GAIL wants marketing margin on RLNG out of regulatory purview

Gas utility GAIL India Ltd has demanded that the government keep the marketing margin the company and other state-owned firms charge on imported liquefied natural gas (LNG) outside the regulatory purview.

Oil Ministry had in December asked oil regulator PNGRB to determine the marketing margin on sale of natural gas on the basis of actual marketing cost so that the price becomes reasonable to the end consumer.

GAIL, however, is not happy with Petroleum and Natural Gas Regulatory Board (PNGRB) being asked to regulate marketing margin on imported LNG and has shot-off a letter to the government seeking an exemption for imported-LNG.

Sources said GAIL has argued that dynamics of sourcing LNG from international market and the risks and costs associated with marketing it to domestic consumers were very different from the sale of domestic natural gas.

While the USD 0.135 per million British thermal unit marketing margin that Reliance Industries charges on the sale of eastern offshore KG-D6 gas has been questioned by users like fertiliser units, GAIL's USD 0.20 per mmBtu marketing margin on regassified-LNG (RLNG) has so far gone unquestioned.

"Keeping in view the long standing shortage of natural gas in the country, and in order to encourage gas imports, the Central Government has taken pro-active steps and as a policy has kept import of LNG under Open General License category and has always permitted the entities to market regassified-LNG (RLNG) at market determined prices.

"Therefore, our impression is that the Government would continue to permit the entities to market RLNG at market determined prices, including its marketing margin, so as to cover corresponding associated costs and risks," GAIL wrote.

The company asked the government to modify its December 26 order so as to exclude the marketing margin chargeable on sale of imported gas, including the Regasified LNG (RLNG).

The Oil Ministry had on December 26 entrusted "the determination of the quantum of marketing margin chargeable on sale of natural gas to end consumers by each marketing entity, on the basis of its actual marketing cost, to PNGRB."

GAIL charges a USD 0.20 per mmBtu marketing margin on gas produced from the BG Group-operated Panna/Mukta and Tapti fields in the Western Offshore.

While RIL's marketing margin is fixed for the five-year period ending March 31, 2014, the margin charged by GAIL on PMT gas and LNG increases by 5 per cent every year.

GAIL also charges a fixed marketing margin of USD 0.11 per mmBtu on selling gas that state-owned Oil and Natural Gas Corp (ONGC) and Oil India (OIL) produce from domestic fields.

Power cos may’ve to give priority to captive coal

The government may make it mandatory for power producing companies like Tata Power, Adani, JSW Energy and Reliance Power to use coal from their domestic captive blocks on a priority basis for their projects that hinge on imported coal, which is costlier. This means that they can divest coal from captive mines to their own other upcoming projects only after meeting the requirement of plants that use imported coal.

The move aims at arresting rising dependence on coal imports by independent power producers (IPPs) that puts a significant upward pressure on the cost of power generation, which in turn will have strong bearing on tariffs for the end users.

The issue has also become important in wake of several imported coal based power projects, including Tata Power’s Mundra ultra mega popwer project and Reliance Power’s Krishnapatnam UMPP, indicating that their tariff bid projects would become unviable if a spurt in price of imported coal (due to changes in export policy in countries such as Indonesia) is not allowed as pass through in tariff.

While these projects have sought a revision of their power purchase agreements (PPA) with beneficiary state utilities, the Centre’s proposal aims to reduce the impact of high price of imported coal on electricity tariff for consumers.

The proposal, which is in initial stages of conception, has been mooted during a high level meeting of committee of secretaries headed by PMO principal secretary Pulok Chatterjee. The committee has been asked by the Prime Minister to remove bottlenecks for the sector in a time bound manner.

As per the proposal, all companies that are setting up tariff based bid project based on imported coal and also have captive coal mines for some of their other projects, would be asked to divert any surplus coal (if available) for meeting a portion of the the requirement of their imported fuel based project. This, the government believes, would help these projects to prevent cost from shooting beyond a level and also help beneficiary states and their distribution utilities, who agree for a revision in PPA, to prevent consumenrs from paying higher tariff due to global volatility in coal prices.

Sources said that the proposal, once approved, would also be used as a one-time mechanism to address sudden change in global fuel market due to changes in policies there. It would also not convert the status of imported fuel based project to one based on domestic coal but local fuel could be limited to say about 30% of the total need of project so that impact of tariff from pure imported coal operation could be reduced. The 30% blending is also considered for other imported fuel as a policy by the government.

While the government including the PMO is committed to reduce import dependence and ease domestic coal shortage, the move to tweak policy on imported coal may hamper plans of IPPs, which have plans to use surplus coal for domestic power -based projects instead of imported ones, thus taking the advantage of opportunity costs.

Many companies like Reliance Power have earmarked surplus coal from single mine for more than one project. In fact, the 4,000 MW Sasan UMPP of Reliance Power , has got permission from government to divert surplus coal from its captive blocks to another 4000 MW Chitrangi projevct being set up by the company in Madhya Pradesh. The government decision here has been questioned by the CAG and government is likely to take a fresh look oover the issue during a meeting of group of ministers.

