July 4-8, 2011

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Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

Power Headlines
Generation
Plann Comm blames MoEF for power shortage 80% power plants face risk of default due to coal shortages, environment issues Jairam refuses clearance to Chhattisgarh UMPP Karnataka set to add 1,600 Mw power capacity in FY12 Steel Ministry to revive 1050 MW UP unit after gas allocation rejection Imports may add 30% of coal basket for power generation Gujarat to sell surplus power, invites EOIs for 500 MW PowerGrid races up to build Mundra UMPP evacuation corridor as project begins operations in advance

Renewable
PLG Power awaits REC and IEX approval for 100 MW Solar plant in Rajasthan Trading in renewable energy certificates picks up Jaisalmer becoming the country's next wind energy hub MoEF relaxes environment clearance for solar thermal projects Karcham wangtoo hydel project to be operational soon OPGL to add 60MW of biomass capacity in coming months Activists want ADB to with-hold, review funding to 4 HEPs in Himachal Oswal Mills to build wind projects in TN, Ktka Israeli firms keen for participation in India's solar power progress

Transmission & Distribution

Consumers may get option to choose power supplier Pressure mounting for increase in power tariff Punjab hikes open access cost; 74 paise cross subsidy surcharge imposed Power tariff may rise by 40 paise per unit across India Metis: Rating methodology for power distribution utilities MP govt announces subsidies for power consumers

Others
Northeast to add 5,000 MW in next few years World Bank Group Ombudsman to probe Tata Mundra project Formation of Independent nuclear authority bill soon: Govt Metis: Fertilizers, LPG, power and CGD to be met up by firm allocation from KG D6 SC to decide on power futures trading Power, Coal sectors to wait more, review meet postponed

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

Coal Headlines
Jharkhand mines de-allocation to be reviewed by coal ministry Metis: Vedanta to request MoC to stop MCLs legal action Rush for Blackgold: BJP alleges Scam worth INR 80,000 cr in Coal Ministry Cabinet likely to discuss Mines Bill for approval Metis: MCL refuses supply of coal despite FSA ONGC to relinquish one CBM block, go for product sharing in four RPower ties up with Krishnapatnam port for coal imports NLC to form JV with local companies for coal assets in SA and Indonesia Metis: CCL likely to execute FSA for its 5 IPPs Nod for Hindalco & Essar's Mahan coal block soon Jairam clears 9 No-Go coal blocks in a week Coal India braces for fresh bids in Mozambique Essel Mining, Lanco Infratech in race to bag coal gasification projects NTPC to submit detailed mining plan for de-allocated blocks soon India eyes Polish, Czech coal mining technology

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

Power News
Generation
Plann Comm blames MoEF for power shortage - According to a report prepared for the Prime Minister by the Planning Commission ahead of the meeting, the environment ministry has been blamed for the power shortages in the country. The Planning Commission document states that the major problems in the delay in setting up new power projects have been due to delay in environment and forest clearance. The report further said that the production of coal has been seriously affected by the 'go' and 'no go' policy of Environment Ministry. 80% power plants face risk of default due to coal shortages, environment issuesWarning that 80 per cent of the countrys power plants face the risk of a default due to coal shortages and environmental issues, a body of power producers has petitioned the government for an expert group to review contracts awarded under through the competitive bidding route. In the last five years, the scenario has changed drastically due to the various developments such as an acute coal shortage looming in the power sector, changes in the laws for coal exporting and environmental issues, among other things, which necessitated a re-look at the bidding mechanism. Jairam refuses clearance to Chhattisgarh UMPP- In what could be a blow to the 4,000mw Chhattisgarh Ultra Mega Power Project (UMPP) in Sarguja, environment minister Jairam Ramesh has refused the green nod to the plant as it lies in the densely forested Hasdeo-Arand region of the state. The Chhattisgarh UMPP will not be cleared because it is in the middle of the HasdeoArand coalfield, which is a dense forest. Moreover, the state government is also not keen on getting it cleared, Ramesh said. Government has so far bid out only four out of nine UMPPs conceived earlier. In fact, none of the UMPPs could be awarded in 2010-11. Karnataka set to add 1,600 Mw power capacity in FY12- Power-starved Karnataka is planning to add 1,600 Mw of generating capacity by the end of the current financial year. The state, which has a generating capacity of around 8,000 Mw from both public and private companies, buys around 1,000 Mw during the summer months to tide over the shortfall. The state is set to add about 500 Mw from the second unit of Bellary Thermal Power Station (BTPS), 600 Mw from Udupi Power Corporation Limited and another 500 Mw from the non-conventional sources. Our aim is to achieve self-sufficiency in power generation in the next three years, said Shobha Karandlaje, minister for energy, government of Karnataka. Steel Ministry to revive 1050 MW UP unit after gas allocation rejection- Steel Minister Beni Prasad Verma today said the government was exploring options to revive SAIL's Jagdishpur unit -- formerly Malavika Steel -- in Uttar Pradesh after the Petroleum Ministry rejected a request for allocating gas to it. The Steel Ministry had requested Petroleum and Natural Gas Minister S Jaipal Reddy for gas allocation to the unit. The demand has been rejected as steel is not the priority for gas, as power and other sectors. Steel Authority of India Ltd (SAIL) has committed Rs 10,000 crore for the revival of the unit, which will also have a 1,050 MW power plant. Imports may add 30% of coal basket for power generation- In five years, India could be forced to import almost 30 per cent of the coal required to meet its electricity needs. This would mean that consumers across the country could find electricity prices shooting up. Or else, distribution utilities would be pushed closer to bankruptcy on account of the increased strain on their finances from costly coal imports. To stave off a domestic coal crisis, power utilities across the country have already been instructed to make design changes in all future coal-fired projects to

