April 2016: The Audacity of trying to Appear Even

Lydia Powell, Akhilesh Sati and Ashish Gupta, Observer Research Foundation

Conventional Fuels

Oil & Gas

The audacity of the Delhi government in trying to appear even handed in policy making grabbed most of the attention in the media this month. Generally any policy that rations products or services targets the poor but the policy to ration road space targeted the rich four wheeled population of Delhi. Naturally they fumed as they tried to get alternative modes of motorised transport to get to their golf courses. The scheme of rationing the use of personal mobility in Delhi on the basis of the number on the licence plates of petrol or diesel driven personal vehicles is supposedly back on popular demand and so it also attracted the wrath of the political parties that did not think of this first. The policy may not have a significant impact on the negative externalities of motorised mobility such as pollution and congestion but it is not a pointless exercise.  It gives the impression of something being done about something that is framed as the most pressing problem; it distracts people from other more pressing problems; it provides an oversimplified narrative of a complex problem with one or two clear enemies – motorised personal vehicles or coal burning power plants; it easily lends itself to televised duels which is probably the source of inspiration for most legislative action today; most importantly it makes people believe that they are part of the solution even though they are part of the problem.

Strangely the record the 7% growth in the consumption of petroleum products for 2015-16, the highest in 15 years was being celebrated as the coming of age of India in energy consumption. Most of this consumption is accounted for by the increase in use of motorised transport. The irony is that the increase in motorised transport that is driving consumption and contributing to high growth figures that the central government is proud of is actually the problem that the Delhi government is supposedly trying to solve!

Barring kerosene all petroleum products are reported to have grown by 8-25% last financial year. While the consumption of petrol is said to have grown by 14.5% the consumption of diesel grew at 7.5%. Part of the credit is given to the 8% reduction in the price of petrol and the 11% reduction in the price of diesel. The growth in consumption of diesel is partly attributed to poor monsoons and the consequent increase in agricultural pumping. The increase in demand for logistical services from online retailers is also said to have boosted oil consumption. Aviation fuel consumption grew at a 9 year high of 12% driven by increase in capacity and the fall in oil prices.  While low oil prices were boosting consumption of petroleum products it was also said to be reducing the amount of remittances of Indian workers in the Gulf. The impact of this reduction on the Indian economy is likely to be marginal but it demonstrates the intricate linkages between energy and the global economy. Contradicting all predictions of the inevitable insecurity in oil supply, an insecurity of demand has materialised with Iran and Saudi Arabia reported to be courting India as their target for security for demand! In other news we had stories on domestic oil & gas assets that were secured by the private sector with great fanfare about a decade ago being returned to state owned companies. On the international front, India was reported to be the first in Asia to buy shale gas. Whether this gas will actually flow into India is a different question.


On coal, the most surprising news that emerged in April was that Coal India Ltd (CIL) will be shifting its focus from producing coal to marketing coal. Less than a year ago CIL was enjoying the best of times as it was thought to be the beginning of a long sellers’ market for coal.  What CIL is looking at now appears to be the beginning of a long and hard buyers’ market.

Coal stock of CIL was reported to have increased by 4.2 million tonnes (mt) to 57.674 mt in April 1, 2016 compared to 53.46 mt on 1 April 2015. The increase in coal stock was mainly due to modest lifting by power generators in view of their comfortable coal stock position of 38.87 mt as on March 31, 2016, which is equivalent to requirement for 27 days. To facilitate liquidation of pit-head stock, the Coal Ministry has reportedly decided that the plants getting coal through the MoU route or having erstwhile tapering linkage will now have to take it via special e-auction being conducted for the power sector.

On the other hand, faced with mounting stocks CIL has slashed the prices of high grade coal by around 40%.  Apart from this CIL has also scrapped the premium charged based on volumes delivered to incentivise large volume buyers to commit to higher off-take.  It is not clear how many will lift coal when demand is suppressed.

Given the over-invoicing of coal imports and illegal non-banking channel funds transfer, known in local parlance as hawala, India has launched country wide investigations into coal importers over-invoicing and resorting to illegal cross-border funds transfer estimated at around $5.3 billion. The Department of Revenue Intelligence have been directed to intensify vigil on all inward coal shipments and closer scrutiny of import documents. The illegal activity is supposed to have helped many power plants to claim higher tariff showing higher cost of fuel. It is necessary to unearth the truth quickly. Unless this is done, the quest for reformulating tariff policy to allow mandatorily pass-through fuel costs and the consequent inflation of tariff will continue.

Renewable Energy

In order to make hay while the sun shines Suzlon, a company that was celebrated as the wind beneath India’s renewable wings appears to be converting itself into solar company. The fall of Sun Edison did not seem to have the expected ramifications in India where the company is reported to be an active investor. The target for solar capacity addition was reportedly breached this year with 3 GW rather than the planned 2 GW added. Meanwhile Himachal Pradesh which until just a few year ago was hoping to be floating on hydro-dollars is now announcing that it will be fully powered by solar energy by 2020.

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org, ashishgupta@orfonline.org 

Courtesy: Energy News Monitor | Volume XII; Issue 46


Fly Ash from Coal Combustion: Inevitable but Useful

Ashish Gupta, Observer Research Foundation

Thermal Power stations using pulverized coal or lignite as fuel generate large quantities of ash as a by-product. These power plants form the major source of fly ash in the country. It is expected that by the end of 12th Five Year Plan, the generation of fly ash to reach 300 million tons (mt) per year and the volume of fly ash is likely to continue to grow at the same pace at least for next two to three decades. The disposal of such a large quantity of fly ash is indeed a challenge.  The disposal of fly ash poses numerous ecological and environmental problems.

