Global Report

India’s oil giants plan for growth as government control recedes

Vasudeva is the first woman to lead a major Indian state-owned enterprise

Hindustan Petroleum gas station at night

Hindustan Petroleum is India’s third-largest oil company. (Prashanth Vishwanathan/Bloomberg/Getty)

When Nishi Vasudeva took over as the chair and managing director of Hindustan Petroleum on March 1, it marked several turning points for one of India’s Big Three nationalized energy firms. For one, Vasudeva is the first woman to lead a major state-owned enterprise in India. More important, her appointment signals the Indian government’s determination to continue opening up its tightly restricted petroleum industry.

Since the industry was nationalized in the 1970s, Hindustan Petroleum (HPCL) and its corporate cousins have operated in a market distorted by subsidies, price controls and meddlesome national politics. HPCL imports crude oil on the open market and refines it into a range of petroleum products, including gasoline and diesel. But it’s forced to sell those finished fuels in the domestic market at a government-controlled price.

The result is inefficiency and wasted potential. “Any losses we make from price-fixing should be reimbursed quarterly, but it ends up being annually, so we borrow to stay in business,” says Vasudeva. Profits go to interest payments instead of investing in new refineries, pipelines or exploration, stifling an industry in desperate need of infrastructure upgrades.

Industry watchers say full deregulation, however, is only a matter of time. HPCL chose Vasudeva because, in her previous role as HPCL’s director of marketing, she consistently beat the other nationalized firms on marketing margins—an increasingly important factor as the industry liberalizes. Vasudeva is optimistic for the future. “We sell more product than we refine, giving us a profitability edge once all the [government] controls are gone.”

Still, her tenure begins at a challenging time. Rampant ­inflation has weakened the rupee, hurting the purchasing power of a country that is dependent on energy imports. India’s government allowed HPCL to steadily raise diesel prices last year, but it still lags far below open market rates, hurting the company’s profitability.

A staggering 78% of India’s oil reserves remain largely—and in some cases, completely—unexplored. Decades of under-investment have left the country at the mercy of international crude oil prices, even as demand has boomed. That weakness, however, is an opportunity for expansion and genuine competition once the sector is deregulated further, and Vasudeva says she’s ready. India is in the process of auctioning off more exploration licences, she says, “which is great, because the country is growing, the population is growing, and we need to meet that demand.”