NTPC aims to be the lowest emitter of greenhouse gases
NTPC, globally the third largest power company in terms of coal based power generation capacity, intends to ensure minimum impact on environment from its power stations. It intends to become a low cost and low emission coal burner to maintain its position as a leader in the sector. NTPC is creating additional carbon sinks by planting one crore saplings during this financial year and the upcoming Telengana Thermal Power Project shall be most modern complying with the latest environment norms. NTPC chairman, Gurdeep Singh, in a statement outlined the company’s efforts in bringing down energy charges by stopping coal imports, ensuring better quality fuel through third party sampling and coal rationalization. NTPC is at present 2nd terms of capacity utilisation and 3rd in machine availability globally. It is 7th in terms of electricity generation, among the top twenty coal based power generating companies globally. Shaquem Griffin Authentic Jersey
Power sector’s debt woes may continue for 18 months
The country’s narrowing power deficit and increased coal production may not be indicators of the end of stress in the industry. There has been a negligible change in the power sector’s stressed capacity and debt. According to data published by the Reserve Bank of India (RBI), the infrastructure sector’s share in gross non-performing assets of banks was 13.90 per cent in June 2016, higher than 12.69 per cent in December 2015, and the power sector’s contribution to these numbers was 5.97 per cent and 4.99 per cent, respectively. “The primary reason for stressed assets in the power sector is weak demand. Demand has been weak due to muted industrial activity, resulting in ready capacity not finding long-term contracts, existing contracts running at low plant load factors and abysmally low spot power rates. Low asset utilisation is making it difficult for power producers to service debt,” said Debasish Mishra, partner at Deloitte Touche Tohmatsu India. According to Central Electricity Authority data, the plant load factor in September nationwide was 58.13 per cent . Legacy policy issues over coal allocation, low demand and banks’ unwillingness to take haircuts in acquisitions are some of the other reasons for the obstinate stressed debt in the system. “Coal production has increased, but the distribution and usage policy continues to be restrictive. The delay in announcing a new policy framework is leading to uncertainty,” said Ashok Khurana, director-general, Association of Power Producers. Khurana estimates the stressed power capacity at more than 50,000 MW, stating not much has changed in this number in the last couple of years. This capacity, Khurana said, lacked long-term power purchase agreements and fuel-supply agreements. “Around 18,000 MW faces under-recovery of fixed or variable costs due to various reasons and different stages of litigation,” he said. Multiple data points suggest stressed debt in the sector may linger. “Around 17,000 MW of projects, including those facing the consequences of aggressive bidding for coal supplies or huge cost overruns, and those with gas-supply issues, are projects where the debt at risk is the highest today. These are projects are not expected to turn viable in the long run even if they are structured under the 5:25 scheme or any other tool provided by the RBI,” said an October report by rating agency CRISIL. CRISIL estimated the debt exposure to these projects at Rs 70,000 crore. The 17,000 MW was higher than the 16,000 MW the agency estimated as debt at risk in July 2015. However, the quantum of debt involved in these stressed capacities has fallen marginally from Rs 75,000 crore to Rs 70,000 crore. “The debt situation will take time to resolve. One cannot undo the effects accumulated over the past five years with one year of better performance. The debt-earning ratio continues to remain high and balance sheets will take some time to deleverage,” said Vivek Jain, associate director with India Ratings. The ability to service debt with operational cash flow for four of the seven main power producers in the country continues to remain under stress with an interest coverage ratio at below 1.5 times, Capitaline data shows. (See chart) Revival in demand is likely to be key in improving the debt quality and the debt servicing ability of power companies. However, a revival in demand may continue to elude the sector for some more time. “Demand for power has not revived and I do not expect it to revive in the next year. Only after the debts of state electricity boards are transferred to the books of the state governments will demand improve,” said Anuj Upadhyay, analyst, Emkay Research. GBS Raju, chairman, energy, GMR Group, is hopeful the situation will improve in 18 months. “Every plant in the sector has a different issue–a long-term power purchase issue, a railway link issue, a transmission line issue–and has found itself stranded. Problems are being addressed plant by plant. I expect things to improve in the next 18 months,” Raju said. Kentavius Street Authentic Jersey
Huge spurt in imported coal prices to hit firms in entire power value chain
