India plays energy catch-up

 By Deborah Yedlin, Calgary HeraldMarch 24, 2010Be the first to post a comment

 

 

If the last 18 months were characterized by Chinese energy players inking deals around the globe and securing reserves and production, is 2010 going to bring a spate of transactions by India's oil and gas companies aimed at reaching the same goal of quenching an insatiable thirst for oil and natural gas?

The short answer is that the pace would have to pick up significantly if India's energy sector is to lay the same claim on global energy assets as China has.

At last count, the value of the deals done by Chinese national oil companies -- whether as outright purchases, joint ventures or oil-for-loans arrangements -- was sitting in the $30-billion US range.

India hasn't even come close to that number in terms of deal value, even though its consumption is on an equally impressive upward trajectory.

As things stand, India imports about 75 per cent of its oil needs, all of it from Middle Eastern sources, making it vulnerable to the political instability endemic in that part of the world.

It's ironic, then, that the Indian Oil Corp. and Oil India are bidding for a company with producing assets in Syria. The bid, if successful, wouldn't signifi-cantly diversify India from its exposure to Middle East politics.

What sets India apart from China -- as Robert Johnson, director of energy and natural resources of the Washington-based Eurasia Group, points out -- is its lack of a sovereign wealth fund that can be used to buy assets along the lines of what the China Investment Corp. has been doing. In fact, it is the only one of the so-called BRIC nations that lacks a sovereign wealth fund.

It also doesn't have the stable of national oil companies acting at the behest of the government, nor has the country undertaken an in-depth, segmented analysis to fully understand all aspects of its future energy demand picture, as China has done.

"They don't have a worldwide energy model, whereas the Chinese government recognized long ago that commodities were going to be integral to the country's growth profile and they made a concerted effort to understand the drivers behind every commodity -- not just oil and gas," said one industry player.

India's approach to the commodity plays has been largely characterized as reactionary, while the Chinese approach has been to get ahead of the curve, wherever possible.

The fact the Chinese didn't shy away from signing oil supply deals in early 2009 when oil prices were flirting with $30 per barrel certainly underscores that view. Now, with natural gas prices under pressure around the world, the focus has shifted toward that commodity. The joint bid with Royal Dutch Shell to buy Australia's Arrow Energy for its coal bed methane reserves and the partnership to develop shale gas in Sichuan province are evidence, again, that China is taking advantage of the current ebb in the natural gas cycle.

While part of these differing approaches can be explained by the differing political structures of the two countries -- it's tough to mandate that kind of focus in a free enterprise market such as India's -- the lack of action has many individuals puzzled.

From a Canadian perspective, the last time a deal was done involving an Indian energy company was in 2003, when ONGC Videsh bought Talisman Energy's 25 per cent interest in the Greater Nile Petroleum Operating Co. in Sudan for $750 million. They also tried to get in on the bidding for Petrokazakhstan in 2005, but were beaten out by the China National Petroleum Corp., which paid $4.2 billion.

Otherwise, the only transaction of note in recent months has been the acquisition by ONGC of Imperial Energy for $2.1 billion.

While three Indian companies were recently part of a winning consortium bidding on the two parcels in Venezuela's Orinoco basin, the 25 per cent interest they collectively ended up with pales in comparison to the scale of deals undertaken by Chinese companies. Moreover, it's not like dealing in Venezuela isn't without its risks; what's to say the assets don't revert to the government, as has happened before, when the capital investments have been completed.

The same logic holds true regarding the initiative that could see ONGC enter into partnerships with Russian energy players Gazprom and Rozneft. Meetings have been taking place in Moscow exploring these possibilities, but the risks associated with investing in Russia are not unlike those faced in Venezuela; it makes one ask whether these kinds of decisions are the ones that would advance India's presumed objective of enhancing its energy security.

What could happen, suggests Johnson, is an Indian company taking a strategic interest in the Gateway pipeline.

"The country has been adding heavy oil refiners and the same logic being applied to why China might be interested in Gateway could be applied to India, as well."

And it's not like Indian oil players haven't been kicking the oilsands tires for quite some time -- but any deal has yet to surface.

Whether it's the apparent lack of urgency, the absence of a sovereign wealth fund or a comprehensive energy strategy -- or a combination of all of the above -- it's clear India is firmly in the position of playing catch-up to what Chinese energy players have been aggressively pursuing. With India's economy continuing to grow, however, one has to conclude that it's only a matter of time before India is forced to take a more proactive approach to ensuring its energy future.

