Petroleum Pricing in India: Brief History, Current Developments and the Way Forward part – III will be continued in the next issue.

“Energy Egoism is a Road to Nowhere”: Putin

(Comments on Energy Security from the speech of Vladimir V. Putin, President of the Russian Federation)

t the beginning of 2006, Russia assumed the G8 Presidency. We understand very well that this requires serious work and implies a great deal of responsibility. It is not the organizational activities alone that lie ahead. More importantly, we will need to discuss and jointly determine the priorities and substantive areas of work for this highly respected forum, which has served as a key mechanism for coordinating approaches to meeting the most significant challenges of world development for more than thirty years. We have suggested to our partners that we should focus on three serious and pressing issues: global energy security, combating infectious diseases, and education. These three priorities are oriented towards achieving an objective which we hope is clear to all our partners, namely improving the quality of life and living standards of the present and future generations. The establishment of a reliable and comprehensive system of energy security is clearly one of the strategic goals for the G8 and the world community as a whole. Today, global energy is an important and true engine of social and economic progress. That is why it directly affects the well-being of billions of people around the globe. During the Russian Presidency, not only we will seek to develop fundamental approaches to meeting current challenges in this field but also outline our coordinated policy for the long term.

Today, the lack of stability in the hydrocarbon markets poses a real threat to global energy supply. In particular, the gap between supply and demand continues to widen. The apparent increase in energy consumption in Asian countries is caused not only by market fluctuations but also by a host of other factors related to policy and security. In order to stabilize the situation in this field, coordinated activities of the entire world community are needed. The new policy of the leading world countries should be based on the understanding that the globalization of the energy sector makes energy security indivisible. Our common future in the area of energy means common responsibilities, risks and benefits. In our view, it is especially important to develop a strategy for achieving global energy security. It should be based on a long-term, reliable and environmentally sustainable energy supply at prices affordable to both the exporting countries and the consumers. In addition to reconciling the interests of stakeholders in the global energy interaction, we will have to identify practical measures aimed at ensuring sustainable access of the world economy to traditional sources of energy, as well as promoting energy-saving programmes and developing alternative energy sources.

A balanced and fair energy supply is undoubtedly a pillar of global security at present and in the years to come. We ought to pass on to the future generations a world energy architecture that would help avoid conflicts and counterproductive competition for energy security. That is why it is essential to find common approaches to creating a solid and long-term energy base for our civilization. In this connection, Russia calls on the G8 countries and the international community to focus their efforts on developing innovative technologies. This could serve as an initial step in creating a technological basis for energy supply of mankind in the future, when the energy potential in its present form is exhausted. Global energy security will also benefit from an integrated approach to enhancing energy efficiency of the social and economic development. The G8 made important progress towards elaborating it last year in Gleneagles, including, in particular, the adoption of the Plan of Action aimed at promoting innovation, energy saving and environmental protection. We find it crucially important to engage non-G8 countries, especially fast-growing and industrializing economies, in participating in the G8 initiatives and, particularly, in implementing the document adopted at Gleneagles. The way most people see it, energy security has mainly to do with the interests of industrially developed countries. It should be kept in mind, however, that almost two billion people in today's world do not enjoy modern-day energy services, while many of them lack access to even electricity. Their access to many benefits and advances of civilization has been virtually blocked. Needless to say, energy alone would not solve the poverty problem. At the same time, lack of energy resources throughout different regions significantly hinders economic growth while their unsustainable use may result in an ecological disaster on a global rather than local scale. Lately, experts have been actively discussing ways of increasing energy use in developing countries through a more intensive development of non-conventional energy sources. And this is where assistance rendered by the G8 in developing and introducing alternative power facilities becomes ever so important. Generally speaking, all of us should recognize and admit that “energy egoism” in a modern and highly interdependent world is a road to nowhere. Therefore Russia's attitude towards energy security remains clear and unchanged. It is our strong belief that energy redistribution guided wholly by the priorities of a small group of most developed countries does not serve the goals and purposes of global development. We will strive to create an energy security system sensitive to the interests of the whole international community. Basically all it takes is for the mankind to create a balanced potential in order to provide every State with sustainable energy supply, and international cooperation opens all avenues for that.  

India’s Energy Security: Issues, Major Challenges and Policy Suggestions   (Part – III)

 

Vulnerability of India's Energy Security

ndia's dependence on crude oil and natural gas is increasing day by day, compared to domestic production and reserve accretion. India imports about 70% of oil for domestic consumption while only 30% is produced domestically. The import of natural gas will increase substantially in the future, as it is being used in large volumes in electricity generation and other productive processes in the country. The share of oil and petroleum products in total imports has risen to 34% in 2004-05 compared to 25% in 1999-2000 and 15% in 1998-99. This has happened due to the high oil prices in 20004 and early 2005. While India's share of global oil production of crude oil in 2001 was less than 1%, its share in world consumption was 2.15%. Imports of crude oil exceeded domestic production for the first time during 1992-93. It is to be noted that with the positive downstream fundamentals and expansion of capacity, India has also become able to export products recently especially, HSD and MS products. Table 4 shows the trends of India’s net oil and products imports.

Table 4: India’s Net Imports of Crude Oil and Products, (quantity in MMT and Value in mn $)

Year	Net Imports
	Qty, MMT	Value, million $
1997-98	55.08	7719
1998-99	62.85	6327
1999-00	73.66	12314
2000-01	74.99	15369
2001-02	75.63	12415
2002-03	78.92	15330
2003-04	83.68	16703
2004-05	87.16	22953

Source: Prepared from Basic Statistics on Indian Petroleum Sector, MoPNG, GOI, Various Issues.

The most important fact is that India’s import portfolio is not so diversified; rather it is heavily dependent on imports from one single region, i.e., the GCC countries account for more than 65% of India's oil imports. India is the most dependent country on the Gulf region. Table 5 shows India' source of oil imports. Table 6 shows GCC countries' share in India's total imports.

Table 5: Sources of India's Import of Crude Petroleum and Products, (US $ million)

Country	1995-96	1996-97	1997-98	1998-99	1999-2000
Bahrain	807.11	778.19	500.83	361.81	260.97
Kuwait	1872.38	2276.44	2109.66	1334.55	1740.11
Qatar	0.87	16.77	7.84	7.80	119.33
Oman	3.88	0.08	0.07	0.02	47.10
Saudi Arabia	1539.76	2140.93	1769.73	1191.81	2420.99
UAE	1050.52	1328.73	978.69	909.90	1798.57
Iran	433.69	677.14	429.32	256.25	1028.21
Iraq	-	24.82	185.60	150.90	199.76
Egypt	49.91	57.86	168.68	161.99	411.78
Yemen	17.15	12.20	10.04	1.78	251.73
USA	58.16	93.42	36.39	42.37	55.19
France	77.52	97.95	48.56	8.83	17.89
Germany	9.33	5.15	4.94	8.04	10.00
Italy	165.50	80.13	45.44	13.51	9.55
Spain	12.98	14.26	7.13	0.81	8.95
Greece	41.35	8.82	9.70	0.14	7.42
Netherlands	24.66	81.78	10.48	7.42	6.60
South Africa	1.33	0.34	4.35	10.31	7.36
Nigeria	716.29	1478.68	1033.57	1108.91	2871.69
Singapore	268.46	243.35	227.06	410.35	425.26
Japan	11.00	13.10	14.89	15.19	11.79
South Korea	15.07	5.08	65.06	36.27	181.37
Thailand	-	-	9.45	16.30	9.55
Malaysia	104.89	157.98	170.25	256.87	529.49
Indonesia	33.54	114.80	112.64	37.12	110.52
China	9.98	8.33	34.62	27.58	12.19
Pakistan	-	-	0.14	3.05	8.29
UK	33.52	32.90	43.37	8.59	15.84
Mexico	-	-	-	-	42.72

Source: CMIE, "Foreign Trade and Balance of Payments", Mumbai, July 2001, p. 217.

Table 6: GCC countries' share in India's total imports of crude oil and products (%)

Country	1995-96	1996-97*	1997-98*	1998-99*	1999-2000
Bahrain	10.71	7.75	6.13	5.66	2.07
Kuwait	24.84	22.66	25.81	20.86	13.78
Oman	0.05	-	-	-	0.37
Qatar	0.01	0.17	0.10	0.12	0.95
Saudi Arabia	20.43	21.31	21.65	18.63	19.17
UAE	13.94	13.23	11.97	14.22	14.24
Total GCC	70.00	65.12	65.66	59.49	50.58

Note: * implies figures for Oman are not available.

Source: Prepared from, CMIE, "Foreign Trade and Balance of Payments", Mumbai, July 2001, p. 217.

Dr. Samir Ranjan Pradhan, Visiting Research Associate

[email protected]

Good and bad for Energy Sector: Budget 2006-07 Proposals

Power Sector

·          Out of the total Central Plan Outlay of Rs 2540.41 billion (for FY 2006-07), outlay for energy sector is estimated to be Rs 695.93 billion (i.e. 27 per cent of the total Central Plan Outlay) will be enjoyed by the Energy Sector for the next fiscal.

Comment: A slight increase of 30 per cent in outlay for energy (as compared to the revised energy outlay Rs 537.20 billion for FY2005-06), as the figure for revised energy outlay for FY2005-06 was 26 per cent of the total Central Plan Outlay, indicates a positive move for improvement in Energy sector.

·          Central Plan Outlay for Ministry of Power is estimated to be Rs 276.24 billion for FY2006-07 while revised estimate for FY2005-06 is standing at Rs 191.40 billion i.e. an increase of 44 per cent.

Comment: The 28 per cent increase in total Central Plan Outlay when compared with the corresponding allocated figure for power ministry, indicates extended share for power sector for FY2006-07 (as compared to last year). This, in turn, indicates that the public sector would continue as vehicle for capacity addition in power sector.

·          Central Plan Outlay for Ministry of Oil & Natural Gas is estimated to be Rs 360.03 billion for FY2006-07 while revised estimate for FY2005-06 is standing at Rs 294.03 billion i.e. an increase of 22 per cent.

Comment: The 28 per cent increase in total Central Plan Outlay when compared with the corresponding allocated figure for Oil & Gas ministry, indicates diminished share. But when comparing percentage share for Oil & Gas sector from total Central Plan Outlay for FY2006-07 and FY2005-06 it is 14.3 per cent and 14.2 per cent respectively i.e. no significant improvement. This, in turn, indicates that the public sector would have to continue to share the burden of subsidies for petrol, diesel, LPG and kerosene.

·          Central Plan Outlay for Ministry of Non Conventional Energy Sources is estimated to be Rs 9.70 billion for FY2006-07 while revised estimate for FY2005-06 is standing at Rs 5.75 billion i.e. an increase of 69 per cent.

Comment: Comparing percentage allocation for Non Conventional Energy ministry from total Central Plan Outlay for FY2006-07 and FY2005-06, it is 0.4 per cent and 0.3 per cent respectively; means that due to high oil prices and global warming issues the government is trying to become more focused and liberal on the renewable energy sources.

·          Central Plan Outlay for Ministry of Coal is estimated to be Rs 48 billion for FY2006-07 while revised estimate for FY2005-06 is standing at Rs 32.52 billion i.e. an increase of 48 per cent.

Comment: Comparing percentage allocation for ministry of Coal from total Central Plan Outlay for FY2006-07 and FY2005-06, it is 1.9 per cent and 1.6 per cent respectively, means that efforts of liberalisation of coal sector and fixing ambitious targets for coal production will remain only on papers or will proceed very slowly.

