With 138 MMTPA refining capacity, we are now self sufficient in making liquid petroleum products available to the consumers. In the first quarter of 2006-07, in value terms, export of petroleum products has emerged as the number one item of India’s export replacing jems and jewellery from its top position.

In 2006-2007, we expect production in the additional 6 MMTPA capacity at IOC Panipat refinery and 3.23 MMTPA capacity addition in the two Hindustan Petroleum refineries at Vizag and Mumbai. We expect that at the beginning of the Eleventh Five year Plan, which is just a few months away, refining capacity could even become 148.97 MMTPA, in which the contribution of the public sector refineries would be 105.47 MMTPA, that is, about 70%. In the Eleventh Plan, there is a target of adding about 86 MMTPA capacity in the country by 2011-12. The total refining capacity would then become 234.96 MMTPA.

With all these additions in capacity for refining, the core issue of locating raw material remains. India is 28% self sufficient as of now. Import dependency for crude oil will go up steadily. For meeting energy security, as a strategy, India needs to aggressively look for acreages abroad, as well as gear up exploration activities in India.

An essential component of energy security is the efficacy of the liberal policy adopted for inviting private sector players in the oil and natural gas sector. NELP provides that level playing field for all players in the upstream sector. Under New Exploration Licensing Policy (NELP) introduced in 1999, already 19 discoveries have been made. As a result of sustained exploration efforts, oil and gas have been struck in Rajasthan on land, Krishna Godavari deep water and offshore block in Bay of Bengal. In the first five rounds of NELP, expected investment is of the order of US $ 5 Billion. Oil and Oil-Equivalent Gas in place reserve accretion under NELP is approximately 510 million metric tonnes from 16 discoveries. In the context of high oil prices and volatility in international oil markets, these discoveries of oil and gas are contributing to more indigenous production, and are enhancing our self sufficiency.

The Sixth Round of NELP was launched on 23 February 2006 by offering 55 exploration blocks covering an area of 3.52 lakh square KM. A total of 66 companies including 35 foreign companies and 31 Indian companies have bid either on their own or as consortia for 52 blocks, as three deepwater blocks did not receive any bids. The bids are being evaluated at present, and I expect that the contracts with the successful bidders will be signed by January, 2007.

Coal bed methane (CBM) has emerged as another alternative viable source of gas. In the first and second rounds of CBM Policy, 16 exploration blocks were awarded to NOC and private companies by the Ministry of Petroleum & Natural Gas. The exploratory efforts carried out by the operators have resulted in establishment of 6 trillion cubic feet (TCF) of CBM gas in 4 CBM Blocks. Production from these blocks is expected in 2007-2008. Under the third round, in 2006, 10 blocks were offered in six States. The bids have been already awarded.

Along with intensifying exploration efforts in India, the Indian Oil Companies are aggressively following a policy of gaining global properties. ONGC Videsh Limited (OVL) today has presence in 15 countries, including in Russia, Sudan, Colombia and Brazil. OVL has a target to acquire 20 MMTPA of oil and oil equivalent gas production by 2020 but efforts are being made to achieve it even earlier. OVL produced about 6.62 Million Metric Tonnes (MMT) of oil and equivalent gas during the year 2005-06 from its assets abroad in Sudan, Vietnam and Russia. OIL-IOC consortia have acquired blocks in Libya and have signed farm-in agreements for share in blocks in Gabon and Nigeria. GAIL has acquired interests in an offshore block in Myanmar.

Natural gas is fast emerging as the clean fuel of choice. Use of natural gas for the automotive sector has gained importance for reducing chronic vehicular pollution in big cities. Today there is city gas distribution infrastructure in position in 10 cities of India including Delhi and Mumbai. The Ministry to currently drawing up a comprehensive policy to encourage investment in building infrastructure to provide Piped Natural Gas to 1 crore urban households in cities and towns within the next three years.

