Infra Line Plus May 2012 Spread

May 2012
Volume 1 | Issue 1 | `100

This Issue is Complimentary
www.InfralinePlus.com
The ComPleTe energy SeCTor magazIne for PolICy and deCISIon makerS
p14
PMO gets
Proactive
Pulok Chatterjee breaks
policy paralysis with
Presidential directives
p26
Indian Power
Sector on the
Move, Coal
Crisis Holds it.
p38
RS Sharma
on LIC bailing
out ONGC
share sale
p4
OIL ON bOIL
Taxing times ahead
for consumers
p6
PsU
governance
Some shareholders
more equal than others:
Sanjeev Prasad,
Kotak Securities p47
Power-
packed
achievement
for Shinde
Pulok Chatterjee
Principal Secretary,
Prime Minister Offce
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1
Editors Letter
The launch of this magazine comes at a time when
Indias energy sector is at the crossroads. Spiraling
global crude oil prices are affecting Indias economy
and balance of payments as it imports more than
70% of its crude oil by spending close to $150 billion
of its valuable forex, fuel shortages of coal and gas
is affecting growth of important industrial sectors
especially coal, unearthing of the NELP blocks scam and auction of coal
blocks and shrinking interest of foreign investors...
So, while the country and its policy makers juggle to wriggle out
from these challenges, we at InfralineEnergy attempt to provide you an
insight into all these issues that threaten to derail the pace of reforms
initiated in the sector.
Indias energy security challenges have aggravated and there seems
to be no silver lining on the horizon. To meet its increasing appetite for
energy, India is depending on huge imports for oil and gas (coming
as imported LNG) as also coal. A country thats the third largest in the
world in terms of coal reserves is now poised to emerge as the worlds
biggest coal importer.
Given the geopolitical development like the Arab spring or US arm
twisting India on its stance for oil imports from Iran, currency volatility
inflating crude import bill and Indonesias plan of 25% tax plan on coal
exports, are all impacting India like never before.
Renewable energy promises to play a role in reducing the import
burden but will take its time.
As a result, though the sector is seen silos comprising of different
elements Power, Oil and Gas, Coal and Renewable Energy, its time to
take an integrated view on the energy scenario in India.
To provide an integrated view of the sector from the perspective of
policy and decision makers, InfralineEnergy has take this initiative of
launching a monthly magazine
In the first issue, we have focused on some of these issues. For
instance, the policy paralysis that saw a sudden proactivism from the
governments highest office -- the Prime Ministers Office. Indeed,
it is satisfying that the highest office of the country is monitoring the
development of the energy sector, though the current situation could
certainly have been better managed.
We have tried to put together a judicious mix of news and views
in this effort. It being our maiden attempt, there is a good scope
for improvement. Your opinion and suggestions would always stay
valuable to us.
YOGESH GARG
CEO and Editor
InfralineEnergy Research and Information Services
Registered Offce
14th Floor, Atmaram House,
1, Tolstoy Road,
New Delhi - 110001
Tel. : +91-11-46250000
Email: business@infraline.com
Branch Offces
Editorial
Yogesh Garg, Editor
Pallavi Chakravorty, Assistant Chief-sub editor
Sangeeta Tanwar, Principal Correspondent
Shruti Medha, Correspondent
Desk
Archana Khatri Das, Rewriter
Analysts
RK Tripathi
Raeesa Zeb
Ravi Shekhar
Yashwant J Rao
Debjit Das
Design Team
Gopal Thakur, Art Director
Devdatt Kushwaha, Sr. Graphic Designer
Noida
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Noida
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May 2012 | Vol 1 No 1
InfralinePlus
Form IV
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May 2012
2
Contents
Editors Letter
1
PMO In Action
The recent proactivism of PMO has infused a new
hope in Coal and Power sector. Introduction to the
man in the arc light - Pulok Chatterjee p4
Point to be taken
Anil Razdan, Former Secretary, Ministry of Power
on Indias water security p64
Plus- Photo Essay
A photo tour of Alstoms Chamera III
Hydro Electric Project
Power
News Brief p10
In Conversation: JP Chalasani,
Outgoing Chairman, Association
of Power Producers and CEO of
Reliance Power p12
In Depth: Indias power capacity
crosses the 2 lakh MW mark p14
Expert Speak: Sunand Sharma,
Country Manager, Alstom India p16
In Depth: Where do we stand in
terms of our power reforms? p18
Statistics p20
Oil and Gas Renewable
Coal
COVER: PHOTOILLUSTRATION BY UDAY SHANKAR
In Focus
Tail Piece
4
65
Cover Story
The Future of
Fuel Frenzy
With major
oil producing
and marketing
companies all set to
increase prices of
petroleum products
in the wake of
inflating global crude
oil prices, it is tough
times ahead for
Indian consumers
p6
6
10 23
54 37
InfralinePlus
News Brief p23
In Conversation: Former Coal India
Chairman, NC Jha p24
Expert Speak: RV Shahi, Former
Secretary, Ministry of Power p26
News Analysis p29
In Depth: Howviable are imported coal-
based merchant power plants? p30
Statistics p34
News Brief p37
In Conversation: RS Sharma,
former CMD ONGC p38
In Depth: Is CNG still a cheaper
alternative fuel? p42
Expert Speak: VK Rao,
Reliance Natural Resources Ltd p45
Expert Speak: Sanjeev Prasad,
Kotak Institutional Equities p47
Expert Speak: BS Negi p50
Statistics p52
News Brief p54
Expert Speak: AK Singh, CMD,
Central Mine Planning & Design
Institute Ltd. p55
In Depth: Solar energy for Telecom
Towers p58
Statistics p61
Expert Speak: Gokul Chaudhry,
Partner, BMR Advisors p62
News Analysis p66
Reliances Solar Power Plant in Dhursar -
in pictures
p67
p70
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For any further information, kindly contact us on below mentioned coordinates:
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4
InFocus
May 2012
PMO Gets Proactive
Pulok Chatterjees return to PMO to undo policy paralysis in the Government
To revive Indias growth story and derailed economic reforms process
The post of Principal Secretary to
the Prime Minister has always been
a coveted one. Whether it was the
former man in chair, TKANair during
the UPA-I regime or the one before --
Brijesh Mishra in the BJP government
or even Pulok Chatterjee -- the most
recent incumbent holding the chair,
they all have played an important
role in the day-to-day functioning
of the government as also important
policy matters.
However, the one difference
between the present man in chair and
his predecessors is the direct access he
enjoys to both the PM, Dr Manmohan
Singh and the UPAchairperson, Mrs
Sonia Gandhi.
Chatterjee, a 1974 batch retired-IAS
offcer from the Uttar Pradesh cadre, is
holding one of the most coveted charge
in UPA-II.
Chatterjees appointment was part
of a major overhaul of the PMO and
came at a time when the government
was hurtling between one crisis and
another. Given his proximity to the
brass of the Congress, Chatterjee
was brought in to ensure smoother
coordination within the government as
also between the government and the
Congress party president.
But, Why are we talking about him?
How is PMO of any consequence to an
energy sector magazine? The reasons
are many, but to start with... He is fast
emerging as the key interface between
the industry and the government on
all major economic issues, the recent
case in point being the high-powered
meeting with top 20 CEOs under Anil
Ambani and Ratan Tata highlighting
issues blocking the growth of Indias
power sector.
Sources say the PM is heavily
depending on Chatterjee to improve
the countrys power scenario, which
involves addressing the controversies
surrounding fuel shortages, revive
investors confdence and remove
hurdles faced by infrastructure projects.
His recent push for scaling up
Indias coal production to ramp
up power production has ruffed
many feathers in the coal and power
ministry. The most recent directive
that came from the offce of President
Pratibha Patil to state-owned Coal
India Ltd over signing of the fuel
supply agreements (FSAs) with power
producers is also an outcome of the
initiative undertaken by the PMO.
Coal production going down
is not a new thingbut the way it
has been handled recently by the
PMO under Chatterjee has got the
entire industry talking, said a senior
government offcial.
In the oil and gas space, Chatterjee
is making serious strides when it comes
to exploration of oil and gas. Energy
security issues or unlocking procedural
delays in the sector, Chatterjee has
all on his fngertips. He is regularly
seen holding meetings with the
bureaucrats, industrialists and chiefs of
industry as also heads of state-owned
public sector undertakings.
Offcials in the PMO say Chatterjee
is extremely diligent when it comes
to work and does not take things for
granted. He has passed instructions
to all secretaries in key government
ministries and departments to clear
backlogs and speed up decision
making, a government offcial said.
The aforesaid reasons are enough to
make us take notice of the actions of
the most key bureaucrat of the country
today. Chatterjee is clearly seen leading
all major policy discussions, be it in
the area of infrastructure, important
economic sectors, home affairs,
defence or even tourism.
Chatterjee is not a new face in the
PMO, this in fact is his second stint.
His frst tenure was in 2007-08, when
TKANair was the man in his chair.
AGandhi family loyalist, Chatterjee
held the position as the District
Magistrate in Rae Bareli the
constituency of Indira Gandhi in the
80s. Later he also served as deputy
secretary in Rajiv Gandhis offce in
1985. He has also worked as Sonia
Gandhis private secretary when she
was the leader of the opposition in
Lok Sabha.
Buzzword is that Chatterjee has
been given the task of changing the
Congress bleak prospects in the
2014 general elections. Therefore,
Chatterjees return to this offce is with
a dual purpose -- one to give a policy
impetus to Indias derailing economy
and the other to re-build the partys
diminishing image.
Like any another power-packed
man, Chatterjee has had his share of
controversies. Just before assuming
charge, media was slammed with
reports highlighting Chatterjees
failure in advising the PM regarding
grant to A. Raja -- the then telecom
minister and main accused in the 2G
spectrum scam. Reports also cited
Chatterjees involvement as the joint
secretary in the PMO -- favouring the
appointment of Suresh Kalmadi to head
the Commonwealth Games Committee.
However, the Congress, it seems
has remained undeterred by these
allegations and has continued to show
faith in Chatterjee.
Chatterjee does have a strong
support from the government.
However, only time will tell whether
he proves to be the blue-eyed boy for
Indias energy sector and the industry
Infrastructure growth
tops Pulok Chatterjees
agenda, a senior PMO
official
Key Highlights
Daily Newsletter and
Database Updates on:
Power
Coal
Oil & Gas
India Upstream
Renewable
For more details email at:
general.support@infraline.com
6
CoverStory
May 2012
7
May 2012
Oil on boil: Taxing times ahead
for consumers
Already hit by costlier products and
services, household budgets are seen
shooting up. Get ready to once again
loosen your purse strings as the three
state-owned oil companies -- Indian
Oil, Hindustan Petroleum, Bharat
Corp -- are ready to announce a hefty
increase in prices of petrol, diesel,
cooking gas or LPG and kerosene for
public distribution system.
Citing massive losses in the wake of
high global crude oil prices -- currently
hovering close to $120 a barrel -- the
oil companies say their under-recov-
eries (or losses on sale of petroleum
products below the cost price) have
mounted to over `8 a litre on petrol,
more than `15 on diesel and nearly
`500 on a 14.2 kg LPG cylinder.
Though the amount hike remains
unclear as of now, the intention
of the oil companies seems
quiet clear.
With over-growing losses and
increased borrowings, the two major
oil refning and marketing companies
Indian Oil Corporation (IOC) and
Hindustan Petroleum (HP) -- are also
heading for losses, which if happens
will be for the frst time in their history.
The only way this can be averted is to
increase the consumer prices of auto
and cooking fuels.
International oil prices have been
creating havoc for quiet sometime
now. And thanks to high global crude
oil prices currently at $120 a barrel,
Indias crude oil import bill for the frst
time is expected
to cross $150
billion for
2011-12
as against
$100
billion
last year.
The
interna-
tional crude
oil price for
the Indian Basket
as by the Petroleum Planning
and Analysis Cell (PPAC) under the
Ministry of Petroleum and Natural Gas
continue to be at scary levels -- close to
$118 a barrel.
Not being able to pass on
the hike in petrol prices, the
state-owned oil companies
have also warned of disrup-
tions in fuel supplies as losses
on fuel sales in the domestic
market have mounted to
untenable limits.
The situation is very critical. We
are losing `7.67 per litre on petrol and
after adding 20 per cent sales tax, the
desired increase in rates in Delhi is
`9.20 per litre, (IOC) Chairman R.S.
Butola recently said.
Our 93 per cent of cost of pro-
duction is on account of crude oil,
which we have to import. If we dont
earn revenues from fuel sales, we
would not be able to buy crude oil
and in that situation, there will be fuel
supply disruptions, he added.
Interestingly, as oil companies talk
about their growing losses, the Centre too
has upped the ante and is all set to curb
the outfow of its funds going in as huge
subsidies on fuel every year. As against
last years fuel subsidy outgo of over
`60,000 crore, the governments plans
to limit the subsidy on fuel to around
`40,000 crore. This was announced by
fnance minister Pranab Mukherjee in his
budget proposals for 2012-13 and is also
part of the governments fscal consoli-
dation plan.
Mukherjee had hinted is his Budget
speech that the government did not
have the fscal elbow room to give
more subsidy to oil companies to
prevent a rise in retail prices of fuel.
If we dont have the capacity, how
can we pay a subsidy? Theoretically
speaking, if petroleum prices rise to
$1,000 a barrel in the global markets,
how can we pay? If you have capacity,
you can take hard decisions. Can we go
back to 1990, when we had to sell our
gold for a few millions?, Mukherjee
had said.
Even though the fuel prices are
Oil prices just 15% short from all-time high; even US and European economies arent out of wood
Central and state government should consider bringing down tax component for relief to consumer
expected to be increased shortly after
the passage of the fnance bill in
Parliament, the Congress led UPAgov-
ernment faces a strong opposition from
its key allies including Mamta Baner-
jees Trinamool Congress and DMK --
which are also part of the Empowered
Group of Ministers (EGoM) on fuel
prices under fnance minister Pranab
Mukherjee that will take a fnal call on
the price of diesel and LPG.
Even if this government collapses,
the new government will face the
same problem. It cannot come from
Siberia. Oil prices can be addressed
outside Budget as well. We will have to
take our allies on board on oil prices.
We cant make a proposal that is not
acceptable to them. Every budgetary
proposal has to be approved by
Parliament, Mukherjee said.
The country meets nearly 80% of
its crude oil requirement by way of
imports and majority of the oil supplies
are coming from the Middle-East. With
geopolitical tensions surrounding Iran
-- the second-largest producer of oil in
the Middle East, any supply disruptions
in the region can cast a big impact on
Indias economy.
With high prices of crude oil con-
tinuing in the global markets and the
provision of `43,580 crore fuel subsidy
in 2012-13 Budget proposals -- as
against `68,481 crore in the current
fscal -- the writing on the wall is quiet
clear that frequent fuel price hikes are
in the offng.
While both oil companies and the
government have stated their intent,
the consumers are under the guillotine.
As the government displaying help-
lessness citing huge crude oil prices in
international oil markets necessitating
a hike in domestic fuel prices, the fact
remains that every time fuel costs is
increased by a rupee, its not just the
oil companies that are compensated
but the central and state government
together get richer along with every
hike. This is due to the high com-
ponent of taxes and duties that are
in-built in the retail price of petrol
and diesel.
On every litre of petrol -- priced
at `65.64 a litre (in Delhi), the total
taxes levied by the central and state
government stand at `26.53 and then
there is an additional `1.50 that you
pay to the petrol pump dealer as his
commission. Oil companies say they
are currently losing `6.43 on every litre
of petrol sold.
Similarly,on every litre of diesel that
is priced at `40.91 a litre (in Delhi),
the consumer is paying `7.42 as taxes
to the centre and states and another
`0.91 a litre as dealers commission.
Oil companies are claiming a under-
recovery of over `13 on every litre of
diesel sold.
While the Centre charges a specifc
excise duty of `14.78 a litre on petrol
including education cess, the state
charges various taxes and VAT, entry
tax and others.
To gauge
the states
increase
in
revenue
due to
hike
in fuel
prices,
for every
one rupee
increase in petrol
price per litre, the Delhi
government rakes in 20 paise as the
VAT rate in Delhi is 20 percent.
Similarly, for every one rupee
increase in price of a litre of diesel, the
Delhi government raked in 12.5 paise
in taxes as the VAT rate for the fuel was
12.5 percent.
The price build-up of petrol and
diesel in Delhi, including price before
tax and taxes/duties levied by the
Central and State Governments, with
effect from 16 march, 2012 can be seen
in tables.
The petroleum sector
remains one of the
largest contributor of revenues for the
central and state exchequer. The sector
contributed `225,494 crore during
2010-11. This year this contribution in
the frst half itself has been a whopping
over `106994 crore and is expected to
touch `2.5 lakh crore for the full year.
During 2010-11, the petroleum
sector contributed `1.04 lakh crore
to the central exchequer in the form
various taxes and duties including
customs and excise duty, service tax
and the cess and royalty on crude
oiland gas.
In addition, there was also a con-
tribution by the oil and gas PSUs in
the form of dividend, corporate tax
and proft petroleum on exploration of
oil and gas, totaling another `32,917
crore. In all, the central exchequer
got `1.36 lakh crore from the sector
during 2010-11.
During the frst six months of
2011-12, as much as `55, 435 crore
have been contributed by the petroleum
sector to central exchequer.
Similarly, states that earn
revenues by imposing royalty
on crude oil and gas, sales tax/
VAT on petroleum products and
other taxes imposed as octroi
and entry tax -- earned `88,997
crore during 2010-11 and almost
`51,559 crore
from the
Prices of all
petroleum
prices need to be looked
at again.
Union petroleum minister,
Jaipal Reddy
There
should be an
immediate increase
in petrol prices. Under-
recoveries of oil compa-
nies on petrol are increas-
ing and we are losing `50
crore on petrol everyday.
R S Butola,
CMD, IOC
8
CoverStory
May 2012
9
May 2012
petroleum sector in the frst six months
of 2011-12.
As petrol prices stand de-controlled,
oil companies have already hiked petrol
prices several times in 2011. However,
prices have been kept on hold since
December 2011, frst due to assembly
elections followed by municipal elec-
tions and now till the passage of the
fnance bill in the Parliament, expected
to come up by May 7.
Petrol prices were last revised on
December 1, 2011 when they were cut
down by `0.78 per litre to `65.64 per
litre in Delhi; diesel currently costs
`40.91 a litre.
Acomparison with the neighbours
Growing losses of oil companies: HPCL and IOC plunge into losses, BPCL
not far behind
(`crore) 2009-10* 2010-11* 2011-12 (April-December. 2011)
Public Sector Oil Companies**
Indian Oil Corporation limited (IOC) 10,221 7445 -8,716
Bharat Petroleum Corporation limited (BPC) 1,538 1,547 2,652
Hindustan Petroleum Corporation limited (HPC) 1,301 1,539 -3,720
Oil & Natural Gas Corporation (ONGC) 16,768 18,924 19,479
Oil India Limited (OIL) 2,611 2,888 3,002
GAIL (India; Limited (GAIL) 3,140 3561 3,171
Source - Oil Companies
* OMCs could make make profit only after taking into account cash assistance from Government and discount on sale of crude oil and products by Upstream oil companies.
** Data for private sector oil companies is not being maintained.
Details of taxes/ duties on contribution to Central and State exchequer by
petroleum sector companies
(in `crore)
Particulars 2009-10 2010 11
H1, 2011-
12 (prov.)
1. Contribution to Central Exchequer
A. Tax/ Duties on Crude oil & Petroleum products
Cess on Crude Oil 6,559 6,810 3,477
Royalty on Crude Oil / Gas 3,859 3,652 1,998
Customs Duty 4,563 24,136 8,116
Excise Duty 62,480 68,040 29,400
Service tax etc. 982 942 420
Sub Total (A) 78,443 103,580 43,411
B. Dividend to Government/ Income tax etc.
Corporate/ Income Tax 17,935 17,116 8,345
(in ` crore)
Particulars 2009-10 2010 11
H1, 2011-
12 (prov.)
Break-up of Current Excise duty on Petrol & Diesel (eff. 25.6.2011) (`/ litre)
Product Basic Duty
Additional
Excise Duty
(Road Cess)
Special
Additional
Excise duty
Total duty
Education
Cess @ 3%
on Total
Total Duty
Including
Cess
Petrol 6.35 2.00 6.00 14.35 0.43 14.78
Diesel Nil 2.00 Nil 2.00 0.06 2.06
Changes in Retail Prices of Petrol and Diesel in Asian countries since 2004
The prices of petrol and diesel in Asian countries in 2004 and comparison with prices of 2012 is as under-
Country
Petrol Prices Diesel Prices (`/ litre)
2012** 2012**
SOUTH ASIA
India 65.64 40.91
Pakistan 52.30 56.89
Bangladesh 55.52 37.43
Sri Lanka 60.06 46.41
Nepal 72.14 52.89
SOUTH EAST ASIA
Thailand 65.68 50.95
Philippines 63.72 53.02
Malaysia 47.12 30.29
FAR EAST
China 55.80 59.53
DEVELOPED COUNTRIES
Asia - Japan 89.90 78.13
show that the price of Petrol in India is
more when compared to Pakistan, Ban-
gladesh, Sri Lanka and is even dearer
than what is charged in the US.
One litre of petrol costs `52.30 in
Pakistan, `55.52 in Bangladesh and
`60.06 in Sri Lanka. In India, the fuel
costs `65.64 (in Delhi). In the US,
petrol costs much less -- at `44.88
a litre.
So, the solution lies in either
increasing the domestic prices of fuel
or reduction in taxes and duties by the
Centre and states. The recent cut in
VAT rates by the Goa state government
would bring down petrol prices by
as much as `11 a litre clearly shows
that if the government wants to help
the common man, it can do so. The
common man remains the sufferer
amidst the constant political drama that
goes on in India. Heres hoping that the
message reaches the right ears, and at
the right time.
Dividend income to Central Govt. 8,066 9,807 1,396
Dividend distribution tax 1,864 2,354 338
Profit Petroleum on exploration of Oil/ Gas 5,471 3,610 1,945
Sub Total (B) 33,336 32,917 12,024
2. Contribution to State Exchequer
Total Contribution to Central Exchequer (A+B) 111,779 136,497 55,435
A. Tax/ Duties on Crude & Petroleum products
Royalty on Crude Oil / Gas 3,349 4,636 3,756
Sales Tax/ VAT on POL Products 64,999 78,689 45,321
Octroi, Duties Incl Electricity Duly 1,888 2,163 1,125
Entry Tax / Others 1,829 3,488 1,355
Sub Total (C) 72,065 88,976 51,555
B. Dividend to Government/ Direct tax etc.
Dividend Income to State Govt. 17 21 4
Sub Total (D) 17 21 4
Total Contribution to Stale Exchequer (C+D) 72,082 88,997 51,559
Total Contribution of Petroleum Sector to Exchequer (1+2) 183,861 225,494 106,994
The recent cut in
VAT rate by the Goa
government would bring
down the petrol prices in
the state by `11 per litre
NewsBriefs | Power
May 2012
10
For more than a
decade the 2,000MW
mega power project
at Karnapura in
Jharkhand awaits
approval. Reviving the
turf war coal minister
has raised the red flag over building such
super structures on coal-bearing land on
the ground these would block efforts to
rapidly ramp up production of the primary
industrial fuel.
Indonesias plan to
impose a 25 percent
export tax on coal
may turn Indian power
producers towards
other coal exporting
countries and increase
tensions between companies and the
Indian government over electricity tariffs. An
additional spike in coal costs would push
other plants to raise prices, which would lead
distribution utilities to buy less.
The National Power
Highway would be
created by 2014 linking
various regional grids
to ensure smooth
and uninterrupted
transmission of
electricity, Union Power Minister says. The
power highway would connect various
regional grids in the country and make
smooth transmission to meet the future
requirements in an efficient manner.
The Power Ministry sets
target of generating
9,20,000 million units
of electricity this year,
of which over 1,50,000
million units would
come from the private
sector alone, says Central Electricity Authority
report. Government also plans to add over
1,22,000 million units of hydel power during
the same period.
After Kakarapar Atomic
Power Station in
Gujarat, Nalco mulls
another nuclear power
plant in collaboration
with Nuclear Power
Corporation of India.
There are three options to set up the plant,
at West Bengal, Odisha and Rajasthan.
NPCIL would be the operator of the project
with 51% stake.
ONGC Ltd is expected
to commence power
production at Tripura
Power Company
Ltds plant in June
2012. The ONGC-
promoted TPCL has
established a 726.6 MW (363x2) gas-based
thermal power plant at Palatana, Tripura,
and laid a 650-km-long 400kV direct current
transmission system up to Bongaigaon for
evacuation of power.
A huge relief for
Orissa, the Centre
clears the proposal to
set up two more UMPP
in Odisha. One of them
is likely to be set up
in Bhadrak. A team
from Central Electricity Authority and Power
Finance Corporation is to visit the state to
identify the sites. UMPPs are generally of
over 3,000 MW size at a single location.
Around 82
inaccessible, remote
villages in Gopalganj,
Saharsa, Supaul and
Kaimur districts would
be energised under
Rajiv Gandhi Rural
Electrification programme in Bihar. Around
40 villages of Baikunthpur and other blocks
of Gopalganj district have been identified
to cover under RGREP for electrification
through non-conventional sources of energy.
With commissioning
of a 660 MW unit
of a power plant in
Jhajjar, the installed
capacity in the
country has crossed
two lakh megawatt
mark, according to the Power Ministry. The
installed capacity includes 1,32,013 MW
capacity in the thermal sector, 38,991 MW in
hydro, 4,780 MW in nuclear and 24,503 MW
in renewable energy.
After nine years,
Tamil Nadu
Electricity Regulatory
Commission approved
a steep 37% hike in
power tariff for one
year, effective from
April 1. It is expected to generate additional
revenue of Rs 7,874 crore for Tamil Nadu
Generation and Distribution Company, and
recover its full costs in the financial year of
2012-13.
Karanpura MPPs
Fate continues to be in dark
Making a mockery
of governments
proclaimed
transparency drive,
the power ministry
asks the coal ministry
not to make public
the list of power projects that would get coal
linkage under the new mandatory fuel supply
agreements with Coal India. Concern is that
such a list could hurt projects not having coal
linkages.
FSAs
Power ministry trips on transparency
Indonesia tax plan
Hits India power firms hard
Transmission
National Power Highway by 2014
Power Ministry
Targets 9,20,000 MU this year
Nalco with NPCIL
Plans another nuclear power plant
ONGC
Commissioning Tripura plant in June
The ADB and the
Government of India
signs three loan
agreements worth
$826 million aimed
at shoring up power
transmission systems
to help India efficiently transfer electricity
from surplus regions to power-deficit regions.
A $500 million sovereign-guaranteed loan
and a $250 million non-sovereign corporate
loan will establish a 1,300-plus kilometer
interregional transmission link.
ONGC India and ADB
Loan agreements for Power
Transmission system
Odisha
Two more ultra mega power projects
RGREP
To light up 82 Bihar villages
India Crosses 2 lakh MW
Indias installed power capacity
Tamil Nadu
Hikes power tariff after 9 years
InConversation
12
May 2012
13
May 2012
J.P Chalasani, Outgoing
Chairman, Association of
Power Producers and CEO
of Reliance Power spoke to
Infraline at length about the
problems concerning the coal
sector, whether imported coal
is viable idea for India and
his views on the performance
of the power sector. Edited
excerpts:
How do you look back on the power
sectors performance at the end of
the 11th Plan? Do you think it is
possible to replicate this growth in
the 12th Plan?
Since the enactment of the Electricity
Act, 2003 a path breaking legisla-
tion for the frst time in the 11th
fve-year Plan the private sector has
made its mark by contributing over
58% of the total capacity addition in
the country.
Against the 11th plan
achievement of 53,922 MW,
the private sector contributed
31,372 MW (until February
2012). Thus, against a plan
target of 15,043 MW, the
private sector has achieved
almost 200%. This rise
of the IPP that has defned
the 11th plan power sector
capacity addition.
In the 12th Plan target,
private sector is
expected to add
42,000 MW
(56% of new
capacity),
and we are confdent that this target
would also be comfortably achieved.
With this, private sectors share in
the total capacity could increase from
the current 23% to 38% at the end
of FY 2017. In the right enabling
environment, the private sector can
far surpass the current levels of
capacity addition. However, fuel and
distribution issues have emerged as
major challenges and the sector needs
to fnd an answer to those issues.
What according to you are the
greatest challenges facing the sector?
The biggest challenge is obviously
fuel availability and pricing. Another
huge challenge is accelerating re-
forms in power distribution. Thats a
crying need.
I see a silver lining in the form
of the recommendations made by the
Shunglu committee set
up to suggest ways
of reviving the
SEBs/discoms.
It sets out a
clear game
plan for
rescuing
the SEBs,
by passing
the onus
of repaying
loans to
respective state
governments,
instructing the
states to ramp
up transmission and distribution
effciency and for an allotment of
distribution areas on a franchisee basis.
Do you think the optimism generated
after the much-hyped meeting of
industry leaders with the Prime
Minister in January was justifed?
