired units

September 13, 2005. Torrent Power, which is setting up a 1100 MW gas-based power plant at Akhakhol village in Surat district in Gujarat, has evinced interest in setting up a coal-based power plant. The state was also inviting other companies to follow suit. Several power projects were under way in South Gujarat and projects with having total capacity of 3500-4000MW were likely to be built in the region. There is good scope for setting up a lignite-based power plants as well as hydro-based plants in the state. The state government would develop a new source of energy in Mehsana in north Gujarat by gasification and extraction of coal bed methane with the help of Russian technology.

Kalpataru Power to enter generation business

September 10, 2005. Kalpataru Power Transmission (KPTL) plans to enter the power generation business in a big way. The company, which has built only small bio-mass based power plants of 7 MW capacity in Rajasthan till now, is now readying up to set up bigger power plants of 250 MW-500 MW capacities. The 7 MW bio-mass based power plant in Rajasthan was set up at an estimated cost of Rs 30 crore (Rs 300 mn). Another power plant of the same capacity is expected to be commissioned in Rajasthan by March 2006. The public listed company is part of the Kalpataru group and earns Rs 540 crore (Rs 5.40 bn) as revenue annually. It provides turnkey solutions in the field of extra high voltage (EHV) transmission lines upto 800 kilo volts (Kv) in India and overseas. KPTL is also looking to enter power distribution projects in the country. The company is actively participating in the rural electrification projects in states like Uttar Pradesh, Bihar, West Bengal, and Jharkhand. So far the company has bagged contracts worth Rs 340 crore (Rs 3.40 bn) in its distribution business.

Cabinet clears Chamera Hydel Project-III

September 8, 2005. The Cabinet Committee on Economic Affairs has approved the Chamera Hydroelectric Project Stage-III (231 MW) on river Ravi in Chamba district of Himachal Pradesh. The project, estimated to cost about Rs 1,405.63 crore (Rs 14.06 bn), would be completed within a period of five years. The project would generate 1,108.17 million units during a 90 per cent dependable year and provide additional power to northern grid which would be supplied to states of Jammu and Kashmir, Punjab, Haryana, Uttar Pradesh, Uttranchal, Delhi, Rajasthan and Union Territory of Chandigarh, while Himachal Pradesh would get 12 per cent free power as royalty.

Essar for 1500 MW unit in Hazira

September 7, 2005. Essar Power Ltd. has chalked out plans to setup a 1500 MW gas-based power plant at Hazira with an approximate investment of Rs. 4000 crore (Rs 40 bn). Essar has achieved the full financial closure for the project, which has been put on the fast track by the Central government. It expects to complete the first phase of 750 MW of the plant within two years of the zero date, and the balance 750MW in the subsequent 12 months.

The company would bring in equity component of around Rs 1200 crore (Rs 12 bn) for the project. For the debt of Rs 2800 crore (Rs 28 bn), Essar had already received sanctions for loans of over Rs 1700 crore (Rs 17 bn). Power Finance Corporation would provide around Rs 500 crore (Rs 5 bn), while the Rural Electrification Corporation would pump in Rs 750 crore (Rs 7.5 bn). The Central Bank of India, Syndicate Bank, State Bank of India and State Bank of Indore would provide loans of Rs 600 crore (Rs 6 bn) for the project. Essar was in talks with other financial institutions to raise the remaining money and expected to get the final approvals in the very near future. The power generated from the new plant would be sold to Power Trading Corporation. Essar has already signed a power purchase agreement with the corporation. Essar had signed another agreement with Gujarat State Petrochemicals Corporation regarding supply of gas for the power plant. Once the 1500 MW power plant was commissioned, power generation capacity of Essar Power would increase to over 2300MW. Essar is building another 355MW power plant at Hazira costing Rs 750 crore (Rs 7.5 bn), due for commissioning by September 2006. First phase of this plant, having capacity of 100 MW, was commissioned in May 2005. 

4 new N-projects on anvil

September 7, 2005. The department of atomic energy (DAE) has sought the Cabinet committee on political affairs’ approval for setting up four new nuclear power stations at Kakrapar in Gujarat, Kundankulam in Tamil Nadu, Jaitapur in Maharashtra and Rawatbhata in Rajasthan. Two of these projects are pressurised heavy water reactors (PHWRs) of 1,400 MW capacity each (comprising two units of 700 MW each) while the other two are light water reactors (LWRs) of 2,000 MW each (comprising two units of 1,000 MW each). The PHWRs use natural uranium as fuel and the LWRs use low enriched uranium which is imported. Another approval to set up a 300 MW advanced heavy water reactor (AHWR) will also be taken up soon after finalising the exclusion zone requirement with the regulatory authorities. The possibility of setting up additional LWRs in co-operation with the Russia is also being discussed. The PHWRs, presently under construction in India are of 540 MW capacity. However, as the Nuclear Power Corporation of India (NPCIL) has completed development work for the 700 MW PHWR, all future PHWR units would have a similar capacity. At present, 14 nuclear power reactors are in operation with a combined capacity of 2,820 MW and nine reactors are under construction at seven sites with a cumulative capacity of 4,460 MW.

Transmission/ Distribution / Trade

FBR project may be completed ahead of schedule

September 11, 2005. THE 500-MW commercial atomic power project, being developed by the Indira Gandhi Centre for Atomic Research (IGCAR) using the fast breeder reactor (FBR) technology, is likely to be completed at least a year ahead of the scheduled time (of seven years). The board of Bhartiya Nabhikiya Vidyut Nigam Ltd (Bhavini), the special purpose company which implements the FBR projects in the country, had done a review of the Kalpakkam FBR project execution wherein it was found that the project could achieve further time compression. The Rs 3,500-crore (Rs 35 bn) project, which will use the uranium- plutonium mixed oxide as the fuel, was sanctioned in September 2003 and is meant to be completed by 2010. The DAE is to implement the fuel re-cycle facility needed for the project at a cost of Rs 1,500 crore (Rs 15 bn) which is exclusive of the R and D spending.

