Indian Energy Sector

206
INDIA: ENERGY SECTOR September 2010

Transcript of Indian Energy Sector

Page 1: Indian Energy Sector

INDIA: ENERGY SECTOR September 2010

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Contents … (1/3)

Executive Summary

Industry overview – power

Generation

Transmission and distribution

Demand-supply position

Government policy and reforms

Opportunities in the Indian power sector

Investment opportunities

Industry overview – equipment industry

INDIA: ENERGY SECTOR September 2010

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Boilers

Conductors, wires and cables

Transformers

Turbines

Switchgears

Transmission towers

Wind turbine generators

Diesel engines

Capacitors

Energy meters

INDIA: ENERGY SECTOR September 2010

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Control panels

Oil exploration and drilling equipment

Storage batteries

Industry overview – oil and gas

International interest

Demand supply projections

Demand supply scenario

Government organisations

Trends and opportunities

Companies

INDIA: ENERGY SECTOR September 2010

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Gross Domestic Product from Electricity Supply

Energy Indicators

Fuel-wise Generation Capacity

Sector-wise Installed Utility Capacity

Capacity of Thermal Power Plants by Fuel

Hydroelectric Potential and Development

RES Potential and Achievements

Growth in Transmission Lines (Ckm)

Growth in Sub-stations (MVA)

Growth in Inter-regional Transmission Capacity

INDIA: ENERGY SECTOR September 2010

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Rural Electrification

Electricity Consumption

Electricity Demand and Supply

Projected Requirement of Electricity

Installed Capacity Addition Plan

Projected Transmission Line Length

Energy Saving Potential

Fund Requirement for R & M Activities

Fund Requirement for Distribution and Rural Electrification

FDI in Energy Equipment and Related Industries

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Investments as of March 2010

Major Projects Expected to be Complete in 2010

Types of Utility and Industrial Boilers

Production of Boilers

Production, Import, Export and Consumption of Boilers

Technological Partnership for Supercritical Technology

Production of Various Types of Cables and Wires

Export and Import of Cables and Wires

Production of Transformers

Imports and Exports of Transformers

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Production,Trade and Consumption of Turbines

Snapshot of Power Generation Scenario

Production of Switchgears and Circuit Breakers

Exports and Imports of Switchgears

Domestic Production of Transmission Towers

Exports of Transmission Towers

Installed Wind Power Capacity

Export and Import of Wind Turbine Generators

Production, Imports, Exports and Consumption of Diesel Engines

Production of Capacitors

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Production of Energy Meters

Production, Import and Export of Storage Batteries

Gross Energy Generated

GDP from Petroleum Sector

Realisation of Excise and Customs Duties

Employment in Petroleum Sector

FDI Inflows to Petroleum Sector

Proven and Indicated Crude Oil Reserves

Basin-wise Hydrocarbon Area

NELP and CBM Achievements

INDIA: ENERGY SECTOR September 2010

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The Krishna-Godavari Basin

Recent Discoveries

Planned Petroleum and Natural Gas Demand-Supply

Gas Production – Eleventh Five-Year Plan Projection

Projected Natural Gas Demand – Eleventh Plan Period

LNG Supply – Eleventh Five-Year Plan Projection

Crude Oil Production – Eleventh Five-Year Plan Projections

Crude Oil Imports

Net Exports of Petroleum Products

Import and Export of Crude Oil and Petroleum Products

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Product Import Price vs Gross Export Realisation

Consumption of Petroleum Products

Natural Gas Demand Sectors

Share of Fuel Imports in Total Merchandise Imports

India‟s Share in World Oil and Gas Market

Percentage Demand Met from Domestic Sources

Refinery Capacity

Domestic Production of Petroleum Products

Gross Refining Margins for Domestic Refineries

NCI of Domestic Refineries

INDIA: ENERGY SECTOR September 2010

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Crude Oil Production

Natural Gas Production

LNG Imports

Major Equipment Players

Major Energy Sector Players

INDIA: ENERGY SECTOR September 2010

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List of figures

Structure of Indian Power Sector and Ownership

Hydroelectric Electricity Generation Capacity

Nuclear Power Capacity

Category wise growth in Consumption

Fuel-wise capacity addition in Eleventh Plan Period

Price Revisions in Delhi

INDIA: ENERGY SECTOR September 2010

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Contents

Executive Summary

Industry overview – power

Generation

Transmission and distribution

Demand-supply position

Government policy and reforms

Opportunities in the Indian power sector

Investment opportunities

Industry overview – equipment industry

INDIA: ENERGY SECTOR September 2010

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Executive Summary … (1/2)

The average growth rate of India‟s gross domestic product (GDP) during the period 2006-09, was about

8.6 per cent. The corresponding average growth rates of net national income and personal disposable

income were 14.5 per cent and 14.7 per cent, respectively. The average growth in the index of industrial

production (IIP) during this period was 7.2 per cent. IIP growth was 10.2 per cent in 2009-10. A high-

growth economy has resulted in increasing demand for energy.

In terms of purchasing power parity (PPP), Indian economy is the fourth-largest in the world. The country

accounts for over 17 per cent of the total global population and about 7 per cent of world‟s GDP.

However, according to the International Energy Agency (IEA), India‟s energy production accounts for just 4

per cent of the global energy production. The country accounts for 5 per cent of the total global energy

consumption.

According to the Central Electricity Authority (CEA), the average per capita electricity consumption in

India is about 704 kWh as compared to global world wide per capita consumption of 2,752 kWh. The

Government of India is keen to increase per capita consumption of energy to raise living standards in the

country. An average Indian consumes 0.53 tonnes of oil equivalent (TOE) of energy compared to the global

average of 1.82 TOE.

Higher economic growth is driving income growth, which in turn is driving up industrial investment and

fuel consumption. In general, demand exceeds supply and there is a broad-based energy shortage, which is

either met by imports or remains unmet.

India: Energy Sector September 2010

EXECUTIVE SUMMARY

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Energy reforms and policy changes in recent years have not only opened up avenues for investments in the

sector, but have also resulted in private participation across its various segments. To attract foreign

investment in infrastructure, including energy, foreign direct investment (FDI) norms have been relaxed over

the years. Government of India has not only allowed 100 per cent FDI in the energy sector but also

amended previous norms and practices to provide a climate conducive to investment. The reforms of last

twenty years have yielded positive results.

By 2012, India requires an installed capacity of about 200,000 MW, which entails a huge capital investment.

This has created opportunities in the power generation, transmission, and distribution segments. Private

participation and public-private partnerships are being encouraged to pool in investments and expertise.

Apart from conventional fuel-based plants, renewable energy development has been placed on equal priority.

Significant opportunities in the oil and gas sector relate to exploration and discoveries under the New

Exploration Licensing Policy (NELP), refinery product and natural gas transmission infrastructure

development, and market development for oil and gas products.

The overall growth in India‟s energy sector has drawn investments into the electrical equipment industry, not

only in the form of capacity expansions and green field projects from existing players, but overseas as well.

The scope for expansion is significant as the energy sector itself offers investment opportunities in the next

decade and beyond.

India: Energy Sector September 2010

EXECUTIVE SUMMARY

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Contents

Executive Summary

Industry overview – Power

Generation

Transmission and distribution

Demand-supply position

Government policy and reforms

Opportunities in the Indian power sector

Investment opportunities

Industry overview – equipment industry

INDIA: ENERGY SECTOR September 2010

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India‟s power sector has had a remarkable growth in past few decades. There has been a significant push

towards opening the electricity sector to competition and to redesign the electricity markets to achieve

more efficient outcomes. Consequently, the sector has moved from a mostly vertically integrated structure –

with the state electricity boards (SEB) owning the generation, transmission and distribution businesses – to a

more unbundled corporate structure.

As compared to 23 integrated utilities, i.e. SEBs, that existed before the electricity reforms began in the

1990s, there are now more than 80 utilities or companies with varied ownership structures and mandates,

viz., central government‟s power generation and transmission companies; state governments‟ generation,

transmission and distribution utilities; city-specific private utilities; captive power units of companies; and

independent power producers (IPP).

Intra-state power transmission is the sole responsibility of the state transmission utilities (STU) while inter-

state and inter-region transmission is entrusted to Power Grid Corporation of India Limited (PGCIL), a

central public sector unit (CPSU).

Distribution of power is mostly controlled by state distribution companies (discoms) though there are also a

few private companies in this business in a few states and cities. To comply with the provisions of Electricity

Regulatory Commission Act, 1998, most states have set up state electricity regulatory commissions (SERCs),

which regulate tariffs for the generation, transmission and distribution companies. The Central Electricity

India: Energy Sector September 2010

INDUSTRY OVERVIEW-POWER

Background

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Regulatory Authority (CERC) fulfils this responsibility for the central power utilities. There is an appellate

tribunal for disputes resolution. There are also a few power trading companies that facilitate the exchange

of power between regionally separated companies and utilities at a price/margin determined by CERC.

Section 246 of the Indian Constitution puts power sector on the `concurrent list‟, which implies that both

the state legislatures and the Parliament have the power to create policies for the sector. However, in the

event of a conflict, the central law prevails. In recent decades, the Government of India has focused on

infrastructure development with top priority given to the power sector.

India: Energy Sector September 2010

INDUSTRY OVERVIEW-POWER

Power Sector Utilities:

Generation companies:

SEBs, State -owned gencos

IPPs

CPSUs

Private licensees

Captive units

Transmission companies:

SEBs

STUs

PGCIL

Private companies

Distribution companies:

SEBs

Private licensees

State discoms

Figure 1: Structure of Indian Power Sector and Ownership

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The history of governance in the sector dates back to The Electricity Act, 1910, which provided the initial

legal framework. It was followed by an amended Electricity (Supply) Act, 1948, which provided the overall

regulatory framework for the sector. Recognising the need for accelerating reforms, the Electricity Act,

2003 was enacted in June 2003. It repealed and replaced the earlier laws. Although, since then several

additional rules and laws have been passed to regulate the sector, the Electricity Act, 2003, remains the

basis for all legal provisions and guiding principles for the sector.

India: Energy Sector September 2010

INDUSTRY OVERVIEW-POWER

Importance to Economy

Electricity is a key driver of rapid economic growth and industrialisation of the country. Decades of

economic planning have placed significant emphasis on developing the power sector. Rapid economic

growth and higher standards of living depend considerably on the availability of adequate and reliable

power at an affordable price.

The gross domestic product (GDP) from electricity supply at constant prices was US$ 14.71 billion in

2008-09, accounting for 1.63 per cent of GDP. The employment generated by the sector is in excess of 1

million.

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India: Energy Sector September 2010

INDUSTRY OVERVIEW-POWER

External investment in India‟s electricity sector has also had a strong growth. Despite global economic

problems, India has had only marginal variation in FDI inflows, and the inflows to power sector increased

from US$ 157 million in 2006-07 to US$ 1.44 billion in 2009-10.

However, as demand growth and power supply shortages increase, there is scope for even more

investment in the sector. The average per capita electricity consumption in India is only 704 kWh as

compared to worldwide per capita consumption of 2,752 kWh.

Table 1: Gross Domestic Product from Electricity Supply

(US$ million)

2004-05 2005-06 2006-07 2007-08 2008-09

Constant Prices 11,159.29 12,046.67 14,380.95 16,395.52 14,723.91

Current Prices 11,158.85 12,262.44 14,980.24 16,722.14 15,078.91

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India: Energy Sector September 2010

INDUSTRY OVERVIEW-POWER

Empirical analyses have confirmed that demand for electricity is closely linked to changes in GDP and this

relationship is remarkably stable and broadly linear. The Central Electricity Authority (CEA) has identified

that at a GDP growth rate of 9 per cent, the power sector must grow at over 7.2 per cent, annually.

Table 2: Energy Indicators

Indicator Unit India World

Energy Production MTOE 450.92 11,939.53

Energy Consumption TWh 609.74 18,186.94

Total Primary Energy

Supply (TPES)MTOE 594.91 12,029.27

TPES/Population TOE/capita 0.53 1.82

TPES/GDP (PPP) TOE/2 million US$ 0.15 0.3

Electricity Consumption* kWh/capita 704.4 2,752

CO2/TPES Tonne CO2/TOE 2.23 2.51

CO2/Population Tonne CO2/capita 1.18 4.38

Source: International Energy Agency – 2007 indicators, CEA

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Contents

Executive Summary

Industry overview – Power

Generation

Transmission and distribution

Demand-supply position

Government policy and reforms

Opportunities in the Indian power sector

Investment opportunities

Industry overview – equipment industry

INDIA: ENERGY SECTOR September 2010

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Generation … (1/10)

India: Energy Sector September 2010

GENERATION

The total generation capacity of the grid-connected power utilities was 159,398 megawatts (MW) as of

March 2010. The thermal power capacity of utilities was 102,453.98 MW, followed by hydropower

(36,863.40 MW), renewable energy sources or RES (15,521.11 MW) and nuclear power (4,560 MW). The

following table summarizes the growth in installed capacity.

Overview

Table 3: Fuel-wise Generation Capacity

FY Capacity (MW) Share (%)

Thermal Hydro Nuclear RES Total Thermal Hydro Nuclear RES

2003 76,762 26,767 2,720 1,628 107,877 71.2 24.8 2.5 1.5

2004 77,969 29,507 2,720 2,488 112,683 69.2 26.2 2.4 2.2

2005 80,902 30,942 2,770 3,811 118,426 68.3 26.1 2.3 3.2

2006 82,411 32,326 3,360 6,191 124,287 66.3 26 2.7 5

2007 86,015 34,654 3,900 7,761 132,329 65 26.2 2.9 5.9

2008 91,907 35,909 4,120 11,125 143,061 64.2 25.1 2.9 7.8

2009 93,998 36,878 4,120 13,243 148,238 63.4 24.9 2.8 8.9

2010 102,454 36,863 4,560 15,521 159,398 64.3 23.1 2.9 9.7

Source: CEA, IMaCS Research

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India: Energy Sector September 2010

GENERATION

As of March 2010, the state government utilities owned 49.8 per cent of the total installed generation

capacity of 159.39 gigawatts (GW). The remaining was owned by central utilities (32 per cent) and private

utilities (18.2 per cent).

In the past decade there has been a shift in the trend of capacity addition. After many decades of near

monopoly of state utilities in fresh capacity creation, private utilities‟ share has grown significantly. Clearly,

the reforms have succeeded in inducing private investment in the sector.

Table 4: Sector-wise Installed Utility Capacity

At end-FY 2002 2003 2004 2005 2006 2007 2008 2009 2010

State 62,995 66,582 67,380 65,942 70,184 70 095 74 689 76,388 79,392

Central 31,335 29,944 32,979 38,790 39,959 45,121 48,361 48,971 50,993

Private 10,717 11,351 12,325 13,688 14,144 17,108 20,010 22,879 29,014

Total 105,047 107,877 112,684 118,420 124,287 132,324 143,060 148,238 159,398

Source: CEA, IMaCS Research

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India: Energy Sector September 2010

GENERATION

India‟s electricity generation capacity is mainly coal-based. It is considered good for base-load power

generation. An estimated 82.2 per cent of the installed thermal power capacity is based on coal as the fuel.

In fact, the power sector accounts for about 75 per cent of India‟s coal demand.

Thermal Generation

Table 5: Capacity of Thermal Power Plants by Fuel

FY 1985 1997 2002 2003 2004 2005 2006 2007 2008 2009 2010

MW 27,030 61,010 74,429 76,762 77,969 80,902 82,411 86,014 91,907 93,725 102,454

Coal 26,311 54,154 62,131 63,951 64,956 67,791 68,519 71,121 76,049 77,649 84,198

Gas 542 6,562 11,163 11,633 11,840 11,910 12,690 13,691 14,656 14,877 17,056

Diesel 177 294 1,135 1,178 1,173 1,202 1,202 1,202 1,202 1,200 1,200

Share (%) 63.5 71.1 70.9 71.2 69.2 68.3 66.3 65.0 64.0 63.4 64.3

Coal 61.8 63.1 59.1 59.3 57.6 57.2 55.1 53.7 53.2 52.4 52.8

Gas 1.3 7.6 10.6 10.8 10.5 10.1 10.2 10.3 10.2 10.2 10.7

Diesel 0.4 0.3 1.1 1.1 1.0 1.0 1.0 0.9 0.8 0.8 0.8

Source: CEA, IMaCS Research

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India: Energy Sector September 2010

GENERATION

The dominance of coal in India‟s generation capacity is mainly because of significant domestic reserves. As of

April 2009, the coal reserves of India (to the depth of 1,200 m) have been estimated at 266 billion tonnes by

the Geological Survey of India. The proven reserves are of 105 billion tonnes, indicated reserves of 123

billion tonnes and inferred reserves of 38 billion tonnes. India‟s proven reserves at current levels of

production are enough to last about 200 years.

Natural gas is now finding a greater role in India‟s energy mix. Its share in the total installed power

generation capacity has increased from 4.4 per cent at end of 1991-92 to 10 per cent at end of 2008-09.

Compared to coal-based plants, natural gas plants emit only about half as much carbon dioxide (CO2) per

kWh. Also, with production starting at some recently developed gas fields in India, there is a greater

potential for development of gas-based power plants.

Hydroelectricity is clean and its generation is largely free of the concerns of fuel supply and price volatility of

imported fuels. However, its share in the fuel mix for power generation has declined because of high initial

costs and development risks. In recent years, the government has tried to address many of the concerns in

hydroelectric power project development to improve the share of hydropower in the hydro-thermal

electricity generation mix.

Hydroelectric Power

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India: Energy Sector September 2010

GENERATION

India‟s hydroelectric potential has been estimated to be 600 billion kWh per annum, corresponding to a

capacity of 148.7 GW. States with high potential are Arunachal Pradesh (50.3 GW), Himachal Pradesh (18.8

GW), Uttarakhand (18.2 GW), and Jammu & Kashmir (14.1 GW). However, only 23 per cent of the potential

has been realised so far.

Figure 2: Hydroelectric Electricity Generation Capacity

Source: CEA, IMaCS Research

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India: Energy Sector September 2010

GENERATION

A vision paper prepared by the Ministry of Power envisages harnessing the entire hydro potential of 148.7

GW by 2025-26. Moreover, renovation, modernisation, up-rating and life extension of some of the existing

hydropower plants are expected to yield additional capacity of 4,300 MW during the Eleventh Five-Year Plan

period (2007-2012).

Table 6: Hydroelectric Potential and Development

April 2009

RegionPotential

(MW)

Capacity

Developed

Per cent of

Potential

Capacity under

Construction

Per cent of

Potential

North 53,395 13,772 25.8 7,064 13.3

West 8,928 5,804 65 400 4.5

South 16,458 9,395 57.1 786 4.8

East 10,949 3,049 27.9 2,211 20.2

North-East 58,971 1,203 2 2,724 4.6

Total 148, 701 33,223 22.3 13,185 8.7

Renewable Energy

Renewable energy sources (RES) have great potential to contribute to improving energy security of the

country and reducing green-house gas (GHG) emissions. Using renewable sources to generate electricity has

several advantages –a perennial energy source, potential for lower reliance on imported fossil fuels and

lower CO2 emissions. However, at present, the principal constraint facing rapid expansion of renewable

Source: CEA, IMaCS Research

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India: Energy Sector September 2010

GENERATION

power is high initial cost as compared to the competing fuels. India‟s renewable energy resources are

summarised below.

Table 7: RES Potential and Achievements

(MW)

Source/System PotentialAchieved as of March 31,

2010

Grid Interactive Renewable Power

Bio-power (woody biomass) 62,000 866

Wind Power 45,000 11,807

SHP 15,000 2,735

Cogeneration – Bagasse 5,000 1,334

Waste to Energy 5,000 65

Solar Power 4-7 kWh/sq m/day 10

Sub Total 132,000 16,817

Distributed Renewable Power

Rural 30,000405

Captive generation-industrial, commercial 20,000

Sub Total 50,000 405

Total 222,000 17,222

Source: Ministry of New & Renewable Energy, IMaCS Research

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India: Energy Sector September 2010

GENERATION

India is among the five largest wind power generators in the world. The share of RES in the country‟s total

generation capacity has increased from 1.1 per cent at the end of 2001-02 to about 9.7 per cent at the end of

2009-10. The total renewable capacity is expected to increase to 23,476 MW by the end of March 2012. Wind

power is expected to contribute almost 74 per cent of this capacity.

Nuclear Power

India‟s nuclear power self-sufficiency runs across the entire value chain: uranium exploration and mining, fuel

fabrication, heavy water production, reactor design and construction, reprocessing and waste management.

India‟s reserves in the reasonably assured resources (RAR) category are estimated at 77,185 tonnes of U308,

the estimated additional resources (EAR)-I reserves are about 23,525 tonnes of U308. The remaining

reserves are categorised as speculative resources (SR), which could become available for nuclear power

programme with further exploration. After accounting for various losses, including mining (15 per cent),

milling (20 per cent), and fabrication (5 per cent), the net uranium available for power generation is about

61,000 tonnes. The available uranium has electricity potential of 328 GWe of pressurised heavy water type

reactors (PHWR) and 42,231 GWe of fast breeder reactors (FBR).

The Atomic Energy Act, 1962, allows setting up of nuclear power stations only by government companies.

Two government companies, Nuclear Power Corporation of India Limited (NPCIL) and Bharatiya Nabhikiya

Vidyut Nigam Limited (BHAVINI), are responsible for setting up and operating nuclear power reactors.

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India: Energy Sector September 2010

GENERATION

As of March 2010, nuclear power plants accounted for 2.9 per cent of the total installed capacity. Though

nuclear power is under government-controlled entities, options are being explored to attract investment

from private sector.

Figure 3: Nuclear Power Capacity

Source: CEA, IMaCS Research

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Generation … (10/10)

India: Energy Sector September 2010

GENERATION

The Planning Commission‟s expert committee on an Integrated Energy Policy has suggested in its report

that there is a possibility of reaching a nuclear power capacity of 21-29 GW by 2020 and 48-63 GW by 2030

through a mix of indigenous PHWRs, FBRs, and light water reactors (LWR).

In July 2005, India and the US signed a joint statement designed to give India access to the global market for

nuclear fuel and reactors. This was followed by a nuclear exports waiver by the Nuclear Suppliers Group

(NSG) in September 2008. Subsequently, India has entered into deals with France and Russia to source fuel

for its existing nuclear plants.

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Contents

Executive Summary

Industry overview – Power

Generation

Transmission and distribution

Demand-supply position

Government policy and reforms

Opportunities in the Indian power sector

Investment opportunities

Industry overview – equipment industry

INDIA: ENERGY SECTOR September 2010

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Transmission and distribution … (1/7)

India: Energy Sector September 2010

TRANSMISSION AND DISTRIBUTION

Adequate capacity addition and optimum utilisation are important aspects of power sector development.

Commensurate with the capacity addition, an extensive network of transmission and distribution has been

developed for evacuation of power and supply to consumers. Notwithstanding the substantial progress, many

regions in the country still suffer from shortage of electricity. The new generation capacity additions as well

as targeted increase in per capita consumption call for further strengthening and expansion of the

transmission system.

The capacity additions to transmission lines (220 kV and above) until the end of 2008-09 are indicated in the

following table.

Power Transmission

Table 8: Growth in Transmission Lines

(Ckm)

Particulars 6th Plan 7th Plan 8th Plan 9th Plan 10th Plan Up to 2nd year

of 11th Plan

765 kV - - - 1,160 2,184 3,118

± 500 kV HVDC - 1,634 1,634 4,738 5,872 7,172

400 kV 6,029 19,824 36,142 49,378 75,722 89,496

220 kV 46,005 59,631 79,600 96,993 114,629 112,960

Source: CEA, IMaCS Research

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India: Energy Sector September 2010

TRANSMISSION AND DISTRIBUTION

With adoption of new technology, there has been a significant addition of transmission capacity at the extra-

high voltage levels of over 500 kV. The 765 kV and 500 kV-HVDC technologies have raised grid efficiency and

have strengthened the grid at the inter-regional links.

