Economics Project

Summer 2018

Role of PSE’s in India

Through the establishment of PSU’s the basis of further rapid

industrialization has been attempted. They have also made a
significant contribution to the balanced economic development in the
country.
The following are some tangible contributions of the public enterprises
to the growth process of our economy.
(1) Contribution to Capital Formation:
Capital formation is a necessary condition for economic growth. This
creates a nucleus for further growth.
(2) Development of Infrastructure:
Infrastructural facilities are as much essential for the economy to take-
off, as the run-way for an airplane to take off. Infrastructure refers to
power, transport, communication, irrigation, steel, cement and
fertilizers. The public sector has played a pivotal role in creating
infrastructural facilities in the development process of our economy.
(3) Role in Export Earnings:
Besides, PSu’s have been making a sizable contribution to the
country’s export earnings by exporting goods as well as services,
thereby earning substantial foreign exchange.
(4) Contribution to Import-Substitution:
The development process in our economy was launched through the
‘inward-looking strategy’ of import-substitution. The public sector has
made an immense contribution to the process of substitution of
indigenously produced goods.
Bharat Heavy Electricals Limited, Bharat Electronics Limited,
Hindustan Antibiotics, Indian Oil Corporation, Steel Authority Of India
Limited and Oil and Natural Gas Corporation are some of the leading
public enterprises which are contributing towards self-reliance in their
respective fields.
(5) Share in National Income:
In Indian mixed economic system; the growth process has been
accelerated by the investment in the public sector. The contribution of
the public sector in the generation of net domestic product has
consistently been increasing.
(6) Share in Employment Generation:
Full employment is the most cherished goal of the economic policy of
the government. The government of India and state governments are
making contribution to employment generation through public
investment . Direct employment generation by the public sector takes
place through the expansion of its administrative departments and
economic enterprises.
(7) Balanced Regional Development:
The private sector is guided by the criterion of commercial return in its
investment decisions. As a result, the private sector seeks to establish
projects in only those regions which offer greater comparative cost
advantage due to favorable position of factor endowment such as
availability of power, raw material, labour and market.
It is due to these factors that the large- scale private enterprises have
been concentrated in the industrially developed states of Maharashtra,
Gujarat, West Bengal and Tamil Nadu, Whereas PSUs have been
opened in many backward areas, which have changed the local
economy.
(8) Contribution to Exchequer:
The public sectors role can also be assessed in terms of its
contribution to state exchequer. Its contribution to exchequer is both in
terms of profit and taxes are huge. Even sick public sector units
contribute a great deal in terms of taxes and value added generation.

