Updated on 23rd April 2007

Powering India

Power is the critical infrastructure on which the socio-economic development of the country depends. The growth of the economy and its global competitiveness hinges on the availability of reliable and quality power at competitive rates. The demand of power in India is enormous and is growing steadily. The vast Indian power market, today offers one of the highest growth opportunities for private developers. In order to support a rate of growth of GDP of around 7% per annum, the rate of growth of power supply needs to be over 10% annually.

Electricity is considered a key driver for targeted 8 to 10% economic growth of India. Electricity supply at globally competitive rates would also make economic activity in the country competitive in the globalized environment. The power sector in India is dominated by the government. The State and Central Government sectors account for 58% and 32% of the generation capacity respectively while the private sector accounts for about 10%. Growth of Power Sector infrastructure in India since its Independence has been noteworthy making India the third largest producer of electricity in Asia. Generating capacity has grown manifold from 1,362 MW in 1947 to 113,506 MW (as on 30.09.2004). The over all generation in India has increased from 301 Billion Units (BUs) during 1992- 93 to 558.1 BUs in 2003- 04.

In its quest for increasing availability of electricity, India has adopted a blend of thermal, hydel and nuclear sources. Out of these, coal based thermal power plants and in some regions, hydro power plants have been the mainstay of electricity generation. Oil, natural gas and nuclear power accounts for a smaller proportion. Of late, emphasis is also being laid on non-conventional energy sources i.e. solar, wind and tidal. Natural Gas currently accounts for 8% of the energy consumption in the country.

Per capita consumption of electricity is expected to rise to over 1000 kilowatt hours per annum (kwh/ annum) in next 10 years (from present level of 580 kwh). Compare this against over 10,000 kwh/ annum in the developed countries!

Along with this quantitative growth, the Indian electricity sector has also achieved qualitative growth. This is reflected in the advanced technological capabilities and large number of highly skilled personnel available in the country.

While this must be appreciated, it must also be realized that the growth of the sector has not been balanced

These problems emanate from:
- inadequate power generation capacity
- lack of optimum utilisation of the existing generation capacity
- inadequate inter-regional transmission links
- inadequate and ageing sub-transmission & distribution network leading to power cuts and local failures/faults
- T&D losses, large scale theft and skewed tariff structure
- slow pace of rural electrification
- inefficient use of electricity by the end consumer
- lack of grid discipline

Oil & Gas

The Indian Petroleum industry is one of the oldest in the world, with oil being struck at Makum near Margherita in Assam in 1867 nine years after Col. Drake's discovery in Titusville. The industry has come a long way since then. For nearly fifty years after independence, the oil sector in India, has seen the growth of giant national oil companies in a sheltered environment. As the Indian Economy breaks the shackles of a hindu rate of growth to grow at a pace of 8% and above, the single biggest beneficiary should be the oil & energy sector. Oil and energy are most happening sectors of the Indian economy today.

The sector in recent years has been characterized by rising consumption of oil products, declining crude production and low reserve accretion. India remains one of the least-explored countries in the world, with a well density among the lowest in the world. With demand for 100 million tonne, India is the fourth largest oil consumption zone in Asia, even though on a per capita basis the consumption is a mere 0.1 tonne, the lowest in the region- This makes the prospects of the Indian Oil industry even more exciting.

'With more than a billion people, a structural demographic shift resulting in exploding consumption expenditure, full deregulation of a 100 m tonne market growing at twice world averages, India represents one of the most exciting oil markets in the world today' - CLSA Asia Pacific

Consider the following:

Automobile sale have been surging every year. Car sales are up by nearly 30%, heavy & medium commercial vehicle sales have climbed an even more steep 40%, consumption of diesel and LPG are on a steep rise.

High consumption has meant high profit margins for oil companies, particularly refining majors like Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL), Indian Oil Corporation (IOC) and a host of other smaller refining companies.