Oh yes, completely justifed. It was the
frst-ever such meeting with the Prime
Minister himself interacting at length
with Chairmen of nearly all leading
power producing companies. Plus there
were follow-up meetings with Princi-
pal Secretary, Shri Pulok Chatterjee,
which was set up at the Honble Prime
Ministers behest.
As an outcome of that initiative:
We had the fuel supply agreement
decision on Coal
We had a good, encouraging set of
budget proposals with seven out of
eight APP recommendations being
accepted by the Government
Reconsideration of decision to
impose import duty on power
equipment
We had a meeting of the EGOM on
gas, after which a major initiative
to evaluate gas pooling for the
power sector has been taken up, to
augment dwindling gas supplies
We also had a GOM meeting on
coal, to expedite forest clearances
for coal blocks.
Will the signing of the FSAwith Coal
India really be of help to utilities?
It is a very positive development for
the sector. We are happy that Coal
India has taken up this responsibility. It
will push CIL to improve effciencies
and ramp up coal production.
How do you think domestic coal
production cam be ramped up?
Coal India has a crucial role to play
in that and the FSAsigning is a step
towards that objective. Other than that,
environmental and forest clearances
need to be fast-tracked.
Further, there is signifcant scope
to improve coal production from
captive/operating CIL blocks by using
enhanced technologies.
With the controversy surrounding
captive coal block allocations, do you
think increased captive production
from private players will be possible?
I am absolutely confdent about that.
In fact, the government is already
moving forward on coal block auction-
ing through a competitive tariff-based
model, which I think is the best way to
move forward. Effcient production of
coal from these coal blocks will dem-
onstrate the benefts. The next wave
of reforms in coal sector has already
begun, with the draft coal regulatory
bill being introduced shortly. This
would go a long way in liberalizing the
sector and introducing a transparent
regulatory environment, which would
increase FDI and international invest-
ment in the sector.
Imported coal options seem to be fast
running out with rapid changes in
Indonesia and Australia. What are
the solutions?
Imported fuel options will work only
with the clear understanding from all
stakeholders that risks of changes in
regulations and law of any country
whether India, Indonesia or Australia
will have to be passed on. It is impor-
tant to understand that the price impact
of these changes is being passed on
to the consumers for all central and
state sector power projects that operate
on cost plus basis. There is at present
about 13,000 MW of capacity tied up
from imported coal
through the competitive
bidding route. However, rise
in global prices of coal has made this
completely unviable. APP has re-
quested the government to constitute an
Expert Group to examine the various
issues related to increase in internation-
al coal prices, and provide a fair and
transparent mechanism to in the PPAs
to beneft all concerned parties. We un-
derstand this recommendation is under
active consideration. Adirection from
the GoI on this aspect would go a long
way in providing viability to imported
coal based power plants.
Do you think the competitive bidding
model has been a failure? Is it best to
revert to the cost-plus model?
Not at all. Tariff determination through
competitive bidding has been far better
than was the case with cost-plus. The
competitive bidding model provides a
great incentive for developers to be ef-
fcient in setting up capacities through
effcient procurement, construction
and fnancing options. Even CERC has
recognized this in its study report of
September 2010. Of course, fuel pric-
ing risk must be borne by the party that
can best manage it.
While there has been so much focus
on problems vis--vis coal, what
about gas projects?
That has been an item on the top of
APPs agenda. Gas based power is a
signifcant component of every coun-
trys power mix, as it is much cleaner,
and has a lower carbon footprint. In
fact, the Rakesh Nath Committee set up
by CERC to examine peaking power
has also suggested that gas based pow-
er can be effectively utilized to meet
Indias peak power requirement. There
is 15,000 MW of existing gas based
power capacity and another 9,520 MW
of upcoming capacity in various stages
of development. We have been pursu-
ing the government that gas must be
provided expeditiously to ensure these
projects become operational. Recent
projections of domestic gas supply
indicate a drastic fall over the next
two years. In fact, offcial projections
have fallen by over 75% in the last two
years. To ensure that the power sector
is not affected in this scenario, the best
option available may be to augment the
domestic gas with imported R-LNG
and supply to all the existing and
upcoming plants. This would eliminate
the possibility of stranded assets and
NPAs on account of shortfall in domes-
tic gas supply.
The distribution companies in all
states are facing huge fnancial
challenges. What can be the
solutions?
I am optimistic on this score. I think
there is a growing realisation that
distribution reforms are critical for the
entire sector. We have today robust
regulations under the Electricity Act.
The regulatory framework is not the
problem, implementation is. Having
said that, I view the recent decisions by
the government, the central regula-
tor and appellate tribunals as positive
for the power sector. The recent tariff
revisions by states should be viewed
through the prism of positivity.
The Shunglu committee recom-
mends the franchise model of power
distribution and a slew of other reforms
to ensure that the sector resumes
normalcy by 2017. These recommenda-
tions should be examined and imple-
mented at the earliest.
15,000 MW of existing
gas-based power
capacity and another
9,520 MW of upcoming
capacity in various
stages.
There
is at pres-
ent about 13,000
MW of capacity
tied up from import-
ed coal through the
competitive bid-
ding route.
Imported fuel option will work only with
understanding from all stakeholders
For full version of the interview, visit www.infraline.com
InConversation
14
InDepth
May 2012
Power packed
achievement for Shinde
Indias power capacity crosses the 2 lakh mega watt mark
Indias power sector has made some
signifcant strides this year. After
facing criticism for years, the countrys
power sector has recently achieved
an important benchmark as its total
installed capacity addition crossed the 2
lakh mega watt mark on April 13.
The capacity addition fairs well
on all scores---whether we compare
it plan on plan or year on year, it is
indeed commendable. Witness this:
Notwithstanding the ongoing fuel
shortages, Indias power generation
capacity at the end of the 11th plan has
been a noteworthy fgure of 53,922 mw.
The signifcance of this capacity
addition at the end of March 31, 2012
is that this is more than two and a half
times the capacity addition of 21,180
mw in the 10th plan and is close to the
total cumulative achievement of 56.617
MW in last 15 years from the three
plans put together or the total of the 8th,
9th and 10th plan.
Even during the year, the capacity
addition of 19,459 MW in 2011-12
(upto 29.03.12) has been the highest
ever capacity addition in a single
fnancial year.
The union power minister, Sushil
Kumar Shinde held a media briefng
on March 27, 2012 when he declared
that Indias total installed capacity has
reached is 1,92,792 mw as on 27.03.12
and a capacity of 75,785 MW is
planned for 12th Plan.
Within days of this statement came
another power packed statement from
the corridors of the Shram Shakti
Bhawan in New Delhi that houses
the power ministry that the countrys
installed capacity has crossed the 2 lakh
MW mark and has touched 2,00,287
mw. This is indeed commendable for
Mr Shinde, who for long has faced
criticism from all quarters.
While power capacity addition
during the 10th Plan period was 21,180
MW, it was still lower at 19,010 mw
during the 9th Plan. However, during
2011-12 alone, a record capacity of
20,501 MW was added in 2011-12,
out of which 5,482 MW was added in
the month of March 2012 alone. This
indeed calls for an applause as this has
been the highest ever capacity addition
in a single fnancial year.
The improved performance in
capacity addition during the 11th Plan
period has been recorded across all
sectors including the central, state and
private sectors.
While celebrating this important
benchmark, Shinde has another
daunting task relating to adequate coal
and gas linkages for power projects
in the sector. Lack of coal and gas
linkages run the risk of derailing
crores of private sector investment
in the sector.
The Prime Minister Dr Manmohan
Singh has already set up a Committee
of Secretaries (Cos) under his principal
advisor Pulok Chatterjee with
secretaries from various economic
ministries to look into the fuel supply
issues to power plants. This followed
the visit of a high level delegation of
20 odd top power company CEOs
led by Ratan Tata and Anil Ambani,
who met the PM in January end for
his intervention over resolving the
countrys worsening electricity crisis.
These chief executives of private
power companies called on Prime
Minister Manmohan Singh and other
ministers including fnance minister
Pranab Mukherjee in January, pressing
for policy direction, enhanced coal
supplies and easier credit to spur
investments in the sector.
The delegation of CEOs besides
Anil Ambani and Ratan Tata included
Cyrus Mistry, Ashok Hinduja, Shashi
Ruia, S K Roongta, Sanjay Reddy,
Sajjan Jindal (JSW) and Gautam
Adani (Adani Group).
The contribution from the private
developers cannot be overlooked as
they contributed more than 40% (or
25,000 mw) of the power capacity
addition in the 11th plan.
Some interesting facts about
Indias Power sector:
Power generation in India started
in 1898 when the frst hydro power
unit was set up in Darjeeling.
In 1947, the country had an installed
capacity of 1,362 MW.
From 1362 mw in 1947, India has
crossed the 2 lakh mega watt mark
in April 2012.
Acapacity addition target of
capacity of 75,785 MW is planned
for 12th Plan.
Private sector potential
25,000 mw--Current installed
capacity of these private sector
power companies
`2,00,000 crores -- Private
companies have invested power
projects till date
`4,00,000 crore
Planned outlay of `4,00,000 crore in
the 12th plan period (2012 2017)
Power woes
Severe domestic coal shortage
halting output in thermal plants
About 18,500 MW of projects
commissioned after March 2009 are
likely to generate only 55% of their
actual output due to domestic fuel
constraints.
Indian developers have sought to
hedge risks through ownership of
coal mines, but changes in laws in
the producing countries have altered
the pricing framework.
This has affected fnancial viability
of the imported coal based projects
Policy ambiguity on land acquisition
and environmental issues have
affected production from captive
coal blocks
Inadequate gas availability for
power sector
Steep reduction in KG D6 felds
have enhanced the supply gap
Distribution companies losses have
increased from `17,000 Crores in
2006 to `57,000 Crores in 2010.
10th Conference and
Interactive Workshop
Successful EPC
Contracting in
India
Addressing Fiscal
& Legal Challenges
May 17-19, 2012, Hotel Le-
Meriden, New Delhi
Agenda Points
Orientation to EPC
contracts
Tax on Sale/Supply
of goods under EPC
contracts
Service Tax (Orientation
and Advanced)
Excise and Customs duty
Deemed Exports
Interaction with the
Industry
Cross roads with VAT
Knowledge Partners
For more details email us at
conferences@infraline.com
16
ExpertSpeak
May 2012
17
May 2012
need for infrastructural development is
growing rapidly.
There is a need today for a paradigm
shift in how countries think, build,
operate and invest in long-term
sustainable, clean-technology
backed infrastructure development.
It is increasingly apparent that the
pattern of growth is just
as important as the
pace of growth.
With
urbanization,
Indian
cities are
facing big
challenges
for the
environment,
economy and
quality of life.
McKinsey Global Institutes report
(April 2010) on Indias urban
awakening: Building inclusive cities,
sustaining economic growth paints a
rather challenging picture for India in
the next 20 years.
According to the report, Indian
cities population will increase to 590
million by 2030 -- this is nearly half
the countrys population of 1.2 billion
today -- with over 68 cities headcount
of over 1 million.
This rapid growth of
cities, in turn, will put
enormous challenges
on their infrastructural
facilities, one of them
being greenhouse gas
(GHG) emissions. The
McKinsey Global
Institutes report said
that Indias cities
are expected to emit nearly 1.6 billion
tons of Carbon Dioxide Equivalence or
CO2e by 2030 from 230 million tons of
CO2e in 2005.
Carbon Dioxide Equivalence
(CO2e) is a quantity that describes, for
a given Greenhouse Gas, the amount
of CO2 that would
have the same
global warming
potential, when
measured over a
specifed timescale
(generally, 100
years) indeed,
McKinseys
predictions are
ominous.
Eye on the future
The only way to increase quality of
life in cities, ensure competitiveness,
and at the same time protect natural
resources and the environment
is by promoting development of
sustainable infrastructure via the clean
technology route.
India possesses great intellectual
capabilities, dynamic entrepreneurial
private sector, a demonstrated
ability to compete in the global
market, and a commitment to
quality higher education and one
needs to mobilize all these for
accelerated infrastructure development.
The Indian government has
made clear recently that it will tap
the private sector, in contrast with
Chinas government-fnanced model,
to help fund and develop infrastructure
projects. The 12th plan aspires towards
a planned infrastructure spend of
around USD 1,000 billion or
Growth and development are good
words. But what good are these words
in todays world if they are not backed
by long-term models? It is an issue
that infrastructure one of the
primary needs of growth and
development faces. Whether it
is energy services, water supply,
roads, railways, ports, airports,
telecommunications, urban
services or rural facilities, the
India needs to focus on strength-
ening its infrastructure to push for
economic growth. By Sunand
Sharma, Country President,
Alstom India
Paradigm
shift is needed
in how countries
think, build and
invest in long-
term sustainable
inrastructure
development
Billion tons
Carbon Dioxide
Equivalence or
CO2e by 2030 from
230 million tons of
CO2e in 2005.
1.6
around 11% of GDP, reinforcing the
governments commitment to build up
Indian infrastructure. This is achievable
if the problems dogging infrastructure
delivery are recognized adequately.
However, the question is that
how will India raise such an amount
private investment? The inevitable
answer is private industry. The
private industry plays a vital role in
achieving the ambitious targets for
infrastructure development. In the
mid-1990s, governments started to
open infrastructure sectors to private
investment and
operation to
improve services.
Incremental
reforms have
borne fruit over
time, and private
participation has
grown in recent
years. Through
the PPP model,
the government
has been able to
meet its infrastructure goals while
addressing the countries economic,
political, and populace well being.
Given the vast infrastructure needs
in India, a progressive approach
is needed that levels the playing
feld, deters political and policy
risk, and develops more effcient,
transparent market mechanisms.
Energy the imperative
Indian has set ambitious power targets
and goals to meet the energy needs
of the country. Currently, the country
requires an additional 100,000 MW
of generation capacity by 2012, and
for which a huge capital investment is
required to meet the target.
At the same time, emerging areas
like nuclear and renewable energy
are gaining steady momentum and
viewed as the predominant energy
resource of the future because of their
various advantages.
Additionally, the government
of India has proposed to double
allocation for power development.
With this, the government targets to
add over 78,000 megawatt of capacity
by 2012. In the Twelfth Plan, 20,334
MW hydro capacity will be added
through 87 power stations -- which
is again almost double the number
planned for 2007-12.
India possesses a vast opportunity
to grow in the feld of power
generation, transmission, and
distribution. This has welcomed
numerous power generation,
transmission, and distribution
companies across the globe to establish
their operations in the country under
the PPP programs. With over 90,000
MW of new generation capacity
required in the next seven years, and
India pursuing a series of ultra mega
(8,000-megawatt) generation projects,
the power sector is the focus area for
the government now.
However, clean power is imperative
to pave the way for sustainable
development. For one, innovative
fnance instruments can help channel
the unprecedented levels of investment
needed in clean technology, while more
and more new technologies can be
ushered only once public policy and
funding sharing risk appropriately with
the private sector.
Transport the key
It is universally recognized that
transport is crucial for sustained growth
and modernization. Adequacy of this
vital infrastructure is an important
determinant of the success of a nations
effort in diversifying its production
base, expanding trade and linking
together resources and markets into an
integrated economy.
Indias transport sector is large
and diverse; it caters to the needs of
1.1 billion people. In 2007, the sector
contributed about 5.5 percent to the
nations GDP. Since the early 1990s,
Indias growing economy has wit-
nessed a rise in demand for transport
infrastructure and services. By the end
of 2012, train passenger numbers in
India are expected to increase to 8.4
billion annually.
Indian Railways current fve-year
plan foresees investments of approxi-
mately 39 billion until 2012. Today,
forty-fve Indian cities are above 1
million inhabitants and more than
10 urban projects are in progress or
planned in Bangalore, Chennai, Delhi,
Hyderabad, Kochi and Kolkata. Indias
metro market is all set to rise to unprec-
edented levels owing to its growing
urban and suburban transportation
system with high traffc volumes.
These statistics are a testimony of
the importance of transportation in the
context of Indias economic growth.
Private sector participation is expected
to help upgrade the technology,
improve the quality of infrastructure
services and lower the costs and
prices of services. The importance of
private sector participation in bridging
the resource gap and improving the
operational and managerial effciency
of the sector has been recognized.
Challenges
It is widely believed that the
infrastructure industry in India has
enjoyed several positive indicators
such as exponential demand for
infrastructure, an unprecedented pace
of growth, increasing Technological
sophistication, success of the
Public-Private Partnership model
and infrastructure incentives
amongst others.
While these indicators are likely to
continue unabated, given the strong
inclination the Indian Government has
towards developing the infrastructure
of the country, certain hard facts such
as time and cost overruns threaten to
limit the sectors potential to achieve
growth projections and help ensure
effciency of capital expenditure.
Energy
and
Transport
Infrastructure
critical for Indian
Growth Story
The views in the article of the author are personal
Increase in
population by 2030
Cities with population
of over 1 million by
2030
68
590Mn
Energy & Transport Infrastructure
key to sustainable growth
18
InDepth
May 2012
19
May 2012
High fuel cost, under recoveries push distribution companies to wall
Time now for second generation of reforms, issues more commercial than technical
The generation of power sector reforms
was frst initiated in 1991 as a desper-
ate measure to come out of crisis when
the International Monetary Fund/World
Bank put that as a precondition to bail
India out from the dismal balance of
payments (BOP) situation.
The reason was obvious. The status
of power sector in the pre-reform era
was plagued with over 40-50 percent
of T&D losses, which in turn lead to
commercial losses (including subsidy)
equivalent to one to two percent of
Indias GDP. Seeing the domino effect
of these shortcomings on the countrys
economic growth, the power sector
reforms were inevitable to improve the
technical and commercial performance
of the sector and make it sustainable.
Ajourney that began with opening
of power generation to private sector
in 1991 was followed by regulatory
reforms through Electricity Regu-
latory Commissions Act, 1998 and
seemed reaching its destination with
the enactment of the Electricity
Act, 2003. First drafted in 2000,
and after almost ten rounds of itera-
tions, the Electricity Act 2003 was
enacted on 10 June, 2003 replacing
all the earlier laws, acts governing
the Indian power sector; the Indian
Electricity Act, 1910, the Electricity
(Supply) Act, 1948 and the Electricity
Regulatory Commissions Act, 1998.
The Electricity Act, 2003 forced
an important transformation on the
electricity value chain, mainly by
disintegrating it and creating new set
of stakeholders. It mandated Electricity
Regulatory Commissions to regulate
tariff and issue licenses, proposed dis-
solution of State Electricity Boards into
separate generation, transmission and
distribution entities. Autonomous regu-
latory function, de-licensed thermal
generation, provision for non-discrimi-
natory open access of the transmission
system and gradual implementation of
open access in the distribution system
seemed to have all the essential ingre-
dients, required to create a transparent,
fnancially viable and competitive
power market in India. The Electricity
Act, 2003 received positive feedback
from majority of the industry stake-
holders, but there were skeptics as well.
The intent of the act was to make the
sector into an investor-friendly sector
by minimising administrative hurdles,
focusing on distribution reforms and
paving way for multi-buyer and open
market regime.
But, not all seem to have gone
right as envisaged. The adverse situ-
ation staring at the face of the sector
after eight years of the Electricity Act
enactment is reminiscent of the fate
earlier reform initiatives had met. Some
statistics that would support this view:
Commercial losses of SEBs swelled
from `3,000 crore in 1991 to
`63,000 crore in 2011.
Technical and commercial losses
have only shot up from around 23%
in 1991 to 33% (AT&C) in 2001
now at 27% despite all modern-
ization.
Subsidy burden increased from
`5,400 crore in 1991 to `30,000
crore in 2011.
Average cost of power supply has
shot by 240% over 1991 levels.
Resistance to tariff revision states
like Rajasthan and Tamil Nadu have
revised the tariff after a long gap of
eight and seven years respectively
Overall in spite of unbundling, most
of states continue to face severe power
shortages, outages, load shedding, poor
quality power supply and rising levels
of technical and commercial losses.
Discoms are once again reeling under
severe commercial losses and triggers
are same age old woes widening
revenue gap, inadequate and deferred
tariff hikes and high aggregate techni-
cal and commercial losses leading to
unserviceable debt with signifcant in-
terest costs. So, why the reforms failed
to deliver the desired results, yet again?
Like any business, there is a cost
that a discom incurs cost to serve
(CtS) which needs to be recovered
to stay afoat and sustain. Asituation
where the cost escalation gets absorbed
for a prolonged period and are not
allowed to be a passed through, makes
the business unsustainable. Subsidy
extended to the distribution companies
as a succor to stay afoat can help only
to a certain extent when the cost and
revenue differential is as high as 60%.
While in the past 18 months, over 24
states have revised their electricity
tariffs in the range of 20 37 percent,
the quantum of hikes is still well short
of what is required for full recovery
of costs in most of the states. These
tariff revisions do not still mirror the
steep rise in fuel prices which in turn
increases the power procurement
cost of discoms. While, Fuel and
Power Purchase Cost Adjustment
(FPPCA) principles is in place and
have been implemented across states,
the signifcant lag period for recovery
adversely affects the liquidity position
of the discoms. Though till recent,
these losses were absorbed by discoms
through bank borrowings, delaying
payment to power and fuel creditors
thereby creating a vicious circle of
credit squeeze and making the fnancial
restructuring inevitable. As we know
fnancial restructuring can just delay
the reality but cannot wish the defcit
away. As expected now almost all the
vulnerable discoms are in different
stages of debt restructuring and also
requisitioning government support. It is
worthwhile to note that in early 2000,
everyone suddenly discovered that the
cure for power sector issues was not
generation but distribution.
Given in the last 10 year reforms
has taken a full circle and reached a
point where it started, may be its time
to change the way the entire sector
priority is looked at. Investments in
power sector follows thumb rule of
2:1:1 across generation, transmission
and distribution and this is exactly
the major problem. Maybe, its time
to reverse that thumb rule to 1:1:2.
Distribution sector was often ignored
compared to generation and trans-
mission and this still continues to be
the case. It is essential to understand
whether emulating the western model
in India has helped.
However, not all went from bad to
worse. There have been improvements
in the generation and transmission
sectors. Tariff based competitive
bidding disallowed future generation
and transmission projects to enter into
power purchase agreements based on
the current cost-plus. Facilitating
multi-buyer model by development
of power market, in which generating
companies, distribution licensees and
energy traders can engage in trading.
Total private sector investment in the
power generation rose signifcantly and
private sector added more capacity than
state and centre put together.
All said, after 10 years, the situation
has moved from bad to worse. In 2001,
cash-strapped state electricity boards
were bailed out by the government
with a write off of around `40,000
crore. Ten years later, discussions
are to bail out state power utilities by
waiving off dues of over `1 trillion. To
survive this crisis, an increase in tariffs
by 30-40 percent over the next two
years is the only option to go if costs
are to be recovered. Its time in rework
the reforms model which centered on
effective distribution reforms.
While in the past 18
months, over 24 states
have revised their pow-
er tariffs in the range
of 2037 percent, the
quantum of hikes is still
short for full recovery of
costs in most states.
Ravi Shekhar is a Senior Analyst in InfralineEnergy.
He is a co-author of a recent report Merchant Power
Plant (2012). The views presented are personal.
Power sector reforms still
a long way to go
20
StatisticsPower
May 2012
21
May 2012
State-wise List of Power Projects Awaiting Environment Clearance from MoEF
Ministry of Power Achievement for 4th Quarter of 2011-12
Generation Loss due to Shortage of Coal for 2011-12
S. No. Name of Project/Location State Agency Status with MoEF
1. Kawas CCPP, Stage-ll (1300 MW), Surat (Gu-
jarat)
Gujarat NTPC Revalidation of Environment
2. Gandhar CCPP, Stage-ll (1300 MW) Bharuch
(Gujarat)
Gujarat NTPC Clearance (EC)
3. Darlipali STPP (2x800 MW), Orissa Orissa NTPC Awaited EC
4. Gajmara STPP (4x800 MW), Orissa Orissa NTPC -do-
5. FG Unchahar TPP, Stage-IV (1x500 MW), U.P. Uttar Pradesh NTPC -do-
6. Kolodyne-ll HEPP (4x115 MW) NTPC -do-
7. Vindhyachal-V (1x500 MW), Singrauli MP Madhya Pradesh NTPC -do-
8. Barethi STPP (2x660 MW), MP Madhya Pradesh NTPC -do-
9. Dulanga Coal Mining Project, Sundergarh Distt.,
Orissa
Orissa NTPC -do-
10. Taiaipalli Coal Mining Project, Raigarh Distt.,
Chhattisgarh
Chhattisgarh NTPC -do-
11. 252 MW Devsari HEP, Uttarakhand Uttarakhand SJVN -do-
12. 60 MW Naitwar Mori HE Project Uttarakhand Uttarakhand SJVN -do-
13. 775 MW Luhri HEP, Himachal Pradesh Himachal Pradesh SJVN -do-
14. 66 MW Dhaulasidh HEP, Himachal Pradesh Himachal Pradesh SJVN -do-
State Sector
15. 200 MW Gundia - St.l HEP Karnataka KPCL - do-
16. 1200 MW Kalisindh TPP U-l & II Rajasthan RRVUNL do-
17. 500 MW Chhabra TPP Ext. U-lII & IV Rajasthan RRVUNL -do-
Private Sector
18. 120 MW Dibbin HEP Ar. Pradesh KSK-Dibin do-
SI. No. Power Utility Thermal Power Station Capacity In MW Generation Loss in MU *
1 NTPC Unchahar 1,050 124
Dadri (NCTPP) 1,820 192
Kahalgaon STPS 1,340 4,821
Singrauli STPS 2,000 188
Rihand STPS 2,000 152
Farakka STPS 1,600 195
Vindhyachal STPS 3,260 749
Talcher STPS 3,000 384
Ramagundam STPS 2,600 546
Simhadri STPS 1,500 498
Badarpur 705 14
Total 20,875 7,861
2 M.P. Power Genco Satpura 1,143 63
Sanjay Gandhi 1,340 94
Total 2,483 157
3 MAHAGENCO Khaparkheda-ll 1,340 27
Parli 1,130 324
Paras 500 53
Total 2,970 404
4 APGENCO Rayalaseema 1,050 17
Kakatiya 500 28
Total 1,550 45
5 DVC Mejia 1,340 167
Chandrapur 890 96
Total 2,230 263
Grand Total 30,108 8,731
* April, 2001 to February, 2012
Capacity addition during 2011 -12: During the
year 2011-12, 20501.7 MW of capacity as against
the target of 17601 MW has been achieved. The
details are as follows (figures in MW)
Electricity Generation: A target of 855 BUs was fixed for the
year 2011-12. With 222 BUs of electricity generation during
the 4th quarter, total electricity generated during the year
2011-12 amounts to 876 BUs.
Particulars Item 2011-
12
Grand Total for
the year 2011-12
Q-1 to
Q-3
Qtr.4
Central Target 4565 1160 5725
Ach. 2820 1950 4770
State Target 3474 792 4266
Ach. 1618.2 2143 3761.2
Private Target 5225 2385 7610
Ach. 7064.5 4906 11970.5
Total Target 13264 4337 17601
Ach. 11502.7 8999 20501.7
Particulars Item 2011-12 Grand Total for the year
2011-12
Q-1 to Q-3 Qtr.4th
Central Target (MU) 266.622 87.439 354.061
Ach. 277.22 92.09 369.31
State Target (MU) 267.742 92.019 359.761
Ach. 273.19 94.38 367.57
Private Target (MU) 104.665 36.513 141.178
Ach. 103.62 35.94 139.56
Total Target (MU) 639.029 215.971 855.000
Ach. 654.03 222.41 876.44
*Achievement figure of fourth quarter is provisional

