Great Lakes IEMR Mail - IPPAI Power News_ 02 January 2012

8/3/2019 Great Lakes IEMR Mail - IPPAI Power News_ 02 January 2012

1/12

2/12 Great Lakes IEMR Mail - IPPAI Power News: 02 January 2012

ps://mail.google.com/mail/u/1/?ui=2&ik=6c2bec8319&view=pt&search=in

Vaibha Redd


2/12



The Guru Gobind Singh Refinery Project being jointly built by Hindustan Petroleum and LN Mittals Mittal Energy Investment Pvt LtdSingapore is expected to go on stream shortly and add to the countrys surplus refining capacity. In contrast, Pakistan faces scarcity andw ill have quicker access to f uel.

Off icials said that HPCL Mittal Energy w ill gain as the cost of transporting fuel through a pipeline w ill w ork out be much less than shippingit.

The contours of the deal are expected to be finalized over the next few w eeks, and may be announced w hen commerce and industryminister Anand Sharma visits Pakistan in mid-February w ith a business delegation.Apart f rom minister-level and business -to-businesstalks, the government has also lined up an India Show to strengthen the recent bonhomie on the trade f ront.

In February, the Pakistani side is expected to end the present system of allow ing trade in only around 2,000 products and replace thepositive list w ith a negative list.India is pushing for a small negative list of around 200 items w here trade w ill be restr icted.

By October even this list is going to be phased out,and Pakistan w ill move to a World Trade Organization-compliant mechanism and grantMost Favoured Nation (MFN) to India, almost 16 years after New Delhi granted the benef it to Islamabad.

Capial blacko aeed afe CERC ineenion

Source: Financia l Epress, Noor M ohamma d, Ne Delhi , 02 Januar 2012

The threat of a blackout looming over the Capital due to the payment dispute betw een NTPC and BSES discoms has been averted, w iththe Central Electr icity Regulatory Commiss ion (CERC) res training the Central generator from cutting pow er supply to the discoms till thedispute is resolved.

NTPC had threatened to cut pow er supply to BSES discoms in the Capital from December 31 midnight over non-payment of outstandingdues. NTPCs generating stations meet 65% of the Capitals pow er requirement.

The Capital w ould have plunged into darkness at the onset of the New Year, but for the CERCs timely intervention. The matter w asbrought before the CERC by the discoms w ho disputed NTPCs claims. NHPC and Pow er Grid, too, w ere made respondents in this casebecause they also have similar disputes w ith discoms.

The next hearing in the case is scheduled on January 5. NTPC has raised an additional bill of R428 crore on discoms to recover arrearsfollow ing the provisional revision of tarif f for Central generating stations by the CERC w ith effect f rom April 2009.

How ever, discoms have disputed NTPCs claims on the ground that the CERC is yet to issue a f inal order on tariff revision and, pendingthat, the latter cannot recover any arrears. The discoms submitted that they have been regular in paying their current bills.

The discoms have also submitted before the regulator that NTPCs insistence that discoms open a consolidated Letter of Credit (LC) toensure payment for electricity supplied by all its generating stations to them is not in line w ith the Electricity Act 2003.

They said they have no issue about opening separate LCs f or each NTPC plant supplying pow er to them.

They have a prima facie case for grant of interim relief in the form of deferment of regulation of pow er supply. Apart from aff ecting the

consumers of Delhi, regulation of pow er supply w ould create impediments for the petitioners to raise f inances from financial institutions,w hich w ill not be in the interest of the respondents, discoms argued.

Deja in he poe eco

Source: Fina ncia l Epress, 02 Januar 2012

Sagaa Bhaachaa (The aho i enio ice-peiden, Bine & Economic Reeach, Ai Bank. Vie aepeonal)


3/12



From a sector that was deemed one of the most promising as late as a year ago, the electricity sec tors f inancials have w orsenedrapidly. For generators, the immediate reasons have been a quagmire of disrupted fuel linkages, coal and natural gas, land issues,equipment shortages, and lately increased borrow ing costs. Capex data f rom CMIE indicate a sharp increase in abandoned projects.These problems have been progress ively aggravated by the w orsening financial condition of state electricity distr ibution utilities(discoms).

Although the situation is not as bad as in the early 2000s, w hich had necessitated the one-time settlement (OTS) scheme, there are

enough parallels to have caused the es tablishment of tw o high level committees (Shunglu and Chaturvedi) to look into the causes andsuggest structural reform measures to prevent a recurrence. There have been no outright defaults this time, but enough irregularities inpayments from the discoms. How ever, the magnitude of the problem is approaching that of the earlier cr isis, and has been building upsince 2005-06, af ter having improved s ince the implementation of the OTS scheme.

First, a descr iption of the losses, since the f igures in the media vary w idely. The bottom line of the discoms f inancials are the operatinglosses. As of FY10, the last year a compilation of discoms finances are available, these losses had increased to R63,548 crore, upalmost 2.5 times f rom R27,000 crore in 2006-07. While energy sold had increased at a compound annual grow th rate (CAGR) of 9% overthis period, losses (w ithout the subsidy component) had risen at a 33% CAGR and w ith subsidies realised, a s taggering 89%. Subsidiesactually received rose just 3%.

