The growth in the India’s six core infrastructure industries, which account for 26.7% in the Index of Industrial Production (IIP), has declined to 3.7% during April-July 2008-09 as against 6.6% during the corresponding period of the previous year.

Poor performance in the production of crude oil was one of the major reasons for the slowdown of growth during the period April-July 2008-09. Crude Oil production took a nosedive by registering a negative growth of 0.9% during April-July 2008-09 compared to a negative growth rate of 0.3% during April-July 2007-08.

Growth in Petroleum Refinery Production was quite abysmal as it grew by only 5.4% during April-July 2008-09, compared to 11% during the same period of 2007-08.

However, the coal sector did considerably well with coal production clocking a growth of 7.7% during April-July 2008-09 compared to an increase of 0.8% during the same period of 2007-08.

However, electricity generation was quite sluggish as it could manage a growth of 2.6% in April-July 2008-09 compared to a growth rate of 8.1% during April-July 2007-08.

The decline in the growth of the housing sector was responsible for the dip in cement production for the period of April-July 2008-09. It posted a growth of 6.5% during the said period compared to 7.7% during the same period of 2007-08.

The performance of finished (carbon) steel was not impressive either. The growth in this segment posed a rather grim picture as it grew by only 3.8% in April-July 2008-09 compared to 6.8% during April-July 2007-08.

 

Oil bill widens India’s trade deficit

Oil imports recorded a significant growth of 50.4% in the first quarter of 2008-09 as against 23.9% in the first quarter of the previous year. This fast growth of oil bill has further widened the deficit in the current account of the country’s balance of payments, which measures the net position of a country’s exports and imports of goods and services. As per the latest figures released by the Reserve Bank of India (RBI), the current account deficit reached USD 10.72 billion during the quarter ended June, 2008 as compared to a deficit of USD 6.3 billion in the quarter last year. This is despite the surplus in the invisibles comprising services income and remittances among others being higher to absorb the trade deficit of USD 31.52 billion during the quarter.

The sharp increase in oil imports reflected the impact of increasing oil price of the Indian basket of international crude, which increased to USD118.8 per barrel in the first quarter of 2008-09 from USD 66.4 per barrel in the corresponding quarter of the previous year.

Blocks under NELP VII to be awarded soon

45 oil and gas blocks under the seventh bid round of the New Exploration Licensing Policy (NELP) will be awarded soon. A Committee of Secretaries has met to decide on the winners and its recommendations would be sent to the Cabinet for its approval.
NELP VII is the largest ever international bid round by India. Out of the 57 blocks offered, bids were received only for 45. ONGC consortium bagged the maximum number of 20 oil and gas exploration blocks. First timers BHP Billiton and GVK Power are winners in seven deep-sea blocks.

NELP VIII in early next year

Mr V. K. Sibal, Director-General of Hydrocarbons, said in an interview with a business newspaper that NELP VIII can be expected early next year. The Directorate General of Hydrocarbons is working very aggressively for it by acquiring data and upgrading all NELP blocks.

Gas distribution bids for 7 cities soon

Bids for piped gas distribution in seven cities will be invited in October 2008, said B.S. Negi, Member, Petroleum and Natural Gas Regulatory Board. The authorizations could be given out by March 2009 and gas is expected to be piped into homes within 18-36 months thereafter.
City gas distribution sector in India currently consumes 5-6% of the total available gas, which is expected to quadruple within a few years. So far, Reliance Gas Transportation Infrastructure Ltd, GAIL (India) Ltd, Gujarat Gas Co. Ltd and Great Eastern Energy Corp. Ltd submitted 70 expressions of interest and many more companies are expected to come forward at the bidding stage. This move is also meant to reduce substantially the government’s fuel subsidy.

