MonitorsPublished on Apr 26, 2006
Energy News Monitor I Volume II, Issue 45
India’s Hydrocarbon Scenario: A Journey from Protected Past to Competitive Future –Part III

Dr. Samir Ranjan Pradhan®

The growing demand for petroleum products had to be met by increasing imports through the companies, on which they made enormous profits. This openly colonial pattern in the Indian oil-gas sector continued till the early 1950s. Though the Government in its 1948 Industrial Policy took some bold steps to revamp the sector from the colonial pattern, it failed due to the transition phase in the aftermath of the Second World War. Meanwhile, the oil monopolies strategized new ways of consolidation in the Indian oil economy. The new plans took stage with the commissioning of three new coastal refineries between 1954 and 1957, since after the World War II, the oil monopolies had intended to locate the refineries in consumption centres rather than in the centres of crude oil production due to political, strategic and economic reasons. This also forestalled the implementation of GOI’s 1948 Industrial Policy Resolutions. The oil monopolies not only succeeded in consolidating their hold over the Indian market, but also they won away special refinery arrangements from the GOI, which was arbitrary and irrational. It is to be noted that the GOI played into the hands of the oil monopolies at the formative stage of the India’s oil economy. This was exacerbated by the then prevailing situation in the global regime in which there was skepticism regarding cut off of future oil supplies to India, due to the nationalization of the British oil cartel in Iran and successive American and British threats.

The whole raison de’tre of the companies putting their refineries on the Indian coasts was simply to tie up the rapidly expanding Indian market with their own sources of crude supply, which automatically tied the Indian oil sector with their global operations. It was designed to strengthen and consolidate their hold on the Indian market rather than develop Indian oil industry. When in order to mitigate foreign exchange stringency, the Soviet Union offered to supply crude to India on rupee payment basis for refining, the companies bluntly refused to process it in their refineries and got away with it, by invoking the refining agreements. It was also equally significant that the product pattern of the refineries established in India did not cater to more crucial Indian demand pattern such as, kerosene, aviation jet fuel and lubricants which were of economic and strategic importance for the country. Thus the entire pattern of the companies’ operations and organization in India was developed to achieve the objective of establishing a small link in the chain of their world operations.

Moreover, the operations of smaller independent companies were insignificant in comparison to the majors. Between 1928 and 1933, for instance, some independent distribution companies were floated in India but they had to face a fierce cutthroat competition and underselling by the giants and as a result, they collapsed or remain out of business. Even after independence, such attempts got foiled. An Indo-Iranian Oil company was set up during the Anglo-Iranian oil conflict in the early 1950s. It even concluded a contract with the National Iranian Oil Company (NIOC) to buy oil products for sale in India. But the power of the monopolies was so great that the company was liquidated before it could start business.

However the monopoly of the cartels got challenged with the set up of 100% public sector owned Indian Oil Company in 1959 with supply assured to it by the Soviet Union. The process of development of national oil industry was slow. Even in 1964-65, the IOC sales were still only 17.2 lakh kilolitres, against 52.12 lakh kiloliters sales of the Burmah-Shell company in 1963, ESSO’s 31.22 lakh kilolitres in 1962 and Caltex’s 19.70 lakh kilolitres in 1963[1]. Only due to the compulsions of foreign exchange stringency and the multinationals’ persistent intransigence, the government at last decided in 1965 to cut off the import of products through the cartels and confined their sale operations to the products of their own refineries in India. The IOC then jumpstarted its sale operations in one year to double its turnover. Thus, in the system of majors’ operation in India, there was necessarily no place for exploration and production of crude, the primary source of their super-normal-profit. India was placed very low in the order of priority for exploratory efforts in the global operations of the international oil majors. Even in such cases where prospects for exploration were established to be good, the companies sought special rights and concessions, reimbursement of expenditure in event of failure and control over disposal of crude. Only the BOC agreed to participate in crude exploration and production in the Assam area, at especially favorable terms, because it already held profitable investments in the Digboi refinery and wanted to expand further. The result was the formation of the Oil India Ltd., in which the BOC first secured 70 percent share and subsequently agreed to 50:50 partnership with the government, and a guarantee of 9 to 13 percent profit to the BOC. During the first year of its working when the profits were not good, the return to the company was ensured through government subsidies to the tune of rupees sixty and more per ton of crude production.

By the mid-50s, it became clear to the government that there is no alternative to building national oil industry in the public sector. In this regard, the ONGC was set up in 1956 and was converted into a statutory body in 1959. After the first success in oil exploration by the ONGC, the government started to plunge into the refining sector and subsequently in the early 1965, the public sector refining company and the IOC were merged to form the Indian Oil Corporation (IOC). This set up in the public sector oil had to rival the power of the monopolies. The existence and growth of the public sector in oil for ten years between 1956 and 1965 was a source of great strength to the economic and security capability of the country. The decision to develop national oil industry in the public sector had naturally met with hostilities from the international companies. This hostility expressed itself in various economic as well as political forms over a prolonged period of tussle for the public sector oil to establish itself. The setting up of public sector refineries especially met with stronger resistance since it threatened the interests of the companies immediately. In this regard, the attitude and position of the world bodies like the World Bank is noteworthy:

“The World Bank in its two reports submitted in 1956 and 1958 went out of its way to specifically oppose the public sector oil programme in India. In the 1956 report it remarked, ‘It would be a mistake to insist on such a measure of government participation in the exploitation and development of oil resources as to discourage foreign oil ventures’. Again in its report in 1958 it reported: ‘The (India) government’s insistence that refineries must be in the public sector and its reluctance to grant new exploratory concessions to oil companies inhibited the participation of foreign capital’. The Federation of Indian Chamber of Commerce and Industry (FICCI) also echoed the same line and demanded that foreign capital should be allowed in the oil sector” [2].

(to be concluded)

Views are personal

Integrated Energy Policy (part III

(Comments by Shankar Sharma on Planning Commission’s Draft Report)

A (iv). Energy efficiency and demand side management

18. The draft report has not addressed the techno-economically feasible potential available to increase the efficiency of existing hydro generators. Exploring the clear possibilities of increase in capacity and/or efficiency of upto 10 % in the existing generating stations, through effective renovation, modernization and upgradation (R, M &U) processes should be seriously pursued. Central Electricity Authority can confirm that it is techno-economically feasible to upgrade the capacity/efficiency of many of the existing hydro generators, by adopting latest technology. Some of the recent example of such successful projects are in Bhakra project, and Sharavathy project in Karnataka.  Top priority should be given to this potential because it is the cheapest, quickest and most benign method to add to generation capacity.  Of the 32,100 MW of hydro capacity in the country (as in Oct. 2005), even if 80% of them are considered techno-economically suitable for R, M and U, about 2,600 MW of additional capacity can be easily added to the grid without any environmental destruction at an average cost of about Rs. 0.75 Crore/per MW (as per a Bhakra report). This drives home the point of argument when compared with the average cost of new installed capacity @ about Rs. 4-6 Crore/MW. Effective renovation, modernization and upgradation (R, M &U) processes are also required for transmission and distribution areas to increase the reliability of the supply system.

19. How long are we going to live with PLF of 40% in some thermal power stations of the Eastern and North-Eastern regions?  Such operational inefficiency, year after year, should be treated as failing in public faith, and a criminal public waste.  Before utilizing our meager resources in setting up new capacities, the society should ensure that all the existing facilities are optimally put into public use.   It is no rocket science to improve the PLF of these stations, and hence, if the state agencies are incapable of doing so, the CPUs like NTPC should take over them.  Even if it means putting new generators in place of the old ones, it will be much desirable in view of large benefits on economical, environmental and social factors.

20.  The issue of very high AT&C loss is the most pathetic amongst all the shameful episodes belittling our electricity sector. Various AT&C loss figures quoted, as high 50%, in the different parts of the country seem to be a correct reflection of our inability to manage the public funds. The international experience indicates that it is feasible, and also an established fact that the combined T&D losses can be brought down to about less than 10% in comparable systems.  Even if the combined losses are reduced to about 10%, the resultant additional power availability (of about 30 -35%) could be in the range of about 36,000 to 42,000 MW.  This additional power availability can effectively eliminate the need for 35 – 40 mega power projects at an additional cost in the range of about Rs. 180,000 – 210,000 Crores. And there is no uncertainty in these benefits as in the case of new generation capacity. These benefits could accrue from day one, cost about a fraction of the cost of new capacity, have least gestation period, come with minimum socio-environmental problems, and have a lot of other direct benefits like voltage improvement at all points; can avoid the need for large size hydro-electric projects, thus avoiding huge capital expenditure and considerable environmental damage.  It has been estimated by the energy experts that the reduction in T&D losses from the present level to about 10% (which has been the norm in developed countries) can save more than Rs. 100,000 crores worth of investment expenditure at the national level.  It is also estimated that reduction in AT&C loss of each percentage point at the national level amounts to thousands of Crores of Rupees worth of direct and indirect economical benefits. It becomes eminently clear that as a developing country, our society cannot afford to ignore the harsh realities of T&D losses any longer.  It is an irony that whereas the peak demand and energy shortages are reported to be about 12 % and 8 % respectively, and it is technically feasible to bring down the existing T&D losses of about 45 % to about 10%, we are happy to continue to experience the deficits. 

21. Though the reduction in T&D losses to international level alone can do away with the deficit for 3-4 years to come, it can also lead to many other direct and indirect benefits to the society: the voltage at all points of the network will be improve, thereby preventing the damage to end user’s equipment like motors and lamps; no additional construction land or right of way (as opposed to additional generating capacity) need to be acquired; no displacement of people and submergence of fertile agricultural lands and evergreen forests (as in the case of a large dam for hydro electricity generation) would be required.   There are many time-tested techniques for the reduction of transmission and distribution losses feasible at a fraction of the investment required for additional generating capacity.  It may be possible that the existing transmission corridors, and even some of the existing transmission towers could be modified to move to the next level of higher voltage at no huge additional cost.  We can learn a lot from USA and South Africa, who have been a pioneer in these techniques. 

22. An essential part of T&D loss reduction is the management of reactive power requirement and hence the voltage profile of the system. As a matter of fact this is an area of major concern for the power system engineers. The transfer of MVAR from generators or capacitor to individual loads will cause higher flow of current leading to higher losses. In this regard the ideal position would be that when the reactive power requirements of each load is met locally.  The electricity act has addressed this issue by seeking to penalize any withdrawal of capacitive current by individual load beyond a certain limit.   But the real problem has been that the same has not been implemented properly. What is needed urgently is to put in place a suitable tariff regime to encourage individual consumers to compensate for the VAR requirement very close to the load.  As of now Transmission and Distribution companies are spending a considerable portion of their resources in meeting the VAR requirements of the individual loads, with the help of capacitor and static compensator banks, for which they are not being financially compensated to adequate extent.

23. For an average citizen it is perplexing that while there is a hidden electrical energy in the form of avoidable losses available for quick use at a small additional cost, we continue to pour thousands of Crores of precious public money into new generation capacities.  Why cannot be the public sector generating companies like NTPC and NHPC be asked to invest 25 – 50% of their annual budgets in reducing the AT&C losses as joint venture with state electricity boards, and T&D companies?  Since the primary objective of these CPSUs is to make additional power available to the people, what better way than this route to achieve that objective?  As these CPSUs are generally credited with higher efficiency, and since the financial institutions will be willing to extend loans to CPSUs than to SEBs, such an investment route may solve many of our problems. The funds for APDRP can be increased by many folds and the CPSUs can be made accountable to be the project managers.

