Indonesia is reactivating its membership of the Organization of the Petroleum Exporting Countries in December, OPEC said on Tuesday, which would add almost 3 percent to the group's oil output already close to a record high. The southeast Asian country would be the fourth-smallest producer in the Organization of the Petroleum Exporting Countries ahead of Libya, Ecuador and Qatar, and bring the number of participants to 13 countries. Indonesia was the only Asian OPEC member for nearly 50 years before leaving the group at the start of 2009 as oil prices hit a record high, and rising domestic demand and falling production turned it into a net oil importer. In a statement, OPEC said Indonesia's request to reactivate its full membership was circulated to OPEC members and following their feedback, OPEC's next meeting on Dec. 4 will include the formalities of reactivating its membership. "Indonesia has contributed much to OPEC's history," the statement from the group's Vienna headquarters said. "We welcome its return to the Organization." Indonesia's Energy Minister, who OPEC said will be invited to December's meeting, told Reuters earlier on Tuesday the country would return as a full member. The development is no great surprise as in OPEC terms Indonesia never really left. OPEC termed its departure a "suspension." Ecuador, which rejoined in 2007, set a precedent for a return from suspension. OPEC sources made clear the door was always open. Indonesia's status as a net importer had raised the question of whether it would return as a full member given that OPEC's Statute says any country with a "substantial net export of crude petroleum" may become a full member. OPEC pumps more than a third of the world's oil and is engaged in a defense of market share, having dropped its long-standing policy of cutting output to support prices in November 2014. The addition of Indonesia's output will boost OPEC's production by about 2.6 percent based on July output figures towards 33 million barrels per day (bpd) - far in excess of OPEC's 30 million bpd official target. OPEC output has not been above 32 million bpd since 2008, before Indonesia's exit. Indonesia produced 840,000 bpd in July, according to the International Energy Agency, and OPEC pumped 31.88 million bpd in July according to a Reuters survey - the highest monthly rate on record from the current 12 members. (Reuters)
Read More
Diluting equity to finance power unit buys in a depressed power market may be a risky strategy, says Neeraj Thakur JSW Energy has shown a tremendous risk appetite for buying distressed power assets in the market. With the announcement of an MoU to buy Jaiprakash Power’s (JP) Bina (500 MW) power plant, the group is now in official talks to buy three of JP’s assets with a total generation capacity of 1891 MW. Not just this, JSW Energy is also eyeing an under construction 1050 MW power asset of Monnet Ispat. Through the acquisition of these assets, JSW Energy wants to double its power portfolio to 6,081 MW from the current level of 3140 MW. If we leave Adani Power that managed to buy one power asset for Rs 6,300 crore from Lanco, other groups like Reliance Power and Tata Power have not shown the heart to take the risk in this market where infrastructure companies are ready to sell their power plants to pay off their debt. While JSW Energy has one of the best debt-to-equity ratio in the sector, its strategy to grow inorganically can make the balance sheet of the company similar to the players who want to sell their power plants in the market. With its debt of Rs 8,210 crore in March 2015, the purchase bill of the new assets - if all deals go through- would be around Rs 20,000 crore. JSW energy’s debt-to-equity ratio in March 2015 was just 0.47, a sign of a healthy company. The management of JSW Energy has said that it was ready to infuse equity into the company to fund acquisitions. However, to fund its acquisition spree, the promoters will have to dilute a significant amount of equity in the company. A brokerage analyst requesting anonymity said “no promoter wants to put in equity above 5,000 crore so easily. If Jindals do that, it would be a bold step to grow through brownfield projects in a depressed power market. Thermal power plants across the country are struggling with low plant load factor. NTPC reported a decline in its PLF at 77.6 per cent from 84.3 per cent in the first quarter of FY16. JSW energy’s own Ratnagiri power plant with a generation capacity of 1080 MW has reported decline in unit sales due to lack of demand from state discoms in the past. The company's plant load factor, a measure of the utilisation of a power plant, declined 75 per cent in the June quarter of FY16 as against 84 per cent a year ago. In such a scenario, even if the company is occupying operational assets, chances are that the company would not be able to realise margins required to retire the newly acquired debt on the company’s balance sheet. While the company management in its press conferences has said that it is looking at long term gains from these acquisitions, it would be important to note that in the long term, thermal power market will face pressure on margins from renewable energy players who are beginning to quote prices at Rs 5 per unit. Analysts expect the per unit realisation for JSW Energy power plants at Rs 4 per unit in FY16 and FY17, this guidance itself put a question mark over the valuation of the assets that the company is eyeing.
