Demand for Windfall Profit Tax: The Death of Reason?

 demand for collecting ‘windfall profit tax’ from oil companies in India has been proposed by a section of political actors in the country. Though it is obvious that the term ‘windfall profit tax’ is being loosely interpreted for political ends, an appreciation of the roots of the term may be worthwhile.      

In general, economists tend to treat energy as any other commodity that provides utility to consumers.  Premised on this argument, producers of depletable energy sources such as oil, gas and coal are taxed in the same manner as producers of other commodities which are not subject to the constraint of depletion.  However energy in general and energy fuels such as oil, natural gas and coal in particular are intrinsically different from other commodities. 

Like labour and capital, energy is a factor of production and has important implications for the macro-economy. Changes in energy prices, particularly crude oil prices, which are a bench-mark for all energy prices, can affect the business-cycle, aggregate output (GDP), employment, interest rates and prices (inflation). Production of scarce depletable energy resources such as oil and natural gas command an ‘economic rent’ which is central to natural resource valuation. Economic rent is defined as the return to any factor of production over the minimum amount required to retain it in its present use. It is broadly equivalent to the profit that can be derived or earned from a factor of production (for example, a natural resource stock) beyond its normal supply cost. Discovered reserves of mineral resource such as oil and gas gain value over time as depletion increases their cost of replacement. In theory, it is natural for the current price of oil and natural gas to reflect their current marginal cost. 

A price that exceeds long run marginal cost is ‘monopoly profit’ which can only be achieved through collusion between producers or by Government decree.  The distinction between ‘economic rent’ and ‘monopoly profit’ is not merely semantic.  Economic rent provides the incentive and cash flow necessary to simulate new supplies at ever rising replacement costs.  Monopoly profits are contrived and misallocate resources.  The consequence of disallowing economic rents associated with depleting resources is future shortages of the resource. 

Economic rent is by no means limited to energy fuels but the social and economic significance of energy instigates public antipathy towards economic rents that accrue to the energy industry in general and the oil industry in particular. The oil industry is singled out for attack as it is seen to be the beneficiary of both economic rent and monopoly profit, with collusion between OPEC producers contributing to the monopoly component. 

According to some interpretations ‘windfall profit’ is distinct from that of both ‘economic rent’ and ‘monopoly profit’ and is defined as the ‘profit earned unexpectedly, through circumstances beyond the control of the company concerned’.  As the profits are neither expected nor a result of the efforts of the firm, it is assumed that taxing them would not harm the firm’s incentives to maximise future profits.  A finer distinction could also be made in terms of whether the windfall profits arise out of the cyclical nature of the market or structural features of the industry.  Studies have found that a tax on windfall profits arising out of the structural nature of the industry does not affect company behaviour while a tax on profits arising out of short term or cyclical factors affects company behaviour resulting in resource misallocation and distortion and are best avoided. The recently released Chaturvedi Committee Report on the Financial Position of oil companies released recently treats ‘windfall taxes’ as a resource rent.

The American example of imposing windfall taxes in the 1980 is widely quoted. When the Carter Government came to power, price decontrol was the only available instrument to curb growing demand for oil amidst the supply crisis set off initially by the OPEC embargo against America and its allies in 1973 and later in 1979 by the Iranian Revolution. Removing controls on domestic oil prices was expected to produce additional revenue of $ 1 trillion translating into more than $ 300 billion of additional profit for oil companies. ‘Windfall profit tax’ was designed to capture this additional profit. 

Unlike the ‘excess profits tax’ collected during the World Wars which was a supplementary tax on corporate income, the crude oil windfall profit tax collected in the United States had nothing to do with profits.  It was a tax on oil price and was paid before profits made by an oil company were calculated.  The price of oil in 1979 was assumed to be a reasonable price and any price above that was taxed at rates between 15 and 70 percent. When the Bill was being debated in 1979 the Washington Post observed that the proposed tax was merely ‘an excise on every barrel of oil produced’. When the Bill was passed the Wall Street Journal described it as the ‘the Death of Reason’ which had ‘sacrificed the nation’s security to its thirst for revenues’. 

Most analysts who studied the US crude oil windfall profit tax have concluded that it was not a great success.  Against a revenue projection of over $ 300 billion over ten years only $ 80 billion was generated. Oil prices did not increase as anticipated through the 1980s but the base price which was indexed to inflation continued to rise. In addition, administering the tax proved to be more complicated and expensive than originally thought. During the period of the tax’s existence, America’s reliance on foreign oil increased from 32 percent to 38 percent and this increase is partly attributed to windfall profit tax that inhibited domestic production. 

Indian oil companies do not appear to be generating ‘windfall profits’ on account of high oil price. The 2007-08 financial results of ONGC which produces most of India’s crude reveal that the company incurred a revenue loss of Rs 22,001 crores (roughly $ 5. 2 billion) on account of sharing under recoveries of oil marketing companies through discounts.  In the current quarter, though ONGC is said to have beaten analysts’ forecasts with a 44 percent rise in profit on account of higher crude prices, the subsidy burden on ONGC increased in proportion to the increase in crude oil prices rising by over 2.5 times to Rs 9800 crores (about $ 2.3 billion) from Rs 3649 crore (about $ 852 million) in the same quarter last year. ONGC’s endorsement of windfall taxes reflects its frustration with the ad-hoc subsidy sharing mechanism and not the credibility of the demand for windfall taxes. A well defined ‘windfall tax’ would replace financial uncertainty in the current system of subsidy burden sharing with certainty, a feature vital for business planning.     

For refiners of crude oil, the key determinant of the profitability of a refinery is the spread or margin which is the net difference in value between the products produced by a refinery and the value of the crude oil used to produce them, taking into account the marginal refinery operating costs.  The price of crude oil per se is not the determinant of profitability.  Refining margins vary from refinery to refinery and depend on the cost and characteristics of the crude used, its yield and the value of its products (and hence its location). State owned refineries which are reported to have achieved better refinery margins during the first quarter of the current financial year than the privately owned refineries on account of their inventory positions have not managed to turn that into huge profits. 

Indian Oil Corporation which accounts for 37 percent of refinery capacity in India suffered a net under recovery of Rs 9773 crores (about $ 2.2 billion) in 2007-08 compared to a net under-recovery of Rs 2190 crores ($ 500 million) in 2006-07.  In the first quarter of the current financial year, IOC suffered under-recoveries of over Rs 7320 crores ($1.7 billion) on the sale of petroleum products and its profit dipped by over 71 percent compared to the previous quarter. The Chaturvedi Committee Report has examined this issue down to the smallest detail and concluded that ‘without external assistance from the Government, State owned refiners and oil marketing companies would have reported large operating losses and would not have been able to carry on business at current levels’. Private refineries too have not reported above average profits in the current financial year as illustrated in detail by the Chaturvedi Committee report.

It is possible to stay at the granular level and illustrate, balance sheet by balance sheet, that Indian oil companies in the private and public sector do not make ‘windfall profits’ on account of high oil prices. But a more useful exercise would be to look at broader questions: What purpose would an additional tax on oil companies serve? Would it contribute to India’s energy security? Would it create greater wealth for India and its citizens? 

The broader purpose of ‘windfall profit taxes’ has so far not been clearly articulated by those who have demanded it.  However the Chaturvedi Committee Report recommends that revenue from windfall taxes could be used for supporting the subsidy mechanism as a ‘short term measure’. The report treats the Government as the rightful owner of ‘resource rent’ (windfall profit) and argues in favour of using the revenue for bridging budgetary gaps and for supporting redistributive policies such as the subsidy mechanism for petroleum products. While this may sound like a reasonable argument for the short term, sustaining the subsidy mechanism with new revenue streams would only increase inefficient consumption of petroleum products.  As per figures quoted in the Chaturvedi Committee report consumption of petroleum products grew at an astonishing level of 5.7 percent in 2006-07 and 7.0 percent in 2007-08[1] compared to an average rate of about 2.5 percent between 2000-01 and 2005-06. The acceleration in consumption of petroleum products is attributed to higher growth in consumption of diesel and petrol in the last two years. Consumption of diesel increased by 6.7 percent in 2006-07 and by 11.1 percent in 2007-08 while the consumption of petrol increased by 7.4 percent and 11.2 percent in the same periods. Between December 2003 and June 2008 the price of the Indian crude basket increased by 348 percent. In the same period India’s consumption of petrol and diesel increased by a CAGR of over 5 percent while the consumption of kerosene increased only by about 1.5 percent[2]. Evidently petroleum subsidies are only driving up the consumption of petrol and diesel by middle class & rich households and businesses rather than facilitating the use of cleaner and more efficient fuels such as kerosene in place of inefficient and polluting traditional fuels in poor households.    

This observation leads directly into answering the question on whether windfall taxes would contribute to India’s energy security with a definitive ‘no’. As illustrated above if windfall profit taxes are used to sustain price distortions, even in the short term, it  would not only comfort political actors in the country that they can always tap on this new revenue source to sustain their policies but also drive  unbridled consumption of petroleum.  When import dependence on crude oil is already more than 73 percent, unbridled consumption of petroleum would only drive up import dependence and erode India’s energy security. In addition, windfall profit tax will reduce the incentive for domestic exploration and production of crude oil which in turn increase import dependence. By  skimming off profit streams of upstream oil companies to make up for its own inefficiency, the Government would not only be severely damaging the companies’ ability to replace oil reserves within and outside India but also impede their ability to generate wealth for the Nation and its people in the form of, energy, technology, infrastructure and jobs.  

Worldwide it is acknowledged that it is businesses, whether in the public or private sector and not Governments which are better at creating wealth for the Nation. Rather than looking for additional revenue streams to sustain its own inefficiency, the Government may do well to focus on running a sound economy that provides a framework for wealth creation in the form of monetary and fiscal discipline, open and competitive markets, tax policies that minimise disincentives for innovation and investment in the energy sector along a with the provision of a sound education and health care system. 

 

 

Concluded

 

Lydia Powell

Visiting Fellow

ORF Centre for Resources Management

 

Fundamentals of Crude Oil Prices & the Role of Commodity Futures Markets

 

Introduction

 

he prices of crude oil and other commodities have become a key concern of consumers, businesses, and policymakers in the United States and abroad.  In light of the challenges posed by high commodity prices, several Federal agencies are engaged in the analysis of developments in commodity markets.  In an effort to develop, consolidate, and disseminate this knowledge, the Commodity Futures Trading Commission (CFTC or Commission) invited staff from several Federal agencies to participate in an Interagency Task Force on Commodity Markets (Task Force or ITF).  The other Task Force participants include staff from the Departments of Agriculture, Energy, and the Treasury, the Board of Governors of the Federal Reserve System, the Federal Trade Commission, and the Securities & Exchange Commission.¹ Each of these agencies brings unique experience and expertise to bear on the analysis of commodity markets.

The Task Force is chaired by CFTC staff, which has responsibility for overseeing the U.S. commodity futures and commodity options markets. Given the intense interest generated by the recent surge in crude oil prices, the Task Force is issuing an interim staff report limited to the crude oil market.  This staff report is preliminary in nature.

Executive Summary

In June 2008, the Commodity Futures Trading Commission (CFTC or Commission) formed an Interagency Task Force on Commodity Markets (Task Force or ITF).  The Task Force draws on a broad range of government expertise on the fundamental factors and market forces affecting commodity markets. In light of the recent increases in energy prices and the resulting concerns of the public and policymakers, the Task Force has prepared this interim report on crude oil, which offers a preliminary assessment of fundamental and market factors affecting the crude oil market between January 2003 and June 2008.

The Task Force’s preliminary assessment is that current oil prices and the increase in oil prices between January 2003 and June 2008 are largely due to fundamental supply and demand factors. During this same period, activity on the crude oil futures market – as measured by the number of contracts outstanding, trading activity, and the number of traders – has increased significantly. While these increases broadly coincided with the run-up in crude oil prices, the Task Force’s preliminary analysis to date does not support the proposition that speculative activity has systematically driven changes in oil prices.

