R S Sharma, former Chairman and Managing Director of ONGC, has over four decades of experience in Banking, Finance, and Treasury in India and abroad. Though primarily a banker, he joined ONGC in 1988 and handled various key areas of his expertise including Financial Management. In 2006 he was appointed as the Chairman and Managing Director of ONGC—leading upstream Navaratna Company engaged in oil production and exploration business in India and abroad to ensure energy security.
He started his career in the Union Bank of India in 1972 and specialized in Credit Appraisal and rose to middle-level management rank. He is also a fellow member of the Institute of Cost Accountant of India and an associate member of the Indian Institute of Bankers (CAIIB). R S Sharma has attended various management programs in India and overseas more specific to Oil and Gas Industry and Management Strategies. He was appointed as Director - Finance of ONGC in 2002 and has also headed the additional position of Director - Finance of ONGC Videsh Limited before he headed the ONGC in 2006.
Besides, he had been a member of various Committees like Search Committee for Selection of Chairman & Members of Competition Commission of India, Chairperson of Quality Review Board, Institute of Cost Accountants of India, and Chairperson of the expert committee constituted by MCA to examine issues relating to maintenance of Cost Records & Cost Audit. R S Sharma spoke to Vijay Thakur, Special Representative, The Statesman, on the volatility in the oil sector, its challenges, and future. Excerpts
Question
The oil sector world over appears to be volatile and is facing tough challenges particularly in wake of Covid-19 pandemic. How do you see the future of the oil and gas sector in India?
Answer
The oil Sector has been like this only. I have seen much volatility when crude oil was hovering at over USD 100 a barrel. Life goes on and I am not concerned over the recent volatility. The unprecedented situation we faced in wake of Covid-19 seems to be over and the entire world is returning back to normalcy except a few countries in the West.
India and China are two high oil-consuming nations. In 2020, oil demand in China has gone up by 7%. The situation in India has also improved. Another country where oil demand is high is USA, here also COVID-19, the industry in the United States is also doing well.
So I see no worry for the Oil Sector, we are finding new oil reserves. In India, work is in progress for 50 Million Tones West Coast Refinery. I can foresee that the oil industry would continue to prosper for at least another 20-30 years. There was some fear a decade ago that oil demand would surpass its production, but now we do not see this happen in the near foreseeable future.
Global Oil demand was at its peak in 2019, almost 100 million Barrels a day. In 2020, it went down by 10 % apparently due to COVID 19. But I am sure Oil demand would never touch 2019 oil demand.
Question
Why do you think oil demand would not touch the 2019 level again. Vehicles world over is increasing so is its demand.
Answer:
There are many reasons for it. One new alternative source of energy is coming up, two there is more emphasis on gas consumption. Certainly, the oil demand would increase marginally but not like what we see in 2019.
And there is one good comfort for a country like India, we may not see any major hike in crude oil prices. It might not cross USD 100 a barrel again in the coming 20-30 years. There would not be any supply problem in the coming years, the US has already become the largest producer of crude oil, and new discoveries in the middle-east are also coming up. Lastly, as I said oil demand would not be going to be very high. Though OPEC tried to artificially reduce crude oil production, it hardly had any impact.
Question
The government has increased its target for strategic crude oil reserves. You think it is enough for a country like India where nearly 70 % of our crude oil demand is met through imported oil?
Answer
Presently we have 11-12 days strategic reserve, which we are doubling. It is a good step but not enough especially when we have to depend upon imported oil. Let's look at China, it has a strategic reserve for 90 days, which they are increasing further. China took advantage of the crude oil drop last year and stacked up their reserves at a very low price. India too has an ambitious plan to increase strategic reverses to 90 days but that will take a long time.
Question
India as a whole has been benefited in the recent past due to a drop in crude oil prices in the International market. But the benefit has not been passed on to consumers. They are paying higher than what they were paying when the crude oil price was USD 120 barrel a day in the international market. You think this is the right policy not to pass on the benefit of crude oil drop to end consumers?
Answer
The oil sector is the highest and easiest way to generate revenue for the Centre as well as State governments. No government irrespective of its political affiliation would like to lose this opportunity. The only reason why petroleum products were kept out of GST was to generate revenues for states as well as for the central government. When they are collecting around 60 % tax on petroleum products, why will they opt for 28 % tax through GST?
Petroleum products would continue to generate the largest revenue for governments. We are facing an unprecedented situation in the wake Covid-19 pandemic. At a time when government revenues have reduced drastically, tax on petroleum products is the easiest way to generate revenue.
Due to the pandemic, the government has little options to generate revenue. It also needs to spend money to revive the economy and help people. In the present circumstance, I do not think the government has the luxury to reduce tax on petroleum products. Further, no government would think of bringing petroleum products under GST in near future.
In future, it may try to bring it under GST by adding a new slab of 40 to 50 % through GST council and by amending the existing GST Act. But GST on Petrol and Diesel at 28 % is unthinkable. However, fuel Gas can be brought under GST at the existing 28 %. Union Petroleum Ministry has already recommended twice to the Finance Ministry to bring Gas under GST, but Finance Ministry has turned it down for obvious reasons. Still, we hope the government would bring gas at 28 % GST. However, GST on Petrol and Diesel at 28 % is just unthinkable.
Question
The Government of India is targeting electric vehicles, you think it will impact the Indian oil industry?
Answer
This is a correct policy. But still, the growth of the electric vehicles (EV) sector is very slow. Presently Internal combustion (IC) engine numbers are so high that EVs (Electrical Vehicles) cannot even meet the incremental demands of IC engines. I am of the view that demand for IC engines would continue to rise and petrol and diesel vehicles ruling the road for another 20-30 years until some transformational change happens.
There are several issues with the growth of EVs. For EVs we need Cobalt, Lithium, Nickel and Cadmium, which is in short supply globally. It is not easy to meet the global demands of batteries for EVs. Then there are serious environmental concerns with batteries. Though EVs do not emit any pollutants, disposing of batteries of electrical vehicles is a serious concern and battery vehicles are no a 100% solution for the pollution.
India might be able to meet the incremental demands of vehicles through EVs by 2030. But right now it is hard to predict. Technology makes things happen which were difficult to imagine 10 years ago. Let’s hope we will find some new technology for electric vehicles which is easily available, more economical and environmentally friendly.
Question:
India is a developing country. For a country like India, going for a private four-wheel electrical vehicle may not be economical. You think instead of private EV cars, the government should rather stress on promoting short-range commercial electric vehicles like e-rickshaw and two wheelers, which is value for money and economical.
Answer:
You are right. EVs are valued for money for two-wheelers, and short range commercial vehicles. For long-range vehicles, whether it is a bus or it is private cars, EVs cannot replace the internal combustion engine in the coming years. Certainly, the government must encourage short range commercial EVs and EV two wheelers. E Rickshaw is an example despite any major support from the government, EV rickshaws have already revolutionized the market.
Though I am a bitter critic of Arvind Kejriwal, he has taken very courageous steps and came out with an encouraging EV policy. He announced no-registration charges for electric vehicles in Delhi, other states should follow the same.
Ends.
