Sri Lanka’s Electricity Sector: Past, Present and Future

(Sithara Fernando, Research Fellow, Jawaharlal Nehru University)

he generation of electricity in Sri Lanka began towards the end of the 19^th century when a number of towns initiated local diesel powered plants and distribution systems and several small hydroelectric systems started serving the tea and rubber industries. The Department of Government Electrical Undertakings (DGEU) established in 1928 bought over many of the electricity generating systems that were being operated locally till then by private concerns.

In 1969 the Ceylon Electricity Board (CEB) was formed to replace the DGEU. Currently CEB operates the entire electricity transmission network that functions at 220 kV, 132 kV and much of the two sub-transmission voltages of 33 kV and 11 kV. There are 34 Grid Substations, which step-down the power received at 220 kV or 132 kV transmission voltages to the sub-transmission voltage of 33 kV and distribute them over local areas. The CEB distributes electricity to 89% of the consumers while the Lanka Electricity Company Pvt. Ltd. (LECO) supplies the rest. LECO purchases electricity from CEB and distributes it among consumers in areas that have been allocated to it along the western coastal belt of the island between the towns of Negombo and Galle. By the end of 2004 there were 3.6 million customers served by the national grid. Households constituted about 88%, commercial customers such as large buildings, offices and shops constituted around 10%, while industrial customers accounted for only 1%. Several industries and commercial buildings operate their own generating plants, which are not connected to the national grid. In the same year the CEB generated about 65% of electricity supplied to the national grid and purchased the balance from independent privately owned power producers. There are eight such power producers who have signed 10-20 year contracts with the CEB to build, own and operate power plants with a total contracted capacity of 538 MW.

Till the mid-1990s hydropower accounted for the largest share of electricity generation in Sri Lanka. The utilization of small hydro resources was initiated by planters during the colonial era as far back as the 1880s in order to provide electricity to tea and rubber factories as well as to households. The first small hydropower plant was imported in 1887. Such plants were prevalent till about the 1930s, but have declined since due to the expansion of the national grid. At present small hydropower plants function as private power plants connected to the national grid. At the end of 2004 there were 38 such units with an aggregate capacity of 74 MW. More than 200 micro hydropower plants with a capacity of less than 20 kW each are also in operation to provide basic electricity in rural areas. Approximately 50 micro hydropower plants with a capacity of less than 100 kW each are also still being used by tea and rubber estates to provide power to their processing factories.

The first major hydro electric power plant was completed in 1950, which involved the construction of a small dam across a tributary of the Kelani river at Norton Bridge, a diversion tunnel, penstocks and a 25 MW power generation plant at Laxapana. Since then several major hydroelectric schemes were constructed to utilize the hydropower potential in the river basins of Kelani, Mahaweli, Walawe and Kalu. Built between 1970 and 1990 the Mahaweli Complex with six power plants generating an aggregate of 660 MW is the largest hydroelectric scheme in Sri Lanka. The Kelani Complex comprises of five plants generating an aggregate of 335 MW. The Kukule Ganga project linked to the Kalu river with a capacity of 70 MW became operational in 2004. In that year the major hydroelectric schemes of Mahaweli, Kelani, Walawe and Kalu river basins plus three small hydroelectric plants, all under the CEB, generated 2755 GWh, comprising 34% of electricity fed into the national grid. In the same year CEB and private hydroelectric power plants together met 37% of the total electricity demand. In 1995 however hydroelectric power had met 94% of the total demand for electricity, which indicate a steady and significant decline in the share of hydroelectricity in overall electricity generation in Sri Lanka. Another major hydroelectric plant with a capacity of 150 MW under construction at Upper Kotmale is expected to become operational in 2010. With most of Sri Lanka’s major hydroelectric potential utilized, except for some potential remaining in developing small hydro plants, it has had to increasingly turn to non-hydro sources to satisfy growth in demand. The growth in demand for electricity between 1970 and 2004 was 7.1% annually. The demand is expected to grow at 8% annually for the next eight years.

In 1999 the CEB established a wind power generation plant with a capacity of 3 MW at Hambantota on the southern coast, the first of its kind in the island. Some solar photovoltaic (PV) systems are in use for small-scale electricity generation in remote rural areas for supply of basic electricity needs in households. A biomass power plant with a capacity of 1MW became operational recently, also the first of its kind. However their variable nature (particularly in the case of wind and solar power), the low capacity for generation in them at present and the relative novelty of most such renewable energy technology and their application in Sri Lanka has meant that it has come to rely on oil powered thermal power plants for an increasingly larger share of electricity generation. Residual oil, furnace oil, auto diesel and naptha are the fuels used for electricity generation. CEB currently operates one Combined Cycle power plant that can be fueled by naptha or auto diesel, as well as Gas Turbine Plants fueled by auto diesel. By 2008 another Combined Cycle plant with a capacity of 300 MW is expected to become operational at Kerawalapitiya. Moreover the eight independent power producers mentioned above all use diesel, furnace oil or residual oil. This dependence on oil for electricity generation has tied the cost and price of electricity in Sri Lanka to the trends and price fluctuations in the world oil market. Given its high degree of sensitivity to the vagaries of international geopolitics, particularly in the Middle East/West Asia, one of the most volatile regions in the world, which has been amply demonstrated since the ‘oil shocks’ of the 1970s, the first Gulf war in 1990-91, the second Gulf war in 2003 and the recent crises over Iran and Lebanon, Sri Lanka’s increased use of oil for electricity generation has turned out to be an unbearably costly undertaking. Therefore the CEB plans to build three coal-powered plants with a capacity of 300 MW each by 2010, 2011 and 2012 respectively. Work on one of these plants has already begun at Norocholai with the assistance of China. India has also declared an interest in assisting with the construction of another one near Trincomalee. The increased use of coal is expected to decrease the reliance on oil and to help meet the growth in demand for electricity while keeping the cost of generating it low and more stable.

Furthermore the role of the government as the owner and the regulator of the electricity generation industry is expected to be restructured with establishment of the Public Utilities Commission (PUC) as a regulator for the industry. This restructuring will separate the generation, transmission and distribution segments of the CEB, which had thus far been vertically integrated, and establish subsidiary companies of the CEB to function separately in each of these segments. While the private investors already in generation will continue as before future investments will be open to both public and private investors on a competitive basis.

By the end of 2006 the CEB expects 4.5 million households from a total of 6 million households to be using electricity, which would mean a 75% electrification rate. With the support of several funding agencies the Ministry of Power and Energy and the CEB are aiming to achieve an 80% electrification rate by 2010. The task beyond that would be to cover the remaining 20% while keeping the cost of electricity low and hence being able to supply it to consumers at an affordable price.

Sources

Fernando, Sithara, ed., ‘China-South Asia Relations’, BCIS Occasional Paper 02/05, July 2006. (Proceedings of a conference on ‘China-South Asia Relations’ held at the Bandaranaike Centre for International Studies, 20-21 December 2005.)   

Rao, Nirupama, ‘India-Sri Lanka Relationship: a Model for Countries in Our Sub-Continent’, The Island (Sri Lanka), 26^th January 2006. (Message by Her Excellency the High Commissioner of India in Sri Lanka on the occasion of the Republic Day of India)

Siyambalapitiya, Tilak, ‘Sri Lanka Energy Sector Development’, in Proceedings of Sri Lanka Energy Day, Ministry of Power and Energy, Sri Lanka, 2005.

 

 

River basin-wise distribution of the hydro potential in Nepal

 

River Basin	Power Potential (MW)		Total (MW)
	Major	Small
Kosi	18750	360	22530
Gandak	17950	270	20650
Karnali (Ghagra)	28840	3170	32010
Mahakali (Sarda)	3840	0320	4160
Southern rivers	3070	1040	4110
Total:	72450	10830	83280

Source: CEA

 

Russia's Position on Energy Security

(RIA Novosti economic commentator Nina Kulikova)

nergy is a major driving force of global economic progress, and directly affects the prosperity of billions of people. There are many aspects to energy security, but it has not yet acquired a clear definition. This is a task for the future. The disparity between energy producers and consumers is becoming more evident because they have a different understanding of energy security. Considering the urgency of this problem, Russia made it a priority subject for its G8 presidency this year. Up to this day, many have understood energy security as national energy self-sufficiency. This approach is increasing competition for natural resources, and resulting in numerous conflicts. Meanwhile, many threats to energy security have long become global, and should have compelled the sides to elaborate a concept of world energy security.

In recent years, the global demand for energy resources has been growing faster than their supply. Most estimates predict that the former will continue going up due to booming economies of the developing nations, and the requirements of industrialized countries, which are also increasing, but at a much slower pace. The International Energy Agency (IEA) predicts that by the year 2030 the world's aggregate demand for energy resources will grow by more than 50%. In the same estimates, by 2025 the world's demand for oil may increase to 35 million barrels per day (or by 42%), and of gas, to 1.7 trillion cubic meters a year (or by 60%).

In the meantime, the supply of energy is going down. This is due to substantial industrial growth, and the use of more sophisticated and expensive technologies for the production of more difficult-of-access energy resources. In the last few years this supply-and-demand disparity has been generating skyrocketing prices on hydrocarbons. These unstable prices pose a threat to the global economy in general, and to each individual country in particular.  In the last two decades of the past century scientific and technical achievements in exploration and drilling made up for the deteriorating mining, geological, regional, and other conditions; a fast growth in oil production ensured a steady decline in prices. But in the 21st century the growing general and per capita demand for motor fuels has not been accompanied by adequate progress in oil production. This factor and political tensions in major oil-producing areas are making it impossible to secure the demand at the prices matching the costs of production.

Rapidly growing oil prices are threatening to slow down the development rates of industrialized economies, and trigger off financial upheavals in oil-dependent developing economies. Lack of certainty and a big gap in forecasts of future oil prices are making the situation worse, because a long-term forecast of oil prices is a major element in decision-making on investment in numerous energy projects with a lengthy implementation cycle and a very slow capital turnover. In addition, regional energy disproportions are increasing. More and more countries and major regions are becoming energy insufficient. In 1990s they produced 87% of the world GDP, whereas in the beginning of this century, the relevant figure has risen to 90%. The fastest developing countries (China and India, among others) are becoming more and more dependent on energy imports. For the time being, they are unable to guarantee the latter's stability. At the same time, the production of hydrocarbons, the number one energy component, is being increasingly concentrated in the regions of the highest social and political instability.