The world economy has expanded at its fastest pace in decades, and that strong growth has translated into substantial increases in the demand for oil, particularly from emerging market countries.  On the supply side, the production of oil has responded sluggishly, compounded by production shortfalls associated with geopolitical unrest in countries with large oil reserves. As it is very difficult to rely on substitutes for oil in the short term, very large price increases have occurred as the market balances supply and demand.  

If a group of market participants has systematically driven prices, detailed daily position data should show that that group’s position changes preceded price changes. The Task Force’s preliminary analysis, based on the evidence available to date, suggests that changes in futures market participation by speculators have not systematically preceded price changes. On the contrary, most speculative traders typically alter their positions following price changes, suggesting that they are responding to new information – just as one would expect in an efficiently operating market.

Fundamentals and Crude Oil Prices

On the demand side, world economic activity has expanded at close to 5 percent per year since 2004, marking the strongest performance in two decades. Between 2004 and 2007, global oil consumption grew by 3.9 percent, driven largely by rising demand in emerging markets that are both growing rapidly and shifting toward oil-intensive activities.  Also, some of the fastest growing nations also rely on price subsidies that hold down the prices of oil and refined products such as gasoline, which further boosts oil consumption.

While global demand has proven strong, oil production growth has not kept pace. In the past three years, non-Organization of Petroleum Exporting Countries (OPEC) production growth has slowed to levels well below historical averages, and world surplus capacity has fallen below historical norms.  Preliminary inventory data also shows that Organisation for Economic Co-operation and Development (OECD) stocks have fallen below 1996-2002 levels. Moreover, supply disruptions have adversely affected both world oil production and exports.

The imbalance between scarce supply and growing demand, and expectations that this imbalance will persist in the future, have led to upward pressure on oil prices and greater market reactions to any actual or perceived disruptions in available supply. Under such tight market conditions, it is often the case that only large price increases can re-establish equilibrium between supply and demand. Consequently, large or rapid movements in oil prices are not inconsistent with the fundamentals of supply and demand; such price movements, by themselves, do not indicate that prices have become divorced from fundamentals. Further, if speculative positions, rather than fundamentals, were pushing prices upward, then inventories would be expected to rise. To date, there is no evidence of such an accumulation; in fact, known inventory levels actually have declined.

Analysis of Crude Oil Futures Markets

Activity in crude oil futures and options contracts has been increasing since 2004.  During that period, the number of contracts outstanding (known as “open interest”) has more than tripled, and the number of traders has almost doubled. The fastest growth in open interest has been recorded among non-commercial traders – often called “speculators” – holding spread positions combining long positions in one month with short positions in another month. Thus, while the long positions of non-commercial traders have increased, the short positions of non-commercial traders also have increased. Additionally, although the net long positions of non-commercial traders have increased somewhat since 2004 – which some market observers have hypothesized has pushed prices up – the proportion of those positions has been relatively constant as a share of open interest over the last few years, undercutting that hypothesis.

Much of the attention related to participants in futures markets has focused on the role of commodity index investment funds and the commodity swap dealers that often act as their intermediaries. During the period studied, January 2003 through June 2008, pension funds and other investors have increasingly used index funds as vehicles to participate in commodity markets. Some observers have suggested that this rapid inflow of investments through index funds has been a cause of oil price increases. The CFTC has issued Special Calls for data about this activity, but only partial responses have been received as of the date of publication of this interim report. An analysis of the data from these Special Calls will be made available in September.  

The data currently at hand – which incorporates non-public surveillance information – includes positions held by commodity swap dealers. Commodity swap dealers offer institutional investors contracts whose returns are linked to a variety of commodity indices.  Broadly speaking, after netting their index fund clients’ positions against the positions of their other clients, these dealers use futures contracts to hedge the risk remaining from this business. Thus, the activity of commodity index participants should become evident in the position changes of commodity swap dealers.

Non-public CFTC trading data shows that commodity swap dealers have held roughly balanced long and short positions in the crude oil market over the last year and actually held a net short position over the first five months of 2008 – that is, swap dealers’ futures positions would have benefited more from price decreases than from price increases like the ones experienced in the last few months. Moreover, any upward price pressure exerted by the long positions of swap dealers’ commodity index clients has largely been offset by the short positions of the dealers’ other clients.  

The Task Force’s preliminary analysis also suggests that changes in the positions of swap dealers and non-commercial traders most often followed price changes. This result does not support the hypothesis that the activity of these groups is driving prices higher. The Task Force has found that the activity of market participants often described as “speculators” has not resulted in systematic changes in price over the last five and a half years. On the contrary, most speculative traders typically alter their positions following price changes, suggesting that they are responding to new information – just as one would expect in an efficiently operating market. In particular, the positions of hedge funds appear to have moved inversely with the preceding price changes, suggesting instead that their positions might have provided a buffer against volatility-inducing shocks.  

Fundamentals of Crude Oil

Background

Recent crude oil price increases are an extension of oil market developments originating in the 1990s. At that time, relatively high inventories and ample surplus production capacity served to limit oil price fluctuations. When spot market prices moved up or down, futures contracts requiring delivery in distant months generally traded close to $20 per barrel, consistent with a market expectation that producers would ensure that spot prices would eventually return to that level. However, as leading OPEC members shifted toward a tight inventory policy and global oil demand recovered from the slowing effect of Asia’s financial crisis, the global market balance tightened and inventories declined sharply at the beginning of the present decade.

Oil prices rose to $30 per barrel in what might be seen as the first leg of the upward trend. By 2003, inventories were drawn down sufficiently such that subsequent increases in global demand stretched oil production to levels near capacity. The large, unexpected jump in world oil consumption growth in 2004, fostered by strong growth in economic activity in Asia, reduced excess production capacity significantly. Now, in mid-2008, despite high prices, world oil consumption growth remains strong, overall non-OPEC production growth continues to slow, and OPEC oil production has not grown sufficiently to fill the gap. In addition, geopolitical risks create considerable uncertainty about future supplies.  

Demand

Global Economic Activity

The key driver of oil demand has been robust global economic growth, particularly in emerging market economies. As shown in Figure 1, world gross domestic product (GDP) growth (with countries weighted by oil consumption shares) has averaged close to 5 percent per year since 2004, marking the strongest performance in two decades.  

Figure 1 World GDP and Oil Producton

Source: Federal Reserve Board and International Energy Agency. World GDP aggregate weighted by world oil consumptions shares.

Notes:

1 Although the staff from these agencies participated in the Task Force, agency principals, Commissions, and Commissioners did not specifically authorize or vote to approve the findings of this interim report.

 

to be continued…

 

NEWS BRIEF

OIL & GAS

Reliance may transfer 80 pc in KG D-6 to four affiliates

August 26, 2008. RIL is planning to transfer 80% of its participatory interest (PI) in the famous D6 block in the Krishna Godavari (KG) basin to four unlisted subsidiaries. Valued at nearly $50 billion with 14 trillion cubic feet of gas reserves, this is the most valuable asset held by the company. These four entities viz., Reliance KG Exploration and Development, Reliance KG D6 E&P, Reliance KG Basin and Reliance E&P KG, have recently become majority-owned subsidiaries of RIL. RIL has sought the petroleum ministry’s approval for this. The ministry, in turn, has asked the upstream regulator, the Directorate General of Hydrocarbons (DGH), to furnish a list of similar cases where more than 50% of PI in blocks have been transferred to affiliates.

ONGC notifies four new discoveries

August 25, 2008. The board of ONGC approved an investment of about Rs 450 crore ($102.97 mn) to enhance its exploration and production capabilities. Its board took note of three new western onshore and one Krishna Godavari offshore discoveries notified to the Directorate General of Hydrocarbons (DGH) after the last board meeting held on July 28. The board also gave its nod for hiring of consultancy for acquiring/constructing a FPSO (Floating Production and Storage Offloading) on international competitive bidding (ICB) basis. The expected cost for the consultancy would be approximately Rs 26.88 crore ($6.1 mn). The new FPSO will be initially used to develop marginal fields in the Arabian Sea. The FPSO can also be deployed in extended testing and in early monetisation of fields.

Statoil seeks greater role in India block

August 25, 2008. Norwegian oil and gas firm StatoilHydro is seeking a larger stake and operating rights in a deepwater block owned by Indian explorer Oil and Natural Gas Corp. Statoil already holds 10 percent of the deepwater block in the Krishna Godavari basin off India's east cost, while Brazil's state-controlled Petrobras has 15 per cent. ONGC has a controlling 65 percent stake in the asset.

The remainder is owned by Cairn India, a unit of Britain's Cairn Energy Plc. Petrobras and Statoil have the option to double their stakes in the block once a commercial discovery has been made. ONGC has made some discoveries in the asset, which sits next to Reliance Industries' gas-rich D6 block. According to ONGC, its gas fields off the east coast were estimated to hold gas reserves of up to 6.76 trillion cubic feet. 

Indus Gas starts drilling at Rajasthan block

August 22, 2008. Indus Gas, an oil & gas explorer in India that is listed on the London's AIM market, has started drilling operations at a well in the Indus basin. According to the company, the SSG-1 well in Block RJ-ON/6 will be drilled to a planned depth of 3,564 meters. Further testing, which will require production logging tools, will enable the company to obtain a better analysis of the gas/water behaviour and obtain pressure and flow rates. Indus has a 90% participating interest in the block and Focus Energy is the operator with a 10% participating interest. Indus Gas is an international oil and gas exploration and development company primarily focused on India. The group has a participating interest in a petroleum concession located in a 4,026 square km on-shore area in mid Indus Basin, Rajasthan, known as Block RJ-ON/6.

OVL may partner Russian firm to counter Sinopec

August 22, 2008. ONGC Videsh may take a Russian partner to counter Chinese firm Sinopec in the battle for acquisition of UK-listed Imperial Energy, whose promoters may choose a winner in the next few days. Though OVL has made a solo bid of about $2.5 bn for takeover of Russia-focused Imperial Energy, the overseas arm of state-run ONGC may rope in a company like Rosneft to win Moscow's approval for the acquisition. OVL is mindful that no company can be successful in taking over a company having assets in Russia unless it has the backing of Moscow, and bringing state-run Rosneft on board with a possible 51 per cent stake was being contemplated. In the event of OVL being the successful bidder, it may farm-out majority stake to Rosneft and keep just 49 per cent for itself. Imperial, a relatively small British oil and gas company based in Leeds in UK, has oil producing blocks in Tomsk region of western Siberia in Russia and Kastanai in north-central Kazakhstan.

Fitch revises IOC’s outlook to negative

August 22, 2008. Fitch Ratings has affirmed Indian Oil Corporation Ltd's (IOC) Long-term foreign currency Issuer Default Rating at 'BBB-' (BBB minus), its National Long-term issuer rating at 'AAA(ind)', and revised the Outlook on both ratings to Negative from Stable. The revision in Outlook reflects Fitch's expectation that while IOC will continue receiving state support, given its role as the government's extended arm for policy implementation, the sheer size and timeliness of oil bond issuance and liquidation can create huge spikes in IOC's borrowings and stress liquidity.

The ratings reflect IOC's position as India's largest downstream oil and gas company and are supported by majority state ownership and strong linkage with, and strategic importance to, the state. Though IOC had a record of maintaining a conservative financial profile, its liquidity position has been increasingly stressed since FY06 due to losses (under-recoveries) caused by the Government of India's (GoI) price caps on select fuels. This problem has been accentuated in FY09 due to the significant increase in crude oil prices, the reluctance of GoI to fully pass on price increases to consumers and the discretionary nature of the subsidy-sharing mechanism.

There is a likelihood of significant increase in IOC's financial leverage in FY09, which may not improve unless under-recoveries reduce and/or borrowings for capex is limited. The discretionary nature of the subsidy-sharing mechanism remains a key concern in IOC's rating. Net under-recoveries continuing at anticipated levels without a well-defined mechanism for timely issue and liquidation of oil bonds will lead to a downgrade in IOC's ratings. Any significant reduction in the quantum of net under-recoveries as well as the institution of a mechanism for providing timely support could result in the Outlooks revised back to Stable.

