Growing demand for oil and gas has kept India's biggest upstream company Oil & Natural Gas Corporation (ONGC) at the forefront of the nation's quest for more fossil fuels. But it has met with serious hurdles in $3.1 billion worth of investments in Sudan and Syria, even as Chinese oil companies are using all means-both financial and diplomatic-to keep Indian firms from acquiring critical global assets. On the domestic front, ONGC is struggling to keep its place as the premier explorer. BW| Businessworld's Chhavi Tyagi met with ONGC chairman and managing director, Sudhir Vasudeva, to ask how the company will tackle these challenges. Excerpts:How are you dealing with ONGC's investments in troubled areas such as Sudan and Syria?In Sudan, our production got affected last year because of Sudan and South Sudan secession. These two countries were fighting with each other on evacuation facilities and reserves which affected our business. However, that problem has been sorted out and production from North Sudan is now normal while production from South Sudan is limping back to normal.Syria is still a matter of concern as nothing is getting done there. However, our investments in other countries will soon start monetising. Production is expected to start sooner than later from Myanmar and Sakhalin. All of this will compensate for Syria troubles.We are also trying for 20 per cent share in Mozambique. Also, our interest in Kashagan is one step closer now. We are only waiting for the Kazakhstan government to approve. Once that is done, we will add another 1-1.6 mt to our kitty. That production is likely to start year end or early next year.There have been reports of Chinese companies trying to steal Kashagan asset from under ONGC's nose. How is the government dealing with that?The government of India knows very well. When 75 per cent of our oil requirement and 25 per cent of our gas requirement is being imported, you can't say that the government is not bothered. They must have their compulsions and there is a material difference between resources available with China and India. The way China can influence anyone vis-a-vis what we can do is different.Why has ONGC not invested in any of the US shale assets? We are trying to take some upstream investment but there are some issues that have come about. There are issues with our subsidiary, OVL (ONGC Videsh Ltd.) being present in countries such as Sudan, Syria and Iran which have sanctions imposed on them by the US. So, if we are doing business with these countries, it becomes a little difficult to get into the US. These issues are being addressed and we are waiting for more clarity on this.Will you consider divesting assets in these troubled countries and investing in the US?One has to take a cautious call between the present assets and the future opportunities. In case we get a very big opportunity which compels us to take a decision about divesting and disposing our existing assets in favour of other assets, we will take a decision like any other management.Is ONGC preparing for domestic exploration of shale gas?Shale gas in India will take time. It will take a month for the policy to be announced. Then, blocks will be announced, auction of these blocks will take another 6-9 months. Add to it 3 years of exploration period and field development plans. To sum it up, it will take a minimum of 5-6 years to feel the impact of shale gas in India. Though we can start shale production in a year from now but will it really make that kind of impact? Today, ONGC is producing 65 million cubic metre of gas per day. Will I be able to produce even 6.5 million cubic meter of shale soon? That is not going to happen anytime soon.The chances of shale exploration making an impact depend on whether the producers encounter shale, whether they are interested in exploring their shale? Normally, Indian shale is deeper and it would cost more money for horizontal and hydraulic fracturing and unless one gets a proper price for gas, one may not be willing to take it up. The producers have to work out the economics and the viability of producing shale gas. This will be a determining factor.What are the challenges in shale gas exploration in India?Shale is not very difficult when it comes to technology as CBM exploration also requires fracturing. The major issue in shale is land acquisition and the lower productivity of wells. Compared to one well for conventional hydrocarbon, for shale exploration a producer has to drill anywhere between 2-6 wells per square km. With shale, the numbers of wells to be drilled increases and if the land is not available then how do you do that?For hydraulic fracturing we need water and water availability is less when compared to other countries. Our population is now 17 per cent of the world's population and compared to that water availability is very low. Also, 87 per cent of our water is used for arable purposes and if you want to divert this water for other use you will face a lot of resistance from farmers.The US has large tracts of land available and the sub surface rights belong to the land owners, unlike