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Interview

with Bava Mahdoom, Managing Director, Naftogaz India

10.12.2010 / Energyboardroom

How did a fully-integrated Ukrainian oil & gas company come to specialize in EPC projects in India?

For the Ukrainian company, EPC projects were never a focus. It is only here at Naftogaz India, specifically, that our business model is to undertake EPC work. Naftogaz India is an Indian company, which I myself have promoted; the Ukrainian principals do not own stake in our operations, and financially, we are totally independent from them. Naftogaz Ukraine and Naftogaz India have an agreement for cooperation, and we represent the Ukrainian company in India—but our business focuses are disparate.

We do borrow from them from a technical standpoint, in the sense that when we require specialists, we hire them from Ukraine.

What were the main challenges that you faced as the person responsible for establishing Naftogaz in India?

The main challenges were those faced by any start-up company. But, especially in the oil and gas market, there is very limited space, occupied by existing players who have established themselves. As a new entrant into this difficult market, I had to manage quite typical, but particularly preventative, entry barriers.

Despite barriers to entry, your very first contract was with Indian Oil, one of the largest petroleum and gas corporation in the country. How did you manage to secure a contract with such a major local player, when you were previously untested in India?

Here in India, the procedure of contract awards is quite systematic. There is an open and competitive paradigm, wherein bids are invited, the press advertisement comes in the newspapers, and there is a defined set of parameters regarding how the bid is to be compiled and submitted. There are normally two portions in a bid: one is a technical portion, and the other is financial. The technical measure asks, ‘if the bidder is awarded this project, how would he execute it?’ We have to present a detailed plan of how the construction methodology is to be implemented, and our execution philosophy. The customer, under their project management consultant, analyzes this for all the bidders, and because they analyze all bidders, it takes about four months to complete the technical evaluation. Once this has been done, and once the customer and their management consultant are clear that they have found a foolproof methodology of execution, they then move to the financial portion, which is the price bid. The lowest bidder, of those who have already been approved from a technical standpoint, then gets the job.

The O&G industry is very capital-intensive, and technically intensive; companies cannot operate without significant financial backing and a sound technological knowledge base. How did Naftogaz manage to secure these difficult resources in such a short period of time, and have the capacity to undertake that Indian Oil project as its first engagement?

As I’ve mentioned, in the beginning, Naftogaz India had taken the support of Ukrainian experts. Even now, some Ukrainian experts are working for us—our company CEO, for example. They provided us with hands-on consulting on that project, and continue to do so on subsequent works.

When we first met Mr. Jain, Director of Corporate Governance, he was adamant regarding the exponential nature of your growth. He said that, from that first contract, year-over-year, your rise has been rather meteoric, and you seem to be quite a success story—last year Naftogaz India earned $200 million in revenues. What were the main drivers that facilitated this persistent expansion?

The number of players in O&G is only so large. Once you gain entry, competition is limited. So it happened like that—we did not put in any unique effort. There is a huge market for O&G projects in India, but the number of Indian companies in EPC is only three. And to be specific, our main revenue drivers have been refinery projects.

Besides your EPC activities, you are also an E&P operator: you won three blocks in the 6th round of the NELP. What has been the outcome of your pursuits in upstream thus far, and what are your plans regarding further acquisitions at NELP-IX?

In upstream, we are following our plan of a minimum work program, as per the production-sharing agreement that we have with the government of India. Naftogaz India has three blocks: one is in Gujarat, one is in Assam, and one is Mizoram. In Gujarat, we are currently doing the drilling; in Assam, we have yet to start drilling—but we have done a complete seismic survey; and in Mizoram, we have a very large block on very difficult terrain, so geological analysis is still undergoing.

Regarding NELP-IX: our geologists are now studying data from those current NELP offerings, and only after that will we be able to ascertain our plans for bidding.

Mr. Sunderashan, the Secretary of Petroleum and Natural Gas, was very optimistic about India becoming the chief refining hub, not only of the region, but also of the world. India plans to add more than 100 million tons of capacity in the coming years. How are you portraying yourself as a partner of choice for India’s thriving refining industry, and how are you capitalizing on this world-level growth?

We have delivered very well for our customers. For example, Bina Refinery: we have constructed a process unit there, known as a hydrogen-generation unit—in a $100 million+ contract for Bharat Oman Refineries Limited (BORL). By completing such a project, we came into the league of that specialized group of companies who can build processing units for refineries.

India is indeed quite strong in refining on a global level, also. And Naftogaz India has begun to bid for a few projects in adjoining regions, namely in the Middle East. But since those contracts are in the bidding stages, I cannot say much about them yet.

Mr. Balyan, MD & CEO of Petronet LNG, has stressed that the O&G industry is growing more and more collaborative. As a company that is mainly a service provider, Naftogaz India must know that as well as anybody. What is your assessment of Mr. Balyan’s statement?
I do agree with his viewpoint. The industry is certainly growing more collaborative. A lot of foreign companies are coming to India, to collaborate with local businesses. With the strength of our partnerships, Naftogaz India is contributing to the energy security of India, both in downstream and in upstream.

How have you managed to integrate your upstream and downstream activities, as the company grows and targets new niches?

Our upstream and downstream businesses are actually not integrated with each other. Upstream is a totally separate activity, which we are undertaking for our own interests, in partnership with our upstream collaborators; whereas in downstream, we are only a specialized EPC contractor for other companies—like OIL, BPCL, HPCL, etc.

So far, our company growth has come from our downstream activities. For the next 3-5 years, we plan on continuing to emphasize that downstream side. Until we can manage some oil or gas production in the blocks that we are exploring, our major growth contributor will continue to be the EPC business.

On a personal note: what have been the most rewarding aspects, for you, of bringing Naftogaz to India, and developing the company to a successful position?

The reason I thought that I should focus on this kind of activity, and develop a company of this type, is because of the vast size of the O&G market in India. The whole world now speaks about the BRIC countries, and India is one of the main active players. Chronologically, in the O&G segment—from what we have analyzed—many companies have come and gone; some are still working; some new ones are coming. But in the EPC sphere, there are only two established Indian companies, besides us. So I thought it really makes a lot of sense for me to start something of this nature—it is lucrative from a business standpoint.

Do you have a final message for the international readers of the Oil & Gas Financial Journal, on behalf of Naftogaz India?

India is a growing market, and Naftogaz India is open for collaboration with any foreign company interested in delving into this market.

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