C, s,o i evi ,zA ijn 3Jjjj, C ?173/ I7YSo v.7 ***** *** *** * ****** * ***** * ** * ** *** *** * **** ** *** **** * **** * **** **A NATIOMAL OIL tC -OAWES IN'A DEVELOPING COUNTRY ." TUE CASE OF INDIA By G,V, RAMAKRISHNA Secrat4ty t.o the Government of India Mlnistry of Petroleum & Natural Gas Preeaented at THE PETROLEUM MANAGEMENT SEMINAR CHINA V'Mach'y1988 ***************j*,********** ****** * ** * , ,jJ)b .1'ŽCX4..> W 1 i ,i E,S': I-' 1B> [3S,. /1 i I HH3lB3BN AidJ-lIt jOdm 1~181 I. INTRODUCTION: The purpose of this paper will be to sketch the relationship between thie Government of India and, the Government owned petroleum :ompanies. It wLll focus on the nature and extent of government involvement in the corporate decision making process; che prime motivations of the State in seeking such involvement and the implications of this relationship on the formulation and implementation of corporate strategy. In addition the paper will track the development of thie petroleum industry since independence and evaluate its performance in promoting the broader objectives of self sufficiency, self reliance and economic growth. It will conclude with a brlef on the ftture course of the industry and the institutional changes required to ensure the industry's continued effectiveness as an instrument of goverssnment policy. 1. IISTORtICAL OVSRVIEW: (a) Struteure: Ac the tine of i.ndependenec iLT,n947, the petroleum industry fn 'India was almost. non exi8tent. One coinpany, Burmah O1i Company of lUK (U3OC) was the sole organisation engaged in exploration and production. ITsL activities were confined to'exploration of a small acreage in :the North Eastern State of Assam and to production from the Digboi field, a diecovery which 4ssqm i,il.ways & Trading Comnpany (ARTC) had nmade way / back ip 1890 and which,.had passed on to BOC in 1921 when it acutiired 1.:,; fl,' - -. - -- _E> 6z ,ii SC' H3-i 1]1C E i¶'2]w IVI AI 2 ARTC. In addleton one other company, a joint venture bietween Bfurmnabh 011 and Shell was intvolved in the refining, marketing and dlstribution of produiets deri.ved from the Digboi crude. Production from Digboi wao however a meagre 250,000 tonnes per annum and was thus of limited consequence. In the inttial .years of independence, the Government did not involve itself deeply in the petroleum;business. BOC was allowed tO continue its exploration and production activities and permission was granted to two other companies to sat up refineries - Standard Vacuum Oil Company in Bombay and Caltex in Visakhapatnam on the East Coast. Burmah Shall. was also accorded permission to establisih a second refinery in Bombay, apart from the one in Digboi. Early indication of the Covernment's intended policy towards the petroleutm sector was reflected in thf model of economic developtmenc that It adopted. Keeping in mind the backwardness of the Indla,I economy andl the poverty of the people, the Covernment decided to pursue the path of rapid industrtaltsacion withiln a framework of economic planning and socialism. A role f9r the private sector was recognised but the major responsibility for channelling thie resouVces of the country to acthleve growth with equity was taken up by Lehe Covernment. With regard to industry,._thia philosophy found clearestc expression in -the Industrial Policy Resolution of 30th April 1950. The Resolucion articulated the rationale for Government control of lndustries expected to occupy the "commanding heights" and essential to the managemeTnt of the economy, .,P,Iyoleum was listed as amotng the Imost ituportant .of these, industries. In consequence, the Oil & Natural Gas Commission. (ONCC), the Indian Refineries Limited and the Indjian Oil Company Ltd Fere created as Government owned petroleunm enterprises in 1958-59, ONCC, created by an Act of Parliament was assign9,8d the 'task of exploration and developmllent, the Indlian Refineries Limited was made responsible for 51W. .3 L I 3 8. I i HS B13;I H i3 -itli III 4, "I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -~~~~~~~~ 3 3 supervising the construiction and tlheruafter for operating the thrue niew refinearles that theo Governmuesit had decidad to estabXlish Inl CaUiaL:L * ~~~~~~~, '** (Assam), Barauni (Bihar) and Koyali (Cujarat) and Indian Oil Company 4 . ~~~L *t' al ., V ' Ltd wai conflned' to the creatton of a nationwide network for thu, * . - a.I 'a distribution of petroleum products. Later in 1964, Indian Oil Comipany was merged with Indian Refineries Ltd and a new entity IndLan OIL