Table 9: Growth in Sub-stations (MVA)

Particulars 6th Plan 7th Plan 8th Plan 9th Plan 10th Plan Up to 2nd year

of 11th Plan

765 kV - - - - - 4,500

± 500 kV HVDC

Converter/BTB Station- - - 5,200 8,200 8,700

400 kV 9,330 21,580 40,865 60,380 92,942 111,202

220 kV 37,291 53,742 84,177 116,363 156, 497 177,189

Source: CEA, IMaCS Research

At present, the country has five regional grids - one each for the Northern, North-Eastern, Southern,

Eastern and the Western region. Except for the Southern region, all other regional grids have been

synchronised. Expansion of the regional transmission networks is essential for transmission of power across

the country, from the abundant generation areas to deficit areas. As part of its ambitious mission to provide

electricity to the entire country by 2012, the Government has set a target of adding over 60,000 circuit

kilometres (37,200 miles) of new transmission lines at a cost of about US$ 146 million. The integrated grid is

expected to carry as much as 60 per cent of the power generated in the country. The government is also

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India: Energy Sector September 2010

TRANSMISSION AND DISTRIBUTION

Table 10: Growth in Inter-regional Transmission Capacity

(Ckm)

carrying out US$ 126-million expansion of the five regional systems as well as the inter-regional grid to

boost transmission capacity from 17,000 MW to 37,000 MW.

Year 2,002 2,005 2,007 2,010 2,012

765 kV - - 1,100 2,200 9,200

400 kV 1,000 2,400 7,800 11,400 16,400

HVDC bi-pole - 2,000 2,500 2,500 6,500

HVDC B-T-B 2,000 3,000 3,000 3,000 3,000

HVDC mono-pole 200 200 200 200 200

220 kV 1,850 1,850 1,850 1,850 1,850

Total 5,050 9,450 16,450 21,150 37,150

To facilitate greater private sector participation in transmission and to leverage advantages of competition,

the central and state electricity regulatory commissions have harmonised their regulations for grant of

transmission licenses. These regulations provide the framework for procurement of transmission licenses

through competitive bidding.

Source: CEA, IMaCS Research

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India: Energy Sector September 2010

TRANSMISSION AND DISTRIBUTION

Overall, the CEA has estimated a fund requirement of US$ 33.33 billion for implementation of transmission

schemes during the Eleventh Plan period. This includes requirement of US$ 17.86 billion for the regional and

the national grid transmission schemes and US$ 15.48 billion for the state sector transmission schemes.

Distribution is a vital component of the electricity-supply chain, but this segment has lagged in operational

efficiency as well as financial performance. Under-recovery of costs and poor collection efficiency of the

power utilities have been a key concern. The consequent deterioration in operational efficiency has further

aggravated the situation. With the restructuring of electricity utilities from their monolithic structures to

separation of generation, transmission and distribution, the focus has finally shifted to making the distribution

segment more efficient and financially viable. This has created significant opportunities in the segment.

Recognizing the urgent need for reforms in the distribution sector, the Government of India introduced the

Accelerated Power Development Programme (APDP) in 2001. The APDP was aimed at strengthening

transmission and distribution networks and reduction in aggregate technical and commercial (AT&C) losses.

Subsequently, incentive financing was integrated with the existing investment programme to achieve

commercial viability of SEBs and power utilities and link it to the reform process. APDP was renamed

Accelerated Power Development & Reforms Programme (APDRP) in 2002-03 for Tenth Plan period (2003-

07). The main objectives of the programme were to achieve financial viability of state utilities, reduce AT&C

losses, improve customer satisfaction, and increase the reliability and quality of power supply. After a re-

examination of the APDRP, The Cabinet Committee on Economic Affairs (CCEA) approved a restructured

Power Distribution

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TRANSMISSION AND DISTRIBUTION

APDRP (R-APDRP) for the Eleventh Plan period as a central sector scheme in July 2008. The focus of this

programme is on actual, demonstrable performance in terms of AT&C loss reduction.

Projects under the scheme are to be taken up in three parts. The activities covered under the three parts

are:

• Part A: Preparation of baseline data for project area, covering consumer indexing, geographic

information system (GIS) mapping, metering of distribution transformers and feeders, automatic data

logging for all distribution transformers and feeders, supervisory control and data acquisition (SCADA)

and distribution management system (DMS).

Initially, 100 per cent of the funds for the approved projects are to be provided through loans from the

Government of India on terms decided by Ministry of Finance. The amount allocated for these activities

is US$ 2.48 billion.

• Part B: Renovation, modernization and strengthening of 11 kV level substations,

transformers/transformer centres, re-conductoring of lines at 11 kV and lower levels, urban-rural load

bifurcation, feeder separation, load balancing, HVDS (11 kV); laying aerial bunched conductor in high

population-density areas; replacement of electromagnetic energy meters with tamper-proof electronic

meters; installation of capacitor banks and establishing mobile service centres.

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TRANSMISSION AND DISTRIBUTION

Initially, up to 25 per cent funds for the projects are to be provided through loans from the Government of

India on terms decided by Ministry of Finance. For special category states, loan amount would be 90 per

cent of the project cost. However, the project-wise requirement of gross budgetary support is to be decided

by a Steering Committee. The remaining funds are to be raised from financial institutions. The amount

allocated for these activities is US$ 9.95 billion.

• Part C: Funding of activities related to promoting reforms in the power sector. The fund allocated for

these enabling activities is US$ 292.78 million.

Guided by various regulatory and policy initiatives for efficiency improvements in the distribution sector,

several Public Private Partnership (PPP) models have been proposed. Successful PPP models include first

corporate distribution franchise model in Bhiwandi and distributed-generation based franchise in Pune. The

franchisee model is being promoted by state governments that are keen to improve their networks and

collection efficiencies without complete privatisation. Private companies have also shown interest in

distribution franchises offered by several states.

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TRANSMISSION AND DISTRIBUTION

In April 2005, the Government of India launched the Rajiv Gandhi GrameenVidyutikaranYojana (RGGVY), a

scheme for developing rural electricity infrastructure and household electrification. The scheme was aimed

at achieving the incumbent government‟s National Common Minimum Programme (NCMP) promise of

providing access to electricity to all households in five years. Rural Electrification Corporation (REC) is the

nodal agency for implementation of the scheme. A capital subsidy of US$ 1.2 billion was budgeted for

implementation of Phase I of the scheme during the Tenth Plan period. The scheme was reviewed towards

the end of plan period and modifications were made for its implementation during the Eleventh Plan period.

Accordingly, the Ministry of Power approved a capital subsidy of US$ 6.6 billion in February 2008. The

current status of rural electrification is as mentioned in the following table:

Rural Electrification

Table 11: Rural Electrification

Rural Electrification Status*

Total No of Villages 593,732

No of Villages Electrified 498,080

% of Village electrified 83.9%

Source: CEA, Ministry of Power

*As of May 2010

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Contents

Executive Summary

Industry overview – Power

Generation

Transmission and distribution

Demand-supply position

Government policy and reforms

Opportunities in the Indian power sector

Investment opportunities

Industry overview – equipment industry

INDIA: ENERGY SECTOR September 2010

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DEMAND-SUPPLY POSITION

For the past two decades, India has had to face increasing deficit in power supply, both for meeting its

normal energy requirements as well as its peak load demand. The problem is acute during peak hours and

summers, and necessitates planned load shedding by many utilities to maintain the grid in a healthy state. The

average all-India shortages in 2009-10 were at 10 per cent in terms of normal energy requirement and about

13 per cent in terms of peak load.

Overview

Table 12: Electricity Demand and Supply

FY

Energy Peak Demand

(MU) (MW)

Demand Availability Shortage % Demand Met Shortage %

2002-03 545,983 497,890 48,093 8.8 81,492 71,547 9,945 12.2

2003-04 559,264 519,398 39,866 7.1 84,574 75,066 9,508 11.2

2004-05 591,373 548,115 43,258 7.3 87,906 77,652 10,254 11.7

2005-06 631,024 578,511 52,513 8.3 93,214 81,792 11,422 12.3

2006-07 693,057 624,716 68,341 9.9 100,715 86,818 13,897 13.8

2007-08 737,052 664,660 72,392 9.8 108,866 90,793 18,073 16.6

2008-09 777,039 691,038 86,001 11.1 109,809 96,785 13,024 11.9

2009-10 830,594 746,644 83,950 10.1 118,472 102,725 15,747 13.3

Source: CEA

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DEMAND-SUPPLY POSITION

With the shortage at both the normal and the peak levels, Indian power industry does not exhibit much

cyclicality. Further, with assured returns, the margins of players and their profitability is almost independent

of the economic cycles.

Electricity is the most important component of primary energy. India‟s electricity consumption has grown at

an average rate of 7.3 per cent during the period 2002-07 to about 577.9 TWh. Consumption has increased

at a faster rate since 2002-03, reflecting buoyant industrial demand. Industrial consumers are the largest

group of electricity consumers, followed by the domestic, agricultural and commercial consumers, in that

order. India‟s per capita electricity consumption increased from 178 kWh in 1985-86 to 704.4 kWh in 2007-

08. Over the period, 2001-08, per capita consumption has increased at an average rate of 4.45 per cent. It is

still much lower compared to the international standards.

Table 13: Electricity Consumption

FY Consumption (GWh)

Dom. Comml. Indl. Agri. Others Total

2003-04 89,736 28,201 181,970 87,089 31,338 418,334

2004-05 95,659 31,381 199,488 88,555 32,950 448,033

2005-06 100,090 35,965 214,121 90,292 33,983 474,451

2006-07 111,002 40,220 241,216 99,023 34,210 525,671

2007-08 120,981 46,685 265,407 104,182 40,706 577,960

Source: CEA, IMaCS Research

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DEMAND-SUPPLY POSITION

The demand for power is expected to increase to 975 billion kWh by 2011-12. However, at an average GDP

growth rate of 8 per cent, the overall demand is expected to increase to about 1,097 billion kWh in 2011-

12, including the demand from non-utilities.

Electricity Requirement

Table 14: Projected Requirement of Electricity

Source: IMaCS Research

Energy Requirement Peak Demand Installed Capacity Required

(Billion kWh) (GW) (GW)

GDP growth at 8.0% 9.0% 8.0% 9.0% 8.0% 9.0%

2003-04 633 633 89 89 131 131

2006-07 761 774 107 109 153 155

2011-12 1,097 1,167 158 168 220 233

2016-17 1,524 1,687 226 250 306 337

2021-22 2,118 2,438 323 372 425 488

2026-27 2,866 3,423 437 522 575 685

2031-32 3,880 4,806 592 733 778 960

The 17th Electric Power Survey (EPS) has forecast a peak demand of 152,746 MW for 2010-11. That means

a capacity addition requirement of about 72,000 MW during the Eleventh Plan period. Though the target

set for capacity addition during the Eleventh Plan period is 78,700 MW, only 62,000 MW is expected to be

added by the end of the period.

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DEMAND-SUPPLY POSITION

The following table provides the Eleventh Plan targets for adding generation capacity. In a reversal of the

trend witnessed during the 1990s, a substantial contribution is expected from the hydropower sector. Also,

the private sector is expected to account for 15 GW of the planned capacity addition of 78.7 GW during

this period.

Capacity Addition Plan

Table 15: Installed Capacity Addition Plan

(MW)

Sector Thermal Hydro Nuclear Grand Total

11th Plan Total 59,693 15,627 3,380 78,700

Central 24,840 8,654 3,380 36,874

State 23,301 3,482 - 26,783

Private 11,552 3,491 - 15,043

Recognising the large potential of coal reserves in the country as an economic and readily available

resource, a significant proportion of the future capacity additions is expected to be based on coal. Further,

to reduce the environmental impact and to increase efficiency, the strategies proposed by the power

ministry include introduction of large-sized units (660-800 MW) employing the super-critical technology. The

source-wise capacity addition as envisaged under Eleventh Plan period is as given below:

Source: CEA, IMaCS Research

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DEMAND-SUPPLY POSITION

Figure 5: Fuel-wise capacity addition plan (2007-2012) (%)Additional generation capacity would require

commensurate investments in transmission

infrastructure as well. Huge transmission capacity

enhancement is required under Phase-III of National

Grid Programme, which targets an inter-regional

exchange capacity of 37,700 MW by 2012. With

rapid industrialization and growing power

requirements, many states have decided to set up

high-capacity intra-state power transmission

systems. PPP model is being adopted by many

utilities to attract private investment in transmission

sector. The future capacity addition plan envisaged is

as given in the table below:

76%

20%

4%

Thermal

Hydro

Nuclear

Table 16: Projected Transmission Line Length (Ckm)

Sector 11th Plan 12th Plan

765 kV 5,428 8,000

500 kV HVDC 5,206 4,500

400 kV 49,278 51,000

220 kV 35,371 50,000

Total 95,283 113,500

Source: CEA, IMaCS Research

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Contents

Executive Summary

Industry overview – Power

Generation

Transmission and distribution

Demand-supply position

Government policy and reforms

Opportunities in the Indian power sector

Investment opportunities

Industry overview – equipment industry

INDIA: ENERGY SECTOR September 2010

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GOVERNMENT POLICY AND REFORMS

Prior to 1991, power markets in the country were completely in the hands of the State Electricity Boards

(SEBs). Their poor financial health and the wide-spread inefficiencies in the system resulted in the initiation

of reforms in 1991.

The reforms initially focussed on the generation side of the business. Power was removed from the list of

activities reserved for the public sector in the Industrial Policy Resolution, and the Electricity Supply Act,

1948 was amended to lift many of the regulatory impediments to private investment in the sector. The

policy allowed full local and foreign private ownership of power companies and offered a thirty-year license

with the prospect of twenty-year renewals and higher financial returns.

Subsequently, it was felt that reforms were also required on the distribution side of the business, as the SEBs

were in a poor financial condition and unable to invest in fresh capacity. In addition to direct loans to SEBs,

the state governments also provided substantial guarantees to financial institutions for enabling SEBs to raise

requisite resources. Reform of power distribution was, and still is, a fundamental requirement for improving

commercial performance and financial viability of the power sector in India and attracting public and private

investment. Improvement in cost recovery in power sector also assumed significance, particularly in the

context of provision of free or subsidised power to certain consumer segments by the state governments.

The setting up of CERC and the state electricity regulatory commissions (SERC) was a key element of the

reform process, whereby the regulatory control was passed on to independent regulators. The commissions

Overview

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GOVERNMENT POLICY AND REFORMS

are mandated to regulate the tariffs charged to consumers, promote investment and advise the government

on power sector policies.

The next step was separating the generation, transmission and distribution functions of the integrated SEBs.

Starting with Orissa, many states have unbundled their SEBs to form separate entities. This has enabled

independent functioning of the three segments in terms of every-day operations, investment assessment,

project identification and deployment of funds.

Key Policies

The Electricity Act, 2003

The Electricity Act, 2003, provides a comprehensive yet flexible legislative framework for power sector

development. The key objectives of the Electricity Act, 2003 are as follows:

• Consolidation of the laws relating to generation, transmission, distribution, trading and use of

electricity with broad measures conducive to development of the entire electricity industry

• Promotion of competition in the industry

• Protection of consumers‟ interest and facilitation of electricity supply in all areas

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GOVERNMENT POLICY AND REFORMS

• Rationalisation of electricity tariffs

• Ensuring transparency of subsidies

• Promotion of efficiency and environmentally benign policies

• Constitution of CEA, regulatory commissions and establishment of an appellate tribunal

National Electricity Policy, 2005

The National Electricity Policy (NEP), 2005 aims to achieve accelerated development of the power sector,

supply of electricity to all, and protection of interests of consumers and other stakeholders. It has tried to

address the issues pertaining to availability of energy resources, technologies for using those resources,

economics of generation using different resources, and the country‟s energy security. The salient objectives

of the policy are as follows:

• Access to electricity for all households in next five years

• Power demand to be fully met by 2012

• Energy and peaking shortages to be overcome and spinning reserve to be made available

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GOVERNMENT POLICY AND REFORMS

• Supply of reliable and quality power of specified standards in an efficient manner and at reasonable rates

• Per capita availability of electricity to be increased to over 1,000 units by 2012

• Minimum lifeline consumption of 1 unit/household/day by year 2012

• Financial turnaround and commercial viability of the electricity sector

• Protection of consumers‟ interests

The policy requires the state governments to prepare a five-year plan with annual milestones to bring down

AT&C losses. It also aims to facilitate investment in distribution by ensuring adequate returns for utilities.

National Electricity Policy, 2005

In January 2006, the Government of India notified the National Tariff Policy, 2006, which aims to ensure the

following:

• Financial viability of the power sector

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GOVERNMENT POLICY AND REFORMS

• Attract investments

• Availability of electricity to consumers at reasonable rates

• Transparency and consistency in regulatory approach to tariff determination

The regulatory commissions are guided by the Tariff Policy, which stipulates that procurement of future

requirement of power is to be done through competitive bidding. A two-part tariff structure is to be

followed for awarding all long-term contracts to facilitate merit order despatch. Furthermore, power

purchase agreements (PPA) are required to ensure adequate and bankable payment security mechanism to

mitigate the risk of default.

Integrated Energy Policy, 2006

The broad vision behind the Integrated Energy Policy is to meet the energy demand of all, including the

lifeline energy needs of vulnerable households. The emphasis is on safe and convenient energy at the least

cost in a technically efficient, economically viable and environmentally sustainable manner.

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GOVERNMENT POLICY AND REFORMS

National Action Plan on Climate Change

In 2008, India announced its first National Action Plan on Climate Change (NAPCC) outlining existing and

future policies and programmes to address climate change mitigation and adaptation. The plan includes the

National Solar Mission, National Mission for Enhanced Energy Efficiency, National Mission on Sustainable

Habitat, National Water Mission, National Mission for Sustaining the Himalayan Ecosystem, National Mission

for a “Green India”, National Mission for Sustainable Agriculture and National Mission on Strategic

Knowledge for Climate Change.

Industrial Policy for Renewable Energy

The Government of India is promoting medium, small, mini and micro enterprises for manufacturing and

servicing of various types of renewable energy systems and devices. The industrial policy measures include

the following:

• Exemption from industrial clearance for setting up renewable energy units.

• Exemption from CEA clearance for power generation projects of up to US$ 238.1 million.

• Five-year tax holiday for renewable energy power generation projects.

• Soft loan made available through IREDA for renewable energy equipment manufacturing.

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GOVERNMENT POLICY AND REFORMS

• Facilities for promotion of export-oriented units for renewable energy industry.

• Financial support extended to renewable energy units for taking up R&D projects in association with

technology institutions.

• Permission to private sector companies to operate as distribution licensees or generating entities.

• Custom duty concession given for renewable energy parts and equipment, including for machinery

required for renovation and modernisation of power plants. Excise duty on a number of capital goods and

instruments in the renewable energy sector has been reduced or exempted.

• Excise duty reduction or exemption on a number of capital goods and instruments used in the renewable

energy sector.

The Mega Power Policy

Under the Mega Power Policy, projects of more than 500 MW (and 350 MW in special category states) with

inter-regional power transmission capabilities qualify to receive financial incentives. Under the policy, a

qualifying project can avail of financial concessions such as zero customs duty on import of capital equipment

and deemed export benefits under the Foreign Trade Policy and income tax holiday under Section 80-IA of

the Income Tax Act. Tax holidays are available to such projects for 10 years within 15 years of commissioning.

States can also provide exemptions on local taxes and duties. Projects in the public sector get 15 per cent

price preference.

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GOVERNMENT POLICY AND REFORMS

The Ultra Mega Policy

The government has launched an initiative for developing 4,000 MW coal-based ultra mega power projects

(UMPPs). The objective behind this initiative is to obtain cheaper tariffs using economies of scale and

mitigate the risks related to acquisition of land, fuel, water and statutory clearances. These projects are

awarded to developers on the basis of tariff-based competitive bidding. Project-specific shell companies

(SPVs) have been set up as wholly-owned subsidiaries of Power Finance Corporation Limited to tie up

necessary inputs such as land, captive mining blocks for fuel and water, and to facilitate in-principle

environment and forest clearances. Each SPV is transferred to the selected developer along with the

clearances obtained and resources secured. So far, nine sites have been identified by CEA for the proposed

UMPPs. These include four pit-head sites, each, in Madhya Pradesh, Jharkhand, Orissa and Chhattisgarh, and

five coastal sites, each in Gujarat, Andhra Pradesh, Tamil Nadu, Maharashtra and Karnataka. Some states are

keen to have additional UMPP sites.

The New Hydro Policy, 2008

A new hydro policy was approved by the Union Cabinet in January 2008. The key features of the policy are as

follows:

• Both the public sector and the private sector developers can be allocated projects without having to go

through the tariff based competitive bidding route. The tariff would be decided by the appropriate

regulatory commission.

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GOVERNMENT POLICY AND REFORMS

• The developers have been allowed merchant sales of up to 40 per cent of the saleable energy. This allows

them the flexibility of diversifying revenue realisations instead of being bound by fixed PPAs.

• The policy allows 12 per cent free power to the local state government and an additional 1 per cent for a

local area development fund that would provide a regular source of income to build replacement

infrastructure for the displaced people and to fund welfare schemes for them.

• For the families affected by projects, the policy provides for 100 units of free electricity per month for a

period of 10 years. In addition, the policy stipulates that at every project site, an industrial training institute

would be set up six months before the beginning of the project work to train the affected people to

undertake skilled and semi-skilled jobs on project.

The 50,000 MW Hydroelectric Power Initiative

The Central Government launched a 50,000 MW hydropower initiative in May 2003. It was felt that an ideal

hydro-thermal mix in the ratio of 40:60 is necessary for building flexibility in power system operations to suit

varying load patterns during a year. Both base-load and peak-load requirements can be sufficiently met with

such a mix while maintaining the grid stability.

The Electricity Act, 2003, requires hydropower developers to obtain approval from CEA, which in turn is

required to assess whether a proposed project‟s river works could jeopardize the prospects of the best

development of the river or its tributaries for power generation while being consistent with the

requirements of drinking water, irrigation, navigation, flood-control or other public purposes. CEA must

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GOVERNMENT POLICY AND REFORMS

make this assessment in consultation with the central and the concerned state governments.

Under this initiative, a pre-feasibility report (PFR) is completed by CEA before a project is offered to a

developer. PFRs have been prepared for 162 projects with a cumulative capacity of 34,020 MW and now

detailed project reports (DPR) are under preparation. The projects are located in Andhra Pradesh, Arunachal

Pradesh, Chhattisgarh, Himachal Pradesh, Jammu & Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra,

Manipur, Meghalaya, Mizoram, Nagaland, Orissa, Sikkim and Uttaranchal.

Open Access and Power Trading

Open access is a key feature of the Electricity Act, 2003. Open access to transmission and distribution on

payment of charges to utilities enables a variety of licensees to use spare capacities to transmit power from

generation points to load centres. Power trading through the open access system allows freedom to buy and

sell electricity. This has also helped develop power exchanges in the country.

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Contents

Executive Summary

Industry overview – Power

Generation

Transmission and distribution

Demand-supply position

Government policy and reforms

Opportunities in the Indian power sector

Investment opportunities

Industry overview – equipment industry

INDIA: ENERGY SECTOR September 2010

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OPPORTUNITIES IN THE INDIAN POWER SECTOR

Regional Cooperation

South Asian countries have a great potential for electricity generation and have complementary endowments

on a contiguous landmass, which is a prerequisite for developing an integrated power infrastructure,

including power grids and gas pipelines. If India has an edge in producing coal-based energy, Pakistan and

Bangladesh have the benefit of gas-based power generation, while Nepal and Bhutan have abundant potential

for hydropower.

These regional complementarities can be exploited for mutual benefit. A regional network of gas pipelines

and power grid is expected to enhance energy security of India. It is also likely to significantly benefit the

neighbours by reducing their cost of fuel transportation and help them in harnessing their energy resources

optimally.