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

enable higher imported coal blending. The advisory has come at a time when the country is staring at the prospect of stranded capacity adding up to 42,000 MW by 2016-17, based on projected shortages in domestic coal production. Gujarat to sell surplus power, invites EOIs for 500 MW- Gujarat Urja Vikas Nigam Ltd (GUVNL), a state-owned electricity generation, transmission and distribution company, has invited expression of interests (EOIs) from interested state utilities and power buyers for sale of 500 Mw round the clock power. GUVNL proposes to sell 500 Mw of surplus over the period of five years on the basis of take or pay liability. "The demand was lesser than what we expected at this point of time. As a result, the utility is left with surplus power," said GUVNL officials. Currently, there is demand for around 10,000 Mw power in Gujarat as against the production of around 11,000 Mw power. PowerGrid races up to build Mundra UMPP evacuation corridor as project begins operations in advance- Power Grid Corp is racing to build transmission lines for Tata Power's ultra mega power plant in Mundra, whose first unit is ready to start generation three months ahead of the planned start-up date in the middle of September. Power Grid normally builds transmission lines on schedule and often has to wait impatiently for the power plant to start generating electricity.

Pressure mounting for increase in power tariff - Pressure is mounting for an increase in power tariffs. Recent discussions among the power ministry, central and state regulators and distribution utilities point to a situation where it will soon be difficult to continue supply without raising the price. According to a status report on power distribution prepared by the ministry, the cumulative loss of the country's 110 power utilities, including 37 purely distribution entities, are estimated at INR 86,136 crore. If the tariffs remain stagnant, the loss will balloon to INR 1,16,089 crore by 2014-25 , a study conducted by Mercados for the 13th Finance Commission. Punjab hikes open access cost; 74 paise cross subsidy surcharge imposed - Punjab State Electricity Regulatory Commission (PSERC) imposed a cross subsidy surcharge of 74.48 paise per unit on OA consumers. While framing new guidelines for OA Regulations 2011, PSERC, in its latest order posted on its website, has proposed to levy cross subsidy surcharge of 74.48 paise per unit from July 1, in order to prevent financial loss to state owned power utility Punjab State Power Corporation Limited (PSPCL). Power tariff may rise by 40 paise per unit across India- Power tariffs across India could go up by at least 40 paise per unit if a 2010 Supreme Court directive and a recent law ministry recommendation to the power ministry are implemented. According to the apex court directive, the existing Central Electricity Regulatory Commission (CERC) tariff system, which has a ceiling on trading margins of 4-7 paise, will only be applicable to entities involved in inter-state power trading, while those operating within the state are exempted from it. Officials said traders on power exchanges may also see an increase in tariffs from the existing unit price of Rs 3.50/4.00 if the exchanges decide to do away with the cap of 0.40-0.70 paise per unit and determine rates according to the demand and supply situation in the market. Metis: Rating methodology for power distribution utilities- In order to improve the

Transmission & Distribution

Consumers may get option to choose power supplier - Private discoms will not have monopoly in their area of operation in the city is Delhi Electricity Regulatory Commission (DERC) has its way. Within a year, Delhiites may be able to choose their power supplier. On the final day of the four-day public hearing for consumers and stakeholders related to tariff determination for 2011-12, DERC chairman P D Sudhakar told TOI that the regulator was serious about extending open access in the domestic category within a year.

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

operational and financial performance of state power utilities, Ministry of Power (MoP) has devised a new system of rating. The system envisages assigning scores based on the performance of the utilities. The marks are assigned on the basis of weights for different parameters : (1) Around 50 per cent weightage for financial parameters viz. revenue gap/cost coverage, extent of subsidy support, AT&C loss reduction, financial planning and sustainability has been envisaged. (2) Around 16 per cent weightage is given to robustness of the regulatory environment in the state.(3) Other parameters relating to timely submission of audited accounts metering, IT and computerization, quality of power supply, corporate governance, bonus/incentives for parameters relating to profitable operational track record, adoption of transmission and distribution metering, etc. account for around 34 per cent of the total. Failure to meet certain mandatory criteria invites negative penalties and MoP has envisaged negative marking for certain parameters within a certain score range. MP govt announces subsidies for power consumers - Madhya Pradesh government has decided to give a subsidy totalling INR 1,776 crore on the tariff fixed by the Electricity Regulatory Commission this fiscal to provide relief to power consumers in some categories. The decision was taken at the cabinet meeting chaired by Chief Minister Shivraj Singh Chouhan on Wednesday. An official release said that subsidy of 90 paisa per unit would be given to domestic consumers upto 30 units, INR 1.25 per unit to powerloom consumers upto 25 horsepower, INR 1.75 to INR. 2.05 per unit to permanent agricultural consumers and INR 1.75 per unit to the temporary agricultural consumers.