in India. Add to that the infrastructure availability. Today, more than 2000 rigs are digging and drilling for shale in the US, hydro fracturing units are available which can quickly be mobilised and a robust pipeline network of 5 million kilometres. Any operator in the US only needs to lay a few kilometers of pipeline to get connected to the network. He is not bothered about the marketing of gas. This is not the case in India.In India nobody is going to bring rigs or hydro fracturing units of they are not assured of business. All these issues have to be addressed holistically and it would take time.CBM production has been very slow in the country, what is ONGC doing there?We have four blocks with us — Bokaro, Raniganj, North and South Karanpura — and we have already spent nearly 500 crore on these. Admittedly, our production is very small in quantity and we have several issues concerning geo political factors and land related but all of these are being addressed. We are in the process of giving part of equity to private companies which will help us so they will help us in bringing better technology. Also, rather than laying our eggs in one basket we have given out varying stakes to private companies in each block. The arrangement leaves the control on gas marketing and pricing with us and the rest of the work will be done by the private companies. Our projection with regard to CBM is to have around 6 million cubic meters of gas production in the foreseeable future as compared to only 10,000 cubic meters at present.How far can ONGC contribute to the petroleum ministry's target of achieving self-reliance in fuel by 2030?The minister has a very lofty plan of having zero imports by 2030. However, this could only be achieved by increasing domestic production and demand side management. For demand side management, improvement in the efficiency of transport sector can be one giant step. On the other hand, we have to increase domestic production. At present, 34 per cent or 1 million square km of area is still left to be explored. We have to increase the speed of exploration in the country as well as the monetisation of the discoveries. Also, unconventional resources like shale gas, CBM and underground coal gasification also needs to be given a push. The gap then also needs to be filled by bringing in renewables.In this direction we have already drawn our Perspective Plan 2030. At the time of finalising the plan, ONGC was producing 61 mt of oil and oil equivalent between domestic sources, share in joint venture projects and overseas investment. While the current production has slipped to 58 mt due to temporary setbacks in Sudan and Syria we are confident of more than doubling this to produce 130 mt by 2030.What is ONGC's current focus in India?We are currently engaged in finishing the appraisal of the KG-DWN-98/2 field in Mahanadi. Based on the appraisal we are going to make a field development plan. We have a lot of hopes from this field. We have represented to the ministry as well as in our Perspective Plan mentions that this NELP block and a few nominated blocks around it can together have a potential of 30-35 million tonnes (mt).We are also in the process of monetising the discoveries made earlier. Last year we added 84.84 mt of reserves. This is the highest accretion we have done. Our reserve to replacement ratio was more than 1.8. This is so far the highest. Seventy per cent of our production comes from offshore fields but this doesn't mean that we are neglecting our onshore fields. In onshore, we are focusing on renewal of our facilities as some of them have become really old. We have already started our Assam Renewal project costing around Rs 2,500 crore. Also, since 2010 we have taken up development of our 39 marginal fields. All these 39 fields were put up under cluster development which is going to be monetised in 2013-14. We are investing around Rs 26,000 crore and these fields are expected to add about 110 mt of oil and oil equivalent.
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Essar Energy Plc said it expects another strong year, backed by continued improvement in refining margins and higher demand from its core Indian market, sending shares up as much as 4 per cent.The London-listed power, oil and gas arm of privately owned Indian conglomerate Essar Group, forecast demand for diesel to rise as much as 7 per cent, and gasoline as much as 5 per cent, annually in India.Diesel, which accounts for a third of the country's fuel use, powers small- to medium-sized generators to run air-conditioners and makes up for low hydro power output in the dry season. When the monsoon rains hit, the lower demand for power use and irrigation leaves India refiners with plenty to export."Vadinar is one of the lowest cost refineries in the world (more so with the depreciation of the Indian rupee), therefore it benefits from the option to redirect product to the international market," Bank of America Merrill Lynch analyst Laura Webster said.Essar Energy said it expects refining margins at its Vadinar refinery in Gujarat to run about $7 to $8 per