Energy major Reliance Industries is currently producing 29 million standard cubic metres a day (mscmd) of gas output from its KG D6 block, Oil Minister S Jaipal Reddy said on 7 August' 2012.This is much lower than the peak target of 80 mscmd from the block, leading to severe shortage of gas, he told reporters."Consequently, there is a painful need to reallocate the reduced gas. Several states including Andhra Pradesh are getting reduced gas for power generation," Reddy said.Three of India's five transmission grids collapsed last week, leaving about 670 million people without power.
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Coal India (CIL) is getting ready to play the Good Samaritan, albeit with a motive. It plans to spend Rs 7,500 crore over the next three years to help Indian Railways lay tracks and develop railway infrastructure in Jharkhand, Chhattisgarh and Orissa. That will enable it to move 60 million tonne of coal now stuck at pitheads due to lack of railway lines.Coal India is cash rich: its consolidated net profits at end-March 2012 stood at Rs 14,788 crore, and its cash pile at Rs 58,202 crore. But will they succeed? In the past, the coal ministry had made a similar effort by offering financial help to the railways to lay tracks. But the plan ran into the roadblocks of land acquisition, environment and forest clearances. Sources say that Railway Board chairman Vinay Mittal and coal secretary S.K. Srivastava are touring states to clear the logjam; they were recently in Chhattisgarh to meet CM Raman Singh.The coal ministry's offer to fund wagon and rakes hasn't received a positive response from the railways. They claim that production cannot go up without increasing evacuation, for which they need more rakes. Last year, they got 165 rakes per day. This year, the number is 185. The optimum figure, however, is 202.Power plants are already facing a shortage of 55 million tonnes. Overall coal demand in 2016-17 is seen at 980 million tonnes, whereas production in the same period is estimated to be 615 million tonnes. In the first quarter of this year, coal production grew by 6.4 per cent and evacuation to power plants is up by 8.5 per cent. While it is an improvement, imports cannot be ruled out. CIL may need to import 18 million tonnes this year to meet 80 per cent of new FSAs (fuel supply agreements) and 90 per cent of old FSAs.There is another vexed issue: how to fix coal prices. A PMO-appointed high-level panel has agreed to the concept of price pooling where the average price of imported and domestic coal will be taken to arrive at a common price. But this has been a sticky issue due to the complexities involved in calculating the price. It could also raise coal prices by Rs 150 per tonne and increase power tariffs by up to 20 paise per unit, says a senior Planning Commission official. The coal ministry, CIL as well as some states are opposed to it. CIL's CMD Narsing Rao was quoted as saying: "We will not take a hit of even a rupee on account of that. If pooling has to be done as per the government pooling, it would be outside the balance sheet of the CIL."Price pooling may not be easy due to the lack of uniformity in the quality of Indian coal as well as the shortage across sectors and individual consumers, says Dipesh Dipu, director - consulting (mining) at Deloitte. "The pooling mechanism is likely to be very challenging." He adds that there are not enough compelling reasons to import through CIL. It would involve higher costs of procurement and reduced flexibility for utilities in imports.But Ashok Khurana, director-general of the Association of Power Producers, believes that there is no option but to go for price pooling, and that CIL can fix the price after taking into account the import costs. Of course, the monopoly's past unsuccessful attempts to change prices show otherwise. Khurana's solution to the coal conundrum: "Liberalise the coal sector and take away CIL's monopoly."(This story was published in Businessworld Issue Dated 30-07-2012)
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The government on 19 July decided to slap 21 per cent duty on imports of power equipment, mainly to protect domestic companies from cheap Chinese shipments."Cabinet has approved levying 21 per cent import duty on power equipment sourced from overseas," sources said.The Cabinet has approved 5 per cent basic customs duty, 12 per cent counter-veiling duty and 4 per cent special additional duty on import of power gear.Earlier this month, the Power Ministry had floated a proposal seeking higher duty on import of equipment for the power sector.The Power Ministry had proposed 5 per cent basic custom duty, 10 per cent counter-veiling duty and 4 per cent special additional duty. Besides, with the recent hike in excise duty of 2 per cent, the overall import duty would be 21 per cent.At present, equipment imported for projects of less than 1,000 MW capacity attract 5 per cent customs duty, while those above that enjoy exemption.The proposal is aimed at providing a level-playing field to domestic manufacturers such as BHEL and Larsen & Toubro against cheap imports, especially from China.However, private power generation companies expressed dissatisfaction."It will increase the cost of power. The government has only gone by the protection of domestic equipment makers. They have not really addressed the concerns of private power generation companies," Association of Power Producers (APP) Director General Ashok Khurana said.Late last month, the Prime Minister's Office had directed the Power Ministry to prepare a fresh Cabinet note on the issue. In May, the Cabinet had deferred the proposal to raise the duty on imported power gear.The three ministries -- Power, Commerce and Industry and Heavy Industry -- had differences on the quantum of basic customs duty that can be slapped on power gear imports.While the Power Ministry pitched for five per cent customs duty, Commerce and Heavy Industry ministries sought 15 per cent and 10 per cent, respectively.A panel headed by Planning Commission Member Arun Maira in its report had suggested imposition of 14 per cent levy with a customs duty of 10 per cent.(PTI)
