New oil minister Veerappa Moily has promised to speed decision making in an effort to attract foreign investment, and will push domestic oil companies to aggressively bid for foreign oil and gas assets to meet growing energy demand. Moily was appointed as the country's new Petroleum and Natural Gas Minister, replacing Jaipal Reddy, as part of a broader cabinet reshuffle unveiled on 29 October' 2012. Moily said his ministry would create a roadmap to help the energy-starved nation improve its investment climate and increase oil and gas output and build downstream infrastructure, such as liquefied natural gas terminals and pipeline networks. "We have to keep our doors and windows open for whosoever wants to invest here," Moily told reporters on Monday. "We have to create a level of confidence among investors. The emphasis will be on quick decisions as delayed decisions cost the nation." Shares in Reliance Industries rose nearly 2 per cent on hopes the appointment of a new oil minister would improve what has been seen as a contentious relationship between the energy conglomerate and the government. Reliance, controlled by billionaire Mukesh Ambani, Asia's second-richest man, had clashed with the oil ministry under Reddy over gas output at the conglomerate's KG-D6 block on Andhra coast. Reliance and partner BP Plc have blamed a decline in pressure and water ingress for falling production, and sought an increase in gas prices to justify higher expenditure to develop the block, but the government has so far remained unconvinced. Asked if he favoured a revision in the price of gas from the D6 block earlier than a review scheduled for 2014, Moily declined to address the matter specifically. "I don't want to take name of any particular company ... It is a matter of detail ... Decisions will be quick and hastened," he said. Moily's appointment will be weclomed by investors, said one industry analyst at a large domestic brokerage, who declined to be identified. "Sentiment-wise this would be positive, as with the earlier minister approvals were not coming on time. Talks between the company and the ministry may improve." Moily may fast-track some approvals, said VK Vijayakumar, an investment strategist at Geogit BNP Paribas. "Further approval regarding the joint application by Reliance Industries and BP for KG-D6 gas might get expedited, that is one possibility," he said. Moily said India had attracted $13 billion worth of investment in the nine auctions held under its licensing policy since 1999. India plans to relax rules for oil and gas exploration licences in time for the next bidding round, so as to attract global companies. In the past, regulatory uncertainty discouraged many of them from bidding for exploration blocks. Moily said there was a need to boost investment in the exploration sector, adding that he would mobilise resources from every avenue, including getting the external affairs ministry to encourage local oil companies to buy assets abroad. Without directly touching upon cutting fuel subsidies, he expressed concern over mounting revenue losses at state fuel retailers, adding, "There are inefficiencies in the system that have to be removed." Many of India's gas-based power plants are idle as domestic gas output has declined and infrastructure to import and supply gas is inadequate.(Reuters)
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India-focused Essar Energy plans to refinance up to $1.5 billion of its rupee debt within a couple of quarters, as it focuses on improving its balance sheet after a turbulent period that included heavy capital expenditure and regulatory setbacks. "The focus for the next couple of years is to optimise the asset utilisation, focus on value creation and cash flows," Chief Executive Officer Naresh Nayyar told Reuters in an interview. London-listed Essar Energy - 77 per cent-owned by privately held Indian conglomerate Essar Group - had net debt of $5.8 billion at the end of June, mainly from boosting its refinery capacity and funding power projects in India. Essar's shares earlier this year fell to as low as a quarter of their 420 pence 2010 listing price, after the company missed its earnings forecast and put some of its India power projects on hold due to delays in coal mining approvals. This was followed by a court ruling that ended a tax break for its majority-owned Essar Oil unit. Essar has shelved plans to sell about 15 per cent of Essar Oil, Nayyar said, after it tied up a corporate loan to settle the unit's tax dues. Also, he said a recent clarification by India's markets regulator will help avoid having to dilute Essar Energy's stake to comply with a minimum 25 per cent public shareholding rule. (Reuters)