The subsidies story is important, however. Discoms are mandated to supply pow er to consumers (agriculture and domestic households)at rates w hich are low er than the cost of supply. To the extent that this is a social objective embedded in the supply of electr icity, thisshould be compensated through subsidies. Net of subsidies actually received, rather being just booked by the utilities, these losses roseto R44,000 crore, up f rom R14,000 crore in 2007. The sharp increase in the gap betw een these tw o reported loss categories are thesubsidies paid, w hich as pointed out above, rose just 3%.


4/12



In addition to these accumulated losses (w hich increased by R88,000 crore over March 2005 to March 2010), the Shunglu Committeepoints to an even more disturbing statistican increase in current assets of R94,000 crore. Quoting verbatim, this last figure is highlyopaque and not clear as to w hat are the contents w hich aggregate to this inevitably, these represent nothing but losses not show n inthe annual accounts.

Two large components of this increase are sundry debtors and other current assets, w hich together account for an increase ofR81,000 crore. Some part of this, of course, subsidies not paid, which w ould reflect an overlap w ith the total accumulated losses, but anadditional component is the receivables, w hich rose f rom R31,000 crore to R56,000 crore. The collection period (f or individual states)w as 36 to 645 days. The longer the period of arrears , the w orse the f inancial health of the utility. This, in addition, show s in very poorlight the collection efficiency figures of 94% (in 2007) that are reported by utilities (according to the Central Electricity Authority).

To bridge these losses and continue system operations, utilities have resorted to borrow ing from banks and f inancial institutions.Matching the sharp deterioration of losses in FY10, discoms debt had increased 27% in FY10 to R3.1 lakh crore, up from R2.5 lakh crorethe previous year. The result of this is that the net w ealth of utilities has been virtually eroded. For the system as a w hole, net w orth atend-March 2010 had f allen to less than R12,000 crore, dow n f rom close to R90,000 crore at end-March 2008.

The bright spot in this is that the deterioration is caused by a handful of states. As much as 85% of the deterioration in system losses(and 74% of losses pre-subsidy) was due to just s ix states. Other than the bills receivable, the losses can be attributed largely to tw ocharacter istics. One, the inability or unw illingness of discoms to raise consumer tariff s, to match the increase in power generation orprocurement costs. Two, an inability to reduce system losses {w hich are now called aggregate technical and commercial (AT&C)losses}, a combination of transmission losses and theft.

The cost discrepancy first. While the average cost of supply rose from R2.76 per unit in 2006-07 to R3.54 (i.e. 78 paise), the averagerevenue realised increased just 35 paise, to R2.68 per unit (529 million units w ere sold in 2009-10). Again, this discrepancy varies w idelyacross states. Part of the discrepancy is due to the cross-subsidisation to agriculture and domestic consumers, part of w hich issupposed to be covered by the government subsidies.

But even this could have been manageable, had discoms not had persisting high AT&C losses, 27.2% in FY10. Even this, according tothe Shunglu Committee report (w hich pegs this at 30%), does not include other operational losses (f or example, over statement of

agricultural consumption). Af ter having dropped sharply from 36% in FY05 to around 31% of total pow er procured by FY07, losses havebottomed at 27% in FY10 and reportedly persists there.

So w hat needs to be done to remedy the situation? The Shunglu Committee has suggested a framework that aims to impart somecommercial discipline to discom operations. This is not the place to explain this. Suffice it to say that it sounds very similar to the OTSscheme of 2001, w ith an SPV to take over the bad loans of discoms as the innovation.

Will this avert an aggravation of losses in the f uture? There are some encouraging signs. At least tw o of the largest loss-making stateshave filed (or are in the process of filing) tariff increase proposals before their respective regulators. In addition, state discoms areincreasingly looking at f ranchising (through auctions) concentrated, high load consumer pockets to private pow er companies. Theexperience of the Bhiw andi (Maharashtra) franchise has been very encouraging; more franchises have been awarded in Kanpur andAgra. However, it is amply clear that barring a more commercial orientation of these utilities, there is unlikely to be a sustainedimprovement in their operations and finances.

PTC India in Talks with Sovereign Wealth Fund for PE Venture

Source: Economic Times, New Delhi , 02 Januar 2012

Pow er trading f irm PTC India is in talks w ith a sovereign w ealth fund f or setting up a private equity fund, which is likely to have an initialcapital of about $100 million. Sources said PTC India is looking to float a private equity f und and is in advanced talks w ith a sovereignw ealth fund. To begin w ith, the PE fund w ould at least have $100 million as capital, they said. How ever, they did not disclose f urtherdetails.The new fund is likely to be f loated sometime next f iscal, sources added.

NTPC and Power Grid viabilit reports soon

Source: Business Standard, Shine Jacob / Kolkata, 02 Januar 2012

Sri Lanka may set the stage for a new pow er play between the two Asian pow ers, China and India.

Two Indian state-run companies, NTPC and Pow er Grid Corporation of India (PGCIL), have planned to come out w ith feas ibility reports ontw o projects in the power sector in Sri Lanka by January. The final agreement on both projects are expected to be signed soon after thedetailed reports are out.

