A sop that does not help
Sudha Mahalingam
W
ith the Aadhaar-based direct
cash transfer scheme facing so
many glitches in implementa-
tion, any hopes that the coun-
try’s energy sector can soon dismount the
subsidy tiger it has been riding so danger-
ously have receded into the background. Had
the Aadhaar scheme worked satisfactorily,
the next logical step would have been to
extend it to leaky petroleum subsidies in
order to limit them only to those who need
and deserve to be subsidised.
‘Lifeline energy’
Like all subsidies, petroleum subsidies too
began with good intentions but soon spun
out of control. In 2002, when the govern-
ment dismantled the cost-plus administered
pricing mechanism in the petroleum sector
and linked petroleum product prices to im-
port parity, it chose to subsidise through the
budget, two products — kerosene and LPG.
The rationale was that these constituted
‘lifeline’ energy which had to be supplied to
all households irrespective of their ability to
pay for it.
it
So far so good. But then, the oil marketing
companies, at the behest of the government,
failed to make the crucial distinction be-
tween those households that could pay the
economic cost of cooking fuels and those
that couldn’t. The subsidy was extended to
every domestic LPG connection. Kerosene
subsidy was extended to every ration card
holder whether BPL or not.
In an unforeseen development, deregula-
tion of petroleum product prices in India
coincided with a steady and steep increase in
the global price of crude, which accounts for
almost 90 per cent of product cost. From
around $23.65 for a barrel of Indian basket
crude in March 2002, prices went up to more
than $115 in 2012. Consequently, product
prices had to be revised frequently to keep
up with rising crude prices. However, both
LPG and kerosene were insulated from such
price increases to a very large extent. That
encouraged rapid increases in LPG pene-
tration to households as well as subsidised
card
kerosene allocations through ration cards.
Apart from spiralling budgetary subsidies,
this has resulted in perverse outcomes not
envisaged when these subsidies were first
introduced.
While LPG penetration on the records of
oil marketing companies soared, all one has
to do is to just ask around to find out how
many domestic maids, helpers, cleaners,
drivers and a host of other blue-collar work-
ers who live in our cities and towns have
access to LPG connections. Most of them
don’t, basically because they cannot produce
an identity proof or give residence proof
without which their neighbourhood gas
agency would not even countenance their th
Subsidies on cooking gas, kerosene and
diesel have resulted in perverse outcomes
not envisaged when they were introduced
application. Many are itinerant workers and
even those that are not rarely have a lease
document for their rented homes. So, they
end up procuring 5 kilo empty cylinders
from the market which they fill illegally (and
dangerously) every few days from their
friendly gas shop in the same neighbour-
hood. And they pay at least five times the
price of a subsidised LPG cylinder.
Not only does this class, which most needs
the subsidised cooking fuel, not get it, worse,
those who don’t need the subsidy — basical-
ly, the middle class — often have more than a
single LPG connection. Some of the supplies
accessed by the illegal neighbourhood gas
shop may come from these middle class
connection
households with more than one connection,
who are often culpable by default.
Diversion of cooking gas
Most households can get by with a single
LPG cylinder a month and they do not draw
their second subsidised entitlement of LPG,
enabling the gas agency to divert it to whom-
soever it chooses, for a premium
premium. More often
than not, it is supplied to commercial eat-
eries and, at times, even established hotels
which are supposed to get the bigger 19 kg
cylinder at commercial prices. Enterprising
private car-owners illegally convert their car
engines to run on subsidised LPG meant for
cooking. The oil marketing companies came
cooking
up with Auto LPG cylinders to be sold at
commercial rates, but it has been a cat and
mouse game between the OMCs and the
flourishing illegal LPG market. Thehe ensuing
rents have created a chain of beneficiaries all
of whom have a stake in keeping LPG prices
subsidised. They constitute a valuable
vote-bank.
Only now oil marketing companies are
waking up to the bane of multiple LPG con-
nections in urban households which they are
trying to weed out. The attempts to limit the
number of subsidised LPG cylinders have
witnessed some policy flip-flops.
Yet another perverse outcome of LPG sub-
sidisation is the crowding out of piped gas in
cities. While LPG is subsidised, piped gas is
citie
not. Even though currently piped gas is
not
cheaper than even subsidised LPG, shrewd
consumers foresee a steep increase in piped
cooking gas prices, especially after the col-
lapse of domestic gas production from KG
basin. CNG prices in Delhi have more than
basin
doubled in the last three years. Eventually,
piped gas prices will also go up as more and
more city gas companies are sourcing LNG
(liquefied natural gas) from international
markets. Shrewd households used to sub-
sidised cooking fuels are actually refusing
piped gas connections. Yet piped gas is a far
superior option compared to LPG. It is unin-
terrupted, cannot be diverted to other con-
sumers and is safer than LPG in cylinders.
cylind
Many a city gas distribution company has
complained about lackadaisical response to
their efforts to expand pipeline connections.
Kerosene subsidy has also produced
outcomes. Unsurprisingly,
equally perverse outco
ration outlets report full drawal of subsi-
dised kerosene quota. But only a part of it
reaches the intended beneficiaries. At Rs. 27
a litre, the price differential between sub-
sidised kerosene and diesel is indeed very
significant, pushing the former into diesel
tanks of cars, lorries and trucks.
trucks Kerosene
mixed with diesel defies easy detection. It is
estimated that half of all subsidised kerosene
goes to adulterate diesel in cars and trucks,
reducing their efficiency. Unlike LPG diver-
sion which takes place at the level of the
dealers and gas agencies, kerosene diversion
is controlled by mafia-like operations often
patronage. Corruption at
with local political patronag
all levels has ensured that chemical markers
that would distinguish subsidised kerosene
from the rest used in other industries get
neutralised within a few weeks of their
introduction.
The most egregious perverse outcome of
the government’s misguided subsidy regime,
however, pertains to diesel which is not even
a cooking fuel. Even though diesel prices
were linked to import parity prices from
2002 onwards, they were not revised in tan-
dem with global crude prices except in the
initial two years, thanks to the invisible hand
of government restraining the oil marketing
companies. Diesel
iesel is used in irrigation
pumpsets used by agriculture and in public
transportation, especially trucks and the
railways. Frequent elections to State Assem-
railway
blies, even by-polls, can make the govern-
ment jittery about raising diesel prices,
price as a
result of which the gap between domestic
market price of diesel and its import parity
price begins to widen, giving rise to an im-
plicit subsidy borne primarily by the oil mar-
keting companies.
Diesel cars
Cashing in on this unexpected windfall,
car manufacturers have been flooding the
Indian market with diesel-fuelled cars. Ini-
tially these addressed the urban taxicab seg-
ments but, gradually, even luxury brands
ment bran
have come up with diesel-fuelled models to
entice the fuel-price sensitive consumers. In
fact, one study found that 40 per cent of the
diesel used in the country is by diesel cars.
Cheap diesel, primarily meant for freight,
has also led to indiscriminate increase in
truck-borne traffic as opposed to rail-borne
freight, a more economical way to transport
goods. Indian highways are perpetually
clogged with truck traffic, endangering the
environment as well as human lives, not to
speak of the quantum jumps u in diesel con-
sumption in recent years. In fact, 60 per cent
of the diesel consumed in the country is
accounted for by the transportation sector.
The share of diesel in the petroleum fuel
basket rose to 43.7 per cent in FY 2011, up
from 35.19 in FY 2002. Diesel car output
growth has outpaced growth of petrol-dri-
ven private cars so much so that the diesel
automobile lobby is threatening to become a
forceful voice in ensuring that diesel re-
mains a subsidised fuel.
That apart, the automobile manufacturers
skim a substantial chunk of the subsidy by
pricing diesel cars considerably higher than
their petrol counterparts. The vehicle owner
pays an upfront premium which unduly en-
riches the automobile manufacturer, a very
perverse outcome indeed.
If the government is serious about fuel
subsidies reaching only the intended bene-
ficiaries, it must act fast to curb these unin-
tended and perverse outcomes.
(The writer is an independent energy ana-
lyst and a former petroleum regulator).
Aviation
Turbine Fuel
Multi Commodity Exchange of India Ltd (MCX) is a demutualised exchange with permanent recognition from the
government of India. MCX offers futures trading in 56 commodities including bullion, energy, grains, plastics, metals, oil
and oilseeds, fibres, spices, pulses, sugar, plantations and carbon credits as on March 31, 2008. The average daily
turnover on the MCX platform was Rs. 102,827.60 million during fiscal 2007-08.

GENERAL CHARACTERISTICS
Aviation turbine fuel (ATF) or jet fuel is a specialized type of petroleum-based
petrroleum-based fuel used to power aircrafts.
aircraf
r ts It
is generally of a higher qualit
quality
ty than fuels used in less critical applications such as heating or road transport.
ATF is clear
lear to
t straww coloured and is a blend of hydrocarbons, a product of petroleum refining which belongs
t the middle distillate
to t group.
r In some regions, lower quality specification kerosene or a dual-purpose grade
is produced and used as a domestic heating fuel, especially in Asia and notably in Japan and Korea. In
India, the kerosene market is divided in three segments namely, Public Distribution System (PDS), Industrial
Kerosene and Aviation Turbine Fuel. Almost all the Indian kerosene is consumed through the PDS.
Airline companies, being the single largest user of jet fuel, fuel are exposed
x t price risk owing to
to t extreme
x
v
volatility worldwide Typically, airlines have to either absorb the price volatility or pass the same to
in prices worldwide.
consumers. However, globalisation and the competitive scenario existent today demands competitive pricing
in the absence of which airlines stand to lose business. To decrease cost per passenger and increase
revenues, airlines need to hedge their price risk inherent in jet fuel by taking positions in the futures
market. Crude oil refineries, on the other hand, are faced with the risk of decreasing product prices which
includes ATF. Decreasing product prices put a strain on refining margins leading to lower profitability. Again,
ATF futures are required to mitigate the price risk faced by these refineries.
As the primary function of aviation turbine fuel (jet fuel) is to power an aircraft, energy content t and
qualitty are ke
combustion quality k
keyy fuel performance
perfformance properties.
proper
r ties Other significant performance properties are
y lubricity,
stability, y fluidity,
y volatility
vvolatility,
y, non-corrosivity
r y, and cleanliness. Besides providing a source of energy to
non-corrosivity,
power the aircraft, fuel is alsolso used as a hydraulic
y fluid in engine control
r systems
t and a coolant ffor
or certain
fuel system
t components
components. There is only one type of jet fuel, kerosene k rosene type, in civil use world wide
ker wide. So it's
extremely important to fuel supplier to ensure fuel in high quality and internationally recognized standard
accordingly.
Lighter
t (less dense) fuels, such as gasoline, havehavve higher heating values on a weight basis: whereas heavierv
ATF is clear to (more dense) fuels, likek diesel, have
havve higher heating values on a volume
v basis. Since space is at a premium
straw coloured aircraf
r
in most aircraft,t, the amount of energy contained in a give v quantity
t of fuel is important.
importantt. A fuel with high
volumetric
v energy content
t maximises the energy that can be stored
t in a fixed
x volume
v provides
and thus pro
r vides
v the
and is a blend of longest flight range.
hydrocarbons, a
product of TYPES OF JET FUEL
petroleum Jet fuel is available in the following types:
refining which
• Jet A-1 • JP-1 • JP-4 •JP-5
belongs to the
middle distillate • JP-6 • JP-7 • JP-8 •JPTS
group.
Jett A-1 iss the
t e most
th stt commonlyy used
ussed jjet
ett ffuel
uel ty
ttype.
y e. It has the following characteristics:
yp

• Flash point: 38°C • Autoignition temperature: 210°C

• Freezing point: -47°C • Open air burning temperature: 287.5°C
• Maximum burning temperature: 980°C • Density at 15°C: 0.8075
0 kg/L

www.mcxindia.com For private circulation only.

 Crude Oil Petroleum gas
Distillation Tower < 40 C
C1 to C3
Gasoline 40-200 C
C4 to C12
Kerosene, jet fuel
200-250 C
C12 to C16
Heating oil 250-300 C
C15 to C18

Crude Oil Lubricating Oil

300-370 C
C19 and up

Residue, asphalt
C25 and up
Heating Burner
C. Ophardt c. 1998

The picture of the distillation tower shows jet fuel being distilled out of crude
oil at around 200 – 250 degree Celsius.

As inferred by the chart below, ATF

A sales accounted
AT t ffor
or around
r 3.5% of total
t sales of petroleum
r products
r
Kerosene
while Superior Ker
K rosene Oil (SKO) t ffor
K accounted 7.95%.
or 7.95%
7.

Segmentation of Product Sales

Other Waxes, 0.05
Paraffin Wax, 0.16
Other Heavy, 1.49
Airline Coke, 4.07
LPG, 9.08
Bitumen, 3.20
companies, being Lubes / Greases, 1.48
the single largest LSHS, 2.81 Mogas, 7.77

user of jet fuel,

FO, 7.75
are exposed to
price risk owing LDO, 0.60
Naphtha, 10.66
to extreme Other Mids, 0.41
volatility in prices
worldwide. Other Lights, 3.34

SKO, 7.95

HSDO, 35.85 ATF, 3.32

Source: Ministry of Petroleum and Natural Gas, India

www.mcxindia.com
 Industries that are directly affected by volatility in kerosene or aviation turbine fuel prices are:
• Oil refining • Aviation
• Power generation • Shipping
• Steel • Railways
• Metallurgy • Chemical, etc.

The aviation industry is the single largest user of ATF. For any airline company, ATF forms the major portion
of their material cost. Almost 40% of the total
t input cost to
t an airline companyy is composed of jjet
et fuel.

Other expenses Operating

Other repairs 15%
2% expenses
Repairs & 25%
maintenance
2%
Insurance
premium
1%

Salaries &
wages
15%

Energy
(power & fuel)
40%
Source: Petroleum Planning and Analysis Cell

DEMAND-SUPPLY SCENARIO
Indigenous production of ATF in India in 2007 was 7,805,000 tonnes. India is self-sufficient in production of
these products with exports of 3,662,000 tonnes. The Indian oil companies produce enough kerosene and
ATF to meet the domestic demand. Also the pricing of kerosene is revised by these companies dynamically
in tandem with international rates. Hence the volatility of international crude oil prices is spilled over to the
ATF and industrial kerosene prices.

There is only one ATF Prices

type of jet fuel,
120
kerosene type, in
110
civil use world
100
wide.
90
US$ / bbl

80
70
60
50
40
1/4/2007

3/4/2007

5/4/2007

7/4/2007

9/4/2007
1/4/2005

3/4/2005

5/4/2005

7/4/2005

9/4/2005

1/4/2006

3/4/2006

5/4/2006

7/4/2006

9/4/2006

1/4/2008
11/4/2007

11/4/2007
11/4/2005

ATF Prices
Source: Bloomberg

www.mcxindia.com
Advantages of Cold Cyclone CFBC Boiler over Bubbling Bed Boiler Advantages of Cold Cyclone CFBC Boiler over Pulverised Fuel Boiler
Particulars Bubbling Bed CFBC (Cold Cyclone) Advantage for CFBC (Cold Cyclone) Particulars Pulverised Fuel CFBC (Cold Cyclone) Advantage of CFBC (Cold Cyclone)
1. Economic range <60 TPH 60-500TPH Lesser floor space requirement 1 Thermal Efficiency ~87% ~87% Practically Same
Type 2-pass Tower 2. Power consumption Higher due to grinding Lower than PF No milling equipment
2. Thermal Eff. (Coal) 83% 87% Better efficiency due to ash recirculation 3. Oil Firing Start up & upto 50% load Only start up Big savings in oil as no oil required for part lod operation
Carbon burn up 93% 98% and longer reaction time in large furnace.
4. Fuel preparation <75 micron <8 mm No grinding of fuel. Less power.
Power consumption ~ 14 KW/MW (th) ~ 18 KW/MW (th) Higher bed height of 1600mm vs. 1300mm.
Fuel flexibility Limited range Wide range - Fuel Flexibility Limited Wide range Very poor fuels can be burnt like lignite & washery rejects
Staged air, larger furnace volume, more
Fuel preparation <8 mm <8 mm residence time - Max. Ash + H O ~62% ~ 75%
Fuel fines <1mm <20% <50% No monsoon problems of feeder jamming & - Abrasive coals High Mill Wear & maintenance None Adequate precaution taken for pressure part
Fuel Moisture ~10-12% ~16% coal pipes jamming - High sulphur fuels FGD Plant reqd. CaCO dosing In situ SO capture
3. Reliability Low Very High No inbed tubes, No erosion problems 5. Emission (mg/Nm )
Response Poor Very good Equal to PF
Auto Controls Combustion control not possible Possible Stepless turndown upto 30% achievable. - NOx ~ 650 <200 Low NOx due to low combustion temp. of about ~850 C
- SO ~ 2600 ~300 Meet pollution low of future also
4. Fluidising velocity 2-3 m/sec 4-5 m/sec Leads to more compact furnace.
Furnace Resi. Time 2-3 sec. 4-5 sec. 6. Start up time ~ 5 hrs. with multiple burner 3-4 hrs with 2 Hot Gas Gen. Big saving in oil bill & over all plant operation cost
Bed heat release ~1.5 MW/m ~5.0 MW/m 7. - Moving Equipment Feeders, Mills Only feeders No mills
5. Bed Temp. Falls at part loads Constant Much better part load efficiency - Maintenance High Low Maintenance friendly
Bed Temp. Control In-bed tubes & bed partition Ash recirc & staged combustion Auto combustion control possible. 8. Pressure Part
Bed level control Intermittent draining Intermittent draining No bed tube erosion - Arrangement 2 Pass type Tower type Lesser floor space requirement.
6. Emission (mg/Nm ) - Erosion Moderate Less No gas turns on tube banks so less wear
-NOx <600 <200 Due to larger furnace & staged combustion
-SO ~300 ~300 9. Soot Blowers Many & all over None No steam consumption or maintenance
Due to ash & Limestone recirculation
Limestone requirement More Less 10. Space More Less Compact layout
Desulferisation Limit 85% 95% 11. Ash Handling Wet & Dry Dry System very simple, clean & automatic
Meets pollution Norm No Yes 12. Explosion Risk High None Safe & reliable operation
7. Quick & +ve start-up No Yes Start-up using Hot Gas Generator 13. Boiler Control Complicated Very Simple
8. Ease of Operation Less More Simpler systems, auto controls 14. Burner Controls Complicated Very Simple Only 2 Hot Gas Generators
CBM IN INDIA

Methane was once regarded by miners as

a hazard rather than a resource and many
miners died in methane explosions
before the introduction of high-capacity y
ventilation to dilute gasses.
g However,, iff
methane is not recaptured
p it is not only
lost as a resource but
but contributes
contributes to
warming. Even though the
global warmin
volume of methane contributing to
greenhouse gasses is three times smaller
than carbon dioxide,, its ggreenhouse
higher.
ppotential is 21 times highe
g Coal mining g
is estimated to cause about 9 per cent of
emissions. Methane
global methane emission
captured during coal mining could be

significant, ecologically friendly source of energy,

ggy, producing
p g no particulates
p and onlyy about half
the CO2 associated with coal combustion. Depe Depending
p ndingg on quality
q y methane from mines could be
sold to gas
g companies,
p , used to ggenerate electricity,
electricity, used to run vehicles, used as feedstock for
fertilizer or methanol production,
production used in blast furnace operators at steelworks; sold to other
industrial, domestic or commercial enterprises; or used on-site to dry coal. In the USA today coal
bed methane (CBM) represents between two and three per cent of all gas production.

1
COALBED METHANE EXPLORATION IN INDIA

Coalbed Methane (CBM), an

unconventional source of natural gas is
now considered as an alternative source
for augmenting the country’s energy
resources. The environmental, technical
and economic advantage of CBM has
made it a gglobal fuel of choice. Having
the 4th largest
g pproven coal reserves aand
being the third larges
largestt coal producer
produc in
the world, India holds significant
prospects for commercial recovery y of
CBM. Prior to 1997,, due to absence of
pproper
p administrative,, fiscal and legalg
g , CBM E&P activities were
regime,
limited to R&D only. y It was only after
the formulation of the policy for
exploration
p and pproduction of CBM by the Government in July 1997, CBM exploration activity
commenced in the country. Ministry of Petroleum & Natural Gas ((MOP&NG)) became the
administrative Ministryy and Directorate
rate General of Hydrocarbons
y (DGH)
( ) became the
implementing
p g agency
g y for CBM ppolicy.
y DGH functioning under the aegis of MOP&NG plays a
pivotal role in development of CBM resources in India.
Indi

Contractual & Fiscal Terms

Some of the attractive terms offered by the Government are:

! No participating
p p g interest of the Government.
! No upfront
p payment.
p y
! No
o signature bonus.
! Exemption from payment of customs duty on imports required for CBM operation.
! Walkout option at the end of Phase-I & II.
! Freedom to sell gas in the domestic market.
! Provision of fiscal stability.
! Seven years tax holiday.

CBM-I:

DGH in close interaction with Ministry of

Coal(MOC), carved out several prospective

CBM blocks in different coalfields of the

country, generated CBM related data and

2
pprepared
p the Information Dockets & Data Packages. g In Mayy 2001,, for the first time in the
country,
y, Government offered 7 blocks undeunderr 1st round of CBM bidding, out of which 5
blocks were awarded and contracts
contttracts signed. Contracts for another 3 blocks awarded on
nomination basis were also executed.

CBM-II:

Under 2nd round of CBM bidding 9 blocks were offered through international
competitive bidding in May 2003 with bid closing date of 15th October 2003. A total of
14 bids were received for 8 out of 9 blocks offered. Contracts for these 8 awarded blocks
were signed in June 2004.

CBM-III:

nternational competitive
International p bids have been invited by Government of India for 10 CBM
blocks under 3rd round of CBM bidding with bid closing date of 30th June 2006. There
was an overwhelming response to the CBM-III round of bidding. For the first time major
foreign E&P companies participated in the CBM-III bidding round. 70 nos. of data
packages valued Rs. 10 crores (approx.) were sold and a total of 54 bids were received
for all the 10 blocks, from 26 companies including 8 foreign and 18 Indian companies.
All the 10 blocks received multiple bids.

Current CBM E&P Activities

CBM gas production is envisaged 3.78 BCM

CBM Resources in Awarded Blocks 1374 BCM

The total investment committed in blocks Rs6.75 billion

As of April 1, 2006 the investment in CBM Rs1.7 billion

Area for CBM Exploration is 13600 SqKm

Blocks awarded 26 No.

Core holes committed 121

Core holes achieved 70

Test/Pilot wells committed 211

Test/Pilot wells achieved 40

! Phase-I exploration activities in 5 blocks have been completed and Market

Survey & Pilot Assessment Phase (Phase-II) is in progress. In the remaining 11
blocks, Phase-I exploration activities are in progress.

