CHAPTER I

Introduction
The economy of India is the tenth-largest in the world by nominal GDP
and the third-largest by Purchasing Power Parity (PPP). The country is one of the
G-20 Major Economies and a member of BRICS. On a per-capita-income basis,
India ranked 141st by nominal GDP and 130th by GDP (PPP) in 2012, according
to the IMF. India is the 19th largest exporter and the 10th larger importer in the
world. The economy slowed to around 5.0% for the 2012–13 fiscal year compared
with 6.2% in the previous fiscal. On August 28, 2013 the Indian rupee hit an all-
time low of 68.80 against the US dollar. In order to control the fall in rupee, the
government introduced capital controls on outward investment by both corporates
and individuals. India's GDP grew by 9.3% in 2010–11; thus, the growth rate has
nearly halved in just three years. GDP growth rose marginally to 4.8% during the
quarter through March 2013, from about 4.7% in the previous quarter. The
government has forecast a growth rate of 6.1%-6.7% for the year 2013–14, whilst
the RBI expects the same to be at 5.7%. Besides this, India suffered a very high
fiscal deficit of US$ 88 billion (4.8% of GDP) in the year 2012–13. The Indian
Government aims to cut the fiscal deficit to US$ 70 billion or 3.7% of GDP by 2013–
14.

In 1991, India adopted liberal and free-market principles and liberalized its
economy to international trade under the guidance of Former Finance minister
Manmohan Singh under the Prime Ministry of P.V. Narasimha Rao, prime minister
from 1991 to 1996, who had eliminated License Raj, a pre- and post-British era
mechanism of strict government controls on setting up new industry. Following
these major economic reforms, and a strong focus on developing national
infrastructure such as the Golden Quadrilateral project by former Prime Minister
Atal Bihari Vajpayee, the country's economic growth progressed at a rapid pace,
with relatively large increases in per-capita incomes.

1
 CHAPTER II
Objectives and Assumption

- To Analyze the economic status of the Indian oil refinery in its economic
days in the industry.
- Determine the key developments and current state of the Indian oil and gas
sector
- Way forward an analysis of the union budget and other initiatives.
- Understand the refinery in petroleum production

2
 Chapter III
Presentation of Data
India Economic Data Latest Month Previous Month on
Month
Month Change %

IIP growth % y-o-y -0.60% Dec – 13 -2.10% 8.88%

Manufacturing %y -o-y -1.60% Dec – 13 -3.50% 9.49%
CPI y-o-y 8.79% Jan – 14 9.87% -0.69%
Experts USD billion 26.75 Jan – 14 26.35 1.52%
Imports USD billion 36.66 Jan – 14 36.48 0.49%
Trade Balance USD billion -9.91 Jan – 14 -10.13 -2.17%
Bank credit growth % y-o-y 15.68% Jan – 14 15.86% 0.68%
Bank credit growth % y-o-y 14.68% Jan – 14 14.52% 0.64%
Source CSO, RBI Government

3
4
 Oil and Natural Gas
Corporation Oil India Limited Cairn Energy
Oil Production: Oil Production: Oil Production:
Upstream 531,000 b/d 73,000 b/d 25,000 b/d
Exploration & Gas Production: Gas Production: 2.4 Gas Production: 0.4
25.6 bcm bcm bcm
Production
Turnover: Turnover: Turnover: US$ 340
US$ 13,782 mn. US$ 1,730 mn. mn.
74% state owned 98.1% state owned Private sector

Gas Authority of
Indian Oil India
Midstream Pipelines: 10,329 Pipelines: 12,000
km km
Storage & Turnover: Turnover:
Transportation US$ 68,488 mn. US$ 6,762 mn.
89% state owned 57% state owned

Hindustan
Indian Oil Bharat Petroleum Petroleum
Refining: 880,000 Refining : 450,000 Refining : 260,000
Downstream b/d b/d b/d
Refining, Retail Outlets: Retail Outlets: Retail Outlets:
Processing & 18,643 6,553 8,539
Marketing Turnover: Turnover: Turnover:
US$ 68,488 mn. US$ 34,591 mn. US$ 27,812 mn.
89% state owned 66% state owned 51% state owned