However, sentiment for the sector would be significantly impacted by the performance of the biggest oil company in the country- ONGC .The company is by far the biggest player in the oil exploration & production sector and has a presence in the refining sector through its arm- MRPL. According to CLSA. "While Asia (excluding, Middle East) accounts for only 10% of oil production, it accounts for as much as 25% of oil consumption and refining capacity. Oil consumption in Asia is returning, driven mainly by a surge in Chinese demand over the shorter term. With Asia forming 45% of global incremental demand between 2000 and 2010, we expect Asian refining margins to remain at higher than global averages"

Powered by the India Hydrocarbons Vision- 2025 report, which gave priority to a huge push in exploration efforts, the government has moved into overdrive. While ONGC holds 57. 2 per cent of the total area licensed by the government for oil exploration, Reliance Industries and Oil India Ltd have grabbed licences covering around 26. 6 percent respectively.

Energy- hungry India has had mixed success in its hunt for oil. In the last two years, India has reported 21 oil and gas discoveries amounting to over 800 million metric tones of oil and oil equivalent gas. Apart from Reliance, the other foreign and domestic companies, which together account for around 16 percent of the country's total crude oil production, include Essar, Assam Company, Cairn Energy, Niko Resources, Premier Oil and Hardy Oil

Public sector downstream oil companies like Hindustan Petroleum and Bharat Petroleum have also made a foray into upstream oil exploration as joint venture partners of ONGC in some blocks.

The icing on the cake has been the spectacular performance of India's oil companies abroad. ONGC Videsh, for example, already has nine overseas assets and wants more. Deals have been struck in countries like Russia, Sudan, Vietnam, Syria, Iran, Iraq, Libya and Myanmar, OVL already gets 3 million tonnes of oil from Sudan and beginning in 2005, expects to get another 5 million tonnes from Sakhalin.

Others have also joined the rush, Reliance Industries has bought a 30 per cent stake in an off-shore field in Yemen. The project, struck oil in mid- June last year.

People Issues

With the entry of private oil companies into the predominantly national oil company-dominated upstream and downstream industry, the oil PSUs have been subjected to greater competition from the private sector in business as well as for talent. With their pool of highly skilled professionals being compensated with salaries far below the market average, the PSUs have become an easy poaching ground for private companies willing to pay more to attract profitable employees. The PSU oil companies are facing a severe manpower crunch. The number of employees have dwindled over the last 10 years and it appears that the reduction has been across all levels and positions. Given the dearth of ready availability of talent in this area, companies like EIL become easy targets for poaching of talent. According to the Society of Petroleum Engineers (SPE), the overall shortfall is expected to grow to about 30,000 professionals by the year 2012. A study conducted by Hewitt Associates on behalf of the PSU oil companies has disaggregated the the trend of attrition as follows:

In India, there is a clear surge in demand which is unlikely to be met by current supply. Demand is slated to grow in coming years, with Shell's technology centre in Bangalore expected to hire 1,000 employees to support its global operations, both upstream and downstream. Furthermore, with Reliance Industries Ltd planning to doubling refining capacity by next year, Essar Oil starting production at its 10.5-MMTPA refinery and planning to have 5,000 retail outlets by 2008, Cairn Energy ramping up manpower to start commercial production and the PSU oil and gas companies themselves planning to invest heavily in the XI Five-Year Plan to expand their operations, it is likely that the oil PSUs will find themselves facing a talent crunch in the near future. The severity of the problem is highlighted by the case of EIL, an organisation consisting primarily of engineers and experts. EIL's attrition rate in 2005-06 in the Process Design and Development function has been as high as 21.4% and in project management and project services functions, it is 17.2%. The trend for 2006-07 has been even higher.

