InfralinePlus Nov 2012

November 2012 Volume 1 | Issue 7 | `100 www.InfralinePlus.com

The Complete Energy Sector Magazine for Policy and Decision Makers

Islanding

Key services in Delhi to get uninterrupted power

Government in

combat mode ...M(oil)y ousts Reddy, Scindia gets power gas prices

Revision likely soon, inflation may move north

Banmali Agrawala, Union Coal Minister President & CEO, Sriprakash Jaiswal GE Energy India confident on issue on what the of low supplies country means for to be taken care the global major of soon

OIL Director (Finance) T.K. Ananth Kumar, the company’s acquisition plans for growth

AB Agrawal, Chairman, Bhakra Beas Management Board on why hydro power is essential for India’s growth

INDIA'S 2ND LARGEST SINGLE LOCATION REFINERY

Vadinar, Gujarat

· Refinery capacity 20 MMTPA, ~ 10% of India's refining capacity · Amongst the most complex refineries in the world with 11.8 complexity · Producing Euro IV and Euro V emission compliant fuels · Over 1,400 Essar branded fuel retail outlets across the nation · Largest CBM player in India with an acreage of over 2,700 sq kms

InfralinePlus

November 2012 | Volume 1 | Issue 7

The Complete Energy Sector Magazine for Policy and Decision Makers

Editor’s Letter A resurgent government is in combat mode. After the reform push, has come another attempt to break free of paralysis which had plagued the government in the past few months. Taking a strong stand against corruption charges raised by activists such as Arvind Kejriwal of India Against Corruption against one of the key ministers of the UPA government, Salman Khurshid, the government went for a major reshuffle of portfolios last month and elevated Khurshid to the portfolio of external affairs ministry. While that was meant to signal that it was not perturbed about such charges and that it had full faith in the former Law Minister, the government’s another significant move came in the form of shifting of S Jaipal Reddy from petroleum to science and technology ministry.

A former member of the Janata Party, Reddy is known for his socialist ideology. With him at the helm of affairs at petroleum ministry, oil companies had to face tough time. Specially, top corporates in this sector were unhappy over his refusal to budge from certain positions. That seems to have played a part in his removal from this key ministry, now that power plants have reached a critical stage in the absence of gas supplies and coal stocks are also dwindling. The rise in the share of key stocks in this sector bears testimony to the fact that Reddy’s presence in the ministry was pinching them. New minister Veerappa Moily is also seen as a more proactive and reformist minister who was able to bring out significant changes in the condition of state electricity boards during his tenure in power ministry.

We also bring you in this issue an expert analysis of the government’s move to shift from production sharing contracts to a revenue sharing regime in oil and gas exploration which is significant in light of the recent spat between the government and a consortium of oil majors.

Read how the Delhi government is going to take care of power supply to key installations, hospitals, railway stations, airports and VVIP areas in case of a grid collapse. The historic blackout of July 30-31 seems to have shaken the government out of its complacency and it has actually advanced its plans of implementing islanding in Delhi from the middle of next year to early January. Hope it will be able to stick to its promise.

We also bring to you interviews with Union Coal Minister Sriprakash Jaiswal, President & CEO of GE Energy India, Banmali Agarwala, OIL’s Director (Finance) T.K. Ananth Kumar, Chairman of Bhakra Beas Management Board, A. B. Agrawal and Country President, Alstom India and South Asia Sunand Sharma.

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

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InfralinePlus

Contents Editor’s Letter

1

Cover Story

34

34

2

Power

4

Cabinet goes young The big-bang reshuffle of the UPA government is a clear indication of the empowering of the youth brigade and rewarding of the loyalists. The new core team -- with 17 new faces and a total of 22 ministers -- is also being seen as an attempt by Singh to remove the taint of scams which has put the govt in a tight spot in the past few years.

Coal

18

News Brief

p4

News Brief

p18

In Conversation: Banmali Agrawala, President & CEO, GE Energy India

p6

In Conversation: Union Minister for Coal, Sriprakash Jaiswal

p20

In Conversation: Sunand Sharma, Country President, Alstom India and South Asia

p8

In Depth: Rising demand for coal leading to diversity in mine allotment process

p22

In Conversation: Som Chakraborti, Business Director, Process Automation, Rockwell Automation

p10

In Depth: De-allocation of coal blocks may hit power generation capacity target

p26

In Depth: Delhi to have four islands to keep essential services running in case of a grid collapse

p12

Expert Speak: Jaganath Prasad Panda, MD of Priya Mining Consultancy and Services Pvt Ltd

p28

Expert Speak: Bridgit Hartland-Johnson, Founder and MD, Energie Dynamique Consultants PVT Ltd

Statistics

p32

p14

Statistics

p16

Topics Covered:

Topics Covered:

Smart Grid

Coal allocation

Islanding

Advance Mining Technology

Process automation

Coal exploration

Energy Efficient Technology

Extractable reserves

November 2012 www.InfralinePlus.com

Oil and Gas

40

Renewable

58

News Brief

p42

News Brief

p58

In Conversation: TK Ananth Kumar, Director-Finance, Oil India Limited

p43

In Conversation: AB Agrawal, Chairman, Bhakra and Beas dams, the Bhakhra Beas Management Board

p60

In Depth: Small hydro power projects more viable than large ones which require huge mass of land

p63

In Depth: New steam cooking system at Sabarmati Jail to cut down carbon emissions drastically

p66

Statistics

p68

In Depth: The Petroleum Ministry and Reliance Industries finally come to talking terms after a year-long standoff

p46

In Depth: Profit sharing mechanism set to change

p50

In Depth: Differential in sale price pulling down sale of premium fuels

p55

Statistics

p56

Topics Covered:

Topics Covered:

Production sharing contracts

Hydro power

E & P Acquisitions abroad

Green cooking systems

Gas pricing

Smart Grid

Premium fuels

Roadmap for SME sector

3

Policy Watch

Interviews

71

49% FDI in aviation fails to lure foreign investors

Off Beat

74

DGCA chops Kingfisher’s wings. Airline forced to remain grounded due to cancelling of license.

Plus - Photo Essay Banmali Agarwala, President & CEO, GE Energy

Sriprakash Jaiswal Union coal minister

TK Ananth Kumar Director-Finance, OIL

Chairman, BBMB

AB Agrawal,

78

A visual tour of the Ratnagiri Gas power project that has been through its share of controversies.

78

November 2012 www.InfralinePlus.com

NewsBriefs | Power

4

JSPL, SAIL plan big To invest heavily in Chhattisgarh

VC Powers up Smart grid sector

NLPCL 4000 MW coastal TP Requests grant of long term linkage

JSPL and SAIL plan to invest `50,000 crore and `42,000 crore, respectively in their ventures in Chhattisgarh. JSPL that currently has a steel making capacity of 3 million tonnes per year (MTPA) and power generation capacity of nearly 2,500 MW, aims to have 20 MTPA steel making capacity by 2020 and power generation capacity of over 21,000 MW.

Smart grid has become a buzz word in the power sector, with venture capital funding in the category showing signs of growth. Smart grid venture capital funding in the third quarter of this year stood at $238 million in 12 deals, while merger and acquisition (M&A) activity in the same period totalled $2.2 billion in five transactions.

Nana Layja Power Company Limited has requested Ministry of Coal for grant of long term coal linkage for its 4,000 mw (5x800 MW) IPP. The MoC has forwarded the application to the MoP and Coal India for their comments on the same. It is setting up a coal-based coastal thermal power plant of 4,000 mw capacity as a unit of SEZ with super-critical technology in Gujarat.

Reliance ADA to invest `200 bn in integrated power plants in MP

BS wins orders worth `1.17 bn To supply of 765/400 Kv transmission

BESCOM begins work on $16.12m smart grid project

BS Ltd has bagged orders aggregating `117 crore.

These orders are for the supply of 765/400 Kv transmission line towers for Power Grid Corporation of India Ltd and state power utilities. The company said large volume orders have increased and it foresees a strong outlook and long-term business visibility as an integrated solutions provider.

State-owned Bangalore Electricity Supply Company (Bescom) has started work on its `870 crore ($16.12m) smart grid project in the Indian city of Bangalore.

The latest project, which would improve and ensure efficient use of power, is expected to help consumers plan their consumption and enable them to interact with Bescom.

PGCIL’s new forae Enters wire distribution business

Tecpro Systems Bags `1.98 bn order from RRVUNL

Japan commits `7802.17 bn ODA loan To Tamil Nadu power supply project

PGCIL is exploring the entry into wire business in the distribution sector and has got the board’s approval for the same. A petition would be filed with OERC for exploring issuance of distribution license for wire business only in Odisha. Power Grid was mulling foray into electricity distribution sector and was in talks with various states, including Uttar Pradesh and Odisha in July.

Tecpro Systems Ltd has secured a Balance of Plant package valued at `197.98 crore from Rajasthan Rajya Vidyut Utpadan Nigam Ltd. The company’s order book has seen a healthy growth in the first half of the current fiscal compared to the same period last year and is confident of maintaining the growth momentum.

Japan has committed an amount of `7802.17 crore for the second batch of FY 2011 ODA loan package to fund four projects, including Tamil Nadu Transmission System Improvement Project. The notes for the projects were exchanged between the Government of Japan and the Government of India, according to Deputy Consul-General for Japan in Chennai, Mr. Takayuki Kitagawa.

726 MW Gas based TPP Operational at Palatana

IL&FS plans India’s biggest private power plant in Gujarat

BHEL flags off consignment of Punatsangchhu-I hydro project, Bhutan

The 726 MW gas-based thermal power project at Palatana in Gomati district of Tripura has started generation, official sources said. The stage is set for generation because ONGC, which has the major share in the project, have charged gas on trial basis. Generation on trial basis has started and 40 MW to 50 MW power is being generated. The first unit of the plant is now capable of generating 363 MW power.

Infrastructure financing and project development firm IL&FS is working on setting up a power plant with a capacity of 4,000 mw in Gujarat, government sources said. The project, scheduled to start in June, 2017, would be the single-largest generation power project in the country and equal the Centre’s showcase ultra-mega power projects being set up as public-private partnership ventures.

The first consignment of 6X200 MW Punatsangchhu-I Hydroelectric Project, Bhutan was dispatched from BHEL, Bhopal. Executive director BHEL S S Gupta flagged off the consignment.

Apart from Punatsagchhu-I, BHEL, Bhopal shall also be supplying equipments for Punatsangchhu-II (6X170 MW) and Mangdechhu (4X180 MW) contract projects in the near future.

Reliance ADA Group said it will enhance its integrated power plants in Madhya Pradesh at an investment of `20,000 crore and “will sell power to the state at `1.19 a unit for the next 25 years”. Reliance ADAG plans to set up an integrated plant of 2,000 MW generation capacity and a 5-million tonne cement unit shortly.

November 2012 www.InfralinePlus.com

InConversation

‘We need more power at right price to avoid grid turbulence’

6

It started operations in India with the country’s first hydropower plant in 1902.

Today all of GE’s global businesses have a presence in India and its revenues in the country are approximately $2.8 billion. Banmali Agrawala, President & CEO, GE Energy India, spoke to Pallavi Chakravorty about the company’s focus areas in the Indian market. Edited excerpts: What has been GE’s biggest success in India in the past one year?

We stayed focused on speeding up localisation of capability by building tailored solutions for the market place.

Globally, last year, we acquired Dresser Inc., Lineage Power Holdings and Converteam. These acquisitions have strengthened our core capabilities and added to our offerings. Last year we introduced the FlexEfficiency 50 technology in India, a global product engineered to meet the environmental regulations and grid conditions of all major markets including India.

The recent focus on higher efficiency thermal products in India, allowed us to introduce our latest generation 660 and 800 mw supercritical steam turbine technology here. This technology is extremely flexible and can be customised to deliver optimal performance with a variety of boiler conditions.

Also, in early 2011, in line with our commitment, we set up our local assembly wind unit in Pune. It assembles our 1.5 -77, 1.6-82.5 and 1.6 -100 models of wind turbines, which are most suitable for India’s low wind environment. We have also set up a validation laboratory to support the repair and calibration of Kaye range of products, at Electronics City, Bangalore.

GE is investing $200 million in its first manufacturing facility in India at Pune. What will be its main features?

We have announced that our new manufacturing facility in Pune would develop localised products and solutions for the energy sector in its first phase of operations commencing in 2013. The facility will focus on energy products and technologies, oil and gas as well as measurement and control. In addition, we will package our environment-friendly technologies such as hybrid batteries for energy storage and biogas power generation technologies at the plant. The site will enable assembly and production support for any GE business that needs local manufacturing capability in India.

You are also into manufacturing nuclear reactors, how has Fukushima affected your business?

We remain supportive of a broad range of energy technologies, which includes nuclear. In fact, we are pursuing new nuclear reactor opportunities in countries such as Poland, India, and Finland, while also supporting our partner Hitachi in its plans to bring nuclear power to Lithuania.

Banmali Agrawala, President & CEO, GE Energy India,

In India, we are actively working on all phases of our nuclear project that we are allowed until the few remaining issues between the governments are resolved.

Nuclear energy can help India meet the pressing need for clean, base load power.

Fukushima was an accident and we don’t want to comment on it.

How can the issue of grid indiscipline by states be addressed?

We need to look at the root cause of grid failure rather than just treating the symptom of grid collapse. And the root cause is clearly the basic shortfall in power generation. Unless and until more power is produced and right prices recovered from consumers, the system will keep getting vulnerable. While this may be treated as a long-term plan, on an immediate basis a strict guideline on ensuring grid discipline would be required to check overdrawing of power.

November 2012 www.InfralinePlus.com

Though we are adding some features of a smart grid, we still are a long way off from completely shifting to a smart grid. What are the benefits of having a smart grid?

Through modernisation of infrastructure and efficient demand side management, the smart grid will play an important role in addressing all the issues, while reducing the AT&C losses, and improving delivery efficiencies.

How has GE Energy been affected by the problems plaguing the power sector?

While there is shortage on the gas front, the sector continues to present several opportunities. Our wind business is strong as is our water and process technologies business where we see ‘waste water’ as a very important and high growth area for the industrial and municipal sector. There is water scarcity in many areas and regulation enforcement along with the emergence of newer technologies would be a driver for ‘waste water’ in this sector. We see opportunities in power conversion in the mining and steel sectors and there is plenty to do in the grid automation industry. GE India has also acquired a majority stake in Advanced Systek Pvt. Ltd., and this acquisition will provide us an opportunity to enter into the terminal automation and metering skids space.

Advanced Systek’s electronic flow measurement devices and automation software will complement GE Energy’s existing strength in measurement instrumentation, diagnostics and performance optimisation, to create an overall solutions business with strong local capabilities.

India’s poor infrastructure has always been a cause of concern for foreign players. How do you think can this be improved, both in terms of investments and policies?

With India emerging as a global power, it should aim to (a) ensure that there is availability of fuel, both coal and gas (b) address the financial health of SEBs (c) not look at load shedding as an instrument to manage the grid.

GE has had a particular strength in gas turbines, and has been investing in new FlexEfficiency products designed to allow rapid ramp-up and down in power output. Are you targeting the technology in India as well?

The FlexEfficiency 50 combined cycle power plant is rated under ISO conditions at 510 mw output at an efficiency of 61 per cent. It can run on natural gas or distillate oil to generate power. Conventional gas turbinebased power plants are designed for base-load applications, whereas aero-derivative / reciprocating engine technology is commonly deployed in peaking plants. These technologies are distinct in their design and operating / maintenance parameters.

However, with the sheer diversity of power sources that feed today’s grid / or are being planned in the next 20 years, gas-based power plant operators need to have a technology that gives them the economics of a base-load operation and the flexibility of a peak power plant as required. Our FE 50 is designed to deliver an unprecedented combination of both. We drew from the company’s jet engine expertise to engineer a plant that will ramp up at a rate of more than 50 mw per minute, twice the rate of today’s industry benchmarks.

Operational flexibility at these levels will enable utilities to deliver power quickly when it is needed and to ramp down when it is not, balancing the grid cost effectively and helping to deploy additional renewable power resources like wind and solar. This technology is relevant to India’s power sector in two ways (1) As gas prices rise, and tariffs become more competitive on the grid,

technology efficiency will play a key role in balancing the cost of power generated. (2) As specific states increase the deployment of grid-connected renewable energy (wind and solar), grid stability at the state or regional level will become a concern.

Specifically in states such as Tamil Nadu, Maharashtra and Gujarat (wind) and Rajasthan (solar), there is heavy deployment of renewables. Having flexible technology for base load gas projects will allow for a higher renewable penetration with stable grid operation as this technology will enable gas plants on base load to operate seamlessly as peak plants in high renewable days/season.

Like in China, India too is facing a dearth of gas supplies, though you have been investing massively in gas technology. Isn’t it a risk as the market is yet to expand?

Not at all. The economic environment, across the world, continues to be challenging and is likely to be for some time including in India. But power is fundamental to industrial growth. Secure India’s energy future calls for an enabling policy and regulatory framework which could sustain energy supply to meet demand.

What is your focus in India?

We would continue to be committed to being a growth partner to India. We serve the energy sector with technologies in areas as natural gas, oil, coal and nuclear energy; wind, solar, biogas and water processing; energy management; and grid modernisation. We also offer integrated solutions to serve energy and water-intensive industries such as mining, metals, marine, petrochemical, food and beverage and unconventional fuels and we shall continue to drive a focused approach on this mix in 2012 and going forward.

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

7

November 2012 www.InfralinePlus.com

InConversation

‘Positives of power reforms will be nullified in the absence of fuel’ Alstom, one of the key players in the power sector, has had a growing market base in India. However, the current volatile scenario in this sector has been a cause of concern for even the most remotely associated organisations. Sunand Sharma, Country President, Alstom India and South Asia, tells us how it affects Alstom, what are the company’s future plans for India and whether nuclear power is a viable business option for them. Edited excerpts:

8

How has the current volatile power situation affected your company?

The situation is definitely challenging with fuel scarcity and issue of coal linkages having badly affected the power industry, but we are closely following the developments. Almost 35,000 mw, or 20 per cent of India’s installed capacity, is running at sub-optimum level due to

Sunand Sharma, Country President, Alstom India and South Asia

supplies are already secured.

Though the bailout packages announced by the government have cheered the sector, the positives emerging from the ambitious reform package would be nullified if fuel availability is not ensured. Even with the country making long strides in the renewable sector, the progress is marred due to factors like environment clearances and land acquisitions. Consistent efforts need to be made to eradicate the bottlenecks insufficient coal and gas supplies. But so that the industry and the nation on when we build new factories, we the whole can move forward on build on long terms. Our the path of development and order base is largely It is growth. government sector government’s and all government job to set the ball Where do you think projects go through rolling by easing are we going wrong? the established the fuel situation which is stifling the Our installed base of methods of public development of power generation is tendering where fuel the sector disproportionately small as compared to the size of the population. And it is only now that the country has started waking up to this reality. In fact, the amount of power generation, transmission and distribution equipment that was ordered in India in the past five years is much more than what was ordered in the previous 15 years.

Given the socio, cultural and economic diversity of India, to bring about an order in this complex system requires persistent and consistent contribution not only by the government but also the private sector.

But, it is the government’s job to set the ball rolling by easing the fuel situation which is stifling the development of the sector. The easing of

November 2012 www.InfralinePlus.com

the coal situation and the dissipation of fuel crisis will add a fresh lease of life to the stagnating order books and restore investor confidence.

What are your expansion plans for the current fiscal?

We want to focus on hydro while maintaining our leadership position in thermal power. We are also planning to expand our presence in nuclear segment in a big way. Our focus is on achieving leadership position in clean power – both in terms of efficiency and clean technologies. With the government emphasising on the need to increase domestic capacities by building power plants with super critical and ultra-super critical technologies in order to reduce coal requirement, we need to explore more options. In the wake of several large public and private investments in the sector, industry-wide improvements are needed for sustainable project and operational efficiency in the long run.

Alstom is the world leader in conventional islands for nuclear power plants and recently you have entered into a contract with NPCIL. Considering the uncertainty of the future of nuclear power plants across the globe due to environmental fears and radiation scare, how far is it viable as a business opportunity?

India currently derives only 3 per cent of its total electricity requirement from nuclear energy and is poised to expand its nuclear power programme. Its nuclear power market is currently valued at $150 billion and offers immense opportunities for power equipment suppliers like us as is evident with our winning of the Rawatbhata project.

Also, India is anticipating the construction of over 30 to 40 nuclear plants in coming years to produce clean energy, which, if it succeeds, ought to provide massive openings on the technology as well as the supply side.

There are 19 nuclear power plants already operational in India with a total capacity of 4,500 mw and if the current market dynamics are taken into account, India is expected to generate an additional 25,000 mw of nuclear power by 2020, bringing the total estimated nuclear power generation to 45,000 mw. Hence, the growth opportunities are enormous and Alstom will be able to add immense value to the nuclear segment in India.

India is expected to generate an additional 25,000 mw of nuclear power by 2020.

Hence, the growth opportunities are enormous and Alstom will be able to add immense value to the nuclear segment.

Has Alstom’s nuclear arm been affected post Fukushima? With Germany deciding to do away with all nuclear power plants by 2017, do you think it is a cause for concern for players like Alstom?

According to the International Atomic Energy Agency, there are 442 nuclear reactors in operation worldwide, with 65 new facilities being under construction.

Eventually, nuclear is a real candidate and all the countries are trying to increase their energy diversity. When we talk about reaching a clean energy standard, nuclear energy becomes a vital part. Even India is looking to double its capacity.

At the same time, it is also imperative that adequate measures are taken by the government to address the risks involved.

Alstom is not involved in the construction of nuclear islands (reactors), thus we are not experts as far as safety of reactors is concerned. Nuclear energy is a part of our business, as we are a multi-specialist in power generation;

should some countries decide to shift from one technology to another one, we can provide solutions. Any trend towards technology and retrofit is good for us.

What are the challenges which Alstom is facing in growing its business in India?

The Indian infrastructure market is one of the most dynamic markets in Asia and offers a lot of opportunities in terms of growth and revenue. But there are still myriad issues affecting it. They have had a ripple effect on the companies operating in the sector and Alstom is no exception. But the pipeline of opportunities is wide and when they do arise, we will be prepared.

What is your biggest strength in the Indian market and how do you intend to make it stronger?

We have seen good growth here in terms of expansion and investments. In power, our primary focus would be on hydro, while maintaining our leadership position in thermal power. We are also looking at emerging renewable segment like solar and wind while planning to expand our presence in the nuclear segment. We also want to focus on leadership position in clean power – both in terms of efficiency and CCS technologies.

In transport, we are mainly targeting the metro market which is a growing segment, rolling stock contracts and signalling solutions for both metro as well as Indian Railways. We are capable of offering complete railway solution package on lot-by-lot or turnkey basis.

In grid, the focus is towards leveraging India as a centre of excellence for its worldwide activities.

With the benefits arising from the synergies between all the three sectors of power, transport and grid we are well poised to increase our competitiveness and consolidate our position in the market.

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

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November 2012 www.InfralinePlus.com

InConversation

‘Indian power plants do not adopt anything new’

10

Rockwell Automation, a US-based company dealing mainly with automation and industry solutions is fast increasing its footprint in India. An annual sales turnover of over $6 billion from India alone suggests that the company is here to stay. To know about its plans for the sub-continent, Pallavi Chakravorty met Som Chakraborti, Business Director, Process Automation on his recent visit to India.

Edited excerpts:

How would you rate India’s energy sector on the scale of technology vis-a-vis global standards?

I would describe the power sector to be somewhere in the middle of the line in terms of global technological advancements. I do not find power plants here adopting new technologies. They tend to use tried and tested technologies that have been proven for use; they do not adopt anything new. This, however, may have variations but here I’m talking about a general trend.

How do you view India as a market?

An important dimension of our performance is what percentage of our revenues is coming from emerging markets. We look at markets like India

to strengthen Rockwell Automation’s presence. We have now moved into some aspects of development in India and are also adding resources for our sub-continent customers. So, India is and will continue to be one of the key players among emerging markets and the company’s investments will be commensurate with that.

How old are you in India?

Allen-Bradley, which is a 100-year old company, has been in India for the past 30 years. In the early 1980s it was based in Kolkata, but after some transition it shifted to Delhi as Allen-Bradley India Ltd, from where it continued to operate till it was taken over by Rockwell Automation. The current Noida facility came up about four years back.

Rockwell caters to various industries and sectors across the globe. Which is its target sector in India?

The core sectors in India that we target are the consumer goods market, a traditional stronghold for Rockwell. We also refer to them as hybrid industries, which include food processing plants, packaged consumer products, etc.

Emerging markets in India and around the world are in power, both in combined cycle and balance of plant (BOP) in the utility power segment. So, captive power plants and combined cycle as well as the entire BOP footprint are extremely important for us and we would continue to grow in those segments. We also have some expertise in oil and gas,

primarily in upstream and in midstream; our core focus in oil and gas is in upstream, which is also the core focus of investments globally.

Since power is one of your core focus areas of investment in India, how has your company been affected by the turbulence in the Indian power sector?

I wouldn’t say we are getting affected yet as we are not exclusively focused on a certain industry or couple of industries.

We have a broad spectrum approach as far as industries are concerned.

Automation investments typically are cyclical because they are dependent on capital investments or capex cycles of the economy. We try to mitigate

Som Chakraborti, Business Director, Process Automation

November 2012 www.InfralinePlus.com

those risks by broadly diversifying in heavy industries and we have been doing that successfully around the world. So, if the power sector is going through a lull it doesn’t directly affect us, though it does delay projects and certain bookings. So it’s not that it doesn’t affect us at all, but it is not significant.

What are the challenges that you face in catering to the Indian power sector?

The challenge for us is that there are some historic suppliers who have created a traditional base in the power market. Rockwell has always provided equipment and solutions to power in the BOP areas, however, now we are getting ourselves more engaged in the core part of a power plant whether it’s an industrial captive power plant or a combined cycle power plant in the steam generation or turbine control areas. These are the areas that have taken some time for us to gain acceptance and ensure that the engineering constructors and procurement firms bless our architecture and our solution offerings as an acceptable standard in the power industry. We have been trying to knock off such barriers one after the other and the end user’s acceptance at the end of the day is helping us perform better.

Do you concentrate only on thermal power plants?

You cannot be in the power sector and not serve thermal power. It is still a lion’s share of power generation anywhere in the world. But in terms of our growth and focus, combined cycle plants are what we invest in the most, in fact in several countries many power plants are being converted into combined cycle plants due to environmental reasons.

Industrial captive power plants are our other focus area.

What are your current major projects India?

As a company policy, we do not talk about our upcoming projects or clients.

But yes, we are working on a number of power projects, both state-owned and private owned.

Our strategy encompasses the types of customers we serve. In that spectrum the first kind of customers we serve are the OEMs. The second category is the consumer durables industry. We aim to be the biggest supplier of automation controls in this segment.