3
Pits of sleaze | Frontline http://www.frontline.in/cover-story/pits-of-sleaze/article4710991.ece?cs...

COVER STORY
Published: May 15, 2013 12:30 IST | Updated: May 13, 2013 12:58 IST

Pits of sleaze

Show Caption

Systematic diversion of community resources to the private sector in the name of growing energy
demands has been the trend since the advent of neoliberal policies, but the allocation of coal blocks by the
UPA-II government was done in total violation of norms. By AJOY ASHIRWAD MAHAPRASHASTA in
New Delhi
ON the face of it, the Parliamentary Standing Committee’s report on the allocation of coal blocks is a formal indictment of the United
Progressive Alliance-II government, which not only failed to adhere to legal and bureaucratic procedures while allowing captive coal
mining but also doled out mining licences selectively to incompetent and unprofessional companies. Firstly, the standing committee,
headed by Trinamool Congress leader Kalyan Banerjee, says its report, called “Review of allotment, development and performance of
coal/lignite blocks”, scrutinised the functioning of the screening committee and examined the guidelines for the allocation of coal
blocks. Secondly, it pointed out that the monitoring mechanism and the review of coal blocks by an Inter-Ministerial Group had been
far less than satisfactory.
Barely had the UPA-II government recovered from similar allegations in the 2G spectrum case when the standing committee report
on coal blocks gifted the opposition yet another opportunity to shout down the government in Parliament on an issue that has been on
the nation’s mind in the last one year: corruption. While the standing committee highlights the inadequacies of the UPA-II
government in its report, it does not, however, link the bureaucratic malpractices with the neoliberal governance model that India
adopted in the early 1990s and its structural malaise. Two trends are absolutely clear from the findings of the standing committee.
One, a crony capitalist structure as a result of economic deregulation has firmly entrenched itself in the political ethos of India. Both
the Congress and the Bharatiya Janata Party (BJP) are not just integral to this structure but have helped perpetuate it. Two, India has
witnessed a systematic diversion of community resources like coal and other minerals to private hands, which have scant respect for
either the environment or inclusive development. The diversion was justified by different governments since 1991 in the name of the
growing energy demands of India. Both these trends are not mutually exclusive as can be inferred from the standing committee’s
findings.
The standing committee points out that the Union government has abused its powers and handed out natural resources to a few
“fortunate” companies, without following a transparent system. In the course of its investigation, it also found that some of the
companies which had been allocated coal blocks were neither professional mining companies, nor did they have the expertise to
conduct scientific mining. This is a clear violation of the guidelines for the allocation of coal blocks. In fact, the screening committee
and the inter-ministerial group colluded to allocate illegitimate mining licences. Consequently, it has demanded an investigation into
the decisions of the screening committees and recommended strong penal action against those involved in such an arbitrary process.
Systemic changes

Such partisanship in governance is not just a consequence of institutional corruption. The systematic tweaking of laws and guidelines
since the early 1990s points to the fact that such institutional corruption is an inevitable outcome of a larger economic model and a
philosophy that advocates the withdrawal of the state from all processes of regulation. To understand this in the context of coal
allocations, it is imperative to understand how the concept of captive mining came about and how it was facilitated by different
governments.
With the advent of the private-sector-led economic growth model in the 1990s, the Coal Ministry declared that the production of coal
should be doubled in 10 years to sustain the growing manufacturing sector. Since around 70 per cent of India’s power supply comes

1 of 3 6/2/2013 9:34 PM
Pits of sleaze | Frontline http://www.frontline.in/cover-story/pits-of-sleaze/article4710991.ece?cs...

from coal, the Ministry estimated that a sustainable growth rate of 8 per cent over 10 years would require the production of 90,000
megawatts (MW) of thermal power. To reach this target, the Ministry planned to open 500 coal mines over the next 10 years in
addition to the existing 600 mines.
To facilitate such massive production, the government decided to invite private companies to coal mining. This required amendments
to the Coal Mines (Nationalisation) Act, 1973, which mandated that only government agencies can have access to the coal resources of
the country. The standing committee quotes the Coal Ministry’s response in its report: “Under the Coal Mines (Nationalisation) Act,
1973, coal mining was exclusively reserved for the public sector. Coal India Ltd (CIL) and Singareni Coal Companies Ltd (SCCL) had
the main responsibility of supplying coal to all end users. However, in the face of burgeoning demand, these companies were not able
to meet the entire demand due to resource constraints, resulting in import of coal. This necessitated allotment of captive blocks to
specified end users, mainly to augment availability and bridge the gap between demand and supply of coal. Captive blocks are
allocated only in some specific priority sectors.”
Many energy analysts believe that allowing private players’ entry was a strategic failure in itself, and instead of taking the easy route,
the government could have invested in government agencies to make them technologically equipped to handle high pressures.
Moreover, what made the government believe that CIL was ill-equipped to handle the growing demand is a moot question. The
government, at this point, conveniently forgot that coal mining had been nationalised precisely because private companies were not in
a position to adequately increase the investment in their mines. The standing committee report says: “As adequate capital investment
to meet the burgeoning energy needs of the country was not forthcoming from the private coal-mine owners, unscientific mining
practices adopted by some of them and poor working conditions of labour in some of the private coal mines became matters of
concern for the government. On account of these reasons, the Central government took a decision to nationalise the private coal
mines.”
The amendment to the CMN Act came about in a conspicuously hurried way. In 1992, the Ministry of Coal stated that the amendment
was a “matter of urgency” and initiated measures for the promulgation of an ordinance to amend the Act. However, the Law Ministry
disapproved it. Hence an amendment Bill was passed in July 1992 in the Rajya Sabha but was held up in the Lok Sabha. This time,
citing its urgency, the government promulgated an ordinance in January 1993, which the Law Ministry approved. Finally, the Bill was
approved by the Lok Sabha in April 1993. The amendments to the CMN Act allowed private sector participation in coal mining
operations for captive consumption towards generation of power and “other end uses” which may be notified from time to time.
However, after a fierce debate the government allowed for some regulatory guidelines, which, the standing committee points out,
were openly violated. The guidelines laid down certain principles for allocating coal blocks, in order to protect government agencies
and prevent private companies from operating unsystematically. It said: “A) The blocks in greenfield areas where basic infrastructure
like road, rail links and power lines are not immediately available should only be given to private sector. The areas where CIL has
already invested in creating such infrastructures for opening new mines should not be handed over to the private sector. B) The blocks
offered to private sector should be away from the existing mines and projects of CIL. C) Blocks already identified for development by
CIL should not be offered to the private sector. D) Private sector should be asked to bear the full cost of exploration in these blocks
which will be offered to them.”
However, most of the coal blocks allocated throughout India were not in greenfield areas but in populated areas. It is because of such
high-handedness in coal allocation that both government and private companies have consistently faced resistance in times of land
acquisition. The standing committee found that not only were many coal blocks of CIL diverted to private companies but that this
happened where CIL had already developed enough infrastructure for mining. Many coal blocks were allocated by diverting lands of
reserved forests. The “no-go zones”, meant to protect the forests, were hurriedly converted to “go zones” to open up private mining in
the forests. The most pertinent example of such allocations is in Chhattisgarh, where private coal mining has mushroomed around
Central Coalfields Ltd, a holding company of CIL (“Mining Tussle”, Frontline, July 16, 2010).
Expansion of end use

The amended Act allowed the private sector to meet the growing demands of energy. However, a vague description of “end use”
allowed the government to permit coal mining for industries ranging from iron and steel to cement. The standing committee notes
that the production of cement was included as an approved end-use for the purpose of captive mining of coal in 1996. Therefore,
cement-producing companies also became eligible to undertake coal mining for captive consumption, instead of buying coal from the
market. Indiscriminate mining by cement plants in Chhattisgarh has resulted in chaos and large-scale displacement of people in
Adivasi areas (“Standing up to the state”, Frontline, June 17, 2011).
Guidelines were also changed from time to time to facilitate increased participation of the private sector. The standing committee
notes: “The Ministry has informed the committee that guidelines were first framed in 1993. Thereafter consolidated guidelines were
framed and adopted in 2003. The guidelines were further modified in 2005 and in 2006. In 2005, the Expert Committee on Coal
Sector Reforms provided recommendation on improving the allocation process, and in 2010, the Mines and Minerals (Development
and Regulation) Amendment Act was enacted, providing for coal blocks to be sold through competitive bidding.”
A detailed report compiled in 2008 by the New Delhi-based Centre for Science and Environment, which gives the scale of ecological
damage done by such indiscriminate mining, notes: “Every major legislative and regulatory change that has happened in the last 14
years in India in the mining and minerals industry has been done in the name of the National Mineral Policy (NMP) (1993). The
mining sector has been opened up for private investments, foreign direct investment has been allowed and regulations have been
relaxed (by the NMP).”
NDA’s active involvement

Initially, facilitation of the private sector’s entry into mining came from the Congress party. And despite its vocal criticisms against the
UPA-II in the matter of coal allocations, the record of the National Democratic Alliance (NDA) is no good. In fact, it can be held
equally culpable. The list of NDA’s achievements on the BJP’s website proudly declares that it introduced the most significant energy
scheme in India’s history. The scheme was more of a vision called “Power to all by 2012”. The standing committee notes: “The
production of coal assumed a greater significance after 2003 when Government of India pronounced a mission ‘power to all by 2012’.
Accordingly, the GOI envisaged capacity addition of 1,00,000 MW of power by 2012 and in order to meet this increased capacity,
corresponding increase in the coal production was required in X-XI Plan periods (2002-12).”

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Pits of sleaze | Frontline http://www.frontline.in/cover-story/pits-of-sleaze/article4710991.ece?cs...

In fact, Atal Bihari Vajpayee’s government made coal allocation in a much greater way than the Congress had done before. As many as
218 coal blocks were allocated from 1993 to 2010. While only five and four blocks respectively were allocated under Prime Ministers
P.V. Narasimha Rao and H.D. Deve Gowda, Vajpayee took an unguarded approach while allocating coal blocks. Thirty-two blocks
were allocated during the NDA government. The Congress, of course, took this rash approach further by allocating 175 coal blocks
from 2004 to 2010.
Along with the “Power to all by 2012”, the NDA regime passed the New Electricity Act, 2003, with the stated objective of helping
electrify rural areas. But not so public is the fact that the power sector was deregulated and private players were allowed to generate
and supply electricity. This facilitated the entry of private companies into power generation, which required thermal power. The NDA
regime provided extraordinary facilities to the new players and at the same time disinvested in public sector power plants. Coal blocks
were allocated to power companies, cement plants, steel factories, and so on, within the same region so that they could dig out coal for
their primary businesses at a minimum cost of transportation. This meant that many companies were allocated mining licences
without having any expertise in it. It worked like this: a company chooses a “coal block” and submits an application to the Ministry to
mine there, in a process called “linkage”, and the Coal Ministry allocates mining rights to the company after getting an environmental
clearance from the Ministry of Environment and Forests.
The Ministry of Coal told the standing committee that there were three ways of allocating coal blocks. The first method was called
“captive dispensation through screening committee”, where most of the violations of guidelines happened. The standing committee
notes that the screening committee allocated coal blocks in a highly opaque manner. It has also pointed out various instances of the
inter-ministerial group interfering in the screening process to allocate coal blocks to a few companies. Who can forget the instance of
the Delhi-based Pushp Steel, which got a mining lease in Chhattisgarh for only Rs.1,00,000, with no experience or capital, both
prerequisites for allocation?
The second method was “government company dispensation”, in which coal blocks were allocated to government agencies. The
standing committee has highlighted various instances where CIL allowed private companies to mine in its coal blocks. The third was
“tariff based competitive bidding”, where coal blocks were auctioned.
Auctioning of community resources like coal, in the last 15 years, has led to a speculative rise in the prices of coal. “Speculative rise in
coal prices has led to multiplier effects on common people. Increased tariff of electricity and price rise in most products in the market
are a result of this. Instead of such auctioning, if the energy sector, which I consider a very crucial sector, had remained in the hands
of public-sector units, common people would not have experienced such a steep price rise in the last few years. Today, the situation is
ironical. The government is subsidising private electricity discoms like Reliance and Tatas, and the poor are being asked to pay higher
tariffs for electricity,” Ashok Rao, president of the National Confederation of Officers’ Associations (NCOA) of Central Public Sector
Enterprises, told Frontline.
Policy changes are made to ensure inclusive and real development. However, a hasty change in the economic approach since the
1990s entailed that the government showed an extraordinary willingness to stop all forms of regulation and still retain its power to
control economic processes. This is a sordid mix, the outcome of which can be nothing but scams such as this one. The standing
committee notes: “218 coal blocks allocated with geological reserves of about 50 billion tonnes have been allocated to eligible public
and private companies under the Coal Mines (Nationalisation) Act, 1973. Out of that, 25 coal blocks have been de-allocated. Out of
de-allocated coal blocks, two coal blocks were re-allocated to eligible companies under the said Act. Thus, the net allocated blocks are
195 coal blocks with geological reserves (GR) of about 44.23 billion tonnes.... Out of 195 coal blocks allocated so far for captive mining,
30 blocks have started coal production and out of 160 captive coal blocks allocated during 2004 to 2008, only two have started
production.” The standing committee also notes with shock that no revenue was accrued to the government from the allocations and
recommends that all allocations from 1993 to 2011 be investigated.
Such dubious record puts a question mark over not only the efficiency of new policies but also on the unholy government-industry
partnership which promotes such policies. “The arbitrary distribution of mining licences has led to the emergence of a secondary
market. The companies get mining licences but resell them to other players, completely disregarding the end-use for which they had
got the licence in the first place,” said Nilotpal Basu of the Communist Party of India (Marxist).
Among the five companies raided by the Central Bureau of Investigation was the Hyderabad-based Navbharat Power. This company
was allotted two coal blocks in Odisha in 2008, but it sold them to Essar for Rs.230 crore a year later without developing the block.
The guidelines place no restrictions on such reselling. Companies have applied for coal blocks without any experience and expertise so
that they could sell them for hefty amounts.
Mining leases have become a property realtor’s dream. The standing committee report and the disastrous experience with captive
mining surely mandate the need for a re-authoring of policies to stop the transfer of valuable community resources to the private
sector. It has been established through a series of scams that the private sector is not as efficient as it claims to be.

Printable version | Jun 2, 2013 9:33:55 PM | http://www.frontline.in/cover-story/pits-of-sleaze/article4710991.ece

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NOIDA/DELHI

11
I The Sunday Story I
THE HINDU SUNDAY, NOVEMBER 25, 2012

Shock at the pump: why our petrol pricing doesn’t add up

Rather than adopt a straightforward cost-and-margin based mechanism for fuels refined in
the country, oil companies follow an outdated formula that leads to high retail prices. It is
untenable, now that India has excess refining capacity and is in fact exporting petrol and diesel

A one-sided bargain that hurts Few have a need for Speed

N. Ravi Kumar
Raghuvir Srinivasan

T he impact of the pricing

I
t is a vital infrastructure
industry that fuels the
economy, literally. Yet,
when it comes to such
critical issues as pricing, the
oil industry is about as trans-
parent as the crude oil that it
processes. It probably pinch-
es your purse when you tank
up your vehicle but are you
even aware that the price that
you pay for a litre of petrol
has no relation whatsoever to
what it costs to produce that
for the oil company?
If that shocks you, here’s
more. Decisions to increase
or decrease retail prices of
products such as petrol, die-
sel and cooking gas are made
based on an arcane concept
called under-recovery, a clev-
er invention by the oil compa-
nies that drags international
prices into the domestic pric-
ing structure. So, what is this
strange animal called
under-recovery?
It is the difference between
the price that the oil company
would like to charge for say,
petrol, based on its interna-
tional traded price, and the
price at which it supplies the
fuel to pumps, excluding tax-
es. There is a formula that is
used to compute the desired
price which takes 80 per cent
of the landed cost (including
duties, taxes, insurance and
freight) of petrol and 20 per
cent of the export price. In-
variably, the price that the oil
company desires is higher
than the domestic selling
price leading to what is called
as under-recovery.
For instance, as per data of
the latest fortnight (domestic
prices are computed on a fort-
nightly basis based on inter-
national prices and
rupee-dollar rate), the oil
companies, left to them-
selves, would have liked to
charge Rs. 46.07 a litre of die-
sel (at Delhi) but in reality,
dealers pay Rs. 37.01 per litre
leading to an under-recovery
of Rs. 9.06 per litre to the oil
companies. After adding tax-
es and dealer commission,
consumers in Delhi now pay
Rs. 47.15 a litre.
The critical point to note
here is that under-recovery is
not equal to loss for the oil
companies. And that is simply
because they do not import
petrol or diesel. Rather, the
oil companies import the raw
material, crude oil, which is
refined in the numerous re-
fineries in the country owned
by the oil companies to pro-
duce various fuels ranging
from petrol and diesel to
cooking gas, aviation turbine
fuel, furnace oil and kerosene.
Oil companies, thus, base
their pricing decisions for the
critical fuels that drive the
country on prices that prevail
in markets abroad. For in-
stance, for petrol, the base
price for comparison is the
Singapore oil market price
while for diesel and aviation
fuel, it is based on Arab Gulf
(Dubai) traded prices. In an
ideal world, the oil companies
ought to be taking the price
they pay for crude oil that
they import as the basic input
cost and add to it the costs of
refining, marketing and then
the margin to set the final re-
tail selling price.
So, why do oil companies
follow this strange pricing
policy that is unfavourable to
consumers?
There are two different ex-
planations for this. This pol-
icy was first adopted by the
government to encourage in-
.............................................................
WE ALSO NEED TO INTRODUCE MUCH-NEEDED
COMPETITION AMONG THE OIL COMPANIES
WHICH IS NON-EXISTENT TODAY
..............................................................
vestment in new domestic re-
fineries. The lollipop was the
higher margins that the oil
company could get by charg-
ing global prices for their fuel.
Such a policy made sense
when India was short of refin-
ing capacity and had to im-
port petroleum products.
However, in the last decade,
the situation has reversed
with refining capacity rising
and running past demand
leading to some players such
as Reliance Industries and
Essar Oil exporting petrol
and diesel. Against a refining
capacity of 206 million
tonnes as of 2010-11, domes-
tic demand was just 154 mil-
lion tonnes for petroleum
products. It is clear that the
policy has achieved its objec-
tive and it is now time to reas-
sess it.
The other explanation to
the question above is that
since there are several prod-
ucts such as petrol, diesel,
cooking gas and aviation fuel
that are produced by refining
crude oil, it is difficult to ap-
portion costs to each of them
in order to arrive at their sell-
ing prices. In other words, the
cost-plus-margin approach is
difficult to apply here.
This is indeed a practical
problem but it is not insur-
mountable. It is possible to
arrive at the value of each fin-
ished product applying cost-
ing theory. Process industries
around the world that pro-
duce several joint products
from a single raw material
have found ways to price the
final product applying scien-
tific principles. The point
though is that adopting this
approach could mean a loss of
protection to the oil compa-
nies. But do they need it?
If you go by the astounding
figures that they quote as un-
der-recoveries, yes. But if you
look at their annual financial
numbers, they don’t appear
any the worse due to the un-
der-recoveries. Profits have
been showing a rising trend
(see graphic) for the three
companies — Indian Oil, Bha-
rat Petroleum and Hindustan
Petroleum — if you compare
2008-09 and 2011-12. Of
course, the last two years
have been tough with rising
interest costs leading to lower
profits but the fact is that they
are not posting losses.
It is clear therefore that we
need to reassess the pricing
policy for petroleum prod-
ucts. While at it, we also need
to introduce much-needed
competition among the oil
companies which is non-ex-
istent today. The oil compa-
nies co-ordinate their pricing
actions and the price of petrol
is the same in all outlets irre-
spective of which company
owns them. This is akin to a
collusive cartel and if it were
to happen, say in the tyre or
cement industries, the com-
panies would have been ac-
cused of cartelisation.
Indeed, in countries with a
competitive market such as
the U.S. and Japan, petrol
prices vary across even neigh-
bouring outlets.
Taxation policy
The government also needs
to reassess its taxation policy
for petroleum products.
Higher taxes on petrol are
driving consumers to diesel
vehicles which in turn is in-
creasing the subsidy burden
on the government. It is a
travesty that someone driv-
ing a two-wheeler pays more
for his petrol than one driving
an SUV who pays less for his
diesel, all thanks to the
skewed policy on subsidies.
What we need is a compre-
hensive relook at the struc-
ture of pricing, taxation and
subsidies for petroleum prod-
ucts in this country.
policy for widely con-
sumed petroleum products
such as petrol, diesel and
cooking gas has been felt
across various segments. For
the public sector oil market-
ing companies, it has meant a
scaling down of branding ini-
tiatives and maintaining a
rather low profile.
Several of the concepts
promoted by the companies
with much fanfare at the
height of competition to en-
hance value for customers
and attract more of them
about 10 years ago have been
put on the back-burner.
A case in point is the brand-
ing of retail outlets: BPCL ini-
tiated it with Pure for Sure
outlets, followed by HPCL
and its Club HP brand and
IOC with Extracare range of
bunks. An associated initia-
tive was the launch of brand-
ed fuels such as Speed, Power
and Extra Premium.
Branded fuels were
launched when new genera-
tion cars were hitting Indian
roads, and the consumer did
not mind paying a little extra
for additional features. “We
wanted to offer Indian cus-
tomers state-of-the-art fuels
that matched their automo-
biles,” says an IOC official.
Not many extra processes
were required as the compa-
nies had to essentially only
add some additives to petrol
and diesel. The fuels offered
multiple benefits, including a
smoother ride, quicker and
better pick-up, engine clean-
liness and, as a consequence,
more mileage. The branded
products were also eco-
friendly and the going was
good for five years, till 2007.
The price difference between
the regular and branded pet-
rol was Rs.1.50 a litre, and in
the case of diesel, it ranged
from 40 to 75 paise.
“But with the introduction
of special duties on branded
fuels in 2009, their sales vol-
umes took a beating. The last
straw was the withdrawal of
subsidy on branded fuels re-
cently. With that, the vol-
umes dropped dramatically
and the network which of-
fered these branded fuels,
too, has shrunk. The current
high price differentials be-
tween regular and branded
fuels have literally forced the
latter to go out of market,”
says N. Srikumar , Executive
Director (Corporate Commu-
TOO EXPENSIVE: The number of retail outlets
selling premium fuels has been on the decline.
— PHOTO: V. GANESAN
nications and Branding),
IOC.
In terms of volume and the
number of outlets selling
branded fuel, there has been a
decline over the years. In
2007-08, the combined sale
of branded petrol of the
OMCs was 33 lakh kilolitres
(KL), which declined to 21.18
lakh KL in 2009-10 and 9.24
lakh KL in 2011-12; up to Sep-
tember, the total sale was
about 3.26 lakh KL. As for the
number of outlets that dis-
pensed branded petrol, it was
down to 6,147 last fiscal from
13,521 in 2007-08. In the first
six months of the current fis-
cal, the number of such out-
lets dropped to 5,974.
Diesel also down
The sale of branded diesel
also followed a similar course.
From an industry sale of
58.22 lakh KL in 2007-08, it
dropped to 3.15 lakh KL last
fiscal, and in the first half of
2012-13 a paltry 67,946 KL
was sold. The number of dis-
pensing outlets in the same
period dropped from 18,609
to 4,062. In the first half of
the current fiscal, it declined
to 3,830.
On the impact of under-re-
coveries on branding, Mr. Sri-
kumar says: “It is true OMCs
have scaled down invest-
ments in direct branding ac-
tivities in the last few years,
mainly on account of the fact
that the bottom line of these
companies has taken a huge
beating in the past 5 to 6
years. It has necessitated pru-
............................................................
WITH THE INTRODUCTION OF SPECIAL
DUTIES ON BRANDED FUELS IN 2009,
THEIR SALES VOLUMES TOOK A BEATING
..............................................................
dent spending and even prac-
tising austerity measures.
This has, however, not com-
pletely ruled out branding
plans as such. New innovative
methods which are cost-ef-
fective have come into play.”
The former national vice-
president of the Federation of
All India Petroleum Traders,
M. Kannan, says customers
nowadays don’t even enquire
whether branded fuel is avail-
able.
For dealers continuing to
stock up on the premium
products, it is a dead invest-
ment as even those owning
the new generation expensive
cars have become cost-con-
scious. The price differential,
as per the IOC rates, is up-
wards of Rs.8 a litre for
branded petrol and over Rs.18
for branded diesel.
“Given the current high
price differential, there are
few takers for branded auto
fuels. Indeed, this is unfortu-
nate given the fact that OMCs
assiduously built these
brands in the past one decade,
investing in technology and
network expansion, only to
ensure that we provide choice
to consumers through better
products,” says Mr. Srikumar.
Not everything is lost, says
an official of BPCL, as the
company is planning to take
its branded retail outlets to
smaller towns and cities. In
major cities, it will come with
a new ‘Platinum’ brand as an
increase in the number of ve-
hicles on roads means more
customers and competition.

