ONGC India: In search of a new

growth strategy

Question 1:
How did Raha transform ONGC? What are

the key themes of the strategic

transformation? What elements of his
strategy would you agree with and what
elements would you disagree with? Explain
why.

How did Raha transform

ONGC?
Provided Company with new vision
Locating Reserves Worldwide
CBM project in West Bengal
Deep Water Exploration project in KG Basin
Redoubling of efforts by ONGC subsidiary

ONGC Videsh Ltd. (OVL)

Incentive plans targeting innovation and
productivity
Comprehensive redesign of the entire
performance appraisal process

How did Raha transform

ONGC?
Created a management development

institute(ONGC Academy) to provide leadership

and technical training
A voluntary retirement program was announced
Internal systems were restructured/revamp for
smooth organization functioning
Four new performance reward schemes
Eliminating bureaucratic layers of staff approval
Idle cash reserves to pay off its foreign debt

Areas of Strategic
Transformation
Five key areas:
1.Vertical Integration
2.Increasing Oil and Gas reserves
3.Improving existing wells
4.Improving Cost efficiencies
5.Placing a Greater emphasis on human

resource development

Disagree
ONGC entering into areas where it had no

expertise(Trying to go against core competency of

the company which is Oil E&P)
Relying on the power of few to make good decisions
Inefficient data analysis structure
Focused on Rig Utilization Maximizing
Shift of 200 engineers, geologists, and geoscientists
to Reliance on account of bright future prospects
Pessimistic approach to Indias potential for oil and
gas

Question 2:
How would you assess the refining industry

in India? Would integration into the R&M

business be a good growth avenue for an
oil company such as ONGC? Why? Why
not?

The Refining & Marketing

Landscape
In the year 2007, India had installed refining capacity

of
2.6 million bpd which it wanted to double in the
coming
5 years or so.
One of the major reason for this big move was
government expected more & more Oil & Gas
exploration to take place in next decade.
Indian Government was aware that in order to take full
advantage of new Oil & gas discoveries, India had to
become major player globally in supplying refined
products.
Government allowed many state owned companies to
enter into JV with Big names of Middle East to carryout
their expansion plans.

Installed capacity & Throughput

for Refining sector
Refinery Crude Throughput ('000 tonnes)

Installed
Capacity
Cap.
2006 Utln%

Refiner

1991

2001

2002

2003

2004

2005

2006

IOCL

23742

33226

33761

35288

37659

36628

38522

41350

93.2

HPCL

9230

11980

12347

12929

13699

14329

14229

13000

109.5

BPCL

6957

8683

8744

8711

8757

9138

10298

12000

85.8

CPCL

5698

6625

6689

6819

7040

8923

10362

10500

98.7

MRPL

6438

5487

7253

10069

11809

12014

9690

124

RPL

26033

29654

30544

32345

34309

33163

33000

100.5

Paradigm Shift
If we have a glance at the statistics, upto

year 2007 state controlled firms enjoyed the

protected status in domestic refining industry
as most of the private players were mere
spectators.
However, as case with most of the state

owned entities, assets of this state-controlled

players were outdated to handle complex
crude which provided a Golden Gate to
private players to enter into R&M sector.

Reliance A Game Changer

Reliance Petroleum Ltd (RPL) which was already

well established in E&P tried its fortunes in R&M &

emerged as one of the formidable players in R&M.
It had Worlds third largest refinery with a

capacity of 0.6 million barrels per day & was set

to commission second refinery.
Optimism related to Indias growing demand for

refined products in the near future was the major

reason behind Reliance increasing its refining
capacity.

ONGC
One more Feather in the Cap?
Or
More burden on Weak Shoulders?
Founding objective & core purpose was to explore & exploit Indias

Energy reserves.
Already well established Government players like IOCL, HPCL, BPCL
in
R&M sector with significant market share.
Refining market was saturated & both public & private players were
sufficient to take care of current consumption.
Refining capacity would remain unused if 1. Global Surveys & Government expectations regarding Indias
undiscovered
Oil & Gas deposits proved to be wrong.
2. India failed to explore this hidden treasures.
Huge Capital investment needed to foray into R&M business.

Not ONGCs cup of Tea

Historically, refining investments had been the Achilles heel of petroleum

companies.
Big names in petroleum industry suffered huge loses in the 1980s-1990s
as they experimented to enter refining business & become a Integrated
player.
If refining capacity declines, profit margins of the company will decline
very sharply.
Strict Environment rules & regulations were the major hurdles in setting
up a refinery.

Subir Raha had an axe to grind.