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India's third-most valuable listed company, posted its third consecutive drop in quarterly profit but beat street expectations as refining margins fell less than expected and treasury gains from its huge cash pile bolstered profits.Reliance said its quarterly profit fell to Rs 4,473 crore, down 21 per cent from a year earlier, as margins in its refining and petrochemicals business slipped.Reliance, once a favourite with foreign funds, has seen a slump in investor interest as profits shrink amid a slowdown in its core energy business and recent forays into consumer-focused segments such as telecom and retail have yet to garner profits.Its shares have sharply underperformed the main stock index over the past 18 months, pulling it down from its ranking as India's most-valuable company, despite a $2.1 billion share buyback announced in January to bolster the stock.Net sales for the April-June quarter rose 13.4 per cent to Rs 91,875 crore, the company said.A Reuters poll of brokerages had forecast net profit of Rs 4,360 crore for the fiscal first quarter ended June 30, with net sales expected at Rs 88,770 crore."The numbers are an improvement and investors may start looking at the company again, but it's too early to change the outlook for the stock," said K.K. Mital, head of portfolio management services at Globe Capital Market."For that, clarity on utilisation of cash or increase in gas output is the key," he added.Output at Reliance's flagship D6 block, India's largest offshore gas field, is projected to fall to 20 million standard cubic metres a day (mscmd) in 2014/15 from 28 mscmd in the current fiscal year, a third of the 60 mscmd it was producing in 2010.Canada's Niko Resources, which holds a 10 percent stake in the block, last month slashed the reserve estimate for the block, which is jointly operated by Reliance and global major BP.Controlled by billionaire Mukesh Ambani, Asia's second-richest man, Reliance aims to double its operating profit in the next four to five years as it boosts spending and capacity in its core energy business and builds up its newer retail and telecoms operations.Refining GainsReliance, which operates the world's biggest refining complex in Gujarat, reported gross refining margins of $7.6 a barrel for the June quarter, compared with $10.3 a barrel a year earlier.The margins were squeezed by high crude prices and a narrowing spread between light and heavy crude prices, but were still higher than analysts' estimate of $7/barrel."Reliance has improved its earnings profile as profits from operations were higher on a sequential basis, on the back of volume growth in the refining business," Ambani said in a statement.Reliance's refinery at Jamnagar can handle less costly high-sulphur crude oil, giving it among the best refining margins in the industry. Refining accounts for nearly 80 percent of the company's revenue.Reliance's petrochemicals business posted a 19 per cent rise in revenue on higher demand and prices, but margins declined on narrower spreads.Its oil and gas exploration business posted a 36 per cent fall in revenue, the company said, mainly due to lower production at its main KG-D6 block.Reliance said it held Rs 70,732 crore in cash reserves at the end of June, up from the previous quarter. The company has seen its cash hoard multiply in the last two years, resulting in a disproportionate increase in profits from treasury operations.Other income of Rs 1,904 crore, most of it through treasury gains, accounted for almost 35 per cent of the company's pre-tax profit for the quarter.Shares in the company, valued at $42.6 billion, have risen 4.2 per cent so far this year, lagging a 11 percent rise in the main stock index. Ahead of the results, the stock closed down 0.7 per cent.(Reuters)
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It's a double whammy for power plants which run on imported coal. While the spike in the prices of imported coal has made it commercially unviable for producers to keep their plants humming, the unavailability of domestic linkages is affecting their technical viability."Imported coal-based plants have had issues of affordability. Within technical limits, blending with domestic coal can help in both optimising performance and lowering costs of supplies. While imports are expensive, the supplies of domestic coal may help better utilisation of the plants. Although there are constraints in domestic coal supplies, the plants may be considered on a case-to-case basis, for which domestic coal blended with imported coal makes good economic sense," says Dipesh Dipu, director- consulting, mining, Deloitte Touche Tohmatsu India.The three power companies that have to grin and bear it are JSW Energy, Adani Power and Tata Power. These producers invested in imported coal-based plants to skirt the domestic fuel shortage logjam. What they failed to take into account was the sudden increase in the price of imported coal.The current price of imported coal is somewhere around $4-4.2 per MMBTU (million metric British thermal units) as compared to $1.76 it costs to procure domestic coal.Since the power purchase agreements signed by these producers do not allow for fuel cost as a pass through, they now find it difficult to keep the plants operational.Seventy per cent of the coal for these plants is imported, but it is the residual 30 per cent which is the real spanner in the works. That's because the coal linkages provided in January 2010 were withdrawn by the coal ministry in April last year. Ironically, the plants now feed only on costly imported coal which has brought down the plant load factor (PLF). The power ministry has requested the coal ministry to restore the linkages provided to these plants so that they can function at an optimum level. Apparently, the coal linkages were withdrawn without its consent, informs a senior official."We have requested the coal ministry to restore the linkages. It is not being done for any individual player but since all players are in distress, we have floated the request. All these producers have been badly affected by the unavailability of the domestic coal," says the official.The domestic fuel shortage has also forced plants based on domestic coal to import expensive imported coal. According to Central Electricity Authority data, the gap between domestic availability of coal and the requirement for 2011-12 was put around 54 million tonnes. While utilities were asked to import 35 million tonnes of coal to meet their unfulfilled requirement, plants designed on imported coal only required 20 million tonnes. The figures for 2011-12 show imported coal-based plants could import only 17.572 million tonnes of coal.
