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LNG price falls: Gazprom makes a $10/mmbtu CIF Dahej offer

Jan 23: A combination of factors seems to be pulling the delivered price of LNG down to an affordable $10/mmbtu.
 8An offer has been made to the government of India by Istanbul based Adirum Invest B., which claims to carry a mandate to sell gas on behalf of Gazprom of Russia, to sell gas at $10/mmbtu cif Dahej
 8The company has submitted offers to Gas Authority of India Limited (GAIL), Petronet LNG Ltd (PLL) and Indian Oil Corporation Limited (IOC) for supply of LNG.
 8The offer to all three companies is for a trial shipment of 210,000 m3 - 280,000 m3 and subsequent quantities of 560,000 m3 monthly for one year, with rolls and extensions at a fixed price CIF Dahej, India - $10.00 (MMBTU)
 8The loading port would be Izmir, Turkey and destination port would be Dahej Port at the West Coast of India.
 8The deal was valid for a limited time but clearly this signals a change in the pricing paradigm for LNG coming to India.
 8It is not yet known yet how public sector companies have reacted to the proposal. Is this price lower than the price at which they are procuring LNG currently? If so, how do they handle these kind of offers from here on?

Pooling of gas for power plants-II: GSPC will also be a pool operator

Jan 23: The petroleum ministry seems to have given in to the demand of the power ministry that GSPC too should be given the responsibility of becoming  an operator for pooled gas.
8GAIL had opposed the move, claiming that two operators will unnecessarily complicate the system.
8Apparently GSPC is a state specific entity and does not have any experience in operating a pool mechanism.
8Nevertheless, the power ministry was pushing for GSPC as an operator as it believes that is is important to break the monopoly of GAIL in running the pooling system
8Eventually, the petroleum minister Dharmendra Pradhan fell in line in a meeting with the power minister Piyush Goyal.

Pooling of gas for power plants-III: Ministry miffed by only GAIL taking a hair cut

Jan 23: The petroleum ministry is miffed by the fact that the power ministry has raised the cap on fixed cost that will be compensated to gas based operators from Rs 0.85/Kwh to Rs 1.31/Kwh.
8The ministry is of the view that whereas a company like GAIL has been asked to take a hair cut in terms of a sharp reduction in transportation tariffs and marketing margins, the benefit seems to have been passed on to the operators of stranded gas based units.
8The power ministry is of the view that the cap needs to be raised to make the plants viable.
8These plants have a certain fixed cost elements and these are beyond the control of the plant operators, as there are large debt elements involved.
8Also the low capacity utilization because of the limited supply of pooled power will mean that there will be the need for a higher allocation of fixed cost per Kwh of power produced.
8The petroleum ministry however is of the view that larger sacrifices are required to be made both by banks and plant operators if these units are to be made viable.

Pooling of gas for power plants-I: GAIL agrees to a 75% cut in marketing margin, 50% reduction in transportation tariff

Jan 23: The government is still struggling to put together an appropriate pooling mechanism for gas based power plants.
8Clearly, the challenge is to mix LNG prices with domestic prices to restart the stranded capacity and get plant operators to sell power under the merit order system wherein this power has to compete with cheaper coal fired thermal power.
8Some of the remaining hurdles are being cleared. The power ministry has sought a 75% reduction in marketing margin and a 50% waiver of transportation cost and regasification charge.
8The petroleum ministry has intervened to claim that gasification charge is outside the control of GAIL as it is independently determined by companies such as Petronet LNG and Shell.
8Then again, while GAIL has agreed to a 50% reduction in pipeline tariff, the ministry has claimed that this responsibility eventually falls with the PNGRB for notifying a price increase and the regulator's permission will be required to do so.
8GAIL has also agreed to reduce the marketing margin charged on gas by 75% as desired by the power ministry

Pooling of gas for power plants-IV: Fall in gas prices is what will eventually make operations viable

Jan 23: A fall in the CIF price of LNG to around $10/mmbtu and a consequent reduction in the price of domestically produced gas on account of a sharp fall in global prices of power and gas may give a boost to the price pooling mechanism contemplated for the power industry.
8While tinkering around with marketing margins and transportation tariffs will reduce the price of gas marginally, the big fall in CIF LNG prices will come as a real boost.
8There is now speculation that the price of LNG may come down further if global energy prices continue to fall.
8Then again, pooling of gas prices were contemplated under two options:  one is the pooling of domestic gas with RLNG only for stranded plants (16107 MW) and the other was for all gas based plants on grid totaling up to 24149 MW
8The ministry of power has now pushed forward just one proposal and that is for pooling of gas for stranded plants (16107 MW) only.
8An option however has been provided for APM gas based plants to join the pooling mechanism (along with their share of domestic) for top up facility of up to 40% PLF.

