InfralinePlus February 2013 by Gopal Thakur

February 2013 Volume 1 | Issue 10 | `100 www.InfralinePlus.com

The Complete Energy Sector Magazine for Policy and Decision Makers

Power sector lacks skilled manpower

GM Rao’s

successor will be from the family

Report by

Rangarajan...

...Gas producers set to make windfall t Budge

Expec

tation

ower • Coal • Pas • Oil & G bles • Renewa

Left to Right: C Rangarajan, Chairman, Prime Minister’s Economic Advisory Council P Chidambaram, Union Finance Minister

Private participation in power distribution sector has been very limited says Praveer Sinha, CEO TPDDL

Coal auction policy There is no need for must encourage CAG audit under new private sector system says R.S. participation says Sharma Chairman, Lajpat Shrivastav Hydrocarbon CEO Thermal Committee, FICCI Moser Baer

LNG will continue to grow because it is relatively cheap says David Glendinning, President Teekay Gas Services

Bringing EnErgy to thE world

CONTACT: CAPT. VIVEK BHIDE [ MANAGING DIRECTOR, TEEKAY INDIA ] | +91 (22) 6746 8801

InfralinePlus

February 2013 | Volume 1 | Issue 10

The Complete Energy Sector Magazine for Policy and Decision Makers

Editor’s Letter The New Year has brought a new beginning for the energy sector. Coal blocks will be allocated for the first time through competitive bidding route in 2013 and diesel prices have been put on the path of deregulation. It remains to be seen where the present reform movement in diesel will lead to since such a thing was attempted earlier also. In April 2002, both petrol and diesel were put out of the administered price mechanism. But old habits die hard and oil companies still wait for government go-ahead to effect significant increase in prices. Needless to say, the government does not always oblige. On another front, the Rangarajan Committee report is out and it addresses the key issues of cost recovery mechanism in oil exploration and production operations. This contentious provision has now been replaced with production-linked payment system. In this issue we bring you an analysis of the impact of the Committee recommendations on private operators, user industries and consumers. Listen to the voices of experts in the field to understand the roadmap for oil and gas industry in case the recommendations are implemented. Read the curious story of Naftogaz India, which represented itself as a subsidiary of National Joint Stock Company, Naftogaz of Ukraine, claiming that Naftogaz, Ukraine, was the parent company. The story tells how contractors were charged with concealing and manipulating sensitive business information to secure handsome work orders in this niche EPC segment. The In-Depth in coal section brings you the story of restructuring of public sector behemoth Coal India Ltd. In power, our team has attempted to get a feel of how things are moving after so much of so-called government intervention to facilitate fuel supply to hungry plants. Moser Baer’s Lajpat Shrivastav shares the concerns that private power generators have and the possible way head. Our Off-Beat section offers insight into the deal between Abu Dhabibased Etihad Airways and Naresh Goyal controlled Jet Airways. If the deal happens, it would be the first after the government had permitted foreign airlines to pick up to 49 per cent in a domestic airline. This time the Photo Essay has some beautiful images of the engineering milestone achieved by Power Grid Corporation. While developed nations are still doing R&D on 1200 kV ultra high voltage transmission system, the staterun company has built a sub-station for the world to see.

SHASHI GARG Managing Director and Editor InfralineEnergy Research and Information Services For Advertisement and Subscription Please contact: Deepshikha Verma Tel.: +91 11 4625 0055 (D) | Mobile: +91 98997 52482 Email: deepshikha.verma@infraline.com Rakesh Ranjan Tel.: +91 11 4625 0078 (D) | Mobile: +91 99588 48386 Email: rakesh.ranjan@infraline.com

Editorial Shashi Garg, Editor Alok Sharma, Assistant editor Pallavi Karan Chakravorty, Assistant Chief-sub editor Neeraj Dhankher, Principal Correspondent Ankita Sharma, Business editor News Team Pankaj Bhagat Ankit Bhatnagar Analysts Debjit Das Richa Gautam Design Team Gopal Thakur, Art Director

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February 2013 www.InfralinePlus.com

InfralinePlus

Contents Editor’s Letter

Cover Story

34 Under the scanner: Rangarajan Report

Power News Brief

An analysis of the Rangarajan Committee’s recommendations for the E&P oil industry, especially with regard to profit sharing between the government and contractors and financial audit of oil and gas blocks by CAG. We also look at the proposed gas pricing regime and discuss how will it impact industries such as fertiliser and power. In Conversation: R.S. Sharma, former CMD, ONGC and Chairman, Hydrocarbon Committee, Ficci p39

Coal

News Brief

p22

In Conversation: Praveer Sinha, Chairman, TDDPL

In Conversation: Lajpat Shrivastav, CEO-Thermal, Moser Baer Power & Infrastructure Limited

In Depth: Can splitting up of Coal India fuel power generation?

p24

Pre-Budget: All eyes on the Railway Budget

p26

p12

Expert Speak: MS Nagar, former Chairman and Managing Director, Indian Rare Earths Limited

p28

Pre-Budget: The sector’s expectations ahead of Budget 2013-14

p16

Expert Speak: Shalabh Srivastava, Principal, Accenture Utilities, India

p30

Expert Speak: Jayant Deo, MD and CEO, Indian Energy Exchange Statistics

Statistics

p32

p18 p20

In Depth: Power sector reels under major manpower shortage

Topics Covered:

Human Resource crunch in power sector

Coal linkages

Distribution reforms

Infrastructure for coal transportation

Outsourcing operations

Coal block auction

Politicising the sector

Coal-India restructuring

Cover design by gopal thakur

February 2013 www.InfralinePlus.com

Oil and Gas

Renewable

News Brief

p42

News Brief

In Conversation: Captain David Glendinning, President, Teekay Gas Services

p44

In Depth: Delhi firm bags consultancy for Delhi station’s solar project p62

in Depth: OVL-Conoco deal to reduce India’s dependence on crude oil imports

p48

Pre-Budget: Domestic makers of PV cells seek protection from cheap imports p65

In Depth: Diesel may still not be deregulated

p51

In Depth: Naftogaz India: Did it conceal info to bag E&P contracts?

Expert Speak: Dipak Dasgupta, Principal Economic Advisor, Ministry of Finance p67

p53

Statistics

Pre-Budget: Oil ministry seeks higher excise duty to prevent dieselization of economy

p55

Statistics

p58

Topics Covered:

Policy watch

Green Climate Fund

E&P contracts

PV cells

Crude oil imports

Solar projects

Rangarajan report

Budget expectations

Interviews

InfraWatch: GMR Group scripts succession plan

Praveer Sinha,

Lajpat Shrivastav,

CEO, TPDDL

CEO-Thermal, Moser Baer

R.S. Sharma, former CMD, ONGC

David Glendinning, President,

Teekay Gas Services

p60

p69

p71

Off Beat

Etihad likely to pick up 24% stake in Jet Airways

p74

Plus - Photo Essay

A photo tour of the sub-station with the world’s highest voltage level of 1200kV by Power Grid

InfraRed: When Alice went to Wonderland…

p80

February 2013 www.InfralinePlus.com

NewsBriefs | Power

Alstom eyes Power Grid projects Aims to strengthen grids

Capacity increase at Mundra UMPP Tata Power to add 1600 MW

OPTCL JV with MCL Plan for inter-state transmission

Power Grid is set to roll out 10-15 new projects aimed at strengthening the existing grids. Looking at opportunities here is Alstom T&D India, the subsidiary of Francebased Alstom Group. The first tender for the exercise is expected to be released in the first quarter of 2013-14. Alstom is targeting to bag these projects that may offer business opportunities of nearly `3,000 crore.

Tata Power Co. Ltd, which is grappling with pricing-related problems at its 4,000 megawatts power plant at Mundra in Gujarat, may add 1,600 MW capacity to sell electricity in the open market to safeguard margins. The capacity addition, likely to cost `8,000 crore over three years, will make the plant India’s largest, overtaking Adani Power Ltds 4,620 MW facility, also in Mundra.

The new company is to develop intra-state transmission projects. Both PSUs will invest about `1,500 crore in the next five years. The two companies formed the Nilachal Power Transmission Private Limited and signed a shareholder agreement. A notification issued by the energy department said each shareholder would have equal equity and the JV would have separate transmission licence.

Second stage of work at Mouda NTPC to lay foundation soon

JSW Energy gets forest clearance 240 MW hydro project in Himachal

Coal Washeries ACBIL to commission 900MW plant

NTPC, will lay the foundation stone for the second stage of the 2,320 MW Mouda plant in Maharashtra. Mouda project’s second stage has two units of 660 MW. The project has two 500 MW units in stage one out of which one is already operational, second unit is likely to come on stream this year. Besides Maharashtra, electricity generated from the plant would be supplied to other states, including Gujarat and Madhya Pradesh.

JSW Energy has received forest clearance for its planned 240 MW hydropower project in Himachal Pradesh, making way for the company to start construction of the project. The project, being set up at a cost of about `2,000 crore, was awarded to the company in 2007 but has not taken off due to lack of clearances. Sajjan Jindal-led company which has an operational capacity of 2,600 MW and aims to scale up capacity to 11,770 MW.

Coal washeries operator ACB India is likely to commission 900 MW power generation capacity in Chhattisgarh by 2014, entailing a total investment of about `4,000 crore. There are two power plants in Chhattisgarh which are under construction - one is 300 MW and another is 600 MW. The 300 MW will be commissioned in December 2013 while the two units of 600 MW will come up in March and June 2014.

IMFA commissions first plant in Odisha Increases capacity to 258 MW

China Light & Power in fix Reconsiders India investments

Debt recast of SEBs AP to seek relief on `160 billion liability

Ferro chrome producer Indian Metals & Ferro Alloys Ltd, announced the commissioning of the first unit of its 2x60 MW captive power plant located at Choudwar, Odisha. While the interim captive power generation capacity stands at 198 MW with synchronization of the first unit, it shall go up to 258 MW when the second unit is commissioned in February 2013.

Fuel troubles in the power sector has made Hong Kongbased China Light & Power to reconsider its India investment if coal and natural gas supply to its two power plants was not streamlined. CLP currently has investments of around `12,000 crore across six states, with a power generation capacity of 2,700 Mw. The companys main concern is the lack of coal supply for its 1,320-Mw plant in Haryanas Jhajjar.

Andhra Pradesh power utilities will be seeking a relief on `16,000-crore liabilities under the Union power ministry’s debt restructure package. The ministry has already appointed Syndicate Bank to prepare the restructure plan, which will take 3-4 months to finalise.

Gulbarga Power project PSU to invite proposals

Bajaj Hindusthan quits 1,980 MW Bargad power project in UP

Butibori’s 2nd unit commissioned Reliance Power gives go ahead

Power Company of Karnataka Limited, a wholly-owned company of the government of Karnataka, will shortly issue a request for proposal documents to 22 bidders qualified for its proposed 1,320 MW Gulbarga coal-based supercritical thermal power project. The project is proposed under the Case-2 bidding framework as per the competitive bidding guidelines.

Bajaj Hindusthan has decided to pull out of the `10,000-crore, 1,980 MW Bargad power project planned in Chitrakoot district, following the recent exit of Jaypee Group from the R7,000-crore, 1,320 MW Karchhana project. The company had signed the memorandum of understanding with the Uttar Pradesh Power Corporation in December 2010, but not even 10 out of the required 13,000 acres have been acquired so far.

Reliance Power has synchronized the second of its two 300-MW units at its Butibori thermal power project near Nagpur in Maharashtra. Power generated will be distributed to industrial and distribution utilities in the State. The first 300-MW unit had achieved full load in August last year. With the commissioning of the second unit, the full 600-MW capacity of the plant will be available.

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February 2013 www.InfralinePlus.com

InConversation

‘Regulatory bodies have not been able to achieve anything much’

The current sorry state of affairs in the country’s power sector has made everybody sit up and think of ways to correct the situation. One point on which there is all-round consensus is that while generation needs to be ramped up, equal thought should be given to improving distribution. Chief Executive Officer (CEO) of Tata Power Delhi Distribution Limited (TPDDL), Praveer Sinha, in conversation with Pallavi Karan Chakravorty, talks about increasing the efficiency of state electricity boards, encouraging private players and his company’s focus on consultancy business. Excerpts: What, in your view, needs to be done to attract more private players to distribution sector? Private participation is happening in the power distribution sector but in a very limited way. In Delhi, Mumbai, Kolkata and Orissa it has borne results as well. The efficiency of the system has improved. In some places, private franchises have also been experimented with. Tata Power has a public private partnership (PPP) model in Delhi. When we took over from the Delhi Vidyut Board (DVB), there were aggregate technical and commercial (AT&C) losses of 75 per cent. Today (on March 31,

2012), they stand at a record low of 13 infrastructure and better administration per cent. We achieved this by changing in the distribution sector. the mindset of the employees most of whom we have The recent bailout package “Open retained from DVB. for SEBs is not a access is At present we are permanent solution. inevitable and working on a The entire functioning will become a franchise model needs a revamp. Do you reality sooner than for Jamshedpur. think SEBs should be later. Consumers The government privatized? should have the should definitely Certainly. Bailout is not choice to choose encourage more a permanent and viable their own source private participation solution. Though the recent of power.” to improve the `1.9 lakh crore package had a few functioning of the sector on pre-conditions, it is not the answer the whole. that we need. Lending institutions and banks have been What kind of reforms do you think asked to roll the sector needs? over the It is time to have a set of reforms balance for the distribution sector. When reforms were first introduced in 1992, maximum emphasis was laid on the generation side. It involved heavy capital and attracted investments from the biggest power companies across the globe. In the past decade, we have increased our installed capacity manifold. In around 1998-1999, various regulatory bodies were established for the power sector, but not much was achieved. It’s now time to strengthen distribution network and work towards reducing losses. It is not possible to bail out state electricity boards (SEBs) or provide huge subsidies all the time. We have to switch over to smart metering across India as it will help reduce the AT&C Praveer Sinha, CEO of Tata Power Delhi Distribution losses. We need better Limited (TPDDL)

February 2013 www.InfralinePlus.com

50 per cent of the utilities’ debt, with a three-year moratorium on repayment. On their part, states must undertake milestone-linked reforms which include, besides yearly tariff revisions, changing managements of loss-making distribution companies, and moving towards a franchisee-based privatisation of select circles. As regards privatizing the SEBs, that is something the respective state governments must take a call on. Recently, we have been approached by Jharkhand for running a franchisee distribution network. Delhi will be islanded in time to come, in order to avoid slipping into darkness in case of a grid collapse. Being one of the major power distributers in the capital what would be TPDDL’s role here? We already have a 108 mw power generating plant in Delhi which would be supplying power for islanding also. We would need to prioritise where all we would have to supply power in case of an emergency. All that is being worked out. Some infrastructure needs to be built, to cover the entire city. Plus, we already have some experience with islanding, when Tata Power did islanding in Mumbai. Do we have the infrastructure required for going ahead with islanding? Yes, we do. There are a few infrastructural bottlenecks, which can be easily resolved. Do you think open access would promote healthy competition? Open access is inevitable and will become a reality sooner than later. Consumers should have the choice to choose their source of power as is the practice in other sectors such as telecom. There are a few cross-subsidy issues that need to be clarified after which open access can be implemented. In fact, it has been implemented in certain pockets

In around 1998-1999, various regulatory bodies were established for the power sector, but not much was achieved. It’s now time to strengthen distribution network and work towards reducing losses. It is not possible to bail out state electricity boards (SEBs) or provide huge subsidies all the time. We have to switch over to smart metering across India as it will help reduce the AT&C losses. We need better infrastructure and better administration in the distribution sector. in Mumbai, it would take time to be implemented in the entire country. Any major initiative in the pipeline? Which has been your very successful initiative in the past? We are concentrating a lot on consultancy services. Recently we signed up for consultancy with Uttar Pradesh. Overseas also, we are doing a lot of consultancy in Africa. It would be a major focus for our business in future. One of our major success stories has been the JJ Colony schemes. These were areas where there were heavy power thefts. We installed meters here and encouraged them to pay for whatever power they used. We also gave them a free insurance cover of `1 lakh for every meter installed. We also conduct adult literacy classes for women and training programmes for men. What is your take on smart grids? TPDDL has successfully implemented a smart metering project on pilot basis. A smart meter is essentially a state-ofthe-art metering device which has bidirectional capabilities between the utility and the customers. Smart metering also includes connecting with the customers’ appliances to capture individual consumption on real time basis. We plan to use GPRS/PLC enabled smart meters with remote reading, connect/disconnect, remote

load setting, capabilities to store meter data for specific duration with sufficient on-board memory, tariff reconfiguration, register status, meter serial number validation, on-demand end of billing, meter reconfiguration, generate meter tampering and meter investigation events etc. TPDDL aims at scaling up smart metering to offer best of class services to its customers by way of improved billing, load management, revenue protection, energy-efficiency and demand side management features. This real time technology shall be implemented in phases. It is expected that use of smart meters with integrated approach will not only improve commercial efficiency but will significantly lead to increased consumer satisfaction /interaction / experience and empower customers for their demand management. Has the tariff rise helped in reducing the T&D losses of TPDDL? Tariffs were revised in 2012 after many years — in states such as Tamil Nadu after seven years. This hike was long overdue as power procurement costs have gone up by more 70-80 per cent in the past few years with rise in prices of fuel, both coal and gas. For full version of the interview, visit www.infraline.com For suggestions email at feedback@infraline.com

February 2013 www.InfralinePlus.com

InConversation

‘Need to reduce normative PLF, allow pass through of coal cost’ A mechanical engineer with masters in business administration, Lajpat Shrivastav, Chief Executive Officer (CEO)-Thermal of Moser Baer Power & Infrastructures Limited, a fast-growing integrated power player, talks about the challenges being faced by private players in the absence of adequate supply of coal and the need for a coal regulator. Excerpts from interview:

Where do you see the power sector heading and what are the challenges? The power sector is going through a bad patch right now because of two types of problems. While there are certain things that are well within the government’s control, there are few other things that would need some time to correct even with the best intentions of the government. Liberalization of the power sector by the government attracted private sector companies to make large investments during the Eleventh Plan. One must appreciate the fact that as compared to Tenth Plan, private players added about 45,000 mw power generation capacity in the Eleventh Plan, which is a significant development. Further over 1,00,000 mw capacity projects are in various stages of development by private sector and will get commissioned over the next couple of years, including in Twelfth Plan. What according to you is under government control and what needs to be done to infuse enthusiasm in the private sector companies? Both public sector and private sector

large, capital-intensive projects. There are a number of areas where small initiatives in addressing the policy mismatches can help the sector significantly. Some examples are— Coal India Limited (CIL) requires signing of power purchase agreements (PPAs) with distribution companies (discoms) for long-term companies have plans to add supply of power Till capacity. Typically in public to allow signing there are sector there is not enough of fuel supply case-1 bids emphasis on return of agreements (FSA) for purchase of investments while setting power, developers with developers. can not tie up for up power projects, whereas Unless there sale of such power in private sector companies are case-1 bids through long this is a very crucial issue for purchase of term PPAs. to examine while setting up power, developers cannot tie up for sale of such power through long-term PPAs. This issue can easily be addressed by allowing short and medium term PPAs for the purpose of signing FSA, as an interim measure. Another example is: Unless Standard Bidding Document (SBD) for case -1 bidding is revised to address the coal issue, no discom is going to invite bids, lest they get tied up with high cost of power for 25 years. Right now due to uncertainty in coal supply by CIL, no developer is certain as to how much coal will come from indigenous sources and how much from imported sources. In such a scenario it is natural that developers will build cushion while quoting tariffs over long periods, to ensure they do not suffer losses. Solution lies in either reducing the normative plant load factor (PLF) for capacity charge, or make coal cost Lajpat Shrivastav, CEO - Thermal of Moser Baer completely pass through in the tariff. Power & Infrastructures Limited

February 2013 www.InfralinePlus.com

Another example: Government of India started ultra mega projects with lot of fanfare. But now when the first set of such projects are stuck, the government is not coming forward with any kind of help. If these projects become unviable, it will send a very wrong message to the sector. There are many such examples and they have been discussed with Power Minister Jyotiraditya Scindia in the meeting organized by the Association of Power Producers (APP). One thing is clear, unless the government sends out clear message to the sector that it will not allow the assets to become NPAs right from the beginning, the investor confidence will not be restored and further investment will suffer. It means there are issues other than availability (or the lack of it) of coal which are creating problem? Is lack of clarity from the government also adding to the problem? Coal availability of course is a problem. It is a recognized fact that there is coal shortage in the country. However it is surprising that the GoI or CIL is not coming forward in a clear manner to show how this issue will be dealt with in the interim till coal production is augmented. While it is heartening to see that GoI has constituted committees to study these issues and make recommendations to ease the situation, the recommendations are not implemented with same speed and focus.

Coal price forms a significant component of tariff. While regulatory framework has been set for power sector, in spite of the need being felt within the government, no regulator has been set up for coal sector. This is an urgent requirement. It will help in monitoring the progress, pricing and distribution policy for coal blocks allotted to private sector.

Ministry of coal and power need to jointly come out with interim policy / strategy to address the shortage of coal supply. Coal price forms a significant component of tariff. While regulatory framework has been set for power sector, in spite of the need being felt strongly within the government, no regulator has been set up for coal sector. This is an urgent requirement for the country. This step will also help in monitoring the progress, pricing, distribution policy etc for the coal blocks allotted to private sector. Coming to Moser Baerâ&#x20AC;&#x2122;s thermal project at Anuppur, where are you stuck? By when do you feel the project in Madhya Pradesh would become operational? We had a plan to become a 5000 mw company within first five to six years. We are moving forward according to our plan and have developed two projects with overall 4000 mw capacity. The first is the Anuppur Phase-I where we have completed about 60 per cent of the work and the unit is likely to be commissioned by December this year or early January next year. The problem we are facing is of case-1 bids which are not coming as state electricity boards do not want to take the risk of committing to high price power and without a bid Coal India would not commit coal supplies. We are concerned about the coal supply for the project when it gets commissioned. We do have a joint venture with Chhattisgarh Mineral Development Corporation where we

February 2013 www.InfralinePlus.com

InConversation

are developing a small commercial coal block. Since the block does not have huge resources, we may be able to fill some part of shortfall from this block, but it is too small a block to be of much help. This uncertainty over coal supplies is forcing us to go slow on other projects that we had earlier planned. We have plans to develop 1320 mw unit in Chhattisgarh and another 1320 mw at Anuppur in phase-2. These two projects are ready for implementation with land acquired, all clearances tied up, but we will start the execution of these projects only when we see comfort in the coal sector.

assume that the governmentâ&#x20AC;&#x2122;s approach towards the sector is casual? No. I would not say that. I believe the governmentâ&#x20AC;&#x2122;s intentions are right otherwise it would not have brought a young and dynamic leader like Jyoritaditya Scindia into the ministry. We sincerely believe that the problems would be addressed sooner than later as the country cannot afford to miss the bus this time. I am sure that the government is fully aware that slowdown in power sector will have adverse impact on the overall economy and GDP growth.

We understand that there are issues at several fronts ranging from coal supplies to signing of fuel supply agreements. Are there challenges at lending front as well? While lenders such as State Bank and Axis Bank are lending to power companies even when Fuel Supply Agreements (FSAs) are not signed, but linkage is granted by Coal India / ministry of coal, public sector companies such as Power Finance Corp and Rural Electrification Corp insist on FSA before lending. These institutions come under the ministry of power and know the constraints being faced by developers with regard to FSA and therefore, they need to evaluate whether coal linkage is available or not, like any other bank or FII. But putting FSA signing as a pre-condition for funding is something developers are not able to solve and this creates a stalemate. Being the finance companies, which are specific to power sector, they should realistically align themselves with the sector and lend money considering the practical issues in the sector.

The uncertainty over coal supplies is forcing us to go slow on projects that we had planned. We have plans to develop a 1320 mw unit in Chhattisgarh and another 1320 mw at Anuppur in phase-2. These two projects are ready for implementation with all clearances tied up, but we will start the execution of these projects only when we see comfort in the coal sector.

With all these issues plaguing the sector, would it be right to

Do you see it encouraging particularly for the private sector companies where Coal India is not participating in 17 blocks that would be auctioned now? Does that mean serious private companies would now have little more surety on coal supplies? The policy for auction of such coal blocks may have to be such that private sector can participate. Right

now as far as I know there is some confusion in this area. However I believe that even earlier coal blocks were allotted to private sector for end use of power projects, but because of the various difficulties faced by them in getting environment clearance, land acquisition etc, these blocks have not been developed so far. In parallel with concentrating on the allotment of fresh coal blocks, the government should also think of setting up a common / monitoring ministry for helping such developers in starting the production from such coal blocks. What are your views on sharing of surplus coal within a company? Even when the Planning Commission had proposed to allow it considering the wider benefits, coal ministry seems to oppose the idea as it would throw open a bigger challenge for Coal India and the ministry ? In view of such huge shortage of coal in the sector, it will be a welcome step to allow sharing of surplus coal within a company to develop other projects. This will reduce pressure on coal ministry as well as CIL. Not only this, it will be further helpful if MoC / CIL introduces incentives for increased production from the allotted coal mines which will ultimately help the sector. It is now time for the government to seriously think of removing the monopoly of CIL in coal production, in line with most other developed countries. This can only happen if a regulator is set up and blocks are allotted to private players and a central ministry is set up to assist them in obtaining all the clearances in a timely manner.

For full version of the interview, visit www.infraline.com For suggestions email at feedback@infraline.com

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InDepth

No manpower in power ►► Infrastructure for training is only 3-4 per cent of required capacity ►► Mismatch in aspirations of MBAs, unwillingness to work in remote areas key challenges by Pallavi Karan Chakravorty

The power sector needs 500,000 qualified professionals by 2017, as per a Planning Commission estimate, but we have training infrastructure for only three per cent of the required capacity. This is one of the key reasons behind a huge manpower shortage in the sector and has added fuel to the fire of raw material shortages and lack of reforms. While incentives for investors to set up power plants have led to a surge in their numbers, particularly in the past few years, commensurate planning for manpower to run these plants at various levels has not taken place. The total manpower deployed in power sector by the end of 12th Plan (by 2017) will

be 14.25 lakh, out of which 10.83 lakh (76 per cent) will be technical and 3.41 lakh (24 per cent) will be non-technical. Man / mw ratio at the end of 12th Plan would be 4.74. For a capacity addition of 94,215 mw (including renewable), the additional manpower requirement will be of 4.07 lakh out of which 3.12 lakh will be required in technical areas and 0.94 lakh in non-technical.

Few training facilities Even though the country produces a large number of new engineers every year, it is not possible to deploy them without proper training. Power projects require specialised skills during project

Ministry of New and Renewable Energy has set up Sardar Swaran Singh National Institute of Renewable Energy in Kapurthala, Punjab

construction phase as well as the operation and maintenance (O&M) phase. Due to the technology intensive nature of the business, technical and managerial competency is critical in ensuring timely implementation of projects and optimum performance upon commissioning. As per the estimates of the Central Electricity Authority (CEA), a statutory body of the ministry of power which among other things is responsible for promoting measures for advancing the skills of persons engaged in electricity industry, the infrastructure required for refresher training is woefully inadequate in the country. There are only 72 institutes

February 2013 www.InfralinePlus.com

recognized by CEA to impart training in thermal, hydro, transmission & distribution (T&D) management and provide induction programmes ranging between six months and one year for engineers, operators, supervisors and technicians based on the technology area. As per 12th Plan, the overall training load is estimated to be 24.73 lakh man-weeks/year against the available training infrastructure of 19.45 lakh man-weeks/year. Thus, there is a deficit of training infrastructure for 5.27 lakh man-weeks/year. Consultancy firm KPMG, in a recent report on the power sector states, “There is a general consensus that talent in the power sector is drying up as candidates are seeking alternative – and often more lucrative – career options. The government, which is the biggest buyer of the capital projects, has also not done enough to address this challenge. The education system is often not delivering the required number of specialists across project management, engineering, estimating, surveying and contract management.”

There are only 72 institutes to impart training in thermal, hydro, transmission & distribution (T&D) management and provide induction programmes ranging between six months and one year for engineers, operators, supervisors and technicians based on the technology area.

A class in progress at Indore Institute of Management and Research

Seniority an issue Most big companies recruit only senior, experienced professionals at all levels and it is difficult to augment their numbers in a short period of time. There is a huge deficit in infrastructure for managerial training, the current capacity making up only 4 per cent of the requirement. This impacts decisionmaking capabilities of organisations. Traditionally, business schools have focused on imparting generic skills in finance, marketing, operations or human relations to management professionals, leaving them to learn the specifics of a particular sector on the job. It is only now that specialized management institutes catering to the requirements of power sector have come up such as The Energy and Resources Institute (Teri), Institute of Energy Management and Research (IEMR), Management Development Institute (MDI), National Power Training

Sr Area No 1 2 3 4

Thermal Hydro Nuclear Power systems Transmission Distribution Total

Man Power projection for XIIth Plan New recruitment Total manpower Capacity Tech Non- Total Tech NonTotal addition tech tech (MW) 82211 * 42.18 13.06 55.24 151.97 51.05 203.02 9204 12.2 3.44 15.64 59.19 21.94 81.13 2800 3.07 1.31 4.38 13.03 5.84 18.87

94215

Total capacity (MW) 238744 52095 10080

5.98 2.09 8.07 30.83 9.95 40.78 249.49 74.85 324.34 828.86 253.13 1081.98 312.92 94.75 407.67 1083.88 341.91 1425.79 300919

*Includes Capacity addition of 18,500 MW from Renewable Energy All figures in thousands

Manpower Availability vs. Requirement Colleges Total Annual Colleges Intake * Engineering 3617 11.3 Management 4058 4.15 Polytechnics 540 0.93 ITI 8039 11.15 Total 16254 27.53 * Figures in lakh

Total for Five years * 56.5 20.75 4.65 55.75 137.65

Manpower Requirement for 12th Plan * 0.58 0.56 1.99 3.13

February 2013 www.InfralinePlus.com

InDepth

Alternate Hydro Energy Centre was set up at Indian Institute of Technology, Roorkee, in 1982 to cater to the requirement of manpower in renewable energy

Institute and the University of Petroleum and Energy Studies (UPES). Simmi Tikkoo, Manager, Career Services, UPES says, “We have domain specific courses pertaining to the various arms of the energy sector. Our academic council revises the curriculum every year to keep up to date with the changes and developments in the sector.”