·          i) Coal production of 424.27 million tonnes and lignite production of 20.40 million tonnes is proposed for FY2006-07.

ii) Coal reserves of 20 billion tonnes to be de-blocked for power projects. Also there is a proposal to allow the companies having captive coal mines to sell surplus coal to coal intensive industries such as steel, power and cement.

Comment: Both above proposals will help in reducing coal shortage in the country for power sector in long term. But still there is much concerns about governments reluctance in accelerating reforms or not liberalising the coal sector fully for other industries and thus it creates a serious threat to country’s energy security.

·          i) Under Rajiv Gandhi Grameen Viduytikiran Yojana Rs 30 billion is allocated for rural electricity infrastructure and households electrification of all rural households over a period of 4 years. While for FY2006-07 a target of 40,000 villages is proposed.

ii) Budget 2006-07 also proposed to target electrification of 1000 remote villages.

Comment: Since this scheme is for the betterment of the rural villages, so we could expect the rev up in the rural economy in coming years. However, the question remains: Will it be implemented as desired?

·          i) For non-conventional energy resources an allocation of Rs 5.97 billion has been proposed for FY2006-07.

ii) Budget proposed to add 2000 MW for grid interactive renewable power for FY2006-07.

Comment: The proposed allocation will not only result in add up to the countries Installed Generation Capacity but will also expected to benefit the non utilities having captive power plants based on biomass, wind, solar, bagasse etc. to sell surplus power.

·          Budget FY2006-07 also proposed extensions of tax exemptions until March 31, 2010 for ultra mega power projects.

Comment: This proposal will not only bring down the cost of these projects but will also help to bring down the tariff of power produced. But lessons of the 1990’s Fast Track Projects (like Enron’s Dabhol Project) must be kept in mind.

·          The buget also reduced excise duty on compact flourescent lamps from 16 per cent to 8 per cent.

Comment: This will not only save power consumption per unit but will also increase energy efficiency. Which in turn will reduce coal consumption and thus low carbon emissions. The steps (such as awareness drive on the advantages of using CFL; A low cost power scheme to encourage the use of compact fluorescent lamps etc) taken up by state government of Maharastra & Andhra Pradesh in their respective states should be applied in each state.

Oil & Gas Sector:

·          In Budget FY2006-07 pipeline projects (for transportation of crude oil, petroleum products and natural gas) have been notified as project imports.

Comment: With this proposal the companies involved in implementation of pipeline projects will qualify for concessional project duty of 10 per cent. Which is beneficial for these companies.

·    Custom and Excise duty for Oil and Gas sector.

No Change from FY2005-06

Product	Custom Duty		Excise Duty*
	Pre Budget	Post	Pre Budge	Post
Crude Oil~	10 per cent	5 per cent	-	-
MS^	15 per cent	10 per cent	23 per cent+ Rs7.50 a litre	8 per cent+ Rs13 a litre
HSD^	15 per cent	10 per cent	8 per cent + Rs1.50 a litre	8 per cent+ Rs3.25 a litre
SKO	5 per cent	Nil	12 per cent	Nil
LPG-Domestic	5 per cent	Nil	8 per cent	Nil

* Includes a cess (for road construction) on petrol and diesel of Rs 2 per litre.

^Education cess @ 2 per cent is also levied on these two products.

Change for FY2006-07

~Cess on domestic crude oil production has been increased from Rs1800 per Metric Tonne (MT) to Rs 2500/MT.

Comment: This increase will have a negative impact on the local crude oil producers (Upstream companies) as profit realization will decrease.

·          For survey & exploration activities the budget proposed an increase of service tax from 10 per cent to 12 per cent.

Comment: This step will, to some extent, stop growing monopoly power of the upstream oil companies and will give some relieve to service companies.

·          Liquefied Petroleum Gas (LPG) has been given a “declared goods status” i.e. now it will attract a sale tax @ 4 per cent in all states instead previously the tax was ranging from 8-14 per cent across states.

Comment: This step will not only reduce the subsidy sharing burden (in terms of subsidy given on LPG and Kerosene) from the Oil Marketing Companies but will also relieve the GAIL, OIL and ONGC, to some extent.

·          The budget has reduced custom duty on naphtha (for power production) from 10 per cent to 5 percent.

Comment: This will definitely give some relief to power producers (like Dabhol) but it will also reduce profit margins of domestic refiners.

 

Central Plan Outlay by Sectors / Ministries / Departments

(In Rs billion)

Sectors	2005-2006 BE	2005-2006 RE	2006-2007 BE
Energy	581.91	537.20	695.93
Department of Atomic Energy	68.89	53.91	58.21
Ministry of Coal	40.01	32.52	48.00
Ministry of Non-Conventional Energy Sources	8.65	5.75	9.70
Ministry of Petroleum and Natural Gas	296.24	294.03	360.03
Ministry of Power	219.14	191.40	276.24

Source: indiabudget.nic.in

The future of Electricity Supply in Karnataka

Part - III

(b)   Whether Renovation and Modernization (R&M) of old generating stations has been implemented effectively?

R&M of old generating stations is considered to be the one of the best option for bridging the gap between demand and supply, as R&M schemes are very cost effective and much quicker than setting up the new power stations.  R&M schemes are also not associated with adverse environmental impact or large displacement of people as most of the new generating schemes are associated with. R& M schemes can result in additional generating capacity of upto 10% of the original installed capacity by the effective use of latest technology in design of stator and rotor insulations, cooling systems, modifications to turbine blades or to water conducting systems etc. 

(c)    How far is the issue of cross-subsidy, responsible for the system inefficiency?

A lot has been said about the malady of improperly designed cross-subsidy in the viability of any electricity supply company.  Economists and social scientist unanimously agree that as in the case of all other sectors of our economy, cross-subsidy to the really deserving sections of the society in electricity sector also will be essential to provide social justice, at least for some more years to come.  But the burning issue is to determine and implement a viable level of subsidy for different categories of consumer.  From the table below, it is obvious to anyone that some rationality is required in the pricing mechanism adopted for the economic viability of the supply companies. 

         Table 7: Consumer profile in Karnataka: 2000-01    

Consumer Category	IP Sets	Power (LT+HT)	AEH	Domestic lighting	Commercial	Others
Energy consumed (MU)	7,345	4,411	1,913	1,633	761	1,788
% of energy consumed	41.18	24.7	10.71	9.14	4.26	10.01
Revenue realized (Rs./Unit of energy)	0.28	4.04(approx.)	2.64	1.92	5.78	----

         (Source: KPTCL website as on 22.12.2004)

Most commonly heard argument in the electricity sector today is that because of the unsustainable level of cross-subsidy to the agricultural sector, the SEBs (State Electricity Boards) or Electricity Supply Companies (ESCOMS) cannot remain economically viable. As mentioned earlier, the Financial Institutions are also offering the same argument for not providing the required level of financing.  So what is the solution?  The electricity supply to rural area as a whole needs a lot more attention, by challenging the beliefs held so far.

It would be fair to say that enough credit has not been given to the rational thinking ability of our farming community.  Their simple nature appears to have been exploited by certain other sections of the society in not explaining to them the realities behind cross-subsidy.  It may not be an exaggeration to suggest that if an honest attempt is made to explain to the farming community and the leaders, who claim to represent their interests, that it is in the interest of IP set owners to pay certain nominal charges towards the energy consumed, the existing cloud of mis-apprehension may get cleared.  It is reported that some of the surveys conducted have indicated that the farmers are willing to pay remunerative price for reliable and quality electricity supply.  In this regard the attention of the farming community must to be drawn to the following points:

·          By paying remunerative price for the energy consumed, the farming community will be able to demand uninterrupted electricity supply, the right frequency and voltage, and the proper maintenance of supply lines and transformers.  Even a nominal amount of remunerative price as may be fixed by KERC, can go a long way in assisting the supply companies to gather enough resources to address the huge problems our farmers are facing now;

·          By measuring the energy consumed through meters, the supply companies can take appropriate measures to maintain good quality supply.  An accurate measurement of energy will also assist in preventing the misuse of electricity by a minority of people in rural areas. Even though there may be other sections of electricity consumers, who are misusing the energy supplied, the actual blame of large scale unaccounted energy has been, unfortunately, associated with the supply to rural areas.  Free supply of any commodity like electricity is certain to result in the misuse and wastage. Accurate measurement of energy will assist in removing any such misuse, waste and blame on rural sector, and the actual culprits can be disciplined;

·          A considerable percentage of the energy supplied to rural sector appears to be inefficiently used or wasted.  Long length of LT lines, inappropriate size of the conductors, inadequately designed/installed/ maintained transformer centers, inefficient motors, misappropriation of energy in the name of agriculture etc. may be contributing to a considerable percentage of energy being wasted in non-productive uses. Only an accurate measurement and a suitable remunerative price, such that it does not pose unnecessary burden on the forming community (even if it is small), for the supplied energy will be able to release a considerable amount of locked up power for productive use. One estimate indicates that an efficient maintenance of the rural supply network alone may be worth few hundred MW of saved power or Crores of Rupees in revenue.  Even a small remunerative price of Rs. 1.0 per unit of energy supplied to IP sets can fetch additional hundreds of crores of Rupees per year;

·          It has been known that the state governments are yet to pay to the electricity companies thousands of crores of rupees towards agricultural subsidy over the past few years. It is unlikely that the financial position of the state governments will ever allow them to pay all subsidies due to electricity companies accumulated over the years.  Because of this the electricity companies are not in a good financial position whether to invest in improving the supply to rural sector or to add to generation capacity.  Very often we hear that due to the pending bills adequate supply of coal to the coal fired stations has not been possible, the consequences of which is load shedding.  It is also the view of the economists, financial institutions and governments that the free supply of electricity to agricultural sector is not sustainable, and will lead to collapse of the supply system if corrective measures are not taken immediately.  Hence it is in the interest of the entire society, and in particular the farming community, to accept a suitable price level for the electricity supplied to IP sets. 

The supply companies, instead of neglecting the rural distribution on the premise that the rural areas are not providing adequate returns, should concentrate more on it so that avoidable losses like technical losses and theft is minimized.  Not putting adequate resources in the rural distribution can only lead to more thefts, more losses and ultimately to the collapse of the system and social unrest.  There is a scope for the supply companies to take a pro-active approach, improve the voltage, reduce supply failures, and win over the hearts of the farming community by patiently explaining the realities of supply chain.  The society cannot and must not ignore the rural sector, which has over 70% of our population, but instead take them along.  This approach is the only way out of the present mess we are in.

(d)   Has the demand side management been adequate?

Demand side management should be considered as an essential part of the operation of the network.  One of the major problems being faced by the power system planners today is the need to cater to the considerable difference between the peak hour demand and off-peak hour demand for electricity in a day.  In modern power systems, it is not unusual to find some generating capacity (known as peaking station) specifically installed to meet the peak hour demand only.  By reducing the fluctuations in the load curve the need for separate peaking stations can be reduced or completely avoided.  In some situations the ratio of peak demand to off peak demand can be as high as 150% - 175%. It will be a huge waste of our resources to construct huge impact power stations just to meet the peak demand of electricity for few hours in a day.