Pushing for CBM in coal blocks-I: Petroleum ministry pushes for CBM license in every coal block

Jan 23: There seems to be problems brewing up over simultaneous exploitation of coal and CBM once again. And this time it pertains to allocation of coal blocks cancelled by the Supreme Court.
8The petroleum ministry has suggested that simultaneous exploitation of CBM along with coal should be mandated for all coal blocks allocated from now on.
8The coal ministry however has ruled out the simultaneous exploitation of CBM, claiming that these coal blocks are meant for end use industries and CBM exploitation is not possible at this late stage.
8This is because CBM will be required to be drained first before coal can be exploited but there is no time for that because coal production from these blocks will have to come up in a time bound manner to meet the demand from end industries.
8The cabinet secretary is now trying to figure out how best to find a solution to the impasse.

Pushing for CBM in coal blocks-II: Coal ministry finds the idea unpalatable

Jan 23: The coal ministry has rejected a demand by the petroleum ministry not to allocate the Parbatpur Central coal block as it overlaps with the Jharia CBM bloc that belongs to ONGC.
8The coal ministry has also rejected the argument given by the petroleum ministry that if the block has to be necessarily allocated, then it should be given to Coal India Ltd with whom ONGC can work out an arrangement for tapping CBM from the overlapping area.
8The petroleum ministry claims that there are many such CBM blocks that overlap with coal blocks and each such block or for that matter every block should have a CBM license that should be given along with the coal mining license.
8The petroleum ministry's request relating to the Parbatpur Central block has been rejected on the ground that steam coal from the Parbatpur coal block is required for supply to the steel industry as steam coal is in short supply in India.

Pushing for CBM in coal blocks-III: Tapping CBM gas before mining is a universal phenomena

Jan 23: There is always a strong case for tapping CBM from coal seams before coal is mined out.
8This is a policy that is practiced right across the world. The USA taps CBM in a major way, manufacturing as much as 140 msmcmd of gas.
8The CBM or methane drainage ahead of mining is a cost effective means of mitigating the hazard of methane gas during underground mining.
8Methane drainage before mining is widely practiced in USA as it ensures mine safety and reduces environmental pollution.
8The usual process is for a company to implement a vertical well drainage programme in advance of mining work, followed by a horizontal, in-mine borehole programme.
8Heavy blasting in open cast mines is usually done 1 km away from a CBM well, so that wells are not damaged or affected by vibrations.
8The stimulation of coal seams in course of hydro-fracturing does not appear to have any adverse effect on roof and coal strata when coal mining work advances after degassing.
8Thus, CBM operations ahead of mining can be considered to be a safe option for degassing of coal seams in areas adjacent to mines
8Here in India however the coal ministry seems to be in a tremendous hurry to bring out the coal from the blocks and CBM production is not high up in the priority list.

Project update (December, 2014)

Jan 23: The website provides here for the readers` perusal, a copy of the the project report prepared by Engineers India Limited (EIL) under the following heads:
Summary status of major projects in petroleum sector
8Details in terms of project name or description, board sanction date, original approved completion date, actual completion date, months ahead or delayed, physical progress in percentage terms in relation to targets
8Details in terms of financial performance -- original approved cost, anticipated cost, % cost overrun or saving, FY 2014-15 (up to December) numbers against budget BE/RE and expenditure, cumulative actual numbers for commitment and expenditure, and financial progress in percentage terms
8Details provided for GAIL, ONGC, OIL, MRPL, IOCL, CPCL, BPCL, NRL, HPCL, ISPRL projects
Critical areas needing attention 
8Comments against each critical area within a public sector project and action taken Click here

Safety, security and environmental aspects in the petroleum sector-I: A presentation to the standing committee

