Wednesday, September 25, 2013

Distressed Thermal Power Projects in India


In India, Thermal power plants account for 66.9 per cent of the total installed capacity and more than 50% of the power generating capacity will be depended upon coal for another 20-25 years. Power demand typically exceeds supply by about 10% at peak times.

Power plants have to depend on costly imported coal that further result in increased operating costs are increased, leading to profit minimisation of the generating companies and costlier per unit cost of electricity.


India does not have an overarching energy strategy — instead it has a number of disparate policies.  Rather than promoting an overarching energy strategy, to date India has developed a cluster of energy business models and policies that have not been productive. Some of the related challenges to the power generation industry are as follows:
  • The coal sector in India is heavily regulated with two state companies representing 90 per cent of the supply. The coal sector is closed to private investment. Foreign investment is allowed only in captive coal mines. Power plants in India operate with low levels of reserve coal supply, many of them with just one day of coal reserves.
  • In 2012, 29.78 per cent of the plants were owned by the central government, 41.1 per cent were owned by different state governments and 29.11 per cent were owned by private companies. Plants owned by the private sector have the best performance in terms of availability and load factor. This highlights the inefficiency in the state and central electricity plants.
  • For the coal fired power plant; land acquisition, environment clearances are issues but the major issue is the supply of coal. The domestic coal supply is hindered by delays in mining projects. 
  • The gas sector also faces similar issues of stagnating production and lack of investment. In addition, there is demand for an integrated national gas grid from industry but no steps have yet been taken in this direction.
  • The exploitation of renewable sources of energy remains commercially unviable. While the focus on renewable energy is important to minimise the adverse environmental consequences of power generation using fossil fuels, at current levels of cost per unit, even after subsidies, it is uneconomical. Much more research and development is necessary in order to make it viable.
  • Scaling up renewable generation means resolving fundamental challenges of supply volatility, grid integration, geographic dispersion and un-competitiveness. Bearing the higher costs of renewable power sources is the biggest hurdle.
Thus a number of complex interconnected issues have been affecting large number of power projects in the country wherein the operational power projects have become financially less attractive and under-construction power projects are facing huge delays. This situation is creating sub-optimal utilisation of installed capacity, non-performing assets and capital inefficiencies. The sector therefore needs multiple remedial measures.

With this frame of mind, InfralineEnergy is coming out with a research study on “Distressed Thermal Power Projects in India: Acquisition Opportunities

The major focus of the work would be on identification of distressed thermal power projects in India and mapping of various key issues responsible for such situation. Besides this, the report would also highlight the potential opportunities for investors and the systemic challenges that can arise in case of ownership transfer under the current policy, regulatory and legislative framework in India.

Read more on http://www.infraline.com/ReportDetails/273/Distressed-Thermal-Power-plants-in-India.htm

                      Infraline Energy Power Research Team


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Monday, September 16, 2013

Roads and Highways Sector in Limbo Phase of Prolonged Sluggishness

The slow-moving performance of the sector and burgeoning issues between Concessionaire and NHAI has raised several questions about the project award process and sustainability of PPP in roads sector. The sector witnessed slowdown in construction activities. Yes I am talking about road development in India. The year 2013 started with the bang for roads sector when GMR one of the largest infrastructure developers terminated the contract for the first mega highway project in the country.  Kishangarh-Udaipur-Ahmedabad stretch was for six-laning of the 555-km on DBFOT pattern. The reason for termination given by concessionaire is delay in getting statutory clearances. Although there are negotiations going on for premium payment but nobody knows when decision would come.
Government of India ambitious target of constructing 20 km of highway per day hit a roadblock as it was able to award only 1100 km of road against the target of 8800 km in 2012-2013. There were many reasons behin d it like delay in Land Acquisition, statutory clearances, necessary approvals, premium payment, financial closure etc. The issue of paucity of roads has been further aggravated by the poor condition and maintenance of the road infrastructure. Even the highways are congested and the lane capacity is low. 
Delay in Road projects
According to a World Bank report, 40 percent of the road projects face 25-50 percent cost overruns owing to various reasons quoted. According to Infraline research few of the BOT highways projects are delayed to 0 to 36 months and beyond for various reasons such as poor performance by some contracts and constraints faced by some contractors, environment and forest clearances (refer to Table below), land acquisition, clearance of railways for ROB designs, shifting of utilities, arbitration matters etc. Here comes the responsibility and obligations of stakeholders of road infrastructure projects.
    



