MonitorsPublished on May 01, 2007
Energy News Monitor |Volume III, Issue 45
Energy and Agriculture in the Third World: (Part – III)

By Arjun Makhijani in collaboration with Alan Poole

The data in Table 1-2 show that labor productivity and employment can be complementary when irrigation and fertilizers are available. Significantly, Japan, by far the most industrialized nation among those listed, has both the highest input of labor and the highest farm productivity, despite the widespread use of small tractors there. Later, we shall investigate in more detail the use of energy for irrigation and in other areas where it is important to agricultural development and, hence, to economic growth.

Just as labor is abundant in underdeveloped countries, so is capital scarce. This shortage of capital is at the root of many of the frustrations of development efforts. Obviously it is difficult to increase savings in underdeveloped countries where the economy is barely at subsistence level; most people find it hard to save for a better tomorrow when it requires all their effort to stay alive today.

A technology which can get more useful work out of energy with a modest capital outlay is clearly the best of bargains for poor countries. As we shall show later, decentralized village plants can, in the right circumstances, equal the fuel and fertilizer output of centralized systems at half the capital cost.

Another test for the effective employment of capital is the capital-output ratio. The rate of growth of all economies, and particularly those of the underdeveloped countries which are short of capital, depends critically on the annual production that can be obtained from the investment of the available capital. If the capital needed to increase annual production by a given amount is reduced (that is, if the incremental capital-output ratio* is lowered), the effect is the same as if more investment capital were made available. We shall show that agricultural development projects based on tubewell irrigation and on the use of crop residues and animal wastes to provide fertilizer for the fields and fuel for raising underground water can yield an annual output roughly twice the value of the capital required for the project—that is, a capital-output ratio of about one-half. This is considerably less than the capital-output ratio of 2.6 for agriculture in India's fifth five-year plan29. It is also much lower than India's average capital output ratio of 3.9 during the 1960-69 period30. Such a capital-output ratio can mean rapid economic growth, with agriculture providing the cutting edge of economic growth. This is another important reason for underdeveloped countries to focus their development efforts on agriculture.

Table 1-2.Employment and Labor Productivity in Rice Production


Number of Workers per 100 Hectares (1965)

Labor Productivity Kilograms of Rice per Worker per Cropa

Land Productivity Kilograms of Rice per Hectare (1969)

Percentage of Rice-producing Land Irrigatedb

Nitrogen Fertilizer Application Kilograms/Hectared (1970)
























~10 to 20

Sources: Notes 11,15,16.

a                      In Japan and Taiwan multiple cropping (three or four crops per year) s common, so that the annual productivity of the worker is several times his productivity per crop. Multiple cropping is less common in China and India.

b                      The percentage of irrigated area under rice cultivation is generally higher than national averages for all corps, because rice-producing area are irrigated in preference to other crops.

c                      Includes the nitrogen content of organic fetlilzers, which supply about 60 per cent of the nitrogen.

d                      Nitrogen application is averages over the entire area planted with rice. In practice, chemical nitrogen is applied to only part of the area. The average, therefore, indicates the extent of use rather than the typical practice in application of nitrogen per hectare.

Note: Throughout this series, the rice yield (kilograms of rice per hectare) is understood to mean the yield of unmilled rice (rice paddy) unless otherwise specified.

Even with every effort to minimize the capital needed for economic development, procuring capital for investment from savings is a serious problem in most underdeveloped countries. India's entire development budget for almost 600 million people is considerably smaller than the expenditures of U.S. consumers on electric household appliances; it is about equal to sums spent on dogs, cats and other pets in U.S. homes. Public investments in the underdeveloped countries are often in the range of $10 to $20 per capita per year.

So long as development efforts continue to bypass the poor, the tax base will remain small and capital will remain scarce. But, there is no question that rural areas where the general level of living is rising can contribute significantly to capital formation in underdeveloped countries. In Japan, agriculture's contribution to the tax revenue in the late nineteenth century was around 85 percent31; this was the same period when Japan began to acquire the status of a major industrial power.

The capital contributions of farmers to agricultural development are substantial in several Asian countries. "In the late nineteen sixties deposits in the local [farm] cooperatives of Japan averaged 84 percent of the working capital [of the cooperatives]; in Taiwan 76 percent, in Korea 50 percent. In other Asian countries deposits amounted to only 1/10 or less of working capital."32

We cannot, however, expect the savings of farmers to increase much until their incomes begin to rise. Since commercial banks are usually unwilling to provide what they feel to be insecure loans to small farmers, the role of government in providing the capital necessary to initiate rural development is crucial. Without it the vicious circle wherein poverty limits savings and limited savings perpetuate poverty cannot be broken.

Development programs that focus their efforts on where the people are—the villages and small towns—are essential if the majority of the people in the Third World are to share both the labor and the fruits of economic growth. Such participation in economic development is also essential to the provision of adult education, health care, and birth control. Recent research in population growth rates and the practice of birth control in different nations shows that this feeling of participation and hope, and an equitable distribution of the fruits of economic growth, are strong forces in motivating smaller families. We quote at length from William Rich's recent report on birth control:

There is, however, striking new evidence that in an increasing number of poor countries (as well as in some regions within countries), birth rates have dropped sharply despite relatively low per capita income and despite the absence or relative newness of family planning programs. The examination of these cases in this monograph reveals a common factor. The countries in which this has happened are those in which the broadest spectrum of the population has shared in the economic and social benefits of significant national progress to a far greater degree than in most poor countries—or in most Western countries during their comparable periods of development. Family planning programs generally have been much more successful in those countries where increases in output of goods and social services have been distributed in such a way that they improved the way of life for a substantial majority of the population rather than just for a small minority.

The record also shows that those countries which continue to sustain high rates of population growth despite their achievement of relatively high per capita income figures have wide disparities in income and limited access to social services. Only a small group within these countries has started to practice fertility control; this group generally consists of the favored minority that has benefited most from the modern social and economic systems. The remainder of the society—those living at, or close to, the subsistence level—accounts for the high average birth rate.33

The People's Republic of China, which has emphasized agricultural production and equitable distribution of wealth, and in addition has created a unique decentralized health care system involving paramedical personnel as well as physicians, has experienced dramatic declines in the birth rate in recent years.34

We have argued that agriculture should be the focus of development efforts in most underdeveloped countries. As with any development planning, it is vital that the efforts be coordinated. Isolated efforts, such as electrification or birth control teams visiting villages, are insufficient for rapid progress because, in the struggle for survival, rural people have made many and complex adjustments to their harsh economic environment. Changes in any one factor are therefore not likely to be accepted or, if they are, will be inadequate for the cause of sustained economic progress. Experience with electricity use in Indian villages illustrates this point. An Indian government study found that growth of electricity use often stops, and that its use declines, 10 years after the introduction of electricity; at this point only about 20 percent of the population use electricity in agriculture, business, or industry35. This is clearly a symptom of economic stagnation, of equipment falling into disrepair and disuse, and probably of a lack of savings to replace worn-out equipment.

There are many reasons why simplistic solutions at rural development will not bring about the desired results. Among them are:

1.        The problem of adequate nutrition so that people can work more vigorously is of great importance if we are to look to poor unemployed or underemployed labor as a significant contributor to economic growth36. The nutritionally unbalanced one meal a day to which so many poor people are constrained is wholly inadequate to sustain a vigorous work day.

2.        Land reform, or at least consolidation of each family's land holdings, is essential to obtaining the full benefits of irrigation37. Scattered parcels of land cause a waste of labor and make farm and irrigation mechanization aimed at removing labor bottlenecks expensive and difficult.38,39

3.        Successful introduction of the high-yield crop varieties of the "Green Revolution" requires irrigation, fertilizers, pest control, agricultural extension services, and high-peak labor or selective mechanization simultaneously.

4.        Working for and sharing the fruits of economic growth not only make progress real today but impart a feeling of hope and security for tomorrow that is essential to birth control programs40 —and population stabilization is essential to the well-being of those already born and the children of the future.

The transformation of agriculture in the Third World requires much more than the development of individual village economies. The villages of the Third World are usually too small to support full-time agricultural extension workers, a hospital, a bank, servicing facilities for agricultural machinery, and so on. Most importantly, a prosperous agriculture requires organized markets to which farmers can bring and sell their surplus production; where they can purchase the consumer goods and services necessary to improve their lot, and the capital goods and services necessary to the economic health of their farms. The market town also serves as a focus for the diversification of the rural economy and a base for many small scale industries, such as bicycle manufacture or the production of leather goods.

The case for establishing market towns of a few thousand to 50,000 people to serve as a geographical focal point for developing the surrounding agriculture has often been persuasively argued.41,42 The rates of increase of the population in large cities in the Third World are often 5 to 6 percent per year.43 Horrendous projections of a Calcutta with 66 million people 25 years hence have not jogged the planners and governments to action, even though in today's Calcutta, with a tenth of that number, a million or more people live in the streets and slums, and jobs are hard to come by.

The number of market towns that must be established depends on such factors as population density and modes of transportation in common use. The average area served by such towns varies between 115 square kilometers in Taiwan to 450 square kilometers in Yugoslavia, with the speed of transportation being the principal constraint on the area served.44,45 Here the building of roads, capital to finance the most effective means of transportation, and the fuel to power it are essential to the proper functioning of the market town.

Large-scale industrialization appropriate to larger towns and cities is necessary to support the development of agriculture. This is true in spite of the fact that an emphasis on labor-intensive technologies and an emphasis on local resources tends to make production of many goods economical at the scale of a village or market town plant. The failure of China's Great Leap Forward is a reminder that many industrial activities, such as steel production, are too expensive on a decentralized basis. Pumps, electric motors, and similar goods must be manufactured on a large scale or they will cost much more than imported equipment. Roads and railways must be built; ports must be developed; large-scale power plants must be built to serve industry. But the main aim of an industrialization program at all levels (village, market town, and city) must be the support of a dynamic agricultural economy—one that transforms today's halting progress, punctuated with famine, into genuine economic progress for the Third World.

(To be continued)

Courtesy: Ford Foundation.

Saudi Arabia: How much Oil and Gas? (Part – II)

By Dr Paul McDonald, Consulting Editor, Oil and Energy Trends

State of the Oilfields

The state of the principal Saudi oilfields nevertheless continues to worry some outsiders, including Matthew R Simmons of the US, who makes a number of worrying observations, based primarily on a series of papers on Saudi oil produced by the US Society of Petroleum Engineers (SPE), as follows:

¨        The older fields rely increasingly on water injection to maintain flow rates. Some water-cut rates have reached worryingly high levels and technical problems have been encountered in the management of the water-cut.

¨        Parts of the Ghawar field have been overproduced in the past.

¨        Safaniyah’s spare capacity is much lest than estimated above - probably only about 500,000 bpd.

¨        Many important Saudi fields are in long term, irreversible decline.