Jan 23: The website provides here, for reference purposes, a comprehensive presentation made by the petroleum ministry to the Parliamentary Standing Committee on safety, security and environmental aspects in the petroleum sector, under the following heads:
8Network of oil installations (Marketing network), in terms of company name, numbers of POL depots, LPG bottling plants, aviation fuelling stations and lube oil bottling plants
8Refineries, gas processing plants, LNG terminals and pipeline tank farms, in terms of company name, number of refineries, number of gas processing plants, number of LNG terminals and number of pipeline tank farms
8Exploration and production installations, in terms of company name, number of offshore production installations and number of on-land production installations
8Existing safety management practices, in terms of practices relating to safety management systems, technology related, systems and procedures related, best practices and fire protection systems.
8Conformity checks and learnings, in terms of details of periodic audits of oil and gas assets
8Graphical representation of the number of safety audits from 2009-10 onwards
8Implementation status of M B lal committee recommendations
8Enhancing process safety, including a note on enhancing safety of pipelines and statutory status to OISD
8Current statutory authorities in safety enforcement
8A note on the petroleum and natural gas industry safety bill, 2013, in terms of its objective and application and extent, significant features and current status
Security management
8Risk categorization as per IB for oil facilities
8A note on the physical security in refineries, marketing locations and pipelines
8Strength to security in oil
Environment management
8Water pollution monitoring and control, in terms of main water pollutants
8A note on treatment methods, reuse of treated effluent, water conservation
8Air pollution monitoring and control, in terms of main air pollutants from oil and gas installations
8Air pollution control measures, in terms of stack emissions, fugitive emissions
8Solid waste management, in terms of types of solid wastes and management of sludge
8Noise control measures
8Tree plantation/Green belts.

RIL arbitration: Company seeks transparency and neutrality from nominee arbitrator

Jan 23: RIL is now seeking more transparency from its own representative in the ongoing arbitration battle with the government over the pricing of gas.
 8The company has now demanded full disclosure as well as neutrality from its mew nominee arbitrator Bernard Rix in the tribunal.
 8The company has quoted the Arbitration and Conciliation Act, 1996 to claim that it obliges party appointed arbitrators to maintain complete impartiality and neutrality and independence from the party which has appointed him as its nominee arbitrator.
 Accordingly, RIL has asked the nominee arbitrator to make the following disclosures:
8Whether he has advised or given any opinion orally or in writing to, or appeared for RIL or any of the other claimants at anytime in the preceding 5 years, and if so, the approximate amount of fee, if any, received during the period. Pertinently, the "claimants" here, refer to RIL, their respective associates/subsidiaries, including holding companies, group companies, controlled or associated with any party concerned with RIL, list of which is attached by the website for reference.
8Whether he has been appointed or nominated as a nominee arbitrator by any of the named parties in the preceding 5 years in any arbitration other than the present arbitration.
8Whether he or his family member/dependents, directly or indirectly, hold or have held any retainer from any of the parties named.
8Whether he or any of his family members / dependents hold or have held shares in any of the parties named.
8Whether he has any connection in any manner whatsoever in any other matter by or on behalf of any of the parties named.
8Whether he is aware of any other circumstances that exist which may give rise to justifiable doubt as to his independence or impartiality to act as an arbitrator in the present arbitration.
8Whether he has, as a judge passed any order or judgment or been involved in any case or matter involving or concerning any of the parties named including any matter concerning or involving interpretation of production sharing contract similar to the PSC.  
 Clearly, RIL seems to have got into a tight corner over allegations that its arbitrators had links either with it or with its partner, BP or with other members of the arbitration team. The company now wants to play it safe and wants to use the declaration from its arbitrator to showcase that the company is playing the game by its rules. More importantly, RIL thinks that it has a strong case and these allegations are not allowing the arbitrators to get to hearing the arguments based on which an award can be given.

Streamlining the tendering process-I: E-procurement limit to come down to Rs.5 lacs in January, 2015 and to Rs.2 lacs from April, 2016

Jan 23: In a recent ministry meeting to review procurement processes for goods and services by oil marketing companies (OMCs) and upstream oil public sector undertakings (PSUs), it was agreed that e-procurement limits are to come down to Rs.5 lacs from January, 2015 onwards and further lowered to Rs.2 lacs from April, 2016 onwards.
8Post discussions, it was also decided that the limit for ONGC and and OIL would be different -- Rs. 10 lac and above from April, 2015 and Rs.5 lac and above from April, 2016 onwards.
8Pertinently, an office memo released in January, 2014 had communicated that the tender value limit of Rs.10 lac set for e-procurement for the ministries and government departments is to be brought down to Rs.5 lac with effect from April, 2015 an further down to Rs.2 lac effective April, 2016.
8As a feedback on this memo, the Special Secretary and Financial Advisor (SSFA) at the ministry, wanted members to indicate the value of goods and services procured through e-tender.
8In response, IOC informed that the current limit for OMCs is Rs.5 lac, and suggested for continuing with this limit beyond 2016 as well. ONGC and OIL informed that they had been procuring goods of Rs.1 crore value and above, and Rs.25 lac and above, respectively, through the e-tender route.
8Final decisions were on limits were taken post discussions with all members.

