Petroleum Subsidies: Let us know our targets

ohn Wanamaker who is credited with the invention of the department store is known for his comment on the money he spent on advertisements: ‘Half the money I spend on advertising is wasted; the trouble is, I don't know which half’’.   The Indian government could say the same thing about the money it spends on subsidies. More than half the money that the government spends on subsidies is wasted but apparently the government does not know which half.  

Economic subsidies account for more than 80 percent of central government subsidies.  Out of this, energy subsidies account for the third largest proportion after food & agricultural subsidies and subsidies to industries and minerals. In 2003-04, petroleum subsidies were estimated to be Rs 6573 crores (roughly $ 1.5 billion), which was about 0.2 percent of GDP.  Out of this about 50 percent went towards subsidies for Kerosene and about 30 percent towards subsidies for LPG.  A number of studies have revealed that LPG subsidies largely benefit the higher expenditure households in urban areas.  There is also sufficient evidence to show that subsidised kerosene intended for the rural poor is diverted for adulterating diesel owing to the high price differential between the two fuels.  Kerosene is also used for cooking by urban middle class households which are not exactly the target beneficiaries for subsidised kerosene. 

With the government resorting to borrowing to fund its ever expanding subsidy programme, growing public debt is putting an upward pressure on interest rates and reducing the capital available to more productive borrowers. In the long run, this could cause far more damage than high oil prices.  To make matters worse, artificially low prices for energy have encouraged inefficient use, along with all the attendant costs in terms of pollution, traffic congestion and misallocated capital.

It is known that properly targeted subsidies can achieve the desired results with a limited draft on the budgetary resources. Studies have estimated that if subsidies on LPG and kerosene are eliminated for everyone except those consumers below the poverty line, 40 percent of the quasi-fiscal subsidy cost of the LPG and kerosene subsidy, and the entire gasoline and diesel subsidy cost will be eliminated. The problem with the current subsidy regime is that the beneficiary is a commodity or a sector rather than a person.   It has resulted in the creation of a parallel market for the same commodity at a far lower price attracting unintended beneficiaries.  When subsidies on energy services are administered through the market for a particular intermediate input such as fertilizer, power or kerosene or even a final good such as food, it is only those with higher purchasing power who appropriate most of the benefit from the specific subsidy.  

One suggestion to overcome the failure of the existing system to deliver subsidies to target beneficiaries is that of direct cash transfers to below poverty line households.   Cash transfers may however not result in desired outcomes, which in the case of subsidies on LPG and kerosene include shift from the use of non-commercial inefficient energy forms such as animal dung and crop waste and reduction of pollution from burning inefficient fuels. 

Below poverty line households may prioritise other non-energy purchases with the additional cash and continue with the use of non-commercial energy sources.    With the need for heat energy limited to cooking, probably just one or two hours a day, poor households may prefer freely available animal dung and crop waste to kerosene or LPG. 

Reported “under-recoveries” of the PSU-OMC

As per import parity formula and prevalent customs duties

                                                                                 (Rs Crore)

Source: Dr. Rangarajan Committee Report, February 2006

Please also see data on page no. 9

ORF Exclusive

Report released by Mr. K.C. Pant

n July 14, 2006, Shri K.C. Pant, India’s first Energy Minister and former Defence Minister, spoke at Observer Research Foundation, New Delhi, on “50 years of India’s energy policy”. He stressed the need for institutional arrangement for a 20-year rolling master plan for the energy sector as a whole. Shri Pant also stressed the need for integrating the short term and long term policies. “Even while short-term plans can only be based on established patterns of energy demand and supply, the depleting nature of hydro carbons, environmental concerns and the search for viable alternative sources of energy have to be taken into account in formulating long term plans,” he said.

Saying the aim of the energy policy should be to maximize self-reliance, Shri Pant said “just as the macro and micro plans have to be integrated, short term tactics have to be integrated with long term strategy”. He said the potential for creating an oil and gas grid in Asia from the Middle East and Central Asia republics up to Myanmar is bristled with geo-political complications and cautioned that even use of force might become unavoidable for securing oil and gas supplies besides the usual techno-economic and commercial considerations.

He also released the Recommendations Report of the ORF Centre for Resources Management, titled “Reforms, Restructuring and Regulation: Three ‘R’s for India’s energy Security”. The report contains key recommendations that emerged out of the deliberations at National Conclave on “India’s Energy Security: Major Challenges” held in New Delhi.

Road to Nuclear Self Sufficiency may not be smooth: Kapil Sibal

r Kapil Sibal, Minister for Science & Technology and Ocean Development, said that the road to nuclear self-sufficiency may not be smooth for India.  Mr Sibal was responding to the address by Ms Anne Lauvergeon, Chairperson of the Executive Board of AREVA.  Her address emphasised the potential of nuclear energy to provide clean and affordable energy supplies to meet India’s growing energy needs. 

Mr Sibal said that coal would continue its dominance over power generation in India and that India’s agreement with the US for Generation IV zero emission coal based power generation technology would pave the way towards making the process more efficient and clean.  He pointed out that while coal based power plants cost between Rs 4 to 5 crores/MW (Rs 40 – 50 Million/MW or $ 900,000- 1,000,000/MW), nuclear power plants would cost more than Rs 7 –8 crores/MW (Rs 70 – 80 Million/MW or $ 1.6 – 1.8 million/MW).  He acknowledged that nuclear power has the potential to supply about 27 percent of India’s consumption of electricity by 2030 but he pointed out that this would require the support of the global community to validate India’s civil nuclear agreement with the US without reference to other parameters.  Mr Sibal called upon the global community to remove past regimes and open up markets for Indian products. 

Nuclear & Large Hydro hold greatest Renewable Potential: AREVA

ddressing a gathering of industrialists and analysts Ms Anne Lauvergeon, Chairperson of the Executive Board of AREVA said that nuclear power and large hydropower have the greatest potential among renewable sources for power generation.  She said that there was a ‘global renaissance’ of nuclear power because of growing concerns over the environment and that China, Brazil, Argentina and India would account for the most of the additional nuclear capacity.

Ms Lauvergeon said that the intermittent nature and high cost of renewable sources such as solar and wind based energy would limit their ability to take a larger share in power generation.  She said that nuclear power was the cheapest source of electricity in Europe and that 78 percent of France’s power needs and 48 percent of Sweden’s power needs were met by nuclear power.  Ms Lauvergeon pointed out that more than 80 percent of the Swedish polulation had voted in favour of nuclear power. 

Contents
Analysis / Issues
5		New and Renewable energy Policy Statement - 2005
8		Towards an Energy Sector Competition Policy in India: Insights from International Practices (P II)
News Brief
	National: Oil & Gas
10	Upstream
	DGH pulls up ONGC on KG block gas finds
	Reliance, Essar race to Russia for oil and gas
	GSPC's discovery in KG basin holds 3.61 tcf of gas
	ONGC-Mittal to bid for Ecuador field
11	Downstream
	Car makers step on green gas as oil prices soar
	Paradip refinery project to be completed by 2010-11
	IOC, Turkey join up for $6bn petchem project
	Transportation / Trade
	BG gets petromin hand to set up gas distribution arms
12	Petronet to source LNG from Australia
	IOC to send petrol, diesel to Sri Lanka
	Policy / Performance
	Natural gas prices up 20 per cent
	SPGL seeks gas for Kakinada plant
13	Drop retail plan, focus on exploration: ONGC
	ONGC ranked 402 in 2006 Fortune 500 list
	ONGC yet to seek green nod for M`lore SEZ
	Finmin, Plan Panel against customs waiver on just LNG
14	ONGC loses Angola bid to Chinese consortium
	Reliance gas pact with NTPC, RNRL in trouble
	Govt to issue oil bonds worth $6 bn
	National: Power
	Generation
	Haryana allots $0.63 bn for power generation
15	Power reallocation on the cards to relieve N India
	Delhi selects Chhattisgarh power plant
	Tata Power to set up 1,000 MW plant in Delhi
	Transmission / Distribution / Trade
	UP ties up coal supply for Anpara C
	GMR to sell power to Haryana
16	Policy / Performance
	Lanco plans buyouts in power
	Cesco privatisation attempt fails
	Energy body to examine status of power projects
	Cabinet nod to PGCIL projects
17	Delhi RWAs demand CBI probe into power reforms
	Torrent Power SEC gets HC nod for merger
	Energy Development signs pact with K'taka Govt
	Power crisis in Punjab hits SSI & SMEs
	International: Oil & Gas
	Upstream
	BP, Petronas, CNPC major buyers in Rosneft IPO
	Repsol buys stake of BP in Gulf of Mexico
18	Ecuador to invest in energy sector in ’06
	Husky find natural gas in South China Sea
	Chevron finds natural gas in Australia
	Repsol to buy into BP's Gulf of Mexico field
	Libya hopes to increase crude output sharply
	CNPC set to explore Indonesian oil and gas
	Brazil Petrobras eyes oil exports surge by 2011
	Shiningbank to buy Find Energy in C$443 mn deal
19	LUKOIL mulls terminal in Norway for Conoco venture
	Downstream
	Chevron to buy 122 USA Petroleum stations
	Citgo to cut off 1,800 U.S. gas stations
	Chevron to buy 122 USA Petroleum gas stations
	Transportation / Trade
	Russia, Japan agree on E. Siberia oil pipeline
	Canada, Russia talk LNG
	Petrobras, Gazprom plan joint gas line
20	Russia to build new pipelines for oil exports
	Sakhalin Energy to supply LNG to Japan for 15 years
	Petrobras, Gazprom mull gas pipeline from Venezuela
	Turkey inaugurates Caspian oil pipeline
	Policy / Performance
	G-8 calls for open energy market
21	Russia, Kazakhstan sign gas agreement
	G-8 agrees on broad oil policy
	B’desh seek foreign cos for exploration
	China to allow foreign exploration in key oil, gas blocks
	International: Power
22	Generation
	Manufactures to build power plant: Nigeria
	$742mn gas-fired power plant planned for Southampton
	Tehran refinery installs 7th power generator
	Transmission / Distribution / Trade
	Pak to import 150 MW power station from US
	Renewable Energy Trends
	National
23	Teri’s carbon trading for power cos
	Clique, IIT-Mumbai develop solar concentrator
	TNEB sets up task force on evacuation of wind power
	New SEZ for making, testing renewable energy tools
	Duty exemption on import of biodiesel P&M planned
	Global
24	Jakarta set to plunge into alternatives

 

Following are individual countries' targets for renewable energy useage by 2010:

 

Source: Power Plant News

 

New and Renewable energy Policy Statement - 2005

Ministry of Non-conventional Energy Sources

Comments on draft II

(By Shankar Sharma)

Summary:

he policy document’s assumption that ’…the new and renewable energy systems are not firmly in place to start playing an effective dominant role…’, seem to have affected the very direction of the policy.  In view of the fact that the electricity industry has failed during six decades since independence to assure security of electricity to all sections, the society has to look for revolutionary ideas.  All the current indications are that the fossil fuels cannot meet our energy requirement on a sustainable basis. Whereas extractable coal reserve is expected to last for about 40 years, the import of petroleum products is expected to touch 85% by 2012.  Nuclear power options are neither certain nor considered adequately safe. Hydro electric power, though appear to be renewable, has serious issues associated with drowning of thick forests and human displacement.  All these conventional technology options also are closely associated with large scale environmental issues.