Too many chasing too few Most of the current trained manpower is being derived solely from a few public sector companies which are also the biggest recruiters and provide their own training to workforce, such as the National Thermal Power Corporation (NTPC). The industry needs to attract and develop fresh talent to assume engineering, managerial and leadership roles in order to sustain the growth. Executive Director and CEO of Gammon India, NC Venugopal, says, “I am somehow managing my operations with two general managers whereas I need at least five. Finding someone with a robust experience is tough. The kind of skill set we require is difficult to find, which is why recruitments are sometimes very slow. The situation is sometimes very difficult.” According to KPMG, “Facing a desperate game of catch up, the industry needs a genuine collaboration between project owners, contractors

While specialized management institutes have come up to cater to the requirement of managerial positions, companies which recruit from these institutes deploy candidates in field operations and it and governments to attract more school pass-outs and graduates.”

Changing aspirations While specialized management institutes have come up to cater to the requirement of managerial positions, companies which recruit from these institutes deploy candidates in field operations and it takes decades before they get to do what they had learnt in the institute. This creates a mismatch in their aspiration and ground reality, forcing many to leave the sector for greener pastures. There is also the issue of unwillingness of people to work in remote areas, which sometimes is inevitable in case of power projects. A senior official from NTPC on condition of anonymity says that a major issue is exodus of junior engineers from remote areas after a couple of years. “Most of these boys join us to gain

some experience and leave after one or two years to shift to metros. Despite us providing with the best of amenities and facilities and increasing the overall package, this is one problem we are finding very hard to address.” According to KPMG, “Companies should stay in touch with changing employee aspirations. By encouraging diversity in its employment practices and by offering greater flexibility in working hours, the sector can reach out to a wider potential audience that perhaps would not previously have considered such a career. Investment in existing employees is also crucial in order to offer betterdefined career structures, with a greater focus on training and higher salaries where possible.” With increasing focus on renewable energy, there is an opportunity to productively engage lakhs of people in small hydro, bio-fuel, solar and wind energy projects. Specialised areas such as ensuring energy efficiency, demand side management and power trading also require specialised manpower, provided adequate training infrastructure is available. Improving productivity can help reduce the manpower requirement per mw. It is already projected that the overall man / mw ratio at the end of Twelfth Plan would come down to 4.93 from 7 at the end of Tenth Plan. However, this also increases the criticality of each employee and hence the importance of adequate training. As the industry grows rapidly, it faces challenges across all areas – generation, transmission and distribution. While the initial growth may be spurred by investments, timely execution and long-term performance would require addressing different challenges that the industry faces including attracting fresh talent, updating the skill sets of existing personnel, bringing about attitudinal and behavioural shifts and building managerial competencies. For suggestions email at feedback@infraline.com

Power Sector Knowledge Base

Infraline Knowledge Bases are massive compendium of in-depth Screenshot Power Knowledge Base and exclusive information on the current scenario, players, project details, tenders, news, reports, analysis and other key topics spanning across the Energy vertical. It is presented online in a well-structured format for ease of navigation and can be accessed through a SectorSpecific Annual Subscription Model. Key Highlights

Membership Deliverables Power Knowledge Base ▪▪ Unlimited▪access to Power KB with real time updates ▪▪ Tenders: Domestic and Global tenders with real time updates in the sectors such as Power, Coal, Oil & Gas, Transportation, Infrastructure, Consultancy, EPC Products and Public Private Partnership enabled with a refined search option to quickly retrieve specific details. ▪▪ Newsletters: With a total circulation to 60,000+ top professionals in the energy sector, the popularity of Infraline’s newsletter is unprecedented > Daily▪Newsletter: Breakfast news having the most coveted information on power sector delivered to your inbox sharp at 9:00 A.M > Weekly▪Newsletter: Summary of the key events covering sector specific Projects/ Orders and Deals/ Weekly News/ Finance and Investments. ▪▪ Industry▪Connect: Our experienced editors delve deep into the current issues of Power sector to bring forth the view points of Industry stalwarts. > Opinion: Energy veterans write a column on various issues affecting the Indian Energy sector >▪POV:▪People from different sectors debate on a hot topic and analyze it’s various aspects >▪Interviews: Get to know the inside stories of the who’s who in the energy sector ▪▪ Dedicated▪Analyst▪Support:▪A special service catering to the information needs of the clients ▪▪ Special▪Membership▪Benefit: >▪10%▪Discount on Reports and Publications

Sector Overview: Detailed overview of the Indian Power Sector, including its evolution, latest status, recent happenings, policy changes, and a glimpse of key statistics related to the sector. Power Projects: More than 1000 project profiles with updates status on Project cost and Expenditure, Fuel availability and Sources, Finances and PPA, Clearances and Approvals, Commissioning Schedules, etc Power Sector Players: Detailed profiling of major power sector players and their projects Generation: Installed Capacity and expansion plans segregated into Central, State and Private Sector with actual electricity generation data Transmission: Data including information on smart grid, UI, capacity expansion Distribution: Sectoral data on state wise status of power loss and theft data, franchisee details, SEB financials Fuel Availability: Study of availability of major fuels for power sector, i.e, coal, natural gas, hydel power, diesel and their associated prices and demand projections Power Tariffs and Merchant Prices: State wise Power tariffs and exclusive data on Power exchange and Merchant prices Updated Status on important reforms such as Open Access, RGGVY and RAPDRP. Archival data of 12+ years which include daily updates and news items Acts, Policies, Guidelines & Important Documents and Notifications, Regulations, Orders issued by Central Government, State Government, Central and State Electricity Regulatory Commissions and other relevant authorities. Important Reports and Presentations on Power Sector Performance, Reports on Specific Reforms, Power Sector Studies, Special Committee Reports and General Reports, Presentations and Deliberations of Infraline Energy’s Conferences and Round Table Discussions, Presentations made by MoP, CEA, CII, TERI. For any further information, kindly contact us on below mentioned coordinates:

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February 2013 www.InfralinePlus.com

Budget Expectation Power 2013-14

Power sector ready with a long list of demands ►► From distribution reforms to better fuel supplies, industry looks for some real sops ►► Equipment makers seek exemption from service tax and want higher depreciation

With nothing to cheer them up in the new year and with little prospects of improvement in fuel supply situation in the near future, power companies are keeping their fingers crossed for some succor from Union Budget. While 2012 was perhaps the worst year in the history of the sector in India, what with two historic grid failures which plunged half the country in darkness end July, it’s not as if last

year’s budget had nothing to offer to the sector. In fact, the then finance minister Pranab Mukherjee had doled out various sops for power companies including allowing them to tap external commercial borrowing (ECB) route to part re-finance rupee debt on their plants and increasing the sector’s tax-free bond limit by 100 per cent to `10,000 crore from `5,000 crore. Full basic duty exemptions were extended to fuels

such as natural gas, liquified natural gas (LNG), uranium concentrate and sintered uranium dioxide in natural and pellet form. Further, the last date for power generating projects to seek tax holiday was extended by one more year till March 31, 2013. A big plus was proposals to do away with customs duty on imported fuel and directing Coal India to sign fuel supply agreements with power projects to give a boost to energy generation. Despite all these measures, the scenario hasn’t improved much partly because it takes time for policy measures to translate into reality on the ground and partly because certain issues cannot be tackled through tinkering with tax and duty structures alone. Still, companies look forward to budgets every year in the hope that something may bring about a change in their fortunes.

Generation companies National Thermal Power Corporation (NTPC), the country’s biggest power generator, wants the Centre to take quick decisions on fuel supply. Chairman and Managing Director Arup Roy Choudhury, on his expectations from the upcoming Budget, says, “The year 2012-13 has witnessed some serious problems relating to fuel supplies to power plants. Though some initiatives have been taken to sort out the issue, the concern of NTPC on steady supplies of coal to its fleet of power stations still needs to be addressed.” He says NTPC has no

February 2013 www.InfralinePlus.com

control over extraneous issues which are hampering power generation and capacity expansion schedule. Apart from inadequate fuel supply, the delay in land acquisition and environmental clearances as also tariff revisions and distribution reforms are the issues which NTPC wants the government to address. As of now, 35 power firms have entered into fuel supply agreements (FSA) with Coal India (CIL), out of 114 which were required to do so. Some of the power units which have signed FSA are Bajaj Energy, Rosa Power, Mundra Adani and Sterlite Energy.

Equipment manufacturers While fuel supply seems to be the major concern of power generators, Indian Electrical and Electronics Manufacturers’ Association (IEEMA), the apex representative body of manufacturers of electrical equipment, professional electronics and allied equipment, wants the government to extend service tax exemption to power generation, transmission and distribution related services. Rajeev N. Ketkar, Assistant DirectorPR, IEEMA says, “We want a refund of excise duty paid by the domestic manufactures as deemed export benefits. We demand higher and accelerated depreciation to be allowed for construction equipment at the site at 30 per cent from the present level of 15 per cent so that the equipment can be written off in 10 years. This would enable companies to bring in better technology in manufacturing sector where newer technologies can reduce project cycle time.” The association expects the government to focus on encouraging manufacturing and creation of level playing field for the industry to maintain its competitiveness. On interest on excise duty for differential price, IEEMA has called for amendment to sub rule 4 of Rule 7 of Central Excise Rules, 2002, replacing “the month for which the duty is determined’ by ‘the month in which the duty is determined’, to avoid applicability

of interest. It has suggested that entire tax be paid either by the provider or the recipient of the service. The generation equipment sector forms 26 per cent of the total industry and the transmission and distribution (T&D) equipment sector comprises the rest 74 per cent. Growth rate of electrical equipment sector decelerated to 6.9 per cent in 2011-12 as compared to 11.3 per cent and 13.7 per cent in 2009-10 and 2010-11, respectively. For the first time in 10 years, the electrical equipment industry saw a negative growth of 3.9 per cent in the first five months of the current fiscal (2012-13).

The power distribution sector wants itself to be viewed not from the prism of generation but as an independent sector which has needs and demands of its own. Managing Director- Power Service, Sarajit Sen of Doosan Power Systems says, “I have just one request to make to the government—stop favouring Bharat Heavy Electricals (BHEL) for contracts and deals. It is unfair in a sector where you want to private investors to come. In a competitive market, this is something which is highly disappointing.”

Transmission sector The power distribution sector wants itself to be viewed not from the prism of generation but as an independent sector which has needs and demands of its own. Chairman of BSES Yamuna Power Limited, Ramesh Narayanan, says, “The government has to initiate investments at the distribution level. For every 1 mw being generated, we need an investment of 2.1 mw. We need a new set of distribution reforms. We never focused on the transmission and distribution sector. We also need a financial, legal and admin-

istrative framework. It is high-time we concentrated on the downstream. And as earlier given to the generation sector, even the distribution sector should be given exemptions, at least initially.”

Industry bodies The Confederation of Indian Industries (CII) has stressed on the need for fast tracking decision-making process for approval of projects. It has suggested that the government by putting in place necessary policy measures should clear 50 large projects in consultation with state governments and relevant ministries within a pre-decided time frame – such as 30 days. It should expedite the setting up of National Investment Board, raising rate of depreciation from 15 per cent to 25 per cent for investment in plant and machinery in a pre-defined period of three years and raising `50,000 crore (out of the `4 lakh crore) for asset creation through facilitating the settlement of funds locked up in disputes and litigations. The Federation of Indian Chambers of Commerce and Industry (Ficci) wants import of power to be under open general licence to tap power generation potential in neighbouring countries. It also wants incentives to be given for hydro-projects to promote development of clean energy and combat challenges faced by fossil fuel based plants. Ficci has also raised its voice for increasing lending capacity of banks to power sector since many public sector banks have reached their lending limits. Though in the last year’s budget, tax holiday for power plants was extended till 31st March 2013, the apex industry body is demanding it to be extended for five years. With demands galore, it will once again be a tight-rope walk for the finance minister. Though if the Centre really wants to fuel growth, it might add some fuel to this sector as well.

For suggestions email at feedback@infraline.com

February 2013 www.InfralinePlus.com

ExpertSpeak

‘Efficiency in power can improve GDP by 10%’ Jayant Deo, the MD and CEO of India’s first power exchange - Indian Energy Exchange has been instrumental in pushing ideas that would make power distrubution sustainable. He understands the strong linkage between energy, economy and ecology and considers “tariff making” as a potent tool for ensuring sustainable development. Here he pens down his expectations from the Budget...

A farmer never eats the seed that he has electricity but take urgent policy preserved, even in the worst famine. directions to implement long-pending Electricity is like seed for gross domestic reforms envisaged in the Electricity product (GDP). Every kilowatt hour Act 2003. The finance ministry is under produces GDP equal to `100, which in pressure to reduce deficit and bring it turn generates tax revenue of Rs15 for down to around 5 per cent of GDP. I the country. The GDP is twenty-five recommend above course of action for times the cost of power and tax revenue fulfilling the very objective. is almost four times, against a few paisa There have If of direct tax on electricity–be it service been efforts by power tax on transmission / transaction or the petroleum generators consumption duty. ministry to can’t sell to By behaving like the farmer, reduce subsidy willing buyers, the country will reap the benefits then investments for LPG in generation of improved GDP, employment, cylinders, diesel will exports and and kerosene. stop. tax collection. However power Budget for sector, which has more 2013 should than 10 per cent scope for improving not only GDP, is not focused at all. That the remove improved GDP also adds 15 per cent direct to tax kitty is not understood or has not taxes been acted upon in the power sector. on On the contrary, funds have been diverted to power sector through repeat packages to bail out the unwilling and ailing state distribution companies (the very distribution companies, which are refusing to implement competition spirit of the Electricity Act 2003). In the process of maintaining monopoly, the governmentJayant Deo owned discoms resort to MD and CEO, IEX

rotating blackouts at the cost of societal productivity including idling of new generating capacity thereby throwing up NPAs, threatening banking and financial sector. Inefficient discoms, refusing to meet competition, have been rewarded with one more chance. Apparently, lack of understanding of potential of the sector in reducing fiscal deficit, is responsible for non implementation of full reforms mandated by the Act. The finance ministry should tighten screws on power sector and strictly link funds flow to implementation of reforms. Unlike the petroleum sector, power falls under concurrent list and the states are not very willing for reforms. Hence the role of finance ministry is all the more important. The Act provides for power supply to all through market development. With administered or regulated prices markets cannot develop. Hence the Act deregulates tariff for all those consumers who have been given the choice of supplier. After three years of efforts on my part to convince, in November 2011, law ministry and power ministry came out with a circular explaining that the tariff for the bulk consumers needing more than one mega watt power, is deregulated. The ministry of power also came out with a direction to all chairmen of regulatory commissions in April and August 2012. Though the Act prescribed January 2009 as the deadline for deregulating tariff and choice for one megawatt and above consumers, till date there is no de-regulation of tariff for any category of consumers in the country, nor do discoms allow free choice.

February 2013 www.InfralinePlus.com

The failure to de-regulate tariff has had a wide impact on state and Central fiscal deficit. The first and foremost impact is on small (retail) consumers who are burdened with higher tariff, which many resist by not paying. The tariff policy is meant for retail consumers, which uses average-cost-of-supply model for retail tariff determination. By continuing to add power required by one-megawatt-plus consumers, the average cost and hence retail tariff is going up. New power is expensive which increases direct subsidy burden on states and further impacts the financial health of ailing discoms. To limit the losses, discoms resort to rotating black outs, even if power is available. This in turn underutilises the new generation capacity pushing up NPAs of financial institutions. Many are forced to use expensive diesel generators where current subsidy through diesel price is `3 per kilowatt hour.

Indian Coal Washing Industry: Present & Future Developments Key drivers with detailed profiles of Coal Washeries December 2012 TM

Solution Driven

Indian Coal Washing Industry: Present & Future Developments Key drivers with detailed profiles of Coal Washeries December 2012

Lack of understanding of potential of the sector in reducing fiscal deficit, is responsible for non implementation of full reforms. By not implementing reforms, inefficient discoms are standing in the way of willing industrial customers buying from willing sellers. If industry cannot buy power at cost effective rates, then it cannot grow. And if power generators cannot sell to willing buyers, then investments in power generation will stop. If discoms cannot meet the aspirations of industry and people–and if they are standing in the way of India recognizing its full potential–then we must find the solution. This solution is known, and many steps have already been taken. The reforms are already mapped out. It is just the implementation and enforcement that is the need of the hour. Imagine what industry could do if it could access reliable power at even `7 per unit? Today their only choice is to generate back-up power using diesel genset which costs more than `12 per unit therefore making several businesses unviable (in addition to increasing diesel subsidy burden on the government). Just like a road or stream passing through undeveloped land can make that area flourish, so power can make industry and growth flourish. As per estimates, with full implementation of reforms the current power capacity will wipe out the artificially created 10 per cent energy shortage (800 crore units). This will add `80,000 crore to GDP. The tax revenue will increase by over `10,000 crore. Thus the Budget 2013 with pre-corrections should concentrate on power sector and bring it under fiscal discipline through much needed reforms. The views in the article of the author are personal For suggestions email at feedback@infraline.com

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InfralineEnergy Business Report Series

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Key Highlights ▪▪ Existing▪policies▪mandate▪use▪of▪better▪quality▪ coal▪for▪power▪plants▪which▪are▪located▪beyond▪ 1000▪km▪from▪the▪coal▪mines▪and▪those▪located▪in▪ sensitive▪areas.▪However,▪very▪few▪power▪plants▪are▪ complying▪with▪this▪rule.▪In▪future▪the▪distance▪is▪ proposed▪to▪decrease▪to▪500▪km,▪which▪will▪further▪ drive▪the▪growth▪of▪coal▪washing▪industry▪upwards. ▪▪ Overview▪of▪Global▪scenario▪in▪coal▪washing ▪▪ PESTEL▪framework▪analysis▪governing▪coal▪ washeries▪in▪India ▪▪ Developer▪wise▪profiling▪of▪over▪99▪coal▪washeries▪ including▪existing▪and▪upcoming ▪▪ Challenges▪and▪opportunities▪in▪development▪of▪ coal▪washeries ▪▪ Sources▪of▪raw▪coal▪&▪coal▪type ▪▪ Details▪of▪washery▪developers▪&▪promoters ▪▪ Profiles▪of▪coal▪washery▪equipment▪manufacturers ▪▪ Success▪stories▪and▪business▪models▪of▪setting▪up▪ of▪coal▪washeries▪and▪rejects▪based▪power▪plant For any further information, kindly contact us on below mentioned coordinates:

Garima Singh, Sr. Associate - Business Development

Ph. +91 11 4625 0027 (D) 4625 0000 (B), Mobile: 8010712843 Email: garima.singh@infraline.com

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StatisticsPower Power Tariff of Thermal Power stations of Central Generating Stations and Joint Venture Companies Name of company

NTPC Ltd. NLC Ltd.

NEEPCO Ltd.

RGPPL

Power station

Average power tariff of all NTPC stations TPS I TPS I Exp TPS II ST-I TPS II ST-2 Assam Gas based Power Station Agartala Gas Turbine Project Ratnagiri gas based power station Pragati -III Gas based Combined Cycle Power Station Bhilai Expansion Power Plant (2x 250 MW)

Pragati Power Corporation Ltd. (PPCL) NTPC -SAIL Power Company Private Limited (NSPCL) Aravali Power Com- Indira Gandhi STPS, Jhajjar (Haryana) pany Pvt. Ltd.

2009-10 2010-11 2011-12 2012-13 INR / INR / INR / INR / kWh kWh kWh kWh 2.27 2.63 2.96 2.62 3.07 2.27 2.3 2.54

2.83 3.1 2.36 2.39 3.1

2.99 3.14 2.48 2.5 2.95

2.26

3.03

3.22

4.61

3.81

3.86 5.53

2.99

2.96

3.17 3.12 2.53 2.54

4.26

3.77

5.534

5.02

Note : The tariff in INR/kWh is inclusive of energy change in case of thermal stations.

Power Tariff of Hydro Power stations of Central Generating Stations & Joint Venture Companies 20

Name of company

Power station

NHPC Ltd.

Bairasiul Loktak Salal Tanakpur Chamera-I Uri Rangit Chamera-ll Dhauliganga Dulhasti Teesta-V Sewa-ll Kopili Khandong Kopili-ll Doyang Ranganadi Tehri HEP Koteswar HEP Nathpa Jhakri HEP

NEEPCO Ltd.

THDC SJVNL

2009-10

2010-11

2011-12

2012-13

INR /kWh 1.26 2.19 0.81 1.91 1.7 2.01 3.01 2.75 2.72 6.01 2.11

INR /kWh 1.38 2.47 0.88 2.08 1.78 1.46 3.13 2.67 2.74 5.9 2.1 4.27 1.067

INR /kWh 1.59 2.62 0.91 2.16 1.83 1.49 2.63 2.63 2.74 5.83 2.09 4.17

1.12

INR /kWh 1.31 2.32 0.84 1.99 1.74 1.44 3.07 2.71 2.74 5.95 2.12 4.22 1.22

3.38 3.31 5.47 NA 2.4

3.15 2.28 4.27 NA 2.37

3.42 3.478 4.1 4.98 2.35

State-wise Allocation of Power From CGS During Peak Hours From March 2010November 2012 State

As on 31.03.2010 31.03.2011 31.03.2012 30.11.2012

Chandigarh Delhi Haryana Himachal Pradesh Jammu & Kashmir Punjab Rajasthan Uttar Pradesh Uttarakhand Railways/ Powergrid Gujarat Madhya Pradesh Chhattisgarh Maharashtra Goa Daman & Diu DNH DAE/ Powergrid Andhra Pradesh Karnataka Tamil Nadu Kerala Puducherry NIX Powergrid Bihar Jharkhand DVC Orissa West Bengal Sikkim Powergrid Arunachal Pradesh Assam Manipur Meghalaya Mizoram Nagaland Tripura

163 3543 1712 1120

208.6 4098 1939.2 1160

203.9 3897 1944.8 1155.7

214 4232 2228 1225

1732

1607.2

1603.1

1718

1980 2080 5070

2027.2 2257 5420.1

2044.9 2373.7 5519.6

2114 2503 5788

740

750.3

795.8

848

102

2539 2268

2588 2444

2768 2553

3128 2776

551

701

805

1014

3433

3634

3853

4282

453 239

437.3 155

444.3 164.5

458 174

505

530.95 21.276

565.95 17.276

642 17

3006

2768

3306

3626

1508 3258 1211 321 100

1500 3329 1296 386 100 6.25 1661.9 551 168 1544 1225

1672 3282 1626 394 100 6.25 1741.9 526.1 168 1544 1225

1810 3766 1682 396 100 6 1805 564 207 1650 1403

129

149 1.26 139

149 1.26 134

150 1.26 134

821 123 202 66 78 110

811 123 212 76 88 105

721 123 212 74 80 105

1662 551 168 1544 1225 149

February 2013 www.InfralinePlus.com

Status of Implementation of High Capacity Power Transmission Corridor Corridor HCPTC -1 (IPPs in Odisha)

Schedule Progressively from March, 2013 to March, 2014

HCPTC - 2 (IPPs in Jharkhand, West Bengal)

Progressively from November, 2013 to October, 2014

HCPTC - 3 (IPPs in Sikkim) HCPTC - 4 (IPPs in Chattisgarh & Madhya Pradesh) HCPTC - 5 (IPPs in Chattisgarh)

HCPTC - 6 (IPPs in Krishnapatnam, Andhra Pradesh) HCPTC - 7 (IPPs in Tuticorin, Tamil Nadu) HCPTC - 8 (IPPs in Srikakulam, Andhra Pradesh)

Progressively from January, 2013 to November, 2013 November, 2013

Progressively from August, 2013 to June, 2015

August, 2014

- 70% works awarded. - In awarded packages, engineering, survey and construction in progress - Award of balance 30% packages under progress and expected in 2012-13 progressively. - Private portion of corridor through Tariffs Based Competitive Bidding (TBCB) awarded to Sterlite. - All works awarded. - Engineering, survey and construction in progress

Progressively from April, 2014 to September, 2014

- All works-awarded. - Engineering, survey and construction in progress

Progressively from June, 2015 to December, 2015

- 50% works awarded. - In awarded packages engineering & survey recently commenced - Award of balance 50% packages under progress and expected to be awarded in 2012-13 progressively. On hold due to poor progress of southern region independent power producers (IPPs).

HCPTC - 9 2016-17 (Common Corridor for transfer of power SR IPPs to WR/ NR) HCPTC-10 Progressively from (IPPs in Vema- April, 2015 onwards giri, Andhra Pradesh)

HCPTC-11 (IPPs in Nagapattinam, Tamil Nadu)

Status - All awards placed. - Engineering, survey and construction in progress Private portion of corridor through Tariff Based Competitive Bidding (TBCB) awarded to Sterlite. - About 50% works awarded. In awarded packages engineering, survey and construction in progress - Award of balance 50% packages under progress and expected in 2012-13 progressively. Private portion of corridor through Tariff Based Competitive Bidding (TBCB) awarded to Sterlite. - All works awarded. - Engineering, survey and construction in progress - All works awarded.. Engineering, survey and construction in progress

- Tendering under progress. - Awards likely to be placed progressively from December, 2012 - Part of private, portion of corridor through Tariff Based. Competitive Bidding (TBCB) awarded to POWERGRID. Progressively from - Tendering under progress. April, 2015 onwards - Awards likely to be placed progressively from December, 2012 - Part of private portion of corridor through Tariff Based Competitive Bidding (TBCB) awarded to POWERGRID.

Status of execution of New FSAs till 11.12.2012 Company S. No. (No. of Units) 1

Power Plants / Units

S. No. FSA 1

2 3

4 5

11 12

9 10

16 17

1 2 3 4

1 2

1 2 3

4 5 6

Total 35

Bajaj Energy Pvt. Ltd. (Khamberkheda Unit-I) Bajaj Energy Pvt. Ltd. (Khamberkheda Unit-II) Bajaj Energy Pvt. Ltd. (Maqsoodpur Unit-I) Bajaj Energy Pvt. Ltd. (Maqsoodpur Unit-II) Bajaj Energy Private Limited (Barkhera Unit-1) Rosa Power Supply company Limited Phase-I (Unit-I) Rosa Power Supply company Limited Phase-I (Unit-II) Rosa Power Supply company Limited Phase-II (Unit-III) Jhajjar Power Limited (Unit 1) Jhajjar Power Limited (Unit 2) Rosa TPP Unit-4 Bajaj Energy Private Limited (Barkhera Unit-II) Bajaj Energy Private Limited (Kundarki Unit-I) Bajaj Energy Private Limited (Kundarki Unit-II) Bajaj Energy Private Limited (Utraula Unit-I) Bajaj Energy Private Limited (Utraula Unit-II) Bina TPP U (1-2)/ IP Power Venture Ltd. Maithon Power Limited, Maithon Right Bank TPS U-II Adhunik Power & Natural Resources Limited U-l (Tapering Linkage) Total

Capac- Dated extenFSA ity sion in FSA Quantity MoEF - April 2012 MW MT CCL 45

20/04/2012

Date (expected)

0.3899

11/10/2012

20/04/2012

0.19495

11/10/2012

13/6/2012

0.15495

20/04/12

0.19495

11/10/2012

300

3/5/2012

1.4

5/11/2012

300

3/5/2012

300

3/5/2012

1.111

660

7/6/2012

5.21

5/11/2012 5/11/2012

660

7/6/2012

300 45

13/6/2012 13/6/2012

1.11 0.19495

5/11/2012 11/10/2012

13/6/2012

0.19495

11/10/1012

13/6/2912

0.19495

11/10/1012 11/10/1012

13/6/2012

0.19495

13/6/2012

0.19495

500

10/7/2012

0.6482

525

18/09/2012

1.975

270

4265 BECL Suratgarh Unit-5 250 Kota Unit-7 295 Chabra Unit-I 250 Chabra Unit-II 250 Total 945 NCL Anapara ‘’C’’ Unit-I 600 Anapara ‘’C’’ Unit-II 600 Total 1200 BCCL Budge Budge III Unit 3 250 Maithon Right Bank TPS 525 Parichha Extn. Project 250 Unit No.-5 Parichha Extn. Project 250 Unit No.-6 Total 1275 MCL Mundra Adani Ph III 462 Unit-1 Mundra Adani Ph III 462 Unit-2 Mundra Adani Ph III 462 Unit-3 Sterlite Energy Unit 2 600 Kodarma Unit-I 500 Kodarma Unit-II 500 Total 2986 10671

0.1997

16/11/12

22/11/2012

15.471 24/4/2012 24/4/2012 24/4/2012 24/4/2012

24/4/2012 24/4/2012

10/5/2011 21/6/2012

0.963 0.756 1.849 3.578

3.833 3.833 0.41 1.6594

20/11/12 22/11/12 22/11/11

3.9324 2.135 9/6/2012

2.135 2.135

9/6/2012

2.45 2.31 2.31 13.475 40.291

6/12/2012 6/12/2012

February 2013 www.InfralinePlus.com

NewsBriefs | Coal

Bidding for CBM blocks Only three bids for ONGC’s offer

Odisha plans coal corridor RVNL to buy stake in SPV

Setting up of Coal Regulatory Authority Deadline to be missed again

Only three companies have bid again for buying stake in ONGC’s four coal-bed methane blocks. These are UK-listed GEECL, Brisbane-based Dart Energy and a consortium of Jindal Steel and Deep Industries. ONGC plans to farm out 35-45 per cent stake in each of the four blocks - in Jharia and Bokaro in Jharkhand and North Karanpura and South Karanpura in Raniganj, West Bengal.