The 60 per cent jump in imported coal prices between April and October current financial year is likely to negatively impact the power sector value chain. The distribution companies (discoms), independent power producers (IPPs) with non-escalable fuel cost, merchant power producers and ports relying on imported coal for the bulk of their volumes will face volume and profitability pressures, research agency India Ratings has said. The increase in imported coal prices was more pronounced in October 2016, where prices rose by 25 per cent to around $85 per tonne from $68 per tonne in September 2016. DISCOMS “Anecdotal evidence suggests that most state regulatory commissions have not allowed for Power Purchase and Fuel Cost Adjustment (PPFCA) on an actual and timely basis, which has led to an escalation in the power purchase cost of discoms, without a commensurate increase in revenues,” India Ratings said in a report. Historically, the ability of the distribution companies to pass on fuel cost increases to the end-consumers has been limited and delayed due to the political intervention in the tariffs. The regulatory commissions can allow a pass-through of such costs, by way of PPFCA, since power purchase cost is an uncontrollable expense for the discoms. MERCHANT IPPs Merchant IPP’s which sell power through the merchant route will be impacted significantly since the prices on the exchanges or bilateral trades have not moved up at the same rate as the rise in variable cost of generation in October 2016, on account of the imported coal price increases, the firm said. This will lead to a significant compression in their gross margins, which have fallen to zero in October 2016. Hence, the viability of merchant IPPs on imported coal is doubtful in the current price scenario. REGULATED POWER PLANTS The research firm also said it expects the hike in fuel costs to be credit neutral for power generators which operate their plants on the cost plus return on equity (ROE) model. The plants running on cost plus ROE are allowed a complete pass-through of such costs to the consumers by way of the monthly fuel cost adjustment in the bills, thus insulating these plants from any adverse movement in coal prices. However, with higher fuel costs, the impact of under-recovery or over-recovery, if any, on the variable cost due to lower or better performance than the operating normative parameters including station heat rate and auxiliary consumption is likely to lead to a higher level of absolute disincentives or incentives respectively. IMPACT ON COAL IMPORTS The overall dependence of imported coal in India declined during 2015-16 as the output from Coal India Limited increased significantly over 2014-15 and 2015-16, leading to a 10 per cent decline in the overall non-coking coal imports in India to 156.4 million tonne last fiscal. “The volume de-growth of non-coking coal was not as sharp in FY16, despite the lower prices, because other end-user industries namely cement and non-ferrous metals found it cheaper to use imported coal to fire their kilns or boilers. However, with the rise in prices of imported coal, these end-user industries are looking at alternative fuel sources, which could pressurise imported coal volumes from these players. Moreover, in a scenario of power surplus with adequate domestic coal availability, the use of imported coal for power generation is likely to remain benign,” the report said. IMPACT ON IPPs WITH NON-ESCALABLE FUEL COST With the decline in coal costs, the stress on the imported coal-based plants namely Adani Power’s 1980 Megawatt plant in Mundra and Tata Power Limited’s 4,000 MW plant in Mundra under its subsidiary Coastal Gujarat Power Limited had reduced, despite the absence of compensatory tariff. However, with the prices of imported coal rising again and judgement awaited on the applicability of the force majeure clause in the power purchase agreement, the stress levels would start building up again on these generators with non-escalable fuel costs.
Power demand to rise in future: NTPC CMD
Exuding confidence that Centre’s UDAY scheme will help revive debt stressed discoms, NTPC Ltd Chairman and Managing Director Gurdeep Singh today said electricity demand is going to increase in future. The central government had launched UDAY scheme to help discoms reduce debt and improve their financial position which will ultimately help them buy power required for their customers. They were unable to buy power from generating firms despite having demand from their consumers. Singh was addressing employees’ on 41st raising day of the company today at Engineering Office Complex at Noida. He also spoke about efforts of NTPC’s to bring down energy charges by stopping import of coal, ensuring better quality coal through third party sampling and coal rationalisation. Singh urged NTPC’s Power Management Institute and research arm NETRA to play a crucial role the company’s development. Speaking about Environment Management, he said NTPC has to ensure minimum impact on the environment from its power stations and carry forward the slogan “Low cost Low emission” to maintain its position as a leader in the sector. NTPC is creating additional carbon sinks by planting one crore saplings during this financial year and the upcoming Telengana Thermal Power Project shall be most modern complying with the latest environment norms, he said. Inclusion of safety as a Core Values is to ensure safe practices in all areas of Company’s operations, he added. Singh lauded Team NTPC’s efforts for achieving highest generation on September 9, 2016, performance of Koldam Hydro project, start of work at Pakhri Barwadih coal mine, for being the first company to issue Masala bonds, Consultancy Wing for providing services to nearly 18000 MW projects in the country and construction of toilets for Swachch Bharat campaign under CSR. State-run NTPC is the third largest power company in terms of coal based power generation capacity, and among top 20 coal based power generating firms globally. Will Richardson Womens Jersey