24.How efficient are our electric appliances like irrigation pump sets? A quick look at the case of Karnataka tells the story. In Karnataka alone about 16 lakh irrigation pump-sets (IP sets) of average load of about 3.5 KW are connected to the grid. It is a clearly known fact that for various reasons the majority of these pump sets are uneconomical/inefficient to the extent that they are known to be consuming about 40 to 50% more energy than is really required. [Reference: Seminar proceedings on “Programme on Conservation of Energy in Agricultural Pumping Systems” (Sponsored by Ministry of Power, GOI) in June 1999, Central Institute For Rural Electrification, Hyderabad)]. A quick estimate indicates that the loss reduction techniques (at an average cost of about Rs. 3,000 per set) can reduce the existing loss level from about 50% to about 10% with a savings of about 5,000 MU each year and an avoided additional generation capacity of about 1,500 MW in Karnataka alone. Improving the overall efficiency of these IP sets (at a low expenditure of about Rs. 3000) itself will release a considerable amount of energy for economic use.  One estimate indicates that such a saving in Karnataka alone can be equal to the capacity of few large size hydro-electric projects. Improving the overall efficiency of these pump-sets from the suction end to the delivery end at the national level will not only save huge quantity of electrical energy but also can address the issue of scarcity of fresh water to a considerable extent. 

25. Similarly, improving the efficiency of the large number of lighting fixtures, motors, pumps, furnaces and welding machines in residences, and small, medium and large industries can reduce the demand by a considerable margin. Similarly we need to replace the inefficient incandescent lamps (running to billions in number) by more energy efficient lamps. The society should not hesitate to take the tough decision of mandating to replace these inefficient lamps at a higher capital cost than to waste resources year after year in the form of energy wastage.  Our society should focus on such overall efficiencies immediately, and can draw lessons from the resource-constrained countries like Israel.

26. There is credibility to the argument that the overall efficiency of conversion of primary sources like coal/gas/diesel to electricity and then to heat the water in homes and industries could be of the order of only 10-15%.  This estimation includes the losses in various stages of generation, transmission, distribution and utilization. Considering that about 52% of all the electricity produced in the country is from coal fired stations, about 30% from other thermal power stations, and assuming that about 25% of this total energy ends up in water heating for various purposes, we are incurring a huge waste year after year.  In addition to this colossal loss of coal/gas/diesel energy, if we objectively take into account the inefficiency in millions of small diesel generation sets spread all over the country; and the inefficiency in T&D sectors and utilization, it may turn out to be that only about 15-20 % of the energy from the original energy sources is being put into productive and economic usage. Unless we improve the overall efficiency of conversion of primary energy source to various forms of secondary energy till we use it for productive and economical use, we cannot hope to attain energy security for ever.  The society must stop this criminal waste of national assets.

27. As the Bureau of Energy Efficiency has mentioned, at the prevailing cost of additional energy generation, it costs a unit of energy about one fourth the cost to save than to produce it with new capacity. To put it in economic terms on a conservative estimate, if the overall efficiency (of the electricity industry only) at present of about 20% is increased to about 50%, the savings to the national economy by adopting the above discussed measures can be in the range of Rs.150,000 to 200,000 Crores in the form of avoided cost of additional capacity.  Besides this direct cost, the benefits of the other avoided costs like environmental damage, rehabilitation, and other associated social costs is too big to ignore.  It is, therefore, bewildering to the common public as to why such measures have not been employed so far on a war footing. 

28. Effective demand side management both of the peak hour and of annual energy by measures like staggering the peak loads of major industries within the state and across the nation is another urgent need for the electricity sector.  My 25 years of experience in power industry has convinced that not much thought has been given in our country to the demand side management measures.  There is a huge potential in this area.  Carefully thought measures like the time of the day metering along with differential tariff within a day, development of technology to make use of low cost night time electricity etc. have the potential to release thousands of MW of peak demand power, which is hidden, and millions of Units of energy at the national level for more productive purposes.  Many of the planned peak hour generating stations may not be needed at all.

29. Another area for serious consideration as part of demand side management could be the different time zones for the country.  Because of the longitudinal spread of the land area there is about 30-degree longitudinal difference between the eastern and western edges with a real time difference of about 120 minutes.  This time difference could be used for effectively diversifying the peak loads across five regions of the country.  The Planning Commission is in an eminent position to implement the theory of having two or three time zones.  The experience of other countries with such a provision should be studied in depth before arriving at a decision.

30. Electrical energy conservation itself has a great potential to release a considerable amount of peak demand power and annual energy. The National Productivity Council also has mentioned that there is a definite opportunity to save more than 25% energy at the National level. The possibilities in electricity sector itself are huge.  The society has to seriously introspect some of the usage like night time sports, heated swimming pools, decorative lights, the street lights glowing during day time, unnecessary illumination of private parks during nights etc.  As energy starved country, we should debate the ways and means of reducing such profligacy.  Some measures for consideration could be stiff penalties under legislation, suitable tariff to discourage such wastage, and massive public education campaign.  The relevant tariff regime could be such that for each category of customers the tariff should be what it generally costs to supply for the first block of energy, and should steeply increase for the higher blocks. 

To be concluded

India’s Energy Security: Major Challenges (Part – XI)

(Brainstorming Session)

Chair: When I was struggling to set up a new large power plant with former Coal Adviser and who was also CMPDI Chairman. We identified few coal blocks in Orissa.  The aggregate production potential of which could be one hundred million tons per annum, which means it can support about 20,000 megawatt. So we said there should be an integrated authority to be set up a VC type of body but not for power. It will have these coal blocks, dedicated railway lines from these blocks to a new port, not Paradeep, but a minor port to be redeveloped predominantly for coal loading - not a highly mechanized port also but a large area where these dedicated sort of discharge wagons can unload.  You have those ships which have self loading reloading facility or you can study in more detail to have loading facilities and have barges and with those barges you transport coal from all these areas where normally coal is available to somewhere say in South of Tamil Nadu to Kerala, Bangalore, from western Maharashtra and Gujarat.  3000 MW of stations, seven of them can be supported.  This is something, you don’t have to do all at a time. It can be done in phases because everything is independent, power stations can be built one by one, coal mining can be done one by one, ships can be go on increasing.  So you don’t have to come out with  total financing at one point of time, it can be done gradually.

But what we have not studied is the freight cost. If that can be economical then this model will work. It is not the total answer to future power requirements but it could be a substantial part of the answer.

Comment: It must be a package. Suppose you have 1000 MW plant you would require about 5 million tons of coal. Unless you make a very detailed study of the ships that you are going to use and the ports that you are going to use because, much depends on the turn around time. We have found that distance wise its hardly between one to three days but loading and unloading can take anywhere between two days to one week.

Chair: But that is the reason that this point has come up. We need ships, which has inbuilt loading and unloading capacity. Those types of ships are required.  Coastal stations with storage facilities are required. If somebody can work out this freight issue this is a good idea.  On the face of it we thought that it is going to be viable compared to railway transportation. 

Comment: Out of the 16 blocks, which were earmarked for state governments there are only eight applications. There are other areas pending. I asked Kerala to go in for a coal based power plant but the coal is not to be used on this side of the region.  You can have a joint venture with Tamil Nadu or Karnataka. If you are going to allow 100% FDI for this some of the large fellows will get in. 

Chair: This is something like a national project.

Comment: China is doing this. In China they transport the coal mostly from rail and sea route.  We are stuck with railways and that is why the railways are acting big.  If you say that we will put a dedicated shopping line they will fight with you just as they fought for oil pipelines.  The railway subsidy programme entirely depends on coal and if you take out coal they will be making losses.  They put so many conditions about loading, unloading, and it is among the highest priced.

Comment: How about a dedicated corridor on coal railway movement because you still have almost 80% savings compared to roads. That could be another option to actually explore.

Comment: For the sea route, the draft in many of the ports may not be adequate.  

Comment: You will find in the Coal Committee’s Report that India is one of the few countries which has mastered the art of mooring the ship with a single buoy 10-20 kilometers from the port and unloading it manually into boats. This works out cheaper than port charges. They said that they will not use the Krishnapatnam port because the port was being developed and the port charges were so high that port proposal fell through.

Comment: If you have the conviction you find the solution. You have to select those locations where these problems can be minimised.  The basic approach of the issue is whether it will be economically viable. If that is viable I am sure the solution can be worked out.

- Concluded -





Tough negotiations between OVL, Kazakh firm

May 1, 2oo6. Tough negotiations are going on between ONGC Videsh Ltd and KazMunaiGaz (KMG), Kazakhstan's national oil and gas firm, on the Indian company's efforts to buy 50 per cent stake in an offshore exploration block Satpayev in the Caspian Sea. While KMG was demanding a fee for holding further discussions on the proposed acquisition. In April 2005, Kazakhstan had asked India to buy 50 per cent stake in one of the two blocks - Satpayev or Makhambet - located in the Kazakh section of the Caspian Sea. OVL has shown interest in the Satpayev block.

OVL has already spent a substantial sum in geological studies leading to identification of prospects. OVL was also being asked to pay an additional bonus at the exploration stage. Indications are that OVL is willing to pay a signature bonus after the participating interest is assigned, but will not pay out any additional bonus at the exploration stage as it is meeting the entire exploration expenditure. A technical and commercial team of OVL had recently visited Kazakhstan to study the structure of the two blocks owned by KMG. As Satpayev block, according to the company's analysis, held better potential and was more attractive, OVL was in final stages of its negotiations with KMG.

NTPC scouts for blocks in Egypt, Australia

Text Box: •	The foray into the oil and gas exploration business is part of the company's plans to integrate fully across the entire fuel value chain.
•	Other countries on the company's radar include Saudi Arabia, Yemen and Malaysia. 

April 30, 2006. NTPC Ltd has kicked off the process of scouting for oil and gas exploration blocks abroad, with plans being firmed up to pick up stake in Egypt and Australia. The company is also in active negotiations with the Nigerian Government to strike a barter arrangement by offering expertise to run several low-efficiency power stations in the African country, including the take-over and operations of some plants, in return for gas supply contracts for its stations. The foray into the oil and gas exploration business is part of the company's plans to integrate fully across the entire fuel value chain for running its thermal stations in the country, several of which could face varying degrees of gas shortages in the future. Other countries on the company's radar include Saudi Arabia, Yemen and Malaysia. In its medium-term outlook, the company is working towards getting into various elements of the LNG value chain, including possible participation in gas liquefaction and regassification terminals and LNG shipping through the joint venture route. NTPC, which has a 40 per cent stake in the venture, is planning an initial investment of $11 mn (Rs 494 mn) for developing the block in Arunachal Pradesh.

GAIL, HPCL seek nod for overseas binge

April 29, 2006. GAIL India Ltd and Hindustan Petroleum Corporation have sought the government’s approval for easy clearance for overseas investments of over Rs 300 crore ($67 mn). Currently, ONGC Videsh, and the IOC-OIL combine are enjoying the special mechanism through an empowered group of secretaries (EGS), which ensures single point approvals for overseas investments exceeding Rs 300 crore. For other companies, the process is long and complicated. Both the companies have lined up a handful of projects, but only one project has materialised so far. Last month a consortium comprising GAIL, HPCL, Videocon, Oilex Australia and Bharat Petroleum Corporation was awarded a block in Oman. For pursuing overseas exploration and production activities, GAIL had already signed a MoU with HPCL.

Joides Resolution to drill in India for gas hydrates

 April 29, 2006. Carrying on country’s quest for alternative energy source, the government has invited global research vessel “Joides Resolution” to undertake drilling at 10 sites in Indian Ocean for tapping gas hydrate resources. Joides Resolution, the world’s only vessel to undertake core drilling for this natural gas source, will commence its operations in May and would carry on its activities for around four months. The gas hydrate programme is part of country’s strategy to look towards the future and research in non-conventional source of hydrocarbons to enhance the energy security of our coming generation. The vessel will drill one site each in Kerala-Konkan as well as Mahanadi basin, six sites in Krishna-Godavari basin and two in Andaman and collect gas hydrate samples.

