The Hindu Business Line : Synergy among oil PSUs through M&A required: Aiyar <br>`I am much less interested in tie-ups abroad. Energy security like charity begins at home.'

Industry & Economy - Interview

Synergy among oil PSUs through M&A required: Aiyar
`I am much less interested in tie-ups abroad. Energy security like charity begins at home.'

Richa Mishra

"I think, in 2006 it could be said that India has definitively positioned itself centre-stage in the global dialogue of the hydrocarbon sector."

New Delhi , Jan. 2

ENERGY security, oil diplomacy, petroleum product pricing, synergy among oil PSUs, and war of words with ONGC... the Minister for Petroleum and Natural Gas, Mr Mani Shankar Aiyar, had his hands full in 2005. The challenge, he says, lies in effective integration of the Public Sector Units in the sector across the value chain instead of them competing with one another. Mr Aiyar spoke to Business Line about the initiatives his Ministry is taking to tackle the issues concerning the sector.

The Ministry has been talking about making India a refinery hub for greater energy security. However, the trend shows that while a private sector refinery such as of Reliance Industries Ltd (RIL) is able to get off the ground quickly and is also expanding, public sector projects such as Paradip seem to take longer. What could be the reason for this?

Frankly, I don't know, because I don't know what happened the previous nine years, but what I do know is that in the year-and-a-half that the UPA Government has been in office, the Paradip refinery project has moved more than it perhaps did a few years ago. This may be because when such projects were conceived, perhaps, not everybody was in tune with how the world is changing and how there were opportunities for PSUs. But now Paradip seems to be well underway.

You have been saying that it is your dream to see petroleum products overtaking polished diamonds as India's single largest exports. How do you propose to go about achieving it, keeping in mind the high volatility in the oil market?

The presentation that I have received from Shell Global Solutions seems to indicate that India could become a major source of petroleum products. Against Rs 1,17,000 crore of imports of crude oil in 2004-05, we have been able to export Rs 28,000 crore of petroleum products. It is my dream to see petroleum products taking over cut-diamonds as India's single largest export from imported raw material but we have to be practical about this. We have to work in a world where the petroleum and petroleum product markets are subject to extreme volatility. Diamonds are forever but I don't think kerosene is forever.

So there will be limitations in determining in advance the economic and commercial viability of the export-oriented refineries. But overall, the prospects appear to be good, we either seize the opportunity now, or we, in a sense, let it go over. We do seem to be moving in consultation with everybody concerned in the direction of contributing towards making our domestic energy security a major source of exports.

You have been advocating oil diplomacy. In 2005, a number of MoUs were inked with various countries for collaborating in the international hydrocarbon sector, including sharing of technology. How do you rate India's prospects in the global hydrocarbons economy?

In the course of the last 18 months, we have succeeded in moving India from the margins of the global hydrocarbon economy to the centre-stage. This has much to do with India's demand for energy growing very significantly and this, in turn, is connected with our ambitious growth targets. I do think some of the credit could go to the effective way in which we have been able to interact with our interlocutors world over to make people believe that India has a point of view which requires to be listened to and that it is a market both for products as well as investment. Also, India has the resources to invest in the hydrocarbons sector outside the country. It is by meshing in a strong commercial presence with effective oil diplomacy that, I think, in 2006 it could be said that India has definitively positioned itself centre-stage in the global dialogue of the hydrocarbon sector.

So does it mean that we see more of ONGC-CNPC tie-ups for acquiring assets in third countries?

I am in many ways much less interested in tie-ups abroad than in tie-ups for India. Energy security, like charity, begins at home. And as against our prognosticated resources our established reserves are almost next to nothing and what we have recovered is a tiny fraction of the kind of domestic hydrocarbons resources to which the country could have effective access. We cannot do all this entirely on our own and if we continue with this attitude then I am afraid we are going to continue stagnating at the position we are today.

Why I use the word stagnating? After 50 years of being in exploration, less than 20 per cent of our hydrocarbon potential has been explored, let alone be discovered, established or exploited. We need to network with the best in the world. It is not that we are wanting other people's money so much as we are wanting other people's knowledge, technology, expertise and innovative ideas. New oil will be found where new ideas sprout. And it is in pursuit therefore of networking India with the world that I think our oil diplomacy should be directed. We should prioritise partnerships in India.

Talking about attracting investments into country in the exploration sector, what are your views on the New Exploration Licensing Policy (NELP)? Do we see simultaneous introduction of open acreage policy with NELP 6? How many more NELP rounds are expected? Is the Government prepared for an open acreage system?

It is very encouraging that in NELP V, which we concluded in 2005, we succeeded in attracting as many international offers and partnerships as in the pervious four rounds combined. This has given us the confidence to move from merely offering our selective blocks to the world towards asking them which are the blocks they would like (open acreage). I think 2006 is going to see us making definitive move in the direction of open acreage policy. However, when we introduce the open acreage system, we need to gather a great deal of information which we do not have at the moment (80 per cent of our hydrocarbon potential is yet to be surveyed) and also have to make it quickly accessible to those who want to exploit our resources, discover and produce them for us.

As regards some of the characteristics of NELP 6, when it is announced, all I can say is that there would be larger number of blocks, innovations about categorising these blocks according to geological problems that have to be overcome, incentivising them perhaps in differential manner. The first quarter of 2006 will see NELP 6. Also NELPs 7,8,9,10 would continue. I think it is necessary that we keep it going indefinitely into the future.