Hence, the only alternative available to our society to meet the energy requirement of the huge population base has to be through renewable energy systems. As the draft policy has discussed, the technology with regard to many of new and renewable energy systems like solar thermal and SPV, bio-mass and bio-fuel etc., have attained a level of certain maturity, and they are already being used in many parts of the country. The priority must be to encourage the wider use of the available technology so that improvement in technological advances with respect to cost and efficiency can be accelerated.  An empirical calculation of the electricity demand of our country indicates that by adopting a good mix of renewable energy systems of the existing technology and efficiency improvement measures, the net demand for grid quality electricity by 2016 can be brought down to today’s level. What this means is that we can drastically reduce the need for additional generating capacity based on conventional technology.  What is needed is a coherent and definitive policy towards adopting new and renewable energy systems on a sustainable basis. It requires massive funding on R&D to make the technologies less costlier and more efficient.

Another issue with the draft policy is that it seems to consider the grid-interactivity as the main criteria for adopting new and renewable energy systems.  Such an approach will be a retrograde step. The present day technological advancement indicates that the new and renewable energy systems are most suited as distributed generation sources. If employed effectively at residences, offices, street lights, irrigation pump sets etc., such distributed generation sources can reduce the demand on the electricity grid to a considerable extent.  One estimate indicates that such a measure alone can reduce the demand on grid quality electricity by as much as 50%. This basically means that the need for additional generating capacity based on conventional technology can come down by about 50%, which is enormous in terms of National Savings.  Hence the deployment of new and renewable energy systems as distributed generation sources urgently should be the main plank of the policy.

The policy should aim at making new and renewable energy systems the fundamental plank of our energy policy latest by 2020.  All efforts should be in this direction including: necessary budgetary support, correct signals to the market by realistic tariff for the conventional energy sources, clear and binding understanding with the state governments, definitive time frames, massive education campaigns etc.

While considering the cost aspects of the new and renewable energy systems for the sake of comparison with that of conventional energy systems, the realistic and objective costs to the society on a long term basis should be considered.

Energy security and independence on a sustainable basis will be feasible only when we minimize the need for import of energy sources, and harness our indigenous energy sources optimally.

Clause wise comments

Clause 2.1, Drivers: The draft policy states that the core drivers for development and deployment of new and renewable technologies are: lesser dependence on energy import; creating new sources for energy independence; achieving higher per capita energy consumption; augment energy supply to remote and deficient areas; fuel switching for the conventional energy conservation…..

The drivers should also include: (a) the social and environmental issues arising out of relying solely on fossil fuels and/or large storage dams; (b) the fast depletion of indigenous coal reserve; (c) the sub-optimal economics involved in large scale generation of electricity from few locations far off from the load centres; (d) the inexhaustible nature of NCE sources; (e) the non-viability of the electrification of remote villages through grid quality supply; (f) inability of the conventional energy sources to meet all our energy demands on a sustainable basis.

Clause 3.4.3, Bringing forward the fossil fuel peaking date: The scenario presented in the draft statement is of the opinion that the fossil fuel economy should peak sometime during mid 21st century. It also says that for the economic potential of the country to be realized, any suggestion to bring forward the fossil fuel technology peaking date through affirmative action or otherwise could have a deleterious effect on the economy. The reasons quoted for such a projection are that the new and renewable technologies are not firmly in place, and that it would take sometime more for the relevant R&D efforts. 

Unless conscious efforts are made to reduce the dependence on conventional energy sources, including large dams early, the country has to pay a very heavy price in the form of large scale impact on social, economical and environmental issues. Only strong emphasis on NCE sources at this stage will promote their usage, bring down the costs, and improve the technology.  The cost of conventional energy sources appear to be lesser now, because of wrong policies adopted so far, including the large hidden subsidies.  Many direct and indirect costs to the society like perpetual loss of revenue from forests/agricultural lands, costs associated with environmental degradation, tax holidays, social costs like comprehensive rehabilitation etc. are not factored in objectively. Hence the adequate thrust for large deployment of NCE sources now will only benefit the society in the medium to long term. Massive investment on R&D in making the NCE sources much more efficient can make them match or even excel the existing ones in reliability, quality and cost.  Many of the NCE technologies like solar thermal and solar PV are already in use for a number of years, and can only get more efficient and less costly with wider usage. A conservative calculation indicates that in Karnataka even if 75% of the AEH (All Electric Homes) consumers, and 50% of the houses/ offices/ schools/ street lights etc. can be encouraged to install solar panels for water heating and for lighting, a conservatively estimated 1,500 MW of morning peak demand, about 800 MW of evening peak demand and about 1,000 MU of energy per year could be saved.  The benefits that can accrue by extending this technology to the entire country can be mind boggling. Hence the fossil fuel peaking date should be brought forward to as early as 2020, so that R&D for NCE source technologies can receive adequate attention.  We should note that in cold countries like Holland, where the energy requirements are much higher due to space heating, the technology has already been in place to meet all the energy requirements of an average home by a combination of different non-conventional energy sources.

The policy statement should take into account all aspects of the societal development like social, technological, economical and environmental, into account.  It is unfortunate that neither the National Electricity Policy nor this NCE Policy draft seem to seriously consider the social, economical and environmental aspects of not adopting the new and renewable technologies to our society in the medium to long term.

Clause 4.2, Development focus: The draft policy states that ” development effort will be made ….. in order to make the domestic new and renewable energy industry globally competitive and a net foreign exchange earner at least by 2022” ……

This section seems to indicate that the policy is attaching a lot more importance to make the new and renewable energy industry to be a net foreign exchange earner.  The primary focus shall be to reduce our dependence on fossil fuels at the earliest by the efficient use of and renewable energy sources.  By the time we achieve this target the new and renewable energy industry will be automatically be amongst the world leaders, and the status as the net exporter will automatically follow.  The net benefit to our society by becoming self sufficient or even minimizing the import of fuels itself is very huge.

Clause 4.6.6, Solar energy: The draft policy states that ” solar technologies for most applications currently having low efficiencies, are highly capital intensive and not cost competitive……”

This section has put a lot of emphasis on the cost and grid-interactive solar energy products and technology. The problem in comparing the costs of solar technology and the conventional technology are: (a) the real costs of conventional technology are not objectively reflected in the price what we generally see today.  For example, the perpetual loss of revenue from the destroyed forests and agricultural lands; losses due to environmental issues like GHG emission, acid rain and health; social costs like comprehensive rehabilitation of displaced people; recurring costs of fuel, fresh water, T&D losses etc. are most likely not to have been  taken into account; (b) the total investment done on the conventional technology sources since independence is not being compared objectively with the meager investment done so far on the new and renewable energy sources so far.  The general conviction is that even if 25% of total investment done on the conventional technology sources since independence, were to have been invested on the new and renewable energy sources during last two decades, the price and efficiencies would have been in favour of new and renewable energy sources by this time.  So such a comparison on apparent cost basis alone is not objective; (c) the only alternative for not investing adequately in the new and renewable energy sources is a bleak future for the society; (d) the earlier we attain higher efficiency and lower price w.r.t the new and renewable energy sources it is only in the interest of energy security for society on a sustainable basis.  Hence, any amount of investment in new and renewable energy sources at this juncture will be certainly for a worthy cause.

Clause 4.7, Monitoring and evaluation: The draft policy states that the new and renewable energy development effort will be gauged through the key performance areas like

The most important key performance area for gauging development efforts on new and renewable energy sources should be the extent to which they can reduce the demand on grid quality electricity or other primary energy sources.  As mentioned in comments against section 3.4.3, solar thermal and PV technology alone can bring down the electrical energy demand in Karnataka by more than 1,000 MU per year and peak power demand by 800 MW, even with partial use.  This alone will mean avoided generation capacity of about 800 MW based either on thermal or dam based hydro power, which will be associated with huge societal benefits.

Clause 5.6, Incentives for new and renewable energy systems: The draft policy lists the incentives required to make the new and renewable energy systems more popular.  They include fiscal incentives and subsidies.

The real incentive for using the new and renewable energy systems will automatically apply when the cost per unit of energy from them is found to be advantageous over that of conventional energy systems.  For this to occur, the supply price of conventional energy systems should correctly reflect all the direct and indirect costs to the society.  As distributed and isolated generation sources of electricity, the recurring cost of energy in the case of new and renewable energy systems will be almost zero, and the pay back period of the capital cost will be few years.  These comparative figures alone, in most cases, shall be the adequate incentives.  If needed, some additional incentives like low interest loans can be considered for, say, first three/five years. As more and more people get encouraged to use new and renewable energy systems, the subsequent costs of these systems will be much lower than what they are today.  Also, if clear signal for encouraging the use of new and renewable energy systems emerge from the govt., adequate investment from the private sector will start flowing to make the systems more efficient and affordable.  Also a suite of effective awareness campaigns to drive home the long term benefits of deploying the new and renewable energy systems at all possible levels, will persuade the common man to seriously consider them.

Clause 6.0, Renewable energy and climate change: Under this section a lot has been said about the obligations of India under various climate conventions, and what are its entitlements as far as emission of GHG emission is concerned etc.

Instead of worrying as to what its rights are to pollute our planet, our country should concern itself as to what its obligations, as a responsible state, are and, how much less pollution it can achieve.  Instead of fighting over the right to pollute, India should set itself a laudable but realistic goal to reduce GHG emission.  If the GHG emission within our boundary gets to a minimum possible level without compromising on the quality of life, the most important beneficiaries will be our own countrymen. Hence, we need not be told by any convention as to what should be done and by when; instead we should set an example worthy of emulation through affirmative action to make this planet a much better place to live. 

In this regard the earlier we aim to replace the fossil fuels by new and renewable energy systems, it is better. This should be the primary plank of the policy. Such a policy should set a tough target such as reduction of fossil fuel dependence below that in 1980 by 2020, and below that of 1960 by 2030, etc. Only with such stiff targets and strong commitment, we will be able to achieve energy self sufficiency on a sustainable basis by 2030.

(Views are personal)

Towards an Energy Sector Competition Policy in India:

Insights from International Practices (P - II)

Dr. Samir R. Pradhan®

uccessful competition policy must ensure equality to demand as well supply side of competition practices. Evidence suggests that competition policies that give priority to the supply of competition -ensuring rivalry or contestability in the structure of markets (such as preventing barriers to entry or ensuring the fair conduct of firms) - will not by themselves be sufficient to ensure a competitive outcome. These issues are primarily producer oriented and do not directly affect the demand for competition. Competition policy needs to incorporate complementary consumer policies aimed at ensuring that consumers can make informed and active choices in the market place. These choices send signals to producers, and in doing so trigger the development of more competitive markets. Thus, competition policy will be more effective where it includes action to develop the demand side of the market. This bears importance in case of developing economies like India.

In India, privatisation and other market-orientated economic reforms have often been undertaken without appropriate regulation and competition laws in place. This has commonly resulted in the transfer of monopoly power from the public sector to the private sector. Although, in principle, market-oriented reforms should increase competition and serve the consumer interest, much of the research indicates that privatisation has simply allowed firms to take advantage of weak governments to monopolise markets, with little resulting benefit for consumers. If sound competition policy does not exist, government intervention can appear arbitrary and irrational, and ultimately erodes confidence in the market.