Oil companies assure TN of diesel supply at bunks

August 21, 2008. Oil marketing companies have assured the Tamil Nadu Government of continuous availability of diesel at the retail outlets. The oil company representatives have explained that they had not been prepared for the more-than-usual surge in demand in Tamil Nadu because of the industrial growth and demand from industry, particularly the IT industry, to run diesel generators due to a shortfall in power generation by the State utility. Oil companies routinely prepare for a 15 per cent growth in demand over the previous year.

The demand in Tamil Nadu had increased by 30-35 per cent. Demand for diesel in Tamil Nadu is around 4.2 lakh kilolitres a month and 75 per cent of this is sold through retail outlets 3,000 bunks and about 25 per cent is sold in bulk to the State Transport Corporations, Ports and Railways. Industry users, including IT companies, buy their requirement of fuel for power generation from the bunks and in bulk. The State Government has urged IT companies to buy their requirement of diesel directly from the oil marketing companies. IT companies have indicated that they are willing to pay more to the oil companies for the additional requirement. For now, the shortfall in power generation in the state is about 700-800 MW at peak demand.

RIL, Petrobras in talks for petrochem venture

August 20, 2008. Brazilian energy giant Petroleo Brasileiro SA, or Petrobras, is in talks with Indian company Reliance Industries Ltd. on possible petrochemicals joint ventures in Brazil. Petrobras and Reliance have discussed possible petrochemicals ventures in the northeastern Brazilian state of Pernambuco and in the southeastern state of Rio de Janeiro.

ONGC, MRPL sells 65k tonnes for September

August 21, 2008. Oil & Natural Gas Corp and Mangalore Refinery and Petrochemicals Ltd (MRPL) sold a total 65,000 tonnes of naphtha for September lifting at double-digit premiums. ONGC sold 35,000 tonnes for Sept. 2-3 lifting from Hazira to Sempra at $11.00-$11.50 a tonne premium to Middle East spot quotes, on a free-on-board basis. Although this was sharply down from $27.00-$28.50 a tonne premium ONGC fetched for two August cargoes sold to SK Energy and Shell, the current price is still considered expensive. MRPL, on the other hand, sold 30,000 tonnes of the product for September 26-28 lifting from New Mangalore to Glencore at $18.00 a tonne above Middle East quotes, FOB, within the range of an August parcel MRPL sold to SK Energy. These parcels brought Indian exports for September loading to at least 419,000 tonnes, below this year's peak at 800,000 tonnes for July lifting.

Oil companies get govt notice for delay in paying royalty

August 26, 2008. The government is taking a tough stand against oil majors ONGC, RIL, Cairn and the BG group (British Gas) for delaying payment of royalties. Notices have been served to the members of the two consortia operating PMT (Panna-Mukta & Tapti) and Ravva fields for non-payment of government dues. An audit by the Comptroller & Auditor General (CAG) found delays in payment of royalty by PMT consortium from 1994-95 to 2001-02. As per the production sharing contract (PSC), the consortium is required to pay royalty on biannual basis and any delay in paying the same would attract a 10% penal interest. While it has imposed penalties against the PMT consortium represented by ONGC, RIL and BG, in the case of Ravva, it has directed Indian Oil Corp to pay a lower price for the crude it buys from the field by adjusting the royalty that is due from this field. Members of Ravva consortium are ONGC, Cairn, Ravva Oil and Videocon Industries. On an earlier occasion also the petroleum ministry had warned PMT joint venture against the late payment. Delay was found in royalty payment by the consortium in 1995-96 and the ministry had asked it to pay the fine.

The PSC for PMT was signed in 1994 between the government and consortium. ONGC holds a 40% participating interest in the oil and gas blocks, while balance 60% interest is shared equally between RIL and BG Energy Holdings. The Panna-Mukta fields produced 1.77 mmt of crude oil and 1,662 mmscmd of gas in 2005-06. The Tapti field produced 2,228 mmscmd of natural gas during the same year. In the case of Cairn-operated Ravva, petroleum ministry advised Bongaigaon refinery in Assam to deduct the penalty amount (due to late payment of royalty) from the sale proceeds of the contractor in ratio of their respective participating interests. ONGC is 40% stake holder in the field. Participating interests of Cairn in the field is 22.5%, Singapore-based Ravva Oil (12.5%) and Videocon Industries is 25%. The average gross production from the field for 2007 was 60,441 barrels of oil equivalent per day (boepd), comprising average oil production of 48,078 bopd and average gas production of 74.18 million standard cubic feet per day (mmscfd). 

Diesel may cost Rs 57 per litre for industrial users

August 25, 2008. State-run oil firms have proposed a Rs 57 per litre price for diesel they sell to industrial users as against Rs 34.80 a litre currently, as use of the fuel in sectors like power generation had seen an unprecedented growth. Three oil companies have submitted a concept paper to the Petroleum Ministry for differential pricing of diesel for direct consumers like Railways and power producers who they want to charge market price and limit subsidised sales to transport and agriculture sectors. Industrial units like power generators find subsidised diesel cheaper than freely priced fuel oil and naphtha, pushing demand that has forced refiners import the fuel to meet the requirement. The diesel demand in April-July had grown by 18 per cent, with bulk of the growth coming from industrial users like power plants. The power sector had seen a whopping 152 per cent rise in demand in the first quarter to 53,000 tons, while fisheries and marine sector had seen a near-40 per cent growth. According to the oil companies, differential pricing of diesel would reduce the revenue loss by Rs 27,202 crore ($6.2 bn) in 2008-09.

Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum currently lose Rs 16.22 per litre on diesel sales. Half of the projected Rs 184,801 crore ($42.2 bn) revenue loss on sale of petrol, diesel, LPG and kerosene in fiscal 2009 is because of diesel. The unprecedented diesel demand growth has seen domestic output fall short of the requirement and a total of 4.14 mt of diesel may be required to be imported in 2008-09. Of this 1.267 mt has been imported in April-July. While transport and agriculture demand for diesel had grown by 10-12 per cent, consumption by power producers and other industries had risen 30 per cent.

Govt set to dump Jan Kerosene Pariyojana

August 25, 2008. Government is set to dump Jan Kerosene Pariyojana after the ambitious scheme launched by the former Petroleum Minister Mani Shankar Aiyar flopped with states and resulted in an annual loss of Rs 200 crore ($45.7 mn). Jan Kerosene Pariyojana (JKP) scheme was launched on October 2, 2005, with an objective to effectively distribute kerosene to end consumers and prevent diversion of the fuel. It also sought to involve Panchayati Raj institutions in monitoring of the scheme. However, Gujarat, Maharashtra, Rajasthan and Goa withdrew from JKP in 2006 and 2007 and most of the others too were not enthused about the scheme.

JKP involved creation of 5-10 sub-wholesale points in each block for a three-tier distribution system i.e., wholesaler, sub-wholesaler and retailer. However, states preferred retailers getting their supplies directly from the wholesaler. The scheme also envisaged involving local panchayats to streamline supply through public distribution system (PDS). According to a study of NCAER, improved targeting of PDS kerosene led to a benefit of Rs 0.33 per litre, while the cost of implementing the scheme came to Rs 0.46 a litre. Clearly, the benefits were short of cost involved. The number of blocks covered by JKP in Gujarat when the scheme was operational stood at 24, while for Rajasthan it was 13. In Maharashtra 30 blocks were covered, while Goa had only one block.

RIL, Rel Infra qualify for $6-8 bn coal to oil project

August 25, 2008. Reliance Industries and Anil Ambani's Reliance Infrastructure are the only two companies to have qualified for the $6-8 billion project to convert coal into oil, as per the criteria set by the government. Firms were the only ones to meet the minimum networth criteria of Rs 4,000 crore ($0.91 bn) and had an agreement with a foreign firm for technology to convert coal into liquid petroleum. Besides these two firms, seven other firms met the minimum networth criteria including Steel Authority of India Ltd (SAIL), GAIL India, GMR Infrastructure, Indian Oil Corp and JSW Steel. Of these, SAIL and JSW did not meet the eligibility criteria of having a collaboration or tie-up with a proven technology provider, while GAIL, GMR and IOC only furnished assurance letters from the technology provider and no documents related to MoU/agreement were provided. On preliminary examination of the 22 bids received for the CTL project at Radhikapur coal block, Srirampur block and Ramchandi Promotional coal block in Orissa, seven more companies fulfilled the networth criteria if their parent firms' balance sheets were taken into account. Those qualifying under this category include Tata Group firm Strategic Energy Technology Systems, Essar, Sterlite Energy, Vedanta Aluminium, Jindal Steel and Power, Vista Natural Resources and RICON Infrastructure. Tatas, Essar, Sterlite, Vedanta, Jindal Steel and VistaNatural Resources had technology tie-ups, while RICON had none. An inter ministerial group will decide if assurance letters for technology tie-ups and parent company networth would qualify a company for the CTL project.

Domestic LPG cylinders to have radio tags

August 22, 2008. LPG cylinders, used for cooking in households, will now come with a radio frequency tag to detect if the heavily subsidised gas was being diverted to commercial establishments like restaurants. Domestic LPG costs Rs 348.89 less than the cylinders meant for commercial use and this difference often leads them into restaurants and hotels who are supposed to use only industrial LPG. All cylinders will be tagged with a unique number and consumers will be issued smart cards. Every time a refill is delivered, the unique number would be stored on the smart cards. All this information will be accessible to oil firms who would bottle LPG only in those cylinders which had actually been used in some household. The Chief Controller of Explosives (CCOE) has approved the proposal for introduction of the system and the project will be implemented in phases beginning 2009. Oil companies have already colour differentiated the domestic use cylinders from those meant for non-domestic usage red is the colour of 14.2-kg cylinder meant for household use and oxford blue would be the colour for 19-kg commercial cylinder. Besides, they have also decided to eliminate multiple connections in one household and stop supply of subsidised gas to places having piped natural gas supply. Indian Oil Corp has already conducted two successful trial runs for tagging LPG cylinders with radio frequency chips, while Bharat Petroleum has carried a trial run at its Pune plant. Hindustan Petroleum has done the same at its Nasik plant.

POWER

Bhel bags a $32 mn order for supplying gas turbine generating units

August 26, 2008. Bharat Heavy Electricals Ltd (Bhel), a public sector power equipment company, has bagged order worth Rs 140 crore ($31.92 mn) for supplying two gas turbine generating units of 42 MW each to International Energy Resources, a UAE-based company. With this order, Bhel has been able to secure orders for six gas turbine generating units from UAE worth Rs 450 crore ($102.6 mn). So far the company has set up 14 power projects in the West Asia, apart from substations and supply of a host of equipment for the power, oil and gas companies.

PSEB floats SPV for 2.64 GW thermal power project

August 25, 2008. Having received Central Electricity Authority's clearance for setting up a 2,640 MW thermal power plant in the state, Punjab State Electricity Board has floated a special purpose vehicle, Gidderbaha Power Ltd - which will be a wholly-owned company of PSEB, to facilitate the development of the project. Gidderbaha Power would ensure the acquisition of land, obtain clearances including environmental and forest and attain water and coal linkages, besides carrying out the bidding exercise for the project. Proposed to be developed on build-own-operate (BOO) basis through tariff bidding route, bids from global players would be invited next month. The project is expected to involve an investment of Rs 13,200 crore ($3 bn). As part of the state government's plans to generate 12,244 MW of power in coming years, major thrust has been laid on setting up more power projects in the state. The two other power projects - 1,320 MW Rajpura thermal project and 2,000 MW Talwandi Sabo project are in different stages of development. The Talwandi Sabo project would be formally alloted to Sterlite Energy on September 2, while for the Rajpura project nine companies, including Reliance Power, Tata Power and Lanco Infratech would submit their price proposals by November 7.  ’

Thermax plans to invest $115 mn in new plant

August 24, 2008. Thermax Ltd, a Pune-based boiler and absorption chiller manufacturer has decided to set up a new Rs 500-crore ($115.36 mn) manufacturing plant for large boilers of capacity 100 MW to 800 MW for power plants. The company has not yet finalised the location of the plant, but indicated it would be either in the west or north India. In the first phase, the company would have a capacity to produce sub-critical boilers with total capacity of 1,500 MW per annum, which would entail an investment of Rs 300 crore ($69.2 mn). In the next phase it will scale up the capacity of the boilers of equivalent to 3,000 MW with an additional investment of Rs 200 crore ($46.1 mn).

