National News
9 AUG 2017

There are no two views that the Modi government has been fortunate as far as crude prices go. The low international crude price coupled with a strengthening rupee certainly supported the new government at the centre. Not only was it considered the sign of a strong economy, but it also gave it a chance to think about several long term reforms in many sectors, including oil and gas. While some of the decisions — especially the plan for merging oil companies — are yet to be fully digested by the sector, the government was able to lift the overall mood in the sector during the first three years.

Among the several new policy decisions that the new government made for the oil and gas sector, the biggest and the most critical one was the proposal to create an oil behemoth by merging oil PSUs. It was in the third year of the government that Finance Minister Arun Jaitely in his 2017 Union Budget announced that his government plans to form Indian oil giants by merging some of the existing players to take on international and domestic competition.

India has 18 state-owned oil and gas companies at present. The top six include large exploration and production players namely ONGC, Oil India, and refining and marketing companies such as IOC, BPCL and HPCL, besides the gas giant GAIL. And the consolidation could happen at various stages and levels going by the synergies.

The industry stakeholders reacted to it with mixed feelings. While many expressed concerns that a blanket merger without differentiating the best fits and synergies may be proved counterproductive, the government had also clarified that it was looking at the option of creating multiple integrated state oil companies, not just one large firm.

Even as the dilemma continues, whether it is a hit or miss for the government, experts still caution about the possible shortcomings if the decisions are taken in haste.

“The proposal certainly demonstrated the government’s well-intended vision of creating a globally competitive Indian energy giant,” said an industry insider rating the government decision positively.

According to Nikunj Dhanuka, MD and CEO of IG Petrochemicals, the petroleum sector in particular was in the forefront of action under this government. “The stage is being set for the Indian state-owned petroleum companies to be merged into one big national petroleum company with economies of scale and the ability to leverage an integrated portfolio of offerings in the international competitive marketplace,” he says. However, the government has not announced any further moves.

The government also recently announced plans to reduce oil imports and thereby significantly save on oil subsidies. The government had made its vision clear about a potential reduction in import dependency by setting an agenda of reducing it to 67 per cent by 2022, the 75th year of Independence, as a tribute to freedom fighters.

While the industry is yet to see any significant capacity building drive to achieve this goal, the government can certainly claim credit for the many strategic acquisitions that some of the oil PSUs initiated in the overseas markets during the last 2-3 years.

The Prime Minister’s ‘give it up’ campaign asking citizens to give up subsidised LPG (domestic cooking gas) connection was a successful move for the new government. The campaign has seen nearly 2.8 lakh consumers surrendering subsidised connections as of now. There are about 15 crore LPG connections in the country at present and the government spends almost Rs 40,000 crore as subsidy on this.

Challenges Ahead

Even as the government could create the much needed momentum in the country’s petroleum sector, the coming years may prove challenging as it is time to appraise the attainment of several of these goals. While achieving the targets such as reaching piped natural gas (PNG) to one crore houses over the next two years and scaling up the capacities for reducing imports to the expected levels may be some of the challenges internally, tackling potential hike in crude prices will pause a bigger external challenge for the government going forward.

“While India will remain a major importer of crude oil, any sharp spikes in the international price could pose bigger challenges,” P. Balasubramanian, an industry veteran and former CFO, BPCL, warns. “The exploration sector being capital intensive, low prices can act as an impediment. Reduction in exploration or development budgets can adversely impact development of new reserves leading to price spikes when demand exceeds available supplies,” he points out.

Hence, it is time for the government to promote domestic exploration as well as encourage Indian companies to acquire exploration and production assets abroad for better energy security.
 

There are no two views that the Modi government has been fortunate as far as crude prices go. The low international crude price coupled with a strengthening rupee certainly supported the new government at the centre. Not only was it considered the sign of a strong economy, but it also gave it a chance to think about several long term reforms in many sectors, including oil and gas. While some of the decisions — especially the plan for merging oil companies — are yet to be fully digested by the sector, the government was able to lift the overall mood in the sector during the first three years.

Among the several new policy decisions that the new government made for the oil and gas sector, the biggest and the most critical one was the proposal to create an oil behemoth by merging oil PSUs. It was in the third year of the government that Finance Minister Arun Jaitely in his 2017 Union Budget announced that his government plans to form Indian oil giants by merging some of the existing players to take on international and domestic competition.

India has 18 state-owned oil and gas companies at present. The top six include large exploration and production players namely ONGC, Oil India, and refining and marketing companies such as IOC, BPCL and HPCL, besides the gas giant GAIL. And the consolidation could happen at various stages and levels going by the synergies.

The industry stakeholders reacted to it with mixed feelings. While many expressed concerns that a blanket merger without differentiating the best fits and synergies may be proved counterproductive, the government had also clarified that it was looking at the option of creating multiple integrated state oil companies, not just one large firm.

Even as the dilemma continues, whether it is a hit or miss for the government, experts still caution about the possible shortcomings if the decisions are taken in haste.

“The proposal certainly demonstrated the government’s well-intended vision of creating a globally competitive Indian energy giant,” said an industry insider rating the government decision positively.

According to Nikunj Dhanuka, MD and CEO of IG Petrochemicals, the petroleum sector in particular was in the forefront of action under this government. “The stage is being set for the Indian state-owned petroleum companies to be merged into one big national petroleum company with economies of scale and the ability to leverage an integrated portfolio of offerings in the international competitive marketplace,” he says. However, the government has not announced any further moves.

