'Shell is in India with a long-term view'

Q & A

Even though the privatisation of Hindustan Petroleum Corporation (HPCL) has been put in abeyance in compliance with the Supreme Court's decision, the Royal Dutch/ Shell group continues to be bullish on India.

Having unveiled the Hazira LNG receiving terminal with an estimated investment of $ 600 million, Vikram Singh Mehta, chairman of the Shell group of companies in India, told Hemangi Balse in an interview, "We have the patience and where India is concerned, we will continue to work consistently with our belief that India is a strategic business destination for Shell."

Excerpts:

Shell has been in India for close to 10 years and the LNG terminal is the first major investment that it has committed. Is the company happy with its achievements in India?

Shell is by no means new to India. We have responded to business opportunities here as they have arisen. Beginning with our entry into the lubricants market with Bharat Shell "" a joint venture with Bharat Petroleum Corporation Limited [BPCL] "" we have gradually expanded our presence into LPG, solar and LNG businesses. We are also investigating a retail entry option. Our commitments in India are in excess of $ 750 million, and in this regard, Shell is unique among the larger multinationals in this sector.

LNG projects have been talked about in India for close to six years. At a time when the projects are about to be commissioned, Reliance Industries has discovered gas in the Krishna-Godavari basin, do you think that the landed price of LNG will match that of domestic natural gas?

Domestic gas finds are always a welcome development for a country. As and when commercial extraction of gas in these new gas fields begins, it will add to the supply volumes of natural gas in India, predictably, in the medium to long term. But that will only partly bridge the supply shortfall of domestic gas against increasing demand.

The present gas supply in the country is around 65 million standard cubic metres per day [mscmd] and the present shortfall is around 35 mscmd. Further, infrastructure limitations will place restrictions on the transport of gas to the markets.

Re-gassified LNG will find its initial market in west and north-west India, where the market as well as gas transportation infrastructure are in a greater state of readiness.

The pricing for LNG cannot and should not be compared with the regulated price of domestic natural gas. Shell Hazira will deliver re-gassified LNG at a competitive and affordable market price.

How do you see the LNG market in India developing over the next five years?

The world over, natural gas has emerged as the preferred fuel option for energy. It is superior to other fuels/feedstock because it is environment friendly, has greater thermal efficiency, low gestation period for plants and machinery, and offers the flexibility to supply peaking power.

Given these advantages, gas is bound to emerge as the preferred fuel option in India as well. As the Indian economy grows, the demand for energy is also bound to grow correspondingly.

In this emerging scenario, it is only reasonable to assume that the demand for gas will also continue to grow. With the domestic natural supply falling short of current demands, LNG is expected to meet the incremental shortfall in demand.

The government did talk of a regulator for gas. However, that is not in sight yet. What mechanism do you think will best ensure access to pipelines for rival players consistent with fair competition?

With new players now entering the gas market, a new paradigm of competition has become imperative for the gas industry to expand and grow. All players "" incumbent and new comers "" should be provided with a level playing field to compete in a fair manner.

Fair competition requires grant of "common access" for new players to existing pipelines at a fair price. An independent regulatory authority is best placed to mediate on issues of fair competition, including transportation tariff and fair price for consumers.

The introduction of the Petroleum Regulatory Board Bill, 2002 is a welcome step in this direction. We hope that the regulatory board envisioned under the Bill will be given the independence to function at an arm's length from both the government and the players.

As far as the role and powers of the Regulatory Board under the Petroleum Regulatory Board Bill, 2002 are concerned, do you think a regulator can help bring order and development in the gas market?

A regulatory authority is the sine qua non for a nascent gas market. This is how the gas market has evolved the world over. An independent authority carries conviction with players, existing as well as potential, that the playing field will be level. Competition serves as a magnet for competent players to enter and grow the market.

For customers also, a competitive gas market is the best guarantor of value for their money. There are a number of issues that need to be addressed in the transition from a "controlled' to a "regulated" gas market. A regulatory authority will certainly hasten this transition in a planned and structured manner.

Some players in the gas market floated the idea of splitting up the marketing and transportation businesses of GAIL. What are your views on this issue?

There seems to have emerged a consensus on the principle of "common access" to transportation infrastructure to all players on a non-discriminatory basis. Now the question is how should access in practice be best aligned to this consensual principle.

Suggestions like bifurcating the marketing and transportation businesses of the incumbent lie with the regulatory authority. It will decide, through a consultative process, on how best the "common access" principle can be put to practice.

Renewable energy is another core business area of the Shell group worldwide. What are your plans for India in this sector? And how do you see the business prospects for renewable energy products in India?

Shell Renewables was established in 1997 as a core business within the Shell group with a commitment to respond to today's and tomorrow's demand for energy.

In India, Shell Solar's efforts are targeted at serving a sizeable number of villages in the districts of Karnataka, Kerala and Andhra Pradesh. The solar photovoltaic units marketed by Shell Solar India are tailored to meet the household requirements of the customers and come with guaranteed service support, provided by trained and dedicated professionals. The partnerships we have with local banks makes the solar photovoltaic systems accessible to a large section of rural households.

The expansion of the renewable energy market is limited because of infrastructure and technology constraints and costs. With the emergence of new technologies and commercial solutions for the storage of solar energy, renewables can indeed penetrate the mass market.

Shell has applied for permission to establish 2,000 retail outlets countrywide for petroleum and petroleum products. What is your rollout plan for the retail outlets?

We have received conditional permission for setting up some 2000 retail outlets. Two conditions will have to be fulfilled: first, that we invest Rs 2,000 crore, or furnish a bank guarantee of Rs 500 crore; second, that we satisfy the ministry of petroleum on the location of an adequate number of stations in remote areas. Indeed, we are confident of meeting these conditions. We will roll out our network in phases, subject to economic considerations.

Besides LNG and retail marketing of transportation fuels across the country, what other new investments are you making in the country?

We have received FIPB approval to set up a bitumen company at an investment of Rs 14 crore. We propose to manufacture and market poly-modified bitumen [PMB], a field in which Shell is the world leader. The investments will be commensurate with the opportunity.

What are your plans for LPG ?

Private marketers of LPG, including Shell, have no access to a large section of the market, as they cannot compete with the highly-subsidised LPG that is available. Despite this constraint, Shell Gas currently services both the packed and bulk segments of the LPG market in the western and central Indian markets. Our assurance of quality and safety makes Shell Gas attractive. Further investments will be calibrated with the regulatory environment.

Shell had earlier bid for IBP and you are also aggressively bidding in the HPCL privatisation process. What do you think of the Supreme Court ruling, referring the matter to Parliament?

Shell is in India with a long-term view. We have always said that we are keen to explore business opportunities as they arise, and the HPCL divestment was indeed one such. We have patience and where India is concerned, we will continue to work consistently with our belief that India is a strategic business destination for Shell.