NEW DELHI: Soaring demand for electricity has thrown the summer plans of power distribution companies into a tizzy.
Electricity demand has risen by up to a quarter in the past two months against the anticipated 10-15% rise, adding to the woes of utilities who were already struggling with a drop in supplies because of fuel shortages.
A severe fund crunch at distribution companies has complicated matters further as they have no money to buy power from the spot market.
The situation is unlikely to improve in the immediate future as the power regulator has warned utilities in northern states against overdrawing from the grid, while transmission bottlenecks are preventing smooth flow to southern states.
Utilities prefer to overdraw from the grid as this requires no immediate cash transfer unlike purchase from the market or private players. But the Central Electricity Regulatory Commission says overdrawing could result in grid collapse.
Frequency of the north-east-west grid had dipped to critical levels between May 13 and 16, officials said.
Uttar Pradesh, Tamil Nadu and Andhra Pradesh are the most energy-starved with power deficit ranging from 10% to 16%. They are followed by Haryana, Rajasthan and Uttarakhand.
Several areas of Uttar Pradesh, Uttarakhand and Andhra Pradesh are facing power outages of 4 to 9 hours a day.
The regulator has directed load despatch centres of Uttar Pradesh, Rajasthan, Uttarakhand and Haryana to refrain from overdrawing from the grid and instead buy power from the spot market to meet excess demand.
Uttar Pradesh Power Corporation chairman Avanish Awasthi said the state was facing a shortage of 1,500-2,000 MW, which it was drawing from grid.
Haryana is already purchasing about 500 MW from power exchanges to bridge the demand-supply gap, state’s power secretary Ajit Mohan Sharan said.
Utilities in Rajasthan andPunjabare also buying small amounts from power exchanges and private players.
INDIA TO GIVE $100 MILLION AID FOR NIGERIA’S POWER SECTOR
Indiahas committed a $100 million line of credit toNigeriafor improvement in its power sector that has been battling with instability and corruption.
Indian High Commissioner to Nigeria Mahesh Sachdev announced this during inauguration of the manufacturing and repair of power transmission equipment plant developed byIndia’s Skipper Group in Ikorodu area of southern state ofLagosyesterday.
“Nigerian and Indian governments will soon sign the agreement for the line of credit,” Sachdev said, adding that 12 Indian companies have shown interest to invest inNigeria’s power sector.
“India, which isNigeria’s second-largest trading partner, has both the capacity and expertise to supportNigeria’s ambitious development plans in the power sector.” he said.
He noted that unlike many other foreign companies which were content to execute projects on tactical basis, Skipper Group, over the past decade, had invested inNigeriato create manufacturing and repair capacity, transfer of technology and employment generation.
Speaking on the occasion,Nigeria’s power minister Bart Nnaji said with the completion of the repair plant, the country would no longer ship transformers toSouth Africa,Indiaand other countries for repair.
“With this repair facility, we will not be shipping transformers toSouth Africa,Indiaand other countries for repair. It costs us money; it costs us time. Now, the repair is going to be done here and on top of that, it will create local employment,” he said.
The High Commissioner also visited the site of the recent plane crash at Iju Lagos and expressed grief over the loss of innocent lives.
Nigeriahas been battling hard to improve power supply to its 150 million people but corruption has proved to be a major setback to the move.
The problems in the sector have also proved to be a major roadblock in this oil rich African country’s path to industrialisation.
President Goodluck Jonathan’s government has roped in country’s anti-corruption agencies to investigate the malpractices in the sector and fix the loopholes in a bid to improve power supply in the country by this year.
PM KEEN, BUT INFRA DEVELOPMENT HELD UP IN PROCEDURAL DELAYS
NEW DELHI: By considerably enhancing the capacity addition targets for infrastructure sectors, prime minister Manmohan Singh has sent out a clear message of urgency to all stakeholders. But he overlooked the problem of huge procedural delays that plague public-private partnership (PPP) projects, especially in sectors like ports, airports and railways. These sectors, along with the power sector, which had been a laggard until some pace was gathered, are principally to blame for the slippages in the past years.
For example, the prime minister targets to set up two new major ports on the East Coast in 2012-13, besides promising 42 projects, entailing investments to the tune of R14,500 crore and a capacity of 244 million tonne in the year.
This is clearly an uphill task, especially given the fact that lead time between conception and award of port projects in the PPP sector is roughly two years. It takes a minimum of three years to build a new major port. Says K Mohandas, former shipping secretary: “There are avoidable delays (in project execution). Approval procedures can be considerably simplified.”
Any project worth R300 crore and above in the port sector needs Cabinet approval even after the inter-ministerial project appraisal committee clears it. Also, projects can be bid out more efficiently after upfront fixation of tariffs (which includes revenue-sharing with the port authority) and the elaborate process of tariff fixation by the regulator TAMP is eminently avoidable. Security clearances for port projects are also time-consuming. Despite these, the target for the port sector for FY 12-13 was three times what was achieved last year.
Singh’s target to add 18,000 MW of new power generation capacity this fiscal looks achievable, if the coal linkage issues are resolved expeditiously. Capacity addition in the sector in the past several years has not crossed 11,000 MW, with the only exception being the year 2011-12 when a record 20,000 MW of capacity was added, mostly flowing from delayed projects of 10th and 11th Plan periods. Power secretary P Uma Shankar told FE that achieving the target for this year might not be very difficult given that there is slippage of 25,000 MW capacity from the previous Five-year Plan.