‘Cost-based methodology not viable’ Firebombed in the kitchen

IOC Chairman R. S. Butola outlines the rationale behind the current N. Ravi Kumar vice, especially safety.”
One reason, another offi-
pricing policy in an interview to Sujay Mehdudia
sourced from various coun- 25, 2010, both at the refinery attributed to the State levies.
“I t is 9.30 p.m. For over
two hours, the cylinder
in our house has been leaking
cial admits, could be the steep
increase in the number of
customers in the past few
Why are domestic prices of
petrol and diesel linked to tries of the Middle East. Fur- gate and at the retail level. Had freight equalisation not and we are frantically calling years and the absence of a
Singapore and Dubai market ther, from India, the Arab Thereafter, OMCs have been been done, the freight differ- Indane’s emergency cell corresponding scaling-up of
prices when we don’t import Gulf is the closest assessment determining the selling prices ential would have led to lower numbers. the services.
from there? centre for trade in petroleum of petrol independently with prices on the coast and signif- Three after-office hour The national cooking gas
products. Therefore, it is log- the approval of their manage- icantly higher prices in re- numbers are given in the re- customer base, now at 14
The current methodology ical that the Arab Gulf is ments. The same methodol- mote and hilly areas. Such ceipt, but all the lines are ei- crore, including duplicate and
of calculating the import par- adopted as the benchmark for ogy is applicable to other products are essential for the ther busy or no one takes our ghost connections, was less
ity price for petroleum prod- the pricing. decontrolled products. Since economic and social develop- call,” V.R. Sundaram says in a than nine crore in 2005-06.
ucts is based on the one most decontrolled products ment of the local population voice trembling more out of In two years, it surged past
approved by Petroleum Plan- Why are petroleum product are being marketed primarily and keeping freight and fear than due to his age. the 10-crore mark and the
ning and Analysis Cell and prices not set-based on the by these OMCs, any market- therefore prices at higher lev- A resident of Saidapet, a next two crore customers
has been in vogue since the prices of crude oil, the main ing initiative by one company els may have an adverse im- thickly populated locality of were added in a couple of
refineries were taken out of input, and the costs of may lead to a response from pact on these areas. Chennai, the septuagenarian Low on service. — PHOTO: years.
the administered price mech- refining it? the other players to protect Therefore, there can be no was fuming as he is aware of SUSHIL KUMAR VERMA
anism (APM) in 1998. At the R.S. Butola their market share and as a justification for changing the the catastrophic consequenc- Safety campaign
same time, when India was in At present, the country has reaction to changing market current system of freight es of an LPG leak. It was only ders are in circulation. This period of seven years,
net deficit for petroleum a very dispassionate pricing joint costs of raw material conditions. This happens in equalisation. a few years ago that a delivery Since many of the leaks are when household income also
products, the Arab Gulf was method. If the prices are set- and processing costs to indi- any industry and is not pecu- boy, claiming to be a mechan- not recorded, the statistics rose, saw an increased pene-
the primary source for im- based, where is the incentive vidual petroleum products at liar to petroleum products It is not a fact that duties ic, came home and meddled may not reflect the full pic- tration of LPG into lower in-
ports to the country and the to improve? This was the sys- refinery accurately is not pos- and cannot be termed and taxes constitute a with the rubber hose. “The ture. According to the Na- come groups, partly due to
region also had large physical tem followed till 2002 when sible. In the global scenario cartelisation. significant part of selling flames hit the ceiling,” says tional Crime Records Bureau, free LPG connection schemes
volumes, except for Motor the APM was dismantled. Re- too, in the downstream oil in- prices of petroleum Mr. Sundaram, a retired civil during 2011 a total of 4,096 in some States. The need is
Spirit (petrol). Therefore, the fining industry works on a dustry, the established prin- Why don’t we have a system products? engineer. cases of cooking gas cylinder/ therefore to create awareness
Arab Gulf market was consid- complex process, networked ciples are not used for pricing of differential pricing of He is not alone in voicing stove fire accidents were re- and conduct more safety
ered a benchmark for pricing as it is to numerous process and trading of petroleum products based on coastal Currently, Central and this demand, as more and ported, a small improvement campaigns and clinics. As for
of all products, except MS. In units such as distillation products. Thus, the cost- and inland areas and State taxes constitute 17-38 more customers feel that the compared with the 4,912 the number of mechanics,
the case of MS, the Singapore units, cracking units and al- based methodology for pric- distance from refinery? per cent in the case of petrol oil marketing companies, cit- cases in the previous year. distributors are required to
market had more physical as kylation. In a refinery, crude ing of petroleum products is and 12.5-27 per cent in the ing under-recovery on LPG, The number of people who have one for every 4,000
well as paper trade and was oil is processed through a se- not viable because of the na- The sensitive products case of diesel. Further, the and their distributor net- died in the accidents last year customers.
adopted as benchmark for ries of primary and secondary ture of the industry. constitute 65 per cent of the OMCs contributed signifi- work, are not paying atten- was 4,005 and those injured Yes, campaigns and clinics
pricing. The market is also processing units to produce basket of petroleum products cantly to the Central and tion to these issues. 281. Oil industry officials, are needed, but there is a
deep-rooted in Singapore for various petroleum products. Are not IOC, HPCL and BPCL being sold in the country. The State exchequer. During “The quality of cylinders however, say these figures al- greater need for accountabil-
MS. But we net it back and Some products are directly acting like a cartel by raising government has kept control 2011-12, the total contribu- and quality checks at the bot- so include accidents involv- ity and commitment to cus-
bring it to the Arab Gulf level. produced, while others result and reducing prices together on the prices of these prod- tion of the three OMCs to the tling plants seem to have ing kerosene stoves. tomers, says consumer
At present, because of the from a blending of two or throughout the country? ucts with a view to protecting Central exchequer was Rs. come down,” a distributor Officials of Indian Oil Cor- activist T. Sadagopan. Since
ramping up of refining capac- more streams coming out of the vulnerable sections from 54,000 crore and to the says. poration deny any link be- human lives are involved the
ity in India, there are minimal primary or secondary proc- In the case of sensitive higher prices and volatility. States, Rs. 92,000 crore. Ra- Complaints related to ‘O’ tween under-recoveries and need is for more facilities,
imports of petrol and diesel. essing units. Paramount com- products, the prices are con- At present, the freight has tionalisation of Central and rings, popularly know as the drop in customer service. particularly for emergency
However, crude oil imports plexity of the refining process trolled by the government, been equalised on an all-In- State levies will be a big wel- washers, in the cylinders are “It is not correct. Given that response.
have increased significantly results in conversion of a sin- and the three oil marketing dia basis and the same basic come step for the OMCs, as it on the rise; as a result, leaks the money [the under-recov- The consumers should also
and more than 80 per cent of gle input to multiple finished companies (OMCs) maintain price of these products is be- will boost their liquidity, en- have become routine. “They ery component] ultimately actively participate in official
crude processed in India is products with varied market the same level of prices for ing charged all over the coun- able them to plan their cash [OMCs] are playing with fire,” comes back, though with a de- LPG safety clinics and not
imported. Of this, the major value and chemical proper- them. As for MS, the govern- try. The main reason for the flows and reduce their de- the distributor says, pointing lay, there is no question of our buy uncertified stoves and
portion, 65-70 per cent is ties. Thus, the allocation of ment de-regulated it on June difference in prices could be pendence on borrowings. out that many expired cylin- scaling down customer ser- regulators.
CM ND-ND
YK
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Gas panel fixed formula, not 2014 price - The Hindu http://www.thehindu.com/todays-paper/tp-opinion/gas-panel-fixed-formul...

Today's Paper » OPINION

Published: July 12, 2013 00:00 IST | Updated: July 12, 2013 05:36 IST
Gas panel fixed formula, not 2014 price
Ramprasad Sengupta

In his article in The Hindu (editorial page, “Of Reliance, by Reliance, for Reliance,” July 1, 2013), Surya Sethi has
criticised the recent government decision to hike the gas price from the existing $4.2/MMBtu [Million Metric
British Thermal Units] to a reported level of $8.4/MMBtu, supposedly based on the formula of gas pricing given in
the Rangarajan Committee Report on the Production Sharing Contract (PSC) mechanism. He has averred that there
is absence of any evidence-based research backing key economic decisions. Since I was a member of the committee,
my academic conscience told me that I should submit to the readers of The Hindu the rationale for the formula and
also clarify precisely what the committee recommended and what it did not.
First, the committee only outlined the principles and model for gas pricing, and did not recommend or calculate any
particular price. It came up with a transparent formula that made use of various benchmark market prices to
estimate the arm’s length price for gas, which the government is contractually committed to adopt under the PSC.
The formula would yield the price with a three-month lag, using the benchmark market prices over the preceding 12
months. Since the government has decided to apply the formula with effect from April 1, 2014, the initial price on
that date would depend on the relevant benchmark market prices obtaining over January to December 2013. Any
calculation regarding what the price would be in April 2014 would necessarily have to make a number of
assumptions and projections regarding the benchmark prices and volumes traded or sold in different markets and
under various purchase agreements over the next six months.
Unmet demand
So far as gas pricing is concerned, on the one hand there is a clear case for incentivising domestic gas exploration
and production on the supply side. Gas is the cleanest fossil fuel. India’s dependence on unclean fossil fuels like coal
and oil is not only causing serious environmental problems but has also contributed to macroeconomic imbalances,
with the import bill for such energy in 2010-11 equivalent to 38 per cent of export earnings.
On the other hand, there is a huge unmet demand for gas. The Indian market is segmented, regional, and
characterised by inadequate infrastructure and domestic monopolies. (National Oil Companies and Reliance
Industries Limited are the only domestic producers, with imports being channelised mostly through Gas Authority
of India Limited and Petronet LNG Limited). Therefore, it is important to protect consumers of gas from
monopolistic exploitation.
It is difficult to meet these multiple objectives with the single instrument of price. This is, in fact, the rationale for
prioritising the allocation of gas to the power and fertilizer sectors, which are also themselves heavily subsidised by
the government despite the administered gas price.
While gas-on-gas competition, characterised by a large number of competing buyers of gas, is the soundest pricing
mechanism when free trade prevails in a competitive gas market, the reality is that the Indian market is nascent and
far from competitive. Finding it impossible to derive the competitive arm’s length price from domestic gas market
transactions, the committee tried to discover the competitive price from various trade transactions carried out at
arm’s length in the global market. As the global market is neither integrated nor very liquid, there is a practice of
linking gas price with import parity oil price, which presumes oil to be a very close substitute for gas. This practice is
adopted by an increasingly limited number of countries. The committee considered such a presumption of
substitutability as unreal in major user sectors like fertilizer and power in the Indian context. In fertilizer, it is only
naphtha which is a possible substitute, and in power, coal is a more meaningful substitute. Besides, the transport

1 of 2 7/12/2013 8:40 AM
Gas panel fixed formula, not 2014 price - The Hindu http://www.thehindu.com/todays-paper/tp-opinion/gas-panel-fixed-formul...

sector drives the global oil demand, and there is no point in exposing power and fertilizer to externalities generated
by the growth of the transport sector through oil price linkage.
In view of the above, the committee felt that it was desirable to discover the competitive arm’s length price for the
Indian market from transactions in the global market until such time as the Indian gas market matured enough to
enable gas-on-gas competition. The discovered price should ideally represent the price that a global producer on
average receives at the well head, which is estimated as the average netback price at the well head after appropriate
deductions, such as transportation and liquefaction costs from the landed price.
The committee considered two ways of discovering such a competitive price from global transactions:
(a) Estimating the netback price of Indian Liquefied natural gas (LNG) imports at the well head of exporting
countries. Since there were several import sources, the average of such netback of import prices at the well head of
export producers was assumed to represent the average global price for Indian imports. The netting back involved
subtraction of costs of transportation and liquefaction of gas within the exporting country from the Free-on-board
(FOB) LNG export price for Indian imports.
(b) Estimating the average of prices prevailing at the trading point of transactions at major global hubs or balancing
points of major markets of gas of different continents. The balancing points recommended for consideration are
Henry Hub in North America, and the National Balancing Point (NBP) in the United Kingdom for Europe and FSU
(Former Soviet Union). As there is no such hub for East Asia, the netback price of Japanese gas imports was
considered as a hypothetical balancing point for East Asia. This simulates the competitive well head price that
Indian producers can expect from the world market.
For review
In both estimations, the average transaction price has been taken in view of the non-integrated and somewhat
illiquid character of the global gas market and trade. The weights used for averaging are the respective volumes of
gas traded. Finally, the committee recommended that the mean of the two price estimates be taken as the basis for
gas pricing. Since such an estimated price would change over time, the committee recommended that the prices and
volumes for the trailing 12 months period be used for monthly price revision. It further recommended that the
model can be reviewed and the feasibility of introduction of gas-on-gas competition as the pricing mechanism be
examined after five years.
While the committee did not recommend any particular price, and left price determination to the government, the
estimated price as per the formula (a) and (b) for April 1, 2013, on the basis of data for the preceding 12 months,
works out to $6.99/MMBtu and $6.68/MMBtu respectively, yielding a mean price of $6.835/MMBtu. This is the
only reliable number for assessing the extent of price revision on account of the proposed formula at the present
juncture, since the formula price for April 2014 would be a function of many factors and it would not be possible to
predict this price with any degree of reliability at this point in time.
Finally, doubts have been raised as to whether a large rise in gas prices would at all attract additional investment
from home or abroad and relax the supply side constraint. The increase in investment and supply of gas would
however depend not only on the price of gas, but also on the terms of the PSC. While the latter has drawn
investments under the New Exploration Licensing Policy, serious problems have arisen due to the tendency of
contractors to manipulate the investment multiple parameter by gold plating investment and controlling
production, which adversely affect supply. In order to address this, the committee also recommended a new PSC
model which, coupled with the recommendations on gas pricing, would do away with the perverse incentives that
deprive the government of its share in the production or profit by controlling production and gold plating
investments.
(Ramprasad Sengupta was a member of the Rangarajan Committee on Hydrocarbons and is Honorary Visiting
Professor of the National Institute of Public Finance and Policy.)
Printable version | Jul 12, 2013 8:40:20 AM | http://www.thehindu.com/todays-paper/tp-opinion/gas-panel-fixed-formula-not-2014-price/article4907036.ece
© The Hindu

2 of 2 7/12/2013 8:40 AM
 this front in 45 days. Employ- madhikari Committee rec- and technicians would be de- ployees and complete its task
he IITs.
Centre pushes for 157 power projects in N
Arunachal Pradesh identified as
powerhouse of the country
Sushanta Talukdar
GUWAHATI: Even as anti-mega
dam groups and organisa-
tions in Assam have intensi-
fied their agitation,
demanding a halt to the ongo-
ing 2,000-MW Lower Subon-
siri hydroelectric project of
Council. NHPC Limited at Geruka-
mukh on the Assam-Aruna-
chal Pradesh border, the
Union government is pushing
romise, for 157 hydro power schemes
with an installed capacity of
57,672 MW in the North-
East, including Sikkim, for
meeting the shortfall in the
country’s power generation.
Of these, 114 schemes, with
an aggregate installed capac-
ity of 35,257.5 MW, have been
allotted to the private sector.
The central public sector un-
dertakings have got 13
schemes (8,977 MW). The
Centre has identified the ec-
ologically fragile Arunachal
Pradesh as the powerhouse of
ment the country. According to an
estimate of the Central Elec-
tricity Authority (CEA) and
private power developers,
this State bordering China
has the potential to generate
over 57,000 MW of hydro
power.
Of the 133 projects already
allotted to the State, 125, with
Ranvir Sena chief murder poses
guidelines.
an installed capacity of
32,883.40 MW, have been
given to private developers.
The central public sector un-
dertakings have got eight
projects (8,735 MW).
Of the total 133 projects, 36
are mega ones, with each
having an installed capacity
350 MW and above. The rest
(25 MW and above) involve
construction of large dams.
So far, only four projects have
got the final clearance and
are in various stages of con-
struction.
The Ministry of Environ-
ment and Forests (MoEF)
has granted pre-construction
(scoping) clearances to over
50 projects under the EIA
notification 2006. Final envi-
ronmental clearance has
been given to 13 projects.
Revenue collection
Arunachal will get 12 per
cent free power from each
project. The State govern- cerned about public hearing Taram of the Forum for police and paramilitary
ment collected revenue in
terms of processing fee and
and are under the impression
that even if there is 100 per
Siang Dialogue told The Hin-
du. His organisation has been
forces. The ongoing and the
allotted hydropower projects
upfront premium to the tune cent opposition in the public opposing the construction of in Arunachal have triggered
of Rs. 1320 crore (as on Sep- hearing they would still get dams on the Siang river. anti-mega dam movements
tember 30, 2010) from the all necessary clearance for Student and youth organi- as the State falls in Seismic
allottee owner-developers. construction of the project. sations of the State have been Zone V. The agitating groups
“Once the companies pay The State government should alleging that public hearings have been raising concern, al-
the upfront premium and let the people know as to were conducted without so over a possible adverse im-
sign the MoU for a particular what it has done with upfront proper information to people pact on the ecology and
project, they are not con- money so collected,” Vijay and in the presence of the livelihood in downstream ar-
India Energy Data, Statistics and Analysis - Oil, Gas, Electricity, Coal http://www.eia.gov/cabs/india/Full.html

Country Analysis Briefs Header

India
Last Updated: Nov. 21, 2011

Background
India boasts a In 2009, India was the fourth largest energy consumer in the world, after the United
growing economy, States, China, and Russia. Despite a slowing global economy, India’s energy demand
and is increasingly continues to rise. As vehicle ownership expands, petroleum demand in the transport
a significant sector is expected to grow in the coming years. While India’s domestic energy
consumer of oil resource base is substantial, the country relies on imports for a considerable amount
and natural gas. of its energy use.

According to the International Energy Agency (IEA), hydrocarbons account for the
majority of India’s energy use. Together, coal and oil represent about two-thirds of
total energy use. Natural gas now accounts for a seven percent share, which is
expected to grow with the discovery of new gas deposits.

Combustible renewables and waste constitute about one forth of Indian energy use.
This share includes traditional biomass sources such as firewood and dengue, which
are used by more than 800 million Indian households for cooking. Other renewables
such as wind, geothermal, solar, and hydroelectricity represent a 2 percent share of
the Indian fuel mix. Nuclear holds a one percent share.

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IEA data for 2009 indicate that electrification rates for India were 66 percent for the
country as a whole. Ninety-four percent of the 404 million that do not have access to
electricity live in rural areas, where electrification rates are approximately 50
percent.

Oil
The Indian According to Oil & Gas Journal (OGJ), India had approximately 5.7 billion barrels
government of proven oil reserves as of January 2011, the second-largest amount in the
continues to hold Asia-Pacific region after China. India’s crude oil reserves tend to be light and sweet.
licensing rounds in India produced roughly 950 thousand barrels per day (bbl/d) of total liquids in 2010,
an effort to of which 750 bbl/d was crude oil. The country consumed 3.2 million barrels per day
promote (bbl/d) in 2010.
exploration
activities and boost
domestic oil
production.

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The combination of rising oil consumption and relatively flat production has left
India increasingly dependent on imports to meet its petroleum demand. In 2010,
India was the world’s fifth largest net importer of oil, importing more than 2.2 million
bbl/d, or about 70 percent of consumption. A majority of India’s crude oil imports
come from the Middle East, with Saudi Arabia and Iran supplying the largest shares.
Iranian oil’s share of Indian imports has decreased in recent years, largely due to
issues with processing payments.

Sector Organization
Though the government has taken steps in recent years to deregulate the
hydrocarbons industry and encourage greater foreign involvement, state-owned
enterprises predominate in India’s oil sector. The largest player is state-owned Oil

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and Natural Gas Corporation (ONGC), which accounted for about three-quarters of
India’s oil production in 2009-2010. The role of private companies in Indian oil
production is increasing. The largest private actor in the oil sector is Reliance
industries, India’s largest company.

As a net importer of oil, the Indian government has policies aimed at increasing
domestic exploration and production (E&P) activities. In an effort to attract oil
majors with deepwater drilling experience and other technical expertise, the Ministry
of Petroleum and Natural Gas created the New Exploration License Policy (NELP)
in 2000, which for the first time permits foreign companies to hold 100 percent
equity ownership in oil and natural gas projects. Despite this, international oil and
gas companies currently operate a small number of fields.

