"We cannot think of acquiring a company whose worth is $ 8bn": Mr. Bansal
New Delhi 29-Sep-2010
Brij Mohan Bansal, chairman and director (planning & business development) of Indian Oil Corporation Ltd, helms India's largest commercial enterprise (turnover: about $57 billion for 2009-10). How does he manage a public sector unit that is the leading Indian firm to rank in the prestigious Fortune 'Global 500' list? What is his larger vision for this firm as also for India's energy security? In a freewheeling conversation with Rohit Bansal, he answers these and other questions. Edited excerpts from the interview:
We would not like to talk about the many zeroes in the figure that represents IOC’s turnover or your refining or pipeline capacity. We’d rather start by asking what it is that you sit and worry about at night?
To be very frank, I'm not really a worried person. We have had a very good record. We have been facing a lot of challenges. We will keep on facing them in the future. We have to keep ourselves prepared. That is the strength of IOC, our manpower and our beliefs. The visionary leaders we had in IOC had been saying that the human resource development would take on the challenges well. Like the challenge of deregulation which was taking place from 2002, foreign companies and the private companies were entering, and we were preparing ourselves to face them much before it started. Even though a number of multinationals have entered into this (lube) sector, our SERVO group has ensured that we are a well known name, not only in India but in the Middle East, Sri Lanka and Mauritius.
Similarly, in market share, we are the dominant player. Naturally when a new entrant is there, we being the dominant player, the market share will drop to some extent. But we have regained and are prepared for the challenges.
Only thing that comes to my mind is that it is unfortunate that we didn’t enter E&P (exploration and production) earlier. We do not have gas of our own and today when so much gas is replacing our liquid fuel... It makes me a bit worried that I am losing my market share on liquid fuel while I am not able to replace it fully by my own gas, somebody else is replacing that.
That's candid! When you say you should have entered E&P earlier, when you talk about the gas which you don’t control, it’s ironic that this conversation is taking place on a day Vedanta has announced its deal to buy Cairn Energy in India. Here’s a mining guy with a dubious environmental record getting into E&P. And Indian Oil, a natural candidate, is caught napping.I won't say we were caught napping. Before deregulation took place, we weren't allowed. This opportunity settled only after 1992. Then by the end of 1994 and early 1995, our business development group was formed basically to go into the non-core areas like petrochemicals. E&P and, at that time, the gas business were not that common. To enter into LNG wasn't easy. So, that way, awareness was there but we were not able to go because of regulation. As soon as the deregulation took place, we took part in E&P. Along with ONGC, we participated in a number of blocks. Also, we got some through nomination.
Unfortunately, we could not extract all our gas. We still have 20 (facilities). We extract gas in two. One is the (2.7 trillion cubic feet) Mahanadi along with ONGC. E&P is very risky as well as very high-paying. I’m sure luck will favour us and we’ll get oil and gas. We have some blocks outside India also but most of them are in early stages. We are trying to somehow make up through the LNG route. We are very bullish on our own LNG terminal at Ennore and we are trying to capture some ground there.
As the business development man, do you think that Cairn option was evaluated? How will you improve the processes of scouting for future opportunities?
Whenever we go into any acquisition, we must first see our pocket. Since the last three years our profits aren't very good because of the heavily discounted price of LPG, kerosene and diesel. So, we cannot think of going for a company whose worth is around $8 to 10 billion. That way, there are so many companies available, why only Cairn! I have been repeating that we are looking for a company, a producing asset or a developing asset - worth $1-2 billion. If it is $2 billion, then 50 percent will be the other side's and 50 percent ours.
We had shortlisted a number of them. We came close to clinching them, but you know in these things it is very difficult to say whether we'll be able to really clinch them till it is finally over. We are still in discussion with one or two such assets and I’m sure one day we'll be successful. It may not be as large as Cairn, but it'll be a medium sized company.
We’d like to press you on this: Indian Oil saying that Cairn is out of our pocket! Don’t you think you should be actually seeking the advantages of petrol deregulation aggressively? For example, petrol prices have remained static even after June 25. Are you being hamstrung politically? What’s stopping you from compensating yourself after more than Rs 3,000 crore of losses from last quarter?
I'll clarify that. On June 26, the deregulation took place. That day, the price of crude was $74 per barrel. Thereafter, even though on day-to-day basis the price keeps fluctuating, it is always around $74-75. Only in the last 10-15 days the price crossed $80. So that's why in June or July, we have not increased the price because unless there is a substantial increase in the crude oil price, we will not like to change the petrol price on day-to-day basis. Each month, we may have to think whether we should or not, depending upon how the price keeps on going for the next 15 days. If you see today, the Indian basket price is again at $73-74. But whatever the average of the month, whether we are losing on petrol ultimately or not, that we'll have to take a view and decide. We are also contemplating on a monthly revision, depending upon the fluctuation. So, we are keeping all our options open. Ultimately, we don't have to go to the government for increasing prices. Now, we'll decide on our own; when the issue is pinching, we would definitely like to increase the price. As such, we don’t want to shock the people with hiked prices at very short intervals.
Deregulation is meaningful only if diesel and kerosene are also deregulated. You can’t hypothetically increase petrol prices by Rs 10 a litre to offset your losses. It is like deregulation of one finger of your hand, whereas the rest of your body is still regulated.