NTPC was looking to set up a 2x250 Mw coal-based project at Sampur in the Trincomalee region. PGCIL intends to come up w ith Indiasf irst undersea pow er transmission project, connecting Sri Lanka.

Both projects are considered diplomatically important, as the China National Machinery and Equipment Import and Export Corporation(CMEC) is also setting up a coal-based pow er project in the Norochcholai area, w ith an investment of close to $900 million.


5/12



In September 2011, NTPC and the Ceylon Electricity Board (CEB) of Sri Lanka had incorporated a joint venture company, calledTrincomalee Pow er Company, to set up the plant w hich w ould see investment of Rs 3,000 crore.

The joint venture company w ill sign an agreement w ith the board of investment (BOI) in Sri Lanka on January 15 and the detailedfeasibility report w ill be out by month-end, said CEB chairman Wimaladharma Abeyw ickrama.

A top NTPC off icial conf irmed the development and said related issues such as transport of coal w ould be decided later. PGCIL and CEBhad signed a memorandum of understanding for the feasibility s tudy f or the undersea transmission line in 2010.

The report is ready w ith the Sri Lankan government and a final decision w ill be taken by January, Abeyw ickrama said.

The project is expected to start by 2014. It includes a 250-300 km pow er link, w ith a submarine stretch of about 50 km. It w ill require anexpected investment of about Rs 3,000-4,000 crore and an exchange of close to 1,000 Mw of pow er. Abeyw ickrama says both

governments have already show n green signals.

These tw o projects are vital for Sri Lanka and will help us to connect w ith the planned As ian grid. More, w e can share pow er bothw ays during peak hours, he added. CEB is the largest electricity company in Sri Lanka, w ith an installed capacity of 2,684 Mw .

The finalisation of these projects are at a time w hen the President of the island, Mahinda Rajapaksa, had publicly said Lanka had soughtthe assistance of China only after India refused to get involved in some projects.

NMDC joins the ranks of headless PSUs

Source: Business Standard, Press Trust Of India / New Delhi , 02 Januar 2012

As the year came to close, another leading state-ow ned f irm, NMDC, became headless, joining the list of public sector units such as CoalIndia, MMTC and NHPC, mainly on account of tardy selection process and bureaucratic hurdles. Nearly a dozen central public sectorentities do not have a full time chairman and managing director and, in some cases, the post has been vacant f or up to a year or more.

For instance, MMTC is w ithout a CMD since October 1, 2010 w hile NHPC's top post has been vacant since January 1, 2011. Similarly CIL,Nalco, SJVNL, National Fertilisers , Fertilisers and Chemicals Travancore Ltd have been w ithout a top of fic ial in-charge since March 2011.Hindustan Aeronautics, MECON and MECL are some other PSUs w ithout a full time CMD. Such a scenario is hurting business activities,since acting executives are devoid of pow ers to take crucial decisions," chairman of a top PSU said on the condition of anonymity,adding that "on many occasions, acting CMDs get challenged by the other Board members due to rivalry".

In the case of NMDC, its chairman Rana Som retired yesterday (on December 31). How ever, the Cabinet Committee on Appointments isyet to approve the name of the Public Enterprises Selection Board (PESB) candidate picked almost s ix months back, said a source.

In most cases, either PESB acted late or vigilance clearance had not been received or the parent ministry did not favour the PESB choiceand the selected panel had to be scrapped, sources added. For example, appointment of full time MMTC chairman has been dragging

since October 2009 due to the about-turn taken by the commerce ministry on the selection process, as it now w ants to appoint anAdditional Secretary level officer from the central services for the top job.

Another glow ing example the appointment of a f ull time chairman for aluminium PSU Nalco, w hose last CMD is under suspension overgraft charges since February 26, 2011. The selection process for Nalco Chairman by Mines Ministry is yet to begin, even though tenureof its acting CMD as Board member w ill end in February 2012, sources pointed out. Citing the example of NHPC and Coal India, they saidthat the delay is often from the PESB side, w hich has been entrusted the job to f ind a suitable candidate for the PSUs. PESB'srecommendation for NHPC CMD's post came only after 9 months (in September, 2011) of the retirement of the last full time CMD.

Bengal poer tariffs no 10% higher

Source: Business Line, Our Bureau / Kolkata, 02 Januar 2012

Consumers served by the West Bengal State Electricity Distribution Company (WBSEDCL) w ill now pay a pow er tarif f of Rs. 4.71 per unit 44 paise per unit more (or 10 per cent higher) than the Rs 4.27 that they w ere paying till now .

The West Bengal Electricity Regulatory Commission (WBERC) on Friday upheld the State-run distribution company's claim to charge Rs.4.71 per unit, on an average, instead of the Rs. 4.27 it had been forced to charge since March this year due to a pending litigation. Thetariff petition w as submitted before Ms Mamata Banerjee-led Trinamool Congress-Congress alliance came in pow er in May 2011.

