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AM CHAM I N D I A. AmCham in India. Officers. Executive Committee. Sector Committees. Energy Sub-Committee. Power. Oil & Gas. -Active interaction with government -Policy and position papers -Industry and market studies -Legislative and regulatory process.

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Amcham in india

AMCHAM

I N D I A

AmCham in India

Officers

Executive

Committee

Sector

Committees

Energy

Sub-Committee

Power

Oil & Gas

-Active interaction with government

-Policy and position papers

-Industry and market studies

-Legislative and regulatory process

Business & Industry Focus


Factors to attract u s industry

AMCHAM

I N D I A

Factors to Attract U.S. Industry

Key Aspects of Foreign Direct Investment (FDI)

  • Return on capital must be assured, attractive and appreciable

  • Market-driven policies must mitigate investment risk

  • Secure revenue stream must be ensured to service debt and equity

Indian

Energy

Sector


Key areas of bi lateral cooperation

AMCHAM

I N D I A

Key Areas of Bi-Lateral Cooperation

  • Create a national energy strategy/plan

  • Develop implementation plan with mission objectives

  • Initiate supply and demand forecasting based on market conditions

  • Address supply side issues


Key areas of bi lateral cooperation continued

AMCHAM

I N D I A

Key Areas of Bi-Lateral CooperationContinued

Overview

  • Support the Vision: Support liberalization process. Also support: a) sustainable development; b) energy and environment management/conservation; c) increased generation/production, transmission & distribution

  • Policy Side: Guidance in framework for market driven policies/legislation which promote increased foreign direct investment

  • Regulatory Aspects: Proactive participation which will allow effective and timely project development and implementation activities to support commercial operation(s) of facilities

  • Advisory Board: Formation of a beneficial partnership propagating a long term and stable relationship between the U.S. and India wherein industry, Central and State government participate together throughout to achieve a common viable energy agenda


Key areas of bi lateral cooperation continued1

AMCHAM

I N D I A

Key Areas of Bi-Lateral CooperationContinued

Create a National Energy Strategy/Plan

  • Establish a National Advisory Board with emphasis on techno-economic aspects to provide stability in government polices and to support continuation of effective reforms

  • Emphasis on the energy chain: production/generation, transmission, and distribution, with promotion of efficient end use and conservation

  • Representation from industry, Central and State Government

  • Market driven policies with realistic milestones/targets

  • Both Central and State level objectives must match and be commensurate with each other

  • Develop a suitable environmental policy which is integrated as part of a comprehensive energy policy


Key areas of bi lateral cooperation continued2

AMCHAM

I N D I A

Key Areas of Bi-Lateral CooperationContinued

Implementation Plan (Mission Objectives)

  • Financial services sector with key milestones which are structured to support policy aspects and project development activities

  • Technical services support with key milestones which are integrated as part of ongoing project development

  • Fiscal incentives for projects with key milestones which enhance project viability as well as supporting execution schedules

  • Regional benefits allocation with rationale to support distribution on the state and local levels

  • Regulatory structuring which propagates effective policies/legislation, monitoring, and enforcement

  • Top-down model for all execution in order to provide lateral consistency as well as proper flow of policies and plans to support project development


Key areas of bi lateral cooperation continued3

AMCHAM

I N D I A

Key Areas of Bi-Lateral CooperationContinued

Demand-Side Forecasting

  • Establish quantitative criteria for energy demand forecasts, e.g., power demand and fossil fuels at both central and state levels

  • Development of a standardized model for forecasting demand which is computer based with real-time updating and simulation

  • Incorporate both sensitivity and scenario analysis into demand forecasting

  • Establish accurate database for both base-load and peak-load demand requirements to support forecasting of additional generation capacity as well as assisting transmission and distribution assessments

  • Assess market conditions to determine the true energy costs and capacity to pay


Key areas of bi lateral cooperation continued4

AMCHAM

I N D I A

Key Areas of Bi-Lateral CooperationContinued

Supply Side Issues

  • Assertive support to pending fast-track projects and on-going IPP’s in achieving financial closure. This would includes issues related to; permits and clearances, escrow accounts, foreign exchange risk

  • Rational structuring of Mega Power Projects in order to allow level playing field for existing projects

  • Bankable structuring with other major energy related projects such as LNG based IPP’s, refinery based power projects and barge mounted projects

  • A market driven liquid fuel policy which will allow both fuel selection based on techno-economic considerations as well as producing cost effective energy