Rail Vikas Nigam Ltd may pick up stake in the SPV formed to implement the `50 billion coal corridor project planned by the Odisha government for the coal rich Angul-Talcher-Chhendipada belt. The state government has already given its approval for the SPV named ‘Mahanadi Railway’ for developing a common corridor for rail, water and power. The SPV would be a 50:50 JV between OMC and Idco.

Inter-ministerial differences on the mandate of the coal sector regulator would cause the establishment of India’s proposed Coal Regulatory Authority to miss the March 31 deadline. The MoP wants the regulator to have powers to protect the consumer or thermal power generating companies specifically while the MoC’s priority was to ensure flexibility for miners.

Reallocation of NTPC coal blocks Power, Coal Ministry to speed things up

Coal fields linkage CIL to fund construction of rail network

Mine closure Coal ministry frectifies guidelines

The Power Ministry is in constant touch with Coal Ministry to speed up the re-allocation of three mines to NTPC, which would boost the power producer’s valuation ahead of its `12,000 crore disinvestment this fiscal. The government has decided to re-allocate three coal blocks - Chatti-Bariatu, Kerandari and Chatti-Bariatu (South) - to NTPC but all the necessary clearances are not in place.

In a first, Coal India Ltd, the world’s largest coal miner, is set to fund construction of a large rail network connecting the country’s coalfields. For this, CIL would float a special-purpose vehicle that would lay a 180-km line for evacuating coal currently blocked in Chhattisgarh. To cover its investment, in yet another first for the miner, it is planning to levy a user charge, marking its entry into haulage business.

Coal Ministry has announced modified guidelines for mines closure. Mining is to be carried out in a phased manner initiating afforestation/reclamation work in the mined out area of the first phase while commencing the mining in the second phase i.e. continuation of mining activities from one phase to other indicating the sequence of operations.

Odisha to bid for new coal blocks Seeks return of 5 deallocated blocks

Mine Development CIL may start mining 3 projects

Additional coal NTPC to import 7 million tonne more

Annoyed over deallocation of five coal blocks by the Centre, the Odisha government decided to step up its demand for their re-allocation. The state government also decided that it would participate in the fresh bid being invited by the Coal Ministry for five new coal blocks in the state. State PSUs like OHPC, OTPCL and OMC will apply for four blocks except Baitarani as mining there is not viable.

Coal India has informed the government that it may start production from three projects in the next five years out of 119 mines allocated to it. With the firm drawing flak for the crisis of fossil fuel across the country, it had requested the Coal Ministry for mines allocation in order to reverse the declining trend of production and to augment output. CIL also stated that in case of 14 blocks the production may begin during the 13th Plan.

NTPC Ltd will place work orders to import 7 million tonnes of additional coal in January. This will take the total imported fuel by the power producer to 16.4 million tonnes in the current financial year. Earlier this fiscal, NTPC placed order for the import of 9 million tonnes of coal. The additional supplies are expected to start this month . In 2011-12, the public sector company imported 12 million tonnes of coal.

Fuel Supply Agreements CIL may not ink more than 60 deals

NTPC’s Talaipalli coal block Production to start by 2015

Coking coal mines NMDC eyes Russia, Mozambique

CIL is unlikely to sign more than 60 out of the 79 fuel-supply agreements (FSAs) with power producers despite a government directive. The state-owned firm signed 38 such pacts till 2 January. The miner expects to sign at least 13 more agreements to supply fuel to state-owned power generator NTPC Ltd by February.

Talaipalli coalblock in Chhattisgarh, allotted to NTPC, is likely to commence coal production by March 2015, according to J Dattatreyulu, the newly appointed chief executive officer of NTPCSCCL Global Ventures (NSGV), its mine developer cum operator. The coal ministry allocated the block to NTPC in 2006.

State-owned iron ore miner NMDC is engaged in active discussions to acquire coking coal assets in Russia and Mozambique to feed its upcoming steel-making plant in Chhattisgarh. NMDC is setting up a 3 million tonnes per annum steel plant at Nagarnar in Chhattisgarh with `15,525 crore outlay. Coking and iron ore are two basic raw materials for steel.

Coal Sector Knowledge Base Infraline Knowledge Bases are massive compendium of in-depth Screenshot Power Knowledge Base and exclusive information on the current scenario, players, project details, tenders, news, reports, analysis and other key topics spanning across the Energy vertical. It is presented online in a wellstructured format for ease of navigation and can be accessed through a Sector-Specific Annual Subscription Model. Membership Deliverables Coal Knowledge Base ▪▪ Unlimited▪access to Coal KB with real time updates ▪▪ Tenders: Domestic and Global tenders with real time updates in the sectors such as Power, Coal, Oil & Gas, Transportation, Infrastructure, Consultancy, EPC Products and Public Private Partnership enabled with a refined search option to quickly retrieve specific details. ▪▪ Newsletters: With a total circulation to 60,000+ top professionals in the energy sector, the popularity of Infraline’s newsletter is unprecedented > Daily▪Newsletter: Breakfast news having the most coveted information on Coal sector delivered to your inbox sharp at 9:00 A.M > Weekly▪Newsletter: Summary of the key events covering sector specific Projects/ Orders and Deals/ Weekly News/ Finance and Investments. ▪▪ Industry▪Connect: Our experienced editors delve deep into the current issues of Coal sector to bring forth the view points of Industry stalwarts. > Opinion: Energy veterans write a column on various issues affecting the Indian Energy sector >▪POV:▪People from different sectors debate on a hot topic and analyze it’s various aspects >▪Interviews: Get to know the inside stories of the who’s who in the energy sector ▪▪ Dedicated▪Analyst▪Support:▪A special service catering to the information needs of the clients ▪▪ Special▪Membership▪Benefit: >▪10%▪Discount on Reports and Publications

Key Highlights Overview of Indian Coal Sector providing insights to latest developments, sector performance and key statistics. Captive coal blocks: Blocks on offer, details of 400+blocks, proposed block details (300+), coal production and status of ongoing blocks being developed by government., profiles of public and private players Coal Washeries: Profiles of State Government, CIL and Private players operating washeries, proposed washeries and details of the capacity Go & No Go Areas: Status of the Coal Blocks falling in Go & No Go categories as per MoEF guidelines Updated Statistics: E-auction data as monthly updates, Updated regulations and policies Demand & Supply: Sector wise, month wise and company wise demand supply and dispatch Tenders & Policies: Latest tenders, policies, government guidelines & regulations Export & Import: Company and country wise export and import data of coal Archival data of 12+ years which include daily updates and news items Regulatory Framework of Coal Sector encompassing Regulations, Acts, Policies, Guidelines & Notifications issued by the Ministry of Coal, Standing Linkage Committees, CEA, CERC, Ministry of Steel, Planning Commission, MoE&F etc Statistics on Coal Sector Performance, Fly Ash Statistics, World Energy Statistics, Ultimate Analysis of different Grades of typical Indian Coal, Gradewise/Minewise Quantity and Price of Coal offered through E-Marketing, Coal E-Marketing Trends, Yearwise Coal Requirement etc. Key Reports like Coal Vision 2025, Expert Committee Report on Road Map for Coal Sector Reforms, MoC’s Report on Coal, Draft Report on Recommendations of MoC Committee on Coal Distribution Policy and many more For any further information, kindly contact us on below mentioned coordinates:

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InDepth

Can spltting up of Coal India fuel power generation? ►► Government planning to slice public sector monolith to bring in competitive spirit in the sector ►► Consultant likely to be appointed to ascertain the drawbacks of monopolistic situation

Coal India has been facing criticism for not being able to supply adequate fuel to the power, steel and cement companies by Alok Sharma

Kolkata-headquartered coal mining behemoth Coal India Ltd, which is the single largest producer of the fossil fuel in the world, is all set for restructuring. Spread over eight states across India with 81 operational coal mines, the public sector company has seven whollyowned coal producing subsidiaries besides a robust mine planning and consultancy company. Off late, Coal India has been facing widespread criticism for not being able to supply adequate fuel to the power, steel and cement companies and failing to bridge the demand-supply gap. This,

along with lack of transparency in pricing of the fuel, forced the Centre to impose a Presidential Decree on the firm mandating it to ink fuel supply agreements with coal-hungry projects. The government is considering splitting up the public sector company to bring in competitive spirit in the sector thereby helping production growth of the black diamond. Acting on an expert committee recommendations (to split the coal miner into smaller companies), the government has sought appointment of a consulting firm. The firm is expected to throw light

on the possible impact (of split) on Coal India, a senior coal ministry official told Infraline. “We have an open mind and by appointing a consultant we are getting an expert to decide on the merits of the idea,” Coal Secretary S.K. Srivastava said recently. The Centre wants to set up a singlewindow mechanism for coal projects on the lines of the Foreign Investment Promotion Board (FIPB). The urgency for setting up a body is linked to the delays being encountered by coal projects due to issues such as land acquisition and environmental and forestry clearances.

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Industry experts feel the need for a clear cut policy whereby the sector could attract investment and production is in sync with increasing domestic demand. “In the case of coal, import dependence is projected to increase as the growth of thermal generation will require coal supplies, which cannot be fully met from domestic mines,” a Planning Commission official said. Established in 1975 as a state-owned entity, the company boasts of producing over 80 per cent of the country’s coal, but it has been struggling on output growth owing to various reasons. Its failure to meet rising demand from power utilities has led to increased coal imports and also idling of power plants for want of fuel. The sector, however, has partially been opened for private investment where coal mining for captive consumption has been allowed. But shortages of coal and natural gas have forced companies, including Reliance Power Ltd. and GVK Power & Infrastructure Ltd., to shelve more than $35 billion worth of utility projects. Coal development policy has evolved over a period of time leading to doing away with the administrative price mechanism and decontrol of coal price and distribution, empowerment of performing public sector coal companies, says Srivastava. The logic behind appointing consultants is to Mandate for Consultant • The consultant has to advise the coal ministry on the efficacy of the current management structure and look at the drawbacks of a monopolistic situation • The time frame for bringing out a report would be three months • The Planning Commission and several panels have recommended a comprehensive restructuring of CIL to make the coal sector more competitive.

Industry experts feel the need for a clear cut policy whereby the sector could attract investment and production is in sync with increasing domestic demand. “In the case of coal, import dependence is projected to increase as the growth of thermal generation will require coal supplies, which cannot be fully met from domestic mines,” a Planning Commission official said. ascertain the efficacy of the “current management structure” of Coal India and to understand the lacunae of a monopolistic situation. The expression of interest invited requires consultants to furnish a report within three months to help the government decide upon the recommendations. The consultants would be entrusted the responsibility of assessing the need for restructuring the maharatna company in the light of drawbacks inherent in a monopolistic situation and requirement of the company law and SEBI regulations. The effort is to make coal industry competitive in the rapidly changing economic scenario. “The consultants should assess the need for evolving administrative structures, which would improve production and marketing with a special emphasis on customer satisfaction,” as per the EoI document. On the qualification of the consulting firm (which would assist the government in understanding the possible impact of splitting Coal India), a Coal Ministry official said that it should have at least 10 years’ experience in advising on energy, mining and government policy. Interestingly, an expert committee

under retired bureaucrat T L Sankar, in 2007, had suggested restructuring of the coal mining company in order to sustain the country’s long-term coal requirement. The seven-member committee had members both from the government and private sector companies. The committee had also recommended setting up of an Office of Coal Governance and Regulatory Authority, which would not be a mere regulatory organisation but a development one as well, entrusted with resource management. “The committee has examined the medium and the long term (up to 2031-32) demand–supply situation of coal in India and has suggested measures that should be taken now to ensure that coal remains the primary source of commercial energy in India on economic consideration over the next 25 years... The committee has made recommendations towards restructuring the administrative, operational and regulatory structure of the coal sector,” the committee said in its report submitted to the government in 2007. Coal India Chairman S. Narsing Rao declined to comment, saying he would wait for the consultant’s report before voicing his views. The industry, however, welcomes the move saying that the development would not only help boost production but also bring in efficiency in the sector. “It will be a great thing to happen for both Coal India and its clients, as higher autonomy to subsidiaries will lead to higher output and smarter investment decisions, which will ultimately benefit its clients,” says Deven Choksey, managing director at Mumbai-based K.R. Choksey Shares & Securities Pvt Ltd. An ideal format could be Coal India remaining as the holding company, through which its independent entities could collectively bargain with suppliers and take advantage of its size even as they compete for clients, he says.

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Budget Expectation Coal 2013-14

Starved of connectivity, coal banking big on rail budget

►► With most duty sops already in place, the sector does not expect much from the Budget ►► Industry hopeful of price parity with international rates which are 40 per cent higher While most sectors have some expectation or the other from the Union Budget, coal sector is banking high on the Rail budget as it is the issue of transportation of this important raw material for power plants which is bothering the country the most. A lot was promised in the Rail Budget last year when the then minister of railways Dinesh Trivedi had proposed 17 projects offering first and last mile connectivity. The projects were to be set

up in collaboration with the ministries of coal, power and shipping. Another 28 such projects were to be identified to be taken up in due course. But most of the recommendations were put in cold storage and Trivedi was unceremoniously removed from his post. With him all the promises of building rail infrastructure were too dumped.

Sops already in place The sector already enjoys zero per cent

import duty besides nil duty on import of mining equipment (project specific). Last year, the then finance minister Pranab Mukherjee had eased the situation by providing full exemption from basic customs duty and a concessional Countervailing Duty (CVD) of one per cent to steam coal till March 31, 2014. Mukherjee had also exempted machinery imported for coal mining projects from basic customs duty. However, this exemption is available only for

February 2013 www.InfralinePlus.com

machinery imported under the project import scheme. When Infraline asked Union Minister of Coal Sriprakash Jaiswal on what his expectations from the Budget were, he said, “In order to fast track development of coal blocks in the country, the Government has proposed to develop some of the coal blocks of Coal India (CIL) through mine developer and operator (MDO) mode. Modalities are being worked out in this regard.” On the issue of imports and price pooling, he said that a proposal to import coal with pooling of prices was suggested to tide over the current shortage but this needed to be studied in depth as a number of state governments had expressed reservation on the proposal. Jaiswal said it was for the finance ministry to take a call on what should be done to support the sector. He said, “At our end the ministry is working on proper reclamation of mined-out land and creating economic value to the same with a view to handing over the same back to the society is critical for sustaining the coal mining activities in times to come.” Coal usage also needs to be made more environment friendly through adoption of clean technologies and improving efficiency levels, he added.

Price parity sought The industry, however, wants price parity with international coal as there exists a huge gap between the two. “Global coal prices are about 40 per cent more than domestic prices,” said S Narsing Rao, CIL Chairman. But he did not specify any expectations from the Budget. Incidentally, there have been cost pressures on the mining behemoth of around `550 crore due to increase in diesel prices last September and the recent increase in diesel price would widen it further. However, the public sector mining company does not need

The sector for long has been asking Railways to set up infrastructure in coal mining areas to provide last mile connectivity and to help increase coal output. CIL has already offered to bear majority of the estimated total cost of `6,000 crore towards development of a few projects.

budgetary support as the world’s largest miner is sitting on `28,000 crore of surplus cash.

No connectivity The sector for long has been asking Railways to set up infrastructure in coal mining areas to provide last mile connectivity and to help increase coal output. CIL has already offered to bear majority of the estimated total cost of `6,000 crore towards development of a few projects. The projects include two rail links connecting the 200-million-tonneper-annum Mand-Raigarh deposits in Chhattishgarh, the 100 km Tori-ShibpurHazaribagh link to unlock nearly 100 mtpa from Jharkhand; and connectivity to the rich coal assets in Ib-Valley in Orissa. “We have already taken steps towards implementation of MandRaigarh rail link projects in collaboration with other users,” said a CIL official. The sector wants robust rail infrastructure to lift coal from the pithead and take it to the power, steel and cement consumers. As the country strives to increase domestic coal output there would be huge demand of supporting infrastructure, said an industry expert. The Eleventh Five Year Plan ended with an overall output of 540 million tonne in 2011-12. Production envisaged in the Twelfth Plan is 795 million tonne implying a growth of 8 per cent, which is not be possible without infrastructural support. The country saw only 4.61 per cent production growth in the Eleventh Plan against the demand growth of 6.6 per cent during the same period. With Pawan Kumar Bansal as Railway minister, coal sector expects spurt in infrastructure development so as to minimise the gap of about 185 million tonne between domestic production and projected demand of 980 million tonne in 2016-17, say experts.

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ExpertSpeak

‘Distribution, transport logistics of coal as critical as production’ Former Chairman-cum-Managing Director of public sector exploration and mining company Indian Rare Earths Limited, MS Nagar, has for long been a mining consultant to the Ministry of Environment and Forests. Here he shares his views on why it is as important to plan the logistics of coal transportation as it is to extract the fuel itself from mines.

In India, the history of coal mining is closely linked with the development of the Railways, which itself was the major consumer for coal till power, steel, cement and other industries, domestic fuel and coal chemicals came on the scene. For a voluminous fossil fuel, its movement from point of extraction to the point of consumption is of equal importance to production planning and actual mining. Any transport mechanism has to deal with the quality and size needs of the end users. We have the added handicap of rather limited area of our production base and a wide spread distribution network. The advent of non coking coal washing in India has added to the number of distinct products (washed coal, middlings, tailings etc) to be sent across to different destinations. With rapid increase in imports, a few more dimensions have got added to the complex distribution maze. The making or breaking of any ambitious production build-up to meet the fast growing energy needs of the country will depend on how well we anticipate and execute our distribution and multi-modal transport projects. While the central integrated /

MS Nagar Former Chairman-cum-Managing Director, IREL

coordinated growth plans for massive movement of coal are indeed being carried forward with production planning itself, focus on a few points can facilitate this process. The well-conceived coal corridors, which have been in the offing for quite some time, need not be delayed any further. Major evacuation routes from principal coal producing states in all four directions—east ward, west and north-west ward and south ward—with appropriate wagon size, rake configuration and traffic density should see the light of the day sooner than later. It may become necessary to introduce primary and secondary railway networks and the ‘last mile’ connection networks. To and fro washery movement, neighbourhood captive consumption points etc may have to be relegated to either the producers or outsourced to independent local transport organisations to be cultivated for this purpose. It is time the Indian Railways shared the onerous transport / distribution work load with professional carriers

which have proved their mettle in road and river transport and could be entrusted with secondary / dedicated / short distance rail transport systems to enable the former to concentrate on long distance mass evacuation. The end distribution again could be similar to the collection decentralisation. An important component of the ambitious growth plan will have to be substantive up-scaling of the mine size (to around 40-50 mtpa) with matching close loop transport network. A few such mines will rapidly add to the overall production base and also facilitate faster dedicated evacuation to few equally large consumption points. A matter Some services of growing may have to be concern has outsourced to been the independent local insuff-icient transport acquisition organisations which can be cultivated of land for the for drawing purpose. railway lines, making roads and creating the required siding and coal handling and stock yard facilities, often outside leasehold areas. While some special legislative provisions such as the Coal Act help the government and local coal companies acquire coal bearing areas, similar preferential treatment needs to be extended to ensure sufficient land for developing the transport infrastructure required for handling, processing or moving the coal produced. At present, many a coal project gets stuck due to inordinate delays in construction of roads, railway sidings or railway lines to and from the project. A solution to such problems may require appropriate

legislative support from the government. A close analysis of the coal and lignite consumer profile, particularly the smaller industrial and domestic ones, reveals that they are spread far and wide, their purchasing and stocking power is poor and they seldom have the privilege of assured supplies. Nonetheless, energy provisioning is vital for their development. There can be no two opinions that though the quantities involved are not large, continued and assured supplies of coal and lignite are bound to bring about a sea change in the quality of life in these remote and isolated rural communities. It is difficult to include them in the distribution network of the major coalfields in the country. It is, therefore, necessary to pay special attention to local resources of coal and lignite, which fortunately are known to exist in some of the distant states of North East, Jammu & Kashmir, Rajasthan and Gujarat. Simple methods of mining, local infrastructure development and encouragement to coal / lignite based industries and domestic fuel in the vicinity will go a long way in serving the social cause and at the same time, reducing the pressure on the mainstream coal distribution network. Coming to alternatives to railway transport system, it may be said that past experience and dedicated studies have shown that our major coalfields do not lend themselves to massive riverine transport, the way coal is barged in Indonesia. Possibilities do exist in rivers Damodar, Ajoy, Ganga and Padma / Brahmaputra across Bangladesh, but their scope appears rather limited. Even bulk slurry transport studies have not been all that encouraging. Coastal shipping (Bengal to Southern India and Saurastra / Kutchh regions) by small colliers has been quite popular for decades, thanks to transport subsidy and the ever willing salt cargo in the reverse direction. Some more papers may be touching on such alternatives to hauling coal on rails, the former’s significance in undulating terrains or as secondary

transport to supplement railways, cannot be underestimated. Also, road transport has been increasing steadily for obvious reasons, though one would have wished a much higher rate of up-scaling by way of larger tippers / trucks, road trains on dedicated road corridors. Road transport is also widely preferred for imported coal to take it from the port to the consumers located at short / medium distances. Shipping capacities and port infrastructure have also to keep pace with the rapid increases in imports, lest sea freight becomes prohibitive. While on this subject of long distance shipping for import of coal, we should get prepared for the forthcoming long innings of moving sub-bituminous coal across continents. As we know, there are plenty of sub-bituminous coal resources in equatorial rain forest countries, waiting to be exploited as the anthracitic and bituminous coals are getting exhausted and becoming costlier. The main problem with these sub-bituminous coals (high moisture and high volatiles) is that like lignite, they cannot remain sea borne for long due to the shorter incubation periods and their vulnerability to catch fire in transit. They can however be shipped in slurry form like crude oil. Technologies have also been developed to burn them in slurry form itself, the steam generated at high pressures, serving the purpose of driving the alternator turbines. In conclusion, I wish to emphasize that coal transport and distribution are very much on the critical path in our ambitious development plans for this bulky solid fuel coal, on which we are so very dependent. Practicable solutions to the problems confronting us need to be evolved. Advance planning, massive investments and involving multiple players are essential for success. An ‘Upscaling exercise’ on many a front is required. Certain amount of legislative support is also called for, to facilitate land acquisition. Views expressed in this article are personal. For suggestions email at feedback@infraline.com

GOA 12 - 13 March 2013 Grand Hyatt | Goa | India

Conference highlights include: • Detailed discussion of India’s strategies for securing sufficient coal supply, ranging from domestic prospects to navigating Indonesia’s regulatory landscape to new opportunities in the Americas • The outlook for India’s growing power and steel sectors from a range of key end users and industry drivers • An array of networking opportunities enabling attendees to reconnect with established and forge new business links

+91 11 2691 9377 www.coaltrans.com/india awconfer@vsnl.com

February 2013 www.InfralinePlus.com

ExpertSpeak

‘Outsourcing decisions should be taken by CEOs, not contract cells’ The concept of utility companies to take care of operations related to water, electricity or other public services is slowly evolving in India. These companies service small modules of operations of large companies. Principal, Accenture Utilities, India, Shalabh Srivastava throws light on the points to be kept in mind while outsourcing operations to third parties. 30

Shalabh Srivastava Principal, Accenture Utilities, India

The power sector reforms started in India with corporatization and unbundling of state electricity boards (or Department of Power under state governments). The power distribution companies (discoms) are now further segmenting their operations into functions that can be executed and managed as independent service modules such as power purchase, meter reading and cash collection. In parallel, the preponderance of stateowned utilities has started giving way to a greater participation by the private sector, broadly through the following modes of privatization: Award of licence (for example in Delhi): A special purpose vehicle, typically a joint venture (JV) between the state government and the private sector company, is given the distribution licence. The licensee is responsible for all distribution functions including power purchase. The senior management of the SPV is largely derived from the private sector company.

Award of franchise (for example in Nagpur): The private sector partner (franchisee) is responsible for all distribution functions except power purchase—input energy is a given from the licensee (state utility) and the franchisee is not exposed to the risk of power market. Franchising may be construed as a form of outsourcing, though it needs to be recognized that the franchisee may in turn outsource several functions to other vendors. Award of service contracts: Individual functions may be outsourced to various service providers (vendors) by discoms—both state owned and private—or franchisees. Historically, the power distribution sector has been dominated by state utilities while discoms outsource activities to private sector vendors in most cases. Thus, the debate on outsourcing often overlaps the discourse on privatization. Despite the overlap, the nuance between outsourcing and privatization is important to recognize.

Be it as licensee, franchisee or vendor, private sector companies are playing an increasingly important and large role in power distribution. At the same time, certain public sector units have also emerged as strong contenders for outsourcing of certain functions by discoms—both state and private. Thus, the forces that drive outsourcing by discoms are characterized by vendor’s or franchisee’s capabilities and cost rather than nature of ownership. It is commonly observed that the imperative to outsource finds its origins in the limited bandwidth of discom organizations, and the process of outsourcing is predominantly driven by cost considerations (the lower, the better), with the assumption that outsourcing will serve as a panacea of sorts. Accenture believes that organizational bandwidth and cost effectiveness are only a part of the larger discourse, and not the sole or even the most important criteria. My point of view on outsourcing by discoms is as follows: Not a means to avoid accountability: All discoms need to realize that only an activity or outcome can be outsourced, and not the accountability for the outcome. Thus, discoms remain accountable for all outcomes such as employee safety and customer service, even when working through outsourced agencies or franchisees. Not a means to avoid industrial relations issues: Discoms need to understand that using outsourcing does not avoid industrial relations problems assuming that they will not have to build up large-scale workforce. No matter how the workforce is structured, any large-

February 2013 www.InfralinePlus.com

scale, dedicated team shall expect “to be taken care of” by the principal employer irrespective of the payroll employer’s identity. Despite the nuances of the labor law, unless the outsourced personnel are used on a nonexclusive basis servicing multiple clients apart from the discom, the umbilical cord between end worker and prime-employer becomes increasingly difficult to sever. Given the large scale and routine or continuous nature of work of discoms’ operations, such nonexclusivity becomes difficult to achieve in practice, thereby leaving scope for IR issues. Not necessarily a means to cut costs: Contrary to the predominant trend observed in India today, we believe that outsourcing should be driven more by capability considerations and not by cost considerations. As a corollary, the choice of function(s) to be outsourced as well as the contours of outsourcing strategy should factor the maturity of the vendor market of the particular function, vis-à-vis discom’s capability and scale to handle that function. Highly matured vendor markets will offer better prospects for effective outsourcing by discoms, compared to nascent vendor markets, especially in functions where discoms’ capability is inadequate to execute the particular function at the desired scale. The capability of a vendor can be analyzed on the following basis: ▪▪ Does the vendor bring superior expertise or competence to discharge a particular function as compared to discoms? ▪▪ Does the vendor have the capacity to operate at a desired scale, especially in the geography under consideration? ▪▪ What share of vendor’s business will a discom’s contract contribute? The maturity of the overall vendor market can be analyzed on the following basis: ▪▪ Are there enough competent and large-scale vendors in the market to

create competition and keep price point under check? ▪▪ Will the discom be dependent on one or few vendors or can easily replace one vendor with another? ▪▪ What share of discom’s operations will a particular vendor’s contract cover? The absence of a mature vendor market is not a no-go for outsourcing. It simply means that if the discom decides to outsource a particular function (say, because it is noncore to discom’s own business), then discoms need to invest a lot of time, energy and resources including money to develop the vendor(s). In India, the aspect of vendor development has been largely ignored, but in certain countries such as Japan, vendor-customer relationship has been close and matured. In India, discoms will gain by exploring select functions and geographies where investment in vendor development could yield win-win results for all parties involved. Not an easy way out: Discoms assume that outsourcing specific functions to individual vendors, especially private sector vendors, will yield them better agility and accountability. Discoms assume that vendors will deliver quicker results through better performance primarily because contractual arrangement will hold them accountable for specific outcomes within a welldefined time frame. This assumption— desirable as it is—will materialize only when outsourcing is viewed not merely as a transactional act of awarding a contract, but as a subject that deserves end-to-end strategic deliberation. For bringing this change—from awarding outsourcing contracts to formulating and implementing outsourcing strategy—first and foremost, the outsourcing decisions need to shift from contracts cell or procurement department to CEO’s office. The subject matter needs to be structured along the following four questions: ▪▪ What to outsource? (For the

particular function, does the vendor market offer more capable and largescale services compared to discom’s own wherewithal? Is the function not a part of discom’s core operations?) ▪▪ Why to outsource? (What is the key contribution discom expects from the vendor: lower cost, higher agility or higher expertise? The answer cannot be all of the above, because there will be tradeoffs, for example, higher expertise will necessarily come for higher cost. The driving force and end objective should be very clear.) ▪▪ Whom to outsource? (How will discom select and appoint the vendor(s)? For example, if low cost is the key contribution expected from the vendor, selection should be competitive. However, if higher expertise is the key contribution expected from the vendor, the appointment should be negotiated and nominated.) ▪▪ How to outsource? (How should the outsourcing contract be structured such that it derives the outcome expected from the vendor? Will the vendor be measured on manpower deployed such as providing a team of IT professionals, a specific output such as installing an IT system) or an outcome such as automating a process? These key result areas are very different and cannot be mixed up.) Discoms should formulate the overall outsourcing strategy based on thorough introspection of each question mentioned above, where the most important inputs need to come not from the contracts cell or procurement department as usual, but from the department whose function is being considered for outsourcing. They need to institutionalize a leadership-level position—COO or Chief Outsourcing Officer—solely to avoid common failures of outsourcing and make it more effective. The views in the article of the author are personal For suggestions email at feedback@infraline.com

600 500* Pre-NCDP 500 LOA 500 1200 300 300

29.01.2010 SECL

12.11.2008 SECL

11.05.2006 SECL

08.04.2010 SECL

12.11.2008 SECL

02.08.2007 SECL

270*

29.01.2010 SECL

12.11.2008 SECL

600 Pre-NCDP LT (Con500 verted to LOA)

29.01.2010 SECL

06.04.2010 SECL

22/23.10.08 & SECL 12.11.2008

32.08.2007 SECL

12.11.2008 SECL

Jindal Power Limited, Tamnar, Raigarh, Chhattisgarh

Kalisindh TPP, RRVUNL, Nimoda Village. Jhalawar Distt, Rajasthan (Tapering) (Unit 1)

Korba STPS (Stage-Ill) (NTPC) (Unit-7)

Korba West Power Co Ltd., (Phase-I), Raigarh, Chattisgarh (1x300 MW) (Unit-1)

Korba West Power Co Ltd., (Phase-1), Raigarh, Chattisgarh (1x300 MW) (Unit 1)

300

1200

300

12.11.2008 SECL

Jhabua Power Ltd (Formerly Kedia Power Ltd), MP (Unit 1)

300

2.747

1.831

2.747

0.39

1.3

06.06.2009

25.07.08

06.08.2009

26.10.10

25.06.10

06.06.2009

1.3

1.44

2312

2.497

0.65

01/ 02.08.08 1.44

06 06.2009

26.10.10

18.02.2010

03.06.10

1350

02.08.2007 SECL

2.747

3.034

1.686

1.3

1.43

2.497

2.167

18/20.09.06 1 300

14.8.2009

06.06.2009

14.12.09

20.08.08

06.06.2009

15.06.2009

26.10.10

08/ 09.09.2009

Jhabua Power Ltd. (Formerly Kedia Power Ltd.), MP (Unit 1)

1.084

2.601

4.162

2.455

0.291

2.747

All milestones including special milestones (except synchronization & COD) achieved within overall validity period of LOA for 1x600 MW As per 16th CLOA, quantity of 2.496 mtpa on SECL for 1x600 MW has been approved. This LOA clubbed with LOA dated 25.07.2008 for 1x600 MW. All milestones including special milestones (except synchronization & COD) achieved within overall validity period of LOA for 1x600 MW. As per 16th CLOA, quantity of 2.496 mtpa on SECL for 1x600 MW has been approved This LOA clubbed with LOA dated 25.07.2008 for 1x600 MW.

