Summary of ECB Policy - RBI

INFRASTRUCTURE PROJECTS

Holding Companies/promoters will be permitted to raise ECB upto a maximum of USD 50 million equivalent to finance equity investment in a subsidiary/joint venture company implementing infrastructure projects. This flexibility is being given in order to enable domestic investors in infrastructure projects to meet the minimum domestic equity requirements.

In case the debt is to be raised by more than one promoter for a single project then the total quantum of loan by all promoters put together should not exceed USD 50 million.

LONG-TERM BORROWERS

1.ECB of eight years average maturity and above will be outside the ECB ceiling, though MOF/RBI's prior approval for such borrowings would continue to be necessary. The extent of debt under this window will be reviewed by the Government periodically.
2.Funds raised under this window will not be subject to end-use restriction other than that relating to investment in real estate and stock market.

ON-LENDING BY DFIs AND OTHER FINANCIAL INTERMEDIARIES

While DFIs are required to adhere to the average maturity criteria prescribed, namely, minimum of five years for loans more than USD 20 million equivalent and minimum three years for loans less than or equal to USD 20 million equivalent for their borrowing, they are permitted to on-lend at different maturities. They may also on-lend for project-related Rupee expenditure. However, other financial intermediaries are required to adhere to the general ECB guidelines on maturity as well as end-use in their on-lending programs.

All financial intermediaries, including DFIs, are required to on-lend their external commercial borrowings within 12 months of drawdown.

To enable better utilisation of ECBs by DFIs, it has been decided that DFIs would be permitted to onlend such Recycled Funds (available with them on account of time mismatch between repayment obligation of their sub-borrowers vis-à-vis those of DFIs to the offshore lenders), out of original ECBs only for import of capital goods and project-related rupee expenditure.

END-USE REQUIREMENTS

(A) External commercial loans are to be utilised for import of capital goods and services (on FOB or CIF basis) and for project related expenditure in all sectors

(B) Corporate borrowers will be permitted to raise ECB to acquire ships/vessels from Indian shipyards.

(C) Under no circumstances, ECB proceeds will be utilised for
(i) Investment in stock market; and
(ii) Speculation in real estate.

PROCEEDS FROM BONDs, FRNs & SYNDICATED LOAN

Corporate borrowers who have raised ECB for import of capital goods and services through Bonds/FRN/Syndicated loans are permitted to remit funds into India. The funds can be utilised for activities as per their business judgement except investment in stock market or in real estate, for upto one year or till the actual import of capital goods and services takes place, whichever is earlier. In case
borrowers decide to deploy the funds abroad till the approved end-use requirement arises, they can do so as per the RBI's extant guidelines. RBI guidelines would have to be strictly adhered to. RBI would be monitoring ECB proceeds parked outside.

ECB ENTITLEMENT FOR NEW PROJECTS

All infrastructure and greenfield projects will be permitted to avail ECB to an extent of 35% of the total project cost, as appraised by a recognised Financial Institution/Bank, subject to the fulfillment of other ECB guidelines. However, ECB limits for telecom projects are more flexible and an increase from the present 35% to 50% of the project cost (including the license fee) will be allowed as a matter of course.
Greater flexibility may also be allowed in case of power projects and other infrastructure projects based on merits.

ECB ENTITLEMENT FOR NEW PROJECTS

All infrastructure and greenfield projects will be permitted to avail ECB to an extent of 35% of the total project cost, as appraised by a recognised Financial Institution/Bank, subject to the fulfillment of other ECB guidelines. However, ECB limits for telecom projects are more flexible and an increase from the present 35% to 50% of the project cost (including the license fee) will be allowed as a matter of course.
Greater flexibility may also be allowed in case of power projects and other infrastructure projects based on merits.

INTEREST RATE FOR PROJECT FINANCING

At present, interest rate limits on ECB for project financing (i.e. to say non-recourse financing) allow interest spreads above LIBOR/US Treasury to be higher than for normal ECB. Keeping market conditions in mind, some flexibility will be permitted in determining the spread on merits. In order to give borrowers greater flexibility in designing a debt strategy, upto 50% of the permissible debt may be
allowed in the form of sub-ordinated debt at a higher interest rate, provided the composite spread for senior and sub-ordinated debt taken together comes within the overall project financing limit.

STRUCTURED OBLIGATIONS

In order to enable corporates to hedge exchange rate risks and raise resources domestically, Domestic Rupee Denominated Structured obligations would be permitted to be Credit enhanced by International Banks/International Financial Institutions/Joint Venture Partners.

OTHER TERMS AND CONDITIONS

Apart from the maturity and end-use requirements as per paras above, the financial terms and conditions of each ECB proposal are required to be reasonable and market-related. The choice of the sourcing of ECB currency of the loan, and the interest rate basis (i.e. floating or fixed), will be left to the borrowers.

SECURITY

The choice of security to be provided to the lenders/suppliers will also be left to the borrowers. However, where the security is in the form of a guarantee from an Indian Financial Institution or from an Indian Scheduled Commercial Bank, Counter-guarantee or confirmation of the guarantee by a Foreign Bank/Foreign Institution will not be permitted. EXEMPTION FROM WITHHOLDING TAX.

Interest @ payable by an industrial undertaking @ in India, related to external commercial borrowings as approved by GOI/RBI would be eligible for tax.

APPROVAL UNDER FERA

After receiving the approval from ECB Division, Department of Economic Affairs, Ministry of Finance, the applicant is required to obtain approval from the Reserve Bank of India under the Foreign Exchange Regulation Act, 1973, and to submit an executed copy of the Loan Agreement to this Department for taking the same on record, before obtaining the clearance from RBI for drawing the loan. Monitoring of end-use of ECB will continue to be done by RBI.

At present, ECB approvals under USD 3 million scheme (enhanced to US 5 million) is given by RBI and all other ECB proposals are processed in DEA. As a measure of further simplification and rationalisation, Government has decided to delegate the ECB sanctioning power to RBI up to USD 10 million under all the ECB schemes except structured obligation which is at present being administered by DEA.

Accordingly, applications for approval upto USD 10 million will be considered by the Exchange Control Department of RBI, Mumbai.

SHORT-TERM LOAN FROM Reserve Bank of India

While ECB for minimum maturity of three years and above will be sanctioned by Department of Economic Affairs, Ministry of Finance, approvals of short term foreign currency loans with a maturity of less than three years will be sanctioned by RBI, according to RBI guidelines.

VALIDITY OF APPROVAL

Approvals are valid for a period of six months, i.e. the executed copy of the loan agreement is required to be submitted within this period. In the case of FRNs, Bonds etc., the same are required to be launched within this period. In case of power projects, the validity of the approval will be for a period of one year and 9 months in the case of telecom sector project . Bonds, Debentures, FRNs and other such instruments will have additional validity period of three months for all the ECB approvals across the board. Extension will not be granted beyond the validity period.

PRE-PAYMENT OF ECB

a) Prepayment facility would be permitted if they are met out of inflow of foreign equity.

b) In addition to ECB being prepaid out of foreign equity, corporates can avail either of following two options for prepayment of their ECBs:

On permission by the Government, prepayment may be undertaken, within the permitted period, of all ECBs with residual maturity up to one year.
OR
Prepayment upto 10% of outstanding ECB to be permitted once during the life of the loan, subject to the company complying with the ECB approval terms. Those companies who had already availed prepayment facility of 20% earlier would not be eligible.

c) Validity of permission under the above two options will be as under :

1.Prepayment approval for ECBs other than Bonds/Debentures/FRNs will be 15 days or period up to next interest payment date, whichever is later.
2.In case of Bonds/FRNs, validity of permission will not be more than 15 days.