Bangladesh has substantial reserves of gas – about 22.9 trillion cubic feet (TCF) – of which 16 TCF is proven

reserves. There is potential for Bangladesh to export gas to India. There is a huge potential for

hydroelectricity in the Hindukush-Himalayan region, of which only 11 per cent has been exploited so far.

Bhutan has hydroelectric potential to generate 30,000 MW and Nepal could produce 43,000 MW, and the

two could export power to India and Bangladesh.

India is in the process of upgrading transmission lines to fetch power from Nepal and Bhutan to its states of

West Bengal, Bihar and Uttar Pradesh. However, it may require a corridor through Bangladesh for

transmission lines.

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OPPORTUNITIES IN THE INDIAN POWER SECTOR

Merchant Power

Merchant power plants (MPP) are a product of the restructured electricity industry. MPPs fill different niches

in the market: some provide steady supply to the grid while others fire up only when there is high peak-

demand. Given this strong incentive of high returns, MPPs strive to produce power efficiently and supply to

locations where it is needed the most. Private sector interest in power also stems from the possibility of

selling power at high prices in the present supply-constrained scenario.

Renewable Energy Option

The country has an estimated renewable energy potential of 85,000 MW from commercially exploitable

sources. The potential for wind power is 45,000 MW, for small hydro 15,000 MW and for biomass and bio-

energy it is 25,000 MW. In addition, India has the potential to generate 35 MW per sq km using solar

photovoltaic and solar thermal energy.

The Central Government has proposed an addition of 15,000 MW of renewable energy generation

capacities during the Eleventh Five-Year Plan period. The total investment on development of renewable

energy sources during the plan period is expected to be about US$ 2 billion. The renewable energy industry

is identified as a priority lending sector by the Reserve Bank of India.

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OPPORTUNITIES IN THE INDIAN POWER SECTOR

Government Incentives

• SERCs have been mandated to promote renewable energy through renewable purchase obligations, which

require distribution companies to source up to 10 per cent of their power from such sources.

• The key incentives for wind energy include a provision for 80 per cent accelerated depreciation in the first

year, a 10-year tax holiday, income tax waiver on power sold to utilities and privileged tariffs.

• Projects that do not claim accelerated depreciation benefits are entitled to generation-based incentive of

US$ 0.011 for each kWh of power sold to IPPs with capacity of more than 5 MW.

• India offers several subsidies to solar power products, such as solar lanterns, home lighting systems besides

generation-based incentives of up to US$ 0.286/kWh to solar power plants.

• For small hydropower projects (less than 3 MW), incentives include concessions on customs duty, capital

subsidies, 10-year tax holiday and other state-level incentives such as exemptions from sales and electricity

tax and preferential tariffs.

• Incentives for biomass energy include accelerated depreciation, import duty concessions, excise duty

exemption, capital subsidies and a 10-year tax holiday.

Several export incentives have made India a key player in the global market for wind turbine generators

(WTG) and solar photovoltaic cells and panels.

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OPPORTUNITIES IN THE INDIAN POWER SECTOR

Policy Incentives

• 100 per cent accelerated depreciation in the first year of the installation of projects and systems

• No excise duty on manufacture of most of the finished products

• Low import tariffs for capital equipment and most of the materials and components

• Soft loans to manufacturers and users for commercial and near commercial technologies

• Five-year tax holiday for power generation projects

• Remunerative price for grid-feeding renewable energy units under the alternate power purchase policy of

state governments

• Facility for banking and wheeling of power

• Facility for third-party sale of renewable energy

• Financial incentives and subsidies for devices with high initial cost

• Involvement of women in implementation of renewable energy programmes

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• Encouragement to NGOs and small entrepreneurs

• Special thrust on renewable energy in the North-Eastern region of the country; 10 per cent of planned

funds earmarked for North-East for enhanced and special subsidies

• For municipal waste-to-energy projects, allotment of land on long-term basis at token lease rent and supply

of municipal waste at project site free of cost

In addition, the Central Government gives financial assistance to develop solar cities in the following manner:

• Up to US$ 0.12 per city for a period of five years

• Up to US$ 0.03 million for preparation of a master plan

• Up to US$ 0.03 million for institutional arrangements

• Up to US$ 0.5 million for awareness generation, capacity building and other promotional activities

• Up to US$ 0.03 million for oversight of implementation during five years

The government has created a liberal environment for foreign investment in renewable energy projects. Key

highlights of the foreign investment policy are:

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OPPORTUNITIES IN THE INDIAN POWER SECTOR

• Permission for foreign investors to form joint ventures with Indian partners for financial and/or technical

collaboration and for setting up of renewable power generation projects

• Liberalised foreign investment approval regime for easy investment and technology flows to joint

ventures

• Automatic approval for proposals for up to 74 per cent foreign equity participation in a joint venture

• Permission for 100 per cent foreign equity with special approval from the Foreign Investment Promotion

Board (FIPB)

• Permission for setting up liaison offices in India

• Encouragement for foreign investment in renewable energy generation projects on build-own-operate

basis

State governments have also announced promotional policy packages in the form of wheeling, banking and

buyback guarantee in addition to considerable tariff escalations for energy from wind, co-generation, small

hydro, and biomass projects. In order to promote the sector, some state governments provide concession

and exemption in state sales tax and octroi. In addition, state renewable energy development agencies play a

hand-holding role in the development of renewable energy projects.

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OPPORTUNITIES IN THE INDIAN POWER SECTOR

Private Participation

To enable the private companies to enter the power sector, the government has introduced many policies

and regulations under the Electricity Act and the National Electricity Policy.

By 2012, India requires an installed capacity of about 200,000 MW. A huge capital investment is required to

meet this target. This has created investment opportunities in power generation, transmission, and

distribution through the PPP mode. India‟s power sector is still ridden with a large demand-supply gap. This

has necessitated some strategic initiatives. There are strong opportunities in transmission network area –

additional 60,000 ckm of transmission network is expected to come up by 2012 with a total investment of

about US$ 200 billion.

Coal Linkages

In 2003, the Government of India issued guidelines for allocation of coal blocks to power plants to

ensure commensurate fuel supply for sustained generation at cheaper prices. Coal blocks are allocated

to projects of CPSUs, state PSUs, joint venture companies, IPPs, UMPPs, captive power plants supplying

at least 25 per cent of their capacity to the grid and MPPs:

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OPPORTUNITIES IN THE INDIAN POWER SECTOR

• Projects proposed to be executed by the CPSUs, state PSUs and SEBs are accorded the first priority.

Moreover, their expansion projects get a higher priority over new projects.

• Joint venture projects between the centre and a state or between the two states have the next priority.

Joint ventures between private sector and the centre or a state have the same priority if the public sector

partner has substantial say in the management.

Carbon Credit Market

The Clean Development Mechanism (CDM) is well accepted in India, which is among the leaders in the

carbon credit market. The country is expected to generate 573 million Certified Emission Reduction (CER),

or carbon credits, by 2012.

The Government of India and industry have been very proactive in their approach to the carbon credit

market. This has helped India gain an early mover advantage in CDM. As of July 2010, 520 projects have been

registered, which is 22.5 per cent of the total projects registered with CDM Executive Board of UNFCCC.

The majority of the CDM projects have come from renewable energy industry. Most of the CDM projects in

India are undertaken on a unilateral basis – developed independently by local stakeholders. Indian companies

in the power sector are involved in development of alternative sources of energy and have reaped benefits

from carbon trading.

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OPPORTUNITIES IN THE INDIAN POWER SECTOR

Energy Efficiency and Conservation

Under the Energy Conservation Act, the Bureau of Energy Efficiency (BEE) has begun to enforce

mandatory energy audits and establish consumption norms for nine specified energy-intensive industries.

In addition to government policies, efforts of multilateral and bilateral organizations to conserve energy

across a wide range of sectors have attracted new domestic and international energy efficiency

companies to this market. The increasing appeal of energy efficient processes and products over the past

few years has led to investors‟ interest in funding the energy efficiency sector.

The potential for energy savings is enormous: an estimated 183.5 billion kWh per year, according to

reports prepared by the Asian Development Bank and the BEE. The sector-wise energy consumption on

an all-India basis for the year 2007-08 is given in the following table. A conservative estimate of potential

for savings from energy efficiency is about 15 per cent of the electricity consumption.

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OPPORTUNITIES IN THE INDIAN POWER SECTOR

Table 17: Energy Saving Potential

(Billion kWh)

Sector Consumption Saving Potential

Agriculture Pumping 92.33 27.79

Commercial Buildings* 9.92 1.98

Municipalities 12.45 2.88

Domestic 120.92 24.16

Industry (Including SMEs) 265.38 18.57

Total 501.00 75.36

Source: Bureau of Energy Efficiency, IMaCS Research

*Establishments with connected load >500 kW

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Contents

Executive Summary

Industry overview – Power

Generation

Transmission and distribution

Demand-supply position

Government policy and reforms

Opportunities in the Indian power sector

Investment opportunities

Industry overview – equipment industry

INDIA: ENERGY SECTOR September 2010

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INVESTMENT OPPORTUNITIES

Investment in Power Sector

Government of India‟s estimate of the required investment in the power sector to meet the targets of the

Eleventh Plan period is US$ 245.62 billion. It comprises funds required for adding power generation capacity,

renovation and modernisation of existing power plants, expansion and up-gradation of transmission and

distribution infrastructure, and decentralized distributed generation. The total requirement of funds for

generation projects during the Eleventh Plan period is estimated at US$ 97.83 billion. Of that, US$ 48.11

billion are required by the central government projects, US$ 29.47 billion by state government projects and

US$ 20.25 billion by the private sector.

Opportunities in Generation, Transmission and Distribution

According to the 17th Electric Power Survey (EPS) of CEA, electricity demand is expected to grow to 968.7

billion kWh in 2011-12 and is further expected to grow to 1,392.06 billion kWh by the end of Twelfth Five-

Year Plan period (2012-17).

The estimated cost of non-conventional energy sources and captive power projects during the Eleventh Plan

period is estimated as follows:

• Non-conventional energy sources (13,500 MW at US$ 0.95/MW) US$ 16.07 billion

• Captive power plants (12,000 MW at US$ 1.19/MW) US$ 11.43 billion

Generation

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INVESTMENT OPPORTUNITIES

The Government of India has identified coal blocks with reserves of 3.2 billion tonnes for allotment by the

screening committee of Ministry of Coal for MPPs and captive power plants. About 10,000 MW is expected

to be developed through this initiative. The estimated funds required for this initiative are US$ 9.52 billion, at

1.19 per MW. Based on current prices, the fund requirement for renovation and modernisation (R&M) of

thermal and hydro power stations for the Eleventh Plan period is estimated as US$ 3.78 billion.

Table 18: Fund Requirement for R & M Activities

ParticularsCapacity

(MW)

Estimated Cost

(US$ Billion)

R & M of Hydropower 11,278.00 0.83

R & M of Thermal Power 12,389.00 2.95

Total Funds Requirement 3.78

Transmission

Total fund requirement for inter-state transmission system has been estimated at US$ 17.9 billion and for

intra-state transmission at US$ 15.5 billion. In order to mobilise resources from private sector, the

Government of India issued guidelines for private sector participation in transmission sector in January 2000.

These guidelines envisaged two distinct routes for private sector participation in transmission: the joint

venture route (wherein the CTU/STU shall own at least 26 per cent equity and the remaining is to be

contributed by the joint venture partner) and the Independent Private Transmission Company (IPTC) route

(wherein 100 per cent equity shall be owned by the private entity).

Source: CEA, IMaCS Research

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INVESTMENT OPPORTUNITIES

Distribution

It is estimated that to transmit the increased generation capacity, as envisaged in Eleventh Plan, to

consumers, a matching distribution network of about 1,500,000 ckm of 33 kV, 11 kV and LV lines and

292,000 MVA of distribution transformer capacity will be needed. Installation of capacitors and re-

conductoring of sub-transmission/ distribution network of about 3,000,000 ckm, and augmentation of

distribution capacity of 198,000 MVA of various sub-stations would also be required. In addition to these,

the estimated fund requirement of various other initiatives such as RGGVY under rural electrification and

APDRP is as follows:

Table 19: Fund Requirement for Distribution and Rural Electrification

ParticularsAmount

(US$ billion)

Sub-transmission and Distribution 46.90

RGGY 9.52

APDRP & Other Schemes 9.52

Others 2.38

Total Fund requirement 68.33

Source: Ministry of Power, IMaCS Research

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Contents

Executive Summary

Industry overview – Power

Generation

Transmission and distribution

Demand-supply position

Government policy and reforms

Opportunities in the Indian power sector

Investment opportunities

Industry overview – equipment industry

INDIA: ENERGY SECTOR September 2010

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INDUSTRY OVERVIEW– EQUIPMENT INDUSTRY

Investments in the Energy Equipment Industry

Growth in India‟s energy sector has drawn investments into the electrical equipment industry too. This

investment has come from the existing players and through FDI into capacity expansion and green field

projects.

Over the last 10 years, the energy equipment and related industries have received foreign direct

investment of US$ 2,955.5 million. Major investments have been made in electrical equipment industry

followed by miscellaneous mechanical and engineering industries, boilers and steam generating plants and

prime movers (other than electrical generators), as shown in the following table.

Table 20: FDI in Energy Equipment and Related Industries

(US$ million)

Industry April 2000 – March 2010

Electrical equipment 2,146.5

Miscellaneous mechanical and engineering industries 795.9

Boilers and steam generating plants 9.4

Prime mover (other than electrical generators) 3.7

Total 2,955.5

Source: Department of Industrial Policy and Promotion, Ministry of Commerce and Industry

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INDUSTRY OVERVIEW– EQUIPMENT INDUSTRY

Overall economic recovery in India as well as in some of the major export destinations has encouraged the

industry players to take up expansion and green field projects. Investments have been mainly made in

capacities for generators, transformers, switchgears, wires and cables, boilers and turbines (including steam,

hydro, gas and wind energy turbines). The table below provides a snapshot of the investments made in

electrical equipment industry as of March 2010.

Table 21: Investments as of March 2010

(No., US$ million)

^ Steam, hydro, gas and wind energy

Source: CMIE

Industry

Outstanding investments Projects under implementation

No. of

projectsInvestment No. of projects Investment

Generators, transformers,

switchgears5 218.6 3 168.6

Wires and cables 11 350.3 8 240.7

Boilers and turbine^ 23 5,738.9 12 2,678.1

Total 39 6,307.8 23 3,087.5

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INDUSTRY OVERVIEW– EQUIPMENT INDUSTRY

Some of the major projects which are expected to be completed in 2010-11 are listed in the following table:

Table 22: Major Projects

(US$ million)

^AAC: All Aluminium Conductors, ACSR: Aluminium Conductors Steel Reinforced

Source: CMIE

Industry Company Investment Brief description

Switchgears Reyrolle 21.4The plant for manufacturing solid insulated switchgear is

expected to commission in September 2010.

Wires and cables Kei Industries 9.6The plant is expected to start producing 220 kV extra high

voltage cables from September 2010.

Wires and cablesCords Cable

Industries12.2

Commercial production of high tension rubber wires and cable

is expected to be commissioned in August 2010.

Wires and cables Polycab Wires 74.9The green field plant will manufacture 110 kV, 132 kV and 220

kV wires, AAC and ACSR^.

Wind turbine generators Regen Powertech 59.9The plant with capacity of 300 units is expected to start

production in August 2010.

Wind turbine generators R R B Energy 107.0The plant with capacity of 700 MW is expected to start

production in September 2010.

Boilers, turbines, generatorsReliance

Infrastructure2,568.8

The boiler, turbine and generator project is expected to be

complete by December 2010.

Turbines Siemens 58.9The project will be completed in December 2010 and will add

100 MW to Siemens‟ plant at Vadodara, Gujarat.

Transformers Polycab Industries 145.6 -

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INDUSTRY OVERVIEW– EQUIPMENT INDUSTRY

L&T-MHI (joint venture between Larsen and Toubro Limited and Mitsubishi Heavy Industries) has recently

invested US$ 404 million in a 4,000 MW manufacturing facility for supercritical boilers and turbines at

Hazira in Gujarat. The turbine and generator manufacturing facility was commissioned in April 2010 and the

boiler facility was commissioned in June 2010.

Budget Provisions in Energy Equipment Sector

India‟s electrical equipment sector is highly sensitive to government policies given its dependence on the

power sector, which is not only regulated by the government but also the investments in the sector are

mostly controlled by government schemes.

The central, state and private sectors together have projects to add about 62,000 MW of generation

capacity during the Eleventh Five-Year Plan period. States are also undertaking projects for upgrading their

power transmission and distribution systems. Rural electrification and grid-connected renewable energy

projects are also underway to augment capacity and increase the power supply coverage area. All these

projects are expected to have a positive impact on electrical equipment industry.

In the Union Budget 2008-09, the government reduced custom duty on project imports by 5 per cent.

However, a special countervailing duty of 4 per cent was imposed on a few specific power sector projects.

The Budget also emphasised on increasing the pace of power generation capacity addition and continuing

the reform process in power distribution. The initiatives in this respect include developing eight ultra mega

power (UMPP) projects, each with a capacity of 4,000 MW, and allocated on the basis of competitive

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INDUSTRY OVERVIEW– EQUIPMENT INDUSTRY

bidding as well as augmenting capacities in generation, transmission and distribution systems. In addition, US$

186 million was provided for R-APDRP projects of 2008-09. These initiatives and provisions are expected to

boost demand for transformers and switchgears – two major equipments used in transmission and

distribution of power. Moreover, the Budget proposed the creation of a national fund for transmission and

distribution reform.

In the Union Budget 2009-10, the allocation under R-APDRP was increased by 139 per cent to US$ 445

million over the previous budget estimate. It was also proposed that customs duty on permanent magnets

for synchronous generators above 500 KW used in wind-operated electricity generators be reduced from

7.5 per cent to 5 per cent. However, excise rate was doubled on items that previously attracted 4 per cent

duty, albeit with the exception of certain items such as power driven pumps for handling water, vacuum and

gas filled bulbs of retail sale price not exceeding US 42 cents per bulb, compact fluorescent lamps and

medical equipment.

The plan allocation for power sector, excluding the RGGVY, was more than doubled in the Union Budget

2010-11 to US$ 1,098 million from US$ 484 million in 2009-10. The plan outlay for the Ministry of New and

Renewable Energy (MNRE) was increased by 60 per cent, to US$ 214 million from US$ 134 million in 2009-

10. The budget also laid out the plan for setting up solar, small hydro and micro power projects at a cost of

about US$ 107 million in the Ladakh region of Jammu & Kashmir. Further, the budget exempted specified

inputs required for the manufacture of rotor blades for wind energy generators from central excise duty.

Excise on light emitting diodes (LED) lights was reduced from 8 per cent to 4 per cent and put at par with

compact fluorescent lamps (CFL).

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Contents

Boilers

Conductors, wires and cables

Transformers

Turbines

Switchgears

Transmission towers

Wind turbine generators

Diesel engines

Capacitors

Energy meters

INDIA: ENERGY SECTOR September 2010

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India: Energy Sector September 2010

BOILERS

A boiler is a closed vessel which can sustain high pressure and is used to heat and vaporise water for use in

heating and power generation and industrial processes. Apart from power generation industry, which uses

boilers to produce steam at high pressure for operating turbines, industries such as fertiliser, petrochemical,

refinery, steel and paper require boilers for heating and other process requirements.

The Boiler Industry

Major boiler manufacturers in India include Bharat Heavy Electricals Limited (BHEL), Thermax, L&T-MHI,

Alstom India, CetharVessels and GB Engineering. These companies manage large turnkey projects which

include design, detailed engineering, procurement, manufacturing, supply, erection, and commissioning of

boilers (including repair and maintenance).

The main types of boilers manufactured in India include the following:

Utility boilers: Utility boilers are used for power generation applications. Utility boilers are classified

mainly on the basis of the fuel used, the mode of firing, the number of boiler drums and circulation of

water.

Industrial boilers: Industrial boilers are used by a number of industries for captive power generation and

process steam generation. These boilers are usually capable of handling a range of fuels such as coal, oil, gas

and black liquor. Industrial boilers manufactured by Indian manufacturers cater to specific requirements

such as dual pressure, multi-fuel firing, CO gas firing, import steam heating, drum coil heating and stand-by

heating. In addition, Indian boiler makers manufacture circulating fluidised bed combustion boilers and heat

recovery steam generators.

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BOILERS

Various types of utility and industrial boilers are given in the following table:

Table 23: Types of Utility and Industrial Boilers

Utility Boilers Industrial Boilers

• Coal or oil or gas fired.

• Tangential or wall firing, direct or indirect firing.

• Two-pass or single-pass.

• Front or rear or side mill layout.

• Single drum or bi-drum.

• Natural or controlled circulation ort once-through.

• Constant or sliding pressure operation.

• Base load or cyclic or two-shift operation.

• Cold primary air or hot primary air systems.

• Vertical package (oil or gas fired).

• Vertical units (oil, gas or coal fired).

• Fluidised-bed combustion (coal and other

solid fuels).

• Chemical recovery.

• Waste heat recovery.

• Stoker fired.

Source: IMaCS analysis

Supercritical boilers: Supercritical boilers are a new technology trend in the power generation industry,

as fuel efficiency has become a major priority. Such boilers were originally developed in the 1950s in the US

and over time they have undergone significant development.

Supercritical conditions occur when the boiler pressure increases above the critical pressure of 3,208 psi

/221.2 bars, above which the two phase mixtures of water and steam cease to exist. This eliminates the need

for separation of water and steam in drums during operation and allows a simpler separator to be employed

during start-up. The major advantage of supercritical boiler technology is that it requires less fuel per unit of

power generated compared to conventional subcritical steam generators. Thus, it is also less harmful to

environment and requires comparative lesser start-up time.

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BOILERS

Of late, the Indian power sector has started adopting this technology primarily because of the CEA

mandating stricter energy efficiency benchmarks for the power sector. CEA has also issued guidelines for

supercritical equipment to ensure reliability and good performance of power plants. Companies such as

BHEL, L&T-MHI and Thermax are developing supercritical boilers manufacturing capabilities.

Capacity and Production

The total production of boilers in India in 2009-10 was valued at about US$ 2,723.9 million. The industry

has been growing at an average rate of 37.7 per cent for the last six years.

Table 24: Production of Boilers

(US$ million)

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 CAGR

Production 550.5 890.2 1296.2 2045.5 2208.3 2723.9 37.7%

Source: CMIE, IMaCS analysis

The value of total production of boilers in India increased four-fold, from US$ 550.5 million in 2004-05 to

US$ 2,208.3 million in 2008-09. During the same period, domestic demand for boilers increased at a faster

pace and was supported by imports. Until 2006-07, India was a net exporter of boilers. Since 2007-08, it

has become a net importer. Most of India‟s imports of boilers are from China.

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BOILERS

Table 25: Production, Import, Export and Consumption of Boilers

(US$ million)

Source: CMIE, IMaCS analysis

Growth of boiler manufacturing industry is closely linked with the development of the power and process

industries. The boiler manufacturers in India, including those with supercritical technology, are expected

to benefit immensely from the large generation capacity addition plans for the Eleventh and Twelfth Five-

Year Plan periods. Further, ageing of power plants in India and overseas is expected to increase

opportunities for R&M boilers. In this regard, Alstom has partnered with National Thermal Power

Corporation (NTPC), India‟s largest power generator, to undertake renovation, modernisation, retrofit and

refurbishment of aging power plants. The revival of industrial activity – as indicated by the significant

increase of 10.4 per cent in the IIP in 2009-10 – is expected to benefit the industrial boiler manufacturers.

2004-05 2005-06 2006-07 2007-08 2008-09 CAGR

Production 550.5 890.2 1,296.2 2,045.5 2,208.3 41.5%

Imports 24.7 55.6 30.1 346.8 492.1 111.3%

Total Supply 575.2 945.8 1,326.4 2,392.3 2,700.5 47.2%

Exports 59.1 68.8 111.3 182.0 207.7 36.9%

Consumption 516.1 877.0 1,215.1 2,210.2 2,492.8 48.2%

Industry Growth Drivers and New Technology Development

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BOILERS

A shift towards supercritical technology is one of the major new developments in India‟s boiler industry.

