Petroleum Minister Murli Deora, an otherwise able administrator, may earn the dubious distinction of presiding over the fall of individuals and institutions in the oil sector in a year when he also faced accusations of taking sides in corporate battles.
The year would arguably go down in history as perhaps the most controversial year for the sector in independent India.
Controversies raged in perhaps every sphere of the sector — from accusations against upstream regulator the Directorate General of Hydrocarbons (DGH) to the role of downstream regulator the Petroleum and Natural Gas Regulatory Board (PNGRB) in grant on city licences.
Deora’s achievement of being the only petroleum minister to return to office may well be forgotten under the blistering attack Anil Ambani launched on him for allegedly siding with his elder brother Mukesh in the gas-supply row between them.
Anil first used the annual general meeting of his group firm Reliance Natural Resources Ltd (RNRL), which is seeking gas from Mukesh’s Reliance Industries in line with terms enshrined in a private family pact that split the Dhirubhai Ambani Empire between the brothers, to attack Deora’s policy of giving government a role in approving price of gas and its usage.
It was followed by an advertisement campaign and numerous media conference calls — where questions were not taken — to accuse his ministry of helping Mukesh wriggle out of the family agreement.
The provocation was Deora’s assertion that national resources could not be divided in private pacts and had to be used in larger public interest.
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Deora carried this assertion to the Supreme Court, where a Bombay High Court ruling asking gas to be given to Anil’s firm according to family MoU was challenged.
The three-way fight between Mukesh, Anil and Deora, both inside and outside the court, consumed almost the entire second half of 2009, when a massive drop in international oil prices could have been used to deregulate auto fuel prices.
India’s largest auction of exploration areas under the new exploration licensing policy (Nelp) was ruined with global biggies staying away over uncertainty on Nelp provisions that had been challenged in the Supreme Court.
After all, the year — which began with the government coming down heavily on oil PSU officers, after a three-day strike by them stalled oil and gas production and crippled fuel supplies — promised to be an eventful one.
Deora was more rooted in political reality than his predecessor Mani Shankar Aiyar who he replaced in January 2006, yet his track record of governance, or lack of it, has been dismal.
To his credit, he has presided over the exit of the finest executives public-sector oil companies have got — first Subir Raha was denied an extension of service as head of ONGC in 2007, then P Banerjee was shown the door before he attained the age of super-annuation at GAIL.
Now, it seems Sarthak Behuria, chairman of IOC, is set to meet the same fate.
The year began with international crude oil prices shaved off over $100 from the historic peak of $147 a barrel in August 2009, but Deora missed the opportunity to free petrol and diesel prices.
With crude oil prices ruling below $40 per barrel, deregulation could have been provided an ideal platform.
Instead, public sector oil companies were asked to cut retail prices, keeping the General Elections in mind; and when there was a rebound in rate, they started bleeding.
The government failed to put in a consistent compensation or subsidisation policy, leaving the three retailers — IOC, BPCL and HPCL — in the red.
It continued to ignore call by private retailers to provide level playing field, either by giving them subsidy on a par with PSUs or deregulating the sector, leaving consumers with little choice.
Though the decline in crude prices gave Reliance Industries and Essar Oil an opportunity to reopen the petrol pumps they had closed down in 2008, the government’s policy deterred them from expanding the network.
The ambitious programme to blend 5 per cent ethanol in petrol got derailed because of non-availability of sugarcane extract, while PSU refineries lagged in completing fuel upgrade, which would have enabled them to produce Euro-III and -IV petrol and diesel from April 1, 2010.
The mid-stream pipeline business was in an equal disarray, with regulator PNGRB not sanctioning a single cross-country pipeline to connect gas sources with consumption centres.
More confusion was added with Deora proposing to take away this function from PNGRB and create a new pipeline authority.
Bill to this effect is yet to get a final draft. PNGRB added to woes of consumers with lopsided regulations on city gas distribution (CGD) networks that sell CNG to automobiles and piped gas to households.
Instead of targeting cities where CGD was yet to begin, it picked on existing service providers in cities like Delhi and Mumbai over their authorisation.
The upstream sector was the most chaotic, with flip-flops on availability of tax holidays for gas production, creating uncertainty over multi-billion-dollar investment in deep-sea fields. Then there was the controversy over the marketing freedom for gas produced from Nelp blocks.
Deora believed operators had freedom within the broad framework of the government’s utilisation policy, but others felt he had robbed operators like RIL of their promised freedom.
The Ambani gas battle had its fallout on the upstream nodal body DGH, which lost its credibility as an institution after its then head, V K Sibal, was accused of colluding with private firms for personal favours.
He was denied an extension of service, following a negative report by the Central Bureau of Investigation on the charges he had vehemently denied.
There were a few bright spots too, first as RIL began gas production from its eastern offshore Krishna-Godavari D6 fields, which helped states like Andhra Pradesh turn power surplus in summer months.
Peak output of 80 mmscmd would wipe out most of gas deficit in the country, but doubts remain on when this would be achieved, as customers named by the government are yet to take their entire allocated quantities.
Also, Cairn India, the unit of Scottish explorer Cairn Energy Plc, began crude oil production from its Rajasthan field, the most prolific on-land discovery in more than two decades.
First the global slowdown in demand and then the absence of any clear direction led to public sector oil companies to mostly operate on auto-modes, with almost nil activity on the diversification and expansion front.
All that the state-owned refiners did was refine oil and sell fuel. Fire at a fuel depot in Jaipur, however, was the only time when the media spotlight turned on them.
Upstream company ONGC, already reduced to the status of well-digger on its diversification plans being axed in Deora’s ministry, saw the beginning of the decline in its oil and gas production.
Its overseas acquisitions too were subdued.
However, if the Supreme Court puts an end to the interpretation of marketing freedom to oil and gas producers when it gives its judgment in the Ambani gas dispute next year, much can be salvaged for the sector.
The Maharatna status to ONGC should bring it more autonomy and financial decision-making power and this should transform into strategic acquisitions.