NTPC to become 30 GW company by year-end

August 21, 2008. Country's largest power producer NTPC is all set to become a 30,000 MW company this year after the commissioning of its 500 MW plant at Kahalgaon in Bihar in November. The company, which plans to focus on hydro power generation, would produce its first unit of electricity next year and has set a target to add 7,000 MW of electricity to its total capacity only through hydro by the end of 2012. On the thermal side, although the company has ambitious targets but the ongoing tussle with the domestic coal companies, especially Coal India Limited (CIL), over the shortage of coal may upset NTPC's plans. The total coal requirement of the company in the current financial year (2008-09) is 125 mt, out of which it plans to import 8 mt to bridge the shortfall. In fact, NTPC has sought Power Ministry's intervention to resolve the coal shortage crisis. At an average, the company is facing a shortfall of 10-12 mt of coal a year.

NTPC has already lost Rs 94 crore ($21.6 mn) in the current fiscal due to low generation at various plants, including Rihand, Vindhyachal, Farakka, Kahalgaon and Talher following short supply of coal. The company took up the matter at all levels of Ministry of Coal (MoC), Sub Group for Infrastructure Constraints (under MoC), Coal India Limited and its subsidiaries, but coal supplies have not improved. The company also plans to enter into nuclear and renewable segments of power generation. It plans to adopt supercritical technology in order to reduce coal consumption and greenhouse gas emissions. NTPC would commission country's first 660 MW supercritical unit in March 2009 and has also identified sites for manufacturing 800 MW supercritical units to be commissioned by 2017.  

GMR Energy aims to raise funds for 3 GW power plan

August 20, 2008. GMR group is reportedly planning to sell 5-10% equity stake in its energy business to raise Rs 26 bn to fund the completion of power projects. GMR Energy, the company's power generation subsidiary, has earmarked Rs 130 bn for generating about 3,300 MW power. About 80% of the investments would be funded through debt while the rest will come through private placement of 5-10% equity. GMR Energy has already started talks with a slew of investors. The decision to offload stake comes after the company reportedly deferred a plan of offering shares to the public owing to the stock market slump. The GMR group, which recently acquired a 50% stake in Netherlands-based power firm InterGen, is scouting for acquisitions abroad. For long-term fuel linkages, GMR Energy has bought a 10% stake in Homeland Mining and Energy, a South African subsidiary of Canada's Homeland Energy. The company is now planning to increase its stake to 50%, which will require a $155 mn investment. It is also looking at opportunities in Indonesia and Mozambique, besides South Africa.

PTC mulls coal import, to buy stake in mines

August 26, 2008. PTC India, the country's biggest electricity trading company, is planning to import coal and buy stakes in overseas coal mines to diversify its business amid increased competition. PTC is looking to invest in mines in Indonesia and India and has signed agreements to supply 1.5 mmt of coal to power generators by December 2009. PTC has signed an agreement with a Singapore-based company to buy a stake in mines in Indonesia. The company is looking at supplying coal to power generators and receive electricity in barter. The energy trader faces competition from new power exchanges and is using part of the Rs 1,200 crore ($275 mn) it raised in a January share sale to invest in power projects and energy assets. The demand for coal, which fires more than half of the country's generation capacity of 1,41,000 MW, is rising. PTC has signed an agreement with a Singapore-based company to buy a stake in mines in Indonesia, the world's biggest exporter of power-station coal. India may import about 20 mt of coal in the year through March, according to the Central Electricity Authority, a statutory body that advises the government on power policy and sets technology standards for the industry. Imports may double by 2012. State and private utilities in India plan to almost double the country's generation capacity to 2,50,000 MW by 2017. New power exchanges are expected to help reduce shortages by conducting spot trades in electricity, which is usually sold through contracts, allowing captive plants run by companies to sell surplus power.

PTC owns 26 per cent of Indian Energy Exchange, the country's first, which started on June 27. Financial Technologies (India) is the exchange's founder and majority owner of the world's third biggest gold bourse. The National Commodity and Derivatives Exchange in June won approval to set up a competing platform. NTPC, the country's biggest generator, and Power Finance Corp, which both partly own PTC, plan to set up the country's third electricity exchange. Bulk of the capacity addition will come from nine coal-fired plants, each capable of generating 4,000 MW. These so-called ultra mega projects are planned near coal mines or along the coast to enable them to use imported fuel. Tata Power, the country's biggest electricity generator outside state control, is setting up one of the projects at Mundra in western India and has invested $1.2 bn in two Indonesian mines to secure coal supplies.

Power curbs on industries, malls back on the agenda

August 25, 2008. With demand rapidly rising and stagnant power supply, the situation has brought all restrictions on electricity usage back on the Maharashtra power utility’s agenda. This means, industries in the state will soon have to enforce two days off a week, 10% cut in malls and other shopping complexes and no electricity supply to billboards and hoardings being fed by the state power utility. The gap between demand and supply has shot up to an alarming 4,500 MW. Poor rainfall and failed generators are cited as reasons the spike in power demand. Due to the paucity of fuel, Dabhol is contributing a mere 350 MW to 450 MW to the state. Restrictions on water usage for electricity generation at hydel station at Koyna are making it tougher. With over 1,950 MW in capacity, Koyna is the state’s power backbone and is used only during peak hours.

MSEDCL, Tata Power to discuss Pune model

August 22, 2008. Maharashtra's electricity distribution firm will meet Tata Power, which is supplying power for Pune, Thane and Navi Mumbai under the Pune model, and consumer groups, to thrash out the issue of load-shedding in these areas. Tata Power will be asked to give a commitment of providing firm power. In the event that they are not able to do so, the state distribution utility will then ask citizens if they are willing to face variable load-shedding and also pay higher prices at the same time.

NTPC seeks Govt nod for ECB

August 25, 2008. NTPC has reportedly approached the Government for free access to external capital markets for raising debt of around Rs 1.05 lakh crore (about $25 bn) in order to become a 50,000 MW company by 2012. The External Commercial Borrowing (ECB) would include Rs 603 bn ($13.7 bn) in foreign currency and Rs 452 bn ($10.3 bn) in rupee term. As per the power generation major, the Government should recommend to the RBI for granting ECBs to meet both the rupee as well as foreign currency expenditure for subject packages. In the present scenario, companies can raise up to $500 mn per annum through ECBs under the automatic route for import of equipment. An additional $250 mn can be raised for the said purpose with the approval of the RBI. The country's largest power producer wants to raise money in foreign as well as domestic currency without any ceiling. NTPC is pursuing this matter with the Power Minister to achieve its ultimate objective of becoming a 50,000 MW company by 2012 and a 75,000 MW company by 2017. For achieving these targets, the company is required to invest around Rs 1.6 lakh crore ($36.6 bn) during the 11^th Five-year plan. The debt requirement is around Rs 1. 05 lakh crore ($25 bn) with 70:30 debt equity ratio.

Power companies can get sops on local purchase

August 25, 2008. The government has clarified that deemed export benefits can be availed by power projects on purchase of equipment from domestic market without going for international competitive bidding (ICB) norms. This flexibility would be available only if power procurement from such projects has been tied up under a tariff-based bidding procedure. As per a circular posted by the directorate general of foreign trade (DGFT), deemed exports benefits would be available to power producers if power procurement is under tariff based bidding or the company invites ICB for offering engineering and procurement contract (EPC) for the project. The move would mainly benefit the upcoming power projects including ultra mega power projects (UMPP) that are being bid on tariff. Under the old system, these projects would have to undertake ICB process twice (on tariff and on sourcing equipment) to get deemed exports benefit. It was clarified after a meeting between the commerce ministry and the power ministry that deemed export benefits are available on supply of goods to mega power projects if power procurement from such projects has been tied up through ICBs. Alternatively, the ICB procedure should be followed at the engineering and procurement contract stage by the projects. Deemed exports relate to transactions under which goods supplied to users or projects do not leave the country and payments are received either in Indian currency or in foreign exchange. The benefits include exemption from excise duty and duty drawbacks to suppliers. The sops are available to either an inter-state thermal plant exceeding 1,000 MW capacity or a hydel plant of 500 MW and above. 

NHPC eyes carbon trading revenues to boost topline

August 25, 2008. NHPC Ltd, the country’s largest hydro power generator that is gearing up for a public float in October, is aggressively looking at carbon trading revenue streams to boost topline growth. While two of its smaller projects, the 45-MW Nimoo Bazgo and the 44-MW Chutak hydroelectric stations in Jammu & Kashmir, have already bagged host country approval, the hydropower major is pursuing CDM registration for its other projects to supplement revenues. While in case of the Nimoo Bagzo project, the predicted annual green house gas emission reduction will be to the tune of 180,074 tonnes of carbon dioxide, for the Chutak projects the reduction will be an estimated 159,889 tonnes. The annual Certified Emission Reductions revenue to be generated from the Nimoo Bazgo and Chutak projects is estimated at Rs 13.58 crore ($3.1 mn) and Rs 12.06 crore ($2.7 mn) respectively.

Under the CDM scheme, an industrialised country that wishes to get credits from a CDM project must obtain the consent of the developing country hosting the project that the project will contribute to sustainable development. Then, using methodologies approved by the CDM Executive Board, the applicant must make the case that the carbon project would not have happened without such benefits, and must establish a baseline estimating the future emissions in absence of the registered project. The case is then validated by a third party agency, called a Designated Operational Entity, to ensure the project results in real, measurable and long-term emission reductions. Hydropower projects registered by the CDM Executive Board are eligible to earn CER credits. CER credits can be sold to industrialised countries that are required to meet their green house gas emission reduction targets under the terms of the Kyoto Protocol Treaty of 2005. NHPC Ltd, which was formerly known as National Hydro Power Corporation, has an installed capacity of 5,200 MW from 13 hydro power plants and plans to increase its generation capacity to 11,000 MW by 2012. The company had filed its offer document with the capital markets regulator, Securities and Exchange Board of India (SEBI), on August 6. Currently, the Centre owns 100 per cent of the company.

TCS to help govt monitor power reforms

August 25, 2008. Tata Consultancy Services Ltd, or TCS, India’s largest information technology services firm by revenue, will help the Union government speed up power sector reforms through services that will monitor energy development programmes many of which have missed their targets over the next four years. TCS will also tie up with public sector units, including transmission utility Power Grid Corp. of India Ltd (PGCIL), power equipment maker Bharat Heavy Electricals Ltd (Bhel) and power generating firm NTPC Ltd for electricity demand management, equipment research and development, and consulting, respectively. These investments on business solutions, innovation labs and academic partnerships will help the government and power utilities accelerate the reforms process. Partnerships with public sector units will also help ensure timely implementation of reforms initiatives, leverage next generation technologies and analytical models to reduce transmission and distribution losses and provide reliable power supply. There will be a long-term partnership between public sector units and TCS. All these plans are in addition to the Rs 10,000 crore ($2.2 bn) software initiatives proposed under APDRP.

The Centre is worried about its flagship power sector reform programmes increasingly falling short of targets. Both Accelerated Power Development and Reforms Project, or APDRP, and a rural electrification programme dubbed Rajiv Gandhi Grameen Vidyutikaran Yojana, or RGGVY, have fallen short of their targets. While APDRP has not been able to lower power losses to 15% by the end of 2007, as originally targeted in 2000-01, RGGVY will reach only a little more than half the 125,000 villages it was targeted to cover by the deadline of March 2009. TCS will partner with Bhel in designing power equipment through its Computational Research Laboratory. TCS will also join hands with PGCIL through its joint initiative with Indian Institute of Technology-Bombay, called PowerAnser Lab, to develop analytical models to estimate electricity demand accurately, thereby managing real-time demand. The company will provide consultancy services along with NTPC Electric Supply Co. Ltd, the distribution arm of NTPC, India’s largest power generation firm, for power utilities. Power shortages because of limited generation capacity and growing electricity theft have been identified as one of the key infrastructure bottlenecks threatening the country’s ability to sustain annual economic growth at more than 8%. Around 34% of power generated in the country continues to be lost due to theft. India has an installed power capacity of 143,000 MW.