Fortunately, fly ash which was once considered as a waste material is a resource material in civil engineering and material science. In addition fly ash can be gainfully used for various other applications. The government via Gazette Notification of 16th November, 2009 has made it mandatory that in all types of construction works within 100 km radius of thermal power plant fly ash bricks (fly ash content – 25% min) should be used. Unfortunately this notification is not enforced.  If enforced pond ash at thermal power plants can be effectively utilised.

In 2012 around 100 million tonnes (mt) of fly ash was being utilised out of 200 mt generated as per Ministry of Science and Technology. The utilisation of fly ash in various sectors is given below:

Utilisation of Fly Ash

image (2)

Source: Fly Ash Utilisation Unit – Department of Science & Technology

Though utilization has increased to nearly 50% in absolute terms a very large quantity of fly ash still remains unutilized. As the demand for energy grows further, production of fly ash is inevitable since India has no alternative but to use its relatively vast resource of high ash coal – washed or otherwise. Therefore it is essential to find potential areas where fly ash can be utilised in a sustainable manner to minimize its negative impact. These are given below:


Globally, the cement industry accounts for nearly 6.5% of CO2 emissions.[1] Use of fly-ash would reduce clinker consumption and bring down emission of greenhouse gases in the atmosphere. The utilization of fly ash would also help in reducing the production cost and provide technically superior products to consumers at more competitive rates. Apart from this production capacity of the manufacturing units may increase to meet the increasing demand of cement. In addition use of fly ash in cement production could save approximately 8 to 10 percent of power use[2].

Limestone Conservation

Given the limited reserves of limestone in the country and given the increasing demand of cement, it is essential that cement grade lime-stone is conserved by using fly ash.

Controlled Low Strength Material (CLSM)

CLSM is a low strength material which is widely used in USA, Canada and other countries as back fill material in utility trenches and filling abandoned underground structures. Unfortunately, in India even the utility trenches are backfilled by soil which normally settles down under load resulting in uneven road shoulders. It poses serious traffic hazard. The use of CLSM on large scale will help in increasing the use of fly ash and to create more durable and safe road infrastructure.

Part replacement of sand with fly ash

Given the shortage of good quality sand and environment concerns on its extracting from rivers, fly ash offers a viable alternative to the extent that grading remains within the provisions of IS 383: 1970, Code of practice for coarse and fine aggregates for concrete[3].

Mine Filling

Large quantities of fly ash can be utilised if used as mine fills. This single application of fly ash has the potential to utilise about 1/4th of total fly ash generation[4]. It will also enhance coal recovery from the mines.

Fly ash in Building Materials

Since fly ash is a Pozzolanic material containing silica in good proportion. It has tremendous potential to be used as an alternative material for building construction for eg. ready-mixed fly ash concrete, precast fly ash concrete units, clay fly ash bricks etc.


The Indian fly ash is alkaline and as such improves soil quality. In fact, fly ash consists of all elements present in soil except organic carbon and nitrogen. As per a study conducted by Maharashtra State Electricity Board considering all factors like soil quality, doses of chemical fertilizers, cyclic sowing of different food grains etc., it is found that with dose of 10 mt fly ash per hectare and just 50 percent dose of chemical fertilizers (as annually required) there is increase of 20% yield in terms of grain and fodder[5].

Indeed, fly ash has become an important material for various industrial and construction applications such as manufacturing of bricks, cement, asbestos-cement products and road/embankments. However, cement and concrete alone would not be able to utilise increased volumes of fly ash in future and therefore utilisation of the same in new avenues is an absolute necessity.

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

[1] A. K. Jain, Paper on “Status of availability, utilisation and potential of fly ash use in construction”
[2]Fly ash utilisation and generation, NTPC
[3] A. K. Jain, Paper on “Status of availability, utilisation and potential of fly ash use in construction”
[4] Use of Fly Ash in Mine Filling- cbri enviwww.cbrienvis.nic.in/mine_filling.htm
[5] Ash Utilization-ntpc ntpc.co.in/index.php?option=com_content&id=18&Itemid

Courtesy: Energy News Monitor | Volume XII; Issue 45

Coal Quality Compliance Conundrum!

Ashish Gupta, Observer Research Foundation

Indian coal in general contains high ash content due to its formation. They are of drift origin, i.e the original plant materials, which later transformed into coal, were transported by rivers and laid down as deltaic deposits. As a result the plant materials were contaminated with clay and other minerals, giving rise to high ash content. This very nature of the Indian coal necessitates coal beneficiation before putting them into use.

The preparation of high ash Indian coal primarily depends upon its washability characteristics and the requirements of the consuming industries. The present scenario requires power plants feed to be prepared below 34% ash whereas for cement plants, it varies from 30 to 32% ash and for sponge iron industries below 24%t ash[1]. These requirements have been put in place to improve the efficiency at the consuming point. The specific requirements from different consuming sectors are given below:

image (2)

One can see from the above tables that for cement industry coal specification is mandated by Indian Standard Organisation and so compliance is mandatory. The sponge iron industry uses good quality domestic coal and imported coal and so there is also a possibility of compliance. But for power plants these requirements work only on paper. Though there is a notification issued by Ministry of Environment, Forests & Climate Change (MoEF & CC) mandating power plants beyond 500 km to use coal with ash content of 34% only. Unfortunately, this notification has thus far failed to make any impact.

