Putting up a brave front, the government of India told the Supreme Court on Monday (1 September) that if the court deemed fit, it should cancel allocation of all coal blocks it classified as illegal last week. Promising swift action to mitigate the consequent coal shortage, the government has promised a new auctioning policy, amendments to existing agreements and a request to re-consider cancellation of 40 plus blocks that are already producing coal or about to begin production. Today, many were awaiting the Supreme Court hearing on coal blocks with bated breaths, hoping that the anxious market and uncertainty over coal blocks would settle down. But the quagmire that the Indian coal mining sector has exposed itself to be, cannot be resolved overnight. Following the landmark judgement of August 25, where the apex court deemed all coal block allocations (over 200) over the last two decades illegal, the court had scheduled hearings beginning today – September 1 to decide the fate of these illegal blocks. Pronouncing the coal block allocations ad hoc, the Supreme Court bench headed by Chief Justice RM Lodha had observed that the re-assignment of the coal blocks required further deliberation, which began today with representations from the Attorney General Mukul Rohatogi on behalf of the Union government. His submissions included possible actions government will take if all the coal block licences are cancelled like a new auctioning policy, reworking the existing mining agreements to ensure an accountable mining process and a more equitable distribution of the revenues. Plus the apex court was also requested to reconsider the fate of 40+6 blocks which have either already started coal production or can begin production very soon. Sources at the Ministry of Coal say that a coal auctioning policy is already underway and could be put into place within the next three months to ensure a speedy re-distribution of the coal mines. Most stakeholders including the petitioners believe cancellation and auctioning of the blocks would be a good move to clean up the mining mess. The counsel for the writ petitioners Prashant Bhushan upholding the August 25 judgement detailed its possible impacts. “If all the leases were cancelled, then that would allow serious players to bid for these blocks who would then mine them efficiently considering the investment they have made in the auction. The state governments would earn huge revenue from the auction proceeds that could be then used for the socio-economic development in these states,” he says. (See Note)Even industry experts believe the ongoing trial will result in a clearer, transparent and comprehensive regulatory policy which could help the coal production in the long run, while the short-term consequences of the apex court judgement remain uncertain. Today’s hearing has further strengthened their belief that this is paving the way towards better allocation of natural resources. A sentiment mirrored by the stock market as well, which saw a marginal rise in the coal linked companies like Jindal Steel shares which closed the day up 6 per cent, Hindalco 4 per cent and Sesa Sterlite about 2 per cent. The court has asked the government and the three associations – sponge iron manufacturers association, power producers association and the miners association to submit affidavits on the matter before September 9 – the next scheduled date for hearing the matter. The affidavits are required to list the various stakeholders’ stand vis-a-vis the court’s judgment of last week, which will be taken into consideration before the court takes a final call on the future of these coal mines. A few including environmentalists, fear that the promised quick action could lead to adverse impact on the environment while not recognising the gravitas of the coal scam. Greenpeace believes the government’s submission in the court is an attempt to make light of the coal scam ruling and is actually a bid to speed up coal block allocation using power shortage as a pretext. This they fear will once again result in running roughshod over environmental laws.“The government’s response to the court attempts to paint a picture that all is well in the coal sector and now the blocks will be quickly auctioned. The SC has already deemed all coal block allocations illegal and has made it clear that it will not tolerate any further discrepancies. The NDA government will now need to follow a transparent and legally upright auction process to access coal and this is certainly a signal that they cannot further ignore forest rights and other important environmental laws,” says Vinuta Gopal, climate and energy campaigner, Greenpeace India. She adds: “This is certainly an end to cheap coal which skewed energy planning in India towards unsustainable and dirty coal-based power at the cost of crores of public money.” Altogether, there are 218 blocks, of which 80 have already been cancelled. Out of the remaining, 46 may further be exempted, of which 12 ultra mega power projects have already been exempt by the apex court.moyna@businesswold.inmmatbworld@gmail.com