The government also recently announced plans to reduce oil imports and thereby significantly save on oil subsidies. The government had made its vision clear about a potential reduction in import dependency by setting an agenda of reducing it to 67 per cent by 2022, the 75th year of Independence, as a tribute to freedom fighters.

While the industry is yet to see any significant capacity building drive to achieve this goal, the government can certainly claim credit for the many strategic acquisitions that some of the oil PSUs initiated in the overseas markets during the last 2-3 years.

The Prime Minister’s ‘give it up’ campaign asking citizens to give up subsidised LPG (domestic cooking gas) connection was a successful move for the new government. The campaign has seen nearly 2.8 lakh consumers surrendering subsidised connections as of now. There are about 15 crore LPG connections in the country at present and the government spends almost Rs 40,000 crore as subsidy on this.

Challenges Ahead

Even as the government could create the much needed momentum in the country’s petroleum sector, the coming years may prove challenging as it is time to appraise the attainment of several of these goals. While achieving the targets such as reaching piped natural gas (PNG) to one crore houses over the next two years and scaling up the capacities for reducing imports to the expected levels may be some of the challenges internally, tackling potential hike in crude prices will pause a bigger external challenge for the government going forward.

“While India will remain a major importer of crude oil, any sharp spikes in the international price could pose bigger challenges,” P. Balasubramanian, an industry veteran and former CFO, BPCL, warns. “The exploration sector being capital intensive, low prices can act as an impediment. Reduction in exploration or development budgets can adversely impact development of new reserves leading to price spikes when demand exceeds available supplies,” he points out.

Hence, it is time for the government to promote domestic exploration as well as encourage Indian companies to acquire exploration and production assets abroad for better energy security.
 

There are no two views that the Modi government has been fortunate as far as crude prices go. The low international crude price coupled with a strengthening rupee certainly supported the new government at the centre. Not only was it considered the sign of a strong economy, but it also gave it a chance to think about several long term reforms in many sectors, including oil and gas. While some of the decisions — especially the plan for merging oil companies — are yet to be fully digested by the sector, the government was able to lift the overall mood in the sector during the first three years.

Among the several new policy decisions that the new government made for the oil and gas sector, the biggest and the most critical one was the proposal to create an oil behemoth by merging oil PSUs. It was in the third year of the government that Finance Minister Arun Jaitely in his 2017 Union Budget announced that his government plans to form Indian oil giants by merging some of the existing players to take on international and domestic competition.

India has 18 state-owned oil and gas companies at present. The top six include large exploration and production players namely ONGC, Oil India, and refining and marketing companies such as IOC, BPCL and HPCL, besides the gas giant GAIL. And the consolidation could happen at various stages and levels going by the synergies.

The industry stakeholders reacted to it with mixed feelings. While many expressed concerns that a blanket merger without differentiating the best fits and synergies may be proved counterproductive, the government had also clarified that it was looking at the option of creating multiple integrated state oil companies, not just one large firm.

Even as the dilemma continues, whether it is a hit or miss for the government, experts still caution about the possible shortcomings if the decisions are taken in haste.

“The proposal certainly demonstrated the government’s well-intended vision of creating a globally competitive Indian energy giant,” said an industry insider rating the government decision positively.

According to Nikunj Dhanuka, MD and CEO of IG Petrochemicals, the petroleum sector in particular was in the forefront of action under this government. “The stage is being set for the Indian state-owned petroleum companies to be merged into one big national petroleum company with economies of scale and the ability to leverage an integrated portfolio of offerings in the international competitive marketplace,” he says. However, the government has not announced any further moves.

The government also recently announced plans to reduce oil imports and thereby significantly save on oil subsidies. The government had made its vision clear about a potential reduction in import dependency by setting an agenda of reducing it to 67 per cent by 2022, the 75th year of Independence, as a tribute to freedom fighters.

While the industry is yet to see any significant capacity building drive to achieve this goal, the government can certainly claim credit for the many strategic acquisitions that some of the oil PSUs initiated in the overseas markets during the last 2-3 years.

The Prime Minister’s ‘give it up’ campaign asking citizens to give up subsidised LPG (domestic cooking gas) connection was a successful move for the new government. The campaign has seen nearly 2.8 lakh consumers surrendering subsidised connections as of now. There are about 15 crore LPG connections in the country at present and the government spends almost Rs 40,000 crore as subsidy on this.

Challenges Ahead

Even as the government could create the much needed momentum in the country’s petroleum sector, the coming years may prove challenging as it is time to appraise the attainment of several of these goals. While achieving the targets such as reaching piped natural gas (PNG) to one crore houses over the next two years and scaling up the capacities for reducing imports to the expected levels may be some of the challenges internally, tackling potential hike in crude prices will pause a bigger external challenge for the government going forward.

“While India will remain a major importer of crude oil, any sharp spikes in the international price could pose bigger challenges,” P. Balasubramanian, an industry veteran and former CFO, BPCL, warns. “The exploration sector being capital intensive, low prices can act as an impediment. Reduction in exploration or development budgets can adversely impact development of new reserves leading to price spikes when demand exceeds available supplies,” he points out.

Hence, it is time for the government to promote domestic exploration as well as encourage Indian companies to acquire exploration and production assets abroad for better energy security.