In order to comply with this mandate coal beneficiation is necessary. But choosing a suitable preparation techniques for coal washing for coal used in power plants is a challenge due to its poor quality and varying washability characteristics. Power plants are designed for a particular coal quality range and any deviation in quality adversely affects the efficiency of the power plants. Therefore no single preparation criteria/ scheme can be evaluated economically to beneficiate high ash Indian coal. However, assurance on supply of requisite quantity & desired quality of raw coal (both physical & chemical) from the linked source/ sources could address this issue. Some technical barriers will remain but there is a need to find an economic and financially viable model for coal washing.

Views are those of the author                    

Author can be contacted at ashishgupta@orfonline.org

[1] Dr. Kalyan Sen paper “How to choose coal washers”

Courtesy: Energy News Monitor | Volume XII; Issue 44

Rationing Personal Mobility in Delhi: Will it Constrain Access?

Lydia Powell and Akhilesh Sati, Observer Research Foundation

The rationing of private mobility by the government of Delhi supposedly to curb local pollution has invoked mixed responses. If we leave aside the issue of the link between the use of private transportation and local pollution to the television debates and focus instead on the issue of mobility we may see something that is missing in the public discourse. Given the large shares of national resources, time, and capital that are being invested in motorized transportation, it is surprising that not much effort is put into understanding the motivations and circumstances that stimulate mobility and the scale and nature of the benefits that are derived from mobility. There is almost no investment in the development of social indicators in the transport sector which would make a major contribution to improved understanding of transportation and to improved public decisions in the coming decade.

Ownership of Light Duty Vehicles in USA and India

image (1)

Source: Oak Ridge National Laboratory, US (http://cta.ornl.gov/).

Transportation or mobility is typically a means to an end in both passenger and freight aspects but often public policy tends to treat mobility as an end in itself or as a substitute for access. For example low per person consumption of transport in India compared to developed economies is framed as one of India’s key development problems (as it is in the case of consumption of other developmental goods such as energy).  The obvious policy response has been to build roads, multilane highways, metropolitan and national rail networks, airports and ports to increase availability of motorised mobility. In addition public policy also promotes the ownership of private vehicles through explicit and implicit subsidies even though it is well known that motorized private transport thrives on externalization of its true costs such as energy price, pollution and congestion.

The assumption behind policies that promote investment in motorised mobility is that all this investment will increase per person availability of motorized mobility and consequently increase per person consumption of transport. The unstated hope is that this would necessarily lead to access and opportunity and lead to overall growth. Is this a valid assumption? Will the mere increase in per person consumption of transport increase opportunities accessed per unit time or per unit cost for everyone?  Who is consuming mobility for access and who is not?

Given that people do not need mobility in itself, normally, but rather a level of accessibility which enhances the degree to which they are able to participate in spatially unconnected activities such as jobs, shopping and schooling, the rate of growth of personal motorized mobility in Delhi could suggest one of the following:

  • a mismatch in demand and supply of access to opportunity such as a spatial disequilibrium in the job market along with the inadequacy of public transport options
  • the growing desire for emulative and positional consumption.

Mobility as a Solution to Spatial Disequilibrium in the Labour Market

Mobility in urban areas in India is in general a solution to problems of spatial disequilibrium in the labour market, expressed by mal-distribution of labour in relation to employment opportunities. Like migration, external commuting is a means of restoring a spatial equilibrium between available employment and the resident workforce. Unlike migration, it is also a means of capitalizing upon private and community investment in areas that lack ‘development’. The satellite townships that have developed in the last two decades around Delhi are testimony to this proposition. External commuting from these satellite townships is heavily dependent upon the availability of these residual assets at relatively low prices to compensate for the burden of long daily work-trips in to key business districts of the city.

Although very little external commuting is in long-term equilibrium, it does not follow that external commuting is a transient phenomenon of only passing interest. It will continue to be an important means of adjustment to spatial anomalies in job opportunities, and its importance may well increase as economic changes accelerate and daily travel range increases. External commuting has eased the problems of employment dislocation by transferring the redeployment burden to the commuter, whose daily journey has linked the undeveloped areas in the periphery of Delhi and the more prosperous workplaces located in key business districts and transferred a substantial share of this prosperity back to the satellite townships which were until very recently agricultural or waste lands and sustained their residential role.

The development of satellite townships, a process of ‘suburbanisation’ is the result of the market taking charge in the absence of interventions on the part of the Government in the form of systematic spatial planning. The potential contribution of spatial planning to the reduction of motorised mobility and the consequent impacts on the environment has been substantiated by many empirical studies which have concluded that about one-third of the variation in per person transport energy consumption is attributable to land use characteristics.

Studies based on data from industrialized countries have established that land use characteristics explain up to 27% of the variation in travel distances per person although half of the variation in travel distance per person could be explained by socioeconomic factors. Features of compact land development on the urban fringe, such as high density, a high level of jobs-housing balance and compact physical pattern, have been shown to enhance people’s accessibility to facilities and services and these have also been found to reduce the overall need for travel and the distance and duration of motorized journeys. A study conducted using housing survey data in the Netherlands showed that the density of urban form has a significant impact on mobility (commuting distance and mode choice) and thus on CO2 emissions. It found that workers living in the highest density locations (more than 25 houses per hectare) tend to travel about 11.9 km less than workers in the least dense location. In more densely populated areas workers tend to change from car to other travel modes, notably public transport (metro and tram). Accordingly, the predicted CO2 emissions per passenger were lower in the highest density areas. When a worker migrated from lowest to highest urban density level, the CO2 emissions per passenger was reduced by 47%. An increase in net population density of 10 persons per hectare was found to reduce 0.764 minutes in commuting time.