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Realising the dampening impact on investments due to problems on account of regulatory nod, the government has decided to set up a high-level board to ensure speedy "one-time" clearances to oil and natural gas projects, 70 of which have been affected so far.The Project Clearance Board, to be headed by the Cabinet Secretary, will be on the lines of the Foreign Investment Promotion Board (FIPB) which clears FDI proposals in sensitive sectors.The decision to set up the board was taken at a meeting held by the Prime Minister's Office to review progress on various oil and natural gas exploration projects under the New Exploration Licensing Policy (NELP).The board will include representatives from the ministries of home, defence, environment & forests, commerce, coal, department of space and other infrastructure and energy related ministries/departments, a PMO statement said."In a meeting held in PMO to review the status of clearances of oil & gas blocks awarded under the NELP, it was decided that a Project Clearance Board along the lines of FIPB, would be constituted under the chairmanship of the Cabinet Secretary for review and issue of one-time clearances, including security clearance," it said.The statement noted that "one of the biggest hurdles" to speedy implementation of projects is the delays faced by project implementing agencies and private firms with concessions, in obtaining security related clearances from many agencies.It cited the example of progress in exploration work in over 70 oil blocks awarded under the NELP which has slowed down due to lack of clearances.There are similar problems in other areas such as Ports and infrastructure sectors, the PMO pointed out. The PMO said the decision to set up the Board was taken as there is "a need to have an institutionalised mechanism for issuing clearances in a time-bound manner".There is already a model for clearing foreign investments in the form of the FIPB where foreign investment clearances are given through regular meetings of the FIPB under the Department of Economic Affairs, it said."A need for a similar mechanism was felt for other clearances so that the issue of delayed clearances is resolved," the statement said.The Board will meet on a monthly basis to review the status of clearances for energy and infrastructure projects and expedite issuing of security and other clearances.Ministries would report to this Board the status of issuing of clearances after following their internal due diligence processes.For the Petroleum & Natural Gas sector, the special cell for clearances being set up in DGH will act as the secretariat, the statement said.A common mechanism for all sectors will be evolved soon and the Board will be set up in the coming weeks.(PTI)
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The Prime Minister's Office (PMO) has asked the Coal Ministry to fast-track the process of taking back the coal blocks from private firms which have not developed them and giving the deallocated coal mines to Coal India (CIL)."Recently, the PMO has asked to expedite the process of coal blocks deallocation and give the deallocated blocks to Coal India," an official with the Coal Ministry privy to the development told the news agency PTI.Also, the PMO has said the CIL should appoint mine developer and operators (MDOs) to begin production from these deallocated coal blocks without delay, the official said.The Coal Ministry had recently allotted 116 mines to CIL for expansion to help it boost production capacity amid the PSU drawing flak for coal shortage across the country.Though the CIL had asked for 138 mines, the Coal Ministry asked the coal major to recast its plans. Since CIL is a government-owned company, the Coal Ministry under the government dispensation route has the right to allocate mines to the CIL, an official in the Ministry had said earlier.Despite having 287 billion tonnes of reserves, India is in the midst of an acute coal shortage. Consider this: India produced 532 million tonnes (MT) of coal in 2010-11 against a demand of 650 MT. The 20 per cent shortfall was met by imports, but not before it had brought cement plants close to shutting down and forced power plants to operate sub-optimally."Domestic production was targeted at 680 MT in the Eleventh Plan ending 2012, but is expected to be only 554 MT," says the Planning Commission's draft report for the 12th Five-Year Plan. A Central Electricity Authority (CEA) assessment says that as of 29 February, 34 power plants had less than 7 days' stock and 25 less than 4 days' stock. With plans to add 100 GW of power generation, India is staring at a shortfall of 200 MT by 2017, says the Planning Commission. The coal ministry has been preparing a draft on public-private partnership in the form of mining, development and operations agreement for exploration of coal mines by private entities in close association with Coal India Limited (CIL) to push up coal production and induct new technology through private sector participation in the XII Plan.This is being seen as a step to ease the coal supply situation especially in view of the failure of state-run CIL to meet the requirements of the power sector. The matter has also been discussed with the Planning Commission, which is backing the PPP model for exploration of coal mines. The