Reforms in hydrocarbons sector

Systemic restructuring needed to ensure synergy in PSU activities

Reforms in hydrocarbons sector

The government needs to look at ways and means to put a check on the country?s energy bills. One option is to restructure existing oil sector PSUs into smaller and nimbler players who could focus on one core area each and avoid encroaching upon another PSU?s turf.

Oil & gas contributes 43% of the country?s energy requirement and around 15% to its GDP. Supply of oil has increased from 106.53 million tonne in the year 2000 to 223 mt in 2012-13, and natural gas from 69.65 million metric standard cubic metre per day to around 136 mmscmd, correspondingly. These figures represent constrained demand, and the real demand could be higher.

The import of oil has increased from 74 million tonnes in 2000 to 185 million tonnes today, and almost 85% of demand is met from import. Rising crude prices and the weakening of the Indian currency in the last 10-15 years have put a huge burden on the economy, of about $185 bn for oil and about $5 bn for gas, and together to the extent of 8.6% of the GDP and 49.7% of export earnings. India?s dependence on import is likely to increase substantially in the years to come. Therefore, immediate reform in the hydrocarbon sector is required before it becomes too late.

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The decay of old oil & gas fields of ONGC, with no new promises of substantial availability in the future, is a matter of concern. Gas availability has come down from 62.30 mmscmd in the year 2000 to 50.70 today. Gas availability from Oil India is also on the decline from 7.8 mmscmd to 5.70. Crude production from ONGC has come down from 29 .87 million metric tonne (mmt) to 25.72. Crude production from Oil India has remained static around 3.5 mmt. Despite huge investment in exploration, there has not been any commensurate outcome, calling for aggressive steps towards exploration and production of oil and gas.

The New Exploration & Licensing Policy (NELP) and the successive bidding rounds have reflected the lack of interest of foreign investors. The number of bidders went down from 136 in sixth round to 96 (seventh) and 45 (eight) and as low as 37 in the ninth round. Corresponding number of blocks awarded were 52, 41, 32 and 19. Investment which was over R10,000 crore in the sixth round came down to meager R400 crore in the eighth round. The situation is unlikely to improve until suitable reforms are initiated.

Systemic restructuring

The overweight of ONGC is leading to governance problems. It would not be a bad idea to do a systems restructuring of ONGC for focused attention. There could be various models for its restructuring viz. making a holding company with separate onshore and offshore oil and gas production, based on zonal assets and a separate company for liquid products other than oil & gas. Oil marketing companies (IOC, HPCL, BPCL) could continue to be sole transporters and marketers of liquid petroleum.

Similarly, Gail (India) Ltd could hive out transportation and marketing of natural gas through two separate companies. Gail?s other activities viz. petrochemicals, LPG and liquid products, could be also hived off as a separate company. Further the entire LNG business and its marketing by Gail could be through a separate company.

There should not be intermingling of one company with the other, as currently seen when upstream, midstream and downstream sectors have diluted the core activities by encroaching upon other areas. The need is for collaboration, cooperation and competition (3C) instead of confrontation and competition (2C). These models, of course, require extensive discussion before a decision is taken.

The author is director general, Scope and former CMD, Gail.

Views are personal


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First published on: 02-07-2014 at 01:30 IST