During its study of compensation for employees of the Indian oil PSUs, Hewitt Associates found that pay packages and rewards are fundamental components in the employment relationship, with pay among the top five factors which have the highest impact on employee engagement. The consultancy firm found that the significant difference between the best employer companies and the others clearly demonstrates the value of compensation in attracting, retaining and motivating employees. Among best employer companies, satisfaction with pay is on an average 79% as compared to 67% on average among other companies. However, in a recent employee engagement study conducted at IOC, although the engagement level was found to be as high as 68%, satisfaction with pay was only 47%. Clearly, the lower compensation and reward package offered by the oil PSUs as compared to their private sector counterparts is the primary factor for the flourishing levels of employee attrition.

April 19: Some of the key observations made by consultancy firm Hewitt Associates in its study on compensation for oil and gas PSU employees revolve around:
External Parity
---Insignificant incentives, straitjacketed salary structure and caps on allowances leave no room for flexibility at this level. This observation is also true forother senior levels.
Internal Parity
Attraction
--Lack of long-term incentives and insignificant variable pay may hamper attraction as well.
--Small differentials can hinder motivation to move up and take higher responsibilities and be held accountable.
Retention
--With take home salaries being lower than the market median, employees are susceptible to poaching.
--The structure related to DA and increments encourages and helps retain low performers, who are guaranteed an increase in salary.
Motivation
--Motivation may suffer on account of differential with the market and insignificant differential within.
--No correlation seen between performance and complexity of role and pay.
--No incentive to perform beyond expectations. Increments are known and expected

Public Sector Undertakings

Balmer Lawrie & Co. Ltd.

Bharat Petroleum Corporation Ltd.

Biecco Lawrie Co. Ltd.

Bongaigaon Refinery and Petro-Chemicals Ltd.

Chennai Petroleum Corporation Limited

Cochin Refineries Ltd.

Engineers India Ltd.

Gas Authority of India Ltd.

Hindustan Petroleum Corporation Ltd.

IBP Co. Ltd.

Indian Oil Corporation Ltd.

Numaligarh Refinery Ltd.

Oil India Ltd

Oil & Natural Gas Corporation Ltd

Subsidiaries

Mangalore Refinery and Petrochemicals Limited

Key facts & figures on the Indian Oil & Gas market

Demand Growth

In 2002, India replaced Germany to become the fifth largest energy consumer in the world. The Indian economy has grown at 8.2 percent in 2003-2004 and this has been accompanied by robust energy use in the country. Petroleum products demand has grown from 2.19 million b/d in 2003 to 2.32 million b/d in 2004. In the longer term, robust growth is projected in demand for petroleum products led by transport fuels and LPG. This trend of high demand growth is also dominant in the natural gas sector.

Natural Gas

Gas is the fastest growing fuel in India s energy mix and gas demand increased from 2.8 bcf/d in 2003 to 3.15 bcf/d in 2004. Gas consumption in India is expected to rise over 10 percent from 2005-2010 in the light of increasing LNG imports as well as the domestic discoveries. India is waking up to the high gas prices for LNG imports. In the future gas pricing and de-regulation will play a key role in shaping India s thriving gas economy.

Refining Capacity

India's refining capacity nearly doubled between 1998 and 2005. This wave of refining capacity additions is here for a rebound. India will add more than a million barrels per day of refining capacity through 2010 if all projects on the board materialize. Indian exports (on a net basis) will exceed 900 kb/d by 2010 surpassing South Korea to be the 2nd largest refined products exporter in the region. India has also graduated to more stringent product specifications and this has affected short term trade flows.

Deregulation

On the policy and regulatory front, the issues of privatization and de-regulation continue to provide challenges due to lack of political consensus. While the Administered Price Mechanism (APM) stands dismantled in theory, marketing companies have little autonomy in pricing decisions. Cross subsidies in LPG and Kerosene continue while the effective duty protection available to domestic refiners has been
progressively reduced.

These opportunities and challenges are proving to be an exciting time for the Indian oil and gas sector. With new product specifications, setting up of grass root refineries, overseas acquisitions and construction of new LNG terminals, India will play a significant role in the global energy market.