Till March 31, 2010, consumers served by the WBSEDCL w ere charged at Rs 4.27-a-unit rate. The State pow er distribution company,from April 1, 2010, had raised it to Rs. 4.71 a unit. The rate w as in place for 11 months f rom April 1, 2010 to February 28 this year.

How ever, f ollow ing a petition by a section of consumers to the Appellate Tribunal for Electricity, Delhi, the State regulatory commissionhad ordered the distribution company to charge the previous rate till the issue w as resolved. The distribution company reverted to Rs4.27 a unit on March 1, 2011.


6/12



The revised rate w ill help WBSEDCL cut mounting losses.

Coal, Oil & Gas

Pvt captive miners upset with surplus coal price regulation

Source: Financia l Epress, Noor M ohamma d, Ne Delhi , 02 Januar 2012

Private captive coal mining companies have expressed dismay over the coal ministrys new policy directive mandating sale of surpluscoal to Coal India (CIL) at a price not higher than the cos t of production.

They argue that this w ould not serve the national goal of increasing coal production to keep dependence on imports f rom rising sharply.

The coal ministry recently issued a policy note saying that any surplus coal produced from captive mines w ill be transf erred to thenearest CIL subsidiary and the payable price w ill be the cost of production or the CIL-notified rate, w hichever is low er.

The need of the time is to have an enabling policy framew ork for accelerating and augmenting coal production. How ever, the coalministrys policy directive on disposal of surplus coal does just the opposite, said Ashok Khurana in a letter sent to coal ministerSriprakash Jaisw al recently on behalf of pr ivate pow er project developers. Khurana is director general of A ssociation of Pow erProducers (APP), a representative body of private pow er producers like Tata Pow er, Reliance Pow er, Lanco and Adani Pow er.

The policy does not provide incentive for large players to enter mining, utilise w orld-class technologies and increase their miningcapacities s ince the cost of production or CIL-notified price w ould be highly inadequate to encourage investments in the sector, Khuranaargued.

He has also that the coal ministrys policy could also defeat the very purpose of the draf t MMDR Bill 2010, w hich aims to ensure thesupport of the local community in acquisition of land for mining projects. The Bill has proposed making it mandatory for coal miningcompanies to pay 26% of their profit after tax (PAT) for the development of the local community.

If entire surplus coal from captive mines is sold as per the ministrys pricing methodology, the contribution from mining companies tow ardthe local development fund w ould be very low , w hich could in turn negate the objective of the proposed legislation, the APP directorgeneral said..

Besides, the implementation of the ministrys pr icing formula would also hurt revenues of states f rom the sector as royalty on coal ispayable on ad valorem basis, the letter said.

CIL ma Form Subsidiar to Bu Coal Assets in SA

Source: Economic Times, Ne Delhi , 02 Januar 2012

State-run Coal India (CIL) is likely to set up a subsidiary for buying coal assets in South Africa, as part of efforts to boost its output. Thegovernment of Limpopo, the northernmost prov ince of South Africa, approached CIL a couple of months back, requesting the PSU to forma joint venture (JV) w ith one of its public sector f irms for acquiring coal mines there, a top of f icial in CIL said. The joint venture w ould bebetw een the public f irm of Limpopo and a subsidiary of CIL, he said. The Chief Minister of Limpopo Government had approached us inJune asking us to form JV w ith one of its public enterprises for exploring the coal assets. In this JV,CIL w ill have majority share w hile thepublic enterprise of Limpopo w ill have at least 26% stake, he said. The Limpopo government has also handed over its draf t memorandumof agreement on the proposal to CIL. The proposal would come up f or discussion in Coal India's board and if the board of directorsagrees to it then w e w ill see how to go about it, the off icial said. A fortnight back the board of directors of the public sector firm hadapproved a proposal of the mining firm to acquire stakes in unlisted firms overseas, provided the of fers w ere valid. The developmentcome in the w ake of Finance Ministry approval last month for the public sector firm to go-ahead w ith a buyout of overseas firms that areunlisted. The PSU has put together a w ar-chest of .6,000 crore f or acquisition of mines. The w orld's largest coal miner has zeroed in onthree unlisted overseas coal assets for acquisition.

CILs Shift to New Pricing Sstem ma Hit Power Sector Hard

Source: Economic Times, Kolkata, 02 Januar 2012


7/12



The thermal pow er generation sector, w hich is already suff ering f rom short supply of coal and low er tariffs in some states, got yetanother blow from Coal India as the monopoly decided to move to a new system of pricing f rom January 1.This has increased thenumber of coal category from the original seven to 17,thus increasing the possibility of price rise for almost all categories. Although,chairman, NJ Jha said it w ill have marginal eff ect on generation costs , off icials from power companies said prices could rise anyw herebetw een 12% and 15% on an average. A 12% rise in coal prices is likely to raise cost of generation by about 40 paise per unit. Anumber of s tate power utilities may not be pass this on to consumers and suff er increased losses. How ever, utilities that have beenallowed to pass on a rise in coal costs through an adhoch mechanism, like Kolkata-based CESC, may pass on a portion of the hike toconsumers f rom February 2012.The restructuring follow ed a shif t from Useful Heat Value (UHV) in determining price to Gross CalorificValue (GCV) based price mechanism since f rom January 1.While GCV that measures the amount of heat liberated by carbon andhydrogen in the coal w hen it is heated, is an internationally accepted pricing mechanism, due to the high ash content in Indian coal, theUHV mechanism w as f ollowed that took into account the heat trapped in ash. Typically in Indian coal, GCV is 25% higher than UHV.Against the seven varieties of UHV coal that was available till December 31,2011,from January 1,coal w ill be sold in 17 price brands