Dabhol tariff seen at Rs 2.33

September 9, 2005. The per unit tariff of the Dabhol power project after its revival will increase up to Rs 2.33 from the originally projected Rs 2.30. This is because of Maharashtra Power Development Corporation Ltd’s (MPDCL) decision to claim return on equity and dividend on its 15 per cent equity in the newly-formed Ratnagiri Gas & Power Pvt Ltd (RGPPL), which will take over the closed Dabhol project. The state-run National Thermal Power Corporation (NTPC), Gail India and IDBI-led lenders will hold around 28 per cent equity each in the RGPPL. The finance and power ministries had proposed that MPDCL will not claim for return on equity and dividend for five years and thereafter it will be treated on par with other equity holders. Maharashtra had initially agreed to draw the entire power of 2,184 MW from the revived Dabhol project at Rs 2.33. However, with the Centre’s decision to grant mega power status to the revived Dabhol project, Maharashtra will have to export about 100 MW to other states. Maharashtra has also given its consent to provide various sops in the form of exemption in stamp duty, sales tax in order to maintain the per unit tariff of Rs 2.30.

Delhi to buy 300 MW from Andhra

September 9, 2005. The Delhi government has decided to buy 300 MW of power for Rs 3 per unit from Andhra Pradesh to partially meet the its power demand of about 600 MW. This would still leave a supply gap of another 300 MW, which might be bridged with the help of other states. Delhi’s total demand for power ranges between 2,800 MW and 3,200 MW depending upon the climate. However, load shedding in Delhi, which was 558 MU’s in 2001-02 had reduced to 176 MU’s in 2004-05.

Punjab farmers to get free power

September 7, 2005. The Punjab government announced that all farmers who clear their bills as on August 31 would get free power. Free power would be supplied from September 1. Farmers would, however, continue to get bills to let them know how much power they consume. But the amount payable would be nil. The free power would put an additional burden of Rs 439 crore (Rs 4.39 bn) on the state exchequer as compared to Rs 250 crore (Rs 2.5 bn) which was there due to the "energy bonus" scheme announced for the agriculture sector on power bills. The Rs 439 crore (Rs 4.39 bn) burden would be in addition to the Rs 1,100 crore (Rs 11 bn) given by the state so far to the Punjab State Electricity Board (PSEB) as subsidy for the agriculture sector, for which power was supplied at 60 paise per unit. The opposition to the energy bonus scheme came since the scheme benefits only those farmers owning up to five acre of land. The government also announced an increase in free power units to 200 from the present 50 units per month to the families belonging to the backward classes.

MoP, CEA to bring captive power into national grid

September 6, 2005. Power ministry (MoP) and Central Electricity Authority have launched a crucial exercise in order to bring in at least 5,696 MW of surplus power available with captive power plants (CPPs) in the national grid to tackle increasing power deficit across the country. India has a total installed capacity of captive power of 18,740 MW of which so far 14,636 MW has been connected to grid. According to the provisions of Electricity Act, 2003 and the National Electricity Policy, surplus power available with captive and stand by power plants can be supplied to the grid continuously or during certain time periods. Under the EA 2003, captive generators have access to licensees and would get access to consumers who are allowed open access. Grid inter-connections for captive generators would be facilitated as per section 30 of EA 2003. Appropriate commercial arrangements would need to be instituted between licesnees and the captive generators for harnessing of spare capacity energy from captive power plants. The appropriate regulatory commission would exercise regulatory oversight on such commercial arrangements between captive generators and licensees. A sub group comprising CEA, PTC India, Confederation of Indian Industry and Association of Chambers of Commerce has suggested that in case of a captive plant or a group of industries setting up captive plant at least 51 per cent of the power generated should be used by the group of indudstries or individual industry, balance can be exported.

Policy / Performance

Petrobangla coal field in GAIL hands

September 13, 2005. Petrobangla, the Bangladesh-based oil company, has offered GAIL (India) the development of Jamalganj coal field and coal gasification on nomination basis. GAIL has also offered to assist Petrobangla in monetising stranded gas from the Kutubdia offshore gas field in Southeast Bangladesh. GAIL had access to both underground (in-situ) and above-ground coal gasification technologies. The Jamalganj coal field is one of the biggest coal fields in Bangladesh. It has coal reserves worth 1,050 mt at a depth of 650-1,150 metres. For monetisation of stranded gas, GAIL may transport gas in compressed form in cascades or transport CNG by ships and install gas turbines for power generation. The power thus generated may subsequently be transmitted by laying sub-sea cables. GAIL has offered to provide full support and consultancy services to Petrobangla for examining these options. 

CEA drafts transmission plan

September 12, 2005. Central Electricity Authority has formulated national transmission plan (NTP) with an objective to achieve an inter-regional transmission capacity of 16,450 MW by the end of 10th Plan and about 37,150 MW by the end of 11th Plan. The current inter-regional transmission capacity is 9,450 MW. CEA, which has circulated NTP to various stakeholders as envisaged in the Electricity Act 2003 before making a final draft, will begin its interaction with the state electricity boards and other utilities from southern region in Bangalore. This will be followed by talks with stakeholders from the western and northern regions. CEA in association with PowerGrid Corporation, which is a national transmission utility, will also hold meetings with stakeholders and utilities from eastern and north-eastern regions. The draft NTP has been prepared covering various transmission plans up to 2011-12 which are based on the updated generation programme. CEA expects to release final draft of NTP by November. According to the draft, the central transmission utility (CTU) and the state transmission utilities (STUs) would have to plan the transmission system to facilitate trading of electricity which under ES 2003 has been recognised as a distinct activity.

MoP may drop plans to curb regulators’ authority

September 12, 2005. In the wake of stiff opposition from power regulators, power ministry is understood to have dropped plans to amend the electricity Act in a way that curtails the authority of regulatory commissions. Power ministry said that the proposed amendments to the electricity Act had been shortlisted but had nothing to do with regulators.

Review RIL’s KG contract: MoP

September 11, 2005. The power ministry has demanded a review of the government’s production sharing contract (PSC) with Reliance Industries Ltd for the KG basin since it was reneging on its original agreement with National Thermal Power Corporation for supplying gas to the latter’s 2,600 MW power projects in Kawas and Gandhar. RIL was shortlisted by NTPC through an international competitive bidding process to supply 3 mtpa of gas at $2.97 (Rs 130) per million british thermal unit (btu). It has now placed 18 new conditions before executing the formal gas sales and purchase agreement (GSPA) with NTPC. Power ministry has accused the Reliance of adopting “dilatory tactics”, and has asked the petroleum ministry to impress upon RIL “to expedite the process of signing the GSPA with NTPC and supply gas in a timely manner. Failing this, the ministry has recommended that appropriate steps be taken in the overall national interest, which may include reviewing Reliance’s PSC. The major relaxations sought by Reliance relate to altering the price structure by changing the tax liabilities, dilution/deletion of most of the clauses relating to compensation for non-supply of gas and on capping its liabilities.

