Jaitley’s Plans For Oil And Gas Require Caution And Review
Finance Minister Arun Jaitley has revived through his budget speech a proposal first made in the mid-90s, and then in the early 2000s, that our public sector undertakings in the oil and gas sector be merged into one giant oil behemoth whose market value would top $100 billion, close to that of Exxon. In arguing for “an integrated public sector oil major to match the performance of international and domestic private sector oil and gas companies”, Jaitley succinctly summed up his reasons for such a move: “It will give them the capacity to bear higher risks, avail economies of scale, take higher investment decisions and create market value for shareholders”. Those who opposed the proposal in its earlier avatars are in the forefront of again raising a resounding “No”. They say competition will be stifled; monopolistic tendencies will be reinforced in marketing practices; inefficiencies will increase because Indians cannot effectively manage mega-enterprises, especially in the public sector; that funds can be found in partnerships rather than mergers; that mergers will lead to lay-offs; and that ripe old chestnut – that the “culture” of nationalized companies is radically different to that of the companies born in the womb of the public sector. A word by way of background is, I think, necessary to appreciate the argument on both sides of the divide. The oil sector essentially comprises two segments: upstream and downstream. “Upstream” refers to exploration and exploitation of crude oil and gas; “downstream” to refining, transportation, marketing and imports-exports. As for “upstream”, oil was discovered at Digboiin upper Assam in the 1860s, second only to the first discovery at Pennsylvania in 1859. Then, over the next 100 years or so, no world oil major found any crude anywhere else in the country. By independence, therefore, the conventional wisdom was that India was hydrocarbons-deficient and there was nothing anyone could do about that except import whatever was required. One man disagreed: K D Malaviya, a junior minister for Mines in the Nehru government. Determined to prove that an indigenous Indian effort could succeed where foreign endeavours had failed, he persuaded the cabinet to let him set up the Oil and Natural Gas Commission (ONGC) in Patiala House, Dehradun. ONGC struck gas in Ankleshwar, Gujarat, and began its saga towards emerging as India’s own giant, the discovery of Bombay High off-shore, operationalized in the early ’70s, being its single most important find. The principal reason behind ONGC succeeding where others had failed was the primacy given to intensive innovative research by the ONG Commission. But once ONGC was converted from a Commission into a Corporation, its eye got firmly fixed on the financial bottom-line. And after it got a guaranteed rentier income by being allowed under the reforms of the ’90s to sell its crude oil in the domestic market at international prices, it has grown enormously wealthy because crude prices have gone through the roof – but without a single path-breaking oil discovery to its credit. Instead of technological breakthroughs, ONGC has moved its huge unearned income downstream into oil refining at Mangalore and miscellaneous other projects. R&D and “knowledge networking” with technology innovators the world over have been given the go-by. Worse, ONGC have set the example for each oil PSU to seek upstream-downstream integration, leading to a wide dispersal of national resources, instead of concentrating these scarce and precious resources in one mega-entity. Downstream, when war broke out with Pakistan in 1965, the Western powers directed their private oil multinationals operating in India to stop making any oil available to the government of India with a view to starving our armed forces of the fuel essential to the prosecution of the war. An infuriated Indira Gandhi decided to nationalize these companies as a measure of crucial national security. And so were born a plethora of smaller oil PSUs (Bharat Petroleum, Hindustan Petroleum, etc) to join the Indian Oil Corporation, by far the biggest corporation of the lot, in the downstream public sector. The division of work was clear: ONGC and a few smaller PSUs upstream; IOC and its smaller sisters downstream; and the Gas Authority of India Ltd (GAIL), with one or two others, to look after the natural gas segment, both upstream and downstream. The well-intentioned economic reforms of the ’90s found their reflection in the petroleum sector. The New Exploration Licensing Policy (NELP) was the key reform measure. It threw open upstream exploration to multinationals and Indian private sector companies. It also enabled the extant oil sector PSUs to start encroaching on each other’s territory, upstream entities going downstream, and downstream entities sailing upstream. Liberalization also meant Indian companies being encouraged to acquire, explore and exploit foreign properties to give a new dimension to India’s search for energy security. NELP’s specific policy innovation was that upstream crude discovered in India would be marketed in India at international prices, while the domestic price of petroleum products (like petrol) and gas would be market-determined. It worked beautifully for a while. Foreign majors started taking an interest in both upstream and downstream investment, as did Indian private sector enterprises like