Dr. V. Krishnamurty’s Report on Restructuring of Petroleum Sector

Dr. V. Krishnamurty’s Report on Restructuring of Petroleum Sector

1. 
   The Advisory Committee on Synergy in Energy (ACSE) headed by Dr. V. Krishnamurthy had three terms of reference. The committee was to examine:
   

1. 
   the core competence of PSUs to assess their competitiveness;
   
2. 
   analyse options to leverage their strength to optimally fulfil their required contribution to national objectives of energy security, accelerated growth, sustained development and social objectives of government policy; and
   
3. 
   Identify the most appropriate structure of oil PSUs to secure these ends.
   

2. 
   ACSE has observed that oil PSUs need to focus on their respective core competencies. Non-core activities in the upstream sector need to be farmed into separate companies/subsidiaries. The focus of upstream companies should be primarily on E&P, without distraction and dissipation of energy and resources in other activities. ACSE suggests that domestic E&P needs to be intensified by applying latest technology in frontier basis and deep-water areas. R&D institutes of ONGC should be suitably strengthened. PSU refineries need to undertake measures for up-gradation of technology, size and benchmark their operations with international norms.
   
3. 
   The Ministry agrees with the recommendation that oil PSUs should focus on their core competence. Considering the recent track record of ONGC in E&P, it appears that ACSE’s recommendations that ONGC focus on E&P are appropriate. In fact one of the urgent requirements of the nation is to find more oil. The refineries have been advised to benchmark their operation against their global peers. CHT along with an international consultant has recently evaluated PSU refineries. Suggestions made are being evaluated and would be implemented wherever found commercially beneficial.
   

4. 
   On the question of appropriate structure, ACSE has recommended that merger of PSUs may not be advisable and that the strengthening of the existing structure through policy changes and management/structural improvements may be considered. Further, ACSE has recommended that CPCL, BRPL and IBP should be integrated within IOC while KRL should be integrated with BPCL. NRL however should maintain its separate identity. On MRPL, ONGC’s subsidiary, no direct reference has been made, though indirectly, it has been recommended that the focus of upstream companies should primarily on E&P, without distraction and dissipation of energy and resources in other activities.
   
5. 
   In line with the recommendations, IOC has already initiated moves for merger of IBP and BRPL with itself. Similarly, KRL has been merged with BPC. NRL’s identity is being strengthened and OIL has been granted permission to raise its stake in NRL to 26 percent.
   

6. 
   As regards the management, ACSE has suggested that government nominee directors on the board of PSUs should play proactive role by effectively reviewing the projects for synergising creations of infrastructure.
   
7. 
   The committee has placed additional responsibilities on government nominee directors, which it expects to optimize facilities and projects across companies. For this purpose, it is necessary that the Government directors interact amongst themselves on a regular basis while being guided by government policies. This Ministry agrees with this suggestion.
   

1. 
   ACSE has advised that strategic reserve quantity may be increased to at least 10 MMT. ACSE has recommended putting in place a comprehensive energy policy, measures for improvement of energy efficiency etc. encouraging coal in order to reduce dependence on oil, investment in coal gasification, etc and promoting use of nuclear energy, solar energy, wind power, etc. The Government has taken in-principle decision to construct 15 MMT of strategic storage in phases.
   

1. Thrust Areas for XI Plan Period

   1. Major Thrust Areas for XI Plan Period

      1. 
         The major thrust areas for the XI Plan which seek to address the challenges being faced by the industry are outlined below :-
         

2. 
   Increasing Domestic Oil and Gas Production: To realise the vision of the President of India, the nation needs to graduate from energy security and move towards energy independence. Increasing domestic production is paramount in realising this vision. Bringing more and more acreage under exploration specially those in the frontier areas/basins, adoption of state-of-the-art E&P technology, faster development of discovered reserves, development of marginal fields, continuation of IOR/EOR schemes, establishment of a National Knowledge Hub in India, ensuring availability of knowledge workers for the upstream sector etc. are some of the steps that need to be undertaken to boost domestic production.
   
3. 
   Increasing Production in ONGC’s Assets: Good news is that the share of private sector in total domestic production is increasing; bad news is that the projections indicate a steep decline in production from aging assets owned by Government E&P companies. The situation may be corrected, inter alia, by undertaking multi-pronged measures such as development of isolated marginal fields, faster development of discovered reserves and leveraging technology to enhance productivity of existing fields.
   

4. 
   Processing Sour and Heavy Crude: With growth in awareness about sustainable global development, today Governments can ignore the environmental damage caused by fossil fuel consumption only at their own detriment. Fuel specifications used in different applications have continuously undergone changes and, with time, are expected to become more and more stringent. Indian refineries need to gear up to meet this challenge and in order to remain competitive the refineries need to be upgraded to process low-cost high-sulphur heavy crude to produce fuels conforming to international specifications. The refineries also need to understand the importance of continuously improving the fuel quality for complying with the domestic environmental regulations.
   
