Prospering Indian Power Sector

BHEL scrip dips 10% on cancellation of orders

2012-02-04T03:02:00.000+05:30

Shares of state-owned Bharat Heavy Electricals Limited (BHEL) plunged on the bourses because of cancellations order inflow reported by the company in its third quarter results on Friday.

BHEL reported a net profit of Rs 1432 crore in the quarter ending December 30, 2011, against Rs 1412 crore in the previous quarter. While profits have remained flat, BHEL's order book has declined by nearly 9 per cent quarter-on-quarter and by 7 per cent year-on-year.

The company had an outstanding order book position of about Rs 1,46,500 crore as at end December, 2011. At the end of the second quarter of FY12, BHEL's outstanding order book position was Rs 1,61,000 crore.

The company has not been able to garner major orders in the last quarter. An order worth Rs 5,840 crore was cancelled which led to de-growth in the order book. “The major reason given for order cancellation was that customers were unable to make significant progress in getting clearances, said a report by Prabhudas Lilladher.

Investors were also upset because the third quarter results showed lower-than-expected margins. Many brokerages have downgraded the stock due to possibility of future cancellations of orders. Brokerages have given a ‘neutral' and ‘sell' ratings to the stock.

HSBC Global research estimates the “outlook unlikely to improve over the next four to six quarters.” They fear further cancellations or execution delays from the company's private sector order book.

Motilal Oswal feels that the multiple de-rating triggers will put the stock's valuations under pressure. There could be a “Possible downside to our order intake assumptions in FY12/13 due to worsening external environment in the power sector, downside risk to FY13 earnings estimate due to execution constraints and deteriorating working capital, and uncertainty around the company's proposed follow-on offer (FPO),” said a report by the brokerage.

Suzlon bags $400-m orders in last one month

2012-02-04T03:00:00.000+05:30

Wind turbine maker Suzlon has bagged contracts worth over $400 million from three countries, including Brazil and the US, in the past one month.

The company bagged 80-MW worth of orders in India and a total of 189-MW worth of orders in Brazil and the US over a one-month period, excluding orders announced separately, Suzlon said in a statement today.

The firm orders secured between December 22, 2011, and January 23, 2012, from international special purpose companies, PSUs, large corporates and SMEs, are valued at approximately $403 million or Rs 2,000 crore, the statement said.

The order size ranges from as small as 0.6 MW to 121 MW.

"These orders reiterate not only the dynamic and rapidly growing Indian wind sector, but also Suzlon’s presence in emerging economies and competitive markets such as Brazil and the US,” Suzlon Group Founder, Chairman and Managing Director, Mr Tulsi Tanti, said, adding that Brazil is an important market for the company under its focus on emerging economies.

Suzlon Energy Ltd (SEL), India’s largest wind turbine manufacturer, has announced that it will develop a wind capacity in Andhra Pradesh totalling 3,000 MW between 2012 and 2016. The company’s initiative would attract an investment of Rs 18,000 crore in the state.

The company had also signed a memorandum of understanding (MoU) with the State Government in this regard earlier this month.

Under the MoU, the Andhra Pradesh Government will facilitate the acquisition of necessary permissions, registrations, approvals and clearances for the development of wind farms by Suzlon.

The company, in turn, will play the role of a developer and facilitate the channelisation of investments into the state through its customers investing in wind energy.

CoS calls meet of EGoMs to resolve power sector issues

2012-02-04T02:56:00.000+05:30

The Pulok Chatterjee-led committee of secretaries (CoS) has begun work on resolving issues threatening growth of the Indian power sector by convening meetings of two empowered groups of ministers (EGoMs) — one on gas allocation and another on ultra mega power projects (UMPPs).

The fuel-related issues being considered by the two EGoMs is critical for future growth of power sector where investment of over $200 billion is proposed during the Twelfth Five year Plan (2012-17). The committee has also proposed a meeting of the inter-ministerial panel to resolve issues relating to short supply of domestic coal to power projects.

Sources said the committee has identified five key areas — gas linkage, Coal India Limited's fuel supply agreement, diversion of surplus coal from captive mines, forest clearance for allocated captive coal mines located in dense forests and Indonesian coal pricing issues relating to the Mundra and Krishnapatnam UMPPs — for the government intervention. These would be taken up on priority basis as the committee has been given the mandate to resolve all issues in three months.

“We have a lot of expectation from the committee. The Prime Minister has promised to reolve all power sector issues in a time bound manner,” Association of Power Producer's director-general Ashok Khurana said.

The constitution of the commitee is being seen as an intevention by the Prime Minister’s Office (PMO) to ensure that inter-ministerial wranglings did not impede growth of critical infrastructure. Though government agencies and ministries have been aware of the problems, decisions have been pending for a long time. This has severely affected the power sector which is expected to end the 11th Plan with a capacity addition of mere 42,000-45,000 MW against the original target of 78,700 MW.

Few days in to its constitution, the Chatterjee-led commitee has called for a meeting of the EGoMs on gas allocation on February 14, while a similar committee is also expected to meet shortly to look into the Indonesian coal pricing issues affecting Mundra and Krishnapatnam UMPPs which are caught in a contractual bind.

The EGoM on gas allocation has been asked to ensure gas linkage to power projects worth 8,000 MW capacity expected to be commissioned by March end. The ministerial panel has not met for the last two years.

Similarly, the EGoM on coal has been requested to ensure that Coal India signs fuel supply agreements (FSAs) with all power projects that may be commissioned in the current 11th Five-year plan. Besides, it has also been asked to ensure that under the FSAs, CIL commits to supply enough coal to help these projects run at 85% capacity. That entails annual coal requirement of 425 million tonne.

The ministerial panel has also been asked to ensure speedy forest clearance to eight captive coal blocks including Chatrasal, Mahan located in dense forest areas.

The CoS has also asked the coal ministry to prepare a policy to facilitate diversion of surplus coal captive coal blocks through consultations with the concerned ministries.

The EGoM on UMPPs has been asked to examine Indonesian coal pricing issues relating to the Mundra and Krishnapatnam projects which have been caught in a contractual bind as the existing power supply contracts do not allow tariff revision due to increase in fuel costs.

The CoS was set up after top bosses of private power companies, including Ratan Tata and Anil Ambani, met Prime Minister Manmohan Singh on January 18 to seek his intervention for early resolution of power sector issues.

Top officials from the ministries of power, finance, coal and petroleum are members of the CoS, which is headed by Pulok Chatterjee, principal secretary to the PM.

Govt to review stuck power projects

2012-02-04T02:54:00.000+05:30

FM to chair meeting on Feb 1 ten major projects stalled on fuel cost issues to be discussed

With lending to some of the many stalled power projects becoming a major concern for financial institutions, the Union government has decided to review 10 major ones, involving an investment of Rs 32,301 crore, on the coming Wednesday.

These projects have Rs 17,764 crore worth of loan sanctions from public sector banks alone, of which a substantial chunk has been disbursed.

In all, Rs 1,16,000 crore have been invested in projects that have a total generation capacity of 21,160 Mw. Most of these are either ready for commissioning or are expected to be in a few months, said officials. The projects include Tata Power’s 4,000 Mw ultra mega power project and Adani Power’s 4,620 Mw project at Mundra in Gujarat. While the first unit of the Tata project is ready for commissioning, 3,300 Mw of the Adani project has already been commissioned and the remaining 1,320 Mw is expected to be commissioned in two months. Both the projects are unable to generate because of the increased cost of Indonesian coal, which cannot be passed on in power supply rates under the present norms.

The department of financial services, that has convened the meeting, feels the disbursed amounts would turn into non-performing assets (NPAs) in certain cases if the uncertainty surrounding these 10 projects and another 25 infrastructure projects, including those in the steel and iron sector, reviewed earlier, were not removed. These 25 projects involve investment of Rs 1,50,415 crore.

The Wednesday meeting comes within a month of high-level interactions between the government and the power industry. It would be chaired by finance minister Pranab Mukherjee and attended by other ministers concerned. For the 10 projects, the meeting would especially address the issue of uncertainty of coal supply, said an official.

In the run-up, the finance ministry has asked the power ministry to take policy decisions to mitigate problems relating to coal, to prevent slippages of projects into the NPA category, besides aggravating the deficit in power generation. Its contention is based on the fact that any increase in coal cost cannot be passed on in power rates in the 10 projects, since they were given out on rate-based bidding. It is estimated that the deficit in coal supply has increased fuel cost by around Rs 0.7 to Rs 1 a unit, depending on factors such as technology and location.

Besides the Adani and Tata projects at Mundra, based on imported coal, other projects expected to figure in the discussions are the 3,300 Mw Tiroda plant in Maharashtra and the 1,320 Mw Kawai project in Rajasthan, both of Adani Power; three projects of Essar, in Madhya Pradesh, Gujarat and Jharkhand, involving 4800 Mw; and JSW’s 1,200 Mw Ratnagiri, India Bulls’ 1,320 Mw Amravati and GMR’s 600 Mw Waroa plants in Maharashtra.

The power sector has become a big area of concern for the government. On January 18, chief executives and chairmen of power companies camped in Delhi, holding meetings with Prime Minister Manmohan Singh and key ministers. Singh decided to form a committee of secretaries under his principal secretary, Pulok Chatterjee, to resolve issues in the sector

BHEL’s worsening order inflow shows up policy bottlenecks

2012-02-04T02:52:00.000+05:30

The 7% drop in order inflows compared with the year-ago period looks rather ominous for BHEL’s performance in the next 12-18 months

All eyes were on the order inflows clocked in the December quarter by the country’s largest capital goods maker, Bharat Heavy Electricals Ltd (BHEL). For this would not only influence earnings forecasts for the company but also provide insights on the trend for the sector.

Unfortunately, the 7% drop in order inflows compared with the year-ago period looks rather ominous for BHEL’s performance in the next 12-18 months. Investor hopes were dashed, all the more so because two big (660MW*2) orders, along with some others totalling Rs5,850 crore, were cancelled, which reinforces concerns on policy bottlenecks on land acquisition, coal linkages and volatile spot prices of coal.

Total nine-month order inflow of Rs. 13,360 crore for fiscal 2012 (up to end-December 2011) is a mere one-fifth of the management target of about Rs. 66,000 crore. A Motilal Oswal Securities Ltd report says, “The situation is unlikely to improve in the near term, putting our FY12/13 order-intake assumptions also at risk.” A report by Barclays Capital Ltd says order inflows for the year will be Rs. 42,550 crore, nearly 30% lower than fiscal 2011.

Shrinking order inflows and cancellations are worrisome for BHEL and its peers. This could see a U-turn in the capital goods stocks, which have been on an uptrend since January in anticipation of better times. BHEL’s stock fell nearly 3% to Rs. 273.61 on Friday after the results were announced.

The only silver lining in BHEL’s performance is the 19% year-on-year (y-o-y) growth in net sales to Rs. 10,743.1 crore-- a mark of sustained strength in project execution. In spite of this, the meagre 2% growth in net profit suggests poorer profitability.

Even at the operating level, there was a 360 basis points dip in operating margin from a year before to 19.4%, on account of higher other expenses due to increase in freight expenses and provisioning for contractual obligations. One basis point is a hundredth of a percentage point. The strong execution and billing, which is not backed by adequate order inflow, shows up in the poor book-to-bill ratio (see table).

Moreover, BHEL seems to be stuck in a quagmire of declining advances and higher receivables, seen in its increasing working capital requirement and reducing cash on the books. This declined to about Rs. 5,000 crore in the quarter, from Rs. 7,900 crore in the September quarter and Rs. 9,600 crore in March.

The road ahead for BHEL, whose core business hinges on the power sector, is tough. One must not be surprised by earnings downgrades until fiscal 2013 and a contraction in the price-to-earnings multiple for the stock.

NTPC Raigarh project: green panel recommends clearance

2012-02-04T02:50:00.002+05:30

A Ministry of Environment and Forests (MoEF) panel has recommended clearance for the 18-MTPA Talaipalli coal-mine project of NTPC in the Raigarh district of Chhattisgarh.

The project had come up for discussion for grant of environmental clearance in the meeting of Expert Appraisal Committee (EAC) that was held recently.

“The Committee after discussions recommended the proposal for environmental clearance subject to MoEF circular dated September 9, 2011,” the MoEF said on its website.

The ministry had issued a circular in September which stated that projects awaiting environmental clearance would be eligible for consideration even if their application for forest diversion is under consideration.

NTPC had applied for environmental clearance for ensuring a production capacity of 18.72 million tonnes per annum (MTPA) from both underground and open cast operations.

The Coal Ministry had allocated the block to NTPC in 2006. One of the conditions of the allocation letter by the Coal Ministry stated that power projects (4,000 MW) based on coal from this block shall commence generation at the latest by the end of the 11th Five Year Plan (2007-2012).

With the development of the coal block getting inordinately delayed, the Ministry had last year issued warnings to the power major.

The warning letter also stated that some of the important milestones, including forest clearance, were pending and no serious efforts had been made by the company to develop the block

Higher depreciation, fuel costs short-circuit NTPC profits

2012-02-04T02:49:00.000+05:30

NTPC had to shell out a lot more money for fuel. Fuel costs rose 29.4% to Rs10,793 crore in the December quarter

In theory, NTPC Ltd scores over other power generators in that it has surer fuel supplies; it gets preference over domestic coal supplies, can pass on fuel price increases. Coal India Ltd guarantees almost 80% of NTPC’s fuel requirements compared with just 50% for private producers, and recently the government decided to reallocate captive coal blocks to the utility after cancelling them in 2011.

In practice, disruptions occur and NTPC has to rely on imported coal to make up the deficit. Indeed, plant availability factor had plunged to an alarming 73.8% in the September quarter. In the December quarter, though, things improved. Yet, capacity utilization remained at some 84% compared with 87% a year ago. Lower capacity utilization also wreaked havoc on margins and profitability.

Thus, although NTPC’s revenues rose, profits declined. In the three months ended December, the company’s revenues increased 14.2% over a year ago to Rs15,332.3 crore aided by tariff hikes in many states and new capacity additions. That, however didn’t prove enough.

For one, financially hamstrung state electricity boards (SEBs) aren’t lifting enough output, preferring blackouts to expensive power. Angel Broking Ltd estimates the company lost out 9.2 billion units of power generation because of this. Moreover, the states aren’t prompt in payment. By the end of September, NTPC’s debtor days had risen to 67 days, well over the mandated 2 months within which SEBS have to pay. Lower power production also means lower incentives, another hit to profitability.

Second, NTPC had to shell out a lot more money for fuel. Fuel costs rose 29.4% to Rs10,793 crore in the December quarter. Third, as the company commissioned some 1800 megawatts (MW) of capacity during the course of this fiscal, depreciation costs are mounting. The company had to set aside Rs756 crore, a quarter more than a year ago, for wear and tear. Add to this an almost 40% increase in interest costs and it’s no wonder net profit declined. Profit after tax fell a more-than-expected 10% to Rs2,130 crore.

As NTPC aims to add 4,300MW by the end of this fiscal, notwithstanding problems in land acquisition, these problems are likely to continue.

Bangladesh inks deal with India for power plant

2012-02-04T02:47:00.000+05:30

NTPC will build and operate the $1.5 billion project on a 50:50 equity basis

Bangladesh’s state-run Power Development Board on Sunday signed an agreement with India’s NTPC Ltd to build a 1,320MW coal-fired power plant in the south-west of the country, officials said.

The signing ceremony in Dhaka was attended by Bangladeshi finance minister Abul Maal Abdul Muhith and P. Uma Shankar, the power secretary of India. It is the first joint venture deal the board has concluded with a foreign company.

NTPC will build and operate the $1.5 billion project on a 50:50 equity basis.

Bangladesh has increasingly turned to coal to generate electricity as the nation’s natural gas reserves are depleting fast, and may not last beyond 2021 unless new structures are found and explored.

Officials have said Bangladesh wants to nearly triple power generation to 15,357MW by the end of 2015. The country, home to 160 million people, now generates the bulk of its energy from natural gas and imported fuel oil, but suffers from power shortages as wide as 1,500MW a day.

Bangladesh has reserves of about 3.4 billion tonnes of coal, but only produces about 2,000 tonnes a day from one mine.

Plans to collect coal from the other mines have been delayed in the face of violent protest by human rights and environment protection groups, which say the extraction would displace thousands of families and pollute the air.

Coal prices may be corrected this month

2012-01-26T06:27:00.002+05:30

Some analysts said the fact that the ministry is reviewing prices in the wake of protests is a pointer to a cut in prices or some sops for power producers

Coal prices may be “corrected this month”, a senior official in the coal ministry said on Monday, but did not specify if it could mean a downward revision as demanded by power producers.

“There could be a rationalization,” said the official, who did not want to be named. “It could be this month itself. The board of Coal India Ltd has to take a decision.”

Coal India, that supplies 80% of India’s coal, introduced a new gross calorific value-based pricing mechanism on 1 January, but consumers said the company also simultaneously raised the prices of coal by 5-20% in an opaque manner. On Friday, coal secretary Alok Perti said a meeting was held to review the prices, but he did not say if lowering them was being considered. “We are in discussions,” coal secretary Alok Perti had said after the meeting. “The gross calorific value-based system will stay. Our discussions are over pricing.”

Some analysts said the fact that the ministry is reviewing prices in the wake of protests is a pointer to a cut in prices or some sops for power producers. But there were also sceptics who said a cut in coal prices would be a surprise as prices in the global markets are on an upward trend. “There is an upward pressure coming from unavailability of coal and the fact that the deficit is imported,” said Shubhranshu Patnaik, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd. “Coal India’s prices are still 25-30% lower than international prices.”

Megawatt Show :West Bengal Attracts a Whopping 38K Crore of Investments From Power Majors

2012-01-26T06:26:00.000+05:30

COAL India may be struggling hard to keep up its projected coal supply,but that hasn't deterred top power producers in West Bengal from collectively pumping in nearly a whopping 38K crore for setting up fresh generation capacities.The likes of CESC,NTPC,Damodar Valley Corporation,India Power Corp Ltd (IPCL) to DPSC are all on expansion mode in the state.

For instance,the RP-Sanjiv Goenka flagship CESC,which supplies electricity to Kolkata and adjoining areas,plans to emerge as a 7200 mw diversified generation-cum-distribution company over the next five years.It also has lined up elaborate plans to diversify into other modes of power generation.

So much so,CESC has roped in China's Shanghai Electric to supply boilers,turbines and generators (BTGs) for its 600 mw Haldia thermal project.The Chinese gearmaker will supply the BTG package at an estimated cost of 1,000 crore for a 600 mw thermal venture that will entail

3,250 crore of investment.Punj Lloyd,in turn,will supply the balance of plant (BoP) gear.The project,which requires 450 acres in the first phase,already has 420 acres in possession.All necessary clearances and the long-term coal linkage from Mahanadi Coalfields have come.The plant will be commissioned by mid-2014.

Apart from Haldia,CESC has taken up projects in Maharashtra,Chhattisgarh,and Bihar.Additional greenfield thermal projects are being envisioned in Rajasthan and Maharashtra.The utility is also exploring additional hydro projects in the Northeast and eastern India.

The countrys biggest power generation company,NTPC also plans to invest in two mega thermal projects in West Bengal.It is teaming up with the Railways in 74:26 JV to set up a thermal plant in Adra.It will be a 1320 mw plant that will be built on a 1300-acre plot owned by the railways.

NTPC has also decided to procure land and build a 1,600 mw thermal power project Katwa.Here,it will set up the plant over 1000 acres at an investment of about 8,000 crore.The state government acquired around 575 acres at the location while the remaining land will be acquired by NTPC.

Damodar Valley Corporation (DVC) is also about to execute 3,200 mw of fresh generation capacity at an investment of 16,000 crore.These include a 1000 mw plant in Duragpur,a 1,200 mw plant in Raghunathpur and a 1,000 mw station in Mejia.

Hemant Kanoria-controlled IPCL is also in the process of setting up 450 mw thermal power plants in Haldia.The project will entail an investment of roughly 2,475 crore.IPCL has acquired around 200 acres for setting up three 150 mw units.We have recently placed the order for boilerturbine-generator for the plant to Bhel.The order for (BoP) equipment has been awarded to Bharat Forge.It is expected to start generation by July 2013.

This apart,DPSC Ltd is in the process of setting up two 270 mw units in Raghunathpur.We had acquired about 155 acres for the Raghunathpur plant and the rest is being bought from locals.The order for boiler-turbine-generator for the plant has also been placed with Bhel.The plant is expected to start generation by 2014.

Coal supplies have also been secured for both the projects.We plan to import around 60 per cent of the coal requirement for the Haldia project, said Kanoria.

REC may raise Rs 4K cr via tax-free bonds

2012-01-26T06:25:00.000+05:30

Rural Electrification Corporation (REC) plans to raise close to Rs 4,000 crore through tax-free bonds by the end of March. The power sector lender would be looking to use the unissued portion of Indian Railway Finance Corporation (IRFC)’s tax-free bonds.

"We are hoping to raise the residual amount after IRFC finishes raising the money it requires through these bonds. The balance amount should be around Rs 4,000 crore," said a senior REC official. IRFC’s tax-free bond issue closes on February 10.

The finance ministry has allowed IRFC to raise up to Rs 10,000 crore through tax-free bonds by March. The infrastructure finance company is raising Rs 5,000 crore through these bonds, while Rs 1,300 crore was raised from institutional investors.

"We may issue tax-free bonds by March-end if the government approves, as IRFC may not exhaust the total amount it is authorised to raise," the official said.

In Budget 2011-2012, four infrastructure finance companies were allowed to raise money through such bonds. IRFC and National Highways Authority of India were allowed to raise Rs 10,000 crore each, while Power Finance Corporation and Housing and Urban Devel-opment Corporation were allowed to raise up to Rs 5,000 crore each by March.