What is your market strategy in an emerging and constantly evolving market like India?

Our strategy in India is a reflection of our global strategy, which has been customised for the sub-continent. Our strategy encompasses the types of customers we serve. In that spectrum the first kind of customers we serve are the original equipment manufacturers or OEMs. They adopt our technology and we help them in the process using our own resources. The second category is the consumer durables industry. We aim to be the biggest supplier of automation controls in this segment.

The third category of focus is heavy industries and energy. Metals and mining are very important for us and between our control technologies and solutions we have the right combination of supplies for these industries. Continuing with that is energy comprising both power and oil and gas. In oil and gas, we would continue investing in upstream if the price of crude stays near where it is now. Our footprint is still growing in India particularly as private operators participate in oil and gas more and more.

We have a number of distinguishing factors as compared to our automation peers, which also help in strategy building. We have a major leverage called the limited distribution model which is unique in the automation industry. Basically, a network of distributors who stock Rockwell automation equipment and parts and also a bunch of trained and dedicated personnel to directly attend to our clients through this network.

What is the industrial green print technology that you have formulated?

Green print technology is a set of technologies based on the solution concept. It is primarily focused on the power generation market where we have a comprehensive suite of products, which help the plant with energy management.

It is a superior solution that addresses sustainability and industrial regulation objectives. So, it encompasses our automation products, electrical drives products and communications (Ethernet IP) that tie these two areas together.

Both China and India are target markets for Rockwell. What are the major differences in operating in each of these countries?

They are different in scale and many other economic conditions as well.

The pace in China has been larger for Rockwell, which is also because China has a much larger industrial capex base versus may be a services base in India. But there are some common denominators too; both countries are not exhilarating at the record levels until recently, particularly more in India than in China. The oil and gas investment areas are stronger in India; the power investments too are much stronger in India than in China.

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InDepth

Islands to insulate key services from power cuts in Delhi ►► Move to keep essential services running in the event of a grid collapse ►► Dadri, Bawan, Badarpur and Rithala to provide power: infrastrusture to cost `25 crore

12

by Alok Sharma

The Delhi government has chalked out a plan to provide uninterrupted power supply to essential services such as Delhi Metro Rail, water treatment plants, hospitals, airport, high security VVIP areas and Indian Railways.

The state government will implement ‘islanding’ of key areas by January 2013 to secure them in case of a power breakdown.

The move comes in the wake of the historic breakdown of the northern grid on July 30 and of the north-eastern grid on July 31 which

had paralysed left half of the country.

Mumbai and Kolkata have already successfully implemented islanding.

Its most successful example is Mumbai which has experienced 37 major grid disturbances since 1981 and has smoothly sailed through 27 of them.

But its implementation in Delhi is going to be challenging considering the power network of the state.

While the earlier plan was to implement islanding in Delhi by the middle of next year, it is now going to be done by January itself. The

At present the load requirement of essential services in Delhi is 930 mw. The existing infrastructure of the state can handle 3,400 mw of total load. During the peak season, Delhi’s power requirement reaches about 5,500 mw.

November 2012 www.InfralinePlus.com

electricity under this scheme would be provided by four islands, namely Dadri-Jajjhar-Pragati (2,315 mw), Bawana Combined Cycle Gas Turbine (600 mw), Badarpur Thermal Power Station-Pragati (500 mw) and Rithala Combined Cycle Gas Turbine (20 mw).

At present the load requirement of essential services in Delhi is 930 mw.

The existing infrastructure of the state can handle 3,400 mw of total load.

During the peak season, Delhi’s power requirement reaches about 5,500 mw.

The scheme is intentionally designed to isolate power supply for emergency services during widespread external grid disturbance. Four islands, for electricity supply have been envisaged due to network issues that exist in the state. Delhi State Load Despatch Centre (SLDC) would have the overall responsibility of operating the island system.

According to the plan, fall of grid frequency to 47.9 hertz, the normal frequency for electricity transmission -- would be considered as an indicator to initiate islanding facility. Meaning, power supplies to essential services would switch over to the back-up system when the grid frequency falls below 47.9 hertz.

“Ideally one island is preferred but because of the peculiar network considerations of Delhi and limitation imposed by Rithala Combined Cycle Gas Turbine, there is no option but to create four islands,” said an official of the state government.

Industry experts say that crossing surge impedance loading does not mean that catastrophe is imminent.

But once it is crossed, the reactive component of the power flow decreases the voltage at the receiving end of the line. If one does not decrease the flow of power, the system eventually will become unstable and thus vulnerable.

With respect to Delhi, installation of the necessary infrastructure for the scheme, with a capacity of up to 3,400 mw, would require about `25

World’s worst power outages November 9, 1965 Over 30 million people in parts of Canada and several North-eastern US states were left without power for up to 13 hours.

July 13-14, 1977 A lightning-sparked outage left 9 million New Yorkers without power August 15, 2003 A mass blackout robbed 50 million people of power for as long as two days in southeastern Canada and the Northeastern United States November 4, 2006 German power company E. turned off a 380,000-volt line over the river so that a ship could pass safely beneath it on its way to the North Sea. But the dead line increased pressures elsewhere in the German power grid and then sparked a chain reaction across parts of Germany, France, Belgium, Italy, Spain, Austria, the Netherlands, and Croatia.

February, 2008 Historic winter storms decimated the grid in China’s southern Hunan province during February 2008. In Chenzhou, some 4.5 million people were without power for nearly two weeks, thanks to the effects of the worst storms in 50 years.

November 10, 2009 Power supply dried up in Brazil and Paraguay and plunged 67 million people in darkness.

July 30-31, 2012

crore in the initial phase. However, the infrastructure would be continuously upgraded, according to Delhi’s Chief Minister Sheila Dikshit. “The grid crisis which occurred in July was a wake-up call and this is in response to that,” Dikshit said while announcing the islanding scheme last month.

Incidentally, Delhi’s Metro rail, which serves about 1.8 million people every day, had to shut down for two consecutive days in July.

Following the grid failures, an enquiry panel that was set up to identify the reasons for the collapse of power grids, had suggested the creation of electricity islands. The power failure on July 31 affected 620 million people across 20 states. The blackout was pretty unique in its reach, stretching from country’s border in the north-east to the border with Pakistan, which covers about 3,000 km.

Following the embarrassment at home front as well as abroad, Union Power Minister M. Veerappa Moily held a meeting with chief ministers and power ministers of northern states.

It was then decided that the state governments would prepare islanding schemes for their region.

Power Secretary P Uma Shankar said that more states have proposed to initiate islanding. “Uttar Pradesh, Punjab, Haryana and Jammu & Kashmir have come up with plans for islanding facilities. These will be finalised in the next few months,” he said.

Commenting on the development, R. Nagaraja, managing director at Bangalore-based Power Research & Development Consultants says that islanding is badly needed. “Although new power plants are being built at a brisk pace, there hasn’t been an equivalent investment in transmission and distribution networks,” he said

670 million people had to go without electricity across India’s north and east.

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November 2012 www.InfralinePlus.com

ExpertSpeak

The Road to Smart Grid Implementation

14

We all have agreed upon the benefits of a ‘Smart Grid’, though it is the implementation which is taking time. Knowing from where to start with smart grid investments and how to move ahead in the right direction is a key challenge. Bridgit Hartland-Johnson, an electrical engineer with 18 years of experience in the power sector for some big MNCs in the UK and France, who is currently based in India as the founder and MD of Energie Dynamique Consultants PVT Ltd, throws light on the complexity of smart grids. Currently, also a member of MERC Maharashtra Smart Grids Coordination Committee (MAHA-SGCC) and an Expert Evaluator for European Commission FP7 Smart Cities Projects, Johnson delves deep into the subject of her expertise.

Today’s power sector is experiencing incomparable transformational change whilst it tries to keep up with demand growth as well as regulatory and stakeholder pressure to be more efficient, more reliable and greener.

Realisable benefits through the use of new technologies and approaches to conductusual business operations look promising and therefore utilities are forced to think of investments in areas such as the smart grids. However utility managers are faced with a vast array of ever-evolving options, each one offering different benefits and are often ill equipped to evaluate/understand/ define the options that would deliver the maximum benefit to their own business. It is well documented and

everyone agrees on the overall benefits of a ‘smarter’ grid, but knowing where to start with smart grid investments and how to move ahead in the right direction is now a key challenge.

A company-wide Smart Grid Generation

Transmission

Distribution

Roadmap designed to deliver the utility’s business objectives and in line with regulatory and market environments, can help answer these questions and assistutility managers in taking the right steps/making the right investment decisions. The roadmap should be a guideline for the utility to decide and manage the migration from their conventional passive infrastructure and processes to future active infrastructure and processes, which are sustainable and respond to real time conditions. It will provide a short, medium and long-term focus on continuous improvement outlining technology investment and process change requirements along with an approach to evaluate the benefits derived from such investments.

Various smart grid initiatives are available to address the needs of the entire value chain of an electricity networkasshown in the adjacent diagram.

However it is important to understand the true benefit of each initiative, understand Industrial

Service

Transmission lines Distributio lines

Distributio substation

Transmission substation

Wide-area monitoring and control Information and communications technology (ICT) integration Renewable and distributed generation integration Transmission enhancement applications Distribution grid management Advanced metering infrastructure (AMI) EV charging infrastructure Customer-side systems (CS) Source: IEA Technology Roadmaps Smart Grids

Residential Padmount transformers

November 2012 www.InfralinePlus.com

it’s impact to everyday business and prioritise investments according to priority business requirements.

The smart grid roadmap should therefore include only those initiatives, which provide a strong business case for the utility to invest in as well as prioritising those having the greatest business impact.

The smart grid road map should be company-wide, should focus on the following areas (as defined by the CMU SEI Smart Grid Maturity Model (SGMM)): ▪▪ Technology: ▪▪ Strategy, Management and Regulatory:.

▪▪ Organisation and Structure: ▪▪ Grid Operations: ▪▪ Work and Asset Management: ▪▪ Customers ▪▪ Value Chain Integration ▪▪ Society and Environment The roadmap should also be cyclic providing opportunities to adjust and improve and should follow a structure similar to the one mentioned below: Phase 1 Setting Goals: This phase defines “where we want to be” and what are the priorities. Goals should be based on business objectives, industry objectives, and industry initiatives such as the SGMM or initiatives in place with similar organisations. Examples of questions to be addressed: 1. What are the key-needs driving investments in smart grids? Is it meant as a means to improve efficiency and reduce losses, meet regulatory requirements for standards of performance, improve customer service to deter competition, etc.?

2. Where does the utility stand today as compared to its competitors and global counterparts in terms of key business parameters such as service quality, reliability & efficiency, loss levels etc.

3. What are the probable key issues or developments which are expected to require attention in future, such as

integration of renewable, introduction of more flexible and dynamic tariff programs etc.

4. What position does the utility wants to achieve on the identified key business parameters and in which markets does it wish to compete in another ten to fifteen years?

Phase 2 Positioning: This phase defines “where we are now” and requires a benchmarking exercise to be carried out.

Phase 3 Define (Action Plan/Road Map): This phase defines “how we get from where we are to where we want to be” and development of an action plan, recommended implementation strategy, high level budget and timeline based on achieving the targets agreed in the 1st phase.

A smart grid roadmap should include initiatives, which provide a strong business case for the utility to invest in as well as prioritising those having the greatest business impact.

The diagram below prepared by the Toronto Hydro-Electric System Limited as part of its smart grid roadmap demonstrates how implementation of specific initiatives can be prioritised according to goals defined from the company’s needs.

In order to select the right option the costs for deployment of equipment, hardware, software, manpower, capacity building etc. need to be established and a ranking methodology used to evaluate costs versus the perceived benefits. This would assist in making the right investment decisions as well as convincing Regulators for investment approval. An important point to also understand while evaluating benefits is that tangible or intangible benefits may not occur immediately after implementation and therefore the time period for realizing those benefits

could be different for different options.

The financial analysis should take this into consideration.

Phase 4 Implement: This phase is focused on the implementation of the action plan/road map. At this phase it important to have a well structured project team comprising relevant competencies, a well structured project charter defining roles and responsibilities and a methodology for project monitoring, reporting and corrective action.

The smart grid implementation plan also needs a communication plan which will be used to deliver the message for smart grid investments to utility employees, consumers and the regulator.

While the business focus and goals should be shared with the employees so that they would understand criticality of a particular project; the consumers would be interested in knowing the benefits that a smart grid project will bring to them. The regulator would be need to convinced on the benefit of any investment request that may potentially impact the ratepayer.

Phase 5 Review: This phase determines whether the goals have been achieved as outlined in the 1st phase, if not then what went wrong and how can it be rectified and if yes then what can be leveraged and utilised in the future.

The Utility should prudently evaluate the results of an incurred project investment and leverage learning’s to improve the roadmap as and when required. It is to be noted that the roadmap should not be treated as a static document and making changes to the roadmap should be seen as a continuous exercise.

Developing a smart grid roadmap is a strategic exercise and requires focused attention of all business unit leaders and experts. A well thought out roadmap shall ensure buy in from all stakeholders and clear direction for the business.

For suggestions email at feedback@infraline.com

15

November 2012 www.InfralinePlus.com

StatisticsPower BHEL capacity addition during 2012-13 1 2 3 4

Mauda -1 Rihand - 5 Vindhyachal- 11 Palatna Block-I OTPC

NTPC NTPC NTPC

500 500 500

OTPC

363.3

5

Jhajjar -3

APCPL/ NTPC 500

6

Koderma-2

DVC

500

7

Vallur - 2

NTPC

500

Total Central Sector

Central sector Capacity addition achieved on 19/04/12 Capacity Addition achieved on 25/05/12 14/06/12 Capacity Addition achieved on 14/06/12 HRSG HT completed on 22/03/12. GTG oil flushing completed on 12-Nov 12/06/12. STG oil flushing completed on 17/06/12. TG Box-Up by 07/12.

Boiler lighted up on 17/05/12.

12-Dec TG boxed up on 02/06/12. Syn by 10/12.

BLU achieved on 26704/12.

Work resumed at site w.e.f. 13,06.12 after strike since 29.05.12 (23days loss).

12-Dec TG Box-up was planned in June'12, now planned in July'12 delayed because of strike.

Readiness of railway track for coal feeding & CUP by customer.

BLU by 07/12. TG Box-up by 07/12. Power Cabling required for ID fan 13-Feb 2A. Balance 2 nos RHS Mills foundation. RHS mills lube oil foundation of Mills. FD Fan 2B & PA fan 2B foundation with LOS foundation 19/04/12

3363.3

8 9 10

Harduaganj - 9 Parichha - 5 Pragati GT - 3

UPRVUNL UPRVUNL PPCL

250 250 250

12-Aug

11

Parichha - 6

UPRVUNL

250

12-Sep

12

Ukai-6

GSECL

490

12-Dec

13

Marwa-1

CSEB

500

13-Feb

14

Pipavav Block-II

GSECL

351

13-Jan

15

Ramgarh GT

RRVUNL

110

13-Jan

16

Ramgarh ST

RRVUNL

50

13-Feb

17

Satpura-10

MPPGCL

250

13-Feb

18

North Chennai -2

TANGEDCO

600

13-Mar

16

Total State Sector

19

Adhunik-1

State Sector Capacity Addition achieved on 25/04/12 Capacity Addition achieved on 24/05/12 GT cranked on 21/05/12 FSNL completed on 21/06/12.

BLU achieved on 28/04/12 with temporary chimney. Oil flushing completion by 06/12. Rehabilitation of Chimney is expected by 07/12.

TG Boxed up on 27/02/12. BLU achieved on 07/03/12. Syn by 09/12 No approach for Material feeding to Boiler, Bunker, Ash handling system, Piping and other civil works from left side of unit.

BLU by 09/12 & TG Box-Up by 10/12, Delay in availability of Startup Power & Switch-yard readiness, delaying BLU. Cabling from switchgears to fans, Lub oil and all items required for light up.

Readiness of NDCT. Coal handling plant, ash handling plant, DMCW Tanks, Cooling Water piping progress s very slow. This will not only delay light up But also will delay synchronization HRSG HT completed on 10/05/12.

STG Box-Up by 11/12 & & HRSG Gas-In by 10/12.

Gas Turbine Box-up by 09/12.

Readiness of Sea water outfall system by customer GT Oil flushing completion by 07/12.

FSNL by 09/12. Syn by 12/12.

Readiness of Control Room with AC for Open Cycle by customer.

Readiness of Power Evacuation System and Fuel supply arrangement by customer.

IT, IT & DC Supply required.

Availability of emergency DG set.

Foundation for GT enclosure and Flooring required.

HRSG HT by 07/12.

Condenser erection yet to be started as condenser foundation not yet ready (Customer scope).

Readiness of ST/STG foundation (Customer Scope).

Readiness of ST Hall with EOT Crane Availability. (Customer Scope).

BLU by 08/12 &TG Box-Up by 08/12.

Switchyard readiness for start up power from MPPGCL. Readiness of Chimney for duct connection from MPPGCL. Readiness of cooling tower, CHP & AHP by MPPGCL. BLU achieved on 11/04/12. TG Box-Up by 07/12.

Payment issue with customer.

3351

APNRL

270

Private sector BLU achieved on 20/04/12.

Barring Gear achieved on 25/05/12.

12-Sep Synchronization by 08/12.

Readiness of switch yard & Coal handling plant by customer.

Cont.....

November 2012 www.InfralinePlus.com

20

Bela-1

IEPL

270

12-Sep

21

Bina-1

Bina Power Supply Co. Ltd

230

12-Sep

22

Chandwa-1

Abhijeet Infra Limited

270

12-Dec

Total Private Sector

BLU achieved on 29/02/12.

TG Box up by 06/12.

Chimney readiness, CHP readiness, Readiness of switch yard by customer.

Steam blowing completed on 05/05/12. Barring Gear achieved on 26/05/12. Rolling & Synchronization by July'12 CHP & AHP yet to be made ready by customer.

BLU by 07/12 & TG Box-Up by 08/12 Release of pending payment by the Customer. Readiness of Support foundation from ID fan to Chimney for BLU. Readiness of start-up power, ACW system 8 Unit control room.

1060

23

Chutak-1

NHPC

11

24

Chutak-2

NHPC

11

25

Chutak-3

NHPC

11

26

Chutak-4

NHPC

11

27

Parbati III U-1

NHPC

130

Total hydro projects Total BHEL (Thermal + Hydro)

Hydro projects Synchronized on 06/11/11 Commissioning by 2nd Qtr Transmission line for power evacuation system not yet ready.

Synchronized on 26/03/12 Commissioning by 2nd Qtr Ready for spinning 08/12. TG stator assembly completed on 10/04/12. Box-Up by 07/12.

Commissioning Transmission line for power evacuation system not yet ready. by 3rd Qtr. Ready for spinning 10/12 Stator & Rotor assembly by 06/12. Box-Up by 07/12 Transmission line Commissioning for power evacuation system not yet ready. by 3rd Qtr. Ready for Box-Up by 06/12. spinning: 10/12 Commissioning Control room yet to be made available. by 4th Qtr. All civil activities delayed from 15 to 24 months.

174 7948.3

Monitorable Targets and Achievements for Transmission in IInd Quarter of 2012-13 Particulars Central

Item 220 KV 400 KV 765 kV Sub-Total

State

220 KV 400 KV Sub-Total

Private

400 KV Sub-Total

BHEL capacity addition during 2012-13 Description Thermal Hydro Nuclear Total 2012-13

Target 7774.3 174 NIL 7948.3

Total

220 KV 400 KV 765 kV Sub-Total

Target Ach. Target Ach. Target Ach. Target Ach. Target Ach. Target Ach. Target Ach. Target Ach. Target Ach. Target Ach. Target Ach. Target Ach. Target Ach.

Qtr.1 0 6 403 1078 273 883 676 1967 1965 1061 1418 9 3383 1070 492 664 492 664 1965 1067 2313 1751 273 883 4551 3701

2012-13 Qtr.2 Qtr.3 406 212 242 1021 1862 960 536 243 85 1963 2317 1287 1383 1676 1387 895 1341 417 2278 3017 1804 468 438 1153 468 438 1153 1789 1888 1629 2384 3641 2530 536 243 85 4709 5772 4244

Total Qtr.4 37 1479 861 2377 17 0 17 0 0 54 1479 861 2394

655 248 4765 2038 1913 968 7333 3254 5041 2448 3654 426 8695 2874 1398 1817 1398 1817 5696 2696 9817 4281 1913 968 17426 7945

17

November 2012 www.InfralinePlus.com

NewsBriefs | Coal

18

JSPL to start production From Mozambique coal mines by Dec

CIL agrees to sign FSAs With power generators

Power Grid, MCL to ink JVs With Odisha transmission utility

Jindal Steel and Power (JSPL) plans to begin production from its coal mines in Mozambique by year-end, a development which will ensure supply of inputs for its existing and upcoming projects. Chairman Naveen Jindal said that they would source coal from the Mozambique mine to feed the projects in India. The company has plans to produce 10 million tonnes of coal p.a.

Coal India has agreed to sign fuel supply pacts with power generators having medium-term power purchase agreements (PPA’s), in a move that should help prevent 1,500-mw capacity from becoming idle.

Medium-term PPAs are signed for 2 to 5 years only. The new policy would also provide flexibility to discoms in managing their power requirements.

Odisha Power Transmission Corporation Ltd plans to implement a host of transmission projects to cater to the state’s power evacuation needs. It is set to form two separate jvs with the Power Grid Corporation of India Ltd (PGCIL) and Mahanadi Coalfields Ltd (MCL). Transmission projects worth `50 bn to be implemented where OPTCL will hold 50 per cent stake in each of the JVs.

UCG project may roll soon Govt to give away Vastan block

Govt wants power cos to ink fuel Supply pacts with CIL by month-end

PMO asks Coal India and CEA To work on price-pooling of coal

The Coal Ministry has decided to give away its Vastan block through government dispensation route in November, which is been lying idle for the past six years for Underground Coal Gasification project. ONGC and GIPCL had signed an MoU for starting the country’s first UCG project in 2006 but lack of clearances from government delayed this project.

The Coal Ministry said it expects power utilities to sign fuel supply agreements (FSAs) with state-run Coal India (CIL) by November-end. CIL is ready to sign FSAs with 80 per cent trigger level. This would comprise 15 per cent imported coal on cost plus model for this year only on confirmed commitments from the consumers.

The PMO has recently asked both CIL and CEA to sit and work on price pooling. To offset the impact of high import costs, the Planning Commission has said that CIL should adopt a pooling formula on prices by combining rates of imported and domestic coal. CIL had said that price pooling is a mechanism to implement FSA.

MoC asks MCL to prepare Detailed note on coal evacuation

Focus of World CTL 2012 India Summit On conversion of coal and petcoke

CIL awards exploration contract To Tribeni Minerals

Ministry of Coal has requested Mahanadi Coalfields Limited on October 16 to prepare a detailed note regarding evacuation of coal from Basundhara coal mines. MoC found that the coal available at Basundhara is not being lifted currently because of logistic constraints. OPGCL has proposed to evacuate this coal for its power plant which is likely to come up in 2016-17.

The World CTL 2012 India Summit will highlight India’s active project development in coal and petroleum coke (petcoke) conversion to high-value fuels and chemicals. The summit, from December 11-13 in New Delhi, will enable the deepening of relationships between India-based and international stakeholders.

Coal India has awarded the exploration contract for its Mozambique coal blocks to Tribeni Minerals Mozambique (TMMPL) and will invest about $80 million for the exploration.

The blocks, spread over 205 sq km, are estimated to hold 1 billion tonnes of coal.

Exploration is due to be completed by August 2014 and production may start by 2016-17 .

Queensland’s Abbot Point Will ship coal by 2016: GVK

Deep Industries mulls partnership For Singrauli coal bed methane block

Barmer to produce methane Through ‘microbial coal conversion’

Mining giant GVK says it is on “record pace” to start shipping coal from Queensland’s Abbot Point port by late 2016, despite concerns about its Indian operations. The Indian-Australian joint venture GVK-Hancock won Queensland government approval in June to build a rail corridor linking the Bowen and Galilee basins with the central Queensland port.

Ahmedabadbased Deep Industries Ltd is planning to farm out up to 50 per cent participatory interest in Singrauli coal bed methane (CBM) block. The company, which currently holds 90 per cent participatory interest was awarded two blocks - Singrauli in Madhya Pradesh and Godavari Valley (North) in Andhra Pradesh - in consortium with the US-based Coal Gas Mart during in 2006.

Methane gas will be extracted from the coals fields of Barmer through the ‘microbial coal conversion’ technology, developed in the laboratories of Birla Institute of Technology, Mesra. The Rajasthan State Mines and Minerals Ltd. has allotted some blocks of coal mines in Barmer for the exploration and extraction of bio methane commercially. The production is likely to start from December, 2012.

November 2012 www.InfralinePlus.com

InConversation

CIL will give top priority to power generation projects: Jaiswal

20

Even as the country is touted to face 192 million tones of coal shortage during the current financial year, making it difficult for power generating companies to bridge electricity demand and supply gap, Union Coal Minister Sriprakash Jaiswal is confident that the heat of low supplies will be minimized for power generating firms.

Considering the fact that coal output is not showing the desired growth, the country may face huge power generation shortfall in the times to come. How do you plan adequate coal supplied to power companies.

We are making all efforts to increase coal availability to power sector and I have asked Coal India to give top priority to electricity generation projects. Given the fact that CIL has achieved nine percent jump in coal production during the first half of the current financial year, I am confident that the company will exceed its full-year target of 464 million tones.

Despite CIL overachieving its production target for the current financial year, the gap between demand and supply remains. How do you propose to solve it?

In the current scenario when country’s coal output in behind the demand, power generating companies will have to import

and making efforts towards improving part of their requirement. When Coal supply side.

India inks fuel supply agreement with power companies it provides a provision There are issues on coal imports where it can import the balance quantity as well. There is a set of power for the power company on cost plus companies that want coal price basis. However, if the power company pooling whereas there are does not want Coal India to import, the companies with captive coal same cannot be put against the public blocks, who oppose the move. sector unit.

What is the way forward?

One must also I Coal ministry has consulted CIL on appreciate the am the issue and we are discussing the fact that coal confident that matter with the Power Ministry, supplies to the the company and as and in when the final power sector, will exceed its decision is taken the CIL board rose 12 per full-year target will consider it. Please remember cent to 170.17 of 464 million the board can always review the million tones tonne. decision with regard to the imported during the Aprilcoal on the cost plus basis. So it would October period. The be little too early for me to say what government is committed

HBL Power Systems Limited could be a compromise formula but our aim is to ensure smooth supplies of coal to the end user.

CUTS FUEL COST CUTS GREEN HOUSE GAS EMISSION

Sir, even after long deliberations of fuel supply agreements with power sector companies, only 29 companies have signed the agreement. How long do you think would Coal India take to sign the pact with other power companies?

