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Interview

with A.K. Arora, Director General, Petrofed

20.10.2010 / Energyboardroom

PetroFed is currently the biggest and most representative oil and gas association of India, with its membership now reaching up to 60 members. How did it manage to occupy such a predominant role in India’s energy arena in only 8 years of existence?

Following important institutional transformations that were taking place in the Indian oil and gas industry in the late 1990s and early 2000s, PetroFed came on the scene on the 7th of August of 2002 to serve as the oil industry interface with the Government, regulatory authorities, public and representative bodies of traders. Ever since, PetroFed has been playing an important role in the resolution of issues. It communicates industry’s concerns and suggestions in the evolution and review of hydrocarbons related policies and regulations for speedier development of the hydrocarbons industry. To do so, we are called upon to represent the industry on Government bodies, committees & task forces.

PetroFed also looks at topics that are in sync with Energy Security and go beyond the oil and gas activities per se. Oil & Gas companies have grown and are trying to become integrated energy players, going beyond conventional oil and gas. Therefore, we are engaging ourselves in energy-related aspects, differentiating from other oil and gas associations.

However, it is important to highlight that PetroFed has a clearly independent voice. Our main objective is to defend the interests of the industry, our members and the consumers in the national context.

We do so by creating an interactive environment among the industry, the government and the society, ultimately aiming at what is best for Indian consumers and citizens in the long run. This is how we have gained the respect and recognition that we have today.

Some experts consider the New Exploration Licensing Policy (NELP) to be a very successful policy as it is going to its 9th round and has awarded more than 200 blocks. However, critics highlight the fact that the sector is still greatly concentrated in the hands of a few players, mostly state-owned companies. What is your assessment over that?

You have to understand that the rate of participation of private players has considerably increased since the market liberalization took place. However, in an evolutionary process you have to start somewhere. The perceived deviations and imperfections are being taken care of in a gradual and democratic process, unlike other regimes where the state requiring something to be done acts differently adopting varying processes.

What no one disagrees with is that the system in India has evolved towards a market-friendly and level-playing field environment where private players are enjoying great scope for action. One may criticize the speed of these changes, but can’t deny their existence.

As the main association representing the Indian oil industry, where do you see further room for improvement?

Indeed, there is always room for improvement. For instance, anyone who is going to invest in the Indian oil and gas production space will look for the available data and the prospectivity. It transpires that in many cases the data quality does not match the requirements of the companies or is found insufficient.If you go to the DGH website you will see how many basins India has, which of them are already well explored, where the data may be available, and what basins are relatively less explored. DGH is building a considerable database with good-quality information on all of India’s basins, generating a real improvement in the Indian E&P area.

As you’ve mentioned, DGH has gathered an important amount of data about India’s basins. It is also true that a few years ago no one had high expectations to find big reserves of natural gas in India until major discoveries were done. How much more potential do you see left?

In 2002 the world’s largest gas find was in the KG Basin in India. Likewise Cairns Energy discovered heavy crude oil in Rajasthan, an area that now is assessed to have much more oil than what was first thought of. Despite the current uncertainty around offshore exploration in deep sea, I believe India has a promising potential under its continental shelf.

What would further boost new exploration intensity would be the implementation of the Open Acreage Licensing Policy (OALP), which requires the creation of a data repository which is on its way. With the announcement of NELP IX the hon’ble Minister of P&NG gave a clear indication that the OALP would follow soon. It may probably be announced around 2012.

Before the start of successive NELP rounds, PetroFed submits recommendations to the Government based on the main lessons of the previous round. For instance, at one point in time it had very large blocks and we suggested reduction in size to facilitate entrance of smaller players. Another recommendation was that until you have the OALP system in place you could have a simultaneous system wherein if a company expresses interest in a particular block then that could be advertised, offers received from others also and the best offer accepted i.e. equal opportunity should be given to all those who wish to participate in such a bidding process.

Moving towards the downstream sector, India has emerged as a major refining hub in the last decade, reshaping the sector worldwide. Even so, many Western competitors accuse India’s low-cost competitiveness as a result of lower standards. How much of that is product of a misperception?

This is an absolutely wrong assessment as far as quality is concerned because if India has exportable surpluses and people are willing to buy it, it means we can achieve the quality standards required by the overseas buyers. India has the biggest refining hub in the world (Jamnagar refinery complex) with the latest technologies available globally to the industry. Our refineries produce according to the stringent quality requirements stipulated for the domestic market also. As a result, nowadays we have products being exported even to the USA. It is important to highlight that our major refineries are exporting to international markets, not only from the major Jamnagar complex.

This achievement, as the Hon’ble Minister Mr. Murli Deora said, “is a part of India’s long and silent revolution’.” Back in the late 1980s, Indian refineries – especially those part of Indian Oil Corporation (IOC), where I worked for many years – decided to benchmark themselves and stand among the best players in the world. We decided we had to overcome whatever we lacked, even with no government direction to us to do so. It was the organizational effort aiming for pace setter performance.

This benchmarking exercise was a special challenge because it was done in a period when India was absolutely short of hard currency. Yet IOC spent valued resources on that, modernizing refineries including those of smaller size and remotely located from the coast line. We set our targets high – true, perfection is not achievable, but you have to always attempt to excel. We kept raising the bar in our organization. IOC wasn’t the only one doing that, most of the other Indian refineries followed that trend.

We were conducting test-runs in all our facilities trying to figure out where the pinch-points were; how we could make our assets sweat and what could we do to get the best out of the limited resources we had. We spent precious money and time investigating the best ways to attain excellence. Therefore Indian refineries kept on improving quality and capacity at the lowest cost for decades. Now it is only natural that we are winning international markets.

As you said, some decades ago financial capital was a major challenge to the Indian oil and gas industry. What about nowadays?

The Indian financial market has changed dramatically over the years. India had a very fragile balance of payments position in the late 80s and early 90s. This improved substantially after the liberal reforms that took place during the 90s. Ever since, the Indian financial market has consolidated significantly and nowadays the financial market is much more developed as national players have built a solid name worldwide by undertaking investments abroad. Therefore, the financial capital that was earlier not available both to the public and the private sector is now flowing. The last international financial crisis made India’s financial strength more clear.

As a final message, what is your advice for the Indian oil and gas industry to continue and even accelerate its emergence in the world scene?

The Indian oil and gas industry has advanced greatly in the past decades in both quality and capacity. It now occupies a space of relevance in the international oil and gas industry.

However, unless R&D is prioritized in the oil & gas sector, this sector might not grow as powerful as the rest of the sectors where R&D has given dividends. India has achieved great success in areas such as IT, pharmaceuticals and automotive industry – India is among the world leaders in these industries. If the oil and gas industry is to repeat such success, it has to increase its investment in cutting-edge technology development and development of its pool of talent. This has to become both the industry’s and the nation’s priority.

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