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Chairman's Address

Chairman’s Address at
Annual General Body Meeting on December 02, 2017

Dear Members,

On behalf of the Governing Council and on my personal behalf it gives me great pleasure to extend a warm welcome to you all in this AGM of your Society. An especially momentous occasion, this AGM is the first to be held post the merger of Petroleum Federation of India with Petrotech Society. I am very happy to state that today is also the foundation day of FIPI as society was registered in the new name on this day last year. The rechristened entity, Federation of Indian Petroleum Industry (FIPI) has continued with the legacy of its predecessors to emerge as the unequivocal voice of the oil and gas industry in the country.

We stand today at a very crucial juncture in the Indian economy. A variety of significant developments have come forth in the past couple of months. With India jumping up 30 notches into the top 100 rankings on the World Bank’s ‘ease of doing business’ index, thanks to major improvements in indicators such as resolving insolvency, paying taxes, protecting minority investors and getting credit, India is steadily securing its position as a preferred place to do business.

It has been a year since the momentous demonetization and four months since the roll out of the landmark Goods & Services Tax (GST) signifying an immense change in the way India wants to conduct its financial transactions going forward. The idea of ‘one nation one tax’ system while noble is not one without challenges. While countless deliberations are taking place around the implementation of GST, for the oil and gas industry the worries are of a different nature. The exclusion of Crude Oil, Natural Gas, MS, HSD and ATF from the purview of GST has brought about a multitude of challenges for the industry. While the last month has seen some kind of respite for the stakeholders in the form of reduction on the GST rates on bunker fuel, revision of rates on transport of natural gas through pipelines and offshore work and exemption of import of oil rigs and its accessories imported under lease from Integrated GST (IGST), there still needs quite a lot of intervention on part of the Government to bring about the much sought relief for the stakeholders of this industry.

The ratings upgrade India received from Moody’s Investors Service after a gap of 13 years is definitely a big boost to investor sentiment and is likely to lower borrowing costs of Indian firms. However, our macroeconomic stability can get impacted with rising oil prices.

While higher oil prices may be welcomed by some in upstream sector, they may dampen the outlook on the economy as they drag down growth, tend to widen the twin deficits (fiscal and current account), and raise inflationary risks. Among the major emerging market economies, India remains particularly vulnerable to rising oil prices, as it now imports in excess of 80% of its petroleum requirements. We therefore need to continue to focus on increasing domestic oil and gas production. There is a need for providing fiscal initiatives for production of oil by IOR/EOR initiatives and move towards market driven prices for natural gas. The current price of gas (2.89) does not even meet the cost of production.

The policy initiatives of the government are well on their way to propel the country towards a resilient and self-sufficient economy. The year 2016 saw many initiatives taken by the Government of India to promote Oil and Gas sector. Ministry of Petroleum & Natural Gas (MoP&NG) announced several policy initiatives in the last year to encourage the industry and investors with the objective to accelerate the exploration and production activities in the Hydrocarbon sector. Some of the policy decisions included a forward looking Hydrocarbon Exploration and Licensing Policy (HELP), Marketing and Pricing freedom for gas produced from Deepwater, Ultra Deepwater and High Pressure-High Temperature areas subject to certain conditions, Extension of the Production Sharing Contracts of Small and Medium sized discovered blocks, The Discovered Small Field Policy, etc.

The above policy initiatives aimed at increasing the domestic production of Oil and Gas also increased the confidence of the investors in the Indian market. Government followed the principles of “Minimum Government – Maximum Governance” to attract investment, improve transparency and minimize administrative discretion.

In another unique development in 2016, Hon’ble Minister for Petroleum and Natural Gas, Shri Dharmendra Pradhan released the Hydrocarbon Vision 2030 for North East India, with the objective of leveraging the North Eastern region’s hydrocarbon potential; enhance access to clean fuels, improve availability of petroleum products and facilitate economic development and to involve local population in the economic activities in this sector. The beginning of the year 2017 saw many new proposals of the Government which will help accelerate the growth of Oil and Gas Industry in India. The Government announced setting up of the Strategic Crude Oil Reserves at two more locations, namely Chandikhole in Odisha and Bikaner in Rajasthan which are crucial for energy security in case of any supply disruptions.