Coal India looks to UK for green mining methods

August 23, 2008. Coal India, the world's biggest coal mining company, is tapping into north-eastern Britain's mining experience and a partnership is on cards for exchange of expertise. A top level delegation from Coal India has been visiting the region to study research, restoration of former mining landscapes and environmental issues surrounding the industry. And now a partnership could be forged between the Indian company and the British region that once led the world in coal mining. Experts from the Newcastle University are involved in a detailed study of technology which would see coal seams turned into gas which would then be extracted, with the voids used to store the greenhouse gas carbon dioxide. Coal India has a workforce of 425,000 and produces 500 mt of coal a year - twice the output of UK coalfields at their peak in the 1930s. One of the benefits of a partnership for the university would be the chance for students and researchers in the civil engineering, environmental science and medical fields to visit India and work in a mining industry in its heyday. A party of researchers from the university will visit India next month.

Regulator to oversee coal pricing soon

August 23, 2008. The government is set to decontrol pricing of coal, including coal from captive mines. Prime minister Manmohan Singh, who also holds the coal portfolio, has approved the draft of the Coal Regulatory Authority Bill that entrusts responsibility of coal pricing to the regulator. The Bill holds the regulator responsible for determining the price of coal, including coal from captive mines. The Bill is expected to be introduced in the coming session of Parliament. The draft, approved by the prime minister as minister in-charge of coal, will be with the Cabinet soon for its approval. Thereafter, it would be introduced in Parliament.

The proposed regulatory authority will put in place a reasonable and transparent coal pricing mechanism and promote competition in the sector. It will also determine transfer pricing in respect of captive coal and lignite mines. Currently, most coal reserves are owned by the central government. It also operates and regulates the sector. The coal regulator is empowered to determine the prices of coal and lignite as per guidelines issued from time to time by the government. It is learnt that regulator’s independence is not absolute vis-à-vis coal sector. As proposed, the government would be the policy maker while the regulatory authority would be implementing policies. The regulator would only advise the government in formulation of sectoral policies including allotment or earmarking of coal blocks and coal linkages. The regulator will be required to maintain transparency in decision-making through open hearing.

Power sector leads in attracting investments by company

August 24, 2008. India's power sector has cornered a lion's share in the Rs 633,906 crore ($146.2 bn) investment announced by corporates during January-June 2008. Of the investments tracked by the industry body during the first half of calendar year 2008, the energy sector attracted 18.64 per cent at Rs 195,913 crore ($45.2 bn). Power majors like Tata Power, Sterlite Industries, Jindal India Thermal Power and Lanco Group are among the corporates that have lined up big investments in the sector. The other major sectors attracting huge investments, included real estate, steel, retail and telecom. 

Govt departments major defaulters of PSEB

August 24, 2008. In an irony, government departments in Punjab are major defaulters of the state electricity board, owing it an amount of Rs 80 crore ($18.4 mn) in the current financial year. Hospitals were placed on the top in the list as Rs 11.92 crore ($2.7 mn) was pending from the state health department. Punjab Water and Sewage Board stood at second position as Rs 11.11 crore ($2.5 mn) was still outstanding against them. Punjab Police follows the Board with a figure of Rs 10.49 crore ($2.4 mn). The other major defaulting government department is the Punjab State Tubewell Corporation with an outstanding of Rs 9.43 crore ($2.1 mn). 

Green energy surplus states may get to trade excess supply

August 22, 2008. In a move that may initiate trading in green energy in the country, the government is planning to issue certificates to states with surplus renewable energy. This would enable states with no renewable energy sources to buy the certificates for meeting mandatory requirement. The Electricity Act makes it mandatory for states to promote use of renewable energy. The proposal has been endorsed by the Prime Minister’s Energy Coordination Committee and has directed the ministry of new and renewable energy (MNRE) to evolve a mechanism for the same. There is a proposal to issue renewable energy certificates to green energy surplus states so that they can trade them with those who are deficient. This will boost the growth of alternative energy sources in the country. The move would ensure that renewable energy initiative of several states would no longer be optional. Today, only 14 states have set quotas for sourcing renewable energy for their grids. While the Electricity Act, 2003, makes it mandatory for all State Electricity Regulatory Commissions (SERC) to promote use of a certain percentage of renewable energy by distribution companies, lack of availability of renewable energy source to meet the requirement is often posed as an excuse by states. While the government is planning to enact a new renewable energy law that would stipulate mandatory use of a certain quantum of renewable energy in each state, issuing renewable energy certificates would facilitate a larger number of states to use green energy as part of their power supply. The move is aimed at diversifying the country’s energy mix that is dominated by oil, gas and coal as basic fuel feed. The gross installed capacity of grid interactive renewable power in the country is estimated at 11,273 MW, which accounts for 8% of the country’s installed generation capacity. While the government plans to install additional 78,577 MW of power-generation capacity by the end of 11^th Five-Year Plan, it has set a target of 13,500 MW for renewable energy sources. 

Cabinet nod for report on KSEB recast

August 21, 2008. The State Cabinet has approved the report on the restructuring of the Kerala State Electricity Board (KSEB) prepared by a committee constituted for the purpose and headed by the Secretary for Power. As per the report, the board will be converted into a company and reforms will be carried out in the power sector. However, the company will remain in the public sector. It was necessitated by the crisis in the power sector in the wake of weak monsoon rains. The Government was unable to provide any subsidy to the board to tide over the crisis.

India needs to look beyond coal-based power

August 20, 2008. According to the Minister of State for Coal, Santosh Bagrodia, India needs to look beyond coal and tap non-conventional and renewable sources of energy such as hydropower and nuclear energy. He is of the view that Coal-based power generation is not a feasible proposition. Coal stocks are limited, and might not be there always to generate power at such a large scale. The demand and supply of coal to the power units was going to run neck and neck in times to come. From April 2007 to January 2008, around 255 million tonnes of coal was supplied to power utilities against the annual action plan target of 249.97 million tonnes.

Power ministry blames Bhel for delays in projects

August 20, 2008. The power ministry has held Bhel responsible for delays in commissioning of power projects. Out of the 3,295 MW capacity addition target for the second quarter of current fiscal, Bhel has so far been able to add only 710 MW. The ministry is doubtful if the company would be able to commission the balance capacity in the remaining one-and-a-half months of this quarter. Bhel has, however, shifted the blame to poor infrastructure at project sites and other problems. The company said that there is a shortage of skilled manpower, vendors are delaying in supplying components and contractors prefer to undertake contracts of power projects implemented by private companies.

The government had set a target to operationalise 4,652 MW capacity in the second quarter of 2008-09. Out of this Bhel is expected to add 3,295 MW. The target for the entire fiscal is 11,061 MW. While April targets have been met, slippage started from May 2008, threatening a slippage like in the previous Plan where less than 50% of targeted capacity could be operationalised. A group constituted by the Prime Minister’s Committee on Infrastructure (CoI) and headed by the finance minister is overseeing the progress of the programme. The Central Electricity Authority and power ministry are also involved on a day-to-day basis to prevent slippage. The government plans to add 78,577 MW of additional generation capacity during the 11^th Plan (2007-12). The ministry of power has written a letter to Bhel, directing the power manufacturing company to take necessary actions to ensure that all units are commissioned within the schedule. 

OIL & GAS

StatoilHydro to maintain Norway Output for 10 years

August 26, 2008. Norwegian oil and gas producer StatoilHydro wants to maintain production off Norway at 1.5 million barrels of oil equivalent per day (boed) for 10 years and boost output by 2012. Output from many older Norwegian oilfields is declining after decades of production. But operators, such as StatoilHydro, have in past years turned to more gas production. Including international operations, StatoilHydro seeks to boost production to 2.2 mn boed by 2012 from 1.9 mn seen this year.

Spitfire starts up production on new well in Canada

August 25, 2008. Spitfire Energy Ltd. has commenced production on its new pool discovery well drilled in March 2008 in Canada. The well has been placed on production at an initial rate of one million cubic feet (mcf) of natural gas per day. Spitfire controls, by way of a Farm-in Agreement, an additional 100% participating interest in several sections of offsetting land in the area. The Company has committed to drill an offset location in October 2008. The additional production from the new discovery well brings the Company's current production to 444 barrels of oil equivalent per day utilizing a conversion ratio of 6:1 (6 mcf equals 1 boed).

Probe discovers gas at East Cameron in Mexico

August 25, 2008. Probe Resources Ltd. has discovered commercial reserves in multiple horizons in its East Cameron 36 No. 1 well located in the U.S. Gulf of Mexico. The well was spud on August 5, 2008 and was drilled under budget to a total depth of 10,450 feet. Production from the field is expected to commence in the fourth quarter of 2008. Additional drilling in the field will also commence in 2008. In addition, the Company expects to mobilize the Blake 303 rig to the East Cameron 246 location within the next several days. Probe also has a drilling rig under contract to drill its South Timbalier 214 well which is currently expected to spud in mid September, 2008.

Mexico's Jan-July oil output down at 2.85 mbd

August 21, 2008. Average Mexican oil production fell 10% during the first seven months of this year to 2.85 million barrels a day (mbd). For July, output fell by 10.7% on year to 2.78 million barrels a day. State-run Petroleos Mexicanos is suffering from steep production declines at the giant Cantarell offshore oil field, forcing the company to scale back its production estimates for the next few years. Pemex hoped to produce over 3 million barrels a day this year, but recently said average production would be much lower at around 2.85 million barrels a day. Pemex spent $14.8 bn dollars during the period on fuel imports.

Mexico imports gasoline and diesel and then sells it at a discount to international prices. Gasoline imports rose to 342,500 barrels a day during the period. According to Pemex crude oil exports fell 16.3% during the period to 1.44 million barrels a day. July exports fell 21.7% on year to 1.38 million barrels a day. Pemex has given preference to its domestic refining network, and has therefore cut exports as overall production wanes. The average price of Mexican crude exports in July was at $122.79 a barrel.

DONG, partners discover oil at North Sea

August 20, 2008. According to Revus Energy ASA, DONG E&P Norge, Operator of production license 274 (Revus 15%), has made an oil discovery on the Ipswich prospect. Further investigations are necessary for determining if the discovery is commercial. Oselvar is located in the same production license as Ipswich, and the operator DONG E&P Norge is looking towards submittal of a PDO (Plan for Development and Operation) for Oselvar in Q1 2009.

Avenue Group produces over 3,200 barrels of oil from Heletz Field

August 20, 2008. Avenue Group, Inc. has produced over 3,200 barrels of oil from its 50% owned Heletz-Kokhav License, part of the Heletz Field in southern Israel (Heletz). Since restarting production in June, four wells have been returned to production, with total daily production currently exceeding 65 Barrels of Oil Per Day (32.5 BOPD net to AGI). Three additional wells are currently awaiting the delivery and installation of downhole pumps in preparation to returning them to production.

DCP to boost gas processing capacity in Colorado

August 26, 2008. DCP Midstream, LLC, (DCP) announced its plans to significantly expand gas gathering and processing facilities in northeast Colorado to support the growing natural gas production in the area. The plan includes capacity additions to two existing plants, Mewbourne and Lucerne, both located in Weld County. The expansions will increase DCP's gas processing capacity in the area by 80 mmcf/d to over 400 mmcf/d. Along with the installation of new equipment, DCP will utilize existing sites, equipment and infrastructure contributing to an anticipated fourth quarter 2009 completion. DCP Midstream, LLC, headquartered in Denver, Colorado, leads the midstream segment as one of the nation's top three largest natural gas gatherers and processors, and the largest natural gas liquids producer and marketer in the U.S. DCP Midstream operates in 16 states across seven producing regions. DCP Midstream is a 50:50 joint venture between Spectra Energy and ConocoPhillips. The Company owns the general partner of DCP Midstream Partners, LP, a master limited partnership, and manages and operates its assets in Colorado, Louisiana, Oklahoma, Texas, Wyoming and the northeast U.S.

