with Sashi Mukundan, Country Head, BP India
You were out of your home country for 20 years, coming back in 2000, when the so called ‘silent revolution’ was already taking place. When you arrived, how different was reality from expectations and how much has the Indian O&G industry evolved since?
I started following the Indian market somewhere around the mid 1990s, when I was in the USA as part of the team responsible for evaluating fast growing markets for the company. India was seen as a large country with a huge population that at some point in time had to open up. Once it did, we were sure it would become a tremendous economic powerhouse. By any metrics, when you looked at the Indian market the potential was huge. So it was very hard for us to ignore it, the only question was the timing and how we would position ourselves to take advantage of this growth. My job was to come up with an answer.
When I first came in 2000, India had just done its financial engineering in terms of coming out of its debt crises, opening up its financial sector and taking many of its complicated licensing system out of the way. The post-2000 period, the liberalization process has been put to real test and ten years down the line the results of the process is for all to see.
The main step towards market liberalization in the oil and gas sector was the launch of New Exoloration Licencing Policy (NELP), especially when we look at the way it has evolved since the first round in 1999. It started off by initially wanting to attract more companies willing to invest in India and collecting more sub surface information so that you could build a database to attract more companies. If you look at the initial phases of the NELP, emphasis was more on the work programs. Hence, companies were evaluated by the amount of work they did.These first important steps allowed India to build the necessary data and, while doing so, it got some very big successes with Reliance finding gas in the KG basin and Cairn striking oil in Rajasthan . In the process, the Indian upstream environment evolved from a PSU monopoly to a more competitive landscape. This resulted in transformation in the bidding process with focus on technical capability and fiscal offer besides the work programs.
If you look at the 9th round of the NELP, you have three sets of blocks being bid out, there. There is a set of small blocks very useful to bring Indian entrepreneurs into the E&P space. Then you’ve got the medium blocks for people with some track record looking to grow. And then we have the big blocks, which are located in the deepwater and frontier, areas where there is not a lot of data and understanding,- high-risk high-reward play. Naturally, for this kind of block the government needs companies with greater, proven capability and hence it attributes a percentage of points to the technical capabilities during bidding for such deepwater blocks. This is why I believe India has done a very good job in opening up its upstream oil and gas industry since 1999.
Of course there are still some issues to be solved. For instance, in our discussions with the government we are promoting a transparent bidding process that also avoids speculators from acquiring blocks without the intention to explore them. India is now at a stage where it needs to make sure it has efficient exploration happening.
Why was BP the only multinational among the world’s top ten that actually invested in the Indian upstream sector?
BP has been studying the Indian E&P margins and basins for more than six years. We started bidding in 2005 in the NELP V round in areas where we could make a difference. As a result, we got assets in the two areas where BP could bring in its core capabilities to India: deepwater, as BP is a major deepwater player globally, and CBM, where BP has more than 30 years of experience.
When we looked at the Indian exploration margins we believed there were good prospects of hydrocarbons to be found here. Only 22 % of the Indian margins have been moderately to well explored. There are still large areas which need to be covered by reasonable exploration including the deepwater, such as the East coast, where RIL had a major success.. We therefore believe in the hydrocarbon potential of India, particularly in the offshore deepwater.
The incident has been a great learning for industry across the globe and there will certainly be changes in the way the industry as a whole operates. The industry is working hard to learn from this accident and minimize the chance of it ever happening again. BP remains committed to sharing our learnings with government, industry and other stakeholders to help prevent such an incident, be prepared for it, and improve oil spill response capability in the future. We believe the government also recognizes that this was an unusual accident and that BP had launched a comprehensive response to it.
BP’s success in India is especially noticeable with its lubricants’ branch Castrol, present in India for generations. How has it adapted to so many market changes and managed to be a leader throughout time?
Castrol has been in India for 100 years and is seen locally as an Indian company rather than a British one. Through this long period we have innovated the way we operate in the lubricants market. Castrol was also one of the first to come up with the small sachets of lubricants for scooters. So we kept innovating and adapting to our clients’ needs, working the relationship outside traditional ways of selling our products. Today Castrol has a very strong market presence with almost 25% of the lubricants market share and we are very confident that we will continue to grow.
Another area where BP is a leader in India is solar energy, with a unique partnership for the manufacturing of solar panels with Tata. How is BP capitalizing on this partnership in India and trying to expand it to international markets as well?
BP set up this JV with Tata to manufacture solar panels in India and we were primarily exporting the production to international markets. Until recently, 80% of what we were producing in India was sold to BP Solar elsewhere in the world, for e.g., in Germany, Italy, Spain, etc. The launch of the Indian government’s ambitious National Solar Mission plan has given a much needed jolt to the market. The generation-based incentive for large grid connecting projects, similar to what we see in Germany, is very encouraging.
With this Mission in place, we expect that in the coming years most of what we manufacture in India will be sold locally. BP sees a huge market potential in India as the government’s target is to produce 20 GW of solar energy produced by 2020. BP is fully committed to support and make it happen.
What was the significance of Bob Dudley’s visit to India as his first task as global CEO of BP?
Bob was already familiar with the country and had built relationships here, as the India operations reported to him. As CEO, it is but natural for him to visit places of importance to BP and meet our partners, for instance Tata and Reliance. He also wanted to meet the national government to talk about BP’s commitment to India – clearly a country essential for the future of the company.
Firstly, India is a major market that is growing at an impressive rate and it requires a huge amount of energy to sustain growth. Secondly, it has a still untapped hydrocarbon potential. Thirdly, India has a unique human resource base.
India provides BP with both a material resources play (hydrocarbons and human resources) and a large market for energy products. BP today has over $3 billion of activities in India. We are seeking to build a material position in India. BP is evaluating options in upstream, petrochemicals, and solar in India. BP is also looking to expand its outsourcing into India through additional knowledge processing and indirect procurement. BP will look to increase employment of Indian talent for a variety of its global operations.
There are already a lot of activities where BP is capitalizing on the Indian expertise. Many of our global IT applications are developed and maintained in India; a quarter of our marine fleet is being operated with Indian Officers, (many of whom are also trained and certified in India); BP is upkeeping many of its financial systems in India. We also see a lot of technical talent being exported from our India operations. Today we have about 40 to 50 senior level Indians working in BP’s foreign offices. Therefore, India is essential for BP not only as a market, but also as a talent and resource base. India is definitely a key part of BP’s plans as we move forward.