Gas hydrate is a crystalline solid consisting with immense amount of methane, which is found in ocean floor sediments at water depths greater than 300 meters. India, under its national gas hydrate programme has international cooperation through the Malik gas Hydrate Well Consortium, comprising Japan, Canada, Germany and US. The drillship is equipped with scientific analytical laboratories onboard and expert scientists. It will cost $36 mn (Rs 1.62 bn), which is to be funded under integrated ocean development programme (iodp). Dr Timothy Collet, leading gas hydrate geologist from the US Geological Survey is heading the Indian research expedition, joined by scientists from the US and other countries. As per the scientific estimates 20,000 tcm of natural gas is trapped in form of gas hydrates, which could become a large non-conventional source of energy in future. Gas hydrates have also been identified in the Indian offshore areas and current estimates show the presence of about 1,894 tcm of natural gas in the form of gas hydrates.

OVL buys 15 pc in Brazilian blk

April 27, 2006. A move which will mark ONGC Videsh Ltd's entry in Latin America, OVL inked an agreement to buy a 15 per cent stake in a Brazilian oil field from Royal Dutch/Shell. OVL has paid a signature amount of $170 mn (Rs 7.6 bn) for the stake in Block BC-10 in Brazil and has committed another $234 mn ($10.5 bn) towards the development cost. The BC-10 oil field has production potential of 1,00,000 barrels of oil a day and is located about 120 kilometres (75 miles) southeast of the city of Vitoria, in the Brazilian state of Espirito Santo, at a water depth of 200 metres (660 feet). The 15 per cent stake to OVL is part of the 30 per cent stake acquired by Shell from the US energy giant Exxon Mobil, which was one of the consortia partners along with Shell and Petrobras, before it decided to sell its stake in the project.

ONGC offer to Petrobras

April 27, 2006. Oil and Natural Gas Corp has offered the Brazilian national oil firm Petroleo Brasileiro sa (Petrobras) a equity stake in its upcoming greenfield refineries. The State-owned Indian explorer is also talking to Petrobras for a technical pact on producing ethanol doped fuel. ONGC plans to build a new 15 mt refinery near its 9.96 mt Mangalore Refinery and Petrochemicals Ltd (MRPL) in Mangalore and 7.5 mt refineries at Kakinada in Andhra Pradesh and Barmer in Rajasthan. Presently, 5 per cent ethanol is doped in petrol after the fuel exits refineries in India. The doping is being done to cut the country's import dependence. Brazil mixed up to 20 per cent ethanol in fuel and India was looking at technology to mix ethanol in diesel, which constitute 40 per cent of the total fuel basket.

BPCL readies $1 bn warchest for E&P

Text Box: • Subsidiary to have Rs 500 crore authorised capital
• Existing E&P assets to be transferred to the proposed subsidiary
• E&P business likely to add Rs 50-500 crore to profits in 10 years
• Enter gas market to maintain its share in the energy market
• Move aimed at creating a presence across the value chain

April 26, 2006. Bharat Petroleum Corporation Limited has planned a $1 bn (Rs 45 bn) warchest to aggressively pursue opportunities in exploration and production of crude oil and gas. The company is also actively scouting for a mid-sized E&P company for inorganic growth. The company has chalked out plans for floating a fully-owned E&P subsidiary for ventures in India and abroad. All the existing E&P assets of BPCL will be transferred to this subsidiary. Since BPCL has already committed investments of about Rs 200 crore ($44.35 mn) in its ongoing E&P projects and is further expected to spend around Rs 300 crore ($66.52 mn) over the next three years, the authorised capital of the subsidiary has been fixed at Rs 500 crore ($111 mn). BPCL’s objective is to achieve security of oil and gas supplies to the tune of 20-25 per cent of the total requirement of it’s group companies in the next five years, pegged at 30 mt. The company, which will bid for E&P assets either on its own or with a strategic partner, hopes to add anywhere between Rs 50 crore ($ 11 mn) and Rs 500 crore ($111 bn) to its bottomline in the next 10 years, beginning 2009.


Essar Group eyes Nigerian refining firm

May 2, 2006. The Essar Group is in the fray to acquire Nigerian refining firm, Port Harcourt Refining Co (PHRC). The refinery is valued at about $500 mn (Rs 22.42 bn). If the bid is accepted, this will be the first overseas acquisition by the Ruia-owned group in the refining space. The other bidders for the refinery are Nigerian-based companies, Oando Consortium, Refinee Petroplus Consortium, and Transnational Corp Consortium. Nigeria’s Bureau of Public Enterprises has commenced a fresh evaluation of the technical bids of the four companies competing for PHRC. This is the third time technical bids of the parties are being evaluated by the agency. Once evaluation is complete, the bidders would proceed to the financial bid opening stage. The bidders will qualify on the basis of experience in managing a crude oil refining plant and the quality and credibility of their post-acquisition plans. The players will also have to be able to finance up to $200 mn (Rs 8.97 bn) of capex by PHRC in the next three 3 years.

GAIL to set up LPG plants in Uzbek

May 1, 2006. The GAIL (India) Ltd is planning to set up liquefied petroleum gas (LPG) plants in Uzbekistan. The LPG plants with a capacity of 0.1 million tonnes per annum each will be set up in western parts of Uzbekistan along with Uzbekneftegaz, a national gas major of that country. The estimated capital investment in each LPG plant was in the range of $50-60 mn (Rs 2.24-2.69 bn). These multiple gas-based LPG plants would cater mainly to the domestic market of Uzbekistan. Under the agreement, the two companies would jointly pursue gas sector projects covering exploration and production, gas processing, production of petrochemicals as well as training and research & development. UzbekNefteGaz is the state-owned holding company formed in 1998 when the Government of Uzbekistan merged nine companies in the oil and gas sector.

Recently India and Uzbekistan signed a memorandum of co-operation agreement. In a significant boost for India’s energy diplomacy, Uzbekistan was willing to offer India oil exploration blocks on a joint management basis in the ratio of 50:50. The Uzbek offer assumes significance as the country is estimated to have 594 million barrels of proven oil reserves and estimated 66.2 trillion cubic feet of natural gas reserves. Uzbekistan is the second largest natural gas producer in the Commonwealth of Independent States (CIS) after Russia.

HPCL set for Kenya, Vietnam foray

May 1, 2006. Spreading its wings beyond the Indian subcontinent, Hindustan Petroleum Corporation will be marketing some of its products in Kenya and Vietnam during the current year. The company, at present, has a presence in Nepal, Bangladesh and Sri Lanka. The company is of the view that only those products that were in surplus, like naptha and lubricating oils, had a marketing potential.

At present, the company was concentrating on selling lubricating oils under its brand name in foreign countries. For instance in Bagladesh, where it has captured about 2-3 per cent market share, Hindustan Petroleum plans to partner the appointed distributor in setting up a local manufacturing facility. Hindustan Petroleum is also engaged in direct export of lubricating oils to countries like Nepal, Bangladesh, Malaysia, Sri Lanka and Saudi Arabia. While it may be ahead of its counterpart Bharat Petroleum in marketing products abroad, it has a long way to go before it catches up with Indian Oil Corporation. 

RIL to invest $13 bn in hydrocarbons business

April 28, 2006. Reliance Industries Limited has decided to focus on its core business of refinery and petrochemicals, setting aside a war chest of over Rs 58,500 crore ($13 bn) for investments in these key businesses. Of this, a total sum of Rs 9,476 crore ($2.11 bn) would be invested in the core businesses in the current fiscal itself. Apart from a massive investment of Rs 27,000 crore ($6 bn) for the Jamnagar Export Refinery Project (JERP), RIL will invest Rs 20,250 crore ($4.5 bn) in the exploration and production (E&P) sector, Rs 7,200 crore ($1.6 bn) in enhancing petrochemical capacities and another Rs 6,750 crore ($1.5 bn) in the creation of a fuel retailing network.

Oil PSUs may take a $12.64 bn hit

Text Box: • Globally, petrol and diesel prices have peaked to $77.7 a barrel and $78.84 a barrel, respectively
• In India, currently, petrol prices are fixed at $ 60.52 a barrel and diesel prices at $56.35 a barrel
• Every $1/ barrel rise in global crude prices requires a 40 p/ litre hike in petrol and 37 p/ litre hike in diesel
• Malaysia, Thailand, the Philippines and China have hiked prices by 10-15 per cent in the last 12 months

April 26, 2006. Under-recoveries of oil companies will touch a record high of Rs 57,000 crore ($12.64 bn) during 2006-07 if domestic product prices are not revised and global crude oil prices hover around the current level of over $74 (Rs 3337) a barrel. This could worsen if prices move up further. This issue has been raised by the petroleum ministry’s own technical wing —Petroleum Planning and Analysis Cell (PPAC)— in its recent report on the impact of global prices on domestic prices and state-owned oil companies. As per PPAC, with spiralling global crude oil and petroleum products prices and the Indian basket of crude oil touching an all-time high of $68.41 (Rs 3085) a barrel, under-recoveries of oil companies on sales of petrol, diesel, LPG and kerosene in April alone, would peak to Rs 4,722 crore ($1.05 bn). Under-realisations on diesel for April 2006 will be the highest at Rs 1,941 crore ($430 mn) followed by kerosene at Rs 1,366 crore ($303 mn), LPG at Rs 1,084 crore ($240 mn) and petrol at Rs 331 crore ($73 mn). At the existing global crude prices, petrol is under priced by Rs 5.66 a litre, diesel by Rs 7.64 a litre, kerosene by Rs 14.29 a litre and LPG by Rs 195.10 a cylinder. Kerosene prices have not been increased in the last four years since March 2002, while LPG prices were last revised in November 2004. Last price revision in petrol and diesel was on September 7, 2005. Even as global petrol prices are at $77.7 (Rs 3504) a barrel and diesel at $78.84 (Rs 3556) a barrel, the current domestic retail price of petrol is fixed at $60.52 (Rs 2729) a barrel and diesel at $56.35 (Rs 2541) a barrel. Neighbouring Asian countries including Malaysia, Thailand, the Philippines and China hiked prices by 10-15 per cent last year. In India, the increase in domestic prices is not commensurate with increases in international crude oil prices. As a result, the gross under-recoveries of oil companies on product sales during 2005-06 stood at Rs 39,600 crore ($8.78 bn).

Transportation / Distribution / Trade

Sakhalin-I gas for India only by Sept

May 1, 2006. India may have to wait awhile for its share of natural gas from Sakhalin-I fields. It will get its first crude consignment of 20,000 barrels per day from the field in September. This includes Russian oil major Rosneft’s share of crude also. According to an agreement reached with Rosneft, ONGC Videsh will have the rights for the Russian company’s share of crude also. This was in return for the loan given by OVL to Rosneft towards the latter’s infrastructure development obligation. ONGC Videsh has 20 per cent stake in the Sakhalin-I fields of Russia. The fields started production in October last year. The first cargo to be transported by tankers owned by the consortium having stakes in the field will hit Indian shores in September with 700,000 barrels. By early next year, OVL will start exporting 100,000 barrels per day from the field, which included the 50,000 barrel per day share of Rosneft. The field is operated by Exxon Mobil with 30 per cent interest. Co-venturers in the field include the Japanese consortium SODECO (30 per cent) and affiliates of the Rosneft — RN-Astra (8.5 per cent) and Sakhalinmorneftegas-Shelf (11.5 per cent). Meanwhile, India is still negotiating with Exxon-Mobil for getting the natural gas produced from the field to India. China has also offered to buy the gas and transport it through a pipeline. ONGC has constituted a price negotiation team to discuss the commercial issues with Exxon-Mobil directly. 

British Gas to enter city gas arena

April 30, 2006. British Gas is ready with its multi-million dollar plan for undertaking city gas distribution (CGD) projects in India in a big way. With a presence in gas exploration acreages on the east coast, BG is in the process of spreading its wings in both the upstream and downstream sectors. In the downstream sector, while BG currently has two CGD projects in Maharashtra and Gujarat. It will approach the Foreign Investment Promotion Board (FIPB) for obtaining permission for fresh investments in the southern states including Andhra Pradesh, Tamil Nadu and Karnataka for setting up CGD projects. The company is working on detailed primary surveys to establish the potential demand for natural gas in the states of Andhra Pradesh, Tamil Nadu and Karnataka. Using these plans, BG would assist the states in producing master plans, which will show where gas can be used and how it will benefit the state. These plans will also demonstrate where the state’s gas transmission infrastructure would need to be located.