US-Swiss consortium to own majority stake in Albania refinery

August 25, 2008. Albania has signed a contract with a U.S.-based consortium for the sale of Albania's only oil refinery. The U.S.-Swiss consortium Refinery Associates of Texas & Anika Enterprises will have a stake of an 85 percent in ARMO at 125 mn euros ($195 mn). ARMO has two refineries, a research center, 11 depots and a network of gas stations, with a total worth of 109 mn euros ($170 mn). The Albanian government is planning a big round of privatization in 2008. The distribution branch of Albania's power utility, KESH, and the state-owned insurer, INSIG, will also be sold off later this year.

Feasibility study on Indonesian oil refinery project due soon

August 25, 2008. A feasibility study on an oil refinery project to be built in Bojonegoro, Banten, Indonesia is expected to be completed in October. The Greater Java Refinery, to be built by state-owned oil and gas company, PT Pertamina, and its counterparts from Malaysia and Iran, was expected to be operational in 2013. A refinery with a processing capacity of 300,000 barrels of crude oil per day would cost around $7.1 bn. The refinery would be 40% owned by Pertamina, 40% by the National Iranian Oil Refining and Distribution Co. and 20% by Malaysia's Petrofield.

Samsung Engineering wins $1.5 bn in refinery, LNG projects

August 25, 2008. Samsung Engineering Co., South Korea's largest industrial plant builder, has clinched two orders worth 1.6 trillion won ($1.49 bn) to build a liquefied natural gas (LNG) terminal in Mexico and to expand a refinery in southeastern South Korea. Under the 1.16 trillion-won deal with S-Oil Corp., South Korea's third-largest refiner, Samsung Engineering will expand the refiner's plant in Ulsan, an industrial city about 400 kilometers southeast of Seoul, by January 2011. The $439-billion deal with Samsung Ingenieria Manzanillo S.A de C.V. also calls for Samsung Engineering to build an LNG terminal in Manzanillo, a port west of Mexico City by December 2011.

Gasoline supply tightens in Alaska

August 25, 2008. Fuel distributors in Southcentral and Interior Alaska are scrambling to shift gasoline supplies north to the state's Interior after Flint Hills Resources shut down a gasoline production unit at its refinery in North Pole, near Fairbanks. Flint Hills normally supplies local markets as well as retail outlets in Anchorage, 400 miles south. Retailers in the Anchorage area are worried about the thinning of local stocks. Alaska relies on the Tesoro and Flint Hills refineries for the bulk of its gasoline supply. Two other small refineries owned by PetroStar, one near Fairbanks and one in Valdez, produce mainly jet fuel, diesel and home heating oil.

Flint Hills processes about 220,000 barrels per day of North Slope crude oil, from which about 60,000 barrels per day of products are usually manufactured. Unused residual oil is returned to the Trans-Alaska Pipeline System. About 60 percent of Flint Hills' product output in jet fuel. Tesoro produces about 70,000 barrels a day of products, including gasoline, diesel and jet fuel, at its Kenai refinery.

Chevron applies to build base oil facility at Pascagoula

August 21, 2008. Chevron Corporation has submitted an environmental permit application to the Mississippi Department of Environmental Quality for the construction of a premium base oil facility at the company's Pascagoula refinery. The facility is expected to produce approximately 25,000 barrels per day of premium base oil for use in manufacturing high-performance lubricants, such as motor oils for consumer and commercial uses. Construction of the facility is anticipated to begin in early 2009 and conclude in 2011. Demand for premium base oils is increasing in the U.S. and around the world.

These oils are the primary ingredients in the production of top-tier motor oils needed to improve fuel economy, lower tail-pipe emissions and extend the period between oil changes. With additional manufacturing from the Pascagoula facility, Chevron would become the world's largest producer of this product. The base oil facility would utilize Chevron's revolutionary ISODEWAXING(R) technology. Commercialized in 1993, ISODEWAXING(R) results in higher yields and enables a broader range of crude oil feedstocks to be used in the manufacturing of base oils. More than two thirds of the world's premium base oil is manufactured with this technology. As Chevron's largest wholly-owned refinery, the Pascagoula facility has a work force of 1,540 and processes up to 330,000 barrels per day of crude oil to produce gasoline, jet fuel, diesel and other products. The refinery commenced operation in 1963.

US review clears Pemex pipeline

August 26, 2008. The U.S. State Department has determined a proposed multimillion-dollar Pemex gasoline pipeline from El Paso to Juarez would have no significant impact on the environment. A presidential permit to allow the pipeline to cross the U.S.-Mexico border could be issued in early September if no federal agencies object to the issuance of the permit. A Pemex subsidiary, PMI Services North America, expects construction to take about six months once the presidential permit is issued. The pipeline also needs other local and federal permits for construction. Twenty-eight miles of the pipeline will run through El Paso County, mostly in the Lower Valley, and 21 miles will go through Juarez.

The State Department received no objections from federal agencies during the review and comment period for the assessment. The assessment estimated the pipeline would eliminate about 64,000 truck trips per year between the two cities. The proposed Pemex pipeline would start at the Longhorn Partners Pipeline terminal at 13551 Montana near Zaragoza Road in far East El Paso County, go to the San Elizario area in the Lower Valley, and cross the Rio Grande into Juarez, where it will run an additional 21 miles to a Pemex terminal. It would have the capacity to deliver 45,000 barrels of fuel per day to the Pemex terminal, the project's environmental assessment reported. The fuel would come from Europe and be shipped from Houston through the Longhorn Partners Pipeline.

‘Georgian conflict won't affect Russia-Germany pipeline’: Germany

August 25, 2008. According to Germany's first woman Chancellor, Angela Merkel, strained relations with Moscow over the recent conflict in Georgia will not affect the construction of a gas pipeline under the Baltic Sea to provide Russian gas directly to Germany.

The pipeline is a strategic European project. Sweden and other Baltic states have raised energy security and environmental concerns over the pipeline, which is to run from Vyborg on Portovaya Bay in Russia to Greifswald in eastern Germany.  Poland, in particular, has expressed deep concern that it is being bypassed by the pipeline. Estonia, Latvia and Lithuania have also expressed energy security concerns, while environmental concerns have been raised in Sweden. Construction has begun on the overland Russian section of the pipeline, but has yet to begin on the section under the Baltic that will be longer than 1,000 kilometers. The first gas is scheduled to be delivered in 2011.

Venezuela Oil Shipments to China over 360k bpd

August 25, 2008. Petroleos de Venezuela SA, PdVSA, is now sending roughly 360,000 barrels of crude a day to China. The Andean country aimed to ship as much as 500,000 barrels of crude a day to China this year. PdVSA still aims to increase those shipments to 1 million barrels a day by 2012. Venezuela's fuel-oil shipments to the Asian nation have surged this year. The oil-rich country managed to supply 14.1% of China's energy product imports in May, up from 3.1% during the previous month. Venezuela, an OPEC founding member, has vowed to diversify its oil customer base away from too much reliance on the U.S., its largest client.

China confirms July crude oil imports at 13.79 mt

August 22, 2008. China imported 13.79 mmt of crude oil in July, equivalent to an average of 3.26 mn barrels a day. July imports were down 7% from the same month in 2007, when China shipped in 14.83 mt of crude. The figures confirmed preliminary data issued by the customs bureau earlier this month.

PetroChina to lay oil pipeline in Shandong province

August 21, 2008. PetroChina will kick off construction of a 446-km long oil pipeline to link coastal Rizhao city with local-run Dongming Petrochemical, both in Shandong province, before the end of this year. PetroChina and Dongming Petrochemical hold all equities of the pipeline with PetroChina having the lion's share of 90 percent in the total investment of 2.56 billion yuan.

Fed with Middle East crude, the pipeline is designed to transport 20 million tons of oil per year. The pipeline, via Linyi, Jining and Heze cities, almost runs through the southern part of Shandong, Sinopec's turf, indicating that PetroChina is further strengthening its presence in Shandong after it signed a MOU with the province to build partnership last year.

Vietnamese, Venezuelan firms discuss projects

August 26, 2008. The state-owned Vietnam National Oil and Gas Group (PetroVietnam) is negotiating with Venezuelan partners about implementing five projects totaling tens of billions of U.S. dollars in both Vietnam and Venezuela. The future projects involve in exploiting crude oil in Venezuela, establishing an oil refinery joint venture in Vietnam and another oil transport joint venture, supplying Venezuelan crude oil to the oil refinery joint venture, and the group's purchase of finished petroleum products from Venezuelan petroleum company, Petroleos de Venezuela, known as PDVSA.

Vietnam is lessening the export of such fossil fuel as crude oil and coal to ensure sufficient supplies for oil refineries and energy-thirsty industries like electricity and cement. Its first refinery with an annual processing capacity of 6.5 mt of crude oil under construction in central Quang Ngai province is scheduled to operate next February.

Alberta advances plans to boost upgrading

August 26, 2008. Alberta's government is pressing ahead with plans to accept oil sands bitumen in place of royalty payments, as it looks to encourage the lucrative upgrading industry to stay within the province. The provincial energy department is calling for submissions from companies interested in processing the sludgy oil sands bitumen into higher value synthetic crude oil and products or petrochemicals. The Alberta Government has assigned high priority to enhancing its economic returns from its oil sands resources.

The Alberta Government is entitled to take its royalty share of bitumen production in lieu of cash payments and intends to increase the value derived from bitumen royalty. The move is part of last year's overhaul of the provincial oil and gas royalty system, when Alberta hiked its share of energy revenues by C$1.4 bn to take advantage of soaring oil and gas prices. At the time, the government indicated it could accept bitumen as part of royalty payments, which it would then sell to upgrading facilities in the province. The new royalty system kicks in next year.

Alberta is concerned that companies are increasingly choosing to process bitumen in the U.S., sending potential revenue and jobs south of the border. A number of oil sands producers, such as EnCana Corp. (ECA) and Husky Energy Inc. (HSE.T), have teamed up with U.S.-based refiners, preferring the lower cost option of retooling existing refineries.

These concerns are likely exacerbated by TransCanada Corp.'s (TRP) proposed oil sands pipeline to the refining hub on the U.S. Gulf Coast. Several oil sands developers intend to build upgraders in the province, but the vast, costly facilities are often the first to be put on hold when cost pressures bite.

Among others, oil sands newcomer StatoilHydro ASA (STO) has pushed back the start of its upgrader by two years to 2016, while Canadian Natural Resources Ltd. (CNQ) has repeatedly announced delays and cost increases. Royal Dutch Shell PLC (RDSA) is also considering scrapping plans to build a C$27 bn upgrader near Edmonton in favor of shipping the bitumen to be processed at its U.S. refineries.

Kuwait refers $15 bn refinery project to audit bureau

August 25, 2008. Kuwait's cabinet agreed to refer a giant oil refinery project to the state audit bureau after a group of politicians warned the government not to sign the final contracts or face questions in parliament. Oil Minister Mohammad al-Olaim has already won support from a parliamentary committee over the award of contracts for the 615,000 barrels per day refinery in the Gulf Arab state.

The committee gave the nod after investigating claims that some contracts were not awarded to the lowest bidder. Despite that, deputies from the Popular Action bloc have continued to dispute the contracts. It says that among other issues, the government should not have awarded U.S. firm and project manager Fluor Corp a contract for utility and offsite services without a tender.

The audit bureau monitors government revenue and expenditure. The government has also asked state refiner Kuwait National Petroleum Co (KNPC) to provide the bureau with all needed data and documents. Kuwait plans to boost refining capacity to 1.415 mn bpd from around 930,000 bpd with the new plant and upgrades to two other refineries. Al-Zour is scheduled to start operating in 2012, two years later than initially planned. The refinery will be one of the world's largest and will replace the Gulf Arab state's aging 200,000 bpd Shuaiba plant.