starting f rom the variety that produces 2,200 kilo calorie to one that produces 7,000 k cal. In betw een, there are 15 price bands, each atan incremental rise of 300 k cal. Coal of B,G and F grades w ill not be affected as new prices w ill be either same or low er, those usingother coal grades w ill be majorly aff ected. Pow er utilities that use diff erent quantity of coal from across the grade spectrum, w ill be hit bythe steep hike in A,D and E category coal. Pow er utilities w ill also be doubly aff ected as the monopoly has decided to levy 6% extra oncoal f rom Eastern Coalfields Ltd (ECL) s ince its a sick subsidiary listed w ith the Board for Industrial & Financial Restructuring (BIFR).ECLsupplies coal to both CESC and WBPDCL. The restructuring is part of the proposal to move to the system of selling coal through GCVw hich is follow ed internationally. It is not likely to affect coal prices much. Nevertheless, w e w ill review the prices once again after threemonths to make adjustments, Jha said. Off icials said it may lead to additional 15% rise in revenue f or the company. Jha also said that thenew pricing mechanism has made sure that no coal producing company w ill lose in revenue due to the restructuring. How ever, somesubsidiaries manages to increase the quality of coal produced, it w ill command a higher price f or coal, Jha said. Coal India off icialsclaimed that follow ing the revision, coal price w ould be still be 77% low er than the international prices f or pow er, fer tilizer and defenceand 25% for others.

Poe Co Wan Go o Reconide Spl Coal Plan

Source: Economic Times, Ne Delhi , 02 Januar 2012

Private pow er companies have asked the government to reconsider the proposal for transferring surplus coal from the allotted mines toCoal India,fearing the move w ould discourage investments in the sec tor.The Association of Pow er Producers (APP) has also expressedreservations over the government's proposed policy to transfer excess coal produced at a mine to Coal Indias nearest subsidiary.Theneed of the time is to have an enabling policy framew ork for accelerating and augmenting coal production, Ashok Khurana,DirectorGeneral,APP said in a letter to Coal Minister Sr iprakash Jaisw al.

'PSE ae no ecied abo hae bback popoal'

Source: Financia l Epress, Noor Mohamma d, 02 Januar 2012

With a bearish trend ruling in the stock markets, the government's plan to raise R40,000 crore in the current fiscal by divesting a part ofits shares in the central public sector enterprises (CPSEs) through public offers has run aground. Now the government has mooted theidea of CPSEs buying back the shares from government, in a change of disinvestment strategy to raise funds. UD Choube, directorgeneral, Scope, a repres entative bod of CPSEs, spoke to FEs Noor Mohammad about merits and demerits of the new proposal.Excerpts:

Do ou see an possibilit that the governm ent w ould raise a decent amount through the disinvestme nt route?

Almost every year, the government has been fixing a target for disinvestment in public sector enterprises. For 2010-11, the governmenthad set a target of R40,000 crore, but could mop only R22,762.96 crore despite comparatively better market conditions. This year, i.e. in2011-12, the government again had set a target of R40,000, and so f ar only R1,144.55 crore has been raised.

With just three months left in this financial year, the target is unlikely to be met, as the market has been volatile and uncertain. Since the


8/12



stock markets cannot be trusted to give good returns, the investors sentiments are at an all-time low .

The governm ent is consider ing a proposal by which cash-rich PSUs w ould buy back its s hares; this w ill help it meet thedisinvestment target for the current fiscal? What do you think about this proposal?

At present, the government is considering a buy-back mode under w hich it can raise money by selling equity in the company to the PSEitself. About a dozen cash-rich companies like Coal India, SAIL, NMDC, ONGC and NTPC are on the government's radar.

How ever, PSEs are not really excited about the proposal as they have their ow n plans of expansions and acquisitions. In the backdropof a global slow dow n, these PSEs f eel that it w ould be diff icult for them to raise f inancial resources f rom the market for f unding theircapital expenditure plans.

What are the PSEs re servations about the s hare buyback proposal?

Most of the Central PSEs are competing in the global market. They have elaborate plans of investments. The power sector PSEs aregearing up to add about 1,00,000 MW during the 12th Five Year Plan (2012-17). The investment in the sector is pegged at R13.72 lakhcrore. Coal India is keen to employ its reserve cash to expand its production, and acquire companies and mines overseas. It plans toinvest about R30,000 crore in the 12th Five Year Plan i.e. R6,000 crore annually f rom FY13-17.

In the case of manufacturing PSEs, their cash surpluses are not large in relation to their investment plans w hile a company like Pow erGrid needs the cash for expanding its infrastructure of transmission capacities. Oil & gas companies also have the requirement of hugecapital for exploration, production and infrastructure.