5
Table 1
Outlay of the 11th Plan for the Oil and Gas Sector (Rs crore)
Activities 11th Plan outlay 11th Plan outlay
(revised)
Exploration and 1,50,933 1,75,264
Production
Refinery and 62,582 78,321
Marketing
Petrochemical 15,321 15,678
Engineering 236 198
Total 2,29,072 crore 2,69,461 crore
(US$ 4.31 trillion) (US$ 5.07 trillion)
Source: Planning Commission – Mid Term Appraisal of the 11th
Plan

6
 CHAPTER IV
Analysis of Data / Project
The central statistical office estimates that the economy will grow by 6.2% RBI
expect the same to be 5-7%.
Nineteenth largest exporter and the tenth largest importer.
The IIP growth for the april –dcember period was a negative 0.1% while the
manufacturing growth was negative 0.6%.
Fiscal deficit of US$88 billion.

Inflation
Whole sale price index and consumer price index are decreasing from November
2013 onwards. Consumer price inflation down to 6% by early 2016. Expected
growth of WPI to average 5.8% and 5.7% in FY 2014 and FY 2015. High prices
and sluggish growth presents a gloomy picture at global front.

Foreign trade
Export decline in 01 2013. But, it registered a double digit growth in July and
October. Lower gold demand decline of the total imports of the economy. In the
lower imports and healthy exports, trade deficit got narrowed helped curbCAD.

Current account deficit

Gold imports and crude imports are major factors. Tighter lending norms weak
domestic demands and an increase in exports have improved current account
deficit.

7
Challenges

Crude Oil Sourcing

- New Exploration Licensing Policy (NELP)
- 206 oil and gas exploration block awarded
- 68 major discoveries reported
- World’s biggest deep water gas discovery made in 2002 (K-G Basin)
- India Hydrocarbon Vison 2025
-100% exploration coverage of all sedmintary basins by 2025

Margin Improvement
- Input cost reduction
- Product mix development

Environmental Issues
- Reducing GHG emission
- Efficient energy consumption
- Quality upgradation

Funding for new Projects

- Majority of available funds are getting diverted in development of national
infrastructure like power generation, roads, railways, airport etc.

Major Players
- Reliance
- BPCL
- HPCL
- Cals Refineries
- Essar Oil
- Chennai Petro

8
Key development and current state of the Indian oil and gas sector
The oil and gas sector in India is a critical component of the country’s
economy, accounting for 15 per cent of the country’s gross domestic product
(GDP). Economic growth is directly linked with energy demand, and a conservative
estimate of 7 per cent growth is expected to double India’s per capita energy
consumption from 560 kilograms of oil equivalent (kgoe) in FY10 to 1,124
kilograms of oil equivalent (kgoe) by FY32. As oil and gas is one of the main
sources to meet the required demand for energy in India, its demand is forecast to
rise further. In 2011, natural gas accounted for 10 per cent of the country’s total
energy requirements, whereas estimates suggest that this figure will reach 20 per
cent by 2025, with oil and gas together accounting for approximately 45 per cent
of the total demand, Market reports estimate that this growth is expected to take
the size of the Indian gas market to that of the gas market in Japan, the largest
consumer of liquefied natural gas (LNG) in Asia, by the end of 2015. As shown in
Figure 1.1 and Figure 1.2, despite having significant reserves in India, the increase
in demand is expected to be primarily met through imports.

9
 5,800 5,682 5,654 5
5,625 5,625
5,600 5,484
5,319 4
5,400
5,213
5,200 5,109
5,032 3
4,957
5,000 4,882
4,809
4,737 2
4,800