RIL plans to increase gas production

Reliance Industries Limited (RIL) is planning to increase gas production from the earlier announced 80 mmscmd to around 120 mmscmd by the year 2014.
RIL has 90% stake in the D-6 block of the KG basin and has already announced plans to start pumping in 80 mmscmd of gas by 2010. Apart from this, it has submitted development plans for eight more gas discoveries from the same block, which is estimated to produce around 25 mmscmd of gas. RIL is also planning to produce another 10 mmscmd gas from the MA oilfield. All these are expected to take the total gas production of RIL to 115-120 mmscmd by 2014.

GAIL may take over gas marketing from ONGC

Gas Authority of India Ltd. (GAIL) may take over natural gas marketing in certain isolated pockets in Gujarat and Assam from Oil and Natural Gas Corporation (ONGC).
In the year 1992, GAIL India had taken over gas pipelines and marketing functions connected with natural gas from ONGC. However, it continues to be the marketing agency in the said isolated pockets and thereby earns around Rs. 100 crores in marketing revenues.

ONGC entered gas sales pact for coal-bed methane

Oil and Natural Gas Corporation (ONGC) has entered into the first ever gas sales agreement with Calcutta Compressor and Liquefaction Ltd. (CC&L) for supply of gas from its Jharia coal-bed methane field in Jharkhand. This agreement marks the beginning of the commercialization of coal-bed methane resources by ONGC.
According to the agreement, 5,000 standard cubic metre of gas per day will initially be supplied to CC&L from the end of 2008.

OIL to start drilling Libyan fields in 2009

OIL India Ltd. (OIL) will start drilling at its oil and gas fields in Libya by early 2009. OIL has nine blocks in Libya - four onshore under Area 86, one under Area 102(4) and another four under Area 95/96, where Sonatrach Petroleum Corporation is the operator. OIL is committed to drill four wells under Area 86 and one well at block 102(4).

India and Colombia to enhance cooperation in the energy sector

India and Colombia, the fifth-largest oil-producing country, have signed an agreement to enhance cooperation in the energy sector, particularly in the areas of exploration and production of oil and gas.

Indian oil and gas companies have already set foot in Colombia. ONGC Videsh Ltd. has stakes in three deep-water exploration blocks on the Caribbean side of Colombia. Further, it, along with Sinopec of China, has 50% stake in another oilfield that produces 25,000 barrels per day of oil. Reliance also has two deep-water exploration blocks in Colombia.

The said agreement would further facilitate acquisition of oil and gas assets by Indian companies in Colombia.

‘No-compete’ proposal to Beijing on oil projects

Mr. Murli Deora, Minister of Petroleum & Natural Gas, has proposed to Beijing a ‘no-compete’ agreement for acquiring oil and gas projects overseas. This was in view of Indo-China acquisition rivalry pushing up price of oil properties overseas.

Mr. Deora has suggested to the Chinese Foreign Minister Yang Jiechi a collaborative and possibly joint acquisition approach, which would ensure keeping the costs at equitable levels to both the offering and bidding parties. Mr. Yang is believed to have reciprocated the suggestion.

India - EU civil aviation pact soon

India is expected to sign a horizontal civil aviation agreement with European Union (EU) as a single entity for negotiating air service pacts. The proposed agreement would remove nationality restrictions and work like an open sky agreement between India and the EU. It would pave the way for carriers belonging to both sides to operate unrestricted number of flights to the destinations in Europe and India. It would also provide for routing flexibility to European carriers, which means designated carriers of different countries may use each other’s traffic rights.

Clarifications sought from PMO on the airport-side development
The Parliamentary Standing Committee on Transport, Tourism and Culture has called on the Prime Minister's Office to issue clarifications on whether the inter-ministerial committee headed by the Secretary, Civil Aviation had the approval of the Committee on Infrastructure (COI) headed by the Prime Minister to deviate from the decisions and directions of COI on the airport side development of 35 non-metro airports.
COI had decided in June 2006 that the Airports Authority of India would undertake the airport side development, including terminal building, of 35 non-metro airports, whereas the city-side development thereof would be undertaken through Public- Private Partnership. However, the inter-ministerial committee decided to include private operators for specific projects such as development and operation of cargo, real estate development, and maintenance of terminal building, including equipment and utilities.