All milestones achieved

All Milestones except Synchronization and COD achieved

All Milestones except Synchronization and COD achieved. Configuration changed to 1x600 from 2x300 All milestones including special milestones (except synchronization & COD) achieved within overall validity period of LOA for 1x600 MW. As per 16th CLOA, quantity of 1.872 mtpa on SECL for 1x600 MW has been approved. This LOA clubbed with LOA dated 01/02.08.2008 for 1x600 MW Configuration changed to 1x600 from 2x300 Deficiencies in milestones no 4 and 10 (Compliance of conditions incorporated in environment clearances is not clear) all other milestones are under verification

All Milestones except Synchronization and COD achieved

All Milestones except Synchronization and COD achieved. However, this is subject to decision regarding CG amount

All Milestones except Synchronization and COD achieved

All milestones achieved

2013-14

VII

2014-15

2010-11

l-II III-V I-II III-V

l-II III

l-II

2014-15

2012-13 2013-14 2012-13 2013-14

2014-15 2015-16

2012-13

I II I-II I II

2013-14

l-ll

2011-12 2011-12 2012-13 2009-10 2010-11

All Milestones except Synchronization and COD achieved Revise from 270 2012-13 MWto300MW All milestones not achieved within LOA validity. Deficiencies found related to milestones no. 3, 6, 9 and 10. As per SLC (LT) MOM dated 14.02.2012, unresolved milestones issues may be examined further and placed in next SLC (LT) meeting. Deficiencies found related to milestones no. 3, 6, 9 and 10. Notice for cancellation/ withdrawal of LOA and encashment of CG issued As per SLC (LT) MOM dated 14.02.2012, unresolved milestone issues are to be placed in next SLC (LT) meeting LOA holder is required to get the approval of MOC for change of name/SPV intimation is being sent separately to LOA holder for needful accordingly.

All milestones including special milestones (except synchronization & COD) achieved. Revise from 330 MW to 300 MW

All Milestones except Synchronization and COD achieved

FSA executed at 80% trigger level

All Milestones except Synchronization and COD achieved

2014-15

Achieved

Achieved .

Not Achieved Covered

Not Under verificaCovered tion

Achieved

Achieved Unit : IV-V Not Achieved Covered

Achieved

Notice issued NOT for cancellation. Covered To be placed in next SLC (LT) NOT Under verifiCovered cation

MoC advised NOT not to take any Covered coercive action

Achieved

Not Achieved Covered Not Achieved Covered

FSA executed

Achieved

All Milestones except Synchronization and COD achieved

Achieved

Not Achieved Covered

Unit(s), Not Final Status Covered by MoC

All Milestones except Synchronization and COD achieved. Quantity changed 2011-12 I from 255700 tpa to 2455000 tpa 2012-13 II

Plant/ Unit Unit Commi- Numssioning ber year

2011-12 I 2012-13 II

All Milestones except Synchronization and COD achieved

Qty. For Which MoU is Updated Status As On 30.11.2012 Signed (Mt)

For this year of 1.689 2012-13

Qty. For Which Date of MoU FSA is Signing Signed (Mt)

24.04.2012 1.849

Qty. For Date Which of FSA LoA is Signing Issued (Mt)

15/18.09.06 2.408

06 06.2009

03.06.2010

06.06.2009

26.11.2010

18.11.2010

1350*

1350

300

11.05.2006 SECL

08.04.2010 SECL

660 Pre-NCDP 270 LOA

700

12.11.2009 SECL

India Bulls Nasik TPP of India Bulls Realtech Ltd, Sinnar, Dist. Nasik, 12.11.2008 SECL Maharashtra (LPP) Phasre-1 (Unit 1-5) Indiabulls Amaravati TPP of India Bulls Power Ltd., Nandgaonpet, Dist: 12.11.2008 SECL Amravati, Maharashtra, Phase-1 (Unit 1-5)

India Bulls Nasik TPP of India Bulls Realtech Ltd., Phase-II, Sinnar, Distt Nasik, Maharashtra (Unit 1-5)

Athena Chhattisgarh Power Ltd., Singhitarai Thermal Power Project, Singhitarai, Distt. Champa Janjgir, Chhattisgarh EMCO Energy Ltd. an SPV of GMR Energy Limited (Formerly EMCO Energy Ltd.), Warora TPP, MJDC Industrial Area, Mohabala, Tehsil Warora, Distt. Chandrapur, Maharashtra EMCO Energy Ltd an SPV of GMR Energy Limited (Formerly EMCO Energy Ltd.), Warora, Dist; Chandrapur, Maharashtra Ideal Energy Projects Ltd., Bela, Nagpur, Maharashtra (Unit-l)

12.11.2008 SECL

1200

12.11.2008 SECL

Dheeru Powergen Pvt Ltd. Korba, Chhattisgarh (LOA (§90% level) (Unit 2&3)

1180*

12.11.2008 SECL

350

140*

08.04.2010 SECL

02.08.2007 SECL

660

Capacity Ap- Date of LOA proved Issuance (MW)

08.04.2010 SECL

Name of Pre SubNCDP sidiary LT/LOA Company

Deeru Powergen Pvt. Ltd (Phase-I) Village Churri, Kotgora Division, Chhattisgarh (Unit I)

Adani Power Maharashtra Ltd., Village Tiroda, Distt. Gondia, Maharashtra (Tapering) (Unit 3) Adani Power Maharashtra Ltd., Village Tiroda, Distt. Gondia, Maharashtra (Tapering) (Unit 1&2) Adani Power Maharashtra Ltd., TPS Phase-I (2x660 MW) & Phase-H (1x660 MW), Vill Tiroda, Dist. Gondia, Maharashtra, (IPP) (Captive Block for 800 MW & LoA for 1180 MW) (Unit 1&2) Anuppur TPP, MB Power Limited, Mouhari, Anuppur Dist, MP (Unit 1&2) Bharat Aluminium Company Limited, Balco Nagar, Distt: Korba (Unit 1&2) Bina TPP, Bina Power Supply Company Ltd., MP (Unit 1&2) Chabra TPS, RRVUNL, Chhabra TPS, Chowki, Motipura, Teh. Chhabra, Distt. Baran, Rajasthan (Unit 1&2) Chabra TPP, Extn Project, Phase-II, RRVUNL, Choki Motipura Village, Tehsil Chhabra, Baran Distt., Rajasthan (Tapering) (Unit 3&4) DB Power Ltd., Janjgir, Champa Dist, Chhattisgarh (LoA @ 90% level for 600 MW on permanent basis & 600 MW (tapering basis) Dhariwal Infrastructure (P) Ltd., Maharashtra (Additional capacity) (2x270 MW revised to 2x300 MW. LoA under NCDP for 270 MW & LoA @ 90% level for 330 MW) (Unit 2) Dhariwal Infrastructure (P) Ltd., Maharashtra, Phase-I, Maharashtra (Unit 1)

Unit/ Plant Name

Date of SLC(LT) Meeting

Status of LOAs Issued to Power Utilities by SECL Sources - Provisional (November 30, 2012)

February 2013 www.InfralinePlus.com

StatisticsCoal

500

12.11.2008 SECL

29.01.2010 SECL

Ukai TPS (Extension Unit-6) Gujarat, Songadh, Gujarat (Tapering)

Vandana Vidhyut Limited, Vill: Chhuri, Salora, Tehsil: Kathgora, Distt: Korba, CG (Tapering) (Unit 1&2)

270

600

29.01.2010 SECL

12.08.2011

03.07.2009

1.194

2.081

2.601

1.373

15/18.09.06 1.204

660*

11.05.2006 SECL 12.08.2011

28/30.03.09 0.009

1.3

4.248

4.994

9.156

1.194

4.551

1.69

2081

0.007

2.136

5.55

5.493

4.62

1.3

2.747

2.497

2.747

999

03.03.09

06.06.2009

980

220

25.06.10

1200

06.08.2009

03.06.10

06 06.2009

29.07 08

12.07.10

03.06.10

13.01.10

06.06.2009

11.12.08

13.11.2010

12.09.08

26 10 10

26.10.10

11.02.2011

06.06 2009

03.06.10

Pre-NCDP 250 LOA

02.08.2007 SECL

7.491

0.939

2312

15/ 18.09.06 form P&F 1.445 deptt

11.06.2009

15/ 18.09.2006

06.08.2009

06.11.2007 SECL

Sudha Agro Oil and Chemical Industry Ltd, Bio-Mass Co-gen power plant, Mohatarai. Semartal Belha, Bilaspur. CG. Suratgarh TPS, RRVUNL) , Suratgarh Thermal Power Station, Riyanwali, Suratgarh, Raiasthan(Unit6) Chhattiasgarh Power Ventures Private Limited (CPVPL) (Formerly Videocon Industries Ltd), Gaud/Champa, Janjgir, CG TRN Energy Pvt Ltd., Vill Paraghat & Beltukri, Dist: Bilaspur, Chhattisgarh

SKS Powergen (Chhattisgarh) Ltd. (SPV of SKS Ispat and Power Ltd.) (Phase-1) Dist. Raigarh, Chattisgarh (1x220 MW) (Unit 4)

Shree Singaji TPP (Formerly Malwa Thermal Power Station), MPP GCl, 29.01.2010 SECL Vill Purni, Distt. Khandwa, MP (Unit 1&2) SKS Power Generation (Chhattisgarh) Ltd (SPV of SKS Ispat and Power Ltd.), Dist: Raigarh, Chhattisgarh (4x300 MW of which LoA 12.11.2008 SECL under NCDP issued for 220 MW, LoA @ 90% level for 630 MW on permanent basis & 350 MW on tapering basis) (Unit 1, 2 and 3)

Pre-NCDP LT (Con1980 verted to LOA)

22/23.10.08 & SECL 12.11.2008

1050

Sipat TPS (Stage-I) (Unit 1, 2 & 3), Bilaspur, Chhattisgarh

500

29.01.2010 SECL

540*

7.5

29.01.2010 SECL

7.5

06.11 2007 SECL

Raj West Power Limited of JSW Energy Limited, Bhadresh, Barmer, Rajasthan (Tapering upto March’ 12)

1320*

12.11.2008 SECL

1400

02.08.2007 SECL

RKM. Powergen Pvt Ltd, Janjgir, Champa, Chhattisgarh (LoA @ 90% level on permanent basis for 500 MW & on tapering basis for 550 MW) (Unit 2, 3 & 4)

1320

SECL

Bulk Tendring

350

1000

02.08.2007 SECL

300

08.04.2010 SECL

660

R.K.M. Powergen Private Ltd., Uchapinda TPP (Phase-1), Chattisgarh (1x350 MW) (Unit-1)

Maruti Clean Coal and Power Limited, Bandakhar, Korba. Chhattisgarh (Unit 1) Marwa TPS, CSPGCL, Dist. Janjgir, Champa, Chattisgarh (Tapering Linkage) Meja TPP (Joint venture of NTPC and UPRVUNL), Distt. Allahabad, UP (A unit of Meja Urja Nigam pvt Ltd. MUNPL) Nabha Power Ltd., Bhawanigarh, Nabha Road, Nabha, Punjab (Unit 1&2) NCC Vamsadhara Mega Power Project of Nagarjuna Construction Co. Ltd., Sompeta, Dist: Srikakulam, A.P. (IPP) (Loa @ 70% level for Coastal TPS) (Unit 1&2) Neeraj Power Pvt. Ltd., Village Harinbhatta, Post & Block Simga, Dist. Raipur (CG) (Bio-Mass Plant) Real Power Private Limited (Formerly NRI Power & Steel Pvt. Ltd.), Khamhardin, Sargaon, Pathariya, Mungeli, Distt: Bilaspur, CG Patel Energy Limited (an SPV of Patel Engineering Limited), Bhavnagar,Gujarat

08 04.2010 SECL

Lanco Vidarbha Thermal Power Limited, Village Mandva, Pulai and Belgaon, Distt Wardha, Maharastra (Unit 2)

660

29.01.2008 SECL

660

12.11.2008 SECL

Pre-NCDP 300 LOA

1980

Pre-NCDP LT (Con500 verted to LOA) Pre-NCDP 195 LOA

29.01.2010 SECL

11.05.2006 SECL

12.11.2008 SECL

11.05.2006 SECL

22/23.10.08 & 12.11 SECL 2008

Lanco Vidarbha Thermal Power Limited, Village Mandva, Pulai and Belgaon, Distt. Wardha, Maharashtra (Unitl)

Lanco Power Limited (Formerly Lanco Amarkantak Power Ltd.), Pathadi, Korba, Chhattisgarh (Unit 3&4) Lanco Power Limited TPS-Phase-III (Formerly Lanco Amarkantak Power Ltd.), Pathadi, Near Korba, Chhattisgarh (Unit 3&4)

Lanco Power Limited (Formerly Lanco Amarkantak Power Limited), Pathdi, Distt. Korba, Chhattisgarh (Unit 2)

Kota TPS, RRVUNL, Kota Thermal Power Station, Sakatpura, Kota, Rajasthan (Unit 7) KSK Mahanadi Power Co. Ltd. (Formerly Wardha Power Co. Pvt. Ltd.), Narihyara, Janjgir, Champa, Chhattisgarh (LoA @ 90% level on Tapering basis) (Unit 1.2&3)

Korba West TPS Extn.III, CSPGCL (Unit 5)

24.04.2012 0.963

24.04.2012 0.766

For the tear of 2012-13 for First unit of 1x660

0.912

0.939

2009-10

FSA executed at 80% trigger level

2014-15 I 2015-16 II

2015-16

2013-14

All Milestones except Synchronization and COD achieved

All Milestones except Synchronization and COD achieved Clarification regarding source of supply in MOEF required

Default in submission of additional CG and Deficiencies found in respect of millstones number 3, 4, 6, 8, 9 not achieved

All Milestones except Synchronization and COD achieved

Default in submission of additional CG and deficiencies found in respect of milestones number 1,2, 3, 4, 5,6, 7, 8, 9, 10

2012-13

VI NOT Covered NOT Covered NOT Covered Unit II Not Covered

Achieved

Still valid

Achieved

Under verification

FSA executed

NOT Achieved Covered All milestones achieved 2009-10

NOT Achieved Covered

All milestones including special milestones (except synchronization & COD) achieved within overall validity period of LOA. As per 16th CLOA, quantity has been revised to 1,3 mtpa. CG plus Addl CG for balance quantity to be submitted

FSA executed at 80% trigger level

Notice issued for cancellation. NOT Covered To be placed in next SLC (LT)

Achieved

LoA to be termiNot nated & CG to Covered be refunded

Unit Notice issued IV Not for cancellation Covered

Notice issued for cancellation

NOT Achieved Covered NOT Achieved Covered NOT CG Forfeited Covered

NOT Under verificaCovered tion

Achieved

Under verification NOT Achieved Covered NOT Under verifiCovered cation

Under verification

Still valid

Achieved

Not Achieved Covered

FSA Executed

Achieved

Deficiency found in respect of milestones no. 4. Notice for cancellation/ withdrawal of LOA and encashment of CG issued. As per SLC (LT) MOM dated 14 02.2012, the matter is to be considered in next SLC (LT).

I-II

2011-12 I 2011-12 II 2013-14 III

MoU for the unit 1 signed Environment clearance is source specific for Deepika Mine. PPA related issue has been solved vide MOC letter dated 29112012. COD for Unit 3 is awaited from CEA/MOP

Notice for cancellation/ withdrawal of LOA and encashment of CG issued. Milestones found deficient LOA holder has changed the capacity to 1x360 2014-15 I MW from 1x350 MW. LOA has been issued for 1x350 MW Notice for cancellation/ withdrawal of LOA and encashment of CG issued. Matter regarding submission/acceptance of documents for 350/360 MW 2014-15 II unit size is under examination MOEF clearance mentions source of coal for 2015-16 III 1000 MW as captive coal block, clarification from MOEF about total land, forest land and source of supply is also needed before deciding this case. All milestones including special milestones (except synchronization & COD) achieved within overall validity period of LOA However, tapering LOA was valid only upto 31/03/2012. LOA stands terminated

All milestones not achieved within overall LOA validity CG forfeited

All milestones achieved However, amount of CG submitted was not as per the terms of LOA for IPP All Milestones except Synchronization and COD achieved. However, amount of CG submitted was not as per the terms of LOA for IPP

LOA transferred and status sent to MCL

All milestones achieved (Category changed to 2x700 from 2x600)

Deficiency in milestones no 9, all other documents are under verification

All milestones achieved

I-II

2014-15

III-IV

I-II

2013-14

All Milestones except Synchronization and COD achieved

VIII

2014-15

2013-14

All Milestones except Synchronization and COD achieved

Milestone achievement is subject to submission of Addl CG Further, clarification is also required on following issues:- 1. Communication from MOEF regarding reduced land 2. Status of company as PV/Subsidiary of LVTPL. 3. Mode of coal transportation in MOEF. Milestone achievement is subject to submission of Addl CG Further, clarification is also required on following issues- 1 Communication from MOEF regarding reduced land 2. Status of company as PV/Subsidiary of LVTPL 3 Mode of coal transportation in MOEF All Milestones except Synchronization and COD achieved. However. clarification regarding source of supply in MOEF is required.

2009-10

MoU signed but supply of coal is kept in abeyance at present

All Milestones except Synchronization and COD achieved

2012-13

All milestones achieved

February 2013 www.InfralinePlus.com

CoverStory

Rangarajan report: Clear on intent, short on content

Collage by Gopal Thakur

►► Scrapping of cost recovery gets lukewarm response from private operators ►► Gas producers set to make windfall, OIL’s profits to sore by `1,000 crore a year ►► Power sector to face an additional burden of `7,200 crore per annum under new gas regime by Neeraj Dhankher

Petroleum minister Veerappa Moily’s New Year gift to the oil and gas industry has got a mixed response. The committee headed by C Rangarajan, Chairman of Prime Minister’s Economic Advisory Council, submitted its keenly awaited report in December 2012 in the face of much anticipation from the oil and gas sector. While many, including Mukesh

Ambani-owned Reliance Industries, were keeping their fingers crossed hoping for a miracle in the form of a free gas pricing mechanism to go with an untampered cost-sharing mechanism under the existing Production Sharing Contract (PSC) regime, the expectations proved to be too ambitious and short lived. Days after the committee submitted

its report, a beaming Moily insisted that the government was keen to make things happen. “The Committee has already submitted its report, which is being examined by my ministry for expeditious implementation,” he asserted. Moily, however, acknowledged that there was a need to ensure that the recommendations were simplified so that they remained

February 2013 www.InfralinePlus.com

workable on ground. “We have to ensure that contracts are honoured and there is no ambiguity in the fiscal regime”, he said recently. From the government’s perspective, the Committee has addressed all the chief concerns that it was meant to, most important being the removal of the cost recovery mechanism which has been a bone of contention between the petroleum ministry and private operators. In its place, the Committee has suggested a Production Linked Payment (PLP) system for future contracts whereby the exploration and production (E&P) operators will not be allowed to set off any exploration costs and will offer the government’s share of production at the time of bidding itself. In other words, the government will receive its share of revenue from day one of production from an asset and not after the company has recovered all its exploration costs. As per the report, “The share will be determined through a competitive bid process for future PSCs. The bids will be made in a bid matrix, in which the bidder will offer different percentage revenue shares for different levels of production and price levels. The bids will have to be progressive with respect to both volume of production and price level.” The recommendation on removal of cost recovery has seen a mixed response from stakeholders. According to Ashu Sagar, Secretary General, Association of Oil and Gas Operators (AOGO), “The data used by the committee to conclude that private equity participation in recent rounds of NELP has been enthusiastic, and therefore our geology is good, is questionable. We believe that the Indian geology still requires support. We believe the sustenance of cost recovery is being withdrawn prematurely. Only a healthy private equity competition in further rounds of auction can corroborate the committee’s optimism. However, Prashant Modi, President and Chief Operating Officer, Great Eastern Energy Corporation Ltd (GEECL), holds a different view on

this. “The recommendation for shifting contracts to royalty-PLP mode could bring about a major change. Costs have been a major point of discord between the contractors and the government, stalling the basic objective of raising production of hydrocarbons within the country. Moving over to royalty-PLP regime should help raising production of hydrocarbons”, claimed Modi. Similarly, R.S. Sharma, Chairman, Hydrocarbon Committee, Federation of Indian Chamber of Commerce and Industry (Ficci), also feels that removing the cost recovery system is a welcome change. “I feel the production-linked system would work well. In case of high exploration expenditure coming upfront, if the company wants to recover it quickly it can offer a formulation indicating that for next two years it would not like to do any production sharing with the government”, says Sharma. Experts believe that shifting the profit-sharing mechanism from PTIMlinked profit sharing to production and price linked-profit sharing will help in reducing government intervention in field operations, which in turn will reduce delays owing to awaited approvals from the government.

CAG audit—A sore point The Rangarajan Committee has also made it clear that the Comptroller and Auditor General (CAG) has the right to audit investments made in a particular block. As per the Committee,“The list of blocks should be periodically made available to CAG for selecting those that it would directly audit. CAG would select blocks on the basis of financial materiality, and would focus on blocks in the exploration and development phase, when costs incurred are higher. Other blocks would be ordinarily audited by CAGempanelled auditors, although CAG would continue to have its statutory freedom to directly audit even these”. The suggestion, however, has

Veerappa Moily’s roadmap for energy security “We must strive for complete energy independence by 2030, which is very much possible. I am already working for preparation of a detailed road map having well defined action plan to achieve the above target in a way that the import dependence is reduced by 50 per cent by 2020, 75 per cent by 2025 and 100 per cent by 2030. I very strongly feel that this can be achieved with commitment, resolve and readiness for decision making. India cannot afford to fulfill its 80 per cent requirement through import and carry the burden of `1,00,000 crore per annum subsidy. This is the tall task that I have set for myself and I am hopeful of receiving wholehearted support and cooperation from all the stakeholders.” met with stiff resistance from the oil and gas sector. According to Sagar of AOGO, “The Committee has not differentiated between past and future contracts, which is regrettable. A clear statement of future CAG audit is always welcome as participants in auction can keep this in mind while bidding. This shall however also slow down many processes and reduce the actual time available for exploration. For the past contracts however, the questions borders on legal interpretations and intent of PSC, and should have been circumvented by the Ccommittee.” Echoing similar concerns, Sharma of Ficci says, “I feel there is no need for CAG audit. E&P companies, especially those coming and operating here from abroad would not like to open their books of accounts for any CAG scrutiny especially when there is no cost recovery. So what will the CAG audit do? To my mind, the CAG audit should be done away with”.

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CoverStory Investor sentiments to remain firm

So what does removal of cost recovery mean for investments in the oil and gas sector? According to Sudhir Vasudeva, Chairman and Managing Director, ONGC, “It (the impact) depends. Some people advocated cost recovery mechanism to continue, some said this mechanism of production linked payment is good. All depends on how one takes it. I don’t think it will have any negative impact on foreign participation as firms would have to make their business model accordingly. It all depends upon how you recover your cost. Either you recover first and then start sharing or pay government first. In CBM sector companies are already doing that so it can be done in conventional hydrocarbon as well. It is only a change of business model. Both the government and the bidder should take a holistic view on this”. However, companies such as Oil India Limited (OIL) have decided to wait and watch before commenting on the likely impact on the E&P investments. “We have not yet carried out an evaluation on the cost recovery proposal”, claimed T.K. Ananth Kumar, Director (Finance), OIL. But concerns are clearly brewing among private operators.“We are on the same side of the table in hoping a positive impact – but we are highly apprehensive. At this point we have many concerns. The government needs to involve operators proactively to work out the future course,” says Sagar of AOGO.

Sweetening the deal— Incentives for E&P operators The Committee has also provided some other incentive packages for the E&P industry to sweeten the deal. An extended tax holiday of 10 years, as against 7 years already available for all blocks, has been proposed for blocks having a substantial portion involving drilling offshore at a depth of more than 1,500 metres. Further, the Committee has recommended extending the timeframe for exploration in future PSCs for frontier, deep-water

The Committee should have spent more time in clarifying and stressing the essentiality of administrative and regulatory norms, guidelines for tackling of unspecified areas not specifically prohibited in PSC, respect for timelines in decision making and conflict resolution at both inter-ministry and intraministry levels. (offshore, at more than 400 m depth) and ultra-deep-water (offshore, at more than 1,500 m depth) blocks from eight years currently, to 10 years. Both these recommendations have been welcomed wholeheartedly by the sector. However, according to Sagar of AOGO, “The PSC is not broke, the processes are. The Committee should have spent more time in clarifying and stressing the essentiality of administrative and regulatory norms, guidelines for tackling of unspecified areas not specifically prohibited in PSC, respect for timelines in decision making and conflict resolution at both inter-ministry and intra-ministry levels. It should have stressed the sanctity of contracts and specifically barred changes in implementing the commonly understood obligations like mineral Oil definition to ensure the sanctity of contract”.

Moving towards market determined price for gas The Rangarajan Panel has also proposed pricing reforms in the natural gas sector. The committee has opted for a middle path in recommending that domestic prices of gas should be fixed in line with the average price that gas producers get in other countries instead of being linked to international prices per se. According

to the committee’s formula, "One price would be derived from the volumeweighted net-back price to producers at the exporting country well-head for Indian imports for the trailing 12 months. The other would be the volume-weighted price of US’s Henry Hub, UK’s NBP and Japan Custom Cleared (on net-back basis, since it is an importer) prices for the trailing 12 months". The panel has also suggested bringing gas-on-gas competition in five years, thereby clearly indicating deregulation of the sector. Under the new formula, natural gas prices are likely to double from $4.2 per MMBTU at present to close to $8 per MMBTU. However, the new pricing formula seems to have some inherent flaws. According to Ashok Khurana, Director General, Association of Power Producers (APP), the proposed gas pricing formula effectively counts Japanese import price twice. Throwing light on the issue, Khurana explains that the Japanese market has very high appetite for LNG and the LNG import price into Japan is usually much higher than the rest of the world. It has been reported that one of the components in the gas pricing formula is an average of Indian LNG import price, which is often linked to the Japanese Korea Marker (JKM) index. Another component is the weighted average of three international hub prices, of which Japan is a large portion and is effectively counted again. Khurana further argues that since Japan LNG import price has historically been much higher than the global market, this would distort gas pricing. To moderate gas prices, Khurana has called for removing the Japanese import price from the hub prices. Khurna makes yet another valid point. As per him, gas pricing in US dollars is incongruous with the prevailing fertilizer and power market regime in India. By denominating the gas price in dollars, the power and fertilizer plants are forced to manage the risk of foreign exchange with no recourse. Hence, Khurana suggests that the gas pricing should be

February 2013 www.InfralinePlus.com

denominated in India Rupees, and not in US Dollars. Experts have also argued that the proposed gas pricing formula may not be easy to compute and implement. It is reasoned that it may prove difficult to work out at least two of the four series of international prices suggested as benchmarks (North America, Europe and Japan markets as well as imported LNG). It further remains to be seen if the average price so determined can be considered efficient for usage and supply here. While the revised price is expected to benefit gas producers like Reliance, it will still be lower than the international spot price of LNG that the private major has been asking for its gas being produced from the KG-D6 basin. The spot price for LNG includes cost of transportation, liquefaction, regasification and insurance for cargo, whereas the price derived on net-back basis of three major gas markets would be minus such costs. According to Modi of GEECL, “The pricing regime suggested for future in the Rangarajan panel report introduces an elaborate system of price control. Acceptance of such pricing framework will drive away fresh investment in future”. As per him, free pricing means

market forces will decide the pricing and not any formula or Government intervention. “People often refer US prices being low. That did not happen due to price control, but due to encouragement by the US Government to the E&P industry which in turn increased the production and supply, thereby reducing the price via market forces. India is trying to do the opposite! Control prices and discourage E&P activity”, lamented Modi. Public sector firms, however, are not complaining about the new gas pricing mechanism proposed by the committee. According to GAIL’s Chairman & Managing Director, B.C. Tripathi, “One thing is very clear that there is a long gap in the prices in international and domestic market. And also that pricing in domestic market are at different platform. So definitely the Indian market has to add competitiveness in prices to expand the gas market and use of gas infrastructure. But there has to be a middle path which is comfortable for the producer as well as the consumer. It would be subjected to both sides and gap in the prices of international and domestic market will definitely reduce”. Similarly, according to Ananth Kumar, OIL, “The recommendation on increasing the price of gas is quite

Collage by Gopal Thakur

favourable to the oil industry. While our gas price was revised only two years back, since we are engaging in more and more exploration we need investments in future. It will help us in generating additional revenue to fund our capex and will help add around `1,000 crore per annum to our topline”.