The Saudis have attempted to deny Simmons’ conclusions, but in the absence of detailed technical information from the Saudis concerning the fields, it is difficult to resolve the issue one way or the other. Simmons and other pessimists nevertheless raise a number of important points. There may, however, be further reasons for doubting the kingdom’s ability to raise production to the levels described in Table 2. (Please refer to Issue no. 44)

Size of Reserves

If Saudi Arabia is to meet its ambitious production targets, it will need considerable reserves of oil in the ground. There is some reason to doubt whether Saudi Arabia has all the reserves it claims. Saudi Arabia’s proven reserves of oil stood at 259.8 bn bbl at the start of 2007, with a further 2.5 bn bbl as the kingdom’s half-share of the Neutral Zone with Kuwait. The Saudi figure alone accounts for 19.7 per cent of the world’s entire proven reserves as assessed by the Oil & Gas Journal. It is also by far the largest total for any one country. The next-highest* is Iran, with 136.3 bn bbl. For the purposes of comparison, it may be noted that the US has just 21.8 bn bbl, making the Saudi total almost 12-times that of the US, whilst the UK’s figure is 3.9 bn bbl.

The Saudi numbers have not always been so stratospheric. At the beginning of 1989, they were stated as 170.0 bn bbl: just five-times the then US total of 34.6 bn bbl. The following year, however, the Saudis raised their figure by more than 50 per cent to 258 bn bbl. The reason appears to have been largely political rather than geological. In 1985, Kuwait unilaterally raised its reserves from 64 bn bbl to 90 bn bbl in what appears to have been an attempt to secure an increase in its production quota in OPEC. Several other countries followed suit (see Table 6) in what was clearly an effort to ensure that Kuwait did not secure any advantage in terms of output quotas at their expense. The first to do so were Iran, Iraq, UAE and Venezuela, which raised their reserve levels from 1st January, 1988. Saudi Arabia followed suit two years later with a rise of 88 bn bbl to 258 bn bbl.

Table 6. OPEC: Reserve Increases, 1984-90


Country- Proven Reserves (bn bbl)





Saudi Arabia*




















































 * Excluding Neutral Zone, † Abu Dhabi and Dubai only

Source: Oil & Gas Journal 

The pattern exhibited by most of the countries shown in Table 6 between 1984 and 1987 is the normal pattern for large, well-established oil producers. Net annual additions to reserves are usually modest and, occasionally, there is a net decrease in proven reserve levels. None of the countries in the table announced any major new discoveries in the 1980s that would plausibly account for the rises illustrated above. In an attempt to justify the enormous increases claimed from 1985 onwards, some countries resorted to explanations based on unrealistically higher recovery factors that they were now applying to their former reserve estimates. Others added reserves that were not in any accepted sense ‘proven’.* Iraq appears merely to have plumped for a figure that was higher than its neighbours and rivals, Kuwait and Iran. Saudi Arabia continued to make small upward revisions until 2006, when reserve levels were stated as 264.3 bn bbl (see Table 3, please refer to Issue no. 44). A small downward revision was then made for 2007, bringing them to 259.8 bn bbl. In all this period, there has been little attempt on the part of the Saudis to provide a detailed and independently verifiable explanation of the huge reserve additions that have occurred since 1989. Reference has been made to new finds and higher recovery factors from existing reservoirs, but all these announcements have been short on detail.

Detailed descriptions of Saudi oilfields stopped being reported in the 1970s. In the middle of that decade, the Oil & Gas Journal gave estimates of reserves for the three large fields described above as follows:


Proven Reserves

(bn bbl)









The addition of other, smaller fields suggested that Saudi reserves were in the region of 120 bn bbl to 150 bn bbl, according to various contemporary estimates. Despite record production in the early 1980s, Saudi Aramco continued to add to reserve levels, eventually reaching the levels shown in Table 6.

It is tempting to assume that present Saudi reserves are somewhere around their mid-1970s’ levels, when the numbers looked reasonable in the light of the data then available. Even then though, reserve estimates for individual fields fluctuated considerably. Any outside estimate remains little more than a guess. For their part, the Saudis argue that the increase in reserve levels since 1989 represents continually improving knowledge of the kingdom’s reservoirs as well as recent advances in upstream technology. The increases thus appear to be based on theoretical models rather than large scale drilling of new and existing prospects. Nevertheless, predictions that Saudi Arabian oil production will soon peak and that this will be followed by a sharp decline in output - on the lines of M King Hubbert’s ‘peak oil’ hypothesis - seem overly pessimistic. The problem for forecasters is to say when Saudi oil production will peak; at what level will it peak; and at what rate it might then decline.

The last question is probably the easiest one to answer in terms of the Hubbert theory (see Box). Given the technology available to today’s petroleum engineers, it is most unlikely that Saudi production will go into a sharp decline. Any decline is more likely to be gradual as more and more oil is squeezed out of existing production horizons.

Hubbert and ‘Peak Oil’

The US geologist, M King Hubbert (1903-89) propounded a theory that oil production followed a bell-curve in which output rose rapidly until half the recoverable reserves were depleted, following which it declined. His theory was used in 1956 to predict the peaking and decline in US production that occurred in the 1970s. Various people have speculated that Saudi Arabia is close to its peak. Even if this is so, there is unlikely to be a sharp decline thereafter, as represented by the right half of the bell-curve. Technology permits the life of fields to be extended much more than in the 1950s, when Hubbert was writing.

Ability to find Reserves

There may also be new discoveries of large fields, which could add considerably to Saudi capacity. Here, though, the outlook is less encouraging. Saudi Aramco’s major recent and future field developments have been of fields discovered some years earlier. Attempts to uncover major new deposits - for example along the kingdom’s southern border - have met with only partial success. Meanwhile, several of the older fields - such as Abqaiq and Berri - appear to be in long term decline.

Crude Quality

Saudi Arabia could already produce around 11 mn bpd - a rise of some 2 mn bpd over existing levels - simply by bringing mothballed production facilities back into production, most of which are in the Safaniyah field complex. The problem for the Saudis is that crude oil from Safaniyah is heavy and high in sulphur (see Table 5, please refer to Issue no. 44). The high sulphur is not wanted by most major refiners owing to the ever-tightening specifications for fuels in most markets. The heaviness of the crude is not generally wanted either, since it produces a high yield of heavy fuel oil, the consumption of which is in decline in most parts of the world. This leaves the Saudis with the sometimes unpalatable option of having to sell such crudes at a large discount to lighter grades.

Financing Expansion

One thing Saudi Arabia should not lack is the finance to increase its production capacity, despite its having chosen to exclude foreign investment outside the Neutral Zone. In January, 2007, the Oil Minister, Ali al-Naimi, said that the kingdom was investing “more than $80 bn” in order to ensure the availability of “reliable and affordable” oil and gas.

(Views are personal)

(To be continued)

Courtesy: Oil and Energy Trends, a monthly publication of International Energy Statistics & Analysis.





ONGC plans to pick 33 pc in Shell’s Egyptian gas block

April 27, 2007. Oil and Natural Gas Corporation (ONGC) is firming up a proposal to buy up to 33% in an Egyptian deepwater gas block from operator Royal Dutch Shell. The deal for a stake in Shell’s North East Mediterranean Deepwater (NEMED) block is not being opened to bidding, and no swap arrangement between the two firms is involved. Shell has announced the block, in which it holds 84%, has probable reserves of 15 tcf. The block holds initial in-place reserves of more than 1 tcf with sizeable upside. Malaysian state oil and gas company Petronas owns the remaining 16% in the deepwater concession, which was awarded in 1999. ONGC Videsh (OVL), the overseas investment arm of ONGC, has to obtain government permission for any deal that exceeds either $75 mn or Rs 300 cr, whichever is the lower figure. ONGC Videsh has been asked to target production of 6.34 mt of oil and 1.65 bcm of gas in the 2007-08 fiscal.

India, Japan to jointly hunt for oil, gas

April 26, 2007. India and Japan will together explore oil and gas in a third country to enhance global energy security and build lasting partnerships in the sector, with the aim of promoting comprehensive co-operation in the energy sector. Apart from exploration the two sides will work in areas like methane hydrate, oil stockpiling and joint research on Asian markets. A MoU in this respect has already been signed. Co-operation with Japan in oil exploration, especially in third countries, is expected to provide strategic edge to India’s oil companies in overseas bids. India already has similar arrangement with few other countries in this area. The India-Japan Energy Dialogue meeting also decided to set up five working groups as well as a steering committee to co-ordinate joint efforts in different areas of energy co-operation. While joint efforts in the oil and gas sectors would be co-ordinated by separate working groups, four other groups would separately look after areas such as electricity and power generation, energy efficiency, coal and renewable energy. It has been decided that the proposed steering committee would have members only from among government officials of both the countries. This committee would oversee the work of the working groups and would meet alternatively in India and Japan. The first meeting of the steering committee is expected in the next couple of months. It is expected that the dialogue would pave the way for joint ventures and tie-ups between companies in the public and the private sector. The present energy co-operation between India and Japan has been drawn on the lines of similar framework existing between India and the United States. While the present arrangement covers a whole host of areas relating to the energy sector, it remains silent on the scope or coverage of nuclear sector co-operation. 

Rajasthan to set up oil arm with private sector

April 25, 2007. The Rajasthan government will soon form a company to explore oil and gas in the country and float a tender to invite the private sector to acquire 50 per cent stake in the new venture. It is proposed to invite letters of intent from companies with experience in the petroleum industry to be a part of the venture. The process has been initiated to register the venture under the Companies Act. The setting up of Rajasthan State Petroleum Corp will ensure our partnership in exploration, exploitation, transportation and distribution of petroleum in the state. The new company would go for both upstream and downstream projects in the hydrocarbons business. Meanwhile, Oil and Natural Gas Corp (ONGC) has once again rekindled hopes for a refinery project in the Barmer district of Rajasthan where Britain-based Cairn has made recent oil discoveries. ONGC is now ready to hold fresh round of talks with the state government in this regard.


Refining margins help keep fires burning for RIL

April 27, 2007. Refining continues to be the main driver of Reliance Industries’ performance. The March 2007 quarter was marked by flat sales growth in the refining segment, but a 31% jump in segment profits contributed to healthy bottomline growth. This was the case in the December 2006 quarter too. In the March 2007 quarter, sales growth was relatively low at 5.5%, compared with 24.4% for the full year, but net profits grew 14% for the quarter compared with 20% for the year. RIL’s operating profit margin in the March 2007 quarter declined 170 basis points to 18.1%. Despite flat sales growth, if RIL’s segment margins in refining grew during the quarter, it was due to a sharp jump in gross refining margins at $13/bbl, which is 25% more than the same period of the past year, and 11% more than the December 2006 quarter. RIL exported about 60% of its refinery output to benefit from better realizations. The company has got its Jamnagar refinery declared as an export-oriented unit, which should yield benefits available to EOUs improving margins further.

IOC to add 1,600 petrol pumps

April 26, 2007. Indian Oil Corporation (IOC) plans to invest about Rs 160 crore in adding 1,600 new petrol stations during the current fiscal. During the last three years, a total number of 3,855 retail outlets were opened by IOC. IOC owns roughly half of the over 32,000 petrol pumps in the country. The company is modernising the existing retail outlets by providing a forecourt facility like Electronic Pre-set Pump/Multi Product Dispensers, tanks of adequate capacity, driveway, canopy, lighting and modern signage.