India’s downstream sector is also dominated by state-owned entities. The Indian Oil
Corporation (IOC) is the largest state-owned company in the downstream sector,
operating eight of India’s 21 refineries and controlling about three-quarters of the
domestic oil pipeline transportation network. Government-run Oil marketing
companies (OMC’s) play a major role in the distribution of fuel. Reliance Industries
opened India’s first privately-owned refinery in 1999, and has gained a considerable
market share in India’s oil sector.

Exploration and Production

Most of India’s crude oil reserves are located offshore, in the west of the country,
and onshore in the northeast. Substantial reserves also exist in the Bay of Bengal and
in Rajasthan state. India’s largest oil field is the offshore Mumbai High field, located
north-west of Mumbai and operated by ONGC. Block D6 in the Krishna-Godavari
basin, a major gas play operated by Reliance Industries, began oil production in
September 2008.

The ninth round of auctions under the NELP framework concluded in March 2011,
attracting 74 bid for 33 of 34 blocks. Most of the interest in these assets came from
Indian companies, which collaborated to achieve an advantageous position in the
bidding. International oil companies only participated to a limited extent due to
uncertainty about reserve levels. Despite these efforts to increase investment, India’s
limited resource base will cause production to remain relatively flat. In the
International Energy Outlook(IEO2011), EIA projects that Indian oil production will
grow at an average annual rate of less than one percent through 2035.

In recent years, Indian national oil companies have increasingly looked to acquire
equity stakes in E&P projects overseas. The most active company abroad is ONGC
Videsh Ltd. (OVL), the overseas investment arm of ONGC. OVL conducts oil and
natural gas operations in 15 countries. The company produces oil in Russia (Sakhalin
Island), Sudan, Vietnam, Columbia, and Syria. In October 2011 the company
announced that it aspires to expand its total production from current levels of about
150 thousand bbl/d to 560 thousand bbl/d by March 2014.

Downstream/Refining
According to OGJ, India had 4.0 million bbl/d of crude oil refining capacity at 21
facilities as of January 1, 2011. India has the fifth largest refinery capacity in the
world. Reliance Industries’ Jamnagar complex is the largest oil refining complex in
the world, with a total capacity of 1.24 million bbl/d. This facility, which is located in
northwest India to minimize transit costs from the Middle East, can process a wider

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variety of crude grades than older Indian refineries.

Due to expectations of higher demand for petroleum products in the region, further
investment in the Indian refining sector is likely. The government would like to
promote India as a competitive refining destination, and industry experts expect the
country to be an exporter of refined products to Asia in the near future.

Refined Fuel Subsidies

While India’s petroleum pricing mechanism is notionally benchmarked to
international oil prices, the government subsidizes domestic prices of refined
products. OMC’s are compelled to sell products at prices below world market prices
and accept “under-recoveries” (losses), which are born mostly by upstream national
oil companies and the central government. These subsidies cost the Indian
government more than $20 billion per year.

India deregulated gasoline prices in 2010, but this has had relatively little impact on
the subsidy bill, because gasoline represents a small share of product demand. Most
of the support goes to kerosene, diesel fuel, and liquefied petroleum gas (LPG),
which are used more widely by the country’s economically disadvantaged classes. In
June 2011, the government announced price increases for these fuels ranging from 9
to 20 percent. While this controversial policy is expected to provide some temporary
relief for OMC’s, both demand for these subsidized products and India’s subsidy
burden are expected to grow in the near future.

Strategic Petroleum Reserve

India is constructing a strategic petroleum reserve (SPR) to shield the import-
dependent country from potential supply disruptions. Three storage facilities, located
near refining centers Visakhapatnam, Mangalore, and Padur, are scheduled to be
completed by the end of 2012. They will hold close to 40 million bbl of oil, which
represents about ten days of supply on a refinery-throughput basis.

Natural Gas
Despite major new According to Oil and Gas Journal, India had approximately 38 trillion cubic feet
natural gas (Tcf) of proven natural gas reserves as of January 2011. EIA estimates that India
discoveries in produced approximately 1.8 Tcf of natural gas in 2010, a 63 percent increase over
recent years, India 2008 production levels. The bulk of India’s natural gas production comes from the
continues to plan western offshore regions, especially the Mumbai High complex, though fields in the
on gas imports to Krishna-Godavari (KG) are increasingly important.
meet its future
needs. In 2010, India consumed roughly 2.3 Tcf of natural gas, more than 750 billion cubic
feet (Bcf) more than in 2008, according to EIA estimates. Natural gas demand is
expected to grow considerably, largely driven by demand in the power sector. The
power and fertilizer sectors account for nearly three-quarters of natural gas
consumption in India. Natural gas is expected to be an increasingly important
component of energy consumption as the country pursues energy resource
diversification and overall energy security.

Despite the steady increase in India’s natural gas production, demand has outstripped
supply and the country has been a net importer of natural gas since 2004. India’s net
imports reached an estimated 429 billion cubic feet (Bcf) in 2010.

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Sector Organization
State-owned companies play a predominant role in India’s gas sector, although their
share of production is smaller than in the oil sector. ONGC accounted for about half
of India’s natural gas production in 2009-2010. Reliance Industries will also have a
greater role in the natural gas sector in the coming years, as a result of a large natural
gas find in 2002 in the KG basin. In June 2011, the Indian government approved a
$7.2 billion joint venture agreement between Reliance and BP that will focus on
expanding offshore development.

Natural gas prices in India are regulated by the government. Administered Pricing
Mechanism (APM) natural gas – gas produced from fields handed to ONGC and OIL
by the Indian government – more than doubled in price in May 2010; from
$1.8/million (MM) Btu to $4.2/MMbtu, although some customers still receive
subsidies. Prices for privately produced gas, which are indexed to the price of oil, are
slightly higher.

The Gas Authority of India Ltd. (GAIL) holds an effective monopoly on natural gas
transmission and distribution activities. Although the transmission sector was opened
to foreign investment in 2006, 80 percent of natural gas consumed in India was
transported through GAIL’s 4,100-mile trunk pipeline network. The company
expects to double the size of this network by 2014. Reliance Industries is also
investing heavily in the transmission sector to move its KG-basin gas to market.

Exploration and Production

Until 2008, the majority of India’s natural gas production came from the Mumbai
High complex in the northwest part of the country. Recent discoveries in the Bay of
Bengal have shifted the center of gravity of Indian natural gas production.

In April 2009, production from Reliance Industries’ Dhirubhai 1 and Dhirubhai 3 gas
fields in the D6 block of the KG Basin has led to a massive expansion in domestic
supply. The block holds estimated reserves of 11.5 Tcf. Of the nearly 1.4 Bcf/d of
initial production, nearly half went to gas based power plants, the rest to fertilizer,

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LPG plants, and city gas distribution entities. After reaching a production peak of 2.8
Bcf/d in December 2009, Reliance decided in July 2010 to cap production of KG-D6
at 2.1 Bcf/d pending resolution of infrastructure and field maintenance problems.
Industry analysts expect the BP-Reliance partnership to address these issues.

In addition to these new offshore finds, India plans to expand the development of
unconventional gas resources. The country already produces some coalbed methane
and seeks to expand these volumes soon. In addition, an EIA-sponsored study on
world shale gas resources reports that India possesses 63 Tcf of technically
recoverable shale gas resources. The country has yet to hold a licensing round for its
shale gas blocks.

Natural Gas Imports

India’s natural gas import demand is expected to increase in the coming years. To
help meet this growing demand, a number of import schemes including both LNG
and pipeline projects have either been implemented or considered.

Iran-Pakistan-India Pipeline
The Iran-Pakistan-India (IPI) Pipeline has been under discussion since 1994. The
plan calls for a roughly 1,700-mile, 5.4-Bcf/d pipeline to run from the South Pars
fields in Iran to the Indian state of Gujarat. A variety of economic, political, and
security issues have delayed a project agreement. Due to the uncertainties involving
this pipeline, the Indian government’s 11th Five Year Plan does not project any gas
supply from this route or the following two discussed pipelines.

Turkmenistan-Afghanistan-Pakistan-India Pipeline
India has worked to join the Turkmenistan-Afghanistan-Pakistan Pipeline (TAP or
Trans-Afghan Pipeline). With the inclusion of India, the project consists of a planned
1,050-mile pipeline originating in Turkmenistan’s Dauletabad natural gas fields and
transporting the fuel to markets in Afghanistan, Pakistan, and India. In 2010, India
signed a framework agreement for the pipeline, which is envisioned to have a
capacity of 3.2 Bcf/d, but work has not yet begun on the project.

Imports from Myanmar

The governments of India and Myanmar signed a natural gas supply deal in 2006, but
disagreement arose over whether the pipeline should go through Bangladesh. In
March 2009, Myanmar signed a natural gas supply deal with China sourced from a
field invested in by GAIL and ONGC, putting any India-Myanmar pipeline deal in
question.

Liquefied Natural Gas

India began importing liquefied natural gas (LNG) in 2004. In 2009, India imported
434 Bcf of LNG, nearly 65 percent of it from Qatar, making it the sixth largest
importer of LNG in the world.

Currently, India has two operational LNG import terminals, Dahej and Hazira. India
received its first LNG shipments in January 2004 with the start-up of the Dahej
terminal in Gujarat state. Petronet LNG, a consortium of state-owned Indian
companies and international investors, owns and operates the Dahej LNG facility
with a capacity of 6.5 million tons per year (mtpa) (975 Bcf/y). India’s second
terminal, Hazira LNG, started operations in April 2005, and is owned by a joint

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venture of Shell and Total. The facility has a capacity of 3.6 mtpa (488 Bcf/y). New
terminals at Kochi and Dabhol are scheduled to come online in 2012.

Demand for LNG will only expand to the extent that domestic production plans fall
short of stated goals. Further, plentiful and cheap domestic gas that sells at a discount
to imported LNG makes the international spot market a marginal option and
complicates negotiations for long-term supply contracts.

Electricity
India currently In 2008, India had approximately 177 gigawatts (GW) of installed electric capacity
suffers from a and generated 761 billion kilowatt hours. Conventional thermal sources produce
major shortage of more than 80 percent of India’s electricity. Hydroelectricity, nuclear power, and
generation other renewable sources account for the remainder. India also imports marginal
capacity. amounts of electricity from Bhutan and Nepal and has signed an agreement to begin
importing power from Bangladesh.

Electricity Shortages
India suffers from a severe shortage of electricity generation capacity. According to
the World Bank, roughly 40 percent of residences in India are without electricity. In
addition, blackouts are a common occurrence throughout the country’s main cities.
Further compounding the situation is that total demand for electricity in the country
continues to rise and is outpacing increases in capacity. Additional capacity has
failed to materialize in India in light of market regulations, insufficient investment in
the sector, and difficulty in obtaining environmental approval and funding for
hydropower projects. In addition, coal shortages are further straining power
generation capabilities. In order to address this shortfall, the Indian government
continues to work towards adding capacity.

In the IEO2011, EIA projects that electricity consumption in India will grow at an
average rate of 3.3 percent per year through 2035. To meet this growth, India will

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have to expand their current generation capacity by 234 GW.

Conventional Thermal Power Generation
Conventional thermal-generated power accounted for more than 80 percent of
electricity in India in 2008. Coal predominates, generating roughly 70 percent India’s
power. India is both the third-largest consumer and third-largest producer of coal in
the world. India’s domestic coal is low in quality – this renders coal-fired power
generation relatively inefficient and necessitates imports of metallurgical coal for
steel-making. The country imports considerable quantities of coal (83 million tons or
11 percent of total consumption in 2010).

Natural gas, which was primarily to offset the seasonality of hydroelectricity, is now
becoming an increasingly important power generation fuel. Capacity additions and
increasingly abundant domestic natural gas are causing this expansion. In the
IEO2011, EIA projects that the share of natural gas in India’s power generation mix
will expand from 11 percent in 2008 to 16 percent in 2035.
Nuclear Power Generation
The Indian government continues to focus on the development of nuclear power to
meet its power generation targets. Although India is not a party to the Nuclear
Nonproliferation Treaty (NPT), its 2005 nuclear cooperation deal with the United
States, known as the “123 Agreement”, allows for civil nuclear trade between the
U.S. and India. This agreement will facilitate India’s goal of increasing India’s
installed nuclear power generation capacity to 20 GW by 2020. India currently
operates 20 nuclear reactors, which represent 4.4GW of generation capacity. The
country is building another six reactors that will more than double this.
Hydropower and Other Renewables
As part of India’s goal of diversifying its sources of electric power generation and
increasing the country’s capacity, the government also plans to increase the use of
hydroelectric power. International organizations such as the World Bank are
providing funding for a variety of hydroelectric projects around the country.
However, lack of reliability and environmental and land-use concerns surrounding
construction may make it difficult to capitalize fully upon this domestic energy
resource.

While India holds the potential for developing other renewable power sources, such
as geothermal, solar, and wind power, cost concerns and an underdeveloped
transmission and distribution network will likely hinder their expansion.

Links
EIA Links
EIA - Country Information on India

U.S. Government
CIA World Factbook - India
U.S. State Department Background Notes on India
U.S. Embassy in India

Foreign Government Agencies

India’s Ministry of Petroleum and Natural Gas
India’s Department of Commerce
India’s Ministry of External Affairs

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Oil and Natural Gas

Gas Authority of India Ltd (GAIL)
Indian Oil Corporation (IOC)
Oil and Natural Gas Corporation (ONGC)
ONGC Videsh
Oil India Ltd (OIL)
Reliance Industries Ltd
Sources
Asia Pulse
Associated Press
BBC
Business Standard
CIA World Factbook
Dow Jones Newswires
Economist Intelligence Unit
Energy Economist
Eurasia Group
FACTS Global Energy
Financial Times
GAIL
Global Insight
The Hindu
Hindustan Times
IEE Japan
IHS Energy
International Energy Agency (IEA)
International Gas Report
Lloyd’s List
Indian Ministry of Petroleum and Natural Gas
Offshore Technology Conference 2007
Oil and Gas Journal
Oil India Limited
Petroleum Economist
Petroleum Intelligence Weekly
PFC Energy
PIRA
Platts energy
Reliance Industries Ltd.
Reuters
The Statesman
Times of India
U.S. Energy Information Administration
World Gas Intelligence
World Nuclear Association
Contact Info
cabs@eia.gov
(202) 586-8800
cabs@eia.gov

10 of 10 09-Jan-12 4:06 PM
THE N-CHART
■ India generates about 2.5 per cent of the
world’s electricity
■ In 1947, India’s installed capacity of electricity
generation was merely 1,500 MWe. It has
now reached 1,73,000 MWe
■ Average annual per capita electricity consump-
tion is still low at 700 units a year, compared to
5,000 units a year in Europe and 10,000 units
a year in the US. To achieve targeted growth
rates, the capacity needs to be increased to
7,50,00 MWe for the next 50 years

20 operable reactors
in India that generate 4,385 MWe of electricity

6 reactors
are under construction which will generate
4,600 MWe

17 reactors
being planned which will generate 15,000 MWe

40 reactors
proposed which will generate 49,000 MWe
Print Release http://pib.nic.in/newsite/PrintRelease.aspx

Press Information Bureau

Government of India
Ministry of Petroleum & Natural Gas
13-June-2012 16:53 IST

Jaipal Reddy Urges for Greater Transparency & Predictibility in Global Oil Markets

Petroleum Minister Addresses OPEC Seminar at Vienna

The Minister of Petroleum & Natural Gas Shri S. Jaipal Reddy has called upon oil producing and consuming
countries to work together to build trust and share market data to establish demand certainty in international oil
markets. Addressing a Session on “Oil and World Economy” at 5th OPEC International Seminar at Vienna today,
Shri Reddy also advocated instilling confidence among oil producing countries to undertake required investments to
produce larger quantities of incremental oil & gas, and reduce the influence of extraneous factors in oil price
formulation.

The Minister further emphasized that in an oil-importing country like India, higher international oil prices lead to
domestic inflation, increased input costs, an increase in the budget deficit which invariably drives up interest rates
and slows down the economic growth. Higher oil prices raise the cost of fertilizers, and hence the cost of food, thus
hitting hard the poorest of economies. He added that high oil prices benefit neither oil producing nor consuming
countries.

Following is the text of Minister’s speech:

“We are meeting in difficult times. The Euro zone crisis, the continuing recession in the global economy, rising
geopolitical tensions, a sustained phase of high and volatile international oil prices, extraneous factors continuing to
influence the price formation of oil – all these pose serious challenges to the health of the global economy and
stability of the world’s financial system. The current global financial crisis, which has lasted longer than we thought
in 2008, is the greatest threat faced by the global economy since the Great Depression eight decades ago.

Excellencies, since India is the world’s fourth largest oil importer, I will naturally talk on today’s subject ‘Oil and
the World Economy’ from the perspective of an emerging economy. We are all agreed that oil prices critically
affect global economic performance. In an oil-importing country like India, higher international oil prices lead to
domestic inflation increased input costs, an increase in the budget deficit which invariably drives up interest rates
and slows down the economic growth. Higher oil prices raise the cost of fertilizers, and hence the cost of food, thus
hitting hard the poorest of economies. Net oil importing countries experience deterioration in their balance of
payments, putting downward pressure on exchange rates. As a result, imports become more expensive and exports
less valuable, leading to a drop in real national income. There could not be a more direct cause and effect relation
than high oil prices retarding economic growth of oil importing countries.

Between the Financial Year 2010-11 and 2011-12, India’s annual average cost of imported crude oil increased by
27 dollars per barrel, making India’s oil import bill rise from 100 billion dollars to 140 billion dollars. Further, since
we could not pass on the full impact of high international oil prices, we had to shell out subsidies to consumers
amounting to 25 billion dollars. It is estimated that a sustained 10 dollar increase in oil prices lead to a 1.5%
reduction in the GDP of developing countries. We have seen evidence of this in our own country: India’s GDP
grew at 6.9% during the last financial year down from the 8% plus growth rate experienced in the past few years.

If we survey the current literature on oil prices and the global economy, we can discern two schools of thoughts:
one school holds that the global economy has built up enough resilience to absorb oil price hikes due to (a) stronger
demand from emerging economies and, (b) more enlightened Central Bank policies; the other school is categorical
that high oil prices are one of the primary reasons for the weak conditions in the economies of the US and Europe.
We subscribe to the latter view and hold that very high and volatile oil prices will continue to weaken global efforts
for an expeditious recovery from the ongoing global economic recession and financial crisis.

Excellencies, in this august gathering, I cannot but highlight the dual role that crude oil now plays both as a
physical commodity and a financial asset, and the need to improve our understanding of the inter-linkages between
the physical and financial markets. The questions I would like to pose are: Is the price discovery of oil today an
outcome of the economic fundamentals of demand and supply or are their extraneous factors at play? If oil has
such a large impact on the health of the global economy, can we afford to leave the price discovery of such a vital
and finite resource as oil entirely unregulated in the commodity derivative markets or the financial markets? Are
the oil futures markets adequately performing their functions of price discovery and risk transfer?

For oil importing countries, these questions need to be squarely addressed if we are to address the challenge of

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global energy security. We are enthused at the efforts of the G-20 to strengthen regulation of oil futures markets
and trade in paper barrels. Such efforts, if pursued to their logical end, will render oil markets less opaque, dampen
volatility and provide the much-needed stability and predictability in oil price formation. It is our belief that
excessively high and volatile oil prices benefit neither the producing countries nor the consuming countries. In fact,
they lead to ‘demand destruction’ in consuming countries thereby inhibiting fresh investments by the producing
countries, leading to a vicious cycle of higher prices and falling supplies.

Excellencies, the global population is projected to increase to 9 billion by mid-century. Providing easy access to
energy at affordable prices in an environmentally sustainable manner is the major challenge that confronts policy
planners today. We all agree that oil and gas will remain the dominant fuel in the world’s energy mix till 2030. The
question critical to the world economy is: are we making sufficient investments for ensuring production of the
incremental quantities of oil and gas required in the days ahead? The answer to that question must necessarily be in
the affirmative if the global economy is to be in sound health.

Excellencies, Ladies and Gentlemen, the perspective that I have just shared with you is that of a net oil importing
country’s but would also apply to the global economy in general. Unless we understand the strong linkage between
oil price stability with the overall health and stability of the global economy, we will not be able to come up with
the prescriptions for a quick recovery. In our highly inter-connected and interdependent world, we must swim or
sink together.

Let us, oil producing and consuming countries, work together to build trust, share market data to establish ‘demand
certainty’, instill confidence among oil producing countries to undertake the required investments to produce larger
quantities of incremental oil and gas, reduce the influence of extraneous factors in oil price formation, and bring
greater transparency and predictability to the international oil markets. By doing so, we would be contributing our
bit for an early recovery of the global economy.”