  




Statutory Clearances required for Road Projects
Sr. No.
Clearance Required
Statutory Authority
Time Taken
1.
Environmental Clearance
Ministry of Environment and Forest, GOl, New Delhi
12-15 months
2.
Forest Clearance
Ministry of Environment and Forest
1 -2 years
3.
Clearances for Wildlife areas
National Board of Wildlife and Supreme Court of India
More than 3 years
The Way Forward
According to Economists investment in physical infrastructure is directly related to development of a nation. For a country like us which is still in rising phase, Infrastructure plays imperative role to improve productivity across all sectors. it needs to improve good road connectivity for overall advancement. Roads transport accounts for 85 percent and 65 percent of passenger and freight traffic, respectively, in India. National highways account for a mere 2 percent of the total road length, but carry 40 percent of the total road traffic.
At this economic juncture, private sector has to play active role. Since public expenditure is increasing, the role of private participation needs to expand significantly to address the scarcity of funds in the infrastructure sector. According to Infraline research, the investment in BOT (Toll) mode would be around 68 percent, 8 percent in Annuity and 24 Percent in EPC mode. This trend of investment clearly indicates the level of private participation would be increasing over the period of time.
There is a huge opportunity coming up in the sector with a view to attract foreign direct investment by easing the policies and regulations. This will benefit the infrastructure developers, EPC companies, OMT contractors with the new NHDP projects coming in the sector.

                Infraline Energy Roads Research Team

Monday, September 9, 2013

Concentrated Solar Power (CSP) Key to securing and diversifying India’s power future

During the last fiscal, ONGC made 22 oil and gas discoveries out of which 14 discoveries were made onshore and 8 discoveries were in offshore fields. In these discoveries, 9 were from the NELP blocks and 13 from the ONGC operated blocks awarded to the company during the nomination regime. The company has been making a steady progress in discovering new hydrocarbon resources which has been elicited by its reserve accretion y-o-y. During 2012-13, reserves accreted by the company from domestic assets stood at 84.84 million tons of oil equivalent from the nomination fields/blocks which was supplemented by noticeable accretion in reserves from its share in PSC fields and blocks which stood at 4.24 million tons of oil equivalent in comparison to 1.31 MMToe (million metric tonnes of oil equivalent) from JV fields in fiscal 2011-12.
Discoveries in Bantumilli South-1 which was a Gas discovery and Vanadurru South-1 which found both Oil & Gas resources have strengthened the prospectivity of the area and have opened up the entire adjoining tract for hydrocarbon exploration in the Krishna-Godavari onland acreage of ONGC. Basement oil and gas discoveries in Madanam-3 (the first hydrocarbon strike in ONGC operated NELP blocks in Cauvery onshore Basin) and Pandanallur-8 which found both Oil & Gas in Cauvery onshore Basin and BH-68 (again Oil & Gas discovery) in Mumbai offshore has given huge impetus to ONGC’s renewed efforts. KG-DWN-98/2-A-2 which found both Oil & Gas resources in the NELP deep-water block KG-DWN-98/2 has given a definite positive fillip to ONGC's efforts towards monetizing discoveries in the Northern Discovery Area (NDA) of this block.

Out of 14 onshore discoveries made during 2012-13, four discoveries (Anklav-9, Motera-36, Mandapeta West-12 & Phulani-1) have already been put on production and one discovery (Mansa-36) is under trial production. Efforts are on for bringing the other discoveries on production at the earliest. One discovery in offshore sector (D1-D-1) has also been put on production.

Production Performance and Upside

The company’s forecasted production volumes will see some upside within the short term period through monetization of its cluster field projects – some of which have already started producing. The rest of these 13 projects are slated to come onstream within the next two years.

ONGC’s crude oil production from its nomination acreages is slated to increase to 24.08 million tons and 24.95 million tons over the next two years backed by the completion of most of its projects that are aimed at monetizing the small and marginal fields – mostly seated surrounding the Mumbai High prolific producing region. The company’s share in joint venture blocks especially the resource rich Barmer block – operated by Cairn, is also expected to give some upside to its share of crude oil production from JV fields in the short to medium term.

Natural gas production upside will be significant from FY15 when almost all of the cluster field projects are set on production with annual volumes expected to reach levels of 25.1 BCM from its nomination acreages. However, gas production from JV fields are soon depleting due to production downslide in Panna, Mukta and Tapti fields.
Cluster Field Projects

Currently, 12 cluster field projects are under advanced stages of execution. Five projects are expected to be completed by the end of the current fiscal. Out of these five projects except the Development of G1 and GS-15 fields in KG Offshore, all other field development projects are located in the Mumbai Offshore area.
The total investment made by ONGC on these projects are over Rs. 34,000 crore and is expected to give a production boost of around 12-13 mmscmd of gas and 4-5 million tons of oil initially with ultimate peak production volumes of close to 22 mmscmd of gas and 7-8 million tons of oil.

