Vikram S Mehta, the man who
single handedly built the Shell empire in India, bid adieu to his office. A
man known for his no-nonsense attitude, his commitment and values were
instrumental in shaping the vision of Shell India. In his capacity as the
Chairman, Mehta not only transformed the company into an important LNG
player in the country but also guided it in gaining a strong foothold in the
downstream marketing business. With a career spanning 24 years in Shell
India, Mehta is all set to play a new inning in his professional life. He
spoke to Neeraj Dhankher, about his experience in Shell. Edited
Shell’s retail plans have not been successful. What are the reasons and future strategy in maintaining presence in the retail segment?
Retail plans have not been successful
because of the pricing policy of the government, which has not allowed private
companies to market petrol or diesel profitably. All private companies have put
a stop to their expansion plans. Shell has around 70 outlets currently
operational. It remains in the retail business is because it believes the
government will sooner rather than later level the playing field. This has
happened now in petrol. The price of petrol has been deregulated. There is
still a constraint in diesel. The gap between the trade parity price of diesel
and the current public sector price is about
`12 a litre on an average.
However, Shell is bullish about its future retail plans because of various
reasons. One, its retail network is located in cities where the ratio of petrol
sales to diesel sales was higher than in other places. As petrol is
deregulated, the profitability of retail outlets is therefore relatively robust.
Second, it believes the government will slowly but surely align the domestic
market price to international prices. Three, it has a very strong customer value
proposition because of the quality and service of our products. And four, it
has a strong brand.
The location, service, quality and
brand and customers response is the key issue, not the number of outlets. For
example, in 2009-10, Shell had only 13 outlets in Bangalore; yet it had 18% of
the market share because all these were very well located and were very popular
with the customers.
Shell India has a strong market base in the lubes market in India. How do you see the company growing in this segment in the near future?
Lubes is the only business in the petroleum
products area in India, which is totally deregulated. There is no constraint on
any company. We are the largest lube marketing company in the world. Our
strategy is to grow profitably. We have a very strong brand and portfolio of
products. We can meet the needs of all segments of customers, be it retail or
industrial. We have strong technical base. So all these factors, along with a
strong sales and distribution network, is the basis on which our objective is to
double our volumes within next three years. There is a synergy between lubes
business and retail. As we grow our retail network, the lubricant sales will
also increase. We have already acquired land on the east coast in Andhra Pradesh
and are looking at developing a lubes plant.
What are your strategies for increasing presence in the bitumen market?
We have a small presence in the bitumen
market right now. The presence is focused on specialized bitumen, called polymer
modified bitumen. We have plants in Bengal and Gujarat. Specialized bitumen
accounts for a very small proportion of the total bitumen market in India. The
largest share is accounted for by the commodity grade bitumen. We don’t have the
access to the raw material i.e. commodity grade bitumen as we don’t have a
refinery in India. That is why we are constrained in our growth plans. Our plans
to grow in bitumen business will depend on how quickly and successfully we are
able to access the commodity grade bitumen.
Is Shell looking to enter the E&P business in India?
My personal hope is that we will establish
a position in the E&P business in the coming years. It depends on my successor
and the management of Shell. I am somewhat disappointed that we do not have a
presence in E&P. There is no specific reason for that. India has oil and gas
resources, but a global company like Shell has to choose between many options
and opportunities. A choice has to be made on basis of geological and
technological reasons as well as good prospects. So one has to allocate your
scarce and finite resources in all these various opportunities. The reason why
we have not invested in India so far is because we have had other bigger, better
Is Shell looking at opportunities to acquire stake in existing refineries?
India is surplus in refining capacity right
now. So, logically there is no need to put up any refining capacity in India. On
the other hand, one could argue that maybe we need to take a stake in refinery
in order to provide all our downstream marketing businesses competitive access
What has been the biggest challenge for you at Shell?
Biggest challenge for anyone starting a
business in India is to first overcome the entry hurdles without breaching
business or personal principles. The biggest source of satisfaction is we have
built up a large business without compromising our principles.
The businesses Shell is involved with
have had a positive impact on India’s energy situation. We were among the first
to actually introduce LNG into this country. We are the first energy
multinational to do primary research in India. We have helped the government
formulate an integrated energy plan. All of this makes me very satisfied.
How do you assess the LNG market in India? Please elaborate on Shell’s strategy in this regard.
I am bullish about the LNG prospects in
India for various reasons. One, there is a shortfall of domestic gas. So there
is need for importing gas. Second, gas is cheaper than oil. Today, for example,
you can import LNG at around $12 per MMBTU, while the equivalent price of
imported diesel would be around $19 a MMBTU. Third, gas is cleaner than oil. A
shift from oil to gas has environmental benefits. Fourth, the supply side is
robust. There have been huge discoveries offshore. East Africa and the
countries on the Indian subcontinent also have resources.
Shell will increase the capacity of
its LNG terminal at Hazira from 3.6 to 5 MMTPA by end of this year or the first
quarter of next year. The plan for further doubling the terminal’s capacity 10
MMTPA is also under review.
Shell is also contemplating a
Floating Storage Regasification Unit (FSRU) in Kakinada. Once approvals are
secured, the project could be completed within 16 to 18 months. When we put up
the terminal at Hazira, there was resistance from the consumers to pay the
market price. It took time and logic to persuade customers to shift to LNG. The
same effort will have to be expanded on customers for the East Coast gas.
How has been your experience of doing business in Indian conditions?
Doing business in India is difficult, but
not impossible. You have an example of Shell. We have created it from scratch.
Today 3000 people work for Shell and it has over
`12,000 crore of business in
We should not constantly criticize
the Indian regulatory environment, or red tapism. It is difficult, but if you
have the patience, and if you work with the interest of the company and the
public interest also, the decision makers are receptive.
Please throw light on your experience in Shell.
I started my career with Shell in London. I
was in head office as an executive with shareholder responsibility for Shell’s
investments in the Middle East and South Asia. I was on board of several Shell
companies in the region. I spent about two years in this job. I then went to
Egypt as the MD of the Shell Marketing Company and the Shell Chemical Company,
and then back to London for a year and eventually started the operations in
India. I was the first employee of Shell in India. I have been chairman of Shell
in India for 17 years. Shell India is today the most diversified and amongst the
largest of the energy multinationals in India. It is involved with four
different kinds of activities. One, marketing. It is the only multinational with
a license to sell main fuels (petrol /diesel). It also markets lubricants, ATF
and bitumen. Second, is gas. It has built one of the two LNG regasification
terminals in India in Hazira, with a capacity of around 3 MMTPA, which will be
increased to 5 MMTPA in a few months. Third, technology. Shell has created a
technology centre in Bangalore. This Centre currently has around 700
technocrats, who are providing technical support to Shell group around the world
across the full range of petroleum activities, from E&P to refining, to
petrochemicals and marketing. This group is also doing primary research in its
Finally financial services. Shell
has around 1700 chartered accountants and cost accountants located in Chennai
and these people provide support to the finance function across the world. These
four legs were created over the last 15 years. It makes Shell the most
diversified of the energy multinationals in India.
What are your future plans?
I have worked for Shell for 24 years. So I
am looking forward to something different. My plans are to work in the
non-corporate world. I will take a few non-executive board positions that will
represent my continuing involvement with the corporate world. But over and above
that, I will spend time working with a not-for-profit organization and I also
hope to get more involved with the academic and think tank world.
Vikram S Mehta, Former Chairman, Shell India for sharing his valuable insights with our
readers. The column 'In-Conversation', is a platform to engage
experts from various sectors to share their views on the different
transformations happening in the Indian energy sector.)