Changing times for Fertilizer, Power and CGD sector The Rangarajan committee has called for implementing the arm's length gas price computed under the new formula to apply equally to all sectors, regardless of their prioritisation for supply under the Gas Utilisation Policy. Under the current Gas Utilisation Policy approved by the EGoM, gas has to be first allocated to the fertilizer sector, followed by power, LPG and City Gas Distribution (CGD) sectors in the same order of preference. In its recent report, Emkay Global Financial Services has claimed that any increase in domestic prices would negatively impact the downstream consuming sectors, predominantly power and fertiliser sectors. As per the research firm, while power generation cost would increase, necessitating an increase in power tariffs, increase in feedstock cost for fertilizer sector would lead to increase in government’s outlay on fertilizer subsidy. Power and fertilizer together consume about twothird of domestic gas. Commenting on the issue, Ashok Khurana of APP says that since the power sector currently receives over 30 MMSCMD of gas from various sources, the additional burden on power consumers is expected to be around `7,200 crore per annum on account of an increase in gas prices. However, it is widely believed that in case the government continues to pay low price to gas producers, the domestic gas production will fall in course of time and all investments expected to be made in the oil and gas sector of the country will find place elsewhere across the globe.

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CoverStory

According to GAIL’s C&MD, B.C. Tripathi, “Prices have to go up and all these sectors have to bear that otherwise you cannot increase the use of the commodity in the energy basket whether imported or domestic. Yes, the prices will go up but everybody will have to share it”. Ananth Kumar of OIL feels that the government has to weigh the interests of both—oil industry and consumers. “No doubt, increase in gas price will have an impact on end consumers but the government has to take into account the fact that it remains favourable to the oil and gas sector as well as other consumers,” claims Kumar. According to Sharma of Ficci, “The City Gas Distribution sector is viable even with LNG importation price. CNG, which is used mainly in public transport, will ofcourse be impacted. But this realization has to come that the consumers will have to pay the market determined prices”. Sharma further says, “Sectors like fertilizer would be happy to get cheap gas, even free of cost. For them it is a pass through. The burden comes to the government in form of subsidy. But then the government has to take a call on whether to promote and incentivize domestic production or to continue remaining dependent on imports in times to come”. As the new gas pricing regime involves substantial financial burden on the power sector, Khurana of APP wants that the government should chalk out a clear roadmap to moderate the impact of price increase on the power sector. This, according to him, can be done in three ways. Firstly, the new gas pricing regime needs to be coupled with a new gas utilization policy which can increase gas availability to the power sector. Secondly, there should be mainstreaming of LNG in our energy mix by ensuring viability of gas-based power plants. As per him, gas-based power should be mandated to constitute 15% to 20% of total grid power to fulfill our peak load requirements and ensure a balanced fuel

The government should chalk out a clear roadmap to moderate the impact of price increase on the power sector. The new gas pricing regime needs to be coupled with a new gas utilization policy which can increase gas availability to the power sector. mix for energy security. Finally, as per Khorana, large scale imports of LNG should be carried out through the existing LNG terminals and pipeline capacity to meet India’s growing energy demand. As per him, viability of gas-based power plants is essential to ensure viability of LNG terminals and gas pipelines. While the CGD sector will also be affected by an increase in gas price, the impact may not be as high as in the case of fertilizer and power sector. According to analysts, CGD entities like Indraprastha Gas Ltd (IGL) mostly use administered price mechanism

(APM) gas produced from nominated fields which are not part of the NELP regime. Hence, there may not be a severe impact on CNG and PNG prices in cities like Delhi.

Conclusion The Rangarajan report has chosen to tread a cautious path and looked to balance the interests of all stakeholders – the government, investors and the end consumer. Nonetheless, the report is clear in its intent of recognising the urgent need to propel investments in the E&P sector to ensure self dependency and energy security. There is also a realization that prices need to go up and be aligned to the market in a gradual manner. The recommendations are a step in the right direction and it remains to be seen how they eventually pan out in the future. Maybe the X NELP bidding round scheduled to take place in 2013 might give an indication of things to come!

With inputs from Richa Gautam For suggestions email at feedback@infraline.com

February 2013 www.InfralinePlus.com

CoverStory | InConversation

‘There is no need for CAG audit under new system’ The word on the Rangarajan Committee is out and the Government is actively considering the proposals for speedy implementation. In this context, R.S. Sharma, former Chairman and Managing Director, ONGC and Chairman, Hydrocarbon Committee, Ficci, shares his views with Neeraj Dhankher on the various recommendations made by the Committee and what it means for the oil and gas industry. Excerpts: Do you agree that the recommendations of the Rangarajan Committee on cost recovery and gas pricing are a win-win for all stakeholders? I feel that the recommendations remove a lot of uncertainties which are prevailing on gas pricing. The uncertainties also raise concerns about litigations and disputes. So to a large extent, the recommendations have addressed these concerns. I would say this is a better proposition than the existing situation where we have seen various disputes because of ambiguity in the system. Coming specifically to the recommendation on removing the cost recovery, even today there is no cost recovery system for CBM blocks. They operate under a production linked payment model

and these recommendations are on the same lines. I feel the formulation is much simpler. There has been anxiety in some quarters that with no cost recovery how would the companies recover their expenditure on exploration and in what time frame. I feel the production linked payment system would also work well, wherein the bidders will have to offer a model which will be evaluated by the government based on best offer received after which they would be awarded blocks. So in case of high exploration expenditure coming upfront, if the company wants to R.S. Sharma, former Chairman and Managing Director, ONGC and Chairman, Hydrocarbon recover it fast, it can Committee, Ficci In offer a formulation my view, situation none would like to indicating say the come. According to me, the for next two production recommendation is certainly a years it may linked payment better proposition. While the not like to do system would bidders would be happy if there any production work quite is a cost recovery so that they sharing with well. can recover all exploration costs the government. upfront, or in a staggered manner, So I feel that but in a system of production linked doing away with cost payment, they can still do the same recovery is a win-win for both the thing indirectly. It is a welcome change government as well as the bidders. as against the current formulation. The government won’t have to go into issues relating to verification of On CAG audit, the panel said cost, audit and gold plating, while the blocks with low value could be companies will not be subjected to audited by panel of auditors unwarranted scrutiny for cost recovery. formed by CAG and for high value blocks, the official auditor should Does removing cost recovery audit directly. Do you favour such send the right signal to bidders? audit mechanism? Won’t it also See, any investor will be happy to involve performance audit as come and invest till it is clear about well which has been opposed by the fiscal regime and revenue sharing most E&P companies? model. In the current uncertain

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CoverStory | InConversation CAG audit is one issue which I feel is an aberration because when there is no cost recovery there should not be an incidence of audit. To my mind this committee could have and should have avoided bringing the reference of CAG audit as that is an issue where the call is to be taken by CAG as an Institution. What view they take subsequently is to be seen. But I feel there is no need for CAG audit. International E&P companies, especially those coming and operating here would not like to open their books of accounts for any CAG scrutiny especially when there is no cost recovery. So what will the CAG audit do? To my mind, the CAG audit should be done away with.

The committee has suggested mandating a price of domestically-produced natural gas at an average of international hub prices and cost of imported LNG. In your opinion, is the new gas pricing formula suggested too complex and non-workable? I find there are complexities in the formulation especially with regard to availability of published data. While published data exists for US and European gas price, the same is not available for the JCC model where hundreds of cargoes are imported in a year. But I presume the committee must have given a thought to this and must have applied their mind. As per

my understanding, there are likely to be complications and complexities in actually calculating the gas price based on the formula suggested. The panel has called for doubling of gas prices for NELP gas. How will it impact producers like ONGC and private companies like RIL? I feel this is a very legitimate recommendation. Today everywhere the gas price benchmark price is higher, more so in case of LNG importation. LNG importation is happening at substantially higher prices. Even in case of the Dahej terminal of Petronet LNG Limited which has a long term contract for sourcing LNG, price is currently close to $10 per mmbtu. The gas price suggested by the panel talks of the future. There has to be adequate incentive for the producers. The consumer may like to have a low price, the government may also offer low price because of consumption in power and fertilizer where there are subsidy issues. But these expectations may not be realistically correct. The government has to see that there are adequate incentives for new players to come and bid in India. Unless it is there, why would they come to India? They would rather invest the same money elsewhere where gas prices are higher. So I feel that a realization has to come where the consumer has to pay a higher price as historical low price is not going to prevail in future. The recommendation is also welcome from the side of producers. NELP gas today mainly comprises D-6 gas. ONGC is producing from nominated fields. All producers such as ONGC and RIL will be happy even though there are some concerns that the price should have been even higher. But I feel the suggested formula and mechanism balances the expectation of producers and consumers in a reasonable way.

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Gas producers like Reliance are not happy with the proposal as it apparently does not reflect risks involved in exploration. Your views. If you look at the Production Sharing Contract signed, it says that producer will have freedom to market gas based on government’s gas allocation policy. Under that, RIL is currently getting a price of $4.2 per mmbtu, which, as it is, is due for revision in a year’s time. At least there is a comfort and realization now that there is a need to increase the price for gas that is being domestically produced, especially deepwaters and other marginal discoveries which will become viable only at a higher price. For example, ONGC’s KG-98/2 block production would not be viable at a price of $4.2 per mmbtu, but only at $6-7 per mmbtu. But the producers have been asking for market-linked pricing and the suggested exclusion of transportation and liquefaction costs from the global price to arrive at the benchmark Indian arm’s length price clearly has not satisfied them. I feel it is reasonable to not include transportation cost of LNG in gas price. Once we are taking a benchmark price in other economies, what is relevant is the price of gas production and liquefaction. That is the view taken by the Committee. At least there is clarity about the way it would be calculated. Then this averaging of price as of now is working around $8 per mmbtu, which I think is quite reasonable. Is the timeframe of price revision after five years reasonable? The report says that after five years this (gas prices) should be aligned to market forces. So I feel that it is quite reasonable. When there is stability in system in course of time, it should be

slowly aligned to market prices. But the committee talks of having uniform prices for gas across the country? If one looks for perfection it is not there. Here again even gas produced from onshore and deepwaters will have the same price. Costs are hugely different for production from onshore areas, offshore areas, deepwater and ultra deepwater, but this recommendation refers to uniform price for all fields.

Sectors like fertilizer would be happy to get cheap gas. For them it is a pass through. The burden comes to the government in form of subsidy. It has to take a call on whether to incentivize domestic production or to continue remaining dependent on imports. It is claimed that increase in gas price from $4.2 to $8 per mmbtu, as suggested by the committee, will have a detrimental impact on user industries like fertilizer, power and CGD sectors. Do you agree? The City Gas Distribution sector is viable even with LNG spot importation price. CNG, which is used mainly in public transport, will of course be impacted. But this realization has to come that the consumers will have to pay the market determined prices. Today, in the whole petroleum sector, and to some extent coal sector, consumer wants cheap subsidised product. But it is a harsh reality. We are hugely dependent on imports. How can anyone import at a high price and sell

cheaply? Then there are not adequate incentives for domestic production to go up. So this situation has to be balanced. In case the government continues to say that they will pay low price, then the domestic gas production will fall in course of time and all investments which are expected to be made will go outside the country. That doesn’t make good sense. Sectors like fertilizer would be happy to get cheap gas, even free of cost. For them it is a pass through. The burden comes to the government in form of subsidy. But then the government has to take a call on whether to promote and incentivize domestic production or to continue remaining dependent on imports in times to come. As per me, it is better to incentivize domestic production. An extended tax holiday of 10 years, as against 7 years already available for all blocks, has been recommended for blocks having a substantial portion involving drilling offshore at a depth of more than 1,500 metres. Your comments. This suggestion is absolutely welcome. The committee has recommended extending the timeframe for exploration in future PSCs for frontier, deep-water (offshore, at more than 400 m depth) and ultradeep water (offshore, at more than 1,500 m depth) blocks from eight years to ten years. Your comments. It is a step in the right direction as exploration takes long time in deepwater blocks and frontier areas. So there has to be a longer time for exploration in these areas.

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NewsBriefs | Oil & Gas

Oil India Limited Production starts at Venezuela fields

Petronet LNG Board okays LNG terminal

KG-D6 basin’s output drops Production down to 22 mmscmd

Oil India has announced crude oil production from its Venezuelan field. This is the first crude oil production from the company’s overseas block. OIL has a minor 3.5% stake in the joint venture company Petrocarabobo SA, which is developing two blocks in Orinoco Heavy Oil Belt. Company is expected to achieve a target of around 90,000 barrels per day under the accelerated early production plan by the end of 2015.

Petronet LNG has received final approval from its board of directors to build a third LNG terminal at Gangavaram in the state of Andhra Pradesh, the first terminal to be located on the east coast. Petronet LNG has completed preparatory work for the project and expects to announce a short-list soon of potential contractors for construction of the 5 million mt/year LNG terminal.

Reliance Industries’ KG-D6 gas field has seen production drop to just 22 million standard cubic meters per day as the company shut over a third of wells due to high water and sand ingress. RIL produced a total of 22.04 mmscmd of gas from Dhirubhai-1 and 3 gas fields and MA oil and gas field in the KG-DWN-98/3 or KG-D6 block in Bay of Bengal in the week ended December 30, 2012, the DGH said in a report.

ONGC to execute 44 mega projects Investment to be done in current Plan

CNG, PNG to cost more Adani, GSPC Gas hike prices

Dabhol LNG terminal reallocated GAIL India commissiones terminal

ONGC will be executing 44 mega projects in the current Plan period, at an investment of about `86,862 crore. Chairman and Managing Director, Vasudeva said that of the mega projects, 16 would be on-land projects and 28 offshore. Most of the projects are lump-sum turnkey contracts. Although the LSTK is an easy way of awarding contracts, it is not the most efficient.

GSPC Gas Company and the Adani Group’s gas distribution arm, Adani Gas have announced sharp increase in gas prices for the domestic, industrial and CNG consumers. GSPC hiked the CNG and PNG prices in the range of 10 per cent to 34 per cent in all the segments, while Adani hiked prices of domestic PNG by over 26 per cent and CNG by over 13 per cent.

GAIL India has successfully commissioned the Dabhol LNG terminal located at Ratnagiri, Maharashtra around 340 km south of Mumbai. The terminal would serve as a gateway for entry of natural gas to the southern and western India. The terminal is operated by RGPPL, a JV of GAIL and NTPC as major share-holders and remaining equity being held by financial institutions and MSEB.

Desulpurisation of Gasoline IOC’s Guwahati Refinery to start work

Gas Shipping GAIL plans to enter into the segment

NELP-IX CCEA rejects Ishar Gasoil’s bid

Indian Oil corporation’s Guwahati Refinery has announced that it has got project clearance by conducting a public hearing for proposed project INDAdeptG which will be responsible for desulphurisation of Indmax heavy gasoline to reduce sulfur content from 1000 ppm to 50ppm. According to the refinery the process can reduce sulfur content to meet product gasoline sulfur specification of Euro IV/ V quality.

GAIL has said it is looking to enter the gas shipping segment, primarily to bring in gas from its Sabine Pass fields in the US as also for shipping in gas from Gazprom’s Shtokman project in the Arctic region. GAIL in December 2011 had signed a pact to source LNG from the Sabine Pass project’s fourth train in the US’ Louisiana state for 20 years, beginning 2016-end or early 2017.

The Cabinet Committee on Economic Affairs has rejected the bids of Ishar Gasoil Pvt. Ltd for three oil and gas blocks under the ninth round of New Exploration Licensing Policy (NELP). While two blocks have been now awarded to second qualifying bidders, GAIL (India) and its consortium and Deep Energy consortium respectively, one block has not been awarded as there was no second bidder.

Sixth edition of Vibrant Gujarat RIL, Essar commit crores

ONGC Videsh strikes oil in Colombia 120-300 barrels of oil per day expected

Gas cracker project to be commssioned BCPL to give project go-ahead

In the sixth edition of Vibrant Gujarat which ended on January 11, 2013. RIL Chairman Mukesh Ambani said his Group planned to invest `1 lakh crore on expansion of capacities at its Jamnagar and Hazira complexes to create more jobs and increase exports. Essar Chairman Shashi Ruia said his Group would invest `150 billion in the ports sector, including `100 billion at Hazira and Salaya to expand capacities.

ONGC Videsh Ltd, the overseas investment arm of ONGC, has struck oil in Colombia. Initial assessment of the well drilled in the block CPO-5 produced oil varying in rate from 120 barrels of oil per day (BOPD) to 300 BOPD. The CPO-5 block is located at llanos basin of Colombia and is under phase 1 of exploration having commitment of drilling two exploratory wells, it said, adding that OVL has 70 per cent participating interest in it.

The Brahmaputra Cracker & Polymer Limited (BCPL) is all set to commission the multicrore Assam Gas Cracker Project by the end of this year. The mechanical work will be completed by July 2013 followed by its commissioning in mid-December. More than 700 process equipments have already been erected at the major process units and civil and structural work is nearing completion.

Outsourcing by Discoms: A Tenable Opportunity Towards Efficiency December 2012 Critical Investigation Points

 Can Business quotient for the distribution segment be enhanced?  Which are the areas critical to financial health of Discoms?  Can outsourcing reshape the slumbering Discoms?  Which are the outsourcing models suitable for Discoms?  Will outsourcing Discom operation improve the irrationality in the performance?

Key highlights • Piecemeal evaluation of Discom operations constituting value chain

• Business case for each value chain component of distribution

• Opportunity mapping of players in distribution business

Outsourcing by Discoms: A Tenable Opportunity Towards Efficiency December 2012

• Scaling opportunity for stakeholders • Business case evaluation for outsourcing options

• Comparing scenarios-BAU vs. Outsourcing down the timeline

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InConversation

‘India will soon be a poster child for floating LNG terminals’

Some years back few would have thought of setting up offshore floating LNG storage and liquefaction facilities. But not anymore. In an interview with Neeraj Dhankher, Teekay Gas Services’ President, Captain David Glendinning talks of how the concept of a floating storage and regasification unit is fast catching up among LNG players across the globe. More so in India where LNG business prospects are on the boil and the situation calls for innovative and quicker solutions to crack the LNG business code. Excerpts: LNG has the potential to become the most important business segment in the oil and gas sector in India today. How do you perceive its growth in India? LNG will continue to grow throughout the world not just because there is plenty of it but also because it is relatively cheap, easily transportable and environment friendly. On the flip side, we are not sure on what’s happening on the shale gas front. It is good for LNG markets when it is exported from the US, but not when it is developed in China, India or Argentina for instance. But I think these sources of shale gas

may take some time to develop. In India, the demand for gas is growing by the day due to rapid urbanization and government policies promoting use of gas for producing energy. This can be met only through import of LNG. What business opportunities can India offer on the LNG front? In India we are keen to follow an inclusive approach where we share our expertise, transfer knowledge and use as much Indian content as possible. We are prepared to create joint ventures and use Indian resources. We have similar approach in place for Indonesia, Angola, Yemen and Qatar where we shared our expertise. We are happy and excited to be in India as it suits our approach of working through collaborative joint ventures and allows transfer of knowledge and expertise. We will ensure that we provide value to the country and not just to ourselves. Today there are two LNG terminals in the country and many more are to come. Then there are also other quicker market solutions like floating storage and regasification units (FSRUs). This concept is cheaper, faster to implement, more flexible and does not involve any land acquisitions as required by shorebased terminals. This cost effective solution means that the resultant savings can be passed down the LNG value chain to end consumers. India has a long coastline and both the East and West coast offers immense opportunities for installing FSRUs. What is most interesting is that different types of projects have different needs

Captain David Glendinning, President Teekay Gas Services

to which we can cater. For instance, we also have expertise in ship to ship transfer which may be required in some locations. Our competencies as well as prior experience in harsh weather FPSOs can be extended to some projects that are being considered at offshore locations in India. It is important to add that we have made a strong commitment in India to provide solutions to the LNG industry and we will endeavor to utilize Indian competence and resources. Are you in talks with any company in India for setting up FSRUs? We are talking to a number of players in India on exploring the possibility of setting up FSRUs. In fact, we are looking at a number of FSRU possibilities in India. During Vibrant Gujarat summit recently, we signed an MoU with Swan Energy to develop a 5-mmtpa FSRU in the state. We are

February 2013 www.InfralinePlus.com

also in talks with other LNG players such as GAIL, Petronet LNG Ltd and many more for setting up FSRUs. With our corporate set up and LNG partners, we can raise equity as and when required. Realistically speaking, two to three of these contracts may materialize this year itself. So we are committed to India already and it seems natural to develop business here. We have recently ordered two LNG carriers which will use advanced M-type electronically controlled gas injection twin engine which we hope to charter out very soon. Will you also look to venture into setting up LNG infrastructure in India? Being a marine company, we are interested in being a part of an integrated LNG facility specializing in the provision of the FSRU where our competency lies. We are not looking to get into LNG trading or laying pipelines outside the LNG facility.

Singapore is setting up a 6-mmtpa LNG terminal to trade LNG. Do you think this will alter transportation requirements of Indian companies sourcing LNG? We expect the terminal to cater to requirement of spot LNG mostly. Players who need gas more than contracted may use this facility. To them, this gas may turn out to be readily available to meet

India welcomes outside expertise and we welcome bringing expertise into the country and sharing it. Both these strategies marry nicely. It is give and take, a win win situation through collaboration. It is a comfortable place for us to be in.

the demand. But I do not think that this will have any major impact on long-term LNG contracts. Are you exploring opportunities for setting FSRUs elsewhere in the Indian sub continent? We have been approached by Sri Lanka for looking at FSRU opportunities. However, we are not looking at either Bangladesh or Pakistan as of now. India is a better opportunity for us and we prefer to focus our efforts here. In fact, we have an India strategy which we kicked off 18 months ago for gas opportunities. What prompted formulation of a specific strategy for India? India welcomes outside expertise and we welcome bringing expertise into the country and sharing it. Both these strategies marry nicely. It is give and take here, a win-win situation through collaboration. It is a comfortable place for us to be in. India has become more accessible as the government is attracting foreign investment which is making it easy for foreign investors. How much of an investment is the company looking at in India? Today Teekay Gas Partner has the ability to fund substantial annual growth. Bearing this in mind each project will be evaluated on its merits and necessary capital will be made available as required.

A Teekay Aframax tanker â&#x20AC;&#x2DC;Australian Spiritâ&#x20AC;&#x2122;. Photo courtesy: motorship.com

Please throw light on the entire range of business operations being undertaken by Teekay Shipping Corporation. The company was founded in 1973 but it took some time to grow. It was in 1980s that Teekay Shipping became a major player in the Aframax sector which involved shipping crude oil across the Pacific from Indonesia to west coast of United States and transporting fuel oil back to West Asia. This trade was

February 2013 www.InfralinePlus.com

InConversation 1988. We realized very early as we grew our fleet that we needed well educated, competent and efficient officers. No longer were they available in Europe to a great extent. Initially we worked through a manning agency and on acquisition of Bona Shipping we established our own office which takes care of our manning and business development. Today, India is our single largest supplier of officers accounting for 25 per cent of our total officer strength.

A floating tanker of Teekay

created on the back of a number of timechartered Aframax tankers. In 1985 we decided to venture into direct purchase of second-hand ships as the quality of ships required was not readily available for time charter. In 1988, we ventured into a new building program in the Aframax sector. In 1995 Teekay Shipping was floated on the New York Stock Exchange. This was a period of consolidation and recovery after the downturn in the Aframax sector in early 1990s. By 1998, the company was on a stable platform. In 1998 we embarked on a growth and diversification strategy under the leadership of our CEO, Bjorn Moller. As strategy of diversification, first we acquired three tankers of Caltex Australia and set up an operational hub in Australia. Simultaneously we diversified in to the offshore market placing FSO (floating storage and off take) on long term contract on west coast of Australia. In the Aframax sector, we expanded our business in the Atlantic by acquiring Bona Shipping Norway which had a dominant position in that market. As a natural extension of our competencies, we entered the shuttle tanker market through the acquisition of a controlling stake in the largest publicly traded shuttle tanker operator – Ugland Nordic Shipping of Norway. We then

We realised early that we needed competent and efficient officers. Today India is our single largest supplier of officers accounting for 25% of our total officer strength. acquired Statoil’s wholly-owned shipping company, Navion ASA., Norway, which gave us access to majority of shuttle tankers operating in the North Sea. We further expanded in LNG sector by acquiring Naveria F.Tapais AS. We extended our competency further into developing Floating Production Storage and Offloading (FPSO) units through our acquisition of Petrojarl in Norway. Today, we have 11 FPSOs, to go with a new building which has been engineered in New Delhi by an Indian contingent and another one in Brazil. The diversification strategy has allowed us to thrive in a market that others are struggling to survive in. We are in a very strong position to continue growing as others are taking cover. The strategy has paid off in the long term. When did you set up base in India? We have had a presence in India since

How did Teekay evolve into an LNG transporting company? Having become a prominent player in the Aframax and Suezmax sector in the Pacific and the Atlantic as well as in the shuttle tanker market, our aim was to become the world’s leading supplier of energy transportation. This led us to LNG. In 2003 we decided to enter the LNG space with a two pronged approach. We acquired four LNG ships from Spain’s largest provider of marine energy transportation, Naviera F. Tapias S.A. At the same time we were successful in tendering for three ships for a RasGas project in Qatar. Having invested a total of 4 billion dollars today we have 29 LNG ships, including 50 per cent ownership in a FSRU and two ship new building order, making us the 3rd largest independent operator in LNG ships in the world How did you arrange funds for implementing the growth and diversification strategy? In order to fund our growth ambitions our parent Teekay Corporation created three daughter companies namely Teekay LNG Partners L. P, Teekay Offshore Partners L.P, Teekay Tankers Ltd, all of which are listed on the New York Stock Exchange. The creation of this facility has allowed us to grow competitively as equity can be raised to support our ventures. For full version of the interview, visit www.infraline.com For suggestions email at feedback@infraline.com

Shale Gas Exploration in India: Potential, Challenges and Opportunities February 2013 The Shale gas bidding round is six to eight months away as per Government utterances in various forum. This report will serve as a quick reference guide to Indian scenario for decision makers, consulting agencies and all other stake holders. This report is a comprehensive study on the shale gas scenario in India. It answers the following questions: • What are the possibilities? • Where are they? • What is the science and technology behind these developments?

Key highlights • Strategic concerns for India to go for Shale Gas Exploration

• Potential Shale Gas Basins of India • The variance in Resource Estimates and perceptions • Environmental debate and its possible resolutions

Shale Gas Exploration in India - Potential, Challenges and Opportunities February 2013

• Regulatory and Contractual regimes Proposed–their implications • Do we need a separate Shale Gas policy? • Shale Gas conundrum and Economic models • Opportunities for partnership Ventures • Future markets and Energy issues

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OVL-Conoco deal to reduce India’s dependence on crude oil imports ►► Deal structure planned as an asset sale by ConocoPhillips to ONGC Videsh ►► Payback of Kashagan-1 is in 2023 assuming full consideration on closing @ $90/bbl oil price

After 1968, Kashagan is the world’s biggest oil discovery

by Richa Gautam

ONGC Videsh Limited (OVL), the overseas arm of state-owned Oil and Natural Gas Corporation (ONGC), has announced a $5 billion deal to buy 8.4-per cent stake from ConcoPhillips in North Caspian Sea Production Sharing Agreement (NCSPSA) or Kashagan. The transaction, subject to approvals, is expected to be completed in the first half of 2013. This will be the biggest acquisition by OVL, surpassing its $2.2billion buyout of Russia-focused Imperial Energy in January 2009. It will

also be the biggest acquisition by an Indian company this year, and the sixth largest in history. OVL is seeking oil and gas properties overseas to meet the nation’s rising energy needs. The opportunity relates to the acquisition of a stake in the NCSPSA that involves the Kashagan field and is code named as Project Kennedia-II. Apart from super-giant Kashagan, NCSPSA includes three satellite fields, which is located offshore in the North Caspian Sea at water depth of 1-10 meters and has an

aerial extent of 5643 sq. km. In the midst of decreasing domestic production and issue over import of crude from Iran, this deal of OVL is a welcome breather for India’s energy security. India is highly dependent on imports for crude oil. More than 70 per cent of its crude requirement is met from imports. Last year the country spent $140 billion on importing this vital commodity. Total crude oil import in 2011-12 amounted to 171.73 million metric tonne.

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Kashagan, the world’s biggest oilfield discovery since 1968, has an estimated 30 billion barrels of oilin-place, of which 8-12 billion are potentially recoverable. Plans have already been firmed to ramp up output to 450,000 bpd (22.5 million tonne per annum). OVL, under the Perspective Plan – 2030, is targeting oil and gas production of 20 million tonne of oil and oil equivalent gas by fiscal 2018 from the current 8.75 million tonne. This is to rise to 60 million tonne by fiscal 2030.