Towards realizing the benefits of the cluster field development projects, ONGC has already started producing from B-146 fields with production of around 0.43 mmscmd of gas. D1 fields are also producing approximately at the rate of 18,000 barrels of oil per day while initial production from the North Tapti, C-Series and B-22 fields are 1.35 mmscmd, 1.53 mmscmd and 1.33 mmscmd respectively.

Next in line are B-193 field, additional production from D1 field, BHE field and WO-16 cluster fields which will be brought onstream within the next six months. ONGC has also planned to expedite the development of 6 fields in the Daman offshore area which comprise of C-22, C-24, C-39-A, C-39-1, B-12-7, C-26, C-23, B-12-1 fields. Phase I involved the drilling of 15 wells out of total of 22 wells including all three phases. Phase II and III development has been advanced by 4 years looking at the production upside through the integrated development of these fields.

The integrated development strategy adopted by ONGC has the potential to flip several small/marginal fields which were individually unviable into viable projects for commercial production. As a result of this approach, ONGC will be able to give a fillip to its hydrocarbon production from domestic fields in the short-term till the NELP discoveries further supplement production volumes.

             Infraline Energy Oil & Gas Knowledgebase Team

Monday, September 2, 2013

Amid sinking rupee and costly imports, will Coal India ramp up domestic production?

Despite the country having substantial coal reserves, demand for the dry fuel is much higher than domestic production resulting in increased imports. Acute coal shortage in the country is hurting electricity generation and many power producers are dependent on imported fuel to fire their plants. Coal fuels more than half of India's power generation, but domestic production has not kept up with demand from the power sector, leading to power cuts that crimp growth and result in costlier imports.

Domestic coal demand touched 772.84 million tonnes (MT) during 2012-13 period whereas production was at 557.60 MT. Government had to import 113 MT of coal during the April 2012 - January 2013 period, on top of a rise of 47 per cent witnessed during the previous year. Country's coal imports in this fiscal year could hit 165 million tonnes to meet the local supply shortfall, another record after total imports crossed 135 million tonnes in 2012-13. Going by estimates, the demand for coal is projected to be around 980 MT in the XII Five-Year Plan period (2012-17) whereas domestic production is pegged at around 795 MT in the terminal year (2016-17). The gap would have to be met by way of imports. Further, the dominance of coal is expected to continue in the power sector. Nearly 60 per cent of country’s electricity generation is from coal-based plants. At the end of June, coal-based power generation capacity accounted for 1,32,288 MW of the total capacity of more than 2,25,793 MW.

State-run Coal India Ltd (CIL) has decided to substitute its imported coal, it supplies to consumers with high-grade output from its own mines, with the home variety becoming cheaper due to the rupee's depreciation. As per the FSA provisions, the coal monopoly has to meet 65-75 percent of the annual contracted quantity through domestic output and supply another 15 percent of the agreed volume through imports. A few months ago, the price of landed thermal coal at Indian ports had dropped 30-40 percent, erasing the price differential with Coal India's produce of the same variety. Although the company had reduced the price of its premium quality coal by 12 percent in May, imported coal continued to be cheaper or at a par, keeping buyers away. However, with the rupee testing new lows over the past few weeks, the imported variety has now become comparatively costlier.

Coal India (CIL), along with its subsidiaries must ramp up the domestic productivity of coal to keep pace with the existing demands of consumers. To increase productivity from existing fields, it is important to deploy the latest technology and professional assistance. Further, there is need to accelerate the process of land acquisition and environmental clearances, to increase the total area under exploration. Further, the government could adapt the NELP model (used for oil and gas blocks bidding) and allow global mining majors to participate instead of limiting the bidding to only end users (such as steel, cement and power plants). This route, along with much needed investment, can be expected to bring global technology and capabilities to the Indian mining sector. Thus, to resolve the power crisis, CIL should take a holistic approach - considering the interest of various stakeholders, eliminating roadblocks to increase domestic coal production.

Coal India Ltd (CIL) would need assistance from Government to recoup back the money from a total of 44 power firms in the country, who owe CIL a staggering INR 10,967 Crore in non-payments. For CIL, this money is enough to produce 68 million tonnes (mt) of coal this financial year, a half of the country’s annual imports.

                        
Infraline Energy Coal Knowledgebase Team