The electricity distributing companies should examine whether there is a scope for reducing the peak load by providing suitable incentives to consumers, especially the heavy industries like steel mills cement factories, aluminium smelters etc., or by suitable legislations, if needed.  Time of the day metering and suitable incentives to reduce the electricity consumption during peak load hours should be built into the tariff of all consumers with connected load of more than certain value; say 25 kW. 

A study should also be conducted to consider whether it is feasible to diversify the peak load hours of the factories in different parts of the state by half an hour to one hour.  If necessary, suitable legislation should be considered to ensure that the peak demand of the state is within manageable limits. If the load variations are such that the base load stations cannot meet the peak hour requirement, the possibility of importing peak hour power from the adjacent systems should also be examined.  The provision for ‘the open access system’ under the revised Electricity Act has made it possible to import power from the distant generation sources.  In this regard the electricity distributing companies should examine the possibility of entering into agreement with other state government agencies or private sector generators elsewhere in the country (like Jharkhand, Uttaranchal, Reliance, Tatas etc.) to buy peak hour power and to wheel it economically.  These companies should consider even investing in research or import of technologies to reduce the wide fluctuations of load in a day. 

Views are personal

Shankar Sharma – Consultant to Electricity Industry

India’s Energy Security: Major Challenges

(Brainstorming Session Part – III)

Chair: But what should we do to educate the financial institution? You know financial institutions have been burnt. They have reasons of their own.

Comment: Here I would like to make a point. I would just like to endorse what was suggested from the bankability point of view. I will just give an example that when Petronet LNG was formed we had equity participation from four companies.  At that time they were supposed to get LNG on a long-term basis from Qatar Gas and prepared an action plan to ensure supply to Petronet LNG.  But later on it was revealed that the equity partners should state their balance sheet in terms of the guarantees and only then could it become bankable.  In-spite of having a large market for LNG in the country, they insisted on bankability. Well, bankability from my point of view has become a predominant factor in this despite of demand.

Chair: Although in case of gas it is not as important as in case of coal, because gas has other customers also, like the chemical & fertilizer industry.

Comment: That was later but at that time the vendor insisted there has to be a guarantee as definitely they will have a balance sheet of their own.

Comment: Recently, we have been involved in two or three conferences on energy. One was inaugurated by Prof Kirit Parikh on 21st January. This was based on energy independence in the background of the President’s speech on the independence eve and also Dr Parikh’s report. Before that we had a very big conference on coal. Almost 400-500 delegates have attended that. It had the support of all the coal companies, Ministry of Coal and the Ministry of Power.  There was in-depth discussion.  There is a big report on the papers which were submitted and the recommendations which have come out of it and I think it is worthwhile looking at that. Earlier to that we had a conference on power on the issues which you have just now mentioned.

I will just give you five points which came out and which I think we can cover in the discussions which are going to come up.

First take the coal sector.

I think on coal the basic question, which is coming up is that the survey on the availability.  What can be really mined is a question mark because today we are only mining to a certain depth.  There is no difficulty in going to greater depths. 

Some amount of money, not very large, is involved in carrying out very detailed surveys and I really don’t know why that is not being done.  Once that is done, and then large resources of coal become available. Today, they are saying that 40 years is the maximum number of years for coal.   It can go up to much more.

Underground coal can also be mined. There are technologies available today.  So, I think the first issue is that in-depth discussion coal reforms are very insular. What came out in the meeting was that they were not prepared to look at the question of de-blocking.  Fortunately, it is slowly opening up and I think coal definitely needs this.  As the price of gas is increasing even foreign countries are thinking of switching over to coal. So, you know we have to really see how to open up the coal sector. Now, I think some emphasis must come in this response and this is one aspect that must be covered.

The second is as you rightly mentioned is about power.  I don’t want to criticize anybody but something needs to be done. The key point is how we monitor, on a year to year basis, the demand for power.  This aspect must be discussed because we find that things are slipping out.  We must have a built in mechanism in the system which checks on how far the projections are realistic and by how much we are slipping.    

Chair: Unless you have a yearly target we will not know by how much we are slipping.

Comment: Yes we must show by how much these yearly targets are slipping.

Chair: But they have no yearly target …only five year plans. 

Comment:  But internally they had some targets.  This is an issue that must be cracked.  

The third point is energy efficiency and energy conservation.  These are very important.  There are also alternative sources of energy which we are now talking about. We must try to cover it in the conclave.  What are the forecast as far as the alternative sources of energy are concerned? What is the time frame, which we are talking about?  Will it happen within a reasonable time frame and if not, what needs to be done so that it does take place?

Chair: Should we not talk specifically about the necessary contribution in the next two decades by the nuclear power, more so in the present environment? 

Comment:  Coal gasification, CBMs, Bio-fuels and nuclear are things that we love talking about.   How come Sir though having spent the last thirty-forty years on these, we have not reached the stage that the technology is available with us?  Now we are saying that unless we open up with the US we can’t survive.  On using Thorium, we are talking today that we cannot do it unless we get the technology from outside.

Comment: The problem is that we have very little uranium.  We have to move from uranium to thorium.  In 1970-71, I was with the Department of Atomic Energy and Vikram Sarabhai has produced a fifteen years perspective I was involved in the preparation of that.

Comment:  One can never forget that in one meeting where it was said that, ‘this was to be commissioned in this time, but now it will be commissioned two years later and therefore we have revised our chart. 

Comment: This is similar to the case of privatisation of power distribution in Delhi.  People say, ‘we have brought down T & D losses dramatically.  The level is 38 % but we have brought it down.  It reminds me of the story where you draw a line and say without touching this line you make it shorter.  You just draw a longer line next to it.  They said the T & D losses in Delhi were not 40 % but 60 % and from that we have brought it down to 38 %. 

Comment: You know the reason? One year before, when the privatisation issue started people stopped working and the losses increased.  One point about bankability: Power Trading Corporation can be brought in a big way into this because they are supposed to buy power from the merchant plants.  They are buying power from Bhutan, they are buying power from the private sector, they are buying power even from the captive units. It is within our power to strengthen that. I think that is one source, which can be brought into the issue of bankability.

Comment: You see what is missing in this draft, is a certain emphasis on coal. It is sort of scattered around, but we need to ask how we can use coal and reconcile the conflict with low carbon economy.  We need to balance that in some way, may be through cleaner coal technology.  The issue of finances is also missing. I do believe that coal is really critical. How do we really expand coal? We have institutions. Somewhere we have in-situ coal gasification mentioned but you know institutional reforms in the coal sector are very broad.

Comment: When you say increase variety, balance and diversity in the Indian energy mix, we are missing a gender dimension or a household energy security dimension here completely because that I think it is a very critical element of energy security. Other you will be back to square one of energy security with oil security. I mean if you want talk about oil security then change the title. 

Chair: I mean the only saving grace seems to be that since gas is going to be unviable fuel for power, it will go to the household sector.  Because there it is affordable.

Comment: It will be affordable if there is public investment in pipelines. Private investment in pipelines in the Indian scene without a subsidy will not be viable.

Chair: Cross-country pipeline will not be a problem.

Comment: Sir, unless you have mandated the type of fuel you want to use in all industries and the means to transport the fuel to the industries you will not have the volume to support the claims of demand.  I think that most of the project reports that have come have been doctored.  In households the average use of gas is one half of a cubic meter per day. So if you want to sell one million cubic meters, you will have to have 2 million households.

Chair: There are a fair number of towns and cities in India which offer that type of market.

Comment: If you look at energy security, what is the biggest problem today? Do we have an enabling environment for investments to happen? It is the biggest challenge, which we have and that question must be answered.  Now we are talking about the inefficiency of the public sector, in the case of power generation, transmission-distribution and coal transportation.  With the type of telecommunications infrastructure we had some time ago and if private investment had not come in, we wouldn’t be seeing the type of development we have now. We had some market makers who came in. Similarly, in civil aviation, we had some market makers. We need some market makers who can really build the market. Today, we don’t have market, we have apportioning. Again we have the same mindset that says ‘how we can really get some funds here and there rather than how do we create market?

Second, in India it is not an either or option. We have to look at all options and we have to create the market.  China is doing that. China is also importing coal. It is importing 100 million tonnes of coal this year and they also know that after 30-40 years they have to also look for not only oil and gas but also coal equity outside and they are going furtively all around and they are able to actually find money for infrastructure in the country that the savings rate is 45 %. It has recently come out that China’s ICOR is 5 compared to our 3.5 but we are not able to direct investments into this sector.

NEWS BRIEF

OIL & GAS

RNRL stakes 40 pc claim to RIL’s gas finds

March 7, 2006. Reliance Natural Resources (RNRL), the recently listed Anil Ambani group gas company, has staked its claim to 40 per cent of all future gas found by Reliance Industries (RIL). RIL has interests in about 35 oil and gas properties. RNRL, which has already signed a gas purchase agreement for 28 mmscmd (million metric standard cubic meters per day) of gas for the ADAG group’s UP power projects, said that it must have the right of first refusal to 40 per cent of the new gas. RNRL is also looking at the gas transportation business, which is very attractive considering the new gas finds in the Krishna-Godavari basin. It is negotiating with other pipeline companies for the venture. RNRL has no revenue source for the next few years because the natural gas from RIL will be available only by ’08-09. Even when it is available, it can only be sold to REL or the company that puts up the power project. It cannot be traded for profit.

ONGC eyes Cairn's Indian assets

March 3, 2006. ONGC is eyeing the Indian assets of British oil explorer Cairn Energy. ONGC had indicated a price for Cairn Energy's oil field in the western desert state of Rajasthan but Cairn had called it too low. The two sides have differed on the valuation of the oil field but added that talks between ONGC and Cairn may resume. On the other hand ONGC expects crude output to rise to 26 mt, or about 520,000 barrels per day, in 2006/07. Output for the company in the fiscal year to March 2006 would be about 25 mt. 

Govt delay cost blocks: ONGC

March 3, 2006. Government delay in approving ONGC Videsh Ltd's stake in two oil exploration blocks in Nigeria has cost the firm a majority stake. The company was originally in the fray to pick 90 per cent stake in the two blocks but because of the delay that offer no longer stands. OVL is now being offered a much lower stake. The Cabinet had deferred a decision on allowing OVL to plough back into two exploration blocks in Nigeria that it earlier lost to a Korean firm despite being the highest bidder. OVL had sought permission to pay signature bonus of $485 mn (Rs 21.41 bn) to Nigera's Department of Petroleum Resources for beginning work on OPL-321 and OPL-323. The Indian firm got the opportunity to get back the blocks after Korean National Oil Corp (KNOC) delayed submission of bank guarantees for payment of signature bonus. OVL, which was the top bidder for both the blocks but had to give away to KNOC as the latter was given the first right of refusal by the Nigerian government, offered signature bonus of $310 mn (Rs 13.69 bn) and work commitment of $525.5 mn (Rs 23.20 bn) in OPL 323. As for OPL 321, it offered $175 mn (Rs 7.73 bn) as signature bonus and $397 million work commitment.

Petrobras may team up with ONGC for NELP VI

March 3, 2006. The Brazilian state-owned oil company Petrobras is seen teaming up with ONGC to jointly bid for oil and gas blocks in the sixth round of new exploration licensing policy (NELP) bidding, where the government is offering 55 blocks. The Brazilian company is basically interested in the deep water exploration blocks. Last year Petrobras participated for bidding the Indian blocks under the fifth round of NELP but was not successful in getting any blocks.

