Nitin Prasad, Chairman, Shell Companies in India feels that the government is on the right track with its measures to attract international investments into the oil and gas sector. Speaking to INFRASTRUCTURE TODAY on the sidelines of FICCI's Business and Climate Summit, he also touched upon the British-Dutch multinational's India plans.
Are you satisfied with the way the Open Acreage Licensing Policy (OALP) has rolled out so far?
Yes, absolutely! I am also the co-chairman of the CII committee on hydrocarbons. We have been observing the government quite actively for the last couple of years for new policies. We have identified two major issues. One, we need access to data. Having the National Data Repository (NDR) was key because you cannot look for something if you do not know where it is. Two, there must be a mechanism for companies to choose their own locations and they should not be bound by the constraints of artificial lines on a map.
In one of your earlier interviews, you had expressed concerns that the GST might make the oil and gas business expensive. What is your view post-GST?
I think that still remains. GST requires having consistency in the entire chain, from manufacturing down to the consumer, because it is the consumer who ultimately pays the final tax. If you exclude products, you have broken the chain. That means, somewhere somebody has got to pay for the fact that the chain is broken and that there is a tax that is stranded. There is a simple math on it. If I choose to expand my retail network by building several thousand stations, equipment etc., I attract GST. But I have no way of recovering any of that GST in my business model, because I cannot apply it to my hydrocarbons, as they go out. Therefore, it is an additional cost to me and it makes things a lot more expensive. This is obviously an industry issue and it has been taken up by a number of different individuals. Dharmendra Pradhan, Petroleum and Natural Gas Minister, is very supportive and I know a committee is taking a look at this. My personal view is that if the government is able to resolve this issue and structure petroleum products in phases, starting with gas or aviation fuels, the consumer will end up paying less, there will be more efficiency in the system and, ultimately, cost generation will be a lot more than the basic economics of more tax being paid.
What is the expected capex for expanding your retail network?
We will not give out any numbers. We have plans to get up to 1,500 retail stations. We have always had a license for 2,000. And, we spend time to understand what, where and how we can build this. Over the last couple of years, we have built a model by which our retail stations are four times more efficient than a regular station. They are built on high consumer preference for the brand, trusted partner, fuel quality and services provided at the station.
By when will this target of 1,500 stations be achieved?
We do not have a specific time. We have target timeline of, let us say, about 10 years that we want to see all stations up. It will happen in a phased manner. For us what is really important is to have a few things in place. One, customer experience, on which we place high priority. Two, whenever we build a station, we meticulously make sure the station meets all laws of the land. It takes 26 licenses and two years for us to build and construct a station. And, we are working with the government and trying to ask them to reduce the time.
You were saying that you have identified areas where you want to expand. Could you give us some details on that?
We are focused on energy transitions in India. We have mapped our future together with The Energy and Resources Institute (TERI) and Council on Energy, Environment and Water (CEW). One of the many areas that we are focusing on, given that it is a consumer-oriented demand field, is retail lubricants. We are also considering renewable energy, such as wind, solar and biofuels. We have developed technology for converting municipal waste to BS6 equivalent fuels in Bangalore and there is a demo plant in the city. We are scaling that technology and taking it to the rest of the country. Another area we want to take a look at is gas, as it is a clean burning fuel. We want to explore methods to take gas to downstream markets to replace diesel generator sets in industries. We are also taking a look at how LNG can be put in place in transportation.
Give us an update on the expansion of your LNG terminal at Hazira.
We are about five metric tonnes per annum (MTPA) today. We have done work to understand how we can expand the terminal. So it is about developing the engineering. There is obviously a critical point where you take the final investment decision (FID) to ensure expansion. And what we are looking for is growth in demand for gas that gives us the confidence to expand the terminal. Right now, we are focusing on starting a new organisation in the country called Shell Energy India. It is focused on building gas demand. When this is successful, downstream gas markets start to build up and it would give us the confidence to make the investment expand.
Where will you be sourcing the products from? Will you be importing them or will you be sourcing them from the existing refiners in the country?
We will focus on identifying cost-effective sources of products. We will start looking at different refiners and locations. There are certain longs and shorts in the country. You normally do not look at the country as a uniform place and say it has all long or all short products. There are pockets where it makes economic sense for the refiners to sell to private players like us and there are areas where it is more viable to import products. We are considering the full range of solutions to be able to get there.
One generic question, at a time when everyone is talking about renewable energy, what is the prospect for the hydro carbon sector, going forward?
I think it is very positive. The prime minister set a very clear target that he wants to see a 10 per cent reduction in the import of hydrocarbons in the country. I think that a lot of work needs to go into two different areas. The first one is increasing production within, which I think OALP is all about as they discover small fields. The second one is about enhancing oil recovery. We have a lot of fields that are ageing. Their production is declining and I think there is a lot of technology that can be used to increase the production in these fields. That technology requires a different type of policy framework and a different type of collaboration with Oil and Natural Gas Corporation (ONGC) and other players. The government is thinking quite hard in terms of what it can look like and how viable it can be economically to bring enhanced oil recovery technologies into the country. But I think it is really important to deliver 10 per cent reduction in imports.
The government is seeking comments on the Enhanced Oil Recovery (EOR) policy. What are your suggestions?
I think the important point is not necessarily fiscal benefits and discounts, because they tend to go down a difficult path. What we look at is a little bit of level playing field and the opportunity to create an economic model that is viable and sustainable. We have done a lot of work in partnership with governments across the world. For example, we recently signed a technical services agreement with the Kuwaiti government. We have even done an agreement with the Emirate of Dubai. And these are very powerful agreements because the ecosystems that they have developed have helped us create an EOR policy. We worked with other governments too, but I cannot name them for reasons of confidentiality. What you must understand is that EOR is very field-dependent. Every field has its own unique characteristics and technology applied, and the cost is fuel-dependent. What you need is an umbrella policy of some sort. But then it requires a lot of work to sit down with the government and go one field at a time to really understand what can be done and what benefits can be derived.
Would you be bidding for the oil and gas blocks in India?
I think there is a lot of work that needs to first go into taking a look at oil and gas exploration blocks, and we have certainly looked at them to assess their economic viability. For a company like Shell, you have to understand that it is in competition with the whole world. If we have to put in a few billion dollars into India, we must also understand whether that investment can instead go into Brazil or Australia.
- Manish Pant