--
Gopinath S
Chief Executive
nRG Consulting Services, Bangalore
http://business.vsnl.com/gopinath
http://nrgcs.blogspot.com/
+91 99161 29728

Japanese companies eye Indian power sector

Japanese companies eye Indian power sector

Katya B Naidu / Mumbai March 18, 2010, 0:39 IST

Japanese power companies, including Tokyo Electric Power Company (Tepco) and J-Power, seek to make their presence felt in India.

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"They might not look at the bigger projects like ultra mega power projects (UMPP) right away, but will look at projects with a size of 1,200 to 1,400 Mw," said an industry source. These companies were looking at opportunities in the Indian power sector and might bid for some power projects soon, sources added.

Tepco, the largest Japanese and the world's fourth-largest power generator, has a capacity of 64.3 gigawatts, while J-Power, which operates 67 plants, has a capacity of 16,985 Mw. E-mails sent to both companies remained unanswered.

India has plans to add 78,000 Mw of power generation capacity in the 11th Five Year Plan and these companies want to seize this opportunity. "Japanese companies can look at the opportunity as they already have a presence in the equipment side of the power market. India is a huge market, with high requirement of electricity, leading to a demand supply skew towards power generators. This is a country which requires anywhere between 100,000 to 200,000 Mw of power in the short to medium term," said Kuljit Singh, head-infrastructure, Ernst & Young.

Foreign companies, able to procure debt at a lower interest cost, can be an advantage in this capital-intensive sector, according to experts. "With two per cent interest cost and fixed returns of eight-nine per cent, the power sector makes for a good investment for foreign companies. Merchant power sales also offer good profits," said a Mumbai-based equity analyst.

Foreign companies will also have their share of challenges in the Indian market. "The Indian market is a greenfield play where you require assistance from many government agencies for land acquisition, fuel, water, environment and other clearances. Foreign companies might find it tough to handle such aspects on their own," said Singh.

This has been one of the reasons for many foreign power utilities to stay away from bidding, though the government allows 100 per cent FDI in the automatic route in generation, transmission, distribution and power trading except in atomic power. Besides, the negative publicity of the Dabhol and Enron scandals also kept foreign investors at bay.

In 1992, many foreign power companies came to the country and returned due to various issues. However, some foreign companies made their presence felt, although in a small way. Genting, a Malaysian power company, has bid for power projects along with Lanco Infratech, and both these companies own a 370-Mw gas-based power project in Kondapalli, near Vijayawada in Andhra Pradesh. American electricity major AES operates and owns a minority stake in a 420-Mw coal-fired power plant in Orissa.

Hong Kong-based power utility China Light and Power (CLP), which forayed into India a decade back, said that the situation had changed drastically in the last few years. "Until 2004, the experience was difficult, especially with payment defaults from off-takers. Projects were not awarded on a competitive basis and foreign companies were at a disadvantage. Last few years have been positive, reforms have set in and all our dues have been paid," said Rajiv Ranjan Mishra, MD of CLP India.

CLP has two gas-based power projects in Gujarat, four wind projects in Gujarat and Maharashtra, Karnataka and Tamil Nadu, and a coal-fired project in Haryana. The company plans to tread cautiously when it comes to bidding for new projects. "The preferred size of projects that we would like to bid for will be in the range of 1,000-1,500 Mw. UMPPs are way too big."

--
Gopinath S
Chief Executive
nRG Consulting Services, Bangalore
http://business.vsnl.com/gopinath
http://nrgcs.blogspot.com/
+91 99161 29728