But while we keep the NELP system going, I think simultaneously we should be able to allow speculative surveys, work towards national data repository and make available in the public domain the results of geological surveys undertaken by either public or private academic institutes. Perhaps twice a year get people to indicate which are the blocks they would like and then based on the expression of interest to see how we can create conditions of transparency and level playing field so that anyone who is an explorer or a producer could come into any such block. This would also ensure that nobody monopolises an opportunity.

Also, we need to rationalise categorisation of different kinds of reserves. We could move beyond our current classifications to a somewhat more refined system. All these I think would help in presenting India in the global stage, as a country that understands hydrocarbons and that is able to offer its hydrocarbon potential confidently and make an extremely worthy partner.

You have been advocating creation of synergy in energy for which the Krishnamurthy Committee was set up. What is the status of the report? Besides, what are your views on the growing competition within the public sector entities in the sector?

The Krishnamurthy Committee report, in essence, does not share my views. But synergy in terms of merger and acquisitions within public sector undertakings is required. In fact, the Committee does not appear to believe that synergising in terms of assets or in terms of management is a priority requirement for the development of our hydrocarbon sector PSUs. There was a very quick review done of the recommendations, but I was not happy with the internal review because I felt it was not profound enough. So an interim report has been sent to the PMO. I have asked for a more detailed report to be completed by January and in that way we will be able to take the matter forward. I do believe that irrespective of whether we remain with several public sector companies or reduce their numbers, prospects and promise of integration along the hydrocarbon value chain is one thing that will continue to be examined.

The instinctive reaction of all our PSUs to this challenge is that each one of them is attempting to integrate along the value chain. So ONGC, which is an upstream company, wishes to get as far downstream as possible and Indian Oil Corp, which is downstream company, wishes to get as much upstream as possible. GAIL (India), which is essentially supposed to be a transmission company, wants to not only go upstream and downstream but also branch out quite considerably. Hindustan Petroleum has an entity called Prize Petroleum, which is also an attempt at integrating along the value chain.

As far as I can see, Bharat Petroleum is the only one with somewhat moderate ambition of becoming a better refiner. Also, all of them want to be involved in overseas ventures and not just leave it to ONGC Videsh to do it. The question, therefore, arises whether the challenge of integrating along the value chain for the Indian PSUs is best met by each company integrating along the value chain as best as it can or whether the challenge could be more effectively met by integration across the spectrum of our PSUs. This is the question to which I would have expected the Krishnamurthy Committee to respond.

The dip in domestic crude production has been another area of concern and you have been often heard saying so...

I am not saying they are not up to the expectations, but what I am saying is that they are not up to our energy security requirement. Remember, the most significant out-of-the-box thinking by the UPA Government was a section on energy security in the National Common Minimum Programme. India's oil and gas production has not been increasing at a pace commensurate with the requirement of a very fast growing economy. Secondly, the number of significant new discoveries is not keeping pace with the kind of projections of accelerated rate of growth on which the rest of economy is moving. We could either give up or say that whatever energy we require we would access from abroad or while accessing from overseas see how much we could get from the country. It is not enough to argue that it has been a major achievement to keep production in a plateau in the last five years. I agree that it is a considerable achievement, but from the point of view of energy security we need to do very much more.

What is it that you expect the companies to do?

We have to find discoveries, which are forthcoming in a marginal and inadequately verified way in the last few years. We must convert them into major discoveries and this requires willingness to introspect. It is just not enough to pat ourselves on the back, what we need to do is honestly introspect and see what are the new things which we can do, innovatively and imaginatively that will keep the public sector at the forefront of our oil exploration effort and make our effort as successful on the ground as it is proving to our projection to the world. If we could bring in as many company into India in a single year (NELP V) as in last four years, surely we should have enough faith in our hydrocarbons potential and put in our resources financial, managerial, and technical into finding it rather than concentrate excessively on easy option of building the bottom line by diversifying too far downstream, or saying that its out in the world that you find and not in India.

The impact of the spiralling international oil prices on the oil marketing companies (OMCs) has been a cause of concern for the Ministry. How well prepared is the Ministry to tackle similar situations, if they arise, in 2006?

Petroleum pricing is monitored by the Ministry but not decided by it. We now have an Energy Coordination Committee (ECC) which the Prime Minister himself chairs and to whom we made a presentation of the facts as 2005 drew to a close. We have the Rangarajan Committee, where we are not represented but furnished all the information and then there is, of course, the Cabinet Committee on Economic Affairs (CCEA), which is the body where a final decision would be taken. All I can say is that we have been instructed by the Prime Minister to prepare and submit a Cabinet note on the issue. And I dare say that it will be taken up soon by the CCEA. Then you will know the outcome.

So, do we see a realignment of domestic prices with the international prices? Is the Ministry also proposing dual pricing?

Realignment, in a sense, has already taken place. Our domestic prices of petrol and diesel are more or less in alignment with the international prices so under-recoveries on that account have sharply dipped, but LPG (cooking gas) prices are much higher than they ever been before and for kerosene (SKO) too there is a considerable difference.

Also, the spiralling of prices of LPG and SKO have been significantly higher than for international crude, and equally even petrol and diesel have been rising disproportionately on the international market compared to crude. Hence, there are a large number of disequilibria operating in the global hydrocarbons economy, which are getting adjusted. So perhaps 2006 will be less of a roller coaster ride, but then I did say that I hoped that 2005 would be lesser of a roller coaster ride than 2004 and the year as it turns out was different than what I said.