Mittal eyes HPCL stake

April 26, 2007. Arcelor Mittal headed by L N Mittal will invest Rs 3366 crore in a joint venture with Hindustan Petroleum Corporation Ltd (HPCL) towards picking up 49 per cent equity. The JV between Mittal – HPCL will execute the Guru Gobind Singh Refinery with an investment of about 18,000 crore through a special purpose vehicle (SPV). Both the joint venture partners will hold 49 percent each while the financial institutions would hold the remaining two percent.

L N Mittal and HPCL will have equal representation on the board of the new joint venture with Chairman alternating between the two. While Cabinet Committee on Economic Affairs (CCEA) has already given the go ahead for the Mittal’s investment in the joint venture with HPCL, both sides are meeting shortly to work out the finer details. It is learnt that this is one of the largest investment commitments that Mittal has made in an oil refinery in India. The project involves setting up a 9 mmtpa grassroots refinery, associated utilities including a captive power plant of 165 MW and 1011 km long crude oil pipeline between Mundra in Gujarat to Bhatinda in Punjab. Arcelor Mittal will make its investments in the oil refinery through Luxembourg based Mittal Investments via its Singapore-based subsidiary, Mittal Energy Investments Pte Ltd (MEI).

Transportation / Trade

Nandesari traders may stop buying gas from Adani Energy

May 1, 2007. The industrial estates operating in the Nandesari Industrial Estate may stop purchasing gas from Adani Energy if the prices of gas charged by the company are not lowered. Earlier the association had issued an order asking all the units not to purchase gas from Adani Energy. However, the association deferred its decision of not purchasing gas from the company in the wake of Adani Group head Gautam Adani’s assurance to hold negotiation to resolve the issue. Meanwhile, the association sought opinions of all the units over the issue and found that the units were ready to stop the purchase of power if the prices were not lowered. It may be mentioned here that the Adani Energy provides gas at a price of Rs 19.92 per cubic metre to new units and Rs 15.42 per cubic metre to old units in the Nandesari Industrial Estate.

BPCL buys first CPC blend cargo

April 30, 2007. Bharat Petroleum Corporation Ltd (BPCL) has bought its first cargo of Kazakh ultra-light CPC Blend crude, as well as Nigerian and Abu Dhabi grades for July. In a tender that was awarded March 27, BPCL bought a 1 mn barrel cargo of CPC Blend from Japanese trading house Mitsubishi for loading in June, plus 1 mn barrels of Nigerian Erha from trader Glencore and another 500,000 barrels of Umm Shaif from oil major BP.

IOC buys May Dabhol stem from Glencore

April 30, 2007. Indian Oil Corp (IOC) has bought two May-delivery naphtha cargoes for the Dabhol power plant from Glencore at an undisclosed premium level. In this tender, IOC sought one 28,500-to-30,000-tonne cargo for May 1-5 delivery, and a same-sized parcel for May 8-12 delivery.

Traders had earlier expected IOC to seek June-delivery supplies. Last month, India had extended a customs duty waiver on naphtha imports for the Dabhol power plant until the end of September to meet summer demand in the western state of Maharashtra. Last December, IOC bought five naphtha parcels plus two optional stems - a total of up to 210,000 tonnes - from Trafigura at near $50 a tonne above Middle East quotes via term tender. But the trading house had not been able to meet IOC's request for December, prompting IOC to buy two lots via spot tender.

Cairn India appoints JP Kenny to build $800mn pipeline

April 30, 2007. Cairn India has hired UK-based JP Kenny to construct a US$800-mn crude pipeline to transport crude from its Barmer fields in Rajasthan. The project, which includes construction of related infrastructure such as terminals and requires a completion time of 12 months, is awaiting the Indian petroleum and natural gas ministry's formal nod. Cairn India has to commence the pipeline construction work by mid-2007 in order to meet its production schedules.

ONGC sells May lot at lower premium

April 30, 2007. Oil and Natural Gas Corporation (ONGC) has sold a 35,000-tonne May naphtha cargo to Japanese trader Itochu at a sharply lower premium than its previous sale. The cargo, to loaded on May 10-12 at Jawahar Lal Nehru Port Trust (JNPT) in Mumbai, was sold at $10-12 a tonne premium to Middle East spot quotes, sharply lower than its previous sale for an April 16-18 loading parcel at more than $20 a tonne premium. The Asian naphtha market has weakened, with spot premium down to about $2-$3 to Japan spot quotes recently, from $10 last month. The surplus of naphtha is coming from India.

Reliance LPG output cut may boost imports

April 28, 2007. Reliance Industries Ltd's (RIL) plans to cut liquefied petroleum gas (LPG) production by 30 per cent from the middle of 2008 at its Jamnagar Refinery will result in higher imports. RIL has decided to cut LPG output to 1.6 mtpa from 2.6 mtpa at its Jamnagar refinery from April 2008, and its likely impact on the supply of LPG in the country. Refinery at Jamnagar has now become an export-oriented unit (EoU) and there is a plan to reduce LPG production to around 1.6 mt a year from mid-2008. The reduction in production would result in increase in LPG imports during 2009-10 compared to the projected import during 2008-09. The deficit between demand and indigenous production of LPG is met through regular imports being done by the public sector oil marketing companies. EoU status exempts a company from paying local taxes and makes it eligible for zero duty on crude imports for the refinery. The new rules would apply from April. The 6,60,000-barrels-a-day Jamnagar refinery in Gujarat has an annual LPG production capacity of 2.3 mtpa. India consumes around 10 mt of LPG every year. In 2006-07, it produced 8.4 mt of LPG and imported 2.3 mt.

Department of Fertilizers may rope in GAIL to supply gas to closed urea units

April 27, 2007.  Department of fertilisers (DoF) has prepared a plan to provide gas connectivity to closed urea units at Sindri, Barauni, Gorakhpur, Haldia, Durgapur, Talcher, and Ramagundam, cleared for revival by the government early this month. The issue of gas availability has been discussed with GAIL officials in a meeting recently wherein they also made a presentation and outlined the connectivity map with spur lines for fertiliser units under the Dadri-Bawana-Nangal, Dabhol-Bangalore, Kochi-Mangalore-Bangalore, Jagdishpur- Haldia and Confirming the move, the minister for chemicals and fertilizers. The gas major has offered to supply gas to these units by 2010 and has informed the DoF that it is in the process of laying gas pipeline from Jagdishpur to Haldia passing through Eastern UP, Bihar and Jharkhand to meet its offer. The GAIL has also readied a plan to provide gas connectivity of urea plants across the country. Estimated investment by GAIL will be to the tune of Rs 15,000-20,000 crore. According to the data provided by GAIL, out of a total of 24 urea plants in the country, 15 plants already have pipeline connectivity while nine plants are waiting for connectivity. Out of the present urea capacity of 220 lakh tonne per annum, pipeline connectivity is available for a capacity of 160 LTPA. The gas major claims that it can provide connectivity to all plants within the next 3 to 4 years.

LN Mittal buys Kazakh oil co for $980 mn

April 26, 2007. Lakshmi N Mittal has acquired Russian oil firm Lukoil’s 50% stake in a Kazakhstan oil firm for $980 mn (nearly Rs 4,000 crore). Mittal Investments will also take over half of Caspian Investments Resources (CIR) outstanding debt, which is equivalent to about $175 mn. CIR has equity in five Kazakh oil fields viz., Alibekmola, Kozhasai, Northern Buzachi, Karakuduk and Arman, in the Aktyubinsk and Mangistau regions. Current production from the fields, which have total proven reserves of some 270 mn barrels, is more than 40,000 barrels per day and is set to increase in the coming years. Kazakhstan is one of the 10 countries Mittal had originally identified for exclusive pursuit of hydrocarbon opportunities in joint venture with Oil and Natural Gas Corp (ONGC). Some in ONGC see the acquisition as violation of the pact unless Mittal transfers the stake to the joint venture firm, ONGC-Mittal Energy Ltd. Mittal and ONGC had in July 2005 agreed to participate on an exclusive basis through OMEL in Angola, Azerbaijan, Congo Brazzaville, Democratic Republic of Congo, Indonesia, Kazakhstan, Romania, Trinidad and Tobago, Turkmenistan and Uzbekistan. Caspian Investment Resources, which was Lukoil Overseas’ 100% subsidiary, has become a joint venture of Lukoil Overseas and Mittal Investments, where each holds 50%. Lukoil used the unit, Caspian Investments Resources Ltd, to buy Kazakh oil producer Nelson Resources for $2 bn in 2005. Caspian Investments will also hold a 25% stake in Zhambay Llp, which is exploring offshore deposits in the Caspian Sea. The alliance would increase Lukoil’s chances to acquire new assets in the region.

Policy / Performance

Kerosene use dipping

May 1, 2007. The subsidised cooking fuel, kerosene, has largely been used for lighting in rural areas. The trend is in for a reversal. The usage of kerosene is on the decline while electricity and cooking gas are gaining ground. The percentage of households using electricity for lighting has gone up in 2004-05 compared to 1999-2000. The percentage increase in use of electricity has gone up from 48% to 55% in rural areas and from 89% to 92% in urban areas. Correspondingly, the proportion of households that still depend on kerosene lamps has come down from 51% to 44% in rural areas and from 10% to 7% in urban India. These are the findings of a report on energy sources of domestic households for cooking and lighting that was released by the National Sample Survey of India on April 30.

The report that forms part of the National Sample Survey, 61st round, also highlights that such a trend is similar when it comes to the source of energy for cooking as well. While wood continues to be the predominant fuel for cooking, LPG is steadily gaining ground at the expense of kerosene. The government has been making efforts to expand its rural electrification programme and limit the usage of kerosene for lighting purposes. The government provides a subsidy of more than Rs 13 per litre on kerosene. In urban India, 57% of households use LPG for cooking, an increase of 13 percentage points over five years. Dependence on kerosene came down by more than half, from 22% in 1999-2000 to 10% in 2004-05. Another report of the NSS’ 61st round says the households using electricity formed 54% of rural households in 2004-05 compared to 34% in 1993-94. In urban areas, they formed 90% of households in 2004-05 compared to 74% in 1993-94. Also, the proportion of households using LPG has doubled in rural India and increased by about six times in urban India.

Parliamentary panel asked govt. to reduce duties & taxes of petrol

April 30, 2007. With taxes making up more than half of the selling price of petrol and one-third of diesel, a parliamentary panel has asked the government to reduce rates of duties and taxes on the two fuel. About 53 per cent of the Rs 42.85 a litre selling price of petrol in Delhi is made up of central and state government taxes. For diesel, taxes and duties make up 31 per cent of the Rs 30.25 a litre price in Delhi. The price of petrol without customs and excise duty and sales tax would have been been Rs 20.29 a litre while the price for diesel would have been Rs 21.01 a litre. With such high incidence of taxation, the Parliamentary Standing Committee on Petroleum and Natural Gas, has demanded reduction in rates of duties and taxes on the two fuel. The Committee found that even after the reduction of ad valorem component of excise duty on petrol and diesel from 8 to 6 per cent through the Union Budget 2007-08, the tax component in the retail selling price of petrol and diesel in Delhi was 53 per cent and 31 per cent respectively. Taxes and duties being levied on petroleum products are too steep which are resulting in higher retail prices of these products. Another cause of concern, according to the Committee, was the high and varied rates of sales tax or VAT in various states, leading to varied selling prices of petrol and diesel across the country.