Essar Oil seeks to market kerosene

March 7, 2006. Essar Oil has submitted a request to the petroleum ministry for a licence to market kerosene to industrial and commercial customers. Kerosene marketing licences have so far been granted to three companies — Mangalore Refinery & Petrochemicals, Reliance Industries and ONGC. The ministry has sought production details as the company is yet to start kerosene production at its Vadinar refinery under commissioning at Jamnagar, Gujarat. The facility is expected to be operational by July this year. The initial phase is pegged to have a capacity of 10.5 mt. Essar already has the rights to market aviation turbine fuel and also the rights to transport and import motor spirit and high-speed diesel. It now wants to develop the kerosene marketing network across the country to cater to the requirements of its industrial and commercial customers. If permitted, Essar Oil will have to ensure that demand under the public distribution system is fully met before marketing to non-PDSconsumers. 

HPCL plans equity stake in Hazira

March 6, 2006. Hindustan Petroleum Corporation Ltd is planning to take a maximum 26 per cent equity stake in Shell's LNG terminal in Hazira, Gujarat, even as it scouts overseas for assured supplies of the gas. The refining and marketing major feels there is no dearth of buyers for gas supplies provided it is at a competitive rate. The company's proposal to take an equity stake in Shell terminal is tied up with its plans to enter LNG business using the global energy major's LNG terminal, which is being operated as a merchant terminal. The company plans a capital expenditure of Rs 12 bn ($270 mn) during 2006-07 fiscal for raising the capacity of its two refineries, construction of oil products pipeline as well as expanding its retail outlets. In the case of the refineries the capacity of Mumbai Refinery was being raised from 5.5 mt to 7.9 mt, and the Vizag Refinery from 7.5 mt to 8.4 mt. Both the expansion projects are expected to be completed by first quarter of next year. While expanding its retail outlets by another 850, the same number as undertaken this year, the plan is to simultaneously upgrade many of the outlets through introduction of greater automation in fuel dispensation. The automation is expected to help the company monitor the flow of fuel delivered at the retail end as well as help check adulteration with an online display of the quality of fuel and the amount dispensed to consumers. In the case of consumers, the added benefit would be that they would be less likely to be cheated on the quality and quantity of fuel -- the nozzle of the dispenser would automatically switch off and indicate the quantity dispensed once lifted from the vehicle tank.

Gas consumers along HBJ pipeline to pay more

March 3, 2006. Power and fertiliser consumers along the HBJ pipeline should have to pay a higher price to GAIL (India) Limited for the gas supplies. Following government intervention, the Panna-Mukta-Tapti (PMT) joint venture consortium of ONGC, Reliance Industries Ltd and British Gas have agreed to maintain supplies of 6 million standard cubic meters of gas per day (mmscmd) to GAIL beyond March 31, 2006, for onward supply to the core sector consumers along the HBJ pipeline. However, the continuity in gas supplies to GAIL by the PMT consortia will be at a higher cost than the prevailing price of $3.86 per million british thermal unit (mmbtu). The new price may be between $4.5 -$5 per mmbtu. From the present availability of 10-11 mmscmd of gas from the PMT fields, 4.8 mmscmd is being directly marketed by PMT at $4.08 per mmbtu (including the marketing margin) while about 5.8 mmscmd is being received by GAIL for onward supply to the priority sectors. On its part, GAIL supplies 2.796 mmscmd of gas to the fertiliser sector and 2.846 mmscmd to the power industry, pro-rata based on availability. GAIL had contended that while the direct marketing of 4.8 mmscmd of gas by the PMT JV is not under the purview of the pricing order, supplies of 6 mmscmd to the core sector is covered under the APM price to the APM customer.

IOC sells part GAIL pie for $127 mn

March 3, 2006. Oil marketing behemoth Indian Oil Corporation sold half of its stake in GAIL India for Rs 561 crore ($127 mn) through block deals. A total of 20.4 million shares were sold at Rs 275 a share. IOC had acquired the shares of GAIL, along with oil exploration behemoth ONGC, for Rs 60 a share. Over the last eight years, the company’s investment has gained 358 per cent or around 20 per cent on an annualised basis. Currently, the government holds 57 per cent stake in the company. ONGC holds 4.83 per cent stake in the company, which it is looking to offload the stake through a similar route. IOC, however, may continue to hold the rest of the shares (another 20.4 million) in GAIL. 

India-Africa oil conclave in May

March 7, 2006. India has invited top executives of the oil industry from 15 African nations who will arrive in India this May to explore business avenues in the hydrocarbon sector. The ministry, along with Ficci, has also invited energy ministers, oil companies, retail vendors, shipping, pipeline and transportation companies from these countries. The conference comes at a time when India is seriously looking overseas for exploration, production and downstream activities. The countries invited include Angola, Cameroon, Chad, Congo Equatorial Guniea, Ethiopia and Gabon. Officials and corporates from Ghana, Nigeria, Senegal, Sudan, Ivory Coast and Mauritiana are also likely to visit India for the conference. The objectives of the conference include forging partnerships between India and African public and private sector companies, and facilitating joint ventures, technology transfer, supply of equipment, consultance and advisory services. The conference will also showcase India's competence and know-how in exploration and production activities and technology for upgrading old refineries. The list of invitees will also include natural gas producing companies, petrochemical companies, legal experts and consultants to showcase the business opportunities in the hydrocarbon sector in Africa. 

Increase subsidies, exempt service tax: Deora

March 7, 2006. Concerned over the “difficult” financial health of oil PSUs, the petroleum ministry asked finance ministry to provide higher subsidies for fuel and exempt exploration and drilling (E&D) activities from service tax. He said that as government gives subsidies for fertiliser and food, the Budget should provide subsidies for fuel also. Mr Deora also asked finance ministry to compensate oil companies for selling petrol, diesel, LPG and kerosene, below their production cost. The petroleum ministry wanted a transparent system of subsidies for fuel, which is also an essential commodity for the masses. Mr Deora also raised the issue of granting infrastructure status to oil and gas pipelines.

Expert advice must for oil & gas issues: Deora

March 6, 2006. The Petroleum Minister, Mr Murli Deora, has stressed the need for establishing closer linkages between research organisations, academia and industry, particularly in the hydrocarbon sector. Deora said there were several technical issues in the oil and gas sector, which require continuous guidance and direction from experts, for the development of world-class technology in the country. The committee on hydrocarbon was set up in 1981 and has been making suitable recommendations to the Ministry of Petroleum and Natural Gas in respect of development of indigenous technologies, fuel quality improvement and other issues relevant to the technological upgradation of the hydrocarbon sector. He said that issues such as upgrading refinery yield assumes significance as the crude oil prices have been going northward, making them unaffordable to many countries. He is of the view that the shrinking refinery margins, environmental issues such as affluent treatment, improving fuel quality to reduce emission, upgrading refinery residues and using alternative fuels require R&D support.

Budget blues for oil firms

March 6, 2006. Union Budget has brought no relief for oil companies as exploration costs are likely to shoot up with the introduction of additional service tax and the proposed increase in the cess on domestically produced petroleum crude. Now, oil companies including ONGC, Oil India and private majors such as Reliance Industries and Cairn Energy, will have to revamp their business structures to keep the profits up. The Union Budget has proposed to increase the cess on domestically produced petroleum crude to Rs 2,500 per tonne from Rs 1,800 per tonne. This proposal will hit ONGC and OIL. And the increase in service tax to 12 per cent from 10 per cent, will also affect the oil exploration companies. Cess is applicable only to pre-NELP (new exploration licencing policy) blocks, thus ONGC and OIL will be the affected companies. NELP blocks have not started production yet, where major private players including RIL look for huge production. Panna-mukta-tapti (PMT) and Kharsang blocks, which fall under pre-NELP, are owned by private players also. From pre-nelp blocks, ONGC and Oil are producing over 20 mt oil while PMT and Kharsang jointly produce about 7 mt oil. The share of PMT is 6 mt in this. The rise in service tax will affect the upstream sector, which includes private companies. 

Deora promises cushion for poor against petro hike

March 3, 2006. The ministries of petroleum and finance are working on a joint strategy to minimise the impact of fuel price hike on small consumers. While a hike in the prices of petroleum products has become inevitable following the unprecedented hike in global crude prices, a blueprint on petro-products hike is being finalised to minimise the impact on the common man. Union Petroleum Minister, Mr Deora, said his efforts would be to ensure public sector oil marketing companies do not lose money on selling petrol, diesel, LPG and kerosene while ensuring that the man on the street was not burdened with price hikes.

Kerosene stove industry breathes easy

March 3, 2006. The finance minister's decision of excluding kerosene stoves from the burden of taxation, including VAT, has brought a ray of hope to the kerosene stove manufacturers in Rajkot. With VAT imposed on industry; it was almost an end of stove manufacturers, as they have already reached a point of saturation in the domestic circuit with LPG and other options invading the buyers choice. There are atleast 12 business operators, manufacturing around 10,000 to 12,000 pieces on a daily basis for 26 days in a month. The product is 100 per cent tax free and there is no levy applicable, either by the state government or central government.  Exports have by and large scaled since last four years, as the share in domestic market started shrinking with other private players also entering the LPG segment apart from government, so as an avenue to sustain in the business, exports to third-world was explored by most of the operators. The kerosene stove market operators in Rajkot feel that the market has reached its saturation point because along with struggling for survival in the domestic circuit, fighting foreign territory is also hard.

Regulator bill for downstream sector passed

March 2, 2006. Rajya Sabha passed a Bill to set up a regulator for downstream petroleum and natural gas activities with government promising stringent action against those indulging in adulteration of petroleum products. Union Petroleum Minister, Murli Deora, is of the view that the huge difference in prices of petrol, naphtha and kerosene was one of the main causes for adulteration and this needed to be addressed.

POWER

Gallantt expects power unit to boost profits

March 7, 2006. Gallantt Metal Ltd (GML) an integrated steel plant for manufacturer in Gujarat is setting up a captive power plant of 18 MW in the second phase. It is likely to become operational by October 2006. The captive power plant would help the company to improve its bottomline as company is buying power at Rs 4.25 per unit but once the captive power plant is in place, the cost of power will go down to only Rs 1 per unit. The company is hoping to save Rs 35 crore ($7.89 mn) per year at 70 per cent capacity utilisation and Rs 50 crore ($11.27 mn) at 100 per cent capacity utilisation thanks to the captive generation unit. The company is investing around Rs 77 crore ($17.35 mn) in the captive power project out of a total project cost of Rs 190 crore ($43 mn). 

Dubai firm to set up 500 MW plant

March 7, 2006. Dubai-based Coal and Oil Company is planning to set up a 500-MW coastal thermal power project in the country. It is also considering acquiring a stake in an Indian coal mine. The locations being considered for the power project are Tuticorin in Tamil Nadu, Karwar in Karnataka and Krishnapattnam in Andhra Pradesh. The company, which supplies coal to India, plans to start with a 125-MW unit and may then further ramp it up to 500 MW. The fuel for the project is likely to be sourced from Indonesia, as price fluctuations affect Indonesian coal only after a gap of three months. The project is likely to have fuel usage of 9,000-10,000 tonnes of coal a day. The first unit of 125 MW would involve a project cost of Rs 600 crore ($135 mn). Once the plant size is ramped up, the total project cost would be around Rs 2,400 crore ($541 mn). The company is also exploring the possibility of picking up stakes in coal mines in Punjab, Rajasthan and Maharashtra. In the international market the company plans to pick up stake in a Vietnamese coal mine with 200,000 tonne capacity. The company is also looking at developments on the coal policy front. C&O's main clients in India are Reliance Energy, Torrent Power, Tata Chemicals and Tata Power, state electricity boards and captive generation plants.

