INDIA'S PETROLEUM PRIVATIZATION GATHERING SPEED

Privatization of India's petroleum industry is seen as inevitable, even by the staunchest supporters of the state owned sector there.

What has become clear is that the huge investments required for Indian exploration, refining, and marketing are beyond the scope of even the biggest state owned firms, such as Oil & Natural Gas Commission (ONGC) and Indian Oil Corp. (IOC).

The dilemma was made evident late last year when ONGC abandoned its oil production targets for the near term and instead predicted a production decline. That means soaring oil imports in a country with one of the world's strongest petroleum demand growth rates.

Although the Indian government has aggressively courted foreign investment in high risk exploration, the poor response to recent international acreage tenders suggests an increasing likelihood that private companies, especially foreign multinationals, will participate in development and redevelopment of India's existing oil fields.

A proposal was put forth last fall to offer Bombay High offshore oil fields to leading multinationals for redevelopment to stem the production slide in India's mainstay producing area. Some of those projects could entail capital outlays of as much as $1 billion (OGJ, Mar. 7, p. 42).

In another step to attract foreign investment to the petroleum sector, India last month decided to take steps for phased decontrol of domestic crude oil prices to bring them in line with world market levels and help set the stage for privatization of ONGC.

MAJOR PROJECTS

Meantime, major projects continue to mark some progress in India's upstream and downstream sectors. Among them are:

The Indian government last month approved Gas Authority of India Ltd.'s (GAIL) proposals to upgrade the Hazira-Bijaipur-Jagdishpur (HBJ) gas pipeline and install a $92.6 million LPG plant at Usar in Maharashtra. GAIL proposes boosting HBJ pipeline capacity to 1.169 bcfd from the current 637 MMcfd. The Asian Development Bank sanctioned a $260 million loan for the project, which is expected to be completed within 40 months. The pipeline expansion is in line with ONGC efforts to develop more gas fields in the western offshore and to reduce gas flaring there. Those programs are expected to boost gas deliverability to the Hazira terminal on the western coast to 1.435 bcfd from the current 700 MMfcd. The LPG plant will be designed to process 175 MMcfd of gas from western offshore fields to produce 139,000 metric tons/year of LPG. It is expected to be complete by mid-1996.
ONGC recently let a $230 million contract to a combine of Hyundai Heavy Industries Inc. (HHI) and Offshore Hyundai International (OHI), a joint venture of HHI and OPI International Inc., to install and bury a 150 mile, 42 in. concrete coated gas trunkline off Bombay.
The OHI423 pipelay vessel will begin laying the line in 200 ft of water in Bassein oil and gas field about 50 miles west-northwest of Bombay and extend the line 150 miles to ONGC's Hazira trunkline at Umbracht 149 miles north of Bombay.
Subcontractor Offshore Pipelines International Ltd. (OPIL) will use the BB316 bury barge to bury 124 miles of the trunkline in a trench as deep as 6.6 ft. OPIL's DLB KP1 lay barge win lay the trunkline in the shore approach to Umbracht, from where the line will extend 121/2 miles inland to ONGC's Hazira terminal.
Oman Oil Co.'s (OOC) plan to lay two ultradeepwater, 24 in. parallel gas pipelines from Oman to India at a cost of $5 billion is technically and economically feasible, contends adviser to Oman's Ministry of Petroleum and Minerals.
OOC late last year predicted the first of the two lines would be on stream by fiscal 1998-99 (OGJ, Dec. 20, 1993, Newsletter). The lines would deliver 1-2 bcfd of gas directly across the Arabian Sea from Oman's eastern coast to the western coast of India, in water as deep as 10,000 ft. A feasibility study found this route economically and technically preferred over a longer, shallow water route that would extend from an area on Oman's northern coast across the Gulf of Oman and along Iran's and Pakistan's continental shelves.
Negotiations are continuing with India on the price of Omani gas that Tamimi said are likely to lead to an agreement early this year. OOC is seeking a firm 20 year contract.
India's Bharat Petroleum Corp. Ltd. (BPC) and OOC agreed to build a 120,000 b/d joint venture refinery at Bina, Madhya Pradesh state, India (OGJ, Oct. 11, 1993, p. 34). BPC official M.M. Somaya said the refinery is scheduled to be commissioned by 1997. BPC acquired land for the project and let contract to M.W. Kellogg for a feasibility study of the project. Somaya said Oman will supply crude for the project, and plans call for laying a pipeline to Bina from India's western coast.
The 120,000 b/d grassroots Panipet, formerly Karnal, refinery is expected to be complete by April 1997, said A.P. Chaudhury, IOC director of refining and pipelines. It will be IOC's seventh refinery.
Plans call for installing hydrocracking and fluid catalytic cracking units at Panipet to meet increasing demand for motor fuels in northern India. Total project cost of 38.69 billion rupees ($1.24 billion) includes 27.94 billion rupees for the refinery, with the balance going for installing a single buoy mooring for receiving crude at the port of Salaya, expanding the Salaya-Mathura pipeline, laying a new crude line from Chaksu to Karnal, and associated terminal/storage facilities.
Technology license agreements have been signed with France's Institut Francaise du Petrole for catalytic reforming, Stone & Webster Engineering Co. for fluid catalytic cracking, UOP/Unocal Corp. for hydrocracking, and Haldor Topsoe for the hydrogen unit.
The Indian government last week approved plans for installation of a catalytic reformer at the 156,000 b/d Mathura refinery in Uttar Pradesh. The project is intended to give the refinery the capability to produce unleaded gasoline under new regulations developed by India's Environment and Forest Ministry.
Madras Refineries Ltd. plans a public offering on India's capital market of shares valued at $81 million to partly finance four projects: expansion of the lube plant at its 130,660 b/d Madras refinery, construction of a 10,000 b/d minirefinery in India's Cauvery basin, construction of LPG separation facilities at the Cauvery minirefinery, and a power capacity expansion project at Madras.
Mobil Oil Corp. and IOC entered into a joint venture to build a lube oil blending plant in Haryana state, northern India. The JV, Indo-Mobil Pvt. Ltd., will use Mobil technology for the plant, which is expected to start up in fourth quarter 1996. Meantime, IOC will use Mobil base lubes and additives to blend and pack Mobil lubricants for distribution throughout IOC's 11,000 service stations and other retail outlets. IOC currently holds 50% of India's lubricants market, which has grown at a rate of more than 4%/year in recent years.