InfralineEnergy Market Research Report Series
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|nfro||ne(QHUJ\ 0DUNHW5HVHDUFK5HSRUW6HULHV
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Manufacturing Capacity and Client
Profiles of Leading BTG Manufacturers
Key Strategies adopted by Major
Players in Indian BTG Industry
Overview of BTG Industry in India
Future demand analysis of BTG
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Role of Chinese, Russian, Japanese,
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Key Drivers and Challenges associated
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Detailed company profiles of some
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Likely consolidation in the sector
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and industry segments
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Key Highlight
NewsBriefs | Coal
May 2012
23
Power Construction
Corporation of China
says it had signed a
$2.4 billion contract
to build the second
phase of a massive
coal-fired power
complex in southern India that will help
meet soaring local demand for electricity.
The second phase of the project for Indias
Infrastructure Leasing & Financial Services
Limited (IL&FS) will include the addition
of four generators each with a capacity of
660 megawatts (MW), the Chinese group
said on its website. This is an EPC contract,
meaning Power Construction Corp will be
responsible for engineering, procurement
and construction of the project.
The Delhi High Court
dismisses the plea of two
Australian coal firms, Vale
Australia (Vale) and AMCI,
against an International
Court of Arbitrations
(ICAs) order to them for
payment of about $159 million as damages
to the SAIL. Justice S Muralidhar upheld
the March 10, 2011, ICAs arbitral award for
payment of over $152 million as damages
to the Steel Authority of India (SAIL) with an
interest of over $6.8 million over it.
Coal India finally manages
to post nearly 1 per cent
production growth in
2011-12. The company
is headed to end this
fiscal with a production
of 435-436 million tonne.
The growth came as a reprieve to the CIL
management, which has been subject to
severe criticism for stagnating output, which
was 431 mt in 2010-11. When compared to
production, coal off-take has moved up at a
higher pace of 2.3 per cent from 424 mt to
434 mt, indicating higher supplies.
Coal India Ltd got a
full time Chairman and
Managing Director.
The appointments
committee of the Union
Cabinet has cleared
appointment of Mr S.
Narsing Rao as CMD of CIL for a five-year
term. The 53-year, 1986-batch IAS (Indian
Administrative Services), is currently the
Chairman and Managing Director of Andhra
Pradesh Government-controlled Singareni
Collieries Company Ltd (SCCL). Mr Rao will
be the first non-CIL nominee to assume the
top job of the company since July 1983.
The West Bengal Chief
Minister, rolls out Trans
Damodar Coal Mining
Project in Bankura
district. The Trans
Damodar Coal Block
is one of the six coal
blocks allocated by the Union Coal Ministry
through the state dispensation route to the
West Bengal Mineral Development and
Trading Corporation Ltd (WBMDTC). Both
opencast and underground portions will be
awarded to WBMDTC. The coal exploited
from the block would be sold to the coal
using industries based in West Bengal
through e-auction and 12.5 per cent coal
would be sold to the coal using enterprises
in micro and small sectors.
Coal India, facing
pressure from the
prime ministers office
to improve production,
plans to invest 75,000
crore ($14.6 billion) in the
next five years to develop
mines and infrastructure, buy foreign assets
and be able to pay a dividend of 6,500 crore
every yea. CIL will be investing 40,000 crore
in ramping up infrastructure and production
for its domestic operations and another
35,000 crore for acquiring foreign assets as
well as in its Mozambique operations.
Following furore
over the initial CAG
report that estimated
huge losses to the
exchequer in the
allotment of mines,
the government says
it is ready with the list of coal blocks to be
bid and the auction process will kickstart by
June. Barring 12 blocks out of 54, all others
would be auctioned to firms for end-use
projects. Mr Jaiswal, dismissed the report
on allocation of coal blocks without auction
as illogical arguing that when the blocks
were given for captive usage, there was not
much demand for coal.
Power Construction Corp
Chinese Co signs contract for coal-fired
power complex in southern India
CIL Board on April
16 agreed o send
draft fuel supply
agreements to power
companies before
April 20, though with
a negligible penalty
clause if it is unable after three years to meet
an 80 per cent supply commitment. On
April 3, through a Presidential decree, the
Central Government had directed Coal India
to sign the FSAs. The board has decided
on a penalty of 0.01 per cent of the value of
shortfall, if the firm fails to deliver 80 per cent
of the committed coal. It will also go soft on
the earlier decision on not to import or enter
into the business of imports and may chart
an import policy.
Coal India Ltd
Presidential Decree: CIL board gives in,
to sign FSA with 50 power companies
Vale Australia
HC directs Aussie coal firms
to pay $159 million to SAIL
Coal India
CIL manages nearly 1 per cent
production growth
Coal India Ltd
Narsing Rao appointed CMD
of Coal India
Exploration company
Firestone Energy has
rejected a bid by Tata
Power for a 30 per cent
stake in a coal project
in South Africa, citing
a huge undervaluation
of the project, a report has said. Tata had
offered R480 million for the stake in the
Limpopo venture, which is a partnership
between Firestone Energy and South Africa-
based Sekoko Resources, the report by
South African daily Business Day said. Tata
had based its bid on a valuation of R1 billion,
while the true value of the asset was R1.6
billion, Sekoko Chairman Tim Tebeila said.
Firestone
Firestone Energy rejects bid by
Tata Power
Trans Damodar Coal Mining
Project Inaugurated by West Bengal CM
Coal India Ltd
CIL to invest $14.6 billion in mines and
infrastructure
Block Auction
Coal block auction by June: Jaiswal
InConversation
24
May 2012
25
May 2012
Nirmal Chandra Jha, former
Chairman, Coal India Ltd
talks about the constraints
of the coal sector. In a free-
wheeling chat with Infraline,
he delves at length on the
limitations of increasing
domestic coal production and
how the increasing demand
would require coal to be
imported in future.
Coal shortage in India is affecting
many new projects. What
is the reason?
Over-dependence on coal as the
primary energy supplier has led to
increased thrust on domestic coal
availability, which in turn has its own
constraints, leading to its shortage.
Due to domestic coal shortage and the
spiraling prices of imported coal, many
new power projects in the country are
operating at sub-optimal capacity.
Coal defcit in India is likely to
grow from 115 million tonnes in
2011-12 to 265 million tonnes by
2016-17 and may further rise to 473
million tonnes by 2021-22 i.e. the
terminal year of the13th Plan period.
The demand for coal is projected to
rise at the rate of 6.4% (CAGR) from
696 million tonnes in 2011-12 to 980
million tonnes by 2016-17 and is likely
to continue rising @ 7.3% (CAGR) to
a level of 1373 million tonnes in the
13th Plan period. CILs contribution
to all India production is projected to
reach to 556 million tonnes on business
as usual case and 615 million tonnes on
best case scenario by 2016-17 from the
level of 436 million tonnes in 2011-12.
In view of the widening demand-
supply gap scenario, Government of
India had put in place a system for
allocation of coal blocks to various
government companies, private
companies and Ultra Mega Power
Projects (UMPP). As of 31st March
2011, about 216 coal blocks (including
some blocks which had subsequently
been de-allocated) with an aggregate
geological resource of about 50 billion
tonnes of coal have been allocated to
attract investments in the coal sector
and increase production. Out of the
216 coal blocks allocated, only 28 coal
blocks had commenced production by
2010-11, contributing a meager quantity
of 34.60 million tonnes, representing a
dismal 6% of all India coal production
(533.07 million tonnes).
What are the major constraints in
increasing production?
The major constraints in augmenting
coal production as per the fve year
plan projection are mainly due to
severe problems encountered in land
acquisition and associated R&R issues.
As a matter of fact, about 90% of
Indias coal production is obtained
from opencast projects, which requires
land for its continued operations. Land
in effect can be considered as a basic
input for the coal industry. Even though
the state and central governments
have formulated Rehabilitation and
Resettlement (R&R) policies for land
losers, serious problems are faced in
taking possession of land.
In the recent past, obtaining
environmental and forestry clearances
have been perhaps the most critical
issues. Ironically, coal in India is found
in forests and places that are inhabited
by tribes. Mining disturbs both and
therein lies the complexity of problems,
hindering the commencement of
scheduled production. If the project has
both forest and non-forest land, work
is not permitted even on non-forest
land till Forestry Clearance(FC) is
obtained for the project. Thus, a mining
project cannot commence its operation
till FC for the project is obtained,
even if, the forest land is not required
for its operation in initial stages. The
average pendency in obtaining forestry
clearance at Stage I and Stage-II
levels at the States is alarmingly high
in excess of three years each. As on
date, for Coal India alone about 125
forestry proposals are awaiting Stage-I
approval and 52 proposals await
approval at Stage-II level. Thus, a total
of 177 forestry proposals, involving
about 29300 Ha of land in the name of
forest, for a projected output of approx
207 million tonnes per annum, are
awaiting clearances.
Although coal mining has long
Coal Pool Price, Import only
way to meet 80% FSA Directive
been a part of wilderness, new projects
and expansion of ongoing projects
are facing increased environmental
scrutiny from environment groups.
The concept of Comprehensive
Environmental Pollution Index (CEPI)
was introduced in the year 2010,
which put on hold the EC of mining
projects in 8 coal bearing areas. While
the restriction has now been gradually
lifted in some of the clusters, the same
is still continuing in other clusters. As
a result of CEPI embargo, about 17
projects have been affected that would
have contributed around 39 million
tonnes of coal in the last fscal.
What kind of policy reforms are
being made?
The new National Mineral Policy
2008 seeks to develop a sustainable
framework for optimum utilisation of
the countrys natural resources for the
industrial growth in the country. It also
envisages action areas for improving
the life of people living in the mining
areas, which are generally located in
the backward and tribal regions of the
country. The policy also enunciates that
special care will be taken to protect
the interest of host and indigenous
populations through developing models
on best practices. Project affected
persons will be protected through
comprehensive relief and rehabilitation
packages in line with the National
Rehabilitation and Resettlement Policy.
Further, the Mines and Minerals
Development and Regulation
(MMDR) Bill 2011 provides that for
all exploration activities, suitable
compensation shall be payable to the
person or family holding occupation
or traditional rights on the area of
exploration. All mining lease holders
will be required to pay annually into
District Mineral Foundation, a sum
equivalent to royalty in case of major
minerals (other than coal) and a sum
equivalent to 26% of proft in case of
coal. Mining companies are required
to allot at-least one share at par to each
person of the family affected by mining
so as to give a sense of ownership in
the enterprise, provide employment or
other compensation as stipulated under
the R&R policy, etc.
Anew Land Acquisition and
Rehabilitation & Resettlement (LARR)
bill has recently been introduced in the
Parliament which also has provisions
for increased compensation to land
losers and one job per affected family.
What have been the governments
directives to CILin recent times?
In the light of the New Coal
Distribution Policy (NCDP), issued
by the Government of India in 2007,
Coal India Ltd was directed to issue
letters of assurances (LOAs) to the
power projects likely to come up in
future. After this CIL did not have any
option but to issue LOAs, whether it
had coal availability or not. Over the
years, a large number of LOAs have
been issued amounting to around 423
million tonnes per annum of additional
coal supply commitment for the
power projects alone out of a total of
490 million tonnes per annum LOAs
issued. Coal India had signed the fuel
supply agreements with the power
projects already existing till March
2009 for the total annual commitment
of 306 million tonnes. For the power
projects that have come up after March
2009, Coal India Ltd, in view of acute
shortage of domestic coal, had been
insisting for supplying coal from
domestic sources to the extent of 50%
of total requirement and the balance to
be supplied from imports at a price that
it would be available. The Government
of India, through a presidential
directive, has now directed Coal India
Ltd to sign fuel supply agreements
with a commitment to supply at least
80% of their requirement, even by
resorting to imports.
Going by the production plan of
Coal India Ltd for the next fve years
and also the LOAs granted for the
power plants, commissioned in the
last three years as well as likely to be
commissioned over next fve years,
there appears to be a huge shortfall of
coal availability from domestic sources
in the coming years.
Considering the situation, is
importing coal an option?
Coal India, being a business
organization and having been listed on
the Stock Exchanges, defnitely cannot
afford to bear this additional price of
imported coal. It will have to bring in
the concept of pooled price mechanism
and fx the prices of domestic and
imported coals periodically. With the
system of coal pricing on GCV base
having been adopted now, pooled price
mechanism will be easier to formulate.
This will help both Coal India and the
consumers of coal, as both estic and
imported coals to any consumer will
be available at the same price for any
particular GCV band.
But wont the constant increase
in demand for coal and limited
availability of domestic coal would
eventually require importing of coal?
Absolutely. Ever-increasing coal
demand and increasing limitations on
availability of domestic coal would
spiral the need for imported coal in
future years. This situation cannot
be allowed to continue for long in
the interest of the national economy.
Production of domestic coal will have
to be increased to match the growth
rate of the country.
CIL will have to bring in
the concept of pooled
price mechanism and
fix prices of domestic
and imported coals
periodically.
26
ExpertSpeak
May 2012
27
May 2012
Indian Power Sector on the Move,
Coal Crisis Holds It
Indian economy is mainly dependent
upon domestic coal as the source of
energy. Coal constitutes more than
50% of commercial energy. Indian
power sector is dependent on coal
based generation to the extent of
almost 75%, even though, in terms of
installed capacity, coal based power
plants constitute 55% of the total
capacity. Power sector and coal sector
are so much mutually interdependent
that while 75% of power generation is
coal based, more than 85% of domestic
coal production is consumed by the
power industry. It is precisely for this
reason that the adverse performance
of coal industry, in last three years,
with virtually no growth in production,
has so severely impacted the power
sector, so much so that, as at present,
more than one third of 95 power
plants across the country are faced
with critical and supercritical stock
position. During the three year period
2009-10 to 2011-12, almost 40,000
MW of Thermal Power capacity has
been added. Unfortunately, during
the same period, production in Coal
India has stagnated at around 430
million tonnes. Obviously, the crisis
created is unprecedented. The problem
has got compounded because of the
disproportionate amount of coal that
needs to be imported to see that power
plants do not close down.
Fuel mismatches have not only
severely affected the smooth operations
of the power plants, but also the
investment sentiments. In view of the
similar performance in the gas sector, in
the past, gas based power plants always
had the problem of shortage, resulting
in reduced capacity utilization, as low
as 50 to 60%. This did affect their
fnancial performance. But, since the
total capacity of the gas based power
plants is only around 10% of the total
installed power generation capacity,
it did not affect so signifcantly the
overall power supply. But, if a similar
phenomenon is faced by the coal based
power plants, which seems to be an
emerging scenario, the adverse impact
would be huge, affecting all sectors
of the economy.
Power sector reform initiatives, led
by Electricity Act 2003, were indeed
responded overwhelmingly by private
sector, resulting in massive capacity
additions completed or underway.
Based on the understanding given
by the Indian Coal Companies,
large number of power
plants have been established
and are being established.
However, Coal India has
been reluctant to sign Fuel
Supply Agreements which
would commit them to supply
only 80% of the requirement,
fearing that they may not be
able to ramp up coal production
to meet these obligations. In
spite of rising import of coal, whose
price is becoming excessively high,
thus making power cost unaffordable,
uncertainties about adequacies of fuel
supplies for the power plants have led
to serious concerns among Developers
and Lenders. Financial closures of new
power projects are faced with serious
question marks. Even disbursements
in cases of those power projects,
already fnancially closed, are also
becoming uncertain. Large capacity
additions in the last few years are the
outcomes of power projects started
in Tenth and early years of Eleventh
Plans. Fuel mismatch uncertainties,
leading to issues of fnancial closures,
are going to severely impact interests of
developers, and hence capacity addition
programmes in the future.
This situation has obviously
been caused primarily on account of
virtually no reform initiatives in the
coal sector. Indian power and coal
industries are like two wheels of a
cart one has moved forward, another
has remained stagnant. Coal Mines
(Nationalisation) Amendment Bill 2000
By R.V. Shahi, former
Secreatary, Ministry of Power
was introduced in the Parliament earlier
than the Electricity Bill. Electricity
Act became a reality in June 2003,
Coal Bill is still pending in Parliament.
Several recommendations made in
the Integrated Energy Policy (2006)
have remained unattended. It was
decided almost six years back that Coal
Regulator will be put in place at the
earliest. This is still to happen. On
the top of it, a lot of uncertainties have
been created by the new MMDR Bill,
which seeks to allow 26% of proft to
be shared to the locals at District levels.
This provision has created a large
number of questions than answering
the major issues confronting the
development and growth of coal sector.
If a greater degree of energy security
has to be brought about, and power
sector facilitated to grow at 9 to 10%,
a similar growth in the coal sector is
essential. This could be possible only
through a radical restructuring of the
coal sector, just as was done in the case
of power sector. Coal sector has to be
opened up, and the Bill, which has been
on the back burner, for over a decade,
needs to be enacted.
The method of allocation of coal
blocks has come under debate. It is
needless to emphasise that it does
require a transparent process to be
followed. But, any attempt at Bidding/
Auction, with the sole objective of
generating revenue for the Government,
would be counterproductive.
Bidding must aim at
reducing the cost
of production and,
accordingly, price at which
coal will be supplied to the
power industry.
In India,
manufacturing
sector needs
power at a price
which will make
them competitive
globally just
as service sector, agriculture, and
other consumers also need power
at affordable rates. This will not
be possible, if the Government
wishes to, through Bidding,
generate huge revenue.
Enhancing Coal Production
Production in Coal India had been
witnessing a growth of 5 to 6%, prior
to 2010-11. With serious efforts we
could expect that the production could
pick up to provide 6 to 7% growth. On
account of the backlog created in view
of stagnation during last two years,
unless domestic coal production grows
at around 9 to 10%, the crisis would
continue even though the supply is
augmented through import.
In the short term, following two
steps could partly mitigate the problem
(a) Emergency Coal Production
Plan, and (b) Deployment of Mine
Development Operator.
Emergency Coal
Production Plan
Each subsidiary of Coal India may
formulate Emergency Action Plan to
commit a growth of more than 6.5%,
which has been the average in the last
few years. During 2005-06 such an
action did lead to positive outcome.
Mine Development Operator
Without any need for change in
Law or Policy, beyond a projected
growth of 6 to 7% assigned to CIL,
about 3% additional growth could be
earmarked for production through Mine
Development Operator(MDO). The
following outline presents a brief about
Mine Development Operator.
CMPDI/concerned Coal India
Subsidiary may identify investigated
coal blocks with a potential of fve
to ten million tonnes of annual
production each. The companies
could be NCL, SECL, CCL, and
MCL or any other subsidiary in
which this could be easily done.
As much as possible, pre-
construction risks such as
Geological Investigations,
Land Acquisition, Environment
and Forest Clearance could be
completed by CMPDI and/or
concerned CIL subsidiary.
On a global basis Expression
of Interest could be invited, as
a parallel exercise, to shortlist
such potential mine developers as
have the capacity to render atleast
fve million tonnes of annual
production and have commensurate
fnancial strength.
After pre-qualifcation, during the
commercial Bidding process, the
only criterion to evaluate may be
the extent of reduction in prices
for similar grades of coal, with
reference to Coal India prices,
that the Bidders could offer
(this exercise proved to be very
successful in case of DVC selecting
the mine development operator
in 2004-05).
In order that the Bidders make
required investments in plant and
machinery, the Contract could be for
a period of, say 25 years.
In the short term, one of the actions
to increase coal production could be
to allow additional production, to the
extent of 25 to 30%, from the present
coal mines for which Ministry of
Environment and Forest and other
authorized agencies would have given
clearances. There are several instances
in which it is feasible to substantially
enhance production, but that is not
permissible. In view of the fact that
several other mines in the area may
not have started production, even
though environmentally cleared, such
increases in the existing mines may
not interfere with the environmental
limits that might have been stipulated.
This initiative could lead to increased
availability of coal in the shortest
possible time.
The announcement by the Ministry
of Environment and Forest, couple
28
ExpertSpeak
May 2012
of years back, putting embargo of
No-Go-Area, which meant almost
50% of coal reserves declared
untouchable, has been the single
most important factor causing coal
crisis in the country. It is good that
this decision has been neutralized
in principle. Its outcome, however,
needs to materialize in ground realities,
because even now the Forestry
Clearance process is unduly long. A
signifcant dent on the problem would
be possible only if Coal India and other
Companies are facilitated to secure
faster clearances (both environment
and forest). The present uncertainties
on Land Acquisition Policies are also
impacting the opening up of new mines.
Areasonable formulation in Policy and
commensurate cooperation from the
State Governments would be essential,
if these important projects have to move
forward. The present thinking in the
Government to shirk the responsibility
of land acquisition and leaving it to the
Companies, Private or Public Sector,
would only mean hurdles and delays in
commencement of projects.
Captive Coal Block Allotment Policy
was streamlined as a part solution to the
problem caused by inordinate delays in
consideration and passage of the Coal
Mine Amendment Bill. However, the
outcome of these allotments has not
been as expected. It would be essential
that the mines development under this
category is closely monitored. Those
who have valid reasons for delays could
be allowed extensions, and in cases
of those where delays are attributable
to the developers, the allotments
should be cancelled. This would send
a strong signal and all others would
make serious efforts to develop mines
and add to overall coal production
in the country.
Dealing with Problems of
Imported Coal
We may classify the problems into
three categories (a) Coal companies
not being able to supply as per
committed linkage, (b) Captive coal
blocks not taking off, (c) Imported
coal based plants being unable to buy
imported coal due to steep rise in
prices not adequately covered in Power
Purchase Agreements.
Domestic coal supplies by coal
companies have suffered because
of zero growth in production in last
two years. This is partly because
of draconian step of No-Go-
Areas declared by Ministry of
Environment and Forest, and partly
because of internal ineffciency of
coal companies. Slight mismatch
in linkage and supply was always
there, but what is causing a
challenge is that this mismatch is
reaching a point of supply not more
than 60 to 70 percentage of linkage
in some cases 50 percent. Import of
coal has become inevitable.
The only solution is that, if a power
plant has to import to substitute
the shortfall of supply by coal
companies, the additional cost
burden may be allowed to be a pass
through just as it is being allowed
in case of Central and State public
sector companies.
Wherever a power plant was given
Captive Coal Block, and it has not
been possible to start production
on account of reasons attributable
to Government agencies including
Ministry of Environment and Forest,
it would necessitate substitution
of supply either through tapered
linkage, e-auction coal, and/or
imported coal. In such cases, a
mechanism will need to be worked
out in consultation with CERC and
Forum of Regulators to allow pass
through of additional cost burden.
The most tricky situation is in
relation to the power plants which
have been developed and are being
developed based on imported coal.
In view of radical increases in coal
prices abroad the economics of
power generation do not entirely
match with the commitments in the
PPAs. The problem is most acute
in cases of power plants which
have sourced coal from Indonesia
because of a major change in
Indonesian Law. Ahighly technical
and simplistic view, which buyers
of power and also authorities seem
to be taking, is that it is the Contract
which should be binding. Obviously,
Law changes requiring such drastic
increases in the prices of Indonesian
coal were never anticipated. The
4,000 MW Tatas Ultra Mega
Project at Mundra has thrown a real
problem which needs to be solved.
The plant is ready to operate and
deliver power. Obviously, they will
not do at a loss. The unprecedented
change in Law, even though outside
India, needs to be recognised
and appropriately dealt with. No
doubt, it is a big challenge how
to analyse the issue, bring out the
actual adverse impact, reconcile
with the provisions of the PPA,
and yet, see that a viable solution
emerges, so that the plant is allowed
to operate and the developer gets its
return on investment.
The problems relating to the frst two
categories are such that they require
just a decision followed by action.
Such pass throughs have been in
practice in most cases, and, therefore, it
should not be diffcult to accept them.
The third category of problem would
need a deeper analysis, but it should
be possible to come out with workable
solutions in next two months or so.
In absence of clear cut approaches
in respect of any of the above three
categories of problems, power sector
has put itself into the riskiest category
of investment.
Domestic lenders are all scared and
have put on hold many of the fnancial
closures, in many cases put on hold
disbursements even when fnancial
closures exist. In the last one year
among all sectors, power sector stocks
have suffered maximum decline.
NewsAnalysis
29
May 2012
Coal India Limiteds board met on April
16 to send draft fuel supply agreements
(FSAs) to power companies before
April 20, though with a negligible
penalty clause if it is unable after three
years to meet an 80 per cent supply
commitment. On April 3, through a
Presidential decree, the Central Govern-
ment had directed Coal India to commit
at least 80 per cent supply to power
companies.
The board has decided on a penalty
of 0.01 per cent of the value of shortfall,
if the frm fails to deliver 80 per cent of
the committed coal. It will also go soft
on the earlier decision on not to import
or enter into the business of imports and
may chart an import policy.
We will be signing the FSAs
within the time limit before April
20 that is by 15 days of the issue
of the Presidential directive. Power
companies with long-term power
purchase agreements will have to come
forward now, said acting chairman and
managing director Zohra Chatterji.
Power producers say keeping such
a low penalty defes the Presidential
directive on assured supply. The low
quantum of penalty, and the fact that
it will come into force only after three
years, nullifes the concept of assured
supply. This is a reversal to the earlier
regime of supply-at-will by Coal India,
said Ashok Khurana, director-general of
the Association of Power Producers.
The directive was slapped on the
PSU, when it did not sign FSAs by
the deadline of March 31, which was
set by the Prime Ministers Offce.
The Presidential directive has brought
succor to all those coal-starved power
plants which have been lying idle due
to inability of Coal India to supply coal.
From the initial estimates it appears
that the state-run frm will have to feed
roughly 28,000 MW of power plants
that were built after March 2009 and
by December 2011, and another 22,000
MW, that will be constructed in the next
three years.
All said and done, however harsh the
Presidential decree may appear to some,
it is defnitely not unfair. Coal India
can charge a premium if it manages
to supply more than 90 per cent of the
contracted amount. But would Coal
India have suffcient coal to honour all
the FSAs it signs?
The maharatnas production of raw
coal during 2011-12 was 435.84 million
ton as against 431.32 million ton
produced in 2010-11, a growth of 4.52
million ton in absolute terms (1.0 %)
over the corresponding period last year.
CIL cited some valid reasons for
slowdown in production like, worker
strike, excess rainfall in most of the
collieries between August to September,
and shortfall in rakes.
The PSUs production has
remained stagnant over the last few
years due to regulatory hurdles in its
expansion programme.
In order to meet the supply to its
customers, the company has sought
early clearance of projects and
have requested for an expeditious
government approval for at least
70 project proposals in the Twelfth
Five-Year Plan (2012-17) period.
It is also upping its investments for
exploring overseas buying of mines,
particularly in Africa.
The Q4 number have place the
maharatna on the optimistic path and
it raised its production guidance for
2012-2013 to 470 million ton from
463 million ton announced earlier.
Coal India is racing against the time to
scale-up output.
Company has an insurmountable
task ahead. Will the government let
it allow imports in order to escape the
penalty? The companys inclination
towards importing coal to meet its
commitment may not fnd favour with
the government.
The coal ministry is of the view
that the PSU would be able to meet the
requirements by ramping up production
and through its inventory stocks.
Presidential decree: Hauling
CIL over the coals
30
InDepth
May 2012
31
May 2012
A Risky but Attractive Proposition:
Imported Coal based MPP in India
Indias high peak power defcit and volatile market-tariffs make Merchant Plants a good option
Imported Coal based MPPs can still give 20% return on equity over 20 years project life
Asian Development Bank, while
proposing the screening approach
for fnancing risky investments, once
observed, The question is not whether
the investments are too risky, but
rather how to measure the risk so that
the debt instruments can be priced
commensurate to the risk level. The
analogy befts merchant power scenario
in India. Merchant Power Plants or
MPPs are those plants that do not
rely on long-term Power Purchase
Agreements (PPA) and have a specifc-
customer independent dynamic pricing
model thus lying at the extreme end of
the risk-reward continuum as compared
to PPAbased conventional projects.
MPPs while being opportunistic, do
market making and supply power to
meet unforeseen defcits. Though, it is
healthy for a market to have long-term
agreements in order to have security
of supply but there is seasonal demand
and intra-day peaking demand that the
Merchant market caters to.
According to the credit rating
agency Moodys, the recurring theme
of merchant power risk is increased
uncertainty and increased volatility.
It says that nowhere in the analysis is
the phenomenon more evident than in
projection of power in a given market.
In power trading, such is the
dynamic nature of electricity prices,
that momentous variation of as high
as 400 percent has been observed
in a single day itself, making it
by far the most risky commodity
in the commodities market. High
price volatility creates signifcant
challenges amongst developers
since it directly impacts their market
demand, as they can sell in the
electricity commodity market only if
the selling bid price is lower than the
market clearing price. As if electricity
market risk was not enough, MPPs
entail other type of risks as well.
Besides the electricity price
and demand risk, a high fuel price
risk looms over the MPPs owing to
unfavorable policy and regulatory
regime forcing them to look towards
expansive imported fuels. This further
exposes them to high geo-political and
third country regulatory risks.
Other system oriented issues like
availability of transmission capacity,
applicability of open access also
affect the development of MPPs. For
instance, the congestion in grid causes
a loss of more than 10 percent of the
potential transactional volume in the
short-term market.
Business Case for MPPs
Nonetheless, MPPs have been able to
attract equity and non-recourse debt
from investors and lenders without
the beneft of traditionally structured
PPAbased off-take contracts. This is
because of countrys high peak power
defcit scenario of more than 10 percent
and increased discoms participation
in short term market. Power shortages
and geographical power imbalance
is expected to prevail for at least
two more decades and consequently,
MPPs are expected to remain
attractive in the long run. Besides
these traditional drivers, industrial
power tariff deregulation, coal crisis,
capacity addition slippages and price
increase in short-term market create
a favourable environment for MPPs.
With increasing role of private IPP
segment in capacity addition in future
years, large dependence on short-term
arrangements, greater industralisation
and increased
quantum of
power trading,
MPPs are perceived to have
good opportunities in short
to medium-term or at least till
the peak defcit starts to subside.
Imported Coal A viable fuel
option for MPPs
Currently, MPP of capacities of around
5,000 MW are under operation and and
of around 30,000 MW is under various
stages of planning and construction.
Out of which around 90 percent
capacity is based on coal. As per the
12th Plan Coal Linkage Policy and
a separate EGOM directives, MPPs
would not be either able to source
domestic coal or get domestic gas
leaving the MPPs with practically no
choice but to be dependent on imported
coal. Generation based on imported
coal is cheaper than generation fueled
from R-LNG at $15-$20/MMBtu.
According to an analysis by
InfralineEnergy, imported coal based
MPPs can earn around 20 percent
return on equity over the 20 year
project life. Such RoE is possible due
to supply side issues impacting the cost
of generation and average short-term
market tariffs that are expected to
increase from the current price of
around INR 4-4.5/unit to around
INR 5.43-6.57/unit till FY 2041. In
comparison to this, the levelised cost of
generation is expected to increase from
INR 4.43/unit to INR 5.15/unit only.
Owing to the disparity between the
imported coal and electricity prices, the
project IRR is expected to be around 20
percent. Hence in midst of the ongoing
electricity and coal crisis in India,
imported coal based generation and
selling power on merchant basis comes
out to be a viable option. However the
returns of 20 percent is viable only
if coal of 6000 GCV is sourced at
prices less than $50. And to address
the downside risk in electricity market
prices,, it is essential to adopt newer
and smarter strategies. To meet such
challenges, a fve-point check list is
recommended for the MPP developer.
1. Pursue backward (upstream)
integration for effcient and
economical fuel sourcing
The best way to ensure a steady
supply of fuel at competitive prices is
backward integration by a developer
on fuel side. Integration becomes
particularly important under cases of
high degree of fuel price volatility
and can be achieved by acquiring a
coal mine or having equity stake in a
mine through setting up a subsidiary
company by a MPP. Coal-based
merchant power plants are more
viable if you already have coal
India
to have
Peak Power
defcit for next
10 year at least
presenting a
good business
opportunity
for MPPs Peak Power Defcit Scenario Forecast
5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Peak Deficit
FY
2012
FY
2017
FY
2022
FY
2027
FY
2032
FY
2037
Source: Infraline Report on Merchant Power Plants
(2012)
32
InDepth
May 2012
Five
step
approach for
risk
hedging
linkages if you are tied up with coal
mines. That is more advantageous.
Apart from providing a steady and
adequate supply of coal, it would help
in cushion against any sudden increase
in coal prices. Moreover, integration
should not stop on having control in
fuel production source, rather a multi-
thronged integration strategy should
be pursued including investments in
every stream of logistics for a better
control of fuel supply.
2. Ulitise derivatives to hedge
fuel market risks
Forwards, Spark-Spread Options
and Contract for Derivatives are
some important fnancial derivative
instruments which should be used
by MPPs to hedge risks. One easy
but effective way to hedge the
fuel price risk is an agreement of
CFDs with a fuel supplier, where
fuel prices are indexed with the
electricity prices. Though it would
regulate the return of a developer,
but is worthwhile in mitigating the
exposure to any fuel price risk.
3. Use innovative fnancial
enhancements
For seamless fnancing, particularly
for project fnance and investment-
related debt, MPP should adopt project
covenants such as cash fow sweeps,
cash fow traps, Debt Service Reserve
Account (DSRA) as a security feature
to satisfy lender requirements. In
case of further insistence by lenders,
hybrid fnancial instruments such as
senior and subordinated debt should be
relied on for fnancing.
4. Pursue contractual
enhancements
Merchant projects intending for
project fnance and high degree of
fnancial leverage must execute fuel
subordination agreements and develop
optimal power sale portfolio. This
would not only assure fnancers but
would also lessen the project risks, in
case of any unanticipated fuel price
increase or electricity price fall.
5. Adopt innovative
marketing skills
To acquire and retain market share,
MPPs should employ superior
marketing capabilities and function as
power marketers. This would entail
seeking of niche market segments,
targeting specifc customer groups and
providing superior service offering to
customers based not only on prices
but also on service reliability and
better customer service.
Merchant Power Price (Forecasted)
0.5
0.55
0.6
0.65
0.7
0.75
5
5.4
5.8
6.2
6.6
7
A
v
e
r
a
g
e
M
e
r
c
h
a
n
t
P
o
w
e
r
P
r
ic
e
,
P
i
(
I
N
R
/
u
n
it
)
Average Merchant Power Price, PI
Change in Average Merchant Power Price, PI
FY
2013
FY
2018
FY
2023
FY
2028
FY
2033
FY
2038
C
h
a
n
g
e
in
A
v
e
r
a
g
e
M
e
r
c
h
a
n
t
P
o
w
e
r
P
r
ic
e
,
P
I
(
%
)