Corporation (IOC) was given primary responsibility for all downstreanm activities - Refining, Marketing and Distribution. The operations of the private companies were not disturbed but the inretit to eventually bring them into the public sector was made known. It was clarified that, this would be done through a process of mtutual discussions and not by a unilateral decision of the Government. Assurance was provided that the companies would be fairly compensated for their interests. It was in this spirit that the Covernment acquired 50% of Burmab( Oil Company's equity in 1959 aud incorporated a joinit venture company called Oil India Limited :(OIL). The Government ehareholdlng In OIL was increased over the years and in 1981, OIL became a 100% Government owned entity. In like vein, in the late 70's Burmah Shell's refining and marketing interests were transferred to Bharat PetroLeum Corporation Limited (nPCL) and Stanvac and Caltex interests tbo ilindustan Pearoleum Corporation Limited (HEPCL). The Covernment also had d9minqnt sharehoIding in the two, additional refinerleg that had be aet up, Bc3int yentures between it and tlhe international cotnpiniei ini the early '1960's - the Madras Refinery Limlted (MRL) with National Iranian Oil Company and AMIOCO anid ctie Cochin Refineries Limited (CRL) with Phillips Petroleum and Duncan Brothers. Majority equity control, waS alao secured in 1972 irn the Indo-Burmab Petroleum Company (itP), a joint venture petroleum marketing company. As a result all pecroleum coinpanies are today under Govertiment. control. One should mnencion that in addition to the above comnpantes chere fire two more state owned petroleum enterprises. The Bongaigon Refineries and Petrochemicals Ltd (WI4PL) was establlshed in 19;9 for the refining of crude and the manufacture of Polyster Staple Fibre and /~~~~~~~~~~~~t , :3 zi ,3, X;38.- b; XE'2 Iw IHi t'J4i F1 ,liGdlI' WibdJ i Sa - IH1d'3 4 the Gee Aathoriry of TndLa Ltd (GAIL) in 1984. The creation of GAII. follows thie cliscovery of substancial quantities of natural ga4 and recognition of its emerging significance as a valuabl.n energy hiource' and petrochemical fesdatock. GAIL is responsible for identifying the potential markets for the utilisation of gas and for creating the dowinatream infrastructure that is required to bring the gas from the well head to the end consumers. THE STRUCTURE OF Tll? INDUSTRY IPRIME MINISTER &T NE CABINETJ Ii WISEROF STATE FOR PETROLEUM & NATURAL GCASI I L MINISTRY OF PETROLEUM & NATURAL GAS - IB! E ¢J Upstream Gas Downstream * ONGC * GAIL., * IOC * 4O ,L .- ~ * UAPCL OIL * 'PCL *MRL *q r *CRL * BRPL * IBP (b) Tle Institutional Link Between the Government and the Petroleum Ccmpanies Two factors of background importance should be kept in miwnd when discussing the relationship between the Government and the ptiblic sector petroleum companjej3. One, India to a parliamentary democracy with Parliament as the supreme legialative and decision making forws d ', :*t 8a8s 6 1/ 20 IH32flB3IH Qldvi W0d - .,~~ ii I -'i.i .1'- ,; 4*1 ¶ &L'r* 5 In the country. All Covernment" owned entitied are ultimately accountable to Parliament which exercises its rights of scrutiny b)y questioning the responsible Cabinet 'Minitter. Cabinet Ministers are kepc briefed about the performance of'the public enterprises by thu Civil Servants who In turn maintain close links with the corporate management. Second, as a planned economy, sectoral plans have to be dovetailed with the broader national priorities. The responsibililty fpr reconciling the objectives of individual sectors with the strategic aims of the Government rests with the Planning CommissLon under the Chairmanship of the Prime Minister. Corporate plans have to therefore be integrated with the national plan as drawn up by the Planning Commission. The broad guidelines for determining the institutional links between the Government and the public sector enterprises were spelt out in the Industrial Policy Reoclution 1956 in the following language -..speedy decisions and a willingness to assume responsibility are assetnial if these 'enterprises are to succeed. For this, whereuver possible, ttlere should be decentralisation of authority anid ttheir management should be along businesi lines. It is to be expected ttl8C public enterprises will augment thu ruvoenties of the otate and providu reaources for further developmenrt In fressh fields. But such enterprises tay sometimes incur lossee4.Publ±c Enterprises have to be judged by Jtheir tocal results