A study which measured petroleum consumption and population densities in a range of large cities around the world found a clear negative relationship between the two: as densities rise, fuel consumption falls dramatically. The villains of petroleum consumption were identified as US cities which had consumption rates twice as high as those in Australian cities and four times as high as those in European cities. The cities with the highest densities were those with low car usage and high levels of provision of public transport. The obvious conclusion from this study is the need for stronger policies of urban containment and for investment in mass transport systems.

In the context of cities in developing countries, the form of land use is often believed to have a major influence on commuting patterns although empirical research is scarce. In Asian megacities such as New Delhi, Mumbai, Kuala Lumpur, Jakarta and Manila there has been dramatic increase in urban sprawl on the city fringe which has led to longer commuting distances and greater traffic congestion in the central city area. Longer travel demand and greater car usage in Asian megacities is seen to have been caused by new forms of land development at the neighbourhood level, that is, the non-pedestrian/cyclist-friendly urban form which emerged after the 1990s.

Although the concept of compact urban cities has been very influential, it has generated considerable criticism on a mixture of ideological and technical grounds.  Ideologically, reliance on public intervention is questioned by many studies. These studies essentially argue that the market will resolve the issue as it has in Australia and United States where commuting distances and times have tended to fall in recent years because of employment decentralization and hence increased suburb-to-suburb work trips, and where the major growth in travel arises from non-work trips.  The key argument is that ‘polycentric cities’, through market pressure, are the most effective way of dealing with the transport energy consumption and pollution problem.  It is feared that the advocacy of dispersal may become a self-fulfilling prophesy and contribute to the evolution of future urban forms that are increasingly inefficient and socially inequitable. There is also scepticism over the realistic prospects for massive investment in public transport.

For some years geographers have been disputing the nature of these human and job movements. Some argue that growth has been occurring as a result of continuing suburbanization which is sometimes discontinuous – where development is hindered by green belts, for example. Others argue that the process has been one of ‘counter-urbanization’. This view suggests that growth has been focused, not on the periphery of existing urban areas but in the least urban areas. Thus, households and companies have been consciously relocating to small towns in a distinct anti-urban movement. These issues are important but the concern here is simply whether these processes are continuing and, if so, what are the prospects that they can be reversed?

Personal Mobility as a product of Emulative and Positional Consumption

In the decade after the Second World War, the advantage of motorized transport user over the pedestrian in the industrialized world was his speed in operating in an environment primarily designed to the pace of the pedestrian. By the 1970s the relative advantage of the motorized transport user over the pedestrian shifted to his distance advantage in an environment designed for the automobile. In that environment the absolute advantage of motorized transport declined as activities spaced themselves in keeping with the dominant capabilities of motorized transport. However, the relative advantage of motorised transport over the pedestrian has remained. The anger over the rationing of the use of personal motorised mobility in Delhi from the car owning sections of the population arises from the compromise on this relative advantage and not from any constraint in access to opportunities or entertainment.


Inequality emphasized by consumption that does not necessarily meet a need but merely expresses a desire to be respected on the basis of the level and type of material consumption.  In 1899, Thorstein Veblen said that life had become ‘above all a battle for respect and avoidance of invidious consumption’ and that ‘everyday life was but an unremitting demonstration of the ability to pay’.    This is truer today than it was in Veblen’s time.  Working class families in India now spend more than they can afford on a car that makes them look wealthier than they are, lest they are seen as losers by others, most of all by their own children.  This according to Veblen ‘the necessity of emulative over-consumption spurring each other into traps of ever greater over consumption’.  This trickles down the social order and transforms whole societies into massive over-consuming systems that erode the carrying capacity of the natural world. ‘Conspicuous consumption’ a term coined by Veblen, is also driven by the desire to acquire what the British economist Fred Hirsch called ‘positional goods’ which by definition, reduce in value if everyone has them. A bigger or imported private car is the new ‘positional good’ in India and in urban cities it is seen as obligatory for the irrational reason that everyone in a certain social class has atleast a less expensive version. The other ‘positional good’ that is relevant in this context is location of housing.  In an unequal country such as India where social inequalities are stark, no one is really free to choose where they live. The rich look for exclusive locations just to ensure that they do not live in undesirable locations such as those near slums where the poor live or colonies where wage earners live. This often necessarily means moving out into satellite townships far away from the central business district. This is also true of companies which want their office location to signal ‘class’ or ‘exclusivity’. When offices move into suburban exclusive locations, low paid workers are pushed into using personal transportation merely to remain employed as public transport is often poor or non-existent.

The process of suburbanisation and the consequent mobility is counter-productive as far as energy and environment are concerned because cities such as Delhi, by definition arise to minimise transport costs for goods, people and ideas and evolution away from cities is sub-optimal. Locational patterns within cities are in fact a function of transportation technologies. In fact the urbanization of poverty has been found to be the result of better access to public transportation according to an empirical study of data from American cities such as New York and Washington. Studies have also established that contrary to theory that the housing market sorts the poor, it was low cost public transportation such as subway systems that sorts the poor by attracting them to certain locations that sustain low incomes. This is true even in Mumbai’s Dharavi, believed to be Asia’s largest ‘slum’ which is sandwiched between the city’s two main railway lines and surrounded by six stations making it a public transport hub for the poor. The irony in these observations is that public transport usage strongly predicts poverty and explains the connection between poverty and proximity (to the central city) to a large extent.  The transition from ‘poor’ to ‘rich’ status occurs when the transition from ‘public transportation’ to ‘cars’ occurs.  Generous housing subsidies for the poor in old American cities played a role in attracting the poor to the inner city. On the contrary, studies have found that in many European cities the poor live in suburbs because of high fuel taxes and generous subsidization of public transport which make American style suburbs are unattractive to European middle classes. These studies imply that public transportation is an important policy instrument which can influence locational decisions of the poor and that artificially created political boundaries can induce the poor to crowd into cities.  These results cannot be directly applied to India because the lives of a large section of the poor in urban areas is integrated into the lives of the rich as well as the middle classes as their live-in maids, cooks, cleaners, gardeners and drivers. With no policy on housing or public transportation, the urban poor in India continue to rely on walking, by-cycling or public transportation where available.