Energy Sector competition policy

The key characteristics of energy sector competition policy are (1) that it is often difficult to separate the service component from the goods involved in supplying that service; (2) that the natural monopoly characteristics of energy service provision mean there is a critical role for competition policy in the sector; and (3) that energy is often viewed as a strategic industry, in which foreign competition (or foreign ownership of domestic provision) is not welcomed on an equal basis with domestic suppliers.

The role of energy trade in poverty reduction comes primarily through the use of energy to generate growth in general and to facilitate the provision of essential social services. Energy trade may also benefit the poor living in border areas not connected to the domestic electricity grid, or where they may be more easily or cheaply served from foreign sources. The poor may also benefit from environmental improvements arising from more rational or cleaner energy service production or provision.

To realize the potential benefits for the poor from energy trade, it is most important to increase competition in the sector to increase efficiency and lower costs of provision, especially in the domestic energy sector. In this process the unbundling of the different stages in energy delivery becomes critical, as does the sequencing of reforms.

Increasing competition may also involve facilitating investment and innovation, including foreign investment and other forms of technology transfer. The use of subsidies (in developing countries these are primarily consumption subsidies) rarely works well in practice, and should be employed only if they are well-targeted and trade distortion effects are carefully considered. Realizing benefits for the poor may also involve diversification of energy sources and smoothing regional unevenness in supply within the country.

The efficient use of energy has a critical effect on the competitiveness of the economy and on the overall development, as the cost and availability of energy determines the cost structures of the whole economy. The existence of massive inefficiencies in the Indian energy sector, therefore, commends to be addressed through a sectoral competition policy that can delineate a framework to attain competitiveness and efficiency across the energy value chain. For this purpose the entire energy sector needs to be looked at comprehensively vis-à-vis competition and regulatory practices. There are substantial best international practices and country-specific examples that can be looked at from the point of view formulating an energy sector competition policy in India.

However, whilst analyzing the competition issues in specific sectors, the important issue arising is that of jurisdiction between the sectoral regulators and the economy-wide competition authority. There is confusion whether it should be left to the sectoral regulators or to the economy-wide competition authority. Therefore defining the roles of authorities and deciding their interface, becomes crucial in this regard. Nevertheless, it should be noted that neither competition nor regulation per se can be the policy goal rather these are the instruments to realize the desirable outcomes, through creating a competitive policy space.

India’s Energy Scene and the Rationale for a Competition Policy

Currently, India accounts for 4 percent of the world’s demand for commercial energy, which is the fifth highest consumption in the world. With an annual GDP growth target of 8 percent for the current Planning period, the energy demand is expected to grow at 6 percent. This is evident from the latest trends of growth of the Indian economy that envisages the provision of adequate energy is crucial to sustain the growth in the coming years. However, given the lowest per capita energy consumption levels in India, even in comparison to other developing economies, there are clear trends that the demand for energy is slated to increase profoundly with economic growth and demand by the bulging population in the coming years.

Bridging the demand-supply gap (see table below) would require huge investment across the energy value chain from prospecting to dispensing. In this regard the government has also initiated deregulation and restructuring of the sectors. Though the stated policy goals of the various policies concern energy security, economic efficiency, access and the environmental imperatives, yet they have failed to achieve desired outcomes. A brief look at the energy sub-sectors would clarify the existing lacunas and the utmost urgency of competition policy.

Table: Energy Demand-Supply Gap in India

Source: MoP, Economic Survey, 05-06, MoPNG, and the Planning Commission.

 

 

 

Component of Taxes in Retail Price of Petro-Products

Product	Central Taxes	State Taxes	Total Taxes
Petrol	38%	17%	55%
Diesel	23%	11%	34%
Domestic LPG	-	11%	11%
PDS kerosene	-	4%	4%

Source: Dr. Rangarajan Committee Report, February 2006

Explicit subsidies in Central Budget

(Rs. crore)

*Includes railway subsidy, interest subsidy, debt relief to farmers, grants to NAFED etc.

Source: A Report titled “Central Government Subsidies in India” by Ministry of Finance and National Institute of Public Finance and Policy, December2004.

Subsidy on PDS Kerosene & Domestic LPG

Rs./Selling Unit	2002-03	2003-04	2004-05	2005-06 (Est.)
Item	PDS Kerosene (Rs./Litre)
Subsidy from fiscal budget	2.45	1.65	0.82	0.82
“Under recoveries” to oil companies*	1.69	3.12	7.96	12.14
Total subsidy to consumer	4.14	4.77	8.78	12.96
	Domestic LPG (Rs./Cylinder)
Subsidy from fiscal budget	67.75	45.18	22.58	22.58
“Under recoveries” to oil companies*	62.27	89.54	124.89	147.74
Total subsidy to consumer	130.02	134.72	147.47	170.32

* On a gross basis before adjusting amount shared by upstream companies

Source: Dr. Rangarajan Committee Report, February 2006

 

NEWS BRIEF

OIL & GAS

DGH pulls up ONGC on KG block gas finds

July 17, 2006. The Directorate General of Hydrocarbons has criticised the Oil and Natural Gas Corporation on its functioning in the Krishna Godavari block.  The DGH has informed the ministry of petroleum and natural gas that ONGC has notified only three discoveries of A-1, U-1 and W-1, against the company's announcements of five gas finds in the Krishna Godavari basin.  Last month, the DGH had said ONGC was yet to submit the appraisal programme for these discoveries for government review. ONGC has also come in for flak from the DGH on the reported “in place” reserves of three trillion cubic feet (TCF). 

DGH's displeasure stems from ONGC's announcements of five hydro carbon discoveries of D-1, A-1, U-1, W-1 and E-1 in the NELP-1 block of KG-DWN. The DGH has also drawn the attention of the ministry on the E-1 well.  In this well, conventional testing is yet to be carried out. Mini DST (drill stem test) has been carried out which indicates absolute open flow potential of 14.68 mcm a day.

A letter written by DGH to Petroleum Secretary stated that announcements of hydrocarbon discoveries in the NELP blocks are governed by the provisions laid down in the production sharing contract (PSC). According to the provisions of the PSC, the contractor is required to inform the government in writing about the discovery within 30 days.  The fourth discovery (D-1) was notified to the DGH after expiry of eight months from the abandonment of the well. In this well, no conventional testing was carried out and notification was based on the results of monitored drift tube (MDT) only.

Reliance, Essar race to Russia for oil and gas

July 15, 2006. Two of India’s leading private sector oil majors Reliance Industries and the Essar group are exploring possibilities of entering Russia, one of the largest oil and gas producers in the world. Both companies have proposed to the Russian government to invest in oil and gas exploration projects in the joint sector for tapping large reserves of oil and gas in Russia. Both Reliance and Essar have shown keen interest to enter the Russian oil market. Reliance Industries chairman Mukesh Ambani, during his last visit to St. Petersburg had proposed to set up joint sector projects in Russia with the Russian government’s co-operation. Senior Essar group have also recently visited Russia to study the oil and exploration market in the country. Essar has already a joint venture with Russian oil company with Stroy TransGaz for developing oil and gas pipelines.

Russia is currently encouraging investments in its oil and gas sector. Chevron Corp, based in San Ramon, and Houston-based ConocoPhillips are among the five companies being considered by Gazprom for a role in the Russia’s $20 billion Shtokman project, which plans to start supplying LNG to North America by 2011.

GSPC's discovery in KG basin holds 3.61 tcf of gas

July 13, 2006. Gujarat State Petroleum Corp's gas discovery in Krishna Godavari basin off the Andhra coast holds 3.61 tcf of gas reserves. The original gas in place for the five identified layers considering the Lowest Known Gas (LKG) is estimated to be to the tune of 0.912 tcf to 3.611 tcf when considered at maximum closure. GSPC had last year claimed to have struck 20 tcf of gas reserves in the well KG#8, later named Deendayal, in the shallow water block KG-OSN-2001/3.

KG#8 was the third well on the block. Fourth well KG#17 has been drilled up to the depth of 5,801 meters and is currently under production testing. Earlier drilled two wells i.e. KG#1 and KG#11 were dry and abandoned. GSPC is to drill 14 wells in the phase-I of the exploration programme for the block.

The DGH report says well KG#8 was drilled to a depth of 5061 meters at water depth of 60 meters. GSPC intimated the discovery of natural gas in KG#8 well to Government of India on July 1, 2005. A potential gas discovery report was submitted to GDH by the operator based on analysis of available data. 

ONGC-Mittal to bid for Ecuador field 

July 12, 2006. After losing out to a Chinese consortium in the race for $1.4 billion Encana oil assets in Ecuador, Oil and Natural Gas Corporation (ONGC) is bidding for a stake in the Ishpingo-Tambochocha-Tiputini (ITT) oil field project in the Latin American country. ITT is one of the largest oil fields in Ecuador, capable of producing 1.9 lakh barrels of oil a day. Its estimated oil reserves are 900 million barrels. ITT has three fields in Ecuador's eastern Amazon jungle near the Peruvian border. ONGC was likely to face tough competition from Chinese rivals for the ITT project too. The Chinese consortium of China Petrochemical Corp and China National Petroleum Corp (CNPC) had earlier outbid ONGC for the Encana oil assets in Ecuador. CNPC had also pipped ONGC to bag Calgary-based PetroKazakhstan Inc for $4.18 billion.

Ecuador, which currently produces about 5.5 lakh barrels a day of crude oil (of which about 1.4 lakh barrels is exported), is expected to shortly call for bids for the ITT project. India, Ecuador is keen about participation of the national oil companies of China, Venezuela and Colombia.

Car makers step on green gas as oil prices soar 

July 18, 2006. Eager to cash in on the sentiments arising out of spiralling crude oil prices, car makers are launching alternative fuel-powered vehicles to attract more customers. The country’s largest car maker, Maruti Udyog, is launching an LPG-powered Wagon R this week, making it the first alternative fuel vehicle in the compact car category. The second-largest car maker, Hyundai Motor India (HMI), is following suit with a CNG version of its best-selling compact car Santro. These will be the first compact cars to be rolled out with factory-fitted LPG and CNG kits.

Other manufacturers like General Motors and Daimler Chrysler are also planning CNG-powered cars. While GM is working on the Chevrolet Tavera and Optra, a CNG-powered Merc is also on the cards. Ford India is also launching the CNG version of the Ikon.  Though CNG and LPG variants are costlier by up to Rs 35,000 ($7.5 bn) compared with petrol vehicles because of the cost of kits, they are lighter on the consumer’s wallet in terms of operational efficiency. For a compact vehicle such as the Wagon R and the Santro, petrol costs amount to Rs 3.2/kilometre. In comparison, CNG will cost Rs 1.7/km and LPG around Rs 2/km.

Paradip refinery completed by 2010-11

July 14, 2006. The Rs 35,000 crore  ($7.53 bn) revised refinery-cum-petrochemicals project of the Indian Oil Corporation (IOC) at Paradip in Orissa will be completed by 2010-11. The Paradip project was high on IOC's priority and over Rs 1,000 crore ($215 mn) would be spent immediately on site development work.