4,600
1
4,400 1 1 1 1 1 1 1 1 1 1 1 1 1

4,200 0
2009 2010 2011 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F

Oil Reserves Gas Reserves

In 2010, an approximately 63 per cent of the total oil and gas imports came from
the Middle East, followed by Africa with 22 per cent and the Western Hemisphere
with 10 per cent.
To cope up with the high demand, the Indian government has adopted policies
such as allowing 100 per cent foreign direct investment (FDI) in many segments
of the oil and gas sector such as refineries, pipelines, petroleum products, natural
gas and infrastructure related to the marketing of petroleum products. In 2011, the
oil and gas sector experienced one of the biggest FDI deals in the country, with
British Petroleum (BP) entering a US$ 7.2 billion deal with Reliance Industries for
the exploration of offshore oil and gas. Subsequently, BP formed a joint venture
with Reliance for the marketing of gas and took a 30 per cent stake in 23 oil and
gas blocks. Owing to many large scale investments, the oil and gas sector in India
attracted FDI worth US$ 3,152 million over 2000–11.

Some other policy initiatives to promote investments included the New Exploration
Licensing Policy (NELP), to aid both public and private sector companies in bidding

10
for exploration rights. Over 246 blocks were given out over eight bidding rounds
through this initiative during the last decade alone, resulting in the discovery of 68
oil and gas fields. The NELP allows 100 per cent FDI in small to medium sized oil
fields. However, the NELP may soon be replaced by the Open Acreage Licensing
Policy (OALP), which invites bids all year round unlike NELP that invites bids
yearly.

The following section highlights the regulatory environment and the

competitive scenario in the Indian oil and gas industry.
1. Regulatory landscape and competitive scenario
The Indian oil and gas sector is highly regulated and largely state controlled. Figure
2 shows key regulatory authorities in India and the main legislations that govern
the sector.
Among other initiatives, the Petroleum and Natural Gas Regulatory Board was
formulated to ensure the smooth supply of petroleum and petroleum products
throughout the country at regulated prices. This body was also tasked with
enabling pipeline development, and regulating the midstream and downstream
segments of the oil and gas sector.

The oil and gas sector is dominated by PSUs and a few large private sector
companies. Figure 3 highlights the credentials of leading players in each segment
(upstream, midstream and downstream) of the oil and gas industry.
In India, Oil and Natural Gas Corporation (ONGC) accounts for approximately 67
per cent of the total oil and gas production, whereas the Indian Oil Corporation
(IOC) and its subsidiary, the Chennai Petroleum Corporation Limited (CPCL),
command the largest market share (approximately 48 per cent) in petroleum
products. The country’s refining segment is primarily dominated by domestic
players such as Hindustan petroleum Corporation Limited (HPCL), Bharat
Petroleum Corporation Limited (BPCL), IOC and Reliance Industries.

11
 2. Key developments for the Oil and Gas sector during the 11th Five Year Plan
In the 11th Five Year Plan, the government focus related to energy was threefold.
First, its main objective was to attain energy security and mitigate the need for
imports in the oil and gas sector through sustainably scaling up exploration and
production (E&P) activities, use of alternate fuels and infrastructure development.
Second, the government focused on tax and pricing reforms, with plans to phase
out subsidy on LPG and kerosene, and to align fuel prices with global trends. Third,
the government tried to focus specifically on infrastructure development for the
midstream oil and gas segment.
Further, the government undertook numerous measures such as setting up the
Integrated Energy Policy, the Directorate General of Hydrocarbons, and the
Petroleum and Natural Gas Regulatory Board to aid the rapid development of the
sector. Further, the government focused on creating a level playing environment
in both the upstream and downstream segments by ensuring unhindered access
to common infrastructure at the regulated prices.
The government has taken into consideration the Kirit Parikh Committee’s
recommendations, and made numerous actionable reforms on the pricing of
petroleum products. The recommendations are the following

Petrol prices should be hiked, while diesel prices should be adjusted to market
rates instead of being subsidised, as this will not affect consumers significantly,
and can be borne by them. These price hikes will reduce under recoveries to zero,
as failing to hike fuel prices will result in under recoveries of approximately Rs 2
trillion (US$ 37.6 billion).

The price hike process and distribution system needs to be more transparent, as
there is currently a significant disparity in the per capita allocation of kerosene
between states. Transparency especially in the distribution of LPG and kerosene
can be attained through the UID smartcard scheme.

12
The implications of these measures would primary reduce the under recoveries in
the oil and gas sector, thereby making the sector more profitable.

