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contents4 november 2010

30

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COVER STORY

leaders & letters

The Small Edit ..................................................................8

Freeing Gas Prices ............................................................8

Energising the Future ........................................................9

Letters ...............................................................................9

Fine line

A Case for Partnership ...................................................10

neWs

News Briefs .....................................................................12

Web Exclusives ...............................................................16

neWs & intervieWs

Yet Another Round? .......................................................18

We are looking at forming a private sector bank:

Jairaj Phatak ..................................................................20

The Quest for Uranium ...................................................22

A Safe Option: Alexis Marincic .......................................24

Our margin growth will move to a different level:

Partha Bhattacharya .......................................................26

Cover story

Pipe Dreams ...................................................................30

5 november 2010 www.energybusiness.in

26 18

22 40

Partha Bhattacharya

Quest for Uranium

NELP IX

Jim Mather

Vol 02 issue 04 NoVember 2010

an idiot’s Guide to... Ethanol blending with petrol .........................................44

markets & dataAnalyst’s Corner ............................................................47

Markets .........................................................................48

Global Commodities ......................................................50

Cover imaging & design: Deepjyoti Bhowmik

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COVER STORY

India can become an export hub:

S Radhakrishnan L...........................................................32

Petrochem sector will attract Rs 50k crore:

P K Johri .........................................................................36

Emerging Opportunities ..................................................38

international

We are the world leader in renewable energy

technology: Jim Mather: .................................................40

We see opportunities in energy and clean tech

Ungad Chadda: ................................................................42

IN our december Issue

curtain raiser The uNfccc summIT IN

caNcuN, mexIco

special report The power

markeTs

Interview rupa devI sINghceo, power exchaNge

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It was a month dominated by two much looked-forward-to events. One was Coal India’s initial public offering, the other the Obama visit. A loud cheer went up among the investing community when the coal

behemoth listed at a huge premium. The grapevine has it that the FII community was so keen on the issue that they used every trick in the book to keep the retail quota under-subscribed so they could then get the remaining part of the quota. That aside, the most intriguing part for us was our meeting with the Coal India chairman which took place just one day before the listing. For a whole hour, Bhattacharya enthralled us with an unprecedented insight into the operations and troubles faced by the world’s largest coal miner. He spoke at length about how in the process of getting ready for the IPO the company discovered and

rediscovered many aspects of its operations. One example: many of the designated no-go areas for coal mining had been so labelled because of the work done by the company in rehabilitating forest cover in its mines! He also told of how once he started satellite tracking of afforestation efforts and made the project in-charges responsible for ensuring that mines were indeed rehabilitated

the green cover areas started improving dramatically. One wishes there were more such stories to relate, especially from the so-called ‘dirty’ sectors. Barack and Michelle Obama danced their way out of the outsourcing controversy during their 3-day India visit. It is noteworthy that while outsourcing and Pakistan occupied channel time and sound-bytes, the government-to-government agreements were almost entirely energy-focussed with four of the six MoUs being energy-related, including a deal to set up a joint clean energy R&D centre backed by US $50 million from both sides, and a global nuclear centre for a nuclear energy partnership. This underscored the importance of the energy sector in the Indo-US relationship. In the other big story this month, we examine the state of the Indian fuel retail sector, including city gas distribution, which is growing at an astonishing rate as gas becomes available.

editor’s NoteVOL 02 issuE 04 nOVEMBEr 2010

leaders8 November 2010

As the G20 prepares to meet in Seoul later this month, international

pressure will mount on the Indian government to do away with subsidies on fossil fuel. Currently, India has subsidies on diesel, kerosene and LPG among refined petroleum products. Less obvious but equally important, there are heavy subsidies on the natural gas produced from the older discoveries which are offered through an administered price mechanism (APM). This APM gas is distinct from other gas in the market such as LNG and recent finds such as KG D6. Although the price of gas sold under the APM mechanism was doubled recently and brought on par with that of the KG D6, prices are barely profit-neutral for upstream companies. In some cases, gas from various sources is pooled and offered at a pooled price mechanism to keep the price low. Currently, 55 mmscmd of gas is offered at APM prices. The LNG imported by Petronet LNG under long-term contracts is sold under a pooled price mechanism.The 60-odd mmscmd of gas from the KG D6 fields is offered at a price of US $4.2/mmBtu for the first five years of the field’s life, but is linked to crude prices with a pre-agreed floor and ceiling determining the price movement. This complex pricing mechanism, combined with the fact that the government decides who gets how much of which gas, has had a restricting effect on the growth of the gas market in the country. Production companies are reluctant to invest more to recover more gas, especially as the gas fields get older, while demand is stunted because only a favoured few get APM or pooled-price gas while others have to fork out for expensive alternate fuels that are

available in the open market. Now imagine the opposite, if natural gas sells at open market prices and follows the global trend where it is emerging as a commodity in its own right with prices getting increasingly delinked from crude. Demand will pick up as more gas comes into the country to satisfy unfulfilled demand. This in turn will drive domestic producers and expand the national gas trunklines to facilitate the transportation of this imported gas. The other thing about subsidies is that they are insidious. Once they are in place it is difficult to do away with them as our own track record proves. Despite announcing a partial deregulation of fuel prices in 2004, it took another six years and three governments to free petrol prices. Once the government crosses its mid-way mark it would be hard to expect reformist moves that could rock the boat. Once this window expires, we will have to wait another three years until a new government comes in—and who knows what priorities will emerge then? This is one more reason to free up gas prices. Obviously the current beneficiaries will have much to say abut losing their subsidies, but when a regime changes the old beneficiaries have to give way to the new. For once, let it be the man on the street.

Freeing Gas Prices A case for removing subsidies on natural gas and evolving a uniform pricing mechanism

There are today 1.4 billion people who don’t have access to

electricity or clean cooking fuel. To ensure that every person in the world benefits from access to electricity and cooking fuel by 2030, the world needs an investment of US $36 billion each year. The IEA, which recently released its World Energy Outlook for 2010, says that without additional dedicated policies, by 2030 this number will drop only to 1.2 billion. In the same year, deaths from household air pollution caused by inefficient biomass use is seen at 4,000 per day, more than tuberculosis, malaria or HIV/AIDS. Though the IEA numbers pertain mostly to sub-Saharan Africa, the situation in India is only marginally better. As many as 404 million Indians don’t have access to energy for lighting, mechanical power, transportation and telecommunications. Addressing these inequities is where the challenge lies. To do this, the country will need to invest an additional US $182 billion by 2030. That means reaching an installed capacity base of 2 lakh Mw, and we are still short by 35 per cent. Isn’t it time Manmohan Singh and Montek Singh Ahluwalia began concerning themselves with these basic issues rather then worrying about the meaning of India’s position in the IMF pecking order? And just to reiterate what these gentlemen are more aware of, making reliable electricity accessible is not just the work of growing the GDP but also the work of the right policies and their implementation.

Prioritising basic issues like supplying electricity to all will pay off in the long run

A favoured few get APM or pooled-price gas

the small edit

9 November 2010 www.energybusiness.in

Zillions of words have been written both in print and Web, and hours of sound-bytes were broadcast by

television news channels on how Indian Prime Minister Manmohan Singh called India and US equal partners, how it signalled India’s arrival on the world stage, and how US president Barack Obama recognised this by supporting our long-standing aspiration to get a permanent seat on the UN Security Council. In this hoopla about the strategic importance of the talks and both countries being natural allies, little attention was paid to the six MoUs that were signed between the two countries, out of which four were energy-related.India and the US signed an agreement to set up a joint Clean Energy Research and Development Centre. It will be backed by a US $50 million dollar commitment from both sides over the next five years, and will work on joint research on solar energy, bio fuels and energy efficiency. Research in this direction will help both to bring down green house gas emissions, which for the US is the highest in the world in per capita terms, while India clocks in at number three in absolute terms. The MoU will also help to mobilise private sector expertise and resources to address clean energy-related issues in India and the US. The second MoU which was signed between the two countries was on cooperation in nuclear energy under which a global centre for nuclear energy partnerships will be set up. The US will cooperate with India’s plans for a nuclear centre to promote nuclear security, address threats of nuclear terrorism, and stop armament proliferation while promoting nuclear energy. The two countries also teamed up on a futuristic project to explore space-based energy initiatives aimed at turning both countries into net energy exporters.

The project is led by former president APJ Abdul Kalam and the National Space Society (NSS), a US-based space research organization with chapters all over the world, including India. The initiative, known as the Kalam-NSS initiative, envisages harvesting solar power from space. It is a 15-year project, and the main challenge is to evolve technologies for transmitting the harvested power from space to earth and making it economically viable. However, the MoU with the most immediate impact was the one for shale gas under which the US will provide technology to identify shale resources, as well as the latest horizontal drilling technologies which helped the US to tap its own shale potential. Shale gas discoveries in the US have proved to be a game changer, reducing the import of gas to a mere 12 per cent of consumption (2.7 billion cubic feet) in 2009. India is hoping to learn from the US experience. The National Geological Survey of the US will carry out a survey for shale gas resources in India, and will identify potential areas for exploration. American technology will help Indian organizations such as ONGC which started work on an exploratory well in West Bengal but could not make much progress due to lack of technology.

Energising the FutureIndia and the US signed four agreements in the energy sector during the recent visit of Barack Obama

The article in the October issue, Rights of Passage, offered good insight into the glitches which need to be sorted out before the second stage of India’s nuclear power programme based on imported light water reactors is able to take off.

- Sumer Rajvanshi, Gurgaon, via email

I happened to see your issue with one of the senior executives of ONGC in Delhi. I first thought I will just glance through it but your coverage of the oil & gas sector forced me to go through the entire issue. It was quite an extensive coverage of the sector. Petroleum secretary S Sundareshan offered, quite candidly, the government’s views on the latest developments in the sector right from NELP’s IXth round to deregulation of petroleum prices. The feature on NELP and the column on the same subject by AOGO’s secretary general provided a good perspective on the E&P industry’s expectations from the government. The interview with Macela Donadio gave a good overview of what’s happening in gas markets the world over.

- C R Rajamohan, Bangalore, via email

The silly season of conferences is about to begin, and will start with the G20 meeting at Seoul which will be followed by the jamboree at Cancun which will then culminate with the high and mighty escaping to the Swiss Alps at Davos and everywhere you will hear big talk about sustainable development, the need to reduce GHG emissions, the need to do something about climate change, etc. But nothing concrete will emerge. Under the garb of sustainable development, every country will try to protect its own interests.

- Rajaram Mate, Pune, via email

Write to us at [email protected]

letters

Dr Kalam will lead the Kalam-NSS initiative

10 November 2010fiNe liNe

Today, when the machineries of both the Indian and US governments are whirring after the Obama visit to India, it is

recommended that urgent consideration must immediately be given to the cold calculus and implementation of a thorium partnership between the two countries.A thorium partnership between the US and India will yield pioneering benefits and fast-track a technology that can deliver energy security to both countries as well as meet global needs. It is the answer to the global search for kicking off our fossil fuel dependency.Nuclear energy can be generated by using uranium or thorium as fuel in the reactors. Thus far it is only uranium which is being used worldwide; the technology to exploit thorium as a fuel is many years away. Though there has been some work on thorium in a few countries, India is the only country which has invested major research into this technology, and is today a world leader. Importantly, using thorium as a fuel for generating nuclear energy is the only technology path that will dramatically reduce the need for managing nuclear waste proliferation. The looming nuclear renaissance will create large pools of nuclear waste which no one knows what to do with, including in security-risk

prone countries. The problem of thorium-based waste management will be initially about the same as it is at present. But when recycling and the closed-fuel cycle is implemented in terms of their full potential, thorium-based waste will make the problem virtually disappear. This will bring a huge relief to both countries as well as to the global community.A thorium partnership with India will give the US access to the resulting industrial-grade technology, and assured supply of a benign and potent fuel for its domestic needs for a few hundred years from a stable, democratic country. India holds 40 per cent of the world’s reserves of thorium. Such a partnership will help India to significantly accelerate its energy and food security. Also, according to various estimates, in the long term supplies of uranium are expected to last no more than 50-80 years, and thereafter thorium fuel will be the only route to generate nuclear energy.India has a substantial technical lead in the development of thorium-based nuclear power, and has the only operating power plant based on thorium. However, it will take another 15-20 years for the large-scale implementation of this technology. A strategic partnership with the US will cut this time for technology maturation by half or more, and thus the benefits to India’s economic development will be immense.

While it continues on its R&D path to develop thorium-based solutions, in order to fast-track development of these technologies India needs large-scale research labs set in remote areas since the radioactivity levels from such labs are high. At present India does not have any such facilities, whereas the United States does have the infrastructure where experiments and trials can be carried out. Once commercial readiness is achieved, the two countries can jointly export and market a complete bundled technology and fuel solution to other countries, thereby reducing the threat of nuclear proliferation, weaning global communities away from fossil fuel dependency, aiding rapid scaling of energy capacities, alleviating the danger of climate change, and thus rendering a historic shift in global energy, geopolitics and food security. In the long term, the scale of technology and economic benefits reaped by the US and India from this partnership may rival the scope of what DARPA enabled in technology and economic benefits to the US by sponsoring and fast-tracking R&D on the Internet. This partnership will help to create high technology and green energy jobs in the US and India, and bring technology spillover benefits to various other sectors in the domestic economies of both countries.

Robinder Sachdev, president, ImageIndia Institute

Case for a Partnership

Thorium

10

12 NEWS BriEfS November 2010

Coal India Ltd’s share sale raised the maximum Rs 15,200 crore (US

$3.4 billion) sought for the government after investors ordered 15 times the stock available in the nation’s biggest initial public offering. The government sold 631.6 million shares in the world’s biggest coal producer at Rs 245 apiece, the top of a range marketed to investors, coal minister Sriprakash Jaiswal said. The Kolkata-based company, valued at US $34 billion, started trading in Mumbai on 4 November. Coal India attracted bids worth at least US $48.7 billion as an accelerating economy drives energy demand and a surging stock market draws record inflows. The response is a boost for Prime Minister Manmohan Singh, who is seeking Rs 40,000 crore from seven planned stock sales by March to rein in the budget deficit.