Pokhran under the recent policy of Government of Rajasthan. The project is in process to be approved by Indian Energy Exchange (IEX) and Rural Electrification Corporation to proceed further with an estimated cost of the whole project is INR 13.50 bn and is expected to start very shortly. Trading in renewable energy certificates picks up - As the first quarter of the current fiscal draws to an end, trading in renewable energy certificates (REC) has started gaining momentum. The latest REC trading not only saw an increase in volumes, but also rise in buyers' interest. The June 29 trade saw a volume increase of 14 per cent over the previous one. A total of 15,902 RECs were traded and the price discovered was INR 1,505 for each certificate, which was marginally higher than the previous three months. Jaisalmer becoming the country's next wind energy hub- It's hard to miss the hundreds of wind mills just as one enters the Jaisalmer district. The wind mills stand tall as witnesses to the desert district fast developing into a hub of non-convention energy source. Non-conventional energy not only helps meet Rajasthan's energy requirement, but also plays a vital role in maintaining environmental balance. Till date, 1200 units of wind energy have been set up in Jaisalmer while projects for 2,200MW are in the pipeline. The government has received 135 more proposals for 4,900MW solar energy projects and process of land allotment for these proposals has been completed. MoEF relaxes environment clearance for solar thermal projects- Solar thermal power developers such as Lanco Infratech, Reliance Power's Rajasthan Sun Technique, and Godawari Power and Ispat can now go ahead with their projects without any fear of environmental delays. The Ministry of Environment & Forests has exempted entities implementing projects under the National Solar Mission from environment clearance requirement. But the developers will have to

Renewable
PLG Power awaits REC and IEX approval for 100 MW Solar plant in Rajasthan - PLG Power is in plans to come up with the biggest 100 MW of Solar Power Generation Plant expected to start early this year 2011 in

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

demonstrate that they are not using protected land and have applied for water permits. Karcham wangtoo hydel project to be operational soon- The diversified Jaypee Group's INR 7,000 crore Karcham Wangtoo hydro power project in Himachal Pradesh is expected to be operational by August 15, much ahead of schedule. The 1,000-MW hydro-electric project on the river Sutlej is the country's largest in the private sector. Two of the project's units -- each having a capacity of 250 MW -- have already been commissioned. The third and fourth units are expected to be operational by July 20 and August 15, respectively. OPGL to add 60MW of biomass capacity in coming months- Orient Green Power Ltd's (OGPL) 10-MW biomass-based power plant at Pollachi, Tamil Nadu, began generating electricity on Monday. This is the first of the six biomass-fired power projects that OGPL will put up between now and October, the company's Vice-Chairman and Executive Director, Mr T. Shivaraman, said. These projects will add 60.5 MW to the company's existing 40.5 MW of biomass-based power capacity. Activists want ADB to with-hold, review funding to 4 HEPs in HimachalEnvironmentalists and activists opposing hydro-power projects in Himachal Pradesh have petitioned the Asian Development Bank to withhold loans for such projects and review its decision. Demanding immediate scrapping of the Sainj, Shongtong Karchham, Kashang II and III hydropower projects, the petition said that while the Kashang project's II and III stage were being opposed by the local people, the Shongtong Karchham project on the Sutlej would only add to the severe ecological destruction and disappearance of the Sutlej river and the fragile Sainj valley needs a serious review about the carrying capacity. Oswal Mills to build wind projects in TN, Ktka- Soon after its foray into solar power production, Oswal Woollen Mills Limited is all set to start a project involving wind power. The

business house would set up the INR 60-crore venture in Tamil Nadu and Karnataka. Executive director of Oswal Woollen Mills Sandeep Jain said, ''The company has already signed a memorandum of understanding (MOU) with the government of India for this 10 mega watt (mw) project.'' While 5mw project would become functional from September 2011, the second phase would see the remaining 5mw venture start working from March 2012. ''The cost of 5mw project is INR Rs 30 crore,'' Jain said. Israeli firms keen for participation in India's solar power progress- A number of Israeli companies are keen to partner Indian firms for setting up solar power plants in India. They are eyeing huge opportunities under the Jawaharlal Nehru National Solar Mission for developing 1,200 MW of solar power by 2013. Under the mission, investments of about INR 12,000 crore will be required for achieving the target. For Indian companies, it is an opportunity to access sophisticated solarpower technology developed by Israeli companies based out Tel Aviv, Jerusalem and nearby Kibbutz.

Others
Northeast to add 5,000 MW in next few years - NEEPCO is on track to generate surplus electricity in the power-starved region within the next few years. According to its Chairman and MD it would add an additional 5,000 MW of power in northeast by the end of 12th Five Year Plan (2012-13 to 2016-17). It would soon start commissioning of six more hydro-electric and one more coal-based thermal power projects with a total producing capacity of 2,500 MW in Assam, Meghalaya and Mizoram. World Bank Group Ombudsman to probe Tata Mundra project - Following complaints by affected communities, the IFC's Compliance Advisor Ombudsman has agreed to investigate the coal-fired Tata Ultra Mega power plant in Gujarat, India. Lodged by fishing and farming villagers, the complaint claims that due to flawed design and

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

execution, including breaches of mandatory client obligations, the mammoth coal-fired power plant is contributing to the destruction livelihood of thousands of families and will cause irreparable damage to their fragile marine resources and agriculture. IFC green lighted the loan without a cumulative impact assessment, which then overlooks the other agricultural, marine, and other economic harms that existing power plants and manufacturing have created. Formation of Independent nuclear authority bill soon: Govt - A bill towards formation of an independent nuclear regulatory authority will be introduced in ensuing monsoon session of the Parliament, minister of state at the prime minister's office V Narayanasamy said on Thursday. The government has decided to make the Atomic Energy Regulatory Board more autonomous and independent in its decision-making, he told a conference organised by an industry body. The new authority will be backed with a strong legal framework and address concerns in many quarters following the March 11 Fukushima Dai-Ichi nuclear accident in Japan, he said. Metis: Fertilizers, LPG, power and CGD to be met up by firm allocation from KG D6 Decline in production from KG D6 has made an inappropriate impact on both core and non core sectors. With an expectation of producing 80 MMSCMD by 2012-13, it had created positivity in both the industries. But a sharp decline in KG D6 production from 60 MMSCMD in April 2009 to 50 MMSCMD in December 2010, led to fears in getting the allocated quantity in sectors namely CGD, fertilisers, LPG and power. In reference to the fall, fertilizers sectors opposed any cut on the supply to them. It was, therefore, decided that the fertilizers, LPG, power and CGD (domestic and transport sectors), apart from gas needed