Irrigation department to execute power projects

March 6, 2006. The irrigation department is promoting 7 different hydel power units in Wrangal district of Chennai to cater to the needs of lift irrigation projects. The units, estimated to cost around Rs 5,400 crore ($1.22 bn), will generate 2,080 MW of power. The government had cleared the 960-MW hydel power unit to cater to the Polavaram project. Similarly, the 320-MW power unit on the upstream of Godavari river near Dummugudem would also be executed by the irrigation wing and the consultancy report for the project has already been submitted. In Singareddipalli, a 200-MW power unit would be promoted to cater to the GLIS Chokka Rao lift irrigation project of Devadula. Two more power units would come up with 1,880-MW capacity in the Pranahitha region. In the Pulichinthala project limits, a 120-MW hydel power unit would be set up in two phases. 

Wartsila to invest in MP power plant

March 6, 2006. Wartsila India Ltd, which has been reportedly given approval to buy equity in Madhya Pradesh-based Malanpur Captive Power Pvt Ltd (MCPPL), is now negotiating with the MP government for concessions, sops and loan arrangements for setting up a 26.19 MW power plant in the Malanpur (near Gwalior) industrial area. The company, MCPPL, will set up the power plant, which will cost Rs 105 crore ($23.74 mn). Wartsila would have 74 per cent equity partnership while local industries would have a 26 per cent.

DVC inks 400 MW deal with MP

March 4, 2006. Kolkata-based Damodar Valley Corporation will supply 400 MW to Madhya Pradesh. The state electricity board and corporation signed an MoU in this regard. The Central Electricity Regulatory Commission will decide the tariffs of the additional power supply. The corporation will ensure the additional power of 400 MW by June 2007. The state witnessed a demand-supply gap of 1,950 MW during the rabi season. The peak demand reached 6,500 MW against 4,500 MW supply from thermal power generating units. The total power generation stood at a maximum of 2,450 MW from all power-generating units of the state. The state made a futile attempt to bridge the demand-supply gap with the central share of 1,250 MW, and an additional purchase of 700 MW and a surplus drawl of 150 MW from the central quota.

ADAG plans to ramp up capacity to 15k MW

March 4, 2006. The Anil Dhirubhai Ambani Group (ADAG) has drawn up an expansive plan to ramp up its generation capacities to 15,000 MW from the current level of 1,000 MW in just five years. The proposed leap in generation capacities would entail an equity investment of about Rs 12,000 crore  ($2.72 bn) in the power sector alone by the ADAG. The Group proposes to set up capacities totalling almost 7,000 MW based on gas as a fuel and another 5,000 MW on coal. On the hydel front, ADAG has already got 4 hydel power plants totalling 2,000 MW which should be on stream by ‘11. The Group has already put in place a hi-powered nuclear team to take up nuclear power plants, as soon as the government allows private investments in this space. It also proposes to add around 500 MW as wind power as its dabbles into the non-conventional energy space. The total investment in these projects is expected to be an estimated Rs 36,000 crore ($8.16 bn) which would be funded on a 70:30 debt-equity ratio. While ADAG would float separate special-purpose vehicles for developing the power projects, the primary equity stake holder would be the energy flagship company — Reliance Energy.

NTPC may plan JV with NPCIL

March 4, 2006. NTPC is likely to appoint an India-based consultant to chalk out its nuclear diversification roadmap. NTPC has sounded out the Nuclear Power Corporation of India to collaborate on future projects, but if clearances come through, the company can explore multiple options, including a possible joint venture with NPCIL. The consultant is also slated to make a detailed assessment of prevailing cost structures of implementing nuclear power projects in India and in overseas markets. For instance, it will specifically look at cost-components relating to safety systems and nuclear fuel. At present, the project cost of a nuclear power station is roughly Rs 5.5 crore ($1.25 mn) per megawatt. It is learnt that investment in safety systems alone accounts for nearly 25 per cent of the total project cost. At present, all nuclear power stations in India are executed by NPCIL and the company’s installed capacity is 3,310 MW. Tata Group is also keen in to make foray into nuclear power generation in the country.

NTPC, Tatas, Reliance in fray for ultra mega projects

March 2, 2006. Power Ministry's ambitious plans to set up ultra mega power plants of 4,000 MW at an investment of Rs 15,000 crore ($3.38 bn) each has received a huge initial response with corporate giants Tatas, Reliance and Birlas alongwith public sector NTPC and foreign firms from the UK, US, Japan and Korea among those evincing interest in the projects. Power Finance Corporation, which is the nodal agency for these projects, has recieved 33 expression of interest (EoIs) for the Sasan power project in Madhya Pradesh and 34 EoIs for the Mundra project in Gujarat. Tata Power, Reliance Energy, NTPC, Adani Exports, Aditya Birla group, Essar Power, GMR Energy, Sterlite group, Torrent Group, CESC Ltd of R P Goenka group, Hindujas-owned Ashok Leyland, Lanco Kondapali and Ispat Industries are among those who have submitted EoIs for Mundra coastal project. The US-based AES Corp's local arm AES India, China Light and Power, UK-based Duncan Macheil Group, Korea Electric Power, Japan's Sumitomo and Malaysia's Tronoh Alco are also in the fray for the Mundra project. Apart from these companies, state-run Neyveli Lignite Corp, engineering giant Larsen & Toubro, Jindal Steel, Jaiprakash Associates, GVK group and Japanese conglomerate Mitsui have submitted EoIs for Sasan pithead project.

NTPC to set up power projects abroad

March 1, 2006. NTPC Ltd plans to set up thermal power projects in Sri Lanka and Nigeria as part of its diversification drive. NTPC was having preliminary discussions with Government of Sri Lanka for a 500 MW project in Trincomalee region in joint venture with Ceylon Electricity Board. A draft MoU had been sent to the Sri Lankan government in this regard. In Nigeria, the company was in talks for setting up a coal based integrated plant along with coal mining in lieu of getting gas supplies for import to India.

Mahadiscom seeks tariff hike of 95 paise

March 4, 2006. The Maharashtra State Electricity Distribution Company (Mahadiscom) wishes to hike tariffs by 95 paise per unit. Mahadiscom’s revenue-expenditure gap increased ten-fold in the last two years due to a substantial increase in fuel costs. Also its volume and cost of purchasing power from other producers too has increased sharply. Mahadiscom’s revenue gap for 2004-05 was Rs 457.40 crore ($104 mn), was likely to be Rs 2,598.60 crore ($589 mn) in 2005-06 and is expected to double to Rs 5,608.10 crore ($1.27 bn) in 2006-07. The reason for the growing revenue–expenditure gap was an increase in the cost of crude oil and coal – which went up 16 per cent last year. As much as 80 per cent of the state’s power comes from coal-based plants. And to meet the supply-demand gap Mahadiscom buys power from other producers. It purchased 200 MW from the NTPC plant at a staggering Rs 7.26 per unit. Its average purchase price has increased by around 65 paise per unit and then, Mahatransco has also asked for a hike of 21 paise per unit in transmission charges. Considering these facts, the discom needs to raise around 95 paise per unit to match revenue with expenditure.

RPG bags $25 mn order from PGCIL

March 3, 2006. RPG Transmission Ltd, a group company of the Rs 8450 crore ($1.91 bn) RPG Enterprises, has bagged a Rs 110 crore ($24.92 mn) order from Power Grid Corporation of India Ltd. The company's scope of work includes supply and construction of 166 km long, 765kV transmission line associated with Sipat Stage I transmission system. This transmission line is being set up to evacuate power from Sipat Super Thermal Power Plant at Sipat, Chhattisgarh to Seoni substation in Madhya Pradesh.

Transco supplies highest-ever peak demand

March 3, 2006. APTransco supplied the highest-ever peak demand of 8,210 MW in the state and handled a maximum daily energy at 170.01 MU during February 2006. The average energy supplied per day during February 2006 was 162 MU compared to 148 MU, 144 MU, 139.4 MU, 144.9 MU and 137.3 MU during February in the last five years. Although there has been an average loss of generation of about 300 MW during February 2006, power has been supplied to the consumers including the agricultural sector by continuously overdrawing from the Southern Grid in the range of 300-700 MW. On an average, about 8 MU of energy per day is being availed by the state by overdrawing from the Southern Grid at a cost of Rs 4 crore to Rs 5 crore ($0.91 mn to $1.13 mn) per day. The additional financial commitment on account of continuous overdrawal is Rs 30 crore ($6.80 mn) a week. APTransco has appealed to the consumers to observe energy conservation measures.

Power ministry upset over tardy rural plans

March 3, 2006. The power ministry has expressed concern over the Rajiv Gandhi Rural Electrification Scheme in various states, including West Bengal and Uttar Pradesh. The ministry is of the view that the franchisee programme in the scheme is yet to begin in most of the states. It said that supply of material is not happening as per schedule and that is why delays are occurring in electrification of villages in some states. The target for 2005-06 under the scheme is to provide electricty to 6 million households, of which, 1.788 million are below the poverty line. However, the power ministry targets only 10,846 villages for the corresponding period as tendering and awarding of contracts has to be carried out before the implementation. The scheme is being implemented through the Rural Electrification Corporation where the Centre provides 90 per cent of the capital cost. The scheme, launched in April 2005, aims to provide electricity to 7.8 crore rural households in five years. 

MERC imposes curbs on power use

March 3, 2006. Maharashtra Electricity Regulatory Commission has ordered a number of measures to reduce power consumption in Mumbai like temporary disconnection, use of diesel generators and snapping power supply to neon signs & illuminated advertising billboards. It has also asked other power utilities – Tata Power Corporation (TPC), Reliance Energy (REL) and BEST – to submit a plan for load shedding in their areas by April 2 as a standby. MERC observed that Mumbai is likely to face demand and supply gap of around 250 – 275 mega watt (MW) in peak hours during April and May, in which case a well-thought out strategy to manage demand is prefferable to load shedding. The commission ordered all households that consume more than 300 MW electricity a month and commercial/ industrial consumers reduce their consumption by 20 per cent.

States get share of new ultra mega power

March 7, 2006. Tentative allocations of power from the five ultra mega power projects have been drawn up. Out of the total demand of 27,400 MW made by 13 states, the power ministry has firmed up allocation for 16,000 MW. This does not include allocation from the Akaltara ultra mega power project in Chhattisgarh. The power ministry has also firmed up the payment security mechanism for the projects. Developers will have the right to sell power to any other distribution companies or to any high-tension consumers in the event of default. The final distribution chart will be prepared after the government of Chhattisgarh conveys its acceptance and support for development of the ultra mega power project and the escrow capability and reform measures have been sorted out. Under the payment security mechanism, there will be no state or central government guarantee and the payment security mechanism will consist of an irrevocable letter of credit and irrevocable arrangement of escrow account having claims on receivables for which a decision will be taken at the time of the power purchase agreement.