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Mukesh Ambani-controlled Reliance Industries (RIL), India’s largest private company by revenues, is set to build its third refinery of 20 million tonne per annum (MTPA) capacity at Jamanagar in Gujarat to battle it out in the world-league of petroleum giants. The company has twin refineries of 68 MTPA or 1.4 million barrels per day (mbpd) capacity at the Jamnagar complex, the single largest refining location in the world.The news agency Reuters reported on Saturday (30 August) that the company has sought the approval for a $12.8 billion upgrade to its Jamnagar complex, including a 400,000 barrels per day (bpd) refinery for processing cheap and heavy grades of crude that are increasingly available in Asia.Sources close to the development confirmed to BW|Businessworld that the proposal has been given to the environment ministry. “Applying earlier would help the company to reduce the time lags in getting approvals. Usually it takes 2-3 years for completing the process for approvals and clearances,” said sources. However, they said that the finalisation of investment has not yet been completed.RIL is in the process of investing around $12 billion at the Jamnagar complex for building petrochemical plants and cracker units. It moved from a net cash level at the beginning of the year, to a net debt position as it drew down on funding to part finance the expansion of its petrochemical capacities and setting up the new gasification plant and refinery off-gas cracker over the next two to three years.Of the existing RIL refineries, the first caters to domestic and export markets while the other is dedicated only for exports. The configuration of the refinery gives RIL the technical ability to process almost all grades of crude oil produced and meet the increasingly differentiated and more demanding product specifications. Of the Rs 4.46 lakh crore RIL’s revenue in the last financial year, about 78 per cent revenue share came from refining business.The refining and marketing segment had a record annual EBIT of Rs 13,220 crore, supported by a Gross Refining Margin (GRM) of averaging $8.1 per a barrel. EBIT increased on account of stable middle distillate cracks, improved light-heavy crude differentials and favourable currency movement. RIL performed significantly better than the benchmark Singapore GRM, which averaged at $5.9 per a barrel during the year. RIL refineries processed 68 MTPA of crude oil, at an operating rate of 110 per cent.The company’s export revenue has reached $46 billion in the last financial year, contributing 69 per cent of revenues. Of the total export, about $41 billion achieved from sale of refined products.According to industry experts, it will take at least six years for the refinery to come up --- including 2-3 years for clearances and 3-4 years for construction. Also, the world is at present witnessing excess capacity with the construction of giant refineries in Asia and West Asia, putting pressure on older and lesser sophisticated plants in more mature markets.But the experts say that this downward cycle will change in 3-4 years. RIL’s new refinery would be planned for riding wave after the sluggish phase. They agree that the company has financial power to back up the investment.The company had last year sought the approval of the environment ministry to build the third refinery and some polymer units, and to switch the fuel for a 450 megawatt power plant from gas to coal, according to a copy of the proposal obtained by Reuters. The environment ministry wrote back in May this year asking RIL to meet certain conditions in order to secure a green light for the projects. RIL spokesperson declined to comment.Nevin@businessworld.innevinjl@gmail.com
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India has earmarked $100 million for upgradation of Chabahar port in Iran so as to improve trade with Afghanistan and other Central Asian countries, Afghan envoy to India Shaida Mohammad Abdali said. "Ultimately the port connects the Central Asia with south Asia. And we have in-principle agreed. The draft has been circulated, and India has already pledged $100 million for upgrading the port," Abdali told PTI. Iran plans to develop the southeastern port of Chabahar with or without India's cooperation, Iran's Tasnim News Agency reported recently, citing Ali Jahandideh, the deputy head of Ports and Maritime Organisation. Jahandideh said that India has raised the issue of investment in Chabahar on the east coast of the Sea of Oman for years but no deal has been signed yet. The port is of strategic importance to India as Pakistan does not allow transit facility from India to Afghanistan. Abdali said that because of the problems related to ports in Pakistan, India and Afghanistan decided to use the Chabahar port for import and export of goods. "So we worked with the Indian government and all the three parties agreed that the Chabahar port will be upgraded and the two countries (India and Afghanistan) can operate and also do business with Iran," Abdali said. Chabahar port will provide India an alternative route for trade to Afghanistan, an official of Federation of Indian Exports Organisations had said earlier. Currently, the bilateral trade between India and Afghanistan is pegged at over $600 million. (Agencies)
