By R. Sasankan

Gujarat Refinery is ranked among the largest refineries in Indian Oil Corporation's stable with a capacity of 13.7 million metric tonnes per annum (MMTPA). Located in Vadodara, the refinery sprawls across 1424 acres of land.

But here's the twist: it did not originally belong to IOC. The refinery was set up by the upstream major Oil and Natural Gas Commission (ONGC) in the early sixties, not along after the Commission was converted into a statutory body by an Act of Parliament in October 1959.

ONGC had been given a broad remit under the provisions of the Act. It was asked "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."

As a result, Gujarat Refinery was set up with an initial capacity of 2 million metric tonnes per annum (MMTPA). The first crude distillation unit, with a capacity of 1 MMTPA, was commissioned for trial production in October 1965.

But in 1966, Gujarat Refinery - which was established with Soviet Union's assistance - was handed over to Indian Oil Corporation (IOC), which was formed just two years earlier from the merger of two oil companies and today ranks as the largest government-owned oil refiner.

Gujarat Refinery is now looking to re-establish its pre-eminence among government-owned refineries after being edged out by Panipat refinery which has a capacity of 15 MMTPA. It has already undertaken work on an expansion plan that will raise capacity to 18 MMTPA once it is completed.

Among the PSU refineries, Mangalore Refinery and Petrochemicals Limited (MRPL) is now the largest single-location refinery in India's Public Sector. It processed 17.14 million tonnes of crude oil in FY 2022-23, making it the highest throughput for any single-location PSU refinery. MRPL is now a subsidiary of ONGC.

There is a reason why I have opted to lay out this historical narrative as a prefatory context to the assertions I wish to make in this article.

It starts with a question: Why did ONGC hand over its refinery to IOC in 1966, just one year after it was set up? After all, the refinery had been set up to process the crude that ONGC was producing in the state of Gujarat. Painful as it was, ONGC had been forced to agree to the severance of a very lucrative part of its operations. K.D. Malviya, the main who laid the foundations of India's resilient petroleum sector, had advised the ONGC management to do so as he wanted the corporation to concentrate on exploration and production alone and not fritter away its energy in areas like refining.

Malviya had a vision for the country, a very rare quality among politicians. It was a moment when a policy pivot was made: ONGC would focus on the upstream business while IOC and the other smaller entities would focus on refining and distribution of petroleum products.

Luck always favours the brave; Malviya's bet soon paid off. Assisted by Russian geologists, ONGC's tireless efforts led to the discovery of Bombay High and other fields like south Bassein, Panna, Mukta and Tapti in Bombay offshore.

In the mid-1980s, ONGC went in for accelerated production at Bombay High as a result of which the country was able to meet 80 per cent of its then oil demand from domestic production. This marks a glorious chapter in the history of India's oil industry.

Sadly, ONGC's spectacular success also bred greed and corruption because of the wealth it earned. From ruling politicians down to a section of the ONGC staff, everyone drove their hands into the till to enrich themselves. Soon, most of the dedicated team of professionals retired and the drilling business itself collapsed into a den of vice.

India has not had a significant commercial discovery of oil and gas since the 1980s. True, India has never been rated as a prolific storehouse of hydrocarbon reserves. But a dedicated team of professionals can make a difference; at the very least, they can stop the reckless spudding of dry wells.

The absence of commercial discoveries prompted the ONGC management to trumpet the virtues of an integrated oil company, harking back to its original remit. It was a ruse to gain entry into the refining sector, which was a soft and easy option to shore up revenues and profits. Thus, ONGC entered refining again, an area that Malviya had forced it to abandon decades ago. It also led to the acquisition of MRPL which is now an ONGC subsidiary.

ONGC's dismal performance in the E&P sector continues without any sign of improvement. How long will Bombay High last? The life of an oilfield is considered to be 20 years. Bombay High has been in production since the early 1970s and cannot be expected to last for long. Without Bombay High, ONGC's survival is at grave risk. Oil India, the other E&P operator, is also stagnating with a production of around 3 million tonnes per annum. Some experts have been suggesting a merger of the two upstream PSUs. Such a move -- if attempted -- is unlikely to make a difference even though Oil India has a highly talented bunch of E&P experts.

Meanwhile, the country's crude import dependency has touched 88 per cent of the domestic demand and is expected to cross 90 per cent in the very near future. The situation is ripe for another policy pivot; there is a need for political intervention of the kind that Malviya had orchestrated.

I would not presume to be able to suggest a way out of this mess and recommend plans to reactivate ONGC and Oil India. But there are questions that need to be raised: Should they confine themselves to domestic sedimentary basins or should they look for acreages overseas? Should they jointly acquire discovered oil and gas assets overseas? There are so many options that the experts can toss up.

But nothing will move until there is active political intervention. Hardeep Puri, the current petroleum minister, is a highly competent former diplomat and fairly well informed about the international oil scenario. He needs to step up to the plate with active support from Prime Minister Narendra Modi.

This is a critical moment for India's petroleum sector - and the political leadership needs to get its act together.