Source: Infraline report on Merchant Power Plants (2012)
2nd Annual Conference on
Gas for
Power Generation
May 3-4, 2012, New Delhi
Agenda Points
Gas Reserves and
Production
Evolving LNG Market,
Globally as well as in India
Evaluating Gas Availability
from Transnational
Pipelines
Gas Supply Options and
Mitigating Economic
Uncertainties
Regulations & Policy
Environment
Managing Fuel Shortage
Price Sensitivity and
Criticality of Supply
Discontinuance
For more details email us at
conferences@infraline.com
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Shale Gas: An Unconventional Energy Source Potential and prospects in India Business Report Oil & Gas Jan-11 75,000
Solar Power Outlook Business Report Renewable Dec-10 20,000
Distribution Transformers Market in India Business Report Power Oct-10 50,000
Merchant Power Plants in India: Evaluating the Business Case Business Report Power Sep-10 50,000
Coal Washeries in India: A $5 billion Opportunity Business Report Coal Sep-10 50,000
Power generation outlook in India: 2015 Business Report Power Aug-10 20,000
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relevance, impact, shelf life of the analysis and value add to the industry. Following is the report list for the year 2011-12.
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34
StatisticsCoal
May 2012
35
May 2012
Company-wise Coal Despatches during Feb 2012
(Million Tons)
Company-wise Coal Production during February 2012
(Million Tons)
Name of the
Company
Annual During the Month
Correspond-
ing month of
Previous year
Upto the Month
Correspond-
ing period of
Previous year
Target Target Achievement Actual Target Achievement Actual
ECL 33.00 3.57 3.45 2.90 28.99 25.62 26.74
BCCL 30.00 2.70 2.96 2.52 26.58 26.19 25.67
CCL 51.00 5.08 5.56 4.91 43.60 40.53 40.18
NCL 68.50 6.07 7.51 6.06 60.92 57.79 58.67
WCL 45.50 4.05 3.82 3.99 41.25 38.82 39.47
SECL 112.00 10.53 11.16 10.40 103.01 102.19 100.81
MCL 106.00 10.16 11.26 8.24 93.84 90.13 88.12
NEC 1.00 0.14 0.09 0.14 0.99 0.44 0.95
CIL 447.00 42.30 45.81 39.16 399.17 381.70 380.61
SCCL 51.00 4.37 5.46 4.35 46.34 46.50 45.87
Others* 56.00 4.67 3.83 3.26 51.33 40.92 40.08
All India
Total
554.00 51.33 55.10 46.77 496.84 469.12 466.56
Name of the
Company
Annual During the Month
Correspond-
ing month of
Previous year
Upto the Month
Correspond-
ing period of
Previous year
Target Target Achievement Actual Target Achievement Actual
ECL 33.60 3.17 3.21 2.52 30.22 26.88 26.13
BCCL 29.84 2.54 2.53 2.39 27.18 27.13 26.58
CCL 51.99 4.61 4.26 4.16 46.62 42.91 41.58
NCL 68.50 5.89 6.35 5.83 61.91 56.99 57.84
WCL 45.48 4.00 3.72 3.76 41.19 38.07 38.67
SECL 111.98 9.27 10.12 9.22 101.87 104.42 99.20
MCL 109.00 9.37 8.99 7.08 99.14 92.57 92.90
NEC 1.00 0.10 0.07 0.13 0.90 0.66 1.00
CIL 451.39 38.95 39.25 35.08 409.02 389.63 383.89
SCCL 52.78 4.36 4.88 4.04 48.03 45.90 44.95
Others* 56.00 4.67 3.75 4.14 51.33 40.09 39.99
All India
Total
560.17 47.98 47.87 43.26 508.38 475.61 468.84
* Excluding Meghalaya, N. A. = Not Available
Coal Requirement as per FSA / LOA for CIL Linked Power Projects
Revised New and Effective prices of Coal by CIL (Feb 2012)
S. No Year of Commissioning Capacity (MW) FSA / LOA Quantity (MT)
1 Units Commissioned by March 31, 2009 67370 304.8
2 2009-10 5395 24.36
3 2010-11 6205 24.93
4 2011-12 (Expected) 16671 71.75
Total (2 to 4) 28271 121.04
XII Plan
5 2012-13 9,835 39.58
6 2013-14 10,845 44.19
7 2014-15 11,127 46.95
Total (5 to 7) 31,807 130.73
Total (2 to 7) 60,078 251.8
8 2015-16 5502 23.87
9 2016-17 660 2.34
Total (5 to 9) 37,969 156.94
Total (2 to 9) 66,240 277.98
Capacity as on March 31, 2017 133,610 582.82
GCV
Bands
(Kcal/kg)
New Price after
revision on Jan
31,2012 (For
Power Sector)
but effective
from Jan 1,
2012 (INR/ton)
New Price after
revision on Jan
31,2012 (for
non-power sec-
tors), but effec-
tive from Jan 1,
2012 (INR/ton)
Indicative
Grades
(as per
previous
classifca-
tion)
Price/Range
as on Feb 27,
2011 (Power
Sector) as per
Grades and
mine to mine
(INR/ton)
Price/Range
as on Feb
27, 2011 for
non-power
sectors as per
grades (mine
to mine) (INR/
ton)
Change
for Power
Sector
(INR/ton)
Change for
Other Sec-
tors (INR/
ton)
7000+ * *
6700-7000 4870 4870 A 3690 4100 730 to
1180
320 to 770
6400-6700 4420 4420
6100-6400 3970 3970
5800-6100 2800 2800 B 3590 3990 (-)790 to
(+) 380
(-)20 to
(-)1110
5500-5800 1450 1960 C 1050 to 1500 1300 to 1860 (-)50 to
(+)450
100 to 660
5200-5500 1270 1720 D 790 to 1240 1110 to 1560 30 to 480 430 to 610
4900-5200 1140 1540
4600-4900 880 1180 E 730 to 1020 870 to 1080 50 to
150 and
in some
cases
100 to 180
4300-4600 780 1050 (-) 240
4000-4300 640 870 F 570 to 610 630 to 860 30 to 70 10 to 240
3700-4000 600 810
3400-3700 550 740 G 350 to 700 440 to 650 150 to 200 90 to 300
3100-3400 500 680
2800-3100 460 620
2500-2800 410 550 Ungraded NA NA NA
2200-2800 360 490
Ruchi Sharma, Manager - Marketing
Ph. 011-6625 0023 (D), 4625 0000 (B), Mobile: 9560626589
Email: ruchi.sharma@infraline.com, reports.support@infraline.com
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May 2012
37
PNGRB has directed
IGL to reduce prices for
Delhi consumers with
effect after factoring
in the reduction in
both network rates
and compression
charges on CNG. Gas utility stocks took a
beating led by Indraprastha gas ltd. which
shed almost 34 percent. The company has
approached the Delhi High Court challenging
the constitutionality and legality of the powers
of the board to fix the tariff.
Mukesh Ambani
wants to sell the gas
pipeline business as
the low gas output is
unable to justify large
investments in these
pipelines. NYSE listed
energy major, Enbridge, along with GAIL, Oil
India, IL&FS and private equity players 3i,
Blackstone and KKR have shown interested
in buying part or whole of RGTIL and are in
talks with Mukesh Ambanis group company.
IFFCO finds itself
badly caught in
double taxation within
the country row. RIL
is supplying gas to
IFFCO from its D6
field. UP Government
has levied 26% VAT claiming that the gas is
consumed within the state. IFFCO maintains
that it is paying CST to Andhra Government
as it is inter-state sales and the title is
transferred in Andhra Pradesh only.
While Essar Oil is in
talks with banks to
repay sales tax worth
crores of rupees to the
Gujarat Government
concerning its Vadinar
refinery, the Gujarat
makes it clear that Essar Oil will not be given
any concession with respect to sales tax.
The company faced a sales tax liability of
Rs 6,300 crore after the Supreme Court set
aside a Gujarat High Court order.
Reliance Industries
reports further
drop in Natural gas
production at its
eastern offshore
KG-D6 Block to about
34 million standard
cubic meters per day. KG-D6 gas output
in the week ended March 25 was 34.09
mmscmd as against 34.62 mmscmd in the
begging of the month.
IndianOil to lose Rs330
crore every year once
its Paradip refinery
in Orissa comes on
stream - because it
missed the March 2012
deadline to complete
the project in order to enjoy a 7-year
tax holiday. Ditto the Cuddalore refinery
promoted by Nagarjuna Oil Corporation.
The 6 million tonne per annum refinery is
expected to lose over Rs70 crore a year once
it comes on stream.
Nearly 80 oil and
gas blocks with an
investment of $13.5
billion are stuck in
bureaucratic tangle
in the Ministry of
Defence, DRDO,
Ministry of Environment and Department
of Space awaiting clearances for years.
Frustrated with the merry go round
approach, Petroleum Ministry has sought
setting up of an Inter-Ministerial Committee
with power to give one time clearance.
After 24 years, Mr
Vikram Singh Mehta,
Chairman, Shell Group
of Companies in India,
is stepping down,
effective October 31,
2012. Succeeding him
is Dr Yasmine Hilton. Dr Hilton could be the
first woman to head an energy company in
India. Born in Mumbai, Dr Hilton joined the
Shell Group in 1979. She will be relocating to
India in September 2012.
India is preparing
a cabinet note to
get the approval for
signing the GSPA for
TAPI Pipeline Project.
Further, Iran-Pakistan-
India Gas Pipeline
Project has been under discussion with
the government of Iran and Pakistan 60
mmscmd of gas is proposed to be supplied
in Phase-I, to be shared equally between
India and Pakistan.
The ministry of
petroleum and natural
gas has opposed a
proposal of Reliance
Industries Ltd (RIL)
for an increase in the
price of gas, saying
that would lead to an additional burden of
$8 billion on the exchequer. The petroleum
ministry recently communicated its view to
the law ministry, from which it is seeking
legal opinion on the revision proposal.
PNGRB hits IGL
With gas price blow
The CCEA approves
award of 16 oil and gas
blocks for ninth round
of bidding under NELP.
Under it ONGC corners
six blocks, the OIL led
consortia gets two
onland blocks. Deep Energy walks away with
two cambay basin blocks while focus Energy
bags one in Rajasthan. Five blocks awarded
to companies like Sankalp Oil and Natural
Gas, Pratibha Oil and Natural Gas Pvt Ltd.,
Pan India Consultants and KGN Enterprises.
NELP IX
Cabinet approves awards of 16 blocks
Stake sale:
Reliance Gas Transportation
UP Entry Tax
UP VAT issue on gas sale
Tax blow
For for Essar Oil
RIL KG-D6 gas output
Shows Constant dip
Tax holiday ends
IOC, Nagarjuna to be hurt
DGH has asked the Oil
Ministry to take a call
on allowing RIL and its
partner BP plc to invest
in pre-development
activities in 16 gas
discoveries in KG-D6
block, most of which have not yet been
proved to be commercially viable at current
prices. A block oversight panel, called the
Management Committee (MC) would meet to
approve the pre- development surveys only
after the Oil Ministry gives its nod.
RIL-BP gas investments:
DGH wants Oil Ministry to decide
Stuck in bureaucratic tangle
80 blocks with $13.5 billion investment
Yasmine Hilton
To take over as Shell India chairman
IPI and TAPI pipeline
Projects rejoined by India
Oil ministry
Against RIL gas price hike
InConversation
38
May 2012
39
May 2012
Once in the hot seat as
the CMD of ONGC, RS
Sharma speaks at length
about the ONGC share sale,
its stagnating oil production,
low exploration as compared
to private players such as
Reliance and much more.
Infraline gets him talking.
Excerpts:
Do you think, it was a prudent
government decision to sell fve
percent stake of ONGC, at a
premium of 2.3 percent to the days
closing price? What in your opinion
caused the government to misjudge
the investor sentiments?
A seller would like to have best
possible price for selling a commodity
and the same principle applies to stake
sale being planned by a company
as well. At best even ONGC was
hopeful of getting as best a price as
they could by offoading their fve
percent stake in the company. Also, we
all saw that there was lot of activity
in ONGCs stock leading upto to
stake sale. It leads one to believe that
there was deliberate effort to push up
ONGC share prices leading upto IPO.
Sentiments such as these got validated
with media reports claiming that LIC
was very active in buying the shares in
the market to ensure that sentiment on
share prices remained high.
Firstly overhang of sale of equity
proved to be detrimental for ONGC
because fve percent equity in absolute
terms turns out to be very high.
Secondly keeping foor price higher
than the price at which the shares were
trading preceeding the launch of IPO
was a strategic mistake. This defed
logic and did not conform to global
practices. The level at which you set
the foor price does not necessarily
mean that you have to sell at that price.
In fact, based on the appetite and
assessment anybody can bid at higher
price than the foor price. Keeping
foor price high was a strategic error
because unlike an FPO it turned out be
an auction process.
I was Chief Financial Offcer of
ONGC when we came out with an
FPO in March 2004 and from that
experience I can confdently say
that the success of stake sale of any
entity would depend on the price at
which it gets traded after the stake
sale. I am unable to fgure out what
would have been the logic behind
keeping the foor price higher than
the previous day closing price.
To my mind this was not correct
and the act did not conform to the
global practices.
Incidentally, the day the auction
opened I was in Singapore. Talking to
Foreign Institutional Investors (FIIs) I
realised that everyone out there had an
impression that ONGC sale stake was
stage managed and that is the reason
why FIIs kept away from the IPO.
The widespread
impression
amongst
investors
was
that government seemed to have
already identifed and got committed
buyers at that price. So, why should
anybody else show interest in ONGC
stake sale?
Having served on board of the
company for nine years and serving
more than half of that period as its
Chairman I feel hurt at allegations
being hurled at ONGC. A front page
report by leading newspaper Indian
Express called ONGC share sale a
fraud. I felt hurt reading it but sadly
one couldnt fnd any fallacy with that
assessment. The report claimed that
LIC picked up majority of the stake
in ONGC and within a matter of time
LIC was made poorer by `1,100 crore.
LIC has lost money in crores and
it is not government money, it is
policyholders hard earned money.
No individual or entity has a right to
incur a loss to support government
strategy. So, the shareholders have a
right to ask why LIC bid at such a high
price. Im sure these issues are going
to come up sooner or later and need to
addressed adequately.
Now look at the bigger picture. Had
this issue sailed through smoothly,
the government would have been
in a strong position to make further
disinvestments through auction
route in various other entities. So, at
whatever level ONGC share pricing
got decided, I would not be able to
justify the decision.
What is your take on the Finance
Ministers proposal of raising cess
on crude oil by 80 percent and the
proposal to increase the rate of cess
to `4,500 per tonne from the existing
`2,500 per tonne?
The way cess was increased in the
budget cannot be seen as a professional
move. Im saying this in the backdrop
of the fact that the ONGC stake sale
was pushed through just before the
budget. Ethically this was not the right
way to move forward on cess issue.
Investors have been let down on this
score because decision of raising cess
would have been fnalised well in time
before the ONGC auction. Following
the budget announcement indicating
increase in oil cess - sentiment around
ONGC turned completely negative.
This resulted in steep fall experienced
in ONGC share
price.
On the positive
side, no one
can question the
governments right
to raise the cess
because to my mind cess
of `2,500 per tonne got fxed
almost four to fve years back. During
the intervening period crude prices
itself have increased many fold. So, in
principle raising the cess is justifed.
But here again what comes up for
questioning is issue of governance. A
sudden steep increase of cess to the
extent of 80 percent cannot be viewed
as the right step. The increase itself
should have been staggered.
As Chairman, ONGC, I had made
submissions to the government in
the past that as far as cess on oil is
concerned instead of making it
absolute amount, it should be made
ad-valorem. To make it ad valorem,
the government is required to make
relevant amendment Oil Industry
Development Board (OIDB) Act.
Or else cess should be caliberated
in a way that it stands to increase
or decrease in accordance with
crude oil prices.
ONGC continues to serve as a cash
cow for the government for under
recoveries. How long will this
practice continue?
I would not buy this statement. This is
so because ONGC until March 2002
was operating under administered
pricing mechanism which governed
sale of its products including oil as
well as gas. Product pricing followed
cost plus mechanism. So, whatever
used to be the cost of the company
product it used to get a mark up on that
for oil as well as gas. And the product
pricing used to get settled on that.
When oil and petroleum prices got
deregulated in April that year crude
prices at the time hovered
around US$22/barrel.
Historically, the average
crude prices hovered in the
range of US$18-22/barrel.
Then we also experience
spike in crude prices going
upto US$27-28/per barrel. And
there were also lows with crude
prices going down as low as
US$10/barrel in the year 1999. At
the time of deregulation crude prices
were averaging around US$22/barrel
and at that time it was thought that
this was the price at which one could
deregulate oil and petroleum product
prices. However, as our experience
showed the prices of crude since
then have been constantly moving
up. So, ONGC and Oil India have
been benefciaries of the windfall
gain with oil prices going up. The
reason why Im calling it a windfall
gain is because the oil production
is coming from the blocks which
were awarded to these companies on
nomination basis. Another reason
being that in nominated blocks there
is no production sharing arrangement.
So, in a PSC regime, whatever the
upside or downside it gets shared
between the government and
the companies involved.
In the absence of production
sharing arrangement, options before
the government was either to place all
these blocks following deregulation
under the PSC regime or to collect
that upside in some other manner. But
when I say, in some other manner,
again, the governments right to
collect that upside in the form of either
windfall gain tax, higher cess or higher
royalty or any other mechanism exists.
The only issue here is that this gets
collected in a purely ad hoc manner, at
times it is on quarter to quarter basis,
the upside gets shared in the form
of subsidy discounts to be given
to the OMCs. Or at times it gets
Carrying
out Share sale
just couple of days
before hiking oil cess
was not correct. It
should have been
disclosed.
I was hurt when
national newspaper
called ONGC share sale
a fraud, but you couldnt
find any fallacy with this
assessment.
ONGC Share sale could have
been better managed
40
May 2012
collected after the quarter is over and
the invoices get revised downwards to
give effect to t discounts.
The issue that comes up for
discussion is one of transparency. This
is especially so in case of minority
shareholders in a listed company who
take a call on the crude oil prices, who
take a call on the companys bottom
line. In case of an upside they have
every right to enjoy beneft from the
resultant upside. And now look at the
other scenario. If crude prices crash,
will the government come to support
those minority shareholders? The
answer is no. In such a situation, what
we are implying is that shareholders
invested in the company to surrender
upsides that rightly belong to them
without any comfort that somebody
would come forward to share their
downside as well. I dont see this
practice getting discontinued at any
point of time in near future. But in
case a sincere effort is made to address
the issue we can put up a mechanism
which takes care of underrecoveries.
ONGCs stagnating oil and gas
production on the domestic front is a
cause for worry...
ONGC continues to make the
discoveries, albeit on a much smaller
scale. But it is true that ONGCs
reserve replacement ratio for the past
fve to six years has been constantly
more than one. However, it is also
a fact that ONGC has not made any
major discovery in the last two and
half decades. The last major discovery
for ONGC had come in mid 1980s
in Gujarat. In deep waters we have
discoveries in KG basin and Mahanadi.
With deep water discoveries one has
to see as to what are the returns one
is getting against high investment that
one is making in them. Most of these
are gas discoveries and there has to be
a reasonable price for ONGC to get
a comfort that these make for viable
investments. And its only then that the
board would approve the investments.
What are the steps that the
government should take to bring
in more technical and fnancial
capability into the domestic
E&P sector?
I feel the government should
seriously send out a strong message to
established global players to come and
invest in India. This message has to be
in terms of attractive fscal regime for
the upstream activities.
Do our policies really indicate
investor friendly climate for
foreign companies in the backdrop
of the recent arm twisting that
the government resorted to while
approving the Cairn-Vedanta deal.
I myself feel that the current climate
does not inspire enough confdence in
foreign investors to come and invest
in the country. But I do not agree
with the statement that there was any
arm twisting as far as Cairn-Vedanta
deal is concerned. Its an issue of
legality. With the legal interpretation
of a signed contract, there are two
issues one is the policy intent and the
second is the legally binding contract.
The intent in the pre-NELP regime
when the blocks were allotted to the
companies had been that the National
Oil Companies Oil India and ONGC
will be made the licensees and
those companies would be exempted
from payment of any cess or royalty.
But, once the contract is signed, it is
presumed that both the parties have
read the clauses of the contract and as
per the signed contract it is silent as to
which party would be paying the cess.
But maybe the way it was handled
because it stretched for long
I wouldnt put the blame for this on
the government, instead I fnd fault
lay with Cairn Plc. They should have
kept their stakeholders well informed
about the risk factors, about lack of
clarity in the contract. The dispute
had already been there and letters had
been exchanged in an attempt to settle
the dispute between the government
and ONGC and Cairn. The thing is that
lack of unanimity came into the public
domain after the deal got announced.
Whatever the viewpoint taken by
ONGC, as long as operations were
continuing there was a comfort that
adjustments would come in due course
of time. But when one of the parties
was exiting, they were selling their
stakes, then the new party would say
whatever the understanding the entity
which is exiting with the seller is going
out with the seller and they should
accept this. So, the issue precipitated
at this point of time. Rather than the
dispute itself, it this lack of clarity
related to contract was kept away from
the investors by Cairn Plc.
What should be Indias approach
while pursuing overseas energy
assets given most often we lose bids
to more aggressive Chinese players?
Under the current mandate given
to OVL the company is doing
encouragingly well while pursuing
overseas energy assets. I do not
fnd any fault with OVLs current
philosophy of going after economically
viable overseas assets. You take a call
Again if you have a scenario where the
mandate for acquiring overseas assets
is guided by factors other than the
commercial mandate, then it is diffcult
to compete with such players.
Strong fiscal incentives
are required to attract
foreign investors in the
country.
InConversation
42
InDepth
May 2012
43
May 2012
CNG losing its sheen as cost
advantage erodes
There has been a spate of Compressed
Natural Gas (CNG) price hike in
the recent past. CNG marketers
across the states, barring a few, have
increased CNG prices manifold
since January 2011.
Delhi alone has witnessed an
increase of `5.05/kg increase in 2011
apart from the hike of `1.75/kg early
this year, and the most recent one of
`1.70/kg on March 5 taking the price
to `35.45/kg. In NCR region the most
recent hike of `1.90/kg took the price
to `39.80/kg.
The earlier notion of CNG being the
cheapest fuel is being put to question
with the reducing price differential
between CNG and other transport fuels.
We had to revise the retail price
of CNG due to increase in the overall
input cost of natural gas being sourced
by us, and that is because of increased
dependence on imported spot R-LNG,
remains a standard answer of the
CGD companies.
CNG Price
Source: Infraline Research
While IGL has access to a
comparatively greater share of
domestic gas, the situation is quite
different in Gujarat. City Gas
Distribution (CGD) entities in Gujarat
such as GSPC Gas, Adani and Gujarat
Gas (GGCL) have been facing severe
crisis in their domestic gas supplies.
As a result, GSPC Gas is completely
relying on imported Re-gasifed -
Liquefed Natural Gas (R-LNG) to
maintain its supplies for the 119 CNG
stations it is operating across 28 cities
in Gujarat to which CNG connectivity
has been established. The company
last increased CNG price recently
by `5/kg to `45.25/kg. Adani Gas
which is operating 47 CNG stations
in Ahmedabad and 7 in Vadodara has
also hiked CNG price by a similar
level, selling CNG from its stations
at `45.50/kg.
Gujarat Gas which charges the least
CNG price in Gujarat has hiked CNG
price from `43.40/kg to `44.90/kg in
December 2011. GGCL is currently
operating through its 42 CNG stations
in Surat, Bharuch and Ankleshwar.
Mahanagar Gas (MGL) has been
able to show a greater restraint in
increasing prices, though the company
was compelled to raise the price to
`33.10/Kg in February this year.
However, this is the only hike that
MGL has declared since June 2010.
The company has been able to get a
larger share of its gas supplies from
domestic sources and as a result
has been able to contain costs better
than its counterparts.
The price of CNG in Delhi
increased by `1.20/kg in 2009.
Subsequently, 2010 witnessed a steep
increase of `6.05/kg and the year
2011 witnessed a similar increase of
around `6/kg. The increase in price
corresponds to the drop in production
of natural gas from the domestic felds
and increased imports of R-LNG.
While price of CNG has been
increasing incessantly, the price of
other transportation fuels such as diesel
and petrol have also increased to some
extent. Diesel being primarily regulated
in terms of price determination, has
maintained lower levels of price hike,
whereas price revisions for petrol has
also seen a huge jump.
During the period January to
December 2011, the price (Price
at Delhi) of CNG has increased by
16.37 percent while it has increased
by 13.79 percent for petrol and 8.37
percent for diesel. As of April 2011,
10,68,319 vehicles are running on
CNG on a network of 724 CNG
stations across the country.
Why hike in prices?
The current domestic production of
hydrocarbon increase is dismal at best
and is only able to meet the runaway
growth in demand of energy products
partially and is dependent hugely on
imports of energy resources.
In FY 2011, India imported over
20 percent of its natural gas supplies
of 166 million standard cubic meters
(mmscmd) to meet the demand
though this is not enough to meet the
entire demand existing in the market.
Imported gas is costlier than the
prevailing domestic prices by almost
$5-10 per
million
British
thermal units
(mmBtu)
which has a
direct bearing
on the end
consumer price
of gas. Similarly, the
country imported over 80
percent of its crude oil requirements
in FY 2011, bearing a huge exposure
of internationally traded prices to
domestic retail prices. As a result, the
prices of petrol and diesel have also
increased during the same period.
With any swing in the demand and
supply of natural gas and crude oil
in the international market, there is
a consequent swing in the prices of
these products. However, the prices
more often move northwards with
stronger demand scenario in the
international market.
Alittle deeper introspection into the
developments in the natural gas sector
in India answers the question about the
price hikes. During 2010-11 the total
CNG consumption in the country was
4.96 mmscmd out of which around
13.6 percent was sourced from R-LNG
imports. As R-LNG prices are now
increasingly being benchmarked to
global crude prices, its price are higher
than the price of domestic gas.
Moreover, the price of R-LNG is
further escalated due to the customs
duty of 5 percent
applicable to imported
gas (though now
scrapped). As a result,
the input cost of the
CGD entities have
increased.
Plus, the Rupee has
depreciated by 16 to 17 percent
against the dollar during this
period which has had a compounding
effect on the prices of fuels in the
domestic market.
At the same time, the operating
cost of CGD networks have also gone
up. The CGD companies as a result
have been compelled to pass on the
increased cost to the consumer.
Entities like GSPC Gas, GAIL and
many others are completely dependent
on R-LNG as a source of natural gas
and hence are directly exposed to the
price volatility. With the tightening
of gas supplies in the international
market, the price of spot R-LNG has
been rising. Hence, any increase in the
price of R-LNG results in consequent
increase in the prices of CNG.
Justifying continues increase in
CNG prices by CGD companies, BS
Negi, former, Member (Infrastructure)
Petroleum and Natural Gas Regulatory
Board (PNGRB), says, With
declining or no access to APM gas
most of the CGD companies are
being forced to rely on LNG. With
increased dependency on imports these
companies have no option but to effect
an increase in CNG prices as well.
However, companies having access to
cheap APM gas should have no excuse
to increase CNG prices because they
have been access to cheaper gas by
government especially for CNG and
PNG operations.
Share of companies in gas sale
Source: Infraline Oil and Gas Database
MGL on the other hand has a
marginal share of imported gas to
the extent of 5.60 percent and hence
has been better able to keep prices of
CNG lower. IGLs share of domestic
gas availability has shrunk in the past
few months due to the decline in the
KG-D6 supply to CGD sector and
its consumption of imported gas has
increased to 17.20 percent which is
a clear indication of the reason the
company has been instigated to hike
prices of CNG quite frequently in FY
2011 and FY 2012.
Another element of the end
consumer CNG price is the Central
and State taxes which have a bearing
on the fnal price. While Central Sales
Tax (CST) is applicable across the
country at 2 percent, Value Added Tax
(VAT) rates ranges typically between
12 to 15 percent across different States.
Moreover, Excise Duty of 14.2 percent
and Service Tax of 12.36 percent are
also levied on sale of CNG. All these
components add to around 30 to 35
percent of the fnal sale price of CNG.
Evaluating the
Attractiveness of CNG
Acity-wise comparison of price
differential between diesel
and petrol to CNG shows that
CNG prices across the country at an all time high. In Ahmedabad, differential with diesel at zero
CGD business model requires deeper introspection to ensure sustainable viability
Date
CNG Petrol Diesel
(`/Kg) %Inc/Dec (`/Ltr) %Inc/Dec (`/Ltr) %Inc/Dec
Jan 11 29 4.50 58.37 4.47 37.75 0.11
Feb 11 29 0.00 58.37 0.00 37.75 0.00
Mar 11 29 0.00 58.37 0.00 37.75 0.00
Apr 11 29.3 1.03 58.37 0.00 37.75 0.00
May 11 29.3 0.00 63.37 8.57 37.75 0.00
Jun 11 29.3 0.00 63.37 0.00 41.12 8.93
Jul 11 29.8 1.71 63.70 0.52 41.29 0.41
Aug 11 30 0.67 63.70 0.00 41.29 0.00
Sep 11 30 0.00 66.84 4.93 41.29 0.00
Oct 11 32 6.67 66.84 0.00 40.91 -0.92
Nov 11 32 0.00 68.64 2.69 40.91 0.00
Dec11 33.75 5.46 66.42 -3.23 40.91 0.00
Overall Inc (%) 16.37 13.79 8.37
Source: Infraline Analysis
Price of CNG back in 2008 was `18.90/kg in Delhi and has increased
by more than 78 percent within a span of three years, while in
