Gas Exchange will be created in India: Dharmendra Pradhan

Dharmendra Pradhan, Minister of Petroleum & Natural Gas and Minister of Steel, talks about the sharp fall in demand and price of steel and fuel across the world, the impact of COVID-19, expectations from Ministry of Finance and future of energy consumption in India among others during an exclusive chat with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: A sharp fall in demand for petrol, diesel, ATF and Gas during the lockdown period but it is reviving now. What is your view on demand? Also, tell us about how the sector has been impacted?

A: The energy industry has never seen such a huge demand disappearance and you can put any segment of energy for consideration. This is a new phenomenon in the world. India saw a 70% disappearance of oil and gas demand in April. Demand assessment of May 2019 and 2020, then the demand which declined by 70% has now recovered and has reached 60% in petrol and 66% in diesel. However, demand for ATF is quite low but is likely to go up slowly with the pace at the aviation industry will open. There is an increase in the consumption of LPG. Overall, there has been a tremendous decline in demand and its impact will also be seen in our annual plan.

Q: Oil prices have touched record lows and even in the negative zones despite that price cuts for petrol or diesel were not announced by the government although it was expected that the benefits will be passed on to the consumers. What would you like to say about it and why it was not passed on and do you expect that the government may pass on the benefits to the consumers?

A: The world has witnessed two incidents in the last few days. In the pre-COVID phase, i.e. in January, February and the first fortnight of March a situation of supply surplus was created. It was a period when South Arabia, Russia and the US were competing with each other to find whose supply will be more in the global oil market, which led to over-production in the three countries and that to without rebalancing the same, which led to this drop in the prices. On the other hand, lockdown across the world led to a decline/ in *demand. As per experts, these two things led to such a decline in fuel prices, which was never seen in the past. India is a country where spending is made after thinking a bit when there is a problem either in society or at home, and then the money is saved. An unusual condition has arisen, which has increased the governments’ health and welfare spending and a lot of money is being poured in the stimulus. Because of the same, March onwards, the government has saved some money which is being reinvested in social and health infrastructures. There was no demand, it is picking up now, and had no impact on the price. Keeping all these things in mind, we have tried to control the country’s fiscal strategy where something is saved and little is spent on the social sector without hitting the customers. 

Q: What help is expected from this on the fiscal front and how much savings are anticipated from it? Also, tell us about the kind of reserve that has been created till date and do you think that we can leverage on the advantage of the price at which we are getting the oil by storing it by creating reserves within India and outside?

A: At the start, I have said that demand disappearance in April has disturbed the annual plan of 2020-21 in which we analyzed the kind of consumption, revenue, profits, liability to the government and the CapEx that will be spent on the companies. But, the whole subject has been put on a hold and we are going through a transition period and calculation of what has been saved, what has been lost and what fiscal will be left in the kitty among others is impossible. You have asked an important question of how we have reaped the benefit of this low oil price but the demand was almost negligible in this period. It would have greatly benefitted the Indian exchequer if the demand would have been high under such low prices. Even after this, if I put the calculation of April in your front than I would like to say that India has a strategic storage facility of 5.33 million metric tonnes (MMT) of which around 2.50 MMT was lying empty as we were not able to fill it. Taking advantage of this opportunity, we have filled the cabins at an average price of $20 to $22 per barrel in April. 

Secondly, we have also purchased 8.50-9 MMT of low-priced oil and stored them in ships on the high seas – it is a different type of storage facility that is being created across the world today. Thirdly, India’s storage facility of both, the product and crude oil, stands around 25MMT, which was filled by converting into the product during April low prices despite demand was very low. It was converted into products as our refineries were running in the month. Apart from this, the spare capacity of the crude oil available with the refineries was also filled. Overall, we have been able to capture around 38-40 MMT oil at low prices. If estimated by comparing the prices at which the crude was purchased in January and April than Indian treasury has been able to save around Rs 25,000 crore in the month. Apart from this, if the oil is available at such low oil prices in the international markets then we will buy it and try to store it in their facility. We are exploring such opportunities and such a mechanism is being discussed with the US and we will use their facility if we get some good offer in the country 

Q: Update us about the government’s divestment plan of BPCL?

A: It has three answers and they are:

(i) on the policy front, the government has a clarity that it has to gradually pull out its role from the areas that can attract private investment or have already attracted private investment as there is a need to increase competition as well as professionalism in those segments. BPCL is a great company but there is a scope of improvement in it. With this view, we have placed it on the divestment route. The finance minister in the recent past while announcing a package reiterated the government’s policy by going one step further. At the same time, I would like to make it clear that we will always work to improve the PSUs and move towards their divestment by off-loading its equity and we will continue with the process as this is a policy decision of our government. The government has no business to be in business and this is our commitment and that’s why we will not rethink the same once more. 

(ii) You also asked about things that are happening at BPCL than there is clarity that it has a date till June. DIPAM is its administrative ministry and it will look at the market conditions to make any decision on it. Even, we want that there is an appreciation in its value because BPCL is a big brand and a competitive company. However, the conditions have changed and we are facing a global slowdown and I believe that DIPAM will take a call at the right time.  

(iii) You also asked about how things will move further, the government will gradually get involved in welfare schemes and will act as a facilitator in policy matters. The businesses will be kept open for private investment in which the technology, as well as capital, will come at a faster pace. This is our, the government’s, strategy.

Q: You have said that more actions for the privatization of the non-core PSUs will happen especially in your departments like oil and steel. So, let us know about the plan on that front including GAIL, which will split into two businesses, namely transportation and marketing? Is there any probability of merger of Indian Oil Corporation (IOC) with Oil India Limited (OIL), if yes, the talk about the steps that government is taking in that regard?

