Tamil Nadu set to join UDAY after months of reluctance
Tamil Nadu will join the Central government’s power utility turnaround scheme Ujwal Discom Assurance Yojana (UDAY) on Monday, after months of reluctance, becoming the 21st state to bail out state-owned distribution firms struggling with mountains of debt. Tamil Nadu’s signing up for UDAY comes after some of the utilities showed signs of turnaround with the help of steps meant to cut power theft and improve efficiency. Former Tamil Nadu chief minister J. Jayalalithaa had firmly opposed the UDAY scheme and some progress was made when Union minister of state for power Piyush Goyal met her at the secretariat on 15 July. Goyal had then stressed that the state will save at least Rs22,400 crore of discoms’ debt in the next three years. According to data from the Central government, the Tamil Nadu Generation and Distribution Corp. (TANGEDCO) has an outstanding debt of about Rs75,700 crore as on September 2015. Out of this, 75% of the debt belonging to distribution business alone will be taken over by the state as the turnaround scheme does not cover power generation business. Tamil Nadu has time till end of March 2017 to take over the debt, which will not be counted for the state’s borrowing limit of 3% of gross state domestic product. Unlike in many other states, Tamil Nadu has not separated power generation and distribution activities into different corporate entities. Jayalalithaa had earlier requested Prime Minister Narendra Modi to consider certain requests of the state government and “ensure that the State finances are not adversely affected, while taking over the debt of TANGEDCO”. Haryana’s Dakshin Haryana Bijli Vitaran Nigam Ltd was the first power utility to turn around under UDAY. It reported a profit of Rs201 crore in the first half of 2016-17 from a loss of Rs479 crore in the full financial year 2015-16, a power ministry analysis of utilities’ health showed last month. Assam and Telangana had joined the scheme on 4 January. The other states that are still not part of UDAY are Sikkim, Karnataka, Kerala, West Bengal and Odisha. Erratic electricity supply became the rallying point during the 2011 election campaign and toppled the Dravida Munnetra Kazhagam’s (DMK) to make way for the All India Anna Dravida Munnetra Kazhagam (AIADMK). Even during the 2014 general assembly election, it was top on the agenda. Recently, in the run-up for the 2016 assembly election, the AIADMK promised up to 100 units of free electricity. The scheme has been implemented since the party came into power for the second consecutive term in May last year. In Tamil Nadu, where consecutive governments have projected electricity as a welfare scheme through highly-subsidised electricity tariffs, the state has been wary of the Centre’s interference and has seen it as a threat to its federal framework. The same applies for other Central government schemes like good and services tax (GST), National Food Security Act (NFSA) and National Eligibility cum Entrance Test (NEET). While the state has strongly opposed these schemes, critics have claimed that the state compromised its stand after Jayalalithaa’s hospitalisation on 22 September. The 68- year-old died on 5 December. “Apart from GST, the chief minister also opposed UDAY, as the tariff will have to be revised every three months, and NEET, as it will hit rural students. She had opposed the Food Safety Modernisation Act too. But when the chief minister is in hospital, the government has approved all the proposals by surrendering itself to the Centre,” said DMK leader M.K. Stalin on 8 November. Jamie Oleksiak Womens Jersey
Power Ministry to give major thrust to hydro power, says Piyush Goyal
There will be a major thrust on hydro sector by different ways to bring down cost of electricity from this renewable source, Power Minister Piyush Goyal said today. “I shall be going later this week to Arunachal Pradesh also to review some of the power projects. In coming few months, we want to give major thrust by different ways to bring down the cost of hydro power,” Goyal told reporters here. “Hydro power is also renewable energy. We are working on a position paper after studying all international experiences, we will look very seriously to see whether these should be categories as renewable power,” the minister said. In the present scenario, the small hydro projects up to 25 MW are treated as renewable energy while others do not get incentives being provided by the government for encouraging clean energy. New & Renewable Energy Ministry is in the process of drafting a Cabinet proposal to reclassifying large hydro power plants as renewable projects, a move which can help India achieve clean power capacity of 230 GW by 2022. India has set an ambitious target of adding 175 GW of renewable energy capacity by 2022 which includes 100 GW of solar, 60 GW from wind, 10 GW from bio-power and 5 GW from small hydro-power (up to 25 MW capacity each). Of the 310 GW installed power generation capacity, 43 GW comes from large hydro projects (above 25 MW) and 46 GW from other renewable power generation capacities. The minister further said, “We would like to encourage the (hydro