***

RCJ/RKS

2 of 2 14-Jun-12 6:29 AM
 TERI Policy Brief
June 2013

The Energy and Resources Institute

Shale Gas in India:

Look Before You Leap
Introduction
Natural gas forms 9 per cent of the total commercial energy mix in India, but
demand far exceeds supply, as shown in Figure 1. Part of the demand in 2012–13
was made up by the import of liquefied natural gas (LNG) to the extent of 18 bcm.
Several power plants, which were in operation, or ready for commissioning, or in
an advanced state of construction, representing about 10,000 MW of generation
capacity, were, however, idle for want of gas.
The exploration and production of shale gas in the United States (US) has

contents been a game changer, making the country self-sufficient in natural gas over the
last few years. This has created considerable excitement globally, particularly
in Europe. India is also looking at exploring shale gas domestically to fill in the
Introduction 1 supply–demand gap. But will what works for the US also work for Europe and
India? This policy brief explores this question in the context of India. It explains the
Drilling and recovery of shale gas 2
nature of shale gas, the technology for its extraction from underground sources,
Shale gas in the US 2 and its potential for India. It also highlights overseas acquisitions of this resource
by Indian companies even before it is sourced domestically, and then examines
India’s participation in the shale gas 3
the viability of the technology in India. One of the key determinants of the
industry in the US viability of this technology is the availability of large quantities of clean
Shale gas in Europe 3 water. This policy brief raises a red flag on this complementary input
for exploiting shale gas resources in India, given that India is a water-
Proposed shale gas exploration 3 stressed country, and is fast approaching water scarcity conditions.
policy in India
Fresh water availability in India 5
Conclusion 6 200
180
160
140
120
100
80
This Policy Brief has been prepared
60
by R K Batra, Distinguished
40
Fellow, TERI.
20
0
2012–13 2013–14 2014–15 2015–16 2016–17
The Energy and Resources Institute Units: billion cubic metres (bcm)
Darbari Seth Block, IHC Complex,
Production Demand Shortfall
Lodhi Road, New Delhi- 110 003
Tel. 2468 2100 or 4150 4900 Note: Shortfall as the percentage of demand varies from 60 to 69 per cent
Fax. 2468 2144 or 2468 2145 Figure 1: India’s estimated natural gas production versus demand
India +91 Delhi (0) 11 Source: (MoPNG, January 2013)

www.teriin.org
 TERI Policy Brief
Box 1 ShalE GaS
Natural gas (mainly methane) is generally classified under two heads:
(a) conventional gas, and (b) unconventional gas. Most of the natural
gas that is produced globally comes under the category of conven-
tional gas where, after drilling in a sedimentary basin that is rich in
gas, the gas migrates through porous rocks into reservoirs and flows
freely to the surface where it is collected, treated, and then piped to
various users. Shale gas on the other hand is located in rocks of very
low permeability and does not easily flow. Therefore, the technique for
recovery of shale gas is quite different from that of conventional gas.
Drilling and recovery of shale gas
Figure 2 shows the various underground geographical
features for recovery of conventional and unconventional
gases. Conventional gas can occur by itself or in association
with oil. These are shown on the left and right side of the
figure, respectively. Coal bed methane (CBM), which is
extracted from coal beds, is also an unconventional gas and,
in terms of depth, occurs much closer to the land surface
than other similar gases. However, shale rock is sometimes
found 3,000 metres below the surface. Therefore, after deep
vertical drilling, there are techniques to drill horizontally for
considerable distances in various directions to extract the gas-
rich shale. A mixture of water, chemicals, and sand is then
injected into the well at very high pressures (8,000 psi) to
create a number of fissures in the rock to release the gas. The
process of using water for breaking up the rock is known as
“hydro-fracturing” or “fracking”. The chemicals help in water
and gas flow and tiny particles of sand enter the fissures to
keep them open and allow the gas to flow to the surface. This
injection has to be done several times over the life of the well.
The number of wells to be drilled for shale gas far exceeds the
number of wells required in the case of conventional gas and
the land area required is a minimum of 80 to 160 acres.
H 3.4 tcf in November 2012, dropping from 10.3 tcf in December
A
G F
B E
C D
A- Conventional non-associated gas E- Oil
B- Seal F- Conventional associated gas
C- Gas-rich shale G- Coalbed methane
D- Tight sand gas H- Land surface
Source: US Energy Information Administration (2011): www.eia.gov
Figure 2: Shale gas extraction
Source:
2 Issue 8 AprIl—juNe 2013
Shale gas in the US
There are 34 states in the US, which have vast deposits of
rocks rich in shale gas. Production of the gas has added about
20 per cent to domestic gas availability and over 20,000 wells
have been drilled. From being an importer of LNG, the country
is now self-sufficient and there are plans to export gas from the
very terminals that were built for imports.
Estimates of fresh water usage for fracking in the US vary
from 2.8 to 3.8 million gallons per well to an average of
4.5 million gallons in the Marcellus field and up to 13.0 million
gallons in the Eagle Ford field. These figures need to be
multiplied by the number of times fracking has to be done to
a well and the number of wells at each location.
Around 80 per cent of the mixture remains underground
and the remaining 20 per cent rises to the surface, where it
is not always disposed of safely. Environmentalists claim that
many different chemical products, some of which are toxic,
are injected, along with several million gallons of fresh water,
into each of the wells. They further claim that leakage of the
toxic chemicals has contaminated aquifers, which are the
sources of drinking water. There are also claims that methane
can leak through the casing of the well and get released into
the atmosphere. These claims are vehemently disputed by the
oil and gas companies.
The Environmental Protection Agency (EPA) was charged
by the US Congress in 2010 to investigate the potential
impacts of fracking on drinking water and groundwater across
the country. There has been a considerable delay in releasing
its report, which is now due in 2014.
India’s participation in the shale gas industry in the US
Reliance Industries Ltd (RIL) has made big investments
(US$ 3.5 billion) in the Marcellus and Eagle Ford shales
through joint ventures with Chevron, Carrizo, and Pioneer.
Marcellus has been described as the largest discovered
unconventional gas field in the US and one of the largest
worldwide, with estimated net recoverable resources of
318 trillion cubic feet (tcf). (In comparison, the resources in RIL’s
own D6 fields in the KG Basin were estimated to hold around
2006.) According to RIL’s Annual Report for 2012–13, the
break-even cost of shale gas production in the US is as low as
US$ 3.50–4.00 per Million British Thermal Units (MMBtu).
RIL’s revenues from the shale gas business more than doubled
to US$ 545 million in 2012 compared to 2011. RIL views its
investment as a profitable proposition and not necessarily at
gaining technology and experience to explore for shale gas in
India. Oil India Limited (OIL), Indian Oil Corporation (IOC),
and GAIL India Limited have also made investments in shale
gas production in the US.
The other interesting contribution to shale gas development
in the US is the export of guar gum from India, which helps
in improving the viscosity and flow of water in the fracking
process. The gum is extracted from guar ki phalli, grown
mainly by farmers in arid lands in Rajasthan and Haryana.
Earlier, guar gum was used mainly as an additive in ice creams
and sauces, but with the serendipitous discovery of its use
in shale gas extraction, its production has risen enormously,
earning almost US$ 5 billion during the period from April 2012
to January 2013.
 TERI Policy Brief
Shale gas in Europe
Europe has not had the same success in exploiting shale gas as
the US for several reasons. In the US, resources under the land
belong to the land owner who is happy to allow drilling and
get paid by the gas companies, whereas in Europe—as also
in India— these resources belong to the government. Also,
important tax benefits are given to companies in the US to drill
and produce shale gas. In Europe, the geology of shale rock is
different from that of the US and it is more likely to be found
in places that are more densely populated. The NIMBY effect
(“Not in My Back Yard”) is much more prevalent in Europe
than in the US. The possible contamination of water supply is
a serious concern of European governments. France, Bulgaria,
Luxembourg, the Czech Republic, and the Netherlands have
either banned or put a moratorium on shale gas exploration.
However, in the UK, a ban, imposed earlier due to suspected
Figure 3: Shale gas sedimentary basins in the Indian sub-continent
Source: Adapted from http://suvratk.blogspot.in/2011/05/india-basin-wise-shale-gas-estimates.html (Mr suvrat Kher, sedimentary Geologist)
seismic activity, has been lifted. The Tyndale Centre for
Climate Change has estimated that around 3,000 wells will
need to be drilled in the UK to contribute 10 per cent of annual
consumption.
Proposed shale gas exploration policy in India
There is an obvious interest in exploring for shale gas
domestically, given the enormous success in the US. The
Ministry of Petroleum and Natural Gas (MoPNG) has identified
six basins as potentially shale gas bearing. These are Cambay,
Assam-Arakan, Gondwana, Krishna-Godavari, Kaveri, and the
Indo-Gangetic plain. A map derived from different sources is
shown in Figure 3.
In a study conducted by the United States Geological Survey
(USGS), recoverable resources of 6.1 tcf have been estimated
in 3 out of 26 sedimentary basins. The Government of India
Issue 8 AprIl—juNe 2013 3
 TERI Policy Brief
had also put out in 2012, a draft policy for the exploration and
exploitation of shale gas, inviting suggestions from the general
public, stakeholders, environmentalists, etc. Salient features of
the policy draft are given in Box 2.
BOx 2: SalIENT fEaTuRES Of ThE PROPOSED ShalE GaS POlICy
1. The identified blocks will be advertised for international
competitive bidding. Participation of the state will not
be mandatory.
2. all areas, which are already allotted and where operations have
entered the development/production phase shall be excluded
from the area to be offered for shale gas exploration.
3. If an offer for shale gas overlaps or falls within an existing oil and
gas/CBM block, right of first refusal will be offered to the existing
contractor to match the offer of the selected bidder.
4. fiscal regime proposed for exploration to be based on royalty
and production linked payments, similar to the regime adopted
for CBM operations. ad valorem royalty at the prevailing rate
for natural gas would be applicable and accrue to the state
governments. Production-linked payment on ad valorem basis will
be made to the central government on different production slabs,
which will be biddable items. Cost recovery will not be admissible.
5. The contract duration will be of 32 years and will be divided into
two phases. Phase I will be for a period of 7 years and will be for
exploration, appraisal, evaluation of the prospect, and feasibility.
Phase II will be the development and production phase for the
remaining duration of 25 years.
6. There will be freedom to market shale gas within India on an arm’s
length basis within the framework of the government policies in
marketing and pricing of the gas.
As we write this brief, this policy is being considered by
a group of ministers. The draft policy has identified some of
the water issues in the exploitation of shale gas and these are
reproduced verbatim hereunder:
$ Optimal exploitation of shale gas/oil requires horizontal and
Multilateral wells and Multistage hydraulic fracturing treatments of
stimulate oil and gas production from shale.
$ This may require large volume of water ~3-4 million gallons per well
(11,000 to 15,000 cubic metres of water required for drilling/hydro
fracturing depending upon the well type and Shale characteristics).
$ The water after hydraulic fracturing is flowed back to the surface
and may have high content of Total Dissolved Solids (TDS) and other
contaminants (typically contains proppant (sand), chemical residue
occur in many geologic formation, mainly in shale). Therefore, the
treatment of this water before discharge to surface/subsurface water
needs to be in line with the Central/State Ground Water authority
regulations.
$ Possibility of contamination of aquifier (both surface and subsurface)
from hydro-fracturing and fracturing fluid disposal and the need
for safeguarding the aquifer. Multiple casing programme (at least
2 casings) will be a mandatory requirement across all sub-surface
fresh water aquifers.
4 Issue 8 AprIl—juNe 2013
The government’s draft policy further suggests that there
should be a mandatory rainwater harvesting provision in the
exploration area, which trivializes the extent to which water
will be required. It states, “as far as possible”, river, rain or non-
potable groundwater only should be utilized for fracking —
and re-use/recycling of water should be the preferred method
for water management. The environmental concerns in using
water for fracking (see Figure 4) have been considerably
downplayed and their significance underestimated. Further,
enforcing legislation on environmental and water issues is a
problem in India, and such legislation has been more in breach
than in observance.
Water use in hydraulic
fracturing operations Potential drinking water issues
Water acquisition
Water availability
Impact of water withdrawal on water quality
Release to surface and groundwater
Chemical mixing (e.g., on-site spills and/or leaks)
Chemical transportation
Accidental release to groundwater
(e.g., well malfunction)
Fracturing fluid migration into drinking water aquifers
Well injection Formation fluid displacement into aquifers
Mobilization of subsurface formation materials
into aquifers
Release to surface and groundwater
Leakage from on-site storage into drinking
Flowback and
produced water
water resources
Improper pit construction, maintenance,
and/or closure
Surface and/or subsurface discharge into surface
Wastewater treatment and ground water
and waste disposal Incomplete treatment of wastewater and residuals
Wastewater transportation accidents
Figure 4: Water use in hydraulic fracturing operations
Source: us epA (http://www.waterworld.com/articles/wwi/print/vol-
ume-27/issue-2/regional-spotlight-europe/shale-gas-fracking.html)
Fresh water availability in India
Figure 5 shows that India suffers from physical and economic
water scarcity whereas the US and Europe do not have the
same water worries.
The website ‘Indiawaterportal’ points out that in the next
12–15 years, while the consumption of water will increase
by over 50 per cent, the supply will increase by only 5 to 10
per cent, leading to a water scarcity situation.
This year, seven drought-affected states— Maharashtra,
Andhra Pradesh, Himachal Pradesh, Sikkim, Gujarat, Kerala,
and Uttarakhand—have been provided a relief package of
Rs 2,892 crore by the Centre under the National Disaster
Relief Fund with retrospective effect from 1 March 2013.
TERI’s own study in 2010, Looking Back to Think Ahead,
demonstrates that India is already a water-stressed country
and is fast approaching the scarcity benchmark of 1,000 m3
per capita with unabated growth in the irrigation sector and
 TERI Policy Brief
Figure 5: areas of physical and economic water scarcity
source: http://www.fao.org/nr/water/issues/scarcity.html
even more rapid growth in industrial and domestic water
demand. Another detailed study released in January 2013
by UNICEF and FAO, Water in India: Situation and Prospects,
points in the same direction. A map of India showing various
river basins and their projected status by 2030 in another
study by the Water Resources Group in 2010 is provided
in Figure 6. This group consists of the consultancy firm
McKinsey, the World Bank, and a consortium of business
partners.
It is evident that potential shale gas bearing areas, such
as Cambay, Gondwana, Krishna-Godavari, and the Indo-
Gangetic plains are also areas that will experience severe
water stress by 2030.
Land acquisition is not covered in the shale gas policy, but
will be a serious issue because of the large area required for
fracking and the consequent displacement of people.
When the government invites bids, they are expected to
cover three major basins, i.e., Cambay, Krishna-Godavari,
and Raniganj (Damodar basin). According to the Oil and
Natural Gas Corporation (ONGC), there are about
34 tcf of shale gas in the Damodar basin alone (compared
to India’s total conventional gas reserves of 47 tcf) of
which 8 tcf are recoverable. However, in an address to the
Bengal Chamber of Commerce and Industry in May 2013,
the Chairman and Managing Director (C&MD) of ONGC,
while highlighting the potential of shale gas in the Damodar
basin, also mentioned “land use for drilling operations may
face severe resistance from the locals”, and “availability
of huge water resources for its shale gas operation is also
apprehended to be a great challenge for us”.
Issue 8 AprIl—juNe 2013 5
 TERI Policy Brief
Indus
WFR
Sabarmati
Mahi
Narmada
Tapi
Krishna
WFR
Cauvery
Size of gap
Surplus Moderate (0% to 20%)
Figure 6: Water basin projections for 2030. The unconstrained projection of water requirements under a static policy regime and at existing levels
of productivity and efficiency.
Source: 2030 Water resources Group, 2010
WFr = western-flowing coastal rivers; eFr = eastern-flowing coastal rivers
Conclusion
While the potential shale gas reserves overshadow those
of conventional gas, we have a long way to go in identifying
shale gas rich basins and acquiring the necessary technology
and experience to extract shale gas. Meanwhile, the water
situation will only get worse due to the reducing availability
of fresh drinking water year by year, dropping groundwater
levels, and the increasingly polluted rivers and other water
bodies. Unless, there is some revolutionary technological
breakthrough, which does not need the use of fresh water
and chemicals, it is vital that we seriously ask ourselves this
question: Should we further endanger a rapidly depleting
resource on which all life depends?
The answer should be a resounding “NO”, and instead the
focus must be on the following:
$ Removing the bottlenecks in CBM exploration and
production while safeguarding the environment: This
gas is formed in association with coal at shallow depths. Its
extraction does not entail horizontal drilling and requires a
much smaller degree of fracturing compared to shale gas.
However, a considerable amount of water associated with
the gas needs to be removed to allow the gas to flow. This
water can contain dissolved solids and pollutants, which
will need to be treated or disposed of safely. Although
6 Issue 8 AprIl—juNe 2013
Brahmaputra
Ganga
Meghna
Subernarekha
Brahmani-Baitarni
Godavari
Mahanadhi
EFR
Pennar
EFR
Severe (20% to 80%)
33 blocks have been awarded since 2001, mainly in east
India, production is currently around just 3 bcm per
annum. Delays have been due to obtaining environmental
clearances, acquisition of land, and governmental
approval on pricing.
$ Establishing a national research and development
(R&D) Centre for gas hydrates, as requested by
DGH Hydrocarbons: These are methane and water
molecules in seabed sediments that get frozen into ice due
to low temperatures and high pressures. India’s offshore
reserves have been tentatively estimated at around
66,000 tcf or 1,500 times more than the known conventional
gas reserves. Though the government formulated a
National Gas Hydrate Programme in 1997 and under
an Indo-US initiative a drilling ship explored four seabed
areas in 2006, nothing much has happened since. So far no
commercial production has started globally, though Japan
has announced it may do so by 2016.
$ Expanding our exploration of conventional gas
through investor friendly policies by reducing their
risks and allowing market driven prices
$ Acquiring gas equity abroad: The success of BPCL and
Videocon in Mozambique is a case in point.
 TERI Policy Brief

$ Continuing to import LNG from the Middle East and ‘Humble guar gum is India’s top farm export’. The Times of
expanding our sourcing to the US, Australia, etc. India, 10 March 2013.
$ Giving a big push to renewable energy
The glass is all empty. Editorial, The Hindustan Times, 3rd April
$ Last, but not the least, taking urgent steps to protect, 2013.
augment, and conserve our water resources for
other critical uses. ‘ONGC to go aggressive on shale gas’. The Business Standard,
31 May 2013.
References
Looking back to think ahead. TERI, 2010. www.indiawaterportal.org

‘Europe struggles in shale gas race’. New York Times News http://www.frackfreeslmerset.org
Service. 26 April 2013.
http://www.waterandsolar.co.za
New lens scenarios: A shift in perspective for a world in transition.
Shell International BV. 2013. www.indiawaterportal.org

‘Should Europe be fracking?’ Business Standard, 13 October http://www.infraline.com

2012/Gros Daniel. 2012.
Eucers strategy paper: Strategic perspectives of unconventional
‘Shale gas: Frack on’. The Economist (Special Report), gas, Vol. 1, 1 May 2011.
26 November 2011.
http://suvratk.blogspot.in/2011/05/india-basin-wise-shale-
‘America’s cheap gas: Bonanza or bane’. The Economist, gas-estimates.html
2 March 2011.
http://www.fao.org/nr/water/issues/scarcity.html
‘American energy and economics: Better out than in’.
The Economist, 2 March 2013.

‘Deep sign of relief’. The Economist, 16 March 2013.

‘Big reserves, big reservations’. The Economist, 16 February

2013.

‘Special report: Natural Gas’. The Economist, 14 July 2012.

Annual Report 2012-13. Reliance Industries Ltd.

‘The glass is all empty’. The Hindustan Times Editorial, 3 April

2013.

‘Drilling deep for success’. The Times of India, 3 May 2013.

‘Recap of activities in India’s oil and gas sector II: Shale,

CBM, and overseas upstream assets hold the key to enhance
supplies’. (http://www.infraline.com)

‘Is India ready for shale gas?’ (http://www.forbesindia.com),

3 April 2013 (http://www.infraline.com)

‘Shale gas needs a Delphi exercise’. Business Standard,

22 March 2013.

‘Shale gas policy by month-end- shale gas extract from

abundant unexploited reserves to begin by 2015-16’. http://
www.infraline.com, The Infraline Oil & Gas Newsletter.
11 March 2013.

‘Draft policy for the exploration and exploitation of shale gas in

India’. The Ministry of Petroleum & Natural Gas. 2012.

Issue 8 AprIl—juNe 2013 7

 TERI Policy Brief

This is part of a series of policy briefs by TERI based on its research work in specific areas. These briefs
are made available to members of parliament, policy-makers, regulators, sectoral experts, civil society,
and the media. The briefs are also accessible at http://www.teriin.org/policybrief/. The purpose is to
focus on key issues and list our policy recommendations to encourage wider discussion and debate.
We would very much value your comments and suggestions.

Previous policy briefs

Title Date
1. Strengthening agricultural biotechnology regulation in India September 2010
2. Critical non-fuel minerals security: why India urgently needs December 2010
to have a policy in place
3. India’s coal reserves are vastly overstated: is anyone listening? March 2011
4. Don’t tinker with the clock to save energy August 2011
5. Governance of mining in India: responding to policy deficits June 2012
6. Enhancing water-use efficiency of thermal power plants
in India: need for mandatory water audits December 2012
7. Petroleum product pricing reforms in India: are we March 2013
on the right track?

For more information contact:

Mr R K Batra
Distinguished Fellow
The Energy and Resources Institute (TERI) Tel: 24682100 or 41504900
Darbari Seth Block, Fax:24682144 or 24682145
IHC Complex, Lodhi Road, Web:www.teriin.org
New Delhi- 110003 E-mail: rkbatra@teri.res.in

The Energy and Resources Institute

8 Issue 8 AprIl—juNe 2013

Bharat stage emission standards are emission standards instituted by Government of India to regulate
the output of air pollutants from internal combustion engine equipments, including motor vehicles. The
standards and the timeline for implementation are set by the Central Pollution Control Board under the
Ministry of Environment & Forests. [1]
The standards, based on European regulations were first introduced in 2000. Progressively stringent
norms have been rolled out since then .All new vehicles manufactured after the implementation of the
norms have to be compliant with the regulations. [2]. Since October 2010, Bharat stage III norms have
been enforced across the country. In 13 major cities, Bharat stage IV emission norms are in place since
April 2010. [3].
The phasing out of 2 stroke engine for two wheelers, the stoppage of production of Maruti 800 &
introduction of electronic controls have been due to the regulations related to vehicular emissions. [4].
While the norms help in bringing down pollution levels, it invariably results in increased vehicle cost due
to the improved technology & higher fuel prices.

Background

Table 1: Indian Emission Standards (4-Wheel Vehicles)

Standard Reference Date Region

India 2000 Euro 1 2000 Nationwide

NCR*,
Mumbai,
Bharat Stage II Euro 2 2001
Kolkata,
Chennai

NCR*, 13
2003.04
Cities†

2005.04 Nationwide

NCR*, 13
Bharat Stage III Euro 3 2005.04
Cities†

2010.04 Nationwide

NCR*, 13
Bharat Stage IV Euro 4 2010.04
Cities†

* National Capital Region (Delhi)

† Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Ahmedabad,

Pune, Surat, Kanpur, Lucknow, Sholapur

For 2-and 3-wheelers, Bharat Stage II (Euro 2) will be applicable from April 1, 2005 and Stage III (Euro 3)
standards would come in force from April 1, 2010.
Indian gasoline specifications:
Pune, Surat, Kanpur, Lucknow, Sholapur

For 2-and 3-wheelers, Bharat Stage II (Euro 2) will be applicable from April 1, 2005 and Stage III (Euro 3)
standards would come in force from April 1, 2010.
Indian gasoline specifications:

Table

Bharat Bharat Bharat

Serial No. Characteristics Unit
Stage II Stage III Stage IV

1 Density 15 0 C Kg/m3 710-770 720-775 720-775

2 Distillation

%Volume
a) Recovery up to 70 0 C(E70) 10-45 10-45 10-45
%Volume
b) Recovery up to 100 0 C (E100) 40-70 40-70 40-70
%Volume
c) Recovery up to 180 0 C (E180) 90 - -
3 %Volume
d) Recovery up to 150 0 C (E150) - 75min 75min
0
e) Final Boiling Point (FBP), Max C
210 210 210
%
f) Residue Max 2 2 2
Volume

4 Research Octane Number (RON), Min 88 91 91

84 81 81
5 Anti Knock Index (AKI)/ MON, Min
(AKI) (MON) (MON)

%
6 Sulphur, Total , Max 0.05 150 mg/Kg 50 mg/Kg
mass

7 Lead Content(as Pb), Max g/l 0.013 0.005 0.005

8 Reid Vapour Pressure (RVP), Max Kpa 35-60 60 60

Benzene, Content, Max -

%
9 a) For Metros 3 1 1
Volume
b) For the rest 5

%
10 Olefin content, Max - 21 21
Volume

%
11 Aromatic Content, Max - 42 35
Volume

Indian diesel specifications:

Table

S. No Characteristic BSII BSIII BSIV

1 Density Kg/m3 15 0 C 820-800 820-845 820-845

2 Sulphur Content mg/kg max 500 350 50

3(a) Cetane Number minimum and / or 48 51 51

3(b) Cetane Index or 46 and 46 and 46
 2 Sulphur Content mg/kg max 500 350 50

3(a) Cetane Number minimum and / or 48 51 51

3(b) Cetane Index or 46 and 46 and 46

4 Polycyclic Aromatic Hydrocarbon - 11 11

5 Distillation
(a) Reco. Min. At 350 0 C 85 - -

(b) 0
Reco. Min. At 370 C 95 - -

(c) o
95%Vol Reco at 0 C max - 360 360
Octane is a hydrocarbon liquid that is used as a reference standard to describe the tendency of gasoline,
petrol, or benzene fuels to self-ignite during compression prior to the desired position of the piston in the
cylinder as appropriate for valve and ignition timing. The problem of premature ignition is referred to as
pre-ignition and also as engine knock, which is a sound that is made when the fuel ignites too early in the
compression stroke.
Severe knock causes severe engine damage, such as broken connecting rods, melted pistons, melted or
broken valves and other components. The octane rating is a measure of how likely a gasoline or liquid
petroleum fuel is to self ignite. The higher the number, the less likely an engine is to pre-ignite and suffer
damage.