Indian boiler manufacturers are collaborating with foreign technology partners for inducting supercritical

technology. Table 26: Technological Partnership for Supercritical Technology

Indian Manufacturer Foreign Partner

Bharat Heavy Electricals Limited

(BHEL) Alstom, France

ThermaxBabcock and Wilcox Power Generation Groups,

The USA

Larsen and Toubro (L&T) Mitsubishi Heavy Industries, Japan

Source: CMIE, IMaCS Research

BHEL is also in the process of developing its own supercritical technology, which is expected to be

inducted by 2013. The company has recently established a research facility to conduct heat transfer studies

at supercritical pressure conditions (over 221 bars). This facility is also capable of analysing parameters for

ultra supercritical boilers, which are being considered for economical power generation. L&T has also

prioritised technology analysis of supercritical boilers and thermo-hydraulic design of once-through steam

generator.

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Contents

Boilers

Conductors, wires and cables

Transformers

Turbines

Switchgears

Transmission towers

Wind turbine generators

Diesel engines

Capacitors

Energy meters

INDIA: ENERGY SECTOR September 2010

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India: Energy Sector September 2010

CONDUCTORS, WIRES AND CABLES

Wires are metallic conductors formed by drawing metals and are used to carry electricity and

telecommunication signals. Conducting metals commonly used to manufacture wires and cables are copper,

aluminium, steel and steel-reinforced aluminium, and galvanised steel.

Cables and wires are mainly used in high-voltage transmission and distribution of electric energy, industrial

and household electrical wiring, transmission of telecommunication signals, and electrical and electronic

equipment.

Major manufacturers of wires and cables in India include Havells India, SterliteTechnologies, Finolex

Cables, Diamond Power Infrastructure, KEI Wires and Cables, Precision Wires India, Nicco Corporation,

Universal Cables, Torrent Cables, Cords Cable Industries, Polycab Wires and Hindustan Vidyut Products.

Cables manufactured in India cover a wide range in terms of insulation (PVC1, XLPE2 and sioplus), voltage

(low, medium and high voltage up to 33 kV), conductors (copper wire, aluminium) and armouring. Cable

manufactures often undertake EPC projects for laying underground and submarine cables as well as

transmission and distribution cabling.

The Conductors, Wires and Cables Industry

1Poly Vinyl Chloride 2Cross-linked poly-ethylene

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CONDUCTORS, WIRES AND CABLES

Production of cables and wires in India has increased over last few years because of the growth of power

sector and industrial activity. The total production of aluminium-based conductors increased from 27,625

tonnes in 2004-05 to 34,605 tonnes in 2009-10. During the same period, production of winding wires

increased from 20,959 tonnes to 31,621 tonnes. Production of telecommunication cable has fallen for the

last three years because of declining demand for wired telephones.

Capacity and Production

Table 27: Production of Various Types of Cables and Wires

Unit 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 CAGR

ACSR/AAC Tonnes 27,625 28,057 26,848 16,187 17,407 34,605 4.6%

Winding wires Tonnes 20,959 24,413 25,384 28,849 30,104 31,621 8.6%

Insulated cables/wires Billion Km 7,408 8,960 8,169 25,797 57,028 96,509 67.1%

Telecommunication

cables

Million

metres16,488 14,027 7,119 8,013 7,073 5,579 -19.5%

Note: AAC: All Aluminium Conductors, ACSR: Aluminium Conductors Steel Reinforced

Source: CMIE, IMaCS analysis

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CONDUCTORS, WIRES AND CABLES

In 2008-09, India‟s cables imports were valued at US$ 857.4 million. Cable imports have grown at 28.8 per

cent over the last five years. India imports cables and wires mainly from China, South Korea, the US and

Southeast Asia. Although India is a net importer of cables and wires, exports have increased five-fold, from

US$ 95.3 million in 2004-05 to US$ 516.8 million in 2008-09. Major exports destinations are the Middle

East, the US, the UK and Japan.

Table 28: Export and Import of Cables and Wires

(US$ million)

2004-05 2005-06 2006-07 2007-08 2008-09 CAGR

Export 95.3 163.7 324.8 430.7 516.8 52.6%

Import 311.4 350.4 488.0 917.8 857.4 28.8%

Source: CMIE, IMaCS analysis

Major growth drivers of the wire and cable industry are power transmission and distribution sectors, real

estate development and general industrial activity.

The Government of India has prioritised building of a strong national grid. About 22,100 MW of inter-

regional transmission capacity is expected to be added during the Eleventh Five-Year Plan period. Further,

in order to achieve the government‟s mission to provide electric power to every Indian and to

Industry Growth Drivers

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CONDUCTORS, WIRES AND CABLES

reduce transmission and distribution losses, greater emphasis is being laid on technology-driven

distribution of power. In addition, the RGGVY targets electrification of 125,000 un-electrified villages by

building village electrification infrastructure and rural electricity distribution network. As such, these

projects are the largest drivers of demand for cables and wires.

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Contents

Boilers

Conductors, wires and cables

Transformers

Turbines

Switchgears

Transmission towers

Wind turbine generators

Diesel engines

Capacitors

Energy meters

INDIA: ENERGY SECTOR September 2010

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India: Energy Sector September 2010

TRANSFORMERS

A transformer is a device that transfers electrical energy from one circuit to another through mutual

induction. By appropriate selection of the ratio of turns in the circuits, a transformer allows an alternating

current (AC) voltage to be „stepped up‟ or „stepped down‟.

Transformers are indispensable to electricity generation, transmission and distribution. By stepping up

voltage before transmitting electrical energy over long distances through wires and then stepping down

voltage as required in the power distribution process, transformers help reduce resistive loss and ensure

economic transmission of power over long distances. They are also used in electronic products in order

to step-down the supply voltage to a level suitable for the circuits of electronic instruments. The other

uses of transformers are in railway locomotives and traction equipment.

The industry manufactures a wide range of transformers, such as generation transformers, distribution

transformers, traction and locomotive transformers, and ultra-high-voltage instrument transformers (1,200

kV). Energy efficient transformers with low loss and low noise levels that meet international standards are

also produced.

Major manufacturers of transformers in India include EMCO, Bharat Bijlee, Crompton Greaves,

Transformers and Rectifiers India Limited (TRIL), Kirloskar Electric, Voltamp Transformers and Indian

subsidiaries of multinational companies such as ABB, Siemens, and Areva T&D.

The Transformer Industry

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TRANSFORMERS

Indian manufacturers are fast aligning themselves with the changing power generation, transmission and

distribution scenario. While generation capacity is being augmented, smart-grid technologies are

increasingly being deployed to reduce transmission and distribution losses. Going ahead, greater use of

765 kV extra high voltage (EHV) transmission highways and High Voltage Direct Current (HVDC) links are

expected to open up new opportunities for the industry. As the government has initiated bulk tendering

of supercritical power plants, Power Grid Corporation of India Limited (PGCIL) has moved towards

implementation of 800kV HVDC transmission lines and will adopt 1,200 kV AC lines next.

India has over 500 transformer manufacturers. In 2009-10, total production of power and distribution

transformers in India was estimated at 176,427 MVA. The production has grown at a rate of about 17 per

cent during the period 2004-2010. Of the total transformers produced, power transformers contributed

140,048 MVA while distribution transformers accounted for 36,379 MVA.

Capacity and Production

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TRANSFORMERS

The power transformers market has grown at a rate of 18.2 per cent during the period 2004-2010, faster

than the distribution transformer market, which registered a growth of 13.4 per cent. Further, the demand

for small-size distribution transformers of 16 KVA to 100 KVA has grown significantly. Transformers

ranging from 250 KVA to 630 KVA have also registered growth.

Besides meeting the domestic requirement, India is exporting transformers to more than 50 countries,

including the US, South Africa, Cyprus, Syria, Iraq and the countries in Europe, the Middle East and Far East.

Exports of transformers grew over five-fold, from US$ 91.5 million in 2004-05 to US$ 466.2 million in

2008-09. During this period, imports grew from US$ 71.5 million to US$ 324.6 million. While transformers

imported from China and South Korea pose pricing challenge to Indian manufactures, Indian products are

of better quality and help recover good margins.

Table 29: Production of Transformers

(MVA)

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 CAGR

Power transformers 60,787 62,577 77,674 94,390 119,101 140,048 18.2%

Distribution transformers 19,369 27,181 35,188 40,412 34,272 36,379 13.4%

Total 80,156 89,758 112,862 134,802 153,373 176,427 17.1%

Source: CMIE, IMaCS analysis

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TRANSFORMERS

The growth of power generation capacity and, transmission and distribution network is expected to boost

demand for power and distribution transformers in India. Replacement of transformers installed during

the Sixth Plan (1980-85) and Seventh Plan (1985-89) periods is also expected to add to demand.

EMCO, a leading transformer manufacturer, puts strong emphasis on enhancing product portfolio through

continuous and collaborative research and developmental activity. The company‟s sustained R&D efforts

have resulted in development of „Smart Transformer‟. The company is also in the process of developing a

„High Temperature Super Conducting Transformer‟. Further, it has developed an eco-friendly dielectric fluid

for transformer in association with Electrical Research and Development Association (ERDA), Vadodara.

Table 30: Imports and Exports of Transformers

(US$ million)

Source: CMIE, IMaCS analysis

2004-05 2005-06 2006-07 2007-08 2008-09 CAGR

Export 91.5 130.6 206.0 318.0 466.2 50.3%

Import 71.5 78.7 119.3 182.0 324.6 46.0%

Industry Growth Drivers and New Technology Development

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TRANSFORMERS

The „Smart Transformer‟ is an intelligent, value added, and compact transformer with a monitoring and

energy management system designed to provide comprehensive diagnostics and real-time performance

information of transformers to utilities and large power consumers. It ensures shorter network down

time and better load planning. The product is available at up to 630 kVA rating, 25 kV class and for single-

and three-phase.

Under the National Perspective Plan, EMCO has collaborated with Central Power Research Institute, a

public sector institute to develop energy-efficient 'High Temperature Super Conducting Transformer'. The

project, which is jointly funded by Ministry of Power and EMCO, aims to develop 630 kVA, high

temperature superconductor (HTS) distribution transformer using super-conducting elements.

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Contents

Boilers

Conductors, wires and cables

Transformers

Turbines

Switchgears

Transmission towers

Wind turbine generators

Diesel engines

Capacitors

Energy meters

INDIA: ENERGY SECTOR September 2010

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TURBINES

Turbines are the most critical equipment in the electric power generation process. A turbine is a rotary

engine that extracts energy from the source (steam, water, gas and wind) and converts it to useful work

(rotating engine for generation of electric power).

Turbines are primarily classified on the basis of speed, power output, input conditions (pressure and

temperature at entry and exit of turbine) and input fluid – steam, water, gas and wind. Turbines are mostly

used in power generation. However, in industrial processes, turbines may work as a source of mechanical

energy to drive pumps and compressors.

Major turbine manufacturers in India are BHEL, L&T-MHI, Alstom India, Triveni Engineering and Industries,

Siemens and Kirloskar Brothers.

The Turbine Industry

As of March 2009, the Indian turbine market was valued at about US$ 1,136 million. It grew at a rate of

44.1 per cent between 2004-05 and 2008-09. The growth was by power generation capacity addition. The

demand for turbines is primarily met by domestic production, which was valued at US$ 912 million for

2008-09.

Capacity and Production

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TURBINES

Both imports and exports of turbines have grown at over 35 per cent over the last few years. However,

total imports of turbines largely outpace exports. In recent years, turbine imports from China and Korea

have increased.

Table 31: Production, Trade and Consumption of Turbines

(US$ million)

2004-05 2005-06 2006-07 2007-08 2008-09 CAGR

Production 198 261 505 874 912 46.5%

Imports 84 167 186 252 293 36.5%

Total Supply 283 428 690 1,126 1,205 43.7%

Exports 19 30 58 52 69 37.6%

Consumption 263 398 633 1,074 1,136 44.1%

Source: CMIE, IMaCS analysis

Growth of turbine industry is driven by augmentation of power generation capacity across fuel-segments.

The table below summarises the power generation scenario in India.

Industry Growth Drivers and New Technology Development

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TURBINES

Table 32: Snapshot of Power Generation Scenario

(MW)

MoP: Ministry of Power, Government of India, LOA: Letter of Approval

Source: CEA

Particulars Capacity

Capacity at the end of 10th Plan (March-2007) 132,329

Add: Likely 11th Plan capacity-addition (CEA / MoP estimate) 62,374

Add: Slippage from the 11th Plan (original target: 78,700 MW) 16,326

Add: Capacity under construction in the 12th Plan (LOA allotted) 46,500

Aggregate capacity at the end of 12th Plan (March 2017)) 257,529

Add: Renewable capacity addition in the 11th Plan (7,154 MW commissioned by

September 2009)14,000

Total by the end of 12th Plan, including renewable capacity 271,529

Expected capacity addition in the 12th Plan 100,000

Capacity in the 12th Plan, for which orders not yet placed 53,500

Capacity by the end of 12th Plan (assuming 100 per cent ordering

and execution of remaining orders)324,029

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TURBINES

Indian manufacturers have well-qualified engineers and technicians who are capable of using advanced

engineering design tools, finite elements method (FEM), computational fluid dynamics (CFD) and 3-D

modelling. BHEL has developed a new single-cylinder reheat turbine in 120-150 MW range to meet

customers' demand for improved part-load efficiency and compact design. The main features of the newly-

designed steam turbine include combined high pressure, intermediate pressure and low pressure turbines

in a single casing with horizontally-split outer and inner casings, nozzle control with regulating stage and

reaction blading, central admission, provision of extractions for regenerative feed heating cycle and high-

pressure electro-hydraulic actuators.

BHEL‟s compact design of split-stay ring for hydro turbines permits use of compact guide apparatus, which

in-turn brings the generator closer to the turbine and facilitates adoption of semi-umbrella bearing

arrangement. This design helps reduce weight for medium and high-head stay rings, and more importantly,

permits accommodation of the semi-umbrella bearing arrangement in limited spaces of underground

caverns.

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Contents

Boilers

Conductors, wires and cables

Transformers

Turbines

Switchgears

Transmission towers

Wind turbine generators

Diesel engines

Capacitors

Energy meters

INDIA: ENERGY SECTOR September 2010

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SWITCHGEARS

A switchgear is used both to de-energize equipment to allow work to be done and to clear faults

downstream. A circuit breaker enclosed within switchgear is the key component that interrupts fault

currents. Switchgears are primarily classified on the basis of voltage: low voltage switchgear (up to 1,100

V), medium voltage switchgear (up to 36KV) and high voltage switchgear (above 36 kV).

Oil-filled circuit breakers have largely been replaced by air-blast, vacuum, or gas-insulated equipment,

facilitating safer control of high currents and power levels by automatic equipments with digital controls,

protection, metering and communications. There has been a higher demand for gas-insulated switchgear

(GIS) because of space constraint in urban areas. Switchgears are required not only for transmission and

distribution of electricity but also to access and control electricity.

Major manufacturers of switchgears in India are L&T, Legrand India, Schneider Electric India, ABB India,

Crompton Greaves, Havells India, Siemens India and Reyrolle. India‟s switchgear industry is well developed

and it is capable of manufacturing products in the entire voltage range from 240 V to 800 kV.

The Switchgears Industry

Switchgears are a combination of electrical disconnects and fuse and/or circuit breakers and are used to

isolate electrical equipment within an electric power system or grid.

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SWITCHGEARS

India‟s switchgear market is estimated at US$ 2.1 billion. While power contractors, low-tension circuit

breakers (LTCB) and miniature circuit breakers (MCB) have grown at a rate of 18-22 per cent during the

period 2004-2010, high-tension circuit breakers (HTCB) have grown at a rate of 9.9 per cent. Switch fuse

and fuse switch units and HRC fuses have grown at a moderate rate of 5.7 per cent.

The high growth of LTCB segment is primarily due to sustained demand from the housing sector, IT

industry, services and infrastructure sectors. In the low-voltage switchgear segment, MCBs are fast

replacing re-wireable switch fuses. High-voltage transmission projects have been the key driver for growth

of HTCBs.

Capacity and Production

Table 33: Production of Switchgears and Circuit Breakers

(Thousands)

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 CAGR

Power contactors 2,407 2,958 3,489 4,475 3,667 6,533 22.1%

Low -tension circuit breakers 608 623 809 1,615 1,178 1,506 19.9%

High-tension circuit breakers 35 44 52 59 59 55 9.9%

Miniature circuit breakers 35,191 38,373 49,664 59,563 62,979 81,450 18.3%

Switch fuse and fuse switch units 647 815 934 942 834 853 5.7%

Source: CMIE, IMaCS analysis

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SWITCHGEARS

Over the last five years, both exports and imports of switchgears have increased. However, imports have

outpaced exports. Exports of switchgears, primarily MCBs, have increased from US$ 169 million in 2004-

05 to US$ 418 million in 2008-09. Switchgears manufactured in India are exported to over 40 countries

including the UK, China, and Singapore and the countries in Southeast Asia, Middle East and Africa. During

the same period, imports of switchgears have increased from US$ 286 million to US$ 918 million.

Table 34: Exports and Imports of Switchgears

(US$ million)

Source: CMIE, IMaCS analysis

2004-05 2005-06 2006-07 2007-08 2008-09 CAGR

Exports 169 250 323 401 418 25.4%

Imports 286 383 513 653 918 33.9%

Growth in production of switchgears is driven by increased demand from power utilities, infrastructure

projects, and industrial and residential consumers. Steady growth of use of the low-tension circuit

breakers and miniature circuit breakers is expected to continue with the improvement in the real estate

and services sectors. Strengthening of transmission and distribution network is expected to benefit

medium and high voltage segments.

Industry Growth Drivers and New Technology Development

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SWITCHGEARS

In-house R&D units of manufacturers have been using advanced computer-aided engineering tools such as

electromagnetic and electrostatic analysis, structural and fatigue analysis, thermal analysis, coupled field

analysis for design, and development of switchgears. The R&D effort in this industry is entirely consumer

driven and involves new product development and enhancement of features of existing products.

Crompton Greaves has developed customised software – „Virtual Laboratory Program for Switchgears‟ –

which enables the company to optimise design and reduce cycle time. The technology cell of the company

has published a number of technical papers on design and development of switchgears in journals of

repute.

Havells India has developed some new circuit breakers, such as a two-pole version of mini MCB, Type S'

RCCB and Type A' RCCB, and ACBs in the range of 3,200 A to 4,000 A. In developing existing products,

the company has been successful in:

• Introducing glue (resin) in 63A MCBs for improved consistency in thermal tripping of circuit breaker.

• Introducing parallel circuit in 63A breaker to reduce temperature rise of the breaker.

• Upgrading RCCB from electromechanical design to PCB based electronic design.

• Upgrading MCCBs with reverse feed applications.

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Contents

Boilers

Conductors, wires and cables

Transformers

Turbines

Switchgears

Transmission towers

Wind turbine generators

Diesel engines

Capacitors

Energy meters

INDIA: ENERGY SECTOR September 2010

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TRANSMISSION TOWERS

India‟s transmission tower industry has matured over the last two decades and is presently moving

towards high-voltage transmission.

The larger tower manufacturers in India, such as KEC International, Jyoti Structures, Kalpataru Power

Transmission, Sujana Towers, and EMCO, provide turnkey solutions for designing, manufacturing, load

testing and installation of a wide range of transmission lines.

Indian tower industry produces structures that can carry transmission lines of up to 765 kV. Now,

following the recent initiatives by Power Grid Corporation of India to introduce 1,200 kV transmission

lines, India‟s tower industry is moving towards an era of extra high-voltage transmission. Outside India,

these companies supply towers and structural components to power utilities and EPC contractors. Their

overseas customers include ABB (Germany), AREVA T&D (France), Balfour Beatty Power Network(the

UK), Cegelec (France), Cobra (Spain), Downer PTR (Australia), Enelpower S.p.a ( Italy), GYM (Peru), Pivot

(Nigeria), Sumitomo Electric (Japan) and SAG (Germany).

The Transmission Tower Industry

Transmission towers support transmission lines carrying high-voltage electricity from power generating

units to substations for further distribution. They are fabricated by welding steel components and,

galvanized and tested for design load before commissioning.

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TRANSMISSION TOWERS

The global economic slowdown has impacted the transmission tower and lines business moderately. This

impact was evident in lower capacity utilisations during 2008-09. However, most of the key players

expanded capacities during this period. In 2008-09, total capacity of the top three players3 was 369,000

tonne, up from 273,000 a year ago. Total production in the industry in 2008-09 was 537,000 tonnes. The

production increased at a rate of 17.4 per cent since 2004-05.

Capacity and Production

Table 35: Domestic Production of Transmission Towers

(Thousand tonnes)

2004-05 2005-06 2006-07 2007-08 2008-09 CAGR

Transmission tower production 283 390 398 498 537 17.4%

Source: CMIE, IMaCS analysis

Exports of transmission towers increased from US$ 50.5 million in 2004-05 to US$ 212.8 million in 2008-

09. Indian companies have secured contracts in North America, Africa, Middle East and Southeast Asia.

Indian companies are cost competitive and have the capability to tackle different types of challenging

terrains, having done projects in the extreme terrains of India.

3KEC International, Jyoti Structures and Kalpataru Power Transmission

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TRANSMISSION TOWERS

Table 36: Exports of Transmission Towers

(US$ million)

^April-December 2009, #CAGR between 2004-05 and 2008-09

Source: CMIE, IMaCS analysis

The growth in transmission tower industry is driven by expansion of transmission network, introduction

of higher voltage transmission and new technologies for bulk power transmission.

It is estimated that in the Eleventh Plan period, 22,100 MW of transmission capacity will be added. CEA

has estimated a fund requirement of over US$ 30 billion for implementation of transmission schemes in

this period. In the international market, growth is expected in the Middle East where many large power

generation projects are being planned to address power shortage. Further, there are plans to set up inter-

country and regional lines, which will offer growth opportunities to integrated EPC players. Indian

companies which have a presence in the African power transmission space are expected to benefit

because of renewed funding by donor countries and multilateral agencies. These developments in

domestic and international markets offer tremendous growth opportunities to India‟s transmission towers

and lines industry.

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10^ CAGR#

Exports 50.5 70.6 126.0 210.0 212.8 156.5 43.3%

Industry Growth Drivers and New Technology Development

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TRANSMISSION TOWERS

Technology advancement and absorption by Indian transmission tower manufacturers primarily involves

manufacturing process improvements. The production process of large players is suitably automated with

use of CNC machines for drilling, cutting and punching operations. In order to enhance quality of products

and reduce downtime, manufacturers continuously upgrade their facilities by employing imported

advanced machines.

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Contents

Boilers

Conductors, wires and cables

Transformers

Turbines

Switchgears

Transmission towers

Wind turbine generators

Diesel engines

Capacitors

Energy meters

INDIA: ENERGY SECTOR September 2010

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India: Energy Sector September 2010

WIND TURBINE GENERATORS

Wind power generation is one of the fastest growing sources of renewable energy in the world. In India

too, the share of renewable energy in the total installed capacity has been increasing rapidly. As of

December 2009, the installed wind power capacity was 10,925 MW, which was about 6.3 per cent of the

installed wind energy capacity in the world.

Government policies have played a significant role in the rapid deployment of wind power systems. The

Ministry of New and Renewable Energy (MNRE) is responsible for policy formulation at the Centre, while

state governments have policies that follow the general directives of MNRE. The existing financial

incentives for wind power developers include 80 per cent accelerated depreciation, customs duty

exemption on specific critical components, excise duty and sales tax exemptions, income tax exemption

on profits from power generation and preferential tariffs.

WTG manufacturers in India include Suzlon, Vestas Wind technology India, Enercon (India), Siemens GE

India, Pioneer Wincon, RRB Energy and Regen Powertech. They manufacture a wide range of wind turbine

generators with capacity ranging from 250 kW to 2,100 kW. Besides manufacturing, Indian companies

The WTG Industry

A wind turbine is a rotating machine that converts wind energy into kinetic energy, which is used for

production of electric power. Wind turbines are installed at locations with strong winds. These are

designed employing advanced aerodynamic modelling to determine the optimum tower height, control

systems, number of blades and blade shape.

