MonitorsPublished on Aug 16, 2011
Energy News Monitor I Volume VIII, Issue 9
Indian Oil Payments to Iran- Now the Turkish Delight

K Subramanian*



ewspapers in India and abroad are awash with reports that India has solved its payment problems with Iran for the supply of crude oil. These problems such as supply uncertainties and payment delays have been vexing us since December last when the Reserve Bank of India (RBI) snapped the Asian Currency Union (ACU) mechanism, which provided a smooth window to ensure payments. Efforts have been on to evolve an alternative mechanism. Sadly, these have met with intractable difficulties in the context of U.S.-led Iran sanctions. This resulted in an impasse in India-Iran oil relations. These issues have been have dealt with in a separate article [i] by me. Given the complexities attached to the issues, both financial and strategic, it was not clear in which direction the government of India would move to resolve them. There are signs of new initiatives.

On 1st August, Reuters carried a report [ii] suggesting, “Iran is receiving long over due payments for its oil exports to India as two major buyers have started using a Turkish bank to get around U.S. led moves to isolate the Islamic Republic.” It detailed how Iran’s biggest Indian customer, the state-run Mangalore Refinery and Petrochemicals Ltd. (MRPL) made three payments totaling 60 million euros through Turkey’s state-controlled Halkbank. Some papers described these as test payments. A day later,Bloomberg reported [iii], “Iran has received $100 million in payment from an Indian refiner through Union Bank of India Ltd. and Istanbul based Turkiye Halk Banksi AS (HALKB).” It was relying on a report of the Press Trust of India (PTI), which cited unidentified sources.

The Iranian Oil Ministry’s website SHANA confirmed that the oil payment was resolved before any interruption in crude exports to its second biggest customer. Tehran Times [iv] also confirmed that Iran was “receiving payments for the exports through a third party bank to get around U.S. led moves to isolate the Islamic Republic.” It quoted the remarks of Iran’s Deputy Foreign Minister Seyed Amir Mansour Borghei who said, “This was a small issue and it has been resolved. There is nothing more to say.” He went on to say, “Iran would be open to multiple currency baskets for its bilateral trade with friendly countries to reduce the pressure of dollar-denominated market forces.”  Further, he added, “It is a matter of careful planning, but we can explore possibilities where bilateral trade between India and Iran can be done directly in Indian rupees and Iran rials.”

Indeed, a couple of days prior to these reports, India’s Oil Minister Jaipal Reddy informed press reporters that India would be making the first payment to Iran to clear its dues. He did not give out details of the mechanism; nor indicate a time frame by which the new mechanism would be finalized. In his blog[v] Bhadrakumar gives full credit to the Minister for his personal intervention, which helped resolve the crisis. He goes on to say, “The issue had become a touchstone of India’s capacity to pursue an independent foreign policy and it is heartening that the government didn’t blink under American pressure.” Further, he expresses the hope that the ingenuity of our diplomats in the Indian Embassy in Tehran could explore new ways of cooperation with Iran. It is interesting that when the mechanism to route the payment through the EIH (an Iranian bank operating in Germany) was hit upon, Bhadrakumar viewed it as a “diplomatic feat.” [vi]. Sadly, it fell on its face within a couple of months. Will the present arrangement prove to be a Turkish delight?

Though there are several press reports, there has been no official document detailing the mechanism envisaged for payments to Iran. Broadly, the arrangement seems to be that Indian refineries such as MRPL will pay in rupees to an Indian bank. The Union Bank of India (UBI) is mentioned as the focal bank. The UBI will arrange to pay in lira to the HALKBANK in Turkey. The HALKBANK, in turn, will transfer the amount in rial to Iranian oil companies.

While this mechanism has been surmised from several press reports such as those cited in the earlier paragraphs, in the absence of any official communication from the government or the RBI, there is still an air of opacity bordering on secrecy surrounding it. Moreover, there are conflicting reports emanating from the Iranian end. For instance, in the same interview, which was cited earlier, the Iranian Deputy Foreign Minister sounded skeptical about the efficacy and durability of the solution in the long run. “It may also be possible tomorrow again some kind of another issue may crop up,” he told reporters when asked specifically if he found routing payments through a Turkish bank sustainable.

Reuters [vii] quoted Iran’s Central Bank Governor Mahmoud Bahmani who said Tehran would not need Turkish help. “Turkey does not have any role in transferring Iran’s money from India,” the semi-official Mehr news agency quoted Bahmani. He added, “Iran itself will receive its debt arrears.”  In fact, he was contradicting a statement made the same day in New Deli by the Iranian Ambassador Mehdi Nabizadeh who told Mehr, “Iran and India’s officials efforts to resolve the problem led to negotiations with two or three third parties of which Turkey was one.”

In a report [viii]Bloomberg also highlighted these contradictions emanating from Iranian officials. It referred to Bahmani who rejected accounts of Turkey’s involvement and said Iran would manage to clear the debts “by itself.” However, he gave no details.

Going by these reports, there seems to be a calculated attempt to cover the arrangement under a cloud of secrecy. In the normal course, one would have expected a circular from the RBI to authorized dealers (scheduled banks) detailing the payment arrangements to be adopted by them. So far, the RBI has not issued any circular. It is therefore difficult to analyse the proposed arrangement critically. Any analysis will have to be on the basis of hypothetical assumptions.

If the idea is to have currency clearance or settlement in a trilateral format, the critical question is whether it is practicable between India, Turkey and Iran to work out one. A trilateral clearance may work well subject to certain conditions. It assumes deep and diversified trade and financial flows and relations among the members. Even if there is no balance on an annual basis, there should be the potential for growth in the near future, which would ensure longer-term balance or equilibrium. Only such a balance would ensure regular payments for all dues, including oil. Given the current levels of trade and financial flows between these partners, which are shallow and lack depth, there are serious doubts over its viability. This view is supported by data. .

India imports oil worth $12 billion annually from Iran and its exports to Iran is around $1.9 billion. Though there is scope for increasing some items of exports such as engineering, railway equipment, consultancy services, etc., it is well nigh be impossible to match the flows even over years. Moreover, countries wishing to increase their trade or economic cooperation with Iran will have to face the ire of the U.S. government and its Iran sanctions regime, which is being enforced with ferocity. Presently, Turkey is trapped in such a quandary where it is hamstrung in its efforts to deepen its economic relations with Iran. There is an undeclared war on this account.

The trade between India and Turkey reached $3 billion in 2010 and has been rising from abysmally low levels. India’s export was around $3.4 billion and imports from Turkey were about $600 million. There are bureaucratic exercises by trade missions and commissions to increase the trade and these remain on paper. Turkey is not in the radar of Indian importer.

Due to the disturbed conditions in the Middle East, much of our trade has to go through Europe. Turkey’s own priorities drive her more towards the EU and the Middle Eastern markets. With its version of “look East” policy, it seeks to emerge as a political and economic power in the Middle East. Thus, its trade with India may not increase exponentially in the coming years.

The trade between Iran and Turkey is increasing and there are ambitious plans to triple it. Even so, starting from $1 billion in 2000,it had risen $5 billion in 2005 and by 2008 it hit $10 billion. In 2010 it dropped down to $5.5 billon due to global depression and fall in crude oil and natural gas prices. It has ambitious plans to deepen its relations with Iran, especially in the energy sector. The efforts have come into direct conflict with the U.S. policy relating to Iran sanctions.

Given this record of trade as detailed in the foregoing paragraphs, it will not be practicable for these three countries to generate adequate local currencies to ensure a balanced currency arrangement. They will have to seek recourse to international banking sources to settle the claims. Otherwise it will end up ultimately in blocking the accounts, as payments cannot be arranged in other convertible currencies like the U.S. dollar or the euro. This is not an exaggeration. For instance, there are reports [ix] that in its arrangement with South Korea, Iran began to receive payments in won in special accounts opened with the its central bank and, currently, a balance estimated at around $5 billion is trapped as Iran has a surplus trade with South Korea and the amount cannot be remitted in dollars. In any case, harsh economic reality is that there cannot be a trilateral balance between India, Turkey and Iran. If this assessment is in order, what is the arrangement? Does it have the approval of the U.S.?

Though an official accompanying Hillary Clinton during her recent visit to New Delhi said that officials of Treasury are working with India to find a solution, there is no further clue as to what they were working on. Nor has there been any official reaction from the U.S. Treasury or State Dept.  to the current proposal.

Indeed, the idea of using third countries is not new and has been floating around for some time. When a senior Indian oil ministry official said in April that India was looking at using Turkish banks to pay for Iran crude oil, according to a report [x] in the Wall Street Journal, a U.S. official said Turkey’s commercial banks should avoid transactions with Iranian banks the U.S. has identified as conduits for financing Tehran’s nuclear program. When David S. Cohen who was on a visit to Tehran was asked about the Indian proposal, he said he was unaware of it and would not comment. However, he said in general Turkey’s cooperation with sanctions aimed at pressuring Tehran was “critical.”

It was not a casual remark. It is a part of a silent war that has been going on between the U.S. and Turkey.  It may be traced back to Turkey’s approach to sanctions against Iran to prevent its nuclear program. This again has to be related to Turkey’s ‘strategic depth doctrine’ as conceived by its foreign minister Ahmet Davutoglu and elaborated by its Prime Minister Tayyip Erdogan. The new directions in foreign policy and the strategic objectives that Turkey aims to pursue in the region have come into conflict with the U.S. government.