Coal shortfall in Following the discussions among various FY13 stakeholders, Coal India is ready to sign FSAs with 80 percent trigger level. In the current situation, we expect power utilities mln tn to sign FSAs by the end of November.

Power sector coal The 80 percent supply is inclusive of 15 supplies during percent coal that CIL may import for the Aug-Oct up power utility on cost plus basis. Imported coal would be supplied on cost plus basis only on confirmed commitments mln tn from the consumers.

192

170.17

A Retrofit, Not an additive Not a Magnet

Please give us a sense of what is happening to the coal blocks that your ministry has deallocated following the recommendation of interministerial group.

We have shared the details of the de-allocated blocks with the Law Ministry. And we have asked Law Ministry to review the progress on the blocks and suggest as to how we can de-allocate the blocks and also the process through which we can deduct their bank guarantees.

P

R O F I T

What is your plan of action against the companies that have misrepresented facts and have been allocated coal blocks? CBI is already investigating such cases.

If such a case is brought to our notice, we will seek advice from the Law Ministry. So far, CBI has not shared anything with the coal ministry on these issues. If the agency recommends any case us, we will seek the opinion of Law Ministry and initiate action accordingly.

Coal ministry had taken back coal blocks from state run NTPC last year because of slow progress.

Is there a possibility of giving those blocks to NTPC again?

We may not award the same blocks to NTPC that were taken back last year. But we have assured the public sector power utility that we will give coal blocks on a priority basis in the new process which we have started. We have explained the matter to the power ministry and they are satisfied.

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InDepth

Growing demand triggers diversity in mine allotment process ►► Auctioning will lead to rise in price of power and steel, admits Jaiswal ►► Under auction process, companies may not agree to sign PPAs

22

by Team InfralinePlus

There has been an unprecedented clamour over the issue of allocation of coal blocks to private sector without following any bidding or auction process. But lost in this din is the fact auctioning of coal blocks will lead to an increase in the price of coal mined and hence will cause a corresponding rise in power and steel prices. Coal minister Sriprakash Jaiswal concedes that the prices of end produce generated through the auctioned coal

Supreme Court recently ruled that auction cannot be the sole criteria for allocation of natural resources.

There needs to be a careful thinking on the policy that is going to be adopted by the government.

are bound to be high even though auctioning is a transparent way of allocating blocks. “The price impact of bidded-out coal will be visible within five years,” he reasons.

There is also a growing concern that when coal blocks are allocated without auction, power companies are mandated to ink Power Purchase Agreements (PPAs) with distribution companies to keep electricity prices in check. But once the blocks are given

November 2012 www.InfralinePlus.com

through auction and bidding, it will not be possible to compel companies to sign PPAs with the government as they would be mandated to pay upfront for the entire block.

In its defence the government has tried to argue that of the 57 blocks identified by CAG, only one has come into production and consequently there is no loss to the exchequer.

While CAG report lambasts the government for following policies which led to purported benefits worth `1.86 crore accruing to private companies, it would be useful to see how other nations distribute their coal assets to either their home-grown or foreign companies.

Indonesia In coal-rich Indonesia prior to the new mining law coming into effect in 2009, there was no tender or auction route for allocation of exploration licences nor was there any price regulation.

The government used to issue mining authorisations (Kausa Pertambangan)

or KPs, which were based on taxation and other laws and regulations in place at the time of inking the agreement. The taxes include dead rent in the contracted areas, production royalties, income tax payable by the company, VAT, import duty etc.

The KPs were given to whollyowned Indonesian companies. But under the new law, the Indonesian government has envisaged granting fresh exploration licences (Izin Usaha

Indonesia New mining law formulated in 2009 Then: • No tender or auction of exploration licences, no price regulation either • Mining authorisations or KPs were based on taxation and other laws Were given only to domestic companies Now: • Fresh exploration licences or IUPs are granted for specified areas • Foreign investment allowed Rights subject to auction

Australia Queensland: • No auction, exploration permit given on lease based on competence of the company New South Wales: Coal blocks are auctioned • Bidding company has to commit to a work plan with a financial outlay

South Africa

• No auction of coal blocks • 26 per cent mining rights reserved for locals

United States

• No auction of coal blocks • Allocation through selection of applications • Foreign companies cannot apply on their own

Pertambangan) or IUPs for specified coal-bearing areas. It is at present in the process of demarcating areas which are free of environmental constraints and have clear titles, with no conflicting rights. The IUPs also provide for foreign investment in the new mining law, where rights are subject to auctioning. The successful bidder is short-listed based on the price bid and technical considerations.

However, pending the issue of implementing regulations which detail the auction provisions, the general view is that IUPs should not be currently issued directly.

Australia In mineral-rich Australia the situation is contrary in two of its provinces-Queensland and New South Wales. In Queensland, there is no auction process and an exploration permit for coal mining is issued based on the applicant company proving its technical and financial competence. The aspiring firm

23

November 2012 www.InfralinePlus.com

InDepth

has to apply for a mining lease which enables production and is also gives it surface mining rights. The New South Wales province follows the auctioning process. In this case the provincial government sets a minimum price depending on the level of information available and the potential of the block.

The party has to commit to a work plan with a financial outlay and on top of that may be required to pay a premium to the government.

South Africa Interestingly, in South Africa also there is no bidding process and an exploration company has to apply for mineral concessions. The evaluation criteria is based on financial resources,

community, a Group of Ministers watered down the provision, mandating them to pay an amount equivalent to royalty only.

United States The United States of America (USA) also does not follow the system of auctioning of coal mines and allocates them through applications. One of the reasons for this is that in recent years the demand for coal mining leases has dipped. The applicants interested in a particular coal block are asked to submit their proposal quoting a fair market price and based on the number of applications, a decision is taken to allocate the block to an aspirant who quotes the higher price.

hold interest in a lease only by buying stocks in a US corporation which holds the lease and only if the laws of their native country do not deny similar privileges to American citizens.

However, they may not hold a lease of units in a publicly-traded partnership.

Are we really unfair?

This triggers a moot question as to how unfair the Indian government has been in allocating coal blocks through the screening committee.

When other coal-rich nations too have shied away from resorting to auctioning in distributing their coal properties, expecting the government to have incurred losses of `1.86 lakh crore by failing to introduce an auction

24

technical competence, fair competition and the environment impact among other conditions. The African nation’s government has also imposed another condition which mandates that 26 per cent mining rights be reserved for the locals. Inspired by this provision of the South African government, the Union mines ministry in India had also incorporated a provision in the Mines and Minerals (Development & Regulation) Bill 2011 that the miners must keep aside 26 per cent of their net profit for the welfare of the locals residing in their mining zone, but owing to intense opposition from the Planning Commission and the mining

Queensland does not advocate auction process and an exploration permit for mining is issued based on company proving its competence. While the New South Wales province follows the auctioning process.

Under the present American allocation system any adult citizen may obtain and hold a federal coal lease. But a foreign company can

process seems to be far-fetched. Of course, there can be arguments that the blocks were allocated without putting in place a price discovery mechanism, but then the intention was to ensure raw material supply to private power producers and have adequate electricity generation. With a senior bench of the Supreme Court also ruling recently that auction cannot be the sole criteria for allocation of natural resources, there needs to be a careful and comprehensive thinking on the policy that is going to be adopted by the government.

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November 2012 www.InfralinePlus.com

InDepth

Coal blocks de-allocation may derail nation’s power generation aim

26

►► Govt expected 100 mn tn coal from captive sources by 2016-17 ►► Mine valuation difficult in absence of detailed exploration data: CRISIL

by Team InfralinePlus

The Union power ministry’s Twelfth Five-year Plan ( 2012-2017) generation capacity addition programme could trip over coal shortage due to a drastic shortfall projected in production from captive mines after cancellation of allocation for several blocks to the sector by the coal ministry. In that case, the overall gross domestic product (GDP) growth might also suffer given the close linkage between electricity and economic growth.

Though the Planning Commission is yet to finalize capacity addition target for the current Plan period, it is expected that the government take up 88,537 mw capacity addition target for the current

Twelfth Five-year Plan, compared with 54,900 mw achieved during the previous Plan. Of this, 66,230 mw is to be based on coal. That entails additional coal requirement of 330 million tones a year.

With Coal India Ltd unable to step up production to meet the fast-growing coal requirement of the power sector, captive miners were expected to fill the breach.

The coal ministry has allocated 78 captive coal blocks with 19 billion tonnes of reserves to the power sector to meet its fuel requirement on an assured basis.

This can support generation capacity of over 1 lakh mw. Majority of these mines were expected to start production during the current Plan period. But now this

calculation may go haywire, with the coal ministry already canceling allocation of over a dozen blocks out of 58 identified for review. More could face cancellation as the IMG continues review.

The power ministry has projected availability of coal from captive sources at 100 million tonnes in the terminal year of the current Plan that is, 2016-17.

Now that this projection will have to be revised drastically due to cancellation of captive coal block allocations, the estimated annual coal import requirement of 84 million tonnes will go up correspondingly. However, given the way fuel cost economics of power projects based on imported coal have gone

November 2012 www.InfralinePlus.com

haywire in recent years, it is unlikely that investors will set up imported coal-based power projects. Significantly, most of the developers failed to comply with the production schedule due to the difficulty of key regulatory clearances like environment and forest approvals. This is a million dollar question whether they should be punished for what is apparently failure on part of government agencies.

While cancellation of captive coal block allocation at this advanced stage not only negates the whole objective of the government’s policy, it has also sent wrong signals to investors. While the government is trying to correct the course by setting an empowered group to clear coal mining project, the damage has already been done to the power sector.

Importing coal on a large scale is hardly an option to meet the shortfall in production from captive mines given the cost differential between coal availability from the two sources.

The bulk of power distribution business in the country remains with state governments who find it politically difficult to allow their power distribution companies to seek cost reflective electricity tariff. The Centre is currently trying to bail out state-owned discoms, which are reeling under `1.9 lakh crore losses, with a financial package. Banks and financial institutions will take haircut while rolling over short term loans given to discoms. Now if the share of imported coal in power sector’s fuel consumption rises sharply, discoms’ losses would only go up as they might find it difficult to pass on entire burden to consumers.

Discoms will be forced to increase tariff of industrial and commercial consumers to recover part of their additional fuel costs in order to stay afloat.

Meanwhile, the coal ministry has identified 54 coal blocks with total geological reserves of 18.22 billion tonnes for allocation through the auction route. Of this, about 11 billion tonne reserves are meant for allocation to the power sector. Earlier, the ministry hoped to start bidding for allocation of these

blocks by end of this year. But now the plan is likely to get delayed, with the ministry’s hired consultant advising it against unexplored blocks. Majority of coal blocks identified by the ministry for allocation to the power sector are unexplored.

With coal availability from captive mines projected to see a sharp revision and CIL’s inability to step up production significantly, power ministry will have to face serious challenge in ensuring critical supplies.

Crisil Risk and Infrastructure Solutions Ltd, which was hired by the ministry to evolve a methodology to calculate a floor and reserve price for allocation of 54 captive blocks through the auction route, has said in its draft report that it would not be possible to develop a reliable model for valuing mines where detailed exploration data is not available. Meanwhile, the government has decided to bar captive coal-based power plants from selling electricity in the open market. The coal ministry has already issued a circular and now the power ministry is amending bidding guidelines for procurement of power by discoms. The power ministry’s proposed guidelines will require captive coal-based power plants to quote a lower price than that what may be offered by generators using CIL coal.

With the lure of merchant power sale gone, investors’ appetite for risk-taking might also diminish. That would in turn impact capacity addition by the private sector. It may be recalled that the power ministry had planned a significant share of the 10th Plan capacity based on natural gas. But the bulk of this capacity could not be taken up for implementation due to shortage of gas, which led to a huge

shortfall in capacity addition target.

Learning its lessons from the experience, the ministry turned cautious about gas-based projects while finalizing its capacity addition programme during the 11th Plan. It instead decided to rely on coal-based projects for capacity addition. This time around too, we may see repeat of a similar scenario though the related fuel will be coal and not gas. Generation performance of coal-based power plants has been quite high- For example, coal-fired plants, which accounts for 57% of total installed capacity in the country, contributed 68% to overall electricity generation during April-September 2012.

Under its current Plan capacity addition programme, the ministry has also envisaged adding 9897 mw capacity based on hydro projects, 5300 mw on nuclear and the balance based on lignite and gas. But the track record on capacity addition based these fuels has not been very encouraging in the past.

For example, in the 11th Plan only 5,544 mw capacity in hydro generation could be achieved against the 8,237 mw target.

Similarly, shortfall in nuclear capacity target was as high as 73%. Against that, achievement in coal-based capacity addition target was more than 95%. It is unlikely that the pace of capacity addition based on hydro, nuclear and gas will be much different in the 12th Plan.

With coal availability from captive mines projected to see a sharp revision from the earlier estimate and CIL unable to step up production significantly, ensuring uninterrupted supply at an affordable price to the industry is going to be a serious challenge for the power ministry. With the Indian manufacturing sector already facing infrastructural disadvantage in competing against overseas suppliers, increased electricity price could make things even more difficult for it.

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27

November 2012 www.InfralinePlus.com

ExpertSpeak

Dynamics of black gold-I In this two-part series on coal and its related issues, Jaganath Prasad Panda, managing director of Priya Mining Consultancy and Services Pvt Ltd, attempts to underline the key facts and figures on the sector - the importance of monolith Coal India, given India’s growing energy demand, and some useful tips for private players both in coal and power space.

28

Allocation of natural resources and discrepancies in the allotment of coal mines has been a subject of intense public debate in recent times. The Comptroller and Auditor General’s (CAG) report highlighting purported losses to the government and the consequent Opposition uproar has brought mining activity to a virtual halt in that segment. On the other hand the country’s largest public sector coal producer Coal India Limited’s (CIL) production plans have been severely hit due to delay in environmental clearances. Together these two factors have reduced the country’s coal reserves to a critical level and led to a huge dip in supplies to power generation companies. While generation and supply of electricity have come down, demand has not, and states which either do not or choose not to understand the dynamics of the situation, continue to draw more power from the grid than they should. This is what led to the historic two-day failure of the grid in July.

In light of all this, it is important to take a fresh look at coal and its reserves—where we stand in terms

(mt) of coal will be required by 2024-25 to sustain GDP growth of 9 per cent. Vision Coal 2025 projects a requirement of 1,086 mt in the same period. Both the projections show a gap of 480 mt in demandsupply by 2024-25. Which means that the role of Coal India in years to come is only going to grow.

Coal reserves

of capacity vis a vis demand, what needs to be done by CIL and what are the critical elements to be kept in mind by private players before they approach the Ministry of Environment and Forest (MoEF) for required clearances. Facts first.

Coal demand ▪▪ For the country’s gross domestic product (GDP) to grow at 8 to 10 per cent, it is essential that there is matching expansion in energy sector. Coal is likely to remain the dominant source for this in the foreseeable future.

▪▪ Various studies of the government-Integrated Energy Policy (IEP) of August 2006 done by the Planning Commission, Vision Coal 2025 of the Ministry of Coal which was prepared in March 2005 and the Working Group Report on Coal & Lignite for XII Plan—present various levels of mismatch between coal demand and supply.

▪▪ As per IEP, 1,565 million tonne

▪▪ Through regional exploration, followed by detailed exploration in promising patches, 285 billion tonne of coal reserves in the country have been established. Present estimate by Geological Survey of India (GSI) is 293 billion tonne.

▪▪ The total potential coal bearing area in the country is about 17,300 sq km, of which, about 79 per cent area has already been covered by regional exploration.

▪▪ Out of the remaining area, 15 per cent is covered under coal bed methane (CBM) blocks while about 1,000 sq km is still left for regional exploration.

Extractable reserves ▪▪ A broad estimate of extractable reserves, based on the present level of exploration of resources, prevalent mining practices and grading/pricing structure of coal in the country, is nearly 55 per cent of the total reserves

Coal India Coal India Limited is the largest coal company in the world. It has the status of maharatna which is given by the government to best-performing public

November 2012 www.InfralinePlus.com

sector companies. This status allows it to sanction projects up to `5,000 crore.

CIL also has unlimited power to buy equipment for its plants. It is at present one of the highest profit-making public sector companies in India.

It is authorised to acquire mines in other countries. For this purpose it has established a subsidiary company called Coal India Africana Limitada (CIAL) which is going to pursue mining operations in Mozambique.

Private players ▪▪ Opening up of coal sector for captive use by private players has gained momentum in the recent past. A total of 214 coal blocks with 51 billion tonne coal reserves have been allocated by the government to private players. A broad estimate by Coal Controller of the production potential of these blocks is 674 mt by 2021-22. But the present level of production from captive mines--35 mt from 26 mines--is abysmally low.

▪▪ There is problem of regulatory clearances in captive mines.

Many block owners have got joint allotments with three-four other players. Some players don’t even understand the nuances of coal mining. Except for some public sector power projects which have formed joint ventures with some mine developer-cum operator (MDO), most of the private mines are non-starters. Some are likely to start production in three-four years’ time.

▪▪ There is talk of auction of coal blocks in future. Private players are likely to stay away in the near future because auctioning will require amendment in Coal Mines Nationalization Act which is unlikely to happen soon.

Three lessons for Coal India

1. Learn from history: CIL should take a lesson from what Steel Authority

of India (SAIL) did in the past and then suffered because of that. Instead of paying the price which Bharat Coking Coal Limited (BCCL) had, one point, demanded to fund its own expansion, SAIL abdicated BCCL and coal washeries to Coal India to pursue its narrow interest of importing coking coal. The result was disastrous and in the mid-nineties it suffered losses because import prices of coking coal went up and steel prices came down.

There was no indigenous coking coal for it. At the same time, a private player

A broad estimate of extractable reserves, based on the present level of exploration of resources, prevalent mining practices and grading/pricing structure of coal in the country, is nearly 55 per cent of the total reserves.

like Tata did not suffer loss because it did not depend on imported coal. The same SAIL had to later beg CIL to hand over two small mines--Tasra and Sitanala—something which CIL did.

From this CIL should learn the lesson that short sighted policies do not work in the long run.

It too surrendered its right to captive coal users in the late nineties and early this century. As a result, 214 coal blocks were allotted to private players who have neither the expertise nor the manpower to even apply for necessary clearances.

2. Bet on technology: For opening large mines in future not only must CIL have necessary infrastructure but it should also be able to take this coal to power houses, steel plants and other industries. Rail infrastructure is inadequate, so are other modes of coal transport. CIL should establish an infrastructure subsidiary on a priority basis and go for joint ventures with railway companies such as Rites and Ircon.

29

November 2012 www.InfralinePlus.com

ExpertSpeak

3. Bring in high-quality manpower: The top management teams of Coal India and subsidiary companies should have independent directors with proven track record and preferably technocrats and executives with experience in coal Industry.

Lessons for private players

30

Most of the private players have not been able to start work on the captive mines which were allotted to them because of want of regulatory clearances. Before sending their application to MoEF, they should do advance planning and keep the following in mind: 1. Prepare plans based on satellite imagery.

2. Prepare a master plan for the area and delineate OB dumps, green belts, safety zones, buildings, infrastructures, CHP, stock yard, township / colony (within and adjacent to the lease hold area).

As the terms of reference (TOR) require a lot of study, once these studies are undertaken in advance and data bank is created, the applications for EIA & EMP and forest diversion proposal and even land acquisition will become easy to approve.

3. Prepare baseline data for air, water and noise as per the guidelines of Central Pollution Control Board (CPCB) in advance.

4. Flora and fauna investigation: This could be entrusted to reputed universities and Dehradun-based Indian Institute of Forest.

5. Mining plan, mining methods, mine closure plan: CMPDIL must be ready and advanced software should be made available to plan these mines expeditiously once the geological data is available.

6. Hydrology and requirement of water for the project: Hydrological studies should be done at least three-five years in advance. Data for this is usually available with the

water resources department of states government and the Centre.

7. Impact of blasting, noise and vibrations: Impact of mining on the ambient air quality including heavy metals in suspended particle matter and respiratory suspended particulate matter must be undertaken in advance.

Opening up of coal sector for captive use by private players has gained momentum in the recent past. A broad estimate by Coal Controller of the production potential of these blocks is 674 mt by 2021-22.

But the present level of production from captive mines--35 mt from 26 mines--is abysmally low.

8. Impact of mineral transportation-within and outside the lease/ project area. The advance planning team should study the mode of transportation depending on the air quality of the area. Modern transport systems like belt conveyor, tube conveyor, pipeline transport of slurry/washed coal should be planned in advance.

9. Waste generation and management, affluent treatment and occupational health: This should be done using modern mine planning software.

Affluent treatment standards are available with CMPDIL. Epidemiological studies for occupational health can be done by medical colleges, Coal India’s central hospitals and occupational health centres of the government.

10. Disaster management, green belt, afforestation and conservation plan: The state and Centre’s disaster

management plan, if applicable, should be taken into account for the particular area. Even Coal India’s own disaster management plan may be required for underground mines.

11. Afforestation and mine closure: Advance studies of afforestation, done by the Indian Institute of Forests at Dehradun or its subsidiaries along with state government institutions, will cut short delays of projects. Final mine closure issues should be completed as the government guidelines.

CMPDIL does this.

12. R & R plan and socio-economic study of population: A number of non-government organizations and institutes now do socio-economic study of populations. Such advance study of all the villages in the affected areas should be carried out so that while making the application the required data is available.

13. Land records: In many states now land records are available in digital format. The details of all records with necessary print outs should be taken in advance. Authentication by the Tehsildar of the area is useful.

14. Geneology mapping: Genome should be prepared of every family so that data about the age group of manpower and their training requirements and employability quotient is known in advance.

15. If necessary, industrial training Institutes (ITI) should be opened in advance (three-five years) to train the local manpower. For a production of nearly 1500 mt, say by 2025, there would be a requirement of skilled manpower in lakhs. As per a Planning Commission report India’s skilled manpower shortage is 10 million at present and in 2025 it will be 100 million.

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StatisticsCoal Comparison of major provisions in the FSA Models applicable for power plants amongst model for Plants Existing on March 31, 2009 vis-à-vis Model approved on April 16, 2012 and September 18, 2012 1

Provisions Eligibility (Preamble)

FSA Model, 2009 Existing Plants a. Existing as on 31.3.09

FSA Model, April 16, 2012 New Plants a.Coming through LOA route b. Long-term PPA with DISCOMs c. Commissioning up to 31.3.15 d. No coal blocks allotted

FSA Model, September 18, 2012 New plants a. Coming through LOA route b. Long-term PPA either directly with DISCOMs Or through PTCs c. Commissioning up to 31.3.15 d. No coal blocks allotted for the plant e. Self declaration no change in ownership Seller holds the right to terminate a. Provision for reference to GOl lor disputes only for SEB/ in the event of unresolved disState Gencos pute both for SEB(s) and PPU(s)

2

Review

3 4

Condition Precedent Security Deposit

a.Provision for referral to GOI for dispute for SEB/State Gencos b. No provision for referral to GOl for disputes with PPU(s) Not applicable (as existing plants) Not Applicable

5

ACQ

Fixed annual Qty (CEA allocation)

6

Source of Supply a. Domestic plus imported coal at delivery point (unload port) b. Not accepting Imported coal shall not be considered as Purchaser’’s default

7

Compensation

Penalty @ weighted avg. of base price of domestic coal a. Below 90% to 86% of ACQ -10% b. 85% to 80% of ACQ-20% c. Below 80% of ACQ- 40%

Penalty @ simple avg, of base price a. Below 80% of ACQ- 0.01% b. Three years moratorium

8

Right to review Level of Delivery (ID) /Lifting (LL) on annual basis

Not existing

8

Incentive

9

Force Majeure

a. Above 90 to 95% of ACQ -10% b. 95 to 100%-20% c. Above 100% -40% Standard FM clauses

The seller holds right to review annually the Level of Delivery/ Lifting causing compensation in view of Coat Availability and commitment a. Above 90% of ACQ - 0.01 % b. Three years moratorium

10

Imported coal, supply mechanism

No separate provision, proposed to supply imported coal through mutual consultation.

Applicable for New Plants

Applicable for New Plants

Applicable for Plants coming through LOA Qty in proportion of PPA% within limit of LOA Qty. a. Domestic plus Imported coal at unload port on cost plus price through back to back agreement. b. No penalty on Salter for non acceptance of imported coal by Purchaser.

Applicable for Plants cording trough LOA

32

Qty In proportion of PPA% within limit of LOA Oty. a. Domestic coal minimum 65% of ACQ and balance (15%) from import to meet the trigger level for compensation for Initial three years b. Imported, coal share to reduce gradually up to 5% with corresponding increase in domestic supply’’ from 2016-17 and onwards c. Side Agreement for acceptance of imported coal d. Seller may offer coal up to 5% of ACQ from coal stocks to be lifted by Purchaser by own transport through road/ roadcum-rail or other mode. e. Non acceptance of imported coal shall qualify as deemed delivery Qty (DDQ) Penalty @ weighted avg. of base price of domestic coal For 2012-13 to 2014-15 a. Below 80% to 65% of ACQ (imported coal)-1.5% b. 65 to 60%-5% c. 60 to 56%-10% d. 55 to 50%- 20% e. Below 50% -40% f. For 2015-16 Imported coal in the range of 80-70% and penally on domestic coal begins below 70% g. From 2016-17 onwards imported coal supply limited to 8075% and penalty for domestic coal begins below 75% of ACQ Removed

a. Above 90 to 95% of ACQ -10% b. 95 to 100% -20% c. Above 100% -.40% Revised as: a. Any law and order problems affecting coat production and transportation of coal b. Failure of supply of Power from Power Suppliers)

Additional clause included a. Break-down of equipments and machineries. b. Failure of contractors to deploy equipments and machineries. c. Non-supply / delayed supply of equipments or spare parts by vendors d. Shortage/cut In power supply e. Non-Supply / short supply of explosives by vendors f. Obstruction In transportation of coal from pithead to sidings by agitations / mob violence / riot Introduced a separate document Schedule VII revised in tandem with new mechanism for Schedule VII for obtaining Import imported coal supply through a tripartite side agreement and confirmation Import through a further agreement between the parties back to back agreement.