The Indian power industry - an overview
Lotus Strategic Management Consultants
8 January 2001

General highlights

· The power sector at this juncture is plagued by a number of problems. These include inadequate generation capacities, poor capacity utilisation, very high transmission losses and poor project implementation.

· Plant load factor (PLF) in most of the plants has been very low compared to the power plants in other parts of the world.

· The sector has been bogged down by resource constraints.

· In India electricity tariffs are a politically sensitive issue and often create turmoil. This is the reason for poor performance of most the state electricity boards (SEB) and has also resulted in serious financial problems.

· Till date, the players have not started giving adequate consideration to the alternate energy sources for power generation.

· Over the last few years, capacity addition has been consistently falling short of demand. This has resulted in a sharp increase in power shortage across the country.

Sector comments:

Not withstanding the massive increase in generation capacities over the past decades, the history of the Indian power sector has been punctuated by shortages, massive pilferages and a demand-supply gap, which has been growing. The shortages have been so chronic that, at times fears have been expressed about a negative impact on industrialisation due to these shortages.

Thus, while the figures for additional capacity being created may look impressive in isolation, the fact is that the demand growth has always been higher than the supply. Further, the capacity additions are significantly below the plan targets, particularly during the eighth plan, where the capacity addition of about 16,000 MW showed a shortfall to the extent of about 40 per cent from the revised plan target of around 29,000 MW.

Industry players and profile

The power sector reveals that it can be largely segregated into four different categories on the basis of type of players in the industry. These include:

· Central Government Corporations: which consist of corporations like the National Thermal Power Corporation (NTPC), Nuclear Power Corporation, National Hydro Electric Power Corporation (NHPC), and some other smaller players.

· State Government Corporations: which consist of the various state electricity boards and other corporations that have been promoted by the respective governments. Poor management, transmission and distribution (T&D) losses and poor recoveries of dues are some of the factors, which are responsible for the plight of these corporations. Currently, the financial health of many SEBs is precarious and their revenue-raising capabilities are more or less dependent on assured guarantees from the respective governments.

· Private Sector Licensees: In the private sector, some companies had been given licenses to carry on generation and distribution activities. While some of these, like BSES Limited, are generation and distribution companies others, like Surat Electricity, are just distribution companies.

· Independent Power Producers: The Independent Power Producers (IPPs) are the companies that have been given a nod to set up generation capacities.

Finally, a look at the regulatory structure of the sector indicates that various Acts govern the power sector. These provide for the tariff determination procedure for companies. It also defines the various terms such as reasonable returns and capital base. However, approvals of tariffs rest with the respective governments.

Sector trends

· A look at the sector statistics reveals that the total installed capacity in the country in 1980-81 was around 30,000 MW, which stood at a respectable 85,000 MW at the end of the eighth plan (1992-97). Thus far, the picture is one of steady achievements and solid progress, in terms of capacity addition. However, a look at capacity utilisation figures and demand highlights the enormity of the problem. Plant Load Factor (PLF) indicates that the utilisation of power plants is currently ruling well below the global standards. Thus, the shortage is significant, which get compounded by the peak demand.

· The process of clearances have invariably led to considerable delays and posed major bureaucratic hurdles. This has also been a major disincentive to potential investors. The net result of the above factors is the steep shortfall in power.

Influencing factors

There are various factors, which have led to negative returns for most of the power generating companies. Some salient factors are listed below:

· The power generation capacity has consistently fallen short of the requirement. Further, capacity additions have seldom managed to keep up with plan targets.

· Adding to the inadequate generation capacity is the problem of poor capacity utilisation. This has led to a massive shortage situation.

· The track record of the companies in project implementation has been quite dismal.

· The financial health of most of the SEBs is bad. This has led to their inability in adhering to payment schedules. This is a major cause of delay as most promoters are looking for guarantees or assurances before embarking on the projects.