Multi-product status for RIL Jamnagar SEZ

April 27, 2007. The Reliance Industries Special Economic Zone at Jamnagar in Gujarat, which had been given a sector-specific status (petroleum and petro-chemicals) earlier, was modified to a multi-product zone by the Board of Approval (BoA). Reliance Industries’ Jamnagar refinery is included in the SEZ. Subject to fulfilment of certain conditions, the change was granted as the board decided to relax the contiguity norm, which prevented the zone from getting multi-product status. In a parallel development, the Finance Ministry is deliberating on the idea of imposing a 50 per cent export obligation on the zones. However, the commerce ministry is opposing this move. In any case, the units in the zones are exporting 90 per cent of the products and hence the export obligation is unnecessary. If a SEZ unit exports, it enjoys duty exemption. But if it sells in the domestic tariff area, the finance ministry will earn duty. Currently, the SEZs have to be net foreign exchange earners. In 2006-07, these zones recorded exports of Rs 34,787.47 crore. As per the SEZ rules, a SEZ can be declared a multi-product zone only if the land area of the zone is more than 1,000 hectares. The Reliance industries zone comprised 440 hectares of land, which prevented the company from getting a multi-product status. A multi-product status enables a developer to set up units for a diverse range of sectors. Now, Reliance industries plans to increase the SEZ area to 5,000 hectares. The contiguity rule was relaxed recently in the latest amendment of SEZ rules, notified on March 16. Earlier, the rules made it compulsory for a zone to have a contiguous land area, without any public utilities like roads or railway lines.

Reliance plans to auction KG basin gas for price discovery

April 26, 2007. With commercial production of gas from the Krishna Godavari basin just a year away, Reliance Industries (RIL) has decided to initiate the process of selling the gas through an auction over the next few months. RIL is likely to invite bids for the gas sale, which accounts for around 50% of the country’s current domestic production, after it receives the green signal from the government to proceed with the auction. The company would be able to complete the process by June, after which the gas sale agreements would be signed with various customers. But, even before the auction gets off the ground, the Reliance-Anil Dhirubhai Ambani Group (ADAG) could end up throwing a spanner in the works, citing a possible violation of the gas sharing agreement between the two brothers. Sources close to ADAG see the auction as an attempt to deny them their share of the gas. So far, RIL is yet to make a public announcement of its decision to auction the gas.

Under the agreement, RNRL, the natural gas transportation company owned by the ADAG group, was entitled to buy 28 mmcmd of gas at $2.34 per mmbtu. But, so far, the arrangement has been mired in legal wrangles. RIL has two major gas contracts, accounting for 50% of the gas production planned till 2010, one with NTPC and the other with Anil Ambani-controlled RNRL. The company had agreed to sell 12 mmscmd of gas to NTPC and another 28 mmscmd of gas to RNRL at $2.34 per mmbtu. While the agreement with NTPC was made in 2005, that with RNRL was after the settlement between the two Ambani brothers in 2006. Currently, RIL is fighting a court case with NTPC on the price of gas. If RIL wins, it could end up extracting a higher price from both NTPC and RNRL. However, RNRL insists that it should continue to get the gas at the lower price. RIL, on the other hand, maintains that the agreement with RNRL is now no longer tenable because the government had not accepted the pricing arrangement worked out between the two brothers. Meanwhile, RNRL has already gone to court with the demand that their share of the gas should be reserved for them. But, RIL insists that RNRL will also have to bid for its share with other potential bidders.

DGH, ONGC advised to sort out differences

April 26, 2007. A Parliamentary panel has asked India's upstream oil regulator Directorate General of Hydrocarbons (DGH) and Oil and Natural Gas Corp (ONGC) to settle disagreements over procedural matters internally. ONGC had recently notified a gas discovery in block KG-DWN-98/2 after making a preliminary evaluation of the find by carrying out Straddle Packer Mud Drill Test. DGH, however, disallowed the discovery in the absence of a conventional test of hydrocarbons present. The Committee asked the government to make an assessment of the regulatory practises prevailing in other countries in the E&P sector and adopt the best and most efficacious procedure, leaving no scope for bias or opacity. 

ONGC renews Assam transport deal with Oil India

April 25, 2007. ONGC and OIL renewed their memorandum of understanding for transportation of ONGC's Assam Crude oil from its installations at Lakwa, Galeki, Rudrasagar and Borholla through pipelines owned and operated by OIL. This MoU will be valid for 5 years from April 2007 to March 2012. The earlier MoU, which was brought on place as a consequence of deregulation of APM regime, was valid for 5 years from April 2002 to March 2007. Both companies agreed that this MoU will be converted into an agreement COTA (Crude Oil Transportation Agreement) in 6 months. ONGC and OIL are the two major crude oil producers, having operating together for more than 50 years in northeastern India. Together, they produce around 4.5-5.0 mmtpa. The crude is transported to four IOC and BPCL refineries located at Digboi, Numaligarh, Guwahati and Bongaigaon through the trunk pipe line of OIL. The pipeline originates from Naherkatia at the extreme upper part of Assam. It then passes through Assam state to reach to Barauni in Bihar. Earlier Assam Crude was transported to Baruanui Refinery through this pipeline, which had been terminated after the commissioning of Numaligarh refinery in 2000. ONGC pumps its Assam crude into this trunk pipeline at two locations, one at Moran near Sivasagar and other at Jorhat. The MoU describes the detailed procedure of delivery and redelivery of crude oil because both OIL and ONGC have to use the same pipe-line at the same time to evacuate their production. It has explained clearly how the crude oil off-take will be regulated in case there is any problem at the refinery end or during any unforeseen circumstances like flood, earthquake. Besides this, the MoU brings out the optimized usages of the pipe line's spare capacity through transportation of ONGC's crude.

Gas has a bleak future as fuel for electricity

April 25, 2007. A seminar on the expanding gas market, organised by the Observer Research Foundation (ORF), sought to bring some conceptual clarity on the role of the market in determining gas prices. The debate on the subject of gas pricing so far has not provided any clear-cut answers. The larger issue, of course, is how do one price scarce energy resources that are available with a nation. The issue gets complicated when nations use their natural resource base as a tool of diplomacy, as Russia had been doing with its gas reserves. There is a sort of resource nationalism sweeping across Latin American nations with oil and gas reserves. Going forward, the hope is that a truly international market for gas will evolve based on its own supply and demand dynamics and gas prices will gradually get delinked from that of oil. Compared with oil, gas discovery and its commercial exploitation are far less than its potential. Gas pricing will become a big issue once a lot more gas is discovered and brought into the market. India itself is currently sitting on huge gas potential. To attract more investments to realise such potential, a clear thinking on the pricing of gas will have to be evolved. According to the Planning Commission, India should progressively move towards market determined prices for gas just as it is doing for petroleum products. Of course, inextricably linked to the issue of pricing is the role of the gas regulator. The regulator will have to ensure there is enough competition both in production and distribution so that a truly market price evolves.

The APM regime has created an expectation that somehow gas would be available at relatively low prices for the power sector. This led to a lot of power capacity being set up based on loose assurances of availability of supply which were not legally enforceable. Investors in power plants seem to have learnt their own lessons and consequently not much investments would be forthcoming for gas-based power projects. The higher gas prices will simply act as a deterrent. Use of gas for power will really be determined by the cost efficiency of coal as feedstock. If coal produces much cheaper power than gas, after factoring in the cost of carbon emissions, the market would prefer use of coal for power. However, the question of market-determined price for gas hinges on the hope that progressive gas finds will be kept out of the APM system and a substantial volume of gas production will remain outside price control. This depends on how domestic and international politics evolve in a geo-strategic context.



Patel Engg plans foray into power generation

April 30, 2007. Patel Engineering announced an investment of Rs 5,000 crore for setting up its maiden 1200 MW thermal power plant near Bhavnagar, which would mark its foray into power generation segment. The project would be undertaken under a Special Purpose Vehicle (SPV) and would be funded by a mix of debt and equity, Patel Engineering informed the Bombay Stock Exchange. The company has now decided to foray into Independent Power Producer (IPP) through this maiden venture in the thermal space and said it is also actively looking at IPPs for power generation in the hydro power space. The thermal power plant would be set up through the company's subsidiary - Patel Energy Ltd and the electricity generated would be sold to power traders, captive consumers and state governments. The coal for the plant would be imported from abroad and the plant would confirm to international environmental norms. The company's current order book without the said project is around Rs 5,000 crore, out of which 55 per cent of the orders are from multi-purpose water supply and power projects, 25 per cent were from irrigation and 20 per cent were in transportation and other sectors. The company as lead partner had recently bagged a Rs 806 crore order from the Satluj Jal Vidyut Nigam Ltd for the 434 MW Rampur Hydro Electric Project in joint venture with Gammon India Ltd.

Katikund to get 1,000 MW power project

April 27, 2007. CESC Ltd has finally chosen Katikund in Jharkhand’s Dumka district as the site for its 1000 MW pithead thermal power project. It has signed a MoU with the state govt. Dumka falls in the Santhal parganas region of the state, not far from adjoining West Bengal. In the MoU, CESC has offered three alternative sites to the Jharkhand government at Godda, Latehar and Chandil to locate the project.The project to come up at a cost of around Rs 5,000 crore has been envisaged in two stages of 500 MW each, instead of the earlier plan of two plants of 250 MW each in the first stage, followed by another with 500 MW capacity later on. The MoU, valid for one year, has been re-validated between the parties.

78,577 MW capacity addition planned

April 25, 2007. The power generation capacity added during the last five years is a lowly 21,280 MW, which is about half the original target of 41,110 MW set for the Tenth Plan, according to the latest estimates of the power ministry. This is also 2,000 MW less than the 23,250 MW capacity addition projected by the government in the last few days of the Tenth Plan (March 2007). An ambitious target of 78,577 MW has been set by the government for the Eleventh Plan period (2007-2012). Of this, the hydropower’s share would be 16,553 MW, the thermal power would constitute 58,644 MW and the nuclear power’s share would be 3,380 MW.



Capacity addition in 10th Plan

21,280 MW

Targeted addition in 10th Plan

41,110 MW

Targeted addition in 11th Plan

78,577 MW

Targeted addition in 2007-08

16,785 MW

Targeted addition in 2011-12

22,372 MW

The government is expecting a capacity addition of 16,785 MW in 2007-08, the first year of the Plan, another 7,272 MW in 2008-09, 15,198 MW in 2009-10, 16,970 MW in 2010-11 and 22,372 MW in 2011-12. The orders for these capacity additions are likely to be placed by December 2007 so that they can be implemented during the Plan itself. All states had been asked to tighten the schedule of the projects and the slippage in the capacity addition programme by the states would be unacceptable. The states had been told to check their aggregate technical and commercial (AT&C) losses and to bring them down to 15 per cent or below in the Eleventh Plan. Under the revised accelerated power development and reforms programme (APDRP), which is in the process of being implemented, the states would be given loans to control their AT&C losses and depending upon the success of the programme in towns, the loans would be converted into grants. However, this is subject to the proviso that the AT&C losses should remain under control for a period of five years. Each year, one-fifth of the loan component would be converted into grant. Andhra Pradesh has been a success story in lowering AT&C losses below 15 per cent in over 90 towns.