REFINANCING THE EXISTING FOREIGN CURRENCY LOAN

Refinancing of outstanding amounts under existing loans by raising fresh loans at lower costs may also be permitted on a case-to-case basis, subject to the condition that the outstanding maturity of the original loan is maintained. Rolling over of ECB will not be permitted.

A corporate borrowing overseas for financing its Rupee-related expenditure and swapping its external commercial borrowings with another corporate, which requires foreign currency funds, will not be permitted.

LIABILITY MANAGEMENT

Corporates can undertake liability management for hedging the interest and/or exchange rate risk on their underlying foreign currency exposure. Prior approval of this Department or RBI has been dispensed with.

ECB POLICY FOR EXPORTERS/FOREIGN EXCHANGE EARNERS

ECB POLICY FOR EXPORTERS/FOREIGN EXCHANGE EARNERS
Corporates who have foreign exchange earnings are permitted to raise ECB upto thrice the average amount of annual exports during the previous three years subject to a maximum of USD 200 million without end-use restrictions, i.e. for general corporate objectives excluding investments in stock markets or in real estate. The minimum average maturity will be three years upto USD 20 million equivalent and
five years for ECBs exceeding USD 20 million.

ECB - USD 5 MILLION SCHEME

ECB - USD 5 MILLION SCHEME

All Corporates and Institutions are permitted to raise ECB upto USD 5 million equivalent at a minimum simple maturity of 3 years. Borrowers may utilise the proceeds under this window for general corporate objectives without any end-use use restrictions excluding investments in stock markets or in real estate. The loan amount may be raised in one or more tranches subject to the caveat that the total outstanding loan under this scheme at any point of time should not exceed USD 5 million. Each tranche should have a minimum simple maturity of 3 years. (Government have delegated the sanctioning powers to Reserve Bank of India (RBI)).

ECB Policy

ECB Policy 

External Commercial Borrowings (ECBs) are defined to include commercial bank loans, buyers' credit, suppliers' credit, securitised instruments such as Floating Rate Notes and Fixed Rate Bonds etc., credit from official export credit agencies and commercial borrowings from the private sector window of Multilateral Financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc.
ECBs are being permitted by the Government as a source of finance for Indian Corporates for expansion of existing capacity as well as for fresh investment.
The policy seeks to keep an annual cap or ceiling on access to ECB, consistent with prudent debt management.
The policy also seeks to give greater priority for projects in the infrastructure and core sectors such as Power, oil Exploration, Telecom, Railways, Roads & Bridges, Ports, Industrial Parks and Urban Infrastructure etc. and the export sector.
Applicants will be free to raise ECB from any internationally recognised source such as banks, export credit agencies, suppliers of equipment, foreign collaborators, foreign equity-holders, international capital markets etc. offers from unrecognised sources will not be entertained.


ECBs should have the following minimum average maturities:

1. Minimum average maturity of three years for external commercial borrowings equal to or less than USD 20 million equivalent in respect of all sectors except 100% EOUs

2. Minimum average maturity of five years for external commercial borrowings greater than USD 20 million equivalent in respect of all sectors except 100% EOUs

3. 100% Export oriented Units (EOUs) are permitted ECB at a minimum average maturity of three years for any amount.

Manner and form of raising ECBs

Manner and form of  raising ECBs- 

Modes of raising ECBs-

• Commercial Bank Loans : in the form of term loans from banks outside India 
• Buyer's Credit 
• Supplier's Credit 
• Securitized instruments such as Floating Rate Notes (FRNs), Fixed Rate Bonds (FRBs), Syndicated Loans etc. Syndicated Loan, CP 
• Credit from official export credit agencies 
• Commercial borrowings from the private sector window of multilateral financial institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, 
• Loan from foreign collaborator/equity holder, etc and corporate/institutions with a good credit rating from internationally recognized credit rating agency 
• Lines of Credit from foreign banks and financial institutions 
• Financial Leases 
• Import Loans 
• Investment by Foreign Institutional Investors (FIIs) in dedicated debt funds 
• External assistance, NRI deposits, short-term credit and Rupee debt 
• Foreign Currency Convertible Bonds 
• Non convertible or optionally convertible or partially convertible debentures 
• Bonds, Credit notes, Asset Backed Securities, Mortgage Backed securities
  · Not expressly covered but Guidelines refer to securitised notes
• Redeemable preference shares are considered as part of ECBs 

As per Indian corporate law, all preference shares are mandatorily redeemable unless they are convertible Hence, convertible preference shares will not be ECB (will be Foreign Direct Investment). Non convertible, partly convertible or optionally convertible preference shares are treated as ECBs

Benefits of ECB

Benefits of ECB

The ECBs route provides an Indian company with the foreign currency funds that may not be available in India; the cost of funds at times works out to be cheaper as compared to the cost of rupee funds and the availability of the funds from the International market is huge compared to the domestic market. Moreover corporates can raise a large amount of funds depending on the risk perception of the International market. Corporates (registered under the Companies Act except financial intermediaries (such as banks, financial institutions (FIs), housing finance companies and NBFCs) are eligible to raise ECB under the automatic route. However Individuals, Trusts and Non-Profit making Organizations are not eligible to raise ECB. 

The success of Indias debt management policy is reflected in a perceptible improvement in various external debt indicators. The external debt to GDP ratio which is an indicator of an economys debt servicing capability, showed a steady improvement, dropping to 17.4 per cent in March 2005 as compared to 38.7 per cent in end-March, 1992.It is noteworthy to mention that debt owed to the International Monetary Fund (IMF) was fully extinguished by 2000-01.ECBs can be used as a borrowing means for any purpose (rupee-related expenditure as well as imports) except for investment in stock market and speculation in real estate. ECB is a source of finance for Indian corporate, small and medium enterprise, Multi-state cooperative societies and non-governmental organizations for expansion of existing capacity as well as for fresh investment. 

External Commercial Borrowing can be raised only for investments such as import of capital goods (as classified by DGFT in the Foreign Trade Policy), new projects, modernization/expansion of existing production units in the industrial sector including small and medium enterprises and infrastructure sector - in India. Infrastructure sector is defined as power, telecommunication, railways, road including bridges, sea port and airport industrial parks and urban infrastructure (water supply, sanitation and sewage projects). ECB proceeds can also be utilized for overseas direct investment in Joint Ventures / Wholly Owned overseas subsidiaries subject to the existing guidelines on Indian Direct Investment. Utilization of ECB proceeds is permitted in the first stage acquisition of shares in the disinvestments process. Small and medium enterprises (SMEs) are increasingly opting for the external commercial borrowings (ECB) route to raise funds, a growing trend, given the current rising interest scenario. Those SMEs that are export-oriented find it economically more viable to raise funds overseas. Also with a view to provide Non-Governmental Organizations (NGOs) an additional channel of resource mobilization and in order to give impetus to the micro-finance movement, the Government has permitted NGOs to raise ECB up to US $ 5 million during a financial year.

Two routes of ECB

ECB can be accessed under two routes -:

• Automatic Route and
• Approval Route.

 Under the Automatic Route, the approval of Reserve Bank of India (RBI) or the Governments approval are not required. However, in case of doubt regarding eligibility under the Automatic Route, applicants may take recourse to the Approval Route. The maximum amount of ECB that can be raised by an eligible borrower under the Automatic Route during one financial year is USD 500 million. NGOs engaged in micro finance activities have been permitted to raise ECB up to USD 5 million during a financial year for permitted end-use.