Flip side of the coin Some doubts have been raised on the wisdom of the deal. Though the Kashagan field has been under development for 12 years, involving an investment of almost $50 billion, the output isn’t great. The cost overruns will mean thin margins for the owners of the field: KazMunaiGas of Kazakhstan, Exxon Mobil, Royal Dutch Shell, Total and now OVL. What is bothering industry more is the earlier big-ticket acquisition done by OVL in January 2009 when it had bought Imperial Energy Corporation, an independent upstream oil exploration and production company, with its main activities in the Tomsk region of Western Siberia, for $2.1 billion. OVL invested another about $500 million in the asset. However, it is currently producing only 15,000 barrels of oil per day against the projected 80,000 barrels.

Strategic advantages In the year 2024, at the peak of Phase 1 + CC01 production, OVL shares would be about 1.6 mmt which would be about 26 per cent of OVL’s crude oil production for the year 2011-12. This production would be a major contributor to achieving the targets set for ONGC Videsh in ONGC Groups Perspective Plan (PP) 2030. Strategically, partnering by ONGC Videsh with international oil companies in one of largest oil field of the world

would be very beneficial from the point of future opportunities and technology transfer.

▪▪

The big deal

▪▪

In 2011 ConocoPhillips had undergone restructuring when they spun off their refineries, chemicals and pipeline businesses to a new company called Phillips 66, which effectively means that ConocoPhillips Petroleum would concentrate on upstream activities of exploration. Following this, ConocoPhillips petroleum company pursuing their policy of “shrink to grow” decided to divest some of their assets across the world, including their stake in NCSPSA. The specific interest and rights of ConocoPhillips, proposed to be acquired are ▪▪ A 10/119 (approx. 8.40 per cent) undivided Participating Interest (PI)

Some doubts have been raised on the wisdom of the deal. Though the Kashagan field has been under development for 12 years, involving an investment of almost $50 billion, the output isn’t great. Cost overruns will mean thin margins for the owners of the field, which now also includes OVL.

▪▪

in the rights and obligations under the PSA 8.40 per cent undivided PI in the rights and obligations under the JOA; 8.40 per cent shareholding interest in North Caspian Operating Company B.V. (1,080 shares); 8.40 per cent shareholding interest in North Caspian Transportation Manager Company B.V. (840 shares); Such right, title and interest in and under the Asset documents (other than the PSA and JOA) that accords with the interest referred to above, including all VAT refunds received or receivable on or after the reference date, i.e., January 1, 2012 and all rights to the KMG receivables.

The deal structure is principally planned as an asset sale by ConocoPhillips to OVL, with acquisition of PI in NCSPSA and shares in NCOC and NCTM. Assessment of Project Kennedia-ll Due diligence and project appraisal has been done by reputed international consultants. The consultants engaged for Project Kennedia-ll are ▪▪ Goldman Sachs as financial advisor ▪▪ Bayphase as technical advisor ▪▪ Allen & Overy as legal advisor and ▪▪ Ernst & Young (E&Y) for tax and accounting ONGC’s technical team studied the G&G aspects of Kashagan project. The due diligence and valuation has also been done in accordance with the policy on business development for acquisition of

Asset

Methodology Production Gross/Net Peak Net Oil Reserves* / Start Date Production (kbbl/d) / Year Resources* (mmbbl) DCF (11% Apr-13 385/32 /2024 279 (2P) Phase 1+ CC01 discount rate) $1.50/bbl Tentatively Development Plan yet to be 257 (2C) Phase 2 by 2022 Approved $1.00/bbl Tentatively Development Plan yet to be 302 (2C) Phase by 2027 Approved 3+ Other 838 (TOTAL) * The classification is as per SPE PRMS (2007) definitions.

February 2013 www.InfralinePlus.com

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ConocoPhillips headquarters in Houston

Strategically, partnering by ONGC Videsh with international oil companies in one of largest oil field of the world would be very beneficial from the point of future opportunities and technology transfer. Risks associated with the deal The Kashagan field with its high pressure and high H2S content is uniquely situated in an environmentally sensitive landlocked Caspian Sea. The development design adopted by the major consortium for this project is supposed to mitigate the risks involved to a large extent, although, it is premature to rule out the possibilities of any eventuality. Performance of sour gas injection in to the Kashagan reservoir is a cause of concern. However, the same technology is successfully implemented in Tengiz field (situated in the similar geological set-up, onshore towards east of Kashagan field). The surface risks perceived in the project are mainly the disposal of the impurities in the environmentally sensitive Caspian Sea; however, adequate measures have been planned by the contractor. In addition, the country risk involving the future tax changes in Kazakhstan may be an issue. However, this being a Production Sharing Contract, the risk is envisaged to be low for any major tax change related problems in future. Production start date is a critical element of Kashagan development project. The start-up date of April, 2013, agreed by consortium parties is reasonable considering the completion of commissioning and hook up as per the revised schedule. However, keeping in view the experience of delays in start up of phase I, for the future, caution will have to be exercised to avoid time and cost overruns. Risk associated with taxation appears to be minimal, as the seller has agreed to bear all the transaction related taxes including withholding tax. Preemption is a key risk and ConocoPhillips shall approach co-ventures for waivers of the preemption right after the SPA is initiated. OVL along with its consultants conducted an exercise named “Zero Based Risk Review” (ZBRR) to understand and revisit all the risks and review all the technical, legal and commercial issues involved in the Kashagan Project.

oil and gas assets of ONGC Videsh. Given proximity to production (April-2013 first oil), the Kashagan valuation for (a) Phase 1 + CC01 based on Discounted Cash Flow (DCF) methodology as on 1st January, 2012 (effective date) considering production profile, capex and opex estimates provided by technical consultant. For DCF valuation, brent crude oil price of $90/bbl inflated at 2 per cent per annum has been considered. The DCF valuation was done with a project discount rate of 11 per cent. Capacity utilization of 85 per cent and production start-up of April, 2013 has been considered based on the technical inputs provided by Technical Consultant, (b) Phase 2 and Phase 3, valuation has been assigned on $/bbl multiple based on regional transaction data using reserves/ resource numbers provided by technical consultant. As per Settlement Agreement signed in 2012, short term financing assistance for KMG will be provided by other contracting companies for KMG’s share of additional costs. Total carry loan of $586 million in 2012 and $400 million in 2013 at an interest rate of LIBOR +3 per cent has been considered. The purchase consideration for the project has been negotiated at $ 4,250 million as on January 1, 2012 plus working capital adjustment of $ 255.7 million. Since the project is expected to start generating cash flow from third quarter of 2013, the total cash sink is estimated to be $5,500 million approximately, considering cash call payments, applicable interest and other adjustments. Various speculation have been made over the fortune of this deal. Only time will prove who was right and who was wrong.

For suggestions email at feedback@infraline.com

February 2013 www.InfralinePlus.com

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History shows, diesel may still not be deregulated ►► Small, periodic price hikes allowed but OMCs need govt nod when increase is significant ►► The decisions will not make any difference to the government’s subsidy bill for this year

Government has authorised state-run oil marketing companies to periodically hike fuel prices

by Team InfralinePlus

By January 17, when the government decided to let oil marketing companies align price of diesel with global rates entailing an increase in small doses, it was clear that petroleum subsidy had reached a critical point and was threatening to burn a bigger hole in the government finances. The fact that socialist-bent-of-mind Jaipal Reddy was out of the ministry of petroleum, made taking bold decisions easier. In September when he was still in charge of the ministry, Reddy had reluctantly agreed to capping of subsidised LPG cylinders and a diesel price hike.

Now diesel too is on its way to being deregulated. The `5 / litre increase in diesel price in September has been followed by a 45 paise / litre increase this time. The quantum of hike is small which is why there has been little uproar from political parties. Had the prices been increased by the required `9 / litre, not only the opposition would have been huge but inflationary impact on the economy would also have been tremendous. Among all the petroleum products, diesel has a 4.67 per cent weight in the overall inflation which

stood at 7.18 per cent in December.

In line with Kelkar The steps taken towards diesel decontrol are in line with the suggestions made by the Vijay Kelkar committee on fiscal consolidation. It had suggested two ways of tackling the issue—periodic increase in small doses till the retail price is aligned to global rates. Simultaneously, oil marketing companies have been allowed to immediately start charging bulk consumers the market price. This means an immediate increase of 45 paise per litre exclusive of tax for sales through

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retail outlets, and `9.25 per litre increase for bulk consumers that were adding `12,907 crore to the gross subsidy burden. For retailers, the price hike will be monthly and for bulk consumers it would be revised every fortnight. Whether these steps will eventually lead to total deregulation is debatable primarily because this is not the first time that such a thing is being attempted. Both diesel and petrol were put out of the administered price mechanism way back in April 2002. Cooking fuel too was to be freed but LPG and kerosene being more basic in their usage never went out of government control. Based on the recommendations of the Kirit Parikh report, the government did deregulate petrol price again after a decade in June 2010 but the experience since shows that whenever the required increase is frequent and significant, oil marketing companies (OMCs) wait for government signal to increase the price. The companies made `2,000 crore loss on sale of petrol during the first half of the current financial year. Nonetheless, the decontrol has helped by silencing the criticism against such a hike and preventing situations where infrequent revisions have necessitated a need for big hikes. The Kelkar Committee in its report submitted in September 2012 had recommended that price of diesel be increased by `4 per litre, kerosene by `2 per litre and LPG by `50 per cylinder. It had also said that half of the subsidy on diesel should be eliminated this fiscal and the remaining half over the next fiscal. The LPG subsidy could also be eliminated by 2014-15 by reducing it by 25 per cent this year and the remaining 75 per cent in the next two fiscal years and for kerosene, it said the aim should be to reduce the subsidy by one-third by 2014-15. After considering the Kelkar panel recommendations, the ministry of petroleum had proposed an upfront hike of `4.50 per litre in diesel, besides monthly increases of `1.50

The steps taken towards diesel decontrol are in line with the suggestions made by the Vijay Kelkar committee on fiscal consolidation. It had suggested two ways of tackling the issue— periodic increase in small doses till the retail price is aligned to global rates. Simultaneously, oil marketing companies have been allowed to immediately start charging bulk consumers the market price. per litre this financial year and then `1 increase from April 2014 till the underrecoveries in the fuel were eliminated. Prior to January 17, sale of diesel was estimated to be contributing `94,808 crore amounting to 60 per cent of the total revenue loss of around `1,60,318 crore this financial year. An alternative scenario proposed was 60 paise monthly increase. Alongside, market pricing for bulk consumers that contributed `12,907 crore to diesel under-recovery was also planned. The government probably could not wholeheartedly adopt Kelkar’s recommendations and so decided to keep the committee’s suggestions on cooking fuels in abeyance. In fact, since the September 2012 decision had seen such political outrage, it decided to increase the number of subsidised cylinders a consumer would get to in a year to nine from six. This was obviously to soften the impact of six cylinder jolt that households felt. Though it is not clear how would the government gain from this move politically, since it had already lost Trinamool Congress as its political ally in the political aftermath

of September decisions on petroleum and retail matters, the raising of cap is expected to push the under-recoveries of OMCs by `5,200 crore till March 2013 but taking into account the volume and price it will be `10,000 crore on an annualized basis. Price of nonsubsidised LPG cylinder that was not being increased was also allowed to be increased by `46.50 per cylinder. The wake-up call was primarily pushed by the fact that there had been 14 per cent fall in the value of the rupee against the dollar. Every one-rupee depreciation adds about `10,420 crore to the under-recoveries, while every dollar increase in a barrel of crude oil pushes it up by `5,190 crore. The decisions will not make any difference to the government’s subsidy bill since Finance Minister P Chidambaram was quick to add that he was not factoring in any change in fuel subsidy for this financial year. Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are also not likely to see much relief on their balance-sheet this financial year though conceptually both diesel decontrol and the decision on capping of LPG cylinders help them in the long run. The government on its part had provided only `43,580 crore in petroleum subsidy in the Budget for this year. Much of this went into meeting the subsidy requirement of 2011-12. The three government-controlled OMCs had to be given another `28,500-crore subsidy dose in the supplementary demand. The requirement of government subsidy for this year is `1 lakh crore even as stateowned Oil and Natural Gas Corporation, GAIL India and Oil India share `30,000crore subsidy. Clearly, it is the concerns on fiscal front that helped the ministry of finance and the Planning Commission to push through the proposals and with Veerappa Moily in the petroleum ministry things became smoother. For suggestions email at feedback@infraline.com

February 2013 www.InfralinePlus.com

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Curious case of Naftogaz India: Did it conceal info to bag E&P contracts?

►► Petroleum ministry terminates contract for CB-ONN-2004/5 block in Gujarat ►► Naftogaz, Ukraine says its name was used illegally

by Team InfralinePlus

Engineering, procurement and construction (EPC) is a highly competitive industry where companies often scramble to grab big ticket projects. But sometimes such competition is misguided to the extent that contractors are actually charged with concealing and manipulating sensitive business information to secure handsome work orders in this niche EPC segment. One such case is that of Naftogaz India Private Limited.

In 2006, Naftogaz India was awarded the operatorship of the block, CB-ONN2004/5, at Palej in Gujarat, having a 10 per cent stake, with Welspun Natural Resources Ltd and Adani Enterprises holding 35 per cent participating interest each in the block. Another 20 per cent stake in the block was held by Adani Infrastructure Services Pvt Ltd. As per the terms and conditions of the Notice Inviting Offer, the bids were to be evaluated on specific criteria

including technical capability and experience of the operator, committed minimum work programme, fiscal package and track record, and the bidders were required to meet a certain minimum qualifying criteria. Additionally, the terms further stipulated that if the bid was endorsed by the parent company of the bidder, undertaking to provide financial and performance guarantee on behalf of its subsidiary, then the technical

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parameters and financial capability of the parent company of the entity submitting the bid could also be considered for bid evaluation. At the time of bidding for the block, Naftogaz India had represented itself as a subsidiary of National Joint Stock Company, Naftogaz of Ukraine, claiming that Naftogaz, Ukraine, being the parent company, had the requisite technical and financial expertise as required under the terms and conditions of the tender. Naftogaz India had further made available copies of board resolutions signed by Chairman of Naftogaz, Ukraine, to substantiate its claims, based on which it signed a Production Sharing Contract (PSC) for CB-ONN-2004/5 block, on March 2, 2007. However, in October 2012, things took an unexpected turn when the partners in the block, Welspun Natural Resources Ltd and the Adani Group, were handed a termination notice by the petroleum ministry cancelling the PSC. In its termination notice, the government has reasoned that Naftogaz India had falsely represented itself as a subsidiary of Naftogaz, Ukraine, with an ulterior motive to have the block awarded in its favour at the time of the bidding process in 2006. The allegations were verified by the petroleum ministry after seeking a confirmation from Naftogaz, Ukraine.

Naftogaz India had represented itself as a subsidiary of National Joint Stock Company, Naftogaz of Ukraine, claiming that Naftogaz, Ukraine, being the parent company, had the requisite technical and financial expertise as required under the terms and conditions of the tender. Naftogaz India had further made available copies of board resolutions signed by Chairman of Naftogaz, Ukraine, to substantiate its claims. Naftogaz India is involved in wide spectrum of oil and gas activities both in the upstream and mid stream sectors. Some of the important contracts bagged by the company include: • A `370 crore contract for balance Offsite & Utilities and Interconnection with Panipat Refinery / Marketing Terminal (EPCC – 9) package at Panipat Refinery with Indian Oil Corporation Limited • A `259 crore contract for the Coke Drum System Package at Bina Refinery with Bharat Oman Refineries Limited • A `576 crore order for the Hydrogen Generation Unit at Bina Refinery with Bharat Oman Refineries Limited • A $32 million contract for ONGC’s Barge Bump er Boat Landing Riser Protection Revamp Project at Mumbai High • A `374 crore order for ONGC’s Offshore Grid Interconnectivity – Power to ESP Project at Mumbai High Offshore Field • A `317 crore contract for the Coke Drum System Package at Guru Gobind Singh Refinery, Bathinda with HPCL- Mittal Energy Limited

Clarifying its stance on the whole issue, Naftogaz, Ukraine, confirmed that it neither established nor became stockholder of Naftogaz, India Pvt. Ltd. Further, the clarification stated that the corporate rights of Naftogaz, India were not under the responsibility of the management of the Ukrainian company. Naftogaz, Ukraine, further corroborated that Naftogaz, India illegally uses the official name Naftogaz, refers to its business reputation and commercial experience, although the appropriate agreement was not given from its side. The partners in the block have now been asked to pay up for the unfinished work programme as per the terms and conditions of the PSC, creating much confusion and panic among stakeholders. In NELP-VI a total of 55 blocks were offered for exploration and development. Of these, three blocks were awarded to Naftogaz India, including CB-ONN-2004/5 in Gujarat. The other blocks in which Naftogaz India became the operator included the block MZ-ONN-2004/2 in Mizoram (Naftogaz-10 per cent, RNRL-10 per cent, Geopetrol-10 per cent and REL-70 per cent) and block AA-ONN-2004/4 in Assam (Naftogaz-10 per cent, Adani Enterprises-35 per cent, Adani Port-20 per cent, Jaycee-35 per cent).

*Officials from Naftogaz India, Welspun Natural Resources Ltd and Adani Enterprises did not respond to email queries from the magazine. For suggestions email at feedback@infraline.com

February 2013 www.InfralinePlus.com

Budget Expectation Oil & Gas 2013-14

Diesel cars in the line of fire ►► Petroleum ministry seeks higher excise duty to prevent dieselization of economy ►► Removal of calamity duty on natural gas; extension of infra status to exploration and refining The petroleum ministry has once again sought imposition of additional excise duty on diesel cars in this year’s Budget. In its recommendation to the ministry of finance it has said that additional duty would not only prevent dieselization of the economy but would also bring additional revenue towards meeting the under-recoveries of the public sector oil marketing companies. The government continues to modulate the retail selling price of diesel in order to insulate the common man from the impact of rise in international oil prices. Though small incremental increase in prices has been allowed by the government in January, still the oil marketing companies (OMCs) incur under-recoveries of close to `10 per litre on diesel. At a crude price of $110 / bbl and exchange rate of `55 a dollar, the estimated under-recovery of OMCs on diesel, kerosene distributed through public distribution system (PDS) and domestic LPG for the year 2012-13 is `1,62,000 crore. Of the total estimated under-recoveries, around 56 percent (`90,720 crore) are due to diesel alone. In April-November 2011, sales of diesel had grown by 7.4 per cent against growth rate of 4.3 per cent in petrol for the same period. Similarly, the growth

rate of diesel for November 2011 (over November 2010) was 16 per cent against the negative growth of 2.4 per cent. The Kirit Parikh committee had recommended taxes on diesel vehicles in its February 2010 report:-”Petrol and diesel used in cars, including sports utility vehicles (SUVs), is for final consumption. The higher excise duty on petrol as compared to diesel encourages use of diesel cars. While greater fuel efficiency of diesel vehicle should not be penalized, a way needs to be found to collect the same level of tax that a petrol car user pays from those who use a diesel car for passenger transport. An additional excise duty on a diesel vehicle corresponding to the differential tax on the petrol should be levied.” The Committee, recommended that at the prevailing rate (February 2010) and a discount rate of 5 per cent, an additional excise duty of `80,000 should be levied on diesel driven vehicles.

Calamity fund Among other proposals, the petroleum ministry has also sought removal of `50 per metric tonne National Calamity Contingent Duty (NCCD) on crude oil which was imposed on domestic and imported crude in 2003-04 Budget in

order to augment the fund available to provide support to relief work in areas affected by natural calamity Though, the Finance Bill, 2003 had indicated that this levy will be limited to one year only it has been extended year after year, putting an additional burden on OMCs. In respect of exports of petroleum products, while import of equivalent crude is allowed without payment of customs duty, NCCD is payable by oil refining companies. Alternatively, it has been suggested that credit of NCCD may be allowed for payment of excise duty / cess payable by oil companies on finished products.

Exemption from customs / excise duty on R&D pilot plant Huge capital investments are made for setting up scientific research and development facilities of international standards. The research equipment is mostly imported on which customs duty is leviable, which in turn, increases the cost of equipment and insurance charges. Institutions such as Council of Scientific & Industrial Research (CSIR), Bhabha Atomic Research Centre (BARC), The Energy & Resources Institute and educational institutes are eligible for exemption

February 2013 www.InfralinePlus.com

Budget Expectation Oil & Gas 2013-14 Key Recommendations

1. Additional excise duty on diesel cars to bring additional revenue for oil marketing companies 2. Removal of `50 per metric tonne National Calamity Contingent Duty (NCCD) on crude oil which was imposed on domestic and imported crude in the Union Budget for 2003-04. 3. Exemption of machinery, equipment, chemicals etc. used for R&D activities on petroleum products and alternate fuels from customs / excise duty. 4. The 5% custom duty levied on import of crude oil was withdrawn in June 2011. LNG industry is demanding the same. 5. Declared goods status for natural gas and LNG. Sales tax of not more 5 per cent can be levied on declared goods. 6. Extension of infrastructure status to exploration and refining activities for the purpose of 10-year tax holiday under Section 80-IA of the Income Tax Act 7. Extending the validity of the deduction u/s 80IB (9) for refining business from customs duty on import of machinery for R&D activities. Although R&D centres of oil companies are not separate institutions, they are involved in developing technologies for use of alternate fuels such as hydrogen, CNG, ethanol, biodiesel, gas to liquid etc. It is suggested that machinery, equipment, chemicals etc. used for R&D activities on petroleum products and alternate fuels may be considered for exemption from levy of customs / excise duty.

Exemption from levy of 5% import duty on LNG / natural gas A 5% custom duty is charged on import

of LNG. No credit is allowed for this duty. Hence this goes into cost which is ultimately passed on to the customers who are mainly in power and fertilizer sectors which is required to be subsidized by the government. The 5% custom duty levied on import of crude oil was withdrawn w.e.f 25.06.2011. The industry is demanding that in line with the benefit given to imported crude oil, the same may be extended to imported LNG also which is a cleaner fuel.

Central Sales Tax

‘Declared goods’ status to natural gas and LNG: Under Chapter IV (Section 14) of CST Act, 1956, which deals with the ‘Goods of special importance in inter-state trade or commerce’, most of the fuels such as coal, crude oil, domestic LPG have been notified as ‘declared goods’ on which sales tax of more than 5 per cent cannot be levied / charged in any state, irrespective of where the product is sold. At present, taxes in some states are abnormally high (value-added tax in Assam is 20 per cent and in Gujarat / Maharashtra it is 12.5 per cent). Natural gas is the source of CNG (transportation fuel) and can replace MS and HSD to a significant extent in a large number of cities. Also, natural gas, used as a household fuel (i.e. piped natural gas), can replace LPG and SKO. This will directly reduce large subsidy burden on these products, if crude oil moves sharply. Since, a portion of this subsidy is met by upstream companies such as ONGC and GAIL, the reduction Declared goods Coal

Rationale for inclusion of these goods in the list of ‘declared goods’ Major fuel for power sector

or absence of same could free capital for significant expansion of these companies. Declared goods status will also make imported LNG cheaper. Biggest impact of declaring natural gas as a declared good will be on economic development of small on-land and isolated fields, a large number of which have been awarded under NELP blocks, which may otherwise remain unattractive due to high local sales tax. The same logic can be extended to development of CBM blocks. Gas from all such sources can be promoted within the region of evacuation. Also, uniformity in taxation will be ensured. Further, use of natural gas in transportation will significantly reduce pollution. In case of transportation fuels, gas is better than BS-IV and even next stage BS-V standards in terms of emissions. Its use in power plants, fertilizer plants and other industrial applications will vastly improve the environment around these industries.

Income Tax

Extension of infrastructure status to exploration and refining activities for the purpose of 10-year tax holiday under Section 80-IA of the Income Tax Act Under Section 80IB (9), an undertaking which begins commercial production of mineral oil is allowed a deduction of 100 per cent of the profits for a period of seven consecutive assessment years including the initial assessment year. However, such undertakings are not Relevance with reference to natural gas

Nearly 40% of gas is also used for power generation Crude oil Was included in 1976 when Natural gas replaces liquid feedstock in the states had raised the rate of fertilizer sector as well as in other applications. sales tax beyond 5% Being a primary energy source such as crude oil and coal, it should be treated on a par. Domestic Was included in April 2006 to Natural gas replaces LPG in city gas distribution, LPG partially reduce the level of thereby reducing the subsidy burden on account subsidies of domestic LPG. Hence it should be treated on a par with domestic LPG.

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able to avail this tax benefit for the full tenure of seven years due to the huge depreciation claim in the initial three-four years and because of the permissible deduction under Section 42 of the Act, where all capital and revenue expenditure incurred on drilling and exploration activities is fully deductible. As a result, such undertakings are not in a position to make any profit in the initial few years and get deprived of the full tax benefit in terms of the said section. It is therefore imperative to relook at the provisions so as to make the incentive more meaningful and encourage companies to venture into the high-risk business of exploration or refining of mineral oil where huge capital investment is required. The Government has already recognized the significance of power sector for supplying quality and uninterrupted power to the industry and the consumers, and granted 100 per cent tax holiday on profits derived by undertakings engaged in the generation or generation and distribution of power for a period of any 10 consecutive years out of 15 years beginning with the year in which the undertaking starts generation or distribution of power. Like power sector, hydrocarbon sector is also critical for the speedy and balanced growth of any economy. It is important that adequate measures are initiated to increase the domestic capacity of production of crude oil and petroleum products to meet the growing demand. For this, corporate sector has to be encouraged and sufficiently motivated to undertake commercial production and refining of mineral oil. As per Reserve Bank of India circular No. 20 dated 8th October, 2008, the definition of infrastructure sector for the purpose of external commercial borrowing will now include mining, exploration and refining activities. It is suggested, that hydrocarbon sector should be treated at par with the power sector in the matter of fiscal

incentives, for, undertakings engaged in commercial productions or refining of mineral oil are equally capital intensive as power plants. It is suggested that the definition of infrastructure sector in the explanation to Section 80-IA of the Income Tax Act should be amended to include exploration and refining activities. Accordingly, exploration and refining undertaking may be allowed deduction for 10 consecutive assessment years as against seven years at present out of 15 years period. On principles of equality, undertakings which have already started commercial production or refining of mineral oil should also be given the option of claiming the 10-year tax holiday beginning with the year in which they start earning taxable profits so that they are in a position to enjoy the incentive for the intended period of 10 years out of 15 years period. Without prejudice to the above, it has to be ensured that such undertakings are able to avail of the tax-benefit at least for the full term of 7 years intended by the Legislature. Towards this end, Section 80-IB (9) needs to be amended to provide flexibility or option given to undertakings to choose any 7 consecutive years in which the deduction can be claimed, out of the first 15 years beginning with the year in which the commercial production or refining of mineral oil commences. Extending the validity of the deduction u/s 80IB (9) for refining business: Under Section 80IB(9), a deduction of 100 per cent of the profits for a period of seven consecutive assessment years is allowed to an undertaking which begins refining of mineral oil on or after 1/10/1998 but not later than 31/3/2012. Major grassroots refineries and major expansion are being executed by various refineries and the viability of these projects has been possible

because of such tax concession. Some of these projects might not be completed before March 2012 because of factors beyond the control of the companies which would result in depriving these companies the benefit of tax holiday. Further, new capacitates are being contemplated during the 12th Plan which would take the refining capacities from the existing level of about 190 mmtpa to about 310 mmtpa. The government should encourage investment in grassroots refineries and major expansion of the refineries by providing adequate tax concession by removing the sunset clause under section 80IB (9) at least initially by extending the tax holiday up to the end of the 12th Plan period i.e. up to March 2017. This would ensure that India becomes the export hub which would put pressure on the product prices and bring down the international prices of sensitive products and would also enable reduction in under recoveries of the oil companies. 100% depreciation on fuel quality upgradation projects: Rule 5 of the Income Tax Act along with Appendix-I provides for the rate of depreciation on various categories and blocks of assets. As per item III of Appendix I, 100 per cent depreciation is admissible for air / water pollution control equipment. Appendix I has also specified the type of air, water pollution control equipment which qualifies for 100 per cent depreciation. Under the auto fuel policy, the government had directed oil companies to supply petrol and diesel with maximum prescribed sulphur content. In the process, oil companies have started supply of HSD with maximum sulphur content of 0.005 per cent (BS-IV) in 13 cities w.e.f. 01.04.2010 and 0.035 per cent (BS-III) in a phased manner by 22.09.2010 throughout the country.