Poor Performance of PSE’s :-

Cause # 1. Low Capacity Utilization:
Most PSE’s set up in India during the plan period could not utilize their
entire capacity which was created at high cost.
In 1999-00, nearly 20% of such enterprises succeeded in utilizing 55
to 75% of their capacity and another 25% operated below 50% of their
capacity. There are various reasons for such low capacity utilization
such as lack of market survey regarding demand for products,
transport bottleneck (such as non-availability of wagons), go-slow
practices of workers, power shortage and so on.
Cause # 2. Faulty Manpower Planning:
Most PSE’s have not made any manpower planning. Consequently,
manpower is in excess of actual requirements in a number of cases.
Moreover, the lack of arrangement for training and education to staff
has led to movement of key personnel from the public to the private
sector.
Cause # 3. Labour Problem:
The PSE’s have also been hit by labour problems or deteriorating
industrial relations. One of the causes of poor performance of such
enterprises has been indiscipline among workers. We may also
observe deteriorating labour-management relations in most large
government enterprises where supervision is a very difficult task.
Cause # 4. Over-Capitalization:
It is often alleged that most public sector projects have a common
characteristic, viz., over-capitalization. In other words, the input-output
ratio is not optimum in most . The Study Team on PSE’s, appointed by
the Government , found over-capitalization in several undertakings,
viz., Heavy Engineering Corporation, Hindustan Aeronautics, Fertilizer
Corporation (Trombay Projects), etc.
It has identified the following causes of over-capitalization, viz.:
(i) Inadequate planning,
(ii) Delays and avoidable (wasteful) expenditure during construction,
(iii) Surplus machine capacity,
(iv) Tied aid resulting in the compulsion to purchase imported
equipment on a non-competitive basis,
(v) Expensive turnkey contracts,
(vi) Bad location of projects and
(vii) The provision of housing and other amenities on a liberal scale.
Cause # 5. Cost Overruns:
Various surveys made on the working of PSE’s in India have
highlighted the point that most of the projects took longer time to
complete than was initially envisaged. Such delays raised the cost of
such projects, putting extra burden on the country’s scarce resources.
For instance, it took about 7 years to complete the Trombay Fertiliser
Project against the original estimate of 3 years. Consequently, the
final cost figure stood at Rs. 40 crores (approx.) in 1965 compared to
the estimate of Rs. 27 crores, made in 1959.
Cause # 6. Political Interference:
In most cases, political factors, rather than commercial considerations,
influence decisions about location of projects. Plants are located in
some States without making any feasibility study about costs just to
satisfy political leaders. For example, the Central Government decided
to break up the MIG aircraft project into two parts, to be located in
Nasik and Koraput, which belong to 2 different States, and one is 900
km. away from the other. Such an approach has led to a huge
wastage of the country’s scarce capital resources.
Cause # 7. Wrong Pricing Policy:
The pricing policies of most PSE’s are not guided by the principle of
profit maximization, but are controlled and regulated by the
Government. Since most PSE’s supply inputs like coal, power, steel,
etc. to other sectors, prices are kept low even in the face of rising
costs. They are not guided by any clear-cut price policy. Prices are, in
most cases, fixed by departmental directives and ad hoc piecemeal
orders.
Cause # 8. Excessive and Faulty Controls:
There is excessive control over PSUs in India. Stringent financial
control is exercised over the operation of a PSU, both by the Ministry
of Finance and by the Ministry-in-charge of the undertaking.
The audit of the Auditor-General tends to destroy all the initiative of
the enterprises. Politicians also exercise control over PSUs not only
regarding their working but also regarding the recruitment of people at
various levels. Finally, one may refer to rigid Parliamentary control
over the operations and capital development plans of PSUs.
Cause # 9. Inefficient Management:
Most PSUs do not recruit efficient managers. Consequently, the
managers of such enterprises have failed to define responsibilities and
duties of their subordinates leading to lack of managerial efficiency
and effectiveness.
Most of them cannot take tough operational decisions quickly.
Bureaucrats are recruited as chairpersons, managing directors and
managers of PSUs. Most of them are not competent enough to run
industrial enterprises. This practice has adversely affected the
operational efficiency of PSE.

ONGC

INTRODUCTION
This Public Enterprise Represents India's Energy Security Through its
Pioneering Efforts.
Maharatna ONGC is the largest crude oil and natural gas Company in India,
contributing around 70 per cent to Indian domestic production. Crude oil is the raw
material used by downstream companies like IOC, BPCL, and HPCL to produce
petroleum products like Petrol, Diesel, Kerosene, Naphtha, and Cooking Gas-LPG.

History

During pre-independence, the Assam Oil Company in the North-

Eastern and Attock Oil company in North-Western part of undivided
India were the only oil companies producing oil in the country.

After independence, the Government realized the importance of oil

and gas. Consequently, while framing the Industrial Policy Statement
of 1948, the development of the hydrocarbon industry in the country
was considered a necessity.

Until 1955, private oil companies mainly carried out exploration of

hydrocarbon resources of India. Assam Oil Company was producing
oil at Digboi, Assam (discovered in 1889) and the Oil India Ltd. (a 50%
joint venture between Government of India and Burmah Oil Company)
was engaged in developing two fields Naharkatiya and Moran in
Assam. In West Bengal, the Indo-Stanvac Petroleum project (a joint
venture between Government of India and Standard Vacuum Oil
Company of USA) was engaged in exploration work.

With this objective, an Oil and Natural Gas Directorate was set up in
1955 under the then Ministry of Natural Resources and Scientific
Research. The department was constituted with a nucleus of
geoscientists from the Geological survey of India.