Energy poverty is also exacerbating. In the OPEC estimate, at present it affects about two billion people, and is becoming a most urgent problem. Moreover, ecological problems, terrorism, climate changes, and dwindling resources are making energy security even more fragile. It is becoming obvious that it is necessary to create a global energy system, which would reduce to the minimum the growth of these threats. The goal of ensuring global energy security calls for a well-orchestrated effort of the entire international community. It should elaborate and consistently carry out a common strategy in energy policy in order to repel these threats.

Thrifty and ecologically safe use of energy may become one of the directions of such strategy. The adopted measures on rationalizing energy consumption brought about a 14% decline in the OECD net oil imports, and the amount of oil required for the production of a GDP dollar decreased by half over 30 years (from 1973 to 2002). It is also necessary to step up the supply of commercially effective energy resources. The world has enough fuel and energy resources for the foreseeable future. Their shortage is not the biggest problem. The number one task is to jointly create the conditions for making use of this potential.

It is vital to increase investment in energy supply. In the IEA estimate, an effective and stable system of global energy supply may require $17 billion in global investment in 2004-2030. Investment should be channeled into the effort to expand the range of hydrocarbon resources; into their production; the construction of new, and modernization of existing infrastructure for their transportation and storage; the development of effective technologies, and broader use of renewable and alternative energy carriers; the development of safe nuclear energy generation, to name but a few. In order to enhance the stability of the energy supply system, defuse tension in energy supply, and counter the growth of regional energy disproportions, it is necessary to diversify types of energy. This strategy could have several directions:

1. Expansion of natural gas production. Ecological factors and technological progress have already reduced the costs involved in the construction of gas pipelines, and have led to the birth of liquefied gas, thereby enhancing the share of natural gas. Further expansion of this market depends primarily on improvements in the production and transportation of natural gas, and the development of regional and (or) bilateral cooperation, which will make it possible to reduce uncertainty and risks involved in the implementation of long-term capital-intensive projects.

2. Support for environmentally safe coal-burning technologies, which may play a major role in ensuring a clean environment in the future. Up to this day such technologies cannot compete with those applied to other types of fuel.

3. Accelerated development of renewable energy sources and distributed energy. Development of hydropower industry opens up enormous opportunities for diversification. Apart from environmental benefits, hydropower industry offers a very flexible method of energy generation, which provides for timely response to changes in stress load and demand. At the same time, renewable energy generation sources, such as the wind and the sun, or mini hydropower stations can sometimes be the cheapest way of providing electricity for rural communities.

4. Full-scale development of safe nuclear power industry. It is crucial for long-term and environmentally acceptable diversification of energy supply. Apart from consolidating national energy supply systems, it will substantially increase energy supply to the world market, and will make its structure more flexible. The experience of some European Union countries, Japan and Korea bears out that nuclear power stations reduce dependence on natural resources.

5. Replacement of oil motor fuels with other energy carriers.

6. In the long term, the development of effective hydrogen and thermonuclear production technologies can increase energy supply considerably, make it more stable, and safer environmentally.

Striving to achieve global energy security, the world community should develop the infrastructure of the global energy market. Formation of the global energy space with uniform rules should be the main goal of energy market development.

A tangible proportion of energy resources is already supplied via international borders. Its share is expected to increase. Development of global energy infrastructure implies stage-by-stage formation of country-to-country, continental, and transcontinental associations, which rely on uniform technological standards and rules of management. Countries should continuously support the development of international trade in energy resources, and encourage investment in the energy sector by creating favorable technical, ecological, political, and legal environment for international delivery of energy resources to consumers.

Concern over energy security should result in the elaboration of well-balanced common approaches to the drafting of a global program. This difficult process calls for dialogue and mutual transparency. But the global character of threats to energy security is making ineffective the attempts to remove them by national effort. At present, Russia occupies the leading positions in the world energy production, as it has one of the world's greatest fuel-and-energy potentials. This allows it to assume certain commitments in ensuring global energy security. As G8 president, Russia interprets energy security as not simply consumer guarantees, but a package of interrelated interests, which ensures stable cooperation between the producers and the consumers.

Russian President Vladimir Putin said that Russia advocates resolution of energy problems by a concerted effort of the entire world community. These problems include the need to overcome the supply-and-demand imbalance, assume common commitments on sharing profits and risks in the energy sector, and build a global energy structure, which would rule out the emergence of conflicts. Global energy security should rest on the principles of long-term, reliable, environmentally safe supply of energy at reasonable prices, Putin believes.

NEWS BRIEF

OIL & GAS

NELP-VI may get bids from 44 cos

September 12, 2006. Twenty-nine foreign firms including BHP Billiton, Anadarko, Petronas Carigali, ConocoPhillips, Shell, ONGC and Reliance are among the 44 oil majors expected to bid for 55 oil and gas blocks under the sixth round of the New Exploration Licensing Policy (NELP). The government is expecting multiple bids for each oil blocks. According to an estimate, over 120 bids are expected in NELP-VI round. The response has been very encouraging. The maximum response in a particular block in deep water is 17, for shallow water block is 20 and for on-land block is also 20.

Till now 44 exploration and production (E&P) companies have purchased data packages worth Rs 74 crore ($16.38 MM) in this round of bidding. In the previous round (NELP-V), 34 companies had purchased data worth Rs 22.86 crore. Besides, data worth $34m, acquired by GS Technologies in association with the Directorate General of Hyderocarbon (DGH), have been sold. For each block, there has been at least two companies purchasing the data which signifies that there will be multiple bids for every block. The government opened data centres in Delhi, London, Houston, Perth, Dubai, Kuala Lumpur and Calgary to reach to investors.

GSPCL finds oil off India coast

September 12, 2006. Gujarat State Petroleum Corp Ltd had made a second oil discovery in its exploration block off the country's east coast. Government-owned Gujarat State Petroleum is the parent of gas transporter Gujarat State Petronet Ltd. The company had first discovered oil in its Deen Dayal block in the Krishna Godavari basin in June with a flow rate of 862 barrels a day. There were indications of natural gas in the fifth well and the company was evaluating its estimated oil reserves and commercial viability. Gujarat State Petroleum had committed to drill 30 more wells in the block, where it had announced a 20 trillion cubic feet gas find last year. The explorer plans to invest Rs 1700 crore ($368 million) in further exploration of the shallow water block. The company is planning an initial public offering by December to raise funds for development of the block and by selling part of its 80% interest to a partner. Global oil companies including Chevron Corp, BP Plc, Italy's ENI, Britain's BG Group, France's Total SA and Brazil's Petrobras have expressed interest in Deen Dayal. Canada’s Geoglobal Resources Inc and local firm Jubilant Enpro are the other minority stakeholders in the block.

OVL inks pact to operate 2 Cuban blocks

September 11, 2006. ONGC's overseas investment arm, ONGC Videsh Ltd (OVL), has entered into production sharing contracts (PSCs) with CUPET, the State oil company of Cuba, for two offshore exploration blocks, N-34 and N-35. The blocks are located in the Exclusive Economic Zone of Cuba. Spread over 4,300 sq km, the blocks are in a very favourable geological set-up and are estimated to hold considerable hydrocarbon resources. The contracts were signed on September 9 at Havana.

OVL had earlier submitted expression of interest for these two blocks located in the deep waters of Cuba offshore and negotiated the PSCs. The Cuban Government has the option to take 20 per cent participating interest in these blocks. OVL will be the operator of the block. The exploration period is spread over a period of six years in three phases. During the first phase of exploration, acquisition, processing and interpretation of seismic data would be carried out for identification of prospects.

In May, OVL had acquired 30 per cent participating interest in six exploratory blocks in offshore Cuba from Repsol YPF, which holds 40 per cent participating interest; 30 per cent participating interest is with by Norsk Hydro.

ONGC plans to develop 29 offshore marginal fields

September 9, 2006. ONGC is preparing a Rs 8,000-10,000 crore plan for the development of 29 offshore marginal fields - surrounding Mumbai High and Bassein fields - estimated to produce 12-15 metric standard cubic metre of natural gas per day (mmscmd) and close to six million tonnes of oil per annum by the end of Eleventh Plan (2007-2012). The project will be firmed up in phases latest by June 2007. ONGC currently has a total of 89 such fields, most of which are yet to be monetised. The plan for the development of the rest of the B-series fields (B-179, 22 and 183) are expected to be placed before the Board in October, followed by WO-series and D-series (D18 and 33) fields.

Marginal fields apart, ONGC is also preparing a Rs 12,000-crore redevelopment plan for ageing Mumbai High North and South fields. The redevelopment of the field will restrict the natural decline in production from the existing levels of 12.5 million tonne. This is over and above the Rs 3000 crore estimated expenditure in replacing the process platform in Mumbai High North. The process platform was destroyed in a major fire last year.

The proposed Rs 12,000 crore redevelopment project - slated to be fully commissioned by 2012 - includes development of 17 to 18 new production wells and addition of two new platforms. The company was restricting the natural decline in yield from this old field by increasing the recoverable reserve from the existing 31 per cent to 40 per cent.

PMT venture plans further capacity expansion

September 7, 2006. The Panna-Mukta-Tapti joint venture operated by ONGC is planning further expansion of capacity through development of adjoining areas. The company is currently studying the hydrocarbon prospects in the fringe areas of the existing three oilfields and would be ready with a detailed report by the end of this fiscal. PMT is currently commissioning a $900 million (over Rs 4,000 crore) two-part project to enhance the natural gas production from 10.5 to 17 mmscmd and production of associated oil from 35,000 to 50,000 barrels per day through development of additional production wells. The project is slated to be fully commissioned by October 2007. The $280-million programme to develop eight production wells and two additional platforms (PH and PJ) was scheduled to be completed in October 2006. Post-expansion, Panna-Mukta will produce an additional 1.5 mmscmd of natural gas and 5,000 bpd of associated oil. The $520 million development plan for Tapti oilfield is, however, progressing as per schedule. The project is due to be completed in October 2007 and will lead to additional production of 5 mmscmd natural gas and 10,000 bpd of oil.

MP to pick up 5 per cent in Indore gas project

September 7, 2006. The MP government has decided to pick a 5 per cent stake in an Indore liquefied petroleum gas distribution project.  Avantika Gas Ltd, a joint venture of GAIL India and Hindustan Petroleum Corporation, has planned to invest Rs 100 crore in the project. In the joint venture, GAIL and HPCL have 22.5 per cent each, and 5 per cent has been offered to the MP government.  The balance equity will be offered to financial institutions, strategic partners or the public. The companies have not made any statement in this regard.  Aavantika Gas Ltd has been incorporated to implement city gas projects for the supply of piped natural gas (PNG) to domestic, commercial and industrial consumers, and compressed natural gas (CNG) to automobile consumers in the cities of Madhya Pradesh. 