A: I will repeat it that the Finance Minister Madam has announced a big policy statement that a new policy for PSUs will be brought, which will also give a roadmap for it. So, we should wait for that but before that let me explain two things in which GAIL’s present structure will be made more competitive and credible by dividing it into two parts (i) Marketing Division and (ii) Pipeline Infrastructure. So, there will be two separate companies and will be working as a subsidiary of GAIL. It will help in ending the conflict of interest. 

There is a need to create more pipelines in the country and the government needs help in it. But in the case of marketing, there will be a competition as other companies are also present in the gas marketing business and petroleum companies are also engaged in marketing. There are few consumers from power and fertilizer sectors are going to bring gas directly by purchasing it through terminals of the country. Terminal has emerged as a new industry in the country. That’s why to create a gas-based economy, CGD, pipelines, terminals and marketing divisions will be taken towards a free market system. We are thinking of a Gas Exchange that’s why the GAIL’s marketing division will be opened more gradually. Similarly, we have two flagship companies in the Exploration & Production (E&P) industry, namely ONGC and OIL. ONGC in the recent past has allotted 13 clusters of a medium sized-field to several companies on a joint venture mode under a new bidding formula. It has been off-loaded. It will help in achieving an incremental production due to new investment and technology. Likewise, ONGC and OIL, as national oil companies, should focus on the new policy, Open Acreage Licensing Policy (OALP) Plus, and open up more for production maximization in the oil fields that have been given to them in form of nomination in the last 4-5 decades. Increased investment, job opportunities and revenue of the governments’ is the priority of the country. ONGC will be opened aggressively under the production maximization theory. 

Q: Some reports suggest that OIL and ONGC can be merged shortly. Is it true? 

A: There is no such proposal that talks about the merger of ONGC and OIL.

Q: There is a slowdown in the production in the exploration sector and it has hit companies like ONGC. Has your ministry has sought some relief from the finance ministry for a sector in way of getting some kind of respite on cess or royalty or other levies, if yes, then how soon the decision will be made on it?

A: We have informed the Finance Ministry that things are getting challenging for our producing companies at the existing oil prices and some of the projects are not viable under this fiscal mechanism. Thus it will harm only to the government, how it will get the royalty cess if there is no production. For continuity of the royalty cess, government’s liability and domestic production, we have requested to the finance ministry to change/revisit the fiscal strategy and restructuring of the royalty cess. It will help in continuing production and viability for the producing companies and it will support companies like ONGC and OIL as well as private players. I expect that the finance minister and her departments including revenue department will look positively and sympathetically into this mater. 

Q: Update us about the LPG supply from Saudi Arabia?

A: It is good. LPG demand has gone up during this period, while our production at refineries was brought down by almost 30-35%. And, none of the refineries was shut down and there was a need for LPG and there was a need to store minimum oil for the future. Besides, minimum oil, up to 30%, also required and that’s why the refineries were not shut down but the slowdown led to reduction of LPG production in the domestic market. LPG demand, however, has gone up by around 20-25% in these days and to fulfil this surge we took help from countries, like Saudi Arabia, Qatar, and the UAE among others, who are our old and dependable friends till date. Each of these countries has helped us by providing LPG. We are thankful to them for their kind gesture in which they have supplied LPG to India in this period of surge in LPG demand. 

Q: India has set a target to take its crude steel production target of 300 million tonnes (mt) by 2030. But COVID0-19 has caused certain disruptions and the overall demand has fallen by almost 12-15%. What is your strategy to increase demand for steel and what impact will it have on the sector?

A: The lockdown has created a slowdown and its impact has been felt in the steel as it stopped because of the hindrance in the building of the houses, road and other infrastructural projects, which has reduced the steel consumption. But, there are signs of demand in steel especially due to the addition of two-three sectors in the package that was announced. Its positive impact is visible in the entire steel sector. For instance, special emphasis has been given on the housing industry in which a lot of concession has been provided to people by linking subsidy to it. It will have a positive impact on Pradhan Mantri Gramin Awaas Yojana, which will give a boost to steel demand and its reflection is visible in May. Similarly in the road sector, the announcements related to payments, planning, re-investment, and more investment has stirred the road construction. In the same manner, the work started in big projects in mid-April – despite certain hindrances in its supply chain and cycle - has brought a positive trend in the domain. 

Q: Steel prices are quite low and small companies are facing difficulties as their finances are quite stretched. What are you thinking about them? Also let us know about your vision on SAIL, a PSU?

A: A fine balance should be created in which the interest of both, the consumer and the producer, should be taken into account. In such a big country like India low price sometimes damages a sector and at times it also helps a sector. Low prices of raw material like iron and cement among others will lead to the construction of more houses. Increase in construction of houses will boost the demand, which is a challenge at present. And, how to bring back the demand is the biggest question at this moment and I feel that this low price can create a big demand. 

Q: Do you think that there can be a consolidation in the sector and what is the roadmap for companies like SAIL?

A: SAIL is a good company and has its brand and speciality. Same is the case of RINL. Steel is a deregulated sector because of which the government plays a minimum role in increasing its capacity. We are a facilitator in it. As far as the presence of government companies are concerned then they should turn competitive by accepting their advantages as well as challenges. For the purpose, we are working on internal reform and new business plan for them. 

Q: India has always played an important role in an alternative form of energy and you have always said that India will play an important role towards it may it be ethanol, bio-fuel or something else. So, what is an update on electric vehicle and tell the time by which a scrappage policy will be announced? 

A: The scrappage policy will be announced by the road and transport ministry soon and many economic aspects will get attached to it. As far as energy consumption and demand is concerned then India is the world’s third-largest energy-consuming country, at present. And, our per capita energy consumption is one-third of the global consumption and it will go up soon. India has also created a futuristic strategy for the purpose under which 400 gigawatts of renewable will be generated by the next few decades.