The relations reached the lowest depths last year and were marked by a series of provocative incidents and diplomatic clashes. There are a number of scholarly studies and it is not practicable to cover all the areas. The attempt here is to confine attention to economic issues and the conflicts, which have arisen in regard to Iran sanctions.  Thus, our account is rather bald and limited.

For long, Turkey was preoccupied with Europe and made its quest for European identity. It was a part of the Kemalist tradition of modernizing the country. It had strong economic ties with Europe and much of its trade was with Europe. Its investments were also from Europe. She considered herself more as a part of Europe and became a member of the NATO and other alliance formations. The foremost ambition of its leaders was to get admitted to the European Union (EU). Unfortunately, for various reasons including cultural and religious prejudices, Turkey has been made to wait at the doorstep of EU and has not been allowed to enter. By any test, it was national humiliation. After waiting for many years, Turkey had good reasons to move away.

With the coming into power by the conservative Justice and Development Party (AKP) in 2002, there has been a paradigm shift in its foreign policy. We made a reference to this earlier in this piece. It was conceived by Foreign Minister Ahmet Davutoglu as the  ‘strategic depth doctrine.’ Prime Minister Tayyip Erdogan later elaborated this.

There were several elements attached to this policy. One was that Turkey would no longer consider herself as a bridge between the West and the Islamic world. Rather, it will move “East” and be a growing member of the Middle East. As one diplomat puts [xi] it, “Turkey thinks of itself as playing the role of bringing the principal actors of the region together to transform the Middle East in the same way U.S. involvement helped transform Europe from a hotbed of continental and world wars into a geography of peace.”  Turkey will not believe in a policy of isolation, but could reach out to other important regional actors such as Iran and Russia to form a lose alignment. AKP’s broad regional strategy is to seek good relations and ‘no problem’ with its neighbours. Its attempt to seek closer economic relations with Iran as a neighbour has led to policy confrontation with the U.S.

Turkey was a good “cold war” ally of the U.S. Many analysts explained how it had common strategic objectives with the Western powers, especially the U.S. After his election, President Barrack Obama chose Turkey to make his first overseas visit in April 2009. In his speech to the Turkish Parliament he stated, “Turkey’s greatness lies in your ability to be at the center of things. This is not where East and West divide- this is where they come together.” He described the relations with Turkey as a “model partnership.”  No wonder. The U.S. needed Turkey’s help in handling its strategic activities (including war) in Afghanistan, Iraq and Iran. Perhaps, the hegemon looked upon Turkey as a vassal or supplicant. However, as Walker explains,[xii] “At the same time, Turkey, under the leadership of Erdogan and his foreign minister, Ahmet Davutoglu, was eager to prove its importance as a rising power.”

Major differences in the relations between Turkey and the U.S. and the Western powers in general have emerged. The West distrusts Turkey’s new ideological orientation. They tend to brand them as Islamic. They fail to see it outside of the prism or groupthink, which affects approaches to anti-terrorist initiatives. They do not understand the third party role, which the AKP Party has envisioned to promote the country’s re-entry into the Middle East and to enhance its prestige. There have been divergences on several fronts and many analysts begin to wonder whether they can be bridged. The most carping attack came from Democratic Congressman Gary Ackerman who wrote[xiii] on June 15 “Turkey’s foreign policy under Foreign Minister Davutoglu’s leadership is rife with illegality, irresponsibility and hypocrisy.”

Last year witnessed a number of episodes marking the lowest point reached in U.S. Turkey diplomatic relations. In March the House Foreign Relations Subcommittee passed the Armenian Genocide Resolution. It was an unwarranted provocation and dealt with a massacre, which was related to an earlier century. It provoked Turkey so much that it recalled its Ambassador within minutes after the passing of the resolution. Then there was the Israeli raid on Gaza bound ship Mavi Marmara killing a few Turks on board. It led to Turkey withdrawing its Ambassador to Israel and led to collapse of its diplomatic relations with that country. Even earlier, the U.S. had misgivings over the shift in Turkey’s policy towards Israel. For the U.S., the most galling insult was when Turkey, as a non-permanent member of the U.N. Security Council, voted against the U.S. led Iran sanctions, the fourth round. Turkey stood by its ground even though the U.S. has been exerting intense pressure on it to cooperate in passing the resolution.

As the Wall Street Journal [xiv] reported, “Turkish Prime Minister Tayyip Erdogan balked at supporting new economic sanctions against Iran after a White House meeting with President, arguing diplomacy aimed at ending Tehran’s nuclear program needed more time.”  The Turkish offered to serve as a mediator between Washington and Tehran over the nuclear question. To prove its role in the region, Turkey collaborated with Brazil to work on a fuel swap program with Iran. This convulsed the U.S. more. The proposal could not progress.

Around March 2010, closer to the time the draft resolution was to be moved, there were testy exchanges between Assistant Secretary of State Philip Gordon and Turkish officials. The U.S. was keen that Turkey must show it is “on board” with the move towards the new sanctions. He said, “Many would be disappointed if Turkey is an exception to an international consensus on dealing with Iran.”  On June 9, 2010 the U.N. Security Council passed Resolution No.1929. Turkey and Brazil voted against it and Lebanon abstained. With the passing of that resolution there was the beginning of another undeclared war with U.S., i.e. over Iran sanctions.

Turkey was pursuing a pragmatic policy to promote its economic growth and its rise in the region. As captured by Marketos[xv], “… Iranian oil and gas exports to Turkey have allowed the AKP to claim an important economic victory. Turkey has tried to maintain a delicate balance between not openly contradicting U.S. policy towards Iran, and seeking to actively maintain economic and political connections with its largest and most powerful Middle East neighbor.” Another consequence was that AKP has increasingly emphasized the need for Turkey to have good relations with Iran and downplayed international concern over a nuclear Iran, “something which has frustrated Washington in its attempt to exert international pressure on Iran to give up its nuclear ambitions.” The passing of Resolution 1929 and, more importantly, the unilateral sanctions of the U.S. and the EU have upset the delicate balance and brought Turkey in direct confrontation with the U.S.

Turkish analysts and economists have been arguing that Turkey does not have to comply with bilateral and individual sanctions adopted by the U.S. and some EU member states.  Bayram Sinkaya[xvi], an expert on Iran Turkey relations with a banking background, referred to the expansion pf the banking relations between the two countries and how they have increased after western governments embraced large-scale economic sanctions to constrict the Iranian banking system. While he confirmed that the Turkish banking industry was dealing with Iran’s financial institutions that are blacklisted in the U.S. and EU but not included in the U.N. Security Council Resolution that was adopted on June 12. Foreign Minister Davutoglu was more emphatic when he told Turtle Bay [xvii] in an interview that his government would continue to expand its economic relations with Iran. “Nobody can ask us to stop our economic ties with Iran,” he told Turtle Bay on the sidelines of the U.N. General Assembly debate. “We will continue to have ties because it is in our national interest.”

Turkey has continued with its efforts to increase its economic relations with Iran even after the UNSC resolution and much against U.S. pressure. On May 11, Hurriet Daily reported the signing of three agreement too boost their relations in almost all fields. Special emphasis was on the power sector. Responding to these developments, a senior U.S. official expressed unease over the cooperation and said, “We have concern about the expansion of commercial and trade relations between Turkey and Iran. We recognize that they are neighbors and there will be some commerce. That being so, as trade grows, so does the opportunity to abuse…”

Senior U.S. officials both from the Treasury and the State Department have visited Turkey and warned them repeatedly about the money trail leading to Iran to finance its nuclear plans. Treasury Deputy Secretary Cohen visiting Istanbul in May felt [xviii] that sanctions had banks in Turkey behave more cautiously but added that improvements in trade and financial ties with Iran are not getting along with the U.N. sanctions. The worry was about the relations with Bank Mellat which was in the US’ ban list. Bank Mellat had a major presence in Turkey and with its banks and financial institutions.

Within days after Cohen’s visit, Bank Mellat operating in Turkey announced that Turkish financial institutions had ceased financial interactions with it as a result of pressure from the U.S. However, the official response was not clear. Turkey is skating on thin ice in regard to sanctions. Rather, one minister said that it was for the banks to decide. The situation is rather messy or chaotic. Reuters [xix] carried a Special Report on the issue detailing several ways by which financial transactions take place between Turkey and Iran. On June 12, 2011 a secret report submitted to the U.N. Security Council was leaked and the report referred to attempts being made by Iran to circumvent UN sanctions by buying foreign banks and through exchange bureaus. Avori Jorische, a former U.S. Treasury official, who heads the Red Intelligence Group Consultancy brought out “Iran’s Dirty Banking” last year establishes a vast network of relations between Iranian and Turkish banks as also with most other countries. These read more like cloak and dagger stories that cannot be dismissed offhand.

It is likely that there has been collusion in arranging money transfers. It is possible that in the past a distinction could have been made between UNSC sanctions and the sanctions of the U.S. and EU, which are bilateral or unilateral in nature. Again, there were loopholes in enforcing them and the sanctions could be circumvented. But with the passing of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA) and bringing of banking transactions within its ambit and with full executive powers, the scope for such transfers is extremely limited. If this is the political reality, what is the mechanism proposed by the government of India for oil payments?