for operation of EWPL, should be entirely met up to the firm allocation. SC to decide on power futures trading - The dispute over regulation of power futures between the electricity regulator and the commodity futures watchdog has reached the Supreme Court, which on Wednesday issued notice to the Forward Markets Commission (FMC) and Multi-Commodity Exchange of India (MCX). Both Power Exchange of India (PXIL) and CERC have challenged the high courts decision. The row began after PXIL, in early 2009, drew CERCs attention to MCXs launch of electricity futures based solely on an approval by FMC, which it termed as incorrect. PXIL said that electricity futures are within the domain of the electricity regulator only. The CERC agreed and issued an order in January last year making it clear that its rules will govern all electricity related contracts, including derivatives. MCX had to discontinue trading in derivatives and will need to move the CERC afresh for licence. Power, Coal sectors to wait more, review meet postponed - The crucial meeting called by Prime Minister Manmohan Singh to resolve inter-ministerial differences relating to environment clearances for the coal and power projects has been postponed to next week. While no official reason was given for rescheduling the meeting, it is being speculated that the impending Cabinet reshuffle could be the reason for the same. Besides reviewing the performances of the key sectors like coal and power, the meeting was expected to show a way out of the tussle between the environment ministry and the ministries of coal and power on the contentious issue of green clearances for the infrastructure projects.

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

Coal News
Jharkhand mines de-allocation to be reviewed by coal ministry - The coal ministry said it would review cancellation of two coal blocks licences of Jharkhand State Electrcity Board in view of special circumstances and reasons explained for the delay. Coal ministry urged Jharkhand government to bring its blocks in operation as early as possible to ensure availability of coal, also to provide adequate security cover to facilitate night loading of coal. Metis: Vedanta to request MoC to stop MCLs legal action - Vedanta Aluminium Ltd. (VAL) is likely to request and meet Coal Ministry (MoC) to look into the matter regarding legal action taken against them by Mahanadi Coalfields Ltd. (MCL). It informed that since Fuel Supply Agreement (FSA) was rd th not signed for its 3 and 4 unit (135 MW each) due to non receipt of consent to operate from the State Pollution Control Board, hence the milestones were not achieved accordingly. Rush for Blackgold: BJP alleges Scam worth INR 80,000 cr in Coal Ministry - The BJP on Thursday released the list of coal block allotted to private companies between 2006 and 2009 and claimed a scam of over INR 80,000 crore in the Coal Ministry, which was under direct control of Prime Minister Manmohan Singh then. The party has sought Supreme Court monitored inquiry into the matter to find out who all received payoff in the scam. Cabinet likely to discuss Mines Bill for approval - A ministerial panel on Thursday approved the draft mines bill that asks coal miners to share 26 per cent of profit and others (non-coal miners) 100 per cent of royalty with project-affected people. The Union cabinet is likely to discuss within the next three weeks the proposed Mines and Minerals (Development and Regulation) Bill 2011, which was approved by a group of ministers headed by finance minister Pranab Mukherjee. The bill will go to the cabinet within the next 15 days which is likely to be discussed in the forthcoming monsoon session of Parliament. Metis: MCL refuses supply of coal despite FSA - Shyam Metalics requests coal ministry to provide quantification of coal linkage under tapering basis for supply of coal to their nd 2 unit of 2X25 MW CPP at Rengali, Orissa. The company informed that due to non receipt of quantification against existing coal linkage, MCL is not supplying coal to the second unit even after executing FSA with MCL. ONGC to relinquish one CBM block, go for product sharing in four - ONGC, which is exploring coal bed methane in eastern India will relinquishing one block and file product sharing contract for four on which it has found gas in viable quantities this year. Confirming the development, Chairman and Managing Director AK Hazarika said: "We are in the process of relinquishing the South Karnpura block in Jharkhand. For the rest, we would be filing product sharing contracts and development plans." RPower ties up with Krishnapatnam port for coal imports - Reliance Power has entered into a port services agreement with the Krishnapatnam Port Company (KPCL), part of the Hyderabad-based Navyug group, for handling coal imports for the 4,000 mw Krishnapatnam Power project. Indications are that Anil Ambani-led ADAGs INR 17,500 crore UMPP would require at least 15 million tonne of imported coal per year. Funds for the power project have already been tied up through a special purpose vehicle, Coastal Andhra Power. Coal for the UMPP would be shipped from the RPower acquired mines in Indonesia till the port site and evacuated by conveyor belts to the power plant. NLC to form JV with local companies for coal assets in SA and Indonesia - Indias Neyveli Lignite Corporation Limited (NLC) is seeking to acquire coal assets in Indonesia and South Africa through joint ventures (JVs)