MOD would stipulate that the coal mines as well as the ownership and sale of coal shall continue to rest with CIL while the selected private sector player would undertake mining operations on the basis of agreed costing to be determined through competitive bidding.Show-Cause To Private CosComing down heavily on the private companies delaying the development of coal blocks allocated to them for captive use, the government had recently issued show-cause notices to 58 coal block allottees which have delayed the production from the mines.The notices were issued to firms such as Reliance Power's Sasan, Tata Power, Hindalco, Grasim Industries, JSW, Bhushan Steel, TVNL, Jharkhand State Mineral Development Corporation and Chhattisgarh Mineral Development Corporation, among others.The notices sought reasons for delay in developing blocks and warned them of cancellation of mines if no explanation was given in 20 days.In May last year, the government had cancelled allotment of 14 coal blocks and one lignite block of companies like NTPC, DVC and Andhra Pradesh Power Generation Corporation. The Coal Ministry has been in the news following disclosure of a draft report of the Comptroller and Auditor General (CAG) which had pointed out that the government lost Rs 10.67 lakh crore on account of allotment of coal blocks to 100 private and public sector companies during 2004 to 2009.While replying to the questions in the Lok Sabha on March 14, Jaiswal had said coal sector would soon get a regulator as the government has finalised a draft bill for the purpose.The government has also propsed to set up a coal regulator which could prove to be good news for the power sector. As per the Coal Regulatory Bill, the body would look into timely development of the blocks, penalties on non-performers as well as pricing of coal. An effective, independent watchdog could bring in much needed transparency and efficiency in the coal sector. These plans though, have met rough weather with senior ministers opposing the excessive executive powers of the regulator.Concerns exist over its power to fix and revise coal prices annually. It would not only take away Coal India's right to do the same but judging by company's unsuccessful past attempts to raise prices (due to resistance from power producers), there's no guarantee a coal regulator would be able to regulate prices any better. Asked about removing Coal India's monopoly, in an interview to BW (Read: Interview), coal minister Sriprakash Jaiswal had said there was no doubt coal production can increase substantially with commercial mining. But since this is a regulated sector that was nationalised in 1972, to bring it into the open market, a new law must be passed. He also ruled out privatisation saying it would be impossible in a a coalition government.
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The BSE Sensex rose on Wednesday as power utilities gained after a proposed tariff hike in New Delhi, while infrastructure stocks such as BHEL advanced on hopes for a renewed push by the government to increase investment in the sector.Sentiment was also boosted after Deutsche Bank upgraded Indian stocks to "overweight" from "neutral," calling them close to the cheapest in two decades. The action followed a J.P.Morgan upgrade to the same rating last week.However, investors remain cautious ahead of the expiry of derivatives on Thursday, and ahead of a European Union summit starting on the same day that is expected to deliver little in terms of meaningful action on the euro zone debt crisis."People are expecting the announcement of new finance minister soon. If the Prime Minister keeps the position, it can be a boost to markets in terms of stalled infrastructure projects and other reforms," said K. Alex Mathews, head of research at Geogit BNP Paribas.The BSE Sensex rose 0.36 per cent to 16,967.76 points, a second consecutive day of mild gains.The Nifty added 0.41 per cent to 5,141.90 points.Hopes about Singh's commitment to infrastructure have been raised after he assumed an additional role as acting finance minister after previous incumbent Manmohan Singh stepped down on Tuesday.The Prime Minister Office had been actively involved in pushing ahead with major transport and power projects this year, convening a meeting of relevant ministries.BHEL gained 0.6 per cent, while Reliance Infrastructure rose 2.02 per cent.Power utilities were also among the day's leading gainers after Delhi Electricity Regulatory Commission proposed a 24 per cent hike in power tariffs for household consumers in New Delhi and a 19.5 per cent hike for commercial consumers.Reliance Infrastructure rose 2 per cent, while Tata Power added 2.2 per cent.State-run power sector lenders advanced on expectations utilities would be better placed to pay back their loan commitments.Power Finance Corp gained 5.2 per cent, while Rural Electrification Corp added 4 per cent.Strides Arcolab gained 2.7 per cent after the company said it had redeemed $80 million of outstanding foreign currency convertible bonds, removing a key concern for investors. However, among under-performers, State Bank of India ended flat per cent after Morgan Stanley maintained its "underperform" rating on the stock, expressing concerns about asset quality pressures after meeting with management.(Reuters)
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