Approval for modernisation of Chennai and Kolkata airports

The Cabinet Committee on Economic Affairs has given approval to Airports Authority of India ( AAI) to start work on modernisation of Chennai and Kolkata airports.
The combined cost for the two works is estimated to be about Rs 3,750 crores of which almost 80 per cent will come from the internal accruals of AAI. Both the projects are expected to be completed in a time bound fashion within the next three years.

Panel to sort out airlines' problems

Prime Minister has approved setting up of a committee under the chairmanship of the Cabinet Secretary to examine various issues relating to the financial crises being faced by the domestic airlines.
The committee will examine and assess the financial difficulties faced by airline operators in India and make appropriate short term and long term recommendations for the sustained growth and health of aviation industry, taking into account the international scenario and practices followed by other countries and airlines.

Ministry of Mines wants roll back of export duty on iron ore

The Ministry of Mines wants to roll back 15% export duty on iron ore imposed on June 13, 2008. According to the Secretary, Ministry of Mines, domestic demand for iron ore is currently not so high warranting control of exports, and therefore, export of iron ore at present is not harmful for the country. However, exports can be curbed in future in the event of a need to increase availability of iron ore in the country.

The Indian iron ore community is of the opinion that the export duty adversely affected the profitability of the exporters.

Oil India looks to mine uranium

Oil India Ltd. (OIL) plans to tie up with Uranium Corporation of India Ltd. (UCIL) to mine uranium. As per the current legal framework, atomic energy is within the exclusive domain of the Union Government and UCIL is fulfilling the requirements of uranium for the pressurized heavy water reactors.

However, all the 17 nuclear reactors in India are facing a fuel crunch with uranium in short supply, and are operating at 50% of capacity. Further, nuclear energy accounts for only 4,120MW out of the installed power generation capacity of more than 140,000MW. Given these, Oil India is reportedly anticipating a big push in uranium mining.

 

India-US nuclear deal finally inked

The India-US Civil Nuclear Energy Co-operation Agreement was signed on October 8, 2008. This deal would facilitate nuclear trade between Nuclear Suppliers Group (NSG) countries and India for the first time in three decades, with the lifting of the ban on it by NSG. It would help to meet India’s plans to increase nuclear power to 20,000 MW from the current 3,700 MW.

Second power bourse gets nod

Central Electricity Regulatory Commission has given all the necessary regulatory clearances to the second power bourse in the country, Power Exchange India Limited, promoted by National Stock Exchange of India Ltd and National Commodities & Derivatives Exchange Ltd. The first power bourse, Indian Energy Exchange Limited, has been functioning since June 2007.

In the meantime, National Thermal Power Corporation Ltd. and Power Finance Corporation Ltd. are planning to create a third power bourse as a joint venture with NHPC Ltd and Tata Consultancy Services Ltd.

Carbon tax may be imposed on polluting power stations

The Energy Coordination Committee has suggested imposition of a carbon tax on polluting power stations. This move is expected to facilitate Indian power stations more efficient and less polluting, and thereby containing pollution at an early stage itself.

Though imposition of such a carbon tax could push up power tariffs, it would provide more funds for renewable energy initiatives. It would also club India with a select group of countries that tax carbon emissions directly.

Priority-based coal linkage for power projects

The power ministry has recommended priority list for allocation of coal linkage for those power projects expected to come up during 11th and 12th Plan periods. This coal linkage is for projects with a total generation capacity of 1,20,886 MW and is in addition to the coal linkage granted earlier for power projects of capacity of 60,000 MW.
This move is in view of the targeted capacity addition of 78,700 MW in 11th plan and 80,000 MW in 12th Plan, a major portion thereof is expected to be coal based power projects.

Suppliers for nuclear reactors short listed

Nuclear Power Corporation of India Ltd, the state owned monopoly nuclear power generator, has tentatively short listed reactor manufacturers for the first phase of the 40,000 MW nuclear capacity to be built by 2020. This move is in view of India’s recent access to global nuclear reactor technology.
Westinghouse Electric, GE- Hitachi, Areva and Russia’s atomic energy agency Rosatom are the short listed reactor manufacturers.