and in their working they should have the largest possible measure of freedom". The intent was clear. The Government should exercise appopriate apriori control over the setting of corporate objectives and corporate strategy. ' But. in doing so, it should take care to allow for wide managerial autonomy. The decision making interface between the Government and the publ$c seccor enterprise should be auch chait on the one hand Government can ensure the compatibility of corporate policies with the broader pattern of econoaic development and on che other, management can achieve the highiest norms of efficiency and profitability. The relationship betwoen.1the Government and the varLous pOetrtleIm companies has evolved withLn these broad parameters. . 88/6*. GIJ IH13dl,13;iH Aa-lYdlil IOd- 6 . , .~~~~~~~~~~~I The Ministry of Petroleum &-' Natural Gas is the Government Department responsible for overseeing aad coordinating the perfortuutice of the various petroleum companies.' It exercises this reapontLbllity through participxation in Board Meetings of the Companias on which the Mtinistry is represented and also by administrative interaction between Ministry officials and corporate management. Thus all matters of corporate policy which require the approval of the. Board of l)irectors has thie beneftt of Government input. It is at these meetings that Government indicates the broad guidelines that Management should take into account when setting corporate strategy. In between of course, management can seek assistance and clsrification from the Government on an al-most continual baiss. Macro planning is_,,carried out., by the Planning Commission ac intervals of 5 years. These five year plans not only define macro economic objectives but also lay down with great specificity the targeca for indlvidual sectors. These include the amounts that public enterprises are expected to contribute to thec state exchequer atid/or how much they will be able to draw down as state subsidy. T'he plian alao fixes the allocation of resources between aectors and within eachl sector between individual entities., Thus, the oil and gas sector.yas allocated Rsu. 126.3 billions during the present five year plan (1985-90), of whlch the share of the exploration companies ONGC and OIL was Re. 97 billions. Reviews are held annually to progress the implementation of the five year plans. At these annual plan exercises, tthe Planning Commission evaluates the past performance of the company keeping In view the strategic objectives of the Government as articulated in the 5 year plan document and asseSses its investment requirements for the fol:lowing fiscal year. These meetings are an occasion for reviewing the implicarione of unanticipated market developments and for making appropriate adjustments in the distribution of resources. s t 1 | ' !~~~~~~I ) ,lr I ys 1t.'I *' d T' SS 1Hi B13i 3 *1at1-161)1 WCJd i 7 Corporate Plans of the oil Companies are dovetailed with the country'u Five Year Plans. The companies have thereiforu to securu clte approval of the PlIanning Commissilon for investment outlays for a five year period and for each year with1n,this period. Resources are also identified for these investments from the internal resources ofc the company, from external borrowing and from the domestic capital market. Where necessary Government provi.de resources from its capital budget by way of, equity contribution and/or loans. Initial drafts of the corporate plan are first discuseed bietween the Ministry of Petroleum and the -public enterprise-. a ThS phase` of nteraction provides the Ministry, which is the one organisation that has an overall picture of the industry, the opportunity eo Identlfy and remove conflicting or overlapping proposals. Once the plans have been submitted to the Planning Commissiont the Mlnsitry anid the relevant enterprise whose proposals are under review are together required to explain its rationale to the Planning Commission. The Five Year Plan ts finalised after detailed discussions- which takea into account the demands of other priority sectors. Once issUed it is an expression of government polLcy for inveotment and resource generation and allocation for the company or enterprise. Within the approved Five Year and Annual Plan outlays, the Boards and Management of the companies have delegated powers for approving investment in specific projects upto certain aijrn-1t t,h1oh have vaorij;osi fE^M t!me f) ,t4mo. ru!turiPly -hp 11 n4h lI moat cases is Ra;;.200 million. investrments