Last week, oil minister Dharmendra Pradhan, 46, scripted a new hydrocarbon pricing and licensing regime, seeking to revive global investor interest in India’s energy sector. In an interview, Pradhan discusses the new licensing regime, engagements with Iran in the post-sanctions era and the outlook for the oil economy. Pradhan also says that the government will get to the bottom of Oil and Natural Gas Corp. Ltd’s (ONGC’s) claim that Reliance Industries Ltd (RIL) benefited from gas flow between their adjacent fields in the Krishna Godavari basin between 2009 and 2013, by taking an independent view of who is at fault, including those responsible in the previous government.
The terms of reference of the A.P. Shah committee on the issue of gas migration from ONGC’s fields to RIL’s in the Krishna Godavari basin empowers it to look into all acts of omission and commission by stakeholders. This is potentially explosive, considering the controversial history of the country’s first deep water block.
Justice A.P. Shah is a highly credible person. We have to be sure of the facts about this dispute and hear all stakeholders before taking any administrative decision towards resolving it. ONGC went to Delhi high court (in May 2014) alleging that RIL drew its gas; the court suggested appointing an expert committee. DeGolyer & MacNaughton (a US-based consulting firm), jointly hired by ONGC and RIL, gave a technical report on the issue to the government on 30 November 2015.
Four parties are involved in the matter, ONGC, RIL, the then government (United Progressive Alliance) and the then Director General of Hydrocarbons (DGH). ONGC, despite being a government company, went to court against the other three, including the government.
The first respondent is the Indian government in the case. So, when the current government has to resolve the issue, why not we independently look into all aspects before arriving at a conclusion? We have to ascertain if there is any merit in ONGC’s claims against the then government and the then DGH (that neither protected ONGC’s interests). DGH is the technical arm of the ministry. We need an independent objective view of the matter before deciding on ONGC’s allegations.
But it could be politically explosive…
I do not wish to see it in political light. But if ONGC, despite being a government enterprise, has gone to court making the then government a party, in order to protect its financial interest, there must be a reason. The Justice Shah report will be made public. The committee is hearing responses from all parties and will give us a timely report.
Your idea of trading food for oil with West Asia sounds interesting.
When the UAE’s crown prince Sheikh Mohammed bin Zayed visited India (in February), Prime Minister Narendra Modi held a discussion on how the two nations could play a complementary role in meeting each other’s requirements. Meeting the food requirements of a rising population and the high agricultural cost is a subject of discussion in Gulf countries. India could maintain a strategic stock of certain commodities either here or in the GCC (Gulf Cooperation Council) region to ensure their food security. For example, rice, which we have in surplus, is a popular food in the Gulf. In return, they could help with our energy security.
About 40% of the country’s 24 gigawatt gas-based power plants are not able to run because of lack of long-term affordable natural gas supply. How do you plan to address this situation?
In the case of fertilizers, we are implementing gas price pooling, which has led to an increase in production. To incentivize gas-based power plants, we have given relief in the tariff for transporting gas through pipelines as well as priority gas supply to those plants that produce power at a lesser cost, because of which gas-based power generation has increased. We are keen that gas-based economy expands. Towards that, we recently renegotiated the price of gas that we import from Qatar from the earlier $12-13 million metric British thermal units (mmBtu) to $6.5. We are trying to get even more gas from global markets at a lower price.
However, gas-based power is still costlier compared to power from coal-fired plants, which is a consideration that power purchasers will keep in mind. Gas is environmentally more friendly than coal and we are trying to expand its use by making it even more affordable compared to other energy sources. We have seen in the case of solar energy that tariffs come down over a period of time.
What is your strategy on gas economy?
India is a savings economy, not a consuming economy. We are preparing a road map for making available affordable fuel for mass transportation.
We will use imported liquefied natural gas (LNG), which is cheaper than diesel, as a fuel for railways and long-haul transportation. It is estimated that natural gas price will remain at a reasonable level for some time. We now get gas from Qatar at $6.5 per unit. To make available more gas from the international markets, we are expanding the LNG regasification capacity at our import terminals in the western coast.
Also, we are building three more LNG terminals in the eastern coast at Ennore in Tamil Nadu, Kakinada in Andhra Pradesh and Dhamra in Odisha. We are also expanding our gas pipeline network. Four new gas highways from Jagdishpur to Haldia, Ranchi to Paradip, Paradip to Surat and Mallavaram to Bhilwada are being built.