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WIND TURBINE GENERATORS

also provide project solutions including land sourcing, wind resource assessment, infrastructure

development, and installation and commissioning of generators.

Capacity and Trade

The annual production capacity of wind turbine generators in India is estimated at 3,000 MW. Wind power

generation has grown at a rate of almost 30 per cent since 2004-05.

Table 37: Installed Wind Power Capacity

(MW)

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10^ CAGR#

Installed capacity 3,593.5 5,341.7 7,114.4 8,697.9 10,246.2 10,925.0 29.9%

^ As of December 2009, #CAGR between 2004-05 and 2008-09

Source: MNRE, IMaCS Research

Wind turbine generators and components, such as nacelle and hub and bolt box assembly, are exported

to several countries, including the US, Australia, Nicaragua, Bulgaria and Brazil.

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WIND TURBINE GENERATORS

Industry Growth Drivers and New Technology Development

Government policy support is important for growth of wind energy generation. Volatile fossil fuel prices,

heightened concern about energy security and growing preference for clean and green energy are positive

factors for the industry. The export-oriented Indian wind generator manufacturers can potentially tap both

the domestic and global markets. According to BTM Consultant ApS, wind power is a fast growing renewable

energy resource: in 2009, 38 GW of wind power stations were installed worldwide and in 2014 fresh

installations could nearly double to 72 GW. Most of the new installations will take place in the USA, China,

India, and Southeast Asia.

In the domestic market, there is a huge opportunity in states where installed wind power capacity is much

less than their estimated potential. The states with high wind power generation potential are Gujarat (9,675

MW), Andhra Pradesh (8,275 MW), Karnataka (6,620 MW), Maharashtra (3,650 MW), Rajasthan (5,400 MW)

and Orissa (1,700 MW). Their current installed capacities are far short of the potential. As of December

2009, the installed wind power capacity in Gujarat was only 1,711.8 MW, in Andhra Pradesh 122.5 MW, in

Karnataka 1,390.6 MW, in Maharashtra 2,004.4 MW, in Rajasthan 855.4 MW and in Orissa less than 3 MW.

Table 38: Export and Import of Wind Turbine Generators

(US$ million)

Source: CMIE, IMaCS analysis

2004-05 2005-06 2006-07 2007-08 2008-09 CAGR

Export 1.2 23.8 296.7 363.9 692.8 391.8%

Import 2.2 7.6 2.4 1.1 2.4 2.1%

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WIND TURBINE GENERATORS

The thrust areas identified by MNRE for research and development are: design, development and

manufacture of MW-scale wind electric generators (WEGs) up to 25 kW and WEGs for low-wind

operations; development of materials used in MW scale WEGs; high efficiency electronics for protecting,

controlling and optimizing performance, power management and conversion; and establishing connectivity

with grid to export and/or import power.

Large Indian manufacturers have dedicated R&D centres. For example, Vestas‟ has set up a R&D centre at

Chennai, which is its largest R&D unit outside its home-country, Denmark. This centre does cutting-edge

developmental work into all aspects of wind turbine engineering and design. Conversely, India-based

Suzlon Energy has based its global R&D in Germany, Netherlands and Denmark, besides India. Suzlon‟s

R&D activities are focused on increasing energy yield, reliability, ease of operation and cost reduction

through weight decrease.

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Contents

Boilers

Conductors, wires and cables

Transformers

Turbines

Switchgears

Transmission towers

Wind turbine generators

Diesel engines

Capacitors

Energy meters

INDIA: ENERGY SECTOR September 2010

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India: Energy Sector September 2010

DIESEL ENGINES

In India, diesel engines are used by a variety of industries and services, including telecom, construction,

IT/ITES, real estate, hospitality, textiles, auto and auto ancillaries, food processing, pharmaceutical, oil and

gas and manufacturing.

Major diesel-engine manufacturers include Cummins India, Greaves Cotton, Kirloskar Industries, Birla

Power Solutions, Swaraj Engines, Powerica and Wartsila India. These companies produce a wide range of

engines in the 10-3,500 horse power (HP) range for mobile and stationary equipments. In the 10 HP and

lower segment, engines are, mainly, manufactured for portable power generation sets and agricultural

implements such as power sprayers, pump-sets and power reapers.

The Diesel Engines Industry

A diesel engine is an internal combustion machine which compresses air to a sufficiently high temperature

to ignite the diesel injected into its cylinder. The combustion expands the air in the cylinder and that

actuates the piston. Thus, it converts the chemical energy stored in the fuel into mechanical energy, which

can be used to generate electric energy. Diesel engines are mainly used for power generation, vehicle

mobility and operating industrial equipment.

In 2009-10, the total production of diesel engines in India was estimated at 3.39 million units. Production

has grown at a rate of 2.6 per cent during the period, 2004-2010. Although about 90 per cent of the

domestic demand for engines is met from indigenous production, imports have grown in the last four

Capacity and Production

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DIESEL ENGINES

years because of cheaper supply from China and South Korea, and the growing popularity of diesel cars.

Table 39: Production, Trade and Consumption of Diesel Engines

(Thousand units)

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10^ CAGR

Production 2,975 3,021 3,171 3,232 3,338 3,390 2.6%

Imports 133 194 307 401 366 415 25.6%

Total supply 3,107 3,215 3,479 3,634 3,704 3,805 4.1%

Exports 295 149 192 145 179 179 -9.6%

Consumption 2,812 3,066 3,287 3,488 3,525 3,626 5.2%

^ Estimate

Source: CMIE, IMaCS analysis

Poor power supply in rural areas and frequent load shedding in industrial areas are the key drivers of

demand for industrial diesel engines in India. The peak deficit of 13.0 per cent and normal deficit of 10.1

per cent create the need for auxiliary power supply. Although the government plans to reduce peak

deficit and normal deficit to 6.5 per cent and 2 per cent, respectively, by 2012, power shortages are

expected to continue because of slippage in installations of planned capacities, industrial growth, increasing

urbanisation and rural electrification. The demand for diesel engines as substitute source of electricity is

expected to remain strong in the foreseeable future.

Industry Growth Drivers and New Technology Development

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DIESEL ENGINES

The R&D effort in the diesel engine industry primarily focuses on introduction of new products and

improvement of the existing products. The upgrades are mainly aimed at meeting the changing emission

norms and improving fuel efficiency.

Page 121: Indian Energy Sector

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Contents

Boilers

Conductors, wires and cables

Transformers

Turbines

Switchgears

Transmission towers

Wind turbine generators

Diesel engines

Capacitors

Energy meters

INDIA: ENERGY SECTOR September 2010

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Capacitors … (1/3)

India: Energy Sector September 2010

CAPACITORS

Capacitors are made with a variety of materials for different applications. The raw materials used include

paper, plastic film, ceramic, mica, aluminium electrolyte and tantalum. Though capacitors are mostly used in

appliances such as television and flash bulb of camera, they have a critical role in power factor correction

in electricity networks.

Major capacitor manufacturers include Havells India, ABB India, Schneider Electric India, BHEL, Universal

Cable and Tibrewala Electronics.

A wide range of capacitors are manufactured in India. They include high-voltage and low-voltage capacitors,

single and three-phase capacitors, harmonic filters (high and low-voltage), surge protection capacitors,

automatic power-factor correction (APFC) panels and motor-run capacitors. The manufacturers also

provide a comprehensive range of technical services, including system study, energy audit, harmonic

analysis, testing and commissioning of HT/LT capacitor banks and their associated equipment.

The Capacitor Industry

Capacitors are passive electronic components that store energy. They consist of two conducting plates

separated by an insulator, called the dielectric. A capacitor is identified by the type of dielectric or plate

material used. Capacitors are used in electric and electronic equipment.

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CAPACITORS

In 2008-09, the total production of capacitors in India was 19,413 MVAr. Since 2005-06, production

increased by over 24 per cent.

Capacity and Production

Table 40: Production of Capacitors

(MVAr)

2005-06 2006-07 2007-08 2008-09

Capacitors 15,556 15,020 16,388 19,413

Source: CMIE, IMaCS analysis

Capacitors manufactured in India are exported to the US, Spain, Qatar, Turkey and the UAE. Imports are

primarily from China, the US, Singapore, Germany, Taiwan and Japan.

Apart from the growing electronics market, capacitor demand is derived from the need for grid

stabilisation and cutting out reverse flow of energy. Hence, grid expansions at the inter-state and intra-

state levels are significant demand generators for capacitors.

Indian manufacturers are engaged in developing new products to meet changing customer requirements.

For example, the R&D unit of Universal Cables has developed a number of products including the

following:

Industry Growth Drivers and New Technology Development

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CAPACITORS

• High-stress low-voltage capacitors.

• Mixed Dielectric power capacitors with nontoxic impregnant.

• High-voltage all polypropylene film power capacitors.

• Water cooled high-frequency capacitors for electric furnace.

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Boilers

Conductors, wires and cables

Transformers

Turbines

Switchgears

Transmission towers

Wind turbine generators

Diesel engines

Capacitors

Energy meters

INDIA: ENERGY SECTOR September 2010

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India: Energy Sector September 2010

ENERGY METERS

Nowadays, meters are not limited to simple data logging; instead, they are seamlessly connected to

telecommunication infrastructure and IT systems for continuous monitoring and data analysis. Therefore,

meter manufacturers are transforming from product manufacturers into comprehensive solution

providers.

Indian companies in the energy metering industry undertake design, installation and commissioning of

automatic meter reading solutions. These solutions involve networking of meters, collecting data from

them and transporting the data over suitable cost-effective media to a central station for display, analysis

and report generation. The major energy metering-system manufacturers are EMCO, Analog Devices,

Crompton Greaves, L&T and Kaytee Switchgear.

These companies produce a wide range of energy metering products that meet the national and

international standards. The typical features of energy meters include monitoring of active, reactive and

apparent energy, voltage, current, frequency and time-of-day use. There are meters that help in load survey,

fraud monitoring, magnetic immunity at wide range of operating temperatures. They also make

The Energy Meter Industry

An electric meter or energy meter is a device that measures the amount of electrical energy consumed.

The most common unit of measurement on the electricity meter is the kWh. Power utilities, industrial

units, commercial establishments, agricultural and domestic consumers constitute the market for energy

meters.

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ENERGY METERS

The total production of energy meters in India in 2009-10 was 16,145 units. It has grown at a rate of 19

per cent during the period, 2004-2010. Energy meters manufactured in India are also exported to

countries in Europe, Southeast Asia, the Middle East and Africa.

Capacity and Production

single-phase and three-phase meters for residential, commercial and industrial connections.

Table 41: Production of Energy Meters

(Thousands)

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 CAGR

Energy meters 6,774 9,417 12,480 11,064 9,713(E) 16,145 19.0%

Source: CMIE, IMaCS analysis

E-estimated

Industrial growth, urbanisation, rural electrification and replacement of old meters will drive the growth of

India‟s energy meter industry. Agriculture is potentially a large market as only 40 per cent of the electricity

consumed by this segment is currently metered. In terms of geographies, states such as Bihar, Jharkhand

and Orissa are severely under-metered. A favourable policy environment exists for the growth of metering

industry. Central schemes such as R-APDRP encourages metering at various network levels.

Industry Growth Drivers and New Technology Development

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ENERGY METERS

For example, EMCO has developed a software-interface for configuring meter functions such as

programming and reading, report generation and, program development and maintenance. This software,

called EDMS, has a flexible modular configuration. Its key features are as follows:

• Client administrator module: This module provides controlled access with clear definition of groups

and roles.

• Inventory and help desk: This module helps track all meter details and also facilitates access to

metered data on a computer using remote access.

• Data analysis: This module is used for analysing meter data and generating reports.

• Data exchange: This module is used to define data exchange formats and rules between the

application and any third-party software, such as a billing system.

The meter manufactures have set up state-of-the-art R&D facilities to develop solutions for detection of

tampering, load management, revenue protection, energy accounting and communication.

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ENERGY METERS

• Energy audit: This module facilitates energy audit at several levels of distribution network.

• Billing: This module helps in calculating and generating bills based on meter data.

• Web access: This module allows online analysis of performance, consumption and billing pattern of a

connection.

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Contents

Control panels

Oil exploration and drilling equipment

Storage batteries

Industry overview – oil and gas

International interest

Demand supply projections

Demand supply scenario

Government organisations

Trends and opportunities

Companies

INDIA: ENERGY SECTOR September 2010

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Control panels

India: Energy Sector September 2010

CONTROL PANELS

BHEL, L&T and ABB India are the major control panel manufacturers in the country. There are many

medium and small manufacturers who often act as contract manufacturers for the larger players. The

companies manufacture a comprehensive range of control and relay panels as well as control desks for

control, protection, alarm, indication, metering and synchronising functions for power stations, sub-stations

and industrial plants.

This industry‟s growth is assured with the expansion of power generation and increasing investment in

other user segments. Control panels are used extensively in power plants and sub-stations. The process

industries, such as fertilisers and cement, are also large consumers of control panels as they need to

monitor and control plant operations remotely. The electronics industry also consumes a large volume of

control panels, albeit, of smaller sizes.

The Control Panels Industry

Control and relay panels facilitate centralised control of equipment in power stations, switching stations

and industrial plants. The design of control and relay panels is based on the concept of unit assembly from

standard parts. The panels are bolted together to form a board. This approach provides ease of

replacement, extension, rearrangement and addition. The panels are usually of standard dimensions –

height of 2,200 mm to 2,300 mm, width of 600 mm to 1,000 mm (in stages of 600, 750, 900 and 1,000

mm) and depth of 600 mm or 800 mm. The panel enclosure is usually made of sheet-steel and is equipped

with interior lamps, anti-condensation heater and ventilation facilities. The metering panel usually

incorporates measurements for voltage, current, energy, frequency or power factor.

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Contents

Control panels

Oil exploration and drilling equipment

Storage batteries

Industry overview – oil and gas

International interest

Demand supply projections

Demand supply scenario

Government organisations

Trends and opportunities

Companies

INDIA: ENERGY SECTOR September 2010

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OIL EXPLORATION AND DRILLING EQUIPMENT

Apart from sampling and extracting oil and gas, rigs can also be used to install sub-surface fabrications

such as underground utilities, instrumentation, tunnels or wells. Rigs are categorised as onshore and

offshore depending on their location of use.

Light-duty drilling rigs are often like a mobile crane mounted on a vehicle and are usually used to drill

water wells. Oil rigs tend to be large, permanent structures. Initially, oil rigs used to be semi-permanent, as

derricks were built on-site and dismantled after the completion of the well. These days, oil drilling rigs are

usually heavy, complex and stationary.

The major components of oil rigs are mud tank and pump, motors, various types of hoses (such as

vibrating and Kelly hose), goose neck, flow lines (which facilitate movement of mud and drilling fluid),

rotary tables, derrick and other hoisting equipment, drill bits to crush rocks , and valves such as blowout

preventer which facilitate sealing and flow control.

Building and maintaining rigs is rather expensive and therefore, oil exploration companies hire them at

hefty daily rentals. Globally, about 10 major yards manufacture offshore oil-rigs. Singapore‟s Keppel FELS

Limited has the largest capacity for making offshore rigs.

The Oil Exploration and Drilling Equipment Industry

Drilling rigs are complex equipment used for creating boreholes in the earth‟s crust. Typically, rigs are used

to sample or produce sub-surface reserve of oil or gas. Drilling rigs vary in size and applications. Some rigs

are mounted on trucks or trailers for mobility while others are permanently installed on land or in sea.

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OIL EXPLORATION AND DRILLING EQUIPMENT

In India, offshore oil rigs are rented from global suppliers. Among the domestic rig makers, BHEL has the

largest facilities and it manufactures mobile as well as stationary deep-drilling rigs. While its mobile rigs

can drill to depths of 5,000 ft to 7,000 ft its deep drilling rigs can drill to depths of 3,600 m to 9,000 m.

With demand of offshore drilling rigs increasing in India, BHEL is also in the process of collaborating with

a US-based company for technical knowhow. Some of India‟s ship building companies such as Bharati

Shipyard are also venturing into oil-rigs manufacturing. Besides manufacturing, the industry also undertakes

refurbishment of offshore drilling rigs.

The New Exploration Licensing Policy has boosted oil and gas exploration and production in India. Private

sector participation and competition have resulted in new oil and gas discoveries and additional output.

However, a combination of high rentals and non-availability of drilling rigs has adversely affected

exploration. Only about 10 per cent of the 880 wells proposed for drilling in the first six rounds of the

policy, have been drilled so far. However, India has the potential to become a manufacturing base for oil

rigs, given its manufacturing base and availability of engineering skills.

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Contents

Control panels

Oil exploration and drilling equipment

Storage batteries

Industry overview – oil and gas

International interest

Demand supply projections

Demand supply scenario

Government organisations

Trends and opportunities

Companies

INDIA: ENERGY SECTOR September 2010

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India: Energy Sector September 2010

STORAGE BATTERIES

The storage battery market is classified on the basis of usage – industrial and automotive. Automotive

battery business is further classified into original equipment manufacturing (OEM) and replacement

segments. Battery users in the industrial category include telecom, infrastructure, uninterrupted power

supply (UPS) back-up, railways and power utilities. Storage batteries are also used in submarines and

household inverters.

India‟s storage battery market is estimated at about US$ 1.9 billion, in which the automotive battery

segment accounts for about 55 per cent while the industrial battery segment accounts for the remaining.

The organised sector market is estimated at US$ 1.37 billion at current Lead prices, which is almost

equally shared by industrial batteries (US$ 675 million) and automotive batteries (US$ 696 million). Exide

Industries, Amara Raja Batteries, HBL Power Systems and High Energy Batteries (India) are the major

storage battery manufacturers in India.

The Storage Battery Industry

A storage battery comprises one or more electrochemical cells, known as secondary cells, which are

capable of deriving electrical energy from reversible chemical reaction. Different combination of chemicals

are used in storage batteries, such as lead-acid, nickel-cadmium (NiCd), Nickel-metal-hybrid (NiMH),

lithium-ion (Li-ion) and lithium-ion-polymer (Li-ion polymer). Storage batteries are widely used in

electronic equipment, automobiles and manufacturing.

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STORAGE BATTERIES

In 2009-10, total production of storage batteries was 50.9 million units, compared to 43.1 million units a

year ago. Production of storage batteries in India has grown at a rate of 5.8 per cent over the period

2004-2010. However, the demand is growing at a faster rate and is increasingly being met by imports,

primarily from China.

Capacity and Production

Table 42: Production andTrade of Storage Batteries

(Million units)

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10^ CAGR

Production 38.3 35.7 40.1 41.0 43.1 50.9 5.8%

Export 0.8 1.0 0.9 1.3 2.8 2.2 21.2%

Import 8.6 21.2 24.8 31.6 41.2 49.7 41.8%

Demand 46.1 55.9 64.0 71.3 81.4 98.4 16.3%

^ Estimates

Sources: CMIE, IMaCS analysis

In 2008-09, total import of storage batteries in India stood at 41.2 million units with over 87 per cent of

those coming from China. The remaining imports were mainly from Hong Kong, Vietnam and South Korea.

The spike in imports from China is attributed to a change in market focus by Chinese producers whose

traditional markets were sluggish because of economic downturn. At 2.8 million units, India‟s exports of

storage batteries in 2008-09 were modest in comparison to imports. The UAE, Singapore, the USA and

Spain are key export markets for India‟s storage batteries.

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STORAGE BATTERIES

The storage battery industry is expected to benefit from the growth in automobile manufacturing. It is

expected to grow at 10-15 per cent per annum over the next five years. Increasing incomes and easy

consumer credit are driving demand for automobiles and consumer appliances. Increasing demand for

household and commercial inverters is another important source of growth for storage batteries. Exports

could be a major source of growth given the availability of skilled manpower and cost-competitiveness.

In the industrial segment, growth of storage batteries is linked to the industrial production. After dipping

to a 2.7 per cent in 2008-09, India‟s industrial production grew by 10.4 per cent in 2009-10. According to

Centre for Monitoring Indian Economy (CMIE), the growth has been broad based, and in 2010-11,

industrial production will grow more than 9 per cent.

Overall economic recovery, industrial growth and large investment proposed in infrastructure sector are

expected to boost the industrial segment demand for storage batteries. Major growth opportunities are

expected in large-scale power projects, telecom, mechanised farming and rural electrification.

Industry Growth Drivers

New Technology Development

Continuous technical improvement to meet the changing requirements of the user industries is the driving

force of technology development in the storage battery industry. For development of new products and

enhancing features of the existing products, Indian storage battery manufacturers often take collaborative

approach, which includes partnering foreign manufacturers for technology induction and automobile

OEMs for developing customised products.

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STORAGE BATTERIES

Exide has entered an agreement with Furukawa Battery Company, Japan, for lead-acid storage batteries

for vehicles, including hybrid batteries, „maintenance free batteries‟ , VRLA batteries, and Idling Stop

System (ISS) batteries. Exide is collaborating with Changxing Noble Power Sourcing Company, China, in

development of the „deep cycling E-bike‟ batteries. Exide is evaluating possibilities of development of

lithium-ion batteries for the emerging electric vehicle segments. The major R&D focus for Exide is

development of state-of-the-art batteries for ISS vehicles (micro-hybrids), mild hybrid and electric vehicles.

Other key R&D areas for company include:

• Enhancement of re-chargeability and deep cycling capability in the new range of batteries

• Development of materials and processes

• Enhancement of shelf life of battery.

Amara Raja Batteries has designed and developed a micro hybrid program for Tata Motors. The company

has also entered into a development agreement with Honda, Japan, for VRLA batteries for motorcycles.

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Contents

Control panels

Oil exploration and drilling equipment

Storage batteries

Industry overview – oil and gas

International interest

Demand supply projections

Demand supply scenario

Government organisations

Trends and opportunities

Companies

INDIA: ENERGY SECTOR September 2010

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India: Energy Sector September 2010

INDUSTRY OVERVIEW – OIL AND GAS

India is among the top ten importers of fuel in the world. Domestically produced oil and gas are able to

meet less than one-third of the country‟s requirement of these energy sources. In 2009-10, the country

imported about 85 per cent of its total crude oil requirement. Resources developed so far, have been able

to meet just about 29-32 per cent of total oil and natural gas demand. India‟s growing economy requires

rapid augmentation of energy resources, particularly to meet its increasing need for power, transportation

and manufacturing.

Rising income levels have led to higher energy consumption. Consequently, increasing dependence on

imported oil and gas has become a major concern for India‟s energy security. Volatility in the international

oil and gas market has added to this concern. Traditionally, fulfilling energy needs of the poor, particularly,

for fuel and lighting purposes, has been a major reason for continuing subsidies. However, this has meant

subsidising the non-poor as well, for want of comprehensive information on energy use patterns. In recent

years, this has resulted in unsustainable financial burden for the oil and gas industry. To address this

concern, the Government of India has introduced pricing reforms for oil and gas products. The

government is also trying to make the allocation of subsidies more transparent and justifiable.

Importantly, the Government has recognised the need for addressing rapid consumption growth through

the development of domestic supplies. In 1999, the Ministry of Petroleum & Natural Gas (MoPNG)

formulated the New Exploration licensing Policy (NELP) to increase investment in oil and gas exploration

and production. Under the policy, exploration blocks are awarded through a transparent global

competitive bidding process. So far, seven bidding rounds have been held and 203 exploration blocks have

been awarded.

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INDUSTRY OVERVIEW – OIL AND GAS

The eighth round of bidding (NELP-VIII) was launched in April 2010, along with fourth round for coal bed

methane blocks (CBM-IV). In this round, Government of India has offered 70-oil and gas exploration

blocks covering an area of about 163,535 sq km. Simultaneously it has offered 10 coal bed methane blocks

under CBM-IV, covering an area of about 5,000 sq. km and spread across seven states of the country.

