The year saw several policies that looked good when announced but did not enthuse market sentiments, due to the slow pace of implementation by the new government.

Promises of creating a conducive atmosphere for private investment and providing a competitive environment did not speed up investments in the petroleum sector.

However, initiatives like dismantling of administered pricing mechanism (APM), private sector joint ventures, formation of a new company with consortium of public sector utilities and clearance of New Exploration Licensing Policy (NELP) were announced.

Heavily dependent on imports of petroleum products, India brought in about 18.6 million metric tonnes (MMT) of oil products in 1997-98 compared to 3.8 MMT during 1985-86 due t a rapid increase in consumption, andstagnation in refining capacity.

The government estimates projected demand to be about 700 million barrels by 2000 and the total investment required for meeting this demand in the next 10-15 years in estimated to be around $100 to 150 billion.

To bridge this widening gap and to meet the growing demand for petroleum products, the government, on April 1, initiated the process of dismantling of the APM to bring the oil companies into a competitive market.

Under the programme, tariff structure for crude oil and petroleum products would be rationalised in phases by 2001-02, and the refineries would be free to decide their product prices except for LPG, motor spirit, kerosene oil, aviation fuel and diesel.

The prices of these five products till the year 2001-02 would be fixed by the government on import parity for the existing refineries.

This was aimed to gear up the public sector oil companies to face international competition, as their pricing of crude oil and petroleum products would get aligned tointernational prices.

The structural changes in the country's petroleum sector would pose stiff challenges to the public sector companies which have so far dominated the domestic oil industry.

The impact of global market forces will be most direct up in the country's downstream segments, owing to the drop in demand for petroleum products and the drastically low prices.

With margins on refining on the decline globally, and prospects of huge capacity addition in Asia promising to worse the regional situation, a mood of uncertainty gripped the many proposed refinery projects in the country.

First it was Saudi-Aramco which pulled out of the proposed nine million tonnes per annum refinery of Hindustan Petroleum (HPCL) at Bhatinda (Punjab). Then shell pulled out of its commitment with Bharat Petroluem for a seven million tonne refinery at Allahabad in Uttar Pradesh.

other projects like the BPCL-Oman refinery at Bina and the Indian Oil-Kuwait petroleum one at Paradip in Orissa have also been making slowprogress. The 25 million tonnes reliance refinery at Jamnagar and the Essar refinery are the other downstream projects coming up in the country.

Apart from this, IOC has proposed a refinery at Nagapattinam in Tamil Nadu while other public sector refineries are planning expansion. Industry experts have been questioning such large scale capacity addition which, they warn, would create a product glut.

The other major development of the year has been the ground broken for the new exploration licensing policy (NELP) which would open up the country's upstream sector for private participation.

The revised foreign investment norms under the NELP would permit 100 per cent foreign equity in unincorporated joint ventures and consortia and the exploration licences would be distributed on the basis of competitive bidding.

The NELP would offer 48 new exploration blocks, onshore as well as offshore, and the raodshows for the blocks are proposed to be held in Houston, Singapore, London and Perth during the secondweek of January 1999.

The upstream policy has recently run into rough weather following differences between the finance and petroleum ministries over the petroleum tax code (PTC), which is the fiscal framework in which the liberalised regime would function.

Besides, the time the government has chosen to announce the new policy leaves a lot of scope for apprehension. The oil and gas industry is passing through a difficult phase in the face of the severe demand crunch and the rock bottom prices.

The worldwide shakeout in the industry reflects grim trends and multinational corporations would be preoccupied with survival strategies rather than business expansion in upstream sector that requires a lot of high-risk funding.

Perhaps one segment of the which has been most consistently having bright prospects is of natural gas, especially liquified natural gas (LNG). With huge prospects of capacity addition in the power sector, India is poised to become the largest LNG market in the world.

As of now, noless than 17 multinationals are planning LNG-related projects here. The four state-owned oil companies have joined forces to create a company, Petronet LNG, for the sole purpose of doing LNG business.

The year 1998 witnessed a lot of activity on the LNG front with Petronet, British Gas, Tidco and total among other showing visible progress with their LNG import and distribution ventures.

India's geographical position amidst the two LNG production centres of the world - the middle east and the far east - gives it a unique cost and operational advantages as an emerging LNG market.

As a direct fallout of refining capacity augmentation as well as the growth of the gas business, India is going to need an equally enhanced supply infrastructure. In other words, more pipelines.

Petronet India, the pipeline holding company formed with equity participation of the national oil companies has proposed several major pipeline projects in different parts of the country in a bid to provide a much needed transportationnetwork to various refineries in the country.

The government is even considering opening up of the pipeline sector to private players. Private sector giants like reliance and Essar have already made major proposals to the centre for constructing cross-country petroleum pipelines.

The oil industry in India which has been operating under the controlled regime for over four decades, is currently on the threshold of a major structural metamorphosis.

The occasion calls for a discreet mix of policies and strong public-private partnerships to meet the challenges and explore the opportunities of the new markets.