We should end our story now. Perhaps, the intention is to exploit the growing schism between U.S. and Turkey and avail of money transfer facilities to pay Iran. As we have narrated at length, if the idea is to work out a legal trilateral mechanism, in the context of the current trade/finance relations among the three countries it will not work If it is hoped that we can exploit a temporary window offered by the messy financial situation existing between Turkey and Iran, it amounts to a gamble. At best, it may serve to put through a few or stray transactions and make them covertly. It is unrealistic to hitch our oil payments, which are regular in nature and run to billions of dollars to a system like this. It puts our energy security (oil supplies) at risk. There is the possibility of acute political embarrassment if the U.S., through its surveillance, detects the payment.. In that event, the Turkish delight may sour.


* The author is a former Joint Secretary, Ministry of Finance, Govt of India, New Delhi and is presently Associate of the Chennai Centre for China Studies.

[i] Subramanian, K: India-Iran oil impasse, Paper No.4624, South Asia Analysis Group, 27 July 2011 available at

[ii] Reuters, Indian refiners start clearing Iran debt via Turkey, 1 August, 2011 at

[iii] Bloomberg, Iran receives $100 million in Oil Payments From India, August 2, 2011, at…

[iv] Tehran Times, Iran get around U.S. led moves to block Indian oil payment, 2 August, 2011, at

[v] Bhadrakumar, M.K.: Jaipal Reddy solves the Persian riddle, Indian Punchline, July 31, 2011, at…

[vi] Bhadrakumar, M.K.: Indian diplomacy scores ht trick, Indian Punchline at at

[vii] Ibid.  Item ii

[viii] Bloomberg, Turkey Not Helping India Settle Oil Debt to Iran, Mehr, August 1, 2011, at

[ix] Iran Focus, Exclusive: Sanctions trap billions of Iran petrodollars, 3 August 3, 2011, at &catid 31%Acconomy&id=23560…

[x] The Wall Street Journal, India Explores New Path to Iran Oil, April 28, 2011 at

[xi] Marketos, Thrassy N., Turkey in the Eurasian Energy Security Melting Point, The China and Eurasia Forum Quarterly, Vol.7, No.4, 2009

[xii] Walker, Joshua W., The United States and Turkey: Can They Agree to Disagree? Middle East Brief, No.46, November 2010, Crown Center for Middle East Studies, Brandeis University.

[xiii] Quoted by Walker Ibid.

[xiv] The Wall Street Journal, Turkey Balks at Iran Sanctions, December 7, 2009, at

[xv] Ibid. Item xi above.

[xvi] Today’s ZAMAN, Turkey not bound to bilateral EU, US sanctions on Iran, September 26, 2010 atg newsId=222690

[xvii] Foreign Policy, Turtle Bay, Turkey’s Foreign Minister: Thanks, but no thanks, on Iran sanctions, athttp://turtlebay

[xviii] Hurriet Daily News, May 4, 2011, US officials speak of sanctions on lenders working with Iran, at

[xix] Reuters, Sep 20, 2011, Special Report-Tracking Iran’s nuclear money trail to Turkey, at Aid_INIndia-51615920100920


Views are those of the author

Author can be contacted at [email protected]

Courtesy: Chennai Centre for China Studies






35 pc decline in gas output from Tapti field in past 3 years

August 16, 2011. Natural gas production from the BG Group-operated Tapti field off the Mumbai coast has fallen by over 35 per cent in the past three years due to natural decline of the ageing field. Gas output from the Tapti field dipped from 4,301.12 million standard cubic metres (mmscm) in 2008-09 to 3,184.40 mmscm in 2009-10 and further to 2,778.54 mmscm in 2010-11. The BG Group holds a 30 per cent stake in the Panna-Mukta and Tapti (PMT) oil and gas fields off the West Coast. Oil and Natural Gas Corp (ONGC) holds a 40 per cent stake in the fields, while the remaining 30 per cent is with Reliance Industries. Gas output from the Panna-Mukta field fell by 11.5 per cent from 1,764.95 mmscm in 2008-09 to 1,561.90 mmscm in 2010-11. PMT gas is supplied to GAIL India, Reliance, Gujarat Gas Co Ltd, Gujarat State Petronet Ltd, Torrent Power, Rajasthan Rajya Vidyut Utpadan Nigam Ltd's Dholpur plant and six NTPC power plants (Faridabad, Anta, Auriya, Dadri, Kawas and Gandhar), among other buyers.

ONGC outdoing private cos in exploration on the west coast

August 15, 2011. Public Sector Oil and Gas behemoth ONGC is outdoing the private companies in exploration on the west coast of the country. ONGC has formed a joint venture with Gujarat government-controlled GSPC in Cambay basin. ONGC's success rate in discoveries in the new fields in Cambay basin was higher than that of private sector companies, due to its vast experience of exploration, highly qualified team of geo-scientists, and use of cutting-edge technologies. In some cases, ONGC succeeded in the fields abandoned by the private companies.

ONGC hires FPSO for oil production from D1 oilfield

August 12, 2011. State-owned Oil and Natural Gas Corp (ONGC) has for the first time ever hired a floating oil production system to produce oil from its D1 oilfield off the Mumbai coast. ONGC signed a seven-year contract with Forbes Bumi Armada Offshore Ltd (FBAOL) -- a joint venture between Malaysia's Bumi Armada and BSE-listed Forbes & Co Ltd -- for hiring a floating production, storage and offloading (FPSO). Reliance Industries has been using a FPSO since September, 2008, to produce oil from its MA field in the predominantly gas-rich KG-D6 block off the East Coast. Bumi owns a 49.99 per cent stake in the joint venture that has leased the FPSO to ONGC, while the remaining 50.01 per cent is held by Forbes. This was the first time ever that ONGC has hired a FPSO to produce oil. Till now, it has been using fixed platforms standing in the middle of the sea to produce oil from offshore fields. A FPSO is a converted or custom-built ship-shaped floater used to process oil and gas and for temporary storage of oil prior to transhipment. The FPSO processes oil coming from undersea wells and stores it before transferring it for sale to refineries for processing. ONGC has hired the FPSO for a seven-year fixed term time charter, with a further six-year annual extension period at ONGC's discretion. The FPSO will have a processing capacity of 50,000 barrels per day and 580,000 barrels storage capacity. The vessel was expected to be delivered during the fourth quarter of 2012, with first oil scheduled by the end of December in the same year. The D1 field lies about 200 kilometres off the coast of Mumbai in water depths ranging from 85 to 90 metres and is currently producing 16,000 bpd of oil through the Sagar Laxmi jack-up-based early production system (EPS). The field was developed in two phases. Phase-I development was completed in 2006-07 by drilling seven wells, while Phase-II development was completed in 2008-09 by drilling the remaining five wells. Peak oil production of 17,500 barrels per day was achieved from the field after Phase-II development. Presently, the field is producing approximately 16,000 bpd.

Cairn Energy-Vedanta deal by September

August 11, 2011. British oil explorer Cairn Energy expects to finalise a long-awaited deal to sell control of its Indian business by mid-September, bringing to conclusion a process that has dragged on for almost a year.

India in June granted conditional approval for Vedanta Resources to buy a stake in Cairn India in a $6 billion deal that was first announced in August 2010. Cairn India is currently seeking approval from its shareholders on the conditions imposed by the Indian government via postal ballot.

Reliance completes turnaround of its oil production facility

August 11, 2011. Reliance Industries Ltd (RIL) has completed turnaround of its production facility at an oil field in its showpiece KG-D6 block off the Andhra coast. RIL had taken a 12-day maintenance shutdown to upgrade a compressor in the Floating Production Storage and Offloading (FPSO) unit operating on the MA oilfield. The upgrade was completed the field is back to its normal production level. MA oilfield produces a little less than 15,000 barrels per day of oil and about 7.6 million standard cubic meters per day of natural gas from the five wells.

Gas output was shutdown completely for only one day. The wells had not been shutdown and they continued to produce at almost normal rate. KG-D6 block, which besides MA oilfield, also includes the gigantic Dhirubhai-1 and 3 (D1 and D3) gas fields, is producing near normal levels of about 46 mmscmd of gas.

The maintenance work was to last 12-14 days and gas production from MA field was to be shut for 36-48 hours. But the shutdown period had been curtailed and the field was back to normal a day ahead of the schedule.

Wells in the MA field had not been shutdown during the maintenance of FPSO, which pumps out oil from the field. The wells continued to produce oil and gas. The Krishna Godavari basin Block KG-D6 has 19 oil and gas finds. Of these, the largest, Dhirubhai-1 and 3 finds and an oil field, MA, have been put into production.

The present output is just enough to meet the contracted demand of core sectors -- 15.35 mmscmd of fertiliser units, 29 mmscmd of power plants, 0.65 mmscmd of city gas distribution firms and 2.59 mmscmd to LPG plants. In May, the oil ministry had directed that production from KG-D6 will first go to meet the contracted demand of core users. If any gas is left after that, it can go to non-core sectors like petrochemicals, refineries and steel. In the event of output falling below what has been allocated to core users, fuel will first be supplied to fertiliser plants to their full requirement, then to LPG plants, power and lastly to city gas users.


IOC's Paradip refinery behind schedule; may complete in 2013 Q1

August 11, 2011. State-owned Indian Oil Corporation's (IOC) 15 million tonnes a year Paradip refinery in Orissa is likely to be completed in first quarter of 2013, a good one year behind the previous stated scheduled. Refineries commissioning after March 31, 2012 will not be eligible for exemption from payment of income tax on revenues earned for first seven years of operations. The seven year income tax holiday for the refining sector ends next year.