PRODUCTION SLIDE

ONGC now expects its oil production in fiscal 1994-95 to fall short of earlier projections by 220,000 b/d. Last year, the government targeted an oil production increase of about 300,000 b/d to a total of 840,000 b/d in 3 years.

For fiscal 1993-94, the Petroleum Ministry set a production target for India of 543,400 b/d. During 1992-93, Indian production averaged 538,800 b/d, down from 607,000 b/d in 1991-92. The ministry early in 1992-93 projected production of 569,200 b/d but later trimmed that target to 530,000 b/d.

The Bombay High area, India's only world class producing province, produces 230,000 b/d. That's down from a peak of 400,000 b/d in 1989-90.

ONGC claims it can restore peak production at Bombay High by yearend 1995, although some industry officials in India dispute that claim.

Of about 1,000 wells in the western offshore region, one-third have been reported shut in. Almost half the region's wells are said to need extensive rehabilitation. Sources report poor maintenance and lax technical control, notably with cleaning and cementing practices.

In L2 field in the North Bombay High area, a current program of water injection and infill drilling from five new wellhead platforms is expected to boost production by about 30,000 b/d. Eight infill wellhead platforms are slated for L3 field in the South Bombay High area, with projections of a production increase of 64,000 b/d. And 13 wellhead platforms installed in Neelam field are expected to add another 90,000 b/d of production. At last report, all three programs were behind schedule.

PRICE CHANGES

New Delhi plans to gradually increase domestic crude prices in phases during the next 3 years.

That follows the government's decision to offer world market prices to foreign companies participating in Indian oil exploration and development for their share of production. This created a dual price regime because the government continued to pay domestic state companies ONGC and IOC at a lower rate to reflect domestic subsidies. So the government often paid two prices for the same crude from one field.

The change win allow ONGC and IOC to boost profits to be reinvested in Indian E&P, where capital outlays have lagged lately.