above this limi.t have been approved by Government after "a techno-economic appraisal of the project. One other issue should bellmentioned in regard to the Government's relationship with the public sector enterprises. Broad guidelines have been prescr,be by the Bureau of public Ent'erprises, a Covernmenc Department underi the MHinstry of Ind4scry on matters relating to the termrs 9f employpent of, public seco1 employees, wages and salary levels .and hous{ng.1 These Suidelineq ,are kept in mind by corporate management and ainy, variations that are felt necessary for corportire specifi-c reasons are jujstified by, the individual companies. * 'l jw i* SE_ US ' :8j 1dE./bi1'c I -J tH1Gi'IBN Ai&ldIif NOdS 8 3 To esummarise, a priori constraints are placed on the autonomy of the corporate management of petroleum enterprises in the formulaitton and apecification of corporate . objectives and corporate Mtrat;egy. These have to be meshed with the wider plane of the economy and the resource requirements of other. sectors. Financial powers are deleigated and broad guidelines are also issued for lHuman Resource Managemuent. But withini these parameters the Management have a wide areia of operational, financial nd technical autonomy. Posteriori controls are geared largely towards the monitoring and evaluation of corporate performance particularly in matters relating to financlil and budgetary issues. Management s are responsible and accountable for efficient and profitable operations. ( c) Pricing: (e)~ ~ ~ ~~ The price for 'crude and petroleum products are acministratively fixed by the Covernment. Admilnistrative pricing wasr Trt-rodoced in 1957 as one of the coneequences of the Industrial Policy Resolution. Until then the four private oil companies hlad almost complete latitude to set price. 1 rn 1947 they had agreed amongst chemselves to price petroleum produccs on a cost plus reasonable return basuis, tAtor in 1950 they adopted thie "value sto;k accumulation" system whareby prices were related to the FOB price of products Ras Tanura in the Gulf plus freight, insurance, other expenses and a 10% return on investment,. This principle was retained for, some time after the introduction of admintstrative prices with the Goyernm9nt l14ting.ita role to ensuring that the final price reflected actual costs and .excessive proftts were not made. Steps were however initiated to review the,#nt4re pricing process and in the .. .. . .X.Ii . .. .. ,* V ,. 9 early 60's, the Government decided to base the ex refinery price of products on the concept of imporL parity. This concepc was a'ltersru li the 1970's and refineries were.now offered "a retention margin" baaied on operating expenses and a reasonable return on investment, 'rhis system is still in force rtoay. The "rete"ntion' margin"' for" each product determines tthe ex refinery pr1Ace cMi'rged eto the marketiin;g company. This in turn sets the base for e.t,bliahing the selling price that the marketing companies are permitted to charge the consumer. The selling price Incorporates the statutory le4ies and a distribution and marketing profit margin. Apart from the retention price, the actual consumer price provides an element which goes to support the variuu plart programmes of the Central and State Governments. (d) The Performance Of The Indlan Petroleum industry; It would be useful at this Btage to review the effectiveness of the organisational structure, the decision making process and the pricing mechanism described in.the previous sections by ouclini(ig the- performance of the petroleum. industry since independence. It shou:td be recalled that the objective-of bringing the petroleum sector into the publrc fold was to exp*dlte' the attainment of self sufficiency and self reliance, Tn 19,47, n4igenous production,waa a mere 250,000 tonnes per annrm. Explorat$qn had been carr,&ed Qut only in the Northeast State of As-sam. Onu refinery with q throughput of 0.5 mtpa was the extent of downstream capacity. And most telling, no more than a handful of Indians had found employment In the technical and executive cadres of the foreign coppanies. As aq yqpult, India wes almost totally dependent on the, outside world for-4.ts petroleum requirements. I 0 Forty years later in 1987, IOC is ranked by sales among the Fortune 100 companies of the World. India has raised its indigenous production to over 30 mtpa and its refining capacity to over 46 mCpa. In consequence, the country m6eetp around 62% of crude requiremients from domtestic