The company had been targeting to commission the ` 29,777-crore Paradip refinery by March 2012 and sell fuel produced at the unit in domestic market rather than export as it was earlier thought, due to rise in fuel demand at home.

The refinery was originally planned to export at least 2.05 million tonnes of petrol and 124,000 tonnes of naphtha out of its yearly output of 15 million tonnes. But double digit growth in petrol and diesel consumption had meant that there would be very little left for exports.

Paradip refinery will produce 5.97 million tonnes of diesel, 3.4 million tonnes of petrol, 1.45 million tonnes of kerosene/ATF, 536,000 tonnes of LPG, 124,000 tonnes of naphtha and 335,000 tonnes of sulphur, all of which will be for sale in the domestic market. Some of 200,000 tonnes of propylene to be produced by the unit may be exported.

IOC had previously stated that the refinery will start producing fuel by March 2012 when it will commission the primary units like Crude Distillation Unit. Secondary units will be commissioned by July, 2012, and operations stabilised by November 2012.

Besides the ` 29,777 crore cost of refinery, the Paradip project also includes a ` 1,793 crore pipeline to Raipur and Ranchi.

The 1,100 km pipeline will carry fuel produced in the unit to consumers in Orissa, Jharkhand, Chattisgarh and Madhya Pradesh. Besides, a marketing terminal at the cost of ` 414 crore is also being built.

IOC had in 2009 signed a loan agreement with a consortium of lenders led by State Bank of India for term loan of ` 14,900 crore for the project. It had some time back split the refinery-cum-petrochemical complex into two, deciding to complete the refinery first and follow with the chemical unit.

The Paradip refinery is being configured to process the toughest, heaviest and the dirtiest crudes which are cheaper than the cleaner and easier varieties. The refinery will have a Nelson Complexity Index of 13, the highest in the world.

Transportation / Trade

Oil India Ltd signs MoU with HPCL to jointly pursue business opportunities

August 16, 2011. State-owned explorer Oil India Ltd (OIL) has signed an MoU with refiner Hindustan Petroleum Corp Ltd (HPCL) to jointly pursue business in areas of mutual interest. The broad areas where both the organisations could partner for business opportunities are E&P activities for hydrocarbons, city gas distribution, pipeline projects, greenfield refineries, research and development and any other area of common interest.

Adani Enterprises to buy stake in gas co

August 12, 2011. Adani Gas, a unit of Adani Enterprises, will buy a 20 percent stake (equity) in Green Gas Ltd, a joint venture between state-run gas utility GAIL India and Indian Oil Corp (IOC). Green Gas supplies city gas and compressed natural gas in Agra and Lucknow cities in the northern state of Uttar Pradesh. Gail and IOC hold 22.5 per cent each in the company, while Uttar Pradesh State Industrial Development Corp holds five per cent.

Policy / Performance

Oil marketing firms ask for interest on delayed subsidy

August 16, 2011. State-run oil marketing firms are losing thousands of crores because of delays in disbursement of subsidy after it is approved, and have asked the government to pay interest on the money that is held back. While the government had announced a cash compensation of ` 15,000 crore for the first quarter, the money is expected to be transferred to their accounts only by the end of the current fiscal year. Indian Oil (IOC), Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL) sell diesel, kerosene and cooking gas at government-determined prices that are often below market rates. The government partly compensates them for their revenue losses. The fuel retailers also get one-third compensation from state-run upstream oil companies such as ONGC and Oil India and balance revenue losses are absorbed by them. IOC said that the three oil companies had been pleading with the government that compensation should be paid on a monthly basis. IOC, HPCL and BPCL declared their first quarter results, about 10 days after peers ONGC, Oil and Gail as they were awaiting the government's 'comfort letters'. All the three firms slipped into red in the first quarter of the current year with a combined net loss of over ` 9,000 crore. The three companies would sink into red despite the government's subsidy contribution. The company's borrowing had soared up to over ` 67,000 crore, from about ` 52,000 crore, on March 31, 2011. The delay in actual fund transfer for 2010-11 had caused the firm an additional interest burden of over ` 1,000 crore. The oil companies could get full and final cash compensations for 2010-11 only in July this year. The problem is expected to aggravate in this financial year as the government has already spent the entire ` 20,000 crore budgeted as fuel subsidy for 2011-12 in paying dues for the previous fiscal year.

Indraprastha Gas Ltd to hike CNG prices by 0.20/kg in NCR

August 15, 2011. Indraprastha Gas Ltd (IGL), the sole supplier of CNG to automobiles and piped cooking gas to households in the NCR, announced a minor increase in the price of Compressed Natural Gas (CNG). This increase would have negligible impact on the per kilometre running cost of vehicles and despite the aforesaid prices increase, CNG would still offer over a 66 per cent saving on the running cost when compared to petrol-driven vehicles at the current level of prices. When compared to diesel-driven vehicles, the economics are also in favour of CNG, as the differential at the revised price would be over 27 per cent.

Fertliser, power firms to pay $5.5 bn more for imported LNG

August 15, 2011. Fertiliser, power and other firms may have to pay an astronomical $5.5 billion (` 2.5 lakh crore) more for imported LNG from 2014 because of certain price changes Petronet LNG (PLL) had agreed to some years ago. RasGas of Qatar had in 2002 agreed to sell sell 7.5 million tons a year of liquefied natural gas (LNG) to Petronet at $16 a barrel oil price floor and $24 per barrel ceiling. This translated into a minimum gas price of $2.01 per mmBtu and a maximum of $3.04 per mmBtu. However in 2003, PLL renegotiated the price and agreed to having a fixed price at $20 per barrel oil ($2.53 per mmBtu) for five years from 2004 to 2009. For the next five years, it agreed to a price linked to moving average of the last 5 years of crude oil price and thereafter direct indexation with crude oil. This led to price going up by $1 per year for five years from 2009, and from January 2014 to $12.66 per mmBtu at oil price of $100 per barrel.

ONGC plans to spend ` 4.7 bn in exploration at Gujarat and Rajasthan fields

August 12, 2011. Headquartered at Vadodara, the Western Onshore Basin of Oil and Natural Gas Corporation (ONGC) plans to spend ` 475 crore in current fiscal. The funds would be invested in Gujarat and Rajasthan oil fields of the corporation. Western Onshore Basin of ONGC informed that the Basin has a target to drill 49 exploratory wells in the current fiscal. It will also deploy two 3D-3C, 5 3D and one 2D seismic crews for acquiring high resolution seismic data. The Basin targets to create an in-place hydrocarbon reserve of 30 MMT of oil & gas in the current year.

Last year the basin drilled 43 wells and tested 38 exploratory Wells out of which 21 wells were bearing hydrocarbon. The success per centage of wells drilled to hydrocarbon bearing was 55.6%. The significant new finds of the Basin in the year 2010-11 include; Vadatal:1, Vadatal:3 and Aliabet:2. The new reserve include an in-place volume of 33.95 MMT and ultimate reserve of 10.7 MMT: being the highest in the last two decades since the inception of the Basin. ONGC made 24 hydrocarbon discoveries last fiscal out of which 14 are in onshore and 10 in Offshore areas. Out of these discoveries 15 are new finds and 9 new pools. The Western Onshore Basin which is the largest onshore basin of the Corporation contributed 9 out of the 24 discoveries and 7 out of the 15 new prospects for ONGC. ONGC has made an ultimate reserve accretion of 83.56 of MToe which is also the highest record in the last 2 decades.

Govt share of revenue from Cairn to fall by ` 50.3 bn

August 11, 2011. The government said its share of revenue from Cairn India's Rajasthan oilfields will fall by ` 5,032 crore if royalty payments are made cost- recoverable as part of Vedanta Resources' plan to acquire the company. Cairn India at present does not pay any royalty on its 70 per cent interest in its mainstay Rajasthan oilfields. The royalty is paid by state-owned ONGC, which got a 30 per cent stake in the 6.5 billion barrel field for free. The government has approved UK's Cairn Energy Plc selling 40 per cent stake in its Indian unit to Vedanta Resources subject to the buyer/seller agreeing to treat royalty paid by ONGC as cost recoverable. Cairn is allowed to recover all project cost (capital, operating expenditure and taxes) from revenues earned from selling oil before splitting the profits with the government. Making royalty cost recoverable means it will be considered as project cost and subsequent revenues left for splitting between Cairn India, ONGC and the government will be lower. As per the Production Sharing Contract (PSC), ONGC as licensee has the obligation to bear 100 per cent royalty burden. However, as per the Accounting Procedure prescribed in the PSC, royalty paid is cost recoverable by ONGC as contract cost. After initially resisting, Cairn Energy has said it will accept the rider set by the government.

Jaipal Reddy rules out immediate cut in domestic oil price

August 10, 2011. Union Petroleum and Natural Gas Minister S. Jaipal Reddy has said that the decline in global oil prices is not enough for the Indian government to order a roll back in the prices of petroleum products in the domestic market. Global oil prices has dropped by over three percent, as worries about an economic slowdown spread after credit rating house Standard & Poor's cut the United States' top-tier credit rating.

Meanwhile, India's opposition parties continued to criticize the government for not following the same trend in decline as it does during rise in global prices and demanded immediate rollback in the fuel prices. A government panel had recently raised the price of LPG cylinder by 50 rupees per cylinder. It also raised the prices of kerosene oil by two rupees per litre and diesel by three rupees per litre.