power) sector after it is categorised as renewable, speed up the projects, get back all the stalled projects and some support to the hydro sector because it is one sector which gives you sustainable quality power for over 100 years.” The minister commended Tamil Nadu for joining UDAY scheme and expressed hope that Kerala, Sikkim and West Bengal would also join the scheme meant for revival of debt-stressed distribution companies. A senior official said, “Sikkim will become the 22nd state to join UDAY scheme this month only while Kerala has also given its in-principal consent to join the scheme.” The official further said that after Kerala (with Rs 6,000 crore debt) joins the scheme, about 95 per cent of total discoms debt of Rs 4 lakh crore would be covered. Under UDAY scheme, 92 per cent of the total debt of discoms in the country has already been covered today under UDAY after Tamil Nadu became 21st state to join the scheme. However, the official said West Bengal (with Rs 13,000 crore debt) is going slow on the move but would eventually join the scheme. Later in the day, Goyal dedicated the world’s largest street light replacement in South Delhi Municipal Corporation area where two lakh LED lights replaced inefficient lamps. James Van Riemsdyk Authentic Jersey
Union Budget 2017-18: Govt should address GST, demonetisation concerns, says Hartek Power
The upcoming Union Budget for 2017-18 must address the concerns of the industry related to the impact of the Goods and Services Tax (GST), demonetisation and provide for fiscal incentives to boost the domestic manufacturing of solar panels, Hartek Singh, Chairman of Chandigarh-based Engineering, Procurement and Construction (EPC) firm Hartek Power, has demanded. The government should address the concerns associated with GST and demonetisation by announcing measures which boost investments and limit the possible fallout of the two policy decisions, Singh told ETEnergyWorld in an exclusive interview. “While the upsurge in cash volumes in banks as a result of demonetisation will bring down interest rates, which will further boost investments in the power sector, GST will also turn out to be a game changer in the long run,” he said. The first generation entrepreneur also said the Modi government should announce special incentives for the renewable energy sector to offset the possible increase in project costs owing to GST but added it could be rather premature to foretell the impact of GST on the power sector as the GST Council is still in the process of giving a final shape to the new tax regime. The Power System EPC business vertical of the Hartek Group registered a revenue of Rs 75 crore in 2015-16. In the current financial year, the company is expecting to generate a revenue of Rs 150 crore from the EPC business, a twofold increase over last year, Singh said. In the solar domain, Hartek Power undertakes EPC projects from independent power producers (IPPs) and specialises in grid connectivity. At the end of March 2016, Hartek Power had connected 258-Megawatt solar projects to the grid. With 460-Mw orders in its kitty in the first half of the current financial year, the company is all set to execute more than 500-Mw solar EPC projects in 2016-17 alone. “The government should encourage indigenous manufacturing of solar panels so as to reduce dependence on imports by extending special concessions to domestic manufacturers on one hand and increasing import duty on the other. India is heavily dependent on imports for solar panels owing to limited manufacturing capacities and high cost of financing. Low-cost finance options can go a long way in promoting the Indian solar panel industry,” Singh said. He added that the government must also allocate more funds for Research and Development (R&D) to introduce cutting-edge power technologies. India has the opportunity to become a manufacturing powerhouse if home-grown technology is given the attention it deserves under the Make in India campaign, he said. Singh also said the he expects the government to allocate more funds for upgrading grid infrastructure for renewable energy projects and announce incentives to attract private investments in the Transmission & Distribution (T&D) domain. Pavel Bure Authentic Jersey
Despite GSPC buyout, ONGC financials are strong enough, says S&P
Given the continuing upward trend in global crude oil prices should help the national explorer ONGC to maintain its credit profile despite the recent leveraged buyout of Gujarat State Petroleum’s oil blocks for USD 1.2 billion, says a report. “Improving oil prices should enable ONGC to maintain adequate, albeit reduced, buffer in its financial ratios, following the acquisition of 80 per cent state in GSPC’s Deen Dayal West gas field,” Vishal Kulkarni, an analyst at S&P said in report today. “Since we expect the GSPC acquisition to enhance ONGC’s gas reserves by 1.1 trillion cubic feet and help increase gas production by 8-9 per cent when commercial production starts, we expect the company to be able to maintain its stand-alone creditworthiness over the next 12-24 months,” the report added. The report further said the state-run company still has enough financial