RIL, GSPC bet big on revenues from KG basin

April 30, 2006. The recent giant discoveries of oil and gas fields in the Krishna Godavari basin is expected to more than double the revenues of companies like Reliance Industries Ltd and Gujarat State Petroleum Corporation in the next five years, provided the commercial production of discoveries made by these companies goes as per schedule. With RIL's commercial production in the KG Basin slated to be in 2008, the company expects its revenues to double in the next five years. RIL at present invests $300-$500 mn (Rs 6.68-11.14 mn) annually on exploration. Similarly, GSPC, with its discovery of 20 TCF of gas in the KG basin last year, expects five-fold growth in its net worth during the next five years. The discovery is valued at over $50 bn (Rs 2.24 trillion). At present, exploration and production business contributes only 2 per cent of the RIL’s revenues, but with the commercial production of 14 TCF of gas expected from the KG basin in 2008, RIL's E&P business is likely to contribute 15 per cent - 20 per cent of its revenues by 2010, an increase of 1000 per cent. ONGC is also expecting substantial revenues from its oil and gas discoveries in the KG basin apart from its overseas assets.

RIL gas for Dadri plant at $2.34/mBtu

April 30, 2006. Reliance Industries Ltd will sell gas from its Bay of Bengal fields to 5600 MW Dadri power project in Uttar Pradesh for $2.34 per million British thermal unit (mBtu), a good $2.4 lower than current market price. RIL will supply 28 million standard cubic metres of gas per day (mscmd) to Reliance Natural Resources Ltd, as sourcing gas for the Dadri project. Added to this would be $0.12 per mBtu marketing cost and another $0.72 per mBtu cost of transporting it from Kakinada in Andhra Pradesh to Dadri. After adding Central sales tax, the burner-tip price of gas came to $3.27 per mBtu on net heating value (NHV) basis. Reliance has offered NTPC gas at $2.70 per mBtu plus $0.48 per mBtu for piping the gas from Kakinada to Gujarat, a distance of 1400-km.

M’shtra sets up nodal agency for gas distribution

April 27, 2006. The Maharashtra Government has set up a nodal agency for distributing natural gas in the State. Called the Maharashtra Industrial Gas Transmission Company Ltd (MIGTCL), the gas grid would primarily cater to industrial consumers. MIGTCL is being set up under the aegis of Maharashtra Industrial Development Corporation. At present, Gujarat is the only State in the country having a full-fledged gas grid network of about 450 km. MIDC has taken a lead role in setting up the grid as it has the right of use in most of the industrial areas in Maharashtra. Some of the players expected to bring gas into the State are GAIL, Reliance and Gujarat State Petronet Ltd. MIDC would provide gas primarily to industrial consumers in about 100 industrial estates out of the 256 industrial estates run by them.

RIL to set up $7.76 mn gas project in MP

April 26, 2006. Reliance Industries has offered gas to Madhya Pradesh from its Shahdol gas region. Its group company Reliance Gas Pipeline Ltd (RGPL) will set up a pilot project with an investment of Rs 30-35 crore ($6.65-7.76 mn) in Shahdol. The company will lay a 15-km gas pipeline and will supply gas to companies like, local units in Shahdol, and power plants situated close-by. Reliance has found abandoned coal bed methane (CBM) in Shahdol and at present methane is being wasted. It is proposed to have some pilot project for the distribution of the same to local industries, power plants, and retail users in Shahdol. The company is reportedly making efforts to seek permission for laying a gas pipeline from Shahdol to Phoolpur in Uttar Pradesh.

Qatar to consider India's request for more LNG

Text Box: •	Qatar to supply LNG to Ratnagiri Gas and Power on interim basis
•	Interested in opportunities in energy-related infrastructure in India

April 26, 2006. Qatar has agreed to consider India's request for the supply of additional liquefied natural gas to meet the country's increasing demand. India is already importing 5 mt of LNG from Qatar and has tied up another 2.5 mt to be received from 2009. Qatar also agreed to supply LNG for meeting the fuel needs of Ratnagiri Gas and Power Project Ltd (RGPPL) on an interim basis till RGPPL ties up its gas requirements for the long term. Qatar has evinced interest in exploring investment opportunities in energy-related infrastructure in India, including equity participation in Petronet LNG Ltd, power and desalination projects near PLL's LNG terminal coming up at Kochi, and in NTPC's Kayankulam Power Project, if it opens up for foreign investment. Ministry for Economic Trade and Industry of Japan, discussed with the Ministry of Petroleum and Natural Gas  of India, the possibility of signing MoUs in different areas in the hydrocarbon sector. This includes cooperation in E&P, particularly in third countries, exploiting hydrocarbon resources in form of the gas hydrates/synthetic hydrates, jointly undertaking studies in Asian markets, undertaking collaborating research on hydrogen, setting up a strategic oil reserve storage and adopting better energy conservation practices.

Policy / Performance

Panel for zero import duty on crude oil

May 1, 2006. A high-level government panel has suggested nil import duty on crude oil to facilitate setting up of petrochemical hubs at seven locations in the country. The Committee on Feedstock Policy and Pricing for Petroleum, Chemicals and Petrochemical Investment Regions, identified Dahej in Gujarat, Vizag in Andhra Pradesh, Kochi in Kerala, Haldia in West Bengal, Mangalore in Karnataka, Paradip in Orissa and Panipat in Haryana for setting up of petrochemical hubs. Each hub, referred in the Committee's report as Petroleum, Chemicals and Petrochemical Investment Region (PCPIR), must include a refinery, petrochemical plant with downstream chemical units.

Firms to have a say in norms for oil regulator

April 27, 2006. Companies in the gas and petroleum products sector will be invited to give their views on the guidelines to be framed for the Petroleum and Natural Gas Regulator. With the Petroleum and Natural Gas Regulation Act being cleared by the president, the government has started the process of formulating guidelines that will serve as inputs for the regulatory board. The guidelines will provide a broad framework for the board. Analysts say, during framing of the guidelines the process for granting authorisation, terms for open access, kind of exclusivity to be given to the operator, tariff and market service obligations need to be looked at. The guidelines should mention the terms of open access and exclusivity; for instance, whether exclusivity would be defined on the basis of time period, geographical area or the choice of supplier. Other issues that need to be addressed include the method for setting tariffs and the allowable returns, how efficiencies will be rewarded and the kind of service obligations that will be enforced on companies engaged in marketing and distribution of natural gas. The Petroleum and Natural Gas Board has been set up to regulate the downstream and the mid-stream sector with regard to gas and petroleum products. 

Govt asks OMCs to undertake survey of retail outlets

Text Box: •	Rapid expansion has led to drastic cut in average throughput per outlet.
•	Reduction in volume has eroded viability of pump operations leading to malpractices such as adulteration.
•	Quality of customer service has deteriorated. 

April 27, 2006. The Government has directed state-owned oil marketing companies to undertake a survey of the rapid increase in retail outlets (ROs) commissioned by them and identify the outlets selling less than 200 kl per month. The OMCs have been asked to come out with a blue print for remedial measures. This is to ensure a healthy retail network of OMCs providing standard service to the customers. The exercise is expected to be completed within the next four months. The rapid expansion of the number of retail outlets from 18,848 as on April 1, 2002, to 29,951 as on March 31, 2006, an increase of 59 per cent in just four years, is set to have led to a drastic reduction in the average throughput per outlet. It had taken OMCs over 30 years to set up 18,848 retail outlets. The per retail outlet volume, which was a healthy 275 kl per month five years ago, has declined to around 140 kl per month now. Besides, increased expenditure for operating retail outlets and the reduction in volume have considerably eroded the viability of pump operations, leading to rising incidence of sickness and providing a fertile ground for malpractices such as adulteration by some pump operators. This has resulted in deterioration in the quality of service to customers at retail outlets.

Oil regulator Act may set transport tariff ceiling

April 26, 2006. Guidelines for the Petroleum and Natural Gas Regulator Act may set a ceiling on tariffs charged for transportation and distribution of petroleum products and natural gas, and also consider giving marketing exclusivity for some years to a city gas operator.  Petroleum planning and analysis cell (PPAC) said that the cost-plus method of tariff determination was only one of the options that may be used. If an operator faced a loss due to setting of tariffs below cap then it was not liable for compensating the company during the next round of tariff setting. Another aspect that the guidelines will look at is the issue of exclusivity given to the company that wins the license for using pipelines for city gas distribution. The clause for exclusivity in the Act is applicable only till the distribution level. However, different periods of exclusivity for marketing may be specified for different regions. The government is considering the move after getting representations from various industry players. 



Hinduja group plans revival of Vizag power plant

May 1, 2006. The Hinduja group has evinced interest in reviving its 1,000-MW coal-based projects in Andhra Pradesh. The 1000-MW power plant could possibly mean an investment of Rs 4,000 crore to Rs 5,000 crore ($893 mn- $1.12 bn). The Hinduja power project was witness to price revision and was later done away since the project cost was much higher compared to the NTPC Simhadri plant.

Dabhol to regenerate power from May

April 30, 2006. Over five years after it was shut down, the Dabhol power project is all set to resume generation from May 1. Now re-christened 'Ratnagiri Gas and Power Pvt Ltd,' the first phase of the plant with a generation capacity of 740 MW would re-start production using Naphtha for fuel. The project, shut down in May 2001 following a power tariff dispute between its promoter Enron Corporation and sole customer, the Maharashtra state power utility, is likely to begin generation from its 740 MW block II for 6-8 hours a day. The project has a total generation capacity of 2,184 MW. This is perhaps for the first time in the world, that project machinery which was lying unutilised for five years, is reactivated. Presently, Maharashtra would be getting the electricity at Rs 4.25 per unit for the short period of 50-55 days, for which the state electricity distribution utility Mahadiscom has already entered into an agreement with RGPPL. The rate is much lesser than the Rs 5.50 the state is paying currently for overdrawing from the central grid.

Delhi plans 2,000 MW power plant

April 30, 2006. Delhi government is all set to free itself from the northern grid by looking at coal-rich states, Jharkhand or Chhatisgarh, to set up a 2,000 MW capacity power plant. The power plant, expected to be set up in four years’ time at an estimated cost of Rs 10,000 crore ($2.23 bn), will supply electricity exclusively to the national capital. The Delhi government is identifying the location for setting up the plant and putting in place the transmission system to bring electricity.

Siemens, Bhel sign MoU for power plant tech

April 28, 2006. Siemens and Bharat Heavy Electricals have signed a memorandum of understanding to cooperate for advanced power plant technology. The agreement provides for Bhel and Siemens to jointly offer and install steam turbines for power plant projects in India that involve supercritical steam conditions. This covers steam turbines based on super critical conditions wherein the plant operates with steam temperature just below 600 degree Celsius and a high pressure of approximately 250 bar giving higher plant efficiency. To meet the country’s rapidly-growing demand for power, the Indian government is planning an ambitious expansion programme. Currently, India has an installed power plant capacity of 124,000 MW and by ’12, new coal-fired power plants with a combined capacity of over 38,000 MW are to be built. To fulfil this plan, large coal-fired units of varying output, including 800 MW need to be constructed.

AES eyes 1,000 MW plant in Chhattisgarh

April 26, 2006. The US utility giant AES Corporation has decided to invest in a power project in Chhattisgarh. AES Corporation has signed an MoU with state government to set up a 1,000 -1,200 MW thermal power plant investing between Rs. 4,000-4,800 crore ($887 mn-$1.06 bn) in it. The investment in Chhattisgarh is part of company’s programme for increasing capacity generation.