Gujarat, the price has almost doubled in a similar span of time.
44
InDepth
May 2012
Ahmedabad and Gandhinagar have
the least differential of `4.77 in case
of diesel and `25.66 in case of petrol
on energy equivalent terms. Delhi on
the other hand has a price differential
of `12.24 for diesel and `34.51 for
petrol. The highest differential in price
of CNG with diesel and petrol exists in
Mumbai where there is a difference of
`17.50 for diesel and `40.09 for petrol.
Consumers with CNG fuelled
vehicles still have respite from the high
petrol prices as the price differential
is still signifcant given the rapid rise
in petrol prices since deregulation.
The scenario is somewhat different
in case of diesel vehicle owners. The
differential in the price of diesel and
CNG has narrowed down to a very
negligible level in Ahmedabad.
The retail selling price of CNG in
the state of Gujarat registered highest
levels at `45.50 per kg due to the
recent increase in prices by Adani and
GSPC Gas. At such high prices, it will
be diffcult to lure more consumers to
change over to CNG from conventional
fuel usage as price was one of the
most attractive propositions given
by CNG suppliers when CNG was
initially proposed as an alternative
transport fuel.
Moreover, declining
domestic gas output is another
dampener to the attractiveness
of CNG as a fuel as it means
that the CGD companies
have to rely more and more
on imported gas which is
not going to get any cheaper
in the near future.
Another factor that is
impairing the growth of CNG
as the fuel of choice is the
lack of suffcient reflling
infrastructure. Consumers
have to line up in long queues
at the reflling stations and the
waiting time is signifcant.
Moreover, consumers who
intend to travel across
cities have apprehensions
various sources with the respective
prices shows that CNG would prove to
be attractive only with a combination
of gas supply from domestic
Administered Price Mechanism
(APM) gas sources, KG-D6 supplies
and supplies to some extent from
imported gas.
Presently, gas supply for transport
sector has been accorded fourth
position in the priority list for
allocation of existing domestic gas
supply sources. However, any new
domestic supply source that is available
in future should have preferential
allocation for CNG to maintain a
higher share of domestic gas in the
total supply portfolio so as to keep the
overall price of gas competitive.
The other major change required
is to grant a declared goods status to
natural gas. It will effectively bring
down the VAT rates across different
states to a uniform level of 5 percent
thus reducing the end consumer
price of gas.
The April 9, 2012 order of PNGRB
of cutting network tariffs by 64% and
compression tariffs by 60% of IGL
(and of other companies to follow)
with retrospective effect from 2008
will also help in bringing
the costs for the consumers.
The immediate reduction
would imply IGL cutting
CNG prices by ~20%
or `7.2/kg (including
14.4% excise duty) and
PNG prices by ~`1.8/scm
(8% for residential, 5%
for industrial).
Amajor restructuring is
needed to fuel the growth
of CNG as an alternative
transport fuel, be it in terms
of ensuring affordable gas
supplies or restructuring the
taxation on natural gas to
ensure that CNG remains
to be attractive to the
end consumers.
of reflling stations not being
available at regular intervals on the
highways and expressways.
As of now, CNG remains an
attractive substitute to Petrol and Diesel
and recent hike in the CNG prices
hasnt diluted its competitiveness.
The government is now keen to
promote CNG as an environment-
friendly fuel and is aiming to build an
effcient pipeline infrastructure. Also,
we will see substantial efforts by the
government to ramp up the domestic
production, and to strengthen the
regulatory board for effcient pricing by
opening up the market for competition
says Mr. Sunil Mehra, CMD, Tractebel
Engineering Pvt Ltd.
The governments plan to adopt
CNG as the fuel of future has infact
left the CNG marketers concerned, if
the Government makes environmental
norms more stringent and effective.
Need of the hour
To arrest the frequent price hikes in
CNG and to address the issues of
existing CNG consumers and potential
new users, the government has to
address the supply side issues frst.
Acomparison of gas supplies from
Fuel
Price/Price
Differential
Cities
Delhi
Ahmedabad/
Gandhinagar
Mumbai
CNG (`/Kg)
Price per unit 35.45 45.25 33.1
Energy Eq Price 35.45 45.25 33.1
Petrol (`/Ltr)
Price per unit 66.45 70.82 71.47
Energy Eq Price 70.96 75.63 76.32
Energy Eq Price
Differential
35.51 30.38 43.22
Diesel (`/Ltr)
Price per unit 40.91 46.25 45.28
Energy Eq Price 40.91 46.25 45.28
Energy Eq Price
Differential
5.46 1.00 12.18
Source: Infraline Analysis, *EE Energy Equivalent
Current
(APM +
KGD6 +
SPOT LNG)
SPOT
LNG
LNG
Marubeni
(Brent
$110/bbl)
Long
term
LNG
Gas Cost ($/mmbtu) 6.53 15.79 16.04 10.34
Gas Cost (`/Kg) 14.26 34.45 35.01 22.56
Consumer Price of
CNG `per Kg
29.8 52.9 53.54 39.29
Source: Infraline Oil and Gas Database
Price
cost
differential
in Diesel &
CNGreduce to
almost zero in
Ahmedabad
ExpertSpeak
45
May 2012
The sedimentary basins of India en-
compass an areal extent of 1.79 million
sq kms in the onland and offshore part
(up to 200m bathymetry). An addition-
al area of about 1.35 million sq km in
deep waters is also estimated. The total
sedimentary area thus works out to be
3.14 million sq km. Altogether 26 sedi-
mentary basins have been demarcated
covering these sedimentary areas.
India is endowed with thick
shale sequences in some of these
sedimentary areas -- particularly in
the onland basins. Shale Gas is fast
emerging as a predominant unconven-
tional natural gas source, particularly
in the US and Canada, contributing
nearly 20% of the total gas production.
Major oil companies are now pursuing
Shale gas reserves in the UK, Poland,
China and Australia at a faster pace.
Shale Gas exploration assumes greater
signifcance in the Indian context as
there are many a compulsive factors for
India to go for Shale Gas exploration
at an accelerated pace. Some of the
important ones are:
Rapidly growing gas markets
Widening demand-supply gap
India has high natural gas prices
Increasing dependency
on LNG imports
Nascent CBM industry that has not
taken off as expected
Rising Energy Consumption
Transnational Pipelines --
unfulflled Projects due to geo-
political indecisions & impediments
The Indian sedimentary basins, par-
ticularly in the onland part, have thick
shale sequences. Some of the commen-
datory factors, which favour well with
Indian Shales are:
Thick shale sequences in our
sedimentary basin areas
Comparable TOC and VRO values
to producing US basins
Proven source rock characteristics
for discovered oil and gas felds in
our producing basins
Demonstrated case studies
of shale gas fnds in Cambay
Basin, Damodar Basin and other
Gondwana Basins
Reatively good infrastructure -
pipeline network
Rapidly growing economy
As India embarks on its foray into
Shale Gas exploration and is likely to
announce the bidding round during the
1st quarter of 2013 as being announced
by the Ministry in various forums, it
is imperative to understand that the
regulatory and fscal incentives to be
offered by the government play a de-
cisive role for the success of Shale gas
exploration in India.
Potential Shale Gas
Basins of India
Among the 26 sedimentary basins, the
eight most prospective basins identi-
fed are: Cambay Basin, Assam-Arakan
Basin, Gondwana Basin, Krishna-Go-
davari Basin, Cauvery Basin, Vindhyan
Basin, Rajasthan Basin and Bengal
Basin. The Shales in the Stratigraphy,
the shale characteristics based on avail-
able data and geological parameters are
briefy summarised in the following
table for six high potential basins.
Exploration challenges in India
In order to explore our shale gas basins
effectively, following challenges need
to be addressed;
Acquisition of geologic and
engineering data in identifed shale
gas Basins through pilot wells and
laboratory investigations
Customization of technology and
development of right models to suit
to Indian basins
Forging partnerships with
Regulatory and fiscal initiatives
would play a decisive role in the
success of Shale gas exploration.
By Dr VK Rao, Senior Vice
President Reliance Natural Re-
sources Limited
Shale Gas exploration
assumes greater
significance in the
Indian context as there
are many a compulsive
factors for India to go for
Shale Gas exploration at
an accelerated pace.
Initiatives required for
Fast Track Exploration
46
May 2012
technologically advanced
companies
Tackling environmental
externalities in Indian context
Introspection on initiatives and
need to review
Although four pilot wells have
been drilled in Gondwana basin for
shale gas exploration by ONGC, the
results are yet to be known
The pilot wells could have been
placed in different basins rather
than in one basin only. That way we
could have assessed data for other
basins as well. It is not clear that
why all the pilot wells were placed
in one basin only?
The multi organisational teams
(MOT) for data accumulation and
its analysis are formed of selective
governmental agencies only.
Participation of private/domestic
companies which have ventured
into Shale gas forays overseas
would have added value.
Opinions being expressed by some
agencies on prospect potential in
northeast are mostly inferential
and speculative as no detailed
laboratory investigations on
shales are done.
The estimates of US EIAReport are
conservative as only four basins are
evaluated with scant geologic data.
The regulatory and contractual
policy aspects could have been
discussed in a brain storming
sessions with
inputs from
all interested
Companies
in India and
overseas. This
would be a
critical factor to
attract foreign
investments
into this cost
intensive
exploratory venture
Coherent policy and consistent
commitments would go a long way
for foreign investors to earmark
their budgetary provisions
We are a hydrocarbon defcient
country. Thus it is imperative that
our energy security policies should
be prioritised both in terms of
fnding our own domestic resources
and also global hydrocarbon
diplomacy initiatives.
Shale Gas Resource
Estimations
Various agencies have projected
the resource potential of Shale gas
based on their perceptions of Indian
shales. Since neither any signifcant
laboratory analysis have been carried
out on Shales in Indian basins nor any
well tests are performed to know the
productivity of shales, the resource
prognostications are varied, subjective
and may be taken as indicative fgures
only. Schlumberger which is in the
forefront of ONGC initiatives to
explore shale gas in the
Gondwana
basin has
indicated a
resource potential
between 600 and
2000TCF for
India. McKinsey
and Company
have indicated
around 100 TCF
of recoverable
shale gas in one
of their presentations. THE US EIA
Report has estimated around 70 TCF
of recoverable shale gas within the four
basins of India. Directorate General
of Hydrocarbons (DGH) has forged
agreements on Co-operation with
USGS to work out resource assessment
for the various basins of India and is
in the process of offering shale gas
exploration acreages in near future.
Description Cambay Assam-Arakan Krishna-Godavari Cauvery Vindhyan Gondwana
Thickness (m) 200-1900 400->2500 400->1800 1000-2000 80-350 200->1000
Age Paleocene-
Oligocene
Paleocene-
Miocene
Permo-
Carboniferous-Lr
Eocene
Lr- to Upper
Cretaceous
Proterozoic Late Permian-Up
Cretaceous
Depth(m) 1200-2500 2000-3500 1000-2500 1000-3200 900-2000 1000-2500
TOC % 1.00-4.00 1.00-6.20 1.2->23.0 0.32-4.70 0.60->14.0 4.0-10.0
Vro % 0.53-0.85. 0.57-1.94 0.40-1.40 0.45-1.15 No Data 0.67-1.20
Kerogen Type II & III II & III II & III II & III II & III III
Remarks Shale gas finds
in wells
Shale gas finds in wells
The parameters shown are the average range values in different basins
The views in the article of the author are personal.
The estimates of US EIA
Report are conservative
as only four basins are
evaluated with scant
geologic data. While
McKinsey has indicated
around 100 TCF of
recoverable shale gas.
ExpertSpeak
ExpertSpeak
47
May 2012
that the government is depriving mi-
nority shareholders of their legitimate
share of profts by diverting revenues
and profts of the companies to meet its
social and political objectives.
There is no legal basis for the
current practice of government-owned
oil and gas companies bearing a portion
of subsidies since FY2005. In theory,
all fuel prices have been deregulated
since April 1, 2002 and there is no
legislation of the Indian Parliament or
an executive policy of the Indian gov-
ernment that entails that government-
owned companies should bear a portion
of the subsidies. In practice, the gov-
ernment-owned companies have borne
a cumulative subsidy of `2.6 tn out of
`5.7 tn of total subsidies since FY2005.
The upstream companies sell crude
and LPG at a discount to the down-
stream companies and the amount of
discount depends on the total amount
of subsidies decided by the government
as the share of the upstream companies.
The government pays some compen-
sation to the downstream companies.
The government simply directs
the government companies to bear
subsidies that it decides in an arbitrary
and opaque manner. The boards of the
companies have accepted the decisions
of the government on the amount of
subsidies to be borne by the companies
and compensation received by the
government. Thus, the boards of the
companies have failed in their fdu-
ciary responsibilities to safeguard the
interests of the minority shareholders.
The governments position is even
more legally untenable with the oil
companies not raising prices of petrol
despite large losses
on selling petrol
below market
prices and
announcement
of deregu-
lation of
petrol prices
on June 25,
2011. The
managements of
the oil marketing
There is no legislation
of the Indian Parliament
or an executive policy of
the Indian Government
that entails that Govern-
ment-owned companies
should bear a portion of
the subsidies
The Indian energy sector suffers from
very poor corporate governance with
the Indian government using its con-
trolling shareholding to indulge in un-
fair corporate practices that are hugely
inimical to the interests of minority
shareholders. The government forces
the government-owned oil marketing
companies and upstream companies
to meet its social and political agenda
by asking them to bear a portion of the
subsidies incurred from selling certain
fuels below market prices. The unequal
treatment of the majority and minority
shareholders is a severe violation of
corporate governance practices and is
legally indefensible. It is patently clear
2.6
Trillion
Cumulative subsidy
borne by Government
owned companies
5.7
Trillion
Total subsidies provided
by Government since
Financial Year 2005
Oil PSUs are routinely directed by
Government to bear subsidies in
an arbitrary and opaque manner.
Government in this position is
legally non-tenable as minority
shareholders can ask tough
questions from Boards failing in
their fiduciary responsibilities.
By Sanjeev Prasad, Senior
Executive Director and Co-Head,
Kotak Institutional Equities.
All shareholders are equal but
some more equal than others
48
May 2012
companies have periodically threatened
to raise prices over the past few weeks
in lieu of compensation from the gov-
ernment but presumably have not been
able to raise prices pending approval
from the government.
The governments practice of using
its companies to fnance subsidies
has weakened the fnancial positions
of the companies considerably and
may have had other severe long-term
negative implications for the com-
panies and economy. (1) Aweaker
position of government companies
may have jeopardized energy security
of the country; companies could have
been in a better position to enhance
Indias energy security with stronger
balance sheets. (2) The oil public sector
companies have lost their preeminent
positions in the Indian refning sector
with several private companies gaining
market share at the expense of the oil
PSUs. (3) Foreign investors perhaps no
longer feel confdent about investing
in the Indian oil and gas sector given
inconsistent policies. Other than the
vexatious issue of pricing of fuels,
the recent increase in cess on crude
oil and imbroglio over taxation of
gas produced in NELP blocks may
have further dampened investment
sentiment. Many of them have closed
their operations in marketing of LPG
and auto fuels given their inability to
compete against subsidized fuels of
Government companies. (4) Private
companies have also closed their oper-
ations in marketing of fuels resulting
in absolutely no competition in the
marketing segment. (5) Large subsidies
on fuels results in large overall sub-
sidies and fscal defcit that results in
crowding out of the private sector and
higher interest rates in the economy.
There are two ways to improve cor-
porate governance in the Indian energy
sector and restore investor confdence
in the sector.
The Government can adopt a
more transparent subsidy-sharing
system with the share of under-
recoveries of the upstream and
the downstream companies being
set as per a pre-defned formula
or the pricing of crude oil of the
upstream companies established as
per a pre-defned formula. The Kirit
Parikh Committee had made fairly
sensible recommendations on this
matter. However, it would be best
to extract higher taxes in a legal
manner through higher royalties
on crude oil in order to avoid legal
challenges and let the upstream oil
companies realize full global prices
of crude oil. The higher royalties so
paid by the upstream companies can
be used to subsidize fuel prices.
The government can adopt a policy
that results in upstream com-
panies paying more dividends to
the government in lieu of bearing
subsidies. The government can
then compensate the downstream
companies from higher divi-
dends, dividend distribution tax,
royalties and income taxes of the
upstream companies arising from
the higher revenues and profts
of the upstream companies. The
upstream companies are largely
owned by the government and
rewarding minority shareholders
through dividend payouts may
make investors more amenable to
investing in future divestments of
the government of India.
The recent debacle of the divestment
of ONGC amply shows that minority
shareholders want a fairer treatment
before they commit to investment
in government-owned upstream and
downstream companies.
The facts that (1) most investors
did not participate in the divestment
of ONGC or (2) investors are quite
underweight in their holdings against
benchmarks display their lack of
confdence about them being treated
as equal shareholders by the gov-
ernment of India. The disturbing
event of the Government raising
cess on crude oil (which will impact
ONGCs profts negatively) a few
weeks after the ONGC divestment
further demonstrates the Governments
callous attitude towards the sector and
minority shareholders.
The government may well want to
listen to market feedback if it wants
to renew its fscal pact with minority
shareholders. They may not want
to protest against continued unfair
treatment given various practical con-
siderations but they may have already
decided to vote with their feet and
stay away from Government-owned oil
and gas companies.
The views in the article of the author are personal
It is patently clear that the
Government is depriving minority
shareholders of their legitimate
share of profts by diverting revenues
and profts of the companies to meet
its social and political objectives.
ExpertSpeak
July 2012
Assessing the Impact on LNG Sourcing Options
for India
Infraline is coming out with a business series report on Evaluating the
Emerging Global LNG Markets: Assessing the Impact on LNG Sourcing
Options for India. The report is a massive compendium of the latest
developments in the major LNG exporting markets with details on the trade
dynamics, liquefaction and re-gasification capacities, contractual and
financial framework and key strategies adopted by major players in the
countries for successful LNG business model.
The prime objective of the report is to capture the global LNG dynamics so
as to comprehensively evaluate the various sourcing options for India after
broad analysis of the pricing, regulatory and geo-political scenario emerging
in the exporting countries. The report further captures the LNG infrastructural
developments in India and forecasts the price of LNG for Indian markets
along with scrutinising the viability of LNG for various industries in India.
Ankur Seth
Ph. +91 11 4625 0000 (B), Mobile: 9560626589
Email: ankur.seth@infraline.com, reports.support@infraline.com
For exhaustive
Evaluating the Emerging
Global LNG Markets
Infralines Report on:
Mapping the shifts in global LNG trade movements and
implications thereof
Liquefaction and Re-gasification capacity forecasts 2020:
Capacity Building Scenario
Risk Mapping and Financial Analysis of LNG projects
Impact assessment of shale gas and unconventional gas
price on the LNG demand supply
Comparative feasibility analysis of LNG vs. Trans National
Pipeline in Indian context
Planned R-LNG Terminals in India and Investments thereof
Economic Viability of LNG for various industries and
sectors in India (CGD/Power/Fertilizer/
Petrochemical/Steel)
LNG Infrastructure Operators
International Oil and Gas Companies
Gas Producers (National and International)
Gas Marketers and Traders
Shipping Companies
EPC companies
Financial Institutions
Power, CGD, Fertilizer, Steel and Petrochemical
companies
Consultancies
Equity Research / Stock Broking Companies
Equipment Suppliers
Educational / Training Institutes
Regulatory Bodies
Pivotal Features of the Study
Who Should Buy
Can gas price decouple from oil price? - The indexation of
oil price to gas price
What are the prospective LNG sourcing options for India?
How India is emerging as a centre piece of Asia Pacific
LNG Market?
What is the underlying opportunity potential for
stakeholders across the LNG value chain?
How LNG shipping economics is on rebound with the
evolving shipping trends?
What could be the trading and hedging strategies to
optimize risk-return trade-off?
How the emerging trends of FSRU, LNG as shipping
fuel and LNG TT can revolutionise the landscape of
LNG market?
Critical Investigative Points
Others Oil & Gas Reports:
City Gas Distribution in India: Demystifying the Opportunity,
Growth and Investment Potential
Business
Report Series
Nov-11 `50,000
Natural Gas Market in Gujarat: Assessing the progress and
prospects
Business
Report Series
Aug-11 `50,000
Underground Coal Gasifcation in India: Assessing the Com-
mercial Viability
Business
Report Series
Feb-11 `20,000
Shale Gas: An Unconventional Energy Source Potential and
prospects in India
Business
Report Series
Jan-11 `75,000
Pricing Options for Evaluating the
Emerging Global LNG Markets
Report Hard Copy `1,00,000
Report - E-copy (Single User License) `1,75,000
Report - E-copy (Corporate License) `4,00,000
Report + BRP (approx 100 slides) `1,25,000
*BRP (Business Report Presentation PPT version) cannot be
provided as Standalone
Evaluating the Emerging Global
LNG Markets:
Assessing the Impact on LNG Sourcing Options for India
July 2012
50
ExpertSpeak
May 2012
51
May 2012
Effect of Natural Gas Pricing on
Gas Sector Growth
In India the natural gas market which
has a very slow growth initially
during the period of eighties, has
now witnessing an asymptotic
growth soon after import of LNG in
2004 and KG D-6 gas fow in 2009.
Indias hydrocarbon vision statement
envisages the share of natural gas to
be about 25% by 2025. Traditionally
the power and the fertilizer sectors
require the maximum amount of gas.
In the future also the trend is expected
to be same.
The power and fertilizer sectors
are sensitive to price volatility.
Power tariffs are regulated and the
fertilizer price is also controlled
by the Government. The return on
investment is assured by providing
subsidies. In both these cases, as a
social commitment, the Government
considers itself as a major customer
and the subsidy is provided through
PSUs and the Government treasury.
Presently, different prices of natural
gas prevail in the country. Before the
KG D-6 gas production commenced,
almost 40% of the total gas being
supplied was based on APM. Even for
APM gas, there are different prices
for the priority sectors, i.e. power and
fertilizer, North Eastern region and
the non-priority sectors. The priority
Sector gas price is now $4.2/mmbtu
and the price for non-priority sector
is $5.35/mmbtu with a concession
for North East region users. Different
prices are applicable to gas fowing
from various JV feld including for the
gas from various feld under Production
Sharing Contracts (PSC), be it from
PMT, RAVVA, RAVVASatellite; KG
basin or other felds. Third category of
gas price is for LNG, which is available
broadly at the prices based on buyer-
seller long term contracts or spot cargo
based pricing.
Historically, Indian gas market
within its span of four decades has
seen many varied pricing regimes. For
example, prior to 1970 Gas price was
fxed by the Government based on the
recommendation of Expert Committee.
In early Seventies, ONGC as producer
set the gas price on negotiated basis.
This led to different price to different
customers in same or different regions.
In mid seventies, producers fxed
uniform price on cost plus and pooled
basis. This again resulted in price
variation on time basis.
From 1976 to1991, GOI fxed
Gas price on cost plus formula on
year to year basis. To develop a
rational pricing basis, Government
in January 1992 appointed Kelkar
Committee to suggest Natural Gas
Pricing mechanism..Kelkar committee
suggested Natural Gas Price for 4 years
as under.
APM basic price $1.47/mmbtu
JV Niko and Laxmi feld $3.68/
mmbtu
PMT $ 1.92/mmbtu
APM Gas Price translated to
(`/1000 scm) is shown in table-1
Table-1
Year All India#
except NE
NE*
1992 1550 1000
1993 1650 1000
1994 1750 1000
1995 1850 1000
*Further provision of giving discount of `400/Ksm3 on case to
case basis
# 15% discount allowed for interruptible supplies or supplies
from developing fields
Again in January 1995, TL Sankar
Committee was appointed for natural
Gas Pricing. This committee proposed
Natural Gas pricing on the basis of
the linkage to international fuel oil
basket and suggested that the pricing
be effective from 1-10-1997. The year
wise linkage is shown in Table-2
Table-2
Year Linkage(%)
1998-99 65
1999-2000 75
2000-01 75
2001 0n wards 100
A look at the factors contributing
to Indias energy security and how
to design the right strategy: By
Shri B S Negi, Former Member
(Infrastructure), Petroleum and
Natural Gas Regulatory Body
The approach suggested by TL
Shankal was an approach to gradually
adopt the international energy price,
but the its suggestion that the price be
kept within a band of `2150/mscm to
2850/mscm for gas with CV=10,000
Kcal/scm. The band for NE to remain
between `1200-1700/mscm. This
band proved to be a lever which broke
the market based energy pricing. For
example till June, 2003 when the gas
price as per the oil parity pricing had
reached `8140/ mscm, the producers
were paid only `2850/ mscm. It can
be well imagined the dis-incentive to
the producers in Indian E&P sector It
was with great diffculty that in July
2003, the ceiling price was raised to
`3200/mscm for Fertilizer and `3600/
Kscm for others.For NE ceiling raise to
`1920/mscm
In 2009, the Ceiling price was
further raised to `4100/mscm and in
early 2010 ,Gas Price Fixed to $4.2/
mmbtu (`8000/mscm) for gas produced
from KG D-6 block. While the gas
price for KG D-6 remained same,
the gas price for APM was raised to
$5.35/mmbtu in November 2010 for
non priority sector. Again in April
2011 government fxed CBM price
for ESSAR Jharia feld at $ 5.35/
mmbtu with transportation Tariff at $
1.00/mmbtu. In the same region the
Government had fxed CBM price
at $6.79/mmbtu.3 years back for
GEECL Asansol. $6.79/mmbtu. There
is no simple logic to understand this
process even we do not wish to say this
arbitrary approach.
Alook on the gas pricing provision
under NELP give a reasonable
understanding that for gas marketing:-
The Contractor shall have the
freedom to market gas
The contractor shall endeavour
to sell Natural Gas produced and
saved from the contract area at
arms-length price to the benefts of
the parties to the contract
The formula or the basis on which
the price shall be determined shall
be approved by the Government
prior to the sale of natural gas to
the consumers, within 60 days
from receipt of the proposal or
the clarifcation, if, asked by the
Government. For granting this
approval, Government shall take
into account the prevailing policy,
if any, on pricing of Natural Gas
including any linkage with treaded
liquid fuels,
Four important aspects emerge from
PSC provisions. First the freedom to
operator or producer to market the Gas,
second sell gas at arms length, third
the Government to approve the price
once determined from consumers at
arms length, and fourthly Government
approval to be based on the Policy (if
any) or the linkage with liquid fuels.
The Government in all fairness and
transparency should not negotiate
or revise the pricing formula. It may
either accept the price or reject for
any reason such as the arms length
price determination. Under the PSC
provision possibility of getting a
market determined price may vary
from source to source since the
pipeline connectivity of all producing
feld has not been achieved so far. Also
the linkage with the liquid fuel pricing
is well recognized fact as the Gas is
having competition with liquid fuels in
most of the time. I think this is a good
guide line for enabling Government to
take timely (within 60 days)
When Government action on pricing
comes up fast and follows the provision
of PSC, Indian gas sector will witness
a sea change growth .However, with
limited pipeline Infrastructure, different
production costs for conventional and
unconventional gas, the gas market still
has regional characteristics and a single
price throughout the country would be
a dream. In addition the transportation
tariff and the tax structure have direct
bearing on the cost of natural gas
to the customer.
So, what should be done on the
issue of gas pricing/? The answer is
not so simple but the simple option
is to leave the gas pricing issue to the
market to decide. The government
dilemma of social responsibility can
be addressed by providing subsidy
to socially qualifying industry or
customers directly from Government
treasury. Honble Prime minister did
mention about suitably incentivizing
the gas producers, while addressing
AGPS on 23rd March 2012,
in New Delhi.
52
StatisticsOil & Gas
May 2012
53
May 2012
Crude Import / Processing, Import and Net Export of Products (MMT)
Indian Crude Oil Basket Price and Annual Changes (2001- July 2012)
Available Capacity Crude Processing Capacity Utilization
(MMTPA) (MMT) (%)
2006-07 137.42 141.46
2006-07 137.42 141.46 103
2007-08 148.97 150.8 101
2008-09 156.67 160.7 103
2009-10 177.97 186.56 105
2010-11 187.39 196.8 102
2011-12 (Apr - Feb) 193.4 186.67 -
Refnery Utilization