After considering a proposal submitted to the State Project Clearance and Implementation Board, the state government decided to join the project as an equity partner by picking up 5 per cent. The project will be commence from 2007 and AGL will initially supply gas to Indore and Ujjain. AGL has plans to commence the city gas project implementation initially in the city of Indore depending on gas availability. GAIL is providing pipeline connectivity to Indore through 135 kilometer Jagoti-Pithampur pipeline with an investment of Rs 195 crore. Gail is also laying Kailaras-Malanpur pipelines. 

Gail is also providing gas through Kailaras-Malanpur pipelines to a captive power plant in Malanpur (Gwalior) jointly promoted by Wartsila India and local industrialists. The power plant named as Malanpur Captive Power Limited (MCPPL). 

Bengal invites IOC to anchor Haldia petrochemical hub

September 7, 2006. The West Bengal government decided to formally invite Indian Oil to take the responsibility of an anchor investor in the proposed Petroleum Chemicals and Petrochemicals Investment Region (PCPIR) at Haldia. The cabinet sub committee on industry had approved IOC as an anchor investor in PCPIR.  PCPIR would come up on 1,000 acres, the quantum of investment was being worked out. 

Shell India to expand Hazira terminal capacity

September 7, 2006. Shell India is planning to expand its capacity at Hazira LNG regasification terminal from its present capacity of 2.5 million tonnes per annum (MTPA) to 5 MTPA. The Shell group is not alone, or the first one to go for expansion of its capacity. Petronet LNG which launched its Dahej terminal in early 2004, has also announced its decision to increase capacity of its terminal from present 5 MTPA to 7.5 MTPA to 10 MTPA and eventually to 12.5 MTPA. Interestingly, in either case, the decision to increase the capacity has not been backed by any assured LNG supply commitment, which is the key in LNG business worldwide. Petronet LNG has assured supply for up to 7.5 MTPA but beyond that its still in talks with various suppliers.  Shell group, which has stakes in liquefaction units in Australia, Oman, Indonesia and Malaysia, has not committed any of its supply to Hazira terminal or for that matter to its Indian operations. 

GAIL mulls oil, gas bids with 6 foreign cos

September 12, 2006. State-run gas firm GAIL (India) Ltd is in talks with at least six foreign firms to jointly bid for Indian oil and gas blocks the government plans to auction. The talks were at an advanced stage with Italy's ENI, Oman's Petrogas E&P LLC, UK's Foresight Oil Ltd, Calgary's Silver Bay Resources Ltd and Australia's Tap Oil Ltd. GAIL, which plans to bid for about 20 blocks, is also looking at partnering Daewoo International of South Korea.

GAIL slots $2.6 bn investment in 11th Plan

September 9, 2006. GAIL (India) Limited is proposing to invest about Rs 12,000 crore ($2.6 bn) during the next Plan period. This includes Rs 1,000-1,200 crore overseas investments.  GAIL would lay about 9,000-km pipeline across the country.  Gail is currently laying a 1,500-km-long pipeline in the country with an investment of about Rs 3,300 crore. The work will be completed by the end of this fiscal, following which our gas-carrying capacity will increase to 145 MMSCMD from the existing 120 MMSCMD. The corporation will spend nearly Rs 18,000 crore on the remaining work in a phased manner. At present, the generation capacity was being underutilised due to non-availability of gas from various fields. 

The Indian gas market was expected to be 66 per cent bigger by 2009-10 and its dependence on imported LNG would increase from 22 per cent to 38 per cent of the total gas trade. Keeping this in mind, it was planning to import LNG and CNG in large quantities.  As part of the globalisation programme, GAIL has already taken equity participation in three retail gas companies in Egypt. The corporation has participating interest in two offshore blocks in Myanmar and one onland block in Oman.  It is pursuing business opportunities in regions such as South/Southeast Asia, West Asia, Russia and Central Asian Republics and African continents in the areas of exploration and production, gas transmission and petrochemicals.

GAIL keen on national grid project

September 8, 2006. GAIL (India) Ltd is keen on the national gas grid project and has already completed roughly 20 per cent of the 8,500-9,000 km of pipeline required, but the completion of the project depends on gas availability and sourcing and no timeframe can be fixed. GAIL had invested Rs 5,500 crore or so on the project so far, laying pipelines from Dahez to Uran and from Uran to Dabhol, and work on the remaining sectors could be taken up, as and when gas would be available. The production from the ONGC wells is on the decline, and the private players, such as Reliance, will start producing gas from the Krishna-Godavari basin only from 2008. The total cost of the gas grid project would be roughly Rs 18,000-20,000 crore. GAIL would spend Rs 3,300 crore on pipelines (1,500 km) and on the whole, during the five-year period (2007-2012), Rs 12,000 crore would be spent on laying pipelines. The company was also keen on overseas ventures and was making all attempts to import LNG from Myanmar and Iran.

Cairn, ONGC plan new marketing venture to sell Rajasthan crude oil

September 7, 2006.  After announcing a possible entry into pipeline construction and transportation, the UK-based Cairn Energy may soon join hands with state-owned ONGC for marketing crude oil from its Rajasthan fields. The petroleum ministry confirmed ONGC's subsidiary, MRPL may no longer continue to be the nodal agency to lift the 1.5 lakh barrels of crude oil a day. Cairn and ONGC jointly hold stakes in the RJ-ON-91/1 oil block in Rajasthan. While Cairn holds a 70 per cent stake, the remaining 30 per cent is held by ONGC. Cairn, which was earlier planning to sell its entire Rajasthan crude oil of 1.5 lakh barrels to the government nominated agency-MRPL, may now enter into different sales agreement with various buyers/refiners including Reliance, Essar Oil and Indian Oil Corporation (IOC). The crude pricing and evacuation issues are currently under discussions with the government. After an agreement on these two issues is reached, Cairn and ONGC would discuss jointly selling this crude through tenders to various oil refiners in India. Under its production sharing contract (PSC), the government has agreed to pay a internationally benchmarked price to Cairn for its Rajasthan crude oil. At current prices of Indian basket of crude oil, the estimated revenues from sale of this crude oil, over the next 5-7 years, aere pegged to be somewhere between $80-90 billion.

M’rashtra asks for more gas

September 12, 2006. The Maharasthra government has sought clarification from the petroleum ministry on issues relating to completion of the Dahej-Uran gas pipeline, fuel availability for Dabhol power project and the extension of the gas pipeline from Krishna Godawari Basin to Mumbai and Western Maharashtra. The state has been striving to solve the ever present mismatch between power demand and supply. It emphasised the need for early completion of the Dahej-Uran pipeline and an increase in gas allocation for the state so that it can encourage gas-based projects. Gas-based projects with total capacity of over 2,500 MW have been put on hold for want of gas. Also, Maharashtra state power generation company (Mahagenco) has been forced to operate its Uran project below capacity due to inadequate gas supply.

The government in its recent communication argued that against the required 15 mmscmd natural gas, only 5 mmscmd is available for the past several years from Petronet’s LNG terminal in Dahej. GAIL India had planned a pipeline from Dahej to Uran, which was to be extended to Pune, nearly five years ago. The pipeline was originally scheduled to be completed in 2005 to synchronise with the commissioning of the Dahej LNG plant. However, work on the pipeline has not yet begun with GAIL’s inability to award the contract for the pipeline.

Maharashtra is facing a power shortage of 4000 MW and demand for power from Dabhol would rise again after the monsoons. However, GAIL has not been able to secure a long-term fuel arrangement for Dabhol in the absence of which, the plant cannot be operated using costly naptha as a fuel. The Maharashtra government also demanded that the gas pipeline from the Krishna Godawari Basin be extended to Mumbai and western Maharashtra.

British consultant to advise on natural gas price from Iran

September 11, 2006. Gaffney, Cline & Associates, UK-based consultants, have been appointed to advise on the natural gas price to be supplied to India and Pakistan from Iran through the proposed Iran-Pakistan-India (IPI) gas pipeline. In order to break the impasse on the natural gas price, the three nations decided to appoint an international consultant. The British consultant is expected to submit its report on gas pricing in October. Once the report is validated by the technical group of the three countries, secretary-level talks will be held in November. A decision to appoint an international consultant was taken after the two-day Secretarial-level trilateral talks in August failed to create a breakthrough on the issue of gas price. While Iran wanted the price linked to crude oil, the buyers jointly sought a price band with a floor and ceiling. Indications are that Iran wanted a price equivalent to 10 per cent of ruling Brent crude oil price, plus a fixed cost of $ 1.2 per million British thermal unit. This, at an average Brent price during recent times of $60 per barrel, translated into a price of $7.2 per mBtu at Iran-Pakistan border. To this would be added the cost of transporting the gas through Pakistan. India was willing to pay $4.25 per mBtu for gas delivered through the 2,100-km line at its border. 

POWER

Spanish Co may set up nuclear power plant in Orissa

September 8, 2006. Spanish nuclear power developer Cala Casa Sl (CCS) has evinced interest to set up a 20 MW multipurpose-generation IV nuclear power plant on Build-Own and Operate basis in Orissa. An Expression of Interest (EoI) submitted to the energy department by city-based trading firm, CCS would invest 80 per cent of the project cost while the balance 20 per cent would have to be invested by the state government. The capacity is to be increased at a later stage in the range of 40 MW, 60 MW, 80 MW and 100 MW basis. While CCS was interested to provide fuel for a minimum contract period of 20 to 25 years, the company had sought minimum 10 acres of land on long lease at a reasonable price by the government. The nuclear power plant, generation IV, the simplified gas-cooled reactor (SGR) is a developed compact nuclear power plant and layout concept that maximizes the benefits.

CESC to install high-end plants

September 7, 2006. RPG flagship CESC may soon become the first electricity generation company in West Bengal to invest in super-critical thermal plants that have ultra high coal efficiency levels. CESC proposes to set up two 660 MW super-critical units during the second and third phases of its upcoming Rs 9,000-crore greenfield thermal venture in Haldia. At present, super-critical thermal units are virtually unheard of in the state and across India. Only recently, the country’s largest generation company, NTPC, decided to invest in such coal-fired units at its Sipat (3x660 MW) power station in Chhattisgarh. In fact, most of the existing power stations in the country are in the sub-critical category.