40 projects  ready by first year of 11th Plan

September 9, 2005. As many as 40 power projects with an estimated cost of Rs 100 crore (Rs 1 bn) or more for each project are expected to be ready by the first year of the 11th Plan. 31 power projects are due to be commissioned during the 10th Plan and 9 in the first year of the 11th Plan period. The power grid is executing 24 projects and the National Thermal Power Corporation handling 9 projects. The National Hydroelectric Power Corporation has 8 projects whereas THDCL and NEEPCO are executing 2 and 1 projects respectively.

Dabhol power project to restart by end of ‘06

September 9, 2005. The government will grant a host of fiscal concessions, including mega power project status and duty free import of LNG to the $2.94 bn (Rs 129 bn) Dabhol power project so as to restart the troubled plant by 2006-end. The Finance Ministry would waive 5 per cent customs duty on import of 2.1 mt of liquefied natural gas (LNG) to fire the 2,184 MW power plant. While the waiver of import duty would help bring down the cost of fuel, grant of mega power project status would enable Dabhol to benefit from tariff concessions on imported capital equipment required to complete the 1,444 MW Phase-II and LNG facilities. GAIL and NTPC have been given the reprieve that their investment in completion of LNG/marine facilities and power plant would not exceed $200 mn (Rs 8.6 bn).

And if it does exceed, the institutional lenders would take the financial liability for the excess expenditure. Other concessions given to Dabhol include, waiver of customs duty on import of spare parts for 5 years and exemption from payment of service tax on construction and site preparation activities. The revival scheme also provides compensation to previous owners GE and Bechtel, who were demanding a total of $350 mn (Rs 13 bn). The government has agreed to give $145 mn (Rs 6.3 bn) to GE and $160 mn (Rs 7 bn) to Bechtel.

The government plans to restart the first phase 740 MW by June 2006. GAIL is targeting at an ex-ship LNG price in the range of $3.30 to $3.40 (Rs 144 to 149) per mbtu so as to generate power from Dabhal project at Rs 2.30 per unit with a fixed cost of Rs 0.93 per unit and a variable cost of Rs 1.37 per unit. As a promoter, GAIL's role would be to source LNG required to run the power plant. It would also complete the remaining erection works of LNG terminal, which is 75 per cent complete, and operate the terminal. NTPC on the other hand, would operate the power plant.

Coal & Oil to invest $46 mn

September 7, 2005. The upbeat forecasts about India’s economic potential has brought in its wake more investments from Coal and Oil Company (C&O), a firm that draws revenue from the demands of India’s energy sector. C&O is promoted by non-resident Indians and provides “end-to-end solution” in energy. It included procurement, financing and provision of logistics largely for coal for power plants. The company an investment of Rs 200 crore (Rs 2 bn) over the next year to create infrastructure to meet the growing demand for coal. The investment would include the acquisition of a captive coal field in Indonesia in the next six months. The capacity of the field would be about 1 mt in the first year. Another acquisition on the company’s agenda would be of a ship to move the coal. Research indicated that India’s coal deficit is expected to increase to 160 mt by 2010 from the current deficit of 23 mt. C&O has set itself the aim of being an integrated player in the energy space, which would include fuel other than coal. However, coal would be the dominant factor in the company's operations. C&O’s aim of being an integrated player includes an entry into power generation. C&O’s share of business in India’s coal imports is 30 per cent. The company’s clients in India are a combination of private sector companies, which have captive power plants and state electricity boards. The company’s turnover is about Rs 1,300 crore (Rs 13 bn).

Power cuts seen hitting exports: CII

September 7, 2005. The three-day power cut imposed by the state government in Gujarat will hit industry hard, the Confederation of Indian Industry (CII) at Gujarat warned. CII has proposed the state government to allow industry to function during the night so that the industry can make up for the loss of production due to power cut. Gujarat was the largest exporting state in the country and if exporters failed to fulfil its export obligations owing to power cut, it would hit exports in the future from the state. Gujarat, which had earlier claimed to be the only Indian state to have a power surplus, imposed a three-day power cut on the industrial sector to provide additional electricity to the agricultural sector to water standing crops.

Lighting up tribal homes: Pilot project by NGOs

September 7, 2005. White light emitting diodes are finding their way into some of the remote tribal habitats in Andhra Pradesh, which are not connected by the electricity grid, as an alternative and economic lighting solution. This is due to the efforts of an NGO consortium (includes Satyam Foundation, Centre for Environment Concerns, Cova among others) with the help of Environment Protection Training and Research Institute (EPTRI). EPTRI has entered into a technology sharing agreement on LED technology with Canada-based Light Up the World Foundation led by the innovator of LED systems Dave Irvine-Halliday. The pilot project aims at lighting 3,000 tribal households with LED technology in the state. The NGO consortium is also providing training to SHGs (Self Help Groups) in manufacturing and marketing these products. Union Tribal Welfare Ministry has sanctioned a grant of Rs 7,500,000 to implement the programme in a three-year period. A light along with a solar panel and a mobile torch is being offered to each household and costs about Rs 15,000. This technology is basically aimed at replacing kerosene lamps of those households, which have no access to power. 

M’rashtra genco for nuclear power option

September 6, 2005. The newly-formed Maharashtra State Power Generation Company (MSPGC), which is struggling to meet the ever-increasing power demand in the state, is exploring an option of making a foray into nuclear power generation. The company would soon launch an internal survey after holding consultations with the DAE to assess the possibility. Thereafter, the company would rope in a consultant to carry out a comprehensive report. With the problem of non-availability of coal and gas, besides the larger environmental issues, there are few options available. Maharashtra being a flat state and a hilly one, the capacity addition in the hydro sector has a lot of limitations. Thus, MSPGL will weigh an option of entering into nuclear power generation. MSPGL could probably be one of the first state-owned entities after the state-run National Thermal Power Corporation (NTPC) to explore the nuclear power option. NTPC, in its business corporate plan, proposes to have nuclear power generation of 2,000 MW by 2017. This apart, Tata Power Company and Reliance Energy have also announced their move to enter into nuclear power generation, which would be largely dependent upon the Centre’s policy in this regard. MSPGC’s move comes at a time when Maharashtra’s power demand has shot up over 14,500 MW against the availability of 12,000 MW.