Foreign experts from USA, West Germany, Romania and erstwhile

USSR visited India and helped the government with their expertise.
Finally, the visiting Soviet experts drew up a detailed plan for
geological and geophysical surveys and drilling operations to be
carried out in the 2ndFive Year Plan (1956-57 to 1960-61).

In April 1956, the Government of India adopted the Industrial Policy

Resolution, which placed mineral oil industry amongst the Schedule
'A' industries, the future development of which was to be the sole and
exclusive responsibility of the state. So in August, 1956, the
Directorate was raised to the status of a commission, although it
continued to be under the government. In October 1959, the
Commission was converted into a statutory body by an act of
Parliament, which enhanced powers of the commission further. The
main functions of the ONGC were "to plan, promote, organize and
implement programmes for development of Petroleum Resources and
the production and sale of petroleum and petroleum products
produced by it, and to perform such other functions as the Central
Government may, from time to time, assign to it".

ONGC went offshore in early 70's and discovered a giant oil field in the
form of Bombay High, now known as Mumbai High. This discovery, along
with subsequent discoveries of huge oil and gas fields in Western offshore
changed the oil scenario of the country. Subsequently, over 5 billion tonnes
of hydrocarbons, which were present in the country, were discovered. The
most important contribution of ONGC, however, is its self-reliance and
development of core competence in E&P activities at a globally competitive
level.

The liberalized economic policy,in July 1991, sought to deregulate and

de-license the core sectors (including petroleum sector) with partial
disinvestments of government equity in PSE. As a consequence,
ONGC was re-organized as a limited Company under the Company's
Act, 1956 in February 1994.

TYPE OF RAW MATERIALS AND PRODUCTS

ONGC supplies crude oil, natural gas, and value-added products to

major Indian oil and gas refining and marketing companies. Its primary
products crude oil and natural gas are for the Indian market.

ONGC ranks at first position as the largest company in India related to

production, development and exploration of oil and gas. It meets
nearly 30% of the total demand within its country as it produces 77%
of crude oil and 62% of natural gas in India.

ONGC is involved in exploiting and exploring hydrocarbons and is

owner and operator of a pipeline extending 11,000 km in India. It was
responsible for the discovery of oil field popular as Mumbai High and
subsequent discoveries of 5 billion tonnes of hydrocarbons.

Its works include refining, exploration and production, transportation of

oil and natural gas, oil-field services and production related to value-
added products like power, petrochemicals, refining, naphtha,
liquefied petroleum gas and alternate and unconventional energy
sources.
MARKETING STRATEGY.

ONGC has a unique distinction of being a company with in-house service

capabilities in all areas of Exploration and Production of oil & gas and related oil-
field services. Winner of the Best Employer award, this public sector enterprise has
a dedicated team of over 33,500 professionals who toil round the clock in
challenging locations.
Value-chain integration
Value chain Integration ONGC's purchase of majority stake in equity in the ailing
Mangalore Refinery & Petrochemicals Limited (MRPL), a stand-alone refinery of
9.69 MMT capacity in March 2003 is a standout testimony of ONGC's integrated
business model. The refinery capacity has been progressively upgrqaded to 15
MMT. Besides adding that desired comfort to this Oil & Gas Company in
mitigating higher risk of E&P operation, this deal also set an example in the Indian
business history where a PSU has taken over a joint stock company and turned it
around in a record time of one year.
Moving ahead, ONGC has taken structured initiatives towards value-multiplier
integration projects like - Refinery, LNG, Petrochemicals, Power, SEZ, etc., to
have presence in the entire hydrocarbon value-chain.
ONGC is the key promoter in ONGC Petro-additions Pvt. Limited (OPaL) - a grass
root Mega Petrochemical project in the PCPIR / SEZ zone at Port City of Dahej,
Gujarat, India.
. Competitive Strength

 All crudes are sweet and most (76%) are light, with sulphur percentage
ranging from 0.02-0.10, API gravity range 26°-46° and hence attract a
premium in the market.
 Strong intellectual property base, information, knowledge, skills and
experience.
 Maximum number of Exploration Licenses, including competitive NELP
rounds. ONGC has bagged 121 of the 254 Blocks awarded in the 9rounds of
NELP.
 ONGC owns and operates more than 25,500 kilometers of pipelines in India,
including sub-sea pipelines. No other company in India operates even 50 per
cent of this route length.
. Best in Class Infrastructure and Facilities