It should, however, be kept in mind that many of the balance 11th Plan projects face severe environment and land acquisition problems besides problems on getting fuel linkage and adequate financing.
CoalIndiaand Singareni Coalfield will together supply 384 million tonnes of coal to the power sector in the current financial year, as per the target set at the infrastructure meeting. Coal production and supply target for CIL has been set at 464 and 470 million tonne, respectively, for the year. CIL produced 435 million tonne of coal in the financial year 2011-12 against the target of 447 million tonne set for the year. CIL’s coal production was estimated at 431 million tonnes in 2010-11. Unless major reforms are undertaken coal sector outout will continue to stagnate.
“In Railways, we plan to award work on the elevated rail Corridor in Mumbai, two new Loco manufacturing units and the PPP stretch of the dedicated freight corridor, in addition to redeveloping 4 or 5 stations through PPP mode,” the PM said on Wednesday.
CERC FOR STRICT CODE FOR POWER TRADING LICENSEES
MUMBAI: Inter-state power trading licensees may attract stringent penalties for contravention of trading regulations, going by certain proposals of the Central Electricity Regulatory Commission (CERC). In draft amendments to the trading licence regulations, the statutory body has mooted a penalty of Rs 1 lakh for each contravention, besides a ban from trading in short or medium term market or through power exchanges for a period of up to six months and a suspension of the licence for a similar period and, sometimes, even its revocation.
The country has 56 inter-state licensees, as at the end of the 2011-12 financial year.
The CERC also wants the licensees to follow a strict code of conduct. They should maintain high standards of integrity, dignity and fairness in the conduct of its trading business. The licensees must adequately deal with inquiries from clients, and make timely disclosures in accordance with the applicable regulations and guidelines so as to enable them to make a balanced and informed decision. Moreover, licensees would “see that grievances of client are redressed in a timely and appropriate manner”.
CERC chairman Pramod Deo says the draft amendments to the inter-state trading regulations are aimed at addressing certain gaps and discrepancies besides taking a holistic look at traders’ risk and improving risk-monitoring of traders. “The proposed amendments also aim to put in place a system for auditing of inter-state trading licensees on the lines of power exchanges,” he told Business Standard.
The draft amendments also seek a gradation in taking action against the licensees for contravention of regulations. There would even be a provision of issuing warning to the defaulting licensee, Deo added.
The CERC’s draft amendment regulations come at a time when 94 billion units of power trading was reported in 2011-12. Of this, nearly 36 billion units was traded through bilateral contracts and term-ahead contracts. As for the rest, 15 billion units were traded through power exchanges, and 28 billion units through unscheduled interchange route.
A leading licensee from the private sector, who did not want to be identified, observed that the draft amendments would lead to further paper work for licensees. “In any case, all trading licensees are putting their business details on their websites,” he noted. “It seems CERC is keen to micro-manage the functioning of the licensees.”
The 1998-founded regulator with quasi-judicial powers has, in the draft amendments, mooted allowing existing trading licensees time up to July 31 this year to submit information about the volume of electricity proposed to be traded in 2012-13, along with the special balance sheet as on March 31 this year. Further, traders, including distribution companies, would also have to submit annual return of inter-state transactions detailing volumes transacted (in million units, or mu,) and rupees), total trading margin earned (in case of licensed traders), complete list of buyers and sellers (as applicable) and total volume transacted in intra-state transaction (in mu and rupees). This practice, which CERC wants to start from 2013, should be certified by a chartered accountant by April 30 every year.
Further, traders would have to disclose the transaction details of inter-state transactions as well as petitions filed by them and orders in a bid to bring more transparency to the system and help the clients in making informed decisions.
NTPC BLASTS GOVT AS COAL SHORTAGE TRIPS OUTPUT
NEW DELHI: Arup Roy Choudhury, chairman ofIndia’s largest power producer NTPC, on Thursday blamed the government for chronic fuel shortages that have exacerbated the country’s energy crisis and put off steps to increase power generation.
Choudhary said a climate of fear following a spate of scams had frozen officials into inaction on environmental clearances, land buys and allotment of coal mines. “Public sector companies like mine are under tremendous pressure because of the environment of suspicion and mistrust,” Choudhury told Reuters in an interview.
“It becomes a game of snakes and ladders, where you overcome a few steps, (and then) suddenly you find yourself at the bottom of the heap, trying to work yourself through again.”
Choudhury reiterated that NTPC, which owns about a fifth ofIndia’s generation capacity, would miss its target of adding 25,000 MW to capacity by 2017 and was now aiming for just 14,500 MW.
Indiarelies on coal for two-thirds of its power generation, and will need even more for the additional capacity planned to tackle the power deficit.
The country’s power deficit sometimes reaches as high as 13%, hampering industry and plunging millions into darkness.
An estimated 85% of the 76,000 MW of new capacity planned for installation over the next five years will be generated by coal.
Indiasits on the world’s fifth-largest reserves of coal. However, output of the state’s near-monopoly, CoalIndia, has stagnated and, combined with a slide in gas output, power producers have limited access to cheap local fuel supplies.
