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f . . . . . i' i - ' 7 .;THE FIN I CIA? E~(PRES - -: k> f . -

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From di#y to clean Move away fiom coal and ince gas-based power generation

NrtvaNanda

G LOBALLY, natural gas is being used for industrial purposes and power gen-

eration, but in India much of it is being used in transportation and the fertiliser industry In trans- portation, gas 'is replac- oil while in the fertiliser industry it B replacing naphtha. Gas prices in India have been l o w than the import price, still power genera- tors & other industrial users are reluctant to use gas, as they fina coal a much cheaper option. This is alsobecause the regulated gas supply is allocated on a high- erpriorfty basis to these users.

However, such a huge advan- tageof coal^- vis natural gas maynote@stinthelongrun.Coal prices have been deregulated in a080, yet the public sector coal companies have not increased prices, mahIy because wdor coal consumers are electricity generators from thepublicsmtor Moreover, &-based power plantsareunabletoswitchoverto alternative hels. Since signifl- cant cost difference exists be tween ad-and gas-fired electric- ity, it is difficult to promote &is-Wpower generationinln- dia, even though it is much more environment friendly India is also not a ,signScant

trader in natural gas, though this clean fuel has the fastest-growing .market among energy products. - - =- >

C o 1 1 8 ~ i t s o w n ~ e n - dowments, coal Is going to be the

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, an issue .ShOWt'b& nMntain~a.stp&gb, lc&pm +rve'bf tJae 0lJli fhseil.fhj?I it

d. AS a &&,.the &?- @,in ~ t i y e - ~ e ? t i o n o f 1 t s ~ o n 4 ~ & ~ - . mreGtiOllp~,pmb cation costs in the total @part t h R ~ ~ oCostsofLNGhaSred~ced. . o h t d b o a l ~ ~

hxeover, LNG import @as aud ga& i f imk ~em;dy&epa flexible sourcing o w while p a r P d ~ u r W ~ b . W h - hgo* Ww& pipe* wplukd t w = u s e w h @ ~ ~ c h m m mean that the countrjrpisuldget be tsbWq$W q d mmomi- Wed bd partkah s ~ l b b . In calljrttlareuhbk any case, chze togecqmlitical and logistical challenapes, moss-bor- derpipellnes would take time. Md@owsazrrUydfv*

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"Powef' in News brought to you by NPTI. Visit our website: www.n~ti.in

Dumping 9

W d glut &vement faces : a tough choice as 'manufmrs cry !: for tariffbarriers

O M power equipment l n a n a n a r e m w

~ e f f b m c h e a p e r i m p o r t s ~ 9 c e s have fallen in €he over- supplted global market. If the

,government slaps an import duty on solar equipment, elec- bci ty t a ~ could go up for I'kpnsumers. 1f the government -inaintains status quo on im- 'portduts;domesticequipmnt p u f a c t u r e r s may feel the brunt of import cornpetitton. "It is going to be a dilemma for fbf3gowmment.

The global SOW Mushy is jm through a rough patch,

year2011 wasa badone for the induitry and there is a -widespread fear that this year might be even worse. However, on the positive side, investors' iptwest in the sector remains

+ robust. Given that, we may see 4- more mergers and acquisi-

pnsOM-)tbisyear. In 2011, panel prices

b ~ p p e d and several high-pro- k e companies shut shop, but ' h c i a l activity remained 'hbust compared to 2009 and

kp , acco@ng to US-based Dkaaroom ~apital~rOup, which 'cl~sely monitors develop Binantsin thesector.

International investors +lavewarineduptotbeIndian

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MDUSTRY IS GOING

2 3 JAN 2012

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THE FINAN IAL EXPRES 9

I mwer proiect set to@ * > - -- 1 3 ..

N&w Delhi, Jan 22: The govern- ment is set to start bidding process for the 7 1 7 , w r e Surgyia ultra mega power project in Chhattis- garbwhichhasbeeninlimbodueto uncertajnty about environment clearance for associated captive coalblocks.