 This public sector enterprise operates with 14 seismic crews, manages 262
onshore production installations, 268 offshore installations, 69 drilling (plus
37 hired) and 54 work-over rigs (plus 25 hired), owns and operates more
than 25,500 kilometers of pipeline in India, including 4,500 kilometers of
sub-sea pipelines.
 ONGC has adopted Best-in-class business practices for modernization,
expansion and integration of all Infocom systems.
. Frontiers of Technology

 State-of-the-art seismic data acquisition, processing and interpretation

facilities
 Uses one of the Top Ten Virtual Reality Interpretation facilities in the world
 Alliances with Transocean, Schlumberger, Halliburton, Baker Hughes, IPR,
Petrobras, Norsk, ENI and Shell
 One of the biggest ERP implementations in the Asia

GROWTH AND PERFORMANCE HIGHLIGHTS IN LAST FIVE

YEARS
ONGC is one of the most valuable public sector enterprise working on Indian stock
exchanges.

The basic responsibility of ONGC is prospecting for natural

hydrocarbon resources, exploring them and tapping the potential
reserves of hydrocarbon into commercially viable energy sources. The
achievements of ONGC in the last five decades is extremely
appreciable. The Company is involved in exploring and tapping the
hydrocarbon resources of the 26 sedimentary basins and the
relentless efforts of ONGC has resulted in the addition of 7.1 billion
tons of ‘In-place Oil and Gas’ volumes in the last five decades.

It has single-handedly scripted India's hydrocarbon saga.

Some key pointers:

 ONGC has discovered 6 out of the 7 oil and gas producing basins in India:
 This largest energy company in India has established 8.70 billion tonnes of
in-place hydrocarbon reserves. It has to its credit more than 570 discoveries
of oil and gas with Ultimate Reserves of 3.02 Billion Metric tonnes (BMT)
of Oil Plus Oil Equivalent Gas (O+OEG) from domestic acreages.
 It has cumulatively produced 998 Million Metric Tonnes (MMT) of crude
and 645 Billion Cubic Meters (BCM) of Natural Gas.
 ONGC has won 115 out of a total 254 Blocks (more than 50%) in the 8
rounds of bidding, under the New Exploration Licensing Policy (NELP) of
the Indian Government.
  ONGC's wholly-owned subsidiary ONGC Videsh Ltd. (OVL) is the biggest
Indian multinational, with 41 Oil & Gas projects in 20 countries.
 ONGC produces over 1.26 million barrels of oil equivalent per day,
contributing around 70% of India's domestic production. Of this, over 75%
of crude oil produced is Light & Sweet.
 The Company holds the largest share of hydrocarbon acreages in India (61%
in PEL Areas & 81% in ML Areas).
 ONGC possesses about one tenth of the total Indian refining capacity.
 This E&P Company has a well-integrated Hydrocarbon Value Chain
structure with interests in LNG and product transportation business as well.
 A unique organization in world to have all operative offshore and onshore
installations

ONGC Videsh is a wholly owned subsidiary of Oil and Natural Gas Corporation
Limited (ONGC), the National Oil Company of India, and is India’s largest
international oil and gas Company. ONGC Videsh has participation in 41 projects
in 20 countries namely Azerbaijan, Bangladesh, Brazil, Colombia, Iraq, Israel,
Iran, Kazakhstan, Libya, Mozambique, Myanmar, Namibia, Russia, South Sudan,
Sudan, Syria, United Arab Emirates, Venezuela, Vietnam and New Zealand.
ONGC Videsh maintains a balanced portfolio of 15 producing, 4 discovered/under
development, 18 exploratory and 4 pipeline projects. The Company currently
operates/ jointly operates 21 projects. ONGC Videsh had total oil and gas reserves
(2P) of about 711 MMTOE as on April 1, 2018.
Global Ranking