Maharashtra has received the maximum allocation of 3,800 MW. While Rajasthan and Gujarat have been allocated 1,600 MW of power each, Delhi, Uttar Pradesh, Uttaranchal, Punjab, Haryana, Madhya Pradesh, Chhattisgarh, Karnataka, Tamil Nadu and Kerala have been allocated 500 MW, 800 MW, 100 MW, 1,100 MW, 850 MW, 1,700 MW, 750 MW, 2,000 MW, 1,000 MW and 200 MW, respectively. The highest requisition for power from the ultra mega power projects came from Maharashtra, of 5,500 MW, while the lowest requisition of 200 MW each was made by Uttaranchal and Kerala.

Centre likely for Coal Mining Bill

March 7, 2006. Carrying forward its reforms in the coal sector, the government has now decided to reintroduce the controversial Coal Mines Nationalisation (Amendment) Bill 2000, which provides for mining of coal by private sector. Private sector participation in coal mining would help to ease demand-supply situation. It is under stress in view of the ever increasing demand for coal from thermal power, cement and sponge-iron sectors. The public sector coal companies have so far performed more than what was targeted. But the growing needs of Indian economy require public private participation in the coal sector. The Coal Mines Nationalisation (Amendment) Bill 2000 was introduced in Parliament by the earlier NDA government. However, opposition to privatisation and lack of consensus prevented the government from passing the bill. Reforms in the coal sector were also necessary to break the monopoly enjoyed by public sector coal companies that was not conducive for evolving a competitive coal market in the country.

NTPC strategy to secure coal supplies

March 6, 2006. The NTPC, whose capacity addition of over 30,000 MW by 2017 heavily relies on coal supplies, has chalked out a multi-pronged strategy to overcome increasing coal shortages. NTPC is currently in the midst of importing 4.5 mt mainly from Indonesia and Australia. NTPC, which has projected a coal shortage of 87 mt by 2017 for the Indian power sector, during short and medium term would import coal, enhance long-term linkage, rationalise linkages and strengthen infrastructure of coal unloading. As a long term strategy, NTPC would apply for more and more captive mining, develop basket mines for a pool of stations and set up integrated coal mine power projects. Coal for 18,990 MW would be on “linkage mode” and the balance 10,400 MW on integrated basis. By 2016-17, for NTPC power stations on linkage mode (about 38,000 MW), the coal requirement would be of the order of 185-200 mt per year.

Deal’s a cracker for 4 nuclear plants

March 4, 2006. India can look forward to expeditious completion of four planned atomic energy plants as the US has lifted its 30-year nuclear freeze. These four palnts are at Kudankulam (Tamil Nadu), Kakrapar (Gujarat) Rawatbhata (Rajasthan) and Jaitapur (Maharashtra) having a total capacity to generate 8,000 MW. The agreement between Prime Minister Manmohan Singh and US President George Bush will ensure smooth supply of uranium for these projects. Under the deal, India has agreed to place 14 out of its 22 nuclear facilities under the safeguard of the International Atomic Energy Agency in return for guaranteed fuel supply, and use the remaining eight facilities, including fast breeder reactors, for developing nuclear weapons. The nuclear sector at present contributes just about 3 per cent of India’s power needs, producing 3,310 MW of India’s total generation of 1,23,668 MW. The nuclear establishment has set a target of generating 40,000 MW in the next two decades.

US agrees to India joining FutureGen project

March 3, 2006. US agreed to India’s participation in the $950 mn (Rs 41.94 bn) FutureGen project. The US government-sponsored project is part of a global public-private initiative for designing, building and operating the world’s first 275 MW coal-fired emission-free power plant. The agreement on India’s participation in this R&D project has found mention in the joint statement by Prime minister Manmohan Singh and US president George W Bush. India would have to contribute $10 mn (Rs 442 mn) over a five year period to participate in the project. Indian public sector companies, including BHEL, NTPC and Coal India Limited (CIL), are also contemplating to participate in the private sector segment of the project. Several global companies have already joined the FutureGen Industrial Alliance Inc. Around $250 mn ($11.04 bn) is expected to flow from the private industry coalition, which at present has eight charter members including China. India would join the project at government level initially. Of the $950 mn required to complete the project, about $700 mn (Rs 30.91 bn) would be arranged by the US Federal government in partnership with states and foreign governments, including India. The FutureGen project is unique as it is for the first time an initiative has been taken to develop clean technology for coal based power projects. For India, participation in the project would be important as coal consumption is already high and coal based power generation capacities are only to grow further.

Coal ministry upset with de-reservation plan

March 1, 2006. Coal ministry is likely to seek clarification from the finance ministry over the Budget announcement pertaining to de-reservation of a few coal blocks held by Coal India Limited (CIL). Apparently the ministry is disturbed that the announcement was made without taking the administrative ministry into confidence. In Budget propsals for 2006-07, finance ministry has decided to de-block coal reserves of 20 billion tonnes in favour of power projects after reserving the blocks for CIL and its subsidiaries for the period upto 2012 (end of 11th Plan period). If implemented the proposal would put a question mark long-term sustainability of the PSU and would put on hold all expansion plan of the PSU. As per CIL projections, coal production from its mines would be taken up from about 350 million tonne now to 782 mt by 2025. It may be noted that an expert commitee (Shankar Commitee) on coal sector reforms had earlier suggested that dereservation should be undertaken after meeting CIL requirements till 2025-26. Under the Budget announcement, 79 out of a total of 289 blocks reserved for CIL would be available for dereservation. Of the 289 blocks, 229 have been explored. Only 150 are, however, planned for production upto 2012 and the balance 79 are yet to be taken up for production. Government’s logic for this dereservation is that coal production in the country increased to bridge the demnd supply gap.

OIL & GAS

CITIC Resources joins race for Kazakh oil firm

March 6, 2006. Beijing-backed CITIC Resources Holdings Ltd. may join the bidding for Nations Energy, a private Kazakhstan oil producer with an estimated value of about $2 billion. CITIC Resources, a plywood maker that is retooling itself as an integrated supplier of strategic commodities and natural resources for China, has been seeking Beijing's approval to go ahead with a formal bid for the asset. CNOOC Ltd, China's largest offshore oil and gas producer, has also sought approval from the State Council, China's cabinet, to make a bid. But it is not clear which company might be allowed to proceed. The Chinese government typically would not allow state-controlled companies to compete against each other for the same overseas asset.

Chinese energy companies have spent billions of dollars overseas to secure reserves for the world's second largest oil-consuming nation, which imports more than 40 percent of its oil needs. Nations Energy, a little-known, Canada-based company whose main asset is a large field of heavy crude in Kazakhstan, received indicative bids from several companies last month. Yet there are no clear signs that the auction will move ahead quickly because the seller and potential buyers are far apart on the price of the company. China National Petroleum Corp (CNPC) and India's Oil and Natural Gas Corp. had both looked at bidding for the company. But CNPC's interest has faded as it focuses on integrating its Kazakh businesses with PetroKazakhstan, which it took over for $4.2 billion recently.

China to start filling reserves by year-end

March 6, 2006. China will begin filling its newly built strategic oil reserves by the end of this year. The construction of the oil reserve facility in Zhenhai has just been completed and expect to begin filling the tanks with oil by the end of this year. Oil traders have been anxious for news on the reserves, which may drive up demand for imported crude and add strain to a global market already struggling to meet demand. The first tanks in the eastern port city of Ningbo, totalling 10 million barrels of capacity, have stood empty since they were completed last September, with Beijing reluctant to pay $60 plus for stored oil and wary of push prices up further.

The strategic reserve, which mirrors those build in the 1970s in the West, is a cornerstone of China's plan to improve its energy security as rising demand forces more imports. Energy planners have suggested they could fill the tanks with domestic crude supplies, although this would require refiners to increase imports to compensate for lower local supplies. A second batch of tanks is already under construction in the east at Zhou-shan, with a third planned at Dalian in the northeast, part of a plan to build up 100 million barrels of supplies.

Chile’s Enap discovers gas field in Magallanes

March 6, 2006. Chile's state oil company Enap has discovered a large gas field in the Lago Mercedes basin of Region XII that could supply gas to the south of the country. Drilling for natural gas in Lago Mercedes started in November 2005 and is being carried out by US-based Helmerich & Payne International Drilling. Enap signed a contract with the company in July 2005. The project will be carried out in two phases. The first US$25mn phase is the construction of the multipurpose pipeline and the second the construction of the oil and gas pipelines and complementary production facilities at Lago Mercedes, increasing total investment to about US$70mn. Enap plans to invest roughly US$50mn in gas exploration in Region XII over the course of the next two years. Enap has known about sizable gas reserves in Magallanes for decades but only now has the price of gas domestically risen to the point where E&P in this region has become feasible. Chile has struggled with its lack of hydrocarbons reserves particularly over the course of the last few years as Argentine gas supply cuts have caused shortages and blackouts.

UAE to develop Abu Dhabi gas fields

March 6, 2006. The United Arab Emirates, holder of the world's fourth-largest natural gas reserves, plans to hire international energy companies to develop Abu Dhabi's high-sulphur gas fields that were previously too expensive to harvest. UAE has plans to import gas from Qatar because two-thirds of its own stocks are re-injected into its oil fields to maintain pressure levels to sustain crude output. Demand for gas in the Gulf state may quadruple to 13.5 bcf a day over the next 25 years as the country builds more gas-fueled power plants to cope with economic growth. Gas demand among Persian Gulf countries including Saudi Arabia, Kuwait and Oman, is growing at an annual rate of about 7 per cent, at least twice as fast as in Europe. High-sulphur gas is an environmental hazard, and disposing of sulphur extracted from natural gas is expensive and difficult. The United Arab Emirates pumped 2.53 million barrels a day in January.

China to build oil reserves

March 5, 2006. China will spend 5 billion yuan (US$620 million; euro516 million) to build oil reserves in the southern province of Guangdong over the next five years. The reserves are expected to hold 10 million cubic meters (62 million barrels) of crude oil and 2 million cubic meters (12.4 million barrels) of refined oil. Guangdong, an industrial export hub, uses almost one third of the country's annual oil imports. In 2005, the province consumed 20 million tons (140 million barrels) of oil, amid a severe energy shortage.  The oil reserves are intended to ensure the province's energy security. By 2010, Guangdong's annual refining capacity is forecast to reach 63 million tons. China earlier announced plans to build a petroleum reserve to cushion against interruptions in foreign supplies, similar to one maintained by the United States. The plan calls for stockpiling 100 million barrels of fuel - the equivalent of almost a month's consumption - in four tank farms scattered throughout the country.

Well discovered in the Gulf of Mexico

March 3, 2006. Contango Oil & Gas Company has made a discovery at Grand Isle 72 offshore Louisiana in 128 feet of water. The Grand Isle 72 #1 well was drilled to a total measured depth of 14,256 feet and the wireline logs of the well indicated the presence of hydrocarbons within four zones with approximately 140 feet of potential net pay. The lower most pay sand tested natural gas at a rate of 5 million cubic feet per day and 14 barrels of condensate per day, based on a four hour test and 3,400 pounds per square inch of flowing tubing pressure. Production casing has been set, completion operations are underway, and the well is scheduled to commence first production prior to calendar year-end 2006.

Total & PetroChina ink deal for Sulige Field

March 2, 2006. Total and PetroChina have signed a Production Sharing Contract for the evaluation, development and production of the natural gas resources of the South Sulige block of Ordos Basin, an area of around 2,390 square kilometres located in the Province of Inner Mongolia, onshore China. The contract is subject to approval by Chinese authorities. The evaluation of this field will include the acquisition of new seismic data, reentry of existing wells and the drilling and testing of new wells. Total will bring to the partnership its technological expertise and working practices applied to the specific working conditions of the Ordos geological basin. Together with PetroChina, the Group will promote the replacement of traditional energy resources by cleaner fuels in the urban eastern regions.