Unlike sub-critical coal-fired units, a super-critical thermal plant can generate more power by burning less coal. In pure operational terms, the efficiency levels of super-critical thermal plants are nearly 3 per cent higher than the present crop of sub-critical coal-fired units. While the size of most existing thermal units are in the 250 MW and 500 MW categories, super-critical coal-fired units are mainly in the 660 MW region. CESC is likely to invest for the first time in two super-critical 660 MW thermal units during the second and third phase of its 2000 MW greenfield power venture in Haldia. But the size of first unit will either be 500 MW or 600 MW.

UP to invest $ 89.5 mn in seven Tehri hydro projects

September 6, 2006. The UP government, in a highly profitable deal with the Tehri Hydro Development Corporation (THDC), will invest Rs 412 crore as share capital in an expansion project, where seven new hydro electric plants at Rs 5,497 crore are to be set up by the central PSU. The seven new schemes under the expansion project are Vishnugaad-Pipalkoti - 440 MW, Karmauli - 140 MW, Jaad ganga - 50 MW, Guhanataal - 60 MW, Malari Jhelum - 55 MW, Jhelum Tamak - 60 MW and Bokang Beling - 330 MW.  The total generation in seven new units will be 1,135 MW and UP’s share will be 424.14 MW. Thus by sharing a mere 7.5 per cent of the cost of the expansion project, UP will get 37.37 per cent of the total power generated. 

The power tariff will range between Rs 1.05 per unit to Rs 2.46 per unit, which is far cheaper than the thermal power purchased from the NTPC by the state. Of the total power generation in the expansion project, Uttaranchal will get 12 per cent free power as the plant is located in the hill state while rest of the 88 per cent will be divided between UP and the Centre on a 25:75 basis.  The total cost of the seven schemes is Rs 5,497 crore. Of this, 30 per cent will come from the share capital and rest 70 per cent from the FIs. UP will have to bear only 25 per cent of the 30 per cent share capital and the state will have no liability on the borrowings by the THDC from the FIs for arranging rest of the 70 per cent funds for the project. Thus the share of UP will be Rs 412.25 crore. 

The Uttaranchal government has approved the seven schemes under THDC expansion project while the nod from the Centre is awaited.  The first stage of the THDC 1,000 MW unit has been completed and is in the stage of commissioning. The work on the 1,000 MW Tehri pump storage plant is also progressing. Work on the 400 MW Koteshwar project is also on and is slated to be completed by the end of 2008.  UP government has released the money for share capital for Tehri Stage-I and Koteshwar project while the share capital for the Tehri Pump storage plant is to be released in current fiscal 06-07 and 2007-08. 

PowerGrid will soon shed load as committee moots new entity

September 12, 2006. A Committee of Secretaries (CoS) has proposed to gradually carve out load dispatch functions from PowerGrid Corporation of India (PGCIL), starting two years hence. Initially, the new entity will be a wholly-owned subsidiary of PGCIL, but over a period of time, PGCIL will bring down its stake in the arm. Eventually, the equity of the load dispatch company will be widely dispersed. It will act as an Independent Systems Operator (ISO), akin to such agencies in the US and UK.

The idea is that ISO will be capable of objective decision-making, with no concentration of its ownership in the hands of any player. ISO is envisaged to be an agency that will federally control power transmission systems in the country. Currently, PGCIL is the dominant player in transmission, even though private players are allowed in the segment. Absence of a systems operator for discretionary allocation of load is said to be one reason for the continued monopoly-like situation in the transmission industry.

A national load dispatch centre, the infrastructure for which has largely been built, is yet to begin operations. Five regional load dispatch centres - North, South, East, West and Northeast- perform the operations. The RLDCs handle inter-regional dispatches. Additionally, there are 32 state load dispatch centres for intra-state allocations. In many countries in the West, ISOs are created by a pool consisting of the operators themselves, with an independent board for its impartial functioning.

It is reckoned that with the transmission sector in India yet to evolve and mature, that might not be a feasible option for the country as of now. IPO’s essential function is to exercise operational control over the power transmission system. In some countries, these operators also perform a host of other functions such as providing power companies open access to transmission infrastructure, tracking power usage and issuing alerts.

AES worried over bidding for power projects

September 9, 2006. US-based AES, one of the foreign players in the bidding of ultra-mega power project at Sasan, has expressed its concern on the bidding process and the bidding documents. The company informed, in a letter to Power Finance Corporation (PFC) that the timetable for the bidding was aggressive and it would be difficult to quote a fixed coal price now. During the pre-bid conferences, it was emphasised that the land acquisition along with associated rehabilitation and resettlement should be clearly in the domain of the government. The coal transportation and water pipeline facilities, final clearance from various ministries, mining lease from the state government, irrevocable water allocation were the concerns of the companies. The company’s letter says that there is substantial dilution in the responsibilities being taken by the government. Further there is no clear cut responsibility for carrying out these activities on behalf of the government and the current drafting leaves it under other obligations of the procurers. The projects are slated to be awarded by the end of ‘06 to the bidder who submits the lowest tariff-based bid. The ultra-mega projects are part of the government’s initiative to raise generation capacity from 1,25,000 MW to beyond 2,00,000 by ‘12. 

New grid structure for power transmission

September 8, 2006. The synchronisation of the northern grid with the eastern grid late last month has helped create a grid with total generation capacity of 88,000 MW. The synchronisation facilitates free flow of power from surplus to deficit regions. The linkage may be compared to linking of two rivers. The synchronisation has enabled surplus generation stations in the east to supply more power to the grid for the power-starved northern region. As a result, the frequency of the northern region has improved, reducing the chances of grid collapse. Some estimates show that about 700 MW of extra power is being pumped by eastern utilities in Orissa and West Bengal. However, the southern region is still operating at a different frequency and there is no automatic realignment of power flow from the surplus region. So, if there is an extra demand in the southern region, the frequency goes down to say, 49.14 HZ. As a result, the incentive to generate more power (called UI charges) goes up to 525 paise.

On the other hand, if there is a slack in demand in the eastern region, frequency may go up to 50.2 HZ, and generation incentive is only 72 paise. If there was a linkage between the two grids, the two systems’ frequency would converge, leading to optimal utilisation of the generation capacity, leading to an optimum price to the supplier as well as the consumer. If everything works as per the plan, the benefits will be tremendous in terms of improving electricity availability in deficit regions. But there is a lack of clarity as to how the system will operate in practice. Besides, the other issue that may arise is of existing grid capacity not being sufficient for the transmission of surplus power. Payment of UI charges by the consuming utilities has to be quick. Otherwise, it may derail the whole process of synchronisation. 

Goa plans to buy power from PTC

September 8, 2006. Goa's Power Department may have to resort to "limited" load shedding to some major industries in case the Western region does not permit substantial over-draw of power during peak hours. The Government has decided to purchase power from Power Trading Corporation (PTC) temporarily to overcome a possible power crisis for next few months when grid power stations in the neighbourhood would be out of service for maintenance. The Goa Government decided to buy 50 MW power from PTC @ Rs 5.32 per unit.

Tata Power may dump Jharkhand

September 12, 2006. Tata Power may pull out of its ambitious Rs 12,000-crore, 3,000 MW project in Jharkhand. The state government is seeking a new project bid after signing an initial agreement with Tata Power last October.  Tata Power had, at the time of signing the memorandum of understanding, recommended expansion of an existing power plant in Jharkhand and setting up of several smaller plants across the state, depending on availability of coal. Tata Power’s MoU also called for examining opportunities for captive coal mining, in addition to setting up the 3,000-MW coal pithead power project. 

The company had been considering Ramgarh and Latehar, where captive coal is available. As part of the MoU, the company was also to examine distribution and transmission issues to facilitate the entry of private players. Tata Power already has an installed capacity of 368 MW in Jharkhand, including the 129-MW Jojobera plant. The 1000-MW Maithon station is expected to go on stream in the next five years.  Other important projects announced in the state include Jindal Steel, which plans to invest Rs 11,000 crore, Essar Steel (Rs 5,000 crore), Hindalco, which has signed an MoU worth Rs 7,800 crore to set up an aluminium plant in Latehar and Tata Steel, which announced an integrated 12 million tonne greenfield project last year. 

Mega power plants show the way

September 12, 2006. Ultra mega power projects seem to be showing the way as far as the ministry of power’s new policy of captive coal block allocation is concerned. State utilities will be required to come forward with competitive bidding initiatives for large quantities of power either on their own or in groups, as is the case with major power plants. The coal blocks will be allocated to the projects on lines similar to the practice followed for the ultra mega power projects. The ministry is currently fine-tuning its proposed policy for allotting captive coal blocks to distribution companies in order to create a level-playing field among competing developers.

The move is in line with the requirements of the tariff policy and the tariff-based competitive bidding regime. The ministry had earlier proposed to offer captive coal blocks to distribution utilities. To ensure economies of scale and efficiency, the ministry is suggesting that distribution utilities either singularly or as groups of discoms put outbids for 1,000-2,000 MW. With fair play on mind, the ministry is suggesting the model followed for the ultra mega power projects. It’s not clear whether that would mean setting up a special purpose vehicle (SPV) for each of these projects. Once the scheme is awarded on a tariff-based competitive bid, the successful developer, which can be an independent power producer (IPP), will be put in- charge of the coal block for development. The tariff-based competitive bidding guidelines require that all procurement of power by distribution utilities must be through a system of tariff-based competitive bidding. In a complementary move, the tariff policy mandates that all new generation projects in the private sector will have to be competitively bid. 

Lehman Brothers to part-fund two power projects

September 12, 2006. Lehman Brothers, one of the world’s biggest investment firms, will partly finance Hyderabad-based KSK Energy Ventures’ 1,250MW capacity power projects to be set up in association with state PSU Gujarat Mineral Development Corporation (GMDC). KSK and GMDC have entered into a MoU for setting up a 1,000MW power project in Chhatisgarh and another 250MW power plant in Jharkhand. Recently, GMDC was allotted two coal blocks in Chhatisgarh and Jharkhand by the ministry of coal, government of India. The Morga-II block in Korba district of Chhatisgarh has 350m tonnes of mineable reserves and it can fuel a 1,000MW power plant. The other one in Jainnagar at Hazaribaug district in Jharkhand has 100m tonnes of mineable reserves which can support a 250MW power plant.

Ministry allays fears over ultra mega power projects

September 11, 2006.  The power ministry is in the process of clarifying its stand to the Planning Commission regarding structural flaws in the implementation of mega power projects after the latter raised concern over the issue. The ministry, in its communication to the Planning Commission, argued that adequate payment security mechanism had been put in place and escrow agreement would be inked right in the beginning and not at the time of commercial operation of the projects. It also said before UMPPs were started, issues like viability and capacity of the state utilities to make payments were also taken into account.