Radical method may bury gas plant

September 13, 2005. The science of burying carbon dioxide gas 2km beneath the ground has emerged as a significant hurdle in the $11 bn Gorgon gas project's bid for environmental approval. The partners in the massive Gorgon project plan to cut greenhouse gas emissions by injecting carbon dioxide, captured in the process of taking natural gas out of the ground, back into wells drilled deep below Barrow Island off the West Australian Coast. The controversial plan is the first attempt in Australia to use so-called geo-sequestration to offset greenhouse gas emissions - and environmentalists fear it will not work. Barrow Island has been designated a class-A nature reserve for the past 95 years, with several species of animal unique to the island. The project already has in-principle state government approval through an act of parliament in 2003 that allows it to use a maximum of 300ha of the island. But it needs environmental clearances from state and federal authorities. The West Australian Environmental Authority opposed the choice of Barrow Island for the Gorgon facility, even though it has been the site of oil production for more than 40 years. The Gorgon project - proposed by the giant Chevron group, partnered by Shell and ExxonMobil- aims to produce 10 mt of liquefied natural gas a year for export from 2010.

The EIS addresses three main issues: quarantining Barrow Island from the introduction of plants and animals from outside; the impact of dredging a 70km pipeline from the Gorgon gasfields; and the challenge of disposing of carbon dioxide, which makes up 14per cent of the Gorgon gas. Carbon dioxide injection into geological structures below the surface - stopping it reaching the atmosphere - has attracted strong criticism from environmentalists, who claim the technology is untested as a long-term solution to greenhouse gas emissions. In particular, there are concerns the carbon dioxide could leak out. The technology has never been developed commercially in Australia, although the coal industry and the CSIRO are working on "clean coal" technology that would inject carbon dioxide captured in the mining and processing of coal back into the ground. It is this kind of technology that would be encouraged under the Asia Pacific Partnership on Clean Development and Climate pact between Australia, the US, China, India and South Korea.

Russia for new HC deposits

September 13, 2005. More than 6 billion metric tons of standard fuel will be industrially explored on the shelves of the Barents Sea. Six tenders for up to 20 promising deposits of hydrocarbons (HC) or localized resources would be held in the district by 2010. The sites include the eastern Pechora Sea (Barents Sea southeast, Barents-2 tender) with total recoverable reserves and resources of about 640-680 million metric tons, Barents-3 (354-382 million), Barents-4 (1.2-1.3 billion), and Barents-5 (up to 1.3 billion tons). Barents-6 and Barents-7 will cover the central and western parts of Russia's zone in the Barents Sea (aggregate reserves and resources at about 2.5 billion tons). License tenders for other areas of the Barents Sea were planned for 2010-2020. The exploration of shelf deposits was impossible without adequate transport infrastructure. Shelf exploration was an important integration project, as most companies in the district's regions would play a direct role in it.

Hydro to build a plant at Shtokman gas field

September 13, 2005. The Norway-based Hydro Company plans to contribute to the liquefied gas plant project at the Shtokman natural gas field in the Russian part of the Barents Sea. Hydro intends to buy a 20 per cent stake in the Shtokman project. The company would like to develop the fields, build LNG plants and supply resources to the United States. It is expected to gas production at the deposit to start in 2010 and reach ultimate capacity between 2011 and 2012. LNG will be exported to the United States and Europe. The Shtokman deposit has the capacity to provide 25 per cent of total natural gas supplies to the United States and can later export gas to Europe.

Chinese oil giants to explore Caspian

September 9, 2005. China National Offshore Oil Corp., the country's largest offshore oil producer would explore for oil and gas in waters off Kazakhstan with China National Petroleum Corp. in the first overseas tie-up by the two mainland oil giants. CNOOC signed a memorandum in Beijing, to cooperate with CNPC and Kazakhstan's state-owned oil and gas company KazMunaiGaz on jointly exploring oil and gas in the northern Caspian Sea. Analysts expect this to be a precursor of further possible cooperation among Chinese oil firms eager to gain more leverage in bidding for overseas oil assets.

CNPC may sell PetroKaz stake

September 8, 2005. China National Petroleum Corporation is in talks to sell a stake in PetroKazakhstan to Kazmunaigaz (KMG). A Chinese company hailed the Beijing group’s US$4.2 bn bid last month as the largest ever cross-border acquisition. The PetroKaz assets are still expected to be shared with PetroChina, CNPC's listed unit, which is in the process of forming a joint venture with the parent to run the Chinese group's overseas business. 

Chevron & Gazprom win natural gas blocks

September 8, 2005. Venezuela's government sold licenses to exploit 3 offshore natural gas blocks, assigning two of them to Russian oil firm OAO Gazprom and one to Chevron Corp. Gazprom paid $15.2 mn for one block and $24.8 mn for another, Chevron, based in San Ramon, Calif., paid $5.6 mn for its block. The state oil firm Petroleos de Venezuela SA rejected a fourth bid it considered too low, and the remaining two blocks saw no bids. The winners of a second bidding round will be announced in November. The first three natural gas field would see $98 mn in investment in the next four years. The natural gas project off western Venezuela involves 29 blocks spanning some 12,000 square miles. The area's reserves have yet to be proven, but they are estimated at some 24 billion cubic feet (bcf).

S. Korea to release oil reserves in crude

September 8, 2005. South Korea will release oil reserves mostly in crude to its refiners as part of international efforts to help ease U.S. supply disruptions after Hurricane Katrina. Refiners in the country were to get a combined 2.5 million barrels of crude oil and 380,000 barrels of refined products from state-run Korea National Oil Corp. (KNOC) over 30 days. S. Korea has already reached an agreement with the government on how much and what type of crude oil each refiner will get. South Korea, the world's fourth-biggest crude oil buyer, would begin within the next two weeks the release of 2.88 million barrels of oil reserves, or about 4 percent of state-held reserves. About 80 percent of state reserves are crude oil. The International Energy Agency (IEA), the West's energy watchdog, said its 26 members would release 2 million barrels of oil daily over an initial period of 30 days, matching the output lost from the U.S. Gulf Coast's battered refineries.