India has been trying to keep a lid on stubbornly high inflation even as the economy shows signs of slowing. Headline inflation rose to 9.44 percent in June, above the central bank's comfort level of seven percent for end-March. With inflation above nine percent and domestic fuel costs up by nearly 13 percent within a year, raising prices would immediately hit the fractious coalition's core voters, who are poor and who live on less than the cost of two litres of diesel a day. The long-term benefit to the country's finances would come from reducing massive spending on subsidies and cutting the 101 million dollars a day in losses that is incurred by state-run fuel retailers like Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum.

Oil ministry disagrees with RIL's take on sovereign approval in KG-D6 issue

August 10, 2011. The oil ministry, which has defended its dealings with Reliance Industries, or RIL, in the D-6 issue that is being scrutinised by the Comptroller and Auditor General (CAG), has clarified to the national auditor that it disagrees with the company's interpretation of how the government approves decisions of a panel, known as the management committee, which governs oil and gas fields.

Reliance Industries raises $1 bn loan amid volatile market

August 10, 2011. Reliance Industries (RIL) has struck a deal to raise yet another $1 billion loan from the international market at a time when several firms have shelved their borrowing plans amidst uncertainty in the global market. Besides, the company is in talks with US Exim bank to part fund its $12 billion Jamnagar phase -III expansion project. RIL not only managed to secure 5-year billion dollar term loan, but the syndicated facility had backing of 30 international banks. The loan was raised at 150-175 basis points above libor. With this deal, RIL would have raised $3.5 billion (Rs 15,750 crore) of debt from the international markets in the last one year. RIL had debt of $15 billion against cash reserves of $10 billion as on June 30. The company will get addition cash infusion of $7.2 billion by selling 30% stake in its 21 oil blocks to BP.



Uncertainty prevails over fate of city's Bawana power plant

August 15, 2011. Notwithstanding an assurance by the Centre on supply of gas, the fate of the 1,500 mega watt capacity Bawana power plant in the city is still hanging in balance following refusal of Reliance Industries Ltd to supply fuel to the plant, built at a cost of ` 4,500 crore.

Ending months of uncertainty, the Centre had conveyed to Delhi Government that it will arrange gas for generation of 750 mega watt of power out of the plant's total capacity of 1,500 mw. But power generation at the plant remained uncertain, with Delhi government saying that it will not be able to afford imported fuel even if the Centre arranges it. The Centre had allocated 0.93 million cubic meters per day of gas (mmcmd) from Reliance's Andhra offshore KG-D6 fields for the Bawana plant for 2009-10 and 2010-11. However, Delhi government could not sign the Gas Sales Purchase Agreement with Reliance Industries Ltd due to delay in the Bawana project and the gas was allocated to other entities by RIL.

THDC India signs $648 mn World Bank loan for hydro project

August 11, 2011. THDC India Ltd. signed a $648 million project finance loan due August 2040. Proceeds will be used to build a hydro electric project in the South Asian nation, the data show. Monies were provided by the World Bank.

Transmission / Distribution / Trade

Power Grid to raise at least ` 10 bn via bonds

August 16, 2011. Power Grid Corp, an Indian state-run transmission utility, is planning to borrow at least 10 billion rupees ($220 million) via bonds. The company will issue bonds with maturity in 2030, with staggered redemptions from 2016. Power Grid will meet bankers this week and finalise the coupon rate.

Lanco withdraws threat to cancel coal supply to Australia's Bluewaters

August 12, 2011. India's Lanco Infratech has withdrawn a threat to cancel coal supply to the Bluewaters power project in Australia, marking a move that could take the power project a step closer to being bought out by two Japanese companies. The Bluewaters power station was set to be sold in April to Sumitomo Corp and Kansai Electric Power Co for an enterprise value of around $1.2 billion, but the deal has been held up due to uncertainty around coal supply.

NTPC, IWAI in coal transportation pact

August 11, 2011. NTPC signed an agreement with Inland Waterways Authority of India and Jindal ITF for coal transportation. The agreement is for transporting imported coal from ports to NTPC stations using inland waterways. A contract has been signed for the 2,100-mw Farakka power plant in West Bengal. Similar contracts for projects at Barh and Kahalgaon in Bihar would be signed soon. The project includes operation of fleet along national waterway- I, connecting Haldia and Allahabad, and will promote use of inland waterways. The need for the new mode of coal transportation was felt due to the insufficient railway infrastructure. NTPC and Inland Water Authority of India had signed a preliminary agreement in September 2008 to derive a cost effective coal transportation mechanism to three coal-starved power stations including Farakka in West Bengal and Kahalgaon in Bihar. Jindal ITF has been selected as an operator by NTPC and IWAI through an international competitive bidding process.

Reliance Power owned Discoms come under RTI scanner

August 10, 2011. In the midst of a raging debate as to whether there should be boundary limiting the Right to Information Act, the Orissa Information Commission passed an order bringing Reliance Power-owned power distribution companies - Southern Electricity Supply Company of Orissa Ltd (SOUTHCO), WESCO and NESCO - under the purview of the RTI Act, 2005. The order is significant as it comes in the wake of Supreme Court verdict rejecting a special leave petition of three Discoms challenging an order of Orissa High Court that they come under purview of RTI Act.

Policy / Performance

Five pvt companies to set up thermal power plants in Tamil Nadu

August 16, 2011. In a bid to address acute power shortage, the Tamil Nadu government has decided to encourage the private sector to set up units in the state and as part of this, five private companies have "cleared formalities" to establish thermal power plants.

Fuel a great risk to Indian thermal power plants: Deloitte

August 16, 2011. Inadequate supplies of fuel is beginning to emerge as the biggest risk to thermal power projects in India, according to a report released by global consultancy and advisory firm Deloitte. In the Indian context, risk of inadequacies in supply under coal linkages awarded to the projects under construction has increased, said Deloitte in a global report on Empowering Ideas 2011. Investments planned on imported coal are likely to be impacted due to recent changes in the regulatory and tax regimes in resource rich countries like Indonesia and Australia. The report, which looked at ten emerging issues in the power and utilities sector, also named the worsening financial situation of distribution utilities in the country as another significant risk for the sector. Weak finances of the distribution utilities and the widening gap between their average tariff and cost of supply are big risk factors in the Indian context, said Deloitte. The consulting major also said the countries like India, which were looking to use nuclear energy to meet growing demand, needed to take into account the special risks such projects entailed in the wake of the Fukushima nuclear plant disaster in Japan. The biggest casualty of Fukushima is of the public confidence and opinion about nuclear power. In all democratic countries this will be a big challenge for nuclear energy, said Deloitte. The report also said that the Indian clean energy sector could see a spurt in merger and acquisition activity in the near future.

Bihar uses least power, Delhi the most

August 15, 2011. The union territory of Dadra and Nagar Haveli tops the list on per capita power consumption in the country at 11,863.64 kWh while Bihar is at the bottom with just 122.11 kWh usage, as per information available with the power ministry. Among the states, Delhi tops the list with 1,651.26 kWh, and Gujarat follows with 1,615.24 kWh. Maharashtra, in comparison, is well below these states with 1,028.22 kWh, while Punjab with 1,526.86 kWh and Himachal Pradesh with 1,379.99 kWh fare better. Globally, India ranks 14th in per capita power consumption with 778.71 kWh, which is three times lower than that of China that is one notch higher on the list with 2,471 kWh. The world average is 2,782 kWh.

The top 10 positions are accounted for by Canada (17,053 kWh), the US (13,647 kWh), Australia (11,174 kWh), Japan (8,072 kWh), France (7,703 kWh), Germany (7,148 kWh), South Korea (8,853 KWh), the UK (6,067 kWh), Russia (6,443 kWh) and Italy (5,656 kWh). According to the power ministry, among union territories, after Dadra and Nagar Haveli, Daman and Diu comes next with 7,118.23 kWh, Puducherry accounts for 1,743.37 kWh, and Chandigarh consumes 1,340.00 kWh.

Madhya Pradesh would be power-surplus state by 2014

August 14, 2011. Although Madhya Pradesh is facing a shortage of electricity at present, the state will have enough surplus power to sell by 2014. The state produced 2,990 MW of electricity in 2003, while last year it had produced 6,152 MW of electricity. The state has signed MoUs with 49 private companies including Essar Power and Reliance. If all these MoUs were to fructify, the generation capacity would rise to 67,546 MW.

CIL wants govt to relax investment rules

August 14, 2011. The world's largest coal miner Coal India Ltd has zeroed in on two overseas coal assets, one in Australia and the other in Indonesia, for acquisition and expects to begin serious dialogue with the owners soon. The PSU has put together a war-chest of ` 6,000 crore for acquisition of the mines. CIL was likely to take a stake between 30-40 per cent in these coal assets. In this regard, CIL has approached the Finance Ministry and government for relaxation of PSU guidelines stipulating a minimum 12 per cent internal rate of return on investments. It has also sought to sidestep the rule that only the mines of listed companies should be acquired. Coal India is trying seriously for some coal equity on its own, besides partnering with Coal Videsh, a JV company formed between Indian PSUs, to buy assets overseas. Besides buying a stake in coal companies, CIL was also at an advanced stage of finalising a long-term coal supply agreement with foreign sources. India currently faces a coal demand-supply shortfall of 142 million tonnes.