Transmission / Distribution / Trade

CESC may enter power-trading business

May 1, 2007. CESC Ltd,which supplies power to Kolkata and some adjoining areas, is keeping its options open regarding an entry into the business of power trading. At the moment, CESC is supplying the grid at off-peak hours, and income from this helped boost net profit for the latest quarter despite the shutdown of major consumers like the jute mills here. CESC has also petitioned the West Bengal State Electricity Regulatory Commission for a tariff hike of around 7% or 22 paise per unit, following two years of cuts. For the quarter to March 31, 2007, CESC reported a profit after tax of Rs 61 crore on net sales of Rs 547 crore, against a net profit of Rs 44 crore on sales of Rs 584 crore for the same period of 2006-07.

AP bid to streamline power supply

April 27, 2007. The Andhra Pradesh Chief Minister directed power utilities to ensure supply to both domestic and industrial consumers even if it meant additional financial burden for purchase of power from Central generating stations and neighbouring states. He directed AP Transco to see that there was no power cut for both the domestic consumers and industrial users during the summer months. The State Government has thus far released Rs 1,250 crore to make arrangements for purchase of additional power. This is in addition to the Rs 1,350 crore subsidy given to AP Transco. He also hinted that if necessary Government was ready to sanction additional funds for purchase of power.

State bodies trade charges, not power

April 26, 2007. While frequent power cuts, planned and unplanned, continue to harass around 9.5 crore people in Maharashtra, government agencies in-charge of energy supply have locked horns. The Maharashtra State Electricity Distribution Company (Maha Discom) has issued a strong rejoinder to the hard-hitting order passed by Maharashtra Electricity Regulatory Commission (MERC) a couple of days back. Maha Discom’s proposal for increasing the load-shedding hours was rejected by the MERC on April 23. While filing a rejoinder, Maha Discom has emphasised its right to go in appeal against the MERC order before the Appellate Tribunal for Electricity, New Delhi. In its order, the regulator had virtually indicted the state distribution utility for resorting to frequent increases in planned power cuts instead of contracting power purchase in time.

Maha Discom, however, has taken umbrage at the MERC’s suggestion that zero-load shedding should be the objective of the state distribution utility. At present, the shortfall on an average is in the range of 4,500-5,500 MW depending upon the status of generation plants and, therefore, it is necessary to know whether Maha Discom should try to contract costly power up to 4,500-5,500 MW at any rate and try to reduce load-shedding to zero. Maha Discom has not taken kindly to the regulator’s criticism of its power purchase policy. The MERC order pulls up the distribution utility for delay in tying up power. Maha Discom had prayed for approval of costly power purchase to the tune of 590 MW for February to May 2007 in its petition dated 14-02-07.

The Commission has not yet passed any orders on this prayer. Maha Discom has also sought guidance from the regulator on whether it should go in for power purchase plans at any rate pending this approval. MERC had also recommended a second staggering day of power cut for industries. According to the regulator, the distributor seemed to be favouring industries by not imposing a second staggering day of power cut when the huge demand-supply gap demanded sharing of burden by all categories of consumers. Maha Discom has pointed out that industries were expected to reduce their consumption and the distributor was to monitor their performance for a period of two months ended April 20. It has sought guidelines from the regulator on those consumers who have reduced consumption up to the expected level, saying that a second staggering day would mean punishing those who deserved to rewarded for efficient use of energy.


Mumbai to spent $0.48 bn to buy power

April 25, 2007. Mumbai power utilities have dished out approximately Rs 1,944 crore ($0.48 bn) this season to procure 2,700 mn units of power from external sources. The three utilities that serve Mumbai, viz., Tata Power Company (TPC), Reliance Energy Limited (REL) and Brihanmumbai Electric Supply and Transport Undertaking (BEST) have bought expensive power at the rate of Rs 7.20 per unit to overcome the shortage of 400 MW Mumbai has faced this summer. This has put an additional burden of approximately Rs 1,100 crore on Mumbai’s consumers who otherwise pay for cheaper power bought from TPC at rupees three per unit. Almost 80 per cent of the amount billed to consumers is actually cost of power. Mumbai consumers already pay 40 paise extra per unit as guarantee for reliable power provided on a stand-by basis by the Mumbai State Electricity Distribution Company Limited (MSEDCL). This amount increases to 80 paise if expensive power is taken into consideration, and to a total of rupees two per unit if cost of power generated within the state through expensive liquid fuel is added to the bill. Therefore, with the addition of coal-based or gas-based power plants, consumers would be charged upto Rs 2 per unit less for power. However, to tide over the perceived shortage of 400 MW this summers, the power utilities have already tied-up for 250 MW of firm supply and another 350 MW of infirm power. The infirm sources are expected to take care of the balance shortfall of 150 MW.  Power from external sources have already been tied up till August this year. The utilities have also tied-up 200 MW for the months of September, October and November. However, they are looking at getting another 250 MW for this period. The chances of Mumbai suffering load shedding, therefore, has been reduced to almost nil. However, to prevent such crisis in future, power plants should be developed in the state and approvals for the same should also be granted on a priority basis. 

Policy / Performance

Delhi to provide 299 MW unallotted power to BYPL

April 30, 2007. In a bid to ease the electricity requirement of private discoms, Delhi government decided to provide 299 MW unallotted power generated in six of its power stations to BSES Yamuna Power Ltd. The allocation of power has been made till September 30 and the position will be reviewed thereafter. While 46 MW will be drawn from BTPS plant, 113 MW will be given from Dadri plant and 140 MW from Indra Prastha, RPH, GT and PPCL plants. DERC have kept a provision of 15 per cent unallotted share from the power stations of BTPS, Dadri, Indraprastha, RPH, GT and Pragati Power Corporation at the disposal of the NCT government to allot to any of the discoms which require such allocations based upon consumer profile. 

Union Power Ministry okays NTPC-TELK joint venture

April 30, 2007. The Union Power Ministry is understood to have approved a proposed joint venture between NTPC and the State-owned Transformers and Electricals Kerala Ltd (TELK). A government order to this effect is expected in a fortnight after obtaining the Cabinet's approval. A MoU is likely to be signed before May 18. The NTPC Board had decided earlier to go for a joint venture with TELK and submitted its recommendations to the Union Ministry. In case of a joint venture, the State might prefer to keep 51 per cent stake in it while the rest would be given to NTPC as its investment in modernisation and expansion of the unit. Such a joint venture would be beneficial to both the parties, the official said. The NTPC, which has a lot of captive requirement, would be able to curtail the lead-time in sourcing capital equipment. TELK is the only PSU that manufactures high quality transformers of 10 MVA and above capacity in the country while the other suppliers are multinational companies. Hence, there will be a cost advantage when it is manufactured in its own unit. Apart from this, NTPC often needs repairing of transformers in its national network and that is done now by taking it to the repairing facilities at distant places, which is expensive. The joint venture would help it to have mobile repairing units and that in turn would result in substantial saving.

PFC releases bid bonds in Mundra Ultra-mega Power

April 27, 2007. After transferring the 4000 MW Mudra Ultra Mega Power Project to Tata Power, the Power Finance Corporation has the Rs 120 crore bid bonds each to all the six bidders that were in race for the project. Those who have been returned the bid bonds include Tata Power, Essar Power, Reliance Energy, Sterlite Industries, Adani Enterprises and Larsen & Tourbo Ltd. Meanwhile, Tata Power who bagged the project has furnished a Rs 300 crore performance guarantee. In a related development, Environment and Forests Ministry has accorded the Coastal Regulatory Zone (CRZ) and forest clearance. 

Bhel rejects stake in MP project

April 27, 2007. Bharat Heavy Electricals Ltd (Bhel) has refused to pick 15 per cent in proposed 1,000-MW Malwa thermal power project planned at Donagalia Purni village of Khandwa district of Madhya Pradesh. In view of the Bhel decision, Madhya Pradesh government decided to accept whatever was available with the Power Finance Corporation (PFC) and has accordingly approved Rs 810.60 crore share capital for the project to secure Rs 2,730 loan from PFC against its own demand of Rs 3,548 crore loan. The state government has also decided to provide on-asset security instead of guarantee on loan. It will float ICBs for the project within two years from now. Earlier, Bhel had evinced interest in the project.

The project was conceived as a 2,000 MW joint venture between Madhya Pradesh and Gujarat government. Both the governments had signed an MoU for a Rs 8,000 crore investment in the project. Later Gujarat government state board had given a cold shoulder to MP Genco, an MP state power board arm. The PFC has sanctioned a loan of Rs 2,730 crore to the project by calculating exposure limit of 67.5 per cent of the total cost of Rs 4,053 crore. The state has calculated the project cost at Rs 4,434.69 crore. The state has already decided to go solo on the project. The Khandwa project will be offered to bidders on turn-key basis on parts where the first part will include boiler, generator and civil work while the second part will include balance of plants. 

Baroda-based L&T-Sargent & Lundy Ltd has been appointed consultant in the project. It is likely to be completed by 2011. The project has been allotted coal from given 4.62 mtpa coal from Southern Eastern Coalfield Ltd, Korba. The power tariff is likely to be in the range of Rs 2.30-2.60 per unit.

Plan panel cautions Delhi Govt on power projects

April 26, 2007. The Planning Commission has written to the Delhi government asking it to consider aspects like gas supply and price before sanctioning power projects in the national capital. Power projects in the pipeline would need very close monitoring keeping in mind the uncertainties about the supply of gas at a reasonable price. Anil Ambani-run Reliance Energy, which administers two distribution companies in the national capital viz., BSES Rajdhani Power Ltd and BSES Yamuna Power Ltd, is understood to have proposed setting up of a 1,400 MW gas-based power plant to augment supplies in the city. The comments of Planning Commission Chairman has implications for gas-based power projects, in particular, as Delhi is not naturally equipped to have indigenous power supply from other modes like hydel, nuclear or non-conventional sources. Besides, Reliance Energy is yet to sort out the price at which it would procure gas for its much-hyped Dadri project in Uttar Pradesh.

Kalam for cooperation in energy sector with EU

April 25, 2007. Noting India’s need to raise power generation capacity to 4 lakh MW by 2030, Indian President, sought intensive cooperation with the European Union. He rallied for support in the field of nuclear energy, emphasising that India’s programme was for non-military purposes. He proposed setting up of Indo-EU renewable energy development programme in this direction. India has 17 % of world population but only 0.8% of known hydrocarbon resources. Based on progress visualised for the country during the next two decades, power generation capacity has to increase to 4 lakh MW by 2030. Energy independence has to be achieved through three different sources VIZ., renewable energy (solar, wind and hydro), electrical power from nuclear energy and bio-fuel for transport sector. These three research areas need intensive cooperation between both EU and India. President suggested establishing of Indo-EU renewable energy development programme for taking up advanced research and development in all forms of renewable energy to ensure availability of commercial class large scale power plants within next decade.