Most of the IPPs including ultra mega power project developers like Tata Power and R Power have acquired coal mines in Indonesia , Australia for supplky of coal to their power plants. On account of change in regulation or taxation policies in such countries, they will gain substantially as owners of these mines but they will lose as consumer of these coal in their respective power plants. Increasingly, IPPs have opted for acquisition of overseas mining assets,

however, they remain exposed to volatility in coal prices as well as political and regulatory risks.

NTPC to invest Rs 24,000 cr in Andhra plant

Country's largest power producer NTPC is looking at an investment of Rs 24,000 crore for constructing a 4,000-Mw thermal power plant in Andhra Pradesh, a company official said.

“This is a 4,000-Mw (5x800 Mw) power project proposed at Pudimadaka near Anakapalli in Atchutapuram Mandal, Vishakhapatnam district of Andhra Pradesh,” the official said.

Pudimadaka is among the basket of projects planned for the 13th Plan period (2017-22) but the company can consider taking it up earlier if the land and coal linkage is fast tracked, he added.

The feasibility report for the proposed project is under preparation, he said, adding that the land availability and coal linkage would be facilitated by the state government. NTPC would incur a cost of around Rs 24,000 crore for building this plant, as an investment of about Rs 6 crore is required for every megawatt generation, he said.

The electricity generated from this project would be consumed by the home state as well as the neighbouring state of Karnataka. The company would sign the Power Purchase Agreements (PPAs) with the respective states for the same.

Since the project is located close to Vishakhapatnam, sea water can be utilised for Cooling Water system.

Meanwhile, the company would soon float the tender inviting bids to supply equipment for its five super-critical power projects at Solapur, Mouda (Maharashtra), Meja (Uttar Pradesh) and Nabinagar (Bihar).

These projects are due to come up in the 12th Plan period (2012-17).

At present, NTPC operates plants with over 36,000-MW capacity, from all sources of energy. It has 15 coal-based, seven gas-based and six joint venture power stations.

The company plans to take this capacity close to 70,000 MW by March 2017.

Power producers voice concern over UMPP equipment sourcing

Private power producers have raised concerns over the Government’s proposed move to make it compulsory to source equipment from indigenous manufacturers by companies setting up ultra mega power projects in the country.

Companies are of the view that this move would further discourage power generation companies to execute ultra mega power projects in the country, which are already fighting environmental hurdles.

“Nobody is in favour of this proposal ... there is no guarantee that this move would lead to decrease in tariff ... you don’t even know whether domestic equipment would be delivered in time or not,” industry sources said.

“We are against any kind of protectionist measures,” they added.

The Ministry of Heavy Industry and Public Enetrprises has proposed to make domestic sourcing of equipment for the ultra mega power projects mandatory, a move to encourage indigenous manufacturers such as BHEL and L&T.

Meanwhile, the Association of Power Producers (APP), a body representing 22 private power companies in the country, feels the indigenous equipment makers have their plates full.

“The domestic manufacturers are already overburdened with existing orders and are not in a position to meet the demand of the project developers,” Mr Ashok Khurana, Director General, APP, said in a letter to the Finance Minister, Mr Pranab Mukherjee.

Indian producers have lacked the capacity to supply power plant equipment at desired schedules, import of equipment for power projects has been a major contributor in the capacity addition in the current plan period, Mr Khurana said.

He said, that in the absence of competition to the domestic power equipment manufacturing sector, there will be a likelihood of price hike and supply timelines also reverting to 60 months as has been witnessed in the past.

Meanwhile, industry sources said that BHEL has never been able to supply equipment in the stipulated timeline and are sceptical whether L&T would be able to do so.

“There is a big question ... can BHEL and L&T supply equipment in 48 months,” sources said.

The power industry is also of the view that any such move would lead to delay in implementation of the projects and would also lead to cost escalation of the UMPPs.

UMPPs are 4,000 MW projects envisaged by the Government to add bulk power capacity in the country.

State-run Power Finance Corporation is the nodal agency for these projects. It has so far awarded four UMPPs to the successful bidders.

Three of the four UMPPs at Sasan (Madhya Pradesh), Krishnapatnam (Andhra Pradesh) and Tilaiya (Jharkhand) have been bagged by Reliance Power. Tata Power is executing the Mundra UMPP in Gujarat.

Finally, Govt begins addressing core issues for boosting coal output

Desperate times call for desperate measures. And, the recent directive of the Prime Minister's Office asking Coal India to ensure supply of the much needed fuel to power projects may be considered as one such measure, necessitated by long inaction of the same Government in resolving some basic issues to unleash growth.

However, any initiative to step up coal output should have its bearings on a range of issues related to land acquisition and the rehabilitation and resettlement (R&R) of the affected people, environment and forest clearances, creation of adequate evacuation logistics and others.