IOC, Turkey join up for $6bn petchem project

July 13, 2006. Indian Oil Corporation (IOC) and Calik Energi of Turkey are set to finally roll out their business plan for Turkey. IOC will partner Calik in a refinery-cum-petrochemical complex, along with a crude pipeline project in joint venture. The total project cost would be around $6 bn. The proposal is expected to be approved by the Turkish government by the end of this month.

IOC and Calik Energi had first partnered in a joint bid for the Tupras refinery, which had been on the block last year. However, the two continued their partnership to explore other business opportunities, even after losing the Tupras bid. A comprehensive business plan has finally been firmed up and is expected to be posed to the Turkish government shortly.

The IOC board will then take up the proposal to form a joint venture and approve the capital investments for the projects. The $3bn Calik group is one of Turkey’s leading industrial groups with interests in gas distribution, oil exploration, banking and textiles.

It also has oil blocks in Turkmenistan. IOC, which will have a majority stake in the JV will bring in its expertise in downstream activities like refining and petrochemicals, apart from operating pipelines. In the pipeline project, Calik is now partnering ENI of Italy for the crude pipeline which will run from the Samsun on the Black Sea to Ceyhan in the Mediterranean.

A 15 mt refinery in the Turkish market will be a strategic move for a player like IOC, as it would be an opening to the European market. Accessibility to Caspian crude, coupled with a potential share in the Europe market makes the partnership with Calik a sound business proposition. 

BG gets petromin hand to set up gas distribution arms

July 14, 2006. Hydrocarbon major British Gas (BG) has found support from the petroleum ministry for its bid to set up three fully-owned subsidiaries - with a total investment of around $90m (Rs 425 crore) to take up gas distribution in Karnataka, Andhra Pradesh and Tamil Nadu. The Foreign Investment Proposal Board (FIPB) has put the proposal on hold, pending comments from gas distribution joint ventures (JVs) in Mumbai and Gujarat, in which BG has a substantial stake. While the department of industrial policy & promotion (DIPP) is of the view that comments of these two JVs should be assessed before taking a final decision on the multinational’s plan for three subsidiaries, the petroleum ministry has said the activities of the proposed ventures would not clash with BG’s JVs in India.

According to DIPP’s Press Note 1 of ’05, a no-objection certificate from existing ventures is needed if a foreign investor wants permission for a new business with potential for a clash in interests. BG has 65.12 per cent equity in Gujarat Gas Company and a 49.75% stake in Mahanagar Gas. Gail, a public sector firm functioning under the petroleum ministry, is BG’s JV partner in Mahanagar Gas, which distributes gas to retail consumers in Mumbai.

In Gujarat Gas Company, which distributes gas in Gujarat, Gujarat State Petroleum is BG’s partner. The petroleum ministry feels there would be no conflict of interest between the two JVs and the proposed subsidiaries of BG since they will operate in different states. The arms will not jeopardise operations of the Maharashtra and Gujarat JVs.

So the ministry feels the FIPB can provide clearance to the three wholly-owned subsidiaries. Geographical boundaries would ensure that conflict of interest does not arise. But the petroleum ministry feels the government would not provide any commitment for supplying gas to the BG subsidiaries. These units also need to obtain regulatory and government clearances before entering the business.

The petroleum ministry’s stand is likely to make it easier for BG to obtain FIPB clearance for its proposed subsidiaries in Andhra Pradesh, Tamil Nadu and Karnataka. Gail, the joint venture partner of BG in Mumbai, is unlikely to take a stand different from that of the petroleum ministry. In the Gujarat JV, British Gas has a stake of 65.12 per cent and this will help in getting a no-objection without hassles. The application with FIPB was filed by BG Energy Holdings, registered in the UK, and Singapore-based BG Asia Pacific Holdings. The multinational had filed identical applications for permission to develop gas distribution and transmission infrastructure in the three states.

The current foreign direct investment (FDI) policy, 100 per cent foreign equity is allowed under automatic route in the petroleum sector. In projects involving trading and marketing of petro products, 26 per cent divestment in favour of Indian investors is necessary. 

Petronet to source LNG from Australia

July 13, 2006. India is likely to sign a deal in September to import liquefied natural gas from Australia. India has finalised import of 2.5 million tonnes per annum of LNG from Australia's Gorgon Project and expect to ink final documents in mid-September.

At the road show organised by Australia to promote its latest offering of 36 oil and gas areas for bidding India expected to import LNG from Australia starting 2009 at an extremely affordable price. Gas supplies will be for the terminal at Kochi being set up by Petronet LNG Ltd.

Australia, Petronet, jointly owned by Oil and Natural Gas Corp, Indian Oil Corporation, Bharat Petroleum Corporation and GAIL (India) Ltd, is in talks with Qatar, Oman and Abu Dhabi for additional LNG. Petronet currently imports 5 million tonnes per annum of LNG from RasGas of Qatar and this volume will go up to 7.5 million tonnes in 2008. India plans to import frozen natural gas from the North West Shelf venture, which is operated by Australia's Woodside Petroleum Ltd.

IOC to send petrol, diesel to Sri Lanka

July 12, 2006. Indian Oil Corp, nation's largest refiner, will send two tank loads of petrol and diesel to Sri Lanka to help its subsidiary Lanka IOC resume fuel sales. The 170-odd petrol pumps owned by Lanka IOC ran out of petrol stocks due to mounting losses resulting from Sri Lankan government's refusal to compensate it for selling fuel below the cost.

A tanker carrying 7000 tonnes of petrol and 15,000 tonnes of diesel from Haldia and parcel of 10,000 tonnes of petrol and 18,000 tonnes of diesel from Chennai Refinery dispatched. With the second tanker reaching Colombo in August, supplies at 170 Lanka IOC petrol pumps would be replenished for normal operations. Lanka IOC on an average sells about 14,000 tonnes of petrol and 35,000 tonnes of diesel.

Sri Lanka government has not allowed fuel retailers like Lanka IOC to raise prices in line with spurt in international prices. While the previous government had promised Lanka IOC to make good of the differential price, the current regime has refused to honour the agreement, leading to losses.

Lanka IOC stopped selling petrol at its 170 petrol pumps about three weeks back as it did not have money to pay for imports. However, diesel sales had not stopped. Sri Lankan government will pay Lanka IOC one billion Sri Lankan rupees ($9.6 million) in cash immediately and a balance of $4 to $5 billion through government bonds.

Natural gas prices up 20 per cent

July 18, 2006. The Government has raised natural gas prices by 20 per cent to Rs 3,840 per thousand cubic metre. The Cabinet had approved raising natural gas prices from Rs 3,200 ($0.69 bn) per thousand cubic metre to Rs 3,840 ($0.82 bn) per thousand cubic metre. The price for the North East region has been raised to Rs 2,304 ($0.49 bn)per thousand cubic metre from Rs 1,920 ($0.41 bn)per thousand cubic metre. 

SPGL seeks gas for Kakinada plant 

July 18, 2006. Spectrum Power Generation Limited (SPGL) has appealed for the intervention of the petroleum ministry to restore gas allocation to its 208 MW power plant at Kakinada in Andhra Pradesh. The company also sought support with additional allocation of 1.442 million cubic meters commencing September 2008 for its 359 MW Brownfield project. SPGL argued that it cannot proceed with the next step of placement of orders for equipment, civil works and construction until the gas required for expansion is arranged.

The existing plant requires 1.04 million cubic meters per day. However, as per the gas supply agreement with GAIL, the plant is entitled to only 9 lakh scm per day as firm allocation and 1.5 lakh scm per day as fall-back option. But the plant is only getting about 7.2 lakh scm per day, which is adequate to run the plant at 70 per cent. The petroleum ministry made an allocation of 0.75 MMSCMD of gas for its expansion project in July 1999. On the basis of this, SPGL signed a gas supply contract with GAIL for supply of 0.75 MMSCMD gas. However, in May 2006, GAIL cancelled additional allocation of 0.75 MMSCMD of gas for SPGL’s expansion project in the wake of no progress achieved by SPGL in various aspects.

Drop retail plan, focus on exploration: ONGC

July 18, 2006. The government has asked Oil and Natural Gas Corporation to drop its plans to sell petrol and diesel and focus on finding more oil and gas. However, the company has been permitted to complete already approved refinery projects. The petroleum ministry and the new management of the state-owned exploration and production giant reviewed its business initiatives, especially non-core ones at a day-long Business Plan Review meet.  ONGC should no more set up petrol pumps. ONGC currently has one petrol pump at Mangalore and had identified 45 locations from Dehradun to Ahmedabad for opening shop this year. ONGC and its subsidiary Mangalore Refinery and Petrochemicals Ltd planned to raise the number of outlets to 1,100 by 2008 as part of its plans to diversify into downstream and liquefied natural gas imports to become an integrated oil and gas company with a turnover of $50 billion within the next few years. 

ONGC ranked 402 in 2006 Fortune 500 list

July 17, 2006. Oil and Natural Gas Corp, the country's biggest oil producer, has been ranked 402nd in the 2006 Fortune Global 500 listing, up from last year's 454.  The ONGC's higher ranking is all the more commendable as the turnover of the upstream company has been under pressure due to heavy subsidy payout for the last three years.

ONGC yet to seek green nod for M`lore SEZ

July 17, 2006. The ministry of environment and forests has said it has not yet received any proposal seeking environmental clearance for Oil and Natural Gas Corporation’s mega petrochemicals project at Mangalore.  The Prime Minister’s Office had shown an interest in the development of the Rs 45,000 crore ($9.65 bn) mega petro project through a time-bound action plan.  A special economic zone (SEZ) was proposed to be developed by a special purpose vehicle floated by MRPL-ONGC, Karnataka Industrial Areas Development Board, Kanara Chamber of Commerce and Industry, IL&FS and New Mangalore Port Trust (NMPT). 

The zone would require 6,500 acres, of which 1,000 acres were supposed to be available with KIADB. Another 639 acres had been identified by KIADB and 140 acres might be available with NMPT.  Among the key features of the project is a petrochemicals (aromatic) complex based on naphtha from MRPL-ONGC. The detailed feasibility report of the complex has indicated that it will require an investment of Rs 13,000 crore ($2.83 bn).  It is up to the state government to acquire land and right of way, make arrangements for assured supply of water, and power till the SEZ’s power plant is functional, and execute a deed of assurance with ONGC in order to ensure a protected fiscal regime for the 15-million tonne refinery. 

Finmin, Plan Panel against customs waiver on just LNG

July 15, 2006. The power ministry’s plea for a customs duty waiver on LNG, natural gas and naphtha may come to naught, especially as the finance ministry and the Planning Commission have expressed reservations about singling out LNG. If bringing down the cost of generating power is the purpose of the Customs duty waiver, then the finance ministry and the Planning Commission contend that a similar waiver should be sought for coal as well.

This year, 20 MT of coal will have to be imported for the power sector. In addition to this, the government is working on the 4,000 MW ultra mega-power projects, several of which will depend on imported coal. For its part, the power ministry had argued that the basis of its current demand for custom duty waiver for LNG and natural gas is that in a situation of acute power shortage in the country, nearly 5,000 MW gas-based power capacity remains unutilised for the want of gas.

A Customs duty waiver could make gas supplies from the spot market a proposition that can be seriously considered. This in turn would help address the power shortage situation. In the current scenario, the landed cost of LNG in the spot market works out to over $10 per mmbtu resulting in a cost of generation exceeding Rs 4 per kWh. It has been estimated that the waiver in Customs duty would effect reduction to the tune of 6 paise per unit in fuel cost for power generation.