headroom to absorb the acquisition of cost USD1.2 billion. The December 23, 2016 acquisition includes the transfer of operatorship of the field to ONGC and USD200 million of another six discoveries depending on their development progress. The gas production from this Deen Dayal West field has started on a trial basis and will likely reach commercial stable production by 2019. The field is a high-pressure, high-temperature field and is eligible for the premium domestic gas pricing for gas from difficult fields. Despite this, the company would have to incur residual capital spending of about USD1 billion for the field, he said. It can be noted that ONGC has been displaying a rising appetite for acquisitions to enhance production over the past two years, and the report expects this trend to continue. The GSPC acquisition follows ONGC’s acquisition of a stake in a producing field of CJSC Vankorneft for about USD2 billion. The acquisitions came at a time when hydrocarbon prices are low. And these buyouts have depressed ONGC’s financial metrics, with the ratio of funds from operations to debt now close to about 40-45 per cent from about 80 per cent as of March 2016. “Nevertheless, we expect ONGC to sustain its financial position in line with its ‘A-‘ stand-alone credit profile. The ratios could have deteriorated below our downgrade threshold but for the improvement in oil prices since late 2016,” the report noted. “Continued appetite for acquisitions of USD1 billion or more a year or oil prices falling below USD45 a barrel could strain ONGC’s standalone ratings,” he said. Nazem Kadri Authentic Jersey
ONGC gets price guarantee from GSPC in $1 billion KG basin deal
Gujarat State Petroleum Corp (GSPC) will buy entire output at a predetermined price from the KG Basin gas field that it has agreed to sell to Oil and Natural Gas Corp (ONGC) for $1billion, a key provision that addressed gas pricing concerns of India’s largest crude producer and helped seal the deal, senior executives at the two firms said. “There is an initial understanding that we will support a particular price for five years,” said JN Singh, managing director of GSPC. “We have enough capacity in the system to absorb the gas from that field.” Late last month, ONGC agreed to acquire the entire 80% participating interest of GSPC along with the operatorship in the Deen Dayal West field where geological challenges have delayed the commercial production by several years while mounting the Gujarat firm’s development cost and overall debt. Senior executives at ONGC, who requested not to be named, said the agreement provides for GSPC buying gas for the field’s lifetime at a price linked to forward prices, which are available for next five years. The forward prices for the fifth year have been taken for the remaining life of the field, they said. The government publishes the maximum price producers can charge for gas from difficult fields such as Deen Dayal West twice a year. If government prices were to slide below the forward prices, GSPC will compensate ONGC for the deficit, executives said. Price of gas and the reserves GSPC’s field held were the two prickly issues between the two companies. The government ceiling for the gas price today is $5.30/unit. ONGC needed $6/unit to make the acquisition return 14% on investment, the state firm’s expectation of internal rate of return from its projects, sources said. This is when GSPC offered price support, sources said, adding that GSPC’s liability has been guaranteed by the Gujarat government. Before the two companies started talking prices, they spent more than a year squabbling over the amount of gas that can be recovered from the Deen Dayal West field, an issue that opposition parties also used to criticize the takeover talks, portraying it as an effort by ONGC to bail out GSPC burdened with a debt of about $3 billion. ONGC’s technical experts estimated the recoverable reserves at about 27.8 billion cubic meters (BCM) while GSPC’s estimate was 42 bcm, sources said. The two firms finally agreed on 29.9 bcm, a figure the Directorate General of Hydrocarbons (DGH) had estimated years ago. The estimate of Ryder Scott, appointed by ONGC for the job, was lower than ONGC’s inhouse estimate, sources said. GSPC’s debt will not come to ONGC following the deal, said D K Sarraf, chairman of ONGC. The Deen Dayal West field and its future income are hypothecated with lenders. “GSPC has to give us an unencumbered asset,” Sarraf said. The board of ONGC took almost 11 hours over two days to study the deal before signalling green. “We wanted to explain everything to every member on the board. The deliberation took long and in the end there was a unanimous decision,” said Sarraf. When the two companies had signed a preliminary pact in November, they also formed a three-member panel of retired bureaucrats to help resolve differences over valuation. “Since we agreed on a valuation on our own, their intervention wasn’t required,” Sarraf said. Demarcus Walker Jersey
Essar Ports plans Rs 106 billion greenfield port in Gujarat