The octane rating of gasoline is measured in a test engine and is defined by comparison with the mixture
of 2,2,4-trimethylpentane (iso-octane) and heptane that would have the same anti-knocking capacity as
the fuel under test: the percentage, by volume, of 2,2,4-trimethylpentane in that mixture is the octane
number of the fuel. For example, petrol with the same knocking characteristics as a mixture of 90% iso-
octane and 10% heptane would have an octane rating of 90.[1] A rating of 90 does not mean that the
petrol contains just iso-octane and heptane in these proportions, but that it has the same detonation
resistance properties. Because some fuels are more knock-resistant than iso-octane, the definition has
been extended to allow for octane numbers higher than 100
Research Octane Number (RON)
The most common type of octane rating worldwide is the Research Octane Number (RON). RON is
determined by running the fuel in a test engine with a variable compression ratio under controlled
conditions, and comparing the results with those for mixtures of iso-octane and n-heptane.

Motor Octane Number (MON)

There is another type of octane rating, called Motor Octane Number (MON), or the aviation lean octane
rating, which is a better measure of how the fuel behaves when under load, as it is determined at 900 rpm
engine speed, instead of the 600 rpm for RON.[2][3] MON testing uses a similar test engine to that used in
RON testing, but with a preheated fuel mixture, higher engine speed, and variable ignition timing to
further stress the fuel's knock resistance. Depending on the composition of the fuel, the MON of a modern
gasoline will be about 8 to 10 points lower than the RON, however there is no direct link between RON
and MON. Normally, fuel specifications require both a minimum RON and a minimum MON

Anti-Knock Index (AKI)

In most countries, including Australia and all of those in Europe, the "headline" octane rating shown on
the pump is the RON, but in Canada, the United States and some other countries, like Brazil, the headline
number is the average of the RON and the MON, called the Anti-Knock Index (AKI, and often written on
pumps as (R+M)/2). It may also sometimes be called the Pump Octane Number (PON).

[edit]Difference between RON and AKI

Because of the 8 to 10 point difference noted above, the octane rating shown in the United States is 4 to
5 points lower than the rating shown elsewhere in the world for the same fuel. See the table in the
following section for a comparison
Cetane number or CN is a measure of a fuel's ignition delay; the time period between the start of
injection and the first identifiable pressure increase during combustion of the fuel. In a particular diesel
engine, higher cetane fuels will have shorter ignition delay periods than lower cetane fuels. Cetane
numbers are only used for the relatively light distillate diesel oils. For heavy (residual) fuel oil two other
scales are used CCAI and CII. In short, the higher the Cetane number the more easily the fuel will
combust in a compression setting (such as a diesel engine).
Coal
Clean Coal Technology
The Government has taken various steps including notifying the activities like coal gasification
including Underground Coal Gasification (UCG) and Surface Gasification of coal, coal
Liquefaction or coal to Liquids (CTL), Washing of coal as one of the end uses under Coal Mines
(Nationalization) Act 1974 to promote clean coal technologies and to facilitate allotment of
blocks to the potential entrepreneurs. Further, under a separate policy for development of Coal
Bed Methane (CBM)/Coal Mine Methane (CMM) has been put in place for extraction and
exploitation of Methane gas from coal seams.
Gasification is a key enabling technology for a range of efficient and sustainable systems for
producing low emissions electricity and other energy products from coal. Advanced energy
systems rely on the coal gasification process, where coal is reacted with oxygen and steam at
high temperatures and pressures to create syngas, a combustible mixture of carbon monoxide and
hydrogen. Syngas can be used to efficiently generate power and as a feedstock to produce
chemicals and liquid fuels. Contaminants, such as sulfur dioxide (SO2), ash, and mercury, that
often go up the smokestack in a normal coal-burning plant, are captured and sold to make the
IGCC cleaner and more economical.
Underground coal gasification (UCG) is an industrial process, which converts coal into
product gas. UCG is an in-situ gasification process carried out in non-mined coal seams using
injection of oxidants, and bringing the product gas to surface through production wells drilled
from the surface. The product gas could to be used as a chemical feedstock or as fuel for power
generation. The technique can be applied to resources that are otherwise unprofitable or
technically complicated to extract by traditional mining methods, and it also offers an alternative
to conventional coal mining methods for some resources.
Coal liquefaction is the process of producing synthetic liquid fuels from coal. The liquefaction
processes are classified as direct conversion to liquids processes and indirect conversion to
liquids processeses. Direct processes are carbonization and hydrogenation. Coal liquefaction
methods involve carbon dioxide (CO2) emissions in the conversion process. Different
liquefaction processes have different lifecycle carbon footprints depending on which processes
and environmental controls are employed.

Chaturvedi Committee
• Suggested exempting imported coal from the 5 per cent customs and 5 per cent
countervailing duty (CVD).Import has gone down dramatically due to a sharp rise in the
cost as countries such as Indonesia and Australia have imposed additional duties, taking
the price from $30 a tonne to $150. As a result, it had impacted the ultra mega power
projects and other plants to the extent of 15,000 MW.
• Recommended that domestic prices be fixed at 10 per cent higher rates and this amount
be shared with plants having linkages with Coal India Limited in a pro-rata manner of
total imports of the plant and on calories a kg basis of imported coal. But the coal
ministry has conveyed to the Prime Minister’s Office (PMO) that it may not be possible
to accept Planning Commission’s proposal to institutionalise a price pooling mechanism
to encourage import of coal. The proposal to pool the prices of imported and domestic
coal is an extremely difficult proposition. A committee of experts should beappointed to
suggest policychanges in the light of thechanged international sceneand obligations of
partiesunder the PPA.
• Since PPAs have been signed by the State governments, leave it to them to resolve these
issues and keep hands-off approach as these PPAs provide for changes in any provisions
of the contract by mutual agreement with regulator’s approval
Coal price-pooling issue
Pooling the price of imported coal with that of domestic coal has been proposed as a mechanism
for enabling CIL to feed the power sector and meet the contractual obligations which it has been
asked to enter into through the FSAs. A trigger level of 80 per cent has been set, below which
CIL would attract penalties for short supply.
Hamstrung by many problems, CIL’s present production levels would allow it to meet only 65
per cent of its contractual obligations. The rest is to be met through imports and the price of
domestic coal (which is lower than imported coal) was to be pooled to arrive at an average price
for the 15 per cent that would need to be imported.
• However, fearing a resultant hike in tariffs (by almost Rs. 100 per tonne), this was
opposed by many power producers. The arrangement, the ministry argues, will hike the
price of domestic coal by about 6 per cent. according to internal estimates of the coal
ministry, is likely to translate into a cumulative impact of over Rs 4000 crore on fuel
prices for power plants and lead to increase in electricity costs by upwards of 13 paise per
unit (kWh). While the power ministry would have make amendments in its statutes to
ensure that the cost is a pass through, the state-run power utilities would have to share
increased costs despite the fact that the outstanding dues of Coal India from them have
surpassed Rs 6,000 crore
• CIL’s independent directors too had voiced their reservations, criticising this policy as a
ploy to help private sector power producers. They have argued that it would bleed CIL’s
exchequer dry by Rs 60,000 crore in the next 20 years.
• Coal-rich states primary contend that while such a mechanism would be ideal for power
plants located in coastal areas, those located in the hinterlands or near the pitheads may
not benefit from it.
• Firstly, because coal is not a homogenous material and its quality varies from coalfield to
coalfield and accordingly its cost varies.
• Secondly, the difference between the prices of imported and locally mined coal is huge
and finally, the consumers may be willing to import it directly rather than doing it through
CIL.
• Since prices of domestic coal with similar calorific value vary from company to company
and since the landed price of imported coal may vary from port to port, the pooling
mechanism is bound to be a complex exercise

New Coal regulator to decide price

THE coal ministry has amended the Coal Regulatory Authority Bill for empowering the
proposed sectoral watchdog to have a decisive say in fixing prices of the fuel by prescribing a
methodology for it.This, the ministry says, is necessary as its own utility Coal IndiaLtd is
allegedly executing a pricing regime aimed at mopping uphuge margins to “financially
benefit”its staff.By saying thatCIL’s pricing mechanism is linked to its employees wages,
implied that the pricing is tilted to register more profits for allowing higher Performance Related
Pay (PRP) for its over 3.5 lakh employees.The move is likely to trigger concerns within the rank
and file of the world’s biggest coal miner, CIL,as it virtually amounts to clipping CIL’s wings in
deciding the pricing mechanism, even as some officials say that the ministry is playing into the
hands of the power ministry.
While CILcancontinuetofixpricesofitsproduce, it must do so in a rational,scientific and
transparentway, while the methodology ofdoing so would be in the domainof the regulator, it has
argued.To counter the effects of monopolisticproducers like CIL, amechanism is required to
ensuresupply of good quality of coal anda rational approach to price fixation.
A section of thecoal ministry is opposed to empoweringthe regulator to decideon the contours of
the fuel’s pricingsaying it amounted to reversalof reforms. “Coal prices arede-regulated. Besides,
the productioncost from our 475 minesis not uniform as some areopen cast and some
underground.So should we put out475 prices for coal?”

New coal pricing norm

Coal would be priced on internationally-accepted gross calorific value-based mechanism for non-
coking coals rather than the existing useful heat value (UHV=8900-138(A+M))-based system.
The new system will incentivise improvement in quality, resulting in better quality of coal to
The new system will incentivise improvement in quality, resulting in better quality of coal to
consumers and commensurate revenue realisation for coal firms, it added.
Issues pertaining to the switchover:
• Mainly pertain to installation of proper samplers (the bomb-calorimeter) which are
necessary for the determination of the gross calorific value of the coal.
• Withdrawal of the present embargo on joint sampling for coal cargo which could now be
done only if the dispatch exceeded four lakh tonnes.

CIL
• Has 81 mining areas and produces around 81.1 per cent of India’s overall coal
production.
• CIL is the effect, not the cause for less than required production of coal. The heart of the
matter is the government’s obsolete and counter-productive coal policy. With coal as a
nationalized mineral, CIL enjoys a monopoly which jeopardises not only those depending
on the coal but also the Navratna PSU itself
• Coal prices have been deregulated since 2000 but price rollbacks due to political
constraints erode the credibility of the company.
• PMO has stepped in and directed Coal India Limited (CIL) to convert its preliminary fuel
supply pacts into legally binding fuel sup-ply agreements (FSAs). But the signing of FSA
has been mired in controversy for some or the other reasons. With the FSAs, CIL has to
provide the full quantity of coal mentioned in the letters of assurance (LoAs) for 20 years.
FSAs need to be signed for all the projects that have been commissioned or will be
commissioned before March 31st, 2015.
• CIL has been selling coal on ‘free on rail’ (FOR) basis and the transportationof coal from
the mine face to the point of loading is the responsibility of CIL. So, it has been decided
to set up a monitoring system for movements of coal using GPS. It is estimated that at
least a quarter of CIL’s 431-million tonne production is lost in transit.
• CIL’s production has been almost stagnant in 2010-11 and 2011-12 at close to 400 mil-
lion tonnes while demand has grown at a compounded annual growth rate (CAGR) of 7.3
per cent in the same period.
• The Power Ministry has strong objections to the issue of unilateral termination right
vested in CIL for terminating the coal supply agreement at 30 days notice. The Ministry
is of the view that any termination of coal supply or distribution contract should be with
the Central Government and not CIL. The modified FSAs do not have any provision for
inter-project transfer of coal. The Power Ministry wants the provision of inter-project
transfer may be explicitly mentioned in case of Central and State PSUs.
• November 30 was the deadline for signing the FSAs, but so far (early December) only
about 33 agreements have been signed. NTPC has given signs of concluding the
negotiations soon. Update: The FSA between CIL and NTPC has been signed with 90%
as trigger point (only 65% wiil be supplied through domestic reserves). 3100 kcal/kg is
the minimum calorific value of the coal to be supplied.
• Recent push by PMO has enabled CIL to gain permit in 15 projects enabling these
projectsto ramp up production by 25 per cent, adding about 45 million tonnes annually
and about 160 million tonnes within this Plan period, which mandates CIL to add 180
million tonnes additionally.
• The government invited bids in Jan, 2013 for the appointment of advisors to restructure
Coal India Ltd — the country's largest coal producer. The consultants would be entrusted
the responsibility of assessing the need for restructuring the Maharatna company in the
light of drawbacks inherent in a monopolistic situation and requirement of the company
law and Sebi regulations.

New decision
• The Cabinet Committee on Economic Affairs (CCEA) today approved the following
mechanism for supply of coal to power producers:
• Coal India Ltd. (CIL) to sign Fuel Supply Agreements (FSA) for a total capacity of
78000 MW including cases of tapering linkage, which are likely to be commissioned by
31.03.2015. Actual coal supplies would however commence when long term Power
Purchase Agreements (PPAs) are tied up.
 Purchase Agreements (PPAs) are tied up.
• FSAs to be signed for domestic coal quantity of 65 percent, 65 percent, 67 percent and 75
percent of Annual Contracted Quantity (ACQ) for the remaining four years of the 12th
Five Year Plan.
• To meet its balance FSA obligations, CIL may import coal and supply the same to the
willing Thermal Power Plants (TPPs) on cost plus basis. TPPs may also import coal
themselves. MoC to issue suitable instructions.

Problems
• Issue of land and the statutory clearances: For almost two years, between January
2010 and now, hardly any proposal has crossed the environment and forest hurdles. Over
170 forestry proposals are awaiting clearance. We are facing newer terms and conditions
every time a proposal is taken up.
• The insistence on a fresh clearance each time there was an increase in production was a
major bottleneck for stepping up coal output. Each environment clearance was against a
specific amount of coal to be mined. The ministry was insisting that a fresh clearance
along with a public hearing would be needed even if production were to be increased
through better technology and machinery. PMO has directed the environment ministry in
Nov, 2012 to immediately issue orders saying fresh environment clearance will not be
needed for coal mines to increase their production by 25 per cent. Also, it has asked the
ministry not to insist on fresh clearances each time the lease of a mine is renewed.
• Pending Mines and Minerals (Development and Regulation)Bill2011
• Temporary Reasons for shortage: Festive seasons, inadequate crushing capacity in the
mines; law and order problems in Central Coalfields Limited and Mahanadi Coal-fields
Limited; and excessive rains in the coalfields of Northern Coalfields Limited, Central
Coalfields Limited and Mahanadi Coalfields Limited.
• Structural Reasons: The communication network is simply not good enough, with coal
lying unused at railheads. Second, environmental clearances and the go/no-go brouhaha
have held up the exploitation of new deposits. And finally, to complete the short-
sightedness, India’s thermal power plants have not been designed to be able to use
imported coal in sufficient proportions.
• RAILWAYS’ failure to provide connectivity to mines even after receiving Rs 300 crore
from Coal India is causing annual production loss of 100 million tonne (MT) (almost
one-fourth of CIL’s annual o/p) of coal, CIL chairman S Narsing Rao said today.

Way forward
There are three clear imperatives to increase the production of coal.
• a coal regulator is needed to look into pricing, which is not transparent.
• e-auction of coal must be encouraged as policy — an unfortunate culture has been
allowed to entrench itself whereby power units insist on coal through linkages, seeking to
avoid higher prices.
• Third, and overarching, coal has to be opened up. Not only should units with captive
mines produce extra coal and sell it in the open market, but the private sector must be
allowed to enter commercial coal-mining. There is no alternative.

Misc
• Royalty: a new ad-valorem regime for collecting royalty of coal and lignite from both
private firms and state-run companies. The move, if implemented, would enrich the
coffers of these states by over Rs 1,000 crore, but could also raise electricity tariffs as
coal turns costlier. In a note to the Cabinet Committee on Economic Affairs (CCEA), coal
minister SriprakashJaiswal has sought the nod for charging the royalty on coal and lignite
at the rate of 14 per cent and 6 per cent respectively, as recommended recently by a Study
Group of the ministry on royalty-related issues.
• Two-thirdsof India’s electricity comes from86coal-fired thermal power plants.
• According to a 2011 survey, 40 per cent of India’s population is still without power.
 • THEcoalministryhasdecided that the sizeof consortium biddingfor a coal blockmust be
restricted to a maximumof six firms and the majoritypartner of the syndicateshould have
a stake of at least26 per cent which would allowit to exercise board control onthe
consortium.too manysmall companies joining handsto form a consortium wouldrender
operations difficult.
• Coal Ministry hasstated that it would not bepossible for the State-runCoal India Limited
(CIL)to achieve either thetargeted production of 615million tonnes of coal by2016-17 or
any incrementalcoal production during the12thFive Year Plan if therailway tracks in
AndhraPradesh, Tamil Nadu andKarnatakaand manynorthern and westernStates
connecting coal fieldsin Jharkhand, Orissa andChhattisgarh are not put in place in thenext
three years.the Railways will be able to generate about Rs. 10,000crore per annum as
freightrevenue from theincremental coal producedfrom these coalfields andthe State
governmentswould get additionalrevenue to the tune of Rs.2,000 crore per annum inthe
form of royalty andVAT.

Oil
Transparency & Predictability in Global Oil Markets
In an oil-importing country like India, higher international oil prices lead to domestic inflation
increased input costs, an increase in the budget deficit which invariably drives up interest rates
and slows down the economic growth. Higher oil prices raise the cost of fertilizers, and hence the
cost of food, thus hitting hard the poorest of economies. Net oil importing countries experience
deterioration in their balance of payments, putting downward pressure on exchange rates.

Fuel economy norms

Fuel efficiency standards are in vogue in most of the developed countries and have been
introduced in Chinarecently. Most of these standards are in the form of mileage of the vehicles,
usually expressed in km per litre,making it easy to understand for the consumers. In EU, these
standards are expressed in terms of carbon dioxideemissions, the more efficient vehicles having
loweremissions. Approximately 20-25 per cent of savings in fuel is possible by implementing
thesestandards fornew vehicles.
It has been mired in the complexity of the issue, ranging from a plethora of vehicle categories
and use of different varieties of fuel (diesel, gasoline, CNG). To elucidate this point further, fuel
efficiency of a small vehicle will always be better with that of an SUV, due to the difference in
weight of the two. Moreover, economies from a diesel-driven vehicle will be better than its petrol
counterpart in the any vehicle class. These make one simple standard across the fleet of vehicles
difficult, if not impossible.
The norms must balance the public policy goals of reducing the overall consumption of fuel,
with the market demand for different vehicles. It must also stimulate innovations in the industry
with the market demand for different vehicles. It must also stimulate innovations in the industry
by creating demand for efficient vehicles, thereby promoting hybrid vehicles.
BEE proposes a label that looks very similar to the ones it has successfully used for appliances
like refrigerators and air conditioners. The label denotes the efficiency level of the car by
following the STAR approach. The standard takes into consideration the average fuel efficiencies
of the existing stock of cars, the mileage of the most efficient car in each weight class, and
normalises it by the weight. While the STARS on the top denote the normalised efficiency of the
car expressed in terms of km per litre, the slider indicates the position of the car vis-à-vis the
other vehicles in the class. The mileage that will be indicated on the label will be normalised by
using standard conversion factors between various fuels.

Problems
• High Subsidy bill
• logistics, supply systemsandgeopolitics involved increatingadditional
capacityareexpensiveand time-consumingand therefore thecost ofincreasingcapacitywill
behigher.
• Mismatch in rate of growth of demand and increase in capacity
• Insignificant domestic reserve
• India’s situation is aggravated by the factthat unlike China, it has few options
fordiversifying its sources of supply. It will haveto hark back to the Persian Gulf for
imports.Other than from the Gulf region, only marginal supplies come from Nigeria and
Angolacurrently. Bringing tankers from LatinAmerica or Russia does not make
economicsense
• Indian PSEs are woefullyill-equipped to play a market dominated bygiant players with
very deep pockets andwell-honed skills in market manipulation.
• Demand side: burgeoning demand from China and India
• Supply Side: Libya, Iran, financialisation of oil
• High energy intensity- like glass walled offices, use of private transport etc.