And, if sources are to be believed, the Government has finally woken up to the reality. While expectation is high that issues related to the core sector may occupy a sizable portion of the Budget, indications are aplenty that things have already started moving in this direction.

New R&R Policy 

The first indication, indirectly though, was offered by none other than the acting CIL chief and the Additional Secretary in the Ministry of Coal, Ms Zohra Chatterji, during a media conference in Kolkata on February 17. “A new R&R policy to be formulated,” she said, refusing to divulge further details before the CIL board considers the same.

Incidentally, the company was required to acquire as much as 60,000 hectares during the Eleventh Plan (2007-12) to step up production by around 160 million tonne to 520 mt.

In reality, only a fraction of the requisite land could actually be acquired.

“Considering the growing resistance to land acquisition, R&R holds the key to monetisation of assets,” a company official said.

Evacuation logistics

Some breakthrough is also evident in the long neglected area of coal evacuation logistics. Business Line has reported how non-completion of 50-100 km of rail-links is holding up CIL in optimising nearly 300 million tonnes of mining output annually from Magadh (20 mtpa) and Amrapali (12 mtpa) in Jharkhand; Vasundhara (70-75 mtpa) in Orissa; and Mand-Raigarh (200 mtpa) in Chhatisgarh.

The company is now asked to “invest aggressively” in creating the necessary links. “We will be investing nearly Rs 6,000 crore in creating rail-links in the three States in the next five years,” CIL's Director Finance, Mr A. K. Sinha, said. To start with, the company will invest in the Rs 1,500-crore rail-link for coal evacuation from Mand-Raigarh.

Other rail-links slated to attract CIL investment are: Tori-Shibpur-Hazaribagh (Jharkhand); McCluskiegan-Piparwar (Jharkhand); Angul-Kalinga (Orissa); Jharsuguda-Sandanha (Orissa).

Forest clearances

Incidentally, a number of such projects were held up for non-availability of forest clearances. A classic example is the proposed 100 km Tori-Shibpur-Hazaribagh (Jharkhand) — holding up an estimated 40 mtpa CIL output, and an additional 60 mtpa captive production.

Though till date the project got only stage-I forest clearance for the Tori-Shibpur segment, sources suggest that pressure is now mounting on the relevant ministry to take a final call on the entire project. “We are expecting this project to get due approval soon,” a source said.

Coal India to seek off take pact from power companies before import

Coal India Ltd (CIL) will seek offtake commitments from power utilities before importing, as has been asked by the Prime Minister’s Office.

The state-owned coal sector monopoly was recently asked by the Prime Minister’s office (PMO) to meet the supply commitments of the power sector even if it means resorting to imports.

A CIL executive also said that the company could ask designated national trading agencies such as MMTC to import coal on its behalf in the short term, until deals with global coal majors for long-term offtake materialise.

Power utilities are averse to offtake commitments. They are also generally reluctant to buy coal imported by Coal India owing to either the added cost of service charge or the lack of clarity on which party bears logistics cost.

The company will have to import over 70 million tonnes (mt) beginning next financial year to meet the demand, according to the PMO’s order.

A senior coal ministry official told Business Standard: “We will meet import requirements of the power sector if the coal ministry asks us. But a similar plan to import for power companies failed last year in the absence of committed offtake. If the import plan has to work this time, firm commitments have to come. Also, companies must import on their own too.”

Coal imports by power companies remained flat at 21 mt last financial year. Around 12,000 Megawatt (Mw) of the 15,600-Mw power generation capacity expected to be commissioned this financial year is likely to be coal based. This, added to the requirement of plants commissioned in 2009-10 and 2010-11, takes coal demand for 2011-12 to 470 mt for the power sector.

Even if Coal India supplies 343 mt as promised, Singareni Collieries Company Ltd supplies 33 mt and an additional 22 mt comes from captive mines, availability of coal will fall short by 72 mt, which is equivalent to 50 MT of imported coal. Added to this is the 25 mt coal requirement for completely imported coal-based plants.

A case in point is the historic feud between CIL and power generator NTPC Ltd where the miner was to supply imported coal for NTPC’s plants. “Talks failed as NTPC insisted on delivery at the plant site and CIL was not willing to bear the charges for transportation. So, NTPC had to resort to direct imports,” said a senior official from NTPC who did not wish to be identified.

The issue of modalities of coal imports, after the PMO diktat, seems unlikely to be resolved soon as CIL has stated categorically that importing coal is not its area of expertise.

Competition panel approves Sasan Power merger with Reliance Power

The Competition Commission of India (CCI) has approved the merger of Sasan Power Infrastructure with its parent firm Reliance Power, which is promoted by Mr Anil Ambani.

The competition watchdog, in an order, said: “Based on the facts on record and the details provided in the notice filed under sub-section (2) of Section 6, the proposed combination is not likely to give rise to any adverse competition concern ... the Commission hereby approves the proposed combination.”

