with RPN Singh, Minister of State, Ministry of Petroleum & Natural Gas of India
One of the most important political developments that affects the oil and gas industry is the latest budget round. Could you explain to our readers the implications of the Indian 2011 budget for the oil and gas industry?
One of the major issues addressed by the latest budget is the subsidisation of LPG gas cylinders and kerosene. The subsidies we have been giving on kerosene and LPG are not being given anywhere else in the world, and with the prices of crude rising so highly, this has become an issue for the government. Petrol prices are deregulated in this country, and diesel prices are also very high compared to kerosene prices.
The aim of these subsidies have been to aid the common man in this country, but there have been some anomalies as far as the distribution of subsidies go, so we have come up with an innovative scheme: instead of giving the subsidy through the cost of kerosene, we plan to give cash receipts: that is what the budget has said regarding LPG and kerosene subsidies.
There have been instances and reports that as much as 40% of kerosene oil has been diverted away from the weaker sections of society. So instead of giving kerosene oil on a subsidised basis we are going to give them cash receipts, which will allow people to go and purchase kerosene themselves, which will solve this problem of adulteration.
On the exploration and production side, the government has decided to end the tax holiday on NELP blocks. Why was that decision was made, and what are the advantages for the economy?
The NELP policy of India has been responsible for some of the most important finds of the last decade, both in KG Basin and Rajasthan. It began as an incentive for companies to come forward and invest: at the time there seemed to be a general opinion that there were no big discoveries left to be made. And so as a country, we needed the impetus within our exploration policy to drive bigger players to come and participate, plus private players to come in within the national boundaries. NELP has certainly succeeded in this regard.
The IXth round of NELP is closing shortly. The NELP rounds have been successful so far. In order to attract investments, there were certain tax incentives till the VIIIth round. These are income-based incentives and this regime promised will continue for all discoveries till NELP VIII. However, from NELP IX onwards, the Direct Tax Code will apply and we will be moving to an investment based incentive regime in all sectors, including the oil sector. In my opinion, what the investor would want is transparency and clarity and this is there now.
There has been talk in the past about ending the current NELP bidding system and moving to an open acreage policy. Is that still going to continue to be a priority for the Ministry?
We are still on the ninth NELP round and after it closes there will be a major policy review. We will look at options of what we can do to address acreages, because we need to make this policy move at a much faster rate. Without doubt we can say that NELP has been a very successful initiative of the government, and to further kick-start exploration and production we will look at other proposals, but at the moment we are already in the ninth round, and we are continuing with that. We will look further into whether a change needs to be brought about.
People talk about the OALP policy as a way in which smaller players can gain better access to acreage. Is that an issue you want to address, or do you feel that the situation is OK as it currently stands?
I was fortunate enough to be part of the delegation of the NELP roadshow that went to Perth earlier this year. This ninth round of bidding intentionally includes fields where the acreages are open to both big players and small. We have designed the scheme in such a way that we also attract smaller players.
As I have said earlier, NELP rounds have been so far successful. We are working on a National Data Repositary to be set up. As soon as that is ready, we will evaluate moving to an Open Acreage Licensing Policy.
This is a very interesting time for you: having just arrived at the Ministry, we have seen oil prices shoot through the roof, and at the same time as you adjusting to your new portfolio and deciding on priorities. Where do you feel your priorities are right now?
Since arriving in this position, oil prices have been shooting up drastically. Since June 26th 2010, oil companies have raised petrol prices by 5 rupees and still we have huge under-recoveries because we have budgeted for crude prices of around $60-80 USD: today they were $120 and there is talk of the price rising to as much as $150 USD per barrel.
The commitment of this government has been to control the prices of petroleum products, because life is dependent on them in a country like India, and demand is shooting up drastically. At the rate the prices are going up, this affects everything from heating and cooking and transport costs to food prices.
Our commitment to keeping prices down is actually not going to happen if this kind of volatility in oil prices continues. That is going to be a huge decision that my ministry is going to have to take: how to take that commitment that we gave to the people when we came into power of keeping prices under control. We are losing over 10 rupees on a litre of diesel, and it is going up every day because prices keep fluctuating.