Acting on these recommendations, the government implemented numerous

actionable reforms on the pricing of petroleum products.
Table 1 demonstrates the total expenditure outlay in the oil and gas sector during
the 11th Five Year Plan, and some indications on the revised projections that were
made over the course of the midterm appraisal.

There was a notable increase in projected expenditure in the E&P segment,

primarily due to increased drilling costs and high production costs. The refineries
segment is also expected to experience an increase in its expenditure, due to an
increase in infrastructure development cost for pipelines.

3. Factors affecting the Indian Oil and Gas sector

Some key factors affecting the Indian oil and gas industry are the following:
Dominated by state controlled enterprises:
The sector is primarily dominated by state controlled enterprises, with only
a few foreign players. The primary reason for this could be the country’s regulatory
framework, where ventures involving foreign players take longer to get the required
approvals. Further, the participation of foreign players has been limited during the
nine rounds of bidding for exploration rights through the NELP, while the
participation of state owned players has been high.

Subsidies on Oil and Gas products:

Eliminating subsidies on oil and gas products is proving to be a major
challenge for the government, due to political pressure. These subsidies have led
to large scale under recoveries in the Indian oil and gas sector.

13
Environmental issues:
Offshore mining of oil and gas and deep water exploration poses significant
threats to the environment in terms of potential threats of water contamination.
Further particulate emissions of refineries and production plants could have an
adverse impact on the environment as well.

Requirement of advanced technology for upstream segment:

The industry faces a shortage of skilled labour for the mining of
unconventional assets such as shale gas and Coal Bed Methane (CBM), which
offer a huge potential in terms of ensuring sustainability.

The Government has proactively aimed to curb some of these challenges including
subsidies on oil and gas, and technology requirements in the upstream segments
through actionable reforms such as the Kirith Parikh Committee’s
recommendations, and by encouraging a higher level of private sector
participation. It further addresses them through initiatives introduced in the 2012–
13 Union Budget and the 12th Five Year Plan, as discussed in the subsequent
sections.

WAY FORWARD – AN ANALYSIS OF THE UNION BUDGET, AND OTHER

INITIATIVES

Oil and gas is a major part of the energy sector, which, in turn, is essential for the
growth of the manufacturing, utilities, infrastructure and commercial services
industries. It is therefore essential to analyze the government’s key policy initiatives
to boost this sector and attract investments.

The following sections provide a perspective on the government’s various policy

reforms in the Union Budget of 2012–13, and other key initiatives that enable
growth in the sector.

14
What the Union Budget of 2012–13 holds for the Oil and Gas sector

Some suggested reforms that the current Union Budget holds for the oil and gas
sector are the following:

The duty on crude oil produced in India is increased by 80 per cent to Rs 4,500
(US$ 84.6) per metric ton from Rs 2,500 (US$ 47) per metric ton. This increase
implies a reduced realisation of approximately US$ 5 per barrel for upstream oil
and gas companies, and will benefit the government by about Rs 7,500–8,000
crore (US$ 141.1-150.0). Consequently, this is expected to impact the earnings of
large oil and gas companies operating in India.

The basic customs duty on the import of LNG for power generation is exempted
for two years. This will reduce fuel costs for the generation of electricity and the
manufacturing of fertilizers. In addition, oil and gas pipelines and storage facilities
were made eligible for viability gap funding (VGF), thereby enabling growth in the
sector by enhancing the feasibility of projects that are expected to yield low
financial returns.

The government is providing subsidies on sensitive petroleum products such as

kerosene, liquefied petroleum gas (LPG) and diesel. Though these products are
sold below acceptable market prices, the subsidy provided by the government only
covers a portion of the cost difference, thereby resulting in under recoveries for oil
marketing companies.

Among other indirect initiatives affecting the sector is an increase in service tax
from 10 per cent to 12 per cent, which is expected to increase the cost of oil field
services.

15
Given that the impact of Union Budget of 2012–13 on the Indian oil and gas sector
is expected to be balanced, it is critical to assess other measures and
developments that will lead to future growth.