Three firms move GERC for fixing tariff for energy to waste conversion
At least three firms already moved a petition in Gujarat Electricity Regulatory Commission (GERC) for approval of a tariff of Rs 7 per unit for generate energy from water. The three firms that have moved GERC have expressed their willingness to generate around 48 MW of power from the nearly 3000 odd metric tons waste of Ahmedabad city. Pravin Patel, chairman, standing committee said, “The AMC has entered into contract with three firms and each firm will generate 1000 MT of garbage into 16 MW. These firms will gradually increase the capacity and will utilize around 1200 MT of garbage.” Patel said that as per the centre government policy, the power will be purchased at Rs 7 per unit and the centre government will give subsidy for the same. He said that the state government has already adopted the policy as the same has been formed by the centre government. The AMC will not incur any burden for setting up this power generation units. He said that the three units have moved GERC for getting the tariff fixed. Meanwhile, Gujarat Electricity Regulatory Commission (GERC) has also initiated the process for determining tariff for procurement of power by distribution licensees and others from Municipal Solid Waste (MSW) based power projects. The power regulator has proposed a gross tariff of Rs 7.30 per unit for Pelletization or Refuse Derived Fuel (RDF) technology-based power projects and Rs 7.25/unit for projects using incineration technology. Sources said that GERC is yet to come out with the final order on the tariffs. As per the state government’s Waste to Energy Policy-2016, Gujarat has the potential to generate approximately 100 MW of power from solid waste. The potential has been assessed for 8 municipal corporations and 162 municipalities. Under the Waste to Energy Policy-2016, the policy is aimed at reducing pollution caused by untreated solid waste. Under the policy, Urban Local Bodies (ULBs), such as municipal corporations, will provide land on lease at a token rate of Rs 1 to business entities who wish to set up their solid waste-based power generations units. Brett Connolly Authentic Jersey
Shipping fuel change to upend refining – and threaten OPEC crudes
A switch to cleaner fuels in the world’s ships in 2020 could double the profits of the world’s most advanced oil refineries – but threatens to put older ones out of business and punish those countries, including prominent OPEC members, that produce the wrong kind of crude. In less than four years, ships worldwide will have to cut their sulphur emissions to 0.5 percent from 3.5 percent now. Many had expected a five-year extension, but the now on-target deadline has floored some ship owners and refiners, and left a scramble to determine what to use in vessel engines – and what to do with the some 3 million barrels per day (bpd) of sulphur-laden fuel oil that powers most ships today. It is effectively a windfall for advanced refineries, which produce larger amounts of the low sulphur fuel that many ships will use, but is an ominous signal for others, including countries such as Saudi Arabia, Iraq, Venezuela, Mexico and Brazil that produce oil with high amounts of sulphur. “That is going to increase the advantage that we have over time,” Thomas Nimbley, chief executive of PBF, which owns five refineries in the United States, said of the change. Ship owners have several choices in order to comply with the new rules, but the easiest is to burn middle distillates, which are lower in sulphur, but far more expensive. FGE analysts estimate that in 2020, the new rules could shift 700,000 barrels per day of demand from fuel oil to distillates, though the International Energy Agency has put it as high as 2 million bpd. Refineries like PBF’s produce very little fuel oil, and brand new complexes such as Saudi Aramco’s Jubail or Reliance’s Jamnagar in India produce virtually none. That is because they have equipment that transforms high-sulphur products into asphalt for roads, or enable them to simply make less fuel oil and more of the more valuable fuels such as diesel and gasoline. Wood Mackenzie estimates that by 2020, middle distillate margins could average as much as $25 per barrel, nearly triple this year’s average of just over $9 per barrel. But this will come mostly at the expense of fuel oil profits, which will slide dramatically as the barrels seek a new outlet. “You’ll see a huge uplift for those refineries,” said Alan Gelder, head of refining and marketing for consulting firm Wood Mackenzie, adding they will see “all the uplift and no downside.” Fuel oil used today by the marine sector currently accounts for almost 4 percent of global refined product demand, according to UBS. At older, less complex units, mostly in the Mediterranean, Asia and the developing world, fuel oil can account for as much as 40 percent of