supply and importw.around 4.5 MMT of productts. Equally impressive, tthe industry, ham developed strong tcthnicall skills comparable to the highest International standards. It' has, as a result, been able to extend ita upstream and downstreauxi activities to the lnternational arena and is an 'active competitor with the foreign multinationals for the provision of consultancy and training facilities-to the petroleum industries of third countries. ONGC and OIL together should be credited for the significant progress that has been made in tapping India's indigen5us reserves Table-I traces the growth of production of both crude oil and natural gas since independence. Table-I Year Crude oil Production Natural Cas Production (millinon tonnes) (million cubic metres) , 1948*, , ,,; ,,.i . 0.2 ,i l' n.a. 1955 & 3;, *, ;n.a. 1960 0.45 n.a. 1965-66 3.47 1445 1970-71 6.82;. 2368 1975-76 8.45 2358 1980-81 ,10.5¾(L.C 8134 1987-88 30.17 9839 (86-87) (anticipated) ~~,~ , t7 SR/ E I E(D H-~~~3(&3YrN j {4~~~~~~~~~~~~31 tV One should mention thar the spurt in production during tthe period 1980-81 - 1985-86 was almost entirely due to the development of tho giant Bombay High Offshore 4iscovery by ONGC. This field along wich N che satellite discoveries contributes 20.6 mtpa to IndLa's aggregate production. The balance productilon originates frool onshore discoveries in tthe states of Assau-Aruz1achal Pradesh in the North Easlt and COtjarat in the Wesst. lThere has been a corresponding rise in the drilling activity of che two exploration companies. (Tsble-2) Table-2 1980-81 1986-87 Wells Metreage Wells Metreage (1000 M) (C0OO 4) Onshore Exploratory 45 , 96 78 236 Development 40 71 180 369 85 167 258 605 Offshore . Exploratory 15 40 44 132 Development 20 42 35 116 35 82 79 248 TOTAL 120 249 337 853 , , . 1J1 d e~~~~~t7 El8,6,8i IH73af3N HAdG7ill W06S 12 As a result of this expansion in exploratory drilling the reserve base thaa been appreciably increased (Table-3) Table-3 Year Balance of retcoverable Reserves to Produ- reserves (at che bagi- ction ratio nning of the year) (oil) GAS OIL (billion cum) (mnt) 1970-71 62 128 18.8 1975-76 88 144 17.0 1980*81 352 366 34.8 1985-86 479 SOO 16.6 1987-88 541 577 19.1 (provisional) The growth of the downstream #ector has been equally imnpressive. Refining throughput capacity has risen from 18.3 million tonnes per annun in 1970-71 to 45.7 mtpa in 1986-87 (Table-4) Table-4 Crude Throughput (000 tonnes) 1970-71 1975-76 1980-81 1985-86 1986-87 Public Sector Refineries 10820 179p5 25333 42910 45710 Private Sector w Refineries 7559 5238 503 - - TOTAL 18379 22283 25836 42910 45710 t l I ' d S t'w Lt 38s6 I/s 9 l 1H73a3N AaEPIdFI WOd.u : 1 i ,t alhould be reCalled tha t th 'private sector refineries thar- existed in 1970-71 were eventually broughit into the public sector fold, so that: by 1985-86 all' the refineries were under Governiment cont t rol. The infrastructure for transport;at:ion, marketing and distribucion has been built up in tandem: With the growth of production and refining. In 1.947 there existed only one crude oil pipeline connecting the Digboi field to thea Digboi refinery and t 37 km long product pipeline from DigbolL to, Tinaukia owned and operated by. the Assam Oil Company. Today ao Table-5 shows an exctoneive netwo-rk of offslhore and otaehore pipelines traverse the cou4try. Table-5 Crude Oil. Product:6 Gas Pipeline * ~~Lengtb (Xms) C-rude Onshore ~,2915.59 Offshiore 203.00 Product: 2452.16 Cos Onshore (including the 1700 kma 1859.8 long tIVJ pipeline under conatruction) Offshore 440.0 Total 7870.55 -I~~~~~~~~~ El-d *': 1 88/61 /EO I H]3Q11 3N aECldII WOd- *A , . , , '.;q 149 A, netWrk of marketing and distribution facilities have also been created. The indusitry has today 283 storage installations and depots with a total tankage of over 50 iakh kilo'letera. The uiumber of retail outlets as Table-6 sholwehas also incr'eased'apreciably. Table-6 Nuabertof Retail Outlets. (as of January 1 of each year) 1970-71 1975-76 1980-81 1985-86 1986-87 No. of retail cutlets 10255 10596' 12041 13209 13643 LPG has also obecome an iportant source of domestic fuel. in 1970-71 LFO availability was only 0.18 mtps covering a small number of households. Today 1.2 lurpais accessible to over SO million pTeople. Table-7 No. of LPG Domeetic Consumers (as at hahend,1of,ach year) - ' ~~~~~~~~(mnillions) 1980-81 1985-86 1986-87 3.3 10.8 12.4 The contribution of the petroleum sector to the Tndian economy is brought into sharper focus when looked at from.the perspective of self sufficiency and self reliance, Table-B traces the relationship between consumption and imports. From beitng almost completely dependent on lmports, India is today able to meet around 62% cif i.ts consumption requirements of petroleum pocs. . I. SWd; 2,:l 38/El/EQ IH13BGM3N AEQlna WOd0 "P- ITT 15 Table-B Gross Imorts Year Consumption of C~rude ProductS I age import products (mmtt) dependence in crude terms 1948 2.46 2-79 1955 4.82 3.02 2.07 > 95 1960 7.06 5472' 2.03 > 95 1965-66 i2.44 6.84 2.53: 75 1970-71. 