5. 
   Maximising Export of Petroleum Products: India is expected to emerge as a serious exporter of petroleum products with substantial surplus capacity. The actual capacity addition would, however, depend upon several factors including growth in domestic demand, duty structure which would impact import and export possibilities, refining margin, and export potential for the products. Factors adding to the viability of export oriented refineries include setting up in Special Economic Zone (SEZ) areas, differential in sweet and sour crude and import of crude oil and petroleum products being handled through large vessels bringing down the transportation cost. Goes unsaid that Indian refineries will have to produce fuel of international quality suitable for exports which contributes to sound environmental management.
   

6. 
   Improving Pipeline Connectivity: Healthy development of the oil and gas industry hinges on the concurrent development of a commensurate support infrastructure. Therefore, encouraging investments in ports, petroleum product pipelines, storage terminals, etc. forms part of the overall plan of industry development. Due to its inherent advantages, product pipelines are preferred over other competing transportation modes such as railways and road. There is an urgent need, therefore, to enhance coverage of pipelines throughout the country, depending, of course, upon relative economics.
   
7. 
   Encouraging Laying of Gas Transportation Infrastructure: Transportation of gas within the domestic market is done through gas pipelines. Availability of a robust gas transportation infrastructure is crucial for development of the natural gas market. There is a need to create gas infrastructure and at the same time ensuring co-ordinated development across the entire value chain. Setting up of a Regulator under the PNGRB Act 2006 to regulate the downstream oil and gas sector, is expected to provide clarity and comfort to interested investors in the gas transportation sector.
   

8. 
   Minimizing Adulteration: Adulteration is a menace which needs to be tracked by all concerned through technological and other interventions. Steps need to be undertaken by all stakeholders to curb adulteration. Steps already initiated include introduction of tamper-proof locks, automation of retail outlets, monitoring the movement of tank trucks through Global Positioning System (GPS), introduction of marker system for adulterants like kerosene, and third party certification of retail outlets.
   
9. 
   Maximizing Automation: Ensuring product quality and quantity across supply chain is necessary in a competitive environment. Automation is being carried out at retail outlets and terminals/depots. This is necessary to minimise human intervention in the processes. Efforts are, therefore, needed to maximize automation.
   
10. 
    Maintaining Retail Outlet Viability: Increased competition amongst marketing companies has seen a spurt in rollout of retail outlets throughout the country resulting in decline in outlet throughput. In order to maintain viability of outlets, it is essential for the public sector oil marketing companies to have synergy amongst them in setting up of new retail outlets.
    

11. 
    Pricing of Sensitive Petroleum Products: Efforts may be made to move towards providing flexibility to oil companies to fix retail prices of petrol and diesel autonomously. In case of domestic cooking gas, subsidy may be phased out gradually as recommended by the Rangarajan Committee report. For kerosene, direct subsidy may be provided to the consumers, particularly those below the poverty line, with full price applicable at the retail point.
    
12. 
    Unified State Taxes and Removal of Tax Anomalies: Amalgamate individual state markets into one nation wide market with unified state taxes, remove state taxes anomaly, provide level playing field to domestic production vis-à-vis direct imports and introduce a uniform VAT which provides full set off for local levies such as octroi and entry tax.
    

13. 
    The quest for energy security through increased supplies of conventional sources such as oil and gas needs to be supported with an impetus being given to the development of unconventional sources of energy like Coal Bed Methane (CBM), Gas Hydrates, and Coal Liquefaction etc. Clean coal technologies such as underground coal gasification (UCG) and conversion of coal to liquid hydrocarbon etc, hold great potential for India as it is rich in coal resources. There is a need to aggressively pursue the promotion of bio-diesel and ethanol blended petrol with higher blending ratios.
    
14. 
    Exploring and exploiting country’s CBM resource has already gained momentum with the recent conclusion of the third round of CBM bidding. For exploring the gas hydrate potential in the Indian deepwaters, a National Gas Hydrates Programme has been undertaken by the Government since 1997 with active participation from oil and gas companies, research organisations and DGH. Oil shale another source of unconventional oil is said to be present in the North-East region in substantial volumes.
    

15. 
    Considering the complex nature of initiatives required the policy framework needs to be in a position to offer very attractive incentives to the sectors, which proactively get themselves engaged into the R&D activities relating to various sources of energy with particular emphasis on areas of conservation and improvement in energy efficiency. There is, therefore, a need to provide incentive and or funding for undertaking rigorous R&D activities.
    
16. 
    Given the importance of dramatically improved new vehicle fuel economy in the coming decade, R&D on highly efficient vehicles and technologies such as fuel cells, hybrid-electric drive-trains, and light-weight materials should be expanded. New generation of vehicles should expand its focus to developing both cleaner and more efficient vehicles by adopting aggressive emissions goals to complement its fuel economy goals.
    

17. 
    Timely actions by the Government through policy interventions have provided a favourable climate to foster rational use of energy. From being a tool to stabilize the temporary disruptions caused by the oil crisis, energy conservation has now become an important issue. Enhancement of energy efficiency is a universally accepted development goal. Energy efficiency and Demand Side Management/conservation must occupy a central position in the national strategy. For effectiveness of the programme there is a need to introduce the target at national level say 1 percent saving per annum each through conservation measures and efficiency improvements or varying percentage depending upon the sector/industry. A rupee invested in energy efficiency will save more energy than a rupee invested in energy supply.
    

6. 
   
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