By R. Sasankan

The alarm bells have gone off in India's petroleum industry after a recent report prepared by Integrated Global Services (IGS) claimed that the country's downstream oil and gas industry is close to breaking point because of its ageing energy infrastructure which is precipitating unplanned downtime, and crimping both production and profits.

IGS, the Richmond, Virginia-based entity that offers reliability solutions for mission-critical equipment in energy, refining and power sectors, came out with its shocking revelations on the sclerotic state of India's refinery sector after carrying out a survey of the industry.

The survey said that 60% of respondents reckoned that almost one in three of their refining assets were operating beyond the intended lifespan. Another 25% reported that over half of their installed base had exceeded their design life.

The biggest concern is around legacy assets with 40% of respondents posed the biggest barrier to stabilising output and reducing emissions.

Unplanned downtime in the refining sector comes at a massive cost with IGS estimating that a single day of downtime in large-scale downstream units in India can result in losses ranging from $ 30 - 150 million.

If true, this is a horror story that is just waiting to explode.

India's downstream sector is saddled with a number of century-old undertakings. That in itself isn't a problem. But there is a devastating consequence when these entities flog century-old refining assets which haven't been modernised for decades.

The Digboi Refinery in the state of Assam is India's oldest operating refinery, commissioned on December 11, 1901. It is one of the oldest operating refineries in the world.

The Guwahati Refinery, located in Noonmati, Assam, was set up in 1962.This was India's first public sector refinery. Two years later in 1964 came the Barauni refinery in the state of Bihar. It could be matter of surprise to readers that Digboi refinery has been operating with a capacity of 0.65 million tonne per annum. It is now being operated by the country's largest refiner, Indian Oil Corporation.

There is a perception among the country's politicians that old refineries should not be mothballed or dismantled. The party in power -- irrespective of its political ideology or colour - prefers to sustain them rather than replace them with newer refineries.

The country is the third largest consumer of crude oil: it has a gigantic maw for energy consumption. It is bad enough that domestic crude production has shrunk dramatically over the past two decades with the result that India needs to import 88% of its crude oil from the Middle East, Africa, Russia and even as far afield as Venezuela.

Being one of the world's largest importers of crude oil, LNG and LPG, India's political leadership should have addressed the problems that beset the ailing petroleum sector long before the situation reached such a critical point.

I have covered the petroleum sector for well over four decades and I am intimately aware of the scale and dimension of the problem. We need to first acknowledge that there is an inevitable road to dusty death for our ageing, crippled refineries. We cannot delude ourselves into believing that all is well with the refining industry.

This is only possible when there is a dynamic leadership shaping the fortunes of the industry. At the risk of repetition, let me say that the petroleum sector has never had an assertive leadership except for the brief period when K.D. Malviya was the petroleum minister in the sixties.

Malviya was very clear about defining the priorities. In 1965, ONGC - the upstream giant - established the Gujarat Refinery. When he became petroleum minister, the first thing that Malviya did was to force ONGC to hand over the Gujarat refinery to IOC and restrict its operations to E&P only. This was a highly positive move as ONGC's accelerated exploration activities led to the discovery of Bombay High and other fields in western offshore. ONGC also had a dynamic leadership then. Gujarat Refinery today is one of the largest in the country.

The very same ONGC, frustrated by its failure to discover commercially viable oil and gas fields, embraced the easy option to diversify into the downstream sector in May 2001 with its then CMD Subir Raha tom-tomming the virtues of creating an integrated oil company.

If ONGC is so keen to occupy this space, it is high time that someone with the sensibility of Malaviya directs the PSU giant to set up large refineries after dismantling the old and hobbled plants. After all, ONGC is a cash-rich company and it can afford refineries larger than the one created by RIL.

I am not suggesting for a minute that this is the right option. But when nothing seems to be going right - and when you are facing a stark future that the IGS report etches out - we need to start hashing our options.

Of late, there is a growing tendency to celebrate India's achievements in exporting petroleum products. I beg to differ. Remember that every refinery producer in the country received huge subsidies to create refining capacity in the form of free/subsidized land, water and related infrastructure, duty free imports of machinery, different types of tax holidays and, finally, export incentives. All these subsidies are funded by taxes paid by Indians on petroleum products and other taxes paid by Indians. This enables export of petroleum products at international prices that are well below what Indians pay at the pump!

India's state-owned companies are not active exporters of petroleum products. Reliance Industries is the biggest export player in the refinery sector. I do not believe that the state-owned entities are aggressive enough to compete in the international market. They do not have the mandate either.

India is a large market for petroleum products. The first priority should be to focus on the domestic market. The present infrastructure is too weak and wobbly to survive for very long. It is here that the leadership should apply its mind. IOC and ONGC are cash-rich companies. Both BPCL and HPCL are also rated among the best-run companies

What we need is someone dynamic to drive the change. Present petroleum minister Hardeep Singh Puri is rated competent but has been shying away from hard decisions. Everything needs to begin with a complete review of India's petroleum sector under the aegis of Prime Minister Narendra Modi. The exercise must begin immediately. Any major disruption in the downstream infrastructure will be ruinous for Indian consumers.