 ONGC received Dun & Bradstreet Award 2018 in the 'Oil and Gas
Exploration' category
 ONGC received 4 PSE Excellence Awards from Indian Chamber of
Commerce in 2016
  This Top Energy Company in India, ranked 11th globally as per Platts
Top 250 Global Energy Rankings, 2017
 Ranked 464 in the Newsweek Green Rankings World's Greenest Companies
2016
 Ranked 14th among global Oil and Gas Operations industry in Forbes
Global 2000 list, 2017 of the World's biggest companies for 2017; Ranked
443 in the overall list, 2017 - based on Sales (US$ 19.89 billion), 288 on
Profits, 470 in Assets and 300 Market Value.
 Ranked 26 in 'Transparency in Corporate Reporting' among the world's 124
largest listed companies published by Transparency International, 2014(Up
from 39 in 2012) (403) accredited with globally recognized certifications.

Impact on Economy
ONGC in Action

A current possessor of 69.23% equity stake, ONGC also has 11,000

kilometers of pipelines under its sleeve in India. During global oil
supply dry up periods ONGC has invested exhaustively in various
‘Improved Oil Recovery (IOR)’ and ‘Enhanced Oil Recovery (EOR)’
programs (enhancing the ‘Recovery Factor’ to 33.5% in 2011) in
addition to supply from its various ‘brownfields’ namely Mumbai High.
The continuous efforts of ONGC have considerably helped to maintain
a greater than one ‘Reserve Replenishment Ratio’.

ONGC has always been proactive in trying to meet the ever increasing
domestic requirements of fuel. The final agreement of securing a 10%
stake in the strategically located offshore gas fields in Mozambique by
paying US based Andarko Petroleum $6.2 billion as a price for the
10% stake is just another example and the second such deal to be
finalized by ONGC in the recent months.

So far the state run Bharat Heavy Electricals Limited (BHEL) had been
involved in revamping and maintaining the 33 existing onshore drilling
rigs of ONGC and is also involved in servicing and upgrading seven
more rigs of ONGC which are on the verge of completion. However,
BHEL is going to play a more important role in the oil drilling
infrastructure after the finalization of the Rs 774 crore contract with
ONGC to manufacture and supply six extremely high technology
onshore oil drilling rigs to ONGC. These state of the art, 2000 HP,
onshore drilling rigs with AC drives will be assembled in two phases.
BHEL has a dedicated group of experts for manufacturing,
refurbishment, and up-gradation of onshore drilling rigs and rig
equipment along with adequate facilities. It is to be mentioned that
BHEL is the only company in our country that manufactures onshore
drilling rigs, having manufactured 71 rigs for ONGC and 13 for Oil
India Limited (OIL) in the past.

In an effort to lower the infrastructural cost involved in explorations

and further enhancement of field development, ONGC is planning to
share the infrastructure of the Reliance Industries Limited (RIL) on the
East Coast. Following this decision ONGC has signed an initial
agreement with RIL. The first phase of ONGC’s plans involves
production of gas (6 to 9 standard cubic million per day) from the G-4,
KG-DWN- D & E fields.

A Crude Oil Sale Agreement (COSA) has been signed between

ONGC and one of its subsidiaries, Mangalore Refinery and
Petrochemicals Limited (MRPL) for the first time, ensuring a supply of
crude oil from the JNTP/JD and offshore rig over a period of five
years. The quantity of crude oil to be supplied over the period of five
years is estimated to be worth Rs 38,500 crore given the fact that
ONGC already supplies about 12% of MRPL’s crude oil requirement.
This COSA completes ONGC’s deals with all the major domestic
buyers of crude oil including BPCL, HPCL, IOCL and CPCL all of
whom have signed COSA’s with ONGC.

In an effort to increase funding in ONGC’s explorations, the Cabinet

has decided to double the natural gas prices from US$ 4.20 to US$
8.4 per million British thermal unit. The logic behind the price hike is
that domestic explorations in the long run will ultimately reduce the
hefty import bill of crude oil for India.

As our country’s economy continues to grow, the fuel requirement is

also growing almost proportionally. We should be thankful that
organizations like ONGC are trying to acquire overseas assets to
ensure a consistent supply to reduce the hefty crude oil import bill of
Asia’s third largest economy.