Aramco to boost output capacity by 2.3mn bpd by ‘09

March 2, 2006. Saudi Aramco will boost production capacity by 2.3 million bpd for Arabian light crude in three years. Aramco plans to build two new refineries, each of which will produce 400,000 bpd of products for various markets. This capacity will be in addition to the four million bpd that is being produced by the five refineries in the Kingdom. Aramco is facing serious challenges such as a lack of spare parts and equipment.

Chevron to acquire stake in Russian project

March 2, 2006. Chevron is hoping to win as much as a quarter of Russia's huge Shtokman gas project when Gazprom picks partners in April. Chevron is one of five firms shortlisted by Gaz-prom for the project, which involves developing the Shtokman gas field in the remote and iceberg-strewn Barents Sea to produce liquefied natural gas (LNG) for export to the US market. Each contender hopes to take part ownership of the vast field, which contains around 3.5 trillion cubic metres of gas.

Russia to boost output by about 2.5 per cent

March 2, 2006. Russia will be able to boost oil production this year by 2 to 2.5 per cent despite a slump in production in January and February on the back of cold weather. Extreme cold in February kept Russia's oil output low at around 9.47 million barrels per day, following a similar drop in January. The decline might hamper the government's modest plan to boost production by 2 to 3 per cent in 2006 after massive growth in previous years.Russia is a key supplier of natural gas to the EU, and the pricing dispute with Ukraine earlier this year, which disrupted supplies to Europe, added urgency to calls within the bloc to harness its collective might when dealing with energy partners. The European Commission had urged Russia to "resume its efforts to ratify the Energy Charter Treaty," a pact that aims to smooth energy cooperation on the Eurasian continent. Russia still had disagreements with the EU about aspects of the pact dealing with transit; it would not ratify the agreement until those differences had been ironed out.

Repsol-YPF to start oil, gas exploration in Iran

March 1, 2006. Spanish oil giant, Repsol-YPF, will soon start an oil and gas exploration and extraction project in Iran as one of the three foreign companies which were awarded the tender for development of offshore South Pars gas field in the south of the country. Spanish firm, Repsol-YPF, along with French TotalFinaElf and the Anglo-Dutch conglomerate, Shell, are scheduled to work on development of the SP phases 11 and 13. The contract for development of SP phase 11 is worth more than $1.2 billion while the SP 13 is $1.5 billion. They will soon sign contracts with Iran to develop two phases of the Islamic republic's offshore South Pars gas field. The contracts are slated for the production of liquefied natural gas (LNG) for exports. Investment for each phase has been estimated at between $1.2 billion and $1.5 billion.

JGC wins order for Saudi project (up

March 6, 2006. JGC Corp, Japan's top energy contractor, had received an order reportedly worth more than 100 billion yen ($860 million) to build a refining and petrochemical complex for a large petrochemical project in Saudi Arabia. The company will build a high olefin fluid catalytic cracker and an ethane cracker in Rabigh on the Red Sea for a joint venture between Sumitomo Chemical Co and state-run oil firm Saudi Aramco. The facility will have annual output capacity of 900,000 tonnes of propylene and 1.3 million tonnes of ethylene, using fuel oil and natural gas respectively as feed stocks.

Mexico could buy Peru gas from 2010

March 3, 2006. Mexico could buy Peruvian natural gas from 2010, a year later than Peru had hoped, but may bypass Peru altogether if Australia, Russia or Bolivia can offer cheaper gas. Mexico would decide in an auction in May where the country would buy liquefied natural gas (LNG) from, dampening Peruvian hopes of generating billions of dollars in sales to Mexico from its Camisea field. Peru began pumping gas from its Camisea field in the Amazon jungle in mid-2004. Spain's Repsol-YPF aims to export around 4.6 tcf of Camisea gas over a 20-year period. Peru this year began construction of a LNG plant on its Pacific coast to ship gas to Mexico. The export plan is expected to cost $3 billion and Peru says it will turn the country into a net energy exporter.

Toho Gas due more LNG from MLNG Tiga

March 2, 2006. Malaysia LNG Tiga Sdn. Bhd. has signed an agreement to sell Toho Gas Co. Ltd. 520,000 tonnes/year of LNG for 20 years beginning in 2007. The LNG will come from the Petronas LNG complex in Bintulu, Sarawak. Carriers operated by Petronas subsidiary Malaysia International Shipping Corp. Bhd. (MISC). will ship the LNG to Toho's receiving terminal in Chita, Japan. Toho currently receives a total of more than 500,000 tonnes/year of LNG under contracts with Malaysia LNG Sdn. Bhd. (MLNG) and MLNG Tiga. The Bintulu complex has production capacity of 23 million tonnes/year of LNG from the 3-train, 8.1 million tonne/year MLNG plant; the 3-train, 7.8 million tonne/year MLNG Dua plant; and the 2-train, 6.8 million tonne/year MLNG Tiga plant.

Kuwaiti company to set up $171mn energy fund

March 7, 2006. Kuwait Financial Centre will soon launch a fund to invest in shares of mostly unlisted energy firms in the Gulf. The Markaz Energy Fund will have a capital of up to 50 million dinars ($171 million). The fund will invest in the shares of companies operating in the energy sector of the (Gulf Arab countries) and neighboring countries, which may arise in light of the sector's growth potential. Subscription will open shortly for investors from all nationalities until the end of April, which manages assets worth more than $4 billion.

Iran invites bids for offshore gas field

March 5, 2006. Iran has invited foreign companies to develop its offshore South Pars gas field. The Iranian National Oil Company has placed four international tenders for the development of phases 19 to 22 of South Pars, the largest offshore field in the world. Iran has divided the gas field, located on the Iran-Qatar border in the Gulf and shared by the two countries, into 25 phases. The tenders’ document said that the most-recent phases will supply 100 million cubic meters (3,500 million cubic feet) per day of natural gas for domestic consumption. They are also expected to supply a minimum of two million tons of ethane gas a year for Iranian petrochemical use, 2.1 million tons of liquefied petroleum gas (LPG) per year and 160,000 barrels of gas condensate a day for export. The contracts will be conducted on a buy-back basis. Iran’s constitution, hammered out after the 1979 Islamic revolution, puts oil and gas within the state sector and forbids concessionary basis or direct equity stake production-sharing agreements with foreign firms. As an alternative, Iran had worked out the buy-back formula - under which foreign companies are repaid development costs and given an agreed rate of return from initial production. So far, only phases one to five are operational. Phases six to 10 are under construction by joint venture firms and the rest are in the negotiation phase. Last month, Iran said that Anglo-Dutch energy giant Shell, France’s Total and Spanish firm Repsol would "soon" sign contracts to develop phases 11 and 13. Investment for each phase has been estimated at between 1.2 and 1.5 billion dollars.

No subsidy for Pak gas consumers

March 2, 2006. The Pak government has decided in principle to remove gas subsidies to fertilizer and domestic consumers and withdraw over 17 per cent guaranteed rate of return to gas utilities for their successful privatization. It has been decided to link the profitability of gas utilities — Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL) — with Karachi Interbank Offered Rate (Kibor). The Oil and Gas Regulatory Authority (Ogra) has been asked to work out how the profitability of these companies could be adjusted with the Kibor. The Ogra is currently in the process of benchmarking rate of returns on assets and equity of the gas companies and their linkage with Kibor to allow reasonable profits to the prospective buyers of the gas companies. At present, the SNGPL and SSGCL are allowed 17.5 per cent and 17 per cent guaranteed rate of return on assets respectively under federal government’s covenant with the World Bank. This did not provide any practical incentive to the gas companies to be efficient.

Similarly, the gas utilities would not be required to subsidize various categories of natural gas consumers particularly fertilizer feedstock and majority of domestic consumers. Instead, the government would provide subsidy to these consumer groups out of federal and provincial budgets. Moreover, the companies would not be responsible for providing gas connections to commercially unviable consumers in the far-flung areas. The government would extend finances to the gas companies for such expenditure for new connections in remote areas of the country as part of its social responsibility. The government was also considering setting up of a universal access fund to maintain subsidized gas rates for domestic and fertilizer consumers. As a result, the tariff rates for industrial and commercial consumers would stabilize at the current level. This would provide comfort level to the private sector buyers of the gas utilities to concentrate on their commercial objectives and expand their system. The domestic lifeline consumers using less than 100 mmcfd (million cubic feet per day) per month are highly subsidized. Similarly, the fertilizer companies are provided with subsidized feedstock for 10 years under the national fertilizer policy. This is part of a package the government would introduce shortly before privatizing twin gas utilities. The government plans to privatize the two companies before September 2006 and is currently in the process of soliciting interests from local and international firms. The government had hired the services of external consultants to recommend as to how to restructure the consumer tariff and balance sheets of SSGCL and SNGPL to attract quality investors for the sale of 51 per cent shares along with management control of the two utilities.

Russia may hike crude oil export duty

March 1 2006. Russian crude-oil export duties will increase by $25.60 per ton to $186.40 ($25.40 per barrel) starting April 1. The current crude export duties, introduced on February 1, were $160.8 per metric ton ($21.9 per barrel). The new duties for light crude may be $137.9 per metric ton, and for heavy crude $74.3 per ton. Crude exports accounted for 34.6 per cent of Russia's total exports in 2005, and 54.1 per cent of its fuel exports, against 32.1 per cent and 56.2 per cent respectively in 2004. Export duties are determined once every two months in accordance with global prices for Urals crude.

Power

Versa lands $85mn coal plant project

March 7, 2006. Versa Power Systems Inc. of Littleton has landed a contract with the U.S. Department of Energy worth about $85 million. The 10-year, three-phase contract is for Versa to develop a clean, multimegawatt, coal-fired power plant.  The goal of the effort is to develop a large-scale solid oxide fuel cell (SOFC) turbine power system that can generate at least 100 MW of power, as well as one that burns coal more cleanly than existing systems. The first phase is a three-year effort worth $10.5 million to design, make and test large-scale SOFC stacks that can be used in 100 MW systems. The other two phases will involve making larger SOFC systems.

AES Corp signs $1.2 bn power plant deal in India

March 3, 2006. The Indian unit of U.S.-based AES Corp. had signed a MoU with a mineral-rich Indian state to build a $1.2 billion coal-fired power plant. AES India Private Ltd. will have the right to develop, construct, own and operate the 1,000 MW power plant along with a coal mine in Chhattisgarh state. Energy-starved India faces huge shortfalls in electricity to feed its economy that is growing at about 8 percent a year.

AES India has begun a feasibility study to identify the location and other requirements for the project. India produced almost 124,000 MW of power last year, which was 8-10 percent short of demand. Earlier this year, India had invited expressions of interest from foreign and domestic companies to set up five big thermal power projects with a total capacity of 20,000 MW to help reduce the shortage of power.

Fluor to construct power plant in Nevada

March 1, 2006. Fluor Corporation will begin construction of a 200 MW coal-fired power plant in Nevada for Newmont Mining Corporation. Value to Fluor for this work is $400 million. Under terms of the contract, Fluor will perform engineering, procurement, construction and commissioning services for the plant, which will be located in Eureka County, Nev. Employees in Fluor's Greenville, S.C., office began work on this project shortly after receiving a limited notice to proceed from Newmont Mining near the end of 2004. The project is expected to achieve the commercial operation date, a key event for the project, in 2008. When complete, the plant will use the best emissions control technology currently available.