Australia to set up petroleum plant

September 7, 2005. Firepower Group of Companies of Australia has proposed to establish petroleum conditioners manufacturing and blending plant in Karachi to serve Pakistan and the regional markets. A three-member delegation informed the minister that his group’s products include successful line of petroleum conditioners sold in 53 countries. That introduction of petroleum conditioners would significantly reduce harmful emissions by providing technology that makes fuel burn better and would save $500 mn annually in oil import bill of Pakistan. Pakistan would encourage Australian investment in infrastructure and energy development activities. The minister proposed that the group may send a delegation of experts to interact with the Pakistani counterparts for familiarizing petroleum conditioners in the country.

Russian-Uzbek launches oil refinery

September 7, 2005. Russian-Uzbek joint venture Dzharkurganneftepererabotka has launched a new oil refinery in the city of Dharkurgan in the south of Uzbekistan. The enterprise will be able to annually refine 130,000 metric tons of heavy crude into 50,000 metric tons of petroleum bitumen and 50,000 metric tons of diesel fuel and related products. The Russian Petromaruz Company, based in St. Petersburg, and Uzbekistan's Dzharkurganneft set up the joint venture with the authorized capital of $150,000 to implement the $7-mn refinery project. Russia contributed equipment and cash to pay for its 55 per cent share in the authorized capital and the Uzbek side provided production premises and the plant to cover its 45 per cent stake.

Dzharkurganneft, a part of the Uzgeoburneftegazdobycha joint stock company, is developing eight oil deposits in the Surkhandarya region in the south of Uzbekistan where the main reserves of the country's heavy crude are located. The largest Kokaidy deposit was opened in 1939.

Transportation / Trade

EnCana to sell oil & pipeline business

September 13, 2005. EnCana Corporation has reached an agreement to sell all of its shares in subsidiaries, which have oil and pipeline interests in Ecuador to Andes Petroleum Company, a joint venture of Chinese petroleum companies, for approximately US$1.42 bn cash. The sale will have an effective date of July 1, 2005 and is expected to close before year-end. It is subject to prior approval by the Government of Ecuador, normal closing conditions and regulatory approvals.

Canaport LNG begins construction

September 12, 2005. The initial phase of construction for the Canaport LNG project begins at Irving Canaport. The initial construction phase involves site excavation and leveling, and is the precursor to full-scale construction. Irving Oil Limited and Repsol YPF, S.A. had formed a new partnership, Canaport LNG, which will construct, own and operate the LNG regassification terminal in Saint John. The Canaport LNG terminal will be operational in 2008, initially delivering 1 bcf per day of regassified LNG into the market.

Technip awarded clean fuels project in France

September 12, 2005. Technip has been awarded by Innovene Manufacturing France SAS an engineering, procurement, construction management (EPCM) services contract to implement the Clean Fuels Project in the Innovene Refinery located in Lavéra (France). The project scope includes a new jet sweetening unit, the revamping of two existing hydro-desulfurization units (HDS) and some associated utilities and offsites. Through this project, Innovene will upgrade the refinery to meet new European fuel regulations, being introduced in France from 2007, relating to the sulfur content in oil products. The new facilities are due to be completed by the third quarter of 2006.

Dolphin seals $1 bn gas transfer pact

September 12, 2005. Regional operator Dolphin Energy signed a $1 bn Islamic financing agreement with 14 banks for its mega-project to develop and transfer gas from Qatar to the UAE and then on to Dubai and Oman. The $1 bn Islamic financing facility for Dolphin is by far the largest Sharia compliant oil and gas financing transaction to date. Under the four-year facility, Dolphin will construct the portion of the project relating to the transportation system on behalf of the Islamic investors, and enter into a forward lease agreement for the use of such assets. The massive Dolphin gas project, expected to come on line at the end of 2006, involves the production and processing of natural gas from Qatar's North Field and transportation of the dry gas by pipeline to the UAE.

Gas supply to Khulna through pipeline

September 11, 2005. The Bangladesh government had already planned to provide natural gas to Khulna by pipeline from Bheramara in no distant future. Negotiations would be held with Asian Development Bank about the financing of the project on September 13. If the negotiations prove fruitful, tenders will be invited by January or February next year (2006) for laying gas pipe line from Bheramara to Khulna.

Enbridge to build Canadian oil pipeline

September 9, 2005. Canada-based oil and gas distributor Enbridge Inc. has received long-term shipping commitments from four energy companies, solidifying its plan to build a 400 mn Canadian dollar oil pipeline, worth about $340.7 mn. ConocoPhillips Canada, Petro-Canada, Suncor Energy Inc. and Total E&P Canada Ltd. made the shipping commitments, which still require approvals by the companies' senior management and directors. The 30-inch-diameter, 236-mile Waupisoo pipeline will initially carry 350,000 barrels of crude oil - and later, up to 600,000 barrels - from the Alberta oil sands to the Edmonton refinery. The pipeline should begin operating in mid-2008.

Iran possible export route: Kazakh

September 10, 2005. Kazakhstan hopes that the Central Asian nation could turn to Iran for an extra route to export oil as current pipelines reach their limits in a decade or so. The nation, which is about five times the size of France, expects output to surge to 3.5 million barrels per day (bpd) by 2015 from less than half that now, which would put the former Soviet state in the world's superleague of oil producers. Even after expanding the Caspian Pipeline Consortium route through Russia, the Atyrau-Samara also through Russia, the new Baku-Ceyhan line and shipments to China, Kazakhstan will need to find more room, if current estimates hold. Iran would be a possible location for a new pipeline that decisions on how to ship oil are made by private oil companies. Kazakhstan, now among the world's top 20 oil producers, pins its hopes of future prosperity on developing its Caspian Sea oil riches. The government plans to tender Caspian oil blocks next year, but gave no detailed timeframe.