Reliance and state-owned start-ups like the Gujarat State Petroleum Corporation (GSPC). For upstream India, 2003 was the golden year. On-shore, Cairn struck oil in Barmer (where both ONGC and Shell hadfailed) and, off-shore, Reliance and GSPC announced such huge finds off-shore the Krishna-Godavari basin that informed observers began asking whether India was not likely to become self-sufficient in its energy requirements. Abroad, our participation in the oil and gas find in Sakhalin, at the eastern outreach of the Russian Federation, threw us in the company of the Big Boys. We were now in competition with China and would beat the problem of “peak oil” by throwing Indian multinationals, public and private, into the international arena. At the stage when these reforms were being undertaken, the late ’90s, oil was selling internationally at $10 a barrel. Price controls on petrol and other products could be relaxed or even abolished. As
Bangladesh’s Petrobangla seeks $1.4 billion government funding for LNG imports
Petrobangla has sought $1.4 billion from the government to foot LNG imports in 2018, which was around 77.77% of the estimated total cost of importing, LNG cell chief Mohammed Quamrumman said Tuesday. “We sought the funding from the government as subsidy as we would not be able to realize the LNG import costs through sales to consumers in the domestic market,” he said. The domestic price of gas is $2.50-3/Mcf, which is much lower than international levels, Quamrumman said. Petrobangla has estimated the total cost of LNG imports at around $1.8 billion/year from 2018 when Bangladesh’s first floating storage and regasification unit that is being developed by US-based Excelerate at Maheshkhali island in the Bay of Bengal, is expected to be ready. The FSRU will have an initial handling capacity of around 500,000 Mcf/d and ultimately up to 700,000 Mcf/d of LNG. Petrobangla planned to start importing around 500,000 Mcf/d of LNG from next year to cater to rising domestic demand, Quamrumman said. It expects to get around $400 million/year through domestic sales of regasified LNG. The proposal was now pending approval by the Ministry of Finance, Quamrumman said. In December, officials said that Bangladesh was set to announce the selection of India’s Reliance Power to build a 500,000 Mcf/d FSRU at Maheshkhali island. Petrobangla has also signed a contract with Summit LNG Terminal Company Pte. Ltd. for a second FSRU at Maheshkhali. It signed a memorandum of understanding last year with India’s Petronet to build an onshore LNG import terminal at Kutubdia island with the capacity to handle around 5 million mt/year of imported LNG.
Saudi Aramco to buy $7 billion stake in Petronas’ RAPID refinery project
The deal signing was witnessed by Malaysian Prime Minister Najib Razak and Saudi King Salman, currently on a state visit to Malaysia – the first in over a decade. “Malaysia offers tremendous growth opportunities and today’s agreement further strengthens Saudi Aramco’s position as the leading supplier of petroleum feedstock to Malaysia and Southeast Asia,” Aramco Chief Executive Officer Amin Nasser said. “With RAPID’s strategic location in a prolific hub, it would also serve to enhance energy security in the Asia-Pacific region.” Petronas’ Chief Executive Officer Wan Zulkiflee Wan Ariffin told reporters Aramco will take a 50 percent stake in RAPID’s refinery and cracker project. Aramco will supply up to 70 percent of the crude feedstock requirement of the refinery, with natural gas, power and other utilities to be supplied by Petronas. “To my knowledge, it is the largest single downstream investment made by Saudi Aramco outside the kingdom,” said Sadad al-Husseini, a former Aramco executive. RAPID, part of the Pengerang Integrated Complex (PIC) in the southern Malaysian state of Johor, will contain a 300,000 barrel-per-day oil refinery and a petrochemical complex with a production capacity of 7.7 million metric tonnes. The total development cost has been estimated at $27 billion. Like neighboring Singapore, Malaysia’s Pengerang peninsula sits between the Malacca Strait and the South China Sea, through which almost all the Middle East oil and gas bound for northern Asia’s industrial powerhouses of China, Japan and South Korea is shipped. Petronas on Tuesday said almost 60 percent of the PIC development is complete, and that it is on track for refinery start-up in 2019. Petronas CEO Wan Zulkiflee said the idea for a partnership on RAPID was first mooted in 2014 when he met the then Aramco Chief Executive Khalid al-Falih, now the Saudi energy minister, in Geneva. Sources had told Reuters in January that Aramco had pulled back from a planned partnership with Petronas on RAPID over concerns about returns from the project. But the deal was back on within a month in time for King Salman’s visit to Malaysia. “We started negotiations three years ago. There was not any plans to break out of the agreement… From the beginning we came with the intention to stay,” Aramco CEO Nasser said on Tuesday. The Aramco investment comes as a relief for Petronas which has cut expenditures in the past year as oil prices have slumped from over $100 a barrel in 2014. In early 2016, Petronas said it would cut spending by up to 50 billion ringgit ($11.27 billion) over the next four years. Dividends to the government coffers have also been slashed. Saudi Energy Minister Falih echoed Nasser’s comments, saying Saudi Arabia would use the Malaysian investment as a platform to other investments in southeast Asia. “We will encourage the private sector of Saudi Arabia to come and look at Malaysia as an investment for its own market and also to address the needs for the broader region,” he said. Jaromir Jagr Jersey