Read More
JSW Energy Ltd has signed an accord to buy a power plant from Jaiprakash Power Ventures Ltd, the companies said on Tuesday (08 September), as India's indebted corporations sell assets to repair their balance sheets. JSW Energy and Jaiprakash Power have signed a binding memorandum of understanding for the latter's Bina power plant in Madhya Pradesh, the companies said in separate stock exchange filings, without specifying a deal value. The Economic Times newspaper earlier on Tuesday reported JSW could pay about Rs 3,500 crore ($525 million) for the 500 megawatt power plant. Under pressure from banks, Indian companies are trying to offload assets to pay back debts after an economic slowdown squeezed the cash flows needed to service their loans. High levels of corporate debt, particularly in the infrastructure and power industries, have stopped companies from investing in new projects, holding back a recovery in Asia's third-largest economy. Credit Suisse said in a research note in June that 37 per cent of the Indian corporate debt it tracked was owed by companies which earned insufficient cash to cover interest payments in the quarter ending in March. It estimated the debts of Jaiprakash Associates, the parent of Jaiprakash Power, at Rs 75,300 crore ($11.32 billion). Jaiprakash Power last November agreed to sell two hydropower projects to JSW Energy, the company's first purchase of hydropower assets. The companies closed that deal on Tuesday. JSW Energy will cross 5,000 megawatts in capacity when it concludes the Bina thermal power plant deal, Chairman Sajjan Jindal said in a statement. Shares in Jaiprakash Power had jumped 6.3 per cent by 2:30 pm, while those in JSW Energy rose 6.2 per cent.(Reuters)
Read More
JSW Energy Ltd has signed an accord to buy a power plant from Jaiprakash Power Ventures Ltd, the companies said on Tuesday, as India's indebted corporations sell assets to repair their balance sheets. JSW Energy and Jaiprakash Power have signed a binding memorandum of understanding for the latter's Bina power plant in Madhya Pradesh, the companies said in separate stock exchange filings, without specifying a deal value. A business newspaper earlier on Tuesday reported JSW could pay about 35 billion rupees ($525 million) for the 500 megawatt power plant. Under pressure from banks, Indian companies are trying to offload assets to pay back debts after an economic slowdown squeezed the cash flows needed to service their loans. High levels of corporate debt, particularly in the infrastructure and power industries, have stopped companies from investing in new projects, holding back a recovery in Asia's third-largest economy. Credit Suisse said in a research note in June that 37 percent of the Indian corporate debt it tracked was owed by companies which earned insufficient cash to cover interest payments in the quarter ending in March. It estimated the debts of Jaiprakash Associates, the parent of Jaiprakash Power, at 753 billion rupees ($11.32 billion). Jaiprakash Power last November agreed to sell two hydropower projects to JSW Energy, the company's first purchase of hydropower assets. The companies closed that deal on Tuesday. JSW Energy will cross 5,000 megawatts in capacity when it concludes the Bina thermal power plant deal, Chairman Sajjan Jindal said in a statement. Shares in Jaiprakash Power had jumped 6.3 percent by 2:30 p.m., while those in JSW Energy rose 6.2 percent. (Reuters)
Read More
State discoms refuse to buy costly power from power companies due to high level of debt. Neeraj Thakur reports Suddenly there has been an excess production of coal in the country and the power plants are not willing to buy it. Till 2013, Coal India was the punching bag for the power sector for failing to supply coal to power generators. The power companies complained that their production was stalled due to lack of fuel. Coal India, at that time was entangled in the ‘go’ and ‘no go’ issue, with the ministry of environment and forest clearance. With close to 200 mines waiting for approval from the environment ministry under the then minister Jairam Ramesh, the Maharatna company managed to increase its coal production to 494 million tonnes in 2014-15, an increase of 32 million tonnes over the previous year. The rise was against a dismal performance in the previous four years when it added only 31 MT between 2009-10 and 2013-14. The all India production of coal in 2014-15 increased by 8.3 per cent to 612 MT and it seems that Coal India, which produces 80 per cent of India’s coal, will have to slow down production at its mines as it finds no buyers for its product. What has led to this scenario? While there are several views on the subject, depending on who you are talking to, RV Shahi, former Power Secretary, believes that Coal India is charging a premium for its increased coal supply from the companies. “If there is excess supply of coal in the country, then CIL should provide coal linkages to the power plants instead of supplying it to them through MOUs (Memorandum of Understanding). The price of coal under a MoU can be 40 per cent higher compared to the notified price under a coal linkage," said Shahi. Power producers, on their turn, have not been able to sell their power to state discoms as they refuse to buy expensive power due to high level of debt on their balance sheets. They often complain of not having enough liquidity to make payments to the power producers. Even if there is a demand from the consumers, the discoms are not in a position to buy power. Shahi wants the government to look into the issue and wants Coal India to provide coal linkages to power plants to bring the cost of power down. However, Salil Garg, a power analyst with India Ratings believes that even a company like NTPC, which mostly gets coal through linkages, has not been