What is External Commercial borrowing (ECB)

What is External Commercial borrowing (ECB) 

External Commercial borrowing (ECB) is a term used to refer to commercial loans availed from non-resident lenders with a minimum average maturity of 3 years in the form of bank loans, buyers credit, suppliers credit, securitized instruments (e.g. floating rate notes and fixed rate bonds).

A company is free to raise ECB from any internationally recognized source such as banks, export credit agencies, suppliers of equipment, foreign collaborators, foreign equity-holders, international capital markets etc. However, offers from unrecognized sources are not entertained. 

Wave and Marine Power technologies

Wave and Marine Power technologies

Wave and marine broadly encompasses five different types of technology considered to be relevant to the UK.

• Tidal barrages - construction of a barrage, through which seawater flows to provide power to turbine generators. Tidal barrages, whilst a commercially proven technology, are not considered as viable in the medium-term until environmental concerns can be appeased.

• Offshore tidal current turbine - which generates electricity by using the energy in the currents created by tidal streams. Marine Current Turbines (MCT) has developed the first prototype, the "Seaflow Project", which underwent trials during 2003 off the coast of Devon. MCT plan a pre-commercial installation in 2004/05 of 3 to 4 extra units to give a combine power output of about 4 – 5 MW. The design is currently limited to water depths of between 20 to 40 m, although it is possible that suitable technology may become available in the next 10 years which will allow the exploitation of deeper fast-moving currents.

• Oscillating hydroplane – which generates electricity by using the energy in the currents created by tidal streams. The Engineering Business (EB) is currently developing a machine known as the "Stingray", which works on the principal of an oscillating hydroplane. Stingray underwent offshore testing in the Shetland Islands during summer 2003 and plans to construct a "pre-commercial" (funded by EB) demonstration installation of 5 - 10 one MW units in 2005/2006. Water depth is not critical to the siting of the generator and location is dependent upon the clearance required above it (for shipping etc). Speed of the tidal stream is the determining factor.

• "Pelamis" sea snake. When floating on the sea, hinged joints between its semi-submerged articulated cylindrical sections move with the waves, powering hydraulic motors which then generate electricity. The prototype "Pelamis" has been developed by Edinburgh-based Ocean Power Delivery, and is 120 metres long, 3.5 metres wide and 700 tonnes in weight. Several devices can be connected and linked to shore through a seabed cable, with a 30MW wave farm occupying one square km of sea. The 750 kW prototype is to be tested at the European Marine Energy Centre in Orkney during 2004.

Nuclear power Projects

Nuclear power Projects

Nuclear power plants currently account for more than 20 per cent of total UK electricity demand, 

with the majority coming from advanced gas cooled reactors (AGRs). The last of these were commissioned in the late 1980s and can be expected be decommissioned in stages over the 

next few decades. The predecessors to the AGRs, the Magnox reactors, account for a reasonable share of nuclear generation, but these are already being decommissioned and are 

expected to be phased out by 2010. The only other nuclear plant built since the AGRs is the Sizewell B pressurised water reactor (PWR) which began operation in 1996.

The nuclear industry is proposing advances on existing designs with increased safety, some standardisation to facilitate licensing, reduced costs, and greater efficiencies. It is likely that any new build in the UK would take advantage of these improvements. TVO24 has selected a European Pressurised Reactor (EPR) for the Finnish project. This has been developed by and contracted to Framatome, a joint venture company between Areva of France and Siemens of Germany. Other realistic options for the short-term include the AP1000 reactor being developed by Westinghouse which is owned by BNFL, and the Advanced CANDU Reactor (ACR), a development of the Canadian Deuterium-Uranium reactor. These three options have yet to be built, and have yet to be licensed in the UK. Even more promising technologies are being researched, such as the Pebble Bed Modular Reactor (PBMR), a high temperature reactor (HTR) benefiting from inherent safety features and small size, though these are only likely to be commercialised in the longer term.

Apart from public concern over nuclear power generation, the attractiveness of CCGT generation has also precluded new build of nuclear plant. In competitive markets, the high capital costs and long construction times of nuclear plant have made it uncompetitive. The nuclear industry has stated that costs have fallen significantly but this has been difficult to validate from the limited number of recent projects.

The capital cost of a new nuclear plant represents the majority of the total cost of generation, typically as much as 70% for a base load plant. The MIT report proposed a total cost, stated in nominal terms, excluding interest during construction (IDC) but including decommissioning, of about £1150 per kW for the base case. The capital cost seems a reasonable26 mid-point for the sources reviewed by MIT and for the additional sources we have identified. However, the range of prices proposed indicate the uncertainty there is in the market place over the costs of new-build nuclear power plants. Reasonably we would extend our level of uncertainty to be ±25 per cent.

Base case O&M costs of about 0.94 pence per kWh, has been proposed by MIT. MIT recognises that this is lower than the average cost of historical data it has reviewed but suggests that efficiency gains can be achieved. Other reports reviewed by MIT, as well as other reports reviewed by ourselves suggest that O&M costs are half this amount. On balance, we have proposed O&M costs of new nuclear plant of about 0.5 pence per kWh. 

Fuel costs for nuclear plant are less contentious. MIT proposes a range of 0.3 to 0.4 pence per kWh. This is slightly lower than data sources we have reviewed and therefore we have proposed a fuel cost of about 0.4 pence per kWh. We note that there is a separate debate in the industry about the sustainability of uranium supply and resultant prices, but the fuel cost component of the total cost of generation is relatively small.

Due to the relatively low variable costs, and the difficulty of two-shifting, new-build nuclear generation would only be considered for base-load operation. Availabilities exceeding 90 per cent should be achievable.

Open Cycle & Closed Cycle Gas Turbines

Open Cycle & Closed Cycle Gas Turbines

OCGT

In an OCGT power plant the main components comprise the GT, generator and the associated auxiliary systems such as the fuel supply system, lube oil cooling system, fire protection system and the control system.

CCGT

In a CCGT power plant, the hot exhaust gases from the GT are delivered to a heat recovery steam generator (HRSG). The HRSG is a heat exchanger in which heat energy in the gases exhausted from the GT is transferred to water, which is then converted to steam. The mediumpressure high temperature steam generated in the HRSG is then delivered to a steam turbine (ST). In a CCGT plant, about two-thirds of the electrical power is derived from the GT and onethird from the ST.

The quality of the flue gas emitted from a GT in combined cycle mode is the same as from a GT in open cycle mode. However, the quantity of emissions for a notional level of output (CO2 per kWh) is greatly reduced owing to the improved efficiency of CCGT plant.

Type of Gas turbines

Type of Gas turbines

Gas turbines can be divided into three main types:

Heavy-duty industrial gas turbines (GTs), - Conventional

which are considered ‘conventional in design’: The firing temperatures and cycle efficiency of these units are conservative by modern standards and this is reflected in the design and choice of materials throughout the GT. These units range in output from 15 to 170 MW and yield an open cycle efficiency of approximately 29 to 34 per cent. These conventional design units are noted for being very reliable machines and they have accumulated considerable operating hours.

Heavy-duty industrial GTs, - Modern

which are considered ‘state of the art’: The firing temperatures, compression ratios, combustion systems, cooling and sealing systems, material selection, manufacturing processes and blading designs in these machines are considered in many cases to be ’state of the art’. In general, these units fall into two main output bands in simple cycle 50 Hz configuration: 60 to 70 MW and 250 to 270 MW. The open cycle efficiency figures range from about 34 to 38 per cent.

Aero-derivative GTs: 

These GTs, as the term suggests, are land-based derivatives of successful aero-engine designs. Aero-derivative units are characterised by high open cycle efficiency figures and short start-up times, compared with heavy-duty industrial GTs. The largest aero-derivative GTs are in the region of 45 to 50 MW, going down to 2 to 3 MW at the low end of the range. Typically, open cycle efficiencies in the 25 to 50 MW output band are in the range 38 to 42 per cent.