Coal India Q1 net profit jumps 64 pc

August 12, 2011. Maharatna firm Coal India Ltd reported a 64 per cent jump in the consolidated net profit at ` 4,143 crore for the first quarter ended June 30. The company had posted a consolidated net profit of ` 2,525 crore in the April-June period of 2010. Net sales of the public sector company in the first quarter of the current fiscal increased to ` 14,499 crore from ` 11,435 crore in the same period in 2010-11. Coal production of CIL in the quarter ended June 30 was marginally up by 1 per cent to 96.30 million tonnes (MT) over 95.15 MT for the same period last fiscal. The offtake of coal during the quarter also increased to 106.25 MT, over 101.05 MT in the corresponding period of FY11. CIL has fixed a target of 452 MT production for the current fiscal. The mining giant missed its production target and produced 431.325 MT of coal in the last fiscal due to green hurdles. The world's largest coal miner had a production target of 460.5 MT for 2010-11, which was revised to 440.2 MT. Shares of Coal India settled at ` 385.30 on the BSE, down 0.25 per cent from their previous close.

Chinese equipment less efficient than supplied by BHEL: Government

August 11, 2011. Amid a raging debate over the quality of power equipment from BHEL and Chinese companies, the government said Chinese gears are of lesser efficiency compared to those supplied by the PSU. The average Plant Load Factor (PLF) for the last three years of Chinese units is as low as 68 per cent as compared to BHEL's 79 per cent. PLF is an indicator of generation efficiency. Operational Availability of Chinese units has also been low as compared to BHEL units. In recent times, many private players such as Reliance Power have ordered Chinese equipment for their projects, including Ultra Mega Power Projects (UMPPs). The debate over BHEL and Chinese sets comes at a time when the Indian power sector is projected to see an ambitious capacity addition of over 80,000 MW in the 12th five-year plan (2012-17). State-owned BHEL synchronised 9,442 MW of generating equipment last fiscal.




Statoil says two North Sea finds are probably part of ‘giant’ discovery

August 16, 2011. Statoil said two North Sea finds are probably part of a single field that could be the country’s largest oil discovery since the 1980s, helping to prolong the nation’s output that has declined for 10 consecutive years. The Aldous and Avaldsnes oil discoveries located on the Utsira High may hold 500 million to 1.2 billion barrels of recoverable oil. The find could reverse Norways’s dwindling output due to maturing fields in the North Sea and smaller new discoveries. Production peaked in 2000 and is forecast to drop 6 percent this year to about 1.7 million barrels a day. Statoil, which operates 80 percent of Norway’s oil and gas production, missed its 2010 output target and may produce less this year than last.

BP replaces strategy chief as investors look for share revival

August 16, 2011. BP Plc replaced its head of strategy as the company looks at ways to boost a share price that’s failed to recover from last year’s $41 billion Gulf of Mexico oil spill disaster. Fergus MacLeod, head of investor relations since 2002 and a former Deutsche Bank AG oil analyst, took over the strategy team from Ian Smale at the start of the month. The strategy team reports to Chief Executive Officer Robert Dudley. Dudley said that “all options” are possible after analysts said that splitting up the company could unlock as much as $100 billion in value. The appointment of McLeod, who continues to oversee BP’s relations with investors and analysts, may be welcomed by shareholders unhappy that the company hasn’t rebounded faster. U.S. oil company ConocoPhillips said last month month it will spin off its refining operations in the first half of 2012 to focus on exploration and production in Texas, Norway, China and the U.K. Its plan follows a similar move announced by Marathon Oil Corp. at the start of the year. Dudley has yet to resume drilling new wells in the Gulf of Mexico, where BP is the largest producer, as the company implements higher safety and drilling standards than regulators require.

Chesapeake CEO McClendon cashes in on well deals

August 15, 2011. Chesapeake Energy Corp Chief Executive Aubrey McClendon is legendary on Wall Street for his deal making prowess, but investors may not realize the deals put money directly into his pocket. McClendon is allowed to take a 2.5 percent stake in every well the natural gas producer drills through a program that has drawn criticism from analysts and corporate governance experts. McClendon has participated in the so-called Founders Well Participation Plan since 1993, when the company went public.

Cheap shale gas means record U.S. chemical industry growth

August 11, 2011. Dow Chemical Co. spent a decade moving chemical production to the Middle East and Asia. Now it’s leading the biggest expansion ever seen back home in the U.S. as shale gas revives the industry’s economics. Dow is among companies planning to build crackers, industrial plants typically costing $1.5 billion apiece that process hydrocarbons into ethylene and other synthetic materials. The new crackers will be the first to be built in the U.S. since 2001 and the largest wave of additional capacity.

Apple overtakes Exxon to be most valuable

August 11, 2011. Apple Inc. surpassed Exxon Mobil Corp. to seize the title of world’s most valuable company, as investor confidence in high-tech growth prospects exceeded faith in the oil industry’s gushing profits. Exxon has tumbled since trading in July at more than $85 a share, as oil futures in New York have dropped.

Exxon bought XTO Energy Inc. last year to tap natural-gas shale deposits in North America and is seeking to buy more gas reserves, even as futures remain about $4 per million British thermal units. Apple, meanwhile, is poised to increase computer sales as much as twofold over the next few years, and the iPhone business may triple in size. If successful, the company’s new iCloud music and information-storage service, which only works with Apple products, could further lock its customers into buying the company’s devices.


Amyris completes U.S. plant to make chemicals, diesel

August 16, 2011. Amyris Inc., a biotechnology company that converts sugarcane syrup into a hydrocarbon used to make specialty chemicals and diesel fuel, completed its first U.S. production facility. Amyris also produces farnesene at facilities owned by Biomin do Brasil Nutricao Animal Ltda. in Piracicaba, Brazil, and Antibioticos SA in Leon, Spain.

Libya’s Qaddafi faces fourth month without any gasoline shipments by sea

August 10, 2011. Libyan leader Muammar Qaddafi faces a fourth month without receiving gasoline cargoes by sea as motorists wait in line at filling stations in the capital. Rebels opposing Qaddafi received three to four cargoes of gasoline a month in June and July while the leader got none. That compares with eight cargoes in a normal month before an uprising erupted in February. Libya’s refineries produced 5.2 million metric tons of diesel and gasoline in 2008.

The plants will probably process no more than 90,000 barrels of oil a day this summer, compared with the usual 370,000 barrels. One gasoline shipment comprises about 34 million liters (9 million gallons) of the car fuel, enough to fill about 650,000 vehicles.

The fuel’s scarcity may be causing longer waiting times for motorists in Tripoli. The capital is held by Qaddafi’s regime, while the rebels control the eastern port city of Benghazi. Libyan crude production fell to 100,000 barrels a day last month, compared with an average of 1.55 million in 2010.

Transportation / Trade

Supertanker prices fall 30 pc as low rental rates reduce ship values

August 15, 2011. A supertanker sold for around 30 percent less than the last comparable deal in April, as hire rates fall to a nine-year low. The 2-million barrel tanker Tenzan, built in 2000, was sold for $36 million to a Greek buyer, according to reports from four shipbrokers. That compares with the $51 million to $52.5 million sale four months ago of a tanker the same age and size, based on shipbrokers’ reports. That vessel, the 2000-built Yohteisan, has been renamed Ruby IV. Tenzan is listed as being owned by Nippon Yusen KK, according to data from IHS Fairplay on Bloomberg. The shipowner does not comment on individual transactions. Values are forecast to fall as owners contend with the biggest glut of supertankers in 29 years while the fleet expands twice as fast as demand, driving earnings to the lowest since 2002. Average time charter rates have failed to cover operating and fuel expenses and yielded negative dollar-per-day rates since June 30. Weekly rates to ship crude on very large crude carriers from the Middle East Gulf to Japan were $7,281 a day for the week ending Aug. 12, the lowest since Sept. 13, 2002.

Australia’s Somerton Energy, Adelaide Energy in talks on potential merger

August 15, 2011. Somerton Energy Ltd. said it and Adelaide Energy Ltd. started preliminary talks in relation to a potential merger of the two companies. The talks are incomplete and no concluded agreement has been reached in relation to the price or terms at which a transaction might occur.

China’s net crude-oil imports fall to nine-month low on plant maintenance

August 10, 2011. China’s net imports of crude oil in July fell to the lowest in nine months as refinery maintenance reduced demand in the world’s biggest energy user. Net imports declined 1 percent from June to 19.23 million metric tons, or 4.55 million barrels a day. Imports were 19.43 million tons and exports at 200,000 tons.

China will shut seven major refineries, with a combined capacity of 707,800 barrels a day, in the third quarter. The nation processed 8.86 million barrels a day of crude last month compared with output exceeding 9 million in May, before maintenance season started. The Asian nation bought crude at an average price of $110 a barrel in July, similar to levels in June and higher than the $74 paid a year earlier. Net imports of fuel, including gasoline and diesel, fell to 800,000 tons last month from 1.36 million tons in June. Net purchases reached a 29-month high of 2.07 million tons in December.

Policy / Performance

Greenland posts Cairn oil spill plan to combat fears

August 16, 2011. Greenland has published British explorer Cairn Energy's oil spill response plan in a bid to calm fears about Arctic exploration after environmental group Greenpeace demanded that it be made public. It also said it had new options to act against any unlawful attempts by protesters to interfere with oil rigs. Greenpeace, which has tried to disrupt drilling off Greenland, argues that cleaning up a spill in the Arctic waters there would be extremely difficult.