· Transmission and distribution (T&D) losses is another area, which has posed a lot of problems to the power sector in the country. Massive pilferage is one reason for it. Aiding in this process is the fact that majority of transmission in the country is low voltage transmission, which helps pilferage. Inadequate metering facility and poor collection rates too contribute to the problem.

· Compounding the problem is the high level of subsidy for farmers and low end-users in the domestic sector.

· Owing to the controlled nature of this industry, all players are operating on an assured return basis. This includes factoring in of costs and investments and assurance of a rate of return, which varies for different segments.

· For companies generating power, fuel is the single largest component of the cost structure. It accounts for as much as 50 per cent of the cost of electricity produced. Operating expenses too are very high for these companies.

· Being a capital-intensive industry, interest and depreciation costs are understandably high. Net margins for companies have typically been around 10 per cent for the larger companies.

· Typically, all the license holders have been relying on other external sources such as the state electricity boards or other companies for additional requirements. Thus, the cost at which this additional requirement is sourced is an important factor.

· Since the industry is controlled, high costs are not a problem to a company if it can be passed on to consumers through tariff hikes. This has typically been the case with companies in the states of Maharashtra and Gujarat.

· The revenue that the private sector generation and distribution companies which operate as licensees can charge from consumers and the consequent profits by the governed and controlled by the government. This mechanism of profit determination is highly biased towards higher capital investments in expansions and new projects. The returns to these companies start flowing during the project implementation phase, not when the project becomes operational. The emphasis in the mechanism is on higher capital creation and not on more productive or efficient utilisation of the resources at hand.

Outlook

The track record of the country in tapping alternative energy sources such as nuclear power, hydel power and wind energy has been quite dismal. The country’s power sector thus continues to be largely driven by thermal power, although private players are looking at alternative fuels like LNG. Therefore, need of the day is to seek other power generating renewable sources.

In view of this worsening shortage, the government decided to go for massive increase in capacity through projects, which would be opened out both to the private sector and foreign investors. Things have, however, not gone smoothly. Controversies surrounding the contract awarding procedures, bureaucratic delays, counter guarantee problems and problems in signing fuel supply agreements have resulted in significant delays in most of these. As a result, the power deficit situation is likely to continue for some time. Even if the majority of projects do materialise in the next few years, many parts the country would still remain power deficit.

Executive Summary

One of the largest pool of Human Resources employment in India, many of the companies in this sector feature in the Global Fortune 500 list.

Dominated by PSUs, all of them are working on shedding off this cultural tag and working towards attracting and retaining the best talent in India.

Due to opening up of the economy, competition is on the rise. Pure refining companies are now directly attacking marketing companies. Then there are the new entrants like Reliance and Essar who are threatening to redirect the customers to their competitive services.

For many of the oil companies the past three years have been a complete change in terms of business direction. Many oil companies are moving towards overseas markets and are creating local bred multinationals.

These are the most interesting times in the lifetime for Indian oil companies. There is just so much happening and most of it is driven by the new belief in people and human resources.

The oil companies have always been investing substantially in creating training infrastructure and Human Resource processes. Companies like GAIL, HPCL and BPCL feature amongst the most admired for their HR practices.

Background

· Crude oil, the largest source of energy, is a key feed stock for petroleum products. Globally, at the current estimates of proved reserves of 142.7 thousand million tonnes (TMT), it is estimated that the reserves will last for another 41 years. In case of natural gas, at the current proved reserves of 156 trillion cubic meter (TCM), the estimated life is about 61 years. In India, figures for proved reserves for crude oil are about 0.7 TMT and the estimated life stands at about 19 years while for natural gas the life is about 27 years with reserves of about 0.76 TCM.

· There are three stages in the process, upstream: exploration and downstream: refining and marketing. After extracting the crude oil from the reserves, it is processed in refinery to yield various petroleum products, which are further marketed. Petroleum products are obtained through a two-stage process: distillation and chemical processing. Distillation involves breaking crude oil into light distillate, medium distillate and heavy distillate. Chemical processing is done to add value to products. ONGC and Oil India dominate the upstream segment. Together they contribute 87% of India's oil production.