17.91 11.68 1.09 70 1975-76 22.45 13.62 2.221 70 -1980-81 -30-.90- - 16,025 7.29! 76 1986-87 43.40 15.53 3.04 35 1987-88 (eat) 46.40 18.00' 4.5 38 In financial terms, the petroleum companies have more than fulfilled tha -expectations of '-tha Government as expressed Lui Oat Industrial Policy Resolution. Ina 1968-69 the capital employed by clhe Industry amounted to only Re. 6.2 billion and an estimated 311% r&tutin wan achieved on the investment.- By' 1986-87 the capital employed hiad risen to over fLs. 100 billion 'and th'a return to around 30%. Asi a result, t-he net profit earned rose from Rs. 500 million in 1969-70 to over Rs. 20 billion in 1986-87 (Table-9). It should be noted that individual companies have been0 consistently ranked among the niost profitable companiesI in the eQountry and as a public sector the petroleum industry has made the most signif icant contribution tu the national exchequer. / "II'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1:* * iJ c; '-= 88. J 1 / ;EO I H 1 3'I3H ,a idI WO d '; ' ; *4| ', 16 Table-9 llnanoial St ucZIir (Profitability) (1986-87) (Rs, /mEilliones) Industry Sequent Exploration & Ref ining & Total production marketing 1. Paid lUp Capital 3958.5 3297.5 7256.0 2. Capital employed 69923.2 35104.3 105027.5 3. Sales/operating income 48907 213249.5 252156.5 4, Gross profit before interest & tas 21871.4 9449 31320.4 5. Net profit after... ... interets & tax 14869.2 5281.0 20151.1 6. Net profit Co paid up capital (%) 375.6 160.2 7. Gross profit to capital employed (.) 31.3 26.9 The Industry haa also been successful in promoting the country's objective of attaining self reliance in manpower development and technology. Today as Table-1Ocharts, the pecroleum industry provides employment to oyer 100,000 people, both skilled and unekilled. rite largest niAnbers are engaged in exploration and production. Table-10 Manpower Employed lo the Petroleum Industry (as on lt April of the year) Category ; 1970 1975 1980 1986 I I ,i! t " } 1. Expl. & production 26051 27067 31413 52041 2. Refining 10715 12327 15334 23247 3. Marketing 20362 19072 19920 27814 4. Others 1864 4004 5630 7257 5. Total 58992 62470 72297 1l1359 5I d 25:L1,38X61fz0 H_13QfM3N asuWl odz Sd .'9>Lt 88/6t/oW ' X ' ~~~17 It3/2-o 1.~ ~ ~~~~~1 Considerable time and resources have also been dedicated tby tlie individual companies to developing indigenous tachnical skills. ONOC has for instance set up several institutes for thie advancemgent of exploration and production techniques. The Keshav Dev Malviya Institute of Petroleum Engineering which was set utp in 1963 In the premier geosciertific researchi organisation in the country and advisas ONOC on its exploration strategy by carrying out integrated geophysical, geological and geochemical analysis of individual hasLns. The Inscitute of Reservoir Studies carries out research on reservoir engiaeering and secondary and tertlary recovery methods, while thie Institute of Drilling Technology trains drillers and emphasises tho study of deep drilling under abnormal pressures and other subsurfacd complexities. Plans to set up three more institutes have also been finallsed - the Inscitute of Engineering & Ocean Technology, the institUte of Production Technology and the Institute of Petroleum Safety and Environment Management. Researchi on downstream activities has also been given equal emphasis by the refinlng and markeitng companies through tthe vehLcle of their R&D departments and speciallsed inscitutes like the Iidiln Institute of Petroleum and the Central Design Institute. Most recently In May 1987, the Government created a Centre for ighi Technology for identifying the emerging requiremaents of refining technology by the industry and for facilitating "state of the art" research. A 8afety counqil and direetorate have been set up to review safety seandgrds and to promote hazard analysis and hazard jnanagemenL. I $1 I ' I' ii : ' 'I T 9t f 3i SS i 88/S6 1 /0 I H B3aPi3N 3, fl¶]dHi" WlQdz1 18 111. TIUE