The government-controlled non-banking financial company is pushing its case to issue tax-free bonds before the end of this financial year. "We are in the final stages of our talks with the finance ministry to secure the approval to raise money through tax-free bonds, and are hoping we would get the permission," the company official said.

So far this year, power sector companies has raised a total of Rs 22,000 crore through domestic and foreign sources of funding. "Tax-free bonds are a great source of funds in the domestic market, and have received good response from investors," the official said.

Additional power target could be 100,000 MW for 12th Plan

2012-01-26T06:24:00.000+05:30

The government may fix the power capacity addition target at around 100,000 MW for the 12th Five-Year Plan period (2012-2017).

The Power Ministry had proposed a capacity addition target of 100,000 MW to the Planning Commission, which is likely to accept the proposal.

"Final call would be taken by National Development Council, it may be between 90,000 MW and 100,000 MW," B K Chaturvedi, Member Planning Commission, told reporters on the sidelines of the India Energy Congress.

The government had set a target of 78,577 MW during the 11th Five-Year Plan period, which was curtailed to 62,000 MW by the Planning Commission in its mid-term review citing coal shortage and environment reasons.

According to sources, the Power Ministry may only be able to achieve up to 52,000 MW capacity addition by March, 2012.

Consensus on levying import duty on power generation equipment

2012-01-26T06:23:00.000+05:30

The move may specifically affect Chinese firms manufacturing power equipment

India’s ministries of heavy industry and power seem to have arrived at a consensus on the contentious issue of levying an import duty on power generation equipment, a move that may specifically affect Chinese manufacturers of such machinery and Indian power companies that are looking to place orders with them.

The minister for heavy industry, Praful Patel, said a consensus had emerged between his ministry and the power ministry on the issue and that he would be discussing it with Prime Minister Manmohan Singh soon.

Indian equipment makers have been lobbying for a duty on what they say are cheap imports of Chinese equipment but the issue soon became an inter-ministerial one with several differences of opinion.

On 8 November, commerce secretary Rahul Khullar said a compromise formula had to be worked out because of these differences.

“Both the power ministry and my ministry have agreed on the fact that there should be some import duty,” Patel said Monday, adding that he had met power minister Sushilkumar Shinde earlier in the day.

“Companies such as Bhel and L&T are at a specific disadvantage. Imports should not be disallowed but there is a case for (the Indian) power industry to have a level-playing field,” Patel said.

Bharat Heavy Electricals Ltd (Bhel) and Larsen and Toubro Ltd (L&T) have been lobbying the government to limit Chinese competition. State-owned Bhel has been facing competition from Chinese power generation equipment firms such as Shandong Electric Power Construction Corp., Shanghai Electric Group Co. Ltd, Dongfang Electric Corp. Ltd and Harbin Power Equipment Co. Ltd, both in domestic and overseas markets.

Mint had reported on 25 November that the power ministry had proposed imposing a 5% tariff on such imports. Planning Commission member Arun Maira had recommended a 10% customs duty and a 4% special additional duty on power generation equipment imported from China to strike a balance between protecting local manufacturers and the need to import equipment to boost power production. A committee of secretaries (CoS) recommended a 5% import duty on power equipment imports from China apart from a 10% countervailing duty and a 4% special additional duty.

Power generation equipment makers having a manufacturing base in India stand to benefit from such a move. They include Bhel, Doosan Heavy Industries and Construction Co. Ltd, and the joint ventures between L&T and Mitsubishi Heavy Industries Ltd; Toshiba Corp. and JSW Group; Ansaldo Caldaie SpA of Italy and Gammon India Ltd; Alstom SA of France and Bharat Forge Ltd; BGR Energy Systems Ltd and Hitachi Power Europe GmbH, and Thermax Ltd and Babcock and Wilcox Co.

Power utilities have placed orders for overseas equipment largely because of the inability of local manufacturers to meet growing demand. Chinese imports are relatively cheaper because equipment makers from that country benefit from low interest rates and an undervalued currency. Undervaluing the currency makes exports cheaper and increases demand for products.

In another development, Patel said that the equipment for ultra mega power projects (UMPPs) should be sourced through international competitive bidding.

Each UMPP has a capacity of 4,000 MW each and it is for the developer to finalize the procurement of equipment. The government wants to set up 16 UMPPs to meet the needs of the world’s fastest-growing major economy after China.

India’s move to curb Chinese power equipment imports comes at a time when the two countries have been discussing ways to double bilateral trade to $100 billion by 2015 and to plug a yawning trade gap in China’s favour.

NTPC expresses concern over CIL’s pricing formula

2012-01-26T06:21:00.001+05:30

State-run power major NTPC has joined the chorus of voices opposed to CIL’s new coal pricing mechanism, asserting that it could lead to an increase in its generation cost by about 40 per cent.

The power generation cost of NTPC could go up by about 40 per cent on account of the new pricing system, NTPC CMD, Mr Arup Roy Chaudhary, told reporters on the sidelines of the India Energy Conclave here today.

Power producers are opposed to the CIL’s new pricing mechanism implemented from January 1 based on the gross calorific value (GCV) of coal, saying that this has increased the prices of certain grades by up to 179 per cent.

Till December 31, 2011, Coal India followed a pricing mechanism based on the Useful Heat Value (UHV) of coal, which deducted ash and moisture content from the standard formula.

However, unlike the UHV pricing methodology, in which coal was categorised into seven grades, the GCV-based system has 17 grades and the new prices have been fixed accordingly.

Meanwhile, CIL’s board is likely to review the prices to rationalise them after the Coal Ministry took a decision to correct the prices at a meeting last week.

NTPC may sign pact for Bangla project by month-end

2012-01-26T06:20:00.002+05:30

State-run NTPC expects to sign a joint venture agreement for the 1,320-MW Khulna power project in Bangladesh by the end of this month.

“The project would be a 50:50 joint venture between NTPC and the Bangladesh Government. We expect to sign the joint venture agreement for Bangladesh project by January 29,” the company CMD, Mr Arup Roy Chaudhary, told reporters on the sidelines of the India Energy Conclave today.

NTPC and Bangladesh Power Development Board (BPDB) had signed a memorandum of understanding (MoU) in August last year to establish two thermal power projects at Chittagong and Khulna for mitigating power shortages in the neighbouring nation.

The power plants are likely to come up at an investment of around Rs 13,200 crore. The coal-fired power plants are likely to be installed on a 50:50 equity basis to be run on imported coal and operated by NTPC.

About the 500-MW project in Sri Lanka, Mr Chaudhury said financial closure for the same is expected to be achieved by September this year. Construction of the project is likely to start by April next year.

A 50:50 joint venture company between NTPC and Ceylon Electricity Board, Sri Lanka, was incorporated in the name of Trincomalee Power Company Ltd on September 26 last year in Sri Lanka that would set up a 2x250-MW coal based power project in Trincomalee region.

NTPC to take up another mega project in South

2012-01-26T06:19:00.000+05:30

NTPC Ltd, the country's largest power company with an installed generation capacity of 36,000 MW, continues to expand. It is planning to take up another mega project in South along with the 4,000-MW Kudgi project in Karnataka, during the XII Plan itself instead of the XIII Plan.

With an operating capacity of 4,450 MW in the Southern region, it is executing expansion projects at Simhadri near Visakhapatnam, Ramagundam in Andhra Pradesh, Kudgi in Karnataka, Kayamkulam in Kerala, and is planning another mega project, a 4,000 MW plant at Pudimadaka close to Visakhapatnam.

The Regional Executive Director of NTPC, Mr R. Venkateswaran, toldBusiness Line, “The Andhra Pradesh Government is keen that we take up another mega project near Visakhapatnam. While NTPC was looking at considering this project during XII Plan (2012-17), the keenness shown by the State is encouraging us to consider it ahead of planned schedule.”

Outlining NTPC progress in South, Mr Venkateswaran said supply of coal and gas continues to be worrisome. These require a long-term perspective approach. Excerpts:

How is the expansion plan of NTPC South progressing?

Overall at NTPC, we are looking at increasing the capacity to 1,28,000 MW by 2032 with projects defined for each Plan period. In South, we now have a capacity of about 4,450 MW. We plan to increase this to about 10,000 MW. The expansion projects include, 3x800 MW phase one at Kudgi in Karnataka, another 500 MW expansion, part of the phase II at Simhadri, and 3x500 MW project at Vallur and about 1050 MW at Kayamkulam. We are looking at augmenting two units of 650 MW each at Ramagundam in Andhra Pradesh. This could also be 2x800 MW. A decision on this would be taken up soon.

The Andhra Pradesh Government is encouraging us to expedite another mega project close to Visakhapatanm. There is land and sea water could be used.

The unit one of 500 MW at Vallur is ready. Once coal washery is ready, we would be able to take up generation. The fourth unit of 500 MW at Simhadri is also close to commissioning.

What is your engagement with Singareni Collieries project?

NTPC has been engaged by the Singareni to guide them through the implementation of a 1200-MW thermal power plant in Adilabad. There is no problem for land and water and the coal requirement could be addressed by pithead mines.

Kudgi mega project awaits Environment Ministry nod

2012-01-26T06:17:00.002+05:30

NTPC Ltd's first ultra-mega power project (UMPP) of 4,000 MW, coming up at Kudgi in Bijapur district of Karnataka, is all set to award contracts for the first phase of 3 by 800 MW once it secures nod from the Ministry of Environment and Forests.

“The investment for the Rs 15,166-crore phase-1 project has been approved, the tenders for the project have been shortlisted. Within days, we are expecting nod from the MoEF,” Mr R. Venkateswaran, Regional Executive Director, said.

Speaking to Business Line, Mr Venkateswaran said this is the first thermal plant in the South to deploy supercritical technology, and the first UMPP conceived by NTPC.

All the elements for the project have been tied up, with the Karnataka Government sanctioning 5.2 thousand million cubic ft from Almatti dam, about 18 km from the plant site. The coal for the project will be brought by rail from Mandraigarh Coal Fields of South Eastern Coalfields Ltd, about 1,700 km from the project site.

In this project, the company plans to blend imported coal procured from Goa with domestic coal. According to plans, the first unit is expected to be operational within 58 months from the date of contract and subsequent units six months thereafter

Tata Power in talks to buy stake in MEC Coal

2012-01-26T06:16:00.000+05:30

Tata Power is in talks to pick about 15% stake in MEC Coal, the Dubai-registered company that owns more than two billion tonnes of coal reserves in Indonesia, said a person familiar with the development.

The Tata Group subsidiary, which the source said is negotiating with MEC co-promoter Ras-al-Khaimah Investment Authority, is keen on augmenting its foreign coal assets to reduce power generation costs at its plants in India, where fuel shortage often leads to outages.

"Negotiations are in early stages and may or may not result in a transaction. But Rasal-Khaimah has been keen on having an Indian partner in the coal mining project," the source said on condition of anonymity. It is, however, unclear whether Ras-al-Khaima has approached other Indian companies too.

While a spokeswoman for Tata Power declined to comment on the issue, queries sent by ET to MEC Coal executive vice-chairman Madhu Koneru, who is also head of co-promoter Trimex Group, remained unanswered.

MEC Coal is developing coal concessions in Indonesia, along with an integrated heavyhaul rail transportation system and ship-loading jetty in the East Kalimantan province. The coal railway project is estimated to cost about $1 billion.

The source said the a deal would include a provision for an offtake arrangement. If the deal goes through, it will be the second time the Tatas will be buying stake in Indonesian coalmines.

The group already owns 30% in mines promoted by the Bakrie Group, one of Indonesia's biggest business houses. Tata Power managing director Anil Sardana had recently said the company was keen on building power plants in Indonesia and Africa to grow its business, which has been capped by a shortage of coal in the country. The company currently has a capacity of 3,797 mw, and is aiming to raise it to 25,000 mw by 2015.

Shortage of coal and natural gas in the country and problems with land and environment clearances have prevented power generators from setting up new plants and operating at full capacity to meet the country's growing demand for electricity. To bridge the raw material gap, most power producers are forced to import costly coal, but cannot pass on the full cost differential to customers.

"Indian companies are ready to acquire mines in Indonesia, despite the country's move to impose a tax on coal exports, as captive mines will ensure smooth supplies and insulate against price fluctuations," said PricewaterhouseCoopers senior consultant Pukhraj Sethiya, who has handled mandates from Indian companies to scout for opportunities to build power plants overseas.

The South-east Asian nation recently brought in legislations that discourage foreign ownership in mines and is now scheduled to implement a draft legislation by 2014 which will require miners to carry out minimum processing on minerals before exporting.

Indian companies are looking at Indonesia, among other countries, to source coal, after encountering supply issues in India. The lone state-owned coal producer, Coal India , has not been able to expand capacity.

Govt mulls capping price of captive power: Report

2012-01-26T06:14:00.002+05:30

The government is looking at capping the price of electricity produced from captive coal to ensure that power producers do not reap "super normal" profits, says a research report.

Global research firm Macquaire prepared the report after its recent meetings with various stakeholders of the power sector, including government officials.

"The government is also mooting the idea of capping power prices based on captive/regulated coal to avoid super-normal profits by generators," it said.

According to Macquaire, the Power Ministry's idea is unlikely to be enforced retroactively but would be enforced for future projects.

The power sector is grappling with multiple woes including fuel shortages, which is hurting capacity addition plans. Going by official data, about 20,000 MW of captive power capacity is connected to the national transmission grid. Companies spread across diverse sectors including Hindalco are into captive power generation.

"Regulators and industry participants are cautiously optimistic about the future prospects, driven by recent policy actions/proposals on revising tariffs," the report said.

Meanwhile, faced with spiralling coal prices, some private players are looking to renegotiate their existing power purchase agreements (PPAs) to reflect the higher fuel costs.

Regarding the same, Macquaire said the government has no intention to intervene in the PPAs signed by power producers so far.

"The ministry representative was of the view that central government is unnecessarily being dragged into arbitration as PPAs provide for renegotiation between seller and buyer. So power companies and state governments are free to enter into these negotiations," the report noted.

The country is expected to see a capacity of about 52,000 MW in the current five-year plan (2007-12), much lower than the revised target of 64,000 MW.

Sanjaya Baru: Energising growth

2012-01-26T06:13:00.000+05:30

Electricity underpins modern civilisation, as Daniel Yergin points out in his impressive classic on the human quest for energy security. (The Quest: Energy Security and the Remaking of the Modern World, Penguin Press, New York, 2011.)

By this measure, not only do large parts of India reside outside the pale of modern civilisation, even the most upmarket neighbourhoods in urban India routinely slip into the dark ages!

The relationship between energy and development is obvious, direct and significant. Energy security is, therefore, fundamental to national development and national security. Every single aspect of national policy is shaped by the choices we make about energy — its sourcing, its pricing, its utilisation and so on.

Yet, in India, there is no national consensus on what constitute the key elements of energy security. Does subsidising power consumption contribute to national security? Is the policy on coal mining or on hydroelectricity or on nuclear energy, or on oil and gas pricing, defined by India’s national security and national interest?

Nowhere is the absence of political consensus on policy in India as damaging to the national interest as in the case of the power sector. What is even more disturbing is the fact that even within the government, there appears to be no consensus on energy policy and security. Different ministries pull in different directions.

Mindful of this problem, Prime Minister Manmohan Singh constituted an Energy Coordination Committee (ECC) in July 2005 to, among other things, “identify key areas requiring energy policy initiatives, so that the overall objectives of economic development, energy security and energy efficiency are met; monitor vulnerabilities that directly impinge on energy security aspects; outline the follow-up action needed for implementing identified policy initiatives; identify institutional mechanisms for implementing policies; periodically monitor key policy decisions”.

India has several ministries dealing with different aspects of energy, with different ministers pursuing different, even conflicting, agendas. There are different ministries for power, oil and gas, coal, water resources, renewable energy and so on. Then there is a minister for environment and forests with powers to block the functioning of all those charged with ensuring energy security.

It was to address this challenge that the press statement announcing the creation of the ECC said: “The ECC will formulate a coordinated policy response cutting across ministries so as to improve the overall energy scenario in the country while addressing energy security concerns. The ECC will enable the government to take a holistic view of India's energy needs and policy options.”

In the UPA government’s second term in office, the ECC has never met, or at least there is no public record of any meeting. So it was not surprising that when the entire power sector found itself pushed to the wall, and India began to stare an impending power crisis, it took the initiative of an industrialist, Anil Ambani, to mobilise not just power companies but the entire membership of the ECC.

A new committee, to be chaired by the principal secretary to the prime minister, will now bring different ministries into line to ensure that power sector concerns are addressed. This sounds like the old ECC at the level of secretaries rather than ministers.

Getting new power projects back on track is the first step towards addressing India’s energy security challenge. Getting existing ones to function at full capacity is a second challenge and that too is related to coal and other linkages. Equally, there is the challenge of tapping hydroelectricity and nuclear power. On both fronts, political constraints have emerged that need to be overcome.

The pricing of oil and gas is another policy challenge that the government has to grapple with sooner rather than later. Non-decision is holding up new investment. In the case of petroleum, diesel, kerosene and LPG, it is also contributing to the problem of fiscal management as well as that of energy efficiency.

While these are domestic energy security challenges, India has external energy security challenges as well. These relate to sourcing oil and gas as well as sourcing hydroelectricity. Addressing this challenge requires taking initiatives in foreign policy and regional security, with an eye on energy security.

To be sure, till last week’s meeting of the prime minister with investors in the power sector, the only evidence of policy activism was on the external front. The visits to West Asia from India’s national security advisor had an energy security dimension.

Mr Yergin’s thesis that the quest for energy security underlies much of what has been happening in the realm of international relations through most of the 20th century is underscored by this diplomatic activism of India and China, both rising economic powers, in the pursuit of their energy security.

These domestic and external policy initiatives are all aimed at addressing the problem of energy security from the supply side. The problem also requires addressing from the demand side. Here, getting prices right is the most important policy challenge for India.

The most important part of the prime minister’s New Year Message, issued on December 31, 2011, is his statement on energy security. He identifies both the domestic and external dimension to energy security. First came the message and then the meeting, suggesting that energy security has come to the fore in the prime minister’s policy agenda. It must remain there till the challenge has been overcome.

Arijit Maitra: The one megawatt conundrum

2012-01-26T06:11:00.002+05:30

Open access in the power sector, which the government operationalized recently, can be a game-changer for large consumers only if critical changes are made to power trading platforms and regulators put some key checks and balances in place.

When the ministry of power issued a letter on November 30, 2011 operationalising open access in the power sector, it was considered a possible game-changer in power sector reforms. Open access was a major cornerstone of the Electricity Act of 2003. It was introduced to ensure large electricity consumers choice and cheaper power via open access to their local distribution company’s wires.

Can this actually happen? The question rests on a host of practical issues that need to be considered before open access can truly create the kind of open market in power that the Electricity Act aimed at. It took eight years to actually get started when the ministry of power sent its November 30 letter titled “Opinion from M/o. Law and Justice on the operationalisation of open access in power sector”, to all electricity regulatory commissions, state governments and the state power utilities.

The stand projected in the letter is twofold: (i) that consumers with demand exceeding one megawatt (Mw) are perforce required to draw supplies from sources other than their local distribution company; and (ii) even if these consumers do continue to draw electricity from the local distribution company (discom), the rates must be negotiated between the two and, therefore, the state electricity regulatory commissions must cease to determine the retail energy tariffs by restricting themselves to determining only the wheeling charges and cross-subsidy surcharge.

The letter requests the recipients to take the necessary steps for implementing these two provisions, in effect, operationalising open access in the power sector.

All that is very well, but the first question is: where is the power? The amount of power available from traders and the two power exchanges is meagre. Moreover, the two power exchanges currently provide a platform for transactions on only a day-ahead basis where delivery of power takes place the day after the bid is placed. The weekly contracts require that the contracted amount of power be available for a week. That would leave a huge gap to be supplied through bilateral contracts with generating stations.

Assuming that executing bilateral contracts would be a cakewalk for all these consumers, there is a strong possibility that they would be left in the lurch when generating stations stop operations for any reason, as they frequently do. If, as the ministry has suggested, there is a cessation of the relationship between these consumers and their local discoms, these consumers cannot demand the supply of backup power or standby power from the discoms. The local discom, therefore, may need to be designated as the default supplier in contracts with generating companies.

Also, it will require regulators with extraordinary expertise to streamline the mostly unscientific basis on which power tariffs are fixed by the state electricity boards. If negotiating rates is the new mantra, there is reason to doubt whether these utilities have the necessary expertise to design the rates on an economic basis in the first instance so that meaningful negotiations with the one-Mw consumers can take place. Moreover, the negotiated prices arrived at should not be higher than that the regulators would have determined.

Besides, according to the Statement of Objects and Reasons of the Electricity Act, 2003, Parliament intended to restrict the provisions of Section 49, which deals with “agreements with respect to supply and purchase of electricity”, to a transaction between the consumer and a generating company or a trader. In any case, without the separation of wires and supply functions, how can consumers negotiate rates with their local discoms?

Some consumers may choose to buy cheaper power using open access during certain times of the day or night. This, however, introduces a degree of uncertainty in the long-term power procurement planning of discoms. Outbound one-Mw consumers may have to shell out additional charges to offset the liquidated damages and penalties under the stranded power purchase agreements of the discoms.

It follows from this that (i) the cost of power from sources other than the local discom would need to be aggressively low; (ii) the power exchanges would need to introduce long-term (fortnightly, monthly, yearly) contracts and hence approach the Supreme Court of India to let them introduce these long-term contracts by disposing of urgent civil appeals from the Forward Market Commission which has claimed sole jurisdiction on contracts for which payment and delivery is beyond 11 days; (iii) the discoms need to continue standby support and universal service obligations to one-Mw consumers; and (iv) regulators need to build a safety net for these consumers.

Though no one can be forced to take open access, the ministry’s letter would surely force the state electricity boards and the state power utilities to provide open access on demand. But it is only if the checks and balances discussed here are in place that open access can surely be the game-changer it was intended to be.