Crude oil futures decline as investors speculate global economy is slowing

August 16, 2011. Oil dropped from the highest after Germany’s economy all but stagnated in the second quarter, heightening concern that fuel consumption will diminish. Futures slid as much as 1.8 percent after Germany’s Federal Statistics Office said gross domestic product, adjusted for seasonal effects, rose 0.1 percent from the first quarter.

Growth across Europe slowed more than economists forecast. U.S. builders began work on fewer homes in July, indicating residential real estate is failing to contribute to growth. The Energy Department may say U.S. crude oil stockpiles declined to a five-month low.

BP spill fund doesn’t need oversight

August 16, 2011. BP Plc spill-claims fund administrator doesn’t need court supervision to ensure victims of the worst offshore spill in U.S. history are compensated fairly and quickly.

The Gulf Coast Claims Facility, created to resolve claims spawned by the April 2010 explosion of the Deepwater Horizon oil rig off the Louisiana coast, has paid out almost $5 billion to spill victims who wished to bypass the court system and receive immediate compensation.

The fund’s accomplishments show there’s no need for court oversight. Lawyers for victims suing BP over damages from last year’s Gulf of Mexico oil spill have for months urged U.S. District Judge Carl Barbier in New Orleans to take a supervisory role over the $20 billion fund. BP created the fund to comply with a U.S. law requiring polluters to compensate oil spill victims.

Nigeria’s Finance Minister vows tighter budget amid decline in oil revenue

August 15, 2011. Nigerian Finance Minister vowed to tighten fiscal policy amid falling oil prices and turbulent global financial markets. Prices for oil, which accounts for 80 percent of fiscal revenue, have slumped 14 percent since July 26, reaching as low as $75.71 a barrel on Aug. 9. At the same time, economic growth in the U.S., which sources a fifth of its crude imports from Nigeria, is slowing. Nigeria boosted spending this year as the continent’s most populous nation held elections and increased wages. Parliament approved an amended budget for 2011 that raised President Goodluck Jonathan’s spending estimates by 17 percent to 4.5 trillion naira ($29 billion).

Tanzanian energy regulator increases gasoline prices by 5.1 pc amid shortage

August 15, 2011. Tanzania, which has experienced fuel shortages at gas stations this month, raised the cost of gasoline by 5.5 percent after international oil prices climbed and the shilling weakened against the dollar.

Gasoline prices will increase to 2,114 shillings ($1.31) per liter in Dar es Salaam, the commercial capital. The cost of diesel rises by 6.3 percent to 2,031 shillings and kerosene, used as a cooking fuel and for lighting, by 5.3 percent to 2,005 shillings.



ADB to help Bangladesh fund $581 mn in new power projects

August 16, 2011. The Asian Development Bank and Islamic Development Bank have agreed to help Bangladesh fund $581 million in new power projects by June 2017. The funding will help close a power deficit that is expected to climb this year to 1,200 megawatts, about the capacity of one nuclear plant, in a nation where 49 percent of people don’t have access to electricity.

The Manila-based lender will provide a $300 million loan to Bangladesh to build a new natural gas-fueled power station to replace aging units at the country’s second-largest plant in Ashuganj. The IDB, based in Jeddah, Saudi Arabia, will provide $200 million and the Bangladesh government will contribute $81 million to the project, which will also build a 5-megawatt solar photovoltaic plant, a hybrid renewable-energy project on Hatiya island and retrofit streetlights with more efficient bulbs. The ADB loan has a 25-year tenure with a grace period of 5 years and an interest rate determined by the bank’s Libor-based lending facility.

Sinohydro in talks to build hydropower plant in Costa Rica

August 11, 2011. Sinohydro Corp. is in talks with Costa Rica to build a hydropower plant in the Central American country.

Transmission / Distribution / Trade

U.K. takes U.S. Coal Castoffs as EU use of the fuel set to rise

August 15, 2011. U.K. purchases of thermal coal from the U.S. jumped in the first quarter as demand for the dirtier- burning fuel advanced and exporters took advantage of Britain’s ability to scrub sulfur dioxide from emissions.

Coal imports from the U.S. advanced by more than four times partly because the fuel was discounted compared with better- quality shipments from traditional markets such as Russia and Colombia.

Lower European Union carbon-permit prices and a shift away from nuclear power in Germany will probably boost EU demand for coal. Sulfur dioxide regulations may also be prompting more coal trade. Global coal consumption advanced 7.6 percent, a faster pace than crude oil, natural gas and nuclear, according to statistics published by BP Plc in June.

The U.K. bought 850,000 metric tons of thermal coal from the U.S. in the first quarter this year, compared with 160,000 tons in the same period last year, according to a report on the website of the U.S. Energy Information Administration. U.S. exports to Germany and the Netherlands also surged.

Policy / Performance

U.N. atom body wants wider nuclear safety checks

August 15, 2011. The U.N. atomic agency would carry out international safety checks of ten percent of the world's reactor units over a three-year period, under a draft action plan to prevent any repeat of Japan's nuclear crisis.

Japan eyes global nuclear compensation treaty

August 14, 201. Japan is considering joining a U.S.-led global nuclear compensation treaty in a bid to fend off excessive overseas damage claims related to nuclear accidents. The U.S., Morocco, Romania and Argentina have agreed to the Convention on Supplementary Compensation for Nuclear Damage, but the treaty needs at least five countries in order to go into effect. Japan would start discussions with the United States over the pact, which defines the rules for trials for damage claims in countries where accidents happen. The move comes in the wake of a devastating accident in March at the Fukushima Daiichi nuclear power plant, which leaked radiation and exposed wide-ranging produces from vegetables, tea to water to excessive radioactive materials. Many countries have banned imports of Japanese agriculture and marine products after the accident, which triggered the world's worst nuclear crisis in 25 years. Japan is aware that it could be hit with huge damage claims over the Fukushima crisis, but the treaty would not cover damages related to the accident because it took place prior to its ratification. Japan expects more countries, particularly in Asia where several nuclear power plants are being built, to join such a treaty.

U.S. nuclear regulator tied up by process

August 11, 2011. The chairman of the U.S. nuclear regulator said his own commission is hamstrung by an inefficient, "flawed voting system" which distracts from its job of ensuring safety at the country's power plants.

UK approves two new Drax biomass plants

August 10, 2011. Britain approved two new 299 megawatt biomass plants proposed by power producer Drax, but the generator said its investment decision depended on whether soon-to-be-announced state biomass subsidies are high enough One of the plants will be built on Drax's Selby site in Yorkshire where the power producer owns a 4,000-MW coal plant, Europe's fourth largest carbon emitter in 2010. The second plant will be located at South Killingholme near Immingham.

EON cuts 11,000 workers, slashes dividend as profit falls on nuclear halt

August 10, 2011. EON AG, Germany’s largest utility, will eliminate more than 10 percent of its workforce and reduce dividends after first-half profit plunged because of the cost of shutting nuclear reactors.

Adjusted net income, the gauge EON uses to calculate its dividend, fell to 933 million euros ($1.29 billion) from 3.26 billion euros a year earlier. The utility, which may cut as many as 11,000 jobs, reported its first quarterly loss in 10 years of 382 million euros.

Renewable Energy / Climate Change Trends


Suzlon Energy bags order from Malpani Group for 29.7 MW projects

August 11, 2011. Wind turbine maker Suzlon Energy said it has received a repeat order from Malpani Group for setting up projects having a total capacity of 29.70 MW. Maharashtra-based Malpani Group has interests in various areas, including wind energy and real estate. Suzlon said the order is for setting up, operating as well as maintaining projects having a capacity of 29.70 MW.

Reliance Power to set up 200 MW wind power project for ` 15 bn in Maharashtra

August 10, 2011. Reliance Power plans to invest ` 1,500 crore to develop a 200 MW wind power project at Vashpet in Maharashtra, making it the largest such investment in India by any power generation company at a single location.

The project will be developed under a special purpose vehicle of R-Power and can be scaled up to 400 mw. Power generated from the project will be wheeled for distribution in Mumbai by Reliance Infrastructure.

The project is expected to be commissioned in phases and reach the full capacity of 200 MW by Sepember 2012. R-Power has entered into a long-term power purchase agreement with R-Infra at the tariff declared by Maharashtra State Electricity Regulatory Commission (MERC), which is ` 5.37 per unit.

IEC mounted solar system unveiled in Gujarat

August 10, 2011. Gujarat witnessed unveiling of intelligent energy controller (IEC) mounted on 3.4 KW solar system at Pandit Deendayal Petroleum University (PDPU), Gandhinagar.

IEC is a technology which can simulate yields from every solar panel to utilize the potential of the panel to the fullest. This ultimately facilitates generation of 10 to 20% extra power.

Caparo closes financing accord with IDFC for India wind projects

August 10, 2011. Caparo Energy Ltd., an Indian wind developer backed by BlackRock Inc., closed financing on 1.5 billion rupees ($33.1 million) with the Infrastructure Development Finance Co. to help fund its wind plans.

The funding is Caparo’s second tranche of mezzanine finance after it arranged an initial 3.5 billion rupees in June. The 5 billion rupees in funding will enable Caparo to build about 700 megawatts of wind in India, the world’s third-largest market for new wind installations behind China and the U.S. Caparo also said it has placed purchase orders with Suzlon Energy Ltd. for 260 megawatts of turbines for delivery next March as part of a January agreement for 1 gigawatt of the machines signed with India’s biggest turbine producer. The turbines are for five fully permitted projects in the Maharashtra, Gujarat, Karnataka and Rajasthan states.

