Chief Executive Officer,
Essar Energy, Sushil Maroo,
speaks to Deepak Sahu
about the problems being
faced by private refineries,
hurdles in growth, the role
of government in improving
sentiment and the overall
prospects of investment in the
sector. Excerpts.
Which are the most serious policy
challenges India must overcome
in energy sector?
In my view, not getting timely statutory
approvals is the biggest challenge.
There are multitude of clearances
required, at times more than once from
the same government department, for
the same project. This results in crucial
management bandwidth as well as time
being wasted. If the entire approval
process could be streamlined into a
time-bound mechanism, it would aid the
industry significantly.
Other challenges facing the sector
are acute shortage of raw material – coal
or gas, high interest rates, challenges
associated with land acquisition, health
of state electricity boards (SEBs) and
changes in sovereign laws of countries
like Indonesia which have led to prices
of imported coal going up.
What will be Essar Energy’
strategy to capitalize on India’s
growing requirement for energy?
Our strategy remains clear – create a
world-class, low-cost integrated energy
company, positioned to capitalise
on India’s rapidly growing energy
demand. We have a diverse portfolio
of 15 blocks and fields in the various
stages of exploration and production
of oil and gas in India, Indonesia,
Madagascar, Nigeria and Vietnam.
Total reserves and resources across
these blocks is 2,034 mmboe.
In midstream, we have a 20 mmtpa
refinery capacity at Vadinar in Gujarat,
which represents about 10 per cent of
India’s refinery capacity. It is a state-ofthe-
art facility, capable of processing a
very high proportion of heavy and ultra
heavy crude and produces Euto IV /
V grade products. We also have a 14
mmtpa refinery at Stanlow, UK, which
meets about 15 per cent of the country’s
transport fuel requirement.
In marketing, we have a network of
1400 retail outlets, with another 200 in
various stages of commissioning. Out
retail network is stated to rise to about
3000 in the next three-four years.
On the power front, we have about
4,000 mw capacity, which will rise to
about 5000 mw by this year end. All
these make us a significant player in
India’s energy sector. Our corporate
strategy is to optimize performance
of all existing assets, deliver growth
through a variety of power and oil
and gas projects and leverage skills
and Indian asset base to identify
growth opportunities.
What potential is there for both
domestic and foreign
private sector
investment to
help meet
India’s
growing
energy
demand?
India
can attract
significant
foreign as well as
private investment across the energy
value chain. We import about 80 per
cent of our crude oil requirement and
hence significant investments need to be
made in the E&P sector for our energy
security. We need policies which will
attract investors, both global as well as
domestic, to the sector.
In refinery, India is already a major
exporter of finished products and
can continue to remain a significant
player in this field. Already we have
several marque foreign investors in our
refinery sector and given the capital intensive nature of the business, we will
continue to attract financial and strategic
investors in the sector.
India lags behind other developing
economies in terms of providing
reliable power to a large section of its
population. We have a severe supply
deficit to even those we have been able
to connect to the grid. Hence we see
long-term steady growth prospect in
the power sector. However, we need
to have enabling and conducing policy
environment for investors to come and
stay invested. As of now, the power
sector is facing severe handicap in
terms of raw material supply issues and
delays in securing various approvals.
Once these issues are addressed, then
this sector can attract significant capital,
which will aid all other sectors.
What are the respective roles
of the Central government
and states in establishing and
carrying out energy policy and
are they delivering as per the
expectations?
The government’s primary role is to
ensure level playing field for all players so that there is a healthy competition,
which will ultimately benefit the end
consumer. Its role is also to act as an
enabler or a catalyst by formulating
policies and practices which aid
the industry.
For instance, market forces must be
allowed for price discovery instead of
government intervention. With adequate
protection mechanism for vulnerable sections of society, we must have price
parity of products like diesel with
international markets. This also helps in
demand management, prevents slippage,
and encourages efficiency. Case in
point is diesel regulation, which if
implemented, will help control subsidy
burden (and resulting inflation) and also
open the sector to competition.
We were encouraged to see the
government taking graded price hike of
Rs 0.50 per litre for diesel for over 12
months. However, we are disappointed
that this monthly price hike has now
been stopped. Private sector has
invested significantly in setting up a
nation-wide retail network which is now
idling due to the differential of diesel
prices between our pumps and those of
PSU players.
What kind of challenges do you
continue to face while doing
business in India and is the
slow progress with regulatory
approvals hurting?
Getting timely approvals is a challenge
and this has hurt India’s standing in the
international market as an investment
destination. While we are convinced
about the long-term demand and are
committed to the market, not getting
required approvals and clearances has
impacted our business. For instance,
we have a situation where we have
commissioned a power plant with
the promise that the linked coal mine
will be also operational. However the
reality is that the coal block is yet to
be operational because of approval
delays, putting a huge strain on us in
terms of securing raw material for the
plant’s operation.
With oil and gas consumption
staying strong and government
also removing subsidies, how will
it help private sector retailers
including Essar Energy?
We are bullish on the country’s oil and
gas sector. In the medium to long term, India’s consumption story is expected
to remain strong and we foresee India
becoming a net importer of petro
products over the next three-five years.
With subsidies being removed, we
see our retail network coming back
on stream by being able to sell diesel,
which accounts for about 80 per cent
of auto fuel. At present, due to lack of
level playing field, the private players
are not eligible for any subsidy for
selling diesel below market-linked
price, while the PSUs are compensated
by the government for doing so. Once
deregulated, our network of 1,600
retail network (1,400 operational
and 200 under commissioning) will
be able to compete on their own for
market share and will add a great
value to the organisation.
What according to you should
be the new government’s move
to attain long-term economic
growth?
The government should, along with
focusing on ease of doing business, also
put necessary efforts to taming overall
inflation to attain and support long-term
economic growth. Also essential are
ease and speed of getting regulatory approvals, lower interest rates, level
playing field in the various industries
and the right environment to conduct
business, which would go a long way in
improving investors’ confidence.
With refining margins under
severe pressure and market
volatility also creating an impact,
how challenging will it be for you
and how is the company planning
to come out of this situation?
As far as Essar Energy is concerned,
both our refineries, Vadinar and
Stanlow, enjoy significant premium
over benchmark refinery margins. For
instance, Vadinar, post completion of its
expansion and optimisation, gets $7-8/
bbl over the benchmark IEA margins.
Similarly, the Stanlow refinery’s GRMs
are about $2-3/bbl premium over NW
European margins. Hence even when
general refinery margins are depressed,
our refineries will continue to do better
than the industry.
How much have you paid to the
Gujarat government till date
in lieu of sales tax liability of
$1171 million?
All I would like to say on this is that we
continue to meet our sales tax obligation
dues to the state government as per the
schedule set by the Supreme Court.
Do you think the worst is over for
power sector in India?
If we compare the last three years with
the last six months or so, it gives us a lot
of comfort to see the government getting
serious about addressing industry’s
issues. We see several important
decisions being taken (e.g. granting
clearance to several coal blocks) which
gives us a lot of comfort and reaffirms
our commitment to the sector.
How has the company been
doing on power front? What is
the current capacity and which
all are the projects which will be
completed this year?
We have a total installed generation
capacity of 3,910 mw with seven
operational power plants in India
and one operational power plant in
Algoma, Canada. We also have access
to approximately 500 mmt of coal
resources across seven coal blocks in
India and overseas. This year we plan to
add 600 mw unit II of Mahan I, 270 mw
of Hazira II and 120 mw of Paradip.