R Power hopeful of government clearance for Chhatrasal coal block

2012-01-26T06:09:00.000+05:30

Anil Ambani-led Reliance Power today said it is hopeful of receiving government approval for excavation of coal from the Chhatrasal mines, even though a committee of the Ministry of Environment and Forests has denied permission on ecological grounds.

The Chhatrasal coal block in Madhya Pradesh is a part of Reliance Power's Sasan UMPP.

"We understand that the issue of forest clearance for Chhatrasal coal blocks, among other mines, is being looked into by a Group of Ministers and we are hopeful of a positive outcome on the matter," Reliance Power informed the BSE.

The company also said the 3,960-MW (6x660MW) Sasan project is progressing well and is expected to be commissioned in January, 2013.

"The Moher and Moher-Amlori extension coal mines allotted to the Sasan UMPP have received all environment and forest clearances and these mines are being developed to commence production this calender year," the company added.

The Forest Advisory Committee (FAC) of the Ministry of Environment (MOEF) and Forests has denied approval for forest land diversion for developing the Chhatrasal coal block, citing that over 965 hectares of forest land that falls in the mining area has good quality forests.

The decision was taken at the FAC meeting held last month and at that time, the panel observed that the "legal status of the forest land proposed for diversion is a reserved forest".

Reforming India's power sector

2012-01-26T06:08:00.000+05:30

Power utilities should be reformed and enabled to emerge as a viable, credible, vibrant and professional entity.

Power utility management should change from a generation-led augmentation to a distribution/delivery-led alternative.

The December 11, 2011, edition of The Hindu carried an article “The coming Dark Age of India”, which inter alia said: “We need to cut down on transmission and distribution losses and untangle the environmental problems that coal mining has run into. Policymakers have to balance the needs of development with environmental considerations. But for some urgent steps from the government, the country may well return to the Dark Ages, literally.”

Prime Minister Manmohan Singh seems to have responded by convening a meeting of top power sector honchos on January 18, to discuss India's power crisis and the stalled ‘power sector reforms'. The list of invitees reads like the who's who of India's mega-industry/business.

As usual, corporate big-wigs and government leaders are besieged only with the supply side of power sector. They are concerned with the issue of “uncertainty” due to shortage of coal and shortfall in the allocated gas from the Krishna-Godavari Basin, which had put a question mark on the future of many power generation projects. As proof, they have pointed out that 4,000 MW of power capacity was lying idle in the absence of gas supply.

TWO AILMENTS

In the perception of these decision-drivers and makers, just two things ail the power sector — first, a conundrum regarding fuel and second, the mess created by the inability of power utilities to charge consumers the right price for the electricity they consume, leading to losses. These two ailments have led to a major financial mess, and according to a CRISIL report, the total debt of state electricity boards and distribution utilities touched a huge Rs 3-lakh crore as of March 31, 2011, and is mounting. That report estimates that as much as a third of the 56,000 MW of thermal generation capacity is in trouble due to the combined impact of fuel and financial problems.

And ‘market-moghul' Montek Ahluwalia has an instant reform-solution for this. In his recent report to the Prime Minister, he has sought revision of power tariffs to reflect higher international coal prices, as a large number of power projects, including ultra mega power projects under implementation, have run into serious ‘viability problems'. The report also suggests acceleration of ‘open access' in the power sector.

Even in 2005, after a ‘reality-check' on the power sector, the Planning Commission, headed by Mr Ahluwalia, had admitted that though there have been a number of experiments in electricity reform, including the one fashioned by himself in the mid-90s, none of them had established “a viable model”. The approach document of the 11th Five Year Plan said this: “Shortage of electric power and the unreliability of power supply are universally recognised as a drag on the pace of India's development… If India is to attain 8.5 per cent growth in the 11th Five Year Plan, uninterrupted power supply is a must; so it is widely accepted that power reforms are urgently needed in the country”.

‘Power reforms', unveiled by Mr Ahluwalia, envisaged dismantling and unbundling of State Electricity Boards (SEBs) to form several companies centred on Generation, Transmission and Distribution, and progressively privatise these unbundled organisations. This model has been a disappointing failure and the reasons identified are: ‘Single–buyer' model; chain of monopolies; total absence of competition; non-separation of carriage & content; flawed regulatory framework, and cost plus year-to-year tariff setting.

TUNNEL VISION

‘Open access' has been Montek Ahluwalia's favourite panacea for all these evils, and he himself describes it: “Allowing generating companies to sell directly to distribution companies and bulk consumers, thus creating a competitive market where producers could take investment decisions based on demand, without relying on power utilities or the State Government. This would bring electricity at par with other goods and services, where competition and market forces determine efficiency levels, investments and pricing”. He had suggested that giving ‘open access' and copious supply to miniscule bulk consumers of 1 MW and above would ‘empower' the people and transform India's power sector. What a ‘tunnel vision'!

Treating electricity at par with ‘other goods and services' reflects a deficiency in understanding electricity as a commodity, and the profile of its consumers. Unlike telephones or civil aviation, where the consumers are well-heeled, electricity is a product, which even the poor use for basic comforts, as well as earning a livelihood. Furthermore, it is doubtful if the targeted beneficiaries of open access — large industries — would really benefit. Given the chaotic distribution system, acute shortage of power and poor system reliability, it is highly doubtful if the open access would remain open at all.

Given this situation, how can power utilities be reformed and enabled to emerge as a viable, credible, vibrant and professional entity making them perform the essential tasks of delivering adequate, reliable, cost-effective and good quality power to its consumers just by sorting out coal supply, augmenting generation, enhancing tariff and accelerating open access? This, indeed, is the tragedy.

UTILITIES

Even in the case of electric power, any increase in generation capacity is more than offset by inefficiencies and wastage at every stage — production, transmission, distribution and delivery. Without fixing these inefficiencies and wastage, increasing generation capacity and production is like filling a bucket full of holes! The first and foremost task should be to fill these holes, which is very much doable.

For this, the basic philosophy of power utility management should undergo a sea-change and move away from generation-led augmentation mindset to distribution/delivery-led optimisation alternative. Distribution refers to conveyance of electricity through wires, transformers, and some other devices that aren't classified as transmission tools.

This is, by and large, an engineering function. Delivery services are to facilitate retail customers to receive quality electric power from the supplier, and include metering, meter reading, billing and collection. This is more of a commercial/consumer-related function. Between these lie the major ills that afflict the power utilities in India.

Power distribution/delivery network is full of constraints and is clumsy to the core. The ills of the system are many — ill-trained workforce, poor reliability, high line losses, low voltage profiles, overloading of transformers, poor maintenance, absence of conservation measures, power theft, haphazard layouts, whimsical load connection, inadequate clearance, etc.

These ailments can be remedied by creating a comprehensive consumption profile in each utility — shift-based industries, continuous process industries and industries having independent feeders; irrigation tube wells; peak load requirement; domestic connections; essential and emergency services. The next step is to design a state-of-the-art distribution system and streamline delivery mechanism to meet the specific need of each consumer category. Legal and regulatory compliance with regard to cost-to-serve and Transmission and Distribution (T&D) losses is another imperative.

Before its formal withdrawal from India's power sector reforms in 2002 after spending billions of dollars, Mr James Wolfensohn, then President of WB, had specifically mentioned “uneconomical running of power plants” and high “line losses” as the main reasons for poor performance.

Even today, these two continue to be the ‘monumental realities' of ‘inefficiency and wastage' in India's power sector. Merely tinkering with coal supply, open access and tariff increase, instead of confronting these ‘realities' is like ‘missing the woods for the tree'

NTPC plans to foray into power distribution

2012-01-10T04:37:00.002+05:30

State-run power producer National Thermal Power Corposration (NTPC) plans to foray into power distribution across the country in a big way.

The company has already started internal discussions on the plan, expected to be finalised in medium future.

“We are exploring the business model for entering power distribution, whether to become a licensee or go for a franchisee route. Besides, we have also started looking at the related opportunities in various states and we will soon start discussions with the state governments on this,” a senior official from NTPC told Business Standard.

However, no investment has been earmarked for the new venture. “The investment proposal will be made according to the available business opportunities. This move will help NTPC in forward integration in energy chain,” the official said.

Entering into new stream of business will be done through its wholly-owned subsidiary NTPC Electric Supply Company Ltd (NESCL).

To begin with, NESCL has already formed a joint venture last year with Kerala Industrial Infrastructure Development Corporation to take up retail distribution of power in various industrial parks developed by it, SEZs and other industrial areas in the area. The JV company — KINESCO Power and Utilities Pvt Ltd — started its operations in February last year. It is also looking to distribute power within 5-10 km across all its stations.

NESCL, set up in 2002, provides turnkey execution of sub-stations and sub-transmission systems and consultancy for project management to utilities. It also sets up networks for supply of electricity in 5 km area around central power generating stations of NTPC.

The company has been planning to enter the power distribution segment for quite some time, but did not have any success earlier. It had earlier proposed to set up distribution networks in Kanpur, Patna and Mangalore among others, but the plan could not fructify.

NTPC, currently, has a capacity of 36,000 Mw. The target is to take the total capacity addition to 66,000 Mw by the end of the 12th Plan.

Adani Group to sport a new-look soon

2012-01-10T04:36:00.000+05:30

Gautam Adani-promoted Adani Group has decided to don a new corporate identity soon and has roped in England-based brand consultancy Wolff Olins to do the job. The Adani Group is into ports, power, coal mining, and agri business apart from an SEZ and a shipping-line, called Adani Shipping, with six vessels.

We'll soon have a new corporate identity and tagline. The Dubai office of the England-based creative agency Wolff Olins has been mandated to work on this image makeover," Adani Power Chief Executive Ravi Sharma told PTI.

However, he refused to give a time-frame for the brand makeover and the investment details. He also refused to share whether the company will have a new name after the makeover.

A part of the Omnicom Group since 2001, Wolff Olins was set up in 1965 and is a brand consultancy and creative agency with offices in London, New York and Dubai and employs 150 designers, strategists and account managers.

Meanwhile, the group's flagship Mundra Port and SEZ has renamed itself as Adani Ports & Special Economic Zone after an extra-ordinary general body meeting of its shareholders accepted the proposal on December 31.

The group operates ports at Mundra, Dahej, Hazira (all in Gujarat), coal berths in Goa and Visakhapatnam, and a coal terminal in Abbot Point in Australia and is investing around Rs 20,6700 crore in these projects. But its bids for the port projects in Chennai and Vizhinjam were recently rejected.

But despite these reversals, Group Chairman Gautam Adani has drawn up an ambitious growth plan for 2020, which has the group targeting to mine as much as 200 mt coal, achieve a cargo handling capacity of 200 mt, produce 20,000-mw electricity and acquire 20 large ships, all by 2020.

"The shipping venture will see us investing about $1.4 billion in 14 ships by 2020, Mudra Port & SEZ Director Rajeev Sinha told PTI.

According to company insiders, Adani has a fetish for the number 20 and hence the 2020 businesses target.

When contacted, Sinha said, "We also read from media that the Home Ministry has denied us security clearance. We are yet to hear from the ministry."

In fact, the group's port business received two severe setbacks in as many weeks. On December 30, the Chennai Port rejected its Rs 3,700-crore bid for a mega container terminal project, citing very low revenue share offer (5%), despite being the sole bidder.

The second setback came within the next week when the Union Home Ministry denied security clearance to participate as the operator of the Rs 7,800-crore Vizhinjam Port last week, this is despite fact it had for ok from defence and foreign ministries.

Both these development have raised questionmarks about Adani's ability to raise his cargo-handling capacity to 200 mt by 2020 from 75 mt now.

The Vizhinjam denial is the third security clearance refusal to the port in the recent past. Since November, 2010, Adani Ports has been denied security clearance by the Union Home Ministry to bid for projects such as the fourth container terminal at the JNPT, a project to mechanise iron ore loading facilities at the Vizag Port and now the Vizhinjam Port.

It can be recalled that the group took the government to court after it was refused permission to bid for the fourth container terminal at JNPT in 2011. But the Bombay high court ordered the Group to withdraw the plea and directed it to move the Shipping Ministry to resolve the issue.

The only saving grace was its successful bid for the Kandla Port in December to build a cargo-handling project, as it was granted the Home Ministry clearance, given before November, 2010.

Its power vertical is also not in the pink of health, as it had to late December shelve execution of its three projects, with a combined capacity of 6,500 mw, for a want of coal supply.

"We have decided to go slow with our three power projects -- Chhindwara in MP and Dahej and Bhadreshwar in Gujarat--for want of coal linkages, which together have a capacity of 6,500 mw," Adani Power chief executive Ravi Sharma had said.

Adani Power, which is the largest coal-based private utility in the country, has an installed capacity of 3,300 mw in Mundra in Gujarat and plans to add another 6,000 mw by March, 2012 and 10,000 mw by 2013, Sharma had said. The company has set a target of having a capacity of 20,000 mw by 2020.

Last year, the Group had acquired stakes in Australia's Galilee coal mines for $2.7 billion and Abbot Point Coal Terminal for $2 billion, thus joining a growing number of domestic companies acquiring overseas mining assets. Last week, the company had commissioned a 40-mw solar power project in Gujarat and has plans to expand the solar capacity to 100 mw.

Tata Power’s Mundra UMPP begins generation

2012-01-10T04:34:00.000+05:30

Tata Power has said that the first 800-MW unit of the Mundra Ultra Mega Power Project (UMPP) has started power generation.

“Tata Power’s Mundra UMPP has successfully synchronised India’s first 800-MW super critical unit 1 at Mundra,” the company said in a statement today.

The project at Mundra in Kutch district of Gujarat, shall have five units of 800 MW each, generating 4,000 MW of power using supercritical technology.

The first unit was slated to be ready for commissioning by September 2011.

Power Finance Corporation, the nodal agency for these UMPPs, has so far awarded four such projects. The other three projects — Sasan (Madhya Pradesh), Krishnapatnam (Andhra Pradesh) and Tilaiya (Jharkhand) — have been bagged by Reliance Power.

The Tata Group firm, which currently has a power generation capacity of 3,797 MW, has plans for 25,000-MW capacity by 2017. Of this, 4,000 MW will come from Mundra.

Ministry respite for power projects facing termination of coal supply

2012-01-10T04:32:00.000+05:30

Power projects of 30,000 MW capacity that are staring at termination of coal supply linkage after missing key implementation milestones may get a breather.

The coal ministry has decided against using penal provisions against these developers on a unilateral basis.

The ministry has taken the view that the issue be left to the long-term fuel linkage committee to resolve. The committee, which includes representatives from all ministries concerned, is expected to meet shortly. The ministry has asked Coal India in a recent letter to ensure that its subsidiaries do not invoke their powers to cancel Letters of Assurance (LoAs) issued to these projects and wait for the outcome of the next meeting of the standing committee on long term coal linkage.

“As the review meeting of the committee on long-term fuel linkage is likely to take place shortly, I would request you to advise the local companies (CIL subsidiaries) not to take any action which could prove detrimental to the project developers and await the deliberations of the committee in this regard,” a senior coal official has written to CIL chairman NC Jha recently.

It was decided in the meeting of the standing committee on long-term coal linkage on November 15, 2008, that LoAs issued to power projects for fuel supply would be liable for cancellation if developers fail to commission their projects in 24 months' time. The clause was inserted in the model LoA following the power ministry's suggestion.

As per the key milestones incorporated in the LoA, developers are required to secure environmental clearance and achieve financial closure withing six months from the issuance of LoA. Further, they have to acquire 90% of land for the project in 12 months.

Electricity to cost 60 paise/unit more on new coal price formula

2012-01-10T04:28:00.000+05:30

Your electricity bill could go up by 50-60 paise a unit as early as February, triggered by the recent increase in coal prices. Currently, the average cost of power is Rs 3-4 a unit. The average realisation for NTPC in the September quarter was Rs 3.3 a unit, up from Rs 2.66 last year.

Effective January 1, Coal India switched from the useful heat value (UHV) based coal grading system to gross calorific value (GCV) system for pricing coal.

This move has not gone down well with power producers, as this will push up the fuel cost. The producers have been raising the issue with the fuel suppliers. Though suppliers claim that migration from the UHV to GCV based system will be revenue neutral, those tracking the sector said that in reality there will be a big increase in pricing without any value addition.

Power generating companies typically use grade E and F coal. The basic price of grade E coal will be Rs 880-1,781 a tonne against Rs 730-1,090 under the old pricing system (data based on ‘Final offer document' of Coal India). For grade F coal, the price will be Rs 630-933 against Rs 570- 870 earlier.

Sources privy to the developments told Business Line that utilities have raised the issue with Coal India, which has assured them that if the consumer price gets affected beyond a point, say,higher than 10 per cent, then the mechanism can always be reviewed.

TARIFF IMPLICATIONS

On December 30, the Power Ministry had written to the Coal Ministry stating that the switchover would have serious technical and financial implications on tariff. This was based on deliberations with various Central and State power utilities and the Central Electricity Authority.

Though agreeing that the implementation of GCV-based coal pricing system is in sync with international practice, it also requires that some prerequisites are met before it is implemented, the Ministry said.

Some of the requirements include an automatic sampling facility. Further, in the international coal market, where GCV-based pricing is adopted, coal is sold through legally enforceable fuel supply agreements, with stringent provisions on quality parameters and penalties for deviation from the stipulated parameters. The existing fuel supply agreements would need to be suitably modified to adopt these practices.

PRICING FORMULA

UHV-based pricing is based on empirical formula (which deducts ash and moisture content from the standard formula). Under UHV pricing, the coal is categorised into seven grades. The worry was that these bands were very wide and did not offer significantly higher price for washed coal.

GCV-based pricing, on the other hand, is linked to the actual calorific value or quality of the coal. Coal India is classifying the seven grades of coal into 17 bands under gross calorific value. Coal with similar calorific values may have similar price across the mines. There will be a discount on coal with high ash content.

Raise energy price for 9% growth, says Montek

2012-01-10T04:22:00.000+05:30

Concerned over rising energy import bills amid a weaker rupee, Montek Singh Ahluwalia, the deputy chairman of Planning Commission on Friday said there is a need to raise energy prices to achieve nine per cent growth.

“Domestic coal prices are one third of international rates at present. There is need for better alignment of energy prices,” he said while speaking at the foundation day ceremony of National Aluminum Company (Nalco) here and in the process backed the Coal India Ltd (CIL) move to implement a new coal price structure effective from this year.

The recent CIL move to sell coal according to gross calorific value, instead of useful heat value method used earlier, has been opposed by government as well as private thermal power stations.

Even UPA’s key ally and West Bengal Chief Minister Mamta Banerjee has expressed her displeasure over the issue on concerns that the price rise would necessitate electricity tariff hike. But the plan panel deputy chairman said, the price rise in energy sector is necessary for higher growth.

“To achieve 9 per cent growth, we would be requiring about 6.5 per cent growth in overall energy sector. The loss making electricity distributing companies (discoms) should raise tariffs to support the growth,” he added saying that state governments often do not want the discoms to raise power charges.

Ahluwalia also supported raising the prices of petroleum products saying the nation cannot afford to subsidise costlier oil imports.

“Petrol prices in India are more or less in alignment with the international market. But diesel is 20 per cent cheaper and kerosene is 75 per cent lower than global markets. So, when we are importing high cost energy, we are subsiding it and we can not afford that,” he said.

Crude oil contributes the most to Indian energy consumption, next to coal.

India imports over 80 per cent of its oil requirement. Speaking about the 12th Five Year Plan, the plan panel official said, the Central government needs to give attention on transport and infrastructure development, along with energy sector. He said cooperation of state governments is required to roll out Goods and Services Tax, (GST), which could be a game changer in the way India would grow in next five years.

“Many people believe that GST alone could contribute about one per cent to GDP growth. The states that are complaining about revenue loss should understand that the total rise in income would compensate most of their losses,” Ahluwalia said.

Commenting on the current slowdown in Indian economy, he said, it is a temporary phase and in next three to four months time situation should improve. “I can assure you that in next three or four months time, people will feel that the fear of economic slowdown has disappeared. They will also feel that inflation has been controlled,” Ahluwalia said.

JSPL’s third power unit at Raigarh begins production

2012-01-10T04:21:00.000+05:30

Jindal Steel and Power Ltd. said on Friday that a 135MW unit at its Raigarh power plant in Chhattisgarh has started commercial production from 1 January.

The steel and power producer is setting up 10 units of 135 MW each, four in Raigarh and six units at Angul in Orissa. Of these, three have been commissioned at Raigarh and one at Angul.

It is currently implementing thermal power capacity expansion of 2,400MW in Chhattisgarh and 1,980MW in Jharkhand. It is also implementing 6,100MW of hydro power in Arunachal Pradesh.

The company also plans to add 2,640MW in Jharkhand and 1,320MW in Orissa. Currently, it has a generation capacity of about 1,000MW but plans to expand this to 11,480 MW by March 2020.

Energy credits trading likely to touch Rs 100 cr by year-end

2012-01-10T04:19:00.000+05:30

With increasing focus on renewable sector, the market for trading energy credits in the country is expected to be worth Rs 100 crore by the end of this year.

The market for trading of renewable energy certificates (RECs), which is less than a year-old, is currently worth Rs 30 crore.

“The market for RECs is growing and is anticipated to see trades worth Rs 100 crore on a monthly basis by the end of this year,” a top official at the Ministry of New and Renewable Energy said.

An REC is a market-based instrument and represents I MW hour of electricity produced from a clean energy source. In general terms, a renewable generator would get one REC for every MW hour of power produced.

Last month, the Ministry of Heavy Industries and Public Enterprises directed all central public sector enterprises to set up renewable energy projects or voluntarily purchase RECs as part of sustainable development initiatives.

This move would deepen the market for REC, with more and more entities expected to purchase these certificates in the coming months, the MNRE official said.

Currently, RECs are traded on the last Thursday of every month on the country’s two power bourses — Indian Energy Exchange (IEX) and Power Exchange India Ltd (PXIL).