The CCI further noted that Sasan Power Infrastructure (SPIL) and Reliance Power (RPL) are not engaged in production, supply, distribution, storage, sale or trade of identical or similar goods or provision of services.

“The activities of SPIL and RPL are also not related at different stages of levels of production chain in different markets,” it said, adding, “Further, the control over the activities carried on by SPIL and RPL before and after the proposed combination remains with the management of RPL.’’

Reliance Power is engaged in the development, construction and operation of power generation projects, and development of coal mines associated with such projects.

The CCI added that in its filing that Reliance Power has stated that Sasan Power (RPL’s wholly owned subsidiary) is currently not carrying on any business activities and is holding investments in the group companies. It is to be noted that SPIL is not implementing the Sasan ultra-mega power project.

The Competition Commission of India is empowered by an Act of Parliament to scan high voltage merger and acquisition deals.

Under the Competition Act, 2002, companies with a turnover of more than Rs 1,500 crore will have to approach the CCI for approval before merging with another firm. Also, companies with combined assets of Rs 1,000 crore or more, or a combined turnover of Rs 3,000 crore or more, would require the CCI’s nod.

Adani Group to invest $6 bn in three business segments

Money to be raised through equity infusion, internal accruals, debt; most of it will go to new operations in Australia

The ports-to-power Adani Group on Thursday said it plans to invest $6 billion (around Rs.30,000 crore) by 2015 to develop three businesses—resources, logistics and energy. A large portion will be pumped into its new Australian coal mining exploration, which began operations on Thursday, and is expected to produce up to 60 million tonnes (mt) annually from 2015.

The resources business includes coal mines and trading for now and will include oil and gas in the future, according to a company statement.

The investment by the Gautam Adani-controlled group, part of a larger overhaul and rebranding of its corporate entity, will be raised through a mix of internal accruals, equity infusion and debt, said group spokesperson Ameet H. Desai. He declined to give details on how much will be raised through each of these channels.

“It is a clear positive. Roughly 26,000 megawatts (MW) of power plants are looking for linkage from Coal India (right now),” said Rabindranath Nayak, lead analyst, power and capital goods, SBICAP Securities Ltd. Faced with a severe coal supply deficit, power producers are typically forced to stall operations or depend on expensive imported coal, with profitability taking a knock.

The company’s coal mining exploration in Galilee Basin in Queensland, Australia, was acquired in 2010 from Linc Energy for A$3 billion ($3.2 billion). “Overseas, there are mines but they need help with infrastructure development while in India we need the coal supplies. Moreover, the Adani Group can sell it to India or China or anyone else in the open market,” depending on where they get the best prices, Nayak said.

There is, however, a trade-off among price, quality and cost of transportation. Australian mines produce better quality coal compared with those in Indonesia but part of the advantage is eroded as transport costs more—$20-25 a tonne from Australia as against $10-15 a tonne from Indonesia, Nayak said.

Government policies are also making coal imports costlier in these two countries, jeopardizing plans of power producers in India who had bid aggressively for supply contracts from various distribution utilities. Indonesia changed its policy in July last year and linked the sale price to international indices, rendering redundant all the long-term contracts Indian power producers signed with coal miners at competitive prices.

In November, Australia imposed a carbon tax of $24.70 per tonne on coal exports. Projects with a total capacity of around 14,000MW are stuck because of the changes in policy by the two countries.

Meanwhile, both India and China are competing for resources and continue to rely heavily on imported coal to meet demand and spur growth.

Outlining the company’s other plans, Desai said it was considering the acquisition of BG Group Plc’s 65% stake in Gujarat Gas. The company had announced its intention to sell the stake in the western India-focused gas distribution company in November. The Adani Group has also announced its exit from the real estate business, which will be privately owned by the group’s promoters.

The group has ambitious targets for 2020—a five fold increase in Adani Power Ltd’s generation capacity from 4,000 MW currently to 20,000MW; handling 200 mt cargo in its Mundra port, making it the largest port in the country; and supplying 200 mt of imported coal by then, up from 30 mt it supplied to Indian companies last fiscal.

However, Adani Power’s existing projects are facing problems due to issues such as environmental clearance and the Indonesian pricing change. The company had sought a higher tariff hike from Gujarat Urja Vikas Nigam Ltd (GUVNL), with which it had signed a power purchase agreement (PPA) for 2,000MW from its Mundra project. But GUVNL rejected Adani’s demand, a decision that was upheld by the state power regulator as well as by the Appellate Tribunal for Electricity.

Similarly, the union government’s ministry of environment and forests revoked environmental clearance granted to the captive coal mine that would have supplied the company’s 1980MW power project at Tiroda in Maharashtra. The company is yet to sign up alternative fuel supplies for the plant.

NTPC may exit Orissa over delays in getting land for projects

With land acquisition hurdles delaying its proposed large-sized power projects at Darlipali and Gajmara in Orissa, state-run NTPC Ltd is looking at alternative sites outside the state.