Transmission / Distribution / Trade

PTC posts 14 pc hike in trade volumes

May 2, 2006. Power Trading Corporation of India plans to continue its diversification efforts, the focus being on tapping surplus captive power capacity and coal intermediation deals. The company also increased its volume of power trade compared to the year before. During the year, PTC traded in 10,119 million units. While, this represents a 14 per cent growth in volume over ’04-05, when it was at 8,887 MUs, it was still lower than the ’03-04 level of 11, 029 MUs. During the year, PTC entered into long-term power purchase/sale agreements for 5 projects totalling a capacity of 4000 MW. The cumulative capacity tied up through long-term projects by the company, has reached 4600 MW. PTC India entered into MoUs with another 16 projects totalling to a capacity of 10,400 MW, for which power purchase and sale agreements are being negotiated.

State power cos are not shining yet

May 1, 2006. For sometime now, the government has been claiming that private developers can be assured of payment security. It says that private power developers can invest in the power sector without fearing that they will not be paid by state- owned utilities for the power consumed by them. However, figures, aggregated by the government-owned Power Finance Corporation, tell a different story—overall losses of utilities directly to consumers increased from Rs 7,247 crore ($1.62 bn) in ‘03-04 to Rs 8,969 crore ($2 bn) in ‘04-05. However, after taking subsidies received by the utilities into account, cash losses increased from Rs 879 crore ($196 mn) to Rs 1,006 crore ($225 mn) in ‘04-05. The fiscal health of state utilities is not really improving, even though there have been a few turnaround stories. Even the government’s state of the economy report, the annual Economic Survey projects an increase in subsidies and further losses for the utilities, which projects commercial losses for state power sector at Rs 23,924 crore ($5.34 bn) in ‘06-07. The report found on that overall losses of state utilities without taking subsidies into account increased from Rs 19,408 crore ($4.34 bn) in ‘03-04 to Rs 19,756 crore ($4.41 bn) in ‘04-05. However, cash profit on subsidy received basis, that is net income after taking into account subsidy component, increased from Rs 1,790 crore ($400 mn) in ‘03-04 to Rs 1,900 crore ($424 mn) in ‘04-05. But the picture changes once again, when cash profit is computed by taking into account revenues and subsidies — losses are down from Rs 5,379 crore ($1.20 bn) in ‘03-04 to Rs 3,696 crore ($826 mn) in ‘04-05.

Interestingly, in ‘04-05, only Orissa (Rs 391 crore) and Goa (Rs 146 crore) registered profits, without taking into account subsidies received. If both revenues realised and subsidies received are taken into account, then West Bengal (Rs 502 crore), Rajasthan (Rs 712 crore), Punjab (Rs 1,315 crore), Andhra Pradesh (Rs 1,032 crore), Karnataka (Rs 134 crore) , Maharashtra (Rs 2,029 crore) join the ranks of profit earners. The trend seems to tie in with the Economic Survey ‘05-06, which projects an increase in commercial losses in the state power sector. Commercial losses have shown an upward trend from Rs 22,558 crore ($5.039 bn) in ‘04-05 to Rs 22,569 crore ($5.041 bn) in ‘05-06, according to the government’s annual state of economy report. In ‘05-06, a total of Rs 11,562 crore ($2.58 bn) was given as direct transfers from state governments to SEBs, up from Rs 10,478 crore ($2.34 bn) in ‘04-05. But the picture becomes gloomy as projection for ‘06-07 show a decline in direct transfers to Rs 10,254 crore ($2.29 bn).

Power utilities need States' administrative support'

April 26, 2006. The PHD Chamber of Commerce and Industry has urged the State Governments to provide administrative support to power utilities to effectively tackle power theft. Bridging the gap between demand and supply of power is essential to give fillip to growth of the economy and this calls for massive capacity addition programme for which the States must gear up, according to the chamber. High transmission and distribution (T&D) losses and inaccurate estimates of the same act as a barrier to private sector participation in the sector, according to the chamber. As per the 17th Electric Power Survey Report, T&D losses in the northern region still range between 27 per cent and 44 per cent. The chamber has also called for joint development of projects by two or more States wherever the project cost is high.

Policy / Performance

Plan panel for speeding up pvt entry in coal mining

May 1, 2006. The government may allow captive mines to sell coal to each other and to the entire set of companies to which they belong. The government may also allow partially captive coal mines owned by a power generation company to sell coal to any other public sector or privately owned power plant. In a proposal by the Planning Commission, the panel has also asked the government to expedite the much delayed Coal Mines (Nationalisation) Amendment Bill to allow unrestricted private entry into coal mining. The amendment bill, when passed, will allow competitive bidding for captive coal blocks. In case that happens, the present system of allocation based on the recommendations of a screening committee headed by the coal secretary may not be required. Captive coal blocks are allotted under the government-company dispensation route and under the captive coal mine route. Companies that are allocated coal blocks can sell coal directly in the market, which is not the case under the captive coal block allotment process. For allocations under the captive coal block route, the coal needs to be sold to the local Coal India Ltd subsidiary at a price determined by the government. 

Tatas to hike Bangladesh investment

April 30, 2006. The Tata group offered to increase its proposed investment in Bangladesh to over Rs 13,500 crore ($3 bn). This would make it the largest single foreign investment ever made in Bangladesh. In its revised proposal to Bangladesh’s Board of Investment (BoI) for setting up greenfield operations in steel, fertiliser, power and coal mining, the Tatas have also offered equity stake of 10 per cent to the Bangladesh government in all its projects. It also plans to tap the capital market in Bangladesh. It may be recalled that Tata Group’s projects were struck up for more than 18 months over the dispute over the pricing of gas with the Bangladesh government. Now, the Tatas have offered to buy natural gas in Bangladesh at $3.10 per thousand cubic feet, more than double the previous offer. In its submission the Tata Group has proposed a product-linked gas pricing formula, which at today’s commodity prices offers Bangladesh an attractive price for its natural gas. The Tatas plans to set up a 500 MW coal-fired power station and a 1,000 MW gas-fired power plant.

Govt okays 43.5 mt additional coal capacity

April 29, 2006. To tide over the coal shortage plaguing the country, the Government is focusing hard on increasing domestic coal production in a big way. During the first month of the current fiscal itself, the Government has approved the creation of an additional 43.5 mt of coal production capacity. India currently produces a little over 400 mt of coal annually. The Cabinet Committee on Economic Affairs (CCEA) has approved these additional capacity all of which would be through opencast mining. The 10 mt of coal would be made available to Rosa Thermal Power Station and other consumers on annual basis. Other 20 mt coal will be made available to NTPC and other State Government-owned thermal power stations in Orissa. Other 10 mt from Kaniah opencast coal mining project of Mahanadi Coalfields, which would be completed in 2008-09, would be supplied to Rajiv Gandhi thermal power station of NTPC in Orissa. The CCEA gave the green signal for floating tenders for outsourcing additional coal production in Dipka opencast mine project by 5 mt annually and in Gevra opencast project by 10 mt annually.

Canada may invest in Indian power sector

April 28, 2006. India is keen to see a growing Canadian participation in its power sector, especially for developing and harnessing the country's hydropower potential. Union Power Ministry invited Canadian investments and technology in hydropower generation, modernization of existing power generation units and modernizing power transmission and distribution networks. Canada could also help India by providing a variety of tools and solutions pertaining to energy audit, energy conservation, demand side management, communication and renewable energy sources. India needed $100 bn (Rs 4.49 trillion) investment in next five years for expansion of generation, transmission and distribution and rural electrification facilities.

Power crisis in states to affect industry

April 27, 2006. Many states in the country are reeling under acute power crisis with energy deficit ranging from 8 to 27 per cent. A nationwide survey conducted by Assocham has revealed that states like Bihar, Gujarat, Haryana, Maharashtra, Madhya Pradesh and Uttar Pradesh are facing acute power shortage and load shedding, severly impacting industrial production and agriculture sector. Lack of fresh investment and modernisation coupled with huge transmission losses is responsible for the grave power situation in the country. In terms of region wise comparison, the survey found that the highly industrialised western region was facing an energy deficit of about 17 per cent, where only 16,000 MU of power was available as against the required 20,000 MU. 

WB plans $1.3 bn investment in hydel projects

April 27, 2006. The World Bank has firmed up plans to assist in hydel power generation projects in the country. This time, the bank will finance only run of the river projects and not ones involving construction of a dam. The bank is currently in the process of firming up investment plans of $1.3 bn (Rs 5,800 crore) for five projects, being taken up by three public sector units. A run of the river project does not involve construction of a dam. The World Bank will be helping Satluj Jal Vidyut Nigam Ltd (SJVNL) set up a 430 MW hydel power generation plant on Satluj river at Rampur in Himachal Pradesh. Out of the total project cost of $525 mn (Rs 23.54 bn), the bank will contribute $400 mn (Rs 17.94 bn). The body is also in talks with the PSU for setting up another hydel power project of 400-500 MW capacity involving a project cost of $525 mn. The World Bank will also be helping the Uttaranchal Jal Vidyut Nigam Ltd in setting up two projects on the Alaknanda river in Uttaranchal. They may be of 130-160 MW each and will involve a total investment of $300 mn (Rs 13.45 bn). The PSU will contribute $100 mn (Rs 4.48 bn) for the projects construction for which will start by end 2007. They are expected to be completed by 2010. The bank expects to assist in another hydel power generation project with a capacity of 300-400 MW and involving an investment of $300 mn. It will see association with another government PSU involved in hydel power generation. The banking body plans to be associated with hydel power generation projects with a combined capacity of around 1500 MW by 2012. 

Andhra waives surcharge on electricity arrears

April 26, 2006. In Andhra Pradesh Power distribution companies have been asked to waive the surcharge on electricity arrears in respect of domestic consumers accumulated till November 30, 2005, whose monthly average consumption is up to 100 units, in order to extend relief to them under the provision of waiver of bad debts. There are 9.7 million domestic consumers with monthly consumption of up to 100 units. Of this, 4.6 million non-paying consumers will benefit from this scheme. The total arrears in respect of these 4.6 million consumers are Rs 755.7 crore ($168 mn) of which, the surcharge component is Rs 219.8 crore ($49 mn). The scheme is applicable to specified LT domestic consumers irrespective of whether the services are under disconnection, bills stopped or live. The specified domestic consumers are those whose average monthly consumption is 100 units and below during December 2004 to November 2005. The original scheme for surcharge waiver was given up to March 31. Now, it is being extended by further 3 months to cover arrears up to March 31. The consumers shall clear the arrears in one lump sum/three equal monthly instalments along with the regular bill amount for waiver of surcharge. No interest will be charged on the instalments permitted.

No trading by states in mega power projects

April 26, 2006. Power from the ultra mega power projects will only be for the allottee states’ own consumption and no power trading will be allowed. The power ministry took this decision following rising concerns over the present trend of trading power by many states, particularly from the central public sector units’ quota, which has pushed up the cost of power. Power surplus states have been found to have drawn their quota from central power generation companies, and later sold them to trading companies at a premium. Power deficit states, in turn, buy power from trading companies. This leads to a situation where the price per unit of power climbs to an unsustainable level in deficit states. However, in case of payment default by allottee states, the developers have the right to sell power to distribution companies or high-tension consumers. 

Study reveals faulty coal pricing

April 25, 2006. According to a latest report by the National Council for Applied Economic Research (NCAER) negative externalities are present in thermal power. In fact, these negative externalities arise at the stage of coal extraction which is not accounted for anywhere in the whole supply chain. The fault arises due to wrong pricing policy for coal. At the outset, the demand for electricity drives demand for coal in India. Though electricity may be generated from non-coal sources, the society prefers coal for power generation because coal is a relatively inexpensive source of energy, as priced by current market conditions. The relative prices make a good case for the use of coal by users especially in the Indian context. Moreover, the market price of coal, basically, does not reflect its thermal value. The best quality of coal costs the least and the worst the most. India has proven reserves of high-ash content coal which creates more environmental hazards and reduces the life of thermal power stations. Similarly, the uniformity of coal prices in the country leads to the setting up of thermal power plants away from coal heads, causing environmental damages in coal transportation. However, the market price does not reflect health and environmental costs. In other words, market prices very often do not capture social costs imposed on the society resulting in sending wrong incentives for users which, in turn, makes their choice of selection of energy source inconsistent with society’s best interests. To balance individual and society’s interests, it is necessary to close the gap between the readily available price of coal and the social cost of coal, said the report.




