No justification for delaying Shellآ’s petrol licence

Vol 7, PW 22 (28 Jan 04) Midstream & Downstream
     

Shells frustration with government dithering over its application for a licence is understandable.

Not many foreign multinationals can claim to have invested Rs2, 103cr ($462m) in Indias oil sector. Much of Shells investment has been from on its own balance sheet with little to show in terms of return on capital.

Take exploration and production. Shell has invested Rs162cr ($35m), most of it on an exploration block in Rajasthan that it later sold to Cairn Energy for a trifling amount and from where Cairn last week announced a significant discovery.

At Hazira, Shell is constructing a LNG facility and port, the total cost of which is expected to be $540m. It has already spent a whopping Rs1, 780cr ($391m) on Hazira-related activity.

Again, this is not borrowed money, but comes from Shells balance sheet. By December, when the terminal is complete, the inevitable cost overruns of a project this size will ensure that it has spent more than it thought it would.

When Shell is granted formal permission to set up a chain of 2,000 petrol pumps, it will incorporate a new company that will also see massive inflows of Foreign Direct Investment. In short, the ministrys delay in granting Shell formal approval is nothing short of scandalous, particularly from a government that prides itself on encouraging inflows of FDI.

Shell has proved with hard numbers that it has met the governments threshold of a minimum Rs2, 000cr investment in the hydrocarbon sector and should be granted formal permission without further delay (see below). Shells total investment in Indias hydrocarbon sector Company Description Amount (Lakhs) Bharat Shell Limited Additions to Fixed Assets up to 31st March, 2003 16,120 Shell India Production Development B.

V. Gross Exploration Expenditure incurred up to 31 March 2003 11,298 Net Debit Balance in the Profit and Loss Account (excluding exploration expenditure written off for Rajasthan Project Office) 744 Net Accumulated Balance in the Profit and Loss Account for New Delhi Project Office 4,127 Hazira LNG Private Limited Gross Value of contracts entered into 109,338 Preoperative expenditure incurred up to 31 March, 2003 2,984 Hazira Port Private Limited Gross Value of contracts 59,395 Preoperative expenditure incurred up to 31 March 2003 4,143 Expenditure of Capital nature 635 Shell Hazira Gas Private Limited Additions to Fixed Assets up to 31 March 2003.

832 Advances of Capital nature 689 Total 210,305 Below is a state-by-state breakdown of where Shell plans to set up petrol stations in India and the amount of petrol and diesel it will need to source. State Stations Number of Pumps Tankage (litres) Gasoline Diesel Gasoline Diesel Gujarat 76 218 247 4,360,000 4,960,000 Rajasthan 77 221 249 4,320,000 5,020,000 Madhya Pradesh 87 249 266 4,980,000 5,280,000 Chattisgarh 43 117 178 2,340,000 2,640,000 Maharashtra 291 843 962 16,860,000 16,860,000 Goa 17 36 54 720,000 880,000 Karnataka 171 489 526 9,780,000 10,380,000 Andhra Pradesh 196 546 564 10,920,000 12,420,000 Kerala 96 288 292 5,760,000 5,760,000 Tamil Nadu 198 594 696 11,880,000 11,880,000 Pondicherry 14 24 36 480,000 480,000 West Bengal 96 261 374 5,220,000 5,660,000 Orissa 77 204 276 4,080,000 5,080,000 Bihar 47 141 194 2,820,000 3,660,000 Jharkhand 36 108 142 2,160,000 2,800,000 Punjab 134 348 432 6,960,000 8,340,000 Haryana 104 288 392 5,760,000 6,520,000 Delhi 44 123 123 2,460,000 2,460,000 Uttar Pradesh 84 252 298 5040000 5400000 Subtotal 1888 5350 6301 106900000 116480000 Remote Areas Uttaranchal 22 22 22 440,000 440,000 Jammu & Kashmir 14 14 14 280,000 280,000 Himachal Pradesh 20 20 20 400,000 400,000 Assam 18 18 18 360,000 360,000 Meghalaya 8 8 8 160,000 160,000 Tripura 5 5 5 100,000 100,000 Sikkim 5 5 5 100,000 100,000 Arunachal Pradesh 5 5 5 100,000 100,000 Mizoram 5 5 5 100,000 100,000 Manipur 5 5 5 100,000 100,000 Nagaland 5 5 5 100,000 100,000 Subtotal 112 112 112 2,240,000 2,240,000 Total 2000 5462 6413 109140000 118720000