International oil companies have long stayed away from Indian shores. To work in India, one needs tremendous patience, they say. Sanjay Kumar, Head, Global business intelligence and strategy analysis, Shell India Markets Pvt Ltd tells Rajesh Bhayani and Kalpana Pathak why India will take time to attract the international oil majors. Excerpts:
What are Shell's plans for India?
We plan to increase strategy consulting from India. None of the international oil companies have this model of strategic consultancy from India. It is something that has been received very well within the group. We have a group of around 45 experience oil and gas executives who have developed expertise across the Oil and Gas Value Chain. However we will work only for Shell’s group’s internal assignments. This model has helped save huge amount of money which was earlier being spent on international consultants globally.
We are the only one amongst the four major international oil companies to have in house strategic consulting business doing high end and high value work out of India. We do almost 80-100 small and large projects every month.
Can you comment on how India is seen as an investment destination for global oil companies?
As far as oil sector in India is concerned, you are dealing with two dimensional complexities. At one end you cannot be sure of the sub-surface conditions and at the other end you are unable to assess what regulatory risks you are up against. This essentially drives investment to other competing markets. India however shall continue to be a great market for consumption.
oil and gas space in India needs significant infusion of technology and continues to lag major markets in terms of technology deployment. Apart from KG D6 there has not been any significant find. On the downstream side it is quite crowded with three national oil companies and if domestic companies are not able to succeed it is unlikely to convince international players to be here.
Overall the energy market in India continues to be beleaguered with problems. There are issues in almost every segment of the energy pie. Even in mining some Indian companies have preferred to mine coal elsewhere and bring that back to India for producing electricity rather than investing within the country.
But cost wise is exploration cost lower elsewhere as compared to India?
Globally now, it will become more expensive to extract crude oil. The era of easy oil is over. You will therefore not see a significant fall in the oil or gas prices as high cost of production will also act as a support with continuing political unrest in key African and Middle Eastern producing regions.
How do you view the overall investment climate in India as a representative of a multinational?
India has its own set of problems to address. India is lagging behind on institutional framework front. India’s investments are growing at 26 per cent which is slower then growth in household savings. Whereas China's after 20 years of growth is 36 per cent. For achieving long term growth there is a need to plough back at least 30-35 per cent investment. The institutional framework too needs to improve drastically.
What problems are you hinting at?
Every single index or parameter that you look at, in a country's development is actually deteriorating. Whether its education, state infrastructure, health care or justice delivery. It is far more difficult to get safe drinking water now than it was two decades ago or to get quality healthcare in government hospitals or even quality education in a government school. India’s macroeconomic indicators are cause for concern, particularly the increase in fiscal deficit accompanied by the massive upcoming increases in subsidies signal some difficult economic times ahead.. India does not compare well with any of the BRICs on any parameter linked to quality of life index so merely a higher number of economic growth on a lower base shouldn’t be cause for celebration.
Is not lower currency exchange rate a temptation for foreign companies to put money – make acquisitions in India?
Currency depreciation has been waiting to happen. The deterioration in the fiscal deficit coupled by a lackluster disinvestment program has resulted in Government borrowings shooting up. There is nothing to indicate any policy fixes are in the pipeline hence any improvement in the currency can only be speculated because of “hot” FII monies. Capital investment usually grows on the back of improved macro economic indicators, currency health being one of them.
In fact a depreciated currency results in postponement of investment decisions and delays manufacturing infrastructure upgrade thus detracting FDI as also decelerating domestic investment on account of higher cost of capital goods import.
For the next phase of growth, we need reforms and tough policy action. We need administrative reforms, institutional building and much higher levels of both private and public investment . Interesting many of these solutions are unlinked to the global crises
(the views expressed here are his own and not necessary indicative of Shell group policies.)