Streamlining the tendering process-II: Reverse auction will require a minimum of 4 participants

Jan 23: As a part of the review of procurement processes by the petroleum ministry, suggestions were made by the oil companies that there should be a minimum of four eligible participants for reverse auction to be effective.
8This suggestion has been made from experience with conducting reverse auctions their mixed responses from them.
8Post discussion, it was decided that the considered views of OMCs, as well as of ONGC and GAIL on the past experience, present policy and future strategy and policy to be followed, would be obtained and critically reviewed within January, 2015.
8It was decided that each of the companies would introduce a suitable policy on reverse auction, albeit separate for each company, after obtaining approval of their boards by April 1, 2015.

Streamlining the tendering process-III: Committee set up to look after centralized procurement

Jan 23: A committee consisting of ONGC, OIL and GAIL has been formed to look at opportunities for centralized procurement both within a company and across companies.
8The idea of centralized procurement is to see that the same item is not purchased separately at different prices within the organization, thus enabling realization of price advantage of bulk purchase.
8The review meeting for streamlining the tendering process  took a decision that oil companies would review their present centralized procurement policy to bring in more items within their ambit, and send in a report of their findings, including on the policy and action taken.
8It was also decided that sharing of prices among OMCs and among upstream companies would be done on a quarterly basis to derive maximum price advantage.
8The review team also considered the possibility of extending the system of centralized procurement across OMCs so as to get better prices due to larger quantities to be procured.
8Although the idea was welcomed in principle, given that there are many common items commonly procured across PSUs, IOC and OIL pointed out that centralized procurement may be difficult to operationalize due to differences in processes followed by different companies, as well as differences in delegation of power at different levels.
8However, it is now up to the committee appointed for the purpose to discuss the matter in further detail and provide its recommendations.

Streamlining the tendering process-IV: Streamlining the tendering process-IV: Blacklisting of a firm by one company leading to blacklisting by all is not desireable

Jan 23: The review of tendering processes also threw up the fact that blacklisting and empanelment of vendors seems to be an area of concern for OMCs.
8Accordingly, it was decided that oil companies would review this process within their own companies and submit a draft policy, by the monthend, on a suitable mechanism for common blacklisting of vendors.
8Pertinently, there is currently a structured mechanism of sharing of information on the performance and exclusion of vendors across OMCs.
8It was felt that automatic blacklisting by all oil PSUs whenever a vendor is blacklisted by any one company may not be desirable across the board.
8It was pointed out that there was the possibility of a vendor has failed to execute an order in time for one PSU, but has performed exceedingly well while executing orders for another PSU. In such a case, it may not be desirable for the second PSU to blacklist the vendor.
8However, it was agreed that cases of forgery and malpractice while dealing with any one PSU is reason enough for the vendor to be blacklisted by all PSUs.
8A final decision on this will be taken after submission of recommendations by all oil companies.

Dealing with arbitration-I: Rethinking needed, says DGH

Jan 22: Scarred by a spate of arbitration notices, the petroleum ministry is now thinking of a softer way of dealing with adversaries.
8A detailed Strategy Note floated by the DGH speaks of going through an internal due diligence process on a subject of conflict before it is escalating into a no-holds-barred arbitration battle.
8The note says that there is no getting away from following certain fundamental principles of good governance and creating a harmonious environment to reduce the risk of conflict
 8The onus is on the government too to be fair and transparent.
 8There is a need for clarity on who decides what, as well as the extent of their authority and discretion. 
 8The note says that the major concern is to ascertain whether the contentions of the contractors should be accepted in the first instance, particularly when it involves government take.
 8A very important point that the DGH makes is that in majority of cases, arbitrators have voted for the contractor rather than the government, implying that there is a need to relook at the process of dealing with the dispute at the initial stage itself.