CIL raises Rs 15,200 cr

For more news log on to www.energybusiness.in

Coal block cancellations

The union government has threatened to cancel coal block allocations to

eight companies, including the country’s largest power generator NTPC Ltd. The ministry has issued showcause notices to these firms for failure to develop blocks allotted years ago, despite repeated reminders. The coal ministry has prepared a list of 93 captive coal blocks where development has not been satisfactory. Since 22 September, the ministry has issued similar notices to at least 30 such firms. Apart from NTPC, the other seven issued notices today are Maharashtra State Mining Corporation, Tamil Nadu Electricity Board, Bhushan Ltd, Bihar Khanij Vikas Nigam, Yamuna

No to coal mining

Coal Company, Jayaswal Neco Ltd and Mahavir Ferro Alloys. NTPC has received flak for delay in development of three blocks — Chattibariatu, Kerandari and Dulanga — allotted to the company in 2006. While the first two, in the North Karanpura coalfield in Jharkhand, were to start production in July 2009, Dulanga in the Ib Valley coalfield in Orissa was expected to begin production by 2011, by the original plan.

The government of Meghalaya will not renew the mining lease to Coal India

Ltd (CIL), leaving coal miner without any mining activity in the state. The mining lease for the Simsang coal reserves were held by North Eastern Coalfields Ltd (NECL), a wholly owned subsidiary of CIL. Officials in the coal ministry said, “In Meghalaya, the mining lease held by NECL expired in 2008, and the state government has decided not to renew the lease. In the absence of a lease agreement, no more mining activity can be carried on or planned in the state.”

Union coal has ministry threatened to cancel allocation to eight companies

Essar to expand capacity of Vadinar refinery to 20 mtpa | Fin min approves additional Rs 3,000 crore subsidy | IEA urges

G20 to do away with fuel subsidies | Ethanol panel went beyond its brief: Pawar | BPCL back in black |

Bangladesh to ramp up storage capacity | Bankers shun Vedanta over environmental track record | India and US ink pact

on shale gas technology | India-US joins hands on clean tech fuel R&D | 3i group picks up equity in GVK Energy |

ONGC, which is the 30 per cent owner in the Rajasthan block operated by

Cairn, has held back US $500 million to Cairn India alleging that the expenditure had been inflated, a director in the company said. The money was spent by

ONGC payment to Cairn

Cairn, the operator, on a pipeline as well as capital expenditure and operating costs. ONGC reimburses Cairn its share of the expenditure.


PMEAC for free fuel prices

ONGC bid for Iraqi gas

Suzlon to raise funds

Prime Minister’s Economic Advisory Council (PMEAC) has said that

diesel prices should be freed from government control ‘as early as possible’, a suggestion which if accepted will lead to a price hike of Rs 2.87 per litre in the price of diesel. “I think it should be done as early as possible,” PMEAC chairman and former RBI governor C Rangarajan said.

IOC’s Paradip plans

T he country’s largest oil marketing company (OMC) Indian Oil Corp

Gas pipeline contract

Gujarat government owned Gujarat State Petronet Ltd (GSPL) has

trounced central owned gas utility Gail India and a joint venture of the Adani Group and Welspun to win rights for two cross-country natural gas pipelines.

Thirteen companies have qualified to bid in Iraq’s auction for three gas

fields and no others will be allowed to take part, a senior oil official said. Iraq will tender gas fields at Akkas in the western desert, Iraq’s Sunni heartland and once an al Qaeda stronghold, Mansuriyah near the Iranian border in volatile Diyala province, and Siba in the relatively peaceful southern oil hub of Basra. The three fields together have estimated reserves of around 11.23 trillion cubic feet of gas.

Wind energy major Suzlon plans to raise up to Rs 5,000 crore from

the secondary market and increase its borrowing limit to Rs 10,000 crore from the current Rs 7,000 crore.A Suzlon notification to the stock exchanges said its board had approved proposals for shareholders’ nod to increase its authorised share capital from Rs 445 crore to Rs 700 crore and to issue securities (ADRs, GDRs, FCCBs, non-convertible debentures, convertible bonds, QIP) of up to Rs 5,000 crore. The board also approved the increase of borrowing limits, other than temporary loans and working capital facilities, from Rs 7,000 crore to Rs 10,000 crore.

IOC’s 30,000 bpd Paradip refinery to become operational by November 2012


(IOC) may not export refined products from its Paradip refinery, which will be commissioned in March 2012, on rising local fuel demand, its head of refineries B N Bankapur said. The 300,000 barrels per day (bpd) Paradip refinery on the east coast in Orissa is likely to operate and stabilise at full scale in November 2012.

A GSPL-led consortium beat Gail to get rights to lay a 1,600-km line from Mallavaram on the east coast of Andhra Pradesh to Bhilwara in Rajasthan, official sources said. The consortia, which also included Indian Oil, HPCL and BPCL, beat Adani-Welspun combine to get rights of 1,670 km Mehsana-Bhatinda line.

ADAG-GE sign deal worth US $750 million | BHEL to build three coal power plant in Nigeria | SC issues notices to R-Power

and Centre over Sasan coal block | Govt, Cairn defer on Vedanta deal: Sundareshan | No guarantees on another Macondo |

ONGC appoints auditors to verify overall reserves | OVL to sign contract for development of Farzad B gas field | OVL to

work jointly with PetroVietnam on BP’s assets | BPCL announces discovery in Brazil block | NTPC gears up for competition |

14 NEWS BriEfS November 2010

Gail India is expected to appoint Engineers India Ltd as project

management consultant for its proposed 200-tonne-a-day LNG plant at Ramgarh in Rajasthan. Contracts will be issued for the project, following preparations and a feasibility study. Gail is examining options for the proposed project, including the full implementation of the supply chain from liquefaction of the gas, transport of the LNG and re-gasification at local consumption centres or using partial re-gasification and outsourced transport of the LNG.

International Finance Corporation (IFC), the World Bank’s private equity

arm, is keen to ramp up its activity in the renewable energy sector in India, besides

Fin min rejects proposal to levy duty on imported power equipment | NTPC to set up 3,960 Mw plant in MP | Fin min says

no to duty reduction on branded fuels | Refining output records downward movement | BGR bags Rs 2,168 crore contract |

KG D6 gas production to peak from next year | Gazprom to supply LNG to India | L&T’s appeal against NTPC rejected |

Vedanta Plc to miss deadline on Cairn deal | RIL trunk pipeline projects delayed | India conspicuous by absence at Tianjin |

A government panel has

selected India’s largest energy explorer Oil & Natural Gas Corp (ONGC) director-offshore Sudhir Vasudeva to head the state-run company after incumbent R S Sharma retires on 31 January next year. The Public Enterprise Selection Board, the committee that screens talent for top positions in state-run companies, named Vasudeva, 56, as its first choice after interviewing eight candidates.

S Vasudeva ONGC CMD

CIL says no to auction


Gail to appoint EIL

IFC keen on RE sector

finding more ways to help the private sector scale up.For the financial year ended June 2010, IFC had invested US $140 million in alternative sources of energy in India.The company feels that the main challenge in this sector is the high capital costs associated with the small sized projects, which stands in the way of building scale in renewable energy projects. Meeting the country’s need for a strong and sound infrastructure is the top priority for IFC. It plans to strengthen the project financing segment in the sector, by evolving innovative frameworks to support private sector participation in generation, transmission, distribution, renewable energy, and rural electrification.

separate plan in the years ahead through block dispensation. Bhattacharya also said that in the fiscal year to March 2010, CIL produced 431.26 million tonnes, up 6.82 per cent from the previous year’s level, but achieving the 7-7.5 per cent a year target is not possible, given the constraints on the mines. India hopes to sell off the first coal blocks in a competitive tender by March 2011.

Sudhir Vasudeva

With India emerging as a big market not only for conventional but

renewable power too, global energy major Siemens plans to make the country a major hub for its ‘green energy’ business. It has tied up with the Adani group for entering the solar power business, besides firming plans to put up a wind energy turbine plant in Baroda, targeted at other emerging markets.Siemens Ltd, the flagship listed company of Siemens AG in India, plans to invest around to Rs 450 crore in the first phase for the Baroda project, to set up a 250 Mw manufacturing capacity. The Indian facility will act as a hub for energy-efficient automation and building solutions, a major business for Siemens, also Europe’s largest engineering company.

Siemens-Adani RE deal

IFC invested US $140 millions in Indian renewable sector last year

Coal India Ltd, the country’s largest coal producer, has said that it has

plans to increase production to meet the existing target of 460.5 million tonnes said Partha Bhattacharya, chairman CIL. It plans to expand 471 existing mines, and is unlikely to add any new mines this fiscal.CIL has also decided not to participate in the government’s coal block auction, but expected a special allocation in a


ONGC has queried Vedanta’s technical capability in the E&P sector

Gujarat govt firms bags pipeline contract | | Govt and IOC start consultation on IOC FPO | CIL to focus on washries to

realise value | Nelcast floats global tender for 1,320 Mw plant in AP | Wind energy to surge but grid constraints |

ONGC notifies two more discoveries in south India | Assam petrochem complex to be ready by 2012 | India to move to open

acreage policy by 2011 | India to spend US $2.3 trillion on cleantech technologies | Govt to promote solar telecom tower |


NLC to invest US $450 mn

Neyveli Lignite Corp (NLC) will invest US $450 million between

November 2010 and March 2011 in developing coal blocks and constructing of power generation capacity. Of the total investments in the next five months, US $71 million will be used for initial developmental expenses on coal blocks and US $379 million on thermal power projects.Also, US $187 million has been earmarked for initial investments in two 500 Mw thermal power plants that the company is constructing in Tuticorin, Tamil Nadu, in collaboration with TNEB. NLC also has invested US $75 million to set up a 50 Mw wind power project in the Thirunelveli district of Tamil Nadu. The first unit of the Tuticorin plant will be commissioned in March 2012 and the second unit in August 2012.

ONGC’s query for Vedanta

India shines at PlattsThe war of words between Cairn India

and ONGC took a fresh turn with the latter shooting off another letter to Cairn.The state-run firm has sought details of Vedanta’s financial strength, technical capability and past experience in the field of oil and gas. Vedanta has signed a deal to buy a majority stake in Cairn India. ONGC is Cairn’s partner in eight blocks, including three producing ones in Barmer in Rajasthan, Cambay in Gujarat and Ravva in Andhra Pradesh. This is the third time that ONGC asserted its pre-emptive rights in the blocks after the Vedanta deal was announced on 16 August. Cairn had earlier dismissed ONGC’s claims, stating that “the transaction is a sale of shares in Cairn India, rather than an assignment of any participating interest under the various

The country’s representation in the Top 250 roster has remained fairly

consistent over the last few years. Reliance Industries moved from fourth to third place among Asian companies and placed 13th globally with a 27 per cent compound growth rate (CGR). ONGC rose from fifth to fourth place on the regional list and to 18th place globally.Tata Power is the Indian newcomer to the 2010 Top 250 list, ranking at 159. It also made it to this year’s 50 fastest growing list, coming in at 10 with a CGR of 39.7 per cent and is India’s highest ranked

production sharing contracts and joint operating agreements.” In its latest letter, ONGC said it had pre-emptive rights in relation to the participating interests held by Cairn India or its subsidiaries in the eight blocks where the two companies were partners. ONGC examined the relevant agreements signed by Cairn India and its affiliates with the Indian government and ONGC as a participating company.

company on the fastest growing list. The country’s largest power producer NTPC remained in 10th place among Asian companies, but jumped 21 places to come in at 52 in the global rankings.The country’s largest oil marketer Indian Oil Corp (IOC) fell from 33rd rank in 2009 to 77th in 2010. But it featured in the 50 Fastest Growing list, coming in at 42 in 2010, the first year the company has been in that group, with a 17.0 per cent CGR.

Independent Power Producer (IPP) Bhoruka Power Corporation Limited

plans to build a 300Mw, gas-based power project at Chikkodi in Karnataka. The company is building its first gas-fired project in the state, will invest about US $270 million. Natural gas feed will be sourced from the US $1.12 billion Dabhol-Bidadi gas pipeline project developed by the GAIL India. Bhoruka Power has chosen 100 acres of land for the project.

Gas power plant in Karnataka

16 November 2010WEB ExclusivEs

The coal ministry is expected to finalize rules

and regulations for allotment of isolated coal patches by December 2010, to boost coal production in the short term. The coal ministry has identified 20 isolated patches across the country, each of which is estimated to have reserves of about 10 million tonnes.According to ministry officials, isolated coal patches, unlike coal blocks, have remained unexplored because of the small, uneconomic size of reserves, making them unviable for development by large user industries. However, against the backdrop of a rising demand-supply gap of coal in the country, the ministry has taken the view that these patches of coal reserves could be allotted for use by local industries that fall in

the small- and medium-scale operators.“We will soon make a decision on development of isolated coal patches to increase production that will be beneficial to local industries in the vicinity of the coal patch,” said coal minister Sriprakash Jaiswal. “We will have to decide the basis of allotment. In my view, auction is the only equitable basis for allotment of the coal patches to user industries, and we will frame rules accordingly, which will then be implemented by governments of the states under which the coal patches fall.”Jaiswal also said that the ministry will soon float global tenders for the development of abandoned mines across the country. Unlike isolated coal patches under the authority of the state governments, abandoned

mines fall within the purview of the central government. The ministry of coal has identified 27 abandoned mines estimated to have reserves of 500 million tonnes, and has proposed reviving and developing these through joint ventures with global investors. Isolated coal patches are under the purview of the Coal Mines Nationalization Act, 1973, under which the authority to allot such reserves falls to the state governments and that coal extracted from such patches cannot be transported by rail and can be utilized only by local industries in the vicinity. Isolated coal patches also have been left out of the purview of the National Mineral (Development and Regulation) Bill 2010, which will be passed into a law in the next session of Parliament, starting

in November. Under this proposed law, coal blocks will be put up for auction for captive users, scrapping the present system of allotment. Ministry officials said that since coal patches did not fall within the purview of the new law, separate rules and regulations will have to be framed for the auctioning of these patches. “If someone cannot develop these blocks, we shall cancel their allotment and put them up for auction,” an official said.

For full story log on to www.energybusiness.in

Ministry to finalise policy on isolated coal patcheseb beURAU

eb beURAU

Azure Power, a private equity-backed solar

power producer, is planning an investment of US $40 million in Gujarat for developing a 15 Mw solar PV power plant. The investment is led by Overseas Private Investment Corporation (OPIC), an agency of the US government. Other investors in the project include World Bank arm IFC, and venture capital firms Helion Advisors and Foundation Capital.Azure Power has signed a 25-year power purchase

agreement with Gujarat for the project expected to

be commissioned by mid-2011. The New Delhi-based firm had partnered with SunEdison, North America’s largest solar energy services provider, for developing the power plant in Gujarat in May 2010. “The potential for solar energy in India is huge and the Azure Power project is a good example of US-India collaboration for the development of the solar energy sector. I am excited to see job creation in both India and the US through US investment and technology exports for the Azure Power

project,” said Suresh Kumar, assistant secretary, US department of commerce.“We are encouraging the development of solar power in Gujarat and we expect to make the state a hub for solar power in India. We have set up a target of 1,000 Mw established solar power generation capacity by the end of 2012 and 3,000 Mw in next five years,” said D J Pandian, principal secretary energy and petrochemicals, Gujarat government.