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Reliance Industries has sought environment ministry approval for a $13 billion upgrade to its Jamnagar complex, including a 400,000 barrels per day (bpd) refinery, documents seen by Reuters show.The refinery would process cheap, heavy grades of crude that are increasingly available in Asia as the US shale boom has cut demand there.Reliance, controlled by billionaire Mukesh Ambani, operates the world's biggest refining complex in Gujarat, where its two adjacent plants can process about 1.4 million bpd of oil.The company last year sought the approval of the environment ministry to invest Rs 773 billion ($12.8 billion) to build a new refinery and some polymer units, and to switch the fuel for a 450 megawatt power plant from gas to coal, according to a copy of the proposal obtained by Reuters.The environment ministry wrote back in May this year asking Reliance to meet certain conditions in order to secure a green light for the projects, the documents show.It was not immediately clear if there had been further communications between Reliance and the environment ministry. The documents did not reference a potential start up date.Reliance did not respond to an email seeking comment. (Reuters)
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A sharp fall in output at a large power plant due to a coal shortage may lead to power cuts in some areas, underlining the challenge the new government faces in overhauling the sector and its creaking infrastructure.Adani Power Ltd has reduced output at its Mundra facility in Gujarat by about 2,300 megawatts due to a shortage of coal, two senior officials at state-owned power transmission utility Power Grid Corp of India Ltd <PGRD.NS> said.Adani Power declined to comment.As a result of the cut, India's total generation capacity on Thursday was about 9,110 MW less than its potential demand at peak periods of the day. That gap was nearly twice as wide as at the beginning of the week, according to Power Grid data."Well I don't know about the possibility of a breakdown ... There is a problem, I think, with many of the coal supplies," Power and Coal Minister Piyush Goyal told reporters in Mumbai on Thursday. He declined to give details.India, which uses coal to generate more than two-thirds of its electricity, is struggling to provide enough power to meet rising demand. The power sector has not been able to obtain sufficient domestic coal and has become reliant on costlier imports."As of now there is no major supply cut, but if the output is not increased soon, we may see outages in some states. We have asked the states not to draw excessive power," one of the officials at Power Grid said."We are monitoring the situation and are hopeful that there will not be major disruptions."The states that could be hit with blackouts include Maharashtra and Haryana, the official said, declining to be named as he was not authorised to speak to the media.A court this week declared scores of coal block mining allocations made since 1993 unlawful and arbitrary. If it cancels the blocks after a further hearing due to start on Monday, India may have to import even more coal to keep the lights on.Prime Minister Narendra Modi stormed to office in May on promises to boost the economy and improve basic services for millions of Indians who still lack running water and electricity.Power generation has been further hit by a 1,600 MW drop in output due to a technical fault on Wednesday at a plant owned by Tata Power Company Ltd, the utility said.(Reuters)
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Adani Enterprises has agreed to pay A$155 million ($145 million) to Linc Energy to buy out the Australian firm's rights to future royalties from Adani's huge but delayed Carmichael coal project, already four years behind schedule. The deal comes amid growing questions on whether Adani will eventually go ahead with a project to build what would become Australia's biggest coal mine, amid opposition from green groups and a slump in coal prices to five-year lows. A final decision to go ahead with the project, in Northeastern Australia, would mean spending A$16.5 billion to dig the mine, build a rail line and a port. "This agreement reflects Adani's confidence in the progress of Carmichael mine, which received final federal environmental approvals from the Australian government last month," Adani said in a statement emailed to Reuters. "The agreement...underlines Adani's consistent commitment to ensure that the high-quality coal from the Carmichael mine is cost-efficient." The agreement announced by Singapore-listed Linc on Thursday means Linc is walking away from a A$2 per tonne royalty, indexed to inflation, on the first 20 years of production from the coal mine. Adani bought Carmichael from Linc Energy amid a coal boom in 2010, paying A$500 million in cash upfront and agreeing to pay the royalty stream. In 2010, Adani said it aimed to open the mine by 2014 and at the time Linc said it could earn more than A$3 billion in revenue over the life of the royalty stream. Linc chief executive Peter Bond said the two companies agreed on the A$155 million price tag based on the