Opec produces surplus oil: UAE

May 2, 2006. Opec is over-producing by at least 2 million barrels per day, ensuring ample oil supplies in the market, and high prices are due to a combination of factors. Volatility in world oil markets in recent years is not caused by shortages in crude oil supplies but is due to other causes such as anxiety brought about by actual or perceived geo-political instabilities in producing countries, bottlenecks in world refining sector and speculation in futures oil markets. OPEC urged producers and consumers to reconcile their interests and work together to overcome the challenges facing the petroleum industry. This includes the call for huge investment outlays in oil upstream and downstream sectors to raise production capacities and overcome bottlenecks in world refining capacity. Cooperation between producing and consuming countries is essential and cooperation between national and international oil companies is also an important factor in achieving energy security and oil market stability in future. The Middle East currently produces 30 per cent of the total world oil production but it is not commensurate with the size of the proven oil reserves in this region.

Afghanistan set to open oil & gas sector to bids

May 1, 2006. Afghanistan is drawing up oil and gas exploration blocks and will soon be seeking production-sharing agreements with foreign companies to develop what it hopes are larger-than-expected reserves. The US Geological Survey (USGS) says there could be up to 36.5 tcf of natural gas and 3.6 billion barrels of crude oil lying undiscovered under Afghanistan, mostly in its generally peaceful north. The exploration and development of these area will be given to the private sector. The World Bank helped Afghanistan draft a hydrocarbons law and the best way for the cash-strapped government to develop its reserves was through production-sharing agreements. In the 1970s, Afghanistan exported natural gas to the Soviet Union but now its only gas output is feeding a fertiliser plant and supplying a small community in Shiberghan. Under an agreement on a proposed gas pipeline from Turkmenistan, through Afghanistan to Pakistan, Afghanistan will be able to feed its output into the pipeline and expected considerable interest when bidding for blocks is opened up, within six months to a year. Up to 25 companies - from Russia, Central Asia, China, South Asia, Europe and the United States had expressed interest in just a small oil reserve in Sar-i-Pul province.

China signs to explore oil, gas in Kenya

April 30, 2006. China and Kenya signed an open-ended oil exploration deal. The China National Offshore Oil Corporation (CNOOC) signed the agreement with Kenyan Energy officials but did not attach any value to the deal, which offered the state-run Chinese oil giant to explore Kenya`s coastal region for oil and gas. The deal covers six blocs in Lamu, a region bordering Somalia, but which is believed to posses part of the gas reserves which were recently discovered in Tanzania`s Songa Songa region.

Chevron, Exxon discover oil off African coast

April 29, 2006. Chevron Corp. and Exxon Mobil Corp. have found oil off the coast of Gabon in West Africa in a deposit that could hold as much as 1 billion barrels of oil and gas. The discovery could be the largest find so far this year. San Ramon-based Chevron operates the field and owns 51 percent. It bought its stake in 2004, and started exploratory drilling in January. Exxon Mobil owns a 40 percent stake, with the remaining 9 per cent stake held by Dangote Energy Equity Resources. The well was drilled in the Nigeria Saõ Tomé and Principe Joint Development Zone, in the deep waters of the Gulf of Guinea, approximately 190 miles north of the island of Saõ Tomé. Chevron was reviewing the drilling results from the Obo-1 well to determine the next steps in its exploration program. Chevron also found oil this month south of Saõ Tomé, off the coast of Angola, where it is the largest oil producer. The enclave of Cabinda, a bit of Angolan territory north of the Congo river and separated from the rest of the country by the Democratic Republic of Congo (fomerly known as Zaire), has many offshore oil deposits. Cabinda is close to Gabon.

Pak to investment in oil, gas exploration

April 27, 2006.  The Pak government was encouraging and facilitating investment in the oil and gas sector. Pak asked the Chinese company to bring more rigs for expanding the oil and gas exploration activities in Pakistan. There existed a lot of scope and opportunities for the investors in the oil and gas sectors and invited the Chinese company to participate in the upcoming projects for the mutual advantage. The Chinese company had 120 rigs and was already cooperating with OGDCL in the drilling activities by providing them four rigs. One more rig had also been arrived in Pakistan which would help boost the exploration activities.

Nigeria gives China oil rights for investment

April 27, 2006. China is to take over controlling stake in the Kaduna Refinery and build a rail network system in Nigeria. The Kaduna Refinery is one of Nigeria's biggest refineries with a capacity to produce 110,000 barrels daily. In addition to this investment, China has also secured four oil drilling licenses from Nigeria and in exchange, is investing $4 billion (about N5.2 billion) in oil and infra-structure projects in Nigeria. China, the world's most populous nation, needs more imported oil to fuel its rapidly growing economy. Nigeria, Africa's most populous nation but also one of the world's poorest, needs foreign investment to speed development

Chevron to boost Colombia gas output

April 26, 2006. U.S. oil major Chevron Corp. plans to boost its Colombia gas production by up to 50 per cent. The effort comes as Colombia and Venezuela are developing a $230 million gas pipeline that would link Colombian gas fields to Venezuela's gas-deficient western regions. The company is seeking to increase output at the Punta Ballenas fields to as much as 750 million cubic feet per day (cfd) from a current 500 million cfd. The additional gas production, which will require investment of over $100 million, would be available as soon as the pipeline is operational. The two nations are slated this year to begin construction on the 133-mile (215 km) pipeline. Venezuela's gas reserves are much larger than Colombia's, but Venezuela's transportation system does not connect the gas-rich east to the nation's western reaches. The pipeline would initially export from Colombia to Venezuela, and would later reverse flow as Colombia's gas fields dry up and Venezuela completes its pipeline system.

Oil discovered in Algerian oil finds

April 26, 2006. First Calgary Petroleums Ltd. The Calgary-based firm, a well drilled in its holdings in the Ledjmet area of Algeria's Berkine basin produced 33.6 million cubic feet of gas a day, 4,665 barrels of natural gas liquids and 8,667 barrels of light oil while being tested. The well confirmed a new oil pool on its holdings and it will boost drilling in the area with three rigs. Another well in a different portion of its North African holdings called the MLE tested at 36.6 million cubic feet of gas a day and 2,396 barrels of gas liquids.


Aramco hopes to sign refinery MoUs soon

May 2, 2006. Saudi Aramco hopes to sign agreements with Total and Conoco-Phillips for two new refineries in the kingdom this month. The company board of directors last week approved the recommendation to engage in MoUs with these two companies and now these companies will have to obtain approval from their own board. The cost of each project was expected to be around $6 billion. Aramco is  talking to a number of potential investors and companies to slightly expand the refinery and build a petrochemical plant, Sabic was one of the companies it was in talks with. Aramco also said in March that the firm may expand Ras Tanura and Yanbu plants by 100,000 bpd each, adding that the expansions could happen by 2009 or 2010.

Refining capacity to increase in north Iran

May 2, 2006. The National Iranian Oil Refining and Distribution Company said, increasing refining capacity will need supplying more crude oil from Caspian Sea littoral countries, including from Kazakhstan’s Kashagan oil field, in addition to domestic resources. Tabriz and Tehran refineries will be supplied through domestic resources and also, two more refineries will be built besides the said refineries or in another point in north Iran. Since crude oil produced by Kashagan field of Kazakhstan is easy for refining, Iran is considering the field’s crude oil for supplying fuel needs in north Iran. It is said that Iran is negotiating with Total, which is in charge of marketing for Kashagan oil field and are planning to use crude oil produced by other Central Asia countries including Turkmenistan as well as Republic of Azerbaijan for the implementation of our projects.

Increasing refining capacity in northern Iran is being planned at a time when SWAP plan for receiving crude oil from Caspian Sea countries and selling equivalent crude oil in Persian Gulf, is among important programs of the National Iranian Oil Company. After technical and economic feasibility is complete, two new refineries will be built, Tehran and Tabriz refineries will be rehabilitated, installations of Neka terminal will be renovated and a pipeline will be constructed to take crude oil from Neka terminal to storage facilities in Rey. At least, 370,000 barrels of Caspian Sea crude oil will be transferred to Tehran and Tabriz refineries for processing.

Alon to buy refineries in California, Oregon

May 1, 2006. Dallas oil refiner Alon USA Energy Inc. has made a pair of deals to buy refineries in California and Oregon. It will buy Paramount Petroleum Corp., which has refineries in Paramount, Calif., and Portland, Ore. Cingular Alon will pay $302 million in cash for Paramount and assume about $100 million of Paramount's debt. Alon will pay $52 million cash for the assets of Edginton, which operates a heavy crude refinery in Long Beach. Alon plans to combine Paramount's Los Angeles-area refinery and the Edginton facility into one refinery with capacity of 78,000 bpd. The Portland refinery has a 12,000 bpd capacity.

Shell eyes big Texas refinery expansion

April 28, 2006. Royal Dutch Shell Plc and Saudi Refining Inc.,chose their 235,000 bpd refinery in Port Arthur, Texas, for a proposed major expansion of their Motiva refining joint venture. The expansion would add 325,000 bpd of capacity to the Port Arthur refinery, which would make it one of the largest refineries in the United States. Numerous U.S. refinery expansions have been announced in recent months that will add more than 1 million bpd to refining capacity by 2010, although analysts have warned that this increase will not be enough to keep pace with anticipated demand growth. Completion of the expansion was expected in 2010.

BP to sell off 44 gas stations

April 27, 2006. BP Products North America Inc. is selling 44 convenience and gas retail sites and 18 surplus locations in Ohio, Illinois, Indiana and Pennsylvania. Twenty-eight sites will be BP-branded, owned and operated by dealers. The other 16 retail locations, all in Chicago, will be offered for sale with a 20-year franchise agreement. In Ohio, BP is selling three sites for redevelopment, 10 commercial sites and 22 gas stations. BP will accept bids beginning June 27. The Naperville, Ill.-based gas company sells more than 15 billion gallons of gas each year in the U.S. through 13,000 locations.

Transportation / Distribution / Trade

Russia-India bids for TNK-BP's Udmurtneft oil producer

May 2, 2006. A Russian-Indian oil and gas consortium had lodged a bid for Udmurtneft, the main oil producer in the Volga republic of Udmurtia. The company is currently owned by Russian-British joint venture TNK-BP. Consortium OVIT comprises Russia's No. 1 independent natural gas producer Itera and ONGC Videsh Ltd. (OVL), an overseas exploration unit of India's state-owned oil and natural gas corporation ONGC. Itera holds a 51 per cent stake in the consortium, while OVL holds 49 per cent. At their extraordinary meeting April 28, Itera to sign a document allowing OVIT to bid for 96.86 per cent of the charter capital of Udmurtneft, owned by TNK-BP Holding and Novy Investment Ltd. April 28 was the last day when companies could submit their bids to acquire a controlling interest in Udmurtneft. The TNK-BP board of directors will discuss an auction procedure at its meeting in late May. The Russian anti-monopoly watchdog allowed ten Russian and foreign firms to bid for a controlling interest in Udmurtneft. Udmurtneft, which has annual oil production of some 6 million metric tons (120,500 bbl/d), is currently developing 26 oil fields in the region.

New oil pipeline from Lake Baikal

April 27, 2006. Russian President decided that an oil pipeline be diverted from Lake Baikal, the world's largest mass of fresh water. The East Siberia-Pacific Ocean pipeline will carry 1.6m barrels of oil a day to fast-growing markets in Asia, bolstering Russia's role as an energy power. It was originally intended to pass within half a mile of Lake Baikal but will now clear it by 25 miles. The mile-deep lake in the middle of Siberia holds a fifth of the world's fresh water and some 1,500 unique species of plants and animals. Construction of the £6.5bn pipeline, which begins, is expected to last for years. The original route sparked protests across Russia at the weekend, after ecologists said that seismic activity at the lake, which causes it to widen by 2cm a year, meant it was only a matter of time before the pipeline would rupture. The pipeline will now run 25 miles to the north. The diversion will add an estimated £500m to the pipeline's cost.