Azure Power to put up 15 Mw solar plant in Gujarat

Coal demand is rising

Azure Power is PE-backed


India’s n-bill deviates “significantly” from global standards

The Civil Nuclear Liability Bill “deviates

significantly” from international standards and renders equipment suppliers potentially liable for as long as 80 years, according to a new report, which also asks India to take quick and resolute action to resolve the issue.The report Natural Allies: A Blueprint for the Future of US-India Relations says the law is a “major disappointment to private and public officials in the US.”The report, co-authored by former US under secretary of state for political affairs Nicholas Burns, former deputy secretary of state Richard Armitage and scholar Richard Fontaine says that the Indo-US nuclear agreement constituted a historic step

forward in US-India ties and has become the cornerstone of the new partnership.“Failure to complete the steps necessary to implement the agreement, however, risks severely damaging the rest of the relationship. Consequently, the United States and India must press vigorously for rapid implementation of the agreement,” it said.“The Indian Parliament recently passed a nuclear liability law that deviates significantly from international standards and renders equipment suppliers potentially liable for as long as 80 years. This law is a major disappointment to private and public officials in the United States, and India should take quick and resolute action to resolve this issue,” the report said.

It said failure to do so will undermine the most important agreement the two countries have negotiated and pose grave risks for the relationship at the political level.“By resolving the issue of legal liability, and by providing the remaining nonproliferation assurances that the United States requires, India can secure this historic achievement,” the report said.On the occasion of the release of the report, Burns, the Bush Administration’s key interlocutor with India on the deal, warned that the landmark agreement is in “jeopardy” because of the bill.“The actions of the Indian Parliament in putting forward the nuclear liability bill is going to stall this agreement unless something is done to modify that action by the

Indian Parliament…We are worried that this very high profile centre piece part of the relationship is not going to be fulfilled without some quick action by the Indian government and the Indian Parliament,” he said.Noting that US-India strategic partnership is a two way street, Burns said India has obligations too.


eb beURAU

There is a view in the solar industry that the government should have been technology neutral as solar thermal is not really a proven technology?Yes, it is true that it is not used in India on a large scale but worldwide it is a technology that is fast replacing solar PV for grid-connected power. It offers many advantages like energy storage which can be used for peaking needs. This technology takes away one major complaint against the renewable energy sector that it is not available when it is most needed. With the indigenisation of various components cost can be

brought down further, so I will say that the policy is in the right direction.However, to make this technology successful in India we need to address issues related to availability of authentic data of radiation, availability of water and land.

Many believe the target of 20,000 Mw under JNNSM by 2022 is too ambitious. What is your view?I will say it is a good target; it gives you scale and the possibility of reducing costs as we go forward. It is expected that as we go forward costs will come down from present Rs 18 crore per Mw to around Rs 13 per Mw.

But apart from scale, we need to invest in R&D capabilities, so that large scale indigenisation can be achieved. Transplanting technologies from the West and using them here as it is not going to work.

Bankers are finding that the projects are not bankable and hence they are not really enthusiastic about funding the projects under JNNSM?Yes, these projects are hardly bankable; we all know what is the financial health of most of the state utilities. Nor is NVVNL is taking any responsibility towards the dues owed to the generator by the state utilities. To make

the scheme work we need to bring in some element of government guarantee. Otherwise, you will have to depend upon balance-sheet financing rather than project financing, which increases the cost of borrowing.


We need to bring in an element of government guaranteeMAkARAnd GAdGil

R Chandrashekhar, CEO IT Power Group

During the first road show of New Exploration and Licencing Policy (NELP) IX in Mumbai early last month, the ministry of petroleum and natural

gas ensured that the head honchos of top Indian oil and gas industries were present to showcase the success of India’s petroleum exploration business. It hoped to send a strong and positive signal to the industry worldwide. To see if this show of strength had any impact on investors, we will have to wait till mid-March by when bids for the ninth round of NELP would be submitted.To counter the poor response to the last

round, which took place at the height of the global meltdown and received bids for only 36 of the 70 blocks on offer, petroleum minister Murli Deora – known to wield quiet clout among Indian corporates – ensured that even normally elusive CEOs turned up for the road show. Show of strength aside, the industry is still looking for clarity on some issues. The Supreme Court has settled the dispute over gas pricing, but with the government dragging its feet over the Cairn India sale, concerns have been raised once again. Other questions haunting the business: Do the E&P firms have the freedom to market the gas they produce? What is the fiscal regime for the current NELP round? Will

the bid document be more investment-friendly? While potential investors got answers to some of these questions such as the bid document and the freedom to market gas, on other issues there is no clarity yet.NELP’s ninth round offers 34 blocks which include eight deep-water blocks (including four blocks in the Andaman-Nicobar area), seven shallow-water blocks and 19 on-land blocks. These include 15 blocks which are recycled, some of which were relinquished by ONGC. Till date the country has received an investment commitment of around US $13.8 billion since the auctions began for 239 blocks.

news18 november 2010

Yet Another Round?The government needs to answer some more questions before investors agree to spend good money on petroleum exploration in India

Makarand Gadgil

NELP IX

Plenty of potential, but doubts about the government’s policies continue to exist


Commenting on the prospects of the ninth round, international consultancy firm PwC’s associate director, oil & gas practice, Deepak Mahurkar says, “Compared to the last round, investor sentiments are high owing to the economic and commodity price recovery. For new entrants, the S blocks in the prospective Cambay basin are available, and good competition is expected for acquiring licences there.” Adds Ashu Sagar, the secretary general of the Association of Oil and Gas Operators (AOGO), an industry lobby, “Recycling itself is not a bad idea or practice. It keeps happening the world over, but the question is whether the recycled blocks are recycled with any additional data. If yes, then it is a positive move.”

Changes in bid documentsUnlike in the previous rounds, where the investor had to give a per-year work programme commitment, in the current round there is a single exploration phase of seven years for onshore and shallow-water blocks, and eight years for deep-water blocks.There is no compulsory relinquishment of a block after the minimum work programme is completed; the operator can retain the block by committing one exploratory well for the onshore and shallow-water blocks per year, and one well in three years for the deep-water blocks.An explorer can now bid for blocks which he had relinquished earlier. In addition, the explorer does not have to give a commitment for carrying out 2D seismic data work; he only needs to commit to carrying out a 3D seismic data survey.Comments Pune-based geologist and seismic data consultant Vishwas Joshi: “This is a very important step which will bring down costs substantially for the explorer.”

Freedom to market Despite the clarification from the petroleum secretary, S Sundareshan, both during the road show and the press conference after it, that the government never intended to, nor intends to intervene in the price discovery mechanism for gas to be carried out at arms-length, the

industry still seems to have apprehensions on the issue. Rumours of a move to introduce a pooled-price mechanism for gas to bring about uniformity in gas prices is only adding to the confusion.Observes consultancy firm KPMG in its latest report on the Indian oil and gas sector, “Perceived government intervention is an area of concern for many investors.”Remarks AOGO’s Sagar, “It’s good the secretary clarified the issue, but the industry would like this assurance in the form of some government notification or circular.”

Tax regimeThe uncertainty over the tax regime is another area which is bothering investors. They are happy to know that instead of tax holidays on profits the government is offering them investment-based incentives under the new direct tax code (DTC). But considering the time it takes to pass legislation they are not sure about the tax regime in which they would enter the business. More than the DTC, which will be effective April 2011, what is making investors nervous is uncertainty over the proposed Goods & Services Tax (GST). Will GST be implemented at all? If yes, what is the time frame? What will be the final tax structure? These are some of the questions that remain unanswered.

Cairn-Vedanta dealIf the government is serious about attracting foreign investment it has to take

a quick and transparent decision on the Cairn-Vedanta deal. As per the provisions of the production sharing contract (PSC), Cairn has to get a nod from the government before going ahead as even a corporate stake sale amounts to an indirect transfer of the block.It was perhaps hasty on Cairn’s part to announce the deal without taking the government into confidence. But it would be a knee-jerk reaction for the government to procrastinate on the decision. This will only send wrong signals to the international investment community.Says Sagar, “An operator should have the freedom to leave the block whenever he wishes provided he follows the conditions of the PSC. One can’t hold back permission to leave the block for any other reason.” So far the only response from the government has been a bland, ‘we are examining the issue.’

Andaman-Nicobar blocks The Directorate General of Hydrocarbons believes that the four Andaman-Nicobar blocks will be the flavour of the season. The blocks have similarities with producing areas such as Myanmar in the north and the Indonesian archipelago in the south which have proven hydrocarbon reserves. The four deep-water blocks, on offer for the first time, cover an area of nearly 47,000 sq km. Says S K Srivastva, the director general of hydrocarbons, “There are a lot of similarities between the Sumatra and Andaman basins which should make them attractive to international investors.”Adds a senior ONGC official connected with the company’s offshore activities, “There’s no doubt Andaman is an area with high prospects, and we are interested in exploring further in the Andaman and Nicobar area.” According to Mahurkar, “Options for the utilisation of any gas from the Andamans about a decade from now would be to convert the gas into LNG and transport it to mainland India or produce petrochemical and fertilisers to meet domestic demand.” He says that Indian majors and international oil companies are expected to study the Mumbai and Andaman blocks closely to compete with the Indian NOCs.

Rumours of a move to introduce

a pooled-price mechanism for gas

to bring about uniformity in gas prices

is only adding to the confusion

20

What is the status of the RGGVY project?By the end of the last financial year, electrification work under the scheme had covered around 1.90 lakh villages. 78,526 unelectrified and 1.12 lakh electrified villages have been covered in 2009-10. We have disbursed financial assistance of Rs 6,583 crore which includes a government subsidy of Rs 5,995 crore. 1.97 crore BPL households have been given connections under the scheme.

What are the new opportunities in rural electrification?Earlier we used to say that if a person can read and write his name then he is literate, but with the passage of time we enhanced our definition of literacy. Similarly, we are widening the scope of the definition of rural electrification. Earlier, if even one house in a village was electrified we used to say that the village was electrified, but in 2005 we changed the definition and said that a village would be considered electrified only if at least 10 per cent of the households were electrified, and that village institutions such as the panchayat office, school and dispensary should be also electrified. The scope for rural electrification will continue to grow and present us with new opportunities and challenges.

REC recently received infrastructure finance company status. What are the

Jairaj Phatak, CMD Rural Electrification Corp, says that as an NBFC he faces many restrictions on raising funds and deploying them. He’s now looking at turning into a banker to circumvent these restrictions. Edited excerpts from an interview

Makarand Gadgil

We are looking at forming a private sector bank

IntervIew november 2010

benefits?REC will now be able to finance, from our own funds, more private sector projects because it can take 5 per cent additional exposure in the case of a single borrower and 10 per cent in the case of a group of borrowers. The total permissible exposure of our own funds will now be 40 per cent in the case of group-borrowers. It also makes us eligible for raising tax-free infrastructure bonds and ECBs of up to US $500 million without finance ministry approval.

What will be the impact of the recent RBI rate hike on your borrowers?We are not planning to pass on the impact of the rate hike to our borrowers; it will remain around 11 per cent. Our cost of borrowing being around 7.10 per cent, with rising interest rates it might be around 7.25 per cent or so. It is in order to reduce the impact of rising domestic interest rates that we are raising external funds.

Why is REC looking to increase FII stake in the company? What is the current FII stake?We have recently got permission from the Reserve Bank of India to raise our FII stake up to 35 per cent. Our present limit is 24 per cent, and currently the FII stake is 22 per cent. The logic is simple: because the country has a capacity addition target of 1,00,000 Mw in the 12th plan, we need

more strength to finance projects, and this can be achieved only by expanding our equity base.

You are looking to form an SPV and get a banking licence. What is the rationale behind this?Along with other power sector PSUs such as PFC, NTPC and SJVNL, we have received in-principle approval from the power ministry to apply for a new banking licence. We are looking at private sector or foreign partners to come in as majority partners because we are looking at forming a private sector bank. However, nothing has been finalised as yet. Talks are on and we expect more clarity from the RBI on the licencing policy.The rationale behind venturing into the banking sector is that as an NBFC there are many restrictions on how we can raise funds and where we can utilise them. Apart from this, at present, both public and private sector banks are giving loans to the power sector and are also getting large amounts of deposits from power sector companies, a business which we can’t enter as an NBFC.