Qatar seeks low-cost debt financing for LNG carriers

September 10, 2005.  Qatar needs to find low-cost debt financing to expand its liquefied natural gas transportation system. Qatar anticipates the need for about 90 LNG carriers to handle its natural gas exports over the next five years. The biggest challenge for our LNG transportation is finding creative low-cost debt financing for the ships that remain to be ordered. Qatar continues to seek solutions aiming at reducing LNG transportation costs and to look at areas of cost reduction including ship financing. This will help the industry maintain the momentum of growth and open up new horizons for producers and shippers.

Russia and Germany signed $5 bn gas deal

September 9, 2005. Russian energy giant Gazprom and German firms EON and BASF signed a deal to build a $5 bn pipeline linking Russia and Germany. The North European Gas Pipeline will allow the world’s largest gas reserves to be piped directly to the western European market. But its route has enraged Poland and Baltic countries that stand to lose out on lucrative fees because it bypasses their territory. The $5 bn agreement is a key plank to lessen Germany’s dependence on oil — Russia already supplies 32 per cent of Germany’s energy requirements.

Siberian oil pipeline to go to China first: Putin

September 8, 2005. Russian President has confirmed that his nation's trans-Siberian oil pipeline will export oil to China (in Daqing), instead of Japan, first. Construction of the pipeline is to begin later this year, with the first stage capable of carrying 30 million metric tons of crude oil annually from the Siberian city of Taishet to Skovorodino near the Chinese border. From there, the pipeline is expected to take two-thirds of the oil south to Daqing, while the remaining 10 million metric tons would be shipped by rail to a new port to be built on the Pacific coast near Nakhodka. The project is expected to be completed around 2008. President also pledged to expand the line's capacity to 50 million metric tons a year, or roughly 1.2 million barrels per day, and to extend the line all the way to the Pacific coast at some time in the future.

UAE &Oman ink gas agreement

September 7, 2005. Dolphin Energy Limited signed a gas sales agreement with Oman Oil Company (OOC) to deliver an average 200 million standard cubic feet of gas per day (mscfd) to OOC from early 2008. The agreement is based on detailed discussions between Dolphin Energy and the OOC, subsequent to the signing of a Memorandum of Understanding (MOU) 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.

KBR venture build Yemen LNG plant

September 6, 2005. Halliburton’s KBR engineering and construction arm received a contract valued at more than $2 bn to build Yemen's first liquefied natural gas plant. Yemen LNG Company Ltd., whose major shareholders include oil giant Total SA and Yemen Gas Co., awarded the contract to KBR and its joint venture partners, Paris-based Technip and JGC Corp. of Japan. The plant will be located in the port of Balhaf on the southern coast of Yemen, and consist of two liquefaction trains with a combined capacity of 6.7 million tons per year. The companies aim to have the first train up by the end of 2008 and the second one online about five months later.

Policy / Performance

World airlines will pay more than $97 bln for fuel

September 12, 2005. Airlines globally will pay more than $97 bn for fuel in 2005 but carriers in Europe could break even while those in Asia are expected to make money. The International Air Transport Association (IATA) announced a revised industry loss forecast of $7.4 bn for 2005 with oil prices at sustained record levels. That figure is up from $6 bn in May.

OPEC approves $52m loan to six developing nations

September 11, 2005. The Opec Fund for International Development has approved a $52 mn (Dh191.4 mn) loan to six developing nations. The agreement was recently approved by chairman of the board of governors of the Opec Fund and assistant undersecretary for industrial affairs in the Ministry of Finance and Industry. The fund will be allocated to key sectors including education, health and energy. The loans will include a sum of $8 mn for a transportation project in Vietnam, $10 mn for the health sector in Angola, and $5 mn for the energy sector in Djibouti. Bangladesh will receive $15 mn for water development projects, Mali $10 mn for the transportation sector and $4.5 mn will be allocated to an educational project in Chad. Countries contributing to the Fund include the UAE, Saudi Arabia, Kuwait, Iran, Indonesia, Libya, Iraq, Algeria, Qatar, Nigeria, Venezuela and Gabon.

Uzbekistan signs energy exploration deal

September 11, 2005. Uzbekistan has signed a deal on creation of a consortium of investors from China, Russia, Malaysia and South Korea to explore hydrocarbon fields in the dried seabed of the Aral Sea. The agreement by Uzbekneftegaz, Malaysia's Petronas, Russias Lukoil, South Korea's National Oil Corporation and China's National Petroleum Corp (CNPC) was signed in Tashkent. The Aral Sea, hit by one of the worst man-made environmental catastrophes in the world, is shared by Uzbekistan and Kazakstan. Once the world's fourth-largest inland sea, it is now mostly desert, having shrunk in the past four decades to less than half its natural size due to decades of poorly managed cotton farming along the Amu-Darya and Syr-Darya rivers. Further negotiations are expected to take place with Uzbekistan on a production sharing agreement for the exploration and development of oil and gas fields in the Uzbek part of the Aral Sea.

Pak Govt approved new gas management policy

September 11, 2005. The federal government has approved a new gas allocation and management policy for supplies to fertilizer units, independent power plants (IPPs), captive power plants and CNG stations, and for optimum utilization of non-pipeline quality gas to reduce dependence on high-cost fuel imports. Govt had approved allocation of about 200 mscfd of natural gas for two IPPs and a fertilizer unit.

Under the decision, additional 100 mscfd pipeline quality gas from Qadirpur gas field has been allocated to Sui Northern Gas Pipelines Limited (SNGPL) for the setting up of an efficient state-of-the-art brand new fertilizer plant at Dharki in Sindh. The SNGPL has been directed to prepare the transaction structure in consultation with the ministry of petroleum and natural resources and submit to the ECC for approval. Another 75 mscfd of permeate gas of about 575 BTU heating value from Qadirpur gas field has been allocated to SNGPL and placed at the disposal of Private Power and Infrastructure Board (PPIB) for setting up a new 150-MW IPP at Dharki. Furthermore, a 20 mscfd of low-BTU gas (200-BTU) from Kandra gas field has been allocate to Sui Southern Gas Company Limited (SSGCL) which along with five mmcfd of pipeline quality gas from SSGCL’s system at Sukkur has been placed at the disposal of PPIB for setting up of a new 60-MW IPP at Sukkur. Natural gas with less than 900-BTU per cubic feet heating value is normally considered as low-BTU or non-pipeline quality gas.