Policy / Performance

Repsol, Petrobras may face losses on Bolivia's Gas Seizure

May 2, 2006. Repsol YPF SA, Spain's largest oil company, and Brazilian producer Petroleo Brasileiro SA may face losses after Bolivian President seized his nation's oil and gas fields and gave firms 180 days to revise contracts. Petrobras, whose operations in Bolivia make it the country's largest company, “alters substantially'' the regulatory framework in the energy industry.

The company said it is assessing how to ensure a continued flow of natural gas to Brazil, which gets half what it consumes from Bolivia. Deutsche Bank's had expected Morales, 46, to follow Venezuelan President altering contracts of foreign companies by allowing them to have as much as a 40 per cent stake in oil and gas projects. Bolivia has South America's second-largest natural gas reserves after Venezuela. The country has about 31 tcf of proven gas reserves.

Repsol, Europe's fifth-largest oil company, put spending in Bolivia on hold after the government raised taxes and Morales won election last year promising to increase state control over oil and gas reserves. Repsol is Bolivia's biggest gas producer. Repsol has invested more than $1 billion in Bolivia since 1995 and employs 3,000 workers there. Petrobras has invested more than $1.5 billion in the Andean country. The company controls both of Bolivia's refineries where it produces all of Bolivia's gasoline and 60 percent of its diesel fuel. Total SA of France and BG Group Plc of the U.K. are among other international energy companies that also have operations in Bolivia. Bolivia's state-controlled oil company would be responsible for all oil production and sales, as well as prices, in the industry, only companies that respect these new terms will be allowed to operate in the country after the 180-day transition period.

Saudi petrol prices slashed by 30 per cent

May 1, 2006. Amidst rising international crude oil prices, Saudi Arabia, the world largest oil producer, has slashed petrol prices in the kingdom by more than 30 per cent. Diesel prices were also slashed. A cabinet meeting also decided that the crude oil prices would be revised every five years in the light of international energy prices. The prices will remain the same for 10 years for clients who sign long-term purchasing contracts with Saudi Aramco. The period would be calculated from the date on which the contract was signed.

US to limit Gazprom hold on Europe

May 1, 2006. The Bush administration is seeking to curb Moscow’s influence in the Caucasus and central Asia and weaken Gazprom’s growing hold over gas supplies to Europe with an effort to promote new oil and gas corridors that would bypass Russia and exclude Iran.  The US wants to shore up ties with key partners in central Asia, having lost access to a major military base in Uzbekistan last year. Analysts are concerned that an overall hardening of US policy towards Moscow could drive Russia and Iran, which together hold nearly half the world’s gas reserves, into an energy-based alliance.  Iran, which is competing with Gazprom to provide gas to the Caucasus, was considering a switch in policy by selling its gas to Russia through central Asia because the US was blocking its access to Europe and India. Lack of investment by Gazprom, which supplies Europe with about a quarter of its gas, means that Russia will be increasingly reliant on buying gas from central Asia or Iran to help meet its subsidised domestic needs and export commitments.  The stage is set for a bidding war between Russia, China and western energy companies over central Asian oil and gas. Deals are proceeding at a bewildering speed.  Turkmenistan signed a framework deal in Beijing this month to sell gas to China, while Kazakhstan president, visited Moscow for an agreement to double the capacity of a major oil pipeline for exports to Russia.  But the US wants Kazakhstan to look in a different direction, with officials outlining their desire to see a gas pipeline from Kazakhstan’s Kashagan field across the Caspian, linking with Azerbaijan’s Shah Deniz field and then heading west to Europe via Georgia rather than north through Russia.  The US has to tread carefully as its oil majors are competing for participation in Gazprom’s Shtokman project under the Barents Sea. The US has already started buying LNG provided by Gazprom. 

Oman, BG sign gas field production-sharing agreement

May 1, 2006. Oman signed a production-sharing agreement with British oil and gas company BG Group for a gas block in the Gulf Arab state. BG will invest a minimum of $150 million over the next five years to develop the field. Block 60, which covers almost 1,500 square km (579.2 sq miles), contains the Abu Bu Atoob gas and condensate discovery made in 1998. It has potential reserves of 8 trillion cubic meters. The government of independent oil producer Oman will sign a sales and purchase agreement to buy the gas from BG once commercial production starts. Oman aimed to triple its natural gas output to 70 million to 80 million cubic meters per day in the next five years. Oman would spend $10 billion over that period to boost its crude oil and gas output.

Pak increased petroleum prices

April 30, 2006. The Oil and Gas Regulatory Authority increased ex-depot petroleum prices by up to 7.2 per cent with immediate effect for 29 designated depots following its approval by the prime minister. Kerosene oil saw the highest increase of 7.2 per cent or Rs 2.11 per litre in its ex-depot rate, followed by light diesel oil whose prices surged by 5.1 per cent or Rs 1.6 per litre. The ex-depot price of motor spirit, commonly known as petrol, went up by 2.5 per cent or Rs 1.41 per litre. Similarly, High Octane Blending Component (HOBC) rates have been raised by 3.36 per cent or Rs2.11 per litre. As such, kerosene oil will now be available at Rs 35.23 per litre, instead of Rs 32.87 per litre. The LDO will be sold at Rs 32.57 per litre from now on, instead of Rs 30.97. The ex-depot sale price of motor spirit has been fixed at Rs 57.70 per litre against old rates of Rs 56.29. The ex-depot per litre price of HOBC was raised to Rs64.88 from the existing rate of Rs 62.77.

EU seeks G8 drive for open energy market

April 29, 2006. The European Union urged the United States on Saturday to join it in pressing for open energy markets and more democracy in Russia when the world's leading industrial powers meet in St Petersburg in July. European Commission President said that the 25-nation EU and Washington should jointly press Moscow to create free market conditions and legal certainty to guarantee predictable energy supplies. Russia had been a reliable energy supplier in the past and had an interest in secure demand from the EU, and also, if possible European investment, technology and know-how to get the oil and gas out of the ground. It is criticized Moscow for refusing to ratify an international energy charter treaty that would force it to open its pipeline network to third-party suppliers.

Iran to invest $600 mn in Indonesia’s energy projects

April 29, 2006. Iran will sign $600 million in investments in Indonesia's gas and oil sector during a state visit next month. Iran wants to invest $200 million to fix offshore refinery platforms in Indonesia and also to invest $400 million in building a gas pipeline from South Sumatra to Batam. The pipeline would have to be at least 250 miles long to connect South Sumatra, as one of Indonesia's gas rich provinces, with Batam industrial island, which is located just 10 miles from Singapore, the region's shipping hub. Indonesia is the sole Southeast Asian member of the OPEC, but it was a net oil importer in 2005. Its oil industry has suffered and foreign investors have been scared away amid perceptions of rampant corruption, poor infrastructure and judicial unpredictability.

Gazprom to set up gas joint venture in Kazakh

April 28, 2006.  Russian gas monopoly Gazprom plans to tie up with Kazakh state oil and gas firm KazMunaiGas to jointly process gas at the Orenburg plant in Russia. The plant will process gas and gas condensate from Kazakhstan's giant Karachaganak oil and gas field. KazMunaiGas would spend $350 million for its share in the 50-50 joint venture, due to start operations this year.

China, Opec agree to boost energy tie-up

April 28, 2006. While rejecting criticism of its global energy hunt, China, the world’s second largest energy user, has held the first round of dialogue with the Organisation of Petroleum Exporting Countries (Opec), aiming to enhance cooperation between the two sides. The first energy dialogue between China and the Opec was held at the Opec secretariat in Vienna. The second round dialogue will be held in China in 2007. China has been seeking energy cooperation with other countries in a responsible way. China is a responsible country and China’s energy cooperation with other countries has helped improve their standards of living.

Bush unveils steps to counter high oil prices

April 25, 2006. US President unveiled a raft of proposals and government moves to counter near record-high crude oil and gasoline prices, including giving oil companies more time to repay emergency oil loans and easing clean-burning gasoline rules to boost supply. With oil prices hitting record highs and gas topping $3 a gallon at some pumps, Democrats hoping to win control of Congress in November have used the issue to slam White House energy policy and Republicans’ ties to big oil companies. Bush took the offensive in a speech to the pro-ethanol Renewable Fuels Association, where he called for energy companies to plan “strong reinvestment” of their record profits. Bush also gave US oil companies more time to pay back emergency loans from the Strategic Petroleum Reserve to put more oil on the market. Bush called on the US Environmental Protection Agency to fully use its authority to waive federal clean-burning gasoline rules this summer, and called for a state task force to look in to ways to cut the dozens of so-called boutique fuel blends, which make it harder for refiners to move gasoline supplies to regions hit by shortages. Bush also asked Congress to repeal about $2 billion in tax breaks for industry research into deepwater drilling technology, in a veiled slap at funding placed into last year’s energy bill championed by former House of Representatives Republican leader.



First pvt power plant in Bahrain

May 1, 2006. Bahrain's first private electricity station has started its operation following the completion of its first phase. Al Ezzel Power Company (AEPC) said that with the completion of the first phase, the power station in the Hidd Industrial Area is generating 470 MW. The second phase is scheduled for completion by next May and will bring the total generating capacity of Al Ezzel Power plant to 950 MW. The project will provide electricity to the Electricity and Water Ministry under a 20-year power purchase agreement. The plant is powered by natural gas supplied by Bapco under a long-term natural gas sales agreement.

S. Korea to start work on 2 nuke power reactors

April 28, 2006. South Korea was to break ground on two commercial nuclear power reactors. A total of 4.7 trillion won (US$4.97 billion) will be spent on the reactors on the outskirts of Gyeongju, a city about 371 kilometers southeast of Seoul.

Chile to build hydroelectric plant

April 26, 2006. Two of Chile's biggest power generators, Endesa Chile and Colbun, agreed to develop a huge hydroelectric project in the nation's south. The $2.4 billion project involves the construction of up to five hydroelectric plants in southern Chile to generate an estimated 2,355 MW for Chile's central power grid. Chile is facing a tight energy market in coming years, as demand rises and natural gas supplies from Argentina have become scarce, so power companies are looking at new generating projects. Endesa Chile, a unit of Spain's Endesa, is Chile's biggest power generating company and has been looking for years at the possibility of building dams in southern Chile. Environmental groups and Chile's large salmon farming industry oppose the construction in the remote Aysen region. Although Chile's farmed salmon do not swim up river to reproduce, the salmon farms are in cages in bays near the mouths of big rivers in Aysen.

Transmission / Distribution / Trade

Pak plan to stop gas supply to power

May 1, 2006. The government has decided not to provide gas to the cement sector in future and divert additional gas supplies away from Wapda, KESC and independent power producers (IPPs) after 2011, owing to gas shortfalls. This is part of the new fuel policy approved by Prime Minister a few days ago. The policy will be formally announced soon to enable investors to make their plans accordingly. As a result, the government will now give top priority to develop power plants based on hydel, coal and nuclear resources to meet energy requirements of a growing economy.

Moreover, if the gas import plans cannot be implemented and gas supplies remain limited to LNG imports in the next five years, the new thermal power plants will be based on furnace oil with the provision that these could be switched over to gas at a later stage. This will, however, put additional foreign exchange burden on the import of fuel. The policy has also clearly defined the order of priority for all sectors for additional gas supplies. The policy has been prepared on the basis of an integrated analysis of Wapda and KESC systems, scheduled development of hydel, coal and nuclear energy projects and expected low water availability during dry period.