All three types of gas turbines can be used in open-cycle (OCGT) or combined-cycle (CCGT) configuration, which are described below in more detail.

IGCC Technology

IGCC Technology

Integrated gasification plants offer environmental benefits but at greatly increased capital cost when compared to more conventional combustion technology. The operational experience of these plants is also relatively limited.There are a number of different gasification technologies available which have been proven on large scale plants. The type considered within this report would involve an oxygen blown gasifier into which a coal/water slurry is sprayed at high pressure. The partial combustion which occurs would yield a synthetic gas (syngas) which is predominantly carbon monoxide and hydrogen. This syngas would be cleaned prior to it being combusted within a high efficiency gas turbine combined cycle power plant. Sulphur would be removed from the syngas producing elemental sulphur which could either be stored or used in the chemical industry.

Coal gasification offers the following benefits:-

• Cleaning of the syngas can result in very low stack emissions, comparable with natural gas firing.

• High combined cycle efficiencies can be obtained of the order of 48 per cent by utilising the most advanced gas turbine technologies available.

• Can be designed to handle fuels with very high sulphur content.

• Produces a sintered glassy ash which locks-in most chemical components present in the fuel ash.

• Offers the potential to remove carbon dioxide from the syngas for carbon dioxide sequestration, producing essentially a hydrogen syngas.

Appropriate treatment of the by-product streams from the gasification process and ensuring a safe design, means that the capital cost of such plants is high. It is envisaged that IGCC plants would comprise sites with a power generation in excess of 400 MW, with multiple oxygen separation plants and gasifier modules so as to achieve a high overall availability of the power generation plant.

Bubbling fluidized-bed combustion (BFB) Technology

Bubbling fluidized-bed combustion (BFB) Technology

BFB is a well proven technology suitable for small (less than 100 MW) biomass-fired plants located in the UK. The bubbling fluidised bed provides thermal inertia which makes it suitable for combustion of fuels of high and variable moisture content and fuels which are difficult to pulverise effectively (such as woody materials). It also has the benefits described for the CFB.

Circulating Fluidized-Bed combustion (CFB) technology

Circulating Fluidized-Bed combustion (CFB) technology

CFB is a well proven technology suitable for medium size (less than 300 MW) coal-fired plants located inland, i.e it does not require the availability of seawater for flue gas desulphurisation. For the purposes of this study, we assume that a prospective developer of a CFB plant would optimise the plant to incorporate the following design features:

• Injection of sorbent into the boiler to control sulphur emissions, with sorbent recirculation from the bag filter to enhance utilization.

• Use of bag filters to control the emission of particulates and enhance sulphur capture. It is our view that a coal-fired CFB plants constructed today will be of the subcritical type, which has an overall net efficiency of about 38 per cent. In the future, supercritical steam conditions will likely be employed for larger plants resulting in an overall efficiency gain equivalent to about 2 percentage points.

Fluidized-bed combustion Technology

Fluidized-bed combustion Technology

Fluidized-bed combustion technologies have some inherent environmental benefits over conventional PF type plants:

• Combustion temperatures are generally lower than those found in typical PF plant. In this regard, lower NOx emissions are achievable without the need for special combustion systems.

• The need for expensive flue gas desulphurization equipment can be avoided by injecting sorbent (e.g. limestone) directly into the fluidised bed boiler. This has the added benefit of fuel flexibility to burn coals with a wide range of sulphur content.

Primarily two types of fluidized bed combustors are in use;

• circulating fluidized-bed combustion (CFB) plant; and

• bubbling fluidized-bed combustion (BFB) plant.

The third pressurised (bubbling or circulating) fluidizedbed combustors (PFBCs) have been excluded from further consideration. Essentially PFBC technology entails passing pressurized hot flue gas through an expander section of a gas turbine before it is then used to raise steam in a conventional boiler. It is our view that a prospective developer would not opt to construct PFBC plant today, or in the near future,

because:

• the higher efficiency of PFBC over CFB does not offset the lower availability caused by the lack of opportunity to carry out online repairs; and

• gas turbine materials have advanced such that the optimum design temperature for the expander inlet is greater than can be achieved by proven hot-gas clean-up in the PFBC plant.

Pulverized Fuel (PF) combustion Technology

Pulverized Fuel (PF) combustion Technology

Conventional pulverized fuel (PF) combustion is a common form of proven generation technology found throughout the world. Finely ground particles of coal are blown into a boiler where they are burned. The heat released is collected through the water walls of the boiler and a series of subsequent heat exchangers, producing high pressure steam. This steam is passed through a steam turbine which in turn drives an electric generator. Although PF plants can be built over a wide range of sizes, for the purposes of this study, PF steam plant is considered suitable for large-scale (greater than 300 MW) schemes where coal is the primary 

fuel used for generation.

Many different configurations of steam plant are possible, either for cogeneration (combined heat and power) or electricity-only applications. Within the scope of this study, we do not consider cogeneration applications further.

The key design feature of a conventional PF plant is the pressure and temperature at which steam is generated. The majority of plants in the UK (in fact, all that are operational today) operate at subcritical steam conditions. Supercritical boilers, however, are well proven technology which would likely be constructed today owing to their greater level of efficiency. A new subcritical conventional PF plant can achieve an overall net efficiency of about 38-40 per cent compared to a new supercritical plant that can achieve a net efficiency of about 42 per cent.

Looking towards the future 15 to 20 years, it is likely that more exotic materials will enable the pressure at which steam is generated to increase further. These ‘advanced-supercritical’ plants will probably achieve yet higher levels of efficiency, perhaps 44 percent, albeit at a slightly higher capital cost over supercritical plants.

Emissions control is an important aspect of all types of PF steam plant. These costs can be minimised, however, if prior consideration is given to the location of power plant and the specification of the fuel burned. For the purposes of this study, we assume that a prospective developer of a PF steam plant will optimise the plant to incorporate the following design features:

• Moderate sulphur coal (blending coals so that the sulphur content is less than 2 per cent by mass) in order to take advantage of the seawater flue gas desulphurisation process, which avoids the additional cost of sorbent such as lime or limestone.

• Low NOx combustion system, with allowance in the boiler design for selective catalytic reduction (SCR) plant and equipment to be fitted at a later date.

• Use of bag filters to control the emission of particulates.

With these design features, a new PF plant (subcritical, supercritical or advanced supercritical) will meet environmental legislation as set out in the LCPD and be considered as a ‘best available technique’ (BAT).

Techniques to reduce emissions from Thermal Power Plants

Sulphur dioxide (SOx) emissions:

There are various techniques for reducing emissions of SO2 during the combustion of fuels used for generating electricity. These techniques are many and varied but include, inter alia:

• use of low sulphur fuels;
• in-furnace sulphur control via the injection of a sorbent, such as calcium oxide or calcium carbonate, during the combustion process;
• flue gas desulphurisation (FGD); and
• fuel gas desulphurisation.

Oxides of nitrogen  emissions: 

Like SO2, there are various techniques for reducing emissions of NOx during the combustion of fuels used for generating electricity. For example:

• advanced (dry) combustion systems;
• injection of DeNOx water;
• low NOx burners;
• flue gas recirculation;
• reburn;
• selective non-catalytic reduction (SNCR); and
• selective catalytic reduction (SCR).

Particulates Matters

Particulate emissions are generally controlled using one of two main techniques:

• electrostatic precipitators; or
• bag filters.