The commission had noted that the feedback from potential bidders, equipment suppliers and financiers was not very encouraging. The commission had said that the lending community was looking to some form of payment security in light of uncertainty. The commission had questioned the role of special purpose vehicles and said that by creating a public sector SPV, obligated to do all of the foregoing, the government is obligating itself formally or by way of solicitation to provide all of this up-front or during project implementation. On its part, the power ministry said that SPVs do everything that a developer in the past was doing. What developers did in two years, SPVs did in just six months. The commission had also raised apprehensions over the present structure of fuel supply agreements and it wanted these agreements should specify who bears the fuel supply and price risk. Moreover, the commission pressed on the need for clarity in the implementation of power purchase agreement. The ministry has been working with financial institutions so that all the documents, instruments, PPA and escrow agreement, acceptable to distribution company, state utilities and lenders are in place.

PFC reconstitutes Boards for 2 projects

September 10, 2006. Taking forward the process for setting up Ultra Mega Power plants in Sasan and Mundra of 4,000 MW each, the Power Finance Corporation said that projects would be awarded by the end of December. The Boards of these two projects has also been reconstituted incorporating representatives from the state utilities and power procurers. Both projects at Sasan and Mundra would envisage an investment of about Rs 40,000 crore. PFC has set a target to achieve financial closure arrangement of funds both in terms of debt and equity by the end of 2007 and first unit would be commissioned within 69 months from the date of awarding project.

Orissa spikes AES` Chhattisgarh plan

September 9, 2006. The Orissa government has refused to give the proposed 1,000-MW thermal power project of the US-based power utility AES Transpower in Chhattisgarh a no-objection certificate.  The Foreign Investment Promotion Board (FIPB) had sought a clearance from the Orissa government for the project.  If a foreign company has made an investment in any state in India, that state’s “no objection” is required to clear investment proposals by the company in any other state.  AES had entered into an agreement with the Chhattisgarh government in March for setting up a 1,000-MW coal-fired power project. The project’s clearance was pending with the FIPB.  However, due to a disagreement between the state government and the company over the sale of power from the new units and AES’ demand for a review of the existing power purchase agreement with the state-owned Gridco, the expansion is yet to happen.  This apart, AES had taken up power distribution in the state through the acquisition of 51 per cent stake in the Central Electricity Supply Company (Cesco) in 1999.  But it abandoned management of the company in 2002 complaining of huge losses and non-cooperation of the state government in recovery of electricity bills.  The state government has slapped a claim of Rs 800 crore on AES towards non-payment of power dues to Gridco and Rs 173 crore given to the company through a letter of comfort. 

ADAG plans to invest $2.6 bn in TN

September 9, 2006. The Anil Dhirubai Ambani Group plans to invest over Rs 12,000 crore ($2.6 bn) through two projects in Tamil Nadu - a Rs 10,000-crore multi-product Special Economic Zone and a Rs 2,000-crore information technology park and convention centre. One is for a multi-product SEZ with the core of a 1,000-MW power project linked to a desalination plant. The amount of water produced from the plant would be close to a third of the current water shortage in Chennai. The Government will have to identify land for the SEZ, as it would require a minimum of 2,500 acres. Ennore, to the north of Chennai, could be one location as it is along the coast. Besides, the Tamil Nadu Industrial Development Corporation, a State Government agency, has over 3,000 acres of land in its possession for an SEZ. Tamil Nadu has forwarded over 15 proposals for SEZs to the Centre for approval with most of them involving private sector participation. One or two were to be promoted in the public sector, including the SEZ at Perambalur that was announced in the budget session.

Merchant power plants on cards

September 8, 2006. The ministry of power is considering allowing private developers to set up merchant plants, that is power plants which are not tied up with long-term power purchase agreements (PPA). These merchant plants may be considered for captive coal blocks and coal linkages as well. Independent power producers (IPPs) who opt for this route will have to do so at their own risk. Setting up a merchant plant would necessarily mean balance-sheet financing by the developer, as financial institutions/lenders may not be comfortable about projects which don’t have long-term PPAs.

However, the ministry is of the view that the risk could be fully taken care of if IPPs develop projects that deliver power at competitive rates. Given considerable demand-supply mismatch, sale of competitively-priced power should not pose a problem. Consider this with the scenario between April and May this year, when against a demand of 95,583MW, only 83,094MW of power was available a peak shortage of 13.1 per cent. This situation is likely to persist. Projections by the Central Electricity Authority show that even if 10th Plan capacity addition target of 32,804 MW is met, the all-India peak shortages will be at an average of 16.3 per cent or 18,913 MW. 

ADB to cut FDI risk, light up ultra mega power projects

September 7, 2006. In a significant development, the Asian Development Bank (ADB) has agreed to extend hedging coverage to the developer of ultra mega power projects (UMPP) to mitigate risk for FDI. ADB has responded to the Centre’s communication and drafted a Draft Aide-Memoire. The Centre wanted to rope ADB in the development of specific financial instruments for UMPP, as each such projects require investment of the order of Rs 16,000 crore and involve both domestic and international players.

So far 13 companies have been pre-qualified for the upcoming UMPPs at Sasan (MP) and Mundra (Orissa) with the 4,000 MW capacity each. The PFC, which is the nodal agency for the implementation of UMPPs, has set the deadline of November 22 for the submission of request for proposals and financial bids by these pre-qualified bidders. ADB has envisaged financial support for project companies in the form of debt, equity and guarantees. It would include multi-tranchet finance facility and sub-sovereign loan. ADB has offered possible financial intermediation through the state-run power finance corporation to meet the pending needs of project companies. ADB’s move is in line with the bank’s resolution in favor of local currency funding. Under this funding, loan has been made available to Indian borrowers.

Essar homes in on Bengal

September 6, 2006. The Essar Group has submitted a proposal before the West Bengal government to set up a 500-MW thermal power plant in the state, for which it has set aside a total capital outlay of Rs 2,000 crore. The group has identified Murshidabad district as the proposed site for the project. The Essar group has plans to increase its power-generating capacity. The group is keen to invest in the state as the demand for power is increasing here in an exponential manner.

Essar Power has recently formed a 50:50 joint venture with Hindalco Industries called Mahan Coal Company for coal mine development at Mahan block of Siddhi-Singrauli fields in Madhya Pradesh following the allotment of mine by the Union coal ministry. Nearly 60 per cent of the coal will be used for Essar’s 1,000-MW plant in Madhya Pradesh and the rest 40 per cent will be taken up by Hindalco for a 750-MW captive power plant. The Shashi Ruia-controlled group’s sudden interest in the state can be gauged from the fact that it has already teamed up with the Konkan Railways to participate in the proposed light rail transit (LRT) system that will ease the traffic movement in Kolkata. The Essar group will arrange necessary funds for the project and the Konkan Railways will provide the technology base to the BOT operator. 

OIL & GAS

OPEC to maintain oil production

September 12, 2006. OPEC will keep its oil output near a 25-year high despite a 16 percent drop in the crude price since mid-July, but the group left the door open to a supply cut before the end of the year. Ministers saw no reason to tamper with the 28 million barrels per day ceiling just yet, with peak winter demand closing in and supply worries ever present. But some were deeply concerned at the pace of oil’s decline in recent weeks. For a year, OPEC has been pumping close to its fastest rate for 25 years to guard against price shocks and ease pressure on consumer economies. Prices have sunk from a record $78.40 a barrel on July 14 to a five-month low. In London Brent North Sea crude dropped below $64 per barrel and in New York, light sweet crude fell under $65.

OPEC’s economists are forecasting demand for OPEC oil will drop 800,000 bpd to an average 28.3 million bpd in 2007 as new non-OPEC production comes onstream. Growth in crude oil supply in recent years has continued to exceed growth in demand - the rebound in non-OPEC supply in 2007 is predicted to be at its highest level since 1984 - and market fundamentals indicate a clear imbalance between supply and demand.

Iran to pump 4.66 mn barrels by ’10

September 11, 2006.  Iran plans to increase oil production to 4.66 million barrels of oil a day in 2010 and has no plans to stop exports because of international opposition to its nuclear research. Iran, which relies on oil for 80 per cent of its export revenue, faces flagging production from ageing oil fields. Some international oil companies have avoided investing in the country because of its politics. The minister was in Vienna to attend a meeting of the Organisation of Petroleum Exporting Countries, whose 11 members supply 40 per cent of the world’s oil. Iran pumped 4.02 million barrels of crude a day in August.

Gas reserves discovered in Balochistan

September 9, 2006. A gas reservoir, estimated to produce 15 million cubic feet of gas daily, has been discovered in district Jhal Magsi of Balochistan. Oil and Gas Development Corporation (OGDC) had dug two wells in Jhal Magsi three years ago for exploration of oil and gas. One of the wells, now named as Gas Field-I, was found to contain gas. Three more wells will be dug over an area of 14 acres in the northern part of Jhal Magsi. The discovery would have a positive impact on the area.

Chevron makes big Gulf of Mexico find

September 6, 2006. Chevron Corp had successfully drilled for oil in the Gulf of Mexico's deep waters and said the find suggested there may be more oil in the region that provides a quarter of US output. During the test at record depths and pressure, the Jack No. 2 well flowed at more than 6,000 barrels of crude per day. That puts it on a par with discoveries in exploration hotspots such as the waters off Angola. With US oil output in decline, big new fields are increasingly rare and oil companies are widening their search to more difficult places.

Talisman plans Canadian natural gas development

September 5, 2006. Talisman Energy Inc. will spend C$250 million ($225 million) in 2007 developing newly acquired Canadian Rocky Mountain foothills lands that could contain 1 trillion to 2 trillion cubic feet of natural gas. Talisman, the country's No. 3 independent oil explorer, has spent a total of C$230 million accumulating the "Outer Foothills" acreage adjacent to its own producing properties in Alberta and British Columbia. The company said it aims to produce up to 200 million cubic feet a day by the end of the decade on the 260,000 acres.

Galleon’s oil discovery at Puskwa

September 5, 2006. Galleon Energy Inc. announces that a third major well, located at 16-11-72-26W5M, has been drilled at Puskwa located in the Peace River Arch area of Alberta. This well was drilled to a total depth of 10,170 feet and encountered 20 feet of oil pay in the Beaverhill Lake formation with porosity ranging from 12% to 21% based on log analysis.