India’s largest power generation utility has been unable to place a multi-billion dollar power generation equipment order for the proposed projects as planned because of the delays.

“When will Orissa give land? We might have to look at other options. These bids are time-bound. We are looking at alternatives,” a senior NTPC executive said on condition of anonymity.

While the projects have have been delayed for over a year, the hardening of stand by the Union government-owned NTPC comes in the backdrop of Orissa chief minister Naveen Patnaik leading the opposition of the states to the central government’s proposal to establish a National Counter Terrorism Centre (NCTC).

NTPC’s stand has nothing to do with NCTC, said the executive cited above.

“We have been trying to impress upon Orissa for a long time. How long can we wait?” he said.

NTPC had sought bids for around `22,000 crore of boilers and turbine generators last year for proposed projects at Kudgi (2,400 megawatts, or MW) in Karnataka, Lara (1,600MW) in Chhattisgarh, and Darlipali (1,600MW) and Gajmara (1,600MW) in Orissa. The projects will have a total capacity of 4,000MW each after all the development phases are completed. While NTPC has placed orders for the Kudgi project, it has been unable to do so for the remaining ones due to delays in land acquisition. The utility requires an acre of land per megawatt.

“We have to find land for our projects. While leaving Orissa is not a bad idea, we need to find ideal locations in other states,” said another NTPC executive also requesting anonymity.

G. Mathivathanan, secretary in Orissa’s department of energy, said NTPC had not sent any such communication to the state in this regard.

“The proposal for land for Darlipali has been recommended by the energy department to the revenue department. It will be notified,” said Mathivathanan. “Land for Gajmara is under consideration. There are some issues about it. The state government will take a call on it.” The delay in awarding equipment orders may not only derail NTPC’s capacity-addition plans, but will also worsen the power shortage in the country.

The utility accounts for 19.34%, or 36,014MW of India’s installed power generation capacity of 186,654MW. It’s targeting an installed capacity of 66,000MW by 2017 and 128,000MW by 2032.

NTPC has projects totalling 14,088MW under construction. Equipment for 16,192MW is still under the tendering process, while it plans to award orders for equipment meant to generate 40,000MW during the 12th Plan (2012-17) for about `2 trillion. The company has 15 coal-based, seven gas-based and six joint venture power stations.

UMPPs using local coal may have to buy domestic equipment

In a policy shift, the government proposes to make domestic procurement of power generation equipment mandatory for all bidders of ultra mega power projects (UMPPs) that enjoy the benefit of domestic coal linkage. The move is aimed at helping domestic equipment manufacturers such as Bhel, L&T, BGR Energy, JSW and Bharat Forge. It is also expected to encourage setting up of new manufacturing facilities for electrical equipment in India to cater to the growing demand from the power sector.

The Prime Ministers Office has given its nod for the proposal and the power ministry would now move a note for approval of the Cabinet committee on Economic Affairs (CCEA), a top source in power ministry said.

PMO principal secretary Pulok Chaterjee, who took a meeting on the issue in the first week of February, has set March 31 as the deadline for the power ministry to place its note with comments of all other ministries before the CCEA.

The proposal would be implemented for all the new UMPPs. Power ministry will recommend changes in the tender document for inclusion of mandatory domestic sourcing of equipment for all upcoming UMPP projects. It would immediately impact bidding process Bedabahal UMPP in Orissa and another project in Chhattisgarh. Both the projects are expected top come up for bidding soon and are based on domestic coal. Another project - Sakhigopal in Orissa — could be impacted when its terms are finalised later by PFC.

Reliance Power's two UMPP projects at Sasan and Tilaiya would not be impacted by the decision even though they are based on domestic coal. The project has already been awarded and the company has finalised vendors for the projects.

“The ministry of power will propose the extent and nature of domestic procurement. This could mean that entire procurement may not be mandated from domestic market as everything is not available in the country. We will also see that the condition does not results in escalation of the project cost that could be detrimental to the interest of electricity consumers,” said another government official privy to the development.

The country right now has domestic equipment manufacturing capacity of mere 18,000 MW largely supported by two major players Bhel and L&T. It is expected that capacity would go up to 35,000 Mw over next few years with new manufactures such as BGR Energy, JSW, Alstom-Bharat Forge starting their facilities. Bhel is also expected to ramp up its capacity to 20,000 MW by the end of year.

“Many of the domestic equipment manufacturing projects may not come up with full capacity, if domestic manufacturing is not encouraged by the government,” said an executive of private sector power equipment maker who did not want to be identified.

Another executive, however, said that mandatory domestic procurement of equipment would jack up cost and could delay projects as imported equipment not only come cheap but are also delivered fast.

The meeting taken by PMO also took note of this and asked power ministry to take necessary precaution in its proposal so that project cost did not escalate.