(For full text log on to www.energybusiness.in)

Jairaj Phatak, chairman and managing director, Rural Electrification Corp

AZIS2010India_Energy Business_205x280 + 3 mm Bleed, 28.10.10 08:11

Since it came out of the nuclear wilderness, the Indian government has signed eight civilian nuclear deals. New Delhi has till date signed

civilian nuclear deals with the US,

France, Canada, UK, Namibia, Argentina, Mongolia and Kazakhstan. Another deal with Japan — crucial for the US deal to take effect commercially as two big US suppliers, GE and Westinghouse, are Japanese-owned — is in the pipeline. If the first four have technology as the

common thread, the last four are deals that are aimed at securing continued uranium supplies for the Indian indigenous nuclear programme.India intends to add 63 Gw of nuclear power to the national grid by 2032. Although a significant part of this programme (around 40 Gw) will come from imported light water reactor technology from various sources, the rest will come from the Indian indigenous programme. While many of the imported reactors will come with their own supplies, the indigenous programme, including the existing reactors, need secure supply sources to be effective and reach the magic figure of 63 Gw. Uranium is crucial to India’s 3-stage nuclear resource development. Although India has close to 30 per cent of the world’s reserves of thorium, the route to

thorium lies via uranium. The first two stages envisage working with uranium and plutonium respectively with a thorium blanket in the second stage that will help to convert thorium to fissile U-233 in the required quantities. When India perfects the thorium-U-233 core design and a matching reactor (3rd stage), it will have achieved a major technological

breakthrough. The Department of Atomic Energy (DAE) officials estimate that this technology will not be commercial viable before 2050. Pointed out a senior DAE official, “Our recent deals are structured in such a way that we are able to source the uranium we need for our own indigenous programme while offering to these countries, most


The Quest for UraniumIndia intends to add 63 Gw of nuclear power to the national grid by 2032, but simply does not have enough indigenous reserves of uranium to achieve this target on its own

Nuclear power

Gayatri Ramanathan


Plants under construction

Power station Operator State Type Units Total capacity (MW)

Kaiga NPCIL Karnataka PHWR 220 x 1 220

Kudankulam NPCIL Tamil Nadu VVER-1000 1000 x 2 2000

Kalpakkam NPCIL Tamil Nadu PFBR 500 x 1 500

Total 4 2720

Planned projects

Power station Operator State Type Units Total capacity

(MW)

Kakrapar NPCIL Gujarat PHWR 640 x 2 1280

Rawatbhata NPCIL Rajasthan PHWR 640 x 2 1280


Jaitapur NPCIL Maharashtra EPR 1600 x 4 6400

Kaiga NPCIL Karnataka PWR 1000 x 1, 1500 x 1 2500

Bhavini PFBR 470 x 4 1880

NPCIL AHWR 300 300

NTPC PWR 1000 x 2 2000

NPCIL PHWR 640 x 4 2560

Total 10 20600

Proposed projects

Power station Operator State Type Units Total capacity

(MW)


Jaitapur NPCIL Maharastra EPR 1600 x 2 3200

Pati Sonapur Orissa PWR 6000

Kumaharia Haryana PWR 2800

Saurashtra Gujarat PWR

Pulivendula NPCIL 51%, Andhra Pradesh PWR 2000 x 1 2000

AP Genco 49%

Kovvada Andhra Pradesh PWR

Haripur West Bengal PWR

Total 15

of which have small grids, our 220 Mw pressurised heavy water reactor (PHWR) technology for which they can use their own fuel.” He also pointed out that reactor suppliers such as Areva or GE would typically come with assured supplies of uranium. According to World Nuclear Association statistics, Areva was the world’s largest uranium producer in 2009 with 17 per cent of global uranium production. Cameco, a Canadian company that recently opened offices in India, came second with a 16 per cent share followed by the Rio Tinto Group. Kazakhstan was the world’s largest producer of uranium in 2009, followed by Canada and Australia.

Uranium imports India’s current reserves of uranium can support a maximum of 10 Gw capacity based on PHWR technology. (PHWRs use natural uranium as a fuel whereas light water reactors use enriched uranium.) Recently, DAE secretary Dr Srikumar Banerjee announced that the uranium mine at Tumalapalli in Andhra Pradesh had three times more mining reserves than originally thought, allowing the mining of 45,000 tonnes of uranium per annum against the original estimate of 15,000 tonnes. Dr Banerjee described the Tumalapalli find as “a welcome shot in the arm.” There are also known uranium deposits at Lambapur and Nalgonda in Andhra Pradesh and Hubli in Karnataka, though these sites are thought to be relatively small. Earlier, the total assessed uranium reserves were estimated at 140,296 tonnes, including Tumalapalli as well as six mines at Jaduguda. The country currently mines 400 tonnes a year from the Jaduguda mines, while India’s 17 operating reactors require 500-600 tonnes of uranium concentrates annually. According to one estimate, as much as 100,000 tonnes of new ore is needed by India to operate all existing and upcoming plants at capacity in the coming years. Currently, India has 45 Gw of installed capacity with PLFs around 50-70 per cent and has four units under construction with intent to add 20 Gw as part of its indigenous capacity addition

plans. With two mines more mines in Meghalaya and Karnataka beginning operations in the next four years, output is expected to go up to 600 tonnes.India also imports uranium from Russia and Kazakhstan through deals arranged by the Uranium Corporation of India. In December 2008 Areva supplied 300 tonnes of uranium concentrates. DAE also signed contracts for the long-term supply of 2,000 tonnes of natural uranium pellets with the Russian state-owned fuel firm TVEL. Nalco is seeking to negotiate a supply from Namibia, while Cameco is negotiating a long-term uranium supply contract with

the DAE. Kazakhstan and Namibia are also among the countries discussing fuel and equipment supply contracts with the Indian government for upcoming nuclear power plants. However Australia, which has the world’s largest uranium reserves, has refused to sell India uranium because India is not a signatory to the Nuclear Non-Proliferation Treaty and the Comprehensive Test Ban Treaty. So far India has done well in terms of leveraging its potential as a market. It remains to be seen how the country leverages its own technology offerings while seeking to secure its resource base.


A Safe Option The EPR reactor could be a safe way to meet India’s need to increase nuclear power generation quickly, says Marincic Alexis, director business unit products & technology, Areva

Just like France’s own nuclear programme, the Indian civilian nuclear effort was initiated in the early 1960s, and the country’s first commercial nuclear

plant was delivering electricity to the grid at the end of the same decade. Since then, additional plants were built in a continuous effort to supply electricity, and about 5 Gw of power are now delivered to the Indian grid. As said by Prime Minister Manmohan Singh during the International Atomic Conference organized in Delhi last year, the nuclear industry would have huge opportunities in India after the civilian nuclear deal signed with the US. The objectives are clearly to reduce the dependence on fossil fuels and to contribute to global efforts to combat climate change.

PHWR and PWRDomestically-designed reactors in India are pressurized heavy water reactors (PHWRs) as they use heavy water to moderate neutrons. Slowing down neutrons is necessary to sustain the nuclear reaction. Using heavy water reduces the absorption of neutrons and allows the use of natural uranium as fuel. In pressurized water reactors (PWRs) such as the EPR reactor, the same ordinary water is utilized for both use which requires using enriched uranium to counterbalance additional neutron absorption.In both designs, the heat produced inside

the reactor core is transferred to the turbine through steam generators. Only heat is exchanged between the reactor cooling circuit (primary circuit) and the steam circuit used to feed the turbine (secondary circuit). No mixing of primary and secondary cooling water takes place. In the case of the EPR reactor, the primary cooling water is pumped through the reactor core and the tubes inside the steam generators, in four parallel closed loops, by coolant pumps driven by electric motors. Each loop is equipped with a steam generator and a coolant pump. The reactor operating pressure and temperature are such that the cooling water does not boil in the primary circuit but remains in the liquid state. A pressurizer, connected to one of the coolant loops, is used to control the pressure in the primary circuit. Feedwater entering the secondary side of the steam generators absorbs the heat transferred from the primary side and evaporates to produce saturated steam. The steam is mechanically dried inside the steam generators, then delivered to the turbine. After exiting the turbine, the steam is condensed and returned as feedwater to the steam generators.

What is the EPR reactor?The EPR reactor is a 1740 Mw/e gross PWR. Its evolutionary design is based on experience from several thousand reactor-years of operation of light water reactors worldwide, primarily those incorporating the most recent technologies: the N4

(Chooz B1-B2 and Civaux 1-2) and Konvoi (Neckarwestheim-2, Isar-2 and Emsland) reactors currently in operation in France and Germany respectively. This enabled the designers not only to use experience from the most recently constructed plants but also to eliminate the risk arising from the adoption of unproven technologies. The EPR safety approach involves a reinforced application, at the design stage, of the defence-in-depth concept by improving preventive measures to reduce the probability of core melt, and, second, by incorporating features for limiting the consequences of very low probability postulated core melt accidents.In order to reduce the probability of core melt accidents, advances were made in three areas: an extended range of operating conditions was taken into account at the design stage, equipment and systems were designed to reduce the likelihood of an abnormal situation deteriorating into a severe accident, and improvements were made in the reliability of operator actions. The EPR safety approach also makes it possible to identify accident sequences that could cause core melt or result in large radioactivity releases, to evaluate their probability, and then to identify their potential causes and to define countermeasures. When including all types of initiating failures and hazards, core damage frequency is below 1/100,000 (10–5) per reactor/year, which meets the objective

EPR

Alexis Marincic, director business unit technology & products, Areva


set for new nuclear power plants by the International Nuclear Safety Advisory Group (INSAG) with the International Atomic Energy Agency (IAEA) – the INSAG 3 report. If only events occurring inside the plant are taken into consideration, the frequency is below 1/1,000,000 (10–6) per reactor/year, which is a factor 10 reduction compared with the most modern reactors currently in operation and below 1/10,000,000 (10–7) per reactor/year for the accident sequences associated with early loss of the radioactive containment function. It must be noted that shutdown states were systematically taken into account in the design, both in risk analysis and in the design of the protection and safety systems. Because a break in the reactor coolant system could lead to core melt, the design of the reactor coolant system, the use of forged pipework and components, and the construction with high mechanical performance materials combined with measures to allow early leak detection and to facilitate in-service inspections permit excluding rupture of the major reactor coolant piping.In the same way, special attention was given to managing steam generator tube breaks as this could potentially result in large releases of water from the primary system to the secondary system and atmosphere. By setting the driving pressure of the medium head injection lower than the set pressure of the secondary system safety valves, there is no risk of overfilling steam generators with water and so to release radioactivity into the environment.The layout of the safety systems and

the design of the civil works structures minimize the effect from hazards such as earthquakes, floods and plane crashes.The safety systems are designed on the basis of a quadruple redundancy at the same time for their mechanical and electrical parts and for the supporting I&C. This means that each system consists of four subsystems or ‘trains,’ each one capable by itself of fulfilling the entire safety function. The four redundant trains are physically separated from each other and located in four independent divisions (buildings). The building housing the reactor, the building in which the spent fuel is stored on an interim basis, and the four buildings corresponding to the four divisions of the safety system are provided with special protection against externally-generated hazards such as earthquakes and explosions. To withstand major earthquakes, the entire Nuclear Island stands on a single thick reinforced concrete basemat. The building height has been minimized and heavy components and water tanks are located at the lowest possible level. To withstand the impact of a large aircraft, the Reactor Building, Spent Fuel Building and two of the four Safeguard Buildings are protected by an outer shell made of reinforced concrete. The other two Safeguard Buildings are geographically separated. Similarly, the diesel generators are located in two geographically separate buildings. The safety-related systems are simple, redundant and diverse to ensure high reliability and effectiveness. To further improve reliability of operator action and safety, the short-term protection and safety actions needed in the event of an incident or accident are automated. Design criteria

have been established to set minimum timeframes before operator action is required. In any case, operator action is not required before at least 30 minutes for actions taken in the Control Room, or one hour for actions performed locally in the plant. Experience feedback from the design and operation of the N4 reactors, which were among the first plants to be equipped with a fully computerized Control Room, and use of the last generation yet well-proven Teleperm XS safety I&C, give the EPR reactor a high performance and reliable human-machine interface. Operator actions are based on real-time plant data made available by state-of-the-art AREVA I&C.

Benefits for IndiaThanks to the large capacity of the EPR, the Jaitapur project will allow India’s electricity network to receive a larger quantity of power sooner than it would with other options. In addition, the EPR plot plan will lead to an optimized use of available land as it would permit the reaching of as much as 10 Gw/e of production on this site. Because those 10 Gw/e are produced by six reactors only, this means that the site will require less highly specialized staff to run reactors, thus facilitating the staffing of the general nuclear generation park expansion.The EPR reactor is at the forefront of nuclear power plant design. It offers advanced technology and presents economies of scale. It can generate significant amounts of electricity on a limited number of acres of land.

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26 IntervIew november 2010

What is your vision for Coal India as it is today?When I took over as chairman in 2006, a similar question was asked by the press: ‘Where would you like to see Coal India by the time you retire?’ I don’t know what came to my mind then, but I just said that I would like it to be the most admired company. Admired by the government, the common man, institutions and all stakeholders, that it should reach a position of admiration. And now, four years later, I find that we are not far away from that position, particularly with the IPO. We are close to that goal.

The IPO has been very successful.It has been a process by which not only the investors discovered us but we too discovered ourselves. Because the process was very involved, the entire organization was involved in this.

For instance, we didn’t even know that we had created such wonderful forests. When we started to look at what we had done for the environment we found that there was no proper monitoring of the process. Obviously we are into coal mining, and everyone knows that in open cast mining the environment is supposed to be degraded and then the forest has to be restored and reclaimed. ‘So where do we stand in that?’ we asked ourselves. In April 2008 we created processes whereby all major projects – such as open cast mines of more than 5 million cubic metres – were subjected to satellite surveillance to see whether the reclamation work was commensurate with the mining activity. By starting this and making mining project officers responsible for reclamation targets – we gave it a priority next only to the coal production target – we got excellent results. In most of our 49 mines, the mined out areas in the last three years since we started this project have not expanded, so the forest cover began to increase. So far we have planted 73 million plants with a survival rate of more than 80 per cent. In areas operated by the Northern Coalfields, we have actually been able to see changes in the number of rainfall days, the lowering of the mean temperature, and an increase in the average rainfall per year. We are now focused on achieving similar results in other coalfields. Going forward, we will be focusing more on sustainability issues. This will make coal mining in the country more sustainable and more acceptable.

Does sustainability mean that you are moving away from open cast mining?As long as we handle social and environmental issues properly, there is nothing wrong with open cast mining. The recovery is far better, close to 100 per cent. In underground mining the recovery is closer to 50 per cent, unless it is very intense long wall mining.

Is this a possibility in thickly forested areas which is where your new mines are likely to be located?In thickly forested areas it is an option if you don’t want to disturb the forest. But in open forests, mostly shrubs, the forests that we create are far better than what we destroy. If these areas are given to us for mining, they can be converted into much better quality of forests. Maybe it will take 10 years.

How many of your upcoming fields are in shrub areas?There is a lot of scrub area in Jharkhand where the forests are actually open forests. There are some cases in Orissa as well.

These also fall in the no-go category? Many of the forests in the no-go category were created by us! If we have created thick forests in some areas, we will do it again. This is why the no-go area categorization is now under review.

The proposed amendment to the Mining Act, giving 26 per cent of the profits to project-affected people whose land has been acquired, has been widely welcomed. How will it impact your bottom line?

Partha Bhattacharya, chairman, Coal India Ltd, looks beyond the huge success of the organization’s IPO

Gayatri Ramanathan

Our margin growth will move to a different level

Partha Bhattacharya chairman, CIL


Our margin growth will move to a different levelAs I see it, 26 per cent of this year’s net profit will have to be expended next year. If it is an expenditure next year then it is an above-the-line item and will be subject to tax deduction. In that case the impact on net profit is less. At current margins, 26 per cent of net profit corresponds to 6 per cent of revenue. Against this we do a lot of spending as of now. We believe the law should be framed in way that allows appropriate set-offs, then the residual portion is manageable. If not we will require a price adjustment. Given that there is a significant difference between our prices and international prices – our prices are known to be lower

– this may not be too much of a problem.

How much will your prices go up in that case?6 per cent of revenue means prices will go up by 6 per cent.