-20
-10
0
10
20
30
40
50
0
20
40
60
80
100
120
P
e
r
c
e
n
t
a
g
e

C
h
a
n
g
e
$
/
B
b
l
Crude oil (Indian Basket) $/bbl Annual Change (%)

Installed
Capacity *
Crude Processing Import of Crude
Net Import of
Product
Net Export of
Product
1999-00 112.49 85.7 57.8 15.9 -
2000-01 114.59 103.1 74.1 0.9 -
2001-02 114.67 106.5 78.7 - 3.1
2002-03 114.67 112.56 81.9 - 4.7
2003-04 127.37 121.84 90.4 - 6.6
2004-05 127.37 127.41 95.9 - 9.4
2005-06 132.47 130.10 99.4 - 9.8
2006-07 148.97 146.55 111.5 - 15.8
2007-08 148.97 156.10 121.7 - 18.3
2008-09 177.97 160.7 132.7 - 20.4
2009-10 185.4 186.6 159.3 - 36.3
2010-11 187.39 196.8 163.5 - 41.78
2011-12 (Apr - Feb) 193.4 186.7 155.7 - 42.37
Refning Capacity as in November 2011
Indias Crude Oil Import Dependence
Sl. No. Company Location of Refnery Capacity (MMTPA)
1
IOCL
Digboi 0.65
2 Guwahati 1
3 Barauni 6
4 Koyali 13.7
5 Haldia 7.5
6 Mathura 8
7 Panipat 15
8 Bongaigaon 2.35
9
CPCL
Chennai 10.5
10 Narimanam 1
11
HPCL
Mumbai 6.5
12 Visakhapatnam 8.3
13
BPCL
Mumbai 12
14 Kochi 9.5
15 Bina 6
16 NRL Numaligarh 3
17 ONGC Tatipaka 0.078
18 MRPL Mangalore 11.82
Sub Total (PSU) 122.898
19 RIL Jamnagar 33
20 RIL (SEZ) Jamnagar 27
21 EOL Jamnagar 10.5
Sub Total (PVT) 70.5
Total Refning Capacity 193.398

