Events

NELP-VIII

The Government is considering re-launching the eighth phase of bidding for oil and gas blocks under the New Exploration and Licensing Policy (NELP-VIII) in the second week of August, 2009, which was stalled earlier on account of the ambiguity on tax holiday for gas production.

Along with NELP-VIII, which will offer 70 oil and gas blocks covering an area of 170,000 sq km, the Government is also planning to launch the fourth phase of bidding for 10 coal-bed methane blocks located in Assam, Jharkhand, Tamil Nadu, Orissa, Maharashtra, Chhattisgarh and Madhya Pradesh.

Rulings

K G Basin Gas Verdict in Favour of RNRL

The Hon’ble High Court of Mumbai disposed of the appeals between Reliance Industries Limited (RIL) and Reliance Natural Resources Limited (RNRL) on gas supply from the former’s Krishna-Godavari (KG) basin to RNRL. The Hon’ble Court, by Judgment dated June 15, 2009, directed both the parties to enter into a suitable arrangement, within one month from the date of pronouncement thereof, on the basis of quantity, tenure and price as specified and agreed between the parties under the MOU. This means that RIL has to sell 28 mmscmd of gas to RNRL at the rate of USD 2.34 per MMBTU, which is around 44% lower than the USD 4.2 per MMBTU price fixed by the Government for gas supplies to priority sectors.

The Court upheld the right of Anil Ambai Group to opt for a claim for damages and further recorded that if all the options available to the parties meet with failure within the stipulated time of one month, it will be open for the aggrieved party to approach the company court for modification of the scheme of de-merger.

This Judgment has serious implication on the policy of the Government on Production Sharing Contract, apart from huge financial implication running into billions for both the litigant companies.

Policy Corner

Uncertainty over Tax Holidays to Natural Gas

The uncertainty over tax holidays to natural gas should be cleared in order to generate more interest in the forthcoming bidding for oil and gas blocks under NELP-VIII. The ambiguity started last year when the Finance Bill 2008-09 proposed to redefine mineral oil by excluding natural gas. This resulted into a situation where crude oil producers could avail a seven-year tax holiday, while natural gas producers were out of its ambit.
Since exploration & production was undertaken for hydrocarbon and not for either oil or gas and a company could find oil or gas or both during the exploration, the benefits of tax holidays should be given to both crude oil and natural gas. The forthcoming budget is expected to propose necessary changes to Section 80-IB (9) of the Income Tax Act in order to bring natural gas producers within the ambit of the tax holiday scheme.

Government Authority to Lay Major Gas Pipelines

The Government may set up an apex implementation agency to take up the proposed national gas highways, a country-wide gas transportation infrastructure along the national highways. The Government is reportedly exploring the workability of various administrative mechanisms for the purpose, including an independent agency like National Highways Authority of India (NHAI).

This proposed changes to the gas transportation policy aims at ensuring availability of gas to customers across the country at affordable rates. It could also end the dominance of GAIL India and Reliance Industries in the sector.

Government May Double Set Price of Natural Gas

The Government is reportedly considering doubling the price of natural gas sold through the administered price mechanism (APM) to USD 4.2 per Million Metric British Thermal Unit (MMBTU).

This price revision would be beneficial for public sector undertakings Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) since all natural gas produced from their existing fields in nominated blocks is treated as APM gas.

Government to Levy Cess on Natural Gas

Mr. R.S.Pandey, Petroleum Secretary said that the Government may levy a cess on domestically produced natural gas to fund construction of gas pipeline network. Government estimates to get Rs 3,000 Crore by levying 20 Cents per million British thermal units on gas price.

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Events

India becomes member of Montreal Convention

India has become the 91st member of the Montreal Convention on Civil Aviation which makes the airlines to bear stricter penalties for disasters on international flights.

Montreal Convention imposes a minimum liability of nearly USD 65,000 towards penalty on carriers for the death of passengers due to negligence.

The provisions of the convention will take effect from June 30 through the Carriage by Air (Amendment) Act 2009 that India had enacted earlier, covering the international carriage of passengers, baggage or cargo by airlines.

Policy Corner

Aviation Policy for Reversal of PPP Style Modernization

Mr. Praful Patel, Minister for Civil Aviation has reportedly hinted a reversal of policy of the Government on Private Public Partnership (PPP) style modernization of airports. Spelling out the likely contours of the aviation policy, Mr. Patel said that the Government is not for any more disinvestment or take the PPP route for any more airports.

DGCA bars skipping unprofitable routes

The Directorate General of Civil Aviation (DGCA), the aviation regulator, has reportedly banned national airlines trading seat-miles with regional carriers to meet the mandatory requirements of flying unprofitable routes to poorly connected cities and towns. As a condition to the operating licence, any failure to comply with this requirement may lead to cancellation thereof.

New requirements for scheduled airlines

New Rules governing operations of scheduled airlines have been incorporated recently into the 1994 Civil Aviation Requirements (CARs) issued by the DGCA.

As per the new Rules, applicants for the scheduled airline permit must have a minimum paid up capital of Rs 50 Crore and a fleet of five large aircraft, having a take-off mass of over 40,000 kg, when they begin operations. For each additional aircraft beyond these five, the company should put in additional equity of Rs 20 Crore.

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Lex Loci

Amendment to MMDR Act

Government plans to amend Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) to give effect to the provisions contained in the much-awaited National Mineral Policy, which was approved by the Cabinet last year. Amendment Bill will be introduced in the Parliament by the winter session said Union Minister for Mines Mr. B K Handique.

Amendment to the Coal Mines (Nationalization) Act, 1973

The Coal Nationalisation (Amendment) Bill, 2000, introduced in the Rajya Sabha by the NDA government to carry forward long-pending reforms in the sector, may now get a fresh lease of life as it is reported that the present UPA Government may allow commercial coal mining by private companies.