Amcham in india

AMCHAM

I N D I A

Power Sector

  • State Electricity Board (SEB) Financial Viability Issues

    • Meter/Bill/Collect aspects

    • Direct subsidies to consumer from government

  • Electricity Bill 2000

    • Support passage

    • Deregulated supply company function

    • Contract-based power transmission


Power sector aspects issues continued

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

Highlights

  • Current Installed Capacity in the Country: > 93,000 MW

  • Additional capacity targets:

    • 9th Plan (1997-2002): 52,820 MW

    • 10th Plan (2003-2007): 45,370 MW

    • 11th Plan (2007-2012): 55,593 MW

  • Low Per Capita Consumption

  • Post-Liberalization: after 1992, only 2700 MW per year

    has been added


Power sector aspects issues continued1

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

  • Present stakeholders in the Power Sector

  • SEB’s 59%

  • PSU Corporations 32%

  • Private Sector Utilities5.65%

  • IPP’s2.77%

Increase Private Sector Role


Power sector aspects issues continued2

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

Areas Requiring Investment

  • To fill the gap and to meet economic growth, the following investment needs to be injected over the next 10 years:

    • Generation (200,000 MW)~US$ 200 Billion

    • Power Evacuation Infrastructure~US$ 200 Billion

    • Energy Infrastructure~US$ 100 Billion

    • Total: US$ 500 Billion

  • Upgrade andmodernization of existing units (which are technically obsolete)

    • Increase PLF from the current 64%

    • Minimize T&D Losses from the current 40-50%

    • Eliminate Theft of Power

  • Metering and Distribution of existing generation


Power sector aspects issues continued3

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

Government of India Financial Resources

In Year 2000-2001:

  • The Central Sector Plan OutlayUS$ 26 Billion

  • Defense AllocationUS$ 13 Billion

  • Planned Outlay for PSUsUS$ 2.04 Billion

Need FDI !!!!


Power sector aspects issues continued4

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

Largest Challenge to Current Projects - SEB Financial Viability

  • Financial viability of State Electricity Boards (SEBs)

    • Currently approximately US$ 5 billion in the red

    • Cross subsidies (tariffs set based based on politics rather than cost)

    • Consumers feel power is a “right” and tend not to pay. Thus, collection levels low

    • Theft and transmission losses high

    • Deficits made up by States (also now having financial difficulties)

    • Little metering

    • Result: Inability to obtain SEB escrow cover


Power sector aspects issues continued5

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

Liberalisation Challenges

  • Pace of reforms uneven

  • Current focus only on formation of regulators and accounting

    separation of business units; market structure neglected

  • State regulators being challenged by SEBs and state governments

  • States racing Centre to pass limited reform measures


Power sector aspects issues continued6

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

Electricity Bill 2000

  • Comprehensive legislation that consolidates power statutes

  • Provides a blueprint for restructuring the market

  • Legitimate effort to establish competitive markets

  • Goal: Support passage of final draft through Parliament without substantial change


Power sector aspects issues continued7

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

Electricity Bill 2000: Draft VI’s Competitive Scorecard

  • Functional Unbundling of SEBs: No

    • Accounting separation only

    • States can elect to continue SEB

  • Deregulated Commodity Pricing: No

    • Supply Company pricing fully regulated

  • Third party access: Yes

  • Customer choice: Yes

  • Independent Regulator: Qualified yes


Power sector aspects issues continued8

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

Electricity Bill 2000 Draft VI Challenges

  • SEBs not required to fully unbundle

  • Full regulation of supply companies (price and performance). Solution is to phase in residential/commercial choice

  • Interference with transmission to divert power to deficit areas


Power sector aspects issues continued9

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

Electricity Bill 2000: Solutions

  • Require full unbundling and corporatization of SEBs

  • No regulation of Supply Company price; regulation only of wires function

  • No interference with free flow of transmission according to supply contract and operations (maintain sanctity of contracts)


Power sector aspects issues continued10

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

Summary:Urgent Sector Focus Areas

  • Support passage of Electricity Bill

  • SEB financial viability

    • MBC: Meter/Bill/Collect

    • Subsidies must come directly from the government, not the utilities

  • Focus on full competitive markets, not only regulators and functional separation