Large Combustion Plant Directive (LCPD)

 Large Combustion Plant Directive (LCPD)

In directive 2001/80/EC, known as the large combustion plant directive (LCPD), the EU sets down limits for the reduction of emissions to air for oxides of nitrogen (NOx), sulphur dioxide (SO2) and particulates (dust) from combustion plants with a thermal input greater, or equal to, 50 megawatts (MWth). This replaces the previous directive 88/609/EEC.

The LCPD applies to ‘existing’, ‘new’ and ‘new-new’ plants whereby:

• existing plants are defined as those consented before 1 July 1987 and exempt from 88/609/EEC;

• new plants are defined as those having been built between 1 July 1987 and 31 October 2001, which are obliged to meet the criteria outlined in 88/609/EEC; and

• new-new plants are defined as those commissioned after 31 October 2001 that are obliged to meet the criteria outlined in the LCPD.

Fuels used for electricity generation

Fuels used for electricity generation 

These are broadly fall into one of three main categories:

• Fossil fuels – commodities such as coal, fuel oil and natural gas which are traded on the international market.

Characteristics : High specific energy content, therefore cheap to transport from origin. High environmental cost with respect to emissions, e.g. CO2 emissions and SO2 abatement. Favours large, efficient (typically state-of-the-art) plant technologies with extensive infrastructure to support the delivery of fuel and export of electricity.

Cost key drivers : prices set in international markets; subject to UK fiscal policy (import duties and taxes); and liable for CO2 emission related costs.

• Biomass fuels – specially grown crops, for example short-rotation coppice, or by-products from other processes, for example, poultry litter.

Characteristics : Low environmental cost and further incentivized with renewable obligation and climate change, levy exemption certificates. Low specific energy content, therefore very expensive to transport from origin. Variable fuel quality. Also seasonal harvesting can mean poor utilization of harvesting and storage facilities. Favours plants located near to the source of fuel production to avoid high transport costs. Plant size is, therefore, limited by the production capacity of fuel within its vicinity. Wide variability in fuel quality favours simple, robust, plant technology.

Cost key drivers :  prices set in local markets; significant transport cost proportional to distance from power station site; high prices offset by Government incentives for renewable generation. 

• Nuclear – uranium or ‘MOX’ fuel.

The cost of nuclear reactor fuel is small compared to the investment cost of the power plant itself. The sensitivity of nuclear plant economics to fuel price is, therefore, low and, as such, is not discussed in any further detail by this study

Objectives and Targets of JNNSM

Objectives and Targets of JNNSM

• To create an enabling policy framework for the deployment of 20,000 MW of solar power by 2022
• The Mission will adopt a 3-phase approach; Implementation of Phase 1 would end in 2013; Phase 2 in 2017 and Phase 3 in 2022. The target for Phase 1 is 1,000 MW, an additional 3,000 MW through capacity enhancements are expected to be driven by the solar-specific RPOs and the use of Feed in Tariffs in Phase 2. Based on the ‘learning’ of the first two phases, the expectation is that solar power will be close to achieving grid parity and this will allow build up of the remaining capacity required to meet the 20,000 MW target by 2022.
• To make India a global leader across the value chain in solar manufacturing with a targeted 4-5 GW equivalent of manufacturing capacity by 2020. This includes dedicated poly silicon manufacturing capable of producing 2 GW equivalent manufacturing capability on an annual basis

PRESENT STATUS OF SOLAR POWER IN INDIA

PRESENT STATUS OF SOLAR POWER IN INDIA

Solar energy sector in India has received great impetus since the announcement of the Gujarat Solar Policy in January 2009, which was a milestone in India’s solar energy development programme. Government of Rajasthan also entered into the foray by announcing its own policies. Under these state policies, MoU’s to the tune of 716MW (from 34 developers) and 72MW (from 11 developers) were signed by Government of Gujarat and Rajasthan respectively.

On the other hand, India came under immense international pressure on emission reductions with the initial rounds of discussions taking place in various countries leading to the Copenhagen talks in December 2009.

The National Action Plan on Climate Change (NAPCC) initiated by the Prime Minister’s office, paved a path to seven national missions targeting voluntary emission reductions of which the ‘National Solar Mission” was arguably the most ambitious missions amongst others.

The Government of India announced the Jawaharlal Nehru National Solar Mission (JNNSM) on 23nd November 2009. The Honorable Prime Minster of India, Dr Manmohan Singh officially launched the mission on 11th January 2010. The JNNSM is a major initiative of the Government of India and State Governments

to promote ecologically sustainable growth while addressing India’s energy security challenge.. The mission seeks to kick-start solar generation capacities, drive down costs through local manufacturing and Research and Development (R&D) in order to accelerate the transition to clean and secure energy.

Solar Data Resource comparison – Simulated vs. Ground measurement

Solar Data Resource comparison – Simulated vs. Ground measurement

At present the solar radiation data in India is available from the many different sources. The data sources from which developers are working are:

• National Renewable Energy Laboratory (NREL), USA – The NREL solar resource maps have a resolution of 10 kms. These maps have been developed using weather satellite data incorporated into a site-time specific solar mapping approach developed at the U.S. State University of New York at Albany.

• India Meteorological Department: IMD has carried out some ground measurement in Gujarat but at limited number of stations. All stations do not employ same configuration of instruments and also do not monitor the same parameters. Moreover, these stations are located at far off distances from potential solar power plant sites, thus data so collected does not provide accurate and precise input for power plant output calculations.

• METEONORM: METEONORM is Global Meteorological Database and provides comprehensive meteorological reference, incorporating climatic data obtained from IMD ground stations. In addition, they provide interpolation models and design software, and have over 23 years of experience in the field.

• 3TIER: 3TIER is a global weather resource assessment firm. Their data set is based on geostationary satellites and is high resolution (2.6 km) data obtained using patented Perez model for DNI estimation.

Selecting technology – PV Vs CSP

Selecting technology – PV Vs CSP

The developers have considered a number of parameters while selection of technology (PV or solar thermal). Some of them are

• The technology experience and installed capacities (domestically and internationally) in each type of the technology has been the most important parameter the developers considered. Since PV technology has a larger penetration than solar thermal, there are a large number of PV developers than the solar thermal developers
• Most of the developers who have chosen solar thermal as their technology choice have joint ventures (JV) with technology providers
• The mandate from the investors and the business plans was one of the key parameters on which technology was selected.
• The tariffs by CERC have been crucial in changing some of the decisions/ mandates of both the investors and developers
• The developers have taken into consideration the availability of manufacturing capacities (domestically and internationally) for both the technologies.

Solar Power Developers' Barriers

Solar Power Developers' Barriers

Policy and Regulatory Barriers: 

Amongst the policy and regulatory barriers the key issues raised by the developers were the following

• long term planning
• clarity in policy guidelines
• bankability of PPA
• inclusion of hybridization policy for solar thermal technology
• effective technical criteria which clearly focused on the success of the mission rather than giving everybody a fair chance to participate in the mission

Infrastructure Barriers: 

Clearly land was the most critical of all the infrastructure related barriers. The approval processes and inability of the state governments to provide single window clearance to developers made infrastructure the second most important barrier.

Solar Radiation Data related Barriers:

 Most of the developers were of the opinion that India needed to set up its own solar radiation data collection stations in order to facilitate accelerated development of solar power projects in the country. It is a fact that success of a solar power project depended majorly on the radiation data; it was hinged to financial closures.

Technology and Financing Barriers: 

Of all the barriers these two barriers were the least mentioned since, if there is a market, technology costs would eventually fall and financing of the same would become easier. Also Policy, Infrastructure and radiation data once resolved, technology and financing were certainly not a major issue for the developers.