In a situation, where gas would cost between $10 and $12 per mmbtu, a waiver which would reduce the cost of generating power from Rs 4 per unit by Rs 0.06 would not amount to much in terms of making reducing cost of power for consumers. But the finance ministry has indicated that a waiver could be considered if a revenue neutral solution can be found to compensate the government for revenue loss. The power and petroleum ministries will work out options.

ONGC loses Angola bid to Chinese consortium

July 15, 2006. The Oil and Natural Gas Corp has lost out on a bid for an oil block in Angola to a Chinese-led consortium. The Indian firm offered $310-million signature bonus for becoming a partner in Block 18, but its bid fell short of $725 million offered by a 75-25 Sino-Angolan joint venture, Sonangol-Sinopec International (SSI). ONGC had bid lower than even Angola’s Grupo Gema ($400 million). Pre-qualified operators for Block 18, Petrobras of Brazil and Chevron of US bid only $276 million and $272 million, respectively. However, Petrobras has been made operator taking a 30 per cent interest with SSI getting a 40 per cent stake. Angola’s Falcon Oil and Gema Group have 5 per cent working interest each. Angola had offered seven blocks - three in shallow water and four in deep water - in its first offshore licensing round. Total of France is likely to get operatorship of Block 17 with 35-40 per cent share, leaving SSI with 27.5 per cent and three Luanda-based juniors-Angola Consulting Resources, Falcon Oil and Prodoil-and perhaps even Portugal-based Partex Oil&Gas to share the remaining interest, each with stakes of about 5 per cent.

For Block 15, Eni offered $902-million signature bonus to take 35 per cent stake. SSI will have 20 per cent interest and Angola’s Sonangol P&P with 15 per cent carried interest. Total will have 15 per cent stake and Statoil of Norway, Petrobras and Falcon Oil would each hold 5 per cent. Petrobras landed operatorship of Block 26 (80 per cent) and Block 6 (40 per cent), the latter in partnership with Norway’s InterOil E&P, Falcon Oil and another Angolan junior Initial Oil&Gas. InterOil is also a partner in Block 5, which was won by US-based Vaalco Energy, while London-headquartered Tullow Oil will control Block 1. 

Reliance gas pact with NTPC, RNRL in trouble

July 12, 2006. Reliance Industries’ gas sales agreement with NTPC and Reliance Natural Resources (RNRL) now runs the risk of being disqualified, with the government raising objections over the price at which the gas was to be sold and the basis for entering into such a contract. The government’s move has come as a blessing in disguise for RIL, which would have taken a hit on its earnings if it were to sell the gas at the committed price of $ 2.34 per mmbtu. RIL had locked in almost 40 mmscmd of gas - 28 mmscmd to Anil Ambani for his Dadri power project and another 12 mmscmd to NTPC at $2.34 per mmbtu.

Prices of gas in the domestic market range anywhere between $4 per mmbtu to $8 per mmbtu. While RIL had entered into a gas sales agreement with NTPC after winning the contract through international competitive bidding, its contract with RNRL was a negotiated contract. The government has expressed reservations on both these contracts. The NTPC contract is being questioned, as it was conducted “on the basis of reverse auction, where a company bidding the lowest gas price would be given the contract”. Govt. say this violates the production sharing contract, which provides for gas to be sold as an arms length transaction at a price which is beneficial to all parties.

Since the contracted price would bring down the government’s royalty and profit gas earnings, this contract was not acceptable to the government. Also, officials maintained that RIL had not sought the government’s approval for the price quoted at the bid. According to the gas supply master agreement signed between RIL and RNRL, RIL has offered to sell gas to RNRL from the KG basin at the same price ($2.34 per mmbtu) that was being offered to NTPC. However, with questions being raised by the petroleum ministry on the valuation method, the same price cannot be offered to RNRL. 

Govt to issue oil bonds worth $6 bn

July 12, 2006. The government may issue the first tranche of oil bonds to compensate state retailers for selling fuel below cost by month end. Finance ministry will issue Rs 28,000 crore ($6 bn) worth of oil bonds to help oil firms bridge the gap in retail prices of petrol, diesel, LPG and kerosene and cost of production this fiscal. The bonds are to be released every quarter based on the under-recovery in revenue in the quarter. Oil firms were projected to loose Rs 73,500 crore ($15.98 bn) this fiscal on selling fuel below cost of production. A part of this gap was met by a Rs 4 per litre increase in petrol and Rs 3 a litre hike in diesel prices, cut in customs duty and contributions from upstream firms (ONGC/ GAIL/OIL) and standalone refiners including Reliance industries. For the rest, the government decided to issue oil bonds. The quantum of oil bonds to be issued would be decided every quarter.

POWER

Haryana allots $0.63 bn for power generation

July 18, 2006. The Haryana government has earmarked a sum of Rs 2,924 crore ($0.63 bn) for generation, strengthening and improvement of distribution and transmission of power during the current financial year so that more availability of power can be ensured in the state. About 5000 MW more power would be generated during next three or four years. The state government had signed a long term agreement to purchase 3,076 MW power, of which 1,006 MW power would be available from the Central Projects while remaining 2,070 MW would be purchased from the independent power producers.

The state power utilities had made a plan to strengthen transmission and distribution in Ambala district costing Rs 113 crore. Two new 66 KV sub-stations at Air Force Station and MES, Ambala Cantt. were being constructed besides a 66 KV sub-station at Barnala and Mullana were also being augmented. The existing capacity of 220 KV sub station at Tepla and 66 KV sub-station at Adhoya had also been augmented.

Power reallocation on the cards to relieve N India

July 15, 2006. The Central Electricity Authority may come up with a revised allocation for 1,020 MW power for the northern region states of Delhi, Haryana, Punjab, Rajasthan, Uttar Pradesh and Jammu and Kashmir.  This power is expected to come to the northern region through the 1,200 KM line linking the western, eastern and north eastern regions with the northern region.  The 1,200 KM link will help in power evacuation from the eastern and north eastern regions to the power deficient northern region grid. These four regions are expected to be inter-linked by this month.  Out of 1,020 MW that was to be shared amongst the northern region states, the earlier allocation indicated Delhi’s share as 200 MW. The allocations for Haryana, Punjab, Rajasthan, Uttar Pradesh and Jammu and Kashmir was earlier fixed at 100 MW, 200 MW, 100 MW, 300 MW and 120 MW respectively.

The eastern region states wanted the entire power from Tala and in lieu of that power, they have agreed to give an equal amount of power from its thermal projects to the northern region. It is also expected that an additional 1,000 MW of the surplus power from the north eastern and eastern regions will be supplied to the northern region through the link.  The north eastern region and the eastern region have surplus power of around 600 MW each and this will ease the power situation in the northern region. Once the northern grid gets interconnected with the rest in synchronous operations, the 2,000 MW power that can be evacuated will comprise around 20 per cent of the present capacity evacuation of 9,500 MW. The line to link the northern region starts from Tala (Bhutan) and connects Mandola (near Delhi) through Siliguri (West Bengal), Purnea (Bihar), Muzaffarpur (Bihar), Gorakhpur (Uttar Pradesh), Lucknow (Uttar Pradesh) and Bareli (Uttar Pradesh). 

Delhi selects Chhattisgarh power plant

July 14, 2006. The Delhi government had selected a site in Chhattisgarh for setting up a 2000 MW, Rs 10,000 crore power plant. The MoU with the Chhattisgarh government will be signed next month as Delhi wants the power plant to be completed by 2009 or latest by early 2010 to meet the power requirements at the time of the Commonwealth Games to be held at Delhi. It has been estimated that Delhi's power demand will be 5,000 MW by 2010, and the Nawagarh power plant will help meet this requirement.

Tata Power to set up 1,000 MW plant in Delhi

July 12, 2006. Tata Power Company (TPC) is exploring the possibility to set up a gas-based power plant of 1,000 MW in Delhi at an estimated cost of over Rs 3,000 crore ($0,65 bn). This is apart from the other projects proposed by TPC with a cumulative capacity of 2,744 MW to cater to the energy needs of Tata Steel’s expansion plans in Chhattisgarh, Orissa and Jharkhand. TPC will set up three power plants in three states with an investment of over Rs 11,000 crore ($2.39 bn). TPC is also qualified to bid for two ultra-mega power projects at Sasan in Madhya Pradesh and Mundra in Gujarat. It has signed an agreement with Germany-based Siemens Project Ventures (SPV), a wholly-owned subsidiary of Siemens Financial Services, for implementing these projects.

UP ties up coal supply for Anpara C

July 17, 2006. Even as the issue of execution of the 1,000 MW Anpara C thermal power project is waiting to be settled, the UP Power Generation Corporation has signed an agreement for its coal linkage, with the Northern Coal Fields Ltd (NCL). The agreement was signed by the UP Power Generation Corporation and Northern Coal Fields.

As per the agreement, the NCL will supply 3.6 million tonnes of coal every year from its Kharia coal fields in Jharkhand. This agreement is a major step towards the implementation of the Anpara C project because it is expected to facilitate the process of financial closure. Only three companies, Reliance Energy, Essar, and Hyderabad-based Lanco Kundapalli, had placed bids for the project. All the three bids, containing technical and financial documents, have been sent to Ernst and Young for evaluation. Ernst & Young will prepare an evaluation report and present it to the evaluation committee.

GMR to sell power to Haryana

July 14, 2006. GMR group plans to supply power up to 700 MW to Haryana from its proposed 1,000 MW power generation project in Orissa. The company also plans to enter the power transmission business, and is in the race for bagging two transmission projects worth Rs 1,800 crore  ($0.39 bn) in western India. The group is eyeing two independent private transmission company projects in Maharashtra and Gujarat. While the Maharashtra transmission project involves setting up a 1,000 kilometres of 400 KV line, involving a cost of Rs 1,200 crore, the Gujarat project involves setting up a 500 KM of 400 KV link for Rs 600 crore ($129 mn). 

The bids for these two projects are to be finalised by the end of 2006. The group will be competing with Reliance Energy, Tata Power and other international players for these projects. The group also plans to bid for the supply of 700 MW of power to Haryana and has aligned the development of its 1000 MW Orissa power project. The bid will be decided by December end this year. While Orissa will receive 300 MW power from the project, the rest will be diverted to Haryana.  The construction for group’s coal pit head project in Dhenkanal is expected to start by the end of 2007 and is expected to be completed by 2011. 

Lanco plans buyouts in power

July 18, 2006. After taking over the 1,015 MW Nagarjuna power project in Karnataka and the 1,000 MW Anpara power project in Uttar Pradesh, the Rs 2,200 crore ($0.47 bn) Hyderabad-based Lanco Group plans to acquire power companies and coal mines in the domestic and overseas markets. With around 3,899 MW capacity projects already in hand, the group plans to become a 5,000 MW company by 2010. The total investment will be around Rs 20,000 ($4.29 bn) crore to achieve the 5,000 MW capacity addition target. The group was exploring options for power projects in Malaysia, Philipines, Ghana and Nigeria. It also proposes to acquire coal- mines in Kalimantan region of Indonesia.