output. “If you are making fuel oil today … you better have a plan to figure out how to deal with that,” Nimbey said. Investing in upgrades is not an easy fix. Adding a residual hydrocracker, which could strip fuel of sulphur, costs close to $1 billion, according to Wood Mackenzie, and the entire process can take as long as a decade. Added to the problem is that if ships move to cleaner fuels such as liquefied natural gas, or add “scrubbers” – pieces of equipment that enable them to burn fuel oil and capture the sulphur emitted – investments in refinery upgrades may not pay off. The sulphur cap “is like the final nail in the coffin for them,” Energy Aspects product analyst Nevyn Nah said of the worst-off refineries. “So I think we’ll see a lot of refinery rationalisation before 2020.” A CRUDE PROBLEM The quickest route for cutting fuel oil output is changing the crude fed into a refinery – an unfortunate fact for producers of heavier oil that has more sulphur. Typically, running light sweet North Sea crude through a refinery will make 12 percent fuel oil, while a heavy crude such as Iraq’s Basra Heavy, can make as much as 50 percent fuel oil. “It will drastically change the crude diet of refiners,” said HPCL’s former head of refineries, BK Namdeo, said of the shipping change. Sources in South Korean and Japanese refining industries said companies are examining a shift toward lower sulphur crude, while European refineries will eschew heavier grades for lighter North Sea and West African crudes that are readily available. Still, as the oil market rushes to prepare, the shipping industry could crush their best-laid plans; scrubbers, which cost $3-$10 million to retrofit onto existing vessels, are becoming more standard on new ships. And the expected sharp drop in fuel oil prices could make the investment worthwhile. “If the shipping industry invests quickly, by 2025 the demand for fuel oil could be back,” Gelder said. Jessie Bates III Jersey
Brazil could pay Petrobras up to $16 billion over rights, Itaú BBA says
The Brazilian government could pay as much as $16 billion to state-controlled oil company Petroleo Brasileiro SA in renegotiating a $43 billion deal in 2010 to develop vast offshore crude deposits, Itau BBA said on Monday. In a client note, analysts estimated that based on a price of $60 per barrel, the government would have to return to the company about $16 billion, given the drop in prices of oil from about $100 in 2010. In 2010 Petrobras, as the company is commonly known, paid the government $43 billion for the rights to develop deposits holding 5 billion barrels of crude buried under a layer of salt beneath the ocean floor. Terms of the deal to the so-called Transfer of Rights Area could be renegotiated after five years. “The renegotiation of the barrels was perceived as a risk by investors,” the note said. “Following the latest comments by government officials, the revaluation could actually be positive for Petrobras due to the low oil prices.” Given government efforts to narrow a record budget deficit, the Itau BBA analysts expect the payment to be made in barrels of oil instead of cash. Newspaper Folha de S.Paulo said last week Petrobras could receive as much as $20 billion in compensation, without saying how it obtained the information. In a securities filing later in the day, Petrobras said no decision had yet been made on the subject. Preferred shares in Petrobras rose 6 percent to 16.97 reais on Monday, extending gains to over 150 percent so far this year. Itau BBA holds an “outperform” recommendation on the stock, arguing that the prospect of strong global supply of oil will help Petrobras, the world’s most indebted oil company, cut costs and sell assets. Jarran Reed Jersey
KTC ties up with IOC for high speed diesel supplies
Kadamba Transport Corporation (KTC) has entered into a long-term agreement with Indian Oil Corporation (IOC), on Thursday, for high speed diesel supplies in Goa. This association is a first-of-its-kind in the country, where IOC has tied up with a government body, said corporation chairman and Vasco MLA Carlos Almeida. With this agreement, IOC will be introducing automation at the KTC depots. IOC will provide tags and readers on all KTC buses and dispensing units, which will ensure fuelling of authorized vehicles only. KTC chairperson Carlos Almeida said, “If we have to sustain ourselves, we cannot just depend on revenue. We have to control our expenditure and IOC’s offer to help us has come as a huge blessing.” Almeida said that KTC has sent a proposal to the chief minister to start its own petrol pump at Margao. Senior divisional consumer sales manager, Pune divisional officer, Zubeen Garg, said, “Automation will have immense benefits, such as no misuse or loss of fuel, real time information on fleet’s fuel utilization, alerts on irregular behaviour and abnormal fuel consumption, no leakage, better safety, etc”. The project is estimated to cost 1 crore, which will be borne by IOC. Luis Aparicio Authentic Jersey
ONGC seeks complete autonomy on pricing of natural gas to boost output
