Presentation to Association of International Petroleum Negotiators Reference Presentation for Circulation Platforms, Pipelines and Plants: Energy Infrastructure in India Mr. Rajiv Luthra Managing Partner Luthra & Luthra Law Offices March 30, 2006 1
Some Questions! Locating India! Oil and Gas Supply and Demand! Present and Future Energy Needs! Present Infrastructure and the Scenario of Deficit! Meeting the Demand: Exploring the Options! A Few Issues! Proposed Expansion and Evolving Regulations! A Vision for the Future! Why India? 2
Locating India One of the lowest per capita energy consumption in the world- 479Kgoe Accounts for 5% of total world demand and 5 th in terms of energy consumption 3
Oil & Gas Supply 100 90 80 78.71 OIL SUPPLY (MMT) 81.99 90.43 95.86 100 90 80 GAS SUPPLY (MMT) 70 70 60 60 50 50 40 30 14 40 30 23 24 24 20 10 0 32.03 33.04 33.37 33.98 2001-02 2002-03 2003-04 2004-05 20 10 0 10 2001-02 2002-03 2003-04 2004-05 Domestic Imports! India a net energy importer, currently imports ~70% of oil, 20% of gas consumption! Domestic oil & gas production stagnant since 2000-01. 01. Decline attributable to maturing field! Domestic gas new discoveries and imports to play significant role e in Country s s energy security 4
Oil & Gas Demand 400 350 OIL DEMAND (MMT) 364 400 350 GAS DEMAND (MMT) 300 300 250 250 200 150 100 50 173 190 '06-07 '11-12 '24-25 200 150 100 50 88 110 65 '06-07 '11-12 '24-25! Demand growing due to increase in economic activities and size of population! India s s oil demand expected to grow at 3% annually Source : Hydrocarbon Vision 2025! Growth phase with first LNG import! Natural gas - the fuel of 21st century! Government projects share of natural gas to go up currently from 8% to 20% in 2025 5
Where we stand Growth Potential Energy Consumption per capita Kwh 6
Future Energy Needs 4500 4000 3500 3000 2500 2000 1500 1000 500 0 1454 India a huge upside potential for growth 479 688 264 3962 3856 World India China Pakistan Japan U.K. Per Capita Consumption of Energy! GDP Growth of 8% translates into energy demand of 5.2%!The consumption levels to increase considering high economic activities and growing population - Forecasted 8% growth in the near future and a double digit growth in the long term!by 2024-25, India s demand for energy is expected to quadruple ENERGY DEFICITS + FUTURE ENERGY NEEDS= DEFICITS / MEETING THE VAST ENERGY NEEDS??? 7
Crude & Product Pipelines Presently, we have!ioc owns and operates 8, 952 kms of crude oil and product pipelines LNG Terminals "Petronet LNG is the first LNG receiving terminal commissioned on April 2004 at Dahej in Gujarat. (5 MMTPA) "Shell Hazira is India s first merchant LNG Terminal. (2.5MMTPA in Phase I and 5 MMTPA in Phase II) New Delhi Dahej Hazira Mumbai Bangalore Kolkata State owned Pipelines Product Proposed Product Crude Oil Proposed Crude Other Companies Pipelines Product Proposed Product Crude Oil 8
Also Gas Pipelines!Total network 5733 Km. of Natural Gas Pipelines MATHANIA DELHI KOTA! 2,800 kms HBJ pipeline which traverses from Hazira to Delhi, Gujarat, Madhya Pradesh, Uttar Pradesh and Rajasthan MUMBAI KOLKATA!433 kms of GSPL pipeline which traverses from Hazira to Kalol in Gujarat KOCHI CHENNAI KAKINADA!1,240 kms LPG pipeline from Jamnagar to Loni (Delhi)!Offshore pipeline network in excess of 3,700 kms, including 1,000 kms of gas trunkline network 9