barrel above the International Energy Agency's Singapore benchmark. Margins at the refinery rose 79 per cent to $7.96 per barrel for the year ended 31 March."We believe that refining margins globally will remain at current levels, or maybe, as we come closer to the third quarter, will strengthen a bit -- that will have a very positive impact on our business," Chief Executive Naresh Nayyar said on a post-earnings call.Essar Energy said 59 per cent of Vadinar's full-year output, which is mostly sold in India, was middle distillates -- diesel, gasoil, jet fuel and kerosene, up from 43 per cent a year earlier. "The recent steps taken by the Government of India to reduce the heavy subsidy of retail diesel prices are encouraging," Essar Energy said in a statement."As current subsidies are removed, and retail sales become profitable, there will be an opportunity for Essar Oil to expand its franchise network of around 1,400 retail fuel outlets."Earlier this year, the Indian government said state-run fuel retailers would be responsible for diesel pricing, though with the government still retaining some control, a change from the previous system where the cabinet set prices.Essar Energy on Monday reported better-than-expected full-year earnings as increasing capacity at its Vadinar and Stanlow oil refineries pushed up margins. Margins at Essar Energy's Stanlow refinery in Britain more than doubled to $7.38 per barrel.This year, 61 per cent of Vadinar's full-year output came from the use of cheaper, higher-margin ultra heavy crude, compared to 19 per cent a year earlier.Essar Energy said earnings before interest, taxation, depreciation and amortisation, on a current price basis, was $1.34 billion in the year ended March 31, compared with a company-provided analysts' estimate of $1.17 billion.The company this year moved its year end to March from December, making the previous comparative period a 15 month one.Essar Energy's shares were trading up about 4 per cent at 123 pence at 1023 GMT on Monday on the London Stock Exchange. (Reuters)
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Essar Energy Plc reported better-than-expected full-year earnings as improving refining capacity at its core oil refineries, Vadinar in India and Stanlow in Britain, pushed up margins. The London-listed power, oil and gas arm of privately owned Indian conglomerate Essar Group, said earnings before interest, taxation, depreciation and amortisation, on a current price basis, was $1.34 billion (Rs 7,999.80 cr) in the year ended March 31, compared with a company-provided analysts' estimate of $1.17 billion (Rs 6,984.90 cr approx). The company this year moved its year-end to March from December, making the previous comparative period a 15 month one. Full-year refining margins rose 88 per cent to $7.96 per barrel of oil at the company's core Essar Oil business, which owns a network of 1,600 franchised gas stations across India. Essar Energy's assets also include a 50 per cent stake in Kenya Petroleum Refinery Ltd, and 2,034 mmboe of reserves and resources at its exploration and production blocks. Essar Energy's shares, which have shed about 6 per cent of their value over the past year, were trading up about 2 per cent at 123 pence at 0704 GMT on Monday on the London Stock Exchange.(Reuters)
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Central Bureau of Investigation (CBI) is likely to question ruling party Congress MP Naveen Jindal this week in connection with its FIR against him and his company for alleged cheating while applying for coal block. CBI sources said Jindal, who has been named as accused along with the former Minister for State for Coal Dasari Narayan Rao in its 13th FIR, would be questioned this week. According to the FIR, Jindal Steel and Power Limited and Gagan Sponge Iron Ltd, also a firm belonging to Jindal, had bagged Amarkonda Murgadangal coal block in Jharkhand in 2008 by alleged misrepresentation of facts when Rao was the Minister of State for Coal. Within a year, a block was allocated to JSPL in January 2008, CBI sources claimed, noting that shares of Rao's firm Saubhagya Media listed at Rs 28 that time were purchased by one of Jindal's firm -- New Delhi Exim Ltd -- at a whopping Rs 100 per share with total investment of nearly Rs 2.25 crore which is alleged to be illegal gratification. After Jindal's return from abroad on June 20, CBI completed its search operation as during the searches conducted on June 11, the agency could not open some of the cupboards and almirahs which were locked. Head of External Affairs at JSPL, Manu Kapoor had earlier said, "JSPL, as a law abiding company, is governed by a strong ethical code of conduct. This is an ongoing CBI investigation into coal block allocation. At this stage of investigation, JSPL is committed to fully cooperate with CBI." Besides Jindal and Rao, CBI has also booked JSPL Gagan Sponge Iron Ltd, Jindal Realty and ND Exim and Rao's company Saubhagya Media.(PTI)