    • Trust the market

    • Avoid over-regulation


Power sector aspects issues continued11

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

Pending Project(s) Challenges

  • Facilitate financial closure

    • Extensive project schedule delays

    • Lack of bankable fuel supply agreements

    • SEB financial viability problems

    • Competing vested interests

    • Foreign company departures result

  • Dividend Tax must be reduced from 22% to 11%

  • Prioritize merit of pending power projects and focus on higher priority projects

  • Government of India should offer guarantees for a few low-cost, high-value projects as an interim solution


Power sector aspects issues continued12

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

Industry Viewpoint on Commercial Nuclear Power

  • Encourage proliferation resistant nuclear systems with indigenous fuel systems based on thorium

  • Safety related aspects achieved via proper design features and conduct of operations to international standards

  • Address the entire fuel cycle including waste management to protect the environment


Power sector aspects issues continued13

AMCHAM

I N D I A

Power Sector Aspects/IssuesContinued

Industry Viewpoint on Hydroelectric Power

  • Expedite development of projects pending financial closure

  • Provide encouragement of foreign investment in hydroelectric power plants by reducing front-end loading of fixed costs

  • Allow optimum energy mix by increasing hydroelectric power capacity addition


Oil gas sector

AMCHAM

I N D I A

Oil & Gas Sector

  • Upstream

    • Form separate regulator/facilitator/contract administrator

    • Access to quality acreage

    • Remove minimum alternate tax

  • Natural Gas

    • Pass the Gas Act and avoid conflict of law

    • LNG policy: support development of infrastructure


Oil gas sector aspects issues continued

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

Structure of Oil and Gas Regulatory Authority

  • Common question for designers of regulatory frameworks is whether to have multiple regulators or one regulator with multiple responsibilities

  • Optimal solution:

    • One regulator per sector with minimum of three directors, headed by a Director General

    • Divisions within the regulator for specialized segments of the sector (such as upstream, gas transmission and distribution, and downstream)

    • Saves on overhead expenses

    • Assists in resolving responsibility overlap

    • Facilitates accumulation of experience


Oil gas sector aspects issues continued1

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

Structure of Oil and Gas Regulatory Authority-continued

  • Upstream:Separate three functions

    • Regulator creates underlying regulations for safety, environmental, permitting and data management

    • Facilitator: Appoint MoP&NG Representative

    • Contract Administration Executive

      • Government of India Representative to sit on Production Sharing Contract Management Committee

      • Decision-making authority delegated with initial MoP&NG policy direction

      • Guided by PSC provisions

      • Business approach (perhaps retired sector executive)


Oil gas sector aspects issues continued2

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

Structure of Oil and Gas Regulatory Authority-continued

  • Gas Transmission and Distribution

    • Regulator creates underlying regulations

      • Safety

      • Environmental

      • Permitting

      • Data management

    • Light-handed to encourage development of the infrastructure


Oil gas sector aspects issues continued3

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

Exploration & Production

  • Activate New Exploration and Licensing Policy

    • Prospective Acreage

      • Access to quality acreage

      • Known production fields and basins

      • Access to all available data (in public domain after initial period)

    • Bankable terms and conditions


Oil gas sector aspects issues continued4

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

Exploration & Production-continued

  • Undeveloped or Marginal Fields

    • Allow ONGC or OIL to enter into farm outs (or other structured relationships) with companies to develop discovered fields, marginal fields, or fields that require expertise/ technology that ONGC or OIL does not posses

    • Offer the above categories of fields for bid by private and foreign companies


Oil gas sector aspects issues continued5

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

Exploration & Production-continued

  • Infrastructure status

    • Grant infrastructure status to the E&P sector to enable E&P companies to claim the tax holiday to the fullest, as well as any applicable fiscal and financial incentives to promote the sector

    • Simplify the fiscal provisions

    • Remove gaps in the legal framework


Oil gas sector aspects issues continued6

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

Exploration & Production-continued

  • Remove Minimum Alternate Tax

    • Requirement to pay tax either on basis of taxable income or 30% of book profits

    • Penalizes oil & gas exploration companies that must make large, up-front investments

    • E&P companies should only pay tax on taxable income when and if generated


Oil gas sector aspects issues continued7

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

Exploration & Production-continued

  • Assistance for MoP&NG

    • MMS or BLM to work with MoP&NG to develop effective underlying regulations


Oil gas sector aspects issues continued8

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

Structure of Oil and Gas Regulatory Authority

  • Central Gas Act must be passed with blueprint for the Indian regulatory framework