AND. Refineries in the Country (Capacity in MMT) BHATINDA (9.0) PANIPAT (6.0) (6.0) MATHURA (8.0) BONGAIGAON (2.4) DIGBOI (0.7) BARAUNI (6.0) GUWAHATI (1.0) NUMALIGARH (3.0) JAMNAGAR (33.0) BARODA (13.7) BOMBAY (6.9,5.5) (5.1, 2.4) MANGLORE (9.7) COCHIN (7.5) BINA (6.0) VISAKH (7.5) (0.8) TATIPAKA (0.1) CHENNAI (9.5) NARIMANAM (1.0) HALDIA (6) PARADEEP (9.0) Likely to be achieved by 2006-07 07 = 140.30 MMT Existing New / Additions Refineries No. MMTPA IOC Group 10 54.20 BPCL group 3 17.40 HPCL 2 13.00 ONGC/MRPL 2 9.77 RIL (Pvt.) 1 33.00 Total 18 127.37 10
so in Refining, 200 150 100 50 0 115 117 127 127 174 2001-02 2002-03 2003-04 2004-05 2007 HPCL BPCL ONGC 9.768 13 17.4 Reliance 54.2 SHARE OF CURRENT REFINING CAPACITY (MMTPA) 33 Indian Oil Refining Capacity!India has been self sufficient in refining capacity since 2004!18 refineries in the country (dominated by PSUs, who together own 74% of total installed capacity)!current refining capacity stands at 127 MMtpa (2.6 MMbpd)!Refining throughput has surged due to commissioning of Reliance Jamnagar complex refinery in April 2000!The average capacity utilization has been around 94% 11
From.. India India is heavily dependent on oil imports (over 70 % dependence) Till Till the introduction of NELP, India remained the most poorly explored region with well density per thousand kms being amongst the lowest in the world Cosmic Cosmic amount of capital investments needed to augment domestic production 1000 800 854 732 763 741 751 733 739 923 600 400 200 0 2001-02 2002-03 2003-04 2004-05 Crude Oil(MMT) Natural gas (BCM BUT STILL ENERGY DEFICITS! India s Balance Recoverable Reserves 12
Source: MoP&NG, BMR Research Meeting the Demand Option 1 : DOMESTIC PRODUCTION!NELP was formulated in 1997-98 98 to provide a level playing field in which all the parties may compete on equal terms for the award of exploration acreage. 33 spectacular series of discoveries have been made so far both in Pre-NELP and NELP blocks!india s s largest gas find of over 20 trillion cubic feet (TCF) in the Krishna Godavari basin in July 2005 by the Gujarat State Petroleum Corporation (GSPC)!Acreages offered in the NELP rounds is over 3 times the acreages offered during Pre-NELP rounds!success ratio of private players has been as high as 100%!Significant discoveries demonstrate potential of India s sedimentary basins 13
New Exploration Licensing Policy! Participation through unincorporated JVs.! No minimum expenditure commitments! Progressive regime with biddable profit sharing.! No OID Cess or Customs duty.! Freedom to contractor for marketing oil and gas.! 7 year tax holiday for commercial production.! No signature/discovery and production bonus.! No upfront payments.! NELP : The Sixth Round! Largest single tranche of 55 exploration blocks, and largest area a being offered covering 300,000 sq km! Will open up ultra deepwater blocks with depths of 1,500-3,000 kms! Efforts on for opening up Krishna - Godavari basin, Konkan and Saurashtra offshore and Andaman regions! A two-pronged Government strategy for dividing the acreages-high prospectivity / low risk, low prospectivity / high risk.! Two stage evaluation system, stage I technical evaluation and stage II- commercial evaluation. 14! Different bidding and evaluation criteria for different category block.