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

with local companies. The acquisitions would be used to source feedstock for the companys expansion and greenfield thermal power projects in India. The coal blocks to be acquired in Indonesia and South Africa through JVs would be linked as raw material sources for NLCs ongoing thermal power projects, like the thermal power station II expansion of two 250 MW units and the Tuticorin thermal power project, comprising two 500 MW units located in the southern Indian town of Tuticorin. Metis: CCL likely to execute FSA for its 5 IPPs - Central Coalfields Ltd. (CCL) had accorded the status update of 5 Independent Power Producers (IPPs) to Coal India Ltd. (CIL). The five IPPs namely Barkhera, Maqsoodpur, Khamberkhera, Kundarki and Utraula that are being implemented by Bajaj Energy Pvt. Ltd. and for which the Letter of Assurance (LOA) have been issued by CCL. Nod for Hindalco & Essar's Mahan coal block soon - The much-touted and highly prolific Mahan coal block, on which two major projects of two big conglomerates are hinged, is expected to see light of the day very soon. According to sources in the know, the government is keen to clear the clouds of uncertainty hovering over the Mahan coal block located in Singrauli fields in Madhya Pradesh very soon. The block is estimated to have 150 million tonne of thermal coal reserves and will feed upcoming power plants of Essar Power and Hindalco Industries, the flagship subsidiary of the Aditya Birla Group. Jairam clears 9 No-Go coal blocks in a week- Union environment minister Jairam Ramesh, often criticised for his controversial no-go policy on mining in forested areas, has been on a clearance spree of late. On June 23, Ramesh had given approval to opening the Tara, Parsa East and Kante Basan blocks in the Hasdeo-Arand forest region of Chhattisgarh. The blocks were opened despite the Forest Advisory Committee (FAC) recommending against it. On June 29, the environment ministry gave clearance to another six coal blocks in Orissa, of which five

were in the no-go area. Of these, three (Meenakshi-A, Meenakshi-B and Meenakshi Dipside) have been allocated to the 4,000 Mw UMPP. Two blocks (Manoharpur and Manoharpur Dipside) were allocated to the 1,320 Mw power plant of OPGC and one (Dulanga) to NTPC's 1,600 Mw unit. These six cleared blocks could free generation of 6,000 Mw. Coal India braces for fresh bids in Mozambique- Coal India, one of the world's largest coal miner, has plans to call for fresh bids for exploratory drilling at two coal blocks in Mozambique's Tet province. The state-run company secured exploration rights at the two blocks at Moatize district of the region last year. It plans to begin exploration work between July and August this year with the mining work to kick off within five years. Coal India targets 10 million tonnes of coal from the two blocks for export to India in 10 years. Essel Mining, Lanco Infratech in race to bag coal gasification projects- Private sector majors Essel Mining and Lanco Infratech are leading the race to participate with Coal India Ltd in developing two underground coal gasification (UCG) projects in Jharkhand and Maharashtra, according to sources. Coal India (CIL) is expected to seek the board approval for awarding the projects in August. The private sector operators will explore project viability, select technology and run a pilot programme before entering the development and production stage in a time-bound manner. Similar to NELP; CIL has outlined a minimum work programme inclusive of guaranteed investment and exit clauses in the exploratory and pilot phases. NTPC to submit detailed mining plan for de-allocated blocks soon- NTPC will submit a detailed mining plan within a month in a bid to win back five mines recently de-allocated by the ministry. The company will spell out specific mine development targets for the next two years. The coal minister had asked NTPC to provide detailed mining plans. If these are found workable, and sans any loophole, we

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

could review the decision to de-allocate, said a ministry of coal official. India eyes Polish, Czech coal mining technology- India has invited coal mining technology majors from the former Soviet bloc of Czech Republic, Poland and Belarus to open offices in India and participate in the modernisation and underground capacity enhancement initiatives of Coal India Ltd (CIL) and Neyvelli Lignite Corporation (NLC). In

addition to ensuring price competition, the move is apparently aimed at diversifying India's technology import basket, which has recently tilted in favour of the Chinese manufacturers for underground technologies and US-based companies for the opencast equipment.

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

Metis Insights: Funding of Power Projects

The Government of India had a vision of "Power for all' by 2012. To achieve the objective, 1,00,000 MW capacity addition was required with an investment of about INR 10,00,000 crore. The equity requirement was to the tune of INR 2,70,000 crore. Requirement of funds for XI Plan A capacity addition target of 78,700 MW was set for the 11th Five Year Plan. Drawing upon Working Group on Power for XI Plan and inputs received from Central Electricity Authority (CEA), the SubCommittee of GoM under the chairmanship of Deputy Chairman Planning Commission, estimated funding requirement for power sector for the XI Plan to be about INR 10,59 lakh crore. Details of funding requirement for XI Plan are as follows: (In Crore) States Generation Transmission Distribution R&M Others Total 140793 65000 309577 15875 531245 Centre 214655 75000 2329 291984 Private 236286 236286 Total 591734 140000 309577 15875 2329 1059515

Funding of power projects both in the Public and Private sectors are generally done through market mechanism i.e. internal resource generation, issue of fresh equity capital and market borrowing. Funding of power projects through budgetary support is restricted to programmes like R-ADPRP and RGVVY to cater to service obligation of power utilities for enhancing the access to electricity in the rural areas, particularly for the people living below the poverty line. Central Sector Public sector investment in the Central sector has increased over the years. Center's investment in generation and inter-state transmission has been funded through internal generation of resources and debt financing. Major Central sector generation and transmission utilities like NHPC and PGCIL have floated IPOs to meet enhanced equity requirement during XI Plan. These generation and transmission utilities have mobilized INR 9,803 crore through fresh issue of capital during the XI Plan. The anticipated investment during the 11th Plan in the Central sector, as per the Mid-term appraisal of the XI Plan, is expected to be INR 3,38,709 crore and will exceed the requirement of funds by the Central sector estimated by the M S Alhuwalia Committee. State Sector Mid-term appraisal of the XI Plan suggests that anticipated investment in the State sector would be about INR 1,83,570 crore. This will fall short of the requirement of INR 5.31 lakh crore worked out by the M S Alhuwalia Committee. The shortfall is expected to be largely in the transmission and distribution sectors. Some of the steps initiated by the Government to facilitate mobilization of funds for power projects in the State sector are as follows:-

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

As government-owned NBFCs, loans made by PFC and REC to Central and State entities in the power sector have been exempted from RBI's prudential lending (exposure) norms applicable to other non-government owned non-deposit taking systemically important NBFCs. As a result of this, REC and PFC can take exposure to State sector utilities up to 100% of its net worth which may be increased to 150% for A' category business with approval of Board in case of PFC National Electricity Fund (Interest Subsidy) Scheme, once operationalized, is expected to provide INR 8466 crore of interest subsidy during 2011-12 and 2012-13 for financing State transmission and distribution sector projects.