  • Delay has resulted in potential Centre/State conflict of law

    • Gujarat State attempting to pass a state Gas Law

    • May result in multiplicity of gas laws that complicate the market and create barriers to interstate movement of gas

Regulation of Gas Transmission and Distribution


Oil gas sector aspects issues continued9

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

Structure of Oil and Gas Regulatory Authority-continued

  • Gujarat State plans to introduce a state law that will attempt to preempt the field

    • Will create both a regulatory authority and Gujarat State Petronet Limited (GSPL)

    • GSPL will be a state company that controls the construction, operation and maintenance of the transmission grid and will set rates

    • Many areas where GSPL role overlaps with and usurps that of a regulator

Regulation of Gas Transmission and Distribution


Oil gas sector aspects issues continued10

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

LNG Sector

LNG Policy: Shipping

  • Newspapers report core group of secretaries will require all LNG shipping transactions be FOB

  • Government goal is to encourage development of Indian LNG shipping

  • Policy will have unexpected effects on commercial LNG operations


Oil gas sector aspects issues continued11

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

LNG Sector

Less-than-full-ship Capacity

  • FOB mandate requires new ships to be built to lift cargoes that are less-than-full-ship capacity

  • With an FOB mandate, a developer must delay the import of an incremental load until a full ship load is aggregated. The delay may lead customers to switch to alternate fuels/feedstock, decreasing LNG market share

  • Commercial reality dictates that existing ships with spare capacity should be utilized to transport less-than-full-ship loads on a CIF basis

  • Less-than-full-ship capacity transaction must be excluded from the LNG policy


Oil gas sector aspects issues continued12

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

LNG Sector

Spot/Short Term Transactions

  • There is an emerging spot market for LNG resulting from some excess capacity in liquefaction plants

  • The price of spot LNG is very favorable to the end user and its import must be encouraged

  • Spot/short term transactions will not occur absent the availability of the CIF option

  • Spot/short term transactions must be excluded from the LNG policy


Oil gas sector aspects issues continued13

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

LNG Sector

Indian Flag Vessels

  • Challenges in obtaining financing

    • Experience requirement

    • Liquidated damages

    • Union rules and tax laws

  • Reconsider FOB mandate when these challenges are met

  • Require Indian participant in all new-build ventures


Oil gas sector aspects issues continued14

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

LNG Sector

Honor Existing Contracts

  • There are current binding agreements in existence

  • Newspapers report government intent to require restructuring of such contracts

  • Currently existing CIF supply agreements must be honored


Oil gas sector aspects issues continued15

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

LNG Sector

  • Limited universe of LNG producing countries

  • All suppliers are not amenable to shipping FOB (e.g., Malaysian Petronas)

  • CIF price can be lower than FOB (+ shipping) price because suppliers with large fleets can provide shipping on existing depreciated vessels at a lower cost

  • Flexibility of developers must be maintained to negotiate FOB or CIF results in the lowest price for the end user

Flexibility Must Be Maintained


Oil gas sector aspects issues continued16

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

LNG Sector

Market Solution Is Best

  • Ventures to build a new ship to deliver full ship capacity contracts must include an Indian entity holding aggregate of at least 20 percent of the equity

  • Will solve the financing problems of lack of experience

  • Indian companies could negotiate takeover of operations


Oil gas sector aspects issues continued17

AMCHAM

I N D I A

Oil & Gas Sector Aspects/IssuesContinued

LNG Sector

  • Less-than-full-ship capacity transactions must be excluded from the LNG policy

  • Spot/short term transactions must be excluded from the LNG policy

  • Honor existing contracts

  • Maintain flexibility of developers to negotiate FOB or CIF to obtain the lowest price for the end user

  • Require Indian participant in all new-build ventures

LNG Policy: Shipping Summary


Us doe action items

AMCHAM

I N D I A

US-DOE Action Items

  • Power Sector

    • Support revision and passage of Electricity Bill 2000

    • Provide technical assistance to correct SEB Meter/Bill/Collect problems

    • Refocus liberalization on competitive markets

  • Upstream/Exploration & Production

    • Expedite separation of Director General Hydrocarbons into three entities: Regulator/Facilitator/Contract Administrator

    • Provide technical assistance on underlying regulations

  • LNG/Natural Gas Transmission & Distribution

    • Expedite passage of the Gas Act

    • Ensure collective participation in development of comprehensive LNG Policy

  • Advocate energy information exchange via the Internet

  • Institutionalize U.S. industry participation in legislative and regulatory processes


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