Most critical barriers for Development of Solar Power projects

Most critical barriers for Development of Solar Power projects

The five most critical barriers which could be addressed in the short term, according to the developers are;

• The Power Purchase Agreement could be made bankable so that the financing of these projects would become easier.
• The minimum and maximum capacity to be developed by a single developer could be ascertained based on the prior installation experience of the developer worldwide to achieve higher success rates.
• The Domestic Content criterion could be removed for the first phase to create competition and this could possibly result in deployment of technologies which are already commercialised and have operational experience abroad.
• The state nodal agencies could be involved to a larger extent and single window clearance could be enabled to cut down on lead times faced by the developers at each step
• A single government or semi –government financing agency could act as the focal point for all applications to be processed (after detailed technical and commercial due diligence) and then other financing institutions could take up these projects for financing.

India and China

India and China 

Comparisons between India and China and the relations between the two countries are once again in the spotlight following the recent visit to India by the Chinese President, Hu Jintao. Compared to the expectations, the visit has not produced any major breakthroughs. The goal of doubling bilateral trade in the next four years, translates into an annual growth rate of only about 20 per cent, which is less than the rate at which India's total external trade has been growing in recent years. On the border issue, China maintains its stubborn stand while India has not mobilized adequate political support that will facilitate any territorial concessions. A number of agreements have been signed, like the setting up of a working group on river waters. The two countries will open consulates in Kolkata and Guangzhou. There will be bilateral investment promotion and protection and protection of intellectual property rights. Agreements have also been signed with regard to commodity futures regulation and phyto-sanitary requirements for exporting rice from India. The two countries plan to open new routes to Kailash-Mansarovar and also encourage bilateral tourism. 

Even as India and China look for ways to strengthen bilateral relations, they continue to attract the global media attention. China accounts for two-thirds of all the shoes produced in the world, two-fifth of personal computers and 85% of the world’s toys. Shanghai attracts global manufacturing giants like General Motors, ABB and Agilent Technologies. The Indian offshore IT and ITES sector employs around one million people. This number is expected to go up to 2.3 million by 2010. Bangalore is emerging as an innovation hub for tech companies like Google, Hewlett-Packard and Motorola.

Bilateral relations between the two countries are also attracting media attention. Where do the two countries stand today? Trade between the two nations hit $18.7 billion in 2005-06, jumping 38% year-on-year. While imports from China are diversified and dominated by value-added products like electronic goods, India’s exports generally consist of low-cost inputs like, iron ore, primary steel, plastics and minerals. Achievements on the investment front are also not very impressive. In the last 13 years, the Indian government has cleared $67.15 billion of foreign direct investments (FDI). China’s share is a minuscule $231.7 million (0.3%). Again, during the same period, India granted 7,878 technical collaboration approvals to different countries with China accounting for just 70. 

Lack of trust between the two countries continues to act as a big impediment to trade, investment and more bilateral cooperation. India’s suspicions are fuelled not only by the border problem but also China's traditionally cozy friendship with Pakistan, and its support for that country’s nuclear-weapons programme. India is also watching with apprehension, China's military ties with India's other neighbors in South Asia, including Bangladesh, Sri Lanka, Nepal and Myanmar.

Meanwhile, the Chinese have been put off by India’s bureaucracy. The Chinese are complaining that Indian approval for Chinese investments can take between six months and a year, requiring the endorsement of various layers of the bureaucracy. In contrast, investments from most other countries are being approved much faster. Chinese businessmen operating in India are also grumbling about the difficulty of getting visas for Chinese workers even as Indian IT companies are scaling up effortlessly in China. 

Not surprisingly, the Indians are finding it difficult to swallow Chinese criticism. According to seasoned journalist and Business Standard editor, T N Ninan, Indian’s defensive reasoning reflects the full range of emotions and attitudes that can be expected from the junior partner. At one end, there is plain fear ("we will get swamped by Chinese products"), the past legacy (defeat in the 1962 border war), and suspicion ("they are encircling us"). Simultaneously, there is a state of denial ("China's growth numbers are exaggerated"), a combination of defiance and bravado ("we are no less than them"), and euphoria (eg. Goldman Sachs' forecast that Indian growth rates will eclipse China's in 15 years).

As Ninan correctly mentions, it is wrong to belittle China. The Chinese civilization has traditionally enjoyed a special place in world history. As Chinese society has greater homogeneity (unlike India where caste and religious tensions are common) there are less social tensions. China is on its way to becoming a global power, its views being taken far more seriously than India’s in the global arena. China is a permanent member of the UN Security Council and of the Nuclear Five, whereas India is still trying to gain entry into these clubs. 

Specifically looking at their economies, China is clearly ahead. Its economy is thrice the size of India’s. India’s labor laws remain far more rigid compared to those of China where workers can be hired and fired at will. Power in China costs just Rs.2 per unit against Rs.4.50 to Rs.5 in India. A trucker can do a 600 km stretch in China in 10 hours, while in India it takes nearly 30 hours. In 2005, Chinese textile exports stood at nearly $113 billion, contributing to nearly 22% of the global trade, compared to India’s $17 billion, or less than 4% share. In 2004, when India exported $2.4 billion worth of leather and leather products, comprising 2.44% of global trade, China’s share was $21.5 billion, or nearly 22% of the global trade. 

The Economist, recently reported that in the year to the second quarter, India's GDP grew by an impressive 8.9% while China's grew at an even more breathtaking growth of 10.4% in the year to the third quarter. But China's double-digit growth looks more sustainable. Inflation is only 1.4%. China has a widening current-account surplus, a clear indication that there are no serious supply

side bottlenecks. Average house prices have risen by less than 6% in the past 12 months, while, share prices have risen by only 42% in the past four years. 

In contrast, in India, consumer-price inflation has risen to almost 7%, well above Asia's average rate of 2.5%. Many firms seem to be operating close to or above their optimal levels of capacity utilization. There is a serious shortage of skilled labor and wages are rocketing. The RBI has raised interest rates over the past two years, but inflation has risen by more. So real interest rates have fallen and are historically low. Meanwhile, the government is putting pressure on RBI not to raise interest rates. An asset price bubble is also a major concern. India's share prices are almost four times their level in early 2003. The price/earnings ratio of 20 is well above the average of 14 for all Asian emerging markets. House prices have gone through the roof. 

The problem with India seems to be its lower investment rate, particularly in infrastructure. The latest government figures, for the year ending in March 2005, put total investment at 30% of GDP, compared with over 45% officially reported in China. Considering that India is focusing on knowledge intensive industries, there is also a shortage of skilled labor. 

Indian supporters argue that China’s inefficient use of investment will drag down the future growth rate. They feel that there has been over-investment in some sectors such as cars, steel and property and that some of the projects will prove unprofitable. China’s banking system is also burdened with non-performing loans (Some say it’s close to 50% of the country’s GDP). China’s is also a more rapidly ageing society compared to India’s. 

Meanwhile, India seems to be more in tune with the demands of globalization than China, thanks to a more open and rules based system. If India can demonstrate political will and determination and graduate from “reforms by stealth” to “reforms by conviction”, the country can give China a run for its money. 

Meanwhile, some small steps can improve the situation significantly. The two countries can open up their markets to each other. There are still only six direct flights a week from Delhi to Beijing. More business and tourist travel will help dispel the lingering suspicions. 

Instead of viewing themselves as competitors, the two countries must look at opportunities to collaborate, as they did during the multilateral trade talks in Doha 2001. At the level of companies too, there is scope for cooperation. In October 2005, China National Overseas Oil Corporation (CNOOC) outbid Oil and Natural Gas Corporation (ONGC) in Angola. India also lost out to China in Kazakhastan and the Akpo field in Nigeria. But when ONGC and CNOOC joined hands to bid for Petro Canada’s stakes in the Al-Furat Petroleum Company in Syria, they won hands down. 