Essar Ports Ltd, one of the leading port companies in the country, is exploring the option of setting up a greenfield commercial port in Gujarat, according to three officials close to the development. The company has recently given a project proposal to the state’s maritime regulator Gujarat Maritime Board (GMB) for the same. If it materializes, this would be the company’s first all commercial port in the country. Currently, the company operates five ports, all of which are largely for captive purpose although they handle some amount of third party commercial cargo as well. According to the investment proposal made to GMB, the company has proposed an investment of Rs 106 billion for the port project and it plans to employ about 1,000 people, according to two of the three officials quoted. The company aims to develop a commercial multi-purpose port preferably in Devbhoomi Dwarka district with facilities capable of handling bulk, general cargo, liquid including petroleum and oil lubricants, chemicals and LPG. A senior GMB official in the know of the development said that the Essar Ports wants to develop a commercial port with a draft of about 18 metres with a cargo handling capacity of 100 million tonnes per annum (MTPA). Presently, there are only two commercial ports in India that handle a cargo of 100 MTPA or more including the Adani group run Mundra port in Kutch and Kandla Port Trust run government port in Kandla, Kutch. Reliance Industries’ captive port at Sikka near Jamnagar handles close to 125 MMTPA, which is mainly used for its refinery and petrochemical projects at nearby Moti Khavdi. Apart from cargo, Essar Ports has also proposed to set up a 5 MMTPA liquefied LNG import and re-gasification facilities for the proposed project. “The state maritime board has already identified locations for greenfield ports like Kacchigadh and Maroli for private development and these would be offered to Essar for their new port. However, since this is not a captive project, as the per the state’s policy for private ports, the regulator might call for bidding,” said the same senior GMB official quoted earlier. Essar officials when contacted refused to comment on the development. It was not immediately clear if Essar Ports and the state government would sign a memorandum of understanding (MoU) at the upcoming Vibrant Gujarat Global Summit 2017, where a lot of companies are expected to sign such non-binding pacts. “Essar Ports had volumes but it could not get value for commercial cargo due to limitations of a captive port. With their expertise in handling port business, a multi-purpose greenfield port in south Gujarat would be more viable as GMB has already identified few good sites in the region. Also, it has good connectivity to northern hinterland and many industries have also set up there,” according to Ramesh Singhal, chief executive, i-Maritime Consultancy, which tracks the port and shipping sector. In October, the Essar group promoters Ruia family signed a deal with Russia’s Rosneft and partner consortium to sell their 98% stake in Essar Oil. The $12.9 billion deal included the 20 MTPA Vadinar refinery and Vadinar Port in Gujarat. It is likely to close by March. The company had said in a 15 October statement that the deal would help Essar deleverage almost 50% of its Rs 880 billion debt and substantially reduce interest costs. Essar Ports current has a cargo handling capacity of 140 MMTPA which it plans to expand to 194 MMTPA over the next few years. Essar Ports has five operational port terminals at Hazira, Vadinar, Paradip, Salaya and Vizag Iron Ore and is estimated to handle approximately 90 MMT of cargo during FY17.
Sixth LPG bottling plant for Telangana proposed
Union Minister assures to convene a meeting of oil companies to discuss the issue A serious attempt to secure the sixth cooking gas bottling plant in Telangana was initiated last week with a request to Union Petroleum Minister Dharmendra Pradhan to sanction one for the Bharat Petroleum Corporation Limited along the railway track in Karimnagar-Warangal. The BPCL is the only one among the three LPG cylinder-supplying oil companies not to have a second bottling plant in the State. The Hindustan Petroleum Corporation was sanctioned its own second project at Jammikunta in Karimnagar district two years ago and is set to complete the same in 18 months from sometime next week when it takes possession of the entire land required. Both companies have plants presently at Cherlapalli here while the Indian Oil Corporation is also located there and at Timmapur in Mahabubnagar district. Installed capacity The three companies together have an installed capacity of 628 thousand metric tonnes (tmt) per annum but it has still left a gap of about 2 million families without LPG connections. The new HPCL unit at Jammikunta with a capacity of 60 tmt will partly meet the fresh demand but not cover the future requirements entirely, sources in the oil industry said. In this context, the TRS led by its Karimnagar MP B. Vinod Kumar met the Union Minister last week seeking a bottling plant for the BPCL at Kamalapur, Jammikunta, Elkaturthi or Uppal in Karimnagar-Warangal to cater to north Telangana districts. Mr. Pradhan promised to convene a meeting of all three oil companies as early as possible to take stock of their