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The Supreme Court on 19 November' 2012 issued notice to the Centre and the CBI on a plea for a probe by a special investigation team into the alleged irregularities in the coal block allocations. A bench of justices R M Lodha and A R Dave also sought response from them on a public interest litigation petition seeking cancellation of the licenses granted by the government for coal blocks to various private companies. The bench, however, refused to stay the licenses, which were allegedly granted in violation the of law. The court asked the government and the agency to file its comprehensive reply on the alleged irregularities in the coal block allocation within eight weeks and posted the matter for further hearing on January 24. The bench was hearing a PIL filed by various members of civil society including former CEC N Gopalaswami, ex-Navy chief L Ramdas and former Cabinet Secretary T S R Subramanian, seeking a SIT probe into the alleged scam. They have alleged the ongoing CBI investigation into the alleged coal block scam is not sufficient and only SIT can conduct an impartial probe in the case, in which names of many ministers and their kith and kin have cropped up. The alleged coal block allocation scam came under judicial scrutiny on September 14 when the apex court, on a PIL by advocate M L Sharma, had directed the Centre to explain if the guidelines on allotting natural resources to private companies were being strictly followed. Expanding the ambit of judicial scrutiny of the alleged irregularities, the bench today also issued notice to the CBI on a plea for appointment of a SIT and the cancellation of allocation of 194 coal blocks to various companies. In the fresh PIL filed by members of civil society and NGO Common Cause, the petitioners sought quashing of the entire allocation of coal blocks to private companies, made by the Centre from 1993 onwards. "The involvement of senior ministers, public servants, different departments of Centre and state governments concerned in the alleged corruption and bribery by beneficiary companies need to be investigated. "Considering the magnitude of investigation and possibility of involvement of high public offices, including the PMO, and the fact that CBI functions under the same very government it is supposed to investigate, a court-monitored investigation by an SIT is required to ensure proper investigation in the matter," the petition said. The petitioners alleged that allotment of coal blocks was non-transparent and conducted in an unfair manner in violation of various rules and procedures. "That investigation of CBI at the instance of CVC is partial and does not cover the full magnitude of the coal scam. The alleged conspiracy in blocking the policy of competitive bidding and the manner in which the screening committee functioned need to be investigated thoroughly, which involves senior ministers including the highest executive office of the country," the petition said.(PTI)
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Petrol price was hiked by 29 paise per litre and diesel by 20 paise on 27 October after government decided to increase commission paid to petrol pump dealers.Petrol in Delhi costs Rs 68.19 per litre from 27 October as against Rs 67.90 previously. Similarly, diesel rates have been hiked to Rs 47.15 per litre from Rs 46.95, industry sources said.Rates will vary in states due to differential in local sales tax or VAT rates.Petrol price hike varies from 29 paise to 37 paise (in Bangalore), while diesel rates vary from 20 paise to 24 paise a litre.The petroleum ministry late last night issued orders increasing the dealers commission on petrol from Rs 1.49 per litre to Rs 1.78 a litre. The same on diesel has been hiked by 17.7 paise -- from 91 paise to Rs 1.08. After taking into account the incidence on VAT, the hike in diesel comes to 20 paise, sources said.Sources said the decision to hike dealers commission was taken on Thursday but orders were issued only last night.The increase in dealers commission is first since July 2011. During that period, the commission was hiked by 28 paise on petrol and by 15.5 paise on diesel.Federation of All India Petroleum Traders General Secretary Ajay Bansal said the hike falls short of their demand for 67 paise increase in commission on petrol and 42 paise on diesel considering steep hike in operating cost of a petrol pump. "Few of our operating costs like running pumps on generators, free services (like air and water) and increase in evaporation, seem to have not been taken into account while calculating the proposed commission," Bansal said.The ministry, he said, has assured to look into these in two months time.The government had earlier this month hiked commission paid to LPG distributors by Rs 11.42 per cylinder. Subsidised LPG in Delhi now costs Rs 410.42 per cylinder, up from Rs 399.The commission paid to LPG dealers increased from Rs 25.83 per 14.2-kg cylinder to Rs 37.25 with effect from October 7.(PTI)