The contracts of the Discovered Small Field (DSF) Bid Round 2016 were also awarded to successful bidders. The peak production from the awarded fields is expected to be around 15000 BOPD of oil and 2 MMSCMD of gas over the economic life. The estimated total revenue would be approximately Rs. 46,400 crores, of which royalty collection and Government’s revenue share is expected to be around Rs. 5,000 crores and Rs. 9,300 crores, respectively. It is also estimated that employment for 37,500 persons would be generated through these awarded fields.

Key decisions of the government seem to indicate its commitment towards the hydrocarbon industry. With the approval to acquire 48,243 line kilometers (LKM) 2D seismic data for appraisal of Indian sedimentary basins, the domestic production of Oil and Gas is bound to be propelled.

In a ground breaking decision, India has switched over to the Open Acreage Licensing (OAL) regime making it a part of the elite league of nations that offer areas for exploration and production of oil and gas round the year on liberal fiscal terms including marketing and pricing freedom. On June 28, 2017, Hon’ble Minister for Petroleum and Natural Gas inaugurated India's maiden National Data Repository (NDR), state of the art Primary Data Center (PDC) which stores information on seismic, well log, production and cultural data of 3.14 million sq km of sedimentary basins. Under OAL, companies can visit NDR and look at vast seismic data of currently producing fields and explored areas as also those of unexplored areas. This would enable them to carve out an area suitable to them and submit expression of interest for reconnaissance, operations and exploration operations in the areas that are not under any licensee. Expression of Interest (EoI) for the first round of Open Acreage Licensing Policy (OALP) has been solicited from the market and last date for which was 15th November, 2017.

A major announcement in the last budget was the integration of the state run oil companies which is certainly a game changing move to create global behemoth(s) that would compete with some of the largest global oil and gas players. The process for the same has already been initiated and it is a matter of time before we see the combined efficiencies of these giants.

April 01, 2017 saw an important landmark for our sector when the Hon’ble Minister formally launched BS IV fuel from Bhubaneswar to mark the supply of environment friendly fuels across the country. OMCs are investing heavily to leapfrog to BSVI by April 2020. In view of the serious environmental concerns in NCR, OMCs have agreed to supply BSVI fuel from April 2018 in Delhi and are looking at options to supply BSVI in entire NCR from April 2019.

Under the Government’s flagship programme, Pradhan Mantri Ujjwala Yojana (PMUY), the state-owned Oil Marketing Companies (OMCs) have successfully released 3.25 crore new LPG connections during FY 2016-17, the highest ever number of LPG connections released in a financial year so far in the LPG history of the country. The latest mandate for the oil companies is to add 10 crore new cooking gas customers between April 2016 and March 2019.

The Cabinet Committee on Economic Affairs (CCEA) gave its approval for marketing and pricing freedom to the Coal Bed Methane (CBM) companies to sell the CBM at Arm’s Length Price in the domestic market. It has been mentioned that a transparent and competitive process has to be adopted for sale of CBM with an objective to realize the best possible price of gas with no restrictive commercial practices. This is a welcome move towards gas price freedom.

Steady efforts are being made on building a natural gas trading hub that will bring in transparent pricing mechanisms for domestic as well as imported gas.

Your Federation is well into the way of paving the steps towards the determined bright future of the Oil and Gas industry. In order to commit ourselves to this resounding vision, we have undertaken various projects and programs. The project on “Accelerating India’s transition to gas by enabling increased market access” was commissioned by the British High Commission and was worked upon by a consortium of erstwhile PetroFed, IHS and ICF. The purpose of this project is to catalyze a faster transition to a gas based economy in India.