Are you doing something to bring your prices on par with international prices?If our prices are low today one reason is that our coal is unwashed and inconsistent in quality. For the last 25 years we have been arguing with our consumers about who will pick up the additional cost of washing the coal. Then two years ago we brainstormed with all our stakeholders –

the ministry, consumers, ourselves – and we took a decision that if washing is a best practice, if we want to be known as a supplier of quality coal, we should wash it at our cost. At the same time, the consumer will be required to pay for the additional value I generate from washing – better quality in terms of consistency, heat value and size. Right away we took a decision that Coal India would not supply unwashed coal to anyone other than a pithead consumer because the benefit of consuming washed coal is felt more by those who consume it at a distance because they save on transport costs. Though the price goes up

Coal India has so far planted 73 million plants

28 IntervIew november 2010

substantially on a tonne basis, it does not go up that much on a per million-calorie basis. At distances of 600 km and more, the transport cost and the coal price are nearly the same. There will be additional savings in ash handling and disposal, and the consumer will be able to improve his PLF.

When you wash, how much of the ash actually goes away?Typically around 6 per cent. Indian coal is not very good in terms of washing characteristics, but the size becomes uniform once it is washed, hence efficiencies improve. This will happen at a marginal cost to the final power consumer.

What will be the per unit price impact?I don’t see too much of a difference. It will have to be worked out on a case-by-case basis. As I said, if it moves by 600 km there will be practically no effect. It will at the same time enable power companies to move into lower emission technologies. I think it will be a win-win situation. For a 6 per cent ash reduction there is also a 20 per cent rejection, so my

transport responsibility also comes down. Given that the railways are also stretched, this will be well within their capacity too. In addition, it will enhance the supply security situation for the power stations. So yes, Coal India will make money,

but our margin growth will move to a different level. So far our growth in profits has come purely from a strategy of growing volumes. Adding washing to this strategy allows us to take our margins to a different level.

When is the first washery coming up?2014. We have already ordered one, and we are likely to place orders for another two this year. The first one will come up in BCCL, Madhuban, the other two are coming up at Mahanadi Coalfields. After these washeries come up, we have a plan to have in-built washeries for expansion projects of 2.5 million tonnes or more. We see something like 40 per cent of the coal being washed by 2020. 40 per cent of our new production will also be washed.

You have been talking about acquiring assets abroad.We have two blocks in Mozambique. Other than this, we are looking at investing equity in existing coal mines with the condition that the money we are putting in should be used only to expand production; the incremental production and a portion of the existing production should be signed off with us through a long-term contract. Besides, the price should be distinctly lower than the index prices. As of now, three proposals are under consideration in Australia, Indonesia and the US.

After washing, around 6 per cent of the ash goes away

We have already ordered one washery, and we are likely to place orders for

another two this year. The first one will come up in BCCL, Madhuban, the

other two are coming up at Mahanadi Coalfields

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cover story30 November 2010

With the country’s petroleum product consumption expected to touch 360 metric million tonnes (mmt) by

2020, and 120 mmt by the end of 2010, it makes perfect sense to put in place plans for capacity addition in the refining sector. However, in the absence of a commitment from the government on price deregulation for downstream petroleum products, the question is how far it will be feasible for players to go ahead with their expansion plans. Although the government recently deregulated petrol prices, oil marketing companies (OMCs) are still governed by the government’s advice on avoiding steep hikes. The latest hike announced by Indian Oil Corp (IOC), around Rs 0.31, doesn’t cover the hike in the price of crude which is trading at US $87 a barrel.

To do that the price should have been upped by Rs 1.10. There is so far no clear road-map from the government on when it will allow the deregulation of diesel and LPG prices. In fact, one is getting signals to the contrary; recently, petroleum secretary S Sundareshan commented that increasing diesel prices could mean fuelling inflation further.According to the India head of an international petroleum product trading firm, this only means that state-owned OMCs will continue to incur losses, although smaller, and that private refiners already struggling to maintain a minimal share in the domestic market will be forced to look for export opportunities. Apart from politicians and bureaucrats wanting a firm grip on a sector which connects directly with the voters, there are also some historical reasons why the government wants private sector refiners to export and public sector refiners to

serve the Indian market. An industry analyst said that during the Indo-Pak wars of 1965 and 1971, the government did not receive the support it wanted from the multinational refiners.

Capacity addition plansIndia, with a refining capacity of 180 million tonnes per annum (mtpa), has the fifth largest refining capacity in the world. At the beginning of the 12th five-year plan (2012-13), this is likely to touch 250 mtpa. With many private and public sector projects in the offing, capacity is likely to grow beyond 300 mtpa by 2020.Out of the country’s 18 refineries, 107.5 mtpa of refining capacity is owned and operated by OMCs, while RIL and Essar operate 72 mtpa. Among the OMCs IOC has the lion’s share with 60.2 mtpa capacity.The industry benchmark is that it takes around US $2.5 billion to US $

Almost all the major refining players in the country are planning capacity expansion. Considering the controlled environment in which the industry operates, are we in for too much of a good thing?

Makarand Gadgil


The country’s petroleum consumption is expected to touch 360 mmt by 2020

3.5 billion to set up a 6 mtpa refinery depending on the complexity index, pipelines and other allied infrastructure that need to be created. This means that the Indian refining sector is all set to attract an investment of around US $30 billion over the next 2-3 years.In its latest report on the Indian oil and gas industry, international consulting firm KPMG observed, “In the medium term, this surplus supply indicates that there may be reservations against making more investment in the refining space till the time domestic demand catches up.”Said M N Chaini, former RIL president and chairman of the Indian Merchants’ Chamber, “India is growing at 8 or 9 per cent, and to keep up this momentum the petroleum sector must grow at 11-12 per cent so that investments coming into the sector are justified.”In a recent media interaction, Platts Asia’s editorial director Vandana Hari observed, “India’s unique geographical

location, which makes it close to both the source of crude and markets such as Africa, Middle East and even Europe,

offers it a freight advantage. Its new and large refineries also help it to offer economies of scale, while traditional refining hubs in Asia like Japan and South Korea are struggling to remain afloat.”

Said P Raghvendran, president of RIL’s refinery business, “So much capacity is being added, not only by private refiners but by the OMCs too. As a result, refineries on the coast will be forced to look out for export options.”

BPCL The Rs 11,500 crore 6 mtpa grassroots refinery at Bina, Madhya Pradesh, will give BPCL a foothold in the country’s fast-growing central and eastern states of Madhya Pradesh, Chhattisgarh and Jharkhand which are currently underserved. These states are attracting huge investments in the manufacturing, mining and power sectors. Besides this, it is also planning to set up a 12 mtpa refinery at Allahabad (slated for 2020) in Uttar Pradesh, and upgrade its Mumbai refinery by spending around Rs 440 crore to produce Euro III and IV grade fuel. BPCL has also completed the expansion and upgradation of its Kochi

India is growing at 8 or 9 per cent, and to keep up this

momentum the petroleum sector

must grow at 11-12 per cent


Radhakrishnan doesn’t think that capacities will be under-utilised

India can become an export hub What are BPCL’s under-recovery numbers for the first half of FY11?The per litre under-recovery on diesel is Rs 2.80 with the prices of crude around US $80 per barrel, and on LPG per cylinder Rs 197. The total under-recoveries of state-run oil marketing companies is expected to be around Rs 31,000 crore in the first half of FY11.

How you are getting compensated for these under-recoveries?

Talks are on between the petroleum ministry and the finance ministry on how to share the losses. I wouldn’t like to put a number to it before a final decision is taken.

When do you expect to commission the Bina refinery?The project got delayed due to a delay in the commissioning of the captive power plant. Now all the issues have been sorted out, and we hope to make this 6 million tonne refinery

operational in early 2011. We have plans to carry out expansion on the site and increase it to 14 million tonnes by 2015-16.

When is the Bina IPO expected?An IPO can be considered after we commission the refinery as one gets a better valuation after the refinery is commissioned.

What is the logic of setting up a refinery in the hinterland

refinery whose capacity has increased from 7.5 mtpa to 9.5 mtpa at a cost of around Rs 3,200 crore. The refinery now produces Euro III grade products and plans are afoot to further increase its capacity to 15 mtpa by 2020.

HPCL The smallest OMC’s ambitious Rs 19,000 crore Bhatinda refinery, being developed jointly with Mittal Energy, is expected to be commissioned by March or April 2011. The total capacity of the refinery is 9 mtpa, which will help the company to expand its footprint in the high-consumption areas of northern India (with flourishing agricultural and industrial activity) including Punjab, Haryana, Delhi, Rajasthan and parts of Uttar Pradesh.Besides, HPCL has announced plans to shut down its Mumbai refinery where neither upgrade nor expansion is possible due to safety issues and the non-availability of land. The capacity of the refinery, once it moves to Ratnagiri in Maharashtra, will go up from the current 9 mtpa to 15 mtpa. The company expects it will be

able to commission the new refinery by 2015. The move, besides increasing the refiner’s footprint in the highest-consumption areas of western India, will help it to unlock the value of its prime real estate in Mumbai.

HPCL also plans to expand the capacity of its refinery at Visakhapatnam (on the eastern coast) from the present 8.3 mtpa to 15 mtpa, as well as set up a petrochemical complex. The project was originally conceived in 2007, but was put on hold due to the global economic

downturn. Now HPCL has once again revived the idea.

IOCThe country’s largest OMC, Indian Oil Corp, lords it over the Indian fuel retail business with over 48 per cent market share in petroleum products, a 34 per cent share of the national refining capacity, and a 71 per cent fuel transportation pipeline capacity. IOC too has expansion plans. The company recently doubled the capacity of its Panipat refinery (in Haryana) from 6 mtpa to 12 mtpa, and now plans to raise it to 15 mtpa.IOC plans to invest US $10.3 billion during the current financial year (2010-11) to enhance its refining capacity, marketing infrastructure, pipeline network and product quality. The funds are expected to be raised through cash flows, external borrowings and a follow-on public offer, according to company chairman B M Bansal. The company will increase its refining capacity from the existing 1.3 million bbl/d to 1.73 million bbl/d over the next two years.IOC’s most ambitious project to date, the

IOC plans to invest US $10.3 billion during

the current financial year to enhance its refining

capacity, marketing infrastructure, pipeline

network and product quality

away from the coast? Doesn’t it increase operational costs?Both inland as well as coastal sites offer particular advantages. It is up to individual companies to decide on what their strategy for growth is. If you set up a refinery on the coast, you will have to take care of logistics for transporting your finished products either by pipeline, train or road. In the case of an inland refinery you have to lay a pipeline for the transportation of crude and then you can distribute your product through last-mile connectivity which can be road, train or pipeline depending on the volumes because

you are near the demand centre. The Bina refinery will help us to serve the central and eastern parts of the country in a better manner. These are the new growth regions as a number of new projects are coming up in states like Chhattisgarh, Orissa and Jharkhand.

Considering that both the private as well as public sector have plans to add large capacities, there is the perception that these capacities are going to be under-utilised for quite some time to come. What’s your

view?I don’t think so. Considering our economic growth is at 8 to 9 per cent, and may cross double digits any time soon, the demand for petroleum products will keep on rising in the domestic market. Apart from this we are already exporting petroleum products. India has a great geographical advantage — it is close to both the source of supply and market — India has great potential to become a petroleum export hub for the world.

S Radhakrishnan, CMD, BPCL


15 mtpa grassroots refinery at Paradip in Orissa, is scheduled to be commissioned in 2012. The company is also planning a petrochemical complex at Paradip with capacity to produce 2.4 million tonnes of polymers with an investment of Rs 20,000 crore. IOC wants to rope in a strategic partner for the project.The organization is aiming to clock revenue of Rs 15,000 crore from its expanding petrochemical business in 2011-12, more than double its current level of Rs 6,000 crore, even as its margins from the fuel retailing business are under pressure due to under recoveries.

RILIndia’s largest company by market capitalisation, Reliance Industries Ltd (RIL), plans to invest in excess of Rs 40,000 crore by 2014 to expand the world’s biggest refining complex in Jamnagar which it owns and operates. Although around two years ago there was talk of RIL setting up a third refinery, probably in the vicinity of Jamnagar, there is no word in the market about the location, investment and size of the third

refinery. There was also no indication in this year’s annual speech by chairman Mukesh Ambani to shareholders. The Rs 40,000 crore plan is mostly on the petrochemical side.

The company will invest around Rs 16,000 crore to set up a cracker unit as part of a proposed petrochemical project in Jamnagar. The cracker will produce ethylene, propylene, low-

There is no word in the market about a third refinery at Jamnagar


According to an estimate by investment bank

Goldman Sachs, RIL is likely to generate

a cash flow of Rs 81,900 crore

between 2011 and 2014

density polyethylene and monoethylene glycol. Another Rs 15,000 crore will be invested in a coke gasification plant that will fuel power plants in the complex. RIL plans to spend Rs 6,850 crore on a plant to produce paraxylene, used in the production of fibre and film, and a unit to manufacture butyl rubber, which has applications in several industries including adhesives, agricultural chemicals and personal care products.RIL is also exploring the option of constructing a 5 mtpa floating re-gasification terminal for liquefied natural gas (LNG). Nearly half the imported LNG would be used for its own consumption. RIL’s combined refineries have 1.24 million barrels per day of crude processing capacity, equivalent to about 2 per cent of the global capacity or one-third of India’s total capacity.According to an estimate by investment bank Goldman Sachs, RIL is likely to generate a cash flow of Rs 81,900 crore between 2011 and 2014.

EssarEssar Oil, the country’s second-largest private refiner, has announced that it will expand its refinery capacity at Vadinar in Gujarat by 2 mtpa with an investment of Rs 1,700 crore. The company will scale up its capacity to 20 mtpa by 2012, the company said. The move is part of the Ruia family-promoted company’s two-phase

expansion plan for scaling up its capacity to 34 million tonnes by 2015; this would require an investment of US $4 billion. Naresh Nayyar, the managing director of Essar Oil, said that the higher capacity would help the company to meet growing demand at a very competitive capital cost. “Based on our internal studies, the optimisation project is expected to result in a very strong economic performance for the company.”

Essar Oil is currently implementing a project to expand its capacity from 14 million tonnes to 18 million as part of the phase-I expansion. The company said that by the end of October, 72 per cent of phase-I had been completed, and that it is on

track for mechanical completion by March 2011 (with the exception of two units that are delayed by a quarter). The LSE-listed Essar Energy said the expansion of 2 million tonnes will be achieved through optimisation of some of the refinery units. The move follows a detailed project review which identified several opportunities to de-bottleneck the refinery and revamp some of the units at an extremely competitive capital cost. The optimisation project entails the revamp of six refinery units including the fluid catalytic cracking unit, diesel hydro desulphurisation unit, sour water stripping unit, diesel hydrotreater, vacuum gas oil hydrotreater and delayed coker unit.