Jangi Thopan hydel project delayed

April 25, 2007. The 960-MW Jangi Thopan hydel project in Himachal Pradesh's Kinnaur district has been delayed as the Dutch multinational Brakel Corporation officials have not turned up to sign the deal. The memorandum of understanding( MoU) was to be signed between the state government and Brakel Corporation on Monday but it has been put of as company is busy responding to FDI related queries put up by the Reserve Bank of India(RBI). The project is to come up on the Sutlej river in tribal Kinnaur some 250 km from here. 

Excise exemption for captive power

April 25, 2007. The Supreme Court has held that companies which consume electricity from their captive power units need not pay excise duty to the government.  The ruling came on an appeal filed by the Commissioner of Central Excise, Chennai, asking state-run Chennai Petroleum Corporation Ltd to pay arrears of duty on naphtha, sulphur and electricity on the ground that they were not petroleum products. This is because electricity generated in the (CPCL) refinery is used to operate various processes within the refinery. In the refinery, there exists large number of processes. Each process generates an item and, therefore, every refinery is given the status of deemed warehouse. The Bench also exempted naphtha and sulphur from duty on the ground that they were petroleum products made from crude oil. However, the court returned the matter to the adjudicating authority for fresh determination of duty for the electricity sold by the CPCL refinery to the Tamil Nadu Electricity Board. According to it, the department was right in demanding duty from the public sector company on the portion of the generated electricity sold to the Tamil Nadu Electricity Board. The public sector utility has been manufacturing naphtha, sulphur and electricity from crude oil since 1969 and used refinery fuel oil as fuel for generation of electricity. 




Rich oilfield discovered in Northern Kuwait

April 30, 2007. Kuwaiti Minister announced that a rich oil field was discovered in northern Kuwait. Initial examination of the site proved it contained a huge amount of light oil and affiliate gas. It is the sixth field discovered in northern Kuwait. Accounting for 10 percent of the world's proven oil reserves, Kuwait boasted proven oil reserves of about 101.5 bn barrels and now produces 2.45 mn barrels of crude oil per day.

Eni pays Dominion $4.76 bn for Gulf of Mexico assets

April 30, 2007. Europe's fourth-biggest oil company Eni boosted production by paying Dominion Resources $4.76 bn for upstream assets in the Gulf of Mexico. Eni, which produced 1.769 mn barrels of oil equivalent per day (boepd) at the end of 2006, the deal would boost its production in the area by more than 74,000 boepd in the second half of 2007. In the period from 2007-2010, production from the new assets would average more than 75,000 boepd. Included in the purchase were exploration assets for $680 mn and it added around 60 percent of the overall leases were operated. The Gulf of Mexico contributes about 30 percent the total U.S. crude output and more than 20 percent of its natural gas production. Dominion is in the process of selling much of its North American oil and gas assets, which could be worth around $15 bn total, as it seeks to focus on its electric utilities and energy pipeline business. Also on the block are its Dominion Peoples and Dominion Hope natural gas distribution companies. In March, the company sold three natural gas-fired generating facilities. Eni, like other Western oil and gas majors, is seeking to replenish production and reserves. The deal with Dominion would boost proven and probable reserves by 222 million barrels of oil equivalent. The company has about 12.5 billion boe of proven and probable reserves.

OGDCL discovers gas, condensate

April 25, 2007. Pakistan's Oil and Gas Development Co. Limited (OGDCL) has made a gas and condensate discovery from its exploratory Kunnar West Well No. 01A. The well is located 577 meters west of Kunnar West Well No. 01. Kunnar West No. 01A structure was delineated in Kunnar Mining Lease area, and the well was drilled down to a depth of 4065 meters. On the basis of open hole logs, two zones of Massive Sands of Lower Goru Formation were selected for testing. Production testing of Zone-1 (Massive Sands) of Lower Goru formation started on April 23, 2007, which proved productive.

UAE's Taqa eyes more North Sea oil, gas fields

April 24, 2007. The UAE's Abu Dhabi National Energy Co. (Taqa) is interested in buying more North Sea oil and gas assets after spending over $1 bn on the region since last November. Petro-Canada, an existing Taqa partner, is active in the North Sea. North Sea oil and gas output is waning. Output from the UK's fields peaked in 1999 and has been falling at around 8-10 percent per year since. High oil prices have encouraged smaller oil and gas companies to buy assets from majors and develop marginal fields that were previously deemed uneconomical. Taqa, 75 percent owned by the Abu Dhabi government, would soon hold investments in nine countries, including the UK, Morocco, Ghana and India. Taqa would buy $6 bn of assets in 2007, taking its investments to $20 bn, as Abu Dhabi seeks to use record oil income last year to diversify its sources of revenue and cushion against any future decline in the price of crude. Taqa bought $550 mn of North Sea assets from Canada's Talisman in January, adding to the $694 mn in Dutch oil and gas assets that it bought from BP in November.


BHP joins refinery project

April 30, 2007. BHP Billiton has acquired a 33 per cent stake in Global Alumina's Sangaredi alumina refinery project in Guinea, West Africa, for $US140 million ($168.7 million). The project comprises the design, construction and operation of a 3mtpa refinery, a bauxite mine and associated infrastructure. The project has a mining concession covering 690 square kilometres and a reported mineral resource of 233 mt of bauxite. The proposed refinery site is about 100 kilometres inland from Kamsar and is linked by rail to the port of Kamsar. This project provides the joint-venture partners with access to a long-life, low-cost, world-class resource base and represents an excellent opportunity for BHP Billiton to continue to grow its business in a value-accretive manner.

Kuwait to invest in refinery, LPG terminal at Gwadar

April 25, 2007. Midrock was looking to invest in an oil refinery and LPG terminal project at Gwadar. There exists huge potential for the investors in oil and gas projects and the government is committed to facilitate them. The government was exploiting the untapped hydrocarbon deposits and alternate energy resources to sustain the GDP growth rate for the socio-economic uplift of the masses.

Chongqing Longhai to build heavy oil refinery

April 25, 2007.  Chongqing Longhai PetroChemical Co Ltd, a private oil refiner, plans to invest 2 bn yuan to build a heavy oil refinery. The project, located in the Fuling district of Chongqing in southwest China, is expected to have crude processing capacity of 500,000 tons after Phase I, expanding to 2 mt later. The refinery will process imported crude into diesel, gasoline and liquefied petroleum gas. It will become the first heavy oil refinery in China's southwest and is expected to produce 1.1 mt of diesel, 330,000 tons of gasoline and 630,00 tons of LPG per year.

Cuba and Venezuela Embark on refinery renovation project

April 24, 2007.  The Cuban oil refinery currently undergoing renovation under a joint venture with Venezuela would be able to process 65,000 bpd of oil once the project was completed at the end of this year. The joint venture was formed in April 2006 by Cuba Petroleo, or Cupet, which has a 51 percent stake, and Petroleos de Venezuela, or PDVSA, which holds a 49 percent stake in the project. The Camilo Cienfuegos Refinery was constructed in the 1980s and closed in 1995 due to the economic problems experienced by the island in the wake of the collapse of the Soviet Union. The initial phase of the renovation project would cost $83 mn. Cuba produced 3.9 mt of crude and natural gas in 2006, with output expected to reach 5 mt by 2010. PDVSA was assigned four of the 59 exploration blocks into which Havana has divided the offshore area, allowing Venezuela to compete with six other foreign oil companies to find petroleum in the gulf. Cuba opened its portion of the Gulf of Mexico's waters to foreign oil companies in 1999. Spain's Repsol YPF, Canada-based Sherrit, India's state-owned Oil and Natural Gas Corporation, Norway's Norsk Hydro and Malaysia's Petronas have signed exploration contracts with Cupet. A sixth company, whose name Cuban authorities have not revealed for fear that the United States might retaliate against it under Washington's economic embargo against the island, also signed an exploration deal. The six companies had 16 blocks assigned to them, with some of the areas under joint exploration.

Transportation / Trade

Iran likes idea of Gazprom in India gas link

May 1, 2007. Iran suggested that it would welcome any Gazprom involvement in a proposed $7 bn gas pipeline to India via Pakistan. Gazprom is a capable and big company and if it enters the peace pipeline it will help with the progress and speed up the operation. Iran, India, and Pakistan are expected to sign a key agreement on pricing in June that will help the pipeline project take off. Russia is Iran's closest big power ally and has helped to water down UN sanctions against Tehran.

Bangladesh agrees to negotiate Tri-nation gas pipeline

April 30, 2007. Bangladesh has agreed to negotiate the tri-nation pipeline passing through the country's territory for transmission of gas from Myanmar to India. The tri-nation pipeline issue came up during his meetings with Myanmar leaders, including acting Prime Minister of Myanmar. According to previous estimate, Bangladesh was to receive US$100-120 mn as a transmission charge or willing charge annually for the 950-km pipeline. To install the pipeline, a sum of US$1 bn was estimated to be invested, US$650 mn was to be invested in the Bangladeshi part.

Uzbekistan and China to build gas pipeline

April 30, 2007. Uzbekistan and China have signed an agreement regarding the construction and exploitation of a 530-kilometer long gas pipeline. Another agreement on a joint gas exploration project in the eastern Namangan province was also inked between Uzbekistan's state-owned gas company Uzbekneftegaz and the Chinese national oil and gas corporation. Details such as the cost of the construction and when it will start were not given. However according to pro-government website the capacity of the proposed pipeline at 30 bcm of gas annually. Uzbekistan is the world's 13th-largest natural gas producer, according to statistics from the energy giant BP, but most of its production is taken up by domestic consumption. China has become one of Uzbekistan's biggest trading partners and foreign investors in recent years. China's total investment plan in Uzbekistan is about US$2 bn, with some US$600 mn of that going to the oil and gas sector.

Algeria set to be a top LNG exporter by 2011

April 30, 2007. Algeria, a main liquefied natural gas (LNG) source for Europe and the United States, will expand its output capacity to be a top LNG exporter by 2011. State oil and gas company Sonatrach, Africa's biggest company by revenue, provides 20 per cent and 13 per cent respectively of US and European LNG needs. We have two big ongoing projects. One with Repsol and Gas Natural to produce 4.5 mt of LNG per year and the second project in Skikda will produce another 4.5 mt of LNG per year and should come onstream by 2011. Sonatrach produces 62 bcm per year and is expected to reach 85 bcm by 2010. Algeria's oil and gas revenues reached $54 bn in 2006, and $230 bn during the past six years. As a company, Sonatrach is number one in the world in terms of LNG production. Algeria as a country is third after Indonesia and Qatar.

CNPC to build LNG project in Nantong

April 30, 2007. PetroChina Company Limited, the largest subsidiary of China National Petroleum Corporation (CNPC), will build an LNG project at the Port of Yangkou in Nantong, Jiangsu Province, East China. The project will be built in three phases. The first phase project, which will handle 3.5 mt of LNG annually, received CNY 7.4 billion investment and is expected to produce in 2011, the second phase project will boost the total annual handling capacity of LNG to 6 mt and the third phase will reach 10 mt. The LNG project will serve as the second supply base for China's West-East Gas Pipeline Project, which connects the energy terminal by 181 kilometers pipeline on the main route. Raja Garuda Mas International (RGMI), a Singapore-based group, and Jiangsu Guoxin Investment Group Limited, are also two shareholders of the project.