risks of the current weak coal price and "all the other risks of the coal industry at the moment". "I actually have a lot of confidence that Adani will get the pit going," Bond told Reuters by phone from Brisbane. "It's more about us focusing our strategy into cashing up the balance sheet and driving towards a more focused outcome like drilling our shale in South Australia." Analysts said the agreement was a win-win deal for both Adani and Linc, as the Indian firm gets rid of a liability on the project, while Linc secures cash up front from a mine that may not be built for many years. Two analysts said the sum Adani is paying compared with the net present value of the royalty stream, which they estimated at A$600 million, implied Adani and Linc had put a 25 percent to 30 percent probability on the Carmichael project going ahead. "It means they (Adani) haven't given up," said Tim Buckley, a director of the U.S.-based Institute of Energy Economics and Financial Analysis, which is campaigning against fossil fuels. (Reuters)
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Real estate major DLF was directed on Wednesday (27 August) by the Supreme Court to deposit Rs 630 crore fine slapped on it by the Competition Commission of India (CCI) for allegedly resorting to unfair business practices. The apex court said the total ammount will be deposited within three months with its Registry pending the outcome of the appeal filed by DLF against May 19 order of Competition Appellate Tribunal's upholding the penalty of Rs 630 crore imposed by the CCI. "We direct the appellant (DLF) to deposit the amount of Rs 630 crore in this court," a bench comprising justices Ranjana Prakash Desai and N.V. Ramana said in its interim order. The bench said so far as the interest on the amount was concerned it has to be determined as per the November 9, 2011 order of the CCI that was fixed at 9 per cent. It also directed DLF to file a fresh undertaking that in the event of dismissal of the appeal it will pay such amount as directed by the court. DLF pleaded that it should be granted at least six months time to deposit the amount. However, the bench said it was inclined to grant three months time only. Further, the bench directed that out of Rs 630 crore, the real estate major has to deposit Rs 50 crore in three weeks and the Registry will be at liberty to invest it in any of the nationalised banks. The apex court adjourned the hearing by admitting DLF's appeal in which Haryana government, Haryana Urban Development Authority (HUDA) are parties along with the residents' association on whose plea the competition watchdog had imposed the penalty on the company. The CCI in 2011 had found DLF violating fair trade norms and imposed a fine of Rs 630 crore on it following a complaint by Belaire Owners' Association in Gurgaon. It was in May 2010 that the buyer's association had complained against DLF. (PTI)
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Consumers need not suffer if a power company's business decision goes wrong and its profits suffer. It is also not fair to allow renegotiation of tariffs and contracts awarded to the lowest bidder, making a mockery of the entire bidding concept. These were the two key messages the Supreme Court conveyed on Monday (25 August) when it stayed the Appellate Tribunal for Electricity (APTEL) decision to allow higher tariffs for the imported coal based power plants of Tata Power and Adani Power at Mundra in Gujarat.Tata Power claimed the company was making annual losses of over Rs 1,800 crore a year and Adani Power claimed its losses from power supplies annually were over Rs 1,700 crore, following the Indonesian government's decision to sell coal at international benchmark prices since early 2012. In early 2013, the Central Electricity Regulatory Commission (CERC) and later the APTEL allowed the companies to charge higher tariffs because of the costlier fuel, despite opposition from discoms and NGOs representing consumers. Even the CERC panel was divided on its decision. S. Jayaraman, a panel member had strongly opposed the raising of tariffs, saying that allowing this would render the bidding process redundant and open up potential legal issues affecting the rights of other bidders. Estimates say pre-March 2013 dues for Tata Power were about Rs 330 crore and for Adani Power about Rs 830 crore. The utilities challenged this in the Supreme Court. Independent industry observers feel the decisions favouring these two companies could set a precedent and may be used later for revising the power purchase agreements (PPA) for numerous similar projects. The Supreme Court noted the projects were awarded on tariff-based competitive bidding and the developers should have considered the cost and risks for the next 25 years. The apex court's decision can be seen as an intervention to protect the interests of consumers. For the government, the decision should be an eye-opener to tighten the rules related to the Sections 61 and 62 of the Electricity Act and bring more clarity in competitive bidding rules. Otherwise, India's whole power sector may become a mess of errors, litigations and chaos.
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