Government sources said that withtheissued 'go,no-go'areahav- ing been resolved, the power min- istry has taken steps to fast-track

preparations for the auctioh a

was dedarkd as a 'no-go' a&

processeverytime. Etut the MoEF has since with-

drawnthe'go,no-go'areaclassifica- tion, thus clearing the legd hurdle toissuanceof environmentalnodto the captive d blocks. Hasdeo Arand was iden* as a strict n e go area by MoEFdue to its thick hr- est cover and the area falling under theelephant corridorproject. The MoEF has been asked to ex-

pediteenvironmentalclearance for the captive d blocks allocated to theW,nowthattheseisnoissue

of 'nct-go'area,an&clalinthepow 5- 3 er minktry said. In the absence of drP' i environmentckamnce,landacgui sitionproceasfortheUMPPcanno beinitiated,the&ialpointedout

Twelveplayershcl~gNTPC ,$ ?d Tata P o , , S W t e Indus tries, Jindal Steel andPom, Essa Power, GVK Power and lnfrastruc

8aUMPPisprogressingweU- - . -4

kingstal1edforawnueaueu)am- ilarreason.Thegovernmenthasen- visaged auctioning a total of 18 UMPPs to expedite capacity addi- tion in the power sector. It has auo tioned four UMPPs at Sasan, Mundra, Krishnapatnam and Tilaiya so far. The govenmmt ha$

I plannedtoawardOrissaandChht- tisgarh UMPPs for development in 2010. It missed the target due to delay in securing environmental clearance for associated captivia coalblocks. a

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THE FINANCIAL m a EXPRES:

[power shortfall worst+^^ despite capacity addition

1tsm;;dmum. ~ u t d w p l t e t b ~ w

&tbn, the couuws *-time powa shortU durinl APIU-D~ m m b a011 war lo.$%, WJ bm 102% In the ram0 periad d the PrecadlaeYeeLasperdsttrrn- plled by themnhnl e l ~ i t y a u - thority(CEA).

Re%Ung nuder debt, *tat* owned powerdistribution anup nlmrerorttoloadsheddhratber than buy power from thehamar kettomeatherbatlan."Wmm8

OW A MAPOHlUR BASIS, INDIA'S PEAK-HOUR POWER SHORTFALL ROSE 0.4% DURING APRIL-DECEMBER 2011 THOUGH THE COUNTRY ADDED AS MUCH AS lQOOOMW CAPACIV PURlNGTHlS PERIOD

m e t , forcfng merchant plants . dlreerormeral agad- m6 asand ~etUne wowandon by toopenleatlarbelorvthelrmted way d pas,thmugh of fuel w cppcius*" Tanen Narsyln qulred uuMl(lh eeuetlon md Im- T l u k u r , ~ a a d m m a ( l t n g par$ for power generatton b the dlNcmPTC-.toldPg mortQlnealmeascf&mdby

"Tile capacity Created alter utWaUm tbeprtvateporprdewlopsn Lo- M m h . m S b ~ ~ ~ ~ - ba)r"Khuranaadded. d plan load factor 0; Ashok te eaal md Ghmn the a o ~ ~ domeSnc

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2 3 ' A N 2012 H I I

- -- Buy Stake i.. ...,, ' C L ~ I I M V RAMSURYA MUMBAI

ata Power is in talks to pick about 15% stake in MEC Coal, theDubai-reg-

istered company that owns more than two billion tonnes of coal reserves in Indonesia, said a person familiar with the d e velopment. The Tata Group subsidiary,

which the source said is nego- tiating with MEC co-promoter Ras-al-Khaimah Investment Authority; is keen on augrnent- ing its foreign coal assets to re- duce power generation costs at its plants in India, where fuel shortageoftenleads to outages. "Negotiations are in early

stages and may or may not re- sult in a transaction. But Ras- al-Khaimah has been keen on having an Indian partner in the coal mining project," the source said on condition of anonymity It is, however, un- clear whether Ras-al-Khaima has approached other Indian companies too. While a spokeswoman for Ta-

ta Power declined to comment on the issue, queries sent by ET to MEC Coal executive vice-chairman Madhu Kone- ru, who is also head of co-pro- moter Trimex Group, re- mained unanswered.

MEC Coal is developing coal concessions in Indonesia, alongwith an integrated heavy- haulrdtransportationsystem and ship-loading jetty in the East Kalimantan province. The coal railway project is estunat- ed to cost about $1 billion.