India to seek bids in second solar auction

August 10, 2011. India will call for bids for its second national auction of permits for solar plants, while warning the first group of winners that there will be no leniency for delayed projects. The country may issue licenses in the next auction for as much as 350 megawatts of photovoltaic capacity. India plans to build 20,000 megawatts of solar plants by 2022, making it one of Asia’s top three producers along with China and Japan. At the first auction in December, it awarded permits to build 37 projects with total capacity of 620 megawatts.


How Indonesia crippled its own climate change

August 16, 2011. In July 2010, U.S. investor Todd Lemons and Russian energy giant Gazprom believed they were just weeks from winning final approval for a landmark forest preservation project in Indonesia. A year later, the project is close to collapse, a casualty of labyrinthine Indonesian bureaucracy, opaque laws and a secretive palm oil company.

The Rimba Raya project, on the island of Borneo, is part of a United Nations-backed scheme designed to reward poorer nations that protect their carbon-rich jungles.

Deep peat in some of Indonesia's rainforests stores billions of tonnes of carbon so preserving those forests is regarded as crucial in the fight against climate change.

By putting a value on the carbon, the 90,000-hectare (225,000 acre) project would help prove that investors can turn a profit from the world's jungles in ways that do not involve cutting them down.

Evergreen Solar files for bankruptcy owing $485.6 mn

August 16, 2011. Evergreen Solar Inc., a maker of electricity generating solar panels, filed bankruptcy with plans to sell itself at an auction in order to pay creditors owed $485.6 million.

Investors who hold more than 70 percent of the company’s convertible senior secured notes have agreed to act as the so- called stalking-horse, or initial bidder, in a proposed auction for Evergreen’s assets, including new technology to make solar wafers at lower cost.

The company, based in Marlboro, Massachusetts, blamed the bankruptcy on increased competition from government-subsidized solar-panel makers in China and the failure of the U.S. to adopt clean-energy policies.

Prices for solar panels fell in 2010 and 2011 because of “massive overcapacity” in the industry at a time of lower subsidies.

Since 2010, Evergreen has been the worst-performing company on the Bloomberg Global Leaders Solar Index. Solar-energy equipment makers are being hurt by excess capacity, the cutback of subsidies in Europe and increased competition from manufacturers in China.

The global production capacity of photovoltaic plants jumped 139 percent to 18.2 gigawatts in 2010.

A trustee for the 13 percent senior notes is authorized to credit-bid for the assets, which means exchanging debt for equity at the auction unless a larger cash offer is received. The company owes about $165 million on the notes, according to court documents.

Evergreen listed assets of about $424.5 million and as many as 5,000 creditors in its Chapter 11 petition filed today in U.S. Bankruptcy Court in Wilmington, Delaware. Companies that file Chapter 11 usually plan to cut debt, reorganize and continue operating.

Evergreen tried to exchange some notes for new debt and “ultimately was unable to implement any alternative remedy to its financial condition,” the company said in court papers.

The company will fire about 65 people in Europe and the U.S., including at its plant in Midland, Michigan, which will be closed. A factory in Wuhan, China, built with a $33 million investment by the local government, will remain open while the company negotiates with its Chinese investors.

Solon to shut solar plant, focus on project development

August 16, 2011. Solon SE, a German solar company, will close a module-manufacturing plant in Tucson, Arizona, to focus in North America on developing solar projects for utilities and large commercial clients. Manufacturing at the facility will be phased out by the end of October, resulting in the elimination of about 60 of the 130 jobs there. Employees that focus on sales and marketing, engineering, research and product development, project management, finance, and other support functions will remain at the location. Solon intends to invest further in new product development and will introduce new products before year-end.

Shanghai Aerospace to raise 2.2 billion yuan for solar projects

August 16, 2011. Shanghai Aerospace Automobile Electromechanical Co.’s board of directors agreed to raise as much as 2.2 billion yuan from a private placement of shares to help fund solar projects.

Nordic carbon fund buys 4.6 million U.N. CO2 credits

August 16, 2011. The Nordic Environment Finance Corporation Carbon Fund (NeCF) has closed deals to buy 4.6 million U.N.-backed carbon credits from 10 clean energy projects in India and Southeast Asia.

Two projects are in western India, several are in Southeast Asia, including four small hydro power plants, a biomass project and a waste heat recovery power generation plant in Vietnam, and there is an energy efficiency project in the Ukraine.

Under the U.N.'s Clean Development Mechanism (CDM), companies can invest in emissions cuts in emerging nations and receive credits called certified emissions reductions (CERs). NeCF said it also intends to buy CERs from eight clean energy projects in Vietnam, Thailand and China.

NeCF buys emissions reduction credits on behalf of its investors enabling them to meet their commitment under the EU ETS and/or the Kyoto Protocol. The fund has invested in 22 renewable energy and energy efficiency projects and has access to 165 million euros, raised from both the public and private sectors.

Six stand trial in carbon fraud case in Germany

August 15, 2011. Six people accused of evading more than 200 million euros ($282 million) in tax in the European carbon market face possible prison terms of up to nine years. The six men, aged 27 to 65, are accused of having conspired to evade value-added tax (VAT) from September 2009 to April 2010.

The prosecutors said the accused took advantage of tax rules in Germany which were valid until June of last year. The EU carbon market has suffered a series of damaging scandals since its launch in 2005, which apart from VAT fraud include a long-running glut of permits, theft and recycling of carbon credits.

Israel’s sewage-eating bacteria lure GE cash to curb energy costs

August 15, 2011. Israel’s water industry is attracting funds from General Electric Co. (GE) and ConocoPhillips as the country develops energy-saving technology to treat sewage, part of a $5 billion program to clean up water supplies by 2016. Emefcy Ltd., building a fuel cell that uses bacteria to break down waste in water, has raised about $10 million from investors including GE, NRG Energy Inc. (NRG) and ConocoPhillips.

The process reduces the amount of energy required to treat sewage and generates electricity. The bacteria project is a small part of Israel’s effort to alleviate a water shortage without straining limited energy supplies.

The country’s dry climate and lack of desalination capacity put it at the forefront of a global increase in water scarcity, which the United Nations says will extend to 30 countries by 2025, a gain of more than 50 percent from 1990.

Israel has doubled its exports of water technology to $1.5 billion following a state-funded program that began in 2006. The nation has attracted global interest as governments and utilities study how it has invested to cope with the depletion of underground aquifers.

U.S. Army forms unit to manage development of renewable power plants

August 11, 2011. The U.S. Army is forming a task force to work with developers that may spend as much as $7.1 billion over the next decade to build renewable power plants at U.S. military sites.

The Energy Initiatives Office Task Force is expected to be established by Sept. 15. The task force will help the Army reach a target of getting 25 percent of its power from renewable sources by 2025. The projects will be about 10 megawatts in size.

U.S. doling out funds for clean fuel technology

August 11, 2011. The Obama administration said it will give more than $175 million to car companies and research centers to spur clean auto technology and production of advanced car batteries.

The announcement came ahead of President Barack Obama's visit to a battery factory in Michigan, and followed the introduction of the country's new standards for auto fuel efficiency and greenhouse gas emissions. Clean energy, fuel independence and job creation are cornerstones of Obama's reelection campaign. Aiding U.S. automakers serves to counteract criticism that his clean-fuel auto agenda gives competition away.

Amyris biofuels break through trade barriers

August 11, 2011. Most people have never heard of the product manufactured by biotechnology company Amyris, but that may actually boost its business by helping it transcend established trade barriers that face other farm-based products such as ethanol. California-based Amyris produces farnesene, an oily hydrocarbon, from sugar cane in a fermentation process using genetically altered yeast. Its production operations are focused in Brazil, the world's biggest and cheapest grower of cane.

Cleantech partners depart Khosla Ventures

August 10, 2011. Partners Jim Kim and Alex Kinnier will depart Khosla Ventures August 15, leaving the firm short of two partners just months after it said it was raising a $1.05 billion fund. Kinnier will start his own company, a move founding partner Vinod Khosla called "standard." It was unclear what Kim intends to do upon leaving the venture capital house, which has backed Jawbone-headset makers Aliph and biofuels company Kior. Both specialized in renewable energy, a focus of Khosla Ventures. Although the industry has been slow to reap big returns and has lost favor in venture-capital circles, Khosla has steered three biofuels companies to initial public offerings over the last year.

Japan’s clean energy bill may falter on lawmaker’s ties to utilities

August 10, 2011. Prime Minister Naoto Kan’s plan to shift Japan toward renewable energy following the Fukushima nuclear accident faces resistance from politicians compromised by close ties to utility companies. Kan has pledged to reduce reliance on nuclear power after an earthquake and tsunami in March wrecked Tokyo Electric Power Co.’s Fukushima Dai-Ichi nuclear station, causing radiation leaks into the air, sea and soil.

The push on renewable energy -- including a bill in parliament to subsidize electricity from wind, solar and geothermal sources -- will meet resistance because politicians don’t want to anger utilities. Kan used a ceremony to mark 66 years since the U.S. atomic bombing of Hiroshima on Aug. 6 to outline his plan to cut usage of nuclear power, which provided about 30 percent of the country’s electricity before the crisis.

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