The volumes in REC trading have picked up in the last three months. Currently, non-solar type certificates are driving the volumes, rating agency Fitch’s Director of Asia-Pacific Utilities team, Mr Salil Garg, said.

“The market for REC is growing... The demand depends much on the need for renewable energy,” he noted.

According to PXIL, RECs were cleared at a price of Rs 2,950 per certificate during the trading on December 28.

Power distribution licensees, captive power plants, traders and open access users are among the participants in the REC market.

Costlier power needed to rescue discoms

2012-01-10T04:18:00.000+05:30

Regular rate increases, coupled with resumed lending by banks and other financial institutions, might save power distribution companies (discoms) from a situation such as the one that happened 10 years ago, when the government had to organise a rescue package.

According to experts, a 15-20 per cent rise in rates for a couple of years or more may save the situation. Some states have been regularly revising prices and others have begun to do so to save their discoms — Rajasthan recently allowed a 24 per cent rise and Delhi one of 22 per cent. Tamil Nadu, Uttar Pradesh, Punjab and Himachal are expected to do so this year, says Central Electricity Regulatory Commission Chairman Pramod Deo.

Even a 15-20 per cent revision would, he said, leave some backlog. With elections due in some states, the revisions might get delayed.

The discoms in Rajasthan, Tamil Nadu, Orissa, Punjab, UP and Andhra Pradesh are in a bad financial situation. In the country, apart from the cost of operations, the rising price of imported coal has started impacting the sector, he added.

A senior executive from a discom said the distribution segment was the worst affected in the sector. State governments should be willing to allow major rate increases to ensure sustainability of the discoms, he added.

Discoms have invariably not been able to recover their cost of operations because of the mismatch with rates and non-release of subsidy by some governments. Their accumulated losses were Rs 1,06,347 crore in 2009-10, from Rs 75,000 crore in 2008-09, according to the ministry of power. Apart from losses, the loan dues for the utilities were Rs 1,77,602 crore as on March 31, 2010. The average

cost of supply was Rs 3.41/kwh in 2008-09 from Rs 2.93/kwh in 2007-8 and Rs 2.75/kwh in 2006-07. Average revenue realised was Rs 2.91/kwh in 2008-09 from Rs 2.65/kwh in 2007-08 and Rs 2.49/kwh in 2006-07, according to the ministry. Subsidies from state governments were 18.94 per cent (Rs 29,665 crore) of the total revenue of state utilities in 2008-09, up from 11.17 per cent (Rs 13,590 crore in 2006-07) and 14.12 per cent (Rs 19,518 crore) in 2007-08.

In 2001-02, on the recommendation of a committee under Montek Singh Ahluwalia, now deputy chairman of the Planning Commission, long-term bonds were issued on behalf of the utilities, to be discharged by the state governments.

Steps underway

Banks and institutions like Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) had stopped lending to discoms. With new criteria set out by the power ministry, PFC and REC have resumed lending. These include regular rate revisions and maintenance of audited accounts, for a discom to be eligible for access funding. This may also deter state governments for forbidding rate rises, beside helping ensure sound financial health of the utilities.

A committee has been set up under the Planning Commission member B K Chaturvedi to formulate a turnaround plan for ailing discoms. It would consider the recommendations of the Shunglu committee, made last month, on the financial health of discoms. The Shunglu panel had suggested an SPV as a corporate entity to buy out distressed debts of banks to ailing discoms.

Adani Power approach SC to scrap electricity sales contract; case may break Rs 1.6 lakh cr projects

2012-01-10T04:13:00.000+05:30

Adani Power has approached the Supreme Court to scrap an electricity sales contract because of fuel supply uncertainty and unexpected rise in cost of imported coal, in a case that can make or break mega projects worth Rs 1.6 lakh crore and their lenders.

The company had signed a power purchase agreement in 2007 for supply of 1,000 mw to a state utility at a fixed tariff of 2.35 per unit for 25 years. But project economics changed drastically with the fall in domestic coal supply and abrupt rise in cost of imports, prompting Adani Power to issue a notice to terminate the contract.

The utility, happy with the low tariff that Adani had bid, rejected the notice and won its case in the state's regulatory body and the appellate tribunal.

A Gujarat government official said Adani Power has filed a civil appeal challenging the regulators. Adani Power declined comment.

The court's verdict would have huge implications for ultra mega power projects by Tata Power at Mundra and Reliance Power at Krishnapatnam, which have become unviable because of the abrupt rise in price of Indonesian coal but are locked in contracts to sell cheap electricity. It will also impact projects of Essar, JSW, Lanco, India Bulls and Shapoorji-Pallonji.

"Current contractual framework does not protect power companies from short supplies of coal 'assured' by CIL or from unexpected level of changes triggered by any 'change in law' event in coal exporting country.

As these developments are beyond the control of the developer, these contracts should be modified through appropriate policy/regulatory interventions to translate the impact of these uncontrollable factors on tariff," said Ashok Khurana, director general, Association of Power Producers.

Deja vu in the power sector

2012-01-03T01:09:00.000+05:30

From a sector that was deemed one of the most promising as late as a year ago, the electricity sector‘s financials have worsened rapidly. For generators, the immediate reasons have been a quagmire of disrupted fuel linkages, coal and natural gas, land issues, equipment shortages, and lately increased borrowing costs. Capex data from CMIE indicate a sharp increase in abandoned projects. These problems have been progressively aggravated by the worsening financial condition of state electricity distribution utilities (discoms).

Although the situation is not as bad as in the early 2000s, which had necessitated the one-time settlement (OTS) scheme, there are enough parallels to have caused the establishment of two high level committees (Shunglu and Chaturvedi) to look into the causes and suggest structural reform measures to prevent a recurrence. There have been no outright defaults this time, but enough irregularities in payments from the discoms. However, the magnitude of the problem is approaching that of the earlier crisis, and has been building up since 2005-06, after having improved since the implementation of the OTS scheme.

First, a description of the losses, since the figures in the media vary widely. The bottom line of the discoms’ financials are the operating losses. As of FY10, the last year a compilation of discoms finances are available, these losses had increased to R63,548 crore, up almost 2.5 times from R27,000 crore in 2006-07. While energy sold had increased at a compound annual growth rate (CAGR) of 9% over this period, losses (without the subsidy component) had risen at a 33% CAGR and with subsidies realised, a staggering 89%. Subsidies actually received rose just 3%.

The subsidies story is important, however. Discoms are mandated to supply power to consumers (agriculture and domestic households) at rates which are lower than the cost of supply. To the extent that this is a social objective embedded in the supply of electricity, this should be compensated through subsidies. Net of subsidies actually received, rather being just booked by the utilities, these losses rose to R44,000 crore, up from R14,000 crore in 2007. The sharp increase in the gap between these two reported loss categories are the subsidies paid, which as pointed out above, rose just 3%.

In addition to these accumulated losses (which increased by R88,000 crore over March 2005 to March 2010), the Shunglu Committee points to an even more disturbing statistic—an increase in current assets of R94,000 crore. Quoting verbatim, “this last figure is highly opaque and not clear as to what are the contents which aggregate to this … inevitably, these represent nothing but losses not shown in the annual accounts”.

Two large components of this increase are “sundry debtors” and “other current assets”, which together account for an increase of R81,000 crore. Some part of this, of course, subsidies not paid, which would reflect an overlap with the total accumulated losses, but an additional component is the “receivables”, which rose from R31,000 crore to R56,000 crore. The collection period (for individual states) was 36 to 645 days. The longer the period of arrears, the worse the financial health of the utility. This, in addition, shows in very poor light the collection efficiency figures of 94% (in 2007) that are reported by utilities (according to the Central Electricity Authority).

To bridge these losses and continue system operations, utilities have resorted to borrowing from banks and financial institutions. Matching the sharp deterioration of losses in FY10, discoms’ debt had increased 27% in FY10 to R3.1 lakh crore, up from R2.5 lakh crore the previous year. The result of this is that the net wealth of utilities has been virtually eroded. For the system as a whole, net worth at end-March 2010 had fallen to less than R12,000 crore, down from close to R90,000 crore at end-March 2008.

The bright spot in this is that the deterioration is caused by a handful of states. As much as 85% of the deterioration in system losses (and 74% of losses pre-subsidy) was due to just six states. Other than the bills receivable, the losses can be attributed largely to two characteristics. One, the inability or unwillingness of discoms to raise consumer tariffs, to match the increase in power generation or procurement costs. Two, an inability to reduce system losses {which are now called aggregate technical and commercial (AT&C) losses}, a combination of transmission losses and theft.

The cost discrepancy first. While the average cost of supply rose from R2.76 per unit in 2006-07 to R3.54 (i.e. 78 paise), the average revenue realised increased just 35 paise, to R2.68 per unit (529 million units were sold in 2009-10). Again, this discrepancy varies widely across states. Part of the discrepancy is due to the cross-subsidisation to agriculture and domestic consumers, part of which is supposed to be covered by the government subsidies.

But even this could have been manageable, had discoms not had persisting high AT&C losses, 27.2% in FY10. Even this, according to the Shunglu Committee report (which pegs this at 30%), does not include other operational losses (for example, over statement of agricultural consumption). After having dropped sharply from 36% in FY05 to around 31% of total power procured by FY07, losses have bottomed at 27% in FY10 and reportedly persists there.

So what needs to be done to remedy the situation? The Shunglu Committee has suggested a framework that aims to impart some commercial discipline to discom operations. This is not the place to explain this. Suffice it to say that it sounds very similar to the OTS scheme of 2001, with an SPV to take over the bad loans of discoms as the innovation.

Will this avert an aggravation of losses in the future? There are some encouraging signs. At least two of the largest loss-making states have filed (or are in the process of filing) tariff increase proposals before their respective regulators. In addition, state discoms are increasingly looking at franchising (through auctions) concentrated, high load consumer pockets to private power companies. The experience of the Bhiwandi (Maharashtra) franchise has been very encouraging; more franchises have been awarded in Kanpur and Agra. However, it is amply clear that barring a more commercial orientation of these utilities, there is unlikely to be a sustained improvement in their operations and finances.

NTPC and Power Grid viability reports soon

2012-01-03T01:07:00.000+05:30

Sri Lanka may set the stage for a new power play between the two Asian powers, China and India.

Two Indian state-run companies, NTPC and Power Grid Corporation of India (PGCIL), have planned to come out with feasibility reports on two projects in the power sector in Sri Lanka by January. The final agreement on both projects are expected to be signed soon after the detailed reports are out.

NTPC was looking to set up a 2x250 Mw coal-based project at Sampur in the Trincomalee region. PGCIL intends to come up with India’s first undersea power transmission project, connecting Sri Lanka.

Both projects are considered diplomatically important, as the China National Machinery and Equipment Import and Export Corporation (CMEC) is also setting up a coal-based power project in the Norochcholai area, with an investment of close to $900 million.

In September 2011, NTPC and the Ceylon Electricity Board (CEB) of Sri Lanka had incorporated a joint venture company, called Trincomalee Power Company, to set up the plant which would see investment of Rs 3,000 crore.

“The joint venture company will sign an agreement with the board of investment (BOI) in Sri Lanka on January 15 and the detailed feasibility report will be out by month-end,” said CEB chairman Wimaladharma Abeywickrama.

A top NTPC official confirmed the development and said related issues such as transport of coal would be decided later. PGCIL and CEB had signed a memorandum of understanding for the feasibility study for the undersea transmission line in 2010.

“The report is ready with the Sri Lankan government and a final decision will be taken by January,” Abeywickrama said.

The project is expected to start by 2014. It includes a 250-300 km power link, with a submarine stretch of about 50 km. It will require an expected investment of about Rs 3,000-4,000 crore and an exchange of close to 1,000 Mw of power. Abeywickrama says both governments have already shown green signals.

“These two projects are vital for Sri Lanka and will help us to connect with the planned Asian grid. More, we can share power both ways during peak hours,” he added. CEB is the largest electricity company in Sri Lanka, with an installed capacity of 2,684 Mw.

The finalisation of these projects are at a time when the President of the island, Mahinda Rajapaksa, had publicly said Lanka had sought the assistance of China only after India refused to get involved in some projects.

Capital blackout averted after CERC intervention

2012-01-03T01:06:00.000+05:30

The threat of a blackout looming over the Capital due to the payment dispute between NTPC and BSES discoms has been averted, with the Central Electricity Regulatory Commission (CERC) restraining the Central generator from cutting power supply to the discoms till the dispute is resolved.

NTPC had threatened to cut power supply to BSES discoms in the Capital from December 31 midnight over non-payment of outstanding dues. NTPC’s generating stations meet 65% of the Capital’s power requirement.

The Capital would have plunged into darkness at the onset of the New Year, but for the CERC’s timely intervention. The matter was brought before the CERC by the discoms who disputed NTPC’s claims. NHPC and Power Grid, too, were made respondents in this case because they also have similar disputes with discoms.

The next hearing in the case is scheduled on January 5. NTPC has raised an additional bill of R428 crore on discoms to recover arrears following the provisional revision of tariff for Central generating stations by the CERC with effect from April 2009.

However, discoms have disputed NTPC’s claims on the ground that the CERC is yet to issue a final order on tariff revision and, pending that, the latter cannot recover any arrears. The discoms submitted that they have been regular in paying their current bills.

The discoms have also submitted before the regulator that NTPC’s insistence that discoms open a consolidated Letter of Credit (LC) to ensure payment for electricity supplied by all its generating stations to them is not in line with the Electricity Act 2003.

They said they have no issue about opening separate LCs for each NTPC plant supplying power to them.

“They have a prima facie case for grant of interim relief in the form of deferment of regulation of power supply. Apart from affecting the consumers of Delhi, regulation of power supply would create impediments for the petitioners to raise finances from financial institutions, which will not be in the interest of the respondents,” discoms argued.

In solar power, India begins living up to its own ambitions

2012-01-03T01:04:00.001+05:30

Solar power is a clean energy source. But in this arid part of northwest India it can also be a dusty one.

Every five days or so, in a marriage of low and high tech, field hands with long-handled dust mops wipe down each of the 36,000 solar panels at a 63-acre installation operated by Azure Power. The site is one of the biggest examples of India’s ambitious plan to use solar energy to help modernise its notoriously underpowered national electricity grid, and reduce its dependence on coal-fired power plants.

Azure Power has a contract to provide solar-generated electricity to a state-government electric utility. Inderpreet Wadhwa, Azure’s chief executive, predicted that within a few years solar power would be competitive in price with India’s conventionally generated electricity.

“The efficiency of solar technology will continue to increase, and with the increasing demand in solar energy, cost will continue to decrease,” Wadhwa said.

Two years ago, policymakers said that by the year 2020 they would drastically increase the nation’s use of solar power from virtually nothing to 20,000 megawatts — enough electricity to power the equivalent of up to 15 million modern American homes during daylight hours when the panels are at their most productive. Many analysts said it could not be done. But, now the doubters are taking back their words.

Dozens of developers like Azure, because of aggressive government subsidies and a large drop in the global price of solar panels, are covering the country’s northwestern plains — including this village of 2,000 people — with gleaming solar panels. So far, India uses only about 140 megawatts, including 10 megawatts used by the Azure installation, which can provide enough power to serve a town of 50,000 people, according to the company. But analysts say that the national 20,000 megawatt goal is achievable and that India could reach those numbers even a few years before 2020.

“Prices came down and suddenly things were possible that didn’t seem possible,” said Tobias Engelmeier, managing director of Bridge to India, a research and consulting firm based in New Delhi. Chinese manufacturers like Suntech Power and Yingli Green Energy helped drive the drop in solar panel costs. The firms increased production of the panels and cut costs this year by about 30 per cent to 40 per cent, to less than $1 a watt.

Developers of solar farms in India, however, have shown a preference for the more advanced, so-called thin-film solar cells offered by suppliers in the United States, Taiwan and Europe. The leading American provider to India is First Solar, based in Tempe, Arizona.

India does not have a large solar manufacturing industry, but is trying to develop one and China is showing a new interest in India’s growing demand. China’s Suntech Power sold the panels used at the Azure installation, which opened in June.

Industry executives credit government policies with India’s solar boom, unusual praise because businesses usually deride Indian regulations as Kafkaesque.

Over the last decade, India has opened the state-dominated power-generating industry to private players, while leaving distribution and rate-setting largely in government hands. European countries heavily subsidise solar power by agreeing to buy it for decades at a time, but the subsidies in India are lower and solar operators are forced into to greater competition, helping push down costs.

This month, the government held its second auction to determine the price at which its state-owned power trading company — NTPC Vidyut Vyapar Nigam — would buy solar-generated electricity for the national grid. The average winning bid was Rs 8.77 (16.5 cents) per kilowatt hour.

That is about twice the price of coal-generated power, but it was about 27 per cent lower than the winning bids at the auction held a year ago. Germany, the world’s biggest solar-power user, pays about 17.94 euro cents (23 American cents) per kilowatt hour.

India still significantly lags behind European countries in the use of solar. Germany, for example, had 17,000 megawatts of solar power capacity at the end of 2010. But India, which gets more than 300 days of sunlight a year, is a more suitable place to generate solar power. And being behind is now benefiting India, as panel prices plummet, enabling it to spend far less to set up solar farms than countries that pioneered the technology.

In its solar power auctions, moreover, NTPC is not creating open-ended contracts. The last auction, for example, was for a total of only 350 megawatts, which will cap the government’s costs. The assumption is that the price of solar power will continue to decline, eventually approaching the cost of electricity generated through conventional methods.

Most Indian power plants are fuelled by coal and generate electricity at about Rs 4 (7.5 cents) per kilowatt hour — less than half of solar’s cost now. In this month’s auction, the recent winning bids were comparable to what India’s industrial and commercial users pay for electricity — from Rs 8-10. And solar’s costs are competitive with power plants and back-up generators that burn petroleum-based fuels, whose electricity costs about Rs 10 per kilowatt hour.

“At least during daytime, photovoltaic panels will compete with oil-generated electricity more than anything else” in India, said Cédric Philibert, a senior analyst at the International Energy Agency in Paris. “This comparison is becoming better and better every month.”

In addition to the federal government, several of India’s states like Gujarat, where Khadoda is located, are also buying power at subsidised rates from solar companies like Azure Power.

Analysts do not expect India’s solar rollout to be problem free. They say some developers have probably bid too aggressively in the federal auctions and may not be able to build their plants fast or cheap enough to survive. Consequently, or because their bids were speculative, some developers are trying to sell their government power agreements to third parties, analysts say, even though such flipping is against the auction rules.

Wadhwa, of Azure Power, said a solar industry shakeout in India was almost inevitable. “Initially, a lot of new players enter the sector,” he said, “and then the market settles with a few players who have a long-term” commitment to the industry.

Power Finance Corp, National Thermal Power Corp, REC line up to tap pension funds in New Year

2012-01-03T01:03:00.003+05:30

Power Finance Corp, National Thermal Power Corp and Rural Electrification Corp are likely to launch medium- to long-term infrastructure bonds in the first week of January to raise 3,000-5,000 crore each, people familiar with the matter said. The move is aimed at tapping pension funds, which are mandatorily required to invest a major chunk of their corpus in infrastructure bonds.

State-run NTPC, India's largest power utility, is looking to raise funds through the issuance of bonds that will mature at the end of 10 years, said market sources. State-run REC is likely to issue 3-year, 5-year and 10-year bonds.

Infrastructure finance company PFC will issue bonds for three and five years through private placements, as they are already borrowing for long-term through public bonds issuances, debt managers said.

The bonds are likely to offer coupon rates around 9.63-9.64%, similar to what PFC offered on its 3-year and 5-year issuances in December, said debt market analysts.

In December, PFC raised funds through 3-year and 5-year bonds at 9.63% and 9.64%, respectively.

"The issuers will have to offer similar rates now, since yields on government securities have risen on market expectation of higher government borrowing," said a debt market analyst.

The yield on 10-year bonds has risen marginally by 7-10 basis points since Monday.

On Thursday, the yield on benchmark 10-year bonds closed at 8.53%, up 6 bps from the previous close.

Pension funds receive interest payments from their investments in special deposit schemes in the first half of January, and bond issuers prefer to tap into these inflows. According to analysts, about 50,000 crore worth of inflows are expected from these interest payments for the fund houses this year.

PFC will also come out with its tax-free bonds for retail market on December 31, offering 8.30% on 15-year and 8.20% on 10-year bonds.

The issue comes close on the heels of National Highway Authority of India's (NHAI) tax-free retail bond issuance that made a successful debut on Wednesday. The bonds have so far received subscriptions worth about 25,000 crore.

The issue is scheduled to close on January 11, 2012.

Dealers said, going ahead, bond yields will rise despite the Reserve Bank of India indicating easing of policy rates as markets expect a further fiscal slippage of about 30,000-40,000 crore.

"Further issuances of government securities could put some strain on the market, resulting in upward pressure on yields. As per the polls being conducted, expected slippage could be anywhere in the range of 30,000-40,000 crore," said an official from a large bond house.

Issuers such as NTPC are expected to get finer rates, which could be about 15 basis points less than other issuers, since they are not very frequent issuers in the bond markets.

Delhi's Tata discom wants state aid

2012-01-03T01:03:00.000+05:30

Tata Power Delhi Distribution (TPDD, earlier called North Delhi Power Ltd) has sought financial assistance from the city government to offset its operational losses. This comes on the heels of Reliance Infrastructure’s BSES getting fresh equity infusion of Rs 500 crore from the government.

In a letter to the city government, TPDD says it needs equity infusion of Rs 400-500 crore. Tata Power holds 51 per cent stake in the company, which distributes electricity to about 30 per cent of Delhi. The Delhi government holds the other 49 per cent. Two BSES companies distribute power to the other 70 per cent of the city. TPDD’s revenue gap was Rs 3,100 crore as on September, of which bank loans were Rs 2,400 crore, a company official said. The initial investment by Tata Power and the Delhi government in the company, in 2002, was Rs 368 crore.