The source said the a deal would include a provision for anofftake arrangement. If the deal goes through, it

will be the second time the Ta- tas will be buying stake in In- donesian coalmines. The group already owns 30% in mines promoted by the Bakrie Group, one of Indonesia's big- gest business houses. Tata Power managing direc-

tor Anil Sardana had recently said the company was keen on building power plants in Indo- nesia and Africa to grow its business, which has been capped by ashortageof coal in thecountry Thecompany cur-

rently has a capacity of 3,797 mw, and is aiming to raise it to 25,000 mw by 2015. Shortage of coal and natural

gas in the country and prob- lems with land and environ- ment clearances have prevent- ed power generators from setting up new plants and op- erating at full capacity tomeet the country's growing de- mand for electricity To bridge the raw material gap, most power producers are forced to import costly coal, but cannot pass on the full cost differen- tial to customers. "Indian companies are ready

to acquire mines in Indonesia, despite the country's move to imposea tax oncoalexports, as captive mines will ensure smooth supplies and insulate against price fluctuations," said PricewaterhouseCoopers senior consultant Pukhraj Sethiya, who has handled mandates from Indian compa- nies to scout for opportunities to build power plants overseas. The South-east Asian nation

recently brought in legisla- tions that discourage foreign ownership in mines and is now scheduled to implement a draft legislation by 2014 which will require miners to carry out minimum processing on minerals before exporting. Indian companies are look-

ingat Indonesia, among other countries, to source coal, af- ter encountering supply is- sues in India. The lone state- owned coal producer, Coal In- dia, has not been able to expand capacity. A

1 i \

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, I re-feasi bility report for project in Bra hmaputra completed .:

THE INDIAN EXPRESS 'NTP~stepsupworkon 1 I ' I project to pip China 2 3 JAN 2012

I ..' ANIL SASI

NEW DELHI, JANUARY 22

S TATE-owned NTPC Ltd has wrapped up the pre- feasibility report for a proposed 9,750 MW

Siang Upper hydroelectric pro- ject in Arunachal Pradesh. It is moving fast on the strategic pro- ject since India realises it is ur- gent to speed up building dams on the Brahmaputra and estab- lish "lower rip& right". This will help New Delhi create a strong bargaining position to de- tract China from building hydel projects on the upper reaches of

a the river. " The compl6tidn of the pre-

feasibility rep00 sets the ball rolling on what could be the country's largest hydel project and the second biggest in Asia after China's Three Gorges. The Siang Upper project - part of a shelf of hydro stations the Cen- tre hopes to build on the Brahmaputra - entails an in- vestment of nearly Rs 1,00,000 more over a 10 year period.

Efforts to harness the Brahmaputra comes amid reports of Chinese plans to construct hy- dro-electric projects on the upper reaches of the river involving the setting up of a massive dam on the bend of the Yarlung 'Bangpo - the Tibetan name for the Brahmaputra. The Centre is also simultaneously trying to convince Arunachal to allot at least one storage hydroelectric project in each of the sub-basins of Siang, Lohit and Subhansiri rivers.

"NTPC has submitted the PFR (pre-feasibility report) to Arunachal. It focusses specifi- cally on avoiding submergence of important towns in the region," a government official involved in the exercise told The Indian Ex- press. The project would mark a big jump in hydro sector expo- sure for the predominantly ther- mal power major, which is cur-

e right of the 'first appropria- r' to meet its water require- mts takes precedence over the

tlement of a 'later appropria- to draw water from a river. central legal element in appropriation is the diver-

of water from a watercourse I 1 b r "beneficial" applications, in-

irrigation,- industrial or g purposes, e l h c i t y gen-

POWER PROJECT &ration, and municipal supply," r Brahma Chellaney, Profes-

.The proposed 9.750-MW Siang Up- : r of Strategic Studies at the per hydroelearic project in Arunachal Pradesh could be the 2nd biggest after China's Three Gorges (in pic)

I t ' h e projea entails an investment of nearly Rs 1,00,000 crore over a 10 -year periad ' - ' . I If lndia harnesses the Bwhmaputra

through the projects, it will stfengthen its case against China's buildina of a meaa-dam at Metw

i p ntre for poiq ~esearch said. The 'Bangpo flows through

nachal Pradesh, where it is as the Siang. Further

the Siang'isEbwn as' t6i: India is thus, on

I lndia will have t i d o it before Ch completes its projea as underthe doctrine of prior appropriation, a priority right falls on the first user f

of river waters

rently working on a shelf of 1

around 1,700 MW of hydel ca- 1

pacity. Of this, NTPC plans to commission its much-delayed ,

which will be its first hydro pro- ject to be commissioned.