The oil and gas sector has consistently contributed 2.7-2.9 per cent of the GDP from 2004-05 to 2008-09.

The GDP from petroleum and natural gas has grown at an average rate of 9 per cent. The share of

petroleum products has been increasing in the total sector GDP, indicating a growing refinery and

marketing industry. The GDP from petroleum products increased at an average rate of 18.8 per cent in

the three-year period 2006-2009.The sector is also a significant contributor to central and state taxes.

The sector accounts for 27.5 per cent of the total excise and customs collections of the Central

Government.

Oil refining industry has been continuously adding capacity and upgrading technology. Today, it is a net

exporter. Its price realisations and gross refining margins are at par with international standards,

sometimes even better. This industry is heavily dominated by government-owned entities. However, the

private sector‟s presence in this area is increasing now.

It is estimated that over the next two decades, India‟s oil and gas sector would require an investment of

about Rs 10,500 billion (about US$ 233 billion). More than three-quarters of the investments in oil would

be absorbed by the refining units. In the case of gas, over 90 per cent of the investment would be spread

across exploration, transport and distribution.

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INDUSTRY OVERVIEW – OIL AND GAS

In a scenario of high oil prices and a dearth of new oil production fields in the country, it is imperative to

increase production from the existing oil fields using enhanced oil recovery techniques. Currently, such

techniques are being applied in 26 oil fields. Most of these are larger fields with probable reserves of more

than 50 million barrels. Use of enhancement techniques in small fields has viability concerns.

Although the demand for oil and gas products is growing, future demand for these resources could be

impacted by the sustained emphasis on energy efficiency, development of alternative fuels and growth of

mass rapid transport systems. Subsidy reforms would also have considerable effect on demand as removal

of market distortions will align demand with the true economic prices of petroleum products.

Importance to Economy

India has over 17 per cent of the global population and accounts for about 7 per cent of the world‟s GDP.

However, according to the International Energy Agency (IEA), India‟s energy production accounts for just

about 4 per cent of the global energy production. In terms of absolute consumption, India accounts for

about 5 per cent of the global energy consumption. An average Indian consumes 0.53 tonnes of oil

equivalent (TOE) of energy as compared to 1.82 TOE used by an average global consumer.

Though coal is still the predominant source of energy, the use of hydrocarbons in the total primary

commercial energy supply has been increasing. During the three year period, from 2006-07 to 2008-09,

the average growth in gross energy generated in the petroleum products, coal and electricity segments

was 8.0 per cent, 6.6 per cent and 6.5 per cent, respectively.

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INDUSTRY OVERVIEW – OIL AND GAS

Table 43: Gross Energy Generated

Unit 2004-05 2005-06 2006-07 2007-08 2008-09(P)

Coal Million tonne 382.61 407.04 430.83 457.08 493.28

Lignite Million tonne 30.34 30.06 31.29 33.98 -

Natural Gas Billion cubic metre 31.76 32.20 31.75 32.42 32.85

Crude Oil Million tonne 33.98 32.19 33.99 34.12 33.51

Petroleum Products Million tonne 129.36 131.08 148.27 158.74 164.59

Electricity Billion kWh 665.80 697.40 752.50 813.10 842.40

Source: Ministry of Petroleum and Natural Gas

P-Provisional

At current prices, the petroleum sector consisting of petroleum and natural gas production as well as

petroleum products, has consistently contributed between 2.7 per cent and2.9 per cent of the GDP from

2004-05 to 2008-09. Over this period, refining and marketing have shown greater growth. In 2004-05, the

contribution of oil and natural gas to the sector was 57 per cent and that of petroleum products was 43 per

cent. By 2008-09, the share of petroleum products had increased to 54 per cent. While the GDP from oil

and natural gas grew at an average rate of 9 per cent between 2006-07 and 2008-09, the GDP from refined

products grew at about 18.8 per cent.

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INDUSTRY OVERVIEW – OIL AND GAS

Table 44: GDP from Petroleum Sector

(US$ billion)

Sources: Central Statistical Organisation, Ministry of Petroleum and Natural Gas

*Estimated at 81per cent of GDP from rubber and petroleum products

The sector is also a key contributor to the government‟s revenue through excise duties, customs duties,

petroleum cess and dividends from the public sector companies.

GDPPetroleum &

Natural Gas

Petroleum

products*

Petroleum

sector

Sector as %

of GDP

2004-05 656.55 10.44 7.82 18.26 2.78

2005-06 756.07 11.23 10.21 21.44 2.84

2006-07 938.54 13.46 13.98 27.44 2.92

2007-08 1,129.60 15.10 17.05 32.15 2.85

2008-09 1,136.36 14.24 16.67 30.91 2.72

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INDUSTRY OVERVIEW – OIL AND GAS

Table 45: Realisation of Excise and Customs Duties

(US$ billion)

2004-05 2005-06 2006-07 2007-08 2008-09(P)

Excise duties 9.55 11.50 13.78 14.98 12.91

Motor spirit 3.05 3.90 4.36 5.00 4.58

Kerosene oil 0.28 0.05 0.06 0.06 0.06

Diesel oil 3.47 4.95 5.97 6.01 4.74

Furnace oil 0.22 0.39 0.45 0.49 0.46

POL products 0.82 1.03 1.17 1.57 1.49

Petroleum gases 0.54 0.07 0.11 0.14 0.13

Cess on crude oil 1.16 1.11 1.67 1.71 1.44

Customs duties 2.93 2.53 3.34 4.51 2.43

Crude petroleum 2.16 1.59 1.81 2.26 0.60

Petroleum products 0.77 0.94 1.53 2.25 1.83

Other non-tax revenue 0.94 1.38 1.51 1.61 2.05 (RE)

Total petroleum revenue 13.41 15.41 18.63 21.10 17.39

Source: Ministry of Petroleum and Natural Gas

P-provisional

RE-revised estimate

About 138,000 persons are employed in the public and the private enterprises of the sector, contributing

around 0.5 per cent of the total workforce. Between 2005 and 2009, the employment in the sector

increased by 4.2 per cent.

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INDUSTRY OVERVIEW – OIL AND GAS

Table 46: Employment in Petroleum Sector

(No. of persons)

Source: Ministry of Petroleum and Natural Gas

In terms of foreign direct investment (FDI), the sector contributed about 1.6 per cent of the total FDI in

2009-10 and 2.2 per cent in 2008-09. Most of the investments have come in the oil refinery segment.

2005 2006 2007 2008 2009

Exploration and Production 41,415 39,694 38,948 33,935 33,612

Refining 26,859 30,262 28,151 30,128 32,745

Marketing 40,628 43,317 42,970 44,995 42,183

Pipelines 7,318 7,816 7,510 8,933 4,598

R&D 2,096 2,071 2,029 1,964 2,076

Other 15,055 15,151 15,707 19,868 23,759

Total 133,371 138,311 135,315 139,823 138,973

Table 47: FDI Inflows to Petroleum Sector

(US$ million)

Total FDI Petroleum & Natural Gas Sector as % of total FDI

2006-07 12,547 95 0.76%

2007-08 16,874 1,364 8.08%

2008-09 20,950 460 2.19%

2009-10 19,586 316 1.61%

Source: Department of Industrial Policy and Promotion

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India: Energy Sector September 2010

INDUSTRY OVERVIEW – OIL AND GAS

While most of the investments have come via Mauritius and Singapore, other countries with over US$

0.02 billion FDI in the sector include the USA, the UK, Netherlands and Cyprus. Acquisition of shares in

oil exploration projects contributed about 8.8 per cent to the sector‟s FDI.

Domestic Resources and Demand Gap

According to the Planning Commission of India, the country‟s demand for various forms of energy

including coal, lignite, natural gas and hydroelectric energy was predominantly met from domestic sources

until the 1980s. This situation has reversed following the economic and energy reforms of the 1980s and

1990s, which resulted in higher economic growth and energy consumption. In fact, the energy demand and

supply projections by the Planning Commission indicate a continuing unmet demand for many years to

come.

India's proven and indicated reserves of crude oil amounted to 5.7 billion barrels at the end of 2009, equal

to 0.5 per cent of global reserves. Table 48: Proven and Indicated Crude Oil Reserves

(Million metric tonnes)

2005 2006 2007 2008 2009

Onshore 376 387 357 403 405

Offshore 410 369 368 366 369

Total 786 756 725 769 775

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INDUSTRY OVERVIEW – OIL AND GAS

The sedimentary basins of India, on-land and offshore (up to the 200m isobaths), have an area of about

1.79 million sq. km. So far, 26 basins have been identified for exploration and they have been divided into

four categories based on their degree of prospectivity. Over the last 12 years, the unexplored area has

come down to 15 per cent.Table 49: Basin-wise Hydrocarbon Area

(Sq km)

Basin Offshore On-land Total

Proven commercial productivity

Assam-Arakan 116,000 - 116,000

Cambay 51,000 2,500 53,500

Cauvery 25,000 30,000 55,000

Krishna-Godavari Offshore 28,000 24,000 52,000

Mumbai Offshore - 116,000 116,000

Rajasthan 126,000 116,000 242,000

Identified prospectivity

Kutch 35,000 13,000 48,000

Mahanadi-NEC 55,000 14,000 69,000

Andaman-Nicobar 6,000 41,000 47,000

Prospective basins

Bengal 57,000 32,000 89,000

Ganga Valley 186,000 186,000

Himalayan Foreland 30,000 30,000

Kerala-Konkan Lakshadweep 94,000 94,000

Saurashtra 52,000 28,000 80,000

VIndhya 162,000 162,000

Purnea

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INDUSTRY OVERVIEW – OIL AND GAS

Basin Offshore On-land Total

Potentially prospective

Bastar 5,000 5,000

Bhima Kaladgi 8,500 8,500

Chhattisgarh 32,000 32,000

Kuddapah 39,000 39,000

Deccan Syneclise 273,000 273,000

Karewa 3,700 3,700

Narmada 17,000 17,000

Pranhita Godavari 15,000 15,000

Satpura-S. Rewa-Damodar 46,000 46,000

Spiti Zanskar 22,000 22,000

Deepwater area within Eez 1,350,000

Total 1,390,200 394,500 3,134,700

Source: Directorate General of Hydrocarbons

Of the 26 sedimentary basins, ONGC has tested 19 basins for their hydrocarbon potential through

seismic survey and drilling. Seven basins have been upgraded to producing or Category I, basins. These are

Cambay, Upper Assam, and Assam Arakan Fold belt, Mumbai offshore, Krishna-Godavari, Cauvery and

Jaisalmer. Extensive exploration activities have started in these basins. Exploration activities are continuing

in seven other basins – Mahanadi, Kutch, Andaman add Nicobar, Kerala-Konkan-Lakshadweep, Saurashtra

and Bengal.

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INDUSTRY OVERVIEW – OIL AND GAS

About 80 per cent of current production is from fields which have passed their peak production. India has

discovered a few significant gas reserves of late. These fields are expected to peak between 2020 and

2030, falling to 50 bcm by the end of the projection period.

Energy security

In recent years, new threats to energy security have emerged in the form of the increased global

competition for energy resources due to the rapid pace of industrialisation in countries such as India and

China. The key exporters of crude oil to India are the Middle-East, North and West African countries. To

diversify energy risk, India is trying to boost its domestic oil and gas production, buy oil equity in

international oil fields and enter into long-term supply contracts with several partner countries.

To boost domestic production, Indian government has opened up the upstream sector to private Indian

companies and multinationals. Seven rounds of bidding have occurred over the past decade and significant

discoveries have been made in the North-western state of Rajasthan and the East coast regions of

Krishna-Godavari and Mahanadi. Since December 2006, private investors have been allowed to develop

their own infrastructure. Consequently, several Indian and foreign private companies have become active

in the upstream oil sector.

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Contents

Control panels

Oil exploration and drilling equipment

Storage batteries

Industry overview – oil and gas

International interest

Demand supply projections

Demand supply scenario

Government organisations

Trends and opportunities

Companies

INDIA: ENERGY SECTOR September 2010

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INTERNATIONAL INTEREST

The NELP was introduced in January 1999 to auction oil and gas blocks to global bidders for exploration

and production. Earlier, the government had offered exploration blocks to private companies in nine

rounds of bidding. The NELP took lessons from these nine rounds and incorporated several changes in the

new policy.

These changes were aimed at creating a level playing field for private bidders, Indian and foreign, and the

established state corporations. Some of the highlights of the new policy were:

• Removal of the compulsion to have government as a partner

• Same competitive bidding standards for the public and private sector

• Open availability of exploration acreages

• Freedom to market produced crude oil and gas in the domestic market

• Pricing at par with international prices

• Abolition of cess levied on crude oil production

International interest in New Exploration Licensing Policy

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INTERNATIONAL INTEREST

• Import duty exemption on goods required for petroleum production

• Seven-year tax holiday following commencement of commercial operations

• Pre-tax sharing of profit oil

In the first six rounds of NELP, 162 product sharing contracts (PSC) were signed. In response to an initial

lack of interest from major oil and gas companies, the government allowed 100 per cent FDI in all

upstream activities. In addition, deepwater projects were made attractive by pegging royalty at only 5 per

cent for the first seven years of commercial production against 10 per cent royalty for other offshore

projects and 12.5 per cent royalty for the onshore projects.

In the last completed round of bidding, NELP-VII, 57 blocks were offered for exploration. The features of

this round included the following:

• Model production sharing contract (MPSC)

• Option of seismic study only in the first phase of the exploration period

• Up to 100 per cent participation by foreign companies

• No signature, discovery or production bonus

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INTERNATIONAL INTEREST

• No mandatory state participation

• No carried interest by national oil companies

• Income tax holiday for seven years from the start of commercial production

• No custom duty on imports required for operations

• Biddable cost recovery limit up to 100 per cent

• Option to amortise exploration and drilling expenditures over a period of 10 years from the start of

commercial production

• Sharing of profit petroleum with the government based on pre-tax investment multiple achieved by the

contractor

• Royalty for on-land areas payable at a rate of 12.5 per cent for crude oil and 10 per cent for natural

gas

• For shallow water offshore areas, royalty payable at a rate of 10 per cent for both crude oil and

natural gas

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INTERNATIONAL INTEREST

Table 50: NELP and CBM Achievements

NELP-I to VII and CBM-I to III

Hydrocarbon reserves accretion of over 600 MMTOE.

68 oil and gas discoveries have already been made in 19 exploration blocks.

India has become oil and gas producer from deepwater area also.

Private sector interest in deepwater exploration and production has come from Indian and foreign companies (Reliance,

NIKO, GSPC).

New discoveries in CBM as alternative fuel have brought India on the select list of CBM producing countries.

Contracts signed for 23 CBM exploration blocks.

More than 6 trillion cu. ft (TCF) reserves have already been established in four CBM blocks.

India‟s first commercial production of CBM commenced in July 2007 at the rate of about 72,000 cu. m per day.

• For deepwater offshore areas (beyond 400 m isobaths) royalty payable for both crude oil and natural

gas at a rate of 5 per cent for the first seven years of commercial production and 10 per cent thereafter.

Prior to the NELP, only 11 per cent of Indian sedimentary basin area was under exploration. At the

conclusion of the seventh round, the area under exploration has increased to about 50 per cent. During

the Eleventh Plan period, the target is to increase the coverage to 80 per cent.

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INTERNATIONAL INTEREST

In the NELP-VIII, 70 exploration blocks (the highest number of exploration blocks offered at one go, so

far) are available for bidding. Of these blocks, 24 are in deep water (more than 400 bathymetry depth), 28

in shallow water (400-bathymetry or less), eight onshore (200 sq km or more) and 10 are Type-S (less

than 200 sq km). Also, for the first time, a new area has been proposed to be brought under exploration in

West Andaman Sea. These blocks cover a sedimentary area of about 164,000 sq. km., which is 5.2 per cent

of Indian sedimentary basin area. The 18 on-land blocks are in Assam (2), Gujarat (8), Haryana (1), Madhya

Pradesh (3), Manipur (2) and West Bengal (2).

During the process of formulating NELP-VIII, the government consulted various stakeholders, including the

potential bidders, and factored in their views in the final terms and conditions of the auction. CBM-IV

auction offers 10 CBM blocks covering an area of about 5,000 sq. km. These CBM blocks are in Assam (1),

part Chhattisgarh and part Madhya Pradesh (1), Jharkhand (1), Madhya Pradesh (2), Maharashtra (2), Orissa

(2) and Tamil Nadu (1).

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INTERNATIONAL INTEREST

Table 51: The Krishna-Godavari Basin

The NELP showcase

India is expected to dominate the Asian region in terms of fields coming on stream over the next five-year period. Most of the new

fields will be from the Krishna-Godavari basin. The success of Reliance in the KG-D6 block is presented as one of the foremost

accomplishments of India‟s fledging deepwater industry and highlights what is possible when governments, private enterprise, and

global engineering expertise integrate effectively. Using the experience of key contractors and deepwater engineering specialists

from Asia, the US, Europe, and the Middle-East, the KG-D6 project took only six years from discovery to production compared to

the industry average of nine years for similar deepwater facilities.

With the success of D6, Reliance is looking to further develop the area. It already has a total of 36 discoveries in the KG-D6 block.

The D-1 and D-3 discoveries are targeting eventual production of 80 mmcm/d (2.8 TCF/d), twice the current national gas

production.

NELP rounds over the previous decade have brought over US$ 10 billion in investment commitments. A

total of 115 discoveries have been made so far and development plans for their exploitation are under

progress. In addition, 26 blocks have been awarded for exploitation of CBM and 6 TCF (trillion cubic

feet) of gas reserves have been identified so far. A number of Improved Oil Recovery (IOR) and

Enhanced Oil Recovery (EOR) schemes have been implemented to enhance the indigenous production

of crude oil.

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INTERNATIONAL INTEREST

India has entered into dialogues with over 50 countries to develop relations in the field of oil and gas

exploration, technology absorption, acquisition of energy assets and development of alternative fuel

markets. Some of the key cooperation initiatives with other countries are as the following:

United Kingdom: Bharat Petro Resources Limited, a 100 per cent subsidiary of Bharat Petroleum

International Energy Relations

Table 52: Recent Discoveries

Company No. Of Discoveries Investor type

British Gas 1 Foreign

Cairn Energy 27 Foreign

Essar Oil 3 Indian private

Focus Energy 3 Indian private

GSPC 19 State owned

Hardy Exploration 1 Foreign

HOEC 2 Indian private

Jubilant Oil & Gas 4 Indian private

Niko Resource 2 Foreign

ONGC 12 Central government

RIL 41 Indian private

Total 115 -

Source: Directorate General of Hydrocarbons

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INTERNATIONAL INTEREST

Corporation Limited, has a 25 per cent participating interest in the UK North Sea blocks 48/2c and 1/d.

Encore Petroleum is the operator of the blocks. These blocks are at the exploration stage.

United States: ONGC supported Keshava Deva Malviya Institute of Petroleum Exploration (KDMIPE),

Dehradun, has entered into Shale Gas Research Consortium Agreement with EGI, University of Utah,

USA. KDMIPE has also sponsored shale gas research in ISM University, Dhanbad. ONGC has also taken

up a pilot project with the help of Schlumberger through its acquired company Tera Tek, which is into

geo-mechanical studies. KDMIPE is the nodal agency for monitoring and execution of the shale gas pilot

project.

Algeria: Engineers India Limited, a state-owned Indian company has been providing consultancy services

in the hydrocarbon sector of Algeria for nearly two decades. OVL, ONGC‟s arm for investment in

overseas E&P projects, signed a memorandum of understanding (MoU) with Sonatrach in Nov 2000 for,

identification of suitable exploration and production projects in Algeria, India, Russia and other

countries.

Brazil: ONGC and Petrobras signed a MoU for strategic cooperation in key technology areas related

to deepwater exploration and production of oil and gas in Brazil, India and other countries. It also

involves cooperation in existing oil and gas exploration and production projects of both companies.

China: In April 2005, China and India signed a joint statement to cooperate in the field of petroleum

and natural gas, including cooperation in the areas of survey and exploration of petroleum and natural

gas resources in third countries.

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Contents

Control panels

Oil exploration and drilling equipment

Storage batteries

Industry overview – oil and gas

International interest

Demand supply projections

Demand supply scenario

Government organisations

Trends and opportunities

Companies

INDIA: ENERGY SECTOR September 2010

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DEMAND SUPPLY PROJECTIONS

Considering the continuing gap between the demand and indigenous production of crude oil and natural

gas and low crude oil reserves, national oil companies and private companies are being encouraged to

venture abroad. The various strategic options in this regard include focus on ventures with producing fields

for the short term, equity participation as a part of reserves portfolio management, emphasis on

exploration acreages for the short to medium term and promoting upstream sector services for the long

term.

Mandate for the Eleventh-Five Year Plan

Table 53: Planned Petroleum and Natural Gas Demand-Supply

Ninth Five-Year

Plan (Actual)

Tenth Five-Year

Plan (Actual)

Eleventh Five-

Year Plan (P)

Terminal year demand of petroleum products (Million tonnes) 100.43 119.85 141.79

Reserve accretion (MTOE) 795.13 1,652.92 2,129.44

Crude oil production (Million tonnes) 162.99 166.56 206.76

Natural gas production (bcm) 140.92 158.86 287.31

Net Imports – Terminal Year

Crude oil - 111.50

Petroleum products - -15.77

Refining capacity (Million tonnes) 118.37 148.97 240.96

Source: Planning Commission; P-Projected

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DEMAND SUPPLY PROJECTIONS

At the beginning of the Eleventh Five-Year Plan period (2007-2012), the Planning Commission had

projected a demand for gas of 279.43 million metric standard cubic meters per day (mmscmd) in the

terminal year of the period, compared to 179.17 mmscmd in the first year of the Plan. The corresponding

projection for increase in gas production was 63.23 bcm compared to 33.78 bcm.

Table 54: Gas Production – Eleventh Five-Year Plan Projection

(bcm)

Source: Planning Commission

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

ONGC - 22.10 22.53 22.77 22.99 22.00

OIL - 3.13 3.21 3.25 3.28 3.56

Private/JV - 8.55 22.55 29.41 28.77 37.61

Total 31.55 33.78 48.29 55.43 55.03 63.23

The projected demand for natural gas is the highest for the power sector, followed by the fertiliser,

petrochemicals, city gas distribution and sponge iron and steel units. Any surplus gas after allocation to

these industries would be available for sale to other units.

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DEMAND SUPPLY PROJECTIONS

Table 55: Projected Natural Gas Demand – Eleventh Plan Period

(mmscmd)

Source: Report of the Working Group on Petroleum & Natural Gas Sector for the Eleventh Plan

*Sponge iron and steel

Since the demand-supply projections for gas leave a significant unmet demand of 38.22 bcm, it is evident

that gas imports would increase. According to Planning Commission estimates, by the end of 2011-12,

India would import about 23.75 million tonnes of LNG. That could still leave an unmet demand of about

10-11 bcm.

2007-08 2008-09 2009-10 2010-11 2011-12

Power generation 79.70 91.20 102.70 114.20 126.57

Fertiliser 41.02 42.89 55.90 76.26 76.26

City gas 12.08 12.93 13.83 14.80 15.83

Industrial 15.00 16.05 17.17 18.38 19.66

Petrochemicals 25.37 27.15 29.05 31.08 33.25

Others* 6.00 6.42 6.87 7.35 7.86

Total 179.17 196.64 225.52 262.07 279.43

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DEMAND SUPPLY PROJECTIONS

Table 56: LNG Supply – Eleventh Five-Year Plan Projection

(Million tonnes per annum)

Source: Planning Commission

While the demand for crude oil has been projected by the Planning Commission to be around 207 million

tonnes in 2011-12, the projected domestic oil production in that year is only 39-40 million tonnes. Going

by the current trends in demand for oil and domestic production, the unmet demand could be higher than

projected.