Way out for India

• Remove or target subsidies
• Clearpolicy for
• Newdiscoveriesonenergyefficiency/ conservationwhichbalances environment
andgrowthObjectives.Weneed tosubstantially improve the level of ourdiscovery.
• There should be improvement in current extraction efficiency. Currently, as per research
reports, our efficiency of recovery is way below international standards.
• Clearhedgingpolicy

Misc
• India is the world’s fifth largest oil (consuming 2.67 million bbl / day) consumer behind
US, China, Japan and Russia. It’s the 4th largest importer.
• Historically, the transport sector is the biggest consumer of oil. Now, The
telecommunication industry, providing round-the-clock connectivity to millions of people
in India, is the biggest consumer of diesel in the country. It consumes more than 3 billion
litres of diesel per year. More than 25 per cent of these towers are situated in remote areas
that aren't connected to the power grids. Hence, diesel generators are used for more than
18 hours a day.
• Oil demand going forward is expected to increase by around 1.5per cent per annum.
Supply of oil in the past decade has grown by around 1per cent per annum.
• The Indian basket is a composite index comprisingDated Brent, Dubai and Oman sour
crudesand, therefore, usually costs a good $10 moreper barrel than what our European
andAmerican counterparts pay for their imports.
• Morethan half of all incremental oil demandcomes from just one country — China.
• India’s oil demand is growing at 5.6 percent per annum which will push the countryfrom
its current 78 per cent import dependence to 90 per cent by 2020.
• Financialisation of oil markets: Forward trades in crude are morein the nature of self-
serving and self-fulfilling prophecies than legitimate hedging forprice volatility. While it
is difficult to put afigure on the speculative premium in today’scrude prices, the fact that
trading volumeson NYMEX (New York Mercantile Ex-change) have increased by 400
 trading volumeson NYMEX (New York Mercantile Ex-change) have increased by 400
per cent since2001 points to the highly lucrative nature offutures trading.
• Eight percent of the diesel produced was being consumed by captive power plants and
15 per-cent by vehicles — they weretaking up 23 per cent of the Rs.67,000 crore subsidy
provided on diesel
• Diesel is contributes contributing to the pollutants of most concern to the city, namely
respirable particulate matter (RSPM) and nitrogen oxide (NOx). India’s diesel vehicles
were less fuel efficient, and the most fuel efficient diesel car was 20 to 30 per cent less
fuel efficient than its counterparts in Europe.NO2 is a trigger for seriousrespiratory
conditionsand sudden death syndrome among infants.
• ONGC Videsh Ltd. Announced that it had finalized agreements for the acquisitionof 8.40
per cent participatinginterest (PI) ofConocoPhillips in the NorthCaspian Sea Production
SharingAgreement (NCSPSA),which included the Kashagan field in Kazakhstan.The
acquisition, subject torelevant government and regulatoryapprovals, priorityrights and
consortium preemptionrights, is expected to close in the first-half of 2013. The Kashagan
field, located in the shallow waters (5m to 8m) of the Kazakh North Caspian Sea, is the
world's largest current development project.This will be OVL’s biggestacquisition,
surpassing its$2.2-billion buy-out of Russia-focused Imperial Energyin January, 2009.It
will be the biggest acquisitionby an Indian companythis year, and the sixth largestin the
history.
• There are four types of exploration and production (EP) contracts. The "concession
agreement" grants the company the concession to explore and the government receives
royalty income and taxes. The government is minimally involved with management and
operations. The "service contract" pays the company a service fee, which is usually a
margin over costs and/ or a fixed dollar per barrel. The government does not "lease" out
the resources. Then there is the "joint venture" structure, wherein the government and
the company share everything in proportion to their equity interest. And there is the
"production sharing" contract (PSC), where the government, as the sovereign, takes a
share of the production based on a sliding scale weighted in its favour. Typically, once the
earnings of the company pass a threshold of profit and/ or rate of return on investment,
the government's "profit oil" rat-chests up sharply to, in the highest tranche, as much as
90 per cent of incremental earnings.

Gas
Energy from gas power stations has been rebranded as a green, low-carbon source of power by a
€80bn European Union programme. Gas is a fossil fuel — but because it generates less carbon
dioxide when burned than coal, gas industry lobbyists have been touting the fuel as a lower-
carbon alternative to coal. But green groups warned that relying on gas would raise energy prices
and fail to tackle climate change, and could fatally stunt the growth of the renewables industry.
Any gas-fired power stations constructed today would be expected to continue in operation for at
least 25 years. That would mean decades of carbon poured into the atmosphere — while
scientists and industry experts warn that global emissions must peak by 2020 in order to avoid
the worst manifestations of climate change.
Reasons for encouraging gas to replace petroleum:
• An abundance of gas within our geography-On our eastern border, there are Myanmar
and Bangladesh, with large reserves that have to yet be monetised. Mozambique and
Tanzania have made massive discoveries. Industry reports estimate the gas reserves to be
between 50-60 trillion cu feet, which if correct, would be 4-5 times larger than that
established in theKrishna-Godavari basin. The Central Asian republics of
Turkmenistan, Uzbekistan and Azerbaijan (and of course, Iran) are still looking to pipe
gas into the Indian market.
• The point is, unlike oil for which we are overwhelmingly dependent on the MiddleEast,
there are diversified possibilities for accessing gas. Gas offers us greater immunity from
the vicissitudes of geopolitics.
• Gas is cheaper than oil
• It can be used as a substitute for transportation fuel (via CNG) and as an alternative to
 It can be used as a substitute for transportation fuel (via CNG) and as an alternative to
LPG/kerosene for cooking and lighting (via piped natural gas). This would substantially
reduce the subsidy burden.
• It is a relatively clean fuel. Carbon dioxide emissions from a gas-based power plant are
50 per cent that from a thermal plant

Pricing issue
As of now there are multiple pricing regimes prevailing in India’s gas market. The ones that
matter the most are the prices charged by the principal producers, consisting of the public sector
Oil and Natural Gas Corporation Limited (ONGC) and Oil India Limited (OIL) and the private
sector Reliance Industries Limited (RIL). They, together, account for more than 85 per cent of
the domestically extracted and delivered natural gas.
The prices charged by ONGC and OIL for much of the gas they sell are based on an administered
pricing mechanism (APM), wherein prices are ostensibly calculated on a cost-plus basis. The
price charged by RIL (of $4.2 per million metric British thermal units, or mmBtu), on the other
hand, is an “arm’s length” price linked to the price of oil and arrived at in consultation with the
government as per the terms of the New Exploration and Licensing Policy (NELP). Currently,
the price of APM gas varies from $2.52 to $4.2, while the price of non-APM gas varies from
$4.2 to $5.25 per mmBtu. The problem lies in identifying the arm’s length price since the
difficulties of transporting gas, either through pipelines or as liquefied natural gas (LNG) from
which gas is extracted, have resulted in segmented global markets and therefore widely different
pricing mechanisms.
The government presently not just fixes the price of domestically produced gas but also
determines who it should be sold to. Curbs imposed by the pricing and marketing policies of the
government have constrained the growth of India’s natural gas sector. The government has not
been able to attract investors in the exploration and production sector due to uncertainties in
areas of pricing and allocation of hydrocarbon resources, complexity in granting of approvals
and various clearances, interpretation of the terms of the production sharing contracts (PSCs) and
other framework agreements.Also, infrastructure in the downstream gas market is very
underdeveloped and needs a significant policy impetus to bring in the investment.

Rangarajan panel on Gas Pricing

• Since no market-determined arm’s length price currently obtains domestically and nor is
this likely to happen for several more years, a single policy on arm length pricing of
natural gas has been proposed
• Suggested first taking a volume weighted average of the Henry Hub in the United
States and the National Balancing Point in the United Kingdom and the price
implicit in the Japan Customs-cleared prices of LNG and then averaging it out with
the netback price of imported liquefied natural gas (LNG) to give the sale price of
domestically-produced gas.Criticism: If govt., instead of an independent regulator, links
these prices, effectively the govt. remains the price setter.
• Close scrutiny of costs becomes critical for the government since there is incentive for
contractors to book as cost expenses that do not reflect the true economic cost to the
contractor (for ex-ample, through transferpricing).
• Cost recovery is at the root of the problems experienced. The govt. has remained
apprehensive that the cost sharing allows the companies to load their profit share formula
with additional expenditure, which cuts down on govt. revenue. Hence, it proposed to
dispense with it, in favour of sharing of the overall revenues of the contractor, with-
out setting off any costs.
• An extended tax holidayof 10 years, as against 7 years already available for all blocks, be
granted for blocks having a substantial portion involving drilling offshore at a depth of
more than 1,500 metres, since the cost of a single well can be as high as $150million.
• Extending the timeframe for exploration in future PSCs for frontier, deep-water (offshore,
at more than 400 m depth) and ultra-deep water (offshore, at morethan 1,500 m depth)
blocks from eight years to ten years.

Criticism of Rangarajan Panel

• Far removed from his area of experience and expertise, especially when the Committee
he recently chaired did not have a single member with any notable knowledge or
 he recently chaired did not have a single member with any notable knowledge or
understanding of the complex global gas markets.
• Suggests that the above price is not sufficiently remunerative to encourage domestic
natural gas production but fails to provide any evidence to support such a conclusion.
• It finds the KG Basin gas price, that also triggered an increase in the gas prices approved
for ONGC, not sufficiently remunerative. Committee fails to point out that India is the
only country in the world that adopted a formula by which the gas price rises
exponentially with the price of crude between its floor price and its cap. The rest of the
world follows formulae by which such linkage is a linear function, with a more gradual
slope between the floor price of gas and its cap. Also, under prevailing market conditions,
the KG Basin gas receives a price that was well beyond the price at which the same gas
was bid out under an international tender or its cost of service.
• the Rangarajan Committee picks the steepest, namely, Japanese hub price (which has no
relevance to India as most of the import comes from Qatar)
• The recommended formula neither represent well head price of conventional natural gas
anywhere in the world nor reflect the cost of service for producing conventional natural
gas in India

New Pricing
• Government has approved a doubling of natural gas prices from the present $4.2 mbtu to
$8.4 mbtu from April 1, 2014. The Cabinet Committee on Economic Affairs, headed by
Prime Minister Manmohan Singh, went along with the Rangarajan Committee formula
and the demand made by Mukesh Ambani-owned Reliance Industries Limited (RIL) for
doubling, thus bringing them on a par with the international price of LNG. The CCEA
has decided to overlook the $6.775 mbtu proposed by the petroleum ministry and has
instead opted for the Rangarajan formula advocated by the finance ministry and planning
commission. The Rangarajan formula would be applicable for five years.
• Many experts feel the increase would likely lead to a hike in power tariffs, increase
fertilizer cost and make CNG transportation more expensive. About 10 per cent of India's
power capacity is based on gas, but just about a fifth of these functions, as the rest of the
capacity has no gas supplies. There is a cost to keeping capacity idle. Similarly, in the
case of fertilisers, the alternative to local supplies, albeit at costs that are roughly double
of those today, is to either import the fertiliser or to import gas at prices of $10-11 per
mmBtu.
• It will be reviewed every three months
• There must be a ceiling price under the formula. It cannot be that gas producers will reap
unlimited gains in the case of an upswing in global prices.
• The government must also subject gas producers to closer regulation, especially on
aspects of cost recovery and technical parameters related to production. The government
should also consider the other important recommendation of the Rangarajan Committee
— of moving to a revenue-sharing arrangement with gas producers. That will eliminate
future disputes over cost recovery, even as it discourages gold-plating of project costs.
• Once Reliance overcomes the ‘technical difficulty’ of producing gas at the KG-D6 field,
the government must ensure the company delivers the shortfall it still owes at the old
price of $4.2 rather than getting the benefit of the new price.
• Why international prices? There are two reasons. First, the investments made by the gas
producer in exploring and developing the field such as in hiring drilling rigs, equipment,
personnel and so on are all related to prevailing international oil prices. If prices rise, rig
hiring costs rise too and vice versa. Given this, and the risks involved in oil exploration
where the chances of drilling a dry well are higher than that one with oil or gas at the
bottom, international prices are a fair expectation. Second, if a user were to go for a
substitute such as LNG, he has to pay international prices anyway.
• If you invite a private player to develop a field, then you have to pay the price for it,
literally. The alternative would have been for the government or its companies to
develop gas fields and supply at prices that are related to the domestic market conditions
and not international prices. But then, neither do they have the financial and technical
resources nor the will to execute such high risk projects. ONGC, for example, was
 resources nor the will to execute such high risk projects. ONGC, for example, was
allotted a field in the same KG-Basin block at the same time as Reliance but it has simply
not been able to develop it.
• The premise that higher prices will automatically and inevitably lead to higher
exploration and production (E&P) and therefore, higher gas output, is that India is
virtually floating on hydrocarbons.
• If we go strictly by market forces, every fuel will tend to be priced at a level that aligns it
with its closest substitute in its own market. Gas has more in common with coal which it
seeks to displace, especially in power generation. Why then is it indexed to crude whose
use is mainly in transportation and industry? Why do we have to reckon with Japanese
Crude Cocktail (JCC), the most expensive crude cocktail in the world?
Fallout of hike
• On the user side, power tariffs will rise as gas-based power plants will now pay
double of what they were doing until now. The problem that these companies will
face is that under the merit-order dispatch system, which is used by state distribution
utilities to purchase power, the cheapest sources of power will be picked up first.
Generally, gas-based stations are used as base-load plants. We might well see gas
stations turning peak-load generators as a consequence of the higher gas prices now.
• As for fertilizer producers, the increase hardly affects them since the feedstock costs
are part of the pass-through subsidy mechanism and will be borne by the government
• The government will also gain in terms of higher royalty earnings though that will be
offset by the rise in subsidy payable to urea producers.
• Will end up stymying, rather than developing domestic gas markets. For, high gas
prices will result in demand destruction.
• They could end up stymying the development of the economy itself, already
hamstrung by energy insecurity. The steep hike in gas prices is going to hurt domestic
manufacturing which might well move out to other countries where fuel is more
affordable, taking away jobs and livelihoods in the process.
• The contention that two third of the gas supply is borne by the PSUs and hence they
will benefit substantially doesn’t stand ground as most of the consumption of Gas is
made by PSUs only

Shale gas
Maiden bid round
India will launch its maiden bid round for exploration of shale gas during the XII Plan (2012-17)
with an aim to meet its rising energy needs. Shale gas or natural gas trapped in sedimentary rocks
(shale formations) below the earth’s surface is the new focus area in the U.S., Canada and China
as an alternative to conventional oil and gas for meeting the growing energy needs.
As per available data, six basins — Cambay (in Gujarat), Assam-Arakan (in the Northeast),
Gondawana (in central India), KG onshore (in Andhra Pradesh), Cauvery onshore and Indo
Gangatic basins, hold shale gas potential.India has signed an MoU with the U.S. for assessment
of shale gas resource and developing policy framework to exploitation of the resource

Under the current policy, exploration and production of conventional oil and gas and coal bed
methane (CBM) is allowed.Legislative changes will be required for shale gas exploration.

Fracking
George Mitchell developed an affordable way to extract natural gas locked up in shale rock and
George Mitchell developed an affordable way to extract natural gas locked up in shale rock and
other geological formations. It involves blasting them with water, sand and chemicals—a
technique known as hydraulic fracturing, or “fracking”. At current production rates, America has
over a century’s supply of gas, half of it stored in shale and other “unconventional” formations.
A greater threat stems from environmental protests, especially in some European countries,
which could kill the shale-gas industry at birth. France and Bulgaria have banned fracking.
Producing shale gas uses lots of energy and water, and can cause pollution in several ways. One
concern is possible contaminat ion of aquifers by methane, fracking fluids or the radioactive
gunk they dislodge. Another worry is that fracking fluids regurgitated up well-shafts might
percolate into groundwater. A graver fear is that large amounts of methane, a powerful
greenhouse-gas, could be emitted during the entire process of exploration and production. Some
also fret that fracking might induce earthquakes.
But the risks from shale gas can be managed. Properly concreted well-shafts do not leak;
regurgitants can be collected and made safe; preventing gas venting and flaring would limit
methane emissions to acceptable levels; and the risk of tremors, which commonly occur as a
result of conventional oil-and-gas activities, can be contained by careful monitoring. The IEA
estimates that such measures would add 7% to the cost of the average shale-gas well.
A gas boom would bring an important environmental benefit. Burning gas emits half as much
carbon dioxide as coal; so where gas substitutes for coal, emissions will fall. America’s
emissions have fallen by 450m tonnes in the past five years, more than any other country’s.

Look U.S. policy

LNG imports from the Gulf were costlier and more stable than from the U.S. hence India seems
to switch over its source market to US. LNG based on Henry Hub (HH) from U.S. market was
cheaper by $2-3 mBtu (million British thermal unit) compared to that based on oil index (Brent/
JCC) from other source.

LNG
• Three Indian companies — Reliance Industries Ltd. (RIL), Oil and Natural Gas
Corporation (ONGC) and Gujarat State Petroleum Corporation (GSPC) — independently
announced substantial gas discoveries in the Krishna-Godavari Basin in the Bay of
Bengal. All those claims turned out to be a lot of hot air, rather than methane. Neither
ONGC nor GSPC is anywhere near monetising their respective natural gas discoveries
although that does not stop them from claiming further discoveries in the same basin
from time to time. RIL had then dramatically announced that it could produce 80 million
metric standard cubic meters of natural gas every day (mmscmd. Yet, it failed to produce
even half that volume, and now production has plummeted to a sixth of that quantity.
• India is surrounded by gas-rich neighbours — Turkmenistan, Afghanistan,
Bangladesh and Myanmar. Yet, cross-border gas pipelines have eluded us till now.
• With falling gas output and transnational pipelines not taking off, LNG is crucial to
meet India’s demand
• LNG is an excellent option for countries that cannot access piped gas. Even Europe,
which is extravagantly served by gas pipelines from Russia, has built several LNG
terminals to supplement Russian supplies.
• LNG requires substantial infrastructure, both at the dispatching and receiving ends. The
importing country needs cryogenic storage facilities as well as re-gasification terminals
where
• India already has two operational LNG terminals on the Gujarat coast, and a third one in
Kochi.
• LNG pricing, utterly opaque as it is, might badly hurt Indian consumers. Unlike crude,
there is no global competitive market for gas, much less for LNG whose prices tend to be
capricious, volatile and inconsistent.
• LNG export prices to European destinations have been driven down by the shale glut in
the U.S. However, Asian LNG prices tend to be aligned to the prices Japan is willing to
pay for its LNG imports. Japan’s electricity generation is almost entirely LNG-based, and
its desperation to keep the lights on has led to substantially higher prices for LNG in the
Asia Pacific region.
• Price-gouging is inevitable for any commodity, especially fuel or food with inelastic
 • Price-gouging is inevitable for any commodity, especially fuel or food with inelastic
demand, whose price is neither determined by competitive markets nor regulated by the
government or an independent regulator
• Granted that the government or an independent regulator cannot be expected to regulate
the price of a commodity that is wholly imported nor is it realistic or feasible to expect
the government to subsidise an imported fuel. But what the government can do is to bring
about a modicum of transparency in LNG pricing by mandating that all TOs, whether in
the public or private sector, must disclose the price at which they procure LNG from the
global market place. It is imperative that the terminaling charges are regulated and made
transparent. While transportation costs will be determined by global LNG shipping
markets, all other costs such as storage, re-gasification and marketing margins must
ideally be regulated by an independent regulator.
• LNG terminals in the country must allow open access to their facilities so that bulk
consumers like fertilizer companies or power plants can go and contract their own
cargoes and have them stored and re-gassified at the terminals at a transparent tariff. This
provides window for TOs to enter into long-term contracts to tie-up their entire capacity.
While that may be a good outcome since it would ensure lower prices than spot
purchases, there is no certainty that the lower prices would be passed on to the consumers
since there is absolutely no transparency in pricing
• In Europe, all LNG terminals have been mandated to provide open access to their entire
capacity unless a specific exemption has been sought and obtained from the EU regulator
prior to setting up the terminal. TOs in EU also follow transparency in operational and
commercial information, so crucial to successful implementation of open access.
• In a half-hearted attempt, the government has recently mandated that all new LNG
terminals must offer at least 0.5 million tonnes of their short-term re-gasification capacity
for non-discriminatory open access.

Misc
• India's gas demand was likely to rise from 290 million standard cubic metres a day in
2012-13 to 470 mscmd in 2016-17. Against this, domestic supply will increase from 124
mscmd to 220-230 mscmd only.The balance has to be met through either imports or
through unconventional energy sources such as shale gas
• A study by US Energy International Agency estimates India’s shale gas reserves at about
290
Trillion cubic feet (TCF), of which 63 TCF could be recovered. This volume would help
bridge the domestic gas demand, tagged at 391million standard cubic metres per day by
2025-26.
• Two problems of Indian gas sector:- low supply and inadequate pricing mechanism (govt.
regulated)
• India’s is a gas-starved economy. We have a little over 20,000 MW of gas-based power
plants that are starving for the fuel. These are now either idling or using more expensive
liquid fuel wherever the technology allows them to do so. We also have fertilizer plants
that are using naphtha, a more expensive liquid fuel, to produce urea.
• That said, to protect user industries, the government should think in terms of a cap on the
price based on a reasonable return on investment for the gas producer. It is not fair that
the producer will enjoy all the upside in international prices well after he has recovered
his costs or run through the investment phase. The government should also try to mitigate
the currency risk for user industries as the price is denominated in dollars. A mechanism
to adjust for rupee depreciation (or appreciation) needs to be put in place, one that can be
reviewed at periodic intervals along with the price itself.
• Priority of gas allocation: fertilizer, LPG, Power plant, city gas, steel, refineries

Solar Energy
Country’s first solar power plant
The country’s first solar power plant of 40 MW capacity was inaugurated in Jaisalmer district’s
Dhudsar village in Rajasthan on Saturday. The plant, built at a cost of Rs.400 crore by Reliance,
Dhudsar village in Rajasthan on Saturday. The plant, built at a cost of Rs.400 crore by Reliance,
is spread over an area of 140 hectares near Pokhran town.

Falling Prices
• A combination of large production capacities and improved efficiency caused the prices
of solar panels to fall. Around 2007 to put up 1 MW of solar plant, it cost Rs.21 crore.
Today it costs less than Rs.10 crore.
• Dozens of developers like Azure, because of aggressive government subsidies and a large
drop in the global price of solar panels, are covering the north-western plains including
this village.
• The average tariff moved from Rs.12 in thefirst batch of the 1st Phase of JNNSM to
Rs.8.80 in thesecond batch of the same phase. But, even then it’s almost twice as costly
as coal produced power. Yet, evenin this month’s auction, the recent winning bids were
already comparable towhat India’s industrial and commercialusers actually pay for
electricity — fromeight to 10 rupees. And solar’s costs arecompetitive with power plants
and back-up generators that burn petroleum-based fuels, whose electricity costs
aboutRs.10 per kilowatt hour.
• Module prices have fallen to less than a dollar a watt — a fifth of whatthey were in 2006.
• The solar industry isalso delicately poised. India does not have a large solar
manufacturing industry, but is trying to develop one, and China is showing a new interest
in India’s growing demand. Fall in module prices thathelped bring down tariffs inIndia is
also crippling the domestic manufacturing industry, thereby, defeating one ofthe key
objectives of the solarmission. Companies such as Tata BP Solar, unable to compete
against what appears tobe distress sales by overseasmanufacturers, particularlythe
Chinese, have had to shutdown operations. Chinese manufacturers like Suntech Power
and Yingli Green Energy helped drive the drop in solar-panel costs

US Partnership
India and the United States have started an initiative to develop solar energy through
photovoltaic (PV) projects and concentrated solar power (CSP), also known as solar thermal.
Titled ‘SERIIUS’ (Solar Energy Research Initiative of India and the United States), the $50
million project would be conducted by the Bangalore-based Indian Institute of Science and the
Washington-based National Renewable Energy Laboratory.