The change to price parity was brought about by an evaluation of ONGC by the I-SEC group led by JP Morgan for the state company's prospective privatization. Separately, JP Morgan and DeGolyer & McNaughton completed an assessment of ONGC hydrocarbon reserves in November 1993 in order for ONGC to be certified as a public limited company.

ONGC shares are expected to be publicly offered by June. I-SEC suggested the offering come in two groups of 10%, one each for the domestic and international capital markets. The government has given its commitment to the Asian Development Bank that it will reduce its stake in ONGC by 20% by June in order to secure the second tranche of a major hydrocarbon sector loan from the bank.

PRIVATIZATION NEED

The push to attract foreign investment in India's petroleum industry is gaining momentum. Petroleum Minister Satish Sharma in recent months has visited a number of foreign multinationals in an effort to promote their participation in India's upstream and downstream sectors.

The urgency of India's dilemma is underscored by the huge price India is paying for imports of crude oil and refined products. A tab of $5.9 billion for purchases of crude and products in fiscal 1992-93 is likely to be exceeded this fiscal year, despite the slide in oil prices.

With the production slide and growing demand, India's oil imports are expected to jump to 1. 14 million b/d in fiscal 1997-98 from 980,000 b/d in 1996-97. That compares with estimated imports of 896,000 b/d in 1993-94 and 798,000 b/d in 1992-93. Accordingly, the Ministry of Finance is considering proposals from JP Morgan and Goldman Sachs to hedge India's oil imports against future price increases.

That urgency also led Sharma to propose an unusual scheme to attract more domestic investment capital to India's petroleum sector: tapping unreported income. Sharma last fall proposed Indian citizens that have hidden income to avoid paying taxes will be granted legal immunity if they in vest in oil exploration (OGJ, Sept. 13, 1993, Newsletter). The government has not taken the concept any further, but the "black money for black gold" scheme is certain to receive much political flak.

Industry response to India's overtures has been mixed. A number of majors are keenly interested in building refineries solo or in joint ventures with India's state companies. And there is considerable enthusiasm for plans to develop or redevelop existing oil fields. For the proven areas, where India made geological data available, the government has received more than 100 bids, mostly from foreign companies.

LUKEWARM EXPLORATORY INTEREST

But interest in Indian onshore or offshore exploration is lukewarm, despite terms that are among the most attractive in Asia.

Of the 46 blocks on offer in India's sixth licensing round, which closed at yearend 1993, only 12-seven onshore and five offshore-received bids, a total of 20. Bids came from Vaalco, BHP Petroleum Pty. Ltd., Amoco Corp., Enron Corp., Command Petroleum NL, Phoenix Geophysics, Samson International, Rexwood Corp., and Oakland Oil Co.

Petroleum Ministry officials point to efforts to make Indian terms still more attractive, notably consideration of lowering corporate tax rates and state participation, along with a push to streamline permitting and eliminate red tape.

Soft prices are causing most companies to tighten high grading of their international prospects, and the prevailing view is that China and Viet Nam offer much greater potential than India does.

Part of that rationale stems from a lack of reliable geological and geophysical data on India's basins. That is what led India's government recently to invite bids from private companies to conduct seismic surveys of selected blocks, a right previously baited to state companies.

DOWNSTREAM PARTICIPATION

Private company participation in India's refining and marketing sectors has proven much less controversial than upstream but still is beset with delays.

The much touted export refinery project at Gujarat under development by the Indian expatriate owned Parmars Group of Switzerland has run into infrastructure problems. And negotiations have reached an impasse between Indian expatriate company Hindujas and IOC over building a 120,000 b/d refinery in India's eastern region because of difficult conditions the former set down.

Other downstream private/public ventures are moving ahead smoothly. The two refinery ventures OOC has with Hindustan Petroleum Corp. and BPC are moving apace. Reliance Industries Ltd. is securing funding for its refinery project on India's western coast despite the recent withdrawal of Itochu Corp. from the venture. And state owned Indo-Burma Petroleum has entered into a joint venture with Caltex Oil Corp., IBP-Caltex Ltd., for marketing lubricants in India. The new company, owned by Caltex 51% and IBP 49%, has authorized capital of $20 million.

The need to involve India's private sector in marketing products is becoming more important because of growing sophistication among Indian consumers and the increasing inability of state companies to meet domestic demand through existing retail outlets.