No, to be very frank, we are a public sector company; we are a government company. As the CEO I am not averse to regulation. But as long as I am being compensated for the losses, for the under-recovery, it is not my worry. But the government should make a system so that I dont have to keep on worrying like in the last quarter we made a loss of Rs 3,388 crore. How will I be compensated? I still don't know that. So that worry can go, if the government really draws up a process and decides a procedure for compensating the oil companies for selling diesel, kerosene and LPG under control price.
Let's talk big picture. You are not here to survive. You are here to lead India on energy security. But where is the reserve oil in your portfolio? Where is E&P which is actually delivering in your portfolio? Where is international oil equity which will yield results in the next five to 10 to 20 years? And more importantly, where is the money to bankroll these requirements which we as an energy seeker will need vis-à-vis our friends in China? Where do you see that sort of a thing coming from?
You have a very pertinent question. That's why I say that a company like IOC doesn't have to only make marginal profits, it has to make substantial profits too. And when I say substantial profits, it is Rs 12,000-15,000 crore a year. Our investment in next five years is around Rs 50,000 crores: petrochemicals, pipelines, refineries and E&P all together. There's some renewable energy also, but that is a very small budget. So, we are trying to grow in almost all sectors. We are even getting into nuclear energy. So, we have a definite vision for growth. And we want profits to that end. Opportunities are there. We are taking part in explorations to maintain oil-security. And I'm sure, in next two-three years, we will be successful in producing oil at some of the blocks. But (as for) gas we are not an upstream company and to become a total integrated company we'll take some time.
Is that a part of your overarching vision?
Yes, we would want it to be an integrated energy company of the country.
You say that there has been talk of bridging the present problem through disinvestment and you alluded to that option as well. Do you professionally support the idea of going and disinvesting, say, 10 percent as has been proposed recently?
I feel that if there is a financial constraint, then it is at the government's end and the government has 80 percent equity of IOC. It enjoys the control of the company, as long as it has 51 percent equity. If there is an option to get some more money from (new) investors and these investors are ready, you must utilise that option.
How does that help IOC?
The divestment money may go to the exchequer but it will also allow for fresh equity up to 10 percent more and that money can come straight to IOC. If I am open to collect Rs 10,000 crore by that, it helps me a lot.
When you say fresh equity, that's a proposal that can’t come from the ministry. Probably, it has to come from your company?
Yes.
So what is the status of that thinking process?
We have indicated our interest to the government that in case it goes for disinvestment, it should consider our interest and also that we would like to float some equity, around 10 percent, so that we can get Rs 8,000-10,000 crore (into IOC) in the process.
And is it the right time, or is it because you need the money and the time doesn't really matter?
Nobody can really hold firm on what my equity price will be in a year's time - whether it will be Rs 500, Rs 600 or it'll be Rs 200. So, any time is the right time. If you can collect money when you need it, that is the right time.
What would you do with Rs 8,000-10,000 crore?
It will be used for our projects. Today the debt-equity ratio is 0.8-0.9. It will reduce my debt portion and I can leverage my debt-equity ratio whenever I want to go make a quantum jump for a project or go for a bigger acquisition.
What's the status of that proposal? Is it coupled with the disinvestment process?
Yes.
As a maharatna, you have the empowerment, but do you really have the controls? If you don’t have funds in your kitty, how will you have the power to execute? You don't have the cash reserves which really are the key to the empowerment.
We have to go for projects as per our cash flow, as per our debt-equity ratio. There was a limitation in the way our projects were flowing in the last three-four years. We might have kept some projects on a slow track or back-burner when the crude price went up to $140-147. We didn't know then how to manage our existing projects well.
But, thankfully, things have improved and we are able to not only push our existing projects, we are taking up some new projects as well.
Looking at the future, considering that oil is a finite resource, 30 years from now, what is IOC? What do you see as your highest selling product?
Thirty years hence also, I'm sure, the diesel will continue to be the highest selling product. Petrol might feel the impact of diminishing reserves. Gas will be replacing some of the liquid products. But today's scenario is such that gas availability could well be a question mark. Whether there will be massive import of LNG or it will be generated indigenously remains to be seen. The price of LNG is going to be around $11-12 - whether there will be buyers for that $11-12-a-litre gas is another story. So, there are so many different scenarios. Liquid products will definitely be dominating well into two-three decades from now. The gas hydrate availability in India is huge. If in these 20-30 years, with good technology, we are able to commercialise that, to tap into these gas reserves from hydrate, it will mean a different picture altogether for energy in India.
Where do you see for bio-fuels movement, solar power, and wind power?
As long as the government is giving the subsidy, I see solar power picking up. The cost of production of solar power panels needs to come down, which is the target by 2020-22, so that solar power cost will be as low as grid power. Then (alone) I think it is going to be big in India. In wind power I think we've got almost 60-70 percent saturation, so 20-30 percent more we need to tap into. Nuclear power is going to be very important. Hydro-power, though, has been a subject of controversy. We have a lot of potential, but now there is a lot of controversy going on whether we should go into that or not. And bio fuel, I have not seen the government giving any push to that even though Jatropha and all started very well. But because of this lack of push, I think people's interest in biofuels is waning. In my opinion, if we can really utilise the wastelands and NREGA funds can be utilised for growing Jatropha, I can think of nothing better.