The alternative is to import coal at higher prices that raises costs for struggling distribution utilities.
Coal shortages knocked 7.8 billion KWh off NTPC’s capacity utilisation in the past year, denting its profit.
“I’m the largest generator in the country, but still I’m hand-to-mouth in fuel,” Roy Choudhury said, bemoaning the country’s failure either to increase coal output or, like China, look abroad to purchase resources for industry at home.
Prime Minister Manmohan Singh’s corruption-plagued government has faced heavy criticism for a policy paralysis that has contributed to a slowdown in economic growth, and the power sector is one of the most severely affected.
According to a draft report by state auditors that was recently leaked to media, the government had lost $211 billion in potential revenue by allocating coal mines at its discretion instead of auctioning them off, bringing a windfall gain to companies like NTPC. After a furore over the report, the government quickened the pace of the auction process for captive mines and has delayed the handover of mines allocated earlier.
Due to the environment of mistrust, allocation has stopped, Choudhury said, noting that formal approval for concessions approved in principle a year ago were frozen.
The fate of projects with capacity of about 8,000 MW depends on mines that received in-principle approval last September. Projects for a further 2,600 MW are linked to three mines that were seized from NTPC due to a lack of progress and then reallocated last year, but formal allotment has still not come.
While private players such as Tata Power, Reliance Power and GVK Power have secured coal mines overseas, NTPC – which is several times their size, with a market value of $23 billion – has not bought a single mine abroad, largely due to state control that slows decision-making.
If I were to purchase mines abroad today and coal prices were to fall after a few years, I may be questioned for the deal, said Choudhury.
If the government really wants the public sector to do business, it has to give it support, he said.
He said the government should establish ways to help state-run companies resolve issues quickly “but instead there was a sense that somebody is holding a Damocles sword over your head, waiting for you to make mistakes and catch you.”
NTPC CHIEF BLAMES CLIMATE OF FEAR FOR POWER WOES
NEW DELHI: The head ofIndia’s largest power producer blamed the government for chronic fuel shortages that have exacerbated the country’s energy crisis and put off steps to increase power generation as he repeated a warning NTPC would fall far short of its own target to up capacity.
Arup Roy Choudhury, chairman of state-run NTPC Ltd, said a climate of fear following a spate of corruption scandals had frozen officials into inaction on environmental clearances, land acquisition and allotment of coal mines.
“Public sector companies like me are under tremendous pressure because of the environment of suspicion and mistrust,” said Choudhury in an interview at the company’s headquarters inNew Delhi.
“It becomes a game of snakes and ladders, where you overcome a few steps, (and then) suddenly you find yourself at the bottom of the heap, trying to work yourself through again.”
Choudhury reiterated that NTPC, which owns about one fifth ofIndia’s generation capacity, would miss its target of adding 25,000 megawatts (MW) to capacity by 2017 and was now aiming for just 14,500MW.
Indiarelies on coal for two-thirds of its power generation, and will need even more for the additional capacity planned to tackle a power deficit that sometimes reaches as high as 13%, hampering industry and plunging millions into darkness. An estimated 85% of the 76,000MW of new capacity planned for installation over the next five years will be generated by coal.
Indiasits on the world’s fifth largest reserves of coal. However, output of the state’s near-monopoly, Coal India Ltd, has stagnated and, combined with a slide in gas output, power producers have limited access to cheap local fuel supplies.
The alternative is to import coal at higher prices that raises costs for struggling distribution utilities.
Coal shortages knocked 7.8 billion kWh (kilowatt hour) off NTPC’s capacity utilization in the past year, denting its profit.
“I’m the largest generator in the country, but still I’m hand-to-mouth in fuel,” Choudhury said, bemoaning the country’s failure either to increase coal output or, like China, look abroad to purchase resources for industry at home.
Prime Minister Manmohan Singh’s corruption-plagued government has faced heavy criticism for a policy paralysis that has contributed to a slowdown in economic growth, and the power sector is one of the most severely affected.
According to a draft report by state auditors that was recently leaked to media, the government had lost $211 billion (around Rs.11.6 trillion) in potential revenue by allocating
coal mines at its discretion instead of auctioning them off, bringing a “windfall gain” to companies like NTPC.
After a furore over the report, the government quickened the pace of the auction process for captive mines and has delayed the handover of mines allocated earlier.
“Due to the environment of mistrust” allocation has stopped, Choudhury said, noting that formal approval for concessions approved in principle a year ago were frozen.
The fate of projects with capacity of about 8,000MW depends on mines that received in-principle approval last September. Projects for a further 2,600MW are linked to three mines that were seized from NTPC due to a lack of progress and then reallocated last year, but formal allotment has still not come. While private players such as Tata Power Co. Ltd, Reliance Power Ltd and GVK Power have secured coal mines overseas, NTPC—which is several times their size, with a market value of $23 billion—has not bought a single mine abroad, largely due to state control that slows decision-making.
“If I were to purchase mines abroad today and coal prices were to fall after a few years, I may be questioned for the deal,” said Choudhury. “If the government really wants the public sector to do business, it has to give it support,” he said.