Egypt-Cyprus cooperation in oil, natural gas

September 8, 2005. Egypt and Cyprus signed a joint cooperation protocol between the two countries in the domain of prospection for oil and natural gas as well as exchanging expertise. After signing the protocol with Cyprus Egypt asserted its readiness to provide support and technical assistance to the Cypriot side in all the fields of oil and natural gas industry.



Iran’s second power plant will come on stream soon

September 12, 2005. The Second Unit of Isfahan’s Chehelsotoon Power Plant will come on stream next week. The power plant consists of six gas-fueled units each capable of generating 159 MW however; all the six units of the plant will be fully operational by June 2006. Electricity generated from the unit will be connected to the national electricity grid next week but commercial exploitation of the plant normally begins two months after the start of its preliminary operation. The power plant is the first of its kind in the country that is built on the basis of a B.O.T – Build, Operate and Transfer - contract and is financed by the public sector. According to the agreement, the public sector in charge of the construction will transfer the power plant to the government free of charge after a period of 20 years.

Iran to build more N-plants

September 11, 2005. Iran is to build two more nuclear power plants. The country also defied a resolution passed by the International Atomic Energy Agency (IAEA) demanding a resumption of the processing freeze, arguing that making fuel was a right under the nuclear non-proliferation treaty (NPT). Iran would soon invite tenders from companies around the world for the construction of two nuclear power stations — building on a move by the hardline parliament to bolster the country’s claim to a nuclear programme. Iran argues that it only wants to make nuclear fuel for peaceful purposes even though it has yet to actually build any power plants.

PSO to seek bids for new generation

September 9, 2005. Public Service Company of Oklahoma (PSO) is seeking proposals for new generation to supplement existing power supply resources to effectively meet customers' power demand requirements. PSO is seeking both new peaking resources and base-load resources. PSO is seeking up to 500 MW of new peaking capacity and associated energy, and up to 650 MW of base-load capacity and energy. The target year for the addition of new peaking capacity is 2008. The additional base load capacity will be needed by 2011.

SWEPCO seeks bids for new generation

September 9, 2005. Southwestern Electric Power Company (SWEPCO) is seeking proposals for new generation to supplement existing power supply resources to effectively meet customers' energy needs. A draft Request for Proposal (RFP) to add new generation through a competitive bid process will be filed with the Louisiana Public Service Commission (LPSC). The draft RFP, pending LPSC approval, seeks solutions to SWEPCO's short- term and long-term capacity needs. SWEPCO will be seeking bids up to 500 MW of new peaking capacity and associated energy by 2008; up to 500 MW of intermediate capacity and associated energy by 2010; up to 600 MW of base-load capacity and energy by 2011. In addition, SWEPCO is soliciting new resources to satisfy the company's long-term capacity and energy requirements. The company intends to submit "self-build" proposals to meet capacity needs as well.

Russia for world's first floating N-plant

September 8, 2005. The Federal Nuclear Energy Agency has made a decision to build a low capacity floating nuclear power plant (FNPP). The plant will produce roughly 1/150th of the power produced by a standard Russian NPP (using a VVER-1000 water-cooled reactor). Construction could begin in 2006. The mini-station will be located in the White Sea, off the coast of the town of Severodvinsk (in the Arkhangelsk region in northern Russia). It will be moored near the Sevmash plant, which is the main facility of the State Nuclear Shipbuilding Center. The FNPP will be equipped with two power units using KLT-40S reactors. The plant will meet all of Sevmash's energy requirements for just 5 or 6 cents per kilowatt. If necessary, the plant will also be able to supply heat and desalinate seawater. The nuclear "baby" will cost about $200,000. It will have the capacity to supply energy to a town with a population of 200,000. If the entire capacity of the plant is switched over to desalinization, it will be able to produce 240,000 cubic meters of fresh water a day. The plant will save up to 200,000 metric tons of coal and 100,000 tons of fuel oil a year. It will be fully supported by the infrastructure of the Russian nuclear industry, and will be serviced by rotating teams. The reactors will be loaded with nuclear fuel once every three years and will have a lifespan of 40 years. Every 12 years the plant will be sent home and overhauled.

Brazil to build more nuclear plants

September 7, 2005. Brazil plans an investment of US$13 bn (euro10.41 bn) over the next 17 years to build seven nuclear reactors. Brazil already has two nuclear reactors, Angra 1 and Angra 2, situated on the coast some 100 miles (160 kilometers) west of Rio de Janeiro, but work on Angra 3 has been stalled for years due to budget problems and concerns over the safety and economic viability of nuclear energy. Brazil's first nuclear plant, Angra I cost about US$6 bn (euro4.8 bn) to build and Angra II cost some US$14 bn (euro11.2 bn). The stalled Angra 3 plant has already cost the government over US$1 bn (euro800 mn) though it is far from complete. The two operational plants supply about 4.3 percent of Brazil's electrical energy.

Brazil's nuclear program has been the subject of recent controversy after the government announced last year that it planned to begin enriching uranium for use in its nuclear plants. Initially, the government denied inspectors from the International Atomic Energy Agency access to the uranium enriching centrifuges over fears of industrial espionage.

Transmission / Distribution / Trade

Abu Dhabi buys UWEC power plant

September 11, 2005. Abu Dhabi National Power Company, commonly known as Taqa, has acquired 60 per cent shares of the Fujairah power plant run by Union Water and Electricity Company (UWEC). Fujairah power plant which is currently generating 600 MW of electric power and 100 million gallon of water per day, is expanding its generation capacities by another 1000 MW and 100 million gallon water per day, to meet the growing electricity needs of northern emirates.

SEG to equip Qinshan nuclear station

September 9, 2005. Shanghai Electric Group (SEG) signed a contract with Qinshan Nuclear Power Station to supply equipment valued at 900 mn yuan (US$111 mn) for the latter's second-phase expansion project, which will be completed by 2010. The project involves the installation of two 650 MW nuclear power generating units which are expected to entail 15 bn yuan in investment. The equipment SEG will provide conventional island electric generators, nuclear island steam generators, and reactor core internals and control rod drive mechanism, by 2008. Qinshan, located in east China's Zhejiang province, put two 600-MW nuclear power generating units into operation in 2004 as part of its second phase with an investment of 14.2 bn yuan.