FUTURE: It should be evident from the foregoing sectton that the organisational relationship between the Covernment and the public sector petroleum enterpriseas.has worked euccesfuly in stimulating exploration and deve'lopment activity and in creating a technologically mature and self reliAnt petroleum Industry. The question is whether this relationship should 'be continuiea unchanged or whether in tho light of emergingtia'Fues ind different market conditions, it should be subjected to fresh scrutiny. At the broadest level, one can unhesitatingly say that the petroleum sector will continue to be controlled by the State. It is much too important an economic sector, to be left exclusively to the dictates of the market. But given this fact, there is room for redefEning the procedural links that bind the public enterprises to the Government. The Government is only too aware that governmental tnteraction should be constructive and cooperative and seek to promote the capability and efficiency of the public enterprises, It is against this background that the Government has iniciatod discussions with the public enterprises"lo determine whether or notc the existin$ org&ilsational relatlonship needs to be redefined. The purpose of these discussions is to make sure that within thie ambit of state control individual companies have sufficient managerial freedom to most effectivqly..mPqt the challenges of .*he future., Crtain procedures may hay#,to be,simplified;,*Aouke others simply removed. The (intent is too. reate a stable' framewe24 *fpr management to plan their future programmes.. Ozn ocqpougl that h#s,#lteadv been, accepted and is being implemented is the signing of a Memorandum of Understandlng between the public enterprise and the Covernment that would define clre obligations and rights of the two parties over a given period of time. Such a Memorandurp of Underatand.Ing would make explicit the I . .. 4'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ t , 8 s IL 88/6 I/Zo IH13afl3N AEGl611 W08d *~ ~ '4 19 relationship between the Government.Any intervention that is not in accordance with such an understanding would then bu disallowod. A White Paper on public sector enterprises is shortly to be presented to the Parliament. This will outline and highlight the new approaches to Government-public sector interface not only In the petroleum sector but also in all other public sector enterprises. Notwithstanding the successes of the industry so far, the petroleum situation in India leaves little room for complacency. The consumption of petroleum products is rising att a ntch 'aster pace thlak the additions to productive capacity. There is an urgent requirement therefore for acclerating exploration and upgrading the prognosticated reserves of hydrocarbons to th, producible category. Unfortunately the pace of exploration is limited by the overall constraint on governments financial resources and the call .on these resources of other priority sectors. It was in part response to these resource constrainte that -the Government decided to encourage private participation in the exploration effort. Five production sharing contracts have only recpntly been signed with the internacional companiea and negotiatlions ,on a few others are under consideration. The Soviet Union is also carrying out extensive exploration in thiree baslns.In addition the Government has agreed to allow private eqtticy in the setting up of new refineries. "the commercial development of natural .gao hau., 1laso Len :accordqd parAmount priority. The constr4ction, of ,a .1700 km Long. gas pipeline from Hazira on the West Coast to Jagdishpur .n,,North Cenk;pj, India is nearing completion. This pipeline will coninect the, South Bassein free gas field offhiore Bombay to bulk copsumers jacross the country. Plans for creacLing regional gas grids and eventually a natural gas grid are also on the anv.i 1. 3.1 1,, :3I'dS~~t ...1: 88/61/20 IH-13Gf3N AEQadVM WOdC - ~ ~~ (I1> 20 This is hut a sketch of current Government thinking on the macter of Ltst future relationship with the petroleum companies. But it dous L 0d1fflIt A Litts Covic-LvtiSWel; culliZU9lug iIlLeuve.l I Lc cCl IcLull. 46 functioning of public sector enterprises. The intent of the Incdlustrial Policy Retiolutcion that pubiic enterprisea must not only strive to maximiss public welfare but also "augment the revenuesi of the State" remains the yardstick by which potential organisational changes will be anseased. ,1 4:~~~, .; l. . * 4 ~~~~~~~:1 .. ./