On Tuesday, the government had informed the Delhi Electricity Regulatory Com-mission of its plan to infuse fresh equity of Rs 500 crore to BSES. The latter’s parent company, Reliance Infra-structure (R-Infra), would also infuse Rs 520 crore in BSES, to enable the latter to avail a loan of Rs 5,000 crore to pay dues towards generation companies, including NTPC. The Delhi government and R-Infra had infused a total of Rs 576 crore in 2002, when BSES’ two city distribution companies were formed.

R-Infra holds 51 per cent equity in the BSES discoms. BSES had said it was unable to pay its dues and NTPC had served a notice to it, threatening suspension of power supply. NTPC supplies a little over 2,000 Mw to BSES. It has since extended the deadline for payment to January 7. DERC had also, last month, sent notices to BSES, asking why its licence should not be suspended for failing to clear dues.

Delhi saw a revision of power rates, of 21 per cent, effective September 1; BSES and Tata had wanted a 50 per cent rise. It was earlier revised in 2009. Next month, DERC is to begin the process of revising rates for 2012-13.

Fuel, state electricity board dues continue to haunt power sector

2012-01-03T01:02:00.002+05:30

SEBs are lifting much lower output, which, in turn, creates problems of cash flow and debt servicing

In the past couple of months, the overarching theme in the power sector has been state electricity board (SEB) reforms. The recent report of the Shunglu panel recommended a somewhat radical solution to create a special purpose vehicle to take over the shaky loans of state electricity boards. State governments are making the right noises on structurally reforming the distribution sector and cleaning up state electricity boards by computerizing accounts and allowing annual tariff revisions etc. And a record 14 states increased electricity charges this year. But these touch the surface of the problem and implementation is a long and arduous journey.

State electricity board dues are just one part of the equation. They have estimated accumulated losses of Rs. 75,000 crore mainly because of pilferages, having to buy expensive short-term power and inadequate tariff revisions. That will take some time to clean up.

In the meantime, the power sector will continue to suffer as usual—at least for the next six months or so. One reason for the low plant load factors, or capacity utilization, among power generators is because state electricity boards are lifting much lower output, which, in turn, creates problems of cash flow and debt servicing.

Increasing exposure to the power sector has made financiers wary of lending to this sector.

There is a shortage of coal to fire thermal power plants. Hydro projects are being held up in execution by land and environmental problems. As a result, companies are putting off expansion in the sector, the latest being Adani Power Ltd which is deferring plans to build a 6,500megawatts power plant. Capacity addition, so far, this financial year has been three-fourth of the targeted 14,000MW.

Sure, there are some silver linings. Plant load factors have improved over the last couple of months. Capacity utilization in November was 74.45%, well over the 61.14% achieved in September for thermal power plants. As a result, generation has increased 9% from a year ago, but these plant load factors are still lower than a year ago, indicating a slowdown in the sector.

While coal minister Sriprakash Jaiswal has guaranteed that no power plant will be shut down because of a lack of fuel, Central Electricity Authority figures indicated that 48 power plants had less than seven days of coal supply at the end of November. This was well over the 31 power plants reporting a critically low fuel-supply position at the end of September. Thus, the outlook will remain dark for some more time.

Fuel, finance crunch to haunt energy sector

2012-01-03T01:01:00.002+05:30

The year 2011 saw India’s power sector beset by a shortage of coal and poor financial health of state-owned distribution companies. These challenges need to be addressed soon to boost power production during the 12th Five-Year Plan beginning April, say analysts and power producers.

Around 55% of India’s 1.83 trillion megawatts (MW) of installed power capacity is fuelled by coal. “The acute shortage of domestic coal in the country has become a major concern,” said Anil Sardana, managing director of Tata Power Co. Ltd, India’s largest independent power producer by capacity.

“It has led to apprehensions that the ambitious capacity addition target of 90-100 gigawatts in the upcoming 12th Five-Year Plan period may not be met and also cause avoidable stress on assets already built or committed by many private sector players,” he said.

Th Planning Commission had set a capacity addition target of 78,700MW during the 11th Plan (2007-12), subsequently revised it to 62,000MW, but only 42,000MW was added until November. The commission projects the addition of only 50,000MW by March 2012, the end of the plan period.

The commission also estimates that against an original targeted domestic coal production of 680 million tonnes (mt) during the 11th Plan, only 554 mt will be achieved.

“In the power sector, the pendulum has swung from a mood of over-optimism a year back to over-pessimism now, and none of the extremes represents a correct picture,” said Arvind Mahajan, head of the energy and natural resources practice at international audit and consulting firm KPMG. “Though many of the current concerns in the sector were there even a year back, the situation has worsened due to the lower-than-expected performance of Coal India (Ltd) and weak market conditions.”

Ashok Khurana, director general, Association of Power Producers (APP), an industry lobby, said banks had stopped lending to power projects and were insisting on certainty of coal availability “before even considering financial assistance”.

In the 12th Plan, demand for about 1,000 mt of coal for power generation is expected, and about 200 mt of this will have to be imported, according to the Plan panel. However, regulatory issues in countries such as Indonesia and Australia have led to an unprecedented rise in the price of imported coal, leading to economic viability concerns for many Indian power producers.

While Indonesia has linked the price of coal to international indices, Australia has levied a carbon tax on the export of coal. The industry estimates the overall price of imported coal to rise by around Rs.1,500 a tonne due to these two measures, since about 55% of India’s coal imports comes from these two nations.

Power projects totalling around 13,000MW will be affected due to higher prices of imported coal, according to APP. These include two 4,000MW so-called ultra-mega power projects awarded by the government to Tata Power and Reliance Power Ltd. The tariffs proposed by the firms while bidding for these projects to be run on imported coal are no longer viable considering the higher cost of fuel.

Kameswara Rao, an executive director at PricewaterhouseCoopers, said that instead of trying to outbid each other while vying for international coal assets, Indian companies should follow a coordinated approach to keep prices in check. “If the off-takers (power purchasers) refuse to absorb the additional cost, the producers will be forced to operate below capacity,” said Rajiv Mishra, managing director and chief executive officer of CLP Power India Pvt. Ltd, the only multinational power company operating in India.

“It won’t be easy for the off-takers to absorb additional cost implications over a long period of time and remain competitive,” Mishra said.

The largest purchasers of power in India are state distribution utilities that have been reeling under losses for years. The finance ministry has even advised banks to stop lending to loss-making state power distribution companies, even as the Planning Commission pegs the aggregate losses of these utilities at Rs.70,000 crore, excluding the subsidy they get from the respective state governments.

The main reasons for these losses are high levels of transmission and distribution (T&D) losses, at around 30% of total power produced, and little tariff revision over the years even though costs increased.

A report released by credit rating agency Crisil Ltd in October said the gap between the average cost of supply per unit of power and the realization per unit was as high as 86 paise. It also warned that loans to the tune of Rs.56,000 crore extended by banks to the power distribution sector were at risk if no meaningful reforms are undertaken in the next 18 months.

A committee appointed by the government under the chairmanship of former comptroller and auditor general V.K Shunglu suggested that the outstanding loans to power distribution companies be taken over by special purpose vehicles (SPVs) floated by the Reserve Bank of India and restructured while securing commitment from such utilities for regular tariff revision and reduction of T&D losses.

“We can’t have a business-as-usual approach for the sector,” said Anish De, chief executive officer for Asia at global energy consulting firm Mercados Energy Markets, concluding: “Creating an SPV for restructuring loans may work, but it needs to be followed up by setting performance parameters for the distribution companies and simultaneously ensuring external cost pass-through.”

NTPC signs purchase pact with M.P. for 50 MW solar power

2012-01-03T01:00:00.002+05:30

NTPC Ltd has signed a power purchase agreement (PPA) with MP Tradeco in Bhopal for supply of power from 50 MW solar PV (photovoltaic) power plant to be set up at Rajgarh in Madhya Pradesh.

Expected to be commissioned by the year 2013, the 50-MW solar power from Rajgarh Solar PV shall be bundled with unallocated power from upcoming coal-based stations of NTPC by Government of India, according to a statement from NTPC.

The PPA was signed by Mr. M.K.V. Rama Rao, Executive Director (Commercial), NTPC, and Mr P.K. Vaish, Managing Director, MP Tradeco, in presence of Mr I.J. Kapoor, Director (Commercial), Mr S.N. Ganguli (RED-West-II) and Mr Mohammad Suleman, Secretary (Energy), Government of Madhya Pradesh, and other senior officials.

MORE PROJECTS

NTPC, the country's largest power generating company, is in the process of building a large portfolio of non-conventional energy projects, including solar PV projects in Karnataka, Rajasthan, Gujarat, Madhya Pradesh, Andhra Pradesh and other States.

The company has also finalised plans to set up a 25-MW solar PV project close to the Ramagundam super thermal power plant with an outlay of about Rs 140 crore for the phase one of 10-MW project. The company plans to install all of the 25 MW at the site in AP by 2013, according to sources in the company.

In Karnataka too, the company has entered into power purchase agreements with the Karnataka Government Corporation for setting up solar PV farms. Due to low gestation period, some of the NTPC plants are expected to be operational by next year.

The company's medium term plan is to have an installed capacity of about 1,000 MW of from non-conventional energy sources including solar PV, solar thermal and wind energy farms.

Tiroda plant to help Adani Power cushion ‘losses' in Gujarat

2012-01-03T00:59:00.000+05:30

Merchant power sales from upcoming Tiroda thermal power station in Maharashtra is expected to help Adani Power Ltd to survive the anticipated negative impact of its supply contracts with Gujarat State utility for first three quarters of 2012-13, according to sources.

Considering that the company has substantial foreign currency borrowings, there should be pressure on net margin due to a higher interest payout than envisaged.

The company is slated to supply 1,000 MW a day from Mundra power station to Gujarat Urja Vikash Nigam Ltd (GUVNL) at a reportedly “loss-making” tariff of Rs 2.35 MW a unit for 25-years from February 2012.

To coincide with the development, the first 660 MW unit at Tiroda will be on stream “before March 2012”. Since supplies against firm commitments (power purchase agreements) should start from Tiroda by end-2012, it offers APL a window to boost profits through merchant sales in the first three quarters of next fiscal.

The entire domestic coal-based power station combing five China-made units of 660 MW each is slated to be commissioned before March 2013. The project is developed in collaboration with Millennium Developers.

HURDLES AHEAD

Originally proposed to be of 1,980 MW, the Tiroda project size was later expanded to 3,300 MW banking on proposed captive supplies from the allotted coal mining blocks at Lohara (West) and Lohara extension coalfields next to the Tadoba Andhari Tiger Reserve in Maharashtra.

In the following days, protests from environmental activists, alleging that the mine would infiltrate into the buffer zone of the Tiger Reserve areas, led to cancellation of the captive mining lease.

While the Adanis are now pinning hopes on its “request to Centre” to revive the Lohara mining lease in a truncated format, without disturbing or infiltrating into the forest area, the immediate reprieve has come in the form of a ‘tapering linkage', granted by Coal India towards the first 660 MW unit at Tiroda.

The scheme offers captive blocks owners 3-4 year window to develop the mines and enjoy requisite supply of coal for linked end-use plants at notified price.

While the linkage may save the day for the first unit, APL will surely feel the pinch ones other 660 MW units should be commissioned – one each every quarter.

INTEREST PAY-OUT

With the Rs 19,000-crore Mundra project scheduled to be fully commissioned by this fiscal, APL may feel the pinch of rupee devaluation in the immediate term in terms of higher interest pay out against foreign currency borrowings.

Sources, however, argue that unless rupee undergoes any further sharp devaluation from the current level, the average interest cost of the project is still lower at 9.5 per cent (discounting the devaluation impact) when compared to domestic borrowing cost of over 11 per cent.

NTPC board okays over Rs 18,000 cr for 2 thermal projects

2012-01-03T00:57:00.002+05:30

NTPC Ltd has informed BSE that the board of directors of the company on Wednesday accorded the investment approval of Rs 15166.19 crore for the Kudgi super thermal power project (3 X 800 MW) in Karnataka. This is subject to environmental clearance of Ministry of Environment and Forests.

The board also approved the move to implement Vindhyachal super thermal power project, stage-V (1 X 500 MW) in Madhya Pradesh at an appraised current estimated cost of Rs 3180.40 crore subject to environmental clearance.

Stage-I (6 X 210 MW), Stage-II (2 X 500 MW) and Stage-III (2 X 500 MW) of the project are under commercial operation. Stage-IV (2 X 500 MW) of the project is currently under construction.

Rationalise energy prices

2011-12-09T03:45:00.000+05:30

“It is the economy stupid” said Bill Clinton. How true. If there is one message that the political elite should distill from the economic and financial crisis that is currently roiling liberal democracies around the world, it is that short-sighted and self-interested politics cannot ride roughshod over the remorseless logic of the market. The eurozone crisis has already put paid to four governments in Greece, Ireland, Italy and Spain. The reason Barack Obama may still survive into a second term is because the Republicans appear more intent on undermining their most credible candidate Mitt Romney rather than coalescing to exploit the huge cracks that have appeared in the US economy. The UK finance minister has just announced a budget that heralds a ‘lost decade’ of economic growth and the conservative Lib Dem coalition is writhing with tension. This message needs to be internalised by our own leadership. With economic growth slipping below 7%, with inflation in double digits, with high interest rates and a depreciating currency, they should be casting their gaze beyond their political navel to economic management. Else, they too will find their fortunes upended at the next elections.

What then might one ask should be their economic priorities? Clearly there is no one answer. Politicians, especially when advised by economists, have a penchant for ploughing their own constituency-based furrow. There will, therefore, be as many answers as there are respondents. But it would be a surprise if a majority did not list energy (along with water and food) on their agenda. This is because everyone knows that the spin and direction of the current spiral of energy scarcity and inefficiency will have to be slowed and reversed if the Indian economy is to stay on the growth turnpike.

The underlying reason why energy security for India is a fast-fading aspiration is because the price of energy is misaligned from the market. It is a distortionary price mechanism driven by politics and institutional, vested interests rather than economic logic. It is why the gap between energy demand and supply has widened, why the balance sheets of our energy PSUs have eroded while adulteration, blackmarketing and waste have run rampant.

Three decades back, for instance, India imported 25% of its crude oil requirements. Today it imports 80% and the Planning Commission has estimated that, due to slack production and increased consumption, this import dependency will increase to 87% by 2016-2017. We have huge reserves of coal but still the Planning Commission is projecting that by the end of the 12th plan we will import approximately 250 million tonnes of coal. This, of course, only if the commensurate import and distribution infrastructure have been put in place. T he energy companies are in dire financial straits. IOC, BPCL and HPCL—the three oil marketing companies—will, for example, “underrecover” (a euphemism for loss) around R130,000 crores in FY 2011-12 because of the political diktat that they sell diesel, kerosene and LPG at prices below cost. These companies were once almost debt free but today they have bank borrowings in excess of R100,000 crores. The interest burden wipes out the bulk of their operating margin. Many more facts could be cited to illustrate the deepening energy crisis. Our political elite is, of course, aware of the problem but their hope must be that it will not explode on their watch. This must have been the hope of the Greek politicians as they fudged their accounts and accumulated debts before the economy hit the skids and they were turfed from power, averaging approximately $250,000 for every working Greek.

So what is to be done? It would be naive to suggest that prices should be wholly market-determined. The din and furore surrounding the current debate on retail FDI would be a pipsqueak compared to the outcry that would ensue.

But the needle of change does not have to be pushed full circle. Incremental shifts in the right direction can also generate billions in value and pull the energy sector back from the brink. For instance, as everyone knows, kerosene subsidies do not reach the poor but get sequestered by the middlemen who then trade them on the black market. There is a proposal to discontinue these subsidies and to transfer the released funds for disbursement directly by the state governments. This could be expedited. There is a suggestion that subsidised LPG cylinders should be rationed, especially to those in higher income brackets. This could also be fast-forwarded. There is an idea that of the two grades of diesel currently sold in the country (BSiii & BSiv), the higher grade (BSiv), which accounts for around 15% of total diesel consumption and which is used inter alia by those who drive SUVs, should be partially deregulated. Similar incremental proposals have been put forward for rationalising coal and gas prices—all with the objective of mitigating the costs of the disconnect between a market determined and an administered pricing structure.

None of these proposals are without flaws or easy to implement. The kerosene dealers and distributors would fight change tooth and nail; the state governments might find it practically infeasible to make direct disbursements and dual pricing of commodities will inevitably encourage diversion and adulteration. But the ideal must not be allowed to trump the positive. Doing something can often be better than doing nothing. The essential point is that in our connected world the market will ultimately assert itself, and that if energy pricing continues to run counter to this force the economy will sooner rather than later slip into reverse gear. And at that point the Clintonian comment may well define our politicians’ epitaph.

Power Ministry dissent derails PSU buyback plan

2011-12-09T03:44:00.000+05:30

The finance ministry's plan to meet the disinvestment target through share buyback by state-run companies has run into a problem with power ministry saying that all six companies under its administration will not be able to participate in the process.

In a dissent note to the North Block, the power ministry has argued that all the state-run companies have big expansion plans to tackle the massive power shortage in the country, and therefore, won't be able to spare cash for the share buyback.

"They (power ministry) have argued that they are targeting a capacity addition of almost 100,000 MW during the 12th Five Year Plan (2012-17)," said a finance ministry official, requesting anonymity. "This would need huge investments, and PSUs under them have already committed funds for various projects," the official said.

The public sector enterprises under the administrative control of the power ministry are NTPC, Power Grid, NHPC, REC, PFC and NEEPCO.

According to estimates, the combined cash surplus with all these state-run firms is around Rs 50,000 crore, more than current year's fiscal disinvestment target of Rs 40,000 crore that the government is struggling to meet, having raised just Rs 1,145 crore so far.

The chairman of a state-run firm backed the power ministry's response, saying his company's cash surplus position paled in comparison to its massive investment requirements.

So far, only mines ministry and the department of public enterprises (DPE), a nodal agency for 246 state-run firms, have supported the cabinet note proposed by the finance ministry on share buyback.

But the DPE has also cautioned that companies should not be forced to buy back shares, suggesting that the option should be left to the respective boards.

"We have given our nod to the proposal but said that the buyback should be proportionate, and all guidelines of the market regulator Sebi should be followed," said an official with DPE.

The finance ministry has moved a cabinet proposal to give executive sanction to listed companies having surplus cash for buying back their shares.

The government is looking at various options, including cross-holding, share buyback, auction and special dividend to raise disinvestment proceeds. Finance minister Pranab Mukherjee has, however, said the government will stick to its disinvestment target of Rs 40,000 crore in this fiscal.

Power Grid Corp: Powering ahead with low-risk business model; assured returns

2011-12-09T03:43:00.002+05:30

At a time when the stock market is volatile and the macro environment remains uncertain, it's advisable to invest in defensive stock trading at low valuation. Power Grid's low-risk business model and strong earnings visibility offer a defensive investment opportunity. Investors can consider buying the stock at its current market price.

About the Company

Power Grid is a Navratna company with 50% market share in the transmission business and has a monopoly in inter-state transmission. Nearly 95% of its revenue is generated from the transmission business, with the balance coming from the consulting services provided to power companies in India and abroad and from leasing its optic fibre bandwidth to telecom operators.

It is controlled by the Central Electricity Regulatory Committee (CERC) and operates under a regulated business model with a fixed return on equity. The company is assured a return of 15.5% plus some incentives on equity investments, from its clients.

Financials

Power Grid's net sales have grown at a compounded annual growth rate (CAGR) of 21% over the last three years to Rs 8,389 crore in FY11 and the profit after tax has grown at a CAGR of 30% to Rs 2,697 crore. The company's major cost is capital expenditure on setting up transmission lines, while there is hardly any operational cost.

As a result it has an operating margin as high as 90%. The company's earnings growth will depend on how much capital expenditure it can afford and how fast it can capitalise its capital expenditure. In simpler terms, how fast it can commission its transmission lines so that the return on capex is faster.

For the XIth fiveyear plan, the company's capex target is Rs 55,000 crore, of which it has already incurred 70% in the first four years and roughly 60% of it has already been commissioned.

And for the XIIth five-year plan, the company, which has a strong execution record, has already set an additional capex target of Rs 95,000 crore. Power Grid's dividend pay out ratio is 32% and it has a very strong balance sheet

Valuation

Given the company's huge capex plans and strong execution record, the company's 30% growth in earnings is likely to continue for another few years. At the current market price of Rs 95, Power Grid's stock is trading at price to earning multiple of 9.7 which appears to be attractive.

Investment Rationale

India's GDP growth rate has outpaced the growth in installed power capacity in last 10 years, increasing the demand-supply gap. Given the monopoly that Power Grid enjoys in the central transmission system, it will benefit from this increasing demand. The company has an extremely low-risk business model.

FDI in power sector swells even as domestic fund flows trickle

2011-12-09T03:42:00.000+05:30

At a time when domestic investors are applying the brakes on power sector funding, foreign direct investment (FDI) inflows into the sector could actually be headed for a new record this fiscal.

In a signal of bullish sentiment among global investors, FDI inflows into the power sector — at a robust $1.3 billion during the first six months of the current fiscal — were just marginally short of what came in during the entire 12 months of each of the previous two financial years.

The FDI inflows, apart from investments routed through Mauritius, include fund flows from France, Singapore, the UK , the UAE and the US. Recent FIPB (Foreign Investment Promotion Board) approvals include proposals by Hinduja Energy for induction of foreign equity into a domestic firm and fund raising plans for coal washery operator ACB Ltd and Chennai-based Gita Power and Infrastructure. FDI up to 100 per cent is permitted under the automatic route for projects involved in electricity generation (except atomic energy), transmission, distribution and power trading.