· Government initiated a new exploration and licensing policy (NELP) to increase competition in exploration front open to all. In the four rounds of the policy, so far the government has signed 90 contracts involving an investment of US$ 4.4 bn. The government is further planning to introduce NELP V in the next couple of months.

· In the downstream segment, major players include IOC, HPCL, BPCL and Reliance. Independent refineries have now become subsidiaries of these bigger players. Total refining capacity of the country stands at about 124 MMTPA (million metric tonnes per annum) as in 2004. IOC dominates the refining capacity with a total share of nearly 41% of the current refining capacity.

· Refining sector got deregulated in 10098-99 whereas marketing sector deregulation began to take shape on 1st April 2003. However, there is still political intervention in the pricing of certain petroleum products. For instance, subsidy on LPG and PDS kerosene still continues and would be phased out in next 2 to 3 years. Also, companies having invested Rs.20 bn in upstream, downstream or other energy sources are now eligible to apply for retail petroleum marketing rights.

· In case of natural gas, ONGC is the major producer. Reliance has recently struck huge amount of natural gas. GAIL is currently the monopoly player in the transmission and distribution of natural gas, accounting for about 90% of the supplies. The user industries here are mainly power, petrochemicals, fertilisers, pharmaceuticals and utilities. Gujarat Gas is also another player in the regional domain and is present mainly in retail side. Power and Fertilizer together contribute nearly 70% of the demand for natural gas. However, the country still witnesses shortage in supply of natural gas by around 86 MMSCMD (million metric standard cubic meters of gas) per day

Key Players

Together the oil and energy companies dominate the stock market and employ one of the largest pool of human resources.

Indian Oil Corp

Hindustan Petroleum
Bharat Petroleum

Cochin Refineries

Gas Authority

Madras Refinery

Reliance Petroleum

ONGC

Players to Watch

ONGC, Reliance Petroleum, Gujarat Gas

Current Trends

· India's oil demand jumped 16% in 2003-04 in value terms from US$ 15.8 bn to US$ 18.3 bn, while product imports increased by 14% during the same period. In volume terms, consumption of petroleum products increased from 104 MT in 2002-03 to 108 MT in 2003-04.

Crude oil prices rose sharply on account of various reasons like geopolitical tensions in the Middle East, low inventories coupled with high demand in the US and the higher demand from China. Crude oil production in India stood at 33 MMT while petroleum products production was up 8% to 122 MT as opposed to 113 MT in 2002-03, although ONGC is allowed to sell crude oil at global prices, it had to bear a subsidy burden on LPG and kerosene to the tune of Rs 27 bn.

· Refining capacity of the country in 2003-04 stood at about 124 MMTPA. The last two years has witnessed India converting into a product surplus nation, thanks to additional refining capacities being added by Reliance Industries and other major players in the sector. Exports of products were at a record high and touched Rs 163 bn in 2003-04. Although post-dismantling, companies were free to mark product prices in line with international crude prices, it actually did not happen, as the companies continue to set prices. This can be seen from the fact that the petrol and diesel prices have risen by about 22% and 27% respectively in 2002-03 as a result of crude prices increasing by about 45%. As a result of increase in global crude prices, India's oil import bill surged by 16% in 2003-04 from US$ 18 bn in 2002-03 to US$ 20.4 bn in 2003-04. However, since the rupee strengthened during the same period, the net impact was 10% from Rs 850 bn to Rs 935.3 bn.

· Government awarded licenses to Shell, Reliance, ONGC, MRPL and Numaligarh to enter into marketing segment. In order to gear up, PSU players have taken up many initiatives. Marketing aspect of the business saw multiple initiatives like premium petrol, slogans, and one-stop shopping points. The companies have built up non-fuel business portfolios like ATMs, Vehicle accessories, etc. In case of LPG, 5 Kg LPG cylinders can be seen to increase rural reach.