Cesco privatisation attempt fails

July 15, 2006. The attempt to hand over the power distribution company, Cesco, to a private company has failed. The disco is now run by the Orissa Electricity Regulatory Commission (OERC). As many six private companies - Calcutta Electricity Supply Company, Tata Power, GMR, Jindal Power, Torrent Power, Ahmedabad and Essar Power had responded to bids, the tender for which was floated but Tata Power and GMR withdrew from the race.  Although the remaining four submitted technical bids, three backtracked leaving Torrent Power in the fray. The Ahmedabad-based company submitted a conditional financial bid which was not acceptable to the six member advisory board constituted by the OERC for privatisation of the disco.

Although it was clearly mentioned that liabilities and employees of Cesco have to be accepted along with the assets, Torrent Power expressed its inability to take over liabilities to the tune of Rs 900 crore ($196 mn). As the privatisation attempt has failed, the OERC is working out a mechanism to run CESCO. The Electricity Act, 2003 has authorised the regulatory commission to formulate a mechanism for operation of power distribution companies like Cesco. The commission is likely to constitute a board of management comprising functional heads.

Energy body to examine status of power projects

July 14, 2006. The Energy Co-ordination Committee is expected to meet shortly to discuss issues such as the shelf of power generation projects to be offered to potential investors, state governments re-visiting power purchase agreements signed in the past, and the status of co-financed power projects through the inter institutional group (IIG) mechanism, among others. In order to ascertain the progress made in the development of the ambitious ultra mega power projects, the finance ministry will also shortly call a review meeting of these projects, each of which is 4,000 MW.

The Planning Commission has also been asked to make a presentation on issues such as actual achievement in the installment of power generation capacity in the ninth Plan period (2002-07) and shelf of power generation projects. The presentations will be made on the subject after consulting the power ministry. Concerns were raised about the projects co-financed through the IIG mechanism being in jeopardy. This exercise is also being conducted to ascertain whether the country has a shelf of hydel and thermal projects including normal, mega and ultra-mega projects that can draw potential investors.

Cabinet nod to PGCIL projects

July 14, 2006. The Cabinet Committee on Economic Affairs approved two projects of the PowerGrid Corporation of India Ltd with a combined investment of around Rs 5,750 crore ($1.24 bn). These are expected to help reduce the power deficit in the northern and western regions. The projects include a Rs 5,221 crore ($1.11) bn) project of PowerGrid (PGCIL) called the Western Region System Strengthening Scheme-II. While Rs 3,581 crore ($0.77 bn), including an interest during construction of Rs 250 crore ($53.9 mn), will be implemented by PGCIL, the remaining amount of around Rs 1,640 crore ($0.35 bn), including IDC of Rs 130 crore ($28 mn), will be implemented by the Independent Private Transmission Company. 

The second project is the 520 MW hydro-electric power generation project of PGCIL at Parbati-III in Kullu district of Himachal Pradesh. This will involve an estimated cost of Rs 557 crore ($200 mn).  The project is expected to be completed within 42 months from the date of investment and is scheduled to be commissioned by November 2010. It will benefit the northern region.  The scheme for the western region, which will be commissioned within 48 months from the date of investment approval, will help reduce power deficit of about 5,000-6,000 MW in the western region and strengthen the capacity of the national grid. 

Delhi RWAs demand CBI probe into power reforms

July 14, 2006. Resident Welfare Associations (RWAs) "corrupt practices" of the private electricity distribution companies had caused a power crisis in the capital and demanded a CBI inquiry into the process of power reforms. Power problems faced by the denizens dominated the annual all-Delhi RWA Convention, with the association representatives claiming that although there was enough electricity to meet the demands of the city, there were malpractices on the supply side. Most of the representatives expressed their anguish at how privatisation of power supply, introduced in the capital in 2002, had put a heavy financial burden on the people and spoke about problems such as faulty meters, inflated bills and tariff hike.

Torrent Power SEC gets HC nod for merger

July 13, 2006. Torrent Power SEC Ltd has received approval from the Gujarat High Court for merger of the company, Torrent Power AEC Ltd and Torrent Power Generation Ltd with the parent company, Torrent Power Ltd. The High Court at Ahmedabad passed an order, sanctioning the Scheme of Arrangement including amalgamation of Torrent Power's three subsidiaries with it.

Energy Development signs pact with K'taka Govt

July 12, 2006. Energy Development Company Ltd has signed an agreement with the Government of Karnataka to set up a hydro-power plant at its Harangi Project site. The company has signed the agreement with the Karnataka government for setting up an additional capacity hydro power plant of 6 MW at the project site.

Power crisis in Punjab hits SSI & SMEs

July 12, 2006. Despite the Punjab government's efforts to initiate power projects in the state, the current power crisis in Punjab has hit the small scale and SME sector hard, leading to a 20 per cent production loss, besides resulting in cancellation of export orders and delay in shipments. The production loss of SSI and SME could be in the range of 20 per cent due to deficiency in the supply of power to the industrial sector. Peeved at the grim power situation in the state, the SSI industry has even decided not to set up new projects in Punjab keeping in mind the severe shortage of power. Besides, upsetting the production schedule completely, power crisis has even caused delay in shipments and cancellation of export orders from Punjab. Exporters are now in a tight spot with international buyers contemplating to give future orders as and when the power situation improves in the state. 

OIL & GAS

BP, Petronas, CNPC major buyers in Rosneft IPO

July 16, 2006. Britain's BP, Malaysia’s Petronas and China's CNPC were the three main buyers of shares issued in Russian oil firm Rosneft's record-breaking IPO. BP had bought $1 billion of Rosneft stock, Petronas $1.1 billion and CNPC $500 million. A bank which he did not name had also bought a large stake: They paid about $3 billion.

Malaysia’s state oil company made its second-biggest overseas acquisition, buying $1.1 billion of the stock sold by Russia’s OAO Rosneft to expand international operations as domestic production stagnates. Petronas, is investing in Russia, among the world’s two largest oil producers, to supplement ventures in Africa, the Middle East and Southeast Asia. The Russian purchase is the Petronas’s biggest overseas investment after a $1.76 billion acquisition of natural-gas reserves in Egypt in 2003.

Petronas currently has businesses in 31 countries including China, Iran, Sudan, Ethiopia and Vietnam. Petronas may have become Rosneft’s biggest overseas investor, having paid $1.1 billion. BP gained $1 billion and China National Petroleum acquired $500 million of shares. The companies shouldn’t be called strategic investors, as none of them acquired more than 5 per cent of Rosneft’s total shares.

Repsol buys stake of BP in Gulf of Mexico

July 12, 2006. Repsol YPF SA, Spain’s largest oil company, bought a 28 per cent stake in a Gulf of Mexico oil field from BP Plc for 1.7 billion euros ($2.17 billion), as it seeks to stem a three-year decline in oil reserves. The Shenzi field has proven and probable reserves of 350 million to 400 million barrels of oil. Repsol expects output to be more than 35,000 barrels a day. Oil companies worldwide are exploring more for so-called fossil fuels as record crude oil prices provide drillers with more money to seek new deposits. Repsol’s new discoveries failed to replace the oil it pumped in each of the last three years.

The company is focusing its North African exploration in Libya and Algeria. The company is also investing in Russia and the Middle East to try to catch up with European competitors who have more years of reserves left. Repsol has said it plans to develop LNG in countries including Trinidad and Tobago, Russia, Iran, Libya and Mexico. LNG is natural gas cooled to a liquid, which can then be shipped in tankers. Spain depends on the shipments for almost two-thirds of its gas.

Ecuador to invest in energy sector in ’06

July 17, 2006. Ecuador plans to invest $837.7 million in its feeble energy sector this year and create a special fun to finance operations at the seized oilfields of a U.S. oil company.

Husky find natural gas in South China Sea

Jul. 16, 2006. The Ministry of Land and Resources says natural gas reserves discovered in the South China Sea may be the largest ever in China. The prospective well known as LW3-1-1 may contain a billion cubic meters of gas. The well was discovered by Husky Energy Ltd., a Canadian oil exploration firm. It is in the Pearl River Mouth Basin, about 150 miles from Hong Kong and 5,000 feet down.

Chevron finds natural gas in Australia

July 12, 2006. Chevron Corporation  finds natural gas at its Chandon-1 exploration well located 160 miles (260 kilometers) offshore north western Australia in permit WA-268-P. The Chandon-1 well was spud on June 21, 2006, and it sits within the western reaches of the Greater Gorgon development area. It was drilled using the semi-submersible Transocean "Jack Bates" drilling rig in water depths of approximately 3,900 feet (1,200 meters) with total depth of drilling to 10,200 feet (3,100 meters).

Repsol to buy into BP's Gulf of Mexico field

July 12, 2006.  Repsol will pay 1.7 billion euros ($2.2 billion) to buy a stake in a Gulf of Mexico oil field from BP Plc as the Spanish oil major seeks to diversify away from Latin America where it faces growing resource nationalism. It would buy 28 per cent of the Shenzi field, one of the largest deepwater areas in the Gulf of Mexico, which has recoverable reserves of between 350 and 400 million barrels of oil. That could rise to 500 million barrels.

It would begin further exploration of the area in the final quarter of 2006 while the first oil should be produced in mid-2009. The field is shared with mining company BHP Billiton, the operator of the project with a 44 per cent stake, and Hess Corporation with 28 per cent. Total costs to develop the field until 2015 are about $4.4 billion. Its total production in the Gulf of Mexico could exceed 35,000 barrels of oil per day with the Shenzi field, which was discovered in 2002. It would buy additional blocks in the field coming up in 2006-2008.

Libya hopes to increase crude output sharply

July 12, 2006. Libya hopes to more than double its crude oil production over the next few years, bringing output back to its 1970 level of 3.7 million barrels per day. Libya currently produces crude at a rate of 1.6 million bpd, which would put it near the bottom of the list of Opec member countries' output. Its oil output has fallen since 1970 due to US sanctions, but it is now aiming for higher output as the United States eased those sanctions in 2004. The North African country has since then struck exploration and production-sharing agreements with international oil firms.US companies Occidental Petroleum and Exxon Mobil have also restarted production in Libya. Libya hopes to raise output to 2 million bpd by mid-2007.

CNPC set to explore Indonesian oil and gas

July 12, 2006. CNPC, a listed arm of China National Petroleum Corp, plans to explore for oil and gas in Indonesia for the first time as it acquires an interest in a production-sharing contract. It had signed a letter of intent with Continental Energy and GeoPetro Resources to buy a combined stake of 70 percent in a production-sharing contract for Bengara-II Block in Indonesia for US$35,000 (HK$273,000).

Brazil Petrobras eyes oil exports surge by 2011

July 14, 2006. Brazil's Petrobras plans to boost net overall oil exports to 800,000 barrels per day by 2011, a surge from about 100,000 bpd this year. The 2011 figure includes crude oil and natural gas liquids, and Petrobras's sales from foreign projects.

Shiningbank to buy Find Energy in C$443 mn deal

July 13, 2006. Shiningbank Energy Income Fund it has agreed to buy Find Energy Ltd. for C$381 million ($337 million) so that it can add Find's Alberta natural gas producing properties to its own. Shiningbank will also assume Find's C$62 million debt, bringing the deal's total to C$443 million. The purchase will add 4,900 barrels of oil equivalent a day to Shiningbank, boosting its output by 22 percent to 27,000 barrels of oil equivalent a day.