The guest lecture on 'Environmental & Health Benefits of LPG, the Clean Cooking Fuel’ by Prof. Kirk R. Smith, Professor of Global Environmental Health, University of California was of great significance and quite timely especially considering Govt. of India’s initiative of spending Rs. 8000 crores in three years solely for providing clean fuels to India’s poor.

To develop a gas based economy in India, erstwhile PetroFed in partnership with CII and Natural Gas Society initiated a national campaign ‘Gas4India’, which was launched by the Hon’ble Minister on September 06, 2016. Gas4India is a unified cross-country, multimedia, multi-event campaign to communicate the national, social, economic and ecological benefits of using natural gas as the fuel of choice to every citizen who uses, or will use in the near future, gas in any way - to cook, travel, light their homes and power their businesses. The Gas4India campaign includes social engagement via Twitter, Facebook, YouTube, LinkedIn and its official blogsite, as well as hyperlocal, offline events to directly connect with consumers through discussions, workshops and cultural events.

During the period June – October, 2017, a series of workshops on Goods & Services Tax and its varying impact on the Oil and Gas Industry were organised. Commencing with preparing for the regime to possible operational challenges that could be faced by the companies, the deliberations of these workshops aimed towards possible resolutions by making suitable representations to the government.

A two days Conclave on the theme “Clean Fuels for Cooking & Transport: Social, Environment & Health Benefits” was held on April 27-28, 2017 and was felicitated by Dr. Pierce Riemer, Director General, World Petroleum Council; Mr. Christof Van Agt, Senior Energy Analyst, International Energy Forum; along with senior officials of the Oil and Gas industry. The workshop was highly informative and focused on cooking fuels including penetration of PNG in India along with improving the efficiency of supply chain in LPG distribution specifically in remote / rural regions. The health impact due to switchover to clean cooking fuels was also deliberated in detail during the workshop. The workshop also delved into clean and sustainable transport needs for India and the leapfrogging from BS IV to BS VI type engines and its potential impact.

The FIPI Awards 2016 were given away by Shri K.D. Tripathi, Secretary (P&NG), Government of India, Ministry of Petroleum & Natural Gas on August 08, 2017 at a well-attended ceremony at New Delhi.

FIPI had the pleasure of hosting Mr. Bob Dudley, Group Chief Executive, BP p.l.c in an ‘Energy Dialogue’ series. This dialogue was attended by Shri Dharmendra Pradhan, Hon’ble Minister for Petroleum & Natural Gas , Shri Piyush Goyal, Hon’ble Minister for Power, Coal, New & Renewable Energy & Mines; Shri Rajiv Pratap Rudy, Hon'ble Minister for Skill Development & Entrepreneurship; as well CEOs of major oil and gas companies in the country.

India is about to embark on the most ambitious electric car transformation in the world. With the world’s fifth largest auto market moving towards electric vehicles by 2030, the need of the hour for our industry is not just to analyze the pace and challenges of transformation but also to carve an indispensable niche for itself. The need for introspection is now and it would bode well to accept and assess known challenges now rather than unknowing perils later. I am glad to learn that FIPI has initiated a study to assess the impact of such transformation to electric vehicles on the oil refining sector.

With the rapidly changing dynamics in the global oil & gas business and its impact on the companies in the hydrocarbon and allied sectors in India, a more detailed and goal oriented approach is required in evolution of new policies pertaining to the hydrocarbon sector. FIPI plays a critical role as an apex industry body of the oil and gas sector in advocating and addressing the issues and concerns of member organizations and appropriately take up with the Government, regulatory authorities and other stakeholders.

I take this opportunity to thank all members for their constant support and inputs, which helped the Federation, make an effective contribution for the healthy growth & development of the industry. I also thank the government for their support in propelling the growth of the industry. I would like to convey my appreciation for the excellent work and support of the Team FIPI in helping carve a niche for itself.

I once again welcome you all to this Annual General Body Meeting of the Federation of Indian Petroleum Industry.

Thank you,

(Shashi Shanker)
Chairman, FIPI

December 02, 2017