PG&E to buy geothermal power

March 6, 2006. Pacific Gas & Electric Co., the utility unit of PG&E Corp it will purchase up to 120 MW of geothermal energy from a power project in Oregon. It signed a purchase contract with MilitaryPass-Newberry Volcano Project LLC, which has geothermal production near Bend, Oregon. The purchase is part of California's requirement for the state's investor-owned utilities to boost supplies of energy from renewable resources like geothermal, wind, solar and biomass to make up 20 per cent of their total supplies.

Ukraine won’t export spent nuclear fuel to Russia

March 3, 2006. Ukraine intends to abandon the practice of exporting spent nuclear fuel to Russia starting from 2008. This was due both to the increased costs of fuel processing and the risk that Ukrainian atomic power plants might have to shut down if Russia refuses to accept spent nuclear fuel under pressure from environmental organizations. In the early 1990s, Energoatom faced the threat of shutting down its nuclear power plants because Russia refused to take spent fuel. After spent fuel is processed, irradiated fuel returns to Ukraine. Many countries prefer to keep spent nuclear fuel at home until new recycling technologies have been developed, and only Ukraine and Bulgaria continued exporting spent fuel to Russia. The annual cost of fuel assembly disposal was estimated at between $40 million and $80 million. Ukraine will have to pay Russia about $2 billion for the disposal of fuel assemblies over the next 40 years. The construction and operation of a centralized storage facility for spent nuclear fuel will cost $520 million over the next 100 years. Four nuclear power plants with 15 power-generating units are operating in Ukraine. The Zaporozh nuclear power plant, built in 2001, uses its own facilities to store spent fuel, without exporting it to Russia. The centralized storage facility will be built for the South-Ukrainian, Rovensk and Khmelnitsk power stations in 2008 based on the technology of the American company Holtec International.

CLP to build China power grids

March 2, 2006. CLP Holdings, the bigger of Hong Kong's two power utilities, may expand its business in China by building power grids, should foreign investors be allowed such investments in the mainland. China's power grids are owned and operated by the state and the larger of the two grid companies it plans to spend as much as 800 billion yuan (HK$776.10 billion) between now and 2010, building and repairing electricity networks. China experienced a third year of power shortages in 2005 as economic expansion of 9.9 per cent pushed electricity demand beyond generation capacity. State Grid Corp of China's investment in power grids this year alone may total 160 billion yuan. State Grid controls the transmission of electricity in 22 of China's 27 provinces, and wants to increase investment in grid lines that can carry a higher capacity of power.

Kansai Electric to scrap nuke plant plan

March 7, 2006. Kansai Electric Power Co. has decided to abandon plans to build a nuclear power plant in Kyotango, Kyoto Prefecture, because of strong local opposition and sluggish demand for electricity. The utility will inform the city by mid-March that it will withdraw its application for a preliminary environmental-impact survey it submitted to the city about 30 years ago. The nuclear power plant project in Kyotango is not included in the central government's basic plan for electric power development. Therefore, the decision to scrap the project can be determined between Kansai Electric and the municipal government.

UK govt. group rejects new nuclear plants

March 7, 2006. Britain does not need to build a new generation of nuclear plants to meet future electricity needs. The Sustainable Development Commission, the government's watchdog on sustainable development issues, came down in favor of more renewable energy sources and greater energy efficiency rather than replacing old nuclear plants with new ones. The government is reviewing electricity sources as it closes the ageing nuclear plants which supply 20 percent of the nation's power. The review is due to report by the middle of the year. The nuclear industry had not solved the problem of waste that remains highly toxic for millennia and was very secretive about its costs. Nuclear would risk proliferation and drain money from alternative power and distribution systems. On the plus side, it was a low carbon technology, had a good safety record in Britain at least and could help secure future energy supplies in an increasingly uncertain world. Even doubling the country's nuclear power generating capacity would only cut carbon emissions by eight percent by 2035, while boosting efficiency could save the equivalent of the carbon output from 27 conventional plants.

Australia to consider selling uranium to India

March 7, 2006. India and Australia agreed to examine possible co-operation in the civil nuclear energy sector, particularly the sale of uranium to India. India is seeking to buy uranium from Australia, which has almost half of the world's known resources, to meet the huge energy demands of its burgeoning economy. However, Australia has a policy of not selling uranium to any country, like India, which has not signed the Nuclear Non-Proliferation Treaty (NPT). Australia now appears to be softening its stand after a landmark deal between India and the US on civil nuclear energy was reached during last week's visit by US President. Nuclear power accounts for only three per cent of India's total energy production.

France to give Libya nuclear help

March 6, 2006. A pact between the two countries is due to be signed in the next two to three weeks. France first expressed an interest in developing peaceful atomic energy in Libya last May after the North African country promised to give up nuclear, chemical and biological weapons in 2003.Libya also signed protocols with the UN's International Atomic Energy Agency (IAEA) and ended more than a decade of international isolation by accepting responsibility and paying compensation for the bombing of airliners over Scotland and Niger in 1988 and 1989. France will be able to supply considerable nuclear expertise. It is home to the world's largest nuclear reactor manufacturer, Areva, and the world's top nuclear power producer, EDF. Fears over oil and gas supplies and climate change have also pushed nuclear power into the limelight as a means to produce energy without emitting excessive carbon dioxide, blamed for global warming.

Pak to seek US cooperation in nuke field

March 3, 2006. Pakistan described an understanding reached between the United States and India on civilian nuclear energy cooperation as an “important relaxation” by the Nuclear Suppliers Group (NSG) of its proliferation guidelines. The agreement represents an important relaxation by the 44-member NSG of the group’s existing guidelines on transfer of civilian nuclear technology to a state which has not signed the nuclear non-proliferation treaty (NPT). Pakistan is already running two nuclear power plants, one in Karachi and another at Chashma town, some 280 kilometers southwest of Islamabad. Established with Canadian and Chinese assistance, the two plants are producing 137 and 300 MW of electricity. The third power plant, which will generate 300 MW of electricity, is currently under construction at Chashma with Chinese assistance.

Canara Bank to fund solar heaters

March 7, 2006. Canara Bank has signed an MoU with Tata BP Solar India Limited, under which the bank will provide financial solutions to the buyers of Tata BP Solar water heaters. Canara Bank will give loans upto 85 per cent of the system cost to eligible customers for purchase of Tata BP’s solar water heaters. The finance will be available at an attractive interest rates of 2 per cent for domestic users, 3 per cent for institutional users and 5 per cent for commercial and industrial users including SMEs. Tata BP Solar will assist in credit delivery with its dealer network in various states in which the bank has its presence.

Himachal water mills churn out cheap power

March 7, 2006. Water mills on Himachal Pradesh’s river banks have diversified and begun to generate electricity for the first time in the hill state. Two traditional water mills had been innovated in the Kullu valley and had started producing 5 MW and 3 MW of hydro power each, paving way for more water mills to make electricity in a cheap and environment-friendly manner. Around 166 households in the vicinity will benefit from the cheap power produced by these two water mills. Each household will have to pay at a flat of Rs 30 per month to avail power from these mills. While Rs 15 will go to the mill owner, the rest will be deposited with the accounts of the maintenance committee which will spend the money on the mill’s maintenance. Such experiments have only been tried out in two other states of the country, in the neighbouring states of Uttaranchal and Arunachal Pradesh. The project is being carried out with the help of the ministry of non conventional energy. The Himachal Pradesh Reforms Project in collaboration with mill owners, the forest department and an NGO (non governmental organisation) called Hesca which is helping villagers to set up these projects at a cost of Rs 300,000 ($6775). 

Scheme for sugar mills to set up power units

March 6, 2006. The Government is planning to come up with a scheme for encouraging sugar mills in the cooperative sector to set up cogeneration and captive power plants to reduce their dependence on the electricity grid. Minister of State for Non-Conventional Energy Sources, Mr Vilas Muttemwar, is of the view that many sugar mills in the cooperative sector are unable to generate bankable projects for producing electricity. He said power generation from sugar mills and distilleries needed to be scaled up through appropriate policy measures and regulatory interventions. Renewable energy sources contribute about 8,000 MW of installed electricity capacity in the country, he said adding the potential of co-generation power plants alone was to the tune of 15,000 MW. He said that there was a need to come up with innovative solutions to produce electricity and reduce dependence on conventional sources such as coal and suggested use of new techniques such as bio-methanation of effluents for producing biogas to generate electricity in sugar mills.

MMTC plans 50 MW wind plant

March 5, 2006. State-run trading firm MMTC Ltd is joining the renewables bandwagon with plans to set up a 50 MW wind energy project. MMTC, India's largest international trading firm with a turnover of $3 bn (Rs 132 bn), will set up the wind farm in three phases. The first phase of 15 MW generation capacity is expected to come up by June this year. The entire project could entail an investment of about Rs 250 crore ($56.68 mn). The company is currently in the process of identifying a proper location and selecting equipment suppliers for the project. MMTC is latest among a host of private and public sector companies to enter the renewables segment for producing clean energy and reduce dependence on conventional power. ONGC, Reliance Energy, HPCL besides equipment major Suzlon are among those who have big plans to tap the potential of wind energy sector. While HPCL is planning a 100-MW wind park project in four phases, ONGC plans to replace nearly half of the 350-MW of electricity it draws from the grid with wind energy.

Sweden plans over renewable energy

March 2, 2006. Sweden has decided to “completely end its dependency on fossil fuels” within the next 15 years. The declaration was met with enthusiasm by pro-environment groups and with skepticism from some experts who said that the target seems to be unrealistic. While it is acknowledged that getting rid of oil completely in such a short time may be impossible, the aim is to ensure that Swedes will not be forced to use fossil fuels because a renewable energy source is not available. Sweden’s plan comes in response to global climate change, rising petroleum prices – the Swedes believe that the price of fuel will cost double in five years’ time – and warnings by experts that the world might soon run out of oil. Sweden has been working hard over the years to reduce its dependency on oil. In 2003, only 32 per cent of its energy came from oil, down from 77 per cent in 1970. In the same year, 26 per cent of energy consumed came from renewable sources, and this was more than four times that of the European Union average of six per cent.

Bids presented in Portugal wind power project

March 1, 2006. Four consortia presented bids in one of Europe's biggest tenders for wind power, which should spur investment of more than 1 billion euros ($1.19 billion) to boost Portugal's alternative energy supplies. The four groups are led by Energias de Portugal (EDP), local energy company Galp Energia, Spain's Iberdrola and Gamesa and Italy's Enel. The two-phase project should generate 1,500 MW of wind power. The project will provide enough power for about 750,000 homes and is equal to about a quarter of the wind energy capacity installed last year in the 25-nation European Union. The nation of 10 million people imports about 86 percent of its power, one of the highest levels in Europe, and is aiming to harness winds off the Atlantic Ocean and other renewable sources to counter rising fuel costs. Portugal is also looking to wind to help meet its goals under the United Nations' Kyoto Protocol, which aims to cut output of greenhouse gases such as carbon dioxide that are blamed for global warming. Portugal's emissions surged almost 37 per cent from 1990 to 2003, the third-highest increase in the world. The project calls for a first phase of 1,000 MW of capacity and a second of 500 MW. The winner is expected to be announced during the summer.

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