November 2012 www.InfralinePlus.com

CIL (Marketing Division) Wagon Loading Performance Report for September 2012 Field/Date

RANIGUNJ MUGMA-SALANPUR PIRPAINTI RAJMAHAL ADRA ECL JHARIA ASANSOL ADRA BCCL SOUTH KARANPURA NORTH KARANPURA TOTAL KARANPURA JHARIA GIRIDIH ADRA CCL NCL (SINGRAULI) CENTRAL RLY. SOUTH EAST CENTRAL RLY. SOUTH CENTRAL RLY. WCL KOREA REWA KORBA SECL IB TALCHER MCL NEC CIL E.RAILWAY E.C. RAILWAY S.E. RAILWAY S.E.C. RAILWAY E.COAST RAILWAY C.RAILWAY S.C. RAILWAY N.F.RAILWAY I. RAILWAY

16

17

18

19

Avg. Actual September 2012

RCI Target September 2012

Variance from Tgt September 2012 (Act-Tgt)

Avg. Ldg. September 2011

7.9 1.9 1 1.8 0 12.5 0 12.2 1 5.8 19 0 5.9 13 0 18.9 0 7 1 2 28.8 0 5.9 0 10.4 1.9

3 0 1 2.7 0 6.7 0 9.4 0 4 13.4 0 2 1 0 3 0 5 0 1 8.9 0 6.9 0 10.4 2

11 0.9 1 0.9 0 13.8 0 10.7 1 3 14.7 0 2.9 4 0 6.9 0 4 0 0 10.9 0 10.7 0 7.9 2.9

6.9 2 1 2.7 0 12.6 0 10.9 0 6 16.9 0 4.9 14.9 0 19.9 0 7 0 2 28.9 0 9.9 0 11.3 2

8 1.7 1.6 2 0.3 13.6 0 11.2 0.5 6.8 18.5 0 4.7 13.3 0 18 0 6.5 0.4 1.3 26.1 0 12.8 0 8.7 2

8.9 2.2 2.2 0 0.3 13.6 0 16.3 1 9.8 27.2 0 0 0 0 26.1 0 5.9 0.6 0.8 33.3 0 17.5 0 10.9 1.8

-0.9 -0.5 -0.6 2 0 0 0 -5.1 -0.5 -3 -8.6 0 0 0 0 -8 0 0.5 -0.2 0.5 -7.2 0 -4.6 0 -2.1 0.2

7.3 1.8 1.3 0 0.2 10.7 0 10.6 0.7 6.9 18.1 0 0 0 0 15.7 0 4.3 0 1.2 21.2 0 11.6 0 9.5 1.7

0 12.4 0 13 16.1 29.1 0 13.7 22 35.7 0 0 0 143.5 0 14.5 43.9 7.8 44.7 22 10.4 0 0 143.5

1 13.4 0 13 14 27.1 0 14.7 19 33.7 0 0 0 110.1 0 6.7 24.2 5 43.8 19 10.4 1 0 110.1

1 11.8 0 12 16.1 28.1 0 15.8 19 34.7 0 0 0 124.7 0 14.8 32.3 3 46.8 19 7.9 1 0 124.7

0 13.3 0 10 15.1 25.1 0 15.8 19.3 35.1 0 0 0 141.6 0 12.6 47.6 8 42.9 19.3 11.3 0 0 141.6

0.5 11.3 0 12.9 173 30.2 0 15.9 19 34.9 0 0.2 0 147.6 0 14.2 48.5 8.4 48.2 19 8.7 0.5 0.2 147.6

0.6 13.2 0 15.3 18.1 33.3 0 25.1 30.5 55.6 0 0.7 0 194.4 0 14.9 65.7 10.9 60.2 30.5 10.9 0.6 0.7 194.4

-0.1 -2 0 -2.3 -0.8 -3.1 0 -9.1 -11.5 -20.6 0 -0.5 0 -46.8 0 -0.7 -17.3 -2.5 -12 -11.5 -2.1 -0.1 -0.5 -46.8

1.1 12.3 0 11.8 13.6 25.4 0 17.1 14.4 31.5 0 0.5 0 131.4 0 11.2 42.3 8.3 44.2 14.4 9.5 1.1 0.5 131.4

Left Behind on dt.

Avg. Sep-12 0 1.4 0 0.5 0 0 0 0 0 0 0 1.9 0 0 11 7.5 0 0 3 1.9 14 9.4 0 0 5 2.3 1 1.3 0 0 6 3.6 0 0 2 1.1 0 0.1 1 0.1 9 4.8 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 1 0 7 4 11 0 0 0 35 0 0 19 4 8 4 0 0 0 35

0 0 0 1.2 0 1.2 0 5.8 2.4 8.1 0 0 0 25.5 0 2 12.2 1.9 7 2.4 0 0 0 25.5

33

November 2012 www.InfralinePlus.com

CoverStory

Mission Moily to clear gas mess; Scindia to energise power

34

►► Salman Khurshid gets external affairs berth ►► Shashi Tharoor has also been brought back as MoS in HRD

by Team InfralinePlus

The Ministry of Petroleum and Natural Gas saw the biggest shift in portfolios in the Cabinet reshuffle effected by Prime Minister Manmohan Singh on October 28. S Jaipal Reddy has been shunted out to the Ministry of Science and Technology and former Power Minister Veerapaa Moily brought in his place. Moily’s place in Power Ministry has been taken by the new Minister

of State with Independent Charge, Jyotiraditya Scindia.

In a victory of sorts for corporate India, Reddy’s ouster is being seen as the fallout of his blocking of crucial decisions which clashed with the interests of India’s dominant corporate houses. Some of his decisions / actions which may have cost him this ministry are: unprecedented delays

in approving NRI billionaire Anil Agarwal’s Cairn-Vedanta deal; delays in clearing Reliance Industries Ltd’s (RIL) $7.2 billion deal for selling a 30 per cent stake to British Petroleum (BP) and slapping a `7,000 crore penalty on the group for not meeting the gas production targets from its KG-D6 gas block, off the eastern offshore.

Reddy had also delayed approvals for

November 2012 www.InfralinePlus.com

RIL-BP and Cairn India’s plans to invest in the oil and gas blocks in the country.

Besides, he had opposed the pre-mature hike in natural gas prices sought by Reliance. The decision to hike prices of petrol and diesel, backed by the Prime Minister’s Office (PMO), was opposed

by Reddy which was also not taken well by the party leaders.

Reddy’s exit has come as a breather for Reliance as the new petroleum and natural gas minister, Veerappa Moily, assured immediately after being awarded the petroleum ministry portfolio that he will look into RIL’s demand for a premature hike in the price

of KG-D6 gas, before 2014.

Enter young turks The big-bang reshuffle of the United Progressive Alliance (UPA) government is a clear indication of the empowering of the youth brigade and rewarding of the loyalists. Coming a year before the general elections in 2014, the new core team--with 17 new faces and a total of 22 ministers--is also being seen as an attempt by Singh to remove the taint of scams which in the past few years had put the Congress-led government in a tight spot.

Many of the young Congress

Advantge Reliance Shares of Mukesh Ambani led Reliance Industries Limited rose by 1.5% to touch `808 a share, just a day after the cabinet reshuffle that ousted Jaipal Reddy from the petroleum ministry. Market analysts called this change of guard positive for India’s biggest private company. leaders considered close to Rahul Gandhi--including Manish Tewari, Sachin Pilot and Jitendra Singh--have been elevated and given independent

UPA Council of Cabinet Ministers after reshuffle 1. Manmohan Singh: Prime Minister, Ministry of Personnel, Public Grievances and Pensions, Ministry of Planning, Department of Atomic Energy, Department of Space 2. P Chidambaram: Finance 3. Sharad Pawar: Agriculture Minister, Minister of Food Processing Industries 4. AK Antony: Defence 5. Sushil Kumar Shinde: Minister of Home Affairs 6. K Rahman Khan: Minority Affairs 7. Dinsha J Patel: Mines 8. Ajay Maken: Housing & Urban Poverty Alleviation 9. MM Pallam Raju: Human Resource Development 10. Ashwani Kumar: Law & Justice 11. Harish Rawat: Water Resources 12. Chandresh Kumari Katoch: Culture 13. M Veerappa Moily: Petroleum & Natural Gas 14. S Jaipal Reddy: Science & Technology and Earth Sciences 15. Kamal Nath: Urban Development & Parliamentary Affairs 16. Vayalar Ravi: Overseas Indian Affairs 17. Kapil Sibal: Communications & Information Technology 18. CP Joshi: Road Transport & Highways 19. Kumari Selja: Social Justice & Empowerment 20. Pawan Kumar Bansal: Railways 21. Salman Khurshid: External Affairs 22. Jairam Ramesh: Rural Development 23. Ghulam Nabi Azad: Minister of Health and Family Welfare 24. Dr. Farooq Abdullah: Minister of New and Renewable Energy 25. Ajit Singh: Civil Aviation 26. Mallikarjun Kharge: Minister of

Labour and Employment 27. Kapil Sibal: Minister of Communications and Information Technology 28. Anand Sharma: Minister of Commerce and Industry, Minister of Textiles 29. GK Vasan: Shipping 30. MK Alagiri: Minister of Chemicals and Fertilizers 31. Praful Manoharbhai Patel: Minister of Heavy Industries and Public Enterprises 32. Sriprakash Jaiswal: Minister of Coal 33. V Kishore Chandra Deo: Minister of Tribal Affairs, Minister of Panchayati Raj 34. Beni Prasad Verma: Minister of Steel 35. Ministers of State (Independent Charge) 36. Manish Tewari: Information & Broadcasting 37. K Chiranjeevi: Tourism 38. Jyotiraditya Madhavrao Scindia: Power 39. KH Muniyappa: Micro, Small & Medium Enterprises 40. Bharatsinh Madhavsinh Solanki: Drinking Water & Sanitation 41. Sachin Pilot: Corporate Affairs 42. Jitendra Singh: Youth Affairs Ministry, Sports Ministry and Defence Ministry 43. Krishna Tirath: Ministry of Women and Child Development 44. Kuruppassery Varkey Thomas: Ministry of Consumer Affairs, Food and Public Distribution 45. Srikant Kumar Jena: Ministry of Statistics and Programme Implementation 46. Jayanthi Natarajan: Ministry of Environment and Forests 47. Paban Singh Ghatowar: Ministry of Development of North Eastern Region, Ministry of Parliamentary Affairs

35

November 2012 www.InfralinePlus.com

CoverStory UPA Council of Ministers of State after reshuffle

36

1. Shashi Tharoor: Human Resource Development 2. Kodikunnil Suresh: Labour & Employment 3. Tariq Anwar: Agriculture & Food Processing Industries 4. KJ Surya Prakash Reddy: Railways 5. Ranee Narah: Tribal Affairs 6. Adhir Ranjan Chowdhury: Railways 7. AH Khan Choudhury: Health & Family Welfare 8. Sarvey Sathyanarayana: Road Transport & Highways 9. Ninong Ering: Minority Affairs 10. Deepa Dasmunsi: Urban Development 11. Porika Balram Naik: Social Justice & Empowerment 12. Dr (Smt) Kruparani Killi: Communications & Information Technology 13. Lalchand Kataria: Defence 14. E Ahamed: External Affairs 15. D Purandeswari: Commerce & Industry 16. Jitin Prasada: Human Resource Development 17. Dr S Jagathrakshakan: New & Renewable Energy 18. RPN Singh: Home 19. KC Venugopal: Civil Aviation 20. Rajeev Shukla: Parliamentary Affairs & Planning charge of important ministries.

The most significant and big move was to reward and promote Salman Khurshid by giving him the charge of the ministry of external affairs.

Khurshid, who till now was holding the charge of law and minority affairs ministry, has been in the thick of controversy following activist leader and head of India Against Corruption organization, Arvind Kejriwal’s allegations against him over siphoning off of public funds.

Similarly, Shashi Tharoor–who had to quit in 2010 following allegations of wrong doings in buying stakes in the Indian Premier League’s cricket team from Kochi---has been brought back as Minister of State for Human Resource Development (HRD).

(M)oiling the chain Meanwhile, Moily has been brought in to get things moving in the stagnating oil ministry and handle two immediate tasks—sort out the issue of gas price as well as falling production from D-6

21. V Narayanasamy: Ministry of Personnel, Public Grievances and Pensions, Prime Minister Office 22. Lakshmi Panabaka: Ministry of Textiles 23. Namo Narain Meena: Ministry of Finance 24. SS Palanimanickam: Ministry of Finance 25. Preneet Kaur: Ministry of External Affairs 26. D Napoleon: Ministry of Social Justice and Empowerment 27. S Gandhiselvan: Ministry of Health and Family Welfare 28. Tushar Amarsinh Chaudhary: Ministry of Road Transport and Highways 29. Pratik Prakashbapu Patil: Ministry of Coal 30. Ratanjit Pratap Narain Singh: Ministry of Petroleum and Natural Gas, Ministry of Corporate Affairs 31. Pradeep Kumar Jain Aditya: Ministry of Rural Development 32. Charan Das Mahant: Ministry of Agriculture and Ministry of Food Processing Industries, Ministry of Food Processing Industries 33. Milind Murli Deora: Ministry of Communications and Information Technology

The reshuffle is an indication of the empowering of the youth brigade and rewarding of loyalists. Coming a year before the elections in 2014, the new core team---with 17 new faces and a total of 22 ministers--is also being seen as an attempt to remove the taint of scams which in the past few years had put the Congress-led government in a tight spot.

KG basin with Reliance and and tackle rising subsidy on diesel. Keeping this faith of the government, immediately after taking charge Moily said he would try to smoothen the rough edges, expedite decisions and strike a balance between growth and governance.

“It is a politically volatile and sensitive ministry, but if you strongly go in quest of solutions, perhaps obstacles will melt away,” he said adding that he would push for imposition of excise duty on diesel cars. The huge difference in the price of petrol and diesel is said to have led to an abnormal growth in the sale of diesel cars.

The ministry’s argument is that the

rich should not get subsidised fuel.

According to oil ministry estimates, 15 per cent of diesel is consumed by personal cars and SUVs. The Kirit Parikh Committee on energy in 2010 had also suggested a one-time additional excise duty of `80,000 on diesel cars, arguing that it would offset the higher excise duty on petrol.

Diesel is the most consumed fuel in the country but is sold at a discount to its imported cost. The current diesel subsidy is around `11 per litre and on an annualised basis, this amounts to `100,000 crore out of the total fuel subsidy, estimated at `178,498 crore in the current fiscal.

November 2012 www.InfralinePlus.com

On the issue of Reliance and production of gas from KG basin, Moily said, “Hike in gas production remains a priority area and there is an urgent need to address the shutting of gas based power projects in the country.”

Known as a reformist, Moily, during his short stint in the power ministry had succeeded in pushing through a `1.9 lakh crore financial debt restructuring plan for the ailing state electricity boards which is expected to lift the sentiments of global investors in the country’s power sector.

Power agenda On the power front, the Stanford and Harvard educated Scindia–who was handling the portfolio of Minister of State for Commerce and Industry so far--took over the new portfolio of Minister of State for Power (Independent Charge) at a time when the sector is grappling with acute fuel shortages due to environmental and other hurdles in production of coal. After taking charge, the young Member of Parliament from Congress party from Madhya Pradesh said his priorities will be to ensure proper electricity supply in the country.

“Both the government and private electric companies work in tandem for the united goal of country’s progress,” he said. “I will also try to ensure coordination with coal and environment ministries,” he added.

Stating that public sector units were “doing a stellar job in terms of capacity addition,” Scindia said, “As the UPA government vision, I will try to make sure that the remote areas of the country get power supply. I will try to ensure growth in the sector.”

As a proactive young minister keen on bringing reforms, Scindia will have to work towards reducing the existing demand-supply mismatch by adequate power capacity addition and ensuring adequate fuel supply to fulfill the country’s plan to add 80,000 mw in next five years.

For suggestions email at feedback@infraline.com

Veerappa Moily Petroleum & Gas Minister

Legal luminaire Born on 12 January 1940 in Marpadi village of Dakshina Kannada district of Karnataka, Veerappa Moily belongs to the Devadiga community. The 72-year old law expert, just like many others in the UPA government, he did his Bachelors’ in Law from University Law College, Bangalore.

He was made power minister in July this year after Sushil Kumar Shinde and is now succeeded in the ministry by Jyotiraditya Scindia.

For two years—between 1992 and 1994, he was the Chief Minister of Karnataka and is at present the All India Congress Committee’s general secretary in charge of Andhra Pradesh. He has three daughters and one son.

A literary figure of significance, Moily has been a regular columnist for The Hindu, Deccan Herald and for Samyukta Karnataka. He has written four volumes of an English book called “Unleashing India”, which outlines how India can be a super power after 25 to 30 years by leveraging and properly utilising its demographic dividend. He is also writing another epic poem on Draupadi, titled “Shrimudi Parikranam”.

Source: Wikipedia

37

Jyotiraditya Scindia Minister of State (Independent Charge), Power

Royal Mr (Sc)india Elected to the Lok Sabha in February 2002 from Guna district in Madhya Pradesh, Jyotiraditya is the son of late Madhavrao Scindia and Madhavi Raje Scindia. Born on 1 January 1971, he is the grandson of George Jivajirao Scindia, the last princely ruler of Gwalior and has been elected to the Lok Sabha twice since 2002.

Jyotiraditya studied at the Campion School, Mumbai and the Doon School in Dehradun. He majored in Economics at Harvard University in 1993 and did his MBA from Stanford Graduate School of Business in 2001. He has worked at Merrill Lynch and Morgan Stanley.

Veerappa Moily Petroleum & Gas Minister

Jyotiraditya Scindia Minister of State (Independent Charge), Power

November 2012 www.InfralinePlus.com

CoverStory

Reddy Unsteady Go…

38

reasons for change,” Reddy said adding he would stick to norms and forms of a minister. Taking recourse to platitudes he said “In all matters, it has been my effort to be a faithful party man and a truthful minister. My record will always be a faithful party man. That is my focus and that shall be my focus.”

Emphasising that his “relationship with Prime Minister is excellent”, he said, “he has always shown implicit faith and affection for me.” Formation of Cabinet was exclusively the privilege of the Prime Minister who had to respond to dynamic situations, he reasoned, as if to himself.

S Jaipal Reddy Science and Technology Minister Asked point blank whether he was happy or unhappy, he said, Science and technology (S&T), “I was never happy at getting though an important component of a Petroleum then. Similarly I am nation’s development and progress, not unhappy at losing Petroleum is not really considered a sexy portfolio now.” portfolio by ministers. Which is why “All my life I have taken positions a berth in this ministry is mostly seen on issues. I have taken positions on as a demotion by everybody. Given ideological issues. I have not taken this, the transfer of S Jaipal Reddy positions on portfolio,” he insisted. from the “important” petroleum and Asked whether pressure from natural gas ministry to S&T elicited corporates was the reasons for his surprised look from many. shift from Petroleum Ministry, Reddy The minister was himself said to said he was not used to making be unhappy even as he maintained comments about his previous a stoic calm and insisted that he ministries. had no regrets over losing the high “When I moved from Information profile petroleum ministry. The & Broadcasting (I&B) to Urban 70-year old veteran politician from Development, I never spoke on Andhra Pradesh took solace in the I&B. Similarly, when I moved from fact that the Prime Minister had Urban Development to Petroleum, “consulted him before the reshuffle”. I never made comments on earlier On his first day at the new ministry portfolios,” he said. he told a gathering of journalists To another question whether that he was kept in the loop by Dr his honesty was a negative factor, Manmohan Singh. “Prime Minister he shot back saying honesty was consulting me was enough for me,” not his monopoly. Asked about he admitted even as his apparent decisions kept pending my him sulk while answering certain ticklish in petroleum ministry, Reddy said questions was evident. the government was the same and “No minister is ever told about “that job will be handed by my successor.” the reasons for the change. And I Filling his shoes, Veerappa personally feel the Prime Minister Moily, who took charge of petroleum need not tell a minister about the

Infraline insight ministry on the morning of 29 October, went to meet Reddy at his residence day before in the evening and held consultations with him in an apparent bid to assuage his feelings. “Many a times it happens (that) you avoid taking decisions.

That is not a solution. Avoiding or delaying decision is not a solution.

And this is where we need to very seriously work on,” the new petroleum minister told reporters.

Decisions, he said, would be taken keeping national interest in mind and not to “benefit one or two individuals or companies.” He promised quick decisions and a conducive environment for investment to flow in. However, members of the Opposition, including BJP leader M Venkaiah Naidu attacked the decision to move Reddy out of petroleum saying “people and media have said that this was done due to pressure of corporate groups.” He demanded an answer from the government on the shift.

Anti corruption activist, Arvind Kejriwal alleged that an honest minister like Reddy lost his job for resisting big corporate houses. On his part, Moily was all praise for his predecessor. He said, “Reddy has done a wonderful job and set highest standards of probity in administration. Portfolios do change. I have seen three portfolio changes, does it mean I have been downgraded,” he countered, answering questions from media.

Interestingly, barring perhaps the Information Technology and Communications Minister (till recently also the Minister for Human Resource Development) Kapil Sibal, who had taken up the job of S&T minister in 2004 with relish and worked till 2010 in that office, no politician in recent times has assumed charge of this ministry with a happy face.

November 2012 www.InfralinePlus.com

CoverStory

Cabinet re-jig with an eye on general elections ►► Input cost for power, fertilizers, chemicals likely to go up three folds ►► Inflationary pressure unlikely to be tamed in near future

by Team InfralinePlus

Much awaited revamp of Prime Minister Manmohan Singh’s ministerial team happened on October 28th. It led to induction of 17 new faces most of them in late 30s; promotion for five others and several ministers got new portfolios.

It was one of the largest political exercises that Congress leadership undertook before the mid-2014 Lok Sabha elections. The coronation of Rahul Gandhi as formal successor to Sonia Gandhi as leader of grand old party, Congress is also in the works. While this is so, the huge exercise attempted at changing the face of government, also has major implications for the energy sector that has been on a precipice.

First the facts: For energy sector two major changes in the council of ministers is likely to have large-scale impact. First, the exit of S. Jaipal Reddy and appointment of former Karnataka chief minister Veerappa Moily as oil and natural gas minister coupled with anointment of Jyoritaditya Scindia as power minister.

Now, what does that mean to energy sector in this country is the moot question that has been haunting many.

It is widely believed in the government and outside that S Jaipal Reddy’s exit would mean speedy decision-making (an euphemism

39

For power, fertilizers, chemicals and petrochemical companies, fuel prices would zoom by three times thereby resulting in costlier end products. It is bound to also result in additional inflationary pressure.

November 2012 www.InfralinePlus.com

CoverStory

40

for quick dole outs for the industry) at Shastri Bhavan that is routinely flocked by government affairs representatives of key companies like Reliance Industries Ltd (RIL), Cairn Energy, Lakshmi Nivas Mittal led Arcelor Mittal.

It is not to state in any way that Reddy was a work-shirk. An intellectual and a radical humanist with penchant for phraseology was a stickler for rules and would go by the ‘rule book’. This made his survival in the petroleum and natural gas ministry untenable given the large stakes top corporate houses have in hydrocarbons sector.

Several reports in fact suggested that a top Mumbai-based corporate house that lobbied for key decisions in the sector triggered Reddy’s exit.

On the contrary, Veerappa Moily knows his way out. He is flexible and is expected to take a quick call on issues that have been hanging fire for several months with backing of PMO. One such issue could be revision in gas prices though a formal re-visit was not expected before 2014.

Prime Minister Manmohan Singh had asked the chairman of his economic advisory council, C.Rangarajan to take a call on gas price revision shortly. If one were to believe Rangarajan, he would submit his recommendations in a month or so. He will begin writing down his recommendations on gas prices next week that will have impact for RIL’s Krishna Godavari basin’s D6 production etc.

If a top cabinet minister were to be believed, gas prices are likely to see a big jump in near term over existing $ 4.2 per million british thermal units (mBtu). Even gas from deep coal bed seams, coal bed methane (CBM) and liquefied natural gas (LNG) rates would see an upward trend to catch up with prices prevailing in international markets.

As per British Petroleum’s latest statistical review of world energy 2012, natural gas industry worldwide

cascading impact on India’s energy including India has big potential to security campaign and its efforts to grow. With proven natural gas reserves secure the country’s vulnerability to of 208,000 billion cubic metres (bcm) external crude shocks that have railed globally, world production of 3276 the successive finance ministers’ bcm accounts for less than 2 percent macro-economic projections. of these reserves. In India’s energy Second major change for energy basket, share of natural gas is expected sector in recent cabinet reshuffle was to go up to 20 percent by 2025 from arrival of Jyotiraditya Scindia as the prevailing 11 percent as per planning power minister. Scindia, an investment commission’s working group estimates. banker by training, “Now that is credited there is change of Two major issues with sweeping guard at Petroleum policy reform in Ministry, gas that may find early commerce ministry. prices revision resolution under The panel headed may happen as Scindia are scarcity by him had paved early as in next in fuel availability to the way for cutting three months” transaction costs said a top official power the 100,000for exporters. on condition of odd MW green field Similarly, two anonymity. The capacities to be added major issues that decision of gar in next five years. may find early price revision, if resolution under it finds its way, Scindia are scarcity in fuel availability will benefit major gas producers like to power the 100,000-odd Mw green Reliance Industries Ltd (RIL) and Essar field capacities to be added in next five whose proposals for revision in prices years. Top industrialists like Ratan Tata are pending before the nodal petroleum and Anil Ambani have led delegations ministry. Indian petroleum and natural to Prime Minister Manmohan Singh in gas companies have been campaigning recent times to resolve non-availability for seeking ‘import parity’ in gas prices. of adequate gas, coal and high pricing If this demand is accepted by of these fuels. petroleum minister Veerappa Moily, Jyotiraditya Scindia has his task Rangarajan panel, ministerial group cut out given the fact that a solution headed by P Chidambaram and finally needs to found for making available cabinet committee on economic affairs, power at affordable prices for consumer then gas prices will shoot up to $ 12.93 industries and arrange for fuel from per mmBtu considering a mean average coal and gas companies. crude price of $ 100 per barrel.

Second major problem that may find For power, fertilizers, chemicals and priority on Scindia’s agenda would be petro-chemical companies, fuel prices to prevent nationwide blackouts that would zoom by three times thereby were experienced twice on successive resulting in costlier end products. It days with collapse of North and Eastern is bound to also result in additional grids plunging large parts of the inflationary pressure. Already, RBI country into darkness. A decade’s old governor Duvvuri Subba Rao has plan to ‘island’ power transmission and refrained from lowering key interest distribution systems may get dusted out rates given the central bank’s estimate to get implemented. for WPI (wholesale price index) based inflation is likely to touch 7.5 percent

by March 2013.

For suggestions email at feedback@infraline.com Higher gas prices also would have

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NewsBriefs | Oil & Gas

42

ONGC’s `8000 crore revamp bid for Gujarat onshore assets

`1,00,000 crore to be sought For fuel subsidy

OIL commences its second drilling Operations in Africa

Oil and natural gas major ONGC has finalised an `8,000 crore surface facility revamp programme for its three onshore assets in Gujarat, a top company official has said. The three onshore mature assets are Ankleshwar, Ahmedabad and Mehsana, ONGC CMD Sudhir Vasudeva said. Vasudeva said the project aims at replacing old pipelines and other surface infrastructure in the next three years.