0.00
25.00
50.00
75.00
100.00
0
50
100
150
200
250
P
e
r
c
e
n
t

D
e
p
e
n
d
e
n
c
e
M
M
T
Crude Processing Import of Crude Import Dependence
NewsBriefs
May 2012
54
Engineering and
construction major
Larsen & Toubro said
it commissions Indias
largest solar photo
voltaic (PV) based
power plant (40 MWp)
owned by Reliance Power Limited at Dhursar
village in Jaisalmer district of Rajasthan.
L&T Construction, as the largest EPC
(engineering, procurement and construction)
player in solar power, executed the plant
from concept, including detailed design,
to commissioning in 129 days. With this,
L&T has installed 114 MW of utility scale
solar PV power plants over the last fiscal, a
benchmark in Indias solar EPC industry.
Cennergi, a joint
venture between
South Africas Exxaro
Resources Limited
(Exxaro) and The
Tata Power Company Limited (Tata Power)
selected Suzlon group (Suzlon), the worlds
fifth largest wind turbine manufacturer, as the
preferred supplier for a 138 MW wind energy
project currently under development in South
Africa. Cennergi has chosen to use 66 of
Suzlons S97-2.1 MW turbines for the project,
located in the Eastern Cape.
In a bid to create
newer streams of
revenue, Bharat Heavy
Electricals Ltd (BHEL)
is mulling entry into
production of wind
energy generation
equipment. BHEL has already floated an
expression of interest and some parties have
also shown interest. They are still deciding on
the suitable business model, and might tie
up with or acquire a party in the renewable
energy area.
CLP Power India,
a wholly-owned
subsidiary of Hong
Kong-based CLP
Holdings Ltd, plans to
invest around Rs 1,800
crore in India to add over 200 MW capacity
in wind energy in the fiscal year 2012-13. The
company has delivered over 200 MW wind
energy last fiscal year, through its wind farm
projects existing in six states, Maharashtra,
Gujarat, Rajasthan, Tamil Nadu, Karnataka
and Andhra Pradesh. This year CLP plans
to invest over Rs. 1,500-1,800 crore to
generate another 200 MW. The company
is also evaluating options to set up a solar
power plant.
Alstom T&D India
has successfully
commissioned 220
kV substation in the
presence of Farooq
Abdullah, minister of MNRE, Ashok Gehlot,
Chief Minister of Rajasthan. The substations
will serve Reliance Infrastructure 40
MW solar photovoltaic plant located
near Pokhran in the Jaisalmer district of
Rajasthan. North-west India. This turnkey
contract worth Rs 400 million involves
design and construction of the substation
including control, protection, monitoring
systems and complete civil works including
land development at the plant.
India ends a tax
break for wind farms
that helped drive 70
percent of installations
last year in the worlds
third-largest market for
turbines. Starting April
1, wind power projects can no longer claim
accelerated depreciation at the rate of 80
percent on the cost of their equipment, says
a circular on the website of Indias income
tax department.
Global supplier of
technology and
services, Bosch, is
in talks with private
players for developing
10-MW projects in
the next few years.
Bosch entered into the solar energy space
in the country last year and has jointly
developed a one-MW project with the
Gujarat Government. The company is also
executing up to 100 kilo watt roof top project
under National Solar Mission in Karnataka.
The company is also executing up to 100
kilo watt roof top project under National
Solar Mission in Karnataka.
L&T
Commissions Indias largest solar PV
power plant
Indias clean energy
sector experienced
the second highest
growth in investment
among G-20
countries in 2011.
India ranks sixth
among the worlds 20 leading economies
in attracting funds for clean energy
projects, a new report states. Indias
National Solar Mission, with its aim to have
20 gigawatts of solar power installed by
2020, as helping to drive the countrys
seven-fold jump in solar investments in
2011, to $4.2 billion and an additional 2.8
gigawatts of solar capacity installed.
Clean Energy Investment
Second-highest growth
in investment
Exxaro-Tata
Suzlon to supply Turbine 138 MW
project in SA
BHEL
Forays in Wind Equipment
CLP Power
Plans `1800 cr in Wind Market
Indian Solar mission
and WTO rules - India
tells US that it does
not intend to alter the
domestic content
requirement in its
ambitious national
solar power generation programme as it is
essentially procurement by the government,
which is outside the purview of the World
Trade Organisation. US commerce secretary
John Bryson had in a recent meeting with
commerce and industry minister Anand
Sharma raised concerns about the 30% local
sourcing requirement in projects under the
Jawaharlal Nehru National Solar Mission,
saying it might be in violation of WTO norms.
WTO
Solar Procurement under
Government Ambit
Alstom
Commissions 220 kV substation for
solar plant in Rajasthan
Wind Tax Break
End of Accelerated Depreciation
BOSCH
Plans 10 MW Solar projects
ExpertSpeak
55
May 2012
Coal is the backbone of our energy
supply and meets about 53% of the total
commercial energy needs while Oil and
Gas contributes to about 40%. However
coal industry is marred with several
constraints, like getting environmental
clearance, rehabilitation and other local
site specifc problems, is gearing itself
to meet the challenge. Utilization of
coal in the present form is a matter of
concern environmentally and to make it
eco-friendly is a major challenge before
the coal industry. New area of clean
coal technologies like Coalbed Methane
(CBM) and Coal Mine Methane
(CMM), Underground Coal Gasifcation
(UCG) and Coal Liquefaction are under
focus and Government/Indian Coal
Industry is taking all the necessary steps
for development of these areas.
Development of Coalbed
Methane (CBM): Indian
perspective
Coalbed Methane (CBM) is a
hydrocarbon and is a by-product of
coalifcation process. India is bestowed
with substantial quantity of coal
reserves, which is 6th largest in the
world. Many of the coalfelds of India
are having high rank of coal, which is
amenable for implementation of CBM
projects. In India, CBM related work
was started in the early 90s by Central
Mine Planning and Design Institute Ltd.
(CMPDI) and Coal India Limited (CIL).
The real thrust on its development
came with the formulation of CBM
Policy in the year 1997 and blocks
amenable for CBM development were
identifed and were allotted through
global bidding process. Several
blocks were identifed by Ministry of
Petroleum and Natural Gas (MoP&NG)
in consultation with Ministry of Coal
(MoC) and 33 such blocks have been
awarded for commercial development
in four rounds of global biddingstarting
from 2002. The fscal package offered
by the Govt. resulted into good response
and there was a general consensus of
enthusiasm for taking up developmental
work in the allotted blocks. CBM
production has also started in few
allotted blocks.
However, the pace of development
of production of CBM could not meet
the envisaged projection and going
by an unconfrmed report, the current
production is about 0.2 million cubic
meter per day (MMSCMD). This is a
matter of concern and a close analysis is
required to be made so that this new and
upcoming industry meets its envisaged
growth. The CBM industry needs
support on the following fronts:
Expediting granting of clearances
and licenses for CBM operation,
viz, Petroleum Exploration License
(PEL), Environmental Clearance,
Mining Lease (ML), etc., required to
be taken under different laws of the
country.
Local Problem: Many of the allotted
prospective CBM blocks fall in
disturbed areas and carrying out
operation in these areas has own
limitations.
Land acquisition problem:
Although, CBM operation requires
much less land as compared to
conventional mining operations, even
getting the required land is diffcult.
Coal Mine Methane (CMM)
Coal Mine Methane is extraction of
methane from the active or projectised
mining areas. CMM constitutes 8% of
global source of anthropogenic methane
emissions. Going by an estimate of US
EPA, the Indian coal mining industry
emits about 1 billion cubic meters of
methane annually in the atmosphere
through underground coal mining
operation. To prove the effcacy of
harnessing methane from the coal
mining areas and its gainful utilization,
a CBM/CMM demonstration project
has been successfully implemented at
Moonidih Mines of BCCL. The total
cost of the project was Rs. 92.43 crore
and had been funded by GoI/ UNDP/
GEF. CMPDI and Bharat Coking Coal
Limited (BCCL)- another subsidiary of
CIL, were the implementing agency for
the project on behalf of the Ministry of
Coal. The project has proved effcacy
of CMM production in Indian geo-
mining condition. Recovery of CBM
gas from two wells has been established
in May, 2008 and February, 2009,
respectively. The recovered gas is being
utilized to generate electricity through
By A.K.Singh, CMD, Central
Mine Planning & Design
Institute Ltd. (CMPDI)
Non-conventional Extraction of
Coal: CMM, UCG and CBM
56
ExpertSpeak
May 2012
Great Eastern Energy Corporation Ltd. (GEECL) is the Pioneer
in the feld of Coal Bed Methane (CBM) in India.
GEECLs frst CBMblock is the Raniganj (South) block (210 sq.
km) in the Damodar Valley, West Bengal with an estimated
Gas-in-Place of 2 TCF. GEECL commercialised CBMfor the
frst time in India in 2007.
GEECL was awarded a second block at Mannargudi, Tamil
Nadu, situated at the southern part of India under CBMIV
in 2010. The Block spreads over an area of 667 sq. km. The
CBMresource of the block is estimated at 0.98 TCF as per the
Directorate General of Hydrocarbons (DGH).
GEECLs pioneering efort is helping in maintaining the
ecological balance in West Bengals coal bearing areas where
methane gas is escaping into the atmosphere and damaging
the ozone layer. It will result in the demethanation of
coal-beds and avoidance of methane emissions into the
atmosphere.
GEECL has laid its own dedicated pipeline which runs
through the heart of the Asansol-Durgapur Industrial belt,
supplying CBMgas to various industrial consumers in the
Asansol-Durgapur area. We also supply CNG via cascades
to vehicles through a franchisee agreement with Indian
Oil Corporation Limited (IOCL) and Bharat Petroleum
Corporation Limited (BPCL).
GEECL is also involved in various CSR activities in Asansol-
Durgapur area for the beneft of the people and has
undertaken number of initiatives, including sponsorship of
medical camps, sporting events, health initiatives, etc.
GEECL became the frst CBMCompany in India to receive
the Quality, Health & Safety and Environment certifcation
(ISO 9001:2008, OHSAS 18001:2007, ISO 14001:2004) by TUV
NORD CERT GmbH for its operations in the Raniganj (South)
block and for its Corporate Ofce at Gurgaon.
Our Vision: To maximise the Economic Recovery of the
Reserve, whilst Maintaining International Quality, Health,
Safety & Environmental Standards.
Corporate Ofce: Signature Towers - A, 14th Floor, South
City, NH-8, Gurgaon - 122 001, Haryana, India
Regd. Ofce: M-10, ADDA Industrial Estate, Asansol - 713
305, West Bengal, India
info@geecl.com, www.geecl.com
Upstream
Midstream
Downstream
indigenous gas based generators, which
is continuing since June2008. The
successful implementation of the project
has proved the effcacy of the technology
of CMM extraction and its utilization in
Indian mining scenario.
CMM development: Indian
perspective
In India, history of coal mining is over
century old. It has spread in large areas,
mainly in Damodar Valley Coalfelds,
which have been characterized by
occurrence of multi-seams of high
rank coals. At many places while the
upper seams have been worked, the
lower seams are still lying virgin. These
areas are potential source of coalmine
methane. It has been estimated that
about 150 billion cubic meter of CMM
resource is existing in 5 coalfelds
namely, Raniganj Jharia, East & West
Bokaro and South Karanpura.
For early commercialization of CMM,
efforts are being made to overcome
the technical and commercial issues
like CBM resource assessment in de-
stressed conditions, techno-economic
evaluation of the prospect, utilization of
the produced methane, etc., which are
being addressed through a R&D project,
which is currently under implementation
at CMPDI. Visualizing the need for
early commercialization of the resource
regulatory framework for harmonious
extraction of coal and CBM is currently
under fnalization at Govt. level.
CBM Rig Unit at Moonidih
The successful implementation of the
Demonstration Project at Moonidih
Mine has given enough confdence for
taking up commercial development of
CMM in other potential areas. In the
mean time, MoC has made CMPDI,
nodal agency for development of CMM
in the country and also gave direction
for replicating CMM projects in other
potential areas. Development of CMM is
also an important agenda of CMM/CBM
Clearinghouse, which is functioning
under the aegis of MoC & US EPA.
Under the above situation, CMPDI
on behalf of CIL identifed 5 suitable
CMM blocks and started the process of
commercial development of CMM from
the active mining areas. Deliberations
were made with the probable service
providers as such expertise is not
available with CIL. Further, it was
thought that as all these areas are
falling within the mining lease hold, the
implementation could start without any
delay and the implementation could be
taken up with the available infrastructure
of operating coal mines. The ownership
issue of CMM had been deliberated at
the highest level and matter is likely
to be resolved soon and commercial
development of CMM could start from
the identifed areas.
Underground Coal
Gasifcation (UCG)
Underground Coal Gasifcation (UCG)
is a physico-chemical process, by which,
coal is converted in-situ to a combustible
gas that can be used as a fuel or chemical
feed stock. The UCG offers a potential
economic means of extracting energy
from deep seated coal/lignite deposits
which are not amenable to conventional
extraction on account of prevailing
techno-economic considerations.
In India, UCG was taken up in
mid 1980s by ONGC and CIL under
technical collaboration with erstwhile
USSR. Although one lignite block
Merta Road in Rajasthan was
found suitable, pilot appraisal could
not be taken up due to apprehension
of contamination of ground water.
With the advancement of technology,
development of UCG is a priority area
both at Govt. and coal industry level as it
is a part of clean coal initiatives.
UCG Development: Regulatory
Status
To expedite development of UCG,
MoC has issued a Gazette Notifcation
dt.13.07.07, which specifes production
of syn-gas obtained through coal
gasifcation (underground & surface) and
coal liquefaction to be end uses for the
purpose of Coal Mines Nationalization
Act, 1973. This notifcation has paved
way for taking up UCG by public/
private entrepreneurs. India is having
considerable coal reserves and there are
several areas, where the occurrence of
coal seams are deep lying or isolated in
nature, where coal mining operations
is not possible due to techno-economic
considerations. These areas are suitable
for taking up UCG
UCG Blocks within CIL Areas:
Consequent to signing of MoU between
CIL & ONGC in November, 2005 for
taking up pilot scale studies for UCG,
CMPDI has prepared data packages
for 5 prospective UCG sites. Out of the
fve sites, one Kasta block in Raniganj
coalfeld was selected by the consultant
engaged by ONGC. As required,
drilling of 12 nos. of slimholes for
generation of additional data has been
completed in Kasta block for examining
possibility of taking up pilot scale UCG
project. The analysis of the samples
generated through the drilling has
been taken up and is being examined
by Russian experts.
In addition, 2 more blocks within
the CIL area, namely Kaitha in
Ramgarh CF within CCL command
area and Thesgora-C in Pench Valley
CF within WCL command area have
been identifed for development of
UCG. Concluding the above, it may
be seen that there is substantial scope
for development of coal based non-
conventional energy resource and
as such, there is an urgent need for
extending help to this nascent high
technology area so that the technology
is brought and tested in the Indian
geo-mining conditions. This will be in
the best interest of the Indian energy
scenario, as the energy produced in this
resource will add to the energy supply in
the country, which is strained due to gap
in the demand and supply scenario.
InDepth
May 2012
58
May 2012
59
Telecom Goes Green:
Solarising telecom towers
Boarding the bandwagon, it is the turn
of the Telecom industry to go Green
as the Government now plans to make
it mandatory to replace DG sets for
telecom towers with Solar Panels. The
carbon foot print -- total emission of
the telecom industry in India is around
1 percent of the countrys total CO2
emissions as against 0.7% worldwide
precisely points the driving case
for going green in telecom. However,
carbon foot print is just not the only
dimension; the other is use of subsidized
diesel in the sector. After transportation,
telecom is the second largest consumer
of diesel and on an average about 3-4
billion litres of diesel is consumed
annually by the telecom industry.
Diesel is used in gensets to power
telecom towers. The argument is why
government should not stop prolifc
usage of subsidized diesel in an Industry
thats witnessing annual growth in
profts of at least 10 percent.
The government and green activists
have started raising questions on the
usage of unsustainable and ineffcient
model of power generation. However,
considering the state of power
scenario in India, telecom service
providers cannot be entirely blamed
for the choice made. Alarge part of
the country is yet to be electrifed,
which poses a barrier in the growth
trajectory of the telecom sector. In
order to surmount this, telecom sector
highly relies on diesel fred DG sets
which provide power to telecom
towers. At present, the total electricity
requirement for about 400,000 telecom
towers in India is about 12,264 MU.
Of which, about 60 percent is met by
DG sets and the remaining 40 percent
is met by grid supply. This results in
high level of expenditure on the fuel
requirement. During the year 2010-11
the telecom sector spent an amount of
`7,000 crore to power about 350,000
telecom towers in the country.
The telecom Regulatory Authority
of India (TRAI) has initiated the
consultation process on green energy
use by different stakeholders like,
telecom service providers and telecom
equipment manufacturers. With the
increasing energy consumption and
rising cost of fossil fuel, it is important
that the focus shifts to energy effcient
technologies and alternate sources of
energy, said the regulator. According
to TRAI, a total switch-over from
diesel would save nearly 200 crore litre
of diesel about 3 litre per subscriber
and `6,500 crore per year.
Out of the number of clean energy
options available in India, solar energy
has immense potential to power the
telecom sector. Solar power can be
applied in microwave repeaters,
cellular base stations, VSATs,
telephone exchanges and satellite
earth stations, etc. Solar transmission
towers and repeater stations can be
established in remote locations far from
grid lines and even in diffcult terrains.
Solar PV to replace DG sets for 20 and 33 percent of towers by 2015 and 2020
Total switchover to save `6,500 crore of Diesel every year for Telecom Tower companies
During 2010-11, the
telecom sector spent an
amount of `7,000 crore
to power about 350,000
telecom towers
with the stakeholders for introduction
of green technologies in the Indian
telecom space, the participants told
TRAI that on the face of power outages
for the larger part of the day in rural
area, the opportunity was to reach
uncovered rural markets through green
energy alternatives.
InfralineEnergy estimates that urban
subscriber base will grow at the present
rate of about 10
percent per annum
till 2015. After
that the market
is expected to
saturate a bit,
but still would
continue to
witness a growth
rate of 5 percent.
In rural areas,
the subscriber
base would
continue to grow at 10 percent per
annum till 2020 and will improve the
overall tele-density.
As a thumb rule, it has been
observed that about 100,000 towers are
required to support a subscriber base
of 220 million. This trend is expected
to continue till 2015. However, with
gradual improvement in technology and
more network sharing arrangements
among the various service providers,
it is expected that at least 240 million
users can be supported by 100,000
towers. InfralineEnergy estimates
that India will need a total of 750,000
towers to power the telecom needs
of about 1.8 billion wireless telecom
subscribers by 2020.
As TRAI has introduced a roadmap
for green energy in telecom sector,
solar PV based systems are the most
suitable option among other renewable
energy technologies (RETs) to achieve
this target. InfralineEnergy estimates
that solar energy will contribute at least
30 percent and 70 percent respectively,
to the energy requirement of hybrid
towers in urban and rural areas.
In urban areas, the remaining 70
Indus Towers, the countrys largest
telecom tower company, a joint venture
between Bharti Airtel, Idea Cellular
and Vodafone, recently announced it
has begun replacing diesel generators
with solar panels. The company has
announced a pilot programme to
convert nearly 2,500 towers from diesel
to solar which, the frm said, will save
it around 20-25% of their running costs
Wireless Telecom Subscriber growth in India

Source: TRAI
Cost Economics of Diesel based Telecom
Towers in India, 2011
Source: Infraline Research, *Cost of Diesel-`45
Replacing diesel generator (DG)
sets with solar panels is one such
solution which can bring a sustainable
and clean solution in telecom sector by
reducing the operating cost.
Mahindra Solar One CEO Chandan
Guha, a prominent industry leader,
who recognises the immense potential
in this segment. We are looking at
things like solarising telecom towers,
Guha told Infraline Energy in an
interview. He said that Mahindra has
an advantage because of DG sets. We
have many existing customers with
large number of telecom towers. So can
we go there and try a diesel abetment
model for the customers. I am sure it is
worth exploring, added Guha
Realising the need of the hour, more
and more telecom service providers
have started pilot projects to replace
diesel and grid power with solar power.
Idea Cellular has explored a Solar
Hybrid Solution for running BTS in
parts of rural Bihar. We plan to install
Solar Hybrid sets at 200 sites by end
of FY 12. This will reduce the fuel
consumption of power generator from
running for 15-16 hours to less than 5
hours a day in these locations said the
company notifcation. As per Bharti
Infratel, it is the only telecom tower
company, which has installed almost 3
MW of solar capacity on its network,
generating more than 5 mn units of
electricity every year. Its GreenTowers
P7 programme aims to cover 22,000
tower sites and provide solar solutions,
out of which 5,500 sites have already
been implemented in the frst year as
part of this three-year programme.
Once completed, the initiative will
reduce diesel consumption by 66
mn litres per year; with a signifcant
carbon-di-oxide reduction of around
1.5 lakh MT per year.
TRAI Roadmap towards Green
Telecommunications
Recognizing the potential of renewable
energy in the telecom sector, the
government is taking steps to mandate
the use of renewable power by telecom
service providers. In a directive released
in January, 2012 TRAI has directed
service providers to use hybrid power
(Renewable Energy Technology (RET)
and grid power) for at least 50 percent
of all rural towers and 20 percent of the
urban towers by 2015.
During the process of consultation
Source: TRAI
50% of rural towers
20% of urban towers
75%of rural towers
33%of urban towers
2025
2015
InDepth
May 2012
60
percent energy requirement will be
met through grid power. In rural areas,
other than solar power, biomass energy
and grid electricity are expected to
meet the remaining 30 percent of the
total energy requirement.
SPV Potential in Rural Segment
Solar energy possesses immense
potential as the TRAI green energy
roadmap focuses more on the rural
telecom segment. Majority of rural
India is still un-electrifed. Even
areas with grid connectivity get an
electricity supply of only 3-4 hours. In
these parts of the country the telecom
towers are mainly dependent on diesel
generator sets to meet its energy
requirement. Solar energy is expected
to play a leading role in this endeavour
and would have a total potential of
1225 MW and 2573 MW by 2015
and 2020 respectively.
We have installed more than 1,000
power backup systems for the telecom
sector, but these days because of 2G
scam etc, people are not putting much
money into the sector, said Amardeep
Raina, General Manager, Conergy.
Talking about the implications of
the cost on the widespread use of the
green technology, Anand Dalal, Vice
President-Corporate Regulatory Affairs
of Tata Teleservices limited said,
While we are confdent of the technical
feasibility, it is evident that fnancial
viability for solar/ solar-wind/ fuel
cell hybrid renewable energy systems
in shared mobile infrastructure sites
in rural/remote areas will need to be
supported by government incentives.
However the present cost of using
such technologies based on Solar, Wind
and fuel cell, etc. is expensive and the
payback period for such investment
is ranging from 6 to 10 years. Hence
we request the Regulator/ DoT 16
to approach the Ministry of New &
Renewable Sources of Energy (MNRE)
to subsidize the Capital expenditure
of such investments to minimize the
payback period to two years, similar to
the promotions being done by MNRE.
With the governments mandate is
in place, the telecom sector in India
will certainly be pushed towards
widespread deployment of solar PV
panel to power its telecom towers. The
deployment in urban areas would be
less as space could be a concern for
solar power roll out. But rural India
is set to have a wider acceptability of
solar energy as it is cost competitive to
the DG sets and have zero emissions.
To meet the target of the
governments green energy roadmap
for telecom towers the total solar
PV potential in India would be 1635
MW in 2015. The respective solar
PV potential by 2020 would be
3353 MW.
SPV Potential in Urban Segment
The energy requirement of urban
telecom towers is primarily met by the
grid electricity. DG sets are used as the
back-up power sources for about 4-6
hours a day. However, with increasing
pollution level in these areas, the
government envisages to use solar PV
to replace the DG sets for about 20
percent and 33 percent towers by 2015
and 2020 respectively. Solar energy has
the potential 410 MW and 780 MW
by 2015 and 2020 respectively to meet
this energy requirement.
However, efforts to solarise
telecom tower are bound to face
headwinds from India-specifc issues
such as the oft-mentioned policy
paralysis, infrastructure constraints
that prevent scaling up of activities
and also international telecom players
fst-tightening in the wake of the 2G
telecom scandal.
Future outlook of Telecom subscriber base in India

