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Dr U D Choubey, Director General, SCOPE

24 Jan 2018

In an attempt to keep Infraline Energys’ readers abreast with the key issues and challenges engulfing the sector, Infraline Energy tries to bring forth the opinion of key personnel whose decisions and opinion play a vital role in shaping the sector. Please find below excerpts from the interview that Infraline Energy conducted:

Determined to bring down India’s dependence on oil imports by 10% by 2022, the Narendra Modi government has tried to revive investor sentiment in the hydrocarbon sector through a slew of reform measures including shift from production sharing contract to revenue-sharing model. It has also initiated consolidation among oil PSUs to create giants that could take on competition from multinational players. Government has also targeted to increase share of natural gas in primary energy consumption to 15% from 6.5%. However, challenges are formidable as India’s energy consumption growth remains strong, entailing growing dependence on imports. In an interview to Infraline Plus,Dr U D Choubey, Director General, SCOPE(Standing Conference of Public Enterprises) and former GAIL chairman and managing director, discusses possible ways to address country’s energy security challenges. Excerpts:

How do you see proposed merger of HPCL & ONGC? Do you think it will bring value to ONGC or will it just serve the purpose of filling government’s disinvestment kitty and help it meet its fiscal deficit target?

In order to increase international competitiveness of the oil PSUs, synergising the operations of HPCL and ONGC is a positive move. A correct implementation of the merger is likely to position the company better in the global landscape. The proposed merger would also help to align the core competencies of both the companies into one and enhance their financial powers but at the same time it will face the challenge with respect to human aspects i.e. managing integration of employees and overall administration.

Along with value addition at company level, the merger is likely to financially benefit the government as it would generate substantial amount through the consolidation. However, as long as the intent is to strengthen the oil PSEs in order to secure the energy needs of the country, the same should be seen in a positive light. All this optimism also calls for suitable structural reorganization of the merged company failing which it may be difficult to bear the burden of the heavy structure base and weight must be complementary and supplementary to each other.

Would you suggest a similar merger between other Oil PSUs?

Union Budget 2017-18 has spelt out the government’s intent to create public sector oil major in order to match the performance of international and domestic oil companies. Undoubtedly, the government foresees benefits accruing from such consolidations as it will help in economies of scale, operational efficiency, better profits/ pricing and overall an improved penetration in the global market. Hence, as per media reports more synergies are being contemplated by the government. But it is too early for me to comment on similar mergers between other oil PSUs and therefore, we need to adopt wait ‘n’ watch policy and see the pros and cons of the merger under consideration. But at the same time, it would not be a bad idea to form an apex Sovereign Holding Company for all PSU with only segmental separation viz., oil and gas, power and infrastructure, manufacturing, construction, mining, consultancy etc.

How do you think oil and gas output can be increased? How do you see reforms introduced by the Modi Government in the sector? Are they enough to bring down oil imports by 10% by 2022 as envisaged by the Prime Minister?

There is ample scope for innovative reforms in the oil and gas sector which would not only improve the output but also result in developing alternative sources of energy to oil and gas so as to reduce our dependence on the same. We can start with improving operational efficiency and developing common research centres for oil PSUs in order to put best minds together at work to create new ways to enhance production from ageing fields and also synergise efforts in order to discover new fields.

Alongside, development of a well thought and robust transportation network would go a long way in creating access for remote areas to natural gas and its variants.At a policy level, a comprehensive energy policy would go a long way in strengthening the sector and address numerous challenges faced by it.

Lack of adequate foreign investment in NELP and other projects clearly indicates that the incentives have probably not been up to the international expectations. Subsequently, the government has introduced many reforms including deregulation of auto fuel prices, gas pricing and marketing freedom, production augmentation strategy, 100% FDI and new policy for exploration and production so as to create a conducive investment environment. Effective implementation of the said reforms would prove to be instrumental in bringing down oil imports by 2022. Regarding 10 % enhancement in production level as called by Prime Minister, it is outcome of his vision for “Thinking big”. All efforts should be taken up to achieve this by aggressive approach.

What are the challenges to raise the share of natural gas in India’s primary energy mix?

Natural gas is undoubtedly a clean and environment friendly fuel and fuel of the future. Enhancing its share in the energy mix of the country is vital for India’s economic development. At present, it forms 6.5% of country’s energy basket and for growth the share has to be the envisaged double figure which is a challenging task. Ironically, the share of natural gas in primary energy basket has come down from 9 % to 6% in 6/7 years now. Under such circumstances, enhancing it to double digit may not be easy.

Foremost, declining domestic production the key challenge faced is to increase share in the energy basket. Looking at statistics published by PPAC, domestic production of gas has been declining since 2011-12 year on year.Also, lack of robust road transportation of LNG creates inaccessibility of the fuel to remotest corner of the country.

Additionally, complex gas pricing and lack of attractive and remunerative gas pricing results in reduced investment in the sector. In addition to the domestic factors, adverse international climate with respect to pricing and increase in demand for gas within the country has further led to a challenging environment for natural gas. Also, geo political conditions in countries like Syria, Iraq etc. has developed security concerns for investments by state run companies in acreages aboard.

How can gas pipeline connectivity be improved? What more sops government can offer to encourage investors to build pipelines? Any tweaking in policy required?

There are no reasons to deny that gas pipeline connectivity needs to be improved to facilitate equitable distribution across the country and to meet the requirements of end consumers. However, this is also beyond doubt that laying vast infrastructure require huge investment and the strong concern is that presently, we are facing the challenge of underutilization of natural gas infrastructure. Present P/G capacity is hardly utilized up to 40%. Hence, any investment for capacity expansion should be based on realistic projection of demand and supply of gas in the country. Otherwise, it will result in drain of country’s resources.

How do you see public-private partnership model for gas pipelines?

The government has set an ambitious target of doubling the natural gas infrastructure (pipelines) to 30,000 kms using appropriate PPP models. In view of the declining private sector investment in other infrastructure projects under PPP mode, their enthusiasm for gas pipelines may also be doubtful as this is a capital intensive project with uncertain returns as the recovery on the pipelines is determined by its utilization which is directly proportional to the gas demand and supply. Hence, in order to ensure success of investment in laying the pipelines, at least two of the loose ends that being--firm contracts at source of gas supply and firm contracts for off take of gas by end users must be tied up.

Success of PPP projects has not been achieved to the extent expected. This is particular lack of standardized model contract with no mid way renegotiation on price and giving reasonable value of money invested by private sector.

Infraline Energy would like to thank the contributor for his/her valuable time and opinion shared on the topic.