Private Sector Considering the magnitude of the funds requirement for the power sector, it was proposed that a sizeable portion of this investment would be mobilized through private sector participation in the power sector. Private sector participation was considered critical not only for supplementing the efforts of the central and state sectors but also for improvement in the quality of service by bringing in private sector efficiency, practices, etc. Therefore, a strong and coherent, legal, regulatory and policy framework was put in place for facilitating private investment, domestic as well as foreign, in the generation, transmission and distribution of power. The new Electricity Act, 2003 created a conducive environment for private investment in all segments of power sector by removing entry barriers. The stipulation under Section 63 of the Electricity Act, 2003 has provided impetus to the participation of private sector in generation and transmission. Provision of open access and tariff based competitive bidding frame-work under the Tariff Policy created an enabling environment for the private investors. Several policy initiatives have been undertaken by the Ministry of Power to attract private investment in the power sector. These include automatic approval for foreign direct investment in generation, transmission and distribution, National Electricity Policy, 2005, Tariff Policy, 2006, New Hydro policy, 2008, revised Mega power policy, Ultra Mega power policy initiative, and standard bidding documents for procurement of power (both case-l & II) etc. As a result of these initiatives, private sector investment in power has gained momentum. Private sector is likely to add fresh capacity of about 18,500 MW during the 11th Plan which is nearly nine times its capacity addition in the 10th Plan. The share of private sector in the capacity addition has gone up from 18.5 per cent in 2005-06 to about 42 per cent in 2010-11. Projects with estimated capacity of about 47,000 MW, for likely benefits during the 12th Plan, are presently under construction by the private developers. Owing to aforesaid initiatives, incremental flow of credit to power sector has registered manifold increase. The exposure of banks to power sector has increased from about INR 73,000 crore in 200607 to over INR 2 lakh crore in 2010-11, and that of PFC and REC has increased from INR 75,154 crore in 2006-07 to INR 1,81,295 crore in 2010-11. The amount of loan disbursement by PFC and REC during 2007-11 is also higher at INR1,72,956 crore. Such huge inflow of fund has been facilitated by larger internal resource generation and issuance of fresh equity capital. REC and PFC together have mobilized resources of INR 7,898 crore through IPO/FPO. The Plan-wise capacity addition target, its achievement and major reasons for shortfall in achieving the target for the last three Five Year Plans are as under :-

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

Plan

Target (MW)

Achievement (MW)

Reasons for Shortfall Inadequate funding of the State as well as the Central sector projects; procedural delays mainly in land acquisition and environmental clearances; unresolved issues in fuel linkages; contractual failures; suspension of World Bank support; and problems/delays in entrusting the projects to the executing agencies etc. Delay in land acquisition and environmental clearances; unresolved issued in fuel linkages; contractual problems; resettlement and rehabilitation (R&R) problems; and law and order problems.

8th (92-97)

30538

16423

9th (97-02)

40245

19119

10th (02-07)

41110

21180

Delay in supplies/erection by suppliers/contractors; delay in tie-up of super-critical technology; non-availability of gas; delay in award of works; financial closure not achieved; delay in clearance/investment decision; geological surprises; natural calamities; and R&R issues.

In the earlier Plan including the Tenth Plan, several power generation projects couldn't be commissioned on time due to delay in placement of order for main plant equipment, delays in achieving financial closure and in tying-up of fuel linkages. Therefore, at the time of formulation of the XI Plan, efforts were made to identify mainly those projects which had placed orders for supply of main plant equipment and achieved financial closure latest by the first year of the XI Plan. Due to these initiatives 34.462 MW of fresh capacities have been added in the first four years of the 11th Plan which is 163 per cent of the total capacity added during the 10th Plan period. However, there are several factors which arise in the course of project implementation that are unlikely to be anticipated and are beyond the control of project implementation authorities. These adversely impact the implementation of the projects. Some of these factors that have arisen during the 11th Plan include tightening of visa norms for foreign personnel working in the power sector, geological surprises for hydro projects, loading of Balance of Plants vendors beyond their capacity to deliver, local agitation, contractual issues, and suspension/revocation of environmental clearance on account of environmental concerns and R&R issues etc.

