Report of the Working Group on Petroleum & Natural Gas Sector for the XI plan

Safety & Environment Management

1. 
   During the plan period, efforts would be made to improve the Health Safety and Environment (HSE) management in order to match the best global practices so as to provide occupationally healthier work force, reduced accident rates, cleaner and greener product with reduced discharges.
   
2. 
   Thrust areas to achieve the above objective would be to review the existing HSE management system and attempt to keep it at par with global practices in the areas of HSE management and to adopt the international standards to excel performance in areas of occupational health management.
   
3. 
   In order to make the E&P operations compatible with the environment and reduce discharges and emissions, the following would be attempted/put in place during the XI Plan period:
   

• 
  Establishing self imposed discipline by oil companies in environment management system for all oil and gas field installations and drilling rigs based on international standards to ensure improvements towards reducing discharges and emissions to internationally acceptable levels;
  
• 
  Eco-rating of major installations and compulsory environmental audits;
  
• 
  Pro-active measures to prevent marine pollution and to effectively combat oil spills;
  
• 
  Benchmarking at par with international oil majors with respect to environmental practices;
  

4. 
   By strictly adhering to recently developed Quality, Health, Safety and Environment (QHSE) management system work procedures and plans, maintenance schedules of various equipments and machinery, need based training, and providing necessary inputs and resources following area of environment management will continue to receive constant attention.
   

5. 
   The role of safety in the gas sector assumes importance as also the safety aspects in the various sub-activities of gas sector, i.e. gas handling, processing/extraction of value added products, storage, transportation, distribution and utilization. The safety aspects are also important in respect of LNG import terminals, handling of cryogenic LNG tankers, and use of LNG in the transport sector.
   

1. 
   The responsibility of the respective organization or individuals who would handle natural gas or its derivatives play a major role in maintaining and managing the safety systems so as to eliminate or minimize the risks which may be posed if not adequately monitored and managed. The basic and essential elements which need to be observed by the designers and operators involved are:
   

• 
  Process reviews and adherence to standards, codes, practices and statutory laws by the owners and designers;
  
• 
  Design procedures to ensure safety of the installation;
  
• 
  Proper risk management studies and adherence to them;
  
• 
  Process awareness among the operators;
  
• 
  Proper awareness campaigns to educate the uses of gas (CNG);
  
• 
  Proper maintenance of the equipments and installations;
  
• 
  Training to minimize the human factors in the incidents;
  
• 
  Safety audits and corrective actions;
  
• 
  Proper communication channel of the system managers with the local administration and local population;
  
• 
  Proper investigation procedure;
  
• 
  Crisis/Disaster Management Plans/Coordination Plans
  
• 
  Customer service and faster response time;
  

7. 
   The above elements, if properly and fully adopted, with an objective of continuous up-gradation of the safety systems to ensure and enhance safety, would go a long way in minimizing the risks of the gas handling systems. Whereas all safety standard, practices and provisions would minimize the risk of mishap/incident, the crisis management plans would need to be very effective to contain and minimize the damages in case any incident does happen.
   
8. 
   It is of paramount importance for any organization to organize the overseeing of the safety, occupational health and environment aspects, as they are the integral part of safety. To promote highest level of safety in operations, aspects like health of employees and a clean environment, need to be looked in totality, as these elements are integral to any activity or installation in the gas sector. The basic responsibilities of such a body in an organization may include safety audits, safety inspections and subsequent follow-up of checklist points, guidance to projects on the improvement in safe practices etc.
   
9. 
   MoPNG constituted a Safety Council assisted by Oil Industry Safety Directorate (OISD) in 1986. OISD is involved in formulating and implementing a series of self-regulatory measures aimed at removing obsolescence, standardizing and upgrading the existing standards to ensure safer operations. The standards developed by OISD so far are mainly aimed at the hydrocarbon industry. Even though the standards are self-regulatory in nature, following of these standards by the industry at the design stage would go a long way to ensure safer operations in gas installations.
   

10. 
    Use of CNG as an automotive fuel is being encouraged and propagated due to environmental considerations in the cities, where gas is available. After careful consideration of the international practices and the experience of the industry, national safety standard has been adopted for CNG installation by the statutory bodies. Further, implementation of OISD recommended practices need to be considered and overseen in view of the extensive use/storage of CNG in pressurized containers in automobiles. The OISD standard on safety requirements for compression, storage, handling and refuelling of natural gas for use in automotive sector, needs to be followed by the CNG sector. The standard lays down the minimum safety requirements at installations handling natural gas for dispensing into vehicles and minimum checks required in the vehicles by refuelling stations.
    

11. 
    Use of natural gas in the domestic sector, especially in the urban areas, would gain further importance during the XI Plan period due to the flexibility and the advantage of natural gas over competing fuels. Safety of such distribution systems would need to be emphasized. Besides adhering to the international codes and practices for the design and operation of such systems (such as ASME/ANSI B31.8), it would be desirable to develop indigenous safety codes for city gas distribution and follow the same.
    