The Oil Ministry will seek over `1,00,000 crore from the Finance Ministry this fiscal towards fuel subsidy, new Petroleum Minister M Veerappa Moily said. Stateowned fuel retailers are likely to end the fiscal with a revenue loss of over `1,63,000 crore on sale of diesel, domestic cooking gas (LPG) and kerosene at government- controlled rates that are way lower than cost, he said soon after taking over as the new oil minister.

Oil India Limited has added yet another feather to its cap by commencing drilling activities in the African nation of Gabon, hopeful of striking oil. Gabon is only the second country after Libya where OIL now has drilling operations. The company, however, is involved in several activities in countries like Sudan, Iran, Yemen, the US, Venezuela, Nigeria, Egypt and East Timor.

Mangalore Refinery’s Iran imports suffers setback

GSFC plans `80 bn petrochem complex at Dahej

ONGC, Tata Chemicals join Tripura govt To set up `50 bn fertiliser unit

Mangalore Refinery and Petrochemicals Ltd (MRPL) said that it was finding it difficult to import from Tehran due to international sanctions. The company’s import from Iran is already down 31 per cent in July-September quarter from the AprilJune period of 1.04 million tonnes, MRPL’s Finance Director Vishnu Agrawal said at a news conference.

The Gujarat State Fertiliser Corporation (GSFC) has drawn up `8,000 crore investment for setting up an integrated fertiliser and petrochemicals complex at Dahej. The company is setting up 2,250 tpd ammonia, 3,500 tpd urea alongwith melamine and caprolactum manufacturing unit at Dahej near Bharuch at an estimated cost of `8,000 crore and has already acquired land for the same.

The Tripura government in a joint venture with ONGC and Tata Chemicals would set up a `5,000 crore fertiliser manufacturing unit in north Tripura district by using the natural gas available in the state.

The company would sell equities of `2,000 crore in the market. Tripura government would buy 10 per cent equity of the company.

KG gas leak Hits ONGC’s hydrocarbon production

CJ Group request OIL For Sultani Shale Oil block

New LPG connections To come without subsidy

A leakage in a deepwater well in the Krishna Godavari basin operated

by Oil and Natural Gas Corporation (ONGC) over the past two months could delay the state-owned explorer’s hydrocarbon production from the field. ONGC has sought help from the coast guard, navy and operators in adjacent blocks such as Reliance Industries and BP to control the leak in the well named G 1-9.

CJ Solutions Pvt Ltd (CJ Group) has requested Ministry of Petroleum and Natural Gas to look into the offer made by CJ Group to Oil India Ltd. with whom CJ Group have signed NDA (Non Disclosure Agreement) in July 2011 and has now submitted Draft MOU for joining CJ in Sultani Shale Oil Project to be one of the stakeholders in Sultani Shale Oil Block through CJ Solutions Pvt. Ltd.

Another government directive that could weigh heavily on the pockets of those seeking new LPG connections: To start with, buy cylinders at the domestic non-subsidized rate of `920 till it is verified that you do not have multiple connections.Tthe oil and natural gas ministry recently issued the directives. Once the verification is complete, customers will be eligible for subsidised cylinders.

Gauri Gas Field in JV Block CB/OS-2 Grant of PML to ONGC

Extension of PNG facility in Daman & Diu and Dadra & Nagar Haveli

Rangarajan panel favours New mechanism for profit sharing

Directorate General of Hydrocarbon has requested Ministry of Petroleum and Natural Gas to look into the issue for grant of mining lease (ML) for Gauri field in favour of Oil and Natural Gas Corporation (ONGC) as has been requested by ONGC and recommended by DGH vide its earlier communications. Gauri field in the block is on production since 2004-05.

Gujarat State Petroleum Corporation Gas Company Ltd., Gandhinagar has been granted permission for laying piped natural gas. GSPC Gas has sought permission from Petroleum and Natural Gas Regulatory Board but this is awaited. GSPC Gas has already provided gas connectivity to industrial, commercial and domestic categories of consumers in the adjacent Vapi town (Gujarat).

The expert panel chaired by prime minister’s EAC chairman C Rangarajan is in favour of a new simplified mechanism of sharing profits between the government and oil explorers in place of the controversial system in which, companies recover their costs before sharing the income. In a draft note, the committee also recommends that the government should retain the power to approve gas prices.

November 2012 www.InfralinePlus.com

InConversation

‘OIL to spend `7,000 crore on acquiring assets, companies’ Oil India Limited (OIL) is one of the few PSUs in the country today having a surplus cash reserve position.

With more than half of its oil and gas producing assets aging, the company has spelt out a clear roadmap for an acquisition-triggered growth over the next 10 years. The biggest stumbling block for the company at present, however, is the confusion over the subsidy sharing mechanism which is denting its net profits.

OIL’s Director (Finance) T.K.Ananth Kumar talks to Neeraj Dhankher on how the oil major is poised for remarkable growth through acquisition and selective diversification. Excerpts:

What are your acquisition plans for 2012-13?

We got our acquisition strategy worked out by an international consultant which has been reviewed and accepted by our board. There is no hard and fast rule regarding any specific region, but regions like the US, Canada, Australia, parts of Africa and even South-East Asia are the ones we prefer. But finally everything depends on prospects, due diligence as well as economic return.

CBM etc, we are also keen to enter into these areas.

In medium term, out of the `20,000 crore planned to be spent in the next four years; about 25 per cent to 30 per cent would be on acquisitions. We can also go for loan, because we are a debt free company, to supplement our acquisition. It depends on the opportunity, prospects and economics.

Fund is not a big constraint for us.

We are working towards announcing a couple of acquisitions this year.

What is your cash reserve position?

We have close to `13,500 crore--almost $2.4 billion—and we have adequate investment plans for the use of this cash in E&P, acquisition of assets, In spite of 50 per cent aging some unconventional areas and depletion in North-east fields, About and certain selective we have been able to increase 30% of diversification in oil production over the last four planned years and are confident of spending will be and gas value chain.

We have drawn a sustaining the growth. So from on acquisition detailed strategic organic growth point of view, of oil and gas plan for next ten years we have been doing quite well, assets where organic, inorganic with growth in crude oil and gas. growth and diversification At the same time, as we have good have been very well laid out. OIL has technical experience and sound financial plans to spend more than more than strength, there is a need to supplement `20,000 crore in next four years. So we organic growth with inorganic growth certainly feel that the cash we have in through acquisition of discovered, hand would be utilised gainfully. developed or producing property and we Out of this `20,000 crore, are working seriously on it. diversification would not be the major This year we have earmarked about element of expenditure. We are an `7,000 crore towards acquiring assets or exploration company, so we want to companies with producing assets. These have our focus on E&P, but selective would predominantly be oil and gas diversification in value addition and assets, but considering the potential for earmarking about 25 per cent of our long-term scope for shale oil, shale gas,

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November 2012 www.InfralinePlus.com

InConversation funds for this purpose is our strategy.

But majority of investment would be on our core business.

44

When is 10 per cent of OIL equity going to be divested? What is the asking price likely to be?

As far as we know, OIL would not be subject to FPO. However, we have been hearing that OIL disinvestment would be taken up through offer for sale route where government would like to sell its stake in the market through offer for sale. We are expecting the sale to take place in 2012-13.

With sale of another 10 per cent stake in OIL, government’s share would come down from 78.4 per cent to 68.4 per cent. We have a market capitalization of about `30,000 crore and we expect a good price for the sale. But the exact price at which the government would like to sell would be decided by the Empowered Group of Ministers.

What is OIL’s Capex for 2012-13 and how do you plan to spend it?

We have lined up `3,378 crore, excluding acquisition which is at `7,000 crore. Bulk of the expenditure shall be on exploration, development, purchase of capital equipment and also in the overseas blocks already acquired. In short, it would be spent on organic growth as well as on exploration blocks we have apart from acquisition of assets.

Increasing global crude price is seen as a good sign for upstream companies. How does the recent surge in global crude price, coupled with rupee devaluation, impact your bottom line?

There is no absolute correlation between increase in crude price and higher net realisations. The subsidy shareout, exchange rate, cost of operations etc. play a vital role. Last year, the rupee depreciated by 20 per cent over 201011. In spite of higher subsidy share

by OIL, the dollar-rupee exchange

We have also represented to government being adverse, we saw a 21 per cent that OIL’s share among upstream improvement in bottom line in rupee companies, which had been 9 per cent terms although in dollar terms the net four years back, has gone up to 13 per realisation was flat. cent last year. This has been because of In Q1, 2012-13, realisation has not improved performance of OIL, both in been very encouraging in dollar terms. top line and bottom line and increase in We have the same problem of higher production volume. The improvement subsidy burden in first quarter. We had in OIL’s crude oil and gas volume $53.5 realisation as compared to $59.82 and increase in net profit, compared we had last year. Further, there has been to ONGC and increase in cess GAIL, has been since March by There is no absolute much better. approx $5.50 which correlation between This improved has also impacted increase in crude realisation has our net realisation. price and higher net adversely impacted We cannot realisations. The us in terms of just be banking subsidy shareout, higher net outflow on rupee-dollar exchange rate for exchange rate, cost of towards subsidy improving our operations, etc. play a sharing. We have represented to bottom line. We vital role. government that need to have proper efficiency should clarity in terms of not be penalised and there has to be subsidy-sharing mechanism. We have some way of creating uniformity in the been taking up with the government that subsidy sharing mechanism. It should be transparent subsidy mechanism would a standard formula which is predictable. be of great help to industry.

Do you think the increase in international crude price is likely to continue?

Crude oil price is very difficult to predict. We feel it may not go down substantially below $80 per barrel because lot of investments are taking place in exploration and cost of services are on the rise. It may not also go up significantly as Libya has come back and demand-supply is more or less matching. So we don’t expect a big jump. However, nothing can be said with absolute certainty regarding the movement of crude oil prices.

What is that method of sharing under-recovery which you are comfortable with?

Whatever percentage or methodology is adopted, there has to be a consistency, predictability and transparency in the mechanism of subsidy-sharing so that we know how much we are required to shell out in the beginning as well as during the course of the year which will help us in planning and budgeting our cash flow better and would also be appreciated by Investors which in turn, will boost the valuation of oil companies.

What according to you is the right formula for sharing of under-recoveries by upstream companies, especially considering that share of upstream companies has been on the upswing in recent years?

How are under-recoveries on diesel affecting your profits?

What is the solution?

When the crude oil price is high, diesel price is also high. Despite the recent diesel price hike, there is still `12/ litre under-recovery for oil marketing

November 2012 www.InfralinePlus.com

companies. We wish to say that as an upstream company, we don’t have any problem in sharing of under-recoveries but we want to reemphasize that sharing needs to be transparent and we have to also keep in mind our investment plans for which we need to generate internal resources. Diesel being a sensitive product along with kerosene, the sharing can be between upstream, public at large and government at some percentage, so that all segments can bear the subsidy burden. There has to be a price rise at periodical intervals. A complete decontrol of diesel price does not seem feasible at this juncture considering the current political scenario.

What are the key areas in which you plan to diversify?

With the objective of participating in forthcoming shale oil & gas bidding rounds, we are looking at joining with some American companies for some shale assets and to learn to work along with them so that it can be used when shale oil and gas policy is made operational in India.

Coal Bed Methane (CBM) is another area where we are going to focus. At present we have one CBM block in Assam where we are the non-operator.

City gas is another area where we have tied with GAIL, HPCL & BPCL. We want to get into this area in a modest manner. We have also bid for CGD bidding round. So we certainly would like to keep it as one of our diversification avenues.

Furthermore, we have commissioned a 15-mw wind farm last year at an investment of `110 crore. We have made a plan of setting up another 50 mw this year with an investment of around `400 crore. Thus, getting into solar and wind farm is also as per our broad strategy, as unconventional energy.

What is your debt situation at present? How much is the borrowing?

OIL is totally debt free at the moment.

We have talked to many banks and they are quite confident that with the kind of balance sheet we have, raising debt, even big amount, will not be a problem.

So with the strong cash balance and nil debt, we can leverage it by having debt to supplement our acquisition.

What kind of price increase in APM gas would you propose considering that RIL gas is coming up for a revision in 2014?

Our gas price was revised in June 2010.

At the moment, the price of $4.2 per MMBTU is giving us reasonable return.

But with cost of operation going up and new areas being explored, the finding cost is also becoming more. So if the price revision takes place after 2-3 years, it is quite welcome and would be a great relief for us.

We don’t have any problem in sharing of under-recoveries but we want to reemphasize that sharing needs to be transparent. We have to also keep in mind our investment plans for which we need to generate internal resources.

How do you expect your stock to perform in 2012-13, considering the challenges concerning subsidy burden and good operational performance and diesel price hike?

Ever since our share has been listed three years back, it has been performing quite steadily. We have also given handsome dividend over the last 3-4 years; and given a bonus of 3:2. So OIL’s share is considered to be one of the blue chips among listed companies and there has been good demand for our shares as a good long-term holding. But of course, the subsidy sharing clarity is not giving the desired price which the company should fetch. With diesel price hike, I am very confident that our share will go up further. I feel that our share price is undervalued by 70-80 per cent at present because of the confusion over subsidy-sharing mechanism.

CAG has said it wants to audit under-recoveries of OMCs. What is its likely implication?

Cost Cell in the Finance Ministry reviews the under-recovery details minutely. They have reviewed it many times in the past. Everything is very transparent as far as oil companies and ministry is concerned.

What is the rig position of OIL? One of the excellent features of OIL is that we own most of the assets that are required for E&P so that our operating costs also are low. Currently, we own about 14 onland rigs while another six rigs are hired. We are planning to order another 3 rigs this year, which would be delivered after a year of placing the order.

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

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November 2012 www.InfralinePlus.com

InDepth

Gas held hostage: Bureaucracy turns D6 into battleground

46

►► Breakthrough in impasse between Petroleum ministry and Reliance ►► Contractors can now go ahead with well intervention plans

by Debjit Das

After months of impasse, the Petroleum Ministry and the operator of the country’s biggest gas find – Reliance Industries, have finally come to talking terms and both the parties have showed some signs of a compromise in their virtual standoff that lasted for almost a year. While the contractors of the KGD6 block (RIL, BP and Niko Resources) have agreed to the second round of CAG audits of the block’s books of accounts though only to the extent of a financial audit, the Petroleum Ministry has conceded to the investment plans that the contractors had put up for approvals several months back.

Reliance Industries on the other hand had apprehensions about the audit and its scope and had placed several conditions before submitting to the audit. The contractor had according to sources wanted the audit to be carried out in its own premises and insisted that it would not provide CAG with any other documents than what is mentioned in the D6 contract. The contractor had also included the condition that the audit report should not be made public or tabled in the parliament and should only be kept within the Oil Ministry.

The Oil Ministry after initially disagreeing to the conditions had

finally acceded to RIL’s conditional acceptance of the CAG audit on October 24, 2012. A kick-off meeting termed the Entry Conference, for initiating the audit process with RIL, was called for October 31, 2012 but later called off as the CAG was not in agreement with the Ministry’s decision.

CAG is broadly in disagreement with such restrictive conditions being placed on the audit and has written to the Ministry opposing such an approval. As per the CAG, it is an independent audit body mandated by the Constitution and the CAG Act and it has all the right to audit the Oil Ministry and its contractors

November 2012 www.InfralinePlus.com

bringing RIL into the scope of the audit.

The CAG has also insisted that the final audit report be tabled in the parliament.

What do the approvals entail?

With the approvals coming in, the contractors can now go ahead with well intervention plans at the existing D1 & D3 fields and can start work as per the RFDP for the MA field. Moreover, work on the field development plans for D2, D6, D19, D22 and D34 (R-Series) which were approved by the MC (Management Committee) back in January this year will also commence.

The estimated capex in the OFDP for the four satellite discoveries will be to the tune of $1.5 billion.

As can be seen in Table 1, the investment plans are spread over the producing fields as well as the discoveries which have been established to be commercially viable. Significant hopes have been pinned on the satellite discoveries of D2, D6, D19, D22, D29, D30, D31 and D34 (R-Series) to help increase the production from the block back to the peak production levels.

The total capital infusion into the D6 block would be to the tune of $4-5 billion in the next couple of years as estimated

by BP – the partner in the D6 block.

With this additional investment and with the inclusion of the satellite fields in

the aggregate reserves in the block the current estimate of the block’s reserves is around 5 tcf. With such reserves in place, the estimated incremental volume of gas expected to get on-stream in the next 4-5 years is around 25-30 mmscmd.

The country’s biggest gas find – the KG-D6 block -- has much to the despair of gas consumers, shown a relentless downslide in its production levels which currently stand at 26 mmscmd. The continuous decline in gas production from the producing fields has been attributed to the contractor not being able to take any action towards arresting the fall in production due to absence of necessary clearances required from the Ministry.

While the contractors blame the Petroleum Ministry and its technical arm – the DGH -- for not providing timely approvals for its investment plans, which it says are aimed at arresting the current fall in production as well as bringing more gas discoveries on-stream, the Petroleum Ministry is treading cautiously this time around as it has received flak in the past for the so called leniency it has shown towards private exploration companies in approving their investment budgets.

The audit saga The books of accounts of the block in

The total capital infusion into the D6 block would be to the tune of $4-5 billion in the next couple of years as estimated

by BP – the partner in the D6 block. With this additional investment and with the inclusion of the satellite fields in the aggregate reserves in the block the current estimate of the block’s reserves is around 5 tcf. question have not been audited since 2009-10 after the first round of audit that was undertaken by CAG to verify the expenditure incurred by the contractors in field development activities for the years 2006-07 to 2008-09. In its earlier report, the CAG had made stinging remarks questioning the efficacy of the processes and procedures followed by the contractor in awarding several contracts while undertaking development activities in the fields to get the gas finds into production.

Reliance had earlier submitted the books of accounts of the block to CAG as a one-time exception for audit purposes, however the company had serious reservations about the audit procedure followed by CAG and wanted the audit to be restricted to just a financial audit. However, CAG went ahead and undertook a performance audit of the contractor. The final report that it had submitted earlier had raised several questions about the efficacy of the processes followed by the contractor in developing the fields and also questioned the reported inflated costs that had been incurred thereby reducing the profit share of the government.

Since the last audit, no further audit of the block’s books of accounts has been undertaken and the expenditure

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November 2012 www.InfralinePlus.com

InDepth

incurred by the contractors since 2008-09 up until 2011-12 is yet to be approved. The norm usually is to approve the budgets for a fiscal before the start of the fiscal year. However, since the audit is still pending, the investment plans proposed by the contractors have been held up. CAG had written to the contractors asking for an audit of the accounts on the pretext of a performance audit as per the CAG Act of 1971, to which the contractors had not agreed.

The impasse over budgetary approvals

48

The contractors led by Reliance Industries had submitted investment plans for the D6 block which included well interventions at the existing producing fields – D1, D3 and MA as well as setting up additional compression facilities to boost the dropping production from these fields. Moreover, the contractors had also proposed to develop three additional discoveries D29, D30 and D31 which are the satellite fields to the D1 & D3 fields.

Through the FY 2012-13 budget and the RFDP (Revised Field Development Plan) for the MA field, the contractors have proposed projects for water handling, onshore and offshore compression, well work-over and possible new wells to extract more gas in order to ensure the field is not shut-in and hydrates are not formed in the sub-sea systems before the next wave of projects start-up.

However, all the budgetary approvals for the years 2010-11 to 2011-12 and further for 2012-13 have been held up as Reliance had denied submitting for a performance audit by the CAG. Reliance had reiterated that the audit that is to be undertaken has to be restricted to the scope of a financial audit as per the specific clauses in the Production Sharing Contract (PSC).

The Petroleum Ministry had earlier sought submission of the books of accounts of the block by the contractor

Table 1: Additional Capex Infusion Plans in D6 Block Development Initial / Additional Discovery Plans Investment ($ Million) D1 & D3 RAIDP 235 MA RFDP 230 D2, D6, D19, D22 OFDP 1529 D34 (R Series) FDP 2700 D29, D30, D31 FDP 1500

Approx Incremental Gas (mmscmd)

25 – 30 mmscmd

Source: Infraline Research

and had rejected the contractor’s views of limiting the audit to the extent of a financial audit. The Ministry had earlier stated that the PSC entails specific clauses that would allow the Government appointed auditor to undertake a performance audit of the block.

As neither the contractors of the D6 block nor the Ministry had relented from their stand, the investments necessary to reverse the falling production had been held up as a result of which the gas production from the block continued to decline.

The Ministry, however, finally acceded to the demand of the contractor of limiting the scope of the audit that the CAG would undertake as Section 1.9 of the PSC accounts only for a

financial audit. Consequent to the Ministry’s revisit to the scope of the audit, Reliance has now agreed to submit the books of accounts to the CAG for the second round of audit. The Ministry has reciprocated to the contractor’s submission by approving the long pending investment plans.

With the timely approvals of the development plans and approval of budgets for the respective years, Reliance and BP have significant plans in executing the field development activities to reposition the D6 block back to where it was when it witnessed a peak production of around 60 mmscmd.

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InDepth

Winds of change: PSC model in its twilight

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►► E&P private players against any change in current profit sharing mechanism ►► ONGC favours change, proposes Production and Price Linked regime for profit sharing

by Neeraj Dhankher

The winds of change are blowing hard and strong in the Indian hydrocarbon sector. A move is on within the government to bring about a structural change in the fiscal regime in the E&P industry. At the centre of the debate is the existing Production Sharing Contract (PSC) model which has been in vogue since 1997. The Government is considering making modifications in the PSC system to ensure that its profits do not suffer in the wake of decline in production levels, something which was

at display during the recent spat between the petroleum ministry and Reliance Industries Ltd (RIL) over gas production from the D-6 field in the Krishna Godavari basin in Andhra Pradesh.

India’s fiscal regime in the petroleum sector is unique, in that it resembles a hybrid of PSC regime and a Royalty-tax regime (R/T). While the features of costs recovery and production sharing reflect the makings of a classical PSC contract, Indian decision makers have also incorporated safeguards such as payment

of upfront royalty, royalty calculation and production sharing methodology and income taxes which are the features of a typical R/T system.

But this existing hybrid model is in the process of being refashioned. The biggest talking point in the PSC regime is the profit-sharing mechanism which is based on biddable pre-tax investment multiple -- the ratio of net cash income to exploration and development costs -- achieved by the contractor, as well the need to minimize monitoring of

November 2012 www.InfralinePlus.com

expenditure of the contractor without reducing hydrocarbons output across time and government’s take.

Presently, under the New Exploration and Licensing Policy (NELP), a PSC mechanism is followed under which the contractor is entitled to recover contract costs out of a percentage of the total value of petroleum produced and saved from the contract area in the year. All costs incurred by the contractor up to the date of first commercial production is aggregated, and the contractor is entitled to recover these costs out of the “cost petroleum” beginning from the date of “commercial production” subjected to cost recovery ceiling which is biddable.

Cost recovery under the present system involves lot of monitoring by the regulator for approval like costs, budget, and auditing of accounts, among others, which delays the exploration and development process. Over-assessment of costs can affect Government’s take as its share in profit oil depends upon investment multiple.

The government has strong reasons to consider overhauling the PSC regime.

Not too long back, the Ashok Chawla committee had criticised the system of PSC indicating that such contracts are designed to benefit private players at the expense of the government. Citing the example of KG-D6 field, the Chawla panel in its report in May 2011 had noted, “The relationship between the pre-tax investment multiple (PTIM) and the share of contractor’s profit petroleum changes dramatically once the PTIM crosses 2.5, with the government’s share increasing from 28 per cent to 85 per

cent.” As per the committee, this system gives incentive to an operator to increase his investment, or front-end his work plan in order to see that the threshold where government’s profit take rises rapidly is not reached.

The government was further pushed out of its slumber when the Comptroller and Auditor General (CAG), in a recent draft report on its audit of the KG-D6 accounts, had also criticized the current PSC structure stating that it was “unsuitable for protecting the government of India’s financial interests”. Accordingly, the CAG suggested that a comprehensive review of the PSCs be carried out to protect the interests of the Government.

This incited the government to set up a committee under the chairmanship of Dr C. Rangarajan, Chairman of Prime Minister’s Economic Advisory Council, on May 30, 2012 to carry out a review of PSCs for oil and gas exploration blocks in India.

Simultaneously, to study global best practices in the E&P fiscal regime, the government also appointed Boston Consulting Group (India) Private Limited (BCG) to study prominent fiscal regimes globally so as to develop a clear understanding of the context and practices associated with commercial agreements between the government and operators for the exploration of the country’s natural resources.

Report of the Boston Consulting Group BCG recently submitted its report in which it has analysed the pros and

Cost recovery under the present system involves lot of monitoring by the regulator for approval like costs, budget, and auditing of accounts, among others, which delays the exploration and development process. Overassessment of costs can affect Government’s take as its share in profit oil depends upon investment multiple.

cons of fiscal regimes operating in a total of eight countries across different geographies. Analysing the fiscal regimes in the petroleum sector in these countries, the report has outlined key learnings for India which can serve as a yardstick for the Indian policy makers when they sit and discuss the future possibilities in this regard. The following are the major findings of the report: Angola: The model is an interesting case study to show how a government has adapted its PSCs to encourage investment while ensuring local participation. With discovery of technically challenging deepwater oil fields, the country has moved from concession to PSC regime.

Latest contracts are based on Risk Sharing Agreements (RSA). Under this system, the profit sharing is based on a Rate of Return parameter that protects investors in case of low oil prices, but also caps returns when there are windfall profits. The model has proved to be highly successful for developing the National Oil Company (NOC).

However, special terms are needed for less economic fields such as marginal and deepwater fields.

Nigeria: The fiscal regime in Nigeria has moved from concession regime in 1970s to joint ventures between 1970s to 1990 and eventually to PSC regime since 1993. Historically, high oil and gas reserves and good prospects for new discoveries have attracted foreign players. However, no new licensing rounds have been conducted in the country since 2007 due to non clarity on new regulations. It has been seen that issues pertaining to governance, uncertainty over regulations and security concerns have inhibited the growth of the oil and gas sector.

Malaysia: The fiscal system comprises of a PSC regime, with active participation of the NOC, Petronas.

The national company acts as a competent partner of the government by successfully overseeing the E&P operations. There has been a special focus on exploration of deepwater blocks

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in recent years. Through promotion of effective use of cost recovery, use of cost recovery ceilings and excess profit payments based on Revenue-Over-Cost (R/C) model, Malaysia has managed to attract a large number of International Oil Companies. The biggest positive of the fiscal regime is that is completely aligns incentives of both the government and producers.

Norway: The country has a simple and clear concession system with no royalty fees, but levies special oil taxes instead. There are special provisions to stimulate and fast area development and stimulate entry of new companies.

The government plays an active role by promoting development through financial participation through co-investment via Joint Ventures. The example has shown that investors can be attracted even with a relatively simple fiscal regime with high government taxes.