The Government is likely to permit competitive bidding of captive coal blocks. The Cabinet is reportedly cleared this proposal. As soon as the bill is finalized, it will be introduced in the Parliament said Mr. Shriprakash Jaiswal, Union Minister for Coal.

The proposed amendment to the Coal Mines (Nationalization) Act, 1973 is expected to be the first phase of liberalizing coal mining in the country. Allowing merchant sale of coal from captive blocks is also on the government’s radar till the sector is fully opened up.

Policy Corner

Draft Guidelines for Underground Coal Gasification

It is reported that the Government has finalized the draft guidelines to offer blocks for underground coal gasification (UCG). The draft is in line with existing norms for coal to liquid (CTL) projects. It reportedly proposes that the task of allocation of block for underground coal gasification should be conferred upon the Inter-Ministerial Group (IMG) that was formed to award coal to liquid blocks.

Faster Forest Clearances for Coal Mining on Degraded Forest Land

Coal mining projects on degraded forest land would get faster forest clearances. The ministries of Environment and Forests and Coal have agreed to reduce the delay in granting forest clearances for such projects said Mr. Jairam Ramesh, Minister for Environment and Forests. Accordingly, the Ministry of Coal will submit plans of its coal field areas superimposed with digitized satellite maps of India’s forest cover, on the basis of which the Ministry of Environment and Forests will demarcate its go and no-go areas. Delays will be cut after this and the maps are expected to be ready in three-four weeks, which would determine how much of coal bearing areas will be in non-permitted areas.

 

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Thrust

Committee to Review the Slow Pace of Capacity Addition

Mr. Sushil Kumar Shinde, Minister for Power will head a committee comprising of former Power Secretaries P Abraham, RV Shahi, Anil Razdan and two representatives of Independent Power Producers (IPPs) to review the slow pace of capacity addition. The said Committee is expected to make necessary recommendations to give a much needed push for attaining the proposed a capacity addition of 78,577 MW by the end of 2011-2012.

National Electricity Fund

The Planning Commission has proposed setting up a National Electricity Fund to finance development of power transmission and distribution network by state utilities. The proposed corpus of the fund would be Rs 1,00,000-1,50,000 Crore.

Lex Loci

Regulation to Make Renewable Energy Mandatory for SEZs

The Ministries of Commerce & Industry and New & Renewable Energy are reportedly working on the modalities of a regulation to make use of renewable energy mandatory for Special Economic Zones (SEZ).

It is reported that the proposed regulation may mandate to create a mechanism for producing 1KW of renewable energy for one hectare of development in every SEZ, which would save on traditional fuel like coal and diesel.

Rulings

Interim Relief Refused

A Bench headed by Justice B.N. Agarwal of the Apex Court was not inclined to grant an interim relief to the Government, which challenged the Madras High Court ruling quashing its notices demanding excise duty from three power firms.

Policy Corner

Tariff Norm for Power Procurement Further Tightened

The guidelines for tariff determination for power procurement by distribution licensees have been tightened. The revised guidelines provide for inter alia the following:

i. A multi-part tariff structure featuring separate capacity and energy components of tariff will ordinarily form the basis for bidding and tariff will be paid and settled for each payment period not exceeding one month.

ii. Procurement under Case-2 where procurer offers a captive fuel source for concurrent development and use for power production covered under the procurement query would also have a multi-part tariff structure featuring separate capacity and energy components of tariff.

iii. In cases where the procurement process permits bidders to submit combined capacity and energy charges, the charges proposed shall be firm for each of the years of the term of the Power Purchase Agreement (PPA), and no escalation of tariff shall be permitted over and above the rates quoted by the seller in the price bid.

iv. In Case-1 procurement, the bidder, in case the supply is proposed from a station to be set-up, should be required to submit along with its bid, documents in support of having initiated specific actions for project preparatory activities in respect of site identification and land acquisition, environmental clearance for the power station, forest clearance (if applicable) for the land for the power station, fuel arrangements, and water linkage.

v. If the Bidder is a trading licensee, it shall have executed exclusive power purchase agreement(s) for the quantity of power offered in its Bid and shall provide a copy of the same as part of its Bid. In such a case, the Bidder shall ensure that the entity with which it has executed the exclusive power purchase agreement for supply of power under the bid process has completed the project preparatory activities.

vi. Foreign exchange rate variation would be permitted in the payment of energy charges in the stipulated cases, if the bidder chooses to supply power using imported coal or imported gas (RLNG) for long term procurement under Case-1.

vii. In cases where the procurer mandates use of imported fuel for use in a coastal power station in Case-2 procurement query or where the bidder chooses to supply from a power station using imported fuel under Case-1, the bids may be invited for base energy charge for the first year to be escalated as per the indices identified in the RFP. Such energy charge would have three components, namely imported fuel component in US Dollars/unit; transportation of fuel component in US Dollars/unit; and inland fuel handling component in Indian Rupees/unit.

Priority to Power Sector over LPG Production

The Empowered Group of Ministers (EGOM) has decided to give the power sector priority over LPG production in the allocation of gas from Reliance’s Krishna-Godavari fields. This would help to reduce power shortages by the optimum utilization of as many as 40 gas-based plants that face fuel shortages in the country

Government Plans Setting up a Renewable Power Exchange

The Government is planning to set up a renewable power exchange that would issue certificates to surplus states which can be sold to deficit states looking to fill the portion of their power grid mandatory reserved for green energy.

The gross installed capacity of grid interactive renewable power in the country is estimated at 11,273 MW, which accounts for 8% of the country’s installed generation capacity. The government has set a target of an additional 13,500 MW renewable energy by the end of 11th Five-Year Plan.

 

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