Other initiativesThe country’s largest upstream company, ONGC’s subsidiary Mangalore Refinery Petrochemicals Ltd, is increasing its capacity from the present 9.6 mtpa to 15 mtpa. The project is likely to be completed in October 2011; investment in the project is expected to be around Rs 12,500 crore.As part of the expansion, the company is setting up a 4,50,000 tonnes/annum polypropylene unit at a capital cost of Rs 1,800 crore. The Chennai-based Nagarjuna group is also setting up a 6 mtpa refinery at Cuddalore in Tamil Nadu. The project is expected to be commissioned by

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Sasol and Lurgi have a monopoly over coal-to-liquid technology

P K Johri, chief executive officer ONGC Petro Additions Ltd, speaks about the prospects of the company’s upcoming plant at Hazira and the petrochemical sector in general

Petrochem sector will attract Rs 50k crore

Was the decision to venture into the petrochemical sector part of ONGC’s forward integration strategy?Yes. It’s a part of ONGC’s forward integration strategy as we are producing not only gas (which is a feeder stock) but also naphtha at our Uran and Hazira facilities. Besides, the majority of the consumers of the products which our plant will produce are in a 200 km radius from Hazira, so it makes perfect sense for us to set up a

petrochemicals complex at Hazira. Despite huge capacity additions in the sector, as a country we remain net importers of some of the products while demand is growing with the growing economy.

What is the total cost of the project? Have you tied up finances?It is the country’s largest petrochemical complex with 1.1 million tonnes of dual cracker unit. We are expecting it to get commissioned by the end of 2012.

The initial cost of the project was around Rs 12,000 crore for which we had tied up finances, but later on we decided to expand the scope of the project and go in for the latest technology. As a result, the cost is now around Rs 19,000 crore. We are in process of tying up the additional Rs 7,000 crore.

There was some talk of an IPO.We are exploring all the options to raise the finances.Are you roping in Japanese

November next, and produce Euro IV and V grade fuels, 25 per cent of which will be exported. The company has made arrangements for export with BP, which is also supplying crude to the project, said company managing director S Rammohan.

Coal-to-liquid initiativeThe Tata group has joined hands with South African company Sasol to set up a US $10 billion refinery to convert coal to a liquid fuel. The proposed refinery will be set up in Orissa and have the capacity to produce 80,000 barrels per day of oil.Likewise, the Navin Jindal-controlled Jindal Steel & Power is planning to invest Rs 42,000 crore in establishing a similar facility. Both the companies were awarded a coal block in Orissa last year. However, Sasol and its Frankfurt-based technology partner Lurgi Gmbh hold a monopoly over coal-to-liquid technology, and the only economically-operated coal-liquid plants are run by Sasol in South Africa.

Fuel retailingIn free markets such as the US and

Australia, traditional fuel retailers like Shell, BP and Caltex are exiting the fuel retailing space and making way for retail chains (like Walmart in the US and Coles and Woolworth in Australia) to take over the selling of petrol and diesel. India has a long way to go to reach this

stage as prices are still regulated. Commented Apoorva Chandra, joint secretary in the ministry of petroleum and natural gas, “Shell, which operates around 50 pumps in and around Bangalore, has sales which are double that of the state-owned firms put together


investors as strategic partners for the project?If we tie up with any strategic partner for equity that entity will be just an equity partner as we have already tied up technology for the project.

You said that the project should get commissioned by 2012. What is the status of the onsite activity?Nearly 90 per cent of the infrastructure development has taken place. Plant work has been awarded to a consortium of Linde and Samsung, and around 25 per cent of the work of

the plant has been completed.What products do you plan to offer?Among polymers we will offer PP, HDPE and LLDPE. In chemicals we will offer benzene, butadiene, pygas, CBFS and by-products of CBFS.

Are you also thinking of entering the synthetic rubber and synthetic yarn segments?We may go in for synthetic rubber but we won’t go as far as synthetic yarn; it will be too retail and doesn’t fit in our scheme of things. The yarn market has a completely different set of dynamics.

But first of all we would like to see our plant get started and make some money from it!

What kind of investment is the sector attracting?The petrochemicals sector will attract investment in the region of Rs 50,000 crore over the next 4-5 years with direct and indirect employment of around 30,000 people. Our own plant has a potential of offering 1,000 direct jobs and 5,000 indirect jobs.

P K Johri, CEO, ONGC Petro Additions Ltd

Petrochem sector will attract Rs 50k crore

despite selling fuel at higher prices. The customer experience at the retail fuel station is the most important factor.” He said that the ministry was working on a proposal to have two pricing indexes for different parts of the country. At present, all prices are linked to the Arab Gulf

Crude index. The prices in the country’s southern and eastern regions can be linked to the Singapore index which will give greater pricing freedom to the oil companies.According to RIL’s Raghvendran, India stands somewhere in the middle if one has

to rank countries on a scale of one to 10 in terms of fuel retailing freedom. However, India is the only country where fuel prices are regulated but no subsidy is given to private sector fuel retailers, he added.Private companies which went out of business after 2006 due to the government’s refusal to extend subsidies to them are slowly reviving their operations. RIL has started operations at around 700 petrol pumps out of its network of 1,500 fuel outlets. These include fuel retail stations in states such as Gujarat, Maharashtra, Karnataka, Andhra Pradesh and Tamil Nadu; these stations are mostly on the highways where it is possible for the companies to keep transportation costs in check.The other fuel retailers like Essar and Shell are closely following the developments and hoping to start their retail operations soon. Meanwhile, all private retailers are hoping that the fiscal situation will force the government sooner rather than later to decontrol the prices of diesel because out of the total volume of liquid fuel sales in the country around 85 per cent is diesel.


A mid-year report by consultancy firm McKinsey estimates that city gas distribution (CGD) over the next five years will offer

the fastest growth prospects among all downstream gas prospects in the 2010-2015 period. The sector is expected to consume 37 mmscmd of gas by 2015, growing at a CAGR of 15-20 per cent. This is not surprising, considering that the government has plans to expand gas distribution networks to more than 213 cities with investments of Rs 20,000 crore by 2020 with an additional 250 cities being identified for inclusion in the network over the next 5-7 years. If we

includes ancillary service providers, the investment opportunity is expected to more than double to Rs 43,500 crore. Early last year, the Petroleum and Natural Gas Regulatory Board (PNGRB), the downstream regulator, held two rounds of bidding for CGD networks and issued licences for six cities — Kakinada, Mathura, Meerut, Kota, Dewas and Sonepat. In the second round, it invited bids for Allahabad, Ghaziabad, Jhansi, Shahdol, Rajahmundry, Yanam and Chandigarh. But it was hauled to court by Indraprastha Gas Ltd (IGL), the franchisee for the National Capital Region, which claimed that it had a pre-PNGRB authorization for operations in Ghaziabad. IGL challenged

the regulator’s move in the Delhi High Court, pointing out that the regulator had no power to issue licences for retailing CNG and piped gas in cities, and that the authorizations issued till then were not valid; the high court ruled in favour of IGL. Eventually, with the government notifying section 16 of the PNGRB Act, the licences are expected to be awarded once the petition is disposed of in the Supreme Court where PNGRB has challenged the Delhi High Court decision. Meanwhile, armed with its new powers, PNGRB has invited bids for franchises in Bhavnagar, Dahej, Jamnagar, Nashik, Aurangabad, Sholapur, Jabalpur, Jalandhar, Ludhiana, Ambala, Panipat and Karnal in the third round. The bidding

Emerging OpportunitiesCity gas distribution is set to grow at a CAGR of 15-20 per cent in 2010-2015, and attract investments of up to US $2 billion

Gayatri Ramanathan

City Gas

Indraprastha Gas operates in the NCR region


Indraprastha Gas Ltd (IGL) operates in the NCR region and is looking to expand in the NCR region and surrounding areas. In the second and third round of bidding there are several cities which IGL could possibly bid for including Ghaziabad, Chandigarh, Jalandhar, Ludhiana and Ambala.

GAIL currently retails CNG in Vadodara, and in the first round of bidding for CGD networks it won bids in four cities: Dewas, Kota, Sonepat and Meerut. The company plans an investment of about Rs 10 billion in CGD networks in the next 2-3 years.

Gujarat State Petronet Ltd, through its investments in GSPC Gas and Sabarmati Gas, has a strong network in nine cities in Gujarat and mainly retails CNG. GSPC Gas is planning to develop three more CGD networks by the end of 2010. In the third round, three cities, Bhavnagar, Dahej and Jamnagar in Gujarat, are coming up for bidding.

Gujarat Gas Co Ltd is one of India’s largest private sector gas distributors with 3,000 km of pipelines in Gujarat. GGCL caters to industrial, domestic and auto (CNG station) users. GGCL has a presence in CGD networks in various cities in Gujarat

including Surat, Ankleshwar and Bharuch. The company has plans to bid for CGD networks in eastern India.

Mahanagar Gas Ltd, which operates the franchise in Mumbai, is a joint venture between the BG group and GAIL India. MGL caters to the needs of 4,00,000 consumers and has a 3,000 km pipeline network.

Current players in the city gas sector

closes for this round on December 3. Although CGD accounts for only 3 per cent of the total natural gas consumption in the country, the segment has grown at a CAGR of 30 per cent to reach consumption levels of 8.5 mmscmd. CGD’s share of gas consumption is expected to grow to 100 mmscmd by 2020, accounting for about 20 per cent of the projected gas demand in the country. As of now, Delhi, Mumbai, Gujarat and Andhra Pradesh continue to be the largest consumers of gas and are expected to remain so given that the pipeline network is the densest in these areas. While neither Delhi nor Mumbai has a fully developed pipeline network covering all residential, industrial and commercial consumers – buying piped gas is not mandatory even if a pipeline passes through an area – the transportation segment has grown rapidly with as much as 92 per cent of IGL’s revenue coming from CNG retail. Post-2012, the market is expected to widen further in these two cities with the

franchisees’ exclusivity coming to an end. “By 2012, the 8-year exclusivity enjoyed by IGL and MGL will expire and the distribution franchise will be thrown open to others as well,” said PNGRB chairman Lalit Mansingh.

Gas availability But all is not hunky-dory with the CGD business, and there could still be

many a slip between the cup and the lip, the foremost among them being the availability of gas. A recent KPMG report points out that among the key drivers for CGD “shall be the availability of requisite volumes of gas. With the development of RIL’s KG Basin and other fields, the opportunity could be available; what matters is whether the CGD licence holders can obtain gas supplies and develop gas distribution infrastructure.” A senior official from Petroleum Planning and Analysis Cell agrees. “All this talk about city gas attracting investment and demand for gas increasing is fine. But one will not have gas to distribute unless we build nation-wide pipelines, and on this count both GAIL and private players are at least one-and-half to two years behind schedule.” One of the reasons RIL has said that it cannot ramp up production is the lack of transportation infrastructure. The current allocation from KG D6 is around 7 mmscmd.

All this talk about city gas attracting

investment and demand for gas increasing is fine.

But one will not have gas to distribute unless we build

nation-wide pipelines

40

Jim Mather, minister enterprises, energy & tourism, Scotland, talks about Scotland’s initiatives and potential in the field of renewable energy, as well as the MoU signed with India

We are the world leader in renewable energy technology

What can Scotland offer India in the field of renewable energy (RE) technology?We have huge potential as far as renewable energy is concerned. We are the world leader in renewable energy technology. We have a generation potential of 206 Gw, as estimated by the UK government, whereas the peak electricity demand for the whole of Scotland at present is around 6 Gw. This indicates the renewable energy potential we have.We are certain to achieve the target of generating 50 per cent of the total power generation in the UK from renewable sources by 2011. We have recently revised our target to 80 per cent. We have created the requisite momentum based on our expertise in engineering and our academic capability coupled with the Scotland Europe Green Energy Centre working in the sector. On top of that, we have formed a consortium of universities under the umbrella of the Energy Technology Partnership.The MoU signed between India and Scotland allows us to cooperate in the field of renewable energy. It will help us in getting Indian technical expertise and new ideas. The dynamics of the relationship is not one-sided; it is two-way, and India would also benefit from new technology, especially the small-scale

Jim Mather, minister, enterprises, energy & tourism, Scotland

Ajeet Karn

international november 2010

41november 2010 www.energybusiness.in

turbines which are in the development stage and which would certainly be helpful to India.

How successful is Scotland’s venture into offshore and marine wind technology? How much capacity has been installed so far?It is very successful in terms of offshore winds. All the players – the government, developers, manufacturers – are in sync and working together. We have set a target of generating 11.5 Gw power from Scottish coasts. Already, GBP 30 billion has been invested in the Scottish water project. A joint venture of Scottish & Southern Energy and Canadian oil company Talisman has been producing 5 Mw for the last two years. Offshore wind turbines have a productivity of 56 per cent compared to 34-36 per cent for onshore turbines.

Did the Scottish government have to hand-hold investors in the initial days? If so, what were the incentives offered to encourage investment?Extensive financial package-based Renewable Obligation Certificates have been given to the investors. Financial incentives have been able to attract market players, and they are responding to the proposal positively. As a result, we have revised our RE target to 80 per cent from 50 per cent.

Is the Scottish government looking at investments in the Indian RE sector?In the last couple of days I have been talking to Dr Farooq Abdullah (union minister for new and renewable energy) about offshore wind technology. We are keen to foster a relationship especially in this field. Potential investors are already working on many a proposal for investments in India in the renewable sector, and that is possible mainly due to the existing MoU between India and Scotland.

Apart from wind, which other clean energy sources has Scotland invested in?Of course, Scotland has already made investments in solar energy on a small, domestic scale; [also in] hydro-energy,

hydrogen energy and pumped storage technology. These technologies are key in generating power in Scotland.

What’s your strategy for harvesting the wind and tidal energy potential that Scotland has?Our strategy is to work in conjunction with the UK and other European governments, and also work with major developers in the sector. We are also working to secure at least GBP 30 billion investment in this field.