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StatisticsOil & Gas Oil & Natural Gas Data Sets (November 2012) Crude Oil Production (November 2012) (Qty: ‘000’ Ton) Name of the Undertaking / Unit 1. Oil & Natural Gas Corp. Ltd. Onshore Gujarat Andhra Pradesh $ Tamil Nadu Assam Tripura Mumbai High Offshore Oil Condensates 2. Oil India Ltd. (OIL) Assam Arunachal Pradesh 3. DGH (Private/JVC) Onshore Arunachal Pradesh Assam Gujarat Rajasthan Offshore Grand Total (1+2+3) Onshore Offshore

Planned Production $ November, 2012 2007.400 589.400 446.000 26.000 17.000 100.000 0.400 1418.000 1227.000 191.000 325.800 323.800 2.000 994.086 740.835 10.150 0.000 11.407 719.278 253.251 3327.286 1656.035 1671.251

November 2012 1860.000 567.000 423.000 24.000 19.000 101.000 0.000 1293.000 1116.000 177.000 297.211 295.441 1.770 949.672 731.081 8.264 0.000 10.884 711.933 218.591 3106.883 1595.292 1511.591

Production during November 2011 1939.000 605.000 461.000 25.000 20.000 99.000 0.000 1334.000 1176.000 158.000 311.240 309.340 1.900 833.220 544.830 7.780 0.000 12.400 524.650 288.390 3083.460 1461.070 1622.390

*: Provisional. Note: Totals may not tally due to rounding off figures. $: Includes production from offshore east coast. **Revised

Refinery Production in terms of Crude Throughput (November 2012) (Qty: ‘000’ Ton) Name of the Refinery

Public Sector 1. IOC, Guwahati 2. IOC, Barauni 3. IOC. Koyali 4. IOC, Haldia 5. IOC, Mathura 6. IOC. Digboi 7. IOC. Panipat 8. IOC. Bongaigaon Total IOC 9. BPCL, Mumbai 10. BPCL, Kochi 11. BORL, Bina Total BPCL 12. HPCL, Mumbai 13. HPCL, Visakh Total HPCL 14. CPCL, Manali 15. CPCL, Narimanam Total CPCL 16. NRL, Numaligarh 17. MRPL, Mangalore 18. ONGC, Tatipaka Private Sector S 1. RPL. Jamnagar 2. Essar Oil Ltd.(EOL), Vadinar TOTAL $

Prorated Installed Capacity $ 10360.000 82.000 493.000 1126.000 616.000 658.000 53.000 1233.000 193.000 4454.000 986.000 781.000 493.000 2260.000 534.000 682.000 1216.000 863.000 82.000 945.000 247.000 1233.000 5.000 4191.000 2712.000 1479.000 14551.000

November, 2012 Actual Crude Throughput* 10743.353 81.140 538.414 1223.472 655.038 730.372 58.184 1272.510 202.532 4761.662 1070.829 716.893 551.904 2339.626 692.624 585.758 1278.382 767.589 52.359 819.948 234.626 1306.069 3.040 4636.705 2960.166 1676.539 15380.058

% utilization of IV 103.7 99.0 109.2 108.7 106.3 111.0 109.8 103.2 104.9 106.9 108.6 91.8 111.9 103.5 129.7 85.9 105.1 88.9 63.9 86.8 95.0 105.9 60.8 110.6 109.2 113.4 105.7

*: Provisional. I/C: Installed Capacity. $: RPL(SEZ) refining capacity 27 MMT but crude throughput not reported by the refinery and not included in total prorated installed capacity.

October 2012 1882.000 577.000 434.000 24.000 21.000 98.000 0.000 1305.000 1130.000 175.000 314.860 313.040 1.820 1006.707 764.981 8.839 0.000 11.408 744.734 241.726 3203.567 1656.841 1546.726

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Refinery-wise Capacity Utilization (November 2012) (Qty: ‘000’ Ton) Name of the Refinery.

% utilization of IV 103.7 99.0 109.2 108.7 106.3 111.0 109.8 103.2 104.9 106.9 108.6 91.8 111.9 103.5 129.7 85.9 105.1 88.9 63.9 86.8 95.0 105.9 60.8 110.6 109.2 113.4 105.7

*: Provisional. I/C: Installed Capacity. $: RPL(SEZ) refining capacity 27 MMT but crude throughput not reported by the refinery and not included in total prorated installed capacity.

Natural Gas Production (November 2012) (Qty: ‘000’ Ton) Name of the Undertaking/ Unit 1. Oil & Natural Gas Corp. Ltd. Onshore Gujarat Rajasthan Andhra Pradesh Tamil Nadu Assam Tripura Offshore 2. Oil India Ltd. (OIL) Assam Arunachal Pradesh Rajasthan 3. DGH (Private/JVC) Onshore Arunachal Pradesh Assam Gujarat Rajasthan West Bengal $(CBM) Madhya Pradesh (CBM) Jharkhand (CBM) Offshore TOTAL (1+2+3) Onshore Offshore

Planned Production $ November, 2012 1952.120 411.690 95.876 1.219 81.590 111.278 37.557 84.170 1540.430 250.300 228.600 1.500 20.200 1225.411 21.264 2.027 0.000 8.597 0.000 10.490 0.150 0.000 1204.147 3427.831 683.254 2744.577

*: Provisional. Note: Totals may not tally due to rounding off figures. $: Coal Bed Methane production. Reasons for shortfall as indicated in the note.

November, 2012 1930.374 447.035 153.992 1.361 96.377 100.703 40.161 54.441 1483.339 223.676 201.690 1.774 20.212 1108.259 67.924 1.329 0.000 13.609 43.919 8.569 0.281 0.217 1040.335 3262.309 738.635 2523.674

Production during November, 2011 1911.290 479.192 156.099 1.415 119.260 106.184 42.494 53.740 1432.098 218.037 196 112 1.329 20.596 1718.086 55.702 1.578 0.000 18.500 28.951 6.309 0.219 0.145 1662.384 3847.413 752.931 3094.482

October 2012 1979.184 459.891 153.517 1.400 101.774 102.926 42.537 57.737 1519.293 225.778 204.140 1.779 19.859 1223.295 73.083 1.717 0.000 15.834 46.202 8.781 0.292 0.257 1150.212 3428.257 758.752 2669.505

February 2013 www.InfralinePlus.com

NewsBriefs | Renewable

PFC Green to start operations soon `3,000 cr projects in kitty

National Solar Mission French company starts project in Gajner

Suzlon’s Kutch wind park Crosses 1,000 Mw installed capacity

With projects worth `3,000 crore already in its kitty, PFC Green Energy will commence operations in the next two months. PFC Green Energy Ltd, the wholly owned subsidiary of state owned Power Finance Corporation, was constituted mainly to fund renewable power projects. PFC carved out a separate unit to provide greater focus on the rapidly growing green power industry. This subsidiary was formed in the year 2011.

PR Fonroche, an equal joint venture of PR Clean Energy and the French company Fonroche, is working towards putting up 200 MW of solar photovoltaic plants in India. PR Fonroche formally inaugurated its 5 MW solar plant at Gajner near Bikaner, which is a part of a 20 MW project that the company won through a competitive bidding process of the National Solar Mission, Phase I Batch II.

One of the leading wind turbine makers in the world Suzlon Group’s wind park in Kutch district of Gujarat has crossed 1000 MW of installed capacity. This makes the company’s Kutch wind park one of the largest of its kind in India. Suzlon currently has a total installed capacity of over 1,500 MW in Gujarat.

Welspun inks MoU with GEDA Plans 200 MW of RECs

KSEB to generate off-grid solar power Plans 300 MW initially

Nalco commissions first project in AP PPA signed with state utility

Welspun Energy Ltd would soon sign memorandums of understanding with Gujarat Energy Development Authority for 200 megawatts of renewable energy certificates. The MoUs are valued at around `1200 crore. This would include 100 Mw in solar and 100 Mw in wind power generation.

Kerala State Electricity Board is planning to lure domestic consumers using above 200 units of power a month for setting up off-grid solar power plants. KSEB with the support of the government proposes to provide generation based incentive to solar power developers, in addition to the savings attained by them through replacing the high cost grid power with the solar energy. KSEB targets to add 300MW from solar.

National Aluminum Co Ltd has commissioned its first wind power project at Gandikota in Kadapa district of Andhra Pradesh. The Government-owned company invested `275 crore for the 50-MW Suzlon-erected project. Nalco signed a power purchase agreement with the States power transmission utility Transco and has begun injection of power to the State grid.

Su-Kam plans solar powered inverters `300 crore investment

BHEL updates Tajikistan project Funding provided by Indian Govt

Gujarat all for solar power Plans promotion through REC route

Su-Kam is looking at launching solar-powered, wind-powered inverters and storage devices for domestic customers, and has planned investments to the tune of `300 crore for the same. The company has a war chest of `100 crore for acquiring companies that are manufacturing solar panels. It will invest another `200 crore in the solar sector over the next three years to develop new products.

BHEL has completed the renovation, modernization & updating of the 2x4.75 MW Varjob hydro power plant at Barki Tojik in Tajikistan. The project is funded by the Indian Government. The company which had supplied the complete electro-mechanical package for the project enhanced the capacity from two units of 3.67 MW to 4.75 MW each.

Gujarat Urja Vikas Nigam Limited is going to ink power purchase agreements with solar project developers under renewable energy certificate mechanism soon. The process for the same will start from next month. The state nodal agency for REC Gujarat Energy Development Agency have signed memorandum of understanding with several project developers during two day Vibrant Gujarat Global Investors’ Summit .

Suzlon’s UK subsidiary Signs contracts for two wind farms

Andhra Pradesh eyes hydel power Invites bids for mini projects

Odisha to frame solar policy Targets 80 MW in three years

Suzlon Group’s UK subsidiary, REpower UK signed two new contracts totalling 16.4 MW. The company will be supplying wind turbines for a new wind farm at South Wales in England. These wind farms will have output of 8.2 MW each, enough to generate power for nearly 5,000 homes. Construction work will commence in summer 2013 and will be completed towards the end of the year.

Andhra Pradesh Power Generation Company Ltd has initiated the bidding process for selection of developers for setting up mini hydel projects in the State. It has identified 92 potential sites with an aggregate capacity of 132 MW across 17 districts. The estimated potential capacity varies from 0.1 MW to 5 MW. The energy generated from these projects will be utilised for captive consumption.

In a bid to promote solar power generation in a big way, the Odisha government has decided to finalize a comprehensive solar policy in two months. The department of science & technology which is finalizing the policy, has targeted solar power production of 80 Mw in three years.

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InDepth

Delhi firm bags consultancy for Delhi station’s solar project ►► 0.1 mw solar power plant to come up within the station premises ►► The company will be required to put in its own money in the plant, it will get dedicated buyer

Photo courtesy http://mymysore.wordpress.com

If successful, the project will be replicated in other railway stations also. Seen here platform 2 and 3 of Mysore railway station.

by Ankita Sharma

Delhi-based consultancy firm Koto Trade Service has bagged the consultancy tender for New Delhi Railway Station’s 100kw (0.1 mw) solar power project. The company will do the assessment of the plant and will stay away from bidding for setting it up. The tender for the consultant was issued on 3rd January and closed on 15th January. Koto Trade submitted the lowest bid while other bidders were Gensol Consultants Pvt Ltd. and

At present, the monthly consumption of electricity at the New Delhi railway station is over 3 mw. The 0.1 mw power supplied by the solar plant will be used for day-to-day operations of the station.

Emergent Venture India Pvt. Ltd. The station is soon going to source part of its electricity requirement from a solar power plant which will be set up inside its premises. Solar panels will be installed on the rooftop of the station, foot over-bridge and other shelters. The contract for setting up the plant will be given to a company which will be selected through an open tender process. The Railways will buy power from this company at a fixed rate which will be

February 2013 www.InfralinePlus.com

applicable for the next 10-15 years. The company will be required to set up the plant at its own cost and in return it will get a dedicated buyer for the next 10-15 years. The Railways hopes that from a steep `7.6 per unit of commercial electricity which it is at present buying from the electricity board, solar power will help it make some savings in the long run. Fixed tariff will also insulate the Railways from cost fluctuations. The assessment by Koto Trade will include the feasibility of having solar panels installed on the rooftop, the weight of the equipment and its impact on the structure of the roof, the impact of rains and wind pressure on the solar panels and the impact it will have on the roof, storage and seamless integration of this power with the railway network. Other points in the report will include the mode of purchase of this electricity from the investor company, the terms and conditions of the purchase agreement, the tariff to be followed, and the pros and cons of this installation for the Railways in the short and long term.

Anurag Kumar Sachan IRSE, Divisional Railway Manager, Delhi

Indian Railways is a huge consumer of electricity. We are looking to include solar energy in a big way in the coming years to reduce our expenditure and dependency on conventional sources. There is a lot of ideation happening at the moment and we are looking to providing a lot of real estate with the Railways for solar setups in the future.

Other solar initiatives by the Railways Small-scale solar plants of 10 kw: Railway stations in remote areas are already functioning on small 10 kw solar plants which have been set up at these stations. These solar plants not only ensure electricity at the stations but also light up the homes of station workers staying there. These small solar plants have been set up with an expenditure of `16 lakh each. Some of these green stations are--Rohanakala in Delhi division and Bhakarvadi where work is in progress. Four-five more stations have been identified where work will start once an independent agency gives its report. Solar lights at level crossing gates: Mishaps at level crossings are common due to poor lighting. As these level crossing gates are situated between two stations or two states, they do not get assured continuous or reliable supply of electricity. To avoid collisions and mishaps, the Railways have installed solar lights on these level gate crossings.

Station rooftop and foot overbridge at the New Delhi railway station will have solar panels which will produce electricity. Photo courtesy nomadicchick.com

The consultant will also prepare the financial model for purchase of power for maximum benefit of the Railway in short, long, and medium term agreement. At least three models will be proposed by consultant, out of three, one model will be selected by a competent Railways authority and that will be developed in detail by the consultant based on additional input given by Railways as per site condition. For such type of system, if any approval / clearance is required from any outside Railways agency, as per prevailing rules and regulation, it will be brought out in the report. At present, the monthly consumption of electricity at the New Delhi railway station is over 3 mw. The 0.1 mw power supplied by the solar plant will be used for day-to-day operations of the station. Solar energy cannot be used for running trains as that requires un-interrupted 100 per cent reliable electricity supply,

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InDepth

Consultant’s Scope of Work

The firm has to provide consultancy services for 1. Feasibility study, selection of technology and financial mode 2. Assistance in preparation of draft tender document and methodology of evaluation of bidders. Feasibility study: The firm shall conduct feasibility study to develop solar PV on roof of FOB at New Delhi Railway Station. Based on feasibility study, the firm has to recommend the feasible solar PV capacity and injection points into internal grid. Under pre-feasibility study, the following works shall be undertaken by the firm:• Roof assessment • Study roof size and strength to bear solar panel load • Inclination and orientation of the roof to get the maximum benefit • Wind zone for New Delhi • Roof accessibility for maintenance and control • Shadow from adjoining structures • Any other data felt relevant for successful working of system • Dust and other pollutant level • Solar radiation (global horizon irradiance), wind velocity, ambient temperature • Transmission and infrastructure • Existing electrical connection and proposed connectivity • Distance to existing distribution

lines and capacities • Study power consumption and internal grid • Solar technology to be adopted based on cost v/s maintenance parameter • Cost of the project and payback period Assistance in preparation of tender document and evaluation of bidders: The following works shall be undertaken by the firm • Recommend qualification criteria for investor / bidder • Recommend critical equipment manufacturers to be involved in installation • Recommend international standards to be followed for selection of plant component • Recommend safety measures for development and maintenance of solar PV plant • Recommend proper guarantees (like minimum power supply etc) • Assistance in preparation of tender document (technical and financial) • Assistance in evaluation of the bidders. Based on the above, the firm will submit three reports to Railways highlighting the following points:  Report 1 • Estimation of feasible solar PV capacity for each of the roof with technology option

The assessment will include the feasibility of having solar panels installed on rooftop, the weight of the equipment, the impact of rains and wind pressure on the solar

Solar power will help Railways make savings in the long run

which solar plants cannot guarantee. Treating this station as a pilot project, in the coming five years the Railways expects to generate at least 20 mw in the Delhi division itself. On successful

• Proposed connectivity of the proposed solar PV plant to the existing electrical system • Estimation of electricity generation with different technologies  Report 2 • Financial model to be adopted  Report 3 • Draft tender document for work contract and methodology of evaluation of bidders. The work to be undertaken by the contractor shall inter alia include the following: a) Detailed design of equipment including shop testing of such equipment contained in technical specification b) Providing engineering drawings, technical data, operation manuals, catalogues, spare parts’ lists for the said equipment as erected on site c) Packing and transportation of said equipment from the manufacturer’s factory to the work site in Northern Railway d) Receipt, including unpacking of the said equipment at the site storage, preservation and conservation at site of work in Northern Railway e) Unpacking, checking for damage / shortage, cleaning and erection f) Commissioning tests g) Warranty obligations

completion of this solar project, this model will be replicated at other railway stations across the country. Some of the frontrunners for the installation project include Tata Power, Surya Solar Power and Pyro Power. There has been open advertising for inviting companies for this project. This initiative by the Railways is for using the free space available across all stations in the country and also for ensuring that usage of coal based electricity is reduced in times to come. For suggestions email at feedback@infraline.com

February 2013 www.InfralinePlus.com

Budget Expectation Renewable 2013-14

Domestic makers of PV cells seek protection from cheap imports

►► Other solar players who use PV cells call for complete removal of import duties ►► Neglected in last year’s budget, wind companies want exemptions on par with solar ones

Renewable energy is one of those rare sectors in India where all the required policy push is there from the government and now it is up to industry to take the initiatives and act on the basis of sops already in place. Annual budgets are therefore more a stocktaking exercise for the sector rather than a time for lobbying by industry players. Still, based on the performance of specific verticals—solar, small hydro or wind power—small-time push and pull

or demands for exemptions continue. For instance, some companies rue that in the Union Budget last year, the renewable energy sector was not accorded priority at a time when the solar industry was looking for a greater push. On the other hand, wind energy sector complains that while exemptions from custom duties were given to select solar power equipment manufacturers, wind players did not draw any attention.

Expectations from Budget Renewable sector is capital intensive. While a specialized financing agency— Indian Renewable Energy Development Agency—has been set up under the ministry for non-conventional energy sources to promote and finance renewable energy projects, it takes more than funds to make a business work. There has to be further strengthening of payment security mechanisms in order to attract more investment.

February 2013 www.InfralinePlus.com

Budget Expectation Renewable 2013-14

Exemptions were provided for solar thermal and for lanterns in the last budget, even when there is enough Indian manufacturing in lanterns. Also, indigenous manufacturers of solar photovoltaic (PV) cells and module feel there is no need for exemptions for cheaper imports, mainly from China, as they claim they are suffering because of this. While others who use PV cells as a component say it is time the government reconsidered and removed import duties on all materials needed for cells and modules which will, in turn, help bring the cost of PV projects down. Solar thermal, on the other hand, has not really taken off. These projects are more expensive to develop compared to PV projects even without considering the water issues. Over 2,000 mw of solar thermal projects were converted to PV projects in the US in 2011 as PV projects are less expensive and can be built quickly. Even in Gujarat, out of 160 mw of solar thermal projects envisaged, only 25 mw have turned into reality while the rest have converted to PV for the same reason. It is not wise for the government to pick specific industries to support while excluding others (like PV) as this will create market distortion. For all potential renewable resources, foreign direct investment mergers and acquisitions may be the policies, but we also need investments in R&D on new and better technologies to harness energy.

Also, extension of fuel subsidy and coal related incentives are negative for the renewable energy sector and energy security for India in the long run.

Industry looks forward to... By 2016, the overall power generation capacity of India is projected to increase at an annual average rate of 6.76 per cent, which translates into 1,316 terawatt hours of power generation. The net power consumption, during this period, is expected to reach 1,021 TWh by 2016, from 729 TWh registered in 2011. As the first Phase of Jawaharlal Nehru National Solar Mission (JNNSM) draws to a close, the industry is hopeful of an even better results in the next phase. For better

By 2016, the overall power generation capacity of India is projected to increase at an annual average rate of 6.76 per cent, which translates into 1,316 terawatt hours of power generation. The net power consumption, during this period, is expected to reach 1,021 TWh by 2016, from 729 TWh registered in 2011.

Concessions and subsidies as per Budget 2012 Foreign direct investment (FDI) Tax holiday Operating subsidies GBI Wind power Solar power Accelerated depreciation Wind Solar RPO Tax

100% 10 years

`0.50 per mw `12.41 per kw 15% (80% before March 2012) 80% 15% by 2020 VAT 12.5% (5% for certain states)

implementation and ensuring universal access to energy, there is a requirement of innovative institutions, national and local enabling mechanisms, and targeted policies, including appropriate subsidies and financing arrangement. Governments and industry need to be encouraged to engage in international cooperation in this area on an enlarged scale and work for enhancing the technological capability of developing countries. The bio-fuel Industry is in a nascent stage. The current policy is fairly broad consisting of 400 species. The need of the hour is to emphasize on a few crops. Insurance covers and loans should be provided to farmers and minimum support price (MSP) guaranteed to provide incentives to farmers. A national mission on bio-diesel is necessary for Indiaâ&#x20AC;&#x2122;s energy security. Operational guidelines for the research phase and demonstration phases 1 and 2 need to be defined. However, in the long run, an end-to-end business model with robust monitoring and evaluation is required for best results. Cost of equipment has substantially come down in the past two-three years since JNNSM was announced and they will go further down still. This provides an opportunity to develop solar projects. India will benefit from the competitive market as competition enables price discovery and inspires companies to focus on quality in order to differentiate. After IT and telecom, India will witness the solar boom in the next few years as solar power will eventually attain grid parity. Specifically for solar power development programs, policies should focus on further strengthening payment security mechanisms in order to attract more investment in the sector.

For suggestions email at feedback@infraline.com

February 2013 www.InfralinePlus.com

ExpertSpeak

Who will fund the campaign for climate change? The United Nations Green Climate Fund (GCF), set up in 2010 to help developing countries cope up with issues related to climate change, was supposed to create a corpus of $30 billion by end 2012 and raise it to $100 billion by 2020 through funds coming from the developed nations. But not a penny has flowed into it so far. India’s Principal Economic Advisor in ministry of finance, Dipak Dasgupta, who is also a board member of GCF, explains why financing remains the key challenge for the fund. The Green Climate Fund (GCF) is a fund set up under the United Nations Framework Convention on Climate Change (UNFCCC) as a mechanism to transfer money from developed to the developing world in order to assist developing nations in adapting and mitigating the effects of climate change. The GCF is based in Incheon, South Korea. It is governed by a board of 24 members and initially supported by an Interim secretariat. The formation of the council and the governing framework for the GCF will be finalized by 2014 after which it hopes to gradually move to its aim of raising $100 billion a year by 2020. The idea behind GCF is that the developed countries have already used up their carbon space while developing countries are at the beginning of this curve. As the wheels set in motion, the developed countries will grow and respectively their carbon emissions will increase. As the developed countries have already used up most of the bandwidth, where is the space for developing

countries? The fund will act as an instrument to help individual initiatives by member countries. It will support programmes, policies and other activities in developing countries using thematic funding windows. Raising this kind of money is a challenge and it is occupying the minds of the developed world including the G20. Discussions are taking place at bilateral levels and multiple forums from the UN Secretary General’s office to the UNFCCC to the European Union. Financially as the fund is in a troublesome spot, no one is ready to commit. So the first issue is: how do we raise the money in a time when the world’s financial situation is so Dipak Dasgupta Principal Economic Advisor, ministry of finance unsteady. Second: how Key to proceed forward issue is better with a decentralized approach. without imposing how to raise After deciding on the division of the burden on the money at a funds, these can be handed out to the developing time when the the designed national agencies countries. world’s financial which will be responsible for For instance, situation is so carrying out the functions at if we tax all unsteady. national levels. international fliers Practicality in the Indian context across the world, The amount of financing that we one in every six is either need for adaption is massive because an Indian or a Chinese. So ultimately, the effects of climate change are already we will end up taxing the people from visible across the world. In a large developing countries. Hence the question landmass like India, the effects take of finance is a big one. diverse forms and affect the population The other question is whether the fund in different sectors. From changing should be targeted at the private sector. meteorological conditions affecting Even if there is an agreement on it, what farmers, to storms, floods and droughts will be the design of the program? Will it that earlier happened once in 100 follow the design of the old world, post years has changed to once in a decade. war structure like the World Bank and The mean temperatures have already the UN? In comparison to the business increased by 2 degree centigrade. There model of the World Bank, where the are various other health problems, committee decides the division of funds agricultural and climatic problems such and its end use, essentially a central top as coastal flooding. Hence, the effects down model, the GCF would function

February 2013 www.InfralinePlus.com

ExpertSpeak

are already eminent. Adapting therefore will require equally intense measures and major financial support to fit into the changing landscape.

Financially as the fund is in a troublesome spot, no one is ready to commit. So the first issue is: how do we raise the money in a time when the world’s financial situation is so unsteady. Second: how to proceed forward without imposing the burden on the developing countries. For instance, if we tax all international fliers across the world, one in every six is either an Indian or a Chinese. So ultimately, we will end up taxing the people from developing countries. Hence the question of finance is a big one. India is one of the biggest spenders on renewable energy in comparison to other nations worldwide. Last year we spent about $10 billion on renewables. This is the scene when we have 18,000 villages that still need to be electrified and farmers are not ready to pay for electricity that they use for agriculture. We have a peak power shortage of 10 per cent and our state electricity boards are practically bankrupt. And then there is mitigation and the promise that we will not increase our energy consumption but decrease it by 20-25 per cent. However, if we stretch and take every bit of renewable resource that we can tap for power generation, it will not be more than 10 per cent of

India’s energy consumption. This 10 per cent will not become 90 per cent anytime soon and will require costly efforts on research to bring about a change. It will be a very expensive proposition to move from 1 gw to 20 gw in the near future. However, this change is not just about the international scenario or pressure. If India does not bring about this change, then we will not be able to achieve the growth that we need. This is no longer just a global commons thing but holds equal eminence in the local context. The same question of money is also applicable to India. Raising the money and then the decision on its distribution is another hurdle. Considering we used $10 billion to reach the cumulative figure of 1 gw, the aim to reach 20 gw will then require a ballpark figure of $200 billion. In the 12th Plan, the entire spending on infrastructure for India is $1 trillion. So, effectively, to reach just the aim that has been set, an investment of such a magnitude is required. And this is only mitigation and not adaption. Rule of thumb says that adaptation requires four-five times the amount used in mitigation. Hence one can see the kind of investment renewable energy demands. India needs to go about this in a way that it does not deter our other more important goals such as education, jobs, healthcare, infrastructure etc. All these things need to be in synergy. What we can look forward to is some form of innovative international support in terms of research and related finance. We need to look at international technologies that can further enhance the achievement of our goals. India is one of the only countries capable of doing this on a large scale. According to me, the GCF is not enough in itself till the time the countries individually work for their development and the adaption is distributed to states.