The notion of increased mobility through greater car ownership also presents hidden problems. These stem from the often disregarded fact that a large proportion of the population are and will remain without personal motorized transport such as cars as they may not be able to afford to drive them or they may be house-maids who are the car-less members of car owning households. So a significant proportion of the population in Delhi and other cities in India are comparatively immobile; they are the ‘transport poor’, an under privileged section of a society living amidst the myth of complete mobility. This section is also made up of such groups as the old, the young and the disabled, who require their immobility minimized rather than a general policy of maximized mobility. It is of course a well-known fact that as car ownership increases and the numbers using public transport decrease, services are often cut back and fares raised to meet operating deficits. The transport poor must maintain this declining standard of service by their fares. They are of course the group least likely to break this vicious cycle. So the distinctions between the classes have become more blurred in the context of spatial mobility. The major reason for this is that car ownership is now a more socially extensive phenomenon. The ownership of a car, the consequent increase in spatial mobility is merely a reflection of increasing consumption standards. Many of the plans for our cities, in fact, attempt to maximize mobility and adapt a physical structure which is for the most part unsuited to the car. Of course society is becoming more mobile, that is the ability and freedom to move from place to place is increasing, but the emphasis on mobility and especially on the privately-owned means of travelling tends to lead to the neglect of other vital issues such as access to opportunities. The growth of car registrations in India is a warning that growth in demand for energy and resultant emissions will be extremely difficult to influence with behavioural change in the short term. Energy demand from urban transport in Delhi alone is expected to increase three-fold over the next decade and on a similar scale in other large cities in India.

Rationing of Personal Mobility is not a Compromise on Access

The development problematic has been about geographic inequalities in wealth and quality of life from the very beginning. While spatial economic inequalities are an economic reality, the question is whether Government intervention or market forces should be allowed to reshape geography so that inequalities are reduced and economic efficiency is maximized. The experience from old American cities which have attracted the poor into the central business districts and the experience of European cities which have pushed the poor into suburbs show that government interventions in the form of the provision of public transport, subsidized housing, low or high tax on gasoline (America and Europe) could potentially influence locational decisions but do not change the circumstances of the poor.

The rationing of personal mobility in Delhi is unlikely to have an impact on access to opportunities or entertainment (or even on pollution) as a number of alternative options to mobility are available. However the exercise in rationing is an experiment in the ability of the Delhi government to shape individual behaviour.  As of now the resistance to shaping behaviour is coming from the rich who are dismissing the move as populist.  This is not a departure from typical behaviour of the rich. The poor seem to like the idea that the government is not afraid to take on the rich but they appear to be indifferent to whether or not the number of cars on the road decrease in Delhi or whether it reduces pollution. They remain more concerned by mundane day to day concerns over employment, income and availability of vital resources such as water. The only ones that are enthusiastic about the move are the ecological warriors of Delhi who believe that they can and must change the world and prime time anchors of television channels who like arguments more than they like answers.

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 44

Courtesy: Energy News Monitor | Volume XII; Issue 45


March 2016: Mixed Messages for the Energy Industry

Lydia Powell, Akhilesh Sati and Ashish Gupta, Observer Research Foundation

Conventional Fuels

Oil & Gas

The month of March began with some light at the end of the rather long and dark tunnel for the oil industry.  Oil prices increased by 30% in the first week of March compared to price in February when price touched $35/bbl. By mid-March crude price gain over February increased to 40% and by the end of March the gain was 50%. However oil producers were reported to be hedging their bets by locking in sales of future production as they were not hopeful of further increase in oil prices.

But concerns over future oil supply reductions also grew. Global rig counts were reported to be down, but producers in Africa and Latin America were reported to be especially hard hit by low prices leading to a significant fall in rig count. Some analysts predicted that this could have grievous consequences for future oil supply and consequently oil prices.

However for the time being, the global oil market remained over-supplied and inventories in OECD countries continued to rise. OPEC could not negotiate a production cut as Iran insisted that it would not accept the OPEC-Russia production freeze until its production reached pre-sanction levels.

image (1)

Source: EIA

Goldman Sachs defended its prediction of oil prices falling below $20/bbl and dismissed the price rally as self-defeating because it did not see any real supply deficit in the market. On the other hand the International Energy Agency remained optimistic that oil prices had touched bottom and that supply disruptions from Nigeria and Iraq combined with falling production from the United States and a weak dollar could boost prices in the future.  Overall not many in the oil industry were convinced that the price rally was for real.

Iraq which had signed contracts that offered fixed payments to companies such as Exxon, Shell and BP to produce oil in Iraq at a time when oil prices were sky high was reported to be in a fix as it had to pay nearly $2 billion to these companies despite the dramatic fall in the price of crude oil.   Iraq was reported to be trying to re-negotiate the contracts so as to link payments to crude prices. On the other hand Iran was reported to be looking at a good flow of revenue for investment to boost oil production as it started receiving payments that were frozen on account of sanctions. Saudi Arabia is apparently not immune to the fall in oil prices as it is said to be looking to borrow $8 billion to make up the deficit in its budget.

