INTRODUCTION

An oil refinery or petroleum refinery is an industrial process plant where crude oil is processed and refined into more useful petroleum products, such as naphtha, gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas Oil refineries are typically large, sprawling industrial complexes with extensive piping running throughout, carrying streams of fluids between large chemical processing units. In many ways, oil refineries use much of the technology of, and can be thought of, as types of chemical plants To meet the growing demand of petroleum products, the refining capacity in the country has gradually increased over the years by setting up of new refineries in the country as well as by expanding the refining capacity of the existing refineries. As of June, 2011 there are a total of 21 refineries in the country comprising 17 (seventeen) in the Public Sector, 3 (three) in the Private Sector and 1 (one) as a joint venture of BPCL & Oman Oil Company. The country is not only self sufficient in refining capacity for its domestic consumption but also exports petroleum products substantially. The total refining capacity in the country as on 1.6.2011 stands at 193.386 MMTPA*
Million Metric Tonnes per Annum

Indias publicly-owned OMCs are the dominant players in the countrys downstream petroleum sector. In fact, they are among Indias top twenty largest corporations (by sales), and each is a member of the Fortune 500 list of the worlds 500 largest companies. Indias largest OMC India Oil Corporation Limited (IOCL) is the countrys largest corporate entity, by sales. The great majority of Indian consumers and industries, especially the fertilizer and growing petrochemical industries, access petroleum products through these OMCs. It is impossible to Understand dynamics within Indias downstream petroleum sector therefore without first understanding roles and operations of Indias three OMCs within this sector. In the same way, it is impossible to outline the potential future of the Indian downstream sector in the medium term without understanding the prospects for OMC evolution and investment. This chapter provides an account of the nature and prospects of the OMC sector and its implications for the evolution of Indias downstream industry. It concentrates in particular on the ability of OMCs to invest in refinery capacity at a sufficient rate to: (a) adequately meet growing Indian demand; and (b) to position India as a world-leading refined products exporter into the future. In order to outline product market conditions, Chapter 2 confined analysis to Indias four most consumed and subsidized petroleum products petroleum, diesel, kerosene and LPG. Since this chapter is concerned largely with refinery investments in general rather than pricing arrangements specifically, this exception will not be made here.

OMCs are the key link between the petroleum industry and current government downstream policy, especially pricing policy. By supplying petroleum products at a set price, OMCs are the tools of the GoIs liquid fuels access policy. As a result, OMCs have borne the full burden of the GoIs control of product prices. Importantly, by absorbing the losses inherent within the current system of market regulation, OMCs define the remaining market-space within which other downstream actors, such as private-sector refiners, may operate and invest. OMCs are majority-owned by the GoI and formally come under the jurisdiction of MNPG. From day-to-day they are run in a corporatised and independent fashion, according to, nominally, world-best-practice commercial procedures and corporate governance standards. The GoI, however, has considerable control over OMCs long-term strategy and investment programmes. At the beginning of every financial year, OMCs sign a Memorandum of Understanding with MNPG which outlines agreed upon production and sales targets, investment expenditure plans and specific delegations of duties. OMCs are also required to submit investment plans to the Planning Commission for approval for each of Indias Annual Plans as well as its Five-Year Plans. The Planning Commission retains some influence over the decisions made by OMCs Executive Boards, however not to the same degree as MPNG. Through this process of consultation and approval, the GoI is able to effectively control the nature and direction of OMCs commercial activities and investment expenditures over time. An effective contract exists between the GoI and OMCs. The GoI explicitly guarantees the solvency and commercial integrity of OMCs under all market conditions. OMCs, in return, (a) supply markets at governmentdetermined prices;