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Dahej 5.00 5.00 5.00 7.50 10.00 10.00

Hazira 2.50 2.50 2.50 2.50 2.50 2.50

Dabhol - 1.20 2.10 5.00 5.00 5.00

Kochi - - - - 2.50 5.00

Mangalore - - - - - 1.25

Total 7.50 8.70 9.60 15.00 20.00 23.75

Table 57: Crude Oil Production – Eleventh Five-Year Plan Projections

(Million tonnes)

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

ONGC - 27.16 28.00 29.00 28.53 27.37

OIL - 3.50 3.55 3.73 3.91 4.30

Private/JV - 10.57 10.78 9.76 8.75 7.85

Total 33.98 41.23 42.33 42.49 41.19 39.51

Source: Planning Commission

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Contents

Control panels

Oil exploration and drilling equipment

Storage batteries

Industry overview – oil and gas

International interest

Demand supply projections

Demand supply scenario

Government organisations

Trends and opportunities

Companies

INDIA: ENERGY SECTOR September 2010

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DEMAND SUPPLY SCENARIO

India imports about 85 per cent of its crude oil requirement. By volume, oil imports increased at an

average rate of 10.9 per cent over the five-year period between 2004-05 and 2009-10. In terms of value,

the increase was over 26 per cent.

Oil imports and refined products exports

Table 58: Crude Oil Imports

P: provisional

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10(P)

By volume (Million tonnes) 95.86 99.41 111.5 121.6 128.16 159.26

By value (Rs billion) 1,170.03 1,717.02 2,190.29 2,726.99 3,418.87 3,753.78

By value (US$ billion) 25.89 38.16 52.15 67.84 76.95 79.55

India may import over 80 per cent of its crude oil requirement, but it is a net exporter of petroleum

products. In terms of quantity, exports of petroleum products have increased from 9.83 million tonnes in

2004-05 to 18.12 million tonnes in 2008-09 and 36.30 million tonnes in 2009-10.

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DEMAND SUPPLY SCENARIO

Table 59: Net Exports of Petroleum Products

P: provisional

Along with the increase in domestic production of 19.6 per cent in 2009-10, export of petroleum

products also increased 38 per cent. While crude oil imports increased 24.3 per cent during this period,

net imports increased only 12 per cent.

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10(P)

By volume (Million tonnes) 9.38 10.02 15.77 18.32 18.65 36.31

By value (Rs billion) 15.04 22.00 40.51 49.79 56.56 110.28

By value (US$ billion) 3.38 4.93 8.92 12.43 13.76 23.45

Table 60: Import and Export of Crude Oil and Petroleum Products

(Quantity: thousand metric tonnes)

FY 2009 2010(P) Change (%)

Qty Rs. billionUS$

millionQty Rs. billion

US$

millionQty Rs. billion

US$

million

Imports 146,440 4,027.81 90,419 173,921 4,091.32 86,630 18.8% 1.6% -4.2%

Crude oil 128155 3,418.87 76,957 159259 3,753.78 79,552 24.3% 9.8% 3.4%

Products

LPG 2,347 78.32 1,705 2,718 83.29 1,767 15.8% 6.3% 3.6%

Naphtha 4,988 173.49 3,802 1,734 49.42 1,029 -65.2% -71.5% -72.9%

Petrol 397 15.30 352 385 12.64 266 -3.0% -17.4% -24.4%

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DEMAND SUPPLY SCENARIO

FY 2009 2010(P) Change (%)

Qty Rs. billionUS$

millionQty Rs. billion

US$

millionQty Rs. billion

US$

million

SKO 1,449 64.59 1,470 985 29.09 614 -32.0% -55.0% -58.2%

HSD 2,734 96.56 2,214 2,531 63.90 1,332 -7.4% -33.8% -39.8%

Lubes 1,145 47.21 995 1,418 35.18 733 23.8% -25.5% -26.3%

FO/LSHS 2,602 78.92 1,746 896 19.35 406 -65.6% -75.5% -76.7%

Bitumen 59 1.05 43 69 1.38 29 16.9% 31.4% -32.6%

Others 2,564 5,3.50 1,136 3,925 43.28 902 53.1% -19.1% -20.6%

Exports 18,285 608.93 13,462 14,662 337.53 7,078 38.0% 22.6% 12.1%

LPG 109 4.55 92 131 4.91 104 20.2% 7.9% 13.0%

Naphtha 7284 240.28 5,611 9911 298.47 6,318 36.1% 24.2% 12.6%

MS/Petrol 5330 175.00 4,000 9762 311.70 6,643 83.2% 78.1% 66.1%

ATF 3490 130.12 2,998 4588 133.31 2,824 31.5% 2.5% -5.8%

SKO 77 3.62 79 46 1.54 32 -40.3% -57.5% -59.5%

HSD 13769 475.20 11,008 18419 508.33 10,728 33.8% 7.0% -2.5%

LDO 0.4 .013 0.3 41.0 0.87 18.2 - - -

Lubes 93 4.78 148 24 1.08 19 -74.2% -77.4% -87.2%

FO/LSHS 5932 117.95 2,738 5173 105.01 2,243 -12.8% -11.0% -18.1%

Bitumen 40 0.67 17 39 0.75 16 -2.5% 11.9% -7.0%

Others 807 22.39 534 2839 74.39 1,580 251.8% 232.2% 195.9%

Net

Imports 109,510 2,853.23 63,194 122,948 2,650.95 56,104 12.3% -7.1% -11.2%

Source: Petroleum Planning and Analysis Cell

P: provisional

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DEMAND SUPPLY SCENARIO

Gross export realisations for petrol, naphtha, ATF, HSD and FO were lower than their respective import

costs in 2009-10. However, export realisations were higher for LPG, propane, SKO and lubes. SKO

realisations were 150 times higher than import costs. Regional trade movements of the BP Statistical Study

indicate that in 2009, India exported mainly to Singapore and other Asia-Pacific countries. Europe and

Central America were the other two large importers from India. The country imported mainly from the

Middle East.

Consumption of petroleum products has steadily increased in India, from 107.75 million tonnes in 2003-04

to 138.19 million tonnes in 2009-10. At the end of March 2010, the five-year average growth of total

petroleum products consumption was 4.5 per cent.

Demand Growth Segments

Table 61: Consumption of Petroleum Products

(Thousand metric tonnes)

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10(P) 5-year average growth (%)

LPG 9,305 10,245 10,456 10,849 12,165 12,344 13,121 5.14

MS 7,897 8,251 8,647 9,286 10,332 11,258 12,818 9.25

NAPHTHA/NGL 11,868 13,993 12,194 13,886 13,294 13,911 10,239 -5.00

ATF 2,484 2,813 3,299 3,983 4,543 4,423 4,627 10.81

SKO 10,230 9,395 9,541 9,505 9,635 9,303 9,304 -0.18

HSD 37,074 39,650 40,191 42,897 47,669 51,710 56,320 7.32

LDO 1,619 1,477 883 720 668 552 457 -20.09

LUBES 1,427 1,336 2,081 1,900 2,290 2,000 2,657 17.56

FO/LSHS 12,945 13,540 12,829 12,618 12,717 12,588 11,589 -3.01

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DEMAND SUPPLY SCENARIO

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10(P) 5-year average growth (%)

Bitumen 3,373 3,339 3,508 3,833 4,506 4,747 4,919 8.17

Pet. coke - - - - 5,950 6,166 6,750 6.55

Others 9,529 7,596 9,586 11,274 5,449 4,597 5,397 -1.22

Total 107,751 111,634 113,215 109,239 120,751 133,599 138,196 4.50

Source: Ministry of Petroleum and Natural Gas; P-provisional

Projections indicate that transport energy demand is expected to grow at 6.1 per cent per annum over

the next two decades. The demand is expected to reach 162 MTOE by 2030. Also, the share of transport

in final energy demand is expected to double over the next two decades. India currently accounts for only

2 per cent of global transport energy demand. However, in the long term – improved fuel efficiency of

vehicles, higher fuel prices, switch to compressed natural gas (CNG) for public transport in major cities

and greater use of public transport – are expected to impact the demand growth for transport energy.

The number of vehicles on the road is the principal determinant of fuel demand for transport. The total

vehicle stock in India increased from 19 million in 1990 to 68 million in 2004. It is projected to reach 295

million by 2030. Annual sales of new light-duty vehicles (LDV), which reached 1.2 million in 2005, are

projected to increase to 13.3 million in 2030. Vehicle population growth will continue through the next

two decades at 5.7 per cent per annum, faster than the 5.1 per cent growth rate of per-capita GDP.

Demand Sectors

Transport

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DEMAND SUPPLY SCENARIO

The fleet of LDVs is expected to increase faster than any other category of transport vehicles, from 11

million in 2005 to 115 million by 2030, marking an average growth rate of almost 10 per cent. Excluding

two and three wheelers, there are currently 13 vehicles per 1,000 people in India. This ratio is expected to

grow to 93:1000 by 2030. Despite this seven-fold increase, vehicle ownership in 2030 would still be only

15 per cent of what Japan has today, which is 600 vehicles per 1,000 people.

Two-wheelers make up over 80 per cent of India‟s current vehicle stock, yet they consume only 15 per

cent of road-transport fuels. The recent shift from two-stroke to four stroke engines for these vehicles has

greatly increased their fuel-efficiency and reduced air pollution. Towards the end of the projection period,

ownership of two-wheelers will begin to plateau, as more people are likely to purchase passenger cars.

Two-wheelers would still account for over 50 per cent of the total vehicle stock in 2030.

Experience around the world shows that vehicle ownership takes off when per-capita GDP, expressed in

purchasing power parity terms, reaches a level of between US$ 3,000 and US$ 10,000, which allows a

large portion of the population afford a personal vehicle. India has passed the US$ 3,000 tipping point and

has had a corresponding increase in vehicle ownership rates.

As the vehicle stock is expanding rapidly, small changes in the projected rate of growth have a large impact

on transport oil demand by the end of the projection period. While the growth in the vehicle stock

excluding two-wheelers is projected to increase by 9.4 per cent per year over the next two decades, only

a slight increase in this rate of growth would significantly push up road fuel consumption. However,

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even if GDP and household incomes were to grow faster, infrastructure bottlenecks might constrain

vehicle ownership growth and consequently the demand for transport fuel. Also, public spending on

highways and measures to tackle traffic congestion will also have an impact on demand for transport fuel.

Air transport has been growing rapidly in recent years. India is one of the world‟s more vibrant civil

aviation markets. The economic growth has increased the propensity to fly. Moreover, the emergence of

low-cost carriers has brought the cost of domestic air travel closer to the cost of train travel.

Energy consumption in the residential sector grew at an average rate of 1.6 per cent during the period,

1990-2005. It is projected to maintain this growth rate from 2005 to 2030. Its share of total energy

consumption is expected to decrease from 44 per cent in 2005 to 29 per cent in 2030. Also, the share of

biomass in residential energy will drop from 79 per cent to 59 per cent in 2030, as cooking gas and

electricity will become accessible to more people.

According to the National Sample Survey Organisation (NSSO), rural households depend on biomass for

almost 85 per cent of their cooking needs while LPG meets 56 per cent of this need in urban households.

It is projected that in 2030, there will be more rural households relying on LPG as their primary fuel for

cooking than today. However, biomass would still be used as a secondary fuel. Demand for biomass in

urban areas is projected to fall by 15 per cent over the next two decades, and its share in urban

household energy use will be a mere 12 per cent in 2030.

Domestic Fuel

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Residential consumption of natural gas is still small in India and is limited to major cities. It is projected to

grow by an average rate of 9.1 per cent per year during the period, 2005-2030. Several cities are setting up

pipeline networks to supply gas to apartment complexes. But, natural gas consumption would still account

for only 2 per cent of total residential energy use in 2030 and all of it would be in urban areas.

In 2030, kerosene and LPG are expected to meet 80 per cent of the urban households‟ energy

requirement for cooking. They will cater to cooking needs of about 32 per cent of the rural households.

The share of urban households in total LPG consumption for cooking is expected to grow from 56 per

cent today to about 80 per cent by 2030.

Power generation accounts for about 29 per cent of total gas consumption in the country and 48 per cent

of all the gas consumed for energy purposes. In 2008-09, gas consumption by the power sector was

estimated at 12,603 million cubic metres (mcm) compared to 12,037 mcm in 2007-08.

According to CEA, as of March 2008, the central, state and private utilities operated 150 gas-based units

with a total capacity of 10,018.9 MW. In addition, there are 15 independent gas-based power plants with a

total capacity of 3,903 MW. Some of the large gas turbine plants include Ratnagiri CCGT (2,220 MW),

Uran CCGT (912 MW), Dadri CCGT (817 MW), Kawas CCGT (644 MW) and Gandhar CCGT (648

MW).

Power Generation and Industrial Fuel

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Power industry is constrained by shortage of gas supply. That has resulted in not only loss of generation at

the existing power plants but also in discouraging further investment in gas-based power plants. The loss

of generation due to shortage of gas increased to 31.17 billion units in 2007-08 from 21.69 billion units in

2003-04. While the private sector plants achieved about 94.6 per cent of its target utilisation in 2007-08,

the state sector achieved 85.7 per cent. Even the commitments of gas allocations made to power stations

are not being fulfilled.

In 2008-09, fertiliser industry consumed 21 per cent of the total gas sold in the country and 54 per cent

of the total gas consumed by the non-energy sector. The share of transportation and petrochemicals

industries were 2.6 per cent and 6.5 per cent, respectively. According to the Planning Commission, the

demand for gas from the fertiliser industry is expected to increase by 35.22 mmscmd to 76.26 mmscmd in

2011-12 from the 2006-07 level. Likewise, the demand for gas from the petrochemicals and refining

industry is expected to increase by 4.66 mmscmd to 19.66 mmscmd over this period.

Gas is a cheaper feed stock for fertiliser industry compared to naphtha. With capacity expansions in the

industry, the demand for natural gas is expected to increase. The fertiliser industry is likely to add 35 per

cent more capacity in the coming three years in addition to converting old naphtha and fuel oil based

plants to use gas as the feedstock. The industry may need additional 24 mcm gas a day to feed the new

plants and the converted ones. While ONGC supplies about 15 mcm gas per day from its fields, the

remaining has to be imported. The Government has asked the private gas producer, Reliance, to sell gas

Fertiliser and Petrochemicals

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DEMAND SUPPLY SCENARIO

to fertiliser companies and power producers on priority at US$ 4.2 per million British thermal units

(BTUs). Reliance has signed agreements with 12 fertiliser companies for supplies from its KG-D6 field.

Buying from domestic sources ensures stable prices for gas users.

Table 62: Natural Gas Demand Sectors

(Million cubic meter)

2004-05 2005-06 2006-07 2007-08 2008-09(P)

Energy 21,328 22,052 20,855 22,436 26,012

Power generation 12,099 11,878 11,963 12,037 12,603

Industrial fuel 3,569 3,780 3,205 3,324 5,912

Tea plantations 142 151 170 160 154

Domestic fuel 343 75 443 39 102

Captive use/LPG shrinkage 4,944 5,048 5,034 5,618 5,706

Others* 231 1,120 40 1,258 1,535

Non-energy 9,447 8,973 10,513 11,892 18,043

Fertiliser 8,173 7,762 8,497 9,822 9,082

Petrochemicals 1,236 1,175 1,377 1,432 1,105

Transport-CNG(mscm) - - - - 1,095

Others** 38 36 639 638 6,761

Energy & non-energy 30,775 31,025 31,368 34,328 44,055

Source: Ministry of Petroleum & Natural Gas

P-Provisional

*Mainly, City Gas distribution, **Mainly, Sponge iron units

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According to the World Trade Organization (WTO), the share of fuel imports (crude oil, mineral fuels

and feedstock, lubricants and related materials) in India‟ s total imports increased to 40.1 per cent in 2008

up from 34.7 per cent in 2000 and 29 per cent in 1990. This share was among the highest in the world.

Share in Global Market

Table 63: Share of Fuel Imports in Total Merchandise Imports

Value share (%)

Country 2000 2008

Russia 3.7 1.6

Hong Kong 2.1 3.7

Argentina 3.7 7.2

Iran 2.2 8.4

Mexico 3.0 9.5

Bangladesh 6.2 9.9

Malaysia 4.8 10.8

China 9.2 14.9

European Union 8.5 15.2

Viet Nam 13.5 15.5

Australia 8.3 15.7

Brazil 14.8 19.8

Thailand 12.2 20.8

Philippines 11.1 21.2

Sri Lanka 7.7 22.4

USA 11.1 23.1

Indonesia 13.9 24.3

Singapore 12.1 27.3

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Value share (%)

Country 2000 2008

Korea 23.7 32.7

Pakistan 33.1 33.2

Japan 20.4 35.0

India 34.7 40.1

Bahrain 45.5 51.9

Source: World Trade Organisation, 2008

According to the BP Statistical Review of World Energy, June 2010, global oil refining capacity in 2009 grew

by 2.2 per cent, or 2 million barrels per day (b/d), the largest increase since 1999. Non-OECD capacity

surpassed OECD capacity for the first time. The Asia-Pacific region accounted for more than 80 per cent

of the global growth, largely, due to increases in capacity in India (19.5 per cent, or 580,000b/d) and China

(10.5 per cent, or 820,000b/d).

Table 64: India‟s Share in World Oil and Gas Market (%)

Oil Gas

Consumption 3.8 1.8

Production 0.9 1.3

Proved reserves 0.4 0.6

Source: BP Statistical Review of World Energy, June 2010

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India‟s demand for oil has always exceeded domestic supply. Moreover, since the 1970s, there has been an

increasing shortage of other energy sources. Domestic coal, natural gas and hydroelectric power have

fallen short of total requirement. The main reason for this shortage lies in slow and erratic development

of domestic energy resources.

Energy Demand Met from Domestic Sources

Table 65: Percentage Demand Met from Domestic Sources (%)

Indicators 1960-61 1970-71 1980-81 1990-91 2000-01 2011-12(P)

Coal 100.00 100.00 99.70 97.80 96.10 93.02

Lignite 100.00 100.00 100.00 100.00 100.00 100.00

Oil 5.40 35.60 32.60 42.80 30.30 27.59

Natural Gas/LNG - 100.00 100.00 100.00 100.00 69.30

Hydro Power 100.00 100.00 100.00 99.93 99.96 95.94

Source: Planning Commission; P-Projected

Also in recent years, India has been increasingly exposed to the vagaries of global oil supply. The country

has become a significant participant in the global oil market, but it is not big enough to influence prices. In

fact, after the unwinding of administered pricing in 2002 and floating the rupee, the country‟s balance of

payments has been influenced by increasing share of oil imports.

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The refining capacity has increased from 177.9 million metric tonnes per annum (mmtpa) in 2008-09 to

184.4 mtpa in 2009-10. The capacity addition has come from public sector companies. However, in 2009-

10, the refining output of public sector oil marketing companies remained constant but it increased by

almost 11.5 per cent for the two private sector companies – Reliance and Essar. In fact, the private

refineries‟ production increased the overall capacity utilisation from 88.3 per cent in 2008-09 to 101.2 per

cent in 2009-10.

There are 22 refineries in the country: 19 in the public sector and three in the private sector. The public

sector refineries have a capacity of 105 mmtpa and the balance 72.9 mmtpa is contributed by the private

sector. The 19 public sector refineries are located at Guwahati, Barauni, Koyali, Haldia, Mathura, Digboi,

Panipat, Visakhapatnam, Chennai, Nagapattinam, Kochi, Bongaigaon, Numaligarh, Mangalore, Tatipaka,

Narimanam and two refineries at Mumbai. The three private sector refineries are Reliance's Jamnagar and

Jamnagar SEZ refineries and Essar'sVadinar refinery. Reliance's Jamnagar refinery is the largest single crude

oil refinery in India with a capacity of 33 mmtpa. IOCL dominates the multiple location refining capacity

with a share of nearly 33.8 per cent.

Growth of Refining Capacity

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Table 66: Refinery Capacity

(Thousand metric tonnes)

Installed Capacity Crude Processed Capacity utilisation (%)

FY 2009 2010 2009 2010 2009 2010

Public Sector

IOC, Digboi 650 650 623 600 95.8 92.3

IOC, Guwahati 1,000 1,000 1,076 1,078 107.6 107.8

IOC, Koyali 13,700 13,700 13,852 13,206 101.1 96.4

IOC, Barauni 6,000 6,000 5,940 6,184 99.0 103.1

IOC, Haldia 6,000 7,500 6,042 5,686 100.7 75.8

IOC, Mathura 8,000 8,000 8,601 8,107 107.5 101.3

IOC, Panipat 12,000 12,000 13,070 13,615 108.9 113.5

IOC, Bongaigaon 2,350 2,350 2,163 2,220 92.0 94.5

IOC, Sub Total 49,700 51,200 51,367 50,696 103.4 99.0

HPC, Mumbai 5,500 5,500 6,652 6,965 120.9 126.6

HPC, Visakh 7,500 8,300 9,158 8,830 122.1 106.4

HPC, Sub Total 13,000 13,800 15,809 15,795 121.6 114.5

BPC, Mumbai 12,000 12,000 12,221 12,501 101.8 104.2

BPC, Kochi 7,500 9,500 7,738 7,875 103.2 82.9

BPC, Sub Total 19,500 21,500 19,959 20,376 102.4 94.8

KRL, Kochi 0 0 0 0 0 0

CPCL, Chennai 9,500 9,500 9,707 9,571 102.2 100.7

CPCL, Narimanam 1,000 1,000 418 517 41.8 51.7

CPCL, Sub Total 10,500 10,500 10,125 10,088 96.4 96.1

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Installed Capacity Crude Processed Capacity utilisation (%)

FY 2009 2010 2009 2010 2009 2010

Public Sector

BRPL, Bongaigaon 0 0 0 0 0 0

NRL, Numaligarh 3,000 3,000 2,251 2,619 75.0 87.3

ONGC, Tatipaka 78 78 83 55 106.4 70.5

MRPL, Mangalore 9,690 11,820 12,576 12,498 129.8 105.7

TOTAL PSU 105,470 111,900 92,211 91,751 87.4 82.0

JVC/PVT

RIL, Jamnagar 33,000 33,000 31,971 31,379 96.9 95.1

RPL (SEZ), Jamnagar 29,000 29,000 31,971 29,555 110.2 101.9

EOL, Jamnagar 10,500 10,500 12,916 13,502 123.0 128.6

JVC/PVT Sub Total 72,500 72,500 76,858 74,436 106.0 102.7

GRAND TOTAL 177,970 184,400 169,069 166,187 88.3 101.2

Source: Ministry of Petroleum and Natural Gas

P-provisional

Indian refineries mainly produce liquid petroleum gas (LPG), Naphtha, motor spirit (MS), aviation turbine

fuel (ATF), kerosene oil (SKO), high speed diesel (HSD), light diesel oil (LDO), lubricants, furnace oil (FO),

low sulphur heavy stock (LSHS), and bitumen. Domestic production of petroleum products increased 19.6

per cent in 2009-10 over the previous year to 185 million tonnes.

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Table 67: Domestic Production of Petroleum Products

(Thousand metric tonnes)

FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010(P) 5-Year CAGR (%)

LPG 7,651 7,817 7,717 8,454 8,868 9,170 10,345 5.9%

NAPHTHA 12,641 15,796 16,016 18,176 17,978 16,453 18,782 3.9%

MS 11,211 11,058 10,508 12,536 14,174 16,021 22,554 16.2%

ATF 4,302 5,197 6,219 7,850 9,120 8,092 9,304 13.2%

SKO 10,148 9,207 9,026 8,621 8,025 8,461 8,833 -0.7%

HSD 43,129 46,081 47,730 53,676 58,482 63,031 73,249 9.8%

LDO 1,628 1,385 944 803 713 609 472 -19.0%

LUBES 666 646 676 967 882 870 950 9.3%

FO 9,102 10,580 10,314 12,259 12,642 14,714 15,257 7.9%

LSHS 4,608 4,235 3,804 3,266 3,315 3,046 2,627 -8.9%

BITUMEN 3,379 3,347 3,575 3,838 4,450 4,620 4,873 7.9%

Others 9,176 7,400 7,551 9,624 11,245 9,569 17,755 23.4%

Total 117,641 122,749 124,080 140,070 149,893 154,654 185,000 8.8%

Source: Petroleum Planning and Analysis Cell

P: provisional

Key Efficiency Achievements

The refining industry has been expanding capacity and upgrading technology and refinery complexity at

regular intervals. As a result, some of the new units, such as those of Reliance and Essar, have improved

their gross refining margins significantly.