The economic analysis of various competing fuels indicate that natural gas and LNG will cost $6 per mmbtu (million British thermal unit) against the current rate of about $3.5 per mmbtu, while fuel oil will cost $8.1 per mmbtu. The cost of Naptha and high-speed diesel has been estimated at $1.4 and $12.6 per mmbtu. As such, domestic and commercial consumers will get top priority for gas supplies, followed by fertiliser and related industrial consumption. Third priority has been given to IPPs and the power plants of Wapda and KESC already having firm gas supply commitments under the gas supply agreements while CNG-stations, captive power for export oriented textile units and general industrial sector have been placed at the fourth priority.

The 5th preference will be given to Wapda and KESC’s power plants other than those with existing firm commitments. The last priority has been given to the cement sector, which means that gas will not be provided to this sector in future. The policy envisages that after meeting existing supply commitments and other priority sectors, natural gas for new IPPs will not be available after 2011. This situation will remain intact even after materialisation of 500 MMCFD (Million cubic feet per day) liquefied natural gas (LNG) import by 2010 and hence additional supplies would be diverted to other priority sectors. Further, the gas supplies to Wapda and KESC plants above the existing commitments will also be diverted to other sectors after 2010. Moreover, CNG stations, captive power and general industrial sector will start running short of gas from fiscal year 2015.

Duke plans to expand gas transmission

April 26, 2006.  Duke Energy Gas Transmission, part of Duke Energy Corp. plans to expand its Algonquin Gas Transmission system with a 3.5 mile, 18-inch diameter natural gas pipeline in the Cape Cod area of Massachusetts.The pipeline, to be located in Sandwich and Bourne, will supply gas distributor KeySpan Corp. under a 15-year agreement. The project will seek permits during 2006 and early 2007, with construction expected to begin in the spring of 2007 and service scheduled for November 2007.

Policy / Performance

Iran sees its nuclear power station delayed to ‘07

May 2, 2006. Iran’s Bushehr nuclear power station would probably not go onstream until next year - another delay to a 30-year project that the West fears has become a front for developing nuclear arms. Iran's Atomic Energy Organisation said last year that the 1000 MW Bushehr plant, being built with Russian help on Iran's southern Gulf coast, would be commissioned by the end of 2006.  Bushehr reactor was started in the mid-1970s with the assistance of Siemens of what was then West Germany. The site was badly damaged by airstrikes during the 1980-1988 war with Iraq. Iran has been referred to the U.N. Security Council, where it could face sanctions, after failing to convince the international community that the facilities said to produce fuel for Bushehr are not are smokescreen for building a bomb. Western diplomats says the technology and facilities Iran has developed for making nuclear fuel are far more advanced than what would be needed just to run old-generation power stations such as Bushehr. Despite the long struggle to finish Bushehr, Iran insists it has ambitious plans to produce 20,000 MW from nuclear power stations by 2020. When Iran announced its budget plans for the year to March 2007 it said some $213 million would be channelled into two nuclear power stations. It was not clear whether Bushehr was one of the two.

60b yuan funding for nuclear power

May 2, 2006. China Guangdong Nuclear Power Holding will tap the Agricultural Bank for loans of as much as 60 billion yuan (HK$58.05 billion) for expansion projects over the next five years. Guangdong Nuclear, part of China National Nuclear Corp, has the option of using the funds to build nuclear power plants as well as for operational expenses. The bank will also provide financial services and advice to the nuclear plant builder and operator. China, which relies on coal and oil for 90 percent of its energy needs, wants to increase the use of alternative fuels including nuclear. The country needs to add two reactors a year to meet a target of generating 4 percent of its power from nuclear plants by 2020, from about 2.3 percent now. The company will start construction of plants in Shenzhen and Yangjiang in Guangdong, Dalian in Liaoning, and Ningde in Fujian over the next five years. Guangdong Nuclear signed an initial agreement to build a plant that may cost as much as 100 billion yuan in the southern city of Shaoguan to meet energy demand. The company is studying the feasibility of the project. Guangdong wants to build 10,000 MW of new nuclear power generation capacity and aims to have an installed capacity of 24,000 MW by 2020.

$850 mn power plant approved by Pak

April 27, 2006.  A $850 million project for installation of a gas-run combined power and desalination plant in Karachi under public-private partnership approved by Pak. The proposed combined power and desalination plant would desalinate 20 mgd seawater and generate 200 MW electricity to cater to the city’s water and power needs. Out of the project’s total cost, $100 million will be spent on installation of desalination plant, 740 million on power plant and $10 million on project development. The project will be completed in a period of 36 months.

Renewable Energy Trends


Gujarat to distribute jatropha saplings

May 1, 2006. Gujarat’s forest department has joined hands with the agriculture department to grow jatropha plants across the state’s forests. It has decided to distribute more than 0.2 million jatropha plants and 3.7 billion seeds to local farmers. Gujarat has vast potential and a suitable environment to grow the jatropha plants in large quantities, especially in the desert areas. Its cultivation has been identified as a business activity which can transform the rural economy on the lines of the green revolution. The state government has identified Saurashtra, Kutch, south Gujarat areas Panchmahal and Dahod for growing jatropha plants. The expenditure would be borne by the internal accruals of the forest department. Gujarat’s jatropha plants will provide 25-30 per cent of oil and from diesel can be extracted from the by-products.

S'pore-based group offers access to carbon trading

April 29, 2006. A consortium of companies led by the Singapore-based Asia Carbon is offering Indian companies access to carbon trading through projects that enable reduction in emission of greenhouse gases. The group has set up Asia Carbon Emission Management India Ltd to offer its services in India. The average price of a unit of Carbon Emission Reduction (CER), about one tonne of carbon dioxide emission, is 8-12 Euros (Rs 448-672). The company has transacted over 2 million CERs with a value of more than 12 mn Euros (Rs 67 crore). Companies in wind and hydropower projects in India have sold 10,000-20,000 CERs.

1,000 MW targeted from industrial wastes

April 28, 2006. The Union Government is targeting to add 1,000 MW of power from industrial and commercial wastes in the next 10 years. The potential for renewable energy from this segment was pegged at 1,287 MW by the end of 2007 as against the capacity of 1,022 MW for 2001. The Ministry of Non Conventional Energy was focussing on a variety of areas to realise the 1,000-MW potential. The basket included maize starch (from 84 MW in 2001 to 164 MW in 2007).

9 states identified for bio-diesel production

April 28, 2006. Under the Rs 1,286 crore ($287 mn) demonstration project for cultivation of non-edible oil-bearing plants and tree for production of bio-diesel, the rural development ministry has released an amount of Rs 4,900 crore ($1.09 bn) to the nine states identified under the project. These states are Chhattisgarh, Gujarat, Andhra Pradesh, Himachal Pradesh, Tamil Nadu, Rajasthan, Sikkim, Tripura and Assam. This allocation is for plantation of Jatropha curcas in 200,000 hectare forest land and 200,000 hectare non-forest wasteland over a period of five years. The allocation is also meant for technology development, technical support to growers through training, capacity building and other facilitating arrangements. The assistance also included development of 80,000 hectare Jatropha nurseries for providing quality seedlings in 2006-07. The rural development ministry is the nodal agency for operationalisation of the National Mission on Bio-diesel and is directly responsible for encouraging plantation of non-edible oil-bearing plants and trees. As regards extraction of oil trans-esterification, its role is that of coordination. Petroleum companies under the instructions from the Union ministry of petroleum and natural gas have decided to purchase Jatropha oil at Rs 25 per litre, which translates to seed price of Rs 5 per kg on certain assumptions of yield realization from by-products. There are about 552,692.26 sq km of wastelands in the country, out of which 62.87 per cent amounting to 347,490.15 sq km are suitable for cultivation of Jatropha.

Solar water heating project picks up

April 26, 2006. The accelerated programme on solar heating has registered an encouraging response. So far, 19 banks and non-banking financial companies (NBFCs) have decided to provide soft loans for implementation of the scheme. The scheme was approved in August last year. The new scheme aims to install solar water heating systems at one million square meter of collector area during its two years, from 2005-07, of which about 0.4 million square meter has been achieved and another 0.6 mllion square meter is likely to be achieved during 2006-07. In all, 1.5 million square meter of collector area has been achieved in the country so far. The participating banks include Canara Bank, Bank of Maharashtra, Punjab National Bank, Syndicate Bank, Union Bank of India, Andhra Bank, Vijaya Bank, Dena Bank besides some NBFCs and cooperative banks. Eleven states have amended their building by-laws, making use of solar water heaters mandatory. Thane Municipal Corporation has introduced an incentive of 10 per cent rebate on property tax in such cases. Under the scheme, soft loans are available to users at reduced interest rates of 2 per cent for domestic, 3 per cent for institutions and 5 per cent for commercial users.


Progress Energy to build biomass power plant

May 1, 2006. As part of its ongoing support for renewable energy and developing technologies, Progress Energy Florida has signed a long-term contract to purchase electricity generated by natural energy source. Biomass Investment Group, Inc. plans to build an environmentally friendly power plant in Central Florida using a crop known as E-Grass. It will generate about 130,000 kilowatts. The plant is expected to avoid the need to burn nearly 9 million tons of coal over the 25-year life of the contract. Once constructed, it will be the world's first commercial-scale, biomass power plant using crops grown on site. As a "closed-loop" plant, it will contribute no additional carbon dioxide to the atmosphere, and is estimated to reduce carbon emissions by more than 20 million tons over the life of the contract when compared to coal.

California Energy to investigate gas markets

May 1, 2006. The California Energy Commission will investigate the underlying causes of soaring gas prices, looking for the first time at the prices refineries or resellers charge gas station retailers. Gasoline price increases in the week of April 17 alone cost California households and businesses more than $7 million a day. The energy commission's move comes as Schwarzenegger signed an executive order establishing targets for the use and production of bioenergy, including ethanol and biodiesel fuels made from renewable resources. The Bioenergy Interagency Working Group, an alliance of 10 state agencies that includes the California Air Resources Board and the California Energy Commission, laid out an action plan to boost renewable fuel consumption in a report issued this week. The group is seeking a broad-based renewable fuel standard for the state's transportation sector and a consumption target of 2 billion gallons of biofuels by 2020, with 40 percent of that total being produced in-state.

GE to build largest solar plant in Portugal

April 27, 2006. GE Energy Financial Services and renewable energy firms PowerLight and Catavento will build the world’s largest solar plant in Portugal, a sign that solar power is becoming mainstream. Construction on the 11 MW plant will begin in May, and the plant will be completed and generating power in January. It will include 52,000 monocrystalline photovoltaic solar modules from a variety of manufacturers, and will be built on a 150-acre hillside in Serpa. Serpa is 124 miles southeast of Lisbon and in one of Europe’s sunniest areas. The project will include PowerLight’s PowerTracker, a technology that tracks the sun throughout the day. PowerLight says the technology generates more electricity than conventional fixed-mount systems. It also says it’s reliable and is ideal for large projects on tracts of land that are otherwise unusable, such as flood plains. The power will be fed to local utilities and distributed through Portugal’s utility grid to homes and businesses throughout the region. The $75-million plant is being financed by Stamford, Connecticut-based GE Energy Financial Services, which will own the facility.

Chicago’s ADM raises biodiesel plant capacity

April 26, 2006. Archer Daniels Midland Co. is increasing the capacity of a biodiesel plant under construction in North Dakota to 85 million gallons a year. ADM originally announced the plant in Velva would produce 50 million gallons of biodiesel a year using canola oil. ADM decided to increase capacity to take advantage of economies of scale. The biodiesel plant has been under construction since early April, next to an existing ADM crushing facility in Velva, about 65 miles south of the Canadian border. The $30 million project should be completed by April 2007. To produce 85 million gallons of biodiesel, an alternative fuel, the plant would need 1 million acres of canola. One million acres of canola would equate to 700,000 tonnes of canola seed or 294,000 tonnes of canola oil.



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[1] S. N. Visvanath, Op.cit.

[2] Balraj Mehta, Op. cit., p. 49.

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