Petronas and Dutch firm in LNG pact

April 30, 2007. Petroliam Nasional Bhd (Petronas) is interested to participate in the development of infrastructure for liquefied natural gas (LNG) and gas storage projects in the Netherlands. The national oil company signed a MoU with N.V. Nederlandse Gasunie (Gasunie) recently that will pave the way for future collaboration between the two companies in LNG and gas storage projects. The signing was held on the sidelines of the LNG15 Summit in Barcelona, Spain. Both Petronas and Gasunie are looking at developing the LNG infrastructure in the Netherlands. Gasunie, together with N.V. Vopak, the largest independent tank terminal operator in the world, is developing a new LNG receiving terminal near Rotterdam. Petronas could have a role in this project. The final investment decision on the project called the Gate terminal is expected later this year. The Gate terminal will have an annual capacity of between 8 bn and 12 bcm of gas and aims to supply northwestern Europe to help meet the continent's growing energy needs. Royal Dutch Shell will be the largest capacity user at the terminal, with up to 4 bcm a year, while German utility RWE and France's EDF have secured 3 bcm each. The terminal, which already has eight customers, is now waiting for them to arrange LNG supplies, probably from the Middle East and the Mediterranean region, before taking a final investment decision by mid-2007. Petronas, meanwhile, is currently undertaking the Dragon LNG project in Britain, with cooperation from UK's BG Group. The terminal is expected to be ready by the end of this year. Gasunie is a gas transport company with an authoritative position in Europe. Its responsibilities include the management and development of the national gas transport network and the supply of gas transport services.

Russia completes third of oil pipeline to China

April 28, 2007. Russia's pipeline monopoly Trans-neft has built a third of its planned pipeline to China and is on track to extend the route to the Pacific coast next decade to reach other Asian markets. Transneft had built over 900 km of the 2,700-km pipe-line and would finish the project on time by the end of 2008. The pipeline, Russia's first oil route to Asia, will eventually pump 30 mtpa (600,000 barrels per day) of crude to China. The pipeline will allow Russia, the world's second largest oil exporter, to make its exports more flexible and re-route volumes to Asian market when prices are more attractive than on its current core European market. Russia plans to build the second stage of the pipe-line to the Pacific coast if additional crude resources are found in East Siberia. The second branch, scheduled for completion in 2015, would increase deliveries to 1.6 million bpd available to oil buyers in South Korea and Japan. At 4,130 km, the completed two-stage pipeline would be almost as long as Chile. Russia currently produces over 9.8 mn bpd, exports around 5 mn bpd to world markets and refines the rest at home.

Turkmen govt. okays Caspian coast gas pipeline project

April 28, 2007. Turkmenistan's Cabinet of Ministers has approved an array of measures to implement the recent Moscow agreements, specifically the proposal to build a gas pipeline system along the Caspian Sea. Turkmenistan and Russia agreed to expand cooperation in the gas sphere. Moscow sought to secure guarantees on gas deals signed under his predecessor, and to counter attempts by the U.S. and its allies to reroute some of the Central Asian state's gas exports away from Russia. An effective implementation of the agreements is been ensured by the cabinet.

Petrobras looking for LNG suppliers, regas ship

April 25, 2007. Brazil's state oil company Petrobras is looking for short to medium term suppliers of liquefied natural gas (LNG) and may contract a third floating LNG terminal. Petrobras is preparing to import LNG, which is natural gas cooled to liquid form so that it can be transported in tankers, to cover dry spells when its hydroelectric power output falls short, its Gas and Energy Director. Importing LNG will also lessen Brazil's dependence on Bolivia, which supplies it with pipeline gas. Petrobras has signed an agreement with Nigeria, which will allow it to import spot cargoes from there, but which involves no commitment or specific price.

Construction on China Myanmar pipeline set to start this year

April 24, 2007. Construction was expected to begin this year on an oil pipeline from Myanmar's deepwater port of Sittwe to southwestern China. The Chinese government approved construction of the pipeline earlier this month from Sittwe to Kunming, the capital of Yunnan province, which borders Myanmar. Chongqing plans to build a refinery with a capacity of 10 mt to process the imported crude oil. The facility was scheduled to come on line in three years. The government might also build a refinery in Kunming. The pipeline might ease China's worries of its overdependence on energy transportation through the Strait of Malacca for crude imports from the Middle East and Africa. China's three state-owned oil producers viz., Sinopec, CNPC and CNOOC - all have major oil and gas exploitation projects in marine areas off Myanmar. China also plans to invest 8 bn yuan (US$1.04 bn) to build a 2,380-kilometer gas pipeline from Myanmar to Kunming. The gas pipeline is designed to carry 170 bcm of natural gas from the Middle East to southwestern China in the next 30 years. In return, China is to grant a loan of 650 mn Hong Kong dollars (US$83 mn) to Myanmar for the development of its oil industry.

Policy / Performance

Superlon keen on oil and gas sector

April 25, 2007. Superlon Holdings Bhd has set its sights on the oil and gas, and petrochemical industries with the aim of penetrating more new markets. Superlon was currently supplying thermal insulation materials to some local non-traditional markets such as motor vehicle, manufacturing, furniture and electronic industries for heat and cold insulation as well as vibration and noise suppression.

Venezuela signs MOUs with foreign oil companies

April 25, 2007. Venezuela signed a series of agreements to take operational control of foreign oil projects. Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Statoil (STO), BP Plc (BP) and Total (TOT) signed agreements to transfer operations to PdVSA. These companies have until June 26 to agree on the final terms of new joint ventures where PdVSA will have at least 60% stakes. By taking control of day-to-day activities PdVSA is getting a leg up in further contract negotiations. Some observers, however, caution that this plan could backfire if PdVSA finds that it does not have the technical expertise to run the projects alone, and has to turn to its minority partners for help. The oil projects that signed over include three ventures that produce and upgrade tar oil in the Orinoco river basin, as well as the La Ceiba conventional oil field run by Exxon. Venezuela is taking over day-to-day operations by May 1, but these companies have until the end of June to hammer out the details of what new contracts will look like. PdVSA is demanding at least a 60% stake in all oil projects. Venezuela claims it will only compensate for the book value of these projects, not the market value. The difference for the four Orinoco ventures is at around $10 bn.

Petroecuador plans $2.8bn investment for 2007-10

April 24, 2007. Ecuador's energy and mines ministry expects state oil company Petroecuador's investment to reach nearly US$2.80 bn from 2007-10, according to the ministry's new four-year plan. Petroecuador will invest US$928 mn in 2007 and US$1.87 bn from 2008-10. Of the total investment, 48% will go to slowing the production decline on fields operated by Petroecuador's Petroproduccion subsidiary in 2007, maintaining stable production in 2008 and increasing production from 2009 onward. The plan cited a lack of investment in the past as provoking the fall in production. In the last 10 years, Petroecuador has invested US$967 mn, less than 20% of that made by private companies. The state firm controls 80% of reserves. In terms of produced units, Petroecuador has invested US$0.70/b, while private firms have invested US$7.80/b. Aside from the US$1.35 bn set aside for production activities in the four-year period, the company will invest US$207 mn in exploration, US$109 mn in transport, US$127 mn in the rehabilitation of the Esmeraldas refinery, US$94 mn in LPG storage and US$908 mn in other works.

LUKoil plans to become second-largest gas producer in Russia

April 24, 2007. Russia's largest crude producer LUKoil plans to become the country's second-largest gas producer. LUKoil commercial gas production in 2006 was 13.6 bcm. The share of gas in the aggregate hydrocarbon production volume grew from 5% to 10% in the period, and will in the future be brought to 33%, in line with strategic plans. By 2016, LUKoil plans to increase gas production five-fold to 70 bcm. Its net income increased 16.2%, year-on-year, in 2006 to $7.48 bn, whereas earnings before interest, taxes, depreciation and amortization (EBITDA) increased 18.2% to $12.3 bn and sales grew 21.4% to $67.7 bn. LUKoil plans to start industrial production of gas at its projects, whose maximum production level is assessed at 10 bcm annually, in Uzbekistan in late 2007 and a level of 3 bcm could be reached in 2008.

Russia plans Asian energy invasion

April 24, 2007. Russia is laying the infrastructure to become a major oil supplier to Asian countries, including an ambitious pipeline being built from Siberia to the Pacific coast. Russia is also considering discussions with Philippine energy officials about proposals to build an oil refinery and storage facilities in the Philippines that could serve Southeast Asia. Southeast Asian countries have expressed interest in Russia's plans to become an important energy provider in the region and Moscow should carefully plan how it could assume that crucial role.



KESC to install 220 MW power plant in Korangi

April 25, 2007. KESC has started work on 220 MW power plant project in Korangi and it will be completed next year. In August it is expected to produce 50 MW electricity. Besides, the KESC has planned to establish lower power plants for the production of electricity and was making efforts to fill the demand and supply gap. KESC provides 50 per cent of the total electricity used in Karachi and rest of 50 per cent is obtained from other sources like IPP and Wapda. KESC with the cooperation of IPP and Wapda had taken initiatives to inform the people before hand about the correct position of power demand and supply and to announce a load management strategy.

Consol Energy and Chevron develop coal mine

April 24, 2007. Coal producer Consol Energy Inc. formed a joint venture with Pittsburg and Midway Coal Mining, a unit of integrated oil company Chevron Corp., to develop a mine in Wyoming. Affiliates of the companies formed Youngs Creek Mining Co., which will develop the Youngs Creek Mine north of Sheridan in the Wyoming Powder River Basin coal field. The mine has the potential to produce 15 mt of coal annually. The companies plan to submit permits for the mine in 2008, but said mine construction won't begin until sufficient coal sales come under contract.

Transmission / Distribution / Trade

Georgia Power buys power from biomass generator

April 24, 2007. Georgia Power has inked a 20-year power purchase agreement with Greenleaf Environmental Solutions LLC to buy 25 MW of capacity to use starting in September 2009. Greenleaf's plant, a biomass-fueled power generating qualifying facility in Forsyth County, Ga., will be built on a site adjacent to an existing construction and demolition landfill operated by Greenleaf Recycling LLC. The deal is the first use of a hybrid contract for the purchase of capacity from a renewable qualifying facility that offers components of both power purchase agreements and qualifying facility contracts.

Black Hills to supply power to PNM

April 24, 2007. Black Hills Corp. will build a new, 149 MW gas turbine facility near Albuquerque and supply the electricity generated to the Public Service Co. of New Mexico. PNM signed a power purchase agreement with Black Hills, which commits the latter to build and operate the facility through its wholesale power generation subsidiary, Black Hills Power. The new Valencia Power Plant is expected to cost $101 mn and is scheduled to open on June 1, 2008. Under a 20-year agreement, PNM will supply fuel for the operation and will have the option to acquire up to a 50 percent equity interest in the project. Black Hills Corp. (NYSE: BKH) is an integrated energy company. Its retail subsidiary, Black Hills Power, provides electricity in western South Dakota, northeastern Wyoming and southeastern Montana. Cheyenne Light, Fuel & Power, another retail electric and gas distribution subsidiary. serves the Cheyenne, Wyo., vicinity. Black Hills Energy, a wholesale energy business unit, generates electricity, markets energy, and produces natural gas, oil and goal.