What’s the current installed capacity in Scotland across various RE segments? What are the plans in terms of adding further generation capacity? What’s the proposed investment?Scotland already has 9.5 Gw of installed renewable energy capacity. The plan is at a very interesting stage; we know from the early stage that grid capacity is strategic for this. We have to manage the

grid capacity, and this requires a lot of work with both the UK government and the European Union (EU). Developments at this stage are healthy since both understand the huge potential of Scotland. This also meets crucial energy demand by securing RE targets as well as climate change targets. We are at a very advanced stage of dialogue with the EU to develop proper grid infrastructure. This is crucial keeping in view the fact that the UK imports power from Scotland to meet its domestic demand, and that a common grid infrastructure (intelligent grid

interlinking) would help all of us to realize the long-term ambition of the EU to create a common electricity market. We are having discussions with the European Electricity Grid Coordinator, George Adanawich, for developing the intelligent grid.

What additional infrastructure is being laid out to distribute the additional power generated? What is the proposed investment for this? We have re-laid the grid infrastructure from north Scotland to south Scotland. This is a powerful signal to Europe, UK and other players that we are serious about capturing the renewable energy market across the EU. We have also improved the existing line called the Beauly-Denny line. Besides, Scotland is part of the multinational effort to build a sub-sea grid in the North Sea which would be the route to market Scottish RE to the rest of Europe.

What are the Scottish initiatives on the R&D side?Major universities of Scotland and major energy companies (Scottish Power, Scottish & Southern Energy) have formed the Energy Technology Partnership. The European Marine Energy Centre at Orkney is at the forefront of marine-based power generation where prototype wave device tests are done. The Scotland Europe Green Energy Centre at Aberdeen is playing a catalytic role in accelerating the development, demonstration and deployment of new energy technology. The Energy Technology Partnership is the strongest low-carbon research group in Europe. The setting up of the Saltire Prize worth GBP 10 million for marine energy research establishes the intention and the commitment of the country as a whole.

What other pan-EU initiatives on RE is Scotland part of?We share a strong hydro-energy link with Norway. Norway has more hydro power than us. Its companies have made investments in our country. We also have an ongoing dialogue with Ireland and the rest of UK in this regard.

We have a generation potential of

206 Gw, as estimated by the UK government,

whereas the peak electricity demand for

the whole of Scotland at present is around 6 Gw

42

Ungad Chadda senior vice president Toronto Stock Exchange

Ungad Chadda, senior vice president of the Toronto Stock Exchange, was in India recently to promote the exchange which also has an active specialist venture capital junior exchange specialising in the energy and clean tech sectors. Edited excerpts from an email interview

Gayatri Ramanathan

We see opportunities in energy and clean tech

international november 2010

How big is TSX in terms of listed companies, capital raised and institutional and retail investors? Please answer with specific reference to energy and clean tech companies.We have 3,665 listed issuers; we are the first in North America, the second in the world by number (second only to Mumbai) and the sixth in the world by equity capital raised. We bring a culture of retail share ownership with a retail investor base of approximately 20 million investors – one in two Canadians own equity.

The hundred-year-old venture exchange is a hotbed of retail activity.In terms of sectors, in the clean technology sector, as on 30 September 2010, we had 128 companies with a CAD 17 billion market cap, eight new listings this year with CAD 1.095 billion in equity capital raised, and 72 financings.In the energy/oil and gas

43november 2010 www.energybusiness.in

We see opportunities in energy and clean techsector, till date we have 389 companies with CAD 369 billion market cap, 38 new listings this year through which CAD 7.5 billion was raised as equity capital, and 319 financings.

What does TSX have to offer Indian investors, specifically energy and clean tech companies?TSX offers investors the ability to invest in companies at all stages of growth from early start-up to well-established companies. Companies within an industry sector can use the sector benchmark index such as S&P/TSX Cleantech Index and S&P Energy Index. We have the largest number of clean tech companies – 130, with total capital raised by those companies of over CAD 1.5 billion in 2009.

What’s the difference between listing on TSX and TSX Ventures? What’s the relationship between the two bourses?TSX Venture Exchange is a market for earlier stage companies while TSX is the senior board which provides a public market for well-established companies with a strong management team and track record.Both are operated by the TMX Group, the same parent company with shared corporate services.Each market has a niche size and type of company. TSX Venture Exchange is a feeder market for TSX – 30 per cent of new listings on TSX come from TSXV.

How is TSXV different from the London AIM and similar markets?TSXV is a fully regulated stock exchange for high-growth companies which report quarterly to their investors. TSXV has a strong market for initial and secondary (follow-on) financing as well as trading liquidity and research coverage. TSXV actively produces graduates to the Toronto Stock Exchange (approximately 500 over the past decade). AIM is a

disclosure-based market (not a fully regulated stock exchange).

How well has Canada weathered the recession? What is the current level of confidence among institutional investors given that US economic data continues to be variable? Have retail investors returned to the market?Canada’s financial system has been ranked as the soundest in the world for two years in a row by the World Economic Forum. We have the lowest debt-to-GDP among G7 countries. TSX had a historic record in financing in 2009 with CAD 65 billion raised in our market – both TSX and TSX Venture.

You have been marketing TSX in China, Australia and Israel. What’s the response?There’s been great interest in listing from companies in China, Australia and Israel – 53 Chinese listed companies, 33 from Australia (nine in 2010), and the Israel market is building market interest.

What is your perception of the Indian market vis-à-vis the above markets? What specific opportunities do you see in India?We see a vast opportunity equal to or perhaps even greater than what we’ve

accomplished in the other regions. Opportunities in the mining, energy, agriculture, infrastructure and clean tech verticals are of great interest to us, and we are spreading awareness of TSX to these constituencies. Additionally, we are educating the Indian business community about the expertise of TSX and TSX Ventures in SME financing, listing and trading over the past hundred years.

What kind of companies are listed in the clean tech sector?Our clean technology sector is divided into five sub-sectors: energy efficiency (24 per cent), renewable energy production and distribution (21 per cent), renewable energy technology and manufacturing (16 per cent), waste reduction and water management (20 per cent), and low impact material and products (19 per cent). Our strengths lie in geothermal and hydro power, and independent power producers.

What kind of regulatory hurdles do you foresee in getting Indian companies to list on Canadian exchanges?Indian companies have already started to list on foreign exchanges. We are simply looking to expand their options and possibly create new structures and options for them in terms of how to list, finance and trade in the Canadian market. We have a great track record of attracting foreign listings from around the world – 300 international listings on TSX and TSXV currently. Our markets are open to companies from all countries, and our expertise in unique cross-border structures is deep. Above all, we are committed to working with Indian companies to ensure that they comply with the Indian regulatory framework currently in place when they access capital overseas through the TSX.

Canada’s financial system has been ranked as the

soundest in the world for two years in a row by the World Economic Forum.

We have the lowest debt-to-GDP among

G7 countries

an idiot’s guide to...44 november 2010

The idea of using ethanol as a fuel to run automobiles came in the wake of the oil shock of the 1970s when many countries had begun searching for methods to reduce their dependence on oil imports and keep their fuel bill in check. Brazil was an early mover in

the use of ethanol as automobile fuel thanks to its huge production of sugarcane, the juice of which is the principal source of ethanol production. Brazil has the technology to produce ethanol directly from sugarcane juice while some other countries produce ethanol from the molasses left after sugar is produced. There are also technologies available to produce ethanol from maize and other biomass inputs; these are used mainly in the United States. Ethanol is widely used in Brazil and in the United States. The two countries were together responsible for 89 per cent of the world’s ethanol fuel production in 2009. Most cars on the road in the US today can run on blends of up to 10 per cent ethanol. The use of 10 per cent ethanol in gasoline is mandated in some states and cities in the US Since 1976 the Brazilian government has made it mandatory to blend ethanol with gasoline, and since 2007 the legal blend is around 25 per cent ethanol and 75 per cent gasoline. Brazil now has a fleet of more than 10 million flexible-fuel vehicles regularly using neat ethanol fuel known as E100. World ethanol production for transport fuel tripled between 2000 and 2007 from 17 billion litres to more than 52 billion litres. From 2007 to 2008, the share of ethanol in global gasoline-type fuel use increased from 3.7 per cent to 5.4 per cent. In 2009, worldwide ethanol fuel production reached 19.5 billion gallons (73.9 billion litres).The use of ethanol as an additive to motor fuel is seen as not only a way of reducing dependency on oil but also as a method to combat the issue of carbon emissions and climate change. Although the blending of ethanol with both petrol and diesel has been experimented with, the

Blending Ethanol with Petrol

Fuel from sugarcane juice? Yes, and it works very well, but it comes at a price

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an idiot’s guide to...46 november 2010

present practice is largely to mix ethanol with petrol.

The Indian sceneIndia decided to move to ethanol blending in 2003 when a decision was made to blend 5 per cent ethanol with petrol in select regions of the country. The implementation of this decision has however been tardy as there are still issues about the pricing of ethanol and the cost of its transport to blending locations. India is the largest producer of sugar in the world. In terms of sugarcane production, India and Brazil are almost equally placed. In Brazil, out of the total cane available for crushing, 45 per cent goes for sugar production and 55 per cent for the production of ethanol directly from sugarcane juice. This gives the sugar industry in Brazil an additional flexibility to adjust its sugar production keeping in view the sugar price in the international market as nearly 40 per cent of the sugar output is exported. In India the area under sugarcane has been constantly increasing because it is considered to be an assured cash crop with good returns to the farmer vis-à-vis other crops. With the rise in sugar production, molasses production has also increased. The ministry of petroleum and natural gas has estimated that 5 per cent ethanol blends on an all-India basis would require 500 million litres. The current availability of molasses and alcohol would be adequate to meet this requirement after fully meeting the requirements of the chemical industry and potable sectors. The recent settlement of many policy issues about ethanol, mainly its pricing, has encouraged sugar producers in many states including UP, TN, Karnataka, AP, Maharashtra and Punjab. A major private sector petroleum company is said to have plans to set up a 3 lakh litre per

day ethanol plant changing sugarcane juice directly to manufacture ethanol. As capacities are built up, the oil sector should also be able to generate that much demand for ethanol to guard against any idle capacity. The utilisation of molasses for the production of ethanol in India will not only provide value-addition to the by-product but also ensure better price stability and price realisation of molasses for the sugar mills. This will improve the viability of the sugar mills, which will in turn benefit cane growers. With gasoline demand constantly increasing, the demand for ethanol is also going to rise. It is

currently estimated at over 800 million litres.India’s oil marketing companies have finally accepted letters of intent (LoI) from ethanol manufacturers in the country to facilitate 5 per cent blending of ethanol with petrol, and the ‘green fuel’ would be made available in the market very soon. The companies have accepted 143 LoIs for the supply of 71.74 crore litres of ethanol. Maharashtra will supply 29.45 crore litres for the time being, of which 13.92 crore litres are expected to be consumed in Maharashtra; the rest would

be utilised by other states. Blending ethanol with petrol will also help reduce India’s dependence on crude oil imports. Some OMCs also have plans to start ethanol production themselves. Hindustan Petroleum Corporation, for instance, bought two sick sugar mills in Bihar in 2008 to produce ethanol. These mills will start producing ethanol in December.

Food vs fuel This is a dilemma regarding the diversion of farmland or crops for biofuel production to the detriment of food supply on a global scale. The ‘food vs fuel’ or ‘food or fuel’ debate is international in scope, with good and valid arguments on both sides of this issue. There is disagreement about how significant the issue is, what is causing it, and what can or should be done about it. The debate is not yet very serious in India as ethanol production here has been relying on molasses which is a by-product of sugar production.

Hindustan Petroleum bought

two sick sugar mills in Bihar in 2008

to produce ethanol. These mills will start

producing ethanol in December

Ethanol is widely used in Brazil and the US

47 analyst’s corner september 2010 www.energybusiness.in

On a Growth Trajectory I ndia’s present refining capacity

stands at 185 million tonnes per annum (mtpa), accounting for 4.3 per cent of global refining capacity. Public sector companies account for close to 112 mtpa and the

private sector accounts for 72.5 mtpa. India’s refining capacity has more than trebled in the last 12 years. It was at 62.4 mtpa in April 1998, just before the commissioning of Reliance’s first refinery at Jamnagar in 1999.Refining capacities have gone up subsequently, going up by around 65 per cent in the last 6-7 years. This growth is likely to continue with refining capacities expected to touch 255 mtpa by 2012 and 302 mtpa by 2017 with a number of ambitious projects announced by both public and private sector.The consumption of petroleum products in India has also grown from 111.6 mtpa in 2004-05 to 138.2 mtpa in 2009-10, growing at a CAGR of 4-5 per cent, slightly lower than the GDP growth rates. If India has to sustain its ambitious GDP growth rates of 8-9 per cent per annum, consumption of petroleum products will also have to move in tandem.Since 2001-02, India has transformed herself from a net importer of petroleum products to a net exporter. If all the planned projects materialize, India will have an exportable surplus of around 100 mtpa by 2012 and 140 mtpa by 2017.During the economic downturn in 2009, while the western world was shutting down or reducing throughputs, Indian refinery projects were being put together to meet tight deadlines and almost all refineries were breaching name plate capacities. The contrast was evident. The proof of ‘demand is here’ and competitiveness was in the action the sector was in.

The supply side management by augmentation of capacity is receiving support from the growing demand for petroleum products in the second half of 2010 as well. The case for developing India as the refining hub of the world also received impetus with the private sector implementing additional projects with export objectives. More projects are being announced. As one of the refinery CEOs puts it, India will need to commission a 15 mtpa every second year if not every year.Demand and competitiveness is also making room for innovative refineries.

Reliance Industries Ltd commissioned its export-oriented refinery at Jamnagar SEZ in 2009 with the ability to produce Euro V grades of gasoline and diesel. The ability to commission a refinery during periods of trough in demand and to succeed in exporting full capacity in the cut-throat market was a cause for celebration in itself. Indian refineries are also consistently clocking higher gross refining margins (GRMs) compared to regional benchmarks (Singapore GRMs), a clear sign of competitiveness in refining

operations.It was unclear when the economies will show up again, and the government went ahead with issuing two licences to coal-to-liquid-based projects expecting to produce diesel and like products in Orissa. This was a clear indication of the confidence it had about the demand growth at home. Three grassroots refineries, Bhatinda, Bina and Paradip, were under construction, and the second mega Jamnagar refinery had just been commissioned. Essar, which deferred its refinery expansion during the downturn, has re-activated its expansion plans from 14 mtpa to 18 mtpa by 2011 and ultimately to 36 mtpa.Equally pertinent, while capacities get added, the Indian refiners are also investing substantially on fuel quality upgrades demanding a substantial capital commitment. The concern was always that the public sector oil marketing companies bore the brunt of fuel price controls limiting their investable surplus generation. A drop in crude oil prices gave a breather to these companies, and the fuel price rise and gasoline price decontrol continue to better the scenario. None of the global refinery majors have invested in India. The Mittals were first-timers in refining when they decided to create a footprint in India. So was the Oman investment made with the objective of being where the demand is, although that investment commitment came over a decade back. Majors like Total, Shell and BP seriously looked at the Indian refining and/or marketing sector, but continue to await fuel price decontrol. Notwithstanding this, Indian refiners continue to announce independent refining projects.