NY-led refinery suit could hinder expansions nationwide

August 25, 2008. A lawsuit filed against the U.S. Environmental Protection Agency could make it more difficult for oil companies to expand U.S. refineries. New York Attorney General Andrew Cuomo announced is suing the EPA for failing to regulate greenhouse gas emissions from oil refineries.

If successful, the suit could require the EPA to pass guidelines for greenhouse gas emissions from refineries. Recently, plans to expand refineries in Illinois and Indiana have drawn criticism for their failure to include controls to reduce greenhouse gas emissions.

Greenhouse gas emissions are seen as a factor creating global climate change. Twelve states and Washington D.C. have joined Cuomo in the suit. The legal action challenges the EPA to require new or renovated oil refineries to install technologies that control global-warming pollution, in violation of the Clean Air Act.

The EPA's refusal to control pollution from oil refineries is the latest example of the Bush Administration's do-nothing policy on global warming. Oil refineries contribute substantially to global warming, posing grave threats to New York's environment, health, and economy.

New York does not have any oil refineries. The closest refinery to New York is ConocoPhillips' (COP) Bayway refinery in Linden, NJ. The East Coast refining hubs of New Jersey and Pennsylvania are absent from the suit. Of the states who joined Cuomo, only Delaware, New Mexico, and California have oil refineries. Cuomo's suit charges that the EPA violated the Clean Air Act when it refused to issue standards for controlling global-warming pollution emissions from oil refineries.

These standards, known as New Source Performance Standards, target refiners who are expanding their plants or building new plants. Cuomo argued that the Clean Air Act requires the EPA to adopt these New Source standards for oil refineries, as well as power plants and other major stationary sources, if the EPA determines they emit air pollution that poses a danger to public health and welfare. On June 24, the EPA finalized new air pollution control regulations for oil refineries without setting a standard for global-warming pollution.

 ‘Oil output to stagnate by ’11’: Russia

August 21, 2008. Russian oil output growth is unlikely to exceed 2.2 percent next year and will slow to under 1 percent by 2011. Falling oil production in Russia, the world's second-largest crude exporter after Saudi Arabia, has become a major concern for the government, which relies heavily on export revenues.

The government quoted the Economy Ministry's updated forecast for Russian economic development to 2011 as saying oil output could this year reach 492 mt, or 9.85 million barrels per day, almost flat from 491.5 mt, or 9.87 bpd, in 2007. Under the Economy Ministry's optimistic scenario, oil production is expected to rise to 503 mt in 2009 but growth would then slow to just 0.8 percent year-on-year in 2011, reaching 518 mt.

Last month, the Finance Ministry announced similar forecasts of oil production growth in the period. The Economy Ministry's scenario forecasts no production growth at all. In the environment of a worsening structure and quality of explored reserves, and moving to the later stages of developing oil deposits in Western Siberia, the scenario provides that oil production will stabilise at a level of 497-500 mtpa in 2009-2011.

Russian oil production was down 1 percent year-on-year in the first seven months of 2008 after a 2.3 percent increase in 2007 and huge spikes in previous years, including a record 11 percent in 2003.

Analysts expect oil output growth to recover in the next decade after a number of new major deposits are launched in Eastern Siberia, which is rich in resources but lacks infrastructure. Eastern Siberia is expected to compensate for falling output from mature fields in the traditional oil-producing region of Western Siberia.

Iran moves forward with Reshadat offshore oil field plans

August 20, 2008. Iran's plans for the development of its offshore Reshadat oil field will move ahead with the installation of the first leg of a new rig. The platform's leg will be installed on August 25. The development of the Reshadat oil field, which currently produces more than 5,000 barrels a day of crude, will result in a production increase to 80,000 barrels a day. The Reshadat oil field first came on stream in 1969 but was severely damaged in 1986 due to the Iran-Iraq war.

Kazakhstan sets new deadline for Kashagan development

August 20, 2008. Talks between Kazakhstan and a group of global oil majors developing the giant Kashagan oilfield must be over by October 25. Energy Minister Sauat Mynbayev had earlier said the sides planned to finalise amendments to the Kashagan Production Sharing Agreement (PSA) by October 15. (Prime Minister) Karim Masimov set several tasks before the new Chief Executive of (state oil) company Kazmunaigas including completing the Kashagan oilfield negotiations by October 25.

In June, Kazakhstan and the group agreed to hold off the start of production until 2013 after a year of tension over the world's biggest oil discovery in 30 years. In return, the consortium agreed to prevent further cost overruns, pay floating royalties linked to the oil price and have the PSA expire in 2041. The consortium unites Eni, Royal Dutch Shell Plc, Exxon Mobil Corp, Total, ConocoPhillips, KazMunaiGas and Japan's Inpex Holdings Inc.

POWER

DENR studying all options on Iloilo power plant

August 26, 2008. Department of Environment and Natural Resources (DENR) assured stakeholders that the government is carefully studying all matters and issues related to the proposed establishment of a coal-fired power plant in Iloilo province amidst opposition from residents and environmentalists.

According to the Environment Department, the primary criteria in evaluating the coal-fired power plant project before the issuance of an ECC would include its conformity to the highest standards of sound environmental performance, economic advantage to the country, and acceptability to stakeholders.

The coal-fired power plant to be set up in Ilo­ilo is reportedly similar to the one operating in Taipei. Taipei is located inside an industrial zone producing microchips. The DENR noted that the production of microchips is very sensitive that it requires pollution-free surroundings. The department is of the view that if the coal-fired power plant there is polluting the environment, all the semi-conductor and microchip production companies there should have closed down.

Iran designing new nuclear power plant

August 25, 2008. According to Iran’s Atomic Energy Organization, Iran has chosen the site and started designing a new 360 MW nuclear power plant. Iran has yet to complete construction of its first nuclear power plant and has previously sent conflicting signals about the state of work on a planned second plant. The Islamic Republic is embroiled in a dispute over its nuclear plans, that the West says are to build atomic warheads but which Tehran insists are aimed at generating electricity.

The country’s first nuclear power plant, with 1,000 MW capacity, is being built by Russia in the port city of Bushehr. Iran wanted to build nuclear power plants with a total capacity of 20,000 MW by 2020. Iran, which sits on the world’s second biggest reserves of gas and oil respectively, wants nuclear energy so it can export more of its hydrocarbons. The International Atomic Energy Agency (IAEA), which carries out routine inspections of Iran’s nuclear facilities, has mentioned the Darkhovin project in previous reports on Iran. The Bushehr power plant has been hit by years of delays. Russia delivered fuel for the plant this year.

Local firm to generate 470 MW of electricity

August 24, 2008. According to an indigenous oil and gas firm, TeknoSuisse, it is ready to generate about 470 MW of electricity in six months if the Federal Government approves its proposal. Company has entered into an agreement with the renowned Russian Scientist, Professor Yuriy Noskov to deploy the latest technology in power generation and that Nigeria would be the second country to benefit from the technology if the plan is allowed.

The technology as a combined cycle of two turbines with capacity to generate 320 MW, each with capacity for 160 MW, which goes through cooling process while generating power and that heat gathered in that process could generate additional 100 to 150 MW of electricity. Company awaits government's approval to ship down the turbine within the next three months to generate about 470 MW of electricity into the national grid.

The technology has 47 years life span and about 20 per cent cost efficiency level above similar technology produced in other parts of the world. The company estimated that energy need for Nigeria at about 14 GW (a GW is equivalent of 1000 MW) at the rate of 1 GW per 10 m people.

The company stressed that it has the capacity to generate 1 GW of electricity by tapping into the flared gas in the Niger Delta or through gas gathering process. The company is of the view that any arrangement that would allow the company tap the gas, being flared in the Niger Delta would not only solve environmental problems in the area but will also fast track the plan by the government to improve power generation.

Electricity lines funded for region

August 26, 2008. Central Electric Cooperative Inc., which provides power to portions of seven Western Pennsylvania counties, will receive $17 mn in federal loans to build and improve more than 400 miles of distribution lines and provide service to nearly 1,400 new customers. The 71-year-old cooperative serves some 25,000 electric customers in Allegheny, Armstrong, Butler, Clarion, Forest, Mercer and Venango counties. Central Electric is one of 20 rural utilities and cooperatives owned by their customers that will receive loans totaling nearly $677 mn for system improvements through the Department of Agriculture.

PNOC-EC mulls coal deal with Indonesian firm

August 26, 2008. PNOC-Exploration Corp., the oil and gas subsidiary of state-owned Philippine National Oil Co. (PNOC), plans to enter into a coal contract with Indonesia-based PT VS Mining Resources Inc. (PT VSMR). Finalization of the heads of agreement between PNOC-EC and PT VSMR are currently ongoing. PT VSMR is a subsidiary company of VS Industry Berhad. The coal mining company owns a coal mine in Batulicin, South Kalimantan. The mines have a concession area with total exploration area of 3.536 hectares. Coal deposit in the area is estimated at 25 mmt.

Earlier, PNOC-EC planed to enter into the coal mining business in Indonesia in order to ensure a stable and competitive supply of coal for the Philippine market. Indonesia is currently one of the world’s biggest coal suppliers. It has the fourth largest coal reserves in Asia Pacific, next to Australia, India and China. In 2007, PNOC-EC visited Indonesian coal mines to conduct geologic surveys. It sent draft memorandum of agreements to PT Sumber Kurnia Buana for the conduct of due diligence in the offered coal mines. PNOC-EC also completed the preliminary evaluation of Indonesian coal mine concessions PT Berkat Banua Inti, PT Senajaya Energimas Mulia, PT Antang Gunung Meratus, PT Bangun Banua Persada and PT Satui Bara Tama.

The firm operates coal operating contract (COC) 41 within the Malangas coal reservation in Zamboanga Sibugay. It is also holder of COC 122 covering portions of Cauayan, Naguilian and Benito in Isabela. COC 122 involves the construction of a 50-megawatt power plant and coal mining operation where low ranked coal will be utilized. PNOC-EC is also holder of COC 140 in Tago, Surigao del Sur. The COC allows the company to conduct exploration activities in the area which has estimated reserves of about 2.8 mt.   

Power shortage of 600 MW in Karachi

August 24, 2008. Most of the city areas experienced prolonged power cuts as the Karachi Electric Supply Company (KESC) suffered a shortage of around 600 MW. Apart from the dwindling generation and distribution capacity of the power capacity due to a lack of proper maintenance, the fuel-saving drive by the KESC is also said to be a factor contributing to this shortage. The shortfall of electricity crossed 600 MW as Unit 4 of the Bin Qasim Thermal Power Station (BQTPS) remained shut while other units were operating much below their capacity, causing prolonged spells of load-shedding.

The Bin Qasim plant producing 600 MW, much below the desired output of 1,160 MW is said to be developing faults every now and then. Unit 4 of the BQTPS has been inoperative, whereas the rest of its units are giving low output, reportedly due to a drive to save gas and fuel cost to run the generation units.

The KTPS was also out of action and supply of about 80 MW from Kanupp also got suspended on August 22, whereas power supply from the Defence Cogen desalination plant that stopped on Aug 15, was revived on August 22 for less than 24 hours, and was again stopped due to problems with the KESC transmission network. The KESC had been resorting to load-shedding in residential areas after every two hours for more than three hours. Besides, all the industrial estates of Karachi are also subjected to load-shedding simultaneously from 12 midnight to 4 am.

All this was happening amid reports that the National Electric Power Regulatory Authority (Nepra) has recommended further increase in power tariff and inflated bills are being sent to 2.4 million domestic consumers, who remain without power supply for a long time. The management of the utility has taken advantage of the government’s decision to withdraw subsidies and to pass on the burden of GST to the consumers.