Bangalore:TOLL COLLECTION UP ON NHAI BOOTHS BUT ROADS CRY OUT FOR ATTENTION
The toll collection at booths erected by the National Highway Authority of India has gone up over the years, but there has been no corresponding relief for motorists on the roads. There are many stretches which are nightmares for motorists to drive on, with many accidents being reported in the absence of proper safety measures. The purpose of toll collection by NHAI is to build a good network of roads between cities and bring down freight charges. The roads from Karnataka to Tamil Nadu, which provides the ports for the state’s exports, are in poor condition, adding to the burden of industrialists in the state. A recent report released by the central government shows that the total toll collection in the state in the year 2016-17 till December 16 was Rs 217.39 crore; the total collection made in 2014-15 fiscal was Rs 216.94 crore. The toll collection for the year 2015-16 was around Rs 268.37 crore. Despite the increase in collection and allocation of funds for building of roads, there are many stretches on the highways that are crying for attention. The stretch connecting Bengaluru to Northern-Karnataka, fast evolving as an industrial hub, is one such example and could do with better infrastructure.
Allow global bids only for projects with land, green clearances: Amitabh Kant
In a bid to make India’s vast infrastructure sector more attractive to foreign investors, a senior government official has suggested that India open only projects that have secured land acquisition and environment clearances for international bids. “As the infrastructure sector opens up in India…. it is important that when many of these projects are structured, they are de-risked with all approvals, including land and environment, taken upfront and put in the SPV (special purpose vehicle) and then the SPV itself should be bid out, so that international companies can come in and play a major role and they don’t have to run around getting clearances,” said Amitabh Kant, chief executive officer of NITI Aayog. Kant was addressing a seminar on Quality Infrastructure: Japanese Investment in India, organised by New Delhi-based think tank Centre for Policy Research and the Japanese embassy. Instances of foreign infrastructure projects languishing for want of environmental clearances are common in India. Projects slowing down or coming to a halt due to the lack of land acquisition permissions are also common. Land acquisition problems have dogged the Dedicated Freight Corridor (DFC) Project, under which freight railway lines will be constructed along the Western Corridor between Delhi and Mumbai and the Eastern Corridor between Ludhiana, Delhi and Son Nagar. The DFC is an important part of the Delhi-Mumbai Industrial Corridor (DMIC) initiative, which is an India-Japan collaborative project for comprehensive infrastructure development to create India’s largest industrial belt zone, linking the industrial parks and harbours of the six states between Delhi and Mumbai in order to promote foreign export and direct investment. Under the DMIC initiative, plans are also being implemented to create industrial parks and logistics bases with well-developed infrastructure up to 150km on either side of the Western Corridor. Besides this, India is seeking investment in roads, ports, railways and other areas. In his speech, Kant said Japanese companies in India should be provided with a conducive ecosystem to “enable them to create top class quality infrastructure in India because it will be very difficult for us to create good quality infrastructure of the next century”. “India’s future for infrastructure lies with Japan and in many ways the future of Japan does not lie in Japan, it lies in India,” he said. Kant also urged Japanese firms to be “cost-competitive” and take more risks in India. “I would like to say that Japanese companies should take more risks and they need to become cost-competitive…by relocating their manufacturing bases to India,” he said. Citing the example of Canada’s Bombardier, Kant said that the firm had created a manufacturing base in India and was producing Metro train coaches for the Indian as well as the Australian markets. Kevin Kiermaier Authentic Jersey
Jaipur:Ministers to take up joint venture contract’s termination with Nitin Gadkari