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

Methodology adopted in fixing up target of capacity addition Planning Commission constitutes the Working Group on Power Sector under the chairmanship of Secretary (Power) to formulate the Five Year Plan of the power sector. The Working Group, in turn, sets-up specialized Sub-Groups to address specific issues of the power sector. Both the Working Group and the Sub-Groups have wide representations from various power utilities, government Departments/Ministries, Regional Power Corporations, IPPs, regulatory bodies, academia, NGO etc. Sub-Groups hold their deliberations with the various stakeholders and prepare their reports. These reports are considered by the Working Group, and based on the feed-back of the various stakeholders/representatives, these reports are integrated and the report of the Working Group is finalized. The Working Group in its report, amongst others, suggests the capacity addition programme for the Five Year Plan, and Planning Commission finally decides the capacity addition target for the Five Year Plan which, as part of the Five Year Plan document, is approved by the National Development Council at the apex level. The exercise undertaken for fixing up of the target of capacity addition is quite rigorous. The target of capacity addition is fixed after taking into account the projections of the demand for power, the overall growth of the economy and the capacity of the developers to deliver the projects within the Plan period. The reasons for non-achievement of targets successively are, however, due to the problems largely associated with the implementation of power projects, and unforeseen events beyond the control of the implementing agencies. Several strategic initiatives have been identified to streamline project execution during XII Plan. These are as follows: Project Pipeline is being prioritize to provide adequate support based on the type pf project and its stage of development Commissioning of generation projects in the advance stage of completion is being aggressively pursued. Commissioning of matching transmission, sub-transmission and distribution infrastructure being ensured Clear vendor selection and monitoring mechanism to ensure delivery of their committed capacity on time is being worked-out. Monitoring Mechanism for annual achievement/non-achievement of the target A strong review and monitoring mechanism has been put in place. Rigorous monitoring of projects is held at different levels including by Ministry of Power Central Electricity Authority (CEA), Power Project Monitoring Panel and Advisory Group under the chairmanship of the Hon'ble Minister of Power. Intensive reviews are held by the Ministry of Power to review the critical milestones associated with each on-going project. Meetings with the leading equipment manufacturers, especially BHEL, are organized to review the status of critical supplies to the Projects. Quarterly Performance Reviews (QPRs) are also organized separately for each CPSU to review the status of the Central Sector projects. An Advisory Group under the chairmanship of the Hon'ble Minister of Power has been set up to th suggest the ways and means to achieve the 11 Plan capacity addition target. Twelve meetings of the Advisory Group have taken place, so far.

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

Issues related to the supply of power equipment from BHEL are reviewed periodically by a Group under the chairmanship of Secretary (Heavy Industry). As a follow-up to the decision in the conference of Chief Ministers held on May 28, 2007, the ministry of Power has set up a Power Project Monitoring Panel (PPMP) for monitoring of thermal and hydro th generation projects targeted for commissioning during the 11 plan along with the associated transmission schemes. The PPMP, at present, comprises six independent project monitoring consultants. Each consultant is given specific projects. Each consultant visits the project sites and furnishes progress report which is compiled by the coordinating consultant and along with the Exception Report is submitted to the Secretary. The progress of implementation of the projects is accordingly reviewed by the Ministry on the basis of the report received from the Monitoring Panel. Various reviews have indicated that the shortfall in the achievement of the XI Plan targets are largely on account of poor project execution capabilities, constraint on domestic capacity to manufacture power plant equipment, interface issues arising from inter-agency coordination, contractual disputes, local agitation, geological problems especially for hydro projects, and shortage of manpower. Various steps have been initiated by the Government to redress many of these issues. These include augmentation of manufacturing capacity of BHEL from 10,000 MW in December, 2007 to 20,000 MW by 2012; periodic review of issues related to supply of power equipment from BHEL by a Group under the chairmanship of Secretary (Heavy Industry); formation of several new joint ventures to manufacture supercritical boilers and turbine-generators for thermal power plants; bulk ordering of 11 units of 660 MW each with supercritical technology with mandatory phased indigenous manufacturing programme to promote indigenous manufacturing; sensitization of stakeholders to enlarge the vendors base to meet Balance of Plants requirements; rigorous monitoring of projects at different levels including by Ministry of Power, Central Electricity Authority, Power Project Monitoring Panel and Advisory Group under the chairmanship of Minister of Power; introduction of web-based monitoring system; adopt an ITI initiative by the Central PSUs of the power sector. Steps taken into accounts to project the fund requirements corresponding to target set for capacity addition. Ministry of Power has taken several steps for enhancing availability of resources to the power sector. These are as follows.Transmission and Wheeling Charges are kept out of the ambit of Service Tax. Exemption from Income Tax u/s 80-IA has been extended by one more year for projects to be commissioned up to March 31, 2012. Infrastructure debt funds to be notified in due course by Ministry of Finance. Interest payment on the borrowings of these funds from abroad will attract a reduced withholding tax rate of 5 %. Further it is provided to exempt the income of the fund from tax. Additional deduction of INR 20, 000 for investment in long-term infrastructure bonds u/s 80CCF is extended for the year 2011-12. National Electricity Fund (Interest Subsidy) Scheme to strengthen the distribution sector. Moreover, a Sub-Committee of the GoM under the chairmanship of Deputy Chairman, Planning Commission was constituted to look into the financial issue of power sector. The details of the interim recommendations of the Sub-Committee and their latest status may be seen in the reply to questions no.11 & 12. Leading Financial Institutions

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) are the leading financial institutions in India focused on the power sector. They were established as an integral part of, and continue to play a strategic role in the Gol's initiatives for the development of the power sector in India. They work closely with Gol instrumentalities, State governments and power sector utilities, other power sector intermediaries and private sector clients for channelising funds to the power sector and to assist MoP in structural reforms for the power sector in India. PFC and REC have an established track record of consistent financial performance and growth, which enable them to capitalize on attractive financing opportunities in the power sector in India. This is amply evident from the detail given below:

Note: * MoU Target, **Anticipated, Figures in Crore From the above graphs, it is evident that these companies, being the principal agencies for funding set up under the Ministry of Power, have made substantial contribution to cater to the requirements of Indian Power Sector. Following steps have been taken to improve the funding capacity of PFC and REC: 1. Exemption from Prudential norms: As government-owned NBFCs, loans made by PFC and REC to Central and State entities in the power sector have been exempted from RBI's prudential lending (exposure) norms till March 31, 2012 applicable to other non-government owned non-deposit taking systemically important NBFCs. As a result of this, REC and PFC can take exposure to state sector utilities up to 100 per cent of its net worth which may be increased to 150 per cent for 'A 'category business with approval of board in case of PFC. 2. Mobilisation of Resources through Equity: PFC and REC's primary sources of funds include equity capital, internal resources and domestic and foreign borrowings. PFC has raised INR 997 crore from Initial Public Offering (IPO) in FY 2006-07 and INR 3,433 crore from Further Public Offer (FPO) in May, 2011. Similarly, REC has raised INR 820 crore from Initial Public Offering (IPO) in FY 2007-08 and INR 2648 crore from Further Public Offer (FPO) in FY 2009-10. The money raised through equity sources would help the company in creating loan assets of 6-7 times. 3. Favourable credit rating and access to competitive sources of funds: Favourable credit rating have been granted to PFC and REC by both domestic rating agencies like CRISIL and