Severstal to buy PBS Coals for $1.3 bn

August 22, 2008. Russian steelmaking giant OAO Severstal plans to buy Pennsylvania's PBS Coals for about $1.3 billion in cash. Severstal will buy PBS by purchasing a public company, PBS Coals Ltd., that will be created when Penfold Capital Acquisition Corp. buys PBS. The boards of PBS and Penfold support the deal. PBS mines, processes and sells coal in Somerset County, about 60 miles southeast of Pittsburgh. It operates six underground and six surface mines near Severstal's North American production centers. The mines have the capacity to produce more than 4 million tons of metallurgical coal per year. The Severstal acquisition is part of growing trend among international steel companies looking to tie up coal. Many U.S. steelmakers spun off their coal operations after the domestic industry bottomed out in the 1980s and have been slow to buy up to coal reserves controlled by companies like PBS.

E.ON raises electricity prices

August 21, 2008. Energy firm E.ON has announced that it will raise its gas prices by 26% and its electricity prices by 16%. The firm is the third of the big six companies to increase the cost of domestic energy bills for the second time during the summer, with the rest expected to follow suit. EDF was the first to raise its tariff for both gas and electricity, by 22% on 25 July, and was followed by British Gas with a 9% rise in electricity prices and a 35% rise in gas prices - the biggest rise by a British utility company to date.

Like the other utility firms, E.ON blamed the latest rise on an increase in wholesale costs, which had risen by more than 51% since February. The increase means the average E.ON dual fuel bill will go up from £1,063 to £1,297 - an increase of £234. However, in total customers will have seen an increase of 42% or £384 since the beginning of the year, when the average E.ON dual fuel bill stood at £913. According to the firm, in four of its customers - or 1.4m already on protected or fixed price tariffs - will be unaffected by the move.

Sabah wants NGO input in EIA report for coal-fired plant

August 25, 2008. The state wanted an independent EIA report on the coal-fired plant as that was part of efforts to meet Sabah’s power needs projected to reach 820 MW by 2010. Non-governmental organisations (NGOs) are welcomed to give their input in the drafting of an environmental impact assessment (EIA) report on a controversial 300 MW coal-fired plant in the Sabah east coast district of Sandakan. This demonstrated the government’s transparent approach to the project that had drawn opposition from various groups including the influential Sandakan Chinese Chamber of Commerce.

Exchange may end Balkans' flickering electricity

August 22 2008. According to power companies in Balkans, a new power exchange due to start in October should help improve supplies in the region. Electricity is cheap but scarce in many parts of the Balkans, where growing demand from industry and increased air-conditioning use during hot summers has strained existing generation capacity. Power companies have been reluctant to invest in any new plants because government-controlled retail power prices are too low to make it worthwhile.

Energy infrastructure across the region is outdated. The development of South Pool will be a step-by-step adjustment to individual market demands. South Pool, which is 49 percent owned by Germany's EUREX, will initially seek to attract traders and state-run power companies from former Yugoslavia and later expand to Albania, Bulgaria and Romania. Energy analysts and Bulgaria's state power monopoly estimate the annual deficit in the region at about 15 billion kilowatt hours (kWh) -- around 40 percent of Serbia's annual consumption. Except for Slovenia, the only former Yugoslav republic to have joined the European Union, other countries in the region have not raised prices to European levels of around 80 euros ($118.6) per megawatt-hour. Many still heavily subsidise electricity prices, fearing popular discontent with purchasing power across the Balkans barely half the EU average. The South Pool will try to introduce spot trading in the region where individual power markets were too small and illiquid.  

Titan Energy in long-term pact with US company

August 25, 2008. Titan Energy Systems Ltd has entered into a $480-million, long term supply agreement (up to 2013) with US-based Suniva. Suniva Inc, a manufacturer of crystalline silicon solar cells, would supply these cells to be used by the Hyderabad-based Titan Energy, a manufacturer of solar modules and photovoltaics (PV) in its product lines. Suniva is scheduled to begin shipments from its first 32 MW line in Atlanta during the fourth quarter of this year. The facility will add more than 130 MW of additional capacity over the next two years to meet demand from Titan, Solon AG and other customers. Titan Energy has been in the solar business for the past 16 years and primarily sells its products in Europe and the US. It also exports to Africa, South-East Asia and Australia. Titan’s manufacturing centre is located in Hyderabad. It has an installed moduling capacity of 50 MW and is currently expanding to 100 MW by end of 2008.

‘India can produce 5 Trn KW solar electricity’: MNRE

August 25, 2008. According to Vilas Muttemwar, Union Minister of State (independent charge) for New and Renewable Energy, to make India self-reliant in the energy sector, revolutionary steps have to be taken for generating solar energy and adopting it as an alternative source of energy. He stressed that instead of depending upon oil and coal, India should promote renewable energy resources and added that about 5000 trillion KW solar energy is available in the country. The minister called upon the people of the country to cooperate central as well as states for meeting the targets of power generation through solar energy. The minister also assured that solar energy would be the cheapest mode in the times to come.

Tata BP Solar to become $1 bn firm by ’12

August 24, 2008. Tata BP Solar, a joint venture between Tata Power and BP Solar, will expand capacity to 300 MW and has set a target to become a billion dollar (over Rs 4,000 crore) company by 2012. The company has already invested Rs 400 crore ($100 million) in the current financial year for manufacturing 180 MW of solar cells and 125 MW of solar modules. Tata BP Solar provides services to the Defence forces, North Eastern states, Bihar, Jharkhand, Chhattisgarh, educational institutions like IIT Kanpur, IIT Delhi, IIM Bangalore and has also electrified 20 villages in Orissa. The company has also signed a memorandum of understanding with Tata Agrico for distributing solar products targeting consumers, who are deprived of electricity in the rural areas of the country.

Tata BP Solar is currently harnessing the potential of solar energy for providing telecom infrastructure in Bhutan. It is also supplying solar power equipment to Afghanistan, Pakistan, etc and export products to countries in Western Europe and the US. The company's clientele includes corporates such ONGC, Indian Oil Corp and Hindustan Petroleum Corp. The company is planning to work with realty developers DLF and Unitech to utilise its services for their townships. It is also looking forward to tapping the potential solar power market in the National Capital Region and is planning a foray into other areas of renewable energy. 

Major European investor tied up for renewable energy SEZ

August 22, 2008. A European firm is understood to have committed an investment of 3.71 billion euros (Rs 22,000 crore) in the special economic zone for renewable energy being developed by a Maharashtra government arm with a Central agency near Nagpur. The SEZ for renewable energy is being developed by the Maharastra Industrial Development Corporation and Indian Renewable Energy Development Agency. The state government has already issued a notification for acquisition of 2,000 hectares. The government has been giving a thrust to non-conventional energy sources, including wind and solar power. Various tax benefits have been given to investment in the renewable energy area in a country blessed with large wind and solar resources. India has also emerged a major supplier of equipment for wind power. Suzlon Energy Ltd, listed on London Stock Exchange besides Indian bourses, has become a global supplier of wind power equipment. 

Bio-fuels to be brought under the ambit of ‘declared goods’

August 22, 2008. The Government is pushing to implement the deadline for implementing mandatory blending of 10 per cent ethanol in petrol to next year. While 5 per cent blending of ethanol has been made mandatory expect in Jammu and Kashmir and some north-eastern States, availability will be an issue that will have to be looked into to increase the blending norms up to 10 per cent in petrol. Government is looking to bring bio-diesel and bio-ethanol under the ambit of ‘declared goods’, which will help in unrestricted movement of the bio-fuel within and outside the States. Around 77 per cent of the country’s oil requirement is met through imports. The Government has already permitted the sugar industry to produce ethanol directly from sugarcane juice to increase its availability. Brazilian Trade and Investment Promotion Agency said, its country was looking forward to partner with Indian companies and sugarcane growers and share the Brazilian experience and technology to use sugarcane for different purposes including ethanol and bio-electricity generation. It was also open to initiate discussions on their experiences with auto makers on flex fuel cars, which can run on petrol and very high content of ethanol.

Haryana turning country’s renewable energy hub

August 21, 2008. Efforts are on by the Haryana government to promote renewable sources of energy in the wake of depleting reserves of fossil fuels. The state government has already notified a renewable energy power policy for attracting private investment in generation of electricity from renewable energy sources. As per the policy, renewable energy power projects have been given industry status under the new Industrial Policy 2005, along with many other incentives. Private participation is being endorsed in the fields of biomass, solar, wind energy, small hydro and co-generation biomass power projects.

According to the state about 30 MoUs have been signed with ten Independent Power Producers (IPPs) for generation of 697.8 MW of power. This will entail an investment of Rs 3,278 crore ($754 mn) from 30 projects based on biomass, small hydro and wind energy. The projects are under implementation and likely to be commissioned by mid 2009. Letters of Intent have also been issued to six IPPs for generation of 12 MW power with an approximate investment of Rs 254 crore ($58.4 mn) using solar photovoltaic technology. These projects will be covered under the union ministry of new and renewable energy’s SPV tariff subsidy scheme. The tariffs announced by the Haryana Electricity Regulatory Commission (HERC) for these projects are the highest in the country with the tariff for biomass power projects being at Rs 4 per unit, for mini hydel Rs 3.67 per unit, bagasse cogeneration Rs 3.74 per unit, wind Rs 4.08 per unit (base year 2007-2008 annual escalation at a rate of 2 %, 1.5 %, 2 % and 1.5 % respectively). For solar photovoltaic-based power projects also, the tariff announced by the HERC is the highest in the country.

About 20 biomass based power projects generating 183 MW are coming up at Sirsa, Panipat, Karnal, Hisar, Fatehabad, Bhiwani, etc. These projects will catalyze investments of over Rs 780 crore ($179.4 mn), average cost for setting up 1 MW project being 4-4.5 crore ($0.9 – 1 mn). Small hydropower projects for 6 MW are under implementation in Yamunanagar and 3 more detailed project reports have been approved for 4.8 MW. The state has signed MoU with Enercon for generating 240 MW through wind energy and with Suzlon for 200 MW. Biomass co-generation project is also going on for 2 MW in Yamunanagar.

Punjab seeks hydro power projects from Centre

August 20, 2008. The Punjab government sought two pilot projects from the Union Renewable Energy Ministry to produce hydro power from rivers flowing in the state. The state also sought two demonstration projects funded by the Union Ministry to harness power from waterfalls over the numerous canals that flow across the state. Science Technology and Non Renewable Energy Ministry demanded assistance from Union Ministry for ushering in an era of non-renewable energy in Punjab. The ministry sought assistance from the Union Government to make Punjab a model of non-renewable energy generation in the country. Subsidy of Rs 1.25 lakh per MW presently available for government institutions, be extended to domestic as well as individual housing buildings for setting up photovoltaic power plants, which could be connected to the state grid.

Solar power giant embraces Quebec

August 26, 2008. After a 17-month search covering more than 100 sites in 16 countries, solar-energy powerhouse Renewable Energy Corp. (REC) of Norway has settled on Bécancour, across the river from Trois Rivières, as the home of a new manufacturing plant to make polysilicon, a raw material used in the production of solar wafers and cells. The project will be built in stages, starting in 2010, with an estimated price tag of $1.2 bn, making it one of the largest private-sector investments in the province in the last decade. Pre-engineering will be conducted over the next six months, with actual production due to begin in 2012. When fully operational, the plant is expected to provide 300 full-time jobs and economic spinoffs for the province of $100 mn annually. Since production of polysilicon is energy-intensive, availability of a steady source of hydro-electric power at an attractive price was a key element in the final decision. REC and Hydro-Québec have concluded a 20-year agreement providing electricity at the preferential rate already enjoyed by about 200 industrial customers. Renewable Energy Corp. is one of the world's largest makers of solar-grade silicon, which is in short supply globally, and operates two plants in Moses Lake, Wash., and Butte, Mont. It also produces solar cells and modules.

Georgia Power seeks permission for coal plant conversion

August 22, 2008. Georgia Power has asked the Georgia Public Service Commission for approval to convert the coal-fueled Plant Mitchell to use renewable wood biomass. Upon conversion, Plant Mitchell would be capable of producing 96 MW of renewable energy, enough to power 60,000 homes. The plant would have lower emissions and lower fuel and operating costs if converted from coal. Surplus wood fuel for Plant Mitchell, located near Albany, would come from suppliers with a 100-mile (161-km) radius of the plant.

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