To resolve the long-pending Ring Road issue, two state ministers will meet Union minister Nitin Gadkari on Tuesday in New Delhi. In the meeting important discussions regarding termination of Jose-Supreme joint venture (JV) contract and appointment the National Highway Authority of India (NHAI) for construction of 47-km Ring Road project will be made. A senior JDA official informed, “Representatives of existing firm and bankers will too be present in the meeting. Final negotiations will be done in the presence of minister.” The JDA has recently sought legal opinion regarding terminating the firm. The advocate general (AG) has suggested termination of the contract after providing it the expenditure spent by the firms. The decision has to be taken regarding payment of expenditures. As no concrete decision to terminate the firm till date , the project is getting delayed continuously and is all set to miss the June 2018 deadline. After getting assurance of Centre’s support from Union minister Nitin Gadkari, the empowered committee recently decided to terminate the contract of San Jose-Supreme. However, there are possibilities that these firms might approach court and this is the reason JDA consulting law department to avoid any future hassles. “The Centre has directed the state government to forward the proposal after resolving the dispute between both the firms. After this, discussions on proposal to appoint the NHAI will be done by the Centre. We will also inform chief minister Vasundra Raje in this regard,” added an official source. Presently, work on 47km Ring Road, which will connect Ajmer Road to Agra Road, is stalled due to infighting of concessionaire. In June 2011, JDA had selected the joint venture of San Jose-Supreme as final bidder for Ring Road project. As per contract, the awarded firm had to complete work in 24 months. However, even after five and half years, the firms have spent only Rs 78 crore against sanctioned Rs 890 crore. Max Scherzer Jersey
NHAI pledges to complete ingress point in six months
National Highways Authority of India (NHAI) on Monday pledged to complete the ingress point project on Mumbai-Agra highway near hotel Seven Heaven within six months. The TOI had in its February 24 edition reported how motorists were using the puncture at the ingress point to take the highway towards the Mumbai direction or taking the service road from it in the absence of safety arrangements. Senior NHAI officials, who did not wish to be quoted, said the project will be completed on the engineering procurement and construction (EPS) basis. An official said the contract of the company that had constructed the 60-km stretch of the highway from Pimpalgaon to Gonde was terminated in February last year. “As a result, the additional work taken up by the company for the convenience of motorists was left incomplete. The NHAI will finish it now on the the EPS basis, which is a contract arrangement to make all responsible for activities from designing, procuring, constructing to commissioning and handing over of the project to end user or owners,” the official said. The ingress point is under construction for more than three years. In the absence of the ingress point, the motorists who cannot take the highway from Indiranagar have to drive for nearly 5km to take it. In the meantime, some motorists have removed the concrete slab that blocked the incomplete ingress point and are using the puncture to take the highway. The highway, passing through Nashik city, is more of an elevated structure of about 12km comprising flyovers and underpasses, which descend to the ground level in three spots. Thus the speed of vehicles using the elevated structure is extremely high, considering that there is no obstruction to the vehicles. The puncture of the incomplete ingress point used by motorists could prove risky as vehicles simply enter the highway, which catch the motorists on highway unawares. At the same time, many motorists who take the service road from the highway also disturb the traffic on the service road. Four years ago, the widened stretch of the NH-3 passing through the city was thrown open after the completion of the elevated corridor. The widened stretch of the highway has quite a few flyovers, underpasses and bridges between Garware point and Adgaon naka to ensure there is no hindrance to traffic. On completion of the highway, it was noticed that while the rush on service roads along the highway was heavy, the six-lane highway was hardly being used by motorists. If a motorist from the city has to take the Mumbai-Agra highway to go towards Pimpalgaon, Dhule and other places, the only access point were at Dwarka and Mumbai Naka, so a large number of motorists, mainly heavy trucks coming from the Ambad industrial area, had to ply through the service road for nearly five to six km to reach Mumbai Naka or Dwarka to access the highway. Keeping all this in mind, an ingress point was created near Gabriel Company about three years back and opened for motorists. While the problem of motorists (on the stretch between Mumbai Naka and Garware point) of accessing the highway towards Dhule was solved, the problem of motorists towards Mumbai on the other side of the highway is pending. DeShone Kizer Jersey
Lack of space derails AAP plan to redesign roads
The AAP government’s ambitious plan to redesign 11 stretches, along the lines of roads in foreign countries, has hit a roadblock due to “technical faults”. Sources said the roads selected for the project had little or no space to accommodate the proposed redesign. Funds earmarked for the project, Rs 100 crore, have reportedly been surrendered to the ministry. “The road redesigning plan included a non-motorised vehicle lane, designated parking areas, benches and bus shelters and a space for pedestrians to walk. This is not feasible as the width of the road would be compromised. Also, it would create more bottlenecks instead of reducing them, leading to traffic snarls,” a source said. Traffic police had also objected to the move on grounds that it would be a “nightmare” for commuters. The government had announced the plan in 2015 and even sent two of its ministers, Satyendar Jain and Gopal Rai, to Sweden to study the country’s road design.