Time to put ‘energy’ on your dashboards

Time to put 'energy' on your dashboards

D. Murali
 
 
Investment in building management systems and energy-efficient equipment is leading the energy management initiative in India, says Murali Ramalingam, CEO, ConnectM Technology Solutions Pvt Ltd, Bangalore (www.connectm.com). "Companies are also investing in energy-efficient power sources such as solar, and wind-farm. However, the important trend that will have a sustainable impact on the energy intensity of the country's GDP is the increasing energy consciousness in the overall investment decision-making of the consumer – household or enterprise," he adds, during the course of a recent interaction with Business Line.
Excerpts from the interview.
Why has it become necessary for CXOs to focus on energy management and efficiency?
Energy management has found priority in strategy discussions of the boardrooms today. Enterprises accept it as a business need, more than a voluntary social responsibility. This is driven primarily by the already evident and further expected increase in energy cost per $ of business. Infusion of technology in the way business is done – IT, processes and infrastructure – and, the expanding demand-supply gap of energy will only fuel this further.
CXOs find it imperative to proactively address energy efficiency to improve their returns to the shareholders – by improving their product compliance to energy norms, taking control of energy spends, and aligning to the regulatory changes.
The kind of work that the Bureau of Energy Efficiency in India is doing is revolutionising the way consumers think and choose, and companies are taking that into account in the way they make, market, and maintain their products and services.
Our analysis of 600 Indian companies with revenues in excess of Rs 1,000 crore shows that energy cost averages at 5 per cent of their revenues. This is significant, and has the potential to contribute towards improving the EBITDA by 50 to 100 basis points.
The regulatory environment taking shape in the energy ecosystem globally will also drive energy management action.
Today the CXOs are championing the 'going green' objectives, as apart from the environment benefit it also achieves cost reductions on energy consumption and adds to the bottom line.
What parameters of energy management need continual monitoring at the top levels of organisations? The metrics that should be on their dashboards.
Top managements need to keep a tab on the trend of their day-to-day and their long-term energy needs.
Energy dashboards comprise building variability information such as occupancy, lux-levels, ambient and in-building temperatures, and air-quality. Further, data-centre monitoring solutions comprise 'energy monitoring dashboards' that help understand the energy consumption correlated to the various levels of computing power and storage capacity made available by the centre.
For telecommunication companies, the energy dashboard will capture and present fuel consumption in the telecom cell-sites, efficiency of the various energy assets such as aircons, battery banks, BTSs.
Innovative energy management systems can help companies map, monitor, and control these parameters at a granular level. The key is to apply best-practices for continuous improvement in the observed performance as reported by the dashboard. The voluminous information calls for expert energy analytics to observe trends, predict energy patterns, and enable proactive decision-making.
A simple turn-off/ turn-on based on occupancy has a significant impact on lighting and HVAC assets, in terms of reducing energy consumption and consequently a reduced energy bill.
How soon can be the payback of technology-based energy management solutions?
The success of technology-based energy management solutions is driven by the 'pays-for-itself' value proposition. The payback can be typically within the 2-year timeline.
The energy service company (ESCO) model successfully ties in the financial risk and rewards of the investment in the energy management solution. BEE has notified ESCOs in the country (we are one of them) that offer performance-based contracts to the customers.
Does 'green' bring its own energy overheads?
Customers need to be convinced that the energy solution is not part of the problem itself. For instance, an occupancy sensor installed to automate light switching based on occupancy should not end up increasing the energy consumption due to its own operation! The processes deployed in the manufacturing of energy-saving equipments need to be 'green,' as well.
It is also important to understand that the largest energy efficiencies can be driven by the simplest means of 'greening.' For instance, solutions can be optimised to help in reducing the energy consumption at the sensor level through modifications done before installing them.
What are the sectors where energy consumption is huge? What is the potential of the energy management market in India?
At 8 per cent of GDP, the overall energy consumption in India stands at approximately $112 billion. We narrowed it down, and found that 600 of the largest companies alone spend in excess of $25 billion.
Of these, IT services, banking, hospitality, communication and media are predominantly knowledge- and services-based industries that spend the most on IT infrastructure, building assets, and field equipments.
Our take is that energy management can help reduce these spends by at least $2.5 billion to $3 billion for the enterprise. At two times that sum, the energy management market in India can easily be pegged at upwards of $5 billion. This does not consider the market for energy management in the household, which can be as big, if not larger.
Would you like to tell us about recent significant successes in terms of cost saving achieved by your large customers?
ConnectM's customers have seen a 10 per cent reduction of their energy bills. We have now deployed this solution successfully for the commercial real estate of over 1 million square feet across 10 customers, and are delivering energy cost saving of the order Rs 50 lakh annually to them.
In the telecom infrastructure space, our solution is well placed to deliver a 5 per cent to 8 per cent impact on the EBITDA.
A key value proposition of our engagement is that we provide end-to-end managed service delivery. Our customers contract us as the 'Chief Energy Officer' who takes charge of all their energy efficiency needs. This helps them enhance savings and increase productivity.

--
Gopinath S
Chief Executive
nRG Consulting Services, Bangalore
http://business.vsnl.com/gopinath
http://nrgcs.blogspot.com/
+91 99161 29728