 FUTURE PROSPECTS
Perspective Plan 2030 (PP2030)
PP2030 charts the roadmap for ONGC's growth over the next two decades. It aims
to double ONGC's production over the plan period with 4-5 per cent growth
against the present growth rate of 2 percent. In physical terms the aspirations under
Perspective Plan 2030 aims for -

 Production of 130 MMTOE of oil and oil equivalent gas (O + OEG) per year
and accretion of over 1,300 MMTOE of proven reserves.
 Grow ONGC Videsh Limited (OVL) six fold to 60 MMTOE of international
O+OEG production per year by 2030.
 More than 20 MMTOE of O+OEG production per year in India coming
from new unconventional sources such as shale gas, CBM, deepwater and
HPHT (High Pressure & High Temperature) reservoirs.
 Over 6.5 GW power generations from nuclear, solar and wind and 9 MTPA
of LNG.
 Scaling up refining capacity to over 20 MMTPA and targeted investments to
capture downstream integration in petrochemicals.
Corporate Social Responsibility
In recognition of its role as a 'responsible leader', ONGC’s CSR initiative
continues its quest to make positive, tangible difference in the lives of the
vulnerable and disadvantaged, especially in and around its operational areas. In FY'
17 it spent as much as INR 5,259 million in its CSR initiatives. With a business
paradigm that is based on an interconnected vision - of people's welfare, societal
growth and environmental conservation, ONGC with its Corporate Social
Responsibility activities in India continues to cater to the developmental needs
across the following focus areas:

 Education including vocational courses

 Health Care
 Entrepreneurship (self-help & livelihood generation) schemes
 Infrastructure support: roads, bridges, schools, hospitals in and around the
company's operational areas
 Environment protection, ecological conservation, promotion
 Protection of heritage sites, UNESCO heritage monuments etc.
 Promotion of artisans, craftsman, musicians, artists etc. for preservation of
heritage, art & culture
 Women empowerment, girl child development, gender sensitive projects
 Water management including ground water recharge
 Initiatives for physically and mentally challenged
 Sponsorship of seminars, conferences, workshops etc. and
  Promoting sports/sports persons; supporting agencies promoting sports /
sports persons.
Corporate Governance
ONGC has taken structured initiatives towards Corporate Governance and its
practices which evolve around multi-layered checks and balances to ensure
transparency. Apart from the mandatory measures required, ONGC has gone the
extra mile in this regard and has implemented the Whistle Blower Policy,
Health, Safety & Environment
Corporate Disaster Management Plan and guidelines have been developed for
uniform disaster management. ONGC has also developed Occupational Health
physical fitness criteria for employees deployed for offshore operations.
Occupational Health module has now been populated on SAP system.
Human Resources
This largest energy company has vast pool of skilled and talented professionals –
the most valuable asset for the company. ONGCians dedicate themselves for the
excellent performance of the company. ONGC extends several welfare benefits to
the employees and their families by way of comprehensive medical care,
education, housing and social security.

 The Road Ahead

. ONGC looks forward to becoming an integrated energy provider, with:

 New discoveries and fast track development

 Equity oil from abroad
 Downstream value additions & forward integration
 Leveraging state-of-the art technology and global best practices
 New sources of energy
 Production from small and marginal fields
 ONGC has taken structured initiatives to tap unconventional energy sources
through unconventional gases like Coal Bed Methane (CBM), Underground
Coal Gasification (UCG), Shale Gas and Gas Hydrates, or unconventional
energy sources like wind, solar etc.
  "ONGC Energy Centre Trust", a dedicated centre created by ONGC for
holistic research in non-conventional energy sources, has taken up three
projects viz., Thermo-chemical reactor for Hydrogen, Geo-bio Reactors and
Fuel Cells.
 ONGC has already commissioned a 50 MW Wind Farm in Gujarat and plan
is afoot to set up another 100 MW Wind Farm in Rajasthan.
. ONGC has also set up 3 Solar Thermal Engines at Solar Energy Centre, at
Gurgaon.