The 16-11 well is located four miles from the first major well at 16-32-71-26W5M. Tested capacity of the 16-32 well remains, as previously announced, over 2,500 Boe/d of light sweet oil with no water. Tested capacity of the second major well located at 12-11-72-26W5M remains over 1,400 Boe/d of light sweet oil with no water. Both wells are currently under EUB imposed restricted production rates which will be removed once Good Production Practice has been obtained. It is expected that production from the 16-11 well will also be initially restricted by the EUB pending GPP.

The 16-11 well is a step out development well in one large oil pool. The edge of the pool has not yet been determined. Galleon will continue the delineation drilling program for the remainder of 2006 and 2007 in order to determine the extent of the pool.

LUKoil to open 40 petrol stations in Macedonia

September 8, 2006. LUKoil is planning to open 40 petrol stations in Macedonia in the next four years. The company and the Macedonian government signed a memorandum on cooperation in June 2005 to supply oil products to the Balkan country. LUKoil's refineries in Bulgaria and Romania will supply oil products to the stations.  The company purchased an oil storage facility with a 5,600 cubic meter reservoir in Macedonia in August 2006, and opened its first petrol station in Skopje.

Iraq to spend 4bn on oil refineries

September 7, 2006. Iraq plans to invest $4 billion to build oil refineries and improve ageing infrastructure. Iraq has the world's third-largest known oil reserves, but sabotage attacks, corruption and old infrastructure has crippled the sector and caused a severe domestic fuel shortage. The spending would come from a planned budget bill for 2007 of about $33bn. The ministry hoped to increase domestic production of petrol in its refineries at Basra, Shueyba, Doura and Baiji to 11m litres per day by the end of the year. Iraq currently refines 8m litres of petrol per day, way short of a domestic demand of 22-23m litres per day. In a move aimed at easing gasoline shortages and reducing smuggling, Iraq's parliament approved a law that authorises private companies to bid for import licences to supply fuel direct to the open market. Until now, all oil imports have been conducted by the State Oil Marketing Organisation, which is also responsible for the sale of Iraqi crude.

EnCana may build an upgrading refinery

September 6, 2006. EnCana Corp. is mulling construction of a heavy oil upgrader in Western Canada even as its search for a refining partner to handle a planned 10-fold rise in oil output nears completion. EnCana, North America's biggest independent oil explorer, expects production from its properties in the northern Alberta oil sands to rise to half-a-million barrels a day by 2015. It is now searching for a U.S. refiner capable of converting the low-value bitumen stripped from the sand into gasoline and products and expects to name its new partner by the end of this month. EnCana is still considering building an upgrading refinery in Western Canada to convert the bitumen it doesn't ship to a U.S. partner into refinery-ready synthetic crude oil.

Building such a facility, which typically comes with a multibillion dollar price tag, would increase the value of the company's bitumen production. It would also free the company from buying the expensive natural-gas condensate needed to blend into the bitumen so it can be shipped on pipelines.

Iraq plans new crude pipeline from Kirkuk

September 11, 2006. Baghdad was considering a new crude oil pipeline for exports from the northern Kirkuk field through Turkey to secure flows often disrupted by sabotage. Another pipeline is under construction and would be "finished in less than a month. It has a capacity of 500,000 bpd, which is enough for all of the output of Kirkuk for export. The pipeline under construction will link Kirkuk to the Baiji oil hub and pipeline intersection before it flows into a line to the Ceyhan port in Turkey. Iraq will not be able to set a routine for the oil sales from Kirkuk until it secures the current pipeline. The line has been mostly paralysed by insurgent attacks since the US-led invasion of Iraq in March 2003.

Mexico to stagger first LNG shipments

September 7, 2006. Mexico will start importing shiploads of liquefied natural gas to a new LNG import terminal in October to avoid relying on already strained domestic gas production to feed three new power plants. Mexico's main electricity provider, the CFE, has signed a contract with Royal Dutch Shell to buy an average of 500 million cubic feet of natural gas per day from the company's new LNG terminal at Altamira, on Mexico's northeast coast. But delays with the plants means the CFE will buy an average of 282 million cfd of natural gas to start with, and 329 million cfd during 2007. From 2008 will start taking the 500 million cfd. Any additional gas needed would be purchased from state oil and gas monopoly Pemex, which supplies natural gas to Mexico's existing electricity plants.

Mexico currently fills a shortfall in domestic natural gas production with pricey imports from the United States, which is also looking to LNG to ease tight natural gas supplies. Mexico's foray into the LNG market where supercooled natural gas in liquid form is shipped from cheap overseas markets and turned back to a gas form on arrival should ease import costs as demand for natural gas rises. A 138,000 cubic meter Shell-owned LNG carrier made a test delivery to the Altamira plant last month, after traveling 14 days from Shell's LNG plant in Nigeria. Subsequent cargoes will be delivered by both Shell and Total, as holders of 75 percent and 25 percent respectively of the terminal's capacity. Pemex's natural gas production hit a record 5.2 billion cfd in the first seven months of this year, 10 percent higher than a year ago, but not growing fast enough to catch up with swelling demand as Mexico switches power plants to run on gas.

Kazakh to invest $800 mn in gas pipelines

September 7, 2006. Kazakhstan will invest over $800 million in the construction and modernization of its natural gas pipeline network in 2006-2008, according to the country's draft midterm plan. Modernization of the trunk pipeline network, especially of the Central Asia-Center pipeline, is vital for the country's gas transportation sector. A number of major projects to build and overhaul trunk pipelines have been drawn up for 2006-2008, with a total cost of $804 million.

The plan for social and economic development for 2007-2009, submitted to Kazakhstan's lower house of Parliament, the Majlis, also envisages boosting natural gas exports and diversification of hydrocarbon transportation routes, with energy-hungry China as a top priority target to "avoid excessive dependence on a single consumer," namely Russia. Natural gas from Kazakhstan and Turkmenistan is supplied to European customers via Russia through the Central Asia-Center pipeline network, running through Uzbekistan, Kazakhstan and Russia. "In this respect, exports of Kazakhstan's hydrocarbons to China should be considered as a door to an enormously lucrative market."

Sudan's first two cargoes of Dar Blend head to China and Japan

September 7, 2006.  The first two cargoes of Sudan's new Dar Blend crude are heading to Japan and China, where refiners and possibly power plants will be the first to sample the high-acid grade. The first 750,000-barrel crude cargo, loaded in end-August on the tanker Stena Antarctica, is due to arrive at China's key northern oil port Ningbo, in end-September or early-October.  The second cargo, which was lifted early last week on the crude tanker Ce Shilla, will arrive in Japan around the same time.

Swiss-based trading house Vitol which has a contract to market Dar Blend loaded both the cargoes. Five cargoes or about 4.29 million barrels of the new crude grade are expected to be shipped out from Sudan this month. Oil traders have been closely monitoring the first barrels to hit the market, as there are few refiners in the world capable of processing its high acid content. The grade might be used for direct burning in Japanese power plants, which are regular consumers of Sudan's flagship Nile Blend crude, a grade similar to Dar Blend but without the high acid content. Dar Blend crude is produced from Sudan's Blocks 3 and 7 in the Melut basin by a consortium that includes, CNPC, Petronas and state oil Sudapet.

Beach Petroleum buys Delhi Petroleum

September 6, 2006. Australia's Beach Petroleum Ltd. bested the much larger Santos Ltd. in the bidding for Delhi Petroleum Pty. Beach, which paid $440 million for Delhi, becomes one of Australia's top natural gas and oil producer. The acquisition gives Beach a stake in the Cooper Basin and lifts its proven and probable reserves from to 95 million barrels from 36 million barrels. Beach will fund the deal through a fully underwritten share placement, a fully underwritten two-for-seven rights issue and additional debt.

Nigeria wants BG, Centrica in Brass LNG project

September 6, 2006. Nigeria is seeking to insert Britain's BG Group and Centrica as shareholders of its Brass LNG project. The plan is for Centrica to take 3 percent of the $5 billion project and for BG to take 2 percent. As things stand, state-owned Nigerian National Petroleum Corporation holds 49 percent of Brass, while France's Total, U.S. firm ConocoPhillips and Italy's ENI hold 17 percent each. The BG and Centrica stakes would be taken out in equal measure of the Total, ConocoPhillips and ENI stakes. The arrangements were still under discussion. U.S. major Chevron was originally a partner in Brass until it ceded its 17 percent stake to Total to focus instead on another LNG project at Olokola. The Brass plant will be built off the coast of Bayelsa state in the Niger Delta near the Brass oil export terminal. It is expected to produce an initial 10 million tonnes of LNG and 2.5 million tonnes of liquefied petroleum gas per year.

Global industries awarded pipeline project

September 5, 2006. Global Industries, Ltd. has been awarded a contract of approximately $87 million from British Gas Exploration and Production India Ltd. a nominee of the joint venture between BGEPIL, Oil and National Gas Corporation Ltd. - India, and Reliance Industries Ltd. for the New Revised Plan of Development (NRPOD) Project in their Mid Tapti field. Global's contract calls for the transportation, installation and pre-commissioning of one 20" x 80 km gas export pipeline, one 20" x 22 km infield pipeline with a 4" piggyback instrument air line, associated pipeline end manifolds and risers, the fabrication of two pipeline end manifolds and pipe burial operations. Pipe lay barge mobilization is scheduled for December 2006 for this eleven-month contract. Global will execute the offshore installation in 15 to 40 meter water depth in the Mid Tapti field, located 160 km northwest of Mumbai.

Global Industries provides pipeline construction, platform installation and removal, diving services, and other marine support to the oil and gas industry in the Gulf of Mexico, West Africa, Asia Pacific, the Mediterranean, Middle East/India, South America, and Mexico's Bay of Campeche.

India's ONGC signs Cuba deal

September 12, 2006. India's state-run oil company signed an agreement to explore Cuba's Gulf of Mexico waters for oil at a time when US companies and politicians are increasingly concerned over exploration in the area. The agreement that six foreign companies had signed for 16 of 59 blocks in Cuba's Gulf waters, two companies more than previously announced. India's Oil and Natural Gas Corp's (ONGC) overseas arm ONGC Videsh signed joint production agreements for blocks 34 and 35 covering 4,300 square kilometres.

Experts urge GCC to expand oil and gas facilities

September 11, 2006. The GCC countries need to build more refineries and expand their oil and gas facilities to meet the rising energy demand for the region to continue its robust growth. The GCC had focused in recent years on building gas refineries. There has been expansion in the energy sector, with Dubai achieving up to 17 per cent energy growth against a 14 per cent to 15 per cent global average.