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DEMAND SUPPLY SCENARIO

Table 68: Gross Refining Margins for Domestic Refineries

(US$/bbl)

Source: Company reports

FY 2004 2005 2006 2007 2008 2009

IOC 5.30 6.20 4.60 4.19 9.02 6.28

HPCL-Mumbai 4.30 5.60 3.22 4.786.54

3.97

HPCL-Vizag 4.60 5.10 2.56 3.51 -

BPCL-Mumbai 4.64 4.56 1.64 3.64 4.60 4.48

BPCL-Kochi 4.00 5.90 3.17 3.46 7.18 6.27

CPCL 4.39 5.36 4.37 5.00 8.47 -

MRPL 3.90 5.68 - 4.60 7.00 5.32

RIL 8.80 10.30 11.70 15.00 12.20

The Nelson Complexity Index (NCI) measures the level of secondary processing facilities of a refinery in

relation to its crude distillation capacity. Indian refineries have a relatively lower refinery complexity (less

than five) as compared to a global average of six. However, the refineries are upgrading their capacities to

treat more types of crude. Also, with stringent environment regulations being implemented, Indian

refineries have been forced to upgrade their units.

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Table 69: NCI of Domestic Refineries

Company NCI

IOCL 4.1

HPCL 3.6

BPCL 4.0

CRL 5.0

MRL 6.0

RPL 11.3

New Refineries

HPCL, Bhatinda 9.6

RPL, Jamnagar 14.0

Production of Crude Oil

India‟s crude oil production in 2008-09 amounted to 33.51 million tonnes. Its gas production was 33.84

bcm. About three-quarters of total production came from nine offshore fields. The 85 onshore fields

supplied the rest. A few major fields discovered in the 1970s and 1980s account for the bulk of India's oil

output. The top five producing fields contribute half of all output. Most of the producing fields are now in

decline, including the nine offshore fields. It is estimated that 80 per cent of current production comes

from fields which have passed their peak.

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Reforms undertaken under the NELP have had a positive impact on domestic production. Private

investors have developed new oil and gas fields. India‟s oil output is projected to increase to 39.51 mmt in

2011-12. A number of new projects, including Mangala, Bhagyam, D6-MA-1, Aishwariya, GS-29-1 and Vijaya

are expected to compensate for the decline of existing mature fields.

Table 70: Crude Oil Production

(Million tonnes)

2004-05 2005-06 2006-07 2007-08 2008-09(P)

Onshore 11.59 11.43 11.33 11.21 11.27

OIL 3.19 3.23 3.11 3.10 3.47

ONGC 8.32 8.10 8.06 7.92 7.56

Private/JVC 0.07 0.10 0.16 0.19 0.24

Offshore 22.39 20.76 22.66 22.91 22.23

ONGC (Bombay High) 18.17 16.31 17.99 18.02 17.80

Private/JVC 4.23 4.45 4.67 4.89 4.43

Total 33.98 32.19 33.99 34.12 33.51

JVC: Joint Venture Company; P-provisional

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Typically, the gestation period between discovery and the start of production is eight to ten years. The

highest number of new field starts in India in a single year was 28, in 1999. It is estimated that an average

of 25 fields would be brought into production every year between 2007 and 2013. But the increase in

demand for drilling rigs would drive up costs. Only about 10 per cent of the 880 wells proposed to be

drilled in the first six rounds of the NELP have been drilled so far, partly because of a poor availability of

drilling rigs. Delays in drilling would result in a smaller contribution of those fields before 2015.

Domestic Gas Production and LNG Imports

India‟s natural gas production is projected to reach 63.23 bcm in 2012. The production from mature fields

is projected to decrease from 24.78 bcm in 2006 to 3.53 bcm in 2030. Still, the domestic gas production

has the potential to reach more than 50 bcm in 2020 because of major discoveries over the last seven

years in the Krishna-Godavari basin. However, production is expected to peak between 2020 and 2030

and then to drop to 50 bcm at the end of 2030.

The outlook for gas production also faces uncertainties. About 100 fields are already being appraised or

developed, and they will undoubtedly boost output in the next decade. However, 150 more fields

discovered in the last thirty years are still awaiting appraisal.

Still, NELP has helped speed up fields‟ development. For example, some of the 20 fields discovered in the

Krishna-Godavari basin since 2002 have started production in 2010.

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DEMAND SUPPLY SCENARIO

As production shifts from the mature producing fields in the Mumbai basin on the West coast to the

relatively under-developed offshore Krishna-Godavari basin on the East coast, substantial investment is

required for oil and gas transmission and distribution infrastructure, especially in the Southeast region of

the country. Demand is currently concentrated in the Central and the Northern regions.

Table 71: Natural Gas Production

(MCM)

2004-05 2005-06 2006-07 2007-08 2008-09(P)

Onshore 9,094 9,578 9,272 9,099 8,763

OIL 2,010 2,270 2,265 2,340 2,268

ONGC 5,658 5,751 5,876 5,877 5,753

Private/JVC 1,426 1,557 1,131 882 742

Offshore 22,669 22,624 22,475 23,318 24,086

ONGC (Bombay High) 17,313 16,823 16,567 16,457 16,738

Private/JVC 5,356 5,801 5,908 6,861 7,348

Total 31,763 32,202 31,747 32,417 32,849

Source: Ministry of Petroleum and Natural Gas; P-provisional

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DEMAND SUPPLY SCENARIO

Gas imports are projected to double between 2005 and 2010, reaching about 15 million tonnes per

annum (MTPA). Imports are projected to stabilise for a decade thereafter and then quadruple between

2020 and 2030 to 61 bcm as demand continues to grow and domestic production peaks. LNG import

capacity at the two existing LNG terminals at Hazira and Dahej currently amounts to 8.7 MTPA. If the

two more planned LNG terminals become operational by 2011-12, they will increase LNG import

capacity to 24 MTPA. This implies that there could be excess capacity of about 10 MTPA over the next

decade. Major new capacity additions might be needed after 2025. However, these projections depend on

the availability of supplies from LNG-exporting countries and the competitiveness of gas against other

fuels in the market.

Protracted negotiations over LNG imports have led to delays in finalising a number of planned gas-based

projects. Price has been the main stumbling block, as increasingly expensive LNG struggles to compete

against cheap coal and domestic gas. However, it is the most competitive way of filling the gap between

the rising demand for gas and the indigenous production. It is extremely unlikely that the plans for piping

gas from producing countries will materialise soon. Several international pipeline projects have been

mooted, including those from Iran, Myanmar, Turkmenistan and Oman. The Iran-Pakistan-India pipeline,

which would be more than 2,660 km-long and have a capacity of 60 mcm per day, has been under

discussion since 1994. Geopolitical factors, transit charges and pricing have complicated the negotiations.

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Table 72: LNG Imports

2004-05 2005-06 2006-07 2007-08 2008-09(P)

By volume (Million tonnes) 2.50 5.06 6.81 8.32 8.06

By value (Rs billion) 16.96 33.66 56.5 71.97 95.48

By value (US$ billion) 0.38 0.75 1.35 1.79 2.08

Source: Ministry of Petroleum and Natural Gas

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Contents

Control panels

Oil exploration and drilling equipment

Storage batteries

Industry overview – oil and gas

International interest

Demand supply projections

Demand supply scenario

Government organisations

Trends and opportunities

Companies

INDIA: ENERGY SECTOR September 2010

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India: Energy Sector September 2010

GOVERNMENT ORGANISATIONS

The Ministry of Petroleum and Natural Gas (MoPNG) formulates policies for the oil and gas sector and

also regulates it. The MoPNG is entrusted with the responsibility of exploration and production of oil and

natural gas and their refining, distribution and marketing. It also manages import, export and, conservation

of petroleum products and LNG. There are several departments and organisations under the ministry.

These are:

• Centre for High Technology (CHT): CHT, established in 1987, is an advisory body to implement

scientific and technological programmes for the oil sector. It acts as a forum for sharing of technical

information amongst the refineries.

• Directorate General of Hydrocarbons (DGH): DGH was established in 1993 under the

administrative control of MoPNG. DGH‟s mandate is to promote sound management of the oil and

natural gas resources, particularly ensuring adherence to appropriate technological, economic and

environmental benchmarks.

• Oil Industry Development Board (OIDB): The OIDB was set up in January 1975 under the Oil

Industry (Development) Act, 1974 to provide financial assistance for the development of oil industry.

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GOVERNMENT ORGANISATIONS

• Oil Industry Safety Directorate (OISD): OISD is a technical directorate under the MoPNG that

formulates self-regulatory measures to enhance safety in the oil and gas industry and coordinates their

implementation.

• Petroleum Conservation Research Association (PCRA): The Government established the

Petroleum Conservation Action Group in 1976 which was reconstituted as PCRA in 1978. PCRA

promotes research, development and deployment efforts aimed at petroleum conservation and

environment protection.

• Petroleum Planning and Analysis Cell (PPAC): PPAC was created in 2002 to assist MoPNG with

pricing and coordination issues following the dismantling of Administered Pricing Mechanism (APM) and

the consequent dissolution of the Oil Coordination Committee.

• Petroleum Federation of India (PFI): PFI was set up in 2002 to promote the interest of the

petroleum industry and function as a facilitator for the Indian oil industry.

• Petroleum India International (PII): PII is a consortium of public sector companies in the

petroleum, petrochemicals and engineering sectors. PII was established in 1986 with the objective of

mobilizing individual capabilities of its member companies in technical and managerial domains for

international projects.

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India: Energy Sector September 2010

GOVERNMENT ORGANISATIONS

Energy sector reforms started in the early 1990s. The first phase of oil sector reform involved allowing

private and foreign firms to participate in onshore exploration and production through production-sharing

contracts. Between 1996 and 2002, in the second phase of reforms, private participation was allowed in

oil and gas production, refining and marketing. In 1997, the government announced a New Exploration

Licensing Policy (NELP) to provide a more attractive framework for private and foreign investment in oil

exploration. In 2002, the government allowed private-public joint ventures in building oil product pipelines

and in 2006, it allowed private investors to develop their own gas pipeline infrastructure.

FDI in the gas sector is allowed in oil and gas exploration and production, and in LNG terminals. In 1998,

GAIL, ONGC, IOCL and Bharat Petroleum Corporation Limited (BPCL) formed a joint venture, Petronet

LNG, to build and operate LNG import terminals. Petronet LNG commissioned its first terminal at Dahej

in 2004. Shell commissioned its LNG terminal in 2005 at Hazira.

The government expects increased supply and greater competition to eventually remove the need for

price fixing and subsidies. A government appointed expert group‟s report, “A viable and sustainable system

of pricing of petroleum products”, released in February 2010, has recommended measures to achieve a

sustainable pricing policy for the four controlled petroleum products - petrol, diesel, kerosene and LPG -

which together constituted 63 per cent of total petroleum products consumption in 2008-09.

The Integrated Energy Policy, 2006, delineates the policies of all energy sectors in the country and seeks

Reforms and Policies

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GOVERNMENT ORGANISATIONS

to promote competition. In fact, new entrants have been allowed to market transportation fuels - petrol,

diesel, and aviation turbine fuel - since March 2002. The government has issued retail licenses to Reliance

Industries, Essar Oil, Shell, ONGC, MRPL and the Numaligarh Refinery.

With the recent discoveries in the Krishna-Godavari basin, domestic natural gas is expected to become

the second most used source of commercial energy in India. Efforts are being made to raise imports of

natural gas in the form of LNG and through transnational gas pipelines.

Pricing Reforms

In February 2010, the experts group, headed by former Planning Commission member Kirit Parikh,

submitted its report on pricing policy for four major oil products. The committee has recommended that

prices of petrol and diesel should be market-determined, both at the refinery gate and at retail stations

whereas the prices of kerosene and domestic LPG could be partially raised by US$ 0.13 per litre and US$

2.22 per cylinder, respectively. For kerosene and LPG, the committee has recommended linking fuel prices

with per capita income and selective allocations to poorer families through smart cards issued by Unique

Identification Authority.

The committee has accepted the subsidy formula proposed by ONGC aimed at reducing subsidy burden of

oil companies. The formula suggests an incremental rate of taxes on higher crude oil price realization from

the nomination blocks of ONGC and OIL. Acting on the recommendation, the Government has effected

retail price changes recently.

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GOVERNMENT ORGANISATIONS

Figure 6: Price Revisions in Delhi

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r/0

6M

ay/0

6N

ov/

06

Mar

/07

Sep

/07

May

/08

Jul/

08

Dec

/08

Jul/

09

Oct

/09

Feb

/10

Jun

/10

HSD (Rs./litre) PDS Kerosene (Rs./litre)

MS (Rs./litre) LPG (Rs./Cylinder-RHS)

Standard LPG cylinder weight: 14.2 kg

Page 197: Indian Energy Sector

197

Contents

Control panels

Oil exploration and drilling equipment

Storage batteries

Industry overview – oil and gas

International interest

Demand supply projections

Demand supply scenario

Government organisations

Trends and opportunities

Companies

INDIA: ENERGY SECTOR September 2010

Page 198: Indian Energy Sector

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Trends and opportunities … (1/4)

India: Energy Sector September 2010

TRENDS AND OPPORTUNITIES

As part of its energy security strategy, India has forged new ties with Russia, Iran and China and built

partnerships with Burma and Venezuela. The country has also carefully entered into cooperative

relationships with several oil producing countries in Africa and in the Middle East. India has also allowed

public sector companies such as ONGC and OIL to secure ownership of oil and gas fields and companies

overseas. ONGC has acquired equity stakes in the oil fields in Iran, Iraq, Sudan, Libya, Angola, Burma,

Russia, Vietnam and Syria.

India is looking at Kazakhstan as an important emerging exporter of oil and gas. Kazakhstan is among the

top ten countries in the world in terms of explored oil and gas reserves. The country depends significantly

on overseas funding to develop these resources, which offers investment opportunities to India.

Investing in Overseas Oil Assets

Emerging alternative fuel sources include liquid coal, hydrogen fuel cell, coal bed methane and uranium. The

developing carbon market, following the Kyoto Protocol, 1997, has also invigorated investment in alternative

energy.

Several diesel hydro desulphurization projects have been implemented in India‟s oil refineries. Stringent

emission norms have been set for vehicular emissions in the form of Bharat Stage II, Bharat Stage III and

Bharat Stage IV standards. The Bharat Stage IV (equivalent to Euro IV) norms were launched in Delhi in April

2010. Use of bio-diesel and ethanol blended petrol is also being encouraged through favourable pricing.

Alternative Fuels

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India: Energy Sector September 2010

TRENDS AND OPPORTUNITIES

The concept of building a few months‟ strategic oil reserves was first conceived by the US in 1975 after

the oil shock. It now has reserves of 727 million barrels in the Gulf of Mexico that can last 37 days.

Subsequently, Japan built government-owned reserve of 320 million barrels to last 92 days and a private

reserve of 129 million barrels to last 77 days. China and India started constructing their strategic reserves

in 2004 and 2007, respectively. The initial Indian reserves are aimed at providing buffer stocks for two

weeks.

Strategic Oil Reserves

The reference scenario of 6.3 per cent GDP growth rate over the next two decades implies a need for

investment of about US$ 228 billion in oil and gas sector. More than three-quarters of the US$ 165 billion

oil-linked investments would be absorbed by the refining sector, which would be significantly export

oriented. More than 90 per cent of the US$ 91 billion investments in gas will go into exploration,

production, transportation and distribution. The upstream investments could be impacted by availability

and cost of drilling equipment and skilled manpower. Investments in LNG re-gasification plants would be

smaller, US$ 5.9 billion.

In the high growth scenario, an average growth of 7.8 per cent in GDP during the period, 2005-2030,

means a five time increase in per capita GDP by 2030. In this scenario, the primary energy demand is

projected to expand by 4.2 per cent per year, compared to 3.6 per cent in the reference scenario. Coal

and oil demand would account for most of the increase. Oil demand is expected to rise to 8.3 mbd in

Investment and Infrastructure Development

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Trends and opportunities … (3/4)

India: Energy Sector September 2010

TRENDS AND OPPORTUNITIES

2030, 1.8 mbd more than in the reference scenario, driven by a dramatic increase in the vehicle stock.

Dependence on biomass would decrease further, as higher incomes would lead to greater use of cleaner,

more efficient fuels. Per capital electricity generation would rise to 2,400 kWh in 2030.

However, higher economic growth itself would require a substantial acceleration and deepening of

structural, institutional and price reforms and more rapid infrastructure development. In the high growth

scenario, cumulative investment in energy infrastructure would rise to about US$ 1.7 trillion during 2006-

2030 compared to US$ 1.2 trillion in the reference scenario. More than 70 per cent of the increase would

be in power generation. Investments in oil would be about US$ 88 billion higher because of the

deployment of enhanced recovery techniques. In contrast, investments in gas would increase by only 17

per cent to US$ 71 billion. The investments in coal would be US$ 11 billion more.

The total investment under the first seven rounds of NELP stands at US$ 13.8 billion. Under NELP-VIII, oil

companies have committed an investment of US$ 1.1 billion. India will sign contracts for 31 exploration

blocks awarded to 23 companies, including BHP Billiton Petroleum International, BG Exploration and

Production, and Cairn India. India plans to launch NELP-IX in the third quarter of 2010.

In the refining segment, over 92 mmtpa of additional capacity is being planned by 2012. Natural gas

demand is expected to increase by more than 100 mmscmd over the next four years. Recent gas finds and

increased use of gas for power generation, petrochemicals, fertilisers and city gas distribution will raise the

share of gas in the energy mix of the country.

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TRENDS AND OPPORTUNITIES

There are many areas of the sector that remain severely under-developed, such as city gas distribution,

LNG import and re-gassification infrastructure, and pipeline networks. However, the growing demand-

supply mismatch provides opportunities for investment in the entire value chain of petroleum and natural

gas sector.

Rising energy demand puts enormous strain on existing energy transport infrastructure. Ports, railways,

roads are an important part of the supply chain of petroleum products. Public funds are insufficient to

cover all required investments in roads, railways and ports. The government has turned to public-private

partnerships as a way of bridging the funding gap. Gas transportation is also attracting significant

investment. Government-owned GAIL is a major investor in gas transmission pipelines from well heads to

bulk consumers.

Page 202: Indian Energy Sector

202

Contents

Control panels

Oil exploration and drilling equipment

Storage batteries

Industry overview – oil and gas

International interest

Demand supply projections

Demand supply scenario

Government organisations

Trends and opportunities

Companies

INDIA: ENERGY SECTOR September 2010

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Companies … (1/3)

India: Energy Sector September 2010

COMPANIES

Table 74: Major Equipment Players

Company name Sector Key products

Bharat Heavy Electricals

Limited (BHEL)Power equipment

Boilers, turbines, transformers, other power and oil

exploration equipment

Larsen & Toubro Limited (L&T) Power and other equipment

Supercritical boilers, switchgears, electrical control system,

metering solutions and relays, medical equipment, control

and automation

ABB India Power and automation technology

Cable and cable accessories, control systems, HV-products

and systems, insulation components, MV-products and

systems, power protection and automation products, turbo-

charging and transformers.

Siemens IndiaAutomation and control, energy,

healthcare and lighting

Transformers, switchgears, turbines, motors, generators,

switch and control boards.

Havells India LimitedElectrical and power distribution

equipment

switchgear, cables and wires, capacitors, building circuit

protection, energy meters and fans.

EMCO Limited Power equipmentTransformers, energy meeting systems, power quality

equipment, substations and transmission line and towers.

KEC International Limited Transmission tower

Turnkey projects in power transmission lines up to 1,200

kV, power distribution networks, substations, telecom,

railways, cabling and engineering services.

Suzlon Limited Wind turbines Wind turbines and related EPC contracts.

Cummins India Limited Diesel EnginesDiesel engines in the 205 HP-2,365 HP range and dual-fuel

engines.

Exide Industries Limited Storage batteriesStorage batteries for the automotive, industrial, and

submarine sectors.

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Companies … (2/3)

India: Energy Sector September 2010

COMPANIES

Table 75: Major Energy Sector Players

Company name Sector Description

National Thermal Power

Corporation (NTPC)Power generation

Largest power generating company. Government-

owned. Mainly, thermal power generator, entering

hydropower also.

NHPC Limited Power generationGovernment-owned, hydropower company. Installed

capacity of 4,622 MW. Several new projects ongoing.

NHDC Limited Power generationJoint venture between NHPC and Govt. of Madhya

Pradesh.

THDC Limited Power generation

Joint venture between Government of India and

Uttar Pradesh. Operates the Tehri Hydropower

Complex.

Power Grid Corporation of

India Limited (PGCIL)Power transmission

Central Government-owned intra-regional power

transmission company. National transmission utility.

Also responsible for national load dispatch function.

Reliance Power Transmission

Limited (RTPL)Power transmission

Private sector company. Implementing 300 km

transmission line for Parbati-Koldam project at

Himachal Pradesh.

Tata Power LimitedPower generation, transmission and

distribution.

Private sector company operating primarily in

Mumbai and Delhi. Also implementing UMPP.

Reliance Power LimitedPower generation, transmission and

distribution.

Private sector company operating primarily in

Mumbai and Delhi. Also implementing UMPP.

GMR Energy Power projects developer Independent power producer company.

GVK Power & Infrastructure Power projects developer Independent power producer company.

Jaiprakash Power Ventures

LimitedHydropower project developer Independent power producer company.

Noida Power Company Limited Power distribution Private power distribution company.

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Companies … (3/3)

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COMPANIES

Company name Sector Description

Torrent Power LimitedPower generation, transmission and

distribution.

Private sector company operating primarily in

Ahmedabad and parts of Maharashtra as franchisee.

Malana Power Limited Hydropower project developer Independent power producer.

Essar Power Limited Power generationIndependent power producer. Has license for

distribution and transmission.

Oil and Natural Gas

Corporation Limited (ONGC)Oil and gas exploration and refining

Government-owned, largest oil producer in the

country. Active in oil and gas exploration and activity.

Cairn India Limited Oil and gas exploration and productionLarge private sector oil producer in the country.

Recent discoveries in Rajasthan.

Gujarat State Petroleum

Corporation Limited (GSPC)

Oil and gas exploration and production, gas

transmission and distribution.

Among the largest gas trading companies in India.

Recent discoveries in KG-basin.

Oil India Limited (OIL) Oil and gas exploration and production

Government-owned. Operates in exploration,

development and production of crude oil and natural

gas, transportation of crude oil and production of

LPG.

ONGC Videsh Limited (OVL) Overseas oil and gas exploration and equityProduces hydrocarbons from its nine assets in Russia,

Syria, Vietnam, Sudan, Venezuela and Brazil.

GAIL India Limited (GAIL)Natural gas transmission and distribution

company

Largest gas pipeline company in India. Also strong

CNG and city gas player.

Petronet LNG LNG imports LNG terminal owner.

Gujarat Gas Company Limited

(GGCL)Natural gas transmission and distribution Largest private sector player. Operates in Gujarat.

Jindal Drilling and Industries

Limited (JDIL)Offshore drilling services

Offshore drilling for oil and gas, horizontal and

directional drilling and mud-logging services.

Aban Offshore Limited (AOL) Offshore drilling servicesLargest offshore drilling contractor in the private

sector.

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206

DISCLAIMER

INDIA: ENERGY SECTOR September 2010

India Brand Equity Foundation (“IBEF”) engaged

ICRA Management Consulting Services Limited (IMaCS)

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prepared by IMaCS in consultation with IBEF.

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This presentation is for information purposes only. While

due care has been taken during the compilation of this

presentation to ensure that the information is accurate

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IMaCS and IBEF neither recommend nor endorse any

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