Meanwhile Gazprom was reported to have secured a €2 billion loan from China, the largest ever from China to a Russian company. Gazprom is said to have reduced its annual capital expenditure to $17 billion compared to over $40 billion in 2011. The much hyped ‘power of Siberia’ pipeline project designed to carry gas from Russia to China was reported to be losing support. Some observers say that Russia’s oil output may not increase beyond its post-Soviet record of 10.9 million barrels per day achieved in January 2016 primarily on account of its inability to invest in new fields.

The shale oil & gas sector of the USA was rocked by the untimely death of Aubrey McClendon the former CEO of the Chesapeake energy, a leading player in the shale gas sector just a day after he was indicted over an oil & gas lease rigging scam.

China’s oil imports were reported to be soaring as it sought to take advantage of low prices.  As per the policy of the Chinese government the fall in crude prices below $40/bbl are not passed to the retail consumer which allows higher returns for refiners.

The British government came to the aid of its struggling oil industry by doing away with the 35% petroleum tax and reducing another tax on profits from 20 to 10%. Naturally the industry welcomed the move. The troubled Brazilian oil company Petrobras announced its largest ever quarterly loss of $10.2 billion and also wrote off over $13 billion worth of oil field assets.

The Wall Street Journal reported that energy loans that could default this year is likely to increase by 50%. 51 energy companies were reported to have filed for bankruptcy since 2015. The total debt of the oil & gas sector is estimated to be about $3 trillion in 2014, three times the level in 2006. On the gas front, Gorgon LNG project in Australia started operations after sucking in an investment of over $54 billion. Not many saw this as a moment of glory given the depressed market for gas.

Coal & Power

Globally March continued to be bad for the coal sector. Coal production in the USA continued to slide, finishing the month with a 38% year on year decline. Declining coal production prompted many coal players in the Powder River Basin of USA to announce huger layoffs. Peabody Energy, the world’s largest private sector coal company is said to be nearing bankruptcy. Coal miners in USA had hoped that exporting abroad would offer a lifeline. But coal exports from the USA are said to be collapsing, falling by 23% in 2015 alone. That was the third consecutive year of declining exports and exports are reported to be nearly half of what they were at their peak in 2012. India is seen as a growth opportunity for American miners. Coal producers across the world continue to be under relentless pressure from falling demand, depressed prices, and environmental regulation.  The decline for coal producers is largely seen as structural with little prospect of a rebound in sight. A growing number of large banks in OECD countries are said to be ruling out future investments in coal.

In Australia large coal companies continued with their divestment program. Anglo American is reported to have entered into an agreement with a consortium led by Taurus Fund Management to sell 70% interest in the Foxleigh metallurgical coal mine in Queensland, Australia. Yancoal another big Australian major mining player is reported to have lost control of the Ashton, Austar and Donaldson coal mines in New South Wales as part of a $950 million debt funding agreement.

In a recent study, Price Waterhouse Coopers concluded that Indonesia could exhaust its economically retrievable coal reserves by 2033. The study was based on information from 25 coal mining companies representing around 80% of Indonesia’s output and the availability of domestic coal for the 35 GW power generation capacity Indonesia hopes to build by 2019.

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Source: EIA

In China too coal production declined as thousands of miners went on strike over months of unpaid wages. The miners’ anger spilled into street when the governor of the province said that the company owed employees no back pay.

There was some interesting developments on the nuclear sector. The chief financial officer of Electricite de France is reported to have quit due to his opposition to the Hinkley Point nuclear reactor in the UK a deal that could put the company in financial jeopardy according to him.  The partially state-owned company has yet to make a final investment decision on the $26 billion nuclear project, but that could come as soon as April 2016.

Climate Change & Renewables

These are glory days for renewable energy as the developed world pours money into the sector just as it did on non-renewable energy in the 1970s and 80s supposedly to develop the under-developed World.  According to a new report from the International Renewable Energy Agency (IRENA), renewables could save $4.2 trillion if the world doubled its share of renewable energy to 36% by 2030. The report argues that an aggressive ramp up in renewable energy installations not only makes economic sense, but less expensive than not doing it.  Given that IRENA was set up to promote renewables one should not be surprised by this pronouncement.

Global investment in renewable energy in 2015 was said to be twice as high as investment in new coal and natural gas power plants. China alone is reported to account for one-third of the $286 billion invested in clean energy last year.  According to a new report, the solar market in the USA is expected to expand by a staggering 119% in 2016 with installations increasing to 16GW from 7.2GW in 2015.

There was some heat in the politics of climate change as the US Securities & Exchange Commission (SEC) ruled that Exxon must offer details climate related risks and on risks related to legislation on climate change to shareholders.  Following the Paris agreement, added costs through taxes or any limits on fossil fuel production will reduce long-term shareholder value which according to the SEC the shareholders must be aware of.

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org, ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 43


March 2016: Hope of Oil Demand Take-Off

Lydia Powell, Akhilesh Sati and Ashish Gupta, Observer Research Foundation

Conventional Fuels

Oil & Gas

The most optimistic news for the global oil market came from India this month.  Demand for oil in India is expected to be on the verge of take-off similar to China’s in the late 1990s according to a paper from the Oxford Institute for Energy Studies. The doubling of year on year growth of 300,000 barrels per day (bpd) in 2015 compared to a growth of between 100,000 and 150,000 bpd during the previous decade is the basis of the optimism over demand growth for oil in India.  The growth in demand for personal vehicles (cars plus two wheelers) is said to be behind this anticipated growth in demand. In 2014 the number of cars for thousand people was 20 in India compared to China’s 90. When two wheelers are included in the count of personal vehicles in India the number of vehicles for thousand people increases to 144 in 2014.  The argument made in the paper is that if China’s vehicle ownership of cars could increase from about 20 per thousand people in just over a decade, India’s oil demand can increase even more in the next decade given low oil prices combined with better prospects for economic growth. This may be sound of music for car makers and oil retailers but the not for anti-fossil fuel groups who want to keep fossil fuels in the ground.  The government for its part announced this month that new policies for the oil & gas sector would attract huge investments.  If you ask the anti-fossil fuel lobbyists they would say that this investment is being made in assets that would be worthless soon.