Key Highlights Daily Newsletter and Database Updates on: • Power • Coal • Oil & Gas • India Upstream • Renewable

Views expressed in this article are personal. For suggestions email at feedback@infraline.com

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StatisticsRenewableEnergy Tamil Nadu Solar Power Projects Tender-Bidding Result Project Size wise Projects* Name Moothedath Industries WD Sons Mahima Pramila Exporters Enerco Satec Engg Raasi Green Uniqe Micro Computers Avenir Repower system Muthukrishnan OEG Solar Solar Energy Pvt Ltd Supreme Hitech Poller Enterprises Vaasin Impec Praveen Energy Pvt Adiv Sri Saravana Engg Bhavar Hero Fashion RR Industries Ltd Green Lion Sakthi Ferro Alloys India Sree Sastha Grinders TGH AshokKumar D Arumugam Jaitech Powerhouse Ltd MS Green Energy Eagle Press Madras Security Printers Muthupappa Green Energy Muthupappa Green Energy Muthupappa Green Energy Ecogrid Energies Ecogrid Energies Ecogrid Energies Ecogrid Energies Ecogrid Energies GPR Powersolutions Lespirit Mkt/Velankanni RAsokan Finlay Energy Asset Voltech Indira industries KGB Solar Olympia Infratech Deccan Solar Park Deccan Solar Park V Subramanian &Co Hanma Infra & Propertie Best Corp. Pvt. Ltd SPI Power Ops Bhuvan Navidas Bekae Properties Pvt ltd Eagle Press Madras Security Printers Muthupappa Green Energy Arunachala Impex Pvt Ltd VTV infra Emami Cement Amber Solutions Vasathi Housing Voltech Bee Solar Energy

District Not qualified Not Available Krishnagiri Tirupur Coimbatore Not Available Ramnad Not Available Dharmapuri Dindugal Tuticurin Not Available Rajapalayam Not Available Tuticurin Tiruvarur Not Available Tirupur Virudhunagar Viluppuram Virudhunagar Virudhunagar Tiruvannamalai Tiruvannamalai Kanchipuram Tiruppur Madurai Madurai Tiruchy Ramnad Ariyalur Tanjavur Tiruchy Ramnad Ariyalur Krishnagiri Sivaganga Dindugal Sivaganga Virudhunagar Tindugal Not Available Vellore Vellore Ramnad Namakkal Trichy Vellore Not Available Tirupur Madurai Virudhunagar Ramnad Tiruvannamalai Tiruvannamalai Tanjavur Not Available Tanjavur Ramnad Not Available Krishnagiri Not Available FJindigul

MW 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3

Name Amptex Energy Pvt Ltd Ind Eco Ventures United Telecom Sai Maithili Swelect Swelect Crescendo A Sivasankaran Aditya Housing Agni Estate SAR capital GRThanga Maligai GRThanga Maligai GRThanga Maligai Madurai Poller Corp Madurai Power Corp Brics Solar Pvt Ltd Varadharajan Chennai Radha Engineering Works Pvt Ltd Chennai Radha Engineering Works Pvt Ltd Chennai Radha Engineering Works Pvt Ltd Vaibhav Jyoti Utility Service Amptex Energy Pvt Ltd Pashupathy Enclave Krishan Power Omicron Bio Genesis SEI Adisaya Sakthi SEI Suryalaab SEI Sun cells Land marvel homes Waaree Energy ILFS TN Power company ILFS Renewable ILFS Alex Green Mohan Breweries Rethink Energy SEI Jyothimangal Swiss Park Vanijya Pasiphie Pvt Ltd (Lanco) Welspun RK Bio tech

District Virudhunagar Ramnad Tiruvannamalai Ramnad Sivaganga Sivaganga Karur Sivaganga Not Available Trichy Madurai Ramnad Trichy Trichy Krishnagiri Madurai Vellore Not Available Tuticurin Tiruvannamalai Viluppuram Sivaganga Virudhunagar Krishnagiri Kadalur Tuticurin Ramnad Ramnad Tiruchy Sivaganga Not Available Kadalur Kadalur Trichy Karur Kanjipuram Karur Tiruchy Various locations Karur Ramnad Ramnad

MW 3 3 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 7 7 8 10 10 10 10 10 10 10 10 10 10 10 10 15 20 25 25 30 50

*Tentative

Project Size wise Bids* Size of projects(MW) 1 2 3 4 5 6 7 3 9 10 15 20 25 30 50

Number of Bids 38 19 7 0 19 0 2 1 0 12 1 1 2 1 1

February 2013 www.InfralinePlus.com

StatisticsRenewableEnergy Status of Renewable Purchase Obligation (2012) State

RE Source Wind Solar Others Total Solar Non-solar Total Solar Non-solar Total Solar Non-solar Total Solar Non-solar Total Solar Non-Solar Total Solar Non-solar Total Solar Total Solar Non-solar Total Solar Non-solar Total Solar Total Solar Non-solar Total Solar Total Solar Non Solar Cogeneration Total Solar Non-solar Total Solar Non-solar Total Solar Total

FY10-11 FY11-12 4.5% 5.0% 0.25% 0.5% Gujarat 0.25% 0.5% 5% 6% 0.25% 0.25% 5.75% 6.75% Maharashtra 6% 7% 0.25% 0.5% 3.75% 4.5% Uttarakhand 4% 5% 0.25% 0.25% 1.75% 2.75% Manipur 2% 3% 0.25% 0.25% 4.75% 5.75% Mizoram 5% 6% 0.02% 0.10% 0.98% 2.90% Jammu & Kashmir 1% 3% 0.25% 0.5% 3.75% 4.5% Uttar Pradesh 4% 5% 0.1% 0.1% Tripura 1% 1% 0.25% 0.5% 1.75% 2.5% Jharkhand 2% 3% 0.01% 10% Himachal Pradesh* 10.10% 11.10 0.05% 0.1% Assam 1.4% 2.8% 0.25% 2.75% Kerala 3% 3.3% 0.25% 0.5% Bihar 1.5% 2.5% 0.1% 1.2% Orissa 3.7% 5% 0.25% 0.30% 0.75% 1.70% Goa & Union Territories 1% 2% 0.4% 0.8% 2.10% Madhya Pradesh 0.80% 2.5% 0.25% 0.5% Haryana 1.5% 1.5% 100 MW (excluding capacity under GBI scheme as Solar per 25.5.2010) Rajasthan Wind 6.75% 7.5% Biomass 1.75% 2.0% Total 8.5% 9.5% Total 14% Tamil Nadu Solar 0.03% Non-Solar 2.37% Punjab Total 2.4% Total 2% 3% West Bengal Non-Solar 1.9% 3.25% Solar 0.10% 0.15% Delhi Total 2.0% 3.4% Wind 0.1% 0.75% Solar 0.2% 0.15% Meghalaya Other 0.2% 0.3% Total 0.5% 0.75% 5% Andhra Pradesh Solar 0.25% 0.25% Other 5.75% 6.75% Nagaland Total 6% 7% BESCOM, MESCO, CESC Non Solar: 10%, Solar: 0.25% Karnataka GESCO, HESCO, Hukeri Non Solar: 7% ,Solar: 0.25% Biomass 3.75% 3.75% Solar 0.25% 0.25% Chhattisgarh Others (SHP+Wind) 1% 1.25% Total 5% 5.25%

FY12-13 5.5% 1.0% 0.5% 7% 0.25% 7.75% 8% 1.0% 5.0% 6% 0.25% 4.75% 5% 0.25% 6.75% 7% 0.25% 4.75% 5% 1% 5.0% 6% 0.1% 2% 1% 3.0% 4% 0.25% 10% 12.10% 0.15% 4.25 3.6% 0.75% 4% 0.15% 1.4% 3.95% 5.5% 0.40% 2.6% 3% 0.6% 3.4% 4.0% 0.75% 2%

FY13-14 0.50% 8.5% 9% 0.25% 10% 0.2% 5.6% 3.9% 1.0% 4.5% 0.2% 1.6% 4.2% 6% 0.8% 4.7% 5.5% 1% 3%

FY14-15 0.50% 8.5% 9% 0.25% 10% 0.25% 7% 4.2% 1.25% 5% 0.25% 1.8% 4.45% 6.5% 1.0% 6.0% 7.0% -

FY15-16 0.50% 8.5% 9% 0.25% 11% 4.5% 0.3% 2% 4.7% 7% -

0.07% 2.83% 2.9% 5% 4.60% 0.20% 4.8% 0.2% 0.4% 0.4% 1% 0.25% 7.75% 8% 3.75% 0.5% 1.5% 5.75%

0.13% 3.37% 3.5% 6% 5.95% 0.25% 6.2% -

0.19% 3.81% 4% 7% 7.3% 0.30% 7.6% -

8% 8.65% 0.35% 9% -

Source: SERCs * Himanchal Pradesh has announced RPO compliance targets till 2021-22. Total RPO from 2017-18 to 2021-22 are 13.5%, 14.75%, 16%, 17.5% and 19%. Solar RPO for this period is 0.25%, 0.5%, 0.75%, 15, 2% and 3%

February 2013 www.InfralinePlus.com

InfraWatch

GMR scripts succession plan ►► Next Chairman will be either of GM Rao’s two sons or the son-in-law ►► In case of a deadlock, the group will be run on a partnership or rotatory chairmanship basis responsibilities of his two sons—Rajiv and Sanjiv—before their disagreements came out into the open.

GMR succession plan

by Team InfralinePlus

The next chairman of the GMR Group – which has built and operates the Delhi and Hyderabad airports – would be from within the family with no chance of an outsider heading the Bangalore-headquartered global infrastructure major. Grandhi Mallikarjuna Rao, the 62-year-old founder chairman of GMR Group, which has interests in airports, energy, highways and urban infrastructure, has spelt out the Group’s succession plan making it clear that either of his two sons or son-in-law would succeed him. The reason why Rao, the billionaire who also owns the Delhi Daredevils cricket team in Indian Premier League (IPL), has put in place an astonishingly detailed succession plan well in advance

(as per the company’s constitution he will be Chairman till 70 but he plans to hang his boots by 65) to avoid or settle all family differences in a business-like manner, is because he has learnt a lesson from the recent bitter rivalry and succession war between Ambani brothers—Mukesh and Anil. Their father Late Dhirubhai Ambani, with all his brilliance, failed to see that his sons would not be able to work together. Many believed that an Indian father, no matter how clever he is, refuses to contemplate a family break up. But this sordid tale pushed other fond fathers into facing reality—Rahul Bajaj being one of them. He tool ensured that he did not repeat the mistake that Dhirubhai made and announced a mega demerger that separated the roles and

On March 3, 2007, at Sariska Palace Resort in Rajasthan, the GMR family members signed their family constitution in the presence of senior executives, one of the first business families to do so. The constitution’s signatories were the four male members of the family and their wives. The intention of signing the family constitution before senior executives at the conference was to send a strong message that their family business was meant to stay within the family and that it was going to be a long-term vision grounded on the principles of thoughtful governance and transparency. A sustainable governance structure was written out which delineates the rights and duties of family members. The family constitution is aimed at ensuring a smooth transition of business from generation to generation. In line with this, members of the family would, over a period of time, provide only strategic inputs, investment needs and consulting for all the businesses and activities of the group. The family constitution will determine who among the three members of the constitution board will succeed him and Rao will not nominate anyone. There is a “designated facilitator” in place and a very clear process has been laid down if the family fails to arrive at a consensus. As per the family constitution, two options are available in case of a deadlock – a partnership model where the Group is run as a

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InfraWatch

partnership by the three and the other is that the chairmanship revolves between the three every five years.

Run-up to the constitution

It took several rounds of meetings, deliberations and presentations from top management consultants for the group to draw up a set of rules for dealing with every issue or dispute that may crop up within the family— management succession, ownership succession, control and power sharing—and create a mechanism to deal with it. It was family advisor P M Kumar who collated all these issues and Peter Leach, a London-based family business advisor was asked to draft the Family Constitution, which each family member reviewed and agreed to adhere to. The starting point was a Family Business Board which worked upon a three-year strategic plan and identified which businesses the group should remain in, and which to exit. The entire family has committed to certain core values and a willingness to manage differences. It has also laid down policies on all family and business matters including consensus in decision making, media policy, code of conduct and the process of inducting family members into the business as well as providing for those who do not want to enter the business. Another path breaking move has been to separate ownership and control of

The family constitution is aimed at ensuring a smooth transition of business from generation to generation. In line with this, members of the family would, over a period of time, provide only strategic inputs, investment needs and consulting for all the businesses and activities of the group. The family constitution will determine who among the three members of the constitution board will succeed him and Rao will not nominate anyone. family wealth from business wealth. The family corpus is held in an investment company called GMR Holding Pvt Ltd. The entire family holding will be distributed among four non-voting trusts that have been created for four branches of GMR family. The beneficiaries of these trusts will have economic benefits but no voting power. A separate voting trust has been created, where one representative from each of the non-voting trusts will take all business decisions. The voting trust will have powers but no economic benefits. Family members who enter the business will be taken on merit and paid on par with other professionals employed by the organisation. The economic benefits arising out of their shareholding will be separate. The family has agreed to follow all corporate governance practices and professionalise operations so that the family members can move from running operations to strategic planning.

FAMILY TREE

FAMILY GOVERNANCE STRUCTURE

G Vara Lakshmi 56 years

GM Rao 59 years

Family Assembly

Rama Devi 35 years

Srinivas Bommidala 45 years

GBS Raju 34 years

Smitha 33 years

G Kiran Kumar 33 years

Susroni 15 years

Santosh 14 years

Ritesh 7 years

Dhruv (6 months)

Ruchir 3 years

Source: GMR Internal Reports

Interestingly, the GMR group has created a Family Council which meets regularly to ensure effective and continuous communication on all business issues to ensure that everybody “speaks with one voice”. The Council meets regularly and formally and records minutes of the meetings. There is another Non Business forum for the spouses which also meets regularly to discuss issues, sort out differences and foster emotional bonds. The Rao family takes the emotional aspect of their relationship so seriously that they have all agreed to go on holiday together every year and make it a point to attend certain social and religious functions. But, what is the guarantee that the elder Rao’s children or grandchildren would abide by the family constitution? The constitution, says a GMR insider, talks very clearly of conflict resolution and code of conduct. Every three months

Ragini 32 years

GM Riddhiman (5 months)

Family Council Family Business Forum Wealth Management

Family Office

Family Governance

Human Resources

Non Business Family Forum

Facilities & Administration

February 2013 www.InfralinePlus.com

all family members meet to clean the pipelines, they discuss everything. “They may have differences but they have developed a mechanism to manage them. The process of communication has brought tremendous clarity. This system has worked in Europe where families have stayed together for the past 300 years. There are 30 such families. When it can happen in Europe why not in India?” he asks. Raos have made it a point to meet one such European family every six months.

Other families Internationally, Japan’s Mitsui family, which owns nearly a fifth of Japan’s car market and nearly a sixth of its textile production, has a family constitution which dates back to 18th century. European business families—such as the Mulliez family which owns Auchan, one of France’s biggest retail chains—have family constitutions that go back decades. Among others, the Dalmias, the Burmans of Dabur, the Murugappa Group and the Agarwals of the Adhunik Group have formal family constitutions. The Singhanias-run JK Group has a more elaborate family parliament called the JK Organisation. Family-run businesses contribute 60-70 per cent of gross domestic product (GDP) in most developed and developing countries. India is no exception. It’s also true that most business families face challenges stemming from differences in attitude and aspirations of family members. A study by the Confederation of Indian Industry (CII) had found that only 13 per cent of family businesses survive till the third generation and only 4 per cent beyond the third generation; one-third disintegrate because of generational conflicts.

Rao’s journey Rao, a first generation industrialist, acquired nation-wide recognition when GMR emerged as the sole successful

bidder for the prestigious Delhi airport development project in a power-packed field. Until then, he was perceived as a regional player despite having completed several successful infrastructure projects in power and road development. A mechanical engineer-turnedindustrialist, Rao began his business in 1978, with a single jute mill located in his hometown Rajam in Srikakulam district of Andhra Pradesh. Within a few years he diversified his business into sugar, ferroalloys, banking, information technology and infrastructure. The Group is now present in over 10 countries, active in energy, highways, large urban development and airports sectors, known for building and operating world-class national assets.

The entire family has committed to certain core values and a willingness to manage differences. It has also laid down policies on all family and business matters including consensus in decision making, media policy, code of conduct and the process of inducting family members into the business as well as providing for those who do not want to enter the business. Those who have watched Rao closely over the years say he recognised the huge business potential in entering the infrastructure space, with the opening up of the power sector in the ‘90s in India. Within a decade, he successfully established three greenfield power plants in the country, one each in the state of Tamil Nadu, Karnataka and Andhra Pradesh. The Group is now

developing several power projects in various parts of India and abroad and is also expanding its presence globally. The Group has 13 power projects of which three are operational with a capacity of 808 mw and ten projects are under various stages of implementation both in hydel and thermal power. Going forward, the energy sector will have a capacity of 8448 mw. Rao expanded the Group’s presence in the infrastructure sector by leading its foray into highways. The Group has already completed six road projects and won three more recently. Realising that airports will drive the economy in the 21st century, Rao spearheaded the Group’s entry into the high-profile airport business. It has developed the new greenfield international airport at Hyderabad and modernised the Delhi International Airport by constructing a world-class integrated terminal 3 (T3). The Group commissioned the brand new Sabiha Gokcen International (SGA) airport terminal at Istanbul, Turkey, on 31st October, 2009. When Rao started his business he did not have the advantages that today’s entrepreneurs have. There were no business advisors, no incubators, no mentors and barely any professionals he could hire to run the business. He turned to his family to help him run his business, the GMR Group— and he continues to do so, even today. But will this enormous effort at fostering emotional bonds through a fairly rigid constitution and governance structure work? It is difficult to say. What GMR is attempting to do is a bold, unique and interesting experiment, which has a fighting chance of working for at least those generations that participated in framing the family constitution and its rules. Only time will tell whether a set of rules can control diversities in human nature and engender harmony and homogeneity in decisions. For suggestions email at feedback@infraline.com

February 2013 www.InfralinePlus.com

OffBeat

Etihad likely to pick up 24% stake in Jet Airways Domestic airline to get equity infusion of $350 million or `1,900 crore which will go into expanding its network in smaller cities Deal will give Jet Airways access to 12% cheaper fuel in United Arab Emirates

by Team InfralinePlus

Jet Airways, India’s second largest carrier in terms of passengers carried, is on the verge of clinching an investment deal with Etihad Airways, the national airline of the United Arab Emirates. The Naresh Goyal-promoted airline is said to be in the final stages of talks with the Abu Dhabi-based carrier. If the deal does happen it would be the first investment by a foreign airline after the government permitted them, in September 2012, to buy up to to 49 per cent stake in domestic airlines. The deal could provide a big boost to the debt-laden Jet Airways and give it the much needed capital to expand operations. At a time when

“The deal will be a game changer. Until and unless foreign money comes in, many of the players risk going out of business. They need a fresh breather of life.” Indian carriers are struggling to fund their working capital requirements in the backdrop of dwindling passenger traffic, heavy taxation and unnecessary government interference, the proposed acquisition of a 24 per cent stake in Jet

Airways by Etihad Airways could be positive on many fronts for the Mumbaibased company. Etihad had initially evinced interest in both Jet Airways and Kingfisher Airlines. However, talks with liquor baron Vijay Mallaya’s Kingfisher fell through after the carrier failed to impress both Etihad and the Directorate General of Civil Aviation with its financial turnaround plan. Cash-and debt-strapped Kingfisher has been scrambling to find an investor for more than a year and has not flown since October 2012. Its operating licence expired in December last year. According to Jet officials, the agreement may take some time because

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of legal and regulatory complexities. The carriers have appointed global consultants to ensure proper investments, given the high operating costs in India. The Abu Dhabi-based airline had previously stated: “Etihad Airways has identified equity investments in other airlines as an important evolution of its successful partnership strategy. The Indian aviation industry offers tremendous potential, with significant passenger movement on domestic and international sectors. If or when we do make further investments of this sort, we will announce them in line with regulatory and commercial requirements,” it said.

Change in shareholding pattern For the deal to materialize, Jet would have to seek the Foreign Investment Promotion Board’s (FIPB) permission for change in shareholding pattern. Chairman Naresh Goyal who is a nonresident Indian (NRI) based in London, holds 80 per cent stake in the carrier through an overseas corporate body, Tail Winds, which is registered in the Isle of Man, while public shareholders hold the remaining stake. The carrier will seek FIPB approval to transfer Tail Winds’ holding to Goyal. India allows 49 per cent foreign investment in an airline and 100 per cent investment by NRIs. Goyal had made the investment through Tail Winds in the mid-1990s. The Reserve Bank of India (RBI) has since ended the concept of overseas commercial borrowings (OCBs) and investments by such entities are now considered foreign holdings. FIPB in 2011 had turned down a Jet Airways proposal to raise $400 million (around `2,200 crore) through a qualified institutional placement because this would have raised the foreign investment in the airline. Though an investment through an OCB is considered foreign investment, Goyal and Jet have thus far been exempt from the norm, but he will now transfer

Etihad Airways Etihad Airways, the national airline of the United Arab Emirates, has in just eight years established itself as one of the world’s leading airlines. “Etihad” is the Arabic word for “union”. Set up by Royal (Amiri) Decree in July 2003, Etihad commenced commercial operations in November. Abu Dhabi, the capital of the United Arab Emirates, is the airline’s hub. Etihad’s fleet of 66 aircraft operates more than 1000 flights per week, serving an international network of 84 passenger and cargo destinations in the Middle East, Africa, Europe, Asia, Australia and North America. Etihad Airways also owns nearly 30 per cent of Air Berlin, Europe’s sixth largest carrier and 40 per cent of Air Seychelles.

Jet Airways With its first flight in 1993, Jet Airways has come a long way to becoming one of the fastest growing airlines in the world connecting 21 international destinations and operating flights to and from 53 destinations in India. The airline operates a fleet of 99 aircraft, which include 10 Boeing 777-300 ER aircraft, 11 Airbus A330-200 aircraft, 2 Airbus A330-300 aircraft 59 next generation Boeing 737-700/800/900 aircraft, 16 ATR 72-500 and 1 ATR 72600 turboprop aircraft. With an average fleet age of 5.66 years, the airline has one of the youngest fleet of aircraft in the world. The new JetKonnect service is a dedicated product designed to meet the needs of the low fare segment. JetKonnect will also offer guests a premiere service on nearly all domestic routes. With its mixed fleet of Boeings and ATR aircraft with over 500 daily flights connecting 52 destinations across India, JetKonnect provides more flexibility and choice to its guests.

Share holding pattern of Jet Airways (India) Ltd. (As on June 2012) Promoter and promoter group: 80% (Indian 0.01 %, foreign 79.99 %) Public: 20.00 % (Institutions 14.29%, FII 7.12%, DII 7.17%, Non Institutions 5.71%, Corporate 1.03 %) the stake to himself as an NRI to ensure the entry of another foreign entity. Goyal will anyway have to cut his holding in Jet by June to adhere to India’s public listing norms, which stipulate that at least 25 per cent of the shares of a listed entity should be with the public. The funds generated by the proposed deal can be utilised by Jet for its domestic expansion or for cutting down its bloated consolidated debt of `12,000 crore. Of this debt, `7,500 crore is the lease aircraft loan outstanding, and `4,500 crore is working capital loan and other non-lease loans. Etihad and Jet already have a codesharing agreement, and a tie-up could make Jet a more formidable competitor to state-owned Air India while strengthening Etihad’s position against Dubai-based Emirates Airline, which carries a big chunk of the traffic between India and the Middle East.

The transaction, sources said, will be through the issuance of preferential shares and structured in such a way that Etihad will not have to make an open offer. Under current market regulations in India, an entity buying a 25 per cent stake in a listed firm has to offer to buy an additional 26 per cent from public shareholders. “There are no hurdles for this deal as Jet Airways will seek permission to transfer shares from OCB Tail Winds to Goyal. Jet is also planning to apply for necessary approval from the home ministry. The discussions on valuations are progressing,” an official said.

Expand operations to smaller cities Buying into 24 per cent of the equity of Jet Airways could mean an acquisition cost of $350 million, or close to `1,900 crore. With this equity infusion, Jet

February 2013 www.InfralinePlus.com

OffBeat

should be able to expand its presence in tier-II and tier-III cities, which offer the potential for growth in the medium term since metro routes face intense competition. The government is also weighing the option of upgrading 35 airports in these cities. Over the past few quarters, SpiceJet - its smaller peer - has gained market share, thanks to expansion in tier-II and tier-III cities. This has helped it in gaining market share in these cities, enhancing the airline’s presence in 41 cities compared with 34 in the past one year. For Jet Airways, expanding in tier-II and tier-III cities, through its low-cost carrier arm – JetLite - makes tremendous sense. With this expansion, Jet Airways can regain its market share, which it lost to IndiGo Airlines in the past few quarters. Jet has a market share of 25.2 per cent, while IndiGo had 27.3 per cent in November last year. There is a consensus among aviation industry experts that if the deal with Etihad goes through, Jet Airways will also be able to tank up its planes in the UAE by securing attractive deals on oil purchases. Jet fuel is far more expensive in India due to high taxes. Its rates could be cheaper by 10-12 per cent in the UAE, according to one estimate. In the quarter to September 2012, the company’s fuel expenses as a percentage of its net sales were 45 per cent. This was due to the varying tax rates in states, which are in the range of 25-30 per cent. The synergy of operations with Etihad Airways should help strengthen and expand Jet’s international operations too which comprise a high 59 per cent share of its total operations. Globally, Etihad Airways has a strong presence in North America and Europe among its 67 locations, while Jet Airways flies to 21 destinations internationally with a strong presence in Asean countries. There are a large number of Indians, who fly to the Middle East, North America and Europe on business, travel and study purposes. This should boost revenues of Jet’s international operations. For Etihad,

gaining entry into an emerging market like India should be a booster. Through joint marketing of flight services, Jet Airways will save the costs involved in opening new routes and gain a toe-hold in Europe and North America. On its part, Etihad Airways will also be able to share its experience of opening new routes in a cost-effective way with Jet Airways.

Though an investment through an OCB is considered foreign investment, Goyal and Jet have thus far been exempt from the norm, but he will now transfer the stake to himself as an NRI to ensure the entry of another foreign entity. Goyal will anyway have to cut his holding in Jet by June to adhere to India’s public listing norms, which stipulate that at least 25 per cent of the shares of a listed entity should be with the public. “A stake sale would provide Jet much-needed cash to cut its $2 billion debt, as well as fund its loss-making budget subsidiary JetLite. It will also give the airline access to global routes currently operated by Etihad, in which it has a limited presence,” said a Londonbased aviation expert. “For Etihad, tying up with Jet makes more sense. Jet is an airline which is in business and also flies to the Middle East. They can have a new hub. The deal will be a game changer,” he added. “Until and unless foreign money comes in, many of the players risk going out of business. They need a fresh breather of life.”

‘Powerful franchise’ Kuwait Airways and Gulf Air each used to own 20 per cent of the Naresh Goyalcontrolled Jet in the 1990s, when India allowed foreign ownership in airlines. Those holdings were bought back after the nation banned such investments. India ended the ban in September, allowing foreign carriers to own 49 percent in local airlines. “Jet is a powerful franchise and it will be very valuable for any alliance or airline,” said Kapil Kaul, South Asia CEO of aviation consultancy firm Centre for Asia Pacific Aviation. “It looks that Jet might be the first carrier to receive foreign airline investment after the recent policy change.”

Jet confirms talks “Jet Airways and Etihad are in a discussion regarding a potential investment by the latter in the former,” the Naresh Goyal-promoted airline said in a filing to the Bombay Stock Exchange. “These discussions have commenced recently pursuant to the liberalized FDI policy which permitted foreign investment in the shares of an Indian airline. The discussions are in progress but no terms have been firmed up at present. Various structures are being explored by the legal and commercial teams and care being taken to ensure that all the Indian regulatory requirements are fully complied with,” the airline said. “By its very nature, there cannot, at this stage, be a firm time line as to the progress of these negotiations, considering the complexity of transnational transactions such as this, and the complexity of the legal requirements of the regulatory structure. Since no agreement has been reached with Etihad as yet, no regulatory approvals have been sought at present. An appropriate announcement shall be made upon finalization of the terms of the investment with Ethiad as per legal and regulatory requirements,” Jet Airways said. For suggestions email at feedback@infraline.com

February 2013 www.InfralinePlus.com

PhotoEssay

Super volt: Power Grid aces a new high In December last year, Union Minister of State for Power Jyotiraditya M. Scindia dedicated the 1200 kV ultra high voltage (UHV) AC national test station of Power Grid Corporation of India (PGCIL) to the nation. The substation with the world’s highest voltage level of 1200kV is located at Bina in Madhya Pradesh. Built on a public-private partnership (PPP) model, the project is an example of outstanding achievement in high voltage power transmission. All the UHV equipment of this sub-station have been developed indigenously by a consortium of 35 Indian power equipment manufacturers in association with PGCIL which provided the necessary resources and basic system design and specifications. Private manufacturers created suitable facilities to design and manufacture 1200 kV equipment for the test station. Explaining the benefits of the concept, Dr S.K. Agrawal, Executive Director (Technology and Development), PGCIL said that the technology would solve many problems of the power sector. Once operational, the 1200 kV transmission lines will transport about six times more Megawatt per meter as compared to 400kV lines. Keeping India’s long-term power transfer requirement in view, the ultra high voltage system will come in handy to overcome hurdles such as availability of land (for right of way for overhead lines), said Agrawal adding that it will bring down the transmission losses to around one per cent from the current eight per cent. The development assumes significance in light of the fact that

many countries, including the US, Japan, Ukraine, Italy and Russia, have made progress in research and development of 1200 kV alternating current transmission system and China has recently established a commercial 1100 kV system successfully. A ‘navratna’ company and the central transmission utility of the country, PGCIL is at present operating more than 96,000 ckt. km of transmission lines along with 159

sub-stations having a transformation capacity of over 1,51,000 mva. With the use of state-of-the-art preventive maintenance techniques, average availability of transmission system is consistently maintained at 99.9%. The inter-regional power transmission capacity of national grid today is about 28,000 mw.

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February 2013 www.InfralinePlus.com

PhotoEssay

February 2013 www.InfralinePlus.com

1. Continuously Variable Transmission (CVT) system & Bus Post Insulators 2. I.S. Jha, Director (Projects), PGCIL along with colleagues performing the sacred ritual before the commissioning of 1200 kV transformer. 3. Indiaâ&#x20AC;&#x2122;s highest Transmission System Voltage which has surprised experts even in the developed world. Site - Bina in Madhya Pradesh. 4. Robust transmission lines that would supply electricity to Guna, Indore and Gwalior in Madhya Pradesh. 5. 1200 kV transformer and LA

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InfraRed “InfraRed aims to look at power and its various manifestations in a new light”

When Alice went to Wonderland…

Shalini S. Sharma

“Switch off the light and fan when you leave the room, do not keep the television on unnecessarily, switch off the geyser after your bath...” We all have grown up hearing such admonitions from our parents and elders. Now we do the same with our children and the younger generation. We follow these rules religiously in our lives, sometimes begrudgingly, sometimes enthusiastically. For good reason. We know how much each unit of electricity costs. No matter how much experts and economists rue about the evils of distribution companies’ and state electricity boards’ reluctance to increase the price of power, bijli does not come cheap for any of us. We still swoon over our monthly electricity bills and fondly fantasize ingenious ways of bringing it down. We shudder over the prospects of this bill climbing some more ladders and one day mocking over our misery from some promethean height. Now imagine my surprise then, nay horror, during a recent visit to the US when I saw that people just don’t switch off lights there! Barring perhaps their bedrooms where sleeping would be difficult with lights on, in other portions of their huge houses such as attics, drawing rooms, kitchens etc, it is not unusual for light bulbs to be on for days, weeks, months on end. And no, these are not lights with sensors which would automatically switch off when nobody is in the room (such things can only be thought of by thrifty Asians). These are ordinary everyday light bulbs, the way we have them here, and they just keep glowing day and night. Not just light bulbs, Americans do not believe in complicating their lives with switching their other gadgets too off and on again and again. Afterall, if the laptop is going to be used tomorrow again then why switch it off today. So, surprise number 2. Wifi modems, routers, printers etc are also never switched off. They all just go to sleep and come back to life at the touch of a human hand, pretending they had never gone too far away anywhere. It is important for them to keep up this pretence for just a nanosecond’s delay in coming back to life at the touch of a human hand, can cost them dear. A regular American brooks no delays in life and a simple modem or a printer has no chance of escaping his / her wrath if it dares do any such thing. For no sooner will the delay be detected that in will come the man of the house or the lady with a belt full of screw drivers and wrenches and everything else in their well-equipped garage and dismantle the hapless gadget in a jiffy to ascertain the reason behind the lapse. It may eventually turn out to be just a case of oversleeping on part of the poor gadget but it would have suffered some serious jabs and scratches in the process by then. Feeling ridiculously like Alice in Wonderland, I sat down to think about this amazing behaviour, not the dismantling part but the never-switching-off part. And it dawned on me that it’s not for nothing that America is considered, or was considered, the richest nation in the world. People there don’t have to think about the cost of electricity. It comes so cheap for them. That’s the reason why even with virtually negligible number of people in an average house hold, they keep the biggest and the hugest of washing machines, driers, ovens, refrigerators. Not only are their cars huge gas guzzling giants, at homes they have gadgets which consume electricity big time such as built-in ovens, dishwashers and vacuum cleaners. Their air-conditioners never stop working, not just at times of the day when nobody is in the house but even when they go out for vacations. True that with efficient thermostats you actually save energy by not switching the air-conditioning off and on again and again but try explaining that to an Indian and you would get an earful of “have you gone mad…” kind of diatribe. The lesson that I came back with—when in Rome, behave as Romans do. When in India, switch off the light, de-plug the desktop monitor, switch off the modem, disconnect the printer, de-plug the television, de-plug the set-top box, switch off the night lamp and go to sleep. Shalini S. Sharma (The author is a free-lance journalist)

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