Dealing with arbitration-II: Three pronged strategy suggested by regulator

Jan 22: The strategy note calls for adopting a three-pronged strategy to handle disputes.
8Initial disputes can be referred to a multi disciplinary team (MDT) in DGH in the first stage to study all the aspects of dispute with an open mind.
 8The officers dealing directly with the dispute will only have observatory roles in explaining the case to the MDT.
 8In case the MDT has differing views then the issue should be pushed on to the next level, which is the Executive Committee
 8The recently formed Executive Committee consists of DG, DGH as chairman and ED, GGM (Geophysics) and FA&CAO of DGH as the members.
 8The decision of EC will be final on any dispute arising in a block.
 8The petroleum ministry is now putting together a new-look Advisory Council of the DGH. Once formed, DGH may take the opinion of Advisory Council, where larger stakes are involved.
 8If the Advisory Council suggests taking the help of external expert in dealing with the dispute, DGH will do so in a prompt manner.
 8Timelines for all the activities for dealing the dispute will be fixed so that everything is resolved as quickly as possible .
 8If the case is not resolved, then the DGH will suggest that the government should go to a sole expert at the first instance as provided in the PSC.
 8DGH will prepare beforehand a list of sole experts in various fields for approval of the Government.
 8Finally, if the disputes are not resolved despite the above efforts, a recommendation will be sent to the government to go for arbitration.

Dealing with arbitration-III: Three-layered process will be a big step forward

Jan 22: The formation of a three-layered process within the DGH for resolution of disputes is a big step forward in tacking litigation in the E&P segment.
8More often than not, the present process allows a junior dealing officer to take an inflexible stand that senior officers find difficult to overturn or overrule.
8The thinking process in the government is that any attempt to resolve a dispute that may involve some compromise in the government`s stand or take will invite scrutiny and investigation.
8The fact that the CBI continues to harass a former DGH, Kapil Sibal, for his supposed flexibility in dealing with private companies, is usually cited as an example.
8The layered decision making process will allow for diffusion of blame. The responsibility will be collective and therefore less susceptible to allegations of anomalous conduct.

Dealing with arbitration-IV: Hiring good lawyers is half the battle won, says DGH

Jan 22: The DGH's concept note also calls for streamlining the process when it comes to fighting an arbitration dispute.
 8For one, timely appointment is of essence, as non-appointment of an arbitrator within stipulated time (which is generally 30-45 days), compels the other party to get the arbitrator for the government appointed through a court, which takes away the prerogative of the government to appoint arbitrator of its choice. 
8Sometimes, the government may consider appointing domain experts or retired judges who are convinced of stand taken by the government as an arbitrator. Such arbitrators are assertive and able to take an independent stand
 8It has been suggested that a panel of arbitrators should be drawn up as that will curtail time spent in appointment of an arbitrator quickly.
 8A panel of of law firms and senior advocates should created. People will experience will be better able to understand the government`s point of view.
 8Clear guidelines should be issued by the government for hiring the senior advocates, law firms.
 8Law officers and government counsels are mostly busy with the court works and charge special fees for arbitration matters. 8Therefore private advocates with expertise in handling arbitration matters should be appointed as counsels and arbitrators for defending cases in India and abroad.
 8Advocates involved in arbitration should be retained in case the arbitration moves to court.
 8The conciliation process can be encouraged at the first instance- for any dispute resolution. This provides opportunities for settlement arid can be cost effective and restrain the parties from taking recourse to arbitration for disputes issues.
 8A clearly policy formulation is required on how to handle cases where the arbitration award has gone against the government. Sometimes despite advise to the contrary from senior counsels, cases are pushed to the courts.
 8In pre-NELP PSCs, the seat of arbitrations is outside India. It is observed that when the awards against government are challenged in foreign courts, they usually uphold the findings of the arbitrators.
 8If possible, amendments should be carried out in pre-NELP PSCs at the time of their further extension to ensure that the seat of arbitration is New Delhi.

Dealing with arbitration-V: Ministry refers concept note to law ministry

Jan 22: The government is not sure what to do with the report submitted by the DGH.
8The concept note says that the role of the government should be cut and the DGH should decide whether to go to arbitration or not.
8There is a suggestion that the law firms and senior advocates should be appointed only with the approval of the minister and without going to the ministry of law.
8The DGH has sought that the financial powers to pay legal fees be raised from Rs 50 lakh to Rs 10 crore. This is as per actual expenditure in the previous years.
8There is a consensus that an Advisory Committee be appointed immediately for the DGH.
8Arbitrators should be appointed after approval of the Advisory Committee and the ministry of law within the time period stipulated in the PSC.
8The DGH is to provide a fortnightly report to the government on all legal issues.
8Even though there is consensus within the government that the DGH note is going in the right direction, there is now a proposal to sent the note to the law ministry for a view.




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