LUKOIL mulls terminal in Norway for Conoco venture

July 12, 2006. Russia's top oil firm LUKOIL may build new terminals on Norway's Barents Sea coast to ease exports from its joint venture with U.S. ConocoPhillips. The venture plans to produce 240,000 barrels per day in Russia's north by the end of this decade and is already building a terminal of the same size in the Arctic port of Varandei.

Chevron to buy 122 USA Petroleum stations

July 17, 2006. Chevron Corp.'s Chevron U.S.A. subsidiary would purchase 122 retail gas stations in California from USA Petroleum. The majority of the stations in the deal sell USA-branded gasoline, with a small number selling Chevron or Shell-branded gas. San Ramon-based Chevron plans to operate the stations, which will be upgraded and will sell either Chevron or Texaco-branded gasoline. California has about 10,000 retail gasoline service stations, of which roughly 1,500, or 15 percent, are currently branded either Chevron or Texaco.

Chevron owns or leases approximately 600 retail service stations in the United States. Its marketing network is far larger, however. It supplies gasoline either directly or through retailers and marketers to almost 9,300 branded retail outlets. About 1,600 of those sites are Texaco-branded sites, primarily in the Southeast and West. The company plans to expand its Texaco-branded network when all rights to the Texaco brand in the United States revert to Chevron this month.

Citgo to cut off 1,800 U.S. gas stations

July 12, 2006. Venezuela-owned Citgo Petroleum Corp. has decided to stop distributing gasoline to 1,800 independently owned U.S. stations, shedding a lackluster segment of its business while forcing the owners of those stations to find other suppliers. While it may create some logistical headaches for gasoline retailers in the short term, the move should not have any impact on the overall fuel supply.

Citgo currently has to purchase 130,000 barrels a day from third parties in order to meet its service contracts at 13,100 Citgo-branded stations across the U.S. This is less profitable than selling gasoline directly from its refineries.

Instead, the Houston-based company has decided to sell to retailers only the 750,000 barrels a day that it produces at three U.S. refineries in Corpus Christi, Lake Charles, La., and Lemont, Ill. As a result, the Citgo brand will disappear entirely from 10 states and be less common in four additional states, including Texas, by March 2007, when the change goes into affect.

Chevron to buy 122 USA Petroleum gas stations

July 14, 2006. Chevron Corp. and USA Petroleum Corp. Chevron will purchase 122 USA Petroleum retail gasoline stations across California. Chevron plans to operate the stations and upgrade the sites with new image standards, either under the Chevron or Texaco brand. California has about 10,000 gasoline stations, with about 1,500 carrying either the Chevron or Texaco name. The transaction is subject to regulatory approval.

Russia, Japan agree on E. Siberia oil pipeline

July 17, 2006. Russia and Japan agreed on a project to build the East Siberia-Pacific oil pipeline. The pipeline is slated to pump up to 80 million metric tons of crude a year (1.6 mln bbl/d) from Siberia to Russia's Far East, which will then be exported to the Asia-Pacific region with a branch going to energy-hungry China.The first stage of the project will connect Taishet in the Irkutsk Region to Skovorodino in the Amur Region in the Far East. The cost of the first stage was initially estimated at $6.5 billion. The cooperation between the two countries' governments and businessmen was crucial for the project.

Canada, Russia talk LNG

July 16, 2006. Russia and Canada's leaders gave a plug to a joint liquefied natural gas project and also to the export of Canadian uranium to Russia for enrichment and possible re-export. They also pledged to improve cooperation between the Russian and Canadian energy industries, particularly in LNG, referring to a planned project to liquefy gas in St. Petersburg and deliver it to Quebec for further distribution in the United States and Canada. The two companies unveiled plans for a $1.5 billion St. Petersburg plant in March. It will ship LNG to a Canadian regasification plant owned by Petro-Canada and TransCanada. The plan is now awaiting regulatory approval.

Petrobras, Gazprom plan joint gas line

July 17, 2006. Brazil's Petrobras is in talks with Gazprom over joint ventures including a gas pipeline from Venezuela to Brazil, Argentina and Chile. A joint venture with Petrobras would be the Russian gas giant's first in Latin America. The world's largest gas producer has been extending its influence across the globe through a string of acquisitions, joint ventures and supply deals. Brazil's state oil company also aims to boost net overall crude exports by 700,000 barrels per day by 2011 from this year's levels.

Other potential projects with Gazprom include offshore exploration in Turkey and schemes in Asia, where Petrobras has no assets. Petrobras aims to boost net oil exports to 800,000 bpd in 2011 from around 100,000 bpd this year. Petrobras expects to sell 584,000 bpd of heavy crude from Brazilian projects and around 383,000 bpd from international projects in West Africa and the Gulf of Mexico by 2011. The figures include natural gas liquids.

Russia to build new pipelines for oil exports

July 16, 2006. Russia intends to build new pipelines for exporting oil. Today oil companies already have a reserve of pipeline capacities for exports. This reserve will be increased so that companies can choose which direction is most advantageous for them. Under the country's energy strategy Russia must develop pipeline infrastructure on its coastline to export oil and petroleum products by sea. Under the strategy, Russia launched the Baltic Pipeline System in April, which supplies Siberian oil to the Primorsk terminal in northern Russia for export to Europe and the United States, and started the construction of the East Siberia - Pacific Ocean pipeline on April 26 this year. The construction of the East Siberia -Pacific Oil pipeline would be completed on time. The first stage of construction is scheduled to be completed by the end of 2008. The pipeline is slated to carry up to 80 million metric tons of oil a year (1.6 mln of bbl/d) to the Asia-Pacific region, most likely Japan and energy-hungry China.

Sakhalin Energy to supply LNG to Japan for 15 years

July 12, 2006. Sakhalin Energy will supply half a million metric tons of liquefied natural gas annually to Japan for 15 years. Sakhalin Energy, a Dutch-British-Japanese venture, which operates the Sakhalin-II energy project and is developing two vast fields off the island of Sakhalin in Russia's Far East that hold estimated recoverable reserves of 150 million metric tons of oil and 500 bcm of gas, signed a LNG deal with Japan's Chubu Electric Power Co.

The company's management was glad that it had reached an agreement with Chubu Electric on liquefied natural gas supplies under the Sakhalin-II project, and hoped for long-term cooperation with the Japanese partner. LNG deliveries were expected to start in April 2011. Sakhalin Energy will supply liquefied natural gas to Japan from a LNG facility, which it is building on the island of Sakhalin. The facility will have a capacity of 9.6 million metric tons a year.

Petrobras, Gazprom mull gas pipeline from Venezuela

July 14, 2006. A gas pipeline from Venezuela to Brazil, Argentina and Chile is among the joint ventures it is considering with Gazprom. Gazprom has very good experience with long gas pipelines. Other projects include exploration offshore Turkey and a schem in Asia, where the Brazilian company does not currently have assets.

Turkey inaugurates Caspian oil pipeline

July 13, 2006. Turkey inaugurated a $4 billion pipeline carrying oil from the Caspian Sea to the Mediterranean, part of an energy corridor vital to both Western and Turkish strategic interests. The Baku-Tbilisi-Ceyhan (BTC) project, backed by the United States and which sidesteps major energy producer Russia, is also designed to reduce Western dependence on Middle East oil.

Turkish, Azeri and Georgian heads of state were joined by ministers from around the world for a ceremony at the port of Ceyhan to mark the opening of the 1,770 km (1,106-mile) pipeline from Azerbaijan's Baku, which also goes to Georgia's Tbilisi. Oil giant BP the main partner in the consortium running the pipeline, expects its capacity to reach 1 million barrels per day (bpd) by 2008, mainly on Azeri shipments.

G-8 calls for open energy market

July 16, 2006. G-8 leaders agreed to give access to fuels for the 2.4 billion as also electricity to 1.6 billion people in developing countries and develop nuclear energy as an alternative source. The global nature of these challenges and the growing interdependence between producing, consuming and transiting countries require strengthened partnership between all stakeholders to enhance global energy security. Neither global energy security, nor the millennium development goals can be fully achieved without sustainable access to fuels for the 2.4 billion people and to electricity for the 1.6 billion people currently without such access in developing countries.

The leaders of US, Russia, Britain, France, Canada, Italy, Germany and Japan comprising the G-8 agreed that development of transparent, efficient and competitive global energy markets is the best way to achieve objectives on this score in which governments and relevant international organisations also play an important role in addressing global energy challenges.

The G-8 has also spoken for the development of nuclear energy under the non-proliferation mechanisms and other alternative sources, including renewable energy. The statement on energy was accompanied by a detailed action plan which focussed on seven main areas, including promotion of energy market transparency, stability and predictability in energy markets and making investment easier. It also adopted documents on combating infectious diseases, innovative education for the 21st century, as well as fighting corruption and protecting intellectual property.

Russia, Kazakhstan sign gas agreement

July 17, 2006. The presidents of Russia and Kazakhstan agreed at the Group of Eight summit to create a joint venture to process natural gas from Kazakhstan's Karachaganak gas field. Under the terms of the deal, both countries would have an equal share in the venture, which will expand the capacity of the Soviet-built Orenburg refinery. Russian President called the project - which envisages an annual output of at least 15 billion cubic meters - a "humble but important" contribution to energy security, the central theme of Russia's G-8 presidency. The Karachaganak field is one of the crown jewels of Kazakhstan's hydrocarbon riches. Located 90 miles east of the city of Uralsk, it contains 1.3 tcm of gas and 1.2 billion tons of liquid condensates and oil. The field is operated by an international consortium led by Britain's BG Group PLC and Italy's Eni SpA, each with a 32.5 percent stake. Russia's biggest oil producer OAO Lukoil, has a 15-percent stake while U.S. oil company Chevron Corp. holds 20 percent.

G-8 agrees on broad oil policy

July 16, 2006. Russia World leaders gathered at the Group of 8-summit meeting adopted a resolution on energy policy that touched lightly on alternatives to fossil fuels, such as biomass and wind, but focused mostly on how to bring more oil to the market, and at cheaper prices. The leaders - from the United States, Russia, Japan, Germany, France, England, Italy and Canada - also signed statements on corruption, trade, protection for copyrights and patents, and a cautiously worded resolution on the fighting between Israel and its foes: Hezbollah in Lebanon and the Palestinians. The energy resolution noted "high and volatile" prices, with oil rising above $75 a barrel, driven partly by the Middle East fighting, and laid out a broadly worded plan to stabilize prices and supply.

The countries waded into a debate over growing government control of energy industries in countries from Russia to Venezuela and the simultaneous need to attract huge investments, likely to come from private banks or equity markets, to meet growing demand. The resolution noted that demand for oil, natural gas and coal would rise to one and a half times above current levels by 2030, and that these fossil fuels would constitute 80 percent of the world's energy supply in that year. The statement called for "investment in all stages of energy supply," and "transparency and good governance in the energy sector."

Group of 8 countries "support the principles" of the Energy Charter, a treaty intended to integrate the oil and natural gas industries in former Soviet countries with Europe. Russia has signed but not ratified the document, and the wording left unanswered the questions of access to Russian pipelines by independent companies or third countries. To dampen gyrating world oil prices, the G-8 countries agreed to push oil producing countries to be more open with data on reserves, or how much oil remains in the ground, an issue put on the agenda by Russia. The group endorsed efforts by the International Energy Agency to prepare for a possible world oil shock with plans to coordinate the release of countries' emergency reserves, such as the United States petroleum reserve.