The author is senior manager, PwC

Indian refineries are also consistently clocking higher gross refining

margins (GRMs) compared to regional benchmarks

(Singapore GRMs), a clear sign of competitiveness in refining operations

Refining business

48 data November 2010

Power Prices PXiL

1000

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Delivery day

PXIL Average Price MCP for the day (Rs)

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10/1

5/10

10/1

6/10

10/1

8/10

10/1

9/10

10/2

0/10

10/2

1/10

10/2

2/10

10/2

3/10

10/2

5/10

10/2

6/10

10/2

7/10

10/2

8/10

10/2

9/10

10/3

0/10

Clo

sin

g P

rice

Rs.

per

US

GA

LL

ON

Date

10/1

/10

10/4

/10

10/5

/10

10/6

/10

10/7

/10

10/8

/10

10/9

/10

10/1

1/10

10/1

2/10

10/1

3/10

10/1

4/10

10/1

5/10

10/1

6/10

10/1

8/10

10/1

9/10

10/2

0/10

10/2

1/10

10/2

2/10

10/2

3/10

10/2

5/10

10/2

6/10

10/2

7/10

10/2

8/10

10/2

9/10

10/3

0/10

80

100

90.15

93.95101.25

92.85

Clo

sin

g P

rice

Rs.

per

bar

rel

3000

4000

Date

10/1

/10

10/4

/10

10/5

/10

10/6

/10

10/7

/10

10/8

/10

10/9

/10

10/1

1/10

10/1

2/10

10/1

3/10

10/1

4/10

10/1

5/10

10/1

6/10

10/1

8/10

10/1

9/10

10/2

0/10

10/2

1/10

10/2

2/10

10/2

3/10

10/2

5/10

10/2

6/10

10/2

7/10

10/2

8/10

10/2

9/10

10/3

0/10

3624

3630

Clo

sin

g P

rice

Rs.

per

US

GA

LL

ON

Date

80

120

10/1

/10

10/4

/10

10/5

/10

10/6

/10

10/7

/10

10/8

/10

10/9

/10

10/1

1/10

10/1

2/10

10/1

3/10

10/1

4/10

10/1

5/10

10/1

6/10

10/1

8/10

10/1

9/10

10/2

0/10

10/2

1/10

10/2

2/10

10/2

3/10

10/2

5/10

10/2

6/10

10/2

7/10

10/2

8/10

10/2

9/10

10/3

0/10

Clo

sin

g P

rice

Rs.

per

US

GA

LL

ON

Date

10/1

/10

10/4

/10

10/5

/10

10/6

/10

10/7

/10

10/8

/10

10/9

/10

10/1

1/10

10/1

2/10

10/1

3/10

10/1

4/10

10/1

5/10

10/1

6/10

10/1

8/10

10/1

9/10

10/2

0/10

10/2

1/10

10/2

2/10

10/2

3/10

10/2

5/10

10/2

6/10

10/2

7/10

10/2

8/10

10/2

9/10

10/3

0/10

80

100

90.15

93.95101.25

92.85

McX crude oil

From Oct 1st to Oct 20th, the prices are for the Oct 2010 contract. Following its expiry on 20th Oct, the prices from Oct 21st to Oct 30th is for the Nov 2010 contract (which then becomes the near month contract)

McX Gasoline

From Oct 1st to Oct 25th, the prices are for the Oct 2010 contract. Following its expiry on 25th Oct, the prices from Oct 26th to Oct 30th is for the Nov 2010 contract (which then becomes the near month contract)

McX Heating oil

From Oct 1st to Oct 25th, the prices are for the Oct 2010 contract. Following its expiry on 25th Oct, the prices from Oct 26th to Oct 30th is for the Nov 2010 contract (which then becomes the near month contract)

Akin to the rise in crude oil prices in the global markets, MCX crude oil futures prices increased more than a per cent in October 2010. Releases of US data that painted a picture of an economy stuck in slow-growth mode indicated that the US Federal Reserve would ease monetary policy further in the coming months. This aided a rally in oil prices. However, China’s surprise interest rate hike defeated the possibility of a major upside in oil prices. The rise in crude oil prices, in turn, spurred a rise in the prices of its derivates: MCX gasoline and heating oil futures increased 3 per cent and 4.7 per cent, respectively, on a monthly basis, in the month of October 2010.

Power Prices ieX

1000

2000

3000

4000

5000

2.0

2.5

3.0

3.5

4.0

Delivery day

PXIL Average Price MCP for the day (Rs)

PXIL Average MCV for the day (MUs)

Pri

ces (

Rs/k

Wh

)

Valu

e (

MW

h)

Delivery day

IEX Average Daily Value (MWh)

IEX Average Daily Price (Rs MWh)

Pri

ces (

Rs/k

Wh

)

Valu

e (

MW

h)

1-O

ct-1

02-

Oct

-10

3-O

ct-1

04-

Oct

-10

5-O

ct-1

06-

Oct

-10

7-O

ct-1

08-

Oct

-10

9-O

ct-1

010

-Oct

-10

11-O

ct-1

012

-Oct

-10

13-O

ct-1

014

-Oct

-10

15-O

ct-1

016

-Oct

-10

17-O

ct-1

018

-Oct

-10

19-O

ct-1

020

-Oct

-10

21-O

ct-1

022

-Oct

-10

23-O

ct-1

024

-Oct

-10

25-O

ct-1

026

-Oct

-10

27-O

ct-1

028

-Oct

-10

29-O

ct-1

030

-Oct

-10

31-O

ct-1

0

1-O

ct-1

02-

Oct

-10

3-O

ct-1

04-

Oct

-10

5-O

ct-1

06-

Oct

-10

7-O

ct-1

08-

Oct

-10

9-O

ct-1

010

-Oct

-10

11-O

ct-1

012

-Oct

-10

13-O

ct-1

014

-Oct

-10

15-O

ct-1

016

-Oct

-10

17-O

ct-1

018

-Oct

-10

19-O

ct-1

020

-Oct

-10

21-O

ct-1

022

-Oct

-10

23-O

ct-1

024

-Oct

-10

25-O

ct-1

026

-Oct

-10

27-O

ct-1

028

-Oct

-10

29-O

ct-1

030

-Oct

-10

31-O

ct-1

0

0

2

4

6

8

10

0

10000

20000

30000

40000

50000

60000

Source: IEX

Stock movementS

Source : BSE

Company 11-Nov Monthly h/l Wtd. Av 52wk h/l

ABB 860 955/810.10 881.25 974.90/669.20

BHEL 2417 2614/2410 2433.89 2695/2190

IOC 408.1 435/401 411.64 458.90/274

ONGC 1318.35 1395/1219.70 1321.1 1472/997.35

RIL 1082.05 1187/1034.25 1092.05 1187/840.55

R-Infra 1062.7 1107.25/1029.75 1062.12 1225/951.35

Siemens 832.7 856.50/790.25 831.52 856.50/495

Suzlon 57.1 666.30/54.75 57.89 95.60/43.05


Source : CEA /October figures

Power GenerationCategory / Monitored Actual Regions Capacity (Mw)Northern regionThermal 26050.26 14301.03Nuclear 1620.00 974.80Hydro 13678.25 5169.91Total 41348.51 20445.74Western regionThermal 37161.31 20734.35Nuclear 1840.00 797.02Hydro 7392.00 1150.82Total 46393.31 22682.19Southern regionThermal 22970.80 11717.51Nuclear 1100.00 516.16Hydro 11294.45 3100.16Total 35365.25 15333.83Eastern regionThermal 20515.05 9632.77Hydro 3847.70 854.47 Total 24362.75 10487.24North eastern regionThermal 858.50 392.73Hydro 1116.00 478.16Total 1974.50 870.89

Bhutan 0.00 738.99All India Thermal 107555.92 56778.39Nuclear 4560.00 2287.98Hydro 37328.40 10753.52Bhutan imp 0.00 738.99Total 19444.32 70558.88

As the monsoon receded from the country and higher temperatures made a come back in October, power generation increased by little over 7,700 Mw and touched 70,558.88 Mw. Also good rains and the consequent increased availability of water for irrigation led to a spurt in agricultural power demand. While the production of domestic crude continued to deplete as production from ONGC’s older fields is decreasing. However, natural gas production thanks to KG D6 continues to grow. Crude production fell by 74,000 tonnes in September from 31,94,000 tonnes in August. The production of natural gas increased by 337.4 million cubic meter in the same period.

Name of the PSU / Private Co

Planned produc-

tion dur-ing the month

Production during the% varia-

tion over last year

during the month

under review

% variation during the

month under review over

planned prodn

Month under

review

Corre-sponding

month last year

IOC 4273.0 3388.01 4226.12 -19.8 -20.7

BPCL 1713.0 1834.22 1697.22 8.1 7.1

HPCL 1345.8 1049.05 1326.75 -20.9 -22.0

CPCL 618.0 942.69 907.17 3.9 52.5

NRL, Numaligarh 234.0 221.00 220.00 0.5 -5.6

MRPL, Mangalore 1045.0 772.02 1014.19 -23.9 -26.1

ONGC, Tatipaka 4.4 5.73 4.54 26.2 30.3

Private Sector 3835.0 3949.90 4148.61 -4.8 3.0

Total 13068 12162.66 13544.63 -10.2 -6.9

refinery production*

Source: Petroleum ministry/*Production figures for September/ All figures in ‘000 tonnes

Name of the Undertaking / Unit

Planned produc-

tion during

the month

Production during the

% varia-tion over last year

during the month

under review

% varia-tion during the month under re-view over

planned prodn.

Month under

review

Corre-sponding

month last year

ONGC 2037 2003 2049 -2.2 -1.7

Oil India Ltd. (OIL) 305.3 304.5 296.1 3.0 -0.3

DGH (Private / JVC) 803.8 807.4 424.4 90.3 0.4

Onshore 1381.3 1451.9 968.9 49.8 5.1

Offshore 1764.9 1663 1800.6 -7.6 -5.8

Grand Total (1+2+3) 3146.1 3114.9 2769.5 12.5 -1.0

crude oil production*

Source: Petroleum ministry

Name of the Undertaking / Unit

Planned produc-

tion during

the month

Production during the

% varia-tion over last year

during the month

under review

% variation during

the month under re-view over

planned prodn.

Month under

re-view*

Corre-sponding

month last year

ONGC 1821.8 1892.8 1897.1 -0.2 3.9

Oil India Ltd. (OIL) 224.5 196.8 197.2 0.0 -12.4

Private/JVC 2322.3 2127.1 1651.1 28.8 -8.4

Onshore 723.3 718.2 719.9 -0.2 -0.7

Offshore 3645.3 3498.4 3025.5 15.6 -4.0

Natural gas production*

Source: Petroleum ministry

All figures in ‘000 tonnes

All figures in million cubic meters

Energy commodity prices, barring carbon commodities, nudged up in October 2010, although in varying proportions

V Shunmugam, chief economist MCX

global commodities50 November 2010

Riding on the momentum in crude oil prices built last month, Nymex WTI crude oil futures opened at US $81.58 a barrel, up 2 per cent

over the previous month’s close. Oil prices continued to rise further, driven by a falling dollar after the Bank of Japan cut interest rates and as striking workers combined with a shut shipping channel disrupted tanker traffic in France and Texas (US). Additionally, a report from the US Institute for Supply Management that the country’s services sector grew faster than the forecast rate aided the rally in oil prices. Consequently, Nymex crude oil futures peaked to a month high of US $84.43 on 7 October. Then, a combination of factors such as recovery in the dollar index, weak US equities and profit-booking reversed the rising oil price trend. Rupee appreciation further aided the fall in oil prices in Indian markets. Meanwhile, in the OPEC meeting held in Vienna on 14 October, oil ministers kept oil production targets unchanged at 24.84 million barrels a day as expected, thus leaving production quotas unchanged since December 2008, which meant little impact on oil prices. A surprise interest rate hike by the world’s fastest growing

economy China of 25 basis points to 5.56 per cent from the previous of 5.31 per cent triggered a major fall in oil prices. Another factor that added to the downside pressure on crude oil was the rising inventories in the US. As a result, Nymex crude oil futures hit a month low of US $79.25 on 20 October. From thereon, oil prices slowly and steadily crawled back up, helped by a weak dollar and a bounce in equity markets. Also, releases of US data such as initial jobless benefits and continuing benefits claims falling more than expected, painting a picture of an economy stuck in slow-growth mode, indicated that the US Fed would ease monetary policy further in the coming months. This lent support for a rise in oil prices at the month’s fag end. Nymex crude oil futures closed the month at US $81.43 — a monthly rise of just under 2 per cent.

Gasoline also moved in line with crude oil, rising 2.9 per cent on a monthly basis. However, the prices of the other derivate, heating oil, fell marginally

(1 per cent) in

October, due to 27-year-high inventories in the US northeast, a major demand centre in winter period. Among other energy commodities, ICE coal futures increased 2.6 per cent in October. Wet weather in Australia hampering shipments of coking coal from Queensland ports and disruptions in production and exports of Colombian coal aided a rise in coal prices. Additionally, forecast of abnormally low temperatures in China in the coming winter, because of the La Nina weather pattern prompting power stations to stockpiling coal, helped a strengthening of coal prices. Besides, Nymex natural gas futures prices also rose 4.3 per cent in the month. While a sustained rise in US gas inventories and mild hurricane activity in North Atlantic region resulted in a fall in gas prices for the major part of the month, a forecast of below normal temperature in parts of US at the month-end lifted gas prices, which closed the month on a positive note. Major energy commodities to have bucked the rising trend in the month were carbon emission instruments. EUA and CER futures on the ICE-ECX platform fell 5 per cent and 9 per cent, respectively, on a monthly basis. Weak German power prices, expectations of warmer weather in Europe and huge overhang of allowances in European markets were some key reasons behind the fall in carbon prices.

Energy Prices Nudge Up

®

Refineries

GAS

Documents

Together, we can - Imagindia · Editor: Gayatri Ramanathan [email protected] Assistant Editor: Makarand Gadgil ... Yogesh Mudras Financial Analyst: Vinit Joshi Head—Operations: