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Expert Speaks | July 2016

India is getting recognition in international market

Dharmendra Pradhan, Minister of State (I/C) for Petroleum and Natural Gas, says that ease of doing business, India getting recognition in the international market and domestically reaching affordable fuel to the last mile, are his top three achievements.

On the top three changes made in the ministry over two years
We have together brought in a new confidence in the ministry. For example, once, I happened to meet the E&P sector stakeholders. A person said that he was one of the beneficiaries from us. That is our biggest achievement. First of all, in PSEs the fundamental feature is the management committee (MC). Representatives of different stakeholders, DGH and the ministry, all sit together in MC and prepare plans on how to take things forward. I can discuss these things backed by statistics, they are all in public domain about the years 2011, 2012, 2013 and the initial days of 2014. Every year, MC has to sit two-three times relating to a particular project. But the committee had never sat on some projects for two-four years duration in those days. The stakeholder said, ´Sir, this time, in fiscal 2014-15, you, your ministry and your officials have called for meetings of the committee for over 100 times and resolved several of our problems. I feel that we have benefitted a lot from them. Today, we could see some kind of openness.´ Here is my stakeholder. He should not be allowed to face any problem, we should not look at him like a criminal or a murderer. In ONGC, which is a PSE, its MC meetings were not happening. Through these measures we tried to promote ease of doing business in PSEs.

Secondly, I would like to give an example on energy security. Between 2013 and 2016 there was no marked change in the Russian situation, in terms of challenges it is facing. In 2012-13, OVL has bought Imperial oil field in Russia. In oil industry, there is a thumb rule. If you invest one billion in Russia, one million metric ton (MMT) of oil or oil equivalents should be available to you. Investment in Imperial was about $2 billion, but oil equivalent of 0.5 MMT only is available to us, against 2 MMT. Recently, OVL has signed another very successful deal, with an investment of $1.27 billion, of which about 4 MMT is available to us. But still I do not feel that it is an economic deal. The emerging geopolitical situation under the leadership of honourable Prime Minister Narendra Modi is the reason for that. In those days, Imperial deal was also an economic deal, as it is today. But today´s deal and its pricing at Vankor kind of field is not a usual thing. A few days back, PM visited Qatar. We all know that renegotiating a long-term contract is not so natural a thing. Usually, we have to honour them, and sometimes we also get benefit out of that. Under the long term contract we are getting gas at the price of $14 per unit. Though it was not ready for re-negotiation to start with, but later it has agreed to the new pricing of $6 per MMBTU, at which the gas is arriving now.

Thirdly, very recently the honourable Prime Minister has made a comment in Balliya about our sector. The department which was at one time was known to be a department for the corporate sector, that department is now reaching out fuel to the poor and thus a department of the poor as the poor are their stakeholders now. He was talking about the emerging feeling, though this was happening earlier too, and though we are the people to claim such things. I think these three things are benefitting the stakeholders - ease of doing business, India getting recognition in the international market and domestically reaching out affordable fuel to the last mile. These are the things we have done with humility.

On building strategic reserves
The first phase of strategy initiated, and we have completed three caverns. We have filled up the Vizag (Visakhapanam in Andhra Pradesh) cavern through government budget, Mangalore cavern is ready, at any moment we can fill that up. We are talking to some of the oil producing countries and some of the international banks, we are discussing with them for some new kind of business model and Padur (a village in Udupi district of Karnataka) cavern is ready. All three caverns will be filled up...one is filled up, the other two will be filled up very soon. As for the second phase, the government will agree to go for second phase strategic reserve. We are on the job, and very soon, will initiate the preliminary work for the second phase of cavern building in this financial year itself.

On why auction of 67 Discovered Small Fields to small players
I had visited Rajahmundry a couple of days ago. ONGC had also bid out some of its own isolated small wells. It had come up with a service contract model, and it was a success. Coming to this, we have made 46 clusters out of these marginal or small fields, and are bidding them out. Now, this too is a model, this comes with its own success story as well. Small fields have been bid out in the past, especially Gujarat´s on-shore and off-shore fields, and some fields in Andhra, such success stories are in front of us. There is a primary reason, a well-thought strategy behind starting this. We have to usher in technology, innovation, new energy and new management skills. We should not misunderstand that big and medium-sized players are the answer. Till date, in our country, there is a substantial margin between the costs of production of small players and large players like ONGC. And hence, let us not underestimate and discourage them. We are very much focussed, we have to create a new set of entrepreneurs through this initiative.

On why no revenue sharing with ONGC & OIL, who discovered them
I have clarified in my speech that there would be no signature bonus kind of a thing. The total book value of these fields is around Rs 100 crore; ONGC and OIL will get the remainder asset price in their books. The discovered period to date of these fields range from 40 years to 5-6 years. There was only one way forward for ONGC and us - either we keep showing off that we have these assets and enjoy the mental feeling that all these resources are with us or monetise them. After all, these fields belong to the government, and giving them out for indefinite periodà and it isn´t ONGC or OIL´s fault either, the fiscal models that were available at that time were not viable for ONGC and OIL to monetise. And now, even ONGC, OIL and other government petroleum companies can also bid in through this process.

On how small fields will help cut down on imports...
In March 2015, Prime Minister gave us this target - He suggested that we have to try to reduce 10 per cent import dependency by 2022. Ministry has started its work and all the stakeholders within Ministry, different PSUs, different AMP companies, are on the job. Now, we are confident after one year. Recently, we have made an internal assessment in the ministry. I can specifically answer to three points: Now we have taken up some reforms. Discovered small field bid out is a step... New price mechanism for deep water, ultra deep water, HT and HP is another step. And the progressive policy on bill is another step. And a lot more small reforms of existing PSUs, like 9-point reform, DST reform, and now, recently we had a very fruitful discussion for suggestions with all the stakeholders who are working in pre-NELP and NELP PSEs. We are going through the next round of minor reforms, which will bring in clarity, speed up to oil production process. Through reforms, we are hopeful, oil and gas production will increase. There is a geological nature of the existing oil fields, which will be on a declining trend and simultaneously, we have to augment production, so there will be continuity of an upward journey. This way, the 10 per cent target will be achieved, production augmentation alone will cover 5 per cent of that target, and the remaining, we will be able to achieve through various reforms.

(These are edited excerpts from the Minister´s press address held after launching the Roadshow for Auction of 67 Discovered Small Fields in Mumbai on June 6, 2016)


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