State-run Oil and Natural Gas Corporation (ONGC) is seeking total pricing freedom for natural gas produced in the country, arguing it would help boost local output and develop India into a vibrant gas market. “We are making the case before the government that the gas prices could be deregulated,” Chairman Dinesh Sarraf said. “Some regulatory mechanism can be put in place to protect the interest of the consumers. But let the prices be deregulated. Let it be determined by the buyers and sellers collectively through the market forces.” With this ONGC has given a new thrust to the demand from Reliance Industries, BP Plc, and other private sector gas producers in the country to free up pricing. The government has kept a lid on prices through a formula worked out two years ago that aligns local with international rates, and a gas allocation policy that prioritises sectors for receiving local supply. The government has allowed pricing freedom to gas blocks that will be auctioned under new exploration and production policies. Sarraf said “the point has been made in brief ” to the government and a detailed note would soon be sent. He said he was optimistic the government would consider the company’s plea of pricing freedom because the company’s aim behind this was to help raise domestic gas output, the same as that of the government. A few months back, ONGC had also written to the government that a floor price be fixed for the domestic prices. “The markets are what they are and prices are coming down. And price which we get today is $2.5 only. So we believe that government needs to reconsider this because new exploration and development can get encouraged if prices are better. So we have taken up the matter with the government,” said Sarraf. Domestic gas prices have halved to $2.5/unit in two years, tracking global decline, dropping lower than ONGC’s average gas production cost of $3.5/unit. ONGC loses Rs 4200 crore in revenue and Rs 2400 crore in profit annually for each dollar’s drop in local gas price. “Ultimately we want higher dollars. If it is a formula or a price, that they (government) will decide,” Sarraf said. He added that “If gas prices are increased in general, many of the gas discoveries which are not otherwise viable would become viable.” Josh Bailey Jersey
Oil investor impatience grows over global surplus
Oil investors are growing increasingly disgruntled with the pace at which supply and demand are rebalancing, cutting their bullish bets and pushing the benchmark price to its biggest discount relative to future prices in nine months. The premium of Brent crude futures for delivery in six months over those for prompt delivery, one measure of confidence in the market outlook, on Monday shot to its largest since February, the point at which OPEC first floated the idea of a possible deal on output to erode a two-year-old global surplus. The spread, or contango, is now at $3.51 a barrel , up from $2.30 at the end of September, when OPEC announced its intention to strike a deal to cut production when it meets in Vienna later this month. Generally, a widening in this spread can indicate one of two things: either investors have grown more pessimistic over the prospect of a rally in prices for prompt delivery, or they are more optimistic over the likelihood of a longer-term rally. In this case, the prompt Brent contract has led the move, having fallen by 5.2 percent since the end of September, compared with a fall of 2.6 percent in the price of oil for delivery in six months. “The increasing contango is really about the physical side of the market,” SEB chief commodities strategist Bjarne Schieldrop said. “We’ve had an increase in inventories rather than a decrease that has coincided with refinery outages. It’s not a pretty sight.” The most recent Reuters survey estimated OPEC supply hit a record high of 33.82 million barrels per day (bpd) in October, up 130,000 bpd from September and up 2.2 million bpd from October last year. Since announcing their intention to cut production to a range of 32.5 to 33 million bpd following a meeting in Algiers, the discord among the world’s largest exporters has grown. Libya, Nigeria, Iraq and Iran have clamoured to be exempt from any reduction as they recover market share lost to civil unrest and, in the case of Tehran, international sanctions. Those four already represent a third of OPEC output and an exemption would increase the pressure on Saudi Arabia and its Gulf neighbours to deliver the bulk of the cuts. UPHILL DIPLOMACY Highlighting the increasingly uphill battle to achieve consensus, OPEC sources told Reuters last week that Saudi Arabia had warned it could raise output steeply if rival Iran refused to limit supply. Despite OPEC Secretary-General Mohammed Barkindo attempting to soothe concerns about the group’s ability to cut meaningfully, oil prices are at their lowest in nearly two months, having unwound the gains made since late September. “The problem in a nutshell is that too many members want higher prices without making any sacrifices and the market is losing patience,” PVM Oil Associates analyst David Hufton said in a report on Monday. “Confidence in a successful OPEC outcome has evaporated.” Investors have cut their net long holdings of crude oil futures and options by around 100 million barrels in just two weeks. Another question hangs over non-OPEC members, specifically Russia, the world’s largest producer of crude, and their willingness to join in an effort to freeze or cut output. Russia set a new post-Soviet record high in October of 11.2 million bpd, underscoring the challenge the government might face in agreeing to freeze output. Mike Ditka Womens Jersey