Solar Mission
Mission anticipates achieving grid parity by 2022 and parity with coal-based thermal power by
2030, but recognises that this cost trajectory will depend upon the scale of global deployment
and tech-nology development and transfer.

Solar cities
Fifty-four cities across India have received in-principle approval to be developed as ‘solar cities’
by the Ministry of New and Renewable Energy. The criteria set by the Ministry for the
identification of cities include a city population between 50,000 to 50 lakh (with relaxation given
to special category States, including the north-eastern States), initiatives and regulatory measures
already taken along with a high level of commitment in promoting energy efficiency and
renewable energy. The ‘solar cities’ project may help to boost investment in the sector.

Controversy regarding NSM

Indian manufacturers want protection against the much cheaper products from abroad, especially
from the Chinese crystalline silicon manufacturers and the American ‘thin film’
manufacturers, both of whom often bring in cheap funding for their buyers. But, The domestic
manufacturers are totally dependent on other countries for import of raw material, it would be
detrimental to those manufacturers as any anti-dumping action would invite retaliatory action by
imposition of higher export duties or ban on export of silicon waters and cells.
 Two different technologies
The project developers stress that it is only smart to let them buy their equipment from the
cheapest sources in the world, so that a culture of setting up solar plants develops first. Force
them to buy locally, the costs will stunt the growth of the fledgling industry and neither the
power producers nor the module makers will be in business.
The National Solar Mission (NSM) is being rolled out in phases, and for the first batch of the
first phase, the government said that those project developers who opt for the crystalline silicon
modules, shall buy only those made in India. For the second batch, it went a step down in the
value chain and said that even the cells will have to be made in India. This is what has got the
United States’ goat. This rule did not apply to thin film, simply because there is no thin film
module manufacturer in India to buy from. As a consequence of this, most of the project
developers went in for imported thin film modules.
The U.S. has taken India to WTO over the ‘domestic content requirement’ (DCR) under the
NSM. India is likely to argue that the NSM is in the nature of government procurement —
because the power is bought by a government-owned company. India is not a signatory to the
Agreement on Government Procurement, hence, no violation.
Secondly, India will argue that the DCR rules have truly caused no damage to any overseas
manufacturers, because it is applied on a very small portion of the country’s goals, the rules do
not cover states’ programmes (Thus, the NSM projects are importing thin films (mainly from the
U.S.), those under states’ programmes are importing crystalline silicon modules (mainly from
China) and nobody is buying from Indian manufacturersJ.).

Misc
• global venture capital (VC) investments in the solar sector have touched a five-year low
— down by nearly 50 per cent in 2012. The slowdown in VC funding can be attributed to
the grim prospects for thin-film, concentrating solar and concentrating PV technologies.

Wind Power
The Government is promoting wind power through private sector investment by providing fiscal
and promotional incentives such concessional import duty on certain components of wind
electric generators, excise duty exemption to manufacturers. 10 years tax holiday on income
generated from wind power projects is also available. Loans for installing windmills are
available from Indian Renewable Energy Development Agency (IREDA) and other Financial
Institutions. Technical support including wind resource assessment is provided by the Centre for
Wind Energy Technology (C-WET), Chennai. Besides, preferential tariff is being provided in
potential states. Government had announced a Generation Based Incentive (GBI) during 11th
Plan period. Efforts are being made to continue the GBI scheme in 12th Plan.
The government has commissioned a study on “Green Energy Corridors” to identify
evacuation and transmission infrastructural requirement for renewable energy, including wind
energy in future.

Prospects
It is estimated that with Generation Based Incentive Scheme and Renewable Energy Certificates
being the next wave of reforms, it is likely to transform wind energy in India. However, E&Y
being the next wave of reforms, it is likely to transform wind energy in India. However, E&Y
said that repeal of the Accelerated Depreciation tax break will have an adverse impact on
investment. The study states that power evacuation infrastructure has not kept pace with the
development of wind. Tamil Nadu provides an example of a state where many plants are unable
to evacuate the energy because of lack of infrastructure.

Misc
• Wind projects in India lack competitive bidding, which demands long term agreements
with companies and reviews of the zoning system
• Unlike solar energy there hasn’t been any break-through technology-hence, cost has
almost stagnated. Worldwide points out, the cost of wind power is going down but in
India it is rising in nominal terms in the last few years (inflation in steel and cement)

Hydro
NapthaJhakri
• Commissioned in 2003-04,the country’s largest hydropower station
• Owned and operated by the public sector SJVN Limited.
• The Plant AvailabilityFactor (PAF) during the three quarters period also peaked at 104.6
per cent against the normative average of 82 percent

Power Industry-a tripping industry

• a significant decline in coal-based PLFs from 78 per cent in 2009-10 to about 72 per cent
in 2011-12 (April-January) due to inadequate coal availability and lower offtake by State
distribution companies (state discoms), mainly due to poor financial conditions.
• Almost 80 per cent of capacities to be added are based on coal but coal production has
not been able to match the growth rate of installed capacity. Thanks to protective policies
on coal mining in the country, coal output is unable to keep pace with the growth
requirements in power. In the first four years of the current Plan period ending 2012, coal
demand, mainly for power generation, grew by 7.3 per cent but coal output grew by just
5.4 per cent. In the coming XII Plan period (2012-17), the projected coal deficit is 200
million tonnes and the sector to suffer the most will be power generation. Though 194
blocks have been allotted for coal production to public and private companies, only 28
have commenced production.
• Weak financial health of state discoms is the other big issue facing power producers.
Crisil Research expects state discoms to record accumulated losses of Rs.1.80-lakh crore
by2011-12, with a negative net worth ofabout Rs.75,000 crore. The total debt of state
electricity boards and distribution utilities touched a huge Rs.3-lakh crore or Rs.3 trillion
as of March 31, 2011. Power distribution companies are facing difficulty in raising fund
from banks owing to poor balance sheet.

The losses are an outcome of a widening gap between average cost of supply and average
revenue realised, driven by rising fuel prices and inadequate tariff hikes due to political
compulsions. The level of losses has also been high on account of inadequate investment
in infrastructure (distribution lines, transformers). Also, inadequate metering and high
power theft have meant that the aggregate technical and commercial (AT&C) losses are
close to 27 per cent in 2009-10 (almost equivalent to loss of Rs. 70,000 cr) as compared
to less than 10 per cent in most developed countries.
To restore the financial health, state discoms will need to make frequent and timely tariff
revisions in line with the cost of power purchased. The Appellate Tribunal for Electricity
in New Delhi has directed them to review tariffs by April 1 every year.
The Central and State governments,on their part, will need to infuse significant equity
into state discoms, as they reported a negative net worth of aboutRs.61,000 crore in 2009-
10 despite average equity infusion of Rs.12,000 crore in three years up to 2009-10.
• Gas output from the KG Basin now is less than half of what was projected as possible by
Reliance and even this is being supplied to fertiliser companies on priority basis.
 Reliance and even this is being supplied to fertiliser companies on priority basis.
Imported gas is an option but it is expensive.
• Protests against nuclear projects and Hydro projects.
• Too many ministries are involved. There is the coal ministry, power ministry, finance
ministry and the petroleum ministry. There is so much complexity because ofmultiplicity
of agencies and ministries involved.
• As on September 2011,banks’ total exposure to the power sector is Rs 3,00,752 crore. It
won’t be wrong to say that post-2008, it is power sector lending that has spurred double-
digit credit growth. But, unfortunately, this sector is riddled with problems.Bank deposits
have an average maturity of 18-24 months, whereas lending to infra-structure projects has
to be long term, say 15-20 years. Banks can at best provide working capital finance. The
need for developing a corporate bond market is more critical than ever.
• states are unwilling to revise power purchase agreements for large projects that depended
on import of coal, prices of which have jumped significantly since these projects
achieved financial closure

Advanced bio fuels

Advanced bio fuels are produced from cellulose in biomass such as wheat straw, corn stalks,
household waste, or energy crops such as switch grass. The biomass is first broken down into a
pulp. Enzymes are then added, turning the pulp into sugar that can be fermented into fuels, feed,
and chemicals. Highly effective, it takes only 50 kg of Cellic CTec3 to make one tonne of
ethanol from biomass. By comparison, it requires at least 250 kg of a competing enzyme product
to make the same amount of ethanol.
Novozymes has unveiled its latest innovation, Novozymes Cellic CTec3. The enzyme enables
cost-efficient conversion of bio-mass to ethanol and per-forms 1.5 times better than Novozymes’
previous market-leading product, Cellic CTec2. Cellic CTec3 allows the cost of producing
ethanol from biomass to approach the level of corn ethanol and gasoline.
Transforming agricultural residues into advanced bio fuels could create millions of jobs
worldwide, economic growth, reduction of greenhouse gas emissions and energy security by
2030. It has the potential to diversify farmers’ income, generate revenues and create jobs. A
huge global resource of agricultural residues (an estimated 17.5 per cent of the agricultural
residue can be made available) can be harvested sustainably every year without altering current
land use patterns and without interfering with the food chain. Enough advanced bio fuelscould
be produced to replaceover 50 per cent of the fore-casted 2030 gasoline demand. Advanced bio
fuels emit 80 per cent less greenhouse gas than ethanol.
A variety of other advanced bio products such as chemicals and plastics could also be produced
based on the same feedstock and pave the way towards a bio-based economy, independent from
fossil fuel. A series of barriers in terms of feed-stock supply, insufficient infrastructure and high
capital costs that can prevent the industry from unlocking the value of this agricultural residue
resource

Bio-fuel
Ethanol Blended Petrol
• In the National Policy on Biofuels announced in2008, the Government of India mandated
phased implementation of a programme of ethanol blending with petrol.
• The government had postponed the dead-line for the nationwide roll-out from December
1, 2012to June 1, 2013
• While getting started at 5 per cent has been such a slog for India, countries like the
United States now have established ‘doping’ programmes that involve upto 20 per cent
ethanol.
• Advantages: saving of forex (lesser cost in case of import), environment dividened,
lesser fluctuation in food crops as in India sugarcane is the source (unlike corn in US)
• Brazil, 51 per cent of whose fuel market is made up by sugar-based ethanol, making it the
leading biofuel exporter and the second biggest producer after the U.S. It provided three
important initial drivers: guaranteed purchases of ethanol by the state-owned oil company
 important initial drivers: guaranteed purchases of ethanol by the state-owned oil company
Petrobras, low-interest loans for sugarcane farming and ethanol production, and fixed
gasoline and ethanol prices.
• Problems: liquor industry’s insatiable appetite for ethanol, powerful interests that push
for better price yields, lack of a consensus on a pricing formula b/w OMCs and ethanol
producers
• It has not taken off largely because the oil companies have shown little interest in
ethanol. They offer unattractive prices to local ethanol suppliers even as they pay top
dollar for foreign oil supplies. The ethanol producers naturally prefer the better prices
offered by chemical and alcohol companies as well as foreign importers.
• Way out: The government ought to consider an intervention to mandatorily channel a
certain percentage of indigenously produced ethanol for a requirement that is clearly in
the national interest. States should also cooperate by easing regulations. Meanwhile,
sufficient lead time should be given to the auto industry to carry out engine and other
modifications to make vehicles compatible with still higher levels of blended fuel.
• This can change if the government as a whole — and not just the oil ministry — takes
charge of the new idea, and like Brazil, brings all the stakeholders together. The
mandatory blending should be increased to 10 per cent immediately, with the target of 20
per cent in the next three years. New Delhi can compel the oil companies to invest in
ethanol production, so they have a stake in its development. The car manufacturers too
must be brought on board to modify the engines.

Renewable energy certificates (RECs)

States will now be able to buy renewable energy certificates (RECs) to make up for a portion of
their mandatory renewable energy purchases from entrepreneurs who produce power and operate
in rural areas. RECs, like carbon credits, are a transfer of an obligation toward green energy — in
this case the Renewable Purchase Obligation that each state has to meet under the Electricity
Act. Will also encourage the expansion of renewable energy projects operating in rural India.The
decision is considered significant in the light of the recent failures of the Northern and Eastern
grids due to states overdrawing power, leading to the worst power failure in history.Under the
new policy, the CERC will incorporate two models for bringing in off-grid players into the
system. The first is one in which the entrepreneur will continue to sell power at mutually agreed
prices and will be free to sell RECs on its own at the power exchange to earn extra. Under the
second model, the entrepreneur becomes a franchisee of a discom already operating in the state
and supplies to the rural consumer at rates determined by the state electricity regulatory
commission. The discom covers its cost of production and in return, use the power generated to
fulfill its Renewable Purchase Obligation.There has already been some success in UP and Bihar
with power generation models such as rice husk power pants and bio-gas power plants. These
projects, however, are yet to be replicated elsewhere.

Duty on import
The domestic industry is getting hurt as equipment manufacture (mainly Boilersandturbine) by
domestic firms such as BHEL and L&T are subjected to both excise duty and sales tax. The
government has imposed a 5 per cent basic customs duty, 4 per cent additional import duty and
12 per cent countervailing duty (CVD) on imported power gear for mega projects, making it a
total of 21 per cent. The net effect on affected equipment imports wouldbe only 5 per cent, since
CVD isimposed in lieuof excise duty being paid by domestic manufacturers and additional duty
is inlieuof sales tax. Import for thermal projects with less than 1,000 MW generation capacity
attracts a 5per cent duty. Thermal projects of over 1,000 MW capacity, categorised as mega
projects, enjoyed duty-free equipment imports.

Waste to Energy
Within the renewable energy debate there are several shades of green. Some technologies that are
being pitched in the guise of renewable energy have the potential to cause even more harm than
fossil fuel-based energy sources. One such non-solution is Waste-to-energy (WtE) incineration
fossil fuel-based energy sources. One such non-solution is Waste-to-energy (WtE) incineration
and its subspecies: gasification, pyrolysis and plasma arc. These technologies are now being
touted as “The Answer” to the twin problems of municipal waste and climate change.
Problems with it:
• Waste incinerators are a major source of toxic emissions that include volatile organic
gases and heavy metals. They are also among the top five sources of dioxin emissions
(POPs) worldwide.
• When announced in May 2011, it aimed to generate nearly 84MW of power from waste
by providing subsidies up to Rs.10 crore to developers. But as of today, only one of the
seven proposed projects has managed to take off, and without contributing a single
unit of power to the grid. This is primarily due to the failure of these technologies to
process unsegregated waste.
• The United States Environmental Protection Agency (USEPA recognises that incinerators
emit 2.5 times more carbon dioxide per MW than coal fired power plants. Also, it has
termed dioxins as one of the most poisonous substance for humans
• Incinerators are very expensive and inefficient. Their financial viability relies heavily on
various fiscal and financial incentives from government. According to the U.S. Energy
Information Administration’s Annual Energy Outlook 2010, it is twice the cost of coal-
fired power and 60 per cent more than advanced nuclear energy.
• Alternative: Just a fraction of this money would be needed to set up systems that can
efficiently recover valuable resources from waste, recycle them and create millions of
jobs. Cities like Pune and Bangalore are already charting the way on such an approach.
• America’s largest WtE company, Covanta, recently announced its plan to conclude
operations in the United Kingdom, after local residents strongly protested against their
proposals. This announcement came around the same time that the Municipal
Corporation of Hyderabad announced its plans to construct India’s largest incinerator
using Covanta technology. Clearly, the industry is hoping for a new lease on life through
projects in China and India, where environmental regulations are lax and the populace is
less aware of the negative impacts of waste incineration.
• Undermine the truly sustainable waste management options such as prevention, reuse,
and recycling that correspond much better to the needs of India.
• Europe has committed to ending the landfilling and incineration of recyclable waste by
2020, aiming instead to implement a resource-efficiency strategy that will boost a circular
economy — where, all waste is treated as a resource rather than requiring expensive
infrastructure to dispose of it.
• Another alternative is gasification to produce CO and Hydrogen. These gases are the
basic building blocks of the world’s petrochemicals industry and ideal for driving gas
turbines to generate power. Their best feature is the ease with which they can be
synthesised into any transport fuel one desires, and into Di Methyl Ether, a condensate
gas that is a superior diesel substitute and a complete substitute for Liquefied Petroleum
Gas (LPG).
• Gasification also eliminates the threat from dioxins. It produces only seven per cent of the
flue gas obtained from combustion. The reaction takes place, moreover, at such high
temperatures —1000 to 3,000 degrees Celsius — that dioxins and furans get broken
down into their basic elements, losing their toxicity.
• A new technology called plasma gasification has been becoming very popular. Ironically,
India already has employed plasma gasification technology — for the past four years, two
68 tonnes-a-day commercial plants employing this technology have been disposing of
medical and other hazardous wastes in Pune and Nagpur. Since Indian states do not share
information, however, these have remained isolated ventures.
• Garbage produced in India ten years down the line would be sufficient to produce more
than 35 million tonnes of transport fuel a year and meet half of India’s current
consumption of the same. The saving in foreign exchange will lift the threat of a foreign
exchange crisis forever. It will also free domestic prices from the yoke of international oil
prices forever. And it will do all this without requiring a rupee of subsidies.

Misc
Misc
• India’s investment in renewable energy totaled $10.4 billion in 2011, growing 54 per cent
over 2010 — the second fastest among G-20 countries.
• In its order on a petition filed by Adani Power for its 1,980 MW power project last year,
the power sector regulator CERC said: “In the present case, the escalation in price of
imported coal on account of Indonesian regulation and non-availability of adequate fuel
linkage from state-run Coal India limited (CIL) for the project of the petitioner (Adani
Power) is a temporary phenomenon, and is likely to be stabilised after some time.
Therefore, the petitioner needs to be compensated for the intervening period with a
compensation package over and above the tariff discovered through the competitive
bidding. The compensation package will be called compensatory tariff, and it could be
variable in nature in proportion with the hardship that the company is suffering on
account of the unforeseen events,” it said. The rationalisation of power tariffs will also
pave way for many other power projects to start generating power at a viable tariff. This
could insulate them from further losses, and secure the in-vestments in the power sector
which has been struggling due to various issues, including fuel supplies, tariff issues and
failure of discoms to pay their dues
• Issues for energy security: Oil dependent (vulnerable to foreign issues), improper
pricing, consumption growing faster than production
• The Union Ministry of Power has launched a massive programme for creation of high
capacity corridors in certain States like Odisha, Tamil Nadu, Jharkhand, Chhattisgarh
and Andhra Pradesh where power projects are coming up in a big way which will lead to
massive generation capacity in the coming years. The high-capacity transmission lines
(765 kV) are futuristic technology of transmission sector as they have numerous benefits
such as low aggregate technical and commercial (AT&C) losses due to high voltage, cost
effectiveness, reduced need of right of way (RoW)
• The grand plan to synchronise the South grid with the national grid, which comprises
four regional grids, to address the power shortage in the region is likely to miss the
January 2014 deadline due to poor progress of work on the two 765 kV lines and failure
of executing agencies to carry out construction activity according to the schedule.
Liquefied natural gas or LNG is natural gas (predominantly methane, CH4) that has been converted
temporarily to liquid form for ease of storage or transport.
Liquefied natural gas takes up about 1/600th the volume of natural gas in the gaseous state. It
is odorless, colorless, non-toxic and non-corrosive. Hazards include flammability, freezing and asphyxia.
The liquefaction process involves removal of certain components, such as dust, acid gases,helium, water,
and heavy hydrocarbons, which could cause difficulty downstream. The natural gas is
then condensed into a liquid at close to atmospheric pressure (maximum transport pressure set at around
25 kPa/3.6 psi) by cooling it to approximately −162 °C (−260 °F).
LNG achieves a higher reduction in volume than compressed natural gas (CNG) so that the energy
density of LNG is 2.4 times that of CNG or 60% of that of diesel fuel [1] This makes LNG cost efficient to
transport over long distances where pipelines do not exist. Specially designed cryogenic sea vessels
(LNG carriers) or cryogenic road tankers are used for its transport.
LNG is principally used for transporting natural gas to markets, where it is regasified and distributed as
pipeline natural gas. It can be used in natural gas vehicles, although it is more common to design vehicles
to use compressed natural gas. Its relatively high cost of production and the need to store it in expensive
cryogenic tanks have prevented its widespread use in commercial application

Compressed natural gas (CNG) is a fossil fuel substitute for gasoline (petrol), diesel, or propane/LPG.
Although its combustion does produce greenhouse gases, it is a more environmentally clean alternative
to those fuels, and it is much safer than other fuels in the event of a spill (natural gas is lighter than air,
and disperses quickly when released). CNG may also be mixed with biogas, produced
from landfills or wastewater, which doesn't increase the concentration of carbon in the atmosphere.
CNG is made by compressing natural gas (which is mainly composed of methane [CH4]), to less than 1%
of the volume it occupies at standard atmospheric pressure. It is stored and distributed in hard containers
at a pressure of 200–248 bar (2900–3600 psi), usually in cylindrical or spherical shapes.
CNG's volumetric energy density is estimated to be 42% of liquefied natural gas's (because it is
not liquefied), and 25% of diesel's.

Liquefied petroleum gas (also called LPG, GPL, LP Gas, or liquid propane gas) is
a flammable mixture of hydrocarbon gases used as a fuel in heating appliances and vehicles. It is
increasingly used as an aerosol propellant and a refrigerant, replacing chlorofluorocarbons in an effort to
reduce damage to the ozone layer. When specifically used as a vehicle fuel it is often referred to
as autogas.
Varieties of LPG bought and sold include mixes that are primarily propane (C3H8), primarily butane (C4H10)
and, most commonly, mixes including both propane and butane, depending on the season — in winter
more propane, in summer more butane[citation needed]. Propylene and butylenes are usually also present in
small concentration. A powerful odorant, ethanethiol, is added so that leaks can be detected easily. The
international standard is EN 589. In the United States, thiophene or amyl mercaptan are also approved
odorants.
LPG is synthesised by refining petroleum or "wet" natural gas, and is usually derived from fossil
fuel sources, being manufactured during the refining of crude oil, or extracted from oil or gas streams as
they emerge from the ground. It was first produced in 1910 by Dr. Walter Snelling, and the first
commercial products appeared in 1912. It currently provides about 3% of the energy consumed, and
burns cleanly with no soot and very few sulfur emissions, posing no ground or water pollution hazards.
LPG has a typical specific calorific value of 46.1 MJ/kg compared with 42.5 MJ/kg for fuel-oil and
43.5 MJ/kg for premium grade petrol (gasoline).[1] However, its energy density per volume unit of 26 MJ/l
is lower than either that of petrol or fuel-oil