China: The country has a PSC regime with active participation from state owned companies. Even though the entry of foreign players has been limited, the country has been able to maintain

steady growth, both in production and reserves of oil and gas through effective use of cost recovery, use of cost recovery ceilings in bidding and use of Joint Study Agreement (JSA) and Gas Sales Agreement (GSA) to enhance geological information on blocks. The Chinese example shows that even with high government control over oil and gas resources, there can be significant increase in production.

A good fiscal system tries to strike the right balance of risk shared and rewards obtained from a petroleum project.

Once this is realised and well understood, the question then no longer becomes choosing between two different fiscal systems.

Brazil: The experience so far has shown that a concession system, even with high taxes, royalty rates and signing bonuses, can be highly appealing to oil companies and attract investment as long as prospectivity and bidding process are clear and transparent. It has shown that right policies and legal framework, deepwater fields and other areas with high technical challenges of operation can attract significant investments. The experience also proves that the NOC, in this case Petrobras, can be built to be strong enough to be the dominant operating partner in all fields. The country has a strong and fair competitive bidding with clear three-stage criteria.

US and Gulf of Mexico (GOM): Most well studied regime for oil and gas development, the fiscal system in US and GOM is an apt example of how an unambiguous regulatory and legal infrastructure can contribute significantly to continued and shifting investments and maximization of government revenue.

The American oil and gas industry has been closest to the free market with minimal intervention of the federal

Boston Consulting Group analyses hydrocarbon resources & policies of eight countries

November 2012 www.InfralinePlus.com

government, with successful investments and production across the lifecycle, including deepwater and unconventional hydrocarbons. The model goes on to prove that with the right environment, India can trust the open market to work, and for companies to bring in the right technologies.

Columbia: The country has dramatically transformed from being a net importer of crude oil to exporting crude oil.

Improved security and pro-business policies have seen E&P companies flocking to this country. The fiscal system comprises of a concession regime consisting of royalty, tax and high price participation. Some of the initiatives taken include allowing foreign oil companies to own 100 percent stakes in oil ventures and compete with Ecopetrol, the NOC, the establishment of a lower, sliding-scale royalty rate oil projects and longer exploration licenses.

NELP bidding rounds: The picture so far Bidding Blocks Number Participating round offered of bids Foreign received Companies NELP-I 48 45 Data not available NELP-II 25 44 6 NELP-III 27 52 4 NELP-IV 24 44 5 NELP-V 20 69 26 NELP-VI 55 165 35 NELP-VII 57 181 21 NELP-VIII 70 76 7 NELP-IX 34 74 8

Industry’s comments Private E&P majors like Reliance Industries, British Petroleum and Cairn India are strongly in favour of continuing with the current arrangement that allows them to recover field development costs before sharing profits with the government. It is felt that the current system gives a bigger incentive to exploration firms to undertake the risk of drilling. Some industry analysts are also of the opinion that given the relatively high risk involved in drilling in India, strong incentives need to be provided to woo private capital.

Recommendations made by R.S. Sharma: • No change in existing PSCs. Review of existing PSCs would be relevant only for future contracts.

• Move to a Concessionary Regime (pure Royalty/tax with no production sharing) for future contracts.

• Decide policy objectives upfront; design policy framework accordingly, honour commitments diligently thereafter.

• The industry is more sensitive to stability and sanctity of contract rather than the terms, and therefore shall live with any of the options selected for future contracts.

• FICCI recommends that while designing the fiscal measures of the future E&P policy, the government should keep in mind the prospectivity and abovethe-ground risks attendant with Indian E&P industry.

• Provisions regarding marketing freedom and maximization of value from sale of hydrocarbon discovered should be In its comments to the Rangarajan Committee, the Association of Oil and Gas Operators (AOGO) – which claims to represent 99% of upstream operations in India – has also thrown its weight behind the demand to persist with the PSC regime. As per AOGO, under the current fiscal regime, cost recovery mechanism is useful in making Indian Geology competitive, where each company has a well defined riskreward window. The full implication of any change in this parameter leading to reduction of bidding population must be carefully evaluated. AOGO believes that cost recovery mechanism is useful in increasing the interest in Indian Upstream.

According to AOGO, the problems with current PSCs are originating from

implemented in letter and spirit.

• Operational issues need to be decided by the Government in a positive and timely manner.

• Constitute a Committee of MoPNG & Directorate General of Hydrocarbons to avoid multiple exchange of correspondence and resolve issues in a timely manner.

• Limit audit under the PSCs to financial audits and not performance audit.

• Do not introduce amendments having impact on the current PSCs with retrospective effect.

• Include oil & gas exploration & production within the definition of Infrastructure.

• Adopt best global practices of countries with comparative prospectivity. difficulty in contract administration.

“The delays in implementation of PSC, and reduced interest by investors are likely to continue, unless the administrative system is fixed”, claims the body. As per the association, the difficulty in administration stems from conflicts in responsibilities, role definitions, and unimportance of policy objectives. Hence, AOGO’s primary recommendation is that of carrying out administrative restructuring and aligning objectives and responsibilities of different functions with the policies and objectives of NELP.

FICCI supports Concessionary regime for new contracts ONGC’s former chairman and head of

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Hydrocarbons Committee of FICCI, R.S. Sharma has recommended moving to a Concessionary regime for future E&P contracts. However, in case of existing contracts, Sharma has urged that there should not be any tinkering and the existing PSC model should continue so as to ensure sanctity of contracts.

In a presentation made before the petroleum ministry, Sharma has noted that it is important to decide policy objectives upfront, based on which a policy framework should be designed and commitments be honoured diligently.

As per Sharma, the stability and sanctity of contract is much more important to the E&P industry than the actual terms of the contract.

FICCI has recommended that while designing the fiscal measures of the future E&P policy, the government should keep in mind the prospectivity and above-the-ground risks associated with the Indian E&P industry. Sharma has argued that operational issues need to be decided by the Government in a positive and timely manner by constituting a Committee of the Petroleum and Directorate General of Hydrocarbons (DGH) to avoid multiple exchange of correspondence with the contractor. Talking on the sensitive issue of auditing the contractor’s performance under a PSC, Sharma has emphasized that the government should conduct only financial audits and not performance audits. FICCI has also welcomed the adoption of best global

practices of countries with comparative hydrocarbon prospectivity.

ONGC proposes Production and Price Linked regime India’s largest upstream PSU, ONGC, has proposed to do away with the existing PTIM methodology and cost recovery mechanism under the PSC, and has, instead suggested a new fiscal system. Labeled as “Production and Price Linked” regime, the system, if implemented, will do away with the cost sharing mechanism enabling share of profit oil to the Government from day one of production and will also address over assessment of costs, if any, by operators.

“The new system will also reduce efforts and time in examining and monitoring by the Management Committee of a block. It will also address windfall profits accruing to contractor in case of price upheaval”, claimed the PSU. The fiscal system proposed by ONGC has three components- Royalty, Production Sharing and Income Tax. ONGC has recommended a fixed rate of royalty to be paid to the government from the gross revenue. Thereafter, the revenue remaining after payment of royalty will be shared between the contractor and the government, based on the average daily production in a year or on a quarterly basis, on a sliding scale calculation method.

Under the proposed system,

production sharing is linked to daily production and prevailing oil and gas prices. A matrix is designed incorporating both production tranches and price bands for computation of pre-tax share between the Government and the contractor.

Furthermore, the contractor will also be liable to pay income tax on his profit. A seven year tax holiday has been considered for both oil and gas fields by ONGC.

Adding fuel to fire- DGH favours change in fiscal regime The upstream regulator, Directorate General of Hydrocarbons (DGH) is learnt to have favoured doing away the present system of contracts, asking firms to bid for the share of oil and gas they can offer to the government instead. In a recent media interaction, DGH chief, RN Choubey stated, “We have found it too difficult (to manage) the issue of cost recovery. It is difficult to assess the cost recovery and to assess the investment multiples...”

The ball is now in the petroleum ministry’s court. The Rangarajan Committee will soon come out with its recommendations based on the comments it has received as well as the findings of the Boston Consulting Group.

However, it is important to stress that a good fiscal system must try to strike the right balance of risk shared and rewards obtained from a petroleum project. While easier said than done, there’s often a conflict between the two parties (operator and host government) which try to maximize the rewards and shift the risk as much as possible. Once this is realised and well understood, choosing between two different fiscal systems is not the real question. Rather, what is important is how well we can learn the lessons of past and move forward by quickly rectifying the inherent opportunities, for improvement, if any, in the system.

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InDepth

Last mile for Xtramile; brakes to be applied on Speed too ►► Premium fuel sale has plunged owing to differential in sale price ►► Branded fuels help improve engine life and reduce pollution levels

by Team InfralinePlus

Led by a sharp fall in the sale of premium petrol and diesel at petrol pumps, the three state-owned oil companies are planning to discontinue selling these premium or branded fuels.

The country’s largest oil refining and marketing company, Indian Oil Corporation (IOC) says it has virtually stopped producing premium fuel which includes petrol and diesel. Sale of premium fuel has plunged due to the huge differential in sale price when compared with non-branded or ordinary fuel.

According to IOC’s Director (Marketing) Makrand Nene, “Sale of premium fuel is almost zero at pumps as there are no buyers at these prices.”

Officials in Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) also say that the stocks of premium petrol and diesel are lying unutilized and that they would supply branded fuel to petrol pumps only if there was a demand. While IOC sells premium fuel under XtraMile brand, BPCL and HPCL market the Speed and Power brands, respectively.

Reason: Even as the government cut excise duty on non-branded petrol by `5.50 to `9.28 per litre in September, it did not touch the `15.96 a litre excise duty on branded petrol and directed thatpremium fuels (petrol and diesel) be priced at cost.

The decision led to a vast increase in the price of branded petrol and diesel with premium diesel witnessing a 43 per cent jump in price to `65.81 and prices of premium petrol went up by 9 per cent to

“Sale of oil companies. an average of `77.58 per litre of premium Sale of branded in Delhi. In contrast, regular fuel is almost fuel started falling unbranded petrol and zero at pumps as after 2009 when the diesel, heavily subsidized there are no buyers government hiked by the government, sell at at these prices.” excise duty on these `67.90 and `46.95 a litre, - Makrand Nene, products. Branded fuel, respectively.

Director Marketing, which contain imported In 2007-08, the price IOC additives, help in improving differential between branded engine life and reduce pollution fuel and non-branded ordinary fuels levels, were introduced in 2002. was only 60 paise per litre, branded Impact: State-owned fuel retailers— fuels used to contribute 20-30 per IOC, BPCL and HPCL--have spent cent of the petrol and diesel volume sales crores of rupees on advertising campaigns to popularise branded fuel which they claimed added value in the form of superior mileage, lower maintenance costs, improved engine protection and smaller carbon footprint.

All that awareness generation and money spent on it seems set to go waste now.

Performance boosters: Premium fuel contain additives which are aimed at improving engine performance and reducing emissions. They help in reducing deposits at the port fuel injector, intake valve and controls combustion chamber deposits to maintain “like new” performance of the vehicle. These fuels were designed not only to optimise performance of new generation vehicles but also rejuvenate old vehicles to perform better.

What kind of impact will the stoppage of these high-quality fuel have on cars and whether they will ever be missed by consumers remains to be seen.

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StatisticsOil & Gas Crude Oil Production (August-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

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Planned Production. during the month 2013.400 596.400 454.000 23.000 18.000 101.000 0.400 1417.000 1219.000 198.000 334.300 332.300 2.000 1026.892 765.779 10.488 0.000 12.037 743.254 261.113 3374.592 1696.479 1678.113

Production during the Month under Corresponding review * month last year 1900.100 2035.000 591.100 441.000 24.000 21.000 105.000 0.100 1309.000 1135.000 174.000 321.439 319.596 1.843 1006.621 757.899 7.490 0.000 12.022 738.387 248.722 3228.160 1670.438 1557.722

632.000 487.000 25.000 21.000 99.000 0.000 1403.000 1237.000 166.000 330.860 328.090 2.770 881.690 563.670 7.710 0.130 13.860 541.970 318.020 3247.550 1526.530 1721.020

Preceding month of current year 1910.100

% variation during the Month under review over planned production.

-5.6

596.100 446.000 25.000 21.000 104.000 0.100 1314.000 1137.000 177.000 325.079 323.234 1.845 1020.831 763.534 7.459 0.000 12.793 743.282 257.297 3256.010 1684.713 1571.297

-0.9 -2.9 4.3 16.7 4.0 -75.0 -7.6 -6.9 -12.1 -3.8 -3.8 -7.8 -2.0 -1.0 -28.6 0.0 -0.1 -0.7 -4.7 -4.3 -1.5 -7.2

Preceding month of current year 1976.658

% variation during the Month under review over planned production.

-1.7

439.697 155.512 1.442 109.240 83.506 41.508 48.489 1536.961 230.830 208.560 1.526 20.744 1373.486 67.477 1.762 0.000 17.970 38.615 8.661 0.199 0.270 1306.009 3580.974 738.004 2842.970

5.0 41.8 15.9 23.6 -16.8 10.9 -36.9 -3.5 -10.7 -11.7 3.3 0.1 7.3 483.1 -22.4 0.0 82.3 0.0 0.0 175.7 0.0 2.8 0.8 6.9 -0.8

* Provisional. $: Includes production from offshore east coast

Natural Gas Production (August-2012) (Qty: Million Cubic Meter) 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. during the month 2030.256 438.797 112.753 1.258 86.650 116.888 38.530 82.718 1591.459 262.400 239.700 1.600 21.100 1227.288 11.537 1.857 0.000 9.540 0.000 0.000 0.140 0.000 1215.751 3519.944 712.734 2807.210

*Provisional. $: Coal Bed Methane production.

Production during the Month under Corresponding review * month last year 1996.080 1971.769 460.576 159.838 1.458 107.098 97.257 42.747 52.178 1535.504 234.368 211.605 1.653 21.111 1316.905 67.268 1.441 0.000 17.391 38.888 8.930 0.386 0.232 1249.637 3547.353 762.212 2785.141

488.254 167.146 1.511 113.384 111.875 41.491 52.847 1483.515 222.642 200.037 1.818 20.787 1906.929 62.274 2.000 1.315 22.313 29.498 6.989 0.007 0.152 1844.655 4101.340 773.170 3328.170

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Refinery Production in terms of Crude Throughput (August-2012) (Qty: ‘000’ Ton) Name of the Undertaking / Unit 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(CBR) Total CPCL 16. NRL, Numaligarh 17. MRPL, Mangalore 18. ONGC, Tatipaka Private Sector $ 1. RIL, Jamnagar 2. Essar Oil Ltd.(EOL), Vadinar TOTAL(B) $

Planned Production. during the month 10594.600 85.000 532.400 1060.000 650.000 640.700 58.000 1343.200 205.000 4574.300 1103.100 865.000 545.000 2513.100 651.700 822.000 1473.700 527.000 61.400 588.400 265.000 1175.000 5.100 4299.900 2639.000 1660.900 14894.500

Production during the Month under Corresponding month review * last year 10438.902 9738.112 5.178 97.798 579.332 184.856 1194.969 1058.711 543.192 670.232 732.937 683.667 58.136 53.412 1307.257 1383.051 213.502 165.335 4634.503 4297.062 1101.870 1091.430 920.943 796.658 604.200 0.000 2627.013 1888.088 746.605 638.782 414.136 727.847 1160.741 1366.629 483.116 771.721 61.816 64.382 544.932 836.103 269.407 239.065 1198.125 1106.157 4.181 5.008 4765.683 4283.568 3044.000 3004.000 1721.683 1279.568 15204.585 14021.680

Preceding month of current year 10205.118 68.038 540.438 1055.385 577.474 700.063 59.618 1196.928 211.459 4409.403 1137.491 941.934 339.400 2418.825 709.705 470.483 1180.188 707.232 48.099 755.331 244.107 1193.586 3.678 4778.483 3040.000 1738.483 14983.601

% variation during the Month under review over planned production.

-1.5 -93.9 8.8 12.7 -16.4 14.4 0.2 -2.7 4.1 1.3 -0.1 6.5 10.9 4.5 14.6 -49.6 -21.2 -8.3 0.7 -7.4 1.7 2.0 -18.0 10.8 15.3 3.7 2.1

Refinery-wise Capacity Utilization (August-2012) (Qty: ‘000’ Ton) Name of the PSU / Private Co.

August, 2012 Prorated Installed Actual Crude Capacity $ Throughput * C. Refinery-wise Capacity Utilization Public Sector 10709.000 10438.902 1. IOC, Guwahati 85.000 5.178 2. IOC, Barauni 510.000 579.332 3. IOC, Koyali 1164.000 1194.969 4. IOC, Haldia 637.000 543.192 5. IOC, Mathura 679.000 732.937 6. IOC, Digboi 55.000 58.136 7. IOC, Panipat 1274.000 1307.257 8. IOC, Bongaigaon 200.000 213.502 Total IOC 4604.000 4634.503 9. BPCL, Mumbai 1019.000 1101.870 10. BPCL, Kochi 807.000 920.943 11. BORL, Bina 510.000 604.200 Total BPCL 2336.000 2627.013 12. HPCL, Mumbai 552.000 746.605 13. HPCL, Visakh 705.000 414.136 Total HPCL 1257.000 1160.741 14. CPCL, Manali 892.000 483.116 15. CPCL, Narimanam 85.000 61.816 Total CPCL 977.000 544.932 16. NRL, Numaligarh 255.000 269.407 17. MRPL, Mangalore 1274.000 1198.125 18. ONGC, Tatipaka 6.000 4.181 Private Sector $ 4332.000 4765.683 1. RPL, Jamnagar 2803.000 3044.000 2. Essar Oil Ltd.(EOL), Vadinar 1529.000 1721.683 TOTAL $ 15041.000 15204.585

% utilization of I/C

97.5 6.1 113.6 102.7 85.3 107.9 105.7 102.6 106.8 100.7 108.1 114.1 118.5 112.5 135.3 58.7 92.3 54.2 72.7 55.8 105.6 94.0 69.7 110.0 108.6 112.6 101.1

*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.

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NewsBriefs | Renewable

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Tamil Nadu Targets 3,000 MW of solar power

India renewable energy sector Seeks Israeli expertise

Suzlon enters Romanian market Forms new subsidiary

Tamil Nadu has set a target of generating 3,000 MW of solar power by 2015, according to its Solar Energy Policy 2012 recently unveiled by Chief Minister J. Jayalalithaa. With average solar incidence of 5.5-6 kWh/m2 /day, Tamil Nadu is amongst the states with the highest solar insolation in the country. The southern part of the state is considered to be the most suitable for development of solar power.

The Government is keen that electricity produced from large hydro should be included in renewable energy category so that the share of renewables in the overall energy mix rises to about 31 per cent. India has sought Israel’s expertise in the renewable energy sector to meet its ambitious target of 30,000 MW of power over the next five years.

REpower Systems SE, has concluded a contract with P.E. DEUS EX S.R.L., a project company (SPV) of WSB International GmbH, to deliver eight wind turbines to Romania. The REpower 3.2M114 turbines, each with a rated power of 3.2 megawatts, a hub height of 93 metres and a rotor diameter of 114 metres, are destined for a wind farm project near Margineni.

Conergy installs 900 kWp off-grid PV system

Chhattisgarh solar energy sector Targets attracting `100 bn investment

Rajasthan to get Solar plant worth `4.1 bn

German PV project developer Conergy has completed the installation of a 900 kWp off-grid PV project for the Madhya Pradesh Forest Department (MPFD), a forest service agency in Madhya Pradesh, India. The off-grid PV array is composed of 755 1kW systems and 29 5kW systems which utilise crystalline PV modules supplied by Conergy.

Chhattisgarh Government has set an ambitious target of attracting `10,000 crore worth of investment in the solar energy sector in the near future. Chief Minister Raman Singh said the government has formulated a clear and comprehensive policy which envisages seeking `10,000-crore investment in the sector. The sector has immense potential to generate large scale employment.

Kolkata-based Vikram Solar, a leading solar product manufacturer, is likely to commission its 40-MW solar power generating plant in Rajasthan by the end of January 2013, investing more than `410 crore. The firm, an arm of Vikram Group and a top photo-voltaic (PV) solar-module-maker, has already signed a 25-year power purchase agreement (PPA) with the Rajasthan government.

Enfinity Solar Solutions to promote 100 MW solar park in Coimbatore

AALBORG CSP provides steam Generator for Godavari solar project

Gamesa Wind Turbines 47.6 MW project in Ahmednagar Gamesa Wind Turbines Pvt. Ltd. has been awarded the contract to install, operate and maintain a 47.6 MW wind farm in Ahmednagar district of Maharashtra. Despite numerous extensions of time for submission of bids only one bid was received from Gamesa Wind Turbines Pvt. Ltd. for the project. The capital cost of the project is INR 2,996.10 million inclusive of taxes and duties.

Enfinity Solar Solutions Pvt Ltd, a Belgian company, intends to promote a 100 MW solar park in the Coimbatore district. Enfinity’s Managing Director, Guy Baeyens, said that the company has two key elements in place – land and approvals for linking to grid. Enfinity on its own intends to put up a 15 MW solar plant in the proposed park.

Aalborg CSP A/S has provided a steam generator system for the 50 MW Godawari concentrating solar power (CSP) project, under construction in Rajasthan, India.

The system was handed over to Lauren CCL Engineers Pvt. Ltd., the engineering, procurement and construction company that is constructing the plant.

Discoms fail To meet RPO

Gurgaon to generate five-six Mw of From solid waste

CW Renewable Energy Seeks to raise £50m

Most state electricity distribution utilities have failed to meet their renewable energy purchase obligation for 2011-2012, experts say, citing poor policy enforcement and lack of awareness as reason. According to the India Energy Exchange, while solar power is costly and suffers from supply shortfall, non-solar sources of energy (wind, biomass) have few takers due to lack of steady returns.

The Millennium City may soon generate nearly five-six megawatts of electricity from solid waste. The Haryana Urban Development Authority (Huda) and the Municipal Corporation of Gurgaon (MCG) are planning to generate electricity from solid waste at its Bandhwari plant on the lines of the Timarpur Okhla Municipal solid waste facility owned by the Municipal Corporation of Delhi (MCD).

The Bristol-based business is aiming to raise the funds as part of its wind energy development programme in India. Are looking to expand wind generation capacity quickly to build on the platform they have so far created.

Through attracting £50m they want to be in a position to be generating 250MW within the next two to three years.

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November 2012 www.InfralinePlus.com

InConversation

‘Our hydro projects are well equipped to deal with monsoon uncertainties’ Set up over 50 years ago to take care of the Bhakra and Beas dams, the Bhakra Beas Management Board (BBMB) has been successfully renovating, modernising and uprating its plants over the years. Today, it commands a 50 per cent share of the country’s hydro power capacity. In a freewheeling chat with Infraline Plus, its Chairman since March 2010, A. B. Agrawal talks about how hydro sector will play an important role in India’s growth. Excerpts:

60

How can hydro sector contribute to addressing the growing power demand? How much have we been able to harness the available hydro power potential in the country?

Despite all our efforts, so far we have been able to harness only 39,291 mw hydro power whereas we have a potential of about 1,48,000 mw. At the end of 11th Plan, there was energy shortage of 10.2 per cent in the country and peaking power shortage of 11.1 per cent. If the entire hydro potential is harnessed, it would contribute significantly towards taking care of the peaking power demand, being the ideal peaking power source. With environmental sensitivities getting sharper by the day, very low carbon footprint of hydro power is an added advantage.

What is the current share of hydro sector in the total energy basket?

Do you expect any improvement by the end of current Five Year Plan?

We have a total installed power generation capacity of 2,06,456 mw out of which hydro power has a 19 per cent share at 39,291 mw. However, many a time, such comparison may not give the

correct picture due to comparatively low plant load factor of hydro power plants.

For example, in spite of 19 per cent share in installed generation capacity, only 130.4 billion units of hydro energy was generated during 2011-12 out of a total generation of 876.4 billion units, which means a share of only 14.9 per cent.

Nevertheless, there was one encouraging factor -- growth in hydro power generation was 14.15 per cent while the overall power generation growth was only 8.05 per cent. By the end of 12th Plan, i.e. by March 2017, installed capacity in hydro power of about 48,500 mw is envisaged out of total 2,70,000 mw i.e. a share of about 18 per cent.

What are the advantages of installing small hydro projects over larger hydro projects?

Though small hydro projects do not appear glamorous in today’s age of mega plans and mega numbers, their benefits are enormous.

The three most important components of setting up hydro power plants, A. B. Agrawal

i.e. water rights, resettlement & rehabilitation and environment get easily taken care of in the case of small hydro plants. Moreover, such plants can be an important component of “decentralised distributed generation” model as they can work as standalone power stations to cater to local needs without any grid connectivity. Their gestation period is shorter due to which their benefits can be better appreciated, especially in remote places with no grid power. In such cases, consumers may also get electricity at cheaper rates.

Are present day hydro power stations well-equipped to sustain weather fluctuations

November 2012 www.InfralinePlus.com

61

A view of Bhakra Beas dam

like uncertain monsoons and global warming? Since weather uncertainties do impact water levels in the river, is it prudent to invest in capacity expansion of hydro projects?

Of late, there has been a growing hype about weather fluctuations, truant monsoons, abnormal glacial receding and melting ascribed to rising carbon footprint and global warming. But monsoon uncertainty is not a new phenomenon.

Present day hydro power stations have been designed to factor in such uncertainties after exhaustive studies during preparation and Detailed Project Reports.

Upheaval from present monsoon trends, if any, can only occur gradually and would take generations to manifest itself.

BBMB witnessed a severe monsoon fluctuation in 1988 when in the last days of September there were heavy rains

Present day hydro power stations have been designed to factor uncertainties after exhaustive studies during preparation and Detailed Project Reports. which caused massive inundation as by that time all dams were full with no capacity to accommodate such floods.

Since then, we have not seen such violent fluctuation. But, the storage type hydro power projects are very well equipped to deal with such uncertainties as in the case of BBMB, Narmada Hydro Development Corporation (NHDC) and Tehri Hydro Development Corporation (THDC).

Which are the units undergoing renovation and modernisation and what is the estimated cost and benefit analysis?

BBMB is a pioneer organization of hydro sector in renovation, modernization and uprating (R,M&U). At present, five units of 108 mw each at our Bhakra Left Bank Power House located in Himachal Pradesh are under R,M&U for the second time. In the first round, they were uprated from 90 mw to 108 mw.

The estimated cost of the present R,M&U is roughly `490 crore excluding IDC. With this round of renovation, not only will the generation capacity of each unit be uprated from 108 mw to 126 mw each, but the units will also get a fresh lease of life for coming 25 years. Post R,M&U, about 16 per cent increase in peaking power is envisaged.

It is noteworthy that our plant is already

November 2012 www.InfralinePlus.com

InConversation about 50 years old and such increase in generation capacity shall be achieved without any incremental environmental or R&R issues.