The news on robust foreign inflows comes in at a time when domestic investor interest in the power sector is petering out and is clearly visible in the form of the tepid response by domestic banks and financial institutions to the funding of new private generation projects. The main concern is about adequate coal supplies for new projects, amidst signs that developers of projects close to commissioning could default on their loan repayments due to fuel shortages.

Subdued merchant power rates and reluctance among cash-strapped State Electricity Boards to buy power from the spot market are adding to investors' woes. The worsening financial position of the SEBs — their losses are pegged at Rs 55,000 crore — has already begun to affect existing power generators. While NTPC's bottomline was dented last fiscal due to lower offtake by SEBs, private developers also face the same risk.

An official with state-owned lender Power Finance Corporation admitted that fuel risk had made them cautious while evaluating projects. Edelweiss, in a recent wrap-up on the power sector, too attributed “serious business risks” for power developers, cascading down to their lenders, due to coal shortfall. These fuel risks, it said, were bigger than the risk arising out of lower or less remunerative merchant sales.

The overall funding requirement in the Eleventh Plan (2007-12) was estimated at Rs 10,31,600 crore (about $230 billion at an exchange rate of Rs 45) by the Working Group on Power at the beginning of the current Plan period.

UMPPs not getting delayed due to coal blocks allocation: Govt

2011-12-09T03:40:00.002+05:30

The 4,000-MW capacity ultra mega power projects in the country are not getting delayed due to allocation of coal blocks, the Minister of State for Power, Mr K.C. Venugopal, informed Parliament today.

“There is no delay in commissioning of ultra mega power projects (UMPPs) due to reasons attributable to problems in the allocation of coal blocks,” he said in the Lok Sabha.

For pit-head UMPPs or where the coal mines are attached to the projects, one of the pre-requisite for calling Request for Qualification (RFQ) is allocation of coal block by the Ministry of Coal.

And since the coal blocks are allocated even before the initiation of bidding process, the delay could not occur for want of allocation of coal blocks, he added.

However, he said that the last date of submission of RFQs for Chhattisgarh UMPP has been extended nine times as the coal blocks of these UMPPs were categorised as no-go area by the Ministry of Environment and Forests.

The last date of submission of RFQ for Chhattisgarh is December 5.

However, in view of the decision of Group of Ministers (GoM) on environmental and development issues, relating to coal mining and other development projects, to do away with the go/no-go concept, the MoEF has been requested to clarify the matter for proceeding ahead with the bidding process of Chhattisgarh UMPP.

At present, the preliminary bids for the Bedabahal UMPP in Orissa have been invited and as many as 20 bidders have evinced interest in setting up the project.

Solar power prices inching towards common man's reach

2011-12-09T03:39:00.002+05:30

The aggressive tariffs quoted by solar power developers in the second round of bidding under the National Solar Mission shows that solar power is slowly inching towards the reach of the common man.

The industry has been speaking of “achieving grid-parity” in about four years, meaning that solar power would cost no more than what the distribution companies sell at in less than half a decade. The bids that opened today suggest that grid-parity may well happen even earlier.

Implications

The French company, Solairedirect won a mandate to put up a 5-MW project by quoting a tariff of Rs 7.49. The highest quote was of Green Infra, of Rs 9.39.

What this implies is that some fifteen project developers believe that they can put up solar photo voltaic power plants, sell the electricity they produce at prices under Rs 9.40, and still make money.

Compare this with the quotes of the previous round (Batch-I) and the point becomes clear. Last time around, the lowest tariff was Rs 10.90 and that tariff kicked up a huge debate on whether the developers were foolhardy and if they actually hoped to get funding from banks.

What is worthy of note is that the prices quoted in this round are lower than the prices at which electricity is sometimes traded on the energy exchanges. And, solar has beaten diesel power squarely, though purely in terms of cost.

What happened in the meantime that the tariffs should fall so steeply? Presumably, it is the precipitous fall in the prices of solar modules — panels containing silicon cells that generate electricity when sunlight falls on them.

A year back, when the Batch I bidding was happening, solar modules were sold for $1.70 a watt. Now, there are companies that are offering the same at 90 cents. Due to advancements in technology, material use is coming down and efficiency levels – a measure of how much of sun's energy falling on the panel is converted into electricity – are on the rise.

A further fall in module prices is anticipated and solar power is very likely to get still cheaper.

Lowest rates at power generation bid

2011-12-09T03:38:00.002+05:30

A bidding for power generation kindled hopes of generating solar energy worth at least Rs 4,000 crore. What’s more, it has triggered a fall in rates, according to an official associated with the development.

Aggression was the key word at the bidding process on Friday for the 350-Mw photovoltaics-based solar projects under the second batch of the first phase of the National Solar Mission. The result was encouraging: the lowest bid submitted (by Solar Director) was for Rs 7.94 per unit, while the highest (Green Infra) was Rs 9.39. This, when Rs 15 per unit is the Central Electricity Regulatory Commission’s approved price.

The bids were made before NTPC Vidyut Vyapar Nigam (NVVN), the power trading arm of National Thermal Power Corporation (which was nominated to handle the first phase too).

The developers would sell power to NVVN at this rate for the next 25 years. The government has targeted the selection of grid-connected solar PV projects up to 350 Mw under Batch-2 in 2011-12.

An NVVN official said nearly 400 bidders had submitted request for qualification. Of them, about 160 were shortlisted. They were the one’s who submitted their request for on Friday’s proposal (financial) bid, he told Business Standard.

The official said the fall of rates were largely due to the availability of highly efficient and cheaper technology.

Power analyst D Radhakrishna said NVVN must be saving around Rs 1 crore per hour over last year’s offer and around half of the tariff proposed. “States will now need to revisit the already approved tariff.”

Spot power rates zoom as coal stations face dwindling stocks

2011-12-02T06:20:00.000+05:30

Rates go up Rs 5/unit in South, Rs 4 in the rest of the country

Coal shortage is beginning to reflect in the spot electricity rates, which have risen steadily to an average of around Rs 5 per unit in the Southern region and close to Rs 4 per unit in the rest of the country.

Tuesday's peak electricity rates on the IEX — the country's largest power exchange — were recorded at Rs 9 in the South and close to Rs 6 in the other parts of the country, as coal supplies to the sector, manifested in terms of the fuel stocks at key coal-fired stations, are slipping again after a mild recovery in the middle of last month.

Government estimates suggest a cumulative generation loss of over 5 billion units during the first seven months of the current fiscal. This was mainly on account of the inadequate availability of coal, which is beginning to show up in the steadily climbing spot power rates. Latest estimates released suggest that nine stations are left with a day's stock or less.Incidentally, the data for November 20 – the latest date for which the coal stock position has been made available – show that the coal stock position is the worst since the beginning of last month. While excessive rains in Coal India Ltd's coal fields and workers' strike at Singareni Collieries were largely responsible for triggering the recent coal shortage situation, law and order problems in the Central Coalfields Ltd and Mahanadi Coalfields Ltd, inadequate crushing capacity at mines and less transportation of coal from mines to railway sidings have aggravated the problem.

The worsening fuel position comes after a brief blip in the middle of last month, when coal stocks showed signs of recovering at power stations. This was at a time when the Coal Ministry had claimed that coal companies had been asked to step up despatches to major thermal stations.

According to the latest data, stations with less than a week's coal stock have risen to a record 52, up from 36 in the beginning of last month. Also, a total of 32 key thermal power stations in the country were operating with coal stocks of less than four days, out of the 86 major thermal stations monitored for their coal stock position.

The 52 stations that have less than a week's stock add up to a cumulative capacity of well over two-thirds of the country's total installed coal-fired capacity of 99,503 MW.

Thermal stations are normally expected to hold coal stocks of between 15 and 30 days, depending on the location of the project. While pithead stations are expected to hold stocks of 15 days or more, stations located away from the mine are expected to hold coal stocks for 21 to 30 days.

NTPC Ltd said it is ensuring that stocks are “comfortable” at its stations by juggling around fuel from various sources, including imported coal and fuel from several domestic coal fields. Estimates suggest that NTPC's Singrauli and Kahalgaon stations had stocks of about 7,000 tonnes each as on November 20, against a requirement of 31,600 tonnes and 52,300 tonnes respectively.

The 3,260-MW Vindhyachal station had extremely low stocks, with higher generation being cited as the key reason.

Two months on, Montek letter to PM on power crisis unanswered

2011-12-02T06:19:00.000+05:30

The power sector is in distress and needs intervention by the government on an urgent basis, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said in a letter to Prime Minister Manmohan Singh more than two months ago, but there is no clarity yet on when Singh will take a call over the issue. The prime minister's proposed meet on the power sector has already been deferred over half a dozen times.

Ahluwalia's September 17 letter llisted eight issues in the power sector which need urgent resolution and would involve participation of state governments, central ministries and the Reserve Bank. What is more significant is that the exercise was undertaken by the deputy chairman at the PM’s behest. Singh has convened meeting more than half a dozen times to discuss power sector issues but every time it was canceled at the last moment. The last time, the meeting was scheduled on Monday.

Specifically, Ahluwalia has drawn Singh's attention to issues, such as falling coal availability to generating stations, absence of level playing field for plants using blended coal, viability of plants based on imported coal due to lack of provision for tariff revision, the growing risk of bank loans drying for setting up power plants as a fall-out of discoms' mounting losses. Montek has warned that private investors could turn away from the power sector if these issues are not resolved soon.

Following a recent directive from the Reserve Bank, banks have stopped lending to discoms. Now there is risk of banks turning wary of lending to power generation projects. Ahluwalia said: “Since banks' exposure to the distribution sector is part of the total exposure to the power sector, the expanded exposure to distribution will affect bank lending for setting up generation capacity. This is also sending signals to private producers that returns in this sector may not be good and this will force reconsideration of investment decisions.”

This problem has been brewing for some time but now it has reached a 'tipping point', with discoms' combined losses crossing R1.5 lakh crore. “Distribution companies must embark on a credible programme of reform. Some of the accumulated loss will still have to be written off, or drastically restructured, since even improved performance in future will not cover servicing the backlog on commercial terms. Such a programme will be credible only if its is endorsed by the state governments which will have to take some of the burden of the debt write-off.

“Since it will take some time to do that, some interim arrangement may be necessary for the rest of the current financial year, so banks do not choke credit suddenly. UP and Rajasthan have written to us this could be a problem,” Ahluwalia added.

“Banks are also under more intense scrutiny to protect the quality of their balance sheets. Many international investment banks have commented adversely on the quality of Indian bank balance sheets because of exposure to the power sector.”

The deputy chairman of the Plan Panel said: “These problems can only be resolved through coordinated action involving the ministry of power, the Planning Commission and also the RBI, which as the banking regulator, may have to engage in some regulatory forbearance.”

Ahluwalia has warned that overall power generation could get seriously impacted in coming months if coal supply issues are not sorted out soon. He has suggested that a review be undertaken to find out what are the factors holding back CIL from meeting coal production target.

'Nuclear energy remains a very attractive option'

2011-12-02T06:18:00.002+05:30

Bernard Bigot, head of CEA, the atomic and alternative energy body for France, and also the head of the country’s Atomic Energy Commission, says nuclear power is a sensible option and safety a priority. Edited excerpts of a talk with Sanjay Jog:

The Fukushima accident has forced nuclear countries to review safety applications and carry out necessary modifications. What is your view on this?

We welcome this review. Nuclear safety is of utmost importance and we should always take into account the feedback experience to improve safety in the most efficient way. Various initiatives have been launched, at international and national levels. In the case of France, the French Safety Authority, ASN, have requested from the operators complementary safety assessments for all existing plants and facilities, as well as for those under construction. The ASN report will be made available to the public at the beginning of next year. The initial assessment from operators is already available to the public.

Germany, an importer of energy, has decided to remove nuclear power from its energy mix in the near future, while other countries have confirmed their intention to continue down the nuclear road. Has Fukushima impacted the nuclear renaissance?

Undoubtedly, Fukushima has slowed the construction pace of new plants. However, the context remains the same — soaring energy demand, depletion of natural resources, global warming. To face these growing challenges, nuclear energy remains a very attractive energy option, provided safety is the top priority, as reminded by the Fukushima accident.

AREVA (of France) is negotiating with Nuclear Power Corporation for supply of two evolutionary pressurised reactors (EPRs) of 1,650 Mw for the Jaitapur project. Critics are raising objections against EPR safety.

The EPR reactor, an AREVA product, is based on an evolutionary technology. It is derived from well tested and well proven technologies, namely the French N4 and German Konvoi reactors, which have been operating successfully for many years in France and Germany. The EPR is derived from these two reactor concepts, with enhanced safety measures, to integrate the feedback experience of the Three Misle Island and Chernobyl accidents. The EPR is the most advanced design as far as safety is concerned.

After Fukushima, AREVA has revisited the safety applications of EPRs as directed by the French regulator. What are the major modifications suggested and implemented by AREVA?

No major modification was suggested by the reviewers. The EPR was clearly conceived to avoid the occurrence of any accident. As a result, the EPR reactor contains state of the art safety measures. The French Safety Authority has asked for complementary safety assessments. This process is ongoing. We are awaiting the final results of these assessments, which should be known very soon, and we shall share these with the Indian authorities.

What is your view on the recently released civil nuclear liability rules by the Government of India?

We are planning to work within the framework of these rules. Nevertheless, we will have to wait for final version. We understand that they have to be placed before the Indian parliament.

What is the present status of the protocol signed between CEA and the Atomic Energy Commission of India in 2002?

The aim of the Protocol signed in 2002 between CEA and AEC, which was renewed in 2007 between CEA and Department of Atomic Energy, was to establish a structure for the coordination of our bilateral cooperation programs. After signing of the 2008 inter-governmental agreement, this memorandum of understanding was replaced by a framework agreement signed between CEA and DAE during the French president’s visit to India in 2010. The Joint Coordinated Committee set up by this agreement offers the possibility to review annually our cooperation, with the aim of giving it more impetus.

AP Transco to bring down transmission losses

2011-12-02T06:17:00.002+05:30

AP Transco has outlined plans to bring down transmission losses further to 4.1 per cent and complete the construction of 36 extra high-tension (EHT) sub-stations of 220 kV and 132 kV capacities in the State by March.

This move is aimed at meeting the growing demand and providing better quality of power supply to consumers.

According to a statement from the AP Energy Coordination Cell, Andhra Pradesh Electricity Regulatory Commission (APERC) today approval the construction of five more EHT (132 kV) sub-stations with an outlay of Rs 95 crore.

This is part of AP Transco efforts to strengthen the transmission network over the next four years with an investment outlay of Rs 6,000 crore on the transmission network alone. The Discoms are planning to take up construction of 33/11 kV sub-stations.

Mr Ajay Jain, Chairman and Managing Director of AP Transco, said augmentation of power transformers in various EHT sub-stations should be completed within the scheduled period. The officials informed that capacity around 1,100 MVA out of targeted 2,000 MVA has been completed and the remaining will be implemented by March 2012.

A high-level meeting attended by officials resolved that the power utility has to continue its sustained efforts to reduce transmission losses to 4.1 per cent as targeted by APERC as against the present transmission losses of 4.18 per cent. Mr Jain said that AP Transco had the lowest transmission losses and is focussing on bringing it down further.

During October 2011, the State experienced highest power demand of 286 million units a day.

National Bio Energy Mission soon: Farooq

2011-12-02T06:16:00.002+05:30

A National Bio Energy Mission is being developed to push sustainable development of the renewable energy sector, Mr Farooq Abdullah, Union Minister for New and Renewable Energy (MNRE), said here on Tuesday. He was addressing the Bio Energy summit organised by Confederation of Indian Industries (CII).

“Grid parity among States is not equal and connectivity to remote locations is a major issue. The Ministry wants industry to bring innovative new technologies that would empower rural areas,” he said.

Mr G.B. Pradhan, Secretary, MNRE, said the most critical aspect in promoting bio energy projects was the associated business model, which should be sustainable. Mr K Krishnan, Chairman, CII Task Force on Bio-Energy, pointed to hybrid solutions that combine bio energy with solar, wind and hydro as promising sustainable solutions.

The CII recommended rationalising the pricing of fuels and tariffs to reflect the economic cost of supply, reduce cross subsidies and flexibility to capture changing fuel prices in a competitive market.

Captive coal block owners may get to sell surplus to Coal India

2011-11-27T11:59:00.000+05:30

The prime minister is set to consider a proposal to allow owners of captive coal blocks to sell excess production to state-run Coal India, a move being opposed by the coal ministry.

As per the proposal mooted by the Planning Commission, three quarters of the revenue from sale of surplus coal to Coal India at notified prices would go to the exchequer while the rest would be incentive for the mining company.

The proposal will be taken up by Prime Minister Manmohan Singh on Monday when he meets coal and power secretaries along with top Commission officials to take stock of the sectors and discuss issues related to critical coal supply to power projects, future of imported coal-based projects and the financial health of distribution companies.

A senior Planning Commission official said the move could, to an extent, help tackle the problem of widening coal deficit and reduce dependence on coal imports. Coal accounts for over 50% of the country's power generation capacity. Its deficit in the country is likely to grow to 137 million tonne by this the end of the fiscal.

Of 89 thermal projects in the country, 32 have coal to run for less than four days, as against the normative requirement of 22 days. Another 20 plants have just seven days' stock.

Mining companies say the move could bring much-needed reforms in the coal and power sectors. The coal ministry, however, is against the proposal.

A senior coal ministry official said commercial mining by captive block owners would be illegal as there is no provision for it in the Coal Mines Nationalisation Act of 1973. The ministry has also warned that such a move could lead to captive coal block owners diverting coal meant for end-use projects to coal companies.

Of the 193 blocks allocated so far to cement, power and steel companies, only 28 have actually started production. "We are afraid that companies might stop their end use projects and make money by selling to coal to coal companies.

Also, the blocks were given to the companies free of charge and they should not be allowed to make money on national asset," the official said.

"Blocks have reserves matching with their end use projects. If part of reserves are diverted for other purposes, block holders would again turn to government for more coal," he said.

An executive of private power producer Adani Power said implementation of the proposal could help companies save foreign exchange spent on importing coal. A senior executive of Lanco said, "Increasing coal production in the country should be the main concern. Ways to do it can be deliberated upon."

Earlier, a committee headed by Ashok Chawla on natural resources had also recommended allowing surplus coal from captive mines to be competitively sold to registered end users via a platform created by Coal India.

The coal ministry is also in the process of drafting a policy on use of surplus coal and coal rejects by captive coal block owners.

EGoM meet on UMPP bidding norms in Orissa on December 5

2011-11-27T11:58:00.001+05:30

The EGoM is likely to meet on December 5 and approve certain changes in the bidding norms for the upcoming UMPP in Orissa and Chhattisgarh.

"The meeting is on December 5, they are likely to discuss the changes to be made in the bidding documents for Orissa and Chhattisgarh UMPPs," a power ministry official said. The new bidding norms are likely to accommodate fuel availability risk, price risk due to change in prices of the fuel in coal-exporting countries, etc.

MoEF defers nod to Hinduja coal power project in AP

2011-11-27T11:57:00.000+05:30

Hinduja National Power Corporation (HNPC), which has revived its 1,040 mw coal-fired power project near Visakhapatnam in Andhra Pradesh after a gap of more than a decade, has suffered a setback with the Ministry of Environment and Forests (MoEF) deciding to defer the coastal regulation zone (CRZ) approvals to the project following alleged violations by the company.

This makes Hindujas the third independent power producer in Andhra Pradesh to hit snags after the ministry acting against the power projects of Nagarjuna Construction Company (NCC) and East Coast Energy, owing to violent agitations by the local farmers and fishermen.

The expert appraisal committee (EAC) of the environment ministry dealing with CRZ matters, at its meeting held from September 21-23, has taken on record the complaints that the project is proposed in mud flats/CRZ area. The committee preferred a study into the possible adverse impact to the marine environment, arising out of industrial discharges, if any, from the project.

The environment clearance (EC) to this project was issued in 1996. But the EAC has recommended formation of a sub-committee that can look into the alleged adverse environmental impacts being alleged by the social activists and submit a report. "In view of the foregoing observations, the committee (EAC) deferred the proposal (on CRZ clearances).

The proposal shall be reconsidered after the above observations are addressed and submitted," said EAC in its minutes submitted to the MoEF.

Downplaying the impact of this deferment on the project, HNPC managing director Ashok Puri said the CRZ and environment clearances for the main project were already in place and the construction work was progressing. "The CRZ clearances now being sought are for a seawater intake-outfall system and rail corridor for coal transportation. The sub-committee of EAC has completed its study and submitted recommendations.

We are changing our designs by incorporating these recommendations and we expect the EAC to consider our request for CRZ clearances at its meeting scheduled for December," he told ET.

The 1,040-mw project, originally proposed by the Hinduja Group in 1991, was one of the eight power projects that was offered a counter-guarantee by the central government in 1992. However, the project in a joint venture first with Edison Mission Energy and later with the UK's National Power never got off the ground, owing to certain issues pertaining to land and power tariff.

The project also had disputes pertaining to fuel supply arrangement with the public sector giant Coal India. Subsequently, the counter guarantees lapsed.

Though the counter guarantees were revived during the NDA regime in 1999, the Congress-led government in AP during 2004 scrapped the power purchase agreement (PPA) with the company, citing high cost of power. "The PPA was not extended beyond September 2001 and the state government is currently taking a comprehensive view on a fresh PPA with the company," said Ajay Jain, CMD of AP Transmission Corporation.

This is the first power project of the London-based Hinduja, which has ambitious plans to create a power generation capacity of over 10,000 mw over the next 10 years at an expected investment of $10 billion across India. Alleging several violations by the company, the social activists were insisting on fresh public hearings and cumulative environmental impact assessment on the project.

EAS Sarma, former Union power secretary, said: "Hinduja's project was never subject to any meaningful public hearing and public consultation process. We have requested MoEF to order a public hearing to be conducted now on the basis of a cumulative environmental impact assessment (EIA) study as the ground conditions have vastly changed. Moreover, Hinduja has purchased a significant extent of additional land, over and above the government/ Wakf land already obtained from the government. A detailed EIA will therefore be mandatory."