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Note: Here, key petroleum products means – LPG, Petrol, Kerosene & Diesel. (for more details please refer Data Insight at page no. 9)

Source: Compiled from Statistics from Petroleum Planning & Analysis Cell.

The mood in the upstream oil industry in India was anything but optimistic. Public sector and private sector players were either blaming each other or blaming the government for their financial woes. The legal fraternity dealing with the industry were said to be having the best time in their lives representing one of the other of the warring factions in arbitration proceedings.

Russia was in the news this month as India’s OVL along with the Indian Oil Corporation (IOC), Oil India and Bharat Petroleum were said to be in advanced talks to buy 35% additional stake in Russia’s Vankor oil field in Siberia for close to $ 3 billion. In addition Russia’s Rosneft was reported to be about to buy 49% stake in India’s Essar Oil for $2-3 billion.  Observers in India and elsewhere were not clear as to what benefit this investment would bring to Rosneft.

There was hope that OPEC nations would be attracted by the exemption from central taxes on local sale of oil to store oil in storage facilities developed in India. It is estimated that it would cost India over $5 billion to store 130 million barrels of oil.  If OPEC nations rent India’s facilities to store oil the financial burden of holding strategic stocks can be lightened.

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Source: Bloomberg

On the downstream front the return of private refiners to fuel retailing and the initiation of purchase of crude from Iran by Indian refiners hitherto burdened by sanctions against Iran were key developments reported in the media. The big splash made when private refiners entered fuel retailing more than a decade ago was missing this time.

There was some positive news for Indian natural gas producers with government moving closer to offering higher prices for gas production from ‘complex’ fields.  What is ‘complex’ and what is not may be the result of technical, legal and political considerations. However the idea of keeping prices high through a formula that links Indian gas prices with that of international prices appears to have been abandoned for the time being.  Interestingly Indian gas companies that want high domestic prices seem to be betting on sustained low prices in international markets as they are commitments on prices in trans-border pipelines projects.


Ironically positive news seemed to be coming out of the coal sector at a time when the most positive news would have been negative news on coal production. Coal production by CIL crossed the 500 million tonnes mark at a time when demand for coal is slackening. The government appeared to be trying hard to increase the attractiveness of procuring coal through electronic portals and anti-theft devices.

The Standing Linkage Committee (Long-Term) has been authorized to recommend the Letters of Assurance (LOAs) for supply of coal. In 2013 signing of Fuel Supply Agreements (FSAs) in respect of 78,000 MW capacity power plants which had been commissioned or are likely to be commissioned by March 2015 was approved by the concerned authority. Interestingly, due to negative coal balance reported by subsidiary coal companies of Coal India Limited (CIL), new linkages/ Letters of Assurance (LoA) have not been granted to any of the sectors since 2010.

The government is now looking to supply coal to power plants of 4660 MW capacity that do not have any fuel linkage subject to the availability of coal. This supply would not adversely impact the availability of coal for the identified plants of 78,000 MW capacity. Apart from this the coal linkages/LOAs issued to the power producers will be converted into long term FSAs after achievement of prescribed milestones.

In a bid to liquidate pit head coal stocks, CIL has offered 14 million tonnes to the Power sector and 4 million tonnes to the non-Power sector under special e-auction. But the initiative did not succeed as unsold volume of coal lying with CIL is estimated to be about 42.25 MT.

In order to increase transparency in business operations of CIL, the government launched a web portal for distribution of coal by State Nominated Agencies (SNA). The web portal is expected to provide small and medium consumers access to information about SNAs, availability, booking/supply distribution of coal in public domain. The move to digitise information and open it to public scrutiny will save time and energy got all stakeholders.

Another positive initiative of CIL is the modification that it has introduced in the business clauses of its contracts. The quarterly quantity to be supplied within the same quarter has now been extended till the end of the contract. Two more clauses – coal that could not be supplied due to the railway failure which was considered as deemed delivery and termination of FSA if the level of lifting is less than 30% have been done away with. These changes will offer consumers greater liberty to exercise their choice of lifting the coal at any time during the contract period.

On the commercial mining front, the government has delayed the auctions of coal blocks identified for private players due to poor response. The government is hoping that when demand for fuel revives there will be bids for coal blocks. Investors appear to be still worried about oversupply.


The states signing up for UDAY scheme launched by the central government continued to make news in March.  Punjab and J&K were among the latest states signing up for the scheme. The scheme seeks to replace 50% of high cost debt (13% interest rate) of discoms with state government bonds (8% interest rate).  Many of those who have seen similar schemes for restructuring oil retailing companies’ under-recoveries by moving financial burdens to the future in the form of bonds have their doubts over the success of a similar scheme for power.  While the dramatic fall in oil prices rendered the scheme for the oil sector redundant no such developments can be expected in the power sector. Barring a sweeping move to write off loans and start afresh the distribution segment is unlikely to show any dramatic change.  State government development loan bond yields are reported to be moving up already which generally indicates trouble.  There was unusual number of news items on nuclear power plants making progress.  What was behind this was unclear but global trends do not offer hope. EDF could not raise money for its UK projects without the aid of Chinese money. Will India welcome Chinese participation in the Indian nuclear sector? Meanwhile the price of traded power recorded an all-time low of Rs 2.30/kWh. While this may be a passing trend, solar electricity generators must watch out!