2.2 Way forward and key opportunities

The Indian oil and gas sector expects to attract investment of Rs 3.9 trillion (US$
75 billion) over 2012–17, during the 12th Five Year Plan, while ONGC and IOC,
both upstream companies, are expected to spend Rs 1.75 trillion (US$ 32.9 billion)
and Rs 190 billion (US$ 3.6 billion), respectively, primarily in exploration activities.
It is therefore essential to analyse, and capitalise upon key opportunities that are
put forth before the oil and gas sector to maximise output, and ensure sustainable
development.

In the 12th Five Year Plan, the government is expected to focus majorly on E&P
activities, including intensive exploration of existing hydrocarbon reserves and
geographical focus on the east coast for exploring off shore oil fields. Further, the
government will focus on harvesting unconventional fuels such as shale gas, CBM
and bio diesel. The focus on R&D is expected to increase during the 12th Plan
period, with major focus on fuel conservation/ efficiency improvement, reduction of
carbon emissions and innovations to diversify the domestic product portfolio.

Some other key action points for the Indian oil and gas industry in the coming years
are the following:

16
Using unconventional fuels/ alternative sources of gas

The focus is expected to shift to assessing the feasibility of using

alternative fuels such as hydrogen to run automotives. The Ministry of Petroleum
and Natural Gas set up a fund of Rs 1 billion (US$ 18.8 million) with contributions
from major oil companies to conduct R&D in hydrogen based fuels. Coal bed
methane is also a prospective future fuel, due to its large scale availability.

Developing midstream infrastructure

The Indian oil and gas industry offers significant opportunities in the
development of midstream infrastructure, with an expected capacity addition of
6,000–8,000 km pipeline to the National Gas Grid in the southern and central parts
of the country. Further, the city gas distribution network is not developed in most
parts of the country except in cities such as Delhi and Mumbai. This particularly
offers benefits in the vehicular segment as an alternative fuel, which offers a 20
per cent cost benefit over diesel.
Forming joint ventures or partnerships with foreign players

State run oil and gas companies in India need to form partnerships or joint ventures
with foreign players to effectively use their technology and monetary resources for
ultra deep water exploration, which can yield significant results. Currently, Indian
companies are only equipped with the technology that helps them explore on land,
or in shallow basins.

Development of strategic storage facilities

The government is constructing a total capacity of 15 million metric tons
(MMT) in the form of strategic storage facilities for crude oil and petroleum
products. This resource will be used as an emergency mechanism in the case of
short term disruptions in fuel supply. In the first phase, the construction of the 5
MMT storage space has been started simultaneously at Vishakapatnam (1.3

17
MMT), Mangalore (1.5 MMT) and Padur (2.5 MMT). The proposed storage
structure is expected to be underground in manmade caverns.

Effectively capitalising upon potential opportunities, clubbed with the increasing

demand for natural gas, favourable government policies, large scale investments
and the recent discovery of offshore gas reserves are expected to fuel strong
growth in the Indian oil and gas sector.

Refinery in petroleum productions

Out of the 21 refineries operating in the country, 17 are in public sector, three in
private sector, and one is a joint venture of BPCL and Oman Oil Company (6 MT
a year refinery at Bina in Madhya Pradesh). "The refinery capacity is further
expected to increase to 214.07 million tonnes per annum by the end of 2011-12,"
it said. Though the document did not name the new units that would be
commissioned, it may be alluding to almost complete 9 MT Bhatinda refinery that
has been built by a joint venture of state-owned Hindustan Petroleum and steel
baron Lakhsmi Mittal-controlled Mittal Investment Sarl. Also, Essar Oil is
expanding its Vadinar refinery in Gujarat to 18 MT from current 14 MT.
The Survey said refinery production (crude throughput) during 2010-11 had
reached 206.15 MT (including Jamnagar Refinery under a special economic zone
by Reliance Industries Ltd), showing an increase of 6.9 per cent compared to
192.77 MT in 2009-10. During the current financial year (April-December), refinery
production was 158.26 MT. "The country is not only self-sufficient in refining
capacity for its domestic consumption but also substantially exports petroleum
products," it said. During 2010-11, the country exported 59.13 MT of petroleum
products worth Rs 1, 96,112 crore.