So far, few Indian companies have chosen to think positively and look at China as a great opportunity. But the situation is now changing. Bajaj Electricals and Bharati are making China a sourcing base for low-cost electrical appliances and telephone instruments. J K Tyres is using

China as a base for exporting tyres to Southeast Asia and West Asia, while Videocon is manufacturing Internet TVs. Meanwhile, Chinese companies like Haier, Bird and Huawei are looking to scale up their Indian operations. Hopefully, these companies will change the current mindset from competition to coopetition if not collaboration.

SMALL HYDRO POWER PROJECT WITH CDM

SMALL HYDRO POWER PROJECT WITH CDM

The CDM is a financing instrument defined in article 12 of the Kyoto protocol. A project in a developing country that reduces GHG emissions, relative to a baseline project, generate emission reduction (ER) , CDM enables the project owner to sell the ER credit, ones there are certified, to an interested buyer.

It is estimated the annual energy production from the SHP shall be 9.76X 10⁶ on kWh and the energy available for sale be of the order of 9.56X10⁶ kWh per annum. The coal being used in thermal power station in India not being of very good quality, it may be appropriate to assume that the carbon dioxide being emitted shall be of the order of 987 gms per kWh. On this basis the carbon dioxide emission reduced by generating same amount of electricity energy from SHP works out to 9435 tonnes per annum.

On this basis over the life time of power plant the carbon dioxide reduction is expected to be of the order of 283050 MT. since the SHP is a renewable energy project and its operation can provide energy for social and sustainable development without contributing to GHG emission is eligible for financing under CDM facility as envisaged in article 12 of the Kyoto protocol. This will generate additional revenue stream annualy

HYDROLOGY of HYDRO-POWER PLANTS

HYDROLOGY of HYDRO-POWER PLANTS

The discharge data of the river is required minimum for 25 years. For estimation of hydro power potential, The discharge data corresponding to these years have been tabulated in table the water available for power

generation has been calculated. 

Dependable Discharge

In figure, the year wise total annual runoff, and determination of 50% dependable year (1975) have been raphically presented. the ninety (90) percent, fifty(50) percent and seventy five(75) percent dependable discharge available for power generation have been determined and are stated below based on discharge data.

WATER AND POWER STUDIES  

P (MW ) =  (9.81  x  Q  x  H x ht  x  g )
Where,
 
  Q = Discharge in cubec
  H = Head in metre
  ht x g =Overall efficiency

DESIGN ENERGY

The design energy is the energy likely to be produced in the 90% dependable year with 95% availability.

MNRE Subsidy for Small Hydro Power Projects

MNRE Subsidy for Small Hydro Power Projects

To improve the economic viability of SHP projects and to give impetus to the programme, the MNES provides a onetime subsidy for commercial SHP projects. The subsidy is utilized by the promoter towards repayment of the term loan availed from a financial institution. The subsidy is released after the project performance parameters are attained as laid down in the MNES scheme. The subsidy scheme covers

projects of capacity up to 25MW each.

Government of India and State Government's Incentives for Small Hydro Power Projects (SHPs)

Government of India and State Government's Incentives for Small Hydro Power Projects (SHPs)

• The government has permitted a minimum of 14% return on investment.
• The government has permitted private sector to participate in power generation through the implementation of the Indian electricity act 2003.
• The MNES supports SHP development, both in the government and private sectors. Apart from the financial support to new, renovation and modernization (R&M) of existing SHP stations and government projects that have been developed for the promotion of SHP programmes in the northern-eastern states, Jammu and Kashmir, Himchal Pradesh, and Uttaranchal.
• Soft loan by Indian renewable energy development agency.
• Subsidy of MNRE for renewable projects

National Tariff Policy

National Tariff Policy

National tariff policy prefers procurement of power from NCES based on preferential tariff  Future procurement of power from NCES through competitive bidding under section 63 within suppliers offering energy from same type of non-conventional sources In the long-term, these technologies need to compete with other sources in terms of full costs

Electricity Act 2003 for Renewable Energy

Electricity Act 2003 for Renewable Energy

Section 3 - National Electricity Policy and Plan for development of power system based on optimal utilization of resources including renewable sources of energy.

Section 4 - GOI to prepare a National Policy permitting stand alone systems (including those based on renewable sources of energy and non-conventional sources of energy) for rural areas.

Section 61(h) - Tariff Regulations by Regulatory Commission to be guided by promotion of generation of electricity from renewable energy sources in their area of jurisdiction. 

Section86(1)(e)- Regulatory Commission to specify purchase obligation for licensee from renewable energy.

Technological Environment in India

Technological Environment in India

The technological environment in India is rapidly increasing. As the country continues to grow, so also is the technology. With respect to the oil industry, ONGC was behind technologically, but has since put much needed money and focus on technology. ONGC realized that they were behind in the technological environment and this was creating a huge weakness with respect to their competitors. ONGC has turned what once was a weakness into strength though. One such example was the acquisition of technology to meet Euro II standards through the purchasing of MRPL. ONGC also implemented advanced technologies such as Increased Oil Recovery, Enhanced Oil Recovery and Supervisory Control and Data Acquisition. Another great technology that they implemented, that really gives them a competitive advantage is the Virtual Reality Interpretation Center, which is regarded as “one of the ten bests such systems in the world for applications in exploration.” This greatly enhances their ability for oil recovery and also for a competitive advantage. Other great technological advances were the implementation of an ERP, MIS and inventory control system. ONGC also implemented a completely digitized magnetic media seismic library, which is considered the one of the best in the world. This was a much needed improvement in technology over all their previous years to help compete on the world market. It cannot be emphasized enough how important technology is in a large corporation like this battling in a market that is very tough and depleting

Sociological Environment in India

Sociological Environment in India

Sociologically the environment in India is one of growth and advancing intellectually. As mentioned before, the country has over one billion people and continues to grow. This creates a huge pool to pull from. India has been a major country for companies in other countries to outsource to. This is not only due to cost advantage, but also to an education advantage. The Indian people are emerging as a learning people and the potential for success in this kind of environment creates a strong foothold for any company. It’s interesting to note that ONGC employs approximately 40,000 workers in India. Compared to the amount of people that India has this number is not staggering. But this is still a large workforce under one company and could be used for leverage when making decisions with the government. This does not mean the company has been good to work for though. The company was recently scrutinized by the GoI
because “attrition over the last one year has been the highest in the past five years and 328 professionals have left the organization.” And that “the main reason for this was the inability of ONGC to meet compensation packages being offered by the industry.” This is not a good spot for ONGC to be, not only because they are losing valuable workers, but also because it is getting them into even more trouble with the government.

Economical Environment of India

Economical Environment of India

India is one of the largest and fastest growing countries in the world right now. India’s population has already reached over one billion people and continues to grow rapidly. India is a part of the B.R.I.C., which stands for Brazil, Russia, India and China, which are four of the fastest emerging and rapidly growing countries. With all these economic developments have also brought about a huge demand for energy, in which ONGC is the main player in India. This gives them a great advantage because there is a huge economic demand for oil and gas.

Political Environment of India

Political Environment of India

The political environment in India is one of a federal republic. ONGC is state-owned but this does not mean that the GoI is good for ONGC or doing things in the best interest of ONGC right now. The proposed mergers of HPCL, BPCL with ONGC, and Oil India with IOC were the GoI’s ideas. This produced uproar and the mergers we set aside, but not without the GoI stating that the government will have to restrict the respective companies to their core businesses. ONGC is also being made by the GoI to focus on exploration and production (E&P) of oil and gas. ONGC had been starting to move downstream and diversify its business by going into the refining and retailing business but the GoI put a halt to this. The positive side of having the political backbone of ONGC is that it gives the company stability and some security. When ONGC started they had multiply protection policies in place that kept them safe from global competition. As the years went by, the GoI deregulated the industry and took away the state protection policy that kept ONGC safe. This has lead to new opportunities but it has also opened the door to a lot more threats. 