Renewable Energy

Energy news was dominated by news on progress of renewable energy projects as it has since the new government took over. For his part the Minister in charge of New and Renewable energy announced that renewable energy would be the focus of this government for the next seven years which made the sector even more attractive for investors. The doubling of cess on coal to Rs 400/tonne is expected to contribute to the attractiveness of the solar sector. However ground realities appear to be telling a different story.  The recent auction of solar projects by the Solar Energy Corporation if India is reported to have received weak response.  Perhaps the viability gap in the sector cannot be bridged by viability gap funding.

Views are those of the authors                    

Authors can be contacted at lydia@orfonline.org, akhileshs@orfonline.org, ashishgupta@orfonline.org

Courtesy: Energy News Monitor | Volume XII; Issue 42


Recurring Droughts and Power Sector in India

Shankar Sharma, Power Policy Analyst

While the drought is nothing new in India, various factors such as fast reducing green cover, El Nino, Global Warming etc. seem to be resulting in such occurrence more frequently. A well noticed consequence of such drought has been on the power sector and fresh water availability to the people living near the coal power plants.

While this is not the first year when Raichur Thermal Power Station (RTPS) in Karnataka has been impacted by lack of water in river Krishna (and the availability of coal from distant coal mines sometimes), this year it has been severe with one or more units having been shut down almost continuously due to the lack of water since February. The water availability scenario in that river cannot improve considerably till the onset of monsoon by the middle of June, unless unusual rains in Maharashtra or in North Karnataka changes the scenario.

What is even more troubling is that two more coal power plants (a total of 4 coal power generators) are under construction nearby with dependence on the same river basin for water supply. An Ultra Mega Power Project (UMPP) by NTPC (4*800 MW) also is being constructed against all techno-economic norms and against popular opposition near Almatti reservoir across the same river Krishna upstream of Raichur.

It is a glaring fact that there can be no assurance of adequate water supply to all these coal power plants in the future, in the context that the Krishna river generally has vastly reduced water flow in Karnataka stretch between January and June. A drought year will make this even worse.

The issue is also similar in the case of the other major river in the region i.e Tunga-Bhadra on which one coal power plant is depending (near Bellary town) and on which few more Units are being planned. Some more coal power plants are reported to be planned for the same region north of this place (designed to get water from tributaries of Krishna?). A coal power plant is also being considered to be built in a relatively more green area in South Karnataka near Western Ghats (Hassan district) which will add water scarcity and pollution to other existing problems of the area.

It has been a well-known fact that the North Karnataka region, wherein all these existing and the proposed coal power plants (except one on the West coast and one in South Karnataka) are/to be located, has been known for water shortage for centuries (even for drinking and agriculture). In such a scenario, it cannot be termed by no stretch of imagination, as a sane planning to build coal power plants in Karnataka, which also has no known reserve of coal.

Even the coal power plant on the west coast of Karnataka, which is alleged to have heavily impacted the lush green foothills of Western Ghats, also is reported to be planning to add two more units at the same site. Fresh water cannot be said to be plenty here, as is evidenced by the usage of sea water for this plant. In addition to impacting the local environment this particular plant is associated with the destruction of thick forests in Western Ghats because of the transmission lines needed to evacuate the power to the load centres of Karnataka.

People have been highlighting these issues for many years, but there is no let-up in building more of ill-conceived coal power plants.

Scenario has been similar in many other states of the Union, such as in the states of Maharashtra, Andhra Pradesh and Telangana; all adding up to major crises not only for the power sector, but also for the water needs of the people. It is an indication of poor vision on part of our leaders that such decisions are being taken despite about 53% of the land area of the country is officially designated as water stressed. A rational analysis of various associated issues before building a coal power plant, should not have allowed any coal power plants in the country, at least during the last few decades, but a large number of such plants are being built and planned to be built without any consideration of such societal level issues.

The unambiguous issue of water-energy nexus should have been at the focal point of our country’s developmental paradigm. But sadly we have ignored not only this, but also the true welfare of our communities.

In the present context of recurring droughts one would have expected the policy makers to take a conscious decision to move away from coal dependency early. Whereas the recent trend has been to reduce the coal power dependency in various parts of the world, due to the issues of economy, pollution and Climate Change, India seems to have determined to defy such wise policies, and ignore the issues which may lead to the destruction of the ecology, natural resources and people’s overall welfare for the benefit of few vested interests.

It is difficult to come to a conclusion that the phenomenon of recurring droughts will impact the coal expansion plans in the immediate future, but that has to happen sometime. If such climatic/geographic features of our country were to have been rationally considered by our planners, we would have moved away from coal and other conventional power sources a long time ago; but that has to ultimately happen if not immediately. But the real concern is by that time lot of our agricultural lands would have been spoiled, considerable amounts of public money would have been wasted, our natural resources would have been largely compromised, and our environment would have reached a point of no return.

It is sad that even the incidences such as low PLF of many of the coal power plants (lack of demand?), water and coal shortages for some, the financial crises for some other (termed as stranded assets already), few shining examples of renewable energy powering many of our villages etc. have not made our planners to read the writing on the wall.

It is difficult not to project a gloomy situation for the power sector in the country. But let us continue to hope that such natural phenomenon like droughts and increasing opposition to conventional projects will force the authorities to move away from such ill-conceived power projects, and towards a highly efficient, sustainable powered system based on renewable energy sources and micro-grids.

Views are those of the author                    

Author can be contacted at shankar.sharma2005@gmail.com

Courtesy: Energy News Monitor | Volume XII; Issue 42