Philippines seeks investors to power growth, extra 7,000 MW needed
The Philippines needs to build an additional 7,000 megawatts of power generation capacity over the next five years to support its fast-growing economy and wants foreign investors to help, its energy minister said on Monday. Firms from China, South Korea, Russia and Japan were interested in new Philippine power projects, and the president would soon sign an executive order to address soaring power demand by giving priority status to get new projects ready in half the time, Energy Secretary Alfonso Cusi told Reuters. The Philippines, with a population of more than 100 million people and one of the world’s fastest growing economies, aims to double its power generation capacity by 2030 to avoid a return to the frequent blackouts suffered during the 1990s. At the end of June 2016, installed capacity was 20,055 megawatts, a third of it fuelled by coal, according to government data. Power is generated 34 percent by coal, 34 percent by oil and gas and 32 percent from renewable sources. The Philippines would be technology neutral, Cusi said, to avoid being shackled to caps and quotas and create more competition, with the aim of slashing electricity prices for industry and consumers. With no state subsidies, prices are the highest in Southeast Asia. “What we want is to build our supply to a level that is meeting the demand with sufficient reserve for industry,” Cusi said in an interview. “So it’s competition at work. Whoever comes first, offers a good project development, and it will bring down the cost – yes.” CHINESE INTEREST Chinese firms were interested in a lead role, he said, in areas such as hydro, nuclear, coal and LNG areas, plus construction of those facilities and their financing. “We were there basically to tell (the Chinese) that our energy sector is open for business,” he said, asked why an energy ministry delegation was in Beijing last month. At least three Japanese firms, including Osaka Gas and Tokyo Gas had been in talks about investments in new LNG projects, he added. Plans for gas power plants and storage facilities are in preparation for the anticipated depletion by 2024 of gas fields at the Malampaya project, an offshore field that fuels 40 percent of Luzon island, home to the capital Manila. Although energy security was a priority, Cusi said it was too early to discuss exploration of offshore gas fields known as SC 72 and SC 75, at the Reed Bank in the South China Sea. Though those are located within the exclusive economic zone of the Philippines, the sites fall within the vast area of the waterway that China lays claim to. By some industry estimates, SC 72 alone may have triple the reserves of Malampaya. But Cusi said the energy ministry needed to await direction from the foreign ministry on the status of diplomatic relations with China before lifting a suspension on exploration in those areas. “It needs to be clarified,” he said. “We want to go forward with it without any disruption.” He said it was too soon to discuss whether the two countries could share the resources, as has been suggested by President Rodrigo Duterte. Donald Trump Jersey
Drama unfolds in wind
Last Thursday 3 pm onwards, every player of the Indian wind industry geared up for real action which continued till wee hours of Friday. In the first ever wind bidding by state-run Solar Energy Corp. of India (SECI) for 1000 MW bidders were allowed to locate projects in the state of their choice and most have opted for Tamil Nadu and Gujarat. We congratulate the winners and are sure that comparatively they possess all right rationale and better knowhow / cost economics sense on desired returns to equity investors. While I believe every tariff is viable when you invest in a project. But the term ‘viability’ in renewables has assumed a new definition recently. It is time come to a consensus what should be the viable IRR for renewable projects in India? What is baffling me today is how the nightlong action packed thriller resulting in tariffs as low as Rs 3.46 can be considered as ‘investor friendly’ or ‘discom friendly’ tariff? Surprisingly, only a few months back majority of wind developers were fighting to improve the tariff of Rs 4.19 with regulators in Gujarat, which was ‘then’ considered quite low, not to mention that 50 paisa GBI was available over and above this tariff. At the above tariffs did the projects actually look unviable then, even when Gujarat discom is ‘A’ rated or will the recently bid wind projects be viable now? The power offtake is guaranteed in both cases. But I am sure people who have won this bid have figured a smarter way out as developers will not put up projects to lose money. Another interesting twist in this drama is that some turbine manufacturers themselves have also bid for quite low tariffs. My immediate thoughts are: Has the turbine prices crashed by 15 – 20 per cent in those 24 hours? What is the logical justification of their past project costs based on IRRs viz a vis new pricing to clients based on tariffs. Have they embraced the changing realities? However, ‘The End’ of this thriller is on a positive note where wind has competed with solar on ‘paisa’ to ‘paisa’ basis and is likely to give thermal a run for money. Let us wait for this blockbuster to perform at the box office. In my opinion the winners are A- Renewables B- Government C- Environment. Pierre Turgeon Jersey