He said the government should establish ways to help state-run companies resolve issues quickly but instead there was a sense that “somebody is holding a Damocles sword over your head, waiting for you to make mistakes and catch you”.
HANGING BY A THIN LINE, DISCOMS SHOW SIGNS OF LIFE
NEW DELHI: The fact that the power generating and distribution industry is in a shambles in many parts ofIndiawill come as no surprise to many. For instance, the Tamil Nadu Electricity Board (TNEB), responsible for distributing power to much of the state, has accumulated losses of Rs 50,000 crore. Many power distribution companies (discoms) in other states mirror TNEB’s fragile financial condition.
Now, however, a sea change has gradually taken place over last year in the finances of discoms who were broke because of their inability to raise the price of power. At least fifteen have been able to raise tariffs, thereby minimising what would have otherwise been a brutal year, considering the huge increase in the price of coal during this period. Moreover, twenty-three of these discoms have applied for permission to further increase tariffs for the following year, suddenly altering, for the better, the future financial viability of their operations. This may not be good news for customers, but is a crucial boost to the industry, since electricity generators can now get paid on time and don’t have to consider shutting off power supply until payments are received from discoms.
Discoms are hobbled by the fact that the cost of fuel is passed on to them, making these distributors vulnerable to price fluctuations. Since fuel costs accounted for around 48 per cent of the total increase in costs for utilities over the last six years, and will go up to 54 per cent over the next five, it is easy to see why discoms were desperate for a price increase. On account of the cost increases, the tariff would be required to increase at a CAGR of six per cent over the next five years, according to a report by CRISIL.
This is a big deal for both discoms as well as the power sector, which together service an economy and a population that are growing, by and large, at a rapid clip. In an environment where the industry has been prevented from raising the price of power largely due to political compulsions—most states hadn’t done so in as many as eight years—the fact that so many have, in just one year, substantially raises the prospects for discoms.
The numbers tell a very simple and direct story about the financial health of discoms. According to data from the power ministry, the average cost of supply (ACS) for all power companies has clearly far exceeded the average revenue realised on a subsidy basis. In 2008-09, the average costs stood at Rs 3.41/kwh versus revenues of Rs 2.91/kwh; in 2007-8, costs were Rs 2.93/kwh versus revenues of Rs 2.65/kwh; and in 2006-07, costs were Rs 2.75/kwh compared to revenues of Rs 2.49/kwh. Without a price increase, operating a discom is clearly a loss-making proposition.
Not surprisingly, the accumulated losses of financial utilities were estimated to be over Rs 2 trillion at the end of 2011-12, from Rs 1.23 trillion at the end of the previous year, according to a CRISIL report. Apart from the losses, the amount of outstanding loans for the utilities, including short- and long-term ones, stood at Rs 1,77,602 crore as of March 31, 2010.
But it isn’t just the lack of a price increase that has caused so much past trauma. An expert who tracks the power sector says apart from no tariff hikes, a reason for the state of affairs is the non-receipt of subsidies by state governments. Regular increases, coupled with some measures, will ease out the problems of the distribution segment, he says. Subsidy from state governments was estimated at 18.94 per cent (Rs 29,665 crore) of total revenue of the state utilities in 2008-09, which had increased from 11.17 per cent (Rs 13,590 crore in 2006-07) and 14.12 per cent (Rs 19,518 crore) in 2007-08. Although subsidies booked have grown at 30 per cent a year, they were received at only 14 per cent, according to CRISIL.
This bleak situation existed even as far back as a decade ago. So much so that in 2001-02, a committee headed by Montek Singh Ahluwalia had to bail out utilities by issuing long-term bonds to be discharged by the state governments. Some experts believe that if the government does not take action on a continuous basis to improve the financial health of discoms, the situation that arose in 2001-02 may recur.
Yet, the improvement seen in the last year has been enough to impress two main stakeholders on whom the discoms are dependant. Rural Electrification Corporation (REC) and Power Finance Corporation (PFC), major lenders to the power sector, are bullish on the progress made last financial year. Both resumed loans to discoms recently. With a current loan book of around Rs 1,02,000 crore, REC’s lending towards discoms stands at Rs 35,000-40,000 crore. “We have resumed short- as well as long-term lending to discoms and there is no restructuring or any default by companies till now,” he said.
PFC, too, has turned on the spigot. A senior PFC official says the company has only a four per cent loan exposure to discoms, but has resumed short-term lending following the new criteria set by the power ministry. Of its total loan assets of Rs 1,30,072 crore, only Rs 5,667 crore goes to the distribution segment. Still, while the loan sanctions by PFC at the end of 2011-12 stood at what seems relatively paltry, Rs 2,664 crore, it was a huge improvement from just Rs 216 crore doled out at the end of 2010-11.
However, it’s not as if the struggle for financial viability is over just yet. These kinds of tariff increases need to happen for the next two-three years continuously in order to make a substantial improvement in the financial position of the discoms, REC’s director of finance, H D Khunteta, tells Business Standard.
Last week, the power ministry also gave the industry a shot in the arm by introducing competitive bidding rules for the short-term purchase of power by distribution companies. These new guidelines aim at introducing transparent processes in the procurement of short-term power, and bringing down the overall cost of power for consumers.