Source: Infraline Research, figures are in million
Tower requirement and Solar PV potential in urban India as per TRAI green
energy roadmap, 2020
Year Urban India
Total
Tower
No of Hybrid
Towers (@20% till
2015 and @33%
till 2020)
Hybrid towers
Energy requirement
(MU) @ 3.5 kW/
tower
Solar Energy
requirement
(MU) @30%
SPV Module
Potential MW
(@20% cell
efficiency)
2011 260,000 52,000 1,594 478 273
2013 320,000 64,000 1,962 589 336
2015 39,0000 78,000 2,391 717 410
2020 450,000 148,500 4,553 1,366 780
61
StatisticsRenewableEnergy
May 2012
Renewable Purchase Obligation (RPO) for the
fnancial year 2011-12
Status of Renewable Energy Deployment in India, As on Jan- 2012
State
Percentage to
be procured
from Solar
Percentage to be
procured from
Non-Solar
Gujarat 0.50% 5.50%
Maharashtra 0.25% 6.75%
Uttarakhand 0.50% 4.50%
Manipur 0.25% 2.75%
Mizoram 0.25% 5.75%
Jammu & Kashmir 0.10% 2.90%
Uttar Pradesh 0.50% 4.50%
Tripura 0.10% 0.90%
Jharkhand 0.50% 2.50%
Himachal Pradesh 0.01% 10.00%
Assam 0.10% 2.70%
Bihar 0.25% 2.25%
Orissa 0.10% 4.90%
Goa & Union
Territories
0.30% 1.70%
Madhya Pradesh 0.40% 2.10%
Haryana 0.50% 1.50%
Rajasthan -- 9.50%
Punjab 0.03% 2.37%
West Bengal 3.00%
Delhi 0.10% 1.90%
Meghalaya 0.15% 1.05%
Andhra Pradesh 0.25% 4.75%
Nagaland 0.25% 6.75%
Chhattisgarh 0.25% 5.00%
Source: ERCs
Renewable Energy Programme/ Systems
Achievement During
January, 2012
Total Achievement
During 2011-12
Cumulative Achievement
(Upto Jan 2012)
Grid-Interactive Power (Capacities In MW)
Wind Power 101 2023 16179
Small Hydro Power 48 257.50 3300.13
Biomass Power 25 145.5 1142.6
Bagasse Cogeneration 20 285 1952.53
Waste To Power
-Urban 1.2 1.2 20.2
-Industrial - - 53.46
Solar Power (SPV) 291.6 445.55 481.48
Total 485.6 3157.75 23129.4
Off-Grid/ Captive Power (Capacities In MWeq)
Waste To Energy
-Urban - - 3.5
-Industrial 0.94 27.31 89.43
Biomass(Non-Bagasse) Cogeneration 4.4 51.89 347.85
Biomass Gasifiers
-Rural 0.192 1.642 15.99
- Industrial 1 10.89 132.27
Aero-Generators/Hybrid Systems 0.06 0.33 1.45
SPV Systems (>1kw) 5.02 11 81.01
Water Mills/Micro Hydel 52 Nos. 350 Nos. 2025 Nos.
Total 11.61 103.06 671.5
Remote Village Electrifcation
No. of Remote Village/ Hamlets Provided With RE
Systems
25 905 9009
Other Renewable Energy Systems
Family Biogas Plants
(No. In Lakhs) 0.21 0.7 44.75
Solar Water Heating - Collective Areas (Million M2) 0.1 0.52 4.98
S. No
SPV Module
manufacturers
Module
Manufacturing
Capacity (MW)
Cell
Manufacturing
Capacity (MW)
1 Indosolar - 160
2 XL Energy 192 120
3 PLG Power 100 60
4 Websol Energy 60 120
5 Moser Baer 90 100
6 Tata BP Solar 125 84
7 Solar
Semiconductor
195 -
8 EMMVEE 135 -
9 Titan Energy 100 -
10 Vikram Solar 100 -
11 Waaree Group 75 -
12 Photon Energy
Systems Limited
50 -
13 Surana Ventures 40 -
14 Reliance Solar 30 -
15 HHV Solar 30 -
16 Premier Solar 30 -
17 CEL 12 10
18 USL Photovoltaics
Pvt. Ltd.,(UPL)
10 -
19 Euro MV 40
20 Others 126 6
Total 1500 700
Solar PV Cell and Modules Manufacturers in India, As on
Dec 2011
62
ExpertSpeak
May 2012
63
May 2012
Climate change initiatives have
gradually moved from the center
stage of policy and planning in the
domestic and international arena to
action, refected by investments and
projects; India has tripled its renewable
capacity in the past fve years and
ranks ffth in the world in total installed
renewable energy capacity. Given the
renewable energy potential (~150GW),
implementing robust facilitative policy
framework for the sector holds the
key for sustaining the momentum in
medium to long run.
Governments policies and fscal
incentives programmes for renewable
energy and clean technologies
have evolved over the past decade;
some of notable programmes are
cost escalation-linked feed-in-
tariff; generation-based incentives;
renewable purchase obligations
(RPOs) for state utilities; central,
state and regional capital subsidies;
income tax holiday and accelerated
depreciation for generation assets, and
host of indirect tax incentives, such
as reduced custom and excise duty,
state specifc VAT incentives, and so
forth. In aggregate, these fragmented
efforts, provide a welcome framework,
albeit the Governments tentativeness
accompanied by policy fip-fop
concerns and worries serious investors.
Arecent instance is the move to
withdraw accelerated depreciation
beneft for windmills installed with
effect from April 1, 2012. Although,
withdrawal of accelerated depreciation
was not fully unexpected given the
build- up of select low productive
wind assets and resultant ineffciency
in generation of wind energy; it is the
overnight policy shift approach that
worries the industry. Industry would
have expected that the generation based
incentives (per unit) would be enhanced
with a voluntary trade-off for reduced
depreciation beneft. High-capital
intensive solar projects (both thermal
and photovoltaic) are primarily viable
based on accelerated depreciation and
are rightly concerned by the potential
cascading impact if the policy shift was
to turn adversely in their direction.
Another instance of tentative policy
behaviour of the government witnessed
by the power sector at large is extension
of tax holiday to this sector on a year-
on-year basis. The uncertainty has had
private power producers on tenterhooks
as they revisited their ambitious
investment plans, until the Budget
proposed a year of extension of tax
holiday till March 2013.
Interestingly, the present income-
linked tax holiday would yet again be
replaced by investment linked incentive
in less than a year as Direct Taxes Code
(DTC) is likely to be implemented
from April 2013. The impact of this
fundamental shift in fscal programme
for power sector is yet to be ascertained
with precision; it is almost certain
that such shift will have a bearing on
fnancial returns of investors, especially
for less capital-intensive renewable
energy sources such as wind, biomass,
and small-hydro.
In the context of indirect taxes, since
output of a power plant (ie electricity)
is not liable to Central or State indirect
taxes, indirect taxes on input side stack
up as project cost. The tax cascade is
not likely to undergo any fundamental
change even under GST regime unless
electricity duty is subsumed within GST.
Given the cascade effect of input taxes,
the industry has persistently demanded
for allowance of refund of input side
indirect tax costs - a demand that has
not been paid much heed to, except by
certain growth-friendly states which
permit partial refund of input side tax to
a power producer.
Increase in median rate of indirect
taxes from 10% to 12 % (barring the
basic import duty) proposed by Finance
Bill 2012 would certainly add to woes
of this sector as increase in project cost
are likely to proportional to rate hikes
proposed in the Finance Bill.
While excise duty exemptions are
available on several key renewable
energy devices like wind powered
Gokul Chaudhri is Partner with
BMR Advisors, with responsibili-
ties that include leading the firms
direct tax practice and the industry
program for energy and environ-
ment. He is the lead partner for
select Fortune 500 client accounts
of the firm.
Renewed dimensions of
clean energy industry
generating sets, solar PV modules,
mounting structures, invertors etc,
no such beneft is available under
service tax. In addition, state level tax
legislations lack uniformity of approach.
Generally state VAT legislations in India
provide for concessional rate of VAT
on sale on solar/renewable equipments
(for eg Gujarat, Haryana, Punjab,
Karnataka, Meghalaya, Chandigarh,
New Delhi, Tamil Nadu, Uttar Pradesh,
etc) which ranges between 4% to 5%.
The States of Maharashtra, Madhya
Pradesh and Rajasthan even allow for
a complete exemption from VAT on
solar photovoltaic modules. However,
in absence of all-pervasive policy
guaranteeing exemption from local
taxes or allowing refund of all non-
creditable taxes for the power developer,
the indirect tax costs will continue to
hinder the dream of bringing
down the per-unit cost of
power generation for
renewable energy
generation.
Going
back to
the point
of service tax,
where under no
exemptions are provided for
renewable energy projects, it is pertinent
to note that one of the most signifcant
developments of the Union Budget
2012 is the proposal to introduce a
negative list based approach to levy of
service tax. This would be implemented
from a date to be notifed after the
enactment of the Finance Bill, thereby
providing a window of time for the
taxpayers to prepare for this paradigm
shift. The introduction of a negative
list based approach to levy of service
tax represents a fundamental shift in
Indias approach to taxation in services
(which currently taxes only certain
specifed services). Anegative list
based approach to service tax will lead
to a scenario where service tax could
effectively become payable in every
transaction for money other than certain
specifed categories like sale of goods,
immoveable property, specifed services
in connection with education, transport
of passengers etc. Hitherto untaxed
transactions for example non-compete
fees, fees for right of frst refusal etc
could potentially become liable to
service tax. This, when implemented,
would further add-on to the service tax
cost on power generation.
Specifcally, given the imperatives
of merger & acquisition activities in
the renewable space, it is particularly
important to evaluate possible impact
of service taxation rules (under the
proposed negative list based service
tax regime) on Business Transfer
Agreements. Given the wide defnition
of service proposed under Budget
2012, any set of legally enforceable
reciprocal promises may fall under the
service tax net now whether
or not intended as a service/
economic transaction.
Whilst
largely
changes
proposed
in the
Finance Bill to
service taxation
appear to have drawn
on principles enshrined in
European Union VAT
laws, exclusion of certain activity from
defnition of services (such as Business
Transfer Agreements) as prevalent in
EU laws have not been provided for by
the Finance Bill.
Change in rules for taxation of
services is signifcant as it could
potentially cause business re oganisation
and brown-feld investments
in the renewable energy sector
more expensive.
To sum up, the pace and impact of
changes in the fscal framework, some
of these changes being specifc to
renewable energy sector, could raise risk
barriers emerging from uncertainties
for investors in this sector. Although
sporadic and decentralized incentives
are available to renewable energy sector,
lack of coordination between central
and state incentives programs pose a
signifcant challenge to the economics-
based least-cost development approach
to tapping the countrys renewable
energy potential.
Besides defciencies of fscal
incentive programme, limited
availability of evacuation infrastructure
and grid interconnections continue to
remain one of the biggest obstacles to
harnessing renewable energy potential.
Much economically attractive wind and
small hydropower potential remains
untapped because of lack of adequate
grid evacuation capacity and approach
roads. The lack of good-quality data on
renewable resources remains a problem,
despite investment commitments
by the MNRE in collecting data on
renewable energy. The lack of support
infrastructure in the form of a strong
indigenous supply chain remains a
major hindrance to harnessing of full-
potential of this sector.
Lastly, it is imperative to address
the last mile hitches for developers in
the form of making single-window
clearances process more effective,
especially for smaller renewable energy
projects. Robust governance standards
need to be implemented to prevent
speculative blocking of land which
is becoming ubiquitous leading to
unsustainable rise in project cost.
Robust and stable fscal policies hold
the key for development and delivery of
renewable projects, which will not just
provide clean energy, address climate
change concerns but also generate direct
and indirect employment and revenues
to the exchequer. The policy initiatives
need to be stated and implemented
boldly and with confdence, and any
measure that causes removal or reversal
of the policy should be constructed in a
manner that will not adversely impact
the economics of developed or under
development projects.
64
TailPiece
May 2012
65
May 2012
Water and Energy are essential inputs
of almost any civilisation, particularly
modern civilisations, where organised
networks for their availability at
affordable costs are deemed to
be essential ingredients of public
policy. Water and Energy are largely
interdependent, if not inter twined
in modern economies, rural as well
as urban. There is almost no energy
security without water security and vice
versa. And yet there is no integrated
planning of these vital ingredients of
the economy and the social fabric.
There is scant understanding of the
gravity of the problem of ensuring
continued availability of fnite water
resources and the importance of
water in harnessing most commercial
forms of energy. Conversely, water
cannot reach most intended end
uses without energy inputs.
The cleanest form of affordable bulk
commercial energy is hydropower.
It is the vital balance between peak
and baseload power requirements.
Hydropower is clean, almost entirely
indigenous, infation free in its
availability, and non-consumptive in its
use. The non-availability of water could
devastate any urban settlement and
spark instant riots. Yet the Constitution
makers listed water and water power as
State list subjects, while electricity is in
the Concurrent list and Coal, Petroleum
and Natural Gas in the Central list.
This anomaly would need correction
sooner than later.
Hydropower is the ideal ingredient
for grid stabilisation, given its instant
switch on switch off capability,
particularly from large storage systems.
Its ideal share was assessed at 40% in a
hydro-thermal mix in India. However,
its share has fallen from 50% in the
1960s to 20% in 2011-12 in terms of
installed capacity and 15% in respect
of overall generation. Imports from
Bhutan accounted for only 0.60%.
The contribution of hydro in 2011-12
was only 130, 430 MUs out of a total
generation of 876,337 MUs, exclusive
of captive generation. The installed
capacity is only 39, 000 MW out of a
total non-captive capacity of 2, 00, 000
MW today. The total hydro potential
has been assessed at around 1, 50, 000
MW. We need urgent clearances for
pending projects.
Interestingly, water and electricity
have almost similar management or
mismanagement issues. In fact the
mismanagement of water is probably
greater as it is thought to be a God
given resource. While the population
is going on increasing, the per capita
water availability is decreasing rapidly.
India has 16% of the world population
and only 4% of usable fresh water.
Indias electricity and commercial
energy consumption levels have to
grow almost four times to reach global
levels. Both water and electricity
need correct pricing and compulsory
metering to ensure sustainability of
operation and attaining desirable levels
of effciency. In recent years, while
energy audits are becoming the order
of the day, water use and effciency
audits are largely non-existent. The
pricing of water could become an
issue of greater political power play
than electricity. There is an immediate
need for making energy effcient water
pumping devices mandatory in surface
water distribution, water and sewage
treatment and attaining possible
effciency improvements of upto 50%.
ABureau of Water Effciency on
the pattern of the Bureau of Energy
Effciency could help device and
enforce water use standards.
It has been estimated that in India,
Both water and electricity
need correct pricing and
compulsory metering to
ensure sustainability of
operation and attaining
desirable levels of
efficiency.
Ensuring Water security is
Essential for Energy Security
It is important to ensure water
security if the country wants to
ensure development of Hydropower.
says Anil Kumar Razdan, former
Secretary, Ministry of Power
80% of water usage is in irrigation,
while 60% of this irrigation water and
80% of rural drinking water is from
ground water sources, necessitating
energy use in extraction. In fact
between 2002-08 there has been 70%
increase in ground water extraction
compared to the previous decade.
Water conservation measures like piped
water conveyance systems and drip
irrigation need to made mandatory.
There are ample instances to show
that more water use means more
electricity / energy and more energy
use needs more water.
Specifc water consumption in
industry, particularly in the thermal
power sector has been shown to be high
and unsustainable when compared to the
best global practices. Astudy has shown
specifc water consumption in coal
based thermal power plants between 3.5
to 8 litres per KWh, mainly in cooling
towers and ash handling, while the best
practice norm is 1 litre per KWh. Water
is also needed in coal washeries. If this
is not attended to, water availability,
which cannot be supplemented by
imports, could become a greater
constraint than coal availability. Similar
improvements are warranted in pulp and
paper, and integrated steel plants. Waste
water and grey water recycling, rain
water harvesting are critical to water
availability and security.
Rapid urbanisation has led to large
scale change of land use and state
revenues. The CLU charge needs to be
linked directly to the cost of energy and
water foot prints for specifc locations
per capita, relative to population
density, and not generalised fgures,
leaving the provision of water and
electricity to already bankrupt local
bodies. The limits to urbanisation have
to be water availability and not the
advertising budgets and unenforceable
promises of real estate developers.
Water security is a scary scenario
and too sensitive an issue to be left to
unaccountable self-styled do-gooders.
While the total water resource
availability in the country remains the
same, the per capita water availability
is reducing rapidly.
It has declined from 5200, 2200 and
1820 cubic metres in the years 1951,
1991 and 2001, and is expected to go
down to 1340 and 1140 cubic metres
on an average by the years 2005 and
2050 respectively. While electricity
cannot be stored, water can be safely
stored in large surface storages. In this
respect Indias record is dismal.
Live storages account for only 11%
of the average annual water resources
potential of the country. India can store
only 30 days of rainfall compared to
900 days in major river basins in arid
areas of developed countries.
The per capita storage in India is
about 210 cubic metres when compared
to 6103 in Russia, 3145 in Brazil,
1410 in Spain, 1111 in China and 753
in South Africa. I dread to think of
a scenario in the coming years if the
natural locations for possible storages
are inhabited and lost to us for ever,
or upstream storages are developed in
neighbouring countries before we do
so. In such a scenario, both water and
energy security will have been severely
compromised and jeopardised.
The views in the article of the author are personal.
A study has shown
specific water
consumption in coal
based thermal power
plants between 3.5 to 8
litres per KWh, mainly
in cooling towers and
ash handling, while the
best practice norm is
1 litre per KWh. Water
is also needed in coal
washeries.
66
NewsAnalysis
May 2012
The tax breaks offered by Budget
2012-13 for setting up of solar plants
and equipments will go a long way
in scaling up solar power production
in India. The country has realized
that if it wants to join the super
power club, it has to secure its energy
needs for future.
By 2011, the installed solar capacity
in India was 0.45 GW, a miniscule,
compared to the global leader like
Germany with a solar capacity of
24.7 GW. However, Jawaharlal Nehru
national Solar mission (JNNSM) and
state incentives are driving the growth
and the country is marching ahead with
41.2 CAGR to meet the JNNSM target
of 20 GW by 2022.
The country is likely to see
installation of 9000 MW of solar
projects between 2013 and 2017, the
phase II of the National Solar Mission.
Domestic and foreign project
developers are fnding it tough due to
high cost of fnance, which may spoil
the party for the solar power project
developers. However, as per reports,
fow of private investments into Indias
solar energy sector has risen by 54% to
over $10 billion in 2011, marking the
second-highest growth rate for such
investments among the G-20 nations.
Infow of private investments is
likely to boost the manufacturing side
of the industry.
With the current growth trends,
India is set to reach the CERC target
of 3 percent RPO for solar market in
India. The solar landscape of India is
dominated by Gujarat with 71% of the
total solar capacity of India, followed
by Rajasthan.
The falling of international prices
across the segments in the sector good
news for the Indian industry, which is
heading towards grid parity with the
lowest bid tariff in Jawaharlal Nehru
National Solar Mission ( JNNSM)
batch-2 bidding reaching as low as
`7.49 per unit.
Domestic manufactures of solar PV
cells and modules have been lobbying
since long for exemption of all duties
on raw materials and imposition of
import duty on foreign fnished PV
cells and modules. The industry is
of the view that the measure would
have brought down the input costs
and help Indian companies with their
Chinese counterpart.
Chinese manufacturers are selling
components which are 30-40% cheaper
than Indian manufactured components.
As per the industry, its the high cost of
capital which is stifing the growth of
domestic manufacturing.
Government on the other hand
has asked the project developers to
compulsorily to source at least 30%
of equipments and components from
the local manufacturers. In order to
encourage the domestic industry, the
authorities may even consider putting
a ban on import of equipments and
related supplies. This is expected to aid
the domestic manufacturers to compete
on equal footing with its Chinese
and other foreign counterparts. The
industry would indeed welcome the
move; however, restriction or ban on
imports of components from overseas
market may slowdown the pace of
project development in the country.
The government may have to wait
beyond 2022 to see 20,000 MW of
solar energy capacity in the country.
Tax Break for Solar Industry,
`7.49 /unit bid augurs well
PhotoEssay
67
May 2012
Alstom turning the tide
at Chamera
Power is the foremost requisite for a
nations growth and development, which
needs to be sustainable. Currently more
than 20 percent (38GW) of the countrys
power demand is fulflled through
hydro power, which is the most mature
source of renewable energy. With an
estimated potential of 150GW of hydro
power from all available sources, the
opportunity lies in the 75% untapped
hydro potential in India.
Escalating thrust on combating
climate change and CO2 free
environment has opened enormous
venues for hydro power plants in
India. By 2030, the world will witness
a signifcant change in the power
generation mix with an increased
share of CO2 free and renewable
power but this cannot be accomplished
with conventional strategy. Constant
innovation, substantial investment in
research and continuous improvement
based on past experience are fundamental
drivers of this holistic growth concept.
Indian hydel sector has witnessed a
similar success story of such growth
model. Alstom, the French equipment
major has achieved a new industry
benchmark by successfully spinning
three turbines at a rated speed of 333
RPM in less than 10 hours for Chamera
III Hydro power plant (3 x 77MW),
where the industry average is around
more than 30 days.
Alstom was awarded the Chamera
III HEP contract by NHPC in 2007.
The scope of work included turnkey
execution of Electro-Mechanical lot
comprising of hydro turbines, generators
and auxiliaries. Alstoms Hydro unit
in Vadodra has executed the works for
the project. Emphasising the role of
Alstom Hydro Indias contribution to the
hydro market in India, Mr. Alain Spohr,
Unit Managing Director, Alstom Hydro
India, said, The spinning of all three
machines in record time is testimony to
the exemplary work and coordination of
the team. We at Alstom are committed
to provide cutting edge technological
expertise and clean power generation
solutions to our customers and partners
and will continue to do so in the future
as well. The hydro facility at Vadodra is
one of the three large hydro equipment
manufacturing hubs for Alstom along
with China and Brazil. This factory
is fully geared to meet the needs of
domestic and international projects.
The fundamental choices of turbine
type, generator and balance of plant
technology are different in every case.
Everything is tailor-made based on
the conditions of each site such as the
head, fow and plant confguration.
Alstom ensures that power produced
should not have any environmental
side effects, through Alstoms Plant
Integrator solutions which maximise
performance, with extensive range of
environmental products that enables to
supply the cleanest power plants in the
industry. Global Technology Centres
of Alstom are equipped with advanced
simulation software and scale model
test rigs that allow Alstom to fully verify
every stage of the design and engineering
process, also eco-friendly oil free turbine
components, fsh friendly turbine designs
and other relevant operations and
innovations which ensure effcient and
effective process towards achievement of
the desired objective. Currently in India
more than 9GW are under construction,
which are likely to beneft in XII FYP
and more than 5GW hydro power plants
already commissioned in XI FYP.
1 2
Infralines trip to this project was at the invitation of
Alstom Projects (India) Ltd. The trip was sponsored.
8
7
3
4
6
5
68
PhotoEssay
May 2012
69
May 2012
Photo Caption:
1. Comprehensive view of 200kV D/C transmission line fromBudhil-Chamera
III GIS pooling station of 3x77 MWChamera III HEP constructed by
PGCILin Chamba district of Himachal Pradesh.
2. Exclusive view of best in class newly constructed 68mhigh long concrete
gravity Chamera III hydro damon one of the most difficult terrains of river
Ravi in Chamba valley of Himachal Pradesh.
3. View of Alstoms exclusively designed 200 mhead Francis Turbine-
Generatorcoupling shaft (Unit I) for 3 x 77 MWChamera HEP.
4. Swift lowering of 77 MWexclusively designed Francis Generator Rotor for
Unit II of Chamera HEP. Alstomwas awarded the Chamera III project in
2007, which includes turnkey Electro-Mechanical package of 3 x 77 MW
Francis Units size along with associated Balance of Plants.
5. An ALSTOMemployee monitoring Main Inlet Valve (MIV) fromturbine floor,
which is connected to 6.5mdia horse shoe shaped tunnel 15.995 kms long
HRT, at the Underground power house consisting of 3 units of 77 MWeach.
6. TG units meticulous erection during construction phase of
Chamera III HEP.
7. All 3 Units of 77 MWeach of Chamera III ready to be synchronised after
successfully spinning at rated speed of 333 RPMin less than 10 hours,
industry average for completion of this critical milestone, can usually take
up to a month to achieve for a single project unit.
8. Exclusive view of newly constructed best in class 220 kV D/C transmission
line fromGIS pooling station Chamba-Chamera-III HEP for seamless power
evacuation of Chamera III HEP
70
PhotoEssay
May 2012
71
May 2012
1
Reliance Power commissioned Indias
biggest solar plant in Dhursar village
in Jaisalmer district in Rajasthan on
March 31, 2012. Comprising more than
500,000 ground-mounted photovoltaic
thin-flm modules, the 40 megawatt
plant will deliver clean and green power
to Maharashtra. Spread over an area of
350 acres, the solar plant was built in
just over four months. It is expected to
generate on average 70 million kilowatt
hours of clean energy annually. This
kind of output would make the site
Indias biggest solar PV plant in terms
of electricity generation.
The plant will cater to the needs
of more than 75,000 households. It
will displace more than 70,000 metric
tonnes of CO2 emissions per year,
the equivalent of taking more than
25,000 cars off the road. This is the frst
project being set-up under Rajasthan
governments open access policy.
The solar panels for the project have
been sourced from First Solar, a US
manufacturer and the project and the
construction and commissioning work
was done by Larsen and Toubro. The
long term Power Purchase Agreement
(PPA) for PV project has been signed
with Reliance Infrastructure.
More than 1,400 kilometres of
cable has been laid, more than the
distance between Delhi and Mumbai.
Construction of the plant involves
erection of more than 5 lakh PV
modules, laying of more than 1500 kms
of cable and erecting more than 8000
tonnes of steel, as much steel as there is
in the Eiffel Tower in Paris.
The `700 crore, is fnanced at a debt-
equity ratio of 75:25. Reliance Power
infused the entire equity, US Exim
Bank and Asian Development Bank
(ADB) have provided the debt to the
project at competitive rates. This is the
frst direct loan sanction by ADB to a
private sector solar project in India.
What makes the site unique is
that at the same site, Reliance Power
is also constructing Indias largest
Concentrated Solar Thermal (CSP)
plant of 100 MW capacity, awarded
to the company under the Jawaharlal
Nehru National Solar Mission. It will be
the only solar power generation facility
in India producing power from both PV
and CSP at the same location.
Anil Ambani, Chairman, Reliance
Power said, The Dhursar plant
demonstrates the huge potential of
solar energy to help India meet its
growing energy needs in the most
environmentally friendly manner.
The plant is testimony of the quick
timeframe in which solar power
plants can be built and commissioned.
Reliance Powers vision is to become
Indias largest green power company
and the commissioning of this project is
the frst step in that direction.

`700 cr
project debt
fnanced by
ADB and EXIM
Bank of US
Infralines trip to this project was at the invitation of
Reliance Power. The trip was sponsored.
Reliance Power:
Dhursar Solar Power Project
2
3
72
May 2012
1. Another view of the PV thin-flmmodules
The clean energy generated by the Reliance Power
plant will displace 70,000 metric tonnes of CO2
emissions equivalent to taking 25,000 cars off the
road
2. A Reliance Power engineer stands next to the PV
modules
TeamReliance Power developed this 40 MWplant,
Indias largest solar power project, in a record time of
129 days
3. Providing clean energy to the nation
The clean and green energy generated by Reliance
Powers Dhursar plant will serve the energy needs of
more than 75,000 households
4. A view of the 350-acre solar power plant
The vast area covered by the 500,000 solar PV
modules (350 acres) is 23 times the size of the Eden
Gardens Stadiumin Kolkata
5. Panoramic view of Indias largest
solar power plant
More than 500,000 ground-mounted solar
photovoltaic thin-filmmodules capable of generating
70 million kWh of clean energy
PhotoEssay
5
4
GREEN INFRA
AT THE FOREFRONT OF
POWERING INDIA NATURALLY
WE ARE MAKING THE GREEN DIFFERENCE
Since 2008 we have built a business that straddles all fve
verticals of Green Energy Wind, Solar, Hydro, Biomass and
Energy Effciency.
Currently generating approx 225 MW of Green Energy,
reducing up to 4,55,660 tons of carbon emission annually and
with the presence across 6 states in India, we are on our way
towards becoming a diversifed 5 GW renewable energy
company by 2015.
www.greeninfralimited.in info@greeninfralimited.in

Infraline Coal Reports
Steam Coal Imports Sourcing Options, Prices & Economics
Four Country Feasibility Analysis Australia, Indonesia, Mozambique, South Africa (AIMS)
Steam Coal Imports Sourcing
Options, Prices & Economics
Four Country Feasibility Analysis Australia,
Indonesia, Mozambique, South Africa (AIMS)
Coal imports are to jump by four times to 213
million tonnes in 2016-17 from 54 million this
fscal year to meet the new power target
Global Coal Acquisitions and Imports:
Opportunities and Sustainability Assessment
for India
June 2011
Captive Coal Mining in India 2011
Trends, Investments & Competitive Bidding
August 2011

Steam Coal Imports:
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January 2012 `50,000/-
Key Highlights
AIMS - Country wise thermal coal
import statistics on CIF basis
Landed cost of thermal coal from
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at utility consumption points
International coal benchmarks and
price outlook 2015
Domestic & Global freight market
Recent and likely regulatory/
legislatory changes at AIMS
countries
Opportunities offered by Indian coal
industry
Exploring international miners and
their interests on medium to long
term coal exports to India
Indian coal logists & infrastructural
challenges
Future impact on coal export - AIMS
Countries
Global Coal Acquisitions and
Imports: Opportunities and
Sustainability Assessment
June 2011 `50,000/-
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Availability and production shortfall
issues for coal in India
Major Power Plants investments
contingent upon imported coal in
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Players shaping the global coal
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The bottlenecks around ports and
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Volatility of coal pricing in
international trade
Chinas strategy for energy
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In-depth analysis of emerging
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acquisition
Long term sustainability of imported
coal for India
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August 2011 `50,000/-
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Captive coal demand sizing
through scenario based outlook
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Impact analysis of the proposed
competitive reserve-price tag
mechanism (MMDR Act, 2010)
Comparative analysis on different
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Imported and Linkage Coal
Business case analysis - capital
cost of coal mining projects and
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Feasibility of the emerging business
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Others Coal Publications:
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Ph. 011-6625 0023 (D), 4625 0000 (B), Mobile: 9560626589
Email: ruchi.sharma@infraline.com, reports.support@infraline.com
For exhaustive
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Magazine Title Code: DELENG18199 Form 2: (I-11)/Press/2012

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Volume 1 | Issue 1 | `100

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