Meeting the Demand Option 2 : IMPORTS! India strategically located with proximity to Middle East Countries, Myanmar and south-east Asian countries.! LNG import opens challenges in light of subsidized prices for domestic gas.! For LNG, imports have been placed in the OGL category and 100% FDI is permitted in LNG related projects.! Main focus is on transnational pipelines. However, the main hindrance is reservations over on-land transit by neighbors and resistance to allowing their country to be used as a transit corridor ridor to India.! Providing incentives such as Tax Incentives and funding incentives. es.! Mitigating Risks! Underwriters/Government Guarantees! Interdependence i.e. give the transit countries a stake in another project where you have leverage! Better cooperation between governments realizing their joint 15 needs
# Nuclear $ Limited Source of Fuel # Coal Meeting the Demand $ Environment Issues. Quantity? Efficiency and Quality # Coal Bed Methane Option 3 : ALTERNATIVE FUELS % New CBM Policy - no upfront payment & no signature bonus - no participating interest of government - award of blocks through global competitive bidding - provision for bidding in more than one block - royalty @ 10% payable to the relevant state government on the value of CBM, as per Oilfields (Regulation and Development) Act, 1948. - no customs duty on imports required for CBM operations - Tax Holiday - Freedom to market gas in domestic market at market determined prices. 16
# Upstream A Few Issues! Service tax leviable on almost 80-90% of exploration costs increasing the cost of exploration.! Significant time delays in getting State Government / environmental/ defense approvals for exploration activities (even after PSC s are a signed) # LNG Terminals! Currently not eligible for infrastructure status and tax holiday.! Major consumers are power and fertilizers both sectors are largely government dominated and subject to subsidization-this this significantly impairs the ability of domestic consumers of gas to pay international tional prices for LNG.! Lack of adequate pipeline infrastructure to transport gas from LNG terminals.! Inadequate regulatory framework for gas markets absence of a gas regulator. # Pipelines! Laying pipelines attracts legal issues and host of other clearances ces! No contractual framework! Lack of a regulator and regulatory framework 17
Proposed. NATIONAL GAS GRID Three phase implementation plan Length - 8,400 km Investment US$ 4 billion DELHI MATHANIA LNG TERMINALS KOTA Kochi (South West Coast) 2.5 MMTPA, expandable to 5 MMTPA Dhabol LNG terminal -55 MMTPA, Under completion MUMBAI Dabhol KAKINADA KOLKATA Kochi CHENNAI KOCHI 18
Evolving Regulations Draft Policy for Development of Natural Gas Pipelines the objective of the policy is to secure equitable access to and equitable distribution, broad basing the networks, promoting competition and securing the consumer interest. Petroleum and Natural Gas Regulatory Board Bill Passed by the Parliament. Envisages setting up of a statutory downstream petroleum and natural gas regulator. 19
Integrated Energy Policy A Vision for the Future! The broad vision behind the energy policy is to reliably meet the e demand for energy services of all sectors with safe and convenient energy at the least cost in a technically efficient, economically viable and a environmentally sustainable manner.! Recommendations: (i) Markets that promote competition. (ii) Pricing and resource allocation to take place under market forces under an effective and credible regulatory oversight, as far as possible. (iii) Subsidies to be transparent and targeted. (iv) Improved efficiencies across the energy chain. (v) Policies that reflect externalities of energy consumption. (vi) Policies that rely on incentives and which are implementable. e. 20
FDI Policy initiatives Upstream India because.! 100% participation allowed within the policy framework in:! exploration; and! discovered fields of national oil companies Midstream! 100% participation allowed for pipeline within the policy framework Downstream! Marketing! 100% participation allowed for petroleum products marketing! Fuels Marketing rights are granted if investment exceeds ~ US$ 5005 million in exploration & production, refining, pipelines or terminals Refining! 26% participation allowed in state-owned refinery subject to approvals! 100% participation allowed in private refinery 21
Luthra & Luthra Law Offices! One of India s s largest full-service law firms.! India s s first ISO 9001 certified law firm! Winner of the ALB Hong Kong Law 2005 OIL Project Finance & Infrastructure Super Deal of the Year award for Petronet LNG Limited (India) Project.! Firm has been identified as Highly Recommended in India and some of its partners have been identified as the Leading Individuals among law practitioners in India by Legal 500 and Global Counsel 3000 of the Practical Law Company.! One of the Partners of the Firm has been nominated by The International Who s s Who of Project Finance Lawyers 2005 as one of the world s s leading practitioner in the field of project finance by the Who s s Who Legal The International Who s s Who of Business Lawyers, Official Research Partners of the International Bar Association. 22
Thank You 23