This is important since discoms depend on short-term deals for power to cater to sudden spurts in demand, especially during elections and in summers. These spikes can cripple already debilitated discoms and the above-mentioned guidelines could bolster a weak yet critical industry that is showing encouraging signs of life.
POWER FINANCE CORPORATION TO DECIDE IN A MONTH ON FUNDING PROJECTS ABROAD
NEW DELHI: Power Finance Corporation Ltd (PFC) will decide in a month on funding overseas energy assets. The infrastructure financier has completed its internal preliminary study on foraying into the new business portfolio.
“Board will decide in one-month’s time. We do not want to fund projects just like that. Only if these projects can help electricity generation inIndia, we would be interested,” Mr Satnam Singh, Chairman and Managing Director, PFC, told Business Line.
Companies such as Lanco Infratech, GVK Industries and Videocon Industries have held preliminary talks with PFC, Mr Singh said. These companies are looking to raise debt to fund development of their assets acquired overseas.
If the board gives its go-ahead, PFC would create a business unit within the company to work on such projects, Mr Singh added.
When asked what percentage of PFC’s total disbursement would be earmarked for overseas projects, Mr Singh said it’s too early to comment unless PFC zeroed in on some project.
GVK acquired Hancock Coal inAustraliain 2011. Similarly, Lanco Infratech bought Griffin Coal in 2010 that has mines inWestern Australia. Videocon Industries is in exploration of hydrocarbon blocks inMozambiquein joint venture with Bharat Petroleum Corporation Ltd (BPCL).
Mr Singh said that PFC is not keen on buying equity in these projects and would only consider giving loans. However, PFC would finance only if the coal or gas is brought back toIndiafor generating power.
BHEL COMMISSIONS 250-MW UNIT AT HARDUAGANJ THERMAL STATION IN UP
NEW DELHI: Bharat Heavy Electricals Ltd (BHEL) said it has completed two units of 250 MW each for Uttar Pradesh Rajya Vidyut Utpadan Nigam Ltd (UPRVUNL).
It commissioned the second 250 MW unit at Harduaganj Thermal Power Station (TPS) in Uttar Pradesh on Thursday.
“While the first unit was commissioned by BHEL in September 2011, the project has now been completed with the commissioning of the second unit,” the company said in a statement.
This station will generate six million units of electricity, it said. UPRVUNL had placed orders for setting up two units of 250 MW each at Harduaganj TPS.
At the same time, BHEL is executing other contracts for a 250 MW unit at Parichha and two units of 500 MW each at Anpara UPRVUNL.
BHEL’s scope of work in the Harduaganj contract included manufacture, supply, erection, testing and commissioning of the main plant package along with associated auxiliaries and civil works for the main plant package.
The equipment for the project has been supplied by the company’s manufacturing units in Haridwar, Tiruchi, Ranipet,Hyderabad,Bangalore,BhopalandJhansi.
GVK POWER PUTS PLANS TO EXPAND AP PROJECT ON HOLD
BANGALORE: GVK Power and Infrastructure Ltd does not plan to go ahead with expansion of its Jegrapadu power project in Andhra Pradesh, according to Mr G.V. Krishna Reddy, its Chairman.
Speaking on the sidelines of the Global Investors’ Meet inBangaloreon Thursday, he said that low output from KG D-6 remains a concern. This concern has led to the company’s decision to put on hold the phase-3 of the Jegrapadu power project, he added.
According to Mr Reddy, the company has already invested Rs 300 crore in the third phase of this proposed 800-MW project. “When we get coal or gas, we will go ahead with this project,” he said.
GVK Power and Infrastructure Ltd operates gas-based combine cycle power plants in Andhra Pradesh with gas supplies from Reliance Industries’ Krishna-Godavari basin.
On the Government’s plan to set up an airport in Navi Mumbai, Mr Reddy said that GVK Group has the first right of refusal to the project.
At the GIM 2012, the GVK group signed an MoU with the Karnataka government for setting up a few merchant power plants in the State using coal and gas. The company plans to invest Rs 29,000 crore in these plants.
ALSTOM AND DRUK GREEN POWER CORPORATION TO ESTABLISH A JOINT VENTURE FOR SERVICES OF HYDRO COMPONENTS IN BHUTAN
KOLKATA: Alstom and Druk Green Power Corporation (Druk Green) will establish a state-of-the-art hydropower service centre in Jigmeling, Gelephu under Sarpang Dzongkhag (district) ofBhutanto provide repair services for hydro runners and other underwater parts of hydropower plants.
This strategic partnership will be implemented as a joint venture with a shareholding of 49% for Alstom and 51% for Druk Green. This will be the first service centre in the country and it aims to create 160 new jobs inBhutan. The service centre is expected to employ 62 people in the first year of operation and plans to ramp up to 160 when the centre reaches its full capacity utilization. The service centre construction is scheduled to be completed within 27 months from the signing of this agreement.
Considering the huge impact the hydropower sector has had on the socio-economic development of the country, the Royal Government of Bhutan has embarked on a mission to achieve 10,000 mw installed capacity by 2020 in cooperation with the Indian government.
With this agreement, Alstom, together with Druk Green, aims to support the national drive for investment and employment in the promising Bhutanese Hydro market while maintaining close proximity with its customers.