With the GoI focusing so much on oil and gas E&P and forcing ONGC to focus on it as well, it is seemingly making E&P a core rigidity for the company. September 25, 2007 has found the GoI saying to ONGC that they need to “produce or perish” and that they will become a marginal player in the industry if they don’t comply. These are harsh words by the government and could be a fatal blow to ONGC for future business ventures and success. The GoI also recently blocked ONGC from bidding on a Nigerian oil field that would’ve helped increase their gas and oil assets outside of India. The GoI did not feel this was a good choice and blocked the decision. Through all this it shows a highly influential “owner” of ONGC who is commanding them to do things and not do things and not really knowing what’s best for the company. This is a huge hindrance to ONGC.

About BPCL

About BPCL


It is the 3rd largest oil company in India owned by the Government of India.

Revenue (2005): $17.613 billion

Employees: 12400


· In 1976, the Burmah Shell Group of Companies was taken over by the Government of India to form Bharat Refineries Limited.

· In 1977, it was renamed Bharat Petroleum Corporation Limited.

· It was the first refinery to process newly found indigenous crude (Bombay High), in the country.

About IOCL 

It is India's largest commercial enterprise, with a sales turnover of US $36.537 billion. 

· A wholly owned subsidiary company, IndianOil Technologies Ltd. is the 19th largest petroleum company in the world 

· IndianOil's world-class R&D Centre has developed over 2,100 formulations of SERVO brand lubricants and greases for virtually all conceivable applications meeting stringent international standards and bearing the stamp of approval of all major original equipment manufacturers. 

· IndianOil is also strengthening its existing overseas marketing ventures and simultaneously scouting new opportunities for marketing and export of petroleum products to new energy markets in Asia and Africa.

About ONGC 

It is a public sector petroleum company in India, contributing 77% of India’s crude oil production. 

Revenue (2008-09): 161263 million 

Employees: 41000 

Recent news: 

· ONGC achieve highest Reserve accretion in last two decades. 

· ONGC conferred with two SCOPE meritorious awards on the PSU day. 

· India's ONGC lags in global oil race. ONGC's setbacks in acquiring major oil resources are made worse by the Indian government's order to help shoulder the burden of subsidised fuels earlier this year, which pushed the country's biggest refiners into the red. 

· ONGC has gained junior shares in a host of projects, from Russia's Sakhalin-1, Iran's Yadavaran Field and Sudanese properties abandoned by Western investors. 

· But it has yet to take a lead role that would give it more say and a bigger share of future production. The race is gaining urgency both for India and ONGC as Chinese and other Asian competitors snap up plum properties in the face of stagnating domestic production. 

· Government officials say ONGC must boost its reserve-to-production ratio - the number of years its reserves will last with the current level of output - by improving its drilling technology and management practices. ONGC's ratio is 22 years. In some onland areas the ratio is 57 years. 

· ONGC lost a major offshore platform at Bombay High, India's largest oilfield, reducing the company's output by 123,000 barrels per day (bpd) after an errant rig crashed into the facility during the monsoon, setting it on fire. It has since restored half that production. 

· Oil Minister Mr Aiyar has pushed for Indian and Chinese firms to cooperate not compete, for overseas assets, but his efforts appear to have met with little interest in Beijing, where the oil majors are gaining ground abroad, despite some hiccups.

EVOLUTION OF OIL AND GAS INDUSTRY IN INDIA

EVOLUTION OF OIL AND GAS INDUSTRY IN INDIA

At Independence, India's domestic oil production was just 250,000 tones per annum. The entire production was from one state-Assam. Most foreign experts had written off India as far as discovery of new petroleum reserves was concerned. The Government announced, under Industrial Policy Resolution, 1954, that petroleum would be the core sector industry.

Petroleum exploration & production was controlled by the Government-owned National Oil Companies (NOCs), ONGC and OIL, in pursuance of the Industrial Policy Resolution, 1954. In the early 70s, they supplied nearly 70% of the domestic requirement. However, by the end of the 80s, they had reached the stage of diminishing returns. Oil production had begun to decline whereas there was a steady increase in consumption and today the two NOCs are able to meet only about 35% of the domestic requirement. This was further compounded by the resource crunch in the beginning of the 90s. The Government had no money (FE) to give to the NOCs for the development of some of the then newly discovered fields. While some of these fields could be developed by ONGC (Gandhar, Neelam, Bombay High, Lakwa, Heera, Geleki etc.), for others there was no money available for indigenously developing the fields. The problem had elements such as the administered oil price, non-availability of appropriate technology, logistics etc.

Petroleum Sector Reforms, 1990

The Government launched the Petroleum Sector Reforms (PSR) in 1990. Till then, three rounds of exploration bidding had been gone through with no success in finding new oil/gas deposits by the foreign companies who only were allowed to bid. Under the PSR, the Fourth, Fifth, Sixth, Seventh and Eighth Rounds of exploration bidding were announced between 1991 and 1994. For the first time Indian companies with or without previous experience in E&P activities were permitted to bid starting with the Fourth Round.

The Government then announced the Joint Venture Exploration Program in 1995. The exploration blocks were in those areas for which the Petroleum Exploration License was with the NOCs and they were required to have a 25% to 40% Participating Interest from day one.

Foreign Companies in Exploration in India

Foreign companies entered the Indian E&P scene since early fifties (Indo Stanvac Project- A Joint Venture between Government of India and Standard Vacuum oil Company for West Bengal onland in early fifties, Carlsbons Natomas for Bengal offshore in early seventies, Assamerc for Cauvery offshore and Reading and bates for Kutch offshore also in early seventies and later since the first round in 1980; Shell for Kerala offshore and Chevronn- Texaco in Krishna - Godavery Offshore). This was certainly not as much as elsewhere in the world. 

Indian E&P Companies

Most of the Indian companies barring HOEC have been riding piggyback on the foreign companies for exploration and development ventures in India. In this regard, Reliance Petroleum Ltd. has taken the first step by joining up with ONGC in bidding for exploration as well as development ventures in India and abroad. Some of the downstream companies like IOC, GAIL has entered also upstream in consort with ONGC and OIL.

Opening of the Oil/Gas Fields for Development by Private Companies

The Indian oil/gas fields discovered by the two NOCs, were first offered in 1992 under the First Offer. The second such offer was made in 1993. Development of fields is characterized by a comparative lack of business risk but is a cost intensive venture. Only those companies who have previous experience of field development can undertake such ventures. Unlike the Exploration blocks, field development contracts have upfront payments to be made to the NOCs for past costs as well as in the form of signature bonus. At the stage of oil/gas production, companies are also required to make production bonus payments. Lack of previous experience forces the Indian companies to seek foreign partners not only to work as Operator but also to share costs. It would help Indian cause if the government were to introduce the practice of Pure Service Contract like in some of the other producing countries.

Today 74 Exploration Contracts and 28 Development Contracts are in operation. There are a total of 103 PSCs in operation. This is a sizable number but unfortunately this is not made known to a large number of people/enterprises. The Development Contracts are likely to add about 150,000 barrels of oil per day (or about 7.5 MMT per year) and about 7 million cubic meters per day of gas production. In terms of money about 4 billion dollars are expected to be pumped into these ventures over the next 10 to 15 years.