62

There were reports that firms that undertake renovation and modernisation operations for old projects quote much higher prices for the job thereby reducing the incentive to go for such modernisation?

The cost of R,M&U project is a function of a number of factors such as age, profile and condition of the plant, technical requirements for change of certain plant components, for example, turbine / generator, transformers, auxiliaries, availability of current technical data, location, exchange rates especially in case of foreign vendor etc. Just as the common sense economics dictates, an R,M&U job perceived to be easier shall attract stiff competition and hence competitive rates and vice versa. However, many a times the rates seem to be exorbitant due to the requirement of replacement of a number of major components/auxiliaries due to wear& tear and more due to enhancement of their ratings. Still, in majority of the cases this is an easier route to maintain/enhance capacity in a short time without any environmental and R&R issues.

Does India have the required technology for renovation and modernisation so as to increase the life of the plant without having to continuously repair it?

Technology for renovation and modernization of hydro power plants may not be widely available in India.

Most of the R,M&U work is actually required on very old units. Authenticated engineering data on most of such units is either not available or the original vendors of large number of components are out of business or are not interested. In such cases, R,M&U can proceed only with retrieval of data through reverse engineering which requires high degree of technological exposure and sophistication. Such expertise is available only to a limited extent in India. However, on the positive side, there have been umpteen instances when the vendors have successfully implemented R,M&U of units earlier supplied by them. In our own case, we had a satisfactory experience with BHEL in execution of R,M&U on six units of Pong Power House from 60 mw to 66 mw each.

Can you give us a cost-benefit analysis of renovation and modernisation versus installing greenfield projects?

Pandit Nehru described Bhakra dam as ‘New temples of resurgent India’. His statue at the site of the dam

It is always better to add generation capacity through R,M&U rather than through greenfield projects. For example, in case of the first R,M&U of Bhakra Left Bank Power House, cost per mw was very low as at that time uprating was done just by upgrading the insulation from Class B to Class F after detailed engineering. This current R,M&U cost works out to be about `5 crore per mw whereas a greenfield storage type hydro project entails a cost of `10-12 crore per mw. Also, the per mw cost of greenfield hydro projects depends on a number of factors such as hydrology and plant design, logistics, R&R issues, political uncertainties, geological surprises, financial arrangement etc. But by and large, R,M&U is a very cost effective proposition. It takes less time and the benefits start flowing in significantly shorter span. R,M&U also conserves management energy and hence the cost, as the issues of water rights, R&R, etc. scarcely raise their head.

Do you also face local resistance during the renovation and modernisation process? If yes, then how do you deal with it?

R,M&U is like erecting a modified structure and/or super structure in place of already existing structure, without consuming any additional space or environmental niches. In most such cases, there is scarcely any incremental issue of water rights, R&R or environment. BBMB has been a pioneer in the country in the field of R,M&U of hydro power plants, with the largest capacity addition through uprating. We have not encountered any local resistance against our R,M&U works. In fact, through this route, we have already added a capacity of 311 mw and addition of another 90 mw is underway.

Our share so far in the country is more than 50 per cent.

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

November 2012 www.InfralinePlus.com

InDepth

Hydro power viable in small packages ►► Acquiring large mass of land is the biggest hindrance in building hydro projects ►► Small hydro plants are, however, well-suited for villages

63

The Loharinag Pala hydro power project planned by NTPC is located on the river Bhagirathi at Loharinag Pala in Uttaranchal

by Team InfralinePlus

It is clean, it is green, it is lean. But still, generation of power from water has not taken off in India the way it should have. Only 19 per cent of the total installed power capacity in the country comes from hydraulic sources and till last year it accounted for only 15 per cent of the total power generated.

“The pace of implementation of

Out of a total of 876,337 million units of power generated every year, only about 130,000 million units are contributed by hydro power.

hydro plants has not kept pace with our requirements,” says former power secretary Anil Razdan. “A decade back or more, we had said that we need 40 per cent of hydro power and 60 per cent of coal and other base load power,” but 10 years later while thermal power share remains at roughly 66 per cent, the hydro power target has not even been half met. Out of a

November 2012 www.InfralinePlus.com

InDepth

total of 876,337 million units of power generated every year, only about 130,000 million units are contributed by hydro power.

Given the grim situation of fuel availability -- be it coal or gas, the complexities involved in using nuclear energy, recent controversies surrounding coal block allocation, frequent power cuts and the massive two-day failure of the three grids (in July), there is a pressing need to look for other reliable sources of energy.

Hydro power can provide the

answer as it is the oldest and cleanest form of renewable energy.

“The government should focus on consolidating the hydro projects. It should make sure that the approach to projects are clear and environmental clearances are available in time so that these can come up by the 12th and 13th Five Year Plan”, says Razdan.

But the very scarce nature of the basic ingredient of these projects — water — makes this form of energy elusive. Conceding that the scarce nature of water is an issue stalling the

64

Hydro power projects face hiccups as they require large quantities of water over large tracts of land to be harnessed for running turbines.

Multi-headed Hydra Why hydro projects have not taken off • Disruption of natural flow of water at high terrains has an impact on the aquatic ecosystem • There is therefore no incentive for people to part with their land as compensation rates fixed by the government are low • Large number of people have to be relocated and resettled after acquisition of land • Multiple agencies involved in giving clearances • Poor road connectivity and poor communication facilities in hilly areas Keep it small • Small hydro projects are good for remote and inaccessible areas • They are easy and cheap on maintenance • Can be constructed with local materials and skills • Can harness power even from a small source or low flowing water • Get ready with short planning and construction period

growth of this sector, Razdan says the answer lies in integrating water supply with hydro power generation and setting up multipurpose hydro projects which can take care of drinking water, irrigation and power requirements.

“You can generate power through imported assets, imported fuels, may be at a higher cost but you cannot provide water,” he says.

Stumbling blocks Even though there are no fuel emissions in hydro plants and the energy produced is clean, there are environmental issues with such plants since large quantities of water over large tracts of land are required to be harnessed to run turbines for producing electricity. Disruption in the natural flow of water at high terrains has an impact on the aquatic ecosystem and surroundings and there are land clearance issues and large-scale human displacement as well.

Raghunath Prasad Singh, Chairman and Managing Director of Satluj Jal Vikas Nigam (SJVN) says, “The problems related with land acquisition are the greatest stumbling blocks in setting up of hydro power projects. As per law, compensation rate for privately acquired land is decided by the state government. Since the frequency of land transactions is very less in hill areas, rates fixed by the governments are archaic and are not in keeping with the market conditions. There is therefore no incentive for people to part with their land.”

Besides, there are multiple agencies involved in clearing rehabilitation and resettlement plans and comprehensive basin-wise catchment treatment plans which makes the process tedious. “The government has tried to streamline procedures to some extent, but the multiplicity of agencies and the lack of clear guidelines have led to time and cost overruns”, says Singh.

In hilly terrains the basic infrastructure is also poor. Bad road

November 2012 www.InfralinePlus.com

water and get ready with short planning and construction period. MNRE aims to harness 50 per cent of the 15,000 mw potential from small projects in the next 10 years. By the end of the 12th Why go for it Plan the target is to achieve 7,000 mw Once the initial stage issues have installed capacity. been tackled, there are many benefits The government is also in favour which hydro plants enjoy over other of small hydro power projects and is renewable sources like wind and solar incentivizing players to a great extent. energy. One, these plants are automated States like Himachal Pradesh, Uttar to a great extent and have minimal Pradesh, Haryana, labour cost; two, they Punjab, Uttarakhand, have a conversion Hydro plants are Madhya Pradesh, factor of up to 90 automated to a great Chhattisgarh, per cent and prove extent and have Karnataka, Kerala, extremely efficient minimal labour cost; Andhra Pradesh, in the long term two, they have a Tamil Nadu, Orissa, with operational conversion factor West Bengal, life of up to 50–100 years which is the of up to 90 per cent Maharashtra and longest for any and prove extremely Rajasthan have source of energy; efficient in the long already announced three, pollution and term; three, pollution policies for setting up commercial greenhouse emissions and greenhouse SHP projects are contained through emissions are through private these plants. contained through sector participation.

Size is a crucial these plants.

Given the interest component. In India, that private investors hydro projects up are showing in the sector, it holds to 25 mw capacity are categorized as the key to the future. Going by the Small Hydro Power (SHP) projects potential of small hydro projects, the while projects above this capacity Planning Commission has recently are large hydro projects. While the called for priority clearances for Ministry of Power looks after the these projects. BCK Mishra, Director, large hydro projects, SHP projects Operations, UJVN Ltd says, “As come under the Ministry of New and per prevailing laws, the authority Renewable Energy (MNRE).They for according various clearances for are further classified as Mini (up to implementation of small hydropower 100 kw), Micro (101 to 2000 kw) and projects lies with the state government Small Hydro (2001 to 25000 kw). except forest land diversion above 5ha which the Ministry of Environment Small is big and Forests does. The situation will Small hydro projects have been improve if the suggestions of Planning identified as one of the thrust areas Commission are implemented.” for power generation by MNRE. They Speedy clearances from all agencies are especially good in remote and and a well-planned implementation inaccessible areas. Small barrages strategy will go a long way in making don’t harm local environment. They are easy and cheap on maintenance and can small hydro projects big in India. be constructed with local materials and skills. They can harness power even For suggestions email at feedback@infraline.com from a small source or low flowing connectivity and communication facilities also lead to delays in construction.

Key Highlights Daily Newsletter and Database Updates on: • Power • Coal • Oil & Gas • India Upstream • Renewable For more details email at: general.support@infraline.com

November 2012 www.InfralinePlus.com

InDepth

There’s a new legion of sun worshippers at Sabarmati jail ►► New solar steam cooking system to reduce carbon emissions drastically ►► It would increase the jail’s savings by `20 lakh annually

66

Solar dishes on top of the Sabarmati jail kitchen

by Pallavi Chakravorty

After Ladakh and Shirdi, it is the turn of Gujarat. In one of the new kind of trends in the country, sun’s rays are being tapped for institutional cooking where reflectors, steam pipelines and water boilers have taken the place of pots and pans. Sabarmati -- the city on the banks of that famous river by the same name known for having given us our Father of the Nation, is today leading the revolution in solar energy.

Backed by the Home Ministry, the Sabarmati jail has got a steam cooking system installed which runs on solar energy. Here gas stoves have given way to 24 concentrated solar dishes, which

generate steam at high temperature that cooks the food for jail inmates.

Completed in July this year, this solar cooking technique is helping the jail conserve energy and reduce its carbon footprint besides providing daily meals to 3,000 inmates.

The system conserves energy equivalent to about 1,300 cylinders of 19 kg each per annum and leads to savings of roughly `20 lakh every year. It reduces the use of conventional energy by almost 90 per cent which is needed only as a backup for days

The steam cooking system would help reduce carbon emission by 72,000 tonnes annually over its anticipated 25-year life cycle and also check the emission of hazardous gases such as SO2, CO2 and NO2 in the atmosphere.

November 2012 www.InfralinePlus.com

when the sun’s rays are not strong.

Carbon emission is reduced by 72,000 tonnes annually over its anticipated 25-year life cycle and the emission of hazardous gases such as SO2, CO2 and NO2 in the atmosphere is also checked.

Steam cooking systems find application in residential schools, mid-day meal programmes, hotels, jails, institutions and other such industries providing canteen facilities to employees, residents and large gatherings. This technology is also helpful for military and defence teams deployed in remote areas.

According to Badal Shah, the CEO of Mumbai-based company Flareum Technologies which has installed this solar cooking system at Sabarmati jail, this technology can be used in varied sectors, specially hospitality where there is immense use of steam and hot water. From cooking to laundry, every aspect of this industry needs water in different forms and temperatures which a solar thermal system can easily provide, he says.

According to him, the best way to promote this technology is to make people aware of existing projects and their benefits to the owners and the surroundings. “The projects installed have been benefiting the stakeholders

immensely by saving on fuel cost and also making the environment more hygienic and healthy. People need to be informed that such systems pay for themselves in the long run since there are no other cost inputs to these after being installed,” he added.

The Additional DGP-New Central Jail, Sabarmati, PC Thakur, says the procurement and installation cost of `60 lakh of the steam cooking system can be recovered in four to five years.

The system is operated by jail inmates themselves who were given a three-day training for this. The only precaution that they have to take is in adjusting the steam temperature.

Flareum has installed a similar cooking system at Shirdi temple in Maharashtra where food is cooked for 50,000 pilgrims every day thanks to the sun god. Their steam cooking system in Ladakh is at the highest point for any solar cooking technique to have reached. Keeping in mind its requirement of skilled workforce, the company has recruited 35 IIT graduates from across the country this year, says Shah. According to him, space crunch and huge initial capital required for such projects are the major roadblocks in their expansion.

“We are yet to match countries

How the solar cooking system works

Receiver

Header Pipe

Feed Watertank Applications

Softner

Back-up Boller

Making the sun cook There are several static concentrators reflecting/ concentrating solar rays on one receiver each. The steam generated in receivers with the solar energy goes to the header.

The system is connected with feed water and steam pipelines which in turn are inter-connected with the boiler and the cooking vessel system.

Solar steam community cooking application provides an eco-friendly solution to the increasing energy demands of community cooking. Flareum has also specialised in thermic fluid cooking systems for higher altitudes.

Economics of Use – 1500 People Meals/ day 80 m2 (16 Collector Area m2 x 5 ) Alternative fuel used LPG No. of days of usage of 320 system per year Potential Energy & Cost Savings for 1,500 Meals a day Annual LPG saved (in kg) 18,000 Approx Annual Cost Saving (in `) 12,30,000 Annual CO2 emission 27,000 saving (in kg)

where solar steam technology is used to run entire power plants, such as the one in Nevada, US. It is a concentrated solar power plant with a minimum capacity of 64 MW and maximum capacity of 75 MW. Spread over an area of 400 acres, the projected CO2 emissions avoided are equivalent to taking approximately 20,000 cars off the road annually. We are yet far away from achieving something like that but there is no harm in making new beginnings,” says Shah.

Condensate Recovery Tank

For suggestions email at feedback@infraline.com

67

November 2012 www.InfralinePlus.com

StatisticsRenewableEnergy List of Small Hydro Projects commissioned in Private Sector in Himachal Pradesh Sl. Firm Name No. 1 Batot Hydro Power Project Ltd. 2 Ginni Global Ltd.

214, Empire House (Basement) Dr. D N. Road (Ent.) A. K. Nayak Marg Fort Mumbai-400001 2nd Floor, Shanti Chamber 11/6B, Pusa Road New Delhi-110005 (India) B-14, 2nd Lane Sector-II, NewShima-171009

3

Belij Hydro Power Ltd.

4

Chirchind Hydro Power V.P.O. Chhatrari, Tehsil & Distt. Chamba (HP) 176324 Ltd. Astha Projects India Ltd. Plot No. 226, Road No. 78 Phase-Ill Jubilee Hills Hyderabad (A.P.)500033.

Saini Techno Con236 Bajri Co. Burmah Shell Road, Pathankot (Punstructs. Co. (P) Ltd. jab)-145001.

Virender Dogra Power 7 Green Colony, Old Shahpur Road, Pathankot-145001 Projects (P) Ltd. Him Kalash Hydro Plot No.-49,3rd Floor. Durga Nagar Colony. Panjagutta, Power (P) Ltd Hyderabad-82 Ginni Global Ltd. 2nd Floor, Shanti Chamber 11/6B, Pusa Road New Delhi-110005 (India) Cimaron Constructions Gymba House, South End, Lane-IV, Sector-I, New (P)Ltd. Shimla-171009. (HP) Taraila Power Ltd. Plot No. 125. Road No.7l Nav Nirman Nagar, Jubilee Hills, Hyderabad-500033.

AT. Hydro (P) Ltd. Plot No. 125, Road No. 71. Nav Nirman Nagar, Jubilee Hills Hyderabad (A.P.) 500033 Vamshi Hydro Energies 404-405, Udyog Vihar. Phase-Ill, Gurgaon (Haryana)-122016 (P) Ltd. Anubhav Hydel Power Plot No. 226, Road No. 78 Phase-Ill, Jublee Hills Hyderabad Limited (A.P) 500033.

Sodhi Brothers Hydro 25,Phase-1,Industrial Area Nagrota Bhagwan Distt. Kangra Power (P) Ltd. HP. Vamshi Industrial Power 404-405, Udyog Vihar, Phase II, Gurgaon (Haryana)-122016 Ltd. Raheja Hydro Power B-27A, Sushant Lok-I, Gurgaon-122009 Pvt. Ltd. Iqu Power Co. Pvt Ltd. C/O Subhash Projects & Marketing Ltd., Subhash House 27/2 Okhala Industrial Area Phase-ll New Delhi-110020 Vamshi Hydro Energies 404-405, Udyog Vihar, Phase II, Gurgaon (Haryana)-122016 (P) Ltd. Changar Vidyut Kranti Chankyapuri Ghuggar, Palampur, Kangra 176061 Pvt. Ltd. Sri Sai Krishna Hydro Plot No. 226 Road No. 78 Phase-Ill Jublee Hills Hyderabad Energies (P) Ltd. (A.P.) 500033.

Sri Sai Krishna Hydro Plot No. 226 Road No. 78 Phase-Ill Jublee Hills Hyderabad Energies (P) Ltd. (A.P.) 500033 Dharamshala Hydro Plot No. 30-A . Road No. 1, Film Nagar, Jubilee Hills HyderPower Ltd. abad (A.P) Dharamshala Hydro Plot No. 30-A , Road No. 1, Film Nagar, Jubilee Hills HyderPower Ltd abad (A P) Dhauladhar Hydro Vill Papplohal, P.O. Dandwin, Tehsil Barsar, Hamirpur System Pvt. Ltd. -176041 Astha Projects India Ltd. Plot No. 226, Road No. 78 Phase-Ill Jubblee Hills Hyderabad (A.P.) 500033 Vamshi Industrial Power 404-405, Udyog Vihar, Phase-II, Gurgaon (Haryana)-122016 Ltd. Regent Energy Ltd. B- 1/H-1,Mohan Co-Op-Ind Estate, Mathura Road, New Delhi-110044.

Door Sanchar Hydro Plot No. 293, Phase-1, Industrial Area, Panchkula (HaryPower (P) Ltd. ana)-134113 Sai Engineering Foun- Sai Bhawan Sector-4. New Shimla-171009. dation Tangling Mini Hydel Sai Bhawan Sector-4, New Shimla-171009.

Power Project.

Aleo Manali Hydro B-173, Sector-41, Noida-201303, NCR- Delhi.

Power Pvt. Ltd. K.K.K. Hydro Power Ltd. 1-41, DLF Industrial Area, Phase-1, Faridabad-121003 Harisons Hydel ConAkhara Bazar Kullu Distt. Kullu HP. 175101 struction Co. Pvt. Ltd. Puri Oil Mills Ltd 302, Jyoti Shikkar, 8, Distt. Centre, Janak Puri, New Delhi-110058 Kapil Mohan & AsSCO-140-141, Sector- 34-A, Chandigarh sociates Hydro Power (P) Ltd. Chevron Hydel Pvt. Ltd. 285 R.P.S, Sheikh Sarai-I, New Delhi-110017

5 6 7 8 9 10 11 12 13 14 15 16

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Address

17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

Marhi Mini Hydel Power Sai Bhawan Sector-4, New Shimla-171009.

Project

Project Name Balij Ka Nallah-II Balsio

Stream

Basin Capac- District ity (MW) Ravi 3.50 Chamba

Commissioing Date 6/16/2012

Ravi

4.95

Chamba

6/25/2012

Balij Ka Ravi Nallah Chirchind Chirchind Ravi

5.00

Chamba

6/17/2012

5.00

Chamba

25/02/2011

Dehar

Dehar

Beas

5.00

Chamba

28/07/2004

Dehar-II

Dehar

Beas

1.50

Chamba

3/5/2011

Manjhal

Manjhal

Ravi

1.00

Chamba

21/02/2006

Sahu

Sal

Ravi

5 00

Chamba

22/04/2008

Taraila

Taraila

Ravi

5.00

Chamba

15/11/2007

Taraila-II

Taraila

Ravi

5.00

Chamba

02/03/2009

Taraila-lll

Taraila

Ravi

5.00

Chamba

25/05/2011

Upper Taraila Baner-llI

Taraila

Ravi

5.00

Chamba

10/09/2009

Baner

Beas

5.00

Kangra

21/06/2009

Binwa Parai Brahal

Binwa

Beas

5.00

Kangra

09/05/2011

Brahal

Beas

4.00

Kangra

07/12/2010

Drinidhar

Brahal

Beas

5.00

Kangra

3/29/2010

Gaj-ll

Gaj

Beas

1.5

Kangra

14/01/2011

Iqu

Iqu

Beas

4.50

Kangra

18/02/2011

Iqu-II

Iqu

Beas

5.00

Kangra

30/12/2008

Lower Baijnath Luni-II

Baijnath Kuhl Luni

Beas

1

Kangra

15/08/2009

Beas

5.00

Kangra

Luni-III

Luni

Beas

5.00

Kangra

12/11/2009 .

31/05/2009

Maujhi

Maujhi

Beas

4.50

Kangra

24/06/2004

Maujhi-ll

Maujhi

Beas

5.00

Kangra

06/11/2010

Salag

Iqu

Beas

0.15

Kangra

30/03/2006

Upper Awa Upper Khauli Rakchad

Awa

Beas

5.00

Kangra

14/05/2008

Khauli

Beas

5.00

Kangra

29/12/2010

Salring

Satluj 5.00

Kinnaur

24/02/2011

Rukti-II

Rukti

Satluj 5.00

Kinnaur

30/11/2011

Shyang

Shyang

Satluj 3.00

Kinnaur

22/01/2009

Tangling

Tangling

Satluj 5.00

Kinnaur

13/12/2010

Aleo

Allain

Beas

3.00

Kullu

14/08/2005

Baragran Brahim Ganga Chakshi

Sanjoin Brahim Ganga Chakshi

Beas Beas

4.90 5.00

Kullu Kullu

05/08/2004 02/04/2008

Beas

2.00

Kullu

22/02/2012

Jirah

Jirah

Beas

4.00

Kullu

31/01/2011

Jiwa Kothari Marhi

Jiwa

Beas

1

Kullu

23/12/2006

Beas

Beas

5.00

Kullu

02/01/2007

Balij Ka Nallah Balsio

Belij

November 2012 www.InfralinePlus.com

Sl. Firm Name No. 39 DSL Hydrowatt Ltd. 40 41 42 43 44 45 46 47 48 49 50

Sai Engineering Foundation Sarabai Enterprses (P) Ltd. Gowthami Hydro Electric Co.(P) Ltd. Hateshwari Om Power Enterprises Pvt. Ltd. Shree Bhavani Power Projects (P) Ltd. Himshakti Project Pvt. Ltd. Ascent Hydro Projects Ltd. Himalayan Crest Power Ltd. Himalayan Crest Power Ltd. Manglam Energy Development Co. Pvt. Ltd. Himalayan Crest Power Ltd.

Address

Sarwari

Basin Capac- District ity (MW) Beas 4.50 Kullu

Commissioing Date 17/05/2008

Toss

Beas

5.00

Kullu

23/11/2008

Govindpuri, P.O. Panarasa Sub-Tehsil Aut, Distt-Mandi, (H.P.) Gurahan 175121 No. 13, 14th Floor, Maitri Arcade, 2-3-42/52, M.G. Road, Andhra-ll Secunderabad, A.P.- 500003 Kirti Bhawan, Sanjuli, Shimla-6.

Ching

Gurahan

Beas

1.50

Mandi

30/09/2010

Andhra

Shimla

12/06/2009

Shimla

09/03/2005

Flat No. 7, A-6, Maharani Bagh, New Delhi-110065

Manglad

Manglad

Ya5.00 muna Ya1.00 muna Satluj 4.50

Shimla

28/05/2010

1st House, Bhumian Estate, Nav Bahar Road, Chhota, Shimla- 171002 Building No.-2/RH-I, Visava Enclave, D.P.Road, Aundh, Pune-411007.

A-60, Okhla Industrial Area, Phase-II, New Delhi-110020

Sainj

Minus

Shimla

09/05/2010

Sechi

Sechi

Ya5.00 muna Satluj 4.50

Shimla

1/2/2012

Chandni

28/11/2008

3.00

Sirmour

03/09/2005

605, Ansal Bhawan, 16, Kasturba Gandhi Marg New Delhi-110001.

A-60, Okhla Industrial Area, Phase-ll, New Delhi-110020

Pallor

3.00

Sirmour

10/11/2010

Timbi

Kuniar

Yamuna Yamuna Yamuna Yamuna

Sirmour

Manal

Gorion Ka Khalla Sheuwara Ka Khalla Palor

3.00

A-60, Okhla Industrial Area, Phase-ll, New Delhi-110020

3.00

Sirmour

22/02/2011

214, Empire House, 3rd Floor, Dr. D. N. Road, Fort Mumbai-400101 Sai Bhawan Sector-4, New Shimla-171009.

Project Name Sarbari

Stream

Toss

Ching

Source: Infraline Research/HIMURJA

Electricity Generation (in MU) in Tamil Nadu through Renewable sources (2011-12) Sl. No.

Duration

Wind Power Biomass Power

Bagasse Cogeneration

Solar PV

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12

233.8268 533.3464 1316.569 1835.827 1848.6251 1505.4217 1081.6248 176.4862 328.4626 309.9757 317.5009 275.3818 251.2062 792.489 2153.4542

120.53 134.07 147.15 123.46 122.72 91.02 40.19 47.19 101.06 108.28 170.48 216.51 226.89 222.74 147.89

0.745 0.733 0.822 0.82 0.932 1.12 0.964 0.831 0.816 1.04 1.155 1.302 1.822 2.17 2.174

46.15 52.11 56.18 21.03 30.72 41.2 25 114.5 79 34.1 32.42 33.64 51.34 58.25 49.54

Small Hydro Power 6.59 5.19 7.19 9.5 10.05 16.08 12.29 12.65 15.97 13.67 11.89 9.29 4.75 3.69 3.49

Total

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2012-12

Off-Grid Power Generation in MU Wind Solar Small Hydro Biomass Solar Power Hybrid Power Gasifier (SPV) 0.027 0.562 0.562 0.004 0.762 0.004 0.540 0.855 0.027 0.004 0.540 0.927 0.063 0.009 0.540 1.073 0.126 0.031 0.540 1.458 0.126 0.391 0.540 1.638 0.126 0.396 0.540 2.362

Source: Infraline Research/MANIREDA

Apr 2011 May 2011 Jun 2011 Jul 2011 Aug 2011 Sep 2011 Oct 2011 Nov 2011 Dec 2011 Jan 2012 Feb 2012 Mar 2012 Apr 2012 May 2012 Jun 2012

Electricity Generation (MU) 6928379 14580788 49461222 57890717 47298213 37560329 6622345 10227201 9849016 9354299 11601332 10886493 10050228 25962638 58067528

Source: Infraline Research/NREDCAP

Year wise Off-Grid Electricity Generation (in MU) presuming 5 hours operations in a day and overall plant efficiency of 60% of various renewable energy projects/ schemes in Manipur as on 31/3/2012.