India's oil reserves meet 25% of the country's domestic oil demand. As of 2009,
India's total proven oil reserves stood at 775 million metric tonnes while gas
reserves stood at 1074 billion cubic meters. Oil and natural gas fields are located

18
offshore at Mumbai High, Krishna Godavari Basin and the Cauvery Delta, and
onshore mainly in the States of Assam, Gujarat and Rajasthan. India is the fourth
largest consumer of oil in the world and imported $82.1 billion worth of oil in the
first three quarters of 2010, which had an adverse effect on its current account
deficit. The petroleum industry in India mostly consists of public sector companies
such as Oil & Natural Gas Corporation (ONGC), Hindustan Petroleum Corporation
Limited (HPCL), Bharat Petroleum Corporation Limited (BPCL) and Indian Oil
Corporation Limited (IOCL). There are some major private Indian companies in the
oil sector such as Reliance Industries Limited (RIL) which operates the world's
largest oil refining complex.
Current status of refining in India - There are 18 refineries in India operating both
in public and private sector with a total capacity of 2.5 MBD (million barrels per
day). Reliance refinery at Jamnagar is the biggest. As a matter of fact this refinery
is the fourth largest in the world. After expansion in four years, this refinery will
process 1.2 million Barrels a day. The smallest refinery is in Guwahati, Assam with
0.1 million barrels a day capacity. Other refineries are medium sized with high cost
of production and are spread all over the country to facilitate distribution. Reliance
of its own is not a petroleum marketing organization. It supplies the marketing
network of Bharat Petroleum, Indian Oil, Hindustan and others. With huge capacity
and concentrated effort in refining only, the company is a low cost producer. Essar
in Jamnagar is also in the same position. Its refining capacity is not as big as
Reliance, but at about 0.7 million barrels a day, it is close behind. This location
together with all existing refineries is sufficient to meet India’s demand. A 10%
surplus is exported out. In the current year, statistics indicate that about 0.15 MBD
of petroleum products were exported. The value added contents of exports earn
about $3 to 4 per barrel margin. This is a significant hard cash earned from the
existing infrastructure. What gives India the edge is its lower crude shipping cost
and lower labor costs?

In four years, India’s demand will boost to about 3.2 MBP. The capacity at that time
is expected to be about 3.6 MBD. This will allow the country to export about 0.4

19
MBD of the petroleum products. It is a significant boost to the county’s value added
exports (diamond cutting and polishing industry operates on a similar value added
structure, although at a bit higher margins).
Economics of refining and export- Economics of a large export oriented refinery is
a complex mixture of product up-gradation, shipping costs, type of crude
processed, local labor costs, capital involved, taxes etc. The crude oil has a direct
impact but its cost is passed on to the buyer directly. A well-run refinery generates
about $ 8 to $16 margin per barrel of crude processed (Singapore is the key
example). Indian refineries have the margin at about half the above amount,
primarily due to all the above factors except the shipping costs. Downstream
product mix and capability to switch between product mixes at the manufacturing
site is the dominant factor, which enhances or reduces the margin. Hence if export
oriented refining capacity is to be built then it has to have a flexible production
capability. These days, gasoline and aviation fuel prices have surged far ahead of
others, due to supply shortage. At other times it is the fuel rich products, which
may be the dominant need. An export-oriented refinery has to be able to deliver
either of the product mix without a serious disruption.
A brown field refinery in around Jamnagar may cost about 15% less to build. A 1.0
MBP refinery at a brown field site today will cost about $ 2.5 to $3.0 Billion. This is
a very large capital investment. Indian interests alone cannot undertake it. FDI
(Foreign Direct Investment) and imported technology will play an important role.
Already Government of India under the leadership of its Petroleum Minister has
initiated studies to investigate all possibilities. Surprisingly external interests in
setting up exported oriented refineries have been well developed. Shell Global and
BP are the primary candidates. They may also participate financially in these
ventures. For external interests to participate, it is important that India offer them
incentives, tax breaks and a welcome mat.
Smaller refineries farther from coast can be expanded to meet the local demand
with internal resources.