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Iraq, currently the second largest crude oil supplier to India, has assured it would provide as much oil as it could to fulfill the needs of the growing Indian economy. "Iraq is willing to assist, to provide or to meet as much as it could (to fulfill) the needs of Indian economy," Iraqi Foreign Minister Hoshiyar Zebari said in Baghdad. Top Iraqi officials believe that India with its strong economic growth will be needing more fuel particularly crude oil and oil-rich Iraq is in a unique position to supply and meet that demand. Iraq produces 3.15 million barrels a day of crude and plans to double the output by 2020. Pointing out that Iraq has the world's third largest proven oil reserves and is now second largest oil supplier to India, Zebari said Iraqi potentials are huge in the coming decades. In recent months, Iraq has replaced sanctions-hit Iran as India's second largest crude oil supplier. Indian oil refineries purchased nearly 20 per cent of Iraq's crude oil production last year and they are hoping to take it above 30 per cent in future, the sources said. India has reduced its dependence on Iranian oil in the wake of US and EU sanctions on the import of oil from the Islamic Republic. Zebari underlined the importance of External Affairs Minister Salman Khurshid's two-day official tour to Iraq, saying, "This visit is very important visit for Iraq-India relations". Khurshid, who visited Iraq on June 19-20, was the first senior Indian minister to tour the war-ravaged country in last 23 years. Former External Affairs Minister I K Gujral had visited Iraq in 1990. "This visit will open some major inroads towards better cooperation between the two countries in many areas of common interests, trade, business, investment and also Indian expertise for Iraqi economy and in all the areas of mutual cooperation," Zebari said. "This visit will set the trend for future visits, for future exchanges of visits of delegations," said Zebari, who is likely to visit India in coming months. The Iraqi minister stressed on the need to revive a joint ministerial commission for economic cooperation between the two countries which last met in 2007. Indian Oil Minister Veerappa Moily is likely to visit Iraq on July 8 for Joint Commission Meeting, sources said. The joint commission is likely to discuss a number of issues of cooperation in fields like agricultural, low cost housing, medical, pharmaceutical and other areas besides oil. Zebari also offered Indian companies to invest at the places which are relatively peaceful like southern Iraq which is oil rich and assured them to provide safe environment and every help. "We welcome Indian companies to invest. We are looking forward to that. I think you will hear from Iraqi officials every willingness (to cooperate with them)," he said. "We will open every opportunity for some joint venture for investment for developing some of our sectors like energy, oil, chemicals, fertilizers," he said, adding that his country is in need of knowledge, expertise, work force etc which India could provide. "Our relations are old historical people-to-people and there are many many commonalities," he said. Zebari is not alone in advocating a strong ties with India, which, according to him, should be "beyond buyer-seller relationship". Iraq's National Security Advisor Saleh Al-Fayyadh said, "We have many topics that we can cooperate about such as energy, economy, health, private sectors, other sectors and military and security issues also." "We, in the National Security Advisory, support the developing of the relations between the two countries," he said. Iraq's Deputy Prime Minister and Energy Minister Hussein Al Shahristani believes that there is serious desire between the two countries to develop relations politically and economically and in different fields. "India should count Iraq as long-term dependable partner and not only a supplier," he said.(PTI)
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India's proposed coal regulator will provide a framework for pricing while state-run miner Coal India Ltd will retain the right to set prices, Coal Secretary S.K. Srivastava told Reuters on 6 June' 2013. "The regulator will work out the principles and methodologies upon which pricing will be done. But the actual fixing of the prices of coal will be done by Coal India," Srivastava said. Coal India last week raised prices of its low-grade coal by 10 per cent while lowering the price of higher grade coal by 12 per cent. It said the changes would bolster its revenue by about 21.19 billion rupees for fiscal 2013/14 which began in April. India aims to set up a coal regulator to improve supplies and weed out corruption in a sector that is the main source of energy for Asia's third-largest economy. A draft bill is due to be submitted to cabinet on Friday. Already recommended by a group of ministers, it must now be approved by cabinet and parliament. The regulator will look into issues including those related to grade and quality, Srivastava said. "If there is any dispute, then there are two ways of addressing it. One is through the FSA (fuel supply agreement) arbitration clause or the two parties can go to the regulator directly, also with regard to pricing," he said. India holds the world's fifth-largest reserves of coal and the world's biggest coal miner, Coal India. Yet the country still suffers massive power cuts due to supply bottlenecks and the poor quality of coal delivered to power plants. State-run power producer NTPC has long complained that it is forced to accept poor quality coal from Coal India which crimps its output and keeps the country reliant on costly imports. The two companies are holding discussions to reach an amicable solution, Srivastava said. "Things are moving.... There is communication between the two companies towards a resolution," he said.(Reuters)