SC environmental nod to Sasan UMPP

A special bench of the Supreme Court headed by Chief Justice K. G. Balakrishnan has given environmental clearance to Reliance Power’s 3,960 MW Ultra Mega Power Project (UMPP) at Sasan in Madhya Pradesh.

Reliance Power to set up 4,000-MW Greenfield plant in MP

Reliance Power Limited is planning to set up a Greenfield 3,500-4000 MW power plant in Madhya Pradesh with an investment of about Rs 17,000 crore.

This move appears to be at the backdrop of the decision of the government to allow Reliance Power to use coal from three blocks allotted for the Sasan UMPP in any other UMPP, after meeting coal requirements of the 3,960 MW Sasan plant. This is the first time that the government is allowing use of coal allotted for one UMPP in another project.

GAIL plans foray into wind power sector

Gas Authority of India Ltd.(GAIL) plans to enter into the wind power sector, with a total installed capacity of 23.5 MW. The proposed projects are in Gujarat, Maharashtra and Rajasthan, of which the first one will come up in Gujarat with a capacity of 4.5 MW. Power from the said projects will be used mainly to meet GAIL’s internal demand at its various units.

ONGC plans foray into solar, geothermal and nuclear energy sectors

Oil and Natural Gas Corporation Ltd. (ONGC) plans to enter into solar, geothermal and nuclear energy sectors. It is in talks with four companies, including Silicon Valley-based Sun One, for setting up of a 60 MW PV cells unit.

ONGC is also in talks with the Government of Iceland for exploring geothermal energy and is studying a report submitted by Director General of Hydrocarbons of Iceland. About 80 per cent of Iceland’s energy requirements are met with geothermal energy.

Apart from this, ONGC intends to enter the nuclear energy sector in view of the Indo-US nuclear deal. It has been carrying out research in this regard and is expected to play a very big role in nuclear energy, given its infrastructure and R&D facilities.

Assam to sign JV for setting up 500 MW thermal plant

A 500 MW thermal power plant will be set up in Margherita by a joint venture of Assam Government and North Eastern Electric Power Corporation (Neepco).
The project will have two phases, each having 250 MW capacity. Since Margherita coal was one of high sulphur and needed special environment control technology, the Chief Minister of Assam insisted on incorporating a special clause in the JV agreement to ensure the best environmental control technology.

Chinese firm won first power project in India

China Light Power Ltd (CLP), a Hong Kong based power utility, won the 1,320-MW Jhajjar thermal power project in Haryana by quoting an aggressive price of Rs 2.996 per Kwh. CLP has become the first Chinese company successful in a competitive bid for a domestic power project in India.

Union Fenosa S.A may invest in India’s power sector

Spain’s Union Fenosa S.A. plans to enter the Indian power generation sector by an investment of around USD 4 billion. If it happens, it will be the largest investment by any overseas power generation utility in the country.

NHPC signed MoU to develop hydropower projects in Myanmar

NHPC has signed a MoU with Ministry of Electric Power of Myanmar to develop two hydro power projects on the Chindwin river. The Chindwin river basin is endowed with hydropower potential estimated to be about 2,500 MW and is of strategic importance to India due to its proximity to several North Eastern states.

The 1200 MW (Tamanthi project) and 600 MW (Shwzaye project) projects are part of the look east policy of the Government of India under which Myanmar would be focused for intensifying business ties inter alia in the energy sector. These projects are expected to help the country to meet its energy deficit.

 

ECB norms relaxed

Government announced relaxation of External Commercial Bborrowing (ECB) norms. Now, infrastructure companies are allowed to borrow up to USD 500 million a year for rupee spending in India, a five-fold hike over the previous limit of USD 100 million. However, prior Reserve Bank of India (RBI) approval is required for this. The cap on ECB, without taking RBI approval, for buying capital goods and acquiring companies abroad stays at USD 500 million.
This relaxation is in consultation with RBI, against the backdrop of somewhat drying up of global liquidity and the consequential slowing down of capital inflows into India. It will give flexibility to infrastructure companies looking at long-term funds since interest rates in the country are high. It is also expected to boost investor confidence in India’s growing infrastructure, which requires USD 500 billion by the year 2012.