“This joint undertaking to build a high-tech service centre is a result of the close relationship we have with Druk Green and of our desire to work with local partners to develop highly-skilled local capabilities. The service centre is a key element in Alstom’s growth plans in the region and demonstrates our commitment to serve Bhutan Hydro market and more generally to be close to our customers in the region,” said Francois Carpentier, vice president, Thermal and Renewable Power, AlstomIndia.
Indiaintends to achieve some of the new additions through tapping the vast hydropower potential of its north-eastern states that neighbourBhutan. These new hydropower plants will also require similar repair work as those inBhutanand provides opportunity for the Centre to provide similar services to these plants.
While is a global leader in the world of power generation, power transmission and rail infrastructure – a group that employs 92,000 people in around 100 countries with sales of 20 billion, Druk Green Power Corporation (Druk Green) is a Nu 65 billion company with more than 1,700 employees. It presently operates and maintains the Chhukha, Kurichhu, Basochhu and Tala power stations with a total installed capacity of 1,480 mw and is by far the largest company inBhutan.
SUZLON TO BUILD 3,000-MW WIND FARM IN KARNATAKA
BANGALORE: Wind power major Suzlon Energy is investing Rs 15,000 crore to set up wind and solar farms of 3000 MW in Karnataka. The projects would be set up within the next five years, Mr Tulsi R Tanti, Chairman and Managing Director, said at the Global Investors Meet 2012.
“The State has a capacity of 15,000 MW of which only about 2000 MW is harnessed,” he pointed out, adding that the company was “committed to investments in the State”.
The company currently has one of the wind equipment largest manufacturing plants in Karnataka, and has an installed capacity of 770 MW in the State.
The deal covers the development of new capacity in wind farms across the State, with developments planned in the districts of Bijapur, Chitradurga, Tumkur, Dharwad, Chikmangalore, Raichur,Mysore,Belgaumand Bagalkot, according to a press statement from the company.
The Karnataka Government will obtain the necessary permissions, registrations, approvals and clearances for the development of wind farms in the State.
Suzlon, in turn, will facilitate the flow of investments into the State through its customers investing in wind energy, the statement said.
SOLAR POWER BIDS BELOW RS. 9 PER UNIT RISKY SAYS CRISIL RESEARCH
KOLKATA: CRISIL Research, believes that the pace of reduction in capital costs in solar power is expected to moderate in 2012. This will exert pressure on the margins of players, who have bid below Rs 9 per unit under batch 2 of Jawaharlal Nehru National Solar Mission (JNNSM), unless they can access low-cost foreign debt.
In 2011-12,India’s solar power capacities increased manifold to nearly 940 mw from a meagre 20 mw in 2010-11. Besides favourable government policies, particularlyGujarat’s solar policy, a sharp decline in capital costs over 2011 drove this rapid expansion.
In 2011, the capital costs of Solar Photovoltaic (PV) projects fell by 3%, following a 50 % decline in the prices of solar PV modules that make up for half of the total capital costs in PV projects. Prices of these modules have been sliding due to weak demand from key European markets includingGermany,ItalyandSpainfollowing the withdrawal of incentives after a period of explosive growth in capacity additions.
Moreover, significant capacity additions, led by Chinese module suppliers, resulted in module overcapacity of almost 50% in 2011, leading to pressure on module prices.
CRISIL Research expects the pace of decline in module prices to slow down in 2012 due to the sharp erosion in the margins of module suppliers and increasing consolidation among global players. As a result, capital costs are expected to decline only by 10-13 % to Rs 8.7-9 crore/mw in 2012.
However, some players under batch 2 of JNNSM have bid aggressively anticipating a steeper decline in capital costs, which may not materialise. For healthy equity internal rate of returns (IRRs) of around 1%, a levelised tariff of Rs 9 per unit is necessary, assuming a plant load factor of 19 per cent and typical debt equity of 70:30, with borrowing costs of nearly 13 per cent. “Almost half the bids under JNNSM batch 2 have been below Rs 9 per unit and about a fourth of the bids below Rs 8.5 per unit, making these investments highly risky”, says Rahul Prithiani, Director, Industry Research, CRISIL Research.
These projects can become viable if solar power producers can tap cheaper foreign funds. Often foreign developmental finance institutions provide low cost debt to fund purchase of solar equipment from suppliers in their country. Hence, the domestic procurement clause imposed by JNNSM for crystalline PV cells and modules – the widely used technology – could limit access to such funds.
“In contrast, the fixed levelised tariff of Rs 10.37 per unit and the absence of any domestic procurement clause make Gujarat state’s solar power policy more attractive, thus enabling healthy equity IRRs of 18-22 per cent”, said Prasad Koparkar, Senior Director, Industry and Customised Research, CRISIL Research.
GOVT DRAWS PLAN TO AVOID COSTLY COAL IMPORTS
NEW DELHI/KOLKATA: The government might have asked Coal India Ltd (CIL) to resort to imports to smoothen coal availability for fuel-starved power plants, but the state-owned miner has chalked out a detailed plan to avoid costly shipment of the commodity or to at least keep these to a minimum. Its latest strategy, formulated with coal ministry’s brass, is to meet the mammoth supply obligation by ramping up domestic production.
