Effect of Political Environment

on Oil and Gas Sector

Submitted By:- Submitted To:-

Anuj Gosai (2) Mrs. Roopa R Rao
Bhargav Jambukiya (15)
Nikita Patel (34)
Shivang Thacker (53)

PGDBM: - 2010-12
 Variables Observed

Overview of Oil & Gas sector

Demand and supply of crude Oil and Natural gas
Details about Companies and market Share in India
Brief about changing governments
Various conflicts between the government and
companies
 Contd..

Changing crude price and government policies

Overall effect on the companies
 Overview of Oil &Gas sector

India has total reserves of 775 million metric tonnes

(MMT) of crude oil and 1074 BCM of natural gas

Petroleum exports during 2008-09 were US $ 26.2

billion
During April ‘10 crude oil production went upto 5.82
MMT, a 5.5 % increase
During April’10 the natural gas production was 9.1
BCM, an increase of 43.5 % over 09
As per the ministry of petroleum, demand for oil and
gas is likely to increase from 186.54 million tonnes of
oil equivalent(mmtoe) in 09-10 to 233.58 mmtoe in
11-12
 Policies and Government Intervention

The government has been taking many measures to

create a conducive policy for attracting investments
FDI (foreign direct investment) upto 100%
under the automatic route is permitted in
exploration activities of oil and gas fields,
infrastructure related to marketing of petroleum
products
FDI upto 49 % is permitted under the government
route in petroleum refining by the public sector
undertakings
In 2009 the government announced 7 yr tax holiday
for commercial production of gas in respect of
contract under NELP VIII with a view to boost
explorations
Government has decided that the pricing of petrol
and diesel both at the refinery gate and the retail
level will be market determined
A number of private investors have entered this
segment, attracted by the government’s policies for
upstream exploration and production.
NELP has helped to a large extent
 NELP-New Exploration Licensing Policy

India is heavily dependent on imports to meet the rapidly

growing demand for petroleum products.
It is also evident that vast amount of capital investments
are necessary if exploration efforts are to be substantially
augmented.
Therefore there is a need to attract both the National Oil
Companies as well as private sector oil companies to
invest in this critical area.
With this background, NELP was formulated by
government in 1997-98 to provide a level playing field in
which all parties could compete on equal terms.
 Contd…

The latest NELP IX introduced by the government

offered 34 oil and gas blocks while previous eight
rounds of NELP have fetched 235 blocks.
 Reliance Industries v/s RNRL and Government
stand

Gas found by Reliance Industries in KG Basin in

2002
MoU signed between the two brothers.
Major Pricing issue
Intervention of government
Objections regarding MoU
Supreme Court Judgement
Impact
 Reliance, Essar, Shell close down petrol pumps

Increase in petrol and diesel price due to high crude

oil price
Major loses to oil companies
Govt did not provide the same compensation to
private retailers like Reliance and Essar as it gave to
state owned companies
This led to heavy loses to this private companies
which led to closure of its petrol pumps
 Losses by State-owned retailers as Government
not providing Subsidy

Government gives subsidy to the oil companies

As the crude prices have been increasing the state
owned companies have incurred the losses
State-owned Indian Oil Corp (IOC), Bharat
Petroleum (BPCL) and Hindustan Petroleum (HPCL)
are collectively losing Rs265 crore per day
Due to Elections the Price could not be hiked by the
government
 Cairn-Vedanta Deal and the Government

The London-based Vedanta Resources proposed to

 acquire a majority stake in energy explorer Cairn India
for up to $9.6 billion.
The Cairn India has the blocks in sharing with the
ONGC
Royalty issues with the Government and ONGC
 Government not able to clear the deal currently and
the delay is been caused has its effect on Cairn India.
Recent Meetings with the Oil Minister and Cairn CEO -
Bill Gammell might have some positive results.
 Petrol Prices Deregulation

 Government of India deregulated the prices of petroleum

products
Reasons
 To reduce the losses of oil marketing companies
Impact of Deregulation
 Increase in Prices
 Inflation
 Interest rate
 Public Finance
 Private players will re-emerge
 Improve Valuation of OMC
 Due to increase in fuel price the profit of Oil marketing companies
will improve will result in result in higher Earnings per share
 Conclusion

 After studying various government policies from time to time by

which the different political parties were at the power.
 The political influence does play a major influential role on the oil
and gas sector. As the cases presented the MoU been the two
brothers was not been accepted by the government and by which
now again they are re-negotiating for the price.
 The government did not provide discounts to the private
companies on petrol and diesel which led to closure of petrol
pump. After the deregulation policy the private companies where
able to open up the petrol pumps again.
 The cairn Vedanta deal is been currently blocked for the
government approval and for clearing it major political influence
will take place.

 Thus, we strongly conclude that Political influence has a major

effect on Oil and Gas Sector.
 Future Scope of Study

 The future scope of study could be carried out by studying the more
details about the above mentioned cases.
 The Cairn-Vedanta deal is still under clearance from the
government so depending on the stand which government takes the
future study could be possible.
 For RIL Vs RNRL the two brothers have compromised between
them, after which RNRL has merged with RPower both the
companies under ADAG group. Still the further study about how the
gas allocation and the negotiation price is been fixed.
 For Petrol Deregulation which is ad hoc policy still under
implementation since under effect since July 2010 no price changes
have taken place depending on the crude price. The Diesel price
deregulation is the issue on which how the government acts as diesel
is been used mainly under commercial purpose so what strategy
does government follow could be studied.
Questions ???
THANK YOU