20
Historical Petrol Price Chart India
We have collected historical Petrol prices in India since the year 2002. We
cover all the metro cities in India and have created a graph for each city - Delhi
Petrol price hike chart, Kolkata Petrol price hike chart, Mumbai Petrol price hike
chart and Chennai Petrol price hike chart. We hope that the graphs provide an
insight on the Petrol price increase.
Petrol Price Hike level in Delhi

Petrol Price Hike level in Kolkata

21
Petrol Price Hike level in Mumbai

Petrol Price Hike level in Chennai

22
Petroleum Pricing Policy in India
India is one of the quickest developing economies of the world. In the
meantime, the nation is additionally home to very nearly one fifth of the aggregate
world population. With such a gigantic lump of the world population and
development rate of the economy drifting around 8 to 9 percent per annum for most
recent five years, the interest for the petroleum items is expectedly high.
Remembering the social and monetary repercussions the legislature has
dependably remained included with the valuing and supply of these items.

The explanations behind the immediate association of the administration are not
troublesome to look for. While the interest for the petroleum items is climbing by
very nearly 15 for every penny for every annum, the household processing of the
raw petroleum has basically remained stagnant in the course of the most recent
two decades, making the nation vigorously subject to the import of unrefined.

Further, the quickly improving economy requires petroleum items like diesel and
petrol in immense amounts for convey products over this unfathomable nation.
Diesel is likewise utilized by numerous commercial ventures as a basic enter for
processing. The blasting car part of the nation additionally needs a considerable
measure of petrol and diesel at sensible costs. Accordingly, any steep build in the
costs of oil antagonistically influences the Indian economy.

More than 250 million individuals in the nation live underneath destitution line and
there is a dominant part of populace grouped as the working class. It is the
avocation of the legislature to give the cooking fuel to the poorer segments at
competitive rate and the administration has been proceeding with its approach of
subsidizing lamp fuel intensely. In the meantime, the white collar class, constituting
dominant part of the number of inhabitants in the nation, can't manage the cost of
the LPG at the business rate and consequently the legislature needs to subsidize
the LPG also.

23
Instantly after autonomy the expense acknowledgment to the oil organizations in
the nation was connected to the 'import equality' sort of valuing, regarded as the
'Value Stock Pricing' (VSA). This instrument was essentially an expense in addition
to equation to the import value, which incorporated included components of every
last one of expenses, for example transporting charges upto the Indian ports,
protection, travel misfortunes, import obligations and different demands and
charges.

The VSA was accompanied by the Administered Price Mechanism (APM) which
truly included manufactured value altering by the legislature now and again and
trek or decrease in the costs turn into a political choice, as opposed to being a
balanced monetary choice. The choice to disassemble the APM was pointed at
progressively moving from fake estimating of petroleum items towards a setup
where the value is dead set by the business compels of interest and supply.
Henceforth, as a cognizant strategy choice, the legislature carried into the energy
another estimating instrument with impact from April 1, 2002.

The new system was intended to halfway separate the costs of petroleum items in
the nation from unstable universal unrefined petroleum costs. In the meantime it
was to guarantee that the costs of certain items like lamp oil (Kerosene) and LPG
remained sponsored according to the government policy.
It was normal that the new valuing instrument might be the first stage to advance
towards an estimating system dependent upon the connection of the business
strengths.

While the shortcomings of the new framework had gone to the fore throughout the
previous six years of its implementation, the later spurt in the worldwide unrefined
costs has totally uncovered the flip side of it. While conceiving the new system six
years prior, neither man nor woman had suspected that the worldwide rough costs
might be near $150 for every barrel.

24
A standout amongst the most noticeable contentions progressed by the Central
government in favour of the later steep trek in the costs of the petroleum items was
that the oil organizations were enduring overwhelming misfortunes and must be
rescued. This rationale, be that as it may, uncovered the illogical of arrangement
of evaluating these items. Assuming that the point was to impact the import cost
recuperation, the same severely lost center in the past years and the value
determination for this segment has again ended up being a simply political choice.