Cash reserves serve as a buff er for companies during tough market conditions. It would not be prudent for the government to strip PSEsof their cash reserves.

How will it affect the investor sentiments?

Any proposal should be investor f riendly. The share buy-back scheme could adversely impact investor sentiments at a time w hen thestock markets are already depressed. It is important to safeguard the interest of small investors.

How does the proposal gel with corporate governance principles?

The proposed scheme raises ser ious concerns in the area of corporate governance, as the decision about w hat to do w ith their cashholdings should be left solely to the the boards of public enterprises. They may desire to buy some businesses or expand into relatedbusinesses or make portfolio investments, and it is not diff icult to see that their decisions w ould be completely diff erent f rom those of thegovernment. In eff ect, this proposition undermines the capabilities and authority of the board of directors w ho are competent enough totake such decisions after cons idering relevant factors, w hich may be dif ferent for each PSE.

What are the credible options that the government can consider?

An option that government may consider exploring can be cross -holding i.e. PSEs buying one anothers shares. This w as attempted firsttime in 1998-99 w hen three oil sec tor enterprises i.e. GAIL, ONGC, and IOC mopped up about R5,000 crore. Over the years, abovecross-holdings have proved to be profitable, show ing that equity investment by PSEs in each other generates value over a period.Cross-holding is a better route than share buyback for the disinvestment of government's stakes in PSEs.

CIL shifts to ne coal pricing method

Source: Business Standard, Shine Jacob / Kolkata, 02 Januar 2012

Coal India Ltd (CIL), the w orlds largest producer of the item, has entered into a new price regime eff ective today, af ter its board ofdirectors approved the plan on Friday.

It shif ts to international pricing, 30 to 60 per cent higher than w hat the state-run f irms average price used to be, by benchmarking coal onthe basis of gross calorific value (GCV).

India w as the only country, among major producers, not follow ing the GCV system.

When asked about the impact on finances N C Jha, chairman and managing director of CIL, said, There w ill surely be a positive impact.As far as prices are concerned, the result w ould be different on diff erent subsidiaries; some w ill get more and some w ill get less. Wew ill look into the impact on revenue after three months.

The Kolkata-based major had been try ing to shif t to a GCV regime since the late 1990s but it did not happen earlier due to protests f rommajor consumer sectors, such as pow er. UHV pricing is being followed since the 1970s.

Based on the new mechanism, there w ould be at least 17 slabs of 300 kilocalorie (kcal) bandwidth, starting from 2,200 kcal to 7,000 kcal,and above 7,000 kcal. Earlier, Indian coal w as c lassif ied on the basis of Useful Heat Value (UHV) into seven grades, A to G. UHV isbased on ash and moisture content for non-coking coals.

The pricing of the present A and B grade coal w ould almost be the same, w hile E, D and C grade coal prices w ould increase slightly. Fand G grades w ould almost be the same. For CIL, a majority of coal comes under the F and E category now , Jha added. In the GCVregime, the bands are narrow er, resembling their quality.

How ever, the company is to still maintain the differential pricing system and discounts. The discounts to customers w ould range from 25


9/12



per cent to 77 per cent, w hile it was 20 to 77 per cent in the earlier price regime.

Hence, there w ill not be too much of impact for the pow er sector in the country, he said.

Also, f loor pricing for e-auction coal w ould not get reduced. Earlier, the floor price w as 30 per cent higher than the notified price, w hichhas been reduced to 20 per cent now , said the CMD.

Adanis ma go slow on indonesia coal asset bus

Source: Business Line, Pratim Ranjan Bose / Kolkata, 02 Januar 2012

Focus shifts to Galilee reserves in Australia and some Afr ican nations

Two years dow n the line the company seems to have shelved its plans to step up activities in Indonesia. Instead, Adani is now morefocussed on developing its vast Galilee Coal reserves in Australia estimated to produce 60 million tonnes a year by 2020 and issearching for new assets in Afr ican nations like the Mozambique.

Change of hea

The change of heart is evident even in the Adani Web site, w hich merely refers that the company's asset at East Kalimantan province inIndonesia has produced a little over one million tonnes of coal f rom its assets in the f irst full year of operation in 2009.

AEL has clearly lost f ocus on Indonesia, a source told Business Line, blaming the recent restrictions imposed by the IndonesianGovernment as a major dampener. The company's proposal to build dedicated rail-port connectivity has reportedly yet to be approved by

the Indonesian government.

Adani sources though deny that the company has shelved its expansion plans in the country, and c ite non-availability of qualityresources' in Indonesia.

Foc Aalia

On the contrary, there is a clear enthusiasm at the Adani camp on its Australian venture. Officially, the company's Galilee mining project,w hich is expected to be on stream beginning 2014-15, w ill produce as much as 60 mtpa by 2020. Company sources, how ever, f eel thatthe project is capable of producing up to 100 mtpa.

Adani Enterpr ises had already committed to an investment over $6 billion in developing the mine as w ell as associated rail and portinfrastructure at Port Abott point. An additional $6 billion is expected to f low in to develop the terminal facilities at Port of Hay. Thecompany has just received 190 ha of land to build the Port of Hay f acilities.