We now have 15,000-km gas pipeline; we are in the process of doubling it. This will lead to increasing the share of gas, which is greener and cheaper than other sources, in our energy mix. In their interest, state governments should facilitate laying of pipelines. The prime minister personally requests state legislators who visit him to convince their governments about the need for facilitating laying of pipelines.
How is the plan to limit LPG subsidy to consumers with less than Rs.10 lakh annual income progressing?
We are asking new LPG applicants to certify that their personal or their spouse’s annual income is less than Rs.10 lakh as part of the ‘know your customer’ compliance of fuel retailers. Those above this threshold will not get subsidy. We have about 165 million LPG customers, out of which 8 million have voluntarily given up LPG subsidy. The prime minister has said this saving will go to the needy person, not to the exchequer. With the GiveItUp campaign, we have been able to give 5 million new LPG connections to the needy households in calendar year 2015. LPG is now available to only 60% of the households, which are mostly middle class and above. We intend to make LPG available to 50 million poor households by 2018. The initial investment of a household for the connection will be met from the CSR (corporate social responsibility) funds of state-owned fuel retailers.
Do our state-owned oil companies have infrastructure for serving far-flung areas?
We are revamping the entire LPG supply distribution model and logistics. Today, we have 17,000 distribution points. Now, we will open up another 2,000 in the next few months. In 2016, we will start the process of opening another 10,000 outlets. Households in eastern Uttar Pradesh, Bihar, Jharkhand, Chhattisgarh, Madhya Pradesh, Odisha and West Bengal are now a priority in enhancing LPG availability. Here, only 40% households have access to LPG, with rural areas lagging further behind.
What are the areas of engagement with Iran after the lifting of sanctions?
ONGC Videsh Ltd (OVL) and other oil exploration and production companies are negotiating the commerciality of the Farzan-2 field, which Iran has identified for field development and production by Indian companies. It was Indian companies that discovered hydrocarbon in this block during the pre-sanctions era. There are other possible areas of engagements, too, with Iran. Setting up fertilizer plants there with locally available natural gas is one option. (Gas price accounts for 80% of production cost of urea, the most commonly used fertilizer in India).
Considering the prevailing low oil price and the bearish outlook for the sector, are you encouraging state-run oil companies to acquire stakes in distressed hydrocarbon assets abroad?
I guess distressed assets are yet to come in international markets. But our upstream oil companies are aggressively looking for hydrocarbon assets for acquisition abroad. We are now the focus of global hydrocarbon players. Prime Minister Narendra Modi discussed this subject with leaders from Africa during the recent India-Africa hydrocarbon summit and with Russian President Vladimir Putin during bilateral meetings. We have already signed a deal in Russia. (ONGC announced a 15% stake acquisition in Russia’s second- largest oil field—Vankor oil field in East Siberia—from Rosneft for about $1.35 billion.)
The revenue-sharing model for auctioning oil and gas blocks under the new Hydrocarbon Exploration Licensing Policy offers ease of administration. But wouldn’t investors be more keen on a model that allows cost-recovery before sharing profits, considering that our fields are not the most prospective in the world and global companies are going slow on exploration?
We cannot fairly link global energy firms cutting back their investments and the contractual model that we follow. We are accountable to institutions like the Comptroller and Auditor General of India (CAG), the Supreme Court and the Parliament. We have the benefit of over a decade of experience in implementing the current production-sharing contract, which prescribes investment-multiple based cost recovery and production sharing. Based on that, our institutions, the CAG and the Public Accounts Committee of the Parliament, have recommended alternative models. The existing model is not a bad one, but it has given rise to disputes. This government, therefore, consciously chose a different model.
When will you auction more fields under the new contractual regime?
We have 67 discoveries with a potential Rs.70,000 crore of hydrocarbon resources lying idle in our basins. These will be auctioned under the new revenue-sharing model when market conditions are favourable.
Dharmendra Pradhan, 46, a postgraduate in anthropology from Odisha, started his political career as a college union president and was elected to the state legislative assembly in 2000. Later, he served in various parliamentary committees on telecom spectrum allocation, agriculture and rural development. As oil and gas minister, Pradhan has the task of reforming India’s natural resources policies and implementing them in a fair manner to win the confidence of the global industry. Pradhan also has to make sure that other vital sectors such as power, petrochemicals and fertilizers get affordable feedstock and fuel.