Russia won’t let Exxon get anywhere near Sakhalin

September 7, 2006. Russia’s government said it won’t allow Exxon Mobil Corp to expand the boundaries of its $12.8 billion offshore oil project near Sakhalin Island in the Pacific Ocean, adding that nearby discoveries should be auctioned off. Russia is opposed to Exxon’s proposal to include new prospects adjacent to the Chayvo and Odupto fields in the 1996 contract that governs Exxon’s Sakhalin 1 development. Exxon Mobil, the world’s biggest oil company, is the latest international energy producer targeted to increase government control of the country’s petroleum wealth.

Russia sued to halt Royal Dutch Shell Plc’s $20 billion oil and gas development, also located near Sakhalin Island. Exxon Mobil, which pumps more oil than every member of OPEC except Saudi Arabia and Iran, began producing oil from the Chayvo field, which lies six miles off the coast of Sakhalin Island beneath the Sea of Okhotsk, in October. Two other offshore fields, Oduptu and Arkutun-Dagi, are next in line for development. The three fields, which hold an estimated 2.3 billion barrels of crude oil and 17.1 trillion cubic feet of gas, comprise Exxon’s Sakhalin 1 project.

Pertamina needs partner to develop Natuna gas field

September 7, 2006. Indonesian state oil firm Pertamina will look for another international partner to develop the huge Natuna gas field if the government terminates Exxon Mobil Corp.'s contract next year. The government might take over Natuna when Exxon Mobil's contract expires in January, unless the oil major starts development. Exxon has a 76 percent stake in D-Alpha while Pertamina has 24 percent. The Natuna D-Alpha block contains around 222 tcf of gas, of which 46 tcf is thought to be commercially recoverable, but the field contains about 70 percent carbon dioxide, making it expensive to develop and difficult to sell.

Asia's sole OPEC member is trying to phase out costly oil-fired power and use more cleaner gas. But it faces limited supplies due to long-term LNG export contracts, which it is reviewing, and so is looking for speedier reserve development. Pertamina might be unlikely to terminate the Natuna contract so soon after a five-year row with Exxon over operatorship of the $2.6 billion Cepu oilfield, resolved in March. The government still expects us to start production (on Cepu) by 2009, but with the present situation on equipment delivery and contractor loads there may be some delays.

Lukoil to boost output by investing $100 bn

September 7, 2006. Russia's big-gest oil producer Lukoil will invest $100 billion over the next decade to boost output and increase refining capacity, including possible foreign acquisitions. Lukoil said it would seek to double crude oil production from its current 1.8 million barrels a day. Spending an average $10 billion a year would put Lukoil well above its Russian oil company peers in terms of capital expenditures. The announcement comes as Lukoil faces growing competition from state-owned oil company Rosneft, which is seeking to become Russia's top oil producer within the next few years. Rosneft currently produces about 1.6 million barrels a day.

Lukoil appeared to be placing a bet that oil prices will stay high in the coming years, since demand would need to remain strong to supply the company with the necessary cash flow. The company has recently invested about $1 billion a year in its seven refineries, where it refines about half of its total crude output. Lukoil has said it may build a new refinery in Turkey or Russia, and is bidding for a refinery in Rotterdam. The company is also expanding its network of filling stations in Turkey and the former Yugoslavia.

Russia LUKOIL seeks to invest in Asia oil projects

September 6, 2006. Russian oil major LUKOIL hopes to announce new investments in Asia before the end of this year. The investments include upstream and downstream projects in countries such as South Korea, Vietnam, Singapore and China. LUKOIL, Russia's largest oil producer, was looking to invest in an oil storage facility in Singapore,  that logistics are an important part of the oil infrastructure. The Russian firm's top management had been in discussions with senior officials of Emirates National Oil Co. (ENOC), the majority stakeholder of Horizon Terminals, which will open its new Singapore facility by the end of the year. LUKOIL was also eyeing investments elsewhere in the world, including Europe where talks to buy over Kuwait Petroleum International's 80,000 bpd Europort refinery in Rotterdam are in the final stages.

LUKOIL is considering buying oil major BP's 172,000 bpd Coryton refinery in Britain. The Russian major is looking at similar investments in the United States, probably with its U.S. partner, ConocoPhilips. The spate of investments follows a substantial increase in LUKOIL's market capitalisation to $80 billion for this year from $50 billion in 2005.

Saudi Aramco to regain top spot as China’s oil supplier

September 6, 2006. Saudi Arabia will regain its position as China’s biggest oil supplier because of shorter sailing distances and the Asian nation’s increased capacity to process the kingdom’s crude. Saudi Aramco, the world’s biggest oil producer, fell behind Angola in shipments to China this year as refiners in the fastest-growing major economy switched to African crude varieties. Saudi Arabia’s advantage in terms of distance from China would help reverse that situation. Lower transportation costs and faster deliveries because of the shorter distance make it likely that China would favour imports from Saudi Arabia.

China’s inability to process Saudi Arabia’s high-sulfur, or sour, crude in some refineries prompted fuel and chemical producers to import more oil from Angola, which pumps better-quality varieties than most Middle East producers. Saudi Aramco is backing the construction of refining capacity in China that can handle the kingdom’s oil to boost demand. Shipments from the Persian Gulf to China rose 5.8% to about 1.3 million barrels a day in the first half of this year, lagging behind the 22% jump in African shipments to about 937,000 barrels a day, according to customs data. Angola, sub-Saharan Africa’s second-largest oil producer, shipped about 520,000 barrels a day of oil to China in the first seven months, 13% more than Saudi Arabia.                 

Gazprom clinches 3-year deal to buy Turkmen gas

September 5, 2006. Russian gas export monopoly Gazprom signed a deal to buy natural gas from the Central Asian state of Turkmenistan at an increased price, averting a risk of a disruption in supply to Europe. Turkmenistan had threatened to cease supplies if a new deal was not in place by the time Gazprom's current agreed quota expired next month. It will now sell gas to Gazprom at $100 per 1,000 cubic metres until the end of 2009. Turkmenistan, a landlocked ex-Soviet state, appears to have achieved what it set out to do when it announced in June that it wanted Gazprom to pay $100 instead of the $65 per 1,000 cubic metres of gas that it paid under its current agreement. Turkmenistan supplies the bulk of the gas import needs of Ukraine, delivered by pipeline across Russia, making it possible for Gazprom to export more of its own gas to more lucrative European markets. Any halt in Central Asian supplies could mean less fuel reaches Europe through Ukraine's transit pipelines.  A pricing row between Ukraine and Russia at the start of this year hit some European countries after Gazprom halted gas supplies for a several days.

Power

Russia starts Bushehr N-plant Sept. 2007

September 10, 2006. The atomic reactor Russia is building for Iran at Bushehr is scheduled to start up in September next year. Russia has consistently postponed the opening date for the plant, citing technical difficulties caused by the need to build it on the foundations of a differently designed station started before the 1979 Iranian revolution. The construction at Bushehr was being carried out under the control of the International Atomic Energy Agency (IAEA) and should not be seen as a threat to world peace.

The U.S. is illegally pressing other big powers sitting on the UN Security Council to introduce sanctions against Iran as Tehran is refusing to halt nuclear work which is legally entitled to do under the No-Proliferation Treaty.

AES to build $450 mn power plant in Canada

September 8, 2006. The Canadian subsidiary of AES plans to spend $450 million to build a power plant in British Columbia. It has signed an agreement to provide electricity for 30 years beginning in 2010. The Canadian subsidiary, AESWapiti Energy, inked the power-purchase deal with BC Hydro to build the coal and biomass plant and a power transmission line. The project also includes development and operation of a thermal coal mine by Hillsborough Resources, which will be the exclusive supplier of coal to the plant. Construction is expected to begin in late 2007, pending regulatory review and approval by the British Columbia Utilities Commission. Mine development will begin one year before the scheduled 2010 opening of the plant.

S. Korea offers Romania nuclear reactors

September 6, 2006. South Korea wants to build two reactors at a nuclear power plant in southeastern Romania. Korea Hydro and Nuclear Power Corp. wants to construct the reactors at the Cernavoda nuclear power plant. Korea Hydro and Nuclear Power Corp., was on a list for another project and among 12 companies being considered to build nuclear reactors 3 and 4 of the Cernavoda power plant. Following the 1989 downfall of Romania's communist regime, South Koreans were among the first to invest in Romania's steel, car, automotive and naval industries. The two heads of state signed a joint statement of friendship, partnership and cooperation as well as protocols on investments and cooperation in science and technology.

Westar energy plans to build new transmission lines

September 7, 2006. Westar Energy, Inc. plans to build a new 345 kilovolt high-capacity transmission line from northwest of Wichita, near its Gordon Evans Energy Center, to the Hutchinson area. Following construction of that line, Westar plans to build additional high capacity power lines to improve the electric network in Kansas, and strengthen Kansas' access to the broader regional transmission system.

Focus on small gas fields for power generation - Pak

September 11, 2006. The Pak government has decided to conduct a feasibility study for power generation by putting together the reserves of small gas fields. The 65th meeting of the Private Power and Infrastructure Board was informed that the Asian Development Bank had offered to finance up to 75 per cent of the cost of the feasibility study besides providing technical assistance while the remaining cost would be financed through the Public Sector Development Programme. A number of fields in the country were abandoned by the gas companies because of their small size and resulting commercial non-viability. In many cases, the fields were in proximity with each other and there were technologies available to put together their reserves to make them economically viable ventures for power generation. In some cases, possibility existed to set up power plants at the gas wellhead.

The proposal, which will be further processed by the Planning Commission, entails the procedure of short-listing the promising sites and undertaking detailed studies. The gas in small fields whose pumping into the main pipeline is uneconomical will be ideal for power generation. The board approved amendments to the standard formats of the letters of support and performance guarantees to maximise investor comfort, including reduced steps for tariff negotiations, flexibility in negotiating agreements and facilitating faster processing.

‘Investment in energy sector being encouraged’

September 11, 2006. Pak Prime Minister has directed the federal and provincial authorities to immediately take steps to enable private investors to set up hydel power projects on river Swat to meet growing needs for the fast economic growth.

Presiding over a meeting on 101mw Swat Hydropower Project, the prime minister said the government was encouraging private sector investment in the energy sector as the demand in the country is growing rapidly as a result of fast growth and economic vibrancy. The government planned to provide electricity to every village in the country by 2007 under the Roshan Pakistan Programme and the villages not on the grid would be provided electricity through alternative sources of energy. While encouraging electricity generation through coal and thermal power government gives priority to hydel power, as it is cost efficient as compared to other sources of power generation. Besides, hydroelectric power is environment friendly.