infrastructure and requirements of their regional offices in the State, Mr. Vinod Kumar said. There are about 10 million LPG connections in Telangana but only 9.1 million of them were active. Though there were no constraints of supply as the companies delivered refill in two days in towns and Hyderabad and three to four days in rural areas, they set their sights on expansion to meet future requirements. Also, the companies were able to give new connections across counters on demand. Augmentation The BPCL’s lone plant at Cherlapalli with a capacity of 170 tmt per annum produced 40,000 cylinders per day and met 2.3 million connections across the State. The IOC is going for augmentation of its Cherlapalli unit from 120 tmt to 250 tmt by March-end. This would take its overall capacity to 370 tmt per annum while the HPCL which is producing 218 tmt per annum at Cherlapalli will add 60 tmt per annum when its second unit at Jammikunta is commissioned. There are about 10 million LPG connections in Telangana, but only 9.1 million are active
Union Budget 2017-18: Oil industry demands exemption of GST, ST on LNG transportation, re-gasification
With the Union Budget for the next fiscal close on the heels, the oil and gas industry has made a slew of suggestions to the finance ministry ranging from exempting transportation of LNG from a foreign country as well as its re-gasification from levy of GST and service tax, changing the income tax norms governing tax holiday and incentivising the shift towards cleaner fuel for downstream companies. “In order to promote gas-based industry in India, it is suggested that transportation of LNG by a vessel from a place outside India under voyage charter basis may be exempted from levy of Service Tax. Similarly, the activity of re-gasification of LNG also needs to be exempted from levy of Service Tax,” Federation of Indian Petroleum Industry (FIPI) said in its pre-budget memorandum. India’s domestic production of natural gas is not enough to cater to the increasing demand and large scale imports are required to augment the supply of natural gas for use in priority sectors such as Fertilizer, CNG, LPG and PNG. Currently, service tax (15%) is applicable on the transportation of LNG by vessel from a place outside India to the first customs station of landing in India. Also, imported LNG has to be re-gasified and converted into natural gas for transportation and consumption in India. The activity of re-gasification of LNG attracts Service Tax. “It is also suggested that the activity of transportation of LNG by a vessel from outside India to India may be exempted with status of ‘zero rated supply’ under GST regime. Similarly, the activity of re-gasification of LNG also needs to be exempted from levy of GST,” FIPI added. The industry body has also stressed on changing the various income tax norms pertaining to tax holiday for companies. Income tax provision of section 80 IB (9) provides a seven year tax holiday for profits derived by an undertaking from the production of mineral oils in India. However, the Finance Act, 2016, had introduced a sun set clause in the provisions of section 80-IB (9), which provide that no tax holiday would be available if commercial production is started after 31st March, 2017. “Cut-off criteria for the phasing out of tax holiday under section 80-IB (9) may be kept as the intimation of discovery on or before 31.03.2017 rather than the start of commercial production by that date. Alternatively, it should be made applicable on Production Sharing Contract (PSC) signed after that date and not on the PSC already signed and in operation,” FIPI said. With a view to boost the much needed investments in the oil and gas sector, the industry body has also demanded extending the tax holiday benefit from the existing seven years to 15 years or for a period of at least 10 consecutive years within a 15 year period from the year of commercial production. FIPI also said the government needs to clear the air on the definition of the term “Mineral Oil” by including both crude oil and natural gas under it for the purpose of section 80 IB (9) retrospectively irrespective of NELP rounds. The recommendation assumes importance at a time when frequent changes on the status of tax holiday applicable to oil and gas as per budget notification (NELP VII to NELP IX), has created an uncertainty affecting upstream investments in the natural gas segment. The domestic industry also flags concerns about the implementation of BS-VI emission norms by April, 2020 and the need to incentivise the shift for downstream companies. Hence, the industry body has suggested that 100 percent depreciation allowance be provided for projects undertaken for up-gradation of fuel quality. The industry seems confident that many of its key recommendations will be accepted by the government. New measures to boost the sector will be keenly watched in the budget with the recent hardening of global crude oil prices. In order to promote the import of LNG, the industry has also demanded inclusion of LNG facility at port location in the definition of “industrial infrastructure” in section 80-IA of Income Tax Act. Mikko Koivu Authentic Jersey