able to sell power in the market. The net profit for Country’s largest power generator for the first quarter of 2015-16 came down to Rs 2,135 crore, from Rs 2,201 crore NTPC’s falling Plant Load Factor or PLF to 77.6 % from 84.3 testifies what Garg says. The spot market price for electricity at the power exchanges has touched a low of Rs 2.56 per unit which is a significant decline from the peak of 2008-09 when electricity was trading at above Rs 6 per unit. A look at the break-up of the core sector data shows how the gap between the production of coal and electricity has been increasing for some time. While the production of coal between February and June 2015 has not been less than 6 per cent, the situation is not the same for electricity generation. From 5.2 per cent in February 2015, the growth in electricity generation came down to an abysmal level of 0.2 per cent in June 2015. Garg blames this situation to the poor demand of electricity from the industry. While Index for industrial production touched a high of 5 per cent in February 2015, it registered a growth of only 3.8 per cent in June 2015. While economists as well as the government like to believe that these numbers are a sign of green shoots in the economy, it has been more than a year since the economy has been trying to convert these green shoots into a flourishing growth story. This is precisely the reason why power companies are not able to sign power purchasing agreements with the state electricity boards, a per-requisite for getting coal linkages from the government. Amidst all this demand supply gap, another threat that is looming large over the thermal power sector is the one from renewable energy. Recently, Madhya Pradesh received bids from global companies to supply solar power at Rs 5 per unit. This shows that the thermal power companies cannot afford to remain inefficient and produce power which is above Rs 4 at the plant and results in the retail price of above Rs 5 per unit. If the thermal power companies have to be in business, they need to find ways to supply power at competitive rates for the discoms to be able to buy from them. Otherwise, very soon the solar power companies would be eating into the business of thermal power generators.
Read More
The issue of level-playing field for US solar equipment manufacturers following the World Trade Organization's (WTO) ruling against India will be taken up during Prime Minister Narendra Modi's visit to the US later this month. Narendra Modi will be in the US from September 24-30. According to a report in The Telegraph, commerce ministry officials said India was likely to appeal against the dispute settlement panel's ruling, which could offer a two-year breather to India. There can also be a bilateral arrangement with the US because it is an important trading partner. Last month, a WTO panel has ruled against India in a dispute raised by the US over the country's solar power programme, requiring the government to offer a level playing field to both foreign and domestic manufacturers of solar panels. The US filed a complaint in the WTO in February 2014 alleging discrimination by India's national solar mission against American products. The US raised the dispute over the Indian government's imposition of local content requirements for solar cells and solar modules. The Centre has offered financial support of up to Rs 1 crore per megawatt (MW) to the implementing agency for setting up large solar capacities by placing orders with domestic manufacturers. WTO members are not supposed to insist on national content requirements that discriminate against foreign products. Governments are also required to provide "national" treatment, under which imports must be treated on a par with domestically manufactured products. Officials maintained that the WTO ruling would not have an impact on the ambitious target to raise solar power generation capacity by five times to 1,00,000 MW by 2022 at an investment of around Rs 6 lakh crore. After reaching the target, India will become one of the largest green energy producers, surpassing several developed countries. The US is keen on grabbing a slice of this market, according to several reports. India is vital to the US because it is the second-largest export market for US solar products and its national solar programme — which is among the most ambitious in the world — is set to grow 20-fold during the next decade. Solar power has triggered a series of trade disputes as countries around the world try to reduce their dependence on fossil fuels by developing homegrown renewable power industries. This is the second case that India has lost to the US at the WTO. In June, the WTO's appellate body upheld an earlier ruling against an Indian ban on poultry meat and eggs supplied by American producers. The ban had been imposed to prevent an outbreak of avian influenza. In a confidential report issued to the US and India last week, a three-member dispute settlement panel headed by the former New Zealand envoy, ambassador David Walker, pronounced that New Delhi violated global trade rules by imposing local content requirements for solar cells and solar modules under the Jawaharlal Nehru National Solar Mission (JNNSM), according to a report in Mint. The WTO panel's ruling comes in the backdrop of Narendra Modi's Make in India programme, aimed at attracting foreign investment and turning India into a manufacturing hub. India needs as much as $200 billion to meet its green energy target to install 100 gigawatts (GW) of solar power and 60,000MW of wind power by 2022. India Ratings said it expected a strong growth in solar power installations over the next 4-5 years, driven both by the government impetus of 100GW of solar power by 2021-22 (60GW through grid connected solar projects) and a decline in generation costs.