According to analysts, if India harnesses the Brahmapu Arunachal through the proposed years now. Just two projects projects, it will strengthen i against China's building of a re- 1 's 2,000 MW Lower ported mega-dam at Metog. But, : - have a realistic it will have to do it before China does its project as under the doc- ;

river waters. "Under the doctrine of prior wolving big dams is a hurdle.

appropriation, a priority right falls The Siang Upper project is to on the first user of riverwaters. It k completed in two stages -a favours the upper-riparian state 6,000 MW Stage I and a 750 MW or the first appropriator ofwater. Stage 11. Currently, the 1,500- A priority right, however, can fall athpa Jhakri project is the on the first user of river waters, operational hydropower even if it is located downstream.

-&-&a L -41- n& NTPC prl- --- -- C- --- ---- , j - 7 - -d

Feels AS 39 is fraught with serious consequences for Indian companies JOE C MATHEW & lYoTl MUKUL New Delhi, 21 January

ower major NTPC has protested against the new accounting norms that require companies to provide

for foreign exchange risks in their contracts. The change is part of the International

Financial Reporting Standards (IFRS), pro- posed to be made mandatory for all com- panies. The recently notified Accounting Standard 39 (AS 39) norm recognises and measures financial assets, financial liabili- ties and some contracts to buy or sell non- financial items. Called 'embedded deriva- tives'. com~anies are reauired to state upfront the perceived changes in the foreign exchange component of the contractsgiven out by them every year, by making a provi- sion in the profit and loss account.

A foreign exchange component is pres- ent even in contracts given to domestic sup- pliers such as Bharat Heavy Electricals, to arrive at a fair system of comparison with competing foreign companies. On an aver- age, the forex component comprises nearly a third of NTPC's total contract values. AS 39 defines derivatives as a financial instrument or other contract whose value changes in response to currency exchange rate fluctli- ations. What has irked NTPC is the need to

NTPC follows the CWlP method for accounting, in which a general ledger records the costs directly associated with constructing an asset

account for the variation in fair value of the advance contracts entered with suppliers in foreign currencies (embedded deriva- tives) as separate entries in the profit and loss account. It has sent a letter of protest it has sent to the Institute of Chartered Accountants of India (ICAI), the accounting standards body, against the new norms. AS 39 was prepared by the Accounting

Standards Board of ICAI, vetted by the National Advisory Committee or Accounting Standards and notified by thc ministry of corporate affairs.

NTPC feels AS 39 is fraught with seriou: consequences for Indian companies, par titularly rate-regulated entities (where 2

government regulator determines the rat6 for the product or service) such as those ir the power sector.

Currently, all expenditure toward: equipment procurement is included in the asset cost. According to NTPC's direct01 (finance) A K Singhal, the Central ElectricitJ Regulatory Commission (CERC) allow: generation companies to capitalise foreigr exchange risks. "Any rate variation is a pas5 tlxough in tariffs (rates)," he said.

Companies like NTPC follow the Construction Work In Progress (CWIP: method for accounting, where a genera ledger records the costs directly associatec with constructing an asset. Once the assel is placed in service, all costs associated witf; it that are stored in the CWIP account are shifted into the most appropriate fixed account asset.

If AS 39 is followed, it would impact the asset costs and increase the volatility or earnings reported by Indian corporate entitties, says NTPC's letter to ICAI.

"Power" in News brought to you NPTI. Visit our website: www.n~ti.in It BUSI@S STANDARD

JAN

'The one ~ ~ a i f $ # o n u n d r u m Open access in the power sector, which the ope& alised recently, can be a game-changer for large consumers

I only If crltjcal changes are made to power trading platforms add t gulatoa putsome key checks and balances In place

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