Pointing out that the EC granted to Hinduja's project lapsed in 2001 as the company failed to take up work at the site within the statutory period of validity, Sarma said, adding that the ministry erroneously validated the lapsed EC based on a misleading report, which stated that the construction had started before 2001.

Huge losses due to under-recoveries: Discoms

2011-11-27T11:56:00.000+05:30

Reliance Infrastructure-backed discoms, which were served notices by Delhi's power regulator today, said they were incuring huge loses owing to under- recoveries of over Rs 6,000 crore.

"The current financial situation of BSES is owing to lack of cost-reflective tariff for last several years. This has lead to huge under-recoveries of more than Rs. 6000 crores," a BSES spokesman said.

He said this under-recoveries has also been recognized by Delhi Electricity Regulatory Commission in its latest tariff order.

"The current tariff, even after the increase, doesn't even cover the cost of power purchase. There is still a shortfall of around Rs 2 per unit. Power is bought from PSUs like NTPC, NHPC and Delhi generating stations," the statement said.

The BSES will make a detailed submission to DERC in response to the notice.

BRPL and BYPL were issued notices following a communication from Delhi government which asked the regulator to take urgent steps to ensure uninterrupted power supply in Delhi as the two discoms owe around Rs 3,000 crore to a number of generation and transmission companies.

The companies have been told to file replies by December 2.

DERC Secretary Jayashree Raghuraman said a number of regulatory notices have been issued by various generation and transmission companies stating that power supply to the two discoms could be curtailed unless large outstanding dues are cleared by them.

CERC sets up fund to promote renewable energy projects

2011-11-27T11:54:00.002+05:30

The Central Electricity Regulatory Commission (CERC) has set up a renewable energy fund (REF) to promote projects in India. This fund is aimed at compensating states if they fail to meet the target given under their schedule of renewable energy (RE) projects. All RE projects are required to provide a schedule of generation to CERC from 2012.

Officials explained REF would bear charges imposed on states hosting RE projects that fail to comply with their supply commitments.At present, only wind energy projects without sale arrangements with states are required to give declarations forecasting their generation to state load despatch centres. CERC allows 30 per cent deviation in the supply commitments, beyond which penalties are levied or incentives offered. The Electricity Act, 2003, and the National Action Plan on Climate Change (NAPCC) provide a roadmap for increasing the share of RE in total generation capacity. Under this plan, every state has to purchase five per cent of total power requirement from renewable resources like wind, solar or water.

The power purchase obligation is fulfilled by trading of RE receipts, which is a tradable receipt representing a value of one megawatt hour (MwH) of power injected into the grid through renewable resources. From 532 RE certificates issued in March, total issuances till date have gone up to 352,0260. Under the proposed fund, deviation beyond 30 per cent is proposed to be shared among all state distribution companies in a ratio of their peak demand met in the previous month. The states, in turn, would be compensated for these charges out of the renewable regulatory fund. Explaining this, an official said if a state proposed to provide 50 Mw of RE power but could supply only 40 Mw, then the state in which the project is located have to draw 10 Mw power from central pool and supply. This is termed as unscheduled interchange and is charged at a higher rate.

This extra cost will be borne by all state distribution companies, which would be compensated by REF. The logic is that some states like Gujarat, Rajasthan or Tamil Nadu are preferred to set up RE projects due to abundance of energy resources like wind or water or sunlight. Thus, the contribution of that particular state in the central pool becomes higher, whether or not it is prepared to commit such supply.

“In case there is short supply, it has to make good the shortfall by drawing power from the central pool. Since the state is naturally endowed with such a resource, it is unfair to expect that it compensates for individual projects’ shortfall. Therefore, such a compensation plan is worked out to promote power projects in states, where there is natural endowment of resources,” they added.

This facility for REF will be applicable for wind energy farms with collective capacity of 10 Mw and above, at connection points of 33 Kv and above. This is irrespective of whether the project is connected to the transmission or distribution system of the state or to the inter-state transmission system, and who have not signed any power purchase agreement with states or union territories. Similarly, for solar generating plants, the cutoff for REF eligibility will be a capacity of 5 Mw.

Power Finance Corp sets up monitoring cell to keep watch on loan-book

2011-11-27T11:53:00.002+05:30

In the wake up difficulties being faced by the energy sector, state-run Power Finance Corp (PFC) has set up a project monitoring cell to keep an eye on the stressed loan portfolio, a top official said today.

"Though the idea of monitoring cell was conceived in 2009, we have recently set up a separate cell for this to better check the progress of the projects to which we have lent money," the official told PTI here.

Monitoring of the projects would be in a broader sense to see the debt servicing capacity of borrowers, he said. "We will do monitoring in financial terms, which will be different from a typical project monitoring unit that emphasises on execution. We will keep an eye on the critical milestones set by the company and see whether they are met or not."

Currently, financial institutions are worried about the advances extended to electricity boards of Tamil Nadu, UP, Rajasthan, Bihar, Haryana, Madhya Pradesh and Punjab, which according to rating agency Crisil, are the most vulnerable.

As per Crisil, losses of discoms rose 24 per cent to Rs 27,500 crore between 2006-07 and 2009-10, which could have risen to Rs 35,000-Rs 40,000 crore last fiscal, mainly because of problems in utilities, which are not free to revise the already low tariffs. Also, many green-field projects are stuck due to land issues and coal linkage problems.

"Many of the green-field projects are stuck due to coal linkage and land acquisition related issues. Though we don't have any control over these issues, we will try to minimise the risk by diversifying our portfolio," he said.

PFC posted net profit of Rs 419 crore in the second quarter, down 40 per cent from 700.8 crore in the year-ago quarter on the back of forex losses, despite 24 per cent rise in income to Rs 3,142 crore from Rs 2,531 crore.

Gross NPA rose 0.22 per cent in the first half of this fiscal from 0.02 per cent in the same period last year. Net NPA rose to 0.19 per cent during the period from 0.01 per cent a year ago.

'On a $7-bn order book & $5-bn top line, $2 billion debt is no big deal'

2011-11-27T11:52:00.000+05:30

The stock price of wind power equipment maker Suzlon Energy fell almost 40 per cent over a week to hit a new low this Monday. There has been a buzz in the market that the company’s promoters have been selling stake to address margin calls to bankers. The company’s chairman and managing director, Tulsi Tanti, discusses these issues with Katya B Naidu, Vishal Chhabria & Arijit Barman. Edited excerpts:

Suzlon promoters have sold as much as two per cent of their promoter stake in the open market recently. What was the reason behind this move?

We have an end-to-end business model, we have to invest on land bank, power evacuation and infrastructure like sub-stations and lines. The promoters are using the stake sale money to set-up this infrastructure, exclusively for Suzlon. We are getting many orders, if we do not build this, we will be unable to grow.We have targeted 30-40 per cent growth in the next financial year.

But the market perception is the sale was the due to the pledges shares coming under stress due to the fall in share price… There seems to be a crisis of confidence?

The market is going on perception rather than on facts. We have not borrowed money against our pledged shares. If we had done that, we would have to pay margin money on mark to mark losses. We have pledged 80 per cent of our stock as a secondary security, which is not linked to the stock price. That's because, last financial year when we re-financed our debt, we were not making profits. Unfortunately, the market reaction was negative because of overall sentiment of the economy and the state of the power sector.

There is a buzz that lenders have stopped giving additional money to the company, So is there a cash flow problem?

That is again a misconception. Last month, we had a meeting with our bankers, and they approved an increase in working capital loans. They have done this on the back of the fact that we have been posting profits in the last three quarters, and our $7 billion (Rs 32,454 crore) orderbook. Banks understand that this volume can generate more cash. When we have a $7 billion orderbook and $5 billion topline, $2 billion in debt is not a big deal.

Your debt of around over Rs 9,000 crore is still huge concern How you plan to turnaround the company, and repay this debt?

Around Rs 6000 crore of it is working capital debt, and Rs 4000 crore is long-term debt, which is to be re-paid over 5-7 years. That means the total is $2 billion. In the next 12 months, our repayment obligation is $750 million. Out of that we have to repay $550 million in Foreign Currency Convertible Bonds and the balance is debt.

Now where will that come from? We have raised around $200 million from Hansen sale. Next six months we will generate $200 million in cash. We are also recovering $200 million in receivables from a single customer, in the next six months. So that will reduce some working capital requirements. Added to that, we will generate $200 million in cash in the next six months. On the top of that, we are selling a non-core asset, a wind farm, which is will bring in around $50 million. That will take care of the debt. Today, the net debt to equity ratio is 1.6 times, which will go down to 1.4 by the end of the year. By March 2013, it will be be at 1:1, and that too without raising any equity.

But with large part of your debt is rupee debt. Isn’t the interest burden now getting excessive? Last few quarters, the interest costs have gone up.

As I told you, large part of the rupee debt is long term. I do not have immediate repayment obligation on them. Last quarter we have seen interest cost corrections. It was debited in the last quarter. Because of that, temporarily interest cost goes up. In the current quarter, it will go down.
Are you seeing any improvement in prices of wind power equipment?

In the last six months in the Indian market, there is has been a 4-5 per cent improvement in price realisation. One of the reasons is reduction in commodity prices, mainly steel. We also got our energy efficient 9X product into the market. The customer will get that benefit but we should get at least five per cent benefit. Our supply chain is in India, so we are not impacted by imports. But we are exporting to the US and Brazil, where I am getting a 10-15 per cent better price realisations better because of currency depreciation in India.

That will impact your margins too?

In the last six months, we have seen major corrections in the gross profit margin. We have brought down material costs through value engineering, technology and aggressive sourcing. We have introduced new product which gives better realisations so we have enhanced the delta. With lower volume now we can breakeven. Our breakeven level is 3,000 mw. Till then, we do not generate cash. After 3,000 Mw a year with every Mw, we generate gets Rs 2 crore cash profit. If the price goes up, that increases as well. We have reduced fixed cost as well. We brought down the breakeven levels. That is giving very good efficiency level. By just 1,000 Mw addition, we can generate 2,000 core. This trend can sustain for two years.

How do you think the orderbook will grow in India? Is there good intake of orders?

A lot of global financial investors are interested in investing in Indian wind assets. Goldman Sachs already stated its plans. There are four other large international funds, which are in discussions with us to invest in the sector, and hence are likely to become our customers. Instead of putting money in equity, these funds are going for hardcore assets, which will give them annuity income for the next 20 years. They are looking at Rupee assets and they have a currency advantage, and power price will only go up. Its a good idea to put money in the renewable power sector, than in the stock markets.

The conventional power sector in India is facing issues with regards to supply of fuels like coal and gas. Will that help the renewable energy sector?

The economics of fuel-based power has become extremely vulnerable and expensive. Currency has also gone up, making energy more expensive. Wind power has opportunities in this environment. India added 2,200 megawatts of wind energy last year. This year, that grew to 3,000 Mw, and next year it will be at minimum of 4,000 Mw. We will maintain our 50 per cent market share in that.

Carbon credit prices are going down. Will that be a dampner for investors into the space?

Carbon credit market will not affect our business because whenever regulator fixes tariffs, it is based on interest costs, available revenues and capital expenditure. In India, investors in the wind power should get at least 40 per cent equity return. If carbon credit earnings are out, price will be corrected. Recently, CERC raised the tariffs for wind power.

How will the international wind market grow in the US and Europe?

Wind power market in the US is very large and will continue to be for the next two decades. In 2012, the US is expected to set-up wind power of around 10,000 to 12,000 megawatts. As the wind power policy is expiring by then, there are a lot of projects in the pipeline which want to encash the benefits. Even if there is no incentive after the policy expires (in 2012), the market in the US will continue at 6,000 megawatts. Wind assets are becoming competitive, especially in larger sizes.

There is debt crisis in the Eurozone. Do you expect orders from that market?

The debt crisis it not affecting my customers who are large utility companies. They have a daily cash revenue on their books and wind assets are a part of their strategic long-term plan. Wind power has become cheaper as there is no fuel escalation like in other fuels. Wind power is no more tax, depreciation or subsidy driven. It has become cost competitive, and we are very bullish.

Suzlon has talked about acquiring small technology companies. Have you found any such targets?

We are looking at boutique engineering groups, which will help us with next generation technology. We are working on it but there has been no progress on that.

Essar Energy synchronises first unit of Salaya-I power project with grid

2011-11-27T11:51:00.000+05:30

Essar Energy plc, the India-focused integrated energy company, on Thursday announced that the first of two 600 megawatt (MW) units at its Salaya-I power generation project in Jamnagar district of Gujarat has been synchronised with the transmission grid.

The coal-fired Salaya-I project, with a total of 1,200 MW capacity, is one of three power plants due to be fully commissioned by March 2012.

The others are the 1,200 MW Mahan-I project and the 510 MW Vadinar P2 project, the company said in a statement here.

Together, these three projects will add 2,910 MW to the existing capacity of 1,600 MW and take Essar Energy's total installed capacity to 4,510 MW.

A further seven power projects are under construction which will take the total to 9,670 MW by the first quarter of 2014, Mr Naresh Nayyar, CEO, Essar Energy, said.

"The synchronisation of unit 1 at Salaya, together with the others due in the coming months, will almost triple our power generation capacity. The three generation projects, now nearing completion, will transform cash flows and profitability within our power business,” he added.

Work is in progress to prepare unit 2 at Salaya-I, also of 600 MW capacity, for synchronisation with the grid.

Power cuts increase, but NTPC struggles to sell to utilities

2011-11-27T11:50:00.000+05:30

It's a paradox of sorts that at a time when most States are resorting to varying levels of load shedding, power major NTPC Ltd is increasingly finding it difficult to sell electricity to distribution utilities.

The country's largest power utility, and one of the most cost-efficient in terms of delivered electricity tariffs, has seen an estimated 10 billion units of electricity going unsold in the first seven months of this fiscal.

Last year too, around 13 billion units generated by the state-owned utility went unsold as distribution utilities failed to draw power according to the schedule declared by them.

Though the electricity going unsold is just a fraction of NTPC's total generation (around 221 billion units last fiscal), the worrying aspect is the growing tendency among distribution utilities to go in for load shedding rather than shell out a higher amount of money for buying expensive power from projects using liquid fuel or those where higher amounts of imported coal blending aretaking place.

While liquid fuel generation is evidently expensive, blending of imported coal too jacks up the electricity tariffs as such coal is relatively more expensive than domestic coal.

Tariff revision

Since fuel costs are pass-through for nearly all of NTPC's projects, as the blending ratio increases, the financial hit on distribution utilities and State Electricity Boards (SEBs) is higher, unless they can pass it on to the consumers.

As most SEBs have failed to revise tariffs to the extent required for passing on the actual costs faced by them, they are struggling to cope with the cost increases being passed on to them by the generators. The trend, warn experts, could only get worse , as the level of blending of imported coal is only scheduled to increase as domestic coal production has failed to keep pace with demand.

As a thumb rule, around 75 per cent of cost of power for a thermal station is on account of coal. Back-of-the-envelope calculations show that against a projected requirement of 742 million tonnes of thermal coal for fuelling coal-fired stations by the end of the Twelfth Plan, only 527 million tonnes of domestic coal are likely to be available even in the best-case scenario. This translates into a shortfall of 215 million tonnes or 29 per cent of the country's total requirement projected by 2017.

Cost implications

To get an idea of the cost implications of imported coal, NTPC's Farakka station, where the power generator is currently blending 20 per cent imported coal — the highest in all its stations, has already seen just variable component surge to Rs 2.79 per unit of electricity produced in 2010-11.

This has pushed up tariffs to well over Rs 3 per unit. Farakka's variable cost is much higher than the NTPC's average tariff of Rs 2.63 across all its 28 stations during the financial year.

NTPC is currently blending imported coal ranging between 7 and 20 per cent across its stations. NTPC's average imported coal blending during 2010-11 was close to 8 per cent in comparison to about 6.5 per cent in the previous year. This could be much higher this year, as the domestic coal shortages are increasing by the day.

Ministry proposes 5% tariff on Chinese equipment

2011-11-27T11:48:00.000+05:30

Proposal circulated to ministries of finance, commerce and heavy industries, and Plan panel on Wednesday

To discourage the purchase of cheap power equipment from China and to provide a level playing field to domestic manufacturers, the power ministry has proposed a 5% tariff on such imports from the neighbour.

The plan may face flak from key ministries.

The proposal, made in a draft note, was circulated to the ministries of finance, commerce and heavy industries, and the Planning Commission for comments on Wednesday.

“It is not a good proposal,” said a commerce ministry official. “They are going back to what the committee of secretaries (CoS) said last July... We are not agreeing to the structure of their proposal.”

An official in the department of heavy industries, too, said the draft note favours the CoS’ recommendations and not the suggestions of the Arun Maira committee. Heavy industries minister Praful Patel earlier this month said the ministry supported “the recommendations of the Maira committee”.

Planning Commission member Arun Maira had recommended a 10% customs duty and a 4% special additional duty on power generation equipment imported from China to strike a balance between protecting local manufacturers and the need to import equipment to boost power production.

The CoS recommended a 5% import duty on power equipment imports from China apart from a 10% countervailing duty and a 4% special additional duty. But under this plan, importers would have to pay only a 9% duty in most cases as the countervailing duty (CVD) would not be applicable.

“CVD is to counter excise duty on power equipment. But as minimal excise duty is imposed on power equipment, hence, this virtually means CVD is not applicable on such imports,” the heavy industries ministry official said, adding that the government plans to implement the CoS’ proposal before the Union budget for the next fiscal year.

“The power ministry in the draft has also said that it will be applicable from the day the cabinet passes the proposal,” said the official. “The draft should go to the cabinet in a month’s time.”

Another heavy industries ministry official said the ministry broadly agrees with the draft note, but is yet to discuss it in detail. A power ministry official said the proposal is not meant for orders already placed. “One can’t have a change in policy with retrospective effect, but only prospectively,” he said on condition of anonymity.

Domestic firms including Bharat Heavy Electricals Ltd and Larsen and Toubro Ltd have been lobbying with the government to limit imports of cheap equipment from China. Heavy industries minister Patel, after a meeting on 3 November with representatives of various ministries and these companies to discuss the matter, said, “Everybody agreed that there is a disadvantage to local manufacturers. We are proposing its (custom levies) roll-out in 2012.”

At present, a 5% duty is levied on equipment imported for power projects with capacities less than 1,000 megawatts (MW). Equipment imports under the mega power policy for thermal projects of 1,000MW and above attract zero duty.

The power ministry was not in favour of such a move until after the start of the 12th Five-Year Plan period (2012-17).

The CoS last year agreed to impose the tariffs, but could not get a final clearance from the government.

On 8 November, commerce secretary Rahul Khullar said a compromise formula had to be worked out as there were differences among departments on the issue.

Sambitosh Mohapatra, executive director, PricewaterhouseCoopers, said the government has to strike a balance between its objective of achieving 75,000-100,000MW power generation capacity in the 12th Plan and the concerns of domestic manufacturers. “The government has to look at its larger objective of power generation capacity,” he said. “While it beefs up the domestic manufacturing capacity, it still has to depend on imports to meet the 12th Plan target. So the increase in import duty can be done in a phased manner.”

Power utilities place orders overseas largely because of the inability of local manufacturers to meet growing demand.

Chinese imports are relatively cheaper because equipment makers from that country benefit from low interest rates and an undervalued currency. Undervaluing the currency makes exports cheaper and increases the demand of products.

India’s move to curb Chinese imports comes at a time when the two countries have been discussing ways to double bilateral trade to $100 billion by 2015 and to plug a yawning trade gap in China’s favour. Indian exports to China were valued at $19.6 billion in 2010-11 and imports from that country $43.5 billion.

Power companies fail to lift e-auctioned coal

2011-11-27T11:46:00.000+05:30

50 lakh tonnes of coal offered by CIL in October remains unused.

A recent and shocking development in the Indian coal sector has brought planners and bureaucrats face-to-face with the stark policy conundrum afflicting the sector. It also brought to the fore the criticality of coal as an input for key infrastructure industries in the power, steel, sponge iron, cement and fertiliser sectors.

It all began last week when cabinet secretary Ajit Kumar Seth was chairing a high-level meeting on coal shortage. The huddle saw Coal India Ltd (CIL) revealing that power utilities failed to lift even a single tonne from the 50 lakh tonne of e-auction coal the state-owned miner offered it in October.

Such kind of a mute response from the power companies to the coal quantity specially earmarked for them on demand enabled CIL -- the world’s largest coal miner -- to emerge clean in the ongoing tussle with the power ministry over fuel shortage for power plants. The Kolkata-based company had offered the quantity in a one-of-its-kind experiment involving diversion of coal meant for spot sales to the power sector.

The ministry had accused the Maharatna of curtailing supply to power companies and selling coal on e-auction to fetch higher prices. E-auction had to be stopped for a few days to accommodate the diversion experiment which worked as a litmus test for the power sector’s offtake capacity.

“Just that power companies could not lift the offered coal proves that banning e-auction, as has been demanded, is not a solution,” a senior CIL official said on Thursday. “Coal India cannot be held responsible for the power sector’s woes on fuel crunch. We have enough coal to supply to power sector utilities, but they have failed to lift it,” he told Business Standard.

The primary reason for the subdued response by power utilities to e-auction coal is logistical difficulty. As a matter of policy, any coal quantity tied up at e-auction has to be lifted from mine heads, significantly increasing the buyer’s input cost. The cost of transporting coal through road is on an average at least five times higher than Indian Railways’ Rs 125-per-tonne-kilometer charges.

Besides, the quality of coal sold in the spot market is also a suspect, according to experts. “While e-auction coal was offered to us, we did not take part because of concerns on transportation and quality,” said a senior executive from NTPC Ltd, India’s largest power generator. The state-owned energy services provider requires over 160 million tonnes of coal by the end of this fiscal to run 36,000 Mw of its installed power capacity.