On the environment, the statement endorsed the Kyoto Protocol as a tool to discourage energy waste and greenhouse gas emissions, but only for "those of us who have ratified" the document, an acknowledgment that the United States has withdrawn from the protocol. Countries producing oil and other fossil fuels should open their energy industries to outside investment, crack down on corruption and prevent waste such as burning natural gas at oil fields, a practice called flaring and widespread in Siberia.

B’desh seek foreign cos for exploration

July 15, 2006. Bangladesh will seek bids from overseas energy companies to explore for oil and gas in the Bay of Bengal after a court removed an obstacle blocking agreements with them. Bangladesh's High Court lifted an injunction preventing state-owned energy firm, Petrobangla, from signing production-sharing contracts with other oil companies. Now B’desh is free to open bids for offshore oil and gas exploration and seek bids from overseas companies within one to two months' time.

China to allow foreign exploration in key oil, gas blocks

July 14, 2006. China will allow foreign companies a rare chance to conduct exploration for oil and gas in parts of the resource-rich Tarim Basin in the northwest of the country. The China National Petroleum Corp (CNPC), the nation's largest oil and gas producer, will invite bids from foreign companies for exploration in nine potential oil and gas blocks in the basin. It said several foreign oil companies had already expressed an interest in participating in projects in the Tarim Basin but provided no names. The statement suggested that a major motive of permitting foreign participation was to attract technological know-how from overseas.

The nine blocks now opened to foreign exploration involve a total area of 110,000 square kilometers (44,000 square miles). The basin is considered key in China's efforts to boost its energy security in the coming years and as a possible replacement of oil fields such as Daqing in northeast China, which are approaching exhaustion. CNPC is an active participant in China's efforts to secure enough energy for the future and is cooperating with several large foreign majors. It is expected to reach a consensus with Gazprom, Russia's state-owned natural gas monopoly, by the end of the year for the import of gas through two cross-border pipelines. The two companies have reached an initial agreement to build two pipelines to transport up to 68 bcm (2.4 tcf) of Russian gas to China annually. The westernmost of the two pipelines will carry Siberian gas to the Xinjiang region, where it will connect with the West-East Gas Pipeline bringing energy to China's prosperous and densely populated east coast.

China has traditionally limited foreign access to its onshore oil and gas resources but as demand for energy to power its booming economy has grown, it has opened the door and in March Petrochina signed a deal with Total of France on exploration in the Erdos Basin.

Power

Manufactures to build power plant: Nigeria

July 14, 2006. Nigerian manufacturers have decided to set up their own independent power plant in a move to mitigate the effects of poor supply. The plant would be operated by the Manufacturers Association of Nigeria (MAN) and would supply power to industries. Many manufacturing entities in Nigeria have lost productivity due to the fact that power supply from the national grid was unavailable and the few times of availability were unreliable. The details of the plant were still being discussed. Nigerian industries seldom get more than eight hours of electricity per day resulting in the closure or downsizing of many companies. The West African country requires at least 10 000 MW of power, but the state-run Power Holding Company only generates 3 000 MW.

$742 mn gas-fired power plant planned for Southampton

July 13, 2006. Scottish and Southern Energy and Ireland's ESB International announced proposals for the 850 MW a £400 mn( $742 mn) gas-fired power station in the south of England, combined cycle gas turbine plant near Southampton after the government published its energy review highlighting the need for new capacity.

The plant, which is expected to be generating electricity ahead of the 2009/10 winter, will be one of the most efficient in Britain and will have the capacity to meet the electricity requirements of a million homes. Its construction will be financed by a mixture of debt and equity, with SSE's equity investment likely to be about £40mn. ESB International is a wholly owned subsidiary of ESB, Ireland's national electricity company.

Tehran refinery installs 7th power generator

July 12, 2006. Iranian contractors have completed installation of the seventh power generator of Tehran Refinery with a capacity of 7 MW of electricity. The generator will increase power generation at Tehran Refinery from 42 MW to 49 MW. The goal behind installing the 7th generator was providing more safety in supplying electricity to refinery. Purchase and installation of the power generator has cost about 70 billion rials. Tehran refinery currently consumes 30 MW of electricity, which was previously supplied by six power generators, each with a capacity of seven MW.

Pak to import 150 MW power station from US

July 17, 2006. The government has decided to import immediately a second-hand 150MW thermal power station from the United States to partially offset the current energy crisis but the country would continue to face 800-1200MW power shortfalls at least for the next two years.

The plant is estimated to produce electricity at a tariff of about 3.2 US cents per unit excluding fuel cost that would be borne by the Wapda and translate into an overall tariff of slightly over four cents per unit. The energy crisis would, however, not be over until August 2008 because the next power plant to come on stream would be Wapda’s thermal plant at Chichuki Malyan with 340MW production in August 2008 and another 160MW by Dec 2008.

Teri’s carbon trading for power cos

July 17, 2006. The Energy Resources Institute along with the Central Pollution Control Board of India and two others has developed accounting norms for greenhouse gas emission for power companies. There are six greenhouse gases like Co2 and methane which are covered under Kyoto Protocol. This protocol is an international agreement that developed nations would decrease the level of pollution by four per cent by 2010 to reduce global warming.

Developing nations have been exempted and they could sell credits earned through setting up of clean development management. This is an internationally accepted system for the utilities to calculate the reduction in greenhouse gas emission achieved. The first model of the system has been implemented at Kolkata based CESC Ltd. The system has been tailored for Indian conditions with the help of US funding. TERI and CPCBI, the US-based World Resources Institute and EPA are also involved in developing the accounting norms. 

Clique, IIT-Mumbai develop solar concentrator

July 15, 2006. Clique Developments Pvt Ltd and IIT-Mumbai have developed a solar energy based industrial heating system. Called ARUN, the fully automated solar concentrator is a 160 sq m single parabolic dish that can store heat for day and night applications. It gives an output of up to 80 KW and can be integrated with various industrial processes. A smaller model of the same has a 70 sq m dish and gives an output of up to 35 KW. Claimed to be an alternative to oil-based fuels for industrial heating, ARUN can cut usage of conventional fuels for heating by up to 20 per cent. This is pollution free and can earn carbon credits for organisations that implement it. Clique Developments provides renewable energy devices and systems for industrial use. The system caters to heating applications besides being combined with photovoltaic cells to generate thermal energy.

TNEB sets up task force on evacuation of wind power

July 14, 2006. The Tamil Nadu Electricity Board has constituted a task force to study the problem of evacuating power from wind electric generators. The task force includes representatives from the industry and it has been asked to submit its report in three months. The wind power industry in the State has complained that the wind turbines are asked to be backed down because of grid problems, especially at a time when the wind velocity is at its highest. Representatives from the wind power industry - those who have invested in wind mills and turbine manufacturers - met the officials of the Tamil Nadu Electricity Board and discussed the grid problem.

New SEZ for making, testing renewable energy tools

July 13, 2006. The Union Government will set up a special economic zone (SEZ) for manufacturing and testing renewable energy equipment. A special purpose vehicle (SPV) has been formed to promote this venture. The SPV - Future Energy Zone India Ltd (FEZ) - has been promoted by Malavalli Power Plant and European investors. The SEZ will house industrial R&D units, laboratories such as CPRI, testing units, educational and vocational training centres. Besides, an area for vendors will also come up.

Two private sector proposals for special economic zones had been approved, one each in Tamil Nadu and Maharashtra. Proposals have also come from the Mangalore-Udipi region and Nagpur. Depending on the demand, four more such SEZs may be set up over the next two-three years.

The Centre has commissioned pilot projects of 30 MW in Karnataka and 10 MW in Punjab to be run on biomass fuel. General Electric will partner the venture. A Biomass Gassifier will also be pilot tested by the Indian Institute of Science and Ankur Scientifc Energy Technologies. The Government also plans to generate electricity through renewable energy sources in about 2,500 remote villages that cannot be part of grid power generation.

Duty exemption on import of biodiesel P&M planned

July 12, 2006. The Centre, in a serious bid to promote biodiesel, proposes to provide slew of concessions. The central government is actively considering exemption in customs duty on import of plant and machinery required for biodiesel production, waiver in excise duty on indigenous plant and machinery and extending research and development (R&D) tax incentives to biodiesel industry as in the case of pharmaceuticals and offer tax holidy for biodiesel manufacturing units for a minimum period of five years.

Moreover, the government is exploring an option of offering excise duty concession on the biodiesel-blended diesel on the lines of earlier policy on gasoline-ethanol blends to offset the extra cost incurred by oil companies. The petroleum ministry is proposed to produce biodiesel from non-edible tree borne oil seeds like Hatropha and Karanjia. The proposed sops were necessitated in order to promote biodiesel and thereby fulfill the gap between diesel and biodiesel price.

Various countries extend tax benefits to agriculture and industrial sector. In the US, biodiesel tax incentive of 1 per cent of biodiesel-blended petrol is provided. Similarly in UK, 20 pence peer litre duty incentive for biodiesel is given. As far the implementation of 5 per cent ethanol-blended petrol (EBP) programme from October 1 this year, the ministry said the ethanol manufacturers associations have expressed supplies of ethanol for a longer period of 5 to 10 years. However, the initial contract for supply of ethanol may be kept for a period three years. Based on the review, future contract period would be worked out. The country would need a total of 5.67 lakh kilolitre under EBP programme.

Oil companies have finalised contracts for procurement of ethanol for the notified states of Uttar Pradesh, Punjab, Uttranchal, Karnataka, Tamil Nadu, Andhra Pradesh and Maharashtra partially and have also started releasing ethanol-blended petrol to the market in these states.

Jakarta set to plunge into alternatives

July 14, 2006. Indonesia plans to invest 200 trillion rupiah (HK$180 billion) over the next five years to promote the output and use of alternative fuels using crops such as palm oil as crude costs rise to all-time highs. About US$6 billion (HK$46.8 billion) will be spent securing six million hectares of land and the rest will fund factories and roads. Plant-based fuels can be mixed with gasoline, diesel and kerosene, now subsidized by the government.

Biofuel "can replace fuel in the transportation sector. It also helps communities raise their level of fuel self-sufficiency and creates jobs. Rising crude oil prices, which have tripled since 2002, are spurring greater government and investor interest in biofuels worldwide.

Indonesia, Southeast Asia's biggest oil producer and user, still imports a third of its fossil-fuel requirements, and the government wants to use more vegetable oils to reduce overseas purchases of petroleum and refined products. Indonesia is already the world's second-largest producer of palm oil, the price of which has gained 5.6 percent since the year started to 1,497 ringgit (HK$3183.52) a tonne.

The government plans to spend about 51 trillion rupiah over the next five years to develop land for more oil palm, rubber and cocoa plantations to spur growth and create jobs. The government will enlist the support of agricultural companies such as Astra Agro Lestari, smaller producers, cooperatives and multilateral agencies. The government will also seek favorable financing from state banks such as Bank Rakyat Indonesia, Bank Mandiri and Bank Negara Indonesia. A so-called biofuel master plan will be ready by the end of this month that will detail financial incentives for small- and medium-sized companies and cooperatives to produce biofuel, and ease the issue of permits and regulations for large companies.

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