While the nation is undoubtedly needy intensely on imports, just about one fourth
of the aggregate unrefined prerequisite is met by residential preparation. The point
when value for every barrel of unrefined petroleum is talked over, the way that one
fourth of the sum supply of the rough is met locally is over-looked. Locally
processed unrefined petroleum costs the country something around $55 for every
barrel and if the worldwide cost is taken to be around $150 for every barrel, the
normal weighted household value comes to be around $122 for every barrel. The
point when changed over to for every liter, it fetches the nation about Rs 31 for
every liter. The refining and circulation expenses incorporated, the normal cost of
petroleum items like diesel and petrol ought not be more than Rs 35 for every liter,
while the normal rate of these products has been settled higher.

In the meantime it ought not to be overlooked that the petroleum items are the
most burdened products in the nation. Assuming that the legislature is such a great
amount of worried about the costs of the petroleum items, it should lessen the
excise duty and the VAT rates the nation over. Anyway such a choice might bring
about misfortune of income. It would seem that the misfortune to the oil
organizations is a myth made by the administration to ensure its own incomes.
The execution of general society division oil organizations does not propose that
these organizations are under any danger of losing out their benefits after the
worldwide rough cost increment. Their benefits have truly expanded.

25
 CHAPTER V
Conclusion and Recommendation

Conclusion
The oil and gas sector is fairly well developed in India, and is poised to
contribute a large share to India’s energy basket over the next 15–20 years. A
conservative estimate of 7 per cent growth in the Indian economy is expected to
approximately double India’s per capita energy consumption over the next 20
years. Since energy demand and economic growth are almost interlinked, the
Indian oil and gas sector, which provides the country with a significant portion of
its energy requirements, has been identified as a key metric that will drive future
GDP growth.

To cope up with the increasing demand, the government has allowed 100 per cent
FDI in the oil and gas sector, enabling some large partnerships such as the US$
7.2 billion deal between BP and Reliance Industries. In order to further aid the
development of the sector, the government introduces legislations such as the
NELP to enable companies to bid for exploration rights, and encourage private
sector participation. The participation of the private sector is expected to bring in
monetary resources and technological capabilities, especially in the field of deep
sea exploration while simultaneously reducing the dominance of PSUs in the
country’s competitive landscape.

This year’s Union Budget is expected to have a mixed impact on the sector, as the
government has increased process on crude oil production by approximately 80
per cent, thereby reducing its under recoveries. On the other hand, the government
has also exempted the basic customs duty on the import of liquefied natural gas
for power generation for two years, and made oil and gas pipelines eligible for
viability gap funding, consequently aiding the midstream segment and thereby
greatly benefiting the sector.

26
The main future opportunities for the sector include assessing the feasibility of
using non-conventional fuels such as coal bed methane, hydrogen and bio diesel.
The sector must also lay greater focus on developing midstream infrastructure,
with specific attention on city gas distribution networks, and the construction of
strategic storage facilities as a safeguard against short term disruptions in fuel
supply.

Recommendation
Such a framework, be that as it may, may be politically unsatisfactory to a
large portion of the political gatherings. All the more especially in the present day
situation, when the inflationary forces are at their top.
The result lies in suitably adjusting the existing framework to a huge degree.
The progressions should point at diminishing the tact currently figuring out the
costs of the petroleum items. Determination of costs ought to be more transparent,
with sufficient and overall characterized part of the business powers. Subsidization
of the items like lamp oil and LPG may as well just be focused to the individuals
living underneath the poverty line by devising a suitable instrument. Remaining
subsidies must be withdrawn by sticking to a recommended / prescribed timeline.
An inference has been made that distinctive sorts of diesels ought to be utilized for
trucks and luxury autos. It bodes well for supply diesel at subsidized rate for the
possessor of a luxury diesel auto. It is high time that the tracks likewise exchanged
over to the utilization of 100% power for running the trains. For transport vehicles
Compressed Natural Gas (CNG) ought to be utilized, which is less polluting, from
one perspective, and might bring about freeing the products transport part from the
utilization of diesel, on the other.

27