Anti-competitive clause discarded for highway projects

The Finance Ministry has ordered to delete the controversial anti-competitive clause from the model Request for Qualification (RFQ) document, which limited the number of financial bidders for all Public-Private Partnership (PPP) highway projects.

The contentious clause was included to weed out non-serious players. However, it is alleged to be anti-competitive, encouraged cartelization and resulted into a situation wherein only four key bidders could end up competing for most of the 12 highway projects processed recently despite the fact that about 26 bidders are queuing up for some of the projects.

As per the order of the Finance Ministry, the 60 projects which the National Highways Authority of India (NHAI) is already processing should be dispensed with as per the RFQ with the contentious clause. As for the rest, the NHAI should undertake the process after deleting the clause.

Energy policy to be brought before Cabinet soon

The Planning Commission will soon place the Integrated Energy Policy before the Cabinet for approval. The Policy would lay the general principles to be followed by multiple ministries in the energy sector, including petroleum and natural gas, coal, power, water resources, atomic energy, renewable energy and finance.

The draft policy suggests setting up of a common appellate tribunal along with sector-specific regulatory bodies. It also lays emphasis on the need for acquisition of energy assets abroad in order to meet the country's energy needs and achieve the targeted economic growth of over 9%.

Bio-fuel policy gets Cabinet nod

The government has given nod to National Policy on Bio-fuels with a view to reduce the country's huge oil import bill. As per the policy, the country aims to raise blending of bio-fuels with petrol and diesel to 0% by the year 2017. It also calls for scrapping taxes and duties on bio-diesel and conferring declared goods status on bio-diesel and bio-ethanol.

Government has also approved setting up of a National Bio-fuel Coordination Committee and a Bio-Fuel Steering Committee.

Power import policy soon

The Central Government is working on a power import policy with an object to facilitate acceleration of hydropower development in the Himalayan- rim countries for making electricity inflows into India.

The policy is expected to ensure a greater play for private sector and give Indian firms a larger role in harnessing energy resources across the region.

New Renewable Energy Law

Proposal for a new renewable energy law has been mooted by the Energy Coordination Committee headed by the Prime Minister. The move is aimed at diversifying the country’s energy mix.

The committee has directed the Ministry of New and Renewable Energy to begin consultative process with all stakeholders for finalizing the draft of the proposed law that would stipulate mandatory procurement of prescribed minimum renewable energy in each state. The new legislation is expected to give legal teeth to renewable energy policy that failed to get the desired investment in the sector.

New guidelines for hydro projects

The Central Electricity Authority is framing model contract guidelines for hydro projects by public sector undertakings, with a view to minimize contract-related problems that are hurting several hydropower projects in the country. It will clearly define inter alia risk-sharing mechanism, price indexation, arbitration proceedings and pre-qualification criteria and will be applicable to all contractors and consultants for PSU hydropower projects.

Government not in favour of windfall tax

Government is not in favour of imposing a "windfall tax" on the profits of oil and gas companies. Earlier, the Committee on Financial Position of Oil Marketing Companies, headed by the Planning Commission member B.K. Chaturvedi, proposed levying such a tax on the oil and gas producers.

PPP model proposed for the power sector

The power ministry has proposed Public-Private Partnership (PPP) model for the power sector, which is crucial in view of the difficulty in achieving the capacity addition target of 78,700 MW in the 11th Plan.

Private metro rail services may be allowed

The government has proposed amending the Delhi Metro Railway (Operation & Maintenance) Act to pave way for private metro rail services in the country.

Currently, private companies are permitted to operate metro rail only on Public-Private Partnership model. However, if the law is amended as proposed, private companies would be allowed to run, operate and own metro rail networks.