An important and sensitive issue is the issue of volatility in international petroleum prices and the extent to which we can insulate the Indian economy from such volatility. As stated in the National Common Minimum Programme, we are duty bound to protect the vulnerable sections of the society and the common man from the international prices volatility. Simultaneously, we have to ensure that our public sector companies do not become financially unviable therefore, we have adopted a policy of an equitable burden sharing between Government, upstream oil companies, oil marketing companies and the consumers.

In recognition that the petroleum sector accounts for both imports and exports, as recommended by the Rangarajan Committee, our Government has now adopted application of ‘trade parity’ instead of import parity for pricing of petrol & diesel. Last year the total under recovery on the 4 petroleum products namely petrol, diesel, kerosene and LPG was Rs. 39,594 crores. The largest component in this was the under recovery in kerosene of Rs. 14,384 crores followed by that on diesel of Rs. 12,284 crores and in LPG of Rs. 10,266 crores.

This year in June the expected under reovery is Rs. 73,512 crores with diesel amounting for Rs. 37,940 crores and kerosene amounting for Rs. 19,403 crores. In order to keep a check on inflation, the domestic prices of petroleum products like petrol and diesel have not been raised to their international levels. 84% of the additional burden has been borne by the Government and only marginal burden has been passed on to the consumers. For kerosene and LPG, which are common man’s household fuel, the Government and the oil companies between them, are absorbing the burden of the much higher international price. The PDS Kerosene which is being supplied at Rs. 9/- per litre is perhaps one of the lowest prices in any non-oil producing nation.

With so much difference in price of fuel sold below their economic price for benefit of the common man, possibility of adulteration of the costlier fuel by the cheaper fuel is a serious area of concern. The coordinated and concerted drive against adulteration has three components:

(a) Public awareness - in which you all can play an important role.

(b) Use of new technology like IT, Global Positioning System (GPS), the recently introduced chemical marker, smart card etc.

(c) Strict enforcement measures for which we have actively solicited state governments intervention. Third party certification and NGO involvement is also being emphasized.

Ministry is anxious to provide the right signals for promotion of alternative sources of energy to supplement liquid fossil fuel. On 20.9.2006, we have notified that with effect from 1 November 2006, subject to commercial viability, 5 per cent ethanol blended petrol will be sold countrywide, except the North East, J&K, Lakshadweep and Andaman & Nicobar Islands. This measure would help the farmers with better returns and also supplement the availability of petroleum products in the country. 55 crore litre requirement of ethanol for the present year is likely to be sourced through the open tender which is under process.

Last year, the Ministry of Petroleum and Natural Gas had announced a bio-diesel purchase policy which came into effect from 1.1.2006. The policy prescribes that the oil marketing companies in the public sector shall purchase bio-diesel of prescribed BIS specification from registered authorised suppliers through 20 purchase centres at a uniform price, which can be reviewed by the oil companies every six months with due consideration to market conditions. In accordance with this policy, present procurement price is Rs 26.50 per litre (from Rs. 25 per litre fixed last year), delivered at purchase locations (inclusive of all taxes), and this price will be valid till December 2006.

We are also very serious about arms length regulation of the petroleum and natural gas sector. A number of relevant rules under the Petroleum and Natural Gas Regulatory Board Act, 2006 dated 3.4.2006 have been already notified so that the Board, once constituted, may start its activities as soon as possible. A Search Committee is working on identifying suitable personnel for the Board and it is expected to be in position by December 2006.

The forthcoming agenda of Ministry inter alia is :

· To formulate a suitable gas pipeline policy.

· Frame parameters for a possible open acreage exploration policy.

· Fine-tune delivery mechanism for the fuel meant for the vulnerable sections of society so that there is minimum leakage.

· Ensuring abundant availability of kerosene and LPG.

·  Technological upgradation in our PSUs.

· New investments abroad.

· Ensuring transparency and good governance."

As usual oil companies and customers have to wait and watch the crude oil price movement.