The multi-pronged strategy includes quickly ramping up production to 615 million tonnes annually by 2017. The target is to increase production up to 40 per cent in the next five years, to keep the shortfall to a minimum. This will be achieved by strict mine-level monitoring of performance and pushing for quicker ecological clearances and land acquisition, by seeking intervention of higher authorities, including the Planning Commission and the Prime Minister’s Office. “Imports would not be needed to meet new coal supply obligations in the 12th Plan. We have drawn an elaborate plan with CoalIndia,” a senior coal ministry official, who did not wish to be named, told Business Standard.
Confirming formulation of the plan, CoalIndiaChairman and Managing Director S Narsing Rao told Business Standard, as a part of this strategy, the company would gradually bring down e-auction volumes. “It would be brought down from around 10 per cent of production at present to less than seven per cent by 2015. This would not impact our profitability. In case earnings are hit, we could look at increasing the floor price,” he added.
The company also plans to supply 80 per cent of the coal required by companies to run power plants at a 85 per cent Plant Load Factor (PLF). “While most companies are running their plants at over 90 per cent PLF, CoalIndiawould stick to the commitment for keeping the plants running at 85 per cent load according to Letters of Assurance (LoAs). This would further help us in meeting obligations,” Rao said. Power companies would have to bridge the resultant gap through importing coal on their own.
CIL has signed fuel supply agreements (FSAs) with 14 power units commissioned after March 2009. “The company would now have to sign pacts with an additional 81 units of 41,000 Mw capacity, including those commissioned between January 2012 and March 2015. The 81 units would take the entire requirement to around 170 Mt, another top company executive said. Around 60,000 Mw of fresh power capacity is likely to come on stream by 2016 requiring 252 Mt coal. This, added to the existing linkages of 305 Mt, takes CIL’s supply obligation to 557 Mt.
CIL also plans to gradually increase the power sector’s share in the company’s overall production.
While the company plans to raise output to 615 MT by then, production would at least reach 585 MT in a worst case scenario, leaving a gap of 89 Mt. “A major part of this gap, around 70 Mt, would be met through captive production by power companies,” Rao said. The rest of the gap would be met as CIL will supply coal under new Fuel Supply Agreements at 80 per cent of the Annual Contracted Quantity, lower than the commitment of 90 per cent.
As part of the strategy, from the current 70 per cent to over 80 per cent by 2016, leaving no room for any need to resort to imports. The production itself would be increased by over 35 Mt annually for the next five years to an overall incremental production of 175 Mt in 12th Plan, Rao said.
STATES RULED BY OPPOSITION PARTIES LIKE CHHATTISGARH & WEST BENGAL RESISTED COAL AUCTION PROPOSAL
NEW DELHI: Opposition parties ruling mineral-rich states resisted auctioning of coal blocks and pitched for free allocation, which according to a leaked draft report of the Comptroller and Auditor General of India gave companies windfall gains of Rs 10.67 lakh crore.
Chhattisgarh and Rajasthan that were ruled by the BJP andWest Bengal, then under the Left Front government, had conveyed their reservations on allotment of captive coal mines through competitive bidding and demanded that the system of allotment through screening committee should continue, officials said. “It took us about 3 years to convince the state governments.
We held a final meeting in 2010 with all state governments,” a senior coal ministry official said. He said another reform initiated by UPA-I to allow private mining in coal sector has been in cold storage since 12 years due to opposition from Left Front.
The idea of allocating coal blocks through competitive bidding was mooted in 2004 and the government in 2005 initiated a proposal to amend the Coal Mines (Nationalisation) Act. UPA-I had in 2005 sought comments from various stakeholders including state governments on auctioning coal blocks.
The CPI-M led West Bengal government had told the coal ministry that it “is not in favour of the proposed system of allocation of coal block for captive mining through competitive bidding”, documents seen by ET show.
BJP-run Chhattisgarh government said the proposal would be detrimental to growth of iron and steel industry in and around the state while the then chief minister of Rajasthan, Vasundhara Raje, had said that change in allotment of lignite blocks would not be appropriate as it “would take away the state’s prerogative in selection of the lessee”, in a letter to the coal minister, reviewed by ET.
In a clarification issued on the matter on May 17, the coal ministry had said state governments such as Chhattisgarh, West Bengal and Rajasthan were opposed to the amendment as they felt that it would increase the cost of coal, adversely impact value addition and development of industries in their areas and would dilute their prerogative in selection of an allocatee.
The Central Bureau of Investigation has registered a preliminary enquiry into alleged irregularities in allocation of coal blocks to private companies during 2006-09 after demand from opposition parties and civil society activists.
OVER 50 COAL BLOCKS ALLOTTED TO PRIVATE COMPANIES HAVE BEEN SOLD: HANSRAJ AHIR
BJP Lok Sabha MP Hansraj Ahir’s complaint about coal block allocation has led the Central Vigilance Commission to order the Central Bureau of Investigation to hold a preliminary enquiry into allotments between 2006 and 2009.
In an interview to ET, Ahir says private companies have misused coal blocks allotted to them – some have sold the blocks, some have amassed more blocks than they need. Excerpts:
In your letter to the CVC, you said coal blocks given to private companies are being misused. Why do you say that?
Blocks were to be given to companies that needed captive coal-mines- to feed their steel, cement, power and sponge iron plants. A lot of companies showed plants on paper – as something they were planning to set up – and they were allocated mines.