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

ICRA (highest grade in domestic market) and international rating agencies like S&P, Moody's (at par with the sovereign ratings for India ) which enable them to raise resources at competitive rates. The detail of funds raised during the period 2007-08 to 2010-11 is as follows: (In crores) FY 2007-08 PFC REC PFC + REC 16,757 8,377 25,134 FY 2008-09 21,624 14,895 36,519 FY 2009-10 22,298 24,028 46,326 FY 2010-11 28,275 25,855 54,130

PFC and REC's contributes dominant market share in power sector funding, taken together, is in the region of 35-40%. Capacity Addition Targets to be achieved by the end of year 34,462 MW of capacity has been added during the first four years of the Eleventh Plan as against the Mid-Term Appraisal target of 62,374 MW for the XI Plan. This is 163 per cent of the total capacity th added during the 10 Five Year Plan. Capacity Addition during 207-11 (In MW) Total Commissioned 10450 12971 11041 34462

Sectors Central State Private All India

Hydro 1350 2579 192 4121

Thermal 8220 10392 10849 29461

Nuclear 880 0 0 880

A capacity addition target of 17,600 MW including 2,000 MW of nuclear power has been fixed for 2011-12. With the achievement of the targeted capacity addition during 2011-12, the capacity addition during XI Plan is expected to be around 52,000 MW by the end of the 11th Plan.

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

Latest Status of the interim recommendations and the action taken MoP
PFC and REC may be allowed to raise External Commercial Borrowings of USD 1 billion each per year under the 'Automatic Route' by RBI at least until the end of the XI Plan period.

Department of Financial Services (DFS) has not agreed to this recommendation. DFS have informed that PFC & REC may avail ECB under Approval Route. This is now being submitted for consideration of the Cabinet Committee on Infrastructure.

Exposure limits of banks for lending to power sector companies may be enhanced by 5%, that is, banks may be authorised to lend up to 25% of their capital funds to a single borrower, while maintaining the provisions enabling the Board of the bank to enhance this limit by 5% of the capital fund. Exposure limits of banks for lending to PFC and REC may be enhanced from 15% to the level of single borrower, that is, banks may be authorised to lend upto 25% of their capital funds to PFC and REC, while also extending the provision enabling the Board of the bank to enhance this limit by 5% of the capital funds. To consider only a certain percentage, say 50%, of total funding by banks to PFC and REC as power sector exposure while determining their industry exposure norms

These issues are being looked into by a Committee set up on 21.01.2010 with Joint Secretary, Department of Financial Services as Convener; CMD, PFC; JS (Distribution), Ministry of Power; JS&FA (Power) and Executive Director, RBI as members. This committee has already held meetings and deliberated on these recommendations. The issues are still to be resolved. These issues are now being submitted for consideration of the Cabinet Committee on Infrastructure.

Loans extended by PFC and REC to State Power Utilities which are guaranteed by State Government should be assigned a 20% risk weight while calculating the CRAR thereby providing parity in the risk weight in CRAR between PFC/REC and banks.

The recommendation was agreed to by RBI.

National Electricity Fund A Committee was set up on April 29, 2008 under Member (Power), Planning Commission to consider various aspects of establishing the National Electricity Fund. The Committee estimated funding gap under State T&D about INR 3 lakh crore and debt requirement for last 3 years of the Xlth Plan at about INR 2.02 lakh crore. The Concept Note as prepared by the Committee, recommended mobilization of resources to meet the funding gap by issue of tax free bonds, increasing LIC exposure limit, and lending from Asian Development Bank (ADB)/World Bank. The Note envisaged providing loans from Power Finance Corporation Ltd. (PFC) and Rural Electrification Corporation Ltd. (REC) to the States for improving T&D infrastructure. The Note assesses the interest subsidy requirement of 82,266 crore over 15 years with 3 years moratorium in repayment of principal.

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

An EFC memo was circulated on September 9, 2009 based on the concept note. A meeting was taken by Secretary (Planning Commission) on January 25, 2010 to resolve certain issues flagged by the appraising agencies, it was decided in the meeting that interest subsidy should be available only for distribution schemes and that interest subsidy should be extended to loans from other FIs in addition to PFC/ REC and the scheme should be extended to non R-APDRP projects and all rural areas (Non-RGGVY) to avoid any duplication. After following the procedure and detailed discussions, it was felt that interest subsidy aggregating INR 8,466 crore, would be adequate for a total loan disbursement amounting to INR 25,000 crore for distribution schemes during the years 2011-12 and 2012-13, spread over 14 years. A draft CCEA note is under finalization for circulation based on the above decision. FM's approval has since been obtained on the same.

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

Power Exchange Prices & Volumes

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

Fuel Statistics

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

Please note that the information published in this newsletter originates from various sources and is accurate to the best of our knowledge. However, Metis Business Solutions Pvt. Ltd. does not accept any type of responsibility for loss caused to any person or any corporate entity who acts or refrains from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise.

Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011

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Metis Power & Coal Weekly Sectoral Post | July 4-8, 2011