The Association of Power Producers said the e-auction offered only an ad-hoc window even as the power industry was looking for a long-term solution for coal shortage. “Also, the increased price of this coal owing to transport is not a pass through for private companies,” pointed out Ashok Khurana, director-general of the industry body. “Only when these two aspects are clear that the power industry will lift coal.”

For the record, the demand for coal in the country has grown at an annual rate exceeding 8.4 per cent over the past five years. The supply, on the other hand, has fallen grossly short of it, registering a dismal annual growth rate of 5.4 per cent during the same period. For the current financial year (2011-12), India’s coal demand is estimated at 696 mt, while a mere 554 mt is likely to be available. That leaves a gap of 142 mt -- to be met through imports.

More than 80 per cent of India’s annual 530 mt of coal production comes from CIL. The 1975-founded company sold around 10 per cent of its 431 mt production through e-auction last fiscal, while 18 per cent of its revenue came from the scheme. For, coal was sold at e-auction at a premium of a whopping 81 per cent over the notified price of Rs 900 per tonne. This compelled the buyers to opt for the costly e-auction coal, thanks to historic shortages.

Despite reporting flat production in 2010-11, the company denies any lag in output. another senior CIL official said it “isn’t the power ministry’s business” to question the company’s production. “They should only ask for supply. We are providing it,” he said. Further, “thanks to evacuation constraints, we have more than 50 mt stock at the moment. But this is prone to catching fire. Thus, increasing production beyond a point will only add to stocks.”

A majority of coal transport in the country occurs through the rail route. The coal ministry had identified two chief reasons for last month’s severe coal crunch: lack of adequate rail connectivity to major coalfields and unavailability of railway rakes. That had brought a third of the total 81 power stations with a capacity of 87,000 Mw on the brink of closure. Adding to the travails were heavy rainfall disrupting transportation and a simmering unrest in Telangana region that supplies coal in a big way.

While CIL requires 200 rakes for daily offtake, the availability is only less than 180. Of these, an average 127 rakes were used for despatch of the material to power utilities in October. The coal ministry has been trying to push rakes availability to 180 for the sector.

As for the planning commission, it has identified another major bottleneck in the movement of coal to end-users: the time taken by the Railways for building critical rail links. Four rail links were identified as critical for the evacuation of coal from CIL’s coalfields during the current Plan period. This included Tori-Shivpur rail link in North Karanpura (Jharkhand), Gopalpur-Jharsuguda (Orissa) in Ib Valley, Baroud-Bijuri in Mand-Raigadh (Chhattisgarh) and Sattupalli-Bhadrachalam link (Andhra Pradesh) in Singareni Collieries Company command area.

The commissioning of these lines was expected to enable movement of 130 mt of coal to end-users, much more than the current domestic shortage of 86 mt. However, none of the links has been commissioned so far. In fact, the Jharkhand government recently rejected forest clearance for the Tori-Shivpur link.

Fund crunch forces Bengal power utility to return coal block

2011-11-27T11:45:00.001+05:30

The Union coal ministry has taken away East Damagoria block from West Bengal Power Development Corporation (WBPDCL) at a time when the company is struggling to source coal. A coal ministry official told FE that the de-allocation was made after the government of West Bengal expressed its inability to develop the block that was allotted to WBPDCL in February 2009.

WBPDCL managing director Krishna Gupta said it was the state government’s decision that the block should be surrendered. “The government of India allotted the block to the state government and the state government transferred it to WBPDCL. So the block was de-allocated as per decisions of the state and the Centre,” Gupta said.

Power department officials said the state didn’t encourage WBPDCL to develop the block since it required huge funds, which the state was unable to bear. WBPDCL was supposed to acquire more than 100 acre and vacate two villages in the Raniganj coalfield area for developing the East Damagoria or Kalyaneswari block. It was also supposed to divert a 132KV line to the coalfield area and also build a road from there to link it to NH2, but nothing has been done since February 2009.

WBPDCL officials said the block had a 30-million-tonne reserve of coking coal, which was not useful to the power company. The government has asked the coal ministry to allot another block in Raniganj area but there has been no development on that as of yet.

WBPDCL is suffering from acute shortage of coal and is maintaining a stock of one to two days only at present. Generally, stocks below of 15 days are termed as critical stock position.

To run in full capacity, WBPDCL requires 55,000 tonne of coal per day but it uses around 50,000- 51,000 tonne per day, officials said. But sourcing that quantity has become difficult these days since ECL has stopped supplies due to non-payment of R600 crore. Besides, the tender it floated in October for importing 3 million tonne of coal over a period of three years has not received any response.

So a captive coal block could have helped the company, but the it is not in a position to make any investment nor is the state government willing to help.

A finance department official said the government instead of surrendering the block could have transferred it to West Bengal State Mineral Development & Trading Agency, which by selling coking coal could have helped the government in getting additional revenue.

According to finance department estimates, the state run power sector would post a loss of R2,400 crore in 2011-2012 against a profit of R400 crore in 2010-2011.

Discoms sever supply deals as tariffs soar

2011-11-27T11:44:00.002+05:30

Power cos meet only 1/3 of coal import targets in current fiscal

High power tariff is forcing distribution companies to surrender secure supply contracts, a domino effect triggered by the rising cost of imported coal and high fixed costs of power projects.

Delhi has surrendered power supply contracts for the next four to five months with six projects of state-run National Thermal power Corporation (NTPC) citing high tariff. According to sources in distribution utilities, tariff from NTPC's Jhajjar project in Haryana touched a high of Rs 13.3 a unit in May and Rs 12.4 a unit in September.

While Delhi power distributor BSES blames tariff rise for the surrender of contracts, an NTPC official said it is the utility's inability to purchase and trim down losses that has forced it to do so.

When asked for a comment, a spokesperson for BSES said, "We have not received any communication in this regard." Ashok Khurana, director-general of Association of Power Producers, said, "All projects post 2009 will face this problem. Rise in international prices of imported coal coupled with resource nationalism has increased the cost of power produced."

"Private players are unable to meet contractual commitments as they are locked in bid prices whereas cost-plus projects have an option of imputing this as variable costs. A solution, therefore, lies in revising contracts and consumer tariffs," he added.

Tariff for NTPC projects is determined on a cost-plus margin basis, which helps the company pass on the burden of fuel price increase to consumers, a facility not available to private companies that have won projects under competitive bidding.

NTPC is set to import 16 million tonne of coal this year, which will account for the 10% imported coal it blends with the domestic input. Blending imported coal, which currently costs about $120 a tonne in the international market, raises power tariff by 30-40 paise a unit.

The power producer had earlier expressed concern over states distribution companies reneging on their purchase commitments. "Surrendering of power by states is a problem, but not a major concern. We will sell the power elsewhere. We would still be paid for the fixed costs," the NTPC official said.

NTPC gets approval to exit ICVL consortium

2011-11-27T11:40:00.000+05:30

The power ministry has approved NTPC Ltd’s proposed exit from International Coal Ventures Pvt. Ltd (ICVL), in a move that could hurt India’s efforts to acquire overseas coal assets.

ICVL was promoted by five state-owned firms two years ago to buy coal mines overseas. While Steel Authority of India Ltd (SAIL) and Coal India Ltd own 28% each of ICVL, NTPC, Rashtriya Ispat Nigam Ltd and NMDC Ltd own 14% each. The 14% share of India’s largest power generation utility in the consortium, which hasn’t managed to close a single purchase, is expected be split proportionately among the remaining partners.

The exit will end the acrimony among the partners that surfaced last year when then steel minister Virbhadra Singh had said that NTPC and Coal India could exit the consortium if they wished to.

ICVL was floated on the coal ministry’s initiative and has an initial equity capital of Rs.3,500 crore and authorized capital of Rs.10,000 crore.

An NTPC spokesperson confirmed that the exit is taking place and that the details will be worked out after “requisite due diligence”.

Coal India continues to be part of the consortium.

A top power ministry official, who spoke on the condition of anonymity, said earlier that it had informed the steel ministry “that NTPC would like to opt out”.

Mint reported on 21 September that ICVL seemed headed for a split with NTPC wanting to exit. NTPC subsequently made a presentation to its parent ministry elaborating on the reasons for this.

According to NTPC, while the power producer needs thermal coal to fuel its power projects back home, ICVL’s other stakeholders are largely interested in metallurgical coal reserves to feed their steel mills. And the thermal coal offered to it does not meet the utility’s technical requirements.

“Our controlling ministry has given its assent to our proposal. We have already received a letter in this regard. Now, only the process part is left. Our share will be proportionately acquired by the remaining partners,” said a senior NTPC executive aware of the development who didn’t want to be identified.

The exit could actually work to the benefit of NTPC, said an expert.

“For NTPC, the development may mean a focused approach in the pursuit of coal resources,” said Dipesh Dipu, director, consulting (mining), at Deloitte Touche Tohmatsu India Pvt. Ltd. “Chasing opportunities on its own and simultaneously being part of a consortium may have led to strategic ambiguity.”

Still, the breakup will pose a challenge to “the efforts of the government to create a sovereign fund like arrangement and create a unified acquisition resource pool in the form of ICVL,” he said.

NTPC’s decision comes at a time when the country is facing its worst coal shortage. India faces a shortage of both metallurgical and thermal coal.

A top ICVL executive who didn’t want to be identified said the company “had received a copy of the (power ministry’s) letter”. This person said the company would discuss what needs to be done with the power utility’s stake. While private Indian firms have been successful in securing coal resources overseas, government-owned entities such as ICVL and NTPC have not been able to do so. The split in ICVL only highlights the challenges involved, Dipu said.

“While government-owned firms have been in the race too it seems the compliance requirement (for) procedures and lack of tolerance to risk-taking has caused them to be slow. Alignment of individual corporate objectives may have been yet another reason for the same,” he added.

NTPC, which generates 8 megawatts (MW) of every 10MW it produces by burning coal, is looking to increase installed capacity from 34,854MW now to 75,000MW by 2017 and 128,000MW by 2032. It needs 160 million tonnes (mt) of coal in fiscal 2012, of which around 16 mt has to be imported. The utility has already placed orders for importing 12 mt of coal and placed a tender on Monday to import another 4 mt.

Govt plans to ban E&Y from power sector

2011-11-20T17:27:00.000+05:30

Move follows CAG report on lapses in award of UMPPs; Power Finance Corp bars audit firm for three years

India’s power ministry is considering not giving any consulting assignments in the power sector to audit and consulting firm Ernst and Young (E&Y) after a report by the government’s auditor pointed to lapses in the award of so-called ultra mega power projects (UMPP), a process in which the firm was involved as a consultant.

Mint has reviewed a copy of the report which also said that state-owned Power Finance Corp. Ltd (PFC), the entity in charge of bidding out the projects, has already barred “the consultant” for three years starting July. The report doesn’t name the audit firm, but it was the only consultant helping PFC bid out the projects in question. An executive at PFC confirmed that the agency has indeed barred E&Y.

Mint’s Utpal Bhaskar says the power ministry is considering a ban on consultancy firm Ernst and Young from the power sector

The consulting firm denied that this was the case. In an email response, the company spokesperson said: “We are not aware of any Comptroller and Auditor General of India (CAG) report on the working of special purpose vehicles (SPVs) in PFC. There is no subsisting order of debarment against E&Y by any government authority or public sector undertaking.”

CAG’s latest report, a follow-up to its earlier one on the way PFC bid out the projects, is with the power ministry for comment. A top power ministry official, who spoke on condition of anonymity, claimed that inclement action against the consultant is imminent.

“We plan to ban E&Y across the sector,” added this person. The power ministry, this person said, is waiting for the opinion of the law ministry on the proposed ban.

It isn’t clear whether the ministry’s action was prompted by the decision of PFC, which reports to it, or the report of the government auditor. PFC decided to bar E&Y for three years and also withheld Rs. 51 lakh of fee (according to the CAG report).

“As part of our responsibility, we barred E&Y and asked the power ministry to take steps for the sector. What we could do for PFC, we have done,” said the PFC executive mentioned above, who did not want to be identified.

According to the executive, the role of E&Y came under the lens as early as 2007 at the time of disqualification of the consortium of Lanco Infratech Ltd and Globeleq Singapore Pte, after it was discovered that the two consortium partners had misrepresented details in their winning bid for the Sasan power project. E&Y, this person added, had not discovered these misrepresentations in time.

E&Y was the consultant appointed to help PFC award the Sasan, Mundra and Krishnapatnam UMPPs.

The government wants to set up 16 such projects, each of which will generate 4,000MW of power; four of these have been awarded—at Mundra in Gujarat to Tata Power Co. Ltd, and Sasan in Madhya Pradesh, Krishnapatnam in Andhra Pradesh and Tilaiya in Jharkhand to Reliance Power Ltd.

“When PFC was given this new role, the power ministry was aware that the agency didn’t have the expertise so a consultant was brought in. As E&Y didn’t give sound advice, action was taken (against it),” the PFC executive added.

CAG also censured the government for the way it dealt, in 2007, with the consortium, as reported by Mint on 16 November. “Instead of forfeiting the bid bond of Rs. 120 crore furnished by the bidder, a token penalty of Rs. 1 crore was levied on the bidder.” Following the disqualification of Lanco and Globeleq, the project was awarded to Reliance Power.

The report of the government’s auditor, which is a follow-up to an earlier review of the SPVs (companies set up for a specific purpose; in this case, the development of a power plant) of PFC, was very critical of the appointment of E&Y, especially in the manner in which a rival consulting firm, Icra Ltd, was rejected. “The spirit of competition was undermined in the appointment of bid process management consultant for two SPVs (Sasan Power Ltd and Coastal Gujarat Power Ltd) resulting in extra expenditure of Rs. 1.56 crore.”

It also added: “As Icra had met the requisite qualification criteria as notified in the bidding documents and was found technically qualified,” its rejection was “not convincing”.

An Icra spokesperson declined comment.

The power ministry started examining the bidding for the Sasan power project after India’s Central Vigilance Commission (CVC), a body that looks into the functioning of government departments and agencies, raised questions about the process.

Mint reported on 18 March 2008 about CVC’s examination of Lanco’s bid and its direction to the government “to review the role played by consultant (E&Y), various committees and the board of SPL”, referring to Sasan Power, the SPV created by PFC for the project.

An official at CAG, who is directly involved in the audit process, said on condition of anonymity: “The very basis of the award of the contract (to Lanco-Globeleq consortium) after the preliminary audit seems to be flawed. It appears that the private consultant has failed to fulfil its obligations.”

Solar power at Rs 5 a unit could be possible by 2015

2011-11-20T17:25:00.002+05:30

Plummeting prices of polysilicon, a raw material used in solar modules, could make power from solar photovoltaic plants as cheap as Rs 5 a unit or less by 2015 against Rs 12 a unit estimated now.

Polysilicon, made out of refined sand, was selling at $475 a kg in March 2008. Today, it is selling at $33 a kg. The industry expects the price to fall further to $20 a kg, as global capacity doubles to five lakh tonnes by 2014.

Accordingly, solar module prices have also been falling. What used to be sold at $1.7 a watt a year ago (or Rs 8.5 crore a MW) is now at around $1 a watt (Rs 5 crore a MW). The downturn is expected to continue, as leading module manufacturers strive to improve efficiency.

For example, US module maker First Solar says its panel efficiency — a measure of how much of sun's energy falling on the panel is converted into electrical energy — is expected to rise to 13.5 per cent in 2014 from 11.7 per cent now. When that happens, First Solar will be able to produce panels for as low as 53 cents a watt (Rs 2.6 crore a MW).

India's Hind High Vacuum Pvt Ltd (HHV) holds out an even bigger promise. The Bangalore-based company makes machinery needed to produce modules. The machines sell at a million dollars a MW — if you want to put up a plant that can produce 50 MW worth of modules a year, you can buy it from HHV for $50 million.

The company's Chairman, Mr Prasanth Sakhamuri, says it is possible to make modules at 80 cents a watt today, at an assumed efficiency level of 7 per cent.

HHV is working on a schedule to raise efficiency and at the same time bring down material costs, so it should be possible to make modules with HHV equipment at 40 cents a watt, or Rs 2 crore a MW, by 2014. Hyderabad-based Surana Ventures Ltd says it can sell modules for 90 cents even today. The company's Managing Director, Mr Narender Surana, notes that India's skewed Customs duty structure favours imports. Imports of raw materials attract a duty of 24 per cent. Add a 5 per cent sales tax, the cost to a buyer contains an embedded tax of 29 per cent. “Even then, we can compete against the Chinese,” Mr Surana says.

Apart from photovoltaic modules, a solar power plant requires ‘balance of systems' — a range of necessaries such as mounting frames and trackers. These cost about Rs 3 crore for crystalline photovoltaic units and about Rs 5 crore for a thin film.

Panel to finalise compensation for scrapped NTPC project

2011-11-20T17:24:00.000+05:30

The Government has cleared the setting up an inter-ministerial panel to finalise the financial compensation for NTPC Ltd against the investment incurred by the power major on a hydro project in Uttarakhand that was scrapped last year.

The Cabinet Committee on Economic Affairs approved the constitution of the empowered committee that would also deliberate on measures for maintaining fragile eco-geological balance at the discontinued project site of Loharinag Pala in Uttarkhand, the statement said.

The panel is to be headed by the Power Ministry and would include representatives from concerned ministries, an official statement said.

Power tariffs to rise 20% each year: CERC

2011-11-20T17:23:00.002+05:30

Consumers should prepare for a 15-20% increase in power tariffs every year for the sustenance of state distribution utilities that are struggling to stay afloat due to escalating losses and mounting debt, the Central Electricity Regulatory Commission - the regulator for central government-owned utilities - said.

In an interview to ET, Pramod Deo, chairman of CERC, said the regulator's biggest concern is that investment in the sector should not stop. "Projects that have started construction should not be stopped. If there are issues, the central government needs to intervene to sort them out."

Deo said bold steps were needed to help distribution companies, which are crushed under a mountain of debt, low tariffs and reluctance of banks to lend to the unviable sector.

"If a state has not increased tariffs for the last 4-5 years, they cannot double them in one go. With 2014 likely to be the year of national elections, we are looking at a tariff revision of around 25-30% every year in states where the revision has not been done on a regular basis. They will have to maintain that kind of hike every year, only then would they be able to make good the losses and bridge the gap," he said.

"But not all states would have to increase tariffs at that rate. There are some states which have been increasing on a regular basis. On an average, we are looking at an increase of 15-20% in a year." India's state electricity distribution companies (discoms) reported an aggregate loss of around 40,000 crore in the year ended March, which is as high as the government's annual divestment target. The losses are estimated to soar to over 1.16 lakh crore by 2014.

In the year so far, around 12 states have increased power tariffs in the range of 9-34% to ease the burden of distribution companies. States like Rajasthan, Tamil Nadu, Madhya Pradesh, Uttar Pradesh and Bihar account for 70.6% of the power distribution losses in the country. Though states like Maharashtra have been revising tariffs regularly, other states like Tamil Nadu and Rajasthan have not revised them for seven years and four years, respectively.

Deo said state power regulators need to be independent of political pressure while considering revision of power tariffs. "The power regulators were set up in 1998 so that we have an independent authority to determine tariffs and it is taken out of the political purview.

Jindal Power gets green nod for 2,400 MW plant at Chhattisgarh

2011-11-20T17:22:00.000+05:30

Jindal Steel and Power today said its subsidiary Jindal Power has got environmental clearance for construction of 2,400 MW expansion project at Tamnar, Chhattisgarh, from the state environment authority.

"The Chhattisgarh Environment Conservation Board ( CECB) has granted consent to establish the expansion project of 2400 MW today," the company said in a statement.

It added that the green clearance will end the long wait for the implementation of the project, which was earlier scheduled to come up March, 2012.

"Due to the unreasonable delays in getting environmental clearances (EC), the project has been delayed for more than one and a half years," the statement said.

Without giving any time line of beginning the construction, the statement further said, "finally the construction work will be started on 2400MW Power Plant of Jindal Power Limited, (JPL) at Tamnar, Chhattisgarh".

Jindal Power currently operates 1,000 MW at the site. Early this year, the company had got the green clearance from Ministry of Environment and Forest for the 2,400 MW project in two phases. The project was later cleared by Ministry of Coal, which has also approved coal linkage for half of the capacity (1,200 MW).

Financial closure of the project was achieved in March, 2010, the statement said, adding that Jindal Power has already placed orders for 4 units of 600 MW with BHEL in early 2009.

The main plant of the expansion project will be constructed within the 360 ha area, in which present 1,000 MW plant is running.

Wind power capacity likely to rise 5,000 MW in 12th plan

2011-11-20T17:21:00.000+05:30

The government plans to add 5,000 MW of capacity in the 12th Five-Year Plan by encouraging retrofitting of older wind power farms, and tightening existing rules that let promoters enjoy tax breaks even without producing electricity.

Although the ministry of new and renewable energy resources has not finalised a policy yet, its draft paper aims to re-power, or install new turbines, at these old farms, most of which were set up in the 90s. This 5,000 MW target is in addition to the 15,000 MW planned through new projects.

The ministry plans to push states into signing "renewable purchase obligations", which aim to ensure that new wind turbines are not just put up for availing of tax benefits, said joint secretary Shashi Shekhar. Such purchase obligations mandate state governments to buy some of their power requirement through renewable sources.

The draft proposes setting up more wind projects in other states such as Karnataka and northern Rajasthan, where turbines have been installed recently. "The government will also look at offshore wind projects," said another government official.

India's total wind power installed capacity is about 14,000 MW, with Tamil Nadu accounting for 43%.

Ministry officials said they are waiting for a response from wind farm companies but said it may be "hard to convince" them to invest large sums to modernize their plants. Windmills installed before 2005 need to be replaced as their capacity cannot be increased.