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Overseas acquisitions should be very focused

Overseas acquisitions should be very focused
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First Published: Mon, Feb 22 2010. 11 15 PM IST

Chalking out plans: Petroleum secretary S. Sundareshan. Ramesh Pathania/Mint
Chalking out plans: Petroleum secretary S. Sundareshan. Ramesh Pathania/Mint
Updated: Mon, Feb 22 2010. 11 15 PM IST
New Delhi: He has taken over as oil secretary at a time when the government is considering a proposal to increase the prices of diesel, petrol, cooking gas and kerosene to address under-recoveries, or the losses state-owned oil marketing firms make by selling at government-mandated prices.
S. Sundareshan, who assumed charge on 1 February, has been with the ministry for around three years as additional secretary and special secretary. He has also been chairman of the Forward Markets Commission, which regulates commodity markets, and has served in the ministries of finance and commerce. In an exclusive interview, Sundareshan spells out his plans. Edited excerpts:
What are your priority areas?
Chalking out plans: Petroleum secretary S. Sundareshan. Ramesh Pathania/Mint
I have already laid out three priority areas in the course of the next few weeks, months, which have to be tackled on a priority basis. First and foremost is to resolve the issue of the under-recoveries of oil marketing companies. Our estimation is that at current rates of international crude oil, we may end 2009-10 with under-recoveries of the order of Rs43,000 crore.
Such under-recoveries are not sustainable and it is in this context that the government appointed the Kirit Parikh committee to look into the issue. Certain recommendations have been received through the report of the Parikh committee… We hope that decisions will be taken by the cabinet which will ensure that the under-recoveries of oil marketing companies are addressed on a sustained basis and also that the upstream companies, ONGC (Oil and Natural Gas Corp. Ltd) and Oil India (Ltd) are aware of what sort of contributions they have to make (to offsetting part of the under-recoveries), so the whole industry can function with predictability, knowing what is going to happen in the financials in the course of the year and in the future.
What are your other two priorities?
The second is to resolve this whole issue of gas in the country. This involves two issues to be dealt with. One is the question of equitable pricing of gas. Today, we have a situation in which gas from various sources is priced differently. With regard to APM (administrative pricing mechanism) gas, we already are in the process of taking a note to the cabinet and I hope that the decisions will be there which will ensure that the prices across the country are equitable and also that the high cost which ONGC and Oil India are incurring on production of gas is somewhat compensated.
Along with the pricing we also have to look into the distribution of gas all over the country. Today, there is an imbalance on the availability of gas. Certain parts of the country, particularly the south and east, do not have supply of gas at all, or very, very marginally, while other parts are better placed. So, we have to strengthen the pipeline network. So, the emphasis will be through GAIL and other agencies to ensure that the pipeline network all over the country is completed and this will also involve, in the interest of the domestic consumers both for transportation and for domestic use, expansion of city gas supply.
The third priority area is to address this whole issue of energy security, which would involve strengthening our production capacity, indigenous and outside. As everybody is aware, about 75% of our requirements are actually met by imported crude. And in terms of gas, the situation is slightly better because of the increase in production from the KG (Krishna-Godavari) basin and also the potential that exists in the future, but the situation regarding oil is not so encouraging... So the point here is that our companies, both public sector and private sector, have to be encouraged to shorten the time lag between the discovery and production.
Do you think it is a matter of concern?
It is a matter of concern and we should ensure that facilities exist for moving from discovery to production very quickly. We should also have more companies working in the field of exploration, which means that Nelp (New Exploration Licensing Policy) has to be made attractive. So this whole area of making exploration attractive and concentrating on shortening the gap between exploration and production would be a priority.
And also, we should be exploring opportunities abroad. So we shall ask OVL (ONGC Videsh Ltd) to move forward in acquisition of assets abroad in a very focused manner. And one way of moving forward would be to really have all the oil companies moving forward together under the leadership of OVL. Now we find that various OMCs (oil marketing companies), other oil companies are also spreading their interest in a very, very thin fashion across the world. Our efforts will be to see that wherever we move, two or three companies get together and move forward so that they can also mitigate their risks.
When we talk about energy security, what about the latest round (of bidding for exploration blocks) in Iraq? We have not been very successful.
I think I would really like to clarify this very clearly because very often the (newspaper) reports highlight the fact that OVL has failed somewhere or not succeeded somewhere. It must be realized that in most parts of the world, competition is on transparent lines just as it is in India. Just as we are proud of our processes, all countries are proud of their processes and they put in place transparent bidding process. OVL competes with other bidders in trying to acquire these blocks— whether it be in Iraq or in Venezuela or in Uganda or in Angola or in Nigeria. They make bids on their assessment of the potential of the blocks they are bidding for and their assessment of the likely financial returns. In some cases their bids are not highest in terms of return to the host country and they fail. So the failure, for example in Iraq, is not for any extraneous reason or not for any failure on the part of OVL; it is just that their bids were not the best.
So that is not a matter of concern?
As a matter of fact, I had discussions recently with the managing director of OVL and what we discussed and decided was that we should have a yearly target to acquire X number of assets at Y costs. That would be the kind of investments that we should be in a position to make. We should probably be trying four times that number so that we can hope for a success rate of 25-30%, which would be reasonable. The point that I want make is that the problems that OVL faces are the problems of a mature player in the market and they have to compete with other mature players and sometimes they will succeed and sometimes they may not succeed.
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First Published: Mon, Feb 22 2010. 11 15 PM IST