Deinaion Afica

Though the company has been importing an increasing number of cargo f rom Russia, sources suggest that A dani Enterprises is notplanning any asset acquisition in Russia at this juncture. The future destination is Russia, a source added.

'Source natural gas from others'

Source: Business Standard, Press Trust Of India / Ahmedabad, 02 Januar 2012

State-run integrated energy company Gujarat State Petroleum Corporation (GSPC) has asked Adani Gas, an Adani Group subsidiary, tosource natural gas f rom some other sources, a GSPC off icial said today.

GSPC is the sole supplier of natural gas to Adani Gas, a city gas distributor (CGD), operating a netw ork of around 57 CNG stations in

Ahmedabad and Vadodara, besides having a PNG netw ork for domestic supply here.

Adani Gas sources on an average 0.85 million metric standard cubic metre of gas per day from GSPC in order to meet the requirement ofits industrial and domestic consumers in the state.

Adani Gas has been asked to source natural gas f rom other sources as every time they hike the gas price, they blame us for it w hichputs us in a piquant situation, a GSPC official said, speaking on condition of anonymity.

However, GSPC w ill continue to provide natural gas to Adani Gas for the time being, the official said. Confirming the development, asenior Adani Gas off icial said, Yes, w e have been told by GSPC to source natural gas from other sources as w ell, besides them. Weare trying to source the gas from other players.

The company had last raised the price of CNG by Rs 5 per kg in November last year taking the price of natural gas sold by them to Rs45.50 per kg.

Adani gas, w hich has gas a distribution netw ork in Faridabad, sources natural gas from Gas Authority of India Limited (GAIL) too f or


10/12



meeting its consumer demands in that c ity, a company of ficial said.

GSPC currently depends entirely on imported gas sourced mainly through Petronet LNG, a Government of India-promoted company,w hich delivers the gas on a pr ice formula that entails a price increase every month, a GSPC offic ial said.

There are seven CGDs in Gujarat GSPC Gas Company (GGC), Gujarat Gas Company, Adani Gas, Charotar Gas Sahkari Mandli,Vadodara Municipal Corporation, HPCL (has CNG stations only). HPCL had increased the CNG prices in October last year taking its priceto over Rs 50 per kg in Gujarat.

Bulk sales, bubacks to fuel govt's disinvestment drive

Source: Business Standard, Santosh Tiwari / New Delhi , 02 Januar 2012

Cabinet set to approve broadened framew ork this w eek; market route to be pursued as w ell.

In one of the f irst major decisions of 2012, the government is set to clear a new, broadened framework for disinvestment this w eek.

Under the extended ambit, slated for a Cabinet nod in the next meeting, government institutions, banks and companies including LIC w illbe allowed to buy government stake in Central Public Sector Enterprises (CPSEs) w ith the help of bulk sales.

Cash-r ich CPSEs w ill also be permitted to go f or share buybacks as one option concretised by the Department of Disinvestment (DoD)and sent for Cabinet approval to perk up the disinvestment process w hile skirting a bearish market scenario.

HE PLAN

* Bulk sales to govt institutions and companies

* LIC, banks and other institutions to tap the opportunity

* Buyback of shares by cash-rich companies

* Auction of securities through stock exchanges

A senior government off icial told Business Standard the Cabinet w as likely to approve the comprehensive strategy put forth by the DoDso that it could be implemented soon.

Disinvestment secretary Mohammad Haleem Khan told Business Standard, We are trying to convert the adverse market s ituation into anopportunity for making var ious options available to government companies. The idea is to make all the options before private companiesalso available to them.

Once the Cabinet gives its nod to the DoD plan, government institutions, banks and companies interested in buying government stake inCPSEs w ill be able to send their proposals. Theyll be allowed to acquire government stakes in either one company or in a number ofCPSEs through a bulk sale. The interested entities w ould be able to go beyond the list of CPSEs already c leared for disinvestment.

The process is expected to begin immediately after a Cabinet nod to the DoD plan. But, in no case w ould the government stake in anyCPSE be allow ed to go below 51 per cent. DoD off icials are of the view shares w ould sell at a premium through this mode, as againstdiscounted sales through the market route.

The new company, likely to be created by the dissolution of the Specified Undertaking of UTI (Suuti), w ill also be able to utilise this optionfor buying shares of CPSEs.

The other mode part of the s trategy is the buyback of shares by cash-r ich CPSEs. The buyback may be undertaken as part of the CPSEsstrategic capital restruc turing. Share buybacks by listed CPSEs may be allow ed through public offers in accordance w ith the prevailingguidelines.

The Securities and Exchange Board of Indias move to come out w ith new rules making it easier for the government to push divestment inCPSEs is being seen as part of the plan. The market regulator is likely to allow the promoters of companies to sell shares by auctioning

securities through stock exchanges. This process w ill be quicker and more eff icient than a full-f ledged public of fer ing of shares.

The cross-holding proposal mooted earlier is set to be dropped, as the finance ministry has stressed it may be seen as the governmentdipping into the cash surplus of CPSEs to meet the f iscal def icit target.