Policy / Performance

PNOC plans new power plant

April 28, 2007. Philippine National Oil Co. (PNOC) plans to build another hydroelectric power plant in Mindanao at a cost of about a quarter of billion dollars to help prevent a looming energy crisis in the country’s second-biggest island. The state-owned company is eyeing to develop the 150 MW Bulanog-Batang hydro power project in Bukidnon province. The company plans to shoulder about 30 percent of the cost of the project, and allow private investors to spend for the remaining amount. PNOC has yet to send invitations to other parties for the remaining 70 percent although the Northern Mindanao Electric Cooperative Association Hydro Power Corp. (NORMECA) has already signified its interest in the facility’s funding requirements. PNOC recently signed an agreement with NORMECA formalizing their technical alliance to facilitate the development of the $245 mn project. The agreement calls for the review of the potential of the Bulanog and Batang rivers in Talakag, Bukidnon as a viable source of hydro electric power. Based on the studies, the Bulanog-Batang hydro project remains one of the most viable power projects in the region. It’s 150 MW output will be a big contribution in meeting the energy demand in northern Mindanao. Mindanao sources more than half of its power supply from hydro plants, which produce relatively cheaper electricity and are cleaner than fossil fuel fired plants. However, these facilities’ operations are severely hampered during summer because of water supply constraints.

U.S. EPA mulls more leeway for coal-fired plants

April 25, 2007. The U.S. Environmental Protection Agency broadened its plan to give coal-burning power plants more flexibility to expand and modernize without triggering emission-reduction rules. The proposed rules, roundly criticized by environmental groups, come just weeks after the Supreme Court unanimously rejected a narrow test of similar rules in a case involving coal-fired power plants owned by Duke Energy Corp. At issue is the ability of U.S. electric companies to overhaul and expand their aging fleet of about 500 coal-fired power plants to keep them running. Those plants are subject to a contentious provision of the federal Clean Air Act known as New Source Review. In October 2005, EPA suggested that more expensive emission reduction rules would only be triggered if pollutants coming from power plants rose based on an hourly measurement. In its latest change, EPA proposed that utilities that do not meet the hourly standard can revert to an annual measurement. According to EPA the proposal would eliminate administrative and other barriers that the power sector faces regarding safety, reliability, and efficiency improvements. But according to environmental groups the EPA's plan, if finalized, will mean U.S. utilities can spew more nitrogen oxides and sulfur dioxide precursors of acid rain and smog linked to respiratory diseases like asthma.

Japan, U.S. ink pact on nuclear power reactors

April 24, 2007. Japan and the United States have adopted a plan to advance coordination on nuclear energy policy, including the extension of governmental assistance for building the first new atomic power plants in the U.S. in 30 years. Under the Japanese-U.S. Joint Nuclear Energy Action Plan, the two nations will conduct joint studies in six areas, including fast-reactor technology, fuel-cycle technology and waste management. They agreed to hold the first meeting of working groups for each area by the end of June. In an effort to prevent proliferation, the action plan requires the two nations to consult on whether to extend assistance, such as infrastructure construction and training, to third countries. The comprehensive cooperation pact is the first on nuclear power that Washington has ever signed with another country.

Financing for 225 MW power plant in Pakistan

April 24, 2007. The Halmore Power Generation Company has mandated the HSBC Bank Plc, Czech Export Bank and Askari Commercial Bank Limited to arrange a comprehensive debt financing package for a power plant. The proposed 225 MW combined cycle power plant to be set up near the town of Bhikki, Sheikhupura. Enerpro (Private) Limited, a specialised Consulting Company for Energy Projects had been engaged for developing the project. HPGCL has recently signed an engineering, procurement and construction contract for the project with Kodaexport Company Ltd of the Czech Republic. The major portion of the $150 mn project debt was expected to be supported by the Export Guarantee and Insurance Corporation. The remaining debt requirement will be provided by a syndicated term loan facility denominated in local currency. This project will be the first under the 2002 power policy to be financed with ECA supported foreign debt and the successful conclusion of the financing will define the level of future interest in the sector from the international project finance community.

Renewable Energy Trends


Affordable electricity for all Indians by 2015: CPRI

April 29, 2007. CPRI (Central Power Research Institute) is harnessing every possible source, whether it's solar, wind, or thermal energy, for supplying power to Indian populace at a reasonable price by the year 2015. The CPRI has envisaged a time-bound roadmap for the Indian power sector, sustainable energy system with clean power technologies in the 21st century. Founded in 1960, the autonomous research body CPRI works under the ministry of federal power. CPRI is responsible for conducting research in the field of electrical engineering. The institute has undertaken 300 research projects and has commercialized 25 technologies, so far. India is one of top five countries worldwide that use wind energy. The country is also picking up fast in the solar sector. Solar Photovoltaic (SPV) is very popular in far-flung villages and human habitations where the grid power supply is erratic and the quality of power rather poor. Viewing the latest trends in energy use globally, scientists from CPRI are optimistic about vertical growth in renewable energy, 30% growth in wind energy, and 25% in solar energy per year. With the peak hour shortage of 15% and an overall power shortage of 7.5%, there is enormous scope for the expansion of power sector projects.

Govt. to formulate tariff plan for renewable energy

April 27, 2007.  The government is planning to introduce a new tariff system, which would require firms generating energy through non-conventional sources to sell power to states at a reasonable price. Under the system, which is prevalent in countries like Germany and Australia, a company using non-conventional sources of energy would have to transmit power to states, which are facing a deficit, for a reasonable rate and not at high prices. The government is targeting a fresh power generation capacity of about 10,000 MW from renewable sources such as wind during the 11th plan. In the first year, there is a plan to add around 1,800-2,000 MW, majority of which would be through wind energy. Renewable energy need not be driven only by government policy, subsidies or initiative. The government should put up the right policies for renewable energy and let stakeholders take from there and not wait for subsidies. Rs100 crore venture corpus for green businesses announced.

Haryana wind power projects delayed

April 25, 2007. The Haryana Renewable Energy Development Agency (HAREDA) will have to wait at least another year to get the final project report on the wind energy-based power projects, worth about Rs 2,300 crore. India’s two leading of wind energy players, Suzlon and Enercon, entered into MoUs with the HAREDA last year for the generation of 450 MW of wind power. The players are in the process of putting windmarks at the identified locations to monitor the viability of the projects. According to HAREDA, the four locations identified at Morni, Mewat, Mahendergarh and Gurgaon have the requisite velocity of 15-22 km per hour at least seven months a year, the investors want to procure first-hand information on the basis of more scientific methods by their own teams before taking any final decisions on investments.  Since the investment required is substantial (it costs about Rs 9 crore to generate 1.5 Mw of wind power), the investors want a minimum tariff of Rs 4.50 per unit. 

West Bengal to encourage jatropha cultivation

April 25, 2007. The Communist Party of India-Marxist (CPI-M) led West Bengal government is now set to encourage agriculture-based industry by utilising the wastelands for cultivation of feed-stocks like jatropha. The state government will shortly come up with a clear policy earmarking all the wastelands in West Bengal. Three departments, panchayats, agriculture, and land and land reforms, are together working on this policy. The Emami group is setting up the bio-diesel project at Haldia, the first in eastern India, investing Rs 1.5 bn with an initial capacity of 100,000 tonnes per annum. The plant is expected to commence by 2007 end. It will come up in technical collaboration with an Italian-Belgian joint venture company. After identifying these areas the state government will directly involve the local farmers for cultivation of jatropha on the wastelands. For feeding the bio-diesel plants adequately, jatropha cultivation over an area of 100,000 acres is essential, Bhattacharya said, adding this will create employment opportunities to 200,000 people at the rate of two persons per acre of cultivation. Currently, India produces only 22 per cent of its total diesel requirement and 78 per cent is imported draining off huge amounts of foreign currency reserves every year.


Canada announces Greenhouse gas targets

April 25, 2007. Canada's Conservative government will cut greenhouse gas emissions 20 percent by 2020 and ban inefficient incandescent light bulbs by 2012 as part of a national environmental initiative. The plan, dubbed Turning the Corner includes various measures to stop the rise of greenhouse gases in three to five years. Once the gases stop rising, the government plans to reduce them by 150 mt by 2020, or about 20 percent the level of current emissions. The new goal puts Canada 11 percent above its obligations under the Kyoto Protocol on climate change - which requires 35 industrialized countries to curb emissions of carbon dioxide and other gases that act like a greenhouse trapping heat in the atmosphere. Under the accord, the former Liberal government is committed to a 6 percent cut in greenhouse emissions from 1990 levels by 2012. But the country's emissions are 30 percent above 1990 levels.

Aker and Praj form JVfor European Bio-fuels market

April 25, 2007. Praj Industries Ltd. and Aker Kvaerner are to create a joint venture (JV), for the European market. Aker Kvaerner has approved the implementation of the JV, and this consent joins the Praj Industries' Board approval (announced by Praj on 19 April 2007) wherein Praj will hold a 60-percent share of the JV and Aker Kvaerner will hold 40 percent. The JV will combine Aker Kvaerner's execution capabilities and extensive European market knowledge with the technological expertise of Praj. Praj has been active in the European market over the last two years and has made significant gains in orders in the region. The JV will offer European customers access to the complete scope of services required for license, plant design and construction, with seamless integration and application of the Praj technology. Praj, a global leader in bio-ethanol technology for over two decades, has been active in European markets for bio-ethanol technology solutions. Apart from the potential to expand new business prospects, the JV will provide greater visibility for both the Praj and Aker Kvaerner businesses in this marketplace.

Virgin plans to fly 747 on biofuel in 2008

April 24, 2007. The first commercial aircraft to be powered by bio fuel will fly next year in what could be a significant step towards airlines reducing their oil consumption and carbon dioxide emissions. One of Virgin Atlantic’s 747 jumbo jets will be used to demonstrate that bio fuels can power an aircraft. The project, which includes Boeing and General Electric, the engine-maker, hopes to have the green jumbo airborne in 2008. The airline and its partners are testing up to eight bio fuels to determine which is most effective at altitude. Ethanol, which is becoming an increasingly popular alternative to petrol in cars, has been rejected because it does not burn well in thin-oxygen environments. The idea of replacing petrol with bio fuel in cars is a significant trend in the car industry. Last year Ford announced a £1 bn research project to convert more of its vehicles to these new fuel sources. Virgin hopes that bio fuel powered aircraft could be operating commercially within five years, which could help to cut significantly the airline industry’s carbon dioxide emissions. At present air travel contributes 2 per cent to 3 per cent of climate change gases, but that level is increasing as the activity expands. The industry is investing in lighter aircraft and new engines to improve fuel efficiency, but bio fuels could eliminate oil dependence entirely.

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Publisher: Baljit Kapoor                               Editor: Lydia Powell

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* In this series the term "capital-output ratio" refers to the incremental capital-output ratio-that is, the number of units of capital required to be added to present capital stock to increase annual production by one unit.


35 Planning Commission, Report on Evaluation of Rural Electrification in India (New Delhi: Government of India, 1965).

37 Ibid.

40 Rich, "Smaller Families."

42 L. K. Sen et al., Planning Rural Growth Centers for Integrated Area Development (Hyderabad, India: National Institute for Community Development, 1971).

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