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Amidst the latest CBI allegations, former coal secretary’s CBI questioning and new revelations of the murky coal-gate, the minister of coal looks to boost the industry morale with a number of remedies and proposals to improve production. Conceding “tough challenges” facing the coal sector, union coal minister Sriprakash Jaiswal said seven open cast mines with 25 million tonnes capacity are to be promoted through the Mine Developer-cum-Operators (MDOs) model by year end. He added that FY 2012-13 has seen an overall increase of 17.5 million tonnes in domestic coal production. Of this increase, close to 16.4 million tonnes is from Coal India Ltd. (CIL), which has also registered a growth of 7.4 per cent in coal supply to the power sector during April-May 2013, revealed the minister at Assocham's 4th national coal conference in Delhi.The increased production according to the union minister is thanks to concerted efforts by the coal PSUs, close monitoring and better inter-ministerial co-ordination by officials of Ministry of Coal. Additionally he announced that under the Government Dispensation Route 14 blocks for power and 3 for mining have been put on offer recently for which allocation will be completed shortly. The minister explained in order to ensure increased availability more blocks will be offered to private sector in the near future. Read: Power Firms To Pass On Imported Coal Costs To CustomersFor increased transparency in Coal Block allocation the provisions of MMDR Act have been amended and new set of rules have been framed for allocating new blocks through competitive bidding. And a Coal Regulatory Authority draft bill has been prepared based on the recommendations of various Committees and Experts Groups, which has been sent to the cabinet for approval. The authority is aimed at ensuring transparency in pricing, quality & supply of coal and resolve disputes between the producers and consumers.Citing the usual suspects of “environmental concerns, land acquisition and resettlement & rehabilitation, evacuation constraints and law and order” the minister assured speedy action and projects in the pipeline that will enhance production. Congratulating the private sector in their acquisitions abroad Sriprakash Jaiswal said, “We need to be aggressive in acquiring coal assets outside the country from long term energy security point of view.” Coal Supply To Power ProducersLong due fuel supply agreement (FSA) mechanism was finalised on 21 June. The Cabinet Committee on Economic Affairs (CCEA) said Coal India Ltd (CIL) is to sign FSA for 78000 MW capacity, though actual coal supplies will commence after Power Purchase Agreements (PPAs) are finalised. The FSAs are to be for domestic coal quantity of 65 per cent, 65 per cent, 67 per cent and 75 per cent of annual contracted quantity (ACQ) for the remaining four years of the 12th Five Year Plan. The committee said to meet balance FSA obligations, CIL may import coal while power plants are also free to import coal themselves.CCEA has directed all concerned parties like ministry of coal to issue relevant guidelines for importing coal, orders supplementing the New Coal Distribution Policy and the higher cost of imported coal to be passed onto the customers as suggested by CERC. The ministry of power is also to issue appropriate advisory to CERC/SERCs and make modifications in the bidding guidelines to enable the pass through of higher cost of imported coal on case to case basis. A proposal had earlier been moved for approval of CCEA for import of coal by CIL in order to meet the shortfall in the domestic coal requirement of the thermal power plants from time to time. In February, the CCEA had put forth guidelines for import of coal on cost plus basis/pooling of prices and also directed formation of an Inter-Ministerial Committee (IMC) to consider the cases of power plants with aggregate capacity of about 16000 MW which would be commissioned by 31.03.2015 without any linkage coal supply. On the basis of the recommendations of inter-ministerial committee in April CCEA was considering the feasibility of higher cost of imported coal being allowed as a pass through in case of PPAs signed on competitive bid basis. The revised proposals submitted by Ministry of Coal (MoC) following the recommendations and in consultation with Ministry of Power and other Ministries CCEA announced the FSA mechanism today.