On w hether the new steps w ould help the government meet its disinvestment target of Rs 40,000 crore in 2011-12, Khan said, Whenw e talk of disinvestment, it is important to view it beyond its relevance to the yearly target and the corporate governance aspect shouldbe kept at the forefront.

The government has been able to garner Rs 1,144.55 crore this year f rom disinvestment in Pow er Finance Corporation. The process f orthe rest of the companies approved is hanging in the balance due to adverse market conditions. These companies include Oil and NaturalGas Corporation, Steel Authority of India, Bharat Heavy Electricals Limited and National Buildings Construction Corporation Ltd.

Reorientation of the disinvestment strategy does not mean the market route is out of favour. DoD off icials say the department w ill keeppursuing disinvestment in CPSEs approved to go for the market route.

The option of getting additional or special dividend f rom cash-r ich CPSEs may also be considered this year f or improving revenue


11/12



realisation from the government stake.

LNG - too hot for Indian lines?

Source: Business Line / N. K. Kurup, 02 Janua r 2012

Would you dream about running w hen you can't even w alk? That seems to be w hat Indian ship-ow ners are doing. Globally, shipping is in

choppy w aters. Freight markets have been w eak and their outlook is w eaker.

Even the mightiest in the industry are finding it diff icult to keep their f leet afloat. The Indian shipping sector is also f acing bad w eather. Butits captains have great dreams; they are exploring ways to enter the high-cost cost liquefied natural gas (LNG) transportation business.

It may appear a bit unrealistic or over-ambitious now , but you've got to think long term, said a shipping company off icial when askedabout the industry's request for a new LNG Transportation Policy.

Currently, LNG imports are made on a c.i.f basis. This means, the supplier of the gas also make the shipping arrangements. The buyerhas no say in the transportation of the cargo. Normally, LNG import contracts are entered into for 15-20 years and the shipping terms arepart of the contract.

Indian shipping lines have approached the Government for a rev iew of the present shipping policy f or LNG import. They w ant freshcontracts to be made on an f .o.b basis, w hich means shipment of the cargo w ill be the buyer's responsibility. LNG importers can hireIndian flag vessels.

Wh now?

What has prompted Indian companies to think about LNG now?

While charter rates remain extremely w eak for most types of ships, LNG carriers have been fetching robust rentals. LNG rates havebeen on the rise ever since the Japanese reduced their dependence on nuclear energy follow ing the earthquake last year and s tartedusing more of LNG. The spot rates now range from $140,000-$150,000 per day for a vessel.

The demand for LNG in India is expected to go up in the coming years. Even in the current year, imports are expected to increasefollowing the drop in gas output in the Reliance KG gas f ield and the rise in demand. The demand-supply gap in 2012 is estimated at 27million metric cubic meters per day.

But unfortunately, no Indian companies fully ow n an LNG vessel. Shipping Corporation of India has part-ow nership (26 per cent) in threeLNG vessels, the only Indian interest in the LNG shipping as of now .

A new LNG vessel costs around $200 million. Second-hand vessels are hardly available for acquisition. Under the current scenario, noIndian lines w ill be in a position to raise funds for buying LNG carriers.

But Indian shipow ners think they w ill be able to make investments in LNG carriers if they have assured cargo. They can go for jointventures w ith overseas parties. Or they can find overseas f inanciers. But this is possible only w ith a change in the LNG transport policy.And the Indian National Shipow ners Assoc iation, the apex body of shipowners, has taken the initiative in seeking a review of the existingLNG transportation policy.

Vital cargo

India now has the expertise in operating LNG ships. SCI operates tw o of the three vessels it has equity stake in. The third one also isexpected to come into its fold by next year, said an SCI official. There is an inter-ministerial panel headed by the Director General ofForeign Trade, which decides on the policy on LNG transportation. The industry f irst needs the blessings of this panel.

Many other countries prov ide cargo support to their national fleet. It w ould be in the country's interest to have its ow n fleet to carry thisvital cargo the fuel of the future.

So there is some merit in arguing for a long-term policy to support the Indian shipping industry. But for the time being, LNG cargo remainsa dream for Indian lines.

Even if it gets the cargo support, the domestic industry w ill have to w ait for some time to have its ow n LNG fleet.

Commodit Prices

Dail Commodit Prices

Source: http://.cmegroup.com

Date Commodit Units Price

02/01/2012 Crude Oil USD and cents per barrel 98.83


12/12


02/01/2012 Naal Ga USD and cen pe mmB 2.989

Note: One barrel of crude oil = 158 .98 liters; Todays RBI exchange rate for USD = INR 53.2660

The IPPAI dail news service is a compilation of news ar ticles from various published/printed resources. IPPAI does not hold an

responsibilit for the accurac of the content.

This is not SPAM. If ou do not wish to be on our mailing list, please send a mail with the subject to [email protected]. Our

sincere apologies for an inconvenience caused.

www.ippai.org [email protected]

__________________________________________________________________________________________

_________________________________________________________________________________________

Documents

Great Lakes IEMR Mail - IPPAI Power News_ 02 January 2012