· Reliance hit upon 14 trillion cubic feet of gas reserves in KG Basin and plans to begin commercial production by FY06. Discoveries by ONGC and other players are expected to increase the supply side in long term. The oil companies faced losses to the tune of Rs 36 bn in 2003-04 on account of sale of LPG and kerosene at subsidized rates.

· The union cabinet approved the Petroleum Regulatory Bill, which provide for the establishment of a Petroleum Refining and Marketing Regulatory Board. The bill is expected to be placed before the parliament for approval shortly.

People Challenges

Talent Attraction: Attracting and retaining the right people seems to be the omnipotent challenge to all in the industry. As traditional PSU status does not attract the right talent, which is so very crucial in a competitive scenario.

Leadership: The focus on the coming times for the oil based companies would be to constantly innovate in the market place to maintain leadership. There will be a tremendous pressure on creating an atmosphere of innovative thinking and execution.

This would also require superior management and communication skills.

Training: With multiple process and initiatives constantly being created and applied, training will always be the key fulcrum to leverage operational excellence. Creating training solutions that are cost effective and result oriented will always remain a challenge.

Many oil companies have already invested substantial amounts in creating training infrastructure. Also many of these oil PSU’s form a part of the most acclaimed HR practices in India.

People & Business Skills Inventory

Based on the trends and the emerging outlook the people and skill inventory for a successful oil and energy companies looks like.

1. Human Relations management / Interpersonal skills

2. Communication / Presentations

3. Sales (generic)

4. Leadership
a. Innovation
b. Motivation
c. Result management
d. Coaching and mentoring
e. Managing teams

5. Customer service

6.Training trainers

Outlook

· Increased thrust on exploration in terms of competitive bidding in NELP, encouraging companies to buy equity investments abroad would lead to higher crude oil production going forward. Recent discoveries by ONGC, Reliance, Cairn Energy, etc. would further increase supply side. This apart, any success in deep-sea exploration and coal bed methane blocks might change the equation significantly in the long term.

· While demand for petrol and diesel is likely to remain flat in the next few years, LPG is likely to witness double digit growth as more and more people shift from kerosene to LPG as a major source of cooking medium. Anticipating this, the companies are planning to expand their refining capacities. It is expected that the refining capacity would increase by about 40 MMTPA in the next three years. Although demand for petrol and diesel shall remain flat in the domestic markets, the refineries shall resort to exports markets.

· We have about 20,000 retail outlets. In the next 2 years, the same would be around 25,000 with private players accounting for about nearly 2,500 outlets by that time. Given the current oversupply scenario, companies have started focusing on exports and this would see a healthy growth going forward. A one-time commodity product is now realized more as a branded one with each company trying to distinguish their products from one another. Brand differentiation and pricing differential would increase and customer bargaining power would increase.

· Indian companies are realizing the potential of integration (upstream and downstream) and are also planning to integrate themselves. While HPBL and BPCL plans to enter into exploration, ONGC eyes to enter in the refining and marketing segment, whereas IOC is also planning to enter into exploration and petrochemicals segment and the latter has set up a war chest of US$ 2 bn to acquire medium and small exploration companies.

· PSU marketing companies have taken a lot of initiatives to prepare for the foreseen competition. They have started taking control in their hands from the existing dealer owned network. Currently, 75% of the retail outlets in case of HPCL and BPCL are company owned and operated and this is likely to increase further. With increasing competition, automated petrol pumps would soon be seen across the country with various services being offered as a rider on the petrol pumps.

· Fifth round of NELP is expected shortly. In the earlier four rounds, the government has signed nearly 90 contracts with investments to the tune of US$ 4.4 bn. GOI has also encouraged companies to acquire equity investments abroad. The government has opened up coal bed methane blocks, which poses lot of potential in terms of natural gas.