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Electricity tariff across the country will increase by a minimum 15 to 17 paise per unit after the government allowed power producers to pass on higher cost of imported coal to consumers. Finance Minister P Chidambaram said the Cabinet Committee on Economic Affairs has approved the pass through proposal, which would result increase in power tariff."There will be small increase in power tariff. It will be very marginal increase on unit cost of power depending upon the cost of import of coal," Chidambaram said briefing the media. "They (IPPs) can import coal themselves if they wish, otherwise Coal India will import and this additional price which we pay for imported coal, obviously, has to be pass through in the power tariff," he added.Chidambaram said: "It is better to have power and pay a few paise more or not have power at all. It is better to have our power plants working and producing power or keep them shut down after investing thousands of crores. For every MW today, I think the capital cost is between Rs 5-6 crore." A Coal Ministry official said the move would result in higher power tariff to consumers."Though the quantum of the coal to imported has not been worked out but as per estimates if Coal India imports 15 per cent of coal, it would result in increase in electricity tariff by 15 paise to 17 paise per unit," the official said.The new power prices have to be approved by individual states, which can decide to subsidise them and ease the costs for millions of poor Indians. "Ultimately the consumers have got to pay for the cost of generation, so there is no question of the developer taking a hit on the cost of imported coal. There was absolutely no sense in that," said GVK Power's George.Shares in GVK and other power companies like Tata Power and Adani Power rose after the decision. India's electricity generation is dominated by state-run NTPC although an increasing number of private players are setting up units, often near the coast to facilitate imports. The country's total installed capacity is about 212,000 MW as of January this year, according to the state electricity authority.Chidambaram further said the government has initiated measures to augment production and "by first week of July certain other decisions will be taken to open up more coal mines and to produce more coal". In the meanwhile, coal imports were necessary, he added."In the interim period, there is no option but to import some coal. Imported coal is costlier than domestic coal. We are guaranteeing 65 per cent this year to 75 per cent by the end of 12th Plan (by Coal India) for each of these 78,000 MW capacity," he said. Chidambaram said significant power capacities stand stranded today in India due to lack of coal and gas. Elaborating on power tariff increase, he said: "We can't today estimate what will be the increase in cost of power and certainly it will not be uniform. It will depend upon power plant to power plant and where it is located." He said while it was difficult to arrive at the quantum of increase at present, it would be "very marginal increase in the unit cost of power" if "we are able to guarantee them between 65 per cent and 75 per cent in the terminal coal of the domestic coal and if they import some coal to top it up".A Power Ministry official said it would be very difficult at this point in time to ascertain the increase in power tariff as it would be done on a case by case basis. Coal Minister Sriprakash Jaiswal, however, said it would not impact consumers. The decision would also not affect signing of fuel supply agreements (FSAs) by CIL with power firms, he added.The pass through mechanism will be applicable for nearly 78,000 MW of thermal stations commissioned after 2009. Under the proposed pass-through mechanism, the entire additional cost of imports would be passed on to the consumers as against the averaging of prices of imported and domestic coal under the earlier planned price-pooling mechanism.The government had buried a proposal to pool prices of imported and domestic coal to make the fuel affordable to new power plants, owing to sharp opposition to the scheme. The government is mulling import of the fuel as Coal India Ltd (CIL) will supply 65 per cent of the requirement from domestic sources and another 15 per cent can be provided from overseas market.Coal accounts for over half of the country's energy demand and 80 per cent of production comes from Coal India Ltd, which is 90 per cent owned by the federal government. Producers can either import directly or through state-run firms like Coal India and MMTC Ltd.No To Hiking Gas PricesHowever, a proposal to raise gas prices for the first time in three years has been deferred, information and broadcasting minister Manish Tiwari told reporters after a cabinet meeting.A gas price rise to near world levels would have fuelled investment in the sector and made liquefied natural gas (LNG) imports from major producers like Qatar more attractive.India is the world's third-largest producer of coal and more than half the country's power comes from burning the fuel, but domestic output falls short of demand, triggering frequent and lengthy power cuts in Asia's third-largest economy.It also means power producers have to turn to expensive coal imports and until now, they have not been able to pass these costs fully on to customers. "That's a very, very positive development," Isaac George, the chief financial officer at GVK Power, said of the government decision.The move could help bring as much as 78,000 MW of generation capacity on stream, a power ministry source said.India's economy grew at its weakest pace in a decade in the year to March 31, 2013 and the government is trying to tackle a raft of reforms, some leading to unpopular price rises, ahead of state elections this year and national elections in 2014.Deferring a gas price rise to near world levels will see the government avoid an expected voter backlash.(Agencies)
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