Our natural resources cannot be priced at international levels

Arup Roy Choudhury, chairman and manag- ing director of state-run NTPC Ltd, India's biggest power producer, speaks in an interview on capacity addition plans and the challenges ahead for the domestic power sector.

Last week the Supreme Court ruled in favour of NTPC and Ansal do was disqualified from that huge `16,000 crore tender. How soon are you going to call bids for it?Can you give us a sense of what's happening? (The apex court set aside a Delhi high court order that allowed Ansaldo Caldaie Boilers In dia to bid for a tender for equip ment supply to NTPC, which had rejected the company's bid on grounds that it did not meet the minimum qualifying require ments.)

As you are aware, the dis- pute was for the SG (steam generator) package...It is un- fortunate that we lost almost one year on this. We have now taken up steps to award this and we would like very much to do so by March, which means it will happen in this fiscal. The STG (steam turbine generator) package was always resolved, we were just waiting for the SG package to get sort- ed (out). We expect that pack- age, too, should get awarded by March. So the entire `16,000 crore that you men- tioned should get awarded by March this year.

Are there other tenders in the pipeline right pipeline right now that you will be looking at? Does this guarantee Bhel (Bharat Heavy Electricals Ltd) a piece of the pie as well?

As per the bulk tender pro- cess, Bhel will always get a part of this. The second lot of 800 megawatts (MW) bulk is also finalized and thankfully there is no litigation and there- fore it has been finalized well in time and as per the guid- ance of the cabinet. Kudgi (in Karnataka) has already been awarded. The balance units are two in Darlipali and two in Gajmara, both in Orissa and two in Lara in Chhattisgarh.

The Chhattisgarh land acquisi- tion is in a very advanced stage. In Orissa we are a little slow because of the land issue.

So, unless we get the land there, we will probably not be t able to award the Orissa con- a tracts. But I would like to reit- erate that from our side all the tenders have been finalized well in time, they are ready to t be awarded and we are waiting t to award them.

There are reports that your initial plan was for 75,000MW to be add ed in the 12th Plan, but you might have cut it down to 65,000 or 66,000. Can you tell us what is your strategy and the ratio nale behind it?

Capacity addition is no t more an is- sue with NTPC or in f the country. We have al- ready added g 2,500MW last year. We said we would and we did it. This year we have said that we will add more than 4,000, we are almost at 2,000 and we expect to add another 2,000 by the end of March, so we will go beyond 4,000MW.

Looking at the capacity ad- dition for the 12th Plan, the capex (capital expenditure) that we have thought for in the 12th Plan is `215,000 crore.

Now when we look at our ca- pacity addition programme, we find that probably adding another 40,000 MW could be a little difficult at the moment because we don't have a surety of gas. So we thought that in the coming five years if we take around 5,000 to 6,000MW ca- pacity addition per year, it will be a fairly good target for us . If we get to about 65,000 as our total capacity, it will still mean that in the next 5­7 years we would have doubled what we have today...

As you mentioned there has al ways been a question mark on gas since the last two years at least.

Now we have finally an empow ered group of ministers meet on it. What sort of hope do you have in light of the KGD6 output falling? Do you have any plan B?

As far as gas is concerned, the fall in production is what we read in newspapers. So we don't want to comment on the falling or tapering production or about pricing. But I think we have to depend on our natural gas resources. Coal and what- ever gas we have is our natural resources. These cannot be priced at international level prices. There can't be a situa- tion where we subsidise oil im- ports, or diesel and kerosene prices on one end and then al- low our own resources at inter- national prices.

So, I have very high hopes from the panel of ministers that they would be able to get the requisite amount of gas and I have very high hope that not only covers Gandhar (in Gujarat) but even Kayamku- lam (in Kerala) will get some allocation of domestic gas. We have in fact requested for Ba- darpur (Delhi) also. But we re- ally don't know how that will stand. I think the gas will come through and I have no reason not to believe that it will not come through. I think the indi- cations from the government are that the gas will be given to the power sector which they are treating as priority for the growth of the economy

 Is there a plan B, if it is getting de layed. Would you be open to buy ing from the spot market consider ing you already have a plant ready?

Our plan B will depend on our buyer. If I generate from imported gas and nobody buys then what's the point in having plan B? So, at the moment,t I will not see any plan B. If there is a plan B, it depends on whether the consumer wants power from imported gas. I can start then and in fact I can start Kayamkulam straight away. In fact, all my gas plants today are running at an aver- age of about 70% PLF (plant load factor). I have another 20-25%, which I can run with imported gas. But I should have the demand for imported gas. So, why should I have a plan B for capacity addition on imported gas when my domes- tic capacity is under-utilized. And if they want it on imported gas I can run those on higher capacity.

 Two issues weighing on the sector are land acquisition and acute coal shortage. From NTPC's point of view how are you looking to meet this issue?