Policy / Performance

US urges China to find new energy sources

September 11, 2005. Former President Clinton urged China to recognize the urgency of the environmental threats to its growth, and to use the Internet as a tool to surmount them. He said that China's oil imports have soared as it struggles to keep booming industries growing. He emphasized that its continued strong growth, and that of the rest of the world, will depend on its ability to find alternative energy sources and make better use of the resources.

B’desh to sign power plant deal with China

September 11, 2005. Power Development Board (PDB) is set to strike a deal with China-based Harbin Power Engineering Company (HPE) to set up a second unit 90-MW plant at Fenchuganj, Sylhet. The project, Sylhet 90 MW Combined Cycle Power Plant (second unit), will be implemented at a cost of US$84.58 mn (equivalent to Tk 524.34 crore). HPE will install the plant, as a turnkey contractor of PDB while the Bangladesh government will provide the whole fund to implement the project. As per the planned contract for the second unit of Sylhet 90-MW project, HPE will complete the installation of the plant within 22-23 months with a targeted deadline of commissioning the plant by 2007.

Russian co. clinches hydro plant deal with Vietnam

September 7, 2005. One of Russia's leading power-engineering concerns has clinched a $30-mn deal with Vietnam. Silovye Mashiny (Power Machines) will design and equip the Plei Krong Hydroelectric Power Plant's turbine room with two 55 MW units. The contract was signed August 30 after the concern won a tender in May against bids from DongFang Electric Corp (China) and Ukrinterenergo (Ukraine). The Russian concern comprises several industrial manufacturers, including the Leningradsky Metallurgichesky Zavod (LMZ) and Electrosila, which will both work on the turnkey contract with Vietnam, and the sales company Energomachexport. The concern's equipment has been supplied to 87 countries.

Renewable Energy Trends


Tamil Nadu to produce electricity from firewood

September 11, 2005. A unique equipment to convert the heat energy generated from firewood into electricity has been set up at Keerapalayam in Tamil Nadu. The 20-KW capacity unit set up at a cost of Rs 1,128,000 ($ 25,753) would be maintained and operated by one of the women Self-Help Groups of the village. From the electricity thus obtained from the unit, the SHG would run a laundry, a source of livelihood. It is also proposed to run electric motors to pump water and lighting up the streetlights from the power generated from the unit. The funding is from the Rashtrya Sam Vikas Yojana - Rs 753,000 ($ 17,192) and from the N.G.R.Y scheme - Rs 375,000 ($ 8,562).

Indian Bank looks to finance bio-diesel projects

September 9, 2005. Indian Bank is looking at avenues for credit growth and is now exploring the possibility of financing bio-diesel projects in the country. It is talking to a slew of international and domestic players for funding the projects. A lot of international players are looking at India for outsourcing their manufacturing operations because of high operating costs. The bank is in talks with some global companies who are interested in setting up their refineries for producing bio-fuel in India.

A typical refinery will cost a minimum of $5 mn (Rs 219 mn) and the bank is looking at funding the requirement. Also through such projects the bank can also extend credit to the farmers for cultivating raw materials for producing bio-fuel. The requirement of credit to farmers will be anywhere between Rs 200-300 crore (Rs 2-3 bn). These bio-diesel projects will give scope to the bank to extend more credit to the farming community. The bank is also talking to couple of domestic players for financing bio-diesel projects.

SRF strikes carbon trading deal with Shell

September 8, 2005. In one of the first carbon trading deals in the country, SRF Ltd, the biggest Nylon Tyre Cord Fabric producer in the country and the eighth largest in the world, has forged an agreement with Shell Trading International to deliver 500,000 Certified Emission Reductions (CERs) by April 2007. The price per tonne of carbon dioxide offered by Shell was significantly higher than the prevailing market price of $10 (Rs 438) per tonne. One tonne of carbon dioxide reduced through a Clean Development Mechanism (CDM) project, when certified by a designated entity, becomes a tradable CER. SRF’s oxidation project, which is expected to reduce nearly 38 mt of carbon dioxide equivalent over 10 year period, is a CDM Project of the Kyoto Protocol. It is yet to be registered by the United Nations Framework on Climate Change Convention (UNFCCC). The project has received approvals from the designated national authorities in India, Germany and the UK. The company has announced the commissioning of its HFC-23 oxidation plant in Jhiwana, Rajasthan.


Petrobras sees Nigeria ethanol exports

September 8, 2005. Brazil's state-run oil giant Petroleo Brasileiro SA (PBR), or Petrobras, expects to start exporting ethanol to Nigeria soon, and the market could reach 3 million liters per day. The Nigerian government is drawing up a law to govern ethanol usage, which may include a measure allowing up to 10 per cent ethanol in gasoline. Brazil is the world's biggest producer of ethanol. The country blends 25 per cent of ethanol - won from cheap sugar cane - into its gasoline, while an increasing number of cars run on any mixture of gasoline or ethanol, which is available at all gas stations in the country. Brazil is already in talks to export ethanol to a series of other countries, including the U.S., China, Japan and South Korea. The Nigerian government is "very keen" to promote the use of ethanol, and wants to encourage foreign private sector participation through joint ventures.

SDG&E signs solar power & renewable energy pacts

September 7, 2005. San Diego Gas & Electric (SDG&E) has contracted to buy 300 MW of solar power, with the potential to grow to 900 MW within 10 years. The project would be one of the largest solar facilities in the world when fully constructed. The utility also announced the purchase of approximately 4 MW of energy and capacity from a local biogas landfill project. SDG&E will purchase the solar energy from Arizona-based Stirling Energy Systems. SDG&E and Stirling have agreed to a 20-year contract to first purchase 300 MW from Stirling's SES Solar 2 facility, home to a series of Stirling solar dishes on approximately 3 square miles in Imperial Valley.

SDG&E has options on two future phases that could add an additional 600 MW of renewable energy and capacity to SDG&E's resource mix. While solar energy is not always available because of environmental factors, it is generally abundant during the hottest parts of the day, making it available to meet peak demand from customers.

Note: The 3 part series titled ‘Energy security in India: Issues and Policy Perspectives’ by Dr. Samir Pradhan concluded in Issue no. 10. Subscribers wishing to have a copy of the entire series, please write to [email protected]






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