.

Dams of North-East raise crucial concerns

Krishna Sarma

In 2000, a report commissioned by the World Commission on Dams found that “though dams have made an important and significant contribution to human development, in too many cases an unacceptable and often unnecessary price has been paid to secure those benefits, especially in social and environmental terms.” A document titled ‘India’s Nuclear Energy Programme and the 123 Agreement with United States’ posted in the website of the Prime Minister’s Office echoes this conclusion and states “Hydro-power is clean but not always green because large dams can destroy our natural habitat and displace people.”

And yet, an alarming number of mega hydro projects are in various stages of development in Arunachal Pradesh without any comprehensive environmental impact assessments (EIAs). As of September 2007, Arunachal has signed 39 MOUs to generate 24,471 MW, with both public and private sector developers. The state is being heralded as the new ‘power house’ of India with a potential of 50,000 MW. It is noteworthy that 42 (with 27,293 MW capacity) out of the 162 projects under the PM’s 50,000 MW Hydroelectric Initiative 2003—which proposes to bring on line installed capacity of about 50,000 MW by 2017—are in that state.

It is a matter of great concern that multiple mega dams are being proposed to be built on each and every upper tributary of the river Brahmaputra. These tributaries originate in Tibet and flow through Arunachal and Assam to join the Brahmaputra. But EIAs are being done piecemeal in respect of each project without a holistic study of the entire basin.

Take the case of NEEPCO’s 405 MW run-of-river Ranganadi Project in Lower Subansiri District, which was commissioned in 2002. Since 1998, when work began on this dam, downstream flash floods caused by release of large quantities of water in the river without warning/inadequate warning has caused unbelievable upheavals in the Lakhimpur district of Assam. The most recent episode was in June, 2008 where 347 villages were submerged, 8 people lost their lives and 7525 cattle lives were lost. If a 68 m high dam can create such havoc, one can only imagine the aftermath of possible breaches, which may be caused by a 116 m high Lower Subansiri dam (anticipated to be commissioned in 2012) or the 288 m high dam on the Dibang.

Further, giving the thumbs-up to the North East Region together with Himachal Pradesh and Sikkim as “world’s most environmentally and socially benign sites for hydro power” as did a 2005 World Bank Report was quite off the mark. The thought of fewer Project Affected Families (PAFs) may sound attractive, but one cannot lose sight of the fact that the region is home to many ethnic tribes with distinct identities. These tribes are dependent on land, forests and rivers for their sustenance.

Second, the region is a biodiversity hotspot with rare, endemic flora and fauna. The Lower Subansiri Project will submerge huge areas of reserve forests and a wildlife sanctuary in both the states and will impinge upon an important elephant corridor. The EIA report glosses over these facts—no biotic survey was done. Third, the entire region is ecologically fragile with high seismic activity.

This piece is not a treatise against dam building or hydro power. Rather, it is an appeal for a vision of environmentally sustainable Dams that supports economic and social progress. The following issues need consideration from policymakers: (1) Comprehensive sectoral environmental assessment and basin development must be undertaken in its entirity and site selection must focus on identifying better dams; (2) Where large dams are the only viable option, they should be supported. However, if small hydro projects (SHPs) offer better solutions, they should be favoured; (3) Environment clearance should be comprehensive and mean more than legal compliance. Contentious issues must be investigated in advance of any commitment to the project; (4) Independent power producers (IPPs) look for commercial viability and it is essential that the social and environmental impacts are controlled, alleviated or mitigated in order to secure the bankability and financial closure of a project and (4) finally, a word on the Rehabilitation & Resettlement Policy (R&R).

Projects should recognise entitlements, sustain livelihoods and share benefits. Adverse impact on PAF needs to be assessed in a participatory and transparent manner. Either the government or a third party should take responsibility of EIA studies and the resulting mitigation/resettlement plans before the IPP gets involved. A portion of the project cost should be earmarked for this purpose.

(The author is managing partner, Corporate Law Group)

This article was published in the Economic Times on 28th August 2008.