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Distribution has been the biggest bane of the Indian power industry, often bringing the sector down to its knees with its inefficiency and high losses. However, efforts are under way at the Centre and in states to rectify the situation.The action started this year, with 22 states hiking the tariff; it continued with the central government approving the restructuring of the distribution losses of state electricity boards in September. Now, two eastern states have decided to privatise their distribution operations, albeit under the power franchisee model. These are the first instances of privatisation of distribution since 2007. Bihar and Jharkhand have decided to put a few selected cities under the franchisee model to bring down their aggregate technical and commercial (AT&C) losses. To start with, the Jharkhand State Electricity Board (JSEB) has identified three major cities — Ranchi, Dhanbad and Jamshedpur — for the rollout of the franchisee model. Already, the board has issued Letters of Intent (LoIs) to Tata Power and CESC for Jamshedpur and Ranchi, respectively. The distributor for Dhanbad will be decided in two months. “Our AT&C losses were as high as 46 per cent in June 2011 when I took over, and since then we have brought it down to 32 per cent. This step to bring in private companies to handle the operations of our distribution system is a move towards further reducing these losses,” says S.N. Verma, chairman of JSEB. Bihar’s AT&C losses are also more than 40 per cent at present and the state is slowly but surely moving towards bringing down this burden. The Bihar State Electricity Board (BSEB) has already identified four cities — Patna, Muzaffarpur, Gaya and Bhagalpur — for implementation of the franchisee model. BSEB had earlier attempted to implement the franchisee model and had even issued an LoI to Essar Power. However, the deal was scrapped. “We had to scrap the deal because Essar Power could not fulfil the Request for Proposal conditions. However, we are ready to invite fresh bids, and over the next two months we should be able to finalise the distribution companies for all the cities,” says a senior official of the BSEB, requesting anonymity. The BSEB recently floated a tender inviting bids from distribution firms, with 16 December as the deadline for receiving bids.The franchisee firms will be in charge of billing and collection as well as maintenance of the distribution infrastructure. Both Bihar and Jharkhand suffer from high incidence of electricity theft, which is the largest contributor to the losses. These states are hopeful of improving collection and minimising theft by bringing in private companies. Maharashtra was the first state to experiment with the franchisee model. It granted Torrent Power the franchisee rights for Bhiwandi as far back as 2006. The model has been in operation since 2007, and has helped bring down the state utility’s losses from 58 per cent in 2007 to 17.85 per cent in 2011-12. Bihar and Jharkhand now hope to repeat Bhiwandi’s success story.(This story was published in Businessworld Issue Dated 05-11-2012)
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Prompt physical coal prices slipped by 50-60 US cents a tonne for the third day in a row as weak demand from India and China outweighed anxieties about South African strikes spreading to disrupt exports. Although India's monthly imports have been strong and steady all year, spot buying for Q4 has been disappointing, suppliers said. "Having waited for prices to drop to $80 for South African before buying and then seen the market fall below that level, they've backed off now because it may not have hit the bottom yet," one European trader said. November and December loading South African cargoes were bid at $74.00 a tonne FOB Richards Bay on Friday - having fallen to a nearly three-year low of $77 on Wednesday. Bids of $74 which were dismissed as unrealistically low by many players on 25 October seemed on Friday far more realistic a reflection of the market's weakness in the last two months of the calendar year, traders and utilities said.While prices appear vulnerable to further falls, Indian buyers in particular will remain sidelined, they said.A revival of Asian spot buying is unlikely in the near-term, Barclays Capital said in a research note on 26 October . "Barring any unexpected large-scale supply disruptions, we only expect prices to receive support when large importers such as India and China become active on the prompt market again," Bar Cap said."This is unlikely to happen in the very short term as China's inventories are still plentiful and India is banking on further downward price moves," the note said.Around 1.2 million tonnes a year of coal production has been halted by strikes in South Africa which have cost the continent's largest economy over 10 billion rand this year. However, the coal market has been largely unmoved because there has been no impact on rail transport or port operations and the market remains oversupplied, Deutsche Bank said in a note on 26 October."Widespread signs of a production response are lacking, and we are therefore neutral to negative on thermal coal pricing in the near term despite the already-low level relative to marginal costs," Deutsche Bank said.(Reuters)