Year

Month

407.8418 725.4494 1527.911 1990.637 2013.0471 1654.8417 1160.0688 351.6572 525.3086 467.0657 533.4459 536.1238 536.0082 1079.339 2356.5482

Source: Infraline Research/TANGEDCO

S. No. 1 2 3 4 5 6 7 8 9 10

Month wise wind energy electricity generation in Andhra Pradesh from Apr’11 - Jun’12

Total 0.027 0.562 0.562 0.766 1.399 1.498 1.685 2.155 2.695 3.424

Plant wise yearly energy generated from micro hydro projects in Sikkim (kWh): 2005-12 Energy Generated In Units(kWh) 2005 2006 2007 2008 2009 2010 2011 2012*

Plant (Capacity) Karek MHP Banjhakri (10 kW) MHP (7 kW) 16080 43800 43800 43920 43920 43920 43800 29280

* Energy Generated till 31 Aug. 2012 Source: Infraline Research/SREDA

45612 45990 45990 45990 30744

Ghor MHP (20 kW)

Total

36300

16080 43800 43800 89532 89910 89910 89790 96324

69

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November 2012 www.InfralinePlus.com

PolicyWatch

No takers for 49 % foreign direct investment in aviation yet

71

by Team InfralinePlus

The government finally corrected a 15year old anomaly in the aviation sector on 14th September and allowed 49 per cent foreign direct investment (FDI) by foreign airlines in Indian carriers but the desired investment in domestic airlines is unlikely to happen anytime soon. With this decision though, the situation that had arisen in 1996 when the government had rescinded its 1990 order of allowing 49 per cent stake to foreign airlines in Indian airline companies, stands corrected.

The expectation that foreign airlines are going to flock to Indian shores to make capital investments in domestic airline companies, is going to be belied because high taxes, levies and tough regulatory environment make India an unattractive destination for investors.

Though our country is one of the fastest growing aviation markets in the world, many foreign carriers such as British Airways and Lufthansa have publicly denied any interest in the Indian carriers.

Also, barring SpiceJet and GoAir, none of the Indian carriers are today in a situation which makes them attractive for foreign investors.

Step forward But the decision itself is a positive and important step forward. “It allows Indian carriers to have strategic tie-ups with foreign airlines cemented by an equity stake” says Amitabh Khosla, Country Director - India, International Air Traffic Association (IATA). “The move is a sentiment booster for the whole sector as (a) it gives a signal that the government is serious about aviation reforms, (b) it gives the cash strapped domestic carriers an additional source of funding, and (c) it enables domestic carriers to learn from global best practices,” says a report by Bank of America Merrill Lynch.

Most of the Indian airline companies are in dire need of capital to reduce their huge accumulated losses and mounting debt levels. The operational losses of

Indian carriers in 2011-12 were estimated to be a whopping `10,000 crore and the operational losses of all airlines between 2008-2011 had touched a staggering `19,000 crore.

Government rethinks It was in this backdrop that the industry ministry had circulated a draft cabinet note for inter-ministerial consultation after a nod from the civil aviation ministry last year. The Department of Industrial Policy and Promotion (DIPP), which frames policy on FDI, favoured retaining the 26 per cent cap on foreign airlines’ holding.

India had allowed 49 per cent FDI in airline companies in early 1990s but had subsequently barred foreign airlines from investing. But other foreign investors never showed any inclination to invest.

They wanted a much bigger share in the management of companies.

A committee of secretaries, which was formed to suggest ways to bolster

November 2012 www.InfralinePlus.com

PolicyWatch

Regulatory anomaly India had permitted 49 per cent FDI in the airline sector, but since 1996 the regulations – unique in the world – had specifically excluded the one class of investor that has the greatest strategic interest and can add value to the sector, namely foreign airlines.

“In the 1990s when deregulation allowed the entry of private carriers on domestic routes, initially as air taxis and subsequently as scheduled airlines, India permitted up to 40 per cent foreign direct investment, including by foreign

72

the aviation industry, paved the way for a bigger holding for both foreign investors and foreign airlines when they recommended that they be allowed to own up to 49 per cent stake. The proposal was finally approved by the cabinet in September – a move that brought to an end a regulatory anomaly that existed for more than 15 years.

Fear psychosis Three arguments had been put up against FDI – security issues, price war and hostile takeover. “Concerns were raised

airlines,” a report by aviation consultancy firm Centre for Asia Pacific Aviation (CAPA) says.

Jet Airways at that time maximised this provision, with both Gulf Air and Kuwait Airways each holding a 20 per cent stake in the fledgling airline. This strategic investment provided Jet Airways a number of benefits including access to expertise and international feed.

“However, in 1996 the government announced that foreign airline shareholdings were not in the interests of India’s aviation sector about price undercutting by global carriers, losses to Indian carriers and threat to national security. Most of these appear a bit stretched.

FDI has been allowed in more sensitive sectors like defence, telecom, media and banking. Nowhere has it led to wiping out of Indian companies. In fact, Indian companies have only emerged better and smarter. The proposed guidelines talk of the chairman and twothird of the board members to be Indian nationals. All foreign board members and global equipment will require security

Share holding pattern of the six domestic carriers Listed companies

and would no longer be permitted.

Ostensibly this was because private carriers were still relatively small and the concern was that foreign airlines would control their development in such a way as to feed their offshore hubs, relegating the Indian carrier to the status of a regional carrier. But in reality it was a move designed to thwart the ambitions of the Tata Group and Singapore Airlines to jointly launch a domestic carrier in India,” says CAPA. Jet Airways then had to buy back the shares from its Gulf investors. clearance. Thus most of the fears appear to be bit overstated,” says Amber Dubey, Partner and Head-Aviation at global consultancy KPMG.

Real benefits in the longer term The real benefits of allowing up to 49 per cent FDI by foreign carriers in Indian airline companies are likely to emerge in the long run. “If the government is serious about granting new licences to well-funded, professional start-ups, we could in due course see the launch of

November 2012 www.InfralinePlus.com

Unlisted companies

turnaround of Air India will surely require the support of a strategic partner,” says CAPA. “In the near term it doesn’t change the operating environment or the financial stress of industry. Also, in longer term when operating environment eases, this would lower the entry barrier into the sector thus increasing the risk of competition,” Bank of America Merrill Lynch says.

Air India has been exempted from the FDI provision as the government has already given `30,000 crore to the airline.

Will they invest?

greenfield joint ventures by carriers such as AirAsia, Jetstar and Tiger Airways.

And a serious restructuring and

India remains one of the fastest growing aviation markets in the world. Boeing, the Seattle-based aviation giant, last month raised its forecast for India’s commercial aircraft market by more than 11 per cent, saying the country will require 1,450 new planes worth a total of $175 billion over the next two decades. Boeing has projected that India’s commercial aviation fleet will grow more than 4.5 times in size over the next 20 years and that India would have the highest passenger traffic growth in the world.

But the country is still not an attractive destination for investors in aviation.

“India is an attractive destination for us to serve but I am not sure if it will be an attractive destination for us to invest in.

Reason is that the Indian government continues to provide financial support for Air India which in my mind distorts competition,” Willie Walsh, CEO, International Airlines Group (holding company of British Airways and Iberia) is reported to have said in the past. Tim Clark, President of the Dubai-based Emirates has said they have no plans to invest in an Indian carrier even if the rules are changed.

Apart from high taxes and tough regulatory environment, the aversion of foreign airlines is also because of the support that the government provides to national carrier Air India which they feel creates an imbalance. Some of the Gulf-based carriers may like to pick up

a stake in Indian carriers in order to get additional traffic from India to their hubs in the Middle East but the balancesheets of most of the incumbent carriers are relatively weak and the sector faces numerous structural challenges.

Biggest gainers In case a foreign airline decides to pick up a stake in an Indian carrier, low-cost airlines SpiceJet and GoAir would be the biggest beneficiaries, according to a report by Kotak Institutional Equities.

The company (SpiceJet) could provide an attractive entry point for a foreign airline given it has 18 per cent share of the domestic market and relatively unimpaired balance sheet,” according to the report. Jet Airways, says the report, won’t gain as it is already in violation of FDI norms as the promoter (with 80 per cent stake) is classified as an overseas corporate body (and hence comes under FDI). “Kingfisher Airlines (because of large liabilities) and Indigo (foreign ownership is already 48 per cent) also won’t gain,” says the report.

In short, foreign airlines will make their own assessments about whether they consider a carrier to be a suitable investment at this time. Just because they are now allowed to invest does not necessarily mean that they will.

Which means that allowing FDI by foreign airlines by itself is not a panacea.

The problems of a high cost environment, insufficient infrastructure and crippling taxes must also be addressed within a coordinated government-wide policy framework for aviation to take off.

For suggestions email at feedback@infraline.com

73

November 2012 www.InfralinePlus.com

OffBeat

King dethroned.

Left-only fissures DGCA suspends licence of Kingfisher Airlines

74

by Team InfralinePlus

He was considered to be the maharaja of Indian business, both in substance and in style. His delusions of grandeur led him to believe he could play the maharaja of Indian air too, and give the state carrier a run for its style. But little did he know that one day his delusions would lead him to bankruptcy and that from being a king he would one day become a pauper.

The owner of a Formula 1 carracing team, an Indian Premier League cricket team, the man who flies in his personal jet, loves to watch his 200

racing horses romp in the stud farm and who owns more than 26 properties across the world, among many other prized possessions, liquor baron Vijay Mallya—the chairman of the United Breweries Group and a former Member of Parliament—could not find money to run his airline which he had fondly named as Kingfisher Airlines (KFA).

Aviation regulator Directorate General of Civil Aviation (DGCA) finally revoked the flying licence of KFA on October 20 after having served it a Show-Cause notice on October 5

seeking an explanation within 15 days why its licence should not be revoked for repeatedly cancelling flights and putting thousands of commuters to inconvenience. DGCA was looking for a satisfactory reply which it did not get.

“Kingfisher has stated that employee unrest is not in their control, which shows their ineffectiveness and inability to restart their airline to provide a safe, reliable and sustainable scheduled air transport service,” said the DGCA’s suspension order. The airline, on its part, issued a statement the same day,

November 2012 www.InfralinePlus.com

In the red • From being the second largest carrier in July 2011 when it had a market share of 19%, KFA was reduced to being the smallest domestic carrier. In August its market share was 3.2% • When its licence was revoked the airline was operating 80 flights daily down from 418 slots it had in the winter schedule last year • Its fleet was down to 10 operational aircraft, from 64 earlier • Around 1500 employees had quit in the past one year; more than 600 pilots had left the airline • The airline had not made a profit since its inception in 2005 • There were accumulated losses of roughly `8,000 crore • Long-term loans were at `5,695 crore • Debt from 17 banks amounted to `7,600 crore • KFA under-reported quarterly loss by `1,116 crore • To revive operations, the airline needs an immediate equity infusion of $600 million or `3,300 crore “We would like to clarify this is not a cancellation, but temporary suspension, valid only till such time as we submit a concrete revival plan.”

After long-drawn negotiations, KFA finally stitched an agreement with employees who agreed to return back to work on October 25. The company lifted the partial lockout it declared on October 1. Employees have been promised three months salary (March-May) before Diwali and salary for the month of June before Christmas. The airline has approached the aviation regulator with a new operational plan. A nod from DGCA could see it fly again before the peak festival season begins. However, what

remains to be seen is whether Mallya can deliver on his promises. He needs cash and he needs it fast. “The only way he could attract a foreign investor was to keep the airline flying. Nobody would invest in a carrier, which is grounded. Mallya knows this very well. KFA cannot forever depend on the UB Group for support,” said an aviation analyst.

Death by long rope A concrete revival plan is what everybody connected with KFA had been looking for, for months, in fact years, but it never came. Ever since its inception in 2005, the capital-starved airline had been running in losses. It could never make any profit. It had a debt of more than $1.4 billion or `7,537 crore as on March 31, 2011. Scores of lenders who had given money to make the liquor baron realise his dream of being an aviation baron never got their money backs. There were repeated defaults on repayments. In 2010 the airline went for a complete debt restructuring but that did not help either.

Operations were severely impacted.

It was forced to ground aircraft, cut services including on the marquee Delhi-Mumbai sector and withhold salaries. Since March no pay cheques had been issued. With employee morale at rock bottom there were serious concerns over safety issues.

Cancelled flights led to complaints by passengers. DGCA had to take action, which it finally did.

Cost of revival As per the estimates of aviation consultancy firm Centre for Asia Pacific Aviation (CAPA), a fully-funded successful turnaround of Kingfisher will require over $1 billion or `5,500 crore, which may also be conservative. “This would involve an immediate capital infusion of $600 million or `3,300 crore (of which approximately $350 million or `1,925 crore would need to be provided by the UB Group and the balance by banks).

The banks appear to be willing to help, in some way they have no choice, but they want to see the UB Group take the first step, says CAPA. “We estimate this level of funding would allow the airline to operationalise a fleet of up to 20 aircraft. However, the longer that funding is delayed, the higher the amount of capital that will be required immediately. A further $400 million or `2,400 crore would be required over the next 18 months to support growth and implement a new business plan, which could come either from a foreign airline or another financial investor,” it says.

Failed attempts Accumulated losses of ailing KFA at the end of the financial year 2012 were more than 50 per cent of its net worth, it had said in its annual report for 201112. “The company has incurred cash losses during the financial year and in the immediately preceding financial year. The company has incurred

Lenders invoke guarantees Aircraft lessors and bankers have invoked the corporate guarantees given by UB Holdings on behalf of KFA. The total amount invoked and outstanding as on June 30 is `835.77 crore.

UB Holdings’ exposure to KFA (as on June 30, 2012) • `2,114.28-crore investment in equity • `6,732.55-crore guarantees given to banks • `2,187.31 crore worth of guarantees to aircraft lessors /others • `1,814.41-crore advances given • `165.62 crore interest/ commission/ logo fees receivable

75

November 2012 www.InfralinePlus.com

OffBeat

A concrete revival plan is what everybody connected with KFA had been looking for, for months, in fact years, but it never came. Ever since its inception in 2005, the capital-starved airline had been running in losses.

76

substantial losses and its net worth has been eroded,” it said.

Two years back, in November 2010, KFA implemented a debt recast package after which loans valued at around `1,300 crore were converted into share capital. A consortium of 13 lenders led by the State Bank of India (SBI) and ICICI Bank Limited had picked up a 23.21 per cent stake in the airline in March 2011 of which SBI and ICICI hold 67 per cent and 5.3 per cent, respectively. The shares were pledged by KFA’s holding companies United Breweries Holdings and Kingfisher Finvest at `64.48 per share, at nearly 60 per cent mark-up over the current market price.

But the result was not what the airline had been looking for. In 2012 it was reduced to being the smallest domestic carrier with a market share of only 3.2 per cent. Its entry into Oneworld Alliance was put on hold and regional plane manufacturer ATR cancelled an order for 38 ATR-72 turboprop planes as KFA failed to make pre-delivery payments.

KFA’s auditors raised concern over its ability to remain a “going concern”, stating it would need to inject more funds to remain in such a position. “The financial statements are being prepared on a going concern basis, notwithstanding the fact that the company’s net worth is eroded. The appropriateness of the said basis is

inter-alia dependent on the company’s ability to infuse the requisite funds for meeting its obligations,” BK Ramadhayani & Co had said in its report.

tax department to freeze its accounts.

Staff salaries have also been delayed, as are payments to suppliers. The company also owes several hundred crore rupees to public sector oil companies.”

Bailout thwarted

Crash landing

Mallya approached the government many times for a bail-out package but vociferous opposition to any such plan put paid to his hopes. “Vijay Mallya, a Member of Parliament, famous for his extraordinarily expensive lifestyle, has driven this airline to bankruptcy by sheer mismanagement and bad financial planning. This is evident from the profits earned by other airlines (Indigo and Spice Jet), which did not make expensive acquisitions (Air Deccan) for foolhardy growth. This expansion and growth has come only because of the benevolence of Indian banks,” a group of prominent citizens had written to Prime Minister in February.

“The high-spending Kingfisher has not been transferring provident fund payments of employees as well as taxes deducted at source (TDS) forcing the

The airline began on a promising note but drifted midway. Many believe that Mallya’s decision to run the airline himself--he has never had a proper management team or chief executive in place—led to its downfall. “The absence of a dedicated, seasoned airline CEO has hurt KFA. Many in the industry wondered whether KFA even had the right management structure to make the airline a success,” says Saj Ahmad, a London-based aviation analyst.

This, coupled with confused business models–low fare and full service, global economic crisis and rising fuel prices led to its crash. The airline also incurred losses due to an ill-timed expansion which included ordering A380s (subsequently deferred) and a merger with no-frills, low-cost

Countdown • September 28, 2011–Kingfisher Red shut down. It was launched after the acquisition of no-frills carrier Air Deccan from Captain GR Gopinath in 2008.

• March 2011: 23% equity in the airline owned by a consortium of banks subsequent to a debt recast package earlier this year pursuant to which loans from bankers in excess of `1,300 crore were converted into share capital • December 2011: A financial audit by the Directorate General of Civil Aviation stated that “a reasonable case existed for withdrawal of Kingfisher’s airline operator permit (licence) as their financial stress is likely to impinge on safety.”

• February 4, 2012: Entry into Oneworld Alliance – a global airline alliance – put on hold. KFA was to join the alliance from February 10. Regional plane manufacturer ATR cancelled an order for 38 ATR-72 turboprop planes as KFA failed to make predelivery payments • October 5, 2012: DGCA issues Show-Cause notice to KFA asking why its licence should not be revoked for repeated cancellation of flights • October 20, 2011: DGCA revokes the lincence of Kingfisher Airlines

November 2012 www.InfralinePlus.com

Mallya’s personal assets A 312 ft yacht, Indian Empress, worth `450 crore A VT VJM corporate jet Fleet of more than 16 vintage cars Stud farm with over 200 racing horses More than 26 properties across the world Antique swords and relics acquired at auctions F1 team which has been bought for `610 crore and renamed Force India IPL team Royal Challengers Bangalore for which franchise rights have been bought for `464 crore • Luxury mall in Bangalore called UB City which is the city first luxury mall and has a built-up area of 1.6 million sq ft • • • • • • • •

carrier Air Deccan in 2008.

In fact, KFA’s problems started after it acquired Air Deccan from Captain GR Gopinath and renamed it Kingfisher Red. This acquisition helped him in two ways at that time—provided him an entry in the low-cost segment and, more importantly, allowed him to operate on international routes. This is something which Mallya would not have been able to do otherwise because as per a controversial rule of the Indian government, no airline can fly on international routes unless it has done at least five years of domestic business.

By this rule, Mallya would have been able to operate on international routes only by 2010. Air Deccan acquisition saved him two years and Mallya started international operations in 2008.

But unfortunately, much of KFA’s debt also came bundled with this acquisition. High percentage of loans and rising operational costs eventually forced the company to close down this low-cost arm in 2011.

“The KFA crisis started from the time they took over Air Deccan, a loss making venture. This combined venture never got off to profitable route mainly because of a lack of a clear policy,” says aviation expert Captain Mohan Ranganathan.

Turnaround options Its licence has been revoked but the debt-laden carrier is mulling asset sale to liquidate debt. The airline has approached bankers to dispose off

“The KFA crisis started from the time they took over Air Deccan, a loss making venture.

This combined venture never got off to profitable route mainly because of a lack of a clear policy,” says aviation expert Captain Mohan Ranganathan.

Kingfisher House, which has been lying vacant since staff moved to a new office in Mumbai.

Bankers have begun digging into the pockets of United Breweries Holdings (UB Holdings) -- Mallya’s flagship spirits business. “Certain aircraft lessors and bankers have invoked the corporate guarantees given by the company (UB Holdings) on behalf of KFA. The total amount invoked and outstanding as on June 30 is `835.77 crore and KFA is under negotiation in this regard with beneficiaries,” UB Holdings said in its quarterly results filed on the Bombay Stock Exchange.

UB Holdings has provided corporate guarantees of `8,919.86 crore to KFA’s banks and aircraft lessors as part of the master debt recast agreement through which a consortium of 13-lenders picked up a 23.21 per cent stake in the airline in March in 2011.

Foreign investment unlikely Analysts don’t expect any foreign airline to invest in Kingfisher in its current state with its licence revoked. “It is unlikely to deliver an immediate solution to Kingfisher’s problems. In order to become a prospective investment target Kingfisher will first require significant recapitalisation, restructuring of its debt, operationalisation of some of its grounded fleet, development of a new business case, resolution of outstanding employee issues and induction of a new management team,” says CAPA. But first the promoter needs to take a rational view on whether the airline can realistically be turned around. If the prospects look dim it may preferable to move on to other ventures and wind up the business once and for all. On the other hand, if a decision is taken to revive the airline then the time has come for decisive action to demonstrate that they believe in the business and the required promoter funding should not be delayed any longer.

While CAPA had suggested a voluntary shutdown for KFA to reorganise and restructure, suspension of licence has now forced that decision on the airline. Whether this will mean curtains for ever or will the airline attempt a second coming is something which remains to be seen.

For suggestions email at feedback@infraline.com

77

November 2012 www.InfralinePlus.com

PhotoEssay

Ratnagiri Gas and Power: Revival of a lost dream

78

Ratnagiri Gas and Power Private Ltd (RGPPL), a joint venture of NTPC, GAIL, MSEB Holding Co., was incorporated under the Companies’ Act, 1956 on 8 July, 2005 to takeover, and restart the abandoned assets of Dabhol Power Company (DPC) in Ratnagiri, Maharashtra. The company took over the assets on 5 October, 2005 and gradually revived them. The formation of RGPPL was part of an ambitious restructuring plan finalised by an Empowered Group of Ministers. RGPPL currently owns a fully operational 1967 MW power station and a 5 MMTPA re-gasification of LNG facility in Maharashtra, which is poised to start shortly.

History The project has had its share of controversies and misfortunes. The first phase of the project (740 MW) was commissioned way back on 13 May 1999. The fuel used was naphtha, which was to be changed to LNG upon completion of phase-II coincident with the commissioning of the LNG terminal. Construction of the second phase (1,444 MW) was more than 90 per cent complete and the associated LNG facility, about 85 per cent complete when the operations of phase-I and commissioning activities of phase-II were suspended in May 2001 following disputes between DPC and MSEB. The tariff of phase-I was quite high mainly due to the high cost of the fuel and fall of the Rupee vis-a-vis the US dollar. Further, the project ran into a contractual dispute between MSEB and DPC. MSEB made claims for rebate from DPC within the provisions of the PPA, due to inability of the power plant to ramp up to the level demanded

Shareholding of Ratnagiri The current paid up equity of the company is `2,758 crore, divided as under: • NTPC Ltd

32.47% • GAIL (India) Ltd.

32.47% • MSEB Holding Co.

16.94% • Financial Institutions 18.12% (IDBI Bank, ICICI Bank, Canara Bank & SBI) Befeficiary states and union territories 1.

2.

3.

4.

Maharashtra Goa Daman and Diu Dadra & Nagar Haveli

1

95% 1% 2% 2%

by MSEB on some occasions. The contention of MSEB was disputed by DPC. MSEB rescinded the PPA on 23 May, 2001 and also stopped drawing power from the phase-I plant from 29 May, 2001. Since then, the activities at the project site came to a halt.

In March 2002, the Indian lenders to the project moved to the Bombay High Court and a court receiver was appointed for protection and preservation of the project assets. The court receiver in turn appointed M/s Punj Lloyd for undertaking preservation of the assets.

November 2012 www.InfralinePlus.com

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4

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November 2012 www.InfralinePlus.com

PhotoEssay

5

6

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1. RGGPL - India’s first and largest 1967 MW Gas based Power Station and 5 MMTPA LNG Terminal 2. It is one of the India’s largest gas based combined cycle power station 3. Sea water available in abundance, used for cooling purposes 4. The picturesque project site is spread over almost 1700 Acres of hilly coastal terrain 5. The gas based power unit boasts of energy efficient Advance Class Gas Turbines 6. Besides Maharashtra, the units lights Goa and Union Territories of Daman & Diu, and Dadra & Nagar Haveli 7. A residential complex in the picturesque surroundings is complete with all amenities and vibrant life 8. Synergic operation of Power Station and LNG Terminal designed for energy efficiency and energy security

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SHAPING SHAPING THE THE SMART SMART GRID GRID Transforming Transforming the the power power grids grids SHAPING THE SMART GRID Transforming the power grids

PILOTING PILOTING THE THE PILOTING THE ENERGY ENERGY IN IN TOMORROW’S TOMORROW’S ENERGY IN TOMORROW’S

SMART CITIES SMART CITIES

Alstom’s Smart Grid offerings provide utilities with mission-critical energy management technologies to support and Alstom’s Grid provide utilities with mission-critical management technologies to support optimise Smart existing or offerings new energy infrastructures.

Smart Grid is energy built on synergies between Alstom Grid’s and key optimise existing or new energy infrastructures.

Smart Grid is built on synergies between Alstom Grid’s key technologies, power electronics, digital substation solutions and control room IT platforms. In this way, Alstom enables technologies, power electronics, digital substation solutions and control room IT platforms.

In this way, Alstom enables grid operators, governments and other in the energy chain to start building the Smart Grid Alstom’s Smart regulators, Grid offerings provide utilities withstakeholders mission-critical energy management technologies to support and grid operators, regulators, governments and other stakeholders in the energy chain to start building the Smart atGrid today.

Theexisting result isor dramatically upgraded grid design Smart and operation, with greatly enhancedbetween embedded intelligence all optimise new energy infrastructures.

Grid is built on synergies Alstom Grid’s today.

The result is dramatically upgraded grid design and operation, with greatly enhanced embedded intelligence atkey all levels. technologies, power electronics, digital substation solutions and control room IT platforms. In this way, Alstom enables levels. grid operators, regulators, governments and other stakeholders in the energy chain to start building the Smart Grid today. The result is dramatically upgraded grid design and operation, with greatly enhanced embedded intelligence at all levels.

www.alstom.com/grid www.alstom.com/grid Delhi and NCR: +91 120 479000 | Mumbai: +91 22 30210500 Delhi and NCR: +91 120 479000 | Mumbai: +91 22 30210500 Kolkata: +91 33 40097050 | Chennai: +91 44 22649000 Kolkata: +91 33 40097050 | Chennai: +91 44 22649000 www.alstom.com/grid Delhi and NCR: +91 120 479000 | Mumbai: +91 22 30210500 Kolkata: +91 33 40097050 | Chennai: +91 44 22649000

RNI No: DELENG/2012/45441