As far as coal is concerned we have enough mines to meet our requirement at least by 30%, if not more. What Coal India is giving us today and what the government has now ordered to commit FSA (fuel supply agreement), that with normal increase of 3% to 4% would suffice our requirement from Coal India.

Coal mining methods need to be improved

Anil Sardana, managing di- rector of Tata Power Ltd, said there is an immediate need to improve coal mining methods in India. In an interview, Sardana said though India has 20 times more proven coal reserves than Indonesia, it is not able to meet its needs.

There was considerable excite ment in the markets and else where when the Prime Minister's Office directed Coal India Ltd to have fuel supply agreements. Are you saying that the fine print has left a lot of ambiguous issues that need clarification?

One could also say that it is not expected of a committee of secretaries to articulate language which would address those is- sues very accurately. One would, therefore, expect that when the professional set of notification comes in to execute this... at that time it will be very clear in terms of the clarity of the subject mat- ter. So, I won't say that there is ambiguity. I would say it would require some bit of clarification in terms of how things will get executed on the ground. To that extent, one is expecting those notification to come in the next few days.

I have spoken to the power minis ter on two occasions. He said the price passthrough cannot be worked out in the existing power purchase agreements because you will have to revisit the entire con tract and it might happen in the next financial year. As things stand right now, what is the situation on Mundra and if you don't get com pensation, how is it going to work out?

Mundra is not a similar case as any other imported coal-based project. It is different. Mundra had tied up its coal in exactly the same back-to-back arrangement as the bid was submitted for Mundra. Which meant that whatever was the scalable com- ponent in the Mundra bid, the same component was provided for in the coal agreement that was tied up in Indonesia. This back-to-back arrangement got reneged once the change in law in Indonesia happened. So, as far as Mundra is concerned, it is not an issue of higher coal price.

It is an issue with the fact that we cannot take deep discounts which we had contracted for the lifetime of the project. So it's not a problem Mundra can resolve on its own. The change in law will have to be compensated for.

If the beneficiary doesn't want to look into and change the law how can a developer solve this issue of change in law by a country. If somebody argues and says Indonesia is not the only country for you to go and source the coal, I say even Australia has changed the law. They have a carbon tax there now.

When you're dealing with an issue like power, there are multiple problems at different levels. You have issues in terms of coal sup ply. Somewhere down the line, Coal India is also caught in a bind because they've not been able to increase output as demand for coal that they produce has been going up. Hence, most of you had to go in for imported coal. Even if they were to agree to a 20year deal, everybody they have promised supplies to, can they do it in the current circumstances or are we moving into another form of crisis?

Instead of saying what Coal India can't do, let me give you an example of what we have learnt from our coal investment. We have had mines which are ready to export 63 million tonnes every year. These are the largest ex- porting mines in Indonesia or in the world. That kind of produc- tion we see coming out of spe- cialized agencies who work with our promotional investment.

These are called mine-develop- ment operators. They are spe- cialized agencies that bring in their own tools and equipment, their own people who are com- pletely specialized and this works not only on guaranteed output but guaranteed quality.

What we have seen over a period of time are these two impact fac- tors. There's neither a guaran- teed quality nor a guaranteed quantity. Therefore, it's impor- tant to reform the Indian coal sit- uation.We are 20 times more than Indonesia in terms of prov- en reserves. If they can export 400 million tonnes out of their country. A country which has 20 times more reserves should actu- ally be talking much more than that. But we are not able to meet our own needs.

From Coal India to Air India

Soon after the private power promoters met the Prime Minister requesting intervention for ensuring coal supplies to languishing power plants, the Prime Minister’s Office (PMO) directed Coal India to sign fuel supply agreements (FSAs), by March 31, 2012, with power plants that have entered into long-term power purchase agreements with power distribution companies and have been commissioned/ would get commissioned on or before March 31, 2015. The FSAs are supposed to be for the entire quantity of coal mentioned in the Letters of Assurance for a period of 20 years. The cut-off point would be at 80% (Coal India had suggested only 50% earlier) and Coal India will have to pay penalty for any shortfall. The PMO further directed that, if need be, Coal India may import coal to fulfil the commitment.

The PMO declared that this directive would provide relief to over 50,000 MW of new capacity lying idle due to lack of firm coal linkages and would boost investors’ confidence in India’s power sector. Also, this intervention would not only achieve the targeted capacity addition in the 12th Plan but also the growth target of GDP, but what about Coal India? This directive of the PMO has put Coal India in the most unenviable position among the ‘Ratna’ PSUs.

To maintain healthy profits as a responsibility towards its investors, Coal India needs to increase domestic production quickly or increase coal prices; neither of which seems possible due to various reasons.

Coal India can repeat over-exploitation of existing large opencast mines which it had done a few years ago on orders from the PMO by adding 100 MT in a very short span. This action will further reduce the life of mines and would have serious implications when linked power plants will not get coal.