Read More
The Union government's approval of the Marginal Fields Policy (MFP) for 69 oil and gas fields, proposing market linked prices and a revenue sharing mechanism, would shift the key risks to developers says India Ratings and Research (Ind-Ra). However, the policy is also likely to result in the simplification of the method to calculate the government's share. This presupposes prudence on the part of developers while bidding as the biddable parameter is likely to be the revenue share of the government. Developers will need to consider an overall exploration, development and production (EDP) cost along with volume and price estimates, as these would be the key variables for ensuring a reasonable internal rate of return on the projects. Ind-Ra expects the market linked prices for such gas to be closer to the lower of the spot or term liquefied natural gas landed prices, as these would be the alternatives available with key end-user industries. Thus, market-linked price from these marginal gas fields could be in the range of 1.5x-2.0x of the current domestic gas price of $4.66/mmbtu. Volume off-take at these prices should not pose a challenge and the gas is likely to see demand from consumers in the fertiliser, refinery and city gas sectors. In a significant move, the methodology for the calculation of the government's share from the hydrocarbons produced from these marginal fields has been shifted to the percentage share of gross revenue. This is in stark contrast to the earlier production sharing contracts (PSC) which comprised two main elements, cost recovery and sharing of profits based on pre-tax investment multiple. Thus, exploration and development (ED) costs (till the level bid for) were pass-through and first recoverable for developers. Furthermore, the investment multiple determined the government's share. Under PSC, the profit share of the government increased gradually till ED costs were recovered. Also, there were differences over gold plating of costs given that government's share of profit was calculated post the recovery of costs incurred by developers on ED. The prior methodology as outlined in PSC meant lower risks for developers as it allowed them to first recover the costs incurred followed by the sharing of profits with the government. However, profit maximisation strategies led to the allegations of gold plating of such costs. Additionally, this methodology led to disputes and delays in terms of costs acceptances due to the highly technical nature of cost details. The new methodology, though simplifies the basis of calculation of government's share, would place a greater risk on developers as they would need to estimate three key variables in advance before placing a bid a) EDP costs b) quantum of hydrocarbon extractable and c) market prices. Generally, revenue sharing contracts have been more amenable for businesses where upfront costs and output are fairly ascertainable. However, in case of hydrocarbon discovery both costs and output are not ascertainable completely and the success of the exploration activity itself is a low probability event. Thus, there might be situations where in developers could incur higher-than-expected EDP costs and thereafter the need to share a percent of the revenue with the government could lead to a longer payback or breakeven period, thus depressing project returns. Additionally, the nuances with respect to the percentage sharing methodology whether it would be a fixed percentage over the life of the block or would be a sliding scale dependent on gross revenue and cost incurred by the developer remain to be seen and would determine developers' interest in the same. In the PSC regime, the license to a particular developer was restricted to a single hydrocarbon, whether it be oil or gas and a separate license was required if any other hydrocarbon was discovered. However, the current policy would be applicable on all hydrocarbons discovered and exploited in the field which would ease the process for developers. MFP is applicable for the development of hydrocarbon discoveries made by national oil companies i.e. Oil & Natural Gas Corporation Limited and Oil India Limited. These discoveries could not be monetised earlier due to reasons such as isolated locations, small size of reserves, high development costs, technological constraints, fiscal regime among others. Under MFP, exploration companies would submit their bids for exploiting these oil fields under competitive bidding.
Read More
Green groups lost a fight to stop billionaire Gina Rinehart and India's GVK from building a giant coal mine in Australia, as a court on Friday dismissed an appeal against the state of Queensland's environmental approval for the project. Conservation group Coast and Country, originally working for three farmers, had sought to have the state environmental approval for GVK-Hancock's 30 million tonnes a year Alpha mine overturned based on the impact it would have on water supply and climate change. The state Land Court last year ruled that the mine should be approved with strict water management conditions or rejected. But the green group appealed that decision to the Supreme Court saying the Land Court did not have the right to issue two alternative recommendations and should have rejected the mine outright. The Queensland Supreme Court dismissed the appeal on Friday. The ruling eliminated one hurdle for the $10 billion Alpha mine, rail and port project, which has effectively been put on ice until it obtains a mining permit and overcomes a lack of funding due to a slump in coal prices. "We are pleased the court has clearly ruled that our project has continued to follow and comply with all regulatory and legal processes," GVK spokesman Josh Euler said. The state government, which wants new mines to be developed in the untapped Galilee Basin to promote jobs, has yet to issue a mining permit for the Alpha project, but has said it would be subject to existing water management rules. The Supreme Court decision was a blow, said Bruce Currie, one of the farmers represented in the case. "Justice has not been done. If this mine goes ahead, it risks draining away the groundwater that our lives and businesses depend on," Currie told reporters outside the court in Brisbane. The Queensland Resources Council on Friday launched an advertising campaign urging communities to sign a petition calling on the state to protect mining jobs against green groups looking to delay new projects. The Alpha project is 50-50 owned by Rinehart's Hancock Coal and GVK, with a small portion of GVK's stake owned by GVK Power & Infrastructure. (Reuters)
Read More
