Indian Refinery Eco.docx

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 alltime 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.

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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

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Way forward an analysis of the union budget and other initiatives.

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Understand the refinery in petroleum production

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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

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4

Upstream Exploration & Production

Midstream Storage & Transportation

Downstream Refining, Processing & Marketing

Oil and Natural Gas Corporation Oil Production: 531,000 b/d Gas Production: 25.6 bcm Turnover: US$ 13,782 mn. 74% state owned

Oil India Limited Oil Production: 73,000 b/d Gas Production: 2.4 bcm Turnover: US$ 1,730 mn. 98.1% state owned

Indian Oil Pipelines: 10,329 km Turnover: US$ 68,488 mn. 89% state owned

Gas Authority of India Pipelines: 12,000 km Turnover: US$ 6,762 mn. 57% state owned

Indian Oil Refining: 880,000 b/d Retail Outlets: 18,643 Turnover: US$ 68,488 mn. 89% state owned

Bharat Petroleum Refining : 450,000 b/d Retail Outlets: 6,553 Turnover: US$ 34,591 mn. 66% state owned

Cairn Energy Oil Production: 25,000 b/d Gas Production: 0.4 bcm Turnover: US$ 340 mn. Private sector

Hindustan Petroleum Refining : 260,000 b/d Retail Outlets: 8,539 Turnover: US$ 27,812 mn. 51% state owned

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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

and 62,582

78,321

Petrochemical

15,321

15,678

Engineering

236

198

Total

2,29,072

Production Refinery Marketing

crore 2,69,461

(US$ 4.31 trillion)

crore

(US$ 5.07 trillion)

Source: Planning Commission – Mid Term Appraisal of the 11th Plan

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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.

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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

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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

5,625 5,625

5,682 5,654

5 5,484

5,600

4

5,319

5,400

5,213 5,109

5,200

5,032

5,000

4,957

3 4,882

4,809

4,800

4,737

4,600 4,400

2

1 1

1

2009

2010

1

1

1

1

1

1

1

1

1

1

1

4,200

0 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.

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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.

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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.

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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.

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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:

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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.

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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

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Petrol Price Hike level in Mumbai

Petrol Price Hike level in Chennai

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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.

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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.

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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.

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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.

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