12. 
    Companies in the petroleum sector are committed to conducting business with a strong environment conscience for sustainable development, safe workplaces and enrichment of the quality of life of their employees, customers and the community at large. Best procedures and practices of the industry are in place at all operating units and installations to take care of safety, occupational health and environmental hazards. These facilities are periodically reviewed, audited and upgraded for continuous excellence. The environment management systems at the refineries, pipelines and major marketing installations are certified under ISO- 14001 standards.
    

1. 
   The regulatory framework for the gas industry in the country will ensure a uniform standard for all the natural gas based installations and gas pipelines in the country. Though this framework implementation of the minimum set of safety standards for the gas industry would be required it would, however, be desirable for the owners of facilities to take proactive measures in these matters to provide adequate safeguards to its working personnel and environment.
   

1. Subsidy Structure

   1. 
      In addition to direct Government subsidy on LPG and kerosene, oil PSUs are sharing the burden of subsidizing sensitive petroleum products namely petrol, diesel, domestic LPG and PDS Kerosene. The Government has enunciated the principle of equitable burden sharing to cushion the impact of high international oil prices on domestic retail selling prices. Thus all stakeholders viz. the Government, oil companies including the upstream PSUs and consumers share the burden of price increase equitably.
      
   2. 
      In refining operations cost of crude constitutes over 85 percent of the total product cost. Due to high oil import dependence (about three-fourths of our crude requirement is imported) in this era of high oil price, our import bill has burgeoned. In 2005-06, the crude import cost had increased to about Rs.172,000 crore or by about 50 percent over 2004-05. In 2006-07, the import bill is expected to be significantly higher. Therefore higher crude prices necessitate adjustment in retail selling prices of sensitive petroleum products. The impact is so large, that oil price vulnerability can be a great dampener to our GDP growth and has the potential to disrupt not only future development but also our fiscal position significantly.
      
   3. 
      The Government is committed to protect the economically vulnerable and weaker sections of the society by providing life-line energy at affordable prices. During 2006-07, the projected burden is of the order of Rs 73,500 crore based on prices prevailing during April-May 20066. Oil PSUs will continue to shoulder the largest share in the total under recoveries during 2006-07. The upstream companies will bear Rs. 24,000 crore giving up most of their incremental revenues and the downstream companies will shoulder about Rs. 9,000 crore through implementation of trade parity concept, lower customs duty for petrol and diesel and commercial discounts. The Government on its part will provide financial support through bonds of Rs 28,300 crore. Thus the Government and its oil companies will shoulder about 87 percent of the total burden.
      
   4. 
      However, as stated above, the current scenario cannot be sustained for any length of time and radical solutions are called for.
      

5. 
   The subsidy for domestic cooking gas should be phased out gradually or at least substantially reduced. As recommended by the Rangarajan Committee, a one-time upward adjustment in the price of domestic LPG by Rs.75 per cylinder may be made. Beyond this one-time increase, it is necessary to gradually increase the price of domestic LPG so that the retail price adjusts completely to the market level eliminating the subsidy altogether as early as possible. Strong political consensus is needed for implementing the same.
   

6. 
   As in case of Domestic LPG, the subsidy on PDS Kerosene also needs to be pruned. There have been no price increases during the X Plan period or for now over four years, a situation perhaps not seen even during the APM regime. In addition there are several reports that indicate that subsidised kerosene supplies are being diverted denying the benefit to the intended groups. In view of this, the Government has recently, in principle, accepted the recommendations of the Rangarajan Committee that subsidy on PDS Kerosene should be restricted to BPL families, for which detailed implementation modalities are being finalised. This will help in reducing the subsidies by 41 percent.
   
7. 
   The only fool proof mechanism for preventing leakage and diversion is to move towards a system of single price at the point of sale by oil companies to the wholesale dealer with the subsidy being passed on to eligible BPL households directly.
   

1. 
   Though it has been a consistent assumption that petrol remains the fuel of the relatively better off, the position has been changing. 71 percent of non-transport vehicles⁵ are two wheelers, which run on petrol. Besides two wheelers continue to sell roughly 7 times every car sold within the country. Two wheelers essentially provide mobility to the aspiring class, the climbers and the middle class. Yet, there is a case for passing on the full price impact to these consumers with realignment of excise duties as has been discussed elsewhere in the report.
   
2. 
   Diesel continues to remain the basic transportation fuel. While moderation in price is required, it cannot be subsidised. Non-revision in price of diesel alone can increase the fiscal deficit.
   
3. 
   In case of both petrol and diesel regular and small adjustments in price are recommended, failing which we may be forced to correct prices in one go bringing about a price shock. Furthermore, if we are to reduce consumption of oil products, price signals must be transmitted to the consumers so that they can make adjustments on their side as well.
   
1. 
   
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