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The war of letters, words, arbitration and lawsuits between the oil ministry (and its associate the directorate general of hydrocarbons) and Reliance Industries over the D6 block in the Krishna Godavari basin oil and gas fields has cost the nation dearly.The fields that were projected to deliver up to 80 million metric standard cubic metres per day (mmscmd) of gas by 2012 are delivering sub-30 mmscmd. The productivity of the wells is worsening. And most downstream sectors are suffering. Given that the fertiliser industry is the top priority for gas allocation, at least 8,000 MW of capacity set up in anticipation of additional gas is either lying idle or is producing way below rated capacity. This has a ripple effect on investors and the banking system that has lent money to projects which now seem unviable. At the centre of the dispute is Reliance Industries’ higher capital expenditure on D1 and D3 fields from $2.39 billion to $8.8 billion which it submitted to the government for approval. The government raised objections and ordered an audit by the CAG. RIL denied the auditors access to the books of accounts and the SAP system on the grounds that the auditors were conducting a “performance audit” — which can question the technologies and processes deployed in deep sea fields —despite the CAG not being a technical authority. Of late, the two sides seem to be coming to an agreement on their respective rights as per the production-sharing contract. And both sides are claiming victory (RIL now says its objection was only to the performance audit while the oil ministry has said it was never interested in a performance audit). At the heart of it all, this is a classic battle between a tenant and a landlord.The landlord is objecting to the tenant making large-scale changes in the house he was given to live in. The government has a legitimate right to inspect and question the books since capex is the basis of the future recovery of the investment by RIL. Hence, it is critical that the two sides set boundaries beyond which they must not operate.(This story was published in Businessworld Issue Dated 05-11-2012)
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The Indian solar industry is not headed anywhere, at least for the next couple of years. This was the unanimous view of experts at the recent Solar India 2012 Conference and Exhibition in Mumbai. They agreed that the industry had so far struggled to make headway despite incentives. The Jawaharlal Nehru National Solar Mission, launched in 2010 with a target of deploying 20,000 MW of grid-connected solar power by 2022, is progressing at a snail’s pace, as per government data. So far, only 1,044 MW capacity has been installed; the target was to achieve 2,500 MW by December-end. The government has also set a target of 10,000 MW of solar power during the next Five-Year Plan, which it is sure of achieving. It plans to incentivise and popularise the use of solar power instead of fossil fuels wherever possible. These plans, however, seem ambitious. For instance, the government had sanctioned projects for 1,172 MW, but so far only 268.3 MW has come on stream. About half a dozen large solar thermal power projects totalling about 500 MW are running way behind schedule. The delays are because “suppliers are not delivering the equipment on time. There are only a couple of manufacturers and their order book backlog could be the reason,” says Tarun Kapoor, joint secretary in the ministry of new and renewable energy. While cost disadvantages are blamed for slowing the pace of solar thermal projects, James Abraham, managing director and CEO of Sunborne Energy, believes it will be foolish to put solar power on the back-burner because of that. He says that solar power generation will be competitive in terms of price by the end of Phase 2 (2013-17). He adds that the choice between solar-thermal and solar photovoltaic (PV) projects should be the developers’. Moreover, banks are reluctant to fund solar projects, which is acting as a deterrent for firms seeking to enter the solar industry. Says Kapoor, “This is generally due to the negative news flow related to the power sector.” Another problem is that most companies and state electricity boards have not been able to meet the solar power generation targets mandated under the renewable purchase obligations. The shortfall is around 30 per cent, says Kapoor, adding that the government “is planning to frame rules for penal action against defaulters”. 20,000 MW is the solar power target set by the government for 2022Poor financial health of PV-makers, globally, is yet another cause of concern. “The cost of PV has crashed globally and, thus, most of the top 10 PV manufacturers across the world are in a bad shape,” says Sunil Gupta, global head of technology and cleantech at Standard Chartered Bank, Singapore. One incentive that could help is the partial risk guarantee fund that would reduce the cost of borrowing by reducing the cost of hedging. Dollar financing has increased but currency volatility has increased the cost of this financing. While solar PV players have been cushioned because of the fall in price of panels, solar-thermal has been hit. “This will build an ecosystem for solar power and the market will grow automatically,” says Santosh Kamath, partner at KPMG.(This story was published in Businessworld Issue Dated 26-11-2012)
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