Plus we have a vision in this ministry for 2015, where we talk about giving LPG as alternative fuel to 75% of the people – we have already covered 50% and now we want to take it to the next level. But for taking it to 75%, you can imagine the kind of under-recoveries that are going to happen just in LPG. My government loses about 350 rupees per cylinder, but it is a commitment that we have made to the people and we do not want to go back on our word.
Consequently, our priorities are to come up with out of the box ideas of how to manage this subsidy that we are currently giving in LPG. This is one area where we really need to focus: how to control the subsidy and which people should get the subsidy is a very tricky issue in a large country like India.
My personal opinion is that people who do not need the subsidy should not get it, but obviously the ministry is already thinking about other ideas of how to do away with the subsidy. Our priority is to get gas to as many people as we can, and not cut back on that, but how to cut the subsidy. That fine-tuning is going to be one of the major thrusts of this ministry as far as I am concerned.
India is currently producing a surplus of finished petroleum products, so on that front we are not doing too badly. We have had some huge private players coming into the market, and within the country also we have six pipeline projects under GAIL that have been approved and need to happen quickly.
These are all the things that increase the distribution of petroleum products to the weaker sections of society, particularly to rural India. The prime minister spoke of inclusive growth – this means that this type of alternative energy should be provided to the villages also. But then the next factor is that the subsidy basket goes up so much for the government. What kind of innovative ideas can we bring in to do away with those subsidies?
One of the most interesting aspects of the Indian oil and gas industry from a foreign perspective is the role that the PSUs have played in the development of the industry. Today these entities are very well established, and the government is considering disinvestment because there are revenues to be taken from that. However, what role do you think the PSUs play today?
Anybody who speaks about public sector undertakings not performing well needs to have a look at the PSUs within this ministry. They have done a tremendous job whilst facing problems of under-recoveries and supplying only the demands of a subsidized domestic market. Despite these conditions, they are still they are doing extremely well.
Right from the archaic to the new, we are there in our public sector undertakings, so I would give them a really good rating as far as the kind of work and the kind of thrust that they have given this country in the energy department. They have not been given adequate credit and recognition for the conditions they work under, and still manage to be successful.
What role will you play in making sure that they maintain that position?
Our basic aim is to help them strengthen their position. At Panipat, a large cracker plant was recently inaugurated, and we have two huge refineries coming up to be commissioned this year. As far as the crude processing in this country is concerned, we are doing extremely well. Our main focus is to keep the competitive edge that our PSUs have: to keep them in tune with the competition all over the world and to be able to compete well with the markets.
Now the focus of PSUs has been taking blocks abroad, to be able to capitalize on the opportunities available on a global scale. We are already in South America, in Africa, we are trying for some huge tie-ups with the Russian government. So now our aim is for these companies to build their presence all over the world, in order to build their production levels.
The refining industry provides the potential for India to set itself up as a world refining hub, to export to the world. How is the ministry working on an international level to make sure that the world knows about India’s potential?
There is a huge demand for oil products within India, and our primary focus is not profits, it is to make sure that this demand is met by the PSUs. But I would say that private industry within India is providing achievements on a global level. As far as India as a country is concerned, there is no doubt in anybody’s mind that this country is a world leader in refining. Even our private sector is doing a good job and we need to work closely with them in order to help this country reach its potential as a hub.
Last year, the largest export earner for this country was exports of petroleum products, so you can imagine the kind of hub India has already become, but we need to now actually focus on making sure that the pipelines we are talking about happen quickly and effectively, both within in the nation and the pipelines that we need to get across from different countries, so that we can energize the sector for the domestic market.
Do you have a final message that you would like to send to our readers about India?
India is a great destination. In this kind of sector we are doing something right. We have been getting bad press for all kinds of things but we must be doing something right, as we have just finished our budget and we have had a growth of 8.5%. Developed countries are not even close to our numbers.
We open our doors for all kinds of investments from people all over the world. India has a great tradition of welcoming guests, and it is a great place to do business.