If the ministry of environment & forests is forced to clear all the virgin coal blocks that are being held up because of either the Comprehensive Environmental Pollution Index or due to dense forest cover, it would take several years to produce and supply coal, which will fail to meet immediate commitments. However, the country will lose large chunks of forest cover, lowering the already declining figure of 21%. This option will also result in a higher degree of pollution in certain mining areas, which have already crossed the limits.

Coal India’s production has been stagnating at 431 MT since 2009-10 and the production this year may be much lower. Coal India tried to change the price structure from Useful Heat Value to Gross Calorific Value, which would have resulted in about 12% increase in coal price, thus keeping Coal India’s bottom line intact. The earning from this move was estimated to be about R6,000 crore, which would have more than offset the impact of wage increases. This effort was also rolled back by the government on strong reaction from coal consumers.

There is also talk of diverting e-auction coal to meet the above commitments, which again will further dent the profitability of Coal India. Realisation through e-auction is about R3,000 per tonne, or 300% higher than coal sold through FSAs at about R1,000 per tonne. Coal India reported a 54% rise in third quarter profits at R4,037 crore. However, the burden of wage increase estimated to be about R6,000 crore annually will have a serious impact on the bottom line of Coal India’s balance sheet from the next quarter.

The PMO has directed Coal India to meet the the commitment of FSAs, even by importing coal. In such a case, Coal India will be forced to sell high-priced imported coal at huge discounts, resulting in continuing loss to the PSU. Domestic coal under FSA is cheaper at R1,100 compared to over R5,000 for imported coal, a price which is likely to increase if Coal India plans to import large quantities. If, by miracle, Coal India is able to charge the actual import price, how will the costly power be sold when the cost difference between domestic and imported coal is huge? The merchant power plants are already feeling the heat. The other alternative of pooling of prices has already been trashed by the coal ministry, which called the proposal impractical and untenable.

Clearly, none of the above options are sustainable. Coal India is in a catch-22 situation. If it complies with the PMO directive in letter and spirit, its net worth would turn negative in due course. If it signs the FSA and fails to meet the full commitment of 80% supplies, the same fate awaits it.

It is almost impossible for Coal India to comply with the dictum of the PMO and still remain a profitable PSU. The country has failed to learn lessons from the past and is now on the verge of creating another Air India.

If we import, we will pitch for ‘landed cost' formula: Coal India chief

Coal India is equipped to supply the fuel requirement of power producers as outlined by the recent directive of the Prime Minister's Office, according to its Chairman and Managing Director, Ms Zohra Chatterji.

She told analysts over a conference call, that, “As of now we need not presume we will import. We are already supplying 80 per cent or more. It will be only signing up something already being done and perhaps redistributing a bit. We will import when the need arises and if at all we import we will pitch for landed cost.”

It was made clear that redistribution would be done in such a way that existing projects get their requirement and quantity supplied above the committed level could be utilised to feed others.

Production target

For FSAs (fuel supply agreement) signed prior to 2009, 90 per cent supply was assured and in cases 94-95 per cent is being delivered. This additional quantity in excess of the 90 per cent trigger mark could see diversion provided logistics were in place.

Ms Chatterji said for 2012 -13, the company was targeting 464 million tonnes (mt) of production and 556.50 mt in 2016-17 in “business as usual” scenario. However, if clearances were obtained for upcoming projects the company could produce 615 mt, she said. 

Coal production had dipped in the second quarter due to unprecedented rains but had improved in January and February. 

During the third quarter ending December 2011 the offtake had enhanced to 110 mt as against 93 mt in the second quarter.

In January, there was an increased availability of rakes. A meeting had been held with the Environment Ministry and it had assured Coal India of fast-tracking approvals, particularly for capacity addition in mines that were operational. “Importantly, the PMO will be closely looking at coal projects and we expect all ministries to fast-track their clearances,” she said.

Production will be increased by 20 mt to 25 mt per year from ongoing and new projects that come online.

On Assured supply

On quantity committed under letter of assurances (LA), the Coal India management said it was 423 mt of which 273 mt would be in the 12th Plan. The remaining would spill over to the 13th Plan. However, this was besides 306 mt supply based on LAs inked prior to 2009. LAs signed prior to 2009 were eligible for 90 per cent supply.

Out of the 423 mt projected, for FY12-13 alone it would be about 115 mt on record. However, demand would be less as 20-30 per cent of projects were expected to be delayed. 

Even for the 273 mt, no FSA had been signed and only when FSAs are signed, will the penalty clause for non-supply below 80 per cent kick in. As such, Coal India has been supplying close to 80 per cent of the requirements for the LAs so far, they said.

Ms Chatterji said from there was a two-year window for power stations from the date of signing of LoAs and drawing up of the FSA and delay could warrant cancellation. So far, no such cancellations had taken place and given the demand a stringent view could be exercised on delays.

Experts said 80 per cent supply could lead to about 76 per cent plant load factor and for projects to raise their PLF they would have to source the deficit 20 per cent if Coal India did not address their balance requirement.