InMaharashtra, there is a company called Veerangana Steel. It sold its blocks (in Yavatmal) to another company. Another company, Grace Industries, sold its block to Sanvijay Rolling and Engineering. In both cases, the company’s name was unchanged even as its ownership changed.
The companies that got the mines are not extracting coal. They are instead looking for buyers, who are typically companies with plants but without mines. My estimate is that 80% of companies that won these blocks had no plants that needed coal.
How could they get the blocks in the first place?
The process by which these blocks are allocated is that there is a screening committee. This comprises senior bureaucrats from the ministries of industry, commerce, energy, environment and railways, the Coal India Limited (CIL) chairman, the chief secretary of the state where the coal block is, and the CMDs of all 7 CIL coal subsidiaries. It seems to me they saw the plants on paper, but not in the field.
How widespread is this problem?
InMaharashtra, only a handful of companies that were given blocks have started producing coal. AcrossIndia, just 26 of the 143 companies have started work. And if I extrapolate from Maharashtra, over 50 blocks acrossIndiahave been sold.
As per process, a mine outside forest area has to be opened in three years. If it is on forestland, you have another six months. And if it is an underground mine, you have four-and-a-half years. If you don’t, the block is cancelled and the bank guarantee is taken away.
AcrossIndia, between November 29, 2001 and November 29, 2010, 72 blocks had failed to start production. If you extend this to 2012, 91 companies had failed to start production.
All their allotments can be cancelled. However, only one has been. No bank guarantee has been forfeited. What is the outcome of all this? We have to import coal even as the rupee is weakening.
There are other questions. The Jindals have been allotted 12 blocks, worth about Rs 9,00,000 crore, when one or two would have sufficed. In contrast, other groups like the Tatas have been given three blocks. Hindalco, which is as large as the Jindals, has got four blocks.
What should be done now?
This property can be saved only if these allocations are cancelled.
QUEENSLAND TO HAVE NO ROLE IN GVK COAL MINE APPROVAL BID
MELBOURNE: Australian government on Thursday said that coal-richQueenslandwill have no further role in the massive Alpha coal mine approval process following a dispute withIndia’s GVK Group over environmental issues.
The federal andQueenslandgovernments have been warring for more than a week over the approval process for the $6.36-billion coal mine in centralQueensland.
Queensland’s deputy premier Jeff Seeney and environment minister Andrew Powell met with federal environment minister Tony Burke on Thursday morning inSydneyto discuss the dispute. “The commonwealth will continue to deal with what it says are outstanding environmental issuesQueenslandfailed to consider in its assessment,” AAP news agency reported.
Queenslandgovernment still has to come back by next week and show cause why it should not be suspended from a bilateral agreement aimed at streamlining major environmental approvals.
“The meeting with deputy premier Seeney and minister Powell was productive and is hopefully the first step in resolving the differences which have unfolded between the commonwealth andQueenslandover the past fortnight,” Burke said in a statement. “It was agreed that now a commonwealth process has commenced to deal with the outstanding matters relating to the Alpha Coal project, this will continue to its completion.”
Burke said there would also be discussions in coming days to determine how the current bilateral agreement might be amended to “create greater certainty for the environment and business”.
“For whatever reasons the current bilateral has not delivered the twin aims of high environmental standards and a streamlined process for business. The work in coming days aims to resolve this,” he said.
Australian Prime Minister Julia Gillard had lashed out at theQueenslandgovernment over its handling of Alpha Coal mine project, claiming it had shaken investor confidence in the state. The federal government on Wednesday halted the approval process for GVK’s Alpha project amid a dispute over environmental assessments affecting theGreat Barrier Reef.
In a sharply worded letter sent toQueenslandpremier Campbell Newman, Gillard accused him of threatening the Great Barrier Reef by cutting corners on the proposedGalileeBasindevelopment in the coal-rich state.
ADANI SEEKS PARTNERS FOR $2-BILLION AUSTRALIAN RAIL LINE
MELBOURNE: Adani Enterprises will look for partners to help fund a $2 billion coal rail line fromAustralia’sGalileeBasinto thePacific Ocean, it said on Thursday, after winning state approval for its proposed route.
The approval is crucial to Adani’s $10-billion coal and rail project and potentially other projects in the untappedGalileeBasin, where five major mines could produce more than 200 million tonnes of coal a year.
The biggest hurdle to theGalileeBasinprojects is affordable access to port, as the region is much further from the coast thanQueensland’s other coal-rich basins.
“We are eager to cooperate with third parties in such development but also keep open the option of going it alone as deemed in our best business interests,” Adani Group Australia chief executive Harsh Mishra said in a statement.
At current prices for thermal coal, analysts question whether theGalileeBasinmines would be economically feasible, which could make it tough for companies like Adani to raise funding for their projects.
Adani declined to name potential partners. Australian coal rail operator QR National and Adani proposed projects along the same corridor and may end up working together on a route to ship coal to an existing QR National rail line that could take coal to the port of Hay Point or Abbot Point further north.
That would be cheaper to build than a brand new 500 km rail line planned by GVK Power and Infrastructure for its $10-billion Alpha coal, rail and port project, on a route to Abbot Point.
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