5 nations sign nuclear pact

September 10, 2006. Five nations in Central Asia have signed a nuclear-free-zone treaty that commits the region's rich uranium deposits to peaceful uses but leaves open loopholes that could allow Russia to transport nuclear weapons into Central Asia. It is the first mutual security pact among all five Central Asian nations, a group that has often quarreled about security issues.

By adopting the legally binding nuclear-free pact, the signatories - the former Soviet republics of Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan and Turkmenistan - agreed that they would neither acquire nuclear weapons nor allow them within their borders. But the treaty does not cancel an agreement that the Central Asian nations signed in 1992 that allowed Russia to transport and deploy nuclear weapons in Central Asia under certain circumstances. The United States, Britain and France boycotted the signing ceremony because they objected to that aspect of the treaty. Only Russia and China sent representatives to Kazakhstan to observe the signing. Central Asia contains no nuclear weapons, but Kazakhstan was home to the world's fourth-largest nuclear missile arsenal in the wake of the Soviet Union's dissolution. Kazakhstan voluntarily decommissioned its nuclear weaponry in the mid-1990s. Nuclear-free zones often are opposed by the large nuclear powers because they can limit the movement of military assets and expose military bases to intrusive inspections. The United States has an air base in Kyrgyzstan and Tajikistan allows NATO fighter planes with missions in Afghanistan to use its territory.

Pak PM reviews power demand & supply

September 10, 2006. The Pak Prime Minister said that the consumption of electricity has increased by 11 per cent since last year owing to economic growth and rapid electrification. Presiding over a meeting at the Prime Minister’s House to review the demand and supply situation and overall progress in the power generation projects undertaken by the private sector, presently there was parity between the demand and supply of power due to rains and more hydel production. The overall demand and supply both stood at about 14,000 MW.

The total hydel production, which today was 6740 MW, was 1000 MW higher than last year and the total consumption/ demand of electricity, which was 12,500 MW, had increased to 14.1 thousand MW. During the last year 19,000 tubewells were installed and 15,000 villages were electrified. The government’s commitment to provide electricity to every village by 2007 and said the villages, which were not on the grid, would be provided electricity through alternative sources of energy.

The private sector would add up to 2000 MW by 2008. Wapda would provide 1100 MW thermal power by 2008. The Private Power Infrastructure Board (PPIB) has invited request for proposals (RFPs) for coal power generation using local and imported coal. After the briefing, the prime minister said the government would tap all possible sources to increase power generation and maintain growth.The government was encouraging the private investment in power sector and a level playing field had been provided to local and foreign investors.

Power Machines signs Indian project

September 8, 2006. Power Machines, Russia’s leading power equipment manufacturer, and India’s Bharat Heavy Electricals Ltd. (BHEL) signed a contract to jointly upgrade five power generating units of the Obra thermal power station in India. Each of the power units has a capacity of 200 MW. The customer is Uttar Pradesh Rajya Vidyut Utpadan Nigam Ltd. (UPRVUNL), a power supplier in the Indian state of Uttar Pradesh. The project is estimated at $275 million, and Power Machines’ stake is valued at $57.3 million. Equipment supplies are scheduled to start in late 2007, to be completed by mid-2008. The last of the five power units slated for revamp will be launched in December 2008.

This is a pilot project for Power Machines and BHEL who are planning further projects to modernize power units with a capacity of 200 MW. Most of them use power equipment produced by BHEL based on the design by the Leningrad Metal Works and Elektrosila (transferred to India in the 1970s) or produced directly by Leningrad Metal Works and Elektrosila. Power Machines and BHEL are considering the possibility of upgrading another six power units in India. Power Machines produces equipment for hydraulic, thermoelectric, gas and nuclear power plants, power transmission and distribution, as well as equipment for the transport sector, including railroads. The company supplies its equipment to 87 countries.

China, Europe to discuss energy, environment

September 6, 2006. China and European Union leaders will discuss cooperation on energy and climate issues at their upcoming summit. The two sides will discuss cooperation in energy and the environment. The willingness of China and the EU to strengthen cooperation in energy and climate change will be reflected in the declaration. The European Investment Bank is set to sign an agreement at the Helsinki meeting to provide China up to 500 million euros (339 million pounds) in loans for projects to cut energy use and greenhouse gas emissions.

China’s growing hunger for energy has spooked international markets and raised alarm about its output of greenhouse gases, which many scientists say are raising global temperatures, leading to rising sea levels and more extreme weather. In the first seven months of 2006, China’s crude oil imports grew to 84 million tonnes, a rise of 12.9% over the same time last year. The EU is China’s biggest single trade partner, and trade reached $143.5 billion in the first seven months of 2006, a 21.1% increase over the same period last year.

Pak signed to set up 225 MW power plant

September 6, 2006. An implementation agreement for setting up of a 225 MW thermal power plant at Balloki was signed between Orient Power Company and the government of Pakistan. The power purchase agreement and the gas supply agreement were earlier initiated by National Transmission and Dispatch Company and Sui Northern Gas Pipeline, respectively. Orient Power was the first independent power producer to initial the agreements under the Policy for Power Generation Projects, 2002. This project would be capable of operating on dual-fuel, based on combined cycle technology, would use gas as fuel, and would be established at an estimated cost of $170 million. The power plant was expected to provide electricity by 2008. The government was making all efforts to induct power into the system to support rapid economic development in the country. The private sector had expressed its interest in investing in the country, particularly in the power sector to secure investment.

Barriers blow away wind energy potential

September 11, 2006. The wind energy sector in India is on the threshold of big-time growth. Reliance Energy has tied up with General Electric, US, for wind power projects. Reliance Capital, along with some private investors, has acquired close to 68 per cent controlling stake in Southern Wind Farms Ltd. The Essar group and international player Siemens are planning similar ventures. India has a gross potential of 45,000 MW. However, there seems to be little focus on infrastructure. Import duties are high. There is an excise duty on raw materials. India has set itself the target of reaching the 100,000 MW mark by 2010. How the country will manage to reach this target is still not very clear.

APERC rules out new licences for biomass power plants

September 11, 2006. Andhra Pradesh Electricity Regulatory Commission has ruled out any new licences to set up biomass-based power plants in the state.  The decision to freeze biomass power generation was taken on account of different views on the state’s actual biomass potential and complaints received from the forest department about alleged felling of trees for fuel by the existing developers.  The Aperc has stopped issuing new licences under the biomass category since 2004 citing the same reasons.  The regulatory commission had made it mandatory for power utilities as well as third party players to buy 5 per cent of the total purchases from non-conventional sources to encourage renewable energy in the state.  While the current installed capacity of biomass power is about 207 MW, the committee constituted by the state government in the past projected a total potential of 400 MW in the state.

Cummins India, IISc tie up for biomass-based power systems

September 8, 2006. Cummins India Ltd and the Indian Institute of Science (IISc) have announced an agreement for commercialisation of biomass gasification power generation systems. Under the agreement, Cummins India and IISc will jointly continue work on integrated development and release of power generation systems based on Open Down Draft biomass gasification systems developed by ABETS, IISc. Cummins India will launch a new range of generator sets, which would work on gasifiers designed using IISc technology. The generator sets will be available in a range of ratings starting from 25 kWe, and extend to multiple unit power plants over 1.5 Mwe. Biomass is a low-cost and sustainable fuel source, which uses the gasification route for power generation.

The Ministry of Non-Conventional Energy Sources (MNES) has estimated more than 1,700 MW potential for producer gas as fuel from biomass which can help power the 1.25 lakh villages unelectrified today. While biomass gasification technologies have been available for the past three decades, the collaboration marks large-scale commercialisation of the technology with products designed for optimised operations and uptime. Under the agreement, Cummins India will manufacture pre-integrated generator sets, which will be used in projects developed internally or through licensees approved by IISc for manufacture of gasification systems.

MSPL to step up wind power generation

September 8, 2006. Karnataka-based Mineral Sales Private Ltd (MSPL) is set to emerge as one of the largest players in the wind power sector by the end of this fiscal. The company plans to enhance capacity to 200 MW from the current 160 MW by March 2007 with an investment of Rs 200 crore.  The flagship company of the Baldota group, MSPL's buyers are distribution companies in Karnataka and Maharashtra.  MSPL, which has already invested Rs 800 crore in the project, has wind farms located in Bellary, Davanagere and Chitradurga districts of Karnataka and in Satara (Maharashtra). 

The firm intends to enhance capacity by installing wind farms at newly-identified locations like Harihar in Karnataka and Dhule in Maharashtra. Wind power contributed only about 9 per cent of the company’s overall revenue of Rs 630 in 2005-06 but that does not mean that it has a lower priority in the business.  The company is also planning to tap the carbon credits that wind power generation is eligible for.

IOC forms core group for bio diesel production

September 6, 2006. Indian Oil Corporation (IOC) has formed a core group at the corporate level to spearhead its plans for large scale production of bio diesel in the country. The team will examine feasibility of IOC’s proposed foray, following which IOC is due to initiate talks with state governments for acquiring large tracts of land on lease to unertake jatropha cultivation. IOC is looking at all aspects of production - from buying quality seeds, yield and planting of jatropha to selling of bio-diesel.

PetroChina unit to develop alternative fuels

September 9, 2006. China's top oil and gas firm has set up a unit to develop alternative fuels to secure new energy sources amid high crude oil prices and dwindling domestic reserves. An office of 10 people under PetroChina's exploration and production arm will focus on coalbed methane, oil shale and biofuels, before extending into renewable energy sources such as solar and wind power in the longer run. But high global crude prices and a growing shortage of oil and gas in the world's second-largest energy user have led Chinese state oil giants to look more closely at unconventional fuels.

PetroChina had quietly laid groundwork for coalbed methane (CMB), a gas extracted from coal mines, having sunk 200 exploration wells in northern China's Shanxi province this year. PetroChina is aiming for commercial production before 2010, supplying two to three billion cubic metres of gas a year from fields mostly in Shanxi province. The new division, charged with project planning, would also work on biofuels, such as ethanol and biodiesel, that are derived from plants or grains. Beijing would need to use incentives such as tax breaks to encourage these new energy sources. China is already the world's third- largest producer of ethanol, increasingly used as a gasoline blend. But the main producers have been local firms, while state giants like PetroChina have so far played an insignificant role. 

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