Investments in Oil & Gas sector to fetch Energy Security for India

How soon can we see major investment in the domestic, upstream oil and gas sector? Remember, this is in line with Prime Minister Narendra Modi’s “Make in India” initiative, to give domestic manufacturing a major push

Industry analysts predict a major chunk of investment in the domestic oil and gas sector in the next 5 years. In line with Prime Minister Narendra Modi’s ‘Make in India’ initiative.

The initiative will give domestic manufacturing a major push, and all sectors – upstream (oil and gas exploration), midstream (gas pipeline and ship transport) and downstream (refining) – are likely to benefit.

Recently, the Boston Consulting Group came out with a report where it mentioned that the upstream oil and gas sector will see in excess of 1.5 lakh crore investment over the next 5 years, for discovery & exploration of basins across the country – onshore and offshore.

For a complete energy security, India needs a robust grid of natural gas pipeline infrastructure. This infrastructure will ensure an equitable distribution of gas & the sector will see investments in excess of 2.5 lakh crores. Refinery & petrochemicals, too, are likely to see huge investments of about Rs 88,000 cr and Rs 100,000 crore, respectively.

Moreover, to jump-start manufacturing industry, the government will emphasis on local value addition, opening of more service centres in India and providing access to capital at globally competitive rates.

Energy-Security

India presently imports more than 80% of its oil needs, and it doesn’t have adequate storage facility to store oil. Developed countries are constantly increasing their capacity to store oil domestically, to ensure uninterrupted supply in times of distress. China has enough storage to last more than 90 days, and they’re building reserves to store 180 days’ worth of supply. Given the unpredictable political situation in Asia, the Government of India must expedite the process of building storage facilities. In fact, consumer markets have made the most of crashing global crude prices by investing in large-scale storage facilities – both strategic and financial.

Low energy prices are a boon because India is—and will, in the near future, remain—a net energy importer. However, if energy prices start to inch up, as they inevitably do, it’s domestic exploration and production that will give India an edge against higher oil prices.

IS red-tapism hampering the implementation of investment reforms?

Since Narendra Modi became the Prime Minister, the world has been looking at India with a lot of hope and positivity. His meetings with global business leaders during state visits have sent positive signals to the global investors. However, the challenge is to provide a favorable investment climate in India by setting business-friendly policies with least bureaucratic hassles. Oil & Gas and Telecom are the two crucial sectors that need urgent reforms. Both these sectors are critical to the lives of the common man and need immediate attention. Talking about Gas, while suggestions of  the Rangarajan committee have been set aside by the present government, the petroleum ministry is yet to come up with a formula to calculate the premium for finding gas in the deep waters. As a result of the same, billions of dollars of investments are on hold!In the case of crude oil, Cairn India’s completely justified proposal for an extension of its Rajasthan block PSC  has been given a new twist, with the law ministry citing government’s right to raise its stake in the Cairn JV in return for the extension. This is when Cairn has actually found more oil and wants time to be able to pump it out.Not only does such an extension help the country since it encourages exploration firms to find more oil, 80% of Cairn’s earnings go to the government anyway by way of profit petroleum, taxes, royalty and profit-shares for JV partner ONGC.

The UPA government had taken seemingly  strange decision of not renewing the 900 MHz telecom licenses of Telcos despite the agreement having a provision for renewal that in turn triggered a bidding frenzy. But this time, it is worse. In the last auction, bidders could fall back on T800 MHz spectrum biddings if they failed to retain their 900 MHz spectrum. This time however, they can’t resort to contiguous 1800 MHz auction. The only solution is to get more 2100 MHz spectrum, as recommended by TRAI.  While getting extra 2100 MHz spectrum from the defense ministry isn’t that difficult—it involves a swap which works out better for defense as it will now have more consolidated spectrum—the telecom ministry is in favor of a two-stage auction with 2100 MHz spectrum being auctioned in only the second round; the first round will comprise spectrum in the 800/900/1800 MHz frequency bands.

red tapism (3)

Although it looks like an ominous solution things aren’t that simple as no Telco bidding in the first phase can afford to take a chance as there is no guarantee as to when the second phase of the auction will happen, and how much of 2100 MHz spectrum will be put up for bid. So, Telco have no option but to bid astronomically in the first phase itself.

Despite the present government’s pro-business intentions, not much seems to have changed at the stage of execution. Be it telecom or oil & gas, lack of proper planning and due diligence seems to have affected some of the most critical sectors. Although it is too early to formulate a strong opinion on the new government, Narendra Modi and his team has its task cut out – to wriggle out these two sectors from the grips of red-tapism.